MSFT Microsoft Corporation

By Sarah E. Needleman 

Microsoft Corp. has agreed to build custom augmented-reality headsets for the U.S. Army in a deal worth up to $21.9 billion, expanding the technology company's role as a major government supplier.

The devices will be based on Microsoft's HoloLens headset that made its debut in 2016, the company said in a blog post Wednesday. More than 120,000 units of the custom gear will be delivered over a 10-year period and supported by Microsoft's Azure cloud-computing service. The headsets will run on Microsoft software and help keep America's soldiers safer as well as make them more effective, the company said, in part by enhancing their situational awareness and providing training opportunities.

The military has long relied on vision-enhancing tools like night-vision goggles to improve combat effectiveness. But that advantage has been reduced as such equipment has become more widely available, adding to a push to find a new technology edge.

In a statement, the U.S. Army called Microsoft an "industry leader in developing innovative technology" and said its partnership with the company "illustrates areas that the Department of Defense and industry can work together toward achieving modernization priorities in the interest of national security."

CNBC earlier reported the deal's value.

Augmented reality, known as AR, overlays digital content onto a person's view of the real world. AR headsets have been gaining popularity as a resource for workers in industries such as retail, healthcare and automotive manufacturing, especially since the start of the pandemic. Microsoft competes in the space with several dozen companies, including Alphabet Inc.'s Google and Magic Leap Inc.

The technology industry considers AR the next major computing interface. Facebook Inc. earlier this month announced plans to make AR glasses for consumers and this week "Pokémon Go" creator Niantic Inc. hinted that it is developing a pair as well.

The Army for years has been experimenting with equipment to help soldiers be more aware of what's going on when they go into battle, often in unfamiliar surroundings. The branch of the military sees AR headsets as a potential way to make sure troops are more aware of dangers around them, keeping them safer.

Microsoft has a long history of supplying tools to the U.S. military. In 2019, the company won a landmark cloud-computing contract with the Pentagon worth up to $10 billion over the next decade, beating out Amazon.com Inc., which had been widely seen as the front-runner. Also that year the U.S. government awarded a 10-year $7.6 billion Pentagon contract to General Dynamics Corp. that included replacing existing IT systems with Microsoft's Office 365. The Marine Corps also has experimented with Microsoft's HoloLens technology.

The new deal with the U.S. Army comes after Microsoft in 2018 won a $480 million contract to supply it with 100,000 modified HoloLens headsets. The custom-designed devices will help soldiers make informed decisions as they confront current and future adversaries, the Army said. For example, the headsets will feature night-vision capabilities and allow soldiers to measure the distance between their current location and their team members in the dark, according to Microsoft.

Write to Sarah E. Needleman at sarah.needleman@wsj.com

(END) Dow Jones Newswires

March 31, 2021 20:08 ET (00:08 GMT)

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