AMAT Applied Materials Inc

By Doug Cameron 

Lockheed Martin Corp. is investing in a chip designer and targeting military communications and technology for the next generation of cellphones as part of the revamp of its venture capital arm.

The world's largest weapons maker by sales is expanding ties with commercial technology companies as Pentagon officials become more optimistic that their own outreach to Silicon Valley will continue under the incoming administration.

Lockheed has acquired a minority stake in San Diego-based IQ-Analog Corp., its first investment since starting a $100 million fund in the summer. With the Pentagon scouting for technology that can be repurposed for military use, Lockheed said it wants to groom young firms that could become potential suppliers or even acquisition targets.

"They're not really ready yet for prime time in the defense world," said Chris Moran, who was hired in the summer as general manager of Lockheed Martin Ventures. He previously ran the venture arm of Applied Materials Inc.

Mr. Moran said he is looking at more than 100 firms and will add two more people to a staff of three spread between the Valley, Washington and Boston.

San Diego-based IQ-Analog designs chips that can move data at high speeds, which could be used in military sensors. Mr. Moran didn't disclose how much it is paying but said Lockheed may syndicate its initial investment to other commercial partners such as cellphone makers working on fifth-generation devices that require similar capabilities.

"This investment from Lockheed Martin also strengthens our commercial strategy and ability to succeed among 5G technology providers," said Mike Kapes, IQ-Analog's chief executive.

Lockheed's rotary and mission systems business unit, which handles the bulk of its semiconductor work, spent a year preparing for the investment.

Mr. Moran wants to create a supplier that in time could become a subcontractor, rather than the traditional venture capital objective of maximizing financial return.

Lockheed joins a parade of aerospace, defense and industrial companies targeting emerging technology companies in Silicon Valley with seed investment and partnerships. The investment is in line with a Pentagon push to draw more commercial innovation into the military.

Airbus Industrie SE, Jetblue Airways Corp and Ford Motor Co. are among those that have established Silicon Valley offices and venture capital arms.

Technology with potential defense applications has often faced a tough sell to venture capitalists because of long lead times before contracts are awarded, as well as concerns over intellectual property ownership.

Outgoing defense secretary Ash Carter launched the Pentagon's own courtship with Silicon Valley in 2015 and revamped it earlier this year after the new Pentagon innovation office failed to gain traction in the wider technology community.

Mr. Carter installed new leadership drawn from top tech firms, including Apple Inc. and the Google arm of Alphabet Inc. Raj Shah, an Air Force veteran and former executive at Palo Alto Networks Inc., was appointed to head the initiative known as the Defense Innovation Unit-Experimental.

Mr. Shah said at a recent defense conference that he viewed the unit as a nonpartisan effort that he hoped would continue into the administration of Donald Trump.

Write to Doug Cameron at doug.cameron@wsj.com

(END) Dow Jones Newswires

December 15, 2016 11:49 ET (16:49 GMT)

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