Amid Defense Slowdown, IT Budgets Buck the Trend

By Sandra I. Erwin

The industry that provides software and computer networks to the Defense Department, unlike the weapons manufacturing sector, does not see gloom and doom on the horizon.
The IT sector, in fact, expects to thrive in the near term, as the military services continue to modernize their information systems, even as they contemplate cutbacks in weapons programs, analysts said.
The Pentagon’s budget request for fiscal year 2012 includes $38.4 billion for information technology. That is nearly half of the entire federal government’s $80.9 billion IT business.
“We think agency IT budgets will be impacted less than overall budgets,” said Doug Gaines, director of market intelligence for immixGroup, a government contracting consulting firm in McLean, Va. Information-technology products are safer from budget cuts, he said, as they are regarded as “critical to achieving efficiencies and cost savings.”
Another trend that is working in favor of the IT sector are the Defense Department’s soaring needs for mobile communications. “Access [to information] from any device, anywhere, anytime” is an area of growing emphasis for the Defense Department, Cory Millard, immixGroup senior consultant, said at an Oct. 20 conference.
Greater use of mobile devices also is fueling demand for cybersecurity products, Gaines said. Smartphones and tablets are “such a paradigm shift compared to how the traditional networks have been structured and used that security becomes the overriding theme,” Gaines said in an interview. Military buyers, particularly, still see “a lot of gaps around protecting mobile devices.”
The only portion of the military IT budget that is projected to see minor reductions is the Air Force, which anticipates a 6 percent cut, from $7.1 billion in fiscal year 2011 to $6.7 billion in 2012. New business opportunities, however, will emerge, Millard said. From 600 line items in the Air Force’s IT budget, she identified many new programs that seek “collaboration tools.”
Both the Army and the Navy will see increased IT spending, said Justin Hunt, also an analyst at immixGroup.
The Navy had a $7.5 billion IT budget in fiscal year 2011, and requested $8.2 billion for 2012. But the Navy’s free spending days soon will be over, as the service announced it plans a 25 percent cut to IT budgets over the next five years, which amounts to nearly $2 billion.
The Army’s forecast for 2012 — $8.7 billion worth of IT programs — is 13 percent higher than its $7.7 billion budget in 2011, Hunt said. “The Army IT budget has a particularly great story to tell,” he said. It is slated to receive the largest increase of any government agency.
These rosy projections, however, could be short-lived if Congress decides to impose deeper cuts to the Pentagon’s budget in fiscal year 2013, Hunt said. “We are moving into a treacherously dangerous budget year, [fiscal year 2013] … and the jury is still out.”
Another cause for unease among IT contractors is Congress’ inability to appropriate an entire year’s budget without short-term stopgap “continuing resolutions.” That creates considerable anxiety over potential government shutdowns, slowdown in payments to contractors and disruptions to IT service contracts, Art Richer president of immixGroup, told the conference.
“Our message for product vendors and solution providers is ‘do your homework,’” said Gaines. “Money will continue to be spent and requirements will be formed where the needs are most critical. If an agency is telling you there’s no money to spend, you probably haven’t delivered the right message to the right prospect.”
But Gaines cautioned that IT vendors that may be lured to government work should be wary. Small businesses, in particular, are not always aware that there is “significant investment involved in getting into this market and being successful,” he said. In the defense sector, for instance, there are umpteen policies associated with security, standards, accreditations and certifications of products that require substantial expenditures on the part of suppliers. “There’s plenty of opportunity for companies that invest wisely and leverage partners,” Gaines said.
Although the Defense Department and the military services have begun to reform their procurement processes and shown growing interest in commercial technology, the majority of the Pentagon’s IT dollars still are spent on large “legacy” programs that extend over years, or even decades, and are incrementally upgraded.

Topics: Infotech

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