IT MARKET

What IT looks like over the next five years

The federal IT forecast over the next five years might not be what contractors were hoping for, but it still has its pockets of increased funding where opportunity awaits.

Speaking at the GovWin Marketview event on Thursday, Deltek vice president Kevin Plexico broke down contractor-addressable IT markets by buyer segment, market segment and department. Most of the findings showed decreases in funding, but there were some bright spots.

Contractor-addressable IT market by buyer segment:

Defense

  • FY2014: $52.1 billion
  • FY2019: $45 billion

“Their cost structure is not in tune with where they were planning, so they’re trying to get back to it,” Plexico said. Defense Secretary Chuck Hagel “has been very vocal and upfront about the need to reduce costs in contract services, and they’re doing more and more inventories on where they’re spending that money.”

Hagel sees a need to reduce operations and maitenance budgets, looking to take out as much as 10 percent, Plexico said. The Defense Department is also putting limits on hardware purchases on data centers as they try to force their internal departments to consolidate, he said.

Navy

  • FY2014: $14.6 billion
  • FY2019: $11.4 billion

Air Force

  • FY2014: $13.2 billion
  • FY2019: $11.8 billion

Office of the Secretary of Defense:

  • FY2014: $12.4 billion
  • FY2019: $11.2 billion

Army

  • FY2014: $10.5 billion
  • FY2019: $11.8 billion

The Defense Department is going to have a few more years of contraction, with about a 3 percent decrease over the next five years, Plexico said.

Civilian

  • FY2014: $39.3 billion
  • FY2019: $39.3 billion

“Civilian agencies are more of a mixed bag; some agencies continue to grow,” Plexico said, referring mainly to the Veterans Affairs Department and the Treasury.

VA

  • FY2014: $3.6 billion
  • FY2019: $4.3 billion

Treasury

  • FY2014: $2.5 billion
  • FY2019: $2.9 billion

There are a number of factors going into the Veterans Affairs Department’s increase: “Medical care costs are continuing to go up, and we continue to have more of the folks that were serving us overseas coming home,” Plexico said.

Also, though it is a less dramatic increase, the Transportation Department‘s budget is also expected to increase over the next five years:

DOT

  • FY2014: $3 billion
  • FY2019: $3.1 billion

As far as other civilian agencies, there are only projected decreases.

DHS

  • FY2014: $6.2 billion
  • FY2019: $6.1 billion

HHS

  • FY2014: $3.4 billion
  • FY2019: $3.1 billion

DOJ

  • FY2014: $2.2 billion
  • FY2019: $2.1 billion

Plexico said that his team has also been seeing intelligence spending coming down. 

Intelligence

  • FY2014: $9.9 billion
  • FY2019: $9.4 billion

Plexico also broke down addressable IT budget by market segment.  

IT Hardware & Equipment

  • FY2014: $19.3 billion
  • FY2019: $14.9 billion

Software

  • FY2014: $11.5 billion
  • FY2019: $11.2 billion

IT Services

  • FY2014: $52.7 billion
  • FY2019: $49.2 billion

Communication/Network Services

  • FY2014: $17.6 billion
  • FY2019: $17.6 billion

"We saw this part year in terms of what happened with the sequester that when budgets are cut, communications tend to be the plumbing. It's the utility service that you can’t really cut off," Plexico said, "and we see that continuing."

As far as the cuts in IT services, most are coming from the Defense Department.

Equipment is where the really big challenge is. The federal employment level is not increasing, and with the PC market effectively going to a lower price model or mobile applications, there’s not a lot of growth there," Plexico said. There is still some demand in the servers and mainframes markets, "but you're looking at more specialized purchases, and they tend to be data center consolidation oriented," Plexico said.

The outlook is a little better in the software space, Plexico said. The software world is seeing more enterprise agreements and strategic sourcing, as well as some pricing pressure. "But we do see investment opportunities in areas like cybersecurity and data analytics," he said.

 

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