Report: R&D market to reach $45 billion by 2009

The push to transform the armed services by providing them with interoperable, digital systems will continue to offer business opportunities to firms focused on the Department of Defense's research, development, test and evaluation market, according to new analysis.

The defense research and development market is expected to grow from $38.4 billion in 2002 to $45 billion by 2009, according to Frost & Sullivan, an international consulting firm in Palo Alto, Calif.

The one downside to the market is that the war on terrorism and the use of commercial products as substitutes have somewhat cut research and development spending, the firm said.

The Defense Department increased the research and development budget by $5 billion for 2004, the largest increase since 1962, to transform the armed services into "capability focused units" rather than organizing them strictly by service type or weapons platform, Frost & Sullivan said.

The transformation of the U.S. military into an "objective force" revolves around the move toward network-centric warfare, resulting in the initiation of several new programs, such as the Future Combat System program, which is estimated to be worth $14.9 billion, the firm said.

Looming terrorist threats have made it mandatory to deploy value-added command, control, communications, computers, intelligence, surveillance and reconnaissance systems with built-in security and encryption-enabled computers. These systems can leverage public data pipelines at a security level far beyond the capabilities of the information and electronic warfare, according to the report.

While large companies are striving to develop vertical technological capabilities through fast acquisitions rather than slow, in-house development, second- and third-tier companies are focusing on a single application and trying to develop close ties with defense labs that are working on the same application, the firm said.

Companies that want to successfully capture research and development work must show the ability to forge effective partnerships and build personal relationships that will allow them to tap emerging opportunities by staying abreast of the government's internal planning, the firm said.