U.S. Defense Electronics Spending on the Rise

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U.S. Defense Electronics Spending on the Rise

By Nick Wakeman
Staff Writer

Spending on defense electronics will likely rise by 14 percent through 2007 even as overall U.S. defense spending declines by about $11 billion during that same period, according to a new forecast by the Electronic Industries Association.

Dollars being spent on electronics are expected to rise from $51.5 billion to $58.9 billion, EIA said. Meanwhile the overall budget is expected to fall from $254 billion in 1998 to $243 billion in 2007.

"Despite the slight decline [in the overall defense budget], we view this as stability," said Emily Willey, director of market requirements and government relations for Honeywell Inc., Minneapolis, Minn. She is a member of the EIA committee that developed the 10-year forecast.

The Arlington, Va.-based association, which represents U.S. electronics manufacturers, released its study this week. The findings are based upon interviews with analysts and officials with the Defense Department and the services.

Changes in the market are likely to push increased consolidation among defense subcontractors, Willey said. Such mergers are already happening with an eye toward global markets, she said.

Projections for electronics were broken down into categories of operations and maintenance; research and development; and procurement. The procurement category should experience the greatest growth, with spending rising from $18.5 billion annually to $23.8 billion, she said. Research and development dollars will drop from $18.2 billion to $16 billion, while operations and maintenance spending will rise from $14.8 billion to $19.1 billion.

The rise in operations and maintenance spending is good news for industry, Willey said, because the military is expected to hire more contractors to perform these functions.

While the Defense Department is turning more toward commercial, off-the-shelf technology, defense officials told EIA that the military cannot attain information superiority simply through commercially available technology because the same technology is available to everyone else, said Doug Clark, vice president of Analysis & Technology Inc., North Stonington, Conn., another committee member.

To gain superiority through technology, the Defense Department will continue to rely on specialized buying of sensors, antennas and other infrastructure, he said.

"All of these are unique to the defense side and are hard to pick up off the shelf," he said.

Two issues the Defense Department is still struggling with are security within its networks and the transition of projects from the research and development phase to the operational phase, Clark said.

The length of time to develop major weapons systems is taking much too long, said John McNerney, a director of land programs for Lockheed Martin Corp., Bethesda, Md. Major systems today such as the B-1, B-22 and F-22 are taking 15 to 20 years to field, he said.

For this year's forecast, EIA's international focus was on the Middle East market. Spending by governments in that region has declined since its peak in the early 1990s and the Persian Gulf War, but it is still a $40 billion a year market, McNerney said.

A major change in the international market is that foreign countries are no longer interested in second-tier products, but instead want the most advanced electronics available, he said.

The United States also is facing tough competition in the international markets from France and Great Britain, McNerney said.

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