COTS vendors, while concerned about extensive DoD budget cuts, see opportunities for retrofits, unmanned systems

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October 12, 2011

The military electronics market for the most part has remained resilient during the economic downturn, functioning as a financial oasis for those fortunate enough to play in the industry – especially COTS hardware and software suppliers. Many COTS vendors doing business in the commercial and military worlds found that their military business kept them profitable during the recession.

Now with possible DoD budget cuts ranging as high as $600 billion, major programs could be cut, severely affecting the main COTS users – prime contractors and system integrators. As a result, everyone from the primes on down to the third-tier COTS suppliers is nervous, wondering if the programs to get cut will be the ones they are working on.

“I think everybody in the industry has concerns about funding for DoD programs in the short term,” says Steve Edwards, Chief Technology Officer for Curtiss-Wright Controls Embedded Computing in Leesburg, Va. “There is a chance that Congress could cut hundreds of billions off the top of the defense budget over the next several years, which is bound to affect spending on equipment and research and development – but how much is the question.”

“Congress needs to come to resolution on the budget issues by [the] November timeframe or else a financial team will come into each segment of government – including defense – and mandate cuts,” says Joe Wlad, Senior Director, Aerospace & Defense, at Wind River Systems in Alameda, Calif.

“They will have to cut billion-dollar programs,” says Ray Alderman, Executive Director of VITA, located in Scottsdale, Ariz. The prime contractors have already begun laying people off due to the big cuts at NASA and ending the Space Shuttle program, that will continue as the DoD cuts are made, he says.

“Some prime contractors and system integrators may delay purchases, waiting to see what will be cut from the DoD budget and if the market starts rebounding,” Alderman says.

“There are possibilities that the Ground Combat Vehicle (GCV) program could go the same way as the Future Combat System (FCS) program, and companies with technology investment in that program would need to adjust if that came to pass,” Edwards says (Figure 1).

 

Figure 1: Defense companies are hoping that the Ground Combat Vehicle (GCV) program, which is planned to replace current platforms such as the Bradley Fighting Vehicle (pictured here), doesn’t get cut by Congress. BAE Systems photo

(Click graphic to zoom by 1.9x)

 

“No one wants to see layoffs in any industry, but historically when companies do downsize personnel, they outsource many of those resources because the work still needs to be done,” Wlad says.

Silver lining for COTS vendors?

“Budget cuts could actually help established COTS vendors,” mentions Doug Patterson, Vice President of Business Development for Aitech Defense Systems. Military vehicles and platform programs will always need upgrades to counter new enemy threats and “in reality, it’s less costly to upgrade with existing technologies than create and develop new technology from scratch,” which is what helps COTS vendors, he explains.

“It is not a doomsday situation, it’s actually more of the same lately, which is a wider adoption of COTS as defense budgets get trimmed and controlled,” Patterson says. “One can only surmise that development dollars for large prime contracts will get cut, but this may not be an epidemic for the primes or their COTS vendors.

“The primes are being smart and using this lull in funding to figure out what they can do better, how to increase efficiency, and how to address their customers’ anticipated needs,” Patterson says. “As a result, there is a resurgence in proposal activity.”

“I think that there is definitely an upside for the COTS industry,” Edwards says. “There’s probably going to be fewer completely new programs designed from the ground up. However, without new programs, older platforms will need to be upgraded, which presents a significant opportunity. The goal will be to make existing systems last longer, which provides opportunities for COTS vendors to provide newer hardware as primes deal with obsolescence.”

“The pain and suffering related to component obsolescence are why some of the primes and government labs are turning toward COTS vendors who offer established product life-cycle management programs for obsolescence mitigation,” Patterson says. “The single-point government contracts aren’t going to fund the primes for these efforts, so it is up to the subsystem or board vendors to implement a component obsolescence risk mitigation plan [that] addresses the demand for long-term product availability to support the programs in which they participate.”

During the Clinton administration, research and development funding was scaled back in the DoD, yet COTS suppliers still found success during that time. Additionally, COTS was still relatively new as a procurement strategy, with many in the primes not trusting any equipment labeled as COTS.

“People in the defense and aerospace community have no qualms now about using COTS software and hardware, whereas in the past when [the] COTS procurement mandate was first introduced, they always wanted to customize,” Wlad says. “Now program managers, once they utilize COTS, realize their system life can be extended and they can be more competitive.

Internally the primes are somewhat split on how much they value COTS. Some primes keep designs in house, but more of them are actually seeing that it is more cost efficient to leverage COTS equipment, Edwards says. He calls it an 80 percent solution “whereas if you get eighty percent for twenty percent of the cost, don’t go for 100 percent and pay five times that.”

“The industry also needs to make sure military systems are being designed to meet cost and environmental requirements and not requiring equipment to be super rugged when it doesn’t need to be,” Edwards says. They will have to ask whether systems “are rugged enough for the task at hand. Many systems that are not operating in super harsh environments are still being designed with requirements as if they were, which can significantly raise costs.

“It is also important to note when people use the word ruggedized, it gives the perception that ruggedization occurs after the fact, when in reality boards and components are designed from the beginning to meet rugged requirements, not after market modifications,” Edwards adds.

COTS software technology positioned well

“I see of a lot of positives in the marketplace” from a software perspective, says John Warther, Vice President of Government Programs at Green Hills Software in Santa Barbara, Calif. It is essential to have secure software for cyber warfare applications, unmanned systems, and military communications. “Even if the government cuts back on its work with prime contractors for major programs, many military organizations will still need the safety certification and security work done and will still rely on major software vendors,” he adds.

“Many of the primes are preparing for the worse-case scenario by cutting back on personnel and, as a result, will rely more on outside resources for servicing existing software suites,” Wlad says. “With a lack of new programs, there will not be as much of a need for new developmental suites, but existing systems will still need to be serviced.

COTS opportunities

“There are many key areas where the U.S. military is spending money,” Edwards says. “Critical weapons systems, unmanned systems, surveillance, security, and anything that protects the warfighter and increases equipment survivability are examples.”

“Even though larger programs might be scaled back, there will be opportunities in the areas of cyber security and unmanned systems,” Wlad says.

“It is easier for the military to get funding approved when it comes to protecting human life,” Edwards says. “Surveillance and intelligence gathering are an important part of protecting the warfighter and are the areas where we see an upside in funding opportunities. Intelligence, Surveillance, and Reconnaissance (ISR) applications and unmanned systems are two areas where the defense community is taking advantage of COTS technology, but even where not a lot of money is being spent, the DoD is pushing toward affordable computing solutions.”

“The avionics and unmanned systems markets have the promise of having the most activity for COTS vendors,” Patterson says. “Navy applications – above deck and below deck – are using COTS computers with extended temperatures and rugged COTS above deck. Below deck, the card standards remain VME.”

“Unmanned systems are particularly forecasted to be a strong investment area, with about $20 billion more to be spent on autonomous systems by 2018,” Wlad says. “As the DoD moves toward a common Ground Control Station (GCS) architecture for Unmanned Aerial Systems (UASs) and away from ad hoc designs, there will be opportunities for suppliers of standard COTS software and hardware. Current GCSs are a mix of COTS and proprietary solutions.

In terms of new programs, the growth will continue to be in unmanned systems, which will require not only new software suites, but upgrades to current ground control stations as the systems evolve, Warther says.

The UAS Control Segment (UCS) architecture will primarily be MILS, a service oriented architecture, but with support for many different services including those requiring Linux and Windows, Wlad adds. MILS, which stood for Multiple Independent Levels of Security, has been trademarked by the Open Group and is no longer an acronym, he notes.

Space market

The space market may be the stingiest in terms of growth for COTS vendors, as the U.S. retired the Space Shuttle program, forcing layoffs at Boeing and Lockheed Martin and the budget is forecasted to remain flat over the next five years (Figure 2).

“Right now, we are seeing that government-sponsored NASA-based space programs are in some trouble due to the uncertainty caused by the NASA budget being slashed with almost no regard to the ramifications to the industry base that supports it,” Patterson says. “The most notable of these is the Space Shuttle cancellation and the cancellation of the Constellation (Orion crew capsule/Ares launch booster) program developments.

 

Figure 2: The retirement of the U.S. Space Shuttle program has created layoffs at major primes such as Boeing and Lockheed Martin. Funding for NASA space programs is expected to remain flat for the next five years. NASA photo

(Click graphic to zoom by 1.9x)

 

“This uncertainty is compounded by the unknowns related to when next year’s NASA budget will be approved, or to what the level of funding will be when it does get approved,” he continues. “There will be COTS in space, but it will be slower in coming. However, the longer-term requirements and demand are there and it’s just a matter of how the U.S. defense and NASA budget dollars will be allocated and when the 2012 Defense Appropriations Bill will be officially signed by the President and released (if ever) with approved funding.”