New trends in military and aerospace electronics segments

USA: Although generally considered a more niche market, the military/aerospace industry has provided IC and system suppliers with a reliable revenue source with considerable room for growth over the past several years. These industries are less susceptible to the ups and downs of the commercial and industrial markets, which is pushed by a steady stream of government spending fueled by the ongoing war efforts and the ever-present need for newer and better technology.

On the other hand, there are still lingering threats over big budget cuts in the US (easily the world's largest military and aerospace market) as the wars in the Middle East continue to wind down and economic spending remains tight. In fact, the US defense department plans to cut as much as $78 billion in defense spending over the next five years, and some countries in Europe are reviewing similar cuts.

Still, the military sector accounts for the majority of spending in this market, growing 6 percent from 2010 to reach $2.33 billion in 2011, with expected annual growth of 6 percent on average over the next five years to reach more than $3 billion by 2016. Semiconductor distributors in this space are adapting to several sustained market trends, most notable of which are shorter business cycles, a renewed focus on reliability, and demand for commercial "off-the-shelf" solutions, in which a customer purchases and modifies a system instead of buying custom components to build that same system. All of these trends must take place while simultaneously operating within tighter budget constraints.

Military demand for commercial solutions is probably the most notable shift. This is thanks to reduced design times and the need to get products, equipment, and new technologies to the field faster. Once common, multi-year development and production cycles are becoming less and less viable as military leaders seek the latest technologies available in the private sector. Also, the market has reached a tipping point where programs need to save costs due to diminished funding, as well as the need for interoperability within the ecosystem to minimize the long term program risk and stability of supply. Commercial technology is one way to solve all of these requirements.

Military defense and aerospace customers are also renewing their focus on legitimacy of supply and reliability of their product. This has largely been the result over recent concerns over counterfeit products making their way into the market. In fact, a report released in 2010 by the US Department of Commerce for the defense sector found out that approximately 39 percent of the nearly 400 companies and organizations interviewed had encountered some form of counterfeit electronics between the years of 2005 and 2008. In response, the US Senate Armed Services Committee announced in April 2011 that it would be launching a new government investigation into counterfeit parts in the US Department of Defense supply chain. The Senate Armed Services Committee is expected to call public hearings on the matter of counterfeit electronic parts in the military starting later this year.

Even with all of the challenges inherent in this market, military and aerospace suppliers remain hopeful that the industry will continue its growth throughout 2011 and over the next five years. Meanwhile, many economists believe that the growth in these industries will continue to help fuel the greater global economic recovery.Source: Databeans, USA.