Fiscal uncertainty blunts growth in rugged
There is no getting away from the uncertainty around the government IT market overall, and rugged IT will not be immune to that. Nevertheless, the strong rebound from the recession-led contraction of 2009 continues, even as the market outlook for rugged systems remains hazy.
There was a softening in overall demand in 2012, according to market researcher VDC Research Group, with an actual contraction in some segments of the rugged IT market. Hardware spending during the year came in at around $1.6 billion, but that slowing in demand will likely bring annual growth down to four percent through 2016, compared to the five percent that had previously been expected.
“There were a variety of factors in play, some macro-economic and some budgetary, from a program standpoint,” said David Krebs, VDC’s vice president for enterprise mobility and connected devices. “The segment that was surprisingly resilient was public safety, while in the military there is a lot of opportunity but also a lot of uncertainty about what the next platform should look like for deployments.”
That uncertainty comes from the expectation of significant cuts in military budgets, as forces withdraw from Iraq and Afghanistan, and from questions about the exact impact of the broad cuts mandated under sequestration.
There’s a “quite real and quite large” potential demand for rugged systems for use in ground soldier deployment, Krebs said, but how and when that will come about is still unclear.
Tim Collins, senior director, federal at Panasonic Solutions, said government customers are tending to delay funding various programs until they see more clarity on budgets. Nevertheless, his company still saw “a good year” for demand in 2012.
“Flat is a reasonable word for it,” he said. “But because rugged systems are so tactical in nature, we expect demand to continue and, as we introduce new form factors such as rugged tablet computers, we’ll see new applications emerging. So we are still bullish on this market.”
He also expects the decline in some parts of the military to be offset to some extent by stronger demand in other areas. Flight line and vehicle maintenance continues to be a growth area, while the emphasis on border defense should drive demand for mounted gear used in border patrol vehicles and for dismounted gear carried either by foot patrols, all-terrain vehicle and motorcycle patrols.
Other scenarios call for more of a slowdown in procurements, rather than an overall cut in demand. To that end, there won’t be many actual cancellations in government programs as the sequestration progresses, though they could be spread out over a longer period than first projected. The programs themselves will still go to completion, there just won’t be as many units delivered per year as contracts originally called for.
That may also provide extra opportunity for integrators, as such things as commercial off-the-shelf technologies become a bigger part of the overall rugged market. Under that outlook, people will likely be more willing to compromise on some of the rugged specifications so they can take the cheaper COTS systems and simply ruggedize those so they can survive in harsher environments.
That’s particularly true for equipment such as networking routers and switches, which are increasingly being tasked to work in those harsher environments. Typically, however, the suppliers of that kind of equipment, such as Cisco Systems, design their equipment for the enterprise IT market rather than rugged users such as the military, leaving it to integrators to provide the ruggedization.