May 14, 2002 11:00 AM PDT

U.S. government to boost IT spending

At a time when many industries are still curtailing spending on high technology, there's one industry that's helping out IT companies: the federal government.

Government IT spending is projected to top $63 billion in 2007, providing at least some measure of hope for struggling technology companies, according to a report released by Input, a marketing company specializing in technology and government.

"The big problem tech companies have right now is lack of visibility. When is the private sector going to turn around? It's that lack of visibility that's killing them," said James Lucier, an analyst at Prudential Securities. "The federal government spends money on a regular basis. So even though it's probably less than 10 percent of the overall (IT market), it's steady, regular spending you can count on."

And it's growing. Federal technology spending was flat through 2000 and 2001, but should see a sharp increase this year, going up as much as 15 percent in fiscal 2003, Lucier said.

"Increased spending when private spending is cyclically weak is big," he said.

And projections indicate those numbers will be getting even larger. U.S. government spending on information systems and services will grow 11 percent annually from $37.1 billion in fiscal 2002 to $63.3 billion in fiscal 2007, Input's report says.

Lucier said that most of the money won't be coming down the pike until at least the fourth quarter of this year. But some companies are seeing results already. Cisco Systems attributed its surprisingly strong quarter in part to a surge in government spending. Federal government orders topped 10 percent, which made up for "challenging" business at the state and local level, officials said.


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A major reason for the increase is the new interest in defense and homeland security after the terrorist attacks last September.

"Pre-9/11, the discussion of security was very narrow and was focused on smart cards, passwords, PIN codes, firewalls, Public Key Initiatives. Sort of the typical data security issues," said Robert Barr, director of government marketing at Dell Computer. "Post-9/11, the discussion has evolved. It's not just about data security; it's about mission security, the ability of an agency to be secure in delivering its mission today and tomorrow."

Agencies are looking at disaster recovery, mirroring sites and technology. To that end, Barr sees increased focus on server consolidation and storage consolidation, and on new and better storage and server solutions. More traditional security issues like virus protection and firewall protection are also being stressed.

Barr said he's also seeing an increase in e-government spending: helping agencies work with each other on a federal and local level. Companies working in the integration space, including Cisco, IBM, Microsoft and BEA Systems, could definitely benefit from that push, Lucier said.

"The big focus is not building new equipment or buying new stuff so much as making what they have now work in an integrated fashion," he said.

Indeed, the Input study found that spending on commercial services, which includes outsourcing, professional services, systems integration and processing services, is expected to grow faster than all other segments. Input predicts that segment will grow from $14.2 billion in fiscal 2002 to more than $28 billion in 2007.

"The new administration supports opening government functions to competition, and the shrinking federal work force will create increased demand for outsourced services," the study's authors said. "Other commercial services, such as systems development, consulting and design, and education will see healthy growth as the government works to reengineer its business processes--particularly in support of customer-focused, electronic government initiatives."

The Office of Management and Budget has already outlined a 24-step eGovernment Initiative, designed to make government services more streamlined and accessible to the public.

And the appointment of Mark Forman as associate director for IT and e-government is a step toward having the government act more like an enterprise, Lucier said.

"For the first time last year we've seen a de facto CIO (chief information officer). Individual agencies got them in 1996," Lucier said. "Now we're seeing the federal government trying to coordinate IT spending on an enterprise basis or something comparable to the way a large corporation might. They're spending more on IT but also trying to spend smarter."

 

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