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The global defense IT spending market size was USD 81.28 billion in 2019. The global impact of COVID-19 has been unprecedented and staggering, with defense IT spending witnessing a negative impact on demand across all regions amid the pandemic. Based on our analysis, the market exhibited a lower growth of 1.1% in 2020 as compared to the average year-on-year growth during 2016-2018. The market is projected to grow from USD 82.12 billion in 2020 to USD 110.89 billion in 2027 at a CAGR of 4.38% during the 2020-2027 period. The rise in CAGR is attributable to this market’s demand and growth, returning to pre-pandemic levels once the pandemic is over.
According to Stockholm International Peace Research Institute (SIPRI), the global military expenditure was USD 1,017 billion in 2019, an increase of about 3.6% compared to 2018. The U.S. defense spending grew by 5.3% to USD 732 billion. Similarly, China and India grew by 5.1% and 6.8% respectively as compared to 2018. This has encouraged the government to significantly increase the defense IT spending due to number of cyber-attacks in these countries.
COVID-19 Pandemic Has Negatively Impacted Defense Modernization Programs
For the last couple of years, key defense IT companies such as Dell Technologies, Microsoft Corporation, Accenture, and others have established long-term contracts with the governments of various countries to modernize the defense IT systems. However, due to the COVID-19 outbreak, the uncertainty over the supply of hardware and services has delayed or canceled the established contracts between the companies and governments. For instance, the service sector in China estimated that it incurred a loss of USD 114 billion every week in the 1st quarter of 2020. This has largely impacted the Chinese defense IT services domain. This, lead to post-phoning its military procurement programs and developing advanced naval IT technologies such as the rail gun, electromagnetic catapult, submarine-related technologies, and fully electric propulsion.
According to our market report analysis, in 2020, the global government IT spending dropped from USD 128.3 billion in January to USD 125.8 billion in April. During the pandemic, a major decline in IT spending was observed in the hardware domain due to the irregular supply of hardware for defense industry applications. However, the market is expected to recover at a faster growth rate post-2020 owing to changing preferences of militaries to adopt cost-effective digital technologies over conventional defense IT software technologies.
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Advent of Digitization in Defense Industry is a Prominent Trend
The changing nature of warfare demands higher situational awareness and adaptability in the weapons and active serving personnel. The implementation of advanced technology-based weapons and systems in warfare techniques assists military personnel to take the required strategic decisions during critical battlefield operations. Digitization of traditional military equipment plays a vital role during battlefield operations. Governments of various countries are looking forward to focusing on allotting separate budgets for up-grading such equipment to improve the security of countries.
The rising proportion of defense IT spending on new categories such as augmented reality, artificial intelligence (AI) enabled robots/drones, internet of things (IoT) technology-based IT software, and real-time data analysis platforms enable cost-saving and competitive edge to the army, naval, and space domain. Countries such as the U.S., China, Russia, and India are actively involved in upgrading its IT systems of the defense industry.
Rising Demand to Enhance Combat Operation Efficiency to Boost Market Growth
The adoption of IT systems security in modern warfare such as combat military aircraft, helicopters, submarines, autonomous ships, and ground-based transport vehicles is strengthening the military capabilities of various countries. In addition, the IT systems and services are widely used in Command, Control, Communications, Computers, Combat System, Intelligence, Surveillance and Reconnaissance (C5ISR) systems. The C5ISR system strengthens the airborne, naval, and ground-based platforms by efficiently connecting them with AI and IoT-based systems. This enables high situational awareness and combat-ready systems to tackle military operations.
Rising countries' security concerns have impelled governments to focus on military modernization programs with advanced technology-based military equipment. This is likely to boost the defense IT spending market growth in the forthcoming years.
The global defense budget spending is anticipated to grow by 3% by 2023 and projected to reach USD 2.1 trillion by 2023. This growth can be attributed to the increase in the focus of governments of countries to strengthen military capability in the next few years. The countries with high defense expenditure such as the U.S., China, Saudi Arabia, India, and Russia are key countries in the spending on modernizing defense systems security. Thus, these factors will facilitate the growth of the market.
Increasing Preference for Secure Communication Systems in Defense Sector to Propel Market Growth
The increasing implementation of IT-based services and systems in the defense platforms improves the overall operational efficiency with cost-effective benefits. However, this also increases the concerns related to cyber threats. Thus, various countries are focusing on strengthening their defense communication systems to overcome threats related volume of classified data generated by various end use applications.
Recently, in January 2020, the U.S. Department of Defense implemented Cybersecurity Maturity Model Certification (CMMC) to standardize cybersecurity norms across the federal government's defense industrial base (DIB). According to CMMC, it is mandatory for all defense contractors to get third-party cybersecurity certification. However, it is estimated that only 1% of defense industry companies have implemented 110 national institutes of standards and technology (NIST) controls. These NIST controls are the primary factor and the foundation for CMMC compliance. Thus, many companies are looking forward to implementing the standards and certifications described by CMMC guidelines.
Thus, the change in norms will facilitate the implementation of improved and secured communication systems in the defense sector.
Lack of Certification Awareness Among the Companies May Limit Market Growth
The small-scale defense-based companies lack standardization of the process and, thus lack the required quality certifications. These companies fail to establish strong partnerships with key defense companies due to a lack of standardized quality certifications. This may also hamper the long-term contracts with the governments and countries. Moreover, the small-scale companies incur financial losses due to change in the stringent government norms and regulations as the new norms may need to change the operational processes. The IT defense companies are facing challenges with the existing weapons with intelligence, and modernization of existing defense platforms, that in turn restrains the market growth.
The limited supply chain network and the limited presence of U.S. companies in Asian countries are further hampering the market growth. This impacts the overall ecosystem of the market.
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Software Segment to Grow at Highest CAGR Due to Rising Adoption of Advance Technologies in Several Defense Applications
Based on the type, the market is classified into service, hardware, and software.
The software segment is anticipated to grow at the highest CAGR of 4.71% during the forecast period. The growth of the software segment is due to the rising adoption of the internet of things (IoT) and artificial intelligence (AI) technology in different defense IT applications. Moreover, the growing popularity of enterprise management software for streamlining operations is expected to propel the growth of the software segment.
The hardware segment is expected to dominate the defense IT spending market in 2019. The growth of the segment can be attributed to the increasing demand for cloud computing infrastructure by the defense department of several countries. For instance, in October 2019, Microsoft Corporation was awarded a ten-year contract worth USD 10 billion by the U.S. Department of Defense. Under this contract, the company will provide Joint Enterprise Defense Infrastructure (JEDI) cloud computing project to the U.S Department of Defense.
The growing demand for IT-as-a-service and IT consulting services expected to augment services segment growth. For instance, in December 2020, Accenture was awarded a five-year contract worth USD 38 million by the U.S. Department of Navy (DON) to provide IT and management consulting services to the DON and the U.S. Marine Corps.
Cybersecurity Segment to be Fastest-Growing Segment Propelled by Rising Investment by Major Government and Companies on Security Systems
Based on the application, the market is segmented into IT infrastructure, cyber security IT application, defense cloud computing, data analytics, IT application, logistics and asset management, and others.
The IT infrastructure segment is estimated to hold the major share of the market as the cost incurred in the procurement and installation is high as compared to all other applications. Moreover, many countries such as the U.S., China, India, and Russia are involved in modernizing the conventional defense infrastructure to lightweight compatible systems.
The cybersecurity segment is expected to be the fastest-growing segment due to rising investment by major companies and governments across the globe. In the fiscal year 2021 budget, the United States spent around USD 5.4 billion on defense cybersecurity. In January 2020, the guidelines by the U.S. Department of Defense were implemented through Cybersecurity Maturity Model Certification (CMMC) for all defense-based contractors. This is likely to boost the segment growth during the forecast period.
The defense cloud computing segment is expected to exhibit a high growth rate during the forecast period. This segment comprises defense-based cloud computing software and services. Moreover, it involves detailed cloud-based software and services for airborne, naval, space, and ground-based operated systems.
The data analytics segment is anticipated to grow at a significant growth rate due to the emergence of AI and IoT in several defense platforms such as fighter jets, armored vehicles, unmanned aerial, and ground vehicles, among others. Increase in the volume classified data gathered by these platforms is supporting the growth of data analytics segment.
The IT application and logistics and asset management segments are expected to grow during the forecast period. The growth is attributed to the augmentation of smart weapons, network-centric battlefield management, and real-time surveillance combat system.
The others segment comprises the scope such as 5G technology, digitization, and defense automation.
North America Defense IT Spending Market Size, 2019 (USD Billion)
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North America dominated the market in 2019. The region’s value stood at USD 30.16 billion in 2019. The growth is attributed to the high investments by the U.S. Department of Defense for IT modernization programs. In January 2020, the U.S. Department of Defense awarded a Science Applications International Corp. (SAIC) contract worth USD 727 million to convert 800 applications of the U.S. Army and the U.S. Air Force into one cloud.
The presence of key players in Europe such as SAP, Atos SE, and BAE Systems PLC is expected to drive the market for defense IT spending in the region. Germany is anticipated to be the fastest-growing country in Europe, the growth is anticipated to increase owing to the increase in the defense spending by the government of Germany.
In October 2019, the U.K. Ministry of Defense (MOD) awarded USD 31.3 million worth of contract to Atos SE as a part of MOD’s CORTISONE Program. According to this contract, Atos SE was providing support to MOD to ensure digital transformation in the delivery of healthcare within the UK’s Defense IT services.
The market in Asia-Pacific is projected to grow at the highest CAGR during the forecast period. The rising investment in defense cybersecurity services by countries that are vulnerable to cyber-attacks such as Japan, South Korea, and Australia is expected to augment market growth.
The Indian market of defense IT spending is expected to grow at the highest CAGR during the forecast period. This can be attributed to the growing procurement of advanced fighter jets incorporating advanced electronic warfare systems and advanced weapons.
The market in the Middle East & Africa and Latin America is expected to grow at a significant growth rate during the forecast period. The market growth in the Middle East and Africa is attributed to the increased defense expenditure by countries such as the UAE, Saudi Arabia, and Israel. The market growth in Latin America is accredited to the increased military IT infrastructure spending by countries such as Brazil and Argentina.
Microsoft Corporation is a Prominent Player Offering defense IT Cloud-Based Solutions
Microsoft Corporation is a leader in providing IT cloud-based solutions. The company has a wide range of product portfolios. The U.S. Department of Defense is the key customer of the company thus, securing a stable position in the market. The company invests in research & development and new product innovation activities. Moreover, the company is focused on mergers, agreements, and contracts to sustain its position in the market.
An Infographic Representation of Defense IT Spending Market
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The market report provides a detailed analysis of the market and focuses on key aspects such as key players, types, applications based on air, naval, and ground platforms. Moreover, the report offers insights on the parent market, global defense IT spending market trends, competitive landscape, and highlights key industry developments. In addition to the factors mentioned above, the market report encompasses several direct and indirect factors that have contributed to the sizing of the global market over recent years.
Value (USD Billion)
Type; Application and Geography
Fortune Business Insights says that the global market size was USD 81.28 billion in 2019 and is projected to reach USD 110.89 billion by 2027.
Defense IT spending is registering a CAGR of 4.38%, the market is likely to exhibit steady growth in the forecast period (2020-2027).
The cybersecurity segment is expected to be the leading segment owing to the increasing investment in defense security by countries such as the U.S., China, India, and Russia.
Microsoft Corporation is the leading player in the global market.
North America dominated the market in terms of share in 2019.
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