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Pentagon Budget Aftershocks

There is a striking similarity between earthquakes and military budgets. An earthquake is the result of a sudden release of energy in the earth’s crust that creates seismic waves. The Pentagon budget is the result of fiscal realities, protracted negotiations, and balancing priorities, combined with a good dose of lobbying and politics, that culminates in a sudden release of program funding data that creates seismic waves in the military electronics business community. Welcome to the aftershock.

Presented with a two-year forward DoD budget in mid-March, we now at last have firm funding guidance and are in a position to evaluate the aftershocks of the appropriation decisions and apply that reality to our businesses and formulate a game plan moving forward.

To state the obvious, in this post-war and post-sequestration era, the defense industry is in the midst of a major reshaping with federal defense spending far below recent levels. This is a huge consideration for defense contractors such as Northrop Grumman, Lockheed Martin, BAE Systems, Boeing, and Raytheon (any of your customers in that list?). Most of these military prime contractors derive 70 to 90% of their annual revenue from federal contracts. Fewer contracts at the prime contractor level results in less electronics manufacturing at the PCB and contract electronics manufacturing levels.

Clearly, the military electronics market is still a very large market, but it would be prudent for each of us--on both the business development and senior management sides of the equation--to take a few moments to reflect on the customers and programs we have been supporting, their current funding status, and future funding allocations. Equally important, we need to learn the funding status on newer programs we may have supported through engineering and prototype engagements that now may be slated for increased funding.

Read the full column here.


Editor's Note: This column originally appeared in the May 2014 issue of The PCB Magazine.