ANALYST REPORT U.S. DEPARTMENT OF DEFENSE THIRD OFFSET STANDARD MARKET TAXONOMY

Transcription

1 ANALYST REPORT U.S. DEPARTMENT OF DEFENSE THIRD OFFSET STANDARD MARKET TAXONOMY

2 1 U.S. DEPARTMENT OF DEFENSE THIRD OFFSET TAXONOMY PLUS WEAPON SYSTEMS SEGMENT DETAIL The Defense Department s much-discussed Third Offset Strategy represents more than the $18 billion it has budgeted across the next five years. It constitutes a massive overhaul in U.S. military operating concepts and technological investments intended to address emerging capability gaps and deter potential adversaries, primarily China and Russia. One of the biggest takeaways from the Pentagon s rollout of the strategy thus far is its desire for a re-alignment of industry and the defense acquisition process. Govini, the leading business intelligence platform for companies that sell to the public sector, provides industry and government with insight on the competitive landscape and market trends of the advanced capabilities that underpin the Third Offset Strategy. In this report, Govini uses a taxonomic approach to benchmark the current vendor landscape and highlights spending trends for Weapon Systems investment as prioritized in the Third Offset Strategy. The Weapon Systems market segment is one of five investment areas that make up Govini s Third Offset Standard Market Taxonomy. In creating the taxonomy, Govini used a combination of proprietary metrics sourced from its Database of Record, as well as traditional analysis of the DoD budget and public statements. Our big data platform and fact-based approach enable clients to uncover unique insights into how current procurement trends map to the Defense Department s new strategic posture and how contracting opportunities are being shaped now and in the future. Key Findings Target Tracking, the largest Weapon System segment accounting for 44 percent of overall spending, is the linchpin for advancing Third Offset weapon capabilities. Awarded amounts declined by 18 percent in FY15 compared to the average of the previous four years. The decline, exacerbated by sequestration, in the data, reflects the maturity of existing technologies and future shift to modernization efforts. Navigation & Guidance Systems is the second-largest segment, accounting for 28 percent of total spending. The capability is also critical to enhancing the range and precision of weapon systems as intended by the Third Offset Strategy. Conventional Long Range Missiles, the third-largest segment, accounted for 18 percent of market spending, grew by 14 percent in FY15 compared to the average spending in the previous four years. Much of the growth came in FY14 as low rate initial production of the JASSM-ER kicked off. Directed Energy, the second-smallest segment by contract obligations, grew by 23 percent in FY15 compared to the previous four-year average. Spending began to increase in FY14, mostly from work related to the maturation of solid state laser technology captured by Raytheon, Penn State University and Northrop Grumman. Hypersonic Technologies, the smallest Weapon System segment, saw the most growth of 98 percent. The increased spending comes as China and Russia successfully complete tests of rival technology.

3 2 U.S. DEPARTMENT OF U.S. DEFENSE DEPARTMENT OF THIRD DEFENSE OFFSET STRATEGY Standard THIRD Market OFFSET Taxonomy STANDARD MARKET TAXONOMY ADVANCED COMPUTING / CYBER EM / RF EM DOMINANCE / RF DOMINANCE C4I DISAGGREGATION C4I DISAGGREGATION AUTONOMOUS CAPABILITIES WEAPON WEAPON SYSTEMS SYSTEMS Hardware and Software for Net-Enabled Warfare Ensure Operations in Contested Spectrum Resiliency Through Distributed Networks Human-Machine Teaming and Integration Deliver Effects Deliver Effects in Contested in Environments Contested Environments Hypersonic Technologies Nanoelectronics Cognitive / Adaptive Capabilities Synthesis / Analytic Decision Tools Scalable Teaming of Autonomous Systems 96.9% Directed Energy EO / IR Components Coordinated / Net-Enabled Systems Information Collection / Management Human / Autonomous System Interaction 17.4% Guidance, Navigation & Control Integration Preemptive / Proactive Effects Networks & Communication Machine Perception, Reasoning and Intelligence -8.5% Conventional Long Range Missiles RF Components Broadband / Multispectral Components and Systems Electro-Optical / Infrared 13.7% Target Tracking Mission Assurance Electronics Protection Radio Frequency -17.9% Resilient Infrastructure Acoustic Sensors Trust Foundations Space Access Space Control & Situational Awareness Exhibit 1: Govini s Third Offset Standard Market Taxonomy for the Third Offset Strategy is a comprehensive roadmap for industry as it responds to DoD s new posture and prioritization of anti-access/area denial capabilities. Intelligence, Surveillance and Reconnaissance Position, Navigation and Timing Satellite Operations Satellite Communications 2016

4 3 Weapon Systems Overview The Third Offset Strategy reflects the Defense Department s response to newly-developed anti-access/area denial capabilities fielded by Russia and China. The U.S. no longer has a monopoly on power projection, precision guidance, or the enabling infrastructure that has made it the dominant military power since the end of the Cold War. China and Russia have had many years to observe U.S. capabilities and have made strategic investments that counter U.S. advantages. Subsequent long-run trends, especially globalization and a growing concentration of innovation in the commercial sector, are intersecting with new tactics such as cyber-espionage to drive a rapid erosion of the U.S. military edge. Govini s Third Offset Standard Market Taxonomy for the Third Offset is a comprehensive representation of advanced capabilities to be acquired by DoD under its landmark strategy. The five segments (Target Tracking, Guidance & Navigation, Conventional Long Range Missiles, Directed Energy and Hypersonic Technologies) total $27.8 billion over five years, between FY11 and FY15. Target Tracking, the foundation for integrating new capabilities with existing Weapon Systems, is the largest segment of the five. It saw the greatest decline of 18 percent in FY15 relative to the average across the previous four years. The decline comes as current DoD programs reach full maturity and the market transitions to development of next-generation systems. Industry can expect to find traction with customer agencies by aligning Target Tracking solutions to other Third Offset Strategy capabilities, such as Precision Guidance in Contested Environments. Exhibit 2: Weapon Systems: Top-tier Platform Original Equipment Makers dominate the Weapon Systems segments, particularly Target Tracking and Guidance & Navigation. Opportunity will open up for mid-tier technology manufacturers as modernization of legacy platforms is prioritized.

5 4 With its ability to couple advanced Target Tracking technologies with new weapon platforms, Lockheed Martin has a sizable advantage over its closest competitors Raytheon, Northrop Grumman and Boeing. Looking across the broad Weapon Systems Taxonomy investment areas, Lockheed has comparative advantages in Guidance & Navigation, Target Tracking and Conventional Long Range Missiles. The Defense Department s largest vendor captured more than 30 percent of total spending in the three categories from FY11 - FY15. While Lockheed Martin and other top-tier system integrators compete for Weapon Platform opportunities, the market for mid-tier technology manufacturers will continue to open up as legacy platforms undergo modernization and new capabilities are developed. Honeywell and Rockwell Collins are well-positioned in the Guidance & Navigation market, while L-3 Communications, Harris and SRC have strong footprints in Target Tracking. Next-generation Weapon System technologies such as Hypersonics and Directed Energy are dominated by a handful of contractors. Northrop Grumman, Boeing, General Atomics, Raytheon and Lockheed Martin are well-positioned in Directed Energy, while BAE s electromagnetic railgun and Lockheed Martin s broad portfolio of research initiatives provide each distinct advantages within the Hypersonic Technologies segment. Target Tracking Target Tracking is the largest segment in Govini s assessment of Weapon Systems in the Third Offset Strategy. The capabilities that comprise this sector are the most mature relative to the other categories, with total spending weighted towards Procurement rather than R&D programs. As a consequence, the sub-segment was hardest-hit by sequestration, with contract obligations declining by 18 percent last year compared to the previous four-year average. Exhibit 3: Target Tracking: Aggregate program lifecycle maturity and sequestration depressed contract obligations between FY13 and FY15. Market spending is expected to recover as Third Offset capabilities are incorporated into new systems.

6 5 Guidance, Navigation & Control Extended range conventional weapons will rely on advancements in guidance and navigation systems that ensure delivery in contested environments. Many programs in this segment are well underway, making them a central piece to the existing competitive landscape. The segment is largely dominated by the Global Positioning System and its latest modernization effort (GPS III). Inertial navigation systems and guidance systems on long-range weapons are the major drivers of this segment. Lockheed Martin and Raytheon account for over 60 percent of spend in this market, owing to their position on GPS. Lockheed Martin brings strong competencies in the space segment and Raytheon has solid ground segment capabilities. Charles Stark Draper Labs dominates the much-smaller Guidance Systems sub-segment as the main vendor for ballistic missile guidance system development. Exhibit 4: Guidance & Navigation Control: The Defense Department is placing particular emphasis on developing innovative terminal guidance systems for weapons and assuring Position, Navigation and Timing in GPS degraded or denied environments.

7 6 Conventional Long Range Missiles The third-largest Weapons Systems segment, Conventional Long Range Missiles, is dominated by Lockheed Martin and its sibling stealth cruise missiles Joint Air-to-Surface Standoff Missiles-Extended Range (JASSM-ER) and Long Range Anti-Ship Missile (LRASM). Against a backdrop of new long-range precision strike capabilities being developed by China and Russia, Long Range Missile spending increased to $1.1 billion in FY15, a 14 percent increase from the FY11-FY14 average. Much of the increase came in FY14 when low-rate initial production of JASSM kicked off. Lockheed Martin s LRASM was the primary driver of FY15 spending. Raytheon, the second-largest player in the Long Range Missile competitive landscape, provides precision navigation upgrades to the High-Speed Anti-Radiation Missile (HARM). Orbital ATK, the third-largest contractor in the market, is well-positioned as the leading propulsion and integration provider across all missile sub-segments, and is the prime vendor for HARM-ER. Exhibit 5: Conventional Long Range Missiles: The landscape for existing standoff precision missiles is the most closed out of the five major markets examined in this report. DoD and the Navy in particular increasingly assess programs from a cost-per-kill efficiency standpoint. The comfortable incumbency advantage producers of these expensive, low-volume weapons could quickly evaporate with the advent of transformative longrange precision strike capabilities.

8 7 Directed Energy Directed Energy is known as the flagship initiative within the Third Offset framework. Spending in the category shows a renewed focus in FY14 and FY15 after a lull in FY13. This capability is still in development so, not surprisingly, 67 percent of total contract obligations over the FY11-15 period are either tied to R&D investment or Laser System development. Maturation of Solid State Laser (SSL) technologies and supporting capabilities account for the renewed focus on spending. Northrop Grumman, Boeing, General Atomics, Raytheon and Lockheed Martin are the dominant vendors in the market. General Atomics is competitive with the larger system integrators due to its capture on the HELLADS program and core competencies in the Thermal Management and Beam Control sub-categories. Penn State leads the way in Academic research, primarily from its support of the Navy s SSL program. Exhibit 6: Directed Energy: R&D, the largest Directed Energy segment, has seen renewed attention in recent years. Recent advancements in laser system technologies are now being vetted for potential integration with aircraft and surface ships.

9 8 Hypersonic Technologies In parallel with investments made in the Directed Energy segment, pulsed power and thermal management technology drive the majority of government spending in the Railgun sub-segment. BAE s Hypervelocity Projectile (HVP), originally designed for the electromagnetic railgun, is being adapted for existing powder-based guns with an eye towards speeding deployment. In contrast with its high profile in the media, The Propulsion and Materials sub-segment, encompassing efforts like DARPA s Tactical Boost Glide and Hypersonic Air Breathing Weapon Concept, has a relatively small footprint in the public spending data. Major aerospace integrators Lockheed Martin, Boeing, Raytheon and United Technologies dominate the public contracting landscape, together comprising nearly 48 percent of the sector. The spending trends shown will continue their steep climb, especially as the technology continues to be used for strategic signalling between the U.S. and China. Exhibit 7: Hypersonic Technologies: The total amount of unclassified spending on Hypersonic technologies is an incomplete outline of DoD s commitment to maturing capabilities within the segment. The market landscape surfaced from public data provides a snapshot of stakeholders and the relative position of market competitors.

10 9 Methodology Govini examined the Third Offset Strategy using proprietary metrics derived from its Database of Record, its analysis of the defense budget, and statements from DoD officials to taxonomize and quantify unclassified investments being made under the initiative. The Govini business intelligence platform affords unique insight into the competitive landscape of the Defense Industrial Base through the lens of the Third Offset. Govini enables clients to pull back the curtain on how the future capabilities sought by DoD are being procured today. Its unique, big-data approach reveals how the Pentagon s new strategic posture is shaping contracting opportunities in both the near- and long-term. The following report highlights trends in spending on top programs, products and services, key vendors, customers, and submarkets within the Weapon Systems segment of the Govini Third Offset Standard Market Taxonomy. Market Segment Composition & Definitions I. Target Tracking Radar & Fire Control: Target Acquisition and Defensive Radar Systems Airborne: Aircraft-based Targeting and Tracking Systems R&D: R&D Efforts to Develop Next Generation Targeting, Tracking and Radar Systems II. Guidance & Navigation Navigation & GPS: Global Positioning System, Inertial Navigation and other Navigation Technologies Guidance Systems: Ballistic Missile Guidance Systems III. Conventional Long Range Missiles LRASM: Long Range Anti-Ship Missile JASSM-ER: Joint Air-to-Surface Standoff Missiles - Extended Range HARM-ER: High-Speed Anti-Radiation Missile - Extended Range IV. Directed Energy Beam Control: Optics and Beam Control Technologies for Directed Energy Weapons Power Systems/Thermal Management: Power Generation and Thermal Management Systems to Integrate Directed Energy Weapons on Mobile Platforms Laser System: Laser System Components of Directed Energy Weapons Directed Energy R&D Programs: R&D dedicated to Directed Energy Weapon Development and Integration V. Hypersonics Technologies Propulsion & Materials: New Aerodynamic Structures and Engine Technologies Enabling Sustained Mach 5+ Flight Railgun & HVP: Electromagnetic Railgun and Hypervelocity Projectile Research and Test Articles

11 COMPANIES INCLUDED AGENCIES INCLUDED Aerojet Rocketdyne Inc. BAE Systems PLC (BAESY) Ball Corp. (BLL) The Boeing Co. (BA) Booz Allen Hamilton Corp. (BAH) Charles Stark Draper Laboratory Inc. University of Dayton Elbit Systems Ltd. (ESLT) EOIR Technologies Inc. Fibertek Inc. General Atomics Inc. General Dynamics Corp. (GD) General Electric Co. (GE) Harris Corp. (HRS) Honeywell International Inc. (HON) Innovative Scientific Solutions The Johns Hopkins University Applied Physics Laboratory K2 Energy L-3 Communications Holdings Inc. (LLL) Leidos Inc. (LDOS) Lockheed Martin Corp. (LMT) MZA Associates Corp. Northrop Grumman Corp. (NOC) Orbital ATK Inc. (OA) Penn State University Raytheon Co. (RTN) Rockwell Collins Inc. (COL) Science Applications International Corp. (SAIC) SRC Inc. SRI International Textron Inc. (TXT) United Technologies Corp. (UTX) Department of Defense Defense Advanced Research Projects Agency Navy Govini is the leading business intelligence platform for companies that sell to the public sector. Across the entire business development lifecycle, Govini creates proprietary analytics which answer critical questions pertaining to addressable market size, opportunity qualification, competitive positioning and partner profiling. Govini s Database of Record gives companies in every industry a distinct advantage when working with the government. info@govini.com