SECURITY & DEFENCE INDUSTRY PROFILE

The U.S. Armed Forces are composed of five separate military services: the Army, Navy, Air Force, Marines, and Coast Guard. These branches organize, train, and equip the nation’s lands, sea, and air services to support the national and international policies of the government. Together, military workers from these branches are responsible for the safety and protection of U.S. citizens. Military workers who meet education and training requirements can advance to become military officers. They have the authority and responsibility to lead and manage armed forces. Those who choose to be members of the armed forces dedicate their lives to protecting their fellow Americans. Approximately 1.3 million people are on active duty in the military services. There are 241,137 active duty officer personnel in a broad range of occupational groups and military branches, including the U.S. Coast Guard.

Internet security specialists protect a company’s computer and data network, which can be accessed through the Internet, from intrusion by hackers. Large-profile companies, such as Sony have reported alarming Internet security breaches in which personal and financial information of customers were stolen. Hackers accessing a person’s social security number and credit card information can steal a person’s identify or use the credit card for his or her own purchases. For this reason, most companies that have a significant online retail presence have beefed up their security departments, creating the need for these employees.

Large banks, retail stores, auction Web sites, and similar companies have the biggest need for Internet security specialists. The government also hires a large number of these professionals to protect sensitive information and large databases. Other Internet security specialists work for consulting firms that specialize in Internet security. Internet security specialists are sometimes known as Internet security administrators, information security analysts, Internet security engineers, information security technicians, and network security consultants. Approximately 88,880 information security analysts are employed in the United States.

Security Systems Installers and Workers install and program electronic security equipment in residential and commercial buildings to deter burglars and prevent crimes. They may also install fire alarm systems. They are responsible for maintaining security systems and repairing equipment as needed. They make sure the wiring that they do and the equipment they use meets industry codes. Approximately 64,730 security and fire alarm systems installers were employed in the United States in May 2015, as reported by the Department of Labor.

Security consultants and security guards (who are also called security officers) are responsible for protecting public and private property against theft, fire, vandalism, illegal entry, and acts of violence. They may work for commercial or government organizations or private individuals. More than 1 million security workers are employed in the United States.

Many jobs in the industry require technical skills. Average hourly wages for the industry in the US is slightly higher than the national average. Because most security systems are low-voltage systems, installers in most states do not need to be licensed electricians. However, many states require workers to be licensed security installers, often necessitating state or federal background checks. Workers in the monitoring segment of the industry must be familiar with alarm responses and security monitoring software. Overall, the US industry”s injury rate is significantly lower than the national average.

When President Eisenhower left office he warned against letting a “military-industrial complex” dominate the nation’s economy. It was almost 30 years before the sledgehammers flew, the Berlin Wall crumbled, and the pretext for defense-industry domination vanished in the dust. But the industry is still key to national defense, which grants it immunity from many of the criticisms, and free-market forces, to which other industries are subject.

The Peace Dividend
The fall of Communism in 1989 removed the major pretext for bloated defense spending, and more moderate defense spending became inevitable with the political mandate for a balanced budget. The industry responded by diversifying into new commercial markets—often using technology originally developed for aerospace and defense purposes. Hughes, for example, used satellite technology to develop DirecTV, while AlliedSignal used satellite technology to develop commercial applications of global positioning system (GPS) technology.

Private business planes began rolling off the assembly lines in record numbers. National defense labs like Lawrence Livermore and Sandia started research projects on civilian uses for defense technologies. As a result, the defense department is funding a dramatically smaller percentage of U.S. research and development, and a much larger portion consists of civilian, commercial projects that are being funded by other government agencies or by the private sector.

Consolidation
At about the same time that Communism fell, the U.S. economy was wracked by recession, and foreign companies began mounting big-time competition to American firms like Boeing and Lockheed. In response, the American aerospace and defense industry began cutting costs, slashing the industry workforce and consolidating left and right. (Among those to join forces: Northrop with Grumman, Lockheed with Martin Marietta, Boeing with McDonnell Douglas, General Dynamics with National Steel and Shipbuilding Company, and Litton with Avondale, a deal-in-progress as of late 1999.) Many smaller suppliers are opting out of the defense business, complaining about red tape and conflicts over intellectual property rights. However, the Defense Department gets anxious at the prospect of a single supplier for important weapon systems, and it has blocked some industry mergers, such as Lockheed Martin’s proposed acquisition of Northrop Grumman in 1998 and General Dynamics’ plan to merge with Newport News Shipbuilding in 1999.
Waiting For Recovery
One response to the recession of the early ’90s was to boost sales of defense products to foreign governments, and the strategy was working until the Asian economic crisis of 1998. Far Eastern governments cancelled or delayed orders for military equipment and weapon systems, and airlines did the same for commercial jets. In response, the industry has laid off more workers.

Geopolitical tensions are continuing to intensify and demand for military equipment is on the uptick, driving defense spending across the globe.6 Since the beginning of the Trump era, defense budgets in the United States have been on the rise; and, the new administration’s increased focus on strengthening the nation’s military is expected to keep defense spending on the higher side in 2019 as well. NATO countries also appear to be focusing on increasing defense budgets to counter potential threats from Russia and the Middle East. Moreover, there has been growth in defense spending from other nations, such as India, China, and Japan, because of enduring security threats. Apart from this, heightened geopolitical tensions in the Middle East and North Korea are creating strong demand for military equipment, which is expected to be one of the key drivers of defense sector growth in the near term.

Although traditional threats (land, maritime, and air-based) continue to emerge, technological advancements and digitization have also led to cyber-related threats. To be prepared for the future, military strategies worldwide are evolving, and nations are aiming at integrating digital tools and technologies to manage both traditional and digital-age threats. This has resulted in a bigger focus on many cybersecurity programs, which are expected to play a vital role in the near term.

Moreover, space is becoming an important part of the overall defense industry ecosystem as growing global tensions could pose a threat to space assets such as satellites, which are often relied upon for military operations including surveillance, communications, and missile targeting. Because it has become important to shield these assets, this may lead to the militarization of space. The United States, China, and Russia have already begun establishing dominance in space, with other countries, such as North Korea and India, gradually following them.

Regional & International Issues

Companies in the security systems services industry sell, install, and monitor commercial and residential electronic security alarm systems. Major companies include US-based ADT and Johnson Controls, along with G4S (headquartered in the UK), Secom (Japan), and Securitas (Sweden).

Global security services industry revenues total about $100 billion, according to Statista. Europe holds the largest share of the market at nearly 30%, followed by Asia (excluding Japan) and North America. Emerging markets with rising middle-class populations are expected to see the strongest growth.

The US security systems services industry includes about 7,000 establishments (single-location companies and units of multi-location companies) with combined annual revenue of about $20 billion.
Advances in technology, especially wireless and home automation, are creating significant change in the security systems industry. While wireless technology has made security systems more affordable for more people, it has reduced the need for professional installation services.

Increase in adoption of IoT and BYOD trend
The emerging IoT and BYOD trend among organizations has made devices and applications more exposed towards Advanced Persistent Threats (APTs). In addition, the increase in number of mobile devices within organizations makes it difficult for the IT teams to manage and track the data flow in various systems. Therefore, organizations are adopting cyber security systems to protect the crucial information by monitoring, classifying, and resolving all kinds of attacks, which drives the market growth.

Growth in demand for cloud-based cyber security solutions
Cloud computing model is widely adopted due to its powerful and flexible infrastructure option. Many organizations are moving toward the cloud solutions, to simplify the storage of data, as it provides remote server access on the internet, which further allows access to unlimited computing power. Furthermore, the implementation of cloud-based model empowers organizations to manage all the applications, as there is no invisibility with exceptionally challenging analytics running in the background. In addition, the implementation of cloud can allow organizations to combine supplementary infrastructure technologies such as software-defined perimeters, to create robust and highly secure platforms.

Need for strong authentication methods
Organizations need strong authentication functionality to confirm that authentic employees access internal networks or specific applications. Enterprises are progressively moving towards multi-factor authentication to avoid the threats of password-based authentication. Multi-factor authentication is mostly performed by adding another element to the traditional user name and password. The layers can be hardware and software token, a device authentication step, or a biometric check. The implementation of these authentication techniques to reduce the risk of cyber threats thus, encourage users to adopt effective cyber security solutions, thus, providing major opportunity for the market growth.

The commercial aircraft order backlog is at its peak of more than 14,000, with about 38,000 aircraft expected to be produced globally over the next 20 years.4 Manufacturers are ramping up production to accommodate growing aircraft demand, and we expect aircraft deliveries to end 2018 with slightly more than 1,600 units, adding another 100 aircraft to deliveries in 2019.5 However, the demand for wide-body aircraft could further weaken in 2019 as there is already a robust wide-body backlog and airlines are deferring upgrades as they wait for more efficient next-generation wide-bodies. Also, with the introduction of 737-8 and A321neo, the capabilities of narrow-body aircraft have expanded, further impacting wide-body demand.

As we see original equipment manufacturers (OEMs) increase production rates, there remains a risk of suppliers facing difficulties in ramping up production. To overcome this challenge, manufacturers should consider deepening their focus on strengthening the supply chain, effective program management, and the use of advanced technologies to enhance productivity and efficiency.

With the rising demand for commercial aircraft, there are some new production programs emerging from outside the United States and Europe, especially from Russia and China. Though these new entrants could challenge the current duopoly in the longer term, there are several hurdles they would need to cross—procurement of orders from global airlines, managing cost and schedule overruns, certifications from regulators worldwide, and most importantly, establishing a safe and reliable track record—before they are widely accepted.

Competitive Landscape

Demand is driven partly by home sales, new home construction, and new commercial and office construction. The profitability of monitoring companies depends on the volume of customers, as most costs are fixed. Large companies have advantages of scale in operating monitoring centers and in national advertising and brand recognition. Small companies often compete by selling customer contracts to the large monitoring companies, or reselling the monitoring companies’ services, which they buy wholesale. The US industry is concentrated: the 50 largest companies generate about 55% of industry revenue.

Growing demand for cloud-based cyber security solutions is also one of the major factors fueling the market growth. However, constant need to conform to cyber security industry standards, regulations, and complexities of device security are some of the major factors hampering the market growth. Furthermore, cyber security activities are now being prioritized and aligned to strategic business activities to minimize the damage of IT resources, which provides the major opportunity for the market growth. Also, increase in need for strong authentication techniques is also expected to provide lucrative opportunities for the market.

The solutions segment dominated the overall cyber security market in 2017 and is expected to remain dominant during the forecast period, due to increase in need to monitor external and in-house threats for large as well as small & medium enterprises. Further, the services segment is also expected to grow at a rapid pace throughout the forecast years.

The cloud segment is expected to exhibit significant growth rate in the cyber security market during the forecast period. The growth of this segment is mainly attributed to low maintenance cost, which is majorly preferred by small & medium enterprises. On the contrary, the on-premises segment is also expected to grow at a rapid pace throughout the forecast years.

The large enterprises segment generated the highest revenue cyber security market share in 2017, the growth of this segment is mainly attributed to the major focus on implementing effective security solutions by large enterprises, due to their expanded perimeter.

The BFSI sector dominated the overall market in 2017 and is expected to exhibit significant growth during the cyber security market forecast period. The growth of this sector is mainly attributed to the increase in need for providing sealed security and digital privacy in financial institutions. In addition, rise in adoption of smartphones, internet banking, and cloud are fueling the cyber security market growth in this sector.

The global cyber security market is segmented based on component, solution/offerings, deployment type, user type, industry vertical, and region. In terms of component, the market is segmented into solution and services. The solution segment is again bifurcated into hardware and software. Based on solution/offerings, the market is segmented into identity and access management, infrastructure security, governance, risk, & compliance, unified vulnerability management service offering, and data security and privacy service offering. Based on deployment type, the market is divided into cloud and on-premises. By user type, the market is classified into large enterprises and small & medium enterprises. In terms of industry vertical, the market is segmented into aerospace and defense, BFSI, public sector, retail, healthcare, IT and telecom, energy and utilities, manufacturing, and others. As per region, the cyber security market size is analyzed across North America, Europe, Asia-Pacific, and LAMEA.

The global cyber security market is dominated by key players such as Accenture, Capgemini, Cognizant, HCL Technologies Limited, IBM Corporation, Symantec Corporation, Tata Consultancy Services, Wipro Limited, and others.

Current and future cybersecurity industry trends are outlined to determine the overall attractiveness of the market. Top impacting factors highlight cyber security market opportunity during the forecast period. Factors such as rise in malware and phishing threats, and increase in adoption of IoT and BYOD trend among organizations are driving the market growth. In addition, surge in demand for cloud-based cyber security solutions is also one of the major factors fueling the market growth. However, constant need to conform to industry standards, regulations and complexities of device security are some of the major factors hampering the market growth. Furthermore, cyber security activities are now being prioritized and aligned to strategic business activities to minimize the damage of IT resources, which provides the major opportunity for the market growth. Also, increase in need for strong authentication techniques is also expected to provide lucrative opportunities for the market.

How It Breaks Down

Commercial Aircraft and General Aviation
This market segment makes airplanes and helicopters and the parts they’re composed of. The big daddy here is Boeing, maker of the 747 and other commercial jet planes, and employer of numerous college and advanced-degree graduates, experienced industry people, and summer interns. Only Europe’s Airbus Industrie challenges Boeing in sales of large passenger jets. Other members of the commercial aircraft and general aviation segment include corporate-jet manufacturers such as Gulfstream Aerospace and Bombardier, the Canadian company that makes Lear jets; industry giant Textron’s subsidiary Cessna; and helicopter makers such as Bell, also a subsidiary of Textron.

Military Aircraft
These are the makers of our military’s birds of prey, such as the F-15 Eagle jet fighter, made by Boeing; the F-16 Falcon and the F-117 stealth fighter, both made by Lockheed Martin; and bombers such as Northrop Grumman’s B-2 stealth bomber. Also included here are makers of other military aircraft, such as transport planes and attack and transport helicopters.

Missiles and Space
The big players here depend on U.S. and foreign-government spending for the bulk of their revenues. Powerhouses in this segment include Raytheon, which makes missiles including the
Sidewinder, the Stinger, the Maverick, and the Tomahawk; Lockheed Martin, maker of the Trident II missile and provider of management services for NASA operations; and Boeing, the primary contractor for the NASA space shuttle and international space station programs. As more and more satellites soar into orbit, launching has become another big part of this segment; France’s Arianespace is the world leader here.

Ground Defense
These are the makers of the tanks and transport vehicles purchased by the military. Perhaps the most important member of this group is General Dynamics, maker of the M1 Abrams tank and other armored vehicles.

Satellites, Electronics, and Communications
In all likelihood, this is the segment of the future for the aerospace and defense industry. Non-military, commercial demand is sure to grow in this segment as countries around the world become more technologically intertwined. More and more, individuals and companies are dependent on satellite-based technologies for everything from communications to accurate weather forecasts to automobile-dashboard global positioning systems. This segment also includes technologies like infrared, radar, and sonar, as well as avionics (electronics used in planes and helicopters for all sorts of purposes), missile guidance-and-control systems, and information systems (for example, mission control in Houston and aircraft-modeling systems at Boeing). Big players in satellites, electronics, and communications include Litton, Raytheon, and Honeywell.

Sales & Marketing

The A&D industry experienced significant mergers and acquisitions (M&A) activity over the last two years.8 OEMs continued to put pressure on suppliers to reduce costs and increase production rates, which, in turn, pushed many suppliers to consolidate for scale, cost-effectiveness, and higher negotiating power. This trend is likely to continue as OEMs focus on expanding their margins. Hence, the highly fragmented supplier base is likely to become more concentrated in the near term. We may also see some megadeals as bigger players focus on vertical integration. For instance, we saw a large aerospace supplier acquire an avionics and interiors manufacturer, and more recently, the merger of two major communications and electronics contractors—one of the biggest-ever mergers in the defense sector. Apart from this, large, prime contractors are expected to consider acquiring small to mid-sized companies to gain access to new technologies and markets. The industry is likely to experience increasing M&A activity even when valuations of A&D companies are high and near pre–financial crisis levels. Specifically, the enterprise multiple—enterprise value (EV) on earnings before interest, tax, depreciation, and amortization (EBITDA) of the A&D industry—rose from 9.9 times in 2015 to 14.2 times in 2018.

Free trade is important to the A&D industry as aircraft and arms exports drive revenue growth, especially for companies from the developed world. For instance, A&D is the leading net exporting industry in the United States, which generated a net trade surplus of US$86 billion in 2017.7 But there is a possibility that brewing transatlantic and transpacific trade tensions could affect this as duties being placed on steel and aluminum impact companies’ bottom lines. Import tariffs on aluminum and steel—key raw materials imported by A&D manufacturers in the production of aircraft, missiles, rockets, tankers, etc.—will likely increase manufacturing costs and impact profitability. Defense companies that primarily sell to foreign governments and rely on relationships could be more adversely affected. With retaliatory tariffs being imposed, some A&D companies could consider moving their manufacturing to avoid tariffs for products manufactured and exported from their home countries, disrupting supply chains and delaying deliveries. A&D companies operating in this environment of uncertainty will do well by nurturing long-term stable partnerships across the industrial base and managing their global supply chain relationships.

The cyber security market size was valued at $104.60 billion in 2017 and is projected to reach $258.99 billion by 2025, growing at a CAGR of 11.9% from 2018 to 2025. Cyber security also referred to as Information Technology (IT) security, emphasize on safeguarding computers, programs, networks, and data from unlicensed or spontaneous access. As cyber threats have gained importance, security solutions have progressed as well. Factors such as rise in malware and phishing threats, and growth in adoption of IoT and BYOD trend among organizations, are driving the cyber security industry growth.