Terrorism won’t hurt federal technology market, experts say

The federal information technology market will be one of the few to escape damage as worldwide IT spending recoils in the wake of the Sept. 11 terrorist attacks on New York and Washington, according to several market watchers and analysts.

Defense and intelligence agencies in particular will see increased spending as their efforts are focused on combating a worldwide terrorist threat, observers told GovExec.com. Spending on the technology that helps those agencies do their jobs is likely to keep growing, said John Gantz, chief research officer at International Data Corp. (IDC).

Rishi Sood, principal analyst for IT market research firm Gartner, agreed that defense and intelligence agencies will experience the most pronounced growth, but added that spending in those sectors was on the upswing even before the attacks of Sept. 11.

Sood said that e-government projects and other "government-to-citizen" projects are likely to be afforded less priority than before the attacks as agencies focus their attention on using technology to communicate with each other. This will be especially true for law enforcement agencies as the FBI sets up anti-terrorism task forces throughout the country to work with state, local and other federal law enforcement agencies in the hunt for suspected terrorists and their supporters.

Christopher Hoenig, chief executive officer of software manufacturer Exolve, said companies can also expect the government to invest in cross-agency systems. Before the terrorist assaults, agencies were "basically clueless" about how to integrate micro-level intelligence information into a larger picture that made any sense, Hoenig said. Traditionally, agencies have been loath to link their information databases with one another, even in the name of greater efficiency. That's going to change now, Hoenig said, as agencies start sharing information in ways that their traditional, self-imposed boundaries never before allowed.

While the federal IT market remains strong, the private sector IT market is bracing for aftershocks in the wake of the attacks. IDC has changed its initial estimates on worldwide technology spending in 2001 to what it calls a "worst-case scenario." Initially, the firm expected spending on IT would grow a healthy 11 percent this year. But in the wake of the Sept. 11 assault, IDC revised its growth estimate to 7.9 percent. Total spending last year reached $987 billion, but worldwide growth will be crippled largely because of penny-pinching by U.S. companies, IDC said.

Even though the federal government is the nation's largest single buyer of IT, it won't be able to buoy a weak U.S. market, experts said. Government as a whole-state, local and federal-only accounts for about 10 percent of all nationwide IT spending, Gantz said, so even strong growth in the federal market next year wouldn't be enough to lift private industry. Sood concurred that while the market is attractive for many companies, it doesn't pack the punch necessary to float an entire industry affected by slackening sales.

Before Sept. 11, federal IT spending was predicted to grow by a mere 1 percent in the coming fiscal year, according to market watcher Federal Sources Inc. (FSI). That figure is a sharp decrease from the 7.1 percent growth rate the Office of Management and Budget reported that agencies saw between fiscal 2000 and fiscal 2001.

Hoenig noted that the federal IT market will get more competitive as companies that lose revenue in a shrinking private market turn to the government as a new source of revenue, a trend that has been evident for several years but now appears to be gaining even more momentum.

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