Changewave Research: Homeland Security Report

ChangeWave Research: Homeland Security Report

ChangeWave Research Report:

Homeland Security Benchmark Survey

Robust Growth in Homeland Security Government Sales – led by Detection Systems, Intelligence Profiling and Cyber-Security

Overview

U.S. Homeland Security initiatives have spawned a dramatic post-9/11 increase in business activity across a host of industries – and created new opportunities for strategically positioned companies.

Between May 5 – 10, 2004, we surveyed members of the ChangeWave Alliance on current trends in the homeland security marketplace for both the government and private sectors. A total of 109 members participated – all of whom work for companies that provide homeland security products and services to government agencies and/or the private sector. Here’s what we found:

A. Year-Over-Year Growth Rates

· Robust Growth in Homeland Security Sales to Government Sector. Better than two-thirds of respondents (68%) say their companies’ government sector homeland security sales are growing by more than 10% year-over-year– compared with 43% who say their companies’ private sector homeland security sales are growing by more than 10% year-over-year.

B. Industry Sub-Segments -- Winners and Losers

· Momentum Leaders. According to respondents, the leading industry sub-segment in the 2004 homeland security market is Detection Systems (Net Difference Score +36), followed by Cyber-Security (+23), Intelligence Profiling (+22), and Borders & Ports (+20).

· Losing Sub-segment. The industry sub-segment with the least momentum is Manufacturing and Equipment (Net Difference Score -38).

C. Government Homeland Security -- Winning & Losing Product/Service Areas

· Top Product/Service Areas. According to respondents, the four product/service areas most likely to experience rapid growth in the 2004 government homeland security market are Physical Security Devices & Services (Net Difference Score +53), Intelligence Gathering & Analysis (+53), Data Networking/Transmission (+41) and Computer Security Products & Services (+40).

· Losing Areas in Government Market. Once again, the biggest laggards appear to be Infrastructure Products & Services (Net Difference Score -18), Other Non-Security Computer Software/Hardware (-13), and Satellite Services (-9).

D. Private Sector Homeland Security -- Winning & Losing Product/Service Areas

· Top Product/Service Areas. Data Networking/Transmission (Net Difference Score +46) is viewed as the best performing product/service area in the 2004 private sector homeland security market, followed by Computer Security Products & Services (+40), Physical Security Devices & Services (+38), and Telecommunications Software & Hardware (+37).

· Losing Areas in Private Sector Market. The biggest losers appear to be Satellite Services (Net Difference Score -21) and Infrastructure Products & Services (-16).

E. Specific Products and Services

To dig further into homeland security market trends, we also presented a pick-list of specific products to respondents:

· Winning Products and Services in Homeland Security Market. Smart Cards/ Intelligent IDs (46%) was seen by respondents as the top homeland security growth product for 2004, followed by Biometric Products (e.g. fingerprints, retina scan, voice recognition) (41%), Surveillance/Intelligence & Profiling Technology (36%), and Bomb, Chemical & Biological Detection Systems (33%).

Bottom Line: As a benchmark, the current survey provides a wealth of data useful for future homeland security research, including the measurement of ongoing change in industry segments, product/service areas, and the demand for specific products. The current survey results also confirm the powerful pull of the federal government on the homeland security marketplace, and clearly point to the industry segments and product/ service areas where growth is likely to be strongest in 2004:

· Detection Systems – Physical Security Devices & Services (including X-Ray Machines, Chemical & Biological Detection Systems, and Security Guards).

· Intelligence Profiling – Intelligence Gathering & Analysis Products & Services

· Cyber-Security – Data Networking/Transmission and Computer Security Products & Services

The ChangeWave Alliance is a group of 4,500 highly qualified business, technology, and medical professionals in leading companies of select industries—credentialed professionals who spend their everyday lives working on the frontline of technological change. ChangeWave surveys its Alliance members on a range of business and investment research and intelligence topics, collects feedback from them electronically, and converts the information into proprietary quantitative and qualitative reports.

Helping You Profit From A Rapidly Changing World ™

www.ChangeWaveResearch.com

Table of Contents

Summary of Key Findings 4

The Findings 5

A. Year-Over-Year Growth Rates 5

B. Industry Sub-Segments -- Winners and Losers 6

C. Government Homeland Security -- Winning & Losing Product/Service Areas 8

D. Private Sector Homeland Security -- Winning & Losing Product/Service Areas 12

E. Specific Products and Services 17

ChangeWave Research Methodology 20

About ChangeWave Research 21

I. Summary of Key Findings

Introduction

The key areas of focus are:

· Year-Over-Year Growth Rates

· Industry Sub-Segments -- Winners and Losers

· Government Homeland Security -- Winning & Losing Product/Service Areas

· Private Sector Homeland Security -- Winning & Losing Product/Service Areas

· Specific Products and Services

· Demographic/Industry Patterns

II. The Findings

A. Year-Over-Year Growth Rates – Homeland Security Market

(1) Question Asked: “What would you say is the year-over-year growth rate of the homeland security part of your company's business?”

(a) Government Sector Homeland Security Sales - Year-Over-Year Growth Rate

0-10% / 14%
11-25% / 41%
26-50% / 15%
Over 50% / 12%
Not Applicable / 4%
Don't Know / 13%

(b) Private Sector Homeland Security Sales - Year-Over-Year Growth Rate

0-10% / 40%
11-25% / 19%
26-50% / 16%
Over 50% / 8%
Not Applicable / 0%
Don't Know / 17%

Robust Growth in Homeland Security Sales to Government Sector. Better than two-thirds of respondents (68%) say their companies’ government sector homeland security sales are growing by more than 10% year-over-year – compared with 43% who say their companies’ private sector homeland security sales are growing by more than 10% year-over-year.

B. Industry Sub-Segments – Homeland Security Market

(1A) Question Asked: “Focusing on key homeland security industry sub-segments, which of the following segments do you believe will gain the most market share in 2004? (Choose No More Than Four)”

Detection Systems / 40%
Borders and Ports / 31%
Cyber-Security / 28%
Airports/Aircraft / 26%
Intelligence/Profiling / 25%
Security Systems / 25%
Bio-Defense / 23%
Biometrics / 23%
Network, Wireless Communications / 19%
Explosives Detection / 17%
IT Software and Services / 17%
Defense & Conglomerates / 16%
Surveillance / 13%
Nanotechnology / 9%
Biological / 6%
Manufacturing and Equipment / 1%
Other / 2%

(1B) Question Asked: “Which of the following industry sub-segments do you believe will gain the least market share in 2004? (Choose No More Than Four)”

Manufacturing and Equipment / 39%
Nanotechnology / 21%
Airports/Aircraft / 17%
Network, Wireless Communications / 16%
Defense & Conglomerates / 15%
Biological / 14%
Bio-Defense / 13%
IT Software and Services / 13%
Borders and Ports / 11%
Explosives Detection / 10%
Biometrics / 8%
Cyber-Security / 5%
Security Systems / 5%
Detection Systems / 4%
Intelligence/Profiling / 3%
Surveillance / 2%
Other / 0%

Net Difference Score

Industry
Sub-segments
Gaining the
Most Market Share / Industry
Sub-segments
Gaining the
Least Market Share / Net
Difference
Score
Detection Systems / 40% / 4% / +36
Cyber-Security / 28% / 5% / +23
Intelligence/Profiling / 25% / 3% / +22
Borders and Ports / 31% / 11% / +20
Security Systems / 25% / 5% / +20
Biometrics / 23% / 8% / +15
Surveillance / 13% / 2% / +11
Bio-Defense / 23% / 13% / +10
Airports/Aircraft / 26% / 17% / +9
Explosives Detection / 17% / 10% / +7
IT Software and Services / 17% / 13% / +4
Network, Wireless Communications / 19% / 16% / +3
Defense & Conglomerates / 16% / 15% / +1
Biological / 6% / 14% / -8
Nanotechnology / 9% / 21% / -12
Manufacturing and Equipment / 1% / 39% / -38

Momentum Leaders. According to respondents, the leading industry sub-segment in the 2004 homeland security market is Detection Systems (Net Difference Score +36), followed by Cyber-Security (+23), Intelligence Profiling (+22), and Borders & Ports (+20).

Losing Sub-segment. The industry sub-segment with the least momentum is Manufacturing and Equipment (Net Difference Score -38).

C. Government Homeland Security - Winning & Losing Product/Service Areas and Leading Companies

The following questions contain responses from members whose companies are involved in providing homeland security products and services for government agencies (i.e., federal, state, local, military) in the U.S. and/or worldwide.

(n = 98)

(1) Question Asked: “How would you characterize the government contracting cycle for homeland security products/services in comparison to the more traditional government contracting cycle?”

Homeland security cycle is the same as the traditional government contracting cycle / 38%
Homeland security cycle is more burdensome and bureaucratic than the traditional government contracting cycle / 22%
Homeland security cycle is less burdensome and bureaucratic than the traditional government contracting cycle / 16%
Don't Know
/ 23%

Does Government Contracting for Homeland Security Present More Challenges? A total of 38% of respondents see no difference between the bureaucratic burden of the homeland security cycle and the more traditional government contracting cycle. Twenty-two percent (22%) of respondents say the government contracting cycle for homeland security is more burdensome and bureaucratic, while 16% believe it’s less burdensome.

(2A) Question Asked: “Within the government homeland security marketplace, which of the following product/service areas do you believe are most likely to experience rapid growth in 2004? (Choose No More Than Four)”

Physical Security Devices and Services
(e.g., x-ray machines, security guards, etc.) / 60%
Intelligence Gathering and Analysis Products
and Services (e.g. mapping services, etc.) / 58%
Data Networking/Transmission and Related Software,
Products and Services / 49%
‘Computer Security’ Products and Services / 48%
Telecommunications Software/Hardware
and Related Products and Services / 39%
Satellite Services / 18%
Infrastructure Products and Services
(e.g. civil engineering services, concrete, etc.) / 16%
Other Non-Security Computer Software/Hardware
Products and Services / 10%

(2B) Question Asked: “And within the government homeland security marketplace, which of the following product/service areas do you believe are least likely to experience rapid growth in 2004? (Choose No More Than Four)”

Infrastructure Products and Services
(e.g. civil engineering services, concrete, etc.) / 34%
Satellite Services / 27%
Other Non-Security Computer Software/Hardware
Products and Services / 23%
Telecommunications Software/Hardware
and Related Products and Services / 13%
Data Networking/Transmission and Related Software,
Products and Services / 8%
‘Computer Security’ Products and Services / 8%
Physical Security Devices and Services
(e.g., x-ray machines, security guards, etc.) / 7%
Intelligence Gathering and Analysis Products
and Services (e.g. mapping services, etc.) / 5%

Net Difference Score

Most Likely
to Experience Rapid Growth / Least Likely
to Experience Rapid Growth / Net
Difference
Score
Physical Security Devices and Services (e.g., x-ray machines, security guards, etc.) / 60% / 7% / +53
Intelligence Gathering and Analysis Products and Services (e.g. mapping services, etc.) / 58% / 5% / +53
Data Networking/Transmission and Related Software, Products and Services / 49% / 8% / +41
‘Computer Security’ Products and Services / 48% / 8% / +40
Telecommunications Software/Hardware
and Related Products and Services / 39% / 13% / +26
Satellite Services / 18% / 27% / -9
Other Non-Security Computer Software/ Hardware Products and Services / 10% / 23% / -13
Infrastructure Products and Services (e.g. civil engineering, concrete, etc.) / 16% / 34% / -18

Government Homeland Security -- Winning and Losing Industry Segments

Top Product/Service Areas. According to respondents, the four product/service areas most likely to experience rapid growth in the 2004 government homeland security market are Physical Security Devices & Services (Net Difference Score +53), Intelligence Gathering & Analysis (+53), Data Networking/Transmission (+41) and Computer Security Products & Services (+40).

Losing Areas in Government Market. The biggest laggards appear to be Infrastructure Products & Services (Net Difference Score -18), Other Non-Security Computer Software/Hardware (-13), and Satellite Services (-9).

(3) Question Asked: “Which company(s) currently supplying homeland security products and services to the government sector will gain the most market share in 2004 and why?”

Cisco / 9%
Lockheed Martin / 9%
Northrop Grumman / 9%
IBM / 7%
InVision / 7%
Raytheon / 7%
Boeing / 5%
EDS / 5%
Unisys / 5%
Other / 58%

Sample of Member Responses

(a) Cisco (9%)

· MDU7911 writes, “Cisco Systems - Ability to provide the security systems that will be required.”

· KFA6399 writes, “Cisco – because they have a heavy emphasis on the technology.”

· JAY1051 writes, “Cisco – they have several security-related software and hardware devices.”

(b) Lockheed Martin (9%)

· JMR6006 writes, “Lockheed.”

· AZK2781 writes, “Lockheed Martin F-35.”

· DJE9527 writes, “Lockheed Martin.”

· SCH0777 writes, “Northrop Grumman - Leading supplier of secure systems with an excellent track record.”

· BUR2703 writes, “Northrop Grumman is well organized to develop business in Homeland Security.”

· ERN7555 writes, “Northrop Grumman-concentrating on border crossings...now has license plate reader technology with the purchase of Perceptics. Closely associated with Intermec Technology which has the RFID technology.”

· JOH3355 writes, “Northrop Grumman...Head start.”

(d) IBM (7%)

· AIT8949 writes, “Accenture, IBM, BearingPoint -- all major providers of technology and process solutions to the government sector, especially homeland security.”

· GSP6134 writes, “IBM will gain the most market share because of their broad range of consulting services. Money is going to information sharing systems which need to be developed and also rely on software components that IBM already has in the market.”