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When is a budget cut not a budget cut?

by Asif Anwar | 1月 27, 2011

There's a common misconception in the public sector that U.S. Defense Secretary Robert Gates' plan to cut military spending by $553 billion in 2012 is a decrease in the Pentagon budget. Instead, the U.S. Department of Defense will actually see an increase albeit of less than 1 percent. This is however the smallest increase the Pentagon has received over the last 15 years and the plan calls for smaller increases to its rate of growth in 2013 and 2014 and then no growth whatsoever in 2015 and 2016.

However, while there is a focus on eliminating wasteful, excessive and unneeded spending to make every defense dollar count, there is also a recognition that the mistakes of the past should not be repeated by making drastic and ill-conceived cuts to the overall defense budget. In this respect, the continued advances being made by China and Russia will be of particular concern. The recent introduction of the JF-20 appears to show that the Chinese have made more progress in building their first stealth fighter jet than previously thought. Coupled with potential threats posed by Chinese missiles and other hardware, the proposed defence budget maintains a priority on technology designed to counter "anti-access" weapons.

The most high profile cuts include terminating the Marine Corps' Expeditionary Fighting Vehicle and placing the Marine Corps' short take-off and vertical landing (STOVL) variant of the JSF on the equivalent of a two-year probation because of significant testing problems. As a result, the development of the Marine variant will be moved to the back of the overall JSF production sequence.

However, to fill the gap created from the slip in the JSF production schedule, the Department of the Navy will buy more Navy F/A-18s. The proposed Pentagon budget for 2012 also calls for funding for a new long-range nuclear bomber, electronic jamming devices for the Navy, improvements to radar for F-15 fighters, a satellite launch vehicle and an unmanned naval "strike-and-surveillance aircraft".

Despite continued investment, new military contract bids will now have to include some form of operational cost-cutting benefit to the Pentagon as opposed to the traditional focus on expounding the performance capabilities of a given system. It will translate into continued development of radar, EW, communications and other advanced defense capabilities which will maintain demand for semiconductor technologies such as GaAs, GaN and SiGe.

Strategy Analytics predicts that the overall defense semiconductor market will maintain a growth trajectory over 2010 - 2015 with CAGR (compound annual growth rate) of just 6.1% versus previously projected 6.6% growth over 2009 ? 2014.

For more on this topic, see the Strategy Analytics report, US DOD Budget Cuts will Place Emphasis on Advanced Electronics Capabilities

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