Despite budget cuts, some segments of federal IT spending are poised for growth as the role of the federal government in the U.S. economy expands
HERNDON, Va. — (BUSINESS WIRE) — August 7, 2012 — Deltek, Inc. (Nasdaq: PROJ), the leading global provider of enterprise software and information solutions for government contractors and professional services firms, conducted a research study that identifies growth opportunities in the midst of a declining Federal IT market. According to the GovWin IQ study, with the recent and projected federal budget cuts, spending on information technology (IT) products and services by federal agencies is projected to experience a slight decline over the next five years and significant disruption that will create both opportunities and challenges for federal IT providers.
Deltek’s new report, Federal Information Technology Market, 2012-2017, projects federal IT spending will decrease from $121 billion in 2012 to $113 billion by 2017 at a -1.4 percent Compound Annual Growth Rate (CAGR).
Budget pressures and IT mandates by the Obama administration are forcing agencies to drive cost savings and consolidation in their IT infrastructures. As a result, Deltek projects most agencies will have reduced IT budgets over the next five years.
However, budget and policy reforms, established as the first steps in forcing agency IT transformation, are driving investments in key areas of IT that represent growth opportunities for government contractors. Some of the most prominent investment areas are focused around cost-saving initiatives. These include analytics to ferret out waste, fraud and abuse in government programs, the adoption of cloud computing and the consolidation of redundant data centers and systems.
In addition, the expanding role of the federal government in areas such as health care, foreign affairs and cybersecurity is driving investment in the underpinning resources and systems that support these initiatives. “While the overall market is declining, we see some pockets of opportunity that companies can tap into to soften the impact on their business,” says Deniece Peterson, Director of Deltek’s GovWin IQ Federal Industry Analysis program.
At the same time, as budget scrutiny intensifies, companies and agencies are also facing increased transparency requirements and increasingly complex contracting rules. “The cost of doing business with the federal government in many areas is going up,” says Peterson. “The additional transparency requirements and contracting rules are increasing costs at the same time agency budgets are declining. This combination of events is going to put pressure on company profit margins.”
The study also predicts IT equipment and professional services will experience contraction (-7 percent CAGR and -1 percent CAGR respectively) due to reduced federal employment, adoption of strategic sourcing, a transition to lower cost mobile and thin client devices. “Data center consolidation and the administration’s new Digital Strategy are forcing agencies to inventory their existing infrastructure,” says Alex Rossino, Principal Research Analyst at Deltek. “This will undoubtedly uncover redundant and unused assets and impact demand for hardware and software.”
The study concludes that for IT providers to succeed, they must re-evaluate business strategies and operational processes – from their approach to mergers and acquisitions to capture strategies and program management – to enable profitable growth.
“If companies don’t adapt, they are going to find themselves in the wrong place at precisely the wrong time,” says Peterson. “Companies need to think about how they strategically position for the growth segments that remain and adapt their cost structure to be more efficient and productive.”
Click here to access a free summary of the report, Federal Information Technology Market, 2012-2017. The report includes analysis of critical market drivers and inhibitors, and five-year forecasts for IT Hardware, Software, IT Professional Services, IT Outsourcing and Communications and Network Services. Press interviews can be arranged through Email Contact.
Deltek (Nasdaq: PROJ) is the leading global provider of enterprise software and information solutions for professional services firms and government contractors. For decades, we have delivered actionable insight that empowers our customers to unlock their business potential. 15,000 organizations and 2 million users in over 80 countries around the world rely on Deltek to research and identify opportunities, win new business, optimize resources, streamline operations, and deliver more profitable projects. Deltek – Know more. Do more. ® www.deltek.com.
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