The war at home
How the war in Iraq is changing the relationship between defense and commercial electronics
By Geoffrey James -- EDN, January 1, 2006
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It's a truism that armies are prepared to fight the previous war rather than the current one. That's certainly been the case in Iraq, where the Bush administration clearly anticipated something more like the relatively bloodless Gulf War than a prolonged guerilla insurgency. At the inception of the Iraq War, U.S. military forces were largely equipped to fight on a conventional battlefield against an identifiable enemy. In Iraq, however, much of the conflict now takes place in urban areas, where it's often difficult to differentiate between civilians and enemy combatants.
Spurred by the challenges in Iraq, the U.S. military is accelerating its plans to upgrade to a new communications architecture known as Network Centric Warfare. NCW connects friendly units, weapons systems, ammunition and supplies into a single gigantic network, creating an Internet-like structure that can react to battlefield changes in a matter of seconds. Experts believe that NCW will make our military far less vulnerable to guerilla attacks and far more capable of handling difficult situations such as urban warfare.
How will this affect the electronics industry? For starters, upgrading the armed forces to NCW will have an enormous positive impact on the commercial semiconductor industry. Defense contractors plan to draw on the manufacturing expertise of mainstream firms, by facilitating the transfer of NCW-related research and development into commercial applications. NCW will also increase the demand for RFID chips, programmable logic and "hardened" commercial electronics products. To take advantage of this opportunity, commercial electronics firms must work more closely with defense contractors, ultimately creating a symbiosis between the two sectors. But how easily will they be able to achieve that?
The challenge to defense electronics
For years, military experts have been talking about NCW, which represents something of a Holy Grail of military communications technology. "NCW is a network of distributed platforms that are constantly communicating with one another, creating an evolving and accurate picture of any combat situation," explains Tom Flynn, director of strategic initiatives and network systems at defense contractor Raytheon. NCW would allow, for example, a soldier on the ground to "pull the trigger" to launch an airplane-mounted missile to take out a target that otherwise might be outside the range of that soldier's own weaponry, without involving the chain of command. "In effect, the entire armed forces of the United States and its allies will be transformed into a gigantic intelligence network that can respond to threats instantaneously," says Flynn.
"Even if the troops come home tomorrow, the military will still need to replace a massive amount of electronics equipment."
—Brad Curran, Frost and Sullivan
Although the U.S. military already has plans in place to upgrade to NCW, the Iraq War has added more urgency. Faced with the guerilla insurgency, military thinking has shifted away from traditional combat to counterinsurgency, where the emphasis is on gathering intelligence and then acting quickly upon it. Within the Department of Defense, this challenge is largely seen as one of improving communications, which is why NCW has suddenly become so important.
Communications has always been crucial to the ability of a military force to operate effectively. Because of this, defense electronics have undergone several major upgrades as the needs of the U.S. military have changed. The first generation of defense-oriented communications technology consisted of analog voice communications using broadcast technology, which offered the ability to communicate from one plane to all planes within range or from one individual to all individuals within range, such as with walkie-talkies. The second generation emerged when military communications systems converted from analog to digital, thereby supporting multiple frequencies and encryption/decryption, which allowed an individual plane, ship, tank or soldier to communicate without broadcasting to the entire battlefield.
With the third, and current, generation, the communications systems within various organizations are connected to each other on a system-to-system level, allowing Army units, for example, to communicate more quickly with Air Force units. This capability was best illustrated during the war in Afghanistan, where on-the-ground commandos called down air strikes upon visible enemy targets in a matter of minutes rather than the hour or more that such coordinated activities might have taken during previous conflicts.
The current generation of communications technology has limitations, however, that can make it less effective in dealing with guerilla warfare than it is for fighting larger troop formations. Because the connectivity takes place at the systems level, communications must be channeled through each organization's respective command-and-control center. In other words, when an Army commando calls for an air strike, the request goes up to that commando's officers, who relay the request to the Air Force commander, who then instructs the plane to make the requested strike. This takes time—more time than might be available during an urban firefight, where conditions are changing second by second.
The fourth generation, NCW, connects individual units to individual units simultaneously, thus providing a more complete picture of the battlefield based on what all units are currently seeing and doing. This deeper level of connectivity will radically reduce the amount of time it takes to coordinate activities between different units and individuals, regardless of the service branches involved.
A key characteristic of NCW is the ability of the networked system to accommodate the failure of a physical element, in much the same way that the Internet accommodates failures in the network by rerouting data. For example, soldiers who are out of ammunition are not really unarmed under the network-centric model, because they can still hit an enemy target with weaponry that belongs to another unit. In short, NCW promises to keep U.S. troops safer while making them more effective in the combat situations that seem likely to dominate the war on terror.
The challenge to manufacturing
NCW represents a major change in the electronics technology for all the existing and new weapons systems of U.S. military forces. The primary financial beneficiaries of this change will be defense electronics firms such as BAE Systems, Boeing, Northrop Grumman, Lockheed Martin and Raytheon, which together account for a little less than half of the market (see the chart "Market Share of Defense Electronics 2005–2015," above). These defense contractors, and a horde of smaller players, will be bidding against each other to capture parts of NCW funding as it becomes available.
In the past, defense contractors tended to design and manufacture most of their electronics and semiconductors in-house. However, defense contractors are acutely aware that designing and manufacturing chips at today's ultradense geometries entail more risk than in the past, according to retired colonel John Kirkwood, senior manager for marketing operations at defense contractor ITT Industries. Because of this, defense contractors are increasingly turning to mainstream semiconductor firms for the expertise required to generate advanced chips with an acceptable yield.
For example, ITT has been working for some years on the Small Unit Operations Situation Awareness System (SUOSAS), a wearable device measuring 3 by 5 by 1 inches (something like an iPod/GPS/PSP/cell phone on steroids) that allows an individual soldier to receive data, intelligence and navigation information in real time. To operate securely, the SUOSAS needs to generate and read communications using a radio waveform that an enemy can't locate and decode. To accomplish this, ITT invented a waveform that "had a very low probability of interception and detection," Kirkwood explains.
After ITT discovered the waveform, it needed a chip that could read and send it. The company realized that if it wanted a reliable supply of such a chip, it would need to turn to a mainstream semiconductor firm (in this case Motorola) for manufacturing expertise. "We find that it's more practical to get our chips from other people rather than to try to go it alone, even if it means we're buying back our own technology," Kirkwood says.
Working with ITT was particularly good business for Motorola, because the latter company ended up with communications technology that has a potential to be applied to a wide range of secure network applications, according to Kirkwood. The transfer of technology from military R&D to commercial applications is nothing new. Basic cell phone technology—and the billions of chips it requires—sprouted from World War II walkie-talkies.
What's different in the case of NCW is that the Iraq War is accelerating the process by which technology gets transferred to the commercial sector. Normally, the military would take a decade or more to make such a major technological transition. Iraq, however, makes a leisurely transition impossible. Although military environments are always hard on electronics, Iraq has been something of a nightmare, according to Brad Curran, industry analyst for Frost and Sullivan, a research firm that covers the defense electronics space. "In addition to the typical problems of vibration and rough usage, in Iraq there's extreme heat combined with fine, powdery sand, both of which quickly take their toll on electronic equipment," he says.
To make matters worse, the current generation of military electronics was built with the assumption that units would be rotated in and out of combat, thus allowing time for repair and maintenance. However, the Iraq conflict has tied down so many units for so long that "even if the troops come home tomorrow, the military will still need to replace a massive amount of electronics equipment," says Curran, adding that in many cases, a one-to-one replacement will not be possible, because the original electronics parts are no longer available.
"The entire armed forces of the U.S. and its allies will be transformed into a gigantic intelligence network that can respond to threats instantaneously."
—Tom Flynn, Raytheon
Iraq has thus resulted in increased spending on defense electronics, a trend that's likely to continue for several years, according to Greg Giaquinto, defense electronics analyst for research firm Forecast International. He predicts sharp growth in defense electronics spending through 2008 (see the chart "U.S. Defense Electronics Sales") as "the shift from fighting a conventional war to fighting a terrorist guerilla insurgency moves spending from big-ticket weapons systems, such as planes and tanks, to electronic and surveillance systems." In other words, the need to make NCW happen quickly, at a reasonable cost, increases the speed with which technology gets transferred to the commercial sector. This, in turn, means that mainstream semiconductor firms will be able to bring commercial products based on NCW-related technology to the market far sooner than would otherwise be possible.
Bootstrapping new markets
Although the primary impact of NCW on the semiconductor industry will be in the area of custom-built, communications-oriented chips, NCW will also help create a market of chip technologies that were originally developed for commercial applications. An excellent example of this is radio-frequency identification (RFID) technology, which was originally designed to replace the use of universal bar codes as a way to handle complex inventories.
RFID is a big part of the overall NCW strategy, explains Bob Parker, program vice president for manufacturing insights at market intelligence firm IDC. With NCW, crates of supplies and even individual objects inside the crates will have their own network addresses and be capable of identifying themselves and their location. This will allow military units to be constantly informed of what supplies are available to them in the immediate area. "The last thing a sergeant needs when his platoon is under fire is to sign a shipping manifest for ammunition," explains Parker. "But the sergeant sure wants to know that the ammunition will be there when it's needed."
It turns out that the military's use of RFID is second only to Wal-Mart's in generating demand for RFID chips, according to Parker, thereby helping create a mass market that will get tag prices down to the point where they'll become economical for widespread commercial adoption. Thus, by bootstrapping the RFID market sooner than it otherwise might have reached fruition, NCW will have a direct and positive impact on the revenues of the big RFID vendors: Philips, EM Electronics and Texas Instruments.
Companies that specialize in programmable logic, such as Altera, Xilinx and LSI Logic, also stand to benefit from NCW. Although some weapons, such as rifles, are manufactured only in the hundreds of thousands, some weapons systems (such as fighter planes) are manufactured in the hundreds. Building completely customized chips for a few hundred planes or ships is simply not economical, leading defense contractors to favor using field-programmable gate array (FPGA) or structured application-specific integrated circuit (ASIC) designs, which would allow the core NCW communications capability to be customized to fit the individual requirements of various weapons systems.
Creating extra demand
As they become more cost-conscious, defense electronics contractors are also drawing more heavily on existing commercial products to build the computing and communications infrastructure that will make NCW-enabled devices work together, according to former Marine colonel Terry Morgan, now director of Netcentric Strategies at Cisco Systems. "There's a core of technology in the commercial world that's now being sold into the defense world," he says. "The trick to keeping defense electronics economical is leveraging the mass market."
For example, Morgan cites the example of Boeing, which used to build its own network routers for its aerospace systems. However, rather than continue the expensive process of reinvention, defense contractors such as Boeing and Lockheed Martin are now incorporating Cisco routers into their designs. Because Cisco uses both the ASIC and customer-owned tooling (COT) chip development methodology, the additional demand for Cisco products resulting from NCW will trickle down to companies (such as Texas Instruments) that supply Cisco with ASICs and companies (such as Taiwan Semiconductor Manufacturing Company [TSMC]) that provide foundry services.
"The economics of the commercial sector should be helping keep the price of defense electronics down, even as the defense industry creates an incremental market for commercial products."
—Terry Morgan, Cisco Systems
This is not to say that selling into the military marketplace is merely a matter of repackaging. Commercial electronics must typically be hardened before they can be incorporated into harsh military environments, according to Paul McNamara, CEO of The Sente Group, which helps companies test electronics for compliance with standards, including military specifications. "There's a great deal of effort involved to make sure that everything works well and that quality is built into the finished product."
It's unclear to what extent the need to harden commercial electronics devices will affect the semiconductors included within them. Currently such hardening is accomplished at the system level, as when Panasonic hardens its laptops by adding magnesium cases. However, that may change as smaller chip geometries make semiconductor performance more sensitive to environmental influences. As NCW moves forward, it may mandate that design firms provide better internal testing capabilities and more redundant circuitry inside chips, to ensure that the chips can withstand more punishment.
Working with the defense industry
NCW will require mainstream firms to work more effectively with defense contractors, according to Morgan. "That will present some challenges, because the two sectors emphasize different disciplines," he explains. "Commercial firms focus on time to market, whereas defense firms focus on providing predefined functionality by a predefined date." The mainstream's market focus makes it possible to add or drop functionality to achieve the lowest-cost, highest-value product that can be manufactured in volume within the market window. By contrast, defense electronics firms must build devices that exactly match military specifications and make them available right when the military needs them.
This difference between a market focus and the defense industry's "build-to-spec" focus creates business conflicts when it comes to maintaining product lifetimes, according to Peter Arment, a defense industry analyst at JSA Research. "Military environments tend to be far more conservative and far more concerned with making sure everything works perfectly, including legacy applications that, in the commercial world, would probably be scrapped or left behind," he explains. Because of this, defense electronics firms are likely to want their mainstream partners to keep manufacturing parts and components long after they've outlived their commercial viability. Commercial firms must thus plan to keep their older products in production longer than they might otherwise wish.
Another difference is the level of "political awareness" in the boardroom, according to Arment. In contrast to their commercial counterparts, defense contractors keep very close tabs on what goes on in Washington and react at a moment's notice to anything that threatens their revenue stream. For example, faced with the ongoing expense of the wars in Iraq and Afghanistan and the need for reconstruction after Hurricane Katrina, Congress is talking about across-the-board cuts, even in defense spending. As a result, the Department of Defense has preemptively proposed cutting $32.1 billion in spending over the next five years.
Defense electronics firms are already lobbying to ensure that funding for NCW projects remains intact. By contrast, few executives of mainstream semiconductor companies are likely to be aware that a reduction of NCW funding might postpone the upgrade process, ultimately delaying or even reducing the positive impact of NCW on the commercial market. Morgan suggests that defense firms and mainstream firms should ideally be working more closely together to ensure that funding for defense electronics remains intact.
The two sectors should also work together to ease restrictions on global outsourcing, according to Morgan. Congress requires defense firms to limit the proportion of internal components produced outside of the U.S., to help ensure that defense dollars pay the salaries primarily of American workers. However, that goal may be incompatible with the need to achieve lower costs for NCW, especially because many of the restrictions may be more bother than they're worth, at least in Morgan's view. "No laptops are being made in the United States any longer," he complains. "It's just foolish to think that you can legislate technology and innovation."
Seeking symbiosis
Ultimately, the need to achieve NCW quickly and cost-effectively must result in a symbiotic relationship between the defense industry and mainstream electronics firms, according to Morgan. "Research and development should be flowing in both directions," he explains. "The economics of the commercial sector should be helping keep the price of defense electronics down, even as the defense industry creates an incremental market for commercial products."
Such a symbiosis would provide substantial benefits to both sectors. Defense electronics firms would be freed to spend their resources on performing the defense-specific R&D required to make NCW practical, and commercial electronics firms could use their expertise to bring cost efficiencies to the manufacturing process. The symbiosis would also allow our armed forces to upgrade more quickly to NCW, which will not only help them succeed in their missions but also make troops less likely to be injured or killed in the process. And in the end, that's far more important than the health and welfare of the defense industry, the electronics industry or the political powers that be.
Geoffrey James is a frequent EB contributor.
