European militaries show steady appetite for American electronics

June 1, 2004
Designers of military electronics systems in the U.S. for the most part find that growth in the European military market is steady, but import/export regulations and new security measures tend to stymie companies that do not have European-based manufacturing.

By John McHale

SANTA CLARITA, Calif. — Designers of military electronics systems in the U.S. for the most part find that growth in the European military market is steady, but import/export regulations and new security measures tend to stymie companies that do not have European-based manufacturing.

Doug Patterson, director of marketing for Vista Controls, a subsidiary of Curtiss-Wright, in Santa Clarita, Calif., says his company has seen a noticeable increase in European and Far East sales inquiries. He says much of the business is from the United Kingdom, but "a respectable amount of self-sustaining business (i.e. not losing money) is from France, Turkey, Italy, India, and Japan."

"As Vista Controls alone, maybe less than 10 percent is European business, most is U.S.-based," Patterson says. "As Curtiss Wright collective (Dy 4/Vista/Systran/Peritek), this number approaches approximately 25 percent," he adds.

Dy 4 Systems in Kanata, Ontario, which recently joined Curtiss-Wright, continues to see "good growth, about 20 percent of overall, mostly in the United Kingdom, says Ian Stalker manager of marketing communications at Dy4. "France and others have too many buy- domestic requirements. The United Kingdom has a better understanding of commercial off-the-shelf (COTS) procurement as well."

"The European military market is incredible and very fruitful," says Lynn Robinson, marketing communications manager for Green Hills Software in Santa Barbara, Calif. "This market accounts for a substantial part of our European business. I am not allowed to give percentages." She adds that the business is growing substantially, more than doubling each year.

"It is our perception that companies that have operations based in Europe have an advantage, otherwise growth in that market is slow," says Tom Schmedake, product manager at AP Labs in San Diego. "It is tough to grow due to International Traffic in Arms Regulations (ITAR). Plus European countries are passing similar restraints on using foreign companies.

"Some countries that don't have requirements, such as the Scandinavian nations, want new technology while countries like Turkey have the money and no equipment," Schmedake says. There are opportunities in Europe but not huge ones because of the regulations in the U.S. and abroad, he adds.

The U.S. has also hyped up security measures during the War on Terror and Gulf War II. One purchase order required AP Labs to use engineers only born in the U.S., Schmedake says. "Also, the engineers had to be U.S. citizens even for an unclassified project."

The recent trend in the U.S. to have companies "buy American" has caused many European companies to take a similar approach, says Glenn Mullan, European sales director for DDC in Bohemia, N.Y. This is making some U.S. companies nervous about doing business in Europe, but it really has not hurt serious buying and acquisition, he says. If a government really needs a certain part they will not let a "buy European" trend get in the way, Mullan adds.

Frank Willis, vice president at SBS Technologies in Albuquerque, N.M., says his company's German operation helps get by trade regulations. SBS acquired German-based OR Computer a few years ago.

"SBS's European business is 50 percent military, of that percent a little less than half is Europe," Willis continues. "It is growing faster than our U.S. business."

"We sell quite a lot to European and other government (military and otherwise)," says Lisa Baker, vice president of marketing at Kontron in San Diego. "We see an increased demand for small form factor, commercially rugged products — both boards and complete systems — all around the world. We actually sell more (don't know the percentages) to Germany than anywhere else in Europe." Kontron has major operations based in Germany.

The European tactical military-communications market is expected to have steady growth for the next 10 years, say analysts at Frost & Sullivan in London.

A study released by the market research firm at the beginning of the year shows that during the next 10 years the market will grow from $1.79 billion today to an estimated $2.25 billion in 2013. Frost & Sullivan analysts say they expect pockets of strong growth driven by technological advances and evolving military doctrines are expected to sustain the market's steady expansion.

The adoption of a network-centric war doctrine by European military forces, the need for effective power projection capability, and the importance of sensor-to-shooter connectivity as established in the Afghanistan and Iraq conflicts are all projected to drive market growth, Frost & Sullivan officials say. At the same time, the development of commercial off-the-shelf (COTS) technology with crossover applicability in the military marketplace is expected to add to growth momentum.

Promising areas of growth include software-defined radio (SDR), WNR, data-links for air defense, squad-level radios, and air-to-ground connectivity for close air support, Frost & Sullivan officials say. Sizable SDR procurements post-2010 are expected to underline a revenue potential of $1.3 billion in 2013.

Several technological advances are transforming the market with SDR poised to dominate overall, especially after 2010, Frost & Sullivan analysts say. Subsequently, two-thirds of all tactical land systems are forecast to switch to SDR, they add. Soldier modernization programs are likely to be the launch pad for SDR's rapid takeoff.

"Larger system projects have typically dominated this market in the past but the market is now clearly moving toward incremental procurement as the nature of systems change, opening out the market," says Frost & Sullivan aerospace and defense analyst Ben Moores.

"Companies that grow in the future would be those that take advantage of the synergy between the various market segments and rapidly adopt the advancements in technology developed in the commercial world," concludes Mr. Moores. "Companies will also have to continually find new ways to improve their problem-solving capability as opposed to compliance as the market moves steadily away from large big bang-style procurement towards an incremental basis."

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