Change in Iraq Would Have Tech Industry Impact

Last Updated Aug 25, 2008 11:29 AM EDT

High tech Blackhawk helicopterOne of the potentially clear areas of change in the face of a presidential election is foreign policy. As BusinessWeek pointed out, these are unpredictable times for military deployments and for the defense contractors that provide equipment. But any impact on defense spending won't stop there; many high tech companies could find sudden shifts in demand -- and possibly drops that they didn't expect.

Military budgets mean high tech spending -- a lot of it. For fiscal year 2008, that's been $316 billion spent on weapons acquisitions alone, and that doesn't count ordinary IT spending. It's easy to forget just how digitally-driven the military is these days. A few years ago, I was wrote about the group that provided information security for military data networks in Iraq and Kuwait. Given 130 degree mid-day highs and sand everywhere, a lot of gear replacement seemed like a safe bet.

From PCs and routers to display screens and components for custom electronics, the U.S. military depends on technology, making it both directly and indirectly a major purchaser. But the purchasing that a war kicks off goes much further than would seem obvious. For example, one of the favorite activities of soldiers stations in Iraq has been video gaming:

Games are as ubiquitous at Camp Fallujah and around it as tattoos, buzz cuts and shouts of "Hoorah" from one Marine to another. When the power goes out, a Humvee battery and a pair of alligator clips are all the resourceful gamer needs to resume the digitized fight. The military has long brought the newest technology with it to war zones -- and then provided for those who forgot to bring what they wanted. At the post-exchange in Camp Fallujah, a stack of Playstations and Xboxes share an aisle with DVD players, televisions and microwave ovens.
Even now, U.S. teenagers are sending gaming equipment to troops. Greater demand for products could also increase the prices, and margins, which manufacturers and resellers get in general. One soldier's mother was donating laptops to wounded troops recuperating at Walter Reed Army Medical Center, as have other individuals and groups. Soldiers on the groups use their own laptops to keep in touch with friends and family back in the States via email, as well as the world at large with blogs. I don't know that anyone has ever added all this up, but I have a suspicion that the financial ecostructure is extensive and large.

According to BusinessWeek, there is a problem in trying to predict what would happen in military technology spending in a phased pull-out from Iraq. Clear prognostication isn't a matter of saying that it will go down, as happened after the Vietnam War:

"The difference, in a post-9/11 world, is that the perception of threat isn't likely to ease just because U.S. troops are no longer actively engaged in Iraq," says Cai von Rumohr, an analyst at Cowen & Co. in Boston. Recent government changes in Pakistan, a volatile U.S. ally; Russia's intervention in Georgia; and new threats in Algeria all argue for sustained, if not higher, arms spending, he says. So does the fact that U.S. military equipment is, on average, probably older than it was after prior conflicts, which bolsters the case that Armed Services officials make for bigger budgets, he adds.
The trick for tech companies will be to carefully follow what happens to know which technology needs will kick up.

Blackhawk helicopter image via Flickr user soldiersmediacenter, CC 2.0.

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    Erik Sherman is a widely published writer and editor who also does select ghosting and corporate work. The views expressed in this column belong to Sherman and do not represent the views of CBS Interactive. Follow him on Twitter at @ErikSherman or on Facebook.