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Lockheed, Boeing Take Aim at $11 Billion Cybersecurity Market

http://www.bloomberg.com/apps/news?pid=20601103&sid=an2_Z6u1JPGw&refer=news

By Gopal Ratnam

Dec. 30 (Bloomberg) -- Lockheed Martin Corp. and Boeing Co., the world’s biggest defense companies, are deploying forces and resources to a new battlefield: cyberspace.

The military contractors, eager to capture a share of a market that may reach $11 billion in four years, have formed new business units to tap increased spending to protect U.S. government computers from attack.

Chicago-based Boeing set up its Cyber Solutions division in August “because of a realization by the company that it’s a very serious threat,” Barbara Fast, vice president of the unit, said in an interview. “It’s not a question of if we’ll be attacked but when and so how will we be prepared.” Lockheed launched its cyber-defense operation in October.

President George W. Bush announced a national cybersecurity plan in January to be supervised by the Department of Homeland Security, after an increasing number of attacks on U.S. government and private sector networks by groups linked to foreign governments, organized crime gangs and hackers. In a Dec. 8 report, a panel of experts said President-elect Barack Obama should create a White House office to oversee the effort.

“The whole area of cyber is probably one of the faster-growing areas” of the U.S. budget, Linda Gooden, executive vice president of Lockheed’s Information Systems & Global Services unit, said in an interview. “It’s something that we’re very focused on. I expect there will be a significant focus” under Obama.

The number of security breaches of U.S. and private-computer networks reported to the Computer Emergency Readiness Team of the Homeland Security Department almost doubled to 72,000 in the fiscal year ended in October from about 37,000 the previous year, agency spokeswoman Amy Kudwa said in an interview.

‘Significant Focus’

U.S. government spending to secure military, intelligence and other agency computer networks is forecast to rise 44 percent to $10.7 billion in 2013 from $7.4 billion this year, according to a report by market forecaster Input.

Security-system spending will grow 7 percent to 8 percent annually, “significantly faster” than information-technology, which has increased about 4 percent a year in the past five years, said John Slye, an analyst at the Reston, Virginia, company.

Obama, in a July 16 speech at Purdue University, said he would make cybersecurity “the top priority that it should be in the 21st century.”

The possibility that the Obama administration may devote more resources to securing the nation’s networks is attracting traditional defense contractors such as Lockheed and Raytheon Co. to compete with established providers like McAfee Inc. and Symantec Corp.

Raytheon, L-3

New York-based L-3 Communications Holdings Inc., and San Diego-based SAIC Inc., also have created special cybersecurity units. Their spokesmen declined to comment.

Raytheon has been “at this a bit longer” than Boeing and Bethesda, Maryland-based Lockheed, Steve Hawkins, Raytheon vice president for Information Security Solutions, said in an interview.

In the past 18 months, the Waltham, Massachusetts-based defense contractor acquired network-security providers Oakley Networks, SI Government Solutions and Telemus Solutions Inc. to boost its capabilities, Hawkins said. To meet the likely increase in demand, Raytheon plans to add 300 certified security engineers in 2009 to its current pool of 600 technicians, he said.

Computer security is part of the company’s intelligence and information systems unit, which contributed 12 percent of Raytheon’s $21.3 billion in revenue last year.

More Sophisticated

“In the past year cyber exploitation and malicious activity we’ve been experiencing on our networks has grown far more sophisticated than we thought was possible,” Melissa Hathaway, Cyber Coordination Executive for the Director of National Intelligence, said Dec. 10 at a conference in Washington sponsored by the Armed Forces Communication and Electronics Association. “We expect these trends to continue.”

U.S. government agencies received an overall grade of “C” on computer security in fiscal 2007, according to a May report by the U.S. House Oversight and Government Reform Committee. The Pentagon’s “D-” was an improvement over its failing grade in 2006, while the Treasury Department, the Nuclear Regulatory Commission each scored an “F.” The Justice Department earned an “A.”

Many of the government agencies also were found lacking a crisis-response plan if their networks were to suffer a series of breaches, based on the outcome of a cybersecurity game organized Dec. 17 and 18 in Washington by the consulting firm Booz Allen Hamilton and the non-partisan Business Executives for National Security.

War Game

In the game, players were told that university students received free portable computer drives and compact discs at a sports event. When the discs were plugged into computers, malicious software embedded on the devices spread, causing shutdowns of computer networks in the U.S. government, financial institutions, and the transportation sector.

“We need to have a plan tailored for a cyber crisis,” Michael Chertoff, secretary of homeland security, said Dec. 18 at the end of the simulated exercise.

If the U.S. computer networks are attacked by a terrorist group or a foreign government, “Is this an act of war? How do we respond?” he said. “We haven’t put together that strategy yet.”

President-elect Obama must assert that the “cyber-infrastructure of the United States is a vital asset for national security and the economy,” according to a Dec. 8 report by the Center for Strategic and International Studies, a Washington think tank.

That’s just what Obama said he will do.

“I’ll declare our cyber-infrastructure a strategic asset, and appoint a National Cyber Advisor who will report directly to me,” he said in his July address at Purdue. “We’ll coordinate efforts across the federal government, implement a truly national cyber- security policy, and tighten standards to secure information.”

Congress, too, will examine U.S. antitrust laws that may restrict companies from sharing information on cyber attacks in a crisis, Representative James Langevin, a Rhode Island Democrat and chairman of the House Homeland Security Subcommittee on Cybersecurity, said in an interview.

“It’s going to be a multiyear, multibillion-dollar project to get the right cybersecurity mechanisms in place,” he said.

To contact the reporter on this story: Gopal Ratnam in Washington at [e-mail].

Last Updated: December 30, 2008 00:00 EST