Wednesday, February 15, 2012

Welcome to the CyberWar Front

The way wars are fought is changing rapidly.

From conflicts using hardware – planes, ships, tanks, guns and troops – wars in the future are more likely to be fought using computers and malicious software. In other words, cyber warfare.

Companies involved in the defense business like Boeing (NYSE: BA), Lockheed Martin (NYSE: LMT) and others are steadily shifting their business to fighting such a war. The move has been accelerated in the light of a number of high-profile attacks such as the Stuxnet attack in 2010 on Iran's nuclear program.

There is a virtual feeding frenzy among these companies and specialist national security firms like Mantech International (Nasdaq: MANT) and CACI International (NYSE: CACI) right now to provide the U.S. government the means to protect against a cyber attack or even to launch one of its own on enemies.

Many of the bigger companies like Boeing are expanding in this area largely through the acquisition of small companies that specialize in cyber warfare with more than a dozen acquisitions occurring in 2011.

All of the companies in this sector are hoping to get a piece of the expanding U.S. budget for cyberarms. American defense, intelligence and homeland security agencies currently spend about $10 billion annually on cybersecurity according to software firm Deltek.

That is a very small portion of the Pentagon's $600 billion annual budget. But what should grab investors' attention is the fact that the $10 billion figure is expected to climb by at least 9% a year for the foreseeable future, even as the rest of the Pentagon budget is facing cuts.

Add to the Pentagon's cyber budget what private companies are spending on cyberarms and fighting against cyber criminals, and the cyberwar market is more like a $100 billion market in the United States alone, says Northrup Grumman (NYSE: NOC) executive Kent Schneider. By the way, cyberarms already accounts for over $1 billion of the company's $27 billion in annual revenue.

Outside the United States, spending on cyber warfare has also picked up. Since the Pentagon's Cyber Command (with 10,000 people when fully staffed) became operational in 2010, more than a dozen countries, including the U.K. and France, have moved to setting up a similar operation.

Unfortunately, even with the military preparedness for cyber warfare, the U.S. is still very vulnerable to cyber attacks.

The fact is that about 85% of the internet is under control of private companies which aren't spending much on protecting their piece of cyberspace. This is particularly troublesome when it comes to vital infrastructure.

Experts in cybersecurity believe that the companies which control the U.S. electric grid, transportation and telecommunications networks need to invest into safer infrastructure.

An attack on any key part of the country's infrastructure could cripple the U.S. economy. It is estimated that damage from a single wave of cyberattacks on critical infrastructure could exceed $700 billion.

Some industries are taking the threat seriously. Utilities, for example, are working on measures to defend against cyberattacks. Deployment of cybersecure systems is expected to take place by 2020.

But there is a lot of work to be done by both private companies and the government when it comes to cyber defense, creating vast opportunities for companies involved in this sector.

Investors should expect an acceleration of the demand for cybersecurity in the years ahead from both the government and private enterprise. This can only benefit companies in the sector.

This article originally appeared on the Motley Fool Blog Network. Please check my daily articles for the Motley Fool at

1 comment:

  1. This whole thing is a little scary. The likes of hackers should be a concern for everyone.