Obama Boosts Pentagon Cyber Budget Amid Rising Attacks

Photographer: Chris Ratcliffe/Bloomberg

Bethesda, Maryland-based Lockheed Martin Corp., the No. 1 federal contractor, has been picked to conduct disability exams for the U.S. Department of Veterans Affairs and to develop software for the Centers for Disease Control and Prevention. Close

Bethesda, Maryland-based Lockheed Martin Corp., the No. 1 federal contractor, has been... Read More

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Photographer: Chris Ratcliffe/Bloomberg

Bethesda, Maryland-based Lockheed Martin Corp., the No. 1 federal contractor, has been picked to conduct disability exams for the U.S. Department of Veterans Affairs and to develop software for the Centers for Disease Control and Prevention.

The Obama administration plans to boost U.S. spending on computer network security, including a 21 percent increase at the Pentagon, after reports of rising cyber attacks and electronic theft of secrets linked to China.

President Barack Obama yesterday proposed a $3.8 trillion budget for the fiscal year beginning Oct. 1. The document, an opening bid in negotiations with Congress, recommends more than $13 billion for cybersecurity, U.S. Chief Information Officer Steven VanRoekel told reporters on a conference call.

“There’s hardly anything that the government’s doing new these days that doesn’t involve” information technology, VanRoekel said.

Pentagon spending on cybersecurity operations would jump to $4.7 billion in fiscal 2014 from $3.9 billion the prior year, Defense Comptroller Robert Hale told reporters yesterday.

Defense initiatives include creating teams of cybersecurity specialists to carry out defensive and offensive operations and constructing a new joint programs center for U.S. Cyber Command, the Pentagon said in its spending plan.

The White House is proposing a boost in funds to fight what National Security Adviser Thomas Donilon said in a March 11 speech is theft of intellectual property and trade secrets through “cyber intrusions emanating from China at a very large scale,” a point of contention with the Chinese government. The Chinese army may be behind the hacking of at least 141 companies worldwide since 2006, according to a Feb. 19 report from Alexandria, Virginia-based Mandiant Corp.

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Cyber Vendors

The overall cybersecurity spending proposal of more than $13 billion is about $1 billion more than current levels, according to Ari Isaacman Astles, a spokeswoman for the White House Office of Management and Budget.

Increased U.S. computer security spending may benefit SAIC Inc. (SAI) and Northrop Grumman Corp. (NOC) in the defense area and Dell Inc. (DELL) and Hewlett-Packard Co. (HPQ) in the federal civilian space, according to data compiled by Bloomberg Government.

Cybersecurity is one of the few areas where Obama and Congress agree on increased spending, said Allan Holmes, director of technology research for Bloomberg Government.

“The White House and Congress understand that the lack of computer security means a threat to the economy and to the security of the nation,” Holmes said.

Heightened cybersecurity spending could benefit defense companies with data- and network-security expertise that are grappling with possible cuts in weapons systems.

‘Growth Opportunities’

BAE Systems Plc (BAESY) is “actively pursuing a number of growth opportunities” in cyber spending, DeEtte Gray, president of the London-based company’s intelligence and security division, said in an e-mail.

At Bethesda, Maryland-based Lockheed Martin Corp. (LMT), the largest federal contractor, “our portfolio of products, services, and technologies are well aligned with the government’s priorities” that include cybersecurity, space exploration, health care and energy, Jennifer Allen, a spokeswoman, said in an e-mail.

The Homeland Security Department is seeking $810 million to protect federal computers and help defend banks, utilities, and telecommunications networks from attacks in fiscal 2014, compared with $756.8 million enacted by Congress in the current year.

The agency’s budget request also includes $44 million in new funding to improve information sharing about hacker threats between government agencies and companies, which is part of a cybersecurity executive order Obama issued in February.

Connecting Networks

The administration’s budget plan calls for linking cybersecurity centers across the government to coordinate fighting online attacks.

A major potential contracting area in the budget is the coordination of fighting online attacks through the Comprehensive National Cybersecurity Initiative Five (CNCI-5), which “seeks to connect cybersecurity centers and other cybersecurity analytics electronically and in real time,” according to the White House.

“You’re starting to see the increase in the budgets to back up where they’ve been trying to take those networks,” Wendy Martin, vice president of advanced cyber solutions for Harris Corp. (HRS) said in an e-mail. “We think it’s all in a positive direction.”

Booz Allen Hamilton Holding Corp. (BAH), SAIC and Northrop Grumman were the top three contractors in defense cybersecurity, according to data compiled by Bloomberg Government last year. Dell, Hewlett-Packard and Computer Sciences Corp. (CSC) were the top three cybersecurity providers to civilian agencies.

‘Pressing Needs’

Ralph W. Shrader, chief executive officer of McLean, Virginia-based Booz Allen, said in a Dec. 5 earnings call that his company had been changing its focus to “today’s most pressing needs” including cybersecurity and health care.

Cybersecurity is a line item in many agency budgets. These range from a $93 million enhancement to the Justice Department’s cyber efforts, including expanding data sharing and helping state and local authorities respond to online incidents, to the Energy Department’s $134 million in funds for research and development, including energy-control systems for smart grids.

The Defense Department’s total discretionary budget would increase 0.2 percent to $526.6 billion, according to a White House budget summary.

Defense Cuts

Obama’s fiscal plan assumes the Pentagon won’t have to absorb the $50 billion in cuts next year required under the deficit-reduction process called sequestration. That means the president and Congress would have to reach a deal on an alternative. While Obama proposes about $100 billion in defense cuts over a decade, most would be delayed until later years.

Lockheed and General Dynamics Corp. (GD), based in Falls Church, Virginia, have expanded into both cybersecurity and health care. Lockheed conducts disability exams for the Department of Veterans Affairs and develops software for the Centers for Disease Control and Prevention. General Dynamics helps provide electronic medical records and information technology for federal health services.

Rob Doolittle, a General Dynamics spokesman, declined to comment.

Military contractors will continue to direct attention to growing non-defense areas, such as health care and data services, Bill Loomis, a Baltimore-based analyst at Stifel Nicolaus & Co., said in an interview.

“Over the next couple of years, you’ll see a turn, the services will show improvement and growth while big weapons programs decline further,” Loomis said.

To contact the reporters on this story: Chris Strohm in Washington at cstrohm1@bloomberg.net; Todd Shields in Washington at tshields3@bloomberg.net

To contact the editor responsible for this story: Stephanie Stoughton at sstoughton@bloomberg.net

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