Will Sequestration Cuts Slam Military Electronics Supply Chain?

PHOENIX--Sequestration cuts in the US federal budget are set to take effect Friday, March 1, and the doomsday scenarios are everywhere.

Transportation officials predict massive airport delays; and Congressional Budget Office estimates cuts will put 750,000 people out of work.

One fear is that the cuts in the military budgets will severely damage demand for electronics and semiconductors all along the supply chain.

But Bryan Brady, vice president of defense/aerospace for Avnet Electronics Marketing Americas, isn't losing any sleep over the situation.

"Much of those proposed cuts are outside of electronics," Brady told us last week.

In addition, all the areas in weaponry or productivity that the Department of Defense is keen on demand new electronics systems, he said. "Electronics content continues to rise" in military systems.

Worry over the impact of budget sequestration cuts
extends into the military-electronics supply chain.

That said, Brady acknowledged, "There's no question the party's over for year-over-year defense spending." That's because US military involvement in Iraq and Afghanistan are winding down.

Big potential
For Avnet's military business, that meant a 5 to 6 percent decline in 2012. But since Avnet groups its aerospace/aeronautics business with military electronics, the opportunity in North America remains huge: an estimated $4.5 billion total available market.

"That's a pretty big pond," notes Brady.

Commercial avionics is experiencing double-digit growth (Boeing and Airbus have record backlogs), and military spending from abroad hit a record in 2012, according to Brady.

So if nothing is done this week, and the sequestration cuts begin to trigger on Friday, Brady still sees only "single-digit impacts" to the electronics TAM.

Here's hoping.

What's your take? Will sequestration cuts affect your business?

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