Fed Sources warns of slow market growth

Echoing market projections that other firms recently issued, Federal Sources Inc. warned today that the growth of the federal information technology market will be slow in coming years.

Ray Bjorklund, senior vice president and chief knowledge officer at FSI, said today that the growing number of companies trying to get into the market amplifies the diminished market opportunity.

Speaking to an audience at the firm's 21st annual Federal Outlook Conference, he said that in fiscal 2005, 19,775 companies competed for about $75.5 billion in federal IT contracts.

"As the market contracts, all these new entrants may add to the confusion of the customer base," Bjorklund said.

In recent years, supplemental appropriations that the Bush administration has used to pay for the war in Iraq have aided federal budgets for IT and other products and services. The supplemental funds covered $19 billion in technology-related products and services in fiscal 2005 and $41.3 billion in fiscal 2006, he said.

Companies should not count on that trend continuing, Bjorklund said. "The Senate is getting a little fed up with the executive branch coming back to ask for supplementals," he said. "There probably won't be supplementals next year."

For IT specifically, not more general technology, supplemental funds paid for $9.7 billion in fiscal 2005 and $10.47 billion in fiscal 2006, he said.

The total federal IT market will grow at a compound annual rate of only 1.6 percent from fiscal 2005 to 2008, according to FSI's projections. In dollars, the projection is from $63.84 billion in fiscal 2005 to $66.87 billion in fiscal 2008.

Broken down into market segments, the judicial branch is expected to have the most robust growth, with a 9.6 percent compound annual growth rate. The Defense Department is projected to fall at a compound annual rate of 0.7 percent in the same period, from $31.53 billion in fiscal 2005 to $30.86 billion in fiscal 2008.