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Defence’s new centralised computing eco-system: the winners and losers

by Helen Flint •
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A number of suppliers will need to re-think the way they supply the Department of Defence (Defence) following the award of the provision of centralised processing services to Lockheed Martin under an $800 million contract and the revelation of its nominated sub-contractors.

Although Defence has established its primary data centre at Global Switch premises, under a contract with Accenture, it is up to Lockheed Martin and its sub-contractors to consolidate Defence’s remaining 280 data centres into 11 domestic and three international facilities, integrating the management of infrastructure and services across the Department’s various security domain levels until at least 2022, when the initial contract expires. 

A Defence spokesperson told Intermedium that Lockheed Martin’s proposed architecture for centralised processing will dictate the new data centre mainframe, midrange server, storage, and network capabilities.

The changes mean that the new Defence centralised computing eco-system has both major winners and major losers. 

The winners are the Lockheed Martin sub-contractors who seem assured of Defence related business at least to 2022. Details of the value of business to be undertaken by each sub-contractor is as yet unknown, except for NEC, who will receive in the vicinity of $150 million.

The losers seem likely to include the sub-contractors’ channel partners who previously supplied the sub-contractor’s equipment to Defence such as Frontline and Dimension Data.

Also likely to be heavily impacted will be companies that currently contract mainframe, server, storage and network solutions directly to Defence but who are not in the sub-contractor group. They include IBM, Oracle, Hewlett Packard, Hitachi Data Systems and Avaya.

The changed supply arrangements will take variable periods of time to impact the current Defence suppliers.  The Defence spokesperson advised that “existing contracts for mainframes, servers, storage and network capabilities will continue to be drawn on, until they are replaced with new capabilities delivered under the centralised processing contract.”

Winners

Lockheed Martin has included Defence’s two major storage suppliers (in NetApp and EMC) in its group of sub-contractors, the dominant data centre supplier to Federal Government agencies (in Canberra Data Centres), one of its major network suppliers (in Cisco) and its dominant virtualisation technology supplier (in VMWare). Deloitte, NEC, ASG and Canberra newcomer ISI round out the group as IT Services providers.

The total contract value (TCV) of contracts struck directly with Defence by these Lockheed Martin sub-contractors is outlined below. However, it should be noted that as AusTender (the source of the contracts data that underpins Intermedium’s research) only reports the name of the prime contractor, the figures below do not include the value of contracts to these companies as original equipment manufacturer (OEM) where channel partners primed the contract.  In most of these contracts, the contract descriptions given do not reference the OEM.

TOTAL VALUE OF DIRECT CONTRACTS WITH DEFENCE

Lockheed Martin

Sub-Contractor

$m

7 years

2007-08 2013-14

$m

3 years

2011-12 2013-14

$m

1 year

2013-14 2013-14

Comments

NetApp

85.1

57.8

32.7

Additional business may have been done with Defence via NetApp’s channel, but this is not quantifiable

EMC

68.5

18.6

2.0

Additional business may have been done with Defence via EMC’s channel, but this is not quantifiable

Dell

22.9

12.0

0.92

Dell TCV minus desktops and laptop contracts

Cisco

52.7

26.1

10.3

Additional business may have been done with Defence via Cisco’s channel, but this is not quantifiable

Deloitte

13.1

3.6

9.5

2013-14 is for development and sustainment of the Forcenet System

Canberra Data Centres

0

0

0

CDC has not previously had any business with Defence, however, it commenced a 10 year $223.7 million data centre lease with DHS in 2011

NEC

9.9

1.2

0.13

 

ASG

2.6

0

0

 

ISI

0

0

0

No contracts on AusTender with any agency.  Its website states that it will be responsible for mainframe services

VMWare

0.26

0

0

VMWare has an exclusively channel model.  All its business with Defence will have been via its channel, but this is not quantifiable.

Total

255.06

119.30

55.55

 

 

The following graph illustrates the amount of direct business each of the sub-contractors has done with Defence over the last seven years.

Losers

The sub-contractors’ channel partners may find it difficult to maintain their previous substantial levels of business with Defence after the transition to the new Lockheed Martin arrangements for centralised computing is completed.  Companies such as such as Frontline and Dimension Data have previously won substantial centralised computing-related contracts for the supply of their OEM partners hardware and software.

In June 2014, Defence signed a $264 million contract with IBM for the continued provision of mainframe hardware, software and services over the six years to June 2020, so the impact of the Lockheed Martin arrangement will not be felt by IBM immediately.  The duration of the IBM contract also signals that Defence does not expect any transition away from the IBM mainframe to be achieved immediately by Lockheed Martin.

Excluding the mainframe contract, over the last seven years IBM had a TCV of $52.7 million for large computing systems (Intermedium’s sub-category that takes in mainframe and mid-range servers).

Oracle (ie its Sun Microsystems business) had a TCV of $27.7 million and Hewlett-Packard had a TCV of $19.5 million.  

With NetApp and EMC both aligned with Lockheed Martin, other storage suppliers are likely to find it difficult to do business with Defence once their existing contracts expire. Over the last seven years Oracle had storage related TCV of $4.4 million, IBM $3.1 million and HP $2.5 million.  Hitachi Data Systems primed contracts (ie as opposed to channel) had a TCV of $5.8 million.

Although it too sells through partners, Avaya is by far the largest direct supplier of network equipment and services to Defence with $22.0 million over the last seven years. For the three years from 2011-12 to 2013-14 Avaya had a TCV of $13.4 million (compared to Cisco’s $10.2 million) and in 2013-14 Avaya had a TCV of $4.0 million (compared to Cisco’s $3.7 million).

The combined Defence and Defence Materiel Organisation TCV was $2.11 billion in 2012-13, during which 4,062 contracts were signed. This was 43 per cent of the total value of the Federal ICT market in that year.

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