The U.S. is by far the biggest defense market in the world, spending more than the rest of the top ten markets put together, so any sign that its demand is waning is alarming for the industry.
"The reality remains that the U.S. is only mid-way through what is likely (based on history) to be a sustained defense spending downturn," Deutsche Bank analysts argue.
(Read more: The battle for 2014: A shrinking defense industry)
Spending on weapons as a proportion of the Pentagon budget has declined from 35 percent of total budget spending at its peak in 2008 to less than 30 percent today, according to figures from the Department of Defense.
Arms manufacturers are being boosted by "robust growth" in the Middle East and Asia, according to Craig Caffrey, senior analyst at IHS Jane's Aerospace, Defense & Security department.
"More traditional geopolitical and strategic factors are providing a degree of impetus behind the continued growth in military spending in Asia and the Middle East," Caffrey told CNBC.
"China's more assertive stance in North East Asia for example has certainly been a factor in determining Indian and Japanese defense spending."
The centuries-old rivalry between near neighbors China and Japan has flared up again recently, with new Japanese Prime Minister Shinzo Abe trying to re-establish Japan's economic and political potency in the region.
(Read more: Japan issues veiled threat to China over arms race)
And the emergence of China, which is now second only to the U.S. in spending on defense, as a potential superpower will move the U.S. focus to Asia, according to Caffrey.
"The strategic focus is now shifting from the Middle East and Europe towards Asia and so I think that will certainly be the focus of the next decade," he said.
China is also emerging as a power in defense manufacturing. When China Precision Machinery Export-Import Corporation shocked the market last year by winning a Turkish contract from more established players Raytheon and Lockheed Martin, it became an exemplar of the challenge posed to the older U.S. and European players. Arms trading has often been a way of cementing international alliances, and one way of making closer links with emerging power China is to buy its goods.
Tensions have also resurfaced in the Middle East, where Saudi Arabia, for example, has tripled its defense expenditure in the past decade. Four of the five fastest growing defense markets are now in the Middle East, as regional instability continues.
And the emerging threat of cyberterrorism, highlighted by the recent activities of the Syrian Electronic Army, is accounting for a growing slice of defense budgets – although it is far from the amount spent on weapons for traditional warfare.
(Read more:Cyber fatality threat grows)
Western defense giants, taking margin hits from cuts, are being forced to make job cuts.
"With falling global demand and increasing competition, the outlook is tough, but we are seeing increasingly high (?) levels of cash generation as the industry squeezes both costs and cash out of the system," Charles Armitage, analyst at UBS, said.
- By CNBC's Catherine Boyle. Twitter: @cboylecnbc.