Security 50: A security industry reshuffling in the cards?

Looking back, security in 2022 operated in a world that saw a slowed recovery from COVID due to various factors, including inflation and geopolitical tensions. Economically speaking, the world had an average GDP growth of 4.1 percent in 2022, dropping from 5.5 percent in 2021, according to the World Bank. Advanced economies such as the U.S. and the Euro area grew 3.8 percent last year, down from 2021’s 5 percent, while emerging markets had a growth of 4.6 percent, down from 2021’s 6.3 percent.
 
China, meanwhile, registered a 2022 GDP growth of 5.1 percent, down from 9 percent for 2021, due to challenges on several fronts. Domestically, China issued lockdowns in different cities throughout 2022, in response to a rise in COVID cases. Then, there is China’s ongoing real estate crisis – the Chinese government’s effort to regulate the debt limits of major Chinese developers, like the Evergrande Group, had caused the country’s real estate market to tumble. External factors also played a role. Geopolitical tensions between the U.S. and China had prompted the U.S. to place severe trade barriers and restrictions against China.

Impact on security

So how did these factors play out in security last year? Upon first look, they brought little change to this year’s Security 50. The top 10 global security manufacturers in access control and video surveillance in our 2023 Security 50 ranking are Hikvision Digital Technology, Dahua Technology, ASSA ABLOY, Axis Communications, Motorola Solutions, Allegion, Tiandy, Hanwha Vision (formerly Hanwha Techwin), Uniview Technologies and Aiphone. Hikvision and Dahua remain the world’s largest security companies, with 2022 security product/equipment sales reaching US$9.8 billion and $4.5 billion, respectively (based on the IRS’s 2022 average currency exchange rates). There were several new entrants including China-based smart home solutions provider MEARI and Korean biometric solution provider Union Community. 
 
Yet a surprising  part of this year’s Security 50 was the growth list. Of the 17 companies that registered 2022-2021 revenue declines, 12 were Chinese companies. While China companies’ revenue declines were somewhat expected given the environment, the number of companies that inked sales declines, and the magnitude of these declines (by as much as 40.2 percent), still caught us off guard.
 
Indeed, China’s internal and external challenges mentioned earlier – lockdowns, real estate crisis and tensions with the U.S. – all played a part. “Chinese government spending was diverted away from other areas, including spending on video surveillance, and towards battling COVID-19 and supporting its economy during these lockdowns. Restrictions lasted much longer than many observers had anticipated, with the Chinese government finally easing its ‘zero Covid’ policy in December 2022,” said Jon Cropley, Principal Analyst, and Josh Woodhouse, Founder of Novaira Insights.
 
At the same time, U.S.-China tensions, which led to legislation like the National Defense Authorization Act (NDAA) that bans the US government from purchasing video surveillance equipment by Hikvision and Dahua, had caused Western and non-China brands to register a proportional growth in their 2022 revenue. These include VIVOTEK, with a sales increase of 82.48 percent; Hanwha Vision, 47.52 percent; Axis, 36.01 percent; Milestone Systems, 30.43 percent; and IDIS, 22.17 percent. It should be noted that many of the U.S.’s Western allies, for example U.K., have also enacted NDAA-like legislation.

“The shift away from Chinese vendors continued at pace not just in the U.S., but across Northern Europe and countries in Asia including Japan and South Korea. In part, many organizations and systems integrators want to standardize on NDAA-compliant equipment to ensure existing and future business in the U.S., while end users are expressing concerns around looming regulations in the EU and Asia, cybersecurity weaknesses, and the potential for reputational damage connected to human rights abuses committed by some of the banned Chinese manufacturers,” said Jamie Barnfield, Senior Sales Director at IDIS Europe.
 
As for this year, Chinese companies are expected to fare better, even though they are not completely out of the woods yet. “The Chinese market is forecast to recover slightly in 2023 but remain well below its peak in 2021. Growth in demand will be much lower than in the years before the pandemic. At the same time, a weakening exchange rate between the Chinese yuan and US dollar will also dampen growth (when measured in US dollars),” Cropley and Woodhouse said.

Yearly review and preview

For the security market in general, growth is expected this year and next, with Novaira Insights forecasting the market for video surveillance equipment to grow 11.8 percent and 10.2 percent, respectively, in 2023 and 2024.
 
Industry experts agree with that notion.
 
“We observed some economic growth and expansion in 2023, although it has been unevenly distributed across different regions and sectors. This has had a mixed impact on the security industry,” said Choong Hoon Ha, Chief Sales and Marketing Officer at Hanwha Vision. “Despite the mixed economic impact, the security demands from society and individuals are still rising with the growing need for advanced network-based systems, such as intelligent surveillance cameras. Businesses are willing to invest in security solutions that protect their employees and assets, and even improve business efficiency and productivity by providing business insight.”
 
“Long-term, sustainable growth is at the heart of our business planning. We plan for 15 percent growth per year on average. And while the market itself is forecast to grow, Axis is again set to outpace it. We’ll achieve this by continuing to broaden our portfolio into new areas, such as intercoms, access control, audio solutions, and so on,” said Ray Mauritsson, CEO of Axis Communications.

Trends: AI, cloud and mobile access more noticeable

As for predominant trends in security, AI and cloud still rank on top.
 
“Artificial intelligence will continue to provide opportunities for innovation across the industry. Application of AI to data streams from sensor fusion – combining and interpreting inputs from cameras and other sensory devices – will shift security solutions towards proactive capabilities that drive new value. AI’s influence is still in the transformational stage, for certain, but the applicability to the security industry is strong and clear,” said Vince Wenos, Senior VP and CTO of Allegion.
 
“This year, we have witnessed a growing demand from customers to maximize the capabilities of their cameras and sensors, with a strong emphasis on analytics. The industry continues to embrace the dominant trend of edge analytics, with an increasing number of camera manufacturers expanding their support for this technology,” said William Hinton, Product Line Manager for Video at Genetec.
 
According to Choong, customers are seeking technologies that can help them improve the accuracy of detection, make their video surveillance systems more scalable and cost-effective, and take benefits from video analysis.
 
“In other words, they’re looking for surveillance technology powered by AI and cloud,” Choong said. “Many customers are still in the early stages of adopting AI and cloud-based video surveillance solutions. However, the adoption of these technologies is expected to accelerate in the coming years, as customers see the benefits that they can offer.”
 
Mobile credentials, meanwhile, have also emerged as a top trend in 2023. “Electronics continue to fuel significant growth for the industry across both hardware and solutions providers. Increasing adoption of mobile credentials and associated readers is providing healthy lift,” Wenos said. “Mobile credentials continue to gain interest from customers, as they provide greater value to end users and system operators.”
 
Digital wallets, an offshoot of mobile access, are also gaining traction. “We’re seeing a lot of interest in digital wallets in large, tech-savvy office buildings. The first European rollout of employee badge in Apple Wallet was at London’s 22 Bishopsgate, touted as the world’s smartest building. 14,000 mobile users at 22 Bishopsgate can now use just their iPhone or Apple Watch to access their offices, plus all the building’s amenities,” said Prabhu Patil, Commercial Director for Physical Access Control Solutions, ASEAN and India, at HID.
 
Cybersecurity continues to be a hot topic now that more and more devices are online. “For several years we’ve witnessed a growing focus on the cybersecurity of solutions. Customers are aware the risks are rising, demanding robust processes, vigilance and transparency. When vulnerabilities do occur, vendor transparency is essential, allowing customers to respond as quickly as possible,” Mauritsson said.
 

Flexible payment

 
This year, we’re seeing at least two companies offering flexible payment options. These are i-PRO, who announced their FlexPay Financing, and Eagle Eye Networks, who launched their Eagle Eye Camera Direct Complete. The programs aim to help customers achieve more payment flexibility, reduce initial investment and become more competitive in general.
 
“In some organizations an increasing amount of security ops fall under the IT department’s responsibility, and they may have a preference for a greater amount of OPEX compared with the security industry’s typical preference for capital expenditure purchases,” Cropley and Woodhouse said. “This type of transition is indicative of a cloud business model transition. However, only the video surveillance vendors themselves know whether the motive behind this is related specifically to products from specific competitors.”
 

Consolidation vs. smaller start-ups

 
Meanwhile, two competing forces continue to dominate in security. One is the continued consolidation of the industry. Recent examples include acquisition deals between ACRE and SISCO, Motorola Solutions and Rave Mobile Safety, and IDIS and Costar. Yet on the other hand, we’re also seeing the emergence of smaller companies focusing on cloud and AI. How these forces will play out remains to be seen.
 
Yet according to Cropley and Woodhouse, there are advantages to scale of operation. “Each surveillance scenario is unique. Variables include the size of installation, whether it is indoors or outdoors, and lighting and weather conditions. At the same time, the channel varies considerably by geographic location with a different set of distributors, systems integrators and installers serving its needs. Large vendors have a range of solutions to meet all scenarios and have the resources to serve different channels in a wide range of geographies,” they said.

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