Unsurprisingly, this month has seen very few important industry announcements as the holiday season starts to kick in. However when we start to sieve through the considerable flow of data there is still valuable information to uncover.
Public quoted security companies across the globe have this month announced their second quarter results. With few exceptions, these have shown growth in revenues and profitability, with many forecasting continued momentum in the second half of the year based on strong order books.
The major global security companies such as Honeywell Security, Ingersoll Rand Security Technologies, Siemens Building Technologies, Tyco Security Product and UTC Fire & Security have experienced growth right across the different sectors and geographic regions in the last two quarters and are all bullish about the future. Since these announcements were made at the beginning of July stock markets have been volatile because of some unfavorable economic data, but despite this, security manufacturers will significantly improve on their 2009 performance and will end this year in a much stronger and healthier state.
Axis Communications delivered another exemplary performance as a result of sticking with their long term strategy. This company was not for turning when things got tough, they went on investing in improving product performance despite two years of the worst trading conditions that this industry has experienced. It is now benefiting from this through increased market share and products that are very competitive at the leading edge. Their latest accounts show that the product portfolio was extended further this year with a number of high-quality network video products all supporting HDTV quality video and the H.264 compression standard. During the second quarter, Axis continued its expansion increasing its staff by 64 bringing the total number of employees to 850 at the end of the period.
This is a very well managed and ambitious company that has surged ahead of its once larger major competitors through pioneering IP video when it was not fashionable and was receiving resistance to adoption. The message they are delivering loud and clear is that IP video in the surveillance world is rapidly gaining penetration and as prices continue to fall, volume will increase even faster. The argument about analog being much cheaper based on first time cost at the eight to 16 camera level is correct at this time but if you want the benefits of greater functionality, usefulness, distribution of data and upgradeability then on the basis of life time cost, IP is the winner. Whilst this is pretty much accepted today it was not the case when they produced their first products back in 1996.
One other interesting fact about Axis is that so far it has relied totally on organic growth. Expect them to broaden their horizon and move into other markets outside the highly focused IP video surveillance business because history tells us they can't continue winning market share without reducing profit margins. This could be achieved through acquisition and strong alliances.
They have a strong IT background and this would be valuable in pursuing IT convergence opportunities. Examples of security companies taking this approach include Nice Systems and SCM Microsystems. This month a fellow Swedish company Hexagon made a bold move of buying Intergraph for US$2.125 billion to form a new brand around Intergraph's existing business. Hexagon is a dedicated measurement technologies company with projected annual sales for 2011 of $2.8 billion and an operating margin of 20 percent.
On first glance the synergy between these two companies would not appear to be that strong, but Intergraph will become Hexagon's core software platform and will continue to provide differentiated and vertically focused software solutions to its core industries. Intergraph software will also be integrated into Hexagon's existing measurement and precision technology system markets to provide a visual presentation layer for the management, analysis and sharing of the vast amounts of critical data produced by these products. It's using similar and complementary technologies to deliver multiple solutions to different vertical markets. Don't be surprised if Axis identifies similar opportunities by thinking outside the box.
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