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INSIGHTS

Security 50 2015 (Part 1): Finding the right fit after industry shake-up

Security 50 2015 (Part 1): Finding the right fit after industry shake-up
a&s reviews 2014 & 2015 financial reports of 50 worldwide leading security manufacturers.

Global market demand for security equipment reached another historical height in 2014 and 2015. Terrorist attacks and civil unrest keep pushing end customers in various market sectors to invest in security equipment for safer environments. According to IHS 2014 report, the global market size of video surveillance and access control was estimated to be US$15 billion for video surveillance and $3.5 billion for electronic access control in 2014. Furthermore, these markets are forecast to grow to approximately $23.6 billion and $4.9 billion annually by the end of 2018, respectively.

According to IHS 2014 report, the global market size of video surveillance and access control was estimated to be US$15 billion for video surveillance and $3.5 billion for electronic access control in 2014.

The global demand for security remains; however, multiple factors have remodeled the security industry landscape. Two big Chinese companies have been leveled up to the international stage, while their opponents have been left behind or forced to branch out. Meanwhile, the changeable global economic and political status has also made future growth for many companies uncertain.

TOP 50 GROW, SHADOWED BY MULTIPLE FACTORS
The top 10 companies with the highest sales revenue in 2014 remain the same. The biggest change is brought by Hikvision Digital Technology and Dahua Technology, both of which grew quite enormously. Hikvision grew 57.5 percent moving up in the ranks to number 2, replacing Bosch Security Systems. Dahua grew 35 percent and surpassed the Global Technologies Division of Assa Abloy to rank fifth. Safran and Assa Abloy still maintained healthy growth with their new innovations for access control and high demand from national projects. On the other hand, Samsung Techwin weakened a bit in 2014. After the acquisition this year, the company’s Korean operations was renamed as Hanwha Techwin. Axis Communications’ ranking was influenced most from the growth of Tyco Security Products and FLIR Systems, rounding out the top 10.

Looking at the financial reports of the top 50 companies in 2014, companies maintained mild growth but a major reduction of net profit was observed in many companies in 2014 and also the first half of 2015.

Looking at the financial reports of the top 50 companies in 2014, companies maintained mild growth but a major reduction of net profit was observed in many companies in 2014 and also the first half of 2015. The average growth rate for this year is only 4 percent, the lowest since 2010. In the first half of 2015, Dahua’s net profit dropped 9.4 percent, Axis dropped 2.3 percent, and IndigoVision dropped 33 percent. Several major Taiwanese companies, such as DynaColor, GeoVision, and VIVOTEK, have also started to experience a reduction of net profit. Most of the traditional analog-based Korean companies, continued to experience challenges in earning profit. On the contrary, companies such as Mobotix and KOCOM done very well — Mobotix made a net profit growth of 68 percent in 2015 and KOCOM’s profit growth soared to 90 percent in 2014 and 59.5 percent in the first half of 2015.

In terms of gross margin, a favorable gross margin for a network camera vendor is 40 to 50 percent. In 2014 financial reports, the average gross margin for the top 50 companies remained similar to 2013. However, only Axis, Avigilon, GeoVision, IndigoVision, and Fermax, achieved the over 50-percent gross margin for the year.

While digging into the major challenges facing the top 50 companies in 2014 and 2015, many companies mentioned the overall price reduction of network cameras; economic slowdown in some regional markets, such as China, South America, Russia, Southeast Europe, and Southeast Asia; and finally, the tumbling of the global oil and gas market.

Commoditization of megapixel network cameras
“I believe that the siliconization of surveillance cameras has had a great impact on the security industry, especially this year. The cost of complex megapixel cameras has decreased dramatically as this functionality is now available on chips. The camera industry has gone from innovating on the camera’s performance and functionality to acting more like the PC OEM business and this siliconization is driving industry commoditization. Commoditization is leveling the competitive landscape as customers are not willing to pay for extra features that some companies provide as ‘premium’ when adequate features are available from other companies. SIliconization will continue to be an industry trend as companies with economic models that do not address end-user value and value creation may fall to the wayside,” said Eric Fullerton, CEO of Vicon Industries.

Oil and gas market tumbling
tumbling oil and gas prices“Oil and gas is such a significant sector that it would be remiss of me not to reference the turbulence this particular market is experiencing. The downturn has been significant. However, while there has been an inevitable impact on the security industry — particularly in terms of project delays — there are significant patches of light in an otherwise stormy sky,” said Paul Webb, CEO of Synectics.

“Given accelerated deterioration in economic conditions driven by a significant drop in the price of oil and no expectation of improvement for the foreseeable future… This current state of affairs could lead to further devaluation of Venezuela’s currency, volatility of exchange rates, and disruption of the economy. If the current unrest and instability continues, our ability to acquire necessary goods from suppliers could be limited, our customers may not be able to fulfill their obligations, our ability to manufacture and sell products could be disrupted and our Venezuelan operations could be adversely affected,” cited from Allegion’s financial report.

“In the six months to 30 June 2015 revenue declined by 29 percent. Asia Pacific experienced the greatest decline following a record performance in the prior period. Latin America also reported a significant decline following the rapid reduction in spend by the Brazilian oil and gas market, and as a result of project timing of the safe city projects in Colombia. In contrast, the U.K. market reported a 22-percent increase in sales, delivering police and safe city projects,” stated a recent press release from IndigoVision.

Slowdown of Chinese economy

China economy slowdown

“The slowdown in the Chinese economy has led to a bit of a price war fed by distributors in the entry-level camera market. This segment is low on features and innovation and this has led to a decline in value add from some distributors,” said Tristan Haage, CSO of Mobotix. The same sentiment was echoed by Johan Molin, President and CEO of Assa Abloy. He commented that Assa Abloy had good organic growth in all divisions of the company, apart from in China.

For the full 2015 Security 50 Rankings, check out the Security 50 microsite!

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