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Security 50: Will Chinese companies growth begin to slow the next 5 years?

Security 50: Will Chinese companies growth begin to slow the next 5 years?
The last 10 years are the fastest growing time period for most of Chinese companies. The US blacklist has started to hinder these giants’ growth in the US and also some other countries. It is wondered whether the Chinese companies will continue to grow exponentially in the next 5 years.
The last 10 years are the fastest growing time period for most of Chinese companies. The US blacklist has started to hinder these giants' growth in the US and also some other countries. It is wondered whether the Chinese companies will continue to grow exponentially in the next 5 years.

This year’s Security 50 sees another record high revenue from the top five companies, Hikvision Digital Technology, Dahua Technology, Assa Abloy, Bosch Security Systems, and Axis Communications. In total, these top five generate around US$17 billion, which accounts for 68.4 percent of the revenue from the total 50 companies. Take video surveillance sector only. The top five, including the aforementioned four companies and FLIR systems, produced $15 billion, which is about 74 percent out of the total revenue from 41 video companies. It can be concluded that the top five have dominated the global security market and it won’t be a big surprise that these companies will continue to maintain their leading positions.

The two Chinese companies, listed in first and second place, have already become enormous. Another Chinese company, Uniview Technologies, which grew 31.3 percent from $468.3 million in 2017 to $614.8 million in 2018, also showed its great ambition to become the third biggest video surveillance company from China. The company was acquired by China TransInfo in 2018. China TransInfo, a publicly-listed company, mainly offers transportation and security system solutions to multiple local Chinese governments.

More IPO companies from China

Thanks to capitalization, and the fast growing domestic market and incentives from the government, we will still continue to see more and more big Chinese IPO companies in the security industry, regardless of the ongoing trade dispute between the United States and China. Though, we admitted it is not a fair game for many non-Chinese companies, based on the analysis on the figures we collect every year from most of the IPO companies worldwide.

Another new entrant to the top 20 of Security 50 list this year is Megvii Technology, which is a new AI start up unicorn based in China, known for facial recognition technology. It achieved growth of 529.4 percent from 2017’s revenue of $25.37 million to last year’s $159.7 million, clinching the No. 1 spot in terms of revenue growth. The company is preparing for IPO despite US blacklisting. Other well-known China-based AI start-up Unicorns, SenseTime and YITU, might follow their steps afterwards.

Hikvision and Dahua retain growth despite US blacklisting

Hikvision and Dahua reported 2018 equipment sales revenue of US$7 billion and $3.6 billion, respectively, at a growth of 17.14 and 25.58 percent compared to 2017. In particular, Hikvision still grew a total operating income of RMB 39.84 billion (around US$6 billion), during the period of Q1-Q3 2019, representing a year-over-year growth of 17.9 percent, according to its latest announcement, despite a US law banning both companies’ products in US federal offices, as well as being put on the US “entity list” restricting American companies from doing business with them. 

China’s domestic market accounted for 71.53 percent in Hikvision’s operating income structure, compared to 28.47 percent overseas. Then, its domestic operating income was a 20.18 percent growth from 2017, compared to 15.9 percent for overseas. This shows that the domestic market maintains the company’s growth momentum.

What is worthwhile for us to notice is Dahua’s sales report during Q1-Q3 2019. It is RMB$16.42 billion, and only grew around 9.30 percent compared to the same time period in 2018. Some US buyers admitted their concerns on working with these two giants or Chinese companies, in general, which caused the revenue increase of other Asian manufacturer, such as VIVOTEK. The company grew 34.72 percent to around US$189.6 million during Q1-Q3 2019.

Meanwhile, the Chinese companies are taking on safety city projects in overseas markets to meet local demands. “Particularly in Latin America, Asia Pacific and some other regions, the market demands for safe city is growing fast,” said Fu Liquan, Chairman of Dahua Technology. “One of the projects is that we provided a complete safe city solution for a Latin American city, including more than 1,000 front-end cameras, with complete transmission networks, cloud storage systems, video management platforms as well as big data applications in vehicle and human portraits to help the local police solve crimes and equipped with early warning capabilities dealing with potentially dangerous people and vehicles. The construction of the command center, including the LED screen, police command and dispatch system, has greatly improved the efficiency of the police work.”

Digging deeper into verticals

Yet beyond simple revenue breakdown by region, Hikvision and Dahua’s success has more to do with their own efforts to evolve. Both companies have taken a “go vertical” approach and realigned their product/solution positioning from that of security to more of an efficiency improvement and operation enhancement application. These, plus their extensive R&D on AI and deep learning technologies, have added to their growth in both domestic and overseas markets.

“Hikvision has been participating in various projects for business efficiency and automation in vertical industries, contributing innovative technologies, products and solutions, particularly in the intelligent traffic management and retail intelligent business,” said Keen Yao, VP of Hikvision. “In smart transportation, Hikvision’s portfolio of traffic solutions with AI technology incorporated has transformed standard video monitoring with features that alert operators about traffic issues in real time. This allows them to take immediate action to keep lanes clear and to keep traffic flowing. In retail, with Hikvision AI technologies, retailers can have a clear view of customer flow and optimize their store layouts, merchandise goods effectively to increase sales revenues, and enhance the shopping experience by reducing checkout waiting times.”

“Dahua has developed tailored solutions for safe city, smart traffic, smart retail and other key industries,” Fu said. “We also launched a series of smart front-end and server products to satisfy the smart application scenarios of the next generation, and comprehensively support the implementation of Dahua HOC (Dahua Heart of City).”

How about the future?

Chinese companies have got hindered in developing their overseas markets. Whether these Chinese giants maintain their high growth in the next five years might depend on their domestic market sales and overseas buyers’ confidence.

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