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INSIGHTS

Security 50: Covid-19 throws security off growth trajectory seen over last decade

Security 50: Covid-19 throws security off growth trajectory seen over last decade
For 2019, Security 50 companies made a total revenue of US$25.84 billion and registered average growth of 9.3 percent from 2018. This, however, was all before covid-19, which is likely to end security’s growth trajectory that we’ve seen over the last decade.
For 2019, Security 50 companies made a total revenue of US$25.84 billion and registered average growth of 9.3 percent from 2018. This, however, was all before covid-19, which is likely to end security’s growth trajectory that we’ve seen over the last decade.
 
Due to its essential nature, security has been able to resist recessions quite well. Not even during some of the worst downturns in recent memory, including the dot.com bubbles of the early 2000s and the subprime mortgage crisis of the late 2000s, was a decline in security seen. In fact, according to Frost & Sullivan, the global security industry has seen an uninterrupted growth streak over the past ten years, growing at an average of 7 to 10 percent.
 
Then there’s covid-19, whose impact is so devastating it has the potential to throw security off its decades-long growth trajectory.
 
Perhaps the clearest yet sign of the impact suffered by security companies is their first half revenue as compared to the same period last year. Of the 33 Security 50 companies that have already disclosed revenue for January to June this year, 27 reported year-on-year declines, which ranged from -39 percent to -1 percent. Only six reported positive H1 y-o-y growth. On average, these 33 companies had a y-o-y H1 decline of 11 percent.
 
This is in line with asmag.com’s own survey that 283 security professionals took part in. Among them, a vast majority – 77 percent – cited a year-on-year revenue decline for the first half. Also according to them, customers were hurt the most in the following verticals: retail, transportation and education.
 
Within transportation, the airport segment has been especially hit hard. “While all customer segments, like the broader industry, will see declines in their pre-COVID growth projections, commercial and enterprise businesses as well as airports and aviation customers will see the sharpest growth declines due to the stoppage and delays in passenger traffic, as well as localized lockdowns that led to citizens being told to work and stay from home,” said Danielle VanZandt, Industry Analyst for Security at Frost & Sullivan.
 
“Our business depends on identifying a client airport’s locally unique security requirements through the development of a ConOps. However, CV-19 and the resulting economic chaos has devastated most airports’ financial positions,” said Art Kosatka, CEO of TranSecure.
 
 

Slowed 2020, then possible decline in 2021

 
According to VanZandt, security in 2020 is still expected to see a small growth as end users honor payments for projects already signed. “While the growth rate will be lower than what the industry has witnessed over the last decade — 4.47 percent estimated growth in 2020, versus close to 7 percent in 2019 — there still is revenue gained in 2020 due to ongoing projects that will need to be completed and paid in full, as well as the completion of projects which were already agreed upon and partial payments collected before the pandemic first affected the global economy in March,” VanZandt said.
 
Yet for 2021, things will be much different. Security could be in for a decline due to a sharp contraction in security spending by end users. “2021 will be an exceedingly rare instance in the industry’s growth trajectory — there will be a small contraction, with overall revenue declines estimated at 0.01 percent compared to 2020. This is the first time in decades that the security market will see a decline, with much of the blame squarely on slower economic recoveries from the pandemic period,” VanZandt said. “While growth opportunities will still be present in all markets, the aggregate total for projects and funding available in 2021 will be nowhere near what they were for the pre-pandemic period.”
 
This is in line with some of the security players that asmag.com has spoken to. “Almost all projections I’ve seen suggest we’re not likely to ever see 2019 pax levels again – maybe 70 percent at best, and any gains at all would occur in small increments from 2021 up through 2026 or later,” Kosatka said.
 
“We think that the economic impact of the pandemic will be felt for years to come, and that what we are seeing now is only the tip of the iceberg. Most sellers of security products are still shipping products for projects that were started pre-pandemic. Once these projects are completed, we expect to see less demand for at least the next two years. There may be few exceptional companies who will experience growth, but I think that revenue for most will decline significantly,” said Michael A. Silva, Principal of Silva Consultants.
 

Where the opportunities are

 
The pandemic has sharply diminished growth in security. A short-term decline may be possible. How security companies survive amid the recession, then, is something worth watching.
 
One way for them to achieve success is finding opportunities that are still available. “With the airports and commercial sectors both having the sharpest declines in their security spending due to the pandemic’s effect, many of the growth opportunities still present in the market will rely on spending from public sector industries, such as law enforcement, mass transportation and disaster and emergency management,” VanZandt said.
 
Technology-wise, the pandemic has created a surge in demand for covid-19-related solutions that can protect staff and employees from the disease as well as help them in their work from home. These include encrypted or protected access to organizational networks, touchless access control, advanced analytics and thermal solutions that detect elevated body temperature. Vendors providing these solutions have a better chance at getting orders amid the demand.
 
“For many vendors, they are looking at their existing solutions to see if they can add new COVID-specific functions, such as changing temperature detection analytics to detect fevers or using queue management functions to count occupancy levels within a space. Facial recognition solution vendors are looking to add or reconfigure their recognition algorithms to conduct identity verification checks with a face mask still in place or if specific analytics can detect when a person is or is not wearing a mask within a facility,” VanZandt said.
 
Indeed, an analysis of companies that registered growth during H1 this year finds that for some of them, first half revenue was boosted by thermal solutions. These include MOBOTIX and FLIR Systems. “Industrial technologies revenues for the (second) quarter representing an increase of 5.5 percent compared to the prior year quarter. The revenue increase was primarily attributable to heightened demand for elevated skin temperature solutions as a result of the COVID-19 pandemic,” FLIR said in its Q2 press release.
 
In conclusion, security is experiencing something the likes of which have never been seen before. A decline, albeit small and temporary, may be inevitable. Only by rolling out solutions that fit customers’ needs, especially those that deal with covid-19 prevention, can companies get business and survive the downturn.


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