The Security 50 providers still

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1 Macroeconomic Uncertainty Still Affects Security The Security 50 providers represented about 68 percent of the total global security equipment market in The 12.3-percent average growth rate for 2012 doesn t seem very promising. This shows the uncertain macroeconomic outlook is still affecting the majority of leading security suppliers. By Jill lai The Security 50 providers still played a crucial role in the global market in They contributed around 68 percent of the total global security equipment market and over 40 percent of the video surveillance market. The Security 50 generated US$14.7 billion in global product sales revenue in 2012, with more than $5 billion in video surveillance equipment sales. Of the Security 50, 22 companies made the sales revenue of at least $100 million in Amongst them, Honeywell Security, Bosch Security Systems, Safran, and Hikvision Digital Technology even reached the $1 billion mark. It was worth noticing that Hikvision set a record sales revenue of more than $1 billion in The global security product market was valued at $21.5 billion, with $11.9 billion in video surveillance, according to an IHS report in Other global markets for security products are followed by access control ($2.9 Hikvision is quickly growing and has achieved leading market position worldwide in the security industry. As a commitment of such, Hikvision will always work to stay ahead of market needs and continue our sensitivity to the cultures of our customers across the globe. Yangzhong Hu, President, Hikvision Digital Technology The Security 50 providers represented about 68 percent of the total global security equipment market in billion or 13.6 percent), intrusion ($2.6 billion or 12.1 percent), perimeter ($350.6 million or 1.6 percent), and entry control ($3.7 billion or 17.1 percent). North and South America combined made up 41 percent of worldwide trade for physical security equipment and services. Asia was next at $33 billion, followed by the collective Europe-Middle East-Africa (EMEA) region with $29 billion. Security growth for 2012 in Asia was 13.3 percent in APAC, compared to 3.8 percent in America and 4.2 percent in EMEA, found IHS. Mild Growth for 2012 The Security 50 average growth rate in 2012 was lower at 12.3 percent, compared to 14 percent in It was also lower than predicted by industry experts for percent growth. As growth slowed, 27 companies from the Security 50 started to experience the pain in NOV

2 2013 security 50 We found companies with the greatest drops in 2012 revenue either had significant market share in Europe or a high volume of sales dependent on public/government sectors. Mobotix was particularly affected by the debit crisis in Europe, read its 2012 financial report. The slow macroeconomic growth that has been seen over the last few quarters in nearly all European countries has now intensified, and a continued recessionary trend appears very probable in the short to medium term. Key factors for mild growth amongst the Security 50 are fierce competition in all regional markets and moderate growth from emerging countries, such as the Middle East nations, Brazil, India, Thailand, Indonesia, and China. Growth is further hindered by a slow recovery in developed countries in Middle and Western Europe and in the U.S. Especially in the emerging countries, such as the Middle East, political instability and economic uncertainty hampered growth. Assa Abloy said the mature markets were marked by subdued demand for most of the year, affected by the fiscal problems and tough austerity measures in Southern Europe and a deepened economic slowdown in Western Europe. Synectics Network Systems, a division of Synectics, also mentioned it experienced some growth in the Middle East region, which was slower than expected outside of the oil and gas sector. Government Spending Continues to fall In 2012, Security 50 figures reflected strong impact from global economic Worldwide Security Product Market in 2012 Perimeter 1.6% Intrusion 12.1% Entry Control 17.1% Access Control 13.6% Video 55.5% The World Physical Security Product Market $21.5 billion Video Surveillance $11.9b % Access Control $2.9b % Entry Control $3.7b % Perimeter $350.6m % Intrusion $2.6b % With strong commitment to innovation and reliability, VIVOTEK has not only gained solid business growth, but has also received recognition from international awards, fostering our faith in developing innovative and world-class products. Looking ahead, VIVOTEK will keep steadfastly dedicated to our customers to address their needs. Together, we will make life safer and better! Steve Ma, VIVOTEK s Executive VP uncertainty. This leads to reduced levels of investment, changes in government spending levels and/or priorities, the size and availability of government budgets, customers and suppliers access to credit, consumer confidence, and other macroeconomic factors affecting government, industrial or consumer spending behavior, wrote Flir Systems in its financial report. The company said its 2012 sales performance was negatively impacted by reduced spending from US and Middle Eastern government agencies, along with the Eurozone crisis. Tyco International also said its governmental and institutional customers have experienced budgetary constraints, which may reduce demand. When the public sector reduces spending, the security industry will be severely tested. The trend appeared 22 NOV

3 2013 is another strong year for Milestone and our partners business, featuring several new industry innovations. We introduced Milestone Husky, a series of pre-installed appliances and the Customer Dashboard, an online service which generates recurring revenue opportunities for partners. We also launched Milestone Arcus, a multiplatform VMS partner solution. Lars Thinggaard, CEO and President, Milestone Systems even more obvious in IP Video surveillance Enters moderatedevelopment stage Since growth for IP video surveillance depends on the number of new installations, the slow growth in emerging countries dampened the growth rate of IP video surveillance companies. One bright spot for IP is demand for retrofit projects in developed countries. However, the rate of end users replacing their old legacy analog systems with new IP systems has not exceeded expectations. IP video surveillance is still hot, but revenue growth is tapering off, as seen in the earnings from Axis Communications, Mobotix, and Milestone Systems. Axis Communications grew 28.7 percent in 2010, 22.9 percent in 2011 and hit 17 percent in Mobotix grew 19.9 percent in 2010, peaked to 35.9 percent in 2011 and fell to 11.5 percent in VMS provider Milestone grew 55.8 percent in 2010, which dropped to 22.5 percent in 2011 and 19.4 percent in VIVOTEK grew by 57.5 percent in 2010 and 62.1 percent in 2011; however, growth slowed significantly to 20.7 percent in Of the IP providers, only Avigilon remained in the comparatively high-growth stage. Its revenue grew 67 percent in 2012, which was at 86 percent in 2011, and 91.2 percent in Although the factors for moderate growth include myriad global economic influences, major IP security companies will be challenged to maintain annual revenue growth above 20 percent with high profit margins in the next few years. Fierce Competition The maturity of IP video surveillance has resulted in falling equipment prices. Meanwhile, Chinese manufacturers are providing more cost-effective products with improved quality to the world, which makes a saturated market even more competitive. Hikvision ranked fifth in the 2011 and 2012 Security 50 rankings, but moved up to fourth place in 2013 with $1.1 billion in revenue. Dahua Technology ranked 10th in 2011 and 2012, coming in ninth in Dali Technology also improved from 48th to 42nd. The rise of Chinese manufacturers has impacted Asian companies from Taiwan and Korea. China will compete with more non-asian companies on more than just price. Worldwide Security End-User Market 2012 Product 20.4% Remote Monitoring 28.3% Security System Integration 51.3% The World Physical Security Equipment & Services Market $105.3 billion Product $21.5b % Remote Monitoring $29.8 b % Security System Integration $54.0b % 3822 NOV

4 2013 security 50 Less M&A The value of merger and acquisition deals in 2011 was $9 billion, representing a rise of 23 percent over the previous year, according to Memoori Business Intelligence. In 2012, it declined 27 percent to $7.2 billion. Poor economic trading conditions reduced the confidence of major suppliers to go for growth through mergers and acquisitions. The 2012 Security 50 providers also made fewer mergers and acquisitions. Among the Security 50 companies, Flir acquired Lorex Technology for $60 million and Traficon International for $46 million at the end of TKH acquired Augusta Technologie and Aasset Security International. In 2012, the acquisitions contributed $115.6 million ( 87 million) in revenue and $10.6 million ( 8 million) in net profit for TKH. Optex Systems acquired Raytec to obtain and expand products, technology, and distribution routes for video lighting systems for the security business. Infinova also completed its March Networks acquisition in Instead of acquiring new businesses, Tyco International broke up into three units ADT North American residential security, Pentair flow-control products and services, and Fire and Security. Double-Digit Growth Strategy In the uncertain global market, some companies sustained doubledigit growth in 2012, which was worth noticing. The top 12 companies for revenue growth were Infinova with percent growth; Avigilon (67 percent); Dahua Technology (60 percent); TKH Group (51.1 percent); DynaColor (50 percent); Hikvision (35.6 percent); HDPRO (29.8 percent); Synectics (28.7 percent); Safran (28 percent); Suprema (24.5 percent); Tyco Security Products (23.2 percent) and Optex (22.8 percent). IP Video Surveillance Remains Strong In general, major IP video surveillance suppliers still enjoyed growth in the double digits for The companies represented are Avigilon, GeoVision, VIVOTEK, Milestone Systems, Axis Communications and Mobotix. Recovery of Asian Companies We also observed that these Asian manufacturers in China, Taiwan, and Korea were able to catch up with IP-based technologies in These companies, such as EverFocus, DynaColor, Hunt, and ITX, started to enjoy higher sales compared to previous years. Biometrics in High Demand The strong growth for biometric products in the worldwide market drove the growth of Safran and Suprema. Suprema s profit was topped by newly-launched technologies such as face recognition and surging demand on its identification solution from government sectors, it wrote in its financial report. Penetration in Verticals and Emerging Markets Major growth strategies are usually mergers and acquisitions, proprietary technology development, market expansion to emerging countries, and penetration of certain verticals. Avigilon continues to deepen its penetration in casinos, by establishing a specific business development team in Canada and the U.S. It will continue to explore other verticals, such as retail, transportation, banking, and government. Synectics Network Systems, a division of Synectics, focused on critical infrastructure protection and gaming. It benefited from continued strength in the US gaming market, particularly in the first half, and from solid growth within most of its core customer sectors in the U.K. and the Middle East. Although 2012 growth in emerging countries didn t reach the high expectation that some experts predicted, the global expansion strategy to emerging countries still remained a crucial growth factor for many multinationals. Tyco International continued its expansion into China, India, Latin America, and the Middle East. Axis also expects to increase its market share in emerging countries from 25 percent to 40 percent in the next five years. 22 NOV

5 Top 12 Companies for Revenue Growth from Security 50 No. '13 Ranking Company Product Group Product Sales Revenue (in US$ Millions) Revenue Growth Gross Margin INFINOVA Video Surveillance $123.5 $ % 1.0% 2 23 AVIGILON Video Surveillance $97.7 $ % 49.3% 3 9 DAHUA TECHNOLOGY Video Surveillance $575.5 $ % 21.4% 4 12 TKH GROUP (SECURITY SYSTEMS ONLY) Multiple $234.4 $ % * 5 33 DYNACOLOR Video Surveillance $70.2 $ % 40.8% 6 4 HIKVISION DIGITAL TECHNOLOGY Video Surveillance $1,110.6 $ % * 7 32 HDPRO Video Surveillance $70.3 $ % 18.7% 8 30 SYNECTICS Video Surveillance $74.5 $ % 39.7% 9 3 SAFRAN (SECURITY PRODUCTS ONLY) Multiple $1,610.7 $1, % * SUPREMA Access Control $46.7 $ % 47.6% TYCO SECURITY PRODUCTS Multiple $500.0 $ % * OPTEX (SENSING PRODUCTS BUSINESS) Intrusion Detection $100.6 $ % * Average $384.6 $ % For the period from September 2011 to August 2012, Memoori Business Intelligence identified 18 arrangements by physical security venture capitalists, who invested a total of $267 million. Memoori wrote, clearly VCs are much more confident of investing in the physical security industry. The majority of these involved investment in US-based companies by US-based venture capitalists. The more competitive the security market becomes, the more mergers and acquisitions will take place. We predict there will be more deals in the next few years. But these expectations may take time to become reality. Buoyant Year for 2013 & 2014 Looking toward 2013 and 2014, the lingering economic uncertainty and market competition still remain. Staying focused and agile could ensure a company to weather the hard times. This year, besides video 40 NOV 2013 surveillance, the access control and alarm industry also start to escalate their growth drive. We could foresee that all these contributing factors can create a positive ending for 2013 and a fresh start for 2014, and the winners of Security 50 will continue to lead the global security industry toward innovation and new market exploration. Dahua would complete product portfolios from high-end, middle-end, to entry-level, and continue to focus on innovation. How to penetrate the entry-level sector with competitive C/P ratio products is the key ahead. Moreover, our total solution will focus on ease-of-use, allowing our customers to maximize the best user s experience at a more than affordable cost. Fu Liquan, President, Dahua Technology