On the other hand, since the overwhelmingly majority of revenue comes from China, so too are the profits.
Its amazing what a little thing like being 50% owned by the state of a totalitarian govenment can do for ones bottom line.
Hikvision Massive China vs Overseas Sales Growth
Published Oct 19, 2015 04:00 AM
Hikision's ~$2.6 billion USD revenue was 4 times as large as Axis for 2014, which is absolutely astounding considering how big Axis is and how both companies both focus on video surveillance.
But:
- How much of Hikvision's revenue is from inside China vs 'overseas'?
- How much is Hikvision growing?
- Which is growing faster? Domestic or overseas growth?
- Compared to Dahua, how is Hikvision doing?
- What does this tell us about Hikvision's future impact on the world?
Inside, we answer these questions.
China ** **** ** ********
******** ***** **** ***** ********* *** $~2 ******* *** (**% ** ***** revenue) ***** ******** / ************* ***** were ~$*** ******* *** (**%). *********'* non-China **** ***** **** ********** ** **** globally. ** ***** ** ***** **** outside ** *****, ********* ****** **** twice (** ****) ** ****, ***** Hikvision's ***** ***** *** ********** ******** and ******** ** **** ***** *** products ********.
Growth ***** - **** *** ****** ****** *****
*** ** **** (******* ****), *********'* sales **** ** ** ****** ************ 62.8% *** ** *** ******* **** 2014 ****.
******, **** **** **********, ******** ******* ********* sales *** ******* ****** **** ************* sales, **** ******** ****** ******* * few ****** ****** ******** ****** ** 'just' **.*%.
***** *** ******** ********* ** ****** of ***** (** **** ** **** globally), ** ** *** ********** *** they *** ******** ** **** **** fast, ****** ** **** * **** rate, ** ******* **** **** *** suffocating ***** ******** ******.
*************
**********'* *** ******* *** ~**%, ***** is *** ***** *** ******** ****** video ************ ************ (*** ****** **** than ******'* *** *****'*). * '****' net ****** *** * ***** ************ manufacturer ** ********* ** *** **-**%. In ********* *****, ********* ********* ~$*** million *** ** ******* ** ****.
*******, *********'* ***** ******* *** ** the **-**% *****, ***** ** ********** low. ********* **** **** *** ******** generally *** ** *** **-**% *****. The ********** *** ** ********** ** scale. ** ~** ****' **** *** ~8x ********'* ****, **** *** ****** their ******** **** * **** ****** base.
** *** ***** ****, ***** *** overwhelmingly ******** ** ******* ***** **** China, ** *** *** *** *******. Indeed, ***** *** ********* *** ***** expenses Hikvision ** ********* ******** *** *** low ****** ********, ** ** **** to *** *** **** *** ********** outside ** *****, *** ********* ******* near *** ****** **** **** ************.
Dahua **********
** ********, *****, ***** **** ******** rival, ** ******* ******* **** ** fast. ** *** ******** ****, ***** reached ~$* ******* *** ******* ** 2014. *******, ** **** ******* *** up **%, ***** ** ****** ******** to *** ***** *** **** * fraction ** *********'*.
Future ******
*********'* ********** ******* **** ***** ******** Chinese ********** ** ******* ********** **** to ****** ******* ****** ********* *** to ******** ****** ** ******* *******. If **** *********, ** ***** ******* the ************ ** ******* *** ****** global ******.
Update: **** ********
**** *****'* ******** ******* *******, *** overseas ****** ** *** ******* ****** than ********. ********* ** *****'* [**** no ****** *********], "******** ***** **** ** **% ****** by *** *******'* ********* ** *** small- *** ******-***** ********** ******* *** the ***-**-*** *** ******. ************* ***** grew ** **%"
******* ************* ***** *** ******* ******, domestic ***** *** ***** **.*% ** Hikvision's ***** *******. **** ***** / probably **** ****** ** **** ** domestic ***** ****** ********* ** ****.
Comments (22)
U
Undisclosed #1
Oct 19, 2015JH
John Honovich
Oct 19, 2015Actually I formally asked the question to Hikvision on Friday about what their position is on the relationship / control / influence of the Chinese government on their company. I am curious what they say and will add if / when I receive.
U
Undisclosed #2
Oct 20, 2015We really have no way to know the impact on their bottom line.
The government could be a passive silent investor, just hoping for some good returns on a company in a growth market. This would yield no influence on the bottom line.
The government could supply labor by forcing prisoners to do some work in the factory, a positive impact on the bottom line.
The investment might come with strings attached that any products purchased for government use must be sold at cost, leaving a negative impact on the bottom line.
In the end, I'm not sure that it really matters.
JH
John Honovich
Oct 20, 2015Or the Chinese government could be favoring Hikvision in awarding projects for huge projects. Not sure how that would not really matter.
U
Undisclosed #2
Oct 20, 2015I think that would mostly be true anyways.
Just as US companies tend to prefer to buy US products, and Axis/Milestone were the de facto standard in most of Sweden.
Due to import and other reasons I think any Chinese company has a massive advantage in China compared to their peers in most industries.
JH
John Honovich
Oct 20, 2015"Just as US companies tend to prefer to buy US products"
Really? To the same extent that the Chinese government prefer to buy Hikvision? US video surveillance buyers have little country loyalty as the results for Arecont and Pelco show.
"Axis/Milestone were the de facto standard in most of Sweden."
Even if true (though Milestone is from Denmark), these are relatively tiny countries.
Being the preferred video surveillance manufacturer for China is a huge difference maker.
U
Undisclosed #2
Oct 20, 2015Pelco isn't really a US company though.
And Arecont, is, well Arecont.
US companies prefer to buy US, but they will not buy a US product that is inferior to other alternatives most of the time. You do see a lot of US and city government jobs that give clear preference to Made in USA suppliers.
JH
John Honovich
Oct 20, 2015I do not see 'a lot of US and city government' jobs do that. However, I see 'lots' of US government users buying Axis cameras, for example.
Let's return to the original topic. Is your contention that either (1) Hikvision gets no meaningful preferential treatment for Chinese government jobs or (2) that they do, but it is not big enough to have a material impact on their competitive posiiton?
U
Undisclosed #2
Oct 20, 2015If I had to speculate, I would say the Chinese government would very strongly prefer to use Chinese products as much as possible. I would also speculate they would want those products to come from a relatively stable and established company, so they're not going to be ordering from Longse, but from Hik or Dahua.
Given the size of China, and their governments seeming desire to keep an eye on people and track people everywhere (and I'm basing this on some first hand conversations I've had with Chinese government employees about CCTV) it stands to reason they are deploying cameras at a steady clip. If they do in fact use a lot of Hikvision product it would likely give Hik a competitive advantage overall. Imagine if you are a manufacturer where 1 large customer subsidizes the majority of your R&D or production costs by ordering enough gear to make the company viable even without any other customers. That would give you a massive ability to do "cost leadership" selling.
U
Undisclosed #1
Oct 20, 2015The government could be a passive silent investor, just hoping for some good returns on a company in a growth market.
What force would restrain them from being active? I actually agree with you that Hik probably gets the short end of the stick occasionally, i.e. "sell below cost on job X", but I see no reason to assume the government would not manipulate the market to their advantage in other cases.
The bar for corruption is set much lower than in the West, wouldn't you agree?
JH
John Honovich
Oct 20, 2015"I actually agree with you that Hik probably gets the short end of the stick occasionally, i.e. "sell below cost on job X"
If that is true, explain their massive net margins.
U
Undisclosed #1
Oct 20, 2015U
Undisclosed #2
Oct 20, 2015What force would restrain them from being active?
IMO it would be a pretty large force that would prevent them from being active. I think the "silent investor" option is the least likely, I was just listing it as a possibility to point out that we really can't be sure what net impact the government ownership really has on the company.
JH
John Honovich
Oct 20, 2015"I think the "silent investor" option is the least likely"
Since you are just throwing things out, maybe the Chinese government is determined to destroy Hikvision as they want Arecont to win and be the world's dominant manufacturer. It's theoretically possible, right?
"we really can't be sure what net impact the government ownership really has on the company."
Yes, but we can look for what it is more likely and do investigations to gain more facts.
U
Undisclosed #2
Oct 20, 2015Since you are just throwing things out, maybe the Chinese government is determined to destroy Hikvision as they want Arecont to win and be the world's dominant manufacturer.
I thought it was clear in my original post that I was trying to break it down into the three likely scenarios.
1)The government has an investment, but is passive about it.
2) The government has an investment and uses their governing power in a shady way to positively impact the company
3) The government has an investment and uses it to gain favorable terms for themselves.
There are other potentially less likely scenarios:
4) The government has an investment and uses their position to hold the company to strict ethics and manufacturing standards
5) The government has an investment and encourages the corporate officers to seek counsel and guidance on growing the company.
And so on.
I don't see any logical scenario where the government would invest in Hikvision and then seek to destroy them. I also don't see how you make that leap from my initial post or followup posts.
Yes, but we can look for what it is more likely and do investigations to gain more facts.
Please do. Until you gather additional facts, I stand behind the point of my original response to Undisclosed 1: we can't fully determine the impact of "being 50% owned by the state of a totalitarian govenment" in regards to Hik's bottom line.
U
Undisclosed #1
Oct 21, 2015I stand behind the point of my original response to Undisclosed 1: we can't fully determine the impact of "being 50% owned by the state of a totalitarian govenment" in regards to Hik's bottom line.
I will stand behind your point as well. We can't fully know.
And we won't likely ever 'fully' know as Hik is unlikely to add a line on their P/L for "Net Favoritism".
Since they won't say, it's natural to consider the possibilities, much as you did. You and me, we're both doing the same thing. Only difference is you seem content to weight your first three scenarios equally and throw-up your hands at that point.
But I feel there is still some 'meat on the bone' there. First there is the control case, Dahua. Although many reasons that have nothing to do with state ownership could be given to explain Dahua not keeping up with Hik, the fact is that they haven't. Or is anyone else in the industry, AFAIK, keeping up with HIK's margin. Not conclusive, but certainly supportive to the Hik favoritism argument.
Also, I think your second scenario 'poisons the well' a bit with your 'shady' description. What is considered shady here may not be there.
IMHO, the main reason that the Chinese government would not be helping Hik is because they're working on bigger things, not because of some fear of being accused of manipulation.
Finally, I ask you to consider why a government would even be allowed to own a controlling share of a private, profitable corporation in the first place.
That is a big indicator that they play by different rules over there, no?
UM
Undisclosed Manufacturer #3
Oct 21, 2015As we've seen a huge drop in average market prices for IP cameras/NVRS/HD Analog in the last year, and I would propose that HIK is a major/if not the major force behind that drop, does anyone believe that the domestic Chinese profits are allowing US/Global prices to be artifically low? Basically HIK is selling close to or below cost to gain market share?
My comparsion would be the semiconductor chip dumping scandal of the late 90's. Hynix/Samsung selling memory below cost to force Micron/Texas Instruments out of the market.
Thoughts John and everyone else?
JH
John Honovich
Oct 21, 20153, we had a discussion on that topic here: Hikvision 'Flooding The Market'
I would not say it is 'dumping' (not enough evidence for that strong a claim) but it's pretty clearly a focus on growth first, profit maximization later. Given how big they already are in China, I could easily see them doing this for a few years, which could knock a lot of Western manufacturers out. I do not know if that is their plan is but it would be, from a competitive standout, an effective one.
UM
Undisclosed Manufacturer #4
Oct 23, 2015John,
I'll be there for CPSE too.
"IPVM will be sending Ethan to China next week to further investigat the Chinese market and Hikvision's role."
Feel free to pass my contact info in case if he would like to grap a cup of tea with me at the show.
Greg Thornbury
Oct 23, 2015So when will the headlines read that HikVision cameras, all over the planet, have a chipset that lets the Chinese government take a peek at any image they want?
OK, OK, I'll put away my tinfoil hat now and go back to work now.....
:-) Greg
U
Undisclosed #1
Oct 23, 2015...HikVision cameras, all over the planet, have a chipset that lets the Chinese government take a peek at any image they want...
A bit alarmist maybe, since without a Huawei Router they will be unable to access it behind your firewall.
JH
John Honovich
Apr 13, 2016Update: 2015 Complete
With China's domestic economy slowing, the overseas market is now growing faster than domestic. According to Moody's, "Domestic sales grew by 43% helped by the company's expansion in the small- and medium-sized enterprise segment and the mid-to-low end market. International sales grew by 57%"
Despite international sales now growing faster, domestic sales are still 73.7% of Hikvision's total revenue. This might / probably will change in 2016 if domestic sales growth continues to slow.