Which Video Surveillance Companies are at Most Risk?

Published Dec 07, 2008 20:11 PM
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Assessing risk during a recession is critical. During boom times, company failures are rare. As such, partnerships or product choices can generally be safely made with almost any vendor. However, in a downturn, companies can fail or be forced to dramatically reduce their development and support efforts. Such actions can have a significant impact on partners and users.

This assessment considers the risk of a company (1) suffering significant cutbacks, (2) being sold in distress or (3) going bankrupt.

The 2009 Video Surveillance Industry Guide provides extensive analysis on the risk level of 27 leading video surveillance companies. 

This report provides an overview of the analysis to help present the fundamentals and key points in examining company risk.
Criteria for Assessing Risk
I recommend 4 main criteria for assessing company risk:
  • Growth Rate of Segment the Company is in
  • Profitability of Company 
  • Cash Position of Company
  • Competitive Positioning of Company's products

This certainly requires some estimation as companies often will not disclose or will try to mislead analytsts and industry participants on these facts (e.g., how many companies will admit their products are uncompetitive).

Summary of 10 Company's Risk Profile

In the Industry Guide, I assessed 27 companies. Here are a sampling of 12 of the most well known companies and the assessment I provide.

Company Risk Level Product Category
ObjectVideo High Video Analytics
Vidsys Medium to High PSIM
Cisco Medium to High Video Management, IP Cameras
IBM Medium to High Video Analytics
Cernium [link no longer available] Medium to High Video Analytics
March Networks Medium Video Management, IP Cameras
American Dynamics Medium Video Management, Cameras
Pelco Low to Medium Video Management, Cameras
ioimage [link no longer available] Low Video Analytics
Envysion Low Video Management
IQinVision Low Megapixel Cameras
Milestone Low Video Management
Axis Lowest IP Cameras

Examining Cisco's Risk

Let's use Cisco as an example to examine risk. While they are targeting a high growth rate segment and they certainly have plenty of cash (as a company), it's highly unlikely that the video surveillance offerings are profitable and it is abundantly clear that the products are not competitive.

In such a case, one of three options are likely for Cisco: (1) reset, (2) slow down or (3) exit from video surveillance.  A reset is where they buy new company or companies to rectify their uncompetitive offerings. A slow down is where they keep their existing products but limit new product development. An exit means they end of life their product offerings and simply partner with existing video surveillance companies.  

Cisco, as a company, would likely maximize profits by simply exiting the market and partnering with video surveillance leaders. Their current strategy is not working for them and has simultaneously created fear and distrust among most video surveillance companies (organizations that could otherwise be key partners).

Note: I do not believe Cisco has any risk of bankruptcy. The risk factored is solely for their video surveillance business line.

Conclusion