China and Taiwan Manufacturer Financials 2015

JH
John Honovich
Jun 24, 2015
IPVM
IK
Itamar Kerbel
Jun 24, 2015

The interesting manufacturer for me is Dynacolor. It is doing pretty well I guess since they are able to compete with western manufacturers as they are taken as an OEM for European and American companies.

If I'm not is taken both Grundig and DVTel cameras are Dynacolor OEM and they are accepted in bids where a "Taiwanese" company will not be accepted.

U
Undisclosed #1
Jun 24, 2015
IPVMU Certified

Is Uniview relevant here?

JH
John Honovich
Jun 24, 2015
IPVM

They are relevant but since they are a private company there are no audited public financials for them. We could do like IHS and ask them, hoping they give us truthful, accurate info but it's a pretty risky approach.

UM
Undisclosed Manufacturer #2
Jun 25, 2015

IP camera is technology driven, need a lots of RD investments. Not just money, it also needs programmer, testing engineer, etc. Companies’ performance is result on their R & D investments.

China is a huge market, they install IP camera along the highway, and issue speeding tickets electronically. And they start using camera control traffic lights. China is a global manufacturing power house; they own the global market now, that’s huge.

Today’s China is capitalism; it’s a free market. Hikvision and Dahua are public trade companies; like public trade large companies in the states. They might bid on municipal projects, or the state may own some of their stocks, but the government doesn’t involve in their management or operations.

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JH
John Honovich
Jun 26, 2015
IPVM

"IP camera is technology driven, need a lots of RD investments. Not just money, it also needs programmer, testing engineer, etc. Companies’ performance is result on their R & D investments."

Your thesis is undermined by the fact that Hikvision and Dahua's IP cameras are not better than Axis, Avigilon, et. al. Hikvision and Dahua are simply better at packaging fundamental features at lower prices, not beating the Western manufacturers on pure technology.

(1)
U
Undisclosed #1
Jun 26, 2015
IPVMU Certified

...undermined by the fact that Hikvision's IP cameras are not better than Axis...

 Vs.

I believe we had hoped to settle this East vs. West question like gentlemen, or is one party waiting for a new model?

(1)
JH
John Honovich
Jun 26, 2015
IPVM

We are waiting for new models and planning this out.

But the meta point remains - Hikvision does not have any 'technology' that Axis does not have. There's no unique invention or R&D that Hikvision is using to generate nearly $3 billion in revenue and $750 mil in profits.

U
Undisclosed #1
Jun 26, 2015
IPVMU Certified

Hikvision does not have any 'technology' that Axis does not have. There's no unique invention or R&D that Hikvision is using...

Disagree. You are looking at R&D one dimensionally. You are considering things like Zipstream or 4 exposure WDR, no doubt.

But it's also R&D to figure out how to take technology and create a proccess for producing it at an economically feasible price point.

The design and production engineering that go into these cameras must be immense.

Take integrated IR, Axis has 12 models, Hikvision has 215! So you can say that sure, Axis has the 'technology', cause they do. But Hikvision decided to spend research and engineering dollars figuring out how to put IR on any camera, and not as just as a bespoke add-on.

In short, Hikvision has the technology to apply the technology better and cheaper. And that is all R&D. And that most defintely is part of of their revenue story.

(1)
JH
John Honovich
Jun 26, 2015
IPVM

"But Hikvision decided to spend research and engineering dollars figuring out how to put IR on any camera, and not as just as a bespoke add-on."

You're kidding, right? Please say you are kidding.

One, Axis has 12 models of cameras with integrated IR. Axis 'knows' how to put IR on any camera.

Two, any third rate Chinese manufacturers has 'figured out how to put IR' on any $19 camera. It's not a technology issue at all.

Axis has made a very bad business mistake restricting integrated IR to higher end models. It's not a technology issue though. They can do it and pretty much any manufacturer can do it.

U
Undisclosed #1
Jun 26, 2015
IPVMU Certified

Why don't you respond to the "meta-point" John?

Do you or do you not consider the design and engineering that goes into making products cheaply R&D or not?

(1)
JH
John Honovich
Jun 26, 2015
IPVM

I completely refuted your example. Do you have any counter to my takedown?

As for 'making products cheaply', everyone in China makes 'products cheaply' so it is unfair to attribute this advantage to any particular vendor or any particular technology.

U
Undisclosed #1
Jun 26, 2015
IPVMU Certified

Answer the question please:

Do you or do you not consider the design and engineering that goes into making products cheaply R&D or not?

Yes/No.

I am responding to the IR example separately.

JH
John Honovich
Jun 26, 2015
IPVM

You have my answer:

As for 'making products cheaply', everyone in China makes 'products cheaply' so it is unfair to attribute this advantage to any particular vendor or any particular technology.

No.

If making $50 cameras was such a Herculean R&D effort, I would not get ten emails a day from fly by night Shenzhen shops offering me the same.

U
Undisclosed #1
Jun 26, 2015
IPVMU Certified

Again, I'm saying that Hikua has invested R&D dollars in creating a proccess that allows them to add high-end features at very low price points.

As for the 'refutation':

One, Axis has 12 models of cameras with integrated IR. Axis 'knows' how to put IR on any camera.

The fact that there is no model under $700 here does not tell us that they can do it at the same price/performance. If they had a $100 camera, you would have a point, but they don't, right?

Two, any third rate Chinese manufacturers has 'figured out how to put IR' on any $19 camera.

This statement fails for the opposite reason. Where is the $19 camera that has IR as good as a Hikua? If there are any, again, you would have a point. But are there any?

And yet the fact is that there are Hikvision cameras performing at the same level as Axis at half the cost.

JH
John Honovich
Jun 26, 2015
IPVM

"The fact that there is no model under $700 here does not tell us that they can do it at the same price/performance."

There are 4 Axis cameras with integrated IR under $700, including one for ~$400. So, first, factually wrong.

Secondly, Axis is doing this as a market / pricing segmentation strategy to get their premium customers to pay more. There is no technology / R&D issue for them adding it lower cost cameras.

"Where is the $19 camera that has IR as good as a Hikua?"

The sub $100 Dahua / Hikvision cameras do not have any special integrated IR. It's not smart IR, it's not long range. It's the same basic IR that any of the other low-end cameras offer.

U
Undisclosed #1
Jun 26, 2015
IPVMU Certified

Sorry, misread the price. Fixed it below. Axis is not seven times as expensive, only four. So I should have said:

The fact that there is no model under $700 $400 here does not tell us that they can do it at the same price/performance.

You example is clearly bad.

Again, where is this $19 camera with the same basic IR? Could you give me a model number please. $19. I'll get it.

UI
Undisclosed Integrator #5
Jul 10, 2015

Actually Hikvision does offer smart ir on there $100 cameras

U
Undisclosed #1
Jun 26, 2015
IPVMU Certified

But the meta point remains - Hikvision does not have any 'technology' that Axis does not have.

TVI?

JH
John Honovich
Jun 26, 2015
IPVM

First, again, factually wrong. TVI is not Hikvision's 'technology', it is Techpoint's.

Axis could license it from Techpoint just as well or build their own, like Dahua or the small Korean outfit, Nextchip.

This is a strategic decision by Axis to focus fully on IP and not to give any credence / support to non-IP technologies. I think it's a risky move, but it's not a technology mistake or failing but a business choice.

U
Undisclosed #1
Jun 26, 2015
IPVMU Certified

Fact is Hikvision cameras have technology that Axis cameras don't.

Period.

So what's your reason? Axis could but they dont want to. Again, like the IR, your reason is that Axis is making risky/bad business decisions. That is getting old.

How about they realize that they do not have the production technology/expertise to make it as cheaply as Hik? Because they didnt put as much emphasis on the manufacturing process.

Hik makes high-quality products at low prices. Their technological edge is their production process.

Stop with the "everyone in China makes stuff cheaply" nonsense.

Does everyone make Axis-level gear cheaply?

Your original statement was Hik has no technology or R&D that Axis doesn't.

Why you would think that they haven't invested big R&D dollars in their manufacturing process is beyond me...

UM
Undisclosed Manufacturer #4
Jun 29, 2015

Another example of something Hik 'invented' please?

Hik/Dahua etc. nowadays mostly use the same sensors / ISP's. Difficult to innovate unless you are actually spending the effort to making something truly unique by not starting with the same building blocks. More likely driving the price down for sensor/ISP's through volume purchases. China is now the largest market for Sony/OV etc. so they get better pricing than Taiwan/Korea etc. Of course efficient volume manufacturing helps but this is not rocket science. If we all innovated like Hik and Dahua then eventually there would be nothing left but Hik/Dahua in the future.

UM
Undisclosed Manufacturer #2
Jun 26, 2015

Both Hikvision and Dahua not started as a camera manufacture, they are DVR manufactures, so they can provide total solutions. They also has better user experience, know customer better, can deliver reliable product at lower price, that’s another reason they out performance pure camera players.

Who bring the inexpensive HD-Analog to the market, Axis just start recently, other Western manufacturers just pure OEM.

AT
Aaron Tankersley
Jun 26, 2015
IPVMU Certified

Any thoughts on Infinova (SHE:002528) and their competitive position and acquisition strategy (March, Swann)?

JH
John Honovich
Jun 26, 2015
IPVM

Aaron, good question. I have no idea what strategy Infinova has. Both March and Swann are respectable companies in their own right, but they are on opposite ends of the industry.

Last year, they did ~$150 million USD revenue. This includes March which in the past did ~$100 million, even if March shrank, it still is a huge part of Infinova's overall revenue. Net profits were ~3% and profits have never been significant.

Infinova's revenue shows they are clearly not a force in China and are little more than March Networks and now Swann (which has not made a lot of money either). Background: The Billion Dollar Chinese Manufacturer Who Bought March Just Bought Swann

That said, and here is the kicker, Infinova's market cap is $1.7 billion USD and is trading at 10x revenue. Also, the stock price has roughly doubled in the past 12 months.

Infinova's never been a serious player yet somehow they have been rewarded with a monster valuation of 2x Avigilon. Puzzling.

On the plus side, they have seemed to leave alone March Networks which appears to be hanging in there.

UD
Undisclosed Distributor #3
Jun 26, 2015

Hikvision and Dahua are both traded on the Shenzen stock exchange which is up 90% for the year (can you say bubble?) where the Taiwan stock exchange index is up only 4% over the past 12 months. This has to be given some consideration when comparing stock performance between the Chinese and Taiwanese manufacturers. Interestingly, Dahua shares were trading at $47 at the end of May and are now at $32.

JH
John Honovich
Jun 26, 2015
IPVM

Yes, that's a good point. However, while the Taiwan stock exchange is flat, the Taiwanese surveillance manufacturers are down, as a group, in the -50% range, which still quite significant.

The bigger thing to me is the discrepancy in revenue, profits and growth, which are more tangible / relevant to industry performance than the stock market.

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