Hikvision 'Flooding The Market'

A bizarre social media exchange raises a serious question:

Hikvision is evidently excited to promote this tweet about them 'flooding the market.'

Now, in English, 'flooding the market' has a fairly negative connotation:

"An excess amount of inventory for sale causes an undesired drop in price for the product, and in extreme cases, making the products impossible to sell at any price."

"When flooding the market is done intentionally in an effort to eliminate competition, it is known as dumping."

Surely Hikvision's social media person just does not understand what the term means, but the Hikvision case is especially weird.

Hikvision generates most of its revenue from China, where they are reaping eye popping profits, with an unbelievable 28% net margins and $500 million in total 2013 profits (nearly 3x that of Avigilon's 2013 revenue).

Now Hikvision comes to North America, are selling comprable cameras to Axis at 50% less prices. Plus they have built an American style, American based sales, marketing and support organization (which is expensive).

It does raise the question - how is Hikvision selling at such incredibly lower prices while offering the same type of local service and support and being profitable at all?

Listen, it's great for integrators and end users that Hikvision 'floods' but is this really sustaintable.


I think it will be sustained, according to my record, there are more than 5000 RD capability in Hikvision and base on this, Hikvision has big market share in China market now. Thus the next step will be aim on USA market I think.

How does their R&D size allow them to have lower costs?

R&D size not refer to lower cost directly, but...

My opinion is that

1. Their buying power is huge , it makes the material cost of H/D much lower than other company

2. Stronge R&D including

a. production engineer make the production more effeciency

b. component engineer work on choose more competitive component to produce.

I though similar to Avtech in taiwan at DVR period....the same chipset, other company buy at 10 USD , Avtech can get just 5 USD ....cause they bought the chipset 100k on time...but other company quantity far less than Avtech.

Who knows for sure, but my guess is they are not using "flooding the market" in that sense, but more as "gaining momentum."

Can they sustain it? I am beginning to think they will.

They have double the market share of Axis...as of August via IHS (see screenshot).

IHS Video Market Share

Just a guess, but they likely have a much lower manufacturing labor cost and their size/location would mean raw material costs should also be lower than much of their competition.

Should be interesting as to how this pans out in the US over the next 18 months.

Vince, thanks for the feedback.

On the maret share chart, those numbers are certainly skewed because Dahua and Hikvision both do integration projects while Axis does not (i.e., D and H are more like the Chinese Tyco than the Chinese Axis). The true market share numbers for products sold, not products / systems are closer.

Either way, Axis is ~$800 million in product sales, so all 3 are quite big and do not suffer from lack of scale.

That said, Let's say D and H have lower product costs. That's certainly reasonable.

However, there are lots of other costs involved. For instance, Hikvision has built out an American sales, marketing, training and support team with local Americans paid in USD (see our recent best / worst sales survey on H's showing). It's hard to imagine that they have significant cost advantages here. And those costs are quite significant, close to, maybe more than the product cost. Plus the Ameican distributors need to take their standard percentage as well.

I can understand the Ubiquiti model delivering much lower costs, but that is because they have no sales people, no marketing, no traditional support, etc. However, Hikvision's go to market is very similar in content and cost to Western manufacturers.

Even with lower product costs, the pricing is so much lower with similar sales/marketing/support costs, that it is hard to understand how they are making any profits, much less anything close to their company average 29% net margins.

It does raise the question - how is Hikvision selling at such incredibly lower prices while offering the same type of local service and support and being profitable at all?

I for one would love to know the answer to this...

can it be as Vince has said?

Just a guess, but they likely have a much lower manufacturing labor cost and their size/location would mean raw material costs should also be lower than much of their competition.

[Moderator's Note: This poster is a Hikvision Salesperson]

Dear All,

Hikvision is creating a new "paradigma" in the market, that is not matter of low price, but quality and performance Vs. money and also customer expectation.

Moreover the company is working hard to close and overpass the gap with the competition and the tecnology in order to become the market leader, ...and not only in China!

Thank you Hikvision employee!

Unfortunately, that does not answer or even address the question.

Imagine Hikvision sold hamburgers for 50 cents. People might marvel at how good Hikvision's hamburgers were for just 50 cents but reasonable people would wonder how they can actually sell hamburgers at such low prices.

To be clear, I don't want to argue about the price of hamburgers. I am just trying to explain that when prices are that incredibly low, it is not shocking that one would legitimately ask if the company can sustainably make a profit at such prices.

John- Hikvision USA would like to offer some clarification and context on the retweet that was posted from one of our happy customers on November 7. Marcus Huntley is an integrator who was so pleased with our Smart Series PTZ he tweeted at us to thank us. We took the tweet posted in that context.

I get that. Still the underlying question remains: Is Hikvision 'flooding the market' in the sense of selling products at or below cost?

It is great that Hikvision is selling products at incredibly low pricing while offering local sales, supporting, marketing and training, but that's expensive and does beg the question of whether such prices are sustainable. Thoughts?

John- We want to bring innovation to the market at the right prices. As such, our pricing strategy is sustainable and mutually beneficial for the market and the company.

Its not below cost. We can buy in the same components market as HIK and still make a profit without anywhere near the buying power. We even sell parts from the same suppliers at a lower price than many compeditors that quite frankly shock with thier claims and prices.

Problem is no compitition or supply in the parts business like China has, You can walk in and buy components easy. Just last night we required a Mosfet cost around $0.10 each in China tried Digikey part was around $2 shipping $18. Major parts are not a problem its the small nuts and screws if you run out your stuffed. China you can have a 1000 sent overnight or same afternoon.

James, thanks for the feedback.

Btw, when I say cost, I mean total cost, including sales, marketing, support, G&A, etc., not just product cost.

Since you bring up your own company as a counter example, can you elaborate slightly? What are you selling? What price? To whom?

My opinion is that this flood is not sustainable. I understand that Hikvision products' quality is fairly good and their prices are very competitive, but I expect some issues from the sales channels. The more distributors/resellers are, the less profit they can achieve. If a product is sold by a lot of distirbutors in an area we will always find one who is willing to go down with prices, so at the end of the day they cannot make reasonable profit on selling. I am from Europe, so I am not sure how these things go in the US, but in Europe this is a real issue. I have heard distributors complaining about this problem. If you are selling the same camera, then it will be hard to explain why your prices are higher, there is no gap in the specs that one could refer to as a reason in difference in the price.

Zsolt- Hikvision in North America and Europe only sell and support products sold through Authorized Channels. These are channels are carefully managed. The issue of unauthorized channels, gray market, etc are being addressed in a variety of ways which I will not go into here. These gray market products are mostly China versions, modified in China and exported. Every serial number is traceable and we deny support on any product not sold to an authorized distributor.

I do know these things, but this does not help on the issue I wrote about. There can be 2-3-4 distributor in a country each has some resellers, if there was a tender where Hikvision product would fit, quite a few reseller/VAR/system integrators would offer Hikvision and then starts the competition on pricing only, since the specs are the same. So, sooner or later noone but Hikvision can make reasonable profit on selling.

Bob, correct me if I am wrong, but our understanding is that any ADI or Tri-Ed customer can buy Hikvision?

And Newegg sells 100+ Hikvision products, no?

John- yes, ADI and Axis are two of our authorized distribution partners.

Newegg is not authorized. They are another Amazon like portal. Most the "Stores" are from China as indicated by this disclosure:

International seller. Newegg will be responsible for all RMA and general customer service.

Buyer beware.....

As your new thread on Axis indicates, you can get their products from Walmart or Google or Newegg also.

I was once an IPELA dealer buying first run products at ridiculous high pricing, what I learned from this was that even the best camera of its day will become outdated and outpreformed by something in the future.

I have been buying Hik now for about 5 years and every 9 months they come up with a higher preforming camera at a lower price. Cameras we sold just 2 years ago are now replaced with much better cameras.

I dont even sell camera today I just lease them out with a replacement every 2 years HikVision allows me todo this and the end result is a much happier customer who does not have to deal with the buyers remorse of higher brands

Mark, leasing such low cost cameras with a replacement every 2 years is a clever idea!

mark, for the lease, do you swap-off new better one automaticaly when lease come around, or ask them if, or wait for them ask you to? Are all and any labors (redo-over) items to be included?(because maybe new camera come with some new mount or bigger/tinier size or different FOV or different config)

my goal is to keep the customer for as long as possible we build in a service maintainence agreement which does put us slightly higher than just a purchase price. the biggest obstacle that we face is labor and delivery so we install at a very high level running extra wire or setting up the network for future expansion. The cameras are not the greatest cost on the install and so far the footprint has been exactly the same on the new cameras. (we typically use the mini vandal domes).

Maybe the fact that the Chines goverment has dumped tons of money(seeing that thay have so much of it) into Hik has somthing to do with them being able to sell at cost or below as I have been told so many times in China. I wounder how HIK would be doing without the infusion of money from the goverment for so many years.

Hikvision's profits are simply astronomical. As an example, Hikvision's net profit margins (29%) are ~50% higher than Google's, and twice that of Axis.

Hikvision is obviously not generating those huge profits selling super low cost cameras in the Americas.

I do not understand how Hikvision sells inside of China, but somehow they are making money at astronimical levels from their Chinese sales.

maybe the fact that they pay their workers $5,000 per year on average and that they are indirectly subsidized by the Chinese government (they have massive contracts with the Chinese government and used to be owned by the Chinese government before they went public - perhaps the Chinese government still has interests in HIK...) has to do with their uncanny ability to undercut all western (and most eastern) manufaturers by 50%.

I have no explanation as to how they can do this at 50% the price of everybody else unless either:

1. They are subsidized by the Chinese government (which sounds unlikely since they are a public company (at least partially) and are under the scrutiny that this implies) or;

2. they are dumping their product into North America to get a foothold here (which also sounds strange since they are selling at low prices that are not even remotely necessary - sometimes 50% cheaper than the nearest Asian manufacturer!).

In any case, HIK is certainly not playing with the same card deck as the rest of us, that's for sure...

It is not productive to speculate about the underlying cost structure of HIKvision unless we know the corporate structure within which it exists. I have had the fortunate experience of using my (former) company's manufacturing facility in Taiwan to penetrate and dominate a market. My costs of components were literally 20% of my nearest competitor and I used a forward pricing model to negotiate with suppliers based on expected orders of 1 million systems. This economic model resulted in high quality fully tested systems at sell price of less than 40% of my competition where my sell price to distributors was less than their manufacturing costs. This was achieved through a combination of economies of scale (i million) and scope (synergistic purchases with other parts of the organization). My systems achieved 80% market share in less than a year in the USA. Marketing and Sales should only represent between 15 and 20 percent of total cost and G&A and R&D are not in our economy.

"My systems achieved 80% market share in less than a year in the USA."

To be clear here, you are not talking about surveillance cameras? That's fine. We just need to be clear.

I appreciate economies of scale but there are quite a number of western manufacturers who are manufacturing hundreds of thousands or million+ cameras per year.

The whole thing reminds me of the alarm industry in the late 80's early 90's, there was a motion detector by Visonic called Super Red it sold in Canada thru distribution for $76. Then along came a product called Rokonet a much smaller motion sensor selling for $30. It took a bit but everyone soon saw that the differences were negligable and Super red had to lower there prices

I think we should be asking is Hikvision selling too low or are the others gouging us.

"I think we should be asking is Hikvision selling too low or are the others gouging us."

Mark, that's a good question. You would think that if the Western manufacturers were price gouging, then their profit margins (gross and net) would be much higher than Hikvisions. However, Hikvision overall gross margins are similar to Western manufacturers (50%) and overall netm margins are way higher (29%).

Hikvision is creating a new "paradigma"

Hikvision employee, you are not helping...

Talk it over internally, but your colleague Bob Germain is doing a good job responding with some specifics.

Without getting into any specific product or manufacturer/ing issues, do not discount the currency manipulation by the PRC (China) government, and the relatively strong US dollar. This is a fluid situation, and is political/macro-economicly driven, but plays into this issue in a major way.

Not sure about "Dumping". True that overhead cost of US Hik team might be heavy which could cut into their bottom line. However, it's tough to estime such impact without knowing the actual headcount of US employee (exclude L1 holders in the team, that is). Also, my experence is that the Hik cameras in ADI store are priced not lower, but higher than what similar modes sold for in China. Given the fact that products exported don't have to pay the domestic tax which is pretty steep (double digits of %) there, that should in turn boost the margin even higher.

From Hik's latest earning report, over 20% of their total income is from oversea sales. And the forecast is to cross 30% in next Q or so. So I expect more Hik cameras to come, whether "flooding" or not.

A quick analysis comparing Axis' and Hikvision's financials support the notion that Hikvision's costs may be subsidized leading a reasonable person to conclude that Hikvision is selling products below its actual cost, i.e. "dumping" products, in markets outside China.

Hikvision's gross margin (revenues less cost of raw materials and manufacturing costs) is somewhat lower than Axis'. That suggests that for each monetary unit (SEK or Yuan, respectively) of sales, the cost of raw materials and manufacturing costs, including labor, is actually higher for Hikvision than for Axis. If Hikvision is selling twice as many units as Axis at half the unit price, we might conclude that Hikvision's raw material and manufacturing costs are more favorable than Axis'. Is that a reasonable guess? (Graph below: Axis = blue/yellow stripes; Hikvision = red)

2012-2013 Gross profit (%)

Using rough exchange rate translations and publicly stated employee numbers, each Axis employee generated $445,000 of revenues while the employees at Hikvision generated roughly $220,000 each (for 2013). Of course, Hikvision's employees are likely to be less well compensated than Axis'. Hikvision claims to spend 7% of sales on R&D and to have 2,700 R&D engineers. Based on 2013 financials, each R&D engineer therefore costs about $44,000. In other words, Hikvision generates less gross profits per sale (at least in yuan - perhaps not per unit) and each Hikvision employee is less productive than Axis'.

What does not make sense is the reported Hikvision operating profits (profits before interest, depreciation and other non-recurring items). As John points out, the profit margin is more than twice that of Axis. If Hikvision spends 7% of sales in R&D, that only leaves 10% of sales for all other expenses such as sales, marketing and administration. By comparison Axis spent 15% of sales on R&D, 18% on sales and marketing and 4% on administrative. While Hikvision generates 2.4 times more in sales than Axis (and there may be some economies of scale), can Hikvision be that much more efficient at sales, marketing and administration? Who is paying for all these activities and people? Do Hikvision's financial statements paint an accurate picture of what is actually going on in the company?

Operating profit (%)

Of course, Hikvision's employees are likely to be less well compensated than Axis.

Of course, Labour 5 times cheaper for China than west...

First graph must got cut off, starts at 47%. Makes seem Axis profit double Hik, not just 4%.

Maybe when more U.S. Expenses hit hard on their bottom line, profit will nosedig straight down. Why dont Hik show just any seperate region and it own profits?

"Hikvision's gross margin (revenues less cost of raw materials and manufacturing costs) is somewhat lower than Axis'. That suggests that for each monetary unit (SEK or Yuan, respectively) of sales, the cost of raw materials and manufacturing costs, including labor, is actually higher for Hikvision than for Axis."

I am not sure about that.

Gross margin is a factor of sales price and product cost.

In this case, Axis has a much higher average sales price than Hikvision.

Let's say the average Axis product is sold at $500, that would mean their cost is $250.

Let's say the average Hikvision product is sold at $250, that would mean their cost is $125.

I don't think we can conclude that Hikvision product costs are higher than Axis, simply because what is impacting this equation / ratio is Hikvision's much lower product sales prices.

Don't disagree (which is why I wrote "If Hikvision is selling twice as many units as Axis at half the unit price, we might conclude that Hikvision's raw material and manufacturing costs are more favorable than Axis'"). However, I question how Hikvison can realize operating margins more than twice Axis'? That's tremendous efficiency in sales, marketing and administration.

Sounds like Hikvision and others have a few things going for them that will challenge western manufacturers for the next several years. One thing this thread has only touched on, is that the cost and avalibility of capital in China is ridiculously low and easy to get. Recent stories in the Wall Street Journal and others talk about the looming debt crisis coming to China if they don’t soon restructure. In the race to grow the Chinese economy, political leaders have been juggling sticks of lit dynamite using very low or no interest loans to build and prop up indigenous manufacturing.

I believe that all of the factors in this thread will all shake out in the coming years as western manufactures adjust to the new “paradigma” and as questionable Chinese business practices slowly become more transparent. In the meantime… well I am glad that I am no longer in manufacturing.

Interest rate in China is much higher than US, real interest rates in China remained very high.

When export, they can get VAT refund (similar to sales tax, VAT is 17% in China). It's a standard export refund process for most countries.

Some of our imagination was too kind, actually the Chinese government doesn't give specical compensation to a business. If fact, its opposite direction, the Chinese government keeping adding more cost burden for business.

Hikvision vs Axis is a volume game, low price for higher volume or high price for lower volume.