Axis Financials From Bad To Worse (Q2 2015)

By: John Honovich, Published on Jul 09, 2015

Things keep getting worse for Axis and now sales are actually shrinking.

In this note, we break down:

  • How revenue and profits are sinking
  • Which regions and areas hurt the most
  • What the bright spot for Axis is
  • How Axis is in denial on degrading outlook
  • Why Canon overpaid by a billion dollars

****** **** ******* ***** for **** *** *** sales *** ******** *********.

** **** ****, ** break down:

  • *** ******* *** ******* are *******
  • ***** ******* *** ***** hurt *** ****
  • **** *** ****** **** for **** **
  • *** **** ** ** denial ** ********* *******
  • *** ***** ******** ** a ******* *******

[***************]

Canon / **** *********

****** **** ** *** a ********** ** *****, with ***** ****** **** 80% ** ****, **** continues ** ******* ********** because ****** **** *** ******* Canon **** ********* ****.

Revenue *** ******* *******

**** ***** **** ******** down *% **** **** year, ** ***** ******** terms. ** *** * years ** **** ******* Axis, **** *** ***** happened ******. *******, **** was ******. **** ******* (** ****), ***** **** up **** *%; *** ******* ****** that (** ****), ***** **** up *%; *** ****** ****,*% ** ****. ** ****, **** clearly *** ** **********, just * ************ ** a ****-**** ********* *****.

*** ******* **** *** nearly ** **** ** well, ********* **** **.*% to *.*%. ************, **** profits *** **** ** the **-**% *****.

Regions *** ***** ******* *** ****

******** ******** *% *** Asia ******** *% ** local ******** *****. **** needs ******** ** **** given **** ** ** their ******* ****** *** more **** **** ***** revenue. **** ** ******** to ** *** ***** growth ******, ******* *** 9% *******. **** ****** continues ** *** **** Asia *** **** ********* but **** ***** ****** deliver ** **.

** ******* **** ********** are ********* **** *****-********* buyers *** ******* **** applications, ***** *** ******** challenges ** ***** ******* and **** *** *** relative ****** ******* ** North ******* *** ******* Europe. ** *** ******* show, **** ** * real *******, ***** ** continues ** **** **** down.

Bright ***** *** ****

** *** ******** ****, though *** ********* ******* financials, **** *** ** impressive *** ******* ******* cycle, ***** * ********** down ****. ***** *********** technology********* **** / **** deliver **** *******; ********* *****-****** *********** *********; **** **** rectified ******** *** ******** their************* *** ********; **** * ***** slew ** *** ***** uncommon ************ *** ** ****.

*** ** **** **** help **** ** *** mid ** **** *** of *** ******; **** of ****, ***** **** relative **** ****** **** be *********** ***** **** struggle ** *** *** end.

Axis ******* ** ******

*** *** **** *** years, **** ********** **** gotten ***** *** *****, but **** ************ ********:

"*** ****** ******** *** the ****** ** *** projects ***** **** ****’ view ** *** ******* market ****** **** ******* unchanged."

** ***** *** ********* of ****, **** ***** market ****** ** *** 20-25% *****. **** **** ****, **** ******** ******* that ** **-**%. ***, in ***** **** *******, **** **** **% annual ****** ******.

**** ** ****** '***' at *** *** ** high ***, *** ****** rate ** ** *** converged / ******* ** the *********** ******* ***** surveillance ****** ****** **** of ~**%. ****, **** all ******* *************, ****** win **** ******* ******** due ** ********* *******, so ** ****** **** from ****** *****. *** since **** *** ****** not ** ******* ** price ** ******* ******** cost *********** **** *** Chinese, **** ******** ** be **** ********** ** the *** ***.

Canon ******** *******

*******, ****** ** *** to **** ********** *** knowing ******* **** ** cash ***.

**** * ****** ***, in ********, ***** ****** to *** ~$*.* ******* USD *** ****, * ~$900 ******* ******* **** Axis **** ***** *****. Since ****, **** ****** has ******** *** ******* have *******. **** **** further ************* *** ******* financial *******, ***** **** easily * ******* **** than * ********** ***** for **** ***********.

***** **** **** **** continue ***** **** *** ************* as **.

** **** ***** *** a ****** ****.

Comments (18)

It’s interesting to continue to see a decline in profits and revenue from big brands. From my perspective the surveillance market is growing, we are currently working on more camera projects (big and small) now then in the past 25 years. With highly competitive products, its hard to justify purchasing from Axis and other “well respected” brands. Big companies struggle to adapt, see Microsoft lays off 7% of their work force. Big companies need to start thinking outside the box and get it together or they're going to end up in the mud. This is why we have kept our company small (mostly staying within Maine to Virginia), we can turn on a dime to keep our employees paychecks printing and our customers happy.

Abandon your partner ecosystem and this is what happens... The combination of technology partners with near infinite solutions will always prevail. No single company can dominate alone.

I am not sure what you mean here. I believe Canon-Axis-Milestone all loudly proclaim to be open solutions still. AFAIK Axis has not cut off any technology partners. Granted, behind closed doors they may be making changes to their ecosystem to remain competitive but I have not heard of any changes actually being made.

On the one hand, I agree no major changes have been made (save for how Axis now positions its own 'end to end' solutions).

But we do see increasing concerns / unease for companies doing business with Exacq, Milestone and Axis, post their acquisitions. I am certainly not saying everyone or even most, but there is clearly a distinct minority that is either actively looking for alternatives or far more open than they had been before. At the margins, when you are trying to grow 5% instead of -1%, this can make a difference.

"I believe Canon-Axis-Milestone all loudly proclaim to be open solutions still."

My statement does not reflect what is being "proclaimed" by Axis, it reflects what Axis is actually doing. Axis now drives customers to their VMS and Server lines to deliver a total solution. In the past they teamed up with partners to win projects.

This changes the makeup of the Axis sales team by reducing the number of entities working together to win projects. The result is a lost partner and added competitor.

IMO Axis took this position in effort to combat Avigilon and shore up their position in the market so they could close on the sale of the company. It is short-sighted and you are seeing the results.

In the quarterly report executives claim that they maintain the "clear leadership in network IP cameras in the Americas according to IHS". I believe they are in for a shock in the next few weeks.

Is there a new report due?

This one, just out, puts them at #1 for total number of currently (as of end of 2014) installed network cameras. IHS Reports 245 Million Security Cameras Are Installed Worldwide...

Though they had a big head start on every one else, so...

One is referring to total install base over the years, the other is referring to sold during the current period. For example, Alex Rodriguez has more home runs than any active baseball player but Bryce Harper has significantly more home runs this year.

Undisclosed 3 is from Hikvision, to understand the context of his claim against / about Axis.

One is referring to total install base over the years, the other is referring to sold during the current period.

Yes, I understand. I was more asking how the 'big shock' is going to be delivered in a 'few weeks'. Are you saying it refers to a quarterly IHS shipment report?

The simple answer: Price generally wins in the long term.

In other industries for example, look at DeWalt tools. Their hand held drills and drivers were considered the best. Almost a status symbol. But, you by a drill for the hole, and other cheaper brands began to up their game, and now DeWalt's sales are declining. You have to look around most job sites to find them, and they are typically older. Almost never see a new set.

A typical elementary school might have 16 IP cameras, a POE Switch and an NVR.

Look at the old way from a dealer's perspective: (rough numbers)

16 Axis xxx cameras at $550 cost each $8800

Milestone Xprotect Enterprise: $2000 Server and 16 x $200 camera licenses $5200

Netgear 24 port POE Switch $400 (or way more with Cisco)

Dell PC/Server with 4 TByte: $1500+

and assume cable and installation is the same for both options.

Total Hardware and Software dealer cost: $15,900. And a dealer is lucky to get 15-18% from Axis and Milestone

Now compare to a Hikvision option:

16 Channel NVR with 16 port POE and 4TB: $650

16 3mpxl IR cameras at $150 each: $2400

Total cost: $3050. and a Dealer can generally get a nice markup and still be half the price of the other option.

Yes, of course you can make all kinds of arguments and claims about VMS features, but in the end, like the drill, you buy the system for the recorded video to capture an incident. In all my years of installing these systems of both types, I've not found a real compelling advantage of one vs the other in general use. If there was a fight in the school cafeteria at 11:30 am, it's generally as easy to pull footage on one as another.

So, guess what's selling these days?

I liked all of your post, except for the beginning when you used DeWalt as an example. If you are a pundit of power tools as I am, you'll note that Dewalt is a brand that was created by Black & Decker to go after the Prosumer and Professional Market.

Black & Decker is a very successful manufacturer in the DIY space, but was having trouble gaining penetration into the Prosumer/Professional Construction markets that are/were dominated by top tier brands Makita and Milwaukee and secondly by Bosch and Ryobi. Black & Decker is considered a DIY brand only, with products perceived to be too low-cost and quality for constant industrial use.

So B&D created the DeWalt brand which originally was just the same Black & Decker tools with the now well-known Yellow and Black packaging, but eventually evolved it to be its own brand with higher quality products, but at Prosumer price-point.

A decade later, the results are clear, DeWalt is now probably the main go-to DIY brand for serious Prosumers, and even in the Professional World, I see as many DeWalt tools on job sites as I do Makita and Milwaukee.

I mention this because Black & Decker and its use of the DeWalt brand has almost no parallels with the Video Surveillance Solution other than being able to show perhaps Up arrows and Down arrows in revenue over time, and that parallel can be made within any group of companies within an industry.

As I said, I like the rest of your post very much, but DeWalt just isn't a good parallel comparison.

(As a side note, the new DeWalt 20-Volt Max Lithium drill/driver set I got at Christmas is the best cordless drill set I've ever owned) :)

re: the 20volt Dewalt: well then today is your day... http://www.amazon.com/gp/product/B0106RQC9Y?ref_=gb1h_img_m-4_2862_244b6f16&smid=ATVPDKIKX0DER

Also, I imagine you would really enjoy this guy. He makes youtubes taking apart drills and such. Very funny and entertaining. https://youtu.be/NHCS7JXfuv0

So Bosch countered with the Skil Brand.

Hi, Not surprised, too many products which are "me to" . New website is awful. And the alienation of partners by putting reviews on the axis website from a online box shipper is unforgivable. For that last one they just lost us. I will never subscribe to dealing with a company who does this, casestudies are one thing. Using an online retailer!

For the past few years, Axis financials have gotten worse and worse...

Good time to build a new headquarters?

In early 2016, Axis will initiate the construction of a new headquarters that will be located adjacent to the company’s existing office premises in Lund. The building is expected to be ready in early 2018 and will accommodate 1,100 employees....

The nine floor office building with a total area of 32,000 square metres, will occupy an entire block at the Ideon Science Park...

Gotta compete with Avigilon right?

We hope Canon has a better plan.

Apparently not.

Together with principal owner Canon’s Chairman and CEO Fujio Mitarai, Axis announced the expansion plan at a meeting today with representatives from the municipality, university and the faculty of engineering.

For comparison, Avigilon's new used space is also 9 stories, though at 135,000 sq.ft., is less than half of Axis' new 335,000 sq. ft. complex. Avigilon paid $42,000,000.

One other difference, Avigilon is moving their headquarters and expecting to save money by owning instead of leasing. Axis, however is apparently keeping their Main building...

Is this a smart move for Axis?

It is hard to speculate at the reasoning to determine if it is a smart move. Perhaps their growth in personnel has outpaced the size of their facilities. Maybe Canon and Milestone need some space to move their personnel in to cross-pollinate the products. A few bad quarters or no, there has to be a sound business decision behind it that we simply are not aware of.

A few bad quarters or no, there has to be a sound business decision behind it...

No doubt there are important considerations that we are unaware of, but I think concluding that therefore, the move must be sound is optimistic.

Businesses make a lot of decisions, some good, some not so good all the time, so why would this one be different?

Projects of this size can take a while (years?) before they are even announced. So a safe bet would be that this one is the result of a process that began when the outlook was a bit rosier. Not wanting find themselves out of space again, right after completion, they probably built in a little extra cushion.

But, as a CAJ shareholder, albeit an insignificant one, I do wonder what justifies it. More than just one company has folded soon after the completion of their new corporate coliseum

And I like your theory of a joint Scandanavian SuperComplex in Lund, (though the Danes might not), put the VMS folk in one building and the Camera people another. Connect the two buildings with people movers via a high capacity powered bridge.

So if there is a compelling reason on that scale, then great. I'm sure we'll find out soon enough...:)

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