Axis Misses, Profits Sink (Q1 2014)

IYO, is this one of those announcements that even competitors of Axis dread to hear, because of Axis' bellweather status for the IP video industry segment, i.e. 'what is bad for Axis is bad for all of IP video'?

Or is the market defined enough now to become more of a zero-sum game, i.e. 'what is bad for Axis is good for its competitors'?

John,

These posts scare me :). I was reading your article on 'Surveillance trends for 2014'. An Undisclosed member expressed his concern on the industry-if he should stay in the industry or switch it. Honestly, I see that the game is in the hands of the low cost OEM's now. Should we all take a sabbatical from this industry?? :)I was always under the impression that this is an emerging market,unlike a telecom or IT industry. Since I have joined IPVM and started reading your articles I am re-thinking. what would you advice a relatively young person in this industry to do at this juncture?

PS- I know this is not a get-counselled-for-free forum. But who else could answer my question? :)

Btw, US GDP numbers for Q1 2014 were just released and they were bad, with just 0.1% growth. Worse, there was "a 5.5 percent fall in spending on equipment by businesses," which includes things like security / surveillance systems. I don't know what the overall growth rate for our industry's product were last quarter but overarching downward pressure like this is not a good thing.

Related, Avigilon is announcing their Q1 financial results next Wednesday May 7th. It will be interesting to see if they are impacted at all.

In a free market, dominance will always be limited by presence and greed will eventually show through. Competition is healthy and their down turn is not necessarily a thermometer for the industry's strength. Business to business selling is about relationships not products. That is also having effect.

I don’t think the market is shrinking nor do I think that talent should leave the market – you need to be in the industry for the long haul. It’s as much about relationships as it is the role we play.

There is a natural ebb and flow in every industry. There are tons of new regulations that are being written now, many companies are waiting for these to be published.

If you take that and the slow economy that we are in you wind up with many companies holding back capital dollars and keeping their O&M budgets flat.

To the "relatively young person" a few comments above, John Lineweaver makes a great point. "There is a natural ebb and flow in every industry." I am in my mid-thirties and have been in this industry since I was in college. Have already seen a lot of changes and will surely see many more. You can be successful in this business (and I believe any business) if you follow a simple mantra, Know your product/job, Be responsive/responsible, and don't BS anyone. If you do those three things you will be successful. Just my free piece of advice. I want to encourage more young people into our business. I believe this will help drive innovation and growth.

More competition, crisis still strong in "major Regions", maybe less demand and lower innovation: these are all good reasons. This last one (lack of innovation) I actually agree less: if I think anyway to the cameras of some few years ago.. and processors inside are faster and faster, allowing more and more things..

But I think there could be another interesting one. Axis, correctly, in these last years has started to invest a lot in the emerging markets as well (example Africa, former-USSR, Asia, ..); but these markets maybe are not reacting that fast as expected. There are lots of projects taken, but maybe slowered or stopped by political issues, organizations and budgets changing daily, complexity of relationships with people changing daily as well, lack of infrastructures, ....

Only speaking about the projects they are seeding or even already "won" where us too (TechnoAware's analytics) are involved, in those Regions, I can tell about projects for several tens of thousands of channels in "stand-by mode", for reasons such as the ones mentioned above.. This only speaking about the ones in partnership with the little little TechnoAware; you can imagine how many other ones they may have..

Thus, perhaps a further question might be how much their estimates of these markets have been weighed among the overall one? And how much might this affect in the future, as soon as "those projects" will finally start?

--

About the young persons. Well, I do strongly believe that there is an incredible lot of stuff and opportunities of innovation for good talented young people in this market: better and better analytics, cognitive environments, 3D intelligent sensors, multifrequency vision, ...... Do I need to go on??..

The real question is: how much our industries, governments and organizations, day by day and more and more suffocated by the supershort-terms imposed by the financial models, will go on to invest and give to the talented young people the instruments to make valuable middle-long-term research and innovation in future?.... In Asia for example they are having year by year a different approach in this, and maybe this is also one of the reasons of the results of the latest Financial Times' report.........

Cheers,

Simone

(TechnoAware)

I'm not surprised by the drop in Axis sales. As a former axis gold partner the cameras were fantastic but their margins were poor and you sure didn't feel the love from Axis either. Samsung has become extremely competitive and is extremely responsive. The quality of the samsungs is extremely close and sometimes higher depending on the camera (The SNP-6200rh is stunning). I think Axis will find it's feet again. I think they are a good company, but they need to leave more room on the table for the dealer.

As for the idea that the industry is in trouble i would just ask a few questions:

1. Is need wayning?
2. Is there a better solution than surveillance?
3. Are we at the point end clients can do it themselves?
4. Is there profit left in the industry?
5. Are you delivering value?

1. I would say the need is increasing not decreasing. Theft and chrime in general are up, liability is up, fraud is up and clients have a higher need for operational efficiency. We have had triple digit growth for the last 3 years, so i don't think demand is the issue.

2. There are few better solutions than surveillance at the moment that i can think of for most scenarios.

3. I don't think most clients want to hang their own cameras or have any idea what they need. There will always be some owners that want to do everything themselves but this is rarely the case with larger companies.

4. If you're selling low end systems and competing against costco without differentiating you're going to have a tough time. Many clients complain about the poor quality of cameras as the industry did a very poor job of delivering a good product over the last 10 years. Show them a brand new 1.3MP+ with a good sensor and lens and they'll see the value. You often don't even need to show them, you can just tell them the difference between good and bad cams especially low light performance of new cameras.

5. This is the big one. Are you giving them an ROI at whatever price your selling at. Are you asking the questions to determing what they would feel is an ROI and are you then showing them that what your proposing is saving them money or reducing their risk(which in the end saves them money)? Businesses buy things that make them money or save them money. You need to justify the purchase for them or you'll rarely make the sale.

I still have a profitable retail computer company, but i've often asked myself the same question some people in this industry are asking. How long can this industry remain profitable? I'm surprised we aren't buying our phones and many other electronics out of vending machines already. I think the surveillance industry is a long way off from peak. If you compare computers to cameras what percentage of companys have computers vs what percentage have cameras. The need for cameras especially with new applications is just starting to take off. If you do it right there's good money and a good future in surveillance.

Maybe they won't but i would think to they are established enough to have a fairly solid manufacturing process down that may be abe to be tweaked. They could start oem'ing their chips. I think the streamlined execution is where they'll aim. The current focus on apps inside the camera may give them some revenue advantage, though it hasn't been the case so far. It is however nearly free for them to allow others to use their SDK and develop apps for the edge and some like ipconfigure are a good reason to buy more ip cameras.

I simply can't see axis falling from grace without a fight.