Axis Q4 2012 Financials Reviewed

Over the last two years, Axis's financial results have varied significantly and over the last few quarters, the overall trend has been decelerating growth, with the previous quarter, Q3, being particularly weak.

Now, Q4 2012 results show only modestly better overall growth of 15% in local currencies.

On the other hand, this now puts Axis at a 12 month run rate of ~$750 million USD, which is incredibly large for surveillance. For instance, Avigilon who aims to knock Axis off is at ~$100 million USD.

Regionally, Axis's quarter broke down:

• EMEA - 12% growth in local currency, which is fairly solid compared to how bad it has been for them and others in the last year.
• Americas - 14% growth in local currency, continuing a flattening trend. For Axis to hit its 20-25% growth target, it needs more from the Americas but can it get it? As Axis acknowledges IP penetration is already high there, making it more challenging, especially since Axis already does ~$350 million in the Americas.
• Asia - 34% growth; While the percentage is impressive, it is off a fairly small basis, 1/5th the size of the Americas and ~$22 million USD for the quarter.

All key margins were relatively flat.

One bullish sign was that R&D spending spiked ~20% and is at a $100 Million annual rate (see Q4 powerpoint).

Future Growth?

Axis continues to project 20-25% growth, in line with what it believes is the growth rate for the network video market segment.

A bearish trend looks more likely to us. Despite Axis's strong products, major structural issues impact Axis:

• Their business today is nearly 90% from the Americas and EMEA.
• The overall economic growth in those areas are modest at best with no big GDP growth forecasted. What then will drive sales back up in those regions?
• If Axis maintains 15% growth across the Americas and EMEA, it would need ~60% growth in Asia to hit 20% growth overall.

Even 15% overall growth for Axis is not bad as it is is a $100 million increase per year. However, the easy money and easy migration to IP looks to be winding down and unless China stays hot and Axis can get massive pieces of their business (hard to believe since its main competitors there are owned by the government), Axis is facing more modest growth in the future.

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