Axis Q4 2012 Financials Reviewed

John, Thanks for another interesting report. Since a major part of my work is in China's IP camera market, I would say that China's IP market should stay very hot for another two or three years at least. As you you can tell from HikVision's growth, its annual revenue should top US$1.2B in 2012 and grows around 40% yoy. Whille I agree that Axis needs to get a bigger pie of China's market to meet it overall growth target, the main barrier for them is not that its domestic competitors are partially government owned (many of them are), its the pricing. As an example, Both Axis's 1604 and HikVision's DS-2CD864FWD-E use Aptina's A1000 sensor, but Axis's selling price is at least 3 times that of HikVision's. While the image quality of 1604 is better than HikVision's (especially WDR performance), it is hard to justify the huge price difference for many cost sensitive customers there. So Axis will main its niche and high margin position there unless it takes a very bold move.

Hi John, I cannot agree with you more on that connections matter a lot in China's surveillance market, but it is just like that in US and many other countries and industries. You need both reasonable priced products and strong connections to win big there. There are some companies there with stronger connections than Hikvision there, but Hikvision's products stand out not with best image quality but with its product reliability and very reasonable price. As for your question, my personal take is that we will see more of China's domestic companies (not necessary HikVision or Dahua) take US and EU market share from US/EU-based companies than the other way around (especially in the commecial surveillance segment) as they spend more and more on R&D and products. There really is no such a high technical barrier in this industry like that in the CPU industry. Just my 2 cents.

John,

That's a very good question and I can only speak from my own experience and Axis can significantly expand its market share if it lower its price somehwhat (no need to be at the same level as most domestic companies' offers) since some of its IP cameras is still highly regarded in the field. For example, some government customers are willing to pay for the best products in the market (the logic behind this is that if the system fails to capture some critical incidents, they can always say that they have tried their best buying the best cameras but they cannot use the same execuses if they buy lower cost ones). So it really depends.