Axis Slow Growth Returns - Q4 2013

By John Honovich, Published Jan 31, 2014, 12:00am EST

The seesaw continues and this time, it is going down.

Pace Q3 2013's robust 27% growth in local currencies, in Q4, Axis growth dropped more than half to a pedestrian 12%.

In this note, we review the details of their Q4 report and powerpoint deck to examine the key drivers and issues.

$700+ Million Revenue for 2013

With the year complete, Axis' 2013 annual revenue was 4.7 billion SEK or ~$720 million USD.

The company's market capitalization is ~3x sales, or ~$2.2 billion USD.

Hiring Slowdown

In Q4 2013, while total headcount reached 1627 employee, this only increased by 35 people, by far the lowest amount for Axis in years. They explained, "After several years with a very high rate of recruitment, the hiring rate was adjusted during the year to become more aligned with current market growth." In other words, future growth is likely to continue to be low, so hiring will match that.

Geographic Sales Breakdown

Growth in the Americas and EMEA were both modest, at best. The US was particularly poor, at just 7%, especially compared to historic high numbers here. EMEA was not much higher at 9% but that is a lot better than the flat performance in recent quarters.

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Asia, by far, was the fastest growing region at a robust 39%. While Asia still only represents 14% of Axis total business, this is a good sign for them.

R&D Spending Continues to Grow

Despite the weaker growth and slower hiring, R&D spending increased notably quarter over quarter. Axis annual pace of R&D spending is now over $120 million (contrast - Avigilon did $100 million in 2012 sales).

On the other hand, Axis product development continues to focus on niche products (like this week's nitrogen pressurized stainless steel cased PTZs). The good news is that it gives them a wide array of high end options with few competitors. The bad news is that their 'bread and butter' cameras are being strongly undercut on price at comparable (and often better) quality.

Video Analytics Being Emphasized More

Axis is increasing its marketing / positioning of video analytics and intelligent video, including it in the deck:

For example, Axis, for the first time, added in an array of advanced analytics on a new high end 1080p PTZ.

Outlook Unchanged?

Despite the continued lackluster performance, Axis says their outlook is unchanged, citing 20 - 25 percent annual growth. On the other hand, Axis grew 17% for the year, which is not terrible. On the other hand, it is not clear to us what will enable them to grow at a faster rate in 2014.

Analyst Call

See the analyst call recording for more color commentary.

Sees weak Americas growth this quarter as a 'one off' and is 'convinced that improvement going forward' there. Also, emphasized expansion in America with opening of 6 regional offices.

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