CSST - China Video Surveillance Offerings Examined

By: John Honovich, Published on Aug 11, 2009

CSST is one of the biggest and fastest growing security companies in the world. Founded in 2001, last year CSST generated over $400 M USD revenue. Not only is CSST one of the largest players in one of the fastest growing markets, CSST [link no longer available] is expanding its export business for sale and competition with manufacturers around the world.

This raises 2 important questions:

  • How dominant can CSST become in the Chinese market?
  • How strong can CSST become in the world market?
In the local Chinese market, I lack the expertise to have a meaningful opinion.

For background on CSST, the following 4 items were the best resources I found:

These resources are cited throughout the analysis.
Built Like Tyco

For Western readers, the most well known comparable for CSST is Tyco Security. Like Tyco, CSST is a combination of many different organizations who perform different roles in the security business. For instance, Tyco has ADT for monitoring and integration, Sensormatic for retail, American Dynamics for video surveillance, Software House for access control, etc. CSST has similar components including subsidiaries for installation, service, distribution, manufacturing, software development, etc. A major difference is that CSST is focused on deeply integrating their subsidiaries to deliver a "mega" turn-key solution from making the products to selling them to end users, installing and servicing them over the complete product lifecycle.

Direct Comparisons to Axis, Pelco, etc. misleading

CSST should not be compared to most well known manufacturers. For instance, companies like Axis, Pelco, HikVision are almost entirely focused on manufacturing products. Comparing these companies to CSST on a revenue or strategic basis can be quite misleading. One, the business strategy is different - CSST as a total solution provider, these other companies as manufacturing specialists. Secondly, only a fraction of CSST's revenue (16%) comes from manufacturing. As such, CSST's total 2008 revenue of $428 M USD cannot be directly compared to Axis or Pelco. CSST's manufacturing 2008 revenue is closer to $70 M USD (with the majority of revenue coming from installation). CSST also has access control and intrusion detection products offerings. This too, should be factored in when determining CSST's relative power and size specifically in video surveillance.

Role in the China Market

In China, CSST's strategy of providing total solutions is most apparent and well-developed. As they state:

"We manufactured the products, we installed the system . . . who else is better than us to manage it for you . . . Capitalize on system integration customer base"

CSST's revenue is heavily driven by government projects with almost half of sales from the government (46%). The Chinese Safe City projects are cited as a major driver of projects and revenue by CSST.

Get Notified of Video Surveillance Breaking News
Get Notified of Video Surveillance Breaking News

CSST is in the process of integrating dozens of acquistions (manufacturing companies, system integrators, etc.) as they attempt to quickly scale and deliver their total solution.

Role in the Global Market

CSST has established a division, called CSST Products, to focus on marketing their manufactured products to the global market. They report having a 12 building, 80,000 square meter complex where they are aggregating all of their product subsidiaries. Their value proposition is to provide one-stop shopping for international buyers [link no longer available] that are looking to source a range of security products.

In their international plan overview, CSST seeks to increase the quality standards of their products to international levels. They list the Middle East, Asia, India and Africa as markets for expansion.

CSST Financial Performance

CSST is a publicly traded company on the NYSE (see quote). Their current market cap is $423M USD; which is less than their 2008 annual revenue (Price to Sales Ratio under 1). Despite the relatively low market capitalization, the company is fairly profitable with Net Income hovering about 15%, providing a low P/E ratio of about 13.

CSST's revenue growth was strong in Q2 2009 but profitability weakened [link no longer available]. CSST cited price pressure in the corporate sector and the desire to grow market share.

Tradeoff of CSST's Corporate Strategy

CSST's veritical integration of manufacturing, installation, service and distribution has some important tradeoffs. While this is common in the oil industry, it is an increasingly rarely attempted strategy in the security market.

The benefits of vertical integration include tighter coordination amongst subsidiaries, higher revenue and greater margins as 'middleman' are cut out. The downside is a lack of flexibility and incentives to advocate one's own products even if better products are provided by 3rd party providers.

The past 5 year's financial results certainly indicate that the model is working well inside of the Chinese market. I would speculate that this is a function of China's politic/economic structure and CSST's abilities to navigate it.

In most Western economies, this strategy applied to the security industry has more negative trade-offs than positive. ADT's integration division is a classic example of this. A vertically integrated strategy would seek ADT to favor and push the sale of Tyco products (Intellex DVRs, etc.). However, ADT sells a broad array of security products and is strongly pushed by customers to provide non-Tyco products. If ADT did not do this, they would lose significant business. By ADT doing this, it reduces the benefits of a vertically integrated strategy.

CSST's approach may prove to be successful in the long term inside of China. However, with so many competitive video surveillance products available in the market, CSST may increasingly have difficulty stopping demand for 3rd party products. Certainly, though, CSST has little to no realistic opportunity to expand their vertical integration strategy to Western markets. In these markets, CSST will likely be another manufacture offering products for OEM or direct branded sale through traditional security sales channels.

Surveillance Product Offerings

While CSST offers a quite range of video surveillance products, not many of the products stand out. CSST is also, not surprisingly, not strong in IP camera and VMS software. However, CSST recently joined the HDcctv Alliance and plans to release HDcctv cameras and recorders in the next year.

Information on CSST's products can be found primarily on their CSST products website [link no longer available] and additionally on a few of their subsidiary sites including cameras on the HTS site [link no longer available], monitors on the StoneSonic site, and recorders on the HighEasy site [link no longer available].

CSST admits [link no longer available] that they are stilling working on improving their quality and catching up to the level of Taiwan and Korean manufacturers.

With a lack of innovative products for the Western market and admitted limitations on product quality, CSST has 2 major drawbacks.

Comparison to Other Asian Manufacturers

The Asian video surveillance manufacturing sector is quite mature and diverse in the number of manufacturers and the products offered. Additionally, in terms of video surveillance products sales, a large number of competitors are likely larger than CSST including HikVision, Dahua, Everfocus, Samsung, Vivotek, etc (see our overview of HikVision and of EverFocus). To give a sense of the size of competitors, HikVision reports 2008 revenue of $260M USD with 70% of revenue from China. They claim to have 50% market share in China as well. 

OEM Comparison

For Western companies seeking Asian manufacturing partners, CSST suffers from a number of weaknesses.

  • Western companies prefer manufacturers that are large enough to provide quality manufacturing but not too large to have leverage over the Western companies. Western OEMs value the control and pressure they can put on their Asian manufacturer. With CSST, rapidly approaching $1 B USD in revenue, this will be harder to accomplish.
  • Western companies prefer manufacturers who do not have strong brands of their own. CSST may not be well known for its products in the West but it is far better known than most Asian manufacturers because of CSST's publicly traded stock in the US. Furthermore, given CSST's size and strength in the Chinese market, CSST will certainly continue to grow its marketing and branding efforts. These are negatives to most Western companies who do not want the products or the identity of their manufacturer known.
  • Most of the larger Western companies do not need one stop shopping for their OEM purchases. To the extent that this is valuable in reducing negotiation and search costs, this may be offset by increases in price or decreases in customization (as a larger company with a profitable internal business, CSST has much less incentive to aggressively met Western companies requests/demands).

Strength as OEM/Branded Manufacturer in the West

Unlike many Asian manufacturers who are uncertain or split in their approach to branding their own products, CSST's focused strategy of winning the Chinese end user market will help them build their own brand in the West. In markets with similar level of performance/price requirements as China (India, Africa), CSST has the potential to do well in the short term. However, in markets like the US and Western Europe, it will be extremely difficult until CSST significantly increases the quality and feature sets of their product offering. This could happen but it is likely to take 5 years or more.

On the other hand, CSST's stength in the Chinese market may minimize the motivation to expand internationally. Unlike many Taiwanese or Korean manufacturers who have to sell globally because their home markets are small, CSST may find much higher margins and acceptable revenue levels, minimizing the focus and priority of global expansion.

1 report cite this report:

Hikvision's $800 Million Project Expansion into System Integration Examined on Dec 15, 2010
In this note, we review Hikvision's $800 Million Project Announcement [link no longer available] and share information from an interview with...
Comments : Members only. Login. or Join.

Related Reports

The Hanwha Techwin Million Dollar ISC West Booth on Apr 05, 2019
One million dollars for 2 and 3/4 days. That is what Hanwha will pay for its ISC West 2019 exhibition. While the event is free for most...
Hanwha Moves Global Manufacturing From China To Vietnam - Factory Visit Report on Mar 05, 2019
In a Vietnamese industrial zone surrounded by rice fields and small countryside towns, Hanwha Techwin has started a factory that produces most of...
Surging Wyze Raises $20 Million, Threat To Chinese Brands on Feb 01, 2019
The Seattle Startup that is disrupting consumer IP cameras with $20 pricing has just raised $20 million dollars (SEC Filing and company press...
The 2019 Video Surveillance Industry Guide on Dec 10, 2018
The 300 page, 2019 Video Surveillance Industry Guide, covers the key events and the future of the video surveillance market, is now available,...
Huawei To Be “Top Three Global Position” in Video Surveillance on Oct 29, 2018
Huawei - China’s biggest networking gear and smartphone maker - plans to become one of the top three global video surveillance manufacturers in...
Chinese Manufacturer Kickstarter Campaign Huge Success (EverCam) on Apr 23, 2018
In a week, a Chinese manufacturer's expertly done Kickstarter campaign has received $1.4 million in pledges, an incredible amount for a video...
ISC West 2018 Best and Worst on Apr 16, 2018
ISC West 2018 had strong attendance, modest overall new products, and a surge in Artificial Intelligence marketing. First, here are 20+...
Axis Launches ~$100 HD Camera on Apr 11, 2018
Chinese manufacturers, led by Hikvision, have come to dominate the low end of the Western market, driven by ~$100 cameras. While Axis has...
The 2018 Surveillance Industry Guide on Jan 16, 2018
The 300 page, 2018 Video Surveillance Industry Guide, covering the key events and the future of the video surveillance market, is now available,...
Cisco Favorability Ratings - Positive In Networking, Negative In Surveillance on Jan 06, 2017
Cisco is the big name in networking, but they have not been able to leverage their brand and sizable sales channel in the security industry to the...

Most Recent Industry Reports

Hikvision Illicitly Uses Back To The Future In Marketing on Jul 03, 2020
NBCUniversal told IPVM that Hikvision UK's ongoing coronavirus marketing campaign using NBCUniversal's assets was not allowed. Hikvision mass...
Verkada: "IPVM Should Never Be Your Source of News" on Jul 02, 2020
Verkada was unhappy with IPVM's recent coverage declaring that reading IPVM is 'not a good look' and that 'IPVM should never be your source of...
Vintra Presents FulcrumAI Face Recognition on Jul 02, 2020
Vintra presented its FulcrumAI face recognition and mask detection offering at the May 2020 IPVM Startups show. Inside this report: A...
Uniview Wrist Temperature Reader Tested on Jul 02, 2020
Uniview is promoting measuring wrist temperatures whereas most others are just offering forehead or inner canthus measurements. But how well does...
Dahua USA Admits Thermal Solutions "Qualify As Medical Devices" on Jul 02, 2020
Dahua USA has issued a press release admitting a controversial point in the industry but an obvious one to the US FDA, that the thermal temperature...
Access Control Online Show - July 2020 - With 40+ Manufacturers - Register Now on Jul 01, 2020
IPVM is excited to announce our July 2020 Access Control Show. With 40+ companies presenting across 4 days, this is a unique opportunity to hear...
Hanwha Face Mask Detection Tested on Jul 01, 2020
Face mask detection or, more specifically lack-of-face-mask detection, is an expanding offering in the midst of coronavirus. Hanwha in partnership...
UK Government Says Fever Cameras "Unsuitable" on Jul 01, 2020
The UK government's medical device regulator, MHRA, told IPVM that fever-seeking thermal cameras are "unsuitable for this purpose" and recommends...
Camera Course Summer 2020 on Jun 30, 2020
This is the only independent surveillance camera course, based on in-depth product and technology testing. Lots of manufacturer training...
Worst Over But Integrators Still Dealing With Coronavirus Problems (June Statistics) on Jun 30, 2020
While numbers of integrators very impacted by Coronavirus continue to drop, most are still moderately dealing with the pandemic's problems, June...