Hikvision Strong Domestically, International Business Struggles

By: John Honovich, Published on Jul 25, 2018

Hikvision's H1 2018 results are out. Overall revenue growth has sharply dropped, with the company acknowledging their "facing geopolitical headwinds". Hikvision was hurt by Hikvision International (i.e., 'overseas') business but buoyed by the protected domestic market.

In this note, we examine:

  • Steep fall in gross margins
  • Sharp rise in sales expenses
  • Challenges and priorities for Hikvision going forward

*********'* ** **** ********** ***. ******* ******* growth *** ******* *******, with *** ******* ************* their "****** ************ *********". Hikvision *** **** ** Hikvision ************* (*.*., '********') business *** ****** ** the ********* ******** ******.

** **** ****, ** examine:

  • ***** **** ** ***** *******
  • ***** **** ** ***** expenses
  • ********** *** ********** *** Hikvision ***** *******

[***************]

Financial ********

********* ************* / ******** business ******** * **** 6 ***** **** ** gross *******: 

**** ** * ***** **** as ***** ****** ********** tend ** **** ****** a *** ******, ** most, *** ****.

*** ******** **** *** Hikvision ** **** ***** domestic ******** (***** ******* competitors *** *********** ******), **** up * ******.

*** *********** ***** *** very ********* ******* **** historically ***** *** ******** business *** **** ****** gross ******* **** ********, e.g.,**** *** ** **** results:

*** ******** ******** ***** much ****** ***** ******* because *** **** ** doing ******** ** *** US *** *** ** is *** ****** *** the ***** ** ******** they **** ***** ** much *****.

Exhange ***** ******* *** ** *** *******

********* ***** "******** **** fluctuation *** ******** ******* structure ******" ** ****** for *** ***** ****** drop. ***** *** ***'* fall ******* *** *** has ****** *** **** recently, ******* *** **** has ********** ** *** same ***** **** *** past * *****, ******** the ****** **** ***** have, ****** *** ***** *****:

Sales ***** ** *************

******* ******** ********* *** more **** ***** *** rate ** ******* ****** in ** ****:

***** ********* **** ******* * single ****** ******* *******, it ** ***** ****** this ** ***** ****** by ************* ***** ** Hikvision *** ************* ******** efforts ** *** ******* of *****.

**** ****, ******* ******* ratio ** ******* ** sharply. *** *******, **** in ****, ********* ***** less **** *% ** revenue ** ******* ********, now ** ** ****, it ** *********** **% of *******.

Coping **** *************

*********'* #* ****** *** was '******' **** *************. To ** *****, ********* does *** **** *** trade ************* ** *** benefited **** ****** ** China *** ***** *** the ** ***** ** the **** **** ****.

Revenue ****** ***** ***************

******* *** ***** ******* in ***** ****** *** ***** expenses ********, ********* ********** steady ******* ****** ** a ********:

****** ** ******** ****** growth ** ******* ** adopting ******** ******** **********.

通过采取有针对性的区域策略努力保持收入的稳健增长

******** ******* ****** *** 26.7% *** ** ****. Hikvision *** *********, *** unsurprisingly, *********** ******* ****** over ******* / ******** losses. ******* ****, ******** Hikvision ******* *** ***** higher **** ********, ******* and ********** *** *** domestic ********, ***** *** already ********** **** ****** of *****.

Overall ******* ****** ***** ** ** **

******* ******* ****** *** Hikvision *** ****** **% in ** ****, ******** to ~**% ** ** 2018. **** ****** **** a ***** **** ******* the *** ******** *** not ********* *** *** a ********* ******** ******* domestic *** ******** *** the ********.

Construction ******** ********* ***%

** *** ******** **** for *********, ** ***** domestically, ** **** ***** 'construction', *.*., *********** ******** more **** ******* **** over ****.

** ** ***** **** ~5% ** ***** ******* and ** ***** ****** but ***** *********'* ******** inside ** *****.

Net ******* ***** ******

******* ******* ******* ****** falling ******* ** **, increased ******* ******** *** decreased ************* ***** *******, Hikvision's ******* ******** *** profit ****** ********* **** 19.4% ** **.*% **** Q1 ** **. **** points ** * ****** domestic ******.

AI ******* #* ********

****** ****, ********* ********** ***** priority ** **:

***** ********* ** *** ethics *** ******** ** Hikvision's ** *** *********, all ***** ***** ** strong ***** ******** ********** sales *** ***** ** products. ******* ** *****, Hikvision's ** ****** ** far **** ************, ****, e.g., ********* **********, ***** not ******* ** *** US, nearly * **** **** after **** ****** *********** ****'* *******.

Roller ******* ***** *****

**** *** **** ****, Hikvision's *****'* **** *** been * ****** *******, with ****** ******** ** 2017, ******** ** **** turn ** ****:

** **********, *** ***** drop ******* **** ***** coincides **** ********* **** of *** ** ********** taking ******* ******* *********.

Future ** ************* ********* ********?

 

** *** *** ****, Hikvision *** ****** ** money ** ******** ** fund *** ************* ******** as ***** ******** ******** dominance *******. ** *** other ****, ****** ********* can ******* *** ***** margin ******* *** ****** the **** ** ******* expenses, ** **** **** under ********** ******** ** reduce *** ****** ***************.

******, *********'* ********* ** a *** **** ***** own ****** *** *** been ***************** "****** '******** ** *********' in ******". *** **** **** Hikvision ** **********?

Comments (13)

Update: The US House and Senate have published their reconciliation report. Dahua and Hikvision ban still remains:

We are currently researching the details of this but, minimally, this is an important step forward for the ban.

Note: the wording (above) has changed and is broader than before (now mentions, e.g. critical infrastructure, which is often not government owned, e.g. utilities). We are also examining that element.

now mentions, e.g. critical infrastructure, which is often not government owned, e.g. utilities

We do work on utilities.  I would be very surprised that Hik or Dahua would/could ever be installed at, say, a substation or wind farm.  The only way I could see them accidentally being installed there is if they somehow were buried under an OEM such as Panasonic or Bosch.  There is a lot of regulatory compliance already.

We do work on utilities. I would be very surprised that Hik or Dahua would/could ever be installed at, say, a substation or wind farm.

Evidently, that message has not processed by Hikision who is clearly targeting utilities with their thermal cameras and other industrial offerings.

Did not know Hytera was in the mix, thanks. That's the only two-way radio alternative to Motorola I know of - are there any other alternates? Moto is difficult to work with if you're not a partner.

Hytera was included in the original House amendment from May.

I created a new discussion: Two-Way Radio Alternatives To Motorola? for that. Thanks!

There are others, but I am a Motorola dealer and would do my best to be easy to work with.  Feel free to reach out to me.

Bloomberg covers Hikvision: Chinese Spygear Titan's Ready to Recover $11 Billion Market Loss

It is generally a positive article from the perspective of the prospect of the stock price increasing.

However, it does mention Hikvision acknowledging both domestic issues ("a nationwide campaign to curtail debt was crimping government spending") and international ones ("Intensifying scrutiny from the U.S. and Europe on Chinese firms with ties to Beijing may discourage new clients.").

Interestingly, one analyst claims that investors are betting on Hikvision's software development capabilities:

“AI is more related to the software analytics capability that the company is providing and has a higher technology barrier. It’s more than just selling the hardware,” said Rex Wu, an analyst with Jefferies. “That’s why investors like the company and gave it a higher valuation.”

For their sake, hope it gets better than DeepInMind...

Hikvision has unfortunately moved down a level. They went from "completely anihilating the competition" to "simply giving everyone an azz whoopin" 

I gave you a funny vote, Sean.

You are on the Hikvision train to the very end, I get it. However, these results show the opposite of an "azz whoopin". When your sales costs are shooting up and your gross margins are plunging, it means you're struggling to win and trying to buy business. It's not sustainable.

Now to be clear, I think can Hikvision can have a sustainable business but not at the ambitions that it has now.

Hikvision Chinese investor call recap has some interesting details:

The growth of the distribution business in overseas markets tends to be flat. The project market has made progress in some countries and regions but in other countries, it faces trade policy

International manufacturers cut prices. AxisHoneywell’s price is also quite obvious.It is expected that such a competitive process will continue for some time.

The company's forecast for the first three quarters of performance growth remains in the range of 15% to 35%If the external environment changes a lot, it will affect our expectations of performance.

Growth rate of front-end products. Some are affected by overseas marketsBusinesses like the US and Australia currently due to some political factors. Slightly slow. The better these two areas are mainly these products. So the reaction grows at the front end.This is an overseas situation..

At present, the tariff is increased by 10%.,We think the impact is not too bigStill within an affordable range.But if you say this tax goes to 20%,Even 30% to add,That will definitely still affectIn fact, I mentioned in the very early days that I want to add 25% tariff. We did a very serious evaluation at the time Is to transfer the entire manufacturing industry to the United States. Then, because the policy of this tariff did not fall as soon as it was said so the middle stopped again.

The exchange rate has a little impact. About 2 points. The rest are other aspects of the impact.

We did a very serious evaluation at the time Is to transfer the entire manufacturing industry to the United States.

Yes, by adding assembly lines to the numerous Chinese consulates nationwide.

Dahua is going to be sooo pissed!

So John - can you speak specifically to the Dahua listing by the Federal Government? I would have to believe that most vendors that push a "less expensive" line are embedding the Dahua products. I know it's quite prevalent (sensor and processor wise) - or used to be - in the offerings of FLIR DNZ-30 product line (their low-cost PTZ camera). I would be interested to find out what the impact is overall.

 

specifically to the Dahua listing by the Federal Government? 

Which 'listing' are you referring to?

it's quite prevalent (sensor and processor wise) - or used to be - in the offerings of FLIR DNZ-30 product line (their low-cost PTZ camera)

Those products were OEMed from Dahua. However, earlier this year, FLIR sold off their SMB / Lorex (Dahua OEM business effectively) to Dahua.

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