Hikvision Launches Kits, Slashing Prices 40%

IPVMU Certified

I see the HIKVision strategy as something that will eventually run out of steam (or run through that "free" government money), but they won't do so before running a handful of other manufacturers into the ground and changing this industry for many, many years (and not for the better either).

The long term impacts of moves like this encourages the commoditization of the entire video industry, making companies fearful of investing too heavily in R&D and driving the industry forward. Instead they will focus on process improvements, and cutting any extra they can to hit that bottom line and simply survive. That fear won't go away the day that these deals stop, and I wouldn't be surprised if it is years before companies truly start to trust the market place to sustain heavy R&D budgets again.

I am sure for some installers this won't be a problem as long as they can get a few extra NVR kits here and there and cushion their bottom line, but for the integration companies that bring their key value when there are high technology devices that they can utilize in designs, this will definitely hurt long term in the ability for us to bring additional value to our clients

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Michael Fusco

In reply to Matthew Netardus

Completely agree. Mindless price competition is only a very short-term benefit to the industry and its clients. In the Long term it kills R&D budgets, industry optimism, and long-term planning. It is very damaging, even fatally so. We as integrators do not live in a bubble - we depend heavily on the technical innovations of industry manufacturers. Integrators who operate at the higher end and require these innovations to solve our clients' problems should be shunning Hikvision and their ilk like the plague that they are.

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Josh Hendricks

Milestone Systems

In my opinion, I don't think this is likely to run out of steam. With government funding HikVision will likely be able to run this campaign as long as they want. When it tapers off, it will probably be because they will have reached/exceeded whatever market share in whatever market segment(s) they've set their sights on.

It's possible the current political climate in the US may result in higher import taxes from China which would drive their prices up making them a bit less competitive. But if they're willing to sell at a loss "indefinitely", that may not be enough to push customers to other brands.

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Ross Vander Klok

In reply to Josh Hendricks

IPVMU Certified

Agree to a point, as I don't see this ending anytime soon. Meaning 12-18 months. Eventually though it will run out of steam

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Michael Fusco

In reply to Josh Hendricks

Right - but If they are willing to do it indefinitely, then we would be wise to exit the segment of the end-user market that is interested in buying almost-free DIY hardware, so as to not let it contaminate our core business.

Security integration is complex and multifaceted and anything but "DIY" - so why would we help such manufacturers gain access to our market segments by purchasing and installing their gear into our solutions? it disappoints me to see so many in our industry who have no capacity for forward long-term thinking and instead mindlessly go around saying "embrace change" and purchasing artificially priced 30 dollar communist government subsidized cameras that endanger the long-term growth and survival of the security integration industry. I encourage such "integrators" to exit and go do something else.

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Eddie Perry

Hanwha is discontinuing its kits that are similar to this

the Hikvison kit that is $600 8 channel 2 TB with 6 domes closest thing i could find was $1100 SRK-4060S

But when you have a magic printing press..........................

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Steve Beck

Just looked at the specs of the 7100 DVR. It mentioned something about recording in 1080 lite mode. Whats HIK's definetion of lite mode?

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Shay Fogel

In reply to Steve Beck

It's an effective 960x1080 resolution scaled to 1920x1080.

This allows them to feature real-time recording for all channels.

From my experience, It seems common for end users to relate frame rate to image quality.

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Undisclosed #1

Gentlemen and Integrators, All's fair in love and war. Controlled revenue loss is better than uncontrolled revenue losses. You can rest assured a deep strategy developed within the Hikvision construct is at play here, make no attempt to analyze spilt milk as it will soon go sour. Hikvision is not going away anytime soon and neither is Axis. I personally want to head to ADI right now just to get the 4 cameras and free NVR so I can just have more toys.

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John Honovich

In reply to Undisclosed #1

IPVM

Controlled revenue loss is better than uncontrolled revenue losses.

#1, can you elaborate on that statement? I am not sure what is means.

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Undisclosed #1

I am speculating that Hikvision's purposeful dilution is not by chance but rather an already simulated model that attacks by injecting risk into a stable market solution. From here Hik can forecast and control the amount of revenue leakage (strategic loss from obvious discounting) while the competition is left flapping their wings while chained to the ground. It is hard to compete with a guy jumping off a cliff, he will always get there first, now that is a true race to the bottom. Uncontrolled losses are for those that did not look before they leaped. My tin foil hat is strong in this one, I only wish I had an amplifier. Team Hik or Team Axis, could that be a question?

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John Honovich

In reply to Undisclosed #1

IPVM

It is hard to compete with a guy jumping off a cliff, he will always get there first, now that is a true race to the bottom.

That's a clever way to put it!

I do agree that it is 'controlled'.

The question is still - how long do they do this? and, since no one can do this forever, what do they do after?

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Undisclosed Integrator #3

Just thinking strategically: Once the field is cleared of competition Hikvision could raise prices substantially to reflect the virtual monopoly. However, I question the long term viability of this. Whenever a mythical hydra has it's head cut off multiple grow in its place. The same seems to be true in our industry.

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Robert Tabbara

In reply to Undisclosed #1

This is Wal-Mart 101 strategy .Survival of the strongest. As long as it takes. Many times you can consider it as a marketing expense

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Undisclosed Manufacturer #9

•Feb 09, 2017

If you had ever watched Hikvision in action in other countries, you would know that they don't go back and raise prices until after the competition goes away. They keep pounding into submission and then its too late. Once the dust settles and they have the market, how many jobs will be lost in the U.S.

You are correct, you love playing with your toys but I hope you do that a whole lot better than giving intelligent replies.

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Keefe Lovgren

IPVMU Certified

ADI actually has the HX-I7604N1TA kit listed on their website as $411.99. A $3.00 savings beyond the flyer price of $414.99. Things are getting cheaper by the minute.

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Itamar Kerbel

I'm guessing HV is selling a camera for 15$ and the dvr + had for 80-90$.

This leaves a nice margin for ADI.

My take is that they are still making money on this but less and so they will make this price permanent.

While HV is very strong here they are not considered cheap in the tvi business.

Maybe they feel this pressure in other places too.

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John Honovich

In reply to Itamar Kerbel

IPVM

My take is that they are still making money on this but less and so they will make this price permanent.

You think they are making positive gross profits or net profits?

I certainly believe they are generating gross profits (meaning their COGS is less than what they receive from ADI). I do not think they are close to making net profits since they still need to cover all their other operational expenses (i.e., the NA sales, marketing and support organization) with drastically reduced margins.

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Undisclosed #2

In reply to Itamar Kerbel

Distributors struggle to maintain double digit gmr.

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Undisclosed Integrator #3

In reply to Undisclosed #2

Are you a distributor? Just trying to discern if this is insider knowledge, speculation, or hearsay.

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John Honovich

In reply to Undisclosed Integrator #3

IPVM

Are you a distributor? Just trying to discern if this is insider knowledge, speculation, or hearsay.

10-20% GM for video surveillance distributors is a commonly cited range, in our conversations with numerous manufacturers and distributors. There are exceptions where distributors get higher margins but that tends to be for more niche distributors / products, not the typical box sales discussed here.

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Undisclosed #2

In reply to Undisclosed Integrator #3

I spent many years at a distributor. Net profit at the end of year was less than 1%. Overall GMR was about 15%. The GMR on phone systems, security cameras, and similar products was about 5-9%. Less on a large project. Large cable orders 3-4%. I did a large military project and we were making 6% on cabinets which was hardly worth the trouble of all the freight claims.

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John Honovich

In reply to Undisclosed #2

IPVM

Btw, one other point on the gross margins topic.

Hikvision's largest European distributor had 30% GM in their most recent financial report, which is simply amazing.

I don't think ADI's GMs are anywhere close to that but I also doubt ADI is giving Hikvision's any charitable discounts.

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Undisclosed #2

Small distributor, and I would imagine HikVision made up the majority of their business if they were the largest in Europe. Riding the windfall of swapping a $50 camera for a request for a competitors $400 camera where and while you could. People are catching on. I imagine integrators are enjoying this margin right now. Why buy keep buying that $600 camera Mr End User, I can sell you this one (that cost me $50) for $300.

I remember when offshore copper and fiber patch cords came along. We thought it was the best. Contractor was used to paying $5-6 for a cat5e/cat6 cable and we'd make 15-20%. We could offer them an offshore for $3 and they would love us for saving them money, it would cost us $1. Eventually everyone caught on and margins shrunk again.

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Undisclosed #4

IPVMU Certified

So the turrets are TVI and the domes are IP? Hard to tell from the picture?

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John Honovich

In reply to Undisclosed #4

IPVM

Yes, turrets are TVI and domes are IP. Also TVI turrets are the top row, IP domes are bottom row:

You can see the original ad inside the February ADI newsletter.

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Janet Fenner

Are the Hik cameras being bundled part of their retail line or are they their b2b line?

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Ethan Ace

IPVM

In reply to Janet Fenner

They are their commercial line. The IP cameras are from their Value Plus line. The TVI cameras are from the 1080p line.

EZVIZ, the retail brand, is separate and has a distinct design from Hikvision. See our EZVIZ Kit Test here.

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Ari Erenthal

Update: I just spoke to Brooklyn Low Voltage Supply, who confirmed to me that going forward they'll be selling these kits at the same price range as ADI is. This would seem to suggest that this is going to be the regular price and not a special sale. If any other distributors want to confirm, feel free to leave a comment below, or contact me privately at ari@ipvm.com.

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Undisclosed Integrator #7

In reply to Ari Erenthal

Hey Ari,

I am curious to know if other distributors have confirmed what your contact at Brooklyn Low Voltage said about this being the new regular price. Any insight would be appreciated.

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Undisclosed #5

In reply to Undisclosed #5

Hikvision's financials show gross margins of ~40%, that means they are selling profitably overall...

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John Honovich

•Feb 04, 2017

IPVM

Hikvision's financials show gross margins of ~40%

Agreed.

that means they are selling profitably overall...

Assuming the financials are accurate, which is not a given considering Chinese accounting 'flexibility'.

But let's assume the financials are accurate and we ignore the nearly $200 million in subsidies.

Overall, than I agree that they are profitable.

The question is whether they are profitable in the US, UK, and other 'overseas' regions.

My point here is that it impossible for Hikvision to be profitable in the US with deals like these kits. I get that you can make cameras for 'nothing' in China but we need to recognize that to ship, sell, market, support and distribute like Hikvision is doing in the US is very expensive and paid at much higher US levels.

So even if Hikvision is overall profitable, whether they are profitable or can be profitable outside their home market (where they absolutely benefit from their government ownership) is a real question.

Agree/disagree?

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Undisclosed #5

•Feb 04, 2017

In reply to Undisclosed #5

Hikvision's 2015 (I don't think a 2016 one has been released yet) annual report shows their overseas gross margin as 44.60% compared to 38.48% for China Domestic. They show their cameras ("Front-end Equipment") at an overall (domestic + overseas) 46.92% gross margin, which is higher than the company's total GM. If you assume camera margins are higher overseas compared to domestic, which is a safe assumption given camera revenue is more than half of total revenue, then 2015 camera GMs were ~50%+. I don't think 2016 camera numbers would be more than 2-3% lower than 2015 based on the quarterly overall GM numbers I've seen that are about 0.5-1% lower than 2015.

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John Honovich

•Feb 04, 2017

IPVM

Let's say Hikvision overseas GM is 50%, to give even higher than they report.

The question is still whether they can cover their overseas overhead, which is much higher than what they have in China.

I think we all agree that their costs inside China are low, not only for production, but for sales, marketing, support, etc. Overseas, they are staffing sales, marketing, support, etc. with local people paid at local wages, which in most Western companies is far more expensive.

Now let's take this 40% price cut, keeping our 50% gross margin assumption. Everything else equal, gross margin now falls to 16%.

It is highly questionable given their high levels of overseas operations cost, vs their relatively low total branded revenue (since their ASP is so low) that they are profitable. Even harder to do, with such price cuts.

Btw, even if the overseas margins reports are accurate, there is still the issue of their OEM business (selling to Interlogix, LTS, etc.) vs their branded business (Hikvision USA / Hikvision labelled products) and their relative profit margins / overhead (which is of course far higher than the OEM sales).

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Gust Askounis

•Feb 06, 2017

Security Solutions Inc

In reply to Undisclosed #5

You cannot believe their financials. They Chinese government has no motivation to be truthful in dispensing any information.

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Undisclosed Integrator #6

•Feb 06, 2017

This is to be expected by Hikvision, aka the greater Chinese industrial Complex and should be a surprise to no-one. The Chinese are not looking for the short term play here, they are systematically injuring our economy one cut at a time. They have already penetrated most if not all of our economic sectors via Cyber exploitation and are now executing a "hostile" take over of our physical security industry. Their tactics are to supplant U.S and Euro manufactured product in every facet of technology in order to manage the world as they will see fit.

Hikvision will continue to lower prices so that there is no competition at the low end, and what would be the only viable price based alternative? Another Chinese offering. This will only stop when 1) Severe import tariffs are instituted and 2) The greater, common good of our society is exercised when we collectively stop buying these products over better quality, higher priced, but Cyber secure cameras lines.

It is up to us, the consumer and the professional to stop this race to the bottom, only we can change these acts of economic aggression. We must educate our customer base constantly and persistently about the risk of doing business with these Chinese manufacturers...

"Their [the Chinese] line of work is hard-core cyberespionage, and their targets are the technology, designs, and trade secrets of private companies, many of which have no direct connections to traditional notions of national security. Who’s winning the battle? They are. And that has profound implications for your children and grandchildren and the world they will inherit, and for the place of the United States in the world”

--Joel Brenner, Former Inspector General NSA, Former Head of Counterintelligence Director National Intelligence.

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John Honovich

•Feb 06, 2017

IPVM

Clever / insightful response to the 'slit your throat business model' example from a person on LinkedIn:

In the curious case of a government backed player, they are in effect doing so whilst receiving a transfusion.

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Undisclosed Manufacturer #8

You as a free market manufacturers can't win with China government . It is onot only about subsidies and big $6+ billion line of credit. What about big government tenders ? What about "special costs" of doing business in China ( cheap under market value electricity etc ). There are many profits for HIK You can't see to at first glance. but it helps to have profit and money to kill a free market competitors.

HIK has a time and money and can win with any free market company. All we need to do is answer is is good for us to have no choice as a customers ?

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John Honovich

In reply to Undisclosed Manufacturer #8

IPVM

HIK has a time and money and can win with any free market company.

I am not that pessimistic.

A key factor for all the Chinese companies is the country's debt binge which is creating all sorts of bubbles, both inside and outside China.

Eventually that will end. When (6 months or 6 years) and how it will end is hard to project.

But when it does Chinese companies like Hikvision will have to adjust the strategy to more normal business practices. Of course, depending on how long that takes, will determine how much damage is done.

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Michael Fusco

I would tend to agree with that, but the bad news could be that if or when destroyed, the "western security" industry may never return, much like the consumer electronics industry here was destroyed by the Japanese in the 1970's/1980's.

"China" may very well end up permanently dominating the surveillance hardware industry if Western countries keep allowing their dumping practices.

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Wanchai Siriwalothakul

Smart Entry Systems • IPVMU Certified

EverFocus is not out, we are simply shifting focus to Access Control, Mobile Surveillance and producing other niche market products. Such as the

MoniVue: http://www.everfocus.com.tw/product/esn41-fhd/

EMX32: http://www.everfocus.com.tw/product/emx32/

Palun: http://www.everfocus.com.tw/product/palun/

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John Honovich

In reply to Wanchai Siriwalothakul

IPVM

EverFocus is not out, we are simply shifting focus to Access Control, Mobile Surveillance and producing other niche market products.

And my exact wording was: "Everfocus effectively out" with a link to our post describing the 'shift'.

Everfocus is effectively out of traditional / conventional surveillance as you 'simply shift' into other areas that Hikvision has not clobbered.

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Michael Fusco

In reply to Michael Fusco

Unfortunately video manufacturers are all running into access control as a haven and will now over-saturate and kill that ( currently very profitable) market component as well.

Do Software House, Lenel, Keyscan, etc have a plan for when Hikvision or its equivalent set their sights on access?

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Marty Calhoun

•Feb 08, 2017

IPVMU Certified

Good analogy but that market is saturated as well already with the old stalwart companies that are hanging on hoping that does not happen. Hopefully it will and the first one to DIE will be LENEL we hope!

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Blake Murphy

•Feb 08, 2017

It has been a long time since a natural disaster has occurred in China, perhaps nature will be the great equilibrator?

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Srikanth Kamath

•Feb 16, 2017

“Most of the evil in this world is done by people with good intentions.”
― T.S. Eliot

“God save us from people who mean well.”
― Vikram Seth, A Suitable Boy

three great company started out with ONVIF, sony, bosch and axis in 2008. Come 2016 all three sold. very good intentions, The cornerstones of ONVIF are:

Standardization of communication between network video devices
Interoperability between network video products regardless of manufacturer
Open to all companies and organizations

with open standards no advantage to any Manufactures, all have them have the numbers stacked against them, with chip OEM's supporting the large offtakes OEM's https://www.ambarella.com/products/security-ip-cameras

with +30K per day (hearsay, require correction) camera production line, HikVision is riding the tiger, no way it can get down

'Ch'i 'hu nan hsia pei' goes the Chinese proverb, translated in 1875 as 'He who rides a tiger is afraid to dismount.'

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John Honovich

•Mar 02, 2017

IPVM

Update: The February 'sale' is done but prices have not gone up.

Actually, Hikvision is now selling the 4 camera HD analog kit for even less, down another $10, under $200:

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Paul Jakowski

•May 01, 2017

IPVMU Certified