Hikvision Gets $3 Billion From Chinese Government Bank

By John Honovich, Published Dec 09, 2015, 12:00am EST (Info+)

Hikvision has secured the biggest financing ever in the video surveillance industry.

Despite the groundbreaking news, Hikvision has been strangely quiet about it, with no English language announcements nor celebrations.

However, Hikvision and their largest shareholder, a Chinese government owned entity, did announce and explain it in Chinese.

In this note, we examine the financing and how the Chinese government bank is empowering Hikvision's international 2.0 strategy.

Financing ********

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International *********

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Comments (34)

Interesting, "some cash" to go shopping

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It will be interesting to see if they buy anyone 'overseas'.

Right now, they are 'shopping', just in a different way. They could have tried to 'buy' Axis for $3 billion or they can just 'buy' Axis customers by offering them unmatchable discounts (Axis revenue ~$700 million, even if you sell at a huge loss, it would only 'cost' a hundreds of million to take over via the discounting to customer route).

Btw, all accounts continue to confirm that Hikvision was very close to buying Pelco a few years ago. It feel apart and clearly for the best for Hikvision given their progress in NA the past few years.

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How are other companies going to compete with them when they have (what would seem to be) a never ending source of cash?

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Given this financing and Hikvision's approach, you may need to learn Chinese...

You don't need a weatherman to know which way the wind blows...

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There's only one thing that costs 3 billion dollars in this industry, and Canon already bought it...

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What can be a reason for Hikvision to buy Axis? I think that it will be more reasonable for them to focus on the software side or access control. For example Genetec can be a good candidate.

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"For example Genetec can be a good candidate."

NYC and Chicago's city surveillance system provider being owned by a Chinese government subsidiary? Wow...

If I was Hikvision, I do think Genetec would be a a very attractive candidate, though.

Genetec has had lots of opportunities to sell and regularly rebuffs offers, so it is going to take a hell of a persuasive offer from Hikvision to have any chance.

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Well, they have 3 billion dollars, of which some of that Im sure would be able to make an attractive offer.

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Word is $500 million is not enough. I am not saying Genetec is worth that much (or not), but since they are independent, they can be picky.

I am not convinced that Genetec would sell to Hikvision, though, for any amount of money. Genetec seems to care too much about their developers to hand them over to Hikvision.

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I agree with you, John. That's a common concern for any type of acquisition. Money doesn't work all the time. ;)

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The biggest challenge is not cash but integrating acquired company into the existing business and creating synergy. Hikvision has done extensive acquisitions within China. Fear of failed integration might be one of the concerns to execute acquisitions outside China.

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That's a reasonable concern, especially variances in culture between companies in different countries.

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Definitely.

IMHO, Japanese and Scandanavian, as dissimilar as they might be, are closer than as Chinese and French Canadian.

And if Hik were to acquire Genetec somehow they wouldn't be doing it to play some open, independent game; they would likely be looking for rapid assimilation. Basically I'd imagine a lot of the company would exit.

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In the past, the US office of CIFUS has blocked the purchase of US security related companies by Chinese companies.

Is there a Canadian equivalent of CIFUS? And how often have they blocked foreign purchases?

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Luis, as an employee of MorphoTrak who previously worked for Motorola before the acquisition (and Printrak before Motorola's acquisition), I've certainly run across my share of acquisition government approvals (and concern about foreign ownership!).

During both instances in which my company/division was acquired by another, the acquisition was reviewed by numerous governments in which the acquired company did business. Even within the United States itself, CFIUS was only one of the US government reviews that took place for Safran's acquisition of Motorola's biometric business unit.

Presumably any Hikvision acquisition of some other company would undergo similar multinational reviews. The level of review is partially dependent upon the export controls involved.

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No matter how inexpensive their cameras are we will not be supporting the Communist Camera Company or the oppressive government that tramples human rights and whose primary business tactic is stealing the work of others.

Those with principles may chose to follow the same path.

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That is a courageous stand to take.

Then again if they are actually losing money on every camera sold in the U.S., as some suspect, they might not be able to sustain this pricing for long.

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"they might not be able to sustain this pricing for long."

According to their financials, they made some $700 million in net profits last year (driven by domestic sales). Assuming they are not fudging their numbers and given this new financing, they could presumably sustain this indefinitely unless the Chinese surveillance market collapses.

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they could presumably sustain this indefinitely...

Depends on how much they are losing per camera (if any at all) sold in the west.

The strategy can grow costly. As the strategy succeeds in growing sales it costs more and more in subsidizing those greater sales. And yes, being owned by China has paid off for them so far, but China doesn't have bottomless pockets either and might decide to subsidize Hik less and start profiting from it more.

If they are not losing money per box, then it may go on for some time, I agree.

What's your estimate on their current U.S. profitability?

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0 to -25% net margins for their own branded NA sales. The big factor is the expensive local sales, marketing and support machine which they are building. There's no meaningful cost savings on that side.

It's one thing to sell cameras for $20 each from a building in Shenzhen (e.g., Longse), it's a completely different and dramatically more costly one to directly sell, service and market inside each overseas county.

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Maybe they are going by the business model of " we only lose ONE DOLLAR on every order, but we make it up in volume." LOL

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.............. what ?

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USA USA USA

its called free enterprise you guys seem to be all for it when it suits you. When someone does it better than you at that cheaper price suddenly you call foul. I'm not saying they make the best gear but at their prices they definitely do. No one matches the same quality at that price. I don't expect this post to get to the forum as it will probably censored which is ironic in the land of free speech.

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"I don't expect this post to get to the forum as it will probably censored which is ironic in the land of free speech."

Ok....

"No one matches the same quality at that price."

Agreed.

"When someone does it better than you at that cheaper price suddenly you call foul."

We are debating how they are able to do it at a cheaper price and what the potential downsides / tradeoffs might be.

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Obviously the cheaper labour and associated costs and their Chinese market share keeps the price way down. Unfortunately the western companies like to have their cake and eat it too. They like to use materials/components from "cheap countries" & produce goods at low cost to themselves then market them in their own country at highly inflated prices from their production costs. This happens in all industries eg Nike shoes. Over all known brands of cctv equipment what percent of final price does the production cost make up compared to marketing (including sales force, offices etc). To be honest I have no idea what percentage of equipment is 100% produced in USA as compared to assembled in USA or even rebadged in USA

The larger percentage of the sale price of anything sold in the west is not the cost of production but rather is the cost of selling it.

The Chinese just do it differently

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"The larger percentage of the sale price of anything sold in the west is not the cost of production but rather is the cost of selling it."

Agreed.

"The Chinese just do it differently"

Disagree. Hikvision's cost of selling in North America is the same as its Western competitors. Hikvision's 200+ North American employees get paid in US dollars at US levels, Hikvision's booths (massive ones at ISC West and ASIS), presence at every random show across the continent, parties (like at ASIS), trade show advertising, etc., are all the same cost structure as their competitors.

If Hikvision sold at its price levels and offered no or limited local Western support, I would agree with you that it is totally understandable and justifiable. But that is not the case in North America.

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It's a little more complicated than that. There seems to be a measure of state supported predatory pricing which is regulated by international agreements, and some other issues that are masked by the investment/ownership relationships.

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John:

Can you post Hikvision financials?

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This can only reduce trust in the product. Is it indeed only a security product and not embedded with an element of the Chinese Government's international surveillance spying scheme?? Welcome another Huawei!!

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Twice now I have been made redundant in the past 3 years due to Chinese 'business' practices. The first time they literally stole the company after paying them selves back from a massive share dilution/buy back then closed the doors, the second time due to the current metals market manipulation driving the price of base metal ore down so far its not worth mining. So the mines have closed. I guess we wont be needing the HIK Vision cameras installed anymore! :).

The world is in a tail spin about IS and Islamic nut jobs (and rightly so!)...but we should be more worried about our 'friends' from the middle kingdom and their plans for world domination.. .which seem to be working.

We in the west only have contributed to this trend in one way, we've pumped billions of dollars into Chinese foreign direct investments in the past 20-30 years taking advantage of cheap labour and operating costs in China. All the while China has changed the goal posts at every turn to manipulate and take advantage of FDI putting themselves into a better position (yes a very broad statement for a in depth topic but still basic fact...).

China has deep pockets, long term strategies, patience, no moral or ethical boundaries and are ruthless in their determination to dominate the world. They cant do it with their military so they grind aware slowly sneaking in via other methods.

One thing that may slow or stop China is the level of corruption that's standard practice in the way they operate. Lets hope so!!

Cheers!

PS Before anyone starts telling me this is some sort of racial thing... do me a favour! (I actually have half Chinese blood in me, but born and raised in the west :) (thankfully!!!))

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The world is in a tail spin about IS and Islamic nut jobs (and rightly so!)..

Are you Islamic as well?

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hahaha no... not that there is anything wrong with non radicals (of any religion)

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