Hikvision Dissolves North American Business Unit, Splits Canada and USA

By John Honovich, Published Oct 15, 2019, 07:56am EDT (Info+)

Hikvision has dissolved its North American Business Unit, splitting up US and Canada operations as the PRC-government owned manufacturer faces fierce pushback from the US government.

Inside this note, we examine:

  • What the 'dissolution' involves
  • How US and Canada are being split
  • Who the new executive in charge is and what happened to long-time NA head Jeffrey He
  • How this can help Hikvision given the ongoing challenges
  • What the future of the US organization may be

Dissolution ********

********* **** * **** ********** ****:

*** **** *****, ********* *** *** and ****** ******** ** **** ** calls *** ****.

***, **** *** ***** ** '**** priority ************* ****** *******' (*.*., ** ban ***** *********), ********* *** ********* **** *** separated *** *************.

New ********* - **** ****

**** ******* **** ********** **** ***** ******* to *** *** (*** *** ******), as *** **** **** ********:

** ********* **** ******* ******* ** the*** **** **** ******, *.*.:

**** ****** *** *** ********* *** *********, shown ***** ** *** ***** **** to ********* ** ** ********** ******:

**** *** ********* ******** **********, ****** previously *** ********* ***** ******* *** before **** ********* ** *** ***** international *********. ****** *********, **** *** the ****** ** ******'* ***** ********.

Jeffrey ** ** ************* ****** *******

******* **, *** **** ** ********* ***** America *** *** ******, ** ** longer *********** *** *** ** *** North ******** ********. *** ************ ** 'international ****** *******' *********** *** ********* involves ******* ** *** ****, ** at ***** ********, ****** **** *** US **********.

*** **** **** ** **'* **** is **** *** **** *********** *** significant ***** ******** ********** **** ** comforting ** **** ******* ** *** PRC. *** ******** ** **'* **** is **** ** ** ****** ********* amongst *********'* ******** *** ********* ** his ******* *** ***** ** ******** weakens *********'* ******** ** ******* ******** business.

** *** ***** ****, *** ********* 'situation' ** ** *********** ****** ** Hikvision's ****** ** *** ***.

Helping ***** *******

***** **** **** ******** ****** ************ **** *********, **** **** ****** ********** ** Hikvision's ********* **** ********* **** ****** (as **** *** **** ****** ******** for ****** ****** ** *********).

*** ** ** * **** ****. Sanctions ***** ******* *** *********** ***** restrictions ** *** ********* *** ** business *** **** *********** **** *** be ******** ******* ** *** ****** States. ** ****, ********* ****** ********* it **** **** *********'* ** **********.

USA ********* ******

***** ********* *** ************ ****** *** resources, *** **** ********, **** *** also ****** ************* *** **********. **********, Hikvision *** *** ********** *** ******* companies **** ****** ** *** *** where ******** *** **** *** *********** for *********'* *********** (*.*., ********: ******* ***** ************ ** ******** Risk***** *****, ******* ** ********* ****** or *************, **** *** ***** ** Company).

*** ********* ** ****** ******** *** Hikvision *** ** **** ******* ********* Hikvision **** **** **** *** **** money ** *** ***. ******, **** split ***** **** ********* *********** ******* to ****** ** ******** ******.

*******, ****** ***** ****** ****** - the **** ********, ***** *****, ***. could ******* * ******** **** *** HIkvision. ** ** ********** ** ** certain.

Vote / ****

Comments (30)

It is somewhat interesting how Hikvision had pulled away from the OEM market in recent years, preferring to promote their own brand instead. Now, I think that strategy may be really hurting them, making a singular and more easily identified target when it comes to sanctions and linking them to the PRC.

Had Hikvision continued to operate more behind the scenes, particularly with big US brands like Honeywell bringing their products into the channel, I think it would have been much harder to link a "faceless" organization so directly to their Chinese ties. They also most likely would have had more allies in their lobbying to avoid the sanctions and bans.

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Agreed, at least in retrospect.

On the other hand, who 3 years ago thought this would be the outcome for Hikvision? Certainly not me. I did not think Hikvision was invincible as they thought, of course, but this type of response from the USA was anticipated by basically no one, right?

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but this type of response from the USA was anticipated by basically no one, right?

I don't think anyone in the security industry really anticipated this amount of government-level action against Hikvision (and Dahua, etc.), but I'm not sure I would say it was "anticipated by basically no one".

Huawei, another large electronics manufacturer closely linked to the Chinese government, has been facing security concerns and equipment bans since the early 2000's. As far back as 2010, Huawei was pretty much cut out of the US telecom market over security concerns, and to perhaps a lesser degree, concerns they had stolen intellectual property, were under-pricing equipment, etc.

At least some of the upper management at Hikvision must have been aware of the issues Huawei faced in the US, and elsewhere, and the overall concerns they were competing unfairly. I would expect them to at least view their strategy in the US as a calculated risk, with the possibility for some kind of government-level ban/sanction/whatever a non-zero probability.

What Hikvision probably did not anticipate was Trump getting elected on a premise of a very strong "America first" campaign approach, and the US government willing to go after a security camera manufacturer. They probably also did not anticipate their cyber security issues getting as widely publicized as they did.

The last few years have been the perfect storm of bad luck for Hikvision/Dahua in the US, I think. Had Trump not gotten elected, or had their cyber security issues not been so widely publicized, they may have been able to run their plan as intended. I also do not think they had much of a "Plan B" in case their market-domination approach failed.

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At least some of the upper management at Hikvision must have been aware of the issues Huawei faced in the US, and elsewhere, and the overall concerns they were competing unfairly.

Yes, but to play devil's advocate, Hikvision was having much greater success than Huawei. Hikvision USA was growing like gangbusters in the 2013 - 2016 time frame, so they could have reasonably concluded that it was not going to impact them.

Btw, the first time in 2015 I realized they were PRC government-owned, I was stunned. It was pretty obvious to me it was a huge risk so, sure, they must have known, at least abstractly of the risk but their mid - 2010s success lulled them into (at least in retrospect) a false sense of security.

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At least some of the upper management at Hikvision must have been aware of the issues Huawei faced in the US, and elsewhere, and the overall concerns

Somewhat to the contrary of what I said earlier, one issue could be the lack of information flow back to HQ. I thought about this just now when reading an FT article "China’s Xi Jinping has more to worry about than slowing economic growth Crises such as Hong Kong protests and African swine fever offer sterner test of party’s grip on power" in which it observes:

In the case of African swine fever, rural officials’ reflexive reluctance to report bad news up the chain of command to provincial governments and Beijing has been reinforced by the financial consequences of doing so.

I wonder if a similar pattern did not occur with the USA 'problem' for Hikvision. I had heard some sources close to the company claim that Hikvision China did not realize until quite late how bad the USA situation became. This might be a particular flaw in their censorship heavy model. Even now, reading their Q3 investor call transcript, they seem not to understand how impactful being sanctioned for human rights abuses will be in the West.

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The Chinese Communist Party (CCP) has techniques to groom foreigners to become advocates for China. The CCP have been very successful in the USA with the entertainment and educational sectors of our economy. They have also been successful at the local government level.

During the grooming process, foreigners are classified into categories on a scale of how useful or hostile toward China that person is or will be. Highly accomplished foreign people are greatly prized and actively pursued by the CCP.

One of their first traps is offering something of modest value that comes from a China business or government official. Far too many Americans have been drawn into this type of situation and accepted something they shouldn't have. Now that's starting to come out.

Huawei, Hikvision, Dahua, etc. are but a few of hundreds of Chinese companies that are strategically targeting the USA, in an integrated "United Front" approach overseen by the CCP. Kindly reflect on this when you hear prominent Americans speaking favorably about the government of China or their companies.

Consider what FBI Director Christopher Wray had to say in July, 2019:

China is trying to “steal their way up the economic ladder at our expense,” [Wray] said.

“It is a threat that’s deep and diverse and wide and vexing,” Wray said. “It affects basically every industry in this country.”

China Trying to 'Steal Their Way' to Dominance: FBI Director | Time

Skepticism toward China is well-founded and fact based, but it's been below the surface and somewhat invisible to the average person.

Those of us in IT have seen the persistent hacking attempts from China for 10+ years and have no illusions. Welcome to my world.

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Had Hikvision continued to operate more behind the scenes, particularly with big US brands like Honeywell bringing their products into the channel, I think it would have been much harder to link a "faceless" organization so directly to their Chinese ties.

so the OEM friendly Dahua, with its un-pronounceable name/un-readable logo and under-the-radar marketing pulled a Keyser Söze on everyone?

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I am not entirely sure what point you are wanting to make with that comment.

Dahua may have been more OEM friendly, but they too were also taking a strong approach to marketing their own brand heavily. Also, I think that Dahua has been seen as the primary challenger to Hikvision, being another very large Chinese-based manufacturer of surveillance products. For better or worse, that has likely caused them to get somewhat caught up and carried along with the headwinds affecting Hikvision.

To be clear, I think that Hikvision attracted a bit of a spotlight onto themselves, and by association other large Chinese surveillance manufacturers, including Dahua. Had Hikvision been more subtle, I believe they may have fared better in terms of sanctions and bans, and then so by extension would Dahua as well.

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I am not entirely sure what point you are wanting to make with that comment.

merely an ironic one; that Dahua’s ineffective branding and well-documented incompetence in running their US operations has made them a less “easily identified target”, and therefore not “really hurting them” *to the same degree* as in the case of Hik.

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If you remember the movie - the Keyser Söze's goal is to disappear ....

via GIPHY

I would imagine that the companies we're talking about have different goals.

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the movie - the Keyser Söze's goal

Heh, if we are doing movies to compare Dahua to, I would pick the three stooges:

That's not because Dahua is 'Chinese', it's because they are poorly run. Hikvision is a much better run company, no contest, something I mention periodically.

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How much revenue would have they missed? How many units shipped would they have missed? Having a singular, well controlled brand has had to have helped them, regardless of their associations with a foreign government, even in the US market.

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Over the short term (last few years), I would think they would have absolutely had less net revenue, and shipped fewer units, if they did not build their own brand. Somewhat more difficult to say what net profits would have been.

Over the long term (next several years), they are definitely going to have significantly reduced revenue and growth, as compared to previous years, as a result of these issues. My theory is that from this point forward, they would have likely had more revenue had they still operated in the US primarily through a few large OEMs.

The issues in the US are also affecting their revenue in other regions, so it has a global impact on them.

Much of their revenue in the US appears to have been centered around the lower-end products/lower-cost products. They have also spent a lot of time and money lobbying against these sanctions and bans, not to mention hiring a ton of people and spending a lot on marketing. They have been playing a long game here, trying to build a base for future growth and market domination. Now, that base has been severely compromised. They may have made a bit more money in the short term, but I think at the sacrifice of long term predictable growth, with the net result being that they will have extracted less net total revenue from the US, and certain other global regions, as a result.

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JD, good points / question.

The big strategic issue is that Hikvision is a highly functional OEM, i.e., they can make solid cameras. And, as an OEM, I bet it's at least reasonably profitable because sales, marketing, and support costs are very low.

The branded business is way more complex and costly plus has driven so much more negative attention to them.

Over the last 5 years, Hikvision's branded business likely did something like $500 million to $1 billion in revenue (total, not per year). But they likely have not made a dollar in real total profit. That would be fine in a normal 'startup' where revenue is radically growing and as the company achieves scale, profits swell. Hikvision USA profits are not swelling in 2019, to say the least.

On the other hand, I am not arguing they should have not tried to build a branded USA business. It was totally a reasonable gamble.

But what does Hikvision do now? They can continue to burn money but to what end? It's a bet that the US political environment flips back?

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Honestly I have no clue what they should do now. Give each member of the US Congress a bag? Not sure anything short of that will be effective. I’m pretty sure they will have to scale back US staff at some point. Not sure when ADI or other distributors will cut ties. I’m assuming that’s next.

For the record, I’m not advocating for these things, just making a guess. Hikvision has been very nice to me and their products work well for me and my clients. I understand the politics involved and can’t really defend them any more than what was said above.

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It is somewhat interesting how Hikvision had pulled away from the OEM market in recent years, preferring to promote their own brand instead. Now, I think that strategy may be really hurting them, making a singular and more easily identified target when it comes to sanctions and linking them to the PRC.

I beg to differ, it is a wise and calculated business decision. Long run sustainability is only through own brand manufacturing. When you are an OEM there will always be some one cheaper down the road that will take your clients away. Scores of Korean and Taiwanese OEMs went bust when manufacturing moved to China, now manufacturing moves to Vietnam, in the future maybe to India...

Hikvision did this themselves to the KR and TW OEMS, branded business is the only way to go for them for long term sustainability, switching to branded business while still having their own OEM business to support operations and provide cash flow was done intentionally.

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When you are an OEM there will always be some one cheaper down the road that will take your clients away.

But a core Hikvision pitch was that their unprecedented scale enabled them to produce at much lower costs. Longse, etc., can make something cheaper but not better and that's why overwhelmingly rationale OEM clients have chosen Hikvision over Longse, e.g.

Long run sustainability is only through own brand manufacturing.

Branded business is no panacea, lots of brands fail as well. Think of the biggest in the 2000s, most are now gone or in shambles (hi Pelco).

Companies should focus on what they are comparatively best at. Hikvision is best at large scale manufacturing.

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Now, I think that strategy may be really hurting them, making a singular and more easily identified target when it comes to sanctions and linking them to the PRC.

Only in some parts of the world and in some market segments.
Hik's bread and butter are SME systems, the sanctions might hurt them in government and high end enterprise but not in the mass market.

Also, the USA, though a big market, is not the only one, and not the fastest growing one. Latin America, India, Indonesia, South East Asia,Eastern Europe - the Chinese manufacturers are still strong and growing there.

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the sanctions might hurt them in government and high end enterprise but not in the mass market.

What do you mean? It absolutely already is hurting them. There's no debate. Hikvision is not disputing this.

The mass market will be impacted as well because it impacts Hikvision's ability to retain and recruit employees, dealers, distributors, etc. I agree with you that mass-market customers will not generally care (or more fundamentally know) but the infrastructure to support mass-market customers does know and care.

Working for Dahua and Hikvision in the USA are bar none the least desirable jobs in the industry right now, simply because good employees avoid risky and highly negative atmospheres. Having to explain to partners why your own government is wrong in labelling your company a human rights abuser is attractive to virtually no employee. Agree/disagree?

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In the US, has their penetration of the SMB market been affected much, or are the affects of the ban more into the government/enterprise sector?

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Abdelhamid, it is hard to tell how much the SMB has been impacted. I think everyone agrees enterprise has been much more impacted than SMB but I don't know how much SMB has been impacted.

That said, last year's ban and last week's sanctions are highly distracting, at the very least to Hikvision's salespeople. I'll page Sean Nelson :)

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I feel somewhat ambivalent about Hikvision potentially exiting the US market. There are many US-based surveillance companies whose businesses have long been stifled by Hikvision's low cost. If Hikvision exits the US market, many businesses, including ours, will likely see a drop in sales as alternative, domestically-produced equipment is more costly. However, I think once companies like Axis & Digital Watchdog see an influx in new sales and growth, we will see prices come down. This all, of course, is conjecture at this point. It's no secret that China can produce these products at a fraction of the cost of what the US can. I think most people are aware that these low prices come at the cost of poor working conditions and lack of health & safety regulations. Will US consumers pay the higher price for a domestically produced product knowing we are no longer supporting these practices? Only time will tell.

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Will US consumers pay the higher price for a domestically produced product knowing we are no longer supporting these practices? Only time will tell.

I think time has told that US consumers don't really care, not just in electronics, in every product category. US consumers (and not just US consumers) go for what is cheap, manufacturers (and not just US manufacturers) go for what is cheap.
sweat shops used to be in Manhattan, now they are in Bangladesh, the poor working conditions haven't improved.

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“Ironically, Hikvision may now understand how foreign companies feel inside of the PRC where barriers and bans are commonplace for Hikvision's competitors.”

This is a great and absolutely true and relevant observation.

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"I think most people are aware that these low prices come at the cost of poor working conditions and lack of health & safety regulations. Will US consumers pay the higher price for a domestically produced product knowing we are no longer supporting these practices? Only time will tell."

I hope not, I'm not looking forward to peddling pricier budget breaking "conflict-free cameras" if a client confronts me about it. I might as well get in the diamond business if we're going to have those conversations.. it's already clear how pervasive the effect is when integrator's find themselves whispering about it on job sites. If the claims about these companies were untrue I would be fine with educating customers because I would still believe in the brands.

China is out of control (look at the black swan Hong Kong that could bring down the entire market) yet without them we may all be Axis employees. Those of us depending exclusively on these vendors are ultimately getting boxed into SMB and effectively boxed out of Gov/Ent which is why I also wonder how much domestic companies are playing a role in all this.

Are there any indications that US market leaders are fanning the flames to regain market share and price control?

Let's not forget how much beneficial competition these foreign giants created by increasing affordable access to security. I'm sure it even resulted in a larger membership here! I think our biggest fear should be monopolization and return to the price gouging those lower prices helped to alleviate.

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Let's not forget how much beneficial competition these foreign giants created by increasing affordable access to security.

#5, while I agree with you that it has benefited many with affordable products (for now), it's actually the lack of competition that has been the factor. China blocked out foreign manufacturers to enable its companies to be massive and then use that mass to undercut pricing of foreign providers globally.

I have lots to criticize Axis for, but considering Axis is a private company which is effectively blocked from the world's largest video surveillance market, they have been relatively aggressive in cutting their prices over the last 5 years.

Think about it - if foreign companies were like Dahua and Hikvision getting billion-dollar Xinjiang business, they too would likely be able to cut prices and spend more on sales and marketing throughout the rest of the world.

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Very good points but I would counter that these moves from China (IP specifically) were their own response to the market domination of CCTV no? Either way with large companies should mean low prices regardless of country I'm just advocating for an open market because if left to any one company, the rest of us have a problem.

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I'm just advocating for an open market because if left to any one company, the rest of us have a problem.

Agreed. Totally for an open market but what do you do about China which is 100% not an open market for video surveillance and highly prejudiced against foreign providers?

If China was open, you'd get the benefits of a much larger market and many more healthy competitors.

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No body really wants to hear the truth about China or Politics:

The US government and the people of the US need to wake-up to the fact that China's goal is socioeconomic, military, space, and world domination China is NOT a friend of the US nor is it the friend any other competing country in the world. That being said however, we the people, love to gobble-up all of China's cheap sanctioned Surveillance technology products and thousands of other items that China manufactures for the US and abroad, but, we do so at our own peril.

Anyone that has researched anything about China's past and present, provided they are not blinded by dollar signs should realize that Hikvision, Dahua, Huawei, etc. etc or any other company that is located inside China, is under the control of the Chinese government. A company cannot just be located in China and NOT be under the control of the government.

I'm sure everyone has seen the riots and what is taking place in Hong Kong regarding freedom and Chinese control efforts.

Also, like Trump or not, Trump did not continue with Obama's "US apology Tour" campaign of flushing the US economically and militarily down the proverbial toilet but rather tied and is trying to bring back manufacturing to the US, is trying to keep companies from leaving the US, and is taking China and other countries to task for their unfair trade practices with the US that have been going on for decades.............what a concept!

Like it or not, we all had better hope that these educated idiots in the Democrat party that are running for the office of President in 2020 are defeated or we are ALL finished in one way or another in this country True confession here, I voted for Obama his first term but not his second. It doesn't matter how well spoken someone is....they can still be the enemy.

By American made and Build in America!

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Thank you #7 - much appreciated.

I would post with my real name but I have seen China defenders here and prefer to avoid their wrath.

John does a good job of achieving balance between allowing the China security equipment advocates to have a voice and a platform to air their thoughts while allowing others to respond. But of course John's benevolence is not reciprocated in China for China citizens or foreigners (外国人)。There is no free speech or open discussion in China, and the situation has become worse in recent years.

I have challenged multiple employees of the entity that sponsors the NYC/LAS Security Conferences for accepting China money. They have no response. Accordingly I have not participated in their events for some years. Perhaps the non-China security equipment vendors need to create their own events.

Security related electronics with Internet connectivity, manufactured by China companies, should be avoided and uninstalled wherever possible. It's a great opportunity to demonstrate your acumen if you come across their deployed equipment in the future.

We are talking about security here. Don't give away the keys to the front door.

Perhaps the P&C insurance companies will get on board with their BOP and Cyber Insurance policies, carving out liability exclusions if installed security equipment from a CCP (中国共产党) affiliated manufacturer results in a breach.

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