How Bad was the Q4 2009?

Author: John Honovich, Published on Jan 01, 2009

As an industry, bad. In Oct-Dec, sales decelerated in IP video and turned negative in analog video. The main reason: "project delays." While the growth rate of IP video segment is still positive, growth has decelerated across the entire industry.

This report is for readers who sell video surveillance. 50 people answered each of the poll questions below (polling is now closed).

Slowing growth should not be a suprise as many companies already pre-announced dissapointing 4th quarters:

Even the so-called good news, like Bosch bizarely announcing that two of their products had growing sales, certainly begged the question of how poorly their other products were doing.
 
Beyond that, in Q4, there have been at least 5 layoffs from prominent companies (only the smallest actually being publicly reported - that of Pelco).
 
In private conversations, the results match these public trends - project delays reducing sales growth and for companies previously with modest growth, actually turning growth negative.

Specific Estimates for Q4 2008

Relative to historical trends, growth in Q4 likely dropped 10-15%. Specifically, this means whereas video surveillance as a whole was growing 10% per year for the last few years, it looks like growth last quarter was either flat to -5%.  For IP video, where growth has been over 30% per year, it looks like growth has decreased to under 20% and perhaps closer to 10% annual rate.

This is already causing confusion about results where vendors are spinning this as record breaking quarters. Technically, if your sales are higher than the previous quarters, it will be a record breaker. However, this is extremely misleading. For IP video, the issue (right now) is not whether the industry is shrinking but whether the industry's growth rate is slowing. On that issue, I see no doubt that the IP video market, as a whole is slowing.

The key issue for everyone is project delays. I am consistently hearing reports of push backs to January or Q1 and how the pipeline is very strong.

Forecast for Q1 2009

For the industry globally, Q1 will be extremely bad. The macroeconomic conditions are too poor for the industry to avoid this. The news in Q1 will be brutal with numerous bankruptices and layoffs in the larger economy. 

A lot of buyers who say they will buy in January or in a few months are either (1) deluding themselves or (2) trying not to hurt your feelings. I do think some will come through but pipelines will be much weaker than most are forecasting.

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There is nothing that can be done in the next 90 days to reignite the global economy and accelerate the purchase of video surveillance. Even if Obama passes a trillion dollar stimulus plan and there is a major terrorist attack, it's just too late to reignite confidence in buyers of capital goods.

I expect, on average, sales to be down another 10% next quarter. The pressures are simply too great. That does not mean you cannot excel but you are certainly contending with strong negative forces.

How Sales Will Shift

So far, I do not see reports of shifts in buying habits such as switching away from one vendor to another or from one type of product to another.  However, such shifts are likely in 2009 as projects move forward under reduced budgets and greater pressure for cost conservative.  I believe the impact will hit in 2 main ways:

  • IP Video will be hurt disproportionately to analog video. This does not mean IP video sales will be slower than analog. What will likely happen is the growth gap between IP video and analog video will reduce. For instance, in 2007, analog was growing at 10% but IP was growing at 40% - for a gap of 30%. It's likely that in 2009, we will see both numbers fall significantly with IP growth rate shrinking faster - reducing the gap and reducing the momentum of IP.
  • Premium products like Axis will be hurt much more than budget priced products such as ACTi.   "Good enough" will be the refrain of an increasing number of buyers. As Norbain is alreading doing, the focus will need to be placed on increased ROI done largely through more cost effective product lines.
 

Recommendations for 2009

Most people are coming around to the fact that the industry is going to get hit. It is essential though that you take full precautions. As I advocate in the Industry Guide, assume at least a 20% cut in your projections.  Be proactive about making your cuts and reducing your growth plans. Specifically be careful about:

  • Hiring new or retaining borderline sales people 
  • Spending on trade shows or big marketing efforts
  • Reducing cash levels
 
The industry's situation will not improve until two things happen:
  • The global economy deflates significantly such that irrational pricing and habits are eliminated (this will easily take to the middle of next year but perhaps longer)
  • The number of companies and sales people in video surveillance are correspondingly reduced
In the meantime, there is no need and much risk in making brash moves. Conserve your strength now, let your competitors falter and make a big push in 6 to 9 months when the bloodletting has mostly passed.

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