#1 Threat 2015 - China

Over 125 manufacturers shared with IPVM their outlook for 2015.

We asked them:

"Positive / Negative: Is your outlook for the 2015 video surveillance industry overall positive or negative? Why?"

First thing, we stripped away the silly self-promotional answers they always try to pass off in industry publications, e.g. "4K cameras are the next big thing, p.s., buy my 4K cameras please," or "Storage is going to be huge, oh, I sell hard drives."

Far and away, the most common concern cited was the falling margins and price pressures that Chinese manufacturers are impacting on the rest of the world. Manufacturers admitted:

• "Negative - with Hikvision race to the bottom on price and margin."
• "At the low end we are still seeing a race to the bottom."
• "I believe we will sell more cameras at lower price points. So, it is tough to say whether business will be up in terms of overall sales dollars."
• "Falling costs due to Chinese suppliers encroaching on enterprise market."
• "Low-cost product flooding the market making entry level IP video close to the same cost as Analog."
• "I believe the number of units sold will be positive, but due to the relationships that are forming, the margins and profitability will be terrible, thus making the overall outlook negative."
• "As a security rep, I see an increased shift towards the low cost Chinese manufacturers, and major reorganization for the previous industry leaders."
• "Margin growth challenges typical a maturing market."
• "APAC and LATAM will grow but be dominated by super low cost product."
• "It will be difficult for Western suppliers to follow the low-price Chinese suppliers. HIK and Dahua will have a standout year but it will be difficult for most others."
• "Hikvision and Dahua are forcing the big players to reduce their unit prices on IP camera components."
• "The losers will be the hardware-only manufacturers who will be in head-to-head competition with low-cost Chinese manufacturers."
• "The ever spiraling down in prices as we race to the bottom against far eastern imports."
• "High competition from the China market, in which the main criteria is cost as the quality and performances of the Chinese devices are quite good (Hikvision, Dahuah,...)"
• "Many of the OEM's are clueless to handle the onslaught of Chinese Manufactures with comparable feature at low-cost"
• "For Dahua and HikVision, outlook for 2015 is positive. In contrast, for their competitors, outlook for 2015 is quite negative."

This is exactly in line with what integrators said in 2013 was their #1 problem with IP cameras - costs are too high. With big brand manufacturers like Axis, Panasonic and Sony doing nothing to solve this, it helped create an enormous opportunity for Chinese manufacturers like Hikvision and Dahua. Similarly, we are seeing Hikvision make enormous gains among integrators and now manufacturers are admitting the pain.

December 2015 Update

Undeniably, China manufacturers, most notably, Hikvision had the biggest impact on the video surveillance industry in 2015, driving down prices and shifting the market away from incumbent Western brands. Related, see: Top Manufacturers Gaining and Losing 2015

Economy Strong

On the positive side, many manufacturers cited a stronger economy as a positive:

• "Positive, because the economy is up and video answers all the questions."
• "Improved economic outlook, lower unemployment."
• "Overall, I see some improvement as the economy continues to improve."
• "I believe the economy, in the US at least, will continue to improve."
• "Strong economic indicators."
• "I believe lower fuel costs, assuming they persist, will have a positive impact to all industries in 2015."
• "I'm not an economist but it feels like 2015 will be a strong growth year."
• "Based on what I've seen / heard in my territory, the recovery continues."
• "As the global economy continues to rebound, the video surveillance industry will do well."
• "I see the world economy growing which increases the budgets for security."
• "Positive. This is because the economy in US seems to be better."

Related to that, a few manufacturers called out that deals were starting to flow better:

• "We are positive in our 2015 outlook, and believe the market will experience another healthy growth year similar to 2013 and 2014, maybe slightly lower due to increasing price pressure and commoditization."
• "More projects are opening up and money is starting to flow. I think 2015 will be the year we get the larger projects to close."
• "Net new projects that we've been "refining" for a year or two, are finally starting to happen. Additionally, funding for the day to day / year to year efforts to expand / upgrade existing deployments are back in the budgets for 2015."

Security Concerns

Secondarily to a stronger economy, a notable number of manufacturers cited security concerns as a positive:

• "Sadly, global security concerns is driving up need for high(er) quality surveillance solutions."
• "Trend toward more security - scrutiny of police, security of schools and public venues, continuing news coverage of threats (real or perceived) to personal security such as ISIS, kidnappings, demonstrations."
• "Security/safety is continually becoming an larger issue."
• "Increased visibility on crime from the media."
• "Also because of continued terrorist activity, video surveillance will continue to be a focus."
• "Unfortunately the World continues to be an unsafe place."
• "The worldwide increasing insecurity is a good thing for video surveillance."

The market is not in the wasteful knee-jerk reaction phase it once was post 9/11, but with terrorist events happening routinely, this unfortunately helps the surveillance industry.

Upgrades - Weak Factor

Interestingly, there were very few manufacturers calling out upgrades as being a positive factor for the industry:

• "Old equipment to be replaced or upgraded."
• "HD uptake is strong, upgrade from analogue/SD is strong."
• "The surge to IP upgrade is gaining momentum particularly as older systems components drift out of availability and ebay has been exhausted!"
• "There are a lot of analog customers who will convert to IP."

This matches the declining number of integrators citing IP / HD upgrades as a major growth driver in our Security Sales Forecast 2015. However, this is not good news for the industry that has powered far above economic average growth, heavily base on these upgrades / migrations. 

Warning From a Major Manufacturer

An employee at one of the world's biggest manufacturers had a very insightful warning, saying:

"I think several of the major western manufacturers will start seeing big problems next year and very limited growth, since the Chinese brands will focus increasingly on the mature markets. For the end-customer this will most likely mean lower prices, but with a shift from product purchase costs to maintenance costs as the Chinese brands still struggle with product quality. There could potentially be a backlash for the Chinese brands though, both due to quality and security concerns in especially enterprise/large projects. There could possibly also be protectionistic legal measures in the US, like there has been in the telecom industry where Huawei was banned from delivering mobile network infrastructure. As has been pointed out repeatedly on IPVM the western brands and the industry in general struggles with innovation with not many disruptive innovations the last few years. The industry, especially the western brands, would really need to step up innovation to compete with the low-cost manufacturers, since the tradional strongholds such as WDR, lowlight, image quality, etc will be commodities and available also in low-cost products."

We wholeheartedly agree. We are already seeing some numbers from the budget manufacturers whose growth rates are down sharply. Unless Dahua and Hikvision hit their own internal issues, it is inevitable that they will cause more pain to bigger incumbent players.

Avigilon Dominate?

Only one manufacturer mentioned Avigilon.

However, true to form, the Avigilon employee declared:

"Positive. Because I work for Avigilon! We will dominate!!!!!!!"