Forget The Backdoor, "ALL HIKVISION PRODUCTS" On Sale

By: John Honovich, Published on May 18, 2017

Less than 2 weeks after the Hikvision Backdoor was confirmed, Hikvision has launched a sale "ON ALL HIKVISION PRODUCTS".

In this note, we examine Hikvision's move, and how putting all products on sale can help and hurt the company.

ALL ******** ** ****

*********, ** ***** ** the ****** *** **** email ******* ***** *** put *** ******** ** sale:

**** ******** * '****** dip' *** *******, *.*., dealers **** ** ******** 50% ** **% ********* get *** **% ** top ** ****, ***.

*** **** ***, *** sent ******* ***** ******* up ** **% *** on *********:

** **** *** ****** familiar, ** ** ******* Hikvision **** ******** ******* "ALL ********* ********" ** sale * *** ***** ago, ***** ******** **** *** *** dancer ********:

** **** ********* **** '3 **** ****', **** effectively **** * **** that ****.

Positive - ***** *** ***** *******

*** ***** ********* ******* who ** *** **** about *** ********, **** is *****. **** ******** sales, ****** *****, ***** on *** ** ****** discounts ******** * ****** financial ***** ** ********* dealers. ****** ********* ** this, ** ** ****** to ** **** ****** for **** ** ********* would *** ****** **** or ****** **** ********** big *******.

********, ** ********* *** loyalty ** ***** ******* loyal *******. ********* ** one **** ** ***** to **** *** ***** of ***** ******* **** the **** ***** **** that ********* ******.

*******, *** ***** ******* shaken ** *********'* ************* problems *** ******* *********** of ******* ********** *******, such ***** ********* **** a **** *** ** calm ***** ******** *** keep *** ****** **** Hikvision.

Negative - ***** ********

********* *** **** ** clear **** **** **** to ** **** ** a ******* ******** ** high *******, ****** *********. These ***** **** '*** products' ***** *********** *** undermines **** ******* ****.

****** *** *** ******** confirmation, ********* ***** ** build *********** *** **********. Putting ********** ** **** will ****** ** **** people **** **** ** not **** ******* *** they **** ** ****** to ******* ***** ******. Whether ** ** ****, computers ** *******, *** quality ******** ** *** go ** *********** ***** every *** *****. *** to *** *** **** than * ***** ***** the ********, *** **** the ******* "*** ******** do **** ******** ** we *** ***** ** cut ***** ******."

** **********, ****** ******* and ********* *** *** most ********* ***** *************, quality *** ********* **** short **** *****, **** tend ** **** *** strongest ******** ******** ** the ********* ** **** immediate **** ******** *****.

Short **** ***** ** **** **** *****

*** ********* *** ********* is *** ***** ******* short **** ***** *** long **** ***** ********.

**********, ********* ** ****** off **** ******* **** a ******* ************ **********, for ******* ***** *****. They ******* **** * significant ****** **** *** these ***** **** ******** those *******.

***, **** ****, ***** sales **** *********'* ***** as **** ***-********* ******* are ****** *** ** the **** ******** ******* of ********* *** ********* competitors *** ********* *********'* problems *** *** ******** perception ** * ******* who ******* ** ****** on ******* ****** ** move *******.

********* ** ******* ** short **** ******* ************ but **** *** ******* severe ****-**** ***** ******.

Vote / ****

Comments (51)

Man if it wasn't because of the dollar exchange rate in my country, I swear I would buy at least some. It's as if they are forcing you to do it =P

It's like a fighter jet deploying flares trying to avoid the missile locked in on it...

This is more of a call to arms for our preferred MANUFACTURERS:

 

SHOW ME THE MONEYYYYYY!

 

Jokes aside, HIK is certainly forcing me to reconsider them.  With 15-18% on top of our 60% off, we must.  You need products that keep you competitive or help you win in certain projects.  

 

I voted neutral on the poll as I don't believe anyone really cares 6 months from now that a manufacturer was spewing sales consistently.  Banana Republic has 30-40% off sales every week (with no signs of stopping) and they remain a reputable company at least IMHO.

 

I get that not having repeated sales keeps the perception of a "premium brand" but come on manufacturers.  Step your game up or get to steppin.  Need you guys to maybe not to match the same sales as HIK is offering but show that you have the grit to get close.  No action means you are scratching by.  Partner up strong together, because HIK's reach is at our doors.

Banana Republic has 30-40% off sales every week (with no signs of stopping) and they remain a reputable company at least IMHO.

Well: Oct 2016 Banana Republic Continues To Be A Drag On Gap Inc., quote:

Gap recently reported its August same store sales, which fell by 3%, driven by a 10% decline in its Banana Republic brand.

And January 2017: Banana Republic's president is out as the Gap brand struggles to find footing, quote:

Banana Republic has been a consistent dark cloud over Gap's business. Not only has it lost shoppers to cheaper fast-fashion labels, but the American workplace has gotten more casual. Those trends sent the brand into a downward spiral of 40 percent discounts, as it tried to bring shoppers back into its stores.

That said, I voted your comment informative and can understand your point, "15-18% on top of our 60% off" is quite a motivator.

I do think, as the Banana Republic example shows, these rapid fire deep sales are typically a sign of weakness. That said, make your money now and you take some unknown level of risk from future Hikvision issues, since unlike buying clothes, surveillance systems need to be maintained and supported for years.

 

I had to hit that agree button.  Nice links to shame my taste in clothes. :(

I cringe at the thought people favor Kohl's, J.C. Penney, Macy's, T.J. Maxx, Ross Stores, Burlington, Old Navy, Gap over BR.  But that is mainly due to the american workforce getting more casually dressed at work and preferring to pay less.  For me to the eye and the feel, the quality is certainly better with BR which is why I prefer them and love the sales.  OMG is Marty ghostwriting this?

I didn't use the best example as BR is priced high to begin with and HIK is low to begin with.  I digress.

The main reason I responded here are these sales are ridiculous.  Lost a project today to an existing customer where I bundled a couple door adds and replacement of their surveillance.  We won the doors, lost the video to HIK, while not a big project, I want to win it all, not just some, plus its better for the customer to go with one vendor. They hate it themselves that they now have 2 vendors and I guess it's my fault for refusing to rebid with HIK when they wanted me to?????

I cited numerous, monthly sales, I mean vulnerabilities and potential issues.  I got laughed at by the customer and told me I'm overreacting.  ***Cringe***

@Undisclosed Integrator #2: Remember the saying "Customer is always right."

Smart Customer, maybe you will learn something form the experience.

I certainly agree, if the smart customer pays you well, but if he is smarter than us, he will rip you.

Smart customer?  How so?

Smart customer? How so?

#7 almost certainly means he is smart regarding your description below:

I cited numerous, monthly sales, I mean vulnerabilities and potential issues. I got laughed at by the customer and told me I'm overreacting. ***Cringe***

That is, #7 is saying the issues about Hikvision are laughable and that the customer made the right move by buying Hikvision products (see related comment by #7 below). What #7 is saying about you 'learning' is that you should learn to sell Hikvision. Am I right #7? :)

Clothing Sales are not a proper comparison, in my opinion. Why? Because clothing retailers (as are retailers in general) are far more sophisticated on how they price merchandise than we are in the security industry.

For example, Banana Republic may regularly price a shirt at $29.99 even though the MSRP on the shirt is $39.99. They may do this and not even call $29.99 their "Sale price." Then, over a weekend, they may offer that same shirt for $24.99 and advertise it as a "35% Off" (of the MSRP) sale while in reality it's only a few dollars cheaper than their regular "non-sale" price.

HikVision, on the other hand is adding their discounts to their ALREADY massively discounted price, which would be like Banana Republic selling that same $39.99 MSRP shirt for $9.99.

It's just not apples to apples.

With this additional discount does it make it cheaper than the OEM Hik "w" box adi brand?

Just curious how that dynamic works internally.

Trunkslammer specials, for those who neither care about nor understand the backdoor issue. 

 

John is spot on that it will increase loyalty for their loyal trunkslammers. I'd be curious to know how many of their dealers have even hurt about it. 

"it will increase loyalty for their loyal trunkslammers."

this is a misnomer.

Trunkslammers, by their very nature are the least loyal of all levels of integrator 'partners'.  Their loyalty is to the almighty dollar.  The more they make, the more they love and will protect their provider.

Loyal Trunkslammer.... LOL  there is a unicorn if there ever was one :)

Maybe this is just another example of Hikvision doing business in super amazing revolutionary new amazing new ways that are new and amazing and so smart that only super amazing revolutionary partners who are laughing all the way to the bank can understand the new revolutionary superocity. 

New. Super smart. 

Am I doing it right?

Sure other manufacturers can't (and probably don't want to) emulate the Hik bargain basement approach as it would decimate margins and the quarterly figures would be that bad that John would have another field day on IPVM ;-)

Hik can only do this because of who they are and what is behind them. Until such time however that what is behind them needs to deal with a spiraling debt issue and realize they can no longer sustain these tactics of Sales and bullying.

The trunk slammers will thrive for another little while longer as they have a short term mentality, although there is always a life after Hik as there are plenty other Chinese manufacturers just waiting to step in. It's just a matter of time until alibaba.com starts offering an install service.

As an SI it's what you stand for and what you believe in and what helps you build a sustainable business for you and your employees. Thank god many still have minimal values and do not want to be associated with Hik because of all the reasons discussed on IPVM many times over.

"Hik can only do this because of who they are and what is behind them." 

What is behind them is a great deal of money they have made from selling Cameras and about 100 other products. I would bet you, IPVM or anyone else does not know exactly how much (if any) of the 'loans', which is by the way is and incorrect assertion because it is a 'credit line' has been spent? According to some informed sources Hikvision has not tapped into those 'credit lines' because profits have exceeded expectations. But again those 'sources' (similar to IPVM) do not write the checks at Headquarters so it is to be taken with a grain of salt.

The above is a crazy statement as IPVM devotes a considerable amount of daily space to all Hikvision but does (with grief) admit their NET sales are just a shade under 5 BILLION which is better than AXIS, Avigilon, and Hanwa combined.

 

 

That source obviously told you what they wanted you to hear or what your wanted to hear. Their continuous discounting strategy would not be sustainable without the backing of all that government money. IPVM has extensively supported their findings with relevant documents etc which makes it much more believable than your sources.

Sales are easy to achieve, especially for Him with endless discounts, margins though are much harder to come buy. Not so sure who made the craziest statement here...

What is behind them is a great deal of money they have made from selling Cameras and about 100 other products

And where is that money coming from? Even last year, more than 70% of their revenue and, while it is not broken out, likely 100%+ of their operating profits comes from within China. 

Given China's protectionist policies and Hikvision's government ownership, they have a massive advantage over any manufacturer in the world inside China. Whether or not the financial backing comes from the government loans in the past 18 months or Chinese government projects (like the famous $800 million one) over the past 5 years, the result is the same - China Inc. is funding their overseas expansion.

There are 2 fundamental issues: (1) the Chinese economy is at risk do to increasing debt loads (which could cut off their financial foundation) and Hikvision's international expansion has run into serious problems due to their cybersecurity problems and growing recognition of Hikvision's government ownership (which jeopardizes how long Hikvision corporate will keep this program up).

Well that did not take long.

Pricing strategy is an often over looked and miss-understood by many organizations. I am considering doing a research project on this, specific to the PhySec industry. 

Price and pricing sales are a key part to any one’s core market strategy, as it should be. How one sells into a market will greatly reveal how they perceive themselves and their customers. I just recently sat in a meeting where a manager stated, “sell for as low as we can until people buy it, than jack up the price” (true story).

To my point. As some have already stated, the great pricing concessions “forces” them to buy HIK products. The HIK strategy has always been to boast sales (i.e. topline review) by flooding the market through a sale. In the next 3 months, there will be another ‘flash sales’ as dealers and distributors stock up because of this sale. They will slowly work through their low cost inventory, hopefully adding some margin dollars for themselves, which will decrease HIK run-rate, thus driving the need for another sale.

If I was a HIK dealer, I would start to map this out and coordinate my buys accordingly.

What I can’t seem to get my head around is why, why does HIK do this? This is not A-typical of this industry. Sure, companies will provide “project pricing” but not flash sales to divert attention from something bad. HIK should ride it out, keep the perception of the value of your own product high. Do not gut the price. Price gutting is a dead-mans, last ditch effort to stay afloat. How soon we forget 2008-2010? How many dealers started selling jobs at less than cost… how many of those are still around?

IMHO this is a very bad and unsustainable pricing strategy. At some point this will collapse.

If I was a HIK dealer, I would start to map this out and coordinate my buys accordingly.

Josh, Marty is way ahead of you ;) I Buy At Every Sale That HIKVISION Provides, Many Of Those 100K+

Price gutting is a dead-mans, last ditch effort to stay afloat.

Hikvision has been doing this in the US since end of 2015 and that's when things were good for Hikvision.

What I can’t seem to get my head around is why, why does HIK do this?

Originally, it was to maximize short term revenue with the side benefit of crushing their competitors. Now, it is becoming more of a tool to counteract their ongoing problems - for better or worse.

If I was new to the market and saw a manufacturer that was always discounting their products, I would think one of two things:

They are cheap for a reason

They are selling off their stock

Years ago after my brother passed away, I had to sell his house.  We came in at a reasonable price and no offers were made.  The real estate agent said that we should try a different approach and raised the price by $10,000.  We had 5 offers by the end of the week.  It's not always the value of what you have but also the perceived value of what you have to offer.

 

This is like Ford slashing prices on the Explorer when all those rollovers happened

Just another reason why Hik dominates the industry. They think and do thing differently than anyone else and everyone else scratches their head wondering what they are doing.

They continually offer sales to entice people to buy. Their are already a couple noted in this thread contemplating the fact. I.E, the sales are working.

Other manufacturers are setting around thinking "we shall never offer discounts, thats prepostorous"  

Meanwhike hik continues to persuade new customers to try them out, and the sad part for the other manufacturers is they are losing business to Hik.

I dont think Hik is trying to be the lamborghini of security. I think they are trying to be ford. Having sales are great.

+1 for Hik. If you havent tried Hik, i dare you to try it now. You wont be let down.

 

They continually offer sales to entice people to buy

Agreed, sales do entice people to buy.

However, let me ask you: What is the point of having ~400 local employees and spending lavishly on events (e.g., few hundred thousand dollars five weeks ago at the Tao party)? Is not the point of all of that to entice people to buy and, equally importantly, to buy at a premium?

At what point does Hikvision say, "If we need to cut prices across the board every month, what do we need all these sales people and event expenses?"

It's not cheap to double dip discounts, it's not cheap to have ~400 local employees, and it certainly is not cheap to combine them together. Agree/disagree?

I guess it boils down to one question:

Is it working or is it not?

Is it working or is it not?

'Working' in what way? Revenue? Profits? Brand?

  • Revenue - working, revenue is definitely going up and up higher than without sales
  • Profits - not working (We can debate if they are losing money, how much they are losing etc. but combining big discounts with high sales and marketing costs is bad for profits)
  • Brand - working for smaller dealers / customers ("wow, this is good stuff, good support, incredibly low price"), not working for the mid to high ("uh oh, it's this Chinese government owned company with lots of cyber security desperate for sales slashing prices"). 

Your take on working?

I have no evidence that says it doesnt. What i can tell you is that all of my dealing with hik reps show me that they are not fools. They are very cautious business oriented people who think things through and care very much about profit and sales like most all good business oriented companies do. If this wasnt working, i dont think they would continue to do it. 

They are very cautious business oriented people who think things through

Ok, if they are truly so 'cautious' and think things through, then explain the following to me:

(1) Why would they design a sale that makes them lose profits from their most loyal dealers who are going to buy anyway?

(2) Why would they design a sale that indiscriminately gives the same discount level to their hottest selling products as their poorest selling ones? 

(3) Why would they design a sale that penalizes customers using project registration by giving rival dealers buying during the sale even greater discounts?

(4) Why would they design a sale that penalizes their top (e.g., diamond) partners if they do not buy during the sale by allowing lower tiered dealers that buy on these sales to get greater discounts?

(5) Why would they run these sales and simultaneously pay all these sales people? Shouldn't these sales people be able to sell the value of Hikvision without cutting prices on top of their already low pricing?

Just another reason why Hik dominates the industry. They think and do thing differently than anyone else and everyone else scratches their head wondering what they are doing.

What is Hikvision doing differently? They have the same basic approach as many other manufacturers: sell through distributors, build a field sales force, etc. There is no head scratching their strategy is obvious (and desperate): try to "buy" market share through constant sales and low prices, and hope that can pivot into a profitable business in time.

Other manufacturers are setting around thinking "we shall never offer discounts, thats prepostorous"

What? Plenty of other manufacturers offer discounts, they just do it more strategically through things like project registrations instead of monthly free for all's (e.g.: Arecont Claims Best Project Registration Program).

Hikvision did not invent the concept of stuff always on sale. Furniture stores, mattress outlets, low-end car dealers, carpet stores, etc. all use this strategy. Even large retailers like J.C.Penney use it. It is generally perceived as a low-end approach and one that trains customers to view "normal" prices as too-high, and to only buy on sale. It becomes very difficult to get out of this cycle and move your brand upstream (as J.C. Penney learned the hard way).

 

I am not sure if the Chinese Strategy will work in the USA and other Western countries but in Asia, the strategy of "low price - High volume strategy" works. They wanted to attract end user to try their products keeping a minimal margins, consequently increase the installed base. Then if the product has a good quality and local support, end user will labelled it as preferred brand.

"low price - High volume strategy" works. They wanted to attract end user to try their products keeping a minimal margins, consequently increase the installed base. Then if the product has a good quality and local support, end user will labelled it as preferred brand.

That's certainly reasonable generally. The question becomes how do you maintain that local support and low price simultaneously long-term? Local support does not scale well and is based on a US / Western higher cost structure than a China low cost structure.

For example, the planned Hikvision college graduate sales program is one way to potentially address that but it certainly has its risks.

If you want to open your network to the People's Liberation Army, now you can do it for almost free !

Maybe you use a closed security network now, but what if your Customer wants you to provide remote access at a later time?

 

 

"Just another reason why Hik dominates the industry. They think and do thing differently than anyone else and everyone else scratches their head wondering what they are doing."

Sean,

I have seen you post for years here at IPVM - and invariably, I have agreed with most everything you have ever posted relating to how to support customers efficiently, effectively and with the understanding that these people will grow your business if you do all those things that you do for them.

But your quoted comment above is one of the most obtuse things I've ever seen you post.

NOBODY is wondering anything at all.  Your premise that Hik is performing some kind of economic magic is a straw man.

Everyone understands exactly how Hik is doing what they are doing... and all those things have been documented ad nauseam (including both BRK and JHs comments above)- yet you continue to ignore the obvious and float some kind of Ancient Chinese Secret that Hik is employing that everyone else can't figure out.

Ride the Hik Express all you like.... but please stop with the condescending approach to everyone that Hik knows something that everyone else doesn't.

That argument is beneath you.

Not trying to be condescending at all, its just humerous (and geting quite boring) that there is an IPVM headline everytime Hikvision has a sale and the Hik haters contemplate their ideas on why its bad, and how they can only do it because they are subsidized. Yet Hikvision continues to dominate and haters be flabbergasted because of it. Can we put aside the tinfoil hat assumptions and think objectively and ask these questions:

- What if these sales are extremely effective at capturing new dealers? What if this is an extremely effective way of advertising?

- did you know subsidized companies can be ran into the ground and go bankrupt as well if managed poorly?

- do you think hikvision is dumb enough to keep doing something that doesnt work? 

- is their any evidence these sales are not profitable?

- can non subsidized companies also offer similar sales on such a frequent basis or can hikvision only do it because they are subsidized? 

- do any of the commenters that post negatively about hikvisions business practices actually use hikvision?

- do you think Hikvision is #1 in the world just because they are subsidized?

 

 

- do you think Hikvision is #1 in the world just because they are subsidized?

They are #1 in the world because they are #1 in China and they are #1 in China because they are owned by the government. And they are so big in China because the Chinese government has accumulated massive debt spending during this decade.

- What if these sales are extremely effective at capturing new dealers? What if this is an extremely effective way of advertising?

The sales cannot be an extremely effective way at capturing dealers because these sales by definition cause them to lose heavily on their existing core customer base who would buy anyway. There are vast number of other techniques that can be used to acquire new dealers that does not result in a company forfeiting significant revenue from existing dealers (and Hikvision does many of these - army of sales people, advertise in most every trade magazine and distributor marketing, spending lavishly on parties e.g., Tao, drinks, dinner, etc.)

- is their any evidence these sales are not profitable?

~400 local employees plus all the events, marketing, etc. means NA annual costs of $50 - $100 million. You then have have the double dip and ADI's cut (you better believe that ADI is not giving up its cut here). You combine that and there's not a lot of contribution margin for the significant local expenses they have.

Sean, you run your own business. You tell us. Factoring in both the heavy local expenses and steep double discounts plus ADI cut, do you think they could make that profitable?

They are #1 in the world because they are #1 in China and they are #1 in China because they are owned by the government. And they are so big in China because the Chinese government has accumulated massive debt spending during this decade.

For other parts i am not clear,But from my personal experience,I totally disagreed with the above comment,Just list as follows:

1.one important thing to know:why China need to have a economic reform in the 40 years ago(1978)?

It is because all the economy was owned by the government,make less progress.People had no extra passion to work harder,then that is why capitalism is imported(if you work harder and better,you are worthy to earn a lot)

2.A lot of industry in China now,it is the private company is number1 in that industry.

A.communication industry in China

Take ZTE and HUAWEI for example,Huawei is the private company,ZTE is stat-owned company.HUAWEI is number1.Here in China,Most of people think why HUAWEI is so successful most of reason,they have a wise leader(the leader only own a few internal shareholder as i know less than 2%,and give all the other shareholder to the employee) and they have a lot of hard-working year people.(every year they recruit a lot of new graduate students,and the people work in the front line usually get the best rewards)

B.PC industry in China

Lenovo is number1,it is the private company.

C. Mobile phone in China

Huawei,Oppo ,vivo usually is top3,all of them is private company.

D.online Business.

Ailibaba is number1,it is the private company.

Maybe someone would argue some example are not so suitable.

All the points i list above,i just want to say,In China,now a lot of well-know industry,the number 1 is not state-owned company.

It is not because Hik is 42% stat-owned and goverment is the biggest sharehoder,then it must be deserved to be the number1 CCTV in China.This one can be one part of point,but should be not a key reason.otherwise it would be not ok to explain why a lot of state-owed company was bankruptcy and why China need to import private economy and why a lot of industry number1 is not state-owned company.

and they are #1 in China because they are owned by the government

If people say like that,i think it is totally not unfair for all the hard-working people in Hik.(Personally i think one of main reason Hik is number1:they have the Independent investor in their stock share,the the independent investor is wise enough to give the shareholder to the key staff in HiK,as i know,there should be 3 times they give the stock to the key employee after they going to public.and these stocks grow very well,so the company is quite stable and retain the key employee,of couse,the good management is also important.)

I always think economy is a complicated thing,especially in China.There are too much point need to learn.Just one simple word,one company is number1 because of stat-owned,there are one popular online words in China."Too young,too naive".

I list here not for mock people,just to let people know when we totally disagree with something,and we think this idea is too simple,we would use these words.

 

Sean, I do not think you are condescending by nature.... as I said before I think you are doing what you do better than most who do that same thing.

What is condescending is that you and the other Hik fanboys insinuate that Hik is expanding their footprint by creating some kind of magic-dust marketing scheme that nobody else has ever thought of before.

Here is their actual scheme:  They are spending unsustainable amounts of money to achieve market share.

Unsustainable meaning exactly that they can not make enough margin on sales to continue spending this much on marketing and business development (both cost centers) and still turn a profit.  If that could be done, lots of others would already be doing just that.

Growth strategies that include massive spending to achieve short term goals are nothing new.  Take a look at what Avigilon did in their quest for their goal of reaching a $500M run rate.  Their growth scheme was temporary and was always planned to be such.  Why?  Because massive spending can get anyone with a semi-decent product increased market share.

This is not magic.  The massive (temporary) spending is designed to achieve exactly that - increased market share.

So imagine if you will, that this growth scheme is actually not new at all.

And imagine further, a state run company with a $6B war chest with which to extend that growth scheme into a competition-killing, industry-changing world domination strategy?

Welcome to how China does business on the global level.  Our industry is simply the next up on the chopping block, following exactly the same plan that has decimated many other US industries.

To add to what Undisclosed #8 and what John Honovich have replied, all of which I agree with 100%, you have to consider the state of the Chinese economy. When HikVision first got traction in this industry as an OEM supplier of Analog DVRs to GE back in 2004, a typical Chinese engineer cost 1/10 that of a U.S. engineer and 1/5 that of a Taiwanese engineer. Similar ratios existed for factory workers building the DVRs.

Then the Chinese economy started growing at double-digit rates, and with that inflation skyrocketed. Flash forward to 2017, and a Chinese engineer now is 1/4 that of a U.S. engineer, and 4/5 that of a Taiwanese engineer. For some engineering disciplines, Chinese engineers are on par in cost with Taiwan.

What does this mean? It means HikVision's window to continue to offer below-market pricing to grab market share while still holding on to any kind of reasonable profitibility are dwindling rapidly.

HikVision has a lot of smart people, they know all of this already.

So if you are a company like this and you know your ability to rapidly gain market share is finite while still remaining profitable, or at least losing money at a controllable rate, then you start the fire sales.

That's all this is.

This is not a stab at HikVision's loyal dealers. If you're profitable and hitting it out of the park, congratulations to you. Just realize the gravy train WILL end, and that HikVision's recent activities are accellerating how quickly it will end. In other words, they're not just gaining market share at the cost of profits, they're gaining it at the eventual end to YOUR profits.

How many industries have we sacrificed in the U.S. and Europe in favor of lower-priced Chinese goods? More than I care to count.

The video surveillance industry, as stated a few times already, is simply next on the list.

- is their any evidence these sales are not profitable?

~400 local employees plus all the events, marketing, etc. means NA annual costs of $50 - $100 million. You then have have the double dip and ADI's cut (you better believe that ADI is not giving up its cut here). You combine that and there's not a lot of contribution margin for the significant local expenses they have.

Sean, you run your own business. You tell us. Factoring in both the heavy local expenses and steep double discounts plus ADI cut, do you think they could make that profitable?

For the Hik’ US company if they are profitable or not.i also do some homework.share the following information:

1.The whole overseas annual revenue of Hik in 2016 is $1.3Billion. The whole overseas Operating costs is  $0.7Billion.

So the gross profit for the whole overseas would be around  $0.6Billion=600 million

2.The HIK US would be around 20%~30% of the whole overseas annual revenue.(you can buy some custom data or ask other resouces to double confirm, but this number should be right)

So we count the HiK US' gross profit would be around $120-$180 million

3.I do not know the sales&marketing&human cost of Hik US,but if the above number is right,$50 - $100 million.

That means Hik US should still profitable,from $20~180 million.

Also Heard rumors before.since 2013,Hik US should already earn the money,but before 2013,Hik US maybe not profitable.

You need to go back to the drawing board your numbers are not even close to correct.

The whole overseas Operating costs is $0.7Billion.

So the gross profit

It sounds like you are mistaking COGS with operating costs. One subtracts COGS from revenue to determine gross profit. You did the reverse.

Either way, what you are doing is a top down analysis which risks estimation errors as you go from the whole International segment to Hikvision USA specifically.

It is important to separate OEM sales from branded sales internationally. For example, it is likely that the profitability / loss from sales to UTC or LTS or Honeywell is far different than branded sales. Keep in mind that OEM sales require, by definition, minimal sales, marketing and support costs, since that is the responsibility of the OEMs.

By contrast, the '400' people, the marketing, the events, the parties can only be recouped by selling branded Hikvision from Hikvision USA, not the OEMs. So the question then becomes - how much revenue is branded Hikvision USA doing? From what we have heard validated from numerous sources is that it's relatively low (say compared to Axis or Avigilon) especially compared to how much local expenses are.

Hikvision USA units sold are going to be way more impressive than actual revenue but that's a result of Hikvision pricing so low and running all these sales. For example, Hikvision USA may sell more units or close to what Axis USA does but the revenue will still be far less because of pricing differentials. This is important when analyzing profit and it makes it possible to sell vast numbers of units but still lose money.

sorry.my english is not so good.two point:

1.It cloud be i use the wrong english word"operating cost"(which if use material&production cost maybe better,and i just searched your cogs is just my operating cost) 

but the whole overseas gross profit 600million should be right.you can check their report too.

2.when you  discussed hik us each other.i had thought you discussed both oem and brand.

so all the 400 person you mean just for brand?not for oem?

 

so all the 400 person you mean just for brand?not for oem?

Yes, the 300, 400 or so people Hikvision USA cites is for branded sales. So the Hikvision USA sales people, marketing people, A&E team, enterprise team, the 50 college kids they are hiring, the huge ISC West booth, the Tao party, all of that is just for branded sales. OEM is separate and from the perspective of the Hikvision USA team a competitor.

Hot off the presses, another one:

I am genuinely confused if ADI is trying to embarrass Hikvision with these ALL CAP frantic sale emails or if Hikvision things this is a good idea.

When you're truly "#1" you don't need to resort to "NEW LOWER PRICE alert!" week after week.

And, I kid you not, another email today because tomorrow the "ALL HIKVISION PRODUCTS" SALE is back:

This is getting odd.  It is almost like channel stuffing but completely bypassing the channel portion and instead stuffing the integrator.

I am sure there's a long term strategy to the way they choose to market and staff the local markets. They as a company are very successful and in the end that is what counts regardless of all the theories floating around. 

Its there business how they run their company and despite all the attacks and negative press they continue to be successful. Mr Hu is a very smart man I would nit bet against him.

 

 

Larry, that's fine that you believe in Hu and Hikvision but you have not advanced any reasons or explanations about their why these particular strategies will be successful.

Business history is filled with very successful companies and executives that after a certain point stumbled or fell apart. No doubt Hikvision has done very well taking advantage of the post 2008 China government spending surge but that does not mean they will be successful as a branded business internationally, which requires different strengths and tactics.

Larry - no doubt the executive team at Hik are very intelligent individuals. I for one would count it an honor to have had conversations with them, as you seem to have. However, no company or executive is exempt from making mistakes. (Note: Blockbuster case study

Any organization that grows out of their native culture, must take into consideration the new cultural dynamics and adapt. There are a number of terms used in the business world that address this fact. Culturalization and glocalization (newer term) can be used to define this struggle all global companies go through. 

(Another great resource is the Geert Hofstede Culture Dimensions.)

Global companies must adapt and learn in each culture they operate in. Pushing the cultural dynamics into new cultures, will not work! 

In the case of Hik, their fundamental failure is not the 'back doors' or 'vulnerabilities' (not to down play the IT risks associated with this), it was/is in HOW they managed these crises. In some parts of the world, attacking the media is a viable method of controlling public opinion. However, in the NAM, one of the largest global markets this is not a good solution. 

While many will have different agendas on this site, such as competitors hoping to use this against Hik, Hik employees and partners hoping to discredit IPVM, etc.) I for one, look at this strictly from a business perspective. Just because a company sells a lot of stuff, does not mean they are profitable or doing things right (Interesting chart on Amazon, only a 4% operational margin). If Hik's business model and strategy is not adapted, it will fail at some point. 

History is full of the corpses of once large, cannot fail, international juggernauts of companies that imploded. A good, industry specific example, Pelco. 

The question does not specify what type of impact on their business. So I say positive only because their numbers will go through the roof. In terms of the brand, likely a negative impact but guess what folks; Its all about this quarter.... Until next quarter.

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