Why Dahua Should Acquire Pelco

Author: John Honovich, Published on Jun 18, 2014

In 2013, negotiations for mega Chinese manufacturer Hikvision to acquire Pelco broke down. At that time, we argued that it was a bad fit.

However, there is another mega Chinese manufacturer, who would make perfect sense to acquire Pelco.

In this note, we explain why Dahua's weaknesses would be perfectly complimented by Pelco's strengths and how Dahua has the resources to make this deal.

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Comments (23)

One obstacle would might be security concerns if Pelco is bought by a Chinese company. I'm sure Pelco is on a lot of government bid and procurement sheets- that might change if Dahua bought them given all the cyber security concerns between the US and China that has been in the news lately.

China reacts furiously to US cyber-espionage charges

Chinese attempts to buy Amercian security related companies or to sell technology to American companies have been held up or blocked in the past.

Sprint won't use Huawei gear, says lawmaker

Huawei's 3Com Deal Flops

Good point. I am not sure how strong the opposition would be there.

Undisclosed,

That is a serious possible impediment and something I thought of when I myself first mentioned a possible Dahua/Pelco matchup.

In the case of Huawei, my understanding of the problem was that Huawei's CEO, Ren Zhengfei, is an ex-Major in the PLA and Chinese Communist Party member and has been reluctant to speak publicly. That is why the Huawei-Symantec partnership was dissolved, why Huawei wasn't allowed to buy 3Com, etc.

The U.S. government is leary of the company and its founder - for one, there were rumors that Huawei was installing spyware on much of its data equipment. We actually bought two Huawei-Symantec storage systems and, after a few teething pains, they have proven to be reliable products. Spyware or not, without the means to access the outside world (we have a closed domain), the point is moot.

The Huawei problems are mostly centered on the possibility of data theft; something the West has accused China of for years, and the fact that Huawei's equipment has applications that are directly involved with sensitive data and critical infrastructure. Although Pelco products are also deployed in critical areas, the case could be made that a large percentage of Pelco's electronic products come from China anyway, although it is difficult to obtain that information without having product in hand.

It could go either way - Pelco products could be installed on networks with access to critical data, but so could the vast majority of Chinese cameras, DVRs and NVRs, etc.. I still think a Dahua-Pelco matchup makes a lot of sense but it remains to be seen if it would be allowed to go through.

Perhaps Dahua can "back door" the purchase by having it brokered through Todd Rockoff and the HDcctv Alliance? ;-o

Of interest: There appears to be little background info on Zhejiang Dahua Technology Co., Ltd.'s CEO and Chairman, Fu Liquan (or is that Liquan Fu?). That by no means signifies anything suspicious since Chinese CEOs as a group have little acknowledged presence in the West but until the U.S. government started complaining about Ren Zhengfei of Huawei, he was also little-known.

Btw, hat tip to Carl Lindgren for suggesting this combo last week in the Pelco Responds to Criticism Impressively post.

I'd have to agree that this would make sense for all involved. Dahua would have a much bigger North American presence, and also gain name recognition here. That would be a wise move. Great article John.

As an undisclosed employee of a Schneider/Pelco dealer, I would certainly not want that to happen. Pelco is a significant part of our business and most locals here would then reject them out of hand once Chinese ownership took place.

Let's not even discuss what our government partners will do. Buy American is bad enough, let alone Chinese ownership. Forget using them on anything "secure".

The only thing that makes sense is an OEM relationship. That's it!

The only proponents of this will be activist shareholders and competitors.

Chinese ownership of any American entity is an unwise practice. I am against it on principle alone and will not ever be a proponent.

Maybe it is time to put the M&A craze back in hell where it belongs and stop trying to please activist shareholders at the loss of US jobs.

Remember, if you have no income, you can't buy anything, however inexpensive.

Interesting take. So Chinese ownership of what used to be a highly regarded U.S. brand is a no-no while French ownership is acceptable? Yes, I know that there are differences in the relationships between France and the U.S. versus China and the U.S. but there are also many similarities.

Look at the competition between Boeing and Airbus. The ULA (United Launch Alliance - 50/50 Boeing and Lockheed Martin) versus ESA (European Space Agency, which claims to be a consortium of 20 European countries but in actuality is controlled by France and headquartered in Paris).

Even so-called U.S. companies are now more multi-national than ever. It's time to take the next step and stop looking at China as evil. Fierce competitors? Yes. Evil? Definitely not. At least no more so than our own government who is guilty of many of the civil rights violations we charge the Chinese with.

Por lo menos Uds. pueden hablar abiertamente de violaciones de los Derechos Humanos en USA. En China, en Cuba, en Corea del Norte, donde todo está censurado y filtrado, las violaciones a los derechos seguramente son inmensamente mayores y continuas en el tiempo de lo que nos llegamos a enterar.

In short: There's stronger censorship in China than US. If we get some news about Human Rights violations in China, we only can imagine how massive they are to overload their government's information filters.

Just saying.

There is a vast gulf in the level of rights and modern freedoms between those countries mentioned, but I don't want to side track this discussion into a political dispute which wouldn't be tolerated anyway. We can private message if further discussion is desired. I'll only say I strongly disagree with the level of comparison.

Agreed, though I still believe my original thesis - that a Chinese company owning Pelco is really not very different from a French company owning Pelco. Especially when you consider how intertwined multinational companies have become.

The China political point has been raised and made.

Let's focus here more on industry specific issues - is it a good or a bad fit? etc.

John,

Like I've said before, there are many precedents in other industries - consumer electronics being the one I'm most familiar with. I think it would be a good fit and would give Dahua quick access to the Western market although politicians may not see it that way.

Pelco doesn't actually manufacture electronics in Clovis anyway. The vast majority of their electronic products are either ODM'd or just assembled by Pelco, at least the last time I was at their plant.

That is something that is often ignored when considering country of origin claims. The U.S., for better or worse, actually manufactures very little of the products we use. Everything from components to subassemblies to complete assemblies are manufactured overseas. At the very most, final assembly of subassemblies may be done in the U.S. but that is a very small part of the manufacturing process.

So, in essence, Pelco's products, except enclosures and mounts, are built overseas - mostly in Asia anyway. I doubt Pelco's purchase by Dahua would affect that process very much. And Pelco seems to lag behind the industry in terms of product anyway. Dahua appears to be aggressively working at becoming a manufacturer of high-quality products at very competitive prices, something Pelco hasn't been able to claim for many years.

Well, the aluminum of the housing... is it from USA anyway?

They oil for making plastics (and everything)...?

The quality controls companies MUST meet, pass, etc. assembling/manufacturing in USA is not the same than they (have?) to pass in China. And is like there were more freedom, I think: it depends in the manufacturer ethics more than regulations!

Finally, is it all about components or quality? Sony, Intel, AMD, builds processors. Everyone use them.

Linux, UNIX, Windows, IOS...

But is not the same to use a DVR from a trusted brand than from a "cheap" one.

As far as I know, Pelco do build products in USA. And also in China. But components... where they come from? - The whole world, I guess.

However, is not easy to be a supplier for a trusted brand, because they require and asks for quality + availability in parts and components to suppliers.

It's my opinion, based on my little window to this world.

In reply to a particular post, John (not to turn this political, BUT),

It hasn't been that long since Schneider acquired Pelco and that disturbed things enough. Really don't want to go through another buyout let alone Dahua. Too many problems, too many questions, too many concerns.

Perhaps I'm overstating the obvious but there really are almost no manufacturers of electronics left in the US so when I said "Buy American" was bad enough, that's what I was referring to. It's bad enough trying to comply with any manufacturer and would be literally impossible with Chinese ownership. France is on the list of "acceptable" countries at least but Pelco is US based.

China is not a partner of the US, they are a (fren)enemy held at arms length because they literally have stolen the intellectual property of US companies and governments and many others worldwide on a regular basis. If you don't know that by now you should button up your ports and get a good firewall and read some logs.

And as a company, since Dahua's management are associated with the PLA, (Chinese Peoples Liberation Army) they cannot be trusted AT ALL since the PLA is the sponsor of these hacking groups and they have been tracked back and identified.

Globalisation helps no one except multi-nationals and politicians and the experience of this "trend" has been the rampant decrease of the middle class, loss of US manufacturing jobs and everyones earnings.

These are absolute, and inarguable facts.

<end rant>

Better not buy any Smithfield Foods sliced ham then. They were bought by Shangui International Holdings Ltd, a Chinese company, last year. And stay away from Lenovo computer products.

Please, enough with the political back and forth.

Any other comments here about Chinese / American political issues will be immediately deleted.

John, is this somehow related to the English as a first language issue somebody brought up earlier?

No. I don't think anyone should spend hundreds of millions to simply solve a language / communication problem.

As I made the case above, Dahua has a whole array of weaknesses (and strengths) that overall would benefit greatly from acquiring a mature Western brand.

I have personally seen many Pelco cameras in use but have never installed any myself. How are their software skills? Do they have a decent VMS? I like the Dahua products, but their software is not that great. We have been using Dahua and Hikvision cameras with DW spectrum with success.

We have used Dahua's PSS software and have tried to use their new SmartPSS, but they are very limited in functionality and are not really intuitive for an end user. Their mobile app is great and I hope they expand the update to the iPad and other products because it is better than most.

If Pelco has good software people, then it could be a great matchup.

I am disappointed that the North American distribution of HD Witness is offered through Digital Watchdog because I don't care for their product offerings and can only but the license from them. I tried their analog DVR and was very disappointed. I prefer the Dahua DVR over DW's DVR. At least Dahua loosely supports dual stream recording so mobile playback is fluid. I use this functionality often when looking up an event and then going to PSS to download it.

I will say Dahua biggest downside is exporting video and playing it back. The best export is one where I choose the cameras, the time/event and it shows up as one file and opens with a proprietary player and one can view all desired cameras at once. With Dahua, it really is limited to multi-channel playback at the DVR, but once exported is single channel playback. Trying to show officers how to play back the exported video is not fun when multiple camera views are needed. It does work but is time consuming and could be simplified.

One update: as our Top Manufacturers Gaining and Losing Ground report shows, Dahua really needs a Western sales / channel machine. It will take years to build their own, even if they can do it right.

Whether Dahua buys Pelco or some other mature Western brand, they need to do something to match Hikvision fast incursions.

Dahua should take them over. I am tired of hearing about the glory days of analog. There will never be a glory day of IP video. Let the lynching commence. Good bye american recycled technology. Hello China.

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