Axis Growth Rebounds Strongly (Q2 2012)

JH
John Honovich
•Published Jul 11, 2012 00:00 AM
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After the last half year of disappointing results, Axis revenue growth rebounded strongly in Q2 2012. However, growth across geographical regions varied sharply and margins were impacted. In this note, we dig into the financial details and analyze important aspects within.

Overview

A few key items from the financial report:

  • Revenue growth was 31% year over year in local currency terms. This is a sharp increase from the only 6% in Q1 2012. This returns Axis to the growth range it achieved throughout 2010 and most of 2011.
  • Europe remains the laggard. While the Americas were up 42% and Asia was up 48% (in local currency terms), Europe was only up 16%. On the positive side, all geographries were up significantly. Indeed, European revenue actually had slightly declined year over year in the previous quarter.
  • In terms of drivers, Axis did not deeply explain what caused the much higher growth. The main rationale cited was "the result of the previously communicated high inflow of new projects."
  • Gross Margins Declining: Gross margins were down nearly 2 points, going from 51.2% to 49.4% year over year. Axis cited, "continued sharp competition and negative foreign currency effects" as the cause of this. However, overall currency effects helped Axis this quarter so we suspect competition was a greater driver.
  • R&D Expenditure Continued to Increase: Axis continues to reinvest heavily in R&D and is now at an annual pace of $85 Million, bigger than the revenue of all but a handful of their network camera competitors.

America Vs Europe

America is replacing Europe as the core driver of Axis's business. Just a few years ago, Europe generated half of Axis business while the Americas was just 40%. Now, the Americas are 52% while Europe has shrank to just 36%.

The Americas has grown much faster than Axis's recent growth of 25-30% while Europe has lagged behind. Given the uncertainty in Europe, this trend may continue for some time.

Increased Focus on Asia

In Axis's presentation, they emphasized growth in Asia, nothing how important developing markets will be for their future growth. It will be interesting to see how well they can do here as Asia continues to represent only a fraction of their business (12%). Equally noteworthy is that as a percentage of Axis's revenue overall, Asia has remained relatively stable (11% at end of 2009, 12% now), meaning that the company has not had great success expanding into Asia so far.