Hikvision's $800 Million Project Expansion into System Integration Examined

In this note, we review Hikvision's $800 Million Project Announcement [link no longer available] and share information from an interview with Hikvision. While project wins are generally uninteresting, $800 Million is a huge amount of money for the video surveillance industry.

Let's start by reviewing the basics of the project:

• This is a Safe City project for the municipality of Chongqing (located in the southwest of China and having over 30 Million people).
• The project is scheduled for rollout/construction between 2011 and 2013
• HikVision is acting as the General Contractor for the whole project, not just as the manufacturer/product supplier

Here are some key details we gathered from questions to Hikvision:

• While Hikvision was traditionally a manufacturer only (not system integrator like CSST),  Hikvision has expanded. They note, "As Hikvision is established in China, and has already built up 28 branch offices over the years in all the major provinces and cities around the country, we have plenty of resources to do more than product supplying. With the booming up of the China market, as well as the escalated requirement for security, the company decided in 2009 to establish another department focusing on projects and vertical solutions design/deployment." Outside of China, Hikvision notes they continue the traditional strategy of product supplier through distribution and system integrators.
• Hikvision confirms that all $800 Million in revenue will go to their company. Over a 3 year period, this may add $250+ Million per year. This is a very significant revenue level (both compared to industry standards and HikVision's own revenue - i.e., Hikvision 2009 revenue was $310 Million USD).
• Hikvision clarified the announcement's reference to 500,000 video surveillance 'points'. The term points refers to areas where cameras will be installed so the total number of cameras deployed will be significantly more than 500,000.
• When asked about IP vs analog and use of analytics, Hikvision noted, "China is embracing prime performance products, solutions and technologies, it is certain that the solutions used in Chongqing will be state-of-the-art products and technologies."

This appears to be very good for Hikvision and further signals the opportunity in the China surveillance market. The main question it raises for us is how it impacts the focus and value of expanding into North America and EMEA. Even major manufacturers like NICE and Verint have surveillance businesses with less than $200 Million revenue per year. Given Hikvision's low market awareness and undifferentiated IP product lineup, will Hikvision have the motivation or resources to maximize its efforts outside of China? Regardless of the outcome, if the Chinese market growth and Hikvision's ability to tap into it continue, Hikvision is likely to do quite well.

Hikvision's Current Financial Position

As of December 15, 2010, Hikvision's market capitalization is about $7.5 Billion USD (50 Billion Yuan). To provide a point of comparison that is 6 times the market cap of Axis (about $1.15 Billion USD). [Note: Hikvision IPOed in May 2010.]

As a publicly traded company, Hikvision's financial reports are now publicly available in a Periodic Reports section [link no longer available] of their website (in Chinese).

Through the first 3 quarters of 2010, revenue is up 66% to approximately $350 Million USD. Hikvision is on pace to do $450 - $500 Million revenue in 2010.