Hikvision Dedicates $1.5 Billion To Dominate Western Market

During our recent China trip, many companies inside China, including Dahua, lamented how Hikvision is destroying the video surveillance market, with aggressive continuous price drops to drive their expansion.

Last week, we exposed how Hikvision got $3 billion from a Chinese government bank but one question was not answered: How much of that money was going to be used outside of China? The answer: $1.5 billion.

In this note, we examine the impact of $1.5 billion dedicated for Hikvision's global expansion, their $10 billion goal and how they expect only a few companies will remain when they are finished.

How Big is $1.5 Billion for Video Surveillance?

Combine the annual revenue of Axis, Avigilon, Genetec, Milestone, Exacq, Arecont, Acti, and Vivotek and that is ~$1.5 billion. It's a staggering amount for the video surveillance industry.

Excludes Manufacturing and R&D

Even more importantly, the $1.5 billion in the West is primarily for sales, marketing and support, as Hikvision does essentially all manufacturing and R&D inside of China. And inside China, another $1.6 billion of Chinese government money will be used for expansion there.

Unconcerned About Profits

That $1.5 billion can drive a practically unlimited amount of expansion in the West, constrained only by Hikvision's willingness to absorb losses as they continue to take share.

We have never seen any established company in this industry be so unconcerned about profits. And this funding allows them to continue with that for far longer.

Major Acquisitions Unlikely

Hikvision noted:

"Hikvision is 'always open' to the idea of acquiring within the security industry, but that Hikvision does considerable R&D of its own in that area.

For an acquisition, Hikvision is more likely to 'look beyond' video, He said. That may mean access control or intrusion, or it may mean a line of business that’s adjacent to physical security."

Given how successful Hikvision has been growing by undercutting prices it is far more cost effective to simply take customers from companies like Acti, Arecont, Axis, Vivotek, etc., rather than buying any of them.

$10 Billion USD Goal

Inside China, Hikvision has openly discussed its $10 billion USD revenue goal. For 2015, Hikvision will do ~$4 billion total revenue, with ~$3 billion inside China and $1 billion outside.

On the one hand, that's 'only' an increase of 150% and they are going to do 50%+ growth in 2015, so the basic math is reasonable. On the other hand, how much more share can they take inside of China and how much more can the Chinese government spend on surveillance infrastructure beyond the huge amount they have done in the past few years?

Only A Few Large Companies Will Remain

According to Hikvision's chairman, in 5 to 10 years, only a few large companies will be left in the video surveillance industry.

Indeed, this money will certainly help greatly in achieving that goal.

Western Expansion

By no means does money mean domination is guaranteed. Hikvision could make mistakes, they could be impacted by changes in the Chinese economy or government, or as Hikvision expands more, the competitive response could change, etc. Indeed, at some point, the Chinese government may decide or need to stop subsidizing Hikvision.

However, $1.5 billion is an immense and unprecedented amount for any video surveillance company to use for international expansion.