Our next annual report on the Physical Security Industry due to be published late in the 3rd Quarter of 2016 will show that western manufacturers of video surveillance cameras are not only rapidly losing market share in their home markets to the major Chinese manufacturers but also cannot penetrate China, which is the largest single market in the world.
As a result few will be unable to establish sufficient volume to leverage the benefits of commoditization which is fast approaching.
At this time western manufacturers have sophisticated software and know-how that they have built into their cameras. However much of this will over the next five years be built into the silicon chipsets which power IP Video and much of this specialization will be lost. “Siliconization” of surveillance cameras has been taking place over the last few years with the functionality of complex megapixel cameras becoming integrated onto chips.
Chipset providers, such as Ambarella and Hisilicon, are now able to deliver sophisticated camera functionality hardwired in their chips and you can expect them to move this technology forward at pace. This year at the ISC West gathering Ambarella exhibited their new S5 chipsets which focused on 4K growth.
Ambarella is advocating for manufacturers to use 4K chipsets and sensors over 4MP cameras. They see 4MP as a security-specific resolution and not something you would find used in mainstream consumer markets, unlike 4K, which clearly is.
Volume is a primary factor for price drops in chipset manufacturing, and volume of 4K-based products outside of the security industry is rising. 4 or 5MP cameras may lose any cost savings benefit over higher resolution 4K cameras, causing manufacturers to drop them from product lineups.
Western manufacturers are faced with a double hit, first losing volume business to Chinese manufacturers in their own backyard and then not being able to compensate for this by opening up the Chinese market. This widens the gap with the major Chinese companies Hikvision and Dahua, who are building up massive volume in readiness for commoditization of the video surveillance camera market.
The two largest Chinese manufacturers of video surveillance cameras, Hikvision and Dahua, have achieved volume production on the back of their protected home market. They have gradually introduced new features across the whole range of cameras not just necessarily producing the optimum for a particular application or type.
A good example of this is IR being integrated in most cameras. A recent survey by IPVM has shown that the use of cameras deployed with Integrated IR has doubled in the last two years and more important almost half of the system integrators interviewed bought integrated IR cameras whether they needed them or not because they did not cost much more.
Chinese manufacturers have led the market in adding integrated IR to megapixel cameras. If they extend this to other features, then build up sufficient volume to offset additional cost, selling prices will of course be reduced.
These two largest Chinese manufacturers are in a strong position to pursue this strategy. Hikvision is already manufacturing many more cameras than any other western manufacturer which will give then enormous leverage when commoditization takes hold.
This will leave many western manufacturers fighting for a depleting specialized applications market that need cameras to be tailor made. Its also likely to force western manufacturers to consolidate the market further through Merger and Acquisition. Even in a growing market there will not be enough business for so many small camera companies to make a viable business.
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