2018 has been a year of solid performance for the Physical Security Industry. Sales at factory gate prices have increased by 7.5% in 2018 reaching $31.55Bn, whilst the average annual growth over the last ten years has been 5.3%.
In 2018 Video Surveillance products at $17.38 billion had a share of 55%. This could change significantly over the next 5 years with Video Surveillance increasing its share as the impact of AI Video Analytics starts to kick in.
Access Control was expected to deliver a slightly higher performance than 8% as it further penetrated the IP Network business, also advancing further into biometric, identity management and wireless locking systems.
Intruder & Perimeter Protection Business, the father of the physical security business, has through improved performance of radar, thermal and multi sensor cameras, significantly increased their contribution to growth. In addition, advances in sensor technologies, wireless technology and the integration with Video Surveillance, Access and outdoor Lighting have all contributed to growth edging up to 4.5% in 2018.
2018 has seen further consolidation in the structure of the supply side of the video surveillance industry and major growth in the market share of Chinese video surveillance manufacturers. The average market share of the major players across all sectors of the physical security products business is growing but still 3% would put companies into the top quartile whilst the largest share is approximately 15%. However comparing market shares within the combined physical security business is not particularly relevant at this time. Specialist product companies are achieving much higher market shares within the Video Surveillance sector with the No1 securing around 30% of the world market in 2017.
We have identified 14 companies that have revenues of over $1Bn accounting (Group A Companies) for some $17.95 billion in product revenues in 2018. The inclusion of Hikvision and Dahua and this year Axis Communications has given new impetus to this group and the merger between Thales and Gemalto this year has produced a new mega Identity management / access control biometrics company. The net effect of this is that this group has significantly increased its contribution and the average sales revenue is $1,282m giving them 57% share of the physical security market up from 37% in 2013.
The developed markets of North America and Europe have continued to lose market share to Asia and particularly China and this is expected to continue to the end of this decade. This is bad news for western manufacturers of Video Surveillance products because they have failed to establish a solid business base and significant share in China, whilst Dahua and HIKvision have sales of more than $5 billion between them and now have the kind of scale that allows them to dominate the SMB market.
There are 4 regions in the world that make up over 80% of the world’s physical security business. Of these we estimate that North America accounts for approximately 24%, China 31%, the EU 20% and Japan and the Rest of Asia 14%. We estimate China is now the biggest single country market for physical security products. Video surveillance equipment has been the major contributor here.
In our new report, we have also compared the performance of 16 different vertical markets; 2006 with 2018 and this shows there have been some significant changes during the last 12 years. The most notable change has been growth in the transport sector, which has almost doubled its share and at 16% is now the largest vertical. Many new opportunities have opened up, particularly for video surveillance, driven by the threat of terrorism and the need to improve safety and efficiency of traffic movements. We expect this vertical to at least maintain its share during the next 5 years.
The Building Internet of Things (BIoT) which should provide connectivity across all BAS services in buildings has yet to make a significant impact on the Physical Security industry. Our report has taken into account the fact that further growth opportunities are opening up in relatively new vertical markets particularly in the Smart Building sector where System Integrators from the Security Business are using their platforms to deliver systems incorporating connectivity between security and control and monitoring of building and energy performance.
We have also identified LED Lighting Control installations using their communications platform to add on Access Controls and Intruder Sensors. By the end of 2018, the BIoT (Building Internet of Things) business will be a recognised platform to open up more opportunities for security products and further increase the demand for AI Video Analytical software.
The physical security industry is now in a much healthier state with a structure that can deliver a product portfolio opening up more attractive opportunities for their buyers. Video Surveillance equipment will far outstrip the average growth across all the three sectors of the market over the next ten years; as AI analytical software should gradually prove that it is a real game changer making radical improvements to the performance of security equipment.