Market Insight

Coronavirus impact on video surveillance market is minor for now

February 19, 2020

Tommy Zhu Tommy Zhu Senior Analyst, Video Surveillance

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This is an update on the effect of the coronavirus on the global video surveillance market, based on research data and intelligence gathered by Omdia. A new powerhouse research force, Omdia was formed by the merging of Informa Tech research brands Ovum, Tractica, and Heavy Reading with the acquired research portfolio of IHS Markit | Technology.
Key points:
  • The coronavirus impact on components for the global video surveillance equipment market is minor at present, but possible staff shortages at production centers in China may cause a bottleneck.
  • A challenge to video surveillance vendors, however, is low production output because of the lack of manpower and delays following the Spring Festival or Chinese New Year.
  • Vendors offering products such as thermal image cameras have made special allowances to prioritize production of these products, which have been authorized by the Chinese government to assist in fighting the virus.
  • Domestic demand for general-purpose video surveillance products is likely to halt or suffer delay as the Chinese government’s major focus is on coronavirus control. Overseas demand, on the other hand, is unlikely to be affected because China serves nearly one-third of the world’s video surveillance demand (excluding its own market).
  • Transportation and logistics have a huge impact on the supply of video surveillance equipment given the backlog incurred before the Spring Festival, and now with new restrictions in travel and transport in place both domestically and internationally because of the coronavirus.
The coronavirus outbreak in China is spreading widespread fears of a potential worldwide pandemic, following the declaration of a global public health emergency by the World Health Organization. With the lockdown of Hubei province, severely affected neighboring areas—such as the cities of Beijing and Shanghai, and the provinces of Guangdong, Zhejiang, and Jiangsu—are taking various measures to control the spread of the epidemic. 
Authorities, for example, had extended the Chinese Spring Festival holiday—initially set to end Jan. 30—to Feb. 2, with a majority of the country’s provinces, municipalities, and autonomous regions ordering businesses not to reopen until at least Feb. 10. A 14-day quarantine is also being imposed on specific sectors of the population affected by the outbreak. Meanwhile, companies that needed to start work after the holiday were ordered to get permission from the government, and employees were encouraged to work from home as much as possible. As of Feb. 17, the number of confirmed infections has exceeded 70,000.  
The virus is impacting nearly all industries, owing to China’s prominent place in the global trade and technology stage. China last year accounted for 90% of the worldwide production of video surveillance cameras, and 45% of worldwide global market revenue, Omdia estimates.  
Given China’s outsize presence as the largest domestic and production market of video surveillance cameras, the country has a proportionately huge impact and effect on the global video surveillance camera space and specific aspects of the market, explained in greater detail below.  
Supply of components
Video surveillance equipment is generally split into two categories: front-end equipment, mainly cameras; and back-end equipment, mainly recorders. Major components include the camera lens, system-on-chip (SoC) in both cameras and recorders, and CMOS image sensors. 
Within the video surveillance industry, the major suppliers in China of lenses are Yutong Technology, Sunny Optical Technology, and Union Optech. For the SoC component, the main suppliers in China are HiSilicon and Fullhan Microelectronics. For the CMOS image sensor, they are OmniVision (acquired by Will Semiconductor) and Galaxycore. These companies have now gradually returned to work after the Spring Festival holiday. But staff shortages are possible because the epidemic may reduce the output of various components, even as the full impact of the virus is yet to be determined. 
On the flip side, the major video surveillance equipment vendors are the top clients of video surveillance component suppliers, and supply to video surveillance is likely to be prioritized.
Supply of equipment
Posing a challenge to video surveillance vendors is the current low production output and reduced capacity from manufacturers, caused by the lack of manpower and delays following the Chinese Spring Festival. Production has been gradually recovering on a rolling basis since Feb. 10, but it has also been reported to us that some vendors did not stop manufacturing during the holidays to secure the supply of anti-epidemic products such as thermal cameras.
To this end, the lockdown of Hubei will not directly affect production, because there are no major manufacturing plants located in the province. Hikvision plans to open a plant in the province, but the project is not scheduled for completion until after 2021. 
Nevertheless, the restrictions stemming from the lockdown in Hubei have severely affected neighboring Zhejiang province, the heart of the video surveillance industry and with China’s three largest vendors of video surveillance equipment—Hikvision, Dahua, and Uniview—are headquartered in the province’s capital of Hangzhou. Yet, video surveillance is a pillar industry in the province and is endorsed for protection by the local government, so authorities have taken steps to ensure that production continues. 
At the time of writing, vendors were optimistic that production would return to normal after Feb. 17. However, production of thermal cameras is still being prioritized because of the fight against the epidemic. If the epidemic response continues, it is unclear whether the rest of production for other video surveillance products can return to its earlier planned output unimpacted.
Worth noting is that thermal cameras are widely used in fighting the coronavirus. On Jan. 30, the State Council of China listed thermal-temperature-measuring equipment and relevant products as key supplies in battling the epidemic. This means that production and transportation of the supplies should be secured and prioritized. Thermal cameras enhanced with blackbody calibrators, along with facial recognition video analytics solutions, are now a major tool to screen suspected infections in public places, including railway stations, airports, hospitals, and supermarkets. Two companies specializing in manufacturing thermal products, Dali Technology and Guide Infrared, for instance, have canceled their holiday plans to secure production. Video surveillance vendors such as Hikvision, Dahua, and Uniview have also provided their relevant solutions to assist in the fight.
As for component inventory, the top video surveillance vendors are experienced in stockpiling and supply chain planning—the result of experience gained during the recent US-China trade conflict and banning of Chinese products. For video surveillance, sufficient components have been secured for equipment production in the short term. Fortunately, demand is typically lower in the first quarter, mitigating disruption to the system. For the time being, any shortages in components that may ensue are unlikely to have an effect on the production of surveillance equipment, Omdia is projecting. 
Demand side
The current focus by Beijing on battling the coronavirus will mean the stoppage or delay of other large government-driven video surveillance projects, including Xue Liang--or “Sharp Eyes,” roughly translated—a rural security video surveillance project being tested first in Chinese towns before becoming part of a nationwide video surveillance system. 
These new developments may result in reduced funding for video surveillance projects for now, but government support for video surveillance will continue, with security professionals now presuming that the next phase of video surveillance deployment will concentrate efforts on developing the backend. 
In previous communiques, the government had also pointed out the need to reinforce the construction of modern agricultural facilities—to be undertaken by building Big Data centers in rural areas and by utilizing transformative technologies such as IoT, Blockchain, AI, and 5G. And because video management and mining are normally available as a functionality of the networks being tapped to deliver the new technologies, the government’s push for modern technology in the countryside is also a push for video surveillance.  
Taken together, these various points suggest that video surveillance in China is not confined to rural security alone, but that it is also being deployed in agricultural settings including farms, processing factories, meteorological monitoring stations, and irrigation facilities. Such deployment, in turn can potentially drive demand from video surveillance vendors, which are now positioning themselves as being video-centric IoT solution providers.
In the overseas market, the demand for video surveillance equipment is unlikely to be affected. China is undoubtedly the manufacturing base for video surveillance equipment in the world, and demand for video surveillance equipment will not be met without the participation of Chinese vendors. Most vendors imply that there is little impact on existing clients, and that customer orders continue to come in. 
Nevertheless, potential clients are more likely to wait until the epidemic passes. And while it is conventional for distributors to carry Chinese brands to maintain their stockpiles as a buffer, the supply of video surveillance equipment is likely to be delayed if the epidemic extends.
Transportation and logistics have a huge impact on the supply of video surveillance equipment. Domestic logistics stagnated overall during the Spring Festival, except in the maintenance of supplies for products intended to fight the coronavirus—products like thermal detectors and cameras. Furthermore, a backlog of deliveries caused by the Spring Festival and the restrictions to travel and transport because of the coronavirus will mean that delays in domestic shipments can be expected. In response, vendors are reportedly using their own freight and premium express to secure their stockpile of the components and products deemed relevant to fighting the epidemic.  
Outside China, restrictions on freight imported from China have been imposed by various countries, including the United States, Australia, and Singapore, among others. Many flights and vessels into China are also being cancelled or reduced. Customers are likely to experience delivery delays.
Looking forward
In response to the crisis, the Chinese government marshaled its resources to build two hospitals in 10 days in Wuhan. Tens of millions of viewers streamed online the constructions of the hospitals, which served to demonstrate the power of the central government in Beijing to mobilize Chinese technologies and resourcefulness. In the best-case scenario, with the epidemic successfully contained by the end of March and with the disruptions reduced by April, the impact of the virus on the video surveillance market will be minor. 
However, if the epidemic continues to spread and infections rise in number in the second quarter, the effects of the coronavirus on the video surveillance industry and on many other industries will be severe, not only to China but also to the world as a whole.

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