A Bimonthly Measure from the Security Industry Association
October 2017
www.securityindustry.org
Confidence in the security industry saw a strong upturn this month, as the SIA Security Market Index reached 74.3, up more than 10 points from its
October 2016 rating of 63.9. This also marks an upswing from the August 2017 Security Market Index of 65.3. Any Index rating higher than 50 indicates that security professionals are primarily confident in their business prospects, and the climb in confidence in October can be attributed to strong increases in a number of key factors, including the number of employees or hours worked, R&D spending and new orders. Ninety-two percent of security industry leaders surveyed consider current business conditions to be either “excellent” or “good,” compared to just over 82% in August 2017. One respondent commented that “There seems to be some growth, and it is a good climate for companies considering the government as a customer.” Another added that there is continued high growth in the access control as a service (ACaaS) segment as the market adopts this cloud-based business model. Business confidence seems to bring growing
pains for some organizations, however, as several industry professionals noted that it remains a challenge to find enough qualified people – from technicians to management – to support continued business expansion. The Security Market Index measures the current status and future expectations of security industry executives through a select survey of SIA members. The Index’s goal is to provide a macro-view of confidence levels in the security industry every two months while closely examining nine specific business measures:• Number of employees or hours worked• Marketing spending• Product production or service output• Capital equipment spending• Product inventories or service backlogs• R&D spending• New product or service introductions • Product or service sales • New orders or contracts The majority of security industry professionals surveyed are seeing increases in all of these areas. Over 80% of respondents said they are experiencing increases in the number of
Security Industry Sees Confidence Boost in October
SIA Security Market Index, October 2017
Overall, the Index survey measures general business conditions but also gauges nine elements to reach one Index number that signals security industry executives’ confidence. The elements are:• Number of Employees or Hours Worked• Marketing Spending• Product Production/Service Output• Capital Equipment Spending• Product Inventories/Service Backlogs• R&D Spending• New Product/New Service Introductions• Product/Service Sales• New Orders/New Contracts
Source: SIA Security Market Index, October 2017
OCTOBER 2017
AUGUST 2017
74.3 65.3
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employees or hours worked and product production, and 88% of SMI respondents are seeing increases in the number of new orders, compared to 80% in August. Eighty percent of respondents are continuing to increase their marketing spending, compared with just 62% in August 2017. One security systems integrator mentioned that stepping up business development spending over the last two years has “paid off well.” Research and development spending is on the rise as well. In August 2017, only 55.6% of survey respondents said they were increasing R&D spending, but in October,
75% of industry leaders surveyed said they are increasing their investment in this area. One noted that healthy client growth is being used to support ongoing R&D that’s been “lean and mean for a long, long time.” Capital equipment spending saw a slight uptick from its August level of 47.6% increase to an October level of 54%. Thirty-eight percent of respondents say that their capital equipment spending levels are remaining steady, and 8% noted decreases in spending levels. Product inventories are on the rise, with 64% of SMI respondents citing increases in this area, and 64% of respondents also
say they’re seeing increases in new product introductions. Overall, 46% of security industry professionals surveyed believe current business conditions are “excellent.” Over the next three months, 36% of respondents believe business conditions will be “much better,” 56% think they will be at least “a little better,” and 8% believe they will remain the same. No one surveyed stated that they expect business conditions to decline between October 2017 and January 2018. With regards to the aggregate level of capital equipment spending for plants and equipment over the next 12 months, 58% of SMI respondents expect spending levels to increase compared with the last 12 months, and 35% expect levels to remain steady. In August 2017, only 46% of survey respondents expected an increase in spending over the next year. To provide a broader view of current business conditions, the Security Market Index also cross-checks against other surveys and reports from a select list of sources that generally match the time range and themes of the Index: • The Conference Board Consumer
Confidence Index ▼• The National Association of Realtors
Home Prices ▲• NAM Manufacturer’s Outlook Index ▲• The Conference Board Measure of CEO
Confidence ▼• Chief Executive’s CEO Confidence Index ▼ Recent natural disasters have shaken consumers’ confidence, according to The Conference Board Consumer Confidence
Source: SIA Security Market Index, October 2017
The majority of security industry professionals surveyed for the SIA Security Market Index con-sider current business conditions to be either “excellent” or “good,” as many respondents claim improvements in end users’ interest in emerging technologies and services.
Overall Rating of Current Business Conditions of CompanyExcellent Good Average Fair
October 2017 46% 46% 8% 0%
August 2017 45.8% 39.6% 8.3% 6.3%
June 2017 38% 58% 4% 0%
April 2017 36% 41% 18% 5%
February 2017 47.4% 42.1% 10.5% 0%
December 2016 43% 42% 0% 15%
October 2016 50% 33% 0% 17%
July 2016 18% 61% 9% 12%
April 2016 25% 55% 7% 13%
February 2016 20% 60% 8% 12%
December 2015 25% 60% 10% 5%
October 2015 25% 55% 15% 5%
Janu
ary
2010
Ap
ril 2
010
July
201
0
Oct
ober
201
0
Janu
ary
2011
Ap
ril 2
011
July
201
1
Oct
ober
201
1
Janu
ary
2012
Ap
ril 2
012
July
201
2
Oct
ober
201
2
Janu
ary
2013
Ap
ril 2
013
July
201
3
Oct
ober
201
3
Janu
ary
2014
Ap
ril 2
014
July
201
4
Sep
tem
ber
201
4
Nov
emb
er 2
014
Feb
ruar
y 20
15
Ap
ril 2
015
June
201
5
Aug
ust 2
015
Oct
ober
201
5
Dec
emb
er 2
015
Feb
ruar
y 20
16
Ap
ril 2
016
July
201
6
Oct
ober
201
6
Dec
emb
er 2
016
Feb
ruar
y 20
17
Ap
ril 2
017
June
201
7
Aug
ust 2
017
Oct
ober
201
7
SIA Security Market Index, October 2017 Source: SIA Security Market Index, October 2017
Confidence in the security industry jumped in October, as security leaders see changes in customers’ interest in security solutions as a service and other integrated security products.
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Index. After marginal increases in August, confidence took a slight decline in September from 120.4 to 119.8. Confidence in Texas and Florida, both hard-hit by hurricanes, decreased considerably, says The Conference Board’s Director of Economic Indicators Lynn Franco. “Despite the slight downtick in confidence, consumers’ assessment of current conditions remains quite favorable and their expectations for the short-term suggest the economy will continue expanding at its current pace,” Franco says. Consumers saying business conditions are “good” decreased from 34.5% to 33.9% in September, while those saying conditions are “bad” increased from 13.2% to 13.8%. Considering the labor market, those stating jobs are “plentiful” declined from 34.4% to 32.6%, but those claiming jobs are “hard to get” decreased
slightly from 18.4% in August to 18.1% in September. Regarding the short-term, however, consumers remain more positive. Slightly more than 20% of consumers expect business conditions to improve over the next six months, compared with 19.8% in August, but those expecting conditions to worsen increased from 8% to 9.9%. For consumers looking to buy a home, they face a tough uphill battle at the moment. According to the National Association of Realtors, home prices are in their 66th straight month of year-over-year gains, and the median existing-home price for all housing types in August 2017 was $253,500, up 5.6% from a year before. And while prices are rising, inventory is decreasing. Total existing-home sales for August retreated 1.7% from July, and total housing inventory
declined 2.1% to 1.88 million existing homes for sale – 6.5% lower than August 2016. Fifty-one percent of properties sold in less than a month. “What’s ailing the housing market and continues to weigh on overall sales is the inadequate levels of available inventory and the upward pressure it’s putting on prices in several parts of the country,” says Lawrence Yun, NAR chief economist. “Sales have been unable to break out because there are simply not enough homes for sale.” Some of the closing declines in the South could be attributed to Hurricane Harvey, but Yun says that the majority of lost activity in Texas and Florida will be seen in 2018. CEOs’ confidence, which was riding high at the beginning of 2017, continues to taper off. According to The Conference Board Measure of CEO Confidence, CEOs are still rating current conditions in the U.S.
Over the next three months, the majority of security industry leaders expect business conditions to improve, with most expecting “a little better” con-ditions through the next quarter.
■ Much Better 27%■ A Little Better 56%■ No Change 17%■ A Little Worse 0%■ Much Worse 0%
August 2017
■ Much Better 36%■ A Little Better 56%■ No Change 8%■ A Little Worse 0%■ Much Worse 0%
October 2017
■ Much Better 22%■ A Little Better 64%■ No Change 9%■ A Little Worse 0%■ Much Worse 5%
April 2017
■ Much Better 26%■ A Little Better 61%■ No Change 13%■ A Little Worse 0%■ Much Worse 0%
June 2017
Source: SIA Security Market Index, October 2017
New Orders
Product/Service Sales
New Product Intro
Employees/Hours
Capital Equip Spend
October 2017
88% Increase
80% Increase
64% Increase
81% Increase
54% Increase
April 2017
95% Increase
95% Increase
71% Increase
59% Increase
23% Increase
June 2017
88% Increase
87% Increase
70% Increase
83% Increase
63% Increase
August 2017
80% Increase
81% Increase
71% Increase
73% Increase
48% Increase
Among these five Index factors, security industry professionals are seeing continued growth, with minor changes from earlier in the year. In October 2017, only 64% of survey respondents said they were experiencing increases in new product introductions compared to 71% in August, but the number of employees or hours worked, new orders, and capital equipment spending all increased this month.
Source: SIA Security Market Index, October 2017
Expected Business Conditions for Company in Next Three Months
Percent of Respondents Saying They Will Increase Activity or Dollars in:
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favorably, but their short-term expectations for growth have eased. The measure declined for the second consecutive time in Q3, now reading 59, down from 61 in the second quarter. In October, 56% of CEOs say conditions are better compared to six months ago, down from 60% in the second quarter. CEOs’ optimism regarding the short-term outlook for the economy has also tapered off from the early 2017 cheer. Thirty-nine percent expect economic conditions to improve over the next six months, compared with 41% last quarter, and 14% expect economic conditions to worsen, compared to 3% last quarter. Regarding spending plans, about 29% of CEOs say they have boosted their capital spending plans since January, and only 14% say they have scaled plans back, says Lynn Franco of The Conference Board. According to September and October
surveys from Chief Executive magazine, CEOs confidence about the promises of the new Administration in the U.S. is dimming, as rates of expected business conditions 12 months from now have slumped to their lowest level since November 2016. In October, CEOs rated their optimism for the year at 6.85 out of 10, a sharp decline from the period of May to August, when confidence stayed steadily between 7.03 and 7.01. In October, factors such as uncertainty about tax reform, especially with respect to corporate rates and the foreign profit repatriation plan, as well as the Fed’s upcoming interest rate strategy and the wavering future of the health care bill are clouding earlier optimism, the magazine reports. Despite political uncertainty, however, three-quarters of CEOs surveyed said they are expecting a boost to their firm’s revenue
(78%) and profits (73%), and half plan to increase the number of employees and capital expenditures. Most CEOs surveyed said that, barring an international incident, they have the right personnel, capital and opportunities to stay on schedule for continuous growth in 2018. Manufacturers are largely positive about their current conditions. The latest Manufacturers’ Outlook Survey from the National Association of Manufacturers (NAM) shows that manufacturers continue to enjoy high levels of optimism expressed during the first two quarters of 2017. In the third quarter, 89.8% of respondents were positive about their own company’s outlook. Since the 2016 election, the NAM survey has shown positive indicators about the health of the manufacturing sector in the U.S. and globally. The Outlook Index also indicates strong levels of confidence in business conditions year-to-date, rising from 60.8 in the second quarter to 61.0 in the third, compared to 41.3 a year ago. Manufacturers are, however, also grappling with political uncertainty. Due to anxieties about federal and state policy actions and geopolitical concerns (such as a potential North Korean conflict), 32.2% of survey respondents said they were “unsure” whether the U.S. was headed in the right direction. Manufacturers are anticipating that sales and production increase 4.5%, on average, over the next 12 months; four-fifths felt sales will rise over the next 12 months, with more than half predicting jumps of at least 5%. Full-time employment in manufacturing is also predicted to grow by an average of 2.2% over the next 12 months, which is down from the June estimate of 2.7%. Rising health care and insurance costs remain the top business challenge for manufacturers, according to the survey, followed by attracting and retaining a quality workforce and an unfavorable business climate.
Behind the SIA Security Market IndexThe Security Market Index, a bi-monthly survey and report, measures overall industry confidence in addition to specifics by executives’ product and service focus. A select group of top leaders, representing the SIA membership, is surveyed throughout the month of publication via a series of emails with a link to an online and confidential questionnaire. Respondents can add comments to most recurring questions. When comments are referenced in this report, they are not attributed to any specific individuals or member firms.
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SECURITY MARKET INDEX
The Security Industry Association (SIA) The Security
Industry Association (SIA) is the leading trade association in the electronic physical security
industry, with about 700 corporate and organizational
members.
SIA protects and advances its members’ interests by:
• Advocating for pro-industry policies and legislation on Capitol Hill and throughout the 50 states
• Producing leading-edge global market research
• Creating open industry standards that enable integration
• Advancing industry professionalism through
education and training• Opening global market
opportunities
For more information about this publication or SIA’s other research
and technology programs, products and services, contact
Ron Hawkins, SIA’s director of industry relations, at (301) 804-4713 or
A Bimonthly Measure from the Security Industry Association
October 2017
www.securityindustry.org
Confidence in the security industry saw a strong upturn this month, as the SIA Security Market Index reached 74.3, up more than 10 points from its
October 2016 rating of 63.9. This also marks an upswing from the August 2017 Security Market Index of 65.3. Any Index rating higher than 50 indicates that security professionals are primarily confident in their business prospects, and the climb in confidence in October can be attributed to strong increases in a number of key factors, including the number of employees or hours worked, R&D spending and new orders. Ninety-two percent of security industry leaders surveyed consider current business conditions to be either “excellent” or “good,” compared to just over 82% in August 2017. One respondent commented that “There seems to be some growth, and it is a good climate for companies considering the government as a customer.” Another added that there is continued high growth in the access control as a service (ACaaS) segment as the market adopts this cloud-based business model. Business confidence seems to bring growing
pains for some organizations, however, as several industry professionals noted that it remains a challenge to find enough qualified people – from technicians to management – to support continued business expansion. The Security Market Index measures the current status and future expectations of security industry executives through a select survey of SIA members. The Index’s goal is to provide a macro-view of confidence levels in the security industry every two months while closely examining nine specific business measures:• Number of employees or hours worked• Marketing spending• Product production or service output• Capital equipment spending• Product inventories or service backlogs• R&D spending• New product or service introductions • Product or service sales • New orders or contracts The majority of security industry professionals surveyed are seeing increases in all of these areas. Over 80% of respondents said they are experiencing increases in the number of
Security Industry Sees Confidence Boost in October
SIA Security Market Index, October 2017
Overall, the Index survey measures general business conditions but also gauges nine elements to reach one Index number that signals security industry executives’ confidence. The elements are:• Number of Employees or Hours Worked• Marketing Spending• Product Production/Service Output• Capital Equipment Spending• Product Inventories/Service Backlogs• R&D Spending• New Product/New Service Introductions• Product/Service Sales• New Orders/New Contracts
Source: SIA Security Market Index, October 2017
OCTOBER 2017
AUGUST 2017
74.3 65.3
Manufacturers’ Primary Current Business Challenges, Q3 2017
72% Rising health care/insurance costs
71.6% Attracting and retaining a quality workforce
51.4% Unfavorable business climate (e.g., taxes, regulations)
39.2% Rising raw materials costs for our products
27.1% Weaker domestic economy and sales for our products
21.5% Strengthened U.S. dollar relative to other currencies
15.7% Weaker global growth and slower export sales
6% Challenges with access to capital
According to the National Association of Manufacturers’ Third Quarter Outlook Survey, most manufacturers are primarily concerned about rising health care and insurance costs, with costs expected to increase by 8.3% over the next year. Information courtesy of the NAM Manufacturers’ Outlook; respondents were able to select more than one response.
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SECURITY VIDEO
Surveillance Market Boosting Product Production
A ll of the video surveillance professionals surveyed for the October 2017 Security Market Index are seeing increases in their product production, and 89% are also seeing increases
in the number of new orders and the number of employees or hours worked. The majority of respondents currently consider business conditions to be either “excellent” (33%) or “good” (45%), and the majority are reporting increases in the nine key business indicators measured by the SMI survey. New product introductions are leveling off, however, with only 56% of surveillance segment respondents reporting increases in this area. The Security Market Index for the video surveillance segment alone in October 2017 is 78.8, compared to the overall SMI of 74.3. This marks vast improvement over August 2017, when the surveillance SMI was just 54, due to decreases in several factors, including marketing spend, capital equipment spending and inventory levels. Moving forward into the end of 2017, 44% of surveillance segment SMI respondents believe business conditions will be “much better,” and 33% think they will be “a little better.” Twenty-three percent expect similar conditions to October. Over the next 12 months, 78% of video surveillance professionals surveyed expect the aggregate levels of capital spending on equipment to increase.
INDEX COMPARISONSecurity Market Index, Video Surveillance Segment:
Security Market Index, Overall:
EXPECTED BUSINESS CONDITIONS OVER THE NEXT THREE MONTHS
OCTOBER 2017 - SMI Overall: Much Better:
A Little Better:
Video Surveillance Segment:Much Better:
A Little Better:
AUGUST 2017 - SMI Overall: Much Better:
A Little Better:
Video Surveillance Segment:Much Better:
A Little Better:
Confidence in the next quarter is still strong, as 44% of video surveillance professionals surveyed for the October Security Market Index believe business conditions will be “much better” in three months, compared with 36% for the SMI overall.
78.8
74.3
36%
44%
33%
56%
27%
31%
62%
52%
Source: SIA Security Market Index, October 2017
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ACCESS CONTROL
Future-Proofing Drives Mobile Access Adoption
The majority of access control professionals surveyed for the October 2017 Security Market Index
consider current business conditions to be “excellent,” with most reporting increases in the number of employees or hours worked and the number of product introductions. Moving forward to the end of 2017, the access control professionals surveyed believe business conditions will be either “much better” (33%) or “a little better” (67%) over the next three months, compared to 36% and 56% of the SMI survey participants overall. One area that SMI participants have been noting increased interest in recently is mobile credentials. According to IHS Markit research, fewer than 1 million mobile credentials were downloaded by end users in 2016, but this number is expected to reach 44 million downloads by 2021. While the rate of adoption seems slow, the rate of mobile-capable reader installation is high. Many end users are opting to install mobile-capable readers despite having no
firm intention of rolling out mobile access in the near future, but wanting to future-proof their systems. In 2016, 7% of non-residential access control readers shipped were mobile-capable, but global shipments are forecast to grow to around 20% by 2021, according to IHS Markit. The Americas market is the most mature in terms of mobile-capable reader adoption in 2016, and smart card readers are
by far the most common type, accounting for 98.5% of unit shipments in 2016. The technology could bounce back from Bluetooth to NFC as well, as Apple opened up access to the NFC chip in the iPhone 7 and 7 Plus in September, which could reinvigorate interest from mobile access providers in NFC-based smartphone communication. This could also be driven by consumer interest, as the use of mobile-based contactless payments is gaining market share rapidly following the launch of Apple Pay. There are still challenges to mobile access adoption, however. IHS Markit notes that business models in use are still varied. Some providers charge the end user directly for the credentials – like physical credentials – and others use subscription fee-based pricing models. Others give mobile credentials away for free, hoping to use this as a unique selling point to win key projects.
“44 million mobile credentials are expected to be downloaded by end users by 2021, according to IHS Markit research”
Business Conditions Expected in the Next Three MonthsMuch Better A Little Better
Access Control October 2017 33% 67%SMI Overall October 2017 36% 56%
Access Control August 2017 31% 62%SMI Overall August 2017 27% 56%
Source: SIA Security Market Index, October 2017
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RESIDENTIAL
Barriers to Entry Keep Dropping as DIY Options for Homeowners Grow
A short decade ago, homeowners had few DIY choices for home security, but now, due to improved
interoperability and online ordering, the options are nearly endless. Smaller, newer security companies are finding a quick niche in home security; in 2015, IHS Markit found that companies that were two years old or younger accounted for 6% of global consumer video camera market revenues. By 2016, this had grown to over 9%. Startups for security cameras and smart home devices are finding backing on Kickstarter or other crowdfunding services. The global DIY intrusion equipment market revenues are forecast to grow at an average of 20% per year between 2016 and 2021. Entrepreneurs are working with a variety of manufacturers in Asia with reasonable minimum-order requirements and good reviews, virtual factory tours and third-party
quality assurance services to produce goods on a more limited budget. In addition, smaller companies and startups bring the agility to produce unique software and services for their consumers. As consumers have interoperability with existing devices and technology in mind when shopping for new products, integration is key for
both large and small residential security providers. According to IHS Markit commentary, lower market entry costs mean that current market leaders should be wary of potential copycat solutions, and, as suppliers struggle to differentiate themselves from the crowd of competitors, this can devolve into aggressive price competition.
SECURITY SYSTEMS INTEGRATION
Integrators Boosting Marketing, Finding Influx of New Clients
O ver half of integrators surveyed for the October 2017 Security Market Index consider current business
conditions to be “excellent,” and 83% are increasing their marketing spending. One integrator noted that a two-year increase in business development spending has paid off well. Other integrators noted increases in the number of product lines they carry, and more than 80% saw increases in the number of new orders, “both from existing customers, and a significant number of new customers,” said one. Sixty percent of integrators surveyed are increasing their product production, compared to 80% in August. Rates of increase for R&D spending, product or service sales and the number of employees or hours worked remained consistent with August 2017 rates for this segment (all above 80%).
Looking to the future, 50% of integrators expect business conditions three months from now to be “much better,” and 67% expect an increase in the aggregate levels of capital spending on equipment or plant in the next 12 months, with several integrators investing in additional vehicles.
INDEX COMPARISON Security Systems
Integrators Segment: 77.4
SMI Overall: 74.3
Confidence in Current Business Conditions
SMI Overall: Excellent: 46%
Good: 46%Average: 8%
Security Systems Integrator Segment
Excellent: 52%Good: 48%
Business conditions are looking good for security systems integrators right now, according to Security Market Index survey respondents. The majority of integrators surveyed consider current business conditions to be excellent, and most integrators believe business conditions will continue to improve over the next three months. Source: SIA Security Market Index, October 2017
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Public-private partnerships can cross many sectors, have widely varying budgets and unique goals. They can range from information-sharing services like the Overseas Security
Advisory Council (OSAC) through the U.S. State Department to smart cities to cybersecurity education and more. In the October Security Market Index survey, we asked security industry professionals what they thought of public-private partnerships, and what those partnerships could be doing better to provide more value to the participants, the community and the security industry. The vast majority of SMI respondents believe that public-private partnerships do have some virtue, at least in certain circumstances. One consultant noted that partnerships are great when it comes to developing new products for the industry. One manufacturer said that Infragard, a public-private partnership between the FBI and private-sector leaders from critical infrastructure and national key asset sectors, is a good champion for security partnerships, adding
that “they actively engage, hold meetings and request information from members. There are many ways to get involved.” However, partnerships are not without their pitfalls. One respondent noted that “months-old FBI cyber warnings don’t count as ‘public-private partnerships,’” and another said that partnerships could improve by focusing on timely alerts and active dialog with the private sector about issues such as cybersecurity. One integrator noted that public-private partnerships are often reserved for very large projects like smart cities, and “it has been our experience that security is buried down in the bowels of the deal, and it is typically a relatively small part of the overall deal.” To get more value for both sides of partnerships, one consultant recommends better promotion about the benefits of public-private partnership involvement, and one manufacturer suggests making it easier for smaller companies – which might not have the resources to dedicate a full-time employee to the partnership – to get involved.
