Tech cold war/Hikvision: eye spy
No Chinese surveillance cameras in the Pentagon. That sounds a sensible rule. A federal ban addressing US fears of cyber espionage will end use of Chinese brands at US government agencies. Telecoms groups Huawei and ZTE, and surveillance camera makers Hikvision and Dahua will suffer. An interim ban comes into effect next week.
Donald Trump’s hostility has made Huawei a household name. Hikvision is less familiar. Yet, as the world’s biggest supplier of surveillance cameras, it has the second-largest US share. Its aggressive expansion got its cameras into US military bases, including the Air Force Space Command.
US bans should not worry Shenzhen-listed Hikvision. It is 42 per cent owned by the Chinese government and gets more than 70 per cent of sales at home. A prohibition on US parts imports would be more damaging. Components for surveillance cameras, 61 per cent of revenues, are sourced globally. While key parts such as lenses and sensors are sourced locally, most chips and hard disks come from US-based Intel, Nvidia, Seagate and Western Digital.
Replacing cameras already in the US with US brands is not that simple. Hikvision is the original equipment manufacturer for more than 100 companies. They include United Technologies, Panasonic affiliates and Honeywell. These sell cameras under their own brands. Identifying a Hikvision camera means taking apart every OEM camera to identify the components.
The tech cold war led to a fall in Hikvision’s US sales for the first time last year. But it has financial strength. Overseas sales are less than a third of its total. A 16 per cent growth in China sales in the second quarter outpaced those from overseas. Gross profit margins rose to 46 per cent, the best in that period for years. It has net cash.
US government agencies will have to shell out on replacement cameras. Hikvision’s sales will fall modestly. Higher costs for everyone are when trade is curbed. But the blunt logic of the ban is hard to argue with.