US SECURITY EQUIPEMENT SALES TO POST HEALTHY GAINS
May 1, 2005

BUSINESS TRENDS; Security; Pg. 30

897 words
Electronics finds a safe haven;
Security equipment sales post healthy growth

By Barbara Jorgensen

The good news? Demand for high-end electronic security equipment will increase steadily at least through 2008. The bad news? Rising crime rates in many countries will be the primary demand driver.

A weak global economy in the years following the September 2001 attacks has limited some of the anticipated spending on homeland security, according to Paul Bailin, senior industry analyst at The Freedonia Group, a research firm that focuses on the security, electronics and communications markets. Now, however, as tourism and air travel rebound and consumer confidence recovers, corporations and governments are budgeting more for security. The global market for security products and systems is projected to grow 8.4 percent a year through 2008, approaching $74 billion, Bailin predicts.

The boost in the global economy is also benefiting developing regions such as Asia, Latin America, Eastern Europe, Africa and the Middle East. These areas are seeing new business activity, heightened foreign investment and the privatization of previously state-owned industries. But, says Bailin, these regions are also seeing rising crime rates. "As such," he says, "they will increasingly possess both the need and the means to invest in supplemental security measures." China, in particular, offers tremendous potential: Although it currently accounts for less than 4 percent of global security-system demand, its market will more than double by 2008.

Demand for basic security products—such as locks, alarms and fire extinguishers—will increase incrementally as improving economic conditions boost new construction. At the same time, advanced technologies and moderating prices will enhance the appeal of systems such as closed-circuit TVs, smart cards and biometric access controls.

Axalto , a manufacturer of smart cards for both physical and data security, has expanded its plant capacity in Owings Mills, Md., to meet increased demand. The company supplies microprocessor cards to the mobile communications industry and the U.S. government. Although 9/11 was the key driver behind a government mandate that federal employees and their subcontractors use smart cards for building and network access, regulations such as Sarbanes-Oxley have spurred demand in private enterprises, according to François Lasnier, vice president for access and public sector at Axalto.

"Sarbanes-Oxley regulations require something called a 'segregation of duties,' which asks companies to provide firewalls between departments and functions in which there can be conflicts of interest," he explains. Smart cards can limit an individual's activities on a corporate network. "If you are in the purchasing department, for example, smart cards can allow you to purchase certain things but keep you from choosing vendors," Lasnier says.

Although radio-frequency identification technology is being used in some supply chain applications (see "Tuning Out RFID," April 2005, page 47), the highest demand for RFID and electronic article surveillance (EAS) tags is in the retail market, where the tags discourage theft and shoplifting. More than four billion products were tagged with ADT Security Services antitheft tags last year.

The security industry's shift to digital technology is creating opportunities for vendors, distributors and integrators of security systems. The security systems division of distributor Richardson Electronics serves customers that are either buying systems for the first time or replacing old ones. In CCTV and surveillance systems, "we are selling as many network appliances [devices that send signals to a central security center] today as analog recorders," says Dan Baker, business unit manager for the division. Video images are being directly downloaded onto hard drives, as opposed to first being taped.

Richardson is also seeing more "convergence" in security systems—the same network appliance that controls the video also controls the fire-alarm and burglar systems. "Everything is converging onto one source on the network," Baker says. "We are spending as much time with companies' IT departments as we are with their security departments." That's good news for companies such as Richardson, which helps design and install security systems. "The magic is that we have to figure out in a large system which products will be compatible," says Baker.

Also, at the systems level, Bailin believes, there's an untapped opportunity for more-sophisticated alarm systems that take the place of human security guards. Bailin says electronics offer numerous benefits over human security, including objectivity, consistency and the ability to conduct noninvasive searches. "As system prices fall and technological advances heighten performance," he adds, "electronic devices will become even more attractive alternatives to security services."FEELING SECURE Worldwide security market by region, in billions of $
1998 2003 2008
Total 34.2 49.2 73.8
North America 10.3 14.4 20.9
Western Europe 12.4 16.7 23.2
Asia/Pacific 7.1 10.8 17.0
Other 4.4 7.4 12.7

SAFETY IN NUMBERS Worldwide sales of electronics security products, in millions of $
1993 1998 2003 2008 2013
Alarms 7,127 10,527 15,150 22,290 32,360
Access controls 3,913 6,621 11,300 19,400 32,415
Other 1,005 1,667 3,150 5,430 8,750
Total 12,045 18,815 29,600 47,120 73,525


May 5, 2005