FLIR Systems Continues Efforts to Tap Consumer Market
The thermal-imaging specialist is diversifying into consumer electronics with a growing range of products.
WILSONVILLE, Ore. – FLIR Systems, best known as a defense contractor producing top-end night-vision gear for militaries around the globe, has been focusing heavily on consumer electronics as of late, too.
Marketed as the FLIR One, the company makes a thermal imaging camera that attaches to an iPhone. It’s many applications range from finding your pals when you’re playing hide-and-seek to locating trouble spots in your car engine or the spots where heat leaks from your house, reports the Oregonian.
FLIR also has a more robust scope for hunters seeking quarry in low light and a new, motion-activated, palm-sized camera to provide low-cost home or office security. It continues to produce top-end, high-resolution cameras for its defense clients but hopes the new products will help it overcome a slowdown in military sales that is stunting FLIR’s growth, the Oregonian reports.
The company made a multimillion-dollar bet on new cameras to diversify the business. Now that the bet paid has paid off technologically FLIR needs ways to make it pay commercially, too.
“There’s definitely a significant opportunity for the company,” Jonathan Ho, an equity research analyst who follows FLIR for William Blair and Company, told the Oregonian. Consumer or commercial products could open up new markets for FLIR, Ho said, but the company has work to do to give the technology popular appeal.
“Today it’s a little bit of a cool gimmick,” he said, “but there hasn’t been a true use case.”
Based here, FLIR blossomed into one of Oregon’s largest corporations as defense spending ramped up in the years following the September 11, 2001, terrorist attacks. The company’s night-vision equipment became a standard component in American warfare.
FLIR’s revenue grew at an annual rate of 25% between 2000 and 2008, ballooning from under $200 million at the start of the period to more than $1 billion by the end, the newspaper reports. Sales have grown slowly since then, however, as the U.S. wound down its wars in Iraq and Afghanistan and trimmed defense spending, which is the biggest piece of FLIR’s business.
Since 2010, FLIR’s sales to the U.S. government have fallen by an average of 10% annually, from nearly $500 million in 2010 to around $300 million last year. FLIR’s overall revenue is still growing, but modestly – up just 2%, the newspaper report.
With its defense business in decline, FLIR began thinking about alternatives.
“The key thing that changed it was the recognition there was use for sensors at lower resolutions,” Jeff Frank, a FLIR vice president for global strategy, told the newspaper.
The company’s military-grade equipment cost millions of dollars apiece and meets exacting standards for dependable battlefield tools. But FLIR realized that consumer cameras don’t need to see for miles and miles.
So in 2011 the company launched an 18-month technical effort to design a new camera core that was much cheaper, and much smaller. It was a major rethinking of the basic elements of FLIR’s technology.
“These things cost millions of dollars to develop and if it fails at the end of that you’ve got a dead piece of silicon,” Frank said.
The company used to think in terms of adding capabilities that it could charge a premium for. As FLIR began thinking about consumer technology it began to focus on bringing prices down, wringing every penny out of the production cost, the newspaper reports.
The result was Lepton, the tiny camera core at the heart of the FLIR One smartphone attachment and other new consumer products – some still on FLIR’s drawing board.
Smaller than a dime, Lepton compares favorably to the bulky cameras it replaces – especially in price. It costs around $100, compared to thousands of dollars for older models. At those prices and sizes, Lepton enables FLIR to play in the same miniaturization game that’s produced smartphones, tablets and wearable technology.
Three acquisitions since – one for marine instruments, one for security and one for cameras that detect vehicles at stoplights for traffic – have bolstered FLIR’s portfolio and potential applications for Lepton. The company has a growing business in selling to other manufacturers who want to use its technology in their own gadgets, but FLIR wants to build a product line under its own brand, too.
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FLIR has a lot of work to do to compete in consumer tech. Its name is barely known outside the defense industry – Merrill said he had never heard of FLIR when he was working for Samsung in New York.
And while thermal-imaging cameras are eye-catching, it’s not obvious to everyday consumers why they might want to pay $200 to add a night vision or heat sensors to their smartphones, according to the Oregonian.
“We’ve got to educate on thermal technology,” Merrill told the newspaper. “Generally speaking, the mass market doesn’t understand what it is, what it is for.”
FLIR has had booths at the annual Consumer Electronics Show the past two years, showing off FLIR One and its capabilities. It hopes for big business with hunters, do-it-yourself home repair work and individual home security systems.
FLIR imagines thermal imaging baby monitors, home security systems and perhaps as a tool for elder care. Home automation and the Internet of Things – connected appliances, or wearable technology – could benefit from FLIR’s technology.
Such potential is intriguing, said Ho, the William Blair analyst, but hasn’t yet translated into meaningful sales.
“We really haven’t seen the uptick in growth in terms of their commercial business to get excited about the stock,” Ho said. He has a “neutral” rating on FLIR’s stock.
Still, he said, FLIR’s technology has great potential in “machine vision” – enabling robots to improve manufacturing and product inspections by enabling them to see what they’re working on. And he said FLIR’s new, wireless cameras – some without infrared capabilities – could help popularize cameras in home security systems.
“That could start to accelerate the growth and make the stock more interesting,” Ho said.
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