Economy to Put a Crimp in Convergence?

The financial panic has permeated the international economy, and businesses everywhere are finding little escape from the epidemic. How would you like to be the Icelandic or Swiss banks whose secret depositors are withdrawing their money?

Or an American bank that has been planning a security IP upgrade and now discovers the U.S. Treasury and federal government has put them on the “likely to fail” list?

While forecasting security trends has not been too contentious in the past, it is now. The assumptions any company makes about its 2009 product sales is likely to be loaded with questions. How much will the economic downdraft put a crimp in total security spending? Will it affect every product category and service area equally? Should we reduce pricing and margins to maintain volume? Will IP equipment sales be seriously affected in favor of less expensive analog or hybrid systems?

The last question is particularly important since it’s the basis for the whole convergence trend, which is modernizing and expanding the security industry into widening the range of information-collecting functionality.

In J.P. Freeman’s 2008 report on security convergence, manufacturers predicted by 2012, 55 percent of system sales would be converged sales. Integrators predicted that 58 percent of their sales would be the same. Those predictions were so close that we weighted the results, which came out with an average of 57 percent market penetration for converged systems by 2012. However, that was before the global financial meltdown.

Predictions in a Rough Economy

For IP equipment manufacturers, the question is whether the trend to 57 percent is still intact, or whether the weak global economy is going to dampen it. One important detail is total industry sales. After all, 57 percent is a percentage, not a sales figure.

If total industry sales fall under all previous forecasts, the 57 percent could remain unchanged, but at a significantly lower actual sales level. However, if industry sales manage to achieve close to their original levels, the 57-percent convergence level stands a very good chance of falling.

The reason? Organizations will be looking for cost reductions next year, and converged systems are not cost reducers, with the exception for very large organizations. Even when the cost reduction presentation is on the table for consideration by large users, the reductions usually require forecasting to determine the actual level of reduced costs.

Cost reductions are almost never immediate. They require capital to produce and the availability of capital is one of 2009’s key questions for security users.

Compared to 2008, how much will 2009 industry sales change from 2008? And how much will the convergence prediction change from the original forecast (see chart)? E-mail me your estimates and forecasts, and I’ll be happy to reply!

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