The Pelco Progression

Pelco is in the midst of a heady transition, in a down economy no less. Long among the industry’s most respected traditional manufacturers, the company has undertaken a momentous effort to reshape its business — and, importantly, its image — into a premiere provider of IP video surveillance solutions. So how goes the battle to this challenge? SSI spoke with Dean Meyer, Pelco president and CEO, to find out the answer to this and other topics.

How would you describe Pelco’s 2009 performance relative to what you had forecasted?

In terms of I would never want to repeat 2009 again? You don’t know how glad I was to flip that calendar page. [chuckles]

In terms of topline expectations, we put a plan together well before the end of 2008 for 2009 and of course we fell short of that given what transpired [with the economy]. Obviously our sales decreased. But they were very consistent with a lot of other public companies within our industry in terms of decline. That is not a big shock to anyone.

As being part of a larger company like Schneider, our performance was very consistent with the topline performance of our parent company as well. It’s not like we were out of line in any direction specifically, either with the industry or with our parent company, not that that matters too much.

Obviously we fell short in topline. More significantly, in what I would refer to as mature economies versus emerging economies, we were hit harder in the mature economies. We took actions throughout the year to deal with that to manage our sales expenses, accordingly, to try to keep our bottom line intact. We were very successful in doing that, but not at the expense of what is going to take us forward.

Things that we focused on aside from the day-to-day financials in terms of goals and objectives for 2009, a major thing for us — because everybody considers us the legacy elephant who can’t move to get to IP — was broadening our IP offering really working on the perception. I would still call it perception because we are well passed the perception in reality, but I think there is still perception about our openness, whether we are this closed system, the proprietary thing.

In terms of what we set out in ‘09, a big one was to get a competitive, broad IP offering out there as well as take a position relative to the industry that Pelco is changed relative to closed versus to open. We made big strides in all of that. We have a broad offering out there, both from a systems standpoint, a viewing solution, and from an imaging standpoint in terms of cameras. We’ve got that out now and it is very competitive. Obviously it was competitive enough to be recognized by Cisco which gave us some recognition as well.

On the openness side, everything we did during the year was publishing all of our APIs, getting them out there, making them available, creating toolsets so that third parties can write interfaces to our equipment and other people’s equipment. I think we have signed up and have implemented interfaces now with 85 companies in 2009. We call that our Partner First program. On that I give us some pretty good checkmarks in terms of IP and IP solution, the high definition, our relationship with Cisco. I’m very pleased with the progress we have made on that front.

The other two goals that jump out at me in terms of progress that we teed ourselves up for in ‘09 was really trying begin to rebalance ourselves better globally. When we look at the Americas we have very good market share, but not so much in EMEA [Europe, the Middle East and Africa] or Asia-Pacific. We have a lot of ground to make up — or a lot of opportunity, whichever way you look at it, in those markets.

There were opportunities that allowed us to reposition resources to take advantage of more of those types of markets. One of those things was the whole transferring some manufacturing capability, specifically to China, to leverage a facility of our parent company [Schneider Electric]. We kicked that off in the fourth quarter. We have started doing some initial manufacturing there with hopes that by the end of Q1 we will be in pretty good shape, at least to manufacture in China what we sell to China. We are trying to avoid the whole freight and duty thing, which just blows us out of the water from a competitive standpoint.

Last, but not least, is continuing to keep the dial flat-lined a bit in terms of our reputation for customer satisfaction; in terms of availability and service; and repair and tech support It’s always a challenge, especially in a tough economy, managing working capital and inventory and the tradeoffs with availability, all those sorts of things. We had to walk a very fine line in terms of managing our way through a recession while trying to continue to maximize the experience of our customers.

What are you forecasting for 2010?

We are trying to be very pragmatic. We are not expecting that it is going to be a banner year. I think it is going to be pretty flat. That is a generalization. More specifically, we have very high expectations in IP sales, year-to-year growth in 2010. We had very good IP sales growth in 2009. That was offset by declining analog sales.

When you look at Pelco these days — we can generalize and say it’s going to be a flat year — but once you look under the hood there are a lot of things changing quickly. We have high expectations that we will continue to outperform the market in IP. We have high expectations that we will get pretty significant growth in emerging markets, given our current position versus the resources we are putting into play. We are working hard to stabilize analog sales in mature countries; on a global basis it is forecast to be flat, but in more mature markets it might even be more difficult than that. That is the balance we try play with everyday, but when you sum all that up for us, we expect it to be a flat year.

What is Pelco doing to maintain its reputation for unrivaled dealer support and service?

We are continuing to do the same things we’ve always done. If you had to boil it down it has always been about availability of product, lead time availability of product. Another is unparalleled product support. When you are up there on a pole and you need an answer now you can get us. Also, our quick turnaround for warranty and repair. If we have to we’ll send you an advance replacement if we can’t repair it in time. Last, but not least — I can’t even quantify it but people tell me this all the time — it’s the attitude of our people who touch customers every day. Their attitude is, ‘What can I do to help you?’ They feel empowered to do what we call the right thing.

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