Since the Sept. 11, 2001, attacks, corporations and government entities have been on the alert for possible security threats, including among previously ignored civilians. And makers of surveillance equipment are cashing in on the growing budgets of the U.S. Department of Homeland Security and its local counterparts.
«Once (companies) become trusted providers with Homeland Security, this becomes a growing franchise that lasts for a long time.»
–Loren Thompson
Director, Lexington Institute»We’ve become a video camera society, and the market has absolutely been turned upside down,» said global security analyst Scott Greiper of C.E. Unterberg Towbin. «You don’t notice them right away, but you look up and they’re there.»
The surveillance camera market has swelled to between $5 billion and $6 billion, up from about $2 billion before Sept. 11, 2001. And the market will grow at 25 percent a year, Greiper said.
While privacy advocates have expressed concern and question the cameras’ effectiveness in deterring crime and terrorism, they also acknowledge that, since the Sept. 11 attacks, Americans have become increasingly tolerant of having their movements recorded.
New technology allows cameras at sensitive federal buildings, major ports and transit hubs to differentiate between people and the objects they carry. If someone leaves a briefcase in an elevator at the Pentagon, for example, the camera will look back to find who left it and send the person’s picture to a guard’s handheld security device.
Nice Systems, which makes this kind of technology, has seen its share price jump nearly 50 percent to about $32 in the past five months. In February, the Israeli company reported earnings of 47 cents a share, up from 9 cents a share a year earlier.
«If there were another attack in the U.S., you’d see a huge surge in demand for this kind of service,» said Loren Thompson, director of the Lexington Institute, a Washington-area think tank. «Once (companies) become trusted providers with Homeland Security, this becomes a growing franchise that lasts for a long time.»
Meanwhile, net earnings for thermal night-vision camera maker Flir Systems increased more than 60 percent in 2004. The company also announced a 2-for-1 stock split in February.
Verint Systems, which makes wiretap software, has seen 13 quarters of sequential revenue and earnings growth. But its stock performance has been erratic as investors have predicted an end to its robust growth, Greiper said.
Bigger budget
The Homeland Security budget is growing. President Bush is requesting $34.2 billion for fiscal 2006, up from $31.9 billion this year and $29.9 billion in 2004.
Included in Bush’s 2006 request is $600 million for a Targeted Infrastructure Protection program to help local governments reduce the vulnerability of chemical facilities, ports and transit centers.
«Current antiterrorist fears, combined with the surge in road rage, the perception of an increase in crime, and several high-profile school shootings, are causing many to call for increased video surveillance…in all public spaces,» the Electronic Privacy Information Center, a Washington-based public interest research group, said on its Web site.
In fact, in an October survey of 1,030 Americans conducted for Tyco International’s ADT Security Services unit, about 90 percent of respondents approved of the use of security cameras in airports, retail establishments and government buildings.
The hot market and swelling budgets have made small-cap Nice, Verint and Flir obvious targets for acquisition, analysts say.
Among possible suitors are Honeywell International, Lockheed Martin and General Electric, Greiper said.
«The big guys want to chase the money,» he said. «They also want to increase their valuation in the public market.» He added that Verint and Flir are trading at four times their current revenue.
The companies would not comment on any potential merger activity.
Verint stands to make out from increased offshore federal wiretapping, as the Melville, N.Y.-based company makes software that supports the surveillance, analysts said.
The number of Foreign Intelligence Surveillance Act electronic surveillance warrants requested for suspects off U.S. shores rose to 1,727 in 2003 from 1,228 in 2002 and 932 in 2001, according to the latest data from the Administrative Office of U.S. Courts.
«It’s all driven by the Bush administration, the war on terror and their need for surveillance,» Greiper said. «Verint is a prime public way to play the wiretapping game.»
Other analysts said Verint is poised to take advantage of the post-9/11 security market–where U.S. federal agencies are seeking stealthier ways to combat terrorists.
«Ten years ago, we never thought we’d have to tap into a picture e-mail on a cell phone,» said Timothy Quillin, senior vice president of investment banker Stephens, «and it’s becoming increasingly harder to catch the bad guys.»
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