Happy New Year?

Tight budgets, long sales cycles and a credit crunch made 2009 a bleak year for pro AV. Tim Kridel looks at the impact and why some integrators are optimistic about 2010.

How bad was 2009, and what’s in store for 2010? Not surprisingly, the answers depend on the region where you’re doing business and your specialities.

Take Qatar, where integrator Techno Q focuses on markets such as higher education, health care and large enterprises.

“During 2009, the market stood still,” says Abdulla Alansari, executive director. “Considering the overall economic downturn, we consider ourselves particularly lucky. But on the other hand, if we compare 2009 to the previous years, surely the market suffered. The private developers put some projects on hold; government bodies cut their IT budgets.”

Besides their own, direct spending on pro AV gear and services, governments also indirectly affect private-sector spending, such as with stimulus programs.

“Economies that were investing heavily in public works in order to get their country moving again, such as Spain, saw a quarterly increase of 8.6 percent [in public display volumes],” says Andy Barker, analyst director at Meko, which tracks the European display market.

At the other extreme is the UK, where Barker says public display volumes were down 22.7 in third quarter compared to Q3 2008.

“Where construction virtually stopped and public works was not used as a means to kick start their economies, [those] are still in decline, such as Finland, who declined by 25.3 percent in Q3 year over year,” Barker says.

Where’s the money?

Although the Dubai debt crisis in late November was the latest shock to the global economy, some vendors and integrators there say they’ve been feeling the money crunch for several months.

“I am hearing stories every day about the big installers here,” says one manager at a major AV vendor who’s based in the region, speaking on background. “A good friend was recently made redundant from one of the largest installers in town, and another has not been paid for four months.”

Dubai is among several Middle Eastern countries that have spent the past decade in a building boom, which had benefited pro AV by fuelling demand for systems such as digital signage in hotels. Many of the more recent hotel, office building and public infrastructure projects have been put on hold, sharply reducing the market for the pro AV systems that would have gone into them. Some analysts don’t foresee a resumption any time soon.

“We expect this to continue to decline as the construction projects are not being finished,” says Meko’s Barker.

Many countries have sought to avoid that situation through government stimulus packages, which have had a beneficial effect in both the public and private sectors, depending on how the money is earmarked. But eventually the stimulus spigot will be shut off.

“Most governments have invested so much to shore up their banks this has to be adjusted at some point,” Barker says. “Many governments are reaching that point and turning off the taps.”

At that point, will the economy have rebounded enough that the private sector can take over? The answer depends partly on the country and partly on the type of pro AV application.

For example, in early December, media investment firm GroupM said that UK advertising spending will increase 0.1 percent in 2010, instead of its previous forecast of a 3 percent decline. That outlook is noteworthy for pro AV because over the past few years, advertisers increasingly have been putting more of their budgets toward out-of-home, including digital signage, at the expense of print. The global recession won’t reverse that trend, so when the ad market starts to rebound, digital signage should be one of the first sectors to benefit.

“We see a continued interest in digital signage as an advertising medium,” Barker says. “There appear to be some good projects on the French transport system and in the malls of Germany.”

Make Money by Saving Money

Even before the global recession, many enterprises were spending aggressively on videoconferencing and telepresence because it was less expensive than flights and hotels. If anything, that desire has increased, as enterprises scramble to slash overhead costs.

“Videoconferencing is going to gain interest as many international companies will want to cut travel expenses,” says Petra van Meeuwen, marketing manager at Crestron UK.

Some integrators and vendors say that “green” products have held up relatively well, as many enterprises and government agencies focus even more on reducing costs, including energy.

“State-of-the-art technologies like high-efficiency lamp systems, liquid cooling systems, NeoPDP and low-energy power supplies have set new milestones not only in the ecological design, but also in terms of durability, which is reflected by a significant reduction of the maintenance cost,” says Christian Sokcevic, general manager for marketing in Panasonic’s professional projector and displays Europe business unit.

In some cases, a particular product can get the sale if it integrates easily with the customer’s existing AV and IT systems, instead of forcing them to go through the expense of ripping and replacing gear.

“Projectors are providing a so-called emulation function, which adopts the RS232 protocol of previously installed units, covering the protocols of major competitors and discontinued Panasonic models, minimising adaptation cost for replacement installations,” Sokcevic says.

Tight budgets should have more enterprises than ever considering consumer gear as a way to cut costs. But some vendors and integrators see just the opposite, as clients focus on long-term rather than up front costs.

“We see that integrators and users are selecting products that have long life, low cost of ownership and that use open standards, which are made for future use,” says Serge Konter, marketing manager at SpinetiX.

Survival strategies

Some integrators in hard-hit markets have tried to weather the downturn by expanding into territories that have held up relatively well. (For some, those expansions included acquiring a struggling local integrator rather than starting from scratch.)

“The international crisis has increased the number of competitors from Europe and the United States approaching Qatar,” says Techno Q’s Alansari. “We actually welcome such competition. It challenges us and triggers our continuous improvement.”

Besides geographic diversification, another option is to branch into new specialities, new verticals or both.

“Diversification into different vertical markets is key: defence, hospitality, health, education, etc.,” says Crestron’s van Meeuwen.

One example is AV MEDIA, an integrator in the Czech Republic, which sought opportunities in the government market.

“Our main challenge for 2009 was massive reduction on investment coming from corporate market,” says David Lesch, sales and marketing manager. “We expected some reduction, but we faced cancellation or delay of many projects. We do not see that corporate market is changing so far and is ready to spend again. That is why we focused on governmental spending in several segments.

“We see main potential from education [and a] nice opportunity in governmental administration from town halls to control rooms of emergency and fire brigades. We also started to develop Entertainment market like museum, theatres and cinemas. Due to the uncertain economy, we must work on more projects from more market segments.”

Before the downturn, many AV integrators were acquiring IT skills because AV devices increasingly were being attached to client networks and to protect their markets against IT integrators expanding into the pro AV space. That’s another form of diversification that some AV integrators have found helpful for weathering the recession.

“We positioned ourselves as a system integrator, providing not only AV solutions, but also lighting, IT, broadcast, control and security solutions,” says Techno Q’s Alansari. “The entire environment of an auditorium, meeting room or classroom must guarantee the comfort and maximize productivity of the users. This means that AV must be integrated with lighting, cooling and ultimately space design.

The tight credit markets are an additional challenge for integrators that operate in countries where it’s not standard practice to ask clients for a deposit. If the integrator is fortunate enough to have dozens of projects going at once despite the downturn, that’s a lot of its own money tied up for months at a time.

“We would like to ask for deposits, but it is not accepted by our clients,” says AV MEDIA’s Lesch. “That is why we need to cover everything by our financing. What we try to do in a maximum expend [is] charge for design. In the past we made quite a lot of design works for free just to get a deal. Currently when the lead time for projects extend, we need to charge for design.”

But charging is one thing. Getting paid is another, as many Dubai integrators are finding.

“The vast majority of this work was government-related, and the government no longer has the funds to pay outstanding bills [to] the world’s major banks, never mind the local AV installation company,” says one vendor there. “For the last couple of years, a small group of companies engage[d] clients on a full credit basis, and these are the companies that have managed to retain the higher percentage of big projects.

“But this is now turning round to bite them on the backside. Projects like Burj Dubai and Dubai Mall still haven't paid anything to the integrators involved, with figures in excess of $25 million being quoted as owed to one.”

A Turnaround in 2010?

Clients’ increased focus on budgets has two effects: In some cases, it means less money for AV, and in others, it means approval now takes months instead of weeks.

Yet some integrators are cautiously optimistic about 2010. In some cases, that outlook is based on reduced competition, as weaker integrators go out of business. In others, it’s because sales cycles that began quarters ago are finally paying off.

“This last quarter [Q3] already gives signs of a positive turnaround,” Alansari says. “This gives us good hope for the next year.”

Adds Tim Brooksbank, CEO of Calibre: “We're seeing an upturn already in some sectors, particularly specialist areas such as medical. Most of our current business is into the USA, and most of the upturn we're forecasting for the first half of next year is for Europe, particularly Germany and Scandinavia. We expect our Far Eastern customers to see an upturn by Q2/Q3 2010. We don't expect to see an upturn in the UK for another year though, if not longer.”

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