Vicon Industries, Inc.

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Vicon Industries, Inc.

89 Arkay Drive
Hauppauge, New York 11788
U.S.A.
Telephone: (631) 952-2288
Toll Free: (800) 645-9116
Fax: (631) 951-2288
Web site: http://www.vicon-cctv.com

Public Company
Incorporated: 1967
Employees: 261
Sales: $74.62 million (2000)
Stock Exchanges: American
Ticker Symbol: VII
NAIC: 33429 Other Communications Equipment Manufacturing

Vicon Industries, Inc. designs, manufactures, assembles and markets a wide range of video systems and system components used for security, surveillance, safety, and control purposes. Its 700 or so products consist of various elements of a video system, including remote robotic cameras, monitors, recorders, digital video and signal processing units, and motorized zoom lenses. These software-based video systems are typically used for crime deterrence, visual documentation, observation of inaccessible or hazardous areas, enhancing safety, managing personal liability, obtaining cost savings such as lower insurance premiums, managing control systems, and improving the efficiency and effectiveness of personnel. Prices range up to about $100,000 for a large digital control and video matrix switching system. Among the users of Vicon’s products are office buildings, manufacturing plants, apartment complexes, retail stores, government facilities, transportation operations, prisons, casinos, sports arenas, healthcare facilities, and financial institutions.

Becoming the Leader in CCTV Accessories: 1967-80

Vicon Industries was started in 1967 by Donald M. Horn, an engineer, in a Long Island garage. It went public two years later and in fiscal 1971 (the year ended September 30, 1971) was assembling and marketing a group of products related to the surveillance and security industry in connection with the use of closed-circuit television apparatus. These products, manufactured in Farmingdale, Long Island, consisted of securing cameras, silent-panning and remote-control devices, modular video switching units, and the housing and coupling components for same. About 40 percent of sales and profits were under the Vicon name and the remainder under the private labels of other companies. Sales rose from $209,553 in fiscal 1969 to $894,436 in fiscal 1971, when the company turned a profit of $6,523. Sales rose to $1.2 million in fiscal 1972 and $2.15 million in fiscal 1973, when net earnings reached $224,554.

One of Vicon Industries’ customers at this time was the city of Philadelphia, which had purchased a system permitting two-way voice and video communication between widely separated offices throughout the city. Vicon’s toll-collection surveillance system was in use on two New York City bridges. A street surveillance system in the city’s Times Square received nationwide publicity and led to the installation of such a system on the boardwalk in Atlantic City, New Jersey.

Vicon Industries was the largest company in the closed-circuit television (CCTV) accessories market by 1980, when it held about 30 percent of this market, whose value was estimated at $50 million to $60 million (wholesale) per year. The company at this time was making and selling all the items needed to assemble a complete system except for the cameras, monitors, and videotape equipment. Its customers were the manufacturers and/or dealers and distributors of complete systems, who in turn sold to the end user. Sales to dealers and distributors were made under the Vicon name and to more than 40 original-equipment manufacturers on a private-label basis. Its most important private-label customer was RCA Corp.—the largest producer of complete closed-circuit television systems—which accounted for an estimated 24 percent of Vicon’s sales in fiscal 1980. The company’s net sales had increased each year since fiscal 1971, reaching $13.78 million in 1979. Net income also grew each year in this period, increasing reaching $736,000 in 1979. Vicon raised about $4 million by selling 400,000 shares of common stock at $13 a share in early 1980. Funds from this offering helped finance a 30,000-squarefoot addition to its existing 40,000-square-foot manufacturing plant in Melville, Long Island. This factory eventually grew to 110,000 square feet.

Downturn in the 1980s

By mid-1983, Vicon Industries had raised its share of the CCTV accessories market to 35 percent. With the U.S. economy in recession, net income declined for the first time in 11 years during fiscal 1982. There was a rebound the following year, however, and in fiscal 1984 Vicon enjoyed record net income of $1.91 million on record net sales of $29.33 million. Exports were an increasing source of revenue, with the company’s British subsidiary accounting for 14 percent of sales in fiscal 1984. In order to be able to offer its clients a complete line of CCTV systems, Vicon added video cameras, monitors, and cassette recorders to its product line in fiscal 1986.

The expansion of Vicon Industries’ product line, at a cost of $2 million, eroded earnings, and in 1987 the company lost Burle Industries, Inc. (formerly RCA Corp.) as its principal customer. Although sales continued to climb each year, Vicon lost money in fiscal 1985 and again in fiscal 1987. Vicon’s troubles attracted a hostile takeover attempt in 1986 by Sensormatic Electronics Corp., which offered $17.6 million for its common stock. Rebuffing this company’s bid for control entailed half a year of distraction and costs of more than $1.2 million in legal and other fees, Kenneth Darby—who later became Vicon’s chief executive officer—recalled to Paul Schreiber of Newsday in 1998. “That hurt us badly,” he told Schreiber. “We got off track. After that, the company struggled. There was a point where I felt as though the company might have to seek [chapter 11 bankruptcy] protection, but fortunately we were able to work through that, primarily with a Japanese trading company, who was our major shareholder at the time, stepping in to provide financing when the banks got nervous.”

The Japanese company was Chugai Boyeki Co. Ltd. of Tokyo, which purchased 10.8 percent of Vicon Industries’ common stock in 1987 for some $3 million, shortly after obtaining exclusive distribution rights to sell the company’s products in Indonesia, Malaysia, Singapore, and Thailand. By late 1989 this company had raised its stake in Vicon to 14.9 percent and received the exclusive right to sell Vicon’s products in Japan. As a consequence of this connection, the company’s sales abroad reached 26 percent of its total revenue in fiscal 1988. Nevertheless, sales were flat over the next few years, and Vicon lost money in every fiscal year between 1989 and 1993, the loss reaching nearly $4 million in fiscal 1992. During this recessionary period, the surveillance industry began developing digital video systems, and in order to keep pace Vicon had to borrow money to invest in the new technology. To add to its troubles, the company was fined for illegally copying software. Darby, who succeeded retiring Horn as president in 1991 and chief executive officer in 1992, told Schreiber, “It was real simple. We were guilty, and I’m sure a million other companies around Long Island were, too. It was embarrassing for me. It was embarrassing for the company.”

Recovery in the 1990s

In 1993, Vicon Industries made two critical decisions: to cease doing its own manufacturing and to distribute only complete systems rather than components. “One of the reasons the company was struggling so much was that it couldn’t be all things to everybody,” Darby explained to Schreiber. “We were trying to engineer and design a product, manufacture it, and then market and sell it. And we weren’t doing a very good job of any of it.” The company subcontracted its manufacturing operations, sending some of the work to South Korea and some to Vermont and Florida. The bulk of the manufacturing, however, was contracted to two Long Island firms: Micro Contract Manufacturing Inc., which made the circuit boards, and Sartek Industries Inc., which assembled Vicon’s parts into finished products.

Contracting out manufacturing enabled Vicon Industries to cut its labor force by more than half and to shed its expensive lease on its manufacturing plant. In 1997 the company moved from Melville to a 56,000-square-foot leased building in an industrial park in nearby Hauppauge, Long Island., which it purchased, renovated, and finished in 1998. Much of the building was filled with inventory in the form of finished products and parts. Despite the expense of stocking some $13 million in equipment, Vicon needed the material on hand in order to compete for sales. “Companies anguish over the purchase of [systems] for months and months, years and years,” Darby told Schreiber. “Then when they make the decision, they want it the next day.”

Vicon Industries was targeting the high end of the market for surveillance systems, estimated at $1.7 billion worldwide, sometimes selling thousands of cameras—as in the case of monitoring a highway—at about $5,000 apiece. The company’s new digital video multiplexer allowed users to manipulate a camera for purposes such as zooming in on a person or item. Cameras were activated upon detecting motion, with the images sent to a separate control center. If a camera’s cable were cut, an alarm automatically summoned police. Vicon’s line of digital detectors “have an outside automatic sensoring level versus the scene stored in memory,” company marketing manager Bret McGowan told a reporter for the trade monthly Security. “Update of the reference scene can occur every two to five minutes so the current scene is not being compared to an hour ago.” Parameters in the digital program that would set off an alarm could be an object’s size or the speed at which it moved, or it could be a change in the light level.

Company Perspectives:

Vicon’s mission is to achieve international recognition as a world class producer of video systems and system components within the markets we choose to serve.

A 1998 a Times (London) dispatch reported that British aerial reconnaissance photographs of Iraqi President Saddam Hussein’s palace complexes and military facilities were being examined in detail each day for evidence of harboring weapons of mass destruction. A British intelligence source said he had studied a high-resolution photograph spread over an area of about 16 square miles that was believed to have been taken by a Royal Air Force bomber equipped with a Vicon high-quality tactical reconnaissance camera fitted inside a special pod attached to the underside of the plane.

Key Dates:

1967:: Founding of Vicon Industries by Donald Horn.
1980:: Vicon leads in the manufacture of closed-circuit TV accessories.
1986:: Management beats back a hostile takeover bid.
1993:: Vicon Industries loses money for the fifth straight fiscal year.
1998:: Now restored to health, the company realizes record earnings.

One-third of Vicon’s revenue in fiscal 1997 came from exports, principally to Europe and East Asia. The company was seeking more business in Eastern Europe and China; Chinese orders were mostly for surveillance on highways and in prisons and airports.

In the United States, probably Vicon’s biggest customer was the Postal Service, which was spending an estimated $9.5 million in 1998 for use of the company’s surveillance systems in its major distribution facilities. “Their problem is mail theft,” Darby explained to Schreiber. “One of the easiest ways is when merchandise comes into the processing centers. Labels are changed. It’s just rerouted to someone’s house or a post-office box. Two seconds and you don’t walk out the door with anything. We can catch them with some very, very sophisticated techniques.” In fiscal 1999 and 2000, indirect sales to the Postal Service under this national supply contract approximated $23 million in each year.

Vicon Industries broke out of the red in fiscal 1994, lost money again the following year, but was profitable again in the next five years, its net income reaching a peak of $5.81 million in fiscal 1998. Revenues grew in each year. In 1998 the company made its first public offering of stock since 1980, raising $10.4 million in order to pay down some of its long-standing, high-interest debt. The company’s replenished coffers also enabled it to acquire TeleSite, U.S.A., Inc., a designer, producer, and seller of remote video surveillance systems, in 1999 for $2.1 million. Vikon’s increased number of shares, plus its higher share price, made it a more difficult takeover target in Darby’s estimation. “I think we’re an expensive acquisition for somebody now,” he told Schreiber. “You can no longer pick up Vicon for $20 or $30 million. Maybe now it’ll cost you $75 or $100 million to try to buy this company. That insulates us a little bit.”

Vicon Industries in 2000

Vicon Industries’ product line in 2000 consisted of various elements of a video system, including video cameras, display units (monitors), video recorders, switching equipment for video distribution, digital video and signal processing units, motorized zoom lenses, remote robotic cameras, systems controls, environmental camera enclosures, and consoles for system assembly. In addition to selling from a standard catalog line, the company at times was producing to specification or was willing to modify an existing product to meet a customer’s requirements.

Vicon Industries’ products were being sold mainly to about 2,000 independent dealers, system integrators, and distributors, both by in-house and independent personnel. Its marketing emphasized engineered video-system solutions that incorporated system design, project management, and technical training and support. Research and development was focused toward the application of digital video technology, specifically toward the compression, transmission, storage, and display of digital video. The company’s principal sales offices were located in Haup-pauge; Fareham, England; Zaventem, Belgium; New Territories, Hong Kong; and Shanghai. The British subsidiary was in charge of sales for Europe and the Middle East. International sales accounted for 26 percent of consolidated net sales in fiscal 2000, with markets in Europe and the Pacific Rim accounting for about 82 percent of these sales.

Net sales for fiscal 2000 came to $74.62 million, and net income to $961,000, a considerable drop from $4.76 million in fiscal 1999 in spite of a small increase in sales. Darby described the fiscal year as one of investment in product development and technical-support staff needed to meet a growing customer preference for surveillance systems using digital video. The company’s long-term debt was $7.09 million at the end of the fiscal year. In December 2000, Chugbai Boyeki (now CBC Co., Ltd.), plus its affiliates owned 11.4 percent of Vicon’s common stock. Dimensional Fund Advisors of Santa Monica, California, owned 6.9 percent, and Darby held 5.3 percent.

Principal Subsidiaries

TeleSite U.S.A., Inc.; Vicon Industries Foreign Sales Corporation; Vicon Industries Ltd. (United Kingdom).

Principal Competitors

Checkpoint Systems, Inc.; Panasonic Technologies Inc.; Pelco Sales Co.; Philips Communications and Security Systems, Inc.; Sensormatic Electronics Corp.; Ultrak, Inc.