Alarm/Integration Sectors Need IT IQ
Alarm/Integration is the way of the future.
For ADT Corp. (NYSE: ADT), the alarm industry’s largest publicly traded company, 2014 was a wild ride to say the least. The company reported disappointing first-quarter results and the market’s reaction was instantly vehement: Performance was bad enough to trigger the biggest price decline in the company’s history.
In short, ADT executives had to assuage investor concerns that it was not a dinosaur in danger of being slayed by telecoms, cablecos, DIYers and other deep-pocketed newbies with disruptive technology. ADT has been proselytizing about its own IT IQ sophistication and a portfolio of interactive, cloud-based systems that meet the needs and expectations of a new breed of residential and small business customers. It’s working. Subsequent, more favorable quarterly reports helped ADT’s share price recover and it has mostly been steadily pushing upward since.
The same cannot be said for the stock price of Ascent Capital Group (NASDAQ: ASCMA) whose primary subsidiary is Monitronics Int’l. A portion of Ascent’s metrics likely may not have met investor expectations following its whopping $507 million acquisition of Security Networks in 2013. Attrition and subscriber acquisition costs have gone up and are projected to increase the next two to three quarters. Nevertheless, this is a temporary setback after which Ascent’s growth outlook is positive.
Overall, companies involved in systems integration performed better than the U.S. economy as a whole. Integration did not fair quite as well as the locks and access control arena, although it is projected to have had growth in the 10%-12% range. In fact, since 2010 there really hadn’t been much of any growth in systems integration until 2014 arrived.
Notably, those integrators that poured money into gaining IT/IP skillsets during the economic downturn began to experience a strong return on their investment in 2014. They are now sitting at the table in C-level suites, conversing with executives who are strategizing to future-proof their companies. This indicates large end users are beginning to allocate capital resources for security/business intelligence spends and becoming more discerning as to whom they want their trusted integration partner to be going forward.
Tyco Integrated Security and Stanley Security Solutions each experienced moderate growth in 2014. TycoIS’s consistency derived from its position of strength and discipline, and Stanley’s from a position of recovery. Stanley’s margins are beginning to recuperate following a choppy period while the rest of Stanley Black & Decker has done well in the midst of the housing recovery. As another example of large firms with positive performance, the integration division of Diebold (NYSE: DBD) grew roughly 10% year-over-year.
It’s not just large providers experiencing growth with recessionary repercussions fading in the rearview mirror. A various group of small- and medium-sized integrators, some of them highly vertical-market specific, also did well in 2014 and are primed for success in 2015. Trouble spots arise for those firms without the necessary IT IQ or those overexposed in struggling verticals such as the oil and gas industry. In 2015, if that is the case, they will have to make it up in other areas. The best performing companies find a balance both in terms of vertical market positioning and geography.
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