Impacted by the U.S. sanctions, Chinese surveillance tech giant Hikvision recently reported the worst performance in its 20-year history, with revenue and net profits dwindling.
The situation deteriorated into the first quarter of 2023, with revenue declining by 1.9 percent year-over-year and net income dropping by 20.7 percent, the Hikvision report indicated.
On April 21, Hikvision closed at 39.72 yuan (about $6.0), shrinking about 11 percent from its closing price of 44.56 yuan (about $6.7) a week prior (April 14.)
Hikvision’s slump in business is linked to U.S. sanctions. “The impact of the U.S. sanctions on Chinese technology companies is much more significant than people expected,” said Tokumori, president of the Japanese high-tech company who reveals only his surname for security reasons.
In May 2022, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) added Hikvision to the Specially Designated Nationals and Blocked Persons (SDN) list, thus affecting more than 180 countries and territories that use Hikvision products.
Sanctions on the supply chain of chip materials have limited the capacity of Chinese technology firms. “Yet, the more far-reaching impact is that the U.S. sanctions have made technology companies in Europe and the U.S. realize the risks of working with Chinese technology companies and exclude them from their supply chains,” Tokumori told The Epoch Times on April 22.
“At the same time, Hikvision also faces the problem of saturated domestic business, low profits, and slow remittances. Once the overseas business slides sharply, it will inevitably step in negative profit growth,” Tokumori added.
Hikvision is one of many companies showing poor business performance after the U.S. sanctions were implemented.
Sense Time is a facial recognition intelligence company sanctioned by the United States multiple times. It is listed in the Non-SDN Chinese Military-Industrial Complex Companies (NS-CMIC) along with Hikvision.
Close Ties With CCP Military
Of Hikvision’s ten major shareholders, four are state-owned legal entities: CETHIK Group (holds 36.09 percent of shares), CETC Investment Holdings (2.46 percent), CETC’s 52nd Research Institute (1.92 percent), and Central Huijin Investment (0.69 percent).Gong Hongjia, a permanent resident of Hong Kong, is the second largest shareholder of Hikvision, holding 10.21 percent of the shares. When Gong founded Hikvision in 2001, his college classmates Chen Zongnian and Hu Yangzhong were working at CETC52. CETC52 provided Hikvision with digital video compression board technology and 28 engineers. Gong, at that time, invested 2.45 million yuan (about $370,000), for 49 percent of the shares, while the rest were state-owned.
Tightening Sanctions
As a result of Hikvision’s supplying surveillance equipment to the CCP that is used in the suppression of Xinjiang Uighur and other minorities, the U.S. Department of Commerce’s Bureau of Industry and Security (BIS) placed Hikvision on the entity list in October 2019, which requires companies to get a license from BIS to purchase U.S. products, technology, or services.Domestic Competitive Pressures
In addition to pressures from the U.S. sanction, Hikvision experienced fierce competition from domestic peers, such as internet giants represented by Alibaba, Tencent, and Baidu, and artificial intelligence (AI) developers led by Huawei and Xiaomi.
As part of Hikvision’s core strengths, intelligent IoT (Internet of Things) relies heavily on perception technology, AI technology, and big data technology.
While the total IoT market in China seems large, thousands of small enterprises need to come up with different solutions. This means that there will be space for competitors like Hikvision to vie for market share, Tokumori said.
Therefore, “Hikvision would further compress its profit margin and relax the payback time for customers in a bid to retain the market, making its operating status even more fatiguing,” Tokumori said.