2009 Outlook: The Road Ahead
If Matt Dlouhy is nervous about how the implosion of the worldwide financial markets might affect pro AV, it doesn't show. His firm, Communications Engineering Co. (CEC), had its highest-booking month of the year in September 2008, and when he talked to Pro AV, he was forecasting sales just as high for October.
Matt Dlouhy, president of Communications Engineering Co., has had to adjust to market conditions, but he expects business to be good.
"If anything, we're seeing business pick up," says Dlouhy, president of the Hiawatha, Iowa-based integrator. "Last year was a record year for us, and this year we're tracking ahead of it."
Dlouhy isn't alone in his optimism, judging by an InfoComm survey conducted in August. "More than two-thirds of integrators said that they're doing better financially than they were six months ago," says Betsy Jaffe, InfoComm's director of public relations.
Even in an exclusive Pro AV survey, conducted in late October after the financial markets were in freefall, the commercial AV industry was mostly optimistic that 2008 would turn out well, and that 2009 was looking up, too. More than 60 percent of respondents said they expect to see more revenue in 2008 than in 2007, and 58 percent expect more revenue next year. More to the point, only 9.4 percent of respondents in Pro AV's forecast survey are predicting less revenue in 2009. (For more results, see "Inside the Numbers.")
Regardless of their optimism, AV pros are adjusting to what's going on around them. Many integrators and manufacturers aren't taking anything for granted, and none are immune from the aftershocks rippling through the economy. They're starting to take steps to protect themselves in case the economy takes its toll on their clients. In CEC's case, for example, that means requiring deposits.
"The current credit issues have forced us to implement a deposit policy, which we've never done before," Dlouhy says. "We were exercising our credit line with the banks on a regular basis because we could have anywhere from 150 to 250 projects going on at any one time. That would tie up a lot of capital for us."
What's more, AV pros say they're preparing to address changes to their industry that may accelerate in a challenging economy. From possible integrator consolidation to fending off competition from IT companies, one thing is clear: 2009 will be a period of change for the AV industry.
Problems as Opportunities
"We lost literally a quarter of our business overnight because every one of those financial institutions shut down," says Randy Klein, executive vice president at Rockleigh, N.J.-based Crestron Electronics.
But as they say, it's darkest before the dawn, and what doesn't kill you makes you stronger. "In June 2002, we finished our best year ever," Klein says. "The market forced us to think more creatively and diversely and broadly."
For its part, Crestron used the downtime to pursue the education market and develop QuickMedia, a technology that streamlines presentation systems by integrating various cables into a single Cat-5 wire. "Today, education is more than a quarter of our business," Klein says. "Like competition, [economic downturns] force you to get stronger, be creative, think differently."
For some vendors, the trick is finding the money not only to think differently, but to commercialize those innovations in order to have hot, new products ready to go when the market rebounds. It's here that privately held vendors could have an edge over public ones, which must convince investors that spending heavily on R&D during a downturn is a wise move.
"I could see some companies–especially publicly held ones–having a hard time trying to justify the expense," says Jeff Kindig, vice president of marketing strategies at Richardson, Texas-based AMX, which is privately held.
"The recession of 2001, I missed it," says Mickey Ames, AV project estimator at Rochester, N.Y.-based AV Solutions. "I don't remember it having any effect on us."
Some vendors have a similar view. "We seldom see a lot of fluctuation based on the economy," Kindig says. "I see more opportunity than not."
When asked why, those with similar experiences often point to the fact that down economies play right into hands of certain AV applications. When cash is tight, enterprises and other pro AV customers likely will be more receptive than ever to projects that promise to save money, improve productivity, or both.
Case in point: videoconferencing and telepresence (see "AV Reality Check,"). Both are examples of how crises–Sept. 11 and soaring fuel prices–can actually boost business for pro AV. "There has been a significant increase in the video teleconferencing and data sharing business, especially since the costs associated with using the technology have been significantly reduced," says Glenn Polly, owner of VideoSonic, a New York-based integrator. "Certainly the higher costs for fuel and travel expenses can only add to the need for our clients to invest in VTC systems."
So-called "green" technologies–lighting control, AV systems management–present another opportunity, say many integrators and vendors. The trick is to show how reduced electricity costs can pay for the system. Even then it can be a tough sell to an enterprise on a tight budget, especially as energy costs come down.
"The challenge is to get people to spend money so they can save money," says Crestron's Klein. "They want to hold onto it now."
Where the Spending Is
Take the state IT market, of which AV is a subset: In November 2008, states were on track to spend about $48.4 billion for the year, according to Input, a Reston, Va., research firm that tracks the government IT market. In 2009, spending will hit $52 billion, Input predicts.
"It's a relatively moderate increase," says Chris Dixon, Input's manager of state and local industry analysis. "It may come in a little under that. We have to watch the condition of the state budgets and the potential for some federal bailout money."
If the feds help bail out some states, that money could go mainly to infrastructure and health care. But that would free up budget money for states to spend on technology, including AV.
"State and local educational funding may be reduced due to lower tax revenues and federal funding," says John Laughlin, president and CEO at Conference Technologies (CTI), a St. Louis-based integrator. "However, we find the telephone starts ringing more during this time. Facility managers are now under increased pressure to provide additional conference and communication resources such as videoconferencing, audioconferencing, and increased internal meeting requirements."
We Find the Phone Starts Ringing More During This Time." --John Laughlin, Conference Technologies
"Health care costs are the No. 1 driver behind increases in correctional spending," Dixon says.
In both flush and lean times, another plus is that technology spending is a relatively small slice of a state's budget, and AV is only a slice of that slice. That improves the chances that even a relatively large AV project won't get hung up in a lengthy review. "We're not talking about a $200 million database integration project," Dixon says.
Indianapolis-based Sensory Technologies remains bullish on government opportunities after recently finishing major projects at the city airport and the taxpayer-subsidized Lucas Oil Stadium. "They're just chugging away," says Andrew Sellers, CTS, principal. "We've done a lot, and it looks as if we'll continue to do a lot."