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China tech

Hikvision launched 'de-Americanization' plan before blacklist

Chinese surveillance giant sees limited impact from supply chain disruption

Hu Yangzhong, the president of Hikvision, said on Wednesday that in addition to diversifying its supply chain, the company is also considering rolling out its own chip production.   © Reuters

HONG KONG/TAIPEI -- Chinese surveillance giant Hangzhou Hikvision Digital Technology said on Wednesday that it had initiated a plan to fully replace American components in its products, in preparation of a supply chain disruption, months before the U.S. announced new sanctions this week.

The company said Washington's de facto export ban would have "limited impact" on its business.

The announcement comes after the U.S. Commerce Department on Monday added Hikvision and 27 other Chinese companies and government agencies to its trade blacklist -- known as the "entity list" -- for their involvement in a state-backed surveillance program in western Xinjiang province, where human rights groups and the United Nations say more than a million Uighurs and other ethnic minorities have been placed in detention camps.

"So far, we have found alternatives to most of the U.S. components and stockpiled inventories of goods that we can't replace immediately," Huang Fanghong, the vice president of Hikvision, told analysts in a teleconference on Wednesday. "We believe the impact [of the U.S. entity list] will be minor on our business," she said.

Hu Yangzhong, the president of Hikvision, told analysts that the company had taken measures in anticipation of the ban since last year. "We are well-prepared to cope with the U.S. sanctions," he said. "We are not under huge pressure."

In addition to diversifying its supply chain, Hu said Hikvision is considering rolling out its own chip production.

"In response to the U.S. export restrictions, many companies in China have been developing chips on their own," he said. "Hikvision has a similar plan, and work is underway," Hu said, without elaborating.

But some analysts are skeptical. While Hikvision has been stepping up efforts to reduce its reliance on U.S. suppliers, there are still some key components that cannot be replaced anytime soon, one industry source told the Nikkei Asian Review.

For instance, storage controller chips that are used for storing and processing massive amounts of images and videos are dominated by California-based suppliers Broadcom and PMC-Sierra, this person said. "These kind of chips are really niche products. Not many players in the market are producing these chips and they are not easily replaced," he said.

Hikvision, the world's largest video surveillance company, which until recently was used on American military bases, has felt the squeeze of U.S. sanctions.

In August 2018, the administration of President Donald Trump, citing security concerns, banned federal purchases of equipment from Chinese companies, including Hikvision and Chinese telecommunications equipment heavyweights Huawei Technologies and ZTE.

Hangzhou-based Hikvision last year generated nearly 50 billion yuan ($7 billion) in revenue, up nearly 19% from 2017. But its growth was the slowest in a decade, as the U.S.-China trade war and regulatory restrictions from Washington weighed on its overseas sales.

Hikvision executives on Wednesday said that the U.S.'s latest sanctions will hurt its business in the short-term, but added that the company is confident on its long-term prospects.

"Chinese surveillance suppliers will certainly hold the lion's share in the global market, and I don't see how that will change in the years to come," Hu said.

Hikvision rose from the world's No. 10 surveillance camera maker by revenue in 2010 to the market leader in 2016, according to figures from asmag.com, an international security magazine.

The Shenzhen-listed company controls more than 21% of the global market share, based on the estimates of global research firm IHS Markit in 2017.

Separately, S&P Global Ratings said on Wednesday that it placed Hikvision under a review for potential downgrade following the U.S. export restrictions.

"The recent addition of Hikvision to the U.S. entity list could result in significant challenges to the company's supply chain management, market position and financial performance," S&P said in a statement.

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