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2013 State of the Industry Report
Modest growth isn’t enough to weather costly regulations, fierce competition and shrinking profits.

Article


January 04, 2013 | by Tom LeBlanc

A look at the numbers shows the commercial integration industry is in a state of modest growth. A conversation with some actual integrators, however, reveals what lies beneath the surface - an industry, filled with frustrated firms, struggling to regain its swagger.

Thirty percent of integrators say their 2012 business was up more than 10 percent compared to 2011, according to the 2013 State of the Industry survey conducted by CI Research and NSCA. Entering 2013, 51 percent of surveyed integrators report that their year-end backlog-to-total revenue percentage is up versus a year ago, and only 7 percent say it’s down significantly.

Construction spending was up in every commercial sector except house of worship (HOW) in 2012 and is projected to grow in every market during 2013, according to the American Institute of Architects (AIA) Consensus Construction Forecast.

Positive trends notwithstanding, there is a malaise hanging over the commercial integration industry. The modest or flat growth that many integration firms are experiencing isn’t sufficient payoff for several years of head-down, bootstrap-pulling, dogged dedication to keeping their firms (and their employees’ heads) above water as they weathered the effects of a global recession and sluggish recovery. Add to that an exceedingly long presidential election with both sides slinging rhetoric about what’s bad for business, and it’s easy to understand why this industry is frustrated.

Still, as commercial integration firms, “it’s always a good time to be doing what we’re doing,” says Brian Havekost, who manages special projects for Beltsville, Md.-based Signet Technologies Inc. “Is it the best of times? Well, the market isn’t as good as we’d like it to be, and that can be challenging. You really have to articulate ROI like never before.”

3rd Annual Integration Business Outlook Presented by CI & NSCA
Want more State of the Industry analysis? NSCA’s Chuck Wilson and CI’s Tom LeBlanc analyze industry trends and offer advice to help integrators begin 2013 on the right track in the 3rd Annual Integration Business Outlook Presented by CI & NSCA on Jan. 9. Click here to register.

After four tough recession and recovery years, the industry is poised for an uptick, says Bruce Kaufmann, CEO of Gaithersburg, Md.-based Human Circuit.

“But my optimism is guarded because the barrier to entry has been low,” he says. “Th ere are so many players, but the pie isn’t getting any bigger. It’s a price-sensitive market. I don’t think the opportunities in 2013 will light this industry on fi re. I think you’ll still see companies fall by the wayside. I don’t think it will be an imaginative year for the industry.”

AVI-SPL, the largest integrator in the industry with $584.7 million in 2012 revenues, up slightly from $555.6 million in 2011, is optimistic about its year ahead, but CEO John Zettel acknowledges the uncertain business atmosphere.

“We think there is still going to be positive growth, not only in product sales but in services. We do see a strong 2013,” he says, adding that a strong 2012 Q4 provides AVI-SPL with nice momentum. Momentum killers, however, are what most integrators emphasize when interviewed for 2013 State of the Industry report, with three major concerns coming up again and again:

Impact of Regulations: Concerns over potential cost impacts related to the Affordable Health Care law and unresolved tax code issues weigh heavily on many integrators’ minds.

Escalating Labor Costs: Despite a still-unsettling employment rate in the U.S. (7.7 percent for Nov., 2012, the most recent available figure when CI went to press), integrators report struggling to find qualified technicians, and costs are skyrocketing.

Price Erosion: Partly due to diminishing product margins and fueled by bid-and-chase competitors, profitable projects are becoming hard to find.

Analysis of these legitimate obstacles, however, should be put in the context of an industry that is recovering and has reason for optimism.

Crunching the Numbers

That 30 percent of integrators say their revenues were up more than 10 percent in 2012, and that 28 percent of integrators project more than 10 percent growth for 2013, are positive signs. Take the projections with a grain of salt, however, since people are usually disproportionately optimistic about their businesses.

More telling and more encouraging, says NSCA executive director Chuck Wilson, is that 51 percent of integrators say their year-end backlog is up from that of a year ago.

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About the author

Tom LeBlanc - Editor-in-Chief, CI,
Tom has been covering electronics integration since 2003. Prior to being named editor-in-chief of CI, he was senior writer and managing editor of CE Pro. Before that, he wrote for the sports department of the Boston Herald. Migrating to magazines, he was a staff editor for a golf publication and an outdoor sports publication. Follow him on Twitter @leblanctom.
View all posts by Tom LeBlanc
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