Questions on the Johnson Controls story

Because the comments to the stories can only run 500 words, I've moved a series of comments from John Honovich and I from the comments section of the Johnson Controls story here: John Honovich: Is this organic growth or based on acquisition? Who is the source of this statistic? Sam: The numbers are coming from Johnson Controls internally. I have no way of verifying them, so that's why I used phrases like "the company is reporting" and "saying it's moved from two percent to five percent." They say it is the result of their investments in generating organic growth. John: Organic growth from 2 to 5% market share sounds unlikely - even over a multiyear period. Assuming that the market size roughly stated the same, it implies that Johnson Controls increased revenue in this market 250%. Sam: That is a conclusion you can draw. However, the market may have shrank, allowing JC to grow market share simply by growing while others got smaller. That would contradict their predictions from last year, of course, so allow that it stayed the same: "As part of this initiative, Johnson Controls conducted a survey of security end users and came to the following conclusions: The market is growing at a 10 percent annual rate, with roughly $104 billion in annual spending; of that, $24 billion is being spent on integration alone, and that market is growing at a 17 percent annual rate. Asked from whom he sees JCI taking market share, Joel Lehman, JCI vice president of security & fire, said, "we'll take the 17 percent growth on that 24 billion dollars. That would be fine."" So, by their estimates, using the $24b number, JC's revenues went from 480,000,000 to $1.2b in security. JCI's 10k says total revenues in the efficiency unit as a whole were $9.2b for the nine months ending June 30, 2009. That was down 10 percent from 2008, but if it's true they shifted significant resources from "efficiency" and energy and focused on security, it seems reasonable to me that they could be projecting $1.2 billion in security in 2009. Even if they only mined their own current customers, only seven percent of whom (according to them) used them for security when they started the initiative, they should be able to grow pretty significantly on a global basis. -- I think comments on the blog can be longer, so if anybody else wants in, go ahead in the comments field. If you run into problems, email me directly.


The burden is on Johnson Control's to prove their aggressive claim. In a down market, even huge companies would have a hard time generating $700 M USD in new business.

Also, the comment, "we’ll take the 17 percent growth on that 24 billion dollars. That would be fine” is absurd. A company with 2% market share is not going to take all the growth in a market. It's essentially impossible. Also, I don't think that 17% growth number is supported by any of the analysts.

When Johnson Controls has some independent validation of this or audited results, then they should brag. Otherwise, it appears that they are trying to mislead people and use SSN as a tool to promote their questionable claims.

John, the comment about taking the 17 percent growth was pretty obviously tongue in cheek. That's a bit of a tin ear you've got there.

Also, which analysts put out reports on the growth of global security integration in 2009? I'm unaware of any. Point to the ones that contradict what Johnson Controls has to say.

Which is the auditing firm that conducts such audits? They are a public company and are regulated by the SEC, so it doesn't seem as though the company would be in the business of just making things up out of whole cloth.

On some level, if you're going to go around calling people liars, the burden is on you to show that that they're liars, using arguments that aren't simply: "even huge companies would have a hard time generating $700M USD in new business."

Did Johnson Controls say it was easy?

Sam, given that you are a journalist, if you report it as news, people will read it as news. If you want to indicate in writing that someone is kidding, use a phrase like "quipped" to make it clear to readers.

As for growth, see SDM's top 100 integrator report that shows security integrator revenue flat or declining:

Plus we can validate this through other related numbers. IMS is reporting that video surveillance equipment growth is projected at 3% for the year (as reported in your own publication- We both know video is growing faster than other segments in security. Does anyone reasonably think that the entire security integration industry is growing at 17% in 2009? The security industry was barely growing at the rate in the middle of the boom in 2005 - see

Since they are citing their own statistics and not specific financial claims, this is unlikely to be covered by SEC regulations. They can easily say it's just their opinion that they now have x% of a market. If they said that revenue increased from A to B, that would be a different story.

Sam, the bottom line is that you published their claims without any independent validation or corroboration. I know you clearly stated in the title that they 'declared' and 'the company is reporting' and this at some level protects you. However, I think it is dangerous and a disservice to security professionals to publish unsubstantiated vendor claims.

As far as I can tell, that SDM report is only for North America (it's really hard to tell, actually). I say that because they have Niscayah at only $155 million, but the company reported more than 380 million Euro just in the first half of 2009 (, so something's egregiously wrong somewhere.

Further, remember that they made that claim of 17 percent growth in the integration market in September of 2008 at last year's ASIS. Even the SDM story says most companies were projecting 10 percent growth before the bottom fell out of the market in Q4.

Further further, JCI is saying they're going in and doing integration on companies that already have security systems. They're not talking about growth in product sales, but in integration - it may be that that's almost solely service-based work and software engineering.

Finally, as I said in my original comment, if the market actually did stay flat or shrink, that would actually make it easier for JCI to grab market share - that's what huge companies tend to do in a bad market.

I agree that I could have done more to analyze the company's claims in the original article, and I do believe this back and forth has added valuable discussion, but I still feel that if I DIDN'T report that JCI was claiming a three percent increase in market share, I'd be doing a disservice to my readers. That they made the claim at all is news - sort of by definition. And if readers feel that claim is specious, I think they are intelligent enough to take that claim for what they think it's worth.

Please note also that I've got an email into Michael Mann at Johnson Controls to ask him to weigh in on this.

I asked Michael Mann if he stood behind his statement that JCI has grown its marketshare from 2 to 5 percent, globally, and I asked him to read over the story and comments. His reply:

"Correct on the 2 percent to 5%. The thing that needs a little correction is the quote that we were already moving away from construction. I think I said, and if not I meant, we have been traditionally construction focused, and we will continue to call on contractors and owners who are building. The message is that we already had decided to diversify our market focus and look for owners who may not be building but have cost, risk, compliance issues they need to solve.

This becomes much more important in our growth as the construction markets continue to decline over the past 12 to 18 months and into 2010. We will continue to pursue the construction market and call on contractors and consultants but our main focus will be helping owners drive business outcomes by integrating security to their business systems."

Questions to Johnson Controls:

- Do you have any outside source to validate your claim about increasing market share from 2% to 5%? If so, please provide name of source.
- How much are you claiming that your revenue increased? Specifically, how much was revenue in the period when you had 2% and how much in revenue do you have in the period you claim 5%
- What are you including in that revenue/market share? That is, what type of projects do you include? Access? Intrusion? Video? HVAC?

I made specific criticisms and none of them were addressed. JCI simply repeated that their statement is correct. JCI's claim may be accurate but they provide little evidence to refute the criticisms raised or validate the claims based on independent third parties.

Perhaps worth to mention that in JCI's Strategic Review and 2009 Outlook Analyst Presentation from 14 October 2008, the mentioned $104B market has been labeled "Security & Fire Market".