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China Security & Surveillance

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Friday, March 7, 2008
I was cruising around my standard financial pages today, which includes The Motley Fool, a sort of consumer-plus investing strategy site (I probably read it because they print bits of it in my local paper). I was surprised to see a glowing account of China Security & Surveillance, a manufacturer that seems to be way under the radar for the amount of business its doing. Here's the Fool's take: Highly-rated China Security is considered by some to be a stock on sale. The security company is seeing not only rapid sales growth, but consistent profitability without an extreme valuation. The company recently reaffirmed strong guidance for first-quarter and full-year 2008 based on $100 million in new security contracts won in the final quarter of 2007. Despite the optimism, in a market where many companies are increasingly downgrading forward growth projections, China Security trades at a very palatable 8.7 times forward earnings. They did $65 million in 3Q sales in 2007. Did you know that? I never would have guessed they were that big a company. Looking at their growth, they could easily do $300 million in 2008. Where are all those cameras going? How come I never hear of anyone actually installing their equipment? Is everything going into China? If so, why are they listed on the NASDAQ? Edit: My fault - A savvy reader notes that China Security trades as CSR on the NYSE. Find the details here. More from my colleague, Ling-Mei Wong, who's an editor at A&S International Magazine, an English trade publication based in Taiwan. "We have a sister publication in English called China Best Buys, which is based in China. According to their reports (the magazine just launched last year and doesn’t have its own Web site yet), CSST was listed on the New York Stock Exchange last October. It pretty much corners the market for security, being very aggressive with manufacturing mergers. (From a draft of my colleague’s article: “CSST’s subsidiaries encompasses all major products, from front-end to back-end devices, such as HTZ and Minking for box, bullet and speed dome cameras; DIT for digital transmission devices; HighEasy for compression board products; Chenova and Skyvision for DVRs; Stonesonic for LCD monitors; and Longhorn and Alean for alarm detectors.”) A newly formed division within CSST is China Security and Surveillance Manufacturing, or CSSM, dedicated to managing manufacturing. As you mentioned, most of these brands are unknown outside of China, but domestically, CSST is doing very well. Having the bragging rights to be the first Chinese security provider to go public in the United States has also boosted its credibility." There you have it. Keep an eye on CSST and CSSM.

Israel flash back

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Thursday, March 6, 2008
Andrew Wray, over at Infrastruct, was kind enough to take time away from promoting his big acquisition to dig out of his camera a video of me shooting that cool corner shot gun when we were in Israel together. Talking to the military guys on the trip, they were a little skeptical of the accuracy, and they felt a 9mm bullet might not be the best choice, since it often travels right through a bad guy without actually disabling him (or her, I suppose). You'll also see that the Israeli shooting instructor was fairly certain that I was a pansy (I was wearing a blue blazer, after all) so he helped me steady the gun for the test shot. Still, I like this video. I couldn't help but add a soundtrack. By the way, you can see all the Israel videos on my YouTube channel.

ADT 1, Hollywood power couple 0

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Wednesday, March 5, 2008
For those of you who are keeping track of what's going on with the lawsuit against ADT filed last fall by the "Hollywood Power Couple," chock one up for ADT. Remember the Hollywood Power Couple? She (Sherry Lansing) ran Paramount Pictures, and he (William Friedkin) directed The French Connection and The Exorcist. Yeah, yeah, Power, shmower. So Sherry and William are suing ADT because they put in a $25K system and, they say, an ADT guard service did not respond quickly enough last summer when burglars busted into their Bel-Air manse, and stole "irreplaceable jewelry." On to the latest in PC vs. ADT: This paper's reporting that ADT got the go-ahead from an LA judge to go in and photograph the home as part of the company's defense. ADT can only be in the mansion for three hours and can't share the photos with anyone. Darn, I really wanted to post photos of the power couple's palace.

Can't get enough of the UTC-Diebold story

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Wednesday, March 5, 2008
So, the latest from the UTC camp is this: United Technologies Corporation remains committed to its offer. Diebold's financial and stock performance and the inability of Diebold's leadership to file timely financial statements are not valid reasons to avoid a dialogue with UTC. As we say on the playground: "Ohhh, burn!" UTC reaffirms its proposal to purchase the outstanding shares of Diebold for $40 per share cash, a 66% premium to Diebold's closing stock price on February 29th. UTC remains ready to discuss its proposal with the Diebold Board of Directors. UTC's management team, and financial and legal advisors are available to meet with Diebold and begin due diligence immediately. I like this idea that UTC's C-level people are all just hanging around in a board room waiting for Diebold's call. I hope they brought snacks...

Fallout from the Diebold bid

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Tuesday, March 4, 2008
I thought you guys might be interested in how the consumer press is treating this UTC bid for Diebold. Here's a round-up: The AP, per usual, plays it pretty straight, which is a good thing. They let the analysts do the talking: Nicholas Heymann, an analyst at Sterne Agee, said Diebold's board of directors will be under pressure to sell. "Here's $40. See if there's any way in the world you can explain to shareholders you'd be up to $40 in the near future," he said. ... Page Davidson, a lawyer for Bass, Berry and Sims in Nashville, which typically represents sellers in acquisition deals, said the price offered by United Technologies will be hard to reject. "At that kind of premium, it's going to be pretty difficult to not engage in some kind of process now in response to pressure from the shareholder base," he said. "The board's fiduciary duty is to take the action it believes is in the best long-term interest of shareholders." But here's my favorite quote: Nigel Coe, an analyst at Deutsche Bank-North America, called Diebold a "fixer-upper." Then, in another AP story, there's talk that the bid will be upped: Robert W. Baird analyst Reik Read said United Technologies will make a larger offer after Diebold holds its annual meeting in the spring. He believes Diebold is worth at least $45 per share, and possibly more than $50. Read upgraded the stock to "Outperform" from "Neutral," and raised his price target to $45 per share from $29. "We anticipate United Technologies may raise its bid, and believe there are other potential suitors for Diebold, including Wincor, Tyco and Honeywell," he wrote. Jefferies & Co. analyst Yvonne Varano agreed that another bid could come, but downgraded the stock to "Hold" from "Buy," saying it will be some time before Diebold is willing to consider an offer. More than $50 a share? Nearly a 100 percent premium? You'd think shareholders would be happy with that, no? Now for some opinion pieces. The Wall Street Journal's "Deal Journal" interviewed an MIT poli-sci professor, asking if UTC knows what it's getting into with the whole Diebold voting machine debacle. Here's an interesting selection: DJ: What advice would you give UT? SA: My advice would be, be very, very open. People ran into problems on the PR side because they didn’t share their software. The key is to lead the way toward open-sourcing the software. This is an industry that was built on trade secrets and not intellectual property. So my advice to them would be to change the industry and take the lead on open-sourcing. They would win over the computer-science world which has been crazy to get open-source developed for voting technologies. That would be the really interesting strategic step they could take. And it would help with the questions of secrecy, which have really dogged Diebold. I would try to turn the whole Diebold electronic voting conspiracy theory on its head, and they could do that with out compromising the integrity of the system and probably improving it. Hey, I'm a security guy, but I know integrators love open-architecture, so I'm all for that. But I guess there's some question if that would make the voting machines really easy to rig. In the long term, though, I'd be shocked if UTC kept the voting machine business going. I'd bet they'd just jettison that altogether. This is a financial services play, pure and simple, if you ask me. Here's the Barron's blog take on the offer. Bob O'Brien notes that while for some the offer came as a surprise, For United Tech, it has been a marathon, not a sprint: the company began trying to woo Diebold over two years ago. Diebold itself said that its board has kicked UTX’s interest around routinely, including three times in the last month alone, but always comes to the same conclusion: it’s not interested. Well, isn't he the dialed-in insider type. And I'd be remiss if I didn't include some of the whack-jobs in the round-up. Here's a brilliant little number from opednews.com (the title of which makes no sense to me - is it op-ed, or is it news?). It's all gobbeldy-gook nonsense, but here's my favorite paragraph; Thus far, Diebold’s board has rejected United Technologies’ $2.6 billion offer. However, the multinational is very likely not to give up and could take the offer to the shareholders of Diebold. So, we may see the next election counted in large part by a defense contractor. They already virtually determine the outcome of elections through their contributions and their control of the media, e.g. GE’s ownership of NBC. If this purchase goes through, they will be counting the vote in secret with no independent review. Um, 1. the offer is to the shareholders, 2. just because you make the machine that does the counting doesn't mean you actually do the counting (i.e., Braun made my coffeemaker, but I still had to wake up and make my own dang coffee this morning), 3. I love how UTC magically becomes GE in this paragraph; does this dude think that the boards of directors of UTC and GE commiserate on how to screw the American people? I'm guessing they don't talk to each other much, 4. again, does this guy really think UTC will somehow be counting votes in secret with no independent review - like local election officials are just witless morons? My local election officials are ornery and extremely wary of outsiders. I'm guessing they're not just going to cede all of their responsibility because someone made a voting machine for them.

Blame it on the dog

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Monday, March 3, 2008

Checkers the dog is the scapegoat once again. This Checkers isn’t Nixon’s pooch who took the fall as the only campaign contribution Nixon accepted in 1952, but instead an escape artist pitbull mix from L.A. who is blamed for setting off his owners security system multiple times after escaping from his crate, according to this article in The Los Angeles Times. Police responded to each of Checkers Houdini moves, despite the city's two false alarm limit policy, which should have alerted dispatchers of the multiple alarms and not sent police to respond. But apparently the city's 911 system isn't sophisticated enough to flag these alarms, so dispatchers just kept sending the police and costing the owner, and the city, money. This situation brings to light the administrative reality of implementing false alarm policies: most cities and municipalities are not prepared to track, enforce and collect false alarm fines. It’s a huge administrative task and, in most cities, requires personnel, or even a separate department, dedicated to the task of managing false alarms. One company, appropriately named Cry Wolf (owned by AOT Public Safety Corp.) has designed its business around false alarm policy management. The company can either completely manage a municipalities false alarm program and take a percentage of the fees collected, or install software programs and train employees to self-manage the false alarm program. Check out this article about about Cry Wolf from our March paper.

UTC makes move on Diebold

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Sunday, March 2, 2008
How's this for Monday morning news: UTC has made an unsolicited offer to buy Diebold for $2.63 billion (yep, that's "b" for billion). Not that it doesn't make a lot of sense. Since UTC bought Red Hawk and consolidated its installation and integration business in the United States under that brand, it's been number 2 in the financial vertical and none too subtle about its intentions to be number 1. This would obviously make them number 1 (and pretty much unable to see number 2 in the rearview mirror). Might that be an anti-trust violation? I have no idea, but regulators might want to take a look at that. Look for me to gather up some "wow" quotes for the newswire on Thursday. For fun, though, I'll leave you with some of the indication of just how hostile this takeover might be. Here's the end of a response letter John Lauer, chairman of Diebold's board, sent to George David, chairman and CEO of UTC: In addition, we respectfully request that, from here forward, neither you nor any other representative of UTC contact any member of the Diebold Board. And then here's David's response to that: Failing an ability to engage in discussions with Diebold’s board and management, we believe it is in your shareholders’ interests to know of this proposal. Although you directed me in your last letter not to have further contact with Diebold board members, I am urging a timely response now while the matter remains confidential. Hmmm, wonder why I know about this...

TechSec Day 2

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Friday, February 29, 2008
Why am I just getting around to summing up Day 2 of TechSec Solutions, though it ended roughly 48 hours ago? Well, you can thank JFK airport in some small part - due to an absurd amount of traffic going through there, it took me roughly 24 hours to make it home (partly, this is because every air traffic controller on the face of the earth hates Jet Blue and they always get the short straw coming in and going out). Then, today, since I got it at 4 a.m., I kind of slouched around with the kids, playing hide and seek and such, and am just now getting around to the blog.
I know many of you have been refreshing your browsers for hours, desperate for the latest TechSec news, so I apologize. (Those of you who've actually been refreshing your browsers, please seek psychiatric attention.) Anyway, Day 2 was pretty hot, actually. The video analytics panel, featuring Alan Lipton from ObjectVideo and Doug Marman from VideoIQ, was standing-room-only. The big message (which you already got if you read the newswire) was that analytics actually work now (huzzah!), but you have to actually have a plan for using them properly, just like you have a plan for each piece of technology you're employing. Analytics are no panacea, and Alan did a great job of showing what analytics can't do - i.e., see in the dark without help, see through fog, pick out a face in a crowd of 100,000, figure out if four pixels of information is a person or not, etc. Then Doug presented a great business case for analytics in use in a virtual guard tour application. This just seems like a brilliant RMR opportunity for even a small integrator selling to your average car lot. Also, there was a real buzz around the show floor, as people really seemed to be putting two and two together, getting creative with how different manufacturers could work together to make integrators' lives really easy. Particularly, the command and control software makers (you can get the full list of exhibitors here) were getting a ton of attention. Anyway, without further ado, here's the video that gives you a free pass to the day's activities. It was a great event, and I'm already looking forward to 2009, which will again be in Dallas. Okay, I'll admit I'm partly looking forward to it because it gives me a chance to hit Austin afterwards. On Wednesday night, I hit the Continental Club. That place rocks.

Redesigning the master suite?

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Friday, February 29, 2008
Have you been wondering where to pack your heat at night? Worried about how long it'll take you to leap out of bed and grab yer gun? I got this press release about the "latest in home security." Turns out this guy's idea of home security is a new fangled gun rack that you install over your bed. Remember, you saw it here way before it was featured in Metropolitan Home.

ADT target of lawsuit

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Wednesday, February 27, 2008
Irate over rate hikes, the Contra Costa County (Calif.) District Attorney's Office filed a lawsuit on Monday against ADT, saying in some cases when ADT's raises its monthly monitoring fees and/or charges contract-termination, the company is in violation of California law. ADT customers sign two- or three-year contracts. ADT reserves the right to raise fees after the first year. They lawsuit says ADT should have to advise customers how much the rate increase will be. Thisstory from The Mercury News says that the DA's office has been discussing the issue with ADT for two years. The story reports that ADT denies any wrongdoing.

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