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FLIR boosted by SWIR, night vision applications

22 Oct 2010

Acquisitions and strong US demand push revenues up, but concerns remain over future military spending patterns.

Infrared imaging company FLIR Systems saw quarterly revenues increase to $332.5 million in the third quarter of 2010, up 16 per cent on the total recorded in the equivalent period last year, and a very slight increase on the second quarter of 2010.

That increase was largely due to the company’s recent acquisition of Raymarine, which contributed $36.9 million in sales to the total. CEO Earl Lewis said that the quarter had been characterized by strong performance in both the US and the middle East, which were ahead of expectations, but weakness in Europe, where FLIR admitted that it needs to resolve some internal management difficulties.

Close to half of FLIR’s revenues in the latest quarter were delivered by its Government Systems division – largely military and defense applications – and spending by the US military specifically accounts for about half of that division. Despite recent strength, FLIR expects the next quarter to present some challenges, with some uncertainty resulting from what Lewis described as the “changing dynamics of US military spending”. The US is expected to agree a new defense budget in December.

With its $232 million acquisition of ICx Technologies completed in early October, total revenues should increase to approximately $425 million in the closing quarter of the year, forecast FLIR.

Lewis also picked out the company’s short-wave infrared (SWIR) and EMCCD-based color night vision cameras as two product lines that had received strong acceptance from the market: “We expect great things in 2011 and beyond [from these products],” Lewis said.

However, some concerns remain over macro-economic trends, in particular the moves by various governments around the world to cut military spending and push for efficiency savings in procurement. Commenting on the major cuts to the UK’s defense budget that were announced on October 19, FLIR said that although the cuts would make the UK market more difficult to penetrate, its systems were more typically used by the country’s special forces – which are actually set to receive increased funding following the recent strategic review.

Commercial applications
FLIR’s Commercial Systems division, which represented $132.4 million (40 per cent) of third-quarter revenues, continues to grow rapidly, added Lewis, with strong demand in transportation and personal vision systems, as well as rising demand for thermography applications in gas imaging. However, total revenues for the division were down slightly from $136 million in the second quarter – perhaps reflecting general weakness in Europe.

One plus point in Europe is the German automobile company Audi, which is helping FLIR to diversify its customer and applications base. The high-end car maker has been using thermography for more than a decade, according to Audi’s Norbert Arnold:

“Both highly sensitive long-wave cameras and short-wave cameras are used,” said Arnold, who uses thermography techniques to aid engine development. “The thermographic catalytic converter test is an art,” he added. “”We have to watch for an even distribution of heat at extreme temperatures. And the short-wave camera’s image frequency of 50 Hz allows us to do this.”

It isn’t just the car's engine that benefits from the imaging technique – tyres are also checked for rolling resistance and heat distribution, while Audi even uses a FLIR camera to check interior furnishings for resistance to wear and tear and extreme changes in temperature.

In concluding its financial report, FLIR said that it expected total revenues for the full fiscal year to reach between $1.375 billion and $1.4 billion. Investors reacted positively to that outlook, with the company’s stock price up by a few per cent following the results announcement.

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