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Big Brother Watches, and Security Companies Profit

Reuters/Matthew Verrinder | April 4 2005

NEW YORK (Reuters) - Whether they're driving through a tunnel or taking a cigarette break, Americans are finding even their most mundane movements captured on video.

Since the Sept. 11, 2001, attacks, corporations and government entities have been on the alert for possible security threats, including among previously ignored civilians. And makers of surveillance equipment are cashing in on the growing budgets of the U.S. Department of Homeland Security and its local counterparts.

"We've become a video camera society, and the market has absolutely been turned upside down," said global security analyst Scott Greiper of C.E. Unterberg Towbin. "You don't notice them right away, but you look up and they're there."

The surveillance camera market has swelled to between $5 billion and $6 billion from about $2 billion before Sept. 11 -- and will grow at 25 percent a year, Greiper said.

While privacy advocates have expressed concern and question the cameras' effectiveness in deterring crime and terrorism, they also acknowledge that, since the Sept. 11 attacks, Americans have become increasingly tolerant of having their movements recorded.

New technology allows cameras at sensitive federal buildings, major ports and transit hubs to differentiate between people and the objects they carry. If someone leaves a briefcase in an elevator at the Pentagon, for example, the camera will look back to find who left it and send the person's picture to a guard's hand-held security device.

Nice Systems, which makes this kind of technology, has seen its share price jump nearly 50 percent to about $32 in the past five months. In February, the Israeli company reported earnings of 47 cents a share, up from 9 cents a year earlier.

"If there were another attack in the U.S., you'd see a huge surge in demand for this kind of service," said Loren Thompson, director of the Lexington Institute, a Washington area think tank. "Once (companies) become trusted providers with Homeland Security, this becomes a growing franchise that lasts for a long time."

Meanwhile, net earnings for thermal night-vision camera maker Flir Systems Inc. increased more than 60 percent in 2004. The company also announced a 2-for-1 stock split in February.

Verint Systems Inc., which makes wiretap software, has seen 13 quarters of sequential revenue and earnings growth. But its stock performance has been erratic as investors have predicted an end to its robust growth, Greiper said.

The Homeland Security budget is growing. President Bush is requesting $34.2 billion for fiscal 2006, up from $31.9 billion this year and $29.9 billion in 2004.
Included in Bush's 2006 request is $600 million for a Targeted Infrastructure Protection program to help local governments reduce the vulnerability of chemical facilities, ports and transit hubs.

"Current anti-terrorist fears, combined with the surge in road rage, the perception of an increase in crime, and several high-profile school shootings, are causing many to call for increased video surveillance ... in all public spaces," the Electronic Privacy Information Center, a Washington-based public interest research group, said on its Web site.

In fact, an October survey of 1,030 Americans conducted for Tyco International Ltd.'s ADT Security Services Inc. unit found that about 90 percent approved of the use of security cameras in airports, retail establishments and government buildings.

The hot market and swelling budgets have made small-cap Nice, Verint and Flir obvious targets for acquisition, analysts said.

Among possible suitors are Honeywell International Inc., Lockheed Martin Corp. or General Electric Co., Greiper said.

The companies would not comment on any potential merger activity.

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