Figure 1: Average Percent of Revenue
Service-related revenues for installers and integrators in the residential market will most likely result from traditional security and non-security home system installations.

Predatory lending, subprime mortgage crisis, housing bubble -- we’ve heard them all on the radio, TV, perhaps even around the water cooler. It may not be surprising if somewhere in Nevada, the worst state for foreclosures in the third quarter of 2007, a one-year-old child’s first word is just that: foreclosure.

Despite the housing market’s continued slump, residential systems integrators and installers expect the state of the industry will be favorable in the upcoming year, according to a study conducted in November 2007 by Clear Seas Research, Troy, Mich., in collaboration withSDM SmartHome.

By Product Category
Product-related revenues for installers and integrators in the residential market will most likely result from sales of burglar alarms and non-security home systems.

Integrators and Installers Today

The study reveals that traditional security systems remain the most commonly sold or installed home system product in the residential market. More than 80 percent of integrators and installers surveyed indicate their companies currently sell or install security alarm/monitoring systems, CCTV systems (analog), low-voltage/structured wiring and intercom/telephone systems.

Additionally, non-security home systems, such as integrated controls, audio and home theater systems, have gained popularity among integrators and installers. Many now offer or service these products in the residential market to meet the growing demand spurred by the consumers’ increased awareness. Robert Richey, owner of Advanced Matrix LLC, an IT solutions company based in St. George, Utah, thinks service- and product-related revenues will most likely stem from non-security home systems. “Security is always already a major part of most homes,” Richey suggested. “The upgrades that are going to happen will be from audio/video upgrades. The retrofit and remodeling market will naturally want to upgrade their homes with more toys.”

Figure 2: Industry Business Conditions
Respondents indicate business conditions today for the residential systems integrator/installer industry are better than they were last year. In addition, outlook is expected to be favorable next year as more than one-half of respondents indicate business conditions will be better.

George Clark of GE Clark & Associates, Surrey, British Columbia, Canada, agreed. “There may be fewer homes being built or renovated, but the ones that are will probably be looking more electronically forward than previously,” Clark declared. “Home automation has been gathering momentum over the last couple of years. Several basic items have become more commonplace.”

In fact, surveyed integrators and installers expected that nearly one-third of their companies’ product-related revenues in 2007 will have resulted from sales of non-security-related home systems (see Figure 1). At the same time, more than one-half of survey respondents’ service-related revenues were derived from installations of residential security or non-security home systems.

Figure 3: Industry Employment Levels
Overall, respondents believe that employment levels in the residential systems integrator/installer industry remained about the same compared to last year’s. However, the outlook for employment next year is expected to be significantly more favorable.

State of the Industry

As previously mentioned, outlook for the residential home systems market is positive, despite the discouraging housing market. Although survey respondents indicate business conditions improved slightly last year from 2006, they predict conditions will improve even more in the upcoming year (see Figure 2).

“I think that things will get better because most people are going to remodel their existing homes and create a lot of retrofit jobs, because of the instability of the real estate and mortgage market, rather than build new [homes],” predicted Richey.

Figure 4: Net Change in Sales/Installations
Although respondents expect sales/installations for various residential systems will increase over the next year, there may be great opportunity in control and audio systems and home theaters, because their net expected change nearly doubled from what actually occurred.

Along with favorable business conditions, residential systems integrators and installers surveyed also expect industry employment levels to improve (see Figure 3). Job opportunities in the industry may be poised for growth as the need for security and non-traditional residential home systems are projected to increase.

“Since it takes skilled personnel to connect these systems and to program them, I think that employment will rise as systems are sold and installed,” forecast Jill Steinberg, president of Value Computing, Miami. She plans to fill any additional installer jobs with candidates obtained by word-of-mouth.

The positive outlook for employment levels in the residential home systems market may be attributed to integrators and installers seeking to broaden the types of products and services they offer to meet consumer demand.

Although residential systems, such as home theaters, are becoming more affordable, they remain somewhat complicated to install. Aside from early adopters, consumers generally are concerned with the time commitment involved in setting up these systems, thus causing them to rely on industry experts for set-up and troubleshooting.

“Most home theater systems and audio systems are so advanced that only someone trained can actually install them, and then they have to train the consumer on how to use the equipment,” Steinberg agreed. “I am an advanced computer user, and I have a lot of trouble with our home theater system.”

Figure 5: Residential Segment With Highest Rate of Expected Growth
Respondents expect their companies’ revenue growth in 2008 will result from sales or installations to the high-end home market, followed by the mid-market and custom-built new construction.

Projections for Upcoming Year

Most integrators and installers surveyed indicate their companies’ overall sales and installations of various residential systems increased from 2006 to 2007 and expect this increase to continue through 2008.

Figure 4 illustrates the net change in actual and expected residential home system sales and installations. Although significant improvement is shown in security and non-security-related home systems, the study indicates greater opportunities may be available in controls, audio and home theater systems in the future.

“Miami is in kind of a unique situation down here,” Steinberg conceded. “We have an overabundance of condos that have been built and a very slow housing market, but part of our economy is the people who are buying home theater and home audio.

“I don’t even know how to use my home theater system, it’s so complicated,” she admitted. “You need a professional to install that stuff. Since there is a plethora of product and not much help putting together these systems in your big-box stores, I believe there will be business for the residential systems integrators.”

Furthermore, respondents expect their companies’ revenues to grow this year as a result of sales or installations catering to the high-end residential housing market (see Figure 5). Approximately two-thirds of integrators and installers surveyed believe the greatest revenue growth opportunities will come from existing homes, while nearly one-third expect their companies’ earnings to stem from new construction.