FLIR Systems Inc. (NASDAQ:FLIR) makes infrared night vision and heat sensing devices such as night vision cameras and industrial grade heat sensors. These devices are known as "thermographic equipment." Governments, militaries, and police agencies use these devices to identify and track hostile persons and to maintain perimeter security during the nighttime. Thermographic equipment is also used by building inspectors and manufacturers to track the location and intensity of heat emissions in equipment and products, ranging from houses to laptops to cellular phones. Thermal cameras are incorporated into cars for better visibility at night and on police helicopters to aid in search and rescue.

Decreasing costs for making detection cores, which form the heart of infrared imagers, has sparked an explosion in the number of uses for infrared imaging, especially since 2008. FLIR notes that many devices, particularly un-cooled imaging devices that cost $25,000 less than two years ago sell for $3,000 and are economical to use in home energy audits. As a result, the market for these products has grown dramatically.

The devices are sensitive enough to detect insulation leaks and inexpensive enough to be purchased by small energy auditing companies. FLIR predicts that as prices drop further, relatively new markets such as the construction industry, will expand their use of thermal imaging systems.

Company Overview

FLIR Systems Inc. makes most of its money by producing thermal imaging devices for industrial, military and civilian applications. As costs of production of thermal imagers fall, new applications surface, including use in low end construction and building inspections. FLIR's revenue has been increasing steadily since 2003, and with it FLIR has increased its operating earnings and expanded its research and development budget by nearly 20% in the past year alone.[1]

Business Financials

In 2009, FLIR earned a total of $1.15 billion in total revenues. This was a slight increase from its 2008 total revenues of $1.08 billion. As a result, this had a positive impact on FLIR's net income. Between 2008 and 2009, FLIR's net income increase from $204 million in 2008 to $230 million in 2009.[2]

Business Segments


This segment produces devices that can sense minute differences in temperature for use in manufacturing, research, and maintenance operations. In many pieces of industrial equipment with moving parts, a part of the equipment that is worn or damaged will operate at a higher than normal temperature before it fails completely. Thermographic equipment helps equipment operators to identify faulty parts and perform preventive maintenance. Thermographic devices are also useful in designing equipment in which heat management is important such as laptops or cellular phones. Use of such a device helps engineers to accurately track heat levels in prototype equipment and detect design flaws.

Thermographic devices also help building inspectors to make inspections more efficiently by quickly identifying water and insect damage, as well as insulation leaks. As the price of thermographic equipment falls, FLIR expects this market to expand further as low-end construction companies incorporate the technology.

Commercial Vision Systems

This segment develops and produces night vision cameras and sensors for a broad range of civilian uses. High resolution night vision cameras are mounted on broadcast networks' news helicopters and are used by the police to track missing persons. FLIR has also incorporated night vision systems into security cameras for perimeter security, allowing security cameras to function at night as well as during the day. Other applications include night vision for recreational boaters and automobiles. BMW had expressed interest in using a system to allow drivers of its 5, 6, and 7 series automobiles to see better at night and in conditions with poor visibility.[3]

Government Systems

This segment produces thermal imaging systems for the U. S. and foreign governments for use by militaries and federal agencies. Some of the system's uses overlap with those for products produced by Commercial Vision Systems, such as maritime thermal imaging or security systems. Thermal imagers are often mounted on towers or platforms and used by the U. S. Marine Corps to locate and identify threats from a distance. Thermal surveillance systems are in use by federal agencies, including the FBI, DEA, and Customs Service, as support systems to increase effectiveness in drug interdiction.

Key Trends and Forces

Rapid Fall in Pricing of Thermal Imaging Products Expands FLIR's Markets

As the costs of production of both cooled and un-cooled thermal imaging systems fall, formerly small markets are expanding for FLIR. Perhaps the most notable is the market for portable thermal imagers used in building inspections. Cameras formerly priced at around $25,000 can be purchased for closer to $3,000 by customers. The thermal imaging cameras are typically used to quickly spot leaks in insulation in home energy audits, which have become more popular with rises in the costs of heating oil.[4]

Failure to Receive Approval to Export Certain Technologies Damages Sales

Because many of FLIR's products are sold to the Department of Defense and are used by militaries, the export of those products is often restricted. Although FLIR's failure to obtain a license to export a device to a customer is damaging, delays in receiving approval also hurts revenues. Because new thermal imaging technology emerges constantly, delays can cause FLIR to lose sales to competitors who have developed a better product during the delay. Export restrictions typically apply to firms and governments seen as hostile to the United States under the Trading With The Enemy Act of 1917 or Arms Export Control Act of 1976.[5]


FLIR comments that its competition is intense in the thermographic industry and that many of the competitors it faces have greater financial, and technical resources than FLIR has itself.[6] Many of the electronic components FLIR uses in its systems are purchased from small, single source suppliers. FLIR faces the risk that one of these suppliers be bought out by a larger competitor.[7]

Danaher (DHR): is a large competitor with over $11B in annual revenue. It produces a large spectrum of products ranging from medical equipment to kits for testing groundwater. Fluke, a division of DHR competes with the Thermography segment of FLIR in selling thermographic equipment for industrial applications.[8]

Lockheed Martin (LMT): is a US defense contractor most widely known for the aircraft and aircraft systems it produces. However, it also produces lines of surveillance equipment, including thermal surveillance, for both shipboard and ground use. Lockheed primarily competes with FLIR's Government Systems segment.[9]

L-3 Communications Holdings (LLL): is also a government contractor that supplies aircraft, communications, and surveillance equipment to the US military as well as federal and state agencies. In 2007, Command, Control, Communications, Intelligence, Surveillance and Reconnaissance Systems (C3ISR) composed approximately 17% of LLL's sales. Although C3ISR equipment includes thermal imaging systems, L-3 also produces accompanying communications equipment to more efficiently process information in battlefield scenarios.[10]

Raytheon Company (RTN): Is a large defense contractor with over $21BB of annual revenue in 2007. Raytheon produces systems and offers services for nearly every sector of the defense industry, including the production of thermographic surveillance equipment.


  1. FLIR 2007 10-K pg. 21  
  2. FLIR 10-K 2009 Item 6 Pg. 23
  3. FLIR 2007 10-K pg. 4,5  
  4. "The Home Energy Audit Gets an Upgrade, New York Times, 23 SEP 2008"
  5. FLIR 2007 10-K pg. 13,14  
  6. FLIR 2007 10-K pg. 10  
  7. FLIR 2007 10-K pg. 13  
  8. "Danaher Corp (New York Stock Exchange), Reuters"
  9. "Lockheed Martin Corp (New York Stock Exchange), Reuters"
  10. "L-3 Communications Holdings Inc (New York Stock Exchange), Reuters"
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