Criminal suspects usually run when they've been spotted by a helicopter searchlight. But some law enforcement units use a tactic to mislead - by aiming the searchlight in one direction while secretly tracking the suspect, who thinks he's hidden in a tree or a bush, with an infrared camera.FLIR Systems makes infrared cameras that allow police to pluck a suspect out of the dark.
"You chase the perpetrator on the ground, he keeps on running," said Bill Sundermeier, who heads FLIR's Government Systems division. With a FLIR infrared detector mounted on a law enforcement helicopter, police can "corral" a suspect on the sly.
"You can direct the officers in and around to surround him," Sundermeier said. "And then, boom, you dump the spotlight right on him and say it's all over."
Now FLIR is trying to use its success in the law-enforcement and commercial markets to get a bigger slice of the U.S. military's infrared-sensors funding, a market dominated by heavyweights like Raytheon and L-3 Communications. Company officials plan to use their firm's growing commercial production to hold down price tags on military products, such as systems that combine infrared cameras with visible light cameras, low-light cameras, laser rangefinders and laser designators to aim weapons.
FLIR expects to break the $1 billion mark in revenue this year. It had a big chunk - 38 percent - of the worldwide "dual-use" infrared market in 2007, according to Maxtech International, a Fairfield, Conn., market research firm that tracks the infrared industry.
"Dual-use" products overlap defense and commercial uses. They include FLIR's Recon III thermal binoculars, which can help a soldier in Iraq or a security guard at a commercial warehouse see at night. The runner-up in the dual-use market is L-3 Communications, New York.
But FLIR's share of the global military infrared market is much smaller, just 5 percent. FLIR's military work is focused in its Government Systems division, which accounted for just under half of FLIR's 2007 revenue. The division's infrared offerings range from handheld devices like the thermal binoculars, to sphere-shaped gimbaled systems for aircraft and ships, to stationary devices mounted on everything from vehicles, ships and aircraft to towers for the U.S. Army's Rapid Aerostat Initial Deployment program.
The other half of FLIR's revenue comes from commercial vision systems and thermographic heat-measurement products.
Sundermeier said the relatively low cost of FLIR's nondefense products has helped it snag a large chunk of the dual-use market.
"You have other companies that are focusing just on pure military applications, and those are very expensive solutions, which are unaffordable to the commercial side," he said. "We have a strategy which is to build up products that we think are in the sweet spot, that can be used for many different applications. Then, once we ... can sell that in volume, we end up driving down costs and we end up taking more of a high-tech strategy ... as compared to a DoD-funded strategy for developing products."
FLIR spent just over 9 percent of its 2007 revenue on research and development, a higher percentage than larger competitors like L-3 and Raytheon, if a much smaller total. That helps FLIR retain control over its products.
"If we go with the military funding approach, we might get forced into a particular product that's only purpose-built for them," Sundermeier said. "It's really more difficult to back it out and make it a general-purpose product ... that other people can afford."
Instead, FLIR makes small and often inexpensive adjustments to nondefense products to meet military needs, said Gabor Fulop, president of Maxtech International. "One of the reasons for [FLIR's] success is that they can very easily migrate between the commercial and the military," Fulop said.
For example, a version of FLIR's Star Safire, an airborne thermal imaging device, was used by police for years before FLIR modified it for military use, he said.
The largest of FLIR's military orders this year is a $358 million addition to a contract with the U.S. Army's Space and Missile Defense Command for Star Safire III multisensor systems.
Sundermeier is optimistic that prices will fall, perhaps even allowing every U.S. Army soldier to carry some product made by FLIR.
"Just like every policeman has a flashlight, we're hoping that they're going to have a piece of IR [infrared] equipment to look in the bushes, look much farther than their flashlight could ever look," Sundermeier said. "The same is true for the soldier - why wouldn't they have an infrared sight for their rifle or an infrared sight for their helmet? ... I think it will happen in the next decade or less."
Still, FLIR's thermal binoculars cost about $50,000; the company's thermal rifle sights are expected to cost around $20,000 apiece.
Michael Lewis, an analyst who follows FLIR for BB&T Capital Markets in McLean, Va., said FLIR is well-positioned to make inroads into the military market.
"There'll be more money directed to these infrared systems in the future, which will allow for more market growth opportunities for smaller players like FLIR," Lewis said. "It's easier for FLIR to ... identify areas where a competitor is not performing up to the requirement of the customer and take market share that way, and that's what they've been successful doing."
Also, "the [U.S.] government is becoming more price-sensitive, so if FLIR's indeed the true low-cost provider, that is absolutely a positive for them," he said.
Lewis said in the next five to seven years, the big growth opportunity for infrared makers will be in mobile, land-based platforms and cameras for fixed forward operating bases.
FLIR has correctly identi-fied the ground-based market as fertile, but a FLIR product in every soldier's pack may not happen in the near term, Lewis said.
"Right now, from here to the next five, seven or 10 years, probably not, because of price points. But there's still the opportunity," he said. "The Defense Department wants to get these types of force-multiplier/force-protection systems embedded at the soldier level."
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