Flir Leads in Night-Vision Gear

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Thermography is a type of infrared used by homeowners and home inspectors for a variety of applications, such as performing a home energy audit...

checking heat dispersal...

and checking insulation around windows.

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Pushing Night Vision

That's the plan in autos, where Flir stands to gain in the long term if it can make "night vision" an inexpensive option for a majority of car buyers. Currently the company sells its technology to safety-parts maker AutoLiv (ALV), one of its largest customers. AutoLiv, in turn, incorporates the technology in systems it sells to BMW for use in its 6 Series and 7 Series cars; BMW offers it as a $2,200 option. AutoLiv says that it will announce within the next six months three other carmakers that will incorporate Flir's infrared systems.

Flir's technology appeals to "the more tech-savvy customer," says Jacob Harb, advanced planning and strategy manager for BMW North America. And, he says, "it's more applicable in rural areas than in urban areas," since it's especially useful in places with low visibility, where the occasional deer or person on the road would be harder to spot.

Analysts believe night vision in cars is likely to follow a similar path to that taken by GPS navigational systems, which were introduced in BMWs in 1997 as a luxury option but are now included in most cars the company sells. That depends, however, on whether the price comes down significantly. "The market is potentially huge as the price point moves down to $500 or $1,000," says Tim Quillin, analyst with Little Rock (Ark.)-based Stephens.

What makes the opportunity even more alluring is that it's open turf: Flir has no direct competition. The pioneer of the space, Raytheon (RTN), which made night-vision systems for Cadillac (GM), Hummer, and Honda (HMC), pulled out of the auto market in 2004. Two other carmakers, Mercedes-Benz (DAI) and Lexus (TM), have started including "near-infrared" systems, which also extend the driver's range of vision, but don't pick up as pronounced a contrast from warm objects.

Valued in Combat

Success in autos, if realized, would boost Flir's other businesses. "It allows them to scale processes up to high volumes, and then to use what they learned from making high-volume automotive systems to lower the cost of their higher-end systems," says Gabor F. Fulop, president of Maxtech International.

Even if the recession stalls growth in autos, analysts think Flir's military business is secure. While the U.S. Congress is likely to face pressure to pull back on military spending under the next President, analysts believe infrared technology will largely be spared from cutbacks. "This technology area has proven its value over and over again in Iraq and Afghanistan, and therefore I think it will be more insulated from budget pressure than other areas," says Chris Donaghey, analyst with Atlanta-based Suntrust Robinson Humphrey. So far that appears to be the case: On Oct. 2, the company was awarded a $125.3 million contract by the Pentagon to supply the Marine Corps and Navy with cameras for search and rescue, reconnaissance, and combat missions.

Douglas MacMillan is a staff writer for BusinessWeek.com in New York.