2007 Tops in Test: Laying the foundation for growth
As new technologies open up new opportunities, test-equipment manufacturers prepare for a promising future.
By Lawrence D. Maloney, Contributing Editor -- Test & Measurement World, 7/1/2007 2:00:00 AM
With solid performance almost across the board in 2006, the giant companies that set the pace for the test field finally put the last tech bust behind them. Leveraging new products, sharper market strategies, and fresh opportunities from new technology, half of the industry’s top 10 public companies enjoyed double-digit growth last year. Even those with more modest performance saw a jump in orders that set the table for better times in 2007 and beyond.
“Electronic test is a mature field,” noted analyst John Harmon of Needham & Company. “Over the long term, annual revenue growth of 6% to 7% is average, so it is significant if you get a year where you see 10% to 12% gains.”
Instrumentation in sharper focus
Industry leader Agilent Technologies, whose revenues in 2006 grew by a relatively modest 5% to just over $3.4 billion in electronic measurement, is nonetheless viewed by analysts as a much tougher competitor, now that it has spun off its semiconductor test and semiconductor products divisions.
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Sullivan: Focus on communications test. Courtesy of Agilent Technologies. |
“If you analyze Agilent’s past history, semiconductor ATE tended to be a negative, because of the cyclical nature of that business,” observed senior research analyst S. Vidyasankar of Frost & Sullivan. “Now, the company can concentrate on such promising areas as communications test and instrumentation for life sciences.”
In 2007, Agilent’s focus is on “Phase II” of its transformation, said president and CEO Bill Sullivan. “We have strategically chosen key growth areas that include voice, video, and data network services, mobile Internet such as Mobile WiMAX and LTE, and the expanding electronics manufacturing market in Asia.”
Harmon of Needham already sees signs of a leaner, meaner Agilent, which could pose a stiffer test for competitors. “Three years ago, Agilent was a year late in the product cycle for high-end oscilloscopes versus Tektronix,” noted Harmon. “Now, it is a horse race again.”
Three times the size of its nearest direct competitor—Tektronix—Agilent simply has a much wider product line to build on, pointed out Kiran Unni, research manager in Frost & Sullivan’s Measurement and Instrumentation Group. “It also has a large mind share in the life sciences field.” Agilent notched $1.55 billion in sales from those bio-analytical measurement devices in 2006.
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Wills: Order backlog boosts 2007. Courtesy of Tektronix. |
At just over $1 billion, revenues at Tektronix were essentially flat in 2006, and Unni suggested that the company needs to put a greater focus on broadening its product line and market applications rather than pushing the performance envelope on such products as $100,000 oscilloscopes.
But Tektronix CEO Rick Wills said that sales were only part of the story in 2006. “Yes, our sales were about flat, but our orders were up nearly 13%.” Wills claimed that Tek is now delivering on “the most impressive flow of new products that I’ve seen in my 27 years with the company.” He noted that in the oscilloscope line, the company has replaced every model from $7000 up to $150,000.
The Tektronix CEO also pointed to the company’s progress in growing newer areas of the business, such as signal sources and spectrum analyzers, which have enjoyed a compound annual growth rate of more than 30% over the last four years. “The short answer is we plan to keep doing what we’ve been doing,” Wills said.
Thrills and chills in ATE
If the semiconductor automated test equipment (ATE) business is a scary roller-coaster ride, industry youngster Verigy must be enjoying it. In the fiscal year ending October 31, 2006, Verigy’s sales rose a whopping 71% to $778 million. Verigy was spun off from Agilent Technologies during 2006. “Clearly, Agilent sold this business at a high point,” noted Harmon of Needham.
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Barnes: Counting on a balanced portfolio. Courtesy of Verigy. |
While sales were off slightly for Verigy in the first quarter of 2007 versus the same period in 2006, CEO Keith Barnes said that “Verigy’s balanced product portfolio, focused in both SOC and memory device test, helped us continue to deliver solid results even during a cyclically soft period in the semiconductor test industry.” Among the most promising growth drivers for Verigy: expansion of its flash memory, high-speed memory, and high-speed I/O areas.
Meanwhile, Japan’s Advantest, the industry’s semiconductor ATE kingpin, saw sales slip by 7.4% in the fiscal year that ended in March of 2007, in part because of sluggish sales in nonmemory test systems. Still, the company is predicting overall sales growth of 8.5% this year. “We have a strategy for gaining share in flash memory and pursuing new customers in the DRAM market, in addition to our commitment to long-time memory customers,” said R. Keith Lee, president and CEO of Advantest America.
In the second half of 2006, for example, Advantest announced its new T5383 test system for multipurpose memory devices, such as DRAM and SDRAM, as well as for flash memory and multichip packages. Lee claimed that this new system is also a “very cost-effective solution for communications device manufacturers, who face constant downward pricing pressure.”
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Bradley: Success from core products. Courtesy of Teradyne. |
Advantest also is making progress in ramping up its system-on-chip (SOC) test business. The company now enjoys a market share of 30% in nonmemory test, according to Lee, up from just 10% in 2003. What’s the biggest priority for Advantest in its new fiscal year? “We see both memory and nonmemory markets picking up in 2007 and 2008,” said Lee, “but our biggest priority is continued investment in R&D, which is the key to growth.” He cited development of new testers for the RF wireless market as an example.
Certainly, Advantest can’t afford to rest on its laurels. Teradyne, a key competitor in the SOC test area, saw its 2006 sales rise by 28% to $1.38 billion. “Our flagship products, the FLEX [an SOC tester] and the J750 [a parallel tester], were the biggest reasons behind our strong 2006,” said CEO Michael Bradley. “By strategically repositioning the company on our test core in the last few years, we’ve been able to put our collective muscle behind these products.”
“Teradyne is very active and is competing well in Asia against Advantest,” said Vidyasankar of Frost & Sullivan. One sign of that progress: VLSI Research earlier this year named Teradyne on its 2006 list of “Best Customer-Rated Suppliers in China.”
New products: lifeblood of growth
Among other top 10 companies, National Instruments chalked up revenues of more than $660 million in 2006. But that gain of 15.5% did not impress analyst Harmon of Needham, who pointed to past years where increases of 20% or more were commonplace at NI.
Dr. James Truchard, NI’s president and CEO, countered that the company made the strategic decision during the downturn to invest in long-term performance by earmarking 16% of its revenue for R&D. “Today, we are seeing this strategy pay off with a record number of new products released in 2003, 2004, and 2005,” said Truchard. “This is the key to achieving a 20% revenue growth.”
Frost & Sullivan’s Unni also underscores the potential rewards from NI’s concentration on new products and emerging applications. She is impressed, for example, with the latest version of LabView (8.2), which includes such features as an FPGA wizard and a Web services wizard.
In general, while the test market can be viewed as mature, analysts still see healthy opportunities, as companies create products to respond to such areas as nanotechnology, wireless communications test, and future generations of ICs.
Said Needham’s Harmon: “At their most recent analyst meetings, both Agilent and Tektronix essentially said that we are in the middle of a 10-year economic growth cycle. I don’t see anything that would derail the industry from solid growth.”
| Company | 2006 Rank | 2005 Rank | 2006 Revenues (Millions US$) | 2005 Revenues (Millions US$) | Percent Change |
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Notes: In the original version of this chart, Credence Systems, with revenues of $474.4 million in 2006, ranked 10th. We subsequently learned that JDSU’s test-and-measurement revenues exceeded Credence’s for 2006. Rohde & Schwarz, a privately held company, reported annual sales of 1.3 billion euros in the fiscal year ending June 2006, an 18% increase over the previous year. This would make R&S the industry’s third largest in this list, if privately held firms were included. ¹Agilent Technologies revenues include only electronic measurement operations. Instrumentation for bio-analytical measurement totaled $1.55 billion in 2006. ²Danaher does not report separate figures on its Fluke/Fluke Networks units. Our figures are an estimate, based on the reported 7% business increases in 2006 for its existing electronic test businesses. ³Verigy was spun off from Agilent Technologies in 2006. |
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| Agilent Technologies | 1 | 1 | 3,419.0¹ | 3,265.0 | 5.0 |
| Advantest | 2 | 2 | 1,999.0 | 2,138.0 | –7.4 |
| Teradyne | 3 | 3 | 1,376.8 | 1,075.2 | 28.0 |
| Tektronix | 4 | 4 | 1,039.9 | 1,034.7 | flat |
| Fluke | 5 | 5 | 1,011.0² | 945.0 | 7.0 |
| Anritsu | 6 | 6 | 842.0 | 766.0 | 9.0 |
| Verigy | 7 | N/A | 778.0³ | 456.0 | 71.0 |
| National Instruments | 8 | 7 | 660.4 | 571.8 | 15.5 |
| Aeroflex | 9 | 8 | 551.8 | 463.4 | 19.0 |
| JDSU | 10 | N/A | 494.5 | N/A | N/A |
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