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2009 Tops in Test: Weathering the storm

A severe global recession has challenged the survival skills of many of the test field's premier companies.

By Lawrence D. Maloney, Contributing Editor -- Test & Measurement World, 7/1/2009 2:00:00 AM

See other articles from our
July 2009 issue.

Like many sectors of the economy, the electronics test industry started the year 2008 battling very choppy business seas and ended it facing something resembling a perfect storm, as the global economy tanked following the October stock market plunge.

Last year saw sharp cutbacks in semiconductor production—a slide that continues in 2009—causing huge revenue losses at major ATE (automated test equipment) companies serving that industry. In response, most ATE firms early this year announced layoffs, executive salary cuts, and other cost-containment programs aimed at keeping their companies afloat.

In fact, outside of the communications market, it was difficult to find a sector of the test market that showed healthy gains in 2008. “With a virtual halt in global manufacturing in late 2008 and early 2009, the test field has experienced an unprecedented period of decline, even worse than occurred in 2001 and 2002 following the tech bubble,” said John Harmon, an analyst with Needham & Company. Even so, Harmon noted that electronics test came “roaring back” in 2003 from depressed conditions, and he sees the beginnings of recovery in 2010 and the chance for a solid year in 2011.

Tightening their belts

That hopeful scenario can't come soon enough for Advantest, the world's perennial semiconductor ATE leader. Customer orders in the October to December 2008 quarter fell more than 70% from the same period in 2007. For the fiscal year ending March 31, 2009, the Japan-based firm reported sales of $780 million, down 57% from the prior year's tally (see table). To ensure profitability, the company in recent months has reduced payroll from 4600 employees to 3400, trimmed executive compensation by more than 50% and middle manager pay by up to 20%, and eliminated bonuses. These and other belt-tightening steps are expected to save about $255 million in annualized costs.

Advantest has aimed its T2000 platform at the next generation of mobile internet devices.

Looking ahead, Keith Lee, president of Advantest America, said that demand for mobile handsets, especially smart phones, will be a major driver in the next upturn. “The increasing complexity of these products is predicted to stimulate the market later this year,” said Lee. “Our T2000 family is well positioned for testing the next generation of mobile Internet devices.”

Advantest is continuing to diversify beyond its semiconductor memory test equipment to include SOC (system-on-chip) testers, as well as “total solutions” for customers, a strategy that embraces the test system itself, the handler interface, and software. The company also is broadening its market focus, with the acquisition in 2008 of Credence Systems GmbH, a manufacturer of automotive semiconductor test equipment that was a division of Credence Europa, a UK-based subsidiary of Credence Systems Corp.

Frost & Sullivan test industry manager Sujan Sami predicted that Advantest will emerge from the current downturn as the dominant player in semiconductor memory test, but he also sees continuing consolidation in semiconductor ATE. Prime example: the 2008 merger of LTX and Credence Systems Corp. “Five years ago, you had 10 major companies in the field,” said Sami. “Now, there are five.”

In 2008, Teradyne surpassed Advantest in revenues, in part because of the acquisition of two other ATE firms, Eagle Test and Nextest Systems. Teradyne VP Andrew Blanchard noted that the Nextest Magnum II system, introduced last year, helped Teradyne more than double its market share in the flash memory test market. Among other important new products Blanchard cited is the UltraWave 12G, which he said offers the most economical solution for complex RF SOCs, in terms of cost per test.

Verigy CEO Keith Barnes: A business boost from consumer electronics.

“Across the board, our product line-up is stronger than it has ever been,” added Blanchard. Even so, facing sluggish demand, Teradyne in January announced a 14% cut in its work force and a temporary 10% reduction in employee salaries.

Verigy, the firm established in 2006 when Agilent Technologies spun off its semiconductor test business, reported a 9% revenue drop in 2008 and is countering the troubled economy with cost-containment measures amounting to nearly $100 million on an annualized basis. But like Advantest, the company expects a healthy boost moving forward from consumer electronics, including low-end cellphones in China, smart phones, and netbooks.

Verigy CEO Keith Barnes pointed to the V93000 platform, equipped with the PortScale RF option, as ideally suited for testing highly integrated digital devices with multiple RF ports. Also expected to capture more business for Verigy: the V6000 memory test platform introduced in late 2008 and aimed at the flash memory and DRAM markets. Said Barnes: “The V6000 is versatile and scalable across the entire semiconductor memory test process, including engineering, wafer sort, and final test.”

Targets of opportunity

Outside the semiconductor ATE field, Agilent, by far the test industry's largest company with nearly $3.5 billion in revenues in 2008, notched a modest 1.8% increase in electronic measurement sales last year. Contrast that with the 17% jump in revenues for its bio-analytical instrument business, which analysts say offers far more growth potential for Agilent.

Agilent cites its PXB MIMO receiver tester as one of its most significant new products of 2008.

Following a 16% decline in revenues in its fiscal quarter ending January 31, 2009, Agilent announced restructuring moves, including a reduction of 600 jobs and the closing of its automated optical inspection and automated x-ray inspection businesses.

“Electronic measurement won't perform very well for Agilent in 2009,” said senior research analyst Sivakumar Narayanaswamy of Frost & Sullivan, “but that field is one of Agilent's core competencies, and the company will find new business as the economy recovers.”

Ron Nersesian, general manager of Agilent's Electronic Measurement Group, named several promising application areas, including: aerospace/defense modernization, home security, surveillance, alternative energy, R&D for next-generation wireless devices, and MIMO (multiple input, multiple output) antenna technology. He added that product innovation continues, despite the tough economy, with such significant 2008 introductions as the PNA-X network analyzer and the PXB MIMO receiver tester.

Perhaps the most formidable challenger to Agilent is Danaher, whose electronic test businesses include Tektronix, acquired in late 2007, and the Fluke companies. Tek, known for its high-performance instruments, and Fluke, a dominant player in handheld test devices, combined for $2.3 billion in sales for 2008.

Fluke president Barbara Hulit points to more synergies with Tektronix, now that both companies are under the Danaher umbrella.

While some analysts argue that Tek will lose some of its innovation edge as part of a Danaher empire know for hard-nosed business practices, others believe that the Danaher name will give Tektronix a greater global reach. “Tektronix will benefit from Danaher's purchasing and back-room business, and there are some interesting synergies with Fluke as well,” observed analyst Agit Pai of Thomas Weisel Partners. “That puts Tek in a better position to innovate.”

Discussing promising applications, Martyn Etherington, VP of worldwide marketing for Tektronix, noted that “our customers continue to need support with standards compliance, which is why we believe high-speed serial applications will experience another wave of growth as the economy recovers.” Embedded system designers also are under pressure to improve energy and power efficiency, he added. Such applications, he said, will fuel demand for real-time spectrum analyzers, signal source products, and oscilloscopes, such as the DPO3000 family of mixed-signal scopes introduced in 2008.

Meanwhile, sister company Fluke hopes to capitalize on customer desires to curb costs, especially in energy. “We have a full suite of solutions to address energy conservation within the context of product design and equipment maintenance, as well as for sustainability and reduction of downtime,” said Fluke president Barbara Hulit.

Besides its core products, such as the new 287 digital multimeter, Fluke is focusing more on thermal-imaging products, which electrical contractors use for predictive maintenance and troubleshooting. To expand its thermal line, Fluke acquired Hawk IR in late 2008. Among other strategic moves, Hulit pointed to joint projects with Tektronix in marketing and product development.

Riding the communications wave

Elsewhere in the test market, more firms are depending on the communications market to spur future growth. Although its $854 million in sales for fiscal year ending March 31, 2009, represented a 15% decline from the prior year's total, Japan's Anritsu remains one of the world's dominant firms in mobile broadband, including 3G, WiMAX, HSPA+ (high-speed packet access), and LTE (long-term evolution). “Expansion is hard to gauge in this economy,” said company president Hiromichi Toda, “but consistent orders are happening as expected.”

JDSU’s T-BERD 4000 provides an all-in-one field solution for testing fiber, copper, and triple-play services.

As examples of key products for broadband, Toda cited the new MD8430A signaling tester for LTE development, as well as Anritsu's line of cable, antenna, and base-station analyzers. The company's spectrum analyzers target not only the wireless infrastructure market, but also military, homeland security, and public safety applications.

Two other Top 10 test companies—JDSU and Spirent Communications—have parlayed a concentration on communications test into healthy growth, even in a down market. In its fiscal year ending June 30, 2008, JDSU grew revenues by nearly 15% to $710 million. “Consumer and business communications patterns are creating demand for test solutions that support the cost-effective, reliable deployment of video and other broadband services, Ethernet, wireless backhaul, and 10/40G technologies,” said Dave Holly, president of JDSU's Test and Measurement business segment. “We delivered a number of innovative instruments and solutions addressing these customer needs in fiscal 2008.”

Among notable 2008 product introductions was JDSU's T-BERD 4000, which provides an all-in-one field solution for testing fiber, copper, and triple-play services. Another new launch, the T-BERD 6000A, is touted as the industry's most compact 10-GigE field tester. Such products, according to JDSU, help cable and telecom firms maintain the quality of service that consumers demand in a highly competitive market.

Bill Burns, Spirent’s CEO, sees plenty of opportunity providing test solutions for broadband networks.

Spirent, new to the Top 10 list in 2008 with $477 million in revenues, grew by 9% last year, largely on the strength of its test platforms for broadband networks. The modular design of the company's TestCenter lets customers conduct automated tests as they migrate from existing technologies to new networks. For example, the new TestCenter HyperMetrics modules offer a scalable platform for conducting 2- to 7-layer, multiplay testing through a single 1-Gbit or 10-Gbit port. In addition, the company claims that it has introduced the first FCoE (Fibre Channel over Ethernet) test solution to validate next-generation data centers.

Said CEO Bill Burns: “Enhancements in 2008 to TestCenter have helped our largest customers as they conduct high-performance testing to subject next-generation Ethernet solutions to scalable real-world scenarios.”

Solving such emerging test challenges with innovative products will be the catalyst for putting the electronics test industry back on the growth path again, analysts say. As evidence of the payoffs from relentless R&D, Pai of Thomas Weisel cited the steady growth of National Instruments over three decades.

National Instruments introduced 150 new products in 2008, including its PXI Express 6.6-GHz RF modular instruments. In the process, the company increased its sales by nearly 11% to $820 million, moving NI from eighth to sixth among the test industry's Top 10 public companies. Also helping to fuel that growth: products that go beyond the test field, including automation control and simulation for product development.

“The wide range of applications we serve gives us a broad customer base and remains a key factor in our long track record of growth and profitability,” said James Truchard, NI's CEO. “Last year, no single company accounted for more than 3% of our revenue, and no single industry accounted for more than 10% of our total revenue.”

Top 10 test and measurement companies in revenue (publicly traded companies)
COMPANY	2008 RANK	2007 RANK	2008 REVENUES (MILLIONS US$)	2007 REVENUES (MILLIONS US$)	PERCENT CHANGE
¹Agilent's revenues include only electronic measurement operations. Instrumentation for bio-analytical measurement totaled $2.3 billion in 2008. ²In late 2007, Tektronix became part of Danaher, also the parent of the Fluke companies. Danaher reported $2.3 billion from electronic test in 2008, but does not break out individual figures for Tektronix and Fluke. Figures for 2008 are analyst estimates and also include new acquisitions by Fluke. ³Teradyne's 2008 figures reflect the acquisitions of Nextest Systems and Eagle Test. Note: Rohde & Schwarz, a privately held company, reported annual sales of 1.4 billion euros in the fiscal year ending June 2008.
Agilent Technologies	1	1	3,479.0¹	3,415.0	+1.8
Tektronix	2	3	1,173.0²	1,105.0	+6.1
Fluke/Fluke Networks	3	5	1,127.0²	1,091.8	+3.2
Teradyne	4	4	1,107.0³	1,102.2	Flat
Anritsu	5	6	854.5	1,005.0	–14.9
National Instruments	6	8	820.5	740.3	+10.8
Advantest	7	2	780.8	1,824.0	–57.1
JDSU	8	9	710.6	619.2	+14.7
Verigy	9	7	691.0	761.0	–9.2
Spirent Communications	10	NA	477.1	434.1	+9.0

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