On the rebound
Business is at last turning up for the test industry's largest publicly held firms.
By Lawrence D. Maloney, Contributing Editor -- Test & Measurement World, 8/1/2010 12:00:00 AM
After suffering steep declines in revenue from one of the most severe global recessions on record, the worst is over for the test field's giant companies. But robust recovery will take time. Most public companies in the test industry's top 10 in revenue suffered double-digit drops in sales in 2009 (see table).
Still, with 2010 has come a noticeable pickup in sales and orders. Behind that upturn: a healthy rebound in key markets that fuel purchases of test equipment. In the first quarter of 2010, for example, Intel's net income nearly quadrupled compared to the same period in 2009.
Analysts note that the industry slump hit bottom in August 2009, with steady sales increases ever since. "The industry is bouncing back faster than it did after the telecom bust in 2001," said Sujan Sami, industry manager for Frost & Sullivan's Measurement & Instrumentation practice. "Then, it took two years before we finally saw recovery in 2004."
R&D marches on
At Agilent Technologies, still the industry kingpin with $2.25 billion in revenues last year from its Electronic Measurement Group (EMG), tough cost controls instituted in 2008 didn't block R&D investment. Ron Nersesian, EMG president, cited more than 200 new products and applications introduced in 2009. The PXA signal analyzer, introduced in the fall of 2009, has already become the flagship of Agilent's X-Series line, said Nersesian, with capabilities for testing a variety of signal standards in cellular communication and digital video. Also important for many applications: Agilent's Infiniium DSO90000A Series oscilloscopes.
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Noting solid growth in 2010 business, Nersesian said: "Our general-purpose markets show strong performance. This is driven by the overall improvement in the semiconductor market, which feeds other industries, and by government stimulus packages. Aerospace and defense are also up."
The wireless handset market, however, continues to lag, observed Nersesian, and remains a challenging business with tight margins for test solutions. Looking far more promising is the rollout of LTE, an area where Agilent is targeting test equipment for base stations.
And while Agilent is adjusting its test portfolio, selling its NCX data-network testing line in 2009 to Ixia and buying most of Keithley Instruments' RF test line, the company also is increasing its presence outside electronic measurement. In 2009, Agilent made a huge commitment to its already strong stake in bioanalytical instruments with the acquisition of Varian.
Agilent's major challengers in electronic measurement-Danaher's Tektronix and Fluke companies-also suffered a rocky 2009. But the combined annual revenue of about $1.86 billion for these firms last year was closer than ever to that of Agilent's EMG.
Tektronix, whose business is now divided between general-purpose test instruments and communications test products, is getting a boost from improvements in key end markets that began in the fourth quarter of 2009, pointed out Amir Aghdaei, Tektronix president.
"Emerging 3G and 4G communications standards are driving investment in our performance products, and mainstream embedded applications are increasing demand for our bench portfolio of products," said Aghdaei. "Our spectrum analyzers are also seeing an increase in demand with the need for greater wideband performance in radar and spectrum management, particularly in intelligence, regulatory monitoring, and defense applications."
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Notable 2009 product launches cited by Aghdaei include the MSO70000 Series of mixed-signal oscilloscopes, targeted for high-speed digital applications. Tektronix was also on the prowl for acquisitions in 2009, buying both Sypris Test & Measurement and Davis Calibration.
Meanwhile, sister company Fluke points to stronger business, led by China and the emerging markets of South America, Eastern Europe, and Asia. In particular, the company notes enthusiastic customer response to new tools for boosting energy efficiency and productivity.
"The Fluke 233 remote-display multimeter is jumping off the shelves and winning a number of prestigious awards," said Barbara Hulit, president of Fluke. "The same is true for our Ti32 thermal imager."
Hulit added that sustainability has become a core value for many companies, a trend that she believes benefits both Fluke's handheld measurement products and its higher-end energy recorder and calibration technologies. The company also hopes to get involved in the growing market for smart-grid technology and has received a $1.4 million federal grant from the National Institute of Standards and Technology to develop a comprehensive calibration source to verify the performance of phasor measurement units in smart grids.
Softening the blow
For many companies in the top 10, fast action on the cost side helped salvage the bottom line in 2009. "Anritsu started to reduce fixed costs right after the ‘Lehman Shock,' and thus made good operating profits in fiscal year 2009 despite the sales decline," said Hirokazu Hashimoto, who became company president in April. "Though it will take some time for sales to get back to where they were, I expect stable operating profits."
Anritsu looks for healthy opportunities from the commercialization of
LTE, with such key products as the MD8430A signaling tester, the BTS
Master for LTE network testing, and the MP1800 signal-quality analyzer.
Other
top-10 firms banking on communications to fuel recovery are JDSU and
Spirent Communications, which fared better than most test giants during
the recession. "JDSU maintained healthy R&D investment, which has
allowed us to take market share and accelerate out of the downturn,"
said Dave Holly, president of the JDSU Communications Test &
Measurement business segment. "We made the right decisions to invest in
innovations for the future, such as LTE network deployment."
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In
today's world of on-demand video from any device, networks are being
stressed to a significant degree, noted Holly. For example, the
prevalence of smartphones and the mobile Internet are creating "pinch
points" in the network and are spurring a need for investment to upgrade
the mobile backhaul segment of the network. In that regard, JDSU in
2009 acquired the network tools business of Finisar, a provider of
storage-area-network protocol-test tools. And in February of 2010, JDSU
agreed to acquire Agilent's Network Solutions Division, strengthening
its position in wireless test.
Among the company's important
product introductions for such network applications: the handheld
T-BERD/MTS-4000 multiple-services test platform. JDSU has also
introduced a module for that device that provides enterprise-test
capabilities for Ethernet/IP LANs.
Spirent also claims to have gained market share in 2009, along with a 14% jump in operating profits. "During the fourth quarter of 2009, we witnessed signs of an economic recovery and are seeing more stability in the marketplace," said Bill Burns, Spirent CEO. "Telecom and IT activities are having a positive impact on test and measurement spending in 2010."
Among the applications driving test business for Spirent: smartphones, cloud computing, high-speed Ethernet, and LTE. To meet growing needs in those areas, Spirent last year released more ground-breaking solutions than ever before, according to Burns. Besides LTE equipment, which accounted for 5% of its 2009 orders, Spirent touts its TestCenter, a unified layer 2-7 architecture to test the performance of 10/40/100-GigE fabrics, virtualized server networking, and cloud-computing applications. The company also expects growing interest in its new NoCode test-automation suite.
For National Instruments, 2009 ended its string of 28 consecutive years of growth, but CEO James Truchard is optimistic about 2010, due in large part to the demand for NI's LabView software and the growing popularity of the PXI test platform.
"PXI has become the new de facto standard for automated test systems," said Truchard, "because it delivers a highly integrated software and hardware solution in a compact, modular platform, which VXI was never able to achieve."
Some of the applications critical to NI's success include: wireless and RF test, semiconductor test, and embedded test. And unlike most test companies, the firm also can count on revenues from simulation and automation applications.
More business for "big iron"
The companies that supply expensive capital equipment to test semiconductors were especially hard hit during the business slump. "Across the board, from automotive to consumer electronics to telecom, demand for semiconductors declined sharply," explained Frost & Sullivan industry analyst Sivakumar Narayanaswamy.
In the case of Verigy, overcapacity of test equipment caused by that contraction in demand led to a 53% plunge in revenues in 2009. But throughout the first half of 2010, integrated device manufacturers and foundries have been making technology purchases, which typically represent the first wave of capacity increases, said Verigy CEO Keith Barnes. He added that utilization rates on the firm's V93000 test platform are now at 90%, a good sign for future sales.
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Many of the applications that the V93000 addresses will help lead the recovery for Verigy, according to Barnes. These include: consumer mixed-signal processors, graphics processors, datacom, and wireless/RF. Strong demand in the PC market also is expected.
Verigy expanded its market presence during the recent downturn by entering three additional segments-low-end SOCs, commodity DRAMs, and probe cards. In addition, the firm launched its V101 tester last year, a platform designed to provide the cost economies needed for testing low-cost logic devices. That move, said Barnes, expands Verigy's available market by an estimated $400 million in 2010. Other key 2009 moves included the acquisition of Touchdown Technologies, a developer of probe cards used in wafer-sort testing of memory devices.
Also upbeat about 2010 is Keith Lee, president of Advantest America. "Compared to 2009, I would characterize the increase in Advantest's bookings thus far in 2010 as robust, with continued strong growth forecasted for the remainder of the year," said Lee. "We are seeing spending increases from both memory and SOC customers, with a more aggressive investment stance being taken by customers outside of Japan."
Markets contributing to the overall upturn, according to Lee, include: consumer electronics, personal computers, smartphones, industrial, and automotive. The T5385 and T5503 memory systems for wafer and final test DRAM applications are expected to dominate business growth for Advantest during 2010. The T2000 SOC test system will also drive significant sales.
In addition, Advantest looks for payoffs from commercialization of advanced technologies developed under its corporate New Product Concept Initiative. For example, the company is introducing the E3620 CD-SEM system, an advanced metrology tool that enables manufacturers to measure the critical dimensions of the miniature-sized patterns in a photomask.
For Teradyne, another semiconductor test power, orders in Q4 2009 were quadruple those of Q1 2009, according to Mark Jagiela, president of Teradyne Semiconductor Test Systems. He added that the SOC market, especially wireless and power-management chips, is leading the recovery. The J750 tester family, which targets advanced microcontrollers and SOC package test, had its best order quarter in nearly four years in Q4 2009.
Jagiela pointed out that the company is benefitting from product introductions made in 2008 and 2009. Prime examples are the UltraFlex-M, targeting the high-speed memory market, and the Neptune, for testing hard-disk drives.
"Both products take intellectual property from our core test business and aggressively leverage it into adjacent markets," explained Jagiela, "and that can make a meaningful impact on our bottom line since both serve growing markets."
That ability to quickly target new test technologies to tap expanding markets, analysts say, will make a big difference in determining who will be the test industry's leading companies as the economy prospers.
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