Thursday, January 2, 2013: The T&M industry is seeing an interestingly challenging time with revenues down by around 15%. Could test equipment have become so productive that people spend less on test? What’s this interesting relationship between NI and competitors like Tektronix? And, which is this new disruptive technology NI has under wraps?
Rahul Chopra had a chat with i Senior Vice President of Marketing at National Instruments to get some answers.
Q. You had blogged about an interesting topic that adversity and recession, creates an opportunity for good R&D projects and good organisations to rise. How is your take on that after 4 or 5 years?
A. I think that’s been certainly proven true. When we see challenging times, we generally operate a little different from the other companies in our industry. We take a long term approach and we know in particular that the innovation we create, the R&D we create takes a long time, and so we preserve that R&D investment even in more difficult times. I wrote that at a time when the world economy was obviously at a low point. Most of our competitors and peers in the industry had laid off large amount of their R&D staff and we didn’t do that, we actually hired some people, because some very smart people were looking for work. That’s an opportunity we take and in that time frame, for example, we started working on some major products like the vector signal transceiver, and a lot of work on FPGA. The advancements of LabVIEW FPGA are driving a huge amount of our platform growth rate now.
Q. For NI, is the current era also posing any challenges or is this a good time going ahead, economically?
A. Now, this is an interesting time. The economy is a bit uncertain and I think test and measurement in particular is fairly weak. If I look at my peers in the industry globally, the test and measurements firms we track, revenue is down about 15%. It’s not a good, healthy market, and it’s weaker than the overall economy. I talked to the leaders of other test and measurement companies trying to figure this out. We’ve done much better than those companies, but we’ve seen a generally mediocre economy.
Q. What could have been the reason for this down turn, is it just reflecting the economy or could there be something else?
A. I think there’s a couple of reasons. One, the challenges of the PC industry have had a bit of a ripple effect. The PC industry is down, with the most negative growth it ever had. Even though there is a big rise in these mobile devices, it seems that the test industry doesn’t get quite as much revenue on that. It doesn’t affect NI as much, but for things like oscilloscopes the most common application is debugging processors and things like that.
I think the other reason, frankly is, NI is having an effect on the market. We know that when we sell our solutions in the test and measurement or embedded systems, we lower the overall cost for the customers. That’s our goal and this has had an effect of lowering the amount of test equipment purchase. When customers get 30x improvement on test time, they spend a lot less on tests. So it’s new opportunity, new business for us, but the overall market goes down when things like that happen.
Q. I also see that there is an interesting relationship with some of your competitors like Tektronix. How has that driven the overall scheme of things while you’re creating a challenge for them and yet you’re also working with them?
A. This is sort of the model that we have, it is different from that of any other test and measurement companies or embedded companies for that matter. The platform-based approach implies that this platform should be open in its connectivity to so many devices, so we don’t really have any sort of pure competitors. We have companies that are partners, peers and competitors all at the same time. Like in the Tektronix’ case, we provide connectivity to all of Tektronix instruments through our software; that’s a key partnership. We did co-development with them in a hardware model; that was a key partnership. At the same time there are elements where we compete. We provide modular digitizer/oscilloscope, and we compete. Tektronix does much of their testing and production within our equipment. So they’re our customers, and as is Agilent, as is Rohde & Schwarz. As a core software tool, we have to connect to every software device in the world. Our customers require that, and we invest a lot to make sure that we have good connectivity with all the other companies’ instruments.
Q. Out of the various sectors, what are the top three sectors in which growth is targeted?
A. First is RF. One emphasis I want to put on RF is that, people often associate it with wireless test of the device like this. We do serve that application of wireless device testing, but the reason that we put a big investment in RF, in the opportunity we see there is because we see that as a broader application than just hands-on test. Wireless has become this ubiquitous technology, we believed that was going to be the case 10 years ago when we started down this path, we envisioned it as a core component of everything. And so for us, RF means not just wireless devices, but also radar, military & intelligence applications, infrastructure applications and so forth. RF is a growth opportunity.
When we talk about embedded which is the second area, what we really need about that business is the value we deliver to customers, a faster time-to-market. Thus it naturally goes into areas where there is an incentive to get to market quicker. We’re basically talking about fast moving markets and energy is a big one. Smart grid is really an investment area around the world where they need to move fast and they don’t know exactly what they need yet, so having a flexibility of a platform-based perch really is important. So that’s a key one. There’s also life sciences within that space. Everyone has different ideas on new ways to create new types of medical devices, and there’s a race to get those in the market.
The last one is, there is a lot of opportunities at the intersection of test and embedded. One example is an area called real-time test or hardware-in-the-loop. It’s basically when you’re testing software on an embedded device. The common application is in automotive, you get all the software in your car, and they need a test and verify that the software doesn’t have any bugs before a new model of the car is shipped. So you have to test this technique, we have to emulate the rest of the car in order to test the electronics in the software and these electronic control units. Our platform is well suited to that because it is kind of a blend of measurement and real time control.
Q. What’s the vision for myRIO–any benchamrk set for it to be termed as a successful product?
A. Of course, we have internal targets set for myRIO. One interesting thing about myRIO that maybe the most unknown piece is that it is targeted at academia. We know about the market pretty well, but with myDAQ we can understand the student owned market as well. Therefore we have a pretty good idea about how much success it will achieve in universities. The interesting thing is, that platform can do many other things for other types of embedded design and industry. There is a longer term, hobbyists can use that. It’s the closest thing we have to a hobbyist platform. The question is, can we drive the success of that, drive the cost down and be able to achieve success in those markets. We’re not counting on those for the success of the product, but we’re certainly talking about what things we could do to achieve some other market opportunities with things in pretty compelling products.
Q. Why price the same products at three different levels? Why not make the myDAQ the Raspberry Pi of NI? Is there an investor concern or…?
A. No. Obviously we have to build a successful business so that we can invest back into these platforms. The student-owned area can work for us and help us in other things. We have a notion of how we can sell a device to students and institutions and in a blended version of that we can do all of that and have a profitable product area. To broadly sell at that student price to anyone in the world, we don’t really have a model at this point to do that to support it properly because the hobbyist market has not been our core business. We may have a few enthusiastic users that buy our stuff, our biggest touch point in that marketplace is actually Lego Mindstorms, but we don’t support this. We’re supplier to Lego which sells into that market. So that’s our biggest penetration into that market.
Q. There have been different terms I’ve heard in NI Week this year. One was the cyber physical systems, then you mentioned about the Wired magazine’s Programmable World, and then Internet of Things. Are these different terms given by engineers to the same stuff or is there actually some difference between these?
A. Each proponent of these different things will likely argue that they’re slightly different. I’ve done my own reading up on all of the materials and I believe they’re more or less the same thing. Of course, everyone has a little different angle. Industry 4.0 is more targeted at the factory automation and things, but it’s the same. The technology that’s required and the technology barriers all of them talked about are the same. I think they are the same.
Q. Which term is NI going to be more close to? Like, GE is associated with the term Industrial Internet or Ethernet. They don’t use the term Internet of Things. Is NI going to be associated more with Cyber-Physical Devices?
A. Cyber physics is interesting, especially in academic tense. Many of the researchers talk about their researches in the cyber physical systems. That’s one you’ll see, but I don’t know if we’re completely settled right now. We’re trying to describe how we see this going forward.
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