National Instruments' CEO Hosts Analyst Day (Transcript)

National Instruments Corporation (NATI)

Analyst Day Call

August 07, 2012 11:30 pm ET

Executives

James Truchard - President & CEO

Alex Davern - CFO, COO, and EVP

Eric Starkloff - VP, Product Marketing System Platforms

Pete Zogas - SVP, Sales and Marketing

Analysts

Presentation

Operator

We can start now. I know we're running a little late. These exciting demos really took a bit, but that was really fantastic, wasn't it? To see all those incredible things folks are doing with our products and the new products there, vector signal transceiver. So, we remind you that there's risk associated with investment, including ours. But I'd like to share about our technology and the outlook for what we're doing, the core differentiators.

As an company, we've grown steadily and that's the goal of the company, to be a growth company, primarily organic growth. But we acquire companies from time to time. Last quarter, we've had $292 million in revenues. We sell to some 35,000 different companies across a very, very broad range of industries. We work hard to create -- National Instruments is a great company to work for. We've won awards all around the world, including a top award of one of the top 25 companies in the world to work for, something we're very proud of because one of the key assets of the company is the intellectual capacity of the staff. So that's a very important point.

Strong cash position, as we weathered through this previous downturn and in a position to stay strong financially. We work hard to enable innovation and make scientists and engineers more productive across the whole spectrum of science and engineering. Now our goal is to as we talked about in the keynotes abstract whenever possible, but still make it possible to dive down when needed to solve the detailed problems and enable reuse, create a platform-based approach.

We have seen how effective the Apple [IOS] ecosystem is. We work hard to be an ecosystem, a platform that reuse technology across the spectrum. You have heard of reuse from control design in doing PA amplifier test for example. That we just doing -- cutting right across industries in this platforms that can move across to get the right technology at the right place. We want to reduce costs with a high-volume platform so that you can reuse the many, many different applications.

We get out costs down to create a very, very differentiated competitive position. We want to use Moore's law. And by having the standardized platform, the innovation that we do overtime is quite different than what can be done with discrete instruments, typically designed by small teams, isolated from the rest of the design activity into one-off design and then some 8 to 10 years later, they will design a new instrument.

Our approach is in combining all the resources of a company on to a standardized platform, so we are getting a lot closer to achieving the full performance of Moore's law to give us a differentiation that you saw today in that demonstration. Early in the 1990s I was very anxious to see that we could continue to build the culture we had created in the beginning. So we really looked at the key points about quality systems and how we should operate as a company.

And I say that these two triangles, one is what I call the success triangle because I think in modern societies it is very important understand that the employees understand that they are stakeholders and their relationship with those stakeholders, that can be confusing if they don't. and we saw on the Wall Street how the imbalance of stakeholders can do some really not good things.

So we want to have a very balanced view and get everybody on board to drive the company forward. But the success of our stakeholders is very important between the role of shareholders, how they support the ecosystem in a big picture way. Our suppliers, partners as well and of course the customers that we want to make more successfully. You saw some examples today with both the wireline test device and the medical system among others and the power systems as well.

Where time to market and the success of our customers is created by the differentiation we see with our products. So some strategic goals is to drive organic revenue growth sustaining efforts on R&D, working hard to achieve a very high efficiency of our investments, broaden and deepen our customer relationships and expand their service to a complete product offerings, both directly and through our partners.

And then also work hard to optimize our operating expenses, deliver strong profitability, maintain good gross margins and drive the efficiency of the resources that we are doing.

Now I would like to share some about our technology. You saw some of our most advanced technology today. And I have been framing it in terms of this relationship between design and test. And with our CompactRIO systems, we are implementing design. On one side you saw today how our new vector signal transceiver works both ways. CompactRIO works both ways.

So we have this idea that we can do both, typically lower volume designs obviously we won’t be implementing this whole smart mobile phone with this approach that there are many, many applications that can use this. And then the whole philosophy, even the high-volume devices like smart mobile devices can benefit from this reuse of technology.

So this is a traditional design curve and how it's been used traditionally. And with our simple devices it could be used simply with as we heard today not too much connection between design and test, not much reuse. But as things get a lot more complicated, it's get more and more important that we have that fraction and that we can drive reuse from the design to test phase.

And that's what we are working hard to do. You saw the example where we are working with a University on 5G wireless. So we are working to get ahead of the curve, so in the future we will be right there. And the test kind of flows automatically from the design process, so that is very important to us and we want to work at different levels of test. And I use of phrase cyber physical -- taking it from National Science Foundation's terminology. It's a system level, but computers and real world I/O and real time computations and hardware in a loop that is typically used for a variety of things especially ECUs.

But we are expanding the concept into wireless and other areas and protocol aware simply is much more efficient way to test than the big iron ATE that's been traditionally used. So whenever possible you want to use these because they are at a higher levels of abstraction, they are faster and get more productive testing on the factory floor which is very, very critical as we get more and more complex systems.

But we are also investing and you probably see some of that on the showroom floor and the component level with techniques more like traditional big iron ATE as well. So that whenever necessary that kind of testing be done as well.

So it is about Moore's Law and that's really what is used to drive your software, got more productive software, higher performance software, smaller form factors. We have seen this in computers from the many computer areas to the PC eras, to the tablet era. Continued performance improvement through Moore's law. You look at instruments they stayed about the same size. They have crammed more functionality and one of the challenges traditional box instruments has, they have to put everything they can think of into that one box. With software you don't do it that way. You don't run – you don’t have to have a 1000 buttons on this thing. You have about 800,000 apps now or something like that. You can change the app and you change what shows up on the screen. So you don't have to have all the functionality hardcoded in. It can be added as if needed. That's a totally different philosophy and you can get a lot more functionality and a much smaller form factor as we demonstrated today with our new vector signal transceiver.

So basically I by taking advantage of software based approach, we can change the functionality in software rather than trying to package it all in to a canned design. So if you look at as I mentioned today we see software as the era we are in. So it's really very clear that there is a high differentiation by making a standardized platform that would standardize ecosystem that we can build our systems with and so that's our strategy and our strategy for the last quarter of the century.

Now it's really bringing home with the latest products like the vector signal transceiver for example. So software is at the heart of our instrumentation. I used it to really capture in one picture our philosophy and the way we are looking at the system design. At the top it's all the things that we can do and we did it today by rotating around different applications.

We want to serve time to engineers very broadly and with literally thousands and thousands of algorithms they have at their fingertips as software in wherever I like to say we like to go where the money is. If we see smart grid is where the money is or smart mobile where is where the money is, we want to be there. We want to be there very nimbly as the market is staying and we can service the markets with a platform-based approach. All this is built around our software. LabVIEW is the most important one of these and then the choice of hardware that gets that gets the right functionality.

Scientists and engineers do many, many different things so we need a lot of different kinds of ideal capability as we need signal processing and analysis capability to really serve the scientists and engineers in the way they want to be served. So we sometimes talk about user defined instrumentation. So this platform of design for both design and test and in the common set of hardware and software to give very high productivity and reuse of the technology.

So here we see the example that Apple ecosystem and certainly Apple’s been a role model for us. We started out on the Macintosh back in 1986 and six years on the Macintosh we've spent many hours and late night parties with Apple and going to their introductions and so they have always been a role model in the way they have operated.

As you can see many, many apps and I think the number is actually outdated there (inaudible). So looking at our history and the history of what we've done with the real or FPGA technology, it started some 15 years ago with a audit presentation, a technology demonstration with our FPGA technology.

Our first products came out in the early 2000. They used a with plug in board, we had good success with them. Next we came out with our CompactRIO and that's really, really been highly differentiated and if you go on the showroom floor you will find CompactRIO is all over in our partners booth and our booth and all the incredible things folks have been able to do that with that and then that's kind of experimental products, IFRIO which was our first RF based FPGA products. We had lead users and I think that was one user in the example of the [passive] radar that we saw today used for antenna testing of smart mobile devices.

So they had good success, but it's bandwidth wasn’t as wide as it was needed for some applications. So we would be visiting that in this timeframe later.

Then we came out with FlexRIO and FlexRIO made a very flexible platform that you can plug modules in to it. So it made a more open ecosystem for our partners and our customers to use our FPGA technology you heard some introductions there.

That’s been very, very successful for interfacing custom protocols like and often eliminates the need for an expensive ATE pin driver, much simpler to use and so far lower cost, but that’s been very successful as well. And now, I believe vector signal transceiver will be one of our most successful products ever.

Building on this long timeframe of doing investing in the design of FPGA technology, exceptionally high speed streaming technology where because of the reuse investments that we make, we get some of the highest performance now that we see in the market place. So this is really a progression in what we’re doing to really redefine instrumentation. And here we see the facts you saw today. You saw some applications upto 6 giga hertz which covers most of the high volume applications and wire LAN and LTE and the like.

According to latest standards with three channel MIMO, very small footprint, far smaller than anything else that’s ever been done and of course the RIO architecture for that allows you inside with the FPGPA bidding a high level differentiation, the same architecture that we had before so that IP that we have created over the last 10 years or so can be reused on this platform as well to create only our customers can imagine all the things they will be able to do it.

Which is the key point of an ecosystem, that's been done with the IOS for example things that nobody had ever imagined when it first evolved. But we have invested heavily in both field sales and R&D and now these kind of products that will give us the opportunities out there for these larger sales systems where this investment is needed to continue to grow our business and R&D size we are going to continue to invest in these high performance platforms that give us answers we need.

So basically a strong history and track record of growth and profitability and we have invested to continue that. You see new products that definitely can help us do that, so we are continuing on our long-term deal. This is the slide I presented the first time we met with the investors in 1995. We wanted to assure everybody that we were taking the long term approach. So we added a 100 year plan and the 100 year plan is really about the (inaudible) the environment, the decision making approach.

We some times call it the NI way where the core value and cultures included and then ten years this has been in progression of our vision over the last four decades to expand every capability to serve scientist and engineers, five year levels, interesting markets like the smart grid, energy, smart mobile devices and like and then of course one year planning. So longer term things from start to planning and this a approach that we believe gives us a really good way to make long-term decisions. So I'd like to thank you for joining us. Yes?

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