National Instruments Corporation (NATI)

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National Instruments Corp (NATI)

NATI Investor Conference

August 6, 2013 11:00 a.m. ET


Alex Davern – COO, CFO, and EVP

James Truchard – President, CEO, and Cofounder

Eric Starkloff – SVP, Marketing

Ray Almgren – VP, Marketing

Pete Zogas – SVP, Sales

John Graff – VP, Americas

Francis Griffiths – VP, Europe


Alex Davern

I guess Caitlin if you can close out the doors. Okay, if we could all get seated we will get started. Hopefully everybody had a chance to attend the keynote this morning, and got some of the energy and enthusiasm in the crowd, certainly got me going early. This morning was great to see.

For those of you joining us on the webcast, the keynotes this morning were also webcast. If you haven't seen it, you'll be able to see a repeat of it later at My name is Alex Davern, I'm the Chief Operating Officer at National Instruments. I'm going to do a quick intro and then we'll hand it over to Dr. Truchard to get right in there. If we can move to the first slide that would be great. So we should have a Safe Harbor, Caitlin, can you put that up or I'll just talk to it?

So in our investor conference today, we will be making some forward looking statements. I advise everyone to refer to our SEC filings for a comprehensive list of risks. Forward-looking statements obviously are always associated with the risks that we may not be accurate, may not be right. So I would like you to understand those risks in investing.

In our topics today, Dr. Truchard will be kicking it off talking about how we are going to drive technology and use that to leverage into revenue growth. Ray Almgren and Eric Starkloff who is also in the morning in the keynote stage, where they will be focusing on our software differentiation and how that drives platform adoption. Pete Zogas with some of the regional vice presidents of sales will talk through our sales model and how we leverage our position that will let you to drive our revenue growth, and then closing this afternoon, I will talk about how we are going to drive operating leverage moving forward.

And without further ado, I’ll hand it over to Dr. Truchard.

James Truchard

Thanks Alex. I’ll stand up here so everybody can see in support. What I would – we decided to do today is kind of give you the behind the scenes story more from the shareholders perspective of the talk that I gave this morning. So it’s basically the same slides but the story behind the story that I would like to share. Because this has been very confusing, people will ask me, “Okay, how much business are you doing in industrial market, how much tests and so forth…” when we are seeing it as one thing. So this is – to make that point I started out with this sample example of how with the iPhone now, all these apps some of them are instruments, some of them are embedded devices and so forth but they are a one platform and there is an appstore for these embedded devices all in the same appstore. That’s our perspective feeding a platform that totally redefines the perspective that you need to take unit. So that’s what I was trying to do here, talking about one of the oldest instruments and one of the newest.

And then pointing out these examples all instruments on the left and embedded systems on the right, they are all part of one ecosystem, so understanding that concept is central to understanding the vision that we’re trying to create at National Instrument and how we’re operating, so we saw all virtual instruments in platform based embedded systems, so with that perspective we are on to this slide – the ecosystem ad operating system that embraces them all, so that’s our goal with our platform, graphical system design, so we started out in 80s used the phrase virtual instrumentation, over the last 10 years we moved that phrase to include not only virtual implementation but include its platform based approach, graphical system design.

So really trying to redefine how you think about – the technology that we use and we sell on our platforms, that is indeed a platform based approach and it does both measurement and control, and I will talk about how we then take on for our vision going forward. Key thing is any of the applications can be done with combinations of the platform, now one big difference about our marketplace our application areas is that we have many, many different kinds of measurements we have to do, and so that's why we have so many different IO products, if we could have 100 GHz 32-bit ADD converter, and that’s low power we’d need only one car or maybe a few, but basically because we can’t get all the performance and all the dimensions in one IO module, we have to have many, many different choices and that each time we pick a new choice, we can expand our efforts into a new area, new customer or the like.

We also have two major platform sizes, one is PXI which is for the heavy-duty instrumentation, heavy duty large scale systems and then a CompactRIO which is for the small-scale systems and CompactDAQ reuses the same module that CompactRIO does, so these three platforms really give us the IO capabilities we need to serve this very, very diverse set of applications across these domains. And in the application space the customer has lots of different needs of analysis capability ways to look at their problem, and we try to address those and LabVIEW was fortunate coming up with a model of computation that this works very well for the distributed multicore – heterogeneous processing system. So we are able to serve with one platform and some core technologies, a broad array of applications.

Now I was given a talk at RF regional advisory council and I started with this slide, and the point of the slide was it really set a stage of our vision and it was the timeframe when we started the LabVIEW. And Jeff and I would need once a week or so and I hit him with ideas, he gave me his feedback each time, we did that for 2 years to come up with LabVIEW, it’s based on kind of these points that we were trying to create, we used the phrase in 1985 to do for test and measurement what the spread sheet did for financial analysis and we were very fortunate Jeff came up with technology – as I would put it nailed it, it really answered this goal that we had set and we were able to set the stage for not only what we could do in test and measurement but also in this embedded space as well, that’s how we got from that point.

So in my RF presentation I used the Qualcomm example which we highlighted last year where with the PXI system they were able to be 10 times faster than the traditional instrumentation systems, mainly because they could synchronize measurements at a much higher speed then by going to AGJ and as you saw today, controlling the unit under test directly from the APJ we could get over another RF92 20 times faster beyond that felt. So 200 times faster than the traditional GPIB based system where we started in 1983, that was our vision being accomplished through each step along the way and the process.

I used this again – I used this last year, that really brings home this platform based approach that we are bringing to the marketplace, that is indeed a major transition taking place, we still have a long clocks and instruments – traditional instruments from the past, but we’ve moved on now where from the generation of roughly 45 years, general radio company was successful with vacuum tubes and then transistors and integrated circuits with Hewlett Packard another 45 years, and now a software based approach built on platform, so once again making the change and the perspective, there will be old instruments still around, they won’t all go away but the center stage just like clocks that are still around, I can come in late at night and I can never figure out how to set correctly, whether they get a really go off and on, so the technology has moved on toward this platform based approach really a center stage.

So we’ve over the years used the symbol ying yang the software and hardware view that’s very, very well woven in this platform based view, we still have disk verse frequency, we still own all these IO, because we know these control systems that I will explain perhaps measurement capabilities and IO capability in them as well, so we call it virtual instrumentation, it’s still virtual instrumentation but it’s in the bigger context of also doing this graphic system design.

Last year we introduced the vector single transceiver and it was the realization of decades of worth for us first starting with processor software moving to FPJ software, first on plug-in boards, for PC then in CompactRIO, moving into our – we had a product called RF RIO which was a prototype for what the VSP would see, on into the FlexRIO then on to DST. All with the same platform based software built around multicore and FPGA but it really continuous progression moving between heavy-duty taking on some of the hardest industrial applications around and in moving into RF communication software defined ratio, RF measurement, high performance measures on the production to make our successful product ever. So really building on a t straight line on the vision around the platform based approach.

We saw this a lot today this combination of processor and FPGA, now there is another dimension now you will hear us talk about in the future, and that’s distributed systems and the cloud you will hear about that more – tomorrow you will hear more about the cloud. So cloud is becoming a part of this and it’s a part of this industry 4.0 as the Germans call it. So really if this idea that you can have information from anywhere in flowing a decisions – decisions can be made anywhere up and down the chain all the way in the front end FPGA, so it’s really about the technologies that’s been evolving over the last decades coming together to create yet another industrial revolution, that’s done with our graphic system design.

So here we show a slide taken directly out of German working group, industry 4.0, Germany makes their living with industrial production, certainly shown a lot of leadership and that with all the money in Europe I guess there is something and their national academy of science and engineering produced this study and the report where they show all these technologies coming together to create yet another industrial revolution, now a little background story, I was invited to give a keynote talk at a workshop – cyber physical systems workshop by 2006, October and the lady who ran that workshop at a recent National Science Foundation workshop attributed me as defining what the cyber physical systems work and my talk that I gave, and basically by talk was about our vision for graphical system design and the CompactRIO and how it could change the way in industrial applications were done.

So we have very much involved in this process of defining and driving forward the next generation of the way systems would be built in industrial factory. So cyber physical systems is a term now accepted both in the US and in Europe with Germany leading the way in Europe and here we see a definition of computation, communications and control, with this ubiquitousness that we like to see where this allows manufacturers to create for example efficiently, this allows quick feedback, global differences yet have in common technology, so all the elements are improving efficiency of production process, better use of materials and so forth, so it’s a lot of attributes each one driving and we see literally thousands of examples where people are trying to do this – to make more efficient use of energy and create -- generate energy and the like, so basically around this concept of computation communication and control.

So you may hear lots of different terms, it’s ironic one that I like that, which we used a lot earlier, it’s intelligent systems, when we went public – Brian, Robertson, Stephenson used that terms to describe us, probably safe on the market side, and it’s 101 used – there is a latest one you will hear a lot of buzz around programmable world – one we are going to be using a lot because our customers are – big analog data where you take in all this data and making it into information, that’s one that will be coming into the picture.

Now the White House start initiative with office of science of technology where (inaudible) is busy working and we put them to work on the tip of the problems that we still have, synchronous communication is one, that’s readily accessible to other, we are seeing that this initiative really adds value and help us in that process of bringing this technology into the marketplace and communications and ways they do it reliable and predictable, a critical for critical safety systems for example, I am just making the thing to work, reliably and the wide range applications, so there will be hopefully helpful in this process of driving this technology forward.

We are using this graphical systems, to build cyber physical systems, so fundamentally we have go technologies that’s highly unique all these kind of problems. So Jeff and I often used when I give a talk at the big physics conferences as for the first time in the history you can have advanced measurement in the same platform you have in advanced control, I have all these measurement technology but on the other hand we have all these control technology, all the mathematics, all analysis needed to do advanced control, so in one platform you can bring both capability together, you see demonstrations of that with extremely large telescope, the large heater collider, these are all examples where we are bringing the two that elements together into one platform.

So I put a big hag first time it’s been seen, we do for cyber physical systems what the programmable logic controller did for discrete substance. These programmable logic controllers are made by companies like Allen Bradley, Siemens, so they are ubiquitous components primarily around discrete systems in other words, off on taken place that – the only place what used to be called ladder logic that was done by relays, you use relays to create logic and programmable logic controller replaced that, and these are the main space of industrial production now. We see the change where more accurate measurements are going to be needed and used to go to the next level and that's where this cyber physical systems, more use of software, more use of distributed capabilities, as the megatrend as we go forward.

Here are some of the examples of things we've been working all the way from medical devices to software defined radial, we've been doing radar systems, smart grid is obviously one you read a lot about in the newspaper and hear about on the news, with things like phased measurement units, control CBP, GPIC, which lets you control IGBTs, for putting power on the grid, whether it’s a storage battery megawatts, storage batter or multimegawatt wind turbine watt, we’re able to work with that. We are also doing some more fuel cells, for the home, company in Korea for example and then of course a lot of different the physics applications, also working in the transportation area prototyping next generation system, testing a variety of different technologies, electric cars, battery -- batteries has been a big area for us and the like and then of course lot of prototyping work lot of work in academia where these technologies and tools are being used to help teach next generation concepts.

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