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National Instruments Corporation (NATI)

Investor Conference Call

August 2, 2011, 11:30 am ET


James Truchard - Chairman, President and CEO

Eric Starkloff - VP of Marketing for Test and Embedded

Pete Zogas - SVP, Marketing

Alex Davern - CFO, COO and EVP



Good morning. Thank you for being here at our Investor Conference. Hopefully, you all saw the key note this morning where Dr. Truchard and Eric talked about graphical system design and all the various applications. We are going to continue with that momentum. Dr. Truchard is going to come up and talk some more about graphical system design and our vision as a company, followed by Eric Starkloff, who will talk about our opportunities in both Test and Industrial Embedded.

We will break few minutes for lunch and then Peter Zogas, our Senior VP of Sales and Marketing is going to come up and talk about selling and our investments in this field and how we are taking advantages of these opportunities and then we would round it up with Alex Davern talking about our financials and our commitments for the future and then we will have some time for Q&A, but we encourage you, if you have questions throughout, please ask them.

So with that, I’ll introduce Dr. Truchard to come on up and kick this off.

James Truchard

Thanks July. Alright. So, we saw some pretty impressive demos this morning. The 8x8 MIMO is getting us very close to our vision of what we want to do in the communications test and that is stability to demonstrate a new standard as it’s being written. That’s the end goal. Once we get there, we got it and we were very close with the 8x8 MIMO, the first time a 8x8 MIMO running that data rate for LTE that’s been demonstrated.

So, that was, in my mind, a pretty impressive demo. So I would like to share some thoughts and about what we are doing and try to once again explain this graphical system design that we talked so much about, that’s really given us the leverage to do what we are doing in the market place. First of, I want to point that there is uncertainty about the future. And you should be sure to read our documents and learn all the risks associated with our business.

So now talk a little bit, we often talk about our stakeholders. In the early 1990s I was very interested in really making certain we were getting a solid foundation the way we think about our corporation and what we do and our role in society and I think now this issue is being revisited as we had the meltdown on the Wall Street and you had folks really only looking at one vector, one direction or one stakeholder in the process and really creating some rather unfortunate results.

So we've over the years tried to create a approach that represent a balanced view. It’s really about creating a long-term view of how we are operating, where we have stakeholders, their interest and are looked after in a win-win working relationship, whether it’s the customers and obviously we have to have good and excited customers. Today you saw a lot of those, it was 3300 and some paid ones. So basically a long list of customers and then the employees, the employees are our capital really in terms of, it’s very important that we create a long-term view for them as well.

Suppliers, sustainable suppliers in the marketplace and then of course the shareholders. And if we do that we will have a win-win working relationship. So that's really been a foundation of how we’ve tried to operate over the years. Now we’ve this last year invested heavily in growing the field and in our R&D and you saw some of them outcomes of the R&D today, really substantive products, really taking, going squarely into the marketplace, this communication and telecom, where a lot of our business needs to come from, we’ve invested, we’ve seen the products, the delivering, the capabilities we need as well as in industrial embedded space and R&D.

And then the field fails to follow through and sell these products. You know if you have an opportunity it’s critical that you take advantage of it and in this timeframe we reached a critical mass of components with this RF test capability, the industrial embedded, if we didn’t take advantage of it with our field sales force, we’d leave it open for somebody to take a shot at it. Obviously, we got a big lead, but we have to make sure we follow through and get these products established in a timely manner before anybody else can jump in and take the opportunity, even though we do have a strong lead in the technology itself.

So we talked about graphical system design and this platform, in my role model it’s always been Apple as a platform and there were years when I used to say we’d like to follow example of Apple, that didn’t look so good, right? I mean the 90s, but with Steve Jobs back, they got that vision back on track and they are vision-driven company and National Instruments works to be a vision-driven company also. And a vision sets the long-term direction, in our case graphical system design this platform and our platform just like the IOS is designed it to integrate literally tens or hundreds or thousands of pieces of software and hardware into one platform, it all just works together.

So that’s a big order, but that’s what we have been working on for the last two and half decades and we’ve really, really, as you saw today with the demonstrations going all the way from toys to the smart grid, up to the most advanced demonstration of 8x8 MIMO, all with the same platform. That’s the goal and we are achieving that goal as we move forward. So on the test and measurement side, we have used FPGA technology to really, really scale what we can do and solve the harder problems in test and measurements.

But then with the same LabVIEW within to this industrial and embedded space with our CompactRIO and PXI as well. And here the really technology, really shines because we can do what it takes a custom design, may be a custom DSP design at that, we can do with off the shelf hardware. But that really is a significant breakthrough and the LabVIEW programming methodology lets us work with both processors and FPGA in the same environment, virtually only through around that really works that nimbly, as well as working with the domain experts.

So we put forward a new goal that do for embedded what the PC did for the desktop, that takes a little bit, you have to stop and think about what does that mean? That means there is a standardized hardware that you can run in a lot of different software applications on and it is reusable. So you get scale overtime and the vendors, if they want to play there is only one platform to play on. You are either in the platform or you are not.

And that creates a lot of ability to get good pricing and bring cost down just like the PC did over time where the cost to PC really left all the other approaches for computing, desktop computing behind. So that’s our goal, is to be able to create that standardized platform and this embedded side actually help us in test and measurement because there is a lot of embedded monitoring applications like in vehicle where you want to drive a car for a 100 miles or 100,000 miles and see if the software works right. For example so you have noise, either the engines gets it or whatever so in embedded monitoring you saw hardware in a loop demonstrations all the way from automobile to airplanes, so that’s done with this industrial embedded technology as well.

So it’s a win-win across these two spaces, use the same technology, getting evermore users that are using LabVIEW. We also talk about the engineering grand challenges in just a way to frame and as a recruiting tool, it certainly helps for folks to feel like there were important problems for society are, we want to do this with less effort. Obviously we talked a lot of about the shortage of engineers in the United States. One way to solve that its have better tools. So that the engineers that we do have can get more done in LabVIEW and our tools are certainly doing that. So they can meet this competitive trial.

Here we see the engineering grand challenges, we talked a little bit about them today. One of my favorite is fusion energy, back when I started physics in 1960, we were going to have so much energy that you wouldn’t even bother to meter it. Its plug like the internet and use it and it never happened. Okay. So we have to try I’d say. Of course we are doing things like fracking and that’s a little bit controversial but its the realistic answer. Natural gas half way there on the carbon footprint. A good idea I think.

So you take all these things, solar is another, I met with another customer yesterday with his strength in solar production where they’re just ramping up. So lots of things that we can relate to in society. So from the engineer’s point of view I always say that there is two perspectives, one the company and the business point of view and then the individual and the engineer making the decision about which tool they are going to use. And they too have challenges. They have to get more done in less time and they wouldn’t have a fun job and we have domain experts that don’t know all these technology about FPGAs and multi-core and all this.

So we like a tool that lets environmental engineer or a bio medical engineer who ever it is do the whole job. That’s much more efficient than having it pass it off to another programmer. With LabVIEW we can do that. So if you look at complexity, early phones were simpler they didn’t make phone calls and some days we wonder about smart phones and how well they do, but they were much simpler. So testing was a much simpler process. But then they starting adding complexity, we added camera as well and then you need some vision technology to work with and we add the audio and suddenly you want to listen to your music with this thing too.

Now you bring the kind of technology we are being selling to Bose for years and that we have to test to see that is really high quality music. And it goes on and on, add more features to your video, where we can do video streaming. All this needs additional testing, more complexities engineers face or even more. Then we start adding apps on top of this. So, they are adding even more interaction of things happening all at the same time for more testing and so, how can we do this.

Well, obviously we need technology to scale and match this level. So, if you look at the components of what are doing and I will point out this presentation I am just going through is what we are presenting to our editors to really talk about graphical system design to try to bring the key points out. We have been talking about graphical systems design for almost a decade now. But maybe it’s time for us to really explain in the way that we can communicate it well to the various audiences we have and that’s what we are trying to do here with this presentation. So, models for computation, we have worked with leading universities like Berkley on the technology that goes under the [herd] in LabVIEW to give us the capability to solve the kind of problems we are trying to solve.

Obviously, math and analysis, math is very important, but it’s not the only thing. So, we have to make, what we call real world map that takes in account the real world [embalm] and all the complexity that goes with that user interface. LabVIEW has always started that. So, that’s an important part of what we do, managing IO, literally tens of thousands of possibilities there.

And then the deployment targets. PXI is good for some things but if you want to rug it controller for fracing machine you need CompactRIO. We also have, you saw some introduction of single board RIO but even more embedded, deeply embedded applications all the way up to the x86 Dual Core processor, all that are very rugged, in a very rugged platform and then of course being able to leverage the A/D converters and D/A converters from TI and the other players in the marketplace.

So what if all these things could combine to make it so you can develop these systems faster which we are clearly demonstrating reduce the complexity of the design process and have tools that do not get in the way. We saw Eric talk about abstractions versus obstructions. So this is an intricate process of making sure that we are creating tools that work in that way. And of course accelerate innovation.

So graphical systems design is designed to do just that. So it’s a platform-based approach, meaning everything works in the ecosystem. Users can share their technology, they can share the example in this platform because its standardized the way it works and it’s a, you are able to visualize your solution, so there's the graphical element of the process. So we use this to show how we can bring those elements together with a combination of the software on one side and the hardware, you've sometimes seen us use the Ying-Yang to do that. And this idea is this combination of hardware and software just like a smart mobile device that brings it all together and makes these capabilities possible.

So it allows us to be more productive in what we do, we could innovate faster in how we are doing it and build in the system. Now we got many, many tens of thousands examples you saw some of them today, here we see some basically at the top, the idea behind this graphic this is taken after Professor [San Jubal Vincent Palio] of Berkeley that talked about the application space. We wouldn’t be nimble so no matter what we need for the smart grid or the wireless phone whether it’s video, audio whatever, we’re nimble enough to be able to implement the system.

So we explore up in this space, what our problem is, whether it’s wind energy whether it’s a life sciences abyss, its under ocean robot or a cyber physical robot of which we see over here. These are all possible and we have the technologies we can pick and choose from to implement in LabVIEW and then deploy on the targeted choice. So the decision process at the top map is through the LabVIEW software on to the deployment targets at the bottom of this slide.

We are also talking about model for computation, this is using Berkeley’s terminology. We’ve been working on this structured data flow which is the one on LabVIEW for the last quarter of a century, and we pointed out how we’re investing for the next quarter of a century in LabVIEW. We can integrate C-code, map, its takes map as we need it and then continue some simulation to do these applications like you saw the HIL demonstrated our control design like tracking in light and then stay towards into this platform that all works with LabVIEW onto the hardware. So this is kind of the programmers view or the person trying to implement into the system and LabVIEW is clearly demonstrated its ability to let a domain expert built a system.

So here we see that, implementation of RIO and Eric talked a lot about RIO. RIO has really, really been the key technology that let us work with FPJ’s programming let domain expert, medical doctor’s program FPJ’s like to never do that. So really, really eliminates a lot of work for the use and complexity, along with the drivers to go on the hardware. So basically RIO technology and of course LabVIEW at center stage. It is the one that started unifying view of the problem that we can work with in creating these very broad applications.

So we opened up for system design and software, we can accelerate the productivity and innovate and we see, you will see as you walked around the trade show floor, the example. It’s an incredible amount of innovation. We didn’t have wind lift with wind, flying kites to generate energy which is one of my favorite ones. Sounds cool.

Here we see how the software Ecosystem has been created with the 140,000 online users, 250 user groups over a 1000 people looking for folks work on it, LEGO with 400,000, instrument drivers. So we backward compatible with all the instruments. We work with industrial devices like PLCs and then we collaborate with literally hundreds of third parties and their hundreds of solutions and their products as well and you saw the demonstration of how we can create a product ecosystem in the way that integrates our partners’ products right into our LabVIEW product and of course training in the ecosystem for that going with it.

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