2004 Annual ReportTo Our Stockholders
Our Mission Our vision is to revolutionize the measurement and automation industry through virtual instrumentation, an innovative approach NI pioneered and continues to lead. With virtual instrumentation, we use off-the-shelf, mainstream computer technologies and add our own innovative modular hardware and software products, such as our flagship LabVIEW product family, to create powerful computer-based instrumentation solutions. Our approach empowers customers to easily build open, flexible, user-defined solutions rather than rely on closed, fixed-function, vendor-defined traditional instrumentation. With virtual instrumentation, our customers can save time and money and achieve higher-performance solutions.
Our Product Mix When our company was founded 28 years ago, we started by building a leadership position in instrument control products (GPIB and VXI) that allow computers to control traditional instruments made by other vendors. Today, our instrument control products have matured and their sales generally correlate to the number of traditional instruments sold by other vendors. The industrial economy slowed in the second half of 2004, which affected sales of our instrument control products to test and measurement businesses and semiconductor capital equipment companies. In 2004, instrument control products represented only 16 percent of revenues as our computer-based virtual instrumentation products drove the company's growth.
Our New Products Our strategy paid off with a record number of new products that helped drive our growth in 2004. This year, NI introduced many breakthrough technologies including LabVIEW 7.1, a significant upgrade that offers more capabilities than any previous .1 release of LabVIEW. LabVIEW 7.1 also marked the most significant upgrade of the highly successful LabVIEW Real-Time Module, which is a key product for taking NI into new application areas such as industrial control. In addition, LabVIEW 7.1 included new versions of the LabVIEW PDA Module for portable communications and the LabVIEW FPGA Module, which engineers use to define custom measurements on a chip. In 2004, NI also introduced CompactRIO, an ultrahigh-performance embedded control and acquisition platform powered by reconfigurable I/O (RIO) technology for advanced applications for which small size and reliability are crucial. National Instruments RIO technology gives LabVIEW developers the ability to define their own custom measurement hardware circuitry using reconfigurable FPGA chips and LabVIEW graphical development tools. We were very pleased with the early acceptance of this new platform, and we believe we have greatly increased our ability to handle robust, deterministic applications like machine control, in-vehicle data acquisition, and industrial control. We expanded our data acquisition (DAQ) product line in 2004 with a new generation of multifunction DAQ products known as the M Series. The M Series delivers more performance, more I/O capabilities, and more value to our customers than our previous-generation data acquisition products. The new M Series devices not only lower the cost per I/O channel by more than 30 percent, but they also reduce overall system costs by minimizing setup time through advanced development tools included in NI-DAQmx measurement services software. We also continued to leverage new, easy-to-use commercial technologies such as USB by introducing new USB data acquisition devices that make acquiring portable high quality measurements as easy as plugging a USB cable into a PC. The company's latest PXI modular instrument products introduced in 2004 include a new 200 MS/s digitizer and a 200 MS/s arbitrary waveform generator. These new products bring the advantages of PXI and modular instruments to a broader set of applications than we could address before in industries such as semiconductor, military avionics, scientific research, and consumer electronics. The new instruments use the NI Synchronization and Memory Core architecture to double the available speed and memory depth of the instruments we introduced in 2003. NI SignalExpress, an interactive software environment for acquiring, comparing, automating, testing, and storing measurement signals, was also a major engineering investment this year. With SignalExpress, engineers can use virtual instrumentation on the benchtop to save valuable time by automating measurements for design, debugging, characterization, and validation labs. In the past, electronic design and test engineers spent hours acquiring and analyzing electronic measurements manually with traditional benchtop instruments. The advancing complexity of today's electronic devices requires more tests to verify and validate a design without additional time in the product development cycle for engineers. I am extremely pleased with our global R&D execution in 2004. Many of the new platforms and architectures released in 2004 required many years to develop, and I know our engineers and developers are very proud of the early success of their products. I look forward to further innovation and strong new product output in 2005.
Our New Opportunities We also continue to broaden our product offerings to address demanding industrial automation applications. As users add more advanced measurements and need greater flexibility in industrial control applications, there is a growing trend toward the use of programmable automation controllers, or PACs. In addition to our Compact FieldPoint and PXI platforms, we introduced a revolutionary new PAC platform in 2004 with CompactRIO. The LabVIEW virtual instrumentation approach was revolutionary when we developed it 20 years ago, and the LabVIEW dataflow approach has proven to be the ideal way to build measurement systems. We are now demonstrating that the dataflow approach is superior to alternatives for programming embedded systems. Our 2004 investment in R&D helped us build on the strength of the LabVIEW platform as we added simulation and control design capability to LabVIEW to further extend its applicability to embedded design. We are now in the process of completing LabVIEW as a system design platform. This means that design engineers will not only be able to test their designs, but they will also be able to rapidly design and prototype their hardware and software with LabVIEW. We believe our CompactRIO, Compact FieldPoint, and PXI platforms will be ideal for prototyping these systems. In 2004, we introduced significant new products that strengthened the virtual instrumentation foundation and expanded future opportunities in test, industrial control, and embedded design.
Our Finances For 2004, we had $65.6 million in net cash from operating activities, and we finished the year with $227 million in cash and short-term investments, up from $195 million from the end of 2003. In early 2004, the National Instruments Board of Directors increased the company's quarterly cash dividend by 50 percent to 5 cents per share.
Our Culture
Our Future As we enter 2005, our primary goal is to continue to grow our revenue and to further expand our operating leverage. We are excited about the success of our latest products, and we are determined to build on that success going forward. We will continue to invest aggressively, expand our market opportunities, and execute on our core vision for virtual instrumentation. We are determined to continue to innovate, execute effectively, and deliver long-term value to our shareholders.
Dr. James Truchard, This letter contains forward-looking statements as defined under securities laws and such statements are intended to be covered by safe harbors created under the Securities Act of 1993, the Securities Act of 1934, and the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, among other things, statements related to our goal of reaching $1.0 billion in revenue in 2008, our plan to continue to drive operating leverage, establishing new strategic growth areas, further expanding our PXI platform, further innovation and strong new product output in 2005, virtual instrumentation becoming the approach of choice, commitment to funding sustained revenue growth, growing our revenue, continuing to invest aggressively, expand market opportunities and execute on our core vision and delivering long-term value to our shareholders . Actual results could differ materially from those predicted in the forward-looking statements as a result of a number of risks and factors including future changes in the global economy, delays in the release of new products, fluctuations in customer demand for the our products, and unexpected changes in expenses and labor costs. We direct you to the documents we file with the SEC, including our recently filed annual report on Form 10-K, for additional risks.
|
We are pleased with the strong sales of our virtual instrumentation platform in 2004. We delivered a new all-time revenue record of $514 million in 2004, a 21 percent increase over 2003. We have passed the milestone of a half a billion dollars in annual revenue, making significant progress toward our goal of reaching $1 billion in revenue in 2008. The company delivered solid profitability, generated strong cash flow from operations, and delivered the 27th year of revenue growth in the company's 28-year history. Our strategic investment in R&D paid off with a record number of new products released in 2004. The diversity of our business - across geographies, industries, customers, and applications - is a key factor in our long track record of success. In 2004, we sold products to more than 25,000 different companies in more than 90 countries around the world, and no single industry accounted for more than 10 percent of our total revenue. We delivered on our goal to drive operating leverage in 2004, and we plan to continue that into 2005. I am pleased with the progress the company has made in establishing strategic new growth areas for virtual instrumentation, such as high-performance measurements, industrial and machine control, and graphical system design, where we have seen early success.
