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2011 Annual Report

To Our Stockholders

For the first time in the 35-year history of National Instruments, our annual revenue surpassed $1 billion. I thank our dedicated employees for their steadfast efforts to shape the company, and I thank our customers who inspire us with their commitment to innovation. National Instruments has a longestablished track record of strong revenue growth and profitability, which has allowed us to be a stable business partner, employer, and technology leader.Our long-term vision and focus on improving society through technology support the success of our customers, employees, suppliers, and shareholders. We believe strengthening our presence in new application areas will contribute to the company's long-term growth, and, accordingly, we made significant investments in R&D and field sales in 2011.

Our Products and Application Areas

Since 1976, we have equipped engineers and scientists with tools that accelerate productivity, innovation, and discovery. The breadth of our product portfolio helps us serve a diversity of customers, and this diversity is a key factor in our long track record of growth and profitability. Last year, we sold products to more than 35,000 companies around the world. No single industry accounted for more than 15 percent of our revenue and no single customer made up more than 4 percent of our revenue in 2011.

NI delivered many new products to the market in 2011, including the 25th anniversary edition of LabVIEW, new PXI modular instruments, new data acquisition (DAQ) products, and new product offerings based on our reconfigurable I/O (RIO) architecture. The company's graphical system design approach to engineering provides an integrated software and hardware platform that speeds the development of any system needing measurement and control.

We continue to invest in our flagship software product, LabVIEW, which we believe is the ultimate system design software for measurement and control. LabVIEW promotes problem solving, accelerates productivity, and empowers innovation. LabVIEW 2011 incorporates user-requested features that accelerate our customers' productivity while they innovate on a stable platform for mission-critical applications. When customers combine LabVIEW with the modular hardware approach of our DAQ, CompactRIO, and PXI products, they are able to quickly integrate system components and complete their jobs faster, better, and at a lower cost.

As the pace of innovation continues to speed up and engineers rapidly evolve their test systems, we have seen an increased interest in software-based test systems. In 2011, we saw record revenue in our PXI modular instruments, specifically our radio frequency (RF) and NI FlexRIO products. With over 14 years of investment in developing software-defined PXI instrumentation, NI now has more than 400 PXI modules and a clear leadership position in automated test. We released the industry's first 14 GHz RF vector signal analyzer in the PXI form factor. This release is the latest result of our investments in RF products—a significant milestone with best-in-class performance at a fraction of the cost of traditional instrumentation.

To continue investing in a richer RF product portfolio and serve customers throughout the RF product development cycle, we acquired Phase Matrix and AWR. These investments will speed our deployment of RF and wireless technologies to significantly improve customer productivity throughout the design, validation, and production test functions. With a strong track record of designing and manufacturing RF and microwave test and measurement technology and a highly talented employee base, Phase Matrix can speed our development and delivery of highperformance RF and wireless products to our production test and R&D customers. AWR, a leader in design software for RF systems, offers a strong team and a state-of-the-art RF systems design product portfolio that is highly complementary to NI's hardware and software. We are very enthusiastic about the opportunities stemming from these two additions to the NI family and the combined expertise in RF.

Continued investment in our DAQ products is strategically important for the company. As an industry leader in DAQ, we are committed to investing in innovative technologies. Our continued investment in DAQ product lines allowed us to expand the capabilities of products like NI CompactDAQ with Ethernet, Wi-Fi, and USB support.

We have continued to see success in the industrial embedded application area with our FPGA-based distributed I/O products led by our CompactRIO products. We launched the highest-performance and first multicore CompactRIO systems as well as the industry's smallest NI Single-Board RIO devices. Combined with LabVIEW, NI RIO technology delivers value to our customers by simplifying development cycles and shortening time to market for their advanced control, monitoring, and test systems.

To introduce engineering students to the latest technology, the academic community continued to show strong interest in NI products, as evidenced by the record revenue generated by sales to academic institutions. In 2011, we released a new RF teaching platform called NI USRP™, which functions as a scalable solution for communications experimentation, research, and rapid prototyping. Leading academic institutions like Stanford University have adopted the platform, and, for the first time ever, students can have affordable access to high-frequency signals earlier in their academic careers.

We have continued to show agility in quickly identifying and responding to opportunities and application areas that are seeing growth, including mobile devices, academic teaching and research, energy, semiconductor, and big physics. Our new modular instruments, particularly in RF, provide additional growth opportunities for new business areas. Our ability to win large orders in these new application areas is directly attributable to the value and success of our field sales force and is a key reason for our continued investment in growing this channel.

In summary, we have built a world-class product portfolio, an outstanding sales force and service offering, and a strong National Instruments Alliance Partner Network, all of which help us serve an immense diversity and scale of applications. In addition, our strategic R&D investments have produced highly differentiated products, such as RF modular instrumentation and CompactRIO, and have enabled us to grow rapidly in large application areas where our products stand apart from the incumbent technology.

A Company Built to Last

Our commitment to our strategic investments in R&D and the field sales force combined with our employees' unwavering focus on serving our customers demonstrates the success of our 100-year plan to be a company "Built to Last." This view balances the longterm NI vision and culture with short-term business needs. Over the past decade, we have transformed from a transaction-focused PC peripheral company to an organization that continues to find better ways to serve our high-volume, transactional customers while closing large system sales.

We are also extremely honored that National Instruments was named to the Great Place to Work Institute's inaugural list of the World's 25 Best Multinational Workplaces. This achievement further illustrates the success of our 100-year plan, and I am proud of our open environment that empowers employees.

Looking Forward

As we celebrated the 35th anniversary of our company and the 25th anniversary of our flagship product, LabVIEW, and as we crossed the $1 billion threshold, 2011 was a landmark year for National Instruments. Key to our success is an investment in and commitment to developing platforms that leverage both internal and external technologies and take advantage of Moore's law. These platforms provide consistent software and hardware form factors with the flexibility to evolve, so engineers and scientists can accelerate their productivity, innovation, and discovery.

Although we faced a challenging macroeconomic environment at the end of 2011, we believe the diversity of our business and the solid execution of our sales force allowed us to continue to grow.

Our customers use NI tools because we can fundamentally enhance their productivity. With NI technology, our customers serve the growing industries that are fundamental to the needs of society such as mobile devices, academic teaching and research, energy, semiconductor, and big physics. Our direct field sales force and excellent integrator network work closely with customers as trusted advisers to help support their success and innovation. In 2012, we will be both strategic and prudent in our business planning, leveraging existing investments and managing our expenses carefully while keeping our eyes firmly fixed on long-term growth.

Our commitment to the long-term success of our stakeholders allowed us to reach record revenue and profitability while strategically investing in our R&D and field sales force teams. We believe these investments will allow us to continue our strong track record of growth, profitability, and technology leadership. We look forward to future growth for the company and thank our employees for their continued commitment to innovation.

Best regards, Dr. James

Best regards,

Dr. James Truchard,
President, CEO, and Cofounder

This letter contains forward-looking statements as defined under applicable securities laws and such statements are intended to be covered by safe harbor provisions of the Securities Act of 1993, the Securities Act of 1934, and the Private Securities Litigation Reform Act of 1995. These forward-looking statements include our intent to continue to be both strategic and prudent in our business planning, leveraging existing investments, and managing our expenses carefully while keeping our eyes firmly fixed on long-term growth. Our belief that our commitment to the long-term success of our stakeholders and our strategic investments in our R&D and field sales force will allow us to continue our strong track record of growth, profitability, and technology leadership.