2012 Annual Report
To Our Stockholders
With revenue reaching a record $1.14 billion in 2012, National Instruments marked our 32nd year of double-digit revenue growth in our 36-year history.
This year proved to be challenging for the industrial economy, with the lowest global Purchasing Managers’ Index since 2009 making conditions especially difficult for the overall test and measurement industry. Despite these challenges, we created value for our shareholders, customers, employees, and suppliers by driving long-term growth through our highly differentiated product platforms that set us apart from others in our industry.
Our Product Platforms
Throughout our history, we have worked to build a business that is diverse across customers, industries, geographies, and applications. This diversity allowed National Instruments to gain traction with our platform. In 2012, no single industry accounted for more than 15 percent of our sales, and our largest customer accounted for approximately 6 percent of our total business.
NI also diversified the scale of applications we served, and in 2012 we changed the way we report revenue by order size. By reporting revenue from orders under $20,000, orders between $20,000 and $100,000, and orders over $100,000, we hope to better illustrate the various dynamics of our business ranging from our high-volume, broad- based business to our large, complex orders. We believe this diversity in orders demonstrates that LabVIEW, along with our systems platforms of PXI, CompactRIO and data acquisition (DAQ), are achieving broad-based acceptance, and that the investments we made in our services and support to complement these systems are creating a competitive advantage for us.
Our graphical system design approach provides an integrated hardware and software platform for measurement and control systems that can be defined entirely by the customer and can more easily adapt to changing requirements and technologies over time. LabVIEW is at the heart of our approach to graphical system design, which promotes problem solving, accelerates productivity, and empowers innovation for our customers. These customer-defined systems are more flexible, with higher performance and lower costs compared to traditional vendor-defined systems. They are not only a compelling advantage to our customers but also differentiate us from our hardware competitors.
We believe building on our vision of graphical system design creates the greatest long-term growth opportunities by expanding our footprint with LabVIEW, DAQ, and instrument control; displacing traditional instruments with PXI; accelerating our position in RF; and winning more embedded measurement and control system designs with CompactRIO.
Over the past several years, the broad-based reach of LabVIEW, DAQ, and instrument control has enabled us to increase our customer base. LabVIEW has been adopted by hundreds of thousands of users around the world who realize the value this software adds to their applications. And as an industry leader in DAQ and instrument control, we are committed to investing in innovative technologies to support these products. This area of our business has historically been more affected by changes in the global economy, and it experienced a decline in 2012. While we are not pleased with this performance, we will maintain our focus on expanding our global customer base through these platforms so we seed the opportunities to fuel long-term growth.
We have also successfully grown our reach over the years through our collaboration with more than 7,000 academic institutions around the world. In 2012, sales of our academic products reached an all- time high. We believe that by investing in science, technology, engineering, and math education and engaging students with technology in a fun, hands-on way, NI helps inspire the next generation of engineers and scientists and provides strong returns in the long term as these students graduate and enter industry.
Another area where we are gaining traction is displacing traditional instruments with a modular approach using PXI. Since inventing the PXI standard in 1997, NI has been at the forefront of delivering the benefits of PXI to engineers and scientists worldwide. Over the past five years, we have delivered more than 250 new PXI modules, setting the pace for the test and measurement industry. This is seen not only in the overall growth of our PXI products but also in the adoption of PXI by major customers in critical applications.
For example, in 2012 PXI and LabVIEW were used in the largest application sale in the history of NI. This application incorporated our tools to rapidly develop a production test solution. It also displaced what would have been a traditional instrument sale because PXI and LabVIEW offered the customer better performance and accuracy at a lower cost of test per unit.
A critical growth area across the test and measurement industry is RF as applications integrating wireless components proliferate. As a result, RF presents a significant growth opportunity for NI. While we are still a relatively small player in RF, we are participating in a market that is ripe for disruption, and our RF product revenue continues to outpace our overall growth. This growth trend presents an opportunity to accelerate our position in RF.
One way we are addressing our opportunity in RF is releasing the world’s first RF vector signal transceiver. This new PXI module builds on our established leadership position in modular instrumentation. Engineers and scientists can use LabVIEW and the onboard FPGA to customize the vector signal transceiver to their specific application needs. The vector signal transceiver provides industry-leading performance for testing the latest wireless standards, and it can replace multiple traditional instruments at a fraction of the cost and size while delivering measurements more than 10 times faster.
The sophistication of modern embedded measurement and control systems creates new opportunities to help meet some of the world’s greatest challenges. Designing these systems requires rapid innovation, and we see engineers adopting LabVIEW and CompactRIO because of the unique time-to-market advantages this platform provides. In 2012, CompactRIO reached record revenue as domain experts leveraged the power of our FPGA technology and integrated our products into their embedded measurement and control system designs.
We have a lot of growth opportunities ahead of us in technology education, engineering tools, and the way we approach designing and testing systems. We look forward to a continued partnership with the innovators of the world; our promise has been, and continues to be, providing the best engineering tools available so engineers and scientists can focus on improving everyday life.
A Company Built To LastIn this challenging economic climate, it takes discipline to balance the short-term demands of the business and our long-term objectives for developing a company that is built to last. In 2012, we continued to adapt to changing global dynamics to better serve our customers around the world through our new manufacturing and R&D center in Malaysia and the addition of our fourth geographical reporting region that increased our focus on emerging economies.
Over the past few years, we invested aggressively in research and development, with the result being new products that open up new business opportunities. Similarly with our strategic investments in developing a strong sales force, we are positioned to help our customers find ways to lower their costs, improve their productivity, and deliver their own innovative products to market quickly. In 2012, we grew our operating expenses in line with our revenue growth by significantly moderating our expenses between the first and second half of the year in response to the increasing economic uncertainty.
For the second consecutive year, NI was named among the Great Place to Work Institute’s World’s 25 Best Multinational Workplaces. We were also named one of FORTUNE magazine’s 100 Best Companies to Work For in America for the 14th year in a row. It gives me great satisfaction, both as a founder and a shareholder, to know that our employees enjoy working at NI as much as I do.
Looking ForwardWhile we were pleased with our performance compared to the overall industry, the macro economy during 2012 was a headwind to our goal of reaching $2 billion in annual revenue by 2016. Looking out to 2013, we will continue to focus on important growth opportunities: expanding our customer base with LabVIEW, DAQ, and instrument control; displacing traditional instruments with PXI; accelerating our position in RF; and winning more embedded measurement and control system designs with CompactRIO. 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.
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 statements relating to our competitive advantages, various growth opportunities, being positioned to help our customers find ways to lower their costs, improve their productivity and help them bring their own innovative products to market quickly, being 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. These statements are subject to a number of risks and uncertainties, including the risk of adverse changes or fluctuations in the global economy, component shortages, delays in the release of new products, fluctuations in customer demand for our new and existing products, our ability to effectively manage our operating expenses, manufacturing inefficiencies, foreign exchange fluctuations and the impact of NI’s recent and any future acquisitions. Actual results may differ materially from the expected results. We direct you to our Form 10-K for the fiscal year ended December 31, 2012 and the other documents we file with the SEC for other risks associated with our future performance.