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2013 Annual Report

To Our Stockholders

The year 2013 proved challenging, with weakness in the test and measurement industry exacerbated by currency exchange rate fluctuations, US budget constraints, and a declining PC market. Despite these headwinds, NI delivered record annual revenue of $1.17 billion, marking the 35th year of revenue growth in our 37-year history. We continued to gain market share for the year in a weakened test and measurement industry while maintaining good spending discipline. I believe we have the resources in place to drive long-term growth while improving our non-GAAP operating margin toward our goal of 18 percent. I also believe we will continue to deliver sustainable differentiation for NI and our stockholders by empowering engineers and scientists with tools to be more productive.

Our Differentiated Platform

Since 1976, NI has developed software and hardware that have revolutionized and continue to redefine the way engineers build systems that require measurement and control. Our graphical system design approach incorporates rapidly advancing commercial technologies to provide an integrated software and hardware platform that simplifies system complexity and significantly speeds application design, development, and deployment. This software-based approach spans across diverse industries and geographies to help our customers solve some of the most challenging applications in science and engineering while accelerating their innovation, lowering their costs, and increasing their competitiveness.

Building on our differentiated platform creates sustained long-term growth opportunities by expanding our global customer base with NI LabVIEW software, DAQ hardware, and instrument control; displacing traditional instruments with PXI; enhancing our position in RF; and winning more embedded measurement and control system designs with NI CompactRIO hardware.

Over the past several years, the broad-based reach of LabVIEW, DAQ, and instrument control has enabled us to increase our customer base. LabVIEW is at the heart of our software-based approach, and it has been adopted by hundreds of thousands of users around the world. This adoption provides the foundation of our customer loyalty and creates application opportunities for NI hardware for measurement and control. In 2013, our software and services sales were driven by the adoption of enterprise agreements that increase LabVIEW adoption and proficiency across a customer site or business.

As an industry leader in DAQ, we are committed to continuous innovation while leveraging the latest commercial technologies from our semiconductor suppliers. Though the continued weakness in the global PC market negatively affected sales of our plug-in DAQ products, our USB- and Ethernet-based NI CompactDAQ products gained traction in industries like transportation and infrastructure to set an all-time revenue record in 2013. Sales of our instrument control products, which accounted for about 4 percent of revenue, continued to decline in 2013. These products are used to control box instruments from other vendors, and are closely connected to the business cycles of those vendors. This decline indicated the continued weakness that the test and measurement industry faced in 2013, and was consistent with the results reported by traditional box instrument vendors for the year.

With over 15 years of investment and the largest portfolio of modules available, NI is at the forefront of innovation in PXI modular instrumentation. Our PXI products continued to see broad adoption by customers across a range of applications and industries, especially in RF. We are providing a disruptive new approach to the RF test market, and we believe we have significant opportunity to continue to gain market share. Sales of our RF products continued to outpace our overall growth in 2013.

Helping drive growth in RF was the very strong adoption of the vector signal transceiver, which generated more revenue in a single year than any other new hardware device NI has ever launched. Setting the vector signal transceiver apart from other available RF instruments on the market is its tight integration with LabVIEW FPGA, which lowers the cost of test through both initial system cost as well as significantly faster test times.

Market pressure on our customers to design, prototype, and deploy embedded monitoring and control solutions more rapidly provides a compelling environment for continued adoption of LabVIEW and CompactRIO. With this unique combination of software and user-configurable FPGA-based hardware, our customers can quickly prototype and iterate on their designs, and they can use our broad range of hardware options to deploy an NI hardware solution that matches the performance, cost, and form factor requirements of their applications. In 2013, sales of CompactRIO products reached a new record, driven by design wins and deployments across a broad range of applications—from smart grid automation to machine condition monitoring.

Both the vector signal transceiver (for RF test) and CompactRIO are built on our LabVIEW reconfigurable I/O (RIO) architecture, which combines LabVIEW and NI hardware that is programmable with LabVIEW FPGA. This common architecture allows us to leverage investments across both test and embedded markets, which provides scale and cost benefits while enabling us to efficiently take advantage of the rapid advancement of FPGA technology and increasingly differentiate NI from our peers.

Over the past decade, we have intensely focused on working with academic institutions to offer students tools that enable hands-on learning, and the continued adoption of our academic products helped lead to a new annual record for academic revenue. In addition to fueling revenue growth, our success in academia helps ensure that graduating engineers around the world are transitioning to industry with knowledge, expertise, and proficiency in using our platform.

We believe we have many 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 Last

When we founded NI, I was looking to create a job that I would enjoy as well as build a business with the financial engine that could scale to support sustainable growth and profitability. For the third 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 15th year in a row. It gives me great satisfaction, both as a founder and a stockholder, to know that our employees enjoy working at NI as much as I do.

Looking Forward

Though 2013 proved to be a challenging year for our industry, we continued to advance our differentiated platform and delivered another year of record revenue. At the same time, we focused on leveraging the resources we currently have to improve profitability, and we will continue to work toward improving efficiency to return the business to our long-term goal of 18 percent non-GAAP operating margin. I believe we made the investments necessary to continue to drive long-term growth in RF, broad-based test, and embedded monitoring and control applications.

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 statements relating to driving long-term growth; goal of 18 percent non-GAAP operating margin; continuing to deliver sustainable differentiation for NI and our stockholders; sustained long-term growth opportunities; adoption being the foundation of our customer loyalty; creating application opportunities; significant opportunity to continue to gain market share; a compelling environment for continued adoption of LabVIEW and CompactRIO, enabling us to efficiently leverage the rapid advancement of FPGA technology and increasingly differentiate NI from our peers; many growth opportunities ahead of us; and continuing to drive long-term growth in RF, broad-based test, and embedded monitoring and control applications. 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 and capacity utilization, foreign exchange fluctuations, and the impact of any acquisitions we may make. Actual results may differ materially from the expected results. We direct you to our Form 10-K for the fiscal year ended December 31, 2013, and the other documents we file with the SEC for other risks associated with our future performance.

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