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National Instruments Corporation (NASDAQ:NATI)

Q2 2014 Earnings Conference Call

July 29, 2014 05:00 AM ET

Executives

David Hugley - VP, General Counsel and Secretary

James Truchard - President, CEO and Co-founder

Alex Davern - EVP, CFO and COO

Eric Starkloff - EVP of Global Sales and Marketing

Analysts

Patrick Newton - Stifel Nicolaus

Paul Knight - Janney Capital Markets

Richard Eastman - Robert W. Baird

Bryan Kipp - Janney Capital Markets

Operator

Good day, everyone, and welcome to the National Instruments Third Quarter 2012 Earnings Conference Call. Today’s call is being recorded. You may refer to your press packet for the replay dial-in number and the pass code.

With us today are David Hugley, Vice President, General Counsel and Secretary; Alex Davern, Chief Operating Officer; Dr. James Truchard, CEO and Co-founder; and Peter Zogas, Senior Vice President of Sales & Marketing.

For opening remarks, I would like to turn the call over to Mr. David Hugley, Vice President and General Counsel and Secretary. Please go ahead, sir.

David Hugley

Good afternoon. During the course of this conference call, we shall make forward-looking statements, including our guidance for second quarter revenue, gross margin and earnings per share. We wish to caution you that such statements are just predictions and that actual events or results may differ materially. We refer you to the documents the Company files regularly with the Securities and Exchange Commission, including the Company’s most recent annual report on Form 10-K filed on February 20, 2014 and our Form 10-Q filed on May 1, 2014. These documents contain and identify important factors that could cause our actual results to differ materially from those contained in our forward-looking statements.

With that, I will now turn it over to the Chief Executive Officer of National Instruments Corporation, Dr. James Truchard.

James Truchard

Thank you, David. Good afternoon and thank you for joining us. Our key points for Q2 are record quarterly revenue, strong order growth of our CompactRIO and PXI products and significantly improved operating margins. We’re pleased to see a new quarterly record for orders and revenue in Q2 and we have remained disciplined in our expense management. Given our leader position in the improvements in the industrial economy in Q2 we’re guiding the continued year-over-year improvement in our operating performance in Q3.

I am optimistic about our long-term position in the industry, the differentiation we deliver to our customers geographical system design positions our customers to solve their traditional implications as well as exciting new ones in areas such the Internet of things. In our call today Alex Davern, our Chief Operating Officer will review our financial results. Eric Starkloff, our Executive Vice President of Global Sales and Marketing will discuss our business and I will close with a few comments before we open up for your questions.

Alex Davern

Good afternoon and thank you for joining us today. Today we reported revenue of $313 million for Q2, a 6% year-over-year increase and a new all-time quarterly revenue record. Orders also represented new quarterly record and deferred revenue increased by $5 million during the quarter. For Q2 net income was $25 million with fully diluted earnings per share of $0.19 and non-GAAP net income for Q2 was $32 million the non-GAAP fully diluted earnings per share of $0.25 at the midpoint of our April guidance.

The reconciliation of our GAAP and non-GAAP results is included in our earnings press release. Non-GAAP gross margin in Q2 was 74.8% up 210 basis points from Q2 last year. Total non-GAAP operating expenses were $192 million or 3.6% year-over-year. For Q2 and non-GAAP operating margin was 13.5%, up 330 basis points from Q2 last year. Non-GAAP operating income of $42 million was up 40% year-over-year and for the first half we met our goal of driving significant operating leverage delivering 260 basis point year-over-year increase in our non-GAAP operating margin.

Now taking a look at the order trends, for Q2 the value of our total orders was up 13% year-over-year, our best quarterly growth rate in two years. The main difference in the year-over-year rate of revenue growth compared to order growth is that in Q2 last year our backlog decreased by approximately $13 million while in Q2 of this year it increased by $5 million. Our average order size increased by 10% year-over-year to a new quarterly record of 5,420.

Included in our total orders is $27 million in orders received from our largest customer in Q2 this year compared to $13 million in Q2 last year. We’ve continued to receive orders from this customer in Q3 and for the year through July 29th we have received a total of $49 million in orders from this customer as compared to $33 million at this time last year. Revenue from our largest customer was $20 million in Q2 and excluding this customer our orders from all other customers were up 8% year-over-year.

Excluding our largest customer we saw growth across all order ranges, with orders less than $20,000 growing 4% year-over-year. These orders represent the breadth of markets and applications we serve on count for approximately half our total revenue. We believe this order volume and a broad based reach are key to our strength and stability and also provides a foundation for future systems sales. Orders with a value between $20,000 and $100,000 grew by 6% year-over-year while orders over $100,000 also saw strong year-over-year growth at 22%. We believe this thing demonstrates that we’re growing our share of wallet by providing more and more valuable capability to our customers.

Now I'd like to make some forward looking statements. While the global PMI declined slightly in Q2 the improvement in June gives us increased confidence and a continued recovery of the industrial economy as we move through 2014. This combined with our commitment to deliver on the leverage plan we outlined at our investor conference last year, leaves us to expected improved year-over-year operating performance in Q3.

As a result we’re guiding for revenue in Q3 to be in the range of $298 million to $326 million. At the midpoint this represents 8% year-over-year growth. Gross margins are expected to be up sequentially in Q3 and additionally we will be recognizing a $14 million or $0.11 per share tax benefit in Q3 related to the completion of an audit of our U.S. tax return by the IRS for 2010 and 2011. This tax benefit is factored into both our GAAP and non-GAAP guidance for Q3 and we do not expect similar benefits in Q4.

As a result we currently expect GAAP fully diluted earnings per share will be in the range of $0.24 to $0.36 for Q3 with non-GAAP fully diluted earnings per share expected to be in the range of $0.30 to $0.42.

But these are forward looking statements. I must caution you that actual revenues, gross margins and earnings per share could be negatively affected by numerous factors such as any future weakness in the global economy, fluctuations in revenue from our largest customer, expense overruns, manufacturing inefficiencies, foreign exchange fluctuations and the effective tax rates.

In summary we’re pleased with the improved revenue performance of the Company with the progress we’ve made in improving our operating margin. Looking forward we’re working hard to take advantage of the improving conditions in the industrial economy and we remain committed to our operating leverage targets.

In closing I would like to mention that we’ll be hosting our Annual Investor Conference next Tuesday during NIWeek and during my presentation I will be laying out our leverage plan for 2015 and discussing our ongoing plan for returning cash to shareholders. We look forward to seeing you there.

With that I will turn it over to Eric Starkloff, Executive Vice President for Global Sales and Marketing.

Eric Starkloff

Thank you Alex and good afternoon. I was pleased to see continued growth in orders this quarter posting a new quarterly record. We believe this is a testament to the effectiveness of our organization in addition to some improvement in the industrial economy. Our growth in orders was seen across many industries, including automotive, energy, semiconductor and consumer electronics. On a regional basis we saw order growth of 13% in the Americas, 14% in Europe, 17% in East Asia while our emerging market regions struggled in Q2 and orders were down 2% year-over-year.

Europe remains strong across the board for us and we felt strengthening in the Americas due to strengthened energy and some recovery in government and defense spending. East Asia was led by very strong growth in China while our emerging market region was adversely affected by geopolitical challenges in Russia and India.

I would like to personally take this opportunity to thank our sales and marketing teams around the world with our strong execution this quarter.

Now turning to our products. In software our sales growth was bolstered by continuing strong sales of new enterprise license agreements. This is a strong indication of the value our customers see in our software offering. These site or companywide licenses make LabVIEW and other NI software available across the account making our software available to these engineers and scientists drives increased software revenue, adoption and proficiency with our tools. Over the last decade, we have had an intense focus on working with academic institutions to provide students with tools that enable hands on learning for example our myRIO product combines a real-time processor and FPGA into a small student-friendly package for teaching controls, robotics, mechatronics and embedded concepts with LabVIEW.

In just its first year, myRIO has already been sold to over 600 universities and we estimate that over 20,000 students worldwide already using those systems at their universities. For example ETH Zurich is using myRIO to teach introduction of mechatronics and for their senior design courses. And Leeds University is using it to their freshmen and sophomore students’ introductory engineering concepts by building small autonomous vehicles.

We are proud to support to development of future engineers and scientists around the world and our focus on engineering education continues to be an important business strategy as it prepares these students with a technology platform they will need to solve future applications in areas such as the Internet of Things.

Our data acquisition products which represent our broadest footprint in terms of total units continues to improve the performance with positive growth year-over-year driven impart by improvements in the PC industry. This was led by strong sales of CompactDAQ products across a broad range of applications from remote monitoring to in-vehicle data acquisition.

This quarter we also released NI VirtualBench, a new product which combines the most essential instruments into a signal device that offers integration with both PCs and iPads. The VirtualBench all in one instrument is simple, convenient and opens up new possibilities for how our customers interact with instrumentation. This product was released in June and we are already seeing strong interest and I believe that this will help us bring new customers onto our platform. For those attending our Investment Conference next week, we'll be showing you a hands on demo this exciting new product.

Our PXI product saw the strongest order growth in two years and reached an all-time record in quarterly revenue. We believe this is a positive indication of our ability that solidify our leadership position in PXI building on more than 17 years of investment and the strongest portfolio of any vendor. As more engineers transitioned away from rack and stack instrumentation to software define modular approach using PXI, customers and vendors will continue to recognize the value that this platform bring to test application.

One example of the recent success PXI adoption is Subaru where they are using PXI and our FlexRIO products to develop a new verification system for the engine control unit in Subaru its first production hybrid vehicle. Hybrid and electric vehicle are one important example where software is becoming more prevalent in automobile, increasing the requirements to verify this software during its development and where our software based platform is well suited to meet this demand.

RF continues to be an important driver of this success of the PXI platform. Our RF business serves a very broad set of applications including software defined radio, wireless research and wireless production test. One example in the wireless research base that we will show more of next week is our collaboration with Nokia networks to advance research related to fifth generation or 5G wireless technology. By using NI’s integrated software and hardware baseband platform to emulate a real 5G network Nokia has been able to expedite its research and rapidly demonstrate the viability of high frequency millimeter wave of a potential option for 5G radio access technology.

Our CompactRIO product saw strong order growth this quarter with strength across a range of applications. One example that will showcase at NIWeek is the implementation of Airbus’ factory of the feature concept. AirBus has built intelligent network tools to increase the productivity of aircraft production leveraging NI’s CompactRIO and new system on module products. AirBus estimates that a niche project they have achieved a 10x reduction in cost based on productivity gains using NI’s platform versus alternative approaches. This is a tangible example of how our customers are taking advantage of the technology and trends of the industrial Internet of Things where embedded intelligence, networking and IO are changing the way our customers do their jobs.

At our Investor Conference next week, I will be taking a deeper dive into the industrial Internet of Things which is a significant opportunity for our embedded systems software and hardware. I will also discuss our commitment to growth by serving more customer needs through the expansion of our platform capability. And at NIWeek which will bring together several thousands of our customers and partners, we will be announcing a number of important new products representing significant advances and showcasing customer applications in the areas of RF, embedded monitoring and control, academic teaching and research, and semiconductor tests. We hope to see all of you there to experience this firsthand.

In summary, I am pleased with our order growth in Q2 and with achieving an all-time record in revenue. I believe our strong opportunity pipeline positions us well to benefit from improved conditions in the global economy. The differentiation we offer our customers empowers them to simplify problems and adapt to rapidly changing demand and it drives NI’s long-term sustainable growth.

With that, I will turn it back over to Dr. T for some closing statements.

James Truchard

Thank you, Harry. I am looking forward to NIWeek which will showcase many of the technologies and new products that our R&D team has developed. For many years we have been serving applications now considered part of the growing trend at the Internet and industrial Internet of things. We understand these implications we’ll see more opportunity in growth of these systems. At NIWeek you will hear about our latest product capabilities and applications from our customers and partners.

In my opening key note I will highlight elements that create long-term differentiation in our platform that enable our customers to sell some of the world’s toughest engineering challenges. You will also hear more about our impact with the current trends of big analog data where customers acquire large amounts of physical data to drive scientific, engineering and business decisions. We have been involved in this trend from the early stages and are enabling scientists and engineers to leverage those technologies to acquire and analyze vast amounts of analog data such as vibration, pressure found in radio signals.

Our measurement hardware and software defined approach allow customers to define how the hardware processes and reduces data locally at the source -- sending it to the network providing greater flexibility and reducing system costs.

In closing I want to thank our employees for their consorted efforts to deliver innovative new products, value and improved productivity to our customers. I am confident the expansion of our platform and these operational improvements will help drive our operating margins back to target while we continue to innovate and drive long-term sustainable growth.

Thank you. We will now take your questions.

Question-and-Answer Session

Operator

(Operator Instructions). Our first question comes from Patrick Newton with Stifel. Your line is open.

Patrick Newton - Stifel Nicolaus

I guess one housekeeping question I always ask is your number of employees in the quarter and your average order size?

Alex Davern

The number of employees exiting the quarter is 7,121 and the average order size 5,420 is new all-time record up 105 year-over-year.

Patrick Newton - Stifel Nicolaus

And I guess if I think about your guidance several questions, one is on the gross margin. Can you walk us through what is driving a sequential increase given that I would assume that your largest customer is going to be taking significant deliveries in the quarter?

Two, how should we think about OpEx on an absolute basis since September?

And then three, if this tax event is one-time in nature, why are you not backing out of it, your non-GAAP guidance?

Alex Davern

So let me take -- I don’t remember how many questions that was exactly. So let me try to take them one at a time. We expect to see some improvement in gross margins as we go into Q3, we continue to drive for operational execution and manage our own cost base as we move forward. So we anticipate that that will allow us to see some benefit on the gross margin side as we move into Q3. And generally we hope to see as we move into Q4 if we see the normal seasonal pattern when it comes to revenue growth we'd expect to see that repeat with an improvement in gross margin in the fourth quarter. I think you can figure out the numbers through guidance, we’re guiding to a midpoint of the million dollars in revenue below Q2. The EPS is basically the same, gross margin will be up slightly, I expect OpEx to be up slightly in absolute terms. That’s kind of generality of where we expect this to fall through.

As I said in the call on the tax issues we don’t expect since we have two years of audit release happening in Q3. We don’t expect any similar actions in Q4, the reason we don’t treat it as a non-GAAP item is that each year generally we see either the aspiration of the Statute of Limitations on PAX here, or we’ll see a close out of an IRS audit.

So this will happen periodically and so it will be an item that happens every year every couple of years but we do not expect anything in the fourth quarter. We’re happier to see the benefit and not go the other way.

Operator

Thank you. Our next question comes from Paul Knight with Janney Capital Markets. Your line is now open.

Paul Knight - Janney Capital Markets

Your Malaysian operation is up and running now with that, is that adding to your backlog? Is it changing your tax rate? Could you give us some color there?

Alex Davern

Sure the Malaysian operation is up and running and running well at this point. We do have from a physical footprint capacity sufficient probably to get us close to $3 million in revenues. So we’ll be leveraging that as we move forward for quite a few years to come. And that will be something that will help us drive an improvement in our gross margin we hope as we move forward. There's really no impact on backlog at all, that’s more managing the business.

And from a tax rate substantially the tax rate in Malaysia that we have and tax rate that we have in Hungry are effectively the same though it doesn’t drive any significant shift in the tax rate overtime.

Paul Knight - Janney Capital Markets

And then your stand out region and bookings was East Asia, can you talk to that as well?

Alex Davern

Sure when we look at booking overall, we feel really-really good actually about the breadth, 30% bookings growth in the Americas, 14% bookings growth in Europe, 17% in East Asia, that’s a solid result we’re pleased to see that. Even in the emerging countries as Eric referred to early on, we had some challenges related to the geopolitical situations in both India and Russia. But in local currency terms our orders were actually up high single digit in the emerging countries that did get more impacted by the change in some of those more volatile currencies during the course of the last couple of quarters. So I would call it fairly broad-based order growth around the world, certainly delighted to East Asia leading the pack, but in general and as a pretty solid result from order growth across the world.

Operator

Thank you. Our next question comes from Richard Eastman with Robert W. Baird. Your line is open.

Richard Eastman - Robert W. Baird

Perhaps Eric could maybe provide us with maybe just a little bit of color on the split between how the industrial embedded products grow first to the test and measurement and it sounds like from your commentary you’re talking about CompactRIO PXI, it sounds like there was significant growth in the industrial embedded general bucket of products versus the test, is that a fair comment?

Alex Davern

Yes, it was -- it was a good quarter for both. PXI first of just we’ve talked about this before, but both those platforms PXI and CompactRIO actually serve both those market opportunities. We do generally associate PXI more with the test side of the business. It was a very successful quarter for PXI. I mentioned that it was from a growth rate point of view, it was the best growth rate in the last two years and it was an all-time record and revenue was well per PXI so that part of the business was quite strong in the quarter.

And then in the embedded side which often you associate a little bit more with CompactRIO, it was very successful time for CompactRIO as well. So we saw broad success in applications across energy and transportation and in mil/aero as well. And so that was -- it was a very good quarter for CompactRIO. I will be -- I alluded to during Investor Conference at NIWeek, I will be kind of taking a deeper dive into those market opportunities where we’ve seen success, where we see opportunity moving forward. And we’ll also have product releases of course in both areas that we’ll be announcing at NIWeek as well.

Richard Eastman - Robert W. Baird

And in there -- I mean maybe trying to get at differentiating a little bit between maybe budget more on the production side or the industrial embedded side, are they better than maybe what we tend to see on a test and measurement side which is more steady, but are we seeing a bounce in kind of PMI driven spend on the embedded industrial side or is that not all that apparent?

Alex Davern

Maybe Eric will add some color here. We definitely -- we look at the broader base macro numbers that we obviously talk about one being PMI. There would be things like capacity utilization and industrial production growth. We are certainly seeing more encouraging numbers in that side. Our industrial and embedded business tends to be area where we deliver an awful lot of value to our customers. So it’s a very good margin business for us and certainly those positive trends in the economic indicators are useful and I think support the strength in that business segment.

Richard Eastman - Robert W. Baird

Okay and then can I just ask a question on the large customer side, it would appear as though our backlog is maybe 22 million there heading into I guess maybe August, but do we expect to build that all kind of pro rata during Q3 and Q4? We’re just trying to think of it as revenue recognition for the full year from this large customer?

Alex Davern

I would expect that would generally be build and turn into revenue in the second half.

Richard Eastman - Robert W. Baird

Okay the 22 million, okay. And then again I am kind of looking at the large order, a large order growth, over the 100,000 number and these are kind of rough numbers, but if I take out the orders from this large customer maybe in the quarter it looks like the larger order growth maybe was more like low single digits?

Alex Davern

So, I can play it back to, we’ve covered it into call. So excluding the largest customer orders over 100K, 24%

Richard Eastman - Robert W. Baird

Excluding it?

Alex Davern

Correct. They were up 43% including it. I may have spoken too fast to the catch. When we look at the trends in both those I would say first off to see order growth from our largest customer up 50% year-over-year, year-to-date I think certainly shows the success of our approach at penetrating into that customer and driving value for that customer overtime. So we’re delighted to see and the continued success of our efforts in that area. When we look at a large order growth above $100 excluding that customer, I think it also reflects what we would normally see and expect to see as a trend perhaps lagging the PMI over some period of time. But as we see the strength of the PMI for a couple of quarters, we start to see the confidence and demand from our customers in that space start to improve over time. But it’s not here in Q2 and obviously we believe to give guidance for Q3 indicates that we’re continuing to see that correlation with the PMI that we would expect in this line.

Richard Eastman - Robert W. Baird

So you are comfortable that again the products that were developed the VSA and some of the other wireless products. I mean are they gaining some traction with other customers? I mean can we at some point here as we get into calendar ’15, can we start talking about a second large customer or third or do we have pilots in situations like that, they could deliver that kind of revenue?

Alex Davern

Well we’ve had this conversation on the call a couple of times with multiple different people and I would first off probably categorize the customer we’re talking about is kind of unique in terms of its scale and the industry. Many people have often tried to compare the second or third and there is a dramatic difference in the demand. So that’s our belief.

I don’t anticipate that we will be calling out other customers in the same vein in the future; just the scale of opportunity is much different. I’d also use it as an opportunity to really reinforce the strength of the broad base of the company, where we get our strength is that tremendous diversity and it gives us a lot of stability, gives us a very good market position, good gross margins, the opportunity to move upstream in a vast number of areas. So we’re definitely gaining traction and gaining market share. I think there is absolutely no doubt in my mind about that. And when I look at our performance not only this quarter but over the last numbers of years it’s kind of amazing the rate at which we gained market share actually. But our core business is going to remain very broad based with possibly one exception.

And just to emphasize since you brought up the sort of the VST I think you were referring to a product release two years ago now. It’s been very successful product for us in a broad based way for wireless test and thousands of customers. And I do want to emphasize that the opportunity we see in RF and in wireless test even specifically is a very broad one. You’ve probably noticed that every device you use is getting a wireless connection. And so there is thousands of customers around the world that not only do we have products that can address that but having a channel that can sell and support those products around the world where all of these customers are I think is a very important part of our strategy as well.

So Eric will be talking to his team and talking about some new products in his domain next week in the keynotes. During the investor conference last year we gave an update on revenue from new products on new hardware products specifically released over the last couple of years. And Q2 was an all-time record for orders booked from new hardware products released within the last few years. So we’re definitely seeing the impact in value of our investment in R&D allowing us to drive a significant success with our new products and gaining market share directly as a result.

Operator

Thank you. Our next question comes from the Bryan Kipp with Janney Capital Markets. Your line is open.

Bryan Kipp - Janney Capital Markets

Alex just a follow for Paul. Just in context to I think your strong bookings growth that you guys saw broad based and especially in the top end with your large customers in the quarter and looking out on the latter half of the year what kind of order booking conversions you expect in the back half. Do you think most of that will convert? You think some will trail into 2015?

Alex Davern

We’ve had some increase in backlog this year, it’s been about 13 million or 14 million in the first half, couple of percent of revenue. We’ll see how it plays out in the second half. The vast majority of what’s in backlog at the end of June will ship and turn into revenue in H2 we’ll see how backlog ends at the end of the year depending on customer demand, I wouldn’t imagine it’s going to be significantly different in dollar terms than where we are at the end of June.

Bryan Kipp - Janney Capital Markets

I am thinking in context too, I think still you have about 15 million in orders for I think you said 7 million from your largest customer in 1Q, 20 in 2Q and then orders through year-to-date are 49. So you got some support there on conversion. I am just thinking in context to the historicals here, it seems like a lot has already baked in and you guys have some strong visibility here. Is that -- looking at it back tracking historically is this the stronger position you guys have been or is it typically high visibility as you guys kind of alluding to here?

Alex Davern

I think as the economic metrics in general strengthen and we look at our pipeline and our customer engagements. Obviously visibility is certainly better now than it was a year ago. I will put backlog in perspective the 22 million differential between bookings and revenue for largest customers you mentioned. On a revenue and second half we expect it to be well north of 600 million; it’s not a big percentage of that number. So we’ll still be very much a turns business but I would say in general visibility is quite a bit better today than it was a year ago.

Operator

(Operator Instructions). Our next question comes from Patrick Newton with Stifel. Your line is open.

Patrick Newton - Stifel Nicolaus

Alex I just wanted to jump back in on the headcount side, can you talk a little bit about the headcount reduction both sequentially and year-over-year that’s quite an anomaly for you as a company remind us expectations of how we should exit the year? Then also if you could talk about how you’ve been able to reduce you R&D expenditures?

Alex Davern

Yes, sure, in general, if you know we’re very focused as we come to this time project Patrick and driving operating leverage. We are seeking to try to get very much back on top in 2015 to our target of 18% and we'd like to make a lot of progress on that this year. Obviously, we have in Q1 and Q2 adding 216 basis points in operating margin in the first half is crucial, overall headcount year-over-year very June of this year to June of last year is down about 21. That the operating expense level headcount is flat and in manufacturing it’s down about 21 people. So we’ll be continuing to drive for operating leverage as we move forward. We made significant investments as you know in R&D in the ’11, ’12, ’13 timeframe.

Design to accelerate our platform completion. We are now and certainly then at NIWeek next week, you will see more and more evidence of the success of bringing those products to market. As I said in Q2, we had an all-time record for orders booked for products, the hardware products released within the last two years. So we’re starting to see that flow of power products on the pipeline. We are starting to see the uptake from customers and the bookings related to that new product investment and we feel like we’re in a position as we move through 2014 into 2015 to continue to leverage that investment in this timeframe. And we’ll talk a lot more about the leverage plan for 2015 next week, but I would like the kind of defer that to chance to talk in more detail at Investor Conference.

Patrick Newton - Stifel Nicolaus

And just one more if I may as Eric, can you commented that RF is a very broad opportunity in the past you have had Wi-Fi vendors and applications processor vendors and onstage with you at NIWeek you’ve talked about power amplifier strength, can you help us understand and gauge how broad of an opportunity this is perhaps given there is some semblance of how big your RF business is as a whole relative to rest of your PXI portfolio?

Eric Starkloff

Sure, well, it’s a good point as I said it is broad. It goes all the way from early research like the example I gave you'll see more of next week through the (area of software of) [ph] radio which bridges from research to area in defense and aerospace into the area of wireless production test. Obviously that one gets a lot of attention the explosion of wireless technology. And we use both in the verification of those components also in the production test of the devices. And so we see it as a growing opportunity across that breadth.

Next week I will talk more about some of those specific areas and quantify them a bit more at the Investor Conference. But we certainly see it is a long-term growth driver for us and we just believe that more and more things that we’re testing overtime will have a wireless connection to them and so it’s a very important part of our growth play for test overall.

Alex Davern

Just to reinforce what he said, at the tradeshow floor at NIWeek you will see dozen different applications that include NI RF in a vast way of different areas, so it’s great opportunity to see that firsthand.

Eric Starkloff

And it is our position of module hardware and software does enable that, so it’s not like we have to build a bunch of different products to address these different market opportunities. It’s fundamentally the same hardware with different software personalities and so that’s how we get leveraged by on our investments to address these different opportunities.

Operator

I am not showing any further questions at this time. I would like to turn the call back to management for closing remarks.

Alex Davern

Thank you for joining us today. We look forward to seeing you at NIWeek next week.

Operator

Thank you, ladies and gentlemen. Thank you for participating in today’s conference. This does conclude the program. You may all disconnect. Everyone have a great day.

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