Matt R. McGrew
So first of all, welcome, everybody; everybody here in New York as well as the people who are, excuse me, on the webcast. I understand we've got a pretty good webcast crowd as well. So let's get started.
So here's the full forward-looking statement. I'm going to have to read a bit here. I'd like to note that we'll be making some statements during the day that are forward-looking statements within the meaning of the federal securities laws, including statements regarding events or developments that we believe or anticipate will or may occur in the future. These forward-looking statements are subject to a number of risks and uncertainties, including those set forth in our SEC filings. It's possible that actual results might differ materially from any forward-looking statements we make today. These forward-looking statements speak only as of the date that they are made, and we do not assume any obligation to update any forward-looking statements whether as a result of new information, future events and developments or otherwise.
So now we've got that out of the way. So the agenda for the day, we're going to start off have Larry kick it off for us, who'll kind of play a little bit of the -- what to expect from the day. He is not going to take questions at the end of this session, but he's going to come back at the end and he's got a Q&A session then, so just as a kind of a reminder of note there. Each of the individual segments that you see here will have the senior leadership team up presenting on the segments. They will have Q&A at the end of each of their segments, so you can expect a big portion on the slides in the presentation and they'll do their own Q&As.
Mid-way through the day or so, we'll break. We've got a bunch of the product displays over here. I don't know if you've had a chance to get to see some of them. You probably see some -- all of the stuff we'll be talking about throughout the day, but we definitely encourage you to kind of go over there at the break and see some of the stuff that we've got. And then after that, we'll wrap-up with the last 2 segments. Larry will come back up, kind of give a quick summary, walk through a few things and then he'll have a Q&A. So that's kind of what we've got.
And with that, I'll ask Larry to come up and kick us off.
H. Lawrence Culp
Thank you, Matt. Good afternoon. Thank you for joining us here for our year end wrap-up and look ahead meeting. As Matt just outlined here we've got a very full afternoon for you, but one hopefully that will provide you some good breadth and depth as to where we are and where we're headed.
Matt assures me that the press release we put out this morning with our confirmation of our fourth quarter results and our outlook for the 2012 was intentional, and I'm going to take him at his word.
We're pleased to see such a large crowd here today. I want to point out Bob Cornell from Barclays. Bob, welcome. The Dean of the sell-side transition from research to the banking; we're thrilled to have Bob here.
The move to putting out the release this morning, in all seriousness, is very intentional we thought in the spirit of VOC, or voice of the customer, and continuous improvement that would be helpful to you, as investors, as we go through the afternoon.
We also thought in light of Bob's transition to banking, we weren't sure whether he's working afternoons now and getting that out in the morning would be helpful to him.
So with that, let me talk a little bit about the context for the day. Give you a little bit about -- a little bit of color relative to the fourth quarter, give you a little bit of a frame for 2012. We're clearly dealing with what is a rather uneven macroeconomic situation right now. I don't think that's news to anyone in this room. We're certainly seeing, I think, a level of strength here in the U.S. that is both pleasantly surprising and reassuring as we get ready to go into 2012. I think like a lot of folks, our concerns are probably focused most on Europe as the euro crisis spreads from Southern Europe northward. We've also seen, I think, some moderation here in the number of the emerging markets, moderation we would anticipate being short-lived. But nonetheless, it's a very mixed, uneven environment that we're finding ourselves in as we end 2011.
As we exit this year and get ready for next year amidst that uncertainty, but also given all the opportunities that we see, we really see ourselves running kind of a modified playbook of what we did last time we were in, in an uncertain situation back in '08 and '09.
If you'll recall, we really had a 3-pronged strategy there. One, we were aggressive around going after market share. We do that all the time. But when tailwinds are not as robust, it's all the more important to do that. We do that while making sure that we're protecting our growth investments for the long term, while driving good margin and good earnings performance in the short term. And obviously, as you know, those of you who followed us for a long time, we're exceptionally focused on cash and cash generation. Cash represents real earnings as importantly, cash that allows us to inorganically compliment what we're doing organically in building leadership businesses. So that's very much what you see right now with the step up in the fourth quarter restructuring to $100 million x Beckman. We're doing just that, protecting our earnings in the short term and making sure that we continue to invest in our long-term growth drivers.
From an M&A perspective, I think we're encouraged by what we see as we begin to exit 2011. Obviously, a big year for us given the Beckman Coulter acquisition earlier this year. But as we get ready for next year we're back, I think, very much in fighting shape out there on the deal front in what we think is an increasingly more attractive market, both on the industrial side and more broadly around the Danaher portfolio. So we would intend to be pretty much an active acquirer, strategic acquirer in 2012.
From a guidance perspective, just to reiterate what we put out in the press release, again, we reaffirmed the $0.75 to $0.80 outlook for the fourth quarter. From a core perspective, given the economic situation that we're dealing with, we do anticipate a modest impact on the core growth guidance that we've talked about previously. You'll remember when we've been out here in the last couple of months, we've talked about a 4% to 5% core growth range for the quarter. We suspect we'll be modestly below that given some of those headwind pressures. And as we look forward to 2012, again, the GAAP range is $3.20 to $3.35, would give us a mid-to high teens EPS growth year-on-year. So we're really pleased with that, again, given the economic environment.
From a core perspective, right now, a number of uncertainties. We'll go through the afternoon talk about our outlook on a core basis business-by-business. But when you roll that out from a Danaher perspective, we'd anticipate being in the 2% to 5% range. If the economy springs back as some might suggest, we'll be very well positioned perhaps to do better than that. But I think right now our sense is that the first half, virtually in the first quarter, the first half could be slow, but we should expect an acceleration later, later in 2012.
And then finally, again, in part because of the restructuring and part because of what we're doing on a day-to-day basis with DBS, we would anticipate seeing about 100 basis points of core margin expansion, so a lot going on there. A number of moving pieces, but hopefully enough there to give you a frame for the day of a look -- an early look at next year that gives us at least a view that we're well positioned now to perform in 2012.
If I look at this year, a year that we think was an outstanding year for Danaher, obviously, the headlines were really captured with the moves with respect to the portfolio evolution. Beckman obviously, for a number of good reasons, garnered a lot of attention. EskoArtwork, an important addition for us as well in Product Identification. And they came in at the time when we were exiting 3 non-core industrial businesses. And we made another announcement earlier this week, as you saw, with respect to our Kollmorgen Electrical-Optical Business. So net-net, lot of activity in the deal shop, a little bit more outbound activity than you would typically see, but really positions the portfolio now nearly 90% of revenue in our core growth platforms. So as we talk about the evolution of the portfolio over time, you can see that focusing and that strengthening occur.
Beckman very quickly overshadowed last year's big deal, AB SCIEX. Tom Joyce will get up and talk a bit about what happened at SCIEX. But clearly one of the better deals we've ever done, and that big deal of 2010 paid real dividends for us in 2011. We saw a core growth return on the back and new product introductions and better go-to-market activity to a double-digit level, and we saw margins up approximately 500 basis points. We'll take that in the first full year of any new business anytime we can get it.
In the third quarter, we hit an important watershed in that our emerging market revenues hit $1 billion, about 23% of our total sales, obviously an important growth engine for us. If you look at that, that only puts us on a $4 billion run rate, but really puts our emerging market exposure on par with what we are doing currently in Western Europe. And obviously, that equilibrium won't hold. We'll see emerging markets become a larger part of our revenue than Western Europe in 2012, a natural hedge, obviously good exposure to that underline market growth, but a nice hedge given what could happen in Europe in the next couple of years.
And then finally from a free cash flow perspective, we're very pleased with the performance here. We should throw off on a free cash basis in excess of $2 billion, just a very strong performance. So when you put it all together, high single-digit core growth, about 130 basis points of core margin expansion, good strong portfolio moves, a busy year for us. It's hard to believe it's almost over, but a year I think we're very pleased of as we continue to build an outstanding company and obviously create value for shareholders.
A year ago, we shared with you this new segmentation. We thought it was a better way to give you a look at Danaher, the science and technology company that we've built here. We also wanted to make sure we didn't lose sight of the fact that we have an outstanding family of strong brands, brands that really resonate with our customers on a worldwide basis. They don't often buy the Danaher name despite the fact that we've got that common denominator in DBS, but these brands really are the leadership brands with cache [ph] in their respective markets.
We also thought the segmentation told the story of the balance that we now have, as we quickly approach $20 billion in revenue. And as you can see with Beckman, Beckman drove our Life Science business well in excess of the other 4, but we really have, I think, a nice balance, which you also see on the slide. And this is something I think we're really disclosing today for the first time are the gross margins by segment. And we're very proud of this. We talk through this year about our 50%-plus gross margin achievement that even post-Beckman was something we have been able to sustain. Quite proud of that. But you see that all of our segments, all 5 of them, contribute to that gross margin performance. I think that speaks to the differentiation that our products have in the marketplace and in turn, obviously, the strength of those respective brands.
Talking about the evolution of the portfolio, not strictly being a 2011 achievement, but really something we've been working on for a long time. But I'll just give you a quick look at the last decade. We've obviously built a bigger Danaher, now 4x the size of the Danaher we were 10 years ago. But I would argue more importantly, we're a better Danaher. You see the focus on the colored slices of the pie that we have in our growth platforms, a number of which were not with us 10 years ago. You can see that we've gone from a 38% to 50%-plus gross margin again, again, I think underscoring the quality of the products that we deliver day in, day out in the marketplace. And I think as you go through the afternoon, you'll hopefully see a whole host of different organic growth vectors in addition to the inorganic plays that we have that suggest that at this level of revenue, we still have a lot of opportunity in front of us.
We've done that, I think at the same time, we've created tremendous value for shareholders. And you can see the box in the middle just under 20% compounded returns for shareholders in terms of EPS over that time frame, well outdistancing the S&P. So we've got a lot of momentum here, a tremendous culture, a team, a portfolio that I think bodes very well for the future.
In large part, we like these markets and our leadership positions in them because of our exposure to a number of the mega trends that are out there. And whether we're talking about what we're seeing at networking and digitization and a whole host of different places, obviously environmental, health and safety concerns are paramount around the world today. Energy efficiency is on the top of most agendas for small businesses and large businesses alike. The government's in place today, certainly driving regulatory initiatives that create opportunity for us to help our customers comply. And again, a common denominator with the emerging markets that you see in every one of our businesses. So that exposure to those tailwinds has not been -- has not come accidentally. It's been very much an intentional part of the construction of the Danaher that you see today.
The constant in all of this is the Danaher Business System. We'll talk a lot about the products, the brands, the businesses. But underscoring our strength, our performance and I think our future is the Danaher Business System. It's who we are. It's how we do what we do. It's the operating system that we use in every one of our businesses, the big businesses, the small businesses, the old businesses, the new businesses, everywhere in the world. And when you see this values-based, customer-centric, process-oriented, results-driven approach to running the business, you in turn see the results that you've enjoyed as investors and obviously our customers and associates enjoy as well. And this is something that I think we're very, very committed to. Again it's who we are, it's how we operate the business and there are certainly aspects to DBS that have evolved over time, but these core values and our commitment, I think with great passion that we have as the senior team and across the organization, to me, is the most defining aspect of what makes Danaher unique.
What we'll do this afternoon is really give you a look at how DBS drives our performance. One of the common themes will be growth. We'll talk a bit about margin expansion and cash. But let me really frame a little bit of what we want to do from a growth perspective.
What you see here is the growth matrix and I won't go through each of the bullet points; I'll let the team do that this afternoon. But whether we're talking about emerging markets, new product introductions or go to market activities and our new market entry schemes, be it organic or inorganic, you just see a flood of opportunity here for us to continue to lead in the markets where we play. And it gives us, I think, very good balance in terms of the growth options that we have before us.
If I can hit on emerging markets for just a moment. You go back, I think 2 or 3 slides, Danaher at $3.8 billion a decade ago. We're on a run rate in our -- in the emerging markets alone greater than that level today. It's still hard for me to fathom, but it just gives us a foundation of critical mass that is really greater than anything we could have ever dreamed of. And in turn, presents opportunities for us to recruit talent, to go to customers, to invest that we think represents easily a decade of opportunity in front of us.
If you look at the distribution of our exposure to emerging markets, again, about 23% of revenue on a Danaher-wide basis. Have a number of businesses above the corporate average, our newer businesses, our Dental, our Life Science business is south of that average, just getting them up a bit will obviously increase that 23% penetration. We don't have a hard target, but it's hard to imagine that's not a 40% number in time, particularly when you look at some of the businesses that been with us the longest really leading the way, like Videojet, like Hach and Fluke, as you can see in the 30% to 40% band. So with those businesses really setting a standard, teaching a lot of us how to play and win in these geographies, we think we just have a tremendous amount of opportunity off that $4 billion base to take leadership roles in these faster growth markets.
How do you do that? Everybody talks about it. What we think is really important is making sure that the investments are going into the businesses to support this sort of growth. And what we try to capture here are the tactics that have been deployed in the lessons learned in China, where we certainly had and have a significant production base, now 5,000 people on the ground in manufacturing. But the incremental investments that we've wanted to drive have really been more customer facing and innovation driving. And that's what you see here, 12.5% compounded growth rate since 2007 in the headcount that we have in China serving customers from a sales marketing and service perspective. Likewise, as we've been ramping more rapidly to serve China and to serve the world from our China R&D centers, we've been growing at 33% to 34% compounded. So very significant investments here, driving productivity and operations, driving productivity in the back office to make sure we're in a position to make these incremental bets and in turn, getting very good returns on those investments.
I mentioned new products. Obviously all new products have to start with an idea, but we also need to make sure we fund them. I think we're very proud of the evolution of our R&D funding. You can see here that right now, we're about 6.5% of sales in R&D, grown dramatically over the last 5 years. Now in Italy, about half of that increase has come from the upgrading of the portfolio to higher gross margin and in turn, higher R&D businesses. But the other half of that increase really comes from organic decisions that we're making in the business to make sure we're funding that activity, funding all the good opportunities that we see to drive innovation. Sometimes they're breakthroughs, sometimes they're more modest. Nonetheless, I think you can see the commitment that we're funding all the while we drive the earnings growth that you saw earlier.
One of the ways we're able to do that is to drive productivity and make sure that we're making the right bets at the right time. We call that process internally part of the Danaher Business System DRA, or Dynamic Resource Allocation. We showed you this slide a year ago, where we were able to point to double-digit increases in sales and marketing almost that much on a pro forma basis in R&D while we're keeping G&A and operations headcount increases very modest. That was a real challenge as the economy came back in 2010 because we didn't want the cuts that we had made, the restructuring that we did in the year prior to be undone. What we've added here for purposes of today is the 2011 look at that same data. So you can see 2 years running, we've really put the headcount, we put the money back in to the growth drivers in the business while driving significant productivity and frankly, accountability and discipline in the back office and in manufacturing. A tool, but also a mindset that is, I think, core to the Danaher Business System.
Let me talk about margin expansion. Margin expansion, again, that occurs while we're making all of these growth investments. From a core margin expansion perspective, we're very pleased I think with 2011. We'll be up, as the slide suggests, if you adjust for restructuring to basically equalize restructuring for last year and this year, 150 basis points. And you can see that we've been able to do that with each of the 5 businesses contributing significantly.
I think to put this year's core margin expansion in a little bit more context, if we go back again to the playbook that we were running in 2009 where we were trying to grab share and taking a lot of structural cost out, didn't have the best year in terms of numbers that were printed, but we were able to spring forward in 2010 when things got a little bit better significantly. You can see the 12% core growth that we drove the 275 basis points of margin expansion and then again, a very strong year this year.
And I would just share a little bit of that history with you to put perhaps not only the playbook, but particularly this fourth quarter restructuring of $100 million in perspective. We're clearly going to have significant positive impact in '12, about $100 million, from that $100 million that we're going to put in this year. We'll talk about that a little bit more when we wrap up relative to the role forward. But again, I think we're going to be well served making these -- or seeing through these projects before year's end as we think about margin expansion in 2012.
We talked about DBS, we talked about margin expansion. A lot of folks have the misconception that this is kind of a 1-year wonder. In year 2, year 3, there's really not a lot contribution. What we try to do here is capture that contribution again in the spirit of continuous improvement that we see and we drive every single year, regardless of where a business is and how long they've been a part of Danaher. So you can see some of the newer businesses, like SCIEX or Trojan Technologies, whether we're talking at the gross margin level or at the operating margin level have seen significant multi-hundred basis point improvements in both of those metrics. And in turn, they won't stop because they know the businesses. They've been with us for a while, like Fluke and Hach never stopped. And again you can see here Fluke, for example, above or 1,000 basis points at the gross margin line. There's a tremendous achievement on the part of Jim Lico and his team, and you see that reading [ph] through significantly 2,000 basis points of operating margin improvement.
So DBS is not something we just do in the first 90 days of any new business. The Beckman team will attest to that. It's really a way of life for us, and that's why we think we are well positioned to deal over the long haul with the opportunities in front of us.
And just a word on cash, if I may. I think those of you who have been with us for a while know this is the single most important metric for us of everything we look at, and we look at a lot of numbers. We're very proud of the fact this will be our 20th year in a row where our free cash will exceed our net income. If you look over the last 5 years or so as we come up to that the $2 billion-plus this year free cash flow generation, we've converted at about 120%. So we're very pleased with that. As we look forward, certainly see ample opportunity. Early this year, we talked about all the sorts of opportunities we see at Beckman Coulter. Tom will talk through that in a little bit more detail later, I think. And if you just look at our guidance for next year, if you'll apply that 120% conversion you can see that from a cash earnings perspective, we're well positioned to have a very strong 2012.
A lot of sources or a lot of uses -- possible uses of that cash. But clearly, what we've been about is a capital appreciation story. And again, Beckman garnered a lot of headlines, but we had 11 acquisitions x Beckman this year. We were able to deploy about $600 million building out the various platforms. You see a number of names in the environmental column, a number of which really helped us improve our networking and communication skills in and around Water and GVR. We'll also call out the Labindia deal in Life Sciences and Diagnostics, where just through the good fortune of history, AB SCIEX and Leica shared the same distributor in India. A wonderful team there that we've been able to bring into Danaher. We think that sets us up to fuel both Leica and SCIEX's growth in India going forward.
So as we look at 2012 and 2013, again we think we're right back in fighting shape with respect to M&A. We think this is going to be a better market going forward, so I don't think anyone should be surprised to Danaher deploy $4 billion to $5 billion and continue to build out the organization over the next couple of years on the inorganic front.
So again, I think that's the story today. I think you'll see a number of examples throughout the presentations where we're going to hit on growth hard, talk about margin expansion, talk about cash with that common denominator really being DBS, the Danaher Business System, our major tool as we build out what we'd like to achieve, and that is a premier science and technology company.
So with that, we're going to transition. Tom Joyce is going to come up, I believe, and talk through the Environmental segment. Tom and Jim had a flip of the coin. I think Jim won, therefore Tom is going to do both the Water Quality and the Gilbarco Veeder-Root presentation. As some of you know, Tom has responsibility for Water Quality and Jim has responsibility for Gilbarco Veeder-Root, so they team up on all things Environmental.
Tom, it's all yours.
Thomas P. Joyce
Thank you, Larry, and good afternoon, everyone. Jim actually fought me very hard for this spot because he knows what a terrific story the Water Quality and the environmental platform at large really is. But nevertheless he'll, I'm sure, get his turn at bat here shortly.
It is a phenomenal platform for the corporation. Over the past several years, we've built a platform, as you see here, of nearly $3 billion. And that platform addresses a broad array of environmental concerns, particularly around water for municipal facilities, industrial facilities and specifically, in the case of our Gilbarco Veeder-Root business, those around the major oils and regionals associated with that market and their environmental concerns. A tremendous market with good growth dynamics over a long-term period.
Starting with a few of the highlights for 2011, a very good year for the platform overall. As you can see here, strong water quality growth in particular, high single-digit growth for the platform and good operating margin expansion that came along with that. In driving that growth, we really saw share gains across virtually every one of our major business segments, and I'll touch on several of those individual product segments and geographic segments today. We saw good traction around pricing in developed markets and in emerging markets. And at the same time, I think a continuous focus on quality and the application of DBS tools. And Larry just showed a few minutes ago about the margin expansion associated with businesses that have been part of our platforms over a number of years. And I think the Water Quality platform and specifically, Hach Lange is an excellent example of where that continued focus on improvement in safety and quality and delivery and cost continues to drive both improved performance in core growth and operating margin.
Acquisitions have also been an important part of 2011 for the Water Quality platform. The examples that you see here, while perhaps in no way household names, are really important additions of both technologies, as well as a geographic expansion for the platform. ADCON and Automata are both product lines, highly complementary product lines in both hardware and software, which have improved our position in the areas of wireless telemetry. Wireless telemetry is increasingly used in the management of the hydrological cycle when applied to productivity improvements, particularly in agricultural applications.
OpenCEL, a new technology acquired actually by our team at Trojan, is an important breakthrough in the management of the waste that's created, the biomass that's created in municipal and industrial facilities. And as a function of that improvement in technology, we're able to help reduce cost in terms of that waste disposal for those facilities.
Accurate was the acquisition of our distributor in Australia and New Zealand. And through the acquisition of Accurate, we were able to significantly improve our direct market presence in that important growth market. And certainly, if you've followed any of the issues in that region of the world over the last number of years, you'd certainly appreciate the type of water stress-related issues, particularly in Australia in recent periods.
Turning just for a minute to our Gilbarco Veeder-Root business. Gilbarco Veeder-Root showed excellent growth in one of their core product lines around dispensers, good strength across all major regions of the world and also excellent growth in the emerging markets. And you'll hear a lot about our progress in emerging markets today, as Larry just mentioned. But it was particularly important to the Gilbarco Veeder-Root business as you can see here in Eastern Europe as well as in Southeast Asia, over 30% growth in those major regions in 2011. So a great position to be in as we head into 2012.
Innovation. Product innovation has been a hallmark of how the -- our water quality analytics and our treatment technologies platforms have been built and grown over a number of years. And one important breakthrough in the last year in our core Hach Lange business was around -- is around our spectrophotometer line. Spectrophotometer's our core franchise element of our Analytics business. The breakthrough here was the application of RFID technology. And what RFID technology did was it brought a level of sample tracking and the resulting data integrity and an improvement in the ability to control the data, the data integrity through the reduction of the manual types of data entry that are associated with environmental testing and the resulting reporting that goes on to environmental agencies. So a real breakthrough in terms of reducing costs as well as improving the accuracy of the important compliance-related data and associated filings in that business.
The Analytics business, our Hach Lange business also developed a new technology that is now in used in hydraulic frac-ing. And for those of you without a degree perhaps in geology, hydraulic frac-ing is the pressurized forcing of water, sand and chemicals typically into rock and shale formations in order to break those up and then release oil and gas for purposes of ultimate collection.
Obviously water plays a very important role in that technology. We've combined technologies for these applications between Hach Lange, Trojan and ChemTreat to provide a complete solution for both the water analytics component of that important process, as well as the treatment and ultimate disposal of water used in very, very high volumes in this high-growth market.
China also represented an important area of innovation for us in the last year. And the real focus here for the platform, particularly in analytics and also for Trojan has been to develop products in China for China, really seeing that market through the eyes of the local municipality, the local industrial water operator, developing products at the right cost points with the right application focus and the result there being greater than 20% growth in the contribution made by locally designed and produced products just in the last year.
A lot of that has come from the fact that we've made significant investments in headcount. We've continued to build our footprint, particularly in China around product development, as you'd see there over a six-fold increase in our investment in headcount in that important region of the world.
I'm sure you have recalled the descriptions that we've given in the past around our Trojan Technologies business. Trojan, just as a reminder, is the world leader in the application of ultraviolet light technology to the disinfection of water in a multitude of applications, municipal and industrial. Under the leadership of Marv DeVries who, by the way, you can meet at the break out in the lobby, you'll have the opportunity to get a deeper look at a tremendous breakthrough in a new market adjacency developed by the Trojan team. And that's around ballast water treatment. Ballast water, obviously used in large cargo ships. Ballast water that is brought on board at one stage of the loading process and released at another stage of the loading process. The issue that faces this industry today is really around the spread of invasive species, small organic matter, if you will, all types of marine life, that when moved from one port to another can create issues for the marine life in different ports around the world. The IMO, the International Maritime Organization, launched a convention a number of years ago, a rule making that has taken a number of years to evolve. We are very close to the full ratification. We expect full ratification of these conventions in 2012 that will open up a very large market opportunity for Trojan around the world.
Trojan's technology that has been developed to address this on-board ship application is one that is significantly advantaged in 2 particular ways. One, Trojan was very proactive in developing validation protocols that have recently been approved by both the EPA, U.S. EPA as well as the Coast Guard. Compliance with those particular protocols which were very recently released, we believe gives us a first-mover advantage in terms of that compliance. Secondly, we believe our technology is advantaged in terms of the footprint and the efficiency that it represents versus alternative technologies, such as reverse osmosis and the application of chlorine. So a great opportunity, a large opportunity and one that over a number of years to come we think will represent significant growth for Trojan ultraviolet technologies.
ChemTreat, you may recall, is our business that focuses on the treatment of water, primarily in commercial and industrial boiler and cooling applications. ChemTreat has been a terrific success story over the last number of years. You see the significant growth over the last 5 years from roughly $200 million to $300 million and coming along with that, outstanding expansion of operating margins.
So here, we've got a business that is really delivering growth as a function of the commercial investments that we're making very cost effectively and what we're finding in this environment is that, that performance attracts talent. And as that talent continues to build in our business, we're able to expand our reach to an ever-broader set of customers, particularly in the North American market.
Value selling is the essence of the competitive equation at ChemTreat. ChemTreat, I think, is uniquely positioned to deliver application-based solutions, creative application-based solutions that really position them in a very differentiated way in key markets in the U.S. So a great story, a team that continues to grow and expand and one with a very, very bright future, both in terms of growth and margin expansion.
The Water Quality platforms entry into the oceanographic market I think is a great example of how a terrific platform can expand into adjacent markets and find new growth opportunities. The oceanographic market that we serve today is over a $250 million market that addresses a variety of different concerns around the measurement of various parameters in ocean applications. We initiated our entry into this market with the acquisition of Sea-Bird roughly 3 years ago. Sea-Bird measures temperature and salinity, which are essential parameters in addressing the various climate change issues that we face, obviously in the arena of global warming.
As we combine the technologies of Sea-Bird with WET Labs and with Satlantic, 2 additional acquisitions, we're now able to address what we might describe as the overall health of the ocean, the condition of a variety of types of marine life and food sources that ultimately are essential to the production of food sources for human consumption. So a terrific portfolio building.
Now finding ever unique applications, certainly in the tragic situation of the deepwater horizon issue in the Gulf, Sea-Bird was called on to quickly address the measurement of the oil dispersion in that tragedy, and played a very, very important role in identifying where the level of that pollution was extending as it headed towards the beaches and then ultimately, the cleanup situation. So not only a great growth opportunity with some unique dynamics, but also as you can see here in its -- still in its early days, great operating margin expansion and great potential for growth.
Emerging markets. You've heard us talk many times in the past about the investments that we've made around the growth in our Water Quality platform in various regions of the world. There are really 3 components of the equation to grow in emerging markets for water. The first is the commercial dynamic around feet-on-the-street. We continue to make significant investments there. But in addition to that, as I mentioned a few minutes ago, the importance of localized products and localized product coming from the establishment of that R&D footprint that leads to products that uniquely meet the unique needs of those emerging markets.
Acquisitions is the third leg of that stool. I'm going to talk in just a minute in a little bit more detail about the acquisition of Hexis in Brazil; CRISON brought us a unique product position for lower price point products that are particularly well-suited to other markets of the world, low priced point markets of the world; and Trident, an acquisition done by ChemTreat, gave us an outstanding entry into the Latin American market. So expanding not only our product portfolio, but also our geographic capabilities.
So Hexis. Hexis Scientifica really turbocharged our ability to grow in Brazil specifically. Prior to the acquisition of Hexis, we had less than a dozen people on the ground in Brazil. Today, we have nearly 300 people on the ground in Brazil representing a very large commercial team, as well as manufacturing capabilities.
The result of that is we've been able to drive above market growth, over 30% compounded annual growth in the Hach Lange portfolio in Brazil over the last 2 years and we're seeing outstanding results from the application of DBS in a very much a commercial operation, showing our ability to drive not only operating margin, but working capital turns at the same time.
Turning for a moment to Veeder-Root. Obviously a core franchise, an important franchise within the Gilbarco Veeder-Root portfolio. Business certainly that faces a variety of challenges, but has stepped up to those challenges very effectively with very unique products. And those unique products have been specifically designed for applications in the fast-growing emerging markets. You see the growth there in India, in Russia and particularly around the environmental concerns in China where our vapor recovery technologies, an outstanding ability to -- give us outstanding ability to address a particular concern around air quality.
Our automatic tank gauge business, again a core element of Veeder-Root franchise, showing a double-digit growth in the past year. And that's really been driven by some specific technologies around fuel quality, and our ability to help operators identify fuel integrity issues and respond to them quickly.
So in brief summary, as you can see, we continue to make investments in this platform. Obviously it has a lot of terrific dynamics that make it an attractive place for us to invest both organically and inorganically. Those investments are clearly paying off not only in the developed markets, but in the emerging markets and without question, the strongest portfolio of brands anywhere in the industry.
With that, that's a wrap on Environmental for the time being. Jim's going to join me for any questions that you might have related to the Gilbarco Veeder-Root franchise and we will open it up for the next few minutes. Deane, I think you had the first hand up.
Deane M. Dray - Citigroup Inc, Research Division
The question on ballast water, and this is the second or third year this has come up. I remember last year, I asked about you showed $1 billion opportunity, and I said that woefully low. And I'm glad you've seen the light. That's now a $30 billion opportunity. If you just take us through the math on that, where that stands? We estimate 50,000 vessels are eligible and we're just waiting for the Coast Guard approval. And then second question related to that is your comment about being an early mover advantage. And if I'm not mistaken, there have been several shipments by competitors of UV-based systems. We're not sure who is going to have the right solution, but just address that you've not been the early movers here but you're expected to start shipping in 2012. Maybe you've got a different solution that you think will have better penetration.
Thomas P. Joyce
Yes, absolutely. Obviously, that offer letter I sent you last year for the Marketing Manager position at Trojan, that didn't get to you, obviously. Perhaps a bit conservative in our early days about addressing this adjacency is there were a lot of uncertainties frankly, about not only the technologies, but the validation and ultimately the adoption rate which retrofits or new ship builds might actually take hold. So I think we've certainly gotten a lot smarter, gotten a lot more granular in terms of understanding those dynamics. Relative to your question about first-mover advantage, where that comes into play, Deane, is really on the approach that we have taken to validating our solution. Those who went out quickly with we believe solutions that ultimately won't have the efficacy that ours will have, also validated against a protocol that may very well not, not with certainty, but may very well not live up to the protocols just recently in the last couple of months established by the U.S. EPA and the U.S. Coast Guard. So in that respect, we think we're out ahead, both in terms of technology, as well as compliance with those protocols.
Just, Tom, could you just address for a second ChemTreat and potential in the strategy to grow ChemTreat nationally. Does that exist? And also, is there an opportunity for ChemTreat in the shale gas market ultimately on the treatment side?
Thomas P. Joyce
Was your question -- did you say nationally or internationally?
Actually nationally, rolling it towards the West Coast, their presence.
Thomas P. Joyce
Yes. ChemTreat actually has a national presence today. We are certainly stronger in certain regions of the country than we are in other regions of the country. Some of that has been supported actually by some relatively small but very helpful acquisitions that we've done of smaller players in the U.S. market, as well as that -- I mentioned Trident, which gives us actually some access to the Southwest, as well as that entry into Mexico and Latin America that I mentioned. So we continue, particularly through that expansion of feet-on-the-street, the attraction of talent, which I think we continue to see outstanding flow of talent from competitors to ChemTreat is giving us that extended reach, so I think we're very well positioned from a geographic perspective in the U.S. Relative to your question about hydraulic frac-ing, ChemTreat does play a very important role in that. There is a significant treatment component to the water that essentially returns to the surface following the breakup of the shale and rock formations that releases the oil and gas. So that treatment component of that water is an application that ChemTreat addresses from a solution standpoint.
Tom, I wonder if you could comment on what you're seeing on the waterside relative to the comment on a little bit of degradation in the organic here in the fourth quarter, particularly given the muni exposure. And then on the Gilbarco Veeder-Root side, are you seeing anything new out of Wayne now that it's been with GE for a while?
Thomas P. Joyce
Overall, we've seen really pretty steady strength, I would say up until maybe mid-third quarter, we'd started to see some modest softening, particularly in the U.S. market around muni spending, saw some projects get a bit delayed. But that's really just a relatively modest deceleration, still solid growth, I think, exiting the year. And we still see reasonable growth going into next year despite what obviously will be a stressed muni environment. I think a lot of what will help us sustain that growth is really around some of those new product innovations I mentioned and clearly, that continued high growth rates outside the U.S.
James A. Lico
I'm glad we got question on Gilbarco Veeder-Root. I was starting to feel like Vanna White. So just another pretty face up here. But...
Thomas P. Joyce
James A. Lico
As we've seen from Wayne, obviously a competitor for a long time. We've not really seen anything that I would say that I would suggest to you is anything different than the way that Wayne has necessarily competed in the past. We've been very happy with our dispenser growth. One of the things that sort of embedded in the performance at Gilbarco this year is a very tough comp because of the credit card regulations that went in '10 -- '09 and '10. But if you look at the core dispenser business, it was very strong this year. So from that perspective, I think we continue to compete pretty well, but we think they're a logical competitor in the marketplace.
Thomas P. Joyce
They're trying -- they're barking out.
I just wanted to follow up the ballast question for a second that Deane asked. You mentioned $30 billion. If there are somewhere between 30,000 and 40,000 ships out there as an installed base that maybe have to get retrofitted and you're talking about a product, that $30 billion is the entire market opportunity. So your piece of that will be whatever an average unit is, somewhere a couple of hundred thousand dollars to $1 million per unit, that many -- that much of an installed base. If I do that math and take a normal share assumption, are you really talking about a -- kind of a $5 billion opportunity for Danaher over that time frame? I'm just trying to get to sort of what this actually means for Danaher. And I don't think it's, I mean, versus the whole system and then ramping up to that. So maybe if you could just walk us through that math a little bit.
Thomas P. Joyce
Sure. I'm not sure we'll probably do justice to the detail that you want us to walk us -- walk through there. But one dynamic I would add to what you described was that to your point, $30 billion being the entire market, that entire market evolving obviously over a number of years where that retrofit would take hold. So there are some assumptions associated there. In addition to that, you've got the issue of which technologies will ultimately fit in a given ship's either footprint or particular application. You won't see that entire market obviously move to ultraviolet technology. You'll see some going to RO. You'll see some go into chlorine as you've seen already, referencing back to Deane's point earlier. So I think we probably ought to come back to you at some point and take you through that in a little bit more depth.
[indiscernible] how are you stacking up [indiscernible].
Thomas P. Joyce
Sure. Right. No, you're absolutely right. On a relative basis, the Trojan is an enormous opportunity no matter how you cut it. We're putting -- we've got a dedicated team on the development side of this to this point. We've also established partnerships relative to how we access this relatively unique customer base as you might imagine from the standpoint of Trojan themselves. So partnerships on the commercial side, focused teams and development right now and a team to ensure that we are telling the value story in an appropriate way. We have time for one more, if there is one. Otherwise, I think we're good. Larry?
H. Lawrence Culp
He did okay, Jim. He did okay. Just about to make one point as Tom and Jim walk off. I'm talking about DBS. I'm talking about DBS driving growth. One of the things that we do with all of our businesses every year is we have a very in-depth conversation about strategy. You think about DBS, oftentimes you think about execution, there's a big strategic element. Most of that conversation is really around where our growth opportunities are both organically, all that ballast water out of shale gas, as well as inorganically. You saw oceanography as one play as a result of that. And I just -- it's a contrast, I think, that's hard to draw perhaps in a conference room like this. But having a week ago completed the first strategic review we've had in Coulter on the diagnostic side, we're off to Indianapolis tonight. We'll do that with the life science team tomorrow there. Rather than what you often see in terms of the presentation, a couple of hours, a lot of PowerPoint down in the back and off we go, really in a way that doesn't change the business. This part of DBS really does change the business. It sets expectations, I think, higher; really lays out the game plan for the long term and really builds a complimentary or a fusion of the organic and the inorganic opportunities at a business and a brand that a platform has in front of it. I think you'll see that through a number of the presentations through the course of the day. We don't often talk a lot about that strategy element. Maybe it's on my mind because we do have that net review tomorrow. But it's so different, just ask the Beckman team. It's so different than what a lot of companies do. I think it's part of that DBS difference.
So with that, let me pass it over to Dan -- Daniel. Dan has responsibility for our industrial technology segment. We'll give you an update on what's happening at PID and motion. Dan?
William K. Daniel
Thank you, Larry, and hello, everybody. It's always good to get to one of these final few activities the year after a year of strong performance. And the industrial technologies platform is a diverse portfolio of operating companies, 15 operating companies across Danaher, primarily serving the Product Identification and motion control markets. They're businesses that the teams have done a very nice job of improving margins over the last few years, we're pleased with that performance. We see continued opportunities going forward on that. But it's really a story about businesses improving our growth potential, the markets that we serve, our capabilities. And that's what I'll spend the majority of my time here sharing with you is our progress around the growth potential in industrial technologies.
Collectively these are businesses that serve $20 billion in served markets, the broad industrial landscape. We have some focus areas, but typically we serve the vast majority of the industrial landscape. These are markets that we believe are growing at mid single digits over the longer term, businesses that we've been actively working to improve our recurring revenue streams through consumables and service. I'll talk about the acquisition of EskoArtwork. They certainly have helped our averages there, with 25% of the platform now coming from those recurring revenue streams.
Geographically, we have 21% of our sales in emerging markets. This is a very significant opportunity. We're spending a lot of time improving our capabilities and our go-to-market for emerging markets and really going to be a growth driver for us going forward.
We have a number of very strong brands in the portfolio and product ID and the coding in markets globally. We think Videojet and Linx have the dominant market position and very strong brand equity around those. Esko, tremendous market position and brand equity in the packaging markets. And in our motion segment, Kollmorgen and Thomson, 2 strong brands in North America that continue to improve their equity around the world.
We have a very diverse portfolio of end markets and end customers, some distributors that's largely an OEM business. Again, we serve the broad industrial landscape, but we increasingly are putting our focus and our attention on strategic markets like consumer-packaged goods, the broader packaging market. Certainly, the medical space is very broad. Our segments that are attractive to us are large capital equipment, imaging equipment, patient handling and mobility in the medical segment. Our pharmaceutical side and traceability is expanding rapidly around the world and product ID and broad, industrial automation equipment and machine providers. So it's a very broad portfolio that we see growth opportunities going forward.
It's been a good year in 2011. We've driven double-digit core growth across the entire platform, across all of the segments. That's primarily come from our focus on commercial process. We've added a number of feet on the street both in developed markets, but very heavily in emerging markets; we'll continue to do so. We're beginning to see the fruits of our efforts around innovation and product development. Driving higher vitality across these businesses is a very important priority. We've had a number of important product launches here in 2011 that we're starting to see traction from.
Emerging markets has been a significant part of our growth with double-digit growth around the BRIC region and expanding beyond that. It's been another year of strong margin improvement while investing in these commercial headcount and feet on the street initiatives. Margin improvement has come from some pricing improvement, certainly some investments that we've made in the past in terms of cost structure. And we're going to continue to do that here in the fourth quarter with some of the restructuring initiatives that Larry mentioned to have us well positioned for continued margin improvement despite whatever market environment that we face here in 2012.
Certainly one of our highlights during the year was the acquisition of EskoArtwork. It's a business that we're very excited about the potential. It's performed very well in 2011. We're excited about the management team. They're intact. They've embraced DBS very well. And it's also expanded our view of potential inside the packaging market space and really gives us options down the road. So we're very excited about that. Joe is in the lobby. He can share with you some of the products and the software with EskoArtwork, and I'll spend a few more minutes on that here in a little bit.
In addition, our focus over the last few years to drive our business more towards our strategic vertical markets both from a lead generation standpoint, go-to-market support really beginning to get traction in those strategic vertical markets, packaging, consumer packaged goods, medical and increasingly, the energy space as well. So been a very successful 2011, and we think we're positioned well forward to outperform in 2012 regardless of the market environment that we face.
Esko, as I said, very strong teams. They're in place. They've embraced DBS, very strong brand. And what they do is extremely important to the packaging industry. Joe can take you through some of the software. It's a business that's half software, half hardware, very important work through the packaging value chain, starting with the package creation and the design and the many steps that must happen through the packaging value stream in order for that consumer good to be on the shelf.
The big value creation opportunity for Esko customers is really in expediting the processing time, reducing lead times in the market and lowering the overall cost. Increasingly, consumer goods companies are using packaging to compete, packaging to win shelf space and share, and Esko's tools help make that happen faster and more efficiently and it's very important to what they do.
Videojet and Product Identification is more on the back end of the packaging line, EskoArtwork more on the front end. As that whole value chain begins to expedite and come together, we'll be able to see opportunities both at the customer side and throughout the value chain to drive synergy and value. But it's a very good business and one that we're excited to have.
The vast majority of our focus in Esko since we closed at the end of March of this year is really about DBS and growth processes, focusing on lead generation and using some of the Videojet tools and techniques around strategic vertical marking. We've been able to add headcount into emerging markets -- emerging market sales for EskoArtwork a little bit below the platform average, significant opportunity in China and Latin America. So we've made initial investments to help support the growth in that headcount in those regions as well.
On the hardware side, again taking lead times out, strong backlogs but helping the overall cycle times come down to get to market faster; made some nice improvement in that and continuing to add service and installation capability for our marketplace that's growing very well and again, would post mid double-digit growth here in 2011. So we're very enthused and excited about EskoArtwork. It's been a great addition to the Product Identification platform, and we see continued runway to strengthen our position in the overall global packaging and consumer goods marketplace.
A company that we haven't talked a lot about in the past in the portfolio is Qualitrol. Qualitrol has been part of the Danaher family for over 25 years. It's had excellent performance, strong operating results. Historically, it's been about a mechanical sensing and control business for electrical utility assets. Over the last 5 years, we've been able to take that strong market position and enhance it through software and electronics capabilities. Some of that has come through organic development. We've also had a fair bit of inorganic activity with 3 acquisitions in the platform. It's a business that is heavily specified by end user utilities that gets pulled through the value chain, ends up going through OEMs as well. It's a business that has very strong sales in emerging market. We think there's very good long-term growth potential both in the developed market, where we all know the age of the grid is increasing and the need for replacement and in developing markets, new assets going into place. But what we've done with the development and the inorganic activity with these 3 acquisitions we've done in the last 2 years is really move the business more towards condition monitoring or preventive maintenance, helps the utilities improve the overall utilization of their assets as they plan their downtimes, as they increase the overall efficiency of the assets. And the companies that we acquired a little over 2 years ago with DMS helped really accelerate our software capability. The optics helped expand our portfolio of sensors into that utility space. And last year, with the acquisition of IRIS Power, helped expand into the generation side of the business.
Qualitrol historically has been around the transition and distribution side, and IRIS Power has helped to expand in a generation. So Qualitrol is a growth platform, very strong performance in 2011. And what's really exciting is with 50% of their sales coming from emerging markets, we've got the infrastructure in place and continue to see strong growth run rate in emerging markets going forward. So Qualitrol's been a long time part of the portfolio, but it's really helped accelerate performance across the platform.
So emerging markets is our single biggest opportunity across the industrial technologies platform. 2011 we've had strong growth, nice margin improvement to go with that. We've added substantially to our headcount and our feet on the street not only with the salespeople on the street, but also the applications and the engineering support behind them to help support their growth.
Product localization, as you heard Tom talk about in the water and environmental business, is the next key accelerator across the businesses. We've started to see some dividends paid for our research and development and our product development in these products, designing local products to meet the local needs of end users and OEMs. Videojet's launched a new laser product line and a new thermal transfer overlay product line in 2011, seeing 20% growth in those product launches. Kollmorgen, with their global platform of AKD drives and AKM motors which has been our global platform, is now being launched in China in our facility. And that's being localized for China and going to be a growth accelerator going forward. So product localization is an important part of our emerging market plans ahead.
In addition Portescap, one of our motion control companies, is now headquartered in Mumbai, India. President of the business who has been leading the Videojet sales organization in India for 5 years is now the President of the Portescap business based in India. So continue to drive our emerging market presence not only with our products and our sales team, but with our leadership team as well.
I think the product ID emerging market growth story is really a playbook that we're trying to duplicate across the rest of the performance. It really started 10 years ago with the acquisition of Videojet as we expanded the product and channel capabilities with some inorganic activity. In more recent years, it's been about how do we improve and improve our direct go-to-market capabilities with the acquisition of a distributor in Brazil and in Eastern Europe. And at this time one year ago, we acquired our distributor in Mexico to help serve global customers and be more efficient and effective and fast going to market in a direct path.
Videojet has very strong businesses in the BRIC countries, strong organizations, local capabilities, increasingly localized products. But what they also give us is the initial entry into the non-BRIC regions, primarily the Middle East and Africa with their heavy focus on consumer-packaged goods. They help us get there first. It's an infrastructure that we can leverage across the platform into the higher growth and more newly developed emerging markets. So it's really a story that we intend to duplicate across the platform as we expand our capabilities.
And as you can see, they've been able to take the business from the mid-teens in terms of percentage of sales in emerging markets, drive it into the high 30s over the last few years and that's really what we'll try to do across the platform and it really showed what potential by following the playbook here that Videojet and the PID business has been able to deliver.
But it's not just about growth. What we've also been able to see with this story is it's about profitable growth, and it's really a local's game when it comes to that. It's local leadership, folks who understand the nuances and the dynamics of the market but even more importantly, who are able to develop the capabilities of the team in that local region. Then it goes into localized products, which we've talked about. Our product line in China is continuing to increase the percentage of sales that are actually designed, developed and manufactured in China. Videojet has a plant in China that serves the vast majority of our product needs and continuous inkjet printing around the world. 2 years has been the Danaher plan of the year. So it's about local leadership, local products, local capabilities both in terms of the supply chain and the manufacturing capabilities. And all of that is underlined with a foundation of a DBS process around compliance. And it's that risk management and that strong culture and the support around compliance processes that helps deliver sustainable growth versus some of the erratic growth that you don't have if you don't have that foundation in place. So it's really about profitable growth in the emerging markets. And the PID team has demonstrated to all of us that it's possible to have margins that are as good as the rest of your business and in some cases, even better than the average across the platform.
So emerging market is very important to the business. Most of the companies have significant opportunity. And the second big area is really around product development. And we put a lot of effort into R&D and product development, have increased R&D as a percentage of sales even through the downturn across the platform and are starting to see the benefits of that in motion where we've developed the Advanced Kollmorgen drive launched this time last year, really beginning to get design wins across our strategic vertical platforms of medical and packaging. The Advanced Kollmorgen Motor was launched 5 years ago. In the last 2 years, we've been offering enhancements that are specifically targeted towards our vertical markets, for example, food grade motors and drives to serve the food and beverage industry, platform-based products that can be advanced across medical and in our medical devices or our medical equipment area, been able to pull through some Thomson sales as well on some of the large imaging equipment OEMs and some of the patient handling and mobility segments as well. So very strong product development. It's an important part of our growth as well.
Commercial process has been very important across the business as well. Our focus going forward is really around improving our marketing capabilities. Videojet has made great progress on that in 2011 with digital marketing where we've improved our search engine optimization, some of our lead generation and strategic vertical marketing across the platform. And these processes and these capabilities, we continue to expand across the platform to really drive lead generation as well as improve brand equity overall across the business. So emerging markets, product development capabilities and continued improvement and progress in our commercial processes is really the formula that we'll realize going forward.
So I think we've got a great collection of businesses in the portfolio, very focused on growth. We continue to see margin improvements. They'll be able to drive with some restructuring benefits here that we're putting in place in the fourth quarter, continued improvement in the supply chain around quality and delivery. And emerging market sales is our greatest accelerator for growth. So I think the portfolio is positioned very well to be a higher growth engine for Danaher and very strongly positioned going into 2012 to continue to gain share.
So with that, let me open it up to questions on the floor.
[indiscernible] Yes, the first one is could you give us some color as to the thinking behind the Accu-Sort divestiture? And then the second one is the commercial laser companies have been seeing much higher growth rates for their sales into the marking market than the product ID overall business. Is that a mix shift that's occurring away from ink and if in case it is, what's the impact of that in your own business in terms of revenue growth rates and margins going forward?
William K. Daniel
I'll answer the second question first. Really around lasers, certain segments of the coding and marking business lasers have outgrown the broader market. Consumer packaged goods companies have more applications for lasers. But it's really a trade-off in terms of volume and speed that you run the lines. The continuous inkjet outperforms laser in some situation. Laser outperforms continuous inkjet in the other. So we're seeing a gradual increase in the laser mix, not significant. Our continuous inkjet platform that we continue to expand and develop new products for faster speed develop a flexibility to maintain a strong mix as well. So we don't see any fundamental shifts in mix over time here in the PID platform. But certain segments certainly prefer the laser approach. With regards to Accu-Sort, essentially we see the opportunity to deploy capital like EskoArtwork into higher growth more strategic to the verticals that we're really targeting around product and packaging than with Accu-Sort. It's a company we acquired 8 years ago. It's generated very strong returns, strong strategic interest from a strategic acquirer. And we just see the need -- the opportunity to deploy capital in a higher growth business like EskoArtwork versus Accu-Sort.
Just on Qualitrol, interesting that you called it out. It has been kind of hiding there in the shadows of the portfolio for a long time, and you've -- there's been some various utility and Hi-Voltage assets in the portfolio over the years that predate you, actually, but -- Joslyn Hi-Voltage and some things that have been divested along the way. Really the question is, do you see an opening to grow that business at this industry juncture with all the many large electrical equipment companies that want to play in that space? Where might you go that's logical for Danaher to not really kind of get into a clash with the big guys that are trafficking in that area?
William K. Daniel
Well, we see opportunities to grow it first from a core growth standpoint. The business that we've acquired with condition monitoring are double-digit growth rate kind of business versus a more mid single-digit growth rate. So we're seeing continued opportunities to expand our portfolio with additional sensors that need that predictive capability and the preventive maintenance aspect of the utilities. Inorganically, we've done 3 acquisitions in the last 2 years. It's an area that we actively look at. We continue to see and look for opportunities around that predictive side of maintenance, perhaps the communication side, things that help utilities improve the overall asset utilization of their business. Qualitrol's an excellent brand. It's been around for a long time and has strong growth potential both organically and inorganically going forward. So we'll continue to be active for sure. Yes, sir?
The theme of the questions that have come up so far is that you have a whole diverse set of businesses that are operating well and are -- and have growth potentials, but they're also relatively small businesses in the scheme of Danaher. And you've already divested 2 businesses within the group in the last month. What's the dynamic in terms of how you go out with Larry and the team in terms of saying what businesses are we going to grow, what businesses are we going to harvest, put that kind of in a corporate context, it's -- and just sort of take us through the strategic process on how you're building the business?
William K. Daniel
Well, we have a very robust strategic planning process both at the individual operating company level and across the portfolio. And we see high-growth opportunities as I've talked about in product identification and consumer packaged goods, some of the packaging markets in the medical space. We have some businesses that have very strong positions in that and opportunities to grow that even further. Across the business in our major businesses in the platform, we have the same kind of M&A process where we do regular strategic reviews over our priorities, specific company reviews in terms of cultivation. So we have the same M&A processes and industrial technologies as we do the other platform. But clearly, our focus is on driving those higher growth markets to more sustainable growth rates. Product identification is at the top of that list. I think we've been able to demonstrate in motion with share gain over the last 18 months the opportunity to grow that business as well. So we see a number of opportunities across these businesses to grow both organically and inorganically with bolt-ons.
With that, I believe there are still a number of businesses that have been classified in the past as part of an aerospace platform in your group, yet there's no mention of aerospace as a strategic market in this presentation.
William K. Daniel
Well, we've announced 3 divestitures in the last 12 months. The aerospace businesses of Pacific Scientific were back in January of this year. Kollmorgen Electro-Optical was announced earlier this week. So really, the aerospace and defense side is where we have had 2 of the 3 divestitures. We still have important vertical market activities in Aerospace & Defense, but those are companies that had a relatively small market position in a large market. Probably we're going to require more inorganic capital in those businesses than we wanted to deploy and see greater growth opportunities over time in companies like EskoArtwork. We have time for one more question. Okay. Thank you very much.
H. Lawrence Culp
Thanks, Dan. Just maybe to hit on some of the questions that, Jeff, you led off with. Keep in mind, we had Qualitrol. It's one of really the foundation businesses for Danaher back when we made the move with the Joslyn assets. And I think we always viewed Qualitrol as a imminently niche, but well niched, well protected instrumentation business. It really fit more naturally, I think, in the portfolio, the instrumentation portfolio, than maybe some of the bigger ticket hardware type products that we used to sell. I think that big competition is more relevant. You saw energy efficiency in some of those related applications that Dan talked to very much on one of the mega trends. You see that one of the checkmarks is with Fluke, where Fluke has a non-insignificant power quality opportunity as well. Again very much flying under the radar, we don't, I think, aspire to being a big, big ticket peak type provider, but I think there's a lot of instrumentation and software opportunities for us admittedly on more of a niche basis. Martin, I think to your question, relative to the portfolio evolution, what we've really tried to do here is maintain that ongoing dialogue. And Dan has been great. One of the fun things about working with Dan is we can kind of talk about the inbound and outbound traffic in his business, and he's got his Danaher hat on. There's no nesting going on there. And I think as we looked at those businesses, we never stopped growing them. And those were -- have been very strong businesses. They'll be, I think, outperformers for their new parents. But as we look to the opportunity to bring in an Esko, it maybe puts some of these other businesses in other hands. Given our shareholder orientation, given our long-term view, those frankly are very easy and natural decisions to make. You're not going to let me have the last word there?
H. Lawrence Culp
Right, right. No well, I appreciate that. That should be the last word. You look at the proceeds here, it's about $1 billion, right, for about $650 million of revenue. We probably have like a -- I think it's a half-a-million-dollar gain all in on the assets. So we don't do that easily or I think without some view that these are great associates that are going to move on and not be part of the team. But again, it's very easy for us to have a shareholder first orientation. So I appreciate that Martin. Let me move on to Jim Lico. Jim's going to talk about Test & Measurement, obviously the platform anchored by our Tektronix and Fluke brands. I think to the extent that some of you are still trying to sort out what the game plan is at Beckman Coulter, listen carefully. Obviously, Jim and his team did a phenomenal job on our last really big acquisition, Tektronix. And I think there are a number of lessons in this story that will bear out and Tom will talk about later in the afternoon. Jim?
James A. Lico
Thanks, Larry. Good afternoon. It's good to be here to give you an update on Test & Measurement as we've obviously reviewed the platform over the years here at about $12 billion in available market. This year, we'll go over $3 billion in revenue. So some consistent themes with -- in terms of core growth at 5 to 7 in market size, and obviously our growth this year has been -- is very good as we reach that #1 position in T&M. Probably the most -- some of the things that are just kind of changing from a year ago, one is I think -- and we talked about this last year, but I think we made great progress is that continued evolution of the portfolio to stabilize the business, moving more into software, recurring revenue opportunities on the software side, more service. So you look today, service being a significant -- a few years ago 7% of our business, today almost 20% of our business. So really a good opportunity for us to continue to stabilize the market. We'll talk about more about that going forward.
The other part is the geographic mix. As Larry pointed out in one of his slides, the emerging market aspect of this business is very good, continues to be a core strength of the platform but also a core growth opportunity for us as we go forward. So you see that dynamic of our geographic mix continuing to change. The hallmark of our presentations and our conversation about the platform has always been about the strength of the brands and the market position in their respective markets, and that continues today. And one of the things we like about our position in the portfolio today is our breadth of customers, probably the best breadth of customers of any T&M company in the world, from the R&D engineers that we have that we serve through Tektronix to the industrial and instrument technicians that you might find in a manufacturing or commercial facility where Fluke serves, to the network operators at wireless carriers around the world, to the IT infrastructure that Fluke Networks and Arbor Networks would serve as well. So a real breadth of verticals, a real breadth of end users gives us a lot of opportunity not only on the organic side, but also the hallmark of looking at continued adjacencies to expand the business through M&A.
2011 was a very good year for us. I think as I've presented over the years here, I can't remember a time when we've had as good an innovation story as we have in 2011. Good strong growth again this year across the portfolio, in all of our major product segments, whether it's in network analysis, whether it's in oscilloscopes. Fluke always a hallmark, a product innovation throughout a variety of product lines, as well as in our new Arbor Networks business, our new Pravail product. And I'll talk about that.
So really across all of the major product categories within the portfolio, we've had tremendous innovation. That's also driven great margins, 200 basis points. We continue to have a great margin expansion story, 150 basis points of margin expansion on the gross margin side at TEK. So not only good margin improvements but continued margin expansion on the gross margin line, which allows us to continue to accelerate investments at TEK. And Keithley, a business that we bought roughly a year ago now part of the team, the team there doing a great job with 500 basis points of -- over 500 basis points of margin improvement. And then as we talked in the emerging market conference, Larry made mention, a little bit of mention to this, about our emerging market story, over a $300 million business now in China, great growth in some of the other emerging markets like Russia and India and Brazil.
As I mentioned, innovation is really good. You see here a graph in terms of how our increase in our patent portfolio has gone this year across the product segments or the operating companies here. And that's a good story, but ultimately what we really like about this is the fact that we've really built more competitive advantage as we go forward into the future. So it's not really the patents necessarily. The patents are a good proxy for competitive advantage. They're a good proxy for gross margins. And so the story today's been good but as you look -- as we look forward across the products that we brought out this year, we've really been able to bring a significantly greater intellectual property competitive advantage into the market and really, really added some nice technologies into the segments.
In our oscilloscope product line, obviously, a core part
Tektronix business. And we've had a good year this year. And really in the performance or the top end of the market, we now have the highest bandwidth, highest sample rate in a single instrument in the industry with our launch of our new product in the 33 gigahertz range. This is the first use of our -- of a long-term relationship that we've had with IBM, but a first product in the 8HP Silicon Germanium process. So that partnership continues to drive more technology into this core product segment.
We did an acquisition this year, Optametra, which gives us good optical capability. And then as I mentioned, the Silicon Germanium investments really give us a extension in our product category for up to the next 10 years. So a good example of dynamic resource allocation, things we did in 2008, in 2009 when the market was tough through our ability to continue to invest you're now seeing the benefit of that here and in the future as well. And really what Silicon Germanium really gives us, it gives us not only the high bandwidth and the high sample rate that customers require, it also gives us a nice flexibility in the front end of the instrument to varied applications over time.
In the mid-range of oscilloscopes, we've come out with the first Mixed Domain Oscilloscope. So if you think about today, roughly 1/3 of embedded designs require RF capability. So there's a core engineer today that now needs to have RF capability in the design process by integrating that into one instrument. It really deals with the #1 mega trend in T&M, which is devices becoming wireless. And so it really gives us the opportunity now for some new segments. It gives us $100 million worth of traditional spectrum analysis market that we can go into the scope customers. And roughly over 50% of scope designers have some need for RF and probably buy RF. So this really gives us a broader expansion of our served market. We've had overwhelming market resumption, the revenue numbers are good and the industry accolades are tremendous. But at the end of the day, I think this is really just the first product in a range of things that you'll see from TEK over time.
We have talked many times about the globalization of our marketplace and what that needs. Today, we have over 1,000 engineers in China and India and Eastern Europe developing products. And we really continue to have great success, new range of products for Fluke in the mid price point clamp meter that really allows us to go after that mid-tier price segment in all emerging markets, as well as our Global Product Development capability giving us the opportunity in the scope market to really develop application-specific products for those individual market segments. Whether it be price point or usage, we have that capability now to do that. And the India revenue really shows, with the combination of the feet on the street, web investments and products at the right price point really gives us a growth story there this year as well.
The TEK Communications business has really been a really great story since we bought TEK back in 2007. TEK has had another great year. Orders up in the mid-teens, sales up low double digit, operating margin up almost 200 basis points. So a great, great year in and of itself, a tremendous increase in order rate from first half to second half. So we've got a great opportunity here in the second -- first half of 2012. So a real strength there as we continue to really not only gain share, over 800 basis points this year in share gain, but also a good core market as wireless carriers are really still dealing with all the bandwidth challenges and the capacity expansion that they need to do in their networks in order to provide better cell service around the world. That really gives us the opportunity to continue to instrument and work with those carriers in the network operation centers with our TEK Communications solutions and with new solutions as well so the core market, as well as VoIP and IMS applications as well. So not only do we have a great opportunity in the core business, but we're adding new applications. And the 4G LTE or long-term evolution story is really just starting here. Unlike a lot of what you read in terms of networks, this part of the market is really just coming. So we've won all the major tenders in that business today, but it continues to be very nascent in terms of our opportunity here. We should see that well into '13 and '14. So we're not only well positioned with carriers today, but we're also well positioned with the latest carrier wins as well.
Last year we introduced to you Arbor Networks. If you recall, this was a business we bought in the third quarter of last year. Arbor is a great business. As you can see in the graph, what Arbor does today is they serve the network security market. Traditionally we're service providers, protecting those service providers from DdoS attacks or distributed denial of service attacks. And in layman's terms what that is, is basically a outsider trying to shut that network down by flooding it with traffic. And what Arbor does is basically prevent that from occurring. And when it does occur, they take the traffic away, they clean it and they bring it back into the network. That's the traditional business, and that business has driven tremendous growth this year over double-digit core growth in the business this year, great story.
The better story is that now, we're starting with our new Pravail product. We're now able to protect data centers. So we're moving from not only a service provider product and a service provider company to a network enterprise company as well as we protect the enterprise network as well. And really, the massive expansion of data centers around the world gives us a great opportunity to move into the enterprise market. And not only that, but the leveraging competitive advantage we have is with our cloud signaling coalition and our cloud signaling technology. What we really are able to do is leverage the technology we have in the service provider and in the data center to give you end-to-end protection throughout the network. And we're really the only one that can do that, and we're the only one that can do that because we have such a large installed base with the service provider and now we have that opportunity then to go into the enterprise network. So it's a great opportunity for us. We're just starting with that business that's a product category in a level of service that's just coming out here in the fourth quarter. It's going to give us really good runway here into the 2012 and really allows us to establish some partnerships for channel partners because obviously this becomes a channel product over time. And obviously our leverage with traditional distributors that we've had in the Fluke Networks business, another part of the T&M platform allows us to accelerate those partnerships built on the channel relationships we have for years to accelerate Arbor's move, accelerate their move into those channels of distribution.
Larry talked about DBS and showed you the evolution of DBS over time within the Danaher portfolio. We have a similar story within the T&M platform. And we thought it would just be nice to kind of share one of those stories with you, a business we don't talk very much about. Maybe over the years, we've talked to you about the calibration business at Fluke, a strong business for us. And within that businesses, temperature calibration business brand as we know it is Hart Scientific, very good business, a business we bought about 10 years ago. And I think just like Larry shared with you some examples, this is a good example of a 10-year story at Hart not only on the growth side, but also on the market expansion story. And hopefully it gives you a perspective of really what DBS can do over time. You see the growth. Obviously we've doubled the size of the business, great gross margin expansion, great operating income expansion and obviously a tremendous return on invested capital, allowing us -- really, what we did is took a business, globalized it, applied DBS. Really gave them a significantly improved quality and delivery capability and really from that, continued to use DBS to continue to improve.
And so you see the numbers here; 130 Kaizen events on the shop floor, another 70 or so in the back office, 200 Kaizen events over a 10-year period, roughly 20 a year, almost over 1 per month, really focused on just continuous improvement. So that story of it, you get the big bang in 1 or 2 years and then it doesn't occur again, it really isn't true. I tell you that well over half of this improvement came in the second half of the decade in this business. So we have a variety of the stories within the platform, and I think we continue to be able to do a great job with bolt-ons, great ROIC, but also giving us great growth and margin expansion.
So just to kind of summarize kind of where I think the platform's at today, obviously the dynamic resource allocation that we did in the last few years, as well as the go-to-market investments that we've made this year, have really, really paid off this year and we expect to continue to see payoff in 2012.
Emerging market story is not over. In fact I'd say we're still in the first quarter of that game, a long range of opportunities within the platform, a significant amount of energy and effort to grow that business or grow that part of the world within all of our businesses. It remains a great opportunity for us. Fluke and TEK are much more on that path than our communications business. So we really have a great opportunity still throughout our businesses, but particularly in the communication business to move it forward.
And then restructuring. We've obviously seen some slowness in a couple of segments of the market. So we've used the restructuring opportunity, the restructuring window just to make sure that we can protect our investments, drive margin expansion in 2012 and continue to gain share in the year.
And with that, I'll take questions.
Jim, I was really interested in seeing the slide about the patents filed, and I was surprised to see how many more patents are filed by Tektronix. And we can't see the measure of R&D per sales on this, but just give us a perspective. I'm curious how much of that is files for the next generation of scopes or spectrum analyzers? Or how many are actually some -- might be some new product innovations? And a related question to this is, Tektronix is one of the respected brand names in this market. And the previous owners talked about being able to migrate into other adjacencies with this brand name. And I'd be curious as to whether you see this as an opportunity for Tektronix beyond just the core. You've done it in communications, but you've done it in spectrum analyzer, maybe optical tests. And what are the adjacencies? And how valuable is this brand?
James A. Lico
Yes. So on the patents filed, if you really look at the core increase, I'd say -- I don't have the exact numbers, but at least 3/4 of the patent, the new increase year-on-year is in these core product technologies that we've got going forward. So substantial number of the new patents filed are in our -- are in these new products that are being launched this year. In the core market, by and large, most of the new patents filed are going to be in new products but if you just think about the core scope business, for instance. Relative to the brand and the sort of ability to stretch the brand -- and I think we've demonstrated some pretty good success to do that at Fluke over 12, 13 years. And I tell you we have the same opportunity at TEK as well. And one of the advantages that we've got in the platform today is that we're now using the brands interchangeably. So in some situations for certain end users, you may see it in R&D level, you might see the TEK brand play much better. But in another environment, the Fluke brand might play in environment. So we're mixing and matching in some set. In the lower end of bench instruments, for instance the handheld oscilloscope that we traditionally made at Fluke, today, we build that in the TEK brand as well with some different applications. So it allows us to go into the core markets with some different segments. So you didn't ask this question, but I'll answer it is that with the portfolio we have today and the brand management capability that we've I think demonstrated historically, it gives us a good opportunity to do some things differently and quite frankly than a lot of other players. Second part -- the real part of your question is what do you do with it? And clearly, we have some opportunity to stretch the brand, whether it be in new product categories. Without a doubt, within the R&D environment, we can use the brand for a variety of things, and we're continuing to evaluate what that might be like. Yes?
Jim, you talked about the 4G and LTE opportunity and the fact that today, early in that cycle and also that you have a large majority of the winds with the Tier 1 service providers. Could you give some color as to how economically sensitive the sort of 4G LTE technology upgrade is likely to be? So you have the wins, these orders and your conversations with all these clients. When do you see that ramp actually happening? Is it more of a 2012 story? Is it more 2013? How is it going to get impacted?
James A. Lico
Well as you know, that's moved out, right? If we look at the LTE story from a couple of years ago, depending on the vertical or the T&M segment, some of them had moved out, obviously. I don't think -- where we're at today, because of the handset development coming forward, I think we're probably in the end of '12, '13 kind of time frame where that starts to become a bigger part of our revenue stream. So we're winning those orders, we're installing the equipment. So the equipment is getting installed. In this business, you have to turn the network on when you declare revenue. So we get a pretty good perspective of when we're actually going to declare revenue because some of these installation, some of them are already -- the networks are already installed. So I think for our business, end of '12, '13 we'll start to see some things in a more measurable number. We're starting to see the orders now, but the revenue numbers are probably 6 months out right now. I don't think where they're at right now, they're necessarily as economically sensitive because they're coming out with the handsets and they're selling the products. And now you've got these mixed networks that are 3G and 4G. And obviously, that creates some challenges for the network, so -- the network operators. So in our case, they need our equipment. They might push out other investments, but it looks right now that our investments are going to be fairly well protected.
So if you look not just for you but across the industry, Test & Measurement tends to be one of the more cyclical industries. And if you think about what we've seen over the last number of months from a macro and from a, specifically in the electronics supply chain standpoint, things have weakened quite a bit. So could you maybe be a little bit more explicit about for the entire Test & Measurement business, kind of what you're currently seeing and what you expect in 2012?
James A. Lico
Yes, we've clearly saw a -- if you look at the core Fluke and TEK, the instrument side of the house, we've clearly seen some deceleration in the fourth quarter. We think next year, Larry outlined a range of where kind of 2 to 5 kind of numbers and things like that. That's about where -- we think we'll be in the 2 to 5 range. Hard to true that up until we really start to see how the year progresses. With comps being very good, probably double-digit growth in the second half. And then different segments of the instrument side maybe being flattish kind of thing. So you won't see anything precipitous at least right now because in our mind the point of sale, the sales out for our businesses are very good. They're actually -- the core U.S. is strong right now, and we haven't seen a deceleration in the sales outnumbers like we did, say maybe back in '08, where inventories were taken down but also point of sales were going down. At this point, we've seen point-of-sale actually continue to grow. So we don't anticipate maybe some of the volatility that the market saw back several years ago, but we'll some slowness, and we think that between the advantage of the Comms business and maybe some sort of China picking up here in the second or the first half of '12, we think the business comes back in the decent growth mode later in '12. One more. Two more. We'll go here and then here.
Jim, just trying to calibrate the impact of new products on the growth in terms of where we are on that curve. And maybe you can talk about the growth expectations for '12 and your last comment, market versus VARs, T&M, and how that compares to what you saw in '11.
James A. Lico
Yes, I think the market next year is probably overall in the low-single digits and we're probably 100 basis points, 200 basis points better than that right now. I think that's kind of a guess. How that breaks out by first half, second half is pretty hard to tell at this point. We know what our business can do, where the rest of the marketplace is going to be -- I think we're still trying to calibrate off of numbers. So it's hard; at this point, kind of hard to tell. What we know to be true though is really 2 things. One, we've got very strong backlog on the Comms business starting the year and we think that the deceleration in some markets because of the inventory corrections have ended. And so we should start to see the sort of -- if we look kind of through the quarter, October, November were a little slower, December's actually picked up. So we think kind of our current assumption, if you will, is that the market will probably be in growth mode next year and we'll be a little bit above it. One more.
So one of the things today is obviously the acquisition year or year after is just the beginning of the growth profile as the portfolio evolves. With TEK and your overall business, as you think about the mix of organic versus acquisitive growth going forward now that you've digested it, how should we think about the runway that exists within that area, specifically? And then the second question will be around the security side. How should we think about how that should play out over time, too, because that's pretty interesting.
James A. Lico
So let me take the security market question first. The security market for us today is a good market, relatively is the niche around DdoS and dot-net attacks. We can provide -- by expanding into the enterprise, we can roughly double the size of the server market over time, a couple hundred million or so. So that dynamic, I think we're in good shape. And where we go in security from there is going to be selective. It's going to utilize our installed base and not be real far afield from where we're at today, and there are some opportunities there. Relative to how we always think about growth, we've historically been able to grow the platform over any period of time in the 15% range and that's usually been relatively split halfway between organic and inorganic. So that's kind of where we've been. We don't rely on acquisitions for our growth and I think we've had a good core story. On the other hand, I think we continue to push the teams and the businesses to take a new framework. Larry, I think it's been mentioned a couple of times our strategic plan process. And every year when we do that process, we're always elevating new places to go and new adjacencies, and this year is no different than the years passed. The opportunities still continue to be pretty good.
That means you should spend some money next year.
If I can, just 3 quick points before we go to break. Relative to the fourth quarter, recall the third quarter earnings call that we had where we flagged that Jim saw some pull forward at TEK Comms on the part of some customer scheduling, because that will be a little bit of the pressure headwind that you'll see in the plant at TEK Comms. Second point, Jim was incredibly modest about the reshaping that has occurred within T&M in the wake of the Tektronix acquisition even with all the great execution product line by product line, geography by geography. At TEK now remember, because of a lot of the service initiatives, we've taken service from 7% to 20% of sales at TEK. So back to the earlier question, we see a little bit of choppiness out there even in the short-term, gives us a little bit more ballast, if you will. I think the other bit of the reshaping of the portfolio is with the strong growth at TEK Comms, that now represents 30% of T&M. It's 20% last time we went into the slowdown. So it's really, I think it's a fundamentally different mix and portfolio. Obviously, TEK is in better shape from an execution perspective, really just getting to the growth opportunity as Steve referenced. The other point I want to make is that we often get the question, does DBS work in a software business? Now we can take you out to a factory, right? And we can show you machines, we can show you workflows. You can see capital and labor productivity. It's really hard absent these slides and the numbers on these slides to show you how we take a high-growth business and really help them define priorities and how we keep them disciplined around those priorities rather than chasing the next bright shiny light. It's really hard for us to take you into a software factory and show you how we'd apply those same lean tools in writing code, let alone how we take a lot of that, those devious fundamentals like values remapping into the service organization to make sure that we take really good care of our customers at a time where if schedules are frantic, when we have a lot of volume coming at us. But those principles that we show you on the shop floor when we get you out to a site are very much, I think, a part of the great execution that you see at TEK Comms and the rest of the software side of T&M. So I think we're halfway through. Matt, we're -- I think we're tracking right on schedule, so we're going to take a 30-minute break here. The presenters will obviously be around and we've got the booth staff, so please get out and see some of these products that we've talked about between calls.
Matt R. McGrew
Could we take our seats, we're trying to keep on schedule here. So if everybody could come back in and grab a seat, we'll get started soon.
H. Lawrence Culp
All right. We're ready to resume. Hopefully, the break was useful and you had a little bit of time with some of the product demonstrations. We're going to turn now to our Dental segment. Henk van Duijnhoven is the Senior Vice President, not too long ago promoted into that role, who has responsibility for the entire Dental platform, and Henk's going to give you an update on what they've been doing here in '11 and the outlook for '12 and beyond. Henk, it's all yours.
Henk van Duijnhoven
Thank you, Larry. Am I on?
H. Lawrence Culp
I think so.
Henk van Duijnhoven
Thank you, Larry. I'm going to present the Dental segment here. Our Dental business, we operate in a $16 billion segment with our market, with long-term growth rates of mid-single digits, 4% to 6%. We have a $2 billion business, roughly half consumables, half equipment. And with that, we have a little bit higher than 10% market share, stronger, higher market share in equipment and a little bit less on the consumables side.
Our operating margins are in the low to mid teens. We have a pretty global business here and we virtually serve every end-user, any Dental segment that you can find in the world: General practitioners; specialists such as the endodontist, periodontist, orthodontist, surgery, oral surgeons as well as schools and universities, so we're well positioned in universities where we help educate the future dentist; government entities such as the army, but also dental purchasing organizations so larger group practices where we do business with.
We have a number of strong leading brands, KaVo clearly the #1 player in hand pieces or instruments, as well as a strong equipment player in Europe. Ormco, the #1 brand in the orthodontic segment and continue to be a very strong brand for us. Kerr, a strong position in North America with restorable -- restorative consumables, but also a relatively strong share in other parts of the world. Our DEXIS business is our digital into oral sensor business which is one of the leading brands in the world, especially in North America and that continues to be a cornerstone of our portfolio. And then the Pelton business, Pelton & Crane, which is a dental unit, as well as a cabinet business that is well positioned in North America here with that brand.
A couple of highlights from 2011, this year. We've had a very good year. We've continued to invest heavily in innovation. We've been able to bring a record number of products to market with the IDX show earlier in the year, always important that you have enough new news. We launched over 25 new products between the equipment and the consumable, business, and I'm very pleased that we've been able to drive that level of innovation in our portfolio.
We've stepped up our R&D investment by 9%, so quite a bit for us and we've continued to invest in R&D headcount, in particular R&D headcount in emerging markets such as software engineers in India and people who work in our equipment business in China. On emerging markets, I think I've talked before about our efforts to really get our market share up in emerging markets. I think you saw earlier from Larry that we're one of the segments who's maybe still a little bit underpenetrated, so important for us that we get that share and growth rate up on the emerging markets.
A year ago, we started to work together between the equipment and the consumable businesses. We're focusing on 9 markets, I call it BRIC plus 5. We selected 5 of the markets where we're now getting very nice growth rates in the mid teens and China clearly our leading example year-to-date. We're up 60%. Almost exactly a year ago, we acquired the Implant Direct business. That business has now been with us for a year. The integration is going very well, and I'm pleased to report that the growth rate on that business continues to be strong, up mid teens. And clearly in an implant segment that has probably some lower growth rates at this moment. We're clearly gaining share with that business.
And then lastly, our operating margin expansion. We've had a good year. We're going to be up a little bit over 100 basis points, and that's going to come a little bit more from the equipment side than from the consumables side. In terms of innovation, in 2011 we launched our first combination product where we used the consumable business and the instrument business in one product. What you see here on the slide, you see some tips. Those tips have a Kerr composite in it. That composite gets sonically activated by an instrument that's made by KaVo. And as that composite gets activated, it becomes very flowable. So with that, we can now fill a cavity in the posterior for a molar, a large cavity in one go. Traditionally, a dentist will have to put in a layer of composite material, cure that, put in another layer and cure that again and often do that a number of cycles. With this product, we've taken out a considerable amount of time, how fast a dentist can really fill that large cavity. And that product has taken off very, very well.
We shipped, in a matter of 8 months, almost 10,000 units. We will be shipping more than 10,000 before year end, I'm confident about that. And it's driven a nice amount of incremental revenue here, a great example of how we can really better leverage our combined portfolio into real product wins for the end user. In our digital imaging business we launched earlier this year, I think a number of you have seen at the Chicago midwinter show. We launched the Instrumentarium OP300. That is a combination 2D, 3D unit that was very important for us to get to market.
We have now taken that technology platform and we're leveraging that across 4 different brands: Instrumentarium and KaVo, both premium brands; we're leveraging the KaVo brand in Europe for the premium position with this digital imaging technology; and then 2 value brands with Gendex and Surdex.
Each one of these products continues to have their own unique features and benefits, so it should protect the brand entities. But this is a great way of how we can leverage one technology platform for multiple brands. We've built 500 units year-to-date. We continue to ramp up our production. We're shipping into North America and Europe, and then next year we'll start shipping into Latin America and Asia. So I still expect quite a bit of growth from this product line.
On the Gendex side, we're going through some novel new marketing techniques. In the last 18 months, we've ramp -- upgraded or renewed about 80% of the product line at Gendex, which has been quite a bit of work. But now that we have the new product line, we need to make sure that the dentists know that we have these products.
Rather than dentists coming to trade shows or hoping they show up in the showroom of us or a dealer, we're taking that product to the dentist. We've outfitted a large touring bus with all the new products from Gendex. We've combined that with a digital marketing effort in Facebook and Twitter so that dentists then and followers can see where our bus is. And we're making stops at dental offices, at study clubs, some of the centers of our dealers, such that dentists can really touch and feel the new products that we've integrated into the Gendex product line.
We've had almost 1,000 dentists through that bus in a matter of 3 months, which has been phenomenal. Now roughly 1 in 2 turns into a lead and to our surprise, it wasn't really our plan, we've sold almost $1 million right there on the bus. We thought that would -- typically the lead conversion will take a little longer, but it's been such a success that we've been able to take orders right there on the spot.
On the endo side, we're having a very good year. Our endo business is up a little bit more than 10%, which is great for this business. We're also in a position where some nigh tie [ph] files from Tulsa are coming off patent. So we've taken that opportunity to renew some of our products, the K3XF product that you will see here on the slide is one of our workhorses in that product portfolio. And we've taken the opportunity to upgrade it with some enhanced features in that endodontic file.
But importantly, we think there is a real opportunity here to sell more endo product to general practitioners, as general practitioners are trying to keep more work in their own practice rather than sending it to a specialist. So what we've done in the state of Texas earlier in the year, we combined our Rotary BER [ph] business with the endo business and created one sales force, and ran an experiment whether we could really drive some substantial share gain in our endo business by leveraging our dealer partners and go to the general practitioners.
Our business is up more than 10% in Texas, the combined business. And as a result, we've now decided to roll this sales model out across the entire country. In Q1, we'll be having 70 sales territories and 70 new reps where we will leverage our combined Rotary and endo platform and leverage the dealer network to get more market share. In the orthodontic business, we continue to invest in digital technology. Our Insignia business is a business where we take an impression, we digitize it and from the digital file, we create a fully customized treatment plan for a patient. From that software and the data set, we then manufacture custom brackets for each individual tooth of that patient.
That business is up 50% this year. It's a wonderful business. We're enhancing the product line not only with metal brackets, but we're now going to a clear bracket in 2012. And in addition, we're working on an inferal [ph] scanner that will further improve the workflow of this wonderful treatment solution. On the emerging market side, as I mentioned earlier, we're up 15% in those 9 markets. So the effort of working together between the consumable and the equipment side is working very well.
China is up 60%. How have we done that? We've not only combined the 2 sides of the house of -- on the Dental business, but we're also leveraging a number of assets that my colleagues have done or can provide me. So what we did is we took the Leica logistics capabilities, and we're basically using the Leica logistics capability to ship to our dealers and end users.
We've leveraged the Fluke HR. As we've had to rapidly build out our sales forces, we needed a lot of HR support and have been able to get some free help from the Fluke business. And then our small corporate office in Shanghai has provided legal and finance support. Since the Dental team could focus on building a sales force, we've tripled the amount of people on the street, we were able to tenfold our Kerr distribution points in China. And as a result, our business is up 60%. I'm not only excited about 60%, I'm also excited about what future run rate that will give us. We have built close relationships with the Chinese dermatology association, as well as with the leading dental hospitals in China. So a great story and a great -- the start of a very strong team for us in China.
The KaVo equipment business and our margin expansion story, I think I've talked about this before in 2009. We started with a situation where in a significant down market, we had a breakeven business, which is obviously not a great place to be. We started on that, on a multiyear product or a profit roadmap to get the margins up ultimately to mid teens. This year, we'll be in the high single digits. We've made a lot of structural improvements in the business that I think we can truly sustain.
We've taken out roughly 550 people since late '08, that's 15% to 20% of the headcount. We've consolidated manufacturing facilities and importantly in our German business where we make most of our instruments as well as our equipment, we're now seeing, on a sustainable level, year-over-year 10% productivity improvement in both the instrument and the equipment business. And that I find very encouraging. That gives me confidence that we will get in the next couple of years to that 15% profitability that Larry reminds me of all the time.
While we got to high-single digits in this business, we've continued to invest in R&D for funding some of the emerging markets investments that we need to make and into our commercial capabilities. So important that we work on both sides of the house such that we can continue to grow this business going forward. In summary, I think a good year for our Dental business.
We've been able to invest in innovation and R&D that is clearly paying the dividends. I think importantly, we found a way to connect the equipment and the consumable business into some true competitive advantage that I think few other players can really generate. I think in the last couple of years, we've made significant progress on that equipment profitability, not completely done, but I think very good progress. And then lastly, while we've done all of that, we've been able to find and free up some funds so we can invest in emerging markets where we know we have a considerable opportunity to get that share up in those markets. With that, let me turn it to questions.
So you mentioned implants early on, and that's a pretty large market investment in tranche players, et cetera. How do you see yourself competing in that over time and winning in that space?
Henk van Duijnhoven
Yes, we clearly like our current position with Implant Direct. We've obviously invested in what I would call maybe more of a value play. I think there's a lot going on in the implant market. There's obviously a number of very strong high premium players, but we clearly think that there's a considerable growth over a longer period of time in the value segment and we like our Implant Direct position there.
I was wondering if you thought moving the endodontic product into general dentistry actually increases demand for procedures, if you're seeing that. Dentists are obviously for-profit individuals. Or should we think of this as just some kind of channel fill as kind of the product line kind of rebalances? And how big of an opportunity is the shift?
Henk van Duijnhoven
I think there's a couple of things going on with the endodontic business. I think as people try to hold onto their natural teeth longer, we'll probably see some modest growth in the endodontic procedures over time. I think there will still be specialists out there, endodontists who will treat the more complicated situations. And I don't think every general practitioner will want to get into the business of doing their own root canals. Now I think there is a bit of a shift going on here where more and more general practitioners are trying to do more of the simple root canal procedures for a number of reasons. But especially in these economic times, it's a way to keep the revenue up in their practice. So we do think that there is a little bit of a shift. There is some continued growth, but there is also a shift going on where more and more GPs will handle the simple procedures, and that's clearly a growth opportunity for us.
It's Cliff Ranson [ph]. It strikes me that the technology in your business in what was a fairly conservative buying constituency over a long period of time is changing very rapidly. Everything from milling to sonic cure and UV cure and new materials and stereolithography and particle deposition and stuff that's pretty cutting-edge kinds of thinking. How easy is it for you to one, get your sales force to wrap their arms around those changes and two, to get the dentists to think differently?
Henk van Duijnhoven
Yes, I think those are both very good questions. There is a lot going on in the dental office today. I think if you look at a dentist, traditionally it's a fairly mechanical, crafty environment, but the early penetration of digital procedures or the digital enhancement of those procedures is clearly generating a shift. I would say that a dentist, on average, is not maybe one who is going to change that quickly unless there's a real clear benefit. I think the SonicFill is a great example of where we've been able to quickly move a lot of end users into a different way of doing a posterior filling. But at the same time, I think these dentists, they're looking for a better way to do dentistry, but there's got to be a real benefit for them. In terms of the sales forces, I think that is a little bit easier. I think that's a little bit more directly in our own control. I think as long as we can continue to be technology leaders, I think we can shift that sales force. Whether that's always exactly the same individual, probably not, but I think that's a little bit easier to shift for us. I think in summary, the dentist will change. Maybe there is some level of an age segmentation there. A younger dentist will probably go a little bit faster than maybe a dentist who's practiced for 20 years the same way. But I clearly do think that there is a shift here that will probably generate a real opportunity for many, many years to come.
Henk, as punishment for Larry disclosing gross margins for your segment, gross margins 50%, high-single digits call, so you get 41% between the 50% gross margin, your current operating margins. Can you get close to those 20% margins just on growth and leverage, or does that sales force need to actually migrate the mix up for you? Or another way to put it is what are your incremental operating margins on the next sales simplistically on your current mix? I was just going to ask.
Henk van Duijnhoven
Yes. Maybe a couple of points. In our profitability and how we think about that profitability, we're obviously going to have to get it from 2 places in my mind. We're going to have to get more efficient on the gross margin line. And that continues to be making sure that we launch innovative products where we can command reasonable premiums, but also as we find more leverage on the SG&A side, whether that is from bringing the equipment and the consumable pieces closer together, taking out some layers, we're obviously going to be pushing on both. I think we've done that pretty effectively on the equipment side, but we're obviously now working that on both sides of the house.
H. Lawrence Culp
You talked about all the help you're getting, you were remiss. You forgot the most important part from the help you get, that jake break on the bus. Hopefully some of you didn't get that joke. But I think it's an important part of the story because what you see there, really if you go back a year ago when we told you about the $100 million club in China and the way we've been able to incubate a number of our businesses really inside of Fluke and inside of the hand tool group that is now part of the Apex joint venture, we really grew up the other parts of our presence in China with the help of the other businesses. And this is really where the Danaher connection makes a ton of difference.
Clearly you see, I think, excellent early traction with Henk bringing his businesses together and having him really leverage the corporate presence inside of China to get up on the growth trail. I think we've got many years ahead of us of outsized growth given the right modest space that Henk and the team have today in China.
Jeff, just back to your question real quickly. I wish we could induce demand for root canals, but there are some things that are beyond the reach of DBS. But as Henk highlighted, maybe we should try. There's a real share opportunity, certainly as the IP landscape changes in the endo space. And I think between the organic activities and things we're working on elsewhere, hopefully we'll get up that share curve.
Our last speaker today is Tom Joyce. We're bringing Tom back up to talk about Life Sciences & Diagnostics which as you will see, is not strictly a Beckman Coulter story. Tom?
Thomas P. Joyce
Thanks and good afternoon again. Our Life Science & Diagnostics platform. It is not just a Beckman Coulter story. But what a year 2011 has been. 2011 marked the -- a truly significant expansion of our Life Science & Diagnostic platform, now to a platform which accesses a far larger market than we accessed a year ago, really extended our reach, both from a product standpoint and a geographic standpoint into both our hospital, clinical-based customers, as well as our Life Science customer base.
And also I think gave us, as you can see there in the lower left, a significant shift of our geographic footprint with a very strong position, as you'll see in just a bit from Beckman in the emerging markets. New products were a real cornerstone of the growth that we demonstrated in 2011. Radiometer, a terrific business, as many of you know, headquartered in Copenhagen, Denmark. The leader in acute care, critical care, the analysis of blood gases, a key measurement of human health in emergency rooms, in operating theaters as well as in intensive care. Well Radiometer, as you may recall, introduced a breakthrough new product, the AQT 90. And AQT 90 is a point-of-care diagnostic platform that focuses on the high-growth area around cardiac markers and infection markers.
Some very exciting news just in the last week. We received the full approval from the SFDA in China, giving us access to a $50 million market in cardiac care. The full 5 assay panel has been approved along with the instrument. That market's currently growing at over 30% a year, so very exciting new news and we're really off to the races in that market now.
Leica, our Biosystems business, also had terrific growth during 2011. The new product introduced not much over a year ago, our BOND-III. And immunohistochemistry platform, our automated stainer, grew its install base over 20% during the course of the year, continuing to drive share gains and as a result of those share gains and instrument placements pulling through high-margin consumables along the way.
The TripleTOF 5600, a product that we talked to you about roughly a year ago that we introduced at AB SCIEX in 2010, that breakthrough in qualitative and quantitative analysis has taken significant share during the course of 2011 and it's to help to drive that 10% core growth that we've mentioned a couple of times today at AB SCIEX. Acquisitions, obviously the acquisition of Beckman Coulter, a major enhancement of the platform. I'll give you an update on that in some depth here in just a minute.
And we'll also talk a bit about an acquisition Larry referenced at the top today, an entry point and expansion of our footprint in India through the acquisition of Labindia. Labindia wasn't the only part of the emerging market story in Life Science & Diagnostics in 2011. As you can see from the roster noted there, each of our businesses posting terrific double-digit growth in multiple markets last -- in the past year.
So an update. Things are going very, very well at Beckman Coulter. We're off to a very good start. As you'll recall, we closed this transaction at the end of June this year. We quickly established a new operating structure, one that brought greater focus to the Life Science side of the Beckman Coulter business, differentiated from the Diagnostics side of the house which focuses on the hospital or the clinical customer, the Life Science segment focusing on the academic and research-oriented segments.
And then thirdly, a key growth opportunity for us, the molecular diagnostics segment of the market, an area where we are investing over $40 million a year in what will be a breakthrough product introduced in the latter part of next year and early 2013, that we expect will make a significant difference in the productivity of molecular diagnostics in the central lab. Making sure that we have the right talent on the field has been a key focus for us over the last few months. What we found is a very solid talent base at Beckman Coulter, particularly at the second and third levels of the organization, many of those folks now taking on significant leadership positions across the business. We've supplemented that team with several leaders from other Danaher businesses, several with experience in the domain. And we've also brought in outside talent from other folks in the IBD [ph] industry. So I think a very strong team on the field and one that has done yeoman service here in the last few months, getting us off to a very, very fast start. So performance generally tracking with the expectations that we had set at the outset, sales pretty well in line with what we expected here in the second half of the year and clearly, some sequential improvement in operating margins due to what we think is a very good start on the cost reduction side, particularly around headcount.
Our priorities have remained clear and consistent from the outset, really starts with quality and making sure that we have a relentless focus on ensuring compliance in every regulatory dimension possible, as well as product quality itself. We've resolved 2 of the key issues that were on the table, identified through diligence, issues around sodium glucose and we've made excellent progress in moving forward with the clinical trials associated with the refiling, the resubmission for the troponin assay, to return it to the market in 2012 on the DxI platform.
We've also focused DBS resources on product quality itself. And we've already seen the impact of DBS tools around problem solving. We've seen one of our key products in hematology, the DxH platform, show 20% improvement in quality just in the first 3 months of effort in improving, particularly the key components coming through the supply chain. While we've been focused on product quality, we've also made sure that we were continuing to move forward in product innovation and new product development. Hopefully, you got a chance to take a look at the new AU 5800 platform at the break. I'll spend a few moments on that in more depth in just a bit.
Our hematology product line has now had the addition of what's known as the DxH slide maker stainer. This is an important product innovation that reduces the amount of manual effort that's associated with having to create a slide when a particular result comes from the hematology analyzer. That circumstance happens about 20% of the time when a particular diagnosis is being performed. And by automating the linkage between the hematology analyzer and making that slide, we're able to take the manual innovation down to virtually 0 and create that slide automatically.
Lab automation is a critical focus. We've seen increasing issue around skilled labor availability in clinical labs, and Beckman Coulter has been particularly focused on ensuring that product innovation addresses that critical end-user need. A couple of examples noted here are expansion of storage and retrieval capabilities that again, reduces the manual labor component of retrieving a blood sample to be rerun.
Connectivity. Connectivity between analyzers ensuring again, less manual intervention. And finally, ease-of-use when it comes to software. The new Dx lab software when combined with PrepLink 5.0 creates a consistent front end from a user perspective across the entire suite of Beckman Coulter analyzers.
So the AU 5800. As you can see from the graphic here, it extends the reach of the platform that we have in clinical chemistry analyzers. It takes us from the lower-end volume segments of the market, where the AU 480 and 680 play, along with the legacy products of the DXE 600 and 800, and extends that range up into the very high and ultrahigh segments. What this allows us to do is be far more competitive in the higher growth segments of the market. These markets are the higher growth segments because as we see labs consolidate, as we see hub and spoke networks develop in healthcare facilities today and as we see the growth of mega hospitals in China, the AU 5800 positions us uniquely to play in those segments in the market.
In addition to that, the AU platform brings a significantly higher level of reliability, lowering service cost and finally gives us an ability to scale in a modular way, allowing that lab to expand capacity as those networks expand. So a real significant advantage to that platform for 2012 and beyond. DBS is already having impact at Beckman Coulter not just in quality, but also in plant output and customer service. We have a large plant footprint in Mishima, Japan, south of Tokyo. And after closing, we brought a team into Mishima and we quickly identified a high-class problem. The problem was that we had more orders than we had capacity to meet those orders on a timely basis.
By deploying a team, we were able to take the lead time for production down, we were able to significantly compress the footprint that was being used in that plant. The team there having no other options to that point was looking at expanding the plant, was looking at adding headcount. We were able to quickly apply the various tools in the Kaizen bag and we were able to eliminate the need for that plant expansion. We were able to actually reduce the amount of headcount needed to produce that output. And as of the end of November, we were current, meeting all customer demands with no incremental CapEx and no incremental headcount. So I think a terrific indication of how DBS can be applied quickly and in the interest of customer satisfaction.
As we look ahead, we think Beckman Coulter has terrific opportunities for growth. And I think China is a great example of that. We start with a very strong position in a very strong market, a market growing healthy double digits, a #1 or #2 share position in virtually all of our product segments and growth this year that will be in excess of 20% and we think very well positioned to continue that growth in 2012 and beyond.
Flow cytometry is a product line within Beckman Coulter with a tremendous history. That product line is continually evolving from what has been historically a more research-oriented product line into more clinical applications. And the particular growth drivers are really around oncology, specific to leukemia and lymphoma. So we see an increasing number of tests being run on our flow cytometry platform and great double-digit growth -- low double-digit growth this year and we believe that will continue in 2012 as well. We're very focused on making sure that we are extending the menu of tests that are being offered. You may have heard at the break if you'd stopped by the AU platform that over 100 tests are run on that platform alone.
Just in the recent months, we've added or replaced 6 assays, and we have a very good pipeline of exciting products coming out over the next 1 to 2 years. A couple of specifics in terms of that menu, first of all vitamin D. It's believed that in excess of 35% of the U.S. population alone is vitamin D deficient. Vitamin D testing is becoming a routine test within general health screening. Secondly, AMH. AMH is a key test within female reproductive health, essentially testing ovarian reserve. So within the context of fertility testing and the growth in that arena, AMH provides a real competitive advantage for us in terms of a proprietary test.
And finally, Preeclampsia. Preeclampsia is a condition associated with pregnancy, specifically around hypertension. Roughly 10% of pregnancies today are afflicted by Preeclampsia, and nearly 18% of maternal deaths and 15% of premature deaths are caused by Preeclampsia. So this will be a unique test associated with the detection of that condition and the ability to apply rapid treatment to prevent and ultimately deliver a better outcome.
So let's turn for a minute to a couple of other businesses in the platform which delivered terrific performance in the last year and we believe will continue to do so. Leica Microsystems is one example. If we look back to where we started, Leica Microsystems was roughly about a $400 million business, just north of that when we acquired it, over an $800 million business today. Now some of that came from inorganic, acquisition-related efforts. But if we look at the organic track, that was a business that grew at roughly a 2% core growth rate in the 5 years prior to acquisition.
In the most recent 5-year period, that business grew at roughly 6% compounded. Product vitality, new product vitality has been a key dimension of growth at Leica Microsystems as has been growth in the emerging markets where particularly in China, as you can see here, we 3x'd our feet on the street over the last 3 to 4 years.
Just to hone in for a minute on product vitality at Leica Microsystems, our growth in the confocal microscopy segment, I think, is an excellent example of where innovation has given Leica a competitive advantage and driven share gains. Our confocal product line has really focused on what we think are some of the hotspots within Life Science research. Those hotspots today are typically around what's known as live cell imaging. Live cell imaging is important because it focuses on the imagery associated with key age-related diseases such as Parkinson's and Alzheimer's disease. Confocal is important because it allows us to actually look at the interactions of cells in the living environment. One of the more recent breakthroughs associated with our confocal products has been the launch of what's known as our new super-high sensitivity hybrid detector technology.
What this does is it allows us to apply the lasers that are used in confocal in a low-power way that allows us to maintain cell life during that imaging process. So the more we can do that, create that high level of resolution with tremendous vitality around the cell structures, we're able to get a better research outcome. So great work by the Leica team and continued investments here to ensure that, that Vitality Index is sustained at north of 50% as it's been for the last 5 years.
Let's turn to AB SCIEX for a minute. We could not be more pleased with the first year -- first full year of AB SCIEX in the Life Science & Diagnostics Portfolio, a business that has truly taken flight. It has first of all, I think, demonstrated the kind of terrific core growth that's associated with the new product introductions of last year and the early part of this year, but along the way has also applied DBS in ways where we're able to take cost out of the underlying structure associated with that previously joint venture oriented approach to the operating model of this business.
As you can see here, streamlining 11 distribution centers down to 6 to cite 1 example and then taking that cost and reinvesting it in customer-facing opportunities. In this case, around customer demo centers, which is a key leverage point for us in terms of communicating product feature benefits in a real-life situation in the field. You see the tremendous operating margin improvement that the business has delivered primarily from material cost reduction, clearly reductions in G&A from a different operating structure and obviously, good flow-through from the increased volume.
LabIndia. Larry mentioned, I think at the outset a bit of an accident of history, bit of a coincidence that both AB SCIEX and Leica Microsystems shared a distributor in India for a number of years. LabIndia was that distributor. We acquired that business in 2011, which gave us a couple of key advantages. One, it gave us more direct access to the key vertical markets around the growth in pharma and CRO in India. And secondly, brought us much closer on a direct model to our healthcare customers in India.
So I think a great opportunity and a launch pad for us to really turbocharge the growth in India in the years ahead. So finally in summary, a major expansion of the portfolio in the last year, but that major expansion has really been supplemented by a terrific performance from our legacy businesses, AB SCIEX, Radiometer, Leica Microsystems and Biosystems all performing extremely well. New products driving much of that growth, as well as a couple of terrific acquisitions along the way and DBS continuing to support excellent operating margin expansion and driving customer satisfaction in the interest of future share gains.
And so that is a summary on the Life Sciences & Diagnostic platform for now, and we'll open it up for some questions, of which there are a number. So be patient, if you will. We'll take the first one right here.
So just 2 quick questions. One, when you guys were doing the due diligence, obviously Beckman was going through a number of -- that deal was basically evaluating a lot of the facilities and since then, you've gotten a couple of warning letters. Can you maybe just talk about where you are in that process, what you're doing to solve those issues and whether or not it's going to take more resources and maybe initially thought to solve those? And then the second question is on your molecular platform, I think you said you're spending $40 million. I remember Beckman was also obviously quite often spending a lot of money on the platform. You gave kind of a date. Can you just clarify, is that a date for the U.S. or is that a date for Europe?
Thomas P. Joyce
Sure. The issues around the warning letters were not a surprise to us. Those were issues that were identified during diligence. Those were issues that Beckman Coulter had made quite obvious to the FDA through their own disclosures of their quality remediation plan in 2010. So we were very aware of those issues. We are aware of the resources being applied to address those issues and frankly, the warning letters simply reiterated those points and to some extent confirmed that we were working on the right things and we were on the right track. In terms of resources, that was fairly well resourced at the outset. As we've looked at it from a Danaher perspective, any time we can reallocate resources from some other areas to continue to support our quality efforts, we absolutely do that. There's no question it is the #1 priority at Beckman Coulter today. To your question about the molecular diagnostic platform, when I talk about the ability to commercialize or file for regulatory approval on that product line, initially that would be in Europe and likely that would be in late 2012 to early '13.
So now that you've resolved sodium and glucose and set up this new structure, other than the US DXI issue, what else do you need to put in place to start to accelerate the growth of the business?
Thomas P. Joyce
Sure, right. Well, we're continuing to make sure that we're investing in our sales team to make sure that we've got the best possible team on the field. We're making sure that we have the right service team on the field because they're key to driving application support in our customer base. We're making investments -- continuing to make investments in China to ensure that, that continues to support our growth and I think new product innovation. I think we're going to see -- you'll see it over time the evolution of the assay menu, as I talked about a few minutes ago, that will make some contributions to that for sure. Cliff?
Cliff Ransom. [ph] If you look at -- when you're this far into the Beckman integration, are there 1 or 2 positive and negative learnings that you'd like to share with us that were either surprises or much more material than you expected them to be? I'm really trying to drive here to the process, there's a lot of concern in the room, not shared by me, that this was your biggest deal. And I kept saying, well, every big deal becomes the next biggest deal. So what are the 1 or 2 things positive or negative that you can apply to the next time you do something like this?
Thomas P. Joyce
Sure, sure. Let me start with a positive surprise. Outstanding support from the Beckman Coulter team around the world, an immediate welcome, a willingness and an interest in DBS and an immediate willingness to want to understand those tools and utilize those tools to help improve the business and that's been just terrific. I think one of the lessons that we've learned, again it's a positive lesson, Cliff, from a Danaher perspective is put a team together, the best team possible from a Danaher perspective, and come out of the gates quickly. And I think the performance that we're seeing to this point is encouraging and I think reflective of us putting our best possible team forward into the Beckman organization and getting off to a very fast start. On the negative side, I wouldn't say there's anything that we've seen to this point that we didn't see or anticipate at some level in diligence. I think the diligence was very thorough. It was extensive. Beckman team was very open about issues that we faced and I think our observations since then have been pretty consistent with that diligence.
Just staying on the Beckman theme, 2 questions. The first one is does the $40 million investment reflect a reprioritization of the R&D function within Beckman? Have you called that R&D pipeline dramatically and reapplied the resources? And the second one is I think we were -- I recall sort of $0.25 to $0.30 accretion being discussed for 2012. Where are you in that number as how do we think about that within the current guidance?
Thomas P. Joyce
Sure. I'll leave the accretion question to Larry. He'll tackle that at the close today, so rest assured we'll come back on that point. To your question about the R&D investment, the R&D investment in the molecular diagnostics platform is consistent with where the business has been over the last year to 18 months. I wouldn't say we'd necessarily reprioritized anything in terms of things that were in the pipeline. I think at this point, however, we are making sure that the #1 priority in the business is around product quality and regulatory compliance. And to some extent, that has an impact on some of the investments that we might otherwise be making in the near term here in R&D, but over time we see that trajectory shifting. Dean?
I was hoping you'd spend a moment on areas where you've been able to share some of the technologies and know-how across these businesses. And so with Radiometer has a lot of -- in common with Beckman. They share the same customers. They have some of the same measurement technologies. They both go through an FDA process. So that's the first area of sharing. The second would be with the AB SCIEX, are there opportunities to leverage AB SCIEX into Hach where the FDA is now asking you to or looking at these new contaminants where you need to measure compounds on a parts per trillion basis and can you be not dumbing down on AB SCIEX equipment but using some of that technology there?
Thomas P. Joyce
Sure. So a couple examples I would cite. First of all, there's been a lot of interaction and a lot of sharing of experience between Radiometer and Beckman to this point around regulatory approvals, around best practices and clinical trials. We've already seen some of the benefit of that, frankly in terms of the pace of clinical trials that where one business has learned from another. Another example from a product standpoint would be a terrific opportunity we see in the capillary electrophoresis product line at Beckman Coulter in the Life Science portfolio when integrated with the AB SCIEX mass spec as a front end separation technology. So we think that presents a unique opportunity to combine those 2 in an integrated fashion that we expect you'll see probably sometime next year. To your question about contaminants as it relates to water and AB SCIEX, absolutely there's an opportunity there. There are still issues in terms of contaminant detection in water where technologies have not been commercialized at the right price points in municipal facilities, and the disruptors being one example. And I think mass spec is uniquely suited to that opportunity. Admittedly I think to your point at the right cost structure, so we'd be talking about some of our more legacy products, perhaps with lower price points that might be suited to that application. Yes?
A couple of quick hits. Could you talk about where you brought the outside talent in terms of which areas of the business? Do you have more of that to go? And then on sales force, what do you expect the growth to be in '12 inclusive of or separate from churn, if you will? And then if you could just talk where your new product vitality target longer-term is.
Thomas P. Joyce
Can you clarify that last part of that question, please?
So sales force, how much you're growing but then presumably, there is some turnover of the existing sales force to orient around the way Danaher likes to do things presumably. But maybe not.
Thomas P. Joyce
Okay, good enough. So specific to that point on the outside resources, one of the areas we've looked outside and frankly, it's been less of us looking outside and to tell you the truth, more people approaching us saying, "Hey, we're interested in being a part of this equation at Beckman, which we've obviously been thrilled about", and that's largely come on the commercial side. We've seen a variety of folks approach us that we've -- 1 or 2 of which we've brought on the team at senior levels to supplement our commercial leadership efforts. Around churn over or churn in the sales organization, I think probably the primary dynamic I'd cite is the continued focus on the emerging markets and making sure that we are continuing to fuel our growth there by investing appropriately in feet on The Street in China and Brazil in particular, as well as in India; probably the 3 fastest growing segments of the portfolio today. So if there was a shift in terms of the mix of where those investments are, it would be to continue to fuel that growth path.
Should we expect more -- in terms of the senior leadership, should we expect more folks coming in from the outside? And then just sales force growth overall?
Thomas P. Joyce
Generally on the diagnostics side, we've got a full pattern right now, if you will, on the org structure. I think we're very well set up. We may see some continued evolution and build out on the life science side of the leadership structure but generally, I think we're in pretty good shape. Larry?
H. Lawrence Culp
Cliff, your question is an interesting one. I would just maybe add to Tom's answer, the size of the company has been the internal communications of what we're doing and why we're doing it. Probably of greater importance than we've had to, I think, execute on that in a more deliberate fashion than we might in smaller companies where in a matter of a couple of months you see and touch virtually everybody that are involved in Kaizen and they just kind of get it, they get it straight away.
Thomas P. Joyce
So I'm going to wrap up. First of all, I'd like to thank everybody who stayed with us this afternoon. I did win a $10,000 bet with Matt McGrew. He thought that if we went out early with guidance, no one would be here at quarter past 4. But you're here, and we certainly appreciate that and appreciate your interest in what we're doing.
In all seriousness, what we did this morning was a response to your feedback. So if there are other thoughts that you have relative to this afternoon to make this effort more useful to you, please do let us know. We make no promises other than the fact we will listen. I thought what I'd like to do here to wrap up is just really reiterate maybe for those who weren't with us at the outset perhaps on the call the way we see the macro environment right now. I think that by and large, we would suggest the headlines are very much consistent with what we're seeing in our businesses. Certainly the U.S. is exhibiting some strength in places like Nalco and ChemTreat that we would have frankly not expected, at least to the order of magnitude that we've seen here of late. But that has certainly been offset in part with some real sluggishness in Europe and clearly a moderation in the growth broadly speaking in the emerging markets around the world.
That said, we're also seeing I think in some isolated situations some inventory reductions which we think are going to be temporary and modest with a number of our channel partners, particularly in the phases you heard on Henk and James Lico's presentation, particularly a very good sell-through. Clearly as we get ready for what may come in the short-term and with an eye towards creating long-term value we are running, if you will, that modified playbook that we ran back last time we had this sort of uncertainty. Going hard after share, being smart and tough on cost to fund the gross investments for the long-haul, but also to deliver earnings in the short term.
You see that with the restructuring investment of $100 million this year, which should yield about $100 million of benefit in 2012. And then finally, we're very well positioned for what we think will be a more attractive acquisition environment in 2012 with the balance sheet ready to go and obviously, a number of targets out there as you heard the business leaders speak to during the course of the afternoon.
So I think all in, we certainly would like a more robust environment. It is what it is. We're ready for it. I think we'll do well in it. With respect to the outlook for those of you who haven't skipped all the way to the end, let me just walk through a couple of key assumptions. It's okay if you did. I see some of you on the back. We had core growth, 2% to 5%. I'll take you through that on a segment basis here in a moment. We really see the emerging markets continuing to lead the way mid-single digits, probably a little higher. We're optimistic that the Chinese will engage given the policy options that they have on the back of the slow patch that we're seeing there right now. I think from a developed markets perspective, we're clearly looking at a low single-digit growth rate there, the U.S. offsetting some of the weakness and uncertainty that we would anticipate seeing in Europe. I think that said, again it's important to remember that we really are right now at I think a positive inflection point where our emerging market revenue is now exceeding our Western European market or sales base. And that will obviously be something that is temporary as the emerging markets continue to grow at a more rapid rate. Gives us a nice offset to what may come.
We talked about the divestitures. Martin, appreciate your comments. I mean, these were good businesses for us for a long time. I think the right moves for Danaher and the businesses as well. We are going to be facing headwind dilution as a result of those transactions all in for the 3 businesses, about $0.04 for next year. As I indicated as we look at the guidance for 2012, there is no assumption here with respect to new acquisitions. In terms of the '11 acquisitions, we'll get some accretion. I'll talk to that specifically in a moment, but cash is due to accumulate in the way we've modeled this on the balance sheet but clearly, we would be unhappy were that to be the case a year from now.
From a fall-through perspective, we're looking at 30% to 35% fall-through on the volume. Obviously it's a little tougher to see the fall-through on lower revenue. But also I think given the other opportunities that we have to drive earnings in the investment opportunities we want to protect, we think that 30% to 35% range is a good bet.
It was tough to keep this slide current given the euro's performance during the course of the week so far but in terms of the guidance, what we have is the euro at $1.33. Obviously with the euro at $1.30 I think at the close today, it's probably $0.02 of additional headwind but for purposes of today since we're not going to try to chase that on a daily or hourly basis, that's what we have assumed.
Again, $100 million benefit from the restructuring and just to detail that for you, we'll spend $100 million here in the fourth quarter, we'll get about $60 million of benefit from that investment next year. A little bit of a slower payback than what we typically see. Typically we'll see a 12-month return there, given that a number of the projects are larger, more structural and based in Europe.
We'll see about $60 million on that here at the fourth quarter and then the incremental $40 million will really be a reduction of the spend level we would anticipate at this point next year. So rather than spending 100, we'll probably spend about 60. 60 of benefit, 40 less spend, $100 million on the restructuring front in 2012 and from a tax rate perspective, about 24% for purposes of guidance.
Just to go through the core growth and give you a little bit of color as to how we built up the 2% to 5% by segment. As you heard Tom talk to on the Environmental side, I think we've got a number of opportunities particularly in China, particularly in the second rather than the first year of the 12 5-year plan, which gives us some upside. Certainly watching municipal spending really all around the world. If we've got a risk factor there that's worth noting, it would be in Germany and the rest of northern Europe on the Muni side. Little tough to call right now but again if you're looking at the puts and takes, those would be the 2 I would point out in the Environmental business.
From a T&M perspective, clearly we have seen the softness perhaps most pronounced in China. That said, anything that is done there to stimulate that economy in addition to what we would see with the carriers continuing to try to chase the bandwidth explosion and then turn their service obligations to all of us would represent I think the upside for Jim and the T&M business. Conversely, I think the last couple of months with respect to PMI data that has come out has not in any way been encouraging. So we're mindful of that in the short-term relative to how we might track in that regard in a number of our key territories.
From a Life Sciences & Diagnostics perspective, I'll call out that 3% to 7% range. You may or may not think that's materially better than the range that we're offering up for the corporation, but clearly putting a 7 out there would be high water mark for the segments, for purposes of today's presentation. A lot of good things going in, you saw that in Tom's presentation. Again remember, Beckman really doesn't become core until the second half of next year and to Terry's question, we're assuming Beckman will be flat on an organic basis next year so really no contribution. In fact, dilution from that perspective. But that said, we don't take that bearish of view relative to academic spending. Clearly, you've got some situations like in Germany where at least current budget expectations are for double-digit growth. So we're encouraged by that, let alone our position in some of the key research and clinical spaces where we not only participate, but are very well positioned. The offset there again may well be austerity, be it coming from the NIH perhaps other governments as we all wrestle through what's happening out there.
From a Dental perspective 2 to 5, as Henk pointed out, very much in line with what we're doing here. Probably the best upside that we have would be internationally on the back of new product launches. You heard the imaging story, we talked about endodontic, just lots of different things. Dental is a business where you're not going to have too many homeruns, if I can use that metaphor. But clearly lots of singles and doubles and I think we're well positioned in that regard.
That said, we probably have seen some of the European softness most pronounced in Dental over the last, call it 6, 7, 8 weeks. And that's an area we're going to continue to watch very carefully. From an Industrial perspective, Dan and his team saw some of the sluggishness first, whether it was the OEMs being a bit more conservative. Some of the credit contraction in China. I think to the extent that they were the first ones in, they may well be likely to be the first ones out. That obviously will give them quite a lift here. But at this point, it's hard to call the end of some of this resetting of inventory levels, which is why we end up on a slightly more conservative posture for Industrial in the 1% to 4% range for the year.
So you throw all of that together on a weighted basis we end up with 2% to 5% for Danaher. To the question, Steve, you were talking about on the update on the Beckman cost reductions and the synergy just by way of update, I think Tom was selling himself to the team a little bit short, remarkable progress here. Remember we were talking about $250,000,000 out over the next couple of years. We think that we are there fundamentally next year. So just about 24 months ahead of schedule. In turn, we're not only getting there faster, we're just getting in turn our sights set on another $100 million of cost out opportunity.
So we're taking that 2014 goal up to $350 million. So good traction, more visibility, very pleased with the cost out opportunity. We're not there to take cost out, but it is a key part of the overall game plan at Beckman. If I translate that into EPS, which I think was the essence of Steve's question, on an incremental basis now as a result of the acceleration of this activity, we're looking at Beckman kicking in $0.26 in 2012 on an incremental basis.
So obviously an important part of that mid to high-teens bridge for earnings growth in 2012. A lot of hard work; still work to be done, but clearly a level of conviction that we and the team have right now to share this new information with you here this afternoon. Again, I want to make sure that a couple of Beckman based assumptions are very clear here with respect to the top line. We're assuming Beckman will be flat next year. That's not a permanent state but I think given some of the inherent tax that we're paying, that's a prudent assumption. Tom and the company are going to be shooting for a higher number but for purposes of this conversation, this is where we are. We do go core in the third quarter. So we'll continue to update you as we go through the year, but that's when they'll enter the calculation. A lot of conversation around troponin. I was glad Shannon talked to some of the outstanding regulatory issues that had been resolved to our benefit, but the troponin submission is important. That's now currently scheduled for the first quarter of next year. That doesn't mean approval. That timetable is a little bit harder to predict but we're on it and I think optimistically, we can work that through to our regulator and our customers' satisfaction.
In addition, again the molecular investment is not insignificant, but we are in no way driving this accretion and this larger cost out target on the back of a next-generation technology that -- which is probably now in the top 5, top 7 in terms of scope and spend for Danaher historically.
So all in all, I think a good story in the making at Beckman. So let me take all that and put that together for purposes of the bridge as to how we get to 320 to 335. If we look at the midpoint of our guidance currently, take $0.04 off of that for the divestitures, we get basically on a continuing basis a 279 figure. Clearly some headwind. We talked a little bit about FX, that's $0.06. There's $0.01 at pension and the growth investments that we would like to maintain, some of us talked at the break that, that $0.04 to $0.6 level of spend may be a little more than we would typically lay in, in this sort of environment.
We obviously have lots of offsets that give us the latitude to do that and our current intent is to do just that and put that money in the business. The restructuring benefit that I talked about $0.10 the prior year acquisitions, excluding Beckman primarily Esko and some of the smaller ones that you saw in one of my opening slides is worth $0.03, Beckman again $0.26 and then on a core basis depending on that 30% to 35% fall-through, we're looking at $0.13 to $0.30. Add all that together, again 320 to 335. So we're very pleased that at a time when there are a lot of tough macro calls to make we can look you in the eye and walk you through in some detail here how we drive a mid to high teens EPS growth rate in '12, all the while making sure that we're ready for 13, 14 and beyond.
One final slide, again, I think in the short-term we're going to power through what may come here. Downturns have always been good for Danaher, not that we're suggesting anything at this point more than a moderation in global growth, but we'll level play it as it comes. I think we are continuing to protect and execute well as long-term growth investments. We're ready not only organically but inorganically in 2012 as we continue to build on this space because we do look forward; we don't look back to build that premier science and technology company we aspire to be. So with that, if there are any questions, we will open it up. Scott?
A couple of questions. I mean, first just on M&A and I know there's a lot of opportunities. There are a lot of things could change over the next year or so, but when you think in terms of what's in your sweet spot right now, assuming Beckman was a little bit outside of the normal size clearly, if you could just give us an idea of what kind of -- what's a sweet spot of size that you're looking at in the next year private, public. Would you be more biased towards fixer up stories or kind of the higher-quality stories that sometimes you buy as well.
H. Lawrence Culp
Yes, Scott, I think if you look at the pipeline today, I think the one thing that is probably most certain is our next big deal won't be our biggest deal ever, right? I think when you look at Beckman in terms of sheer size yes, it does reset the bar but I suspect it's going to be a while before we clear that bar again. If we do next year as we would typically expect, call it 12 maybe 15 deals, I think we would suggest history tells us there'll be 1 deal somewhere, say, in the $1 billion, $2 billion, $2.5 billion range that will be flanked by a number of midsize deals, probably in the $250 to $500 range. And then there will be 8 to 10 smaller deals, probably sub $100, it will be more classic bolt ons. That is in no way a prediction, it's really just a sense that the past is probably prolonged in that regard. If I look at the pipeline because we have a lot of different interests, we're out there constantly, a lot of bait in the water, every one of the types of deals that you talked about could happen next year. I wouldn't say that there's a real preference for 1 source or 1 type size the nature of the task. What we're really trying to do is find those businesses that inorganically supplement what we're doing organically to build leadership businesses. That's job one. And then of course where we see opportunities to enter adjacent or new markets where our skills apply, we can create value for you, that'll be job 2. And how it all plays out a year from now is hard to call. But at a minimum, we are optimistic that we'll put some capital to work next year.
Okay. That's clear. Second question is on R&D and as you buy these higher or more R&D intensive businesses, is there an opportunity to build scale or consolidate operations or streamline or bring best practices or DBS practices into an R&D facility? I mean, how do you kind of manage that or set in a different way, how do you avoid having 50 different R&D departments, of which some project overlap or some or lack of synergies exist because they haven't really been integrated?
H. Lawrence Culp
Right. Scott, I think the first premise for us really springs from our decentralized bias that the operating companies matter most. And to the extent that we've got an operating business or group serving a set of customers, that's where the focus of that R&D investment ought to be. Whatever we do to glean synergies at a platform or a Danaher level really will be secondary. So there may be a tad of inefficiency there but for us, that's okay as long as those R&D efforts are focused. Certainly what I think you saw a little bit today is as these platforms and these segments become more homogeneous and they become larger, there are within those platforms opportunities around domains or technologies that either come together, share technology, partner to go chase an application that we really couldn't even envision a few years ago. Whether we're talking about something in the clinical realm on the back of Beckman, Hach Lange that coming together on water, there's just a whole host of opportunities. That's really something that springs from the strategic process we talked about, really the primary responsibility the guys were up here earlier. At a Danaher level, we're also trying to stock the DBS office with tools and capabilities in terms of people who can help drive the implementation of managerial software development rather than your shop for Kaizen. And by the same token, we're trying to build networks in the company. For example, with our Danaher conference on innovation, when we bring all of these innovators together, talk about best practices and that's helpful but what's more meaningful is to have folks from Fluke talk to somebody at Gilbarco and other connections around areas of potential common interest and intern synergy. So that's a little bit of a loser to manage it but at times, serendipity does prevail. And there's nothing wrong with that. So I hope that gives you a sense of how we tackle that. Is there a question way in the back? Terry?
Terry Darling - Goldman Sachs Group Inc., Research Division
I wonder if you want to put any color on first half versus second half and I think you have said comps are tougher in the first half. Maybe we think about the lower end of the organic range in the first half and maybe some improvement in the back half. That's first question.
H. Lawrence Culp
Yes, I think with respect to first half, second half, Terry, I think unlike our friends in Boston, we'll see an acceleration in the second half. I think in part because of the macro call that we're making in part because of some of these temporary troughs that we've seen here of late that create a little bit of an easier comp. I think the first half is going to be positive, but we're clearly going to, I suspect, be working through some meaningful headwinds particularly in Europe and hopefully for not too much longer in Asia.
Terry Darling - Goldman Sachs Group Inc., Research Division
And so normal mix in terms of EPS for the company, we should think about more of a balance there than normal?
H. Lawrence Culp
Yes, I think the earnings growth will clearly follow not only the core growth acceleration, but also obviously all of the Beckman savings that we're talking about for 2012 will not be there day 1 and that will lay in over the course of the year. When we do the first or when we do the fourth quarter earnings announcement in January, we'll take you through the detail of the first quarter at that point. We're not going to do that today, but hopefully that gives you a little bit of color relative to modeling.
Terry Darling - Goldman Sachs Group Inc., Research Division
And then kind of a philosophical question that we touched on -- you touched on last year a little bit, this idea that size oftentimes builds, breeds complexity and you guys have gotten a lot bigger in the last couple of years and how you're feeling about that complexity level and anything you're doing to try to manage that a little differently.
H. Lawrence Culp
Right. There's no question if you think about Danaher knocking on the door $20 billion of revenue, we have a company today that I suspect everybody that took the stage today probably never envisioned working for. Insomuch as in our wildest dreams could we have thought that we'd take a $4 billion basically a decade ago and be here as strong as we are and with the quality of the businesses, the capability of the team. It's really -- it's quite still, I think, stunning to us that have been at it. That said, even at 20, given the way we've shaped and built this portfolio, the way the culture has evolved, I think we still have a long way to run here. There are things that we can do today that we couldn't even dream about doing a decade ago. The emerging markets foundation is a really good example. The fact that we've been able to maintain our culture through this allows us again to be very focused on the customer and on the operating business, not the corporate layer in Washington. And being able to build out the business in a way where I think we've actually driven more focus as we've gotten bigger rather than trying to do a thousand different things sets us up I think to use size to our advantage, but not forget where we came from. And really how we operate, if you will, not to get too theoretical or philosophical, the real soul of the company. Now that obviously gets more challenging as we get bigger, more global and the like, but so far so good. Again, I'm pretty confident we're not done yet.
Julian Mitchell - Crédit Suisse AG, Research Division
I have 2 related questions around Industrial tech. I guess the first was, the addressable market size that you put up this year versus last year is very similar, even though you've made an acquisition and there've been some divestments. So I guess why hasn't the addressable market size moved more meaningfully? And I guess related to that, you said Industrial tech will be the first probably to come out of any slowdown but at the same time, it will have quite a tough first half. So that suggests that asset prices in Industrial tech will get quite cheap potentially in the first half of '12. And so if you could help me understand, I guess, what are the differences between Esko that you bought and the 2 businesses that you sold in terms of what characteristics of business are you looking for to add to if you do see asset prices come down?
H. Lawrence Culp
Right. Well, I think the -- I'm glad you're paying attention to the detail there, Julian. I think if you look at the fact that we sold $650 million of revenue with the 3 transactions we bring in Esko which is what, a little over 200. I think that in a nutshell probably explains the lack of change in the certain market size. We haven't really pounded the table in the past relative to the exposure we have or had it Accu-Sort, KEO and the impacts at aerospace. In turn, I think the Esko window is significant but it's emerging and we'll probably take a more cautious tone there. But I do think that inbound outbound comparison that you're poking at is a really good one in terms of how do we think about what we might do in that segment. Clearly, those were businesses where we saw others consolidating spaces where we saw a financial profile both in terms of core, top line, gross margins, not I think as rich and perhaps as in line with the rest of the corporation let alone the segment. In contrast obviously with Esko with its software component, its direct ties to end-users, the verticals that they serve, the gross margin, the operating margin profile there, we just thought it was a quality upgrade with no disrespect meant to those businesses given what Esko can do with Danaher, given that those linkages to Videojet and I think to Linx. So again I think it's one of those dynamics where as you anticipate the next year of capital deployment, there are lots of things that we look at relative to the attractiveness of the market, the quality of the business, the opportunity to add value within the business. We could go on and on. Not every deal we'll check every box, but I think that body of work captured in one of your opening slides with respect to what we've been attracted to over the last decade, let alone the inbound outbound activity in Industrial is a pretty good guide to what will come. Janet?
Yes, Larry, a couple of things. I mean, first on the gross margins by the segments. You look at some of the things you've done over 5, 10, 15 years improvement things like Fluke and Hach, when you look across the segments, where do you think the most gross margin opportunity still lies?
H. Lawrence Culp
Well I think clearly, if we look at where we are in Dental, the roadmap Steve was poking at or I think Ryan was poking at does not simply have to come from the SG&A. I think there's going to be gross margin opportunity there not only as we work through some of these projects that we alluded to with respect to the fourth quarter restructuring. But I think as importantly, as we refresh the new products suite and see that with the new imaging platform, we're not only going to drive better top line, we should be seeing gross margin improvements along the way. I think as Dan Daniel works through what he's doing on the cost side, let alone back to Julian's question, the enhancements to his mix, there is really no reason Industrial necessarily has to be there in the 45% range. Now granted, they're going to be, I think, opportunities that we'll bring in probably in all 5 segments that may be new businesses to Danaher where the gross margins are dilutive, but will still be ultimately accretive on an EPS and on a cash basis. So it's one measure of quality obviously when we put a lot of weight on, but I'd point to those 2 perhaps as ones where we have maybe the most visibility on opportunity to lift up the GMs.
And just one on operating margins and some recent deals. I mean, Keithley, AB SCIEX, I mean 500 basis points kind of year 1. I mean that's pretty good for you guys or anybody I think. Is there something about those particular deals or are you guys getting better on your year 1 activities to get that kind of margin improvement right off the bat or were those just kind of upsize for us?
H. Lawrence Culp
Well, I'd like to think we always get better. We learned from the last wave of integration mistakes. I think with Keithley, it's important to recognize that, that was a small company, outstanding company, coming in at Tektronix, which very quickly has been I think or become an exceptionally well-run company. So they were able to work together without in any way diluting the Keithley brand, adjust the cost structure, give Keithley truly broader, deeper global distribution in a way that was immediately in a good market impactful. AB SCIEX is completely different situation, in some respects more complicated than Beckman just because again we were pulling these 2 halves of a JV out from underneath their former parents and trying to create whole cloth there. So the jumping off point was something of -- well, it was a real work in process. That was the challenge, that was the risk, that was the opportunity. And to the team's credit, they really got after it. Again not strictly on the cost side of things, but also operationally so we had a coherent business to go launch new products and in turn smartly, profitably grow double digit here in 2011. I see I'm getting the buzzer. Steven, that means you get the [indiscernible]
Steven E. Winoker - Sanford C. Bernstein & Co., LLC., Research Division
Two questions. The first one is just details, second one high level. On the details side, you don't call out within the incremental and your expectations for pricing and inflation over the course of 2012, how are you thinking about pricing? And then I'll hold the second one.
H. Lawrence Culp
I think you should assume we should be close to 100 basis points of price in 2012. That is included in the core range. And from a price cost perspective, we think we would again be positive hopefully with little less headwind as we saw this year.
And then from a high-level question just following up on I think it was Terry's point before when you think about the future of Danaher, you've done credible things, you've got incredible runway ahead but that mix of acquisitive versus organic as you start pushing $20 billion and 22 and onward, you are spending a huge amount more time driving and communicating to us the power of the top line organically. Do we have to think about over the next several years sort of our frame of reference changing for the business model in terms of mix of organic versus acquisitive organic taking much bigger piece of it?
H. Lawrence Culp
Well, I'm not sure I would say that. I think as we look at it as management, frankly as we reviewed it with our board as recently as last week, we think that this platform has as rich a set of organic opportunities as we've ever had. That, coupled with the confidence that we can drive the top, the bottom smartly in terms of a cash generation perspective and in turn deploy that given the range of inorganic opportunity that we see, I think you can model out Danaher at a certain organic rate, redeployment on the back of that conversion again with a strong bias towards capital appreciation as opposed to dividends and buybacks not exclusively, but with that orientation. And I don't know how you want to model that mix out in terms of core versus inorganic, but that clearly gives us I think a shot at doubling the company again over a reasonable period of time. We're very -- I just want to state something that may sound trite, but I think we are acutely aware that every day we earn our license to put that cash flow back in the business. And if we choose poorly, we integrate in a haphazard way, you might pull that license from us. So we're never going to just put that on autopilot. We earn that being good operators and buying the right businesses at the right prices, integrating them the way we should. We don't take that for granted. So I guess you get the last question.
I guess nobody really understood what was going to happen in the final months of '08 and the beginning of '09. But I give Danaher a lot of credit because in many respects you began to pull back, get more conservative, think about things really in the summer of '08. It certainly wasn't apparent to me, probably not to most people in the room. Are you sure in this environment that you're taking that lesson from such a short time ago and applying it to this environment today so that you're setting yourselves up for the downside if possible as well as you can? It's kind of a when-did-you-stop-beating-your-wife question for which I'm famous, but I think it's really important because you saw it the last time and how are you going to be sure you either see it or don't see it affirmatively this time?
H. Lawrence Culp
Right. Well, obviously the only certainly there will be hindsight. But I think what we've tried to do is find the right balance between protecting investments and protecting earnings without being unduly bearish so that we create some undesirable self-fulfilling prophecies. And go back just as one example right now where we have a number of businesses rather robust, in some cases surprisingly robust point of sale volume. Despite that, our very good channel partners are taking a conservative posture on inventory. So we're feeling that and we're not getting the benefit of that POS. That is one sign that tells us well, we're dealing with something that may not last, probably shouldn't last, unless something changes and the biggest change I think we're all concerned about comes out of Europe. So I think we're just trying to be nimble, Cliff, not be Draconian in preparing for the apocalypse, recognizing that we'll have a number of degrees of freedom if things get materially worse in the new year to adjust. But on the back of what we did in '08, let alone what we're doing in Beckman, to think about deploying $100 million of capital this year to reach our cost structure for investment and for earnings is no small feat. Could we have done more here in the fourth quarter if we wanted to? Gosh, we've got a lot going on and we've still got a couple of weeks to see that through. I don't think so. But you know us; we'll try to read and react what happens the next of couple of weeks where the new year starts and if we need to take a more conservative posture, you can rest assured we will. We'll let that be the last question. We'll be around for a bit. Again, thank you for your time and your interest today.
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