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GLOBAL T&M

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VoicenData Bureau
New Update

T&M,

as an industry, is fast becoming indistinguishable from any

other technology industry. The trend is reflected in the mergers

and acquisitions in the field.

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Visit the

web site of any renowned Test and Measurement (T&M) company.

If you are not really into the business, you will be repelled.

No catchy slogans, absolutely nothing about the corporate achievements,

no fancy promises, no win-a-T shirt lure-aways … Instead,

the same-so what if with some new specs-protocol analysers,

spectrum analysers, OTDRs…right on the home page!



Will these companies never change? Nothing wrong if you start
wondering. Except that, you might be terribly wrong. Somewhere

in the left column-below the link to main news/press release

page-is a headline that talks about an acquisition. Follow the

link and you will find information about purchase of a small

company or division of another company in a deal worth a 100

odd million dollars that probably happened two months back.

And as you scroll through listings of press releases, you find

a couple of more sales/purchases of divisions. Imagine, what

adjectives would have been used for you for your ignorance had

this been in some other segment, say Internet software!




But never

mind! You are the first among your colleagues to know that.

Go telling them. But do not be disappointed if only a few of

them are impressed by your newly acquired knowledge. T&M

is certainly not one of the "hot" segments that they

need to know about. Translation: there is no media hype about

the segment. For the T&M industry, media does not matter

much. And vice versa! By the end of this feature, you might

wonder, even that is going to change. But then, who has seen

tomorrow?



Times!

They Are Changing




In

the era of Sprint-Worldcom and the like, they might not be making

it to the front pages, but the multiple Mergers and Acquisitions

(M&As) in the traditionally slow-to-move T&M industry

have come to stay. And yet, M&As are but just one of the

manifestations of the multiple changes that are sweeping across

this traditionally slow-to-respond industry.



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In fact,

these M&As are part of a larger restructuring that the industry

is going through. Unlike in other technology industries, many

of these M&As are not simple mergers of two or more companies

or acquisition of start-up/smaller companies. Many of these

are cases where one company sells a division and acquires another.





The First

Phase of these acquisitions saw companies which did not see

T&M as their core competence-and if it is not, mind you,

T&M is the toughest business to be in and survive-selling

away their T&M businesses. Siemens sold its communications

T&M equipment business to Tektronix, till then a big player

only in the high-end general measuring instruments, and its

optical T&M business to Danish T&M major, GN Nettest.

Similarly, Philips sold its T&M unit to Fluke. They were

forced by market pressure due to increasing competition in their

areas of operation-Philips in semiconductors, electrical appliances,

and consumer electronics; and Siemens in telecom, power, and

other heavy industries that it operates in.It was a

time when the T&M industry was just beginning to look around

and gauge how quick the businesses that they sell to were changing.

And well, defence and aerospace were just conceding their top

positions as buyers of T&M equipment to fast changing industries

like telecom services and utilities.



It was in

1997-98 that the T&M industry felt the pressure of the changes

that were seen in their buyer industries. To really service

their customers well, they had to change (read focus). And thus

began the Second Phase of restructuring within T&M industry.

This is characterized by companies doing all sort of things

to stay focused, at the same time adding more product lines

in the focus areas. Mergers, acquisitions, internal restructuring…all

are aimed at keeping that focus. Take IFR Systems. A company

that sometime back had acquired two optical test companies-PK

Technology and York Sensers-thought it wanted to be in the wireless

and microwave testing business, a high-growth area. Last year,

it acquired one of the most well-known testing companies in

this field-Marconi from UK''s General Electric Corp. (GEC). And

recently (June 1999) the company sold the earlier acquired companies-re-christened

as Optical T&M division of IFR-to another company, GN Nettest,

which wants to focus seriously on optical testing. Earlier,

with three independent business divisions, it was into almost

all areas of T&M. It remains to be seen what happens to

the other divisions of GN Nettest.

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It will

not be surprising if one fine day it decides to sell them off.

Speculations apart, its new focus on optical T&M seems genuine-it

has been systematically adding that capability. Earlier, it

had acquired Siemens''s Optical Test Equipment (OTE) division,

particularly strong in optical LAN/WAN testing. Also, to provide

complete solution, it bought Fastware, a network management

tools company.



These are

but two examples of numerous such moves (see box on the previous

page). A second phenomenon that we are witnessing recently is

internal restructuring of big T&M companies-the most notable

being that of HP and Tektronix. While the T&M unit of HP

has been spun off to a separate company, Agilent Technologies,

Tektronix has sold its video equipment and printer and imaging

businesses. Needless to mention that staying focused is the

common factor that influenced both the decisions.



The Third

Phase that is yet to come could see some really different trends.

So far all these, though being passed off as M&As, have

seen hardly any merger. It is all acquisition-W&G being

the sole exception. The next phase could see some more mergers

among smaller companies to form a larger entity that provides

total solution. Also, the bigger companies-Agilent, Tektronix,

Wavetek Wandel Goltermann, and Anritsu Wiltron-especially the

first three are likely to embark on acquisition sprees to add

to their product and solution portfolio. As T&M becomes

more software driven, and the line between T&M and the main

equipment-especially in IT and telecom-gets more blurred, some

of the mainstream communications/IT companies may acquire smaller

T&M companies. This will happen initially in the areas where

the dividing line is thinner like network traffic monitoring,

network management and the like, rather than highly specialized

areas like signal analysis or fibre testing.Last, but

not the least, it will be foolish to ignore that familiar thing

called the Internet. It has been influencing all markets, all

industries. There is more reason why it will affect T&M

industry as well. As e-commerce becomes more real, security

will be a major challenge for the companies that seek to do

business on the Net. And the network operators and e-commerce

service providers will need to make it more secure. This may

prove to be the biggest opportunity area for T&M companies

like Agilent, Tektronix, and WWG. Security and other Internet

test start-ups will be hot targets. Agilent has already acquired

Qosnetics, a router testing product maker. More such acquisitions

will be the rule of the game.
And

all this will happen much sooner than we expect. Maybe starting

with as early as early next year.



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The

Driving Factors




Before asking the bigger question of where it will lead to,
it is probably apt to touch the driving factors of change once

again. Basically, there are three factors that have contributed

to this significant restructuring.




Speed



Digitalization and globalization have resulted in increased
competition across all industry segments, forcing them to change

faster. At the same time, technology life cycles have shortened

considerably. The speed of these changes in the market and technology

means an industry selling to these industries will have to change

fast enough to keep pace. That is what is driving T&M industry

to focus. Only a strong focus can give that impetus to change

fast enough to meet the testing needs of the fast changing user

industries. It is not surprising that many T&M companies

have shed off areas that they had been operating in for years.






Range



T&M is a low-volume, high-value business. And the customers
of T&M companies are spread across many industries. The

pace of T&M business varies with the pace of businesses

in all these areas. So to keep a balanced growth, that does

not fluctuate too much, a broad portfolio is preferred by many

companies, leading to acquisitions that are aimed at broadening

the range. At the same time, handling a broad portfolio of products

in different technology areas is also not an easy task. One

has to have total solutions and technology expertise in each

of these areas. Increasingly, there will be two types of companies.

Companies who will choose to remain niche players. And the bigger

ones, who already have enough muscle power, will broaden their

range.Solutions




The biggest lie in this business is passing off range as total
solution. The ability to provide total solution comes from three

essential qualities-technology expertise in certain areas, a

greater understanding of customer needs, and a high level of

customer orientation. As the customers focus on solutions and

not on products, the ability to devise the solution and integrate

it is the key-no matter whether you have a specific product

or not. You can always buy it. What helps to provide total solution

is focus not the range. In fact, this forced a company like

HP to hive off its T&M division to a separate company. And

Tektronix to sell its non-T&M businesses.




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Where

is This Leading to?




The implications of the changes in T&M manufacturers will
be felt sooner than later on the whole T&M market, throughout

the world. Some of the imminent changes that it will bring about

in the market place are




  • a change

    in the role of distributors



  • a major

    shift towards services from products



  • a lot

    more competition



  • Internet

    as a major enabler of closing the gap between the product/service

    provider and the user.



As companies

go through M&As, almost all major companies will have access

to all geographical markets directly. For many companies, the

need for a distributor will stop there, as most distributors

today act as handler of queries and bid for tenders for government

purchases. Also, the limited number of buyers in T&M does

not call for a major distribution network. And building a few

contacts does not take much time. The distributors, who want

to remain in the business, have to show some value to the principal.

A good support infrastructure and a good team that can work

out solutions for customers rather than merely selling products

will go a long way in making their position secure in the marketplace.



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This change

in role will happen as the role of a T&M company-vendor

or distributor-is changing from a product seller to a service

provider. As quality of service becomes more important, both

bigger and smaller companies will increasingly go for T&M.

And not all of them will like to keep that expertise/products

with them. Bigger companies will not like to take the burden

of testing which is not their forte and smaller companies cannot

afford costly instruments that will be sparingly used. Many

will outsource the testing functions as turnkey projects. That

will make the job of a T&M company that of a service provider

rather than a product seller. And increasingly these companies

will be judged on same parameters as a network integrator. That

will require T&M companies to acquire more expertise in

specific sub areas, leading them to focus on building that expertise,

rather than broadening their range of products.In the near

future, a T&M company will play the same role what a network

integrator plays today. Sometimes, it will have to sell the

products of its competitors to the user, if the situation so

demands. Companies will feel the pinch because the value of

products in total turnkey project cost will go down considerably

and companies will make money from services.



The restructured,

bigger, focused, and more customer-oriented new T&M companies

will increasingly look at using the Internet, not just for marketing

and information dissemination, but for the most important function

for a T&M company-support. The Internet will be used as

a medium to provide on-line support, and even on-line monitoring

of T&M systems installed by companies.



But focus, change, more Internet-centric business…aren''t
they important for any technology business, anyway? How is T&M

different then?




The answer

is: T&M is not much different today from other technology

industries. It was. At one time.



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The

Matrix




Acquisitions and mergers (A&Ms) in T&M might have had
a slightly different connotation, but there is no dearth of

these. Given below are the major A&Ms in the field to have

taken place. By all indications, we will witness a steady increase

in the numbers.

Tektronix-Siemens

CTE




Tektronix was one of the first ones to acquire a major T&M
division-the communications test equipment division of Siemens,

Germany which wanted to bid farewell to T&M business.

GN Nettest-Siemens

OTE




Siemens continued to sell its T&M businesses by selling
the optical test equipment business to GN Nettest, a Danish

T&M company, which is trying to build its strength in optical

testing.

W&G

- Wavetek




Last year, Wandel & Goltermann (W&G) and Wavetek merged
to form one of the biggest T&M companies in the world-Wavetek

Wandel Goltermann (WWG) Ltd.

IFR-Marconi



IFR Systems, Inc. acquired Marconi Instruments Ltd., UK, and
Marconi Instruments, Inc., US, from The General Electric Company,

p.l.c., London, England, for approximately $107 million in cash

in March 1998.GN Nettest-Fastware



GN Nettest bought the privately-owned French company Fastware
S.A. The purchase price totals FRF 123 million including the

company''s cash amounting to FRF 52 million in October 1998.

Fastware develops systems for monitoring and management of extensive

data networks called Wide Area Networks (WANs).

Tekelec-IEX



Tekelec completed its acquisition of IEX Corp., a privately-held
developer of solutions for Intelligent Networks (IN), call centres,

and other telecom markets. Tekelec acquired IEX for $163 million,

consisting of $63 million in cash and $100 million in short-term

notes.

Tektronix

Sell-off




Tektronix, Inc. has reached an agreement to sell the company''s
Colour Printing and Imaging Division to Xerox Corp. for $950

million in cash. The companies expect to close the transaction

in this year.



It has also reached an agreement to sell the company''s Video
and Networking Division, a video content production business,

to a private investment group headed by noted industrialist

Dr Terence J Gooding. This was announced in last August.

IFR-GN

Nettest




IFR Systems, Inc. sold its Optical Test & Measurement (OTM)
Division to GN Nettest, a company in the GN Great Nordic Group,

Denmark, for approximately $43 million in cash in July 1999.


Sunrise-Hukk

Engineering




Sunrise Telecom, Inc., acquired Hukk Engineering, the leader
in QAM Digital testing. This was announced in July 1999.

Noise

Com - Boonton




In September 1999, Noise Com announced the execution of a definitive
agreement to merge Boonton Electronics Corp. into a wholly-owned

subsidiary of Noise Com. The merger is expected to be complete

before the end of 1999.

Agilent

Technologies - Qosnetics




Agilent Technologies, the spin-off of Hewlett-Packard, has acquired
Qosnetics, a New Hampshire start-up that builds products to

test networking hardware for the Internet. It was announced

in September 1999.

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