GLOBAL T&M

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.

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.

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.

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.

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.

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.

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.

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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