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The recent formation of Acterna with the merger of Wavetek
Wandel Goltermann (WWG) with TTC and a spate of other recent mergers and
acquisitions, prompt us to dwell on the current dynamics in the Test &
Measurement (T&M) industry. The larger players in the industry have changed
identity from what they were a few years ago and the industry seems to be more
associated with communications rather than a conventional test. Additionally,
T&M companies, hitherto not known to the average person, are gaining more
recognition outside of the industry, thanks to dedicated Internet communities
such as TestMart and Test & Measurement Online, as well as T&M companies
increasingly going public. There is a new face to this critical industry that
transparently makes it possible to improve the quality of our lives by enabling
companies to design, manufacture, and implement products and services that we
use everyday.
The Last Three Years
The last three years have been significant in this industry, which otherwise
has been quite staid and uneventful over the past few decades. Until the
mid-nineties, the T&M industry was mostly dominated by the then
Hewlett-Packard (HP) and a few other companies, such as Tektronix, Anritsu,
Marconi Instruments, Rohde & Schwarz, Wandel & Goltermann, GenRad, and
others.
The past two years have been particularly significant to the
T&M industry, which witnessed several mergers and acquisitions.
In addition, several smaller companies in the field of
network testing and protocol testing have been acquired by companies, such as
Agilent, Teradyne, and WWG. The recent spate of corporate activity in the
industry suggests realignment in the power dynamics in this industry and this
discussion looks at where some of the activities are centered.
When W&G and Wavetek merged in 1998, it brought together
two T&M companies with substantial strengths in the communications test
arena as a competitor to the then Hewlett-Packard (HP). It is generally known in
the industry that HP, or now Agilent, is the leader in the overall T&M
market in terms of combined product range and revenue. Hence, a comparison of
companies at the total level always put HP on the top, notwithstanding the fact
that only the T&M component of HP was taken into consideration for the
comparison. Consequently, it was important to compare companies in narrower
product markets, such as general-purpose test, communications test, component
test, and wireless test, where other companies often established supremacy in
niche product areas.
WWG’s strengths being predominantly in the communications
test area, it made sense to identify the company in that market niche and turn
out to be a fair competitor to HP. Subsequently, the reorganization of HP
created a more aggressive competitor in Agilent. Meanwhile, Tektronix shed its
printers and video networking divisions to re-emerge as a focused T&M player
in the market. At the same time, HP/Agilent was on a consolidation spree
acquiring companies such as Scope, Telegra, and other smaller companies with
strengths in communications test. Currently, Agilent, Tektronix, Acterna,
Teradyne and GenRad, form a heavyweight list in the conventional T&M
industry by virtue of its overall sales revenue and brand identity. The first
three are pure T&M play companies while Teradyne and GenRad are in the
semiconductor and manufacturing test arena.
Communications Test–The New Paradigm
The evolution of ‘Acterna’ is yet another development in
this market evidencing the desire of companies to carve out niche markets. The
spurt in corporate alliances in the industry in recent times prompts the
question "why now"? The resounding answer seems to be "the
communications market", defined broadly as the Internet, broadband
communications including DSL, Pocket over SONET (POS), DWDM, cable, Public
Switched Telephone Networks (PSTN), and multimedia among others.
The dramatic growth in the communications market has spurred
the need for test and monitoring solutions in engineering, manufacturing test,
and field applications. The increased demand for Quality of Service (QoS)
metrics and commitment on Service Level Agreements (SLA) by users, has motivated
service providers to invest in test and monitoring solutions. At the same time,
these providers are placing demands that are more stringent on equipment
providers in terms of reliability and efficiency of network equipment. The
culmination of these factors is an overall steep growth in test and monitoring
solutions for the communications industry. Frost & Sullivan estimates the
market for communications test equipment as defined above, approximately at $5
billion annually. This market is growing at a rapid pace and certain segments in
broadband wireless are growing at double-digit rates.
Within this bucket, the biggest markets are service providers
and manufacturing test, in that order. Supported by extensive deployment of
newer and upgraded networks, such as LANs, WANs, Cellular/ PCS, VoIP gateways,
SONET/ POS/ Frame Relay/ ATM backbones, the installation, monitoring and field
service markets, have swelled dramatically and account for over 40 percent of
the communications test market. The manufacturing test market follows assisted
by increased investment into production test facilities for subscriber and
terminal equipment in wireline and wireless services.
A closer examination of the various recent corporate
alliances suggests that communications test is a common denominator in most of
these alliances, although some companies have other conventional test products
too. However, few of these alliances are based on pure T&M products.
Exceptions are IFR’s acquisition of Marconi Instruments, Fluke’s acquisition
of Wavetek’s DVM business, and other such smaller acquisitions. Most of the
competitors in the communications test area are vying to carve out an identity
and market share in this emerging market, by positioning itself as a ‘communications
test solution provider’. While these companies are focusing on organic growth
to a certain extent, growth through acquisition seems to be a strong force
behind these mergers. Indeed, acquisition of new and readily available
technology is also a factor that helps the acquirer expand product lines
rapidly. However, an interesting aspect is that much of this activity seems to
be isolated to digital test solutions rather than analog or radio frequency
solutions.
Analog Vs Digital
Although several new players have entered this market over
the past three to five years, a significant majority of these companies are in
the business of test solutions, specifically communications test, which deal
with measurement of digital parameters. One can name several new companies
offering solutions for protocol analysis, Bit Error Tests (BERT), LAN/WAN test,
IP test solutions, POS test, Asynchronous Transfer Mode (ATM) test, SONET/SDH
test, DSL test, DWDM test, and a variety of other digital tests. On the
contrary, there are a few new companies offering RF signal sources, spectrum
analyzers network analyzers, and power meters for wireless test, microwave test,
and other analog tests. In this area, one has to fall back upon established
vendors, such as Agilent, Tektronix, Anritsu, RACAL, Rohde and Schwarz, IFR,
Boonton and Giga-tronics. This leads one to wonder why there are no new entrants
here, although wireless communications test is a growth area.
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Research indicates that many factors influence the lack
of new entrants in the analog test area. However, some of the primary
factors seem to be: -
Analog, especially at higher frequencies, is difficult to
master in comparison to digital -
Much of the innovation in RF and wireless communications
systems has actually been in the area of digital modulation techniques at
the base band level. The carrier technologies have remained mostly unchanged -
The growth of digital communications systems in recent
times, offers a greater motivation and opportunities to new entrants -
Unlike conventional radio frequency technologies, which
have not changed much, digital technologies have a faster cycle of
innovation, thus leveling the playing field for new entrants
At Frost & Sullivan, we find this intriguing and intend
to explore further into this aspect in future discussions on this site.
The New Face of the New Industry
What is the old face of the T&M industry? The answer
would have been HP, Tektronix, Marconi Instruments, W&G, Wavetek, Rhode
& Schwarz, and Anritsu. Few outside of the T&M industry had ever heard
of these companies, and of those who had, HP and Tektronix were better known for
computer products and printers.
And now, what is the new face of the T&M industry? The
current paradigm is ‘Communications Test Solutions’, championed by
companies, such as Acterna, Agilent, ANDO, Digital Lightwave, Fluke, RADCOM,
Spirent, Sunrise Telecom, and several others. Companies such as Tektronix and
Anritsu also have a presence in this emerging digital and network test market
with some versatile products, but seem to blend more into the conventional
T&M space of signal generators, spectrum analyzers, radio test, and
oscilloscopes. Certain companies such as IFR International, Boonton and
Giga-tronics, seem to have more or less stayed with its core competencies in RF/Microwave
testing. We also have companies such as National Instruments, Keithley and Gage
Applied Systems (part of Tektronix), offering PC-based test instruments for
communications test applications.
One interesting aspect of this new face is that many of these
companies have gone public and the names are recognized by people outside the
industry. The fanfare and media coverage associated with the spin-off of Agilent
helped to focus public attention on the T&M industry. Many investors have
started exploring this industry and successive IPOs from companies such as
Sunrise Telecom and Turnstone have been well received from an investor
perspective. It has also helped these companies generate much-needed cash for
R&D and expansion. Additionally, T&M vertical Internet portals, such as
TestMart, and Test and Measurement Online, have significantly helped the
industry gain greater exposure and public recognition. It is heartening to note
that the T&M industry, always considered as a service industry, has come to
gain its own unique community and identity.
The T&M industry, previously less-known outside of its
user-base, is in a period of transformation with successive mergers, spin-offs,
and corporate identity changes. The spin-off of Agilent, the restructuring at
Tektronix and Acterna, and the availability of dedicated communities such as
TestMart that enable on-line multi-vendor sourcing, have helped attract greater
attention from people outside the industry. At the same time, the burgeoning
communications industry has spurred the market growth for communications test
solutions prompting several companies to re-evaluate core-competencies and
strengths in this emerging market by seeking consolidation.
The new face of the T&M industry brings greater
recognition to several companies involved in some form of consolidation and
declaring its presence in the ‘communications test space’. Spurred by these
companies’ desire to acquire new technology in this space and achieve higher
growth, more of such alliances cannot be ruled out in the near future. It is
likely to be an exciting time ahead for the communications testing industry, or
Comms Test, as popularly known.
Shekar Gopalan, director, consulting
(T&M group), Frost & Sullivan.
Article Courtesy: Frost & Sullivan (www.frost.com)-- is a global leader in international strategic market consulting and training, and TestMart
(www.testmart.com) --provider of Web-based marketplaces for organizations that buy test equipment and other precision instruments