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A resilient business

As a result of the COVID-19 outbreak, the T&M instruments market received the requisite impetus from the increasing enterprization of the home, but that was not enough to prevent a decline in revenue, given the global lockdown and the disruption in 5G services.

Networks around the world are undergoing revolutionary transformations due to the advent of 5G communications, IoT, gigabit-to-the-home broadband, and the cloud. All these networks depend on fiber-optic communications, the only technology capable of supporting the exponential increases in bandwidth demand in every segment. Performance requirements for today’s networks are more exacting than ever, and the need for testing equipment and networks is critical in the lab and production environment, throughout the entire network lifecycle. As higher-bandwidth technologies such as 5G move into the mainstream, engineers need tools for design validation and manufacturing that offer the accuracy, speed, and bandwidth to accelerate device development. To cater to the varying bandwidth demands of services, service providers need a complete testing solution to ensure that their network can meet performance and accessibility requirements while maintaining QoS for mission-critical voice, video, and data traffic. In the communication and networking sector, rapid changes in network circulation, from voice to integrated voice, video, and data, have created a need for solutions to test performance and capacity. The transition to 5G, with advanced modulation and antenna techniques, has improved services and quality. In addition, R&D in cellular technologies such as long-term evolution (LTE) & long-term evolution advanced (LTE-A) and wired technologies such as Ethernet and Fiber Optics, that can provide speeds of up to 400 Gbps are expected to support the growth of this market.

Price sensitivity
The need for multiple testing methods using different test equipment to check the functionality of the product translates to higher testing and skilled labor costs. End users in the communication test and measurement ecosystem are highly price conscious. They tend to purchase low-priced tests and measurement equipment, ignoring expensive feature-rich and innovative solutions. There is a substantial thrust to conduct more testing for less money, as end users are unable to transfer the increasing costs to consumers. Increased competition among chipset vendors and test equipment manufacturers to choose solutions for one chipset or another is another observable trend. Decreasing testing time—which produces substantial cost-savings for OEMs—acts as a restraint for communication test and measurement vendors. Moreover, to keep up with the development cost, companies try to keep testing costs very low. Overall, test and measurement products come with a high capital share; to stay in line with innovative technologies, companies need to work on product ranges, which results in recurrent software and hardware advancements, thereby increasing the overall maintenance cost.

MarketsandMarkets pegs the global communication test and measurement market size at USD 6.2 billion in 2020, poised to USD 9.7 billion by 2025, at a compound annual growth rate (CAGR) of 9.5 percent.

Education, telehealth, and enterprization of the home are key drivers
The COVID-19 pandemic has resulted in restrictions on movement across the globe; many businesses have focused on implementing a work-from-home model that has increased the demand and usage of data, resulting in a significant impact on telecommunication companies. The increased dependency on telecom networks and the other restrictions on account of COVID-19 has raised a different set of challenges—increasing call drops, less data quality, and huge network traffic for telecom service providers.
Prior to the COVID-19 outbreak, the company’s customers were focused primarily on testing connectivity solutions for large, public venues like stadiums, but that, seemingly overnight, changed significantly. Education, telehealth and then gradually, the one that is really dominating now is the ‘enterprization’ of the home.
The enterprization of the home, which has become an industry term, refers to the interest of enterprises to not simply make working from home possible for their employees, but also allow them to access enterprise critical applications that typically can only be accessed in secure workplace environments.

Network brownouts
There’s no arguing that network brownouts significantly impact the bottom line for business, IT teams and end-user experience as businesses continue to migrate to cloud and digital infrastructure and operations.

In order to get ahead of network brownouts, organizations will have to move from reactive to proactive performance monitoring, which requires technology that provides integrated visibility into network connectivity and application performance. This includes an analysis of performance data that empowers IT teams to enforce performance SLAs with network service providers and allows them to ensure they are receiving the bandwidth they are paying for. Preventing network brownouts will also entail coordinating with third-party technology vendors to ensure they’re equipped with the appropriate tools to mitigate network brownouts on their end, as well as ensuring regular maintenance practices and the ability to scale web traffic during busy periods.

To better understand the impact of network brownouts in the age of COVID-19, Accedian recently released the findings of its new research measuring the effects of network brownouts on business productivity and end-user experience. In a survey of more than 1,000 senior IT decision makers in the US, the report found that one-in-five organizations experience network brownouts on a daily basis since the pandemic hit, and 40 percent experience them at least several times a week. This result in significant productivity impacts and IT time required to regain acceptable standards on network performance. For the one in five organizations that experience network brownouts daily, IT teams spend up to a staggering 12.5 hours a week troubleshooting issues that could have been avoided.

Financial performance of leading vendors over the latest quarter reported

Keysight Technologies – MJJ 2020
Keysight delivered stronger-than-expected third quarter results.

Orders were USD 1,067 million, compared with USD 1,110 million last year, a decrease of 4 percent. GAAP revenue was USD 1,011 million, compared with USD 1,087 million last year. Non-GAAP revenue decreased 7 percent on a core basis, which excludes the impact of foreign currency changes and revenue associated with businesses acquired or divested within the last twelve months. GAAP net income was USD 176 million, or USD 0.93 per share, compared with GAAP net income of USD 159 million, or USD 0.83 per share, in the third quarter of 2019. Non-GAAP net income was USD 226 million, or USD 1.19 per share, compared with USD 239 million, or USD 1.25 per share in the third quarter of 2019. As of July 31, 2020, cash and cash equivalents totalled USD 1,697 million.

Reporting segments include Communications Solutions Group (CSG) and Electronic Industrial Solutions Group (EISG). CSG reported third quarter revenue of USD 760 million, down 4 percent, due to a challenging macroeconomic environment. From a demand perspective, investment continued in next-generation technologies such as 5G, with growth in 5G network rollouts and commercial launches, as well as 400G-related data center investment. Demand remained strong in the US for aerospace defense and government solutions. EISG reported revenue of USD 251 million in the third quarter, down 15 percent, due to a challenging macroeconomic environment. Weakness in general electronics and automotive markets was slightly offset by continued investment in advanced semiconductor process node technologies.

Outlook. Keysight’s fourth fiscal quarter of 2020 revenue is expected to be in the range of USD 1,170 million to USD 1,190 million. Non-GAAP earnings per share for the fourth fiscal quarter of 2020 are expected to be in the range of USD 1.42 to USD 1.48, which exclude items that pertain to future events and are not currently estimable with a reasonable degree of accuracy.

“Keysight delivered stronger-than-expected third quarter results as we ramped production capacity back to nearly 100 percent by quarter-end. Our execution and financial performance demonstrated the exceptional resilience of our business for the second quarter in a row, even with continued macro challenges. The Keysight team rapidly adapted to a new operating environment, while delivering on our commitments to customers, partners, and shareholders. Despite near-term uncertainty, we expect to achieve year-over-year revenue and earnings growth in the fourth quarter.
Ron Nersesian, Chairman, President and CEO, Keysight

Anritsu – AMJ 2020
During the first-quarter of the fiscal year ending March 31, 2021, Anritsu Corporation clocked revenue 25,693 million yen, a 10.6 percent increase compared with the previous fiscal year. This comprises Test and Measurement (T&M), Products Quality Assurance (PQA), and Other (Information and Communications, Devices, Logistics, Welfare services, Real estate leasing and other businesses).

In the field of information and communication, which is the main field of test and measurement business, 5G commercialization schedules of operators in each country are making progress smoothly. 5G services were launched in the US, Korea, Europe, and China. In Japan as well, 5G services were launched in certain areas, centered on cities, in March 2020. Continuously among 3GPP, specification development of ultralow latency communications and multiple simultaneous connections for expansion of use case is under consideration, and the standardization has been finished in July 2020. In addition, new specifications for improved 5G efficiency and capability, such as expansion of high frequency range, expansion of communication area, low-power consumption, and low cost communication are planned to consider among 3GPP, and the standardization will be targeted to be finished in 2021.

Anritsu – T&M Segment

AMJ 2020
In million yens 2019 2020
Revenue 17,315 19,260
Operating profit 2,761 4,946

Anritsu Forecast – T&M

In million yens April 20-
March 21
Revenue 77,000
Operating profit 15,500

Since the data traffic is expanding rapidly due to sophisticated cloud computing services and the progress of 5G services, the network infrastructure is under strain. Therefore, service providers that are pursuing higher-speed networks are concentrating on the promotion of 100Gbps services, and network equipment manufacturers are developing 400Gbps network
equipment.

Amid such environment, the Test and Measurement Business Group has focused on solution development for the 5G investment demand as well as improvement of organizational infrastructure. Consequently, this group acquired development demand for 5G commercialization. Furthermore, it acquired development and production demand for higher-speed networks.

The test and measurement segment develops, manufactures and sells measuring instruments and systems for a variety of communications applications, and service assurance, to service providers, manufacturers of network equipment, and maintenance and installation companies around the world.

During the JFM 2020, development demand for 5G chipsets and mobile devices was growing steadily. In Asia in particular, development demand aimed at 5G commercialization grew, driven the 5G business. In addition, we acquired development and production demand for network speedup in data centers. Consequently, segment revenue increased 11.2 percent compared with the previous fiscal year to 19,260 million yen, operating profit increased 79.1 percent to 4,946 million yen.

Outlook. The Anritsu Group has not changed the performance forecasts announced on April 27, 2020. Uncertainty of the social and economic situation continues due to the spread of COVID-19. The forecast assumes that COVID-19 will be settled within the first half of the fiscal year. Consequently, the situation of the spread of the COVID-19 infection and the time of convergence could have additional impact on Anritsu Group’s performance, including a further prolongation of the slump in economic activity.

“Anritsu has launched Beyond 2020 with the aim of achieving sustainable growth from 2020 onward. At present, the cornerstones of our business are 5G communications in the Test and Measurement Business and food safety in the PQA Business. We also established the Advanced Technology Research Center, a new basic technology laboratory that draws on the power of test and measurement to resolve the societal issues of a decade in the future. While conducting research into 6G and next-generation NEMS technology, the Center will actively accept researchers from outside to create a source of technological capability for Anritsu and to strengthen our philosophy of Original & High Level.”
Hirokazu Hamada, President, Director, Anritsu Corp

EXFO Inc. – JJA 2020
EXFO closed its fourth quarter on a positive note with strong revenues and cash flows from operations.

Sales. Given the global pandemic, total revenue decreased 7.4 percent to USD 265.6 million in fiscal 2020. Test and measurement (T&M) sales dropped 3.6 percent year-over-year, despite a strong increase from lab and manufacturing test solutions. Service assurance, systems, and services (SASS) revenue fell 16.4 percent year-over-year, although the company secured service assurance orders totalling USD 5.0 million with five new customers in the fourth quarter. Annual sales in Asia-Pacific improved 11.9 percent, while sales in the Americas and Europe, Middle East and Africa (EMEA) decreased 10 percent and 13.9 percent, respectively. EXFO’s largest customer accounted for 8.3 percent of sales in 2020, while the company’s top-three customers represented 18.1 percent.

Profitability. IFRS net loss totalled USD 9.5 million in fiscal 2020 compared to USD 2.5 million in fiscal 2019. Adjusted EBITDA amounted to USD 18.2 million in 2020 compared to USD 25.6 million in 2019. Cash flows used by operations totalled USD 2.1 million in 2020, including cash flows provided by operations of USD 14.1 million in the fourth quarter. In comparison, cash flows provided by operations amounted to USD 17.2 million in 2019.

Overview. Sales in the fourth quarter of fiscal 2020 reached USD 70.6 million compared to USD 70.2 million in the fourth quarter of 2019. Annual sales decreased 7.4 percent to USD 265.6 million in fiscal 2020 mainly due to the negative impact of the coronavirus pandemic.

Bookings totalled USD 63.0 million for a book-to-bill ratio of 0.89 in the fourth quarter of fiscal 2020 compared to USD 70.9 million in the fourth quarter of 2019. For fiscal 2020, bookings decreased 11.1 percent to USD 264.9 million for a book-to-bill ratio of 1.00 mainly due to the negative impact of the coronavirus pandemic.

EXFO

In thousands of US dollars Q420 Q419 FY20 FY19
Total sales 70,572 70,175 265,583 286,890
T&M sales 53,684 50,162 197,419 204,693
T&M bookings 43,495 50,378 197,141 210,055

Gross margin before depreciation and amortization attained 53.8 percent of sales in the fourth quarter of fiscal 2020 compared 56.9 percent in the fourth quarter of 2019. In fiscal 2020, gross margin before depreciation and amortization reached 56.9 percent of sales compared to 58.6 percent in 2019.

Selling and administrative expenses totalled USD 24.6 million, or 34.8 percent of sales, in the fourth quarter of fiscal 2020 compared to USUSD 23.0 million, or 32.8 percent of sales, in the fourth quarter of 2019. In fiscal 2020, selling and administrative expenses amounted to USD 92.3 million, or 34.8 percent of sales, compared to USD 98.6 million, or 34.4 percent of sales, in 2019.

Net R&D expenses amounted to USD 12.0 million, or 17.0 percent of sales, in the fourth quarter of fiscal 2020 compared to USUSD 11.1 million, or 15.9 percent of sales, in the fourth quarter of 2019. In fiscal 2020, net R&D expenses totalled USD 45.5 million, or 17.1 percent of sales, compared to USD 50.6 million, or 17.6 percent of sales, in 2019.

Adjusted EBITDA amounted to USD 4.9 million, or 6.9 percent of sales, in the fourth quarter of fiscal 2020 compared USD 6.2 million, or 8.9 percent of sales, in the fourth quarter of 2019. In fiscal 2020, adjusted EBITDA totalled USD 18.2 million, or 6.8 percent of sales, compared to USD 25.6 million, or 8.9 percent of sales, in 2019.

“Looking ahead, we are excited about the wealth of opportunities for our T&M and SASS product groups. Demand for field testing equipment should recover with major fiber deployment projects, barring the return of extensive lockdown restrictions with the second wave. We also expect continued growth from our lab and manufacturing test solutions, especially in the ultra-high-speed area with our pending acquisition of InOpticals. In addition, we expect our Nova Adaptive Service Assurance platform to benefit from the momentum of our recent contract wins, the ramp-up of cloud-native 5G architectures and heightened activity in the network core.
Philippe Morin, CEO, EXFO

VIAVI – AMJ 2020
VIAVI reported results for its fourth fiscal quarter ended June 27, 2020.

Fourth quarter of fiscal 2020 net revenue was USD 266.6 million. GAAP net income was USD 26.7 million, or USD 0.12 per share. Non-GAAP net income was USD 40.8 million, or USD 0.18 per share. Third quarter of fiscal 2020 net revenue was USD 256.2 million. GAAP net loss was USD 32.8 million or USD 0.14 loss per share. Non GAAP net income was USD 32.0 million, or USD 0.14 per share.

Fourth quarter of fiscal 2019 net revenue was USD 289.7 million. GAAP net income was USD 12.5 million, or USD 0.05 per share. Non-GAAP net income was USD 40.1 million, or USD 0.17 per share.

VIAVI

In USD million Q4FY20 Q4FY19 FY20
Net revenue 266.6 289.7 1136.3
Gross margin 58.0% 58.5% 58.5%
Operating margin 16.2% 9.6% 10.4%
Income from op. 43.3 27.8 118.1
Net income per share 0.12 0.05 0.12

Financial overview. Americas, Asia-Pacific and EMEA customers represented 38.8 percent, 27.7 percent and 33.5 percent, respectively, of total net revenue for the quarter ended June 27, 2020.Americas, Asia-Pacific and EMEA customers represented 36.5 percent, 32.4 percent and 31.1 percent, respectively, of total net revenue for the year ended June 27, 2020.

As of June 27, 2020, the company held USD 544.0 million in cash and cash equivalents, investments and short-term restricted cash.

As of June 27, 2020, the company had USD 460.0 million aggregate principal amount of 1.00 percent senior convertible notes and USD 225.0 million aggregate principal amount of 1.75 percent senior convertible notes with a total net carrying value of USD 600.9 million classified as long-term debt.

During the fiscal quarter ended June 27, 2020, the company generated USD 27.2 million of cash from operations. During the fiscal year ended June 27, 2020, the Company generated USD 135.6 million of cash flows from operations.

During the fiscal quarter ended June 27, 2020, the company paid withholding income taxes of USD 19.4 million related to repatriation of cash from a foreign subsidiary.

Outlook. For the first quarter of fiscal 2021 ending October 3, 2020, the company expects net revenue to be between USD 258 million to USD 282 million and non-GAAP earnings per share to be between USD 0.14 and USD 0.16.

“In fiscal fourth quarter our Wireless Lab equipment business delivered a record revenue quarter driven by 5G and we also saw overall NSE demand stabilizing. For the full fiscal year 2020, revenue and non-GAAP EPS grew despite the business impact from the COVID-19 pandemic in the second half. Although near-term macroeconomic uncertainty is expected, we remain positive on the secular demand drivers for increased network capacity that drive 5G Wireless and fiber and the continued penetration and adoption of 3D sensing technology in mobile applications.”
Oleg Khaykin, President and Chief Executive Officer, VIAVI”

National Instruments
National Instruments announced Q2 2020 revenue of USD 301 million, down 10 percent year over year and down 3 percent sequentially. Organic revenue, defined as GAAP revenue excluding the impact of acquisitions and divestitures completed within the past 12 months, declined 8 percent year-over-year.

In Q2 2020 the value of the company’s organic orders was down 6 percent year-over-year; organic orders over USD 20,000 were up 4 percent year-over-year; and organic orders under USD 20,000 were down 21 percent year-over-year.

NI

In USD thousands AMJ 2020 AMJ 2019
Operating income 16,415 32,296
Total net sales 301,329 334,231

For Q2, on an organic order basis, the Americas region had year-over-year order growth of 1 percent, EMEA orders were down 23 percent, and in APAC orders were flat during the quarter. Previously included order value and net sales attributable to operations in India within the EMEA region. In the second quarter of 2020, the company began including these amounts within the APAC geographic region, to reflect recent changes within its organizational structure. India represents approximately 2 percent of NI’s total orders.

For the first half of 2020, revenue was USD 611 million, down 5 percent year over year and on an organic basis, revenue was down 3 percent year over year. The value of the company’s first half 2020 total organic orders was also down 3 percent year-over-year.

Outlook.COVID-19 or not, it would be wise for businesses across industries to fortify their networks so they can work more efficiently in this remote, distributed era. If there’s one thing the current pandemic has taught us, it’s that networks and applications are the backbone of the digital economy. In order for businesses to compete and succeed in an increasingly competitive landscape, it is important for leaders to understand how the pandemic impacts network performance, as well as the causes and effects of poor network performance on their business productivity, IT teams, and end-user experience.

“I am proud of the ability of our employees to adapt as the COVID-19 pandemic continues globally. We delivered results within expectations shared June 9, 2020 and our operational continuity ensured we were able to meet customer demand. The core strengths of NI are clear — our broad customer base, diversity of business, and the value our customers see in our software-connected systems. I believe we are in a stronger position strategically as compared to past industrial recessions with a focus on the parts of the market where our customers continue to invest.”
Eric Starkloff, CEO, NI

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