National Instruments Corp (NATI) 2010 Q4 法說會逐字稿

Good day, everyone, and welcome to the National Instruments fourth-quarter 2010 earnings conference call.Just a reminder, today's call is being recorded.You may refer to your press packet for the replay dial-in number and pass code.

With us today are David Hugley, Vice President, General Counsel and Secretary; Alex Davern, Chief Operating Officer; Dr. James Truchard, President, CEO and Co-Founder; and Pete Zogas, Senior Vice President of Sales and Marketing. For opening remarks I would now like to turn the call over to Mr. David Hugley, Vice President, Corporate Counsel and Secretary. Please go ahead, sir.

Good afternoon. During the course of this conference call we shall make forward-looking statements regarding future financial performance of the Company, including statements regarding our plans and budget for 2011, our future growth and operating leverage, being well positioned for growth, and our revenue and earnings per share guidance. We wish to caution you that such statements are just predictions, and that actual events or results may different materially.

We refer you to the documents the Company files regularly with the Securities and Exchange Commission, including the Company's most recent quarterly report on form 10Q, filed November 3, 2010. These documents contain and identify important factors that could cause our actual results to differ materially from those contained in our forward-looking statements.

With that I will now turn it over to the Chief Executive Officer of National Instruments Corporation, Dr. James Truchard.

Thank you, David. Good afternoon, and thank you for joining us. Our key points today are record revenue, record profits, and continued strategic investments in 2011. I'm extremely pleased with our performance this quarter as we set a new record for quarterly and annual revenue. While the recent recession was one of the most challenging financial periods in the Company history, our ability to outpace the growth of many of our peers and reach record revenues so quickly, can be attributed not only to the broad-based recovery in the business, but also to our commitment to strategic investments throughout the downturn.

We continued to invest in R&D and our field sales force, which has produced a pipeline of innovative new products, and strengthened relationships with key customers. I believe our outstanding results validate our strategy, and I continue to be very optimistic about our position in the industry.

In our call today, Alex Davern, our Chief Operating Officer, will review our results. Pete Zogas, our Senior Vice President of Sales and Marketing, will discuss our business, and I will close with a few comments before we open up for your questions. Alex?

Good afternoon. Today we're pleased to report that NI set new quarterly and annual revenue records in Q4 and 2010. Fourth-quarter revenue was $250 million, up $48 million or 24% year-over-year, and was up $30 million or 13% sequentially. 2010 annual revenue was $873 million, up 29% year-over-year, and backlog at December 31, 2010, increased by $5 million from September 30.Non-GAAP gross margin in Q4 increased by 50 basis points year-over-year to 78%. Our ability to significantly increase our gross margins is a tribute to the success we've had in driving down component costs, improving manufacturing efficiency into the high value, and differentiation we deliver to our customers.

Fourth-quarter GAAP and non-GAAP operating income were all-time quarterly records. GAAP operating income was $46.6 million, a 30% increase over Q4 2009. Non-GAAP operating income was $52 million, a 24% increase over Q4 2009. This represents a non-GAAP operating margin of 21%. For the full year, our non-GAAP operating margin was 17.3%, and I would like to thank all of our employees for the hard work they have contributed to this very strong result.

Net income for Q4 was $38 million with fully diluted earnings per share of $0.48. Our non-GAAP net income was $42 million, with non-GAAP fully diluted earnings per share of $0.53.Please recall that in 2009, the Company incurred a $21.6 million non-cash tax charge that reduced both our GAAP and non-GAAP earnings per share by $0.28 in Q4 2009. EBITDA, or earnings before interest, taxation, depreciation and amortization, was also a new all-time record at $56 million or $0.71 per share for Q4, and for the full year was $165 million or $2.08 per share. A reconciliation of our GAAP and non-GAAP results is included in our earnings press release.

Q4 was a very successful quarter, and there's some clear positives to take away. First, we saw strong growth in large orders closing in Q4. Second, our strong performance resulted in an all-time quarterly record for operating income with non-GAAP operating margin increasing to 21% in Q4. And third, the global PMI improved in Q4, with a quarterly average of 54.2 indicating that while global industrial production is still down significantly from its all-time highs, it did see a strong sequential expansion in Q4.

Turning to the balance sheet, inventory increased by $16 million during the quarter, and inventory days were relatively flat as revenues surged. Cash flow from operating activities continued to be strong at $145 million. As of December 31, the Company had $351 million of cash and short-term investments.

Today the Board of Directors has declared a 3-for-2 stock split to be effected as a stock dividend of 1 share of common stock for every 2 shares of common stock outstanding, payable February 21, 2011, to shareholders of record on February 4th. All per share numbers included in this conference call today are on a pre-split basis, including the Company's cash dividend and the guidance for Q1 2011. We also announced today that the Board of Directors approved an increase in the quarterly dividend to $0.15 per share, payable on February 21st, to shareholders of record on February 4th.

As we close out 2010, I'd like take a moment to reflect on our executions through the last five years. Despite the worst recession since the 1930's, National Instruments has delivered strong results over the last five years. We've increased revenues by 57%, non-GAAP operating income by 81%, and non-GAAP net income by 84%. In the five years between Q4 of '05 and Q4 2010, instrument control revenues dropped from 12% of revenue to 7%, and our virtual instrumentation and graphical system design products have delivered 66% revenue growth.

We've also stayed true to our long-term strategy over these five years, increasing our R&D personnel by almost 50%, and our worldwide field sales force by more than 70%. Key to enabling this performance has been our expanded gross margins. Over the last five years, we've expand our gross margins by over 300 basis points, allowing us to make the strategic investments necessary to sustain the long-term growth of the Company, while delivering great profit growth.

Now, I'd like to make some forward-looking statements. The trends of the global PMI continue to be positive in Q4, averaging 54.2 for the quarter. This, combined with our strong Q4 results, gives us increased confidence in planning for '11. We plan to continue to make the investments necessary to drive our long-term growth, and we are budgeting to make significant personnel editions in both R&D and field sales during 2011. We are budgeting to increase our R&D personnel by 19%, and our field sales force by 24% during 2011. Overall headcount is budgeted to increase by 17%. However, the incremental costs of these additions will be partially offset by an expected reduction in our variable compensation in 2011.

Now turning to specific guidance for Q1. We currently expect revenue for Q1 to be up significantly year-over-year, and to be in the range of $230 million to $244 million. We currently expect that GAAP fully diluted earnings per share will be in the range of $0.33 to $0.41 for Q1, with non-GAAP fully diluted earnings per share expected to be in the range of $0.38 to $0.46 in Q1. As these are forward-looking statements, I must caution you that actual revenues and earnings could be negatively affected by numerous factors, such as any weakness in the global economy, rescheduling of customer orders, expense overruns, manufacturing inefficiencies, effective tax rates, and foreign exchange fluctuations. I also wanted to mention that Dr. Truchard and John Roiko, our Vice President of Finance, will be attending the Stifel Nicolaus Technology Conference on February 10th in San Francisco.

In summary, we are very pleased at our record revenue and profit in 2010. Our goals for '11 are to invest aggressively in sustained revenue growth, and continue to drive towards our 18% non-GAAP operating income target.

Now I'll turn it over to Pete Zogas, Senior Vice President of Sales and Marketing.

Thank you, Alex.We were extremely pleased with our ability to close out 2010 with a new all-time high for quarterly revenue. We believe our efforts to grow and evolve our field sales force and product portfolio to meet the needs of system-level opportunities, contributed significantly to our results in Q4. We have increased field sales headcount by more than 230 people in the last five years, and as a result of the world-class execution from our sales teams, we saw strong year-over-year growth in all regions in Q4.

Additionally, we have continued to invest in strategic R&D initiatives, and increased R&D headcount by almost 500 people in the last five years. In Q4 we were pleased to see record revenue in many areas of the business, and we saw especially strong growth from our industrial embedded and PXI Modular Instrument products. In Q4, our orders over $20,000 grew more than 40% year-over-year, and our average order size reached an all-time high of approximately $4,470, up 17% year-over-year. We believe this success reflects the enhancements we have made in our product and service offerings, the excellence of our network of integrators, and the performance of our outstanding sales teams.

Our software products set a quarterly revenue record in Q4, as more customers realized the value of NI software for their applications. LabVIEW software has been used by hundreds of thousands of engineers and scientists to develop sophisticated measurement, test and control systems. It is scalable across multiple operating systems, and provides hundreds of built-in libraries for advanced analysis and data visualization for creating virtual instrumentation.

When customers buy LabVIEW, they are plugging into a vast ecosystem of developers, who share code and best practices, a marketplace of add-on's, and access to support for more then 10,000 different types of hardware devices. This widespread adoption of National Instrument's software and hardware has resulted in strong long-term growth for our Company. We expanded our software offering in Q4, as engineers continued to turn toward softer centric test systems, because they're products, and as a result their test systems, must react quickly to market dynamics, like time-to-market and pricing pressures.

In both Q4 and in the full-year 2010, sales of our PXI Modular Instruments reached record levels and out-paced the Company's growth. In particular, our RF and FlexRIO products continued to grow rapidly and set new revenue records in Q4 and in 2010. In Q4 we announced the latest result of our investment in RF Instruments for mobile devices, the NI LTE Measurement Suite.Based on NI automated test software and PXI modular instrumentation, the LTE Measurement Suite provides a flexible and accurate solution for engineers developing automated validation and production test systems for the latest generation of smart phones and mobile devices, while performing automated testing up to five times faster than traditional instruments.

We believe the success of our PXI Modular Instruments, and our more than 13 years of investment in PXI, has catalyzed a shift in automated test applications away from traditional rack-and-stack instruments, towards a softer defined modular instrumentation approach. Traditional rack-and-stack instrument solutions can't offer the same level of synchronization, system level software integration, and reduced factory footprint and power consumption, and are no longer competitive in many automated test applications.

An example of a customer who saw significant benefits using our PXI Modular Instruments, was Texas Instruments. TI replaced a traditional RF instrument test bench with an NI PXI system, for characterizing the FM transmitter portion of an RF chip. Using the PXI system, they were able to reduce test time by almost six times, system costs by nearly half, and calibration down-time by more than 80%; all while improving measurement quality.

NI PXI modular instruments were also successful in many other application areas. Orbis Incorporated, an engineering services company, used NI software and PXI modular instruments to develop a compact test system for military submarine system components. Using NI PXI modular instrumentation, LabVIEW and TestStand, Orbis developed a compact, high-performance tester to replace the legacy BME-based functional tester used by the military, significantly reducing size, complexity and cost. This allows the Navy to place this test system at strategic locations, and reduce the overall maintenance and logistic costs of supporting their submarine fleet.

In Q4 our data acquisition products experienced strong year-over-year growth, and saw record quarterly and annual revenue. Q4 data acquisition growth was led by our C-Series-based devices. Recently, a division of Kimberly Clark used our USB data acquisition products and LabVIEW, to develop a system to research ways to overcome age trigger tactile sensory loss, which can impact a person's quality of life. The LabVIEW and USB data acquisition based system saved time by automating control functions for the researcher, adding flexibility, and easing system upgrades, while making the testing more consistent and repeatable.

Our distributed IO products also saw strong year-over-year growth, achieving record quarterly and annual revenue. Our CompactRIO products saw record revenue this quarter and drove this growth. The CompactRIO platform has been a key investment area, and we are pleased to see success in many diverse industries, including energy, oil, gas, biomedical, automotive and transportation. One customer who saw success using our CompactRIO products was Analysis and Measurement Services Corporation. Using CompactRIO and LabVIEW, AMS developed an online monitoring solution for nuclear reactors, which allows for live-remote monitoring of equipment that is otherwise hard to access and in hazardous location. Additionally, the online monitoring solution reduced monitoring equipment costs, and provided access to additional data needed for maintenance work during refueling outages.

To close, we have built a world-class product portfolio, an outstanding sales force and service offering, and a strong alliance partner network, which helps us serve an immense diversity and scale of applications. In addition, the strategic R&D investments that we have continued to make to produce highly differentiated products such as RF modular instrumentation and CompactRIO, have enabled us to grow rapidly in large application areas where our products are highly differentiated from the incumbent technology. We were pleased to see our continued investment lead to a very strong Q4 performance and return to record annual revenue, and we look forward to future growth from this continued commitment to innovation.

With that I'll turn it over to Dr. T.

Thank you, Pete. I was extremely pleased with our performance in 2010, as we delivered the highest revenue and profits in the Company history. I believe that these results demonstrate the strength of our business model, and validate our long-term strategy. I believe the significant headcount increase in our R&D department and field sales force over the last five years, gives us the manpower to fully leverage the strategic investments we've made in our core platforms of PXI and CompactRIO. During those five years, we've greatly increased the footprint of both platforms, establishing them as key enabling technologies in their application areas.

The PXI platform has seen tremendous adoption over the last decade. In 2009, the PXI systems alliance estimated that more than 100,000 PXI systems with over 600,000 modules were deployed in the last decade. In addition, the biggest companies in the test and measurement industry, including Agilent, Teradyne, and Rohde & Schwarz, have joined the PXI systems alliance, and we believe that their endorsement validates our software approach to automated tests, and will help convert more customers to our view of PXI modular instrumentation.

I believe this shows that PXI has the adoption, longevity and growth to be the mainstream industry platform for automated tests. National Instruments is the leader in PXI products, with more than 13 years of experience and more than 400 modules available. However, the success of PXI in the larger trends with modular software design and systems, is not only based on the hardware benefits. Modular and flexible PXI hardware is vital to achieving the benefits we offer customers for automated test applications, that highly effective software and hardware inter-option is critical in the customer's ability to leverage the benefits of the software-defined approach.

At a keynote presentation at the International Test Conference, I described how the graphical system designed approach is creating significant differentiation from traditional approaches to automated tests. LabVIEW is an intuitive graphical programming environment that helps engineers quickly develop test software, leveraging the latest technologies, including multi-core processors and FPGA's.The software helps integrate the various components of a test system, while enabling engineers that customize the system for the specific application. The community built around LabVIEW includes tens of thousands of developers, integrators, and partners worldwide, is a testament to the value that our software brings in helping to quickly and efficiently design systems.

With the CompactRio platform, we apply the same vision of software defined programming using LabVIEW. We simply use more customizable modular hardware to enable a different set of applications. With CompactRIO, our customers use graphical system design to build sophisticated systems, using off-the-shelf technologies, more quickly and efficiently compared to traditional custom-designed approaches. The key to success for National Instruments and the customers we serve is that we have invested thousands of person years in the platforms that leverage both internal and external technologies to take advantage of Moore's Law.

These platforms provide consistent software and hardware form factors, and the flexibility to evolve, enabling engineers and scientists to build their applications in a matter of days or weeks, instead of months or years. In the end, our customers use our tools because we can fundamentally provide a more productive way for them to work. With NI platforms, we are helping to solve some of the world's most significant scientific and engineering challenges, including next generation green energy research, improvement of urban infrastructure, earlier cancer detection, and providing access to clean water.

In summary, I was extremely pleased with our performance in 2010, as we return to record annual revenue and profits. I believe that diligent execution of our long-term strategy has enabled this significant success. As we focus intense effort to improve our operating model during the recession, and to continue to invest in our innovation and our field sales force, I believe we are well positioned with a strong foundation for future growth and profitability.

And I would like to thank our employees for their commitment to innovation, prudent expense management, and unwavering focus on serving our customers, that make this possible. Finally, I would like to thank and congratulate our employees for National Instrument being named to the fortune 100 best places to work for the 12th consecutive year.

We will now take your questions.

(Operator Instructions)

Our first question comes from Anthony [Lespre],

Thanks for taking the call.

Hey, Anthony, how are you?

I'm well. How about yourself?

Excellent. Thank you.

Good. Question is on operating profit incrementals. Over the last two years you've put up 34% and 41% respectively. I'm wondering, given the increased expenditures around head-counts and increasing revenue at the same, time what you're looking for in 2011, and then I have a follow-up.

Sure. You know, in general terms, Anthony, obviously as we went through the downturn, we continued our aggressive investment, and that's paid off for us handsomely. We did obviously see a decline in operating income in '09 and then a very rapid recovery in 2010. I think some of the keys to that were obviously the new products that we were bringing to market to help us penetrate, and then the expansion of our field sales force, which really allowed us to capture a lot of new opportunities through the recession, and then leverage those as we came through the recovery.

So increasing operating margin this year, or in '010 I should say, to 17.3% for the full year, was - I think really outstanding performance, well ahead of our expectations as we entered the year. Now, as I said at NI, a week -- a couple months ago, and then at the earnings call back in October, as we're getting closer to our target of 18% in operating margin, we're getting also more focused on what else we can do to drive the long-term top line growth. So the goals we have going into '011 are to continue grow revenues faster than expenses, but they will be more closely aligned than they were last the two years. And the primarily goal behind that is to try to fulfill our visions to scale to Company in the next number of years, well beyond $1.0 billion dollars in revenue.

Okay. Thank you . And then a follow-up is, given the higher revenues alongside the expansion of product, products that you have in the pipeline, can you talk to the manufacturing capabilities that you have in

Certainly. Very, very, very good question. We are proceeding forward with the completion of the design of the Malaysia manufacturing facility. We have actually bought or, we're looking to hopefully breakdown ground there, sometime in the second quarter. And all indications now, we're still on track for a commencement of production in Q3 of 2012, that's Q3 of next year.

All right. Thank you.

We feel comfortable we have sufficient capacity until the new plant opens.

Okay. Great. Thanks.

William Stein, Credit Suisse.

Thanks. Just kind of following up on that. I mean, you guys have given us a view that headcount will grow, I think you said 17%, in the call and in the press release, and the cost will be offset somewhat by lower incentive or variable compensation. Can you give us an idea of what growth you're expecting for the coming year or said another way, what, what will be the offset to cost growth at the 17% headcount?

Sure - I mean one of the issues will be obviously the reduction in variable pay, which is a pretty significant offset. Other issues there will be some change in the mix of employees, which will allow us to scale the Company, you know, at a rate of expense growth that's less than the rate of headcount growth. So as we look into next year, what I wanted to give an insight into the investment community, is a number of things. One, we are planning to be aggressive in '011. Two, we're planning to grow revenues faster than expenses in '011. So, even though we're budgeting for a significant headcount increase; we have planned out the cost of that and anticipate in growing revenues in excess of that.

In terms of growth effort for the whole year, right now obviously, we're just giving guidance for the first quarter. The mid-point of our revenue range for Q1, is 24%, the same as what we had for Q4 in 2010. Our comparatives do get a little more difficult as we go through the year, but we built into our plan an ability, we think, to deliver on the investment and then also grow revenues in excess of our overall expenses. So you're looking at an expense rate that's several points below the headcount increase as we look into next year.

Okay. And just a follow-up if I can, actually, on a slightly different topic. You discussed the LTE Measurement Suite. Are you seeing meaningful sales into the 4G or LTE market at this point, and can you drop -- maybe describe, your view as to NI's growth opportunity in that market over the next year or two?

Sure. Well this is Pete. So we see a lot of activity in LTE and we see some sales in that application area. So it's pretty exciting. There's a lot of, of course, dynamic specification development, validation of silicone, validation of product, that we have a large opportunity to fill, fill with our software defined instrumentation. So we are seeing quite a bit of activity. It is in all regions of the world, and we hope with our investment in our field that we can capture the opportunity that's presenting itself to us.

Great. Thank you.

Thanks, Will.

Sven Eenmaa, Stifel Nicolaus.

Yes, Hi. Thanks for taking my call. First, I wanted ask in terms of the hiring next year, what is your expectation in terms of annual allocation of that process?Also in terms of revenue seasonality; what is your expectation?

Sven, it's Alec here. Our revenue seasonality has been pretty distinct over the years. There -- with the exception, I will say, clearly of the post Lehman Brothers phase from Q4 '08 to probably the first quarter of '010. Outside of that time period, typically what we have seen, is a drop of somewhere in the 4% to 6% range sequentially, from Q4 to Q1, this is an average over a long period of time. Then an increase in Q2 and a modest increase in Q3 and the biggest sequential increase has typically come in the fourth quarter. And if you look at the period from '03 to Q3 '08 you'll see that pretty consistently repeated.

From -- If I understand the first part of your question, it was to do with the distribution of the headcount increase as we went through each quarter of the year. Was that the question?

Yes, correct.

Okay. Our biggest recruiting periods typically tend to be the first quarter and the third quarter, which coincides with the graduation of a lot of the talent that we're looking for out of engineering schools. So you'll see a reasonably sizable increase in the first quarter, more modest in Q2, a significant increase in Q3, and much more modest in Q4. And that again follows the pattern that was pretty steady as we went through the '03 to '08 time frame.

And in terms of headcount at the end of the December quarter, could you give us the number please?

At the end of December of '010 total headcount -- I'm trying to look at my numbers here, was 5,280.

Great. Thank you.

Richard Eastman, Robert W. Baird.

Good afternoon.

Hi Rick, how are you.

Very nice end to the year.

Thank you very much.

Alec, could you just -- you may have said this and I just didn't catch it, but what percentage of sales were, you know, large orders in the fourth quarter as a percentage of total?

Yeah. Rick, this is Pete. It was 45% of total revenue was from large orders.

5%? Okay.

Forty -- 45%.

40.

And our index is greater than $20,000 orders.

Yes, correct. And then, when we talked to the virtual instrumentation and graphical design piece of the business, first the instrument control -- just -- can you give us a basis for the calendar year '10? How much of that virtual instrumentation business was, you know, test product sales versus industrial embedded?

Just, just, some general slice the pie up a little bit?

You know, Rick, that's a tough question for us to answer; mainly because the honest answer is we don't exactly know. You know as our products are used in a multitude of different applications, the same product may be used in embedded and may also get used in test, and it may be used in both applications by the same customer. So we do obviously have a view to certain products that are much more highly concentrated in the test market versus the embedded market, and our best guess internally, is somewhere between 20% and 30% of our business is coming from this embedded space.

Okay. Of total sales okay. So the test business, though in terms of -- I'm sorry, in terms of product applications, test is still much greater piece of the business than the industrial embedded, although presumably industrial embedded is growing quicker?

That's right. That's right. This is Jim Truchard.

Okay. Okay.And then I noticed in the US, when we look at the sales sequentially, that sales declined a little fourth quarter versus third quarter. Now, you know, that's happened before, but I might have -- is there any message there in terms of how we finish the year in strength of the domestic business, or what would you attribute that to?

I think we've seen real strong results from our US sales team. As far as the business in the US, we're getting involved with a lot of multi-national, multi-national opportunity, multi-national customer relationships. And so we continue to increase our sales force to address design in one place, manufacturing in another, and then you know there's a lot of design going in the US. A lot of manufacturing going on in Asia, which is fueling some of the high growth from Asia. So I -- other than having a real strong year in US, I wouldn't read much into that.

Okay.

That's pretty typical with the government end of the year, that Q3 is normally the strongest quarter for the America's. You know Europe end of the year, Europe Q4, is always the big quarter for the European's.

Okay, so I understand. It's a little bit of seasonal, a little bit of geography. Okay, that's fine. So just maybe -- the last question.Alec when you talk about going into -- or for calendar '11, the variable comp cost will be lower, is that a function of where you're adding people?

No. I mean, our variable compensation is, is based on two primary metrics. Number one is the year-over-year revenue growth and number two is the operating margins, and these are set against particular targets. So it's designed, quite simply, to be honest with you, to drop rapidly when we go through a recession. That's what we saw in 2009, variable compensation dropped to 0.

The big benefit of that in a recession is we can maintain our employees without having to do things that other companies have done, because we have an automatic reduction to our expense. Allows us to continue to invest during the recession. It's also designed to increase rapidly in a recovery. So with a 29% year-over-year revenue growth in 2010, and an operating income number very close to our target, we have a -- the highest variable pay percentage in '010 that we have had since the IPO back in 1995.

As we come into 2011, we anticipate dropping back. We moved from a recovery year, 2010 was a recovery year, to something that's more likely to be not as high revenue growth, because we don't always have the easy compares. Though we anticipate a pretty significant drop in variable pay this year in '011. That allows us to be able to -- to compensate, or if you like, to offset the increase in headcount so we get -- an increase in payroll expense that's much less than the increase in people.

Yeah, I understand. And then in calendar '10 --

Essentially, you don't reset the budget targets as the year unfolds. And that's how we end up with the higher comp number versus the original sales growth budget?

Yeah. The variable compensation formula has been in place for a decade.

Yes.

And it's been consistent throughout that decade.

Right, and that helps make up for lost compensation the year before.

Prior year. Yes, I understand. Okay. Great. Well thank you. Nice work.

Thank you Rick.

Chuck Murphy, Sidoti & Company.

Good afternoon guys.

Hi, Chuck, how are you?

Doing all right. I was just wondering, obviously your total sales are at new highs. I was wondering if that same went for industrial embedded, or if it was mostly being driven by test and measurement?

Well, we had a record for most of our product line -- product areas in 200 -- in Q4. I can't give you a specific number for industrial embedded. I can tell you one our core products there is C-RIO; definitely had a new all-time record in Q4. We had a record revenue in PXI, modular instruments, RF, data acquisition. A lot of our products lines saw new all-time records, and certainly our flagship embedded product, C-RIO, was a star performer.

Gotcha. Yeah -- I mean -- the reason why I was asking is, I guess, kind of during the downturn, I think you mentioned that test and measurement was holding up a little bit better than industrial embedded, but it sounds like the environment is kind of back to normal for industrial embedded as well today.

Actually no. I'm not sure if we have a misperception there, Chuck.

Okay.

No we -- embedded, in the C-RIO platform -- it continued to grow in '09.

That's right, because --

And it's grown again in '010. The two-year growth is very high.

Stellar.

Okay. Okay. Sorry about that. All right. Well that's all I had. Thanks.

Thank you very much.

Mark Douglas, Longbow Research.

Hi. That is Derrick Jose, on for Mark today. I kind of got a question regarding -- you had two announcements, kind of returning value to shareholders, both the stock dividend and the cash dividend raise. I was wondering if you could maybe go in the thought process, you know, why now, and why specifically the stock dividend at this time?

Sure. Our strategy for return to cash has been to -- our first priority has been for dividends. And while they remain highly tax competitive we've had pretty clear feedback from our shareholders that they appreciate a dividend, and see that as very effective method of returning cash to shareholders. We saw a very large increase in our profit and cash flow obviously in '010, and it seemed appropriate to raise the dividend -- in -- it comes close to -- there are target range somewhere in the 30% range of profit, has been kind of the goal we've been operating at since we introduced the dividend back in 2003.

In terms of the stock splits specifically, we have an interesting -- I guess, stock trading pattern. While we have a very large float at NI and relative to most companies, we tend to have a lower trading volume. And many of our shareholders have asked us, when it's appropriate, to continue to consider a split as a way to increase the trading volume.

Okay. That's fair. And I guess, just on the plant in Hungary, I was wondering if you had any update on the capacity utilization levels there?

Well, obviously production was at an all-time high in Q4 as you can imagine. Pete and team, and the execution on the sales guys, really all over the world, from Europe, Asia, and the America's, has really driven a lot of demand on the manufacturing team, which they've executed on very, very well.

As we look into 2011, we decided to make some capacity expansion in Hungary. We add a new production line in November. That production line gives us roughly $100 million of annual capacity, and we'll be examining that as we go through 2011, as to whether we'll make additional capital investments in the Hungarian plant in order to meet capacity. The capital needs are fairly modest for us to add, about $100 million of productive capacity in that facility is roughly speaking, about $3 million of capital investment. That's something we can make without too much impact on the business model.

Okay. Thank you very much guys.

Follow-up from Anthony L.

Thanks, guys. As a follow-up to your prepared remarks regarding the increased focus of your competition on PXI actually endorsing the test method, can you speak to what you've seen so far in the market since that massive product release, and what you anticipate going forward? Are your customers asking for the technology? And, I put this in, in context that the traditional test market is typically a sticky one, and that's been one of the barriers to the penetration of PXI in the more traditional test. Thanks.

Anthony, Peter here. We've been seeing, for years, an increase demand of -- for PXI and modular instruments, and we've been reporting strong growth over those years, and taken -- taking advantage of our investments there. With the entry of some new players in there, I think it's doing nothing more than opening up more of the test-to-measurement market for opportunity. And so, I think we're seeing people that normally would not have evaluated, or thought about changing, or upsetting their incumbent, that they're now open for evaluation.

So we feel good about our investment in the field, because we feel poised and ready with people to go through the evaluation, through the transition, explaining where those benefits are. And really showing off our 13 years of investment and 400 products. And we released 48 this year alone, so we feel very good to take advantage of that increasing opportunity.

Are there any particular verticals that you can highlight, that the increased focus from your customers on PXI, opens up opportunities for you? Thanks.

Yeah -- I -- really it is across the board. It's not any one particular vertical industry that is seeing it. Obviously manufacturing has come to life again in 2010, and so when you get into anything being produced in volume, where they are costs and time-in-market -- time-to-market constraints are there, we're seeing some activity. So automotive, mobile communications, consumer devices, but also in the industrial side of things as well. So really I can't -- it's not one particular vertical industry. It's a very broad based product and it has broad base appeal.

Thank you.

Back to William Stein.

Thanks, guys. I'm wondering if we can talk a little bit about the diversity of applications and end markets. I think historically you've stated that no more than 10% of revenue in any end market, and I see on the slides you distributed today, that number is ratcheted up to 15. Are you seeing more concentration in either academic, or military and aerospace, and are there any trends there where you're seeing kind of a shift in growth where one end market is accelerating versus the others?

The application areas that we focus on or we serve, have been fairly stable from a percent of business.Academics seem to holdup better than our industrial, certainly the manufacturing accounts that we served in 2009, and so as a percent of business, we saw the sales to our academic insulations rise as a percent, and I think it got up to 12, 13%.

Now, with the rest of industry coming back from the recovery, I think we're getting much more to our traditional or legacy balanced portfolio. We see growth really in all industries. At this point it is certainly even, and some of the slower growing -- there is some transition, there is some product turnover. Even in automotive space, things going hybrid, things going electric, vehicle control systems, validation systems, really have to be retooled as they go through that process as well. That's all opportunity for us.

Great and then one other one if I can. Cash balance is, highest it's been ever, even cash on a per share basis, higher then ever, notwithstanding the increased dividend. You do that every so often as well. But we still have this cash building. So, kind of two questions from that. First, is the cash concentrated offshore? And is your appetite for M&A any different today than it has been historically?

Well, let me maybe come back to the priorities that we have for cash and talk about M&A in that perspective, and then we can talk about the distribution. Obviously, we consider having cash adequate to be able to run the business through downturns is very strategic to NI. That enables us to operate the business on a time-line that suits the industry we're in, and we think that's a real key ingredient in our ability to be able to manage effectively through downturns that occur unexpectedly.

Now our priorities to cash is, number one, is dividends, as we see that as the most effective way to return cash. And as we mentioned, while we are increasing the dividend, fairly significantly this quarter, and we'll continue to review that as we go forward. Number two, is opportunities for stock re-purchasing, which we've done a reasonably significant amount of over time, depending on circumstances. And then number three is M&A.

And M&A is probably the area where we've deployed the least amount of cash over the course of the public history of the Company. We do continuously monitor the markets for opportunity. But we're really looking for leveraged opportunity. We put the highest premium on organic growth, and you can see the commitment we're making from an internal investment point of view, that we hope will lead to significant organic growth going forward. That's our primary acquisition strategy.

I know there are many companies in the space right now that did not invest significantly in R&D, and have not been able to drive organic growth. And so they're shifting the priority for strategic M&A as a way to deliver year-over-year revenue growth, you know, up their priority list. Because NI has taken a different approach, and invested significantly in creating the opportunity for organic growth, we will, I think, keep M&A as number three on our list of uses of cash. In terms of distribution of cash, it's roughly split about 50/50 offshore versus on shore and that's a pattern that's been relatively stable.

Great. Thanks very much.

Thanks very much, Will.

Ladies and gentlemen at this time there are no further questions in the queue. I'd like to turn the conference over to Mr. Davern for closing remarks.

Thank you very much for take the time to join us today, and we will look forward to talking to you in April.

Ladies and gentlemen that does conclude today's conference, we would like to thank you all for your participation. Have a great day. [ EVENT CONCLUDED ]