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Background and Company Performance
Industry Challenges
Historically, the major share of revenue for companies in the test and measurement (T&M) industry was tied to hardware. Although 85 to 90% of T&M vendor revenue comes from hardware today, software sales are growing faster and hardware is getting commoditized.
This is because software is increasingly becoming central to unlocking measurement insights and analyzing data to offer businesses actionable insights. For some customers, the share of software in their T&M spending is approaching 30% while it was just 10% a decade ago.
The emergence of digital transformation trends such as Internet of Things (IoT) and autonomous cars is exponentially driving the complexity of systems. Traditionally strong end-use markets such as communications are witnessing significant technological advancements to systems, such as with 5G cellar network capabilities, thereby increasing the complexity of associated testing solutions.
For example, the complexity of 5G systems is astronomical with respect to processing power, working frequencies, data volumes, and signal processing. Still, hardware remains a critical part of complex measurements like 5G and in both automotive and aerospace and defense (A&D) tests, but for many others, such as IoT, simple measurements may suffice.
Despite its being commoditized, hardware used in complex measurement is expensive; therefore, customers are looking to optimize its use, which is a major challenge for T&M vendors.
Furthermore, applications in the A&D, automotive, and communications industries require solutions with very high throughput rates, which, in turn, emphasize the need for robust testing solutions.
Hence, T&M vendors need to focus on delivering software that is both robust and caters to the customer requirement of creating solutions rapidly. Also, security remains an integral part of applications in A&D and is a growing concern across applications in more and more industries, including communications, automotive, and IoT.
Finally, the once standard business model of software sold with hardware is no longer aligned with current customer requirements, which demand more engineers to access the software across the different phases of product lifecycle. In today’s changing landscape, vendors are now moving to offer end-to-end visibility through software to facilitate transitions and data sharing between phases.
To succeed and get the most out of this new business model, therefore, vendors must be bold and proactive about innovating wisely and complementing their value proposition by leveraging strategic acquisitions.
Strategy Innovation and Customer Impact
Keysight’s Background & Performance
Founded nearly a century ago and distinguished by its Hewlett Packard and Agilent legacy, Keysight Technologies (Keysight) has grown into the world's leading electronic measurement company and today enjoys a dominant position in the traditional instrumentation space and a growing presence in modular instruments.
Keysight offers the industry’s most comprehensive hardware and software portfolio. Its software business encompasses integrated, programmable, and turnkey solutions. A customer base that spans industries including communications, A&D, automotive, industrial, and education comprised of companies of various sizes—is central to the company’s consistently profitable performance.
Keysight’s performance in 2017, in fact, witnessed year-to-date (YTD) growth of revenue by 7% and orders by 11%, and it continues to dominate the market for T&M software. One major success in 2017 (April) was Keysight’s acquisition of IXIA, which it positioned as a separate business unit named IXIA Solutions Group (ISG).
ISG contributed $120 million in the third quarter of 2017 with 6 active joint projects. Previously, the acquisition of Anite in 2015 enabled Keysight to achieve double-digit growth for its software business in 2016 and considerably expanded its presence in Europe, particularly so in the United Kingdom.
As market leader in the T&M software space, Keysight accounted for approximately 23% of the global market revenue in 2016. Its performance in 2017 surpasses 2016 achievements, and the company is well situated to maintain its leadership position going forward.
Growth Strategy
Empowered by nearly a century of success in the T&M industry, Keysight delivers solutions that provide flexibility, ease of use, and security at optimum pricing. With its proactive inorganic growth approach, the company is considerably ahead of competitors in terms of industry-leading technology and holds several patents for its innovations.
Keysight earned its credentials in T&M solutions by aptly addressing the physical layer and is focused on expanding into the networking stack. With innovations in communication network design happening in the higher levels of the protocol stack, Keysight is focused on extending its expertise through the entire protocol stack (layers 1–7).
In fact, its keen focus on acquiring companies to capitalize on the growing opportunities in the 5G space means Keysight is shifting from a product-centric hardware company to a software-centric solutions leader.
Although the company has a long history of successfully selling its software in conjunction with hardware, its deep understanding of where theindustry is headed has led it to reposition the software independent of the hardware. For example, ThinkRF, a leader in software defined signal analyzers, uses Keysight’s vector signal analyzer (VSA) software, which is industry standard, in conjunction with third-party hardware.
Strategy Effectiveness
Keysight had been offering traditional bench as well as PXI-based modular and portable instruments with software. However, changing customer requirements have driven a shift in strategy in recent years.
As part of its growth strategy, Keysight is addressing customer needs along the product lifecycle by taking an end-to-end approach that encompasses design, prototyping, prototype verification, system-level validation, manufacturing, and optimization.
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