Instruments for Measuring and Testing of Electricity and Electrical Signals

SIC 3825

Companies in this industry

Industry report:

This industry is made up of companies that manufacture a multitude of analytical devices. Examples of industry output include voltmeters, ammeters, wattmeters, watt-hour meters, semiconductor test equipment, and circuit testers. Establishments that produce monitoring and testing equipment for navigational, radar, and sonar systems are described in SIC 3812: Search, Detection, Navigation, Guidance, Aeronautical, and Nautical Systems and Instruments.

Industry Snapshot

Manufacturers of instruments to measure electricity saw total revenues of more than $9.6 billion in 2009, according to Dun & Bradstreet's (D&B) Industry Reports. About 2,190 establishments employed 46,300 workers in the industry, with larger firms (those employing more than 250 people) accounting for more than 65 percent of total industry sales. Semiconductor test equipment accounted for the largest percentage of sales. Almost a quarter of the companies in the industry were located in California due to the large defense, semiconductor, and telecommunications industries there. Other top-employing states included Washington, Massachusetts, and Texas. California also accounted for more than 60 percent of industry revenues, with $5.8 billion in 2009 sales. Massachusetts was a distant second, with $1.3 billion in revenues, followed by Oregon ($383.7 million), New York ($365.2 million), and Ohio ($201.5 million).

Organization and Structure

The electrical testing and measuring (T&M) instruments industry encompassed eight major product groups. Automated test equipment (ATE), the largest industry segment, includes T&M instruments for semiconductors, printed circuit boards (PCBs), and computer disk drives. Communications test equipment, the second-ranked product group, includes T&M devices for landline, wireless, and fiber-optic communications gear.

Other major industry categories include signal generators, electrical integrating instruments, multimeters, oscilloscopes, and spectrum analyzers. Each of these product groups is comprised of many different devices. In addition, more than half of industry revenues are garnered from a wide range of miscellaneous T&M instruments, such as tube testers, impedance measurers, frequency meters, battery testers, stroboscopes, tachometers, reflectometers, ammeters, and ohmmeters.

Ohmmeters, a common and traditional product of the industry, are used to measure the amount of electrical resistance in a circuit. Likewise, watt-hour meters are most often used to measure the amount of power that is used by a utility customer and are mounted on an outside wall of most homes and buildings. Potentiometers are used to precisely measure direct current or voltage, as are voltmeters and ammeters. The galvanometer, another indicating instrument, indicates extremely small currents. Reflectometers measure the amount of light or energy reflected from a surface. An oscilloscope converts electron motion into a visual display on a cathode-ray tube.

Background and Development

In 1833, Englishman Carl Friedrich Gauss was the first to show that magnetic quantities could be measured in terms of mechanical units. Wilhelm Weber, also of England, defined a system of electrical units in 1851 that foreshadowed the development of the ohm (1864), a measure of electrical resistance. The ampere, a unit used to measure electrical current, soon followed. The United States made the ohm and ampere legal units of electrical measurement in 1894.

Early measuring devices were functional, though generally unreliable for precise readings. The earliest device that would deliver a standard for voltage (electromotive force) for measuring instruments was built in 1836 and was reproducible only to about one percent accuracy. The Clark Cell of 1872, which was used to establish a standard voltage measurement, also proved unreliable. The Weston Cell, introduced in 1892, became the first device to successfully provide a standard for electrical measuring.

Following the development of electrical units and credible standards, numerous electricity measuring devices emerged during the early 1900s. Among the first devices were instruments used to measure electrical resistance, such as ohmmeters. In addition, power meters, or wattmeters, became industry mainstays. One of the largest classes of early devices was indicating instruments, such as voltmeters and ammeters.

Many of the first indicating instruments were iron-vane devices, which utilized a plate of steel, a spring pointer, and a damper to form the vane, or moving elements of the meter. As electricity passed through a magnetic coil, the vane tipped to provide a reading. These rugged instruments remained the primary indicating devices for much of the twentieth century, despite the development of more advanced meters. Electrodynamic instruments, which were much more precise than iron-vane mechanisms, were also developed in the early part of the twentieth century. These indicating instruments utilized two sets of coils and became popular for laboratory applications.

The development of the transistor in 1947 by Bell Telephone Laboratories led to the introduction of a profusion of extremely accurate electrical T&M equipment during the latter half of the century. Tube-type and electromechanical instruments were soon replaced by devices accurate to within one-millionth of a unit. As the number of applications for solid-state electronics ballooned, the demand for various T&M equipment flourished throughout the 1950s, 1960s, and 1970s.

By the end of the 1970s, electrical T&M equipment manufacturers were shipping about $6 billion worth of goods per year. Although industry growth decelerated during the previous decade, shipments continued to increase and U.S. manufacturers maintained a significant technological lead over their global counterparts. In 1982, the industry had sales of $6.1 billion and a workforce of 90,000 employees.

As the T&M industry recovered from a major recession in the late 1970s and early 1980s, revenues jumped to $6.5 billion in 1983 and to $7.8 billion a year later. Increased defense spending, growth in telecommunications, and a general proliferation in computers and other electronic devices also contributed to growth. In 1986, total sales fell 10 percent from the previous year, from $7.7 billion to $6.9 billion. Then, in 1987, the industry recovered, generating sales of $7.7 billion.

In an effort to maintain profitability, U.S. T&M instrument companies initiated aggressive productivity programs during the 1980s and focused on research and development efforts in high-tech fields. As a result, industry employment dropped to 81,000 by 1989 and to 63,000 by 1997. Still, the United States retained its significant technological lead in high-profit T&M devices, such as ATE and telecommunications testing equipment.

In addition to healthy demand, producers enjoyed the benefits of massive productivity gains achieved during the 1980s and 1990s. Despite shipment growth, industry employment continued to decline. Improved efficiency allowed some domestic producers to compete in markets for low-priced, traditional equipment. At the same time, however, many companies were striving to move their low-tech production facilities overseas.

Exports also raised the profit margin, as foreign demand for price-competitive, high-tech equipment rose. Overseas shipments were up four percent in 1993, 11 percent in 1994, 23 percent in 1995, and 17 percent in 1996. At the same time, import growth was significantly lower than exports from 1993 through 1996 as U.S. firms pelted their competition with efficiency gains and advanced product introductions. In 1996, the United States had a healthy surplus of $2.6 billion.

Many analysts were surprised at the impressive performance of this industry in the early 1990s, particularly because of drastically reduced spending in the defense sector and the recession. But sales of advanced T&M devices were rising fast enough to make up for slower traditional markets. Shipments of digital oscilloscopes and multimeters that were priced to compete with similar analog devices, for instance, offered significant profit opportunities. Likewise, new products related to wireless communications displayed excellent growth.

ATE was the fastest-growing sector of the electrical T&M device industry in the 1990s. After ceding market share to Japanese semiconductor manufacturers in the previous decade, U.S. chip producers turned the tables by dominating the market for a new generation of high-speed semiconductors (called application specific integrated circuits). T&M device makers benefited as U.S. semiconductor shipments from the top four semiconductor companies alone (Intel, NEC, Motorola, Texas Instruments) totaled $47.3 billion in 1997. All this semiconductor production required increased ATE production.

Industry shipment values spiked considerably in 2000, climbing from $14.1 billion in 1999 to $16.1 billion. Capital investment in the industry also increased. Averaging $659.0 million during the late 1990s, capital expenditures jumped from $662.8 million in 1999 to $781.5 million in 2000. In the late 1990s and early 2000s, the majority of the industry's capital investment (70 percent in 2000) went toward machinery and equipment, with the remainder going to buildings and other structures.

Unlike the noteworthy growth experienced in 2000, the industry declined in 2001 in the wake of negative economic conditions that rippled through many U.S. industries. Declines were seen in a number of key industry sectors. Electrical test equipment shipment values, which were $14.0 billion in 2000, fell to $10.6 billion in 2001. Values for coils, transformers, reactors, and chokes for electronic applications--which averaged $1.4 billion during the late 1990s--spiked to $1.7 billion in 2000 and fell to about $1.3 billion in 2001. At the same time, testing equipment was getting much more complicated and costly.

In addition, the industry was affected by declines in key end markets like telecommunications equipment and semiconductors. In 2000, the semiconductor industry achieved a record year, as sales reached $204 billion. However, the following year, sales plummeted to $139 billion. In the February 4, 2003, issue of Electronic News, IC Insights president Bill McClean analyzed what factors contributed to these difficult conditions. As the publication explained, "For the first time ever the semiconductor industry found itself simultaneously facing each of the four major causes of a downturn: global recession, inventory surplus, overcapacity issues and a decline in electronic systems sales." The semiconductor industry's recovery began in the last quarter of 2001.

In its July 15, 2002, issue, Electronic News explained how a downturn in the market for nonmemory semiconductors (IC) affected the automatic testing equipment (ATE) sector in the early 2000s. The publication reported that when sales of ICs rose approximately 33 percent from 1999 to 2000, related ATE sales jumped 74 percent. However, when IC sales fell 30 percent the following year, ATE revenues slipped somewhere in the neighborhood of 66 percent.

Revenues continued to decline during the early 2000s. Total shipment values fell from $16.0 billion in 2000 to $12.6 billion in 2001 and to $10.1 billion in 2002. Shipment values fell slightly during 2003 to $10.0 billion. Improvement was seen during 2004 as the overall economy recovered, with strong sales in the computer and cell phone markets. For example, Teradyne Inc., an industry leader, reported a 25 percent increase year-on-year in total revenues from $1.35 billion in 2003 to $1.79 billion in 2003. However, this total was still well below revenues of $3.04 billion reported in 2000. After posting net losses each year from 2001 to 2003, Teradyne once again reported a net profit in 2004 of $165.2 million (still down, however, from $453.6 million in 2000). Similarly, another industry leader, Agilent, increased revenues by 19 percent during 2004 and went from a net loss of $121 million in 2003 to a net income of $529 million.

In the mid-2000s, the future of the measuring and testing industry was dependent on continuing growth in its core business sectors, such as telecommunications and computers. The largest market segment of the instrument manufacturing for measuring and testing electricity and electrical signals industry was test equipment for electrical/radio/communication circuits/motors at 83.6 percent in 2006, when the gross profit was approximately 35 percent. Meanwhile, the gross profit for the electronic coil, transformer, and other inductor manufacturing industry was approximately 24 percent.

Exports accounted for a majority of the revenue of $12 billion for the instrument manufacturing for measuring and testing electricity and electrical signals industry in 2006, with $7.8 billion in merchandise exported to 201 countries. Exports for electronic coils, transformers, and other inductors to 130 countries totaled more than $618 million in 2006.

While nervous investors were concerned about the short-term future of the semiconductor market, the testing industry also dealt with rising costs. "Highly integrated IC devices like systems-on-a-chip (SoCs) are seeing pin counts balloon, creating untold complexity issues," Electronic Design noted in January 2005. "As a result, it's becoming harder for automatic-test-equipment (ATE) systems to boost performance levels at lower costs per pin tested....Capital cost for high-performance ATE systems keep climbing as more pins are added to a system." Although the industry kept up, advances in design and wider spread usage of ICs pushed the ATE industry to provide technologically advanced testing.

Toward that end, Nextest Systems Corp. introduced two new semiconductor ATE systems in late 2005. Nextest's Magnum EV desktop test system let users run and correlate test programs without an expensive production system. Another system, dubbed the Lightning SST, met the test requirements of cost-sensitive devices such as those in consumer digital appliances. Lightning delivered the resources to test system-on-chip and system-in-package technologies. According to Nextest, the Lightning kept test costs low by providing the capabilities of larger, more expensive analog testers on a single circuit board. In 2006, Intersil created a quad pin-electronics driver/window comparator with twice the drive capability of competitive devices. Such innovations aided the industry's rebound from its sluggish period in the early 2000s.

Current Conditions

The industry suffered from the economic recession of the late 2000s, as companies reduced their investment in electrical testing. According to Test & Measurement World in April 2010, these observations were borne out by figures from industry leaders. For example, Agilent's semiconductor and board test group saw revenue declines of 63 percent, 59 percent, and 43 percent, respectively, in the last three quarters of fiscal year 2009 and indicated that orders from Asia for in-circuit board testers were down in the first quarter of 2009. Declines in the industry in 2009, however, were not as severe as those in 2008, and industry experts were looking for a recovery as the first year of the twenty-first century's second decade neared a close. Factors driving future industry growth included increased production and the increased complexity of printed circuit boards (PCBs).

According to a 2010 article in CircuiTree, ATE systems were becoming more complicated due to expanding technology. According to the article, "the trend toward fitting more functionality into smaller boxes leads to both miniaturization and greater complexity of printed circuit board (PCB) designs. This, combined with shorter product lifecycles, is now making [choosing an ATE system] tougher than ever before." In response, manufacturers strove to increase usability and throughput.

Industry Leaders

In 2010, the industry's leading firms were Agilent Technologies Inc. of Santa Clara, California; KLA-Tencor Corp., of Milpitas, California; Teradyne Inc., of North Reading, Massachusetts; and Tektronix Inc. of Beaverton, Oregon.

Agilent Technologies is a leading manufacturer of electronic test and measurement equipment, including basic and general purpose instruments, as well as ATE. The company is an established global enterprise, earning almost two-thirds of its revenues outside of the United States and serving some 25,000 clients. By 2009, Agilent had annual revenues of $4.4 billion with 16,800 employees. The company was the result of a 1999 spin-off from Hewlett-Packard (HP).

HP was founded in 1938 by William Hewlett and David Packard, graduates of Stanford University's electrical engineering program. With $538 in startup funds, the two entrepreneurs developed an audio-testing oscillator that was used by one of their first customers, Walt Disney, for the film classic Fantasia. HP realized steady growth during and after World War II by developing and selling various electrical T&M equipment. The company's first major breakthrough was the HP-524A. Introduced in 1951, this device reduced the time required to measure radio frequencies from 10 minutes to about 2 seconds.

KLA-Tencor was formed by the 1997 merger of KLA Instruments and Tencor Instruments (both founded in 1976). As one of the world's largest makers of semiconductor equipment, KLA-Tencor had $1.8 billion in revenues and 5,000 employees in 2009. About three-quarters of its revenues come from outside the United States.

Teradyne Inc. led the industry in semiconductor testing equipment in 2010. The company employed 2,900 people in 2009, down from 6,200 in 2004. Founded in 1960 by Alex d'Arbeloff and Nick DeWolf, Teradyne produced its first product, the D133 diode tester, in 1961. In 1999 it introduced the AWG2400 10-bit Waveform Generator, claimed to be the highest arbitrary waveform generator in the ATE industry. About 75 percent of Teradyne's $819.4 million in revenues in 2009 came from outside the United States.

Tektronix Inc. is a leader in the production of instruments to measure electricity. Known as Tek, the firm is the world's leading producer of oscilloscopes. Tektronix employed 4,763 employees in 2009, down from 7,600 in 1999. The company earns more than half of its revenues from the United States. Other leading markets include Europe and Asia. Founded in 1946, Tektronix developed the first triggered oscilloscope. By the 2000s, the firm focused on three main markets: communications, computers, and semiconductors. Danaher Corp. purchased the company for about $2.85 billion in 2007.

Workforce

In 1982, about 90,000 workers were employed in the industry. By 2009, the number of employees had fallen to about 46,380, according to figures from Dun & Bradstreet.

America and the World

U.S. electrical T&M device manufacturers are the most technologically advanced in the world, as evidenced by their strong trade surplus. Their primary competitive advantage is their ability to develop and manufacture high-tech, high-profit devices, such as ATE and telecommunications instruments. In contrast, many firms have licensed their low-end technology to countries such as China and India, where production costs are lower than in the United States. However, by 2010, some high-tech segments of the industry, such as makers of PCB automated test equipment, were seeing significant movement from North America to Asia.

In 2009, the United States exported $5.7 billion worth of products to 191 countries in this industry, equal to about 40 percent of total production. Imports were worth approximately $3.9 billion and were shipped from 129 countries.

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