|Shares Out. (in M):||16||P/E||7.2x||5.7x|
|Market Cap (in $M):||135||P/FCF||0.0x||0.0x|
|Net Debt (in $M):||24||EBIT||0||0|
LeCroy Corp. is a test and measurement company that offers high-performance digital oscilloscopes and communication protocol analyzers. The oscilloscopes are tools used by designers and engineers to measure and analyze complex electronic signals in order to develop high-performance systems, validate electronic designs and improve time to market. Engineers use oscilloscopes on a broad spectrum of products from smartphone development to new router design. LeCroy offers seven families of oscilloscopes, which provide different solutions depending on the specific industry requirements. Digital oscilloscopes are ~85% of sales.
LeCroy’s protocol analyzers are used by designers and engineers to reliably and accurately monitor communications traffic and diagnose operational problems in a variety of communication devices to ensure that they comply with industry standards. Protocol analyzers are ~15% of sales.
LeCroy sells products into industry sectors that are developing products, which rely on increasingly complex electronic signals to provide the features and performance their customers require. These industries include the following: Computers/IT/Consumer, Automotive/Industrial, Data Storage, Defense and Aerospace and Telecommunications. LeCroy’s geographical revenue distribution is ~ 1/3rd US, Europe and Asia.
Industry & Products
Test and Measurement equipment is used in all aspects in the design, development and production of electronic products and systems. The equipment verifies the functionality and performance of new product designs to guarantee product quality and confirm compliance to industry standards. In a study from Prime Data, Inc. an independent research firm tracking the Test and Measurement industry; the market for this equipment was ~$5.9B in 2009. Growth in the Test and Measurement industry is driven by technological improvements in electronic systems performance, growth in the electronics sector and emerging technologies and standards. Designers are constantly required to upgrade and increase the performance of their products via new features and capabilities. The improvements are achieved through advanced semiconductor technology and require the design of faster, more powerful and complex electronic systems. The demand for analysis tools that allow designers and manufacturers to improve these products is being driven by the proliferation of digital media and LeCroy is happy to assist through their suite of digital oscilloscopes.
Oscilloscopes are among several instrument types used by engineers for testing and analyzing electronic signals. An oscilloscope utilizes a graphical display device that allows an engineer to view and electronic signal. The most basic display of an oscilloscope plots a signal’s voltage vs. time (typically in billionths and trillionths of a second) providing the designer/engineer insight into the performance of an electronic circuit.
The three primary specifications of an oscilloscope are its bandwidth, sample rate and memory length. Higher bandwidths capture higher speed signals, increased sample rate improves resolution and longer memory allows capture of longer, more complex signals. The pricing for oscilloscopes is based on bandwidth levels and required specifications. Real-time oscilloscopes with bandwidths ranging from 20 MHz up to 32 GHz are available. Oscilloscopes fall into five major categories.
Protocol Analyzers are “standard specific” tools; they enable a design engineer to analyze the “conversation” between two devices which employ the specific standard. The characteristics of each standard, including its principal uses, physical medium, transmission speed and distance covered, vary greatly. Many distinct communication standards are emerging to meet the growing demand for digital connectivity in the industries that LeCroy serves. LeCroy’s protocol analyzers are used by semiconductor, device, system and software companies at each phase of their products’ lifecycles. LeCroy’s protocol analyzer business is a good cash generator with a continuous eye on developing lower cost products to fend off competition.
LeCroy products are used by electronic designers and engineers principally in the research and development process of new products. These end users use oscilloscopes and other test and measurement tools to validate the performance of electronic designs and components.
LeCroy’s three major competitors are Agilent Technologies, Danaher (acquired Tektronix 11/23/07) and Rhode & Schwarz, a private German company.
Based management’s guidance on August 16, 2011 of $1.15 on the low end would result in a price of $13.80 for LeCroy. This multiple is well below LeCroy’s growth rate, but given the market carnage a multiple haircut is reasonable. LeCroy’s EPS growth improved balance sheet, increased market share and favorable macro trends for digital are all factors deserving of a reasonable EPS multiple. In the event of a takeover, which is reasonable (see DHR acquisition of TEK ~16x EBITDA) a price for LCRY in the $18-$20 range is feasible.