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TEST-EQUIPMENT MARKET RE-INVENTS ITSELF

While the growth of the communications industry has created a great demand for test equipment, the changes to that industry have forced test-equipment manufacturers to reinvent themselves so they can meet that demand.

“Our expectation (is) that strong worldwide demand for wireless and wireline telecommunications products and services should drive growth in the deployment (and) upgrade of networks, which require testing,” read a recent Moody’s Investors Service report.

However, the rapid adoption of digital systems has created a vacuum of testing-equipment products that manufacturers are scrambling to fill.

“The underlying momentum is there,” said Cyrille R. Conseil, senior analyst, for Moody’s speculative grade ratings group. “The question remains, who rides the wave? Is there a business for everybody?”

Wireless operators are in fierce competition for customers. Dropped calls, poor voice quality and other factors may induce subscribers to switch providers. These players hope to attract and keep customers by optimizing their networks to provide the best quality of service at the lowest possible price.

Because there are few engineers entering the field with sufficient experience with these new digital technologies, test equipment also must have the ability to perform more functions than may have been necessary in the past.

“There is a shortage of trained, knowledgeable RF engineers in the marketplace, so test equipment has to become smarter and smarter,” said Bob Barnhill, chairman and chief executive officer of Tessco Technologies Inc.

As such, test-equipment manufacturers are under pressure to deliver more accurate solutions to meet these rising performance expectations at a lower cost.

Complicating matters is that digital networks use different types of technologies, such as Global System for Mobile communications, Code Division Multiple Access, Time Division Multiple Access and so on.

In response, test-equipment manufacturers have taken to building application-specific testers. This is a far cry from the old way of doing things, where one device pretty much did it all. Back then, players in the test-equipment game made similar devices and competed on price. It was a highly fragmented industry with many smaller companies. But the move to an application-specific paradigm has the test-equipment market redefining itself.

“People want solutions rather than tools,” Barnhill said. “The old world was, I gave you a tool and you had to figure out how to use it.” Now the industry is “going to market more specific applications.”

“Everyone has given up on the general-purpose tester,” agreed Malcolm Oliphant, sales support manager for test equipment manufacturer IFR Systems Inc.

This new paradigm creates several challenges for test-equipment manufacturers. First, it requires more work. “It’s easier to develop a tool than to come up with a solution package,” Barnhill said. “They now have to anticipate what needs to be tested and how.”

Second, because networks are constantly evolving and converging, manufacturers have to churn out products quickly, in greater numbers, at a lower price.

Like any other industry, larger test-equipment manufacturers have the facilities to create products for several types of networks and technologies, while smaller companies aim to meet the needs of a certain portion of the market.

This has led to the changing face of the testing industry-from a field of many companies offering the same products and competing solely on price to a field of manufacturers specializing in niche products based on technology.

Consolidation

However, this move to product specialization creates problems of its own.

“The new challenge for the test-equipment manufacturers is to reduce the time it takes to test and evaluate new protocols,” Oliphant said. A number of test-equipment manufacturers lack the necessary finances, facilities or personnel to meet these highly specialized needs. According to Oliphant, manpower alone is a significant problem because there is a shortage of engineers in the test-equipment business.

“Test equipment is not sexy like phones are,” he said. “You go home and have nothing to talk about at cocktail parties.”

So the industry has embarked on a path of consolidation. Many companies are joining forces so they have the necessary manpower, facilities and cash to make products quickly and cheaply.

“You’re going to find more combinations that are going to give them the core competencies they need,” Barnhill said.

Another reason for consolidation is to combine several smaller companies of differing focuses into one, to offer a broader portfolio of products.

“Companies will continue to look for niche market acquisitions,” said Conseil. “That will allow them to get into another niche that they don’t already have.”

IFR recently doubled its size when it bought Marconi Instruments Ltd. of Hertfordshire, England, and Marconi Instruments Inc. of Dallas from General Electric Co. plc of London. Marconi also is a digital test-and-measurement equipment manufacturer.

Wandel & Goltermann Management Holding GmbH of Eningen, Germany, recently combined with Wavetek Corp. of San Diego. Wandel & Goltermann specializes in testing telecommunications and data communications equipment, while Wavetek specializes in cable TV and wireless communications testing.

Oliphant said this type of coupling will become increasingly common as networks continue to converge.

“If you look at all these (mergers), it’s an RF company buying or merging with a wireline,” he said. “All networks, both public and private, are becoming converged networks.”

Subsidies

But Oliphant said he believes mergers alone will not be sufficient to meet the industries financial needs. Eventually, he said he thinks the carriers themselves will have to start subsidizing test-equipment manufacturers to get what they want.

Carriers are committing to a particular type of proprietary technology that they want to see survive. That technology will require test equipment. Oliphant said carriers do not want to get involved in the test-equipment market. The skills required are too specialized for carriers to begin developing their own test divisions. Therefore, it is cheaper for them to give the necessary financial assistance to test-equipment manufacturers needed to get the job done. This way, the carrier, by subsidizing the test process, maintains control over its proprietary technology and also gets the product to market quicker.

“Everyone will reap the rewards. Everyone will get exactly what he needs, when he needs it.” Oliphant said. “It’s a win-win for everybody.”

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