Anritsu Corp (TYO:6754)

TOP CONTRIBUTORS

Naveen Kasthuri

Anritsu Corp (TYO: 6754) is a Japan-based manufacturer with four business divisions. The Measurement Equipment division manufactures and sells measurement equipment for digital communications. The Information Communication division offers network equipment, image distributing systems and public information systems. The Industrial Machinery division provides automated electronic measurement equipment, automated weight sorters and foreign substance detectors. The Service and Others division is engaged in the distribution business, the provision of welfare services, the leasing of real estate, the manufacture of components, the supply of optical devices and precision measuring equipment, as well as the human resources and accounting-related clerical business.^[1]

Business Growth

Due to the 2008 Financial Crisis, Anritsu has shrunk from having ¥100b in revenues in 2008 to having ¥77.85b in revenues in 2010. In addition to lower demand, competition from JDS Uniphase (JDSU). Agilent Technologies (A), and National Instruments (NATI) is reducing margins and removing market share. However, despite the shrinkage in revenues, Anritsu's cost cutting efforts have improved net income from a loss of ¥3.89b in 2008 to a profit of ¥3.07b in 2010.^[2]

Key Trends and Forces

Optical communications industry under pressure to provide broader array of digital services

In order to cater to growing demand for capacity and combination of services, network operators are migrating to Internet protocol networks to deliver triple-play services and lower costs. Optical networks also need increased agility to handle new, bandwidth-intensive applications as there may be sudden large changes in demand anywhere in the network. This leads to increasingly complex routers, switches, and cross-connect equipment. In order to support optical networks' needs, Anritsu needs to continuously innovate to create products that cost less, have more functionality, require less power and space.

Industry Maturation and Macroeconomic Slowdowns

Overall, this diversified business model is expected to net gains, and is expected act as a buffer against economic slowdowns or changes in customer industries. However, the test and measurement industry is relatively mature, with greater than 90% penetration in many of its market segments.^[3] Its growth will probably derive mainly from the growth of its end markets, estimated to be 6.5% per year in the long term.^[3] While Anritsu's diversified model will help the company weather any moderate economic slowdowns, it, like many other companies in any industry, would feel the effects of a significant economic slowdown.

Competition

Anritsu's main competitors are:

• JDS Uniphase (JDSU)
• Agilent Technologies (A)
• National Instruments (NATI)

The competition in the test and measurement industry is reducing margins and hurting Anritsu's market share. In addition to the three companies above that focus on this segment, other competitors with divisions in the test and measurement industry also hurt Anritsu's competitive position:

• EXFO Electro-Optical Engineering (EXFO)
• Spirent Communications (SPM)
• Aeroflex Holding (ARX)
• Keithley Instruments (KEI)
• LeCroy (LCRY)
• Veeco Instruments (VECO)
• Photon Dynamics (PHTN)

References

1. ↑ Reuters: Company Profile - 6754.T
2. ↑ Reuters: Anritsu Financial Statements
3. ↑ ^{3.0 3.1} Dr. Rajender Thusu, Team Leader-Sensors Measurement & Instrumentation Practice, Frost & Sullivan -- Test & Measurement World, 8/1/2010