LeCroy®, Wavelink™, WaveMaster®, WavePro®, WaveJet®, WaveRunner®, WaveScan™, WaveSurfer™, WaveExpert™, MAUI™, and CATC™ are our trademarks, among others not referenced in this document. All other trademarks or servicemarks referred to in this Annual Report on Form 10-K are the property of their respective owners.
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Certain information included in or incorporated by reference in this report, in press releases, written statements or other documents filed with or furnished to the SEC, or in our communications and discussions through webcasts, phone calls, conference calls and other presentations and meetings, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements generally are identified by the words “believe,” “project,” “expect,” “anticipate,” “estimate,” “intend,” “strategy,” “plan,” “future” “may,” “should,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions.
Any such forward-looking statements are not guarantees of future performance and actual results, developments and business decisions may differ materially from those envisaged by such forward-looking statements. These forward-looking statements speak only as of the date of the report, press release, statement, document, webcast, or oral discussion in which they were made. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise. A detailed discussion of these and other risks and uncertainties that could cause actual results and events to differ materially from such forward-looking statements is included in the section entitled “Risk Factors” (refer to Part I, Item 1A).
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PART I
Our Company
LeCroy Corporation (the “Company,” “LeCroy,” “us,” “we” or “our”) was founded in 1964 and is incorporated in the State of Delaware. Our principal executive offices and manufacturing facilities are located at 700 Chestnut Ridge Road, Chestnut Ridge, New York 10977 and our telephone number is (845) 425-2000. Our website is located at www.lecroy.com. We sell our products and provide service worldwide through direct sales, including our wholly-owned subsidiaries, manufacturers’ representatives, telesales and distributors.
We develop, manufacture, sell and license high-performance oscilloscopes and global communication protocol analyzers. Our 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. We offer six families of oscilloscopes, which address different solutions for the markets we serve: WaveExpert, our line of Sampling Oscilloscopes; WaveMaster, one of our high performance product families; WavePro, which is targeted at the mid- to high-performance sector; WaveRunner, designed for the mid-performance sector; WaveSurfer, designed for value-oriented users in the low-performance bandwidth sector of the market; and WaveJet, our entry-level oscilloscope products. Our protocol analyzers are used to reliably and accurately monitor communications traffic and diagnose operational problems in a variety of communications devices to ensure that they comply with industry standards. The protocol analyzers are used by designers and engineers whose products are in development and production and also for products deployed in the field.
We generate revenue in a single segment within the Test and Measurement market, primarily from the sale of our oscilloscopes, protocol analyzers, probes, accessories, and applications solutions. To a lesser extent, we also generate revenue from the sales of our extended warranty contracts, maintenance contracts and repairs and calibrations on our instruments after their warranties expire. We sell our products into a broad range of end markets, including Computer/Semiconductor/Consumer Electronics, Data Storage, Automotive/Industrial, and Military/Aerospace. We believe designers in all of these markets are developing products which rely on increasingly complex electronic signals to provide the features and performance their customers require.
Test and Measurement Market
Test and Measurement equipment is used in the design, development, manufacture, deployment and operation of electronic products and systems. This equipment is required to verify functionality and performance of new product designs and to ensure compliance to industry standards and overall product quality. These instruments are used across all electronic equipment industries, including computer, semiconductor, communications, consumer, automotive, defense, and video. In addition, Test and Measurement instruments are utilized to install, maintain and monitor wireless and wire-line communications and broadcast networks. This Test and Measurement equipment aids in the research and development of new products, testing of products in production, and maintenance and service of products in the field.
According to Prime Data, Inc., an independent market research firm tracking the Test and Measurement industry, the market for this equipment exceeded $8.0 billion in 2007. Certain segments of the Test and Measurement industry have historically experienced greater volatility than the overall industry because of their exposure to certain end markets, such as communications, that experienced rapid growth in the late 1990s, followed by rapid declines.
Growth in the Test and Measurement market is driven by improvements in electronic systems performance, growth in the electronics market and emerging technologies and standards. Designers in a wide variety of industries are being constantly driven to increase the performance of their products and to add new features and capabilities. These improvements rely on advanced semiconductor technology and require the design of faster, more powerful and complex electronic systems. As a result, the underlying technological advances in communications and electronic signals are increasing exponentially in complexity and speed. This is driving the demand for analysis
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tools that allow designers and manufacturers of these devices to improve new product cycle time. With each advance in technology, engineers designing next generation technologies and products must contend with both a reduced margin for error and a progressively more difficult task of fully characterizing new product design.
While the overall market for test and measurement equipment is made up of hundreds of different types of instruments and measurement tools, one of the largest single product categories is oscilloscopes. We estimate that oscilloscopes represented approximately $1.2 billion of the overall $8.0 billion market in 2007 and protocol analyzers, inclusive of versions for wireless, represented approximately $800 million. Protocol analyzers address specific communications standards in the wide area network (WAN), local area network (LAN), storage area network (SAN), computer peripheral interconnect market spaces and wireless networks and systems. LeCroy presently focuses on the storage area network and computer peripheral interconnect space. We believe the potential total available market for the Company’s protocol analyzers lies in the $100 million range of the total protocol analyzer product category.
Oscilloscope Product Category
Oscilloscopes are the primary instrument used by engineers for testing and analyzing electronic signals. Historically, oscilloscope products within the Test and Measurement industry have experienced less volatility than the industry as a whole because of their widespread use across many applications and end markets. Thorough testing of complex electronic signals requires a measurement tool capable of physically attaching to the signal of interest, capturing data with high resolution for long periods of time and supporting detailed signal analysis while providing additional insight into data characteristics and signal trends over time. An oscilloscope utilizes a graphical display device that allows an engineer to view an electronic signal. The most basic display of an oscilloscope plots a signal’s voltage versus time (typically in billionths and trillionths of a second), providing a user insight into the performance of an electronic circuit. In many cases, a user is trying to either verify that the circuit is behaving as designed or measure the signal to gain a basic understanding of signal performance.
Today’s oscilloscopes are digital devices which capture electronic signals and convert the voltage values to digital representations, which are stored in computer memory, allowing the instrument not only to display the signal on a screen, but also to utilize a computer to analyze the signal’s characteristics. The ability of an oscilloscope to conduct in-depth analysis of a complex electronic signal’s characteristics and trends is referred to as wave shape analysis, which is increasingly important as signals become more complex.
The three primary specifications of an oscilloscope are its bandwidth, capacity to capture a signal of a particular speed; sample rate, or number of data points that can be captured within a specific time, typically billions of samples per second in modern oscilloscopes; and memory length, or the number of data points that may be captured at one time. Higher bandwidths allow capture of higher speed signals, increased sample rate improves resolution, and longer memory allows capture of longer, more complex signals. The merit of a specific oscilloscope depends on the combination of these specifications. Real-time oscilloscopes with bandwidths ranging from 20 Megahertz (“MHz”) up to 20 Gigahertz (“GHz”) are currently available. Generally, the prices of oscilloscopes increase as the primary specifications increase. We believe the oscilloscope market can be generally divided into four major categories:
| • | High-end oscilloscopes. The largest part of the market, which we believe currently accounts for slightly more than half of the market based on revenues generated, comprises instruments with the ability to capture and analyze signals ranging from 300 MHz up to the highest available real-time bandwidths. These instruments generally sell from $4,000 up to over $100,000 depending on their capabilities. |
| • | Lower-end oscilloscopes. We believe about one-third of the market’s revenue comes from these products which include less complex instruments with the ability to capture and analyze signals ranging from 20 MHz to 300 MHz. These instruments generally sell for below $4,000. |
| • | Handheld oscilloscopes. This includes a variety of handheld oscilloscopes which we believe currently comprise less than 10% of the overall market. Selling prices for these handheld instruments are generally between $1,000 and $3,000. |
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| • | Sampling oscilloscopes. For certain high signal speed applications, such as optical communications, instruments with bandwidths of up to 100 GHz are required. At these speeds, real-time oscilloscopes do not have the ability to track the signal shape in real time and take samples quickly enough to be effective. We believe this category currently comprises less than 10% of the overall market, but because of their ability to provide extremely high bandwidths, sampling oscilloscopes can range in price generally from $28,000 to $90,000. |
Protocol Analyzer Product Category
The demand for digital information has accelerated the need for communication among multiple electronic devices in various markets, including computers, telecommunications, networking, storage, consumer electronics, aerospace, automotive, industrial automation and medical instrumentation. This growing demand centers on the widespread need to transmit digital information. Communication among digital devices, or connectivity, occurs over a variety of physical media, such as copper wire and fiber optic cable, as well as over wireless frequencies.
Computer technology initially provided connectivity only among internal devices, such as the processor, memory and storage, and with external peripheral devices, such as the keyboard, mouse and printer. Today, computer technology also enables connectivity among multiple computing devices and across networks, such as LAN, WAN, SAN, home area networks, personal area networks and the Internet. Telecommunications technology also enables connectivity among multiple devices, such as telephones, fax machines, pagers and personal digital assistants. Consumer electronics technology is progressively enabling connectivity among devices, such as Internet appliances, digital cameras, audio systems and televisions.
Digital devices communicate by sending electronic signals through a transmission channel according to a specified protocol. A protocol is a set of detailed rules that governs and regulates the manner in which the signals are sent, received, and interpreted. The channel and the protocol are both typically specified in a formal communications standard. For communication to be successful, each device must implement and conform to the same standard.
Early communications standards were relatively simple, typically involving low-speed communications between two simple devices connected directly by copper wire. Current standards are increasingly complex, typically involving high-speed communications among multiple sophisticated devices indirectly linked to other devices and across various physical media, including copper wire, fiber optic cables, and wireless technologies with rapidly fluctuating frequencies. As a result, standards that were specified initially in only a few pages of text may now extend to over one thousand pages. The specifications for these standards are broadly available, which facilitates interoperability of hardware and software products from different manufacturers.
A communication standard is typically introduced by several leading technology and infrastructure companies. These core promoter companies comprise the nucleus of independent standards groups. These groups are sometimes referred to as implementers’ forums, trade associations or special interest groups which assist in the development, implementation, promotion, and compliance with the standards. As commercial interest in a standard increases, the communications standards group typically expands to include system and device manufacturers and service providers. The promoter companies typically remain closely associated with the standard throughout its lifecycle.
A standard is implemented over a lifecycle that includes three overlapping phases: development, production and market deployment. During the development phase, key component manufacturers develop and produce important building blocks such as semiconductors, embedded software, protocol stacks and device drivers which will be used by others in the industry to create products. During the production phase, system and device manufacturers apply these building blocks to construct their unique products and applications. The market deployment phase includes the introduction and sale of products and applications to end users in the market. Similarly, products associated with a particular standard follow their own unique lifecycle from development through production and deployment.
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Protocol analyzers are “standard specific” tools; they enable a design engineer to analyze the “conversation” between two devices. Many distinct communications standards are emerging to meet the growing demand for digital connectivity in the Computer/Semiconductor/Consumer Electronics, Data Storage, Automotive/Industrial, and Military/Aerospace industries. The characteristics of each standard, including its principal uses, physical medium, transmission speed and distance covered, vary greatly. Examples of existing and emerging standards supported by our products in the computer peripheral interconnect and storage space include the following:
| • |
Bluetooth®. The Bluetooth standard, or Bluetooth wireless technology, enables low speed, wireless connectivity among computers, telecommunication devices, such as mobile telephones, and consumer electronics devices, such as personal digital assistants and headphones. Bluetooth was introduced in 1998. The promoter group consists of Agere, Ericsson, IBM, Intel, Microsoft, Motorola, Nokia and Toshiba. Bluetooth operates through radio waves with rapidly fluctuating frequencies at speeds of up to 1 million bits (megabits) per second, or Mbps, over distances of up to 100 meters. Bluetooth has recently been enhanced further with updates to the specification to improve the performance and usability of the interface. In March of 2006, the Bluetooth Special Interest Group announced a next generation high-speed Bluetooth wireless technology to be based on the WiMedia Ultra-Wideband platform. Collaboration between the WiMedia Alliance and the Bluetooth community should help define Bluetooth technology as a key personal area network technology for today and the future. |
| • | Fibre Channel. Fibre Channel enables reliable, cost-effective information storage and delivery at very high-speeds. Fibre Channel development started in 1988 and the American National Standards Institute (ANSI) standards body approved the first revision in 1994. Fibre Channel is designed to operate at speeds of 1, 2, 4, and 8 Gbps and gives users the option to develop storage networks with configuration choices at different price points, levels of scalability and availability. Fibre Channel is a layered protocol that supports additional storage or networking protocols such as SCSI (Small Computer System Interface), IP (Internet Protocol), VI (Virtual Interface), FcoE (Fibre channel over Ethernet) and ESCON (Enterprise System Connection), thus offering many choices for storage connectivity, cluster computing and network interconnect. |
| • | IEEE 1394. The IEEE 1394 standard, commonly known as 1394, FireWire or i.Link, enables high-speed connectivity among computers, peripheral devices and consumer electronic devices, including audio systems, television sets, digital cameras, video recorders, video players and game consoles. 1394a was introduced in 1987 and was ratified by the IEEE in 1995. The promoter group includes Apple, Canon, Hewlett-Packard, IBM, Intel, Microsoft, NEC, Philips, Sony, Sun Microsystems, Texas Instruments and Yamaha. 1394a enables connectivity through copper wire at speeds of up to 400 Mbps over distances of up to four and one-half meters. This speed increases to up to 3.2 Gbps over distances of up to 100 meters in the 1394b standard approved by the IEEE in April 2002. |
| • | InfiniBand. The InfiniBand standard enables high-speed connectivity inside computers and among computers and storage devices in complex storage area networks. InfiniBand was introduced in 1999 and is used largely in enterprise database, high performance computing (HPC) and storage applications. The promoter group consists of Dell, Hewlett-Packard, IBM, Intel, Qlogic, Cisco, Microsoft and Sun Microsystems. InfiniBand operates over copper wire and fiber optic cable at speeds of up to 10 Gbps per lane over distances of up to ten meters for copper wire and ten kilometers for fiber optic cable. |
| • | PCI Express. PCI Express is an emerging standard first introduced in 2002 and is intended to enhance the Peripheral Connect Interface (PCI) architecture spanning multiple computer market segments: clients (desktop and mobile), servers (standard and enterprise), embedded computers and communication devices. PCI Express provides system original equipment manufacturers, or OEMs, and peripheral developers the ability to realize product versatility and market differentiation without the burden of maintaining obsolete interfaces or losing compatibility. The promoter group consists of Hewlett-Packard, Dell, IBM, Intel and Microsoft. PCI Express runs at 2.5 Gbps per lane in each direction, providing a total bandwidth of 80 Gbps in a 16-lane configuration. The next generation of PCI Express, Generation 2 or Gen 2, runs at 5.0 Gbps per lane in each direction, providing a total bandwidth of 160 Gbps for a 16-lane configuration. The adoption of PCI Express Gen2 began in the first half of fiscal 2007. |
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| • | Serial ATA. The Serial ATA standard (SATA) enables high-speed, low-cost internal storage connections for desktops and mobile computers. Serial ATA was introduced in 2000 and has replaced Parallel ATA, the standard used to connect storage devices such as hard drives, DVD and CD drives to the motherboard. Serial ATA operates over copper wire at speeds up to 6 Gbps over distances of up to one meter. Broad based adoption of Serial ATA in the storage market has led to the use of SATA in new applications including server, networked storage and consumer electronics devices. |
| • | Serial Attached SCSI. Initiated in December 2001 by the Small Computer System Interface (SCSI) Trade Association, Serial Attached SCSI (SAS) was designed to be the logical evolution of SCSI to satisfy the data center requirements of scalability, performance, reliability and manageability, while leveraging a common low-cost electrical and physical connection interface from Serial ATA. SAS provides universal interconnect with Serial ATA, while offering logical SCSI compatibility along with the reliability, performance and manageability of parallel SCSI. SAS is positioned primarily for enterprise class storage applications. SAS allows each host to address up to 4,096 devices via expanders. SAS’s flexibility allows single or multiple lane communications with devices, with a 3 Gbps four lane wide connection providing 12 Gbps total throughput. The SAS-2 specification initiated in May of 2005 runs at 6.0 Gbps per lane in each direction, providing a total bandwidth of 24 Gbps. Early adopters began sampling 6.0 Gbps devices in the second half of fiscal 2007. |
| • | Universal Serial Bus. The Universal Serial Bus standard (USB) enables low, medium and high-speed connectivity between computers and peripheral devices, including keyboards, mice, printers, scanners, joysticks and cameras, using plug and play technology. In addition, it is becoming widely used as the replacement technology for proprietary cabling on medical and industrial control equipment. USB was introduced in 1995 and replaces the serial, parallel, mouse and keyboard ports. The specifications for the second version of USB, or USB 2.0, were released in April 2000. The promoter group for USB consists of Agere, Hewlett-Packard, Intel, Lucent, Microsoft, NEC and Philips. USB enables connectivity through copper wires at speeds of up to 480 Mbps over distances of up to five meters. Market research firm In-Stat forecasts that USB-enabled electronics device annual shipments will double from 1.4 billion in 2005 to 2.8 billion in 2010. |
| • | Wireless USB. Certified Wireless USB is the wireless extension to USB that combines the speed and security of wired technology with the ease-of-use of wireless technology. Certified Wireless USB supports robust high-speed wireless connectivity by utilizing the WiMedia MB-OFDM Ultra-wideband (UWB) radio platform as developed by the WiMedia Alliance. The combination of a low-cost, low-power wireless transport with the ubiquitous USB protocol layer is expected to become a key enabler for next-generation consumer electronic devices. |
LeCroy is a provider of protocol analyzers for these existing and emerging digital communications standards. Our products are used by semiconductor, device, system and software companies at each phase of their products’ lifecycles from development through production and market deployment. We have expertise in the Bluetooth, Fibre Channel, IEEE 1394, InfiniBand, PCI, PCI Express, SCSI, Serial ATA, SAS, USB, and wireless USB standards and are actively engaged with our customers throughout their development and production processes in order to deliver solutions that meet their needs. Utilizing our easy to use, color-coded expert analysis software called CATC Trace™ and Catalyst Trace™ View, our products generate, capture, filter and analyze high-speed communications traffic, allowing our customers to quickly discover and correct persistent and intermittent errors and flaws in their product design. Our production products are used during the manufacturing process to ensure that our customers’ products comply with standards and operate with other devices, as well as assist system manufacturers to download software onto new computers.
Our Competitive Strengths
We are a leading, worldwide provider of oscilloscopes and protocol analyzers as well as a provider of related test and measurement equipment used by electronic designers and engineers to measure and analyze complex electronic signals and communication protocols. Our key competitive strengths include:
Technology leadership. We are a recognized technology leader in the Test and Measurement industry and continue to leverage our core strengths to develop new and innovative products for the changing requirements of the
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markets we serve. Most recently, we have focused on incorporating our internally developed operating system and our advanced methodology for enabling high-speed signal acquisition into our entire oscilloscope product line. We are a major participant in the various standards groups found in our portfolio of supported protocols. Our expertise has helped make it possible for protocol technologies to increase in scope of utility and stability. We believe this has allowed us to transform general purpose oscilloscopes into application-specific analysis tools, providing a competitive advantage to our products. These, and our other core technologies, are currently protected by 83 U.S. patents. We also have a significant number of pending U.S. patent applications, as well as foreign patents and applications where we believe seeking such protection will provide us a competitive advantage.
Broad product portfolio. We offer a broad range of oscilloscope and protocol analyzer products which are designed to capture and analyze a wide range of electronic signals and data packets. We believe our breadth of product offerings, coupled with our ability to create application-specific analysis tools, address the specific needs of design engineers and systems integration teams in many industries.
Leading customer relationships. Our major customers are leaders in a range of industries, including computer/semiconductor/consumer electronics, data storage, automotive/industrial, and military/aerospace. Our ability to work with innovative, industry-leading customers allows us to continuously refine our products to better address the needs of the latest technologies.
Global sales and distribution. We have a global sales force and distribution structure covering North America, Europe/Middle East, Japan and Asia/Pacific. Each of these regions is a major contributor to our revenue and provided between approximately 8% and 36% of our revenues in the last three fiscal years. We currently have direct sales personnel in 12 countries and operate in approximately 50 smaller markets through regional managers, distributors and manufacturers’ sales representatives. We believe that our sales engineers are recognized by our customers for their technical expertise. Our sales force often works in tandem with design engineers to create solutions to complex applications.
Experienced management team. Our management team has a long and successful track record in the Test and Measurement industry with an average of over 18 years of experience in the industry. Our management team has overseen the introduction of many new products over the recent years and has restructured our operations, enhancing our focus on our core markets while developing our ongoing business strategy, which encourages product innovation.
Our Strategy
In order to enhance our position as a leading provider of oscilloscopes and protocol analyzers, our objective is to grow our Company and our market share in the markets in which we operate. In addition, we may pursue strategic acquisitions that have strong adjacent market positions or complement our current product lines. Key strategic goals include:
Focus on the general purpose oscilloscope market. We have a competitive product offering and ongoing engineering development efforts underway to address customer needs for oscilloscope solutions in market sectors representing the largest and most profitable portion of the oscilloscope market.
Focus on the market for serial data test applications. The market for testing important serial data standards including PCI Express, Gen I and Gen II, Serial ATA, SAS, USB2.0, wireless USB and Bluetooth, is a rapidly growing market — on the order of approximately 15% Compound Annual Growth Rates (CAGR) for markets addressed by the Company’s products, according to internal estimates. The primary tools associated with testing serial data links are oscilloscopes (to test the electrical signals and paths or the “physical layer”) as well as specialized protocol analyzers (to observe, decode and verify that the desired data traffic and device specific messages are flowing from node to node). Our high end real-time oscilloscope and sampling oscilloscope development efforts are aimed primarily at satisfying the needs of customers in this important applications area. We believe our offering in these two primary product categories combined with an intense focus on ensuring the right capability is available to our customers at the right time in the most important applications will allow us to continue to grow in this market segment.
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Products and Services
Oscilloscopes
We currently offer five major real-time oscilloscope families: WaveMaster, WavePro, WaveRunner, WaveSurfer and WaveJet and one sampling oscilloscope family, WaveExpert. Each oscilloscope model is capable of capturing and analyzing electronic signals at different bandwidth and performance points in the market. Each oscilloscope family is also offered with a selection of general software packages that expand its capabilities and allow customization of the operation and measurements of the specific product.
| Product Family |
Number of Models |
Bandwidth Range |
U.S. List Price Range |
Market Introduction | ||||
| WaveExpert Sampling Oscilloscope Series |
3 | Up to 100 GHz | $28,000 - $90,000 | April 2005 | ||||
| WaveMaster/SDA/DDA Series |
22 | 3 - 18 GHz | $47,000 - $128,000 | January 2002 | ||||
| WavePro 7000A Series |
7 | 1 - 3 GHz | $20,000 - $33,000 | January 2003 | ||||
| WaveRunner 6000A Series |
10 | 350 MHz - 2 GHz | $8,250 - $19,990 | October 2003 | ||||
| WaveRunner Xi Series |
5 | 400 - 2000 MHz | $9,390 - $20,390 | January 2006 | ||||
| WaveSurfer Xs Series |
6 | 200 - 1000 MHz | $5,740 - $12,740 | January 2006 | ||||
| WaveSurfer 400 Series |
11 | 200 - 500 MHz | $4,490 - $8,790 | April 2004 | ||||
| WaveJet 300 Series |
8 | 100 - 500 MHz | $2,890 - $7,490 | January 2006 |
Supporting Analyzers and Application Software
Our general purpose oscilloscope products are tailored with proprietary software and hardware to create application specific analyzers which function as industry-specific oscilloscopes for use in:
| • | Data storage applications — Disk Drive Analyzer products and DDA5000 series, using WaveMaster and WavePro platforms; |
| • | Serial data applications — Serial Data Analyzer products, SDA3000 series, SDA4000, SDA5000 series, SDA6000 series, SDA11000 series and the SDA18000 series, based on the WaveMaster platform; |
| • | Automotive applications — Hardware and software applications based on the WaveRunner platform for use in understanding serial communications in automobiles and industrial systems; and |
| • | Power measurement applications — Hardware and software applications based on the WaveRunner and WaveSurfer platforms for use in a variety of industries. |
Protocol Analyzers
Our protocol analyzer products are advanced verification systems that assist hardware and software manufacturers in the efficient design of reliable and interoperable systems and devices. Most of these systems utilize our proprietary intuitive expert analysis software, the CATC Trace, which displays communications traffic in searchable, color-coded packets. Highlights include:
| • |
Summit™ T2-16 PCI Express Analyzer. The Summit T2-16, a new high performance platform, features full bi-directional decode and capture of x1 up to x16 PCI Express lanes at both 2.5 and 5 GT/s (Giga-Transfers per second) per lane. Like its predecessors it can capture, process and analyze PCI Express |
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| traffic but with the added capability to support physical layer decoding with the Bit Tracer option. Both 1GbE (Gigabit Ethernet) and USB host connectivity are provided to make it easy to set up and use. Passive and Active interposer technologies allow maximum high impedance and low power signal tapping. |
| • |
Summit™ Z2-16 PCI Express Exerciser. The Summit Z2-16 is capable of emulating PCI Express root complex and end point devices. It supports x1 up to x16 lane training at both 2.5 and 5 GT/s speeds. It is a critical test and verification tool intended to assist engineers in improving the reliability of their solutions, while providing advanced capabilities for stress and corner case testing. Together with the Summit T2-16 analyzer, the Summit Z2-16 reduces time to market by enabling users to quickly identify logic and design flaws. |
| • |
Protocol Test Card(PTC). The PTC is a multimodal compliance test board used for checking adherence to the protocol-oriented sections of the PCI Express 2.0 specification. The PTC has been developed in close collaboration with Intel®, and is specifically designed to meet industry requirements for next generation development tools for PCI Express. This new tool is used by validation and test engineers to check for functionality and interoperability of add-in cards, systems, and chips using PCI Express 2.0. The tests are mainly defined to check the platform (basic input/output systems, operating systems and root complex) and add-in devices (endpoints, switches, and bridges) in the form of an add-in card that works at both 5 GT/s and 2.5 GT/s. |
| • |
PETracer™ ML. The PETracer ML (Multi-Lane) is an advanced verification system. First introduced in 2003, the PETracer ML is a high impedance, non-intrusive analyzer, capturing, processing and analyzing PCI Express traffic. The PETracer ML allow for full bi-directional decode and capture of up to x1 or x8 PCI Express lanes at 2.5 GT/s per lane. This analyzer is based on the UPAS (Universal Protocol Analyzer Systems) 10K platform. The PETracer ML has a variety of interposer probes for embedded and computing board form factors. |
| • |
PETrainer™ ML. First introduced in 2003, the PETrainer is a PCI Express™ exerciser capable of emulating PCI Express root complex and end point devices. The PETrainer ML is offered on both the ML supporting x1 up to x4 lane training at 2.5 GT/s per lane. It is a critical test and verification tool intended to assist engineers in improving the reliability of their solutions, while providing advanced capabilities for stress and corner case testing. Together with the CATC PETracer ML, the PETrainer reduces time to market by enabling users to quickly identify logic and design flaws. |
| • |
SATracer™. The SATracer was first introduced in 2001 for SATA 1.5 Gbps speed and the second generation was introduced in the fourth quarter of 2003 for 3 Gbps. SATracer is a non-intrusive protocol analysis system that facilitates efficient and accurate debug, test and verification of Serial ATA semiconductors, devices and systems. |
| • |
SATrainer™. The SATrainer, introduced in 2003, is an add-on traffic generation module for our SATracer. It allows designers and validation engineers to transmit valid and invalid traffic to emulate host or device-side SATA communications. SATrainer features error injection capabilities that permit observation of device behavior under faulty link conditions. |
| • |
SASTracer™. The SASTracer, our Serial Attached SCSI development product introduced in 2003, is the Company’s first system that supports the advanced protocol analysis of 1.5 and 3 Gbps SAS in 1-, 2- and 4-wide configurations. The SASTracer is able to logically group multiple related bus transactions allowing developers to quickly understand complex SAS transactions. SASTracer’s features were especially designed for the multiple ways in which SAS systems can be configured. |
| • | Avalanche — The Avalanche is LeCroy’s next generation serial storage analyzer that captures and displays up to 4 links of 6 Gbps, 3 Gbps and 1.5 Gbps SAS; and 6 Gbps, 3 Gbps and 1.5 Gbps SATA traffic. Avalanche features raw bit recording mode allowing capture of low-level bit stream traffic before |
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| it is decoded to high-level packets. Avalanche features a 4 GB recording memory and includes triggering and filtering to optimize memory efficiency further. Avalanche is available in a highly portable form factor and allows SAS and SATA disk drive vendors, silicon developers and storage integrators to quickly identify problems in their products and verify protocol behavior for faster time-to-market. |
| • | STX Series. The STX SAS Master and SATA Master are integrated analyzer/exerciser systems designed to address the serial storage protocol test and verification market. The STX 231 and 431 series offer support for Serial ATA (SATA) and Serial Attached SCSI (SAS) 1.5 and 3 Gbps signaling speeds. The flagship STX 460 offers support for 1.5, 3, and 6 Gbps SAS-2 protocol capture. The STX product family also offers target and host emulation enabling full system validation. Both STX products accommodate a high degree of configurability across protocols, speeds, and target applications. |
| • |
USBTracer/Trainer™. The USBTracer/Trainer system, introduced in 2001, is LeCroy’s flagship USB development and test tool that provides two independent recording channels and captures all USB bus speeds. The USBTrainer is an integrated traffic generator option capable of emulating host or device traffic behaviors. The analyzer/exerciser system is used by PC vendors, USB silicon and device manufactures to test the robustness of their USB designs. The analyzer/exerciser system can be used for error injection, compatibility testing and compliance verification. |
| • | SBAE-30 Series. The SBAE-30 provides a complete protocol analysis and exerciser system for advanced USB development applications. In addition to supporting all USB bus speeds, the SBAE-30 provides dual USB recording channels and full support for the latest USB device class decodes. It is available with an integrated traffic generation capability that allows users to emulate USB host and device traffic. The analyzer/exerciser system can be used for error injection, compatibility testing and compliance verification. |
| • |
Conquest™ Series. The Conquest Series provides a range of entry-level USB protocol analyzers that support all bus speeds, upper level protocol decoding and an easy-to-use graphical interface. Targeted at the growing market for embedded USB designs, the Conquest is available in a Standard and Pro model. Both systems offer high-speed USB protocol analysis with additional features like traffic generation and timing waveform displays available in the Pro model for more sophisticated testing applications. |
| • |
UWBTracer/Trainer™. The UWBTracer system, introduced in 2006, addresses the emerging WiMedia ultra wideband and Certified Wireless USB test and debug marketplace. The UWBTracer captures and decodes wireless communications transmitted between WiMedia devices. The product is used during development of chipsets, firmware and device drivers to verify functional behavior and compliance with the specifications. The UWBTrainer is an integrated traffic generation option for the UWBTracer system released in August 2007. |
| • |
AirCom™. The AirCom is an entry-level ultra wideband protocol analyzer that captures WiMedia-based UWB traffic at transfer rates from 53.3 Mbps to 480 Mbps. It features an easy-to-use graphical interface and includes a frame generator for emulating simple WiMedia traffic patterns. The AirCom features easy-mode recording for fast setup and is designed for developers getting started with WiMedia device integration. |
Other Products and Services
We offer our customers a variety of complementary oscilloscope probes and accessory products. Probes provide the critical physical electrical or optical connection from the customer’s circuit to the oscilloscope. We believe our WaveLink high frequency differential probes provide the high bandwidth performance necessary to measure serial data signals in the expanding serial data communications market. We also offer digitizing modules from 150 MHz to 1 GHz bandwidths.
We also provide support, repairs, maintenance, recalibration and a variety of post sale upgrades and installations. We maintain field service centers in Chestnut Ridge, New York; Geneva, Switzerland; Tokyo, Japan; Seoul, South Korea; Singapore and Chengdu, China.
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Our Customers and End Markets
Our products are used primarily by electronic designers and engineers principally in the research and development of new products. These end users typically employ our oscilloscopes to validate the performance of electronic designs and components. Our protocol analyzers are used by designers and engineers whose products are in development and production and also for products deployed in the field. We currently provide products to customers in four primary end markets, including Computer/Semiconductor/Consumer Electronics, Data Storage, Automotive/Industrial, and Military/Aerospace. Our customers also include leading original equipment manufacturers.
Computer/Semiconductor/Consumer Electronics. These markets include companies providing components, interfaces, subsystems and complete products for high speed and general purpose computing, network servers, and related devices and systems. Requirements in this end market have been driven by:
| • | growth in the capability and complexity of devices, which now provide a higher level of integration and functionality; |
| • | a dramatic increase in the use of high speed serial data communications interfaces in both the computer and semiconductor market; |
| • | new interface standards, which enable increased interoperability and higher levels of bandwidth between devices and peripherals, including: PCI Express, Gen I and Gen II — a high speed serial data interface for connection to high performance subsystems, such as a graphics card, inside a computer; Serial Advanced Technology Attachment (Serial ATA) — a high speed serial data interface for computer disk drives; USB 2.0 — the latest version of the Universal Serial Bus standard, a high speed computer peripheral expansion interface; Wireless USB — new wireless extension to USB that combines the speed and security of wired USB with the ease of use of wireless; XAUI — a 10 Gigabit Ethernet standard that improves the routing of electrical interconnections; and Firewire — a high-speed serial interface for computer peripheral expansion; and |
| • | system-on-a-chip validation. |
Data Storage Devices. This market includes companies that provide magnetic and optical storage devices such as hard disk drives, removable media, tape, CDs and DVDs. Requirements in this end market are being driven by:
| • | continued pressure to reduce product development life cycle time; |
| • | increasing need to store more information on storage media, which requires the encoding of signals to achieve higher density; |
| • | migration of hard disk drives to portable media applications and consumer devices, such as MP3 players and digital video recorders; |
| • | evolution to perpendicular magnetic recording for higher capacity storage; and |
| • | adoption of faster point-to-point connections through the use of the Serial ATA (Advanced Technology Attachment), and Serial Attached Storage, or SAS, interface standards. |
Automotive/Industrial. The automotive market includes automobile OEMs, component suppliers to automobile OEMs and industrial equipment manufacturers. Requirements in this end market are being driven by:
| • | proliferation of Electronic Control Units, or ECUs, to various automotive subsystems, such as engine control, braking, and traction control; |
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| • | progression to networked ECUs; and |
| • | serial data topologies managing complex inbound and outbound signals. |
Military/Aerospace. The military and aerospace market includes companies that provide components and systems for defense and commercial airplane applications. Requirements in this end market are being driven by:
| • | applications that use complex communications signals in challenging environments; |
| • | extraordinarily high need for precision and reliability given the consequences of failure; and |
| • | need for long-term support due to long military program life. |
Sales, Marketing and Distribution
We maintain a direct sales force of highly trained, technically sophisticated sales engineers who are knowledgeable in the use of oscilloscopes and protocol analyzers and the features and advantages of our products. In addition, because of our focus on high-performance oscilloscopes and protocol analyzers, our sales engineers are skilled in performing product demonstrations for current and prospective customers.
We sell our oscilloscopes and protocol analyzers through our own direct sales force and manufacturers representatives in the United States. Internationally, our protocol products are sold through specialized distributors that are aligned with key customers in our end markets as well as our own direct sales force. The oscilloscope products are sold through a direct sales force in Switzerland, Germany, Italy, France, the United Kingdom, Sweden, China, South Korea and Singapore, with regional sales headquarters located in Chestnut Ridge, New York; Santa Clara, California; and Geneva, Switzerland. In Japan, we sell our products through distributors.
We support our customers through a worldwide network of specialized applications engineers. We maintain service, repair and calibration facilities in Chestnut Ridge, New York; Geneva, Switzerland; Seoul, South Korea; Tokyo, Japan; Singapore and Chengdu, China.
In order to raise market awareness of our products, we maintain an informative website (www.lecroy.com), advertise in trade publications, distribute promotional materials, conduct marketing programs and seminars, issue press releases regarding new products, publish technical articles and participate in industry trade shows and conferences.
Technology and Product Development
We believe we are a technology leader in both the oscilloscope and protocol analyzer markets. We have developed core capabilities in the design of high-performance, high-speed signal conditioning, sampling and analog-to-digital conversion circuitry. We believe we are also a leader in the design of technologies related to the storage, movement and processing of the large amounts of data produced by oscilloscopes and protocol analyzers.
In protocol analyzers, with the acquisition of Computer Access Technology Corporation (“CATC”) in October 2004 and Catalyst Enterprises Inc. (“Catalyst”) in October 2006, we believe we have a competitive advantage as a result of our knowledge and expertise in multiple communications standards, computer and software architecture and advanced ASIC and programmable logic design. This expertise is enhanced by our advanced design tools and collaboration among our various design teams. We have a broad, vertically integrated technology base that includes the knowledge and expertise to design advanced ASICs, use programmable logic in the form of microcontrollers and programmable logic devices in real-time embedded applications, design electronic circuit boards and systems, and design and develop embedded software, software drivers and software applications. In October of 2006, LeCroy acquired Catalyst to broaden its protocol product line and increase penetration of certain new customer and market segments. The combination of Catalyst with the LeCroy Protocol Solutions Group allows the combined division to bring next-generation products to market faster, and satisfy more customer requirements.
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Our product development efforts are focused on hardware, software and mechanical development initiatives. Our hardware product development team is focused on developing innovative signal conditioning, data acquisition and electrical circuit probing technologies that allow better waveform fidelity and circuit connection capabilities. This is accomplished through the use of advanced integrated circuit techniques and processes, innovative design tools and methodologies and key technology partnerships.
Our software engineering group continues to develop and advance our protocol, wave shape analysis and measurement technologies in order to offer new and innovative analysis tools for our customers. This group also develops application solutions to perform specific analysis for specific communications protocols, data storage, power measurement, communications and other markets.
We have also entered into technology agreements that have provided us access to technologies that enable extremely high-speed, high-fidelity signal capture capabilities and very high throughput data movement capabilities. We intend to continue to develop and leverage such key partnerships in areas that complement or enhance our own internal strengths.
Manufacturing and Suppliers
We have consolidated and streamlined our manufacturing and operational activity to focus on our core expertise of oscilloscope and protocol analyzer product introduction and development. Our WaveMaster, WaveExpert, and WavePro oscilloscopes and related products are manufactured at our facility in Chestnut Ridge, New York. Protocol analyzer products are manufactured in our Santa Clara, California facility. Our focus on supply chain execution has allowed us to improve the cycle time required to build our instruments as well as reduce the time required to test and deliver products to our customers. For example, we have partnered with manufacturing companies in the U.S. and Asia that have allowed us to design and develop innovative products at reduced costs. This has allowed us to lower the costs of our products to our customers while improving our margins. Our WaveJet products and WaveSurfer 400s are manufactured by our strategic partner, Iwatsu, and our WaveRunner 6000A, WaveRunner Xi and WaveSurfer Xs products are manufactured by a contract manufacturer, Plexus Corporation.
We purchase a small number of parts from single-source suppliers. In particular, several key integrated circuits that we use are made by IBM. Although we have not experienced significant production delays attributable to supply changes, we believe that, for integrated circuits in particular, alternative sources of supply would be difficult to develop over a short period of time. Because we have no direct control over our third-party suppliers, interruptions or delays in the products and services provided by these third parties may be difficult to remedy in a timely fashion. In addition, if such suppliers are unable or unwilling to deliver the necessary parts or products, we may be unable to redesign or adapt our technology to work without such parts or find alternative suppliers or manufacturers. In such events, we could experience interruptions, delays, increased costs or quality control problems and loss of revenues.
Competition
Oscilloscopes
The oscilloscope market is highly competitive and characterized by rapid and continual advances in technology. Our principal competitors in this market are Tektronix, Inc., a subsidiary of Danaher Corporation (“Tektronix”) and Agilent Technologies, Inc. (“Agilent”). Both of our principal competitors have substantially greater sales and marketing, development and financial resources than we do. We believe that Tektronix, Agilent and other competitors offer a range of products that attempt to address most sectors of the oscilloscope market.
We believe that the principal bases of competition in the oscilloscope market are a product’s performance characterized by the confluence of bandwidth, sample rate, memory length and processing power, its price and quality, the vendor’s name recognition and reputation, product availability and the quality of post-sale support. We believe that we currently compete effectively with respect to each of the principal bases of competition in the oscilloscope market in the general price range ($2,900 to $205,000) in which our oscilloscopes are focused. We also believe that our
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success will depend in part on our ability to maintain and develop the advanced technology used in our oscilloscope products and our ability to offer high-performance products at a favorable “price-to-performance” ratio.
Protocol Analyzers
Our protocol analyzer markets are highly competitive, and we expect competition to intensify in the future. We compete with a number of companies, such as Agilent and Finisar Corporation, our largest competitors. These competitors are diverse and offer a variety of solutions directed at various segments of this marketplace. We believe the principal factors of competition include:
| • | Product functionality; |
| • | Time to market with new products; |
| • | Ease of product use; |
| • | Product speed, reliability, stability and accuracy; |
| • | Price performance; |
| • | Flexibility and programmability of products; |
| • | Upgradeability of products; |
| • | Local support and service for products; and |
| • | Breadth of product offerings. |
We believe we compete favorably with respect to each of these factors and have gained significant market share in some of our target markets as a result. We believe our success has been driven by our vertically integrated technology, ability to generate customer loyalty and ability to anticipate market trends.
Backlog
Our backlog of unshipped customer orders was approximately $5.1 million and $6.8 million as of June 28, 2008 and June 30, 2007, respectively. Customers may cancel or reschedule orders at any time. We believe that our level of backlog, at any particular time, is not necessarily indicative of our future operating performance.
Intellectual Property
We rely on a combination of patents, trademarks and trade secret laws, non-disclosure agreements and other intellectual property protection methods, as well as technical expertise and continuing technological research and development to establish and protect proprietary rights in our products. We believe, however, that because of the rapid pace of change and advancement in oscilloscope technology, legal intellectual property protection is and will continue to be a less significant factor in our success than our core competency of wave shape analysis and the experience and expertise of our personnel.
We protect significant technologies, products and processes that we consider important to our business by, among other things, filing applications for patent protection. We currently hold 83 U.S. patents. We also have a significant number of pending U.S. patent applications, as well as foreign patents and applications. Although none of our products depends exclusively on any single patent, we believe our patents, in the aggregate, are important to our business and contribute to our competitive advantage.
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We license or otherwise acquire key enabling technologies from third parties in order to gain access to technologies that would be too expensive or too time consuming to develop internally or that would give us a competitive advantage or shorten our product development time-to-market. Our key licenses include a license agreement with Perigee LLC pursuant to which we license fast data readout technology for use in our WaveRunner 6000 Series family of products. This license is perpetual. We also license a patent from William A. Farnbach, which relates to the triggering characteristics of an oscilloscope. This license extends for the term of the patent, which expires in October 2008. The capabilities licensed or otherwise acquired through these agreements, and additional license agreements we entered into, could be developed by us, but would require considerable time and expense.
Although we believe that our products and technologies do not infringe the proprietary rights of third parties, there can be no assurance that third parties will not assert claims against us based on the infringement or alleged infringement of any such rights. Such claims are typically costly to defend, regardless of the legal outcome. There can be no assurance that we would prevail with respect to any such claim, or that a license to third party rights, if needed, would be available on acceptable terms. In any event, patent and proprietary rights litigation can be extremely protracted and expensive.
Regulatory Matters
As we manufacture our products in the United States and sell our products and purchase parts, components and sub-assem