Tektronix poised to shed some operations

Tektronix poised to shed some operations
WILSONVILLE, Ore. — Will Tektronix Inc. follow Hewlett-Packard's lead and become the next big instrument company to split into separate entities? That's a distinct possibility, judging by the disappointments buried in the company's third-quarter results and by the push for change mounted by an investment fund that has managed to accumulate 9.9 percent of Tektronix' shares.

Citing the downturn in the semiconductor industry and the financial crises engulfing Asia and other parts of the globe, Tektronix said its net income for the third quarter ended Feb. 27 dropped 58 percent from the year-earlier quarter. The company's stock has been languishing; it closed Wednesday (March 31) at 25-1/4 on the New York Stock Exchange, and remains markedly off from its 52-week high of about $46.

Hewlett-Packard Co. said last month that it would spin off its test-and-measurement operation, which it acknowledged conforms to an entirely different business and growth model than HP's computer and peripherals businesses. HP's split could put pressure on other test companies to do the same.

Although not as wide-ranging, Tektronix' business model is similar to HP's, comprising test and measurement; color laser printers; and networking, broadcast and video product lines. In test, Tektronix is far and away the world leader in oscilloscopes, which are the most important tools for engineers involved in electronics development and troubleshooting.

In printers, meanwhile, Tek owns 41 percent of the U.S. market for laser-class color machines, according to PC Data figures released in February.

It is Tek's broadcast business that appears to be its Achilles' heel. At the least, sources said, major stockholders want to see Tektronix divest that 40-year-old operation, the Grass Valley Group, which appears to have been struggling for many years.

"They would like to move out of the video business, which is only 15 percent of their total revenue," said Ted Kundtz, an analyst at Lehman Brothers (New York). "That's been the thorn in their side and is causing most of their earnings shortfall — a loss of $10 million in the last quarter.

"The shift to digital broadcast technology has been a lot slower than hoped for, and Grass Valley has other problems [as well], like too many products.

"It won't be easy to sell," Kundtz added, "but Tektronix has been aggressively streamlining the operation and will take action fairly soon."

Relational Investors (San Diego) has acquired nearly 10 percent of Tek's shares. A Tektronix spokesman said that the company does not take issue with Relational's assessment of its business and that it "wants to bring back the stock's value."

That, said Kundtz, would be "in the mid-30s to 40 range, assuming a return to growth in the measurements business, which has been weak."

Indeed, the measurements market is returning, albeit gradually. Even so, will Tek take HP's cue and split further, into a test-and-measurement company and a printer/storage company?

"I don't know if they are large enough to generate two stand-alone companies, although it makes some sense because there's not a lot of synergy between those two businesses," Kundtz said. "However, they are surely looking at that possibility because the two entities clearly are worth more than the present stock valuation."