National Instruments Reports Record Quarterly Revenue and Net Income

AUSTIN, Texas -- Jan. 27, 2005 -- National Instruments (Nasdaq: NATI) reported record fourth quarter revenue of $137 million, a 9 percent sequential increase from Q3 2004. Fully diluted earnings per share for Q4 2004 were 20 cents with record net income of $16.5 million, up 47 percent from Q4 2003.

For 2004, revenue totaled $514 million, up 21 percent from $426 million in 2003, marking record annual revenue for National Instruments and the company's 27th year of revenue growth. Fully diluted earnings per share (EPS) for 2004 were 59 cents with net income of $49 million, a 46 percent increase over 2003.

During Q4, the company added $26 million in net cash and short-term investments, bringing the total as of Dec. 31, 2004, to $227 million. The company also announced a quarterly dividend of 5 cents per share on its common stock payable on Feb. 28, 2005, to shareholders of record on Feb. 7, 2005.

"Our strategic investment in R&D paid off with a record number of new products released in 2004," said Dr. James Truchard, NI president and CEO. "I am pleased with the progress the company has made in establishing strategic new growth areas for virtual instrumentation, such as high-performance measurements, industrial and machine control, and graphical system design, where we have seen early success."

Q4 2004 and FY 2004 Highlights

Record quarterly revenue, up 9 percent sequentially

Record annual revenue of $514 million, up 21 percent over 2003

Record quarterly net income of $16.5 million

Net income for 2004 of $49 million, a 46 percent increase year-over-year

Record sales for NI LabVIEW, PXI, data acquisition, machine vision, distributed I/O and modular instruments in Q4

Strong investment in R&D with record number of new products in 2004

Record cash and short-term investments balance of $227 million

NI CompactRIO, a rugged, LabVIEW FPGA-based platform for industrial control, named finalist for EDN's Product of the Year

NI SignalExpress named finalist for Test & Measurement World's Test Product of the Year

NI named to FORTUNE magazine's 100 Best Companies to Work For list for sixth consecutive year

"With a 21 percent increase in revenue year-over-year and 46 percent increase in net income, we are pleased to deliver on our goal of driving operating leverage in 2004," said NI CFO Alex Davern. "We have passed the milestone of half a billion dollars in revenue, making significant progress toward our goal of reaching $1 billion in revenue in 2008."

Geographically, the growth of revenue in U.S. dollar terms for Q4 2004 compared to Q4 2003 was as follows: up 15 percent in the Americas and up 11 percent in Europe and Asia, equaling overall growth of 12 percent. In local currency terms, revenue was up 1 percent in Europe and up 10 percent in Asia, for an overall local currency growth of 8 percent.

The company's Q4 2004 results include the following notable items:

Sales and marketing expenses for Q4 include the approximately $2 million that NI donated to 150 educational institutions worldwide. As said in the Q3 conference call, NI intended to use $2 million from the damages award the company received from The MathWorks, Inc. in Q4 to further engineering education by extending the adoption of National Instruments LabVIEW and NI virtual instrumentation platforms in universities worldwide.

The net patent litigation credit of $2 million in Q4 is composed of two elements: (1) a net gain of approximately $6 million from the damages award received after the Court of Appeals affirmed NI's judgment against the The MathWorks, Inc. in the 2003 jury trial and (2) a $4 million charge the company has taken in Q4 related to a new patent case concerning the newly created version of The MathWorks, Inc. Simulink?Service Pack 1 for Release 14. The Federal Court for the Eastern District of Texas has ruled that a new trial is needed to decide the infringement issues presented by the newly released version of Simulink. This charge of $4 million represents the accrual for estimated legal costs to take this case through trial.

Other expense in Q4 included a net charge of $2.3 million related to a $2.5 million write-off of an investment offset by a $242,000 gain on the sale of a subsidiary. The $2.5 million write-off is related to a 10 percent minority position NI owns in a small start-up. This investment, made in 2001 is the company's only minority investment. The $242,000 gain is related to the sale of NI's German systems integration company. This company had revenues of approximately $8 million in 2004 and represents the system integration arms of two German software companies acquired in 1998 and 1999. This business had gross margins significantly lower than the overall company. It now operates independently as one of NI's global select integrators. The sale was effective Dec. 31, 2004.

In Q4, as a result of the significant fall in the U.S. dollar, the company recognized a gain on foreign exchange of $2.1 million. This is an unusually large gain and is unlikely to be repeated in future quarters.

Guidance for 2005
For the full year of 2005, the company is budgeting for record revenue and double-digit revenue growth with fully diluted EPS of between 80 to 90 cents. This corresponds to an EPS increase of between 35 percent and 50 percent in 2005. This budget assumes mid-teen operating margins for the year and a tax rate of 24 percent. For Q1 2005, NI currently expects revenue to be relatively flat sequentially and estimates fully diluted EPS to be in the range of 16 to 20 cents per share.

Interested parties can listen to a conference call today, Jan. 27, 2005, beginning at 4:00 p.m. CST, at www.ni.com/call. Replay information is available by calling (719) 457-0820, confirmation code #469778, from Jan. 27, 2005, at 7:00 p.m. CST, through Feb. 2, 2005, at 12:00 a.m. CST.

This release contains "forward-looking statements," including statements related to establishing strategic new growth areas, progress toward $1 billion revenue goal, gain on foreign exchange that is unlikely to be repeated, record revenue and double-digit revenue growth for 2005, EPS, 2005 operating margins and tax rate, and Q1 2005 revenue and EPS. These statements are subject to a number of risks and uncertainties, including the risk of adverse changes in the global economy, delays in the release of new products, fluctuations in customer demand for NI products, manufacturing inefficiencies, and foreign exchange fluctuations. Actual results may differ materially from the expected results. The company directs you to documents filed with the SEC for other risks associated with the company's future performance.

About National Instruments:
National Instruments www.ni.com is a technology pioneer and leader in virtual instrumentation -- a revolutionary concept that has changed the way engineers and scientists in industry, government and academia approach measurement and automation. Leveraging the PC and its related technologies, virtual instrumentation increases productivity and lowers costs through easy-to-integrate software, such as the NI LabVIEW graphical development environment, and modular hardware, such as PXI modules for data acquisition, instrument control and machine vision. Headquartered in Austin, Texas, NI has more than 3,400 employees and direct operations in 41 countries. In 2003, the company sold products to more than 25,000 companies in 90 countries. For the past six years, FORTUNE magazine named NI one of the 100 best companies to work for in America.

Readers may obtain investment information from the company's investor relations department by calling (512) 683-5090, by sending e-mail to nati@ni.com or by visiting www.ni.com/nati.