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Sensata Technologies Holding N.V. (ST), Trimble Navigation Limited (TRMB), Garmin Ltd. (GRMN): Innovate or Die, 3 Companies at the Cutting Edge in Scientific and Technical Instruments

Companies making scientific and technical instruments have a combined market cap of $127.1 billion as of July 3. The large number of players in the industry and rapidly changing market dynamics call for continuous R&D and innovation. Rapid technological progress makes old products obsolete, and there is a steady stream of new ones to take their place. Here is a detailed analysis of the three leading players (among those listed on the NYSE and NASDAQ) in this industry in terms of market cap.

Trimble Navigation Limited (NASDAQ:TRMB)

Riding high on automotive

According to an IHS forecast, global automotive production is expected to increase by 2% and by 5% year over year in 2013 and 2014, respectively. This production for the second quarter of 2013 is estimated to grow by 1% quarter over quarter and 3% year over year. That’s particularly significant for Sensata Technologies Holding N.V. (NYSE:ST), since 71% of the company’s overall revenue is driven by its automotive segment. That’s much higher than its competitors, which derive 40% or less of their total revenue coming from their respective automotive segments. With growing demand for automotive production, this segment is expected to generate revenue of $1.658 billion in 2014 for Sensata Technologies Holding N.V. (NYSE:ST). This is a compound annual growth rate (CAGR) of 9.8% over the 2012 figure.

Sensata Technologies Holding N.V. (NYSE:ST)’s controls segment constitutes the other 29% of its overall revenue. The controls market is valued at around $3 billion and Sensata enjoys almost 20% of the market share. Sensata’s controls have applications in aircraft and home appliances.

U.S. appliance demand is influenced by the number of houses being constructed in the U.S., commonly referred to as housing starts. U.S. housing starts have grown steadily, almost doubling to 1 million in the last two years. Orders for aircraft have also increased, with The Boeing Company (NYSE:BA)’s aircraft deliveries expected to increase at a CAGR of 8% in the three-year period from 2012 to 2015. Sensata Technologies Holding N.V. (NYSE:ST) occupies over 90% of the controls market catering to commercial aircraft.

The growth in these two markets will influence growth in Sensata Technologies Holding N.V. (NYSE:ST)’s controls segment. Sensata’s controls segment had revenue of $538.7 million in 2012, and is expected to generate revenue of $585 million in 2014.

Flying into new horizons

Precision agriculture is a farming management concept which relies on advanced technologies. Precision agriculture products are among the highest-margin products for Trimble Navigation Limited (NASDAQ:TRMB). The precision agriculture market has huge growth potential, according to a survey in May 2013 that found increasing adoption of intermediate and advanced precision agriculture technologies. Intermediate technologies consist of sprayer boom control and satellite imaging, while advanced technologies comprise telematics and decision-support systems. The percentage of customers using sprayer boom control increased from 39% in 2011 to 53% in 2013. The use of satellite imaging has increased to 40% in 2013, up from 31% in 2011. The greatest increase has been in the use of telematics and decision-support systems, which have grown from 9% in 2011 to 15% in 2013. This is compelling evidence for strong growth opportunity in Trimble Navigation Limited (NASDAQ:TRMB)’s agriculture business. As a result of this growth potential, Trimble’s field solution segment is estimated to yield revenue of $505.6 million, up 5% year over year.

Trimble Navigation Limited (NASDAQ:TRMB) has developed infrastructure for “big data” analytics with the help of acquisitions in the software solutions in the past. Recently, it acquired a portfolio of software solutions from; last year, it acquired the StruCad and StruEngineer businesses from AceCad Software. Big data allows companies to integrate field information and process it in the cloud to aid in decision-making. This in turn allows companies to drive higher margins in their software products. For Trimble Navigation Limited (NASDAQ:TRMB), software subscriptions yield 70% gross margin, against 50% for the company’s other products. With a market increasingly requiring big data analytics, incremental software revenue is expected to add 1% to the company’s gross margin for Trimble per year, starting in 2014.

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