Okay. Well, welcome everybody here in New York. Also to the folks on the webcast, welcome. Let me get through some quick stuff. Forward-looking statements. Not going to read it all, but I do need to read a piece here. I'd like to note that we're going to be making some statements during the day that are forward-looking statements within the meaning of the federal securities laws, including statements regarding events or developments that we believe or anticipate will or may occur in the future. These forward-looking statements are subject to a number of risks and uncertainties, including those set forth in our SEC filings. It's possible that actual results might differ materially from any forward-looking statements that we make today.
These forward-looking statements speak only as of the date that they are made, and we do not assume any obligation to update any of these statements, whether as a result of new information, future events and developments, or otherwise. Here's the agenda for the day. We're going to have Larry come up after I get down here and provide some opening remarks. As you can see, we've got about a half hour slotted for each of our EVPs, Executive Vice Presidents, to talk about one of their businesses in a little bit more depth.
You can see which ones we're going to talk to here today. There'll be a brief Q&A with each of them afterwards. Probably just a couple of questions. We gave them a little bit more time to go in a little bit deeper here on the content. There will be a brief Q&A after each of those. Then we'll bring Larry back up. We'll go through the kind of the traditional closing that we normally go through, walking through the waterfall of the EPS and the guidance. Larry will stay up here after that for his Q&A. With that, I will turn it over to Larry.
You're all right. Good afternoon and welcome to the Plaza. Thanks, everybody, for coming in this afternoon and particularly for those listening in on the webcast. I think what we've tried to do this afternoon, as you saw in Matt's overview, is give you a deep dive into three different areas of the business rather than cover the entire waterfront. I think we've gotten to the point where we're probably too big and too broad for that to be an effective use of an afternoon. But I'm hopeful during the course of the day, we give you better insight as to how the Danaher Business System is driving the top and bottom lines, let alone the strong cash flow performance you've become accustomed to across the Danaher portfolio.
I thought I would start before I provide a little bit of a strategic overview by giving you a little bit more color relative to what we are seeing in current trading, as well as a little bit of an outline relative to the 2013 guidance we put out in a press release this morning. Later on during the close, I will get into the 2013 guidance in a bit more detail. I think what we have seen in the quarter thus far is very much in line with what we anticipated back on the third quarter earnings call. If you look at the 2 months to date, very much in line. The U.S. and China, very much as we had anticipated. Steady is probably the best word to describe it. Europe sequentially has gotten weaker, but that really has not been a surprise to us.
December, obviously a critical month for us in that regard as we end both the quarter and the year. One of the big efforts underway right now is our fourth quarter restructuring. We have flagged that a couple of times to you. $120 million of restructuring spend, well distributed across the portfolio. Those projects are well underway. We had an update just a week ago. Feel very confident that we will spend that money and that those projects will be in place to generate the savings we anticipate from them early next year. I think that said, all in, we are holding to the guidance here for the fourth quarter, $0.80-$0.85 per share. No surprise there. Pleased that positions us even with the second half slowdown for 2012 to be a year where we have delivered double-digit EPS and free cash growth.
Looking to 2013, the macro environment that we see right now is one we anticipate wrestling with through at least the first half of next year. Certainly a slow but steady macro environment. It is what it is. We cannot control that, so we are focused on those things that we can control. The guidance that we put out here this morning for the full year is a $3.40-$3.55 range, again, inclusive of the Apex earnings. Apex, we still anticipate to close sometime in the first half of next year. Our core revenue assumption on a Danaher-wide basis is 1%-4%. We will break that down by segment a little later on in the presentation. With that sort of top line, we are anticipating about 75 basis points of operating margin expansion on a full year basis. Again, we will break down where that comes from.
By and large, you can assume a midpoint of that core growth range, call it 2.5%, falling through at about 35%. All in giving us, again, the $3.40-$3.55 range. I think as we get ready for 2013, we feel very good about the work that has been done here in 2012. Certainly from a DBS perspective, you have seen the very strong margin expansion, nearly 90 basis points year to date, and the exceptional free cash flow performance that we have seen, $3 billion, in fact, over the last 4 quarters. We attribute a lot of that, particularly in an environment like this, to the Danaher Business System. In the next couple of slides, I will talk about how things have gone the first full year at Beckman Coulter, but we could not be happier with the performance that Tom Joyce and his team have put forth at Beckman.
A lot of change, a lot of work still to do, but we're exactly where we would have hoped to have been at this point in time. Despite the top-line environment being tough, certainly we've protected and expanded our growth investments. I think you see that in a whole host of areas. We won't have a chance to take you through every one of those examples here today, but whether it be the feet on the street investments in places like China, particularly in some of our under-penetrated businesses like dental, our new product innovations that have been launched really across the portfolio. You can see on the slide a number of product names, some of which are coded. We apologize for that. It's been a very strong new product introduction year across the portfolio in that regard.
You've also seen us expand our marketing spend within the digital realm. On an overall basis, that transition continues to quicken. About 25% of our spend currently is web-based. We're seeing very strong returns on the back of those investments. M&A, amidst what I think some people would consider to be a slow year, has seen us deploy $1.5 billion of capital. I think you'll see a lot of the types of investments we've made and the returns we anticipate, particularly in Dan Daniel's presentation during his slot. Then finally, a year ago, you'll recall we talked about our high-growth market and Western European exposures intersecting at this point in time.
We're well past that intersection with our high-growth market exposure now up to 25% of sales in excess of our Western European footprint, and clearly the set of geographies that will be growing most rapidly, not only in the next 12 months, but probably over the next 10 years. I mentioned Beckman Coulter. I think from a financial perspective, again, we're right where we would have hoped to be at this point. Certainly very pleased with the outperformance we've seen with respect to our own expectations on the top line. We've got four quarters now of low single-digit core growth compared to, I think, a flat outlook that we had at the outset of the acquisition. Certainly high-growth markets, particularly China, have really led the way there, in addition to strong menu expansion and I think the way our automation capabilities really resonate within the laboratory.
Looking forward, we would continue to anticipate that ramp, albeit at a low single-digit rate in 2013, with us being, I think, on track to be in the mid-single-digit range in 2014. From an operating margin perspective, a lot of cost has come out, a lot of discipline has been put in. As you'll recall, we've had over 1,000 associates leave as part of that fine-tuning and that restructuring, in turn, helping us drive over 400 basis points of operating margin expansion. From a working capital perspective, again, I think an area where DBS has been fully deployed, you can see on the chart here, we're very pleased from a working capital perspective that the daily management rigor that we've put in place has yielded nearly a full turn improvement in working capital up to 4.3 turns right now.
From a CapEx perspective, we have reduced our CapEx spend on an average basis to the tune of about 40% without in any way sacrificing quality, capacity, or innovation investments. So very much from a financial perspective, we are right where we thought we would be. I think the real challenges, though, certainly were on the operating front, particularly with respect to quality and the regulatory issues that really led in part to the opportunity for us at Beckman. As you can see here, a number of key statistics with respect to how DBS has impacted product quality. On-time delivery up now in excess of 90%. We have seen a 25% reduction in the unscheduled warranty service calls, basically the quality that the customer perceives.
I think most impressively, having been through this just last week with the team, to see that last bullet point with the past due or the late maintenance calls down from over 2,000. Imagine a backlog of 2,000 calls now down to 200. Not happy about those 200 folks that we are currently not serving well, but I think you understand the trend there, and we are doing that in a sustainable way.
On the regulatory front, three of the four sites here in the U.S. have been re-inspected by the FDA. No 483 observations were issued. Very much a sign, I think, that we are doing the right things in terms of putting in place the day-to-day operating discipline to make sure that we are fulfilling those obligations that we have. The gray warning letter, in turn, was lifted. Another sign that we are making progress in the eyes of our regulator.
If you look at some of the other products that have been either cleared at the FDA or where we have resubmitted our filings, particularly around troponin, lots of progress. Again, lots of work to do, but I think we like where we are. Then finally, from an innovation perspective, that progress is building as well, but with the launch of a number of key products, both from a hardware perspective, like the AU5800, our high-end chemistry analyzer, all the way through a number of the menu additions that you see listed on the slide. We think we are turning that part of the business around as well as we look into the pipeline, anticipate 2013 and 2014 to be good years for us in terms of driving new innovation, driving vitality, and ultimately growth at Beckman Coulter.
So that gives you hopefully a quick snapshot as to where we are today, a year marked by a tough macro environment. But it is what it is, so we have taken that on as it came to us and really, I think, pleased with where Danaher is going into 2013. Strategically, what we shared with our board a week ago was basically that as we look into 2013, we are going to continue to wrestle with this environment. But with our portfolio, we think we are well-positioned to outperform. Clearly, from a free cash perspective, we have lots of opportunities there as well. With DBS giving us the wherewithal to drive margins and to drive share in that sort of challenging environment, we like where we are. Just a quick overview on the portfolio. You have seen this slide before.
We really like the breadth and the depth of the portfolio today, particularly with the power brands that you see represented here. I think what's important to note is that as you go through Dan's presentation, he talks about Esko and he talks about X-Rite, take note that we've increased the size of our Product Identification business by 50%. That's now a $1.5 billion business for us, and we sit there in a market that's now 60% larger than it was previously, up to $8 billion globally. Lots of running room there in Product Identification, both organically and inorganically. We also like the balance of this portfolio. You can see the size of the five segments now, businesses that are strong in their own right, and as Danaher, even stronger.
Excellent gross margins, I think, suggest that as we grow these businesses, we have strong earnings and cash potential, particularly in Life Sciences & Diagnostics and in dental, where you can see operating margins in the mid-teens. There is no good reason why these businesses shouldn't be right in line with their segment brethren. As we go through the course of the afternoon, I think you'll see how we're making progress to move them in that direction. One of the key elements for us as we have evolved the portfolio has certainly been recurring revenue, aftermarket business. Today, over 40% of the Danaher revenue base is made up with those types of businesses. It's been a focal point for us because we think in tough times like these, it gives us good ballast and certainly represents a strong growth lever as well.
As you can see, four of the five segments have increased their percentage of sales in the aftermarket since 2007. Very proud of that. A number of ways in which that's happened, both organically and inorganically. Organically, probably the most important lever we pull here is driving innovation in our, if you will, our boxes or our razors in order to increase the size of our installed base that drives the consumption of the various chemistries, consumables, and services. Whether it be the BOND-III at Leica Biosystems, which Tom will speak to, AQT, our cardiac system at Radiometer, and some of the new Videojet products, we've been able to drive those installed bases in order to drive the strength of that consumable stream.
In addition to that, what we've done inorganically has been geared as well toward increasing the recurring revenue base, whether it be the acquisition of a business like ChemTreat, which is virtually all aftermarket when you think about it. Beckman Coulter, predominantly an aftermarket business at nearly 75% of sales. Even in some of the businesses that have less of that type of exposure, strengthening their service component, like what we've done at T&M with a number of acquisitions, all has really fit into the mix in moving the quality of the portfolio up and weighting us more heavily toward these types of recurring revenues. High-growth markets has also been a focal point for us. Wasn't that long ago that high-growth markets were less than 20% of our overall sales. Today, 25%, as I indicated earlier.
Really have been responsible for the bulk of the growth that we've seen in the last several years. Our strategy here differs business by business, but the common themes are certainly focused on aggressive expansion of our presence on the street, sales and service people, making sure that we're in the market actively selling what we can, and then adding to those baskets with aggressive localized products. Products geared toward local need, local regulations, and sometimes, frankly, just a local cost structure to make sure we're more competitive on the ground than we might if we were simply shipping in product from Europe or the U.S. Acquisitions have been also an important part of our high-growth market strategy as we've strengthened our operating footprint, particularly in terms of sales and service in a number of these areas.
In fact, the Argentina acquisition for Videojet is another good move for them as they've really led the way for us in terms of their high-growth market footprint. We've been strengthening the regional leadership at a Danaher level in places like China, the Middle East, and in Latin America. We want to avoid having a big regional bureaucracy. We think that gets in the way, and we've seen that in some other businesses. If we can do it in a Danaher way, it'll be additive to the equation and helpful to the businesses.
Just as we've been able to lever a fair bit of our Danaher infrastructure, whether it be the Danaher Development Center in China, where we come together under one roof to provide R&D capabilities for a number of the different businesses, as well as some of the sales and service overhead, so we don't have redundant costs that doesn't add value to customers, so that those monies can be moved to sales and service and other functions that do create value, not only for customers, but for shareholders. I want to talk about free cash flow for a moment. I think we recognize that as we build the business, our strong free cash generation gives us strategic degrees of freedom that other companies don't to build, to grow, to create value for shareholders.
Before we talk about that, I thought it would be helpful to talk about the sources of that free cash flow. We often talk about DBS, but to try to make that more granular, what you see on this slide is what we reported on the third quarter call, 140% free cash flow conversion, an unusually strong number, a number we're proud of. If you look back and pull out the five largest acquisitions over the last three years and basically erase the free cash flow benefit or contribution those businesses have made, you would still have, we think, a quite strong 128% free cash flow conversion.
In essence, what we did here is we take the free cash flow benefit, particularly with respect to working capital and CapEx, out of the overall numbers for those acquisitions, Beckman and four others, to get to the adjusted number, if you will. I think what you see is, again, DBS helping us drive not only working capital but CapEx efficiency. The chart on the right side of the slide gives you a little bit of color here as to how that happens business by business. These are the businesses that, by and large, now are our long-standing businesses, our strong performers. From a working capital perspective, you can see the contribution or really the reduction in working capital as a percent of sales that we've been able to drive using DBS.
At the top there, T&M, the business that Jim Lico looks after, has gone from 16.5% to 15.6% over that two-year timeframe using DBS to drive greater working capital efficiency. We certainly get a bump from new acquisitions as we bring them into the fold, but in the spirit of Kaizen, it's a constant journey and always one with opportunity in front of it. Clearly, putting that cash flow to work by way of acquisitions to build and to grow has been and continues to be our number one priority. What you see here really is the body of work, 29 transactions since Beckman. I think, again, what we're particularly proud of is the fact that we've been able to bolt on across the portfolio smart businesses that bring innovation, that bring distribution, high-growth market presence to accelerate our organic strategy.
In the wake of Beckman, we've talked about how we want to continue to perpetuate our balance, and you see there at the bottom, $1.6 billion of capital over the last 18 months has been deployed outside of Life Sciences & Diagnostics to provide us that balance. Again, I think Dan will probably highlight the best example of what we've been doing strategically as he walks you through Esko and X-Rite. That said, it's not always buy, buy, right? At Danaher, we're always evaluating the state of the portfolio, and what you see on this slide is three transactions with one pending, Apex, that have been part of our divestiture program. Management with the board frequently evaluating every Danaher business and its position in the portfolio. If you total up the numbers, it's interesting. Post Apex, we will end up divesting 10% of our 2010 revenue.
I know other companies are going through more dramatic change, but this is change that we've really driven ourselves, change which we think is very much in concert with the way we think about capital allocation. Just one final point on capital allocation. You also know, as we highlighted on the third quarter call, from time to time, we're opportunistically in the market buying back stock, and you can see that history over the last decade plus in that regard. We talked about on the third quarter call that in light of our free cash metrics, certainly in light of the shares that we issued at Beckman and in anticipation of the Apex proceeds, we had been in the market and bought about 5 million shares during the course of the third quarter at about $52.
As you can see in the table here, our year-to-date buyback numbers are now 12.5 million shares. So in essence, we were in the market here during the quarter, acquiring 7.5 million shares, again, in that $52 range. Gives us, I think, a good use of the pending proceeds at Apex. Doesn't starve us of any of the acquisition firepower that we think we have from our traditional sources of free cash flow. In turn, whether it be the Apex dilution or some of the pressure that we'll see in light of the Affordable Care Act and the medical device excise tax, a little bit of an offset there. Again, you can see a preponderance, as we've always had, toward capital appreciation, but also looking at divestitures and buybacks as appropriate.
I just want to reiterate how important DBS has been for us to drive margins, drive cash, and certainly drive share while making sure we're expanding our longer-term investments, even though they're not going to help us in the short term, despite the macro pressures out there. This DBS image is one that many of you have seen over time. It's static in that respect. It hasn't changed. DBS itself is a far cry from being static. I think if you look at the transitions that portfolio has made and DBS has made over the last decade plus, much has changed. Still rooted in those core Toyota values. Today, we don't win driving labor productivity in single sites. It's largely a material-based supply chain management challenge on a global basis.
Our lean skills are certainly important to us even today, as much as they were back in the late 80s. That said, what we do from an organic growth perspective, probably more important in that regard. All the more given the complex product changes that we now see, particularly given the weight of software in many of our businesses. From a footprint, there once was a time where we thought our international efforts were aggressive, and we were talking about Germany and France. Now we're talking about a global footprint like most companies, but one that is had DBS tested and challenged, but tests I think we've passed. So we won't dwell on this, but I think the DBS that you know, if you've followed the story for a while, is different than DBS today, built on that common foundation.
As we go through the presentations, I think you'll see a lot of examples as to how that's played out. We won't spend a lot of time on the dental business today, but I thought we'd give you a quick update here, because this is really another wonderful example of how DBS comes together to drive performance virtually at every level of the business. We've seen steady growth at dental the last three years, really on the back of innovation and go-to-market investments, whether it be new products, particularly in our imaging suite. We talked about China earlier, a 35% year-to-date core growth gain there, and all the while seeing good operating margin expansion while we've taken up the R&D spend. So we'll trigger here on the equipment side of the business, a double-digit OP number, again, far short of expectations.
But the progress here the last couple of years, I think, gives us hope and confidence that we're on the right track at dental with DBS. We talk about share gains a lot. These five businesses that cut across the entire portfolio give you, I think, a good sense of how we're doing that business by business by business. Whether it's our Salesforce initiative tools that help us be the employer of choice at ChemTreat to drive market share there, our software quality and software development tools that help Tektronix keep pace with the challenges that mobile carriers around the world face with the expansion of mobile networks. Whether it be some of our rapid new product development tools at Kerr that allow Kerr, in concert with KaVo, to drive new product innovations in the dental trade, and right on down the line.
Wonderful examples of how in a tough environment we can control our destiny. We don't have to worry too much about the macro forecast and the headlines out there, really just focus on those things that we can control to propel the business forward. This is a slide that at first I'm sure looks a bit busy. I won't take you through all of these examples, but this is the way we think about growth across the business. Not a lot of rocket science here, a lot of core execution, whether we're talking about high growth markets and what we do segment by segment, new products and innovation in a similar vein. Certainly go-to-market efforts have received equal attention.
As I mentioned earlier, the web particularly so, not only in terms of how that's transforming the way we market in terms of lead generation and the like, but increasingly how we think about product architectures as well as business models. Then finally, clearly thoughtful entry into adjacencies, both organically and inorganically, another key growth lever for us. I think it's those adjacencies to really be the jumping-off point for us today, because as you'll see in each of the three stories, we really used M&A to establish a foothold in some of our best growth opportunities across Danaher.
Again, you'll see three of those today, how we've used DBS, the old tools and the new tools to improve our customers' workflows in these environments, often with software and related support to help them capture that value and for us to get paid along the way using those DBS tools in a very detailed, very hands-on discipline way, day in, day out. So hopefully, by the time we wrap up this afternoon, you'll have a fresh sense of the portfolio, why we're confident that the portfolio positions us well for 2013. Certainly, from a free cash perspective, I think you understand the capacity that we've had. We've never gone into a year in the way we will 2013 with such strength and depth of capacity. I think you'll see how we like to put that capital to work with these stories.
And again, lots of examples during the course of the day to freshen up your view, hopefully, of what DBS is today. We are using DBS to build a global science and technology company, particularly so at Comms, at Leica Biosystems, and at X-Rite and Esko. We will get on it. Thank you again for coming in this afternoon. Jim Lico, our EVP with responsibility for T&M and a whole host of other things, is going to take you through the Comms update.
Good afternoon. It is good to see everybody, some familiar faces. I think it is exciting to talk about our Communications business group. We obviously have an opportunity to talk about test and measurement a lot. In some respects, the way we talk about Communications, our set of businesses here and our portfolio might seem more like a new acquisition. But we have been in this business for a while, but I think what we have seen over the last three or four years has really been transformational for us, and we are excited to talk to you today a little bit about it. Before we do that, let me set the stage a little bit and give you a little bit of an update on where we are at with T&M.
I think most of you know the strength here in our brands and the brand positions that we have has been a unique differentiator for us over the years. Roughly an $18 billion market. That will be a new number for you. If you have seen this slide in years past, we have really expanded our served market here in the last few years, in particular, in the Communications business group, and I will talk about that in a minute. 5%-7% growth over the long term.
Obviously, some macro situations hitting some of the businesses today, but we still believe in good growth going forward. About $3.5 billion, and about 30% of those sales today in software and services. What is interesting about that, though, is that if you really look at instruments that really have software and have software opportunities afterwards, that number might even be, is really better than 50%.
We continue to see opportunities to expand the business and the platform as customers and technologies change. Margins still pretty good. The global footprint has not changed much here, so still a good global footprint. We are clearly, I think today have about almost well over three quarters of a billion dollars in what we would call high growth markets today. So a very good number there, and I think gives the platform a well position.
Some of those, particularly China, have been a little bit of headwinds in 2012, but we are very well positioned there, here going forward. Customers here, really on the Fluke and Tektronix side, Fluke in the industrial maintenance segment, Tektronix instruments, mostly focused on R&D and electrical engineers, and then we will talk about the customers really to the Comms group here in a minute. Here is really what we would call the Communications business group.
Four distinct companies, four distinct brands that we go to market with great market positions. Here you can see an expanded served market, about $6 billion, good growth dynamics. Almost $1 billion in revenue today with good margins. A little bit more of a North American footprint here. What's unique about that is we have some great opportunities in high growth markets. You'll see throughout the presentation today some great additional positions in those markets, but still a lot of money spent here in North America as well. We continue to take advantage of those and have good market positions. The customers here are unique, but also sometimes have similar challenges, maybe just in a different technology domain. Private network owners, network engineers, the CIO data centers are a big customer of ours. Data comm installers is where we started.
People laying fiber and cable was the first part where Fluke Networks started years ago. Service providers are a big part of our business today. As the cloud becomes more a part of the enterprise, web hosting and cloud hosting companies become part of our customer base as well and a new and high growth segment for us. The market drivers here for the business are good. They're very strong. You can see here both unique drivers for the businesses as well as drivers that cut across all the businesses. I won't cover all of these. We've talked a little bit about these over the years, but probably a couple of unique places where it's pretty interesting. One, the obvious video, voice, data explosion. All of you have mobile devices. You're probably using them more often than you did a few years ago.
You're probably using them for new applications. Even if you have one, you may have read in The Wall Street Journal today some data around the usage of smartphones today is still only about 40% penetrated in the first half of the year. Still a lot of growth even in developed markets for smartphones. When people go from a traditional mobile phone or mobile device to a smartphone, they're going to use that for different ways. All of our businesses across the segments take advantage of the bandwidth explosion that's going on, both on the service provider markets, but also in the enterprises as well. That also drives things like BYOD. As you have three or four maybe mobile devices, you want to be able to work on maybe your network at work as well as your home network.
That causes a lot of challenges for your network organizations when you're on premise. Obviously those create unique situations, both from a security perspective as well as a bandwidth issue for us to take advantage of, and I'll talk a little bit more about that. The second one is, as you probably are well aware, IT organizations around the world are continuing to look for productivity and to look for cost reduction. Probably the number one thing that will drive that over the next few years is virtualizing the network and moving much of your software to cloud services and things like that. Software as a service. Those types of trends are great opportunities for us, and quite frankly, are still fairly nascent, as far as a driver. Very good drivers. Of course, security, you'll hear a lot today.
We'll play in security in a variety of different ways, network security. You'll hear that in a variety of slides today and where we're positioned. But obviously, network security and network attacks are on the rise. Unfortunately, they're on the rise, but we are positioned to take advantage of those opportunities and to help customers solve those challenges going forward. The data's pretty straightforward here in terms of everything going on. When you think about mobile devices today, by the end of the year, almost everyone in the world will have a device. That seems like a lot. 6 billion. Big number to all of us. But the reality is that that'll probably grow by 40% over the next three or four years.
The advent of also machine-to-machine connections using the internet will grow and expand to billions of mobile device connections over the next five to 10 years. A tremendous growth driver for us going forward. There's disruptive competitors, free services that are offered that cause more bandwidth. You can think about Skype at 145 million users a month. That being free accelerates adoption, but obviously all those users are using the network, and that provides all kinds of challenges for the network owners as well. You've got data services that are growing at 18x the size of where they'll be over the next few years. Tremendous expansion. So those new services require service assurance. They require network monitoring, challenges, and things like that, and that's another big driver as well. Obviously, as I mentioned, cloud-based services are expected to grow.
Over half the CIOs that are surveyed would suggest to you that cloud-based services are their number one priority for driving productivity and efficiency in the IT network. Obviously, a big driver for us as things go forward, and I'll try to give you a picture of why that will be in a minute. Mobility and data services are a big driver, and our position in network optimization helps us not only help them get more out of their networks, but also helps them in many cases because we are a data source. As you think about monetizing that data from a consumer perspective, a lot of times now we've gone from working with the data center operators in the organization to the marketing organization and some of the carriers, because they want to use that data in ways to monetize and know more about their customers.
Our customer experience management solutions have been very helpful to many of the carriers in doing that, and that market is just developing. Let me give you a framework here of how you can picture our businesses, and where they sit relative to the network. You obviously know the folks in the bottom here, the network infrastructure players, companies like Cisco and Juniper and Alcatel-Lucent. Those are familiar names that you think about when you think of networking, both on the enterprise and on the carrier side. Obviously those are companies in that space. Traditionally, you'd think about us at the top, serving customers with applications that they would use to solve problems, principally in performance monitoring, service assurance, and security monitoring.
With VSS, I will talk about VSS, the most recent acquisition that we have done in the company, what we have really been able to do now is to actually get in between those. The advantages that we have traditionally had with all those businesses, and we will talk a little bit about why that is, are obviously good for us. As networks get faster, being able to do things in line was important to many of our companies, and VSS gives us the opportunity to be able to take advantage of the higher speeds and feeds that exist in that layer. The way to think about what VSS does is, if you think about all that network traffic going on, they are really deciding which traffic goes where, and to which tools, and to which things that will be used in looking at data on the network.
Think of it almost as a flow meter that is going to push certain kinds of data to certain places, sometimes to our equipment or our gear that will troubleshoot and diagnose certain things or do security services. In many cases, it will be to other tool providers or whatever that are doing other things in the network. We take advantage of the drivers that exist in the network within our market, but also outside of our market with VSS.
Larry talked about the portfolio shifts that we have done in the business, and I think it is important to understand what we have tried to do within the comms group to position ourselves for better market growth. Fluke Networks has been a part of T&M for quite a while, and we have talked a lot about FNet. When we bought Tektronix, we obviously got an instruments business and a communications business.
At that time, that business was roughly split between what is now our network monitoring business and the network diagnostics business, which served the labs of the network equipment manufacturers, people like Lucent and Ericsson. We saw that business as not as well positioned and really not as much growth going forward. What we really did at Tek Comms when we bought the company is to really position ourselves. Seeing all those trends and drivers that I talked about in the previous slide, we really saw Tek Comms able to take advantage of that. We really repositioned Tek Comms to really be focused on going after that growth opportunity. We had the advantage of really DBS and some other things within the restructuring of the business to be able to take advantage and really move that portfolio towards higher growth.
The second thing we did in the business is that we really recognized that data security was going to be a big deal, and that would be a big opportunity for us, and we really needed to make sure that we took advantage of that. Principally at the start, that has been principally through M&A. We will talk about Arbor Networks in a minute. We also made an acquisition, AirMagnet, which put us into Wi-Fi security. We will talk about VSS in a minute as well. What we really also did is, on the one hand, we were positioning within the portfolio, and on the other hand, we were adding to the portfolio in terms of network security to make sure we were positioned into some of the bigger, higher growth trends going forward. Here is really maybe how to think about the group.
Without one brand, it's hard to talk about it. You see at the top, sometimes we simplify the customer base into enterprise networks and service provider networks. As you can see, it's a little bit more complex than that, thinking about governments, thinking about, in some cases, network equipment manufacturers who might manage a network for a carrier. It's not unusual in places like, say, India, and also cloud hosting organizations as well. So a set of customers that we're selling against, principally today, direct through these businesses. When you think about the four businesses, Tektronix, really our largest part of the portfolio, roughly $400 million, is really trying to get to the wireless carrier and doing service assurance monitoring in that network. They really win by giving complete end-to-end visibility to that network.
Fluke Networks, part of the portfolio for a long time, good business, really a tools business focused in the enterprise network, $300 million, and really wins through vitality and their knowledge of the network. They're really constantly coming up with new. As the network changes and morphs into different challenges, our network team is really first and foremost in the industry of thinking about tools that can solve those problems. Arbor, newest, is really focused on what you would call DDoS. So if you think about distributed denial of service attacks, those are large bandwidth attacks at a particular company. The financial institutions in the U.S. have been targeted for those attacks this year. You've probably heard about many of those, and generally, it's Arbor that's in the forefront of protecting the networks against those problems.
It's really around not only threat detection, so you ought to think about Arbor as not only detecting that threat, but also mitigating it. Then finally, VSS, and I'll talk a little bit more about VSS, but that's really back to that flow meter or packet broker. They're really looking at the data, taking each packet, and separating it out and handing that off to the various parts of the organization that needs to deal with those specific pieces of data. If you think about our advantage at TekComs specifically, the way I think about this is this framework. You've got customers at the top. Those are all of us in the room. We've got a mobile device. On your right is really all the technologies. We talk a lot about LTE or fourth-generation networks, but the reality is that all of those networks are still mixed.
There's 2.5G, there's 3G, there's a variety of technologies in those. On the left are all the applications you use, whether it be email or YouTube or whatever. You've got lots of conversational video, as an example, FaceTime, if you have an iPhone. Those are what's going on. Then on the bottom, you've got really the end-to-end network. Everything from the device through the edge of the network to the data center to where that application might sit. The challenge to the operator is to really understand where's the problem. If you see the little intersections here, it's really trying to figure out, if your son's cell phone or daughter's cell phone isn't working, is it their YouTube video that's driving massive bandwidth expansion at a particular cell site? They can really troubleshoot down to that level of issue.
They can also broadly look at, is it a particular application? Is that an issue? We really give a very unique position in the network because of the current status of the network where we are at and the legacy of strength and share gain that we have had. Larry talked about the share gains that we have had, really position us in the top carriers around the world to really give unique visibility and unique opportunities to grow that visibility over time as well. It is not just a one-time shot where we go in and help them. It is really an ongoing relationship where we continue to build not only as they build their network out, but also as they become more challenged, we build new and unique applications.
As you think about things like small cells, some of the carriers today are talking about, particularly in dense urban environments like here in New York, where you may lose your cell phone coverage for a period of time, looking to do Wi-Fi offloading to be able to help you with that coverage in a particular area. Carriers will look to expand their network in those ways, and we are uniquely positioned to expand on those growth opportunities as well. That has led to good, strong financial performance. You can see here, Tektronix Communications' financial performance has been very good over the last few years. It has not only been a good growth and driver story, it has been a very good DBS story.
Larry mentioned a little bit about that, but as you think about DBS and the traditional thoughts of DBS, not really appropriate for a software and service business, but very appropriate for a business that needs to leverage R&D, get more out of R&D. You can imagine that these are large-scale deployments at customers with a long-term customer relationship. Doing that effectively and efficiently not only drives profitability, but gives us a unique advantage in the market, and we have really been able to do that over the last few years with DBS. I mentioned VSS and this packet brokering business. We bought VSS here in the second quarter, and VSS has been a great part of the business thus far. We are very excited to have that business. It is roughly a quarter of a billion-dollar market. It is growing very fast at about 25%.
You really think about it as both a service provider and an enterprise business. It plays in both of those market segments, and it plays along network performance and security. As we talked about where we are at in a lot of our businesses in performance monitoring, VSS potentially gives us data. It is another data feed. It plays in those marketplaces. In the bottom right, you can see where there is enterprise security challenges. They are going to be feeding various security companies who are going to do network security, including places like Arbor. They are going to be a player with us, but they are also playing to the overall security trends as well.
I will talk about the upper left-hand box, the service provider performance-driven market, where we are really going to market with some opportunities with Tektronix Communications, which really give us that next generation probe technology, which really gives us a great opportunity to leverage our current installed base and take advantage of the new technology challenges that are within carrier network. You can see that here. We are back to that diagram I had showed previously, and you can see here today, if you think about Tektronix Communications has these probes deployed throughout the network, and that has been a tremendous growth driver as we have deployed that growth with particularly in 3G and 4G deployments over the last few years. Now, with VSS and the next generation probe technology, we have got ability now to go deeper and broader with VSS data feeds.
It really gives us an opportunity, takes advantage of all the drivers that I have talked about before, whether it is bandwidth explosion or intelligent security challenges, but it gives us a competitive advantage because we now have a better ROI, lower CapEx, and optimizes our probes with a single pane of glass so the customer can really look at everything in one place. We are very excited about the opportunities here, not only as VSS as a standalone company, but also as an enabler for some of our competitive advantage for some of our other businesses. We have talked about Arbor, just to give you a picture. We have talked about them last year and where they were at and kind of what they do. As I mentioned, this is a distributed denial of service technology, if you will, in the security space.
Lots of different places in security to know about, but DDoS is the place we play. If you think about that, traditionally, our strength has been in the service provider market. We have the who is who of Carriers around the world, service providers around the world is our customer list. That gives us a great advantage. Our Atlas technology that you see in the middle really is basically the footprint of the whole internet around the world. A few years ago, when you saw when Egypt had some of their challenges, and you saw the internet sort of get cut off in Egypt, the data you were looking at and the visibility of that internet data feed came from the Arbor Atlas network. It is a unique advantage that we are positioned with service providers because of the fact that we have that installed base around the world.
Now what we are doing today is leveraging that business into the enterprise. You can imagine that that gives us a unique capability to really see end-to-end from all the issues that happen in the carrier to the issues that occur in the enterprise as well. We really got the most scalable product in the industry to really give you a great visibility of the network edge. We are well-positioned here, not only with carrier customers, but now a real strong growth on the enterprise segment with our Pravail product. Just maybe an update on the business. You can see we are growing at about 25% a year here in this business. We have had considerable share gain with about what we would call 100 new logos or 100 new brands. Op margin expansion has been good.
This has been a good growth story in emerging markets as these threats not only occur in developed markets, but obviously occur around the world. What we try to do is really help this business with DBS is to really expand the investment profile that they could do under our group, leverage our, then through investments in R&D and really expand the business geographically because of the footprint we already have today. DDoS really remains a difficult challenge for network owners, so the drivers here remain in the years to come. We really think this is a growth story in process, but we are excited about the first two and a half years that we have had with Arbor to date. I would not want to talk about what we are doing in comms without coming back to where we started, and that is Fluke Networks.
After it has been a great business for us, I think in the early days when Larry and I started at Fluke, I think Larry was the first one to recognize what a gem we had at F-Net at the time, and I think it has been an important part of not only a good business story but also a big part of our innovation teachings and some of the tools in DBS that are related to innovation have their starting point from F-Net a few years ago. Another good year at F-Net.
This year, this is one of our highest vitality businesses, well over 50%. We continue to see strong growth in this business in the enterprise segment. Lots of new products here as we continue to add products and software and services today that really help enterprise network owners deal with the challenges they have today, the new challenges.
In sort of the old days, F-Net sort of dealt with the infrastructure challenges. Your router was not reliable, but those issues do not exist really today. Today, it is more about application performance, the applications that sit on your network, do they really work? So really where we are moving this business today is really more around understanding applications. Then, as I mentioned before, we have positioned the AirMagnet business I talked about is really within the F-Net portfolio, and really that has positioned us on Wi-Fi security to do some new and different things. I talked about the BYOD. It is bring your own device, and obviously that is what I explained before. It is you want your iPad or your iPhone to work on the network when you are in the office.
It makes life a lot easier for mobile workers and everything, but it makes tremendous challenges for the network operators in terms of security, and that driver is very good for F-Net as well. We go back to where we used to be as well. As people continue to install fiber, our handheld tools, OptiFiber and MultiFiber Pro, those two tools really have a great position in the marketplace as people continue to lay fiber to deal with a lot of the bandwidth explosion issues that I mentioned before. Then obviously this business will continue to grow. I mentioned about some of the challenges with cloud and virtualization, and those continue to be challenges, and really F-Net is well positioned to take advantage of those with products and services that will be coming out in the next 12 months. We are really pleased with where this business is at today.
It continues to be a good part of the portfolio, and it has really got some really great innovations in some of the higher growth segments of the market. Just maybe bring that all together. Hopefully, you get a picture, I know it is quick, of the unique set of technologies and market positions we have today. You look end-to-end from the service provider to the enterprise network, we are well positioned today. When you think about the fact that those networks that used to be sort of walled apart from each other, today with IP technology are coming closer together. That is a convergence that we need to deal with, and we are exceptionally well positioned to deal with that convergence because of our strong position in both the carrier and the enterprise.
There really is no one in the industry that has that end-to-end capability from a go-to-market and a technology perspective like we do in the Comms group. Hopefully, you got a sense for the drivers and understand that despite the fact that we have talked how 3G has been a great growth story for us or some of the other drivers have been a good growth story, hopefully, you see from the data that that story is still in the first chapter, and that is really going to give us strong growth in the years to come.
You have seen how we have used, I think, targeted M&A to position us well here, and we will continue to do that. Those opportunities, as I mentioned, the served market expansion was part of our work to really understand that, where we could do some new things, and this gives us a good opportunity to do that. We will take a few questions. Looks like Megan is going to pick.
Got it. Thank you.
Jim, be interested in hearing about some of the product overlap and synergies with the Tek instruments, with Tek Communications. When you sell network monitoring, you have hardware like the scopes and the probes, and is that considered, does that roll up to the.
No
Tek Communications, or is that separate?
No. We keep those business. When we talk about instruments, we will generally talk about Fluke and Tek instruments, and then when we talk about Communications, we will talk about the business that is separate to Tek Communications. Tek Communications revenue has no what we would call, let's call them bench instruments that Tektronix is known for.
Then, second question is on the rollout of 3G, or excuse me, for 4G. Just give us a sense of what sort of CapEx investment that involved, what sort of technology leap did that put on the organization, maybe some examples of DBS that brought you.
Yeah
to that stage.
Well, as you probably know, the reality is the 3G, in the history of this industry, one of the challenges is when you make a technology leap, is that the current business really puts a lot of stress on the organization to deliver. It generally, in history, in other organizations, has meant that you've missed the next technology turn. We were quick to understand that challenge because the team was aware of it, and I think there was no brilliance on our part in terms of bringing that to the team. What we brought to the team was DBS.
The team quickly embraced using DBS in the R&D organization to be able to work on 3G deployment, use DBS at the deployment phase to make sure we had enough customer satisfaction, and dealt with some of the satisfaction issues that would've historically occurred from a large-scale deployment while we were still developing products for 4G. So DBS really made a huge difference in our transition from 3G to 4G at Tektronix Communications. Where we're at on LTE is still pretty early. When you really look at the revenue base, I don't have exact numbers, but the majority of that is not revenue for LTE at this point. Where are you going to go? Cliff?
Cliff Ransom. You touched on this in the answer to your last question, but when you think back over your experience, has there ever been a market with which Danaher has past knowledge that has evolved as rapidly as this one? How are you keeping up with it?
These markets are clearly fast-paced, there's no doubt about it. I'd put fast-paced into two places. One is the technology changes a lot, so you need to be able to pick what's going to be next. Two, obviously the M&A front, you have to be fast because if something becomes available, people generally move a little bit quicker. I think when you look across the portfolio though, honestly, we've got lots of examples of where that exists today. I don't think this is a 5x difference from what we do in other places. Some of the things in my group, what's going on in payment as an example for Gilbarco Veeder-Root, is a fast-paced industry as well.
I think this is clearly a fast-paced industry, but I think when you think about the trends, whether it's mobility or big data or some of the sort of big mega trends that people talk about, those are hitting a lot of our businesses. I think as you listen to Dan and Tom, you're going to hear a lot about that as well. I think you'll see as we go through the day that as our portfolio's evolving, I think our ability to deal with those, maybe call it speed of industry, is adapting as well, and I think we're well positioned to continue to do that.
Jim here.
Yeah, one more.
Yeah, maybe just, it is pretty related actually, but when you think specifically about this declining attractiveness of the testing business, selling the network equipment makers, most companies that have found themselves in that position, we tend to see more of the pain before they get through kind of a portfolio transition. How were you able to, I guess manage that fairly seamlessly?
Yeah. It maybe seems seamless in retrospect. I think we were very clear about priority, and I think that is what is hallmark of Danaher, is not being ambiguous about what we were going to go do. We took a little while to figure that out, but once we decided what we were going to go do, the 100-day strategic plan, we went and did it. We did it with the team. This was not something where we brought something in. We worked with the team to come up with that. Now we have the advantage, I think one of the advantages we have is of the portfolio. We have got other parts of the portfolio. We were planful in when and how we did it, and it comes off as being seamless.
The reality is, it was not as seamless as it seems, but it seems more seamless to the external environment because we have the opportunity to kind of do that with Larry and Dan in sort of a coordinated effort, thinking about how we are going to do that in relation to how the rest of the portfolio is performing. So you are able to do it and pull it off. But that is something that Tektronix, in a smaller publicly traded environment, would have found extremely challenging. But we could do it at a bigger size. Yep. Last question, sorry. My time is up according to the readers.
Jim, how much of Tektronix is traditional oscilloscopes and related instruments, and what are customers saying about their CapEx intentions for those products in 2013?
Well, the instrument side of the business is still $1 billion. Scopes is a big chunk of that. We've clearly seen a move to delaying those spend situations. I think we have more color around that in the developed markets like the U.S. And obviously, although we don't have a lot of mil/gov business in the United States, that was a growth opportunity for us, and we were growing in that segment. While it wasn't a big part of the percentage of the revenue, there's clearly no clarity on where mil/gov is going to be right now. So very little clarity there. I think the thing that's sort of coming into a little bit better sense is China. That was a big headwind.
It's been a big headwind for Tek for the last really 15 months, and that's starting to look a little bit better for 2013, but that's very early stage. I wouldn't declare victory at all. I think most people are saying 2013, we're going to get back, but very few are giving us a timeframe for that. I think we sort of have a more conservative plan for that going forward, so that we're not surprised. The only surprise we might have is to the good. Larry will talk a little bit about expectations for growth next year, and he'll give you a little color on T&M at the end of the session. Okay, thanks.
Thanks, Jim. Thanks, Jim. Very well done. Shannon, just back to your question, if I may, for a moment. When we talk about DBS, it can mean a lot of different things to a number of different people. But whether you hear us talk about policy deployment and the way we take, if you will, strategy from the boardroom down through the organization or daily management in terms of how we make, if you will, the trains run on time, be it in the factory, be it in the lab, be it in the sales force. These ideas that Jim hit on around priorities, around resource allocation, around expectations, defining what good is or not, is incredibly powerful. I think that's a common theme across the portfolio, and really, when we talk about DBS, there's so many tangible elements of that toolkit.
But the way we are clear about priorities, the way we force decisions to make sure we are resourcing those priorities, and in turn, setting winning expectations around what those things that we sign ourselves up for, really, I think, is often the difference, and the tools in many respects are secondary in that regard. So hopefully you got a little bit of a sense there, as to what's happening in comms. Again, the enterprise side, the carrier side, a traditional bifurcation, the advent of IP, really erasing that border. What we've been able to do with both businesses, the traditional businesses, Tektronix Communications and Fluke Networks, is really set ourselves up to play in security, to play in 4G networks in a way that I think is going to be a winning formula for Danaher going forward. In a similar vein, Tom Joyce is going to come up.
Tom, I do not know how many hats Tom has on his head currently, but Tom is the Executive Vice President with responsibility for our Life Sciences & Diagnostics business. I am sure he has lots of Beckman Coulter titles, but he has been point for us since the acquisition in driving the integration rather well. Tom?
Thank you, Larry, and good afternoon, everyone. Before I take you into a deep overview of the successes that we have had at Leica Biosystems, thought I would give you a brief refresher and a bit of an update on the life science and diagnostic portfolio in total. As you notice here, we play in an extraordinarily large market, a market now in excess of $36 billion. As we have expanded the portfolio over a number of years now, we have gained access to an ever greater market, and you will see an example of this when we get into Leica Biosystems today. Terrific long-term and very stable growth drivers across this market, and clearly some segments in this market with even healthier growth rates than you see here.
With the advent of Beckman Coulter, the addition of Beckman Coulter, you see now this portfolio is approaching $6.5 billion in revenue, with a wonderful mix of instrumentation and consumables, enhanced by the addition of Beckman Coulter. As it also has done to our geographic mix, bringing a very strong position in emerging markets, along with the organic growth that we have driven in those markets as well. Now a portfolio with operating margins at roughly 13%, a good lift over what you saw a year ago now, and not exclusively on the back of the improvement at Beckman Coulter. We have seen good operating margin expansion across the totality of the portfolio in each of the businesses represented. We serve a very broad customer base.
We serve, obviously, hospitals, and we will be concentrating on that customer set today when we talk about Leica Biosystems, but we also serve reference laboratories, broad array of public and private institutions across government and academia, as well as a wide variety of applied markets in food and beverage, in pharmaceuticals, and in forensics. A portfolio of leading brands, of wonderful brands that have created strong competitive advantage across a variety of different segments. Today, we are going to concentrate on one of the truly great brands in the portfolio, Leica Biosystems. Leica Biosystems is represented in a market of over $3 billion. What you will see in a few minutes is how, through both organic and inorganic means, we have expanded our position in that market.
Great long-term growth drivers across this market and a business now in excess of $500 million, again, with a wonderful mix of instrumentation as well as consumables and service. What you will also learn today about Leica Biosystems is that there is a software and an IT component to Leica that is very important to driving workflow efficiencies in the laboratory. Leica Biosystems is now in the high teens from an operating margin perspective, and a geographic distribution that I think you should notice really represents an opportunity. You see a level of under-penetration outside of the developed markets of North America and Europe, and we will go into that a little bit more deeply in just a bit. Leica Biosystems serves primarily hospitals, and within hospitals, we serve the histopathology lab, histo referring to the analysis of tissue.
In the analysis of tissue, really looking to diagnose the presence of disease, and often that disease is predominantly cancer. In addition to serving hospitals and histopathology labs, Leica Biosystems is also represented in academic institutions as well as in reference labs. When you think about the macro drivers for Leica Biosystems, you should think about it really in three general categories. The first of those categories is the increasing incidence of cancer and the increasing costs of healthcare. The second of those categories is really in the area of advancements in diagnostics, and the third in the challenges that are represented by skilled labor shortages in laboratories. Cancer is the leading cause of disease and death in the world today. Over 12 million cases diagnosed annually, as you see here, over 1.6 million of those cases in the U.S. alone.
The NIH estimates that again, in the U.S. alone, the direct medical cost of cancer is in excess of $100 million. While a challenge clearly in the developed markets, also a challenge but a great macro driver, unfortunately from a disease standpoint, but from a business standpoint, a powerful driver for us is in the high-growth markets. These markets are really just emerging today, and we will talk more about that in just a bit.
As healthcare costs become an increasing challenge and the treatment of disease an ever-greater challenge, we see a greater focus on screening and monitoring of disease. The impact of increased screening and monitoring, which is then represented in higher levels of diagnostics, ultimately believe results in lower healthcare costs. As we have seen, for example, in the decreasing rates of, say, breast cancer mortality as a function of higher levels of screening and more advanced diagnostics.
The second of those macro drivers I mentioned is the advancement in the diagnostics themselves. As those diagnostics become more sophisticated, diagnostics that we are developing today, increasingly, we are seeing those tests linked to drug therapies. As those linkages become more powerful, we see improvements ultimately in mortality rates and the decrease of healthcare costs. Finally, an enormous challenge for healthcare facilities around the world today is a shortage of skilled labor. Leica Biosystems brings an extraordinary portfolio of solutions that you will learn about today that address this macro driver through automation, through sample tracking, through digitization of imagery, and ultimately results in decreased costs, better turnaround time, and better patient outcomes. The history of expanding into the market that we participate in today, that $3 billion market I mentioned, is an interesting one.
Our foundational position for Leica Biosystems is not one that we acquired essentially in isolation. It is one that came as a function of the acquisition of Leica Microsystems. You may recall our reference to this years ago after acquiring Leica Microsystems, there was a largely non-strategic position at Leica Microsystems referred to as sample processing or specimen processing. This was a core histopathology suite of instrumentation present in the labs at that time. We were fortunate, obviously, then to have succeeded in acquiring Vision BioSystems, which expanded our market position, as you see here, into immunohistochemistry and advanced staining. With the addition of acquisitions like Coretech and Surgipath, we then broadened our offering to include consumables. Consumables that created real value in terms of patient outcome because of their linkage within the workflow to creating ultimately a higher quality of diagnosis.
Today, you will learn about how we have expanded our position in digital pathology, particularly through a newly acquired business, but also through some fundamental development that has gone on at Leica Biosystems for the last couple of years. As you look at that progression over roughly the last seven years, you see how we have moved from a low single-digit market at its outset, now to a high single-digit market with frankly, as you can see here, some segments that are even more attractive at high double-digit growth rates, particularly in digital pathology. A wonderful market and a terrific position for Leica today. Now to give you a bit of a perspective on what Leica Biosystems' role is in cancer diagnostics, I will take you into the pathology lab. It all starts with a biopsy, and many of you in this room may have had that procedure.
Many of you may have loved ones who have had that procedure, essentially taking a tissue sample. Once that tissue sample is brought into the lab, it is essentially identified through a series of steps, an identification process that is critical to sample control, and we will go into this in a bit more depth. It then proceeds through a series of steps that essentially prepares that tissue sample for what would then be a staining step.
The staining step is what allows that largely transparent piece of tissue to be visible to the naked eye through a microscope, through the use of a variety of different primary and secondary stains. This is what allows the morphology, or essentially the shape of the cells, to be visualized. And it is through the analysis of the shape of those cells, that morphology, that the diagnosis is ultimately achieved. That is the overall process.
Leica today, as you will learn as we walk through our positions in the key steps in this process, has an unrivaled position across this workflow in terms of instrumentation, in terms of consumables, as well as software and information technologies. The way we win, ultimately, and the way we have won and grown share over the last number of years in this terrific market is through the way we provide a complete workflow solution to the pathologist and to that laboratory clinician. That complete workflow is made up of a series of elements that I just mentioned. Instrumentation is at its foundation, as well as information technology. And I will take you through those individual positions and their competitive advantages.
Over time, we've broadened that product offering, and we've linked the components of that workflow in ways that ultimately deliver a higher quality diagnosis than our competition can do today without that broad suite and its associated integration. Finally, we create competitive advantage by the way we go to market. In many cases, we're ahead of the competition by virtue of the way we've expanded our commercial positions and the way we've made investments in bringing new products to market. I mentioned the start of the process where a biopsy comes into the laboratory. The whole process starts with tracking that sample. In a large academic or city hospital today, there may be over 1,000 tissue samples processed in that lab per day. 1,000 individual slides.
Imagine the challenge there is associating 1,000 slides a day with each of the steps in that process that I just walked you through and associating each one of those with the patient. This is a process that unfortunately can result in an error rate of patient sample identification of anywhere from 0.5% to 3%. A tremendous opportunity that is captured by bringing better information technology to the lab, in the case of Leica Biosystems, through a product that we call CEREBRO. CEREBRO is the most advanced sample tracking software available on the market today and is capable of tracking a biopsy through every step of the histopathology process from the time it's assessed into the lab until the time it leaves the microscope. A unique capability and one that ultimately provides obviously higher quality outcomes to the patient and lower costs in the laboratory. Second is instrumentation.
We've created an extraordinary position in instrumentation today by having the most advanced suite of highly automated instruments in advanced staining. The newly introduced instrument known as BOND RX with the addition of BOND advanced software, enables mid-size hospitals, and we've typically played in very large hospitals, gives us access now to more mid-size hospitals with greater levels of reliability and less touch labor associated with the instrument. As an example, BOND RX plus the advanced software reduces the setup time in a given lab for a given instrument by over 25%. It reduces the touch labor time by in excess of 15%. Improving obviously the cost in that lab and ultimately in turnaround time as well. We've had tremendous success driving the installed base.
We're represented in iconic facilities today, healthcare facilities today in the U.S., such as the Mayo Clinic, such as MD Anderson in Texas, and we continue to gain share in not only in North America but in Japan as well. You see the tremendous growth in placements in China. Now, increasingly, we're improving our position with a direct selling model in countries throughout the world, particularly in Europe most recently. Application support is critical to how we drive our instrumentation placements. Once that instrument is installed, the consumables pull-through is where tremendous profitability is generated. A $100,000 instrument placement might generate $300,000 to $400,000 of consumables pull-through over the next five years. As you see here, we continue to grow our reagent revenue consistently in parallel with that instrumentation placement and see increased profitability associated with that over time as well.
Instrumentation and software and that IT backbone create the foundation for success in the laboratory. Ultimately, value is created through the menu, through the assays themselves. That value comes from the confidence that is associated with a high-quality menu. On the upper left-hand side, you see a picture of what a slide would look like in a digital imagery associated with a tumor that was extracted from a breast. Breast cancer, unfortunately, is the second leading cause of death behind lung cancer today globally. Leica has developed an extraordinary assay referred to as the HER2 assay that is associated and has the ability to identify patients with HER2-positive breast cancer that can then be treated more specifically with the drug Herceptin, ultimately leading to a better outcome than would be associated with general chemotherapy.
In the upper right-hand side, you see additions to our menus in breast markers and lymphoma markers. The color codes that you see represent the specificity and the sensitivity ratings by outside clinicians after testing these assays against the competition, universally compared as superior to its competition in the market today. In addition to adding the breadth of menu, we have also improved the usability of the individual assays in the lab. What you see in the lower left is a series of graphics that simply represent new packaging, moving from concentrated reagents that required a series of steps of dilution before they could be used now to ready-to-use assays in packages that create an ability to essentially load and go, reducing, again, touch labor time and lowering cost in the lab.
Finally, in the lower right, the ChromoPlex detection capability is a unique ability that is provided only by Leica Biosystems to essentially stain a tissue sample with two different stains at the same time, and in so doing, improve the level of diagnosis and essentially cut the turnaround time in half by virtue of doing what would amount to two tests at the same time. A very unique capability that builds on that instrumentation and IT backbone with an expanded menu that drives ease of use, higher quality, and ultimately better patient outcomes. We have now walked through the steps and the workflow associated with getting to the point where we now want to understand that image and get to a final diagnosis for the patient. Here we are going to talk about the advent of digital pathology.
Years ago, the diagnosis was simply made through what we would refer to as classical microscopy. Obviously, this is not our father's microscope. This is probably our grandfather's microscope or our great-grandfather's microscope. Fundamentally, up until about a decade ago, all of that diagnosis was made through the dual lenses of those microscopes. In the most recent decade, we saw the advent of digital microscopy.
We saw the presentation of images now on a screen. In fact, I think those of you who have seen demonstrations of the Leica instrumentation in the past have seen us introduce instruments with these capabilities over the last several years. Digital microscopy has now moved to what we refer to as digital pathology. The ability not only to capture and store the image, but now to share that image, to analyze that image, and ultimately to diagnose from the analytics that are presented through software.
A true breakthrough in moving from store and capture imagery to finally making enhanced diagnoses. The acquisition of Aperio Technologies vaulted Leica Biosystems into a leadership position in this fast growth market today, a market growing, as you see here, in excess of 15% annually. As tests become more complicated, as the analysis that is required takes a greater level of sophistication, and as networks now are increasingly looking to share imagery across different pathologists, digital pathology becomes an imperative, and Aperio is the leader in that market today. It brings significant competitive advantages in hardware, as well as the analytics associated with the software, and in addition, brings FDA-cleared tests that allow us to create a competitive advantage and a barrier to entry in some very important assays in this market. Aperio has been fundamentally under-penetrated across this market today.
As you'll learn in a few minutes, the adoption across a variety of markets geographically is still ramping, and so we're making significant investments in Aperio to advance its go-to-market, and we think we can take its growth rates to whole new levels. Aperio starts with a competitive advantage associated with having the largest install base across pathology today, and also the largest team by a factor of 2 of application specialists helping pathologists today with what is fundamentally a new technology. If we look geographically, we would see, as you saw maybe in the pie chart in the first slide I presented, that this is still a market that is still emerging today.
We talk about emerging markets generically, specifically as it relates to advances in histopathology, there is still a level of under-penetration in high growth markets, particularly as it relates to advanced instrumentation software and certainly in digital pathology. As you see here, 17% of total sales in high growth markets for this business below the average that we would see across our other businesses, but again, suggesting a tremendous opportunity for growth over time. We're seeing China now at double-digit growth, but frankly still ramping. The adoption rates of advanced technologies in China are still behind the global averages, and we expect to see those adoption rates increase over time. There's clearly a lot of investment in these technologies, in China and in other markets as well.
We also see a unique situation emerging in these markets where these are markets where the networks that I talked about and the ability to share imagery for purposes of diagnosis is becoming increasingly important. Where developed markets and clinicians in those markets are now leveraging the talents and capabilities in lower cost markets, but need the ability to share those imagery seamlessly and quickly across networks. Again, a great opportunity for Leica Biosystems, both by virtue of our position in those markets, as well as through our now more significant position in digital pathology. We're making significant investments not only on the commercial side, but on the product development side. Now with over 30 folks in China today, developing products in China, for China, in histopathology.
As you can see here, China's not the totality of the story, but terrific growth across the other emerging markets as well. When we pull all this together and we look back at Leica Biosystems, we see a business with a tremendous trajectory of growth over time. We see how acquisitions have contributed to expanding the scale and the scope of the market that we talked about, not only through product, but also through acquisitions that expanded our go-to-market capabilities, such as Finetech in Japan, such as Lab India in India, that expanded our capabilities to reach that market more effectively. DBS has played an enormous role in Leica Biosystems, not only on the operational side, but on the commercial side as well, and has clearly made a difference in advancing the innovation engine that is LBS today.
Finally, you see how those come together into a terrific growth story and a wonderful business from a profitability perspective as well. In summary, we're highly advantaged in this market today. The capabilities that we bring at Leica Biosystems in terms of bringing together sample preparation and the capabilities around information technologies with instrumentation, with breadth of menu and novel tests, and now leveraging the technology associated with digital diagnostics puts us in an unrivaled position across the entire market. We hope to continue to use acquisitions to broaden our capability over time. We're going to continue to make sure that we're making aggressive investments in R&D and advancing particularly, the menu side.
We know that DBS will continue to help us accelerate growth and drive margin expansion in the years to come. While it probably is obvious to all of us the value that Leica Biosystems has created for Danaher, for all of us as investors, I think it's also important to appreciate that ultimately the real value that Leica Biosystems delivers is to patients and ultimately to the families of those patients. With that, we'll take a couple questions.
Hey, Tom. I guess you talked a lot about the potential positive drivers, obviously, and not to sound a little dour after that piece there that you put up there. If you think about it, at least in the U.S., obviously, there's the potential for significant pressure on reimbursement, and then you have, obviously, the medical device tax. Can you maybe just talk about strategically how you're planning for some of those issues and what makes you confident that it can power past some of those issues?
Sure.
Thanks.
Sure. Yep. No question, reimbursement will continue to be a challenge in the market today, as we've seen recently some changes in reimbursement that certainly can create some headwinds for hospitals and cost pressure on us. It's imperative that we continue to be the answer to some of those cost pressures, that the capabilities we bring in terms of automation, in terms of the capabilities to reduce cost in the lab, are ultimately the answer, not part of the problem from the standpoint of those cost pressures. I think that clearly is our strategy.
The medical device tax comes into play, we expect after the first of the year. That'll be a headwind for us. But we'll be doing everything we can to make sure we're doing the right thing from a cost perspective on our business. To the extent that we can drive price in the way we normally would, we'll make every effort to try to do that as well. Meg's going to move the microphone around here for me.
Thanks, Tom. Just first to follow up on that question, then a second one. On that one, could you be a little more specific on the reimbursement strategy, though? It's great to be positioned in a place where you're driving lower cost in the system-
Right
but how does that really manifest itself so that you're able to change the mix, or what are you actually doing to minimize that pressure over time? Are you currently feeling it in your customer base today, for example?
Yeah. There's no question. We see reimbursement changes happening. There's no doubt about that. I think the best we can do is make sure as and I apologize for having a sense I'm repeating myself, so I may have missed what you're driving for there. But we need to make sure that as that hospital laboratory, which by the way, is typically a profit center for the hospital, as that profit level may be coming down, it's not going away. They're going to continue to be a profit center. We are able to come in and ensure that one of the more significant components of the cost of running that laboratory, which is labor, comes down. The second major component of their cost structure that we help to reduce or improve is the quality level that's frankly associated with rework, with having to do tests over again.
By delivering a higher quality, by better sample tracking and so on, we help to improve their cost structure. I think those are the specific things. Ultimately, the decisions that are made on reimbursement are not things that are frankly easily influenced or controlled. We do our best to make sure that legislators understand the value we create, but those are challenges.
The sales force has the capability to value sell at that level already, or is this new capability?
No. The Leica sales force is highly qualified as it relates to value selling. It's been a skill set that they've developed over a long period of time and is a tool well-enabled at LBS.
Okay. Just lastly on Beckman. You pointed out mid-single digit growth for 2014 now, and troponin and some other things I thought were sort of a barrier to, or the idea that you would be able to drive faster growth there over time. Now you are putting a good, really more aggressive growth on the table. Can you give a sense for what are the barriers or assumptions for you to get to that mid-single digit growth, what you are looking at today as opposed to six months ago or a year ago?
Yeah. I cannot recall making a single comment on any Beckman growth in that presentation, but nevertheless, I am sure Larry will take more of those later. There is no question. We are looking to get the other side of the troponin challenges, and Larry mentioned the fact that we had submitted those 510(k)s. So we are making progress there, and we hope that that becomes something that is no longer a headwind for us when we get past those approvals. We think there is a variety of other things. Larry showed some of the innovation, some of the new products, the AU5800, which is doing exceptionally well, that we think will contribute as well. So I would not necessarily hang the Beckman growth story exclusively on getting to the other side of troponin.
Tom, I got it right here.
Sorry.
Right here, Tom.
Okay, thanks for the wave.
How you doing? Jeff Sprague from Vertical Research.
Okay.
Thanks. Back to the device tax.
Yeah.
As you looked through this, it is clearly not crystal clear how all this works.
Yeah
Should we assume that every piece of physical equipment you sell is going to be hit by this? Or there are dual use or multipurpose kind of loopholes that you can try to avoid parts of it, is question one. Question two is, my understanding is it is based on gross sales. We do not know the structure of your concessions and other things you might do in the channel. Is there a big difference between Danaher med tech gross sales and what we see as net sales in your P&L?
The answer to that second question is there is not an enormous delta there. Let me back up to the broader context of that question. First of all, there is a lot that is just getting clarity right now around the medical device tax. I think most of you probably recognize there is a lot about the entirety of the Healthcare Reform Act that still requires clarity. Relative to the specific question you asked, it is focused on instrumentation that we sell in the U.S. It is focused on instrumentation that we sell fundamentally to hospitals for healthcare.
I am not going to go any further than that, not being an expert in either the reading of the law, nor frankly, based on the fact that there are still some things that even lawyers and folks who provide guidance in this sort of area are still trying to sort out on behalf of not just Danaher, but everybody in the industry. Meg is giving me the hook.
The hook.
Larry, it's all yours.
Thanks, Tom. Jeff, operators love tax policy questions, so thank you for that. We'll talk about medical device excise tax a little bit later on when I wrap in terms of how we look at that quantitatively for the roll forward. I hope, for those of you who have not heard the Leica Bios story before, you get a sense as to how we try to look into the future. When we started the diligence at Leica Microsystems, we were aware of this product line. We had no idea.
Certainly, unfortunately, we knew oncology is a growth business, but I don't think we fully appreciated until we got in there and started turning a few of these stones over, the jumping off point that the Leica Microsystems transaction provided us to really create a bona fide growth driver, growth engine on its own at Leica Bio, as you can see from Tom's presentation. I think in a similar vein, our next and final presentation from Dan Daniel, the Executive Vice President with responsibility for our industrial technology segment. His story will really build on what we've done in packaged goods and supply chains, primarily around marking and coding with Videojet and some other related brands, to get into a much broader play in and around really the change, often described as revolutionary change, in packaged goods supply chains. Dan, it's all yours.
Well, thank you, Larry, and thanks to all of you for being with us here today. I know it's a busy week at a busy time of year, and I know Tom, Jim, and I really appreciate the opportunity to focus on a key area of our platforms, get into it in some depth, and really talk about some of the exciting growth opportunities that we see. As you all know, in industrial technologies, we've made a couple of significant investments in our product identification business in the last 18 months or so with the acquisition of Esko and X-Rite. These are two very exciting and, dare I say, fun businesses to be in. I know our teams are fully engaged and are excited about the potential and really how they expand our market potential in product identification.
Before I do that, I just want to spend a minute on the industrial technologies platform. As Larry indicated in one of his earlier slides, over the last couple of years, we have done some portfolio work, primarily around the divestiture of our aerospace and defense businesses. We think the portfolio today is positioned and much stronger from a growth potential and a growth opportunity standpoint. Margins are strong on our $3.3 billion in sales. We are very much focused on continuing our growth in emerging markets. Product vitality really cuts across all of our businesses and is a key growth driver for us. We are really targeting these four key market and end customers. We will talk a lot about consumer packaged goods and global packaging companies, primarily in Product Identification, but also in some of our motion and specialty businesses. Those are attractive markets as well.
Our automation businesses are very much focused on machine and automation OEMs and medical equipment and devices, including Tom's businesses, are important markets for us as well. Product Identification today is almost 50% of the sales in the platform. Just four years ago in 2008, that was roughly about 25%. Clearly, we have emphasized product ID, the growth potential in our core marking and coding business, both organically and from an M&A standpoint, has been outstanding. Really what we are going to focus today on is our expanded market and addressable market and potential that lies with Esko and X-Rite. It has been a wonderful growth and value creation story over the last 10 years. The platform was started in 2002 with the acquisition of Videojet, which at the time was about $400 million in sales. Today, a dozen acquisitions later, you can see we are well over $1.5 billion.
It continued with our Linx business in marking and coding in 2005. These are both businesses that have been growing at an above-market rate. We have been gaining share for the last few years. We certainly think that is continued here in the recent past. That has largely been about emerging markets, building our distribution capabilities, feet on the street, but also product vitality. You have heard the 1000 Line Videojet story. We recently launched some enhancements to the 1000 Line that are really going to continue our share gains in Videojet. Linx has launched some new products as well, and both businesses have some new laser product lines. Product vitality is continuing to drive outstanding organic efforts and growth results across those businesses. Esko and X-Rite are two actually quite similar companies in a very complementary market space, including going back to the history of the companies.
Esko really came together through two competitors in the marketplace, Esko and Artwork. Both software companies serving the packaging market came together in 2006. X-Rite came together with X-Rite and GretagMacbeth, followed by Pantone in 2007. Some market combinations during that period of time. Both came through the recession and weathered the downturn and I think exited the recession in a stronger position. We believe both have very strong mid-single-digit growth potential. Esko has certainly done that over a long period of time, and it has been a growth accelerator for us since we owned the business back to March of 2011. X-Rite has probably not been a mid-single-digit grower, but clearly, we believe the opportunities ahead can make that be the case. Both very strong gross margins.
Both were relatively new to the emerging markets, about two- to three-year efforts, so tremendous potential ahead with emerging market growth in these two businesses. They are both about 25% of sales today, and the broader Product Identification business has sales from emerging markets in excess of 40%. So, a tremendous opportunity in emerging markets as well. Esko is primarily a software business. Over 60% of revenues come from recurring software and service revenue. A very important hardware component to the business as well. X-Rite has historically been more of a hardware company, but we certainly see opportunities to build the software capability in X-Rite and generate more of a recurring revenue stream. A couple of the greatest things about these two businesses is their brand equity and their relative market position, both extremely strong. X-Rite is both in the X-Rite brand and also with Pantone.
Those are two of the strongest brands now in the Danaher portfolio. Esko is really the de facto standard in terms of software in the packaging space. So, outstanding brand and relative share position, and again, very much in a complementary market with their capabilities. Before I talk about how we have expanded our addressable market in Product Identification, let me just sort of paint the picture of the packaging workflow and value stream in the business. It starts on the left-hand side of this screen with a brand owner who is trying to design a package to put on the far right on a retail shelf. In today's world, competition at the retail shelf level is intense. Product proliferation is extensive, whether that be a global brand trying to penetrate an emerging market or a local market or vice versa.
Product promotions, customization, packaging proliferation is really expanding and causing the need for an accelerated and expedited workflow. From the brand owner in concept and design, it then goes to a design prepress house, who sometimes helps in the design, in other cases, helps ready the design for a packaging process, gets it ready to be built. Then there is a series of printers or converters that actually make the package itself. Then there is some cutting and some merchandising that really happen before it gets to the retail shelf.
Historically, our business has been in the marking and coding, and that was roughly a $5 billion space, mid-single digit growth. That is really at the end of the process. The design work is done. These companies are doing the design work up front, and these are primarily packaging engineers and operational processes that are actually responsible for the marking and coding.
It has been a very attractive market for us. What Esko and X-Rite have done has really moved us upstream into the front of this value chain. Both Esko and Pantone are very heavily involved in the design process. I will talk about Esko's software and how it facilitates processes through the packaging value chain. Pantone is the color standard that all designers and graphic artists know and specify. Esko also has software going through the conversion process and some of the operational printing and converting processes. X-Rite actually has hardware and instruments that help on the upfront side as well, both in terms of measuring color, monitoring color, and then communicating color throughout the value stream. So this is really a market expansion.
We think it adds about $3 billion of served market potential to us, and at the end of the day, gives us the opportunity to really bring value to customers in terms of speed to market, overall lower cost, and higher quality, particularly as it relates to color. From a macro growth driver standpoint, the packaging market is attractive to a number of our operating companies in industrial technologies, as I said, but particularly to Videojet, Esko, and X-Rite. The globalization of the supply chain continues to expand very rapidly. High growth markets are really growing quickly in this regard. Higher spending and consumption is one of the drivers. Brand owners are increasingly requiring the products on the shelf in Argentina or China to look exactly the same as they do here in New York City.
It is that color consistency, it is that packaging standardization that is really driving investment and creating growth opportunities in the packaging value chain. As we have seen in our marking and coding business, increased regulatory requirements, more data that has to be displayed on the package. Really what that requires is better upfront planning of the package so the required information gets on, but the packaging remains visually appealing and competitive on the shelf and trying to attract our consumers' dollars.
Going forward, really see tremendous opportunity to condense this value chain, speed it up through the internet, through digitization, and we have got some exciting opportunities to help win in that space. I will focus on Esko here for a couple of minutes. Esko really touches the entire value chain, but most of what they do focuses on the brand owner. There is really a handful of key criteria that Esko tries to deliver with brand owners. Everything they do is focused on this. Got a short video here to show you to highlight how we do that with consumers and brand owners.
You want to be a good payer. You want to avoid errors and avoid losing money. You want people to value your expertise. You want color accurate results. You want to reduce your prepress orders. Still, you want to produce as fast as possible while making money for yourself and your customers. You need a reliable partner. Esko can be that partner. Together, we will create results that make you smile.
Speed to market, quality, appearance, cost, these are all things that matter to brand owners. Green, sustainability, and Esko has a number of tools to help make that happen faster in a better way. Really through their software product lines, a number of aspects of the value chain are touched and expedited with Esko software. It is really the core growth engine of the business. If you start with the same value chain, the workflow within this really starts with the brand owner, as I said earlier, goes on then through the value chain, and there is back and forth. There are iterations, there are approvals, there are changes. That workflow has historically been very manual. In many cases, actually manual from a visual standpoint to make sure the color matches.
What Esko's software does through their automation engine is help automate that workflow, both in terms of repetition from an approval standpoint. The WebCenter is a brand owner tool that helps them manage the entire value chain and the packaging changes, track approvals, track final drafts, and expedite that workflow into a very rapid and higher quality type of process. Historically, the Esko CAD software called ArtiosCAD has become the standard for packaging designers in their CAD work. With Suite 12, which we launched mid-year here with Esko, what we have really developed is 3D capability and really raised the game in terms of 3D capability for the designers and our software users. The reason that is important is packaging is not flat. It allows a designer to see what their package looks like earlier in the supply chain.
If I can get this computer to work properly, I will show you a couple visual examples of that. Always a bit of a technology risk. This is the 3D package that allows a designer early in the process to see how it actually looks on a box, once it is shaped, once it is bent, once it is formed. Does it end up as an end result what they are really looking for in prominently displaying the brand? In addition to that, our 3D capabilities have expanded with our Studio Store Visualizer, which helps a designer, even at the first stage of a packaging design, see what it is going to actually look like on a shelf.
With our Studio Store Visualizer, again, it helps from a planogram standpoint, so they can see what packaging looks like on the shelf, to see how product needs to be arranged in various configurations. How product can be adapted, turned on shelves for optimal shelf space analysis. Color can be changed easily. In a few seconds here, it will show what the package actually looks like in the eyes of the consumer as it comes off the shelf.
Again, these are all 3D capabilities that are important parts of our Suite 12 package that we have launched in May of 2012 here, and it has been very well received by our brand owners and designers in pre-press houses. What makes this unique for our Esko users is the ability to make changes and instantly see what it looks like on the shelf. Other competing models of retail visualization are not able to take the exact packaging and make the changes and see as quickly what it looks like on the shelf.
It is really a chance to integrate and expedite and have that designer see what it actually looks on the shelf immediately and how various changes actually appear in the eyes of consumers as well. Probably see a few fall off the shelf here. Hopefully, I can get back. The software is really the core growth driver of Esko. We continue to adapt and have plugins that expand the software capabilities, and there is also a very important hardware component of Esko's business as well. Really, the hardware comes in two parts to the business. A CDI, which is a digital imager. Basically, a Cyrel plate is laser-cut for the printing process that is used in flexible packaging. Flexible packaging is the highest growth portion of the packaging market.
It is really the quality that the Esko CDIs have been able to deliver are one of the growth drivers for flexible packaging in the marketplace. Years ago, the quality of a flexible package was not the same as an offset or gravure, and it is really the CDIs that have driven the market growth and be able to create that quality in flexible packaging that helps continue to drive growth. We also have Kongsberg cutting tables. These are tables that take the actual package design, they actually cut into small lot production of packages. They are also used for merchandising and sign and display applications, and they really, again, are connected to the early stage packaging design process and help expedite that product going from design to the retail shelf. All of these product lines have their own software that is attached to them that help run the hardware.
But again, it is also a proprietary system that is tied to the Esko software so that, again, it creates a strong bond and pull between the Esko hardware and software products and capabilities. Esko has been a wonderful grower for us since we acquired the business in March of 2011. It has been a business that we have invested in. We invested heavily initially in feet on the street, training, and installation capabilities, as well as the software improvements you see here with Suite 12. Now I am going to turn to X-Rite and Pantone for a minute. As we owned Esko, it became apparent to us in our interviews and our work with brand owners that color really mattered.
X-Rite had been a business that we had followed for a number of years, and it really crystallized as we owned Esko and really began to see how important color was and will continue to be going forward in the future. In May of this year, we actually closed on X-Rite. Our focus with X-Rite has really been around execution and trying to really focus on the key growth priorities. We really have five in the business, and we think these are what is going to really drive us through mid-single-digit growth in this business going forward, and we have actually been able to see that kind of growth here in the early months. Been very pleased with the team and how they have embraced DBS at X-Rite, and again, very much focused on the growth process side.
The marketplace has reacted very positively to Danaher's ownership and some of the things X-Rite is doing to improve their growth in their business. Our highest priorities, again, emerging markets is a big opportunity for X-Rite. Asia-Pacific, in particular, really just accelerated that effort a couple of years ago, so we are adding some feet on the street, leveraging the Danaher China team and the rest of Asia-Pacific to help accelerate growth. Product line vitality, we have some exciting new products to launch in the business. They've been in the works for the last 18 months. It was clearly one of the things we saw in diligence, and DBS is helping to improve our launch execution, and are excited about what we're seeing in the marketplace with that. Pantone is a wonderful brand. It's a wonderful growth opportunity. I'll get into that in a minute.
Actually headquartered across the river in Carlstadt, New Jersey. Took a pretty big blow from Hurricane Sandy, but the way the team responded to get back up and in production and get back on some of the growth initiatives was very impressive. PantoneLIVE is an exciting growth opportunity to digitize the packaging supply chain across the business, both involving Esko and X-Rite. Texture and appearance is really one of those things we call a growth breakthrough. A little bit further out in terms of growth, and what we're really doing with texture and appearance is taking our color and standards capabilities and working to apply that from a texture and appearance standpoint. To designers, the actual texture is an important feature.
We've made a very small acquisition of a software company in Germany, together with a partnership with the University of Bonn, who has a texture think tank, to help us build out those capabilities and expand on our color capabilities in the texture market for things like the possible replacement of physical samples and being able to see thing on iPad and other computer devices. So these are really the five key growth items. Some very near term, some a little bit longer term. Again, using that same market map that we have with Esko, X-Rite and Pantone is a little more upfront. On the design side, the Pantone standard. They also have color management certification and qualification and quality control throughout the value stream. As I'll show you here in a minute with Pantone, a really strong presence in the retail market as well.
The product line launches I referred to a few minutes ago really helped drive growth in 2012. These are all product lines that have launched this year. The i1Pro 2, which is the second generation of our most popular hardware device, launched in April. Traction has been strong in the marketplace. eXact is our latest printing color control device, launched in October. The marketplace has received these very positively, and basically, the capabilities, the connectivity, and the ability to link directly into PantoneLIVE are the advantage these products have in the marketplace over any of the competition. New light booths, the NetProfiler color quality control software in X-Rite is also in the marketplace as well. Again, continuing to drive higher software revenues in the business is an important growth opportunity with Esko and X-Rite.
Capture is a handheld device that some retailers with strong cosmetics orientation are very much attracted to. The opportunity is to take a shot of a skin and optimize and match the ideal color formula or the color cosmetics formula. We actually have launched a Pantone skin guide here in 2012 to assist with that initiative. You will continue to see some opportunities with retailers around this. As I mentioned, Pantone is just a wonderful brand. Very strong brand awareness in the marketplace. All the leading consumer and retail companies know Pantone and actually depend on Pantone to make sure the color that they have is represented in the right way around the marketplace. The Pantone Standards business is really about the color chips, and fan books, and palettes that are used by graphic artists and designers around the world.
It is also textile patches of cloth used for color matching in the textile world, and recent launch of a plastics line of standards as well inside Pantone. The Standards business with Pantone and launching new colors is a growth driver. In 2012, we launched 336 new colors. Most importantly, last week, as you may have seen, we launched the color of the year for 2013, which is Emerald. The Pantone Color of the Year is a decade-long tradition that really happens through the Pantone Color Institute, which is our own team of designers who spend the better part of the year surveying the marketplace, retailers, designers, consumers, and really help set some of the fashion trends for the marketplace.
I do not know if you saw last Friday's The Wall Street Journal, but you saw a green Emerald box on the front page, and then the front page of the personal journal with lots of good public relations around Pantone. The Today Show, lots of consumer media and internet media. The X-Rite and Pantone public relations team really has done a great job around that. Why does it matter? It continues to strengthen the Pantone brand, but I think monetarily it helps us drive additional licensing revenue in the Pantone business. It is a small but growing portion of the business, a very strong recurring revenue stream. Some of the examples you see on the slide here, Sephora in 2012, in 500 of their stores, had a point-of-purchase display, a cosmetic line built around last year's color of the year, which was Tangerine Tango.
On the lower left-hand side of the screen is the Pantone 5, which is actually designed and marketed by Sharp in Japan, and they are soon to have a multimillion-dollar consumer media campaign built around the Pantone phone. A number of retailers leveraging the Pantone colors of the year and industrial companies as well. The licensing business is an attractive part of Pantone and one that we are very focused on growing as well. All of those are great growth opportunities. We are very optimistic and excited about how they are going to help drive growth in the business, but most significant is PantoneLIVE. PantoneLIVE is something that both Esko and X-Rite worked on together prior to the acquisition. PantoneLIVE is basically digital workflow and color in the cloud.
What happens is a brand owner or a converter will take an actual color and how it reacts with a certain substrate and certain light conditions and digitize that. We store that on the web. It is accessible by all portions of the supply chain, and when they access it, they are able to download it in the exact digital format. No more color variation. It looks a little bit different on this paper or this substrate than it does on another.
It helps raise the overall quality throughout the design change. It is a license-based, subscription-based type of product. There will be enterprise licenses. There will be per-access charges, and it is an opportunity throughout the entire value chain to connect and communicate in a much better and a much more efficient way than it has in the manual processes of the past. Do not necessarily take my word for it. I have got our friend John from Chesapeake, which is a global packaging converter, to share his initial thoughts with PantoneLIVE with you today.
Hi, I am John Brennan, Operations Director at Chesapeake Plastics. At Chesapeake, we have a global leader in packaging. We have 45 sites across the world with a global turnover of approximately 650 million GBP yearly. I am here to talk to you about the implementation of PantoneLIVE. Fantastic investment for Chesapeake Plastics. We have been able to reduce our color variation now to broadly Delta E equals 2. Absolutely fantastic result for Chesapeake. Some people may be frightened or unsure about investing in drastic equipment releases like PantoneLIVE. We are very pleased at the result we have got at Chesapeake that we have a very attractive ROI specifically on projects in PantoneLIVE.
We have been able to return an investment within one year, and the main reason of this is a 33% reduction in make-rates on our printing presses and a 15% reduction in the number of copies it takes us to achieve color across. This in itself, per annum, is creating capacity in the 1 million units.
Chesapeake is a global package printer and converter. What really the return on investment happens for them is in press capacity, and it is all through that first time, best quality, less iterations that creates that press capacity for them. We have projects underway with other global converters such as Tetra Pak, like Chesapeake, a number of discussions and implementations with some very recognizable global brand owners. This frankly is probably a 2 to 3-year rollout and implementation, but it has the opportunity to fundamentally change the value chain in the packaging industry. It is very exciting. It can only happen with companies like Esko, Pantone, and X-Rite due to their very unique position from a standards and from a software standpoint and PantoneLIVE, it is very exciting and going to be a strong growth driver for us in the future.
We very much like the businesses that we have. Our marking and coding space continues to be a strong growth and vitality engine for us. We think Esko and X-Rite really expand our market potential into new and exciting areas. Emerging markets continue to be a significant opportunity, and the capability to really build something new and exciting and changing for the industry around software, we are just excited about what we see here with Product ID. Thank you for your attention, and I will be happy to take questions from you.
Thanks, Dan. Esko takes you firmly into the design software suite. Is there an ambition for Danaher to build design software as a value platform going forward, maybe going into industrial design, CAD/CAM? Or do you want to keep this cluster within the FMCG chain?
Well, we like our position in the Esko and X-Rite world today. There are some pretty big design firms out there in the broader industrial space. We think there is plenty of growth opportunities to expand our capabilities in the packaging world. We will probably be staying pretty close to home over the near term with those opportunities. But certainly expanding into adjacent markets, companies like Esko and X-Rite really give us that broader landscape to go after.
Thanks. Just a question, I guess, about how to expand the software opportunity more. You talked about it with X-Rite, and I am wondering if any of this actually also can be applied back into the core coding and marking business at all, or if there is any lessons learned from the new businesses you have there.
Absolutely. Esko is one of a handful of Danaher businesses now really improving and expanding their software development capabilities. Videojet, especially in the area of connectivity inside a factory of various printers and ERP systems, is something that is a key feature of the new 1000 Line product line expansion. Some of the Esko team helped them with some of their early thinking around software development. So Esko clearly, in their software capabilities, gives us opportunity to improve our overall software capabilities in the platform and other parts of Danaher, along with some of Jim's businesses.
We are running a bit over, so we are going to-
I think I got the hook, too. Thank you.
Thanks, Dan.
Thanks. Dan, I am pleased to know this green tie I have on is topical and consistent with current fashion. It is. It is Emerald. I hope that you saw in Dan's presentation, as well as in Jim and Tom's, a set of common themes relative to how we are running these businesses and how we are going for growth today. I would argue, though, that there is a tie back to some of the DBS fundamentals that have been a part of our company for over 25 years. If you think about the lessons we learned from Toyota around lean on the shop floor, standard work, 5S, value stream mapping.
Those same tools and the approaches that helped us drive a lot of productivity in manufacturing back in the day have really been integral to helping us identify these workflow opportunities that you saw in each of the three presentations, and in turn, execute product strategies, let alone sales and marketing strategies that have really helped us not only establish these footholds and foundations, but are propelling the growth that you see the businesses putting up in 2012, and certainly that we are poised to deliver in 2013. I see everybody looking down. I assume that you have now received the final chapter, the final deck that we have for this afternoon relative to the guidance presentation. I will go through this very quickly. Again, we covered, I think, the salient points in this morning's press release.
With respect to 2013, what we are looking at is top-line growth of 1%-4%. We think that is appropriate given what we know and do not with respect to the macro environment. We come into 2013 with more capacity than we ever had from an M&A perspective. That said, the guidance does not assume anything with respect to acquisitions, but we remain optimistic and are certainly poised to be aggressive in that regard. Slow environments have always been good M&A environments for Danaher. Again, we are including the Apex Tool Group closing anticipated in the first half of next year. In terms of the earnings, the key assumptions there is a 35% fall-through at the midpoint. We tend to talk about 30%-35%. I think we feel a little bit better about a higher number here, in no small part because the cost reductions at Beckman clearly are helpful.
Not an acquisition from 2012, but rather 2011. We continue to get that benefit, otherwise, we probably would be looking at a more typical 30%-35% band in that regard. We will get $140 million of restructuring benefit, 90 of that coming from the savings from the actions that we are taking principally here in the fourth quarter. The $50 million of incremental benefit is really a reflection of us anticipating spending about $70 million next year in restructuring, as opposed to the 120 that we will spend this year. That said, I think the $70 million that we would spend sounds like a bigger number than maybe some of those traditional numbers that we have talked about in the past, $40 million, give or take. Given the size of the company today, we are knocking on the door of $20 billion in revenue.
We think that is an appropriate number for this stage of the process. From a tax perspective, we are looking at a 24% effective rate. In terms of the core breakdown by segment, as you can see on the slide, we are looking for environmental to be somewhere in the 1%-3% range. I would say there, the upside will really be a function of what we are able to do in the industrial verticals and to a degree in China. I think some of the downside will be a function of what happens in municipal spending in Europe as well as here in the U.S. T&M should be in the 1%-4% band. Jim, I think, gave you a good feel for everything going on around mobility and security. We are well-positioned there.
How much of a lift we see in 2013 remains to be seen, but I think that will define the upper end of that range. Conversely, at Tektronix and to a degree Fluke, we certainly still see sluggish expectations around spending on the research and design benches out there. That will probably help shape the lower end of that range. From an LS&D perspective, I think by and large, the upper end of that range will be a function of execution. Again, lots of progress at Beckman. That continues to build. In both life sciences and diagnostics, we have a whole slew of new product introductions that if we execute well around those launches, should help us. The offset, particularly in Europe, will be what we see from governments with respect to austerity. Dental, a somewhat similar story.
I think we have a lot that we can control, particularly in raising that below average high-growth market penetration in dental. On the other side of the band there, we are looking at a tough European environment in all likelihood, given what is happening broadly in the dental space there. So we will see how that plays out, but we have got dental in at 1%-3% for next year. Then industrial technologies will be flat to up 3%. Here again, I think we are probably tied tightly to what happens from a global PMI perspective on the low end of that range. As Dan just walked you through, lots of opportunity for us clearly in Product ID, both around the foundation businesses, Videojet, Linx and the like, but also as we get Esko and X-Rite fully integrated into the portfolio.
From an earnings bridge perspective, if you take the midpoint of the current consensus out there, $3.17 for this year, we are looking at a 7%-12% growth year-on-year, getting to that $3.40-$3.55 range. At this point, FX looks like it will be a neutral. We talked earlier about the medical device excise tax. We see that as about a $0.04 headwind going into next year. As Tom characterized it is probably a conservative position. There are offsets available to us. We will be working hard as those rules are finalized to do what we can there, but we thought that was the right place for today with respect to the excise tax dynamic. Likewise, even in a tough environment, we think we are playing the long game, so we are not going to walk away from nurturing and expanding our growth investments.
On a net basis, that is another $0.04, despite some of the cost reductions, the structural cost efforts that are there on an ongoing basis, purchase price variance, labor productivity, things of that nature. On the positive side, with 12.5 million shares bought back, in addition to some mid-year bond maturities, we think we have got $0.05 of tailwind from the balance sheet in that regard. There is another $0.04 coming from the 2012 acquisitions. The restructuring benefit, again, will be $0.14 as we dial in today. With a core growth band of 1%-4%, again, at the midpoint, call it 2.5, a 35% fall through, little less, little more as the core growth moves there. We are looking at the 8%-23% range there. Add it all up, you get to $3.40-$3.55.
I think by and large, we are really pleased with 2012 in terms of not only the performance that we have been able to register, but I think the strengthening of the foundation that we have laid for 2013 and beyond. The growth investments that we are making organically and inorganically, let alone the firepower we have, I think gives us just tremendous potential and numerous degrees of strategic freedom going into next year to grow and to build. Certainly with DBS well in place across the portfolio around the world, certainly anxious to deliver that high single digit, low double digit earnings growth, even in a tepid top-line environment in 2013. We are building a global science and technology company at Danaher. We are doing that with DBS. I think you saw three great examples today.
Fortunately, those are not the only three, but those were the ones we wanted to try to shoehorn in inside of a couple of hours for you this afternoon. Again, we appreciate everybody coming out this afternoon. Appreciate those on the webcast taking time to listen in. We will open it up. I think we have got a few minutes here still for questions. Megan, you have the microphone. Do we have anybody in the back we have not gotten to yet? I cannot even see back there. No? Are we going to force someone to ask a question then?
No, that is all right. Hey, Larry.
Is that John Inch?
It is.
Good afternoon.
Hey, so what are your thoughts as Danaher has become bigger and achieved in many respects, critical mass or much more critical mass in a lot of your business clusters? What are your thoughts toward one day perhaps establishing a much more meaningful dividend given your ample liquidity?
I thought we were going to go somewhere else with that premise. I wasn't thinking we were going to the dividend. But I should know from John that you never know what you're going to get. John, I would just say, with respect to the premise, on one hand, we are a big company, but I'd like to think we still have the soul of a small company. There are times when we are an $18 billion plus company, and we act like it, I think, and hopefully to our advantage. But a lot of what we do, the way we think about the business, the way we run the businesses, is still brand by brand by brand. Operating company by operating company by operating company. And I never want us to lose that.
You're right, we've got critical mass, and I think what you saw, for example, in Jim's presentation, is critical mass in Communications, where we've got four outstanding businesses, but they're coming together increasingly, not to dilute their individual positions, but to do what is incremental as that line blurs between the enterprise and the carrier space. I think similarly, you're going to see Tom have Leica Biosystems, working with Beckman, working with Radiometer at a diagnostics level. Again, still thinking less about Danaher on a day-to-day basis, because Danaher rarely serves customers, but really thinking about the operating companies and the platforms. That said, with respect to capital allocation, I think our priorities at this point are unchanged. And I can say that less than two weeks out of a board meeting where we had another in-depth conversation in this regard.
As long as we have the array of opportunities in front of us, John, to continue to build and grow in and around these existing businesses, into adjacencies as appropriate, and every once in a while into a new segment, I think you're going to see us do that. From time to time, we'll be in the market opportunistically with respect to the buybacks. I think it's been, obviously, a bit more active here of late, but no one should read, I think, anything into that. Will the dividend evolve over time? I suspect so, but I still think it's going to be, if you will, third in line relative to those capital allocation options.
So given that medical and industrial under one roof, pretty different end market clusters, as they continue to grow under what you've articulated here, does it make sense that the companies stay intact in the long run, or could you ever see a scenario, again, in the long run, where-
Right
Danaher becomes sort of two larger clusters with independent penetration opportunities?
Well, if I recall from my economics studies, in the long run, we're all dead. So not going to rule out anything other than that. John, I think right now we are managing effectively the breadth of the portfolio. Again, I would argue that what's really held us together as we become bigger and perhaps broader is we haven't lost sight of where DBS applies and where it doesn't. I think there's an arc here around instrumentation, around consumables, where DBS applies that you can really trace back to our early days in the environmental realm. And we extended that, obviously, significantly at Fluke and ultimately at Tek into test and measurement. I think a lot of those skills, those playbooks, have certainly been relevant in what we've done, both in life sciences and diagnostics.
And while it's perhaps more of a traditional industrial business on the shop floor, I would argue many of the plays, the winning plays in the PID playbook are similar there. So I think that defines where we allocate capital, where we go in and execute. Clearly, when that no longer holds, when the pieces are worth more than the whole, I think that everything will be on the table.
I would argue with our board and our ownership structure, well before that's obvious to you, it'll be obvious to those of us in the boardroom, and we'll do the right thing for shareholders. But I think right now, we think we've got a coherent whole. We like our breadth, but are mindful that there are some dynamics that have befallen others. We need to make darn sure they don't take us down. Megan, I think Deane's got a question, and we'll go to Steve here.
Great. Thank you. Larry, on discretionary spending and growth investments, maybe talk a bit about what's protected, what you wouldn't try to pull back from in terms of investment next year if times got tougher. A related question is, one of the data points you gave in the Beckman update was that you were able to cut CapEx 40% and still not sacrifice any of the growth opportunities.
Right.
Maybe there are ways you can be creative about that, but a two-part question.
Sure. Well, maybe I'll take the easy one first. The capital expenditure reduction at Beckman was really nothing more than being disciplined, asking why we need X, Y, or Z, and having that discussion in terms of where are our priorities and what returns can we expect on those projects and those investments. I think as we put that rigor into the process, it wasn't as if we had a lot of tough decisions to make. I think some of the traditional programs and spending efforts really just melted to the side.
I think whether it be at Beckman, Deane, or elsewhere, what we've tried to do this year, and I would argue by and large successfully, and clearly what we've set ourselves up to do in the last 8 weeks going through the 2013 budgeting, is to be clear about our strategic priorities, understand how we resource those, and whether that's cutting off other projects or getting into the restructuring program, for example, that we're clear about what those efforts need and in turn, where we're going to find that money. I think that's really the trick. Didn't mean everybody was happy coming out of budgets. Certainly, a number of tough decisions and for a number of our associates, tough personal implications in that regard. But I think that's been the way we've always tried to run the business. There's certainly some wild cards out there in 2013.
Given that, I don't think we've put anything off the table, but as we think about 2013, I don't think any of us are walking out the door at the end of the year. It's not about our bonuses next year, it's really about building an outstanding company and creating long-term value. There are bets we are clearly making. You saw a couple in Dan's presentation that aren't going to do anything for us next year, and they'd be very easy to cut.
But we're going to be here in 2014, we're going to be here in 2015. As we wade through what may be there in the first part of next year, we're going to try to take the long view, be tough-minded where we should, but also make sure that those longer-term efforts that sometimes don't always have a voice when those budget decisions are being made are certainly protected. Steve.
Thanks, Larry. I guess there are very few examples of multi-industrial diversified, even science and technology companies that grow significantly above the peer average for a sustained period of time.
My question is around the balance of the portfolio that you have. You talked about recurring revenues going from 25% to 40%.
Right
of the portfolio now. That brings with it a different kind of growth characteristic than
Yeah
the more cyclical side. How should we think about the maturity or where you are headed in terms of the balance of the markets and the portfolio that frankly drive a good chunk of that sustained growth over time?
Right.
Are you happy? Where are you going with this?
Well, I would say that we are very happy with where we are. If we could add another $10 billion of revenue or deploy another $10 billion of capital around a Danaher-like opportunity, as Danaher is defined today, I think we would be thrilled, because we know that would create tremendous value for shareholders.
Right.
I think as we think about recurring revenue, I am not sure we would buy into the idea that it makes us more volatile or more cyclical. I think we would argue that the bigger ticket items, by and large, are going to have a little bit more choppiness around them. When we get into businesses like Radiometer, like Videojet, those aftermarket businesses are good growers.
They are ballast in tough times in the hall and create their own set of opportunities for us that do not suggest that we cannot be an above-average grower over time with that sort of portfolio. We like those businesses. If we can overweight beyond the 40, I do not think we would walk from that, but I would not suggest we have got a target to say we want to be at 45, 50, 55 over time. But I would suspect if it goes anywhere, it probably goes north as opposed to south. Nigel.
Larry, I never thought I would see share buybacks as a tailwind in your EPS waterfall. But just going back to the previous question, given where your free cash flow yield is right now, you have got an 8% cash-on-cash risk-free return from buyback stock.
Right.
And maybe a deal is 10% in year 3, cash on cash. The decision must be more marginal now between buybacks as M&A in some cases. I am wondering if there is any instances this year where you have chosen not to do a deal because your stock is so cheap.
I am sorry, I did not hear the last part of that.
I guess the question is, are there any deals you have chosen not to do this year, in the second half of this year, because your stock is just too attractive?
No.
Okay.
Year is not out, but I think that the body of work you will see us put up for the second half, Nigel, in no way has been influenced, shaped, or otherwise affected by the buyback.
Okay.
By and large, we've had, I think, a pretty good year. We spent $1.5 billion at a time where we said we were going to be somewhat quiet post Beckman. I think that's a pretty good year. You haven't seen a ton of M&A in our neighborhoods, so I don't think we're a particular outlier in that regard. Clearly, the Apex proceeds coming in influences, in part, the buyback calculus. Not going to accept any criticism around the buyback. It's a hell of a company to buy, particularly at these prices.
Right.
But that said, I think M&A will continue to be priority one relative to capital allocation.
Okay. A quick one on Beckman Coulter.
Yeah.
I think you mentioned about four points of margin expansion year-over-year, which I think equates to about $150 million of EBITS analyzed. I think we're cadencing about $250 million of cost savings. I'm wondering what's the offset? Is that restructuring, and does that restructuring then taper off? Is it growth investments? I'm just wondering what that $100 million offset was.
Well, no, I think that as we look forward, we're certainly going to continue to see Beckman all in, deliver on those cost savings and help, particularly in the short term, as those cost savings fall into place, contribute to the operating margin expansion and the BCM. Again, as we think about our typical BCM in a low-growth environment, I think we'd be talking something closer to 30% than 35%. Again, the comfort I think we have at 35%, around the midpoint of that growth range, let alone what we could do with a little bit more top-line, is really a function of the Beckman contribution to the bottom line, but also the Beckman contribution to some of the degrees of freedom we'll have to put some of that money back into the growth opportunities, some of which Tom alluded to. Cliff?
Thank you. When I look at the long-term record of Danaher, there's two elements. One is the growth in earnings and cash flow, and the other one is that your ability to attract a premium multiple. What is your best guess on the root cause? Everybody's got multiple compression in the last couple of years, including all of your high-quality peers. But if anything is missing in the equation, it's the ability for the market to look at 1%, 2%, 3%, 4% organic growth and give you a premium multiple. Do you think there's a factor when you Pareto what keeps your multiple down that's bigger than the inability to produce higher organic growth, even with the overlay of a slow economy?
Cliff, I probably spend less time thinking about that than you might imagine, or maybe I should. We're building and growing this business. We'll leave it to all the wisdom in the room to put a price on our future. But I think that where we are today, we've never been in a better position as we lean forward, look forward here. How that plays out on any one day in the market, it is what it is.
I would've been happy to have you do my job, but my question was related to something else. I would've expected to hear more about countermeasures to overcome those low organic growth expectations. Are we just not seeing that's the best you could do in this environment?
Well, I certainly
That came out a lot more negatively than I wanted it to, but I think you understand the question.
No. I think I get the question. Certainly, in a low-growth environment where we've got a number of businesses in transition, I think you look at the top-line numbers. I don't think that's indicative of what those businesses and Danaher as a whole is capable of delivering. But the numbers are the numbers. You take the third quarter, for example. There weren't a lot of high fives relative to the headline print in Washington. But business by business, I think we're getting better with respect to execution around these sorts of opportunities. These are three great examples where I think you can take any one of these businesses, roll back to go to the jumping-off point prior to Danaher. I would argue those businesses would have a low probability of being where they are today without the participation of Danaher and without the injection of DBS.
I think that's the delta. But we've got a couple of businesses that are clearly feeling the weight of the economy, Motion and Tek particularly. Beckman Coulter, a work in process. I think the growth equation's one we solve over time, but I get the question, and we just have to work harder to deliver a better answer. And we'll do that. I think we're capable of that. Shannon, I think you get the last question.
Yeah, thanks, Larry. We are in this equipment spending lull that you are experiencing now.
Yeah.
When you think about the new product cycles, some of which we have heard about today, how much do you think you can sort of force your way out of that? If the economy kind of stays low growth, how much of the new products are so compelling and so different than the prior generation that people are not going to be able to wait any longer? When do we get to that point?
Right. Well, I think they are all compelling. I think it is a hard question to answer quantitatively. Certainly qualitatively, even though our equipment numbers are on balance down slightly, we have a number of businesses, you saw a handful today, where we are delivering growth in a capital-constrained market. I think that is a function in part of these innovations that we are bringing to market. In a number of these situations, with the mobile operators and perhaps the enterprise security folks being the exceptions, our customers do not have to do what they are doing right now, right? They could push some of these decisions 3 months, 6 months, 1 year.
But they are not, because as you saw in the Chesapeake video, a lot of these innovations are driven on the back of voice of the customer with an eye toward that ROI, making sure we are not just persuasive, but that the numbers hunt when they are going back to their CFOs and the like, trying to get signatures for those purchases.
I think when we are able to deliver innovation with those sorts of business cases behind them, we can make those sales. Where would we be without those innovations? Would those equipment numbers be down 5%, 10% broadly as opposed to flattish? Hard to say, but I certainly would not want to be in this environment without those new products at our disposal. I think they are very much a part of what we have done this year, and certainly they will help us next year. Okay, I think that is about it. We will be around for a few more minutes. Thank you again for joining us today. Have a very happy holiday season. We will see many of you in 2013.