Okay, we are going to get started here. I think they are shutting the doors now. We will wait for just a second, but I can go through my stuff here while we wait. First of all, welcome. Good afternoon, everybody here in New York, as well as, I think we have got a pretty good contingent online as well. Welcome to the folks that are online. The forward-looking statements, give those to you. I am not going to read them. The agenda. We have got a really good program here today, and we have kind of broken it up a little bit this year by our segments, by the new reporting segments that we have got out there. Hopefully that kind of makes sense and looks very familiar to everybody.
We are going to have Larry start here with some opening remarks, and then we are going to go into the segment presentations, as you can see. Just wanted to highlight here at 2:25, we have got a break in the product displays, so we have got a good 45 minutes that you can go out and see some of the products if you did not get a chance to already. Would definitely encourage folks to do that. That will be a break at 2:25, come back again and start again with dental. Just as an FYI on how we are going to do the Q&A, what we are going to do is at the end of each of the segments, we will do a Q&A for the entire segment.
What will happen is that maybe two presenters or three presenters, they will do their pieces, and then at the end, all of the presenters will come back up on stage and take questions for each of their businesses, if you will. That is all I have got. With that, I will turn it over to Larry.
Thanks, Matt. Good afternoon, everyone. Thanks for joining us, and particularly those of you on the webcast. As Matt indicated, we have got a very full afternoon. We are going to do a deep dive in each of our five new reporting segments. But ahead of that, I thought I would give you a little bit of an overview as to what you will see during the course of the afternoon. I think the themes are really here. First, an outstanding year of execution. I think the results we have put up this year speak for themselves. But this year is as much about what we did last year as it is what we have done this year.
I think as you go through each of the businesses, you will see that a lot of the work, a lot of the investment we put in last year, let alone the execution during the course of the year, has yielded an outstanding 2010. I think you will also see further evidence of what we have been talking about for the last several years, and that is a progressive evolution of the portfolio toward a higher growth, higher quality, more science and technology, more global set of businesses that obviously come together in the third bullet here around the Danaher Business System. I think you will see DBS touch virtually every part of the business during the course of the afternoon, be it on the income statement, the top line, the bottom line, everything in between, as well obviously as the balance sheet.
The presentations today are all geared toward helping us share with you how we are going about fulfilling our mission, that being creating a premier global enterprise. 2010, what a difference a year makes. I think we all know that to be true, but to sit here a year on, given what happened in 2009, and to be looking at 2010 with over $13 billion in revenue, very satisfying to us. Obviously, as you see at the consensus level, a very strong earnings year as well. I think this bodes tremendously well as we think about the momentum that we carry into 2011. From a cash perspective, despite a year of double-digit growth, what we have been able to do on the working capital side, I think really speaks to the power of DBS to conserve cash, put those balance sheet investments to good use.
In turn, we are not only going to throw off a tremendous amount of free cash, probably in the 1.7, 1.8 range, but obviously in turn, have strong conversion, this being the 19th year in a row where our free cash will exceed our net income. We are obviously quite proud of that fact as well. I think if you look at part of what has been able to drive that strong cash performance, let alone the earnings performance, is what we have been able to do on the margin front. If we look at the core operating margin, given some of the noise around acquisitions, we are going to be up over 200 basis points this year.
Again, I think a combination of a number of things, certainly the restructuring last year has paid significant dividends, as well as the high-quality growth that we have seen during the course of 2010.
In turn, we have driven earnings up on an adjusted basis over approximately 30% year-on-year. Very pleased with that. Particularly pleased with the fact that in the third quarter, we published our first gross margin north of 50% at 51.7. So lots of different impacts there. Obviously, as we have evolved the portfolio, we have been migrating consistently toward higher gross margin businesses. Certainly, removing costs on a day-to-day basis through DBS is part of that, as well as the restructuring that we had a year ago. On the bottom of this chart, let me try to call out something that I think some folks do not fully appreciate regarding the power of DBS. Certainly, as we have expanded our gross margins to now north of 50%, we have been benefited by the nature of the businesses that we have been acquiring.
But as you see here, when we acquire a new business, we are able to go in, apply DBS, take a lot of cost out of the cost of sales bucket. You see that, be it Fluke, Hach, Videojet, Gilbarco, some of the businesses that have been with us for a while, and we get a very significant impact in the early years. But these are all businesses that have been with us for almost a decade, some a little more, some a little less. And you see even after those first years where we have significant gross margin improvement through the power of Kaizen, through the power of DBS, we are still driving margin improvement.
So for those of you that think that DBS is something that we do in the first year with a new acquisition, and then it is steady state from there, hopefully what you see in these gross margin figures over a decade is evidence that DBS gives us an opportunity to continuously improve every aspect of our businesses. Talked about core growth a fair bit today. As you see, we have gathered a lot of momentum the last two quarters, double-digit core growth quarters on a year-to-date basis, putting us up 11%. I think a number of drivers there. Certainly, the economy has helped, but I think the work we have been doing the last several years, making sure that our growth tools are as impactful for us as our lean tools, has had a significant role in the acceleration of our core growth.
Certainly, as we have been re-weighting our investments toward emerging markets, that helps give us full opportunity in the fastest-growing parts of the world. But also, we are investing aggressively in innovation, be it small incremental additions to the portfolio, let alone the larger growth opportunities that might be higher risk, but higher return additions to Danaher. And that combination, I think, not only has yielded the numbers that we have put up this year, but I think is also the source of the optimism that will course through the presentation today as we think about 2011 and beyond.
Just a quick word relative to the current environment. Later on this afternoon, we will talk about our outlook for 2011. But as we look at the fourth quarter thus far, we are very pleased with the way things have played out. As we indicated on the third quarter earnings call in October, excuse me.
We thought that the year would end with solid strength. That is very much playing out as we had anticipated. We are seeing bookings as well as shipments stay strong, and we think we are going to have a robust fourth quarter as a result. We saw the recovery first, as many of you will recall, last year in the emerging markets in the second half, particularly in China, but elsewhere. And as we lap those comparisons, or despite the fact that we are lapping those comparisons, those economies have continued to throw off very strong growth for us. So we are very pleased with that performance. From an inorganic perspective, M&A perspective, this has been a very good year for us. 13 acquisitions, excluding AB Sciex, has driven $1 billion of capital deployed, pretty much the same amount that we deployed last year, in fact.
Obviously, a number of strategic additions to the portfolio. That said, a very full pipeline. Maybe we will get into that a little bit in Q&A, but we feel very confident that the opportunity we have to deploy over the next four to six quarters, somewhere in the $4 billion range, is an opportunity we are going to take full advantage of. As Matt indicated, the agenda today is really structured around the new segmentation. We talked about this in early November at an investor conference. We came back earlier this week. I am sure everyone saw the 8-K that we put out to try to be as transparent about these changes as we possibly could. What we have done here is really very simple.
I think what we have tried to do is take two of our larger segments, which obviously have been the focal point for our M&A activity over the last five years, professional instrumentation and med tech, and break them into two. Really, no, I think, earth-shattering news here, but certainly breaking out environmental separate and discrete from T&M gives you better visibility on those two different businesses. Likewise in med tech, breaking out dental and life sciences gives us an opportunity to talk about those now two-plus billion-dollar businesses in their own right. By and large, industrial technologies does not change. Perhaps with one minor footnote, that being our niche businesses going forward are going to be referred to as specialty products. What is really left from tools and components ends up largely in test and measurement with our Matcon and Hennessy businesses. Shake break goes into industrial as well.
But we are excited about this segmentation because I think it gives us an opportunity to really talk about the Danaher of today and certainly the Danaher of the future, as opposed to perhaps the Danaher of the past. I think you see that on this slide. When we look at the portfolio today, what we are excited about is across these five segments, real good balance, $2 billion- $3 billion in size in each of them. More importantly, as you look down each column, strong market-leading brands. We clearly have migrated over time toward industries, toward companies where brands matter. We would like to think that these brands are very strong. Certainly, our data would suggest that. They are also brands that port around the world.
So when we go into these emerging markets, the strength that these brands have in the developed markets gives us a leg up as we go and try to take advantage of that growth potential. Talked about acquisitions earlier, 13 transactions thus far. As you can see, good balance here as well as we have put this $1 billion to work really across each of the five segments with, again, emphasis on our growth platforms. I would call out here particularly what we have done in test and measurement. You can see we have done six transactions in T&M, most recently the Keithley acquisition. What is neat about this is four of the six are really geared toward Tektronix. It is a business that has just been with us for a couple of years, obviously went through an aggressive restructuring last year, took a lot of cost out.
You'll see that in Jim's presentation as we have driven margins. Now we're really in a position to put in acquisitions to Tektronix, and they've had a very busy year, a successful year in that regard. I think we step back from each of those discrete brands and talk about the drivers that have attracted us to these markets, and in turn, the macro drivers that we'll talk about during the course of the afternoon. Certainly, we talk about the digital world in which we all live. Certainly, a focal point for us is test and measurement, whether we're talking about the next-gen chipset on the bench at Intel, let alone the next generation wireless network with a Verizon or a T-Mobile. That's very much where our test and measurement businesses are.
But that said, the digitization of healthcare, particularly in dentistry, is an opportunity for us in dental that we're very excited about. Health, clearly a key driver for us in our med tech businesses, now dental and life sciences. But it's also a key part of what we're doing in industrial technologies, particularly with respect to some of the retargeting around vertical markets, better, less cyclical vertical markets that we've been doing in our Kollmorgen business. Around the environment, clearly an opportunity here in water quality, where we have a superior position in analytical instrumentation. But by the same token, don't forget what we do in water and air testing in life sciences and diagnostics, where that applied market space, as they call it, for AB Sciex, is a very important part of that portfolio. Safety and security courses through this portfolio as well.
Obviously, we do a lot of things with network security, and I think you'll see a little bit in the demonstration in the hallway relative to what we're doing at T&M in that regard. A lot of what we do at Videojet and at Linx around supply chain, anti-counterfeiting, things of that nature in consumer goods, a key driver for us. Not to mention what we do in secure payment technologies at Gilbarco Veeder-Root. You'll see that in Martin's presentation. Energy efficiency and water quality at ChemTreat, very much a driver for us in boiler cooler applications and making sure that's an opportunity for us, let alone what we're doing in renewables at Kollmorgen and Thomson. Regulation drives a lot of what's happening in these businesses. Certainly in environmental and healthcare, we see that.
Across each of the five segments, what's happening in emerging markets presents tremendous opportunities for us, and during the course of the afternoon, you'll see how we're trying to seize fully those opportunities. But all that starts really with the Danaher Business System. I think it's a portfolio that pound for pound is outstanding. But what we're able to do with this portfolio, what this team's able to do really rests on DBS. It's who we are, it's how we operate as well, and very much an operating model that is values based, that has the customer at the center of all that we do, a very strong process orientation, so the results we drive are indeed sustainable, but at the end of the day, very much results driven. This has defined the organization for over 20 years.
It very much is at the center of each of our operating businesses, each of our facilities. I think during the course of the day, you will see how this impacts every aspect of our business. I just want to frame that for you because those of you who have followed the story for a while know that DBS has had tremendous impact for us operationally with respect to quality, delivery, and cost. That certainly has helped us not only drive a very strong earnings stream over time, but has helped us throw off that strong cash flow, as we have kept working capital low and been smart about CapEx. We have been building our growth tool inventory and our growth skill set to help supplement that.
While I think we could debate whether we are as good on growth as we are in lean, I think we are catching up rapidly. You will see that today. These growth tools help us drive the top line, whether we are talking about how we invest in innovation, how we execute in the labs, let alone how we go to market, both in traditional ways and increasingly with e-marketing and web-based selling. All those tools really do not have the maximum impact that they are capable of without what we do from a leadership perspective. You will obviously see the team here today. I think you will draw your own conclusions about the state of the Danaher leadership team.
What we do in our strategic planning exercises during the course of each summer, how we make those plans a reality through policy deployment, how we make sure that we are growing the businesses and the organization through our talent and leadership development programs, let alone moving talent and resources around through what we call dynamic resource allocation, all very much a part of the Danaher leadership approach to running our businesses. It is the way we operate in Washington. It is the way we operate in each one of our operating businesses. Speaking of the leadership team, I think this is an important look at the evolution of our team over time.
If you go back to 2001, when we were obviously a smaller company, sub $4 billion in size, more of a domestic company than we are today, of course, we had three EVPs reporting into my office, and we had three group executives. That was a structure that worked. We really were not managing the regions around the world in a concerted way. Fast-forward to where we are today, we have got four EVPs reporting in. That is not a big increase, but when you consider that all four of those were not in those positions in 2001, I think it speaks to the way we have been able to grow internally our strength at a senior level. Obviously, a larger number of group executives, which number 10, most are here with us today.
Again, I think evidence that we've been able to grow the company, but also grow the team, which gives us the organizational capacity to continue to grow. We're, without a lot of overhead, managing regionally in a very effective way. You can see the regional boards that we have set up in China, in India, for Latin America, and across Europe. This gives us a Danaher layer across those key geographies without putting in a lot of bureaucracy cost and non-value add. We're very proud of that organization. Again, you'll see the team during the course of the day. When we're on campus talking to the next generation of leaders that we're trying to recruit, we often pull this chart out. Obviously, it's a chart that we're very proud of, looking at our TSR on a relative basis over the last 20 years.
What's instructive in this chart, I think is certainly looking at a 10x performance versus the S&P 500 is something that those young eyes quickly gravitate toward and appreciate. It also helps explain where we're going. Because even though in the early days, when I think most people think we had our greatest outperformance, as you see over this 20-year period, if you chunk it into three, roughly seven-year periods, our lowest relative outperformance was in the early years, when presumably it was easier, the denominator was smaller. Obviously not the case when you look at what we've done successively. As we go forward, I think we're very excited about the opportunity to continue this outstanding track record. Today is all about tomorrow. It's not about the past.
Just to give you a quick cut at a couple of key themes for the day, certainly innovation and investing and executing with innovation is an important part of our growth opportunity and our growth story. If you look at what we're doing today, over 6% of sales now goes to R&D, nearly double what we were doing just a few years ago, very much a deliberate reallocation of resource on our part. What do we get for that money? I think that's the most important metric here. 1,800 new products launched in 2010. Across the portfolio, some large, some small, you'll see them in the presentations. I think as we look at those launches, the new products that we've launched the last couple of years, driving $3.5 billion of revenue, we're getting that innovation story right. It's one part of the growth repertoire.
I think if you look at what we're doing from an emerging market perspective as well, 12% of sales in 2004, now 21%. So obviously growing very rapidly. We're really thrilled that we've got a little club forming in China. Earlier in the year, we were over there. We were with the businesses and said, "Who's going to be in the $100 million club at year's end?" That's not a club that was in existence, so no one knew what we were talking about. But we could see with good execution that we had at least four brands that were going to become $100 million brands for us in China. We're virtually there today. If you look at Fluke, Tektronix, Hach, and Leica, very strong positions in obviously very high growth markets in China. So we're thrilled with that.
That's a growth model that we've developed in China, which we're now aggressively exporting around the world, which is why I think you see India, for example, now a $200 million business for us, and our potential going forward to be significant. I think one thing that we know about growing successfully in emerging markets is it's something that everyone needs to do, but there are probably some foundational steps that need to be put in place first. At the bottom of this chart, you see how we've moved the needle in a number of businesses that are now well north of the 21% corporate average with respect to sales in emerging markets. What's, I think, common about Videojet, Hach, Fluke, and GVR is that these are, again, businesses that have been with us for a while, well above that 21% average.
The newer businesses like dental, life sciences and diagnostics that are south of that corporate average have a wealth of opportunity simply to catch up to the corporate average, let alone catch up with their peers. You'll see how we're going to do that later this afternoon. I talked about DRA or dynamic resource allocation. Again, this is an important part of how we operate internally, making sure we're putting money where it's going to have the highest impact and not putting it somewhere that might be someone's one-off desire. I think you see this here both functionally and from a geographic perspective. First, from a geographic perspective, this year alone, we'll probably have a net increase in terms of headcount of about 5%.
Not big, but if you look at where we're putting the new additions to the payroll, 14% growth in emerging market headcount, 2% in developed markets. Again, a very deliberate resource allocation process to make sure that we're doing that, a clear focus in the BRIC regions where we're up 20%. From a functional perspective, as we add this headcount, you can see what we're trying to do is make sure that it's really going toward growth. Sales and marketing both up 10%, R&D up 6%, not as high, but this doesn't adjust for what we do with our open innovation and third-party R&D partners, which would translate to a higher number.
With all due respect to those in the overhead functions, G&A and the like, we're really not putting a lot of money in additional headcount there because we want to make sure that we are allocating toward the highest return opportunities in the portfolio. To wrap up here, well, perhaps to get us started really, it's a story of execution, last year, this year, and going forward. Certainly, I think you'll see through the presentations the power of the Danaher portfolio, and certainly you'll see what DBS is doing to drive the results, drive the business today and going forward. We appreciate you coming today, and hopefully, we'll make the afternoon worthwhile. Just going to kick off here with the environmental segment. We've got two presenters here, Martin Gafinowitz and Jon Clark. Martin's a group executive who looks after Gilbarco Veeder-Root. Jon Clark runs our water quality group.
As you can see, between the two of them, they play in an $11 billion market space, growing mid-single digits. We love these brands, Hach, Lange, number one in water quality analytics. Gilbarco Veeder-Root, the best names in retail petroleum and related automation and environmental technologies. Obviously, with what's happening around water scarcity, water regulation in the developed world, the emerging markets, tremendous growth opportunity, regulation, process optimization, all a part of what Martin's businesses and Jon's businesses are grappling with, helping customers with on a day-to-day basis. Amongst the best performers that we've had this year, I think as many of you know, and as I think the next two presentations will suggest, they're far from done. We'll start first with Martin.
Thanks, Larry. Good afternoon, everyone. I'm actually going to spend a few minutes on this picture you see in front of you. In the spirit of a picture tells a thousand words, I think that this really brings to life a number of the points that I'm going to be making in the subsequent pages. First, for the observant among you, this is clearly not a gas station in the Western world. It's in fact, in Mumbai, in India, and highlights the explosive growth we're experiencing with our business in those regions. Secondly, the gas pump you see at the forefront of the picture is one that is designed and manufactured in our new facility in Coimbatore in Southern India.
Thirdly, if you look just to the right of that gas pump, you'll see a product over there that you might not be that familiar with if you've only filled up in the States. It's an outdoor payment terminal, and it enables our customers to meet the growing demand from their fueling customers to fill their cars up and vehicles up with credit and debit cards instead of cash. One thing you can't see from the system is the intelligent electronic systems we have sitting in the back offices, which integrate all of the systems together, the dispensers, the payment terminals, the inventory management systems, the underground storage tanks, and integrate those systems together and bring the information, that enables the station to manage the station both on a local level as well as at a head office level.
The final point I'd draw your attention to over here is take a look at that attendant. Look at that smile. Clear evidence of a happy customer using the finest fueling equipment in the world. Gilbarco Veeder-Root are the leading solution provider in commercial and industrial segments. We participate in about a $4 billion market. Growth around 3%-4%. Larry spoke quite a lot about our geographic mix. I think you'll note over there that, for those of you who've looked at this over a couple of years, the service component of our business is growing fairly rapidly as we see more and more competitive advantage to be gained by providing services to our customers in local markets.
The other change that is going on over there is if you look at our key customer segment, although the major oil companies are still a significant portion of our business, increasingly the regional and state oil companies are more important as the majors slowly withdraw their interest in the retail assets of their business. Macro drivers. Larry touched on a number of these. Firstly, the emerging markets. Clearly, a very rapid build-out of fueling infrastructure, growth in gas stations. This has been a tremendous investment in private vehicle ownership. Regulations have always been an important part of our business. One of the newer developments, though, I think as the economy has toughened up in many parts of the world, we have seen the governments increasingly focused on making sure that they can collect tax revenues more completely from areas like gas stations.
We are seeing a slew of fiscal regulations coming into place to enable them to make sure that the cash collections are matching up with those being declared for taxation payments. Those are driving great upgrade opportunities for us in our businesses. Environmental regulations, again, a long foundation of our business, continue. Ever more focus on air quality as governments around the world recognize that the amount of pollution that is originating, not just from the vehicles, but from the fueling process as those vehicles run the gas station. Security and fraud concerns are growing in our business. This is happening on all fronts. If you think about the businesses, they are selling a high value, near-cash commodity and fuel, and they are also, despite the trend towards more credit card payments, they are also taking a lot of the payments in cash.
How to control that, how to make sure they can reconcile everything is a significant growth opportunity for our business. The other security and fraud area is one that we have focused on for some time and been benefiting on greatly, particularly over the last few years. That is the trend towards higher levels of encryption on the credit and debit card terminals that are out there. We are a leader in our vertical, and we have been able to maintain a very strong growth rate from this segment of our business, and we see that continuing going forward. Lastly, no surprise over here, alternative energy technologies we think will spur significant growth for our business. 2010 was a tremendous year for GVR. Core revenue growth up high single digits, operating margin growth greater than 20%.
This comes on top, for those of you who remember, on top of a pretty solid 2009 as well. Many highlights, and they are somewhat difficult to even pick out which ones to focus on. I think first and foremost, though, continuing our payment security leadership, in our vertical with petrol retailers is the first one I would draw your attention to. We had growth of 40% in our paid pump and paid island systems. That comes on top of very similar growth last year. We lead in the implementation of the EMV standards. This is the chip and PIN-based standards in Canada, where we expect to see strong growth over the next few years. As those standards have come in across all markets, but we have a particular focus in petrol retailers.
Then we've had tremendous success with our PCI, payment card industry compliant indoor payment point-of-sale systems, and a three-year CAGR of over 50%. Our emerging market growth has been tremendously strong, greater than 25% growth in 2010, excluding the impact of the L&T acquisition. We've in fact doubled our emerging market revenues over the last three years. This is not just with our newer technology payment and automation products, but our core dispenser business actually grew over 50% in this year on the back of some strong new product launches and a reinvigoration of our sales channels. While doing this, we've managed to continue growing our R&D spend and our investment in our sales and marketing resources. I'm going to spend a couple of minutes on three examples of where we've used DBS tools to drive great growth opportunities.
The first one is with a large fuel retailer in Northern Europe, Statoil. What Statoil were doing is they were upgrading their existing fueling infrastructure to comply with the EMV chip and PIN requirements. Tremendously costly programs and ones that the retailers actually don't feel they see any benefit for. It's really to meet higher security standards that benefit the card issuers and the processing banks rather than the retailers themselves. So they are somewhat reluctant to spend the money. We worked very closely with the customer, understood what the challenges were, and were able to come up with a highly innovative solution that reused large portions of the existing infrastructure they had in the previous generation of products, saving them a tremendous amount of money in doing that.
We were also able to work with them creatively to build into the product touchscreen multimedia screens that they could use to promote to their fueling customers, run stream commercials and other promotions to those customers, and generate additional revenue. So this is not just a straight cost burden. The result of this is that we secured a $40 million contract covering both equipment and installation. The good news is that we're well-positioned to continue the maintenance and parts supply to that equipment into the foreseeable future as well. The next example is one of rapid innovation at Veeder-Root. With the increasing use of ethanol blends in fuel, a problem is created where a dangerous mixture of fuel and water can result from a process called phase separation.
Dangerous to the engines of your car, not to anything else I might say, but they certainly have risks to the car engines. Tremendous opportunity for us. Over 300,000 storage tanks just in the U.S. that are containing this ethanol blend. The good news is that we have a very high percentage of installed base of equipment in those 300,000 fuel tanks. We were able to come up with a creative solution through a breakthrough ideation process that enables detection of this phase-separated liquid. We very recently launched that. It is the only solution on the market and the first solution on the market. As you can see from those customer comments down at the right-hand side, we expect to be able to drive some real benefit to our business from this. The last example is how we improve the efficiency of our sales force in China.
China has been enacting some regulations to capture vapors at their gas stations. They've rolled it out very much on a basis wherever they had a large event. Beijing Olympics was first, Shanghai Expo was second, Asian Games was third. Each of those cities are continuing to roll out these solutions. We were successful in Beijing, the first city it was rolled out, but nowhere near as successful as we'd like to be. We looked at our product, and we saw there was a certain amount of value that we had over our competitors. We spent a considerable amount of time and effort in upgrading our sales force and in training them on the value of the solutions we had, even though that value is in fact quite complex. It involves selling future-proofing of the equipment as well as total cost of ownership.
Very successfully we did that, and we were able to increase our share by 3,000 basis points over the period. When we were here last year, we were in the process of completing an acquisition in India, and I thought it would be useful to give you a quick update on how that's progressing. It has been challenging, particularly overcoming the bureaucracy in India, and obtaining multiple licenses that we need to do business. We've left us in a very strong position with a world-class manufacturing facility supplying not just India, but the surrounding regions, Southeast Asia, and Middle East, and Africa. This is part of the reason we've seen that strong share growth in our dispenser product line I spoke of earlier. We're also using this facility to drive exports of our core meter and hydraulic components into the other Gilbarco facilities around the world.
Great cost saving for us as we do that, and we'll see benefits going forward. We've substantially increased the number of development resources we have in the market. You'll see the bottom point over there. We have service technicians servicing over 95 cities in India, which is a tremendous competitive advantage for us now in that critical market. In summary then, I think Gilbarco Veeder-Root is very well-positioned to compete in the future. I think we have an unrivaled breadth of product portfolio and a customer base and market that is increasingly looking to buy full solutions as opposed to discrete components. I think our position to be able to deliver those to our customers is unrivaled in the industry. Thank you very much for your time. Jon Clark, who heads up our water business, is now going to come up and talk through the water division.
Go ahead, Jon.
Thanks, Martin. Just quickly, if I may. One of the things I think you see in Martin's presentation is what he is able to do with that installed base. Obviously, the installed base has been built up over decades. We don't often think about GVR as one of our high aftermarket businesses like Hach Lange or Videojet, where we've got those razor blade models.
Now you see here what Martin and the team are able to do with innovation, with the go-to-market tools as well, whether it be in payment upgrades, whether it be in phase separation at Veeder-Root, let alone with what they are doing in China. They are really taking very good care of those customers and using their incumbency to help take full advantage of those technology turns, which in turn have driven a lot of growth for them.
Thanks, Martin. Jon?
Okay. Thank you, Larry. Thank you, Martin. It's a great story. Tough act to follow. We are going to spend some time talking about the water market, and for those of you who have followed Danaher over the years, you may realize that Danaher was in water before, as we like to say, before water was cool. We have been in the business probably over 15 years and certainly have established ourselves as one of the leaders in the industry. The market that we look after is really two areas. It's the analytics piece and the treatment side, and we estimate those markets about $7 billion in total. They are roughly split 50/50 between the two. When you look at the customers that we deal with, really, we try to focus on customers that really are involved in the entire hydrological cycle.
If you think about water that's in the ocean, you think about water that comes on land in a natural state, then is brought into a water treatment plant, then dispersed for public consumption or industrial use, and then treated before it's returned back into the environment. We pretty much touch all those customers, and that provides not only a stable market, but provides a diverse market that we can leverage on a worldwide basis. Our share position is driven by about $1.5 billion in revenue, which as Larry took you through earlier, gives us a number one or number two position in most of the markets that we play in. Our business is split about 50% in equipment and instrumentation, and then 50% in the highly profitable consumable stream.
It's either chemical reagents that are used in analytical instrumentation, obviously the chemistries that ChemTreat uses in boiler cooler treatment, and the replacement bulbs that Trojan provides as part of the total package. From a geographic mix, we've done a nice job of diversifying our geographic business. While this chart shows that 50% of our business is in North America, it's primarily driven by ChemTreat, which is predominantly in North America. The Trojan and Hach Lange businesses are much more evenly distributed from a geographic perspective, and you'll see later on how we continue to evolve that geographic expansion. Overall, we feel like we're well-positioned in this market to continue to drive significant growth going forward.
If you look at the market drivers that continue to build this market at what we refer to as a stable rate in that 4%-6% growth rate, there's really four key areas that we tend to track. The first one is something that's nothing new to anyone who's followed the water market, and that's that the increasing population build-out, the increase in industrialization continues to put greater pressure on water. Most governments are struggling, not only in the emerging markets, but you'll see in countries like Australia, in providing enough water to serve their populations and their economies. That will continue to drive investment in the water industry. The second area is really around optimization of the treatment process, and that really comes out in two areas. Historically, there's been increasing pressure to take cost out of developing and then producing water.
What we're starting to see now is an emphasis that's also about reducing the environmental footprint that it takes to produce that gallon of water. Energy consumption is certainly one of the biggest areas that the industry is focusing on. Any technology that can be developed that reduces the amount of electricity used in the production of water is a key driver within the industry. The second area is something that we talked about last year, which is this continuing evolution of the workforce within particularly the municipalities. The typical worker in a municipality has been there for probably 20 years plus and has all the knowledge to run that plant pretty much in the back of their mind.
As they retire, they're being replaced by a younger generation that while doesn't have that tribal knowledge, is far more open to looking at technology as a way to help them work through their issues. By us being able to provide technological support, application expertise, that's a key way for us to build the brand presence for those users. Regulation is a key part of this industry, as Larry highlighted earlier on, not only with existing regulations and governments putting measures in place to continue to enforce those regulations, but new regulations. We'll touch on one that's hitting the shipping industry, which will have a direct impact and develop what we believe will be a significant market later on in the presentation.
Finally, agencies are continuing to focus on just water management, and it could be getting water to drought-stricken areas or managing water where you have floods. We are also doing a lot of research within the oceanographic industry for climate and weather forecasting. The continued focus on understanding water management is a key driver in the industry. Overall, all of those drivers really dovetail nicely into the advantages that we offer both in products and services. Like Martin, 2010 was a great year for the water business. We like to refer to it as returning back to the days of double-digit growth, and we saw double-digit growth across all of our businesses. It is important to note that two of our three businesses were actually up last year, so we are not coming off of a terribly down year in 2009.
We continue to grow our margins by focusing on price and PPV, but this year, we also focused our energies on how do we sell more profitable products, mainly the consumables part of our business, and increasing our service revenues. The one point that I am particularly proud of is the way the organization tackled the quality issues. Instead of focusing on part number by part number, the team really drove in and tried to understand the systemic issues that were causing bad quality. As a result of focusing on those systemic issues, we saw between a 40%-50% improvement in quality across all of our businesses. Working capital continues to be an area of strength, and it is important to note that these businesses have been practicing DBS and driving working capital out for over 10 years. This is not the low-hanging fruit.
This is digging into and continuing to evolve the processes to improve working capital. The deployment of that capital in 2010 was really focused in two areas. One was to enter a new market, the oceanographic market, and we will touch on that a little bit later in the presentation. The second area was to build a partnership with one of the key players in the Japanese market. Danaher increased our equity position with DKK-TOA and used that equity to build a joint R&D center north of Tokyo. In that R&D center, both companies will work together to develop products not only for the Japanese market, but for the global market as well. At the end of the first quarter, the Hach Lange team had reported results that were in the high single digits.
At that point, we gave the team a challenge to accomplish three things: generate greater than 10% growth in each of the remaining three quarters, be the first Danaher business to $100 million in China, and to generate over $1 billion in sales before Christmas. I am pleased to say in all those, we made outstanding progress, although my congratulations to the Fluke team, who just edged across the line to be the first business to $100 million. I understand that we will actually hit our $1 billion of sales on Christmas Eve, so it will be a good Christmas for us as well. Particularly proud of the way that the team responded to the challenge and really got back to the days of driving significant growth across the business.
If we step back and look at some of the ways we've applied DBS to drive that growth, there's really three examples I want to take you through. The first one is how we systematically deployed feet-on-the-street resources to grow our businesses in those emerging markets. In China, as we talked about, we systematically have added sales, service, product marketing, and now product development resources in a very methodical way that has allowed us to grow that business from less than $5 million to over $100 million in less than eight years. We believe the continued investment that we've made will allow us to get that second $100 million in a significantly shorter timeframe than the first $100 million took. The other area where we've grown in terms of feet on the street is through acquisition.
We did that in Brazil and Mexico by acquiring either key channel partners or distributors in those regions. Not only was there a positive impact to grow the business, but it also provided a very sound foundation that we could use to help other businesses within the water quality platform build their organization. So in Brazil, through the acquisition of Hexis, we significantly increased the number of feet on the street that led to significant growth over 38% of the Hach and OTT HydroMet business. But I think more importantly, it provided a strong organizational foundation that our other businesses could use as they build out their organizations in Brazil. Similar to Mexico, with ChemTreat making the acquisition of Trident, not only significantly improved the ChemTreat business, but provided a great foundation for us to build out in the future.
The second area is really around innovation, and there's where using advanced product development and open innovation at Trojan, really allowed them to gain entry into a new and emerging market. When I refer to emerging market here, I'm not talking about a geographically emerging market. I'm talking about a market that's being driven by some new regulation. The International Maritime Organization has put through regulation that would monitor and require the disinfection of ballast water in the shipping industry. Ballast water is the water that a cargo ship would take on board to basically balance the ship as it loads cargo to provide stability as it travels across the ocean. It pumps the water onto the ship, loads the cargo, transports it across the ocean, unloads the cargo, and purges the ballast water in its tanks.
As a result of that, there's been some invasive species that have been transported in that ballast water and caused particular harm to the environment. The most notable one is zebra mussels that we see here in the U.S. When you put into context that there's over 34,000 ocean-going vessels that'll need to be converted over to meet this regulation, we estimate that'll generate or create a market of over $1 billion. For Trojan to enter that market, they had to develop a technology and a preemptive technology. What they did is there were really three key things in terms of converting a ship over to disinfect its ballast water. The first is space, the second is energy consumption, both of those significantly limited on a ship, and the third is just the ease of that conversion.
By developing a UV and filtration-based technology, they have developed a product or a solution that will require half of the space and 70% less energy than a conventional technology that is on the market. By using advanced product development, they have been able to develop a preemptive technology that will allow them to gain a strong entry into this emerging market. The other area where they have applied the advanced product development process is upgrading the lamp technology they use in some of their core products. In doing so, they significantly improved the output and efficiency of the lamps, but more importantly, did it at a cost that allowed us to improve the gross margin on that product by over 1,000 basis points.
Using APD to not only provide a better solution for the customers, but also to drive higher margins, is a key way Trojan has used some of the DBS tools to improve their bottom line. The third area I wanted to talk about is how we have used the internet and what we call virtual marketing at Hach. One of the key tools that is used within the marketing are trade shows. However, the efficiency and effectiveness of going to a trade show is highly dependent on the number of people that attend the trade show. In 2009, with the economic downturn, we saw a significant drop-off of attendees that were coming to the shows. If we couldn't get the users to the trade show, Hach decided to take the trade show to the users and created a virtual trade show booth that we made available to those end users.
It provided a highly interactive, highly efficient, but more importantly, a very exclusive venue for us to talk directly to those customers. In doing so, we doubled the typical output we get at a trade show in terms of number of leads and add additions to our funnel, and also provided a much more satisfying experience to those end users, evidenced by they were willing to spend over two hours going through our virtual trade show, where typically they would join us at a real trade show for no more than 15 or 20 minutes. Wanted to take a minute and let you experience the virtual trade show at Hach.
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The creation of that virtual trade show also dovetails nicely into that trend we talk about with end users that are far more internet and far more technology savvy. The last story I want to talk about is how we have used acquisitions to go into new markets. in 2008, we entered the oceanographic market, it is about a $150 million market, through the addition of Sea-Bird. In 2010, we added WET Labs. WET Labs and Sea-Bird together provide the majority of the analytical methods that are used to analyze seawater. More importantly, what we saw was that the WET Labs technology was used in the Gulf oil spill to detect oil plumes that were coming up from the surface of the ocean. A key way for us to get into a very attractive new market through using acquisition to build that position.
In summary, 2010 was a very strong year for the water businesses. The growth tools and the investments that we put in place continue to drive share gains and continue to drive the double-digit growth we mentioned. Acquisitions are used as a key way to not only build presence into new markets, but to build partnerships with key players, but also to get into new geographies. Technology will always be a key part of this industry, and a key part of the way that we build the brand equity that we have today. And then finally, we continue to invest in our most important asset, which is our organization, and building the capability across the globe in terms of building our water businesses. Thank you.
Thanks, Jon. Martin, I think you are going to come up for Q&A. Just quickly, before we go to Q&A, the story Jon just told, I think, is really emblematic of how we think about growth at Danaher, both inorganically and organically. Keep in mind that obviously, the water market doesn't exist, but there are lots of different water markets. I think what Jon and team have done is very deliberately pick the sweet spots in the water market broadly defined to make sure we are not trying to be all things to all people, but really be smart about where we put money to work. Trojan is a good example of that, where we went in and really made a bet on that technology transition from chlorine to UV. It was a technology bet. Clearly, the team at Trojan has paid off there.
But then organically, we have made sure that we are taking full advantage of that core technology. You saw in the ballast water situation where we have made a big bet to take that capability, that brand, into a new space where we think we see tremendous opportunity, and an opportunity not only to play, but most importantly, to win. Gentlemen?
Not sure, Matt, how we're handling this or
Thanks. I guess a question for both. As you noted, I'm over here, sorry. You noted your organic growth rates are running well above the long-term averages that you're quoting. Talk about when you see those migrating back down to the lower end. In the case of Martin anyway, it sounds like you've changed the business enough and there's some other things going on with your customers and regulations that maybe that three to four needs to move up.
We think that we have changed our business significantly, and we are playing more heavily in some high-growth segments than we have traditionally within our business. I think that observation is true. I think, though, we've seen some very strong upgrade cycles in the U.S., and while those upgrade cycles, this is particularly around secure pay and secure payment. While there's still lots of potential upside in those markets, we think the rate of growth of those are going to slow down over the next couple of years. Hence, we think that we'll be returning close to that historical average and then picking up again as we overcome those comps.
I'd say from a water perspective, we've seen growth obviously coming from the emerging markets, but we've also grown at more than twice the market rate in some of the more mature markets, like the U.S. and Europe. We believe the investments that we've made in those regions as well will allow us to continue those growth rates in the more mature markets.
Thank you. Over here. Jon, I have a couple questions for you, please. The first one is just on your focus on technology. If you could give us an update on where lab-on-a-chip stands today. That has been a potential disruptive technology for water tests, but does not really seem to be making much progress. If you had an update on that. Secondly, I have a follow-up question on the Dionex transaction this week. Ion chromatography is a real niche, but very high-end technology. Is there any issue with not having that type of technology within the Hach portfolio?
Okay. The first question, in terms of lab-on-a-chip, there has been a lot of focus and there has been a lot of concepts, as you know, that have been developed. I would say that the biggest issue with any of those has been market acceptance, and it generally relates to cost per test. The technology, as we have seen today, is just not acceptable from a user standpoint from a cost per test. Therefore, it really has not gotten any market traction. In terms of Dionex, we do not directly compete with Dionex today. The overlap of ion chromatography is relatively narrow in terms of where it impacts our business. Dionex has been in the market. We do not expect the acquisition by Thermo Fisher Scientific to have any material impact on our water business.
Question from Martin. How does the increasing penetration of electric vehicles, how does that change the game for GVR going forward, and how do you address that opportunity or threat?
I think the penetration of electric vehicles, electric charging points, will certainly change our industry over the long-term if electric vehicle technology proves to be the winning formula for alternative energy. I think there is still some doubt as to whether that is going to be the case or not. Most of the projections we see is that by 2020, somewhere around 5%-6% of new vehicle sales could be electric or hybrid electric vehicles. It will certainly have some impact on the total demand, but we think it will be relatively small. Having said that, I think it is important that GVR play in the electric fueling space, and we are exploring a number of options around how we do that. We also think there are a number of other attractive alternative energy sources that will drive significant growth.
And particularly, we are seeing strong uptake of CNG fueling systems around the world. We think in the near-term, that is likely to be a bigger driver of expansion in our business than some other areas.
Jon, mostly for you, but I am constantly struck given the hyperfragmentation of water markets generally and the activity of some pretty smart companies over the last five or 10 years in consolidating or trying to roll up a lot of those companies. Almost nobody has turned those into an integrated business. Without asking you to knock your competition, why do you think, what is it about the water business that has kept that from happening? Are there some unique characteristics there that I do not understand?
I would argue that we have done a pretty good job of rolling up a series of acquisitions, and in the analytics side has built a pretty sustainable, pretty leverageable position. We have rolled up probably over 20, 25 companies. Obviously, that is not easy to do and others have struggled to do that. I think it is the brands. If you look at the brands that Danaher rolled up into the water, they really built it on a couple of the preeminent brands, and those are not easy to come by these days. I think we got into it early. We have done a nice job of rolling it up, and we bought some of the more preeminent brands in the industry that have the best relationship with end users, and that is a tough combination to duplicate.
But is there something that beyond that because a lot of the other companies have great brands.
Well, I think the water business is, as you said, it's large. You can come at it a lot of different ways. We've chosen to come after the analytics space, and I think that's where we've built out our position. I can't really comment on others that have tried to roll up other segments of the water business. I look at what we've done in the analytics, and I think that's allowed us to build the position that we've got.
There's one Chris. There's one Chris in there.
It'll be our last question.
Yes. Can you tell us what's involved in a gas station operator converting to CNG?
It is a fairly expensive process to bring in the infrastructure to convert to CNG. The fuel has to be compressed through some special compressors, and it needs to be cleaned and dried and then dispensed through a different type of dispenser than is used for the traditional gasoline. Although, in our portfolio, we do supply a range of products that can actually dispense gasoline, diesel, CNG, LNG from the same unit. But it needs some different hydraulic technology in it. So the conversion typically runs order of magnitude of $200,000- $500,000 to bring in that type of conversion on a station.
Thanks, guys.
Thank you.
Appreciate it. Cliff, just back to your question. I think people talk about bundles. It is one thing to put a bundle together, but somebody has got to be able to sell it, and it has got to resonate with the way people buy. I think sometimes, reality does not always meet with the hype, and that is probably a function of what goes on in a lot of corners of the water market in our view.
We're going to transition here. You've heard the environmental story. The other business that was part of professional instrumentation is obviously our test and measurement business. Jim Lico, one of our Executive Vice Presidents, also the platform leader for T&M, is going to come up and kick this off. Jim?
Good afternoon. We had an opportunity in September for many of you to visit us, and spend some time doing a deeper dive, if you will, with Tektronix and Tektronix Communications. What we'll do today is, we'll cover the T&M overview. We'll give you an update since September of some of the things that have occurred at those businesses. Then we'll go and give you a much deeper dive into Fluke, as we didn't talk about Fluke back in September. Rich McBee, our group executive in charge of our Tektronix Communications and associated businesses, and Amir Aghdaei, our President of Tektronix, aren't with us today. But I think it's important to recognize them because, as I think you'll see today as we go through the platform story, and Barbara will give you a nice view of Fluke, it's really been an outstanding year for 2010.
We've got some great leadership in the platform. Larry mentioned the evolution of our leadership within Danaher, and the three folks who run these businesses do an outstanding job and are exemplary of that leadership development. A little bit about T&M overview, as we mentioned, about a $3 billion business today, about a $12 billion market. We like all the growth dynamics in the business. About 5%-7% on the long-term. One of the stories here around T&M has been our evolution from purely an instrument manufacturer to instruments, software, and services. It's been a big part of our evolution, as we continue to try to expand the portfolio into new and different growth segments. We've been able to change the portfolio, so we have a little bit more of a recurring revenue opportunity in the business today.
It's a high margin business, as you can see. Quite frankly, one of the great things, and it's been a recurring theme already today, I think in Larry's pitch as well as what you heard in environmental, is the wonderful global footprint that we have in T&M. You'll hear this in the individual company presentations, but truly where we've really got some strength, two of the four in the $100 million club were in T&M in China. Clearly, we've got a great footprint in which to expand the business. That's an important part of our growth story and an important part of why we continue to think the portfolio will continue to grow even in some tough economic times.
You couldn't talk about Test and Measurement if you didn't talk about the strength of our brands. Whether it's thermal imaging and digital multimeters at Fluke, or it's oscilloscopes at Tektronix, or it's network monitoring, or it's our Datacom installer testing that we do at Fluke Networks, all of our businesses have incredibly strong brands, both relative to the competition, but also superior customer satisfaction. The drivers in this business are actually pretty simple. We'll go into these in a little bit more detail, but it's really about innovation. Tektronix, in particular, plays in that with R&D engineers who are developing new technologies for everything that we do in our daily lives. Fluke is really all about the digital world, and as things become more electronic, they're not only installing a lot of these things, but they're also servicing them.
The bandwidth explosion and the proliferation of digital security are really driving our communications and enterprise businesses. As I mentioned, we did a really deep dive with many of you in September, but I'll give you a little bit of an update of what's going on at Tektronix and Tektronix Communications. Tektronix first, roughly $3 billion market. This is roughly now about a $900 million business. We've got Amir back at home trying to finish the year strong and get ready for 2011. I'm confident we'll see a very good-sized business here as we enter 2011. Again, as I mentioned before, that geographic mix, really a great leverage point for the business here. Key customers, we've got very strong customers in the computer industry, in education, military, and government. Tektronix also has a video business which sells primarily to broadcast and cable installers.
It's a good niche business, but it's a strong business with very high market share. Talk about the macro drivers in the business, and they're very good, and quite frankly, they're driving growth with the market coming back in 2010. Quite frankly, the real story is how this should continue to drive growth here into the future. Number one is everything about innovation. As design engineers and R&D professionals around the world continue to develop new products and new technologies for markets, they need our tools in order to do their job. As things get smaller, as our cell phones are doing more, as our computers need to do more, smartphone deployment, all of those things drive this business. The engineers that design these products need all the products that Tektronix provides in order to do their job.
The digitization and IP video drives our video business, and emerging markets is a wholesale growth dynamic for the business that continues to help us drive growth. Really, these markets are all 2x the overall market rate at a minimum. Finally, the other growth story is really less a macro driver, but more of a driver for the business is our passion for continuing to get into more additional attractive adjacent spaces. As Larry mentioned about the number of acquisitions we've done at Tektronix, what that's really done is put us into new segments in the market, stabilized many of the markets we're in, but more importantly, really drive our business into new segments that we can continue to grow off of and use our global footprint, quite frankly, to leverage into new markets. So it's a balanced portfolio.
We continue to evolve, I think, the portfolio here at Tek. But 2010 has been a great year to do that with 25% growth, share gains in our primary and biggest, largest product segment, oscilloscopes. We have done a great job here in really expanding our service business, both organically and inorganically, with several acquisitions. The nice thing about that service business in our market is that we are going to touch that customer after selling an instrument. We are now going to touch that customer much more frequently when we are adding services onto the instrument that they sell. It allows us to continue to have a relationship with customers way after the sale, and that really helps us drive growth and innovation down into the next few years. Emerging market success is great here.
As I mentioned, as you look in 2013, should be more than 40% of our business, and at the same time, driving really good margins. The margins here, whether it is the DBS story that we are really talking about, whether it is the cash flow that we have generated through really strong working capital turns, DBS continues to be a great story at Tek. But the primary story is always about innovation. This year, we continued to invest in the downturn, and this year we saw four major Tier 1 launches this year, which from a launch perspective is a really good number for us, really positions us well for 2010. One of those is in the mid-range of oscilloscopes.
If you remember in September, we teased you a little bit with this. We did not tell you that the products were coming, but we told you about this market.
What we told you then and which holds today is this is really the largest segment of the oscilloscope market. It is a segment where innovation matters. It is a growth segment of the market, and we really have come out with some revolutionary products. Our 5K and our 4K are strong products in that range, but have really come out with new products just recently launching these literally in December that are really going to provide us with really strong market position and growth and customer satisfaction. Really, the story here is how we have used one of the Danaher growth tools, what we call accelerated product development, to not only bring this product to market faster, but we brought it in at better margins. We have done that in a way that allows us really to leverage our commercial capability in a faster way.
It is not just the development of the product, but it is energizing the channels, energizing our sales organization at a faster rate to really get us positioned for 2011. New products continue to be the story here. This is a great example of innovation, but I do not think it is the only thing, and you will continue to see this as we get into 2011. You may know that we announced and have now completed the acquisition of Keithley. Back in September, we told you about the importance of the bench strategy for us and the theory there is today we sell an oscilloscope. It is sitting on a bench with an engineer, and there is a whole bunch of other products that are sitting on that bench that Tektronix does not provide.
Now with the Keithley acquisition, we get more of the products on that bench that we can supply to the same customer through the same channels. We have a great opportunity to leverage our channel base, leverage our strength with customers, leverage our geographical footprint, and take a great brand with a great legacy, and really launch that throughout the world. We are very excited about having Keithley as part of the portfolio. It also enhances our geographic footprint because there are parts of the world where Keithley actually is pretty strong. It is a very global business, has good emerging market sales, but less sales force. The ability now to take our sales force and do more with this is really exciting. They have had a very good fourth quarter and again, more momentum for what we will see in 2011.
We will transition from Tek Instruments to Tektronix Communications. If you think about Tektronix Communications and what we call our communications and enterprise companies, whether it is Fluke Networks or AirMagnet or our most recent acquisition, Arbor Networks, we are really talking about companies that serve network operators, enterprise networks, data centers, either IT professionals or the professionals trying to keep our wireless and wired carrier network up and running. Again, a great business, $1 billion-$2 billion markets, good growth dynamics. Here you see a little bit of a difference here. $600 million business with not a huge amount of sales in some of the emerging markets. Therein lies a great opportunity.
With the portfolio that we have in all of T&M and the resources that we have in T&M, this continues to be an opportunity for us to continue to leverage what we have in some of our other businesses within T&M and within Danaher, quite frankly, to really make sure we can accelerate our growth and provide a growth story in emerging markets as we go forward. This is a great set of businesses, and the drivers are extremely good. Wireless everywhere. Everybody in here has a cell phone. You probably have bought a new cell phone maybe in the last 12- 18 months. Your continued need for a smartphone and all the features and benefits that you derive from that drives our business because we monitor those networks.
Whether it is the fixed and mobile lines blurring or it is customers, you all expect the same level of service on your wireless line as you do your fixed line. The carriers are looking to monitor their networks in order to give you that class of service. They are using our gear in order to make sure that by monitoring their networks and troubleshooting their networks, they are using our gear to provide you with that level of service. Networks are becoming more IP-based, and that means they are replacing legacy networks. That helps us as well. Voice, data, video everywhere is a great opportunity. I forget the exact data, but the average 18-year-old on an iPhone is sort of like a couple thousand normal phone users from years ago. They are using tons of data. They are downloading YouTube videos.
That's putting tremendous stress on networks, and that's where we serve today to continue to want to help carriers deal with those challenges by helping them with our equipment to monitor again in those networks. Also now that we've been sort of the expert, if you will, or the market leader in monitoring the network and troubleshooting the network, now we buy Arbor Networks to work on securing the network. The third piece of the network now is now in security. Talk about that in a minute. 2010 highlights. On the carrier side or our Tektronix Communications business, we've launched a brand-new software platform, which is going to be really the industry-leading platform for the years to come, and we've continued to gain share there.
On the enterprise side, Fluke Networks, AirMagnet, we've done a great job on the Wi-Fi side of Wi-Fi tests, of growing our AirMagnet acquisition. It's a great business, really provides great opportunity for us in the future. The fiber and data center continues to be a driver for us on our Datacom business and really lots of product launches. These businesses are all about the continued innovation that exists in the market, dealing with the new things that come on networks and things like that. We continued, even in a tough 2009, a little bit tougher market environment, we were able to continue to keep our innovation engine, and we're seeing the benefits of that now and into 2011. This is a good example of that.
As you see, the chart to your left really shows the variety of types of carrier networks that will be deployed over the next five years. What you can see is, despite the fact that you hear a lot about 4G or LTE, you still see a lot of growth from legacy networks in 2.5G and 3G. You see a lot of continued growth. What that means for carriers is that as they deploy new technologies, they need a supplier like us who can continue to serve them with monitoring their legacy systems, while at the same time they add new systems. That's what our new platform is all about.
Again, great story around DBS tools using lean software development here to literally transform the way we schedule and deploy our network monitoring business into the carrier networks with a 40% faster time to market than in previous years. New customers, so that has allowed us to gain share, and also from a deployment stage, we've won the largest first phase LTE deployment in the world just recently through the benefits of our lean software development and this new platform. I mentioned the new part of this business of securing the network. Data security is a big deal now, and Arbor Networks is the leading provider of network security in the world, both on the carrier network side and on the enterprise side, so individual enterprise networks. You obviously know there's been a lot in the press lately about network security and carrier security.
This is obviously a great dynamic for this business. It continues to be a great story for us. They have got great growth in 2010, and they will continue to have very strong growth in the out years. They are an independent business within the platform, but they will continue to leverage some of the great parts of our customer relationships with carrier networks and enterprise networks. If we go back to September and just say we are very proud of 2010. We have set a lot of records for our business this year. We are excited about that. We are excited about the fact that we have really been able to see the benefits of restructuring while at the same time continuing to invest in innovation. We have made significant go-to-market investments this year as well. You can see our vitality continues to be good.
Lots of new product launches, but we are also driving substantial growth in emerging markets through making sure we have the right products for those markets and making sure that we are accelerating our go-to-market investments in all of those regions as well. It is the fastest DBS conversion at Tek and Tek Coms. Obviously, you saw on Larry's slide, that Fluke continues to be one of the Danaher benchmarks for DBS. We have started to continue that level of success within the new parts of the portfolio as well. As Larry mentioned, seven strategic acquisitions this year. Great opportunities for us to extend the business, grow it faster, get us into new segments, and really make the business extremely successful. I will come up later and do a Q&A. I will transition to Barbara Hulit.
It seems like yesterday that Barb joined us, but now five years ago, as group executive and head of Fluke. I think one of the things you will see is, in Barbara's presentation, I hope you take away is not only the great progress that Barbara has done in 2010, coming out of 2009 to really do a great job this year, but also over a period of the last five years, really a great demonstration of how a great business leader drives tremendous business success. It is a great story, and I look forward to you hearing it. Barb?
Thank you, Jim. Good afternoon. I want to start by telling you a little bit about the markets that we serve. We tend to be on the handheld side of test and measurement. Think of these as tools that a technician might use in a factory setting or maybe a service repair person, an electronics engineer sitting at the bench designing one of the next new cool electronic toys that we might see, or a metrologist trying to keep primary standards. We compete in a $4 billion market where we have the leading share position at $1 billion. Our market tends to grow in the mid-single-digit range. If you look at the composition of that growth, we are bigger outside of the U.S. at 55% than we are inside the U.S.
The macro drivers that tend to be behind our business, industrial production is one that is really important to us. As the market continues to shift manufacturing assets out of developed markets into emerging markets, our business moves along with that. We certainly saw an acceleration of this trend last year as many facilities with the recession obviously moved to lower-cost situations. That also creates an opportunity for us in the mature markets, where companies and factories have to drive productivity in order to remain competitive with those lower-cost facilities. Jim mentioned the digital world, and at Fluke, we are all about measuring that. As the world around us has become more complex, so have the measurements that need to be taken to keep those worlds up and running. That creates new opportunities for us on the backs of really new challenges for many of our customers.
There is a trend around that as well, which is global increased security and worker safety concerns around the world, as well as productivity. We have read quite a lot about remaining high levels of unemployment this year, and one thing that is interesting is that in a factory setting, as production has come back up, those factories, too, have been reluctant to add new people, and that creates even more of a demand for productivity, which our tools are helping solve. Then one of the big drivers we tend to see in these markets is around innovation. The Fluke team over time has been pretty prolific at driving new innovations out into the marketplace.
We, of course, are helped in a significant way by having the leading brand position around the world and a pretty high relative share at 4x the next largest competitor, which really allows us to get out and commercialize those inventions in a pretty quick manner. 2010 has been a really good year. We have had a really strong year. We are seeing that the markets are rebounding back, and our business is rebounding even better. We estimate that we have taken about three points of share so far this year, and there are a handful of reasons for that. One has to do with increased levels of innovation. We talked last year about how we remained investing in invention during the downturn, and we have continued to do that in 2010.
We have been able to introduce some pretty significant new innovative products out into the marketplace as a consequence of those investments, and I will tell you a little bit more about those in just a minute. As importantly, we have increased what we are doing on the commercial spend perspective to make sure that those inventions can get commercialized with great success out in the marketplace. You see two particular drivers here. One is around web marketing. We are finding that our Fluke customers who, at many times, are not tethered to a desk and to a computer are still out on the web, and our ability to reach them and tell them our story is increasing. Then we have increased feet on the street around the world in both emerging and developed markets in the double-digit range.
And then it seems like no story is complete if we're not talking about emerging markets. This is a big deal for us as well. Thank you, Jon, for the accolades on passing the $100 million mark in China. It was a great accomplishment for the team, and we're taking a lot of the learnings that we've had throughout the years in China and applied them elsewhere. Let me touch on e-marketing a bit. As I said, we figured out through VOC that the core Fluke user is really accessing the web for information and really searching for ways to help make their jobs easier. So we, at the beginning of the year, leaned on quite a few of the other Danaher opcos to see if we couldn't accelerate our learnings there, and consequently, through our learnings, have helped add to that knowledge base around Danaher.
But basically, throughout the year, we've redesigned 80% of the website. So we went out and did a lot of VOC and understand what kind of information our customers were looking for, got a little bit smarter about how the search engines crawl these sites so that we could make some pretty significant improvements in our organic search. And what you see is that organic search has gone up by about 50%, and we will see over 5 million unique visitors this year alone at the Fluke website. But that's not all. We've also doubled down, so to speak, on our pay-per-click advertising as well, and we're seeing some pretty tremendous results there.
If you look down on the left-hand side, this is in our power quality business as one example, where the number of leads has gone up by 10X and the cost per lead has gone down by 80%. So clearly, a good story. Social media is important in our markets as well, and similarly, we're seeing increases in the area of 800% around traffic and interactions we're having from a social media perspective. And if you look at the pie chart, this is an example in our thermography business. We came into the year with about 10% share of those discussions, if you will, and as of October, we had about two-thirds of those discussions. So we're making really good progress here, and we'll continue to see this into the next year. The innovation story continues to be a pretty strong one here.
As I said, we continued to invest during the downturn and a couple of significant introductions this year. One is around the clamp line. We'd spent hours and hours doing observational VOC, which helped us understand the way that people want to use these clamps. And similar to the meter that some of you saw debuted here last year, we have a wireless component to this clamp and a new probe that allows the technician to more easily navigate in some pretty tough spaces. What's been interesting and fun about this is that the early results are really strong. Not only are we seeing a lot of interest, as you can view from the 400% increase in web traffic, but our daily run rate doubled when we introduced this line.
As proud and successful the 233 wireless DMM has been, this new clamp line has even been more successful, selling at about twice the rate. That is not all. We entered a new segment this year in vibration. Vibration is a technique that is used in many cases in a factory setting to assess health and fits in quite nicely with some of the things that we have done around thermography. There are a lot of factories and facilities around the world, though, who do not use this technology because it is hard. In typical Fluke fashion, we went out in the marketplace, did quite a lot of research to understand what kinds of problems our customers are trying to solve. One of the issues you see is this little graph that shows the peaks.
The typical vibration analyzers spew out a lot of graphs and data, which are pretty hard to interpret. Through an open innovation partnership, we were able to take 20 years of history, heuristics, originally developed for the Navy, put those in a handheld tool. Basically now, if you are a technician in a facility not familiar with vibration, which is our target, you can pretty easily and quickly get a sense of, "I am green, things look good. Yellow, there is something I need to look out for," and we will tell you what and where, or, "I am red, I have a problem, and I need to do something." The early successes have been good here, as you can see. We have got placements already in many of the leading food and beverage and process customers around the world.
Impressively, though, 40% of our users are new to the category.
It tells us that we are able to bring this new technology and make it accessible. The funnels are looking quite strong and impressive. In the U.S. alone, we have got a funnel now that is over 130,000 strong. Then the emerging market story. Yes, you have heard now that Fluke was the first to hit the $100 million club. Part of this, if you go back into history, was to create a product basket that worked for that market and a channel. As we are continuing to make inroads into Brazil, Russia, India, we are finding that many of those learnings are very relevant. In Brazil this year, we saw over 40% growth. In Brazil, we enjoy quite a nice position there from a brand awareness and preference perspective. We are putting more products into the basket there.
We are expanding feet on the street, and we are starting to make investments around specific verticals. Russia, a similar story, up 80% year-on-year. This is really a story about expanding our reach past Moscow and St. Petersburg out into the tier 2 cities, bringing in some of the mid-market product baskets, and driving with localized programs, localized language. We are seeing good growth in the emerging markets. Nearly a third of our portfolio is there and will continue to grow. In summary, much like this race car that you see, we think that we have got the right investments to continue to outpace the marketplace. We will continue to invest in innovation, geographic expansion, and new commercial tools. Our best brand, the market access that we have, and the share position that we have earned help make us pretty well-positioned as we go forward.
With that, we will open it up for questions.
We'll get the mic over to you first. Yeah. Right there. Yeah.
Hi. Thoughts on military and government growth. First of all, for Tektronix, how important is it for Tektronix, military defense, and then with anticipated budgets, assuming there are any budgets, they're going to maintain spending levels growth, particularly in electronics. Do you see that as continuing to be a good driver no matter what happens to defense budgets? Even if they go down, do you think they'll still at least maintain, if not continue to increase spending on electronics?
Yeah, I think it's hard to tell exactly where the budgets are going to go. The answer to the first question is, we don't have a tremendous amount of exposure to the military budgets today. From that standpoint, if the budgets were to go down, it wouldn't have any material impact to the platform or Tektronix. It is a growth opportunity, though. As you mentioned, in places like radar and in places where there are some opportunities, there is going to be money spent. What's critical for us is to make sure that we're in those segments where money would continue to be spent. It's really more of an opportunity for us than any sort of issue.
Thanks. First question around academic and institutional budget pressure that we talked about when we were visiting Tektronix as well. Are you seeing any continued trends on that front that are concerning to you in terms of growth in that space?
Well, the research and education. I break education out. Education, as we said in September, is very much a global play for us, and we are not seeing any pressure in that. We are seeing continued opportunity, particularly in emerging markets. On the research side, again, an opportunity. It is a global play for us as well. A little bit different because there is more of a U.S. component to it. But in both of those segments, we are still seeing money in budgets. So at this point in time, we see no pressure. Again, like the defense comment, it is more of an opportunity for us than an issue.
Around the margin side, longer-term margin potential, as you sort of look at your runway versus competitors as well. How do you see that playing out right now? Where do you see the biggest opportunities and any issues around pricing?
I will take the pricing. Pricing has been, I think, holding, particularly in the last second half of the year. Certain markets we see more price pressure than others, but really across the platform, we have seen price get a little bit better recently. I think margins are in the 20s today. There is no reason why they cannot get into the mid-20s without a problem. We continue to be much better than most of our industry, and I do not see any reason with the combination of DBS and where we are taking the portfolio, why we would not continue to be higher than the rest of the industry.
Mic, over here.
Okay.
Barbara, you mentioned the 3 percentage point market share gain this year.
Could you give us some color around that share gain? Was that share gain in orders that we will see in 2011, or was it sales share gain this year? What sort of products were generating that share gain and why?
Sure. The share gains have been pretty broad around the portfolio. Most of the share data we get comes from our distributors' POS. That would be results that we are already seeing from a shipment perspective and even one step further from a sales out perspective. Thermography continues to be strong, and we are seeing both dollar and unit share gains there from a year-to-date perspective. Our core industrial market, and that you can think of as DMMs, the clamp meters, temperature tools, power quality. We are seeing share gains on the same order of 3% or so. We are also seeing gains in our calibration business and automation, which was perhaps harder hit by the recession, but seeing a good recovery based on some of the funnel work that was done. It is pretty widespread, actually.
Go ahead.
Jim, just a couple of questions on the service business, which you talked about having very strong growth with acquisitions a big part of. What is happening at the organic level in terms of growth in your service business? Where are margins in the service business relative to average?
The service business, from an organic perspective, is going to be a mid-single-digit kind of grower. I would not call it the higher end of the growth, but it is much more stable. Margins here are very much an operating margin story rather than a gross margin story, because gross margins tend to be lower in the service businesses, but the operating margins are pretty good. They will be probably a little bit lower than our fleet average, but we think, and we have got great examples of this, that they can certainly be in the high teens, certainly in the near- term. Deane?
Thanks, Jim. Just a little bit of a historical reference. I remember the day that Danaher acquired Tektronix, your primary competitor in this space, called me and in very colorful language, said that he gave it six months before Danaher would lose the stomach, and he actually used much more colorful language, to invest in the iNet business. The R&D was going to be such a big quantum leap for the company that Danaher would not have the stomach to pursue and fund the business the way it needed to. Obviously, it did not play out that way, and this has been a big success story. But what specifically about the R&D was a challenge, or was it rationalized, and what was the lessons learned?
It is a great lead in. First of all, two things, really. One, as you know, we really focused the portfolio around network monitoring. Number one was the legacy old network diagnostics business. We sort of really did not invest, and from a dynamic resource allocation, we really doubled down on the best place and the best market, and that is network monitoring. The historical iNet business, we really saw that as a good market. We saw it as an opportunity, and we really continued to invest. I think you see that today. As I mentioned, maybe the best test of that is the largest LTE monitoring contract out there has been awarded to us. The newest generation of technology has been awarded to Tektronix. I think the proof is in the pudding, and quite frankly, I think that is as good an example as anything.
Whether or not our competitors thought we could do something or not, that is always interesting. But quite frankly, I think it really speaks to our desire. We knew where we wanted to take the business in certain segments, and we made sure we invested in those segments.
Jim, can we just talk about the integration of Keithley? One thing that struck me about Keithley was the SG&A base was huge. It sounds like you got tremendous synergies into the test measurement platform. How much of the cost base do you need to retain for Keithley? Secondly, how many more opportunities are there like Keithley in that kind of range?
Yeah. First, we have liked Keithley for a long time, even before Tektronix was part of Danaher. Barb and I used to talk about Keithley when Fluke was the test and measurement platform before Tektronix became part of the family. So we have liked that business for a long time. It will be part of Tektronix, so it will fall under Amir. While it helps our entire platform, it really helps the bench more than anything. So Amir will watch over that business. We will treat it as an independent company. But there is lots of synergy opportunities. Clearly, we are going to retain the business, particularly around R&D, particularly around some of the commercial assets to really give that business the boost. And they have already done, so far, it is pretty early, obviously, but the team has already started with DBS.
They had some experience in lean, so we are already working on the shop floor and some of the back office stuff to start to transform and take advantage of some of those synergies. Cliff. All right. Zach.
Thanks. Is the Fluke brand still under-leveraged? What I mean is, should we be seeing 10 slides like this vibration test market slide, or is it more saturated than that?
There are a couple of things that we see around the world, and we monitor the state of the brand pretty closely, as you can imagine, given how important it is to us. We continue to see that our unaided awareness is head and shoulders higher than just about anybody else, and preference as well in all the markets we trade in. If you extend that to say, well, what new markets could we enter, we continue to see kind of a limitless space that we might be able to occupy based on the trust that our customers have given to us over the many years. I think as we go forward, you should continue to expect to see the next thing.
If it was like it was in power quality, like it was in thermography, like it is in vibration, you should expect that the next chapter is still being written, and the book by the end ought to be a pretty thick book.
Do we hear one a year is that what you're kind of resourced for, or could we just get a whole wave of them at once? How do you envision the pace?
We always have a portfolio of ideas that are under exploration. Some of them are obviously at the idea state, and some of them are much more specifically getting developed. I think the cadence of that is sometimes harder to predict. But if you go back to what Larry said about DRA, once we have the confidence and idea, finding the resource is not a problem. We will resource the ideas that we think will have great commercial success in the marketplace.
And maybe just to add, as you are transferring that. I think what the team at Fluke has done a really nice job of is making sure that they do not try to jump into the next new thing before they take advantage of what they have just done. As you saw in the market size, the vibration has long legs. They have done an exceptional job of creating businesses. Trying to do that every year versus going deep for a couple of years is sometimes the better alternative.
It is in the hallway, though, so check it out.
Yeah.
Shannon, thanks for the help raising the bar on them. But obviously, a great brand. Two great brands. Just quickly, Deane, I think I would love to reply to your question, but the sarcasm might be lost on those on the webcast, so I am going to try to pass up on that bait. But to that day that we talked about Tektronix for the first time, or maybe a few weeks prior when we went to the board, I hope what you see here is the logic, the strategic logic, of why this was a great acquisition for Danaher, very much intact. DBS, clearly, lots of impact, lots of potential across the organization. The fit with Fluke, very strong partnership, getting better every day, particularly important in emerging markets.
And obviously, when we talked about in terms of Tektronix Communications, tremendous potential relative to next-generation networks, and that growth challenge, that growth opportunity, is just going to continue to be out there, I think, for the rest of our careers. So that is Test and Measurement. We are going to transition now to Industrial Tech. Dan Daniel, the Executive Vice President with responsibility for this segment, is going to come up, talk about the segment, and he will be assisted by Matt Trerotola, who is one of our group executives. Matt leads Product Identification. Dan?
Thank you, Larry. Good to see you all again. It always means our work for this year is mostly done. The holidays are near, and our minds are fully on the year ahead of us here. Oops. There we go. The Danaher companies in the Industrial Technologies platform really serve a very diverse set of end markets. We organize those companies into three groups: Product Identification, which Matt Trerotola will share the highlights of our business with you on. I will cover Motion. But then we also have several companies serving specialty products markets, that really focus their products on a distinct set of market needs. These companies have sales just over $3 billion, serving collective markets just under $20 billion. Some very strong brands and some strong market positions in Product ID. Videojet, the number one market position, complemented by Linx.
And in our Motion platform, Kollmorgen and Thomson, two of our strongest brands. It is a business that we have worked hard on margins over the last few years, been able to raise the margin substantially into the high teens. That has primarily come through gross margin improvement through a number of businesses. So we are excited about the possibilities that affords us going forward. A geographic mix about just over the company average in terms of emerging markets, but that is very strong with product identification and lots of opportunity in the Motion companies. Given the diverse end markets that we serve, the macro drivers that Larry talked about for the corporation, we touch on nearly all of those.
Some of those that are most significant for our businesses going forward, again, this trend toward digitization, where increasingly products are being coded and marked and identified for tracking, for traceability, for accountability, continues to drive the product ID market. All of the markets that we serve are continuing to see very strong emerging market opportunities. So like the others here this afternoon, we are very focused on our emerging market growth opportunities. And trending for more energy-efficient applications in our motion control businesses is driving our business very strong as well. So it is a very interesting collection of businesses, diverse set of end markets with some exciting growth prospects. Turning to Motion, our Motion operating companies serve the $14 billion motion control market. This is a market that we have seen historically, and certainly going forward, we expect to grow in the 5% to 7% range.
It's a business that's primarily an OEM-supporting group of companies. We have spent a lot of time over the last few years targeting strategic verticals, those that have more consistent, steady growth rates, less volatility, less cyclicality. We've certainly been weaning some of our exposure to that. Going forward, our business is a lot about machine and OEM producers serving packaging industry, all sorts of industrial automation applications. We also have a number of applications in specialty vehicle applications. These range from everything from medical patient-assist vehicles like you see on the screen, to golf carts, to industrial lift trucks and fork trucks, and also up into defense and specialty off-road types of vehicles. A number of our companies in Motion target the medical market, both in terms of devices, hand tools, but also some equipment such as CAT scanning and broader medical applications as well.
It's a business that has tremendous opportunity in emerging markets. We're in the teens in terms of exposure to emerging markets, and it's clear important focus for our business going forward. Historically, as I've said, we've worked hard on driving margin improvement in Motion. This has also been a case of improving gross margins. Going forward, our focus is clearly about growth and driving sustainable core growth in our motion control businesses, and we'll talk about how we intend to do that. Some of the broad macroeconomic drivers for the motion control business clearly about energy efficiency and electromechanical conversion. We have a number of applications that have taken hydraulic applications, converted them to electromechanical, in some cases, taking internal combustion into more electrical applications.
Continue to see that being a strong growth driver and a real expansion of opportunities and applications for our Kollmorgen, and in some cases, in combination with our Thomson products. Through the downturn, one of the significant changes that we've seen is customers depending more on partners like us for technical solutions. Like our company, like a lot of companies, downsizing throughout the recession, that hit R&D departments in some cases. So we've been able to take those relationships, develop new applications with some of our platform product capabilities, and turn those into pretty quick design wins. So we've seen that trend definitely over the last couple of years, and we think we're well-positioned to capitalize on that. Emerging markets, going to continue to see double-digit growth rates for our products in the leading emerging markets.
We have a lot of initiatives and headcount that we're planning to lay in, what I'll share with you, but emerging markets will be an important part of our growth story. The Internet affects our business maybe a little bit different than some of the more consumer-oriented businesses. We're continuing to see the information flow transfer very rapidly. We're able to partner and configure products with end users and provide information to help customize our products for specific applications, and it's being a very important vehicle through the Internet to make that happen in our business. We think our capabilities and our platform and our global footprint really have us positioned well to capture these macroeconomic opportunities. You've heard everybody today say it's been a great year, so I won't repeat that word. It's been an outstanding year for Motion.
We've driven core growth into the low 20s throughout the year. Obviously, had some tailwind from the market, but I think most important to us, we've been able to demonstrate some really significant share win opportunities in 2010. Most significant of that is our new AKD drive out of Kollmorgen, which putting that together with our AKM servo motor, been able to establish a number of design wins that have helped take our growth in that industrial automation market to twice what the market has grown in 2010. We'll talk about the platform capabilities that that affords us here in a few minutes. Our Thomson and Portescap business as well, through strategic targeting, particularly in the medical market and broad industrial application spaces, demonstrated very clear share gains in 2010 as well. Motion delivered record margins in 2010.
We took out 20% of our footprint in 2009, so we put heavy restructuring dollars to work that has clearly paid off and very strong improvement in gross margins. We also were able to invest significantly in both R&D and sales and marketing through the downturn. So we feel very well-positioned and excited about the potential that we see from the product development ahead of us. It's not just about those opportunities, but it's also about the opportunities that are coming here in 2010. We've got a number of new products ready to launch, coming to market, both in Kollmorgen and Portescap and Thomson, that have our product development pipelines full and ready to deliver continued share gains going forward. I talked about some of the investments we've made in 2010 around R&D.
We've really continued to invest in R&D over the last few years, going into the downturn and through the downturn as well. Like the rest of the company, our R&D percent of sales has continued to grow, and APD, or accelerated product development, is one of the most important tools in the DBS toolbox relative to growth. We've been continuing to focus to raise our capabilities around APD across our motion companies, but specifically, building capabilities around co-engineering. Co-engineering, for us, is really about developing a platform product that can then be expanded, customized for particular customers for their application in order to target quick turnaround time and rapid share gain wins. It's a tool that will help us penetrate emerging markets more rapidly and certainly, it's raised our quality performance in a number of applications as well.
Our AKD drive is a very good example of that and where we've been able to translate that into quick design wins. Our lift truck electric drives has been an important opportunity for us as well. Here's a case, the recession, one of the market leaders in terms of lift truck, had their own internal drive capabilities. We've had long relationships with them. They weren't able to finish their development in the timeframe that they needed. We were able to take our platform drive in there, work together with their R&D team to customize it. They ended up canceling their internal initiative, partnering together with us. This is a design win that we'll see continued benefit for years going forward. I think most rewarding for us has been our ability to pull forward those investments and those plans through dynamic resource allocation.
Taking engineers and product development resources, putting them on the highest growth opportunity, translating that into a design win that is going to matter for years to come, has been a great win for the Kollmorgen team. Similar strategy around our Portescap miniature motor business, serves the surgical hand tool market, as well as some other medical applications. Our Athlonix miniature motor going into surgical hand tools at higher power, longer life, really generating some nice design wins for a market that is strategically important to Portescap, but also the rest of the motion platform. I have talked about emerging markets. Motion percentage of sales is in the high teens. Our targets are into the high 20s going forward over time. The markets that we are really targeting are China and India. Those are the two largest markets for industrial automation. They are billion-dollar served markets.
Our share position today is in the single digits, and we see tremendous opportunity. We have had teams there. We are dramatically expanding those teams, both in terms of feet on the street, also in terms of local application support people, and also the localization capabilities, where we are customizing, taking those platform or foundation designs, customizing them for the local market, and driving design wins and share gains in the emerging markets. We are able to do that part of it by leveraging other parts of Danaher, our development centers located in Shanghai and Bangalore, and get to market faster. This is an initiative that has every one of our business leaders very focused on these markets, building those local teams to drive our emerging market penetration much higher than it is today. It is not just about product development in emerging markets.
Driving DBS growth processes throughout the motion companies is really where we have been spending a lot of time, and for me, is one of the most exciting opportunities that we have going forward. We have made a lot of nice R&D investments. We have got strong technical teams to help deliver those, but really upgrading our commercial skill set in these businesses has been an important part of our work the last two years, and I really think we are going to start to see that pay off. Kollmorgen example, we have got very high growth expectations above market, and our growth snapshot process allows us to target those market expectations and share gain wins and be sure that today our commercial teams and our application support teams are working on winning those design win opportunities that are going to happen three to four quarters down the road.
That forward look of the sales funnel has really been a breakthrough process for us. Then taking that from daily and visual management that we improved and utilize out on the shop factory floor and putting that into our commercial processes where we have got engineers, commercial leaders from around the world working together to accelerate the design win opportunities, shrink the time that it takes to get to market. Again, our platform product development helps feed that process along. Doing that in conjunction with our targeted vertical markets and some of the key strategic markets that we are targeting has really helped us build up our large OEM accounts and generate an additional 40% of design wins with those strategic accounts going forward.
A lot of commercial selling process throughout the motion companies that is really going to accelerate some of the product development activity that we've had. The web, as I mentioned before, very important to our motion companies as well. All of them have particular initiatives that they're focused on. Thomson is one that has generated significant success. Thomson is a very strong brand name in the motion control market. Taking the Thomson brand name and rejuvenating it through the web has been an important part of their work in 2010. Been able to link training sessions directly to end users, to target additional leads and generate a much higher sales funnel and increase leads by over 40% in 2010. We're in the very early stages of developing our web activity in motion, but it's clearly one that's going to help accelerate our commercial activities going forward.
Looking back in total over motion, our vision, our focus, and the primary initiative that all of the companies are really targeting is driving consistent core growth and above market growth rates going forward. We've done some nice work on margins. Still plenty of runway ahead on driving margin improvement, but our key focus is on driving higher than market core growth. Plan to do that through continuing our product and platform development, emerging markets, and continuing to upgrade our selling processes throughout the companies. 2011, we're seeing pretty strong markets as we go forward, probably trending back to the historical growth rates of the markets over time. But we're most excited about how we are positioned to gain share and take to market the new products that we've developed and continue to deliver the share gains for the motion team going forward. Thank you for your attention.
I'm going to turn it over to Matt, who will cover our product identification, and we'll come back and take your questions.
Thanks, Dan. Last presentation before the break. Picture here, you can see one of our typical customers, the packaging line, and in our business, there's really three keys. First of all, whatever information the customer wants to put onto the packaging on this line, and on whatever substrate they want to put it onto, we need to have great products that enable them to do that and to bring them the products and solutions to do that. Second, that line's got to stay up, and our products need to be up, needs to provide the uptime so that we're never the reason that package line is down. Then, really third, particularly with global customers and global OEMs that install these packaging lines, anywhere in the world that they want to install our products, they want support on our products, we've got to have great service to support that.
Product ID is about a $5 billion market. It is solutions to put variable information on products. Solid mid-single digits growth. A couple of things about this market that are very good is the diversity geographically. You can see the global nature of the business, the market and application diversity, and the significant recurring revenue stream in the business. Those come together to make the growth robust, even through the tough past few years, this industry has not cycled near as much as many others may. The drivers of this growth in our industry continue to reinvent themselves. We have had an ongoing shift from analog to digital. As folks want to keep putting more information on product and make it more variable, that continues to fuel that shift and new applications.
Where it used to be just an expiration date, now maybe an expiration date plus a lot code, or maybe a 2D barcode, or maybe both. The more information, the more the applications that creates and the more the need for digital technologies. Traceability has also been a growth driver, particularly in the pharma part of our market. There has been a serialization set of regulations around the world that has driven growth there. Even in the core food and beverage parts, there has been an increasing amount of barcode use, particularly in the secondary packaging, in order to trace the product down the value chain. Emerging markets, key growth driver in our markets.
Finally, variable printing as a marketing tool is something that has driven some nice growth, whether it is contests like printing on the bottom of a soda lid or whether it is actually putting decorations onto product.
This has been a nice driver of application growth. We had a great year in 2010. The market rebounded, we rebounded more, across the past two years, we have taken some nice share in both years. Strong emerging markets growth, even in the developed markets, some solid high single-digit growth as well. Certainly, our strength here has been fueled across our product line, but it has continued to be fueled by very strong growth in our CIJ product line behind the 1000 Series product that we launched just about two years ago. We had strong margin expansion, both on gross margins and the bottom line. As the recovery started to come, we invested very proactively in feet on the street, service resources, and key development programs that served us well this year, but we expect to serve us well on a go-forward basis.
Finally, we had the opportunity later in the year to acquire our distributor in Mexico, a large market and a key market to our future, one that has some key linkages when we are working with key strategic accounts and OEMs. Being able to provide flawless service in Mexico is very important, and we have put ourselves in a very good position to do this. Even since the acquisition, have already had a big win with a consumer products company by collaborating the team on the ground in Mexico and our global accounts team. I am going to talk about a couple of the ways we have used DBS to drive share gain and growth.
One of the things that we've been focusing on a lot, we've got a very direct business, very fragmented customer base, using more pull to enable sales force productivity has been a key theme for us over the past couple of years. Lead generation has been one of the ways that we've been doing that. Back in 2009 for policy deployment, we created lead generation process, robust lead generation process to enable leads to not just be generated, but efficiently fed to the sales force, have follow-through, and have a feedback loop on the results from that lead. In the second year, here in 2010, we substantially increased our lead generation around the world and had significant growth from those leads.
As we've come out the tail end of 2010, we've increasingly been focused on the quality of leads and on lead conversion, essentially improving the first-pass yield from leads. We've had quite a bit of experience this year that enables us to understand what are the more and less effective ways to invest in our lead generation. One of the things that we've been investing in through marketing resources and marketing investments is targeted vertical campaigns. This is an example of a campaign that we did in the dairy segment. Dairy is an attractive subsegment of food. One that is quite diverse, many different applications there, diverse customer base, and a lot of different needs.
We went through and in North America, identified all the dairy targets, did some VOC that helped us to understand their key needs, then went through a set of targeted lead generation campaigns where we identified customers with specific needs. For example, customers that are printing yogurt and need a solution to print on the lid. We arm the sales force with the specific collateral to be able to go and take those leads and walk into a customer and be very conversant at a specific level around a yogurt application, for example, and arm them with the fight sheet they need to be able to walk in and win.
Successful campaign, generated a lot of leads, both in existing customers and new customers, and have had strong funnel build and some initial successes in the tail half of the year, and we expect a lot of success from this, as well as other similar campaigns as we work through next year and the following years. Another example of how we've used DBS to drive share gain is in our CIJ area, our 1610 print head, and you can see this in the display outside. We launched our 1000 Series product just about two years ago, an entirely new breakthrough CIJ platform. Initially launched the medium and then the low utilization versions, and have had some great share gain with those products over the past couple of years.
In parallel to launching those, we were working on the high utilization version, which we knew was the most critical product in the platform, because these are the toughest applications where it is the most demanding to provide the customer the uptime that they need. In doing the VOC, the voice of the customer work on that specific product, we found that it was important to customers not only to have a printer that could handle the difficult environment and not have interruptions, but also, in all CIJ technologies, there is some ink splash back that leads to static build-up of ink on the head, and there is periodic cleaning that is needed to remove that build-up.
The second VOC that we heard very clearly was, "If you can take down the time between cleanings, that will be very valuable to us." Time between cleanings, depending on the application, was anywhere from daily to weekly, in terms of the existing product in the marketplace. We developed a breakthrough, a perforated nozzle, that you can see the picture there on the right, is the perforated nozzle. The opening where the ink spits through is still clear after a very long run, weeks of running, while the competitive head right next to it is completely covered over and would have had to be cleaned long ago. We have now been able to take customers to at least one week, and in some cases two, three, four weeks between cleaning, setting the standard in the industry in terms of time between cleaning and high utilization.
Some great feedback. In our industry, when a customer tells us they forget the printer is there, that is a very good thing, and that is the kind of feedback that we have gotten from this product. Finally, I wanted to talk a little bit about, there are a few acquisitions we did late last year that were key steps forward in high growth verticals where we wanted to expand our presence, and those acquisitions have been great successes this year. I thought I would highlight some of the successes. We bought Wolke, who was the leader in thermal inkjet technology for pharmaceutical in particular, and really key technology that was helping the pharma customers to prepare for the serialization needs that are hitting them now and are going to hit them in coming years.
We bought Wolke, and this year have had tremendous growth and share gain in pharma, but have also successfully taken Wolke into other application areas beyond pharma through our Videojet channel globally. We are working very actively on the next generation of solutions here that will broaden the applicability of thermal inkjet in terms of the substrate that it can be printed on. FOBA was an acquisition that accelerated our presence in parts marking in areas like aerospace parts, automotive parts, and medical devices. We have had substantial growth there as well. Strong share gain. We have been able to significantly increase the direct sales footprint within FOBA through some DRA. Finally, FOBA was a turnaround. This was a money-losing business that we bought that now has healthy profitability, on its way to profitability consistent with the rest of the platform.
So expect to see continued growth here, and are looking for additional opportunities to organically and inorganically accelerate our move into high-growth verticals. In summary, as the market came back, we've continued to take share and have continued to expand our margins. Emerging markets is now 37%, as Larry showed earlier, of our revenue, and we've got a large growing installed base there. We're delivering on the acquisitions that we made and continuing to look for attractive ways to expand the platform. We expect the growth investments that we've made proactively this year to pay off next year and in the years beyond. Thank you.
Hi, thank you. Just a question on Motion to begin. I don't think I've ever heard it articulated this way, but it has been kind of a sense that maybe Motion's been on probation for a while from an M&A standpoint. I'm just wondering, now that things have kind of coalesced and seem to be clicking, does Motion have kind of an equal seat at the table when Danaher's carving up the M&A dollars?
I think our M&A priorities in Motion are pretty focused and pretty targeted. I don't think you'll see us put a broad base of capital to work there, but we clearly have some needs or some of the strategic initiatives I talked about, emerging markets and some of the sustainable vertical growth markets. But all of the Motion companies have the same M&A processes in place that the rest of the Danaher companies do. Clear priorities in the market, cultivating key companies, and making that a regular part of running the businesses. So we have some pretty focused priorities there, but I don't think you'll see us put a broad base of capital to work in Motion.
Flipping that over the other way and fully understanding that Baldor and A. O. Smith Motors is not Motion in the sense that Danaher Motion is, but nevertheless, there is a wave of consolidation that's maybe underway in Motion and industrial automation and the like. Does this business strategically fit better with one of those larger automation companies?
Well, I think the transactions that have been announced in the last few months have all been in that broad industrial motor market. That is really not a market we play in. We are in the very precision, high-end, servo-controlled motors and drives. That is a market that has got very strong growth prospects to it. There is a lot we like about it, and we think the runway ahead looks even better than the runway behind us in that. We like the Motion business, in particular, the Kollmorgen part of Motion.
Yeah, a question here. Actually, another Motion question. Consider that when you guys started to put the Motion pieces together with Kollmorgen and Pacific Scientific, these were basically pretty global businesses, and yet it just occurs to me, looking at the slides, that they never really had the emerging market penetration that some of the other Danaher businesses have. Maybe why was that, and now, how are you pushing forward a-
In that emerging market penetration, how do you expect to see some success there?
Primarily, the global aspect of the motion business has been in the developed world, North America and Europe, very strong positions. I think for our companies and some of the peers in the market, it was really more about an export strategy, and that will only get you so far. Really, for the last couple of years, we have been about building a commercial team. Today, we are rapidly expanding that and also developing the localized products, not from scratch, but taking some of our platform or foundation product development and customizing it for those markets. That is how we plan to do it. But we do not think that over time, the motion exposure to emerging markets would be fundamentally any different than Danaher. Probably just got some catch-up to play there, Bob.
Yeah. A follow-up, you mentioned, intriguingly, the expansion of motion margins without giving specifics. Where are you now? Your predecessor on the stage talked about a target for test measurement margins. Maybe you could give us the view for motion as well.
Well, we shared across the industrial technologies platform margins in the high teens. I think that's come from the mid-teens over the years, and certainly, motion has been a big part of that. That's largely come from gross margin improvement, probably not to the level of the Danaher average, but one that's certainly supporting that high teens operating margin. We think there's runway from there. Certainly, from the leverage that we'll get from some of the growth initiatives that we've talked about, but plenty still on the cost side and with our supply chain, we think to continue the margin improvement in motion.
On the emerging mark-- This is a motion question again. Apologize to the product ID folks. On emerging markets, you had a slide, and at the bottom of the slide, you said, "Forecast to double emerging market sales by 2013 and grow to 25% of motion sales." Is that an organic comment?
Yes, it is. All organic.
I'll ask a product ID question. Can you give a sense of how much of the growth is driven by a regulatory environment and just pick up in industrial production globally? That's all possible. Then what is the runway like going forward in the regulatory environment? Anything coming down the pike that could give you some more growth going into 2011, 2012, 2013?
Yeah. Well, packaging grows about 3% or so globally, and our industry grows 5% or 6%. The delta between is a combination of the regulatory effects, as well as proliferation of packaging and new marketing needs that are different from regulatory needs. I don't know the exact split between those, but it gives you an idea of how much of the split is there. I'd say, we see a continual stream of regulatory changes, and they tend to affect different parts. Again, the pharma part of the industry has seen some big impacts in the last year and this year, and we'll see some want to go forward. There's some various different food regulations that have come through and others that are expected that are affecting different parts of that market.
With how global the market is and how diverse it is, it tends to not be one big regulatory wave that creates a bunch of growth versus a continual stream of them that create growth in different pockets of the market.
I didn't know what tab to ask this under. Is there anything that you can report to us with respect to the pending disposition of the defense businesses? We're certainly looking forward to the valuation that TransDigm paid Teleflex, but I didn't know if you had any update for us.
Cliff, I think you know I'm not going to comment on that.
Even about the process.
I think what you heard here in these two presentations. We may cut out Q&A altogether at the back half of the session here if need be. I think what you heard with both Matt and Dan, hopefully, is really how we operate across the organization. I think you saw in Dan's conversation around motion how those different companies have really come together to learn from each other relative to how to improve their OEM selling models. I think you saw Matt reaching across the segment borders over to DEXIS to try to apply some of that rapid selling technique that we have in intraoral X-rays into Videojet, let alone everything you saw relative to APD, let alone value selling, where they're really pulling from the broader DBS growth toolkit. So lots of different ways I think we're trying to bring the businesses together to improve their top-line performance.
With that, we will go to break. I think we're scheduled to come back at 10 after, so you got plenty of time to catch up on calls and whatnot. Please take a few minutes to get out and see the other product demos that we have outside. Thank you.
The next segment we're going to review is our dental segment. Dan Even and Henk van Duijnhoven, both group executives, Dan on the consumable side, Henk on the technology side, are going to come up and take you through it. Just by way of overview, this is probably the largest market space we play in, $15 billion in total. We think this is a good mid-single-digit growth space when you combine both sides of the aisle. Obviously, what we have today is quickly approaching $2 billion in size.
Plenty of organic and inorganic opportunities, given the fragmentation of this market. It looks a little bit like Fluke and Hach did with respect to their markets back in the day.
As we look at the portfolio of brands here, clearly, both at Sybron and at KaVo, tremendous leadership positions here, brands that resonate around the world. We like the space, not only because of the position we have in it and the size and the fragmentation of the overall market, but clearly, the growth drivers here, just given the demographic lift that we get. Certainly, the aesthetic trends that we participate in, be it orthodontia, be it implants now with Implant Direct, coming in here hopefully in a couple of weeks. Obviously, from an emerging market perspective, we see tremendous potential. This is one of the underweight segments for Danaher with respect to that 21% overall average exposure to emerging markets.
I mentioned earlier, looking at the macro drivers, clearly, the digitization of dentistry impacts us in a whole host of ways, from imaging to digital capture of impressions in Dan's business and the application of that technology in a whole host of specialty practices. With that, let me bring them up. We're going to lead off with Dan Even, and then Henk will come up. Dan?
Good afternoon. Sybron is very fortunate to play in a stable $10 billion market, where historically, we've grown around 4%-6% in normal economic times. Our consumable product line spans across all areas of dentistry, from the general dentist to the specialist. In addition, our infection control business, as well as our high-end magnification loupe business, touches the medical market as well. What I love about this market is that there continues to be growing demand, both in the U.S. and around the globe, for better dental care. Especially for products and technologies that can drive efficiency in the clinical procedure, and also for technologies that can drive aesthetic results for the patient.
It's an amazing fact that the U.S. consumer, and also increasingly, consumers around the world, are spending billions of dollars, discretionary dollars, every year to look healthier, younger, and more beautiful, from facelifts, to tummy tucks, to physical trainers. For us to succeed, for Sybron to succeed as a company, we know we have to compete for those discretionary dollars in the promise of a beautiful smile, building a beautiful smile. We also have to help our dentists compete for those dollars. In addition to the aesthetic part of dentistry, and emerging market growth, we have an aging population. The patient wants to hang on to their natural teeth as long as possible. As more patients come into the dental office, doctors are being forced to become much more efficient in the care of their procedures.
All of that is great, terrific growth drivers for our products and technologies. To that end, we continue to invest heavily in technology that helps the clinician continuously improve the clinical result that he delivers to his patient. We also develop technology that helps the doctor reduce the procedure time, the time that the patient has to be in the chair. We help the doctor minimize the discomfort of that procedure. We also drive technologies that help them build beautiful smiles for a lifetime. Because of that innovation, we've been able to launch 35 key products over the last two years. We're also utilizing DBS to drive gross profit margin expansion, and we continue to take advantage of our three factories in our low-cost regions. Finally, we have an ongoing commitment to continuing education for our doctors to help them better serve their patients.
This last July, we opened a state-of-the-art learning center in our home office in Southern California to strengthen that initiative. We've already had 450 doctors in that short period of time come through that center in courses designed to educate them about our technologies across all our business platforms. Certainly, as we drive our development vision, it centers around technology that adds value, and the Damon System is a remarkable story about selling value. The Damon technology is a self-ligating passive system that basically eliminates friction in the slot and allows the doctor to treat his patients faster and see them less times. A Damon doctor will typically, on average, treat a case in 12- 18 months and maybe see the patient 6x-10x . Whereas traditional orthodontics, treatment times can average 18- 24 months, and they might see the patient 20 x or more.
Significant value that has allowed us to increase the Damon average selling price by 2x-3x over traditional appliances. Of course, education remains critical, and we hold seminars, significant Damon forums, hands-on courses that touch thousands of doctors around the world on an annual basis. We're also driving consumer poll through the internet, and our website, and other vehicles, where we've got also a very popular doctor locator that rewards the high-end Damon users. As a result, over the last eight years, the Damon System has shown remarkable growth. Portable LED headlights has become the staple of the dental office, and because of this, the headlight market has been and will continue to grow at a double-digit rate.
To take advantage of this aggressive growth, Orascoptic partnered with two technology partners to develop and solve a problem about unwieldy wires that tether the headlight to a battery that the doctor would put on his belt loop. The solution was to develop a small battery power pod that can be attached directly to the frame of the loop. That technology is a very lightweight power pod that allows the doctor to treat or work more efficiently without any encumbrances of wires around him. This is a tremendous technology that is going to allow us to go after the $70 million market of doctors that have not ordered even a headlight yet. We are very excited about this breakthrough. We have already got additional breakthrough products in development that take advantage of this technology. Composites is the largest segment in the restorative product category.
Recently, the perceived differences in composites that are out in the marketplace have been narrowing to the point where there is a lot of brand switching. In collaboration with KaVo as the leading handpiece maker, we have been able to design a new generation composite that is going to be a significant rise above all the traditional composites in the marketplace. KaVo's ultrasonic technology will allow a doctor to fill a deep posterior cavity in seconds. It is amazing how fast this works, and I hope you got a chance to see that demonstration outside. The doctor can take this technology and basically apply one layer, eliminating the need for multiple layering of the composite as he builds up that restoration. It also creates a much more durable and reliable restoration that we feel over time will lead to less failures.
We are going to be able to get a significant premium on this product, and we think this technology is going to apply to other materials within our restorative business. There was an article in The Wall Street Journal last month from some leading implant manufacturers that stated they confidently believe that the implant market would be back to double-digit growth in two years. That makes our recent decision to significantly increase our presence in this space very timely. We also believe that there is a lot of runway in dental implants. With the aging population, a patient is searching for alternatives to the very unwieldy dental bridges and dentures that are available today. We think they are going to migrate to implants because it is a much more permanent and reliable solution in terms of tooth replacement that more mimics the patient's natural tooth.
In addition, Implant Direct has been showing rapid growth over the last few years as they have taken a commanding position within a very fast-growing value segment. They are correctly positioned here because of the quality of their products and also feature-rich products that are surgically and prosthetically compatible with all the leading brands in the marketplace. We think we have got a great opportunity with this category. In summary, the near-term future looks bright for Sybron Dental. We think strategically we are positioned to compete for those billions of dollars spent on youthful, beautiful, healthy appearances. We continue to invest heavily in a new product funnel through our increased R&D investment. We are building a commercial structure with KaVo that is going to allow us to attack the growing, emerging markets. We are committed to ongoing education and also consumer pull.
And finally, we think we've got a great position in the fastest-growing segment of implants with our acquisition of Implant Direct. Thank you. I'd like to bring Henk up now, and we'll hear you about the equipment side.
Thank you, Dan. Good afternoon. Let me see. I'll speak about the equipment side of our dental platform. We operate in a $5 billion market that will go forward, will grow at 4%-6%. We have a portfolio of leading brands, with KaVo clearly being the cornerstone of our business. Like Dan's business, we serve the general dentists as well as the specialty dentists, and we have a significant business also with schools and universities, where it is important that we touch those future dentists early in their career. Brand loyalty here is a significant factor for us. We hold a little bit less than 20% share today. We're well-positioned in a developed market, North America and Europe, and we're also well-positioned in a number of emerging markets, in particular in Latin America and in Eastern Europe, with still some room to grow in Asia Pacific.
Like Dan's business, most of the macro drivers here are really the same. I'd like to highlight one, which is really the digitalization of the dental practice, which clearly bodes well for us for the foreseeable future. We obviously participate in that with our digital imaging business from a diagnostic perspective, but increasingly, we see dentists wanting to use that same information for planning and treatment. So you see that in the planning of in the placement of implants, as well as custom orthodontic appliances, where some of our imaging and digital information will be critical to really go to a full digital solution in this space. 2010 has been a very busy but successful year for us.
We managed to grow the business close to 10%, clearly a higher growth rate than what we think the industry did, and we captured share in all of our major product segments, including in imaging, instruments, and treatment units. We expanded our margins significantly, over 500 basis points added to the bottom line profitability, and we're well on the way to get to that mid-teens target that we've talked about before. We acquired a Finnish company called PaloDEx at the end of last year, a player in digital imaging, and have been integrating that business, and I'm pleased to report that both the top line and the bottom line are doing very well and are exceeding expectations. As we were coming out of the recession here, we continued to invest in R&D. In fact, our R&D spend is up again while we expanded margins.
But we also managed to launch a lot of new products, roughly 15 this year. Importantly for the IDS, which is a major show for us next March in Germany, we will be launching a record number of new products with some significant new products, exciting new products in the digital imaging space. In addition, we invested in a number of DBS growth tools that I will highlight here in a little bit that helped us drive the top line. But again, I think 2010 has been a year where we made substantial progress, both on the top line and the bottom line, and we think we are well positioned to drive that forward here in 2011 and beyond. A couple of examples of some of these DBS growth tools that we have deployed in our business. Some of you might know about our DEXIS business.
This is our intraoral sensor business, mostly a North American business, where we have a well-developed sales process that we deploy with 18 internal pre-sales support people that help qualify doctors and 41 sales reps in the field that really are there to close business. As the penetration of digital sensors is reaching 50% in North America, there is clearly the early technology adopters are basically all gone. We are now more into a value segment, where we need to communicate the value of this technology compared to film. What we do here is, you see a little example here on the slide. We simply put a spreadsheet in front of a doctor and say, "How many films do you take?
How many rooms do you have?" We very quickly do the math for them to really convince them that not only the technology is a better way to do dentistry, but also show them the value on the spot. In our treatment unit business in Europe, we are very well-positioned with our ESTETICA E70 and E80 line in the high price point segment. We also have a substantial share in the mid price point with our Primus 1058 business. We felt there was an opportunity to re-segment our own product line and customers a little bit and try to take benefit of that strong position we have in the high price point segment. What we did is we developed a new product called the E50 in less than a year.
We used modules from the ESTETICA product line and the Primus product line and got a new product to market this past summer. In the first 12 months, we managed to sell more than $12 million— or in the first six months, we managed to sell more than $12 million of that product. Now, importantly, we pulled that Primus 1058 line down a little bit, and it has helped us tremendously to really sell that product to what will be a high price point customer in the emerging markets. As a result, although we got $12 million of E50 business, we also managed to grow the 1058 business by more than 20%. So this has been a great story of the team really understanding the segments by market and growing both the medium price point and the high price segments simultaneously.
Another example is in our KaVo handpiece business. Handpieces for doctors are something that they really want to experience. We have long believed and still believe that we have the best instruments out there, especially electric instruments, which we think is a better way of doing dentistry than a turbine. Now, what we did is we developed a website where a doctor can go and check out a KaVo instrument of his or her choice, and we ship that to them, and they can use that for one or two weeks for free. After that, they need to make the purchase decision. What we are finding is that 50% of the people who try actually buy an instrument. We have seen our electric business grow by 40%, and our turbine business has not been impacted at all.
I think this is just a great example of using new marketing tools and getting to those doctors and getting them to try what we think are superior products and they are driving conversion. The last example I have of DBS tools is in our Pelton business. The treatment unit business is typically a fairly long selling cycles. Doctors think for a while about whether they want to refurbish or build a new practice. It is important that we are in early in the sales cycle to help specify our products into that practice. We have come up with a two-day program where prospective customers come to Pelton, and we take them through a two-day course where they basically design the office of their dreams.
The course is led by a dentist who is specialized in office design, and at the end of that course, basically, the dentists have touched all of our products. They have seen how we put these products together in the factory. We basically walk out on average with a $100,000 opportunity per dentist who attends. We have built a $50 million sales funnel here over the last 12- 14 months through this program, and we think this will help us for the next quarters and years to come to really drive share with the Pelton business. In summary, I think we made a lot of progress here in 2010. We are well-positioned to continue to drive growth and margin expansion in 2011. We have continued to restructure in a number of places, and that is working well for us, so we are well-positioned to continue to expand those margins.
We have a number of new products coming. We have some great sales tools, and importantly, I feel very good about the team that we basically put in place a little bit more than two years ago. We are basically still there with the same team. We have made a lot of progress with that team in 2010, and I really feel it is coming together from a performance perspective. Pretty excited about 2011 and beyond. Thank you. Questions?
Thanks. Henk, first question around that 500 basis point margin expansion. Could you get into a little more detail about where it came from in terms of relative on the footprint versus productivity versus material cost, the kinds of things that are lasting, versus at risk of being diluted over time going forward?
Yeah. The margin expansion has come, I would say, pretty much up and down the P&L. Probably a little bit more from a gross margin perspective than on the expense side. We have continued to pull out structural costs in Europe. We are driving our PPV initiatives pretty hard, but importantly, these new products that we are bringing into the business are every time we bring in a new product, we expand our margins as they come in with higher gross margins than the products they replace. So pretty much up and down the P&L, a little bit more on the gross margin side.
Okay, great. Last question around R&D and the focus of that investment, particularly given the implant investment that you are making. How do you see that playing out in terms of capturing a larger share of the business and the R&D focus? Is this sort of one of two or three, therefore, major areas that you are looking at across the overall business now?
There was a particular question around implants or-
No, it's more around implant and other areas for broadly speaking, in dental, not just for you.
Maybe, yeah. Can you repeat the question again? Because I'm having a hard time.
Sure. No, just trying to get a better sense of the targeted R&D investment now that you are making larger investments in implants specifically.
Yeah. We're certainly gonna invest heavily in implants based on the investment we're making in that market. We think it's gonna continue to be one of the fastest-growing markets. We're also investing heavily in orthodontics. As you can see, custom appliances, which is gonna fit beautifully with the digital side. So we have a significant amount of resources on the orthodontics side where we think we can continue to lift ASP there. We're investing in a number of areas across the business. Those are gonna be our major focus going forward. Yeah, maybe one piece of it on the equipment side. For example, implant planning and software tools for dentists to do that well are clearly a natural extension of our digital imaging business.
We have a tight partnership with a company called Anatomage, which is one of the leading providers of software in this space that we package with our equipment.
The tax cuts for individuals earning more than $250,000. I imagine that covers most of your dental customers in the U.S. When you then lay that into some of the investment incentives they are putting into the package, what kind of impact might that have on your U.S. equipment business in 2011? Maybe if you could just maybe draw an analogy in the past when we have seen these incentives come through, what impact on growth that has?
Well, we are pleased that obviously these tax incentives continue. I think there is now more clarity what will happen, and that is good. We think that will continue to help drive especially new technology conversion, for example, 3D CBCT technology that doctors want to invest in. Obviously, hopefully, in better years to come, it will give them a larger incentive to invest. We think it will help continue to drive the business.
But have you seen that in the past? If you go back the last 15, 20 years, when we have had these kinds of events, have you seen a material pickup in growth rates?
I think what we have seen, especially around Section 179, and a number of stop and starts around that in the last four or five years, as you know, is it going to go away? Is it going to stay? Every time these tax incentives continue clearly will help us give a little extra take on the technology investment cycle.
Thanks, guys. Well done. One of the things I think pops out of these presentations, obviously, we've got KaVo right where we want KaVo to be in terms of that top line and bottom line trajectory now. Henk indicated the team's really come together, gelled, and clearly performing. We're pleased to see that. But perhaps more subtly, you saw in Dan's presentation, SonicFill, two companies coming together, one from a product or technology perspective, the other from a consumables, creating a product really new to the market. Likewise, in emerging markets, opportunities there that we are going to be executing on more aggressively in 2011 to go to market together to lever the hole here in dental. I just think that as we move forward, you're going to see more evidence both on the product and the go-to-market side of these businesses coming together.
We're going to head to our final segment review today, this being life sciences and diagnostics. Tom Joyce, one of our Executive Vice Presidents. Tom has platform leadership responsibility for life sciences and diagnostics. He's going to kick it off, and I believe he'll be joined by David Martyr, one of our Group Executives here in a little bit. Tom?
Thank you, Larry, and good afternoon. I'll begin today by giving you an overview of our life sciences and diagnostics platform. Following that, I'll go a bit deeper into the individual operating companies. I'll cover AB Sciex, our newest addition to the platform, as well as Radiometer, and then David Martyr will come up, and David will bring you up to date on the performance and the outlook for Leica Microsystems, as well as our Leica Biosystems business. The breadth of our product portfolio allows us to participate in a market of over $9 billion with outstanding growth prospects over the cycle, probably averaging in the 5% to 7% range. The brands that you see here, Leica, AB Sciex, Molecular Devices, and Radiometer, all represent leading market positions in their respective industries. Those brands together make up now a portfolio of roughly $2.3 billion.
And I think of note there, the mix that now has roughly 30% of that portfolio in consumables, a growing segment of the business, and a growing portion now in service, and I will touch on that specifically as it relates to AB Sciex today. The operating margins today at 10%, we believe, have a lot of opportunity for improvement. There is some noise in that number right now as a function of the transactional cost and the first-year costs around AB Sciex and Molecular Devices, and clearly an opportunity for improvement in 2011 and beyond. A good geographic mix across the portfolio and really growth drivers that we see impacting the portfolio on a very broad basis. The evolution of life science research.
Here, research scientists around the world continually pressing the boundaries of technology, looking for higher performance and looking for the type of solution, the type of technological solution in terms of hardware and software, that will take to unlock some of the most complex situations that they face, particularly in the pursuit of improved human health. Healthcare expenditures continue to grow throughout, particularly emerging markets. We see that increasingly in China, particularly in India, as well as in various areas throughout Southeast Asia. Regulatory oversight has a significant growth driver here in this market, whether it is specifically around FDA regulations or oversight around, for example, the food industry and what we are seeing in increased regulations and enforcement legislation coming out of the U.S. and in China as well.
The constant search for skilled labor, the shortage of skilled labor, and the available of skilled technicians in life sciences and diagnostics continues to put pressure on the industry for improved solutions. And those solutions need to come in the form of easier workflows, more simple solutions, and instrumentation that is just simply easier to use for what is that scarce human resource. All of these serving us very well in terms of driving growth of each of these businesses in 2011 and beyond. Now let us turn to the latest addition to the platform, AB Sciex, a leader in mass spectrometry, a business that, as you may recall, we closed on the transaction in the first quarter of this year. AB Sciex participates in the mass spectrometry market, a market of roughly $2 billion in size with great growth dynamics.
It is a $500 million business today, and I think of note here is the mix, less about the consumable side of the business in this case, but more around service. And service is an extraordinarily important component of the competitive advantage that AB Sciex has in the market today. The service technician represents a relationship that is created with the end customer that serves to be associated with the kind of performance that that instrumentation is known for. Great geographic mix. Our key customers across those geographies are in government and academia. Here, researchers, starting at the basic research end of the spectrum, are generally looking in the realm of proteomics and genomics.
Pharmaceutical companies, obviously working in drug discovery and drug development, industrial companies, particularly in the food market, and increasingly, clinical research institutions, those partners of pharma and outside lab organizations where we see the nascent but fast-growing market around clinical diagnostics. The macro drivers in life sciences and diagnostics really extend across a continuum that begins at the basic research end of the spectrum and extends across into the applied markets. Since the decoding of the human genome, we have seen increased attention to proteomics, and certainly in the pharma realm, the pursuit of biologics. It is early days, certainly, in the investigation of the biomarkers that will unlock the secrets to a cure for cancer, Alzheimer's, and other diseases. Mass spectrometry as a technology sits in the center of these investigative dynamics. Mass spec is also increasingly used in food and environmental safety applications.
Recently, you have perhaps seen the U.S. Congress, the House of Representatives, pass enforcement legislation that will allow the FDA to increase its impact in being able to bring safe food supplies through distribution channels. Obviously, that has a ways to go in terms of Senate passage, but that type of legislation, I think, is indicative of the kind of macro driver that we will continue to see in the U.S. and throughout the world in the applied markets. The emerging markets are seeing continued investment across that spectrum from basic research to the applied markets. We find that the research scientist in the emerging market is equally passionate about best-in-class technology. As a result, we see our technologies at the high end of the spectrum being well-received in markets like China and India, despite what would commonly be thought of as markets perhaps looking for lower costs.
Hospitals are increasingly adopting mass spec technology as a tool for clinical diagnostics. Now, it is still early days here in terms of regulatory approvals, but when you look at some of the applications today around vitamin deficiency, for example, as well as investigative therapies around hormone deficiencies and those that relate to human development, these are all areas that we see as macro drivers that speak well to the future of mass spectrometry. We are very pleased with the performance of AB Sciex in 2010. Probably the cornerstone of the year was marked at the ASMS conference earlier this year, where we launched the fastest and most sensitive mass spectrometer in the industry today. The TripleTOF 5600, perhaps some of you saw it in the lobby during the break, is exceeding our plan by almost 2x. The rollout of the new brand.
You may recall we are bringing together two halves of a joint venture, and the establishment of the AB Sciex brand has been extraordinarily well-received by our customers. We have made significant investments in marketing, in building that brand, and many of those investments have gone into digital media. Our results to this point are very encouraging. Investments in our website, for example, and you have heard of several examples of that today, have shown a 2x increase in unique visitors and duration of visits to the web in just a six-month period. There has been a lot of heavy lifting that has gone on this year in terms of putting the two halves of the JV together. We have had to obviously streamline operations.
You see here that we've reduced the number of distribution centers from 11 to eight, improved our supply chain, and we've been able to bring units to our customers much more quickly and at lower cost. At the same time that we've leaned out several areas of the business, we have applied those savings and invested those. One example here being increasing our demo facilities from seven to 10. These are very important facilities that are customer-facing, that are well-equipped from an equipment standpoint, and typically represent sort of the central selling location in terms of demonstrating equipment in difficult applications to our customers. At the same time, we've been working on quality and ensuring that we have the most consistent and outstanding reliability in the industry today. Within just weeks after the acquisition of AB Sciex, we made a bolt-on acquisition in the form of our business Eksigent.
Eksigent is a front-end technology to mass spectrometry, known as liquid chromatography. Eksigent has a very unique position in this market in the nano and micro flow liquid chromatography, which allows for a higher level of sensitivity of the mass spectrometer when used in proteomics research applications. We believe an outstanding bolt-on and one that creates a greater level of competitive advantage in that segment of the market for AB Sciex. As we look back at the year, it's been a year of improving performance and accelerating performance. As you see in the takeaway at the bottom, we'll show high single-digit growth in the second half of this year. I think that positions us very well with great momentum going into 2011. DBS has been well accepted at AB Sciex. In fact, passionately adopted by both our operating leaders as well as our commercial leaders.
A couple of examples I'll share with you here are on the growth side of the business and really have helped us drive that high single-digit growth in the second half of this year. Voice of customer, a critical tool associated with outstanding performance of newly launched products. In this case, the AB Sciex team had gotten off to a very good start in terms of the voice of customer that led to the early specifications of the product. I think what they were able to do in the later stages of the development of the product is really take an extraordinary step in terms of the level of complexity and the breadth of applications that they put this product through in the marketplace.
As you see here, customer input from over 850 customers, and not just customers running average matrices, but really complex, dirty matrices to ensure that we had outstanding reliability and repeatability in test results. The success of the launch at ASMS this year was rather extraordinary. The number of live product demos that we completed was 3x higher the number of product demos that we did in the year prior. So extraordinary interest, and we're seeing the results of that in the sales numbers here in the second half, as well as the buildup of the sales opportunity funnel that we have for 2011. Customer segmentation is also a tool that has been very effectively used at AB Sciex, particularly this year.
What we asked the team to do was really focus in on what are the high-growth segments that we can create a unique and competitive advantage to accelerate growth, particularly in the clinical end of the applied market. We focused here on steroid analysis, and steroid analysis is a component of understanding hormone-related or human development-related disease. Secondly, we focused on anti-doping, a key application not only in athletes but interestingly enough, in horse racing as well, and also pain management. This is an incredibly important area in therapeutic drug monitoring, where there's a tremendous amount of liability and risk associated with pain management today, and as a result, testing through mass spectrometry is typically used to ensure appropriate dosing levels and no inappropriate or abuse.
Once we had identified those key segments and really focused in on what it took to be successful there, we were able to partner and collaborate with key opinion leaders in these markets. You see some of those mentioned here, not only obviously well-known enterprises like the Winter Olympics and the World Cup, but also the Centers for Disease Control. Centers for Disease Control is ensuring that there is standardization of the application of technologies throughout the U.S., and by having these key opinion leaders representing the efficacy of the AB Sciex instrumentation, we're obviously able to leverage that effectively in our go-to-market strategies. The result of this kind of segmentation, as well as the extraordinary work in voice of customer and new products, has allowed us to drive over 50% growth in our clinical mass spec sales just this year.
We have a very energized team today in Asia, particularly in China. We've made investments throughout this year in building our sales talent as well as our marketing capacity. We've opened a brand-new application support or demo center in Shanghai earlier this year. We are also investing aggressively in building our R&D footprint, particularly in Singapore, and the vast majority of our manufacturing today has already been moved to Singapore, and we're in the final stages of moving the supply chain virtually completely to low-cost region. These positions obviously set us up very well for ongoing growth in Asia, but I think there are also a couple of key market drivers, such as the 12th Five-Year Plan in China right now, which as we know, is going to drive drug development locally.
It's going to drive greater levels of food testing and a massive project associated with research around human proteomics. I think we've positioned that business very well for continued growth in our emerging market position in 2011. In summary, again, we're very pleased with the performance this year. The integration is well on track. We think we've got a research and development pipeline that is loaded. We'll have another good set of product introductions next year. DBS is having its impact not only on the operating side but also on the growth side. We've added over 100 customer-facing associates this year, so we're investing in the team globally, but with a particular bias towards those investments in human capital to drive growth. I think in summary, as we look forward to 2011, we think this business is positioned for accelerated growth and continued expansion of operating margin.
So with that, I am now going to turn to the next of our life sciences and diagnostics businesses, Radiometer. The setting that you see here is clearly not one that any of you in this room would relish being in. At least you wouldn't want to be the person on the table, I don't think. This is an emergency room, and I think what I'd like you to note, if you look just to the right of the nurse in the center, on the countertop in the back, you will see two instruments. Those two instruments, on the left, is the AQT90, our new immunoassay technology, and on the right is our new ABL90, our most recent addition to the blood gas family. What's important to note here in this particular setting is that we have those two instruments in this particular hospital side by side.
Increasingly, we are seeing opportunities to bring both the blood gas technology and the immunoassay technology to market together, and we are getting commercial leverage off of both platforms. Secondly, you see these two platforms represented at the point of care, and that's been a major shift in this marketplace over the last five or six years. Here you see it in action. These instruments now move out of the central lab. I think Radiometer has done an outstanding job of creating instrumentation footprints that positions them extremely well to play in that point-of-care environment. Radiometer plays in a $2 billion market today, again, with good growth dynamics. It's a roughly $500 million business. I think what's particularly noteworthy here is the mix that you see that is heavily skewed towards consumables. This is one of our best examples of a razor and razor blade business.
A good geographic mix with our key customers largely being hospital facilities. In that hospital facility, we would typically be positioned in the emergency room, in the intensive care ward, or in the operating theater. There are two very significant macro drivers at Radiometer. The first I mentioned earlier is the continued shift from the central laboratory to the point of care. This is something that Radiometer has really capitalized on, again, by developing the kind of instrumentation footprint and with the quick turnaround times that are required if you are going to win at the point-of-care location in a hospital.
To give you an example, a Radiometer instrument positioned at the point of care with our cycle times through the test would take a turnaround that would typically be roughly an hour if it went to the central lab, down to anywhere between five and 15 minutes at the point of care. The key there also, though, is making it easy to use, because obviously you don't have the skilled technicians that you have in the central lab. As a result, the focus on making sure that we have instrumentation that does not require a central lab technician has been critical, and I think an area where we truly excelled and built competitive advantage. The second key macro driver is again around the emerging markets. We are seeing increasing investment in healthcare, particularly in the BRIC countries. You see that we are growing in those countries at roughly 20% annually.
As we see those countries develop economically, increasingly, those economic development benefits are manifesting themselves in not only demand for improved healthcare, but funding for healthcare facilities as well. We also see the emergence of insurance programs in developing markets today that roughly a decade ago would have been virtually impossible to imagine. 2010 for Radiometer made for but another great year in a long streak of terrific organic growth as well as operating margin expansion. Those results were really driven initially by terrific product launches. The ABL90, which has met with extraordinary success around the world and now has received its 510(k) approvals in the U.S. So that product is very much in the market and taking share today. We expect that product to represent over $100 million in sales in the third year. AQT90 continues to perform very well.
We've doubled the revenue on that platform this year. We roughly estimate that we will have taken roughly about a 30% share of the point-of-care cardiac marker market in Europe this year. That product is currently in clinical trials here in the U.S., heading towards FDA approval. We launched the Troponin T marker this year, a very important measurement as it relates to cardiac patients. Today, we have eight parameters on the AQT90 in Europe and five in Japan. Emerging markets, I mentioned earlier, today, emerging markets represent greater than 15% of Radiometer sales, and that's up from under 10% just five years ago. Key here has been Radiometer and the team continuing to take cost out of non-customer-facing areas and ensuring that that cost is then reinvested in technology and development and go to market.
As a result of that, we've seen a combination of improving core growth as well as operating and margin expansion. By the way, that's while we continue to invest aggressively in the expansion of the parameter menu of AQT. A unique market that Radiometer identified as having particularly fast growth this year is Turkey. We saw growth in healthcare expenditures, we saw continued demands from hospitals for point-of-care-ready instrumentation, and yet as the team looked at that market, we didn't feel that we were as well-structured from a channel perspective as we needed to be. As a result of that, we made a shift in our channel approach. We went direct in that market. As you see what happened there, we took the volume of business there up by 4X, and that was off of not an insignificant base.
We doubled our market share, and we did that all within the first six months. Our sales funnel is extraordinary today, and I think that kind of model and that aggressive approach that the team took in a market like Turkey is one that now they're looking at how do they replicate that in other markets around the world. The first of those markets to replicate actually was Brazil, later this year, in the latter part of this year. We will show growth year-on-year of in excess of 40% in Brazil by year-end. Henk mentioned a few minutes ago one of the most important tools in the Danaher Business System growth tool set, and that is value selling. Value selling has been particularly important as a growth driver at Radiometer.
The reason it is so important in this application is because in the hospital environment, we are dealing with so many different constituencies, and at times, somewhat complicated workflows throughout the hospital that touch these various constituencies, be they the point-of-care coordinator, the lab technologist, the ER director, or the CAP inspector. What the team did, I think very effectively, is essentially by process mapping the flow of a given test, particularly as it heads towards the central lab, and then looking at how we can create value, not only in terms of taking cost out, but improving turnaround time, which ultimately improves patient outcome, really was significant in terms of some major wins for the team this past year.
Those wins, in many cases, double-digit units of both ABL90 and AQT into the same hospital facility, was made that much more compelling by the fact that we have established an outstanding software configuration that now integrates all of those test units throughout the hospital and provides rapid data directly to the nurses, the clinicians, and the doctors, and links to the hospital information system in a way that ensures outstanding data integrity for that patient's test results. As we look at the opportunities going forward, we see the opportunity to bring both the blood gas platform and the immunoassay platform to the market together. And just this year, we have seen over $15 million in wins through the bundling of those technologies. Radiometer, again, has had a wonderful year. They are clearly driving market share gains both in blood gas as well as in immunoassay.
The product launches are just the beginning. As we expand the menus and the test parameters associated with each of those platforms, we will see accelerating growth. As we expand the channels, obviously, in the emerging markets, we think that simply will take us to a whole another level. Radiometer continues to lead in the market. We believe with the opportunities noted here, that 2011 and beyond will represent outstanding performance for Radiometer. And with that, I will turn it over to David Martyr, and David is going to come up and give you an update on Leica.
Thank you, Tom. Good afternoon, ladies and gentlemen. Leica operates through three brands, Leica Microsystems, Leica Biosystems, and Invetech. Leica Microsystems is focused on microscopy for life science research, for clinical applications, for surgical, and also for industrial applications. Leica Biosystems offers a full range of histopathology solutions. That is essentially the processing of tissue samples ready for microscopic examination, both used in hospitals, in pathology labs, but also in research environments, primarily for cancer diagnosis. And Invetech is a contract R&D operation with a team of over 200 engineers, primarily designing but also contract manufacturing, biomedical and diagnostic instrumentation and advanced automation. Leica joined Danaher five years ago, and since that time, I am pleased to say that we have doubled our revenues to $1.1 billion. Instruments still account for the majority of those sales.
However, Leica Biosystems is rapidly growing its consumable side of the business, particularly for the advanced staining diagnostics, the cancer diagnostics, and these now represent over 30% of Leica Biosystems revenues. The customer base of Leica is highly diversified, but you can group together several common macro drivers for growth. Life science research requires leading-edge tools and instruments, and microscopes with their associated workstations, software, cameras are still some of the most essential and fundamental tools for doing that work. Particularly active current themes around stem cell research, study of protein interactions, and correlation of data from DNA sequencing with conventionally localized genes. In connection with this work, our latest super-resolution microscopes now enable researchers to visualize structures below 75 nm in scale. It is difficult to get your mind around how many zeros there are before those numbers, but very small structures.
Using light and a resolution that previously people said were beyond the limits of the laws of physics. For researchers, really seeing is still believing and understanding what is going on inside a cell structure. For our biosystems business, the big driver is still cancer. Initially, of course, these tests are to diagnose the disease. However, as treatments have evolved and improved, a significant driver is becoming the monitoring, long-term monitoring of a patient's progress as they battle the disease. Digitization is also becoming an increasingly important driver for our business. Whilst digital imaging and microscopy is nothing new, digital cameras are on pretty much all microscopes in the last 10 years, there is a rapidly growing interest in full digitization of tissue slides, particularly for so-called digital pathology or virtual microscopy.
Multidimensional reconstruction of microscopy data, matching the numbers with the images is increasingly important for life science researchers, particularly in the study of living cells. Emerging markets, as you have heard frequently today, are a very important growth driver. Leica is at 25% of annual revenues now from emerging markets, expanded quite considerably in the last five years. Investments in these markets come particularly in upgrading hospitals, but also many governments recognize that life science research can be a strategic advantage, and perhaps the best example of that is the investments in China. Certainly, we have benefited significantly from the investment in some of the best and high-end equipment that we make to equip institutes and universities in that market. 2010 has been another very good year for Leica.
After launching our first super-resolution STED microscopes in 2009, we followed up in 2010 with additional confocal models of these scopes using less expensive lasers, making the technology accessible to more researchers. We plan to launch super-resolution for wide-field microscopy in 2011. We also launched many new innovative products in our histopathology lab. Of particular note is a sample tracking system called CEREBRO that we have launched this quarter. CEREBRO essentially enables you to track a tissue sample through the histopathology lab. It may be somewhat frightening to realize that quite often samples in the current system get separated from the actual case. CEREBRO is a way of ensuring that less mishandling of samples and less misrouting of samples takes place in the laboratory, fully integrated with all of the different instruments we have at each stage of the process.
We've also achieved significant market share gains in several products, most noticeably in our advanced staining business. Introduction of the BOND-III, which I'll speak about in a moment, has been a particular success. This year in China, as you heard earlier today, we're one of several Danaher businesses that have reached the USD 100 million club in annual domestic sales in that market. Growing from just one-third of that amount less than four years ago. Tremendous growth, which we challenged our team to achieve through policy deployment during the last three years. In the first quarter of this year, we acquired Genetix, a U.K.-based business, a leader in cytogenetics workstations. Cytogenetics is the study of chromosomes, particularly for diagnosis and screening of genetic disorders. Always uses microscopes, and essentially, we acquired the gold standard software for that application.
Genetix is also a player in cell biology instrumentation for pharma and biotechs, particularly in drug development for biologics. It also, through their own acquisition that had taken place in 2009 of an Irish-based company, brought a software package called SlidePath, which has been an excellent addition for our digital pathology and virtual microscopy. DBS is helping Leica across the entire company, and I'd like to highlight two examples where we feel we've particularly benefited recently. First example is our BOND-III cancer diagnostics advanced staining system. We entered this space in 2007 through the acquisition of Vision Systems Limited, and since that time, we've strongly established the existing BOND-MAX stainer in the market as the leading automated instrument in that space. However, we could see that the larger hospitals and the reference labs could benefit from an instrument which could handle a higher throughput of slides.
Additionally, whilst the Bond system can process a full load of slides in four hours, there's increasing pressure from pathologists to further reduce turnaround time so to enable same-day diagnosis of paraffin-embedded samples. Using the creative automation skills of our Invetech design team, we found a way of cutting the processing time from four hours to just two and a half hours, mainly through highly innovative robotics within the BOND-III instrument. The product, as you would expect, went through very extensive testing and validation, introduced to the market exactly 12 months ago. I'm pleased to say we're already beyond 250 of these highly advanced instruments placed into the marketplace. We also received excellent feedback from our customers, who are delighted with both the speed and the throughput, which is truly best in class.
We simultaneously accelerated deployment of sales and application specialists to drive the BOND-III and the BOND-MAX, which continues in the marketplace, especially in North America. As a result of using value selling, of using very focused sales management techniques, and particularly improving our process of onboarding the new sales associates that we hired, we've grown our 2010 instrument placements in North America by 50%, already from a strong base, and significantly improved our win rate, which has led to the market share gains. Second example I'd like to mention about DBS in action comes from our medical division, where we design and produce surgical microscopes for the operating room, especially for neurosurgery and ophthalmology. Our ophthalmology microscopes typically sell in the price range of $30,000 to $100,000.
However, for many emerging markets where there is a huge demand for cataract surgery, this is simply a prohibitive price tag, and it was a market that we were not accessing. Our voice of customer in these markets identified that there was a significant potential for a premium instrument positioned around $8,000-$14,000, depending on the exact specification of the instrument. Now, as we have transferred our entire surgical microscopy production in recent years to our Singapore factory, we are pretty confident that we should be able to produce such an instrument with completely Asian-sourced materials at an attractive gross margin. So we went ahead. The design uses high-power LED illumination for robustness and long life, very important in those emerging markets. It is best in class for ergonomics, so delivering on the Leica value and brand proposition.
Through driving this initiative through policy deployment, we are able to design and launch the instrument in 12 months from starting the project with 100% LCR content. The unit was also designed to serve as a basis of a low-cost operating microscope platform, and we now developed dental versions of the microscope for a different target group, and we introduced this product at the beginning of this year. Incidentally, the dental version is, of course, being distributed through our sister company, KaVo, with great success. Looking ahead to 2011, we expect to continue to gain share in cancer diagnostics, particularly with our BOND advanced staining systems, especially due to the very positive references we are receiving for the high speed and high throughput BOND-III fully automated platform.
We will continue to invest in research and development for new products across our entire portfolio, and we will continue to redirect resources from the back office and indirect functions into feet-on-the-street roles, just as we have done in 2009 and 2010 to further reinforce and drive that growth, especially in biosystems, as well as to continue to drive growth in the emerging markets. Thank you very much. Tom, I think we are now available to take questions on AB Sciex and Radiometer and Leica.
Thanks, David.
I guess there's some concern about you guys having to invest more than you would have expected initially in your mass spec product. There's been some buzz going around from some competitors that are saying you guys still don't have a competitive product there. Can you maybe address that and talk about what's either surprised you or not since you've bought the business?
Yeah. Steve, I was pleasantly surprised with the quality of the product portfolio on day one. I think the introduction of the TripleTOF 5600 took us to a whole new place in the market. We historically had not been as strong, largely as a function of some aging of the portfolio in the academic and research end of the spectrum. Far stronger in the core pharma market, far stronger in the applied market. I think with 5600, we now shore up that side of the market, and I'd stack the portfolio up against anybody out there.
Just a question on, we've been getting a lot of calls from life sciences investors on Beckman. Any kind of interest there or any of the pieces of that business that you guys would be interested in buying?
Well, I wouldn't necessarily comment specifically on a situation like that, but we obviously are familiar with the Beckman business. It's an outstanding company, but I probably wouldn't go any further than that relative to any specific interest given their situation at the moment.
In this business, you talk about 10% margin for the aggregate, but you got a couple of businesses that are very profitable and some that aren't. Maybe just give us a little more color on that margin, what the exit rate here is in 2010. You said obviously you got some acquisition-related charges and trending.
Yeah.
What's the outlook going forward, and where is this business going?
Sure. Bob, the exit rate, if you take out some of that transactional noise, some of the AB Sciex numbers is more like 12% than 10%. That's a set of numbers that across the portfolio, we ought to be taking to 15% in the near-term and ought to be 20% in a few years beyond that. So, these are businesses that have every reason to be in that high teens range, if not beyond. But the 12% is what you got to think about as closer to an exit rate here. Deane?
Yes. Thanks, Tom. A question on AB Sciex. On the day of the acquisition, one of the questions that came up is, how do you build from that platform? Because no one owns just a standalone mass spec business, but it's usually paired with an LC, a GC or lab informatics.
No surprise to see the first bolt-on in the LC world.
But I would be interested in hearing, does that necessarily preclude your interest in GC?
Will it be more application-specific, like biomarker applications, and be sold as a solution? Or would you be looking to add more generic type businesses that allow the customers to use them in whatever application?
Mm-hmm. There is a lot there, Deane. Let me try and pick that apart a bit. The Eksigent acquisition was an important acquisition as a bolt-on. It was not an attempt to go head-to-head in the broadly defined conventional flow LC market. Had some very specific niches that we thought were uniquely positioned relative to the TripleTOF 5600 in that end of the market. Relative to the balance of that LC market, we have maintained a strategy, and the SCIEX business has for a number of years, very successfully, that we provide integrated solutions as defined by our customers. So we have partnering relationships with each of the other LC manufacturers today.
As our customers specify what that complete workflow needs to look like, we are capable not only of demoing all that equipment in our demonstration labs but actually putting those workflows together for them turnkey using a variety of LC solutions. Relative to your question about GC, no, the acquisition of Eksigent nor anything else we have done would preclude anything that we would do in GC. I would say, though, that GC addresses some very different market segments today than LC-MS. While we would look at those probably somewhat independent of where we are today. Relative to your question about application-specific investments as it relates to GC or any other hardware components, the application-specific approaches that we would take would be largely a function of what we call the workflow.
That is a function of not just the LC and the mass spec, but the software and how that software supports the particular workflow. In other words, we kit a solution, be it for vitamin D or steroids, et cetera, and that is really where that application-specific investment is, and that is very much part of our strategy.
Dave?
Tom?
Thank you. I hope what you see there with both Tom and David's presentation is really how far we have come over the last five-plus years. We were not in life sciences and diagnostics in any real way back in 2004, 2005. Radiometer and Leica got us kickstarted. I know there were folks at the time that wondered, "Well, how does DBS have application in businesses like these and sectors like these?" I think you saw throughout the presentations, at Leica, Radiometer, more recently at SCIEX. We did not talk about Molecular Devices. We could have. But across all four, significant evidence that the DBS has tremendous application. I am going to go ahead and wrap us up. First of all, let me thank you, for those of you here, as well as those of you on the webcast who are joining us this afternoon. Hopefully, you found the time together useful.
Hopefully, what we conveyed to you is obviously the opportunities we have in vigorously employing the Danaher Business System to drive organic growth and margin expansion. I think that we did that this year. We are going to do it going forward. Certainly, I think you see with the portfolio an evolution toward, again, higher growth, higher technology, more global businesses where our brands are market leaders. Clearly, the investments that we are making in emerging markets are bearing fruit. You saw that in the growth and the share gains we put up this year. I think we have got more of the same coming, but in no way losing sight of our historical bias and orientation towards strong free cash flow and deployment of that cash flow back into the business. We would characterize the pipeline here today as quite strong, much as we would with respect to the global economy.
We think things have been robust this year and will continue to be so. With respect to where we are here at year's end, I think we're very pleased, again, with how the fourth quarter has played out. In fact, at this point, we can see our way to a 10% plus double-digit core growth range here in the fourth quarter. A little higher than we talked about on the third quarter earnings call. Very pleased with that. In turn, we're going to step up our restructuring spending. We had talked earlier about spending $40 million here in the fourth quarter. We're going to go to $60 million in the fourth quarter, really to make sure, both on the cost side and the growth side, that we're doing all we can to take advantage of the latitude we have to get ready for 2011 and 2012.
Better core growth, more investment for 2011 and 2012. But with that, we're going to tighten up the guidance range for the quarter. For those of you still on this slide, you can see that we're going to take the bottom out of the fourth quarter, and we're going to go to a $0.64 to $0.66 range for the fourth quarter. In turn for the year, we're going to go to $2.28-$2.30. With respect to the 2011 outlook, basically what we're going to go with today is an outlook relative to core at 6%-8%. We see the emerging markets really driving that across the portfolio. We peg that at about a low double-digit number. In turn, we see the developed markets, principally Western Europe, the U.S., and Japan, somewhere in that mid-single-digit range. But net, we think we'll be in the six to eight band.
In turn, we think we'll continue to improve the fall-through that we're able to deliver with this portfolio. Wasn't that long ago, we were talking about 30% on that incremental dollar, moved up to 35%. I think today we feel very comfortable talking about a 35% to 40% range in that regard. Clearly, we've got a number of acquisitions that are going to help us. Most of those have been closed at this point. We have included, for purposes of today's conversation, Implant Direct, though technically that is obviously not yet closed. With respect to some of the other puts and takes, we will, as we did in 2010, plan for about $40 million of M&A-related expense and non-cash charges, so no change year-on-year in that regard.
We will go back, though, for, again, purposes of guidance, to a more normal, quiet restructuring for next year's fourth quarter of about $20 million versus the $60 million, again, that we'll spend. 60 versus the 40 we had flagged back on the third quarter earnings call. We think that incremental spending here in the fourth quarter will yield a $20 million OPE benefit next year. So we get a return on that $40 million of incremental spend here in the quarter. Nice payback. Good investments going forward. From a tax perspective, while there's more clarity in some respects, we're still working this through. Obviously, there are some things that are still fluid. But we see a 100 basis points increase in our tax rate, so we've baked in a 26% effective rate for next year.
And then finally, we will have a little uptick in our pension expense to the tune of $20 million. So, a number of different assumptions there, but those are the main ones, hopefully, that help you bridge 2010 to 2011. What we try to do on the walk here is really take you from the $2.29 to our range for 2011. We have three headwinds. Starting first with the tax rate. That is about $0.04 of headwind next year. We go to the growth initiatives. $60 million on a net basis, net of our cost reductions or $0.06. Probably a higher level than you have ever seen us flag at this point in the year. I think the presentations today hopefully suggested plenty of opportunity to invest in technology and innovation. Lots of opportunities here to continue to feed, particularly the emerging markets from a go-to-market perspective.
Across the portfolio in developed and emerging markets, we want to make sure that we are market leaders with respect to e-marketing. You will see a lot of step-up in that regard as well. I think investments that have been warranted are justified and are smart for us with respect to the future. $20 million or $0.02, again, with respect to the pension expense. Those are the headwinds. What fuels us going forward, again, first and foremost, the benefit that we get from the incremental spend this year that we do not see repeating, at least at this juncture, at this point, in addition to the return on that incremental investment that will help us next year. Secondly, we will get positive impact from the 2010 acquisitions, including the step-up in the operating performance at AB Sciex that Tom talked about.
We have got that in for a nickel as we walk forward. Again, the big plank in the bridge to 2011, core growth, 6%-8%, Danaher-wide, with a fall-through of 35%-40%. That gives us a $0.27 to $0.42 range with respect to the core growth contribution. You can do the math here. That puts us at $2.55 to $2.70 for the full year, and 11% to 18% EPS growth off the adjusted $2.29 here in 2010. I appreciate everybody's patience and attention during that quick run. For the purposes of the first quarter, we just want to flag this. We will obviously get into more detail, as is our custom, on the earnings call in January. The first quarter range at the outset here is going to be in the $0.52 to $0.57 range.
To wrap up the afternoon, again, I think we are pleased and proud of the execution that you have seen us put forward. We have put up some strong numbers this year to function not only what we did this year, but certainly in years past. Do not want to forget about the contributions we did in a very turbulent 2009. We love this portfolio. A lot has changed during the course of the last 10 years, but we see it as one ripe with opportunity. Certainly tremendous margin expansion as well going forward, all of which is a function of our commitment and obviously our passion for the Danaher Business System. With that, Matt, I think if we have any questions, if we have got everybody, we may go to Bob Cornell to lead us off. Bob?
I hope it's worth the first one. A couple of questions. Is the 6% to 8% now a new long-term range for Danaher, or is this just a view for one year?
Well, I think what we're trying to do is just flag that for 2011. For me, that's just next year. That's not the long-term. I think we're going to basically say that we can look forward to 2011 in the context of the global situation and feel confident we can be in that zone. We're really not trying to make much more commentary than that, Bob.
One follow-up is, you mentioned the emerging market growth a couple of times.
Yeah
Not the emerging market profitability. Is the emerging market profitability above the average or below, or where is it? In the aggregate. I mean, understanding.
Yeah
you're going to have inorganic additions.
Right
As it stands now, the business in place.
We're very fortunate, Bob, that our emerging market profitability today is above the corporate average. Shannon?
Yeah, Larry, can you just talk a little more about the improvement in the fall-through expectation? Is that just a function of acquiring higher gross margin businesses or more than that gives you the confidence?
Well, Shannon, I think the step-up in the fall-through really is part of that natural evolution of the portfolio, for sure, as we have migrated toward higher growth and higher gross margin businesses. The incremental dollar there obviously gives us more impact on the bottom line. But I don't want to, in any way, discount what we're doing in terms of our traditional DBS activities in those businesses and elsewhere. You saw that in the gross margin slide at the open. You saw that, I think, peppered through the course of the day, where we're really trying to make sure that we are growing, regardless of where our gross margins are, in a way that is more impactful to the bottom line and not just chasing growth for growth's sake. Really, a combination of all of those key factors. Scott?
Thanks. Thanks, Larry. A couple things here. One, can you talk about price cost? There wasn't any commentary in your waterfall chart on price-
Right
cost and what you expect in that, and then I have a follow-up.
Right. Scott, with respect to that $60 million of net incremental spend on growth initiatives, that's again, net of some of the cost improvement opportunities that we have. From a price perspective, we would see ourselves doing a little bit better in price next year, probably a point plus. We've got opportunities, perhaps some situations where we're going to be more effective in going after that. But again, I think that's part of the roll forward and not big enough for us to call out separately.
Sure. And follow-up, just these new reporting segments. Is this more for us in optics, or is there a real change in kind of operational or how you think about these buckets and how you manage in these five different buckets versus the long-standing four that you've had?
Well, I'd say two things, Scott. I'd say first, what we've done here, going five across with the segments and framing them as we have, is I think, really capturing from a segment perspective, more accurately, the way the businesses operate. Okay? If you think about what Tom does in life sciences, what Jim does in T&M, for example, they're obviously very focused in helping those business leaders optimize each of those individual operating companies and those discrete brands. But increasingly, what you're seeing Tom and his team do, Jim as well, we do it in dental, Dan does it in industrial, is making sure that we come together where we have those opportunities to be a little bit smarter strategically, maybe be a little bit more aggressive operationally around those common opportunities.
We used to do all of that, or most of that, if you will, at a Danaher level. But I think as we've evolved in these focused areas and we have these $2 billion, $3 billion businesses, we have more opportunity to do that. We'd like to think there's an IR benefit here in just helping you see more clearly the portfolio evolution that we've been after for a while. But there is, I think, a little bit more line of sight, if you will, to what we're trying to do operationally at the opco, at the platform, let alone on a pan-Danaher basis.
Okay. Can I ask one last question? When you think in terms of the vertical expertise that you have in these five businesses, now you have a leadership team that's been around for a while and understands the way Danaher works. When you're sourcing transactions, what percentage of them are driven kind of top-down versus now having all these guys with strong vertical expertise that can bring ideas up from the bottoms up?
Right. Well, with respect to deal generation, Scott, if you look at the 13 bolt-ons that we did so far this year, I would say all of those, as bolt-ons typically do, have come up from the businesses. Again, a distribution opportunity, technology play there, where those businesses have been cultivating those owners to a point where it is time. I think what you are going to continue to see are the larger situations, be they public or private, the adjacencies, the new platforms, probably be a function of what we do in Washington. There is obviously a lot of back and forth given certain situations. That two-track M&A process that we have employed for as long as I have been with the company is very much intact.
I think Dan and I, the rest of the team in Washington, can put more of that responsibility, that M&A responsibility, on the shoulders of the team that you saw today, because, again, of the quality of the work that they are doing and their teams as well. Do we have one in the back? Steve?
Thanks, Larry. Could you give us a little bit perspective on the core growth breakdown across the businesses first?
Sure. Steve, I think when we talk about 6%- 8% for Danaher next year, I would suspect if we were just to maybe force rank who is likely to come in first, who might not, probably look to the T&M and the life sciences and diagnostics to be at the head of the class. I suspect industrial tech is in the middle. Environmental is probably not too far behind.
A little bit of a Tale of Two Cities there. I think water will be strong next year, as Martin referenced. We have got a little bit of some tougher comps at GVR. I think dental will be probably at the low end of that force ranking.
Okay, great. Just on the gross margin progression for next year, what is sort of implied for gross margin?
I think we will see a continuation of the gross margin expansion that you have seen this year as part of the 35% to 40% fall through. Again, I think the 51.7% gross margin in the third quarter is not an anomaly. Those are the sorts of gross margins, absent the next acquisition that might dilute that one metric, that you should see Danaher being capable of with this portfolio going forward.
Is there a question here?
Hi, Larry. Can you discuss, in the core guidance as well, your expectations kind of from a macro level globally and regionally?
Well, I think that we do not in any way claim any macroeconomic expertise here. I think, again, by and large, we would look to the emerging markets to stay robust, even though those tough comps will really be a worldwide phenomena early next year. We are pegging that at a low double-digit growth rate for us. I think we would anticipate growth, but more modest growth in the West. Hence, we will probably grow faster than those economies. But we would see ourselves in a mid-single-digit range in the U.S., Western Europe, Japan, a lesser opportunity for us. Nigel, did you have a question?
Larry, I just want to come back to your comment on emerging market margins, which I thought was very interesting. Emerging markets probably grows 10% plus forever.
We hope.
We got some nice volume benefits. But is the higher margin a function of the fact that you are still operating in very sort of niche-y parts of the markets and therefore as the market expands, those margins will fall? Or do they go up from here in your view?
Well, when you describe that, I think we would characterize those market segments as highly attractive, where you can differentiate and get price with technology and with brand. Certainly, if you look at what we have done in China, the model we have employed is to go in with that branded position, often with a global brand, Western technology at that high price point segment, establish distribution, and then work our way down the price point continuum. I think you saw a bit of that in Barbara's presentation. I think you saw a little bit of that in David's presentation, where when we have that brand high price point base, we can go local. We can begin to localize our offering from a design, from a cost, let alone a production and support perspective, to go into those mid price point segments and do so profitably.
I do not think, again, despite a lot of the conversation over time, we are not going to chase growth for growth's sake. We are going to chase profitable growth that drives real returns for shareholders. I do not think every single emerging market and every product category that we play in today is necessarily going to be attractive. So do not think that it is just emerging markets or bust around here. I think we are going to be smart about that. But by and large, we are very encouraged about the growth and the margin potential in the places that we play.
But as you then go into mid-tiers, does that then mix down those margins or do they still-
No. I think if you go in and you know where those price points are, you assume you do not want to see a deterioration in your gross margin. You just go drill a cost position, again, from a design and from a local sourcing and production perspective geared for that segment. I think you heard Henk talk about that a little bit, where new products can come in to KaVo, they can, all the other businesses, and be accretive to gross margins. It is all about how you think about that product plan upfront, how aggressive, how tough-minded you are in keeping the team's feet to the fire around that cost target. And again, I think as you get to some of these mid price point segments in emerging markets, you are going to have to be local, both in design, sourcing, and production. It can be done.
It's not without some work, but it can be done. Terry?
Larry, I wonder if you could hit on a couple of points that you see as potential upside risks and potential downside risks on both sides there.
Well, I think that from an upside perspective, certainly if the global economy is a little bit more robust than what we've dialed in here, that's going to help us. I think we've got some product approvals, product launches, that if they were to come forward here a little bit more quickly than perhaps we've baked in, and I don't want to be specific there given the sensitivity of that topic, that certainly would be an upside for us. On the flip side, clearly, if the macro environment is sloppier next year, it's going to affect everybody. We're in some great markets. I can't see us sitting that out.
But given what we know and see today, I think we feel pretty good with the 6% - 8%.
It sounds like more on the revenue side than the margin side is where your focus is in terms of variability.
Yeah. Obviously, with what we've tried to put forward here. At a minimum, that net $60 million of growth investment gives us a little bit of latitude if things really got sloppy in an unexpected way next year. Let alone, I think what we would do, much as we did late 2008 and 2009, to make sure that we were being smart about the money that we were spending and protecting the bottom line.
Could you just touch base on R&D growth rates or percentage of sales, and then any color on what you're assuming for tools JV contribution?
Sure. With respect to R&D, I think that sequential climb that you've seen, albeit gradual, is something that you should expect to see in 2011. From a Danaher perspective, let alone each of the segments or platforms, we really don't target. We don't believe there is a right number for that ratio. Again, it's really a function of first making sure that the money that we're spending in R&D is well spent, and then in turn, looking for the incremental opportunities to take that up. We don't look to R&D, despite maybe some of the things that you might hear elsewhere, back to Deane's comment, we don't look to that pool as really an op margin expansion opportunity unless it's projects, back to Nigel's question, that are going to drive those incremental new products that expand gross margins. So more of the same, I think, in that regard.
The pressure you will see us put on is really going to be around G&A and the COGS buckets. Deane.
Thanks, Larry. In your beginning today, you talked about and reaffirmed the $4 billion in acquisition capital. Interesting you actually put a timetable on that to set over the next four to six quarters. Just talk about where you are in the organization in terms of the ability to integrate multiple bolt-ons in that timeframe, what the pipeline looks like. Then separately, and this is almost a rhetorical question for Danaher, but a comment on cash flow guidance for next year.
Sure. I think with respect to our organizational capacity, Deane, that still very much is the limiting factor for us as we think about growth. I think what I tried to flag one of my slides, and hopefully what you saw with the team, is that we have tremendous capacity as we think about bolt-ons, let alone adjacencies, maybe even a new platform at the right time. I would maybe just refer back to Tom's story around AB Sciex, a very strong first year, probably as difficult and complex an undertaking as we have ever seen, given that we are stitching together the two halves of the JV. Certainly put a lot of pressure on Tom and some of the corporate team.
But what we did at SCIEX has not really drawn from the rest of the organization in a way that prevented us from doing anything in product ID or in test or in measurement or dental. I think all five of those segments are organizationally positioned to support that capital deployment that we talked about. Hopefully we are not making any headlines with that $4 billion or that four to six quarter potential, but I think it is a frank look at our capacity here over the next year plus. I am sorry?
Cash flow.
Cash flow. Yeah, I think we're going to come in, what, about $1.7 billion, $1.8 billion, and I would expect for us to see good growth, good conversion there next year. So you're probably somewhere in the $2 billion range. Is there one in the back? Okay, that's one of our own guys. Cliff, did you have a question? Believe me, I'm sure they'll be asking questions later on.
Are you still running your immersion program with respect to DBS? Do you differentiate that from the re-immersion process?
The short answer is yes. Just so we're on the same page, we do run our new leaders through an immersion process where day one, they don't start in their jobs. They basically go on a, if you will, a study mission. We just hired somebody into product identification, for example, into a senior role that just completed effectively, Matt, what, a two and a half , three-month immersion. Life-changing experience for him. Every time I see those folks when they're done, it, I think, reinforces for me the value of doing that. When you talk about re-immersion, it's a similar process, as you know, Cliff, where we take people who have been with us for a while and give them an opportunity, if you will. I don't want to call it a sabbatical because it's anything but.
But it's an opportunity for them to learn from other companies, really sharpen their pencils, perhaps their knives, regarding their DBS capability. There's a fair bit that we've tried to do beyond just immersion and re-immersion to strengthen our leadership development program. As you know, we've got a lot of training out of the DBS office that is more tool-oriented. We're trying to elevate some of that. So at a leadership level, whether you're running a P&L for the first time or you're ascending to a Danaher leadership team role, we're giving you a little bit of classroom support. That said, I think we still are big believers that the most education you're going to get as a businessperson is going to be OJT.
What's the longest someone's been in immersion?
I would suspect the longest someone has been in immersion is probably two and a half, three months.
Re-immersion?
Re-immersion is probably half that. It's probably half that, Jeff.
Thanks. The $4 billion, Larry, I think would be characterized as kind of available cash flow, and debt capacity.
Yeah.
Just your appetite for the right situation to throw some equity into the mix. You've done it in the past.
Right.
Obviously, it sounds like you've got a very big pipeline. You've got some stuff done in 2010, but it seems like there's possibly the odds that just a bunch of things break open, right?
Yeah.
You've got to make a decision.
Yeah. I think, Jeff, as you know, we tend to try to not rule out anything because as you framed it, I think correctly, right situation comes along, we want to be in a position to take full advantage of it. I think having 20% of the equity in the boardroom reinforces that sort of idea that we need to think long-term. We need to be creative. We need to be flexible. That said, you are right, $4 billion would not really push us too hard given we are almost down to a very limited, very modest net debt position today, and if we are north of $1.7 billion, $1.8 billion in free cash next year, you are really just talking about a couple of years of cash flow at four.
I think we are in an enviable position, but I want everybody in the room to walk out remembering, if nothing else, we are going to be aggressive, but we are going to be disciplined as well.
Then just on organic growth, understand, to Bob's earlier question, you do not want to declare six to eight the new target per se, but when you look at the way the company is remixing.
Yep.
What is going on with R&D.
Right.
Do you in fact think you've blended the growth rate up a point? Maybe 5%-7% wasn't the right number. Maybe it was 5% and now we're at 6%-7%, but do you think you've actually blended the growth rate up a point or two with what you've accomplished here in the last five or six years?
I would say this is a higher potential portfolio today than it was five years ago, just as five years ago was a higher potential portfolio than we were 10 years ago. I think that as we go forward, we would much rather have our track record, rather than our outlooks characterize what we're capable of doing. If we're a tad conservative in that regard, we'll take that. I think we want our actions and our results to speak for us. How are we doing time-wise? One more? One more. Who hasn't asked a question? Is that Steve Tusa? I can't really see this side of the room, excuse me.
Thanks, Larry. Just on the first quarter of guidance.
Yes.
Is there anything about some of the non-fundamental moving parts that are going to depress that number a bit? It looks like all else equal, it's about the midpoint of the range that you guys did about 5% organic growth in the first quarter last year. It looks like it's the easiest comp of the year. Can you maybe talk about if organic growth is pretty level loaded throughout the year, or is it going to start a little bit better? If it is starting better, why is the EPS range only $0.52 to $0.57?
We'll get into this in more detail in January, Steve. I think as you look from a core perspective through the course of the year, I think you're going to see the quarters pretty much in that annual zone, the 6-8 zone that we talked about. Keep in mind that while we do have that easier comp to work against in the first quarter, we do have some one-timers, like some of the Japanese and the Chinese stimulus that was very much a part of our kickstart to this year that won't be there next year. So we'll have to deal with some of that. But that said, I think we're going to have a good first quarter barring some sort of surprise. Okay. Well, again, thank you for your time and interest in Danaher. Have a good holiday season. Thank you