SECURITIES AND EXCHANGE COMMISSION
                              Washington, D.C. 20549

                                     FORM 10-Q

(Mark One)

 X    Quarterly report pursuant to Section 13 or 15(d) of the Securities
      Exchange Act of 1934

For the fiscal quarter ended:  June 30, 1998 or

      Transition report pursuant to Section 13 or 15(d) of the Securities
      Exchange Act of 1934

For the transition period from ________________ to ________________

Commission file number:     0-25426         

                         NATIONAL INSTRUMENTS CORPORATION
              (Exact name of registrant as specified in its charter)

               Delaware                                   74-1871327
- ----------------------------------------     -----------------------------------
    (State or other jurisdiction of                   (I.R.S. Employer
    incorporation or organization)                 Identification Number)
     11500 North MoPac Expressway
             Austin, Texas                                 78759
- ----------------------------------------     -----------------------------------
    (address of principal executive                      (zip code)
               offices)

        Registrant's telephone number, including area code:  (512) 338-9119
                            __________________________

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days. Yes X No __

Indicate the number of shares  outstanding  of each of the  issuer's  classes of
common stock, as of the latest practicable date.

                  Class                       Outstanding at August 12, 1998
     Common Stock - $0.01 par value                     32,841,699

                                     Page 1



                        NATIONAL INSTRUMENTS CORPORATION


              INDEX

                                                                      Page No.

              PART I.  FINANCIAL INFORMATION

Item 1        Financial Statements:

                 Consolidated Balance Sheets
                 June 30, 1998 (unaudited) and December 31, 1997            3

                 Consolidated Statements of Income (unaudited)
                 Three months and six months ended June 30, 1998 and 1997   4

                 Consolidated Statements of Cash Flows (unaudited)
                 Six months ended June 30, 1998 and 1997                    5

                 Notes to Consolidated Financial Statements                 6

Item 2        Management's Discussion and Analysis of Financial
              Condition and Results of Operations                           9


              PART II.  OTHER INFORMATION

Item 2        Change in Securities                                         18

Item 4        Submission of Matters to a Vote of Security Holders          18

Item 5        Other Information                                            19

Item 6        Exhibits and Reports on Form 8-K                             19

                                     Page 2



                         PART I - FINANCIAL INFORMATION

ITEM 1.     Financial Statements

                        NATIONAL INSTRUMENTS CORPORATION
                           CONSOLIDATED BALANCE SHEETS
                        (in thousands, except share data)

                                                     June 30,      December 31,
                                                       1998            1997
                                                  --------------  --------------
Assets                                              (unaudited)
Current assets:
   Cash and cash equivalents..................      $  31,678       $  31,943
   Short-term investments.....................         46,886          51,067
   Accounts receivable, net...................         41,070          37,411
   Inventories................................         16,725          15,505
   Prepaid expenses and other current assets..          7,455           5,387
   Deferred income tax, net...................          7,892           7,900
                                                  --------------  --------------
      Total current assets....................        151,706         149,213
Property and equipment, net...................         66,830          46,805
Intangibles and other assets..................          6,624           8,472
                                                  --------------  --------------
      Total assets............................      $ 225,160       $ 204,490
                                                  ==============  ==============

Liabilities and Stockholders' Equity

Current liabilities:
   Current portion of long-term debt..........      $     848       $     851
   Accounts payable...........................         16,738          16,946
   Accrued compensation.......................          8,100           8,219
   Accrued expenses and other liabilities.....          3,056           2,455
   Income taxes payable.......................          6,523           4,871
   Other taxes payable........................          3,149           3,729
                                                  --------------  --------------
      Total current liabilities...............         38,414          37,071
Long-term debt, net of current portion........          4,773           5,151
Deferred income taxes.........................            514             514
                                                  --------------  --------------
      Total liabilities.......................         43,701          42,736
                                                  --------------  --------------
Commitments and contingencies                              --              --
Stockholders' equity:
   Common Stock: par value $.01; 180,000,000
   shares authorized; 32,828,074  and 
   32,656,473 shares issued and outstanding, 
   respectively...............................            328             326
Additional paid-in capital....................         49,164          47,160
Retained earnings.............................        134,244         116,215
Accumulated other comprehensive loss..........         (2,277)         (1,947)
                                                  --------------  --------------
      Total stockholders' equity..............        181,459         161,754
                                                  --------------  --------------
      Total liabilities and stockholders' equity.   $ 225,160       $ 204,490
                                                  ==============  ==============

    The accompanying notes are an integral part of these financial statements.

                                     Page 3



                        NATIONAL INSTRUMENTS CORPORATION
                        CONSOLIDATED STATEMENTS OF INCOME
                      (in thousands, except per share data)
                                   (unaudited)


                                    Three Months Ended       Six Months Ended
                                          June 30,                June 30,  
                                     1998        1997        1998        1997
                                  ----------  ----------  ----------  ----------

Net sales........................  $ 67,770    $ 60,092   $ 133,123   $ 114,663
Cost of sales....................    16,089      14,009      31,658      26,302
                                  ----------  ----------  ----------  ----------
   Gross profit..................    51,681      46,083     101,465      88,361
                                  ----------  ----------  ----------  ----------
Operating expenses:
   Sales and marketing...........    24,494      21,481      49,024      41,443
   Research and development......     8,953       7,658      16,703      14,135
   General and administrative....     5,201       4,543       9,921       8,813
                                  ----------  ----------  ----------  ----------
      Total operating expenses...    38,648      33,682      75,648      64,391
                                  ----------  ----------  ----------  ----------
      Operating income...........    13,033      12,401      25,817      23,970
Other income (expense):
   Interest income, net..........       762         705       1,432       1,403
   Net foreign exchange loss.....       (67)       (306)       (341)     (1,270)
                                  ----------  ----------  ----------  ----------
      Income before income taxes.    13,728      12,800      26,908      24,103
Provision for income taxes.......     4,530       4,219       8,879       7,954
                                  ----------  ----------  ----------  ----------
      Net income.................  $  9,198       8,581      18,029      16,149
                                  ==========  ==========  ==========  ==========

Basic earnings per share.........  $   0.28        0.26        0.55        0.50
                                  ==========  ==========  ==========  ==========

Weighted average shares          
outstanding-basic................    32,800      32,552      32,800      32,514
                                  ==========  ==========  ==========  ==========

Diluted earnings per share.......  $   0.27        0.26        0.53        0.48
                                  ==========  ==========  ==========  ==========

Weighted average shares          
outstanding-diluted..............    34,200      33,435      34,200      33,435
                                  ==========  ==========  ==========  ==========

    The accompanying notes are an integral part of these financial statements.

                                     Page 4



                        NATIONAL INSTRUMENTS CORPORATION
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)
                                   (unaudited)
                                                            Six Months Ended
                                                                June 30,
                                                      --------------------------
                                                          1998          1997
                                                      ------------  ------------
Cash flow from operating activities:
   Net income......................................    $   18,029    $   16,149
   Adjustments to reconcile net income to cash
   provided by operating activities
      Charges to income not requiring cash outlays:
        Depreciation and amortization..............         4,689         4,102
      Changes in operating assets and liabilities:
        Increase in accounts receivable............        (3,728)       (4,749)
        Increase in inventory......................        (1,361)       (1,859)
        Decrease in prepaid expense and other assets          430           187
        Increase in current liabilities............         1,343           582
                                                      ------------  ------------
      Net cash provided by operating activities....        19,402        14,412
                                                      ------------  ------------

Cash flow from investing activities:
   Capital expenditures............................       (23,803)       (5,562)
   Additions to intangibles .......................        (1,432)         (582)
   Purchases of short-term investments.............       (20,398)      (26,719)
   Sales of short-term investments.................        24,578        24,117
                                                      ------------  ------------
      Net cash used in investing activities........       (21,055)       (8,746)
                                                      ------------  ------------

Cash flow from financing activities:
   Repayments of  debt.............................          (431)       (4,187)
   Net proceeds from issuance of common stock......         1,936         1,261
                                                      ------------  ------------
      Net cash provided by (used in)  financing             
      activities...................................         1,505        (2,926)
                                                      ------------  ------------

Effect of translation rate changes on cash.........          (117)         (241)
                                                      ------------  ------------

Net (decrease) increase in cash and cash equivalents         (265)        2,499
Cash and cash equivalents at beginning of period...        31,943        30,211
                                                      ------------  ------------

Cash and cash equivalents at end of period.........    $   31,678    $   32,710
                                                      ============  ============

    The accompanying notes are an integral part of these financial statements.

                                     Page 5



                        NATIONAL INSTRUMENTS CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - Basis of Presentation

The accompanying  unaudited  financial  statements should be read in conjunction
with the consolidated  financial statements and notes thereto for the year ended
December 31, 1997,  included in the Company's  annual report on Form 10-K, filed
with the Securities and Exchange Commission.  In the opinion of management,  the
accompanying   consolidated   financial   statements   reflect  all  adjustments
(consisting  only of normal  recurring  items)  considered  necessary to present
fairly the  financial  position  of  National  Instruments  Corporation  and its
consolidated  subsidiaries  at June 30,  1998 and  December  31,  1997,  and the
results of operations for the three-month  and six-month  periods ended June 30,
1998 and 1997, and the cash flows for the six-month  periods ended June 30, 1998
and 1997. Operating results for the three-month and six-month periods ended June
30, 1998 are not necessarily  indicative of the results that may be expected for
the year ending December 31, 1998.

NOTE 2 - Earnings Per Share

Basic  earnings  per share  (EPS) is  computed  by  dividing  net  income by the
weighted average number of common shares outstanding during each period. Diluted
EPS is computed by dividing net income by the weighted  average number of common
shares and common  share  equivalents  outstanding  (if  dilutive)  during  each
period.  Common share  equivalents  include stock options.  The number of common
share  equivalents  outstanding  relating to stock options is computed using the
treasury stock method.

The  reconciliation  of the  denominators  used to  calculate  the basic EPS and
diluted EPS for the  three-month  and six-month  periods ended June 30, 1998 and
1997 respectively are as follows (in thousands):

                                        Three Months Ended     Six Months Ended
                                             June 30,              June 30, 
                                            (unaudited)           (unaudited)
                                          1998      1997        1998      1997
                                        --------  --------    --------  --------
Weighted average shares                 
outstanding-basic...................     32,800    32,552      32,800    32,514
Plus: Common share equivalents......
   Stock options....................      1,400       883       1,400       921
                                        ========  ========    ========  ========
Weighted average shares                  
outstanding-diluted.................     34,200    33,435      34,200    33,435
                                        ========  ========    ========  ========

Stock options to acquire  907,000 and 1.1 million  shares for the quarters ended
June 30, 1998 and 1997,  respectively,  and 549,000 and 3,000 shares for the six
months  ended June 30,  1998 and 1997,  respectively,  were not  included in the
computations  of diluted  earnings per share because the effect of including the
stock options would have been anti-dilutive.

                                     Page 6



NOTE 3 - Inventories

Inventories consist of the following (in thousands):
                                                    June 30,       December 31,
                                                      1998            1997     
                                                   (unaudited)
                                                  -------------  ---------------
Raw materials                                      $   8,084      $    6,985
Work-in-process                                          794           1,315
Finished goods                                         7,847           7,205
                                                  -------------  ---------------
                                                   $  16,725      $   15,505
                                                  =============  ===============

NOTE 4 - Comprehensive Income

In June 1997, the FASB issued Statement of Financial Accounting Standards (SFAS)
No. 130, "Reporting  Comprehensive Income." The new standard, which is effective
for  financial  statements  issued for periods  ending after  December 15, 1997,
established  standards for reporting,  in addition to net income,  comprehensive
income and its components  including,  as applicable,  foreign  currency  items,
minimum pension liability adjustments and unrealized gains and losses on certain
investments  in debt and equity  services.  Upon  adoption  the  Company is also
required to reclassify  financial  statements for earlier  periods  provided for
comparative purposes.  The Company adopted this standard in the first quarter of
1998. Total  comprehensive  income for the quarters ended June 30, 1998 and 1997
is $9.0 million and $8.8 million, respectively. For the first six months of 1998
and 1997, comprehensive income is $17.7 million and $15.5 million, respectively.

Reconciliation of accumulated other comprehensive loss (in thousands):

                                Cumulative       Unrealized      Accumulated
                             Foreign Currency   Gain (Loss)         Other
                               Translation           on         Comprehensive
                                Adjustment       Securities          Loss
                            ------------------  -------------  -----------------
Balance at December 31,     $    (2,052)         $     105      $   (1,947)
1997
Current-period change              (260)               (70)           (330)
                            ==================  =============  =================
Balance at June 30, 1998    $    (2,312)         $      35      $   (2,277)
                            ==================  =============  =================

NOTE 5 - Recently Adopted Accounting Requirements

In June 1997,  the FASB issued SFAS No. 131,  "Disclosures  about Segments of an
Enterprise  and Related  Information,"  which the  Company  adopted in the first
quarter of 1998. The statement  establishes  standards for reporting information
about operating  segments in annual financial  statements and requires  selected
information  about  operating  segments in interim  financial  reports issued to
shareholders.  It also  establishes  standards  for  related  disclosures  about
products and services, geographic areas and major customers. Under SFAS No. 131,
operating segments are to be determined  consistent with the way that management
organizes and evaluates  financial  information  internally for making operating
decisions  and  assessing  performance.  The  adoption  of this  new  accounting
standard is not expected to have a material impact on the  consolidated  balance
sheet or statement of income.

In June  1998,  the  FASB  issued  SFAS  No.  133,  "Accounting  for  Derivative
Instruments  and Hedging  Activities,"  which  standardizes  the  accounting for
derivative  instruments,  including certain derivative  instruments  embedded in
other contracts,  by requiring that an entity recognize those items as assets or
liabilities  in the  statement  of  financial  position and measure them at fair
value.  This  statement is effective for all quarters of fiscal years  beginning
after June 15, 1999.  As of June 30, 1998,  the Company is reviewing  the effect
this standard will have on the Company's consolidated financial statements.

                                     Page 7



Item 2. Management's  Discussion and Analysis of Financial Condition and Results
of Operations

     This  Quarterly  Report on Form 10-Q  contains  forward-looking  statements
within the meaning of Section 27A of the  Securities Act of 1933 and Section 21E
of the Securities  Exchange Act of 1934.  Actual results could differ materially
from those projected in the  forward-looking  statements as a result of a number
of important  factors.  For a discussion of important  factors that could affect
the  Company's  results,  please  refer to the Issues and  Outlook  section  and
financial statement line item discussions below.  Readers are also encouraged to
refer to the Company's Annual Report on Form 10-K for further  discussion of the
Company's business and the risks and opportunities attendant thereto.

Results of Operations

     The following table sets forth, for the periods  indicated,  the percentage
of  net  sales   represented  by  certain  items   reflected  in  the  Company's
consolidated statements of income:


                                        Three Months Ended     Six Months Ended
                                             June 30,              June 30,
                                        ------------------    ------------------
                                          1998      1997        1998      1997
                                        --------  --------    --------  --------
Net sales:
   North America                          58.8%     60.4%       57.9%     58.5%
   Europe                                 30.5      27.5        29.8      27.5
   Asia Pacific                           10.7      12.1        12.3      14.0
                                        --------  --------    --------  --------
   Consolidated net sales                100.0     100.0       100.0     100.0
Cost of sales                             23.7      23.3        23.8      23.0
                                        --------  --------    --------  --------
   Gross profit                           76.3      76.7        76.2      77.0
                                        --------  --------    --------  --------
Operating expenses:
   Sales and marketing                    36.1      35.8        36.8      36.1
   Research and development               13.2      12.7        12.6      12.3
   General and administrative              7.7       7.6         7.5       7.7
                                        --------  --------    --------  --------
     Total operating expenses             57.0      56.1        56.9      56.1
                                        --------  --------    --------  --------
      Operating income                    19.3      20.6        19.3      20.9
Other income (expense): 
   Interest income, net                    1.1       1.2         1.2       1.2
   Net foreign exchange loss              (0.1)     (0.5)       (0.3)     (1.1)
                                         --------  --------    --------  -------
     Income before income taxes           20.3      21.3        20.2      21.0
Provision for income taxes                 6.7       7.0         6.7       6.9
                                        --------  --------    --------  --------
   Net income                             13.6%     14.3%       13.5%     14.1%
                                        ========  ========    ========  ========

     Net Sales.  Consolidated  net sales  increased by $7.7 million or 12.8% for
the three months ended June 30, 1998 to $67.8 million from $60.1 million for the
three months ended June 30, 1997, and increased $18.4 million or 16.1% to $133.1
million  for the six months  ended June 30,  1998 from  $114.7  million  for the
comparable  period  in the  prior  year.  The  increase  in sales  is  primarily
attributable  to the  introduction  of new and upgraded  products and  increased
sales and marketing efforts.  North American sales in the second quarter of 1998
increased by 9.8% over the second  quarter of 1997 and North  American sales for
the six months  ended June 30, 1998  increased  15.0% from the six months  ended
June 30, 1997. The Company  believes its growth rate for North  American  sales,
9.8% in the second  quarter  compared to 21.0% for the first quarter of 1998, is
attributable  to the effect of economic  difficulties  in Asia on the  Company's
North  American  customers,  particularly  in the automated  test  equipment and
semiconductor  sectors,  and the fact that the number of sales  engineers in the
field actually  decreased  during the first half of the year.  Historically  the
Company  has found a high  correlation  between  revenue and the number of sales
engineers in the field. The Company had 45 engineers in the field as of June 30,
1998 and plans to approach the desired level of 60 by the end of the year.

                                     Page 8



     International  sales as a percentage of consolidated  sales for the quarter
and six months  ended June 30, 1998  increased  to 41.2% from 39.6% and to 42.1%
from 41.5%, respectively, over the comparable 1997 periods as a result of strong
European  sales.  Compared to 1997, the Company's  European  sales  increased by
25.1% to $20.6 million for the quarter ended June 30, 1998 and by 26.1% to $39.7
million for the six months ended June 30, 1998.  Sales in Asia Pacific  remained
constant at $7.3  million for the quarter  ended June 30, 1998  compared to 1997
and increased  1.8% to $16.3 million from $16.0 million for the six months ended
June 30, 1998 compared to the same period in 1997.  The low sales growth rate in
Asia Pacific was impacted by the economic difficulties  occurring in the region.
The Company  expects  sales  outside of North America to continue to represent a
significant portion of its revenue.  International sales are subject to inherent
risks, including  fluctuations in local economies,  difficulties in staffing and
managing  foreign   operations,   greater  difficulty  in  accounts   receivable
collection,  costs and  risks of  localizing  products  for  foreign  countries,
unexpected changes in regulatory requirements, tariffs and other trade barriers,
difficulties in the repatriation of earnings and the burdens of complying with a
wide variety of foreign laws.

     Sales made by the Company's direct sales offices in Europe and Asia Pacific
are denominated in local currencies,  and accordingly,  the US dollar equivalent
of these sales is affected by changes in the value of the US dollar. Between the
second quarter of 1997 and the second quarter of 1998 the weighted average value
of the US dollar  increased by 6.7%,  causing an  equivalent  decrease in the US
dollar value of the Company's foreign currency sales and expenses. This weighted
average is  calculated  as the  percentage  change in the value of the  currency
relative to the US dollar,  multiplied by the proportion of international  sales
recorded in the  particular  currency.  If the weighted  average value of the US
dollar in the  second  quarter  of 1998 had been the same as that in the  second
quarter of 1997,  the Company's  sales for the second quarter of 1998 would have
been $69.5  million,  a 16% increase.  This effect is 2.6% of  consolidated  net
sales in the aggregate. European sales for the second quarter of 1998 would have
been $21.4  million,  a 29%  increase in second  quarter  1998 sales over second
quarter 1997.  Asia Pacific sales for the second quarter of 1998 would have been
$8.3 million,  a 14% increase in second  quarter 1998 sales over second  quarter
1997 sales. If the weighted  average value of the dollar in the six months ended
June 30, 1998 had been the same as that in the six months  ended June 30,  1997,
the Company's  year-to-date sales would have been $137.1 million, a 20% increase
in year-to-date sales over 1997 sales. Since most of the Company's international
operating expenses are also incurred in local currencies, the change in exchange
rates has the corresponding effect of reducing  consolidated  operating expenses
by $1.1  million  for the six months  ended June 30, 1998 and  $488,000  for the
second  quarter  of 1998.  If the  current  trend in the  value of the US dollar
continues  throughout  1998, it will continue to have the effect of lowering the
US dollar equivalent of international sales and operating expenses.

     Gross Profit. As a percentage of net sales, gross profit decreased to 76.3%
for the second  quarter  of 1998 from  76.7% for the second  quarter of 1997 and
decreased  to  76.2%  for the  first  six  months  of 1998  from  77.0%  for the
comparable  period a year ago.  The lower margin for the second  quarter  ending
June 30,  1998  compared  to prior year  periods is  attributable  to  increased
spending for the third  production  line,  installed  March 1998,  the weaker US
dollar and lower sales growth in the Asia region which has historically provided
higher  margins.  For the six months ended June 30, 1998, the delay in the first
quarter release of the LabVIEW 5.0 and LabWindows CVI products  coupled with the
increased  production spending and lower Asia sales growth, led to lower margins
than the same time last year.  Software  margins have  historically  been higher
than hardware margins.  Therefore,  any change in sales mix resulting in a lower
proportion of software sales produces a lower consolidated gross margin.

     The  marketplace  for the  Company's  products  dictates  that  many of the
Company's  products be shipped quickly after an order is received.  As a result,
the  Company  is  required  to  maintain  significant  inventories.   Therefore,
inventory  obsolescence  is a risk for the Company  due to frequent  engineering
changes,  shifting customer demand,  the emergence of new industry standards and
rapid  technological  advances including the introduction by the Company, or its
competitors,  of products embodying new technology.  While the Company maintains
valuation  allowances for excess and obsolete inventory and management continues
to monitor the adequacy of such valuation allowances,  there can be no assurance
that such valuation allowances will be sufficient.

                                     Page 9



     Sales and Marketing. Sales and marketing expenses for the second quarter of
1998 increased to $24.5  million,  a 14.0%  increase,  as compared to the second
quarter of 1997,  and increased  18.3% to $49.0 million for the first six months
of 1998 from the comparable 1997 period. As a percentage of net sales, sales and
marketing expenses were 36.1% and 35.8% for the quarters ended June 30, 1998 and
1997,  respectively,  and 36.8% and 36.1% for the six months ended June 30, 1998
and 1997,  respectively.  The  increase in these  expenses  in  absolute  dollar
amounts is primarily attributable to increased advertising, personnel, sales and
marketing  seminars,  tradeshows,  and  other  marketing  activities.  Sales and
marketing personnel increased from 460 at June 30, 1997 to 559 at June 30, 1998.
The Company  expects sales and marketing  expenses in future periods to increase
in absolute  dollars,  and to fluctuate  as a  percentage  of sales based on new
recruiting,  initial and  on-going  marketing  and  advertising  campaign  costs
associated with major new product releases, the opening of new sales offices and
the timing of domestic and international conferences and trade shows.

     Research and Development.  Research and development  expenses  increased to
$9.0 million for the quarter ended June 30, 1998, a 16.9% increase,  as compared
to $7.7 million for the three months ended June 30, 1997, and increased 18.2% to
$16.7  million for the six months ended June 30, 1998 from the  comparable  1997
period.  As a  percentage  of  net  sales,  research  and  development  expenses
represented  13.2% and 12.7% for the second  quarters  ended  June 30,  1998 and
1997,  respectively,  and 12.6% and 12.3% for the six months ended June 30, 1998
and 1997, respectively. The increase in research and development costs is mainly
due to  increases  in  personnel  costs  from  increased  hiring.  Research  and
development  personnel  increased  from 398 at June 30,  1997 to 493 at June 30,
1998. The Company believes that a significant,  on-going  investment in research
and development is required to remain competitive.

     The Company capitalizes  software  development costs in accordance with the
SFAS No. 86,  "Accounting for the Costs of Computer Software to be Sold, Leased,
or  Otherwise  Marketed."  The  Company  amortizes  such costs over the  related
product's estimated economic useful life, generally three years,  beginning when
a product becomes  available for general release.  Amortization  expense totaled
$507,000  and  $361,000  for  the  quarters   ended  June  30,  1998  and  1997,
respectively,  and $922,000  and  $737,000  during the six months ended June 30,
1998  and  1997,  respectively.  Software  development  costs  capitalized  were
$349,000  and  $88,000  for  the   quarters   ended  June  30,  1998  and  1997,
respectively, and $1.1 million and $406,000 for the first six months of 1998 and
1997, respectively.  The amounts capitalized in the second quarter and first six
months of 1998 include LabVIEW 5.0, LabWindows/CVI 5.0 and NI DAQ 6.1.

     General and  Administrative.  General and  administrative  expenses for the
second  quarter  ended June 30, 1998  increased  14.5% to $5.2 million from $4.5
million for the comparable prior year period.  For the first six months of 1998,
general and  administrative  expenses  increased 12.6% to $9.9 million from $8.8
million for the first six months of 1997. As a percentage of net sales,  general
and  administrative  expenses  increased to 7.7% for the quarter  ended June 30,
1998 from 7.6% for the second  quarter  of 1997.  During the first six months of
1998, general and administrative  expenses decreased as a percentage of sales to
7.5% from 7.7% for the comparable prior year period. The decrease in general and
administrative expenses as a percent of sales is due to operational efficiencies
achieved as a result of increased systems integration during the past two years.
The Company's general and  administrative  expense increased in absolute dollars
mainly due to  additional  personnel.  The  Company  expects  that  general  and
administrative  expense in future periods will increase in absolute  amounts and
will fluctuate as a percentage of net sales.

     Interest  Income,  Net. Net interest  income in the second  quarter of 1998
increased to $762,000 from  $705,000 in the second  quarter of 1997 and remained
constant at $1.4 million for the first six months of 1998 and 1997. Net interest
income has  represented  approximately  one percent or less of net sales and has
fluctuated  as a result of investment  balances,  bank  borrowings  and interest
terms thereon.

                                     Page 10



     Net Foreign  Exchange Loss. Net foreign  exchange losses  recognized in the
second  quarter of 1998 were  $67,000  compared  to $306,000  recognized  in the
second quarter of 1997. Net foreign  exchange losses of $341,000 were recognized
for the first six  months of 1998  compared  to $1.3  million  for the first six
months of 1997.  Foreign exchange gains and losses are attributable to movements
between  the US  dollar  and the  local  currencies  in  countries  in which the
Company's sales  subsidiaries are located.  The decrease in net foreign exchange
losses  recognized  in the  first  half of 1998 is  mainly  due  lower  currency
fluctuations  in the first half of 1998 compared to the first half of 1997.  The
Company  recognizes  the  local  currency  as  the  functional  currency  of its
international subsidiaries.

     The Company utilizes foreign currency forward exchange  contracts against a
majority of its foreign currency-denominated  receivables in order to reduce its
exposure to significant  foreign currency  fluctuations.  The Company  typically
limits the  duration of its forward  contracts to 90 days and does not invest in
contracts for speculative  purposes.  The Company's hedging strategy has reduced
the foreign  exchange losses  recorded by $363,000  during the six-month  period
ended June 30, 1998.

     In December 1997, the Company expanded its foreign currency hedging program
to also  include  foreign  currency  option  contracts  in order to  reduce  its
exposure  related to forecasted net foreign  currency cash flows.  The Company's
policy  allows for the purchase of 5%  "out-of-the-money"  foreign  currency put
option  contracts  with  a  duration  of up to 12  months  for  up to 80% of the
specific  country's  forecasted  net foreign  currency  risk. In June 1998,  the
Company  expanded  its  policy  to allow for the  purchase  of  similar  foreign
currency put option contracts  extending from 12 months to 24 months. The second
quarter 1998 Japanese Yen option contract was exercised at expiration.  The gain
from the sale of this contract had a net effect on operating  income of $97,000.
The Company's  hedging  activities  only partially  address its risks in foreign
currency transactions,  and there can be no assurance that this strategy will be
successful.  If the  US  dollar  continues  to  strengthen,  the  Company  could
experience significant foreign exchange losses due to the foreign exchange risks
that are not addressed by the Company's hedging  strategy.  The Company does not
invest in contracts for speculative purposes.

     Provision  for Income Taxes.  The  provision  for income taxes  reflects an
effective  tax rate of 33% for both the three  months and six months  ended June
30, 1998 and 1997. As of June 30, 1998, eleven of the Company's subsidiaries had
available, for income tax purposes,  foreign net operating loss carryforwards of
approximately  $2.6 million,  of which $1,907,000  expire between 2000 and 2008.
The remaining $674,000 of loss carryforwards may be carried forward indefinitely
to offset future taxable income in the related tax jurisdictions.

Liquidity and Capital Resources

     The Company is currently  financing its  operations  and capital  resources
through cash flow from operations.  Historically,  the Company also financed its
capital  expenditures,  such as the manufacturing  facility constructed in 1995,
through  borrowings from financial  institutions.  At June 30, 1998, the Company
had working capital of  approximately  $113.3 million compared to $112.1 million
at December 31, 1997.

     Accounts receivable  increased to $41.1 million at June 30, 1998 from $37.4
million at December 31, 1997,  as a result of higher  sales  levels.  Days sales
outstanding  decreased  to 55 at June 30, 1998  compared  to 57 at December  31,
1997. Inventory levels increased to $16.7 million from $15.5 million at June 30,
1998 and December 31, 1997,  respectively.  Inventory  turns decreased to 3.8 at
June 30, 1998 compared to turns of 3.9 at December 31, 1997.

                                     Page 11



     Cash used in the first six months of 1998 for the  purchase of property and
equipment  totaled  $23.8  million  and  for  the   capitalization  of  software
development costs totaled $1.1 million. The Company completed construction of an
office building next to its manufacturing facility in June 1998 which will serve
as the  Company's  new  headquarters.  The  Company has paid  approximately  $26
million in construction  costs as of June 30, 1998 and  approximately $6 million
will be paid during the third  quarter of 1998  resulting in a total cost of $32
million for the new building including furniture,  fixtures and equipment. These
costs will be paid out of the Company's existing working capital and future cash
flows.  The Company  anticipates  the new corporate  headquarters  building will
result  in  additional  quarterly  operating  expenses  in  future  quarters  of
approximately $1.0 million.

     The Company currently expects to fund expenditures for capital requirements
as well as  liquidity  needs  created  by  changes  in  working  capital  from a
combination  of available cash and short-term  investment  balances,  internally
generated  funds,  and  financing   arrangements   with  its  current  financial
institutions.  The Company has a $28.5 million credit agreement with NationsBank
of Texas,  N.A. which consists of (i) an $20.0 million  revolving line of credit
renegotiated  June 30,  1998,  and (ii) an $8.5 million  manufacturing  facility
loan.  As of June 30,  1998,  the  Company  had no  outstanding  balance  on the
revolving  line of credit  and a balance of $5.6  million  on the  manufacturing
facility  loan.  The revolving  line of credit  expires  December 31, 1999.  The
Company's credit agreements contain certain financial covenants and restrictions
as to various  matters.  Borrowings  under the line of credit are secured by the
Company's campus, which includes the land and buildings of the manufacturing and
corporate headquarter site.

     The Company believes that its cash flow from operations,  if any,  existing
cash balances,  short-term  investments and available credit under the Company's
existing credit facilities, will be sufficient to meet its cash requirements for
at least the next twelve months.

Issues and Outlook

     Fluctuations  in  Quarterly  Results.  The  Company's  quarterly  operating
results  have  fluctuated  in the past and may  fluctuate  significantly  in the
future due to a number of  factors,  including:  changes in the mix of  products
sold; the availability and pricing of components from third parties  (especially
sole sources);  the timing of orders;  level of pricing of international  sales;
fluctuations in foreign currency  exchange rates like the recent  devaluation in
certain Asian currencies;  the difficulty in maintaining margins,  including the
higher margins  traditionally  achieved in  international  sales; and changes in
pricing policies by the Company, its competitors or suppliers.  Specifically, if
the Asian currencies  continue to weaken against the US dollar, and if the local
sales prices cannot be raised,  the Company will experience a  deterioration  of
its Asian profit margin. In addition,  the recent economic turmoil in Asia could
continue to have an adverse effect on the Company's  performance as we have seen
in the second quarter of 1998 with zero sales growth in Asia.  Also, the Company
believes the moderate  sales growth rate in North America for the second quarter
is  partially  caused by the effect of  economic  difficulties  in Asia on North
American customers. This effect could result in an increased adverse reaction in
North America in future quarters and could potentially impact Europe as well. In
addition,  decisions  made  by OEMs  to  adjust  their  inventory  levels  could
adversely effect revenues.

     As has  occurred in the past and as may be expected to occur in the future,
new software  products of the Company or new operating  systems of third parties
on which the Company's products are based, often contain bugs or errors that can
result in reduced  sales and/or cause the  Company's  support costs to increase,
either of which could have a material adverse impact on the Company's  operating
results.  Furthermore,  the  Company  serves  a  number  of  industries  such as
automated test equipment, semiconductors, telecommunications, aerospace, defense
and automotive which are cyclical in nature. Downturns in these industries could
have a material adverse effect on the Company's operating results.

                                     Page 12



     In  recent  years,  the  Company's  revenues  have  been  characterized  by
seasonality,  with revenues  typically being  relatively  constant in the first,
second and third  quarters,  growing in the fourth quarter and being  relatively
flat or declining  from the fourth  quarter of the year to the first  quarter of
the following year. The Company's  results of operations in the third quarter of
1998 may be adversely  affected by lower sales levels in Europe which  typically
occur during the summer  months.  The Company  believes the  seasonality  of its
revenue results from the international mix of its revenue and the variability of
the  budgeting  and  purchasing   cycles  of  its  customers   throughout   each
international  region.  In addition,  total operating  expenses have in the past
tended to be higher  in the  second  and third  quarters  of each  year,  due to
college recruiting and increased intern personnel expenses.  In addition,  third
quarter of 1998 will be impacted  by the new  corporate  headquarters  building,
which will result in additional  quarterly  operating  expenses of approximately
$1.0 million.

     New  Product  Introductions  and  Market  Acceptance.  The  market  for the
Company's  products is characterized  by rapid  technological  change,  evolving
industry  standards,   changes  in  customer  needs  and  frequent  new  product
introductions, and is therefore highly dependent upon timely product innovation.
The  Company's  success is  dependent  in part on its  ability  to  successfully
develop and  introduce  new and  enhanced  products on a timely basis to replace
declining  revenues  from  older  products,  and on  increasing  penetration  in
international  markets.  In the past,  the Company has  experienced  significant
delays between the announcement and the commercial availability of new products.
Any  significant  delay in releasing new products could have a material  adverse
effect on the ultimate success of a product and other related products and could
impede  continued  sales of  predecessor  products,  any of which  could  have a
material  adverse  effect on the Company's  operating  results.  There can be no
assurance  that the Company will be able to introduce new products in accordance
with announced  release dates,  that new products will achieve market acceptance
or that any such acceptance will be sustained for any significant period.  There
can be no assurance  that the  Company's  international  sales will  continue at
existing  levels or grow in accordance  with the  Company's  efforts to increase
foreign market penetration.

     Operation  in  Intensely  Competitive  Markets.  The  markets  in which the
Company  operates  are  characterized  by  intense   competition  from  numerous
competitors, and the Company expects to face further competition from new market
entrants in the future.  A key  competitor is  Hewlett-Packard  Company  ("HP"),
which has been the leading supplier of traditional instrumentation solutions for
decades.  Although HP offers its own line of proprietary instrument controllers,
HP also offers hardware and software  add-on  products for  third-party  desktop
computers and workstations that provide solutions that directly compete with the
Company's virtual instrumentation  products. HP is aggressively  advertising and
marketing products that are competitive with the Company's products.  Because of
HP's strong position in the instrumentation  business,  changes in its marketing
strategy  or  product  offerings  could have a  material  adverse  effect on the
Company operating results.

     The  Company  believes  its  ability to compete  successfully  depends on a
number of factors  both within and outside its control,  including:  new product
introductions by competitors;  product pricing; quality and performance; success
in  developing  new  products;  adequate  manufacturing  capacity  and supply of
components and materials; efficiency of manufacturing operations;  effectiveness
of sales and marketing  resources and strategies;  strategic  relationships with
other suppliers;  timing of new product introductions by the Company; protection
of the  Company's  products by  effective  use of  intellectual  property  laws;
general market and economic  conditions;  and government  actions throughout the
world.  There  can be no  assurance  that the  Company  will be able to  compete
successfully in the future.

     Management  Information  Systems.  The  Company  relies  on  three  primary
regional centers for its management information systems. It is possible that one
or more of the Company's three regional  information  systems could experience a
complete  or  partial  shutdown.  If this  shutdown  occurred  near the end of a
quarter it could impact the Company's  product shipments and revenues as product
distribution  is heavily  dependent  on the  integrated  management  information
systems in each region. Accordingly,  operating results in that quarter would be
adversely  impacted  due to the  shipments  which  would  not  occur  until  the
following period.

                                     Page 13



     Impact of Year 2000. Many computer  systems  experience  problems  handling
dates beyond the year 1999. Therefore,  some computer hardware and software will
need to be modified prior to the year 2000 in order to remain functional.

     The Company is updating its recent  assessment  of Year 2000  compliance in
its current product  versions.  No assurances can be made that problems will not
arise,  such as customer problems with software  programs,  operating systems or
hardware  that  disrupt  their use of the  Company's  products.  There can be no
assurances that such disruption  would not negatively  impact costs and revenues
in future years.

     The  Company  has  been  assured  by  Oracle  Corporation  that  all of the
Company's  Oracle-based   management  information  systems,  which  include  the
manufacturing,  distribution,  finance,  and order entry systems,  are Year 2000
compliant with the exception of the management  information system in Japan. The
Company  expects to upgrade the  Japanese  system  during the fourth  quarter of
1998.  The Company is in the process of internal  Year 2000 testing of the major
management  information systems as well as assessing additional Year 2000 issues
in its  worldwide  systems.  The  Company  is aware  that its  current  customer
marketing  database and customer  support  software are not Year 2000 compliant.
However,  the Company expects to upgrade both systems prior to Year 2000 as part
of on-going system upgrades.

     The  Company  recently  initiated  formal  communications  with  all of its
significant  suppliers  and vendors to determine the extent to which the Company
is vulnerable to a third party failure to correct Year 2000 issues. There can be
no guarantee that the systems of other companies on which the Company's  systems
rely will be timely converted,  or that a failure to convert by another company,
or a conversion that is incompatible with the Company's systems would not have a
material adverse effect on the Company.

     The Company presently believes that with modifications to existing software
and conversions to new software, the Year 2000 issue can be mitigated. It is not
anticipated  that there will be a  significant  increase in costs as much of the
Year 2000 activities  will be a continuation of the on-going  process to improve
all of the  Company's  systems.  The  Company  plans to  complete  the Year 2000
project by mid 1999.  However,  if such  modifications  and  conversions are not
made,  or are not  completed  timely,  the Year 2000 issue could have a material
impact on the  operations  of the Company.  Specific  factors that might cause a
material  impact  include,  but are not  limited  to,  availability  and cost of
personnel  trained in this area,  the ability to locate and correct all relevant
computer  codes,  failure by third parties to timely convert their systems,  and
similar uncertainties.

     Dependence  on Key  Suppliers.  The Company's  manufacturing  processes use
large volumes of high-quality  components and subassemblies  supplied by outside
sources.  Several of these  components  are  available  through  sole or limited
sources.   Sole-source  components  purchased  by  the  Company  include  custom
application-specific  integrated  circuits  ("ASICs") and other components.  The
Company has in the past  experienced  delays and quality  problems in connection
with sole-source  components,  and there can be no assurance that these problems
will not recur in the future.  Accordingly,  the failure to receive  sole-source
components from suppliers could result in a material  adverse effect on revenues
and results of operations.

     Proprietary  Rights and  Intellectual  Property  Litigation.  The Company's
success depends in part on its ability to obtain and maintain  patents and other
proprietary rights relative to the technologies used in its principal  products.
Despite the Company's  efforts to protect its proprietary  rights,  unauthorized
parties  may have in the past  infringed  or violated  certain of the  Company's
intellectual  property rights.  As is typical in the industry,  the Company from
time  to  time  may  be  notified  that  it  is  infringing  certain  patent  or
intellectual  property  rights of others.  There can be no assurance that patent
litigation  will not  cause  significant  litigation  expense,  liability  and a
diversion of management's  attention which may have a material adverse affect on
results of operations.

                                     Page 14



     Dependence on Key Management and Technical Personnel. The Company's success
depends to a  significant  degree upon the  continued  contributions  of its key
management,  marketing,  research and development and operational personnel. The
Company  has no  agreements  providing  for  the  employment  of any of its  key
employees for any fixed term and the  Company's  key  employees may  voluntarily
terminate  their  employment  with  the  Company  at any  time.  The loss of the
services of one or more of the  Company's key employees in the future could have
a material  adverse affect on operating  results.  The Company also believes its
future  success will depend in large part upon its ability to attract and retain
additional  highly  skilled  management,   technical,  marketing,  research  and
development,  product  development and operational  personnel with experience in
managing large and rapidly  changing  companies as well as training,  motivating
and  supervising  the employees.  In addition,  the recruiting  environment  for
engineering and other technical  professionals is very competitive.  Competition
for  qualified  software  engineers is  particularly  intense.  The Company also
recruits and employs foreign nationals to achieve its hiring goals primarily for
entry-level  engineering and software positions.  There can be no guarantee that
the Company will continue to be able to recruit foreign nationals to the current
degree if government  requirements for temporary and permanent  residence become
increasingly  restrictive.  These factors further intensify  competition for key
personnel,  and there can be no assurance that the Company will be successful in
retaining its existing key personnel or attracting and retaining  additional key
personnel.  Failure  to  attract  and retain a  sufficient  number of  technical
personnel could have a material adverse effect on the results of operations.

                                     Page 15



                           PART II - OTHER INFORMATION

ITEM 2.     CHANGE IN SECURITIES

     The  stockholders  of the Company  approved an amendment  to the  Company's
     Certificate of Incorporation to increase the authorized number of shares of
     common stock by  120,000,000  shares to 180,000,000  shares.  The amendment
     became effective on June 19, 1998.

ITEM 4.     SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

      (a)    The annual meeting of stockholders was held on May 12, 1998.

      (b)    The following directors were elected at the meeting to serve a term
             of three years:

                  Dr. James J. Truchard
                  William C. Nowlin, Jr.

            The following directors are continuing to serve their terms:

                  Jeffrey L. Kodosky
                  Dr. Ben G. Streetman
                  L. Wayne Ashby
                  Dr. Donald M. Carlton

      (c)    The  matters voted upon at the  meeting  and  results of the voting
             with respect to those matters were as follows:
                                             For         Instructed  Withheld
                                             ----------  ----------  --------
            (1)   Election of directors:     30,185,179  99          111,504
                     Dr. James Truchard
                     William C. Nowlin, Jr.


                                                                              Broker
                                             For         Against    Abstain   Non-Vote
                                             ----------  ---------  -------   --------
                                                                  
            (2)   Proposal to approve the    25,963,423  4,313,123  20,236    0
                  amendment to the
                  Company's Certificate of
                  Incorporation to increase
                  the authorized number of
                  shares of common stock by
                  120,000,000 shares to
                  180,000,000 shares.
                                                                              Broker
                                             For         Against    Abstain   Non-Vote
                                             ----------  -------    -------   --------
            (3)   Ratification of Price      30,223,294  66,366     7,122     0
                  Waterhouse LLP as the
                  Company's independent
                  public accountants for
                  the fiscal year ending
                  December 31, 1998.


     The foregoing  matters are described in detail in the Company's  definitive
     proxy statement dated April 3, 1998, for the Annual Meeting of Stockholders
     held on May 12, 1998.

                                     Page 16



ITEM 5.     OTHER INFORMATION

     Pursuant to the Company's Bylaws, stockholders who wish to bring matters or
     propose  nominees  for  director at the  Company's  1999 annual  meeting of
     stockholders must provide specified information in writing to the secretary
     of the  Company not less than the thirty (30) days nor more than sixty (60)
     days prior to the first  anniversary  of the 1998 annual  meeting  (May 11,
     1999).

     Stockholders  who wish to bring matters or propose nominees for director at
     the Company's 1999 annual meeting of  stockholders  must provide  specified
     information  in  writing  to the  secretary  of the  Company  no later than
     December 4, 1998,  in order to be included in the proxy  statement and form
     of proxy for that meeting.

ITEM 6.     EXHIBITS AND REPORTS ON FORM 8-K

      (a)    Exhibits.

            (10.1)     Credit Agreement between National Instruments Corporation
                       and NationsBank of Texas, N.A.

            (11.1)     Computation of Earnings Per Share

            (27.1)     Financial Data Schedule

      (b)    Reports on Form 8-K.

             No reports on Form 8-K were filed by the Company during the quarter
             ended June 30, 1998.

                                     Page 17



                                    SIGNATURE


     Pursuant to the  requirements  of the Securities  Exchange Act of 1934, the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.


                                          NATIONAL INSTRUMENTS CORPORATION
                                          Registrant




                                          BY:   /s/ Alex Davern
                                                Alex Davern
                                                Chief   Financial   Officer  and
                                                Treasurer  (principal  financial
                                                and accounting officer)





Dated:  August 14, 1998

                                     Page 18



                         NATIONAL INSTRUMENTS CORPORATION

                                 INDEX TO EXHIBITS



      Exhibit No.                   Description                     Page

          10.1           Credit Agreement between National           22
                         Instruments Corporation and
                         NationsBank of Texas, N.A.

          11.1           Statement Regarding Computation             55
                         of Earnings per Share

          27.1           Financial Data Schedule                     56

                                     Page 19