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Affymetrix Q3 Profits Slide 44 Percent; Ongoing Production Woes Will Impact Q4, Full Year

NEW YORK, Oct. 20 (GenomeWeb News) - Affymetrix reported a 44-percent drop in profits for the third quarter today, and warned that manufacturing problems that caused a shortfall in revenues for the quarter will likely continue through the end of its fiscal year.    

 

Affy posted total revenues of $88.3 million for the quarter ended Sept. 30 -- an increase of 4.4 percent over $79.9 million in the comparable period of 2004. The company's product-related revenue of $79.5 million represented a 4.8 percent increase over $76.2 million for the third quarter of 2004, but were 13.5 percent below the company's previous guidance of $92 million. 

 

In late September, the company warned that it would not meet its quarterly revenue target, citing "low initial-production yields" of its 500K Mapping Array Set.

 

Affymetrix said today that it expects these low yields "on certain array products" to continue in the fourth quarter, reducing fourth-quarter product and product-related revenue by "at least $10 million" below previous guidance to $120 million.

 

Full-year revenues will also suffer a hit. Affymetrix said that it now anticipates product and product-related revenue of around $365 million in 2005 -- 6.4 percent below its previous guidance of $390 million.

 

"Revenue growth this quarter was limited by capacity constraints, which impacted our ability to ship product and recognize revenue -- particularly our new 500K mapping array," said Greg Schiffman, Affy's chief financial officer, in a conference call today.

 

In response to an analyst question about the production issue, CEO Steve Fodor said that the company has seen "quite dramatic improvements in yield, quite frankly, but again, when we look at the affect on Q3 and [how] it carries on over to Q4 and the demands that we have, it all comes together to form these shortfalls."

 

Fodor projected a 30-percent capacity increase during the fourth quarter, along with an additional 30-percent capacity increase in the first quarter of 2006 that "should take us out of capacity constraint in Q1."

 

"We should eliminate any [production] constraints by the end of Q4," Fodor said.

 

Affy's net income fell to $8.7 million for the period ended Sept. 30, from $15.4 million in the third quarter of 2004.

 

The company increased R&D spending to $19.8 million in the third quarter from $17.8 million in the year-ago period.

 

As of Sept. 30, Affymetrix had $51.7 million in cash and cash equivalents.

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