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Don’t Believe the Hype

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The economy can affect earnings in more ways than one

By Jennifer Friedlin

If you’re trying to elucidate trends from first quarter earnings reports, beware. The economic downturn has added a new twist to the already difficult task of making sense of the market by analyzing corporate statements.

Take, for instance, comments made by Molecular Devices and Applied Biosystems. Both companies have attributed lower-than-expected first-quarter revenues at least in part to the softness in the market. They claim that genomics companies scaled back orders because they were hesitant to put up wads of cash at a time when raising additional funds would likely be more difficult.

Sounds reasonable. But several analysts and market watchers have cautioned that in both of these cases there might be other factors at play.

While some analysts said that Applied Biosystems’ customers, including pharmaceutical companies and smaller genomics enterprises, had in fact decided to push off large capital equipment purchases while they wait out the downturn, others were less convinced. The skeptics noted that the drop in demand for ABI’s 3700s might actually reflect a shift away from the brute-force sequencer toward lower-throughput, cheaper sequencers that are better adapted to current sequencing demands.

As for Molecular Devices, some people noted that slower sales may have resulted from increased competition as well as from difficulties integrating LJL Bioscience’s sales force following the recent acquisition.

Applied Biosystems declined to discuss the issue. Molecular Devices did not return a call for comment.

What does all of this tell us? That it might take another quarter or two before we can really see the big picture.

In the meantime, consider that an economic downturn can come in handy for companies that might wish to obfuscate trends in their underlying business.

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