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Following Trend, Genomic Solutions Warns of Flat Q2 Revenues Due to Postponed Orders

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Following what has become a trend in the life sciences tools sector, Genomic Solutions has warned that its second-quarter revenues would be lower than initially forecast, due to customersí postponement of orders and an overall weakness in the economy.

The Ann Arbor, Mich, company said July 5 that it expects revenues for the quarter to be flat, totaling between $4.5 and $4.6 million, compared to the companyís second-quarter 2000 revenues of $4.5 million. At the end of the first quarter, the company had projected that second-quarter revenues would surge 20 percent over the same period in 2000.

"While the company grew revenue during the quarter, multiple market factors, driven by the current economic climate, led to the unanticipated weakness in orders and lower than forecasted revenue," Genomic Solutions CEO Jeffrey Williams said in a statement. "The lower than expected growth is attributed, at least in part, to our customers postponing purchases until later this year."

The delays in product orders spanned all sectors, from academia to pharmaceutical companies to biotechnology companies, said Kathleen Murphy, Genomic Solutionsí vice president of corporate communications. "Itís across the board. Our marketplace has a very long sales cycle, and that cycle has been elongated," Murphy said.

This downward revenue revision comes just weeks after microarray market leader Affymetrix announced its second-quarter revenues would be $6 million to $14 million less than previously projected, primarily due to what it called "erratic ordering patterns" among its larger pharmaceutical customers. Like Genomic Solutions, Affymetrix attributed this delay in ordering partially to the overall economic climate.

Applied Biosystems and mass spectrometer maker Waters earlier issued revenue warnings for the quarter ended March 31, both attributing slower-than-expected growth to the slowing economy and currency effects.

But Genomic Solutionsí revenue revision may provide the clearest signal yet that business in the microarray and the wider genomics sector has slowed at least temporarily. Unlike the other warnings, this one cannot be even partially explained by problems related to a product.

During the second quarter, Affymetrix said the replacement of its its U74 murine arrays, which it discovered in early March, was causing customers to delay ordering or hesitate in ordering new products. ABI and Waters were suffering from what many saw as a slowdown in the demand for large industrial sequencing and mass spec equipment due to the maturation of genomics beyond sequencing.

But Genomic Solutions did not experience any similar product setbacks. By contrast, the company introduced a slew of new products during the quarter. These products included the companyís GeneTAC UC-4 Microarray analyzer, and its pre-printed GeneMap arrays for human, mouse, and rat cytokines; as well as a ProPrep Protein Digestion and Mass Spec Preparation Station.

While this is the second quarter in a row that Genomic Solutions is missing its revenue expectations, the first-quarter revenues were dampened by Genomic Solutionsí suit with distributor PerkinElmer, which apparently weakened sales by PerkinElmer. The company has since settled its lawsuit with PerkinElmer and assured investors that the distribution relationship is continuing on renewed footing.

"We are having over 20 people from PerkinElmer to our Ann Arbor headquarters for a week-long training this week," said Murphy. "This is a strong, solid relationship."

PerkinElmer has distribution rights for Genomic Solutionsí products outside the US and Japan, and recently made a sale to the Indian Institute of Sciences.

But both the PerkinElmer and Genomic Solutions sales teams still have to face a sales environment in which potential buyers have more products to choose from than previously, and are proceeding more cautiously due to the economic downturn, analysts have said.

The company earlier projected that it would have 40 to 50 percent revenue growth for the third and fourth quarter compared to the same period in 2000, and still believes its new product launches will help it achieve its goal. "We expect all of these new products to contribute to revenue growth in the third and fourth quarters of this year," said Williams.

For the second quarter, the company expects its loss per share to total between 11 and 13 cents, in line with analysts expectations of 12 cents per share, according to a poll of two brokers conducted by FirstCall/Thomson Financial.

The company has scheduled the official release of its second-quarter financial results for Tuesday, July 31, followed by a conference call at 11:00 a.m. Eastern Standard Time.

— MMJ

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