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Slowdown In Mass Spec Sales at ABI Abets Slide in Tool Sales in Fiscal Q1

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Applied Biosystems this week reported that a slowdown in mass spectrometry sales during its fiscal first quarter contributed to a 4-percent decline in overall instrument sales, though the company managed to post a 5.2-percent increase in total revenues for the period.
 
Total receipts for the three months ended Sept. 30 increased to $501.2 million from $476.3 million one year ago. In a conference call accompanying the earnings release, company officials said the results were largely in line with expectations.
 
But Mark Stevenson, executive vice president of ABI, acknowledged sales in its instruments division proved problematic, particularly compared to the 15-percent increase recorded during the fiscal first quarter one year ago.
 
“It was a challenging quarter for instruments,” Stevenson said, noting the 15 percent instrument growth in the prior year period “took a toll on the comparison.”
 
Mass-spec sales took a particular hit, growing just 4 percent to $121.1 million during the quarter compared with 19-percent growth, to $116 million, during last year’s fiscal first quarter.
 
Indeed, signs that mass-spec sales were slowing were seen three months ago when ABI reported that sales of the instruments grew 8.5 percent in the last quarter of fiscal 2007, ending a run of four consecutive quarters of double-digit growth in mass spec sales [See PM 07/26/07].
 
At the time, Laura Lauman, president of ABI’s proteomics and small molecule division, said that while overall demand for mass specs was strong across all application areas, “going forward this quarter, there will be more difficult [conditions] versus the prior quarter of last year.”
 
This week, company officials said those difficult conditions included funding delays in Europe and a difficult Japanese market.
 
“I believe that in Japan across the whole market, particularly in mass spec … we are seeing some weakness … particularly in pharma, proteomics, really across the board in multiple areas,” Lauman said.
 
With the weaker growth rate, the percentage of total revenue attributed to mass spec sales remained at 24 percent, the same as a year ago. The 4-percent growth in mass specs was the second-highest in ABI’s instrument portfolio after real-time PCR and applied genomic instrument sales, which rose 15 percent.
 
DNA sequencing slipped 2 percent to $129 million; core PCR and DNA synthesis sales rose 1 percent; and sales of other instruments slid 8 percent.
 
This week, ABI’s mass-spec rival Waters also reported its quarterly financials, during which CEO Douglas Berthiaume said that he believes the company is taking share away from its mass-spec competitors, especially those in the high-end market [See related story this issue].
 
Responding to an analyst’s question whether ABI was seeing any shifts in market share, Lauman said, “I feel very solid about the business.
 

“I mean, overall, the fundamentals of this business are very solid. We have positions across multiple technologies, across multiple markets, and part of our strategy is continuing to expand into new areas.”

“Overall, the fundamentals of this business are very solid. We have positions across multiple technologies, across multiple markets, and part of our strategy is continuing to expand into new areas,” she said, pointing to the introduction of the FlashQuant mass-spec platform in April. “We’ve had extremely strong growth for a long period of time and I think our position in the market remains very solid.”
 
Tony White, interim president of ABI and CEO of parent company Applera, added that throughout the company’s history, ABI’s market share has held steady at worst, but “usually, we’re gaining share.”
 
Stevenson said that sales of the Q Trap LC-MS/MS platform were the biggest growth driver in the quarter.
 
“We continue to see strong acceptance of our Q Trap product line across our core pharma, biotech, and CRO customers for small-molecule applications, in protein biomarker applications, and in the applied markets,” he said.
 
No to LC
 
Then there’s the question of liquid chromatographers. During the past year, competitors such as Agilent Technologies, Waters, and Thermo Fisher Scientific have either expanded their footprint in the LC space or expressed an interest in moving into it.
 
ABI, however, has steadfastly limited its presence in the LC sector. The company’s strategy has been to develop collaborations with LC vendors in order to couple their instruments with ABI’s mass specs. Lauman this week said ABI won’t be swaying from its intentions.
 
While ABI has given “careful consideration” to entering the LC business, “we’ve always been open-LC and we will control and directly integrate multiple LC providers, so the customers get to choose which LC they’d like to put in the front end of our mass specs. And that’s been a very successful strategy for us, and will continue to be so,” Lauman said.
 
During the quarter, ABI said profits rose 3.7 percent to $60.9 million from $58.7 million a year ago. The company spent $50.6 million on R&D, up 12.2 percent from a year ago. The spending rise was due primarily to the development of the SOLiD next-generation DNA sequencer, which the company commercially launched this week, said Dennis Winger, senior vice president and CFO of ABI.
 
ABI said it had $277.2 million in cash and short-term investments as of Sept. 30, down from $494.5 million on June 30 due to a $600 million payment to Morgan Stanley as part of ABI’s accelerated stock buyback in August [See PM 09/06/07]. The buyback was partially paid with cash, with the balance funded by $275 million in short-term debt.
 

For full-year fiscal 2008, the company forecast mid- to high-single-digit growth with revenues expected to grow both for instruments, including mass specs, and consumables.

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