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First quarter results: gains and losses.

Although analytical and life science companies were mostly upbeat about the first quarter of calendar-year 2006, several companies had a difficult quarter. Most notably, Affymetrix's sales fell and expenses increased, resulting in an operating loss. Dionex and Molecular Devices also reported double-digit operating losses, as the new accounting rule requiring the expensing of stock-based compensation took effect. Sales slid for Bruker Daltonics as well as PerkinElmer Life and Analytical Sciences, affected by biopharmaceutical spending. Pricing was also an issue this quarter. Thermo Electron noted that price increases added 1.5% to its organic growth, while Bruker Daltonics cited pricing pressure as affecting quarterly sales, and Applied Biosystems commented on pricing pressure in the core PCR market.

For the 14 companies whose results are detailed on pages 9-11 (excluding Mettler-Toledo), first quarter 2006 sales rose 10.0% and operating profits rose 14.1%. Excluding Thermo Electron, sales grew 6.2% and operating profits increased 6.7%. Acquisitions and beneficial currency effects fueled much of this growth. Nonetheless, several companies had solid quarters, including Tecan, Thermo Electron Life and Laboratory Sciences and Waters. In fact, Molecular Devices, Thermo Electron and Waters each raised their revenue guidance for the calendar year.

Although spending by big pharma remained slow during the quarter, several companies did report that the situation had improved from a year ago and that spending by other sectors of the pharmaceutical industry remained healthy. Instruments for industrial applications had another strong quarter, with both PerkinElmer and Varian highlighting demand for ICP-MS systems. Consumables and service revenues remained standouts for most companies. HPLC sales remained robust for Dionex and Waters, while mass spectrometer (MS) sales were mixed, perhaps in anticipation of product introductions at the upcoming ASMS show. Applied Biosystems reported lower sales of triple quad systems, while sales of Waters' lower-end MS systems also declined. Both Applied Biosystems and Bruker BioSciences reported strong sales of ESI-TOF and QTOF MS systems.

Investments in China and India continue to pay off. Agilent and Waters broke out growth rates for each country on their conference calls. However, Japanese sales were slow or flat for most companies. European sales showed nice growth for most companies, and Latin American growth was highlighted by both Thermo Electron and Varian.

The discussions below are based on company financial reports, conference calls and SEC filings.

Affymetrix's product and product-related revenues slipped 6.7% to $79.2 million, while royalty revenue gained 202.% to $1.9 million and Perlegen Sciences sales jumped 142% to $5.3 million. Sales of GeneChip probe arrays fell 9.4% to $43.2 million and reagent sales rose 5.3% to $10.4 million. Together, arrays and reagents accounted for 68% of total product and product-related revenue. Instrument sales fell 22.6% to $12.3 million. Consumables revenue consisted of 65% RNA analysis products and 35% DNA analysis products. The company noted that its genotyping business did not meet expectations and that it plans to better coordinate product introductions and service and support. Operating income was negatively impacted by the decline in sales and a 6.5-point drop in product and product-related gross margin to 67.8% of sales, as well as by a 37.4% jump in R&D expenses and a 31.1% rise in SG&A expenses to 27.2% of sales and 44.9% of sales, respectively. Part of the increase in operating expenses came from the additional $3.8 million of stock-based compensation expense.

In the fiscal second quarter, orders for Agilent's Bio-Analytical Measurement Group (BAM) rose 4.2%, or 7% in local currency, to $401 million. Life Sciences orders increased 4% to account for 44% of BAM orders due to modest gains in Europe and double-digit growth in Asia, including a 29% and 19% jump in orders from China and India, respectively, offset by lower demand from US drug firms. Proteomics and genomics sales increased over 20%. Chemical Analysis orders gained 4% due to broad growth across most markets. The improvement in operating profit for BAM, led to an 80 basis-point Increase in operating margin to 12.1% (see page 12).

Analytik Jena AG's sales declined 14.1% in the fiscal second quarter to 162. million [euro] ($19.5 million = 0.83 [euro] = $1) from 18.8 million [euro] ($24.8 million = 3.76 [euro] = $1) (see page 12). Operating income turned to a profit of 1.1 million [euro] ($1.3 million) from a loss of 0.1 million [euro] ($0.1 million). Analytical Solutions sales nearly doubled to 8.3 million [euro] ($10.0 million), and Optical Solutions sales grew 11.1% to 1.2 million [euro] ($1.4 million). However, Bioanalytical Solutions sales fell 33.6% to 3.7 million [euro] ($0.8 million) and Project Solutions tumbled 52.1% to 6.0 million [euro] ($7.2 million). Excluding Project Solutions revenue, instrument sales jumped 62% to 10.2 million [euro] ($12.3 million). Sales to Germany accounted for 23% of revenues and jumped 56.7% to 3.8 million [euro] ($4.6 million), while sales outside of Germany fell 24.5% to 12.4 million [euro] ($14.9 million). Analytik Jena forecasts full-year revenues of 66.0--70.0 million [euro] ($79.5-$84.3 million), representing growth of 2%-9%, and operating growth of dose to 500% to 3.0 million [euro] ($3.6 million).

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Applied Biosystems' fiscal third quarter revenues included $14 million in licensing and royalty fees from its settlement with Bio-Rad (see IBO 2/15/06) and $5 million from the acquisition of Ambion (see IBO 12/31/05). Excluding these, revenues increased 3.7%. Instrument sales grew 4.0% to $207.1 million, consumables revenue climbed 8.3% to $191.1 million (including Ambion) and revenue from Other Sources rose 16.6% to $92.5 million (including the settlement). Real-Time PCR/Applied Genomics sales climbed 22.7% to 33% of sales, Mass Spectrometry sales gained 8.6% to account for 23% of total sales, Core PCR & DNA Synthesis revenue improved 3.6% to represent 11% and sales from Other Product Lines inched up 0.8%. However, DNA Sequencing revenue de clined 3.6%. US sales gained 10.6% to $218.1 million, European sales improved 6.9% to $157.1 million (including 7% negative currency effects), Japanese sales were nearly flat at $61.3 million (up 5% in local currency), Other Asia-Pacific sales climbed 17% to $35.0 million, and sales to Latin America and other countries slipped 1.0% to $19.2 million.

Life Sciences sales for Bio-Rad Laboratories accounted for 47% of company sales and rose 5.6% on a currency-neubasis in the first quarter. Strong sales of amplification reagents and instrumentation, automated electrophoresis and process chromatography products drove growth. Bio-Rad benefited from the resumption of US sales of certain thermal cycling products, partially offset by a double-digit drop in BSE product sales.

Excluding negative currency effects, Bruker BioSciences revenues rose 7% with acquisitions responsible for 3% of growth. Operating profit benefited from a 220 basis-point increase in gross margin to 43.8% of sales, combined with a 5.9% reduction in R&D expenses to $10.4 million. Product revenue fell 2.8% to $65.0 million, offset by a 13.6% gain in service revenue and a 94% increase in Other revenue to $8.8 million and $0.6 million, respectively. Bruker Daltonics sales dropped 12.0%, or 5.0% on a currency-neutral basis, with Life Science Mass Spectrometry systems, Substance Detection Systems and Aftermarket revenues down 2.3%, 682% and 21.4%, to account for 79%, 4% and 18%, of sales, respectively. The decline was attributed to pricing pressures and delayed installations. Bruker AXS revenues climbed 16.4% to $37.9 million, up 23.7% excluding currency effects. Acquisitions accounted for 9.5% of growth. X-Ray systems sales improved 16.9% to make up 65% of AXS revenues, Other systems revenue jumped 64.6% to account for 5% and Aftermarket sales gained 103%.

Dionex's fiscal third quarter sales grew 10% on a currency-neutral basis due to single-digit sales growth for ion chromatography products and double-digit growth for ana lytical flow HPLC products. Sales to all markets rose except sales to the food and beverage and electronic and power markets. North American and Asia/Pacific sales grew 3%, while European sales gained 6%. Excluding currency effects, European revenues climbed 17% and Asia/Pacific sales improved 10%. Excluding slower Japanese sales, other Asia/Pacific countries experienced growth of nearly 30%. North American sales accounted for approximately 32% of total sales, European sales represented 43% and Asia/Pacific sales made up 25%. Operating income suffered from a 170 basis-point drop in gross margin to 65.9% of sales, an 18.2% jump in R&D expenses to $5.7 million and stock-based compensation expenses of $12 million. Excluding compensation expenses, operating profit slipped 4%. Dionex forecasts fiscal fourth quarter sales growth in local currency to be comparable to third quarter growth, with 2%-3% of negative currency effects. Fiscal year-end sales are expected to grow 4%-7% to $291-$299 million.

In the first quarter, Mettler-Toledo International's Laboratory products, which represented approximately 45% of total revenues, in creased 8% on a currency-neutral basis, driven by double-digit growth of analytical instrument, led by titrators and pH meters, and process analytics products, as well as from strong sales of laboratory balances. Laboratory products sales grew in double digits in Europe and were up in the low single digits in the Americas.

Molecular Devices' first quarter sales rose 5%, excluding negative currency effects. Drug Discovery and Life Science sales each increased 2% to represent 38% and 62% of revenues, respectively. Strong sales of SpectraMax, FLIPR and High-Content Imaging products were offset by weaker sales in Europe. Second quarter sales are expected to be $49-$51 million, while year-end revenues are forecasted to grow in the low double digits to $198-$206 million.

Revenues for PerkinElmer's Life and Analytical Sciences (LAS) accounted for 74% of company sales and grew 2% on an organic basis. Genetic screening sales rose in double digits and accounted for 12% of LAS revenues. One Source and Environment/Chemical revenues each grew in the high single digits to represent 23% and 27% of LAS sales, respectively. Biopharmaceutical sales, which made up 38% of LAS revenue, declined in the mid-single digits. The improvement in LAS adjusted operating profit led operating margin to climb 110 basis points to 11.9% of sales.

QIAGEN NV's first quarter sales grew 20% on a currency-neutral basis, assisted by 7% growth from acquisitions (see page 12). Excluding currency effects, consumables sales jumped 22%, or 15% organically, to account for 91% of revenues. Instrument sales improved 7% to represent 8% of sales and sales of Other products slipped 7%. Contributing to Consumables sales growth were sales to the pharmaceutical, applied testing and molecular diagnostic markets. North American sales grew 13% to account for 44% of revenues, European sales gained 18% to represent 43% and Asian revenue improved 5%. On a constant-currency basis, European and Asian sales jumped 29% and 16%, respectively. QIAGEN increased its full-year revenue guidance from $439-$451 million to $453-$462 million, representing 15% growth. Second quarter revenues are anticipated to be $108-$111 million for growth in the high single to low double digits.

Tecan's first quarter sales climbed 58.6% to CHF 110.7 million ($85.2 million = CHF 1.30 = $1) from CHF 69.8 million ($59.2 million = CHF 1.18 = $1) (see page 12), largely due to the acquisition of REMP (see IBO 6/15/05). Adjusted operating profit jumped 169% to CHF 14.1 million ($10.9 million). Genomics/Proteomics revenue gained 54.7% to CHF 43.2 million ($33.2 million), Drug Discovery sales grew 99.6% to CHF 33.5 million ($25.8 million) and Diagnostics revenues improved 35.4% to CHF 34.0 million ($26.2 million). In local currency, Genomics/Proteomics, Drug Discovery and Diagnostics sales increased 563%, 87.4% and 31.8%, respectively. North American sales gained 40.5% to account for 41% of sales, European sales improved 34.7% to represent 38%, sales to Asia more than doubled to account for 9% and sales to other countries rose 774%. In local currency, North America improved 28.1%, Europe gained 34.0%, Asia increased 108.0% and all others jumped 747%. The significant jump in sales to other countries came from the completion of a large forensics project for the South African Police Service (see IBO 6/15/04). Excluding the acquisition and the large one-time project, Tecan's first quarter sales improved 26.2% to CHF 88.1 million ($67.8 million). Strong growth was reported for OEM diagnostics and detection products.

First quarter revenue growth for Thermo Electron's Life and Laboratory Sciences (LLS) unit was led by high-end instruments and diagnostics sales, which were partially offset by slower growth for lab equipment and informatics products. Organic growth was around 11%. LLS experienced a broad-based increase in demand from life science and industrial customers. LLS sales accounted for 75% of total company sales and contributed approximately 89% to the company's adjusted operating income. Measurement and Control revenues grew 4%, or 6% organically, to $171.9 million. For the total company, Chinese sales rose 15%, Europe was up in the mid-single digits and Rest of World sales rose 20%, driven by Latin America and Australia. Thermo Electron raised its full-year guidance for revenue growth to 7%-9%, or $2.81-$2.86 billion, including organic growth of 5%-6%.

Varian's Scientific Instruments division (SI) accounted for 82% of company sales in the fiscal second quarter. The acquisition of Polymer Labs (see IBO 11/ 15/05) contributed $2.0 million and $2.6 million to North American and European sales, respectively. Mass spectrometry products performed well across the board, with particular strength in ion trap GC/MS and triple quadrupole LC/MS. The segment also benefited from sales to the environmental and industrial markets. Varian reported new orders for 700 and 800 MHz NMRs and shipped a 900 MHz system. The company forecasted full fiscal-year revenue growth of 6.5%-8.5%.

Waters' sales to industrial labs grew 20% in the first quarter and sales in India and China grew over 50% each. On a constant-currency basis, sales to the US slipped 2%, including a 7% decline in sales to pharmaceutical companies. European sales climbed 26% and sales to Asia jumped 39%, despite fiat Japanese sales. Product sales rose 9% to $208.6 million, while service revenues grew 6%. Liquid chromatography (LC) sales climbed 16%, with chemistry sales up 16%, service revenue improving 10% and instrument sales up 19%. LC sales jumped 50% in Asia and 26% in Europe. Mass spectrometry (MS) sales declined 2% as US sales fell 34% and Japanese sales declined 17%, but sales in Europe and Asia increased 23% and 27%, respectively. MS Sales declined due to poor spending by large US pharma companies, order delays and a decline in sales of lower-end MS systems. TA Instruments sales increased 10% in constant currencies with product and services sales up 8% and 16%, respectively. Adjusted operating income was up 22.5%, excluding the $7.5 million in share-based compensation expense. Waters anticipates second quarter and full-year organic revenue growth of 8% and 9%, respectively. For the year, HPLC sales are forecasted to grow 10%, MS sales should grow in the low- to mid-single digits and TA Instruments' revenue is expected to gain 7%-8%.
Q1 2006 Revenue Growth

Tecan 43.9%
Thermo Electron (LLS) 30.3%
Caliper Life Sciences 21.2%
QIAGEN 14.4%
Invitrogen 11.5%
Waters 8.2%
Agilent (BAM) 8.1%
Applied Biosystems 7.9%
Varian (SI) 6.3%
Biacore 5.7%
Dionex 4.1%
Molecular Devices 2.4%
Bio-Rad (LS) 0.5%
Bruker BioSciences -0.7%
PerkinElmer (LAS) -1.1%
Affymetrix -2.5%
Analytik Jena -21.4%

Note: Table made from bar graph.

Q1 2006 Operating Profit Growth

Tecan 144.0%
Biacore 97.7%
Thermo Electron (LLS) 51.9%
QIAGEN 26.1%
Applied Biosystems 19.3%
Bruker BioSciences 17.6%
Agilent (BAM) 15.4%
Waters 9.9%
PerkinElmer (LAS) 3.5%
Varian (SI) -9.0%
Bio-Rad (LS) -11.00
Molecular Devices -18.2%
Invitrogen -33.7%
Affymetrix -95.8%
Caliper Life Sciences NM
Analytik Jena NM

Note: Table made from bar graph.
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Publication:Instrument Business Outlook
Geographic Code:9CHIN
Date:May 31, 2006
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