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Industry productivity falls as employment rises.

Following the recent years of streamlining operations, improving efficiencies and consolidating facilities by some of the instrument industry's largest companies, analytical and life science instrument industry employment is on the rise again, according to IBO's analysis of 2005 industry productivity.

With more efficient operations in place, many companies have started to reinvest in their businesses, adding employees as they grow operations in Asia and pursue new sales opportunities in increasingly competitive markets. In 2005, analytical and life science instrument industry employment rose 4.3%, its biggest jump since 1999, according to IBO's estimates. However, instrument sales growth slowed in 2005 (see IBO 1/15/06), dropping 90 basis points to 5.7% due to slower pharmaceutical and government spending. As a result, growth of employee productivity also slowed in 2005, improving just 1.4%, the slowest growth in a decade, to an average of $204,400 sales per employee.

IBO's calculations of total analytical and life science instrument industry employment and productivity are based on the employment and sales figures in US dollars for the 2003-2005 fiscal years from the 20 major instrument companies listed in the table below. Total industry revenues are based on IBO's annual forecast issue (see IBO 1/15/06). Please note that the employee numbers for Beckman Coulter, Bio-Rad Laboratories, Horiba, PerkinElmer, Shimadzu, Tecan and Varian include all of the companies' employees, including employees of these companies' units that do not sell analytical or life science instrumentation.

Taking this into account, as well as the fact that some of the companies in the table are among the industry's largest companies and thus are better able to leverage their size to increase productivity, average sales per employee for the 20 companies in the table grew 3.7% to $249,576 in fiscal 2005, faster than the total industry's growth of 1.4%. The average number of employees for the companies in the table increased 4.3% in fiscal 2005.

The companies in the table not only provide the figures from which to estimate total industry productivity, but their staffing patterns and business decisions also exemplify employment and business trends affecting overall instrument industry productivity. Thirteen of the 20 companies added employees in fiscal 2005, three companies left their staffing levels essentially the same and three reduced their number of employees.

As these companies demonstrate, acquisitions and divestitures as well as ongoing restructuring activities have the most notable effect on annual productivity changes.

Applied Biosystems, Biacore AB and FOSS A/K, were the three companies that reported a decline in total employment in fiscal 2005. It was the second straight year of personnel reductions for all three companies, reflecting ongoing restructuring and a refocusing of the businesses. In fiscal 2005, Applied Biosystems sold the manufacturing and R&D assets of its MALDI-TOF mass spectrometry product line to MDS Sciex (see IBO 9/15/04), resulting in the termination of 170 employees in fall 2004. In total, the company cut 370 employees, or 8% of its workforce, in fiscal 2005. Following a strategic business review in fall 2004 (see IBO 10/15/04), Biacore undertook a restructuring program to refocus and reduce operating costs, which resulted in the elimination of 43 of its 327 employees.

Reductions in the number of employees can provide a short-term boost in productivity. Applied Biosystems and Biacore were also two of four companies in the table to show double-digit growth in employee productivity in 2005. Biacore made the largest improvement, increasing employment productivity a staggering 28.7%. However, it was not the only company to show a gain in sales per employee of more than 20%. Molecular Devices reported a 21.3% increase as the company was able to record its first full-year of sales from its acquisition of Axon Instruments (see IBO 3/31/04) with only minimal employee additions. The Analytical division of Oxford Instruments also showed double-digit growth in productivity last fiscal year. However, unlike the other three companies, Oxford Instruments Analytical added employees during the year due to its acquisition of Metorex (see IBO 9/15/04).

Although annual gains can improve short-term prospects, true productivity improvements are better measured over a longer period. In general, for companies that undertake a reorganization or business review, implementation of such changes takes longer than a single fiscal year. As a result, the productivity benefits are evident over several years and often accelerate over that time. Six companies in the table were able to grow productivity at a faster rate in 2005 than 2004. Applied Biosystems, Biacore, Molecular Devices and Oxford Instruments Analytical were among these companies as the productivity improvement measures they took in 2004 continued to pay dividends in 2005. Bio-Rad was also able to grow productivity at a faster rate in 2005 than 2004 due to holding employee levels steady. Tecan was able to lessen the extent of its productivity losses as its 2005 acquisition of REMP (see IBO 6/15/05) increased its number of employees, bringing it to more than one thousand, but also helped grow sales in the double digits.

Employee productivity for four companies in the table declined in 2005. Analytik Jena's employee productivity dropped 34.3% due to a 26.1% decline in sales resulting from falling revenue for its Project Solutions business, combined with a 12.4% increase in employment to 444 employees due to the acquisitions of Roboscreen (see IBO 4/30/05) and AJ Innuscreen GmbH as well as the opening of a new Chinese subsidiary. Beckman Coulter, Tecan and Waters reported small declines in productivity.

Of the companies in the table, Applied Biosystems, Agilent Technologies (LSCA) and Molecular Devices had the highest sales per employee in 2005. They were the only three companies in the table whose sales per employee were more than $300,000. These three companies also had the highest average sales per employee on average from 2003 to 2005. From 2003 to 2005, the average sales per employee for the companies in the table was $237,298. With sales per employee of more than $400,000 in fiscal 2005 as well as the 2003-2005 period, Applied Biosystems' productivity was considerably higher than any other company in the table, reflecting the company's sizable consumables business and premium priced instrumentation.

The three least productive companies from 2003 to 2005 were PerkinElmer, OI and Oxford Instruments Analytical. The diversity of PerkinElmer's businesses is one reason for its lower employee productivity while OI's small size limits its productivity gains. Analytik Jena, PerkinElmer and OI had the lowest sales per employee figures in fiscal 2005. Last year, these three companies, as well as Caliper Life Sciences had sales per employee of less than $200,000.

Instrument companies' operations continue to undergo major changes through acquisitions, divestments and continued streamlining. Although companies have benefited from a host of new tools, processes and strategies to increase employee productivity in the past few years, capitalizing on such gains also involves new employees. As companies become more globally focused and customers increasingly sophisticated, investments overseas and in cultivating relationships with customers become even more critical. In this way, productivity gains can be sustained and built upon. The improvement in employment last fiscal year appears to be reflecting such investments. However, further consolidation activities among major industry players or slower industry sales growth could disrupt the trend and trigger even further restructuring.

Most Productive Avg. Sales per Employee
of Surveyed Cos., 2005 2003-2005

Applied Biosystems $367,084

Agilent Technologies (LSCA) $321,490

Molecular Devices $275,155

Company FYE # of

Agilent Technologies (LSCA) 10/31/05 4000
Analytik Jena AG 9/30/05 444
Applied Biosystems 6/30/05 4030
Beckman Coulter 12/31/05 10416
BiacoreAB 12/31/05 284
Bio-Rad Laboratories 12/31/05 5200
Bruker BioSciences 12/31/05 1279
Caliper Life Sciences 12/31/05 443
Dionex 6/30/05 1064
FOSS A/S 12/31/05 1049
Horiba 3/31/05 3984
Molecular Devices 12/31/05 543
0.1. Corporation 12/31/05 157
Oxford Instruments (Analytical) 3/31/05 643
PerkinElmer 12/31/05 8000
Shimadzu 3/31/05 8246
Tecan 12/31/05 1047
Thermo Electron 12/31/05 11500
Varian 9/30/05 3500
Waters 12/31/05 4500

Company Empl. Chg. Rev. Chg.
 2004-05 2004-05

Agilent Technologies (LSCA) 2.6% 6.6%
Analytik Jena AG 12.4% -26.1%
Applied Biosystems -8.4% 2.6%
Beckman Coulter 2.1% 1.5%
BiacoreAB -13.1% 11.8%
Bio-Rad Laboratories 0.0% 8.3%
Bruker BioSciences 0.7% 4.9%
Caliper Life Sciences 7.0% 8.7%
Dionex 5.6% 7.7%
FOSS A/S -1.5% 2.4%
Horiba 4.6% 14.3%
Molecular Devices 0.2% 21.5%
0.1. Corporation 4.0% 4.9%
Oxford Instruments (Analytical) 17.1% 30.3%
PerkinElmer 0.0% 3.1%
Shimadzu 4.0% 12.7%
Tecan 21.0% 19.5%
Thermo Electron 16.2% 19.4%
Varian 6.1% 6.8%
Waters 7.1% 4.8%

Company Productivity
 Chg. 2004-05

Agilent Technologies (LSCA) 3.9%
Analytik Jena AG -34.3%
Applied Biosystems 12.1%
Beckman Coulter -0.6%
BiacoreAB 28.7%
Bio-Rad Laboratories 8.3%
Bruker BioSciences 4.2%
Caliper Life Sciences 1.6%
Dionex 2.1%
FOSS A/S 4.0%
Horiba 9.3%
Molecular Devices 21.3%
0.1. Corporation 0.9%
Oxford Instruments (Analytical) 11.3%
PerkinElmer 3.1%
Shimadzu 8.4%
Tecan -1.3%
Thermo Electron 2.8%
Varian 0.7%
Waters -2.2%
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Publication:Instrument Business Outlook
Date:Jun 15, 2006
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