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Instrument industry productivity growth still healthy.

The US, Japan and even the European Union posted growth in labor productivity (the ratio of output to production labor hours) in 2004, according to the Conference Board. However, US productivity gains slowed compared to prior years as companies continued to extract cost savings, but at a more moderate rate, and to benefit from healthy economic growth and a weak US dollar.

According to IBO's analysis of 2004 industry employment and sales trends, the analytical and life science instrument industry also experienced slightly slower productivity growth last year, but still made impressive gains that reflected continuing adjustments to a changing market environment and global demand. In 2004, several major instrument providers undertook new rounds of cost cutting and restructuring, while a growing number of companies moved manufacturing to Asia and tightened operational focus, leveraging resources for sales gains in key markets.

IBO estimates that productivity, as measured by sales per employee, for the analytical and life science instrument industry improved 5.7% in 2004, down 190 basis points from the year before. Last year marked the slowest increase in industry productivity since 2001, when sales growth slowed dramatically. However, in 2004 total industry employment increased for the first time in two years, rising approximately 1%. Analytical and life science instrument revenue growth also improved, gaining 40 basis points to 6.6% (see IBO 1/ 15/05). In contrast to 2003 when both instrument sales and total industry employment fell and productivity growth accelerated, in 2004 gains in employment and sales slowed productivity growth.

Despite the slower gains, the continued growth in productivity signals the ongoing efforts by instrument companies to improve operating efficiencies, albeit at a more realistic rate. Companies continue to drive efficiency gains in manufacturing through facility consolidation and relocation to lower-cost regions. Administrative functions also remain a target for productivity improvements, as new technologies and outsourcing as well as restructured operations seek to increase employee returns. Such changes enable resources to be re-deployed for strategic investments in sales and marketing and in key regions and product lines, resulting, in some cases, in an increase in total staffing levels.

To chart productivity and total employment, IBO uses a base-list of 20 instrument companies' employment and sales figures for the 2002-2004 fiscal year ends. Based on these companies' year-over-year changes in sales and total personnel, as well as industry data and trends, IBO analyzes employment and productivity patterns and determines total industry productivity and employment.

The list of companies (see table, page 6) includes seven companies (Beckman Coulter, Bio-Rad Laboratories, Horiba, PerkinElmer, Shimadzu, Tecan, Varian) whose total sales include products not classified as either analytical or process analytical instrumentation. These companies are major industry participants and the majority of each company's sales are analytical instruments. Because IBO uses its annual forecast issue as the source for industry revenues, the influence of individual company revenues on overall industry productivity is minimal. However, total employee figures from each company are used to determine the industry average.

For companies in the table, figures are taken from fiscal 2004 year-end financial reports, a change from last year's survey (see IBO 7/ 15/04) when estimates were used for certain companies. Historical information has been adjusted to reflect this change.

One factor affecting employment rates within the industry continues to be the large number of mergers, acquisitions and divestitures. For example, Thermo Electron's sale of its Spectra Physics division last year (see IBO 6/15/04) significantly reduced its total number of employees. But Bio-Rad's addition of Hematronix to its Diagnostics business and of MJ Research (see IBO 8/31/04) to its Life Science business, more than offset the employment decrease resulting from the sale of its Cell Science product line (see IBO 5/31/04).

Although acquisitions can generate synergies that increase productivity, sales and employee gains are the more immediate result. Both Bio-Rad and Molecular Devices, which acquired Axon Instruments in 2004 (see IBO 3/31/04), showed minor productivity improvements last year compared to the other companies surveyed. Molecular Devices stated in its annual report that it eliminated duplicate positions following the acquisition, but that it also increased sales personnel during the year.

Restructurings were also a contributor to increased productivity last year. The greatest changes came at companies aiming to become profitable, of which Biacore is a good example. Following a review of company operations and a change in management (see IBO 7/31/04), Biacore refocused its organizational structure, which led to cuts in R&D and administrative personnel and drove double-digit productivity growth.

Another company posting a double-digit increase in productivity in 2004 as it moves toward profitability was Caliper Life Sciences. Like Biacore, the company reported a decline in total employees last year through cuts in R&D, administration and operations. Following an unprofitable quarter, Bruker Biosciences announced two major restructuring actions last year (see IBO 10/15/04, 12/31/04), resulting in nearly a double-digit increase in productivity.

PerkinElmer and Shimadzu also posted double-digit growth in productivity in fiscal 2004. By keeping employee levels unchanged as sales grew, the companies were able to boost productivity. No doubt, the companies' extensive efficiency improvements of recent years and their large operations have enabled such a strategy. Horiba also posted impressive productivity gains last year as the company aligned and centralized certain corporate functions across all four of its businesses.

Analytik Jena AG and Dionex posted double-digit productivity gains in fiscal 2004 as well, but also increased total employee levels. For Dionex, double-digit sales growth drove productivity. The company added personnel in Asia and through the establishment of direct subsidiaries in Korea and Australia, reflecting new sales opportunities.

Converted into US dollars, Analytik Jena's fiscal 2004 sales also increased in double-digit growth. However, in local currency, sales increased 6%. Nonetheless, the fast growing sales for the company's Project Solutions business helped productivity. During the year, the company added staff in Eastern Europe and Brazil, as well as reduced manufacturing costs, enabling more efficient operations. Like Dionex, it also added personnel to keep pace in faster growing areas, hiring 21 employees for the Project Solutions unit.

Of the 19 companies in the table that reported improvements in productivity in 2004, eight experienced double-digit gains. Overall, the average productivity growth for the 20 companies in the table was 9.0%, topping the total analytical and life science industry average of 5.7%, and up from 7.1% in 2003.

Applied Biosystems was one of six companies in the table to show a decline in total employees in fiscal 2004. Although specific details are not available, one can surmise that the company's strategic review of its product portfolio, R&D expenditures and business processes, as well the initiation of Six Sigma processes, resulted in personnel cuts. Its restructuring announced just after the end of the financial year (see IBO 7/15/05) and sale of the MALDI product line (see IBO 9/1/04) should result in even more employee reductions in fiscal 2005. However, in both fiscal 2004, and currently, the company is facing slower sales growth, making productivity gains harder to achieve.

Tecan recorded the sole decrease in productivity last year among the companies in the table due to its decline in revenues and the addition of personnel for quality improvements and sales initiatives. For 2005, the company pledged a strong focus on operational efficiencies and cost management.

Applied Biosystems, Agilent Technologies and Molecular Devices topped the list both in 2004 and on average from 2002-2004 as the three most productive companies of the 20 companies surveyed. Applied Biosystems benefits from a larger consumables business compared to other companies in the table. Agilent LSCA benefits from the resources and the infrastructure of the Agilent Technologies organization. Molecular Devices' sales growth and high-end product line drives its gains.

The three least productive companies on average from 2002-2004 among surveyed companies were PerkinElmer, OI and FOSS A/S at $154,185, $170,496 and $175,287 per employee, respectively. In 2004, PerkinElmer, Oxford Instruments (Analytical) and OI recorded the lowest productivity, with sales per employee of $168,700, $182,149 and $185,430, respectively.

Competitive economic conditions, like those experienced in the last three years, force companies to focus more on the bottom line. Although revenue growth improved last year, a significant improvement in overall growth prospects is not expected in the near future. Consequently, employee levels can be expected to remain a focus as companies continue to make productivity improvements and keep an eye on the bottom line. The challenge is doing so while investing in the R&D and sales and marketing that keep the company competitive and drive sales growth.
Company FYE Empl. Chg.

Agilent Technologies (LSCA) 10/31/04 5.4%
Analytik Jena AG 9/30/04 5.6%
Applied Biosystems 6/30/04 -3.1%
Beckman Coulter 12/31/04 3.0%
Biacore 12/31/04 -5.5%
Bio-Rad Laboratories 12/31/04 8.3%
Bruker BioSciences 12/31/04 -0.7%
Caliper Life Sciences 12/31/04 -8.8%
Dionex 6/30/04 7.1%
FOSS A/S 12/31/04 -0.7%
Horiba 3/31/04 3.2%
Molecular Devices 12/31/04 28.4%
O.I. Corporation 12/31/04 6.3%
Oxford Instruments (Analytical) 3/31/04 2.4%
PerkinElmer 12/31/04 0.0%
Shimadzu 3/31/04 0.6%
Tecan 12/31/04 6.5%
Thermo Electron 12/31/04 -8.3%
Varian 9/30/04 2.3%
Waters 12/31/04 7.7%

Company Rev. Chg. Productivity
 2003-04 Chg. 2003-04

Agilent Technologies (LSCA) 12.4% 6.6%
Analytik Jena AG 18.5% 12.2%
Applied Biosystems 3.4% 6.7%
Beckman Coulter 9.8% 6.6%
Biacore 6.3% 12.4%
Bio-Rad Laboratories 11.2% 2.7%
Bruker BioSciences 8.8% 9.6%
Caliper Life Sciences 3.9% 13.9%
Dionex 20.5% 12.5%
FOSS A/S 6.1% 6.8%
Horiba 17.0% 13.4%
Molecular Devices 28.4% 0.0%
0.I. Corporation 12.0% 5.3%
Oxford Instruments (Analytical) 5.5% 3.0%
PerkinElmer 10.1% 10.1%
Shimadzu 15.2% 14.4%
Tecan -0.9% -6.9%
Thermo Electron 5.2% 14.8%
Varian 8.0% 5.6%
Waters 15.3% 7.1%

Company Productivity
 Avg. 2002-04

Agilent Technologies (LSCA) $321,490
Analytik Jena AG $225,415
Applied Biosystems $367,084
Beckman Coulter $221,075
Biacore $195,717
Bio-Rad Laboratories $200,609
Bruker BioSciences $202,183
Caliper Life Sciences $197,643
Dionex $228,769
FOSS A/S $175,287
Horiba $179,480
Molecular Devices $275,155
O.I. Corporation $170,496
Oxford Instruments (Analytical) $179,975
PerkinElmer $154,185
Shimadzu $216,970
Tecan $266,019
Thermo Electron $202,790
Varian $195,595
Waters $251,986

Top 3 Most Productive Cos. Avg. Sales per Employee
of Surveyed Cos. 2002-04

Applied Biosystems $367,084

Agilent Technologies (LSCA) $321,490

Molecular Devices $275,155
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Publication:Instrument Business Outlook
Article Type:Industry Overview
Geographic Code:1USA
Date:Apr 30, 2005
Previous Article:The bottom line.
Next Article:Beckman Coulter to acquire Agencourt Bioscience for $100 million.

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