The Medical Market for Cable Assemblies: What’s the Prognosis?
Bishop tracks 13 market sectors for electronic interconnects. The combined annual revenue of all the market sectors was $4 trillion in 2011 and grew 9.7% over 2010. Of the 13 market sectors, medical was the 10th- fastest-growing manufacturing sector in 2011, at 8% year-over-year and combined revenues of $74 billion. Profitability was $8.8 billion at 11.9% of sales.
In 2012, sales in the first three quarters were down 0.6% compared to the same period in 2011. More dramatically, net income is down 57.1% compared to 2011 at $2.8 billion or 5% of sales. For an industry that has traditionally had a high profit margin, and needs it for R&D, this is a dramatic downturn.
Boston Scientific recently reported full year 2012 sales down 5% to $7.3 billion. For the full year, the company reported a net loss of $4.1 billion. Most of the loss was due to a non-cash goodwill write-off driven by poor business conditions in the European market. This was a big contributor to the year-over-year decline in profitability for this sector.
Medtronic, the world’s largest medical device manufacturer at $14.4 billion in sales in 2011, laid off employees in 2012 in the US. The company says it’s shifting some resources to faster-growing markets overseas. In its latest quarter, the company reported emerging market revenues of $464 million, up 18% year-over-year, representing 11% of total company revenues.
Baxter, the second largest medical device manufacturer, just reported its full year sales at $14.2 billion, an increase of 2% over 2011. Its net income was $2.3 billion or 16.2%. The company reported in 3Q12 that its sales in Europe were a drag on its overall sales growth.
The following table shows the results for the nine companies we track in this market sector.
Medical Equipment Sector – Sales and Net Income
As can be seen in the following chart, year-over-year sales growth has been declining or negative for the past eight quarters. Sequentially, third quarter 2012 sales declined 1.4% from the second quarter of 2012.
Impact on the Cable Assembly Industry
Bishop projects the worldwide market for medical cable assemblies to contract 4% for 2012. What happens in 2013 and beyond is dependent on social, economic, and political factors worldwide. Factors impacting this market include the following:
- The European GDP has been declining since 2Q11 and was in contraction for the first three quarters of 2012. It looks likely that this recession will continue at least through 2Q13, impacting all market sectors in Europe. For 2012, the interconnect industry is down 11% and medical interconnect is down almost 10%. European medical interconnect sales in 2013 are expected to contract 1% to 2%.
- China and Asia Pacific will continue to spend on their healthcare systems. By 2016, China and Asia Pacific will have combined medical interconnect sales equaling 18% of the total worldwide market and growing at 4.5% annually.
- The United States market for medical interconnect is in for a couple of interesting years as the impact of healthcare reform is fully realized. The North American market is expected to expand 5% in 2013.
- Medical device manufacturers have traditionally enjoyed high margins on the sale of their products. The higher margins fuel the R&D, which yields new, advanced equipment. These higher margins are often realized by their suppliers, particularly for unique or advanced components. These higher margins for the suppliers will likely be squeezed as the manufacturers seek to improve their profitability. Cable assembly suppliers serving this market should anticipate more price pressure in 2013.
Bishop & Associates projects the worldwide market for medical cable assemblies to be down in 2012 to $4.0 billion. The market is expected to grow modestly to $4.2 billion in 2013.
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