Affymetrix Misses Revenue Again And Again (AFFX)
October 16, 2008 | By Eric Fox
community.investopedia.com
Revenue woes at Affymetrix (Nasdaq:AFFX) sent the stock tumbling down once again as investors expressed skepticism with management explanations of an industry-wide slowdown.
Affymetrix said on Monday, Oct. 13, that it would miss current analyst estimates for revenue for the third quarter. The company said that it would report approximately $75 million rather than the $91 million that analysts were looking for according to estimates on Reuters. Management blamed the shortfall on "tightness" in research budgets by its customers, particularly pharmaceutical customers. This will be the third straight quarter of revenue disappointment for the company. (To learn more, read Can Earnings Guidance Accurately Predict The Future?)
Affymetrix Inc. manufactures products used in genetic analysis of DNA. The company sells directly to pharmaceutical, biotechnology, academic and consumer products companies.
A Look Back
This was an old story for Affymetrix. In July 2008, the company missed second-quarter revenues estimates and lowered revenue guidance for the 2008 to be in the range of $455-460 million, causing the stock to drop 30% to $7.50 from around $10.50. Kevin King, the president of Affymetrix said during a conference call, "as a result of reduced spending in the pharma industry and the closure or downsizing of research centers, our sales into pharma have declined, particularly in the area of capital spending on instrumentation." The company cited 30% declines in spending by pharmaceutical companies in both the first and second quarters.
During the second quarter call in July, analysts seemed skeptical that the problems the company was having with sales decline was industry wide. One analyst, Derik de Bruin from UBS, suggested that the company was falling behind technologically versus its competitors, and said that the company "missed the technology cycle". Steve Fodor chairman and CEO responded that the company understands the moving target and what it will take to keep up.
Further Back
According to Fodor, back in April many of the pharmaceutical companies were going through organizational changes, and their budgets were not yet set which made it difficult to predict sales. In April when the company reported its first quarter results, it lowered full-year guidance, again blaming pharmaceutical customers. During the conference call, King said the disappointment in revenue "was not driven by competitive inroads or the emergence of emerging technologies but rather pharmaceutical companies are simply doing less target identification". (To learn what to listen for, read Conference Call Basics.)
Competition
Competitors of Affymetrix have not seen as sharp a drop off in sales from the pharmaceutical industry. Invitrogen's (Nasdaq:IVGN) chairman and CEO Gregory Lucier said during the company's July call that demand in large pharma is "generally good" depending on the product. He further stated that its products, specifically protein array related, were showing momentum. Invitrogen currently has an unsettled merger agreement with Applied Biosystems (Nasdaq:ABI) which was announced back in June of 2008. Just a week ago, Applied Biosystems affirmed its guidance for revenues and margins.
Also, another rival, Illumina (Nasdaq:ILMN), has beaten estimates for four straight quarters and was only down about 3.5% in 2008 - not bad considering the S&P 500 is down about 35%.
Bottom Line
Affymetrix problems may be company specific despite the statements from management. Third quarter results are scheduled to be released on October 23, and investors should listen closely to what management has to say.
By Eric Fox
Eric J. Fox, is the founder of Brittain Capital Management, LLC., which is the manager of the Alesia Fund, LP., a Value oriented long/short investment partnership. You can read more of his views on investments at the Stock Market Prognosticator and Under the Buttonwood Tree. At the time of writing Eric Fox did not own shares in any of the companies mentioned in this article. |
