Despite a rally on the final trading day of the month triggered by two interest rates cuts and an economic stimulus package from the US government, the Dow Jones Industrial Average, S&P 500 and NASDAQ experienced one of their worst declines in the month of January in years, falling 4.6%, 6.1% and 9.9%, respectively. The subprime mortgage crisis continued to negatively impact the overall economic landscape as a number of major financial companies reported billions of dollars in losses during the current fiscal quarter. This has contributed to the extreme slowdown in the fourth-quarter GDP growth of 0.6%, well below the anticipated 1.2% growth. While analysts continue to dispute whether the markets have reached a bottom, it can be noted that the current financial crises goes far beyond the recent real-estate bubble, and instead carries over to several decades of cheap credit markets. Therefore, it would be surprising if the economy could surmount its recent financial woes so quickly.

This month, all four IBO Stock Indexes ended significantly lower, with the Process/Metrology/Motion Instrumentation Index, the hardest hit Index, falling 14.1%. The Diversified and Laboratory Instrumentation Indexes were close behind, losing 11.4% and 11.2%, respectively, while the Lab Consumables/Equipment Index declined 6.8%. Given the strong performances of the Indexes over the previous year and the current negative sentiment in the marketplace, such a sharp decline was to be expected.

Laboratory Instrumentation Stock Index

For January, the Laboratory Instrumentation Index dropped 11.2% to close at 583.13, with 20 companies declining and only three companies improving. Starlims Technology led all decliners, falling 30%, while Cepheid, the only company up in double digits, climbed 16%.

Fourth-quarter earnings announcements helped several companies in the Index to recover some of their earlier losses. After the market‘s close on January 23, PerkinElmer reported adjusted EPS of $0.45 (see page 12), $0.02 ahead of analysts’ expectations, and set first-quarter revenue guidance above current estimates, helping shares rebound 17.5% on the following day. Varian announced adjusted first-quarter EPS of $0.70 on January 23 (see page 12), beating analysts’ expectations by $0.06, yet shares fell 7.0%. On January 24, Applied Biosystems posted EPS of $0.49 (see page 12), $0.09 better than analysts’ expectations, but warned that the current economic uncertainty could impact fiscal 2008 results. After the close on January 31, Dionex reported second-quarter EPS of $0.77 (see page 12), $0.05 better than analysts’ expectations, and raised full-year 2008 EPS guidance to $2.62–$2.69 from $2.52–$2.62. Concurrently, Affymetrix announced fourth-quarter adjusted EPS of $0.20 (see page 12), $0.04 above consensus, but revenues were lower than expected. However, the company increased its 2008 revenue guidance to $415–$435 million, excluding the one-time payment from the legal settlement with Illumina (see IBO 1/15/08), well above analysts’ consensus of $402 million.

Waters was the only reporting company in the Index to miss earnings’ expectations. On January 22, the company reported adjusted fourth-quarter EPS of $0.98 (see page 12), $0.08 below analysts’ expectations, and announced first-quarter and full-year EPS guidance of $0.63 and $3.20, compared to analysts’ expectations of $0.67 and $3.31, respectively, sending shares down 20.0%.

On January 10, Illumina jumped 15.8%, following the company’s settlement with Affymetrix. On January 11, GARP Research and UBS both upgraded company shares to “Buy” from “Neutral,” while Lehman Brothers upgraded the stock to an “Overweight” from “Equal-weight.” On January 29, in anticipation of a strong earnings report, JP Morgan initiated coverage on Illumina with an “Overweight” position.

Other companies on analysts’ recommendation lists included Luminex, which was initiated with a “Market Outperform” rating by Avondale Partners on January 16. On January 25, Piper Jaffray upgraded Applied Biosystems to “Buy” from “Neutral.” On January 30, Robert W. Baird upgraded Dionex to “Neutral” from “Underperform,” while Lehman Brothers initiated coverage of Sequenom with an “Overweight” rating.

Despite the massive sell-off in the markets and fear of economic slowdown, there was only one negative recommendation. On January 10, Oppenheimer downgraded Starlims to “Neutral” and the stock fell 22.3%. On January 9, the company had announced preliminary 2007 revenues at the low end of its guidance. Symyx Technologies dropped 9.1% on January 11, one day after increasing its 2008 revenue forecast.

Process/Metrology/Motion Instrumentation Stock Index

The Process/Metrology/Motion Instrumentation Stock Index declined 14.1% in January to 339.85 as all companies traded lower. Nanometrics declined 39% to lead all decliners, while Zygo sustained the smallest loss at 6%.

Lab Consumables/Equipment Stock Index

For January, the Laboratory Consumables/Equipment Stock Index fell 6.8% to 470.89, with all seven companies declining. Kewaunee Scientific led the decliners, losing 12%, while Techne reported the smallest decline at 2%.

On January 29, Techne reported second-quarter EPS of $0.60, $0.06 above analysts’ expectations, leading shares 7.8% higher. After the close on January 31, Millipore posted adjusted EPS of $0.98 and revenues of $405 million (see page 12), meeting analysts’ EPS expectations, but missing analysts’ revenue expectations by $5 million. The company expects adjusted EPS of $3.58–$3.63 for 2008, far below analysts’ forecasts of $3.88. Prior to the earnings report, on January 23, UBS downgraded Millipore to “Neutral” from “Buy.”

Diversified Instrumentation Stock Index

The Diversified Instrumentation Stock Index declined 11.4% for the month to 105.85, with all six companies trading lower. Danaher weighed heaviest on the Index, falling 15%, while Teledyne Technologies minimized the Index’s loss, falling 3%.

On January 23, AMETEK announced adjusted EPS of $0.57 (see page 12), $0.04 better than analysts’ expectations, helping shares rebound 6.9%. The company anticipates EPS growth of 13%–16% for 2008. The next day, Danaher reported adjusted EPS of $1.12 and provided first-quarter EPS guidance of $0.84–$0.89, which were both in line with analysts’ expectations. On January 24, Teledyne announced EPS of $0.73, $0.05 ahead of analysts’ expectations, but set first-quarter guidance at the low end of analysts’ expectations at $0.63–$0.66 a share.

On January 16, prior to the company’s earnings report, UBS initiated coverage of Danaher with a “Buy” rating. On January 24, Friedman Billings upgraded AMETEK to “Outperform” from “Market Perform.”

International

The international markets were adversely affected by unremitting negative US economic news and were particularly downbeat about the US stimulus plan announced on January 18. This news incited several sharp sell-offs across international markets on January 21. The Nikkei 225 Index dropped 3.9%, Britain’s benchmark FTSE-100 fell 5.5%, Germany’s DAX declined 7.2%, while Hong Kong’s Hang Seng Index fell 5.5%.

In January, all five Pacific Region companies declined, with Horiba and Hitachi High-Technologies loosing the most ground, down 25% and 20%, respectively.

European companies faired only slightly better this month, as four companies improved, while 11 companies traded lower. Oxford Instruments fell 25% to lead all decliners, while Whatman jumped 25%, after the company confirmed a proposed bid for the company (see IBO 1/15/08), helping shares close up 27% on January 15. On January 17, Genetix announced preliminary year-end revenues of £22.9 million ($45.8 million) compared to £15.5 million ($28.7 million) for the previous year; however, shares traded flat. On January 24, Tecan confirmed its full-year EBIT margin guidance for 2008 and 2009 of 14% and 15%, respectively, leading shares 4.4% higher.