Analytical Instruments Drive Shimadzu’s Growth

Shimadzu is Japan’s largest analytical instrument maker and the world’s sixth largest analytical instrument company (see IBO 4/15/08). On May 29, Shimadzu President and CEO Shigehiko Hattori presented the company’s financial results for the fiscal year ended March 31 (fiscal 2007). He noted the adverse effects of a stronger yen on company sales growth and operating income growth, particularly in the first quarter of the calendar year. Total company sales rose 10.5% to ¥290.0 billion ($2,539.0 million = ¥114.22 = $1) for fiscal year 2007 and operating income improved 9.2% to ¥27.6 billion ($24.2 million).

Revenues for Shimadzu’s Analytical and Measuring Instruments segment were a highlight for the company. In fiscal 2007, revenues for the segment increased 10.0% to ¥164.3 billion ($1,438.7 million) (see IBO 5/31/08). Analytical and Measuring Instruments accounted for 57% of the company’s total sales, which also include the Medical Systems, and Aircraft Equipment and Industrial Machinery segments. Operating income for the Analytical and Measuring Instruments segment improved 0.3% to ¥26.2 billion ($229.4 million) to equal 95% of Shimadzu’s profits for the fiscal year.

Among the five segments of the Analytical and Measuring Instruments segment (see graph above), Environmental Analyzers posted the fastest year over year growth, with sales up 24.9% to ¥10.2 billion ($89.3 million) due to Chinese demand. General Analytical Instruments (chromatographs, spectrometers, mass spectrometers, life science–related systems) accounted for the bulk of segment sales. Sales of General Analytical Instruments increased 10.3% to ¥94.2 billion ($824.7 million) in fiscal 2007. Highlights included an 18.5% increase in chromatography sales overseas.

Sales of Testing and Non-Destructive Inspection Machines (material testing equipment, X-ray inspection machines, etc.) increased 7.5% to ¥18.3 billion ($160.2 million) and Other revenues (analytical services and other businesses) improved 13.1% to ¥26.9 billion ($235.5 million). The only product segment to post declining sales for the year was Surface Analyzers (X-ray fluorescence spectroscopy, etc.). Revenue for Surface Analyzers fell 1.8% to ¥14.8 billion ($129.6 million) due to a decline in sales of energy dispersive–x-ray spectroscopy systems, which was tied to waning ROHS-related demand (see IBO 6/15/03). Good sales growth was reported for all other product line in the Surface Analyzers product category except microscopes.

By region, Analytical and Measuring Instruments revenues increased 15.5%, 21.6% and 21.3% in North and South America, Europe and Asia-Oceania, respectively. Specifically, North American sales rose 14.0% to ¥11.7 billion ($102.4 million) and Chinese sales improved 10.7% to ¥18.9 billion ($165.5 million). Overall, overseas sales for Analytical and Measuring Instruments increased 20.1%, but domestic sales faced a tougher time, rising only 2.8% as demand from the public sector declined.

For fiscal year 2008 ending March 31, 2009, Shimadzu forecasts Analytical and Measuring Instruments revenues to increase 2.5% to ¥168.5 billion ($1,475.2 million). But, as Mr. Hattori told investors, this increase includes a one-time Saudi Arabian sale in 2007 of ¥3.4 billion ($29.8 million). Excluding this sale, Analytical and Measuring Instrument revenues are forecasted to increase 11.2%. Fiscal 2008 operating income for Analytical and Measuring Instruments is expected to grow 4.6% to ¥27.4 billion ($239.9 million).

Further plans for Shimadzu were presented earlier in the year, in March, when the company outlined its medium-term plan for 2008–2010 in a presentation to investors. For the Analytical and Measuring Instruments segment, the company expects sales of ¥190.0 billion ($1,663.5 million) in fiscal 2010 (the year ending March 31, 2011), including life science sales of ¥63.6 billion ($556.8 million). Admitting that the company’s life science business has not been as successful as hoped, Mr. Hattori stated that the life science business would now include LC and MS products in order to capitalize on synergies.

Plans for Analytical and Measuring Instruments also include the expansion of the overseas subsidiaries’ infrastructure and their sales and service networks. New business areas that will be targeted include inline applications for analytical systems, particularly optical measurements, and new techniques for drug development. The goal for Analytical and Measuring Instruments’ Chinese sales is ¥24.7 billion ($216.2 million) by fiscal 2010 due to more alliances with Chinese manufacturers and customers and increased environmental sales.

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