In fiscal 2006, productivity of selected analytical and life science instrument companies increased, but at a slower rate than the previous year, as new employee growth outpaced revenue growth. Following initial productivity gains for larger companies, spurred by IT investments, manufacturing efficiencies and increased outsourcing, such a slowing is not unusual. In addition, as the instrument industry builds both sales and manufacturing infrastructure in fast-growing markets in Asia, additional employees are required.

For the fiscal year 2006, productivity in the instrument industry grew 1.4%, down 130 basis points from the 2.7% increase in fiscal 2005, bringing average sales per employee to $265,991. IBO’s calculations are based on fiscal 2006 employment and sales figures in US dollars for the 23 pure-play instrument firms listed in the table on page 3. For these companies, the rate of employment and net revenue increased 350 and 230 basis points to 8.2% and 9.8%, respectively, in fiscal 2006.

Among the changes that influenced productivity figures this year were mergers and acquisitions. Some companies, such as Bruker BioSciences and X-Rite, are in the preliminary stages of the postacquisition phase and will require time to reap the anticipated benefits of their acquisitions, including increased productivity. Also affecting productivity were investments by companies, such as Waters and PerkinElmer, to expand sales and marketing in the fast-growing Asian market and their transfer of more manufacturing and business operations to Asia, creating a need for new hires. Other firms commercializing newer technologies, such as Illumina and Luminex, added to their workforce to increase production, marketing and sales efforts.

The list of companies in the table shows a wide range of productivity growth for which it is difficult to make a direct comparison. Companies with higher sales-per-employee figures are generally considered more efficient as company can operate on lower overhead costs and therefore do more with fewer employees. In general, such an analysis benefits larger sized companies due to economies of scale, but a company with a larger installed base also requires more service and support employees.

Twenty-two of the 23 firms added employees in fiscal 2006. Genetix and Illumina reported the largest changes. Genetix’s acquisition of Applied Imaging (see IBO 9/15/06) increased its workforce, but provided limited contribution to its revenues. As a result, the company ended the year with the lowest productivity growth of all companies. Conversely, Illumina was able to boost its productivity growth by 58% to lead all companies, due to a 151.2% increase in sales. OI was the only company in the table to reduce its workforce.

Applied Biosystems recorded the highest level of productivity in fiscal 2006 (ended June 2006) with $419,089 in sales per employee, despite a 5.7% decline in productivity due to a 13.4% increase in its number of employees. The company added 540 employees, 300 of whom were part of the acquisition of Ambion (see IBO 12/31/05). Agilent Technologies (LSCA), Affymetrix and Molecular Devices were the only other companies in the table whose average sales per employee topped $300,000.

Besides Illumina, 12 additional firms improved their productivity in fiscal 2006. Agilent had the highest productivity ratio of $358,690 in sales per employee. The company’s size, manufacturing prowess and R&D resources enable it to consistently produce strong revenue with minimal employee expansion. Productivity for both Luminex and Waters benefited from enhanced revenue growth. Luminex’s 2006 revenues rose 25.3%, mainly from higher consumables and royalty revenue, but its workforce grew only 14.2%, primarily in R&D, as it undertook new strategic initiatives. Also, Luminex benefits from strategic partners, who sell Luminex products. Waters’s revenues grew 10.5%, but its workforce grew 4.4%, as it transferred manufacturing of its Alliance HPLC to a joint venture with Solectron Medical (see IBO 5/31/06).

Productivity improved for four of the five European companies in the table, primarily as a result of robust revenue growth and limited workforce expansion. Operational improvements by both Oxford Instruments and Tecan paid off as they exited underperforming businesses and prioritized operational efficiencies. Likewise, Biotage AB executed a restructuring plan, including the outsourcing of most of its consumables production, which allowed revenues to appreciably outpace flat employment levels. Analytik Jena AG also improved its productivity in fiscal 2006 (ended September 2006) due to 10.6% revenue growth following a double-digit loss in 2005. But the firm’s workforce grew 14.2%, due to the expansion of its instrument business and international presence. Currency translation into US dollars favorably impacted reported revenue for Biotage and Oxford Instruments, while Analytik Jena’s sales growth was negatively impacted. Exchange rates for Tecan and FOSS A/S did not affect sales growth.

Nine companies’ productivity declined in fiscal 2006. A majority of those companies initiated reorganization plans during the year. Cybio AG’s productivity slid 8.6% due to an expanded workforce. The acquisition of Accelab GmbH (see IBO 7/31/06) and the buildup of additional staff in production, service and sales boosted the number of employees by 17.9%. Eppendorf AG’s productivity slid 3.8% as a result of lower revenue growth. The company reduced its workforce in North America, but expanded its sales organization in the Asia/Pacific regions. The exchange rate fluctuations for Eppendorf and Cybio had no significant impact on sales growth.

Molecular Devices, X-Rite and Dionex’s productivity declined in 2006 as a result of disproportionate growth of employees to revenue growth. Molecular Devices’ decrease was the second largest among companies in the table. In the fourth quarter, the company implemented a restructuring plan, which included the closing of several facilities and layoffs. However, increases in manufacturing and marketing personnel and expansion overseas resulted in workforce growth of 16.2%, while sales grew only 2.4%. X-Rite’s workforce grew 46.9% after it acquired Amazys (see IBO 1/31/06), which added about 400 employees. The firm executed some of its restructuring plans, but most of the restructuring activities are scheduled for fiscal 2007. The total number of Dionex’s employees increased 6.5% due to growth in its international business and additional sales and marketing personnel. However, sales increased only 4.3%.

Lower sales hurt Affymetrix’s productivity last year. The company’s productivity declined 5.7% in 2006 due to a 3.3% drop in revenues (see IBO 5/31/07) and despite only a 2.5% increase in personnel. To offset rising costs, the company instituted a plan to reduce operating expenses in the fourth quarter, including layoffs in sales, general and administrative positions, as well as the consolidation of manufacturing operations. This was Affymetrix’s second straight year of productivity declines, following a 12.5% decrease in 2005.

PerkinElmer recorded a 1.3% decline in productivity in fiscal 2006. During the second quarter of 2006, PerkinElmer approved a plan to reduce its workforce within Life and Analytical Sciences, but acquisitions and increases to the company’s sales force boosted the total number of employees 6.3% by year end. The drop in PerkinElmer’s productivity weighed heavily on the table’s total average productivity figure (only 75% of the company’s sales are analytical instrument–related but IBO’s calculations are based on the entire company). Excluding PerkinElmer, the average productivity of the companies in the table would have grown 1.7%, increasing the average sales per employee to $289,532, a decline of 40 basis points from the fiscal 2005 growth rate.

For Bruker BioSciences and Caliper Life Sciences, productivity growth was flat in fiscal 2006. Both firms acquired businesses in new product areas, so there was less of an overlap of sales and technical personnel. Although Caliper’s workforce grew 24.2% following the acquisition of Xenogen, Caliper eliminated 6.0% of the Xenogen workforce, mainly redundancies in manufacturing and administration.