The analytical and life science instrument industry has made impressive gains in productivity, as measured by sales per employee, in recent years due the greater use of lean manufacturing programs, enterprise resource planning systems, as well as outsourcing and offshoring. At the same time, companies continue to invest in sales and marketing to drive market development overseas, to increase application support and to launch new products.

In fiscal 2007, the industry’s largest companies appeared to have effectively balanced these commitments, as the productivity of the 22 analytical and life science instrument companies tracked by IBO (see table, page 3) improved 6.0%. Although the number of employees at the 22 companies increased 10.2%, revenue growth rose 16.8%, assisted by the weak dollar and acquisitions. As a result, the average sales per employee last year was $279,477.

IBO’s calculations are based on fiscal 2007 employment and sales figures in US dollars for 21 instrument and laboratory product firms listed in the table, as well Oxford Instruments, for which fiscal 2008 ended March 31 results are used. For the 22 companies, the rate of employment increased by 200 basis points to 10.2%, while revenue growth jumped 720 basis points to 16.8% in fiscal 2007. Nine companies showed double-digit increases in productivity. The 6.0% growth in productivity last year surpasses these companies’ 1.3% growth productivity for fiscal 2006.

As usual, acquisitions played a major role in productivity changes. Acquisitions completed in the middle or end of a fiscal year increase a company’s total number of employees, but only partially contribute to sales. Rather, it is in the following year when the full effect of the acquisition is reflected in the productivity figure.

For example, Caliper Life Sciences, Genetix and X-Rite each completed major acquisitions in fiscal 2006, but only recorded a full year of sales from the acquisition and realized market and product synergies in 2007. In November 2006, Genetix acquired Applied Imaging (see IBO 11/30/06), adding 68 employees and £1.9 million ($3.5 million) to its sales for the year. As a result, in fiscal 2006, the company’s productivity declined 22.7% (down 40.6% in local currency) (see IBO 6/30/07) as staffing grew 68.3% but sales increased 30.0% (48% in local currency). However, in 2007, the company added only five employees and sales increased 60.1% (47.7% in local currency), resulting in a 55.7% gain in productivity (up 43.6% in local currency), the highest in the table.

Similarly, Caliper Life Sciences and X-Rite were able to notably boost productivity last year. The companies posted the second and third largest productivity gains in the table. Following the acquisition of Xenogen in August 2006 (see IBO 2/15/06), Caliper recorded a 24.2% gain in employees for the year and a 24.1% increase in employees, for flat productivity growth. In 2007, the company added 20 sales and marketing employees, but reduced its R&D, operations and service, and administration and finance staff, for a net reduction of seven employees. Caliper was the only company in the table to show a reduction in employees. However, revenues increased 30.4% to $140.7 million, causing productivity to jump 32.1%.

In contrast to Genetix and Caliper, which acquired new product lines, X-Rite acquired a competitor, Amazys (see IBO 1/31/06), in July 2006. Duplicate efforts, which included overlapping product lines and manufacturing facilities, allowed for extensive restructuring. X-Rite added 400 in 2006, but as of the end of last year, had terminated 81 as a result of the restructuring. X-Rite also added employees in 2007, bringing on 50 workers for a 5.2% increase in staff, related to its acquisition of Pantone (see IBO 8/31/07). However, the company’s sales growth more than outpaced employee growth, rising 38.3% due to both acquisitions. As a result, the company swung from a 6.5% loss in productivity in 2006 to a 31.5% gain last year.

Likewise, it is likely that productivity for three companies in the table suffered last year due to major acquisitions., and that these companies’ will experience productivity gains this year. Eppendorf AG purchased New Brunswick Scientific in September 2007 (see IBO 10/31/07). According to Eppendorf, 400 of the 543 employees it added last year were a result of the acquisition. Thus, the company’s 29.3% increase in new employees, outpaced its 20.6% sales growth in US dollars (10.0% sales growth in local currency) (see page 12), resulting in a 6.7% decline in productivity (a 14.9% decrease in local currency).

Oxford Instruments acquired Worldwide Analytical Systems AG (see IBO 7/31/07) and VeriCold Technologies GmbH (see IBO 12/15/07) last fiscal year, adding 84 employees. In total, the company added 230 employees in fiscal 2008 due in part to infrastructure investments in Europe and Asia as it plans to double its sales in four years. Although fiscal 2008 productivity increased 1.9% in US dollars due to a 17.5% increase in employee count and 19.7% revenue growth, productivity declined 7.0% in local currency, as sales grew 9.2% in local currency for the UK-based company.

Acquisitions also likely impacted productivity gains for Agilent Bio-Analytical Measurement (BAM) last fiscal year. In June 2007, Agilent acquired Stratagene (see IBO 4/15/07), adding 2% to BAM’s 20% sales growth for the fiscal year ending in October. Although Agilent did not disclose how many employees the acquisition added, according to Stratagene’s 2006 annual report, the company had 453 employees. In total, Agilent BAM added 900 employees last year, a 22.0% gain. In its year-end SEC filing, Agilent noted investments in BAM R&D and selling, and general and administration functions. Hiring may have been spurred by BAM’s new Materials Science Solutions unit, increased infrastructure investments and expansion in foreign markets.

Nonetheless, Agilent BAM still managed to post the second highest sales-per-employee figure in the table at $401,000. As a unit of Agilent Technologies, BAM is able to access the company’s shared manufacturing, R&D, business processes and infrastructure, reducing the unit’s allocation of employees to these functions. In addition, Agilent’s noted manufacturing expertise; share of sales in microarrays, chromatography columns and other premium priced consumables; as well as an established distribution and sales network contributed to its efficiency.

The third company that experienced a change in productivity last year as a result of an acquisition is Luminex. Productivity for the company declined 13.8% last year. Although Luminex acquired Tm Bioscience in March 2007 (see IBO 12/15/06), much of the company’s sales growth was a result of its own products. However, of the 134 employees added by Luminex last year, 83 were added as a result of the acquisition. Luminex acquired the company to build its assay development division. As an investment in R&D and manufacturing, the acquisition curtailed productivity growth in the short term.

Applied Biosystems recorded the highest level of productivity in fiscal 2007 with $418,700 in sales per employee. Applied Biosystems has had the highest sales per employee of companies followed by IBO since IBO began publishing the table in 2004 (see IBO 7/15/04). Like Agilent, Applied Biosystems benefits from premium priced consumables and reagent offerings. In addition, the company’s MS product line is manufactured by another company, MDS. After a 5.7% decline in fiscal 2006, Applied Biosystems’ productivity improved modestly last year, rising 0.1%. as revenue growth outpaced the number of new employees, which rose by 430. Employee additions were most likely related to the company’s increased investments in Asia.

Illumina posted the third highest sales per employee last year. The company surpassed one thousand employees in 2007 and generated $352,354 sales per employee. Illumina also showed the largest percentage increase in employee numbers among companies in the table as it added 445 employees. However, the company nearly doubled sales last year, and thus was able to post a 13.8% gain in productivity. To keep up with growth, Illumina must add employees, and, as the company explained to investors in a recent conference call, it is expanding its infrastructure worldwide, including service and distribution investments in Asia.

Also generating sales per employee of more than $300,000 last year were Affymetrix and Tecan. Affymetrix managed to sustain productivity growth via restructuring initiatives. The company reduced personnel in R&D, selling, general functions and administration and limited employee growth by adding only 12 employees. Likewise, Tecan, which achieved sales per employee of more than $300,000 for the first time, limited its new hires to 15.