Affymetrix Cuts Losses in 2Q - Analyst Blog
July 29 2011 - 11:38AM
Zacks
Genetic products maker Affymetrix Inc’s (AFFX)
second-quarter fiscal 2011 loss per share of 5 cents was a shade
above the Zacks Consensus Estimate of a loss of 4 cents, but below the
year-ago loss per share of 8 cents. The California-based company’s
losses trimmed 33% year over year to $3.7 million as lower costs
more than offset the decline in
sales.
Revenues
Revenues dipped 9.8% year over year to $64.7 million,
essentially in line with the Zacks Consensus Estimate. Sales were
hurt by lower product revenues which slid 10.7% year over year to
$58.1 million.
Lower consumables (down 10.4% to $54.3 million) and instrument
(down 15.6% to $3.8 million) sales resulted in a decline in product
revenues. DNA and RNA sales clipped 12% and 13%, respectively.
On a positive note, service revenues jumped 12.8% year over year
to $5.3 million. Royalties and other revenues plummeted 27.8% to
roughly $1.8 million. The company noted that its second quarter
results were impaired by a decline in sales to its academic
customers across all markets, especially in North America.
Margins and Expenses
Gross margin rose to 60.1% from 56.6% a year ago owing
to a decline in
cost of products sold and services and favorable mix.
Product gross margin improved to 62% from 58% in the prior-year
quarter.
Consolidated costs and expenses fell 12.4% year over year to
$67.7 million as the company spend less on R&D (down 14.1%) and
selling, general and administrative (down 6%) expenses.
Balance Sheet and Cash Flows
Affymetrix exited the second quarter with cash and cash
equivalents and available for sale securities (short-term) of $72.4
million, down 76% year over year. Outstanding convertible debt
reduced 57% year over year to roughly $95.5 million. The company
generated operating cash flows of roughly $13.9 million in the
quarter with free cash flows of $11.6 million.
Our Take
Affymetrix is a leading provider of microarray-based products
and services to the global research community. Along with
Illumina Inc. (ILMN), it is one of the two major
providers of microarray technologies primarily used in the field of
genetic research.
Affymetrix is broadening its customer base through new product
introductions and strategic alliances. The company continues to
enjoy steady end-user demand for its arrays. Affymetrix is pursuing
a number of strategies (including expansion into new markets
including cytogenetics and cancer) aimed at expanding its top
line.
The shift in focus to high-growth markets represents a positive
step toward future
revenue growth. Affymetrix targets
generating at least 25% of its sales from new markets in
2011.
During the second quarter, the company broadened its Axiom
genotyping platform with the launch of the Axiom myDesign array for
studying mutations in disease and characterizing genetic
interactions. Affymetrix also launched the cGMP U133 P2 array as a
new component for its GeneChip instrument system. Moreover, the
company recently unveiled the innovative Cytoscan HD platform for
cytogenetic analysis.
However, Affymetrix is operating in an intensely competitive
industry and faces risks associated with lower R&D spending by
its customers, notably in Europe, due to a weak economy and
government actions including budget cuts. We currently have a
Neutral rating on the stock.
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