We retain our Neutral rating on genetic products maker
) following its tepid fourth-quarter fiscal 2011 results which
missed the Zacks Consensus Estimates. Its loss per share of 21
cents for the quarter was higher than the Zacks Consensus Estimate
of a loss of 7 cents.
Sales declined at a double-digit clip, hurt by lower product
revenues, and also missed the Zacks Consensus Estimate. The
California-based company witnessed declines across its consumable
and instrument businesses in the quarter, resulting in a 18%
decline in product revenues.
Both DNA and RNA sales declined in the quarter. Gross margin
dipped year over year, impacted by volume absorption and
Affymetrix is a leading provider of microarray-based products
and services to the global research community. Along with
), it is one of the two major providers of microarray technologies,
primarily used in the field of genetic research. Affymetrix holds a
leading position in the gene expression products and services
Affymetrix is expanding its customer base through new product
launches and strategic alliances. Moreover, the company is pursuing
a number of strategies (including expansion into new markets) aimed
at expanding its top line.
Affymetrix is shifting its R&D focus from discovery and
exploration markets to the faster-growing validation and routine
testing markets. The company reckons cytogenetics and cancer
research as promising areas for expansion, representing market
opportunities of roughly $200 million and $500 million,
The company has realigned its operation into a number of
business units including gene expression, genetic analysis, life
science reagents and clinical diagnostics. The structural changes
are expected to streamline its decision-making process while
improving customer focus and accountability.
Affymetrix has also taken up various steps to stabilize its
expression business. Moreover, the company expects its genetic
analysis and clinical diagnostic business to grow at least 20% in
2012, driven by its cytogenetics program and increased traction of
its Axiom genotyping platform.
We are also encouraged by the company's move to buy
privately-held eBioscience, a global leader in immunology and
oncology flow cytometry reagents. The acquisition will
significantly boost its foothold in the fast-growing immunology,
oncology and translational medicine markets, representing an annual
opportunity nearing $3 billion.
However, Affymetrix is operating in an intensely competitive
industry and faces risks associated with lower R&D spending by
its customers due to a soft economy and government actions
including budget cuts.
Affymetrix is exposed to a volatile funding environment. The
company has been beset by uncertainties surrounding National
Institutes of Health ("NIH") funding. Decline in government
research grants may substantially affect the company's revenues.
Affymetrix currently retains a Zacks #5 Rank, which translates into
a short-term "Strong Sell" recommendation.
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