ATL wins access to Japanese market through partnership with Hitachi

Deal includes ultrasound technology development

Advanced Technology Laboratories has taken a major step towardopening the Japanese ultrasound market for its premium HDI 3000scanners, through a two-part agreement with Hitachi Medical ofTokyo. The deal also lays the foundation for future developmentof improved ultrasound technology between ATL and Hitachi.

The first part of the agreement, announced earlier this month,calls for Hitachi to distribute HDI 3000 in Japan. The companyis one of the top three vendors of ultrasound equipment in thatcountry, along with Toshiba and Aloka. Hitachi offers a wide rangeof entry-level and mid-tier sonography systems, but has no offeringsin the premium end comparable to HDI 3000.

The second part of the deal involves Hitachi's purchase ofa 40% equity position in ATL's R&D subsidiary, Atlantis DiagnosticsInternational, located near ATL's Bothell, WA, headquarters.

The terms of the equity purchase are not available. The twocompanies hope to formalize the agreement by early December. Inpreparation, they are pursuing regulatory approvals for Hitachito begin selling HDI 3000 in Japan and for the restructuring ofAtlantis.

Hitachi generates about $100 million in annual ultrasound sales,compared to ATL's $395 million. But taken as a whole, Hitachihas enormous muscle. The medical side of the conglomerate, whichis primarily imaging-based, generates about $900 million in annualrevenues. Hitachi Corp., with its vast electronic product offerings,totaled $76 billion in revenue in fiscal 1994.

It is the electronics business that will contribute most tothe joint R&D effort, according to Dennis Fill, ATL chairmanand CEO.

"Hitachi has a significant amount of research in microelectronicsthat we think will be of value to us," Fill said.

ATL's move is part of an aggressive strategy of consolidationand alliances. In February the company announced a restructuringto completely absorb the resources of Interspec, which ATL obtainedlast year (SCAN 3/15/95).

The Hitachi partnership complements the Interspec acquisitionby enhancing long-term technology development and extending distributionchannels to the Japanese market, albeit only for HDI 3000.

"We believe there is a market there. It is probably 15%to 25% of the $350 million of ultrasound equipment sold annuallyin Japan," Fill said. "The medical diagnostic marketin Japan has typically responded well to high-performance systems."

The Japanese ultrasound market is second only to that of theU.S. in terms of total revenue. Fill concludes that the submarketfor high-performance systems is likely to grow vigorously in thenext few years and that ATL will gain market share.

The agreement between the two companies includes the licensingby Hitachi of certain aspects of ATL technology, which the Japanesecompany will incorporate into its systems, Fill noted. This licensingraises the question of whether Hitachi might in the future developan advanced high-end system that potentially could compete withHDI 3000 or even leapfrog that technology.

Fill does not believe that any future threat from Hitachi willarise from the partnership, however. The R&D effort is focusedon the development of technology, not configured products, hesaid. In addition, the licensing agreement does not involve HDI3000 technology.

"This is really a joint venture for the advancement ofultrasound technology and is not aimed at developing finishedsystems," Fill said. "That is an important point, because(the technology development) does not address all aspects of theultrasound system. By no means will it allow them into our fulltechnology."