CT upgrades in developed markets cause flood of used systems overseas

July 27, 1994

U.S. firm combines service and sales in Asia-Pacific A flood of used and refurbished CT systems has inundated the Asia-Pacificmarket. Excess supply and tough competition portend a shakeoutamong used equipment brokers in the region, according to

U.S. firm combines service and sales in Asia-Pacific

A flood of used and refurbished CT systems has inundated the Asia-Pacificmarket. Excess supply and tough competition portend a shakeoutamong used equipment brokers in the region, according to RickStockton, president of Southern Cats of Ontario, CA. In contrast,growth in CT and other imaging system installations in Asia-Pacificbodes well for independent service organizations active internationally.

Rapid changes in CT technology, led by the expanded use ofspiral imaging, have propped up new system sales in developedmarkets. But this general upgrading has cut loose a large numberof prior-generation scanners with little resale demand anywherebut in developing markets.

Southern Cats, while predominantly an ISO, also sells bothused and new imaging equipment with a focus on CT and cardiaccath labs. Although 75% of the firm's business is U.S.-based,Southern Cats has been active in Asia and other world scannermarkets since its founding in 1985 by executive vice presidentEd Manubay and Stockton, a former Far East technical support engineerfor Technicare (SCAN 3/15/89). The firm's U.S. business has beenlevel recently, with growth occurring on the international side,Stockton said.

According to the two partners, prospects for used equipmentbrokers in Asia-Pacific are bleak for several reasons:

** Market saturation of aged CT systems;

** Growth in the number of competing brokers;

** A sour industry reputation caused by past disreputable activitiesand lack of customer support, particularly in China; and

** Cut-rate pricing by Japanese suppliers of low-end new CTequipment.

"Many people are trying to get into this industry. Itis not a very good time for people to enter," Stockton toldSCAN.

Many Asian buyers have lost their trust in U.S. remarketers,Manubay said. Some were sold used CT equipment that didn't workcorrectly upon delivery or broke down relatively soon after installation.

Both sides may be at fault, however, for the past bad bloodin CT. The Chinese, in particular, are not believers in regularservice contracts. They like to take on the service risks themselveswith all the problems that this entails. Southern Cats performsservice work in China but has no service accounts. Work is performedon a time-and-materials basis, Stockton said.

"Someone sold them (the Chinese) a machine. It hasn'tworked in three years, and the doctor is starting to get mad.That is how we get into it," Stockton said.

Southern Cats hopes to build its service business in China.The U.S. firm lined up a potential joint venture partner in Shanghailast year, he said.

However, while Chinese approval for the venture stalled, thefirm proceeded to set up a Pakistani joint venture, Southern CatsAsia, and sold three scanners in that market last year, Stocktonsaid.

CT sales are tough to make, however, when competing with thelikes of Shimadzu, Hitachi and even GE operating out of Japan,Manubay said.

"The problem right now with selling refurbished equipmentin China and all of Asia is that the Japanese are really dumping,"Manubay said.

New Japanese-made scanners can be had for $300,000 with low-interestloans, no down payments and no payments at all for the first year,he said.

"It is very competitive. The margins are tight. Thoseglory days of doubling your money on a refurbished system areall gone," Manubay said.

Southern Cats moved into the cardiac cath business both becauseit found a skilled engineer in the field to head up the effortand because there is growth in regional demand, more growth thanin MRI, for instance, Stockton said.

Demand for superconductive MRI in developing markets has beendampened by the high cost of cryogen supply. Helium costs an averageof $18 a liter internationally compared with under $3 in the U.S.,Manubay said.

In contrast to the CT situation, older MRI scanners let looseby upgrades to more cryogen-efficient technology are hard to selloverseas because of the prohibitive cost of cryogen. New superconductivesystems, which require significantly fewer cryogen refills, helpsolve the cost problem but are years away from the used market,Stockton said. The turnover time for MRI is growing longer asusers in the U.S. and other markets hang on to their systems.

"People used to get a new (MRI) machine every five years,but now it is stretching out to seven and maybe even 10 years,"he said.

After CT, ultrasound offers the strongest demand in Asia-Pacificfor international medical imaging system suppliers, despite userattachment to standard x-ray, Manubay said. This is mostly becauselocal suppliers of low-cost x-ray systems are available ian manymarkets.

Ultrasound's low cost and reliability have caused it to beused for a broad spectrum of applications in Asia-Pacific, hesaid. In some cases, it is used instead of nuclear medicine andmammography, which are more prevalent in developed markets.