Executives assess market changes as industry-wide recession eases

January 17, 1996

U.S. shifts from sales leader to technological pioneerTop executives representing the six multinational companies responsiblefor most of the world's medical imaging equipment sales have declaredthat the industry has turned the corner, ending a

U.S. shifts from sales leader to technological pioneer

Top executives representing the six multinational companies responsiblefor most of the world's medical imaging equipment sales have declaredthat the industry has turned the corner, ending a three-year-longrecession that redefined the role of the U.S. in the global diagnosticimaging community.

In exclusive interviews at the 1995 Radiological Society ofNorth America meeting, top officials from Elscint, GE, Philips,Picker, Siemens and Toshiba told SCAN that the U.S. industry stabilizedlast year. The CT market sector remains an industry bright spotfor equipment sales, while sales strength was also notable inthe vascular and cardiac market segments.

Sales were flat, however, in the radiography/fluoroscopy andnuclear medicine segments, according to most sources. Citing NationalElectrical Manufacturers Association data, they noted that MRIequipment sales had declined about 10% through the first threequarters of the year.

Although the overall U.S. market did not grow in 1995, theexecutives were relieved that the market's free fall had ended.

"If you look at the bottom line, a market in the U.S.that used to grow between 6% and 9% per year as reliably as deathand taxes dropped by 25% in an 18-month period (ending in December1994). The market is now flat," said Dr. Thomas Spackman,president of Elscint's U.S. subsidiary.

The executives have seen the role of the U.S. market changebecause a smaller portion of total equipment sales in the worldoriginates from the U.S. Instead of being a sales leader, it isbecoming more of a pioneer in technological development. Thisdistinction is why a record number of foreign visitors walkedthe aisles of the RSNA technical exhibition last year, they said.

"What hasn't changed is that the U.S. is still the leaderin the clinical applications arena," said John Ariatti, vicepresident of marketing at Toshiba America Medical Systems. "Therest of the world looks to the U.S. to see what radiologists aredoing diagnostically and clinically."

But the direction of technological development has also beenaltered, according to Thomas Miller, group vice president of SiemensMedical Systems.

"These days, the U.S. is still a pacesetter, but in termsof economic optimization," he said.

Michael Moakley, CEO of Philips Medical Systems, has seen manymore U.S. customers emphasize economic efficacy when they buynew equipment. More sales transactions hinge on questions of throughput,cost reduction and life-cycle costs, he said.

John Trani, CEO of GE Medical Systems, admits that more researchand development caters to the world's emerging markets. Chinesecustomers show little interest in high-performance models, a findingthat has led GE to place more emphasis on adding high-performancecapabilities to lower priced machines.

"People tend to think of innovation as only high-end things,but you'll see the manufacturers far more often taking what alreadyexists on the premium end and offering that functionality to lowersegments of the market," he said.

The importance of manufacturer quality certifications, likeISO 9000 and PAL approvals, which are prerequisites for importingequipment in Europe and Japan, illustrates the rising prominenceof these markets as sales revenue sources, according to Cary Nolan,president and CEO of Picker International.

Some governments, such as China, require that equipment soldin their countries also be manufactured there. These arrangementshave led to regionally specific product designs and performancefeatures that show up later on equipment sold elsewhere in theworld. Picker, for example, designed a low-cost movable radiologytable with a built-in generator for sale in Germany, only to haveone of the largest orders for that product originate from SaudiArabia, Nolan said.

Lothar Koob, group vice president of Siemens' ultrasound groupin Issaquah, WA, pointed out the healthy effects of cross-pollinationamong the German company's groups around the world.

"We can learn from the best of the markets that are mostheavily cost-driven and the best of the markets that are mostheavily performance-driven, and synergize those ideas," hesaid.

Key U.S. trends. More industry consolidation is inevitableas the number of U.S. hospitals declines and equipment sales settleon a lower plateau, according to the executives. Economic developmentwill be especially hard on single-product vendors, Spackman said.He sees the single-product specialty companies consolidating,amalgamating, partnering or leaving the market completely.

At the same time, technological parity has become a problemfor the larger firms, according to Moakley. The perception thatone company's technology is no better than its competitors encouragespotential customers to play one firm against the other to extractthe lowest price.

"I don't think there are preferred equipment vendors anymore," he said.

Severe price pressure has combined with depressed product demandto squeeze most of the profits out of the business, accordingto Trani. With a few exceptions, most diagnostic imaging equipmentmanufacturers are only marginally profitable, he said.

Many of these companies won't survive for long, Trani added.The companies that do survive will be those that have alignedwith the major players, who can provide inexpensive access tointernational markets, he said.

Unlike Moakley, Trani believes U.S. hospitals want to dealwith fewer equipment vendors.

"They want one-stop shopping," he said.