OEM component supplier sees slide in third quarter revenues

CT dominates lost revenues at Mercury Computer

Mercury Computer Systems has been riding high on the imaging community's seemingly insatiable thirst for multidetector CT. The company, which provides technology for managing and processing digital data, had seen revenues from its CT business grow steadily until, in FY 2001, they accounted for about half its revenues from medical technologies. But revenues from medical imaging have dropped sharply for the Chelmsford, MA, firm, and CT is leading the downward trend.

The latest figures for Mercury's 2003 third quarter, which ended March 31, show total revenues from its medical imaging lines-CT, digital x-ray, MRI, and PET-of $8.2 million. This figure represents a 43% drop from 2002 third quarter revenues of $14.3 million. Over the last nine months, medical imaging revenues were $28.4 million compared with $34.8 million for the same period in FY 2002. The drop in medical imaging dollars is due primarily to the release by OEMs of CT scanners that do not contain Mercury components, according to Didier Thibaud, vice president and general manager of Mercury's medical business group.

Although he would not comment on the reasons for the decline in CT and overall medical imaging performance, Thibaud believes it is only a short-term wrinkle and that OEMs will be returning to Mercury, although likely at a more tempered pitch than in previous years.

"We are no longer in the very fast growing pattern that we had seen over the last three years," he said. "But we are coming back to a steady state in CT. We are coming back to more normal modality growth."

The shortfall in medical OEM revenues was mixed into one of the company's best quarters on record, as total revenues soared 40% over the prior year's third quarter to $48.7 million and net income rose 197% to $7.9 million. This extraordinary growth was attributed largely to defense spending on advanced radar, signals intelligence, and emerging applications. The good times, however, will not continue to roll.

Orders received by the company in the third quarter were well below the norm in both the defense electronics and medical imaging segments, leading to a backlog of $59.8 million compared with $78.4 million at the beginning of the fiscal year. Of the current total backlog, $54.2 million represents shipments scheduled over the next 12 months.

Mercury is not providing a business outlook for next year, primarily because of continued geopolitical and worldwide economic uncertainty across its defense and security electronics, which accounts for the majority of the company's business. Thibaud is optimistic, however, about the future of its medical imaging lines.

Mercury is developing a next-generation computing platform that will add value to customers for CT as well as other medical imaging modalities. According to Gary Olin, director of corporate communications and investor relations, Mercury is engaging in what he called presales activities: presenting a platform road map to previous customers and potential new ones.

The company is not prepared to announce any changes in design at this point, but its objective is to not only recapture CT business but penetrate into markets addressed by other modalities, Olin said.