Scanner vendors trim operations as customers hold off purchases

June 16, 1993

Scanner suppliers continue to reel from an extended U.S. marketdownturn caused largely by hospital uncertainty about changesin the national health-care system that are pending in Washington.Ultrasound vendor Acuson expected the market to turn up in

Scanner suppliers continue to reel from an extended U.S. marketdownturn caused largely by hospital uncertainty about changesin the national health-care system that are pending in Washington.Ultrasound vendor Acuson expected the market to turn up in 1993but was forced this month to lay off 250 employees, the firstlayoff in the company's 10-year history.

Acuson competitor ATL advised the financial community thisweek that its financial results for the second quarter (end-June)would be at break-even or a slight loss, due to delays in ultrasoundpurchasing caused by uncertainty over health-care reform. GE MedicalSystems, despite years of trimming its work force, will announceanother layoff in the near future. GE engineering, which was largelyspared the knife in past reductions, may not escape this time.

"The U.S. market is changing and it is going to continueto change over time," said Brian Johnson, project managerof marketing and communications for GE Medical Systems in Milwaukee."We have to look at restructuring our business to size itto the new market."

GE Medical Systems has experienced solid sales growth in Asianand Latin American markets, but this has not been enough to offsetthe decline in U.S. demand, he said.

Acuson, used to double-digit growth in the late 1980s, actuallyhired 300 people in 1992, hoping that the slowdown in ultrasoundwas almost over, according to Robert J. Gallagher, executive vicepresident and CFO of the Mountain View, CA-based firm.

"Our vision was that we would start to see some steadyimprovement during 1993," he told SCAN. "Now, though,the added uncertainty of health-care reform in the United Statesmakes us question whether we are going to see that improvementthis year."

Acuson will incur a $12 million charge in its second quarter(end-July 3) to cover severance payments and other restructuringcosts. This will likely leave the vendor with a loss for the quarter,Gallagher said.

Staff cutbacks have been made in parts of the organization,such as manufacturing, support and administration, that will allowAcuson to maintain its speed of new technology introduction, hesaid.

One example of structural consolidation at Acuson is the expandedresponsibility given to vice president of sales Daniel Dugan.Previously responsible for North American sales, Dugan has worldwideresponsibility following this month's restructuring, Gallaghersaid.

Acuson introduced a major signal processing upgrade, labeledAcoustic Response Technology (ART), last month, as well as theXP4, a new mid-tier color scanner (SCAN 5/19/93). Radiologistsand other clinical users have been impressed with the technology,but they can't buy all they would like these days, Gallagher said.

"We see tremendous interest by physicians in our new productsand existing products. What we don't see happening is that (interest)turning into purchase orders because the administrators are waitingto see what happens next," he said.

Acuson still plans to spend about $60 million this year onresearch and development, Gallagher said.

"All of the R&D programs are intact and proceedingas planned," he said.

GE Medical may also trim staff through a reorganization ofits parts operations, according to a report in The Milwaukee Sentinel.GE has signed a contract with Lanter, a St. Louis warehouse company,to operate parts distribution facilities in Memphis and Chicago.

The decision to reorganize parts distribution was made to increaseavailability and delivery time, Johnson said. Chicago was chosenbecause of the availability of international flights, and Memphisbecause it is the main hub for Federal Express.