Annotated article summary from this weekend's Barron's. Receive all our Barron's summaries by signing up here:
The Sound of Trouble by Neil A. Martin
Summary: SonoSite (NASDAQ:SONO), which makes hand-carried ultrasound machines, is starting to feel the pinch of GE Healthcare's new compact LOGIQe, which competes directly with SonoSite's flagship product MicroMaxx. GE ultrasound sales ($264 million in 2007) have now overtaken SonoSite's, making it the industry leader. Its projected $300 million in 2008 would give it 58% of the global $510 million/year market. In May, GE sued SonoSite, saying MicroMaxx and another product infringe on five of its patents. If successful, the lawsuit "could be crippling" to SonoSite's sparse product line, says Oppenheimer analyst MD Sean D. Lavin. (SonoSite denies wrongdoing, and is countersuing GE for violating its patents.) Other problem areas include high sales expenses, negative operating margins, dwindling sales (18% 2007e growth vs. a historical 50%), and what some view as a lack of R&D spending. Shares ($36), down 7% over the past year, could hit $30.
Related Links: Cardiac Science, SonoSite Get Product Placement On Prime Time • SonoSite patent lawsuit SEC filing • SonoSite's Double Life [Motley Fool]