Zacks_Analysts' Blog : Affymetrix Profits, Misses Sales - Analyst Blog

Genetic products maker Affymetrix Inc (AFFX) has turned in a modest profit in first-quarter fiscal 2011 helped by lower costs, which offset a decline in its top-line.

The California-based company posted a profit of $39,000 (or break-even earnings) in the quarter versus a net loss of $9.6 million (or 14 cents a share) a year-ago. The results were in line with the Zacks Consensus Estimate.

Revenues

Revenues clipped 8% year over year to $73.7 million, missing the Zacks Consensus Estimate of $75 million, hit by lower product sales. Produce sales dipped roughly 8% year over year to $67.5 million as the company witnessed declines across consumables (down 5% to $62.9 million) and instrument sales (down 36% to $4.6 million).

Service revenues edged up 1% year over year to $4.5 million while royalties and other revenues fell 23% to roughly $1.8 million.

Margins and Expenses

Gross margin rose to 63.2% from 58.8% a year ago, supported by a decline in costs. Product gross margin increased to 65% from 61% in the prior-year quarter. Consolidated costs and expenses fell roughly 15% year over year to $70.6 million as R&D and selling, general and administrative expenses declined 12% and 13%, respectively, in the quarter.

Balance Sheet

Affymetrix ended the quarter with cash and cash equivalents of $29.6 million, down 61% year over year, with outstanding convertible debt of roughly $95 million (down 61% year over year).

Outlook

Affymetrix has not issued any specific financial targets for fiscal 2011. The company is pursuing a number of strategies (including expansion into new markets including cytogenetics and cancer) aimed at expanding its revenues, a top priority for the company in 2011. The company targets generating at least 25% of its sales from new markets in 2011.

Affymetrix is a leading provider of microarray-based products and services to the global research community. Along with Illumina Inc. (ILMN), it is one of the two major providers of microarray technologies primarily used in the field of genetic research.

Affymetrix is broadening its customer base through new product introductions and strategic alliances. The company continues to enjoy steady end-user demand for its arrays.

During the first quarter, the company broadened its Axiom genotyping platform with the launch of the Axiom Genome-Wide CHB 1 Array for studying disease and characterizing the genetic basis of the disease in the Han Chinese.

Moreover, Affymetrix launched the GeneChip miRNA 2.0 array, geared to advance gene expression research by expediting the identification of biomarkers and gene expression signatures associated with the disease.

However, Affymetrix is operating in an intensely competitive industry, which is characterized by rapid technological changes and evolving market needs. We are currently Neutral on the stock.