Genetic products maker Affymetrix Inc’s (AFFX) second-quarter fiscal 2011 loss per share of 5 cents was a shade above the Zacks Consensus Estimate of a loss of 4 cents, but below the year-ago loss per share of 8 cents. The California-based company’s losses trimmed 33% year over year to $3.7 million as lower costs more than offset the decline in sales.
Revenues dipped 9.8% year over year to $64.7 million, essentially in line with the Zacks Consensus Estimate. Sales were hurt by lower product revenues which slid 10.7% year over year to $58.1 million.
Lower consumables (down 10.4% to $54.3 million) and instrument (down 15.6% to $3.8 million) sales resulted in a decline in product revenues. DNA and RNA sales clipped 12% and 13%, respectively.
On a positive note, service revenues jumped 12.8% year over year to $5.3 million. Royalties and other revenues plummeted 27.8% to roughly $1.8 million. The company noted that its second quarter results were impaired by a decline in sales to its academic customers across all markets, especially in North America.
Margins and Expenses
Gross margin rose to 60.1% from 56.6% a year ago owing to a decline in cost of products sold and services and favorable mix. Product gross margin improved to 62% from 58% in the prior-year quarter.
Consolidated costs and expenses fell 12.4% year over year to $67.7 million as the company spend less on R&D (down 14.1%) and selling, general and administrative (down 6%) expenses.
Balance Sheet and Cash Flows
Affymetrix exited the second quarter with cash and cash equivalents and available for sale securities (short-term) of $72.4 million, down 76% year over year. Outstanding convertible debt reduced 57% year over year to roughly $95.5 million. The company generated operating cash flows of roughly $13.9 million in the quarter with free cash flows of $11.6 million.
Our Take
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. Affymetrix is pursuing a number of strategies (including expansion into new markets including cytogenetics and cancer) aimed at expanding its top line.
The shift in focus to high-growth markets represents a positive step toward future revenue growth. Affymetrix targets generating at least 25% of its sales from new markets in 2011.
During the second quarter, the company broadened its Axiom genotyping platform with the launch of the Axiom myDesign array for studying mutations in disease and characterizing genetic interactions. Affymetrix also launched the cGMP U133 P2 array as a new component for its GeneChip instrument system. Moreover, the company recently unveiled the innovative Cytoscan HD platform for cytogenetic analysis.
However, Affymetrix is operating in an intensely competitive industry and faces risks associated with lower R&D spending by its customers, notably in Europe, due to a weak economy and government actions including budget cuts. We currently have a Neutral rating on the stock.
