Analogic Corp. is now in its 31st year of designing and manufacturing high-precision medical imaging, industrial diagnostic and measurement instruments and equipment for original equipment manufacturers (OEMs).

The company’s first major breakthrough came in 1975 with its invention of an instant-imaging CT scanner for Siemens Medical Engineering Group (Erlangen, Germany). Twenty-five years ago, major medical imaging equipment manufacturers did not consider outsourcing its products, so the Analogic alliance with Siemens proved a significant first step in this direction, as well as a credibility boost for Analogic within the industry.

Since then, Analogic has continued to grow and expand its medical imaging-related product lines to include ultrasound systems and components, selenium flat-panel detectors for digital radiography (DR), CT data acquisition and conversion systems, and a wide range of patient monitors, just to name a few.

OEMs “come to recognize that it is not worthwhile for them to engineer something that they are going to make a limited quantity of,” says Bernard M. Gordon, Analogic’s chairman and CEO. “Although a new requirement may be unique to them, generally it bears some relationship to other work that we do.”

In July 1999, Analogic entered the flat-panel digital X-ray detector market with its acquisition of Noranda Advanced Materials (St. Laurent, Quebec, Canada) from parent company, Noranda Inc. (Toronto).

To bring Noranda Advanced Materials into the fold, Analogic created a wholly owned subsidiary — Anrad — which still operates in Noranda’s 35,000 sq. ft. facility. Anrad has approximately 70 employees in St. Laurent.

Early this year, Analogic created two divisions to formalize its work in the DR and ultrasound markets.

Creation of the digital X-ray business unit was spurred not only by Analogic’s strategic decision to pursue the DR supplier market through Anrad, but also because of a November 1999 agreement to supply Eastman Kodak Co. (Rochester, N.Y.) with new DR systems.

The newly formed ultrasound division in Peabody coordinates the company’s OEM ultrasound subsystem business, targeting the general ultrasound segment. Analogic’s B-K Medical subsidiary (Gentofte, Denmark) specializes in urological, gynecological and surgical applications of ultrasound.

Analogic’s goal is to have the OEM subsystems business and B-K Medical share technologies more closely and reduce architectural and software redundancies where feasible.

Analogic has one other medical subsidiary — Camtronics Medical Systems Inc. (Hartland, Wis.) — which develops digital cardiac network systems and image processing products. The technology is used primarily in cardiac catheterization and angiography labs, as well as in radiography and fluoroscopy procedures.

Camtronics broke ground in August for a 35,000 sq. ft. addition to its facility, nearly doubling the size of its headquarters. The current space holds the company’s administrative, engineering, service, customer training, sales and marketing, and manufacturing functions. The new complex will house expanded manufacturing capabilities.

While the percentage of medical imaging-related revenues varies slightly from year-to-year, it generally remains in the 75 percent range of total revenues. Signal processing revenues account for approximately 20 percent of total revenues, with the remainder divided amongst Analogic’s other product groups.

According to a recent report from Standard & Poor’s, Analogic’s three largest customers in FY99, ending July 31, were Philips Medical Systems International B.V. (Best, Netherlands), GE Medical Systems (Waukesha, Wis.) and Toshiba Corp.’s (Tokyo) Medical Systems unit, with Philips accounting for 18 percent of Analogic’s total revenues.

Analogic’s 10 largest customers contribute approximately 56 percent to total revenues. Approximately 30 percent of Analogic’s products are exported.

Analogic trades on the Nasdaq under the ticker symbol ALOG. In mid-September, the company’s share price had slipped to the $33 range after trading at $38 per share earlier in the month. The stock reached a 52-week high of $50.50 per share on March 7; the 52-week low is $23.

In the first nine months of Analogic’s fiscal year, ending April 30, revenues declined 1 percent to $208.4 million, compared with $210.7 million in the same period of FY99. Net income declined to $8.7 million, compared with $15.6 million in the year-ago period.

Analogic noted that product shipments and earnings improved “substantially” over the previous two quarters. Both quarters had been affected adversely by industry-wide shortages of several critical electronic components and the costs of implementing the company’s strategic plan unveiled in January.

At the start of the fourth quarter, Analogic signed a development and supply agreement with an undisclosed “major vendor” to provide several hundred CT systems over the next five years.

The company’s fiscal year 2000 results, ending July 31, are scheduled for release in October.

Principal Products
Analogic lists 14 product categories in its portfolio, with complete CT scanning systems and data acquisitions systems, ultrasound and digital radiography (DR) heading the lineup of medical imaging-related offerings.

While the technology within each of the respective modalities may be similar, each OEM customer receives different versions of subsystems and components for its particular product configuration.

Analogic supplies complete CT systems, including a lightweight, mobile, universally powered CT, which is marketed worldwide by one of Analogic’s strategic partners. The system can be configured as a fixed unit or on wheels, giving it portability for use in trauma centers, ICUs and surgical suites. The CT scanner’s geometry requires only approximately one-third the X-ray energy of conventional systems, thus reducing a patient’s radiation exposure.

The company also is a leading supplier of CT data acquisition systems (DASs). Analogic estimates that it has developed and manufactured DASs for approximately three-quarters of the CT systems in use today around the world.

In ultrasound, the company designs and manufactures complete advanced ultrasound systems, subsystems and transducers for applications, such as radiology, cardiology, ob/gyn and peripheral vascular studies. The custom subsystems include spectral Doppler, color flow mapping and proprietary front-end electronics with either analog or digital beamformers. Analogic’s scaleable digital beamformers are designed for multi-beam capability and can support mid-tier to high-performance systems (64 to 128 or more channels).

The company’s custom multi-element phased and linear array transducers support frequencies up to 10 MHz.

Analogic also is a leading supplier of custom patient monitoring products for OEMs. Target markets range from low-cost systems for physicians offices, clinics and lower-acuity and alternate-site care, to advanced systems for hospitals. Its newest fetal monitor is the Fetalgard Lite. The low-end, modular, portable, antepartum fetal monitor offers multiple configurations for clinics, birthing centers and hospital environments. (Chairman Gordon and his former company built the first fetal monitor.)

On the MRI side, Analogic is one of the world’s largest OEM suppliers of power electronics. The company estimates that almost half the MRI systems in the world today are powered by Analogic equipment. Its Integrated Power System (IPS) combines a gradient power system, RF power amplifiers and a common power supply unit in a single compact cabinet.

Analogic holds a very intriguing position. In some respects, the company has little or no competition. Very few — if any — other companies have the breadth or variety of medical imaging products Analogic has under one roof. The only exceptions would be Analogic’s own customers.

Chances are very good that Analogic will keep its majority market share in this area. Given what can be an enormous expense for any company to begin a specialized production line from scratch, budget-conscious OEMs wisely will opt to outsource for components and subsystems.

As one analyst put it, “Nobody wants to get into manufacturing anymore. They’re all outsourcing.”

One analyst refers to the company as the “University of Analogic,” because of its wealth of engineering and intellectually diverse talent. To help keep the creative channels open, Analogic directs approximately 14 percent of its total revenues toward R&D.

Ask Analogic officials about the company’s strength and one word is mentioned immediately — innovation.

“We must be faster and cheaper than and provide new concepts for the powerful companies who are our customers or their own engineers will do it themselves rather than work with us,” says Thomas J. Miller Jr., president and COO. “It is always a challenge to manage innovation.”

In order to preserve its relationships with its OEM customers, Analogic is very strict about guarding a customer’s internal secrets. More often than not, Analogic is working with customers who are mutually competitive.

It is Analogic’s policy neither to divulge information about who its customers are nor what the company does for that customer. Analogic will leave it to the customer whether to disclose publicly what Analogic supplies, in terms of internal components or complete products. Even if and when the customer’s name is made public, Analogic will divulge no more than what its customer already has stated, opting to maintain its code of confidentiality and appearing almost humbled by the publicity.

Kodak and Agilent Technologies Inc.’s Healthcare Solutions Group (HSG of Andover, Mass.) are two companies that think enough of Analogic to go out of their way to mention the supplier.

This past June, Agilent announced that Analogic will manufacture, develop and supply HSG with a new line of portable, stand-alone patient monitors for the lower-acuity and alternate-site healthcare segments. It’s Agilent’s first foray into the sub-critical care and non-acute care segments and Analogic is pleased to be on HSG’s coattails.

“For us to have a part in that move — because that is the part of patient monitoring segment that is growing the fastest — I think is a strategically important point for us,” says Miller.

One legitimate concern of analysts — and Analogic itself — is who was going to direct Analogic when Chairman Gordon, who is 73, no longer is with the company. In fact, executive succession was the lead issue in Analogic’s 1999 annual report in its letter to shareholders.

With several senior executives approaching retirement age, Analogic last year began a concerted effort to identify who would help lead the company.

Its most significant move came in August 1999, when Analogic named Miller as president and COO. He succeeded Bruce R. Rusch, who resigned as of July 31, 1999. Miller came on board in October, one year ago this month.

Miller, 42, previously served for almost three years as president and CEO of Carl Zeiss Inc. (Thornwood, N.Y.) and world general manager of Carl Zeiss Medical Group (Oberkochen, Germany). The two years prior to Zeiss, he was group vice president of imaging systems for Siemens Medical Systems Inc. (Iselin, N.J.).

Analysts also like to see a cohesive, focused plan of action for Analogic’s core businesses. While it is very good to have an abundance of technological expertise among its dozen or so product lines, the challenge is managing the diverse operations effectively.

“Lack of corporate direction gets Wall Street nervous,” one analyst opined.

Analogic wasted no time in the new millennium — January, to be exact — in setting its agenda for the next five years to accelerate company growth. Miller outlined a three-part plan to refocus Analogic’s current core business, continue the company’s expansion as a complete systems provider and to extend offerings within the installed base of Analogic and OEM products.

The first phase includes spinning off Analogic’s Computer Telephony product group — Anatel Communications (Peabody) — in an initial public offering in 2001; create more autonomous business units; and revamp accounting and information systems.

In addition, the strategy calls for the possible sale of what Analogic describes as “non-core assets” and the creation of the new ultrasound and digital X-ray divisions.

To date, Anatel has been established, as have the ultrasound and digital X-ray divisions, but Analogic has yet to divest what it considers non-core businesses.

Another challenge for Analogic is one that all industries currently face — identifying new engineering talent, recruiting it and keeping it. Located within the greater Boston metropolitan area affords Analogic fertile ground from which to cultivate innovative employees.

“A lot of this equipment is fairly complex,” Gordon says. “It takes many more engineers to do today what a single engineer used to do.”

The future prospects of outsourcing medical imaging technology is, as one would suspect, optimistic. As large medical imaging vendors shift strategies to become “solutions providers,” Analogic believes the necessity for OEMs to make every piece of equipment becomes proportionally less critical.

“Just as in the past when they were willing to outsource a component, now if they provide a higher set of services for their customers — IT, networking — the fact that an entire CT system may be outsourced is more attractive,” Miller says.

Analogic’s plan with Anrad and its DR segment is to replicate the company’s ascension within the CT market — start by providing very critical, high-precision components and eventually supply more complex subsystems.

How soon Anrad’s flat panels will be ready for the market depends greatly on its customers’ progress with its products. Anrad has delivered prototypes to three companies. To get to the point where Anrad is delivering flat panels on an economically feasible volume will depend on how soon its customers can receive a PMA or 510(k) clearance from the FDA.

Analogic also would like to expand its ultrasound potential through its BK subsidiary. Breast imaging is one area where BK has had an historical presence and Analogic is considering expanding into diagnosis and biopsy guidance.

On the financial side, one analyst sees Analogic ready for an upswing in its financial performance. The uptick in revenues and earnings, the analyst speculates, could come as soon as the first quarter of FY2001.end.gif (810 bytes)