Medical technology company, Greatbatch Inc. (GB) recently proposed to relocate Greatbatch Medical’s orthopedics manufacturing business from Orvin and Corgemont in Switzerland to the company’s other facilities located at Tijuana, Mexico and Fort Wayne, Indiana. The company plans to complete the relocation by the end of 2013.
The proposal represents the company’s intention to cut costs and improve efficiencies. The company’s orthopedics segment’s performance has been affected by the challenging market conditions. Greatbatch Medical’s, Orthopedic sales plunged roughly 22% to $31 million due to the lack of product expansion and development initiatives in the first-quarter of fiscal 2012. Thus, in order to increase operating performance and propel growth, the company plans to consolidate this business.
Greatbatch’s acquisition of Precimed in 2008 and the global recession that followed immediately thereafter affected the company’s orthopedic business adversely. Since then the company has been facing problems related to product launches as well as pricing pressure from its customers. All these difficulties prompted management to take this decision as they believe that the facilities at Fort Wayne and Tijuana are more efficient and cost saving.
Greatbatch Medical will continue its orthopedic operations in Switzerland but on a much smaller scale. The relocation decision would impact up to 90% of the 196 employees at Orvin and Corgemont but according to Swiss law, they still have an opportunity to voice their opinion before any final decision is made. The consultation period ends on July 20, 2012.
Greatbatch is a leading producer and supplier of batteries, capacitors and components used in implantable medical devices. The company’s top customers include Boston Scientific (BSX), Johnson & Johnson (JNJ), Medtronic (MDT) and St. Jude Medical (STJ).
Greatbatch has been acquiring complementary businesses over the last few years in a bid to expand. The company has a strong pipeline with a number of products currently in development that should support growth in the long run.
However, soft Cardiac Rhythm Management and Orthopedic markets and pricing pressure remain headwinds. We currently have a Neutral recommendation on Greatbatch. The stock currently retains a Zacks #3 Rank, which translates into a short-term Hold rating.
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