Amid chip shortage, ResMed says medical devices need priority

San Diego company posted strong financial results but is being slowed by supply chain bottlenecks for its sleep apnea machines and ventilators.

ResMed Chief Executive Mick Farrell usually delegates negotiations with suppliers to the San Diego company’s production executives.

But amid continuing component shortages, Farrell has been on numerous Zoom calls recently urging semiconductor makers, in particular, to consider placing medical devices — such as ResMed’s ventilators, sleep apnea machines and other respiratory gear — toward the front of the line for shipments.

“I am definitely working with some of the biggest names out there and really asking, begging, pleading that we should prioritize medical devices over another cellphone, another electric car, another cloud-connected refrigerator,” he said.

While there’s been sympathy for Farrell’s position, semiconductor shortages are widespread and expected to continue across many industries as global economies emerge from the pandemic.

Just how much these shortages hamstring corporate earnings will be a key question as the third-quarter financial reporting season kicks off over the next couple of weeks.

ResMed managed to post strong quarterly results on Thursday despite difficulty in securing electronic components.

Revenue reached $904 million, up 20 percent over the same period last year. Net income grew 14 percent to $204 million, or $1.39 per share, under Generally Accepted Accounting Principles.

The gains came despite a tough comparison from last year when the pandemic drove extraordinary demand for ventilators. With the rollout of vaccines, orders for ventilators have normalized.

Still, Farrell said there was plenty of demand for other products — fueled in part by new customers seeking sleep apnea devices after Philips recalled 3.3 million CPAP machines. Philips is ResMed’s top competitor in the sleep apnea arena.

“About 150 ships are backed up off Long Beach,” said Farrell. “Our products go on those ships. We’ve had to charter planes to fly from Singapore to Atlanta, Singapore to Los Angeles, to our distribution centers.”

ResMed manufactures respiratory devices in Singapore, as well as in Sydney, Australia and in Atlanta. The higher costs of flying freight contributed to a decline in gross profit margins during the quarter.

It’s hard to predict when electronics components shortages will ease, but Farrell expects constraints to linger for the next two quarters at least.

“It’s like a game of whack-a-mole,” he said. “There are bottlenecks. You solve one, and then another one appears.”

ResMed released results after markets closed. Its shares ended Thursday at $268.66 but rose 5.3 percent in extended, after-hours trading. San Diego Union-Tribune