GE Healthcare blames supply chain woes for revenue hit

GE Healthcare is the latest medtech to take a supply chain hit, coming after AdvaMed late last month published a study showing that the ongoing global semiconductor chip shortage is causing delays, order cancellations and other supply disruptions for medical device companies.

The medtech lobby is pushing the Biden administration, Congress and semiconductor manufacturers to prioritize the supply of chips to medical device manufacturers over other industries that use the same components. ResMed cited the shortage of semiconductors as a reason it will be unable to meet surging demand for its sleep apnea products created by the Philips recall.

“Based on broader industry trends, we expect company-wide pressure to continue at least into the first half of next year,” Culp told investors on Tuesday. “I’m not sure we’re yet in a place where we would say that things are stable.”

GE is trying to address the supply chain disruptions by “activating dual sources, qualifying alternative parts, redesigning and requalifying product configurations and expanding factory capacity,” according to Culp.

The CEO said he wished the healthcare unit’s third-quarter earnings announcement “weren’t as much of a camouflaged headline” due to supply chain issues. However, Culp maintained that the division is a strong business and was optimistic about its longer-term prospects.

Despite its supply chain challenges, GE CFO Carolina Dybeck Happe told investors on the call that GE Healthcare’s organic margins are now expected to expand close to 100 basis points this year as the company “proactively manages sourcing and logistics.”

While GE’s healthcare systems (HCS) third-quarter orders increased more than 20% organically year-over-year, growing double-digits in imaging, ultrasound and life care solutions, HCS organic revenues declined 8% more than offsetting 8% organic growth in pharmaceutical diagnostics.

GE Healthcare announced last month it will acquire BK Medical from private-equity firm Altaris Capital Partner for $1.45 billion to broaden its $3 billion ultrasound business into surgical visualization, used to guide surgeons during minimally invasive and robotic surgeries.

Though the BK Medical acquisition is “admittedly small” according to Culp, the CEO said it is “a step forward as we advance our mission of precision healthcare” with GE looking to expand its diagnostics portfolio into surgical and therapeutic interventions. The transaction is expected to close in 2022.

Dive Brief:

• GE’s healthcare unit on Tuesday reported that third-quarter revenues of $4.3 billion decreased 6% organically due to ongoing industry-wide supply chain shortages.
• The supply chain hit to the conglomerate’s healthcare division was the biggest of any business unit, GE executives told investors on Tuesday’s earnings call, adding they expect disruptions to last through at least the first half of 2022.
• GE CEO Larry Culp described the company’s supply chain challenges as the worst of the CEO’s career and said the healthcare unit will continue to proactively manage sourcing and logistics. “It really is akin to playing Whac-A-Mole,” Culp remarked. The supply chain issues come as GE Healthcare CEO Kieran Murphy is set to be replaced at the end of 2021 by Integra LifeSciences CEO Peter Arduini.

MedTech Dive