Cochlear ($COH) downgraded profit forecasts for the second half of its current fiscal year. The Australian company blames the expected dip on a customer base that looks like it is holding out for a "game-changing" new product. Investors weren't happy, The Wall Street Journal reports, and investors knocked the company's stock down 18%.
Cochlear now says it will pull in between $130 million Australian ($125.3 million U.S.) and $135 million Australian ($130 million U.S.) in net profit by the end of its fiscal year on June 30, according to the story. Cochlear's first six months of net profit hit at a far more robust pace--reaching nearly $78 million Australian ($75 million U.S.). Investors don't care for the profit downgrade, and their selloff plunged Cochlear's shares down to $52.88 Australian $51 million U.S.), an 18% decline.
The profit dip, it seems, comes in part from customers holding back on their spending in order to wait for Cochlear's next-generation Nucleus 6 device, which will finally hit South Korean and Canadian customers this month after more than six years of R&D. The Wall Street Journal notes the product should hit the European market soon after and hopefully win FDA approval in the U.S. by late 2013. The hearing implant is pretty snazzy with a lot of bells and whistles, including the ability to adjust sound settings without manually resetting. It also can wirelessly stream data from iPods and mobile phones, and logs data that doctors can use to determine how their patients use the device.
But that's not Cochlear's only struggle. As the article explains, the Australian dollar has reached new highs, diminishing Cochlear's profit margins in other western markets. Last year's recall of its Nucleus C1500 bionic ear implant has also been costly, and revenue has slowed in the U.S, where the WSJ story notes the company makes 40% of its overall revenue. Price cuts in emerging markets have helped grow business in those regions, but that reduces profit margins, notes a Bank of America Merrill Lynch report cited in the article.
Still, hopes are high for the Nucleus 6--that customers waiting for Cochlear's next big thing--will help restore growth that the company has long enjoyed as the biggest and most influential player on the market.
- read the WSJ story (sub. req)