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Medtronic Cuts 468 Local Jobs

Medtronic is eliminating more than one quarter of its workforce at its diabetes business headquarters in Northridge this summer. The medical device company said it plans to cut 468 local jobs. About 350 of those jobs, which are primarily in the customer service department, will be transferred to Medtronic’s other diabetes office in San Antonio, Texas, company spokesman Brian Henry said. “It’s part of our overall restructuring,” Henry said. The Minneapolis-based company, which has a market value of more than $43 billion, this year announced plans to cut about 2,100 jobs companywide. About 1,330 employees will remain at the Northridge unit, which also handles research and development, as well as some manufacturing and marketing and sales. Henry said the company plans to keep operating the unit. Medtronic expects to save money by moving some of its operations to Texas, where it is cheaper to do business and the division’s customer service workers will work under one roof, Henry said. Analysts say the cuts are a sign of industry-wide challenges. Medtronic and other companies are repositioning themselves for a major slowdown in the market, which is partially caused by a major decrease in demand for medical devices, said Thom Gunderson, senior health care analyst for Piper Jaffray & Co in Minneapolis. HEADQUARTERS: Northridge NUmber of Employees: 1,800 Activities: Research and development, manufacturing, operations, sales, marketing, customer service Products: Insulin pumps, continuous glucose monitoring systems, therapy management software “Over the last 10 years, Medtronic and other companies like them grew tremendously” as they introduced new technology, Gunderson said. The medical devices have reached such a high level of adoption that companies can’t keep selling them at the same rate as before, he said. Medtronic’s most recent financial earnings reflect the market’s challenges. Fourth-quarter earnings dropped 19 percent to $776 million, from $954 million in the same period a year ago. Revenues for the fourth quarter totaled $4.3 billion on a constant currency basis, which were flat compared the year before. Annual net earnings for fiscal 2011, which ended on April 29, were flat at $3.1 billion. Annual revenues totaled $15.9 billion for the fiscal year, a slight uptick of 1 percent. “Our revenue came in nearly $1 billion below original expectations,” Medtronic Chief Financial Officer Gary Ellis said, in an earnings conference call with investors in late May. He attributed the drop-off to a slowdown in its markets, driven by the continued economic downturn, decreased demand for medical devices, and hospitals and insurance companies pushing for lower prices. The company’s diabetes business is performing better than many of its other divisions. Revenue for the diabetes division totaled $368 million for the fourth quarter of fiscal 2011. That represented a 9 percent increase on a constant currency basis, compared to the same period a year ago when revenues totaled $332 million. For the year, Medtronic’s diabetes business represented about 8.5 percent or $1.35 billion of the company’s total annual revenues. Gunderson said Medtronic has been keen to invest in its diabetes sector in the past, particularly through pioneering continuous glucose monitoring products. Medtronic paired its glucose monitoring products with its insulin pumps to create a seamless process for diabetics to monitor their blood sugar, he said, noting this helped the company improve its product offerings. Tao Levy, managing director of medical devices equity research for Collins Stewart LLC, said Medtronic’s restructuring it doesn’t necessarily mean the company will stop hiring. “It’s just a little bit of a reallocation of those savings,” Levy said. “Some of that will get reinvested in other programs that they feel could generate the higher growth and higher returns.” Some opportunities for reinvestment include emerging markets and clinical trials related to recent acquisitions, he said. There could also be more hires as the company rolls out new products over the next couple of years, he said. “If their end markets have stabilized and don’t slow down further, then I would think that the (job) cuts wouldn’t be as significant going forward,” Levy said. But analysts warn change isn’t over yet at Medtronic. “The rest is sort of up in the air right now because they are bringing in a new CEO, and he hasn’t started yet,” Gunderson said. Medtronic CEO William Hawkins announced plans to retire from his post in December. The company’s new CEO is Omar Ishrak, former president and CEO of GE Healthcare Systems. Ishrak will assume the Medtronic leadership role on June 13.

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