Component shortages continued to curb growth potential of San Diego sleep apnea giant ResMed— though it looks like the lingering supply chain woes could begin to ease heading into summer.
That’s the prediction of ResMed Chief Executive Mick Farrell, who has been publicly imploring chip suppliers and government officials to prioritize delivery of components for medical devices above orders for phones, electric vehicles and consumer electronics.
“I don’t think we are going to get a Defense Production Act (declaration) to move the force majeure on contracts,” said Farrell in an interview. “But the suppliers have been responding. We have been getting some modest increase in supply, which you saw in the quarter. We grew 16 percent on devices.”
ResMed, which makes ventilators, sleep apnea machines, respiratory masks and other products, has been redesigning certain products to accommodate more plentiful components. It is also validating new suppliers with internal compliance teams and regulators.
Farrell expects those efforts to slowly begin bearing fruit in the March and June quarters before delivering significant benefits in the second half of the year.
“There are a bunch of projects going on, but when I look at them it gives me strong confidence,” said Farrell. “We had some come to fruition in December, some in March, but in the June quarter I think a bunch of these projects will free up supply.”
In the meantime, ResMed posted solid financial results for its fiscal second quarter.
Revenue grew 13 percent year over year to $895 million. Net income came in at $202 million, or $1.37 per share. That’s up 12 percent compared with last year.
Still, profit margins shrunk due to higher component and freight costs.
ResMed has occasionally chartered commercial jets to get its products from overseas manufacturing sites to U.S. distribution centers in hopes of avoiding backups at shipping ports. Farrell said freight costs can be five- to 10-times higher now than they were prior to the pandemic. The company as added a $12 temporary surcharge to devices to help cover its additional expenses.
The supply shortages also hamstrung ResMed from fully cashing in on surging demand created when top competitor Philips recalled 3.3 million CPAP machines last June.
Philips isn’t expected to return to the CPAP market with new machines until the end of this year. Farrell said ResMed’s revenue should increase between $300 million and $350 million in 2022 because of the Philips recall. But some analysts say the potential for ResMed was much larger — closer to $700 million — if not for supply woes.
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