Medical Diagnostic Instruments & Systems

Note: For the fiscal year ended December 31, 2006, the accounting term for the Company was 9 months and 11 days as a result of a change in its fiscal year-end from March 20 to December 31.

In the in-vitro diagnostics market, a global market with ¥2 trillion in annual sales, HORIBA's focus is on selling automated blood testing instruments and their associated reagents. The segment's business model is based on generating the majority of earnings from reagent sales. In addition to original small-sized hematology analyzers, new large-sized hematology analyzers and clinical chemistry analyzers have been launched with the expectation of expanding sales of reagents.

The acquisition of ABX SAS (now HORIBA ABX) in France in 1996 has enabled HORIBA to accelerate its growth where entry barriers are said to be high, and steadily increase its share of the medical-diagnostic instrument market through the strength of its outstanding product planning capabilities.

HORIBA's business model in this segment involves expanding the installed base of hematology analyzers and other medical instruments to generate profits from the sale of supplies, namely the reagents used in diagnostic analysis. This model is similar to that for office copiers, where profits are known to be generated by toner cartridges sales. Growth in the installed equipment is a prerequisite for future business growth. To enhance this model, we have been expanding our product line-up base since 2004. Previously, we specialized in small-sized hematology analyzers, specifically blood cell counter instruments, but have launched products in new areas where more reagent business can be expected. These include medium- and large-sized hematology analyzers and clinical chemistry analyzers. This approach has increased the costs related to research and development, and sales activities and has eroded profitability since the fiscal year ended March 2005. However, we view this approach as a strategic up front investment that is needed to ensure continual business growth and enhanced profits in the future. Meanwhile, the sales ratio of higher margin testing reagents has been on a steady uptrend from 40% in 2001-2002 to 50% in 2007. Our aim is to raise the ratio to about 60% and to achieve a higher operating income ratio.

In product development, HORIBA is emphasizing high flexibility while our competitors have adopted the strategy of retaining customers by providing a complete line-up of all automatic instruments. Our flexible system approach satisfies customers' needs by allowing our products to be combined with those of other companies. This is facilitated by our compact products and superior operating performance. In addition, we will launch strategic products that use less testing reagents which will keep customers operating. Our strategy is so unique that competing manufacturers are unlikely to imitate it because of concerns that this would erode margins from their installed base.

This, in the Medical-Diagnostics Instruments & Systems segment, HORIBA plans to expand business while maintaining a good balance between investment and earnings. With good balance, it aims to become one of the core strengths of HORIBA both in growth and profitability in the medium to long term. We plan to refine and enhance the stock based business model of "instruments plus sales of supplies," so this know-how can be adopted in other business segments and thereby "multiply" values that contribute to the HORIBA.

Health and diagnostic testing, disease diagnosis

Medical testing centers, small- and medium-sized hospitals, medical practitioners

Equipment for blood sample analysis (hematology analyzers, equipment for measuring immunological responses, clinical chemistry analyzers, blood sugar measurement systems).

Products overview

Pricing competition and downward pressure on sales and prices, and fluctuating demand resulting from changes in environmental regulations