Summary
While medical devices may not be immune to recession worries, they will not likely see their "worries" become reality as the discretionary consumer markets will. Hospitals will have an impact on device manufacturers however it will be for the same reason that consumers are having such an impact on the car manufacturers. Much of the non-imlantable products that are classified as medical devices are purchased by hospitals with "discretionary funds" or with credit and when the discretionary funds need to be conserved or the credit is not there, less products such as hospital beds and other smaller "medical devices" are purchased or their purchase is delayed. If the hospitals are going to affect medical device manufacturers it will be in these areas. I propose that the divisions of device companies that develop and manufacture implantable devices will not see the same effect and in fact may continue to prosper throughout the current situation.
Analysis
While some of the medical device companies may show earnings flat or slightly below expectations, the companies that are parts of larger corporations will probably be a large part of what props the consumer driven divisions up through this downturn, ie DePuy and Ethicon as part of J&J. The main driving force in this economic situation is the fact that individual consumers were spending money they didn't have on things they couldn't afford via consumer credit hence the reason the consumer, discretionary income, and credit heavy markets are being hardest hit. The medical device industry is largely driven by the health insurance system and while there may be less surgeries incorporating medical devices being performed as a function of layoffs leaving people without healthcare solutions it will not have as great an impact on the device companies as overall the layoffs will not displace the healthcare system. If a device company is going to suffer, it will be in the divisions of those companies that make products that are consumed from the discretionary spending budgets of hospitals that will see the greatest impact, ie Stryker hospital beds. In my opinion, the main issue with discussion of the medical device industry that is misleading is that the classification of medical device covers such a broad range of products, everything from artificial knees to surgical instrumentation. I propose that discussion of this industry and the resulting statistics should be broken out into smaller more specific categories in order to have a more constructive dialogue and gain a more realistic picture of the current environment.
