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In April 2021, rumours circulated that Siemens Healthineers was considering selling its ultrasound business, with reports suggesting that interest in the business from a potential buyer had prompted the German healthcare giant to consider divesting the unit in a deal reckoned to be worth around $1bn. The rumours were given some credence when group CEO, Bernd Montag said that the company “can be in the [ultrasound] business, but we don’t have to be”.
However, last month the international healthtech vendor declared its support for the ultrasound unit, with Siemens Healthineers CFO Jochen Schmitz not only stating that “there is no sale process for the ultrasound division” but also explained that Siemens Healthineers had repositioned the business and were “investing heavily in it”.
The Signify View
Even for a company the size of Siemens Healthineers, one billion dollars is a tempting amount, and given the circumstances it is easy to see how Siemens could have been forced to consider its options.
Its ultrasound unit had, after all, had several difficult years. Although it performed reasonably, it was not able to match the growth of some of Siemens’ other medical imaging units. This had the net effect of the unit softening Siemens Healthineers total group growth, which, during a time when the broader company is following strict growth targets of its own, could have put it in a difficult position. The ultrasound business was also facing challenges in its own market, and for several years saw its market share decline as it lost out to competitors in the space.
These challenges were also faced against the backdrop of slow growth in most segments of the ultrasound market. While there were some bright spots such as ICE catheters, radiology, the segment in which Siemens Healthineers ultrasound is most active, is well consolidated and (excepting a bumper year for the global market in 2021 reflecting a correction from the -13% growth seen during 2020 and the pandemic) is slow growing.
Balancing Interests
Combined, these factors could have persuaded Siemens Healthineers to take the $1bn for its ultrasound business and invest the money elsewhere. There are numerous segments across healthcare with more obvious growth prospects than ultrasound which Siemens may have been tempted to invest in, and had Siemens been struggling financially then carrying out such a plan may have been necessary, but, particularly in light of the firm’s strong run of results and the effective windfall that it has enjoyed from its Covid testing business, letting ultrasound go would have been a mistake.
While Siemens’ Ultrasound division has faced adversity in the past couple of years, it had, long before the recent announcement, begun a programme of rejuvenation. Key to these efforts was the development and release of its radiology ultrasound portfolio, with the vendor releasing new products (Bonsai, Juniper, Redwood and Sequoia) in 2018 and 2019. With the Covid pandemic stymieing the market for most of 2020, the fruits of this product investment will only now truly start to become apparent, enabling the vendor to power forward.
That isn’t to say there aren’t further opportunities for product refreshes. Siemens Healthineers’ console offering for cardiovascular echo exams for example, the Acuson SC2000 platform was first launched in 2009, and even given its 2014 ‘Prime’ refresh would benefit from rejuvenation. This cardiology side of Siemens Healthineers’ ultrasound business is one of the areas that could benefit from the investment mentioned by Schmitz, with the market offering considerable opportunity, especially given the vendor’s strength in ICE catheters.
Alternatively, Siemens Healthineers may take a more selective approach. The ultrasound business’ market position in cardiology ultrasound systems has been eroded in recent years. Such a loss in market share may be disappointing for the vendor, but it could also lead to Siemens becoming more focused, encouraging it to further prioritise the opportunities in the radiology and shared services markets. Both options – investing more in cardiology, or refocusing away from cardiology – could be successful, which option Siemens chooses depends on its broader vision for its Ultrasound strategy.
The Power of Progress
Regardless of such remaining opportunities, Siemens Healthineers’ efforts are starting to pay off. Last year, the vendor enjoyed growth in line with the broader market rather than the below market growth seen in previous years. While Siemens will be keen to increase this further and surpass the market average growth rate, this is still a result in which the German vendor can find solace, particularly given that this turnaround has been achieved during the fallout from the Covid-19 pandemic.
As a corollary to this, Siemens has also reduced the loss in market share it has endured in past years. Having defended its current market share, Siemens can once again turn to the offensive, and endeavour to win over new customers in the future.
Even without significantly increasing its market share, however, Siemens Healthineers as a whole will benefit from the retention of its ultrasound unit. As large providers are increasingly looking to make broader, holistic managed service deals rather than simple transactional sales, a vendor having the spectrum of medical imaging will confer some advantages. If Siemens had decided to sell its ultrasound business, the German vendor would no doubt have found a preferred partner to enable it to tender for such contracts, but it would have hindered its dealmaking flexibility. As services are set to be an ever more significant component of such deals, and vendors could be willing to be accommodating to secure them, having the flexibility of an in-house ultrasound offering could prove very beneficial. This is particularly true given that Siemens Healthineers is one of only a very limited number of players that can offer such breadth.
Future Focus
The company must now look to continue to build on its momentum and success in steadying the ship, looking ahead to the opportunities that await. This leaves the vendor with several difficult choices. Among them is the question of whether it seeks to drive growth from expanding into new territories, investing in additional clinical segments, or redoubling its focus.
While there are some merits to targeting new areas, with some ultrasound segments and certain regions promising higher growth potential than its core radiology market, in the near term it would be wise to capitalise on the opportunity closer to home. Siemens Healthineers has worked hard to reduce its loss in market share and improve its growth, now is the moment when all of its labours are coming to fruition. If it were to start eagerly approaching new targets then the vendor risks spreading itself too thinly and taking a step back. New investment into the business could mitigate this possibility, and in the future, when it has solidified its foundation, it will be an option that bears consideration, but at present a continued focus on radiology and shared services, some investment in other, carefully chosen areas, and continued development of software and other digital features seems the surest way to maintain momentum.
Over the longer term, Siemens will also have to make progress with other aspects of the business. Across Siemens Healthineers as a broader group, success is often dependent on scale, and leveraging the advantages of scale to grow revenues and, crucially, grow margins. Siemens Healthineers has this advantage in other modalities such as MRI and CT, with the vendor’s scale allowing it to invest significantly more money into research and development than all but its closest rivals. This investment gap means it is harder for other rivals to compete. This could be particularly pertinent with young, voracious vendors such as United Imaging reportedly mulling entry into the ultrasound market. How Siemens will achieve similar scale in ultrasound remains to be seen, but with tough competition in the radiology and shared services markets, it may need to look to adjacent clinical segments, such as cardiology, to achieve this.
A previous Premium Insight, which discussed the rumours of a sale, concluded: “One billion dollars may be an attention-grabbing figure, but, for Siemens, it is almost certainly not enough to outweigh the value brought by the unit.” This has proven to be the case. While Siemens was right to consider its options, it was clear that the Ultrasound business brought precious value to the company. The security that the intention to invest brings means that the unit can now look ahead, focus on scaling up, and continue to demonstrate and deliver that value.
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This Insight is part of your subscription to Signify Premium Insights – Medical Imaging. This content is only available to individuals with an active account for this paid-for service and is the copyright of Signify Research. Content cannot be shared or distributed to non-subscribers or other third parties without express written consent from Signify Research. To view other recent Premium Insights that are part of the service please click here