Medtronic Inc., the world's largest maker of electronic heart devices, will cut manufacturing costs 25 percent over five years and boost overseas sales as it tries to maintain profit margins amid pressure to lower U.S. prices.
Medtronic is reducing parts and labor to make its devices, consolidating factories and shifting labor-intensive manufacturing to lower-cost countries, including Mexico, Chief Financial Officer Gary Ellis said Wednesday.
Medtronic is based in Fridley, but has only a small manufacturing presence in Minnesota, mainly in research and development.
Medtronic is enjoying more sales of its $30,000 defibrillators and other products overseas as it faces pressure in the U.S. to lower prices amid rising competition and health-care reform. The company wants to maintain its profit margin, even in lower-paying countries, by reducing production costs, Ellis said.
"When you're designing the product, get the manufacturing people back into the process," Ellis said at a Cowen & Co. analyst conference in Boston. "Reducing the cycle time reduces labor costs, reducing materials for piece parts reduces overall cost -- and it also then impacts the quality, because you don't have as many pieces that can break down."
As a result of lowering operating costs, Medtronic will maintain its gross margins in the face of potential "pricing pressures," Ellis said.
Medtronic last year halted sales of thin wires that connect defibrillators to the heart after they were linked to five deaths. The $5.6 billion market for implanted defibrillators shrank after Medtronic and competitors recalled faulty products in 2005.
Forecasting growth
