GE Healthcare said hospital customers in China are postponing new orders for imaging equipment due to the slower-than-anticipated rollout of a financial stimulus program from the central government.
Delays to the stimulus plan mean hospitals would not receive funds to cover orders, so they are holding off making new purchases, GE Healthcare executives said on a Wednesday earnings call.
China represented roughly 14% of the company’s business in 2023. This year, the country’s contribution will be closer to 11%-12%, CFO Jay Saccaro told investors.
As a result of the slowdown, which is dampening demand for both imaging and ultrasound systems, the company lowered its total revenue growth outlook for the year, predicting China sales will remain weak in the second half of 2024.
“We have continued declines in a tough market forecasted,” Saccaro said.
Still, the company reported total organic order growth of 3% year over year in the second quarter. Excluding China, revenue growth was 4%, and orders rose 6%, driven by strength in the U.S. and the rest of the world, CEO Peter Arduini said on the call. GE Healthcare is gaining market share in all of its segments, he added.
Several cost reduction initiatives, including in manufacturing processes and product improvement, underpinned net income, and the company maintained its earnings per share forecast for the full year.
China market dynamics
Orders in China should begin to recover late in the year, with the stimulus program expected to benefit orders in 2025, Arduini said. “We ultimately expect that this is going to be a positive catalyst for the China market,” the CEO said.
The impact of China’s market dynamics are rippling through the medtech sector this earnings season.
Philips, which on Monday also reported flat quarterly sales, said the country’s ongoing anti-corruption campaign was lengthening hospitals’ approval cycles. In July, Johnson & Johnson cited a volume-based procurement effort aimed at containing costs as a factor curbing demand.
Like GE Healthcare, Philips and J&J executives see pressures from China as largely short-term. Philips expects the stimulus package to eventually accelerate the pace of medical equipment purchasing, citing an underlying need for replacement devices and pent-up demand.
