Major tech employers pulling out

“I don’t think it says anything about West Sacramento’s business climate,” Richards said. “It says more about what’s happening with the business climate globally. Manufacturing seeks the lowest-cost and most-efficient work force for those operations. At the end of the day, cost is king, especially in a manufacturing operation.”

Judy Kjelstrom, director of the University of California Davis Biotechnology Program, said the loss of the manufacturing plant is “devastating for our valley,” but also not surprising.

“Manufacturing is a tough sell to keep in California,” she said. “The labor is much cheaper outside the U.S. I’m pleased to hear they’re keeping the clinical diagnostics division, because that’s a better fit for our region. UC Davis produces a work force for molecular diagnostics work.”

Spending to save

Affymetrix expects corporate restructuring will save the company about $20 million to $25 million per year. It recorded a restructuring charge of $14.8 million in the first half of the year from costs associated with the move from West Sacramento, and expects to incur another $42 million this year and next year from the plant closure.

The costs include $17 million in accelerated depreciation, $11 million in facility impairment charges and $9 million for employee severance.

The company expects to use $13 million for the shift to Singapore, and potentially more depending on the rate of the production transfer.

Affymetrix swung to a $3.6 million loss, or 5 cents per share, in the quarter ended June 30. It had net income of $1.2 million, or 2 cents per share, in second-quarter 2007.

Revenue totaled $86.9 million in the quarter ended June 30, a 1.6 percent decline from $88.3 million in the second quarter of last year.

The company has lowered its 2008 revenue projections to between $455 million and $460 million because of “ongoing weakness in the company’s pharmaceutical revenue,” according to a company news release. In the first quarter, the company had projected 2008 revenue of $490 million to $510 million.

Pharmaceutical companies have shifted money away from early-stage research that requires DNA analysis tools such as GeneChips to later-stage drug development. It could take several years for that market to pick up again for Affymetrix, Peterson said in the JPMorgan report.

Analysts also expressed concerns about whether Affymetrix will be able to compete against new technologies for decoding genes.

Last week, the company announced the $25 million acquisition of a private San Francisco-based company that has new technology for biological analysis. Affymetrix said the technology would compete with analytical tools that use tiny, digitally encoded glass “microbeads,” such as Illumina’s VeraCode system.

But Affymetrix did not disclose the name of the company it bought and provided few details on the new technology.

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