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Tickers in this Article: TMO, MYGN, HAE, BABY
Thermo Fisher (TMO) recently launched its $9.5 million China Innovation Center in Shanghai. The latest launch will complement the company’s efforts to enhance its research and development capabilities in the high-growth Asia-Pacific markets.

Among the Asian markets, China has been the foremost in spearheading large-scale industrial production across diverse sectors. This has inevitably attracted big companies with deep pockets to the fray. Hence, for Thermo Fisher, China is the ideal location for its new innovation center. Maintaining its previous trend, emerging markets generated healthy growth in the last reported quarter with China growing over 20% on an annualized basis.

The company expects the large scale R&D work in this facility to play an important role in job creation as it is going to recruit 200−300 engineers in another 2−3 years. There will also be a TechnologyTraining Center to train customers (up to 2,500 a year) to use its technologies, especially chromatography and mass spectrometry systems.

Thermo Fisher while opening its $20 million manufacturing facility in Suzhou, China last November had expressed its plans to strengthen the R&D capabilities in the country. The present initiative is a part of that commitment.

A few years back, Thermo Fisher shifted its environmental business headquarters to Shanghai. Apart from Shanghai and Suzhou, the company currently has operations in Beijing, Guangzhou, Hong Kong, Chengdu, Shenyang and Xi’an.

Other BRIC Nations

Thermo Fisher expects contribution from the high-growth Asia-Pacific and emerging markets to increase to 25% of the total revenue by 2016 from 19% in 2011. Over the recent past, Thermo Fisher’s performance in the Asia-Pacific was backed by three factors. These include a strong environmental market (leading to new opportunities for PM-2.5 particulate monitoring instruments); a large order for Dionex Ultimate 3000 HPLC systems from the China Food and Drug Administration for food safety and the development of Specialty Diagnostics businesses in China to improve health care.

Thermo Fisher is also optimistic about the $2 billion addressable market in India, which offers immense opportunities for industries like pharmaceutical health care, food safety and environment. We appreciate the company’s strategy to replicate its success in India and China by expanding in South Korea, Brazil and Russia.

Thermo Fisher plans to expand its manufacturing footprint to serve local markets and capitalize on the demand for specialty diagnostics. In the last reported quarter, the company witnessed strong growth in Brazil. The improvement was driven by the recent approval of the country's government stimulus budget, which is fueling industrial markets and academic research. Thermo Fisher’s expanding presence in the emerging markets will remain an important growth driver in 2013.

However, margin pressure, primarily due to the unfavorable mix and the medical device tax are points of concern. Moreover, over the past several years, Thermo Fisher has been witnessing headwinds in the government and academic markets. Many countries in Europe continue to adopt austerity measures owing to a moribund economy. This has affected their academic budgets. We remain cautious since growth could moderate if the economic scenario worsens.

While we prefer to remain on the sidelines on Thermo Fisher, which carries a Zacks Rank #3 (Hold), other medical device stocks worth a look are Myriad Genetics Inc. (MYGN), Natus Medical Inc. (BABY) and Haemonetics Corporation (HAE). All these stocks carry a Zacks Rank #1 (Strong Buy).

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