Take Medtronic, one of the largest medical device manufacturer for example. (in 2014)
Its R&D is about 13% of the total expense.
Its marketing, sale and administration is about 46% of the total expense.
But, its cost of goods is only about 33% of the total expense.
There's definitely rooms for CMP to streamline their manufacturing units and offshore them to lower costing nations. But, I would like to stress that quality is absolutely important in medical products, I really hope the management team actually keeps some of the production of sophisticated components, in Australia or Germany. + implement strict quality controls, when offshoring.
But, I think the management has quite accurately spotted the problem with the unusual high cost of goods, and implemented off shoring strategy. As mentioned, if the cost of the goods can go down by 10%, the margin will be strong. Interesting to see the coming years, when off-shoring process is completed.
CMP Price at posting:
11.5¢ Sentiment: None Disclosure: Held
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