Health-Care VAR On the Mend

The reason? It's just too tough out there getting new business, the company maintains. Yet even though a subsequent handful of downgrades followed, industry analysts say the solution provider is just going through a rough patch and that the prognosis is good.

"Entering the quarter, our new-business pipeline was clearly strong enough to deliver a higher level of bookings than we expect to report," said Neal Patterson, Cerner chairman and CEO, in a statement after the earnings announcement. "A change in the competitive environment and more challenging economics for health-care provider organizations resulted in us losing some deals we expected to win and some deals being pushed out of the quarter."

The Kansas City, Mo.-based company (VARBusiness 500 ranking: 90) recorded first-quarter earnings of 15 cents per share--less than half the 38-cent average projected by Thomson First Call. First-quarter sales were $198.2 million, below the previous estimate of $205 to $210 million, Cerner says. Additionally, Cerner said the company generated new business bookings of $151.2 million, far off its $200 million expectation.

Patterson says the company is getting hurt. He expects Cerner to feel the pain for the next 18 months, as competitors discount prices. However, he says, Cerner will not jump on the discounting bandwagon.

"We think we have the only integrated set of solutions, [and] we think we are in the early stages of a major clinical adoption cycle," says Don Trigg, vice president of corporate marketing at Cerner.

In the meantime, what can Cerner do to remedy its situation? According to Michael Davis, Gartner vice president and research area director, "Cerner has to work with clients to create a reference base that demonstrates the enterprise benefits of [its information architecture] Millennium applications." He says he knows of no Cerner client that has the complete product suite implemented, a scenario that could "demonstrate their vision of what an integrated suite can accomplish in transforming health-care delivery processes."

And while Eric Brown, Forrester Research principal analyst, says "the market was disappointed" by the recent announcement, he believes the price of software is one of the last things hospitals should think about. "Millennium is very valuable and is a key component of quality of care," he says. Quality outcome is the metric by which a hospital should judge a software package."

Brown expects payers will drive hospitals to move forward with quality-of-care software. To cash in on that, Cerner "will have to show their suite of products improves quality of care. They have to make a hard-and-fast financial case," Brown says.

In fact, Gartner's Davis calls health care the "show-me industry."

"We have seen many care-delivery organizations over the last six months push back buying decisions for 12 to 18 months until they see%85more health-care organizations showing the benefits of installing these multimillion-dollar systems," he says.

And what about those rumors circulating that Cerner is ripe for acquisition?

"Cerner could be an acquisition target for a multibillion-dollar, multinational company that wants to increase its health-care portfolio," Davis says. In Gartner's opinion, the acquisitor would already have a position in providing health-care products or services. Forrester's Brown, however, says he has no reason to believe Cerner is for sale. Further, Trigg says company management has no interest in selling Cerner.