Medtronic plans huge job cuts, impact in Minn. unknown

Medtronic, the world's largest medical device maker, plans to eliminate up to 2,000 jobs company-wide. The cuts are part of a restructuring effort to make up for disappointing sales of its implants.

The Fridley-based company said Tuesday the downsizing will involve both layoffs and not replacing workers who depart or retire. The cuts are aimed at achieving "long-term sustainable growth" and will reduce its 41,000-person work force by 4 to 5 percent.

Medtronic -- which has some 8,000 employees in Minnesota -- isn't saying where the cuts will be made. But employees affected by the cuts should know by the end of April.

"Our markets are somewhat softer and we have had to readdress the infrastructure to reduce it to what our market growths are at this point in time," said Gary Ellis, Medtronic's chief financial officer. "Right now, all we know is between 1,500 and 2,000 employees."

Medtronic said its last big layoffs were in 2009, when it eliminated more than 1,200 positions worldwide.

The layoffs announcement came as Medtronic reported net income of $924 million for the three months that ended Jan. 28, beating Wall Street expectations. Sales rose about 3 percent to nearly $4 billion.

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But Medtronic has scaled back its earnings estimates twice in the past year and forecast an anemic 2 percent to 3 percent growth in the global market for devices. A decade ago, the company said sales of its pacemakers and other medical devices were growing at a 10 percent to 15 percent clip annually.

Edward Jones medical technology analyst Aaron Vaughn was surprised by the timing of the jobs cut announcement. Current CEO Bill Hawkins will be retiring soon and the company is looking for new leadership.

"They didn't wait for the new CEO to come on and describe his or her vision for the company going forward," Vaughn said. "They're kind of taking the medicine now and reducing their costs. And unfortunately that means headcount reductions, but the company is facing challenging times as the sales line struggles to find growth."

Medtronic's businesses have been growing slower than both the company and Wall Street had expected.

Jan Wald, a medical technology analyst with Noble Financial Group, said a number of factors are working against Medtronic -- and its peers.

Patients are paying an increasing share of their health care costs, causing people to delay optional procedures requiring expensive devices, Wald said.

"Even defibrillators, even pacemakers, especially spine products, the neurology products ... they can all kind of be postponed because they're not life threatening," he said. "So, if you look at it kind of that way, there's a number of products and product lines at Medtronic that are susceptible."

And Wald said Medtronic also faces intensifying competition from rivals, as well as pressure from insurers determined to cut reimbursements for medical devices.

Medtronic's layoff announcement is the latest in a series from big, high-profile companies in Minnesota, including SuperValu, Lockheed Martin and Capella University.

Yet overall hiring seems to be picking up.

Job openings in Minnesota climbed 31 percent in the fourth quarter of 2010, from the same period a year before.

The Minnesota Department of Employment and Economic Development (DEED) said employers reported 33,800 job vacancies. DEED said the state had 5.8 unemployed people per vacancy in fourth quarter of 2010. A year before, there were 8.2 unemployed people for each vacancy.

Most are in health care and the social assistance fields, followed by retail and manufacturing.

Steve Hine, a DEED economist, said mixed signals on the job front are inevitable as the economy struggles to rebound.

"The economy overall and a number of sectors, including manufacturing, have started to turn things around," he said. "But it's not one of those so-called V-shaped recoveries. Some sectors are still struggling. We're still seeing over-the-year job losses in a number of areas."

And those jobs losses are even extending deep into Minnesota's vaunted medical technology sector.

Medtronic's stock fell about 3 percent Tuesday, closing at $41.27.