Cochlear losing market share

Cochlear's latest interim result showed a rapid rebound in sales due to processor upgrades, but it wasn't enough to end its loss of market share.

It’s every upgrader’s dilemma. When it’s time to buy your new iPhone, laptop or TV, should you buy the model sitting on the shelf today, or, should you hold out for the fancy next generation, which is said to be just months away from release?

Now imagine that the device in question is going to be surgically implanted in your head and remain there for decades. This, in a nutshell, is the dilemma customers of Cochlear (ASX: COH) faced a year ago when the Nucleus 6 processor was awaiting approval.

The results are in: overwhelmingly, people chose to wait. Cochlear’s interim result showed sound processor upgrade sales increased 98% in the six months to 31 December and the stock has now increased 59% since we upgraded it this time last year.

The Nucleus 6, with its wireless capability, better software and small size is well ahead of previous models. However, the company’s largest competitor, US-based Advanced Bionics, received approval for its own wireless enabled processor more than a year ago and has been chipping away at Cochlear’s market share.

Advanced Bionics reported a 23% increase in cochlear implant sales for the six months to September 2014, compared to Cochlear’s 16% increase this half, meaning it’s continuing to gain ground.

Cochlear is still by far the largest in the industry – it’s three times larger than Advanced Bionics’ cochlear division – but, unless we see some improvement in unit sales and market share soon, it’s only going to get harder for Mr Market to justify the company’s lofty price-to-earnings ratio of 34.

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