- Stryker and Zimmer Biomet have given upbeat assessments of their access to titanium during the Russian invasion of Ukraine, telling analysts that supplies are secured for the near term.
- Zimmer is working on alternative sources but has enough inventory for 2022, likely pushing out any negative impact until next year. Stryker expects its contracts, which it struck in 2019, to ensure it remains free from significant pressures in 2022 or 2023.
- While the orthopaedic companies remain isolated from the impact of the war, other supply chain issues continue to have an impact. Notably, Stryker expects chip shortages to remain a headwind into the second half of the year.
Stryker and Zimmer separately spoke to investors about their current pressures and prospects at the American Academy of Orthopaedic Surgeons this week.
Analysts at J.P. Morgan and RBC Capital Markets came away from the meeting encouraged that the orthopaedic sector is recovering and managing supply chain issues and inflation. J.P. Morgan zeroed in on Stryker's comments about Russia's invasion of Ukraine.
"Specific commentary struck a more bullish-than-expected stance on supply, and specifically titanium. Fears around the industry's reliance on Russian titanium have been growing over the course of the past few weeks, but Stryker highlighted that it didn't expect significant pressures here in either 2022 or 2023 as it had entered into contracts in 2019 that have secured both supply and price for the time being," the analysts wrote in a Thursday note to investors.
The RBC analysts picked up on Zimmer's comments about titanium supply. Most of Zimmer's titanium comes from Ukraine and Russia, leading the company to work to establish alternative sources.
Zimmer has a window to lessen its reliance on the region, with management telling the analysts there is enough inventory for this year. "Since operating expenses are capitalized they don't anticipate seeing a negative impact until later, likely next year," the analysts wrote in a Wednesday note.
Concerns about the supply of titanium added to existing issues related to electrical components.
The chip shortage predates the war, and at Stryker it "impacts suppliers all the way down the procurement chain, a dynamic that has led to significant backorders that have impacted the top line and led to the need for spot price purchases," the J.P. Morgan analysts wrote.
"The impact management is seeing is not necessarily chips/electrical-components shipped to [Stryker,] but rather at the tier 2/3 supplier level. [Stryker's] supply chain is working to acquire chips, mostly through an auction or broker, and paying a much higher price for the items," the RBC analysts added.
Styker's management expects these supply chain pressures to continue through the second quarter, with them easing in the second half of 2022.
Those headwinds are a blot on an otherwise improving situation for Stryker and Zimmer. Procedure volumes began improving in late January and, while RBC said Stryker "is still not completely back to pre-COVID levels," there is an expectation that the market will return to normal by the end of the year.
So far, rising COVID-19 cases in Europe are yet to disrupt procedures.