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Masimo Corporation (MASI - Analyst Report) recently announced a non-exclusive, long-term agreement with Philips (PHG - Analyst Report), under which Philips will utilize Masimo’s Rainbow SET know-how. Masimo anticipates that it will launch future joint development efforts. Subsequently, Philips products will integrate Masimo’s Rainbow SET technology.

Masimo posted first-quarter fiscal 2011 earnings per share of 30 cents, just beating the Zacks Consensus Estimates of 29 cents. Revenues for the quarter soared 14% year over year to $113 million, ahead of the Zacks Consensus Estimate.

Revenues from Masimo Signal Extraction Technology (“SET”) pulse co-oximetry products climbed 17% to $94.1 million while Rainbow products sales cruised 39% year over year to $7.4 million. Royalty revenues, however, slipped 11% to $11.5 million due to a change in royalty rate under the company’s agreement with Covidien (COV - Analyst Report).

During the quarter, the company dispatched 43,100 Masimo SET pulse oximetry and Masimo Rainbow SET pulse co-oximetry units, up 16% year over year, representing a new quarterly record. The company’s global installed base climbed 18% year over year to 890,000 units at the end of the first quarter.

Masimo has not provided any updated guidance for fiscal 2011 during its first quarter call. The company, in February, provided full year revenue and earnings guidance. It expects revenues between $446 million and $463 million (including product sales in the band of $415 million to $430 million and royalty in the range of $31 million to $33 million) for the year. Moreover, earnings per share (on a reported basis) were projected in the range of $1.17 and $1.25.

Masimo is a market leader in the pulse oximetry monitoring equipment industry. The company’s prospects are encouraging, given the sizeable global market opportunity, adoption of pulse oximetry in non-critical areas of the hospital and growing barriers to entry due to additional non-invasive parameters.

Shipments have been growing at a steady rate fueled by new contracts. Moreover, the renewal of the royalty agreement with Covidien (COV - Analyst Report) provides additional impetus. However, competition is intense and Masimo partly depends upon its OEM partners for sales as well as royalty. Currently, we have a Neutral rating on the stock.

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