The Investment Column: Oxford Instr

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OXFORD INSTRUMENTS has been a victim both of its own optimism and its own success. It damaged its superconductor business, which was growing at 25 per cent a year, by moving to a new factory which turned out substandard product.

That's no crime when the product is complex magnetic resonance imaging equipment - scanners, in layman's terms - but the market blames the company for failing to adequately prepare it for bad news. Yesterday's results revealed the extent of the problem; superconductor profits fell from pounds 5.3m to pounds 110,000 and there is a huge backlog of orders.

Elsewhere, profits from superconductor instruments halved to pounds 3.6m as IBM, Intel and Toshiba cut back heavily on microchip investment amid overcapacity in chip markets.

Oxford Instruments' medical business, which makes instruments used to detect repetitive strain injury, suffered from the strength of sterling. Fortunately, the group's 49 per cent stake in brain scanner business OMT, which enjoyed record orders, delivered pounds 7.1m of profits.

Analysts expect pre-tax profits of about pounds 14m and 20p per share this year. While owners of the stock, which closed at 205p yesterday, should not exit now, potential investors should wait a while for Oxford Instruments to clear its backlog and pay a little extra for a more assured earnings outlook.

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