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Did June’s IT Disruption Hurt Medtronic’s Sales in Fiscal 1Q18?

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Medtronic’s IT system outage

On June 19, 2017, Medtronic (MDT) experienced a global technology glitch, which led to IT disruption throughout the company. Medtronic’s ability to process, distribute, and manufacture orders was impacted. Later that week, the company restored the system and resumed operations. 

Medtronic engaged Ernst & Young, as well as the company’s in-house technology experts and vendor partners, to conduct a probe into the cause of the IT outage. The probe revealed “inadvertent human error” as the cause of misconfiguration within some of the data storage systems. Medtronic has initiated process improvements with respect to IT network design, system enhancements, operational execution, process, and governance.

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Impact on Medtronic’s fiscal 1Q18 performance

Medtronic (MDT) noted that the IT disruption did not have a material impact on the company’s sales or earnings per share in fiscal 1Q18. Normal operations have resumed, and the backlog associated with the event has been filled. This progress was due to the quick resolution of the issue and efficient backlog fulfillment efforts by the company.

According to Medtronic’s chairman and CEO, Omar Ishrak, “This event could have had a more significant impact in the quarter if not for the outstanding work and commitment of our employees around the world and the understanding and partnership of our customers. Our team rose to the occasion to ensure the product was available to customers and patients during the disruption and then worked tirelessly to fulfill backlogs that built up during the event.”

Major medical device companies in the US such as Abbott Laboratories (ABT), Johnson & Johnson (JNJ), and Becton, Dickinson and Co. (BDX) are susceptible to technology risk as most of their business operations are dependent on technology. So, efficient backup systems, processes, and BCP (business continuity planning) are needed to drive recovery from such disruptions with minimum losses.

For diversified exposure to Medtronic that could mitigate company-specific risks such as an IT outage, investors can consider the Vanguard Growth ETF (VUG). MDT comprises ~1.1% of VUG’s total holdings.

Next, we’ll discuss the company’s economic value growth strategy and recent related initiatives.

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