Question-and-Answer Session
Operator
(Operator instructions) Your first question comes from the line of Bill Quirk with Piper Jaffray.
Bill Quirk – Piper Jaffray
Mark, the first question is for you. The sequential decline in gross margin, I assume that was pretty much tied to the strength in the driver business, i.e., it was kind of a mix shift with some lower margin products?
Mark de Raad
Yes. That was one of the reasons. There are a couple of small minor reasons, but the change you’re talking about is 0.4%, nothing overly dramatic. Nothing worth mentioning.
Bill Quirk – Piper Jaffray
Secondly, Joe, I understand that you don’t necessarily want to commit to a hemoglobin number for ’09. I want to push on this one a little bit. Can you help us think a little bit about that in the context of the guidance? Obviously you guys assumed something when you put the numbers together.
Joe Kiani
Yes, we did, and I think as we looked at it, we just didn’t look at what the appetite we thought was for our product by the number of clinicians and customers who had contacted us, but rather we also looked at the historical growth for pulse oximetry when it was introduced, and when we looked at that, we basically saw that within about 5 years, pulse oximetry came from of course nonexistence to about $100 million in revenues. So, it’s difficult for us to tell you what we’re going to do this year. Obviously things are different. The economic is different. The whole environment of how products get paid for is different. Masimo is not a brand new company like many of those companies were when they were introducing pulse oximetry, so we do have a good reputation and a team that can on a positive take it forward hopefully in a fast way, but we feel comfortable giving you our Rainbow revenue numbers, but given the newness of the product, we’re just not prepared to give you a number for Hemoglobin by itself.
Bill Quirk – Piper Jaffray
Given how guys have decided to price the product, i.e., close to about $100 a sensor and then obviously the license fee, have you guys given any thought to changing that strategy at all? For example, taking away the license fee for a big order or that type of thing?
Mark de Raad
We are flexible in that as long as overall price of the sensors or the price of the equipment is amortized in one or the other, we can look at that. So far, we’re dealing with early adopters, so it’s hard to make grand statements about what it will mean to others. So far, we haven’t seen pricing as a major issue towards our success with Hemoglobin, but one of the things I mentioned, we also hope in 2009 to introduce this new sensor system. We coined it ?risposable’ which is the combination of reusable element and a disposable element that reduces the cost of goods for the disposable element, so we’re looking to introduce that, and we hope to have that be roughly about half the price of the single sensor disposable model. When we did our market survey, we had noticed based on the survey, assuming the survey was correct, that a good percentage, I think 30% or 40% of our customers that we surveyed felt that $100 price on the sensors was enough of a price for them to jump forward given the cost savings and the care improvements that they expected, but I think the number jumped up to 60% or 70% when the price fell below $60, so we hope with the introduction of this new risposable sensor system we’re coming out with, we’ll also be able to reach a broader audience.
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