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COMPANY PROFILE

Cerner Corporation

REFERENCE CODE: 5F707AA9-0181-4F7C-ACC4-3661BA548CF6
PUBLICATION DATE: 20 Nov 2015
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Cerner Corporation
TABLE OF CONTENTS

TABLE OF CONTENTS
Company Overview..............................................................................................3
Key Facts...............................................................................................................3
SWOT Analysis.....................................................................................................4

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Cerner Corporation
Company Overview

COMPANY OVERVIEW
Cerner Corporation (Cerner or "the company") is a supplier of health care information technology
(HCIT) solutions and a range of software, professional services, medical device integration, remote
hosting, and employer health and wellness services. The company primarily operates in the US
where it is headquartered in North Kansas City, Missouri. It employed 15,800 people as on December
31, 2014.
The company recorded revenues of $3,402.7 million during the financial year ended December 2014
(FY2014), an increase of 16.9% over FY2013. The operating profit of the company was $763.1
million in FY2014, an increase of 32.5% over FY2013. The net profit of the company was $525.4
million in FY2014, an increase of 31.9% over FY2013.

KEY FACTS
Head Office

Cerner Corporation
2800 Rockcreek Parkway
North Kansas City
Missouri 64117
USA

Phone

1 816 221 1024

Fax
Web Address

http://www.cerner.com/

Revenue / turnover 3,402.7
(USD Mn)
Financial Year End

December

Employees

15,800

NASDAQ National
Market Ticker

CERN

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Cerner Corporation
SWOT Analysis

SWOT ANALYSIS
Cerner Corporation (Cerner or "the company") is a supplier of health care information technology
(HCIT) solutions and a range of software, professional services, medical device integration, remote
hosting, and employer health and wellness services. Focus on research and development (R&D)
allows Cerner to attain competitive advantage over its peers, maintain technological edge over its
competitors and to stay ahead of industry trends. In addition, it allows the company to differentiate
its products with its competitors. However, intense competition may affect the company's market
share and revenues growth, which could put pressure on Cerner's profitability in the long run.
Strengths

Weaknesses

Focus on research and development
Growing margins and cash flows
Robust backlog portfolio

Dependence on third-party suppliers
Geographic concentration

Opportunities

Threats

Strong growth in the global HCIT market
Strategic acquisition of Siemens Health
Services

Intense competition
Product errors could affect customer
confidence
Stringent regulatory environment

Strengths

Focus on research and development
Cerner has a strong focus on research and development (R&D). The company commits significant
resources in developing new health information system solutions and services. In FY2014,
approximately 4,300 associates were engaged in R&D activities. The company's total expenditures
on development and enhancement of its software solutions were approximately $467.2 million,
$418.7 million and $319.8 million during FY2014, FY2013, and FY2012, respectively.
The company's strong R&D focus has enabled it to add new clients. At the end of FY2014, Cerner's
solutions were licensed by approximately 18,000 facilities globally, including hospitals, physician
practices, laboratories, ambulatory centers, behavioral health centers, cardiac facilities, radiology
clinics, surgery centers, extended care facilities, retail pharmacies, and employer sites. Moreover,
Cerner expects to drive growth through initiatives outside the core HCIT market. For instance, the
company launched an on-site clinic and pharmacy, incorporated biometric measurements for the
population, realigned the economic incentives for associates in the health plan, and implemented a
data-driven wellness management program. Further, the company enhanced Cerner RevWorks,

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Cerner Corporation
SWOT Analysis

which includes solutions and services to help health care organizations improve their revenue cycle
functions.
Strong R&D capabilities allow Cerner to attain competitive advantage over its peers, maintain
technological edge over its competitors and to stay ahead of industry trends. In addition, it also
allows the company to differentiate its products with its competitors.
Growing margins and cash flows
The company witnessed a strong growth in its margins and cash flows over the years. The company’s
operating profit increased from $572 million in FY2012 to $763.1 million in FY2014 at a compound
annual growth rate (CAGR) of 16% during 2012-14. The company’s net profit increased from $397
million in FY2012 to $525.4 million in FY2014 at a CAGR of 15% during the same period. Similarly,
Cerner’s operating margin increased from 21.4% in FY2012 to 22.4% in FY2014 and its net profit
margin increased from 14.9% in FY2012 to 15.4% in FY2014. The company’s margins increased
due to a strong growth in the systems sales, support and maintenance revenues and services
revenues.
Further, the company witnessed a strong growth in its cash flows. The company’s net cash from
operations increased from $708.3 million in FY2012 to $847 million in FY2014 at a CAGR of 9%
during 2012-14. In addition, the company witnessed a strong free cash flow during FY2012-14. Its
free cash flow increased from $524.9 million in FY2012 to $570.4 million in FY2014 at a CAGR of
4%. The company's strong cash flow generation capability supports its growth prospects. Strong
cash flows and margins provide resilience to the business operations and reduce vulnerability to
market declines. Cash flows enable the company to further finance growth at feasible costs.
Robust backlog portfolio
The company has a robust order backlog. At the end of FY2014, the company's total contract backlog
was $10.6 billion as compared to $8.9billion at the end of FY2013. Such backlog represents system
sales and services from signed contracts that have not yet been recognized as revenue.The company
estimates that approximately 27% of the aggregate backlog at the end of FY2014 will be recognized
as revenue during FY2015. Robust order backlog and new contracts indicates significant demand
for the company's products and services in the market. It also assures stable revenue growth for
the company, which could enable Cerner to further improve its market position.

Weaknesses

Dependence on third-party suppliers
Cerner is significantly dependent on third parties for certain technology, hardware, and software
which are integrated into its offerings and process that support its operations. The company currently
depends on Microsoft and IBM technologies for portions of the operational capabilities of the

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Cerner Corporation
SWOT Analysis

Millennium solutions. In addition, the company's remote hosting and cloud services businesses rely
on a limited number of suppliers for certain functions, such as Oracle database technologies, CITRIX
technologies and Cisco network technologies. Further, the company relies on EMC, Hewlett Packard
(HP), NetApp and IBM for its hardware technology platforms. The event of suppliers altering product
offerings or termination of licenses and contracts would require Cerner to immediately locate a
suitable supplier. It would also require the company to renew the contracts at prices unfavorable to
the company.
If the cost of licensing, purchasing or maintaining the third party intellectual property or technology
significantly increases, the company’s operating earnings could significantly decrease. In addition,
interruption in functionality of the solutions, devices or services as a result of changes in third party
suppliers could adversely affect the company’s commitments to clients, future sales of solutions,
devices and services, and negatively affect the company’s revenue and operating earnings. Cerner's
inability to locate an alternative supplier or renew the contract at reasonable prices would affect its
operations and profitability.
Geographic concentration
Cerner is highly dependent on the US market for majority of its revenues. Substantially all of its
long-lived assets are located in the US and substantially all of its revenues are from customers
located in the US. In FY2014, the company derived 88.8% of its consolidated revenue from the US.
Moreover, the company has been historically dependent on the US for a majority of its revenues.
Cerner derived 87.6% and 87.8% of its revenues from the US in FY2013 and FY2012, respectively.
Overdependence on one a single geographic region makes it susceptible to changes associated
with the economic and political situation of the country. Concentrated operations could also make
Cerner uncompetitive against rivals who have globally diversified operations.

Opportunities

Strong growth in the global HCIT market
The global health care information technology (HCIT) industry is expected to provide positive growth
opportunities for the company. According to industry estimates, HCIT market is expected to reach
$229 billion by 2020 growing at a CAGR of over 13% during 2015-20. The strong growth in the
market is attributed to the growing adoption of various healthcare IT solutions by healthcare providers
in order to meet the heightened regulatory requirements for patient care and safety, increasing need
to curtail the soaring healthcare costs, and growing need to improve the quality of healthcare while
maintaining the operational efficiency of healthcare organizations. The importance of HCIT in
facilitating this compliance along with the benefits of improving safety, efficiency and reducing costs
could lead to investments in HCIT being viewed as more strategic than many other capital purchases.
The adoption of HCIT solutions is growing due to its significant benefits including improved quality
of care, enhanced administrative efficiency and financial benefits.

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Cerner Corporation
SWOT Analysis

Cerner has a strong client base. Its solutions are licensed by approximately 18,000 facilities globally,
including hospitals, physician practices, laboratories, ambulatory centers, behavioral health centers,
cardiac facilities, radiology clinics, surgery centers, extended care facilities, retail pharmacies, and
employer sites. Moreover the industry estimates also indicate that the company will benefit from the
growth in replacement market as several healthcare businesses will upgrade their legacy systems.
Cerner is well positioned to benefit from this shift due to its unified Cerner Millennium platform across
its inpatient and ambulatory solutions.
Strategic acquisition of Siemens Health Services
In February 2015, Cerner completed the previously announced acquisition of Siemens Health
Services for approximately $1.3 billion. This acquisition is expected to enhance the company’s
standalone organic growth opportunities and drive growth through innovation. Cerner and Siemens
combined annual R&D investment is expected to be more than $650 million.The cumulative resources
are expected to speed delivery of the company's next generation of health IT solutions, enabling
clients to control costs and improve health care outcomes in their communities. This acquisition
aligns with the company’s strategy of enhancing its presence in key development areas of population
health, physician experience, open platforms, revenue cycle and mobility. Furthermore, Cerner
entered into an alliance with Siemens, through which the company expects to combine Cerner's
health IT leadership with Siemens AG's device and imaging expertise. Through this alliance, the
company focuses on integrating diagnostics and therapeutics into the electronic health record.
This acquisition enables the company to expand its geographic presence and drive significant R&D
and innovation. It would enable the company to strengthen its presence in key development areas
and drive strong revenue growth in the future.

Threats

Intense competition
The market for HCIT solutions, devices and services is intensely competitive, rapidly evolving and
subject to rapid technological change. Cerner, primarily a provider of health care solutions, devices
and services, faces competition from players offering similar portfolio of products and services and
also from players offering any particular segment of either devices or services. The company's
principal competitors in the health care solutions and services market include, Allscripts Healthcare
Solutions, Computer Programs and Systems, Epic Systems, GE Healthcare Technologies, Healthland,
McKesson, MEDHOST, and Medical Information Technology, each of which offers a suite of software
solutions that compete with many of the company’s software solutions and services. Cerner also
competes with large players which focus on only a portion of the market, including Clinovations,
Dell, Deloitte, Encore Health Resources, IBM, Impact Advisors, and Xerox.
In addition, the company competes with companies that offer similar HCIT services include
AmazingCharts.com, Athenahealth, eClinicalWorks, e-MDs, Netsmart Technologies, Practice Fusion,

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Cerner Corporation
SWOT Analysis

Quality Systems, SRSsoft and Vitera Healthcare Solutions. Its principal competitors in the health
care device market include Aesynt, CapsuleTech, CareFusion, Connexall, Nanthealth, Omnicell,
PerfectServe, and Vocera Communication. In the health care revenue cycle market, key competitors
include Accretive Health, Confier Health Solutions, Dell, Deloitte, Emdeon, MedAssets, Optum,
Quadramed, SSI Group and 3M. In the population health market, the company competes with Aetna,
Evolent Health, Explorys, IBM, MedeAnalytics, NetOrange, Optum, Phytel, The Advisory Board
Company, and WellCentive.
Intense competition may affect the company's market share and revenues growth, which could put
pressure on Cerner's profitability in the long run.
Product errors could affect customer confidence
Cerner offers software applications and systems that are highly complex and sophisticated. As a
result, they may occasionally contain design, coding, software errors or security problems that could
be difficult to detect and correct. Similarly, the installation of the software solutions and health care
devices is very complex and errors in the implementation and configuration of the systems can occur.
The company’s software solutions and health care devices are intended for use in collecting, storing,
and displaying clinical and health care-related information used in the diagnosis and treatment of
patients and in related health care settings such as admissions, billing, etc. Therefore, users of these
software solutions and health care devices have a greater sensitivity to errors than the market for
software products and devices.
Despite extensive testing before release the company may experience significant product errors.
The company's client agreements provide warranties under the material errors and other failures.
If the company's products fail to meet the warranty requirements, it can lead to termination of
agreement and demands for refund of payment. The client may also subject Cerner to claims or
litigation. Although the company maintains liability insurance coverage in an amount that it believes
is sufficient for the business, there can be no assurance that such coverage will cover any particular
claim that has been brought or that may be brought in the future. Any product error would damage
the company's reputation and negatively affect its future sales. Such instances would also affect the
market acceptance of the company's products in the future.
Stringent regulatory environment
The health care industry is highly regulated at the local, state and federal level. The health care
industry is subject to changing political, economic and regulatory influences. There are significant
and wide-ranging number of regulations both within the US and abroad, such as regulations in the
areas of health care fraud, e-prescribing, claims processing and transmission, health care devices,
the security and privacy of patient data and interoperability standards, that may be directly or indirectly
applicable to its operations and relationships or the business practices of its clients.
In the US, the Health Insurance Portability and Accountability Act (HIPPA) of 1996 (as modified by
The Health Information Technology for Economic and Clinical Health Act (HITECH) provisions of
the American Recovery and Reinvestment Act of 2009) (collectively, HIPAA) continues to have a

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Cerner Corporation
SWOT Analysis

direct impact on the health care industry by requiring national provider identifiers and standardized
transactions/code sets, operating rules and necessary security and privacy measures in order to
ensure the appropriate level of privacy of protected health information. These regulatory factors
affect the purchasing practices and operation of health care organizations. In addition, the Patient
Protection and Affordable Care Act, which was amended by the Health Care and Education
Reconciliation Act, became a law in 2010. This comprehensive health care reform legislation included
provisions to control health care costs, improve health care quality, and expand access to affordable
health insurance. This health care reform legislation could include changes in Medicare and Medicaid
payment policies and other health care delivery administrative reforms that could potentially negatively
impact Cerner's business and the business of its clients. Since the administrative rules implementing
health care reform under the legislation are not yet finalized, the impact of the health care reform
legislation on the company's business is unknown.
Failure by Cerner to comply with these laws and regulations could result in administrative, civil, or
criminal liabilities. This in turn would negatively impact the financial position of the company.

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