Varex Imaging Corp (VREX)
The business in one sentence
Varex Imaging designs and manufactures X-ray imaging components — the tubes, detectors, high-voltage connectors, image-processing software, and industrial accelerators that let doctors see inside patients and security screeners see inside baggage.
How Varex came to be
Varex was spun off from Varian Medical Systems on January 30, 2017. Varian was primarily a maker of radiotherapy equipment (machines used to treat cancer with radiation), but it also made the X-ray components that power both diagnostic medical imaging and industrial inspection systems. Rather than keep those component and systems businesses nested inside a radiotherapy company, Varian decided to separate them, creating Varex as an independent company focused purely on X-ray imaging components and systems. That decision reflected the insight that diagnostic imaging and industrial inspection were growing faster and had different competitive and customer dynamics than oncology treatment.
In May 2017, barely four months after going public, Varex paid $276 million in cash to acquire PerkinElmer’s Medical Imaging business. That deal materially enlarged the company’s installed base in medical diagnostics and gave it additional software and workstation assets. It was a strategic bolt-on that consolidated Varex’s position in medical imaging early in its public life.
The medical segment — what hospitals and clinics actually buy
The Medical segment designs and manufactures the component pieces of diagnostic imaging machines. Its products include X-ray tubes (the devices that generate X-rays), digital detectors (flat-panel sensors that capture X-ray images), ionization chambers (which monitor radiation exposure), high-voltage connectors, image-processing software, 3D reconstruction engines, computer-aided diagnostic software, collimators (which shape the beam), automatic exposure control devices, generators (high-voltage power supplies), and heat exchangers (which dissipate the enormous heat generated when X-rays are produced).
These products are used in almost every medical imaging modality: CT scanners, mammography systems, oncology treatment planning, cardiac imaging, surgical imaging, dental radiography, and general diagnostic radiography. A hospital with a CT scanner does not typically buy all those components directly from Varex; instead, the hospital buys a CT scanner from GE or Siemens or Canon, and those companies buy X-ray tubes and detectors from Varex (or its competitors). Varex is a tier-one supplier to the medical device industry, not a direct-to-patient equipment maker.
The customer is effectively the medical device OEM (original equipment manufacturer). Varex’s team sells to the engineering and procurement departments of those companies. The sale is not one-time; it is recurring. A new CT scanner platform might use twenty thousand X-ray tubes over a five-year period as hospitals buy that model. Varex wins contracts with major OEMs to be the sole or preferred supplier, which then generates recurring orders for years.
The industrial segment — cargo screening and materials inspection
The Industrial segment is smaller but distinctive. It makes Linatron X-ray linear accelerators (the medical term “linac” also applies here, though these are simpler than clinical models), non-intrusive cargo inspection systems, X-ray tubes, digital detectors, and coolers. These are sold primarily for security and inspection applications: airport baggage screening, cargo container inspection, and industrial materials testing.
The customer is a government agency (TSA, customs, border security), a port authority, an airport, or a private security contractor. The sales cycles are longer and more political — they involve procurement, regulatory approval, and budget allocation. But once a system is installed, it generates recurring revenue through maintenance contracts and detector replacement. A major airport upgrading its screening systems might buy a Linatron system today and service contracts for the next decade.
Competitive positioning and customer concentration
Varex is not alone. It competes against larger conglomerates with imaging divisions (GE Healthcare, Siemens, Philips), against smaller specialty players, and against foreign competitors. In medical imaging, GE and Siemens are formidable, but Varex’s focus on the component layer — tubes, detectors, software — gives it a defensible niche. The major OEMs cannot easily switch suppliers of critical components midway through a product cycle, which creates some stickiness. Building a qualified X-ray tube takes time and compliance with medical standards.
The company is exposed to concentration risk with its largest OEM customers. If a single customer — say, a major CT manufacturer — reduces orders or switches to a competitor, it damages Varex’s revenue. The medical imaging market is dominated by a handful of large OEMs, so Varex’s top few customers likely represent a large slice of revenue.
Cycles and pressures
Medical imaging is tied to healthcare spending and hospital capital budgets. In recessions or budget crunches, hospitals delay equipment purchases, which ripples backward to OEMs and their suppliers. Varex will see order declines in those periods. Conversely, aging populations and rising imaging volumes in developing economies support long-term growth.
Industrial inspection (airport security, cargo screening) is more stable but also more driven by government budgets and regulatory mandates. A new TSA or border security initiative can spur orders; a budget freeze stops them.
Technological change is another pressure. Flat-panel detector technology is maturing, so differentiation happens through software, integration, and service. Varex has shifted toward image-processing and diagnostic-software capabilities (which the PerkinElmer acquisition strengthened) rather than relying solely on hardware commoditization.
For someone researching Varex
Start with the annual 10-K filing (SEC CIK 0001681622). It breaks revenue by segment and by major customer and product category. Watch the trajectory of medical imaging orders and the health of the major OEM customers (GE, Siemens, Canon, Philips). Note how much revenue is recurring (maintenance and detector replacement) versus new product sales. The gross margins in each segment reveal where the company has pricing power — typically highest in proprietary software and newest detectors, lower in commodity tubes.
Quarterly earnings calls are useful for commentary on customer demand, product transitions, and any wins or losses with OEMs. Because the company is dependent on a few large customers and long product cycles, understanding the OEM pipeline — what new imaging platforms are coming and whether Varex has been selected as a supplier — is essential. That information typically emerges from investor meetings and industry conferences more than from formal filings.
For a long-term investor, Varex represents a play on diagnostic imaging volume growth (medical) and security modernization (industrial), coupled to the company’s ability to defend its supplier position with OEMs through quality, integration, and innovation. The business is capital-light relative to device manufacturing, which is an advantage.