China slowdown leads to revenue miss for Smith & Nephew

* Q3 revenue up 4 pct, but misses market forecasts

* Buys orthopaedic robotics company Blue Belt

* Shares (Berlin: DI6.BE - news) down 5 pct (Releads, adds CEO comments, updates shares)

By Paul Sandle and Sarah Young

LONDON, Oct (HKSE: 3366-OL.HK - news) 29 (Reuters) - Smith & Nephew Plc (LSE: SN.L - news) , Europe's biggest maker of artificial hips and knees, was hit by the slowdown in China in the third-quarter, revenue falling short of market expectations and sparking in a sharp drop in its share price on Thursday.

Smith & Nephew said underlying revenue rose 4 percent to $1.1 billion helped by demand for knee implants and a strong U.S (Other OTC: UBGXF - news) . performance, but growth slowed in China and the number came in 2 percent lower than consensus of $1.126 billion.

Shares in the FTSE 100 company sank to their lowest level for two months in early deals, and they were trading down 5 percent at 11,092 pence at 1133 GMT on Thursday.

Chief Executive Olivier Bohuon said the slowdown in the China had trimmed growth by about 1 percent in the quarter but he remained bullish on the prospects for healthcare there.

"The fundamentals of China are very good," he said. "It (Other OTC: ITGL - news) will recover. We are very well positioned for mid-term and long-term growth in China."

Bohuon said the company, which competes with Johnson & Johnson, Zimmer and Stryker (Swiss: SYK.SW - news) , performed well in the United States, its largest market, and had successfully stabilised its European business against a challenging market backdrop.

Smith & Nephew reiterated its targets for higher underlying revenue growth in 2015 than in 2014, and an improvement in trading profit margin.

Jefferies analyst Martin Brunninger, who has a "hold" rating on Smith & Nephew, said sales came in below his estimates.

"They've missed across the board and they have done an acquisition which could be seen as expensive," he said.

Eleven analysts have "strong buy" or "buy" ratings on the company, while nine are "hold" or "sell", according to Thomson Reuters data.

The company said it had agreed to buy Blue Belt Holdings Inc (LSE: 0M50.L - news) . for $275 million, securing a foothold in orthopaedic robotics-assisted surgery, which it predicted would be used more widely in future.

Investment following the deal would reduce the group's trading profit margin by around 60 points in 2016, it said.

Bohuon said reconstruction markets would eventually become commoditized, so unique technology in products and procedures, such as Blue Belt's, was needed to ensure surgeons picked Smith & Nephew.

Analyst Brunninger took the same view, saying in the longer-term the Blue Belt acquisition made sense.

"The world doesn't really need any more knees and hips - there are too many systems on the market already. However if you add a system that will facilitate the procedure, that's something that surgeons need and want today," he said. (Editing by Jon Boyle)