Agilent Technologies' Orders Up 38 Percent - Net Revenue Up 24 Percent

Palo Alto, CA. Agilent Technologies Inc. (NYSE:A) today reported that orders increased 38 percent, and net revenue increased 24 percent in fiscal 2000 s second quarter, which ended April 30. Earnings from operations declined 11 percent, reflecting planned activities related to costs of operating independently. Net earnings grew 6 percent, and earnings per share were 36 cents, including nearly 4 cents related to one-time gains from sales of investments.

"Overall, we re pleased with the results of our second quarter," said Edward W. (Ned) Barnholt, president and chief executive officer of Agilent. "Our order growth continues to be strong, and we continued to ramp capacity to meet the increased demand. Our businesses that address communications and electronics were particularly strong and represented about 75 percent of our second-quarter revenue.

"Although we re disappointed with the performance of our healthcare business, we re executing plans to improve its short-term performance and increase long-term growth. Earnings from operations in this business and across the company were impacted by the planned costs of operating independently and investments to support future growth."

In the second quarter, total orders were $3.0 billion, an increase of 38 percent in dollars and local currency over the same period last year. Orders from the United States totaled $1.3 billion, an increase of 31 percent over last year s second quarter, while orders from outside the United States were $1.7 billion, up 45 percent over the same period a year ago. When compared with this year s first quarter, orders increased by $296 million, or 11 percent.

When compared with the second quarter of fiscal 1999, orders from Europe increased 33 percent (43 percent in local currency) to $657 million. Second quarter orders from Asia Pacific rose 54 percent (44 percent in local currency) to $838 million. Orders from Latin America in the second quarter totaled $74 million, a 68 percent increase over the comparable quarter last year. Orders from Canada in the second quarter jumped 44 percent to $95 million over the second quarter in fiscal 1999.

Net revenue rose to $2.5 billion, up 24 percent over the second quarter last year. Compared to the first quarter of fiscal 2000, net revenue rose by $239 million or 11 percent.

"We re pleased with the continuing strong orders, and we re executing plans to ramp our shipments by addressing capacity constraints and ongoing parts shortages," said Robert R. (Bob) Walker, senior vice president and chief financial officer of Agilent. "Our ability to meet the strong demand is improving and continues to be our top priority."

Net earnings for the second quarter rose 6 percent to $166 million, compared with $157 million in the same period last year. This includes one-time gains of about $16 million (after tax) from the sale of several equity investments that were no longer strategic. This quarter s net earnings were 6.7 percent of revenue. For the second quarter of fiscal 2000, Agilent s earnings from operations were $214 million, 8.6 percent of net revenue, down 11 percent compared with earnings from operations of $240 million or 11.9 percent of net revenue in the second quarter of fiscal 1999.

"We expected that our earnings from operations would be lower this quarter due to costs and expenses related to branding and operating on our own," said Walker. "Our current fiscal 2000 branding plan continues to call for spending of around the $140 million we mentioned in February. While we have more work to do in establishing our brand globally, we have made good progress.

"We ve also said we will have significant ongoing costs associated with operating on our own. For the quarter, these costs were on plan and remain within our expectations of $250 to $300 million for fiscal 2000.

"After accomplishing the separation from HP on a very aggressive schedule, we re pursuing opportunities to streamline and tailor our systems and processes to Agilent s needs. The initial savings from these actions will be used to fund broader cost-reduction programs and investments in new IT systems, with these improvements having some bottom-line impact beginning in the second half of fiscal 2001."

Earnings per share for the second quarter were 37 cents and 36 cents on a basic and diluted basis, including nearly 4 cents of one-time gains. Basic earnings per share were calculated using weighted average shares outstanding, including those held by Hewlett-Packard Company and those issued in the initial public offering on Nov. 18, 1999. Diluted earnings per share also included the dilutive impact of outstanding Agilent options.

Basic and diluted pro forma earnings per share were 37 cents and 36 cents respectively. Basic pro forma earnings per share were calculated assuming that both the shares held by HP and those issued in the offering were outstanding for the entire period. Diluted pro forma earnings per share also included the estimated dilutive impact of outstanding Agilent options and anticipated conversions of HP stock and options to Agilent stock and options on the distribution date.

Business Summary Test and Measurement

Orders in test and measurement increased to $1.8 billion in the second quarter of fiscal 2000, up 70 percent over the comparable period in fiscal 1999. Net revenue rose 44 percent to $1.4 billion. This quarter s growth rates were helped by a relatively easy comparison with the second quarter last year. Earnings from operations in test and measurement, which were impacted by costs of branding and operating independently, more than doubled to $193 million, compared with earnings from operations of $86 million in the same period a year ago.

The growth of Internet traffic and data networks continued to fuel extraordinary growth in the optical, wireless and transmission-test businesses. Agilent s products and systems enable customers to design and build next-generation communications networks, deploy new technologies and services, and optimize and manage existing networks. Semiconductor-test systems in the quarter more than doubled in orders and revenue with strong growth in every product line. Acceptance of the new Agilent 93000 Series system-on-a-chip test systems was excellent, and the 93000 also received two industry awards for "best new product." Order growth continues to be excellent in flash memory and RF/wireless test systems, where Agilent has strong market positions. Orders from contract manufacturers and a record quarter for X-ray inspection systems also drove strong orders in the board-test and electronic-manufacturing-test business.

This quarter, Agilent also acquired American Holographic Inc. to strengthen capabilities in the optical-communications market.

Semiconductor Products

Orders in semiconductor products for the quarter rose to $626 million, an increase of 25 percent compared to the strong second quarter of fiscal 1999. Net revenue increased 22 percent over the same period a year ago and totaled $497 million. The revenue growth over last year was 34 percent when adjusted for the expansion of the LumiLeds joint venture and Agilent s exit from the microprocessor business. Earnings from operations in semiconductor products were $58 million for the quarter compared with $56 million in the same period last year, reflecting costs of branding and operating independently as well as increased investments in research-and-development for new communications products.

Demand was strong in the networking, mobile communications and imaging markets. The communications market drove strong order growth in wireless semiconductor products, fiber-optic components, storage-area-networking (SAN) components, infrared components and imaging electronics. Orders also grew for ASIC products, optocouplers and base LEDs. Revenue continued to show strength in wireless, SAN, imaging electronics, fiber optics and base LEDs.

This quarter Agilent announced several important initiatives in the semiconductor arena:

Business Summary · Agilent acquired the Optical Technology Center (OTC) from Telecom Italia s central research laboratory, CSELT. OTC s advanced technology and experienced research staff are expected to accelerate Agilent s delivery of 10 gigabits per second (Gb/s) communications solutions. · Agilent introduced the CDMAdvantage chipset for the next generation of digital handsets. This complete radio frequency (RF) solution for Code Division Multiple Access (CDMA) incorporates significant technology advancements developed by Agilent Labs to reduce the size of mobile phones and increase battery life.

Chemical Analysis

Second quarter orders in chemical analysis were $241 million, flat compared with the strong quarter a year ago and up 5 percent for the first half. Net revenue was flat compared with the second quarter of 1999 and totaled $260 million. Earnings from operations were $1 million, compared with $35 million in the year-ago quarter. Earnings from operations were reduced by costs of branding and operating independently as well as by planned investments in life sciences to launch new products.

Orders were affected by product transitions and weakness in Agilent s traditional businesses. The pharmaceutical market is growing in the area of drug discovery, and response was encouraging for the new bioscience products. Shipments for the gene reader were strong, and shipments for bioanalyzers were beginning to ramp up on a small base. Customer acceptance has been favorable for Agilent s new gene array chips. In March, Agilent announced that it acquired J&W Scientific, the world s largest supplier of gas-chromatography columns and consumables. The acquisition will expand Agilent s range of consumables for the chemical, petrochemical and environmental markets.

Healthcare Solutions

Orders in healthcare solutions during the quarter were $349 million, down 8 percent when compared with the second quarter of fiscal 1999. Two factors have slowed capital purchasing by Agilent s hospital customers: purchases pulled into fiscal 1999 to avoid possible Y2K issues, and increasing pressure on hospitals from the balanced-budget amendment in the United States.

Net revenue in the second quarter was $343 million, down 9 percent compared to an exceptionally strong second quarter last year. Net revenue for the first half of fiscal 2000 increased 10 percent compared with the first half in fiscal 1999. Operating losses were $30 million this quarter, compared with earnings from operations of $50 million in the second quarter of 1999. Earnings from operations were reduced by costs of branding and operating independently. The management team has accelerated a number of initiatives to improve near-term results in this business and is working longer term to grow into new markets.

Costs and Expenses

The company s gross margin for the quarter was 49.3 percent of net revenue, a slight improvement over the first quarter. Operating expenses were 40.6 percent of net revenue for the quarter, with selling, general and administrative expenses at 28.7 percent of revenue, and research and development at 11.9 percent.

Asset Management

Based on this quarter s earnings, return on assets for Agilent was 9.0 percent. Based on this quarter s revenue, accounts receivable was 19.0 percent; inventory was 16.3 percent; and net property, plant and equipment was 14.6 percent for the quarter.

Six-month Review

Net revenue increased 25 percent over the first half of last year and totaled $4.7 billion. Net revenue in the United States rose 20 percent to $2.0 billion, compared to last year s first half of $1.7 billion, while net revenue from outside the United States rose 28 percent to $2.7 billion. For the six months ended April 30, net earnings increased 29 percent to $297 million, compared with $231 million in the first half of fiscal 1999. Earnings from operations rose 13 percent to $385 million, compared to $341 million in the first half last year. Earnings per share were 67 cents and 66 cents on a basic and diluted basis, respectively. Distribution

In April, the HP board of directors declared a stock dividend of all of the shares of common stock in Agilent Technologies held by HP (380 million shares) to HP shareowners of record as of 5:00 p.m. EDT on May 2, 2000. The distribution, which will complete the spin-off of Agilent Technologies from HP, will give HP shareowners approximately 84 percent of the outstanding common shares of Agilent.

At the close of market on June 2, 2000, HP will distribute its shares in Agilent. The distribution will be on the basis of .3814 of a share of Agilent for each HP common share outstanding.

"I m proud of our employees for their enthusiastic response to the challenges of establishing ourselves as a separate company," said Barnholt. "We re pleased with what we ve achieved in our second quarter of operating as an independent company."

Business Outlook

"We continue to believe there are excellent opportunities in communications and electronics, where we are well-positioned and ramping capacity to meet demand," said Barnholt. "In the near future, we believe our healthcare and chemical-analysis businesses are likely to achieve modest growth. We re working hard to reposition these businesses to address longer-term growth opportunities."

"In February, we said that our fiscal 2000 goal for net revenue was about $10 billion, a figure that translated into year-over-year growth of 20 percent," said Walker. "Given the strength of our orders in the first half of the year and further improvements in our production capacity that we expect later in the year, we now believe that revenue will be closer to $10.3 billion. Our comparisons get a lot tougher in the second half of the year, and we still face some capacity constraints and component-supply shortages in some of the products that are fueling our growth.

"We still expect net earnings for fiscal 2000 to be a bit over 6 percent of net revenue. For fiscal 2001, we continue to believe we can achieve 15 percent growth in net revenue, and net earnings approaching 8 percent of net revenue. "While the future is uncertain, we re excited about what we believe we can accomplish."

About Agilent Technologies

Agilent Technologies, Inc. (NYSE: A) is a diversified technology company, resulting from Hewlett-Packard Company s plan to strategically realign itself into two fully independent companies. With approximately 43,000 employees serving customers in more than 120 countries, Agilent Technologies is a global leader in designing and manufacturing test, measurement and monitoring instruments, systems and solutions, and semiconductor and optical components. The company serves markets that include communications, electronics, life sciences and healthcare. In fiscal year 1999, the businesses comprising Agilent, then a subsidiary of HP, had net revenue of more than $8.3 billion. Information about Agilent Technologies can be found on the Web at www.agilent.com.

More financial information about this quarter s earnings is available at http://investor.agilent.com. This news release contains forward-looking statements (including, without limitation, information regarding projected net revenue, net margin, net earnings, anticipated costs and expenses and the information in the section captioned "Business Outlook") that involve risks and uncertainties that could cause the results of Agilent Technologies to differ materially from management s current expectations. These risks include the ability of Agilent to successfully operate as an independent company, including the ability to retain and motivate key employees in a very competitive technology labor market; and the potential for business disruption.

In addition, other risks that Agilent faces in running its operations include: the timely ability to ramp manufacturing capacity to meet order demand; the timely innovation, production, commercialization and acceptance of new products and services; the economic, political and other risks associated with international sales and operations; the cyclical nature of many of the industries and markets into which Agilent sells its products; the potential for experiencing increased costs resulting from decreased purchasing power as a separate company from HP; the current use of information systems and transitional services provided to Agilent by HP, which Agilent must develop and procure on its own in the near term, potentially at increased costs; and other risks detailed in Agilent s Annual Report on Form 10-K for the year ended October 31, 1999, and its Quarterly Report on Form 10-Q for the quarter ended January 31, 2000, as filed with the Securities and Exchange Commission.

Contact:
Agilent Technologies
Steve Beitler, 650/857-2387 (Editorial)
steve_beitler@agilent.com
or
Mary Lou Simmermacher, 650/236-5133 (Editorial)
marylou_simmermacher@agilent.com
or
Hilliard Terry, 650/857-3058 (Analyst)
hilliard_terry@agilent.com