Agilent Technologies Reports Q3 EPS of 33 cents

Source: Agilent

Orders up 44 percent; net revenue up 28 percent

Palo Alto, CA.. Agilent Technologies Inc. (NYSE: A) today reported that orders increased 44 percent, and net revenue increased 28 percent in fiscal 2000 s third quarter, which ended July 31. Net earnings, which reflect the costs of branding and operating independently, grew 15 percent, and earnings per share were 33 cents1.

"This quarter Agilent achieved record orders and revenue," said Ned Barnholt, president and chief executive officer of Agilent. "We continue to work closely with our customers to build next-generation wireless, optical and data networks. Eighty percent of Agilent s orders and revenue this quarter came from our communications and electronics businesses, where orders grew 62 percent, and revenue increased 44 percent. These growth rates have accelerated despite this quarter s tougher compare. Our biggest challenge is to ramp capacity to meet this unprecedented demand."

In the third quarter, total orders were $3.2 billion, an increase of 44 percent over the same period last year. Orders from the United States totaled $1.5 billion, an increase of 45 percent over last year s third quarter, while orders from outside the United States were $1.7 billion, up 42 percent over the same period a year ago.

Net revenue rose to $2.7 billion, up 28 percent over the third quarter last year. Compared to the second quarter of fiscal 2000, net revenue rose by $185 million or 7 percent.

Net earnings for the third quarter rose 15 percent to $155 million, compared with $135 million in the same period last year. This quarter s net earnings were 5.8 percent of revenue. For the third quarter of fiscal 2000, Agilent s earnings from operations were $210 million, 7.9 percent of net revenue, up 8 percent compared with earnings from operations of $195 million or 9.3 percent of net revenue in the third quarter of fiscal 1999.

Business Summary

Test and Measurement

Orders in test and measurement increased to $1.9 billion in the third quarter of fiscal 2000, up 63 percent over the comparable period in fiscal 1999. Net revenue rose 51 percent to $1.5 billion. Earnings from operations in test and measurement increased to $162 million, compared with earnings from operations of $122 million in the same period a year ago.

Orders in semiconductor test increased 83 percent this quarter and reached an all-time high for the third consecutive quarter, while revenue from the semiconductor test business rose 125 percent. Revenue from system-on-a-chip, flash memory test, and services and support all achieved triple-digit increases over the same period last year. Orders in test-and-measurement s communications business, which addresses the fast-growing optical, wireless and data-networking markets, increased 69 percent this quarter, and revenue increased 65 percent year over year. In the general-purpose area of test and measurement, orders increased by 39 percent year-over-year, and revenue grew 8 percent year over year. Electronics-manufacturing test did extremely well this quarter as contract manufacturers added capacity to meet demand.

Semiconductor Products

The semiconductor products business achieved outstanding results with record orders, net revenue and earnings from operations. Orders increased to $730 million, a growth rate of 60 percent over the third quarter of fiscal 1999. Net revenue grew to $591 million, an increase of 41 percent when adjusted for the transfer of products to a joint venture and Agilent s exit from the microprocessor business. Earnings from operations were $99 million, a 48 percent increase over last year s third quarter adjusted for a one-time charge.

In communication components, orders increased 152 percent over the third quarter of 1999, and revenue increased 86 percent. Orders nearly doubled over the third quarter of last year in fiber-optic transceivers and high-speed ICs, driven by strong growth in the metro-access and gigabit markets. Orders more than doubled in wireless components, where Agilent s CDMAdvantage RF chipset for wireless applications is winning very strong market acceptance. Imaging products include image sensors for digital cameras and optical computer mice, and these products achieved explosive growth this quarter.

The core business in semiconductor products had order growth of 19 percent and revenue growth of 17 percent this quarter. Core optoelectronic components achieved particularly strong growth, while non-networking ASICs had modest growth.

This quarter, the company announced plans to quadruple worldwide manufacturing capacity for fiber-optic components over a two-year period with an investment of more than $175 million. Agilent also recently announced that it is building a dedicated 6-inch wafer fabrication line in its Newark, Calif. facility for its innovative film bulk acoustic resonator (FBAR) filter products. Agilent is ramping FBAR assembly capabilities in its Penang, Malaysia facility as well. FBAR semiconductor technology enables miniature high-performance filtering products for applications such as mobile phones, so manufacturers can produce smaller phones with high performance.

Chemical Analysis

Third quarter orders in chemical analysis were $269 million, an increase of 8 percent compared with the third quarter of fiscal 1999. Order growth was helped by recently introduced bioscience products and liquid phase instruments. Net revenue declined 4 percent compared with the third quarter of 1999 and totaled $246 million, as demand was weak in the chemical, environmental and petrochemical markets. Operating losses were $8 million, compared with profit from operations of $36 million in the year-ago quarter. Operating losses reflected planned investments in life sciences and costs of branding and operating independently.

"The chemical-analysis business continues its transformation to focus on the higher-growth bioscience and pharmaceutical markets," said Barnholt. "We re pleased with the acceptance of our new products for these areas. We re also working to improve our cost structures in our core businesses."

Healthcare Solutions

Orders in healthcare solutions during the quarter were $318 million, down 13 percent when compared with the third quarter of fiscal 1999. Net revenue in the third quarter was $319 million, down 14 percent compared to a strong third quarter last year. Operating losses were $40 million this quarter, compared with profit from operations of $41 million in the third quarter of 1999.

Continued weakness in the U.S. hospital market resulted in a decline in orders in patient monitoring, which is the largest business in healthcare solutions. Two factors have slowed capital spending by hospitals: purchases pulled into 1999 by the customers to avoid potential Y2K issues and continuing financial pressure on U.S. hospitals from the balanced-budget amendment.

Order growth was strong for automatic-external-defibrillator products and point-of-care diagnostics compared to the third quarter of 1999. Several new products and enhancements strengthened Agilent s portfolio and attracted strong customer interest in the areas of ultrasound imaging; Web-enabled, wireless patient monitoring; and resuscitation in and outside the hospital.

"We re taking actions to return our healthcare solutions business to profitability as quickly as possible," said Barnholt. "We don t intend to wait for market conditions to improve before implementing our plans. We re firmly committed to strengthening this business and are confident that our actions will help get this business back on track."

Earlier this week, Agilent announced that its healthcare-solutions business is implementing a global restructuring program that, along with other programs, will result in annual savings in excess of $80 million dollars starting in fiscal 2001.

Costs and Expenses

The company s gross margin for the quarter was 48.7 percent of net revenue, down slightly from the second quarter as the company brought capacity online and addressed parts shortages. Operating expenses were 40.9 percent of net revenue for the quarter, with selling, general and administrative expenses at 29.0 percent of revenue, and research and development at 11.9 percent.

Business Outlook

"Given our excellent position in the communications and electronics markets and our strong backlog levels, we continue to feel comfortable with fourth quarter earnings per share of 39 cents, before restructuring," said Barnholt. "For fiscal 2001, we are raising our guidance from 15 percent to at least 20 percent growth in net revenue, and net earnings approaching 8 percent of net revenue."

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 46,000 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 http://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, operating income and losses, net margin, net earnings, net earnings per share, anticipated costs, expenses and charges, 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 control expenses, and to retain and motivate key employees in a very competitive technology labor market.

In addition, other risks that Agilent faces in running its operations include: shortages of critical parts; the timely ability to ramp manufacturing capacity to meet order demand; the ability to quickly adapt cost structures to changing conditions; the successful implementation of the restructuring of its Healthcare Solutions Group; the economic, political and other risks associated with international sales and operations; 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 April 30, 2000, as filed with the Securities and Exchange Commission.

1 Pro forma basic and diluted earnings per share were 34 cents and 33 cents respectively. Pro forma basic earnings per share were calculated using weighted average shares outstanding for the quarter. Pro forma diluted earnings per share included the dilutive impact of outstanding stock options and also assumed that HP stock and options converted to Agilent stock and options were outstanding for the entire quarter.