Tested
Agilent Remains Tech Heavyweight
Richard Moroney, editor
Dow Theory Forecasts
Hurt by weak demand from telecom and semiconductor markets. Agilent Technologies' (NYSE A $26) stock has retreated near all-time lows. But the company, the world's largest maker of test equipment for electronic devices, seems capable of building on its best-in-class technology. Moreover, the recent sale of its health-care unit has allowed the company to focus on its high-growth businesses. The stock, ranked "accumulate," has attractive two-to-three-year potential for patient investors.
Company Profile
Agilent, a 1999 spin-off from Hewlett-Packard (NYSE HWP $25), offers products for many high-growth markets, including wireless communications, broadband, and data networking. The company's test and measurement unit (66% of trailing nine-month revenue) is a leading provider of test equipment to customers in the telecom, electronics, and semi-conductor industries. Notable clients include General Electric (NYSE GE $40), Intel (Nasdaq INTC $27) and Nokia. The semiconductor unit (22%) provides integrated circuits for wireless applications and data-storage products and makes image sensors for digital cameras. The chemical-analysis business (12%) sells systems to analyze the properties of various substances to large drug and chemical companies.
Revamped
In
early August, the company sold its health-care-solutions business
to Phillips Electronics for $1.7 billion. The unit, which had
revenue of $1.4 billion in fiscal 2000 ended October (13% of
Agilent's total annual sales), had been a sluggish grower. Agilent
plans to use a portion of the proceeds to pay off its short-term
debt. The company has no long-term debt. The remaining proceeds
will be added to cash reserves, which could be directed to acquisitions
in the life-sciences and test and measurement sectors.
Agilent is getting
its expenses in line with the current levels of capital spending.
The company has frozen hiring, cut back on its use of temporary
workers, and reduced discretionary spending. Agilent has also
aggressively trimmed production levels. Recently, Agilent said
it would trim its workforce by roughly 4,000 people or about
9%. Research and development spending remains healthy, however,
reflecting the company's commitment to developing new products
and technologies.
Conclusion
July-quarter
sales plunged 23% to $1.9 billion. The company had a loss of
$0.24 per share, compared to a profit of $0.34 a year earlier.
Net orders tumbled 54%, to $1.3 billion. Difficult year-over-year
comparisons made the numbers look particularly bad. Still, demand
has sharply slowed as key customers work through excess capacity
and inventories. And Wall Street analysts continue to push out
the timing of a recovery in the semiconductor and telecommunications
markets. With time, however, Agilent should regain its status
a premier technology holding. The company should be able to leverage
its dominant market position when capital spending rebounds.
Moreover, the sale of the health-care unit should bolster sales
growth because the revenue mix will be dominated by the potentially
faster-growing communications and life-science businesses. An
annual report for Agilent Technologies Inc. may be obtained at
395 Page Mill Rd., Palo Alto, CA 94306; (650) 752-5000.
Editor's Note: Richard
Moroney is editor of Dow Theory Forecasts, 7412 Calumet
Ave., Hammond, IN 46324, 1 year, 52 issues, 259. Visit the Web
site at www.dowtheory.com.
