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Recovering From Array Shutdown, Agilent Standout LSCA Unit Drives Q4

Agilent’s life sciences and chemical analysis business unit and its test and measurement unit buoyed the company through a quarter when its other two divisions — automated test, and semiconductor products — faltered in a weak marketplace, executives said last week in a conference call for the company’s fiscal fourth quarter.

“In looking through our businesses, the standout was our life sciences and chemical analysis business,” said Agilent CEO Ned Barnholt. “LSCA had an outstanding quarter with strong growth in its core chemical and pharma businesses and a nice rebound in life sciences.”

For the quarter ended Oct. 31, Agilent’s LSCA business, which sells a diverse selection of molecular biology tools, as well as gas chromatography and liquid chromatography products, contributed $352 million, or 19 percent, of the company’s $1.8 billion in total revenues, while the test and measurement unit contributed $788 million, or 43 percent, of the company’s revenues. The two units together provided 63 percent of Agilent’s revenues for the quarter.

The LSCA unit’s fourth-quarter revenues grew 10 percent year-over-year, and 5 percent sequentially over $335 million in the third-quarter. This growth may have reflected benefits from the remedy of a problem that occurred in the third quarter, when the company’s microarray production and shipping had to be temporarily halted.

The shutdown occurred as the company began introducing new processes in its microarray production facility designed to improve the yield and quality of its microarrays, a spokesperson said.

“That [integration] led to some glitches and we had to stop shipping for part of June,” Christina Maehr, Agilent life sciences spokeswoman, told BioCommerce Week.

The company’s microarray production and shipping was halted for part of June, which resulted in a decline in revenues for the unit in the third quarter and contributed to a sequential increase in revenues for the fourth quarter for the unit. The production issues also delayed until August the rollout of Agilent’s whole-genome arrays for mouse and Arabidopsis.

“We are now getting the improved yields and quality,” Maehr said.

Despite the third-quarter production issues, company executives said they expect Agilent’s LSCA and test and measurement units to continue to drive the company’s business, which has been restructured and retooled over the last three years after the dotcom/high tech market bubble burst in 2001, impacting its core semiconductor segment.

Agilent execs thinks they might have it right, now.

“That is really the model that we have been looking for here for some time,” Barnholdt told analysts during the call. “This will be a nice, good, solid position for us going forward — to have these two businesses in strong positions.”

Overall, Agilent struggled through a “weak” environment in the semiconductor and semiconductor-test businesses, an context that the company expects to expand only slightly through at least the first half of FY ‘05.

“While the slowdown in this quarter happened a bit faster and was more severe than we anticipated, we don’t believe we are entering a downturn that is at all comparable to what we saw in 2001,” said Barnholt. He said the company expects the semiconductor market to grow very modestly in FY ‘05.

Overall, orders were down 8 percent for the quarter compared to the fourth quarter of last year, while revenues were up 9 percent to $1.8 billion from $1.7 billion over the same period last year. Income from operations was $173 million for the quarter, up 42 percent over $71 million for the year-ago quarter.

The company spent $232 million on research and development in the period, up 5 percent from $221 million in the year-ago quarter.

Agilent reported cash and cash equivalents of $2.3 billion on hand as of Oct. 31.

The company expects total revenues of $1.6 billion to $1.7 billion for its first quarter.

LSCA, the company said, should increase its revenues by 8 percent to 12 percent next year. For the 2004 fiscal year, the unit recorded total revenue of $1.3 billion, up 12 percent from $1.1 billion for FY ‘03. Income from operations grew to $192 million for the year, compared to $148 million for FY ‘03, for 29 percent growth for the year.

LSCA’s contribution to overall Agilent revenues for the year was 22 percent, compared to 19 percent for FY ‘03, in which the unit contributed $1.2 billion toward Agilent’s total of $6.1 billion.

The unit’s FY ‘04 averaged $333 million in revenue each quarter, growing from $313 million in revenues for the first quarter, to $333 million in the second, and $335 million for the third.

For the quarter ending Oct. 31, LSCA turned in record-level financial performance with orders from the life sciences portion of the unit increasing 11 percent over the year-ago quarter and operating profit improving 9 percent year-over-year.

Adrian Dillon, Agilent’s CFO, said growth in the life sciences sector was driven by HPLC products and integrated data systems, and from activity from the generic drug-manufacturing sector and from Asia.

In the quarter, Agilent completed the acquisition of Silicon Genetics, but did not disclose details of the transaction during its conference call.

Agilent’s share price fell 12 percent on Friday, closing at $22.58 from $25.68 at Thursday’s close, as volume spiked to 19 million shares from normal activity of some 3 million shares. Still, through the three months from Aug. 16 until Nov. 16, Agilent’s share price is up 9.5 percent.

—Mo Krochmal ([email protected])


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