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Agilent's LC-MS, MS Sales Surge in FYQ1 Atop 16-Percent Drop in Total Revenue, Lay-Offs


Agilent Technologies this week reported that continued demand for its liquid chromatography-mass spec systems and mass spectrometers grew in the double digits in its fiscal first quarter, even as its overall revenue fell 16 percent and the company announced it would lay off 600 workers.

However, the results failed to prevent Agilent from posting a 1 percent decline in revenue for its Bio-Analytical Measurement unit, which houses its proteomics tools. In addition, total revenues for the three months ended Jan. 31 fell 16 percent to $1.1 billion from $1.39 billion one year ago.

In December 2008 Agilent projected that total revenue would be between $1.25 billion and $1.3 billion, which itself had been lowered from an earlier guidance of between $1.34 billion and $1.39 billion [See PM 12/11/08].

Company officials blamed the drop-off on its Electronic Measurement business, whose sales fell 23 percent to $596 million in the quarter, and its semiconductor and board-test division, which saw its receipts plummet 49 percent to $45 million.

By comparison, the Bio-Analytical Measurement division saw "weakening market activity" with a 1 percent decline in revenue to $525 million. Organically the division grew 2 percent. Orders in the division fell almost 2 percent during the quarter to $523 million.

Sales in the Bio-Analytical Measurement division’s life-science segment contracted 1 percent to $238 million, though Agilent CEO Bill Sullivan said the segment continues to be a source of strength for the company in the academic and government research, and food-safety sectors.

"From a product standpoint we continue to do well in areas such as microarrays and LC-MS, [and] our LC-MS offerings continue to take market share in a very competitive environment," Sullivan said during Agilent’s fiscal first-quarter earnings call.

While that product line is not immune to general financial trends, and any decline in demand for instruments in the analytical market will hurt its LC-MS business, Agilent is "in a very, very strong competitive position in this market, and we have done a very good job of sorting out opportunities moving forward," Sullivan said.

‘Still Fully Funding’ LC-MS

To be sure, LC sales were "weaker" compared to the fiscal first quarter of 2007, but LC-MS systems sales increased in the double digits during the current the quarter, CFO Adrian Dillon said during the call. He did not elaborate. Mass-spec sales rose 18 percent during the quarter, a company spokesman said.

Last fall, the company began implementing cost-cutting measures, and this week it announced it will lay off 600 jobs in global infrastructure, which supports EMG, Bio-Analytical, and Agilent labs.

Agilent also said it will shutter two small board-inspection businesses, which includes automated optical inspection and automated X-ray inspection.

However, Dillon said the cost-cutting steps are not expected to have a "major impact to our R&D investment at all. If you look at each of our major business units and segments, we have very strong instrument platforms that we need to continue to invest," in, including LC-MS systems.

"We are still fully funding the development to make sure we have leading edge technology on each of our major instrument platforms, as well as a leading position in each of our segments," he added.

Agilent in December 2008 predicted that its Bio-Analytical business, and especially its life-science segment, would be able to weather the financial downturn, and called its life-sciences business the firm's "biggest [growth] opportunity."

Indeed, Agilent has been betting for the past two years that the unit would expand. To that end, the company has been building up its mass-spec portfolio by moving into the higher-end market, and taking steps to mine the academic and government research market. While that market comprises about half of the total $17 billion life-science space, it makes up only about a 4 percent of Agilent's total revenue base.

This week, Sullivan said that though Bio-Analytical sales are projected to decline 5 percent in fiscal 2009, the company expects to report increases in sales to academic and government researchers, and in the food-safety end market. He did not provide any figures.

For the fiscal first quarter, revenue from academic and government markets swelled 20 percent compared with the year-ago period. By comparison, revenue from pharmas and biotechs fell 8 percent, which Dillon mostly blamed on the continued declined in funding for genomic research in the US.

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However, he added that funding for new technologies in Europe helped buoy revenue during the period, with the mix "particularly strong for our high-end systems, primarily mass spec and for our microarrays."

Feeling the Pain

According to Sullivan, "the fundamental cause" for Agilent's missed revenue forecast was "very weak orders and revenue in January" across all segments of its business. Bio-Analytical orders fell 12 percent while Electronic Measurement orders nose-dived more than 30 percent year over year.

Fiscal first-quarter profits sank 47 percent to $64 million from $120 million in the year-ago period.

Contributing to the decline was a $56 million charge Agilent recorded for restructuring and asset impairment, and a $12 million charge for non-cash amortization. However, the company recognized $56 million in tax benefits and $4 million in other net gains.

Revenues were down across all geographic areas, the company said: Sales in the Americas fell 10 percent, Europe was down 21 percent, and Asia declined 18 percent from one year ago.

Broadly in Bio-Analytical Measurement, the drop-off was sharpest in Europe, where revenues contracted 11 percent, Dillon said. Sales in the Americas inched up 1 percent and grew 10 percent in Asia. Growth swelled 37 percent in China and 17 percent in Japan, which rebounded from a weak fiscal first quarter 2008.

Narrowly within life sciences, the market was "weak" in Europe, flat in the Americas, and mixed in Asia. The sector posted "strong" results in China, was flat in Japan, and weak in India due to lower spending by contract research organizations, Dillon said.

For the quarter, R&D expenses totaled $169 million, down 7 percent from a year ago, while SG&A expenses declined 10 percent to $396 million. Agilent had $1.4 billion in cash and cash equivalents as of Jan. 31.

"Agilent felt the full brunt of the severe worldwide economic downturn," Sullivan said.

Two months ago, the company said that it may be another 18 months to two years before conditions return to "normal." This week, Sullivan said "we don't know where or when this recession will bottom."

For its fiscal second quarter, the company's "best guess" is that revenues and operating earnings, which are normally seasonably stronger, will be in line with first-quarter figures.

Full-year fiscal 2009 revenues are projected to be down 20 percent from 2008 figures. Electronic Measurement is expected to fall 25 percent from one year ago while semiconductor and board-tests revenues are projected to be half of 2008 receipts.

But given the shifting nature and extent of the downturn, Sullivan added that "forecasting in the current environment is almost futile as visibility is virtually nil."

Sullivan also said that Agilent continues to look at potential acquisitions, but acknowledged that the M&A market may stay in a state of stasis for some time.

"The reality of the situation is that coming to an agreement with a potential acquirer … the valuation is a real issue," he said. "People still have very vivid memories of the 52-week high, and so the whole issue of valuation, much less financing, has put the merger-and-acquisition market, I think, on hold."