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Agilent Posts Double-Digit Falloff in Q4 Revenues, Delays Varian Deal to 2010

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By Tony Fong

Agilent Technologies today reported a 9 percent slide in its Bio-Analytical Measurement segment amid a 21 percent drop in overall revenues for its fiscal fourth quarter, to close out "an extraordinarily difficult year," according to the firm's president and chief executive.

The company also said that its planned $1.5 billion acquisition of Varian is now expected to close in early 2010 instead of the end of 2009 as previously planned.

Overall, the company posted receipts of $1.17 billion for the three months ended Oct. 31, down from $1.48 billion a year ago, while net income shrank to $25 million, $.07 per share, from $231 million, $0.65 per share, in Q4 2008.

Its Bio-Analytical Measurement business saw a more moderate revenue drop to $544 million from $594 million a year ago, while orders were down 1 percent to $590 million from $596 million a year ago.

Within BAM, revenues for the Life Sciences business fell 7 percent to $256 million from $276 million in Q4 2008.

Despite the drop in its company-wide business, William Sullivan, Agilent's CEO, deemed the overall results for the quarter "a relatively strong finish to an extraordinarily difficult year," adding they were above management expectations.

Indeed, while virtually every life-science firm and mass spec vendor has seen its top line tumble over the past year as a result of the broader economic downturn, Agilent has had an especially challenging time of it.

In its fiscal first quarter, the company reported a 16 percent decline in revenue company-wide year over year, followed by a 25 percent fall in Q2, and then a 27 percent contraction in Q3.

But as a company still heavily invested in the electronics and semiconductor businesses — its Electronics Measurement and Semiconductor & Board Test segments comprise more than half of Agilent's total business — it has also suffered more than other mass spec vendors due to the financial cratering in those segments.

Today, the company said its EM revenues dipped 29 percent to $582 million from $815 million a year ago, while its SBT business saw revenues plummet 43 percent to $41 million from $72 million a year ago.

At least two years ago, however, the company embarked on a strategy to invest more heavily into its life-sciences operations and to remake itself into a major player in that market. During the past year, that move has helped to soften the financial blow.

In the first quarter of its fiscal 2009, Life Sciences revenues fell 1 percent year over year, the same as the total BAM segment; for Q2, Life Sciences was down 7 percent compared to a 6 percent fall-off for BAM; and in Q3, Life Sciences shrank 5 percent and BAM was off 8 percent.

On Nov. 1, Agilent also separated the BAM business two reporting segments: Life Sciences and Chemical Analysis. During last quarter's earnings release, when the company announced this separation, a spokesman told ProteoMonitor that the creation of Life Sciences as a separate reporting segment reflected the "explosive growth" in that part of the company's business and that the new structure "will help us accelerate our efforts to become an even more focused team for life science customers." [See PM 08/20/09].

Electronics Measurement will remain its own group.

In a conference call accompanying today's earnings results, Sullivan said that though Life Sciences revenues were down year over year, orders during the quarter were strong. He did not provide a year-ago comparison, but sequentially, orders in Q4 were up 29 percent from Q3. Much of the orders came in late in the fourth quarter and the company could not record them as revenues for the quarter.

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"We continue to believe we are well-positioned in LC and LC-MS, as well as in sample prep, microarrays, informatics, and lab automation solutions," Sullivan said, without elaborating, although company officials said that LC and gas chromatograph sales throughout the BAM business were down in the double digits for the quarter. "We continue to see order momentum in new technologies such as LC-MS and microarrays."

Acceptance of the 1290 Infinity UHPLC system, which was launched in April and began shipping in July, has exceeded expectations, company officials added, though they did not provide any figures.

"The feedback has been very, very positive … so we're in the process of ramping that capability into a market that's down," Sullivan said. "The replacement market for LCs is very, very weak [for both pharma and contract research organizations], so what you're seeing is a new capability that people are willing to buy and invest in and get the benefits of this new technology."

Sales to pharmaceutical and biotech customers were down 8 percent year over year, Agilent said, though company officials noted that there were signs of a "thawing" underway in that segment. Sales to the academic and government sector dropped off 4 percent compared to the year-ago period, which was a tough comparison, according to Agilent CFO Adrian Dillon, because sales to that market rose 22 percent in the prior-year quarter.

In Chemical Analysis, revenues slid 10 percent to $288 million. Demand for gas chromatography systems was "weak," according to the company, while demand for high-end LC-MS platforms was "relatively strong."

Overall, income from BAM was $109 million, $27 million less than a year ago. Geographically, the BAM business in the US was down 12 percent year over year, and down 11 percent in Europe. Asia-Pacific was flat with Japan up 2 percent and the rest of Asia off 1 percent. China was flat compared to a strong year-ago comparison.

Company-wide, the Americas were down 23 percent, Europe fell 20 percent, and Asia-Pacific shrank 19 percent. Agilent had orders of $1.27 billion in Q4, down 11 percent from $1.44 billion a year ago.

Spending on R&D was down 12 percent from a year ago to $150 million. Agilent reported almost $2.5 billion in cash and cash equivalents as of Oct. 31.

Varian Purchase in Holding Pattern

Agilent also said today that the Varian acquisition is now expected to close early next year. It had been expected to close by the end of this year [See PM 07/30/09]. Agilent did not provide a reason for the delay, but said in September that the US Federal Trade Commission had requested additional information related to the deal from both companies.

Commenting on stimulus funding effects on the company, Sullivan said that that the effects have been minimal to date — a result of the slow decision-making process of government-funded institutions, as well as the relatively sluggish flow of money from the government, "particularly in the US, so I believe the vast majority of the stimulus impact won't show up until calendar 2010."

In response to the market downturn, Agilent began a $525 million restructuring program in Q3 2008 to cut costs, which included a hiring freeze, salary reductions, and layoffs. That restructuring effort is about two-thirds to three-quarters completed, according to Dillon, and starting Nov. 1, all employees had been restored to full salary.

For Q1 2010, revenues are projected to be flat. On a non-GAAP basis, earnings are projected to be in the $0.28 to $0.32 per share range, an improvement of $0.08 to $0.12 per share over Q1 2009.

Summing up the quarter and what's in store ahead, "I think we can say with confidence that we passed the bottom of the global economic downturn," Dillon said.

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