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Agilent's LC-MS Sales Rise 30 Percent Amid 25 Percent Slip in Q2 Revenue

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This story originally ran on May 15.

Agilent Technologies' Bio-Analytical Measurement division continued to be a comparative bright spot as the company reported a 25 percent slide in total revenues for its fiscal second quarter.

This week the company said revenues for the three months ended April 30 fell to $1.1 billion, off from $1.5 billion a year ago, as its Electronic Measurement division continued to pull down the firm with a 33 percent drop in revenues.

The Bio-Analytical Measurement division also saw a revenue drop, to $498 million, down 6 percent from $525 million a year ago. However, given the "very difficult macroeconomic environment," the division performed "well" in the quarter, and "we continue to be very pleased with the performance" of that business, William Sullivan, Agilent's CEO, said during a conference call accompanying the release of its earnings.

Within the division, Life Sciences revenues were down 7 percent year over year to $241 million. While the company said that liquid chromatography sales were "weak", as sales were off by double digits, its mass spectrometry business and LC-MS showed "continued strength" during the quarter, posting double-digit growth.

Adrian Dillon, Agilent's CFO, said that despite the overall decline in LC sales, those instruments saw a late-quarter uptick in orders. In late April, the company also released the 1290 Infinity UHPLC system, which, according to Agilent, provides the industry's largest analytical power range [see PM 04/30/09].

At the time, an Agilent official also said that the firm was seeing a bump in quote requests for its LC systems — as well as mass specs — as a result of the economic stimulus packages in the US, Europe, and Asia, fueling visions of increased sales of the instruments later in the year.

Dillon said this week that the stimulus funds have "caused quoting activity to pick up around the world," but actual spending by customers is not expected to change notably before the end of Agilent's fiscal year in the fall.

On the mass spec front, he said that the demand for both mid-range and high-end mass specs was "robust" in the second quarter, helping to drive sales in the academic and government markets up 10 percent year over year. LC-MS and microarrays were up 30 percent year over year, Sullivan said.

On the consumables end, sales were "not materially different than the instrument trend," Dillon said. "There was clearly some inventory flushing … on the part of our customers because we did not see the stability that you might otherwise expect in the second quarter," he said.

Along with a 6 percent decline in revenues, orders in the Bio-Analytical Measurement group in the first quarter shrank 16 percent year over year to $481 million. Within Life Sciences, spending by pharma and biotech was down 11 percent "with a lengthening of the replacement cycle in the current soft environment and funding pressures impacting smaller biotech firms," the company said.

Dillon added that sales to biotech are under particular pressure as a result of shrinking venture capital investments. Some smaller biotechs "are near bankruptcy," he said.

Chemical Analysis, the other sector housed within Bio-Analytical Measurement, saw revenues slide 6 percent to $257 million in the quarter.

Geographically, Bio-Analytical Measurement sales were hit hardest in Europe where business contracted by 16 percent, compared to Q2 2008. The Americas was down 10 percent. Japan was up 7 percent, however, and the rest of Asia was up 12 percent driven by a 29-percent increase in China.

Since the acceleration of the broader economic downturn in the fall, Agilent has taken numerous cost-cutting measures, including some consolidation, pay cuts, and layoffs. The brunt of the moves has been targeted to its Electronic Measurement division, and this week, several analysts questioned whether and when similar steps may be taken with the Bio-Analytical Measurement business. Aside from switching to a variable-pay structure, which ties employee paychecks directly to the success of the company, from a fixed-salary structure, the Bio-Analytical Measurement division has been mostly untouched by Agilent's spending cuts.

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Sullivan said in the conference call that he anticipates that to stay stable. Over the past year, company officials have repeatedly stated their belief that the Bio-Analytical Measurement business, and life sciences in particular, will form the foundation for Agilent's growth, and this week Sullivan called it "the hottest hand we're playing."

The company has a "great product portfolio," he said. "We have great momentum, and … we, in fact, can make these tradeoffs and continue the investment in what is now the largest market in measurements and one that we continue to do very well."

Regarding the impact of stimulus funding, one analyst asked whether money, including stimulus funds to other agencies such as the US Department of Energy and the Environmental Protection Agency, may hit the vendor level more quickly than stimulus funds targeting the National Institutes of Health. Sullivan answered that Agilent's academic and government business — which has been targeted as a growth area by the company — has "essentially doubled over the last course of the year," so the effect of non-NIH funding is being clearly felt.

He added, however, that the NIH still remains the biggest fish in the funding waters.

"The good news on the NIH spending is that it is predetermined that a certain percent of it has to go to capital investments and we are pursuing those opportunities very aggressively," Sullivan said.

Numbing Numbers

The 25 percent drop in companywide revenues contributed to a $101 million loss posted by Agilent in the quarter, compared to a profit of $173 million in Q2 2008. Orders were down 33 percent year over year to $1 billion, from $1.5 billion.

Revenues were down 25 percent in the Americas and 24 percent in Europe. Japanese business was off 32 percent, while the rest of Asia-Pacific contracted 22 percent.

While Electronic Measurement was the "fundamental cause" of Agilent's revenue decline, company officials said they see "signs of stabilization." Group orders within the division during the fiscal third quarter are expected to be at the same level as they were in Q2 and to sequentially increase in Q4, Sullivan said. Electronic Measurement, he added, is anticipated to return to double-digit profitability in Q2 of 2010.

Companywide, R&D spending was down 7 percent to $170 million. SG&A spending was down 6 percent to $407 million. The company said it had cash and cash equivalents of $1.4 billion as of April 30, including net cash of $922 million.

For full-year fiscal 2009, Agilent forecast revenues to decline by 25 percent compared to 2008, which would give it $4.3 billion in revenue for the year.

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