Palo Alto, CA, August 20, 2001 – Agilent Technologies Inc. has reported orders of $1.3 billion and revenue of $1.8 billion for the quarter ended July 31. On an earnings-before-goodwill basis, the company lost 24 cents per share versus the consensus estimate of a 35-cent-per-share loss. These results represent continuing operations, excluding Agilent's recently sold healthcare business. The company said that third-quarter orders for its communications and semiconductor products continued to be very weak, reflecting the severe slowdown that has plagued these industries in recent months. In addition to expense reduction actions that Agilent has already taken, the company announced that it will reduce its workforce by approximately 4,000 people, or about 9 percent, by the middle of next year in order to restore the company to profitability as soon as possible.
“Based on our outlook earlier in the year, we implemented a variety of aggressive cost-control measures – including a temporary 10-percent pay cut – to try to avoid layoffs,” said Ned Barnholt, Agilent president and CEO. “The measures to date have had a positive impact, but the business environment in our key industries continued to deteriorate this quarter. And the outlook going forward is for a slow and gradual recovery. We are now taking additional actions to bring the size of our workforce more in line with anticipated business levels.
“This decision is one we don't make lightly. This is by far the worst industry downturn I have seen in my 34 years with the company. Extraordinary business conditions, unfortunately, require unusual actions. Despite this week's announcement, we remain deeply committed to our culture of valuing our people and the contributions they make to Agilent.”'
Workforce reductions will occur in many geographies and business organizations. Agilent expects to incur restructuring expenses of approximately $200 million to reflect the impact of severance packages and related costs associated with the workforce reductions. The workforce reductions will result in about $500 million in annualized savings.
Third-Quarter Financial Review
Weak customer demand coupled with excess capacity and inventory in key industries Agilent serves drove net orders down 54 percent – to $1.3 billion – from a very strong third quarter a year ago. Net orders declined 5 percent from last quarter. Cancellations were about $240 million, down from Q2 but higher than expected. Third-quarter revenue was $1.8 billion, a 23-percent decrease year over year. Revenue declined 24 percent from last quarter.
The company's loss of 24 cents per share on an earnings before goodwill basis excludes a $74 million one-time (non-cash) charge to reflect a change in strategy for providing information systems for customer support, and a $39 million net (non-cash) investment gain. Earnings before goodwill were favorably impacted by 5 cents per share for the effects of changes related to the Adaptec agreement, and negatively impacted by 10 cents per share for an above-normal increase in inventory reserves based on lower order expectations.
“Our third-quarter revenue and earnings were somewhat stronger than expected, driven by management actions consistent with our commitment to reduce Agilent's cost structure,”' Barnholt said. “Our employees aggressively shipped backlog and worked to reduce expenses. All of these efforts combined to lower our selling, general and administrative expenses by 23 percent year over year and 15 percent compared with Q2. ”
Barnholt noted that given the difficult business environment, Agilent is pleased with its asset management this quarter. “We were able to generate positive operating cash flow despite a loss. We have received $1.6 billion from the sale of our healthcare business, and by the end of August, we will have almost no debt.”
Looking forward, the company said it expects a slight increase in total Q4 orders over this quarter's $1.3 billion. Because backlog is at very low levels across the company's test and measurement and semiconductor businesses, revenue will be dependent to a large extent upon new orders. Revenue is expected to be between $1.3 and $1.5 billion, which would lead to an expected loss of between 50 and 70 cents per share on an earnings before goodwill basis, excluding restructuring charges.
“We are balancing the need for aggressive, immediate action to meet extraordinary market conditions with our goal of building a company for the long term,”' Barnholt said. “We're very optimistic about the potential of the businesses we're in, but we clearly need to return Agilent to profitability as soon as possible. Reducing our workforce in areas where we have excess capacity will help us become a stronger company while enabling us to preserve our investments in core R&D and new product programs.”