Monday November 27, 2000 (09:17 am ET)
Agilent Offers Some Optimism for Tech
The company's latest earnings report showed pockets of tech strength
By Megan Graham-Hackett, S&P Technology Analyst
NEW YORK, Nov. 27 (Standard & Poor's) - Agilent Technologies (A, 48 1/16; S&P STARS ranking ) reported fiscal fourth quarter earnings on Monday, November 20, 2000 that exceeded expectations. This accomplishment stands out during an earnings season in which forecasts were many times missed.
The company reported EPS of $0.69 for the fourth quarter of FY 2000 (which ends October), including a $0.17 gain and excluding a one-time charge of $0.03. The $0.17 gain reflected the sale of leased assets to CIT Group, announced in October, 2000. The consensus estimate, according to First Call, called for $0.53 a share, including the $0.17 gain. The $0.03 charge relates to restructuring efforts Agilent has undertake at its Healthcare Solutions Group (HSG).
Revenue for the fourth quarter rose 38% from the year-ago period to $3.37 billion, or up 29%, excluding the impact of the CIT sale, and also exceeded our expectations. Strength was led by its Test & Measurement (T&M) unit, which recorded revenue growth of 67%, while Semiconductor Products posted revenue growth of 38%. These gains were partly offset by a 7% rise in Chemical Analysis sales and a 22% drop in Healthcare Solutions.
OPTICAL STILL "WHITE HOT." Within T&M, Agilent noted strength in its Communications Test (60% of the segment) business, which posted a healthy 53% gain in revenues, and recorded orders up 41%. Importantly, Agilent described strength in optical test equipment and described the market as "white hot." In addition, the company cited healthy demand for network test solutions, which saw sales double in the quarter.
Agilent also noted that sales related to wireless base stations accelerated. These statements are impressive given the current stock market backdrop which reflects fretting over a sharp slowdown in telecom and datacom purchases. While semiconductor test posted 36% revenue growth, the results reflected strength in flash memory test, but the company pointed to a slowdown in SOC (System on a Chip) testers. This may have been a result of the roll out of the company's new low end SOC test product, which was not available for sale until the end of the quarter.
KEY SEMICONDUCTORS STILL HEALTHY. Semiconductor products also posted strong results despite a pessimistic market environment. Overall, semiconductor products posted revenue growth of 38%. The networking and computing segment of semiconductor products rose 43%, wireless jumped 59%, imaging posted a 60% rise, and the core opto business increased 21%. The company noted particular strength in fiber optics, storage and network related sales.
Most significantly, Agilent noted that it still sees a healthy semiconductor business and that it doesn't believe the industry is headed toward a downturn. This contrasts with the current market sentiment that we are in the midst of a semiconductor downturn. Instead, Agilent sees the industry going through a pause following several quarters of exceptional and unsustainable growth. In addition, the company commented that they didn't see much of their optical components stockpiled in customer's inventory - instead, they stated that there isn't much inventory out there.
TROUBLED AREAS SHOW PROFIT IMPROVEMENT. In the areas of Chemical Analysis (about 9% of sales ) and Healthcare Solutions Group (HSG, 11% of sales), the company has narrowed its focus, and showed progress during the quarter. Within Chemical Analysis, Agilent has concentrated on the rapid growth of life sciences related efforts and has seen strong growth in this area.
As for HSG, On Friday, November 17, Agilent announced the planned sale of this division to Philips for $1.7 billion. Agilent was able to improve profitability in Chemical analysis during the quarter, with the division posting a fiscal fourth quarter operating profit margin of 6.2%, compared with a loss recorded in the third quarter. Meanwhile, the operating loss improved at HSG.
STRONG DEMAND FOR CUTTING EDGE SOLUTIONS. The company described a strong demand outlook for cutting edge technologies in its comments on its success during the quarter. The company noted that investments in these new technology areas are presenting the opportunity for customers to improve or enhance revenue streams, at the same time lowering costs. Agilent stated that demand for IP routers and testing equipment for fiber optics continue to boast healthy growth, and that by leading with cutting edge technology, and continuing to innovate, the company can escape some of the accelerated downdraft in sales that older technologies are suffering from.
The company added that it was comfortable with the consensus EPS estimate for the fiscal first quarter of FY 2001 of $0.45, and reiterated guidance of 20% revenue growth for the year. The company noted that its strong backlog gave it confidence in achieving these goals.
Agilent is emerging as an impressive technology play. The company has a solid base of business in leading edge communications technologies, coupled with the benefits of diversity with a broad array of products within its portfolio. At the same time, the company is improving its earnings visibility and nimbleness with the deployment of new information systems.
Given this positive momentum, at 23 times our FY 2001 (Oct.) EPS estimate of $2.20 ($2.40 before goodwill), close to the market multiple, we view Agilent as an attractive investment vehicle at current levels. |
