10-QPeriod: Q3 FY2004

AGILENT TECHNOLOGIES, INC. Quarterly Report for Q3 Ended Jul 31, 2004

Filed September 2, 2004For Securities:A

Summary

Agilent Technologies, Inc. reported a significant financial turnaround in the quarter ending July 31, 2004, compared to the prior year. Total net revenue surged by 25% to $1.89 billion, driven by strong performance across all geographic regions, particularly Asia Pacific, and growth in products and services. The company achieved positive income from operations of $107 million, a substantial improvement from a $190 million loss in the same period last year. This turnaround is largely attributed to aggressive cost-reduction measures, including completed restructuring plans, and a rebound in key markets like communications and semiconductor testing. For the first nine months of fiscal year 2004, net revenue increased by 22% to $5.36 billion, and the company posted a net income of $275 million, a dramatic improvement from a net loss of $2.07 billion in the prior year. This recovery is underpinned by a successful strategic shift towards a more variable cost structure and a renewed focus on core business segments. While visibility into the fourth quarter remains limited, Agilent appears well-positioned for continued growth, benefiting from increased customer confidence and market stabilization.

Key Highlights

  • 1Total net revenue for the quarter increased by 25% year-over-year to $1.89 billion.
  • 2The company swung to a net income of $100 million for the quarter, compared to a net loss of $1.56 billion in the same period last year.
  • 3Income from operations turned positive at $107 million, a significant improvement from a loss of $190 million year-over-year.
  • 4Orders grew by 21% year-over-year, indicating strong customer demand across all geographies.
  • 5Restructuring and asset impairment charges decreased significantly, contributing to the improved profitability.
  • 6Cash provided by operating activities for the nine months ended July 31, 2004 was $254 million, a substantial increase from $373 million used in the prior year's period.

Frequently Asked Questions

The primary drivers for Agilent's improved financial performance were strong year-over-year revenue growth across all geographies, driven by robust order increases, and significant cost reductions resulting from completed restructuring plans. The company also benefited from a recovery in key markets.

Agilent has implemented aggressive cost reduction measures, including workforce reductions, facility consolidations, and a move towards a more variable operating cost structure. The company completed its major restructuring plans and aims to maintain a quarterly operating cost structure goal of approximately $1.45 billion. They expect to recognize additional net savings from these actions.

Agilent anticipates a very modest rise in fourth-quarter revenues and expects continued growth. However, visibility is limited, and potential risks include a decline in customer markets or general economic conditions, intensified pricing pressures, especially in the semiconductor industry, and potential disruptions from outsourced manufacturing. The company also highlighted the cyclical and volatile nature of its end markets.

The significant difference in the provision for taxes is largely due to Agilent establishing a $1.4 billion valuation allowance for deferred tax assets in the U.S. and U.K. during the third quarter of 2003. For 2004, the tax provision primarily reflects taxes on income generated in jurisdictions outside the U.S. and U.K., as the U.S. and U.K. income tax provision or benefit is recorded as an adjustment to the valuation allowance until it can be reversed.