Agilent Soberly Details Expected Second-Quarter Doldrums

Thank you for being straightforward, Agilent A.

Hewlett-Packard's HWP testing and manufacturing better half may not have told us what we wanted to hear. That the economy really isn't that bad, that it's selling communications products like hotcakes and that we look damn sexy in V-neck sweaters.

Honestly? You look like Bill Gates in that sweater. Take it off.

Instead, Agilent laid out the bad news with graceful tranquility. For the fiscal first quarter, ended Jan. 31, Agilent beat the Street's consensus earnings estimate by a penny with 51 cents a share. The fiscal second quarter, however, is something of an unknown. Agilent drew up new second-quarter earnings per share estimates of 30 cents to 40 cents (analysts were expecting 58 cents, according to First Call/Thomson Financial). For the fiscal year, which ends in October, the company talked about revenue growing a weaker-than-expected 10% to 15%. "I appreciate that this is a very wide range," said CFO Bob Walker.

Working through the numbers on the company's conference call, analyst John Jones, of Salomon Smith Barney, questioned whether the company is serious about a range of $1.30 to $1.70 a share for the year, which would require three sub-30 cents a share quarters to close out 2001. (Salomon has done underwriting for Agilent.) Walker said Agilent has to work "uncertainty" into its model. No, we don't know exactly how bad the second quarter will be; we have a bad month or two left to work through at this point. Analysts were looking for $2.39 a share for the fiscal year, according to First Call.

And your butt lately, well, it's flat. Flat and square. Large, flat and square. Lose those flat-front khakis. You look like a beige barge.

CEO Ned Barnholt didn't moan in the throes of despair. Walker didn't go on a 20-second tirade against Alan Greenspan and his descendants. And thankfully for us, they didn't try and hide the extent of the damage. What part of Agilent's business stinks? Semiconductor equipment, semiconductor testing and communications handsets. On the bright side, storage-area network, life sciences, fiber-optic testing and fiber-optic components businesses aren't half bad.

Customers are buying next-generation, called 3G, mobile telecommunications test equipment and the iron to stock up 3G base stations. They just aren't buying 3G handsets. Then again, they aren't buying current-generation handsets either. Basically, when it comes to mobile phone and chip equipment buyers, they've got all they need for some time. Not so many orders have been cancelled, but Agilent's not hiding the fact that many of its buyers have pushed out orders.

"Things aren't 'just terrible'," consoled Walker, with calm. Because of a slowing economic environment, he explained, his customers are going through a normal period of steep inventory, which he expects them to spend the second quarter working through. By the end of the second quarter, he forecasted, customers will have "excesses rebalanced. That will give us a much better idea moving into the second half of the year."

By the way, I don't like to cuddle. No cuddling.

In the meantime, Agilent is battening down the hatches, slashing hiring, temp jobs, travel budgets. It's praising company progress in restructuring its business during the past year and implementing a performance-based compensation plan that pays workers more in good times and less in bad ones so that it won't have to start cutting.

With a stifled order growth company wide of 4%, Agilent knows times are tough. But Barnholt keyed on the importance of "balance." He wants to cut costs, but not jeopardize future growth prospects. And with Agilent's Tuesday report, it was obvious he sees no need to sugarcoat the truth.

It's endearing, really.