Updated from Feb. 19

Agilent Technologies ( A) is doing what it can.

The test and measurement giant reported its first-quarter results for fiscal 2002 after the market closed Tuesday, trouncing Wall Street expectations for revenue and income. Yet the company's revenue still suffered a sequential decline, and management said that while some orders are growing, there is no certain visibility into the second half of 2002.

Agilent notched $1.43 billion in revenue to beat estimates of $1.32 billion as gathered by Thomson Financial/First Call, down from the previous quarter's $1.6 billion. Before special deductions, the company lost $315 million, 68 cents a share, according to generally accepted accounting principles. Subtracting $96 million in goodwill and amortization, as well as $105 million relating to restructuring, Agilent had a first-quarter 2002 pro forma loss of $134 million, or 29 cents a share, widely surpassing Street expectations of a 50-cents-a-share loss and prior company projections of a loss of 40 to 60 cents a share.

Investors were happy with what they saw, sending the company's shares up $2.36, or 9.1%, to $28.41 on the New York Stock Exchange Wednesday.

One year ago, at the front end of the tech slump, Agilent clocked $2.8 billion in revenue and $154 million in GAAP earnings, a 34-cents-a-share net profit. In the year-ago quarter, Agilent earned 51 cents a share in pro forma profit, or $237 million.

"Forecasts are just that, forecasts, said Chief Financial Officer Adrian Dillon during his first quarterly report at Agilent's top financial post. "We have a lot more confidence than we have had in the past year, but at best these are educated guesses as to how the market will react."

Agilent predicted that in its second quarter, it would be able to lift revenue 1% to 8%, to a range of $1.45 billion to $1.55 billion. Using benefits from cost-cutting, the testing equipment manufacturer expects to turn in pro forma losses between 20 and 30 cents a share. Agilent has cut 5,000 employee positions since mid-2001, which it believes will save $400 million a quarter by the second half of 2002. At this point in the program, Agilent estimates it has reduced its costs by $70 million a quarter.

Management also gave a full-year forecast of between $6.1 billion to $6.2 billion in revenue and a 54- to 64-cents-a-share loss. Current analyst estimates call for $6 billion in revenue and a 90-cents-a-share loss, according to Multex.com.

While revenue still lagged, the company keyed on increasing order activity as a sign that the downturn may be over in certain sectors. Agilent highlighted modest strength in its chip products and the testing equipment it sells to wireless, defense and aerospace customers. Compared with the previous quarter, test and measurement orders were up 23%; chip orders leapt 33%; and life sciences orders were up slightly. The downside to that order growth is that testing business sales slipped 12%, chip revenue fell 15% and life sciences revenue inched 3% lower.

Additionally, investors will recall that Agilent customers canceled $1 billion in orders in 2001. The company believes it can improve on that figure, however, which it demonstrated in the first quarter by reducing cancellations 68% sequentially from $250 million in the fourth quarter of 2001 to $80 million in the first quarter of 2002.

CEO Ned Barnholt believes increased orders from customers are going toward replenishing a lower level of inventories. He pointed to positive signs in PC, PDA and printer sales during the holidays as catalysts for improvement in Agilent's personal systems businesses. He also mentioned "very, very modest" increases in the company's wireless-component and wireless-testing areas, but said that bigger improvements would depend on the rollout of next-generation network services and sales of mobile phones to accompany them.

"It's a real unknown how quickly they move to volume deployment," Barnholt said. What Agilent does know is that products relating to the optical and long-haul telecommunications market will be the slowest to rebound, and the company does not expect them to turn up in 2002.

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