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Agilent shares leap on earnings surprise

Largely recovered from a profit warning, the Hewlett-Packard spinoff reports earnings of 33 cents per share, after analysts had lowered expectations to 20 cents.

Largely recovered from a profit warning, Hewlett-Packard spinoff Agilent today reported earnings of 33 cents per share, after analysts had lowered expectations to 20 cents.

Agilent shares leveled off today after jumping more than 20 percent in after-market trading yesterday. Shares were closed at $56.38, up about 1 percent but way above the $46.50 set at the end of regular trading yesterday.

The company, like many others that build chips and networking equipment, had been suffering from component shortages. On July 20, the company warned analysts to lower their expectations from 35 cents to about 18 to 22 cents.

But in the last two weeks of its fiscal third quarter, which ended July 31, the company received unexpected component shipments and was able to sell more products than expected, chief executive Ned Barnholt said today in a conference call.

The Palo Alto, Calif.-based company had almost-completed products literally stacked up in conference rooms, awaiting a few missing components, he said.

The company's net income for the quarter was $155 million, a 15 percent increase over $135 million in the same quarter last year. Revenue grew 28 percent to $2.7 billion, the company said.

"I think their efforts at getting (suppliers) motivated started to bear fruit in the last two weeks of the quarter," Morgan Stanley Dean Witter analyst Jay Deahna said. "They really bootstrapped themselves and executed quite well in the last two or three weeks of the quarter."

One concern for Agilent includes updating its own computer systems in the wake of the separation from HP, Deahna said. Another is higher-than-average employee turnover.

"On the other hand, the demand patterns they're experiencing are absolutely spectacular," Deahna said.

Agilent mainly builds test and measurement equipment used by scientists and engineers worldwide, including those developing network hardware and microchips. The company also sells chemical analysis equipment, health care products such as defibrillators and ultrasound monitors, and semiconductors used in network equipment and digital cameras.

However, the company said, its health care products business is still in bad shape. Orders in the medical products group dropped 13 percent to $318 million in the quarter compared with the same period last year.

This week, Agilent announced it will lay off 650 employees in the medical group during the current quarter. The company is taking a $25 million charge for the restructuring but said it will save $80 million overall.

The company blamed the medical group's revenue problem on U.S. hospitals, which are buying less equipment.

Agilent's medical group had an operational loss of $40 million in the quarter and will have another loss in the current quarter.

Deahna predicted the medical group will become profitable in the first quarter of fiscal 2001.

The chemical analysis group, which sells equipment to customers such as oil companies and environmental monitoring companies, also had disappointing results.

Orders in chemical analysis rose 8 percent to $269 million for the quarter compared with the same period last year. But the group had a loss of $8 million.

The company is adding bioscience equipment to the chemical analysis division, Agilent executives said, hoping to tap into a growing market.

Medical and chemical analysis businesses account for only about 20 percent of the company's business, Deanha said, "so the relative damage they can do is being minimized. They continue to introduce new products and are resizing the business so it's neutral-to-positive to the overall earnings picture."

In addition, the company warned in the conference call that the component shortages remain a problem. Barnholt said he has been personally meeting with suppliers, and the company has been adding procurement staff.

The future is looking up, though, as the company has received strong orders for new equipment. "In the communications and electronics business, there are no signs of letup of demand," Barnholt said.

In addition to the rise in chemical analysis orders, test and measurement orders in the quarter were $1.9 billion, a 63 percent increase over the same quarter last year. Semiconductor product orders grew 60 percent to $730 million.