Agilent to sell chip unit for $2.66 billion

/ Source: The Associated Press

Dramatically narrowing its corporate focus, Agilent Technologies Inc. is shedding its chip unit and spinning off other assets as it concentrates on the test-and-measurement business at its historic core.

About 1,300 jobs will be cut in the reorganization, which will take the company back to roots that extend to the earliest days of its former parent, Hewlett-Packard Co. Agilent was spun off from HP in 2000.

“It’s been true since the inception of the company, we’ve performed more like a sluggish semiconductor company than the world’s premier measurement company,” Adrian Dillon, Agilent’s chief financial officer, said Monday. “It has been a case of the semiconductor tail wagging the measurement dog.”

Shares of Palo Alto-based Agilent soared $3.92, or 15 percent, to close at $30.33 Monday on the New York Stock Exchange.

Agilent is selling its semiconductor business to the buyout firms Kohlberg Kravis Roberts & Co. and Silver Lake Partners for $2.66 billion. The division builds chips for a range of products, from mobile phones and computer mice to optical networking gear.

Agilent also agreed to sell its 47 percent stake in San Jose-based lighting company Lumileds to Royal Philips Electronics for $950 million and the repayment of $50 million in debt. Lumileds had sales of $324 million and operating profit of $83 million over the last 12 months, Philips said.

Agilent also plans to spin off its system-on-a-chip and memory test businesses in 2006.

“Today starts a new chapter of Agilent,” said Bill Sullivan, the company’s chief executive. “We have made decisions today for us to be able to focus on our core that we have been a leader in for the last 65 years.”

Agilent said it will use the cash proceeds of its reorganization for a $4 billion share repurchase program, and it will call its $1.15 billion convertible debt. The repurchase will begin immediately, while the call is expected to cut its outstanding shares by 36 million.

The company, which expects about $200 million in restructuring costs to be largely offset by proceeds from its asset sales, expects to save $450 million. It said the job cuts — about 4.6 percent of its 28,000 employees — will be made through transfers to the divested businesses, attrition and layoffs.

Agilent expects the chip divestiture to be completed by Oct. 31, the end of its current fiscal year.

Agilent’s test-and-measurement business sells gear that scientists, doctors and electronics engineers use to make precise measurements for complex analyses. The company says 70 percent of all cell phones are tested on Agilent equipment.

Not only is that business healthy, but it is also less volatile than the segments Agilent is exiting, said Richard Chu, an analyst at SG Cowen & Co.

“The overwhelming argument they can make is, the presence of these other businesses diluted their value,” he said.

Agilent’s roots predate its independence by decades. In fact, some argue that its test-and-measurement business is more in line than today’s HP with the goals William Hewlett and David Packard had when they launched their seminal Silicon Valley company in a Palo Alto garage in 1938.

When HP announced its intent to spin off Agilent in 1999, Agilent seemed poised for success. Its initial public offering raised $2.1 billion and set Silicon Valley records.

But Agilent was hit hard by the tech downturn, and it was undertook several rounds of layoffs — totaling 12,000 jobs — in its quest to become profitable.

It lost a total of $3.1 billion in fiscal years 2002 and 2003 before rebounding with a profit of $349 million in fiscal 2004.

Agilent’s latest results, also announced Monday, show the company is continuing to post profits.

Fiscal third-quarter earnings rose to $104 million, or 21 cents per share, from $100 million, or 20 cents per share, a year earlier. Excluding charges, tax benefits and other one-time items, the company earned $142 million, or 28 cents per share, down from $154 million, or 30 cents per share, last year.

Revenue fell 10 percent to $1.69 billion from $1.89 billion last year, just below its expectations of $1.7 billion to $1.8 billion.

Analysts expected the company to earn 26 cents per share on revenue of $1.74 billion, according to a survey by Thomson First Call.

Agilent said it still expects fiscal fourth-quarter operating earnings of 33 cents to 38 cents per share on revenue of $1.79 billion to $1.89 billion. Analysts had been forecasting a fourth-quarter profit of 34 cents per share on $1.85 billion in revenue.

On Monday, Sullivan noted that Agilent shares have been trading at a 25 percent to 35 percent discount over the sum of its divisions.

“We have really tried over the last few years to try to close that gap,” he said. “We believe that these decisions today are the best way for us to make sure that we can take the discount out of our shares.”