Agilent Technologies (NYSE: A) is the world market leader in the test and measurement (T&M) business. The company's 16,000 employees serve customers in more than 110 countries. Agilent had net revenues of $4.5 billion in fiscal 2009. Agilent's closest competitors are Tektronix (TEK) and National Instruments (NATI). Similar to other smaller competitors like Lakeshore and Keithley Instruments (KEI), these two competitors have succeeded by focusing on niche markets.
Agilent, on the other hand, is the broadest and most diversified T&M company. Since it was spun off from parent company Hewlett-Packard (HPQ) in 1999, Agilent has undergone a period of significant restructuring during which it divested its assets in semiconductor testing and manufacturing, as well as developed a joint venture in LED lighting technology, in order to rededicate itself back on its core scientific and R&D markets. The advantages of this approach are twofold. First, the R&D market is more stable, as it is usually sheltered from macroeconomic trends. Second, the semiconductor test and manufacturing business is highly cyclical, tied mostly to the ups and downs of the IT hardware industry.
Agilent's near-term strategy is to start putting resources toward increasing market share in areas traditionally held by competitors, such as wireless R&D (this includes mobile phones, computer networks, and other wireless communications), oscilloscopes, and low-cost instruments, as well as markets such as IP network convergence, nanotechnology, and surveillance.
Agilent Technologies develops, manufactures, and sells test and measurement (or T&M) equipment for a variety of research, medical, and industrial applications. Customers include those who want to measure some sort of physical variable quantitatively and electronically. Agilent's customers tend to be in the aerospace, defense, communications, computer/networking hardware, semiconductor, pharmaceutical, oil/petroleum, biotechnology, and medical industries.
Agilent sells its products primarily through direct sales, but it also utilizes distributors, resellers, manufacturer's representatives, telesales and electronic commerce. Of Agilent's $4.48 billion in revenue for the fiscal year ended October 31, 2009, the company generated 33 percent in the U.S. and 67 percent outside the U.S.
Agilent reported net income of $79 million for the first quarter, with orders totaling $1.22 billion, up 9 percent from the year-ago quarter, and revenue of $1.21 billion, up 4 percent from the year-ago quarter. Restructuring has saved Agilent $525 million. Revenues for 2010 are expected to rise 10 percent from 2009. During the quarter, Agilent announced it had received conditional antitrust clearance from the European Commission (EC) for Agilent's proposed acquisition of Varian Inc. Clearance by the U.S. Federal Trade Commission (FTC) is still pending.
Agilent's electronic measurement business provides standard and customized electronic measurement instruments and systems monitoring, management and optimization tools for communications networks and services, software design tools and related services that are used in the design, development, manufacture, installation, deployment and operation of electronics equipment and communications networks and services. Related services include start-up assistance, instrument productivity and application services and instrument calibration and repair.
Included in Agilent's electronic measurement segment is the semiconductor and board test business which provides standard and customized measurement instruments and systems which enable customers to develop and test state of the art semiconductors, test and inspect printed circuit boards, perform functional testing, and measure position and distance information to the sub-nanometer level. Agilent's semiconductor and board test business generated $0.2 billion in revenue in fiscal 2009, $0.4 billion in revenue in fiscal 2008 and $0.5 billion in revenue in fiscal 2007.
Within chemical analysis, Agilent focuses primarily on the following areas: petrochemical and chemical, environmental, forensics and homeland security, and bioagriculture and food safety.
The Petrochemical and Chemical Market
The natural gas and petroleum refining markets use Agilent's products to measure and control the quality of their finished products and to verify the environmental safety of their operations. Petroleum refiners use Agilent's measurement solutions to analyze crude oil composition, perform raw material analysis, verify and improve refining processes and ensure the overall quality of gasoline, fuels, lubricants and other products. Solutions based on gas chromatography, liquid chromatography and mass spectrometry products are also used in the development, manufacturing and quality control of fine chemicals.
The Environmental Market
Agilent's gas chromatography, liquid chromatography and mass spectrometry solutions are used by the environmental market for applications such as laboratory and field analysis of chemical pollutants in air, water, soil and solid waste. Environmental industry customers include all levels of government, the industrial and manufacturing sectors, engineering and consulting companies, commercial testing laboratories and colleges and universities.
The Forensics and Homeland Security Market
Agilent's liquid chromatography, gas chromatography, mass spectrometry and electrophoresis solutions are used by health and forensics laboratories in the U.S. and abroad, particularly in the analysis of evidence associated with crime or with the detection and identification of biological and chemical warfare agents. This instrumentation is either used in static or mobile laboratories. Customers include local, state, federal, and international law enforcement agencies and health laboratories.
The Bioagriculture and Food Safety Market
Food safety industries apply the same general technologies for chemical analysis as the pharmaceutical and environmental markets, including gas and liquid chromatography and mass spectrometry. There is a significant food safety market involved in analyzing food for pathogen contamination, accurate verification of species type and evidence of genetically modified content. This testing is primarily done via PCR amplification of nucleic acid followed by electrophoresis, real time fluorescent or microarray detection. Additionally, bioagriculture industries seek to improve crops and foods by conducting research on these organisms, as well as testing for genetically modified content, using microarray and microfluidics solutions.
The Pharma, Biotech, CRO & CMO Market
This market consists of "for-profit" companies who participate across the pharmaceutical value chain in the areas of therapeutic research, discovery & development, clinical trials, and manufacturing and quality assurance and quality control. One sub-segment of this market is core and emerging pharmaceutical companies, or "Pharma." A second sub-segment includes biotechnology companies, or "biotech", contract research organizations, or "CROs", and contract manufacturing organizations, or "CMOs". Biotech and, to a somewhat lesser extent, CROs and CMOs typically participate in specific points in the Pharma industry value chain.
The Academic and Government Market
This market consists primarily of "not-for-profit" organizations and includes academic institutions, large government institutes and privately funded organizations. The academic and government market plays an influential role in technology adoption and therapeutic developments for Pharma and molecular diagnostics companies. After decades of investment in basic biomedical research, the focus has widened to include translational research — multidisciplinary scientific efforts directed at "accelerating therapy development". Notable are efforts by the National Institute of Health, the National Cancer Institute, the European Organisation for Research and the Treatment of Cancer (EORTC), the European Molecular Biology Laboratory (EMBL), the Genomics Institute of Singapore (GIS), the Wellcome Trust Sanger Institute, and the National Translational Cancer Research Network (NTRAC). In addition, large donations by private foundations are also fueling growth in this key market segment.
The goal of these divestitures was to reduce Agilent's exposure to the highly cyclical semiconductor business. During the post tech bubble period of 2001-2003, many tech companies suffered from negative operating margins, and the semiconductor business significantly exacerbated this problem for Agilent. With the divestment of the semiconductor business, the break-even point for Agilent's revenue has been reduced significantly.
With no more major restructuring on horizon in the near future, Agilent hopes to achieve higher sustainable and profitable growth by leveraging the new operating model.
Overall, this diversified business model is expected to net gains, and is expected act as a buffer against economic slowdowns or changes in customer industries. However, the T&M industry is relatively mature, with greater than 90% penetration in many of its market segments. Its growth will probably derive mainly from the growth of its end markets, estimated to be 6.5% per year in the long term. While Agilent's diversified model will help the company weather any moderate economic slowdowns, it, like many other companies in any industry, would feel the effects of a significant economic slowdown.
Both Tektronix and NI owe a significant portion of their success to their domination of specific niche markets: Tektronix has traditionally led the markets for oscilloscopes and wireless R&D, while NI has led the market for T&M virtual instrumentation software (specifically, LabView) and low-cost instruments. Agilent is currently moving to increase market share in these areas by refocusing its resources.
Competition in the Electronic Measurement Market
The market for electronic measurement equipment is highly competitive. In the communications test market Agilent's primary competitors are Aeroflex (ARXX), Anritsu Corp (TYO:6754), Ansoft (ANST), Applied Wave Research, EXFO Electro-Optical Engineering (EXFO), JDS Uniphase (JDSU), Rohde & Schwartz GmbH & Co., Spirent Communications (SPM), and Tektronix. In the general purpose test market, Agilent competes against companies such as Fluke Corporation, Hysitron, Keithley Instruments (KEI), LeCroy (LCRY), National Instruments (NATI), Photon Dynamics (PHTN), SII NanoTechnology, Veeco Instruments (VECO), and Wintest (TYO:6721).