A Careful Look At Agilent Technologies (A)

Agilent Technologies Inc. (A) is one of the market leaders in test and measurement, specializing in the areas of semiconductor test, electronic measurement and bio-analytical measurement. And what exactly does that all mean?

Well basically, on the semiconductor and electronics side, when high-tech companies are designing products or providing services, they want to make sure that the products / services are working correctly. Agilent provides equipment, tools and software for them to do these tests. As semiconductor and electronic products continue to get more complex and expensive to produce, solutions that allow the companies that make them to be more effective in bringing new products to market and minimizing flaws in existing products are increasingly valuable.

On the bio-analytics side, Agilent provides products that allow companies and institutions in areas such research, pharmaceuticals, environmental, petrochemical and forensics to analyze biological and chemical components. Examples of how customers use their products include drug companies testing the composition of drugs they are developing; oil and gas companies analyzing finished oil products for quality and environmental compliance; and the Department of Homeland Security analyzing chemical compounds at the scene of a crime.

The company is headquartered in Palo Alto, CA and was originally a unit Hewlett-Packard Company (NYSE: HPQ) before they were spun off and IPO’d in 1999.

WHAT'S BEEN GOING ON
There is a lot going on at the company as they continue to bear down on refining the company’s focus to be solely on the measurement market. Last year, Agilent sold off its semiconductor business (which manufactured analog and mixed signal semis, as opposed to their other division which does testing of semis) to buyout shops KKR and Silver Lake Partners for $2.66 billion. Currently, the company is also working on the spin-out of its semiconductor test unit. They filed the S-1 form (this is what you have to file with the SEC when you want to do a public stock offering) for this unit early in March under the name Verigy Pte. Based on the financials in the filing, this unit was not exactly setting the world on fire either.

Meanwhile, while all of this refocusing and divesting has been going on, the company continues to make acquisitions for the measurement side of the business. In fact, management’s stated goal is to have 2-3% of annual growth come from acquisitions. Personally, I am a bit suspicious of most acquisition activity, since a lot of times the expected “synergies