Agilent Technologies Earnings Call Nuggets: Wireless Manufacturing and Supply Conditions

Agilent Technologies (NYSE:A) recently reported its second quarter earnings and discussed the following topics in its earnings conference call.

Wireless Manufacturing

Anthony Butler – Barclays Capital: Bill, on the wireless manufacturing customer, again, is it single customer is the contract is – I assume it’s a contract and did the contract come to fruition only recently or after the Analyst Meeting? And I guess, thirdly, can you give us any additional details around – is there any additional negotiations that could occur, are you assuming that this is just totally lost effectively throughout at the end of the year, and if you decide to do this again next year, you are not even banking on that? And I’m trying to understand what happens with future – with other customers that know that this occurred with this single customer?

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William P. Sullivan – CEO: First of all, when we used to say negotiation has been going on for long period of time, Agilent’s not at liberty to share specific terms of the agreement, but I can say that the terms exposed to Agilent to significant penalties under certain conditions that we were not confident we could prevent without jeopardizing our ability to – on our commitments to other customers. Effectively, committing to one customer at the expense of other customers is not consistent with our policies and practices and so, it’s very clear, very specific opportunity and right now, assuming that it will not come back.

 

Supply Conditions

Mark Douglass – Longbow Research: So, I bet obviously this is large (and loom), so this is $215 million a year, am I calculating that about right, as far as the size of this?

William P. Sullivan – CEO: We, of course, don’t talk specifically related to individual customers at all, but it can be assumed that our one-box-tester related to manufacturing – wireless manufacturing test will be down $230 million year-over-year. The quarterly impact in Q3 to EMG is 75% of its decline in Q4, 72% of its decline is related to the drop of one-box-tester business for wireless manufacturing…

Mark Douglass – Longbow Research: I’m kind of curious. It’s hard to see how they could put you in box, this is a pretty big order. I’m not sure there are many other people who could deliver something like that. So, can you help us understand a little bit more how you lost leverage here. Was another competitor that just really swooped in and really brought it to a hit.

William P. Sullivan – CEO: As I said, we could not accept the significant penalties under certain conditions. Typically, these are always around guarantee of supply. If in fact there’s a supply interruption and Agilent as I said is not consistent with its policies or practices to commit to one customer at the expense of others.

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Mark Douglass – Longbow Research: So, in the second quarter then, April quarter, how much of an – you guided impact through 3Q. How much is there impact in 2Q and a little more discussion about what’s happening in say the industrial spaces or any signs of life here in May?

William P. Sullivan – CEO: So, I will answer the question regarding our one-box tester business was affected EMG’s year-over-year revenue impact by 31% of the decline. I will have Guy answer your questions regarding the industrial computer and semiconductor.

Guy Sene – SVP, Agilent, and President, Electronic Measurement Group: So, clearly, as you probably have seen in our report, our industrial computer and semiconductor business declined 13% in Q2. On the computer and semiconductor we declined 18%, clear on the continuing weakness of the semiconductor business saw capacity slow and there is also a pause in the technology that we have been benefited from in the past. On the other side, also as Bill said in his remarks, the computer business is in a transition between PC and tablets and this has slowed down quite some investments in test and measurement. So, now I would say ICS segment is probably still going to be in a low for the rest of the fiscal year and this is what we had planned for.

William P. Sullivan – CEO: So, right now what you say that a lot of the PC manufacturing are just swapping the test and instruments over to the tablet manufacturing without forecasting anything?

Guy Sene – SVP, Agilent, and President, Electronic Measurement Group: It’s not as clear. Our tablets require different type of products for test and in fact, require less products for test. So there is a transition not only on the manufacturing side but also between the different companies that do them.

William P. Sullivan – CEO: As you remember, we also provide a lot of test equipment for the PC board manufacturers, the board stuff in verification, or as we call it board test which of course is always dominated by these big consumer products.