Agilent, the world leader in the test and measurement (T&M) market, saw about $5 billion in sales last year. Spun off from Hewlett-Packard in 1999, this company offers the broadest and most diversified portfolio, leaving competitors like Tektronix, National Instruments, Lakeshore, and Keithley Instruments to succeed by focusing on niche markets.
Tektronix, the largest of these rivals, tallied around $1 billion in sales for 2007 as of November. As a subsidiary of Danaher Corp., it focuses on the oscilloscope and wireless R&D segments. National Instruments, with about $750 million in sales, focuses on low-cost instruments and virtual instrumentation software like LabVIEW.
This dominance helped Agilent leap from its 2006 ranking at 61 to its 2007 ranking at 23—a 38-place leap forward. Of course, employee and sales growth were significant contributors to Agilent’s leap in the list. Its customers include companies that want to measure some physical variable, such as pressure, radiation, current, voltage, or chemical properties, either quantitatively or electronically.
With 33% of the T&M market, Agilent derives around 66% of its business from overseas. Its two main T&M product subdivisions are Electronic and Bioanalytic, with Electronic measurement accounting for around 70% of sales. Chemical analysis is about 60% of the Bioanalytic business at the moment, especially for food and environmental testing, particularly in China and India. Life sciences represent the other 40%. The current war on terror and the growth in networks and communication greatly benefit the Electronic measurement segment.
To reduce its exposure to the highly cyclical semiconductor business in 2005 and 2006, Agilent sold its semiconductor products business (now Avago), spun off its semiconductor test business (now Verigy), and sold a joint venture in Lumileds (an LED company) to Phillips. Divesting some of these higher-overhead and cyclical businesses has lowered Agilent’s break-even revenue point. Also, Agilent has used this cash inflow for a $4.5 billion two-year share repurchase program that which may be expanded.
In the short term, Agilent will focus on taking share away from competitors in areas such as wireless R&D, oscilloscopes and low-cost instruments, and emerging markets such as IP network convergence, nanotechnology, and surveillance. Its longer-term focus will be on the bioanalytic test area as demand grows in the medical, biotech, and pharmaceutical industries.
Most T&M manufacturers and designers work together to ensure compatibility and functionality between products. For example, Agilent and Keithly can bundle their instruments with NI’s LabVIEW software. Agilent is well positioned and has the credibility to move into lower-cost instruments and software, segments it has ignored. Oscilloscopes and wireless R&D markets have much less volatility in economic downturns, and Agilent should be able to compete with Tektronix’s narrower market focus.
Agilent’s diversification efforts should get rid of some of the exposure to cyclicality and economic slowdown, and there is some solid growth potential in some of its markets. Yet T&M is a mature industry with about 90% penetration in many segments. A significant economic slowdown like the one back in 2001-2003 and/or the end to the war on terror could have major impacts, but that would be true for many companies.