Agilent to Sell Chip Unit for $3.6 Billion

Agilent Technologies Inc. (NYSE:A) on Monday agreed to sell its semiconductor unit and its stake in a lighting technology firm in deals valued at about a combined $3.6 billion, in moves it hopes will allow it to focus on its measurement business.

It also reported quarterly earnings at the high end of Wall Street estimates, with cost cutting outweighing a 10 percent drop in sales.

Private equity firms Kohlberg Kravis Roberts & Co. (search) and Silver Lake Partners (search) will pay about $2.66 billion for the semiconductor business, while the Netherlands's Royal Philips Electronics (search) will buy out Agilent's 47 percent stake in Lumileds Lighting to for about $950 million, plus the repayment of about $50 million of debt from Lumileds.

The moves come as Agilent, which makes test and measurement products including multimeters and oscilloscopes, attempts to focus strictly on measurement products. As a result, Agilent expects to trim its global infrastructure costs by $450 million, and related employment by about 1,300 jobs.

Analysts had previously said the semiconductor unit added volatility to revenue and earnings at Agilent, whose life sciences and chemical analysis businesses are more profitable. Recently, an Agilent executive said the weak unit was not "core" to the company.

"It has become increasingly clear that investors...prefer this exclusive focus on the $40 billion measurement market," Agilent Chief Executive Bill Sullivan said in a statement on Monday.

Agilent also plans to spin off its system-on-chip and memory test business at some point in 2006.

Using proceeds from these transactions, Agilent, spun off from Hewlett-Packard Co. (NYSE:HPQ) in 1999, plans to embark immediately on a $4 billion stock repurchase program. It will also call its $1.15 billion convertible bond debenture, potentially reducing shares outstanding by 36 million.

Agilent at the same time said net income rose to $104 million, or 21 cents per share, in the third quarter ended on July 31 from $100 million, or 20 cents per share, in the year-earlier period.

Due to lower costs, net income rose even as revenue declined 10 percent -- to $1.69 billion from $1.89 billion. Orders were up 1 percent versus a year ago at $1.80 billion. Gross margins improved by over 2 percentage points compared with last year.

Excluding restructuring costs and other items, Agilent said it earned 28 cents per share, at the high end of expectations of 23 cents to 28 cents per share. The average estimate was 26 cents, according to Reuters Estimates.

Looking ahead, the Palo Alto, California-based company said it was comfortable with its previous fourth-quarter financial forecasts. It sees fiscal fourth-quarter revenues of $1.79 billion to $1.89 billion and operating earnings per share of 33 cents to 38 cents.

Analysts had expected a profit excluding one-time items of 34 cents a share, on revenue of $1.85 billion, according to Reuters Estimates.

Trading in shares of Agilent were halted on the New York Stock Exchange on Friday at $26.41. Earlier this month the stock hit a 13-month high of $26.78.