Agilents first year as an independent,
public company was a great success.
our separation from Hewlett-Packard (HP) probably the
most complex such split ever done on a very aggressive
outstanding financial and business results, including excellent
growth and profitability and the introduction of many innovative
We are faster
and more customer-driven than ever before.
None of this could have happened without
the heroic efforts of 47,000 talented and energetic Agilent
people around the world. They launched our company, delivered
strong results and built a foundation for reaching the ambitious
goals we share for Agilent.
Prior to Agilents initial public offering
(IPO) of stock, we expected to achieve net profit for 2000
of between 5 and 6 percent of revenue. At midyear we revised
that guidance to a little bit above 6 percent net profit.
For the full year, our net profit margin was 7.0 percent.
This translates into net earnings of $757 million, or $1.66
per share. Im very pleased that we met the commitments
we made on financial performance.
At the start of the year, we set four goals:
complete the separation from HP, accelerate growth, launch
operational initiatives and transform the Agilent culture.
In this letter Ill review our progress in each of these
areas, and Ill spell out our priorities for 2001.
We completed the separation from HP:
Thousands of Agilent and HP people worked tirelessly to separate
hundreds of information technology (IT) systems and applications,
more than 600 physical sites and an extensive portfolio of
patents and intellectual property all of which had
become deeply intertwined over 60 years. On June 2, 2000,
the two companies became completely independent.
During 2000 we incurred two kinds of costs
that we had planned for and that will be lower in 2001. The
first was for branding to establish Agilents name and
identity worldwide. This year we spent about $120 million
on branding, and were very pleased with the results
to date. We will continue this essential work to establish
our identity in 2001, but at reduced spending levels.
We also spent approximately $250 million,
as anticipated, in costs related to operating as a stand-alone
company. On our own, we have systems, processes and governance
activities that we previously shared with HP. As we continue
to tailor these functions to Agilents needs, we expect
to start to achieve savings by the end of 2001.
We achieved very strong growth: For
the full year, Agilents orders rose 35 percent and revenue
increased 29 percent. This compares with 1999 order growth
of 12 percent and revenue growth of 5 percent.
We achieved strong growth because we provide
key enabling products and technologies to customers who are
revolutionizing communications and electronics as well as
the life sciences. Agilent provides best-in-class products
and services to industries that are growing rapidly.
In communications and electronics, our products
are on the critical path for companies who are delivering
the most advanced optical networking, wireless communications
and Internet capabilities. During 2000, orders in our businesses
that serve communications and electronics grew 49 percent
over 1999 while revenue increased 43 percent.
In life sciences, we provide tools that
enable pharmaceutical and biopharmaceutical companies, and
other research organizations, to discover the origins of disease
and accelerate the development of new drugs based on scientists
increasing knowledge of genetics. The first-draft mapping
of the human genome, completed during 2000, ushered in the
next phase of the life sciences revolution in which Agilent
products will help customers understand more fundamentally
how genes create diseases and how drugs can cure them.
This was a banner year for new products,
and our growth was driven by product introductions that won
strong market acceptance. This years annual report describes
a good number of these major introductions. One key to our
ability to innovate is Agilent Laboratories, our central research
facility, whose goals are to address growth opportunities
in our current businesses and to create new businesses. This
year we spent $1.3 billion, or 11.7 percent of net revenue,
on all our research and development across the company.
We launched operational initiatives:
We undertook a number of initiatives designed to align our
systems, processes and cost structures to our business requirements.
We are tailoring our IT systems, internal processes, manufacturing,
sales and customer support programs to make Agilent even faster,
easier for customers to work with and more cost-effective.
We began to shape Agilents culture:
One of our new companys great strengths is our HP heritage,
especially our foundation values: integrity; trust and respect
for individuals; teamwork; and the importance of making a
real contribution to customers and industries. These values
remain crucial to Agilent.
Were also putting increased emphasis
on values that are essential to our success going forward:
focus, speed and accountability. During 2000 we took a number
of actions designed to strengthen these values and to encourage
the behaviors that bring them to life.
We implemented a pay-for-results program
for our 800 top managers and supervisors, a portion of whose
compensation is now linked to Agilents revenue and profit
goals. We trained more than 6,000 managers around the world
on a new set of leadership expectations based on our values.
Finally, we rolled out a new compensation system, stock option
program and employee stock purchase plan in order to reward
the individual accomplishments that will help Agilent reach
Challenges We Addressed
We faced real challenges this year as well.
Industrywide parts shortages meant that our shipments to many
of our customers couldnt keep pace with demand in the
third quarter. We worked very hard with suppliers and took
extraordinary measures within the company to address these
shortages, and by the end of the year we had made a lot of
In our chemical analysis business, growth
in traditional markets chemical and petrochemical
was sluggish. We have been increasing our focus in this business
on exciting opportunities in life sciences, and the response
to our life sciences products introduced this year was extremely
good. We believe our life sciences business has a bright future
as a provider of enabling technologies to researchers who
are developing drugs and diagnostic techniques based on genetics.
Our healthcare solutions business had a
disappointing year. This business was affected by fundamental
changes in the healthcare market, particularly in the United
States. Size and scale are essential to winning in healthcare,
since customers increasingly want to work with companies that
offer a broad product line.
Given this trend, we faced a decision: Should
we make the investments necessary to bring our healthcare
business to the size needed to succeed? After much analysis
and thought, we decided that the best course of action for
our customers, shareholders and employees was to divest this
business. In November 2000 we announced an agreement under
which Philips, a leader in the healthcare market, will acquire
our healthcare business, subject to customary regulatory approvals
and other closing conditions.
This was a difficult decision that was made
easier because Philips is the ideal company to acquire this
business. There is a great fit between our healthcare solutions
and Philips product lines and geographic strengths.
Together, our healthcare business and Philips can offer the
broad product line that is essential to success in this market.
We overcame challenges in 2000 while making
extraordinary progress in creating Agilent as a high-growth,
Priorities for 2001
Since March 2, 1999 the day HP announced
plans to create two new companies from the existing HP
our vision has been to build a high-growth, high-performance
company for the long term.
To do that, we have to become even more
customer-driven. In todays fast-moving, intensely competitive
markets, we are focused on customers, Agilent and our individual
businesses in that order.
Our priorities for 2001 reflect our determination
to meet, and exceed, the commitments we make.
Customer satisfaction: Our goal is
to distance ourselves from competitors through superior quality,
consistent on-time deliveries and ease of doing business with
Operational excellence: We will continue
to execute our plans to make Agilent faster, even more responsive
and more cost-effective.
Growth: We want to grow faster than
our best-in-class competitors as well as enter new markets.
To do this, we have ambitious new-product programs in place
across the company.
Our people: We will accelerate our
work to develop a culture based on focus, speed and accountability,
in which people embrace change, lead rather than manage and
are rewarded for results.
Agilents first year as an independent
company was the most exciting and gratifying of my 34 years
with HP and Agilent. We benefit enormously from our heritage
but are intently focused on the future.
We have extraordinary people, industry-leading
customers and a deep technology portfolio that we can apply
to address opportunities and create new businesses. Were
determined to build on an outstanding first year in ways that
will delight our customers, employees and shareholders.