安捷倫 (A) 2009 Q1 法說會逐字稿

Good day, ladies and gentlemen. Welcome to the first quarter 2009 Agilent Technologies Incorporated earnings conference call. Now at this time, all participants are in a listen only mode. We'll facilitate the question and answer session at the end of the presentation. (Operator Instructions). As a reminder, the conference is being recorded for replay purposes.

I would now like to turn your presentation over to Mr. Rodney Gonslaves, Vice President of Investor Relations. Please proceed.

Thank you, and welcome to Agilent's first quarter conference call for FY 2009. With me are Agilent's President and CEO, Bill Sullivan and Executive Vice President of Finance and Administration and CFO, Adrian Dillon. After my introductory comments, Bill will give his perspective on the quarter and the business environment, Adrian will follow with his review of the financials and performance of each of the businesses. After Adrian's comments, we'll open up the lines and take your questions. In case you haven't had a chance to review our press release, you can find it on our website at www.investor.Agilent.com. We are also providing further information to supplement today's discussion. After you log on to our webcast module from our web site you can click on the link for supplemental information. You'll find additional information such as our end market revenue break outs and historical financial information for Agilent's continuing operations.

In accordance with SEC Regulation G, during this conference call, if we use any non-GAAP financial measures, you will find on our website the required reconciliation for the most directly comparable GAAP financial measure. In addition I'd like to remind you that we may make forward-looking statements about the future financial performance of the Company that involves risk and uncertainties. These risks and uncertainties could cause Agilent's results to differ materially from management's current expectations. We encourage you to look at the Company's most recent filings with the SEC to get a more complete picture of all of the factors at work. The forward-looking statements, including guidance provided during today's call are only valid as of this date and the Company assumes no obligation to update such statements as we move through the current quarter.

As a reminder, Agilent is now including share based compensation in both its segment and pro forma results. We have restated our historical results to reflect changes and those restatements are available on our website. Now I'd like to turn the call over to Bill for his comments.

Thanks, Rodney and hello, everyone. In a few moments Adrian will provide you with a detailed analysis of our first quarter results by business and geography. Let me start by acknowledging that in the first quarter, Agilent felt the full brunt of the severe worldwide economic downturn. Revenues were down $109 million and earnings per share down $0.10 from the mid point of our December guidance. Due to continuing weakness in electronic measurement and semiconductor board test as well as slowing in the analytical measurement markets, revenues were down 16% from last year, orders were down 20%, a clear indication of the strong headwinds that we continue to face. The fundamental cause of our earnings miss was the very weak orders in revenue in January. We saw weakness across all segments and business units in the Company. As a result of January's order decline, it is difficult to give guidance; however we believe that Agilent's second quarter revenues and earnings will be flat on a sequential basis.

There are several reasons for this. Number one, Q2 is seasonally stronger than Q1. There are more days and fewer holidays in the second quarter. In Q1 we had both Christmas and a lunar New Year. Number two, there are some bright spots in the market. For example, we see strengthen two analytical markets, life science, academic and government research as well as food safety. Likewise, we continue to be excited about the success of our LTE test solutions as well as new opportunities in China due to the release of 3G licenses.

Number three, aerospace and defense is typically stronger in the second quarter. The Agilent's P&A Axe Network Analyzer continues to be very well received by aerospace defense customers. Four, from a product standpoint, we continue to do well in areas such as micro arrays and LCMS. Our copy number variation applications are a major success, including the recent Sanger center deal in partnership with Oxford Gene Therapy for technology and our LCMS offerings continue to take market share in a very competitive environment. And finally, we have several major product launches in Q2. These include Agilent's 7,000 A GCMS triple quad systems which started shipping in the second quarter to strong orders.

While we are hopeful for flat Q2, we continue to insure that our expenses are in line with the realities of the marketplace. At our December analyst meeting we discussed Agilent's expense structure. In conjunction with operating models' inherent flexibility, we have been taking aggressive actions to manage the Company through this downturn. In Q3 of last year, we stopped all non-critical hiring and dramatically reduced discretionary spending. In Q4, we suspended pay increases, changed the distribution formula for our variable pay program, and initiated worldwide shut downs for the holidays. At the beginning of this calendar year, we initiated a pay reduction for employees worldwide.

At our December meeting, we informed you that these combined actions will protect Agilent up to a 15% decline in revenue, equal to the bottom of the 2001 technology crash. We have now reached that threshold and are now taking further actions as a result. We have made the decision to exit the inspection business in semiconductor board test. These include automated optical inspection and automated x-ray inspection. This is consistent with Agilent's longer term strategy to focus on our core business and electronic test. We have communicated with the affected customers, assuring them that we will continue to support their installed products.

We're also restructuring our global infrastructure organization which includes finance, legal, human resources, information technology, workplace services and our central labs. The restructuring will provide a more appropriate size and structure for the current economic realities while insuring that we are able to operate competitively through the downturn. In addition, in combination, these additional actions will result in a head count reduction of approximately 600 jobs worldwide and provide annual run rate savings of approximately $150 million. Again, this is consistent with the plans that we had shared with you in December. The accumulation of actions taken to date will reduce Agilent's annual expenses by approximately $600 million. Our restructuring efforts will enable us to continue funding our sales, service and marketing as well as our investments in research and development. We remain steadfast in managing our cost structure through the downturn and maintaining operating profit decrement of 30 to 40%, consistent with Agilent's operating model.

Thanks for being on the call today. Now I'll turn it over to Adrian.

Thank you, Bill. Good afternoon, everyone. I'm going to offer a few overall perspectives on the quarter for Agilent, review the performance of our three business segments, and conclude with some thoughts about the outlook for the second quarter and the remainder of fiscal 2009. Then we'll turn it back to Rodney for Q & A.

As we indicated in our press release, Agilent felt the full brunt of the severe economic downturn in this year's first quarter. Revenues of $1.166 billion were down $227 million or 16% from last year. We moved quickly to minimize the impact of this unexpected weakness by taking aggressive actions to reduce operating costs across all operations and functions. As a result, operating profits were down only $69 million, an operating profit detrimental of 30%, but operating earnings per share of $0.20 were well below our earlier expectations due to the lower activity levels. Revenues were down across the globe, with the Americas off 10%, Europe off 21%, and Asia down 18% from one year ago. By segment, semiconductor and board test was hardest hit, off 49% from last year while electronic measurement was down 23% and bioanalytical measurement revenues were off 1%.

Operating cash generation is seasonally weak during the first quarter and this year was no exception, but we did generate $17 million of positive cash flow from operations despite the very weak economy. While inventories were higher than we would like, working capital remained under generally good control and was reduced by $68 million from last year's fourth quarter. Return on invested capital fell to 11% this quarter compared to 19% one year ago because of lower earnings. During the quarter, we repurchased $125 million of stock and we ended the quarter with net cash and short-term investments of $852 million.

In short, the economic downturn was even more ferocious than we had anticipated and it clearly impacted Agilent's overall performance but given the market conditions we faced, we feel we did a pretty good job controlling expenses, managing the balance sheet, generating cash, and delivering operating results consistent with Agilent's operating model. That remains our committment to shareholder value creation over the cycle. Good times and bad.

Turning to the numbers, first quarter orders were $1.15 billion, down 20% from last year. Electronic measurement orders of $560 million were down 28%. Bioanalytical orders of $523 million were down 2%, and semiconductor and board test was down fully 66% from last year. First quarter revenues of $1.166 billion were down 16% from last year or down 14% in local currency terms. First quarter gross margins at 54.3% were about a point below last year.

Semiconductor and board test gross margins at 38% were off 13 points due to dramatically lower volumes, and electronic measurement margins at 55% were 2.5 points below one year ago on lower volume, but adjusted for volume, they were actually a bit above last year due to favorable mix. Bioanalytical gross margins at 55% were two points better than last year because of improved margins on our newer instruments. Given the difficult environment, we have continued to be very aggressive about controlling operating expenses. First quarter expenses were down $71 million or 12% as reported and down nearly 10% adjusted for currency. A $32 million drop in the payout from Agilent's variable pay program was responsible for nearly 45% of the decline in operating expenses compared to last year. As reported, R&D spending of $164 million in the quarter was down 9% from last year at 14% of revenue. SG&A expenses at $374 million were down 13% from last year's first quarter and were 32% of revenue. The Company's first quarter operating margin was 8.2%, down 3.5 points from last year on the much lower volumes but are relatively attractive 30% operating profit decremental.

Other income and expense was down $15 million from last year with an $18 million drop in net interest income, partially offset by a $3 million pick up in other income. Our tax rate during the quarter was 21%. Pro forma net income of $72 million or $0.20 per share compares with $0.36 per share one year ago. Parenthetically, share based compensation of $21 million in this year's first quarter compares with $30 million one year ago.

Okay, moving on to cash. Page four of our press release financial tables provides a detailed reconciliation from our non-GAAP to GAAP income. Summarizing, we had non-GAAP income of $72 million. We had restructuring and impairment charges of $56 million in the quarter. Non-cash amortization charges of $12 million and a tax benefit of $60 million, leaving us with GAAP income of $64 million or $0.18 per share compared to $0.31 per share one year ago.

Turning to cash. We had a great performance in receivables, receivables of $630 million or 49 days sales outstanding, with $140 million improved from the fourth quarter of this year. Inventories on the other hand were about flat, $9 million higher than the fourth quarter of this year and as a ratio of days on hand, 14 days higher than the first quarter of last year at 112 days on hand. Now, inventories must be a source of cash as sales decline and inventories will obviously be a clear focus of our attention in the second quarter and for the remainder of this year. Cash from operations was a positive $17 million versus a positive $4 million last year. Capital spending in the quarter was $34 million, offset by $42 million of depreciation and amortization.

During the quarter, we repurchased 6.8 million common shares for $125 million, and issued 2 million shares, generating $26 million largely from our employee stock purchase program. We also had anti-dilution equivalent to 5.9 million shares due to the quarterly average stock price declining from $30.08 in the fourth quarter to $18.32 in the first quarter resulting in 352 million fully diluted shares outstanding. As I said earlier we ended the quarter with net cash and short-term investments of $852 million.

Turning to segments, bioanalytical measurement had another great operating performance in the first quarter but also saw clear signs of weakening market activity. The segment's nearly three year record of double digit orders growth came to an end in Q1 with orders of $523 million, down 2% from one year ago. Revenues of $525 million were down 1% from last year and up 2% on an organic basis. Both life sciences and chemical analysis were off 1% from last year. Geographically, weakness was most pronounced in Europe, which was off 11% while the Americas were up 1%. Asia showed most strength, up 10% from last year, with China continuing strong, up 37% and Japan rebounding from a weak performance last year, up 17%. By product platform, both GC's and LC's were weaker, while both micro arrays and LCMS systems were both up double digits from last year.

Life sciences revenues of $238 million were down 1% from last year and down 4% excluding Velocity 11. Life sciences markets have been weak in Europe, flat in the Americas, and mixed in Asia with China strong, Japan flat, and India weak due to lower CRO spending. Revenue from pharma and biotech markets was down 8% year-over-year and off 11% on an organic basis. Capital spending is continuing under pressure in both pharma and biotech with many customers restructuring. Demand for LC's was lower than one year ago. Consumables and services spending, however, remains relatively steady.

Revenue from academic and government markets was up 20%, reflecting continued funding for genomic research in the U.S. and funding for enabling new technologies in Europe. Demand was particularly strong for our high end systems, primarily Mass Spec and for our micro arrays, which were up 28% from one year ago. First quarter chemical analysis revenues of $287 million were off 1% from last year. From a product perspective, GC's were soft while demand remains strong for the 64/60 triple quad LCMS and orders were higher for the new GCMS triple quad that will begin shipping this quarter.

Revenue in the food safety market was up 13% year-over-year as increased regulation and worldwide food scares continue to drive growth around the world. China remains particularly strong, fueled by demand for pesticide and drug residue analysis. We're seeing slower growth in petrochemical, which was up 1% from last year, as lower oil prices begin to slow the pace of investment spending. Environmental spending was weak, off 13% from last year reflecting continued lab consolidation and reduced government spending while forensics was also soft, down 10%, with spending at all levels of government slowing for forensics applications.

Bioanalytical measurement had an excellent first quarter operating performance, especially given the softening top line. Operating profit of $101 million was $14 million above last year, despite a $6 million decline in revenues. As mentioned earlier, gross margins were up two points from last year and operating margins at 19% were nearly three points above one year ago. Segment ROIC improved one point to 25%.

Turning to electronic measurement, first quarter orders of $560 million were 28% below last year. Revenues of $596 million were off 23% from one year ago with across-the-board weakness in general purpose and communications markets. Geographically, the Americas were relatively stronger, down 15%, while Europe was down 26% and Asia was down 29%. General purpose test measurement, test revenues of $337 million were down 23% from last year. Aerospace and defense revenues were down 11%, with relative strength in China and a flat US market more than offset by weakness in Europe and Japan. Computer and semiconductor revenue was off 24%, reflecting the capital spending freeze in both manufacturing and R&D markets while other general purpose test markets were down 30% with particular weakness in electronics manufacturing and automotive markets.

Communications test revenues of $259 million were down 23% year-over-year with double digit declines across all end markets. Wireless manufacturing was down 16% from last year with higher demand for smart phones only partially offsetting overall handset weakness and restructuring at many contract manufacturers. Wireless R&D was down 27% from last year. We saw a collective spending pause as customers tried to sort out just how bad things are going to get. R&D spending is focused on new technology such as LTE and wireless LAN, while WiMAX related test equipment spending continues to decline. Broadband R&D and manufacturing was also weak for the same reasons, down 22% from last year. Finally, network monitoring was off 33% and installation and maintenance was down 29%, as many service providers froze spending given the current economic climate.

Electronic measurement moved quickly to reduce spending in the face of the sudden severe weakness in revenues. Operating profits of $7 million were down $70 million from last year, in the face of $177 million drop in revenues, a 40% decremental. Gross margins were off 2.5 points from last year because of lower volumes, but adjusted for volume, we're actually a point above last year due to improved business mix. OpEx was $49 million below last year, but operating margins fell nine points to 1%. ROIC fell 16 points to 3%, driven by lower profitability and relatively flat invested capital.

Finally turning to semiconductor and board test. Activity related to the semiconductor equipment and board test markets came to a virtual halt in the first quarter with orders of $32 million, down 66% from last year, and revenues of $45 million, down 49% from one year ago. All markets and all geographies were down sharply. Agilent previously announced a restructuring of this segment and last week, we announced we were exiting the automated optical and x-ray inspection product lines because they were judged unable to achieve results consistent with Agilent's operating model. The segment's first quarter operating loss from operations of $13 million was $16 million below last year's results on a $44 million decline in revenues or a 36% detrimental. Gross margins fell 13 points due to lower volumes while operating expenses declined by $12 million.

Finally, turning to the outlook. Bill has already suggested that forecasting in the current environment is almost futile as visibility is virtually nil. Our best current guess is that second quarter revenues and operating earnings which are normally seasonally stronger will be roughly in line with first quarter results. The reality however is that we don't know where or when this downturn will bottom. Our committment is to delivering performance consistent with Agilent's operating model which is characterized by one, each business achieving a 20% ROIC on average over the economic cycle; two, achieving a 30to 40% operating profit incremental throughout the cycle; and three, remaining in control of our economic destiny by being operating cash flow positive at every point in the economic cycle.

At our December 2008 analyst meeting we laid out the implications for earnings and cash generation consistent with this operating model, depending on the depth of the economic downturn, and we detailed the additional actions we would take depending on how bad things got. At this point, we're assuming that Agilent's 2009 revenues will be down roughly 20%, with electronic measurement off 25% from 2008 results, bioanalytical down 5%, and semi and board test off 50%. As such, we are now implementing the restructuring that we indicated would be required should revenues decline more than 15%. This restructuring of our global infrastructure operations, in combination with the exit of our inspection business, should enable Agilent to achieve annual run rate savings of about $150 million. The cash costs of this program will be roughly $100 million, and the cost will be accrued fairly ratably over the next three quarters. Headcount from this restructuring will be reduced by about 600 and the program should be largely completed by our fiscal year end.

With that, let me turn things back over to Rodney for the Q & A.

Thanks, Adrian. Eric, please go ahead and give instructions for the Q & A?

Thank you. (Operator Instructions). Your first question comes from the line of Mark Moskowitz with JPMorgan. Please proceed.

Thank you, good afternoon. A couple questions . Bill, can you talk a little about the dynamics and your profile in terms of R & D test versus manufacturing tests? I'm just trying to get a sense, is there another shoe to drop or are you seeing pretty much broad weakness across both R & D and

We saw as Adrian indicated, and as well as myself, we've seen a drop across all the segments in electronic measurement moving forward. How much of this is just delays as people sort out the New Year needs to be determined. From an activity standpoint, you would expect the manufacturing test to drop and it did. The slowdown in wireless R & D in particular, we would like to think this is a pause. As I said there's no evidence that people are retrenching in LTE and WiMAX or the rollout of G3 inside of China or the aerospace and defense but obviously the drop in Q1 would lead one to ask your question.

Okay, appreciate that. And then as far as like the LCMS drivers can you talk about how sustainable we should think about the uptake there relative to the overall market?

I'm sorry, again?

LCMS, the strength in LCMS.

Oh. Well we're in a very very strong competitive position in this market and we have done a very good job of sorting out opportunities moving forward. If the overall analytical market decreases into 2009, it's hard to believe that this product line won't be impacted. We're focusing this team and all of the rest of the teams is to make sure that we have the best measurement solution for the customers who have the funding to fund their projects.

Mark, it's Adrian. Just elaborate that a little bit. One of the things we discovered is that the application of the LCMS to food testing has been much stronger than we anticipated, where we're actually creating new applications through the unique sensitivity of this instrument so part of the reason for its strength and part of the reason why we think it will be enduring is because it is applying right into the most strong need for these types of instruments on a worldwide basis which is food safety and testing.

Okay, and thanks Adrian while I have you here two quick questions. Just given the environment and how you do have so many different moving parts to Agilent and you guys have been very proactive and aggressive in cutting costs, how should investors think about one, the rebalancing of some of your R&D and your sales and marketing focus going forward in terms of like you just mentioned the food safety doing better. Are there going to be certain areas where you kind of table some R&D development or are you going to continue to be very focused and provide a broad based leading edge test and measurement portfolio?

Right now, given all the changes that we have made, all of the focus on reducing expenses consistent to our operating model we have not had a major impact to our R&D investment at all. If you look at each of our major business units and segments, we have very strong instrument platforms that we need to continue to invest. That doesn't mean some spectrum analyzers to scopes to oscilloscopes to LCMSs, we are still fully funding the development to make sure that we have leading edge technology in each of our major, on each of our major instrument platforms as well as the leading position in each of our segments.

And then just lastly, thanks, Bill. Could you guys quantify, I may have missed this, so I apologize but could you quantify the board businesses that you are exiting, how much of that is of the overall board segment in terms of revenues?

No, we did not, but honestly it's very little at the moment because there is a literal buyers strike among all contract manufacturers for virtually any equipment, so it's de minimus at this point.

Thank you.

Your next question comes from the line of Jon Wood with Banc of America Securities. Please proceed.

Hi, good afternoon.

Howdy.

Adrian, if total revenues end up down 20% like as in your plan in FY '09, what free cash flow would you envision for this year?

I would envision an order of magnitude $400 million.

Okay, and how should we think about the buyback over the next three quarters?

You should assume a continued reduced rate of $125 million per quarter until we announce otherwise.

Okay. On the bioanalytical side, so I guess the plan is now for down five on revenue there versus flat. What incrementally has deteriorated, if anything? I mean it looked like the orders were only down two so holding in pretty well. What has changed from the December analyst period on the bioanalytical side?

The fundamental problem is and again hopefully it's an anomaly is that January orders for our analytical business was a lot less than what the quarter would suggest. As Adrian had outlined we are seeing a slowdown in almost every applied market except for food and other than academic and research, where we have a very small market share, we are seeing decreased orders in pharmaceutical industry, and so again, we've got this anomaly that the last month of our quarter, which typically is our strongest, was not and in fact it was weaker than the previous two months and so that really clouds the outlook moving in, but outside of the government and academic research and life science and food industry, we are assuming that the rest of the various segments will decrease as we progress into 2009.

Bill, are you willing to go into any more detail about a lot less, quantifying that in January in the bioanalytical side?

Yes. Orders were down 12% year-over-year.

Okay, thanks a lot.

Your next question comes from the line of William Stein with Credit Suisse. Please proceed.

Thanks. Given this new view on the revenue for the year, are you guys able to talk about what an earnings target would be for the full year?

Well, you want to model it consistent with Agilent's operating model which is basically a 40% detrimental on operating profits. I think you'll get very close to our planning assumptions.

Great. And a question on the inventory. I was kind of surprised to see it up in dollar terms. I don't think there was ever an expectation of increasing revenue in the quarter. Help us understand what happened there. Is there something unusual that might have happened that would trigger an inventory build?

Well actually from my perspective the team did an incredible job of only having the inventory slightly increase in the previous quarter given the dramatic decrease in revenue and of course below the mid range of our expectations, but all of the worldwide manufacturing teams all have aggressive plans to reduce inventory as quickly as possible, but you just can't react given the $100 million revenue mix in the quarter.

And again let me reassure sure you, Will, that that is our area of focus we intend to get those days on hand back down to the low 90's as we have characteristically had and that will be a source of cash throughout the rest of this year.

Around how long are we talking? One quarter, two quarters?

Oh, let's say two.

Great. Thanks guys.

Again, I just have a comment. Our whole demo inventory and our demos for customers is included in that number and you just have the mathematical problem of having a higher percent of inventory versus revenue but in terms of the operational inventory that Adrian outlined, we will aggressively reduce that over the next few quarters.

Thanks.

Your next question comes from the line of John Harmon with Needham & Company. Please proceed.

Hi, good afternoon.

Hello.

How did your oscilloscope products do, maybe better or worse than your general purpose category and where do you stand in terms of refreshing the products or having a new product cycle?

Yes, overall our oscilloscope business did equally as good or equally as bad as the rest of our general purpose. I think the other guy had a pretty good quarter. They had a rebate program is my understanding as well as a product launch and as well as one would expect after our decades of competition, we will be also introducing new products as we move forward.

Thank you. In a period of weaker demand did you see possibly a shift towards your low cost instrument platforms or did they perform about as well as everything else?

Everything was down across-the-board for first order.

In fact, John, again as I tried to emphasize, if anything, the quality of the sales was improved. We had a better mix as we had more software and more hire instruments. It was the manufacturing oriented instruments that got pounded the most.

Thank you and just finally your decision to exit x-ray board tests, you gave three criteria for businesses that you keep. Was it primarily due to the buyers strike as you called it, or was the business kind of just barely above the threshold before and then the recent downturn really pushed it I guess permanently below in your opinion?

Well, I think first of all, it has been a business where the team has struggled to get to the Agilent operating model. We've had major restructuring, we moved the responsibility of the product line into our overseas facility in Panang, Malaysia but you couple that with an environment where second year in a row where the businesses have been down and the reality is that the customer, and again the customer just does what their customers say, that the idea of spending money for inspection, particularly x-ray inspection versus the risk of warranty or failure, people are opting to do less inspection in this environment, so you couple a tough market with our belief in environment of excess capacity and the reluctance to spend more capital money today for inspection, it just seemed the right decision to exit the business and focus on our test.

Thank you very much.

Your next question comes from the line of Ajit Pai with Thomas Weisel Partners. Please proceed.

A couple of quick questions. I think the first one is just looking at the pricing environment. I think you talked a little bit about promotions et cetera, from competitors but is there anything that you see that is indicating that some of your larger competitors both on the electronic measurement side as well as the bioanalytical side are behaving irrationally in terms of pricing or increased promotional activity?

Yes, I won't say anything disparaging about our competition in terms of pricing but needless to say, the big deals that are publicly bidded are very aggressive competition to land those deals.

Okay, and then just given the business conditions and the lack of visibility in your talking about the second quarter just for sort of guiding it sort of flat in a seasonally strong quarter with the January quarter, if things begin to deteriorate further, is the current approach of the management team to just sort of wait it out even if profitability falls further because the portfolio would be valuable in the longer run. or do you think that you take additional cost cutting steps to insure that the Company stays profitable?

Yes, our number one criteria is very clear and again one of the biggest learnings from the 2001 crash is that we cannot get into a negative cash flow position and we will make all of the appropriate decisions to ensure that we are operating free cash flow under any conditions, so we will in fact take additional actions if we believe that we cannot be substantially cash flow positive going forward.

Got it and last question would be just in the two businesses that you're trying to shut down, the two product lines, the optical inspection and x-ray inspection, were these businesses, not the customers per se of these businesses but much more potential acquirers or competitors of this business, were these businesses ever shopped or did you ever try and sell these businesses over the past six to nine months, not very recently but prior to that?

There were no buyers for this business.

Got it, okay, thank you. (Operator Instructions). Your next question comes from the line of Richard Eastman with Robert Baird. Please proceed.

Hi. Could you just elaborate for a second or two on the operating profit within BAM, excellent performance and is that mix or was that trailing cost reductions that generated that?

It was a series of things. One, the profitability of the new platform, the new instruments that we have is superior to that that is being replaced. Second, some of the product lines that are strongest have the highest profit margins and third, a number of the across-the-board actions that Bill has detailed in the past apply equally to bioanalytical and the electronic measurement side, so those three combine to generate the excellent profitability.

Okay, and then as we go forward, the $150 million of annualized savings that you've laid out, should we think of that as impacting the segments to essentially with a weighting that would generate the 40% decremental? Not that that's a real clear question.

Yes, I know what you mean.

The SBT and EM?

In aggregate obviously it does generate the 40%. You should think that it will be disproportionately to the electronic measurement side but something like two-thirds or 65% EMG, 30% bioanalytical and the remainder on semiconductor and board test and do remember that we had a previous announcement of restructuring the board test already, so that is also benefiting.

Okay, and then just the last question. Bill, you had mentioned January orders for BAM were down about 12%, presumably EM then much greater? Could you give us an EM number?

Over 30.

Over 30? Okay. And was there any geographic difference, when you look at orders in the quarter, we can just back up to January, was there anything that you can sense that perhaps the Europe downturn is behind us by six months or anything from a gauging standpoint that would suggest that geographically, things will get worse in Europe, maybe better in Americas first or anything like that?

Richard, it's Adrian. That's going to be pure speculation. I mean honestly, the US goes into these things first ordinarily, Europe lags, but given the nature of this downturn being a simultaneous global financial meltdown, everything has gone down simultaneously. I mean that's part of the unique character of this downturn and further, ironically, the Americas has held up the best, by a wide margin, Europe has been the weakest by a wide margin, although Japan has come fairly close. So this is really pretty uncharacteristic. I think that the US will come out of it first, but that's pure speculation.

Okay, all right. Thank you.

Your next question is a follow-up question from the line of William Stein with Credit Suisse. Please proceed.

Great, thanks. Just trying to make sure I understand. The guidance, I understand it's kind of a best shot at this point, but sequentially, you're looking for flattish on both revenue and earnings, and I would imagine there's some fixed costs that are going to be taken out. Would I be right to think that if you do hit the same revenue number, the profitability would be a bit better, sequentially?

Given the band of error, Will, I would like to agree with you, but I would also remind you that seasonally, our expenses go up a bunch between Q1 and Q2, you have things like FitCon as just one example that shows, and new product introductions like our new GCMS that require seasonal spending so it's not necessarily so.

Okay, understood.

Again we're trying to take a very conservative position. We will get the full quarter's impact of the salary cuts but we have a very deep product launch set across the Company for Q2 as Adrian indicated, one of them, but we have quite a few others that just cost seasonally more money to launch these products.

This is typical. And just one other quick one. The two businesses that you're exiting, can you give us an idea as to how big these were a year ago?

They are probably in the $100 to $150 million range roughly. They've been dropping for two years. At one-time I know they were over $200 million, but the drop has been swift and deep.

And priority of uses for cash in this environment, have you considered that maybe instead of buying back stock that acquisitions could potentially be more useful for preventing the revenue slide?

I'm sorry, I didn't --

Uses of cash at this point, maybe you could just highlight your priorities?

Well number one is to continue to invest in the business, we continue to look for acquisition opportunities, the reality of the situation is that coming to an agreement with a potential acquirer person, the valuation is a real issue. People still have very vivid memories of the 52 week high, and so the whole issue of valuation, much less financing has put the whole acquisition, merger and acquisition market I think on hold, so that's task number one. Task number two right now is to ensure that we are cash flow positive and have sufficient cash to manage the Company and ensure that we can fund our ongoing investments and the third one is returning to the shareholder and as Adrian said, we're doing that at half rate in Q1 and you should expect that in Q2.

Will, I may have misheard you, but just in case I understood your question, one thing we will not do is dive bomb prices because we're in an advantaged cash position. These are inelastic markets and the only thing you do by divebombing prices is lower the profit pool for the entire industry, so that is not something we're going to do even though we're in a very envious net cash position.

Wasn't what I asked but I appreciate the color.

Okay.

Thank you.

You have a follow-up question from the line of Ajit Pai. Please proceed.

Yes, could you give us some color on what you see happening in the emerging markets like China in particular and then also Eastern Europe and India both in the bioanalytical as well as electronic measurement side, any trends especially late in the quarter trends.

Well China, the good news is that we continue to do well in the analytical space particularly focused around the food industry. China on the manufacturing side, electronic manufacturing I think is in free fall, so you combine the two of that, it's a very difficult environment. India is quite interesting. The full impact of the world slowdown has not really shown up as much as one would think because they have very little exposure to manufacturing. I was just there a few weeks ago or a month ago and you saw the first signs of impact moving forward so I think it's too early to tell and I don't have a very good view on Eastern Europe other than our business in Russia has been surprisingly good at this point in time.

So when you talk about strength in petrochemicals, relative strength there, what is driving that given what's happening with oil prices and the massive factory shut downs all over when you look at Dow Chemical, BSF, all your big customers are shutting plants. What is still delivering those orders?

Well that's the issue that we have and again, going into January and you think you get a different picture and so we'll wait to see what the petrochemical market looks like in Q2.

Got it. Thank you.

We have no more questions in queue at this time. I would like to turn the call over to Mr. Rodney Gonslaves for closing remarks.

Thank you, Eric. Well, everyone on the line, we would like to thank you for joining us today. Again, thank you very much.

Thank you for your participation in today's conference. This concludes our presentation. You may now disconnect. Have a good day.