Comms chips

Report: Agilent Ditching Chips

When (NYSE: A) reports earnings on Monday, it might add some news about the sale of its semiconductor division.

Business Week is reporting that the sale -- anticipated for much of the summer -- is a done deal. The buyers are private equity firms Kohlberg Kravis Roberts & Co. and Silver Lake Partners, paying a combined $2.65 billion, according to the report.

One analyst requesting anonymity pointed out that Agilent's earnings call is coming in the morning on Monday, compared with the company's usual Monday afternoon timing -- not exactly a smoking gun, but it's a possible sign that something unusual is afoot.

An Agilent spokeswoman declined to comment.

The Wall Street Journal reported in June that Agilent was considering a sale of the chip unit, which is perceived as holding the stock back. In July, the paper pegged KKR as the likely winner in an auction for the division. Their interest would be to eventually repackage the division for an acquisition or IPO.

Why sell off semiconductors? Because the unit's lagging profits and the volatile nature of semiconductor sales are seen as millstones on Agilent's stock price. For Agilent's second quarter, which ended in April, the semiconductor business charted 4 percent net income compared with 8 percent for the test-and-measurement business, according to analyst John Harmon of Needham & Co. Agilent's semiconductor division includes cell-phone devices and barcode-reading chips -- stuff that's not at the heart of the communications infrastructure. But the division also includes an optical transceiver business that's fought with Finisar Corp. (Nasdaq: FNSR) for the lead in the data networking space, some telecom parts such as OC-192 transceivers in an XFP package, and Sonet framer/mapper chips.

By selling that division, Agilent could focus more on its test-and-measurement franchise while improving its margins.

In June, Harmon issued a report concluding Agilent could benefit from a sale of the semiconductor business. "The volatility of the company's revenues and earnings would likely decrease, reducing the stock's volatility discount. In other words, we think the stock would merit a higher multiple," Harmon wrote.

Harmon also opined that Agilent should divest its automated test group, which as of June was losing money.

— Craig Matsumoto, Senior Editor, Light Reading

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