Ned Barnholt

It takes a big player to appreciate the big picture. Ned Barnholt — by virtue not only of his position as president and CEO of Agilent Technologies, but also his role on the New York Stock Exchange Listed Company Advisory Committee and his 35 years in the business — is a big player.

Barnholt's view of the world begins in the sub-component world of the semiconductor, then expands beyond telecom to consider the global consequences of macroeconomics.

He watched the buildup of inventory in semiconductors and bandwidth last year and saw hints of a downturn with a drop in component sales last fall. He worries that trouble could spread across oceans, although he is not losing sleep just yet.

Barnholt has an understanding typical of all who can consider the big picture and not be overwhelmed by it: “There is not a lot I can do about the world economy,” he says. “I am going to work on what I can, which is building a stronger company and making sure we have our R&D programs lined up for this year and for the eventual recovery.”

Pressed, Barnholt reluctantly offers the following qualified prediction about when that recovery might happen: “It may take another one to two quarters before we really see the excesses of last year work their way through the system. Then we have the macroeconomic effects, which are very hard to predict.”

While not fretting over the possibility of a global meltdown, Barnholt points out that just as the Asian crisis a few years ago had a residual effect on the U.S. economy, the current situation here is important to the rest of the world.

“The U.S. has been a major engine of growth for the world economy,” he says. “If the U.S. can avoid a recession and the recent action of the Fed begins to show some positive trends in growth rate for the U.S. economy, that bodes well for the rest of the world.”

And if not? “Some big surprise — a spike in energy prices or a meltdown in the Japanese banking system — would certainly be a reason for concern that this thing would be a lot deeper and longer than we are currently projecting,” Barnholt says. “I am not betting on that. It's just that no one really knows.”

Most of Agilent's senior management, including Barnholt, has more than 20 years of industry experience, mostly with Hewlett-Packard prior to Agilent spinning off from that company in 1999. In addition to the effort to create an identity separate from HP, Barnholt and his team have implemented cost-cutting measures in direct response to the pain it has felt during the downturn and to lessen the potential pain of a continued slump.

Agilent first took basic steps, such as cutting discretionary expenses, cutting back on temporary workers and professional services and instituting a hiring freeze. Then, in early March, the company announced a 10% wage cut across the company.

“Actions like these will allow us to keep the core programs and core resources together and get ready for the upturn when it happens,” Barnholt says.

While surely unpopular, the wage cut policy works for Agilent so far — partly, perhaps, because it beats outright layoffs. But more important, it fits with the company's overall business philosophy, which tries to strike a balance between short-term need and long-term goals.

“People are willing to accept some personal sacrifices for the short term if it means we can strengthen the company for the long term,” Barnholt says.

Agilent's short-term performance looked good in late February as it announced a 26% increase in revenue over last year. The company's net revenue was $2.8 billion for the first fiscal quarter ending Jan. 31 (excluding its healthcare business, which the company expects to close the sale of this month to Royal Philips Electronics). However, the earnings reflect cost and expense reduction efforts more than increased volume because orders increased only 4% in the quarter.

“We have felt most of the pain in our semiconductor products business,” Barnholt says.

The company adjusted its guidance early in the year, then again in February as it reduced expectations from a 20% growth rate to the 10% to 15% range. In April, Barnholt hinted at another adjustment. “We have not issued new guidance since, but clearly the business situation hasn't gotten a lot better,” Barnholt said.

There may be only one way for Agilent to make it better. “We really have accelerated some of our most important R&D programs, because we know our secret weapon in downturns like this are new products,” Barnholt says. “Even if our customers are in tough shape, if you can come up with a product that can save them money or help them grow their revenue, they are willing to look.”

Part of Agilent's long-term plan is to expand its communications business. Although the deal with Philips for Agilent's healthcare unit is not complete, the billion-dollar sale is what enabled Agilent to plunk down $1 billion for Objective Systems Integrators.

“Last year when business was booming, we couldn't always respond the way we wanted to,” Barnholt says. Agilent has since trimmed its delivery time and reprioritized important programs.

“It is a healthy exercise that helps you get rid of some marginal programs. And it helps you understand the types of costs that creep into the system when business is really going good,” Barnholt says.

To be so lucky.