NED BARNHOLT, AGILENT TECHNOLOGIES

Not a lot new to be said about the downturn in telecom, according to Agilent Technologies Chairman, President and CEO Ned Barnholt. Nothing much has changed. Too much capacity is what got us into it, and too much capacity keeps us from getting out, he said.

New uncertainties have been added to the equation, including terrorism, war, disease, corporate scandal and bankruptcy. And all that uncertainty is bad for investment and bad for markets where people like to know they have a high probability of return, Barnholt said. “But what is really still impacting our industry is the tremendous amount of excess capacity across the board and the slowdown in adoption of new technology,” he said.

Historically, the industry has been able to grow its way out of downturns through innovation, Barnholt said. Not this time. “There's no driver to kick it up again.”

Barnholt admitted that the last two years have not been a lot of fun. “We pride ourselves on being a company that values its people. To see the kind of reductions we had to make [about one-third of the company] has been very difficult,” he said. “But we have to do it to get the company aligned to the new realities of the market.”

Agilent did maintain more than a comparative level of R&D, cutting only by 15% to 18%. The optical switch program was one casualty. “We tried to keep it going, but that is a good example of great technology, lots of customer interest and no market,” he said.

Capital expenditures were cut to about $250 million as Agilent increased outsourcing — especially in Asia, where it grow this year by 20% to 40%. “Five years ago, we did almost 100% of our printed circuit boards in-house,” Barnholt said. “Two years ago we did about 60%. Now we do almost zero in house.”

Still, Barnholt said he remains an optimist. “This, too, shall end,” he said. He has kept the door open to possibly making an acquisition or two this year, and he expects the market to be smaller and leaner by the end of it.

He also expects it to be more upstanding. Considered by analysts as someone who can speak to the issue of corporate ethics with authority, Barnholt said the effects of corporate scandals are not so much economic. “However, it certainly has an impact on how people conduct their companies and the amount of time people have to spend reassuring investors and the community at large that they are running the company with the absolute best governance, and that there is a spirit and philosophy of transparency and integrity that pervades,” he said.

You can't legislate ethics, Barnholt said, but he praised Congress (vis a vis the Sarbanes-Oxley Act), the FCC and the New York Stock Exchange for acting quickly in taking measures to address the problem. “It is having an impact,” he said. “People on boards are taking their responsibilities very seriously.”

Part of a board's responsibility is executive compensation, and Barnholt believes that despite notable excesses and distortions, compensation across America it is not as out-of-line as people might think.

“However, I think it is important for executives to set the right tone and have their compensation reflect the performance of the company,” he said. “My compensation is definitely down, reflecting the fact that we haven't done very well, and I think that's completely appropriate.”