Good day ladies and gentlemen and welcome to the Second Quarter 2006 Agilent Technologies Inc. Earnings Conference Call. My name is Maria, and I will be your audio coordinator for today. (Operator Instructions). At this time, I would now turn the presentation over to Mr. Hilliard Terry, Director of Investor Relations. Please proceed sir.

Thank you Maria, and welcome to Agilent’s second quarter conference call for FY 2006. With me are Agilent’s President and CEO, Bill Sullivan and Executive Vice President, Finance and Administration and Chief Financial Officer, 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 the performance of each of our businesses. After Adrian’s comments, we will open 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. In accordance with SEC Regulation G, if during this conference call, we use any non-GAAP financial measure, you will find on our website the required reconciliation to the most directly comparable GAAP financial measures. In addition, I would like to remind you that we may make forward-looking statements about the future financial performance of the company that involve risks 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 the factors at work. The forward-looking statements including guidance provided during today’s call are only valid as of this date. The company assumes no obligation to update such statements as we move through the quarter. And with that, let me now turn the call over to Bill.

Thanks, Hilliard and hello everyone. We are pleased to report on a quarter in which we continue to deliver on our strategic and operating commitments. Our revenue and earnings per share, at the high-end of our expectations, with total orders and net revenue at the highest levels since 2001. Gross margins, in the quarter were more than 2 points better than a year ago. Operating margins were strong and return on invested capital was 24%, above our target of 21%. We are very pleased with an EPS of $0.40 per share. We did an excellent job on asset management, in particular on the inventory days on hand, which at 96 were below 100 for the first time in Agilent’s history. Free cash flow was strong with $241 million generated in the quarter. There are some areas of softness in both of our main businesses but overall in Q2, we made good progress towards our long-term goals. Turning to our results by business, Electronic Measurement business had moderate order in revenue growth with a solid improvement in profitability. There is good growth in wireless test and electronic manufacturing test. On the wireless side, demand for low cost phones in China and India as well as in investment in 3G manufacturing helped drive our results. We also benefited from R&D investments and high bandwidth capability and data applications for mobile phones. There was also a nice seasonal upturn in our aerospace and defense business and our skilled sales continued to achieve excellent customer acceptance. At the end of the quarter, we announced that our Operations Support Systems Group will become part of the Electronic Measurement Group. We did this for 2 reasons -- first, bringing these businesses together will strengthen our position in the wireless, convergence and digital markets. In addition, we…

Thank you Bill. Good afternoon everyone. Let me give you a few overall perspectives on the quarter for Agilent, review of the performance of our business segments, and conclude with some thoughts about second half guidance. Another remainder, this review of Agilent’s results will be incomplete because we are in registration for the initial public offering of Verigy, Agilent’s Semiconductor Test Solutions business. And so we are prohibited from discussing anything about this business outside of our prospectus. Starting out at the Agilent Enterprise level, overall Agilent had a robust second quarter. Orders of $1.59 billion were 21% ahead of last year. Revenues of $1.43 billion were up 12% from last year and at the top of our expectations. Adjusted net earnings per share at $0.40 were also at the high-end of our guidance of $0.35 to $0.40 per share. We believe the quality of our performance was also good with gross margins up about 2.5 points to the highest levels in 5 years, operating expenses under good control, inventory days on hand below 100 for the first time and return on invested capital at a new company high of 24%. Preparations for the spin-off of Verigy are on schedule and as of mid-year, we have successfully reduced Agilent’s global infrastructure cost commensurate with our size and profile as a pure play measurement company. Despite the cost associated with these actions, we generated $241 million in operating free cash flow during the quarter, that is, cash from operations minus capital spending. Overall, we believe we are demonstrating performance indicative of the world’s premier measurement company. Turning to the overall numbers again, we had orders of $1.59 billion up about 21% from last year. The dollar was stronger compared to 1-year ago and that hurt our measurement of orders by about…

Thanks, Adrian. Maria, at this point, we will open the call up to questions.

(Operator Instructions). Your first question comes from the line of Deane Dray with Goldman Sachs. Please proceed.

Thank you, good afternoon. With regard to your guidance for the third quarter, what are you assuming for internal growth and book-to-bill, and could you comment on the pace of orders throughout the second quarter please?

Sure, this is Adrian, as is often the case, our pace of orders accelerated through the quarter, normally, in the second quarter we go from our second weakest month of the year towards second strongest month of the year, so it's always a rollercoaster. And this year, it was even more true than normal, we really did see an acceleration in orders as the quarter progressed.

And how about within the guidance, what are you assuming for internal growth or book-to-bill, just in terms of what the top-line looks like?

Well, we gave, I think we gave the guidance of $1.37 billion to $1.43 billion of revenues which would be 10% to 15% above last year at this time, and again essentially flat with the second quarter. But remember Deane that the third quarter is always by far our weakest quarter during the year.

Good and then, what's the expectation on the realignment cost?

The realignment costs are, there will be one more quarter of cost during the third quarter, essentially as hopefully we do complete the IPO, and then it will be largely done. Certainly by the end of this year we will have completed all of the realignment of TIO. We would have dropped an addition of 1 percentage point of operating margin to the bottom-line, and then as Bill had said, the challenge for this company is to leverage that operating model to higher sustainable growth.

Great and just last question, could you comment on what addition the Yokogawa investment provides for business today?

It is a business that generates the same sort of operating margin as the rest of the LSCA, the difference though is that on that revenue, we use to have to subtract out 49% of the operating profits as minority interest that we will continue to consolidate 100% of that business.

So, this, but there are no other changes in having full ownership in terms of what kinds of investments you can make at the pace of growth and known in the other 49%?

All right, clearly, there is, we do have more control over our distribution channel and our manufacturing in Japan now that we have 100% control of that very valuable business. And the team that really is slaked about the opportunity to better leverage that real strength in our portfolio.

Good to hear, thank you.

Your next question comes from the line of Darryl Pardi with Merrill Lynch. Please proceed.

Hey, good evening guys.

Howdy.

Hey, this is, Adrian, this is your best consecutive quarter, I’ve seen orders exceed revenues and general purpose has, is that just driven by continued growth from manufacturing test business or there is another dynamic there?

Thank you for observing that Darryl. Yes, indeed you are right but first of all, a healthy business that is growing to have building backlog almost by definition -- and this business has been the fastest area of growth within Electronic Measurements for much of the last 18 months. The new really revamped our source for product line has been a tremendous success. And as I mentioned earlier, the logic analyzer business is picking up as well. So I think we really do have some momentum both in the customer and in the product areas.

Okay and there is a backlog that you built over the past 15 months, begin to convert to revenue at a quicker pace as we go through the second half of the year?

That's obviously a debatable item when you are setting up budgets as to how quickly is that backlog going to convert to revenue. I would assume a relatively constant conversion rates for the moment and hopefully we’ll be able to improve upon that.

Okay, is Chris standing in the line?

No, he is not.

Okay. Sorry, I still have one more question for you guys. We are now halfway through this fiscal year, you are completing your share repurchase authorization, at Agilent you have lot of cash. Could you give us an update on your cost and cash beyond this current share repurchase authorization?

Our position hasn't changed from our previous calls. The first choice of course is to continue to invest in the business. The second option is to ask the Board for reauthorization for additional stock repurchases and the third choice would be to pay a dividend as we complete this repurchasing by the end of this year borrowing normal market conditions, we'll review that with that Board.

Okay great, thank you.

Your next question comes from the line of John Harmon with Needham & Co. Please proceed. John Harmon - Needham & Co: Hello good afternoon.

Hi. John Harmon - Needham & Co: I'm going to ask the question that Darryl probably was going to ask, in the Bio-Analytical space one of your competitors recently announced an enormous acquisition and I'm wondering from the point of view of Bio-Analytical, what does this mean for that group?

That's again as you would expect we don't make comments on acquisitions of any of our competitors we're very excited with the product offering that we have launched booked in the Mass Spec side as well as our open version to 1200 LC series. So, we're going to continue to stay in the course of market acceptance of our products had been very good. John Harmon - Needham & Co: Okay, thank you.

(Operator Instructions). Your next question comes from the line of Ajit Pai with Thomas Weisel and Partners. Please proceed.

Yeah. Good afternoon and congratulations on a very solid execution, then some great margins.

Thank you, Ajit.

Two quick questions. The first would be about your wireless business, not the wireless, but the wire-line side of things. You have seen end market spending improve out there, a lot of the com equipment guys are seeing some pretty solid results, why are you seeing this year-over-year decline, is it only 1 customer, and can you give us some idea of mix of how much is to the com equipment vendors and how much is to the carriers right now out of that business?

I think Adrian had stated, a lot of this business is concentrated in very few customers, and we were impacted by that.

Ajit, I would also add that in our OSS business, there we have seen some relative weakness on wire-line side as well, that we didn't fully anticipate. This business is very, very lumpy; the whole industry is going through national consolidation at this time. And the first thing that happens whenever you get major acquisitions is that all spending freezes and we have seen that in a few of our long-life customers suddenly saying, “Halt everything until we get this sorted out”. So that's clearly part of us behind the wire-line year-to-year decline.

So, it's both the NEM's or the network equipment manufacturers as well as the carriers, you are seeing a bit of the pause or some volatility there. But you believe that at least one of those 2 was coming back. Could you give us some idea of mix between those 2 much, how is carriers and how much is NEM's as part of that wire-line business?

Yeah, I would say that the network equipment manufacturers are denominating there.

Denominating?

The biggest shortfall again has been in our router testing.

Yes, okay. And then the next question would be in terms of the number of business units, I think you talked us to about 2 years ago, about how many business units you add and how many of them were about, within ROIC about 20% and how many below, after all the streamlining and the changes that you have had and once SPS has spun out, what, how many business units will you have remaining and the way you use to classify them earlier, and right now, how many of those are above your ROIC metric of 20%?

We will have 2 business units going forward, as we do today, Electronic Measurement Group as well as let's say Life Sciences and Chemical Analysis, both groups are above 20% return on invested capital, and that's why that comment that Adrian and myself have both made, the real focus moving forward is to be able to leverage our operating model with greater than market growth rate and then allow that additional profit to the close of bottom-line.

But all these sort of sub-units you had when you were talking about much greater numbers of units, separately about 2 years ago, have you collapsed all of those together, or do you still maintain P&L at those levels even today?

We have 2 fundamental business groups that we report and underneath those Electronic Measurement, we will have 3 business units, again focusing on the communication and digital, wireless and general instrumentation, likewise in the Life Science side, we have two business units, one focusing on Chemical Analysis and the other one focusing on Pharmaceutical and Life Sciences.

Got it. Okay, thank you so much.

Your next question comes from the line of Edward White with Lehman Brothers. Please proceed.

Thanks, focusing a little bit more on the growth in China and India, you mentioned some numbers on the Bio-Analytical Measurement side, and I was wondering how sustainable do you see that business, in other words, do you see that growth momentum continuing through this year and what sorts of things can you do to keep the momentum strong there, in other words, are there other product lines that you can offer in those geographic regions that can sustain the momentum there?

We are very optimistic with the market opportunities in both China and India and our continued investment forward is very straightforward. We are going to continue to expand our sales presence in both China and India. We are also expanding our research and development presence to ensure that we have the appropriate customized products to be able to meet those needs. In addition to that we also have manufacturing capability in China. With the advent of electronic manufacturing in India, I believe there are even more opportunities than what we see today inside of India. So we are very excited with opportunities in both countries and are making the appropriate investments to ensure that we can capitalize on those opportunities.

Okay. Second question is, I recognize that, the real opportunity for you is that, going ahead is to leverage the success you have had on the operating line with higher revenues. But there are couple of areas where there may be some potential, there seem to be some potential, to improve operating costs and making improvements and those are with the OSS business and gene array chips. Can you talk about the progress on those, you are talking a little in terms of your ability to get those closer to the corporate operating model?

Right, in terms of our OSS systems actually we have made excellent progress in the first half of the year to get the gross margin to set our equivalent to our Electronic Measurement sector, the biggest opportunity we have is in the Life Science area. We’ve had a very successful launch of our new Mass Spec platform, so the, pause of that development in introduction will slowdown over the rest of the half of the year. Likewise we have seen good growth in our microarray business. That market is very, very competitive but some of the new capabilities that we have offered to customers we think that with some additional top-line growth and improvement in efficiencies that we can get the array business back to profitability.

Great, thanks.

Your next question comes from the line of Richard Eastman with Robert W. Baird. Please proceed.

Yeah, just 2 questions, one is on the BAM business, does that business continue? Were there any issues in terms of shipping products or was it how the orders came. I'm curious as to, essentially the second straight quarter you are aware, you built backlog. Is the strategy to work that backlog down in the second half or should we look for better shipments?

Absolutely, the order strength has been very good. We have, as I mentioned, had the largest launch from this business group in over a decade, and any major product launch across the board complete conversion of our whole LC platform as well as entering in a whole new Mass Spec platform is always challenging. But, we are very excited with momentum we have, and again the team is 100% focused on shipping our backlog.

Okay. And then, is there any chance geographically, Adrian, if we look at the Electronic Measurement in the BAM business combined, so kind of the core business, could you possibly breakdown the geographic order growth, just in the core business?

I can't do it off the top of my head.

Then, okay.

With the individual segments, I can tell you that as I said before, the orders for the Americas was up 13% year-to-year.

Right.

Europe was up 6%, and Asia-Pacific 36%. I don't think that the order trends were dramatically different by business.

I guess, when I look at the 21%, so, that includes the SPS orders, obviously, right?

Fair enough, yes.

Yeah. And that's what going to have bulked up the Asian growth?

We have seen across the Board strength in Asia, but certainly that business is even more disproportionate in Asia.

Okay, thank you.

(Operator Instructions). Your next question is a follow-up from the line of Ajit Pai with Thomas Weisel Partners. Please proceed.

Yes, just looking at your geographic mix not in terms of revenues, but in terms of cost, and now that you have SPG leaving and potentially have ADG leaving. What percentage of your cost is in dollar rate countries and in the US and then what percentage is in China and what percentage in the rest of the world, this is both cost as well as expenses?

Ajit, I would say that dollar literally dollar is roughly 40%, but then you get essentially the Malaysian and other related areas that are locked to the US dollar. China is roughly 25% today and obviously growing the whole Asian area is about 60% today.

So that would mean that a falling dollar would actually benefit your margins?

Yes.

Yeah okay. Thank you so much.

At this time there are no more questions. I will now turn the call back over to Mr. Hilliard Terry.

Thank you, Maria. To everyone on the line I would like to thank you on behalf of the management team for joining us today and we look forward to chatting with you again in August when we report our Q3 results. Thanks for joining us.

Thank you for your participation in today's conference ladies and gentlemen. All parties may now disconnect. Enjoy your day.