00:00I was looking at your earnings report and your China business was down about 9% in the
00:05second quarter and yet you're investing in a new innovation lab here.
00:10What underpins this confidence for the China business?
00:13Yeah, we have a long history in China.
00:14We're here over 40 years.
00:16We have a very large business in China, a lot of really good connections with customers
00:19over many decades and in the second quarter we had a Lunar New Year effect where business
00:24moved out.
00:25What I would say is the business is really stable and in fact some really bright spots
00:28in the business, our biopharma business grew double digit which is a continuing improvement
00:32in the market and life sciences in biopharma.
00:36And this is coming at a time when China has been pushing for self-sufficiency and they have
00:41been grooming their own crop of Chinese biotech firms and companies that are moving up the
00:46value chain to create high-end instruments, right?
00:49How big of a threat are these Chinese players to you?
00:51Well look, we have such a long history, we have a big service organisation, we have a long
00:55customer connection and of course we're investing in an innovation centre here in China for
00:59reasons that we want to expand our innovation in China.
01:02So we believe with our connection with customers and the new innovations we're bringing out
01:06which will only accelerate, you know we're going to do very well with our customers.
01:10You talked about innovation and I know that's really key to your products.
01:14What do you think is the biggest growth catalyst for your business now?
01:17Yeah, I think if you look at our products, if you think about pharma and biopharma where
01:20they're moving, you know I think you see QAQC laboratories, that's a very big business
01:25for us where we're testing drugs and therapeutics globally.
01:28Supply chains are being shored up so a lot of new factories and new capabilities.
01:33And in drug discovery, the speed of drug discovery is improving.
01:36Of course, AI is really helping that, sometimes 30-70% improvement in clinical trials people
01:41expect over the years and of course we'll be the beneficiary because our tools create
01:46the data for the drug companies whether it's clinical data or so on and also on the QAQC
01:51side.
01:52So where are you seeing the biggest opportunities, where are you prioritising for your expansion?
01:57Yeah, so really around automation and software and physical AI, that's an area in China that
02:02automation is really a strong driver and that's an area that's a megatrend across pharma.
02:08You can see that we have R&D hubs around the globe but China is going to be really based
02:11around software and automation.
02:13And there's this notion of labs becoming more autonomous or more AI, physical AI ready.
02:18And that's where we feel we really want to be at the heart of the innovation here in
02:21China to serve our customers.
02:23Your second quarter earnings actually was pretty strong.
02:25In fact, the strongest in several years.
02:28Investors want to know how durable it is.
02:30Yeah, so we had a steady improvement over the last year.
02:33I think we had our biggest stock bump over 20 years.
02:38So a really strong quarter across all segments.
02:40We have a big applied markets business and within that a real bright spot was our chemical
02:44and advanced materials.
02:46So we do a lot of testing for solvents and so on within foundries, within semiconductor but
02:52also batteries.
02:53So that's a big growth driver for us.
02:54So pharma, chemical and advanced materials.
02:57But it was broad based growth I would say from the company.
03:00So you're benefiting from the AI, the data center build out, the foundries business and
03:05then you have bio farmers and other growth drivers.
03:08Which geographies are you looking at where you're seeing the most opportunities now?
03:12It's actually pretty well broad based.
03:14You see a lot of investment in the US, a lot of growth in China and Asia.
03:17And Europe actually has been doing extremely well.
03:19We also have an applied markets business where we do food and water testing.
03:23People hear every day about Forever Chemicals.
03:25We're the leading tester for Forever Chemicals and PFAS and that's an ever moving business
03:30for us and very strong in China and very strong around the world as regulations improve to keep
03:35water and food safe.
03:36And actually materials as well for productions.
03:40And has the disruptions from the Iran war, the higher oil prices, has that affected your
03:46business in any way?
03:47No, I would say that, you know, over the last two years we've been transforming the company.
03:50So we're far more effective at supply chain.
03:53We're far more effective through our transformation around how we do our global movement.
03:58So we were able to really manage that as we did with other shocks in the system.
04:02So we were very pleased with that.
04:03Could you share if you have any acquisitions that you're looking at in the pipeline?
04:08Well, we did two.
04:09I did two acquisitions.
04:10The last one, BioCare, which is really important around antibody in our pathology business.
04:15So we're always looking for innovations, innovative companies across the globe.
04:20And of course, we're very happy with our own innovation programs.
04:24We have a lot of programs going on, but we're looking at a lot of companies around applied
04:28markets, Biopharma, of course.
04:30And of course, automation is important for us.
04:31We're looking in that area as well.
04:33So more to come on all that.
04:34Are you planning any share buybacks?
04:37We're going to keep that steady.
04:38So we're on the anti-dilutive share buybacks at the moment.
04:41We're going to keep that pretty steady as we go forward.
04:43We have a lot of use for our capital around, you know, organic investments, but also maybe
04:48some inorganic too.
04:50Let's talk about the innovation in the healthcare space, the diagnostic space.
04:55What are some of the latest trends that you're looking out for?
04:58Yeah.
04:58Well, you see it, you know, you see in pharma and biopharma, you see that the speed of clinical
05:02trials improving therapeutics.
05:05We actually have a really strong business in the therapeutic area where we're the number
05:08one supplier of siRNAs to companies.
05:11So that's a really important business for us.
05:13So what you would say is that the speed of innovation in drug trials is really improving.
05:18And having us in there to help that and help productivity in labs is going to be really
05:22important to get those outcomes from customers.
05:24And how are you seeing AI transforming the industry maybe in the next three to five years?
05:29Well, look, it's going to transform everything.
05:30We have a big AI program within the company where we're looking at growth actually in product
05:34AI.
05:35So people think it's first about cost, but for Agilent it's about growth, about how we bring
05:38physical AI into our products to make our products more efficient, et cetera.
05:45And, you know, it's just going to create a lot more, I would say, focus on therapeutic
05:49acceleration.
05:50You're going to see a far more focus on better therapies coming out for customers, et cetera.
05:55And I think it's a really great time to be in this environment with these tools.
06:00Now, of course, you have to be very focused on what you're doing with the tools.
06:05But I think the winners and losers with companies are going to be companies that are going to
06:09focus on growth and focus on product.
06:11And are you seeing measurable improvements in your investments in AI now?
06:15Well, we just announced a big AI partnerships a few weeks ago and we're going to continue
06:18with that.
06:19So we're setting out a stall.
06:20But what I will say, we're super excited about it on the top line, what AI can bring.
06:25We have a new chief AI officer that we brought in.
06:27We have a new COE.
06:29And also we're doing a lot of training for the teams inside about how to use AI properly
06:33and how do we focus on the key use cases, not to do everything a little bit across the
06:38company, but do the most important things.
06:40A big theme I think that we're watching out for when the Premier Li speaks today is I think
06:45his message to the world, I think he's always indicated that China will open its doors to
06:50foreign businesses.
06:51And I wonder for you, do you actually feel an improvement in the environment for a foreign
06:56business?
06:56Are you finding difficulties in government bids, for example?
07:00No, I mean, look, we've been here for so long.
07:02We're part of the ecosystem here.
07:04We have a World Economic Forum Lighthouse Factory in Shanghai that we're really, really
07:08proud of.
07:09Our innovation center is going in there.
07:11So we have steadily been working with customers over the decades and that hasn't changed.
07:15I think what's going to be really important is that the innovation that we can bring in
07:19coordination here in China is going to be something that's going to be very important for this
07:23market.
07:25What are some of the geopolitical headwinds that you see?
07:29Because, you know, there has been the Biopharma Act.
07:31There are also, you know, US government senators sort of pushing for more decoupling.
07:37How do you protect yourself against that?
07:39We just focus on our strategy as we've been doing over four decades.
07:42And we focus on our tools and we focus on our customers, right?
07:45Making sure we have the right service.
07:47One of the things I heard from many customers here this week is what's really important is
07:51to have the service and productivity in the labs.
07:53You can have these instruments in labs, but if they're not up and running and not productive,
07:58then it doesn't really matter.
07:59So continuing with that strong customer connection that we build strong customer relationships,
08:03I think it proves that it's going to be very beneficial.
08:06And what's your growth outlook for the second half of this year?
08:08Yeah, so we laid it out so we have, you know, a steady growth for the second half.
08:13And we're very pleased with it.
08:14I will say that I'm really glad that after the last two years of transformation,
08:18we've put in a really strong foundation.
08:21We're kind of unique in our space is that we have one sales team, we have one service team.
08:25And now we have a CTO working on our innovation and coordinating on it.
08:29So we're looking for steady growth in the second half.
08:31Can you share more about your CapEx spending?
08:34Yeah, so CapEx, you know, we look at CapEx broadly across different areas.
08:39And now we're looking at some CapEx in Asia currently that hopefully you'll see some announcements from in the next
08:44world.
08:45But also CapEx in Europe and CapEx in the US.
08:48So very balanced, I would say, capital allocation.
08:51And as you invest in this new innovation center in Shanghai, could you share is it going to be mainly
08:56for the Chinese market
08:58or is it going to export from there to the rest of the world?
09:00That's a fantastic question, right?
09:01So the reason why we're in Shanghai is because of the incredible, I would say, evolution of automation and physical
09:09AI, etc.
09:10But particularly automation.
09:12And we believe that we're in China for China.
09:15So we can manufacturing in China for all our product lines.
09:18But the innovation center is going to be for China.
09:20But also we think it's going to be influential for the rest of the world.
09:23So those programs will be global.
