Keysight Technologies breaks away from Agilent

The New York Stock Exchange is hosting a coming-out party Monday for Santa Rosa’s Keysight Technologies, the largest company ever headquartered in Sonoma County.

Keysight President and CEO Ron Nersesian will ring the opening bell at the stock exchange on Monday, signaling a new day for 9,500 employees worldwide who officially split off from Agilent Technologies on Saturday to become the world’s largest electronic measurement company.

With nearly $3 billion in annual sales and a market capitalization valued at $5 billion, the new public company began operations Saturday as the world’s leader in electronic measurement device sales for the aerospace, communications and semiconductor industries. Even so, both analysts and the company’s top executive say Keysight’s future depends on its ability to expand its sales, research and product development.

“Our No. 1 challenge is to grow and to shift our focus more toward growth for the future,” Nersesian said in a recent interview at the company’s hilltop headquarters off Fountaingrove Parkway.

Nonetheless, he expressed confidence in the company’s future and in its ability to generate the large amounts of cash needed to fund research, product development and new acquisitions.

Since 2009, he noted, the electronic measurement division produced $2 billion in profits that were used to expand Agilent’s health care division. In a similar way, he said, Keysight now “can turn our resources to grow the electronic measurement business.”

With its newly appointed headquarters, Keysight already is drawing new visitors to Sonoma County. In late September, the company brought in 75 top managers from around the world for a round of meetings. And Nersesian said institutional investors have told him that they want to visit the Santa Rosa campus and “see the beautiful area that we live in.”

“I view it as being a perfect match,” Nersesian said of Keysight and the county.

“It’s a great environment to live in, and it’s a great place for our company to thrive and provide a big innovation center for our employees,” he said. “And I think all the folks that we’ll be bringing to Sonoma County over the years will also enjoy coming here.”

Keysight may be a new company, but it claims a long history in electronic measurement.

For six decades, it was the heart of Silicon Valley pioneer Hewlett-Packard, tracing its roots back to the first innovations developed by Stanford grads Bill Hewlett and David Packard in a Palo Alto garage. The signal analyzers, oscilloscopes and other measurement instruments that HP and other makers produced are an unheralded part of the electronics industry. But they have proved crucial to the development of computers, cellphones and virtually every other device that plugs into a wall or uses a battery.

“Without them, we wouldn’t have Sony,” said Paul Knight, an analyst in New York with Janney Montgomery Scott. “We wouldn’t have Apple. We wouldn’t have wireless. We wouldn’t have flat-screen TVs.”

Hewlett-Packard moved its electronic measurement business to Sonoma County in 1972, when it began developing the 1 million square feet of office and production space that today is Keysight’s Fountaingrove campus.

The company became known as a new kind of employer. Its core values - “the HP Way” - emphasized collaboration, innovation, community involvement and an aversion to layoffs.

In 1999, Hewlett-Packard divided itself in half, a move mirroring the split that would create Keysight 16 years later. HP focused on computers and printers, creating Agilent Technologies to house its test and measurement division and other businesses.

Under both HP and Agilent, the business thrived in Sonoma County. At its peak in 2001, Agilent employed more than 5,000 workers here.

But the company soon became battered by the dot-com bust and by intense competition. In response, Agilent downsized, closed its huge Rohnert Park manufacturing campus and sent thousands of production jobs overseas. The upheaval was a painful chapter for both the company and the county.

A year ago, Agilent announced its plan to split the business and create two companies. Agilent would focus on life sciences and chemical analysis, while a new company would carry on electronic measurement. Agilent officials contended the company stock was undervalued because of the combination of the two very different businesses.

After months of work, Keysight on Aug. 1 became a wholly owned subsidiary of Agilent, an interim step that led to Saturday’s separation.

Under the separation, Agilent shareholders will gain one share of Keysight stock for every two Agilent shares they own. Keysight estimates it will distribute 167 million shares, with preliminary, conditional orders that place the stock’s value at about $30 a share. Public trading starts Monday.

Today, Keysight is the county’s largest tech company and its fifth-largest private employer. It has about 1,250 workers in Sonoma County - including 70 that were added to staff the headquarters operations - and about 8,250 at its other facilities around the globe.

Nersesian said the HP Way remains “part of our DNA.” But Keysight now emphasizes three other aspirations: customer insight, high performance and value creation. Throughout the interview, he often returned to that last theme.

“It’s not just that we’re big and we make money,” he said. “We have to create value.”

Keysight will focus its growth efforts in three areas: products for wireless communications, “modular” products that allow the combining of components for customized measurement devices, and software testing programs. Three decades ago, about 10 to 20 percent of the company’s engineers in Sonoma County were assigned to developing software, Nersesian noted. Today, that number exceeds 50 percent and will continue to increase.

Nersesian insisted that Keysight won’t branch out of electronic measurement as both HP and Agilent earlier did. The company now controls only a quarter of the global sector’s $12 billion in sales, he said, so there remains plenty of room to increase market share.

And he expressed confidence that the company can remain profitable through both the boom and bust cycles that have become an inevitable part of the electronics industry. Under Agilent, the electronics measurement division in recent years stayed profitable, even in downturns, partly by handing over a portion of its sales and manufacturing work to outside contractors. Thus, the company paid its contractors only when products were made and sold.

Analysts said Keysight will benefit from the large amounts of cash it generates - the company reported a hefty return on investment capital of 31 percent for the last fiscal year. The challenge now will be finding the best place to invest those funds.

The sales growth cycles for electronic measurement devices can be relatively short and are often based on which manufacturer is first to market with some new feature, said Richard Eastman, an analyst in Milwaukee with Robert W. Baird & Co. Boosting Keysight sales, he said, will mean finding ways “to shorten the time to market for your new products.”

Analysts also expect Keysight will expand its offerings by purchasing smaller companies with valuable products.

“It’s pretty clear from their initial indications that they intend to be active” with acquisitions, said Ross Muken, a senior managing director and partner of New York-based ISI.

While the analysts are watching the company’s growth efforts, local business officials are applauding the fact that Keysight decided to place its global headquarters in Santa Rosa.

“This was a big vote of confidence in Sonoma County,” said Dick Herman, president of 101 MFG, a Petaluma-based alliance of manufacturing executives.

Even some Keysight workers privately have noted the selection likely ensures that the Santa Rosa facility will remain open, even if the company should ever need to downsize elsewhere.

Ben Stone, executive director of the Sonoma County Economic Development Board, said the county has benefited greatly under Hewlett-Packard and Agilent, both from its good-paying jobs and from its workers who served as leaders in United Way fundraising drives and as volunteer mentors for school children. He said he looks forward to “a rebirth of that heritage” under Keysight.

“They’ve really made their facility available and their people available in all sorts of ways to the community,” Stone said.

Jonathan Coe, president and CEO of the Santa Rosa Chamber of Commerce, said the county also will benefit by having such a “substantial and high-quality” company headquartered here.

“I think that’s going to be a plus for all of us,” Coe said, “sort of benefit by association.”

Knight, the analyst with Janney, is among those planning to visit the new company headquarters.

“Analysts and investors will definitely find Santa Rosa a new destination because Keysight is there,” he said.

You can reach Staff Writer Robert Digitale at 521-5285 or robert.digitale@pressdemocrat.com. On Twitter @rdigit.