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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Form 10-K

Commission File Number: 001-15405

Agilent Technologies, Inc.

Address of principal executive offices: 395 Page Mill Road, Palo Alto, California 94306

Registrant’s telephone number, including area code: (650) 752-5000

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:

      Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes þ          No o

      Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.     o

      Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).     Yes þ          No o

      The aggregate market value of the registrant’s common equity held by non-affiliates as of April 30, 2002, was approximately $11.81 billion. The aggregate market value of the registrant’s common stock held by non-affiliates as of October 31, 2002 was approximately $5.43 billion. As of October 31, 2002, there were 467,024,421 outstanding shares of common stock, par value $0.01 per share. Shares of stock held by officers, directors and 5 percent or more stockholders have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.

DOCUMENTS INCORPORATED BY REFERENCE

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Affymetrix is a U.S. registered trademark of Affymetrix Inc. Caliper is a U.S. registered trademark of Caliper Technologies Corp. Intel is a U.S. registered trademark of Intel Corporation. LabChip is a registered trademark of Caliper Technologies Corp. in the U.S. and other countries. Luminator is a U.S. trademark of Rosetta Inpharmatics. Nortel Networks is a trademark of the Nortel Networks Corporation. Resolver is a U.S. registered trademark of Rosetta Inpharmatics, Inc.

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Forward-Looking Statements

      The following discussion should be read in conjunction with the consolidated financial statements and notes thereto included elsewhere in this Annual Report on Form 10-K. This report contains forward-looking statements including, without limitation, statements regarding trends and growth in the markets we sell into, our strategic direction, expenditures in research and development, the anticipated completion of transactions, contracts and remediation, our future effective tax rate, new product introductions, changes to our manufacturing process, our liquidity position, our expected growth, the potential impact of our adopting new accounting pronouncements, our financial results, the impact of the enterprise resource planning implementation, savings from the restructuring programs and the length of the economic downturn that involve risks and uncertainties. Our actual results could differ from the results contemplated by these forward-looking statements due to certain factors, including those discussed in Item 7 and elsewhere in this report.

PART I

Item 1.     Business

Overview

      Agilent Technologies, Inc. (“we”, “Agilent” or the “Company”), incorporated in Delaware in May 1999, is a global diversified technology company that provides enabling solutions to markets within the communications, electronics, life sciences and chemical analysis industries. We have three primary businesses:

	•	test and measurement;
	•	semiconductor products; and
	•	life sciences and chemical analysis.

      Prior to our initial public offering of 15.9 percent of our stock in November 1999, we were a wholly-owned subsidiary of Hewlett-Packard Company (“Hewlett-Packard”). Hewlett-Packard distributed the remaining 84.1 percent of our stock to its stockholders on June 2, 2000 in the form of a stock dividend.

      Our test and measurement and semiconductor businesses share focus on growth opportunities in the communications and electronics sector, while our life sciences and chemical analysis business focuses on growth opportunities in life sciences, as well as chemical analysis in the environmental, chemical, food and petrochemical markets.

      We sell our products primarily through our direct sales force, but we also utilize distributors, resellers, telesales and electronic commerce. Of our total net revenue of $6.0 billion in the fiscal year ended October 31, 2002, we generated 39 percent in the United States (“U.S.”) and 61 percent internationally. As of October 31, 2002, we employed approximately 36,000 people worldwide. We have major research and development (“R&D”) and manufacturing sites in California, Colorado, Delaware and Washington in the U.S. and in China, Germany, Japan, Malaysia, Singapore and the United Kingdom.

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      Our net revenue by business segment for each of the years ending October 31, 2002, 2001 and 2000 was:

      More financial information about the business segments is contained in Note 20, “Segment Information,” of the consolidated financial statements included in Item 15 of this report. Hewlett-Packard accounted for approximately 8 percent of our total net revenue in the fiscal year ended October 31, 2002, 7 percent in fiscal year 2001 and 7 percent in fiscal year 2000.

Test and Measurement

      Our test and measurement business provides standard and customized solutions that are used in the design, development, manufacture, installation, deployment and operation of electronic equipment and systems and communications networks and services. These solutions include test and measurement instruments and systems, automated test equipment, communications network monitoring, management, and optimization tools and software design tools and associated services.

      Our test and measurement business employed approximately 18,000 people as of October 31, 2002. We serve customers in more than 110 countries and sell our products primarily through our direct sales force, as well as through resellers, distributors, telesales and electronic commerce. Our products are complemented by service and support offerings such as consulting, training, local solutions integration, and instrument calibration and repair. Our test and measurement business generated $3.3 billion in revenue in fiscal 2002, $5.4 billion in revenue in fiscal 2001 and $6.1 billion in revenue in fiscal 2000.

     Test and Measurement Markets

      The markets for our test and measurement products comprise three major customer groups:

	•	communications test;
	•	general purpose test; and
	•	semiconductor test.

     Communications Test

      Network equipment manufacturers provide products to facilitate the transmission of voice and data traffic. This transmission may be in various forms, such as electronic signals over copper wire, optical signals over fiber cables and radio frequency (“RF”) or microwave signals. The customers of the network equipment manufacturers are the communications service providers that deploy and operate the networks and services. These service providers require network equipment that enables their networks and services to operate at increasingly faster speeds while providing rapidly expanding capacity and superior reliability. To meet these demands, network component and equipment manufacturers require test and measurement instruments, systems and solutions for the development, production and installation of each new network technology.

      Communications and Internet service providers also require a range of sophisticated test instruments and systems to evaluate network performance and to identify any sources of communications failure. Additionally, these customers require advanced software and systems, known as operations support systems, to monitor and manage the network infrastructure and services on a

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      The market for cellular mobility has increased dramatically in recent years as the levels of wireless penetration in developed countries have grown rapidly. Many emerging economies have decided to build wireless communications infrastructure to meet their nations’ needs for telephony, rather than invest in expensive wire-based infrastructure. To develop cellular telephone equipment, manufacturers require electronic design automation software and test instruments and systems for the development of high-frequency communications circuits, devices and systems. Cellular equipment manufacturers also require advanced, high-frequency test instruments and systems to develop, manufacture and deploy cellular base stations for these wireless networks. In addition, the rapid growth of the cellular handset market has created a new market segment for automated test equipment to test cellular handsets on the factory floor. An emerging market for advanced R&D verification solutions for 2.5G and 3G network deployment is expanding as the demand for complex wireless data networks increases. Further, as new standards evolve in the wireless industry, new test and measurement equipment and systems have to be developed to enable testing of the new standards in the research, design and development and later in the manufacturing and deployment phases. An example of this is wireless fidelity (“Wi-Fi”), also called 802.11, for wireless local area networking.

      We believe that in the last several years, producers of networking communications equipment have increased their use of contract manufacturers. Contract manufacturers require test solutions that are particularly well-suited for faster production and flexible for use in different applications. Recently, mobile phone and appliance producers have also begun to increase their use of contract manufacturers and reference design platforms, including using contract manufacturers for functional test. This requires specialized test products and services to address the particular needs of these high-frequency products.

     General Purpose Test

      The electronics industry designs, develops and manufactures a wide range of products, including products produced in high volumes, such as computers, computer peripherals, electronic components, printed circuit assemblies, consumer electronics, enterprise servers, storage networks and communications devices including personal digital assistants. These components and printed circuit assemblies may be designed, developed and manufactured by electronic components companies, by original equipment manufacturers or by third-party contract manufacturers. For the development and timely commercialization of new technologies, original equipment manufacturers require state-of-the-art test instruments, systems and software design tools in order to design the products for efficient and cost-effective manufacturing and validate product performance in a variety of configurations and environments.

      High volume manufacturers of electronics products, such as printed circuit board assemblies, require sophisticated automated test equipment to operate and perform highly accurate tests at speeds and volumes matching those of the production line. This equipment includes in-circuit testing systems, automated x-ray inspection systems and automated optical inspection systems, all of which examine the printed circuit assemblies for manufacturing defects. Manufacturers are also beginning to demand automated functional test systems, which test an electronic device as if it were in its final environment.

      Electronics manufacturing also requires standardized test instruments, system components and complete solutions. Aerospace and defense are important markets for standardized electronic equipment because of the high electronic content of advanced defense systems and defense-related

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     Semiconductor Test

      Electronic Design Automation (“EDA”) tools are used by integrated circuit (“IC”) designers in the earliest stages of design. These software tools are used to analyze and predict circuit and system performance before fabrication. EDA tools are also important as IC designers start to build and test prototypes. Linking between EDA software and test equipment allows customers, including IC designers and test engineers, to verify the designs and compare and combine the virtual simulations with the actual measurements.

      Semiconductor test systems are used by semiconductor designers, semiconductor manufacturers and electronic component manufacturers in the design, manufacture and testing of a wide variety of semiconductor products, including logic, memory, mixed analog and digital signal, RF, microwave and system-on-a-chip integrated circuits. Semiconductor test systems are sold to semiconductor manufacturers and assembly and test subcontractors to the semiconductor industry.

      Demand for automated test equipment is driven primarily by the increased volume of semiconductor devices produced. Advances in semiconductor technology are also increasing demand for semiconductor test equipment. The development of increasingly faster and more complex semiconductor devices stimulates demand for testers capable of evaluating these high-speed devices. In addition, the continuing integration of functions, such as microprocessor, logic, analog, RF and logic, application specific integrated circuits (“ASICs”), memory, on a single integrated circuit has created a new category of device called system-on-a-chip (“SOC”). These devices require a new category of sophisticated and flexible automated test equipment.

      Our product strategy in this market area is to develop test solutions on a single system architecture and then deliver, over time, enhancements to that architecture that extend its test capabilities. In this way, we can provide a system at the lowest possible cost because many system components are common to every system; a customer’s application determines the specific configuration required, and the lowest-price component capable of the job can be purchased. For example, it is possible to build a 93000 SOC Series system that can test DVD devices, with mixed-signal test modules and very modest digital test speeds, or to build a system that can handle the highest digital requirements of gigabit Ethernet devices, or to build a system with any combination of these capabilities. We have pursued this strategy on our semiconductor test systems since 1999, and this concept is now well accepted by the marketplace, which may give Agilent a significant competitive lead.

      Agilent supplies test systems used for several different purposes in the semiconductor manufacturing process, including wafer-level parametric testing, wafer-sort for memory test, package-level functional test, and package inspection.

     Test and Measurement Strategy

      Our test and measurement business pursues the following strategies to extend our global leadership position as the communications and electronics industries shift to new business models and value chains.

     Address the Needs of the Wireless and Internet Communications Market

      Our greatest focus is on providing product leadership and application-focused solutions to markets where wireless, Internet and computing technologies are converging. We have targeted our test and measurement products and services to enable our customers in this segment to bring their

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     Identify Customers’ Business and Technology Needs, Then Leverage Across the Value Chain

      We address the business and technology needs of players across the wireless and Internet communications value chain, from component manufacturers, network equipment manufacturers, and contract and design manufacturers to content providers, operators and service providers. A key success factor for this strategy is the development of technologies and platforms that can be reused and leveraged, enabling us to deploy new solutions and systems faster.

     Introduce Emerging Test Technologies to Accelerate Customer Progress

      Our product strategy is to introduce products and technologies that meet the business needs of our customers. Such products could give us a market advantage by placing us in the next generation of technology beyond what our competitors can offer.

     Satisfy Customers Through Operational Excellence

      A key component of our strategy is to help the customer achieve a competitive advantage through operational excellence in three areas: sales and support experience, whether contact is via the web, email, by telephone or in person; global manufacturing and supply chain management so that customers will receive high-quality products, when they need them; and product generation.

     Focus on Leading Edge Customers

      By engaging in collaborative, co-development relationships with wireless communications and Internet and computer leaders such as Nokia, Ericsson, Intel®, Motorola and IBM, component manufacturers such as Murata, contract manufacturers such as Solectron, Flextronics International and Sanmina-SCI Systems and service providers such as AT&T Wireless, Verizon Wireless, China Unicom and Vodafone, we are developing solutions that support next generation technologies and enable these leaders to maximize their performance and continue to lead their industries.

     Build a New Global Capability in Solutions, Systems and Services

      Our strategy is to apply the technologies, platforms and knowledge we acquire from growing our core product categories into application-focused solutions, world-class systems and high-value services. These programs should increase our growth potential by building on and strengthening our customer relationships and by creating a services-based annuity stream that offsets capital equipment cycles.

     Test and Measurement Products

      Our test and measurement business designs, develops and manufactures test and design products that range from single-unit electronic measurement devices priced under $1,000 to large scale integrated-circuit test solutions priced at $1 million and higher.

     Communications Equipment Test Solutions

      We provide test solutions for fiber optic, broadband and data networks, wireless communications and microwave networks and products.

           Fiber Optics. Our products include optical signal and spectrum analysis instruments used by the industry’s leading equipment manufacturers to develop and manufacture reliable optical components. Our products also include network analyzers and high-speed bit-error rate testers that measure key transmission properties of high-speed optical and electrical signals.

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           Broadband and Data Networks. Our Internet Advisor product line helps to troubleshoot high-speed local area networks, wide area networks and asynchronous transfer mode networks. We also provide cable television test equipment.

           Wireless Communications and Microwave. Our RF and microwave test instruments and our EDA software tools assist in the design and production of cellular handsets and base stations, as well as satellite and aerospace defense systems. Examples of our wireless communications products include specialized versions of RF and microwave network analyzers, spectrum analyzers and signal sources, mobile testers, circuit simulation tools, and system simulation tools.

           Communications Service Providers’ Installation, Maintenance and Operations Support Solutions. Our solutions for installation test enable service providers to install, commission, and activate networks and services more quickly. For example, our 10-Gigabit Field Transmission Test Set enables technicians to test 192 fiber optic channels simultaneously. Also, our standards-based unification platform allows simplification of operation support and systems by reducing the software integration costs of such systems.

      We offer a number of industry-proven monitoring systems such as AcceSS7 for Signaling System 7 (“SS7”) networks, AccessFIBRE, for fiber optic networks, NGN Analysis System for next-generation, mixed circuit- and packet-switched networks, and Firehunter for monitoring service level agreements by Internet service providers. We also market benchtop and handheld measurement devices such as lightwave multimeters, power meters and optical sources.

     General Purpose Test Solutions

           General Purpose Instruments. General purpose instruments are used principally by engineers in R&D laboratories, manufacturing, calibration and service for measuring voltage, current, frequency, signal pulse width and other standard electronics measurements. Examples of general purpose instruments include spectrum analyzers, network analyzers, signal generators, digitizing oscilloscopes, voltmeters and multimeters, frequency counters, bench and system power supplies, and function generators and waveform synthesizers.

           Modular Instruments and Test Software. Our modular instruments and test software, including instruments incorporating the VXI bus and modular measurement system software, is used to dynamically configure and reconfigure test systems for designers and manufacturers of electronic devices.

           Data Acquisition and Control Devices. Data acquisition and control products include digital-to-analog converters that are attached to sensors to measure a wide range of physical data such as temperature, airplane wing strain and vibrations in cars, jet engines and power generation equipment.

           Digital Design Products. These systems range from simple digital control circuits to complex, high-speed servers incorporating the latest microprocessor technology. Our digital design products include high performance oscilloscopes, logic analyzers, logic-signal sources and data generators.

           Automated Optical Inspection. Our automated optical inspection line of products enables automated visual inspection of printed circuit assemblies. These systems are able to locate, with a high degree of repeatability and reliability, misplaced and misaligned parts, gross solder defects and other process faults without the need for a human inspector.

           Automated X-ray Inspection. Our leading x-ray inspection products provide a three-dimensional scan of printed circuit board assemblies to identify and isolate quality defects caused by the manufacturing process. Our products can look through a device to identify structural defects in soldering that are not identified by visual inspection and that may not be detected with in-circuit testing.

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           Automated In-Circuit Testing. Our leading in-circuit testers use a probe fixture that makes electrical contact with the circuit board. These systems make electrical measurements that identify quality defects such as bad and incorrect parts that affect electrical performance, and allow repair of the defects while it is still relatively inexpensive to make the diagnosis and repair.

           Intelligent Test. Our AwareTest software enables customers to design test processes that avoid unnecessary test duplication. For example, an in-circuit test system receives information about the faults that have already been detected by an x-ray inspection system and does not repeat the test of that circuit.

     Semiconductor Automated Test Equipment

      We produce semiconductor test equipment to perform electrical functional testing of the operation of logic, memory, mixed analog and digital signal, RF, microwave and SOC integrated circuits. Our parametric test instruments and systems combine hardware technology and customizable system software, and are used to examine semiconductor wafers during the semiconductor manufacturing process. Our product development efforts are targeted at leading edge technologies, such as SOC high-speed flash memory products and process parametric inspection of 300mm wafers.

      Our semiconductor test products test a variety of different circuit types. These devices are usually tested after final assembly, but the testing of some devices is most effective immediately after the production of the silicon wafer, when the wafers are sorted. We believe we are the industry leader in wafer-sort test solutions for flash memory devices, which retain data even when the power is turned off and that are critical for use in digital cameras, cellular phones, personal digital assistants and storage of portable digital audio files. Our flash memory test products can test as many as 36 “sites” of multiple devices in parallel, greatly improving test throughput and lowering test costs for our customers. Our SOC test system can test not only multiple devices at a time, but also multiple functional elements on a given device at the same time. As a result of its scalable platform architecture, this system can be field-upgraded to the latest technology without the customer needing to buy a new system or shut down the production line for an extended time.

           High-Frequency Electronic Design Tools. Our high-frequency electronic design automation software tools are used by radio frequency integrated circuit design engineers to model, simulate and analyze communications product designs at the circuit and system levels. Our recent alliance with Cadence Design Systems extended this core technology to a much larger base of customers.

     Test and Measurement Customers

      We market our test and measurement solutions to customers across a broad array of industries. Several of our customers purchase products across several of our major product lines for their different business units. No single customer is material for the test and measurement business.

      A representative list of the most significant customers of our test and measurement business follows:

     Test and Measurement Sales, Marketing and Support

      We have a focused sales strategy to strengthen customer satisfaction. Our direct sales force is focused on identifying customer needs and recommending solutions involving the effective use and deployment of our equipment and systems. Some members of our direct sales force focus on global accounts, providing uniform services on a worldwide basis. Others focus on our more complex

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      Our direct sales force consists of field engineers and systems engineers who often hold advanced degrees and who have in-depth knowledge of the customers’ business and technology needs. Some of our field engineers are account managers for our large accounts, and enhance our understanding of the future needs of these customers. Our systems engineers provide a combination of consulting, systems integration and application and software engineering services, and are instrumental in all stages of the sale, implementation and support of our complex systems and solutions. We also use value-added resellers to address specific market segments.

     Test and Measurement Manufacturing

      We concentrate our test and measurement manufacturing efforts primarily on final assembly and test of our products. To maximize our productivity and our ability to respond to market conditions, we use contract manufacturers for the production of printed circuit boards, sheetmetal fabrication, metal die casting, plastic molding and standard electronic components. We also manufacture proprietary devices and assemblies, such as x-ray tubes and high-frequency ICs and devices, in our own foundries for competitive advantage.

     Test and Measurement Competition

      The market for test and measurement equipment is highly competitive, and we expect this competition to increase. Our test and measurement business competes with a number of significant competitors in all our major product categories and across our targeted industries. In communications test, our primary competitors are Acterna, Anritsu, IFR Systems, Inc./ Marconi Communications Ltd., IXIA, Network Associates, Inc., Rohde & Schwartz, Spirent, Tektronix, Inc., as well as INET Technologies, Inc. and Micromuse Inc. in the communications network monitoring market. In the semiconductor test market, we compete primarily against Advantest Corporation, NPTest, Keithley Instruments and Teradyne. In the printed circuit board test market, a segment of the electronics manufacturing market, we compete primarily against Teradyne, Inc. In the general purpose electronic test market, we compete against companies such as Fluke Corporation (a subsidiary of Danaher Corporation), Keithley Instruments, Inc., LeCroy Corporation, National Instruments Corporation and Tektronix. Our EDA business also has several software competitors, including Ansoft Corporation, Aplac, Applied Wave Research, Eagleware, and Xpedion.

      In many of our test and measurement businesses, we have seen increasing pricing pressure during the past year, but most of our equipment competes primarily on performance or differentiated capabilities and is not subject to severe discounting.

Semiconductor Products

      Our semiconductor products business is a leading supplier of semiconductor components, modules and assemblies for high performance communications systems. We design, develop and manufacture products for the networking and personal systems markets.

      We believe we are a leading provider of:

	•	fiber optic communications transceiver (transmitter/ receiver) modules used for high speed data communications;
	•	controller integrated circuits for Fibre Channel (storage networking) applications;
	•	optical encoders for motion control;

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	•	light-emitting diodes (“LEDs”) and displays;
	•	ASICs to Hewlett-Packard for its scanners and printers; and
	•	CMOS image sensors and ICs used for optical navigation in computer mice.

      As of October 31, 2002, our semiconductor products business had approximately 7,800 employees worldwide. Our semiconductor products business generated revenue of $1.6 billion in fiscal year 2002, $1.9 billion in fiscal year 2001, and $2.2 billion in fiscal year 2000.

     Semiconductor Markets

      Our semiconductor products business serves the following markets:

     Networking

      There is a continued evolution of networks both private (Local Area and Storage Area Networks) and public (Metro Area and Wide Area Networks) to higher speeds and greater bandwidth driven by the ongoing growth of data traffic. Business-to-consumer and business-to-business e-commerce, the ever-expanding World Wide Web, the growing volume of e-mail traffic, the growth of streaming video and audio, the delivery of online services, and peer-to-peer communications are all generating ever greater volumes of electronic data that must be processed, moved and stored. As a result, both private and public network managers drive a continual process of upgrading their networks to higher speeds and increased scalability, albeit at a slower rate than in recent years. Fiber optic transceivers and high-speed digital ICs are the semiconductor technologies that help enable higher speed, higher performance networks.

      We are a major supplier of fiber optic transceivers, which convert electronic digital data into light signals for transmission, and convert light signals back into electronic digital form on the receiving end of the communication. We market fiber optic transceivers for both short-range, local area and storage area network applications and long-range, metro and wide area network applications to major data networking and telecommunication vendors.

      In high-speed digital ICs we are the leading supplier of controller ICs for Fibre Channel. The Fibre Channel interconnect protocol, a standard for the transfer of information between computers and storage devices defined by the American National Standards Institute, is the leading technology for building storage area networks (“SANs”). In addition, we are a leading supplier of physical layer ICs which connect processing ICs, such as our Fibre Channel controllers, to fiber optic transceivers for data transmission. Finally, we are providing state-of-the-art ASICs and networking ICs for use in next-generation network switches.

     Personal Systems

      Products in our Personal Systems business are targeted for use in applications including printers, personal computer (“PC”) peripherals, mobile phones, and consumer electronics.

      As in networking, the driving trend in mobile communications is for higher-speed, higher-bandwidth connections to offer subscribers more digital services through their mobile phones. Consumer products that realize the convergence of palm-top computing, mobile telephony, and digital imaging are increasingly appearing on the market. We offer innovative wireless products such as our FBAR duplexers and E-pHEMT power amplifiers, which are helping enable smaller, more functionally rich mobile telephones. In addition, we supply a wide range of RF and microwave ICs for use in both mobile telephones and mobile telephone infrastructure. We are developing digital camera solutions to be embedded in next-generation mobile phones and information appliances. Finally, we are the leading supplier of infrared transceiver products for short-range, point-to-point wireless communications to manufacturers of computers, printers, mobile telephones, digital cameras, personal digital assistants and pagers.

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      We are the leading supplier to Hewlett-Packard of ASICs for printers, workstations and servers. We provide precision motion control devices for inkjet-based printers and all-in-one products to both Hewlett-Packard and other printer manufacturers. In addition, we provide optical image sensor products and optical mice for leading PC peripheral manufacturers.

      We also provide general-purpose optoelectronic products such as LEDs and optocouplers that serve multiple markets including factory automation and transportation.

     Semiconductor Strategy

      To service the needs of our customers in the communications and computer industries, the semiconductor products business pursues the following strategies:

      We intend to continue to offer high-speed communications solutions that incorporate analog (optoelectronic or wireless), mixed-signal and digital IC technologies for next-generation network infrastructure and mobile communications systems.

     Continue to be Hewlett-Packard’s Leading Supplier of ASICs

      We are focused on reducing the costs and improving the performance of the ASICs we provide to Hewlett-Packard by pursuing higher levels of device integration and employing advanced process technology.

     Take Advantage of Technology Partnerships

      We intend to continue to enter into strategic technology partnerships to gain access to intellectual property and advanced semiconductor manufacturing process technology.

     Semiconductor Products

      Our major product areas include:

     Networking

           Fiber Optics. We market optical transceivers, transmitters and receivers for high-speed data communications for Fast, Gigabit and 10-Gigabit Ethernet, Fibre Channel, and ATM/SONET applications up to 2.5 gigabits per second (OC-48). In addition, we are developing transmission and switching products for dense wave division multiplexing (“DWDM”) optical transport applications.

           High-Speed Digital Integrated Circuits. We produce physical layer ICs for high speed network switches and routers, devices that direct network traffic. We produce Fibre Channel protocol-based ICs and subsystems for SANs. We provide core electronics chipsets that support central processing units for selected Hewlett-Packard workstations and servers. We are developing customer-specific ASIC solutions for next-generation data switching products.

     Personal Systems

           Radio Frequency and Microwave Communications Devices. We produce a broad family of RF and microwave communications products, primarily integrated circuits for wireless communications products and infrastructure. Our latest products are the FBAR duplexer, a semiconductor based filter product, and E-pHEMT power amplifiers, a high power-added efficient wireless transmitter solution. Both FBAR and E-pHEMT are targeted for current and future generation mobile phones. Currently, we are shipping over one million FBAR duplexers per month and are making initial production shipments of E-pHEMT power amplifiers. While neither product contributed a material amount of revenue in 2002, we anticipate that these products will be among the top growth drivers

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           Infrared Emitters, Detectors and Transceiver Modules. We produce a full line of infrared products that enable short range, point-to-point wireless communication between portable and stationary devices, including notebook personal computers, cellular phones, personal digital assistants and digital cameras.

           Printing ASICs. We provide printing ASICs which are the central processing ICs for Hewlett-Packard laser printers, inkjet printers and all-in-one products.

           Optical Image Sensors and Processors, and Optical Position Sensors. Our sensor products include color and monochrome still and video camera image capture solutions and intelligent optical sensors. Applications include optical mice for personal computers and embedded cameras for next-generation mobile phones. We also produce optical motion control products used primarily for precision paper handling and positioning in inkjet printers and all-in-one products.

           LEDs and Optocouplers. We manufacture and sell a broad range of LEDs, alphanumeric displays and optocouplers. LEDs are semiconductor devices that emit light when an electrical signal is applied. Optocoupler products are devices that provide both electrical insulation, for protection, and signal isolation, to prevent distortion of data, between differing electrical environments.

           Lighting Joint Venture. We are engaged in a global joint venture (“Lumileds”) with Philips Electronics. Lumileds develops, manufactures and sells LEDs, modules, products and systems for a broad spectrum of lighting applications, including automotive lighting, high-brightness traffic signals, contour lighting and signs, outdoor illumination and white LEDs for both indoor and outdoor applications.

     Semiconductor Customers

      We sell to a broad array of customers in networking and personal systems. We sell to original equipment manufacturers directly, as well as contract manufacturers including Celestica, Flextronics, Jabil Circuit, Sanmina-SCI Systems and Solectron.

      Our semiconductor technology licensing and supply arrangements with Hewlett-Packard limit our ability to sell products to other companies, subject to restrictions contained in the exhibits to our Master Patent Ownership and License Agreement with Hewlett-Packard and our ICBD Technology Ownership and License Agreement with Hewlett-Packard, which are exhibits to this Annual Report on Form 10-K. Through sales of ASICs, storage area networking components and motion-control products, Hewlett-Packard accounted for approximately 33 percent of our semiconductor products revenue in fiscal year 2002, approximately 31 percent in fiscal year 2001 and approximately 30 percent in fiscal year 2000. After Hewlett-Packard, our top five customers are Cisco Systems, Huawei, Logitech, Nortel Networks^TM and Samsung.

     Semiconductor Sales, Marketing and Support

      Our semiconductor sales organization consists of nearly 350 technical sales professionals who have responsibility for large, global accounts in three regional areas: the Americas, Europe and Asia Pacific. Our sales force has specialized product and service knowledge that enables it to sell specific offerings at key levels throughout a customer’s organization. We also have a direct sales team that focuses on supporting major contract manufacturers such as Celestica, Flextronics, Jabil Circuit, Sanmina-SCI Systems and Solectron. In addition to our direct sales force, we generate approximately 30 percent of our revenue through our relationships with key electronic distributors, such as Arrow Electronics, Inc. and Avnet, Inc. on a worldwide basis, Future Electronics, Inc. in Europe and North America, Ryoyo Electro Singapore PTE, Ltd. and Tokyo Electric Power Company in Japan and SECOM Telecom in China. We also provide a broad range of products and applications-related information to customers and channel partners via the Internet.

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      For selected customers, we maintain finished goods inventory near or at customer manufacturing sites to support Just-In-Time production.

     Semiconductor Manufacturing

      The majority of our silicon and gallium arsenide wafer fabrication is done in the U.S. and Singapore, while our assembly and test operations are in Malaysia, Singapore and the United Kingdom. In addition to these facilities, we utilize a network of contract manufacturers throughout Asia for semiconductor fabrication and test.

      Our manufacturing strategy has been to outsource more mature technologies while using our in-house manufacturing fabrication, assembly and test capabilities to develop new products. Our production facilities have developed several quality-management processes designed to increase productivity. We have developed proprietary automated test systems, particularly in optical, LED and microwave test.

 Semiconductor Competition

      The markets for our semiconductor products are intensely competitive, and we expect competition to increase. Our ability to compete effectively depends on a number of factors, including:

	•	product reliability and performance in operation;
	•	price;
	•	power consumption;
	•	compliance with standards;
	•	product size and integration; and
	•	time to market.

      In the fiber-optic products market, our principal competitors are Finisar, JDS Uniphase and Infineon. In the market for high-speed digital ICs, our principal competitors are IBM, Texas Instruments, LSI Logic and Vitesse Semiconductor Corporation. Our principal competitors in RF wireless are Hitachi, RF Micro Devices, and SkyWorks. In the market for infrared products, our principal competitor is Vishay Intertechnology, Inc. We compete with companies including LSI Logic, Motorola and STMicroelectronics for printer ASICs. Principal competitors in our LED businesses include Lite-on, Inc., Stanley Electronic Co., Ltd., Infineon and Toshiba.

Life Sciences and Chemical Analysis

      Our life sciences and chemical analysis business provides application-focused solutions that include instruments, software, consumables and services that enable customers to identify, quantify and analyze the physical and biological properties of substances and products. Our seven key product categories include: microarrays, microfluidics, gas chromatography, liquid chromatography, mass spectrometry, informatics and related consumables and services.

      We employed approximately 3,750 people as of October 31, 2002 in our life sciences and chemical analysis business. This business generated revenue of $1.1 billion in each of fiscal years 2002 and 2001, and $1.0 billion in fiscal year 2000.

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     Life Sciences and Chemical Analysis Markets

      We estimate that the market niches that we serve represent approximately 25 percent of the total available life sciences and analytical instrumentation market. Primarily, our life sciences and chemical analysis business serves the following markets:

     Life Sciences and Pharmaceutical

      Our life sciences and pharmaceutical markets account for approximately 40 percent of revenue from the life sciences and chemical analysis business. Agilent’s life sciences solutions are used by academic researchers, government institutes and pharmaceutical and biopharmaceutical companies in every phase of the drug development process. The drug development process includes research into the basic causes and understanding of disease, identification and development of new drugs, maintaining regulatory compliance and drug manufacturing and quality control. Within the life sciences, we focus on the following areas:

	•	gene expression;
	•	proteomics; and
	•	drug development and manufacturing quality control.

           Gene Expression. Biological researchers today can study organisms and diseases based on genetic material. Gene expression researchers use devices called microarrays to measure the activity levels of many genes in a cell simultaneously for the purpose of understanding and characterizing disease, identifying drug targets and identifying patterns of gene activity that correlate to the toxicity or potential success of a drug. This is a rapidly growing market in which both our microarray and microfluidics solutions are sold.

           Proteomics. When a drug enters the body, one or more proteins is its target. Proteomics is a new, potentially high-growth, field with the goal of identifying, characterizing and analyzing proteins on a high-volume scale. Protein scientists currently apply traditional protein analysis technologies such as liquid chromatography, gas chromatography and mass spectrometry, as well as newer microfluidics technologies. We provide solutions in all of these areas and are investigating new technologies for proteomics research.

           Drug development and manufacturing quality control. Pharmaceutical and biopharmaceutical companies develop and manufacture drugs under strict regulatory guidelines intended to ensure the quality of chemicals developed and given to patients, and to ensure the security and quality of information given to regulatory agencies. We provide liquid chromatography, gas chromatography and mass spectrometry solutions for the analysis and quality control of chemicals, and provide compliance services and data systems designed to further enable compliance with relevant regulations of the Food and Drug Administration (“FDA”) and other regulatory agencies.

     Chemical Analysis

      Our chemical analysis markets account for approximately 60 percent of revenue from the life sciences and chemical analysis business. Agilent chemical analysis solutions are used by corporations, government organizations and academic researchers to detect, characterize, quantify and analyze chemicals and biological entities that could impact human health, both those found in the environment and those created in the manufacturing of products. Within chemical analysis, we focus on the following areas:

	•	environmental;
	•	petrochemical;
	•	forensics (crime investigation, including biochemical warfare detection); and

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	•	bioagriculture and foods.

           Environmental. Our gas chromatography, liquid chromatography and mass spectrometry solutions are used by the environmental market for applications such as laboratory and field analysis of chemical pollutants in air, water, soils and solid waste. Environmental industry customers include all levels of government, the industrial and manufacturing sectors, engineering and consulting companies, commercial testing laboratories and colleges and universities. We believe there will be more international demand for environmental instrumentation, particularly in the Asia-Pacific region, as other countries implement new and stricter environmental regulations.

           Petrochemical. The natural gas and petroleum refining markets use our products to measure and control the quality of their finished products and to verify the environmental safety of their operations. We sell gas chromatographs, liquid chromatographs and mass spectrometers into these markets. Petroleum refiners use our measurement solutions to analyze crude oil composition, perform raw material analysis, verify and improve refining processes and ensure the overall quality of gasoline, fuels, lubricants and other products. Our gas chromatographs are used to monitor consistent quality in the delivery of natural gas.

           Forensics. Our liquid chromatography, gas chromatography and mass spectrometry solutions are used by forensics laboratories in the U.S. and abroad, particularly by the U.S. military in the analysis of evidence associated with crime or biological and chemical warfare. This instrumentation is either used in static or mobile laboratories by state police units, federal law enforcement agencies and by the U.S. military. We believe increased funding by the U.S. government for homeland defense, including the detection of biochemical agents, could increase demand for our products and services in this market.

           Bioagriculture and Foods. Food safety industries apply the same general technologies for chemical analysis as the pharmaceutical and environmental markets, including gas and liquid chromatography and mass spectrometry. Additionally, bioagriculture industries seek to improve crops and foods by conducting genetic research on these organisms using microarray and microfluidics solutions. We believe that increasing regulation will create more demand for our technologies, particularly in Europe and Asia.

     Life Sciences and Chemical Analysis Strategy

      In order to maintain our leading position in the instrumentation solutions market, our strategy is as follows:

      We continue to focus resources on the development and growth of bio-instrumentation, consumables and services solutions that increase understanding of the molecular cause of diseases in order to speed the development and increase the efficacy of new drugs.

     Focus on Growth Opportunities in Chemical Markets

      To address emerging environmental and food safety markets in the Asia-Pacific, Latin American and European regions, we are broadening our worldwide distribution capabilities and developing less complex instrumentation with lower prices. We continue to develop gas and liquid chromatography and mass spectrometry products that are smaller and more portable to meet increasing demand for use of these instruments outside of centralized laboratories, including the potential growth market of bioterrorism detection and crime investigation in the U.S. and Europe.

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     Bring New Products and Technologies to Market Faster

      We seek to bring new products and technologies to market both through internal development and the strategic acquisition of technologies from third parties. We are expanding our programs to offer customers early access to products under development to ensure that these products are meeting customer needs. In addition, our development of modular hardware and software platforms allows us to bring new generations of products to market faster.

      In addition to our internal efforts, we consider acquisitions, strategic partnerships and minority equity investments to complement our current products, solutions and technologies and to accelerate our entry into strategic markets.

     Leverage Strategic Relationships and Alliances

      We intend to build strategic relationships to enable us to develop products and services that complement existing technologies and products in our target markets in order to deliver complete solutions. For example, we have formed and expanded relationships with Incyte Genomics for microarray content and with Rosetta Inpharmatics, Inc. for microarray analysis software.

      In addition, we develop our products with a commitment to open platforms and industry standards in order to work with our partners’ products, enabling us to offer our customers a broader range of products and solutions.

     Life Sciences and Chemical Analysis Products

      A key factor in all of our life sciences and chemical target markets is the need for new products that increase productivity of the customer and provide high quality data that enables decision-making.

     Microarrays

      Since announcing the launch of our DNA microarray program for the life sciences in December 1999, we have become the second leading supplier of microarray solutions. Using our refined inkjet manufacturing process, we make both oligonucleotide (“oligo”) and cDNA microarrays. This unique inkjet process is highly flexible and accurate, enabling the faster manufacture of new and custom high-density microarrays with highly uniform spot shape.

      In 2002, we developed numerous custom microarrays and introduced five new microarray kits: Rat (cDNA), Mouse (cDNA), Human 1 (oligo), Mouse (oligo), and Yeast (oligo). We also introduced version B of our microarray scanner, which is used to detect expression levels measured by the microarray. Improvements included laser and software enhancements that increase compatibility with third-party microarrays.

     Microfluidics

      The Agilent 2100 bioanalyzer instrument systems that we developed through our relationship with Caliper® Technologies is the first commercial microfluidics solution for the analysis of a wide range of biological molecules, including DNA, RNA, proteins and cells. The microfluidics chip allows sample quality assessment to be done in a fraction of the usual time using less sample and reagents. This technology could eventually replace traditional gel electrophoresis in many applications.

      In 2002, Agilent and Caliper introduced a cell fluorescence LabChip® kit with increased capabilities for staining procedures with minimum cell quantities. We are in the process of developing new microfluidics-based instruments and assays for 2003.

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     Gas Chromatography

      We produce gas chromatography systems, both portable and stationary. A gas chromatograph (“GC”) is used to separate any gas, liquid or solid molecules that can be vaporized in order to determine the quantity and identity of the molecules present. As a market leader in gas chromatography, we continue to expand its applications with new columns and supplies, as well as product and software enhancements.

      In 2002, we introduced the most versatile of our micro GC family, the Agilent 3000 Micro GC, which enables analysis of virtually any type of complex gas using up to four channels simultaneously, and the Agilent 3000 Micro GC Portable, which is a small, easy-to-carry version that does not require an outside power source or external carrier gas supply.

     Liquid Chromatography

      A liquid chromatograph (“LC”) or a high performance liquid chromatograph (“HPLC”) is used to separate molecules of a liquid mixture to determine the quantity and identity of the molecules present. Used when chromatography is not an option, these instruments are modular in construction and can be configured to form instruments that perform specific analyses. As a leader in liquid chromatography, we continue to expand its applications with new LC and HPLC columns and provide ongoing product and software enhancements.

      In 2002, we introduced the 1100 Series fully integrated high-throughput liquid chromatography/mass spectrometry (“LC/MS”) system, based on the modular and scaleable design of our industry-leading 1100 Series HPLC. We also took the first step in creating universal, performance-based searchable mass spectral libraries for LC/MS.

     Mass Spectrometry

      A mass spectrometer (“MS”) identifies and quantifies chemicals based on a chemical’s molecular mass and, in many cases, on characteristic patterns of fragment masses that result when a molecule is broken apart. Mass spectrometry is an important tool in analyzing proteins and other biological entities that undergo transformations because it enables the understanding and characterization of their many different states. MS systems are typically used in combination with gas or liquid chromatographs.

      In 2002, Agilent and MassTech Inc. introduced an atmospheric pressure matrix-assisted laser desorption/ ionization (“AP-MALDI”) source for use on the Agilent 1100 Series LC/MSD Trap SL ion trap mass spectrometer. We introduced the Nanoflow Proteomics Solution, a highly integrated liquid chromatograph/ion trap mass spectrometer system optimized for proteomics applications. Also, we released a new Plasma Chromatographic software suite for the Agilent 7500 inductively coupled plasma mass spectrometer.

      Also in 2002, we introduced a new, real-time gas analyzer, the Agilent 5000A real-time quadrupole mass spectrometer-based gas analyzer, that helps fuel cell developers understand and optimize fuel cell systems, lower fuel cell costs and improve process efficiencies.

     Software and Informatics

      Across all of our technology platforms, the software for controlling the instrument and the informatics solutions used to capture and analyze the instrument data are critical. In 2002, we embarked on an expansion of the informatics solutions we offer our life sciences and chemical analysis customers.

      In July, we began to ship the Agilent Cerity Pharmaceutical Networked Data System (“NDS”) for quality assurance and quality control in pharmaceutical drug development and manufacturing. The Cerity Pharmaceutical system includes software tools to help customers comply with FDA require-

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      For drug discovery and development, in August we launched the Synapsia Informatics Workbench solution, which helps researchers to synthesize research from internal and external sources in a manner that supports hypothesis-driven research across distributed organizations with multi-disciplinary teams. For gene expression data analysis, Agilent and Rosetta Biosoftware introduced the Rosetta Luminator™ system, a scaled-down, lower-cost version of the Rosetta Resolver® product that is targeted at a wider audience of academic and biotech researchers. For proteomics, we signed an exclusive license agreement with Millennium Pharmaceuticals, Inc. to develop and market Millennium Spectrum Mill protein analysis informatics software, which analyzes large volumes of complex mass spectrometry data.

     Services and Support, including Consumables

      We also offer a broad range of consumable products, which support our top ranked LC, GC and MS technology platforms. These consumable products include chemical and biological reagents, instrument replacement parts, brand-specific chromatography columns and consumable supplies to meet our customers’ analysis needs. All of our products, which include generic and proprietary supplies, are designed to work together.

      Our support services include all of our chemical and bioinstrumentation analysis hardware and software maintenance, troubleshooting, repair and training. Special service bundles have also been designed to meet the specific analysis instrument needs of various industries.

     Life Sciences and Chemical Analysis Customers

      We sell our products and services to a broad array of customers in each of the markets we serve. We have roughly 25,000 customers and no one customer, is material or accounts for more than 3 percent of the revenue of our life sciences and chemical analysis businesses. Our top 25 customers account for approximately 22 percent of revenue within our life sciences and chemical analysis businesses. The top 5 customers in our life sciences and chemical analysis markets are as follows:

     Life Sciences and Chemical Analysis Sales, Marketing and Support

      Our sales and support delivery channels are aligned by key markets. We market our products to our customers through our direct sales force, an inside-sales force, e-commerce, value-added resellers, manufacturers’ representatives and distributors.

      We use our direct sales force to market our solutions to all of our pharmaceutical and biopharmaceutical accounts, large and medium-sized chemical customers and environmental accounts. We supplement our direct sales force with an inside-sales force and sales agents to provide broader geographic coverage and to cover smaller accounts. We also have an active value-added reseller program to augment our ability to provide more complete solutions to our customers. We sell our consumable products through distributors, telesales and electronic commerce.

      We offer a wide range of startup, operational, educational and compliance support services for our chemical analysis measurement and data handling systems. We deliver our support services to customers in a variety of ways, including on-site assistance with repair or exchange of returned

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     Life Sciences and Chemical Analysis Manufacturing

      Our manufacturing supports our diverse product range and customer-centric focus. We assemble highly configurable products to individual customer orders and make standard products to stock. We employ advanced manufacturing techniques and supply chain management systems to reduce costs and manufacturing cycle times. We selectively use partners to provide manufacturing capabilities outside our core competencies, such as the manufacture of quadrupole and printed circuit assemblies and the delivery of shipment logistics. We have manufacturing facilities in California and Delaware in the U.S., China, Germany and Japan.

     Life Sciences and Chemical Analysis Competition

      The markets for analytical instruments in which we compete are characterized by evolving industry standards and intense competition. Our principal competitors in the life sciences arena include: Applied Biosystems, Amersham Bioscience, Invitrogen, Waters, Thermo Electron and Affymetrix ®. Our principal competitors in the chemical analysis arena include: Shimadzu Corporation, Varian, Perkin Elmer Corp., Thermo Electron and Applied Biosystems.

     Life Sciences and Chemical Analysis Government Regulation

      The analysis products and related consumables marketed by our chemical analysis business are subject to regulation in the U.S. by the Environmental Protection Agency (“EPA”) under the Toxic Substances Control Act, and by government agencies in other countries under similar laws. The Toxic Substances Control Act regulations govern, among other things, the testing, manufacture, processing and distribution of chemicals, the testing of regulated chemicals for their effects on human health and safety and import and export of chemicals. The Toxic Substances Control Act prohibits persons from manufacturing any chemical in the U.S. that has not been reviewed by EPA for its effect on health and safety, and placed on an EPA inventory of chemical substances. Therefore, we must continually adapt our chemical analysis products to changing regulations. If we fail to comply with the notification, record-keeping and other requirements in the manufacture or distribution of our products, the EPA can obtain an order from a court that would prohibit the further distribution or marketing of a product that does not comply or we could face fines, civil penalties or criminal prosecution.

     Life Sciences and Chemical Analysis Seasonality

      The life sciences and chemical analysis business is susceptible to seasonality in its orders and revenues primarily based on U.S. government and large pharmaceutical company budgets. The result is that the first and fourth fiscal quarters tend to be the strongest for this group. However, general economic trends, new product introductions and competition might overshadow this trend in any given year.

Agilent Technologies Laboratories (“Agilent Labs”)

      Agilent Labs, based in Palo Alto, California, with satellite offices in China; Fort Collins, Colorado; Japan; and Scotland, is our central research organization. Agilent Labs engages in two types of research: 1) applied research that leads to technology that can be transferred to our existing businesses in communications, life sciences, and electronics, and 2) research that creates new

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      Agilent Labs employs approximately 375 people. Over 75 percent of Agilent Labs’ employees are members of the technical staff, and about half of this 75 percent have advanced degrees that cover a wide range of scientific fields, including biology, bioinformatics, chemistry, computer science, electrical engineering, image processing, materials science, mathematics, optoelectronics, photonics, physics, physiology, semiconductor technology and systems integration.

      The following discussions of Backlog, Research and Development, Intellectual Property, Materials, Environmental, International Operations and Acquisition and Disposal of Material Assets include information common to all three of our segments.

Backlog

      We believe that backlog orders are not a meaningful indicator of future business prospects. Backlog, as we define it, generally only represents cumulative outstanding orders that are scheduled for delivery within a six-month period. Therefore backlog is not a material indicator of our future medium- to long-term business prospects. We believe that our incoming orders in any given period are more indicative of short-term revenue trends. See “Results of Continuing Operations” in Item 7 of this report.

Research and Development

      Research and development expenditures were $1,169 million in 2002, $1,280 million in 2001 and $1,065 million in fiscal year 2000, the vast majority of which was company-sponsored. We anticipate that we will continue to have significant R&D expenditures in order to maintain our competitive position with a continuing flow of innovative, high-quality products and services.

Intellectual Property

      Our general policy has been to seek patent and other intellectual property protection for those inventions and improvements likely to be incorporated into our products and services or to give us a competitive advantage. While we believe that our licenses, patents and applications have value, in general no single patent or license is in itself essential. In addition, there can be no assurance that any of our proprietary rights will not be challenged, invalidated or circumvented, or that our rights will provide significant competitive advantages.

Materials

      Our manufacturing operations employ a wide variety of semiconductors, electromechanical components and assemblies and raw materials such as plastic res