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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

(Mark One)

For the fiscal year ended October 31, 2004

or

For the transition period from              to             

Commission File Number: 001-15405

Agilent Technologies, Inc.

(Exact name of registrant as specified in its charter)

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:

None

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  x    No  ¨

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.    ¨

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

The aggregate market value of the registrant’s common equity held by non-affiliates as of April 30, 2004, was approximately $9.436 billion. The aggregate market value of the registrant’s common stock held by non-affiliates as of October 31, 2004 was approximately $9.425 billion. As of October 31, 2004, there were 486,841,087 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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Visual Studio is a registered trademark of Microsoft Corporation in the United States and/or other countries. Affymetrix is a U.S. registered trademark of Affymetrix, 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, cyclicality, seasonality and growth in the markets we sell into, our strategic direction, expenditures in research and development, contracts, remediation and indemnification, our future effective tax rate, new product introductions, product pricing, changes to our manufacturing processes, our liquidity position, our ability to generate cash from continuing operations, our image sensor technology and the sale of our camera module business, our expected growth, the potential impact of our adopting new accounting pronouncements, our financial results, revenue generated from international sales, our potential repatriation of earnings, the impact of our enterprise resource planning systems implementation, the impact of our variable cost structure, our obligations under and assumptions about our retirement and post-retirement benefit plans, our lease payment obligations, savings from our restructuring programs and the existence or length of an economic recovery 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 four primary businesses:

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, automated test and semiconductor products businesses focus on growth opportunities in the communications and electronics industries, while our life sciences and chemical analysis business focuses on growth opportunities in the life sciences industry and in the environmental, chemical, food and petrochemical industries.

We sell our products primarily through direct sales, but we also utilize distributors, resellers, manufacturer’s representatives, telesales and electronic commerce. Of our total net revenue of $7.2 billion for the fiscal year ended October 31, 2004, we generated 31 percent in the United States (“U.S.”) and 69 percent outside the U.S. As of October 31, 2004, we employed approximately 28,000 people worldwide. Our primary research and development (“R&D”) and manufacturing sites are 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, 2004, 2003 and 2002 was:

More financial information about our business segments is contained in Note 19, “Segment Information,” of the consolidated financial statements included in Item 15 of this report. Hewlett-Packard accounted for approximately 4 percent of our total net revenue for the fiscal year ended October 31, 2004, 5 percent for fiscal year 2003 and 8 percent for fiscal year 2002. These figures include items sold to contract manufacturers who manufacture products on Hewlett-Packard’s behalf.

Test and Measurement Business

Our test and measurement business provides standard and customized solutions that are used in the design, development, manufacture, installation, deployment and operation of electronics equipment and communications networks and services. These solutions include test and measurement instruments and systems, communications services and network monitoring, management and optimization tools, software design tools and related services. Related services include start-up assistance, instrument productivity and application services and instrument calibration and repair. We also offer customization, consulting and optimization services throughout the customer’s product lifecycle.

Our test and measurement business employed approximately 11,200 people as of October 31, 2004. We sell our test and measurement products through direct sales, distributors, resellers, manufacturer’s representatives, telesales and electronic commerce. Our test and measurement business generated $2.9 billion in revenue in fiscal 2004, $2.5 billion in revenue in fiscal 2003 and $2.6 billion in revenue in fiscal 2002.

Test and Measurement Markets

Our test and measurement products compete in two major markets:

The Communications Test Market

We market our communications test products and services to Network Equipment Manufacturers (“NEMs”) and communications service providers.

NEMs manufacture and sell products to facilitate the transmission of voice and data traffic, including network and subscriber equipment. 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 NEMs’ customers are the distributors of end-user subscriber devices, including cell phones and personal digital assistants (“PDAs”), as well as communications service

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providers that deploy and operate the networks and services. To meet their customers’ demands, NEMs require test and measurement instruments, systems and solutions for the development, production and installation of each network technology.

Communications service providers require reliable network equipment that enables their networks and services to operate at ever-faster speeds, permits an expanding capacity and provides quick feedback. To achieve this, communications service providers require a range of sophisticated test instruments and systems to evaluate network performance and to identify any sources of communications failure.

Agilent’s communications service provider customers require advanced software and systems, known as operations support systems (“OSSs”), to monitor and manage the network infrastructure and services on a continuous, proactive basis to achieve either regulated or customer-specified service levels. Real-time monitoring of the network infrastructure also enables the implementation of additional services, such as fraud detection and intercarrier billing, which enable service providers to capture the greatest revenue from network usage.

The overall market for cellular mobility, specifically in handsets, grew in recent years as the levels of wireless penetration in developed countries have increased. Wireless communications in emerging economies continues to increase. To advance cellular telephone equipment, manufacturers require electronic design automation software, test instruments and systems for the development of wireless devices, high-frequency communications circuits 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 expansion of the cellular handset market, coupled with subscriber turnover created by the introduction of new technologies, has fueled growth for automated test equipment to test cellular handsets on the factory floor. Investments continue for advanced R&D verification solutions for 2.5 generation (“G”) and 3G appliance development and network deployment 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. Companies are constantly finding applications for wireless technology, and are providing their customers wireless network access in areas called “hot spots,” such as airports, coffee shops and libraries. As the adoption of these new standards becomes mainstream, additional markets are emerging, including larger companies and their network operators. The use of wireless test and measurement solutions is quickly being adopted by these larger companies to ensure robust quality of service.

In the last several years, producers of networking communications equipment have increased their use of contract manufacturers. Contract manufacturers require test solutions that are designed for faster production and for use in different applications. Mobile phone and other appliance producers are also increasing their use of contract manufacturers, original design 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.

The General Purpose Test Market

We market our general purpose test products and services to the electronics industry. The electronics industry designs, develops and manufactures a wide range of products, including those

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produced in high volumes, such as computers, computer peripherals, electronic components, consumer electronics, enterprise servers, storage networks and communications devices including PDAs. The components, printed circuit assemblies and functional devices for these products may be designed, developed and manufactured by electronic components companies, by original equipment manufacturers or by contract manufacturers. For the development and timely commercialization of new technologies, manufacturers require state-of-the-art test instruments, systems and software design tools in order to design products for efficient and cost-effective manufacturing and to validate product performance in a variety of configurations and environments. Manufacturers of electronics products require sophisticated test equipment to operate and perform highly accurate tests from design through manufacturing. They also demand automated functional test systems, which test an electronic device as if it were in use in its final environment. Finally, electronics manufacturers require standardized test instruments, system components and complete solutions.

We also market our general purpose test products to the aerospace and defense industry. Aerospace and defense is an important market for standardized electronic equipment because of the high electronic content of advanced defense systems and defense-related communications and surveillance equipment. We believe that defense purchasers will continue to shift from specialized test equipment to commercial off-the-shelf test products and systems and will continue to require solutions that optimize asset utilization and effective technology lifecycle management.

Test and Measurement Products

Our test and measurement business designs, develops and manufactures test and measurement products and services that range from single-unit electronic measurement devices priced under $1,000 to large scale test systems or OSS solutions priced at $1 million and higher. We divide our test and measurement products into two groups: (1) communications test products and (2) general purpose test products.

Communications Test Products

We sell installation and maintenance solutions and OSS, including monitoring and network management systems, for the following types of communications networks and systems: fiber optics networks, transport networks, broadband and data networks, wireless communications and microwave networks.

Fiber Optic Network Products.    Our fiber optic network test products include optical signal instruments, spectrum analysis instruments and lightwave optical systems, such as optical amplifier test, passive component test and jitter test instruments. These items are used by the industry’s leading NEMs to develop and manufacture reliable optical components and modules. Our products also include tunable laser sources, multi-wavelength meters, photonic all-parameter testers and high-speed bit-error rate testers that measure key transmission properties of high-speed optical and electrical signals.

Transport Network Products.    Our transport network test products, our OmniBER OTN and OmniBER XM network simulators, provide capabilities for testing next generation Synchronous Optical Network/Synchronous Digital Hierarchy (“SONET/SDH”) network equipment. Our N2X multi-service tester combines services testing with carrier-grade infrastructure testing and emulation, and integrates the performance of Router Tester 900, OmniBER XM and SAN Tester.

Broadband and Data Network Products.    Our broadband and data network test products include our Network Analyzer and Router Tester 900. Our Network Analyzer product line helps to troubleshoot high-speed local area networks (“LANs”), wide area networks (“WANs”) and asynchronous transfer mode networks. Our Router Tester 900 is the industry leader in core edge router performance verification.

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Wireless Communications and Microwave Network Products.    We design and sell RF and microwave test instruments and Electronic Design Automation (“EDA”) software tools, which 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, signal sources, mobile testers, circuit simulation tools and system simulation tools. Agilent also offers solutions for centralized wireless LAN monitoring and network optimization. Our AiRMS solution provides remote monitoring of network performance using a series of remote probes deployed in service vehicles and taxicabs. The Agilent N5250A PNA series millimeter-wave network analyzer has frequency coverage from 10 MHz to 110 GHz in a single sweep. This capability enables engineers and system integrators working at millimeter-wave frequencies to take advantage of additional performance and connectivity, and gives them the ability to characterize 1.0 mm coaxial and on-wafer components, subsystems and systems.

Installation and Maintenance Solutions.    Our solutions for installation test enable service providers to install, commission, and activate networks and services more quickly. Agilent has a breadth of solutions for troubleshooting and maintaining optical, wireless, wireline and large-company networks. These solutions include Fiber Break Locator, Network Tester, Optical Time Domain Reflectometers (“OTDR”), Network Troubleshooting Center, and Framescope. We also market bench-top and handheld measurement devices such as lightwave multimeters, power meters and optical sources.

Operations Support Systems and Services.    Agilent’s OSS focus is to help communications service providers manage their business from a customer-centric perspective so they can understand how problems in network or service performance affect individual subscribers or groups of subscribers. Our integrated OSS solutions reduce software integration costs and enable high-value service-level management functions not possible with stand-alone systems. We offer a number of industry-proven monitoring and management systems, such as acceSS7 for Signaling System 7 networks; NETeXPERT for circuit, packet and hybrid networks; NgN Analysis System for next-generation telephony and Internet offload networks; Wireless Service Manager for wireless services and networks; and Wireless QoS Manager for mobile data services and networks.

General Purpose Test Products

We sell the following types of products into the general purpose test market: general purpose instruments, modular instruments and test software, digital design products and high frequency electronic design tools.

General Purpose Instruments.    General purpose test 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 our general purpose test instruments include spectrum analyzers, network analyzers, signal generators, digitizing oscilloscopes, voltmeters, multimeters, frequency counters, bench and system power supplies, function generators and waveform synthesizers.

Modular Instruments and Test Software.    Our modular instruments and test software, including instruments incorporating the new LXI standard (LAN eXtensions for Instrumentation) and modular measurement system software, are used to dynamically configure and reconfigure test systems for designers and manufacturers of electronic devices. This allows easy and fast connectivity between instruments and PCs. In addition, release 14 of Agilent’s IO Library Suite reduces PC configuration and connect time to less than 15 minutes. Together with major revisions of Agilent VEE (7.0) and the Test & Measurement Programmers Toolkit for Visual Studio^® (2.0), these products speed test development and reduce the cost of test for our customers.

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Digital Design Products.    Our digital design products range from simple digital control circuits to complex, high-speed servers incorporating the latest microprocessor technology, and include high performance oscilloscopes, logic analyzers, logic-signal sources and data generators. Agilent’s 10 to 13 GHz real-time oscilloscopes are the only models in the industry that offer full-bandwidth, 40 GSa/s per channel. When these new scopes are paired with the Agilent InfiniiMax probes of up to 12 GHz, the new system delivers industry-leading performance, accuracy and probing connectivity. This is used by R&D engineers in the computer, communications and semiconductor industries for validating and verifying the performance of new high-speed digital product designs.

High-Frequency Electronic Design Tools.    Our high-frequency electronic design automation software tools are used by RF integrated circuit design engineers to model, simulate and analyze communications product designs at the circuit and system levels. The main products in this area are the Advanced Design System (ADS), the RF Design Environment (RFDE) and the IC-CAP Device Modeling Software. Each are well-established software platforms within the wireless and the aerospace and defense design communities. Our customers are also applying this technology more frequently to model signal integrity problems in digital design applications.

Test and Measurement Customers

Agilent’s test and measurement customers include the NEMs who design, develop, manufacture and install network equipment, and the service providers who implement, maintain and manage communication networks and services. Many of our customers purchase solutions across several of our major product lines for their different business units. As of the end of fiscal 2004, no single customer represented greater than 10% of the net revenue of the business.

The orders and revenues of the test and measurement business are somewhat seasonal, with our fourth quarter traditionally bringing larger volumes of business and our first quarter generally showing reduced volumes. This is especially true of products that we sell to the aerospace and defense industry as well as those that are linked to consumer spending, including some of our communications test equipment. However, the seasonal impact is tempered by the diversity of the test and measurement business’s products and customers, which span multiple industries.

Test and Measurement Sales, Marketing and Support

We have a focused sales strategy, using a direct sales force, resellers, manufacturer’s representatives and distributors 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, services, systems and capabilities. Some members of our direct sales force focus on global accounts, providing uniform services on a worldwide basis. Others focus on our more complex products such as our communications OSS monitoring systems, where customers require intensive strategic consultation. Our sales force also specifically targets the contract manufacturer market by collaborating with original equipment manufacturers to specify that contract manufacturers use our test equipment, as well as marketing to contract manufacturers directly.

Our direct sales force consists of field engineers and systems engineers 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.

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To complement our direct sales force we have agreements with many channel partners around the world. These partners, including resellers, manufacturer’s representatives, and distributors, serve Agilent’s customers across a number of product lines and provide the same level of service and support expected from our direct channel. Our products come with clearly outlined warranties and extended warranties available for an additional cost.

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, in our own fabrication facilities for competitive advantage.

We generally only manufacture products when we have received firm orders for delivery, and do not generally hold large stocks of finished inventory. However, due to the large number of components and products we manufacture, we hold relatively large amounts of raw materials.

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 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, Inc. In the communications test market, our primary competitors are Acterna Corporation, Aeroflex Incorporated, Anritsu Corporation, EXFO Electro-Optical Engineering, Inc., Ixia, Marconi Corporation, McAfee, Inc. (formerly Network Associates, Inc.), Rohde & Schwartz GmbH & Co. KG, Spirent, Tektronix, Inc., as well as Telcordia, Hewlett Packard Company and Micromuse, Inc. in the communications network monitoring market. Our EDA business also has several software competitors, including Ansoft Corporation, APLAC Solutions Corporation, Applied Wave Research, Inc., Eagleware Manufacturing Company, Inc., and Xpedion Design Systems, Inc.

In fiscal year 2004 and following the general economic recovery, pricing pressure eased in some of our markets.

Automated Test Business

Our automated test business provides test solutions that are used in the manufacture of semiconductor devices, electronics (primarily printed circuit-board assemblies) and flat panel displays (“FPDs”). These solutions are complemented by consulting, service and support offerings such as start-up assistance, application services and system calibration and repair. Our automated test business’s test solutions enable electronics designers and manufacturers to shorten the design-to-production cycle, lower manufacturing cost of test, confirm the functional quality of their devices and of their manufacturing processes and accelerate the high-volume delivery of their products.

Our automated test business employed approximately 2,200 people as of October 31, 2004. We sell our automated test business’s solutions through direct sales and through manufacturers’ representatives. Our automated test business generated $0.9 billion in revenue in fiscal 2004, $0.8 billion in revenue in fiscal 2003 and $0.7 billion in revenue in fiscal 2002.

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Automated Test Markets

Agilent’s automated test business sells to the semiconductor manufacturing markets, the electronics manufacturing markets and the FPD markets. Customers in these markets use our automated test equipment for wafer-level parametric testing, wafer-sort and final sort for memory test, package-level functional test, structural and electrical testing and inspection for printed circuit board assemblies and thin-film transistor (“TFT”) array test for FPDs.

Market demand for automated test equipment is driven both by changes in the increased volume of semiconductor devices produced and by developments in semiconductor performance and function, packaging and assembly technology.

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”) and memory on a single integrated circuit has created a category of device called system-on-a-chip (“SOC”). These devices require updates to our sophisticated and flexible automated test equipment.

In the electronics manufacturing market, new technologies and processes, increasing density and miniaturization of parts, stimulate demand. New materials and smaller parts such as ceramic column grid arrays, ceramic ball grid arrays and ultra-miniature resistors or capacitors (“0201s”), make new demands on test equipment. The same is true for new and evolving manufacturing processes, such as the pending introduction of lead-free solder. This increases demand for test equipment that provides increased resolution for the highest call accuracy and a range of solutions to access issues.

The use of FPDs is becoming increasingly common in a wide variety of consumer devices that include cellular phones, digital cameras, liquid crystal display (“LCD”) televisions, computer displays, digital cameras and PDAs. Different technologies are evolving to improve brightness and resolution on the screens. A TFT array tester, such as the two testers introduced by our automated test business in October 2004, helps improve display quality while lowering costs. These TFT array testers detect defects accurately and early in the manufacturing process, regardless of the FPD technology being used.

Automated Test Products

Our automated test business designs, develops and manufactures semiconductor test equipment, electronics manufacturing test equipment and TFT array test equipment. We typically develop our automated test products on a single system architecture and then deliver, over time, enhancements to that architecture that extend its test capabilities. For instance, in 2004 Agilent expanded the capabilities of our 93000 SOC system by further expanding its high-speed performance to address emerging high-speed interconnect technology. At the same time, Agilent introduced a low-cost parallel probe (wafer sort) solution on the same platform. Our customers can adapt their 93000 SOC system according to their needs without having to buy multiple unique testers. We also introduced the V5400 memory tester, based on current Agilent Versatest architecture, that addresses the growing phenomenon of stacked, mixed memory chips, including any combination of flash, dynamic random access memory (“DRAM”) and static random access memory (“SRAM”).

Semiconductor 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

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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 high-speed interconnects, highly integrated mixed-signal memory, parametric test for 90nm and below geometries, and emerging-technology FPDs.

Our semiconductor test equipment tests a variety of different circuit types. We test both at the wafer level and at final assembly. We are an industry leader in wafer-sort test solutions for flash memory devices, which retain data even when the power is turned off and that are used in digital cameras, cellular phones, PDAs and storage of portable digital audio files. Our flash memory test products can test as many as 4,608 channels to test 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.

Electronics Manufacturing Test Equipment

Automated Optical Inspection Products.    Our automated optical inspection line of products enables automated visual inspection of printed circuit assemblies. These systems 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 Products.    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.

Automated In-Circuit Testing Products.    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.

Manufacturing Test System Software.    Our Agilent Quality Tool and Agilent Repair Tool software use the Agilent Intelligent Test Framework that connects and integrates information from the Agilent portfolio of test and inspection equipment. The software provides common tools to enable customers to use information across the manufacturing line for effective process control, repair and test design.

TFT Array Test Equipment

Effective production process testing is essential for FPD manufacturing, because most failures occur during the TFT array process, and correcting overlooked failures post-process is prohibitively expensive. Our TFT array tester family, introduced in October 2004, provides FPD manufacturers with a test solution for all key technologies in the rapidly growing FPD market. An array tester can provide significant cost savings by detecting defects early in the process of manufacturing FPDs.

Automated Test Customers

Many of our customers purchase solutions across several of our major product lines for their different business units. Generally, our customers are involved in producing digital consumer and

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wireless products, computation, PC and PC peripherals, wireline communications, or enterprise networking and storage. As of the end of fiscal 2004, no single customer represented greater than 10% of the net revenue of the business.

We also engage in collaborative, co-development relationships with electronics industry leaders and contract manufacturers.

The back-to-school and holiday seasons affect our automated test business to the extent that we are subject to the cycles of consumer electronics manufacturing. Our customers include manufacturers who produce a wide range of consumer electronics equipment requiring the test of semiconductors, printed-circuit board assemblies and FPDs.

Automated Test Sales, Marketing and Support

Our automated test business’s products are distributed using direct sales and through manufacturers’ representatives. Some portions of the direct sales force provide general services around the world, while others provide specialized consultation services for particular segments of the automated test business. Manufacturers’ representatives address specific geographic markets. They provide the same level of service and support to Agilent’s customers as is expected from our direct channel.

Automated Test Manufacturing

Our automated test business has manufacturing facilities in Germany, Japan and Singapore, and contract manufacturing relationships in Europe, Asia, Japan and the U.S. We do not maintain a high level of finished goods inventory, due to a combination of product platform strategy and outsourcing. However, for those products that we do manufacture, we hold relatively large amounts of raw materials.

Automated Test Competition

The market for automated test solutions is highly competitive, and we expect this competition to increase. Our automated test business competes with a number of significant competitors in all our major product categories and across our targeted industries. In the semiconductor test market, we compete primarily against Advantest Corporation and Teradyne. In the electronics manufacturing test market, we compete primarily against Teradyne. In the large-panel FPD test market, we compete against Photon Dynamics, Applied Komatsu Technologies and Shimadzu Corporation. In emerging FPD technologies, we compete primarily against Wintest.

Most of our equipment competes primarily on performance or differentiated capabilities. Other contributing factors include cost of test, system scalability and flexibility, sensitivity, speed, reliability and yield.

Semiconductor Products Business

Our semiconductor products business is a leading supplier of semiconductor components, modules and assemblies for consumer and commercial electronics applications. We design, develop and manufacture products for the networking and personal systems markets. Our networking products include fiber optic transceivers for sending and receiving data over high-speed networks and ICs for enterprise storage and networking. In 2004 and 2003, about two-thirds of the semiconductor products business came from customers in consumer electronics markets.

As of October 31, 2004, our semiconductor products business had approximately 6,800 employees worldwide. Our semiconductor products business generated revenue of $2.0 billion in fiscal year 2004, $1.6 billion in fiscal year 2003 and $1.6 billion in fiscal year 2002.

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Semiconductor Markets

Our semiconductor products business serves the following markets:

Personal Systems Markets

We sell products into the Personal Systems market, which are targeted for use in applications including mobile phones, printers, PC peripherals and consumer electronics.

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.

Networking Markets

We sell products into the networking market, including computing, storage, local area and public network applications. There is a continued evolution of networks both private (local area and storage area networks) and public (metro 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 internet, 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. Fiber optic transceivers and high-speed digital ICs are the semiconductor technologies that help enable higher speed, higher performance networks.

Semiconductor Products

Our semiconductor products business designs and sells semiconductor components modules and assemblies. The major product areas of our semiconductor products business include:

Personal Systems Products

Radio Frequency and Microwave Communications Device Products.    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 Film Bulk Acoustic Resonator (“FBAR”) duplexer, a semiconductor based filter product, and E-pHEMT power amplifiers, a high power-added efficient wireless transmitter solution. The FBAR duplexer and the E-pHEMT power amplifier help enable smaller, more functionally rich mobile telephones. These two products are targeted for both current and future generation mobile phones. We began increasing the production of these two products towards the end of 2003. They have been among the top growth areas for our semiconductor products business.

Infrared Emitters, Detectors and Transceiver Module Products.    We are a leading supplier of infrared (“IR”) products that enable short range, point-to-point wireless communication between portable and stationary devices, including notebook personal computers, printers, cellular phones, PDAs, pagers and digital cameras. In 2003, we delivered the industry’s first infrared transceiver with remote control functionality for consumer electronics devices such as TVs and VCRs. The semiconductor products business also introduced a solution, known as the Ambient Light Photo Sensor, that senses available light and signals whether backlighting for displays or keypads is required. By not turning on backlighting when it is not needed, mobile systems can save significant battery life. In 2004 we introduced products for Infrared Financial Messaging (“IrFM”), a standard for wirelessly sending digital transactions through use of an IR transceiver in a cell phone, PDA or

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digital wallet. These payment transactions can take place between a customer and millions of point-of-sale devices to provide instant IR connectivity for secure wireless payment.

Printing ASICs.    We are a leading supplier to Hewlett-Packard for printing ASICs, which are the central processing ICs for Hewlett-Packard laser printers, inkjet printers and all-in-one products. Agilent provides subsystem solutions for Hewlett-Packard printers, aimed at capturing more content of printer components and offering higher integration and shorter time-to-market.

Optical Image Sensors and Processors, and Optical Position Sensors.    Our products include sensors used in embedded camera modules for mobile phones, and navigation sensors for laser and LED optical mice. We also produce optical motion control products used primarily for precision paper handling and positioning in inkjet printers and all-in-one products. In the fourth quarter of 2004 we agreed to sell inventory and fixed assets relating to our camera module business. We will continue to sell the image sensors that are a component part of the camera modules, but after the sale we will no longer produce the assembled modules. We will retain intellectual property and research and development activities associated with the image sensor technology.

LEDs and Optocoupler Products.    We manufacture and sell a broad range of LEDs, alphanumeric displays and optocouplers used in consumer electronics, factory automation and transportation. 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. We are a leading supplier of optocouplers for use in Plasma Display Panel (“PDP”) digital TVs. We provide integrated color management solutions and color sensor applications for LEDs which are used for color detection, measurement and control capabilities that can be integrated into different applications including LCD TVs using LED backlights. We are a leading supplier of LED optoelectronic solutions used for keypad and display backlighting, and for camera flash.

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. In 2004, consumer electronics companies introduced the first products that employ LEDs as an alternative to Cold Cathode Fluorescent lamps (“CCFLs”) as a source of backlighting in LCD displays.

Networking Products

Fibre Channel Controller Products.    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 2004 we introduced the industry’s first 4 Gb/s Fibre Channel controller ICs. The controllers offer storage OEMs performance and port density in a single chip. 4 Gb/s Fibre Channel controller IC provides the industry’s highest performance for redundant arrangement of independent disk (“RAID”) arrays, storage subsystem virtualization devices, storage routers, host bus adapters and host computer motherboards for mid- to high-end storage applications that use multiprocessor systems. These newest products expand our leading portfolio of Fibre Channel controller solutions for 1 and 2 Gb/s. We also offer physical layer ICs, which connect processing ICs, such as our Fibre Channel controllers, to fiber optic transceivers for data transmission.

Fiber Optic Products.    We are a leading supplier of fiber optic transceivers, which convert electronic digital data into light signals for transmission, and convert light signals back into

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electronic digital form on the receiving end of the communication. We market optical transceivers, transmitters and receivers for high-speed data communications for Fast, Gigabit and 10-Gigabit Ethernet, 2 and 4 Gb/s Fibre Channel, and Asynchronous Transfer Mode/Synchronous Optical Network (“ATM/SONET”) applications up to 2.5 gigabits per second (OC-48). In addition, we are developing products for dense wave division multiplexing (“DWDM”) optical transport applications.

High-Speed Digital Integrated Circuit Products.    We provide core electronics chipsets that support central processing units for selected Hewlett-Packard workstations and servers. We provide customer-specific ASIC solutions for next-generation data switching products. Finally, we are a provider of state-of-the-art ASICs and networking ICs for use in next-generation network switches.

Semiconductor Customers

We sell to customers in the networking and personal systems markets. We sell to original equipment manufacturers directly, as well as contract manufacturers. As we move toward more consumer-centric products, including components for mobile phones and for optical mice, we expect our business to reflect the seasonality inherent in the consumer market.

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 14 percent of our semiconductor products revenue in fiscal year 2004, 20 percent in fiscal year 2003 and approximately 33 percent in fiscal year 2002.

Semiconductor Sales, Marketing and Support

Our semiconductor sales organization consists of approximately 300 employees who have responsibility for emerging accounts or for large, global accounts. 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. In addition to direct sales, we generate approximately 30 percent of our revenue through our relationships with key electronic distributors worldwide. We also provide a broad range of products and applications-related information to customers and channel partners via the Internet.

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 and Singapore. In addition to these facilities, we utilize a network of contract manufacturers throughout Asia for semiconductor fabrication, packaging 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.

For selected customers, we maintain finished goods inventory near or at customer manufacturing sites to support their just-in-time production. In 2004, we negotiated extended payment terms for most of the materials that we purchased.

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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:

In the fiber-optic products market, our principal competitors are Finisar, Infineon and JDS Uniphase. In the market for high-speed digital ICs, our principal competitors are IBM, LSI Logic, Texas Instruments and Vitesse Semiconductor Corporation. Our principal competitors in RF wireless are Renesas, 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., Nichia, Osram, Stanley Electronic Co. Ltd. and Toshiba.

Life Sciences and Chemical Analysis Business

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, software and informatics, and related consumables, reagents and services.

We employed approximately 3,900 people as of October 31, 2004 in our life sciences and chemical analysis business. This business generated revenue of $1.3 billion in fiscal 2004, $1.2 billion in fiscal 2003 and $1.1 billion in fiscal 2002.

Life Sciences and Chemical Analysis Markets

Primarily, our life sciences and chemical analysis business serves the following markets:

Life Sciences Markets

Our life science markets account for approximately 40 percent of revenue from our life sciences and chemical analysis business. Agilent’s life science 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, drug discovery, drug development, drug manufacturing and quality assurance/quality control (“QA/QC”). Within the life sciences, we focus on the following areas: pharmaceutical analysis (drug development, manufacturing and QA/QC), gene expression and proteomics.

The Pharmaceutical Analysis Market.    Pharmaceutical and biopharmaceutical companies develop and manufacture drugs under strict regulatory guidelines intended to ensure the quality of products 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

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spectrometry solutions for the analysis 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.

The Gene Expression Market.    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 potential toxicity or effectiveness of a drug. This is a double-digit growth market in which our microarray, microfluidics and informatics solutions are sold.

The Proteomics Market.    When a drug enters the body, it usually targets one or more proteins. Proteomics is a new and growing field with the goal of identifying, characterizing and analyzing proteins on a high-volume scale. Proteomics is also important to the large-scale manufacture of protein-based therapies in development by biotech companies. Protein scientists currently apply traditional protein analysis technologies such as liquid chromatography, gas chromatography and mass spectrometry, as well as newer microfluidics technologies and reagents. We provide solutions in all of these areas and are investigating new technologies for proteomics research.

Chemical Analysis Markets

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

The Petrochemical Market.    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 also used to monitor consistent quality in the delivery of natural gas.

The Environmental Market.    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, soil 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 are seeing increased international demand for environmental instrumentation in the Asia-Pacific region.

The Homeland Security and Forensics Market.    Our liquid chromatography, gas chromatography, mass spectrometry and microfluidics solutions are used by health and forensics laboratories in the U.S. and abroad, particularly in the analysis of evidence associated with crime or with the detection and identification of biological and chemical warfare agents. This instrumentation is either used in static or mobile laboratories. Customers include local, state, federal, and international law enforcement agencies and health laboratories.

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The Bioagriculture and Food Safety Market.    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 research on these organisms, as well as testing for genetically modified content, using microarray and microfluidics 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 customer productivity and provide high quality data that enables decision-making by our customers.

Microarray Products

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 which we sell primarily to pharmaceutical companies, biotech companies and academia. Using our refined inkjet manufacturing process, we make highly sensitive 60-mer oligonucleotide (“oligo”) 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 2004, we introduced our line of whole genome microarrays, including kits for human, mouse and Arabidopsis, a model plant organism. In a collaborative effort, we also commercialized the first 60-mer oligo microarray for the study of rice, a staple food for half the world’s population. We now provide microarrays for the study of human, mouse, rat, Arabidopsis, rice, rice blast (a type of rice fungus) and yeast.

Microfluidics Products

The Agilent 2100 bioanalyzer is the first commercial microfluidics solution for the analysis of a wide range of biological molecules, including DNA, RNA, proteins and cells. The bioanalyzer chips allow 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 2004, we introduced the Agilent 2100 Expert Software with compliance features that enable the bioanalyzer to be used for the development and manufacture of protein-based therapeutics in the pharmaceutical and biotechnology industries.

To standardize RNA quality measurement using the bioanalyzer, Agilent introduced a beta version of its RNA integrity number (“RIN”) software. It is the first tool for objectively grading and communicating the quality of RNA used in experiments.

In November 2004, Agilent introduced the first fully automated, high-throughput lab-on-a-chip system, which will enable unattended analysis of thousands of DNA or protein samples per day.

Gas Chromatography Products

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 2004, we introduced a network headspace sampler that features an inert sample pathway and significant improvements in sensitivity, performance and productivity. We also introduced a thermal

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performance qualification service for Agilent gas chromatographs, which helps to verify that a GC’s heated zones (oven, injection ports and detectors) are working properly. In April, Agilent also became the first company to offer online training for gas chromatography.

Liquid Chromatography Products

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 gas chromatography is not an option, these instruments are modular in construction and can be configured to form instruments that perform specific analyses. We offer a HPLC system, the Agilent 1100 Series, with over 50,000 systems sold since its introduction. As a leader in liquid chromatography, we continue to expand its applications with new