Keysight Technologies, Inc. Q4 FY2025 earnings call

• Keysight delivered outstanding fourth quarter results with orders growing 14%, revenue increasing 10%, and EPS rising 16%. Full-year orders and revenue rose 8%, and EPS increased 14%.
• Advanced software-centric solution strategy with acquisitions of Spirent, Synopsys Optical Solutions Group, and ANSYS PowerArtist.
• Operating model generated strong free cash flow, with board authorizing an additional $1.5 billion share repurchase program.
• CSG orders grew for the sixth straight quarter, wireline orders and revenue grew double digits in Q4 and full year. Wireless saw high single-digit growth in full year driven by standards evolutions, non-terrestrial networks, and 6G research.
• EISG had orders growing for the fifth consecutive quarter in general electronics, semiconductor business had solid growth, automotive demand stabilized with opportunities in grid modernization.

Communication Solutions Group (CSG): Fourth quarter revenue was $990 million, up 11% on a reported basis or 9% on a core basis. Commercial communications revenue was $660 million, up 12%, driven by wireline strength and wireless growth. Aerospace, defense, and government achieved revenue of $330 million, an increase of 9%. CSG delivered a 66% gross margin and a 27% operating margin. Electronic Industrial Solutions Group (EISG): Generated $429 million in revenue, an increase of 9% on a reported basis or 8% on a core basis, with growth in semiconductor and general electronics. EISG delivered a 60% gross margin and a 25% operating margin. In FY 2025, software and services accounted for approximately 37% of Keysight revenue, while annual recurring revenue was 29% of the total.

• For 2026, expect revenue in the range of $1.53 billion to $1.55 billion, representing 19% year-over-year growth at the midpoint. Excluding recent acquisitions, 10% year-over-year revenue growth.
• Q1 earnings per share expected in the range of $1.95 to $2.01.
• Recently completed acquisitions expected to contribute approximately $375 million of revenue in FY 2026 and $100 million of synergies. Tariff impact fully mitigated earlier than previously communicated.
• FY 2026 EPS growth expected at or above long-term 10% target.

• Geopolitical and policy uncertainties remain in the semiconductor sector.
• Integration of acquisitions may cause mild dilution in FY 2026 and challenges in realizing synergies in the short term.

Q: Looking to the new fiscal year, how do you see the wireless trending?

A: We are optimistic about wireless growth into 2026, with stabilization in 5G and early results from advanced technology areas even ahead of 6G inflections.

Q: Can you go into details on order acceleration through the year and pipeline visibility?

A: Revenue outperformance was driven by broad order strength in both CSG and EISG, with robust pipeline and positive trends in pipeline volume, velocity, and conversion rate.

Q: Can you give more details on synergy expectations for acquisitions?

A: Working to generate $100 million of run rate synergies, with majority from integrating acquisitions, and low realized synergies in early quarters with step function improvement later.

Q: How should we think about wireline business and its visibility?

A: AI cluster and infrastructure build-outs drive wireline business, with underlying technology waves across the stack providing long-term secular trends.

Q: How does the positioning business from Spirent acquisition apply across the portfolio?

A: Positioning capability from Spirent is unique, with applications in automotive, aerospace defense, and 6G, bundling into Keysight's portfolio for additional value.

Q: How to think about operating margin achievement to reach 31%-32%?

A: It will take time to climb back from current 26% levels to target, with fundamentals intact and opportunities from acquisitions post-integration.

Q: Thoughts on silicon photonics volume deployments?

A: There is scale demand for high-speed silicon optics, with design and R&D activity enabled, and continued growth expected next year as capacity expands.

Q: Strength in aerospace defense and auto orders?

A: Aerospace defense had record bookings, with Europe showing strength; auto orders stabilized with growth in software-defined vehicle, EV, and grid areas.

Q: Outlook for software and services and AI business?

A: Software and services are a focused strategy area, with acquisitions providing uplift, and continued growth expected in AI and software-driven business.