Keysight Technologies Q3 2025 Earnings Report

Keysight Technologies EPS Results

• Actual EPS: $1.72
• Consensus EPS: $1.67
• Beat/Miss: Beat by +$0.05
• One Year Ago EPS: $1.57

Keysight Technologies Revenue Results

• Actual Revenue: $1.35 billion
• Expected Revenue: $1.32 billion
• Beat/Miss: Beat by +$34.15 million
• YoY Revenue Growth: +11.10%

Keysight Technologies Announcement Details

• Quarter: Q3 2025
• Date: 8/19/2025
• Time: After Market Closes
• Conference Call Date: Tuesday, August 19, 2025
• Conference Call Time: 4:30PM ET

Keysight Technologies (NYSE:KEYS), Inc. provides electronic design and test solutions to commercial communications, networking, aerospace, defense and government, automotive, energy, semiconductor, electronic, and education industries in the Americas, Europe, and the Asia Pacific. The company operates in two segments, Communications Solutions Group and Electronic Industrial Solutions Group. It offers electronic design automation (EDA) software; instrument measurement software, instrument workflow software, and software testing; digital multimeter, phase noise measurement, power meters and power sensors, counters, LCR meters and impedance measurement products, and electrometers; and spectrum analyzers, network analyzers, logic analyzers, protocol analyzers and exercisers, bit error ratio testers, noise figure analyzers, AC and DC power analyzers, materials test equipment, device current waveform analyzers, and curve tracers. The company also provides waveform and function generators, arbitrary waveform generators, DC power supplies, and DC electronic loads; wireless drive test, radio access and core network test, wireless analyzers, wireless network emulators, and over-the-air test; application and threat intelligence, cloud test, cyber training simulator, network test hardware, synthetic traffic generators, protocol and load test, network security test, and network modeling; bypass switches, clock synchronization, cloud visibility, network and application monitoring, network packet brokers, and network taps; and application-specific test systems, photonic test and measurement products, and MMIC millimeter-wave and microwave devices. In addition, it offers product support, technical support, installation, training, engineering, and integration services. The company sells its products through direct sales force, distributors, resellers, and manufacturer's representatives. Keysight Technologies, Inc. was founded in 1939 and is headquartered in Santa Rosa, California.

Keysight Technologies Q3 2025 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Strong Q3 financial outperformance: Revenue rose 11% YoY to $1.4 billion and EPS of $1.72 exceeded the high end of guidance.
• Positive Sentiment: Orders grew 7% with broad strength across Communication Solutions and Electronic Industrial Solutions, driven by sustained AI momentum and growth in defense, aerospace, wireless and automotive.
• Positive Sentiment: Raised full-year outlook: Q4 revenue is guided to $1.37–1.39 billion and EPS to $1.79–1.85, implying 7% revenue and 13% EPS growth for FY 2025.
• Negative Sentiment: New U.S. tariffs will add about $75 million annually to costs, though mitigation efforts—supply chain optimization, pricing and efficiency actions—are underway.
• Positive Sentiment: Delivered industry firsts with a protocol-layer solution validating 1.6 Tb performance and early PCIe Gen6 compliance with AMD, bolstering Keysight’s AI infrastructure offerings.

Presentation

[Operator]

Good day, ladies and gentlemen, and welcome to the Keysight Technologies Fiscal Third Quarter twenty twenty five Earnings Conference Call. My name is Regan, and I will be your lead operator today. This call is being recorded today, Tuesday, 08/19/2025 at 01:30 p. M. Pacific Time.

[Operator]

I would now like to hand the call over to Paulina Sims, Director of Investor Relations. Please go ahead, Ms. Sims.

[Paulenier Sims, Director - IR at Keysight]

Thank you, and welcome, everyone, to Keysight's third quarter earnings conference call for fiscal year twenty twenty five. Joining me are Keysight's President and CEO, Satish Nhanashekran our CFO, Neil Dougherty and our Senior Vice President of Global Sales, Steve Yoon. The press release and information to supplement today's discussion are on our website at investor.keysight.com under Financial Information and Quarterly Reports. Today's comments will refer to non GAAP financial measures. We will also make reference to core growth, which excludes the impact of currency movements and acquisitions or divestitures completed within the last twelve months.

[Paulenier Sims, Director - IR at Keysight]

The most directly comparable GAAP financial metrics and reconciliations are on our website, and all comparisons are on a year over year basis unless otherwise noted. We will make forward looking statements about the financial performance of the company on today's call. These statements are subject to risks and uncertainties and are only valid as of today. We assume no obligation to update them and encourage you to review our recent SEC filings for a more complete view of these risks and other factors. Lastly, management is scheduled to participate in upcoming investor conferences hosted by Deutsche Bank, Citibank, JPMorgan and Goldman Sachs.

[Paulenier Sims, Director - IR at Keysight]

And now I will turn the call over to Satish.

[Satish Dhanasekaran, Director, President & CEO at Keysight]

Good afternoon, everyone, and thank you for joining us today. In the third quarter, Keysight's strong execution resulted in 11% year over year increase in revenue to $1,400,000,000 and earnings per share of $1.72 both of which exceeded the high end of our guidance. On the demand front, orders increased by 7% with growth across both the CSG and EISG segments. We saw sustained AI momentum, strong growth in aerospace defense government and general electronics with stability in wireless and automotive. We're executing our strategy and capitalizing on opportunities across our end markets.

[Satish Dhanasekaran, Director, President & CEO at Keysight]

The ongoing pace of innovation is driving deeper collaboration with customers based on our solid pipeline of opportunities and customer engagements, we're once again raising our outlook for the full fiscal year. Turning to the business segments. The Communication Solutions Group delivered solid order and revenue growth year over year. In wireline, our early recognition of AI as a transformative technology shift led us to make strategic investments a few years ago to align our portfolio to the multiyear innovation roadmap we saw unfolding. As the industry accelerates investments in compute, memory, networking and interconnect technologies, we're capitalizing today while investing to position Keysight for the long term.

[Satish Dhanasekaran, Director, President & CEO at Keysight]

The emerging AI ecosystem is fueling massive growth in digital infrastructure, which in turn drives the need for rapid innovation across the technology stack. To meet this challenge, we're delivering advanced physical layer solutions and new silicon photonics capabilities that enhance R and D workflows and address customers' signal integrity and performance requirements. At the same time, networking technology is advancing rapidly to keep pace with escalating performance needs. Our interconnect solutions are enabling this evolution supporting scale up and scale out architectures with higher network speeds and more advanced switching capabilities. This quarter, we delivered the industry's first protocol layer solution for validating 1.6 terabit performance, a major milestone for next generation networks.

[Satish Dhanasekaran, Director, President & CEO at Keysight]

We also partnered with AMD to achieve early PCIe Gen six compliance validation, laying the groundwork for next wave of AI ready high speed interfaces. With growing complexity in data center at scale, it's critical to model and test not just individual devices and components, but their interactions at the system level. This prevents bottlenecks within the data center, optimizing system efficiency and performance for AI applications. We're working closely with industry leaders to model complex workloads, training environments and inter cluster interactions. Our software solutions enable emulation of real world scenarios exposing system level challenges early in the design process.

[Satish Dhanasekaran, Director, President & CEO at Keysight]

This quarter, we saw broader adoption of Keysight AI solutions as customers look to streamline integration, accelerate deployment of AI infrastructure. The wireless business remains stable. Current momentum in non terrestrial networks and continued R and D activity in five gs Advanced is contributing to steady demand. We're actively partnering with industry leaders to support emerging applications like direct to cell connectivity and low earth orbit networks. While broader six gs commercialization is still years away, we're focused on leading the industry into next generation of innovation.

[Satish Dhanasekaran, Director, President & CEO at Keysight]

We're deeply engaged in progressing early six gs research and shaping the standards that will define its implementation. This quarter, we collaborated with NTT to demonstrate a breakthrough in subterahertz component characterization at ultra high data rates. We're working with key customers on advancing new spectrum utilization, sensing and next generation MIMO technologies that will drive long term transformation across wireless. Moving to aerospace defense and government. Elevated defense spending globally and modernization priorities are driving robust demand, particularly in The U.

[Satish Dhanasekaran, Director, President & CEO at Keysight]

S. And Europe. We secured key wins at EU prime contractors for radar and electromagnetic spectrum operation applications, leveraging our multi decade experience in high performance capabilities and complex system integration. Our differentiated platforms emulate complex three d radio channel conditions and enable customers to model dynamic signals for satellite, vehicle, airborne and terrain scenarios. Keysight is well positioned to capitalize on growing defense and government budgets around the world.

[Satish Dhanasekaran, Director, President & CEO at Keysight]

Our enablement of sovereign research and innovation continued. This quarter, we collaborated with AIST in Japan to establish a 1,000 qubit platform. This sets a new benchmark for furthering quantum computing research and results from our commitment to long term innovation and investments in advanced R and D. Turning to Electronic Industrial Solutions Group. Orders and revenues grew both year over year and sequentially.

[Satish Dhanasekaran, Director, President & CEO at Keysight]

In our broad general electronics business, orders grew strongly in the quarter and year to date. In consumer industrial, high performance requirements in AI data centers are translating into investment in high speed PCBs and interconnects. Digital health continued to grow driven by advancements in the validation and production of medical devices. This momentum extended to ensuring compliance in wireless and wired connectivity for monitoring systems. Advanced research and education also grew this quarter driven by leading edge semiconductor, six gs and photonics initiatives with growth across EU and Asia Pac regions.

[Satish Dhanasekaran, Director, President & CEO at Keysight]

In automotive, demand improved sequentially and was stable year over year as we lapped higher compares. Our solutions are enabling OEMs and their partners to advance new software defined architectures as well as advanced radar and sensing. Leveraging Keysight's broad portfolio, we're engaging with customers in the design and validation of in vehicle network compliance and security applications. This quarter, we enabled NIO to validate the compliance of their smart electric vehicles with global wireless connectivity standards. In addition, our ESI and design engineering software renewal rates with major OEMs were strong across all regions.

[Satish Dhanasekaran, Director, President & CEO at Keysight]

We also recently delivered and installed a state of the art R and D battery test lab for a leading European OEM customer. Despite headwinds, these collaborations illustrate the industry's ongoing commitment to innovation as it transitions to smart connected vehicles. In semiconductor, robust demand for our wafer test solutions continued. Keysight's differentiation and customer focus is driving tighter engagement with leading foundries and IDMs. Our advanced node, high bandwidth memory and silicon photonics solutions are enabling customers to address increasing AI compute intensity and power efficiency requirements.

[Satish Dhanasekaran, Director, President & CEO at Keysight]

Investment and growth expectations remain favorable supported by sovereign priorities around the world. Moving to software and service. Keysight's simulation and emulation portfolio is unlocking faster and smarter innovation for our customers, helping them to achieve faster time to market, reduce risk and superior product performance. This quarter, we saw a healthy demand for our RF EDA solutions driven by increased government aerospace and defense spending as well as the need for high speed digital simulation capabilities in the AI data center supply chain. Keysight services business continues to grow driven by expansion of managed services and value delivered through Keysight Care.

[Satish Dhanasekaran, Director, President & CEO at Keysight]

This quarter, we saw strength in aerospace, defense and government as well as data centers, markets where high value services and maximum uptime are mission critical to our customers' success. Our new products and solutions continue to accelerate customer innovation. At the International Microwave Symposium in June, Keysight showcased multiple high performance products that address the needs of next generation radio frequency and digital design. This include industry's first handheld millimeter wave signal analysis solution, advanced phased array antenna test capabilities and phase noise measurement systems, all with applications across multiple end markets. In summary, Keysight is capitalizing on market opportunities and multiple waves of technology innovation underway.

[Satish Dhanasekaran, Director, President & CEO at Keysight]

I'd like to thank our team for their relentless customer focus and collaboration, which positions us well for both near and long term value creation. We remain confident in our ability to navigate the evolving trade and tariff environment to deliver healthy margins and strong free cash flow with our financial model and operational flexibility, reinforcing our ability to invest, adapt and lead. With that, I will turn it over to Neil to discuss our financial performance and outlook.

[Neil Dougherty, Executive VP & CFO at Keysight]

Thank you, Satish, and hello, everyone. Third quarter revenue of $1,352,000,000 was above the high end of our guidance range, up 11% on a reported basis or 9% on a core basis. Orders of $1,340,000,000 were up 7% on a reported basis or 6% on a core basis. Looking at our operational results for Q3, we reported gross margin of 64%, operating expenses of $526,000,000 and operating margin of 25%, an increase of 60 basis points over last year. Turning to earnings, achieved $297,000,000 of net income and delivered earnings per share of $1.72 which increased 9% year over year.

[Neil Dougherty, Executive VP & CFO at Keysight]

Our weighted average share count for the quarter was 173,000,000 shares. Keysight's Q3 tariffs were in line with the estimates that we provided last quarter. We are making progress on our mitigation strategies, which include supply chain optimization as well as pricing and efficiency actions. Accounting for the longer execution time required for certain strategies and our quote to revenue cycle time, we are factoring in a lag for these actions to be fully realized in our results. Moving to the performance of our segments.

[Neil Dougherty, Executive VP & CFO at Keysight]

The Communication Solutions Group generated third quarter revenue of $940,000,000 up 11% on a reported basis or 10% on a core basis. Commercial Communications revenue of $644,000,000 was up 13%, driven by double digit growth in both wireline and wireless. Aerospace, defense and government achieved revenue of $296,000,000 an increase of 8%. Altogether, CSG delivered 67% gross margin and 26% operating margin. The Electronic Industrial Solutions Group generated $412,000,000 in revenue, an increase of 11 on a reported basis or 9% on a core basis, with growth across automotive and energy, semiconductor and general electronics.

[Neil Dougherty, Executive VP & CFO at Keysight]

EIC delivered 57% gross margin and 22% operating margin. Software and services accounted for approximately 36% of Keysight revenue, while annual recurring revenue was 28% of the total. Moving to the balance sheet and cash flow. In Q3, we generated cash flow from operations of $322,000,000 and free cash flow of $291,000,000 Year to date free cash flow now stands at $1,100,000,000 We ended the quarter with 2,636 million dollars in cash and cash equivalents, an additional $759,000,000 is designated as short term restricted cash, the vast majority of which is set aside for closing the Spirent acquisition. We repurchased approximately 300,000 shares this quarter at an average price of approximately $164 for a total consideration of $50,000,000 With regard to the pending acquisition of Spirent, the final regulatory review is progressing and we now anticipate closing the transaction in our fiscal fourth quarter.

[Neil Dougherty, Executive VP & CFO at Keysight]

The acquisitions of Synopsys' Optical Solutions Group and ANSYS' Power Artists are similarly advancing towards final regulatory approval. Turning to our outlook. Let me start with a few comments on the tariff rates announced on August 1. We estimate the new tariff rates will increase our tariff exposure by approximately $75,000,000 annually. As communicated last quarter, we are on track to fully mitigate the April tariffs by Q1.

[Neil Dougherty, Executive VP & CFO at Keysight]

We have initiated additional actions to address the August tariff increase, which we expect to have fully mitigated on a dollars basis within the 2026. As Satish noted, the demand environment has remained resilient despite an uncertain macroeconomic backdrop. We enter Q4 in a strong backlog position. Given our year to date outperformance and visibility into the coming quarter, we are raising our full year growth outlook once again. For the fourth quarter, we expect revenue in the range of $1,370,000,000 dollars to $1,390,000,000 dollars and Q4 earnings per share in the range of $1.79 to $1.85 based on a weighted diluted share count of approximately 173,000,000 shares.

[Neil Dougherty, Executive VP & CFO at Keysight]

This will result in a full year revenue growth of 7% and full year EPS growth of approximately 13% at the midpoint. This guidance factors in all tariff announcements to date and assumes tariffs remain at August levels. With that, I will now turn it back to Paulina for the Q and A.

[Paulenier Sims, Director - IR at Keysight]

Thank you, Neal. Reagan, will you please give the instructions?

[Operator]

Of course. Our first question comes from the line of Mark Delaney of Goldman Sachs. Your line is now open.

[Mark Delaney, Analyst - US Autos & Industrial Tech at Goldman Sachs]

Good afternoon. Thank you very much for taking my questions. Satish, on past calls, you'd characterize your expectation for a recovery in the end markets overall I don't think I heard you use that word today. So maybe you can help investors to better understand your view of the end markets now and to what extent it's better than you'd previously expected?

[Satish Dhanasekaran, Director, President & CEO at Keysight]

Yes. Thank you, Mark. Strong quarter clearly and we're feeling good about the funnel and the customer activity despite the overhang from tariffs and the sort of geopolitical environment we find ourselves in. And if you look at the performance of our order growth again has accelerated as we've gone through the year. So in all from that perspective, we're feeling good about how the year is progressing slightly even better than what we expected at the beginning of the year.

[Satish Dhanasekaran, Director, President & CEO at Keysight]

However, you look at the end markets and you look at the multiple dimensions of the end markets and you'd say are all end markets up into the right, not quite, right? I would say AI is clearly being a continuing team of momentum. Aerospace defense as we expected that things would recover after the administration change and other things manifested itself. And wireless is tracking slightly ahead of expectations. CISG is returning to growth.

[Satish Dhanasekaran, Director, President & CEO at Keysight]

All in all, good about the situation, although just to caution is that we still have challenges with the automotive and some end market dynamics.

[Mark Delaney, Analyst - US Autos & Industrial Tech at Goldman Sachs]

Helpful overview. My second question was just trying to better understand orders and what you're seeing and putting that into context with the revenue outlook. I think orders were up high single digits, but the book to bill was just below one and then you guided 4Q revenue up sequentially. So maybe just help us better understand what's supporting that revenue outlook into 4Q. Is there turns business or backlog that supports it?

[Mark Delaney, Analyst - US Autos & Industrial Tech at Goldman Sachs]

Or maybe there's some pass through tariff revenue that's coming in? And just any more framing of what's driving the revenue in the fourth quarter compared to the bookings would be helpful.

[Neil Dougherty, Executive VP & CFO at Keysight]

Yes. I think some of that is a function of kind of the timing of big deals. We actually had a reasonably large system integration deal where we got customer acceptance literally on the last day of Q3. So that elevated and drove some of the outperformance in the third quarter, but obviously pulled that out of Q4 and muted the quarter, the sequential seasonality from Q3 to Q4 versus what we would typically see. But I think as we look forward, we expect more normal sequential seasonality on the order front than we're going to see on the revenue front again because of the timing of some of these big deals.

[Mark Delaney, Analyst - US Autos & Industrial Tech at Goldman Sachs]

Thanks. I'll pass it on.

[Satish Dhanasekaran, Director, President & CEO at Keysight]

Thank you, Mark.

[Operator]

Thank you. Our next question comes from the line of Aaron Rakers of Wells Fargo. Your line is now open.

[Aaron Rakers, Managing Director & Technology Analyst at Wells Fargo]

Yes. Thanks for taking the question. I do have a follow-up as well. I guess first, Neil, as we kind of think about the revenue growth and the recovery in the business, the order growth dynamics, I guess appreciating that you're not giving guidance out into next year, but at the Analyst Day that you'd hosted a while back, you talked about a 5% to 7% top line growth rate as kind of the long term model. Is that how we should kind of think about the story playing out at this point as we look out into fiscal twenty twenty six?

[Aaron Rakers, Managing Director & Technology Analyst at Wells Fargo]

Or is there an opportunity to maybe see the potential for revenue to grow still a little bit above that level?

[Neil Dougherty, Executive VP & CFO at Keysight]

Yes. I mean, I think looking to this year as maybe as a start, we started the year talking about the gradual recovery, and we're looking for revenue growth this year at the low end of that 5% to 7% range. And Satish has just indicated, things have unfolded slightly better than our expectation, and we've been able to raise that revenue expectation for the full year each of the last two quarters. I think as again, as Satish just mentioned, numerous of our end markets are in recovery and others are still kind of more stable at lower levels. But I think generally speaking, the feeling around the building is that we're bullish going into 'twenty six with one big caveat around tariffs and macroeconomic, right?

[Neil Dougherty, Executive VP & CFO at Keysight]

We're still pretty early into this process, and I don't think the market has fully absorbed the impact of this new tariff environment. And so I think we'll have more to say on '26 in three months, But right now, we're really focused on executing and delivering Q4 that are generally positive on what we're seeing in our end markets.

[Aaron Rakers, Managing Director & Technology Analyst at Wells Fargo]

Yes. Appreciate that, Neil. And then just as a quick follow-up, Satish, we've talked a lot a lot of investors often ask me like B site, the AI story. You've talked about not just scale out, but also now scale up 1.6T and so on and so forth. So the wireline business, I'm just I'm curious of how do you respond to investors kind of asking what's the mix of the contribution that really AI drives to the Keysight story?

[Aaron Rakers, Managing Director & Technology Analyst at Wells Fargo]

And how do you see the durability of that strong demand looking forward?

[Satish Dhanasekaran, Director, President & CEO at Keysight]

Well, first, I'll answer your second question. We're well positioned with momentum to capitalize on this long term opportunity with AI. I'm probably more convinced now that this is going to play out and we're well positioned than I was maybe eighteen months ago when we started down this path. So that's point number one. The second thing I would say is when you think about AI, it's going to have contribution across multiple end markets over time.

[Satish Dhanasekaran, Director, President & CEO at Keysight]

But clearly wireline is the area where we start to see the early demand and we are picking up on that inflection. I expect to finish wireline business up double digits, strong double digits this year, Commercial comps up double digits and it's a function of the underlying AI demand. And I would say that the AI demand in particular, one of the things that it's really hard to sort of tease that out as unique AI demand because you have this sort of entrenched ecosystem of customers whether it is NEMs or silicon designers or hyperscalers that have been customers of Keysight's capabilities for a long time. But clearly their business with us is growing and has continued to grow through this period and AI has been the incremental driver there. But equally as this year has progressed, we've added new customers, start up activity in this industry is picking up and neo cloud providers.

[Satish Dhanasekaran, Director, President & CEO at Keysight]

So all in all, feeling good about our ability to grow and not just a quarter or two, but over the long term as well.

[Aaron Rakers, Managing Director & Technology Analyst at Wells Fargo]

Thanks Satish.

[Satish Dhanasekaran, Director, President & CEO at Keysight]

Thank you.

[Operator]

Thank you. Our next question comes from the line of Meta Marshall of Morgan Stanley. Your line is now open.

[Meta Marshall, MD & VP at Morgan Stanley]

Great, thanks. A couple of questions for me. Maybe just first, if you could just kind of outline where the tariffs are kind of or like which part of the tariffs are most substantial for you guys? And then just if the mitigation is that you plan on doing is kind of moving around production or pricing? And then just a second question for me, just on aerospace and defense, just clearly a lot of spending happening in that market right now.

[Meta Marshall, MD & VP at Morgan Stanley]

Is this something where we should see this market kind of continue to accelerate or is this kind of a good level because it just takes years for these programs to kind of get into place? Thanks.

[Neil Dougherty, Executive VP & CFO at Keysight]

Yes. Thanks, Smita. Why don't I take the tariff question and then I'll let Satish address the aerospace defense question. So with regard to the tariffs, we have largely Southeast Asia based supply chain. As you know, most of our largest plant from a finished goods manufacturing standpoint is in Malaysia, but we have other significant manufacturing offshore manufacturing operations in The EU as well as in Japan.

[Neil Dougherty, Executive VP & CFO at Keysight]

And I would also note that we do, do significant manufacturing in The U. S. You know that we do IC fabrication here a lot. We manufacturing for some of our high end aerospace defense solutions. And then a lot of our high end new product introductions actually start with U.

[Neil Dougherty, Executive VP & CFO at Keysight]

S.-based manufacturing before moving to a higher volume location. And so we do have a geographically diverse manufacturing footprint, which gets to the second part of your question and the actions that we're taking to mitigate the tariffs. And it really is a multipronged approach, looking at various supply chain strategies up to and including potentially shifting manufacturing, probably more focused on making sure right now that we are appropriately utilizing capacity that's already in place rather than dramatically shifting capacity from one location to another, but we'll see how that develops over time. Obviously, looking at supplier relationships, cost efficiencies, and then to the extent that there's residual amounts, looking to pass those costs on to our customers to protect our financial results via both price increases and tariff surcharges for our U. S.

[Neil Dougherty, Executive VP & CFO at Keysight]

Customers. So it's a multipoint approach. And again, I would just say that just reiterate the points that we made in our prepared remarks that we expect to have the tariff impact from April fully mitigated during Q1. We've taken incremental actions to mitigate the August increase and should have that mitigated on a dollars basis and again, on a run rate basis sometime during the first half of this fiscal year. So we feel like we've got it well handled.

[Satish Dhanasekaran, Director, President & CEO at Keysight]

Meta, I think I reiterate the point number one is we're confident, I believe, to mitigate the tariff situation and we've started to make good progress organizationally towards that. With regard to aerospace defense, first and foremost, I would say the starting point for the year was slower given the administration change and continuing resolution. I know being on this call, I sort of foreshadowed that I wouldn't be surprised if some of the demand comes back in the second half and it's exactly the way it's played out. But again, what we're seeing now is sort of ongoing programs or existing programs that were in the pipeline that are flushing out. The backlog for some of the prime contractors continues to be robust and strengthening, which is again foreshadowing a positive environment subject to budgets.

[Satish Dhanasekaran, Director, President & CEO at Keysight]

I think The U. S. Situation is pretty well understood and typically it's majority part of our business. So we factor that into our growth rates. I think what's a new dynamic frankly, which is hard to quantify just yet is the impact of the European spend that could have on to this over the long term, right?

[Satish Dhanasekaran, Director, President & CEO at Keysight]

And that's where we started to see some healthy business this quarter. And I think some of these programs will continue to play out as we move forward. But we remain confident in some of the capabilities we bring in terms of radar, EW space satellite and as we think about some of the NDA priorities that have emerged, we have multiple places where we make contributions. The Golden Dome Of The United States has been announced, should that be funded, will also be give us additional opportunities to make contributions. So overall, feeling good about the contributions we're making and we feel like we can keep increasing it.

[Satish Dhanasekaran, Director, President & CEO at Keysight]

Now again, this is a function of government budgets. So maybe the pace of acceleration growth may not be as quick as some of the commercial markets we experience, but it's one of the more steadier value creators for the company.

[Meta Marshall, MD & VP at Morgan Stanley]

Great. Thanks.

[Satish Dhanasekaran, Director, President & CEO at Keysight]

Thank you.

[Operator]

Thank you. Our next question comes from the line of Tim Long of Barclays. Your line is now open.

[Tim long, Managing Director at Barclays]

Thank you. I have two as well, maybe one for Satish and one for Neil. Satish, maybe just go back to wireless. You talked about it being stable, but it sounded like double digit growth in the quarter. Was that largely just the compares?

[Tim long, Managing Director at Barclays]

Or maybe if you can just walk us through some of the areas that are kind of keeping the wireless related businesses afloat? And then Neil, I'll just give it to you now. Could you just touch on kind of moving parts around this incremental margin of 40% that you talk about? It seems like you might come in a little bit below this year. But when we start looking into the future, maybe walk us through the moving parts around how we should think about that incremental margin number? Thank you.

[Satish Dhanasekaran, Director, President & CEO at Keysight]

Tim, thank you. Yes, we had a strong revenue quarter. Again, it's a function of recovering market conditions in wireless that have remained depressed for so long. And year to date, we're slightly ahead of what we expected in terms of order growth. And really the story is of Standards Progression Release 18, more R and D spend.

[Satish Dhanasekaran, Director, President & CEO at Keysight]

And some increasing activity we see is as AI starts to move to the edge and there's more activity on AI applications on mobile type devices, there's a lot more standards driven capabilities that are being promoted that creates some opportunity for us. The non terrestrial network activity with satellite operators and mobile operators that are partnering, I think that's continuing to grow. And then some early six gs research activities around the globe where customers are starting to put pen to paper and starting to design their systems. So all of these are have been things we've been discussing. And while the supply chain typical smartphone supply chain still remains subdued.

[Neil Dougherty, Executive VP & CFO at Keysight]

Yes. And Tim, to your second question about how to think about the incrementals, I still think that going forward over the longer term, the 40% incremental is the right way to think about the business. Obviously, there was a big kind of shock to the system this quarter or this year with the tariffs, which had not previously been considered in our model. Once those, however, are included in the baseline and we lap them this time next year, you kind of get back to the point where they're in the baseline and you're able to continue to grow your as you grow your business mid single digits or better, you would deliver that 40% incremental. I would point out that if you look Q2, Q3 and our guide for Q4, the three quarters where we've achieved that mid single digit growth rate and you strip out the tariff impact, we actually are overachieving that 40% incremental.

[Neil Dougherty, Executive VP & CFO at Keysight]

So it's still something that we're tracking. And again, we're absorbing the tariffs this year, which are again new and unexpected, and at the same time, have been able to raise our EPS growth estimates for the year. So definitely a continued focus on efficiencies and cost management. And again, I think that 40% incremental is the right way to think about the business long term, but the tariffs will limit our ability to deliver it until we get them into the baseline.

[Tim long, Managing Director at Barclays]

Okay. Thank you.

[Operator]

Thank you. Our next question comes from Mehdi Horsany of SIG. Your line is now open.

[Mehdi Hosseini, Senior Equity Research Analyst at Susquehanna International Group]

Yes. Thank you. It's actually Mehdi Hosseini. I also have two multipart questions. Was nine months ago, you guys were talking about wireline business bringing in more than $2,000,000,000 of orders.

[Mehdi Hosseini, Senior Equity Research Analyst at Susquehanna International Group]

And the commentary over the past couple of quarters suggests that order activity for wireline has remained strong. So my question is, can you put some color around the dollar value of orders or business revenue that is coming in, assuming that you had more than $2,000,000,000 of orders nine months ago? And in that context, how should we think about sustainability of wireline orders? And I have a follow-up.

[Satish Dhanasekaran, Director, President & CEO at Keysight]

Mehdi, I would say that I don't remember sizing it, but let me maybe take a step back and say that you go back in time and you look at our commercial communications business, I would say that a bigger chunk of the business was wireless and wireline was smaller part of the business. And what has still what has since ensued is wireless has normalized since the 2022 peak five gs levels and is pretty stable, while wireline has continued to grow. And this year, I expect to finish the business with a record bookings and a solid pipeline of opportunities as we go into next year. So you might say, well, what's really driving all this activity if we have because there's the obviously the data center CapEx investments that we all know about. And so you're really asking at the core of it, how sustainable are these?

[Satish Dhanasekaran, Director, President & CEO at Keysight]

But if you think about the nature of the AI workload and the progression of it, it's going from just these ChatGPT type applications into more agentic workflows and is poised to, I think, make substantial contributions to productivity for both companies and individuals. And as that plays out, the underlying economics of adopting the latest technology and the pressure to accelerate innovation, we continue to see that as probably a sustaining driver looking as far out into 2028 and 2020 even some of the early look that we're getting engaging with our customers on memory, topology enhancements, compute enhancements, networking speeds and interconnect. What used to be a two, three, four year sort of refresh cycle is being pulled in, which really creates a steady roadmap for us to keep working with our customers and engage. So, A, I feel good about the market opportunity B, I also feel good about Keysight's ability to intercept that and outperform.

[Mehdi Hosseini, Senior Equity Research Analyst at Susquehanna International Group]

Okay. Thank you. And then the second question maybe is for Neil. I see both CSG and EISG revenues were up 11% each on a year over year basis. But CSG had kind of flattish operating margin, but EISG had more than 200 basis points of increase in operating margin.

[Mehdi Hosseini, Senior Equity Research Analyst at Susquehanna International Group]

And my question is, is CSG where most of the tariffs are being felt? And is there also a mix that is favoring ESG with the margin expansion on a year over year basis?

[Neil Dougherty, Executive VP & CFO at Keysight]

Yes. I think the second part of that is definitely true that we've talked about in the past how there's a greater disparity of gross margins within the EIC portfolios. They have the ability to benefit from mix shifts. With regard to the tariffs, I mean, certainly tariffs are impacting both of our businesses. There might be a slight skew there within towards CSG, But I think that's reasonably equally spread across the two portfolios.

[Mehdi Hosseini, Senior Equity Research Analyst at Susquehanna International Group]

Okay. And with EISG, that's where software and services mix is richer and that's where you get the margin uplift. That's the mix that you were referring to, No.

[Neil Dougherty, Executive VP & CFO at Keysight]

CSG has a higher mix of software certainly than EISG given the kind of the use of software within that communications portfolio. I think if you look at the hardware portfolio within EISG, they have some of our highest margin products, but then they also have more of our distribution level projects, lower end level technology, which tend to have lower gross margins associated with them. So it's a bit of a within the hardware portfolio, it's a broader dispersion. Again, is a skew within the tariff portfolio towards CSG, but it's not huge.

[Mehdi Hosseini, Senior Equity Research Analyst at Susquehanna International Group]

Got it. Thank you.

[Operator]

Thank you. Our next question comes from David Ridley Lay of Bank of America. Your line is now open.

[David Ridley-Lane, Equity Research Analyst at Bank of America]

Thank you. Just want to make sure that we're on the same page for the tariffs. It was $75,000,000 before August adds another 75,000,000 And just to clarify, think you were expecting about $25,000,000 net this quarter or 80 basis points. That's what you saw. And what is the expectation baked into the fourth quarter guide?

[David Ridley-Lane, Equity Research Analyst at Bank of America]

So just how much are we looking at in total?

[Neil Dougherty, Executive VP & CFO at Keysight]

And what's in Yes. Fourth Just to review the numbers. So what we said a quarter ago, 75,000,000 to $100,000,000 annually and the incremental $75,000,000 as a result of the August increases, so that takes you to 150,000,000 to 175,000,000 is the range that we're looking at. Our impact in Q3 was in line with those numbers that we just communicated. In Q4, we'll see the tariff expense go up as a result of the tariff increases.

[Neil Dougherty, Executive VP & CFO at Keysight]

But luckily, our tariff mitigations are starting to ramp as well. So while we will continue to see on a dollars basis an unfavorable impact from Q4, It's only slightly larger than what's in Q3. You see an increase in tariff expense but a ramping of the mitigation actions.

[David Ridley-Lane, Equity Research Analyst at Bank of America]

Got it. Perfect. And then I guess one kind of question around the two, now that the Synopsys and the Ansys acquisition is actually complete, is there any color that you can give us in terms of size or magnitude for the two businesses that you'll be acquiring out of?

[Satish Dhanasekaran, Director, President & CEO at Keysight]

I think let me take that. I think from a strategic perspective, we really like the fit to our simulation portfolio. We've talked about that. At this point, any questions with regard to timing or details are better directed to the Synopsys team? Because even though they have closed the deal with ANSYS, the regulatory there's still some regulatory process that's underway that would take some time for us to conclude.

[Satish Dhanasekaran, Director, President & CEO at Keysight]

And so any questions on that regard might be better directed to Synopsys at this time.

[David Ridley-Lane, Equity Research Analyst at Bank of America]

Thank you very much.

[Satish Dhanasekaran, Director, President & CEO at Keysight]

Thank you.

[Operator]

Thank you. Our next question comes from Rob Jameson of Vertical Research Partners. Your line is now open.

[Robert Jamieson, VP - Industrial Technology at Vertical Research Partners]

Yes. Thanks for taking my questions. Just to follow-up with David's question around PowerArtist and Optical Solutions. Just kind of back to some of the comments you made on the simulation software and software demand on the AI side. What are these two assets going to bring into the EDA side of your portfolio?

[Robert Jamieson, VP - Industrial Technology at Vertical Research Partners]

And like how does this enhance your offering going forward?

[Satish Dhanasekaran, Director, President & CEO at Keysight]

Yes. I think if you think about our RF EDA, the simplest way to think about it is we're leaders in RF and high speed digital kind of simulations and part of those workflows. I think optical is a really good complement to that. And in general, power and power efficiency are becoming so important And so some of the critical IP, being part of the portfolio is a good thing because they fit our long term direction and our ability to sort of create more synergies with these capabilities inside the company.

[Robert Jamieson, VP - Industrial Technology at Vertical Research Partners]

Okay. Thank you. And then just with the comments on the six gs research initiatives gaining some traction, can you provide us a little thought on customer engagement timelines and when six gs might become a more meaningful revenue contributor? And how are you thinking about balancing continued five gs optimization versus six gs investment priorities as we look ahead?

[Satish Dhanasekaran, Director, President & CEO at Keysight]

That's a really good question. In the most recent 3GPP plenary meeting in Prague, started to finalize what Release 20 or the early version of six gs might look like. And one of the things that my takeaway was it reinforced the industry alignment for from five gs advanced to six gs, which I think is a really good trend for us because of the it's not a break and it's an evolution and a flow on some of the themes that we have been working with customers on, whether it is to lower latency for AI applications, increase energy efficiency or non terrestrial networks and integrate satellite connectivity with terrestrial networks. So all those themes play out and are strengths in five gs. And so we're thinking about our platforms and architectures from this perspective and it's glad to see that being reinforced from a standardization.

[Satish Dhanasekaran, Director, President & CEO at Keysight]

We start to see customers exploring various facets of six gs because it's not clear yet which spectrum or what topology will be generated. But we start to see some activity with customers related to building up their IP for an eventual six gs rollout, right? So that's where the action to date is occurring. As I said in my prepared remarks, we're still years away from a rollout, but I think the R and D activity will only continue to grow as we move forward.

[Robert Jamieson, VP - Industrial Technology at Vertical Research Partners]

That's great. Thank you for that.

[Satish Dhanasekaran, Director, President & CEO at Keysight]

Thank you.

[Operator]

Thank you. Our next question comes from Rob Mason of Baird. Your line is now open.

[Robert Mason, Senior Research Analyst at Robert W. Baird & Co]

Yes. Thanks for taking the question. Your semiconductor business grew double digits in the quarter. You sound quite pleased with the results. It has been a environment for some in the semi front end semi cap space.

[Robert Mason, Senior Research Analyst at Robert W. Baird & Co]

And I'm just curious, maybe walk through or remind us why you're not maybe seeing as much volatility in that business? And I just kind of wanted to confirm as well just your outlook is for growth here in the fourth quarter as well.

[Satish Dhanasekaran, Director, President & CEO at Keysight]

Yes. As you know, our semiconductor business is the wafer stage. And so as wafer starts are occurring globally, it does benefit from some of the sovereign trends. People are characterizing wafers even ahead of production. So that's another sort of tailwind for the business.

[Satish Dhanasekaran, Director, President & CEO at Keysight]

And also, it's a business which benefits from some of the advanced nodes, new memory topologies, HBMs and recent increased customer interest on silicon photonics we view as favorable drivers for our semi business. So just to also be clear, the business did experience a decline in 2024 driven by some of these the normalization of demand. So it was not immune to that. So it's getting some lift from the increased activity plus some of these advanced AI driven demand that's a favorable driver for this business.

[Robert Mason, Senior Research Analyst at Robert W. Baird & Co]

I see. That's helpful. Satish, if we could just shift over to the wireline business. Last quarter, you shed a little more light just on the mix between the R and D test and production test that's occurring in that business. And it shifted a little bit towards production test just as that's such a high growth area.

[Robert Mason, Senior Research Analyst at Robert W. Baird & Co]

I'm just curious as that mix has shifted, has your visibility changed at all? Is it giving you more visibility, less visibility? Just how we should think about that evolution there.

[Satish Dhanasekaran, Director, President & CEO at Keysight]

Yes, that's a good question. I mean, think when we started to think about it last year, let's say at this earnings call, called the environment constrained and again constrained from a supply perspective. And what's really played out over the last few quarters is that the unlocking of the supply chain through investments that are coming. And I think that's a process that's still to play out and we're clearly benefiting from that. So that's probably skewed our mix of traditionally predominant R and D business to include a bit more of manufacturing exposure.

[Satish Dhanasekaran, Director, President & CEO at Keysight]

But we're nowhere close to the company exposure from a manufacturing standpoint in this business. It's still R and D oriented. And what we also see, which is favorable, which speaks to the visibility comment is, again, last year this time, I would have said this is a highly concentrated business for us because we had a few customers driving the action. And what's playing out is the broadening of the business even in the wireline ecosystem with new customers and startup activity. But even across the company as you think about the general electronics and semiconductor getting some of the tailwinds from the AI trend, it's again a positive dynamic for the business.

[Robert Mason, Senior Research Analyst at Robert W. Baird & Co]

Very good. Thank you.

[Satish Dhanasekaran, Director, President & CEO at Keysight]

Thank you.

[Operator]

Thank you. Our next question comes from Samik Chatterjee of JPMorgan. Your line is now open.

[Analyst]

Priyanka on for Samik. How are you guys doing?

[Satish Dhanasekaran, Director, President & CEO at Keysight]

Hey, Priyanka. Doing good. How are you?

[Analyst]

Yeah. Good. I have a couple questions. Starting off with the AI story. For wireline optics, how much of the r and d investment is already on 1.6 t, three 3.2T and beyond compared to the legacy speeds like 100 gigs or 800 gig?

[Satish Dhanasekaran, Director, President & CEO at Keysight]

I think for wireline, I would say broad comment with different exposures. But I'd say the 100 gig is fairly stable. It's sort of a run rate business. The 400 gig, 800 gig are the ones where the majority of the volumes are in 1.6 and beyond is still in research slash early deployment. So that's probably directionally gets you there.

[Analyst]

Alright. Can you also shed a little bit of light on the customer segments in your data center business? For example, how big hyperscalers are versus semiconductors and then integrators and assemblers?

[Satish Dhanasekaran, Director, President & CEO at Keysight]

Yes. I think as we I don't know that we've split up the business quite the way you've asked us to, but I think you think of the activity in the supply chain remains strong as it's starting to unlock supply constraints. So that's a factor. And then the R and D spend is probably the better way to look at it is where the majority of the demand that we see for a broad set of tools and capabilities that Keysight provides.

[Analyst]

All right. Thank you.

[Satish Dhanasekaran, Director, President & CEO at Keysight]

Thank you.

[Operator]

Thank you. Our next question comes from Adam Thalhimer of Thompson Davis. Your line is now open.

[Adam Thalhimer, Director - Research at Thompson Davis & Co]

Hey, good afternoon guys. Congrats on the beaten raise. Wanted to ask about the impact of tariffs on orders. Do you think that net net tariffs have pulled forward some orders or pushed them out? Hey, thanks for that question.

[Adam Thalhimer, Director - Research at Thompson Davis & Co]

At this point throughout the quarter, did not see any material pull in of orders due to the tariff changes that was going to happen in August.

[Satish Dhanasekaran, Director, President & CEO at Keysight]

Got it. And then And we have not seen any we have not seen any also following up, we have not seen any material change to the demand profile from the tariffs just yet. Go ahead.

[Adam Thalhimer, Director - Research at Thompson Davis & Co]

Great. And then Satish, I wanted to follow-up. You talked about AI impacting other markets besides wireline. What do you think the next market is?

[Adam Thalhimer, Director - Research at Thompson Davis & Co]

And when do you think you could see material orders from that?

[Satish Dhanasekaran, Director, President & CEO at Keysight]

Yes. I think we said we started to see some impact in the general electronics and in semiconductors. I think semiconductor feels like that's going to happen given the trend of embracing silicon photonics and co optics and other things. It just seems logical that that's going to flow. I think the thing we're watching for is the general electronics business because it tends to be a broader business with manufacturing exposure and other things.

[Satish Dhanasekaran, Director, President & CEO at Keysight]

And so I still think that's still in the early innings that's playing out. But then longer term, think about the possibilities of how AI intercepts our customers' engineering workflow or possibilities of how AI could intercept defense applications or security application or in automotive or in our wireless business even. So there's a lot more excitement there than there is activity right now, which but we're starting to engage customers and have discussions with them about what Keysight can do to enable their success.

[Adam Thalhimer, Director - Research at Thompson Davis & Co]

Thanks, Satish.

[Operator]

Thank you. Now we'll conclude our question and answer session for today. I would like to turn the call back over to Paulina Sims for any closing comments.

[Paulenier Sims, Director - IR at Keysight]

Thank you, Regan, and thank you all for joining us today. Have an awesome day.

[Operator]

Thank you. That concludes today's call. Thank you for your participation. You may now disconnect your line.

Participants

Executives

• Satish Dhanasekaran, Director, President & CEO
• Neil Dougherty, Executive VP & CFO

Analysts

• Paulenier Sims, Director - IR at Keysight
• Mark Delaney, Analyst - US Autos & Industrial Tech at Goldman Sachs
• Aaron Rakers, Managing Director & Technology Analyst at Wells Fargo
• Meta Marshall, MD & VP at Morgan Stanley
• Tim long, Managing Director at Barclays
• Mehdi Hosseini, Senior Equity Research Analyst at Susquehanna International Group
• David Ridley-Lane, Equity Research Analyst at Bank of America
• Robert Jamieson, VP - Industrial Technology at Vertical Research Partners
• Robert Mason, Senior Research Analyst at Robert W. Baird & Co
• Analyst
• Adam Thalhimer, Director - Research at Thompson Davis & Co