Keysight Technologies, Inc. Q4 FY2024 earnings call

Management Statement and Operational Highlights

• Key Headlines: Keysight delivered fourth quarter revenue and EPS above guidance; full-year revenue was $5 billion and EPS $6.27; 26% operating profit and over $900 million free cash flow.
• Business Performance: CSG was flat Y/Y but up 6% Q/Q; Aerospace, Defense, and Government business was strong; Software and Services showed growth.
• Strategic Progress: Progressed software-centric solutions strategy, with innovation, industry collaborations, and selective M&A to drive organic growth.

Segment Performance

• Communications Solutions Group (CSG): Fourth quarter revenue was $894 million, flat year-over-year and up 6% sequentially. Orders returned to growth for the full-year, with strength in wireline due to AI data center expansion and wireless showing stability with Open RAN and 6G research.
• Electronic Industrial Solutions Group (EISG): Revenue was $393 million, down 6% year-over-year and 11% on a core basis. Mixed orders with growth in semi and general electronics offset by automotive headwinds.
• Software and Services: Revenues grew 8% this quarter, accounting for 39% of total Keysight revenue. Annual recurring revenue from Software and Services grew 16% to approximately $1.5 billion, making up roughly 30% of Keysight overall.

Guidance

• Expect demand environment to remain mixed with gradual recovery. FY'25 revenue growth targeted at the low end of the 5%-7% long-term range, EPS growth in line with 10% target. First quarter revenue expected in the range of $1,265 million to $1,285 million, with Q1 earnings per share in the range of $1.65 to $1.71.

Risks

• Macro uncertainties including automotive spend pullback, semi timing, and industrial end market absorption of capacity. Geopolitical and policy changes such as US elections and trade restrictions pose potential challenges.

Question and Answer

Q: On wireless business recovery A: Satish says wireless business has stabilized, more confident, with strength in Open RAN and 6G research, but devices side lagging.

Q: Aerospace and Defense business concerns A: Satish says long-term trajectory is predictable with defense modernization investments, but short-term US administration change brings uncertainties.

Q: AI impact on wireline business A: Satish says wireline business gained momentum, over $1B in orders, involved in AI infrastructure supply chain, excited about protocol layer opportunities.

Q: Software and Services gross margin A: Neil says software accretive, services slightly dilutive, but both contribute to profitability. Mark adds software is more resilient to macro, leveraging assets.

Q: 2025 revenue growth across segments A: Satish says base case is 5% revenue growth, not all segments inflecting yet, but prepared to capitalize if they do.

Q: Macro backdrop evolution A: Neil says automotive under pressure, wireline stable, Aerospace, Defense strong, semi timing uncertain, industrial end markets question mark. Mark adds Aerospace, Defense had strong Q4 due to government spend.

Q: Semi-cap and general electronics recovery A: Satish says semi grows from current levels, general electronics saw stability in Q4, expects stability to continue.

Q: Operating margin in Communications A: Neil says CSG operating margin strong due to higher software content, less margin diversity, R&D investment and SG&A efficiencies.

Q: M&A and capital allocation A: Satish says focused on organic growth, selective M&A, Neil says balance between buybacks and Spirent transaction closing.