Keysight Technologies, Inc. Q1 FY2025 earnings call

• Keysight delivered strong first quarter results with revenue of $1.3 billion and earnings per share of $1.82, exceeding guidance. Core revenues grew for the first time in six quarters.
• Orders grew year-over-year for a second consecutive quarter, up 4% to $1.3 billion, with incremental positive signals in the sales funnel.
• Communication Solutions Group: Revenue grew 5% with strength in wireline, stability in wireless, and record revenue in aerospace, defense, and government. Launched PNA-X pro network analyzer for 6G research, etc.
• Electronic Industrial Solutions Group: Revenue down 1% with mixed demand. Semiconductor had strong customer engagement, automotive faced challenges, General Electronics orders grew.

The Communication Solutions Group (CSG) generated first quarter revenue of $883 million, up 5% year-over-year on a reported and core basis. Commercial Communications revenue was $572 million and aerospace, defense, and government revenue was $311 million, each increasing 5%. CSG delivered 68% gross margin and 27% operating margin. The Electronic Industrial Solutions Group (EISG) generated revenue of $415 million, down 1% or flat on a core basis. EISG reported 61% gross margin and 27% operating margin, largely due to a higher mix of software.

• Second quarter revenue expected to be in the range of $1,270 million to $1,290 million and Q2 earnings per share in the range of $1.61 to $1.67.
• FY 2025 base case: Gradual recovery with revenue growth at the low end of 5% to 7% long-term target and earnings growth consistent with 10% target.

• Uncertainty from US policy changes. - Continuing resolutions affecting aerospace, defense orders. - Geopolitical volatility in China.

Q: Update on ESI Group performance, software aspect and acquisition progress?

A: Acquisition on-track, renewal rates consistent. Auto markets softness impacted upsell, but traction with aerospace, defense, and industrial customers.

Q: Pending acquisitions from Ansys and Synopsys, contingency and meaningfulness?

A: Transactions contingent on Synopsys-Ansys deal closure, not sized yet, complementary to design engineering software portfolio.

Q: OpEx trends, investments, and gross margin?

A: OpEx to increase sequentially from Q1 to Q2, incremental investments in 6G, quantum computing, etc. Gross margin mix related, higher in CSG, lower in EISG but operating profit similar.

Q: AI business use cases and software/services transition?

A: AI use cases include data centers, compute, memory, networking. Software/services at 40% of revenue, organic growth and new acquisitions to expand recurring revenue.

Q: Semiconductor business backlog and China business trend?

A: Parametric test orders had third consecutive quarter of growth, backlog built. China business has strong customer relationships, pivoting to transact with other customers supporting their go global efforts.