• Revenue: $1.298 billion, up 3% year-over-year.
• Earnings Per Share (EPS): $1.82, exceeding guidance.
• Orders: $1.263 billion, up 4% year-over-year.
• Gross Margin: 65.8%.
• Operating Expenses: $500 million, up 2% year-over-year.
• Operating Margin: 27%.
• Net Income: $317 million.
• Communication Solutions Group Revenue: $883 million, up 5% year-over-year.
• Electronic Industrial Solutions Group Revenue: $415 million, down 1% year-over-year.
• Cash and Cash Equivalents: $2 billion.
• Cash Flow from Operations: $378 million.
• Free Cash Flow: $346 million.
• Share Repurchase: 450,000 shares at an average price of $167, totaling $75 million.
• Backlog: $2.3 billion.
• Q2 Revenue Outlook: $1.270 billion to $1.290 billion.
• Q2 EPS Outlook: $1.61 to $1.67.

• Warning! GuruFocus has detected 3 Warning Signs with PCVX.

Release Date: February 25, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Keysight Technologies Inc (NYSE:KEYS) delivered strong first-quarter results with revenue of $1.3 billion and earnings per share of $1.82, both exceeding the high end of guidance.
• Orders grew year over year for the second consecutive quarter, up 4% to $1.3 billion, indicating positive sales funnel and customer engagement.
• The Communications Solutions Group saw a 5% revenue growth, driven by strong demand in wireline and stability in wireless, as well as growth in aerospace defense and government.
• Keysight Technologies Inc (NYSE:KEYS) is well-positioned for future growth, with strong customer trust and engagement in delivering market-leading products and solutions.
• The company has made strategic progress in growing software and services, which accounted for approximately 40% of revenue, indicating a successful transformation towards a software-centric model.

Negative Points

• Revenue for the Electronic Industrial Solutions Group was down 1%, reflecting mixed demand across end markets, particularly in automotive and general electronics.
• The smartphone supply chain remains muted, affecting the wireless business despite stability in other areas.
• Ongoing continuing resolutions have led to a decrease in orders in the aerospace defense and government sectors.
• The macro environment remains mixed, with uncertainties stemming from potential US policy actions, impacting the company's outlook.
• Operating expenses increased by 2% year over year, and the company anticipates further sequential increases in OpEx, which could impact profitability.

Q & A Highlights

Q: Could you provide a breakdown of the contribution from wireline versus wireless in the commercial communication segment, given the stability in wireless and strong growth in wireline due to AI factors? A: Satish Dhanasekaran, President and CEO, explained that there was stability in wireless with some uptick in infrastructure, while the smartphone ecosystem remains muted. The highlight was strong growth in wireline orders driven by AI.

Q: How are you seeing the current budget environment around federal aerospace and defense, and can you contextualize the order strength in wireline related to AI? A: Satish Dhanasekaran noted that while aerospace and defense orders were impacted by continuing resolutions, the long-term trend remains stable with strong demand for technology modernization. The AI-related wireline order strength is driven by high-end manufacturing capabilities and collaborations with customers.

Q: How should we think about the pros and cons of 5G plus or 6G versus satellite communication in the long term? A: Satish Dhanasekaran stated that satellite communications and 6G are incremental opportunities for Keysight. While it's hard to predict the exact size of the market, historically, new technology generations have expanded the addressable market due to growing complexity.

Q: Can you give more color on the positive sales funnel and customer engagements? Is this an indicator of moving from a mixed demand environment to a solid demand environment? A: Mark Wallace, Chief Customer Officer, indicated that the sales funnel is incrementally improving, with new business intake and decision velocity increasing. This supports the thesis of a gradual recovery during the year.

Q: Can you update us on the performance of the Electronic Industrial Solutions Group (EISG) and the progress on margin targets for that acquisition? A: Neil Dougherty, CFO, mentioned that the EISG acquisition remains on track with high renewal rates. While auto market softness impacted upsell opportunities, traction with aerospace defense and industrial customers offset this.

Q: How should we think about operating expenses and investments over the course of the year? A: Neil Dougherty explained that while OpEx was up 2% year-over-year, there will be a sequential increase from Q1 to Q2 due to salary increases and holiday impacts. Investments will continue in areas like 6G and AI.

Q: Can you provide more details on the AI business and the transition to software and services? A: Satish Dhanasekaran highlighted the robust long-term opportunity in AI, with participation in compute, memory, and networking. The transition to software and services is ongoing, with a focus on expanding recurring revenue.

Q: How is the business within China performing, and are there any pivots needed due to geopolitical volatility? A: Satish Dhanasekaran noted strong customer relationships in China, with a focus on supporting global strategies. Despite trade restrictions, Keysight is well-positioned to capitalize on technology innovations globally.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.