Keysight Technologies(US:KEYS)2024-12-17 21:05Revenue and Financial Performance - Revenue for 2024 was $5.0 billion, compared to $5.5 billion in 2023 and $5.4 billion in 2022[14] - Revenue for 2024 was $4,979 million, a 9% decrease compared to 2023, with acquisitions contributing a 3% favorable impact[196] - Net income for 2024 was $614 million, a 42% decrease compared to 2023, driven by lower revenue and higher costs[197] - Revenue decreased by 9% in 2024 compared to 2023, with product revenue declining by 14% and services revenue increasing by 12%[202] - Gross margin decreased by 2 percentage points in 2024 to 62.9%, primarily due to lower revenue volume and higher restructuring costs[205] - Operating margin decreased by 8 percentage points in 2024 to 16.7%, driven by higher expenses and lower revenue[211] - Net income decreased by 42% in 2024 to $614 million, compared to $1,057 million in 2023[202] - Revenue in the Americas decreased by 7% in 2024, while Europe and Asia Pacific saw declines of 2% and 14%, respectively[204] - Operating cash flows were $1,052 million in 2024, $1,408 million in 2023, and $1,144 million in 2022[198] Acquisitions and Strategic Investments - Keysight acquired ESI Group SA, Riscure Holding B.V., and AnaPico AG in 2024 to expand its software and security offerings[28] - The company announced its intention to acquire Spirent Communications PLC and Synopsys' Optical Solutions Group in fiscal 2024[28] - The company acquired ESI Group SA for $935 million, resulting in incremental revenue of $141 million for the year ended October 31, 2024[192] - The company may engage in acquisitions, strategic alliances, and divestitures, which could lead to financial results differing from expectations due to integration challenges and post-closing arrangements[133] - Difficulty in completing acquisitions on acceptable terms could negatively impact the company's growth rate and financial performance[134] Research and Development (R&D) - R&D investment in 2024 totaled $919 million, representing approximately 16% of revenue[27] - R&D expenses increased by 4% in 2024 to $919 million, driven by incremental costs from acquired businesses[208] - Keysight's R&D investments focus on first-to-market solutions, with significant technology development centers in the US, India, Germany, and other countries[65] - The company is focusing on next-generation technologies, including 5G, 6G, AI, and autonomous vehicles, for long-term growth[199] Customer and Market Segments - The company serves over 40,000 end customers annually, including many Fortune 1000 companies[18] - The Communications Solutions Group (CSG) serves customers in commercial communications and aerospace, defense, and government markets[47] - CSG provides automated software test solutions critical to digital business success and customer experience[47] - Keysight's aerospace, defense, and government solutions focus on secure communications, space and satellite equipment, and government research, including quantum communications and cybersecurity[52][53] - The company's Electronic Industrial Solutions Group (EISG) serves automotive, energy, semiconductor, and general electronics markets, with recent acquisition of ESI Group expanding simulation capabilities[54] - Keysight's automotive and energy customers are innovating in electric and autonomous vehicles, energy systems, and advanced cyber-physical control systems[55][56][57] - Semiconductor customers rely on Keysight for design and measurement solutions to enable innovation in smaller, more power-efficient chips and chipsets[60][61] - General electronics customers benefit from Keysight's solutions for IoT, consumer electronics, digital health, and smart manufacturing applications[62][63] Sales and Distribution - Over 80% of Keysight's business comes from direct sales interactions, with a global sales force and over 800 channel partners[67][68] - Orders for 2024 were $5,033 million, a 3% decrease compared to 2023, with acquisitions contributing a 4% favorable impact[195] Environmental and Regulatory Compliance - The company is subject to various international, federal, state, and local environmental regulations, which are becoming more stringent and may result in additional costs[88] - The company maintains a comprehensive environmental site liability insurance policy covering specified active, inactive, and divested locations[92] - The company is regulated under U.S. Export Administration Regulations and economic and trade sanctions programs, which may impact its ability to transact business in certain countries[93] - The company is subject to complex data privacy regulations, including GDPR, and faces risks of fines and penalties due to potential data privacy breaches[97] - The company is subject to health and safety laws and regulations in all jurisdictions where it operates, with varying requirements by country[98] - Environmental and occupational health regulations could lead to civil or criminal sanctions if compliance is not maintained[148] - Regulatory compliance costs and potential violations could result in financial penalties, product recalls, and operational restrictions[148] - Company committed to achieving net zero Scope 1 and 2 emissions by fiscal year 2040, with Scope 3 reduction targets approved by SBTi on October 27, 2023[143] Legal and Cybersecurity Risks - The company paid a total of $4.1 million in penalties related to a Consent Agreement with the Directorate of Defense Trade Controls, with the final payment made on April 23, 2024[94] - The company permanently discontinued its Russian operations in February 2022 due to U.S. economic sanctions and restrictions following Russia's invasion of Ukraine[95] - The company is involved in multiple legal proceedings, including patent infringement lawsuits filed by Centripetal Networks in the U.S., Germany, and the International Trade Commission (ITC), with the ITC ruling in favor of the company on December 5, 2023, but Centripetal has appealed the decision[151] - The company faces ongoing intellectual property litigation in Germany, France, Italy, and the Netherlands, with a Unified Patent Court complaint served on August 21, 2024[143] - Cybersecurity risks remain a significant threat, with potential impacts on business operations, reputation, and financial results[145] - Company relies on centralized IT systems and cloud-based service providers, making it vulnerable to disruptions and cyberattacks[145] - The company's cybersecurity program is based on the NIST SP 800-171 framework and includes a dedicated Information Security and Compliance organization (ISC) that reports to the Chief Information Security Officer (CISO)[160] - The company's cybersecurity risk management program includes incident detection and response, risk assessment, training and awareness, security tools optimization, and third-party risk management[162] - The company maintains information security risk insurance and engages third-party companies for regulatory compliance reviews, penetration testing, and risk assessments[163] - To date, the company has not identified any cybersecurity threats or incidents that have materially affected its operations, business strategy, results of operations, or financial condition[164] - The company's Board and management prioritize cybersecurity, with the Audit and Finance Committee overseeing information security programs and receiving regular reports from the Chief Information Officer (CIO)[166] Workforce and Employee Relations - The company employs approximately 15,500 employees globally, with 31.2% women and 45.8% underrepresented minorities in the US workforce[73][80] - The company maintains a three-year average employee turnover rate of 7.3%, below the industry average[78] - The company achieved a worldwide women-to-men pay parity ratio of nearly 1:1 in 2024[83] - Retention of key personnel is critical for future success, with potential impacts on product innovation and financial goals[148] Global Operations and Risks - International operations account for a majority of the company's revenue, but risks such as trade restrictions, currency fluctuations, and geopolitical turmoil could harm future results[119] - Centralized accounting processes in India and Malaysia may face disruptions due to local conditions, potentially affecting supplier payments and financial reporting[122] - Trade disputes and tariffs between the U.S. and countries like China, the U.K., and the EU could disrupt supply chains and reduce demand for the company's products[123] - Geopolitical conflicts, such as the Russia-Ukraine war and tensions between China and Taiwan, could limit technology transfers, increase costs, and result in facility closures[124] - The company's reliance on contract manufacturing and outsourcing, particularly in developing countries, poses risks to production timelines and quality control[129] - Currency exchange rate volatility could impact financial results, as a significant portion of expenses are paid in local currencies, and hedging programs may not fully mitigate risks beyond 12 months[138] - The company's factories and facilities are vulnerable to catastrophic losses from natural or man-made disasters, which could disrupt operations and result in significant expenses[141] Tax and Financial Risks - Ongoing tax examinations by the IRS and other tax authorities could have a material adverse effect on the company's results of operations, financial condition, and liquidity[138] - Changes in tax laws or incentives, such as the expiration of tax incentives in Malaysia and Singapore, could increase the company's effective tax rate and harm operating results[141] - The company may need additional financing for R&D or acquisitions, which could dilute existing shareholders if equity is issued or impose restrictive covenants if debt is issued[136] - The company has outstanding debt and may incur more, which could adversely affect its financial condition, liquidity, and results of operations[136] Inventory and Supply Chain - Excess and obsolete inventory charges were $35 million in 2024, up from $27 million in 2023 and 2022[207] - The company's reliance on contract manufacturing and outsourcing, particularly in developing countries, poses risks to production timelines and quality control[129] Shareholder and Stock Information - The company repurchased 2,974,967 shares of common stock during the fiscal year ended October 31, 2024[185] - The company's common stock is listed on the NYSE with 15,012 shareholders of record as of December 12, 2024[180] - The company does not currently pay dividends on its common stock, and future dividend payments will depend on factors such as financial condition, earnings, and capital requirements[157] Facilities and Real Estate - Total worldwide owned or leased space is 5.6 million square feet, with 3.5 million square feet owned and 2.1 million square feet leased[170] - Occupancy of facilities includes 5.3 million square feet for manufacturing, R&D, warehouse, and administrative facilities, and 0.3 million square feet for sales facilities[170] Legal and Compliance - The company resolved a legal issue with a $6.6 million penalty, of which $4.1 million was paid and $2.5 million was suspended for remediation activities[173] - The company is involved in ongoing patent litigation with Centripetal Networks, including cases in Germany and the International Trade Commission[174] - The company must comply with complex international anti-corruption laws, such as the U.S. Foreign Corrupt Practices Act and the U.K. Bribery Act[149] Backlog and Orders - Backlog as of October 31, 2024, was approximately $2,375 million, compared to $2,290 million as of October 31, 2023, driven by incremental backlog from acquired entities and other business activity[85] - The majority of backlog is expected to be recognized as revenue within six months, though it is not a reliable indicator of medium or long-term revenue performance[85]