Keysight Technologies(KEYS) - 2026 Q1 - Earnings Call Transcript

Financial Performance - Keysight achieved record results in Q1 2026, with total revenue of $1.6 billion, up 23% year-over-year, driven by strong growth across all business segments [18][19] - Earnings per share reached $2.17, reflecting a 19% increase, supported by a gross margin of 66.7%, which improved by 90 basis points [20][19] - Orders totaled $1.645 billion, representing a 30% increase on a reported basis and a 22% increase on a core basis [19] Business Segment Performance - The Communication Solutions Group generated revenue of $1,124 million, up 27% on a reported basis and 16% on a core basis, with a gross margin of 68.5% [20][21] - The Electronic Industrial Solutions Group reported revenue of $476 million, an increase of 15%, with growth across general electronics, semiconductors, and automotive markets [21][20] - Aerospace, Defense, and Government achieved revenue of $366 million, an 18% increase, driven by heightened global focus on defense modernization [21][13] Market Trends and Drivers - Demand for AI-driven technology transformations and next-generation connectivity is accelerating, with significant growth in wireline business surpassing wireless for the first time [5][7] - The industry is moving towards higher speeds and Ethernet-based AI networking, creating more test opportunities for Keysight [8][10] - Increased defense spending in Europe and the U.S. is expected to sustain growth in the aerospace and defense sector [14][40] Company Strategy and Competitive Position - Keysight's strategic roadmap focuses on capitalizing on AI infrastructure, semiconductor complexity, and defense modernization [5][17] - The company is well-positioned to leverage its differentiated portfolio to address increasing design complexity and accelerate innovation [6][17] - Keysight's competitive advantage lies in its solutions-oriented approach, enabling it to stay ahead of customer needs in rapidly evolving markets [68][69] Management Commentary on Future Outlook - Management expressed confidence in sustaining growth momentum, with expectations for total annual revenue and earnings growth just above 20% for fiscal 2026 [24][23] - The company anticipates continued strong demand across its diversified end markets, particularly in AI and defense sectors [17][24] - Management noted that the integration of recent acquisitions is on track and expected to enhance operational efficiencies [23][22] Other Important Information - Keysight ended the quarter with approximately $2.2 billion in cash and cash equivalents, generating cash flow from operations of $441 million [22] - The company repurchased approximately 420,000 shares at an average price of $207, totaling $87 million [22] Q&A Session Summary Question: Insights on wireline vs wireless business growth - Management highlighted that wireline business has surpassed wireless for the first time, driven by robust demand for R&D and manufacturing solutions [26][27] Question: Operating margin expectations - Management indicated a target of 40% core leverage on mid-single-digit growth, with current operating margin leverage at 41% due to strong growth [28][29] Question: Customer base expansion in AI - Management noted a broadening of the customer base, with significant contributions from silicon companies and hyperscalers, alongside emerging neoclouds [34][36] Question: Aerospace and defense spending trajectory - Management expressed optimism about sustained growth in defense spending, particularly in Europe, and the potential for a new run rate in this business [38][40] Question: Supply chain and memory availability - Management stated that they are well-prepared for scaling operations and are not significantly exposed to high-demand memory shortages [60][62] Question: Competitive landscape in AI - Management emphasized Keysight's solutions-oriented approach as a competitive advantage, allowing it to stay ahead in rapidly evolving AI markets [67][68]