Financial information provided by Financial Modeling Prep. Options data provided by Unusual Whales. Live transcripts provided by Quartr. Reported revenue and EPS data from Earnings powered by FinChat.io. All data is provided for informational purposes only, and is not intended for trading purposes or financial, investment, tax, legal, accounting or other advice.
We assume no obligation to update them and encourage you to review our recent SEC filings for a more complete view of these risks and other factors. Lastly, management is scheduled to in an upcoming investor conference hosted by Baird. And now I will turn the call over to Satish.
11m 31s
Good afternoon, everyone, and thank you for joining us today. During the second quarter, Keysight delivered revenue of $1,300,000,000 and earnings per share of $1.7 both of which exceeded the high end of our guidance. This marks the second consecutive quarter of revenue growth driven by continued momentum in CSG and return to growth in EISG. The demand environment was solid in the quarter with orders growing 8% year over year and 4% sequentially to $1,300,000,000 Even as we are monitoring the overall macro environment, we enter the second half with a healthy pipeline of opportunity and strong customer engagements. Neil will have more details on the tariff impact in his remarks. Overall, our business results demonstrate the resilience of our business and the durability of our financial operating model which is underpinned by a flexible cost structure supply chain and operating capabilities that allow us to quickly adapt to external dynamics. As a result of our multiyear investments, we have a diversified global supply chain which is largely based in Southeast Asia with minimal exposure in China. Despite the near term uncertainty, we're confident in our market leadership the strength of our operating model and our ability to generate value for our stakeholders.
13m 1s
Our capital allocation priorities have not changed. We are investing for the long term while also pursuing a balanced return of capital enabled by our strong free cash flow conversion. Over the past twelve quarters, we have returned over 1,700,000,000.0 or roughly 50% of free cash flow to investors via repurchases. Turning to business segments. In CSG, Commercial Communications orders grew double digits. Demand remains robust in wireline, where the ongoing data center infrastructure expansion is driving order strength. We saw continued deployment of 408 gig Ethernet technologies in AI data center applications. R and D investments in 1.6 terabit electrical and optical technologies as well as expansion of new protocols in AI data center networks are fueling demand as the entire industry is innovating and developing new applications and services. This quarter at OFC, we demonstrated the industry's first solution for four forty eight gig per lane optical transmission a key building block in the deployment of one point six and three point two terabit networks. The depth and breadth of Keysight's capabilities in the electrical and optical and wireline protocol stacks positions us well to enable ongoing innovation in high performance computing memory and networking. Wireless orders grew in Q2, We saw a steady pace of R and D activity related to five gs advanced and early six gs research as well as investments in non terrestrial networks.
14m 43s
While smartphone supply chain activity remains stable, innovation and investment in R and D in radio access networks continue to grow. Keysight's new digital twin and system emulation capabilities are enabling non terrestrial applications expanding our customer engagements. In aerospace defense and government, orders grew this quarter driven by strength in The U. S. And Europe. Ongoing investment in spectrum operations and space applications drove growth. Although The U. S. Will be operating under a continuing resolution, for most of the year, overall demand and pipeline of opportunities remains robust with prime contractor backlogs at record levels. Investments in defense modernization remains a top priority for many countries as reflected in the increased budget proposals in U. S, Europe and Asia. Keysight is a trusted partner in this ecosystem delivering advanced high fidelity test capabilities that simulate real world electronic threats in lab environments. This quarter Keysight One a notable deal with a major defense agency in Europe to modernize its testing capabilities for antenna, radar applications, which are key to mission critical applications. Our innovation pipeline is driving a steady cadence of new products and solutions which this quarter included a higher frequency extensions to our phase noise analyzer for defense applications and a new digital communications analyzer for two twenty four gig transceiver test enabling wireline and general purpose use cases.
16m 20s
Turning to Electronics Industrial Solutions Group, the demand environment remains mixed while the revenue return to growth after six quarters of decline. In semi, the demand for our wafer test solutions from large foundry and IDM customers remain strong. Leading edge process node investment was augmented by rapid growth in high bandwidth applications. Customer engagements for silicon photonics co packaged optics accelerated within the quarter as the industry works to address performance limitations across latency, bandwidth and power in the AI data center. In automotive, while orders and revenues were down, the business has largely stabilized. Engagements with OEM customers remain steady with investments in software defined vehicle capabilities including cyber security, radar scene emulation, and ADAS chipset development. This quarter, secured a key win with a major automotive OEM for design and test of their home energy management systems. General Electronics orders grew for the third consecutive quarter although at a lower rate. Growth in multi industrial and med tech customers for both R and D and manufacturing solutions was partially offset by contraction in U. S. Education funding and continued normalization in the distribution channel. Moving to software, Design engineering software orders grew double digits reflecting a healthy demand for our RF EDA solutions.
17m 51s
We're seeing growing interest from industrial customers looking to apply simulation and virtual prototyping in the mechanical domain. With respect to our recent ESI acquisition, we're enabling next generation industrial design by delivering a panel forming solution to a large European auto OEM that will drive efficiencies their manufacturing processes and optimize their production timelines. In closing, we're pleased with the recovery that's underway. Our end markets have largely performed in line with our expectations heading into this year and I'm once again proud of the Keysight team's execution in this quarter in what remains a dynamic environment. Keysight's broad portfolio of differentiated solutions positions the company to outperform in a variety of market environments. We continue to make deliberate multi year investments aligned with long term technology trends creating opportunities now and into the future. As we move through the second half, we remain focused on executing on what we control and continuing to deliver value to our customers and stakeholders. With that, I'll turn it over to Neil to discuss our financial performance and outlook. Thank you, Satish, and hello, everyone.
19m 12s
Second quarter revenue of $1,306,000,000 was above the high end of our guidance range, up 7% on a reported basis and 8% on a core basis. Orders of $1,316,000,000 were up 8% on both the reported and core basis. Looking at our operational results for Q2, we reported gross margin of 65%. Operating expenses were $516,000,000 up 4% Q2 operating margin was 25% and increased 100 basis points over last year. Turning to earnings, we achieved $295,000,000 of net income and delivered earnings per share of $1.7 Our weighted average share count for the quarter was 173,000,000 shares. Our Q2 results included approximately $7,000,000 of new tariff expense expenses in cost of sales, which had a 60 basis point unfavorable impact on both gross and operating margins. And resulted in an approximately $04 reduction in earnings per share. Moving to the performance of our segments. The Communications Solutions Group generated second quarter revenue of $913,000,000 up 9% on a reported and core basis. Commercial Communications revenue of $612,000,000 was up 9% reflecting sustained strength in wireline and growth in wireless. Aerospace, defense and government achieved revenue of $3.00 $1,000,000 an increase of 9%. Altogether, CSGE delivered 67% gross margin and 26% operating margin.
20m 50s
The Electronic Industrial Solutions Group generated $393,000,000 in revenue, an increase of 5% growth in semiconductor and general electronics more than offsetting a decline in automotive and energy. EISG delivered 59% gross margin and 23% operating margin. Software and Services accounted for approximately 36% of Keysight revenue while annual recurring revenue was 28% of total mix. Moving to the balance sheet and cash flow. We ended the quarter with $3,118,000,000 in cash and cash equivalents, generating cash flow from operations of $484,000,000 and free cash flow of $457,000,000 In April, we issued senior notes for an aggregate principal amount of $750,000,000 We intend to use the net proceeds for general corporate purposes, which may include partially funding the previously announced acquisition of Spyrant. With regard to pending acquisitions, the UK Competition and Markets Authority cleared the Spirent transaction in March, We are progressing through the review process with other regulatory agencies and expect the transaction to close in Keysight's third fiscal quarter. In addition, the acquisition of Optical Solutions Group and Power Artist is anticipated to close shortly after the to ANSYS transaction is completed. Lastly, we repurchased 1,042,000 shares this quarter at an average price of approximately $144 for a total consideration of $150,000,000 Now turning to the current environment.
22m 31s
Tariffs and our outlook. We have a diversified global supply chain minimal exposure to China and have already taken action across multiple vectors to reduce the incremental impact of tariffs. Our multipronged mitigation approach spans our global manufacturing footprint and sourcing strategies as well as pricing and cost actions. Based on actions taken to date, we estimate our annual exposure at approximately 75,000,000 to $100,000,000 We are working to further reduce this exposure and offset any remaining impact. Given the high priority that we place on maintaining our long term customer our pricing actions were not applied to pre tariff backlog. As a result, and assuming tariff rates remain at the current levels, the most significant tariff impact is expected in Q3 with full mitigation by the end of the fiscal year. Keysight currently has $2,400,000,000 in backlog and enters Q3 with a solid scheduled shipment position. Despite the dynamics and uncertainty of the current macroeconomic environment. As Satish mentioned earlier, at this point, we have not seen any material adverse effects on demand from tariffs and are therefore raising our full year growth expectations.
23m 49s
We now expect FY 2025 revenue growth at the midpoint of our 5% to 7% long term target and annual EPS growth slightly above our long term 10% target. For the third quarter, we expect revenue in the range of $1,350,000,000 to $1,325,000,000 dollars and Q3 earnings per share in the range of $1.63 to $1.69 based on a weighted diluted share count of 173,000,000 shares. Implied in this guidance is the assumption that tariffs remain at current levels for the year. With that, I will turn it back to Paulina for the Q and A. Thank you, Neil. Operator, will you please instructions for the Q and A, please? The first question comes from Tim Long with Barclays. You may proceed. Hi, Tim.
25m 3s
Hi.
25m 5s
Maybe one and then a follow-up. Just if we could just go back to AI, I know you guys have been giving us examples each quarter of where you guys are seeing traction. Seems like across hardware ecosystem and emulation simulation as well. Can you just kind of update us on what kind of new activity you're seeing there and how meaningful it is for the business? And then just on the follow-up, if you could just give a little bit more color on the orders and and pipeline to get to the full year guidance. I think normally we do see orders pick up towards the second half of the year. So just curious what you're seeing in pipeline to get confidence in the second half.
25m 46s
Thank you. Thank you, Tim. Obviously, AI we view it as a long term secular trend. And with a clear multiyear roadmap that's forming and a great fit to our strategy of not only being a physical AI tool provider, but also going up the stack with physical and protocol layer and offering more solutions to customers. The big mega trends are clear, right? We all know the AI workloads are growing. And we're making contributions around on a number of technology fronts including in memory, compute, networking, with new standards that are forming. So our broad portfolio is really in play as we engage with these customers And where we see the industry right now is trying to solve a number of the scale up and scale out challenges as they deploy this digital infrastructure, right? So that's the action or activity that's being driven. And we had another strong quarter. So for the first half, last year we said our wireline business was roughly $1,000,000,000 or over $1,000,000,000 I should say in sales. And for the first half it grew double digits. So we feel good about our position in this emerging space. And we think it's a long term growth opportunity for us that we're very excited With regard to the progression of orders and what's baked into our guide, again, look, I think we've said this before that we despite all the uncertainty and chatter out there and the customers are obviously attention to all the tariff talks and all the macro concerns.
27m 29s
We have not yet seen any material change in customer behavior with regard to their immediate plans. And so as we enter the quarter, we obviously had a strong finish for Q2. As we enter Q3, our pipeline is solid and supports our guide. And we had a pretty strong uptick in pipeline activity as it relates to the second half. So we feel good about the second half. Obviously, there are risks that we're monitoring like everybody else. But we're focused on what we control and feel confident about where we stand today.
28m 4s
Okay. Thank you. Thank you. Thank you. The next question comes from Matt Niknam with Deutsche Bank.
28m 16s
Guys. Thanks so much for taking the question. One question and then one follow-up. I guess, first, on my main question, you obviously raised the top line outlook, I guess on average by about 100 bps relative to the prior 5%. So I'm curious maybe where you're seeing a little bit of an incrementally improved view relative to three months ago. That's the first question.
28m 39s
Second, just a follow-up on cash flow from ops, it was meaningfully stronger. I'm just wondering maybe for Neil, anything unique on the working cap side? And then maybe how to think about cash flow from ops and working cap over the duration of the fiscal year? Thanks.
28m 55s
Thank you. I think again as I mentioned before we looked at the over performance we've had in the first half we take a look at our pipeline of opportunities we have, the strong backlog position we have, and we then have applied this to essentially the raise of top line expectations for the full year. Again, there's a lot of macro risks and other things people are monitoring. But we have not seen any material change in customer behavior. And if you recall at the beginning of the year, we said we thought this year would be a slow gradual recovery in our markets. And we feel like that's exactly the trajectory we're on. So that's where we find ourselves at the end of the first half and feel confident about where we are. But like everybody else, we continue to monitor monitor the the risk due to tariffs and the geopolitical environment.
29m 50s
Yes. So the only thing I would add to that, that Satish just said with regard to our outlook for the year, as everybody knows, we tend to see a seasonal uplift in the fourth quarter.
29m 59s
We're still expecting the fourth quarter to be our strongest quarter of the year and that lends to that guidance increase. As it relates to cash flow, yes, so obviously strong cash flow within the quarter. There are a couple of things in there. First of all, that did include a little less about $60,000,000 worth of a gain on a hedging contract associated with the purchase price for SPIRANT. We had put a contract in place about a year ago set to expire at the end of our first half, which was our original thought on timing of the close of that transaction. So we closed out that transaction and rolled it forward. But when we closed it out, we did recognize about a $60,000,000 gain on that hedge. In addition, we did see some working capital improvements. Inventory days were down by about 10. DSO was down by about three. So that contributed to to the strong cash flow performance as did significantly lower tax payments than in the year ago quarter.
31m 8s
Thank you. The next question comes from Mark Delaney with Goldman Sachs. May proceed.
31m 15s
Yes, good afternoon. Thank you very much for taking my question. Hoping to better understand that tariff topic. Maybe first one, just to level set everyone, including myself, the 75,000,000 to 100,000,000 is that the gross amount of exposure you have and the net effect this year is maybe something less than that? Or is the 75,000,000 to $100,000,000 what you expect the drag on profits to be for this year?
31m 40s
Yes. So 75,000,000 to 100 to $100,000,000 is a gross annualized number. Obviously, this thing went into effect in April, so we only have a little less than seven months of total impact. So 75,000,000 to $100,000,000 is the gross number. We are working to offset that, although as we said in our previous remarks, to the extent that we're passing those costs on to customers, we've made no attempt to reprice backlog. And given that we entered Q3 with about $2,400,000,000 of backlog, it's going to take some time for that for those offsets to materialize. And so relatively little here in Q3, a little bit more in Q4. But by the time we get to Q1, we expect to have those tariff costs fully mitigated.
32m 26s
Helpful, Neil. And that was what my was on. If you're not raising price on backlog, maybe you can help us better understand the mitigating actions that you are taking and your confidence and mitigating the tariffs as you exit the year? Thank you.
32m 41s
Yes. So I mean, think as we think about tariffs, we think of kind of two opportunities. One, what are the actions that we can take to reduce our overall tariff exposure, leveraging our global supply chain leveraging our manufacturing footprint, taking actions to actually reduce tariff costs And then once we get to kind of we've optimized the tariff costs, side, the question is, what can you do to further mitigate either by pass those costs on via price or surcharges of some sort or reducing costs elsewhere in your P and L. And so we have actions going on across all of those work streams. Now when I said we're not raising price on existing backlog, right, essentially, said, hey, if you had orders that were already on our books, that we we weren't gonna go back and try and recover tariffs on those. But we had taken actions forward looking on new quotations starting in about mid April.
33m 39s
Yes, Mark, is Satish. Just to chime in, we have a pretty resilient supply chain operations that is agile and we have a considerable amount of operational realignments that we can still work on because at this point, we're assuming 10% tariff start up is the base case for us. And should that materially change, we would be prepared to respond to those scenarios as well.
34m 8s
Customer pricing and strategies, it's definitely a part of it. But it's also all the other operational alignments that we can make with our partners who we have a multiyear relationship with that can help us scale geographies if needed.
34m 27s
Okay. Thank you very much. I'll pass it on.
34m 30s
Thank you. Thank you.
34m 38s
The next question comes from Meta Marshall with Morgan Stanley. You may proceed. Great, thanks. A couple of questions for me. Just one, know that your aerospace and defense business is kind of relatively split between kind of U. S. And allies. But just wondering if you had seen any kind of pushback on ally orders that were aligned to U. S. Programs or just kind of any commentary you could kind of give on aerospace and defense? And then just also kind of following up on that of noted that you said kind of minimal China impact, but just how much of that 75,000,000 to 100,000,000 of impact that you guys are talking about from a growth perspective is from shipping into China versus kind of shipping into The US?
35m 28s
Thanks.
35m 30s
Thank you, Meta. I'll take the aerospace defense and Neil can quantify the China impact. I'll just say that the strong quarter with growth in orders, as I mentioned, even under a continuing resolution. That we've been operating under And this is unprecedented that we're still under continuing resolution maybe for the full year. And so that doesn't limit growth in new programs and such. But we saw some good orders bookings again with our prime contractors in The U. S. And actually had a double digit order growth in our European business. Just to give you some examples, we were awarded by NATO four acts contract which is public to modernize radar and electronic support measures. We also were selected by the U. S. Army for for validating Zero Trust security on the unified network. So spend environment remains strong, especially with the prime contractor backlog. Again, this is a business I want to remind you, it's always difficult to call on a quarterly basis but easier to call on a longer term because the trends are clear. And we look at it longer term and say, The U. S. Budget next year is likely to go up European budgets for defense are likely to go up with the programs being put in place.
36m 51s
And so and we feel good about our portfolio position in Aerospace Defense.
36m 56s
Yes, Meta. And just to get to the question about China. So U. S.-China, China U. S, both directions is less than 10% of total tariff exposure.
37m 7s
Okay, great.
37m 8s
Thank you.
37m 12s
Thank you.
37m 13s
The following comes from Aaron Rakers with Wells Fargo. You may proceed.
37m 19s
Yes. Thanks for taking the question.
37m 22s
Two, if I can. I'll just ask them right away as well. So so first, I I think, Neil, you know, as we as we talk about the guidance and getting north of that 5% growth or in that 5% to 7% range that you alluded to. You just remind us again of how we think about the incremental margin for the company? I think all the way back at the Analyst Day, you talked about anything north 5% dropping through like a 40% incremental margin. And and what I'm trying to get to is just the pace of how we could think back to, you know, getting op margin, you know, back above 30%. And then as a follow-up or as the second question, I should say, is that can you talk a little bit about the wireless business?
38m 1s
That I think, previously talked about is kind of think of that as being stable But it sounds like that's actually performing a little bit better. How do you think about the durability of that wireless business? Thank you. Yeah. So why I I'll I'll start with the first one here on the incremental. You're absolutely correct. What we've basically said is any time our business is growing 5% or better that we would expect to drop through that growth at an operating incremental of about 40%. Now I would point out that the tariffs are new and substantial incremental costs that are in the short run going to impact our ability to deliver on that incremental.
38m 46s
And on the wireless business?
38m 48s
Yeah. On the on the wireless business, again, we're continuing I would say the headline is we're continuing to see stability strength in the infrastructure side, still the smartphone related businesses, some segments are so soft. Especially in China. So still monitoring but stable but soft. I would say the real strength is in the network infrastructure side with Open RAN, some of the latest standards releases with AI and some early six gs research really driving some of the spend and customer engagements. But we have a strong position in this space and we continue to invest for the longer term here to maintain our leadership and in the space.
39m 40s
Thank you.
39m 41s
The following comes from Robert Jameson with Vertical Research. You may proceed.
39m 47s
Hey, good afternoon. Thanks for taking my questions and nice quarter. Just quickly on Software and Services, it's a growing part of the business. 36% of revenue, recurring is almost 30% now. Are there any investments that you're making to further accelerate growth here to given the margin profile of those businesses?
40m 8s
No. Thank you. Again, a big part of our strategy and if you look at the business and how it performed in a downturn, as you rightfully point out, is a function of software and services because it's been such a big part of the company's resilience especially even as top line comes under some pressure. So we this is clearly the area of focus across all our businesses. We have a a strategy to grow the software and services. But one particular area really excited we saw double digit growth in our simulation business as an example. It's an area where we placed a lot of M and A dollars and focus. If you remember, we acquired ESI and now we're also potentially beneficiaries of this of the Synopsys ANSYS transaction where we might get a couple more acquisitions to bolster our presence in simulation space And it does two things, right? It increases our software and recurring revenue but equally it allows us to engage with our customers earlier in the design cycle, which again fits our strategy of being a bigger of being a bigger player in the R and D parts of our market. And now as recovery does happen in our end markets, you will see that number maybe take back as a percentage of the total mix just a little because we're starting to see some of our core business recover.
41m 35s
But I think the long term we still feel like there's more upside to driving the software as a percentage of revenue.
41m 45s
And then, just on AI, I mean, it's been consistent theme and and growing nicely. But, you know, and maybe you addressed this earlier, but beyond testing of like the high speed and network infrastructure. Know, are there any other kind of test applications, or demand that seeing from customers within that realm? Or is that kind of know, coming from some of the emulation stuff that you mentioned on, you know, testing of how compute latency, etcetera, is is working its way through the data centers they are you know, reconfiguring things for, you know, higher network speeds and things like that.
42m 23s
Yes. I think, it's important to characterize this not just as cable test but it's important to characterize it as the challenges in the digital infrastructure that's being put in place for AI are very different. Right? When customers are trying to look at the scale up and scale out challenges they face, what might be an interconnect really turns into a mission critical fail point. If it's not performing right and the cost of failure gets gets up pretty substantially. So engaging with our customers on those mission critical needs that they have today. But equally from a strategic sense, we're looking at where is the industry going in five years. And I can tell you that state of the art and the technology keeps keeps growing. There's this roadmap that's forming around multiple dimensions and we're participating in those. To enable it. So we're there for our customers. And what we see is a big trend of pulling in the timelines because of the rapid increase in the AI workload, right, So all of this is pretty rich opportunity for us. We've also along the way have design wins in the software emulation space which allows customers to isolate their performance in the AI data center and say where is the bottleneck to get the to get the true performance?
43m 42s
So we're working with them on those as well. So across the board, across physical and protocol layer, continuing to grow our contributions to this marketplace.
43m 54s
Great. Thank you very much. Thank you. Thank you. The next comes from Rob Mason with Baird. May proceed.
44m 3s
Yes. Good afternoon. Just a couple of questions. On the General Electronics business, I'm curious just given all the realignment of supply chain activity, maybe it's round two versus tariffs the last time. As companies look at where their manufacturing footprints you know, need to reside Can you just speak to maybe the impact on that business from a demand side And again, I'm maybe thinking more on the production test side if if that's an influence. And then I'll just go ahead and ask my follow-up You know, Neil, could, just to to think about the tariff impact in the third quarter, is it kind of roughly a doubling of what you experienced in the second?
44m 48s
Yes. I'll take the second one first here. I think it's likely a little bit more than that. We had about three weeks of tariff impact in April. Versus obviously a full quarter. Now we have already taken some mitigating actions that are having a positive impact. So I don't think you can extrapolate totally forward from $8,000,000 just based on the number of weeks dollars 7,000,000 it is a little bit more than a doubling. It is more than a doubling of what saw in Q2 just given the time involved.
45m 21s
Yes. I think when you look at the general electronics business, given it's a broad marketplace for us in terms of the number of different types of applications that end market represents. We see no change in sort of the areas such as digital health, and research because those tend to be durable in nature. And the manufacturing parts of it do move around. So on one hand, China still remains weak in that that area. But I would say that there's a lot of recent conversations we're having with customers because they are trying to diversify their manufacturing footprint. Now it's not materially yet reflected in our results, but could be an opportunity for us to engage in that we're working with our customers on. So it's still early days. But it's driven by the tariffs and what might happen there's a lot of scenario planning that's occurring and it will be 'll probably be playing out over the next ninety to one hundred eighty days.
46m 25s
I see. Thank you. Thank you.
46m 30s
The following comes from Adam Thalhimer with Thomas Davis. You may proceed.
46m 35s
Hey, good afternoon guys.
46m 37s
Great quarter.
46m 39s
Thank you, Adam. Can you parse through orders a little bit? I'm curious if there was any to what extent you saw pre buy activity ahead of any surcharges and what our expectation should be for order trends after the surcharges went into effect?
46m 57s
Yes. So I'd say just taking a look at the orders in Q2, orders progressed fairly linearly in the quarter. The funnel conversion was what we expected. We had a strong intake in the funnel as well. Which is what we reflected into Q3. And then I would say, our April was strong. In part because it's the end of our first half for our compensation for our sales force. So, it does tend to have a strong April. So no no real change. We didn't see any any difference in pull in, outs or cancellations or anything of that kind. And that's why we our position is while customers are watching the macro and evaluating the risk associated with it, we haven't seen any material change in customer behavior.
47m 53s
Good to hear.
47m 54s
And then, secondly, I wanted to ask about Asia.
47m 57s
Revenue there was really strong in the quarter. And maybe you can just give some high level thoughts on China demand.
48m 6s
Yes. I would say Asia was strong. And again, it's it's across all of our segments really, commercial communications being the leader, semiconductor saw strong demand as new new nodes and new technologies such as silicon photonics are being being deployed and general electronics also had some growth in Asia. I would just maybe make a comment about China. Orders were flattish for the quarter in China. With strengths in a few sectors. But clearly the as I mentioned before the electronics with the manufacturing exposure was weak and automotive in China was also weak. We continue to monitor the POS demand, although we have a very small indirect business. We continue to monitor that. It seems largely in line. So China I would say continues to hold up hold well in this environment.
49m 8s
Thanks, Satish. Thank you.
49m 13s
Thank you. The next question comes from Samik Chatterjee with JPMorgan. You may proceed.
49m 21s
Thanks for taking my question. Satish, maybe if I can sort of try to hi. Hi. Good to hear from you. On the drivers of wireline demand, and yeah, no, thank you. Drivers of wireline demand, I'm trying to sort of address that maybe in terms of how to think about sustainability your customers clearly are doing well on volume, but how should we think about the strength you're seeing driven by progress on R and D from your customers relative to maybe sort of what they're seeing on volume outlook and driven by production. So maybe if you can share any color about know communications is very R and D aligned for you, but what does it look like for wireline? And is the demand you're seeing there, are you selling new testers when it comes to like either silicon photonics or CPU support? Or are you just seeing more sort of customers buying just because their volume outlook stronger? Anything you can share on that front? And I have a follow-up. Thank you. Good. That's a great Samik. I think, I would just say when we looked at our wireline business, say, a year or two ago, we have said that majority of the business R and D And I would probably put it as eightytwenty ish roughly as the ratio of R and D to manufacturing.
50m 38s
Now we've probably seen a 10 swing in the manufacturing in that area, but that's sort of where we are still heavily managed R and D oriented. But we're clearly also benefiting from all of the manufacturing activity that's happening as the industry is trying to ramp for digital infrastructure. But when I look at the portfolio of products that we service, all the way from early R and D to call it mainstream or R and D or validation through deployment, whether it is with our AWG, SPIRTS, scopes, our silicon photonics, wafer test systems, network analyzers, software with our AI benchmarking and network speed emulators. So pretty broad category of products that we're selling to And actually as we as I think about the whole first half, I would say the number of customers that participated in that has also grown for us.
51m 34s
Which is a good sign that the ecosystem is expanding. As more companies are coming in driven given that this is going to eventually be a longer term opportunity.
51m 46s
And when I look at the look at some of the data trends that are going on and the standards progressions, really bodes well for R and D business. We'll have some times when we'll pick up manufacturing demand as well because we have a portfolio. But strategically, the R and D business is more valuable to us. Okay. Got it. Got it. And for my follow-up, if I can sort of stay with the wireline demand, but more, of when we think about adoption of technologies like CPU and silicon photonics, I'm imagining sort of visualizing it as more of the test demand moves towards a bit more sort of semiconductor level testing. So anything you can share there in terms of how you see the competitive landscape Does it change from what you've had in sort of 400 gig, 800 gig? And, do you think you have the sort of entire stack to address some of those complexities? Or is there something that you need to add to the portfolio to address sort of when the overall sort of technology moves more closer to semiconductor testing? No. You're very astute to pick up the change, right? Between electrical to optical or that conversion.
52m 59s
It's been an area of emphasis and investment for us. Especially as things go into silicon This is why we invested about eighteen months ago intercept the demand from silicon photonics. We talked about this on a call.
53m 14s
As well.
53m 15s
And we're now benefiting from that. That requires bringing together optical capabilities with our with our electrical capabilities and probing and complex metrology. So, really in our wheelhouse as a company to go after this opportunity. Co packaged optics is another great example of what I saw from customers. I think that's accelerating as well. And if we need more capabilities, we can acquire talent But I think we have a strong foundation to start with today. That we actually at OFC we showcased multiple first in this area four forty eight gig transmission, key enabler of 3.2 terabits. And so on and so forth. So we had about 50 demonstrations. So it will continue to grow. But you're right, this is where the puck is moving to and we find ourselves having a strong foundation to intercept this.
54m 8s
Okay, great. Thank you. Thanks for taking my questions.
54m 11s
Thank you.
54m 13s
Thank you. We have a question from Mehdi Hosseini with SIG. You may proceed.
54m 20s
Yes.
54m 22s
Thanks for letting me ask the question. One follow-up on the wireline. Satish, I just want to look at the big picture. You talked about the the connection is moving from copper to actually moving towards optical. And when you look at the entire market for both networking tests as well as the testing that happens with the component and component migrating to optical. Would it be fair to say that your content would would increase as you migrate from 800 gig to 1.2 terabyte. And if content increases, including both system level test and semiconductor, what is the magnitude of the increase? Or you can are they help us qualitatively or quantitatively? Ly? And I have a follow-up.
55m 16s
No. That's look. I think I I don't know that I would say that from what we see that it's either going to be electrical or optical. I think it's electrical for some applications where you obviously have a better sort of economics and then optical where you need the performance and which where the puck is moving to. So I think this sort of hybrid is where the solutions are needed. And I think being a company that has both technologies we find ourselves in a really good position across the stack. As you pointed out, memory, compute, networking, so on and so forth. Now with regard to the magnitude of the opportunity typically as the complexity goes up, we would see the the types of solutions that customers need, especially in early R and D tend to be more complex. And therefore, we're adding more value to our customers as we get there. Now as those technologies mature, obviously the puck moves to the next one. And therefore the volume may drop on the previous technology. It's always the case that that happens. But the net effect of these overlapping waves of technology is it's it really supports our long term growth expectations for the company that we have set to be in the five to 7% range.
56m 35s
Okay.
56m 36s
And then a follow-up for Neil. I just take a midpoint of your revenue guide for fiscal year twenty twenty five, assuming that the sequential growth is stronger in October versus July, And embedding the tariff impact into your margin profile, would it be fair to say that there is a a slight decline in operating margin from April to July and it would go kind of sideways from July to October. So your fiscal year twenty five operating margin would be kind of flattish compared to fiscal year twenty four?
57m 14s
One second.
57m 18s
Yeah. I mean, I think as as as we look forward here, I think we're we're we're kinda range bound, I would say. You know, in in a pretty tight range. Obviously, we're going to see would expect to see a seasonal uplift here as we move from Q3 to Q4. But and as always, we would expect that absent tariffs to continue to drive a strong incremental on that on that that flow through. [indiscernible] Thank you. Yeah.
58m
That concludes our question and answer session for today. I would like to turn call back to Paulina Sims for any closing comments. Thank you, Tamiya, and thank you all for joining us today. Have a great rest of your day. This concludes our conference call. You may now disconnect.
Key Insights
Keysight delivered Q2 revenue of $1.306 billion and EPS of $1.70, both exceeding guidance, with orders up 8% year-over-year and a strong pipeline supporting raised full-year growth expectations.
The company is mitigating $75–100 million in annualized tariff exposure through supply chain adjustments, pricing actions on new orders, and expects full mitigation by fiscal Q1 2025; minimal China exposure (<10% of tariff impact).
FY2025 revenue growth is now expected at the midpoint of the 5–7% long-term target, with annual EPS growth slightly above the 10% long-term target; Q3 revenue is guided at $1.325–1.350 billion and EPS at $1.63–$1.69.
Commercial Communications and Aerospace/Defense segments saw strong double-digit order growth, driven by AI data center infrastructure, R&D in high-speed networking, and robust defense spending in the US and Europe.
Software and Services accounted for 36% of revenue (28% recurring), with double-digit growth in simulation software; Keysight continues to invest in software, emulation, and acquisitions to expand its portfolio and recurring revenue base.
