Keysight Technologies, Inc. (KEYS) Q1 2026 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call presents several positive indicators: strong revenue growth guidance, successful acquisitions contributing to revenue, and robust demand in AI and defense sectors. The Q&A section highlights broadening customer base and increased demand, particularly in AI. Although there are some uncertainties regarding TAM sizing, the overall sentiment remains positive due to the strategic tailwinds and solid financial metrics. The market is likely to react positively to these developments.
Key Financial Performance
Total Company Revenue $1.600 billion, up 23% on a reported basis with acquisitions adding 8 points and currency 1 point. On a core basis, revenue grew 14%.
Orders $1.645 billion, up 30% on a reported basis and up 22% on a core basis.
Gross Margin 66.7%, up 90 basis points, driven by favorable product mix, including the addition of higher gross margin revenues from recent acquisitions.
Operating Expenses $628 million, in line with expectations as investments in next-generation R&D continued.
Operating Margin 27.4%, up 20 basis points.
Net Income $376 million and earnings per share of $2.17, both up 19%, driven by strength in the core business and 41% core operating leverage.
Communications Solutions Group Revenue $1.124 billion, up 27% on a reported basis and up 16% on a core basis with a gross margin of 68.5% and operating margin of 27.5%. Commercial communications revenue was $758 million, up 33%, and aerospace, defense, and government revenue was $366 million, up 18%.
Electronic Industrial Solutions Group Revenue $476 million, an increase of 15% with growth across all three markets: general electronics, semiconductors, and automotive. Gross margin was 62.4% and operating margin was 27.2%.
Software and Services Revenue Accounted for approximately 40% of Keysight revenue while annual recurring revenue was 29% of total mix.
Cash and Cash Equivalents Approximately $2.200 billion, generating cash flow from operations of $441 million and free cash flow of $407 million.
Stock Repurchase Approximately 420,000 shares repurchased at an average price of $207 for a total consideration of $87 million.
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Operating Highlights
AI-driven technology transformations: Keysight's portfolio supports increasing design complexity and innovation acceleration, leveraging AI-driven transformations.
Wireline and wireless solutions: Wireline achieved record orders, driven by demand for R&D and manufacturing solutions, marking the ninth consecutive quarter of growth.
Optical interconnects: Adoption of optical interconnects is accelerating, supported by Keysight's Digital Communication Analyzer and Lightwave Component Analyzer.
AI infrastructure validation: Keysight's solutions enable end-to-end validation for AI infrastructure, engaging with hyperscalers early in the development cycle.
Aerospace, defense, and government: Record orders and growth driven by defense modernization and heightened global focus on deterrence.
Semiconductor market: Accelerated investments in high-bandwidth memory and AI-driven capacity expansion.
Automotive and energy: Stable environment with growth in EV and robotaxi-related manufacturing and R&D investments.
Revenue growth: Achieved $1.6 billion in revenue, up 23% year-over-year, with core growth of 14%.
Operating margin: Operating margin increased to 27.4%, driven by favorable product mix and higher gross margin revenues.
Cash flow: Generated $441 million in cash flow from operations and $407 million in free cash flow.
Acquisition integration: Integrations are on track, with $375 million in acquisition-related revenue expected for fiscal 2026.
AI and 6G R&D: Expanded early 6G R&D engagements and collaborations with industry leaders for AI and wireless advancements.
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Risk or Challenges
Regulatory and Tariff Uncertainty: The company is still assessing the impact of the recent Supreme Court decision regarding tariffs, which introduces uncertainty into future financial performance and operational planning.
Supply Chain Resilience: There is an uptick in activity across the wireless supply chain driven by AI edge devices and manufacturers' supply chain resilience priorities, indicating potential challenges in maintaining supply chain stability.
Defense Modernization and Geopolitical Risks: Heightened global focus on deterrence and defense modernization priorities, along with rising defense budgets, reflect geopolitical risks that could impact operations and demand.
Funding Variability in Education and Research: Lower funding in the U.S. for education and advanced research could impact growth in these sectors, though partially offset by strength in Asia.
Economic and Market Conditions: The mixed end market environment in automotive and energy sectors, along with stable but not robust EV and charging R&D investments, indicates potential economic and market-related challenges.
Integration of Acquisitions: The integration of recent acquisitions and realization of cost synergies are heavily weighted to late 2026, which could delay operational efficiencies and financial benefits.
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Guidance & Outlook
Revenue Expectations: For Q2 2026, Keysight expects revenue in the range of $1.690 billion to $1.710 billion, representing 30% year-over-year growth at the midpoint. For fiscal 2026, total annual revenue growth is expected to be just above 20%.
Earnings Per Share (EPS) Projections: For Q2 2026, Keysight expects earnings per share to be in the range of $2.27 to $2.33, representing 35% year-over-year growth at the midpoint.
Acquisition-Related Revenue: Keysight expects $375 million in acquisition-related revenue for fiscal 2026, with synergy targets of more than $100 million in run rate cost synergies and operational efficiencies, heavily weighted to late 2026.
Market Trends and Growth Drivers: Keysight anticipates sustained demand driven by AI infrastructure scaling, higher speeds in Ethernet-based AI networking, adoption of optical interconnects, and system-level validation for AI clusters. Growth is also expected in non-terrestrial networks, 6G research, and defense modernization.
Segment-Specific Outlook: The Communications Solutions Group is expected to continue benefiting from growth in wireless, wireline, and aerospace/defense markets. The Electronic Industrial Solutions Group anticipates growth in general electronics, semiconductors, and automotive markets, driven by AI-related innovation and infrastructure investments.
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Shareholder Return Plan
Share Repurchase: This quarter, we repurchased approximately 420,000 shares of Keysight's stock at an average price of approximately $207 for a total consideration of $87 million.
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Key Q&A
Q:Can you unpack the growth drivers in the wireline business, particularly the contributions from AI and optical interconnect?
A:AI exposure was about 10% of company revenue in Q4 last year, with robust order growth significantly above the company average of 30%. Demand is broadening across the customer base, with doubled customer numbers. Both R&D and manufacturing grew year-over-year.
Q:How do you view the current operating margin leverage with 20% growth?
A:The business model is designed to deliver 40% core leverage on mid-single-digit or better growth. This quarter delivered 41% leverage. Acquisitions are currently dilutive to operating margin but are expected to be accretive after achieving $100 million in cost and synergies.
Q:Is the strength in AI orders due to existing customers expanding implementations or new customers entering the market?
A:The customer base includes silicon companies, manufacturing ecosystems, hyperscalers, and neoclouds. There is a broadening of the customer base, with more international business, including Southeast Asia.
Q:Do you view the increased aerospace and defense budgets as a new trajectory or a new run rate?
A:The quarter reflects delayed spending from last year and increased defense spending in Europe. Prime contractors in the U.S. are investing more in R&D and capacity. The business is well-positioned with supportive budgets.
Q:Are emerging AI use cases and technologies additive to the current business?
A:Yes, concurrent technology waves are happening at an unprecedented rate. Keysight's full-stack offerings and solutions are well-positioned to address these emerging use cases.
Q:How is the software and services mix contributing to margins?
A:Software and services accounted for 40% of the quarter's revenue, with software specifically above 25%. Acquisitions have added 3 points to the software mix. The mix shift is gross margin positive.
Q:What are the expectations for the second half of the year, and how much visibility do you have?
A:The company expects over 20% top-line growth for fiscal '26, with strong visibility for Q2 and decent visibility for Q3. Organic growth is expected to remain above the long-term model even in the back half of the year.
Q:How is the supply chain performing, particularly for DRAM and memory?
A:The company is prepared for scaling the business and is not significantly exposed to high-end memory demand. Price increases in memory have been factored into the outlook.
Q:What is the competitive landscape in the AI business, and how is pricing?
A:Keysight's solutions-oriented approach and in-house tech stack provide differentiation. The company participates in standards bodies and focuses on designing competitive products that grow gross margins.
Q:Is the acceleration in Q2 revenue due to easing supply constraints or increased demand?
A:The acceleration is largely due to increased demand, particularly as AI infrastructure is deployed at scale.
Q:What is the TAM for NTN ecosystems and new LEOs?
A:It's too early to size the TAM, but the company sees opportunities in integrating terrestrial, airborne, and satellite communications, as well as sensing technologies.
Q:What is the linearity of orders in Q1, and will orders outpace revenues in Q2?
A:Q1 saw strong demand throughout the quarter. In Q2, orders and revenue are expected to be close, with some larger deals shipping in Q2.
Q:What is the mix of software and hardware, and R&D versus high-volume manufacturing?
A:Software and services were 40% of revenue, with software above 25%. The mix is slightly below 60% R&D due to manufacturing opportunities in wireline.
Q:When will scale-out opportunities materialize, and what is the TAM?
A:Opportunities exist in both scale-up and scale-out, with R&D activity in 1.6 terabit and 3.2 terabit technologies. TAM details were not provided.
Q:Why is there a significant increase in revenue guidance?
A:The increase is due to broad-based demand across all businesses and regions, with compounding momentum from strategic tailwinds like AI, defense modernization, and next-gen semi.
Q:What is the risk of AI disrupting Keysight's software business?
A:Keysight's software is deeply integrated with its solutions and based on decades of physics expertise. AI is being embedded into tools to enhance usability and simulation capabilities.
Q:Where is the AI customer base expansion, and is it early in the cycle?
A:The customer base is expanding, particularly among U.S. hyperscalers. Sovereign investments and new use cases are expected to drive future growth.
Q:How are the Spirent and other recent acquisitions performing?
A:The acquisitions are on track to deliver $375 million in revenue for the year, with synergy realization progressing as planned.
Q:What is driving the rapid pace of innovation in wireline, and how does it affect spending cycles?
A:Concurrent designs in 800 gig, 1.6 terabit, and 3.2 terabit technologies are driving innovation. Spending cycles are accelerating due to the need for advanced networking fabrics in AI clusters.
Q:How is the company prioritizing capital allocation?
A:The focus is on organic growth, scaling capacity, and balancing capital returns through buybacks and accretive M&A. The company has a $1.5 billion stock buyback authorization.
Q:Review of Unclear Management Responses
A:Management avoided providing a specific TAM for NTN ecosystems and new LEOs, stating it was too early to size the market. Additionally, they did not provide detailed TAM information for scale-out versus scale-up opportunities in wireline.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
AI edge
AI infrastructure
Analyzer
Communication
Digital
EV
PNT portfolio
RD production
Relations website
Vice President
architecture
automation
basis margin
capacity
case
characterization
defense modernization
development
device
electronics semiconductor
industry leader
intensity
interconnects
lane
margin basis
market electronics
measurement
midpoint share
mix
move
point core
precision
record order
region
requirement
set
solution design
solution generation
space satellite
start
tailwind
tera
transceiver module
KEYS Transcript
Keysight Technologies, Inc. (KEYS) Q1 2026 Earnings Call Transcript
Positive2-23
The earnings call presents several positive indicators: strong revenue growth guidance, successful acquisitions contributing to revenue, and robust demand in AI and defense sectors. The Q&A section highlights broadening customer base and increased demand, particularly in AI. Although there are some uncertainties regarding TAM sizing, the overall sentiment remains positive due to the strategic tailwinds and solid financial metrics. The market is likely to react positively to these developments.
Keysight Technologies, Inc. (KEYS) Presents at Barclays 23rd Annual Global Technology Conference Transcript
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Positive11-24
The earnings call reveals strong financial and strategic positioning: raised full-year revenue and EPS growth outlooks, resilient demand, and robust semiconductor demand. The Q&A highlights effective tariff mitigation, strategic acquisitions, and positive AI and wireline growth, despite mild EPS dilution. Operating margin targets and free cash flow outlook remain strong. The absence of market cap data implies a moderate reaction, leading to a positive stock price prediction.
KEYS Slides
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Keysight Q4 2025 slides: 10% revenue growth fueled by AI and semiconductor demand2025-11-24
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KEYS Report
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