Keysight Technologies Q2 Earnings Call Highlights

Key Points

• Keysight posted a record quarter, with fiscal Q2 orders up 56% year over year to $2.051 billion and revenue up 31% to $1.717 billion. EPS rose 69% to $2.87, and free cash flow hit a record $472 million.
• AI data center demand is a major growth driver, especially in the communications business and wireline segment. Management said AI-related revenue in the first half already exceeded full-year fiscal 2025 levels, with opportunities tied to speed transitions and validation tools for increasingly complex AI infrastructure.
• The company raised its fiscal 2026 outlook, now expecting revenue growth in the high 20s% and maintaining strong momentum across defense, wireless, semiconductor, and industrial markets. Keysight also lifted capital spending plans to support AI-related product ramps and said acquisition synergies remain on track.

Keysight Technologies NYSE: KEYS reported what executives described as the best quarter in the company’s history, with fiscal second-quarter orders surpassing $2 billion and revenue rising sharply across its communications and electronic industrial businesses.

President and CEO Satish Dhanasekaran said the company delivered a “record first half,” citing strong demand tied to AI data centers, defense modernization, semiconductor investments and broader electronics markets. For the fiscal second quarter of 2026, Keysight said orders rose 56% year over year to $2.051 billion, while revenue increased 31% to $1.717 billion. Earnings per share rose 69% to $2.87, and free cash flow reached a record $472 million.

Dhanasekaran said Keysight is raising its fiscal 2026 growth expectations and now expects revenue growth “in the high 20s%” for the year, supported by first-half results and the company’s second-half opportunity pipeline.

AI data center demand drives communications growth

Keysight’s Communication Solutions Group posted revenue of $1.231 billion, up 35% on a reported basis and 27% on a core basis, according to Executive Vice President and CFO Neil Dougherty. The segment’s commercial communications business generated revenue of $858 million, up 40%, while aerospace, defense and government revenue rose 24% to $373 million.

Dhanasekaran said commercial communications benefited from accelerating momentum in the company’s wireline business, driven by AI data center expansions. Wireline delivered record orders in the quarter, with demand for both research and development and manufacturing solutions. He said Keysight’s AI-related business in the first half of fiscal 2026 had already surpassed the level achieved in all of fiscal 2025.

On the call, Dhanasekaran said Keysight’s AI business finished the first half “in the $500 million-$600 million range” and is “largely in the wireline segment.” He highlighted four areas of opportunity: AI infrastructure scaling, speed transitions, optical and photonics technologies and system-level emulations.

The company cited demand for interoperability and validation tools as AI clusters integrate GPUs, CPUs, DPUs, switches, network interface cards, memory fabrics and storage across multiple vendors. Dhanasekaran also said customers are navigating multiple speed transitions, including continued 800-gig deployments, faster adoption of 1.6-terabit architectures and increased R&D around 3.2-terabit technologies.

In a question-and-answer exchange, Dhanasekaran said the AI opportunity remains in “very early innings” and described the technology environment as increasingly heterogeneous, involving both optical and electrical approaches, open and closed standards, and pluggable and integrated optics. He said the breadth of Keysight’s portfolio positions the company to participate as the market broadens.

Defense, wireless and semiconductor demand remain strong

In wireless, Dhanasekaran said orders grew robustly, supported by activity in non-terrestrial networks, 6G research and demand related to AI supply chains. He said low Earth orbit constellations and direct-to-cell deployments are creating demand for Keysight’s orbit emulation tools and Spirent’s positioning, navigation and timing solutions.

Kailash Narayanan, president of the Communication Solutions Group, said the ecosystem for non-terrestrial networks is widening, pointing to constellations and use cases including direct-to-cell, broadband and autonomous vehicles. He said Keysight can emulate networks, devices, orbits and core networks, providing what he described as an end-to-end solution for customers.

Dhanasekaran also said aerospace, defense and government demand was broad-based, led by Europe and supported by continued strength in the Americas. He cited strength in radar and electromagnetic spectrum operations, as well as healthy activity in space satellite and autonomous systems. The company also secured a win with the U.S. Air Force to support next-generation operational flight line testing.

In semiconductor markets, Keysight reported continued momentum as customers invest to scale capacity through 2030. Dhanasekaran said AI ecosystem demand accelerated across advanced node memory and silicon photonics, and the company won wafer test business supporting silicon photonics and advanced node programs across Asia, the U.S. and Europe.

Electronic Industrial Solutions reaches record levels

Keysight’s Electronic Industrial Solutions Group generated revenue of $486 million, up 24%, with growth across general electronics, semiconductor, and automotive and energy markets. Dougherty said the segment delivered gross margin of 67.8% and operating margin of 33.1%.

Dhanasekaran said general electronics saw double-digit order and revenue growth, supported by AI-related innovation and infrastructure investments. He also pointed to strong customer investment in high-performance printed circuit boards, where rising complexity, density and speed are increasing test intensity.

Automotive and energy orders grew for the third consecutive quarter, with Dhanasekaran saying the business has “largely stabilized.” Growth came from software-defined vehicles and EV charging solutions, including wins in in-vehicle networking, cybersecurity and over-the-air design and validation.

Margins, cash flow and capital spending

Dougherty said Keysight ended the quarter with $2.412 billion in cash and cash equivalents. Cash flow from operations reached a record $501 million, while free cash flow was $472 million. The company repurchased about 780,000 shares at an average price of roughly $283, for total consideration of $220 million.

Keysight said software and services accounted for approximately 36% of revenue, while annual recurring revenue represented 27% of the total mix.

The company also disclosed impacts from a U.S. Supreme Court decision invalidating IEEPA tariffs. Dougherty said Keysight recognized the impact of tariff refunds and associated surcharge refunds to customers, resulting in a $40 million reduction in second-quarter revenue and a $97 million reduction in costs and expenses. Excluding those one-time impacts, revenue was $1.758 billion, up 35%, gross margin was 67.6%, and EPS was $2.58, up 52%.

Asked about gross margin sustainability, Dougherty said that excluding the tariff-related one-time items, gross margin in the mid-67% range is “the right level at these volumes.” He also said stronger incremental margins reflected the company’s high growth rate and expense management.

Outlook points to continued growth

For the fiscal third quarter, Keysight expects revenue of $1.73 billion to $1.75 billion, representing 29% year-over-year growth at the midpoint. The company expects EPS of $2.43 to $2.49, or 43% growth at the midpoint, based on about 173 million diluted shares.

Dougherty said acquisition integrations remain on track, and Keysight continues to expect $375 million in fiscal 2026 revenue from acquisitions, along with more than $100 million in cost synergies and other operational efficiencies. The company expects about 80% of those cost synergies to be realized on a run-rate basis exiting the fiscal year.

Keysight also raised its fiscal 2026 capital expenditure outlook to $200 million. Dougherty said the increase is intended to help ramp new products that support AI buildouts. He said the company is actively managing its supply chain but does not have major supply concerns, noting Keysight’s vertical integration gives it “a unique level of control.”

Steve Yun, senior vice president of global sales, said Keysight’s funnel intake and total pipeline remain strong, with improving conversion rates and funnel velocity. Dhanasekaran said customer demand continues to be strong, though revenue conversion can be influenced by product mix, timing of new product introductions and longer lead times in areas such as semiconductor and aerospace defense.

About Keysight Technologies NYSE: KEYS

Keysight Technologies is a global provider of electronic design, test, measurement and optimization solutions for communications, electronics and related industries. The company was formed as a corporate spin-off from Agilent Technologies in 2014; its origins trace back to the electronic measurement business that was part of Hewlett‑Packard before Agilent. Keysight develops hardware and software used throughout the product development lifecycle, from design and simulation to prototype validation and manufacturing test.

Keysight's product portfolio includes electronic test and measurement instruments such as oscilloscopes, network and spectrum analyzers, signal generators, vector network analyzers and modular PXI-based systems, together with software platforms for simulation, automated test and data analysis.

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