Keysight Technologies Q3 Earnings Call Highlights

Key Points

• Record Q3 performance: Keysight reported revenue of $1.85 billion, up 36% year over year, while orders climbed 56% and EPS increased 79% to $3.70. Operating margin expanded to 33.2%, above the company’s long-term target range.
• AI and defense demand drove growth: Communications revenue rose 43%, with commercial communications surpassing $1 billion as AI infrastructure boosted wireline demand. Aerospace and defense revenue increased 14%, while electronic industrial solutions revenue reached a record $501 million.
• Outlook raised despite supply constraints: Keysight forecast fourth-quarter revenue of $1.93 billion to $1.95 billion and expects fiscal 2026 revenue growth of about 32% and EPS growth of approximately 60%. Management said demand remains strong, but supply-chain availability could limit revenue conversion over the next several quarters.

Keysight Technologies NYSE: KEYS reported record fiscal third-quarter 2026 results, with revenue, orders and earnings exceeding the high end of its guidance range, as demand accelerated across AI infrastructure, semiconductor, aerospace and defense, and industrial markets.

Chief Executive Officer Satish Dhanasekaran said orders increased 56% year over year, revenue rose 36%, and earnings per share grew 79%. He said the company was raising its outlook for the fiscal fourth quarter and full year, citing broad-based customer investment in increasingly complex engineering applications.

“The outperformance was driven by strong execution by the team and demand extending across Keysight's full suite of differentiated products and solutions,” Dhanasekaran said. He identified AI infrastructure, advanced semiconductors, defense modernization and next-generation communications as major growth drivers.

Third-Quarter Financial Results

Chief Financial Officer Neil Dougherty said third-quarter orders totaled $2.09 billion, up 56% on a reported basis. Acquisitions added 5 percentage points of growth, while currency reduced growth by 1 percentage point; core orders growth was 52%.

Revenue was $1.85 billion, up 36% reported and 31% on a core basis. Gross margin was 69%, while operating margin rose 820 basis points year over year to 33.2%, above the company’s long-term target range of 31% to 32%.

Keysight reported net income of $531 million, or $3.70 per share. The core business produced a 34.7% operating margin and 66% operating-margin incremental.

• Cash flow from operations was $437 million.
• Free cash flow was $403 million.
• Cash and cash equivalents totaled $2.61 billion at quarter-end.
• The company repurchased about 640,000 shares for $210 million during the quarter, at an average price of about $326 per share.
• Fiscal-year-to-date share repurchases totaled $517 million.

Software and services revenue both grew at double-digit rates and represented about 33% of total revenue. Annual recurring revenue accounted for 24% of the company’s revenue mix.

AI Infrastructure Drives Communications Growth

The Communications Solutions Group generated $1.35 billion in revenue, up 43% reported and 36% on a core basis. Its operating margin was 34%, and gross margin was 70.8%.

Commercial communications revenue reached its first billion-dollar quarter, rising 56% to $1.01 billion. Wireline revenue exceeded wireless revenue for the first time, supported by AI-related demand. Dougherty said wireline was also larger than wireless on a year-to-date basis.

Dhanasekaran said wireline orders more than doubled from a year earlier, driven by AI infrastructure scaling, speed transitions, silicon photonics and system-level emulation. Keysight cited demand from silicon designers, interconnect manufacturers, switch designers, transceiver manufacturers and hyperscalers.

The company said customers are expanding production of 800G and 1.6T optical transceivers and are already engaging with Keysight regarding 3.2T technology. Management said the AI-related wireline business expanded from the prior quarter, while demand for differentiated products exceeded the company’s current ability to supply them.

Management also highlighted developing opportunities in 6G. Dhanasekaran said the industry’s first 6G standard is targeted for March 2029, following a June 3GPP meeting. The company expects the 6G opportunity to be greater than the 5G cycle, citing emerging applications including AI-RAN, integrated sensing and communications, and non-terrestrial networks.

Defense and Industrial Segments Post Gains

Aerospace, defense and government revenue increased 14% to $339 million, while orders rose by a double-digit percentage across regions. Dhanasekaran pointed to defense modernization, advanced radar architectures, autonomous platforms and resilient positioning, navigation and timing systems as sources of demand.

He said demand accelerated for Spirent’s positioning, navigation and timing solutions, which help customers emulate jamming and spoofing scenarios. The company said its engagements with defense startups and “neo-prime” contractors expanded during the year, including wins in satellite, UAV and phased-array radar applications.

The Electronic Industrial Solutions Group recorded $501 million in revenue, a 21% increase and another quarterly record. The segment posted a 64.1% gross margin and 31% operating margin. Management said growth occurred across general electronics, semiconductors, and automotive and energy.

Jason Kary, president of the Electronic Industrial Solutions Group, said semiconductor demand was supported by capacity expansion for advanced nodes, high-bandwidth memory and silicon photonics. In general electronics, higher component density, tighter tolerances and greater data throughput were increasing production-test requirements. Automotive and energy orders grew at a solid double-digit rate, driven by software-defined vehicle architectures, cybersecurity testing, charging, storage and grid-validation applications.

Outlook and Supply Constraints

For the fiscal fourth quarter, Keysight forecast revenue of $1.93 billion to $1.95 billion, representing 37% year-over-year growth at the midpoint. The company projected earnings per share of $3.34 to $3.40, or about 76% year-over-year growth at the midpoint.

At the midpoint of its outlook, Keysight expects fiscal 2026 revenue growth of 32% and earnings-per-share growth of approximately 60%. The outlook assumes a weighted diluted share count of about 172 million shares.

Dougherty said acquisition integrations were largely complete, including system migrations completed one quarter ahead of schedule. The company now expects to realize 80% to 90% of its targeted $100 million in cost synergies on a run-rate basis exiting fiscal 2026.

Management said demand was not limiting growth, but supply-chain availability could constrain the conversion of demand into revenue over the next several quarters. Dhanasekaran said Keysight is taking an 18-month-plus view of supply planning, including pursuing second sources for some products and longer-term customer agreements. Dougherty said the company remains confident in its fourth-quarter outlook despite constraints involving incoming parts that are in high demand across the broader technology ecosystem.

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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