Keysight Technologies (KEYS) Wells Fargo 8th Annual TMT Summit Conference summary

Business segment overview

• Operations are divided into Communication Solutions (CSG) and Industrial Solutions (EISG), with CSG further split into wireless and wireline, serving commercial, aerospace, defense, and government markets.

• CSG's wireline business is currently experiencing strong growth, driven by AI-related investments in data centers, while wireless remains stable but with ongoing investment in 5G and early 6G research.

• EISG is roughly split among general electronics, semiconductors, and automotive, with automotive currently weaker due to EV market disruptions and manufacturing softness.

• Semiconductor segment shows early signs of recovery, with industry inflection expected in calendar 2025, while aerospace and defense remain weak but stable.

• Both CSG and EISG benefit from a diverse customer base and broad technology coverage, supporting resilience across market cycles.

Growth drivers and market dynamics

• AI is a key growth vector for wireline, supporting hyperscalers and network equipment manufacturers with advanced modeling and optimization tools.

• Wireless growth is expected to be driven by O-RAN, satellite communications, 5G Advanced, and early 6G research, though current growth is stable.

• Automotive faces challenges from low-cost Chinese EV batteries, but long-term opportunities exist in charging infrastructure and autonomous driving.

• Semiconductor recovery is tied to new fab timelines and capacity expansion, with a focus on parametric testers and photolithography subcomponents.

• Backlog remains robust at $2.3–$2.4 billion, with over 90% representing near-term business, though automotive-related backlog has softened.

Financial outlook and operating model

• FY25 guidance targets around 5% revenue growth, reflecting improved sales funnels, distributor inventories, and order flow.

• Operating margin targets of 31–32% remain, though current margins are at 26% due to the prolonged downturn; timeline for margin recovery may be extended.

• Variable compensation and cost flexibility helped manage the downturn, but incremental costs will return as growth resumes.

• Long-term model aims for mid-single-digit revenue growth and 40% operating leverage, with potential upside if market snapback occurs.

• Capital allocation balances M&A and share buybacks, with leverage targets around 2x but flexibility to exceed temporarily for strategic acquisitions.