Keysight Technologies Inc (KEYS)

Revenue Growth Outlook
Q: Does the 5-7% revenue CAGR still hold for next fiscal year? Why not expect stronger growth?
A: Management maintains their long-term view of a 5–7% revenue CAGR, expecting the business to trend back to those levels. However, after outsized years in '21 and '22 and a down market in '24, they anticipate a slow gradual recovery in 2025 rather than stronger growth. They are monitoring funnel dynamics before forecasting higher rates. -

AI Impact on Revenue
Q: How much of commercial communications orders are tied to AI, and how impactful will AI be over the next 12 months?
A: Commercial communications orders grew double digits this quarter, with the wireline ecosystem—about 40–45% of the business—inflecting due to AI spend. While AI is transformational, it's currently driven by hyperscalers and is highly concentrated. Management believes the ecosystem will broaden over time but it's too early to quantify the full revenue impact. -

Catalysts & Spirent Acquisition
Q: What are catalysts for improvement in communications in fiscal '25? Any update on Spirent acquisition?
A: Demand in the wireline business is strong, driven by AI investments, providing a pipeline for the next 3–5 years. Stability in wireless and increased global deployment activity are expected. Continued R&D investments may offset moderating manufacturing investments later next year. The Spirent acquisition has received shareholder approval and is expected to complete in the first half of fiscal '25. -

Tax Rate Guidance
Q: Is a 14% tax rate a good baseline assumption for next fiscal year?
A: Yes, management expects the 14% tax rate to hold for multiple years, at least through 2027. They are aware of potential changes like the U.S. GILTI tax rate increase in 2027 and possible tax legislation changes but currently assume status quo. -

Cyclical Environment Change
Q: How meaningful is the pickup in orders? Is the cyclical environment changing?
A: Management is encouraged by stability in the base business, inflections in wireline, and signs of rebound in semiconductors, despite some weakness in automotive. While they see a return to slight year-over-year growth, it's too soon to call a recovery at this time. -

Automotive Project Delays
Q: Are automotive clients looking to restart delayed projects in early 2025?
A: Timing is hard to predict, but there's a continuous focus on innovation with automotive customers. Management expects the pause in battery test and EV projects to gain momentum in the next several quarters, with capacities increasing and commitments to e-mobility driving growth. -

Semiconductor Outlook
Q: Update on semiconductor fabrication delays and outlook?
A: Project activities are returning with sequential growth and a solid pipeline, especially in memory and silicon photonics. AI is driving urgency in these areas. The logic side remains mixed, but management feels positive about sequential recovery. -

First Quarter Seasonality
Q: Will Q1 fiscal '25 differ from typical seasonality?
A: Historically, Q1 sees a mid-single-digit sequential decrease in orders and revenue. However, the ESI business, recognizing 40–45% of its revenues in Q1, may offset this trend. Management anticipates a moderate recovery into '25 but it's too early for detailed guidance. -

Backlog and Orders Update
Q: Any updates on longer-dated backlog build or orders?
A: Incoming order rates remain stable in the upper single digits. Revenue is trending similarly, and management expects to reach this level in the next quarter or two. -

Autonomous Vehicles Opportunity
Q: How does the autonomous vehicle market leverage your core competencies?
A: Keysight has grown its automotive business to nearly $500 million from a small base. Two-thirds focus on new mobility EV and AV. Autonomous vehicles leverage strengths in semiconductors, communications, and cybersecurity tools across areas where Keysight holds leadership positions, presenting significant long-term opportunities. -

Demand Trends
Q: Any material changes in demand trends recently?
A: The quarter showed typical seasonality with month-to-month ramping. Positive funnel dynamics are evident, with increased intake and faster deal closures. Management notes ongoing improvements without unusual fluctuations. -

Wireless Infrastructure Outlook
Q: Is anything in wireless infrastructure aiding technology upgrades?
A: There's continued progression in standards (Release 17–19) and themes like AI in RAN and scaling of Open RAN labs. Early activities around 6G are picking up. Management expects 5G stability due to global deployments, providing continuity until 6G arrives. -

Q4 Revenue Growth
Q: Is Q4 revenue growth weighted more towards communications? Will both segments be up?
A: The seasonal uptick is expected in both businesses but will skew towards communications due to pressures in manufacturing and automotive. Additionally, a seasonal increase is anticipated in the Aerospace and Defense segment. -

Aerospace & Defense Delays
Q: Are delays in Aerospace and ADG segment pushing into next quarter or is this a slowdown?
A: Positive trends due to geopolitics are noted, with bipartisan support for defense budgets. Revenue levels are down from record 2023 levels, but large system wins will convert to revenue next year. Management feels confident about future order conversions. -

Expanding Hyperscaler Exposure
Q: How might exposure to hyperscalers broaden over time?
A: Hyperscaler investments in digital infrastructure upgrades benefit Keysight through manufacturing exposure. As hyperscalers develop silicon programs, Keysight is increasing its involvement. Participation in open standardization consortiums led by hyperscalers allows contributions in computation, connectivity, and AI scaling solutions. -