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Keysight Technologies (KEYS)

KEYS Q3 2025: AI backlog growth offsets $150M tariff headwind

Reported on Aug 19, 2025 (After Market Close)
Pre-Earnings Price$163.48Last close (Aug 19, 2025)
Post-Earnings Price$155.87Open (Aug 20, 2025)
Price Change
$-7.61(-4.66%)
  • Resilient End Markets & AI-Driven Demand: Management noted strong order growth and accelerating customer activity in AI-related applications—especially within the wireline and semiconductor segments—indicating sustained market momentum and an expanding backlog moving into Q4.
  • Effective Tariff Mitigation & Operational Efficiency: Executives emphasized a multipronged approach to mitigating tariff impacts—including supply chain optimization and planned pricing adjustments—suggesting that near-term margin pressures will be contained.
  • Diversified Business Mix with Robust Growth Segments: Q&A discussions highlighted double-digit growth in semiconductor and robust performance in wireline and general electronics, underlining a diverse revenue base that supports long-term growth prospects.
  • Tariff Exposure and Mitigation Uncertainty: The company is facing additional tariff costs, with new tariffs estimated to add approximately $75 million annually on top of previous rates, bringing total exposure to around $150–175 million. While management is taking a multipronged approach to mitigate these effects, the short-term impact on margins and earnings remains a risk.
  • End Market Volatility: Despite strong performance in segments like AI and aerospace, there are concerns over challenges in automotive and certain general electronics end markets. These mixed dynamics could lead to inconsistent revenue growth and uncertainty in demand sustainability.
  • Global Supply Chain and Geopolitical Risks: Keysight's geographically diverse supply chain—spanning Southeast Asia, the EU, Japan, and the U.S.—exposes it to potential disruptions from ongoing geopolitical tensions and tariff adjustments. Such vulnerabilities may impact production efficiency and overall operating margins if mitigation strategies fall short.
MetricPeriodPrevious GuidanceCurrent GuidanceChange

Revenue

Q4 2025

no prior guidance

$1,370,000,000 to $1,390,000,000

no prior guidance

EPS

Q4 2025

no prior guidance

$1.79 to $1.85

no prior guidance

Revenue Growth

FY 2025

midpoint of 5% to 7% long-term target (≈6%)

7% revenue growth

raised

EPS Growth

FY 2025

slightly above their long-term target of 10%

approximately 13% EPS growth

raised

Tariff Impact

FY 2025

no prior guidance

$75,000,000 increase annually

no prior guidance

TopicPrevious MentionsCurrent PeriodTrend

AI and Emerging Technology Opportunities

Q1 discussions highlighted AI’s role in data centers, 2nm technology, silicon photonics, and DDR6/DDR7 ; Q2 emphasized long‐term AI trends and emerging technology investments with product innovations and network solutions

Q3 focused on AI momentum with advanced physical layer solutions, silicon photonics capabilities, and partnerships (e.g., with AMD for PCIe Gen six compliance)

Consistent focus with expanded emphasis on advanced solutions and strategic partnerships

Tariff Exposure and Mitigation Strategies

Q1 had minimal detailed discussion (only general geopolitical mentions) ; Q2 provided specifics on exposure ($75M–$100M) and mitigation actions using supply chain and pricing adjustments

Q3 noted increased annual exposure ($150M–$175M total with recent tariff hikes) and a detailed multipronged approach to mitigation

Increased focus and deeper detail on exposure and mitigation actions over time

Global Supply Chain Vulnerabilities and Geopolitical Risks

Q1 discussed geopolitical trade restrictions (e.g., challenges with China) and adaptation strategies ; Q2 highlighted a diversified supply chain in Southeast Asia and proactive operational realignments

Q3 mentioned maintained healthy customer order growth despite tariff and geopolitical concerns, with emphasis on optimizing capacity and supplier relationships

Consistent concerns with improved risk management and mitigation strategies

Semiconductor Growth and Advanced Testing/Parametric Business Expansion

Q1 emphasized strong semiconductor demand driven by AI, advanced node projects and parametric test backlog growth ; Q2 highlighted accelerated wafer test demand and new product innovations for high-bandwidth applications

Q3 reinforced semiconductor growth with AI‐driven momentum, highlighting revenue increases and emerging testing capabilities

Robust and sustained growth, with an increasing influence from AI trends

Automotive Market Challenges

Q1 detailed weak overall demand and specifically soft EV battery testing ; Q2 mentioned weak automotive orders (notably in China) but less focus on EV battery testing

Q3 referenced automotive challenges generally without specific mention of EV battery testing, indicating a softer narrative

Persistent headwinds with a diminishing focus on EV battery issues in later periods

Strong Order Pipeline and Sales Funnel Improvements

Q1 noted incremental improvements in the sales funnel and steady order growth driven by both wireline and wireless segments ; Q2 reported healthy order pipeline growth (8% YoY and robust new funnel intake)

Q3 reiterated strong order growth (7% YoY) and an improved funnel across segments, underpinned by a broadening customer base

Continuously strong and improving order pipeline and sales funnel across periods

Operational Efficiency and Pricing Adjustments

Q1 indirectly alluded to cost structure impacts and operating expense trends (but without explicit focus on pricing adjustments)

Q2 provided detailed discussion on supply chain optimization, cost actions, and pricing adjustments on new bookings to manage tariff impacts

Q3 maintained a similar focus on operational efficiencies and pricing adjustments to fully mitigate increasing tariffs

Macro-economic Uncertainty and Policy Risks

Q1 mentioned a mixed macro environment and U.S. political uncertainties affecting aerospace and defense orders

Q2 discussed a cautious outlook amid continuing resolutions and emphasized monitoring of the macro and geopolitical environment

Q3 continued to acknowledge macroeconomic uncertainties and U.S. policy risks while noting resilient demand and recovery in certain segments

Unfavorable Mix Impact on Gross Margins

Q1 explicitly discussed a less favorable product mix compared to the previous year, impacting gross margins (notably between CSG and EISG)

Q2 did not specifically mention unfavorable mix impacts, focusing instead on tariff-related margin pressures

Q3 did not reference unfavorable mix impacts, with attention shifting to other financial performance factors

  1. Tariff Mitigation
    Q: How are tariffs being managed?
    A: Management is actively mitigating tariff impacts—currently around $75M to $175M annually—through supply chain diversification and pricing adjustments, with full mitigation expected by Q1/Q4.

  2. Revenue Guidance
    Q: Is revenue growth on track for 2026?
    A: The outlook has been raised, with full‐year revenue growth expected at the low end of 5%-7%; orders and a strong backlog support optimism for Q4 despite tariff pressures.

  3. End Market Recovery
    Q: How is end market recovery progressing?
    A: Management highlighted robust order growth in AI, aerospace defense, and wireless—exceeding earlier expectations—although some challenges remain in automotive.

  4. Incremental Margin
    Q: How sustainable is the 40% incremental margin?
    A: Excluding the current tariff shock, the business has consistently delivered mid-single-digit growth, supporting the long-term target of a 40% incremental margin.

  5. Wireline Orders
    Q: Are wireline orders sustainable?
    A: With a broadening customer base and a shift from R&D to production tests, the wireline segment is building a record pipeline driven by AI and data center investments.

  6. AI Impact
    Q: What markets will benefit next from AI?
    A: Beyond wireline, management expects AI to boost growth in semiconductors and general electronics, with early customer engagements indicating a durable momentum.

  7. Semiconductor Stability
    Q: Why is semiconductor demand stable?
    A: Demand remains stable due to advanced node requirements and a steady push in AI-related silicon photonics, keeping volatility to a minimum.

  8. Acquisitions & EDA Software
    Q: What’s the impact of new acquisitions?
    A: The acquisitions of Synopsys Optical Solutions and ANSYS Power Artists enhance simulation and EDA capabilities, supporting the company’s long-term strategic vision, though regulatory details remain pending.

Research analysts covering Keysight Technologies.