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Keysight Technologies, Inc. (KEYS)·Q3 2025 Earnings Summary

Executive Summary

  • Q3 FY25 delivered an across-the-board beat: revenue $1.352B vs guidance $1.305–$1.325B and Street $1.318B; non-GAAP EPS $1.72 vs guidance $1.63–$1.69 and Street $1.67; orders up 7% YoY; company raised full‑year outlook on resilient demand across CSG and EISG .
  • Guidance: Q4 revenue $1.370–$1.390B and non‑GAAP EPS $1.79–$1.85; FY25 revenue growth now ~7% and EPS growth ~13% at the midpoint, reflecting sustained AI‑driven wireline demand and improving A&D; Q4 guide broadly in line with Street revenue and slightly below Street EPS at midpoint .
  • Tariffs headwind intensified (annualized exposure now ~$150–$175M); mitigation actions (supply chain optimization, pricing, efficiencies) are underway with April tariff fully mitigated by Q1 and August tranche targeted for dollar‑basis mitigation in FY26; near‑term margin drag persists but is being absorbed .
  • Strategic catalysts: accelerating AI infrastructure testing (industry-first 1.6T protocol validation; silicon photonics advances), growing sovereign A&D programs, and pending Spirent acquisition expected to close in Q4, enhancing Keysight’s protocol emulation footprint .

What Went Well and What Went Wrong

What Went Well

  • Beat-and-raise quarter: Revenue $1.352B (+11% YoY) and non‑GAAP EPS $1.72 exceeded the high end of guidance; management raised FY25 growth outlook again on strong end‑market engagement .
  • Segment strength: CSG revenue $940M (+11% YoY) with double‑digit commercial communications growth (+13%) and A&DG (+8%); EISG revenue $412M (+11% YoY) with broad growth across semiconductor, general electronics, and auto/energy; margins solid (CSG GM 67%, OM 26%; EISG GM 57%, OM 22%) .
  • Cash generation: CFO $322M and FCF $291M in Q3; YTD FCF $1.094B; quarter-end cash & equivalents $2.636B plus ~$759M restricted cash largely for Spirent closing; continued repurchases ($50M) .

Management quote: “Keysight delivered strong results… exceeding the high end of our guidance for both revenue and earnings per share… we are raising our outlook for the full year once again” — Satish Dhanasekaran (CEO) .

What Went Wrong

  • GAAP EPS fell YoY due to tax dynamics: GAAP net income $191M ($1.10 diluted) vs $389M ($2.22) in Q3’24; non‑GAAP tax rate applied at 14% in Q3’25 vs 8% in Q3’24 .
  • Tariffs compressed margins: Q3 gross margin 64% (down from 65% in Q2); Q3 OpEx $526M; tariff impact increased sequentially and is only partially offset near term .
  • Mixed end‑markets: Automotive remained soft; smartphone supply chain subdued; mitigation actions and broader customer base temper volatility, but near‑term growth is uneven by verticals .

Financial Results

Core P&L vs prior quarters and estimates

MetricQ1 2025Q2 2025Q3 2025
Revenue ($USD Billions)$1.298 $1.306 $1.352
GAAP Diluted EPS ($)$0.97 $1.49 $1.10
Non-GAAP Diluted EPS ($)$1.82 $1.70 $1.72
Gross Margin (%)65.8% 65% 64%
Operating Margin (%)27% 25% 25%
Orders ($USD Billions)$1.263 $1.316 $1.340

Estimate comparison and Q4 guide context:

MetricQ3 2025 ConsensusQ3 2025 ActualQ4 2025 ConsensusQ4 2025 Guide (Range/Mid)
Revenue ($USD Billions)$1.318*$1.352 $1.3847*$1.370–$1.390 / $1.380
Primary EPS ($)$1.6717*$1.72 $1.8337*$1.79–$1.85 / $1.82
EBITDA ($USD Millions)355.3*312.0*388.4*N/A

Values with asterisks retrieved from S&P Global.

Highlights: Revenue and EPS beat consensus; EBITDA below consensus, reflecting tariff drag and mix. Q4 revenue guide aligns with Street; EPS midpoint is modestly below Street.

Segment breakdown

Segment MetricQ1 2025Q2 2025Q3 2025
CSG Revenue ($USD Millions)$883 $913 $940
CSG Gross Margin (%)68% 67% 67%
CSG Operating Margin (%)27% 26% 26%
EISG Revenue ($USD Millions)$415 $393 $412
EISG Gross Margin (%)61% 59% 57%
EISG Operating Margin (%)27% 23% 22%

End-market revenue (Q3):

End MarketQ3 2025Q2 2025
Aerospace, Defense & Government ($USD Millions)$296 $301
Commercial Communications ($USD Millions)$644 $612
Electronic Industrial ($USD Millions)$412 $393

KPIs

KPIQ1 2025Q2 2025Q3 2025
Cash Flow from Operations ($USD Millions)$378 $484 $322
Free Cash Flow ($USD Millions)$346 $457 $291
Cash & Equivalents ($USD Millions)$2,060 $3,118 $2,636
Restricted Cash ($USD Millions)——~$759
Cash, Cash Equivalents & Restricted Cash ($USD Millions)$2,077 $3,135 $3,397
Software & Services Mix (% of revenue)40% 36% 36%
Annual Recurring Revenue (% total)31% 28% 28%

Guidance Changes

MetricPeriodPrevious GuidanceCurrent Guidance/ActualChange
Revenue ($USD Billions)Q3 2025$1.305–$1.325 $1.352 actual Raised/Beat
Non-GAAP EPS ($)Q3 2025$1.63–$1.69 $1.72 actual Raised/Beat
Revenue ($USD Billions)Q4 2025N/A$1.370–$1.390 New guide
Non-GAAP EPS ($)Q4 2025N/A$1.79–$1.85 New guide
FY Revenue Growth (%)FY 2025Midpoint of 5–7% ~7% Raised
FY EPS Growth (%)FY 2025Slightly above 10% ~13% Raised
Non-GAAP Tax RateFY 202514% (methodology) 14% Q3 applied Maintained
Tariff Exposure ($USD Millions, annualized)FY 2025$75–$100 $150–$175 (post Aug) Raised headwind

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1, Q2)Current Period (Q3)Trend
AI infrastructure (wireline)Double‑digit wireline; 400/800G deployments; 448G lane demo; silicon photonics push Industry’s first 1.6T protocol validation; AMD PCIe Gen6 compliance; broader adoption of Keysight AI solutions Accelerating
Tariffs/macroApril tariffs $75–$100M annualized; full mitigation by year‑end on backlog lag Annualized exposure now $150–$175M; April fully mitigated by Q1; August tranche targeted for FY26 dollar mitigation Headwind but managed
WirelessStable; RAN/Open RAN & early 6G R&D; NTNs rising Stable with double‑digit revenue growth on compares; Release 18; DTN/LEO partnerships; early 6G research Improving
A&DGStrong pipeline; prime contractor backlogs record; Europe orders up Robust demand U.S./Europe; EU prime wins in radar/EMSO; sovereign research (Japan 1,000‑qubit platform) Strengthening
SemiconductorWafer test strong; HBM & photonics engagements Double‑digit growth; advanced node/HBM/silicon photonics driving visibility Improving
Software/services~40% mix Q1; 36% Q2; double‑digit RF‑EDA demand 36% mix; ARR 28%; managed services expansion (Keysight Care) Stable/high-value
Supply chainDiversified SE Asia footprint; minimal China exposure Manufacturing optimization, pricing surcharges; no demand pull-forward observed Mitigation in progress
M&A/regulatoryCMA cleared Spirent; closing expected Q3; OSG & PowerArtist contingent on SNPS‑ANSS Spirent regulatory finalization progressing; closing anticipated Q4; OSG/PowerArtist advancing Closing in sight
Regional trendsAsia strong; China flattish, auto weak EU strength in A&DG; China general electronics/auto soft Mixed

Management Commentary

  • Strategy execution and AI: “Our early recognition of AI… led us to make strategic investments… delivering the industry’s first protocol layer solution for validating 1.6 terabit performance” — Satish Dhanasekaran (CEO) .
  • Margins and tariffs: “Q3 gross margin of 64%, OpEx $526M, operating margin 25%… new tariff rates increase exposure by ~$75M annually; April fully mitigated by Q1; August tranche targeted within 2026” — Neil Dougherty (CFO) .
  • A&DG momentum: “Elevated defense spending… robust demand, wins with EU prime contractors for radar and spectrum operations” — CEO .
  • Cash and capital: “YTD FCF ~$1.1B; cash & equivalents $2.636B; ~$759M restricted cash set aside for Spirent; repurchased ~300k shares for $50M” — CFO .

Q&A Highlights

  • Orders and Q4 seasonality: Q3 revenue outperformance included a large system integration acceptance on the last day of Q3, muting typical Q3→Q4 sequential seasonality on revenue; orders expected to show more normal seasonality .
  • Long-term growth algorithm: Management reaffirms 5–7% top‑line framework with 40% incremental drop-through over time; tariffs limit near‑term delivery but strip‑out shows >40% incrementals in Q2–Q3 and guided Q4 .
  • Wireline durability and mix: Wireline bookings on pace for records; R&D remains predominant with some manufacturing mix shift; ecosystem broadening to startups and neo‑cloud providers .
  • Six‑G and NTNs: Continued investment and early standards shaping; recent 3GPP plenary reinforced evolution from 5G Advanced to 6G; NTNs growing as complementary opportunity .
  • Tariffs mitigation: Multi‑pronged approach across global manufacturing footprint, supplier efficiency, and customer pricing/surcharges; no material demand changes observed to date .

Estimates Context

  • Q3: Revenue and EPS beat consensus; EBITDA below consensus, consistent with tariff cost drag and mix underperformance. Street counts: Rev (9), EPS (11) estimates.*
  • Q4 guide vs Street: Revenue midpoint broadly in line; EPS midpoint slightly below Street, reflecting ongoing tariff absorption and timing of large deals.*
  • FY25: Company outlook implies ~7% revenue and ~13% EPS growth; Street FY25 revenue ~$5.335B and EPS ~$7.07 suggest consensus already embeds raised trajectory.*

Values marked with asterisks retrieved from S&P Global.

Key Takeaways for Investors

  • Beat-and-raise quarter with resilient demand signals across AI‑driven wireline, A&DG, and semiconductor; near‑term margin drag from tariffs is being managed and absorbed .
  • CSG remains the growth engine (commercial +13%, A&DG +8%); EISG’s margin profile is mix‑sensitive but benefitting from semiconductor and general electronics recovery .
  • AI infrastructure testing (1.6T, photonics, protocol/emulation) is a durable multi‑year growth vector; Keysight is positioned across compute, memory, networking, and interconnects .
  • Q4 revenue guide aligns with Street; EPS midpoint slightly conservative amid tariff mitigation ramp—watch incremental margins and gross margin recovery trajectory in FY26 .
  • Cash generation robust; pending Spirent close (Q4 expected) should augment protocol and network test capabilities and ARR footprint .
  • Monitor auto and China general electronics softness vs ongoing global A&D uplift and EU program momentum; portfolio diversity reduces end‑market cyclicality .
  • Actionable: Position for continued AI and A&DG tailwinds; near‑term EPS sensitivity to tariffs mitigations suggests estimate risk skewed modestly positive into FY26 as tariff impacts get baselined and offset .

Other Relevant Q3‑period Press Releases

  • Spirent regulatory update: clearance with China SAMR ongoing; expected scheme effectiveness by or before Sep 29, 2025 (Q4 close now anticipated) .
  • Earnings call date announcement for Q3 results (procedural) .