Q4 2024 Summary
Published Feb 7, 2025, 7:58 PM UTC| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | -2% (from $1.311B to $1.287B) | The slight overall decline was driven by continued softness in communications end markets and weaker demand in select regions, partially offset by pockets of strength in certain industrial applications. Continued macro-economic uncertainty affected customer spending, though cost management helped stabilize revenue. |
Electronic Industrial Solutions Group (EISG) | +836% (from $42M to $393M) | The extraordinary increase primarily reflects a very low prior-year baseline along with stronger contributions from recently acquired businesses and robust uptake of industrial test solutions. In addition, certain revenue was reclassified under EISG, amplifying the YoY comparison. |
Europe Revenue | -90% (from $227M to $23M) | This sharp decline was tied to significant reductions in large defense and industrial orders that had boosted prior-year results, as well as a shift in investment priorities among European customers. Lower demand from key industries led to a tough year-over-year comparison in the region. |
Operating Income | -93% (from $317M to $23M) | Operating income was heavily impacted by lower volumes in high-margin segments and increased expense levels (including integration costs from acquisitions). Additionally, the steep drop in Europe revenue contributed to a less favorable mix, resulting in a significant YoY decline in profitability. |
Net Income | -132% (from $226M to -$73M) | The negative swing was driven by reduced operating income and one-time charges, including higher acquisition-related amortization and integration costs. These factors outweighed any tax benefits or gains from other operations, leading to a net loss for the period. |
Diluted EPS | -132% (from $1.28 to -$0.41) | The decline in earnings per share mirrors the drop in net income, as overall profitability was affected by weaker revenue mix, elevated spending, and integration expenses. A greater share count effect is also present due to constraints on buybacks during the acquisition activity. |
Net Change in Cash | +$166M (from -$1M to +$165M) | Despite lower profitability, disciplined cash management and working capital improvements, along with proceeds from select financing arrangements, bolstered the company’s cash position. Lower levels of share repurchases compared to the prior year also contributed to a stronger net change in cash. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Revenue | Q4 2024 | $1.245B to $1.265B | no current guidance | no current guidance |
EPS | Q4 2024 | $1.53 to $1.59 | no current guidance | no current guidance |
Weighted share count | Q4 2024 | 174 million | no current guidance | no current guidance |
Revenue | Q1 2025 | no prior guidance | $1.265B to $1.285B | no prior guidance |
EPS | Q1 2025 | no prior guidance | $1.65 to $1.71 | no prior guidance |
Weighted share count | Q1 2025 | no prior guidance | 174 million | no prior guidance |
Operating Expenses | Q1 2025 | no prior guidance | expected to increase | no prior guidance |
ESI Revenue | Q1 2025 | no prior guidance | 40–45% of full-year recognized in Q1 | no prior guidance |
ESI Revenue | Q2 2025 | no prior guidance | material sequential decrease from Q1 | no prior guidance |
Core Keysight Revenue | Q2 2025 | no prior guidance | low single-digit increase | no prior guidance |
Revenue Growth | FY 2025 | no prior guidance | 5% to 7% | no prior guidance |
Earnings Growth | FY 2025 | no prior guidance | 10% | no prior guidance |
Annual Interest Expense | FY 2025 | no prior guidance | $70M | no prior guidance |
Capital Expenditures | FY 2025 | no prior guidance | $150M | no prior guidance |
Non-GAAP Effective Tax Rate | FY 2025 | no prior guidance | 14% | no prior guidance |
| Metric | Period | Guidance | Actual | Performance |
|---|---|---|---|---|
Revenue | Q4 2024 | $1.245B to $1.265B | $1.287B | Beat |
Earnings Per Share (EPS) | Q4 2024 | $1.53 to $1.59 | -$0.41 | Missed |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Aerospace and Defense | Previously highlighted steady modernization, some delays in funding but overall bipartisan support in the U.S. and rising budgets globally. | Strong orders driven by year-end U.S. budget finalization, modernization remains a top priority, and confidence in long-term defense spending despite short-term uncertainties. | Consistent focus on modernization; sentiment remains positive with near-term funding timing issues. |
Automotive and EV | Demand uncertainties, double-digit declines in certain quarters, delayed battery testing and EV projects. Nonetheless, R&D for ADAS and charging continued. | Significant pullback in EV-related development, slowing battery test lab investments, and cautious near-term spending, but software-defined vehicles remain a bright spot. | Increasing negativity around near-term EV investments, balanced by long-term software and autonomy opportunities. |
Hyperscaler and AI Infrastructure | Ongoing AI-driven data center upgrades (400G/800G), network rearchitecture, and protocol-layer expansion. Engagements with leading hyperscalers and GPU connectivity. | Wireline business grew at double-digit rates, largely fueled by AI-driven hyperscaler investments. Emphasis on protocol-layer solutions and AI workload emulation. | Consistently strong growth from AI and hyperscalers; momentum continues with expanding protocol solutions. |
Software and Services | Historically growing share of total revenue (35%−40%), recurring revenue up double digits, contributing to robust gross margins. | 39% of total revenue, up 8% year-over-year; annual recurring revenue grew 16%. Software is accretive to margins, services slightly dilutive but overall profitable. | Steady expansion of software mix and resilient services business driving profits. |
Operating Margins | Margins have ranged 24%−28%, with acquisition impacts and down-cycle model driving short-term pressure. The long-term goal remains 31%−32%. | Operating margin at 26% (28% core), below 31%−32% target. Acquisitions remain dilutive to margins in the near term; cost discipline is offsetting part of the revenue slowdown. | Recurring pressure from acquisitions; company aims to reach higher targets through integration and disciplined spending. |
Acquisitions | Spirent is pending regulatory approval; ESI has opposite seasonality and was integrated to expand simulation/emulation. Near-term FCF drain but expected future synergy. | ESI boosts gross margin but dilutes operating margin; Spirent deal preparation under way. Balancing buybacks and cash for the transaction. | Integration ongoing, short-term margin drag but strategic for software/simulation growth and network analytics. |
EISG Performance | Faced double-digit declines, especially in automotive. Some sequential stability in margins, with e-mobility still a long-term driver. | Revenue down 6% year-over-year, auto headwinds persist. However, 21% operating margin (up 100 bps sequentially) as semiconductor demand partly offsets EV slowdown. | Continued year-over-year softness, sequential margin improvement. Automotive remains weak; semis and industrial solutions offer partial relief. |
Semiconductor Next-Gen Tech | AI-driven spending on advanced nodes, memory, and wafer test solutions. Foundry project pushouts but 2025 is expected to be strong for advanced tech. | Robust demand for parametric wafer test (e.g., silicon photonics, high-bandwidth memory); introduced a 3 kV solution for power semiconductors. Some offset from broader industry slowdown. | Consistent emphasis on advanced semiconductor investment, with AI and next-gen nodes spurring long-term growth. |
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AI Driving Wireline Growth
Q: How is AI impacting your wireline business growth?
A: Our wireline business has gained momentum this year driven by AI, exceeding over $1 billion in orders and growing at double-digit rates. We serve a broad set of customers, including silicon designers and hyperscalers investing in large infrastructure upgrades. We're excited about opportunities not just in the physical layer but also in the protocol layer, enabling customers to emulate how traffic flows through AI infrastructure. -
Software and Services Margin Impact
Q: How will increasing software and services revenues affect gross margins?
A: We're seeing a nice shift towards software and services, now up to 39% of revenues. Software is accretive to our average gross margin, while services are slightly dilutive. Overall, both contribute nicely to profitability at the operating margin line. -
Semi Cap and Electronics Outlook
Q: What are your expectations for semiconductor and electronics recovery?
A: For semiconductor fabs, opportunities in wafer test solutions around silicon photonics and new memory topologies continue positively. This is somewhat offset by slowdowns reported by equipment manufacturers. Semiconductors represent roughly 10% of our total revenue. In general electronics, we saw stability in manufacturing in Q4, leading to growth. We believe this stability will continue moving forward. -
Automotive Segment Weakness
Q: Can other auto exposures drive growth despite EV slowdown?
A: While we're seeing a pause in EV investments, other areas remain promising. The software-defined vehicles, ADAS, and autonomy sectors are steady, with continued innovation across our business. Additionally, the charging infrastructure and related standards offer new opportunities we're pursuing. -
Operating Margin Targets and Acquisitions
Q: How are acquisitions affecting your operating margin targets?
A: We're currently 150–200 basis points below our operating margin targets of 31%–32%. Acquisitions are accretive to gross margins but dilutive to operating margins in the short run. As we integrate these businesses, we'll drive profit leverage to close that gap. -
2025 Revenue Growth Expectations
Q: Will all major segments grow within your mid-single-digit outlook?
A: We expect a gradual recovery into 2025 but aren't assuming all segments will inflect. Our base case is 5% revenue growth and 10% EPS growth for the year. If all segments grow, we'll be ready to capitalize on it. -
Aerospace and Defense Outlook
Q: Any concerns in aerospace and defense amid federal spending changes?
A: The long-term trajectory is easiest to forecast due to budget clarity. Orders were slightly down year-over-year but were off a record comparison from a year ago. Despite short-term uncertainties with administrative changes, we feel good about our position. -
Wireless Business Stabilization
Q: Has your view of wireless business growth evolved?
A: After two quarters of stabilization, we're seeing more strength on the infrastructure side with activity around Open RAN and 6G research. The devices side is lagging slightly. We believe the business will remain stable in '25 and feel good about our ongoing momentum. -
Impact of Tariffs and Elections
Q: How might tariffs and U.S. elections affect your business?
A: We're monitoring tax rates, tariffs, trade restrictions, and defense spending. We've been agile in ensuring compliance with new restrictions, pivoting sales as needed. If tariffs increase, many companies may move to Southeast Asia, and we're prepared to capitalize on those opportunities. -
M&A and Capital Allocation
Q: Will you pursue more large transactions with the Spirent deal ongoing?
A: We have a strong organic growth strategy and have identified markets for selective M&A. While we continue to evaluate targets and remain disciplined, it's more about bandwidth than capital to pursue more deals given those already announced. -
Buybacks in Fiscal '25
Q: How should we think about buybacks for fiscal '25?
A: We expect to continue our buyback program at least at the anti-dilutive level. We'll balance preparing cash for the Spirent transaction with opportunistic buybacks.