是德科技 (KEYS) 2026 Q3 法說會逐字稿

Ladies and gentlemen, and welcome to Keysight Technologies fiscal third quarter 2026 earnings conference call. My name is Hilary and I will be your lead operator today. (Operator Instructions) This call is being recorded today, Tuesday, August 18, 2026, at 1:30 PM pacific time.

I would now like to hand the call over to Liz Morali, Vice President of Investor Relations. Please go ahead, Ms. Morali.

Good afternoon, and thank you for joining us for Keysight's third quarter earnings conference call for fiscal year 2026. Joining me on today's call are Satish Dhanasekaran, President and CEO; Neil Dougherty, Executive Vice President and CFO; Kailash Narayanan, President of the Communication Solutions Group; Jason Kary, President of the Electronic Industrial Solutions Group; and Steve Yoon, Senior Vice President of Global Sales.

Following the prepared remarks from Satish and Neil, we will conduct a question-and-answer session. The press release and information to supplement today's discussion can be found on our Investor Relations website, investor.keysight.com. During today’s discussion, we will make forward-looking statements about the financial performance of the company. Actual results may differ materially from those mentioned in these forward-looking statements as a result of risks and uncertainties.

Information about these risks and uncertainties can be found in our most recent Forms 10-K and 10-Q filings with the SEC. We do not intend to update any forward-looking statements. In addition, we will refer to non-GAAP financial measures, and reference core growth, which excludes the impact of acquisitions or divestitures completed within the last twelve months and currency movements. The most directly comparable GAAP financial metrics and reconciliations can be found on our Investor Relations website, and all comparisons are on a year-over-year basis unless otherwise noted.

I will now turn the call over to Satish.

Thank you, Liz. Good afternoon and thank you everyone for joining us on today’s earnings call. Keysight delivered another outstanding quarter, with record results and broad-based growth across our markets. The outperformance was driven by strong execution by the team and demand extending across Keysight’s full suite of differentiated products and solutions. Orders grew 56%, revenue grew 36%, and earnings per share grew 79%, alongside robust free cash flow generation.

Given this momentum, we are raising our outlook for Q4 and for the full fiscal year. Customers are investing to solve increasingly complex engineering challenges across our end markets such as AI infrastructure, advanced semiconductors, defense modernization, and next-generation communications. Our outperformance reflects the differentiation of Keysight’s solution strategy and the increasing value we bring to customers across their innovation lifecycle.

We remain focused on executing our strategy for long-term value creation: starting with identifying and investing ahead of structural growth opportunities, engaging early and deeply with industry leaders, and building differentiated capabilities to solve our customers’ mission-critical applications. We remain confident in our ability to sustain our momentum and deliver long-term value.

Now to the business segments. Communications Solutions orders grew for the 9th consecutive quarter, establishing a new record, and revenue grew 43%, driven by compounding momentum in Commercial Communications and strength in Aerospace, Defense and Government.

In commercial communications, we saw the momentum from the first half of the year continue into the second half, driven by rapid scaling of the AI infrastructure ecosystem. As a result, Wireline delivered record orders, more than doubling year-over-year. The four pillars of opportunity associated with this business -- AI infrastructure scaling, speed transitions, silicon photonics, and system-level emulation -- all continue to drive growth and pipeline expansion with our customers.

The breadth of our portfolio and sustained engagements with customers across this ecosystem are enabling Keysight to participate across the AI innovation lifecycle, from pre-silicon design, through chip and component validation and system-level emulation of data center racks and clusters, to high-value manufacturing. The industry continues to scale, and we have seen a meaningful increase in the diversity of applications and a greater opportunity to expand with customers globally.

Let me share a few examples of the diversity of our business: First, silicon designers are adopting Keysight's recently introduced high-performance digital and RF solutions for the lab to validate new designs with system-level requirements to ensure interoperability, performance, and reliability.

Second, interconnect manufacturers are using Keysight’s high-fidelity analyzers to characterize the performance of high-speed backplanes to ensure signal integrity and manufacturing yield. Third, switch designers are using Keysight’s emulators to validate network performance across AI workloads and protocols.

Fourth, transceiver manufacturers are rapidly scaling 800G and 1.6T optical transceivers using our industry-leading 224G digital communication analyzers. Investments in the optical component ecosystem continue to ramp and the key players are adopting our broad portfolio of lab products, including the industry's first 220GHz Lightwave Component Analyzer, which we introduced at OFC this year.

And finally, our strategic engagements with hyperscalers continue to deepen, as they are integrating our pre-silicon emulation and workload solutions into their development pipelines. Looking ahead, the scaling challenges associated with AI data center deployments are driving a multi-year industry roadmap for new architectures, evolving technologies, and new standards. We are well positioned and continue to invest ahead of transitions to capture the opportunities.

Turning to wireless, orders grew significantly again this quarter, with rising customer investment in next-generation connectivity and continued demand across the supply chain supporting AI infrastructure scaling.

In June, the 3GPP plenary meeting in Singapore confirmed the timeline for 6G, with the industry’s first standard targeted for March 2029. With that milestone now set, customers are transitioning from exploratory research into funded development programs. Importantly, 6G is shaping up to be much more than the usual vectors of innovation around higher speeds and new spectrum.

Three emerging technology areas are: AI-RAN, integrated sensing and communication, or ISAC, and non-terrestrial networks, or NTN. Each of these is expanding the ecosystem and creating opportunities for us to provide end-to-end solutions for these use cases, building on our 5G solutions leadership. We are engaged with customers around multiple applications such as evaluating AI-enabled beamforming, high-fidelity digital twins, and network traffic steering, and the traction for our solutions continues to build.

Our solutions have been architected around a flexible platform that enables customers to validate various candidate technologies by providing insights from the radio channel, network, device, and satellite emulators for early 6G use cases across terrestrial and non-terrestrial networks.

Keysight’s comprehensive portfolio -- spanning the physical layer to emulation tools -- is helping us secure early wins with industry leaders. Turning to aerospace, defense and government, orders were up double digits with growth across all regions, driven by a heightened global focus on deterrence and defense modernization.

Modernization is raising the bar on performance across the market. In radar, the industry is accelerating its shift to advanced radar architectures. These use cases require high-performance validation solutions, leading to rapid adoption of our multi-channel RF solutions and next-generation oscilloscopes at prime contractors.

New security architectures have also accelerated the adoption of lower-cost, autonomous platforms, from UAVs to LEO satellite constellations, that are increasingly delivered by venture-funded defense technology companies moving at commercial speed. We are recognizing this shift and are positioning ourselves to serve this new ecosystem: our engagement with defense startups and neo-primes is scaling, and this year, we achieved key wins across satellite, UAV and phased array radar applications.

Resilient positioning, navigation and timing have become a greater priority as GPS disruption around conflict zones increasingly affects security systems. Demand accelerated for Spirent’s PNT solutions that emulate various multi-channel jamming and spoofing scenarios in the lab, which enable customers to design and develop robust and resilient systems for these mission-critical environments. As we integrate our teams and solutions portfolios, we have a solid set of opportunities on which to build.

With record budgets, faster adoption of capabilities by customers, and a portfolio that is purpose-built for mission-critical requirements, we see a durable, multi-year demand cycle ahead, and we are well positioned to capture it.

Moving to the Electronic Industrial Solutions Group, we delivered another record quarter for both orders and revenue, with revenue growth of 21% and meaningful double-digit order growth across all three markets --General Electronics, Semiconductor, and Automotive and Energy.

In General Electronics, growth was again led by AI-related innovation and infrastructure investment. Test intensity continues to rise for high-performance components, such as multi-layer PCBs and capacitors, in support of next-generation compute. Higher frequencies, tighter tolerances, and greater GPU and CPU density are increasing production complexity and quality requirements. Our precision measurement solutions are being adopted to qualify these components in production.

In addition, digital health was up double digits with growth across wearables and monitoring applications. And, the growth in education was supported by our semiconductor workforce development solutions, particularly in Asia.

In Semiconductor, we delivered another record quarter driven by ongoing capacity expansion for advanced nodes, high-bandwidth memory, and silicon photonics. Given the increasing adoption of optical interconnects, commercial production of silicon photonics is accelerating across leading foundries and IDMs. We also saw healthy demand for our semiconductor R&D solutions. Our engagement with industry leaders remains high and gives us good visibility into their future requirements as we look into next year and beyond.

Finally, in Automotive and Energy, orders grew solid double digits. Investment remains focused on software-defined vehicle architectures, with broad-based global demand for in-vehicle network and cybersecurity test, where our solutions provide verifiable compliance in support of new standards. Our energy and charging business also grew this quarter with engagements across both grid and automotive customers and spanning high-power charging, storage, compliance, and infrastructure validation applications.

In summary, this quarter’s results reflect the strength and diversity of our business. Our portfolio is enabling the major waves of innovation shaping our markets: AI and accelerated compute today, and 6G, defense modernization, grid, and autonomous systems in the years ahead. Every one of these technologies must be designed, validated, and proven before reaching the market.

Keysight, with its differentiated technology stack and consistent R&D investments, is well positioned to outperform the market over the long-term. I want to acknowledge the entire Keysight team for their hard work and commitment to our customers’ success, and with that,

I will pass the call over to Neil.

Thank you, Satish, and hello, everyone. Our momentum continued in fiscal Q3 as we delivered record results that exceeded the high end of our guidance range for both revenue and EPS. These results were driven by further acceleration in our Commercial Communications business and ongoing strength in Electronic Industrial Solutions and Aerospace, Defense and Government.

Our portfolio of highly differentiated solutions is resonating with customers, allowing us to expand margins year-over-year. In addition, our cash flow generation was robust, and we are on track to achieve record operating cash flow in fiscal 2026.

Moving to the specifics for Q3 Orders of $2.091 billion dollars were up 56% on a reported basis. Acquisitions represented 5 percentage points of growth and currency was a 1 percentage point headwind. On a core basis, excluding those items, orders grew 52% .

Revenue of $1.846 billion dollars was up 36% on a reported basis, and up 31% on a core basis. Gross margin was 69.0%, and operating expenses were $661 million dollars. Operating margin was 33.2% , up 820 basis points year-over-year, and exceeded our long-term target range of 31% to 32%.

We delivered net income of $531 million dollars and earnings per share of $3.07. Our core business contributed substantially to these results, with an operating margin of 34.7%and operating margin incremental of 66%.

From a segment perspective, the Communications Solutions Group generated revenue of $1.345 billion, up 43% on a reported basis and up 36% on a core basis. CSG gross margin was 70.8%, and operating margin was 34.0%. Within CSG, the commercial communications business generated its first billion-dollar quarter, with revenue of $1.006 billion dollars, up 56%, led by outstanding growth in Wireline and supported by strong growth in Wireless. Wireline revenue exceeded wireless revenue for the first time this quarter.

Aerospace, defense, and government achieved revenue of $339 million dollars, an increase of 14% The Electronic Industrial Solutions Group generated a record $501 million dollars in revenue, an increase of 21% percent, with growth across all three markets - general electronics, semiconductor and automotive and energy.

EISG gross margin was 64.1%, and operating margin was 31%. Software and services both grew double digits, now representing approximately 33% of Keysight revenue, while annual recurring revenue was 24% of total mix.

Moving to the balance sheet and cash flow, we ended the quarter with $2.605 billion dollars in cash and cash equivalents, generating cash flow from operations of $437 million dollars, and free cash flow of $403 million dollars.

This quarter, we repurchased approximately 640,000 shares of Keysight stock at an average price of approximately $326 dollars per share for a total consideration of $210 million dollars. Year-to-datein fiscal 2026, our share repurchases total $517 million dollars.

Before I turn to our outlook, I wanted to provide an update on our recent acquisitions. Our integration efforts are now largely complete, including systems migrations, one quarter ahead of schedule. Given the faster-than-expected integration, our cost synergy realization will accelerate in Q4. We now expect to have 80% to 90% of the $100 million dollars in cost synergies realized on a run-rate basis exiting the fiscal year.

Now, turning to our outlook. For the fourth quarter of 2026, we expect revenue in the range of $1.930 billion dollars to $1.950 billion, representing 37% year-over-year growth at the midpoint. We expect Q4 earnings per share to be in the range of $3.34 to $3.40 representing approximately 76% year-over-year growth at the midpoint.

This will result in fiscal year 2026 revenue growth of 32% and EPS growth of approximately 60% at the midpoint. This guidance is based on a weighted diluted share count of approximately 172 million shares. In closing, fiscal 2026 thus far has been a remarkable year with exceptional performance across our businesses. Our leading portfolio of solutions, levered to multiple technology megatrends, is driving significant growth and margin expansion.

We remain focused on enabling our customers and helping them further accelerate technology innovation, in turn driving continued organic growth, profitability and ultimately, value creation for our shareholders.

With that, I will turn the call over to Liz to begin the Q&A session.

Thank you, Neil. Hilary, will you please provide the instructions for the Q&A session?

(Operator Instructions)

Aaron Rakers, Wells Fargo.

Yeah, thanks for taking the questions and congrats on the strong results here. I'm curious there was a lot of commentary around 6G and the setting forth kind of the standard path as we move forward. As we think about Keysight's participation in 6G, I'm curious of how you would characterize the opportunity relative to the 5G cycle that we saw several years ago.

Any kind of framing of when we should expect to see some materializing revenue from a 6G cycle? And any thoughts on how you would frame that relative TAM opportunity versus, let's say, 5G several years ago? And I have a quick follow-up.

Thank you, Aaron. It's a great quarter. The team has been executing very well and we're pleased with that. Relative to 6G, anytime you start a new generational cycle, you always look for what's different versus the past. You can't wait too long to call it. That's why we've had a focus on making this company about solutions and about first to market. We have been engaged with the industry over the last couple of years.

As I noted in my prepared remarks, we start to see the industry coalescing around early 6G standards in the 2029 timeframe. There's the Olympics in the United States. That's the other mile marker. That's not new. Anytime you've had wireless standards evolutions, ironically, it involves a sporting event of some kind. That's another mile marker to draw historical parallels.

From a technological standpoint, traditionally, you see new spectrum and support of higher speeds and feeds. It's the base case for any technology. That is also going to be true in 6G. As we noted, we're also seeing other vectors of innovation, AI-RAN being one of them, new use cases like ISAC, security infrastructure, and also bringing forth a tighter integration of non-terrestrial and terrestrial assets into a communication framework.

And all of these are areas we've invested in. And we have the solutions portfolio, and we're working with industry-leading customers. Our base case is the opportunity in 6G is greater than the opportunity that we saw in 5G, and we're well-positioned to capitalize on it.

And then as a quick follow-up on the wireline side, you'd mentioned that this is the first quarter for which you saw wireline surpass the wireless business. As we think about AI and just the continual expansion of the opportunity set around that, is there any way to help us think about how meaningful AI is to your business today, either within the wireline or in aggregate, and how much of a growth driver that appears to continue to be as we look forward?

Yeah, I mean, we're very pleased with the wireline business and the pickup we're seeing and the AI-related demand in that business as a primary. Of course, as the opportunities increase, you will start to see secondary opportunities, but we'll try to frame it up for you in terms of our wireline business.

Wireline was greater than wireless not just this quarter, but even year-to-date, we have seen tremendous momentum in our wireline business, and we're very pleased, even strongest quarter for our AI and wireline opportunities in Q3, and the pipeline continues to grow strongly for us. The way I see it is, we're in the early stages of a long adoption of AI, not just in wireline, and as things come together, we'll start to see a convergence with wireless and convergence with automotive and many other end markets that we're well positioned to capitalize over the long term.

But in the near term, very pleased with the traction we're seeing for our differentiated products and solutions, which is far exceeding our ability to supply at this point, and customers are planning ahead, and we're doing very well with our AI business.

Thank you.

Meta Marshall, Morgan Stanley.

Great. Thanks. Congrats on the quarter. You mentioned kind of a lot of different ways in which more there's more markets or more different types of technology to be testing as far as AI. But could you just give a sense of kind of how testing density has changed. So there's a lot of different more end markets, but just, kind of, how the overall content of testing has changed as, kind of, some of these technologies get a little bit more complex.

And then, Neil, very healthy incremental margins again this quarter. Just any guardrails that we should think about just as we kind of progress forward. Thanks.

Yeah, Meta, as you've noted, as the year has progressed, not only are we picking up what we would call traditional opportunity associated with CapEx investments that customers are making, but the opportunity set as we see it in the future continues to grow and expand.

And it's a function of this ecosystem over the last few years has largely been a homogeneous integrated vertical stack with a finite set of opportunities that we have done extremely well. But by working early, we're also working with other players that are entering the space and the space is increasingly becoming more heterogeneous in nature, all the way from compute to racks and also protocols. I mean the -- we're seeing a growth in the number of protocols at all layers of the stack.

And the architectures increasingly involve GPUs, CPUs, DPUs mix. And it's not just for the sake of making things more complex. It's -- the reality is different customers have different strategies -- and based on the type of workload they're using, they're trying to pick the right architecture for them -- and our tools are increasingly doing very well with customers across the broader tail, which positions us well into the future.

I don't know, Kailash, if you have any other comments to add?

Yes. Fundamentally, the design margins are shrinking, right? So with higher data rates, lower latency, AI needs to be lostless. And even if there is a limited amount of gap there, the models won't perform. So what our customers are seeing is they can no longer guarantee anything by design.

They also need to test it in production as well. So this is increasing a lot of design emulation and test intensity. If you look at a computer or a switch tray these days, it's gone from tens to hundreds of high-speed pin-outs and that's more insertion points for us.

We have our VNAs and oscilloscopes testing things at signal level. We introduced a new portfolio to test things at a bit level, and our AI workload emulators are testing things and emulating things at a protocol and packet level, you look at scaling, and things are going from monolithic chips to chiplet architectures. So the interoperability of chiplets need to get emulated and tested.

Customers are asking when a chip is exercising a model, we emulate an environment for that chip to get stress-tested, and they want to see if the chip shuts down or gets overheated, they want to activate all of the cores and with higher power and higher speeds.

So all of these are creating additional opportunities for us and we're excited about the complete portfolio we have, electrical optical RF digital and protocol, we're bringing all of these capabilities to enable our customers, and we're seeing R&D as well as our manufacturing business grow significantly.

Yeah, I mean to your second question, obviously we've seen really strong core operating leverage this quarter. And I think as we look forward, I continue, at least as it relates to '27, to feel confident in our ability to continue to outperform our 40% leverage target, particularly given the synergy realisation that we'll see. I mentioned that we've largely completed our integration of the recently completed acquisitions.

You put the question in the context of guardrails. The only thing I would just caution people to pay attention to is we did have the onetime tariff impacts this year that, kind of, artificially pulled up '26 profitability that won't repeat. So if you adjust for that and think about it on an operational basis, I would expect we'll continue to outperform the 40% metric.

Great. Thank you.

Thank you.

Mark Delaney, Goldman Sachs.

Yes, good afternoon. Congratulations on the strong results. I was hoping to talk around demand sustainability to start. I think orders at over $2 billion for two quarters in a row now. And as you look into the fourth quarter of next year, do you think this level of demand is sustainable or even a level that Keysight can grow from?

Yes, Mark, we think it is. I'll just say our base case is orders slightly up from Q3 in line with seasonality and then following that seasonal trend into Q1 of '27.

Steve, I know the pipeline, you may make some comments there.

Thanks, Satish. Well, let me start by saying it's great to be head of sales at Keysight right now. We had an outstanding Q3. We deliver highest quarter ever for the third consecutive quarter. And with the traditional uplift that we're expecting Q4, we're confident in delivering another record quarter and surpassing $2 billion for the third consecutive quarter.

Even more promising, despite these record order results, our pipeline has continued to grow throughout the year and now stands at an all-time high. I think this is proof that our go-to-market strategy and priorities are working. Our top priority has been to really spend more time with customers as much as possible, identifying those new opportunities and find those unarticulated needs and capturing new logos. As a case in point, year to date, we've added nearly 3,000 new customers representing more than $100 million in incremental business.

And we're also partnering closely with marketing to broaden our reach and get to those customers earlier in their buying process. In addition, one of our focus has been to elevate our engagement with our top customers. So our largest customers are doing well, performing up high double digits for the year. And more importantly, we're really expanding our reach across their entire ecosystem.

We're also adding capacity in markets and high growth areas. Southeast Asia is a good example. We've more than doubled our business and is our fastest growing region for the quarter and for the year. So all in all, we further accelerate our momentum this quarter, resulting in our highest ever monthly funnel intake just last month and our new record for rolling 12-month funnel.

Very helpful context. Thank you. My other question was on supply and the ability to meet this level of demand the company has seen. So can you double click a bit more on Keysight's ability to meet demand at these types of volumes, both in terms of the supply chain and the ability to get enough parts, as well as your own ability from a manufacturing standpoint? Thank you.

Thank you, Mark. As you heard from Steve, we're seeing broad-based trend in demand. I think one of the points that, in addition to everything Steve said, is we're seeing demand across the globe and our portfolio is doing very well.

Now, from a supply chain perspective, our team has done a great job this year, continuing to scale with discipline, as you see from our gross margins at record levels as well. And we're continuing to meet our customers' demand needs as we go through the year. It's also true that the supply environment is less flexible today than, let's say, a year ago. And so we're working with our suppliers to deconstrain the supply chain, especially at these levels of demand. And we remain confident in the guide that we have laid out for Q4.

Thank you.

Tim Long, Barclays.

I'll ask one and then come back with my follow-up. I want to go back to commercial comms and the strong AI business on the wireline side. You talked about some of the applications and the use cases that are helping there. Curious if you can just give us a little update on how that business is looking from an R&D standpoint versus manufacturing? If you can give us a little update on any movement that you've seen in the AI-related business.

And then I have a follow-up.

Yeah. It relates to R&D and manufacturing. We'll talk about it from the wireline side of things where we put out the numbers previously. Historically, this has been a business that's been amongst the most heavily levered towards R&D. We've talked about it at about 80/20. We've more recently said with the addition of manufacturing business and the support of the AI data center build-out that that shifted to more like 70/30.

If you look at over a shorter horizon over the last couple of quarters, it's probably more like two-thirds, one-third. We're still heavily levered towards R&D within wireline even as we're servicing this entire ecosystem and servicing these customers as they take products out of R&D into manufacturing and ultimately deploy them into the marketplace.

Okay. Great. Then my second question, my follow-up, there was a mention in there about the hyperscalers. I'm curious if you can just touch maybe at a high level on how important of a customer cohort is that? Is there a margin difference? Is there more product they take because they're involved in a lot of technologies? Would that be just the four or five big ones or do you see that spreading to the next level of neoclouds and others playing in the industry? Thank you.

Yeah. I would say, Tim, the hyperscalers and our early engagement started about five years ago with our acquisition of Ixia who had more of a relationship with them in the early days. Right now, I would say our relationship with hyperscalers not only is in the US, but I also would add some of the model companies that are driving a lot of the demand for the ecosystem.

It is strategic in that sense because of the tremendous capital that they're deploying and that moves downstream into the ecosystem. Understanding their needs are important. Also, many of them, I think, publicly disclosed their own in-house silicon and efforts to make their own chips. So they are a very important customer base for us.

From a revenue concentration point of view, they're actually the smaller of the entire, you'd say roughly 10% of our businesses from that cohort of companies directly, but they do have a lot of downstream effect and influence across the ecosystem. So it's very important.

What's also important is to recognize that even as we're winning today in R&D and in manufacturing applications where the industry is scaling, we're also uncovering new opportunities such as with regard to emulating the workloads because that's where the future is going to be and we're in a very good position with our emulation platforms -- to be able to help the industry to uncover the various heterogeneous emulation of workloads associated with AI because as Kailash mentioned earlier, that is going to be critical, especially given the latency requirements of AI and the scaling data across the AI network.

Okay, thank you.

Adrienne Colby, Citi.

Hi, it's Adrienne on for Atif Malik. I was hoping you could talk a little bit more about the sequentially slower growth in Aerospace, Defense and Government segment. You described a lot of strong demand dynamics and double-digit order growth, but we did see a bit of a step down in the growth rate there?

Yes, Adrienne, I've said this. You heard me state this on the call. Aerospace defense is a business I can easily call years out. very difficult to call in a given quarter just because it's got government budgets, it moves at its own pace. But this year, we're quite pleased with the growth and adoption of our solutions, including our newly acquired PNT offerings from Spirent.

So Neil, any specific points?

Yes, I would just reiterate that we're still up double digits. There is some quarter-to-quarter perturbations in these end markets. My honest feeling is you're probably -- there's probably nothing to see there from that perspective.

Thank you. And then just as a follow-up, could you comment on if the run rate that you were seeing in the business within wireline was consistent with last quarter -- Oh, yeah, please.

Yeah, let me just make one more comment that we built backlog in the business. So, if you're looking at revenue and drawing that conclusion, that's a function of supply and supply chain. So, I would not read too much into it, as Neil mentioned.

Please go ahead.

Can you repeat your follow-on question?

Yes, thank you. I just wanted to confirm or rather to ask if the run rate of the business, the AI business within the wireline segment was consistent with what you were seeing last quarter or if you've seen that expand at all?

It has expanded.

Thank you.

Andrew Spinola, UBS.

Thank you. You reported another strong quarter in the EISG segment. I think you highlighted some of the strength in semi and general electronic. And I wonder if you could unpack that a little bit. You said last quarter you're seeing some of the demand from AI expand into some of these segments.

I'm wondering if you're seeing that and if you think that there's a fairly meaningful expansion still ahead in those segments, and I'd also like you to comment on the operating margin, which was quite strong in the ISG in the quarter. And how you're thinking about the sustainability of that going forward?

Yes, Andrew, pleased with the double-digit growth we're seeing in our EISG business year-to-date recovery in auto is another key along with strengthen semi. But we have Jason here, and we'll touch upon those points.

Yeah, thank you, Andrew, for your question. And specifically, with regards to the AI tailwinds that we're seeing in the rest of the business, we've talked frequently about the leverage of our communications technologies and our key into end markets. We do have some specific technologies around semiconductor wafer test, where we're seeing significant capacity expansion there across multiple dimensions, including advanced nodes, memory silicon photonics.

As far as looking forward, again, to the earlier question from Meta about test intensity. You're seeing a lot of that multilayer high-density heterogeneity that's coming through at the component level resulting in higher test intensity on the production side, which Kailash mentioned, we see that in some of our end markets in general electronics.

And again, that's moving from the board level to the component level, where the tolerances are getting increasingly tighter as you look at higher frequency and higher data throughput and just expectations of high performance in small spaces. So I think that's the challenge that customers face. And the beauty of our solutions is we address those all the way from R&D into production, so strong leverage there.

On the operating margin side, yes, we're pleased with the progress that we're making there. I think historically that business had suffered a little bit. And over the last 12 to 18 months, we've really focused on driving top-line growth because that's where it always starts, and then transforming pieces of the business.

We're investing more in some of the software elements of the business with EISG and the Optical Solutions Group. And there's been rationalization of certain pieces of the business where perhaps lower margin, and at the same time, pursuing other opportunities that we've talked about related to digital health and the grid. So I think in summary, despite the different profile and composition of the businesses within the EISG today, we're confident of our ability to continue to achieve higher levels of profitability as we move forward.

I appreciate that call, Jason. That's helpful. I just had one follow-up question for Neil. In prior commentary, you discussed potentially the synergies being $100 million plus from the acquisitions. And I'm wondering now that you've completed the integration, is your estimate of those synergies potentially larger? And I'm thinking about what sort of contribution I can assume for Q4, Q1.

Yeah, I would say that at this point, given where we're at, we certainly have direct line of sight to the $100 million. So I think that's to the extent there was risk in that, that's substantially de-risked. And I think as this business now begins to operate more holistically within the Keysight framework, we'll continue to look for additional opportunities.

So I don't have a quantification for you, but I think history would suggest that when the initial kind of wave of synergies come out, that there is admittedly smaller dollars, but some additional follow-on efficiencies that tend to materialize. If you think about it on an incremental basis, as you move from FY26 to FY27, I'd be thinking on the order of $50 million. I think we realized close to $40 million, again, ramping throughout the year as you thought about it from Q1 through Q4.

And again, I expect that we're going to be kind of close to 90% of that $100 million realized as we enter next fiscal year.

I appreciate that. Thank you.

Joseph Cardoso, JP Morgan.

Hello, good afternoon. This is Marc Vitenzon on for Joseph Cardoso. Thank you for taking my question. I guess you guys have given us a lot of detail on the strength and AI-related wirelines. So I wanted to ask about traditional non-AI portion of wireline. How does growth look like in that business and what are you seeing there?

Yes. I think we're seeing a convergence, I think, Marc, is what -- how I would characterize it. And I think that is to be expected as such a disruptive technology starts to intercept multiple end markets. I'll give you an example the wireless customer base historically maybe never had to think about AI. And now AI is entering the RAM.

That's an example of an application. The wireless ecosystem has a known set of contract manufacturing companies that play into the telco market. Many of them have now started to invest in building their own racks for AI. That's another example of started the applications that are now emerging that we're well positioned to capitalize, given our strength and reputation in this ecosystem.

Got it. Thank you. And then you guys mentioned that software and services was roughly 33% of revenue. I guess, I'm curious like where do you think that number eventually goes especially following the recent acquisitions? Thank you.

Yes. I think, look, the strategy for the company is to become a solutions company. This has been what we worked hard to building and inherently, that implies providing more software-centric solutions and also offering differentiated services to build the life cycle value contributions. And we do it at the pace of our markets and at the pace of our customers. It's all about our customers' needs, and so we're not trying to force a business model into the marketplace.

And so yes, we've tried to run as high as 40% a year or so ago, and now we're at 33%. But I just want to say on a dollar basis, this is record levels for software and services, and we'll continue to keep innovating to stay differentiated in the marketplace.

I would also maybe just add that our software and services businesses are also growing double digits. We're just not growing as fast as the hardware business is at this point in time.

Got it. Thank you.

Matthew Niknam, Truist Securities - Analyst

Hey guys, thanks so much for taking the question and congrats on the results. Just if I could. First, on the 4Q revenue guide, so it's implied to only increase about 5% sequentially. I know that's pretty normal to the seasonality. But your book-to-bill has been north of 1.1 for two straight quarters.

So I'm wondering if you can speak to any sort of supply constraints that are inhibiting or limiting that revenue guide for the fourth quarter? And if there's any color in terms of how much of the backlog that's been growing is going to ship next fiscal year.

And then on a related note, I think in the last several years, you've given some initial color or framework in terms of next fiscal year on the third quarter call. I'm curious if there's any initial thoughts, you're ready to provide, just given the momentum you're seeing across the business.

Maybe I'll take the 2027 commentary Neil, and then you could cover the remaining. It's a great question. Look, we have a no doubt a strong setup as we enter our fiscal '27. Even as we remain cognizant of the outperformance you're seeing in 2026 on top of the growth here in '25. Supply chain will remain the governor of near-term revenue.

I think I mentioned that earlier. But when I look at the broader end market, I just have to look at the technology trends and say, the complexity of these technologies are only growing. The intensity and the pace of which our customers are innovating across our end markets globally, it's relentless right now, then that intensity is matched with the investment and we're well positioned as a company to capitalize because of all the investments we made in the downturn in R&D that is now going to generate and has already started, a good refresh cycle for our new products, which are already being enthusiastically received by our customers. So we're well positioned from that point of view.

We also are taking a -- given this demand that is consistently now for a few quarters, and we're executing well on a quarterly basis, but we've taken a longer-term view 18-month-plus view of our supply chain planning, and we're working to create additional flexibility, but those come with a lag because I'll give you an example, we'll have to redesign some products on the margin to accommodate second sources and enter into some more longer-term agreements with our customers. So we're already starting to take those actions. And so I put it all together, we feel good about the setup. We will give you a more specific guidance for Q1 when we report in Q4.

Neil?

Yes. I mean I think you said most of it. I think if I was just going to recap. Right now, supply is not the limiter, right -- excuse me, demand is not the limiter. We do have some supply chain limitations.

It's a little bit of a mixed bag. I think if we think back three months to the biggest supply chain challenges we were facing, most of the more internally channel capacity related around ramping some NPIs that has seen kind of unprecedented early demand from the marketplace. We've made tremendous progress in that area. I think the challenges have shifted more towards incoming parts, which are under high demand as demand has ramped and continues to ramp across the ecosystem, right?

You've got numerous players that are all competing for supply from a similar set of component suppliers. And so I just think that the supply situation is likely to be nonlinear and will likely be a governor of our ability to convert demand into revenue for the next two quarters.

If I can just add a couple of comments about 2027 Outlook. We just had the biggest refresh of our core RF microwave and high-speed digital products since we formed Keysight. And we reinforced this at our worldwide annual sales training event in June, where we trained our entire sales team on this proposal, as well as aspiring products.

So as these solutions are rolled out and introduced to more and more customers, I expect this to be a strong tailwind for us for many quarters to come.

And years.

Thank you.

Quinn Fredrickson, Baird.

Hey, good afternoon, guys. I wanted to go back to the orders discussion. Good to see the $2 billion orders number again, but it's been unusual typically to see orders grow sequentially in the third quarter. So could you just unpack what the drivers were?

And do you think you saw any tailwinds for possible future sovereign transceiver restrictions? Or are customers getting ahead of any other constraints or supply issues?

There was nothing unusual about the demand. In fact, we saw a conversion of the pipeline in a very orderly fashion, no pull-ins. We are looking for it. It is just an environment where the markets are stronger and Keysight's differentiated position in its core markets, starting within commercial comps, which really outperformed for us relative to our expectation even with AI. And equally, the demand from our prime contractors in aerospace defense remains strong as they're building out capacity, Sovereign investments in Europe is another tailwind for our defense business.

And the EISG business is clearly outperforming with the semiconductor business doing exceptionally well. So strong broad-based demand, and we expect, as Steve mentioned before, we expect that to continue into Q4.

Thanks, Satish. And Neil, gross margin came at 69%. I think you had said mid 67% range. Was the difference just on incremental volume or mix? Just if you can unpack that -- and then any color on how to think about sustainability into 4Q or even '27?

Yes. I mean I think if you go back a quarter and adjust for the tariff thing, we were 68% last quarter were 69% this quarter. It's obviously volume is helping, but I think it gets to the differentiation of the solutions that we're bringing forward across end markets, whether that's early 6G, AI, semiconductor, we have a highly differentiated set of solutions mix does. We do have a broad range of gross margins across the portfolio. So mix does matter. But I do think this upper 60s percent is a sustainable level for us.

Thank you.

Bastien Faucon-Morin, SIG.

Hi, this is Bastien, filling in for Mehdi. Hi, Neil and Sathish. Thank you for taking my question. You saw some momentum in wireline. It was up 56% year on year. And you mentioned the mix going towards 70% -- 30% production R&D from 80/20. Could you give us a breakdown on how you expect R&D and production to look like in revenues in the coming quarter?

Well, I would just say Bastien. It's one of those things that move -- things move around on a quarterly basis. So we tend to look at it over a longer-term horizon because in a given quarter with our customer comes in and they're doing an expansion in production line that could dominate a certain part of the segment. But as I've called out, I think we said two-thirds in R&D, one-third in manufacturing.

On the margin, we're seeing in our pipeline, greater activity as the customers are scaling. We're ramping production of 1.6 terabit as we speak right now, and the demand is very, very strong, right?

So in a given quarter like Q4, I can easily see that mix even trend more towards production, and we're meaningfully participating across the workflow. And that's the important message is our R&D business is growing, as Kailash mentioned, we're very pleased with the diversity of that business, and we're also happy that we're participating in the volume part of the data center build-out as well.

Got it. Very helpful. And then as a follow-up, how should we think about the long-term mix of R&D versus production, given that the ramp and adoption of new transceivers are accelerating? Your volume is kind of ramping, but you also have more complexity when it comes to testing those new technologies. Is there a way to think about that long-term R&D and production mix as we're reaching higher deployments of optical transceivers?

Yeah, I mean, I would just say, look, our strategy, as we have laid out, it's really to be an innovation accelerator for our customers. That's sort of our core purpose. We're focused on building our tech stacks, optical, electrical, both of them to be able to help our customers go through in R&D.

And what we're seeing now, it's pretty unprecedented that the rate of adoption of these technology curves or technology waves, it's accelerating to a point where you're seeing concurrent adoption across many dimensions, right? 800 gig is still sort of the underlying technology, but 1.6 is scaling.

And typically, that would have been spaced out a little more. So it's really hard for us to make sense for how long this goes and how broad this goes. But I do know customers are already engaging us on 3.2T. We did a demo at a conference earlier this year.

So the intensity associated with technology change and the economics for companies to find the latest technology remains high, and we're participating in this. And I feel good about our position heading into '27.

Got it. That's helpful. Thank you.

Thank you for your questions. That concludes our question-and-answer session for today. I would like to turn the call back to Liz Morali for any closing comments.

Thank you, Hilary, and thank you all for joining us today. A replay of today's call will be available on the Investor Relations website later today. And we appreciate your interest in Keysight.

Thank you for attending. This concludes today's call. You may now disconnect.