Keysight Technologies, Inc. (KEYS Quick QuoteKEYS - Free Report) , a leading provider of electronic design and test instrumentation systems, reported better-than-expected fiscal fourth-quarter results. Non-GAAP earnings of $1.65 per share surpassed the Zacks Consensus Estimate by 8 cents.

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Revenues declined 2% year over year to $1.287 billion. However, the figure surpassed the Zacks Consensus Estimate by $34 million. Despite a mixed demand environment, solid order growth in commercial communications, semiconductor, aerospace, defense and government end markets cushioned the top line.

KEYS’ Segment Performance

Net sales from Communications Solutions Group (CSG) marginally improved to $894 million from $891 million in the year-ago quarter. In the CSG segment, the company generated $591 million in revenues from the commercial communications end market, up 4% year over year. The figure surpassed our revenue estimate of $560.6 million. Commercial Communications business benefited from healthy traction in the wireline business stemming from the expansion of AI-native data center infrastructure. Investment in cutting-edge technologies such as silicon photonics and high-speed electrical and optical interconnects acted as a tailwind. However, constrained investment from telecom enterprises partially reversed this positive trend.

In the wireless market, the company benefited from open RAN (Radio Access Network)  expansion, growing emphasis on non-terrestrial networks and an early 6G research initiative. It expanded its collaboration with industry leaders, including NTT DOCOMO, DISH Networks and Pegatron, to drive innovation in O RAN.

From the aerospace, defense and government end market, the company generated $303 million in revenues, down from $323 million in the year-ago quarter. Revenues were down 6% year over year, owing to the timing of new projects and funding. However, the figure beat our revenue estimate of $289.2 million. The company reported solid order growth, backed by growing defense modernization efforts worldwide. Growing customer engagement in electromagnetic spectrum operations, radar and advanced communication use cases is driving growth. 

Revenues from the Electronic Industrial Solutions Group (EISG) segment were $393 million, down from $420 million in the year-ago quarter. Net sales fell short of our estimate of $396.3 million. A slowdown in electric vehicle sales and battery oversupply impeded the revenues. 

However, growing foundry investment to expand capacity and support advanced AI applications is driving growth in the semiconductor market. The company witnessed strong order growth for parametric wafer test solutions. In the quarter, it introduced an innovative single-pass 3kilowatt high-voltage wafer test solution, which further bolstered its commercial prospects. Orders improved in the general electronics market, backed by stable demand from the manufacturing sector.

Demand from Software and Services registered a healthy revenue growth of 8% year over year. Annual recurring revenues were $1.5 billion, up 16% year over year.

KEYS’ Financial Position

In the October quarter, selling, general and administrative (SG&A) costs rose to $343 million from $313 million in the year-earlier quarter. However, excluding acquisitions, SG&A costs declined 3% year over year in the fiscal fourth quarter. Research and development costs increased to $233 million from $218 million in the year-ago quarter.

In the fiscal fourth quarter, Keysight generated $359 million in cash from operations compared with $378 million in the year-ago quarter. In fiscal 2024, the company generated $1.05 billion in cash compared to $1.4 billion in the prior year period. As of Oct. 31, 2024, the company had $1.79 billion in cash and cash equivalents, with $1.79 billion of long-term debt.
 
In the fiscal fourth quarter, this Zacks Rank #3 (Hold) company bought back 0.974 million shares worth $150 million and in 2024, it repurchased around 3 million shares worth $439 million.

KEYS’ Guidance

For the first quarter of fiscal 2025, KEYS estimated net revenues in the range of $1.265-$1.285 billion. Non-GAAP earnings per share are expected to be $1.65-$1.71. 

The company expects a mixed demand environment to persist in the upcoming quarters. However, growing defense modernization initiatives across Asia and Europe and growing investment in satellite communications are expected to be key growth drivers. Management’s strong focus on financial discipline and operational efficiency will likely boost profitability.

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