Q3 2026 Keysight Technologies Inc Earnings Call

August 18, 2026

Speaker #1: Good day, ladies and gentlemen, and welcome to Keysight Technologies' fiscal Q3 2026 earnings conference call. My name is Hillary, and I will be your lead operator today.

Operator: Good day, ladies and gentlemen, and welcome to Keysight Technologies Fiscal Third Quarter 2026 Earnings Conference Call. My name is Hillary, and I will be your lead operator today. If at any time during the conference you need to reach an operator, please press star zero. This call is being recorded today, Tuesday, 18 August 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.

Speaker #1: If at any time during the conference you need to reach an operator, please press *0. Today, Tuesday, August 18, 2026, at 1:30 p.m. Pacific Time.

Speaker #1: I would now like to hand the call over to Liz Morali, Vice President of Investor Relations. Please go ahead, Ms. Morali.

Speaker #2: Good afternoon, and thank you for joining us for Keysight's Q3 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 Carey, President of the Electronic Industrial Solutions Group; and Steve Yun, Senior Vice President of Global Sales.

Liz Morali: Good afternoon and thank you for joining us for Keysight's Q3 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 Communications 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.

Speaker #2: 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.

Speaker #2: 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.

Speaker #2: 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.

Liz Morali: 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 12 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'll now turn the call over to Satish.

Speaker #2: 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 12 months, as well as currency movements.

Speaker #2: 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.

Speaker #2: I'll now turn the call over to Satish.

Speaker #3: 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.

Satish Dhanasekaran: 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're 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 solutions strategy and the increasing value we bring to customers across their innovation life cycle.

Speaker #3: 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.

Speaker #3: Given this momentum, we're 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.

Speaker #3: Our outperformance reflects the differentiation of Keysight Solutions' 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.

Satish Dhanasekaran: 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. Communication Solutions Group order grew for the ninth 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 H1 of the year continue into the H2, driven by rapid scaling of the AI infrastructure ecosystem. As a result, Wireline delivered record orders more than doubling year-over-year.

Speaker #3: We remain confident in our ability to sustain our momentum and deliver long-term value. Now to the business segments. Communication Solutions' orders grew for the ninth consecutive quarter, establishing a new record, and revenue grew 43%, driven by compounding momentum in commercial communications and strength in aerospace, defense, and government.

Speaker #3: In commercial communications, we saw the momentum from the first half of the year continue into the second half, driven by the rapid scaling of the AI infrastructure ecosystem.

Speaker #3: 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.

Satish Dhanasekaran: 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 life cycle 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.

Speaker #3: 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.

Speaker #3: 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.

Speaker #3: 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.

Speaker #3: 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.

Satish Dhanasekaran: 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 1.6 Terabit optical transceivers using our industry-leading 224G Digital Communication Analyzers. Investments in the optical component ecosystem continues to ramp, and the key players are adopting our broad portfolio of lab products, including the industry's first 220 GHz Lightwave Component Analyzer, which we introduced at Optical Fiber Communication Conference this year. 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.

Speaker #3: Fourth, transceiver manufacturers are rapidly scaling 800 gig and 1.6 tera optical transceivers using our industry-leading 224 gig 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 220 gigahertz light wave component analyzer, which we introduced at OFC this year.

Speaker #3: 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.

Speaker #3: We're well positioned and continue to invest ahead of transitions to capture these 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.

Satish Dhanasekaran: We are well-positioned and continue to invest ahead of transitions to capture these 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.

Speaker #3: 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.

Speaker #3: 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).

Speaker #3: 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.

Speaker #3: We're engaged with customers across 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.

Satish Dhanasekaran: We're engaged with customers across 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.

Speaker #3: 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.

Speaker #3: 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.

Speaker #3: 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.

Satish Dhanasekaran: 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 UAV to LEO satellite constellations that are increasingly delivered by venture-funded defense technology companies moving at commercial speed. We are recognizing the shift and are positioning ourselves to serve this new ecosystem. Our engagements with defense startups and new 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.

Speaker #3: 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.

Speaker #3: We are recognizing the shift and are positioning ourselves to serve this new ecosystem. Our engagements with defense startups and NEO PRIMES are scaling, and this year we achieved key wins across satellite, UAV, and phased array radar applications.

Speaker #3: Resilient positioning, navigation, and timing have become a greater priority as GPS disruption around conflict zones increasingly affects security systems. Demand accelerated for spiraling PNT solutions that emulate various multi-channel jamming and spoofing scenarios in the lab, which enables customers to design and develop robust and resilient systems for these mission-critical environments.

Speaker #3: 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're well-positioned to capture it.

Satish Dhanasekaran: 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're well-positioned to capture it. Moving to Electronic Industrial Solutions Group, we delivered another record quarter for both orders and revenue, with revenue growth of 21% and a meaningful double-digit order growth across all three markets: general electronics, semiconductors, and automotive and energy. In general electronics, growth was once 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.

Speaker #3: Moving to 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, semiconductors, and automotive and energy.

Speaker #3: In general electronics, growth was once 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.

Speaker #3: 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.

Satish Dhanasekaran: Our precision measurement solutions are being adopted to qualify these components in production. In addition, digital health was up double digits with growth across variables 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.

Speaker #3: In addition, digital health was up double digits, with growth across wearables and monitoring applications. The growth in education was supported by our semiconductor workforce development solutions, particularly in Asia.

Speaker #3: 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.

Speaker #3: 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.

Speaker #3: 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 tests, where our solutions provide verifiable compliance in support of new standards.

Satish Dhanasekaran: 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.

Speaker #3: Our energy and charging business also grew this quarter, with engagements across both grid and automotive customers, spanning high-power charging, storage, compliance, and infrastructure validation applications.

Speaker #3: 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.

Speaker #3: 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.

Speaker #3: 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.

Speaker #3: And with that, I'll pass the call over to Neil. Neil.

Satish Dhanasekaran: With that, I will pass the call over to Neil. Neil?

Speaker #1: 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.

Neil Dougherty: 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 $2,091,000,000 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%.

Speaker #1: 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.

Speaker #1: 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.

Speaker #1: Orders of $2.091 billion were up 56% on a reported basis. Acquisitions represented 5 percentage points of growth, and currency was a 1 percentage point headwind.

Speaker #1: On a core basis, excluding those items, orders grew 52%. Revenue of $1,846 million was up 36% on a reported basis and up 31% on a core basis.

Neil Dougherty: Revenue of $1,846,000,000 was up 36% on a reported basis and up 31% on a core basis. Gross margin was 69% and operating expenses were $661 million. 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 and earnings per share of $3.07. Our core business contributed substantially to these results with an operating margin of 34.7% and an operating margin incremental of 66%. From a segment perspective, the Communication Solutions Group generated revenue of $1,345,000,000, up 43% on a reported basis and up 36% on a core basis. CSG gross margin was 70.8% and operating margin was 34%. Within CSG, the commercial communications business generated its first billion-dollar quarter with revenue of $1,006,000,000, up 56%, led by outstanding growth in wireline and supported by strong growth in wireless.

Speaker #1: Gross margin was 69%, and operating expenses were $661 million. Operating margin was 33.2%, up 820 basis points year over year, and exceeded our long-term target range of 31% to 32%.

Speaker #1: We delivered net income of $531 million and earnings per share of $3.07. Our core business contributed substantially to these results, with an operating margin of 34.7% and an operating margin incremental of 66%.

Speaker #1: 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.

Speaker #1: CSG gross margin was 70.8% and operating margin was 34%. Within CSG, the commercial communications business generated its first billion-dollar quarter with revenue of $1.006 billion, up 56%, led by outstanding growth in wireline and supported by strong growth in wireless.

Speaker #1: Wireline revenue exceeded wireless revenue for the first time this quarter. Aerospace, Defense and Government achieved revenue of $339 million, an increase of 14%.

Neil Dougherty: Wireline revenue exceeded wireless revenue for the first time this quarter. Aerospace, defense and government achieved revenue of $339 million and an increase of 14%. The Electronic Industrial Solutions Group generated a record $501 million in revenue, an increase of 21%, 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 $2,605,000,000 in cash and cash equivalents, generating cash flow from operations of $437 million and free cash flow of $403 million. This quarter, we repurchased approximately 640,000 shares of Keysight stock at an average price of approximately $326 per share for a total consideration of $210 million.

Speaker #1: The Electronic Industrial Solutions Group generated a record $501 million in revenue, an increase of 21%, with growth across all three markets: General Electronics, Semiconductor, and Automotive and Energy.

Speaker #1: 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 the total mix.

Speaker #1: Moving to the balance sheet and cash flow. We ended the quarter with 2 billion, 605 million dollars in cash and cash equivalents, generating cash flow from operations of 437 million dollars and free cash flow of 403 million dollars.

Speaker #1: This quarter, we purchased approximately 640,000 shares of Keysight stock at an average price of approximately $326 per share, for a total consideration of $210 million.

Speaker #1: Year to date, in fiscal 2026, our share of purchase is a total of $517 million. Before I turn to our outlook, I wanted to provide an update on our recent acquisitions.

Neil Dougherty: Year to date, in fiscal 2026, our share purchases total $517 million. 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 in cost synergies realized on a run rate basis exiting the fiscal year. Now turning to our outlook, for Q4 2026, we expect revenue in the range of $1,930,000,000 to $1,950,000,000, 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.

Speaker #1: 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.

Speaker #1: We now expect to have 80 to 90 percent of the $100 million in cost synergies realized on a run-rate basis exiting the fiscal year.

Speaker #1: Now turning to our outlook. For the fourth quarter of 2026, we expect revenue in the range of 1 billion, 930 million dollars to 1 billion, 950 million dollars representing 37% year over year growth at the midpoint.

Speaker #1: 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.

Speaker #1: 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.

Neil Dougherty: 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 business. Our leading portfolio of solutions lever to multiple technology mega trends is driving significant growth and margin expansion. We remain focused on enabling our customers and helping them further accelerate technology innovation, in turn, driving continual 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.

Speaker #1: In closing, fiscal 2026 thus far has been a remarkable year with exceptional performance across our business. Our leading portfolio of solutions, leveraging multiple technology megatrends, is driving significant growth and margin expansion.

Speaker #1: We remain focused on enabling our customers and helping them further accelerate technology innovation, in turn driving continual organic growth, profitability, and ultimately, value creation for our shareholders.

Speaker #1: With that, I will turn the call over to Liz to begin the Q&A session.

Speaker #2: Thank you, Neil. Hillary, will you please provide the instructions for the Q&A session?

Liz Morali: Thank you, Neil. Hillary, will you please provide the instructions for the Q&A session?

Speaker #3: Thank you. Ladies and gentlemen, if you would like to ask a question, please press star one (*) to raise your hand. We ask that you limit yourself to one question and one follow-up. To withdraw your question, please press star one (*) again.

Operator: Thank you. Ladies and gentlemen, if you would like to ask a question, please press *1 to raise your hand. We ask that you limit yourself to one question and one follow-up. To withdraw your question, please press *1 again. Please hold while we compile the Q&A roster. Your first question comes from the line of Aaron Rakers from Wells Fargo. Please go ahead.

Speaker #3: Please hold while we compile the Q&A roster. Your first question comes from the line of Erin Rakers from Wells Fargo. Please go ahead.

Speaker #4: Yeah, thanks for taking my question, and congrats on the strong results here. I'm curious—there was a lot of commentary around 6G and setting forth the standard path as we move forward.

Aaron Rakers: Yeah, thanks for taking the questions and congrats on the strong results here. I am 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 am 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 us say, 5G several years ago. I have a quick follow-up.

Speaker #4: As we think about Keysight's participation in 6G, I'm curious how you would characterize the opportunity relative to the 5G cycle that we saw several years ago.

Speaker #4: Do you have any kind of framing for 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?

Speaker #4: And I have a quick follow-up.

Speaker #1: Yeah, thank you, Erin. Yeah, it's a great quarter. The team's 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.

Satish Dhanasekaran: Yeah, thank you, Aaron. Yeah, it is a great quarter. The team has been executing very well, and we are pleased with that. Relative to 6G, any time you start a new generational cycle, you always look for what is different versus the past. It is often too, you cannot wait too long to call it, and that is why we have had a focus on making this company about solutions and about first to market.

Satish Dhanasekaran: versus the past. It is often too, you cannot wait too long to call it, and that is why we have 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 is the Olympics in the United States, that is the other mile marker. That is not new. Any time you have had wireless standards evolutions, ironically, it involves a sporting event of some kind, and so that is another mile marker to draw historical parallels. From a technological standpoint, traditionally you see new spectrum and support of higher speeds and feats. It is sort of like the base case for any technology, and that is also going to be true in 6G.

Speaker #1: And it's often, too, you can't wait too long to call it. And that's why we've had a focus on making this company about solutions and about being first to market.

Speaker #1: And so we have been engaged with the industry over the last couple of years, and as I noted in my prepared remarks, we start to see the industry coalescing around early 6G standards in the 2029 timeframe.

Satish Dhanasekaran: 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 is the Olympics in the United States, that is the other mile marker. That is not new. Any time you have had wireless standards evolutions, ironically, it involves a sporting event of some kind, and so that is another mile marker to draw historical parallels. From a technological standpoint, traditionally you see new spectrum and support of higher speeds and feats. It is sort of like the base case for any technology, and that is also going to be true in 6G.

Speaker #1: There's the Olympics in the United States— that's the other mile marker. And that's not new. I mean, any time you've had wireless standards evolutions, ironically, it involves a sporting event of some kind.

Speaker #1: And so that's another mile marker to draw historical parallels. But from a technological standpoint, traditionally you see new spectrum, and support of higher speeds and feeds.

Speaker #1: It's sort of like the base case for any technology, and that is also going to be true in 6G. But as we noted, we're also seeing other vectors of innovation—AI RAN being one of them—new use cases like ISAC for the security infrastructure, and also bringing forth the tighter integration of non-terrestrial and terrestrial assets into our communication framework.

Satish Dhanasekaran: As we noted, we are also seeing other vectors of innovation, AI-RAN being one of them, new use cases like ISAC, security infrastructure, and also bringing forth that tighter integration of non-terrestrial and terrestrial assets into a communication framework. All of these are areas we have invested in, and we have the solutions portfolio, and we are 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 are well-positioned to capitalize on it.

Speaker #1: And all of these are areas we've invested in, and we have the solutions portfolio, and we're working with industry-leading customers. So our base case is the opportunity in 6G is greater than the opportunity that we saw in 5G.

Speaker #1: And we're well-positioned to capitalize on it.

Speaker #4: Yeah. And then, as a quick follow-up on the wireline side, I know you'd mentioned that this is the first quarter in which you've seen wireline surpass the wireless business.

Aaron Rakers: Yeah. As a quick follow-up on the wireline side, I know you had 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?

Speaker #4: As we think about AI and the continual expansion of the opportunity set around that, is there any way you can help us understand how meaningful AI is to your business today, either within the wireline segment or in aggregate?

Speaker #4: And how much of a growth driver that appears to continue to be as we look forward?

Speaker #1: Yeah. I mean, we're very pleased with the wireline business and the pickup we're seeing in the AI-related demand in that business as a primary driver.

Satish Dhanasekaran: Yeah, we are very pleased with the wireline business and the pickup we are seeing in the AI-related demand in that business as a primary. Of course, as the opportunities increase, you will start to see secondary opportunities. We will 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 are 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 are in the early stages of a long adoption of AI, not just in wireline.

Speaker #1: 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.

Speaker #1: 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 the strongest quarter for our AI and wireline opportunities in Q3.

Speaker #1: And the pipeline continues to grow strongly for us. So the way I see it is, we're in the early stages of a long adoption of AI.

Speaker #1: Not just in wireline, and as things come together, we'll start to see a convergence with wireless, as well as convergence with automotive and many other end markets that we're well positioned to capitalize on over the long term.

Satish Dhanasekaran: As things come together, we will start to see a convergence with wireless and convergence with automotive and many other end markets that we are well positioned to capitalize over the long term. In the near term, very pleased with the traction we are 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 are doing very well with our AI business.

Speaker #1: But in the near term, we're 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.

Speaker #1: And we're doing very well with our AI business.

Speaker #4: Yeah. Thank you.

Aaron Rakers: Thank you.

Speaker #3: Thank you for your question. Your next question comes from the line of Nita Marshall from Morgan Stanley. Your line is open. Please go ahead.

Operator: Thank you for your question. Your next question comes from the line of Meta Marshall from Morgan Stanley. Your line is open. Please go ahead.

Speaker #1: Hi, Mita.

Satish Dhanasekaran: Hi, Meta.

Speaker #5: Great, thanks. Thank you. Congrats on the quarter. You've mentioned kind of a lot of different ways in which there's more markets or different types of technology to be testing as far as AI.

Meta Marshall: Great. Thanks. Thank you. Congrats on the quarter. You have mentioned a lot of different ways in which there is more markets or more different types of technology to be testing as far as AI, but could you just give a sense of how testing density has changed? There is a lot of different more end markets, but just how the overall content of testing has changed as some of these technologies get a little bit more complex. Neil, very healthy incremental margins again this quarter. Just any guardrails that we should think about just as we progress forward. Thanks.

Speaker #5: But could you just give a sense of how testing density has changed? There are a lot of different, more end markets, but just kind of how the overall content of testing has changed as some of these technologies get a little bit more complex.

Speaker #5: And then, Neil, very healthy incremental margins again this quarter. Just any guardrails that we should think about as we progress forward?

Speaker #5: Thanks.

Speaker #1: Yeah. 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 into the future continues to grow and expand.

Satish Dhanasekaran: Yeah, Mita. 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 into the future continues to grow and expand. 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. We're seeing a growth in the number of protocols at all layers of the stack, and the architectures increasingly involve GPUs, CPUs, DPUs, NICs. It's not just for the sake of making things more complex.

Speaker #1: And it's a function of this ecosystem. Over the last few years, it has largely been a homogeneous, integrated vertical stack with a finite set of opportunities that we have done extremely well.

Speaker #1: 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.

Speaker #1: I mean, we're seeing a growth in the number of protocols at all layers of the stack, and the architectures increasingly involve GPUs, CPUs, DPUs, NICs. And it's not just for the sake of making things more complex.

Speaker #1: 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.

Satish Dhanasekaran: 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. Our tools are increasingly doing very well with customers across the broader tail, which positions us well into the future. I know, Kailash, if you have any other comments to add. Yeah, fundamentally, the design margins are shrinking, right? With higher data rates, lower latency, AI needs to be lossless. Even if there's a limited amount of gap there, the models won't perform.

Speaker #1: And our tools are increasingly doing very well with customers across the broader tail, which positions us well for the future. Kailash, if you have any other comments to add, please do.

Speaker #2: Yeah. Fundamentally, the design margins are shrinking, right? So, with higher data rates and lower latency, AI needs to be lossless. And even if there's a limited amount of gap there, the models won't perform.

Kailash Narayanan: Yeah, fundamentally, the design margins are shrinking, right? With higher data rates, lower latency, AI needs to be lossless. Even if there's a limited amount of gap there, the models won't perform.

Speaker #2: 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.

Kailash Narayanan: What our customers are seeing is they can no longer guarantee anything by design. They also need to test it in production as well. This is increasing a lot of design emulation and test intensity. If you look at a compute or a switch tray these days, it's gone from tens to hundreds of high-speed pinouts, and that's more insertion points for us. So 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.

Speaker #2: So this is increasing a lot of design emulation and test intensity. If you look at a compute or a switch tray these days, it's gone from tens to hundreds of high-speed pinouts.

Speaker #2: And that's more insertion points for us. We have our VNAs and oscilloscopes testing things at the signal level. We introduced a new portfolio to test things at the bit level.

Speaker #2: 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.

Speaker #2: So the interoperability of chiplets needs to be emulated and tested. Customers are asking, when a chip is exercising a model, that we emulate an environment for that chip to get stress tested.

Speaker #2: 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.

Kailash Narayanan: 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.

Speaker #2: 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.

Speaker #2: 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.

Speaker #4: Yeah. And Mita, 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 realization that we'll see.

Neil Dougherty: Yeah, Anita, to your second question, obviously, we have seen really strong core operating leverage this quarter. I think as we look forward, I continue, at least as it relates to 2027, to feel confident in our ability to continue to outperform our 40% leverage target, particularly given the synergy realization that we will see. I mentioned that we have 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 one-time tariff impacts this year that kind of artificially pulled up 2026 profitability that will not repeat. So if you adjust for that and think about it on an operational basis, I would expect we will continue to outperform the 40% metric.

Speaker #4: 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 one-time tariff impacts this year that kind of artificially pulled up '26 profitability that won't repeat.

Speaker #4: 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.

Speaker #5: Great. Thank you.

Meta Marshall: Great. Thank you.

Speaker #1: Thank you.

Neil Dougherty: Thank you.

Satish Dhanasekaran: Thank you.

Speaker #3: Your next question comes from the line of Mark Delaney from Goldman Sachs. Your line is open. Please go ahead.

Operator: Your next question comes from the line of Mark Delaney from Goldman Sachs. Your line is open. Please go ahead.

Speaker #4: Yes. Good afternoon. Congratulations on the strong results, and thanks for taking my questions. I was hoping to talk about demand sustainability to start. I think orders have been over $2 billion for two quarters in a row now.

Mark Delaney: Yes, good afternoon. Congratulations on the strong results, and thanks for taking my questions. I am going to talk around demand sustainability to start. I think orders have been over $2 billion for two quarters in a row now. As you look into Q4 and next year, do you think this level of demand is sustainable or even a level that Keysight can grow from?

Speaker #4: 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?

Speaker #1: Yeah, Mark. I mean, 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.

Neil Dougherty: Yeah, Mark. We think it is. I would just say, our base case is orders slightly up from Q3, in line with seasonality, and then following that seasonal trend into Q1 of 2027. Steve, I know the pipeline, you may make some comments there.

Satish Dhanasekaran: Yeah, Mark. We think it is. I would just say, our base case is orders slightly up from Q3, in line with seasonality, and then following that seasonal trend into Q1 of 2027. Steve, I know the pipeline, you may make some comments there.

Speaker #1: Steve, I know the pipeline. You may make some comments there.

Speaker #2: 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 delivered our highest quarter ever for the third consecutive quarter.

Steve Yoon: Well, let me start by saying it is great to be head of sales at Keysight right now. We had an outstanding Q3. We delivered our highest quarter ever for the third consecutive quarter. With the traditional uplift we are expecting in Q4, we are confident in delivering another record quarter and surpassing $2 billion for the third consecutive quarter. Even more promising, despite these record quarter 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 have added nearly 3,000 new customers, representing more than $100 million of incremental business.

Steve Yoon: Thanks, Satish. Well, let me start by saying it is great to be head of sales at Keysight right now. We had an outstanding Q3. We delivered our highest quarter ever for the third consecutive quarter. With the traditional uplift we are expecting in Q4, we are confident in delivering another record quarter and surpassing $2 billion for the third consecutive quarter. Even more promising, despite these record quarter 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 have added nearly 3,000 new customers, representing more than $100 million of incremental business.

Speaker #2: And with the traditional uplift we're expecting in 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.

Speaker #2: 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.

Speaker #2: Identifying those new opportunities and finding 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 of incremental business.

Speaker #2: 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 focuses has been to elevate our engagement with our top customers.

Kailash Narayanan: We are 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. Our largest customers are doing well, performing up high double digits for the year. More importantly, we are really expanding our reach across their entire ecosystem. We are also adding capacity in markets in high-growth areas. Southeast Asia is a good example. We have more than doubled our business and is our fastest-growing region for the quarter and for the year. 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.

Steve Yoon: We are 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. Our largest customers are doing well, performing up high double digits for the year. More importantly, we are really expanding our reach across their entire ecosystem. We are also adding capacity in markets in high-growth areas. Southeast Asia is a good example. We have more than doubled our business and is our fastest-growing region for the quarter and for the year. 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.

Speaker #2: So our largest customers are performing well, up high double digits for the year. And more importantly, we're really expanding our reach across their entire ecosystem.

Speaker #2: We're also adding capacity in markets and high-growth areas. Southeast Asia is a good example, with more than doubled our business and is our fastest-growing region for the quarter and for the year.

Speaker #2: So, all in all, we further accelerated our momentum this quarter, resulting in our highest-ever monthly funnel intake just last month, and a new record for our rolling 12-month funnel.

Speaker #4: Very helpful context, thank you. My other question was on supply and the ability to meet this level of demand the company is seeing. 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?

Mark Delaney: Very helpful context. Thank you. My other question was on supply and the ability to meet this level of demand the company has seen. 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.

Speaker #4: Thank you.

Speaker #2: Yeah.

Neil Dougherty: Thank you, Mark. As you heard from Steve, we are seeing broad-based trend in demand. I think one of the points that, in addition to everything Steve said, is we are seeing demand across the globe, and our portfolio is doing very well. 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. We are continuing to meet our customers' demand needs.

Satish Dhanasekaran: Thank you, Mark. As you heard from Steve, we are seeing broad-based trend in demand. I think one of the points that, in addition to everything Steve said, is we are seeing demand across the globe, and our portfolio is doing very well. 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. We are continuing to meet our customers' demand needs.

Speaker #1: Thank you, Mark. As you heard from Steve, we're seeing broad-based strength in demand. I think one of the points, in addition to everything Steve said, is we're seeing demand across the globe.

Speaker #1: 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.

Speaker #1: 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.

Satish Dhanasekaran: As we go through the year, it is also true that the supply environment is less flexible today than, let us say, a year ago. We are working with our suppliers to deconstrain the supply chain, especially at these levels of demand. We remain confident in the guide that we have laid out for Q4.

Speaker #1: And so we're working with our suppliers to deconstrain the supply chain, especially at these levels of demand. We remain confident in the guide that we have laid out for Q4.

Speaker #4: Thank you.

Mark Delaney: Thank you.

Speaker #1: Thank you.

Satish Dhanasekaran: Thank you.

Speaker #3: Your next question comes from the line of Tim Long from Barclays. Your line is now open. Please go ahead.

Operator: Your next question comes from the line of Tim Long from Barclays. Your line is now open. Please go ahead.

Speaker #4: Thank you. I'll ask one, then come back with my follow-up. I want to go back to commercial comms and the strong AI business on the wireline side.

Tim Long: Thank you. I will ask one, 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. Curtis, 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 movements that you have seen in the AI-related business. Then I have a follow-up.

Speaker #4: 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 movements that you've seen in the AI-related business.

Speaker #4: Then I have a follow-up.

Speaker #2: Yeah. It relates to R&D and manufacturing, and we'll talk about it from the wireline side of things, where we put out the numbers previously.

Neil Dougherty: Yeah. As it relates to R&D and manufacturing, and I will talk about it from the wireline side of things where we put out the numbers previously. Historically, this has been a business that has been amongst the most heavily levered towards R&D. We have talked about it at about 80/20. We have 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. I think if you looked at over a shorter horizon over the last couple of quarters, it is probably more like two-thirds, one-third. But we are still heavily levered towards R&D within wireline, even as we are 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.

Speaker #2: Historically, this has been a business that's been among the most heavily levered towards R&D. We've talked about it as about 80/20. We've more recently said, with the addition of the manufacturing business and the support of the AI data center build-out, that that's shifted to more like 70/30.

Speaker #2: And I think if you looked at it over a shorter horizon, over the last couple of quarters, it's probably more like two-thirds, one-third. But 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.

Speaker #4: Okay, great. And then my second question, my follow-up—there was some 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 that is?

Tim Long: Okay. Great. And then, my second question, my follow-up. There was some mention in there about the hyperscalers. I am 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 are involved in a lot of technologies? And would that be just the four or five big ones, or do you see that spreading to the next level of neo clouds and others playing in the industry? Thank you.

Speaker #4: Are they—is there a margin difference? Is there more product they take because they're involved in a lot of technologies? And 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?

Speaker #4: Thank you.

Speaker #2: Yeah. I would say Tim,

Satish Dhanasekaran: Yeah, I would say, Tim Long, the hyperscalers and our early engagement started about five years ago with our acquisition of Ixia, who had more of a relationship with them during 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. So it is strategic in that sense because of the tremendous capital that they are deploying, and that sort of moves downstream into the ecosystem. So understanding their needs are important. Also, many of them, I think, publicly disclose their own in-house silicon and efforts to make their own chips. So they are a very important customer base for us.

Speaker #1: The hyperscalers and our early engagement started about five years ago with our acquisition of Ixia. We had more of a relationship with them in the early days. Right now, I would say our relationship with hyperscalers is not only in the US, but I would also add some of the model companies that are driving a lot of the demand for the ecosystem.

Speaker #1: So it is strategic in that sense, because of the tremendous capital that they're deploying, and that sort of moves downstream into the ecosystem. So understanding their needs is important.

Speaker #1: Also, many of them, I think, have publicly disclosed their own in-house silicon and efforts to make their own chips. So they are a very important customer base for us.

Speaker #1: From a revenue concentration point of view, they're actually the smaller of the entire group. You'd say roughly 10% of our business is from that cohort of companies.

Satish Dhanasekaran: From a revenue concentration point of view, they are actually the smaller of the entire, you would say roughly 10% of our business is from that cohort of companies directly, but they do have a lot of downstream effect and influence across the ecosystem, so it is very important. What is also important is to recognize that even as we are winning today in R&D and in manufacturing applications, that while the industry is scaling, we are also uncovering new opportunities, such as with regard to emulating the workloads. Because that is where the future is going to be, and we are 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.

Speaker #1: 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 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.

Speaker #4: Okay. Thank you.

Tim Long: Okay. Thank you.

Speaker #1: Thank you.

Satish Dhanasekaran: Thank you.

Speaker #3: Your next question comes from the line of Adrian Colby from Citi. Your line is now open. Please go ahead.

Operator: Your next question comes from the line of Adrienne Colby from Citi. Your line is now open. Please go ahead.

Speaker #5: Hi, it's Adrian from Optiv Mallick. Thank you for the question. I was hoping you could talk a little bit more about the sequentially strong growth in the Aerospace, Defense, and Government segment.

Adrienne Colby: Hi, it is Adrienne for Atif Malik. Thank you for the question. 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.

Speaker #5: 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.

Speaker #1: Yeah, Adrian, I've said this—you heard me say this on the call. Aerospace defense is a business I can easily call years out. It's very difficult to call in a given quarter, just because it's got government budgets.

Satish Dhanasekaran: Yeah, Adrienne, you have heard me say 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 has got government budgets. It moves at its own pace. This year, we are quite pleased with the growth and adoption of our solutions, including our newly acquired PNT offerings from Spirent. Neil, any specific comments on that?

Speaker #1: 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 P&T offerings from Spirent.

Speaker #1: So nearly any specific comments?

Neil Dougherty: Yeah, 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 there's probably nothing to see there from that perspective.

Speaker #4: Yeah. I would just reiterate that we're still up double digits. There are some quarter-to-quarter perturbations in these end markets. My honest feeling is there's probably nothing to see there from that perspective.

Speaker #5: Thank you. And then just as a follow-up, could you comment on whether the run rate that you were seeing in the AI business within wireline is consistent with last quarter?

Adrienne Colby: Thank you. And then just as a follow-up, could you comment on if the run rate that you were seeing in

Adrienne Colby: Thank you. And then just as a follow-up, could you comment on if the run rate that you were seeing in—

Satish Dhanasekaran: Can I make one more

Satish Dhanasekaran: Can I make one more—

Adrienne Colby: AI business within Wireline was consistent with last quarter? Oh, yeah, please.

Adrienne Colby: —AI business within Wireline was consistent with last quarter? Oh, yeah, please.

Speaker #5: Oh, yeah, please.

Speaker #1: 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.

Satish Dhanasekaran: Yeah, let me just make one more comment that we built backlog in the business. If you are looking at revenue and drawing that conclusion, that is a function of supply and supply chain. I would not read too much into it, as Neil has mentioned. Please go ahead.

Speaker #1: So I would not read too much into it, as Neil mentioned. Please go ahead.

Speaker #4: Okay. Can you repeat your follow-on question?

Jason Kary: Can you repeat your follow-on question?

Neil Dougherty: Can you repeat your follow-on question?

Speaker #5: Okay, 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?

Adrienne Colby: 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 have seen that expand at all?

Speaker #1: It has expanded.

Satish Dhanasekaran: It has expanded.

Speaker #5: Thank you.

Adrienne Colby: Thank you.

Speaker #1: Thank you.

Satish Dhanasekaran: Thank you.

Speaker #3: Your next question comes from the line of Andrew Spinola from UBS. Your line is open. Please go ahead.

Operator: Your next question comes from the line of Andrew Spinola from UBS. Your line is open. Please go ahead.

Speaker #4: Thank you. You reported another strong quarter in the EISG segment. I think you highlighted some of the strength in semi and general electronics, and I wonder if you could unpack that a little bit.

Andrew Spinola: 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 are seeing some of the demand from AI expand into some of these segments. I am wondering if you are seeing that and if you think that there is a fairly meaningful expansion still ahead in those segments. I would also like you to comment on the operating margin, which was quite strong in the EISG quarter, and how you are thinking about the sustainability of that going forward.

Speaker #4: 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.

Speaker #4: And I'd also like you to comment on strength in EISG in the quarter, and how you're thinking about the sustainability of that going forward.

Speaker #1: Yeah, Andrew, pleased with the double-digit growth we're seeing in our EISG business year to date. Recovery in auto is another theme, along with strength in semi. But we have Jason here, and he'll touch upon those points.

Satish Dhanasekaran: Yeah, Andrew, pleased with the double-digit growth we are seeing in our EISG business year-to-date. Recovery in auto is another theme, along with strength in semi. We have Jason here, and he will touch upon those points.

Speaker #6: Yeah, thank you, Andrew, for your question—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 IP into end markets.

Jason Kary: Yeah. Thank you, Andrew, for your question, and specifically with regards to the AI tailwinds that we are seeing in the rest of the business. We have talked frequently about the leverage of our communications technologies and our IP into end markets. We do have some specific technologies around semiconductor wafer tests, where we are seeing significant capacity expansion there across multiple dimensions, including advanced nodes, memory, silicon photonics. As far as looking forward, the forecasts around wafer fab equipment and capital going into those markets continues to expand, and so that is robust.

Speaker #6: 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, and silicon photonics.

Speaker #6: As far as looking forward, the forecasts around wafer fab equipment and capital going into those markets continue to expand, and so that is robust.

Speaker #6: In the general electronics space, what you're seeing is, again, to the earlier question from Mita about test intensity, you're seeing a lot of that multi-layer, high-density heterogeneity that's coming through at the component level.

Jason Kary: In the general electronic space, what you are seeing is, again, to the earlier question from Meta about test intensity, you are seeing a lot of that multilayer, high density heterogeneity that is 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. Again, that is 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. I think that is the challenge that customers face. The beauty of our solutions is we address those all the way from R&D into production, and so strong leverage there. On the operating margin side, yes, we are pleased with the progress that we are making there.

Speaker #6: 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.

Speaker #6: 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.

Speaker #6: 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, and so strong leverage there.

Speaker #6: 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.

Jason Kary: I think historically, that business had suffered a little bit, and over the last 12 to 18 months, we have really focused on driving top line growth, because that is where it always starts, and then transforming pieces of the business. We are investing more in some of the software elements of the business with ESI and the Optical Solutions Group. There has been rationalization of certain pieces of the business where are perhaps lower margin, and at the same time, pursuing other opportunities that we have talked about related to digital health and the grid. I think in summary, despite the different profile and composition of the businesses within EISG today, we are confident of our ability to continue to achieve higher levels of profitability as we move forward.

Speaker #6: We're investing more in some of the software elements of the business with ESI and the Optical Solutions Group. And there's been rationalization of certain pieces of the business where perhaps there were lower margins, and at the same time, pursuing other opportunities that we've talked about related to digital health and the grid.

Speaker #6: So I think, in summary, despite the different profile and composition of the businesses within EISG today, we're confident in our ability to continue to achieve higher levels of profitability as we move forward.

Speaker #4: I appreciate that, colleague Jason. That's helpful. I just had one follow-up question for Neil. In prior commentary, you discussed the synergies potentially being $100 million plus from the acquisitions.

Andrew Spinola: I appreciate that color, 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. I am wondering now that you have completed the integration, is your estimate of those synergies potentially larger? I am sort of thinking about what sort of contribution I can assume for Q4, Q1 effects.

Speaker #4: And I'm wondering, now that you've completed the integration, is your estimate of those synergies potentially larger? And I'm just sort of thinking about what sort of contribution I can assume for Q4 and Q1.

Speaker #4: Thanks.

Speaker #2: Yeah, I would say that at this point, given where we're at, we certainly have direct line of sight to the hundreds. So I think, to the extent there was risk in that, that's been substantially de-risked.

Neil Dougherty: Well, I would say that, at this point, given where we are at, we certainly have direct line of sight to the hundreds. I think that's to the extent there was risk in that's substantially de-risked. I think, as this business now begins to operate more holistically within the Keysight framework, we will continue to look for additional opportunities. I do not 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 fiscal 2026 to fiscal 2027, I would 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.

Speaker #2: 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 comes out, there are, admittedly, smaller dollars but some additional follow-on efficiencies that tend to materialize.

Speaker #2: 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.

Speaker #2: 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.

Neil Dougherty: Again, I expect that we are going to be kind of close to 90% of that $100 million realized as we enter next fiscal year.

Speaker #4: I appreciate that. Thank you.

Andrew Spinola: I appreciate that. Thank you.

Speaker #3: Your next question comes from the line of Joseph Cardoso from J.P. Morgan. Your line is open. Please go ahead.

Operator: Your next question comes from the line of Joseph Cardoso from J.P. Morgan. Your line is open. Please go ahead.

Operator: Your next question comes from the line of Joseph Cardoso from JPMorgan. Your line is open. Please go ahead.

Speaker #4: Good afternoon. This is Mark Vittensen on for Joseph Cardoso. Thank you for taking my question. I guess you have given us a lot of detail on the strength in AI-related wireline.

Mark Delaney: Hello, good afternoon. This is Mark Delaney on for Joseph Cardoso. Thank you for taking my question. I guess you guys have given us a lot of detail on the strength in AI-related wireline. 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?

Marc Vitenzon: 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 in AI-related wireline. 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?

Speaker #4: So, I wanted to ask about the traditional non-AI portion of wireline. How does growth look like in that business, and what are you seeing there?

Speaker #1: Yeah, I think we're seeing a convergence, Mark, is how I would characterize it. And I think that is to be expected as such a disruptive technology starts to intersect multiple end markets.

Satish Dhanasekaran: Well, I think we're seeing a convergence, I think, Mark, is 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 RAN. 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 some of the applications that are now emerging that we're well-positioned to capitalize, given our strength and reputation in this ecosystem.

Speaker #1: I'll give you an example. The wireless customer base, historically, maybe never had to think about AI, and now AI is entering the RAN. That's an example of an application.

Speaker #1: The wireless ecosystem has a known set of contract manufacturing companies that play into the telco market. Many of them are now starting to invest in building their own racks for AI.

Speaker #1: That's another example of the sort of applications that are now emerging, that were well positioned to capitalize, given our strength and reputation in this ecosystem.

Speaker #4: Got it, thank you. And then you guys mentioned that software and services was roughly 33% of revenue. I guess I'm curious, where do you think that number eventually goes, especially following the recent acquisitions?

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

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

Speaker #4: Thank you.

Speaker #1: Yeah, I think, look, the strategy for the company is to become a solutions company. This has been what we have worked hard at building. Inherently, that implies providing more software-centric solutions and also offering differentiated services to build the lifecycle value contributions.

Satish Dhanasekaran: Yeah. Look, the strategy for the company is to become a solutions company. This has been what we have 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. We do it at the pace of our markets and at the pace of our customers. It is all about our customers' needs, so we are not trying to force a business model into the marketplace. So yeah, we have tried to run as high as 40% a year or so ago, and now we are at 33%. But I just want to say, on a dollar basis, this is record levels for software and services, and we will continue to keep innovating to stay differentiated in the marketplace.

Speaker #1: 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.

Speaker #1: And so, yeah, we've turned it 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.

Speaker #1: And we'll continue to keep innovating to stay differentiated in the marketplace.

Speaker #2: I would also maybe just add that our software and services businesses are also growing double digits; they're just not growing as fast as the hardware business is.

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

Speaker #2: At this point in time.

Speaker #4: Got it. Thank you.

Mark Delaney: Got it. Thank you.

Marc Vitenzon: Got it. Thank you.

Speaker #3: Your next question comes from the line of Matt Nicknam from Truist Securities. Your line is open. Please go ahead.

Operator: Your next question comes to the line of Matt Niknam from Truist Securities. Your line is open. Please go ahead.

Speaker #5: Hey guys, thanks so much for taking the question. Congrats on the results. Just two, if I could. First, on the Q4 revenue guide—it’s implied to only increase about 5% sequentially.

Matt Niknam: Hey, guys. Thanks so much for taking the question. Congrats on the results. Just two, if I could. First, on the Q4 revenue guide. It is implied to only increase about 5% sequentially. I know that is pretty normal in terms of seasonality, but your book-to-bill has been north of 1.1 for two straight quarters. I am 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 is any color in terms of how much of the backlog that is been growing is going to ship next fiscal year. On a related note, I think the last several years, you have given some initial color or framework in terms of next fiscal year on the third quarter call.

Speaker #5: I know that's pretty normal in terms of 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.

Speaker #5: For the fourth quarter, is there any color in terms of how much of the backlog that’s been growing is going to shift to next fiscal year?

Speaker #5: And then on a related note, I think the last several years you've given some initial color or framework in terms of next fiscal year on the third-quarter call.

Speaker #5: I'm curious if there are any initial thoughts you're ready to provide, just given the momentum you're seeing across the business.

Matt Niknam: I am curious if there is any initial thoughts you are ready to provide, just given the momentum you are seeing across the business.

Speaker #1: Maybe I'll take the 2027 commentary, Neil, and then you could cover the remaining. It's a great question. Look, we have no doubt—a strong setup as we enter fiscal '27.

Satish Dhanasekaran: Well, I will take the 2027 commentary, Neil, and then you could cover the remaining. It is a great question. Look, we have, no doubt, a strong setup as we enter fiscal 2027, even as we remain cognizant of the outperformance you are seeing in 2026 on top of the growth year in 2025. 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 at which our customers are innovating across our end markets globally, it is relentless right now. That intensity is matched with their investment.

Speaker #1: Even as we remain cognizant of the outperformance you're seeing in 2026, on top of the growth year in '25, supply chain will remain a governor of near-term revenue.

Speaker #1: 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 is only growing.

Speaker #1: The intensity and the pace at which our customers are innovating across our end markets globally is matched with their investment. And we're well positioned as a company to capitalize because of all the investments we made in the downturn in R&D, which 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.

Satish Dhanasekaran: We are 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 are 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 are executing well on a quarterly basis, but we have taken a longer-term view, 18-month-plus view of our supply chain planning, and we are working to create additional flexibility, but those come with a lag. I will give you an example. We will 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 are already starting to take those actions.

Speaker #1: So we're well positioned from that point of view. We also are taking—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, additional flexibility, but those come with a lag because, I'll give you an example.

Speaker #1: 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.

Speaker #1: And so I put it all together, feel good about the setup. We'll give you more specific guidance for Q1 when we report in Q4.

Satish Dhanasekaran: I put it all together, feel good about the setup. We will give you more specific guidance for Q1 when we report in Q4. Neil?

Speaker #1: Neil?

Speaker #2: Yeah, 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?

Neil Dougherty: Yeah. I think you said most of it. I think if I was just going to recap, right now, supply is not the limiter. Excuse me, demand is not the limiter. We do have some supply chain limitations. It is 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 them were internal capacity related around ramping some New Product Introductions that had seen kind of unprecedented early demand from the marketplace. We have 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. You have numerous players who are all competing for supply from a similar set of component suppliers.

Speaker #2: 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 them were internally capacity-related, around ramping some NPIs that had seen kind of unprecedented early demand from the marketplace.

Speaker #2: We've made tremendous progress in that area. I think the challenges have shifted more toward incoming parts, which are under high demand as demand has ramped and continues to ramp across the ecosystem, right?

Speaker #2: 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 non-linear.

Neil Dougherty: 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 several quarters.

Speaker #2: And it will likely be a governor of our ability to convert demand into revenue for the next several quarters.

Speaker #5: If I can just add a couple of comments about the 2027 outlook. We’ve just had the biggest refresh of our core RF, microwave, and high-speed digital products since we formed Keysight.

Satish Dhanasekaran: If I could just add a couple comments about 2027 outlook. We just had the biggest refresh of our core RF microwave and high speed digital products just before Keysight.

Steve Yoon: If I could just add a couple comments about 2027 outlook. We just had the biggest refresh of our core RF microwave and high speed digital products just before Keysight. And we reinforce this at our worldwide annual sales training event in June, where we trained our entire sales team on this portfolio as well as the Spirent 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 years, many quarters to come.

Speaker #5: And we reinforced this at our worldwide annual sales training event in June, where we trained our entire sales team on this portfolio, as well as aspiring products.

Liz Morali: And we reinforce this at our worldwide annual sales training event in June, where we trained our entire sales team on this portfolio as well as the Spirent 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 years, many quarters to come.

Speaker #5: 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 years, many quarters to come.

Speaker #1: And years.

Satish Dhanasekaran: And years.

Liz Morali: Years.

Steve Yoon: Years.

Speaker #5: Years. Thank you.

Satish Dhanasekaran: Thank you.

Matt Niknam: Thank you.

Speaker #3: Your next question comes from the line of Quinn Frederickson from Baird. Your line is open. Please go ahead.

Operator: Your next question comes from the line of Quinn Bolton from Baird. Your line is open. Please go ahead.

Operator: Your next question comes from the line of Quinn Fredrickson from Baird. Your line is open. Please go ahead.

Speaker #6: 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.

Quinn Bolton: Hey, good afternoon, guys. Wanted to go back to the orders discussion. Good to see the USD 2 billion orders number again, but it has been unusual typically to see orders grow sequentially in Q3. Could you just unpack what the drivers were? Do you think you saw any tailwinds from possible future sovereign transceiver restrictions or customers getting ahead of any other constraints or supply issues?

Quinn Fredrickson: Hey, good afternoon, guys. Wanted to go back to the orders discussion. Good to see the USD 2 billion orders number again, but it has been unusual typically to see orders grow sequentially in Q3. Could you just unpack what the drivers were? Do you think you saw any tailwinds from possible future sovereign transceiver restrictions or customers getting ahead of any other constraints or supply issues?

Speaker #6: So, could you just unpack what the drivers were? And do you think you saw any tailwinds for possible future sovereign transceiver restrictions, or customers getting ahead of any other constraints or supply issues?

Speaker #1: Oh, there was nothing unusual about the demand, in fact. We saw conversion of the pipeline in a very orderly fashion. No pull-ins. We are looking for it.

Satish Dhanasekaran: Well, there was nothing unusual about the demand. In fact, we saw 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 comms, which really outperformed for us, relative to our expectation, even with AI. Equally, the demand from our prime contractors in aerospace defense remains strong as they are building out capacity. Sovereign investments in Europe is another tailwind for our defense business, and the EIC business is clearly outperforming with the semiconductor business doing exceptionally well. Strong broad-based demand, and as Steve mentioned before, we expect that to continue into Q4.

Speaker #1: It's just an environment where the markets are stronger, and Keysight's differentiated position in its core market, starting with in commercial comms, really outperformed for us relative to our expectation—even with AI.

Speaker #1: And equally, the demand from our prime contractors in aerospace and defense remains strong as they're building out capacity. Sovereign investments in Europe are another tailwind for our defense business.

Speaker #1: And the EIC business is clearly outperforming, with the semiconductor business doing exceptionally well. So, strong broad-based demand, and as Steve mentioned before, we expect that to continue into Q4.

Speaker #6: Thanks, Deesh. And Neil, gross margin came in at 69%. I think you had said mid-67 range. Was the difference just all incremental volume or mix?

Quinn Bolton: Thanks, Satish. Neil, gross margin came in at 69%. I think you had said mid-67% range. Was the difference just all incremental volume or mix? If you could unpack that and then any color on how to think about sustainability into Q4 or even 2027?

Quinn Fredrickson: Thanks, Satish. Neil, gross margin came in at 69%. I think you had said mid-67% range. Was the difference just all incremental volume or mix? If you could unpack that and then any color on how to think about sustainability into Q4 or even 2027?

Speaker #6: If you could just unpack that, and then provide any color on how to think about sustainability into Q4 or even 2027?

Speaker #2: Yeah. I mean, I think if you go back a quarter and adjust for the tariff thing, we were at 68% last quarter. We're at 69% this quarter.

Neil Dougherty: Yeah, I think if you go back a quarter and adjust for the tariff thing, we were 68% last quarter. We are 69% this quarter. It is obviously volume is helping, but I think it gets to the differentiation of the solutions that we are bringing forward across end markets, whether that is early 6G, AI, semiconductor. We have a highly differentiated set of solutions. We do have a wide 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.

Speaker #2: It's obviously volume that 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, or semiconductor.

Speaker #2: We have a highly differentiated set of solutions. Mix does—we do have a wide range of gross margins across the portfolio, so mix does matter.

Speaker #2: But I do think this upper 60s percent is a sustainable level for us.

Speaker #6: Thank you.

Quinn Bolton: Thank you.

Quinn Fredrickson: Thank you.

Speaker #1: Thank you.

Satish Dhanasekaran: Thank you.

Speaker #3: Thank you. Thank you for your question. Your final question comes from the line of Bastian Falcon Moran from SIG. Your line is now open. Please go ahead.

Operator: Thank you for your question. Your final question comes from the line of Bastian Faucon-Morin from Susquehanna Financial Group. Your line is now open. Please go ahead.

Speaker #7: Hi, this is Bastian, filling in for Medi. Hi, Neil and Satish. Thank you for taking my question. You saw some momentum in Waterline, which was up 56% year-over-year.

Bastien Faucon-Morin: Hi, this is Bastian filling in for Mehdi. Hi, Neil and Satish. 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?

Speaker #7: 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?

Speaker #1: Well, I'll just say it's about Bastian. It's one of those things that trends more on a quarterly basis. So we tend to look at it over a longer-term horizon, because in a given quarter, if a customer comes in and they're doing an expansion in a production line, that could dominate a certain part of the segment.

Satish Dhanasekaran: Well, I should say, Bastian, it is one of those things that move things more around on a quarterly basis. We tend to look at it over a longer-term horizon, because in a given quarter, if a customer comes in and they are doing an expansion in production line, that could dominate a certain part of the segment. But as I have called out, I think we said two-thirds in R&D, one-third in manufacturing. On the margin, we are seeing in our pipeline greater activity as customers are scaling. They are ramping production of 1.6 Terabit as we speak right now, and the demand is very strong. In a given quarter like Q4, I can easily see that mix even trend more towards production, and we are meaningfully participating across the workflow, and that is the important message is our R&D business is growing, as Kailash mentioned.

Speaker #1: 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.

Speaker #1: They'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.

Speaker #1: 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.

Satish Dhanasekaran: We are very pleased with the diversity of that business, and we are also happy that we are participating in the volume part of the data center build-out as well.

Speaker #1: And we're also happy that we're participating in the volume part of the data center build-out as well.

Speaker #7: Got it. Very helpful. And then as a follow-up, I'm actually thinking about the long-term mix of R&D versus production. Given that the ramp and adoption of new transceivers are accelerating, your volume is ramping, but you also have more complexity when it comes to testing those new technologies.

Bastien Faucon-Morin: Got it. Very helpful. As a follow-up, actually thinking about the long-term mix of R&D versus production, given that the ramp in adoption of New Product Introductions transceivers are accelerating, your volume is kind of ramping, but you also have more complexity when it comes to testing those new technologies.

Satish Dhanasekaran: Oh, for sure.

Speaker #7: Is there a way to think about that long-term R&D and production mix as we're reaching higher deployments of optical transceivers?

Bastien Faucon-Morin: Is there a way to think about that long-term R&D and production mix as we are reaching higher deployments of optical transceivers?

Speaker #1: Yeah, I mean, I would just say, look, our strategy, as we have laid out, is really to be an innovation accelerator for our customers.

Satish Dhanasekaran: Yeah, I would just say, look, our strategy as we have laid out, it is really to be an innovation accelerator for our customers. That is sort of our core purpose. We are focused on building our tech stacks, optical, electrical, both of them, to be able to help our customers go through in R&D. What we are seeing now is pretty unprecedented that the rate of adoption of these technology curves or technology waves, it is accelerating to a point where you are seeing concurrent adoption across many dimensions, right? 800G is still sort of the underlying technology, but 1.6T is scaling, and typically that would have been spaced out a little more. So it is 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 3.2 Terabit.

Speaker #1: 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.

Speaker #1: And what we're seeing now is pretty unprecedented, that the rate of adoption of these technology curves, or technology waves, is accelerating to a point where you're seeing concurrent adoption across many dimensions, right?

Speaker #1: 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 of how long this goes and how broad this goes.

Speaker #1: But I do know customers are already engaging us on 3.2 Tera, which was 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.

Satish Dhanasekaran: 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 are participating in this, and I feel good about our position heading into 2027.

Speaker #1: And we're participating in this, and I feel good about our position heading into '27.

Speaker #7: Got it. That's helpful. Thank you.

Bastien Faucon-Morin: Got it. That is helpful. Thank you.

Speaker #3: Thank you for your questions. That concludes our question-and-answer session for today. I would like to turn the call back to Liz Morally for any closing comments.

Operator: 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.

Speaker #5: Thank you, Hillary. And thank you all for joining us today. A replay of today’s call will be available on the Investor Relations website later today.

Liz Morali: Thank you, Hillary, 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.

Speaker #5: And we appreciate your interest in Keysight.

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