# Keysight Technologies, Inc. (KEYS) — Company Narrative, Fiscal 2026 Third Quarter Keysight's fiscal year ends October 31; its fiscal quarters end January 31, April 30 and July 31. "Fiscal 2025" is the year ended October 31, 2025, and the third quarter of fiscal 2026 is the three months ended July 31, 2026. All amounts are in US dollars. Sources: Annual Report on Form 10-K for the fiscal year ended October 31, 2025 (accession 0001601046-25-000127); Quarterly Report on Form 10-Q for the quarter ended July 31, 2026 (accession 0001601046-26-000036); Form 8-K with the third-quarter earnings release, August 18, 2026 (accession 0001601046-26-000029); Form 8-K on a board appointment, August 26, 2026 (accession 0001601046-26-000032). --- ## Business *From the FY2025 10-K, accession 0001601046-25-000127.* Keysight sells electronic design, emulation, simulation and test solutions to the engineers who build communications networks, data-center infrastructure, semiconductors, defense and space systems, vehicles and general electronics. Its offering combines measurement hardware (oscilloscopes, spectrum, signal, network, power and protocol analyzers, signal generators, power supplies, network test and network visibility products), software (instrument applications, multi-instrument measurement solutions, and standalone design, simulation and computer-aided engineering software), and services (repair and calibration, the KeysightCare technical support program, installation, training and engineering services). Most revenue comes from customers' research and development work, and less from manufacturing and operations. The company sells to roughly 40,000 end customers a year in more than 100 countries. Fiscal 2025 revenue was $5,375 million, of which products were 76% and services and other 24%. Keysight reports two segments: - **Communications Solutions Group (CSG)**: $3,726 million of fiscal 2025 revenue (about 69% of the total) and a 26.5% segment operating margin. It serves two end markets. *Commercial communications* (about 67% of CSG revenue) covers wireless and wireline design-to-deployment tools for chipmakers, device makers, network equipment manufacturers, carriers and cloud operators, from 5G and early 6G to 800G and 1.6T Ethernet and AI data-center interconnects. *Aerospace, defense and government* (about 33%) covers radar, electronic spectrum operations, space and satellite, secure communications and government research. The October 2025 Spirent acquisition added wireless network test and assurance and positioning technology to CSG. - **Electronic Industrial Solutions Group (EISG)**: $1,649 million of fiscal 2025 revenue (about 31%) and a 24.7% segment operating margin. It serves automotive and energy (electric and autonomous vehicles, power electronics, energy systems), semiconductor design and fab customers, and general electronics (consumer, IoT, digital health, education). It includes the computer-aided engineering software added with ESI Group in fiscal 2024. **How it sells and makes its products.** More than 80% of business comes through Keysight's direct sales organization of sales and solution engineers, supplemented by more than 800 channel-partner agreements, a global software subscription and renewals channel, and e-commerce for lower-touch sales. Manufacturing combines in-house production of the highest-value elements with contract manufacturers for assembly and circuit-board fabrication. The largest facility is a centralized manufacturing hub in Penang, Malaysia. Five specialized technology centers in Santa Rosa, California; Colorado Springs, Colorado; and Boeblingen, Germany make proprietary components such as microwave monolithic integrated circuits, thin- and thick-film circuits, optical components and multi-chip modules. Keysight says no competitor offers its full range of products and services at its scale, though it faces large diversified rivals and specialized regional players. It says no single license, patent or other IP right is material except the Keysight mark. **Scale and investment.** R&D spending was $1,007 million in fiscal 2025, and software engineers make up the majority of R&D staff. At October 31, 2025 the company employed about 16,800 people: 5,800 in the Americas (5,500 of them in the United States), 3,600 in Europe and 7,400 in Asia Pacific. Backlog was about $2,697 million, up from $2,375 million a year earlier, mainly because of Spirent and orders exceeding revenue. Keysight expects most backlog to convert to revenue within six months. **Strategy and portfolio reshaping.** Keysight's stated priorities are first-to-market solutions, expansion into adjacent markets up the technology stack (from physical layer into protocol, system emulation and application-layer software), growth in recurring software and services revenue, and disciplined capital deployment. Fiscal 2025 closed with three acquisitions: - **Spirent Communications plc**, completed October 15, 2025. Keysight paid $1,415 million net of $127 million of cash acquired, using existing cash. Total consideration was $1,564 million, reflecting cash consideration of 199 pence per Spirent share, according to the Q3 FY2026 10-Q. - **Spirent divestiture.** To meet regulatory conditions for the Spirent deal, Keysight sold Spirent's high-speed ethernet, network security and channel emulation business lines to Viavi Solutions Inc. for $399 million on October 16, 2025. - **Optical Solutions Group of Synopsys, Inc.**, acquired October 17, 2025 for $581 million, later adjusted to $580 million, according to the Q3 FY2026 10-Q. - **PowerArtist RTL business of Ansys, Inc.**, acquired October 17, 2025 for $26 million. Earlier deals include ESI Group (computer-aided engineering software, acquired in fiscal 2024), Riscure (security test for semiconductors and embedded/IoT devices) and AnaPico (RF and microwave instruments). --- ## Risk factors *From the FY2025 10-K, accession 0001601046-25-000127, with updates from the Q3 FY2026 10-Q, accession 0001601046-26-000036.* The 10-Q adds or expands several risks: order backlog and lead times, tariff refund recovery, new U.S. trade actions, and market perceptions of AI. The substantive risks are: - **Tariffs, trade restrictions and export controls.** U.S. tariffs announced from the second quarter of fiscal 2025 hit imports from all countries, with much higher rates on China, and China and others retaliated. Tariffs weighed on fiscal 2025 gross margin. Many of Keysight's suppliers and customers depend on business in China. When a customer or supplier is put on a U.S. restricted-party list, Keysight suspends business with it, sometimes at short notice, and some such partners cannot be replaced. The 10-Q adds two new U.S. actions. A "forced labor" tariff action was announced on July 24, 2026 and is expected to affect imports from 60 designated countries. On March 11, 2026 the U.S. Trade Representative opened a Section 301 investigation into excess manufacturing capacity in 16 economies, including in electronics and semiconductors. That investigation is still pending and could lead to further tariffs. - **Tariff refund recovery.** The U.S. Supreme Court ruled in February 2026 that tariffs imposed under the International Emergency Economic Powers Act (IEEPA) were not authorized by law, and Keysight has submitted or intends to submit refund claims and has recorded a receivable for them. It warns that processing procedures, timing, government funding and further litigation could delay, reduce or deny the refunds. - **Backlog conversion, lead times and cancellations.** This risk is new in the 10-Q. A substantial rise in orders, combined with manufacturing capacity limits and supply-chain constraints, could lengthen lead times. Customers might then cancel or shrink orders, or over-order to secure supply and cancel later. Inventory and capacity built ahead of cancelled orders could leave excess or obsolete stock. - **Cyclical, hard-to-forecast end markets.** Quarterly results depend on orders booked within the quarter, and visibility is limited. The 10-Q adds that some of Keysight's markets "have recently experienced significant growth which may not be sustainable". Because much of the cost base (sales, R&D, manufacturing) is relatively fixed, a downturn or pricing pressure would hit margins. - **Supply chain and outsourcing.** Some custom-designed parts have no ready alternate source. Keysight enters non-cancellable purchase commitments and pays suppliers in advance, which has previously left it with excess parts when demand fell. It also depends on contract manufacturers and outsourced IT. Non-cancellable purchase commitments rose to $704 million at July 31, 2026 from $450 million at fiscal 2025 year-end. - **International and geopolitical exposure.** A majority of revenue comes from outside the U.S. Keysight exited Russia after the invasion of Ukraine and cites Middle East conflict and China–Taiwan tension. Most accounting processes are centralized in India and Malaysia. - **Acquisitions and integration.** The Spirent, Optical Solutions Group and ESI Group deals carry integration, synergy and goodwill risk. CSG already carries $709 million of accumulated goodwill impairment. - **Key customers and consolidation.** No customer is more than 10% of revenue. However, trade restrictions have previously stopped sales of large orders to some key customers, and consolidation among communications customers would concentrate exposure. - **Tax.** Keysight's lower tax rate depends on incentives in Singapore, which expires July 31, 2029, and Malaysia, which expired October 31, 2025 and is being renewed but is not guaranteed. Other exposures are OECD Pillar Two minimum taxes and a pending $107 million refund suit against the United States over GILTI regulations. If that suit fails, Keysight would have to reverse a benefit it has already recorded. - **Intellectual property litigation.** Centripetal Networks has brought patent cases against Keysight in the U.S. (district court, the U.S. Patent and Trademark Office and the International Trade Commission), Germany and Europe's Unified Patent Court. Most challenged patent claims have been invalidated, but some appeals are ongoing. - **Cybersecurity and AI.** Risks include attacks on Keysight's IT systems or service providers, and vulnerabilities in its products that could expose customer networks. Keysight also lists competitive, legal and IP risks from AI adoption, and the 10-Q adds market perceptions of artificial intelligence as a factor that could move the trading price of its stock. - **Debt and liquidity.** Keysight has $2,550 million of senior notes outstanding and must keep its revolving credit facility covenants. Pension funding and counterparty risk on cash investments are further exposures. - **Governance.** Keysight pays no dividend. Its anti-takeover provisions include a classified board. Stockholders voted on March 19, 2026 to declassify the board, but the change is phased in through 2029, and directors can be removed only for cause until then. - **Climate commitments.** Keysight has committed to net zero Scope 1 and 2 emissions by fiscal 2040 and to science-based Scope 3 targets, which could raise costs. --- ## Management's discussion — fiscal 2025 *From the FY2025 10-K, accession 0001601046-25-000127.* Fiscal 2025 returned Keysight to growth after a fiscal 2024 decline. Orders were $5,452 million, up 8%, with acquisitions adding 1 point and growth in every region. Revenue was $5,375 million, also up 8%, and both segments grew. CSG led, on investment in high-speed networks for AI and in aerospace and defense. Gross margin fell 1 point to 62.1%, mainly because of tariffs and unfavorable mix, partly offset by pricing and volume. Operating margin was flat at 16.3% and income from operations was $876 million. Below the operating line, other income rose to $200 million from $35 million, mainly on net gains from equity investments and derivatives and lower amortization of actuarial losses. The effective tax rate fell to 20% from 29%, a rate that had been inflated by one-time items in fiscal 2024. The year included $13 million of Pillar Two tax. The 10-K reports net income of $850 million, up 38%, after a $19 million loss from discontinued operations. The November 24, 2025 earnings release had reported fiscal 2025 GAAP net income of $846 million. - **CSG**: revenue rose 9% to $3,726 million, with acquisitions adding 1 point. Commercial communications grew 10% on R&D for terabit solutions and on investment in 400G/800G transceiver manufacturing capacity for AI. Aerospace, defense and government grew 8% on space and satellite, radar and spectrum operations. Segment operating margin was 26.5%. - **EISG**: revenue rose 6% to $1,649 million. Semiconductor and general electronics grew, partly offset by a decline in automotive and energy. Segment operating margin rose 2 points to 24.7%. **Cash and capital.** Operating cash flow was $1,409 million, up from $1,052 million. Keysight spent $2,022 million net on acquisitions: Spirent $1,415 million, Optical Solutions Group $578 million, PowerArtist $26 million and other deals $3 million. That was partly offset by the $399 million Viavi divestiture. Financing included $748 million of proceeds from new 2030 senior notes, and share repurchases took $377 million. A sterling bridge credit facility arranged for a planned acquisition was terminated on September 25, 2025. At year-end, cash, cash equivalents and restricted cash were $1,890 million and senior notes outstanding were $2,550 million (par). On November 24, 2025 the board approved a new $1,500 million repurchase program to replace the March 2023 program, which had $110 million remaining. Keysight expected fiscal 2026 capital expenditures of about $160 million, against $127 million in fiscal 2025. --- ## Current quarter — third quarter of fiscal 2026 (ended July 31, 2026) *From the Q3 FY2026 10-Q, accession 0001601046-26-000036; non-GAAP, free cash flow and guidance figures are from the August 18, 2026 earnings release, accession 0001601046-26-000029.* The quarter extended the demand upturn that began in fiscal 2025, led by AI data-center networking. **Orders and revenue.** - **Orders**: $2,091 million, up 56%. Acquisitions added 5 points and currency subtracted 1 point, and orders rose in every region. The release calls it a "second consecutive record quarter with orders over $2 billion". - **Revenue**: $1,846 million, up 36%. Acquisitions added 6 points, and Spirent contributed $61 million of incremental revenue. - **CSG**: revenue of $1,345 million, up 43% and 73% of company revenue. - Commercial communications grew 56%. Keysight attributes this to customer R&D on terabit solutions and the build-out of 400G/800G/1.6T transceiver manufacturing capacity to meet AI demand. - Aerospace, defense and government grew 14%, led by radar, spectrum operations, and space and satellite. Asia Pacific declined in this market. - **EISG**: revenue of $501 million, up 21%, with growth in every region. Drivers were AI-driven demand for advanced semiconductor technology and fab capacity, next-generation printed circuit board interconnects and capacitors, software-defined and autonomous vehicles, and digital health. **Margins and earnings.** - **Gross margin**: 65.8%, up from 61.7%, on volume, favorable mix and acquisitions, partly offset by people costs and higher acquisition amortization. - **Operating margin**: 24.9%, up from 17.3%. Income from operations nearly doubled to $461 million. Segment operating margins were 34.0% for CSG and 31.0% for EISG. - **Net income**: $397 million, or $2.30 per diluted share, against $191 million, or $1.10, a year earlier. The 16.7% effective tax rate included $12 million of discrete tax expense, mainly a valuation allowance on California research credits now limited under state tax legislation. - **Non-GAAP net income**: $531 million, or $3.07 per share, against $1.72 a year earlier. Keysight reports this measure in its earnings release. **Nine months to date.** Orders were $5,787 million (up 48%) and revenue was $5,163 million (up 31%). Net income was $1,027 million, or $5.93 per diluted share, against $617 million. The year-to-date tax rate was only 6.0% because of $74 million of net discrete benefits, led by a $97 million net benefit from a favorable tax audit settlement in January 2026. **IEEPA tariff refunds.** After the February 2026 Supreme Court ruling, Keysight recorded a $100 million receivable for tariffs previously paid plus statutory interest. It credited $93 million to cost of sales, $4 million to selling, general and administrative expense and $3 million to interest income. It also decided to refund tariff surcharges it had collected from customers and booked a $40 million liability against revenue. Over nine months, the net effect was $40 million less revenue and $57 million more operating income: $38 million in CSG and $19 million in EISG, worth about 1.3 points of operating margin. Keysight received $37 million of refunds in the third quarter, leaving a $64 million receivable at July 31, 2026. **Cash flow, capital returns and balance sheet.** - **Cash flow**: third-quarter operating cash flow was $437 million and free cash flow $403 million, per the earnings release. Nine-month operating cash flow was $1,379 million. - **Share repurchases**: Keysight bought back 1,845,082 shares for $517 million in the nine months. That included 643,946 shares in the quarter. $983 million remained under the $1,500 million program. - **Cash and debt**: cash and equivalents were $2,605 million. Total debt was $2,517 million. The $700 million of 4.60% senior notes due April 6, 2027 is now classified as current. - **Revolving credit facility**: a new $750 million five-year unsecured revolver replaced the 2021 facility on April 21, 2026. It expires April 21, 2031 and was undrawn at quarter-end. - **Hedges**: in the first quarter Keysight swapped $600 million of its 2034 notes from fixed to floating rate and entered $300 million of cross-currency swaps to hedge its Japanese yen net investment. **Operating build-out.** - **Supplier commitments**: total commitments to contract manufacturers and suppliers rose to $762 million from $487 million. Keysight says these advance purchase orders support "a strong order backlog". - **Capital spending**: still expected to be about $160 million in fiscal 2026, mainly for capacity expansion. - **Headcount**: about 16,600, against 15,500 a year earlier, mainly because of acquisitions. - **Remaining performance obligations**: about $616 million, excluding contracts of one year or less. **Legal and tax matters.** - **GILTI refund suit**: on July 2, 2026 the U.S. Court of Federal Claims granted Keysight's motion for partial summary judgment and found the challenged GILTI tax regulation invalid. The United States may still challenge or appeal. - **Centripetal Networks**: in April 2026 the Federal Circuit let stand the ITC's finding that Keysight did not violate Section 337, and that ruling is now final. The Federal Circuit has also upheld the invalidation of all claims of four challenged U.S. patents and all but four claims of a fifth. Appeals on the remaining two patents continue. **Outlook.** For the fourth quarter of fiscal 2026, Keysight guided revenue of $1.930 billion to $1.950 billion, about 37% growth at the midpoint. It guided non-GAAP EPS of $3.34 to $3.40 on about 172 million diluted shares, and gave no GAAP EPS reconciliation. The release describes the full-year outlook as improved. In the 10-Q, management cites continued customer R&D investment in 5G, early 6G, quantum computing, high-speed data-center networks, non-terrestrial networks, AI, industrial IoT, defense modernization and next-generation and autonomous vehicles. It says it is watching tariffs, export controls and geopolitics closely. --- ## Subsequent events *From the Q3 FY2026 10-Q, accession 0001601046-26-000036, and Forms 8-K, accessions 0001601046-26-000029 and 0001601046-26-000032.* The 10-Q for the quarter ended July 31, 2026 has no subsequent-events note. Neither it nor Keysight's 8-K filings after the quarter disclose any acquisition, divestiture, borrowing or securities issuance after July 31, 2026. The post-quarter disclosures are: - **August 18, 2026: third-quarter results and fourth-quarter guidance** (8-K, accession 0001601046-26-000029). The figures are summarized above. - **August 26, 2026: board expansion** (8-K, accession 0001601046-26-000032). The board grew from ten to eleven members with the appointment of Scott Reese as a Class I director. - **Share count**: 170,244,745 common shares were outstanding at August 27, 2026, according to the 10-Q cover. - **Pending matter**: the European Patent Office appeal in the Centripetal case is scheduled for a hearing in November 2026.