The operator introduces the Keysight Technologies Fiscal Third Quarter 2024 Earnings Conference Call and hands over to Jason Kary, Vice President, Treasurer and Investor Relations. Non-GAAP financial measures and core growth will be discussed, and forward-looking statements will be made. Satish Dhanasekaran, President and CEO, will discuss three key headlines.

Keysight had a successful third quarter, with revenue and earnings exceeding expectations. Despite a mixed demand environment, the company saw stability and growth in certain areas, particularly in commercial communications. Keysight remains focused on creating value for customers and shareholders through strategic investments, disciplined M&A, and share repurchases. In the third quarter, the company saw relative stability in both orders and revenue, with the Commercial Communications segment returning to order growth. While overall revenue declined, there was some improvement sequentially.

In the third quarter, Keysight experienced growth in wireline orders due to investments in data center networks and AI technology. They have also secured key wins in GPU rack connectivity and are collaborating with industry leaders to reduce power consumption in AI cluster networks. Demand for wireless solutions has remained stable, with ongoing investments in non-terrestrial networks, open radio access networks, and 5G technology. Keysight is also actively involved in the development of 6G technology and the commercialization of open radio access networks through government incentives. In the aerospace, defense, and government sector, Keysight continues to see strong demand for their solutions.

The company's revenue and orders were down compared to the previous year, but remained stable on a sequential basis. The delay in U.S. budget approval affected funding for new projects, but demand for defense modernization remained strong. The company also secured wins with U.S. and European primes for spectrum operation applications and expanded its Quantum footprint. In the Electronic Industrial Solutions Group, revenue continued to decline as expected, but orders and revenue were stable on a sequential basis. In the semiconductor market, revenue was down compared to the previous year but orders increased. The company saw increased demand for its parametric wafer test solutions from foundry and memory customers. In the automotive sector, orders and revenue declined due to lower auto manufacturing activity, but there was growth in orders for electric vehicles and autonomous vehicles. The company also saw opportunities for R&D in software-defined vehicles.

In the third quarter, Riscure and NXP completed the first car connectivity consortium digital key certification, which strengthens trust in vehicle security. Keysight's software and services revenues are resilient and showed growth, with Eggplant software and design engineering software platforms experiencing double-digit growth. The company's business model allows it to outperform in various economic conditions and remain focused on value creation for customers and shareholders. Third quarter revenue of $1.217 billion was above expectations, with a decrease of 12% or 13% on a core basis.

In the third quarter, orders were essentially flat at $1.249 billion, with backlog growing to $2.3 billion. Gross margin was reported at 64%, and operating expenses were up 1%. The operating margin was 24%, or 26% on a core basis, and year-to-date operating margin is down 400 basis points. The company also reported $275 million in net income and earnings of $1.41 per share, with a weighted average share count of 175 million. The Communications Solutions Group saw a decline in revenue of 8%, while the Electronic Industrial Solutions Group saw a decline of 20%. Both segments reported gross margin and operating margin, with EISG seeing a slight increase in operating margin.

The company has ended the quarter with $1.6 billion in cash and cash equivalents, generating cash flow from operations of $255 million and free cash flow of $222 million. Share repurchases totaled 1.07 million shares at an average price of $140 per share. The company expects to finish the year with higher revenue and earnings per share than previously anticipated. They are executing on the dimensions within their control and positioning themselves for success in a recovering market. During the Q&A, the company is asked about the slight increase in orders and they attribute it to stability in their base business and some signs of rebound in the semiconductor industry, while also acknowledging some weakness in the automotive sector.

The speaker discusses the company's performance and growth in the current environment, mentioning a slight year-over-year growth and the company's execution. They also mention the positive impact of AI on commercial communications orders and the potential for AI to continue driving revenue in the future. However, they note that the AI market is currently constrained due to the concentrated investments of large companies.

The speaker discusses the company's recent capital investments and progress in engaging with standardization and making contributions in R&D across various aspects of innovation. They also mention their goal to expand their ecosystem and feel confident about their market position. The speaker then addresses a question about the company's revenue growth rate, stating that their long-term view and underlying drivers remain unchanged and they expect the business to trend back to previous levels. However, they acknowledge that the past few years have been outsized and their first priority is to stabilize the business conditions.

Neil Dougherty, Keysight's CFO, shares that the company is feeling positive about their second quarter orders being greater than the first quarter. He also mentions that the recovery in the market is still mixed, and they are not expecting a full recovery in all end markets in the near future. However, they are taking actions to maximize their position and are seeing positive trends in their funnel dynamics. He also mentions that the incoming order rate is stable and they expect to achieve their revenue targets in the next quarter or two. The question from Matt Niknam asks for more information on the delays in the aerospace, ADG segment and if they are pushing into the next quarter.

The speaker discusses the current state of the aerospace and defense industry, stating that there is bipartisan support for increasing budgets in the United States and around the world. They also mention their company's focus on defense modernization and their confidence in their pipeline and position in the market. However, they acknowledge that the timing of budgets and appropriations can have an impact on quarterly results. They also mention a decline in revenue in their aerospace and defense business, but attribute it to lapping record levels from the previous year and winning large systems contracts. The speaker then moves on to discuss the automotive industry and mentions that clients are delaying projects, possibly restarting them at the beginning of 2025.

The timing of projects in the automotive industry is difficult to predict, with long processes and durations. However, there is a continuous focus on innovation and growth in the AV and software-defined vehicle sectors. The company is well-positioned globally and expects a moderation of manufacturing slowness and an increase in battery test and EV projects in the next several quarters. For the next fiscal year, a 14% tax rate is a good modeling assumption, and it is expected to hold for multiple years. The only potential change in the future is the scheduled increase in the U.S. GILTI tax rate in 2027, and potential tax legislation from the new administration.

The speaker is unable to assess potential programs that could be passed by a new presidential administration, but believes that the status quo will continue until 2027. The next question is about the communications business and the potential for improvement in fiscal year 2025, as well as an update on the Spirent acquisition. The speaker mentions that the shareholder approval has been received and they are working through the regulatory process, with the expectation that the transaction will be completed in the first half of fiscal year 2025. The speaker also notes that there is currently a high demand for wireline business, but it is in a supply-constrained environment. They are capitalizing on this and have a good pipeline for the next three to five years.

The speaker expects stability in wireless and some increase in deployment activity, leading to growth in their component test business. They also anticipate continued investments in R&D and moderate manufacturing investments in the second half of next year for the wireline side of the business. As for the upcoming fiscal year, it is too early to give guidance, but historically, Q1 has seen a sequential decrease in orders and revenue. However, the acquisition of ESI may impact this trend, as their seasonality is opposite to Keysight's. The funnel is currently trending positive.

The speaker discusses the current state of their business compared to three months ago, noting an increase in new opportunities and the speed at which deals are closing. They also mention positive trends in the industry, such as advancements in wireless infrastructure technology and the adoption of new standards. However, they acknowledge a decrease in the capex cycle from telecom companies. Despite this, they remain optimistic about their engagements in next-generation themes and their contributions to the development of 6G technology.

In the paragraph, the speaker discusses the stability of the 5G business and expects it to remain stable due to increased deployment activities worldwide. They also mention that there will be a seasonal uptick in both the communications and aerospace and defense businesses at the end of the year. They provide an update on the semiconductor side, stating that project activities are returning and there is a solid pipeline, particularly in memory and silicon photonics, driven by AI. However, the logic side is still a mixed environment.

The operator introduces a question about the impact of autonomous vehicles on Keysight's core communications business. The CEO acknowledges the transformation in the automotive marketplace and the company's growth in this area. He discusses the different factors affecting the automotive industry, such as Chinese battery pressures and safety regulations, and how Keysight's strengths in traditional communications can be applied to the software-defined vehicle market. The CFO adds that this is a growing opportunity for the company and that the CEO's response covers all the key points.

During a recent conference call, Keysight Technologies discussed how their business has evolved over the years and how it now spans multiple areas, from semiconductors to security and cyber tools. They noted that their strengths in communication standards have allowed them to capture a significant portion of the market for connected vehicles. The company has seen a steady increase in demand over the past few months and expects this trend to continue in the fourth quarter.

Priyanka Thapa asks about the company's exposure to hyperscalers and their potential as direct customers for test equipment related to AI data center equipment testing. Satish Dhanasekaran explains that the company is benefiting from the hyperscaler's investment in digital infrastructure and is expanding its customer base as some hyperscalers enter into silicon programs and open standardization consortiums. They feel confident in their ability to provide total solutions for customers in traditional areas as well as in emulating training and inference schemes for AI. The operator then concludes the Q&A session and Jason Kary thanks everyone for joining the call.

This summary was generated with AI and may contain some inaccuracies.