The paragraph is an introduction to the Keysight Technologies Fiscal First Quarter 2025 Earnings Conference Call, in which operator Joel introduces Harry Blount, the new Head of Investor Relations. Harry Blount welcomes participants and highlights the presence of Keysight's key executives, including CEO Satish Dhanasekaran, CFO Neil Dougherty, and Chief Customer Officer Mark Wallace in the Q&A session. The call focuses on non-GAAP financial measures, core growth excluding currency impacts, and forward-looking statements about the company's financial performance, with relevant documents available on their website. Participants are advised of upcoming investor conferences and risks, and Blount hands the call over to CEO Satish Dhanasekaran.

Satish Dhanasekaran discussed Keysight's strong first quarter performance, highlighting revenues and earnings that surpassed expectations. Core revenues increased for the first time in six quarters, driven by the Communication Solutions Group and stability in the Electronic Industrial Solutions Group. Orders rose for the second consecutive quarter, with a 4% year-over-year increase. The company remains optimistic about gradual recovery towards 2025, despite potential U.S. policy changes. Keysight is well-positioned for the future, trusted by advanced tech companies, and is engaging with customers to continue delivering value. The Communications Solutions Group saw 5% revenue growth, with strong order growth in wireline and wireless. The company supports AI data center expansion and designs high-speed electrical and optical technologies.

The paragraph highlights Keysight's strong ecosystem engagement, showcasing innovations in 400 gig per lane test solutions and DDR6 memory compliance at DesignCon. AI is seen as a key driver for future technology development in networks and communications. The wireless business remains stable, with progress in 5G advanced non-terrestrial networks and early 6G research. Keysight launched the PNA-X pro network analyzer for advanced 6G, aerospace defense, and non-terrestrial networks, improving design efficiency. At the Mobile World Congress, new solutions will be demonstrated, focusing on AI, 6G, open radio access networks, and satellite connectivity. The aerospace, defense, and government sector saw record first-quarter revenues in the US and Asia, despite a dip in orders due to continuing resolutions. Keysight continues to enhance its RF and microwave capabilities for security applications.

In this quarter, Keysight experienced varied performance across its divisions. The Electronic Industrial Solutions Group saw a slight revenue decline due to mixed demand, while the semiconductor sector benefited from AI-driven demand and new fab projects, leading to strong order growth. In automotive, despite challenging market conditions, interest in R&D for software-defined applications and autonomous driving remained high. Keysight collaborated with a semiconductor company to introduce a multi-gigabit optical Ethernet test solution. General Electronics saw a rise in orders driven by PCB, connectivity applications, and inventory normalization. The company also reported growth in advanced research, particularly in Europe and Asia, and made progress in expanding its software and services segment, which now comprises a significant portion of its revenue. Additionally, there was increased demand in aerospace, defense, and industrial sectors.

The paragraph discusses the financial performance of a company, highlighting its growth and robust innovation pipeline. Neil Dougherty reports that the company's first-quarter revenue was $1,298 million, exceeding expectations and marking a 3% increase. The backlog reached $2.3 billion, and the gross margin was 65.8%. Operating expenses rose by 2%, with an operating margin of 27%. Net income was $317 million, and earnings per share were $1.82. The Communication Solutions Group's revenue increased by 5% to $883 million, while the Electronic Industrial Solutions Group's revenue was $415 million, flat on a core basis. The company ended the quarter with $2 billion in cash and cash equivalents, generating significant cash flow from operations and free cash flow.

In the article, the company reports repurchasing 450,000 shares for $75 million, with an average price of approximately $167 per share. The outlook for the second quarter includes expected revenue between $1,270 million and $1,290 million, and earnings per share ranging from $1.61 to $1.67 with a share count of about 174 million. The company anticipates a mixed macro-environment in the second half of the year, partly due to potential US policy actions, but remains optimistic about gradual recovery in FY 2025, projecting revenue growth at the low end of a 5% to 7% target and consistent earnings growth with a 10% goal. The company cites a diverse customer base, an expanding solutions portfolio, deep customer engagements, and a strong innovation pipeline as a strong foundation for the future. The paragraph ends with a transition to a Q&A session, with Priyanka Thapa asking a question about the Commercial Communications segment.

In the paragraph, Satish Dhanasekaran discusses the stability in the wireless segment due to a slow recovery in the smartphone ecosystem and mentions an uptick in wireless infrastructure investment as operators' capital expenditure outlook improves. The main highlight, however, is the strong growth in wireline orders and demand, driven by AI advancements. Dhanasekaran expects wireless stability to continue in the short term, with potential growth from infrastructure spending, while AI remains a key innovation driver with a positive investment outlook from customers. Meta Marshall from Morgan Stanley asks about the impact of continuing resolutions on aerospace and defense orders and seeks context on wireline order strength related to AI.

The paragraph discusses the stability and growth potential of an aerospace defense business, which benefits from consistent increases in defense budgets tied to GDP and a focus on technology modernization. Despite short-term uncertainties due to administrative changes and typical resolution issues, the business continues to experience strong revenue growth and a robust pipeline of opportunities. In the field of AI, supply chain constraints exist, but there is a strong increase in manufacturing high-end capabilities. The company is well-positioned to capitalize on these opportunities, particularly with the adoption of new technology standards and innovations in high-speed connectivity and R&D.

The paragraph discusses the complexities customers face when implementing high-speed AI clusters and the growing number of collaborations the company has in this area, which are expected to make meaningful contributions over time. Mehdi Hosseini from Susquehanna asks about the long-term prospects of 5G plus or 6G versus satellite communication. Neil Dougherty suggests that satellite communications, especially non-terrestrial networks, present an incremental opportunity for their wireless business, with increasing R&D investments in 6G. He indicates that this technological evolution will eventually lead to standardization, development, and deployment, all of which could be beneficial for Keysight. Mehdi asks if this will be an incremental opportunity or net neutral for Keysight, implying it could positively impact the company's prospects.

The paragraph features a discussion by Satish Dhanasekaran, who emphasizes that predicting the future scope of new technology advancements is challenging. He references historical growth, like transitions from 3G to 5G, to suggest that the Serviceable Available Market (SAM) tends to expand over time due to growing complexities. The company is focused on expanding its capabilities and anticipates increased R&D opportunities. They invested during a downturn, which has strengthened their position. Adam Thalhimer asks about the positive sales funnel and potential transitioning to a more robust demand environment. Mark Wallace responds that the sales funnel is gradually improving and aligns with expectations of recovery by 2025.

The paragraph discusses three key business metrics: new funnel intake, velocity, and funnel size. New funnel intake, representing new business coming through the pipeline, is improving as the market recovers. Velocity, which measures the speed at which customers make decisions, is also improving. The growing funnel size, particularly over a short-term three-month period, supports the company's Q2 guidance. Overall, visibility of business performance has improved, with positive trends suggesting a gradual recovery. Additionally, there is a focus on trends in the electric vehicle (EV) sector, particularly in R&D for battery development, though current activity remains constrained. Investment and activity in e-mobility, driven by advancements in software-defined vehicles and communication technologies, are noted, but EV and battery testing remain soft. Auto manufacturing is also reported to be sluggish.

The paragraph outlines a discussion about the performance and strategic direction of ESI Group following its acquisition. Neil Dougherty states that the acquisition is progressing according to plans, with high recurring revenue and stable renewal rates. However, the automotive market's weakness impacted upsell opportunities negatively, offset by growth in aerospace, defense, and industrial markets. David Ridley-Lane inquires about two pending acquisitions from Ansys and Synopsys, which are dependent on the completion of a transaction between those companies. Although these acquisitions have not been quantified financially, Satish Dhanasekaran notes they will enhance the company's design engineering software portfolio in power management and optical solutions. Following this, Mark Delaney from Goldman Sachs makes a concluding comment regarding someone's upcoming retirement.

The paragraph discusses the operating expenses (OpEx) of a company, with a focus on expectations for fiscal 2025. It highlights that OpEx was up only about 1% year-over-year in the latest quarter, which was lower than anticipated. Neil Dougherty explains that the company was in a cost reduction mode last year, and not all reductions were realized in the first quarter. As they move into the second quarter, a sequential increase in OpEx is expected due to factors like salary increases, variable pay expenses, and reduced PTO usage during major holidays.

The paragraph discusses the company's investment strategies and financial performance. Neil Dougherty mentions their ability to maintain core programs during a downturn and invest in new areas like 6G, quantum computing, and AI as the business grows. Mark Delaney inquires about the financial framework, specifically regarding incremental margins and gross margins. Dougherty confirms a 40% incremental margin for quarters with 5% or more growth. He attributes recent fluctuations in gross margins primarily to changes in product mix, noting the high gross margins in Q1 compared to the last four quarters. Satish Dhanasekaran adds that businesses focused on R&D, particularly in CSG, have gross margins of 68%.

The paragraph discusses the EISG business, highlighting the disparity between manufacturing and R&D operations. Last year, the portfolio was 65% more favorable due to this mix, benefiting the company overall. The long-term goal is to enhance R&D contributions, adding value for customers. Matt Niknam from Deutsche Bank asks about fiscal 2Q orders amid a business recovery and ESI changes, and the impact of ongoing government resolutions on aerospace defense orders. Neil Dougherty responds, explaining the typical seasonal order pattern, with mid-single-digit growth from Q1 to Q2, and ESI orders mainly in Q1, with the rest spread over the fiscal year.

Satish Dhanasekaran discusses the aerospace and defense sectors, highlighting that their customers' program backlogs are at record levels and are expected to remain stable. He notes that due to geopolitical factors, countries like the UK are increasing their defense spending as a percentage of GDP, which presents opportunities for the company given its technology and capabilities. While monitoring direct government spending on research, development, testing, and evaluation (RDT&E), the company anticipates no significant cuts in technology advancements for security and defense. Matt Niknam inquires about the prospects of gross margin recovery in the EISG segment and whether a growth rate of 5% to 7% could achieve an operating margin target of 31% to 32% by 2026. Neil Dougherty affirms this possibility.

The paragraph discusses expectations around gross and operating margins for EISG and the broader company. It highlights that achieving the gross margin levels seen in fiscal 2023 will be challenging due to the mix-dependent nature of EISG. Although there is a goal to reach 31% to 32% operating margins by 2026, it may be delayed if growth rates are slow. However, the closure of acquisitions and realizing synergies might help achieve these targets. Despite gross margin differences between groups, organizational synergies have enabled consistent operating profit margins, exemplified by the recent 27% operating profit.

In response to Tim Long's questions about the AI business and software services, Satish Dhanasekaran highlights the growth and potential of the AI sector. He emphasizes the increasing demand for data centers, noting that the number is expected to rise significantly in the coming years. Satish discusses the importance of AI applications such as training, inferencing, and edge computing, indicating that these trends are driving innovation and processor designs. He expresses confidence in their strategic positioning to support customer innovation in this evolving landscape. As for software and services, it's suggested that the transition to increased recurring revenues will remain steady, though specifics about acceleration are not detailed.

The company highlights its progress and strategic positioning in the semiconductor industry, emphasizing its advancements in 2-nanometer technology and silicon photonics, which have been fruitful investments. They are actively involved in memory technologies like HBM, DDR6, and DDR7, and are adapting to faster networking speeds requiring precise testing, especially in AI clusters. They've launched an AI data center builder platform for emulating large-scale AI workloads, providing insights into time, latency, and cost of AI model training. The company's software-centric transformation is ongoing, with a focus on sustainable contributions for customers. They aim to continue expanding capabilities with new product introductions, considering 40% as a milestone in their journey.

The paragraph discusses the company's focus on software over hardware introductions due to the shorter launch time for software. It mentions partnerships with Synopsys and Ansys to enhance design space contributions and boost recurring revenue. In a Q&A section, Rob Mason asks about the company's semiconductor business, specifically the growth in parametric test orders and backlog. Satish Dhanasekaran responds, noting multiple quarters of growth and a favorable outlook due to new fab opportunities. The company has built a backlog over the past three quarters, emphasizing a short conversion window for orders into revenue. Mason then asks about the company's business in China amidst geopolitical issues, acknowledging that the company has previously adapted to such challenges by finding new opportunities.

In the given paragraph, Satish Dhanasekaran discusses how his company is navigating current geopolitical and trade challenges, particularly with respect to China. Despite headwinds following the Huawei restrictions, the company maintains strong customer relationships and is adapting its focus to compatible business partners. Many Chinese customers are pursuing a global strategy by relocating manufacturing to Southeast Asia and North America. The company is supporting these efforts, emphasizing technology innovation as crucial to their operations worldwide. The paragraph concludes with the operator and Harry Blount thanking participants and closing the conference call.

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