Keysight Technologies (KEYS): Earnings Setback Masks Durable Secular Tailwinds

Opening: A mixed quarter that tightens the story — revenue slid to $4.98B while strategic momentum deepened#

Keysight Technologies reported a fiscal-year revenue decline to $4.98 billion in FY2024 from $5.46 billion a year earlier, a -8.88% change, while net income fell to $614 million, a -42.17% drop versus FY2023. At the same time the market valuation sits near $28.4 billion and the shares trade around $165.02 as of the latest quote — numbers that create a tension between near-term cyclical pressure and clear strategic wins in AI data‑center validation, 6G research collaborations and industry‑leading IoT security testing.Keysight Technologies Investor Relations - Earnings and Reports NASDAQ Press Release - Keysight to Collaborate with DOCOMO and NTT on 6G

This article starts with those contrary signals: sizable year‑over‑year margin compression and lower top‑line versus concrete technology and revenue catalysts — PCIe 6.0 validation tooling for AI servers, multi‑year 6G testbeds with NTT/Docomo, and the industry’s first PSA Certified Level 4 security evaluation capability. The investment question shifts from "does Keysight have opportunities?" to "how quickly can those opportunities reaccelerate revenue and restore margins?".

Financial profile: what moved and why (we calculate the core metrics)#

A concise re-statement of FY2024 vs FY2023 results surfaces the drivers and the magnitude of change. Revenue declined from $5.46B to $4.98B (-8.88%). Operating income decreased from $1.36B to $833M, pushing the operating margin from 24.85% to 16.73% (a contraction of -8.12 percentage points). Net income fell from $1.06B to $614M, a -42.17% decline, yielding a net margin drop from 19.34% to 12.33% (-7.01pp). These are material margin swings in one year.Keysight Technologies Investor Relations - Earnings and Reports

Two balance‑sheet and cash‑flow facts temper the headline: Keysight finished FY2024 with $1.80B of cash and short‑term investments and total debt of $2.03B, implying net debt of $234M. Free cash flow was $898M, equal to 18.03% of revenue and converting to +146.18% of reported net income — a strong cash conversion profile despite the earnings reduction. The company repurchased $443M of stock in FY2024 and spent $681M on acquisitions (net).Keysight Technologies Investor Relations - Earnings and Reports

Below are the core numbers we used to calculate margins and leverage (FY2021–FY2024):

(Income statement items and margins: company filings)Keysight Technologies Investor Relations - Earnings and Reports

And the balance sheet / cash flow snapshot used for leverage and liquidity calculations:

(Calculations: net debt = total debt - cash; current ratio = total current assets / total current liabilities; balance sheet items: company filings)Keysight Technologies Investor Relations - Earnings and Reports

Two methodological notes on numbers. First, some TTM ratios reported in third‑party feeds differ from the single‑period snapshots above (for example, a TTM current ratio of 3.59x is shown elsewhere). We prioritize the fiscal‑year 2024 balance sheet bars for consistency in year‑over‑year comparisons; when multiple sources diverge we call out the discrepancy and use the raw fiscal values for our calculations. Second, EBITDA for FY2024 of $1.22B implies an EBITDA margin of 24.49%, which aligns with the company’s reported gross/ebitda patterns even as operating leverage weakened in FY2024.Keysight Technologies Investor Relations - Earnings and Reports

Why margins compressed in FY2024 — the accounting story and the operational reality#

The operating margin swing from 24.85% to 16.73% is the clearest financial signal. That compression reflects a combination of revenue mix changes, higher R&D investment (R&D rose to $919M in FY2024 from $882M in FY2023), elevated acquisition spend, and lower operating leverage as revenue declined. Gross margin declined modestly (~-1.72 percentage points), indicating the bulk of margin pressure came from SG&A and other operating expenses absorbing fixed costs against a smaller revenue base. Management’s FY2024 cash flow shows strong operating cash generation — $1.05B of operating cash — and free cash flow of $898M, which helps fund buybacks and acquisitions even while reported profits fell.Keysight Technologies Investor Relations - Earnings and Reports

The combination of strategic investment (notably acquisitions and R&D) and cyclical revenue weakness explains much of the profit decline. Importantly, the company preserved robust cash conversion (FCF / Net Income = +146.18% in FY2024), which suggests earnings quality remains acceptable from a cash‑generation standpoint despite lower GAAP earnings.

Capital allocation: buybacks, M&A and balance sheet flexibility#

Keysight returned capital through share repurchases of $443M in FY2024, while acquisitions accounted for $681M of cash outflow (acquisitions net). Net cash used by financing was $913M. With $1.80B in cash and modest net debt ($234M), the company retains flexibility for continued M&A, targeted buybacks, or to absorb cyclical troughs. Our leverage metric — total debt / total equity = $2.03B / $5.11B = 39.70% (0.40x) — underpins a conservative balance‑sheet posture compared with many capital‑intensive industrial tech peers. Net debt to EBITDA is roughly 0.19x (234 / 1,220), a low leverage multiple that preserves optionality.Keysight Technologies Investor Relations - Earnings and Reports

Growth drivers and strategic positioning: why the opportunity set still matters#

While FY2024 shows cyclical softness, strategic execution points to longer‑run secular tailwinds. Keysight’s product and go‑to‑market positioning map tightly to three secular themes that are visible in management commentary and public partnerships: AI data‑center interconnect validation, the wireless roadmap (5G deployments and early 6G research), and high‑assurance IoT security and compliance.

On AI infrastructure, Keysight has pushed into high‑speed interconnect validation — notably tools for PCIe 6.0 at 64 GT/s — enabling server and system vendors to validate signal integrity ahead of production. Those validation toolsets typically generate instrument revenue plus recurring software and services, creating a higher lifetime value than one‑off hardware sales. Evidence of commercial traction appeared in quarterly execution notes, with management pointing to double‑digit growth in wafer test and continued demand from hyperscale ecosystem partners.AInvest - Keysight Technologies Q3 2025 Earnings Coverage

In wireless, Keysight is both protecting current revenue (5G deployments, RAN and device validation) and building an early lead in 6G by embedding testbeds and measurement standards through multi‑year collaborations (for example, with NTT and NTT DOCOMO). Public press releases and research collaborations — including lab demonstrations at sub‑THz bands — indicate Keysight is already a preferred instrumentation partner for cutting‑edge wireless experiments.Keysight Newsroom - Keysight to Collaborate with DOCOMO and NTT to Advance 6G NASDAQ Press Release - Keysight to Collaborate with DOCOMO and NTT on 6G

On security and compliance, Keysight completed the industry’s first PSA Certified Level 4 evaluation for Silicon Labs’ SiXG301 SoC, a high‑assurance benchmark that addresses regulatory and OEM demands for tamper resistance and side‑channel resistance. That capability opens a service line into certification and high‑assurance testing that has a different demand dynamic (project‑driven, higher margin per engagement and tightly tied to regulatory cycles).GuruFocus - Keysight Achieves Industry-First PSA Certified Level 4 Evaluation

Collectively these initiatives point to a durable addressable market: instruments and software for high‑speed digital interconnects, RF/sub‑THz wireless validation, and high‑assurance security testing. The commercial model mixes capital equipment sales (timing with customer deployment cycles) and recurring software/services (stickier revenue). The near term is exposed to cyclical capex in semiconductor and telecom; the strategic path shows a plausible reacceleration if end markets normalize.

Revenue and analyst estimate context — near‑term guidance vs medium‑term estimates#

Management guided (company commentary and analyst consensus summaries) toward roughly +7% revenue growth for FY2025, a figure that aligns with third‑party estimate medians that project FY2025 revenue around $5.34B and FY2025 EPS near $7.06 (analyst‑aggregated estimates in our data). Projecting to FY2027, analysts in the dataset show revenue near $6.02B and EPS roughly $8.85, implying multi‑year growth if realized. The company’s FY2025 implied growth from FY2024 to FY2025 is approximately +7.23% based on those consensus numbers (we calculate (5.3379 - 4.98) / 4.98 = +7.23%). [Estimates section — internal analyst aggregates]

There is a visible discrepancy between the reported long‑term revenue CAGR in some datasets (a conservative forecast near +2.51%) and the multi‑year analyst estimates above which imply higher CAGR (~+6% from 2024 to 2027). We flag this divergence: management guidance and near‑term indicators point to a modest rebound, while some modelers bake in slow secular growth. The difference matters for valuation inputs and strategic patience — it will be resolved only by subsequent quarterly execution and bookings trends.

Competitive dynamics and moat: test-and-measure incumbency plus ecosystem effects#

Keysight’s competitive advantage is built on measurement depth and an embedded ecosystem with silicon vendors, carriers and standards bodies. Being first to provide PCIe 6.0 pre‑production validation, establishing 6G testbeds, and achieving PSA Level 4 services is not only product capability — it is market access and workflow capture. When silicon and system OEMs choose Keysight tooling early in a product cycle, that often converts to software subscriptions, calibration services and multi‑year relationships that raise switching costs.

However, the competitive moat is not unassailable. Large instrument competitors and new entrants from test‑automation and cloud‑based validation firms can press on pricing and feature velocity. The key economic defense for Keysight will be the breadth of its ecosystem, the depth of its measurement IP, and the recurring portion of revenue from software and services. We also note that pricing power will track end‑market capex cycles: when customers pull back on capital spending, revenue and margins can compress quickly — an effect visible in FY2024.

Risks: tariffs, cyclical capex and acquisition execution#

Three quantifiable risks stand out. First, tariff exposure and supply‑chain shifts add a near‑term headwind; management signaled incremental tariff exposure of roughly $75M annually from recent measures and expects to mitigate via supply chain actions and pricing over several quarters. Second, the business is cyclical and tied to semiconductor and communications capex; a deeper-than-expected industry slowdown would extend margin recovery timelines. Third, acquisitions (FY2024 acquisitions net $681M) increase integration risk and execution demands; if M&A fails to accelerate organic growth, capital allocation could weigh on margins and returns.Investing.com - Keysight Q3 2025 Earnings Call Transcript

What this means for investors (no recommendations) — three practical implications#

First, treat FY2024 as a cyclical trough in operating leverage, not a permanent margin reset. The math shows gross margins remained healthy and free cash flow was strong, giving management choices to invest in product development, complete integration of acquisitions, and continue measured buybacks. Second, watch subscription and services growth as the primary signal of durable revenue reacceleration. If software and services revenue share grows, Keysight’s revenue volatility should moderate and margin expansion would likely follow. Third, monitor order intake and bookings cadence as a leading indicator for the capital equipment cycle — the company reported quarter‑level order strength in recent quarters, and a reacceleration in bookings would confirm the FY2025 guidance trajectory.AInvest - Keysight Technologies Q3 2025 Earnings Coverage

Key takeaways#

Keysight’s FY2024 results show material margin compression and top‑line decline (revenue $4.98B, -8.88%; net income $614M, -42.17%), yet the company retains healthy cash generation ($898M FCF) and a conservative net leverage profile ($234M net debt). Strategic initiatives — PCIe 6.0 validation for AI data centers, 6G collaborations with NTT/Docomo, and the PSA Level 4 security capability — create a credible multi‑year addressable market. The near term will be decided by bookings, cadence of semiconductor/telecom capex recovery, and management’s success at offsetting tariff impacts.

Conclusion: the investment narrative is now execution on secular odds#

Keysight sits in an enviable strategic position across several secular themes that matter to modern electronics and communications. FY2024 was a reminder that cyclical dynamics and margin contraction can still dominate near‑term results. The balance sheet and cash‑flow profile allow Keysight to invest, acquire, and return capital while it waits for end markets to reaccelerate. The next 4–6 quarters of order trends, software/service revenue mix expansion, and progress on tariff mitigation will be decisive in determining whether FY2024 represents a temporary trough on the path to improved margins or a longer stabilization at lower operating leverage.

For a deeper look at contracts and product launches underpinning the strategy, see Keysight’s newsroom releases and the firm’s multi‑year 6G collaboration announcements.Keysight Newsroom - Keysight to Collaborate with DOCOMO and NTT to Advance 6G GuruFocus - Keysight Achieves Industry-First PSA Certified Level 4 Evaluation