Electronic measurement provider Keysight (NYSE: KEYS) fell short of the market’s revenue expectations in Q1 CY2025, but sales rose 7.4% year on year to $1.31 billion. Its non-GAAP EPS of $1.70 per share was 3.3% above analysts’ consensus estimates.
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Keysight (KEYS) Q1 CY2025 Highlights:
- Revenue: $1.31 billion vs analyst estimates of $1.28 billion (7.4% year-on-year growth, 1.8% beat)
- Adjusted EPS: $1.70 vs analyst estimates of $1.65 (3.3% beat)
- Revenue Guidance for Q2 CY2025 is $1.32 billion at the midpoint, above analyst estimates of $1.30 billion
- Adjusted EPS guidance for Q2 CY2025 is $1.66 at the midpoint, below analyst estimates of $1.69
- Operating Margin: 15.8%, up from 14.6% in the same quarter last year
- Free Cash Flow Margin: 35%, up from 6.1% in the same quarter last year
- Market Capitalization: $27.28 billion
StockStory’s Take
Keysight’s first quarter performance was shaped by rising demand across its core communications and electronics markets, with particular strength in commercial communications and a return to growth in its electronics industrial unit. CEO Satish Dhanasekaran pointed to double-digit order growth in wireline infrastructure, driven by expanding data center and AI-related applications, as well as solid demand in aerospace and defense, especially from U.S. and European customers. Management noted that the company’s diversified supply chain and ongoing investments in design engineering software contributed to resilience amid a dynamic environment. Dhanasekaran highlighted, “Our innovation pipeline is driving a steady cadence of new products and solutions,” and credited the company’s ability to adapt operations and meet evolving customer needs for its positive order trends.
Looking ahead, Keysight’s guidance for the coming quarter is underpinned by continued momentum in AI-enabled data center infrastructure, further R&D investments by customers, and a robust backlog position. Management expects the rollout of new networking standards and increased adoption of simulation tools to support ongoing revenue growth, despite uncertainty from tariffs and global macroeconomic risks. CFO Neil Dougherty emphasized, “We estimate our annual [tariff] exposure at approximately $75 million to $100 million,” but indicated that mitigation strategies are in place to reduce the impact by year-end. The company is also progressing with several acquisitions aimed at expanding its software and industrial design offerings, which management believes will enhance its ability to capitalize on long-term technology trends.
Key Insights from Management’s Remarks
Management attributed the quarter’s results to strong demand in data center infrastructure, new product innovation, and steady execution in core end markets despite tariff headwinds.
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AI and data center demand: Keysight experienced significant order growth in wireline infrastructure, fueled by ongoing expansion of data centers supporting artificial intelligence workloads. The company’s solutions for high-speed data transmission and protocol testing saw increased customer interest as new networking standards are deployed.
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Aerospace and defense strength: Orders from U.S. and European defense agencies rose, driven by investments in spectrum operations, radar applications, and modernization programs. Keysight secured notable wins, including a major European defense contract for advanced testing systems and a U.S. Army project for network security validation.
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Software and services momentum: The design engineering software segment grew at double-digit rates, benefiting from expanded adoption of simulation and prototyping tools in industrial and electronics markets. Management highlighted recent acquisitions, such as ESI, as supporting growth in recurring revenue and customer engagement earlier in product development cycles.
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Tariff impact and mitigation: New tariffs impacted margins by raising costs, but management stressed that a global supply chain and cost-control measures are expected to offset most of the impact by the end of the year. Price adjustments on new orders and operational realignments are underway, though existing backlog is not being repriced.
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Automotive and industrial trends: While automotive demand softened, with particular weakness in China, customer engagements for software-defined vehicles and energy management systems continued. Multi-industrial and medical technology markets saw growth, partially offsetting softness in education and traditional manufacturing channels.
Drivers of Future Performance
Keysight’s outlook is shaped by robust AI-driven infrastructure demand, ongoing product innovation, and proactive tariff mitigation measures.
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Sustained AI and data center growth: Management expects continued expansion in AI and high-performance computing applications to drive demand for Keysight’s electrical and optical test solutions. The rollout of new data center networking standards and increased R&D spending by customers are seen as ongoing growth engines.
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Operational resilience and margin focus: The company is actively mitigating tariff impacts through supply chain adjustments, cost controls, and pricing changes on new business. Management anticipates that these actions will allow margins to recover as the backlog turns over and new order pricing takes effect by year-end.
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Acquisitions and software expansion: Keysight is progressing with the acquisition of Spirent and other software-focused businesses, aiming to enhance its portfolio in industrial simulation and recurring revenue streams. Management believes these moves will improve Keysight’s positioning in key end markets and support its long-term growth targets.
Catalysts in Upcoming Quarters
In the coming quarters, the StockStory team will be monitoring (1) the pace of AI-related data center and wireline infrastructure growth, (2) the effectiveness of Keysight’s tariff mitigation and margin recovery, and (3) integration progress and revenue synergies from the Spirent and other pending acquisitions. We will also watch for signs of stabilization in automotive and industrial end markets and the expansion of recurring software revenue.
Keysight currently trades at a forward P/E ratio of 21.8×. At this valuation, is it a buy or sell post earnings? Find out in our full research report (it’s free).
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