Keysight at Morgan Stanley Conference: Growth and AI Prospects

On Wednesday, 05 March 2025, Keysight Technologies (NYSE: KEYS) participated in the Morgan Stanley Technology, Media & Telecom Conference, presenting a strategic overview that highlighted both promising growth avenues and ongoing challenges. Neal Doherty, the company’s CFO, outlined Keysight’s initiatives to leverage its comprehensive solutions to outpace market growth, while also addressing the hurdles in the automotive sector and broader wireless market stabilization.

Key Takeaways

• Keysight targets long-term growth of 5% to 7%, surpassing market expectations.
• Significant opportunities in AI and wireline markets are driving growth.
• Challenges persist in the automotive sector, but recovery is noted in semiconductors.
• The company plans to maintain operating margins of 31% to 32% beyond 2026.
• Keysight is actively pursuing acquisitions to enhance its design engineering software capabilities.

Financial Results

• Long-term growth targets are set at 5% to 7%.
• Operating margins are projected to reach 31% to 32%, potentially beyond 2026.
• The company aims for 40% operating leverage with business growth of 5% or more.
• Keysight generated nearly $1 billion in cash last year.

Operational Updates

• AI and Wireline: AI is a key driver of wireline growth, with Keysight serving network silicon manufacturers and hyperscalers.
• Wireless: The market has stabilized at a lower level compared to 2021-2022, with ongoing investments in 5G and early 6G research.
• Aerospace and Defense: There is strong political alignment for increased defense spending, especially among NATO allies.
• Industrial: The automotive sector faces challenges, particularly in EVs, while the semiconductor and general electronics markets show resilience.

Future Outlook

• 6G Deployment: Commercial deployment is anticipated around 2029-2030, with significant R&D ramp-up expected in 2026-2027.
• Acquisitions: Keysight is working to finalize the Spirent acquisition by April 30, with necessary divestitures for regulatory approval.
• Tariffs: The company is not concerned about direct tariff impacts from Canada, Mexico, or China but is monitoring broader tariff implications.

Q&A Highlights

• Aerospace and Defense Exposure: Half of the exposure is to the U.S., with the remainder global, mitigating concerns over DoD efficiency impacts.
• Internal Use of AI: Keysight employs AI to manage large data sets and enhance efficiency in software and sales processes.

For a detailed understanding of Keysight’s strategic direction and market positioning, refer to the full transcript below.

Full transcript - Morgan Stanley Technology, Media & Telecom Conference:

Nita Marshall, Networking Space Analyst, Morgan Stanley: A working lunch is what we’ve got going on. So for important disclosures, please see the Morgan Stanley Research Disclosure website at morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley sales representative. I’m Nita Marshall. I cover the networking space here at Morgan Stanley.

We’re delighted to have Keysight and Neal Doherty, CFO, here with us today. Thanks so much for being here.

Neal Doherty, CFO, Keysight: Yes. Thanks for having us.

Nita Marshall, Networking Space Analyst, Morgan Stanley: Great. Maybe diving in, you’ve kind of seen a reacceleration, a return to growth after a tough kind of 2024 really. As you think about emerging from that, has it changed your perspective on kind of what the market growth is? Yes.

Neal Doherty, CFO, Keysight: I think at the highest level, the answer to that question is no, right? If you go back to 2023, our Analyst Day in March, we outlined what we thought was going to be kind of the over the cycle growth rates for the end markets in which we participate. So commercial comps, four to six. Percent, certainly within that market, we’ve seen the mix shift between wireless and wireline here recently, but I don’t know that it’s changed our view on the overall growth rate of that market again over cycles. Aerospace defense, market is growing GDP, GDP plus kind of rates 3% to 4% and then on the industrial side, again similarly a 4% to 6% growth rate over time and then at Keysight, we always look to outperform those market growth rates and that’s what’s led us to put out external targets in the 5% to 7% range for Keysight.

And then I think if you want to go deeper than that, you need to look at what’s happening in each one of these markets in the environment that we’re in. And what we’ve said is that right now, we’re expecting kind of a gradual recovery off of the trough that we’ve been over the last period of time. And some of that is because these end markets in which we serve, they’re not coming out of this in phase with one another where we have different markets that are in different stages. And I think if I step back from Keysight, that’s been more the norm is that the diversity of Keysight, you tend to have some markets that are inflecting positively, whereas others might be in various other states. So kind of stepping through them on the commercial comp side, we talk about wireless and wireline.

Wireline, obviously, the high point at this point driven by AI and the evolution of Ethernet speeds and the investments that are happening in data center. We have a lot of touch points within that end market. Clearly, the highlight of kind of our market exposure at this point. I think on the wireless side, what we’re seeing is stability albeit at a lower level than we were at in the ’22 or 2021, ’20 ’20 ’2 timeframe. We are between five gs and six gs clearly, but there is we’re still on the early instantiations of five gs.

There are multiple revs of the standard that still need to come out before we get to six gs. They’re going to drive incremental waves of investment and things like reducing power consumption, non terrestrial networks, starting to think about AI at the edge are going to create opportunities for investment within the five gs ecosystem. And then we’re already seeing the early stage research in 6G. So kind of stable at a lower level for now and that’s our base case as we think about it through the remainder of the year. On the aerospace defense side, I think we’re bullish about the intermediate to long term opportunity in aerospace defense.

We’re certainly seeing NATO allies commit to spend at a higher investment, higher percentage of GDP. There seems to be broad political alignment between the Democrats and the Republicans in The U. S. On the need to invest in defense technology, which is good for us. In the short term, there can be turmoil, particularly when you see change in presidential administration.

So we saw a little bit softer orders within the quarter. I think most of that is just things pushing out. We’ll get those we’ll get that business here later in the year. We have a high degree of confidence.

Nita Marshall, Networking Space Analyst, Morgan Stanley: Got it. I mean, when you think about your kind of target longer term growth rate of 5% to 7% versus an industry kind of growing 4% to 6%, does that excess growth come from market share gains or just participating in better markets?

Neal Doherty, CFO, Keysight: Well, I guess by definition, it’s share gain, obviously, if you’re outgrowing the market. And I think because of the breadth of our portfolio, it’s hard to say it’s the latter, because I think we actually see the opposite of that. Sometimes you’ll see some competitors that have a narrow portfolio or a narrow market focus and they underperform when that niche that they’re in is on the downside and they over perform when that niche that they’re in is in the upside. We have such broad exposure to these end markets and a unique ability to service them end to end and up and down the stack that I think it’s that that’s allowing us to outgrow the markets. We can bring complete solutions to the marketplace that address the specific challenges of these industries.

Whereas if they choose if our customers choose not to go to Keysight, in many cases, they’re having to cobble together a solution that includes components from three or four of our competitors. And so that’s a competitive differentiator from us. For us, it allows us to more specifically target the challenges of the industries that we serve.

Nita Marshall, Networking Space Analyst, Morgan Stanley: All right, perfect. Maybe diving deeper into the AI opportunity for Keysight. We hosted a tech talk with you guys last year. You’re talking about kind of a broad opportunity to participate in the AI market. Just where are you seeing the biggest opportunity today?

And is it kind of concentrated or is it broadening out?

Neal Doherty, CFO, Keysight: Yes. So first of all, I think we see the AI space is still highly concentrated, right. A lot of the activity is being driven by four or five names, the hyperscalers and then obviously the NVIDIA ecosystem. That being said, there are a lot of parallels as you think about Keysight’s presence in that wireline space and how we enabled five gs and I’ll just draw that link for a second. If you think about five gs, we talked about serving all the component and chipset manufacturers, the folks that are making handsets, the folks that are making network equipment including the big push into O RAN and the disaggregation of the network.

And then we have a smaller business, but we have a business with the service providers themselves. Now you just kind of take that framework and you think about it on the wireline side, we sell to the folks that are doing network silicon, we sell to the folks that are doing the transceiver the optical transceiver space, we sell to the folks making network equipment and then we sell to the hyperscalers themselves. And so again a lot and I skipped one, we also sell to the folks that are doing connectivity cabling and connectors. And so there are a lot of touch points within that ecosystem, but AI is the broad driver that is driving wireline across the board. And so it’s a unique ability to again service an ecosystem, not just at the physical layer where Keysight has been historically strong, but now with protocol level solutions as well.

Nita Marshall, Networking Space Analyst, Morgan Stanley: Okay. I mean, I’ve used you guys as resources to kind of explain some of those data center technology. You guys have a lot of expertise kind of in house. Just are there other areas of testing that your customers are asking you to get into as they try to kind of build these more complex networks?

Neal Doherty, CFO, Keysight: Yes, I mean, absolutely. I think we’re finding a lot of new touch points and I’ll give you an example of something that’s exciting. One of the more exciting things that we’ve kind of market with still relatively small because the product has only been on the market here for a couple of quarters. But the hyperscalers are spending big dollars deploying these data centers. And what they want to be able to do is have that data center deployment be as efficient as possible.

And so we’ve come up with solution, which we’re selling to the hyperscale. This essentially allows them to model their AI workloads in a lab environment. So they can fine tune how the data flows across those networks, optimize the data center design and then ultimately deploy a more efficient network. So that’s one there are others as well, but that’s one that’s already in the marketplace of how we where we were able to go in, see a challenge that an industry is facing, look at technology that exists across Keysight and provide a solution that addresses a specific challenge.

Nita Marshall, Networking Space Analyst, Morgan Stanley: All right, perfect. Maybe moving to the wireless side of the business, you kind of mentioned we’re in between cycles, but we get this question of just where are we in terms of the five gs cycle? Has investment peaked? And just what kind of keeps five gs investment going as we wait until we get to six gs?

Neal Doherty, CFO, Keysight: Yes. So I mean, I think it’s true. We’ve seen we’ve likely seen industry CapEx has peaked, right? The big nations have deployed their first five gs networks. There’s still a lot of places where five gs is not available.

So we’ll continue to see five gs rollouts, but the big investments in China, in The U. S, in Japan, in Korea have happened, right? Now it’s important to note that we’re still on the first instantiations of five gs. So just reminding everybody you go back to prior versions, we had three gs, 3.5 gs, 3.9 gs, LTE, LTE Advanced, five gs Advanced is coming. So you ask what drives what’s continuing to drive investment.

And I think that’s important. These are big markets. They’re big markets for Keysight. And so while we’ve seen some pullback in our business over the past couple of years, this is still a big revenue driver for our company. And so they’re investing in the additional technology development that’s coming out in these new reps of the standard.

So things like reduced capacity, reduced power usage, non terrestrial networks, AI at the edge, early six gs research kind of trial balloons as you look forward to six gs being kind of defined in Rev 21 of the 3GPP standards. So there’s and then so a lot of that is about adding feature sets and optimizing these five gs deployments that have already been made. And again, just putting into context long, long cycles. We still have hundreds of millions of dollars of four gs business that we’re doing. And so we’re still in the middle of five gs is how I would like to describe it.

Nita Marshall, Networking Space Analyst, Morgan Stanley: Okay. A question we tend to get is your exposure to R and D versus production on the wireless side. We’ve thought about 30% as a proxy kind of for the production exposure. But maybe it would be helpful to kind of outline the split and kind of any specific where kind of we should think about those like production exposures, particularly as we think about some recovery on that wireless side?

Neal Doherty, CFO, Keysight: Yes. So I tend to think about 30% as the rough exposure for manufacturing at the Keysight level. And what we tend to see is higher exposure to manufacturing on the industrial side of our businesses than on the communications side of our business. So the we haven’t put out a number, but on the wireless side it’s less than 30. And on the wireline side it’s historically been even more heavily skewed towards R and D than on wireless.

I think it’s well noted over the past several years that Keysight has gotten out of the handset manufacturing test business. We have no exposure to testing handsets at this point in time. So what are we doing in the manufacturing space? We’re testing components and chips. They go into handsets, they go into network equipment and then we do some of the network equipment test in manufacturing as well.

And essentially we’re focusing on places where the cost of failure is relatively high. And so the cost of failure of components and chipsets are high because the handset players have a lot of power and you don’t want to be the reason why big handset manufacturers had a challenge, right? And so there’s a lot of risk in the game. So they test those components and chipsets to a very high degree. Cost of failure on a piece of network equipment is high because once you deploy it out in the field, you got to send somebody out, they got to climb up a tower, there’s a big repair cost.

The cost of failure in the handset market is very low because there’s a handset store on the next corner for just about everybody in the developed world. And you couple that with the fact that the failure rates are so low that it’s easier to place the rear broken handset than it is to it’s cheaper than testing doing a complex level of test. So we’ve walked away from that market and are focusing on areas where there’s more value add.

Nita Marshall, Networking Space Analyst, Morgan Stanley: Okay. And a sign that I’m getting old, I’m going to ask you about six gs.

Neal Doherty, CFO, Keysight: Okay. Yes.

Nita Marshall, Networking Space Analyst, Morgan Stanley: Which I figured I would never have to ask about. Can you just outline how you see that opportunity today? Just kind of what are milestones we should be thinking of? Or when can we really be having a conversation about six gs? And just do you see that competitive you gained a lot of share in five gs?

Just how do you see the competitive environment shaping up for six gs?

Neal Doherty, CFO, Keysight: Yes. I mean, I think, first of all, so where are we in six gs? At Keysight, we think about six gs deployment from a commercial perspective probably happening sometime 2020, ’20 ’20 ’9, ’2 thousand and ’30 maybe with some reasonably sized trials in 2028. People sometimes point to the LA Olympics in 2028 as a place where you might see some sort of a reasonable trial of six gs technology. And so from a Keysight perspective, you think about developing all of the components, devices, network equipment that are going to meet a deployment sometime in the 2029 timeframe.

And us as a provider into the R and D labs, you need to back up twenty four to thirty months. So that puts you somewhere twenty six, twenty seven we’re likely to see meaningful ramp. Now what we are already seeing today and we have a 60 business that we measure in the kind of high tens of millions of dollars kind of it’s we characterize capital R, little d, right? This is research. They’re working with standards bodies to define what six gs is going to look like, what’s going to be included, what are how do they beat some of the physics challenges that are likely to exist as you move from five gs to six gs.

And so we’re starting to see that activity. As you noted, we gained significant share during five gs. And all I’ll say is I think we feel pretty good about our positioning going into six gs. I think one of the benefits of Keysight and the work that we’ve done to improve our financial model over the years is we’ve just kind of been through the downside of the cycle, but we still maintain operating margins 25%, twenty six %. We generated close to $1,000,000,000 of cash last year and we did that without taking our foot off the gas and R and D.

And so we have been very focused on making sure internally within Keysight that we hit those 60 market windows and we have the right portfolio of products coming to market over say the next twelve to twenty four months to to capture the market window. So we feel pretty good about where we’re positioned, but it’s very early days.

Nita Marshall, Networking Space Analyst, Morgan Stanley: Okay. Moving back to Aerospace and Defense, this has clearly been a strong market for you guys over the years. You mentioned kind of everything we’re seeing currently in the political environment might affect timing, but generally you see kind of a strong environment. Just what kind of gives you confidence that this can continue to be a source of strength?

Neal Doherty, CFO, Keysight: Yes. I mean, I think I touched on a couple of things, right? It’s the left and the right of The U. S. Don’t agree on a lot, but we have now seen seven or eight consecutive U.

S. Budgets with the increases in defense spending. And of course, that’s across both the Trump and Biden administrations to both various combinations of control in Congress. And so there’s this political alignment and I think there’s a recognition that in the world of modern warfare, there are significant technology gaps in The U. S.

That need to be plugged and they’re working to address those. And not just in The U. S, similar investments are being made around the world. Obviously, you saw during the first Trump administration him starting to put pressure on NATO allies to meet their commitments in terms of defense spending as a percent of GDP. So we’ve seen that start to happen and now there’s further pressure for them to increase.

And I think there’s continued nervousness about the particularly over the last week or so about the Russian Ukraine situation and Europe may be having to take a greater responsibility for securing defense within Europe. And so I think we’re likely to see increased spending across the allies and sustained investment particularly on the technology side of things here in The U. S. And so again the business can be a little bit difficult to call quarter to quarter because you’re dealing with governments, you’re dealing with politics, but it tends to be easier to call over the longer term for these reasons. And the fact that once you’re in these programs, they can be decades long kinds of programs.

So there’s a stability factor that comes with that.

Nita Marshall, Networking Space Analyst, Morgan Stanley: Okay. And just reminding investors of kind of what that A and D business looks like between U. S. And international?

Neal Doherty, CFO, Keysight: Yes. So our business that we at the highest level you’d say maybe 50 U. S. 50 percent international. But I think you need to then take into account that a lot of the allies are buying product out of U.

S. Programs. So if you cut it a different way, you’d say maybe 65% of the business for us is in some way linked to U. S. Programs even if the end destination is an offshore entity.

Nita Marshall, Networking Space Analyst, Morgan Stanley: All right, perfect. Maybe on the fiscal Q1 call last week, you talked about kind of broadening the customer base of ESI, one of your acquisitions you did last year or might have been late twenty twenty three. You talked about broadening that customer base into aerospace and defense and kind of other areas of the business. Can you just remind the audience of kind of what ESI does and just the process of selling that business into other vertical?

Neal Doherty, CFO, Keysight: Yes, absolutely. So maybe step back even a step further. Keysight is working to build out a franchise around design engineering software. We’ve had a long term presence in that space back into the early 1990s with our RF and Microwave EDA business. We have the number one franchise in RF and Microwave EDA.

But what we recognize is that our engineering customer, particularly as the ability to do digital twins and model and emulate various different types of systems, As the simulation and emulation models have gotten dramatically better over the last several years, there’s a desire for our engineering customer to spend more time upfront in the design process simulating, emulating digital twinning if you want to use it as a verb because those models are so much better before they build expensive prototypes. And so what we’re looking to do is connect that ecosystem, get Keysight get customers using Keysight simulation and emulation tools, but we need a broader portfolio of them before they build prototypes and ideally build by Keysight’s hardware and software solutions to test physical prototypes. And so with that EDA business as a core, we went out and bought ESI, which is a kind of physical modeling capability that was focused in the auto industry. Their number one market was in crash test, but that gives them the ability to model complex physical types of things to deal with things like heat and vibration. And so a lot of core capability that we directly apply to a market which we’re already focused on in automotive, but we see as extensible into these broader modeling capabilities and had direct extensibility into industrial and aerospace defense end markets.

So that business has been with us now for about a year. It’s a high recurring revenue software business and I think we’ve seen that play out as expected. I did say on the call that the one kind of downside if you will was with the auto markets being depressed, we didn’t see quite as much upsell as we were expecting. But we were able to offset some of that because we’re starting to see uptick with these aerospace defense customers and industrial customers adopting this tool. A bit of a longer sales cycle, particularly when you’re taking a tool that’s primarily been focused on one industry and introducing it to a brand new set of players, but we’re pleased with the traction that we’re getting.

And then just continuing the thought about Keysight building this design engineering platform. We have a couple of additional pending acquisitions out of the SynopsisAnsys acquisition, buying optical simulation tools and power simulation tools. Again, as we look to build a more robust suite of simulation and emulation capabilities.

Nita Marshall, Networking Space Analyst, Morgan Stanley: Okay, perfect. Kind of rounding out the businesses on EISG, you’ve seen strength from the memory markets over the past couple of quarters. Obviously, the EV market, as you just mentioned, has been a laggard. Just kind of where do you see the prospects of that business? And just where do kind of foundry or kind of this decoupling of the semi market kind of how does that play into the opportunity?

Yes.

Neal Doherty, CFO, Keysight: So if you think about our industrial business, we kind of subsegmented into three areas automotive, semiconductor and then broad general electronics. And I’ll touch on each of those. I think we’ll start with the one that’s as you say the laggard. I think we can even further sub segment our auto business into the third that’s historically been manufacturing driven, the third that’s roughly EV driven and then what we call the software defined vehicle. And so the manufacturing piece, we test populated PC boards that go into all kinds of vehicles, ICE, electric, it doesn’t really matter.

You can think of all of the electronic content that’s in these vehicles. That business has been soft now for twelve to eighteen months as manufacturing production volumes have fallen off. Have a high degree of confidence given the differentiator of our solution that when those markets recover, we will recover with them. On the EV side, I think that market has also been soft. I think OEMs are questioning the need to make the big investments in battery development when it looks like they’re going to be relatively low cost ways to purchase batteries.

And so I think there’s an industry question out there about do the auto OEMs around the world feel this is technology they need to own versus technology they’re going to buy? And I don’t think the industry has decided on that. So I think that’s a watch for us. I think the good news is that business has been soft now for a while. So we’re significantly derisked.

Not a lot of downside. We may miss out on future upside, but there’s not a lot of downside from where we are today. And then the software defined vehicle and in that we would include everything from ADAS to in car networks to the complex infotainment system, the complex sensor networks that are in vehicles. That business has been pretty stable throughout this whole time. And particularly as we look to ADAS, I think there’s a lot of positive things to come.

Moving on from auto into semi, I think we’re starting to see a rebound in semi particularly on our parametric test portion of our business. That’s a foundry business. Some of these big foundry programs in Arizona and Texas and Ohio that were on hold are starting to pick back up and we’re starting to see and not just in The U. S. And other places around the world, we’re starting to see kind of a reinvestment in semi capacity.

I think the intermediate to long term outlook on semi is great, not just driven by AI and six gs, but just the digitization of everything. So we’re pretty optimistic about that market. And that leads you then to this general electronics market, which is kind of a if it’s not aerospace defense, it’s not communications, it’s not auto and it’s not semi. All the other electronics around the world fit into this general electronics bucket. So it’s a really, really broad set of things.

We’ve seen strength recently in med tech. We’ve seen strength in advanced research in the education markets. We’ve seen outside of China, we’ve seen normalization of the distribution channel, which has been challenged over the last eighteen to eighteen ish months. Still a couple of quarters probably to go to get normalization of the channel in China, But feel pretty good that we’re kind of working through some of the challenges in that space and are seeing some positive signs.

Nita Marshall, Networking Space Analyst, Morgan Stanley: Okay. Got it. Maybe kind of moving on to the P and L. Just on operating margins, your target is 31% to 32%, but you mentioned kind of achievement of that might slip past 2026. So what are some of the factors in considering kind of thinking about operation operating margin expansion?

Are 40% incrementals on 5% growth rates still kind of the way to think about that?

Neal Doherty, CFO, Keysight: Yes. So a couple of important points in there. So we did put out this 31% to 32% operating margin target or Analyst Day in 2023. Not the best timing in the world considering what happened in the markets in the quarters that followed that. But we’re not backing off of that target.

I think it’s pretty clear at this point that we’re going to have to push out the timeline from 2026. But we definitely see a path to get there. Our base model calls for us to look for 40% operating leverage when our businesses grow 5% or more. And so I think that is still an accurate way to think about it. But one of the things you can see through looking through our history that there are points in time where growth is materially above 5%.

And when it is materially above 5%, we can often overachieve on that 40% incremental. So if you start thinking about closing the gap from where we are today in the mid to high 20s up to 31% or thirty two two. If you want to accelerate that, we’re going to need some periods of time where growth accelerates. I think the other thing that can help us is as we get these acquisitions closed and start to fold them into our business, both the Spyran business, which is a pending acquisition that has north of 70% gross margins. And then the two businesses who are buying out of the SynopsysAnsys acquisition, those are software businesses with very high gross margins as well.

So the extent that we can leverage our sales channel, leverage our low cost back office, those things to have a chance of on a post integration basis to turbocharge earnings growth.

Nita Marshall, Networking Space Analyst, Morgan Stanley: Got it. Maybe just a question, obviously very topical this week just around tariffs and how to kind of think about where your exposure lies or kind of how to contextualize how you’re looking to mitigate any potential exposure?

Neal Doherty, CFO, Keysight: I don’t have a crystal ball, right? It’s a crazy time. But I can say that Keysight as a whole, we do not have measurable exposure in Canada, Mexico or China. So we’re not worried about direct first level tariff impacts from those regions. We’re more worried about macro or industry specific impacts which frankly could be positive or negative.

The negative I think is obvious, but as people potentially look to make investments to shift supply chains and responsive tariffs, there could be some positive responses as well. I think as Trump talks about broader tariffs or reciprocal tariffs, our primary finished goods manufacturing is in Malaysia. And so we’ll be watching that very carefully. There are other areas around the world where we do some manufacturing. And so I think it comes the devil is in the details, not just which country, but how are those tariffs structured?

Do they target specific industries? How do they deal with U. S. Content? All of those things.

And we’re monitoring the situation very closely, thinking about potential contingencies, but right now not taking

Nita Marshall, Networking Space Analyst, Morgan Stanley: acquisitive. You have a number of acquisitions that are kind of pending. Just kind of status of the pending acquisitions maybe to start with?

Neal Doherty, CFO, Keysight: Yes. So I think again kind of stepping back, we’ve always had desire to continue to grow our business properly through M and A. I think we’re disciplined acquirers. And so if you go back to 2021, ’20 ’20 ’2, valuations were sky high. We didn’t do a lot of deals of size, right?

We did some tuck ins here or there and kind of bided our time. And I think we’re pleased that as this market correction in our space has come, I talked earlier about keeping our foot on the gas from an R and D perspective. The other thing we were able to do is maintain Tri Powder and act on some acquisitions. You mentioned ESI, software acquisition, Spirent, the SynopsysAnsys acquisitions and get some opportunities that we felt were pretty favorable valuations that better return hurdles. And so I think we paid that patience, that discipline is set to pay for itself.

I think that we have three deals right now that are tied up in various regulatory schemes. First is Keysight’s acquisition of Spirent. We are working very hard to get that acquisition closed by the end of our first half which will be April 30. We did announce earlier this week that there is we’d announced previously there’s a divestiture that’s going to be required to get that acquisition closed. We now have a signed contract with the buyer, Beavi, to buy the high speed Ethernet business and security business that is part of Spirent.

And so we’re continuing to work with there’s a decision date with the CMA coming up on March 13. So we’re continuing to work with the regulatory authorities to advance towards that April 30 date. SynopsisHansa similarly they’re working through their process. I believe I saw an announcement this morning that they got a decision out of the CMA that’s positive. They’ve gone and raised capital.

So again, I think we take that as a positive sign that their confidence is increasing. And but these things are unpredictable. So we’re both we’re all continuing to work it and advance it and we’ll see.

Nita Marshall, Networking Space Analyst, Morgan Stanley: Okay. Can I just ask a clarifying question there? Just the size of the is what you sold the entire network and security business out of Spirent or just a portion?

Neal Doherty, CFO, Keysight: Well, so let’s talk about what we I believe the precision location business was actually managed within that security portfolio. So what we’re the primarily what we’re keeping are the two things we most coveted Their network assurance business which is a business on deployed networks, it’s just a kind of a gap in our portfolio and precision location which we believe is going to be increasingly important as you move from five gs to six gs as well as in these aerospace defense end markets having this precision location capability.

Nita Marshall, Networking Space Analyst, Morgan Stanley: Okay. All right. Any questions from the audience?

Unidentified speaker: Yes. Yes. I just wanted to ask about your defense. I think investors might have a misunderstanding of the exposure that perhaps it’s subject to risk of Doge efficiency improvements that the U. S.

Government is trying to make. I think you guys also have a very large foreign exposure. And my guess is the things that you guys attack in The U. S. Are strategic areas for The U.

S. To invest, but maybe you could just speak a little bit about that?

Neal Doherty, CFO, Keysight: Yes. So as I said earlier, about half of the exposure is to the rest of the world and about half of it is U. S. Both direct to the government as well as to the prime contractors. I think obviously the Doge has not yet really turned its focus to the Pentagon.

But I would say that based on what we know today, we’re not overwhelmingly concerned, right? I think they’re going to look for gross inefficiencies in the procurement process within the DoD, but are unlikely to target the kinds of technology driven investments advancing things like electromagnetic spectrum operations, communications networks, these secure communications networks, the types of things that are necessary in modern warfare, I think are unlikely to be the targets of Doge. So So never say never. We don’t honest answer is, as I said earlier, there’s a lot of chaos. We don’t really know.

But right now, we do not have a tremendous concern about exposure from things like Doge. Again, the broad political alignment in The U. S. And new commitments externally to invest in defense technology. And I think that bodes well for Keysight going forward.

So we’re bullish on the outlook over the intermediate to long term.

Nita Marshall, Networking Space Analyst, Morgan Stanley: All right. Perfect. Maybe last question that we’re kind of asking everybody at the conference. Just how are you using AI internally within Keysight? And or how are you looking to use it over the next couple of years?

Neal Doherty, CFO, Keysight: Yes. It’s a great question. I think we have kicked off an AI initiative within Keysight that has three prongs. So the first one we’ve already kind of talked about which is Keysight as a or AI as an end market, right? How do we maximize Keysight’s participation in this market boom that’s being driven by AI?

We’ve talked a lot about that. The second prong of this three pronged approach is how do we use AI within our complex solutions to provide better outcomes for our customers, right? The as many of you know AI is really about manipulating large data repositories and the solutions that we make throughout tremendous amounts of data. A high end precision instrument would sample at the rate of 200,000,000,000 precision measurements per second. So you do have a big data problem.

And so the question is how do you use AI within these test and evaluation environments to provide better outcomes to your customers. And so we’ve got a stream that’s on that. And then the third one is how to use kind of AI within the four walls of Keysight to drive efficiency, right? And I think we’re in the early stages, but I think the most promising areas focus on the efficiency of our software coders, for example, or to how do we mine our sales ERPs to get to for the most robust customer information so that we can turbocharge our sales and funnel development environment. But and then beyond that you start to look at things like G and A infrastructure, finance, HR, how do you use AI tools to drive cost efficiencies within the environment.

Nita Marshall, Networking Space Analyst, Morgan Stanley: All right. Perfect. We’re excited to see what comes up for Keysight and thanks so much for being here today. I appreciate it. Thank you.

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