Keysight's Next Hurdle: Turning Growth into Sustainable Margins

Keysight Technologies is a global leader in electronic design and test solutions with a strong moat. The company has experienced a decade-long record of revenue growth, strong cash generation, and leadership in EBIT. However, the next challenge for Keysight is to convert this growth into sustained margin gains.

Keysight Technologies, Inc. (KEYS), a global leader in electronic design and test solutions, is set to report its third-quarter fiscal 2025 results on August 19. The company has experienced a decade-long record of revenue growth, strong cash generation, and leadership in EBIT margins. However, the next challenge for Keysight is to convert this growth into sustained margin gains.

The Zacks Consensus Estimate for Keysight's revenues is $1.31 billion, indicating year-over-year growth from $1.22 billion. The consensus estimate for adjusted earnings per share is pegged at $1.68, suggesting an improvement from $1.57 reported a year ago. Analysts project that Keysight will announce quarterly earnings of $1.68 per share, representing a 7% increase year over year [1][2].

During the quarter, Keysight announced several key collaborations and advancements. AMD utilized Keysight's solution to test electrical compliance for pre-production AMD server CPUs, leveraging the company's 64 GBaud High Performance BERT and 59 GHz UXR-Series Oscilloscope. Additionally, Keysight collaborated with Synopsis to address pain points in radio frequency chip design, streamlining the migration process. These advancements are expected to generate incremental demand for Keysight’s solutions [1][2][3].

Keysight also announced that Japanese technology giant Fujitsu has opted to deploy the Keysight Quantum Control System in its 256-qubit superconducting quantum computer. The company delivered the world’s largest commercial quantum control system to the National Institute of Advanced Industrial Science and Technology in Japan, highlighting its growing prowess in Quantum Computing [1][2][3].

While the company's Zacks Rank is currently #3, indicating a "Hold" rating, the Earnings ESP for KEYS is 0.00%, with both the Most Accurate Estimate and the Zacks Consensus Estimate pegged at $1.68, the chances of an earnings beat are not conclusively predicted [1][2].

Analysts are closely monitoring Keysight's performance, with revenue estimates for the Communications Solutions Group segment at $909.4 million, indicating 7.4% year-over-year growth, and for the Electronic Industrial Solutions Group vertical at $401.3 million [1][2][3].

Keysight's challenge lies in converting its strong revenue growth into sustained margin gains. Over the past decade, while the company has expanded its capabilities through acquisitions, technology upgrades, and a greater software/service component, its core product–market mix has remained stable. The company is still anchored in two broad domains – communications and the electronics industry. These end markets and their relative contributions have not materially shifted. This is even as the underlying technologies evolved from 4G to 5G/6G, from ICE vehicles to EVs, and from conventional chips to AI-era semiconductors [3].

The company today reports its performance under 2 business segments: i) Communications Solutions Group (CSG) and ii) Electronic Industrial Solutions Group (EISG). The CSG segment builds testing gear and software that keep phone networks, data centers, AI-driven systems, and military & government communications running smoothly. The EISG segment provides tools that help car makers, chip companies, and electronics manufacturers develop and verify their products. Over the past few years, the CSG segment has been the biggest revenue contributor, accounting for about 69% of the 2024 revenue. Keysight is a global company in that the US only accounted for about 1/3 of its revenue over the past decade [3].

Revenue growth drivers from 2015 to 2024 were driven by a combination of organic growth and acquisitions. The company’s revenue grew at a 6.4% CAGR. While there were two years when revenue declined – 2020 and 2024 – the former was pandemic-related, while management attributed the 2024 decline to a challenging macroeconomic environment. Given that the first half of 2025 revenue is about 6% higher than that for the corresponding period in 2024, with a bit higher guided growth rate for Q3 2025, the revenue decline in 2024 seemed like a one-off situation [3].

Moving forward, the company’s historical growth rate can be sustained. This is because, in addition to a positive market picture, the company has the following competitive edges: i) Intangible assets. Keysight has proprietary software and patents, positioning it as a leader across core measurement platforms. ii) Switching [3].

References:
[1] https://www.ainvest.com/news/keysight-technologies-report-q3-results-revenue-growth-expected-boost-earnings-2508/
[2] https://www.tradingview.com/news/reuters.com,2025:newsml_L8N3U717O:0-keysight-technologies-inc-expected-to-post-earnings-of-1-67-a-share-earnings-preview/
[3] https://seekingalpha.com/article/4814220-keysights-next-challenge-converting-growth-into-sustained-margin-gains