Keysight (KEYS) Q2 FY26 earnings call: guidance and Q&A

How has the age of backlog changed with faster order trends, and how is the $500M-$600M AI opportunity split between wireline and components?

The backlog policy remains unchanged, with most business recognized within 6 months. The AI business is largely within the wireline segment, and the company participates broadly across computing, networking, transceivers, and hyperscalers, including scale-out opportunities related to transceivers.

“There's no change to our backlog policy. We still have majority of our business that we book and recognize in a quarter within a 6-month period of delivery.”

asked by Mehdi Hosseini · answered by Satish Dhanasekaran

Why is Q3 revenue guidance slightly down sequentially from Q2, and are customers buying differently, perhaps due to supply concerns, given the strong order growth?

Q3 guidance is based on scheduled shipments and in-quarter order conversion, with the second half expected to be materially above the first half. The strong order growth is broad-based, driven by AI, aerospace/defense, and semiconductors. For AI, there's a stronger sense of urgency from customers, but no discernible pull-forward of demand.

“The pace of revenue conversion is influenced by the mix and some timing of some new product introductions and how quickly we can ramp them. And particularly, I think we noted that we have a higher backlog in our AI business due to the strong demand in the first half.”

asked by Andrew Spinola · answered by Satish Dhanasekaran

Given the changes in the business, is the 5-7% long-term growth rate still appropriate, and is the strong gross margin (ex-tariff) durable?

The company's strategy, focused on organic growth, first-to-market innovation, expanding customer footprint, and navigating market dynamics, provides a multi-year runway. Management is confident in outperforming under various economic conditions and will update the long-term forecast later. The gross margin, excluding tariff impacts, in the mid-67% range is considered the right level at current volumes, post-acquisitions.

“I'm very confident of our ability to outperform under a range of economic conditions. But we'll keep you updated on the -- what that forecast should look like as we look ahead.”

asked by Aaron Rakers · answered by Satish Dhanasekaran

How are incremental margins tracking given they are near 50% vs. the prior 40% commentary, and how has the blend of business between production and lab changed with AI acceleration?

Incremental margins near 59% (core) are due to the high growth rate and tight expense management, outperforming the 40% expected for mid-single-digit growth. Both R&D and manufacturing components of the AI business doubled in the first half, indicating strong value propositions for both customer types.

“I think it has less to do with the acquisitions than it does with the high rate of growth, right? So we've talked for a long time about 40% incrementals on mid-single-digit growth.”

asked by Meta Marshall · answered by Neil Dougherty

How large is the non-terrestrial networks (NTN) and LEO opportunity, and why haven't acquisition revenue expectations increased despite improved end-market demand?

NTN is currently a smaller part of total revenue (sub-1%) but has strong growth potential as the ecosystem scales, with Keysight participating in component and emulation aspects. Acquisition revenue expectations remain at $375M for FY26 because a large portion is recurring revenue, which responds slower, though Spirent's P&T side has seen a nice pickup.

“It's still a fairly smaller part of our entire revenue stream on an annualized basis sub-1% of the total revenue of the company, but especially as it relates to the wireless ecosystem and our participation there, but one we feel like positions us very well as that opportunity scales.”

asked by William G. Bryant · answered by Satish Dhanasekaran

What is the status of the supply chain in accommodating demand, and how material are memory cost increases to COGS/gross margins?

Keysight is actively managing the supply chain and does not have major concerns, working closely with suppliers. New AI-enabling products are seeing unprecedented ramp, supported by increased CapEx. Memory is a small portion of the overall BOM, with proportionately less exposure to high-bandwidth, leading-edge memory.

“I mean, I think it's a true statement that we're actively managing the supply chain more so than we were 6 months ago. But I think we're going to do a good job working with suppliers and don't have any major concerns from a supply perspective.”

asked by Matt Niknam · answered by Neil Dougherty

How does Keysight view the multi-year trajectory of the AI business, considering potential customer efficiency gains, and has the R&D vs. manufacturing breakdown in AI changed from the 70-30 split?

The AI market is in early innings with multi-year runway, driven by scaling clusters and evolving architectures (training to inference, heterogeneous environments). Keysight's broad portfolio allows participation across various underlying technologies. The R&D vs. manufacturing split for the wireline business remains largely in the 70-30 range, with both components doubling in the first half.

“It's still for the wireline business, largely things move quarter-by-quarter, but I think it's largely -- we still -- it's in the 70-30 range. With both R&D, as I mentioned, in the AI space, both R&D and manufacturing doubling as we think about the first half business.”

asked by Andrew Spinola · answered by Satish Dhanasekaran