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    KEYS
    Earnings call· Apr 2026(Q2 FY26)

    Keysight Technologies Q2 FY26 earnings call KEYS

    May 19, 2026 Source

    Executive summary

    Keysight Q2 FY26 — Record Orders and Strong AI-Driven Growth

    Keysight delivered a record quarter, driven by robust demand across its portfolio, particularly from AI data center expansions, aerospace/defense, and semiconductor markets. The company is capitalizing on its early leadership in the AI ecosystem and other secular growth opportunities, leading to raised full-year revenue expectations. Strategic investments in R&D and capacity are positioning Keysight for sustained value creation.

    Highlights

    5

    • Q2 orders grew 56% year-over-year, surpassing $2 billion.

    • Revenue grew 31% year-over-year (35% excluding tariff impact).

    • Earnings per share grew 69% year-over-year ($2.87 reported, $2.58 excluding tariff impact).

    • Generated record free cash flow of $472 million.

    • AI-related business in H1 FY26 ($500M-$600M) already surpassed levels achieved in all of FY25.

    Concerns

    3

    • Pace of revenue conversion

    • Supply chain management

    • Memory cost increases

    Guidance & targets

    6
    CategoryTargetConfidence
    Q3 FY26 Revenue
    $1.730 billion to $1.750 billion
    high materiality
    High
    Q3 FY26 Earnings Per Share
    $2.43 to $2.49
    high materiality
    High
    FY26 Revenue Growth
    high 20s percent range
    high materiality
    High
    FY26 Capital Expenditures
    $200 million
    medium materiality
    High
    FY26 Acquisition Revenue Contribution
    $375 million
    medium materiality
    High
    FY26 Acquisition Cost Synergies
    greater than $100 million
    medium materiality
    High

    Segment performance

    6
    SegmentRevenueYoYQoQMargin
    Communications Solutions Group (CSG)
    Order growth significantly outpaced revenue growth. Strong performance builds on Q2 last year's 9% revenue growth.
    Gross margin: 74.1%Core revenue growth: +27%
    		$1.231 billion+35% reported—Operating margin: 33.4%
    Commercial Communications (within CSG)
    Robust growth in both wireless and wireline. Wireline delivered record orders driven by AI data center expansions.
    		$858 million+40%——
    Aerospace, Defense & Government (within CSG)
    Broad-based global momentum led by Europe, supported by Americas. Strongest demand across RADAR and ultra-magnetic spectrum operations.
    		$373 million+24%——
    Electronic Industrial Solutions Group (EISG)
    Record quarter for both orders and revenue, with growth across all three end markets.
    Gross margin: 67.8%
    		$486 million+24%—Operating margin: 33.1%
    General Electronics (within EISG)
    Driven by ongoing momentum in AI-related innovation and infrastructure investments, particularly high-performance PCBs. Healthy demand from education sector.
    Order growth: double-digit growth
    		—double-digit growth——
    Automotive & Energy (within EISG)
    Business largely stabilized, with growth across software-defined vehicles and EV charging solutions.
    Orders: grew for the third consecutive quarter
    		————

    Operational metrics

    15
    Core Orders Growth
    48%YoY
    Q2 FY26

    Excludes acquisitions and currency movements.

    Core Revenue Growth
    24%YoY
    Q2 FY26

    Excludes acquisitions and currency movements.

    Operating Margin (ex-tariff)
    30.4%+520 bps YoY
    Q2 FY26

    Excluding one-time tariff impacts.

    Operating Leverage (ex-tariff)
    49%
    Q2 FY26

    Excluding one-time tariff impacts.

    Software and Services Revenue Mix
    36%
    Q2 FY26

    Approximate share of total Keysight revenue.

    Annual Recurring Revenue (ARR) Mix
    27%
    Q2 FY26

    Share of total mix.

    Cash and Cash Equivalents
    $2.412 billion
    End of Q2 FY26

    Balance sheet item.

    Share Repurchases
    $220 million
    Q2 FY26

    Total consideration for share repurchases.

    Diluted Share Count (guided)
    ~173 million
    Q3 FY26

    Weighted diluted share count for Q3 guidance.

    AI-related Business
    $500 million to $600 millionsurpassed levels achieved in all of 2025
    H1 FY26

    AI business as sized by the company, largely in the wireline segment.

    Quantum Business
    triple-digit business
    Annualized

    Steady business enabling quantum computers and research.

    Incremental Margin (core)
    just under 59%
    Q2 FY26

    On a core basis, similar to prior quarter, driven by high growth rate and tight expense management.

    Q2 Revenue (ex-tariff)
    $1.758 billion+35%
    Q2 FY26

    Excluding one-time tariff impacts.

    Q2 Gross Margin (ex-tariff)
    67.6%+300 bps
    Q2 FY26

    Excluding one-time tariff impacts.

    Q2 EPS (ex-tariff)
    $2.58+52%
    Q2 FY26

    Excluding one-time tariff impacts.

    Industry KPIs

    10
    MetricValueDetails
    M a contribution$375 millionUSD
    Orders book to bill$2.051 billionUSD
    Segment revenue growthCSG: $1.231B; EISG: $486MUSD
    Ai data center content revenue$500 million to $600 millionUSD
    Design wins product cycle rampsKey wafer test solution wins; key lithography customers grew stronglywins
    Order visibility backlog policyMajority of business booked and recognized within 6-month periodmonths
    Recurring software services mixSoftware and services: ~36%; Annual recurring revenue: 27%%
    Capacity expansion internal sourcing$200 millionUSD
    End market revenue mix organic growthCommercial Communications: $858M; Aerospace, Defense & Government: $373M; Electronic Industrial Solutions Group: $486MUSD
    Operating margin incremental leverage30.4% (ex-tariff); just under 59% (incremental core)%

    Orderbook & backlog

    3
    Total Orders$2.051 billionQ2 FY26

    +56% YoY reported

    Core orders grew 48% YoY. Record bookings for the company. Backlog policy: majority of business booked and recognized within 6-month period.

    AI Business BacklogHigherQ2 FY26

    Due to strong demand, with a stronger sense of urgency from customers to convert opportunities faster.

    Systems Wins BacklogStrong pipelineQ2 FY26

    In semiconductor and aerospace defense, typically have longer lead times but still largely within the 6-month standard product portfolio window.

    Product announcements

    5
    ProductTypeDetails
    New scale-up validation solutionslaunch
    Ultra high-density interconnect solutionslaunch
    220 gigahertz Lightwave Component Analyzerexpansion
    3D interconnect designerlaunch
    Keysight AI inference builderlaunch

    Deals & partnerships

    4
    BroadcomCollaboration

    Collaborated on the industry's first public interoperability demonstration of Ultra Ethernet consortium specifications, marking a major step towards production-ready AI optimized Ethernet fabrics.

    QualcommCollaboration

    Expanded collaboration on RF digital twists.

    SamsungJoint demonstration

    Conducted a joint demonstration on AI RAN workflows at Mobile World Congress.

    U.S. Air ForceKey win

    Secured a key win to enable next-generation operational flight line testing with more stringent requirements.

    Capital programs

    1
    FY26 Capital Expendituresunderway$200 million

    Benefit: Aid ramp of new products enabling AI build-out

    Raised from previous guidance of $160 million. Majority of incremental investment dedicated to ramping new products.

    Risks & headwinds

    3
    Pace of revenue conversionQ3 FY26

    N/A

    Mitigation: Influenced by the mix and timing of new product introductions and how quickly they can ramp. Higher backlog in AI business and systems wins (semiconductor, aerospace defense) have longer lead times.

    Supply chain managementNear-term

    N/A

    Mitigation: Actively managing the supply chain, working with suppliers, and increasing CapEx to aid the ramp of new products. Vertically integrated for specialized chips and assemblies provides control.

    Memory cost increasesN/A

    N/A

    Mitigation: Memory is a pretty small portion of the overall Bill of Materials (BOM), and Keysight has proportionately less exposure to high-bandwidth leading-edge memory.

    Q&A highlights

    7

    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

    2 min read5 chapters

    Detailed Narrative

    01

    AI Data Center Expansion Driving Wireline Momentum

    Keysight's wireline business continues to see accelerating momentum, driven by ongoing AI data center expansions. The company reported record orders in wireline, with robust demand for both R&D and manufacturing solutions. This growth is underpinned by four key pillars: AI infrastructure scaling, speed transitions (800G, 1.6T, 3.2T), optical and photonics technologies, and system-level emulations, all contributing to increased demand for Keysight's end-to-end validation solutions.

    02

    Broad-Based Strength Across Wireless and Aerospace/Defense

    Wireless orders saw robust growth, fueled by activity in non-terrestrial networks (NTN), 6G research, and increased demand supporting the AI expansion supply chain. In aerospace, defense, and government, Keysight experienced broad-based global momentum, particularly in Europe and the Americas. This was driven by defense modernization priorities, leading to new programs and investments in next-generation systems, especially in RADAR and electromagnetic spectrum operations.

    03

    Electronic Industrial Solutions Group Achieves Record Performance

    The Electronic Industrial Solutions Group (EISG) delivered a record quarter for both orders and revenue, with strong growth across all three of its markets: general electronics, semiconductors, and automotive and energy. General electronics benefited from AI-related innovation and infrastructure investments, while semiconductors saw accelerated demand across advanced node, memory, and silicon photonics. The automotive and energy segment's orders grew for the third consecutive quarter, stabilizing the business.

    04

    Strategic Investments in Emerging Technologies

    Keysight is strategically investing in long-term growth opportunities beyond current AI trends, including defense technology, space, 6G, and quantum computing. The company's quantum business is a steady triple-digit revenue stream, enabling over 1,000 quantum computers. Keysight's ability to identify and invest early in these trends, coupled with its differentiated portfolio and deep customer relationships, positions it for sustained value creation.

    05

    Operational Efficiency and Supply Chain Management

    The company achieved strong operating leverage, with core incremental margins just under 59% for the quarter, reflecting efficient expense management during a period of high growth. Keysight is actively managing its supply chain to accommodate robust demand, particularly for new products enabling AI build-out, and has increased its FY26 capital expenditure guidance to $200 million to support this ramp. Memory costs are noted as a small portion of the overall bill of materials.

    AI-generated summary of the company’s earnings call. Not investment advice.