Good day, ladies and gentlemen. Now, welcome to the Keysight Technologies Fiscal Third Quarter 2025 Earnings Conference Call. My name is Regan, and I will be your lead operator today. If at any time during the conference you need to reach out to an operator, please press star zero. This call is being recorded today, Tuesday, August 19, 2025, at 1.30 p.m. Pacific time. I would now like to hand the call over to Paulina Sims, Director of Investor Relations. Please go ahead, Ms. Sims.

Thank you, and welcome, everyone, to Keysight's third quarter earnings conference call for fiscal year 2025. Joining me are Keysight's president and CEO, Satish Nanashekran, our CFO, Neil Doherty, and our senior vice president of global sales, Steve Yoon. The press release and information to supplement today's discussion are on our website at investor.keysite.com under financial information and quarterly reports. Today's comments will refer to non-GAAP financial measures. We will also make reference to core growth which excludes the impact of currency movements and acquisitions or divestitures completed within the last 12 months. The most directly comparable GAAP financial metrics and reconciliations are on our website rate, and all comparisons are on a year-over-year basis unless otherwise noted. We will make forward-looking statements about the financial performance of the company on today's call. These statements are subject to risks and uncertainties and are only valid as of today. We assume no obligation to update them and encourage you to review our recent SEC filings for a more complete view of these risks and other factors. Lastly, management is scheduled to participate in upcoming investor conferences hosted by Deutsche Bank, Citibank, J.P. Morgan, and Goldman Sachs. And now I will turn the call over to Satish.

Good afternoon, everyone, and thank you for joining us today. In the third quarter, Keysight's strong execution resulted in an 11% year-over-year increase in revenue to $1.4 billion and earnings per share of $1.72, both of which exceeded the high end of our guidance. On the demand front, orders increased by 7% with growth across both the CSG and EISG segments. We saw sustained AI momentum, strong growth in aerospace defense government, and general electronics with stability in wireless and automotive. We're executing our strategy and capitalizing on opportunities across our end markets. The ongoing pace of innovation is driving deeper collaboration with customers based on our solid pipeline of opportunities and customer engagements. We're once again raising our outlook for the full fiscal year. Turning to the business segments, the Communications Solutions Group delivered solid order and revenue growth year over year. In Wireline, our early recognition of AI as a transformative technology shift led us to make strategic investments a few years ago to align our portfolio to the multi-year innovation roadmap we saw unfolding. As the industry accelerates investments in compute, memory, networking, and interconic technologies, we're capitalizing today while investing to position Keysight for the long The emerging AI ecosystem is fueling massive growth in digital infrastructure, which in turn drives the need for rapid innovation across the technology stack. To meet this challenge, we're delivering advanced physical air solutions and new silicon photonics capabilities that enhance R&D workflows and address customers' signal integrity and performance requirements. At the same time, networking technologies are advancing rapidly to keep pace with escalating performance needs. Our interconnect solutions are enabling this evolution, supporting scale-up and scale-out architectures with higher network speeds and more advanced switching capabilities. This quarter, we delivered the industry's first protocol layer solution for validating 1.6 terabit performance, a major milestone for next-generation networks. We also partnered with AMD to achieve early PCIe Gen 6 compliance validation, laying the groundwork for next wave of AI-ready high-speed interfaces. With growing complexity in data center at scale, it's critical to model and test not just individual devices and components, but their interactions at the system level. This prevents bottlenecks within the data center, optimizing system efficiency and performance for AI applications. We're working closely with industry leaders to model complex workloads, training environments, and inter-cluster interactions. Our software solutions enable emulation of real-world scenarios, exposing system-level challenges early in the design process. This quarter, we saw a broader adoption of Keysight AI solutions as customers look to streamline integration, accelerate deployment of AI infrastructure. The wireless business remains stable. Current momentum in non-terrestrial networks and continued R&D activity in 5G Advanced is contributing to steady demand. We're actively partnering with industry leaders to support emerging applications like direct-to-cell connectivity and low-Earth orbit networks. While broader 6G commercialization is still years away, we're focused on leading the industry into next generation of innovation. We're deeply engaged in progressing early 6G research and shaping the standards that will define its implementation. This quarter, we collaborated with NTT to demonstrate a breakthrough in sub terahertz component characterization at ultra-high data rates. We're working with key customers on advancing new spectrum utilization, sensing, and next generation MIMO technologies that will drive long-term transformation across wireless. Moving to aerospace defense and government, elevated defense spending globally and modernization priorities are driving robust demand, particularly in the U.S. and Europe. We secured key wins at EU prime contractors for radar and electromagnetic spectrum operation applications, leveraging our multi-decade experience in high-performance capabilities and complex system integration. Our differentiated platforms emulate complex 3D radio channel conditions and enable customers to model dynamic signals for satellite, vehicle, airborne and terrain scenarios. Keysight is well positioned to capitalize on growing defense and government budgets around the world. Our enablement of sovereign research and innovation continued. This quarter, we collaborated with AIST in Japan to establish a 1,000-qubit platform. This sets a new benchmark for furthering quantum computing research and results from our commitment to long-term innovation and investments in advanced R&D. Turning to Electronic Industrial Solutions Group, orders and revenues grew both year-over-year and sequentially. In our broad general electronics business, orders grew strongly in the quarter and year to date. In consumer industrial, high performance requirements in AI data centers are translating into investment in high-speed PCBs and interconnects. Digital health continued to grow, driven by advancements in the validation and production of medical devices. This momentum extended to ensuring compliance in wireless and wired connectivity for monitoring systems. Advanced research and education also grew this quarter, driven by leading-edge semiconductor 6G and photonics initiatives with growth across EU and Asia-Pac regions. In automotive, demand improved sequentially and was stable year-over-year as we lapped higher compares. Our solutions are enabling OEMs and their partners to advance new software-defined architectures as well as advance radar and sensing. Leveraging Keysight's broad portfolio, we're engaging with customers in the design and validation of in-vehicle network compliance and security applications. This quarter, we enabled NIO to validate the compliance of their smart electric vehicles with global wireless connectivity standards. In addition, our ESI and design engineering software renewal rates with major OEMs were strong across all regions. We also recently delivered and installed a state-of-the-art R&D battery test lab for a leading European OEM customer. Despite headwinds, these collaborations illustrate the industry's ongoing commitment to innovation as it transitions to smart connected vehicles. In semiconductor, robust demand for our wafer test solutions continued. Keysight's differentiation and customer focus is driving tighter engagement with leading foundries, and IDMs. Our advanced node, high bandwidth memory, and silicon photonic solutions are enabling customers to address increasing AI compute intensity and power efficiency requirements. Investment and growth expectations remain favorable, supported by sovereign priorities around the world. Moving to software and service, Keysight's simulation and emulation portfolio is unlocking faster and smarter innovation for our customers, helping them to achieve faster time to market, reduced risk, and superior product performance. This quarter we saw a healthy demand for our RF EDA solutions, driven by increased government aerospace and defense spending, as well as the need for high-speed digital simulation capabilities in the AI data center supply chain. Keysight services business continues to grow, driven by expansion of managed services and value delivered through Keysight Care. This quarter, we saw strengthen aerospace defense and government, as well as data centers, markets where high-value services and maximum uptime are mission-critical to our customers' success. Our new products and solutions continue to accelerate customer innovation. At the International Microwave Symposium in June, Keysight showcased multiple high-performance products that address the needs of next-generation radio frequency and digital design. This includes industry's first handheld millimeter wave signal analysis solution, advanced phased array antenna test capabilities, and phase noise measurement systems, all with applications across multiple end markets. In summary, Keysight is capitalizing on market opportunities and multiple waves of technology innovation underway. I'd like to thank our team for their relentless customer focus and collaboration which positions us well for both near and long-term value creation. We remain confident in our ability to navigate the evolving trade and tariff environment to deliver healthy margins and strong free cash flow with our financial model and operational flexibility, reinforcing our ability to invest, adapt, and lead. With that, I will turn it over to Neil to discuss our financial performance and outlook.

Thank you, Satish, and hello, everyone. Third quarter revenue of $1,352,000,000 was above the high end of our guidance range, up 11% on a reported basis, or 9% on a core basis. Orders of $1,340,000,000 were up 7% on a reported basis, or 6% on a core basis. Looking at our operational results for Q3, we reported gross margin of 64%, operating expenses of $526,000,000, and operating margin of 25%, an increase of 60 basis points over last year. Turning to earnings, we achieved $297 million of net income and delivered earnings per share of $1.72, which increased 9% year-over-year. Our weighted average share count for the quarter was 173 million shares. Keysight's Q3 tariffs were in line with the estimates that we provided last quarter. We are making progress on our mitigation strategies, which include supply chain optimization, as well as pricing and efficiency actions. Accounting for the longer execution time required for certain strategies and our quote-to-revenue cycle time, we are factoring in a lag for these actions to be fully realized in our results. Moving to the performance of our segments. The Communications Solutions Group generated third-quarter revenue of $940 million, up 11% on a reported basis, or 10% on a core basis. Commercial communications revenue of $644 million was up 13%, driven by double-digit growth in both wireline and wireless. Aerospace Defense and Government achieved revenue of $296 million, an increase of 8%. Altogether, CSG delivered 67% gross margin and 26% operating margin. The Electronic Industrial Solutions Group generated $412 million in revenue, an increase of 11% on a reported basis or 9% on a core basis, with growth across automotive and energy, semiconductor, and general electronics. EISG delivered 57% gross margin and 22% operating margin. Software and services accounted for approximately 36% of Keysight revenue, while annual recurring revenue was 28% of the total. Moving to the balance sheet and cash flow. In Q3, we generated cash flow from operations of $322 million and free cash flow of $291 million. dollars year-to-date free cash flow now stands at 1.1 billion dollars we ended the quarter with 2 billion 636 million dollars in cash and cash equivalents an additional 759 million dollars is designated as short-term restricted cash the vast majority of which is set aside for closing the spirant acquisition we repurchased approximately 300 000 shares this quarter at an average price of approximately $164 for a total consideration of $50 million. With regard to the pending acquisition of Spirint, the final regulatory review is progressing and we now anticipate closing the transaction in our fiscal fourth quarter. The acquisitions of Synopsys' Optical Solutions Group and Ansys' Power Artists are similarly advancing towards final regulatory approval. Turning to our outlook, let me start with a few comments on the tariff rates announced on August 1st. We estimate the new tariff rates will increase our tariff exposure by approximately $75 million annually. As communicated last quarter, we are on track to fully mitigate the April tariffs by Q1. We have initiated additional actions to address the August tariff increase, which we expect to have fully mitigated on a dollars basis within the first half of FY26. As Tatis noted, the demand environment has remained resilient despite an uncertain macroeconomic backdrop. We enter Q4 in a strong backlog position. Given our year-to-date outperformance and visibility into the coming quarter, we are raising our full-year growth outlook once again. For the fourth quarter, we expect revenue in the range of $1,370 million to $1,390 million and Q4 earnings per share in the range of $1.79 to $1.85 based on a weighted diluted share count of approximately 173 million shares. This will result in a full-year revenue growth of 7% and full-year EPS growth of approximately 13% at the midpoint. This guidance factors in all tariff announcements to date and assumes tariffs remain at August levels. With that, I will now turn it back to Paulina for the Q&A.

Thank you, Neil.

Reagan, will you please give the instructions of course ladies and gentlemen if you would like to ask a question please press star one we ask that you limit your questions to one question and one follow-up to withdraw your question please press the pound sign please hold while we compile the q a roster our first question comes from the line of mark delaney of goldman sachs your line is now open yes good afternoon thank you very much for taking my questions uh satishan past calls as you'd characterize your expectation for a recovery in the end markets overall as gradual.

I don't think I heard you use that word today. So maybe you can help investors to better understand your view of the end markets now and to what extent it's better than you'd previously expected.

Yeah, thank you, Mark. You know, strong quarter clearly, and we're feeling good about the funnel and the customer activity despite the overhang from tariffs and the sort of geopolitical environment we find ourselves in. And if you look at the performance of our order growth, again, has accelerated as we've gone through the year. So, from that perspective, we're feeling good about how the year is progressing slightly even better than what we expected at the beginning of the year. However, if you look at the end markets and you look at the multiple dimensions of the and markets, and you'd say, are all in markets up and to the right? Not quite, right? I would say AI has clearly been a continuing team of momentum. Aerospace defense, as we expected, that things would recover after the administration change and other things manifested itself. And wireless is tracking slightly ahead of expectations. EISG is returning to growth.

All in all, feeling good about the situation although just the caution is that we still have you know challenges with the automotive and some in market dynamics helpful overview my second question was just trying to better understand orders and what you're seeing and putting that into context with the revenue outlook you I think orders are up by single digits but the book to go just below one and then you guided four key revenue up sequentially so maybe just help us better understand what's supporting that revenue outlook into 4Q. Is there a returns business or a backlog that supports it, or maybe there's some pass-through tariff revenue that's coming in? And, you know, just any more framing of what's driving the revenue in the fourth quarter compared to the bookings would be helpful.

Yeah, I think some of that is a function of kind of the timing of big deals. We actually had a, you know, reasonably large system integration deal. We got customer acceptance literally on the last day of Q3. So that elevated and drove some of the outperformance in the third quarter, but obviously pulled that out of Q4 and muted the sequential seasonality from Q3 to Q4 versus what we would typically see. But I think as we look forward, we expect more normal sequential seasonality on the order front than we're going to see on the revenue front, again, because of the timing of some of these big deals. Thanks. I'll pass it on.

Thank you, Mark.

Thank you. Our next question comes from the line of Aaron Rakers of Wells Fargo. Your line is now open.

Yeah, thanks for taking a question. I do have a follow-up as well. I guess first, Neil, as we kind of think about the revenue growth and the recovery in the business, the order growth dynamics, I guess appreciating that you're not giving guidance out into next year, but at the analyst day that you'd hosted a while back, you talked about a 5% to 7% top-line growth rate. it's kind of the long-term model. Is that how we should kind of think about, you know, the story playing out at this point, you know, as we look out in the fiscal 26, or is there an opportunity to maybe see, you know, the potential for revenue to grow, you know, still a little bit above that level?

Yeah, I mean, I think looking to this year is maybe just a start, you know, we started the year talking about the gradual recovery, and we're looking for revenue growth this year at the low end of that five to seven percent range. And as Satish has just indicated, things have unfolded slightly better than our expectation. And we've been able to raise that revenue expectation for the full year each of the last two quarters. I think, you know, as again, as Satish just mentioned, you know, numerous of our end markets are in recovery and others are still kind of more stable at lower levels. But I think generally speaking, the feeling around the building is that we're bullish going into 26 with one big caveat around tariffs and macroeconomic, right? We're still pretty early into this process, and I don't think the market has fully, you know, absorbed, you know, the impact of this new tariff environment. And so I think, you know, we'll have more to say on 26 in three months, but right now we're really focused on executing and delivering Q4, but are generally positive on what we're seeing in our end markets.

Yeah, I appreciate that, Neil. And then just as a quick follow up, you know, Satish, we've talked a lot, you know, a lot of investors often ask me like, you know, e-site, the AI story you've talked about, not just scale out, but also now scale up 1.6 T and so on and so forth. So the wireline business, I'm just I'm curious, you know, how do you respond to investors kind of asking, you know, what's the mix of the contribution that really AI drives to the key side story? And how do you see the durability of that of that strong demand looking forward?

Well, first, I'll answer your second question. We're well positioned with momentum to capitalize on this long term opportunity with AI. I'm probably more convinced now that this is going to play out and we're well positioned than I was maybe 18 months ago when we started down this path. So that's point number one. The second thing I would say is when you think about AI, it's going to have contribution across multiple end markets over time. But clearly, wireline is the area where we start to see the early, early demand, and we're picking up on that inflection. I expect to finish wireline business up double digits, strong double digits this year, commercial comms up double digits. And it's a function of the underlying AI demand. And, you know, I would say that the AI demand in particular, you know, one of the things that, you know, it's really hard to sort of tease that out as unique AI demand Because you have this sort of entrenched ecosystem of customers, whether it is NEMs or silicon designers or hyperscalers that have been customers of Keysight's capabilities for a long time. But clearly, their business with us is growing and has continued to grow through this period, and AI has been the incremental driver there. But equally, as this year has progressed, we've added new customers, startup activity in this industry is picking up, and new cloud providers. So, all in all, feeling good about our ability to grow, and not just a quarter or two, but over the long term as well.

Thanks, Satish.

Thank you.

Thank you. Our next question comes from the line of Mehta Marshall of Morgan Stanley. Your line is now open.

Great, thanks. A couple of questions for me. Maybe just first, if you could just kind of outline where the tariffs are kind of – or, like, which part of the tariffs are most substantial for you guys, and then just if the mitigation that you plan on doing is kind of moving around production or pricing. And then just a second question for me, you know, just on aerospace and defense, just, you know, clearly a lot of spending happening in that market right now. You know, is this something where we should see this market kind of continue to accelerate or is this kind of a good level because, you know, it just takes years for these programs to kind of get into place?

Yeah, thanks, Amita. Why don't I take the tariff question and then I'll let Satish address the aerospace defense question. So with regard to the tariffs, we have a largely Southeast Asia-based supply chain. As you know, most of our largest plant from a finished goods manufacturing standpoint is in Malaysia, but we have other significant offshore manufacturing operations in the EU as well as in Japan. And I would also note that we do do significant manufacturing in the US, You know that we do IC fabrication here a lot. We do manufacturing for some of our high-end aerospace defense solutions. And then a lot of our high-end new product introductions actually start with U.S.-based manufacturing before moving to a higher volume location. And so we do have a geographically diverse manufacturing footprint, which gets to the second part of your question and the actions that we're taking to mitigate the tariffs. And it really is a multi-pronged approach uh you know looking at various supply chain strategies up to and including potentially uh shifting manufacturing probably more focused on making sure right now that we are appropriately utilizing capacity that's already in place rather than dramatically at shifting capacity uh from from one location to another but we'll see how that develops over time obviously looking at supplier relationships uh cost efficiencies and then uh to the extent that there's residual amounts looking to pass those costs on to our customers to protect our financial results via both price increases and tariff surcharges for our U.S. customers. So it's a multipunk approach. And again, I would just say that, just reiterate the points that we made in our prepared remarks, that we expect to have the tariff impact from April fully mitigated during Q1. We've taken incremental actions to mitigate the August increase and should have that mitigated on a dollar's basis and on a run rate basis sometime during the first half of this fiscal year. So we feel like we've got it well handled.

So, Matt, I think I retried the point number one is we're confident, I believe, to mitigate the tariff situation. And we've started to make good progress organizationally towards that. With regard to aerospace defense, first and foremost, I would say the starting point for the year was slower given the administration change and continuing resolution. I know being on this call, I sort of foreshadowed that I wouldn't be surprised if some of the demand comes back in the second half. And it's exactly the way it's played out. But again, what we're seeing now is sort of ongoing programs or existing programs that were in the pipeline that are flushing out. The backlog for some of the prime contractors continues to be robust and strengthening, which is, again, foreshadowing a positive environment subject to budgets. I think the U.S. situation is pretty well understood, and typically it's a majority part of our business, so we factor that into our growth rates. I think what's a new dynamic, frankly, which is hard to quantify just yet, is the impact of the European spend that could have onto this over the long term, right? And that's where we started to see some healthy business this quarter. And I think some of these programs will continue to play out as we move forward. But we remain confident in some of the capabilities we bring in terms of radar, EW, space satellite, and as we think about some of the NDA priorities that have emerged, we have multiple places where we make contributions. The Golden Dome of the United States has been announced, should that be funded will also give us additional opportunities to make contributions. So we're all feeling good about the contributions we're making, and we feel like we can keep increasing it. Now, again, this is a function of government budgets, so maybe the pace of acceleration growth may not be as quick as some of the commercial markets we experience, but it's one of the more steadier value creators for the company.

Great. Thanks.

Thank you.

Thank you. our next question comes from the line of tim long of barclays your line is now open thank you um i have uh two as well maybe one for situation one for neil um satish um maybe just go back to to wireline wireless you talked about it being stable but it sounded like double digit growth uh in the quarter was that largely just the compares or maybe if you can just walk us through some of the areas that are kind of keeping the wireless-related businesses afloat. And then, Neil, I'll just give it to you now. Could you just touch on kind of moving parts around this incremental margin of 40% that you talk about? It seems like you might come in a little bit below this year, but when we start looking into the future. Maybe walk us through the moving parts around how we should think about that incremental margin number. Thank you.

Jim, thank you. Yes, we had a strong revenue quarter. Again, it's a function of recovering market conditions in wireless that have remained depressed for so long. And year to date, we're slightly ahead of what we expected in terms of of growth. And really, the story is of standards progression, release 18, more R&D spend. And some increasing activity we see is as AI starts to move to the edge, and there's more activity on AI applications on mobile-type devices, there's a lot more standards-driven capabilities that are being promoted that creates some opportunity for us. The non-terrestrial network activity with satellite operators and mobile operators that are partnering, I think that's continuing to grow. And then some early 6G research activities around the globe where customers are starting to put pen to paper and starting to design their systems. So all of these have been themes we've been discussing.

And while the supply chain, typical smartphone supply chain, still remains subdued, Yeah, and Tim, to your second question about how to think about the incrementals, I still think that, you know, going forward over the longer term, the 40% incremental is the right way to think about the business. Obviously, there was a big kind of shock to the system this quarter with or this year with the tariffs, which had not previously been considered in our model. Once those, however, are included in the baseline and we lap them, you know, this time next year, you kind of get back to the point where they're in the baseline and you're able to continue to grow your, as you grow your business, mid-single digits or better, you would deliver that 40% incremental. I would point out that if you look, you know, Q2, Q3, and our guide for Q4, the three quarters where we've achieved that mid-single-digit growth rate, and you strip out the tariff impact, we actually are overachieving that 40% incremental. So it's still something that we're tracking. And again, you know, we're absorbing the tariffs, you know, this year, which are, again, new and unexpected, and at the same time have been able to raise our EPS growth estimates for the year. So definitely a continued focus on efficiencies and cost management, and again I think that 40% incremental is the right way to think about the business long term, but the tariffs will limit our ability to deliver it until we get them into the baseline.

Okay, thank you.

Thank you. Our next question comes from Mehdi Horsini, SIG. Your line is now opening.

Yes, thank you. It's actually Mehdi Hosseini. I also have two multi-part questions. It was nine months ago you guys were talking about wireline business bringing in more than $2 billion of orders, and the commentary over the past couple of quarters suggests that order activity for wireline has remained strong. So my question is, can you put some color around the dollar value of orders or business revenue that is coming in, assuming that you had more than $2 billion of orders nine months And in that context, how should we think about sustainability of wireline orders? And I have a follow-up.

Yeah, Mandy, I would say that I don't remember sizing it, but let me maybe take a step back and say that you go back in time and you look at our commercial communications business, I would say that a bigger chunk of the business was wireless and wireline was a smaller part of the business. And what has since ensued is wireless has normalized since the 2022 peak 5G levels and is pretty stable, while wireline has continued to grow. And this year, I expect to finish the business with the record bookings and a solid pipeline of opportunities as we go into next year. So you might say, well, what's really driving all this activity if we have, you know, because there's obviously the data center CapEx investments that we all know about. And so you're really asking at the core of it, how sustainable are these? But if you think about the nature of the AI workload and the progression of it, it's going from just these chat GPT type applications into more agentic workflows and is poised to, I think, make substantial contributions to productivity for both companies and individuals. And as that plays out, the underlying economics of adopting the latest technology and the pressure to accelerate innovation, we continue to see that as probably a sustaining driver looking as far out into 28 and 30 even, some of the early look that we're getting engaging with our customers on memory, topology enhancements, compute enhancements, networking speeds, and interconnect. What used to be a two, three, four year sort of refresh cycle is being pulled in, which really creates a steady roadmap for us to keep working with our customers and engage. So, A, I feel good about the market opportunity. B, I also feel good about Keysight's ability to intercept that and outperform.

Thank you. And then the second question maybe is for Neil. I see both CSG and EISG revenues were up 11% each on a year-over-year basis. But CSG had kind of flattish operating margin, but EISG had more than 200 basis points of increase in operating margin. And my question is, is CSG where most of the tariffs are being felt? And is there also a mix that is favoring EISG with the margin expansion on a year-over-year basis?

Yeah, I think the second part of that is definitely true that we've talked about in the past, how there's a greater disparity of gross margins within the EIC portfolios. They have the ability to benefit from mixed shifts. With regard to the tariffs, I mean, certainly tariffs are impacting both of our businesses. There might be a slight skew there towards CSG, but I think that's you know, reasonably equally spread across the two portfolios.

Okay. And with EISG, that's where software and services mix is richer. And that's where you get a margin uplift. That's the mix that you were referring to, correct?

CSG has a higher mix of software, certainly than EISG, given the kind of the use of software within that communications portfolio. I think if you look at the hardware portfolio within EISG, they have some of our highest margin products but then they also have more of our distribution level projects lower end level technology which tend to have lower gross margins associated with them so it's a bit of a it's within the hardware portfolio it's a uh it's a broader uh a broader dispersion again this there's probably there is a skew within the chair portfolio towards cse but not huge.

Got it. Thank you.

Thank you. Our next question comes from David Ridley-Lang of Bank of America. Your line is now open.

Thank you. I just want to make sure that we're all on the same page for the tariff. So it was $75 million before August adds another $75 million. And just to clarify, I think you were expecting about $25 million net this quarter or 80 basis points? That's what you saw. And what is the expectation based into the fourth quarter guide? So just how much are we looking at in total?

Yes, just to review the numbers. So what we said a quarter ago, 75 to 100 million annually, and the incremental 75 million as a result of the August increases. So that takes you to 150 to 175 is the range that we're looking at. our impact in Q3 was in line with those numbers that we just communicated. In Q4, we'll see the tariff expense go up as a result of the tariff increases, but luckily our tariff mitigations are starting to ramp as well. So while we will continue to see on a dollar's basis an unfavorable impact from Q4, it's only slightly larger than what's in Q3. You see an increase in tariff expense, but a ramping of the mitigation actions.

Got it. And then I guess one kind of question around the two, you know, now that the synopsis and the NCIS acquisition is actually complete, is there any color that you can give us in terms of size or magnitude for the two businesses that you'll be acquiring out of?

I think let me take that. I think from a strategic perspective, we really like to fit to our simulation portfolio. We've talked about that. At this point, you know, any questions with regard to timing or details are better directed to the Synopsys team, because even though they have closed the deal with ANSYS, the regulatory, there's still some regulatory process that's underway that would take some time for us to consider. And so any questions on that regard might be better directed to Synopsys at this time.

Thank you very much.

Thank you.

Thank you. Our next question comes from Rob Jamison of Vertical Research Partners. Your line is now open.

Yeah, thanks for taking my question. Is this the fault with David's question there on power artists and optical solutions? And just kind of back to some of the comments you made on the simulation software and software demand on the AI side, you know, what are these two assets going to bring into the EDA side of your portfolio and like how does this enhance your offering going forward?

Yeah, I think, you know, if you think about our RF EDA, the simplest way to think about it is we're leaders in RF and high-speed digital kind of simulations and part of those workflows. I think the optical is a really good complement to that, and in general, power and power efficiency is becoming so important to customers, and so some of the critical IP and being part of the portfolio is a good thing because they fit our long-term direction and our ability to sort of create more synergies with these capabilities inside the company.

Thank you, and then just with the comments on the 6G research initiative gaining some traction, can you provide us a little thought on, you know, customer engagement timelines and when 6G might become a more meaningful revenue contributor? And, you know, how are you thinking about balancing continued 5G optimization versus 6G investment priorities as we look ahead?

That's a really good question. You know, in the most recent 3GPP plenary meeting in Prague, you know, started to finalize what Release 20 or the early version of 6G might look like. And one of the things that my takeaway was it reinforced the industry alignment from 5G advanced to 6G, which I think is a really good trend for us because it's not a break and it's an evolution and a flow on some of the teams that we've been working with customers on, whether it is to lower latency for AI applications, increase energy efficiency, or non-terrestrial networks and integrate satellite connectivity with terrestrial networks. So all those teams play out on our strengths in 5G, and so we're thinking about our platforms and architectures from this perspective, and it's glad to see that being reinforced from a standardization. We start to see customers exploring various facets of 6G because it's not clear yet which spectrum or what topology will be generated. But we start to see some activity with customers related to building up their IP for an eventual 6G rollout, right? So that's where the action today is occurring. As I said in my prepared remarks, we're still years away from a rollout, but I think R&D activity will only continue to grow as we move forward.

That's great. Thank you for that. Thank you.

Thank you. Our next question comes from Rob Mason of Baird. Your line is now open.

Yes, thanks for taking the question. Your semiconductor business grew double digits in the quarter. You sounded, you know, quite pleased with the results. It has been a choppier environment for some in the front-end semi-cap space. And I'm just curious, maybe walk through or remind us why, you know, you're not maybe seeing as much volatility in that business. And I just kind of wanted to confirm as well, just, you know, your outlook is for growth here in the fourth quarter as well.

Yeah, as you know, a semiconductor business, you know, is the wafer stage. And so as wafer starts are occurring globally, it does benefit from some of the sovereign trends. People are categorizing wafers even ahead of production. So that's another sort of tailwind for the business. And also, it's a business which benefits from some of the advanced nodes, new memory topologies, HBMs, and recent increased customer interest on silicon photonics, we view as favorable drivers for our semi-business. So, you know, just to also be clear, the business did experience a decline in 24, driven by some of these uh you know the normalization of demand so it was not immune to that so it's it's getting some lift from the increased activity plus some of these advanced ai driven demand that's favorably um that's a favorable driver for this business i see that's helpful um satish is if we could just uh shift over to the wireline business last last quarter you shed a little more light just on the mix between the R&D test and production test that's occurring in that

business. And it shifted a little bit towards production tests, just as that's such a high growth area. I'm just curious, as that mix has shifted, has your visibility changed at all? Is it giving you more visibility, less visibility? Just how we should think about, you know, that evolution there?

Yeah, that's a good question. I mean, I think when we started to think about it last year, let's say, at this earnings call, I call the environment constrained and, you know, again, constrained from a supply chain perspective. And what's really played out over the last few quarters is that the unlocking of the supply chain through investments that are coming. And I think that's a process that's still to play out, and we're clearly benefiting from that. So that's probably skewed our mix of traditionally predominant R&D business to include a bit more of manufacturing exposure. But we're nowhere close to the company exposure from a manufacturing standpoint in this business. It's still R&D oriented. And what we also see, which is favorable, which speaks to the visibility comment is, you know, again, last year this time, I would have said this is a highly concentrated business for us because we had a few customers driving the action. And what's playing out is the broadening of the business, even in the waterline ecosystem with new customers and startup activity. But even across the company, as you think about the general electronics and semiconductor getting some of the tailwinds from the AI trend, it's again, a positive dynamic for the business. Very good. Thank you. Thank you.

Thank you. Our next question comes from Sameek Chatterjee of JP Morgan. Your line is now open.

Priyanka on for Samek. How are you guys doing?

Hey Priyanka, doing good. How are you?

Yeah, good. I have a couple questions.

Starting off with the AI story, for wireline optics, how much of the R&D investment is already on 1.6T, 3.2T, and beyond compared to legacy speeds like 100 gigs or 800 gig i think for for waterline i would say broad comment uh you know with different exposures but i'd say the 100 gig is fairly stable it's it's sort of a run rate business um the 400 800 gig are the ones where the majority of the volumes are in 1.6 and beyond is still in research slash early deployment so that's probably directionally gets you there Can you also shed a little bit of light on the customer segments in your data center business?

For example, how big hyperscalers are versus semiconductors and then integrators and assemblers?

Yeah, I don't know that we've split up the business quite the way you've asked us to, but I think you think of the activity in the supply chain remains strong as it's starting to unlock supply constraints. So that's a factor. And then the R&D spend is probably the better way to look at it is where the majority of the demand that we see for a broad set of tools and capabilities that Keysight provides.

All right, thank you.

Thank you.

Thank you. Our next question comes from Adam Ballemer of Thompson Davis. Your line is now open.

Hey, good afternoon, guys. Congrats on the beat and raise. I wanted to ask about the impact of tariffs on orders. Do you think that net-net tariffs have pulled forward some orders or pushed them out?

I am. Thanks for that question. At this point, throughout the quarter, we did not see any material pull-in of orders due to the tariff changes that was going to happen in August.

Got it. And then we have not seen any, you know, we have not seen any also following up, We have not seen any material change to the demand profiles from the tariffs just yet.

Great. And then, Satish, I wanted to follow up. You talked about AI impacting other markets besides wire line. What do you think the next market is, and when do you think you could see material orders from that?

Yeah, I think we said we started to see some impact in the general electronics and in semiconductors. I think semiconductor feels like that's going to happen, given the trend of embracing silicon photonics and co-optics and other things. It just seems logical that that's going to flow. I think the thing we're watching for is the general electronics business, because it tends to be a broader business with manufacturing exposure and other things. And so I still think that's still in the early innings, that's playing out. But then longer term, you think about the possibilities of how AI intercepts our customers' engineering workflow or possibilities of how AI could intercept defense applications or security applications or in automotive or in our wireless business even. So there's a lot more excitement there than there is activity right now, but we're starting to engage customers and have discussions with them about what Keysight can do to enable their success. Thanks, Satish.

Thank you. Now we'll conclude our question and answer session for today. I would like to turn the call back over to Paulina Sims for any closing comments.

Thank you, Regan, and thank you all for joining us today. Have an awesome day.

Thank you. That will conclude today's call. Thank you for your participation. You may now disconnect your line.