Keysight Technologies, Inc. SEC 10-K Report

Keysight Technologies, Inc., a leading provider of electronic design and test solutions, has released its 2024 10-K report, detailing the company's financial performance, business operations, strategic initiatives, and the challenges it faces in a competitive and rapidly evolving market. The report provides a comprehensive overview of Keysight's efforts to maintain its market leadership through innovation, strategic acquisitions, and a focus on long-term growth trends.

Financial Highlights

• Total Revenue: $4,979 million, a decrease of 9% compared to 2023, with acquisitions contributing a favorable impact of 3 percentage points.
• Gross Margin: 62.9%, down 2 percentage points from 2023, primarily due to lower revenue volume and higher restructuring costs.
• Income from Operations: $833 million, a 39% decrease from 2023, driven by higher selling, general and administrative expenses, and R&D expenses on lower revenue.
• Net Income: $614 million, a 42% decline from 2023, mainly due to lower revenue, higher acquisition and integration costs, and restructuring costs.
• Net Income Per Share (Basic): $3.53, reflecting the decrease in net income.
• Net Income Per Share (Diluted): $3.51, reflecting the decrease in net income.

Business Highlights

• Revenue Segments: The Communications Solutions Group (CSG) and Electronic Industrial Solutions Group (EISG) are the two main operating segments. CSG serves commercial communications and aerospace, defense, and government markets, while EISG focuses on automotive, energy, semiconductor solutions, and general electronics.
• Geographical Performance: Revenue declined across all regions in 2024, with notable decreases in the Americas and Asia Pacific. Europe remained flat in terms of orders. The decline was attributed to macroeconomic challenges and lower customer demand.
• New Product Launches: Keysight expanded its software offerings with the acquisition of ESI Group, enhancing computer-aided engineering solutions, and Riscure Holding B.V., which provides testing solutions for semiconductor and IoT devices. Additionally, the acquisition of AnaPico AG extended the range of RF and microwave instruments.
• Future Outlook: Keysight remains focused on first-to-market solutions, with expectations for continued R&D investments in next-generation technologies such as 5G, 6G, AI, and autonomous vehicles. The company is confident in long-term growth trends despite current macroeconomic challenges.
• Operational Strategy: Keysight's strategy emphasizes investing in differentiated solutions, capturing market opportunities, growing recurring revenue, and being good stewards of capital. The company plans to invest approximately 16% of its revenue in R&D annually.
• Innovative Culture: Keysight fosters an innovative culture through its Keysight Leadership Model, which emphasizes customer success, operational excellence, and a commitment to diversity and inclusion.
• Manufacturing and Materials: The company utilizes a combination of in-house manufacturing and contract manufacturers, with centralized manufacturing in Penang, Malaysia, and other facilities in the U.S., Germany, and Japan.
• Human Capital: As of October 31, 2024, Keysight employed approximately 15,500 people worldwide, with a focus on diversity and inclusion. The company maintains a work environment that supports employee growth and innovation.

Strategic Initiatives

• Strategic Acquisitions: Keysight has undertaken strategic acquisitions to enhance its portfolio, including the acquisition of ESI Group SA for $935 million, which is expected to expand its application layer portfolio with simulation capabilities in automotive and general electronics sectors. The company is also planning to acquire Spirent Communications PLC and Synopsys' Optical Solutions Group, pending regulatory approvals, to further strengthen its market position.
• Capital Management: Keysight has been actively managing its capital through a combination of debt issuance and equity repurchases. In 2024, the company issued $600 million in 2034 Senior Notes and repaid $600 million of its 2024 Senior Notes. It also repurchased $443 million of its own shares under the stock repurchase program, which has $485 million remaining as of October 31, 2024. The company maintains a $750 million revolving credit facility, which remains undrawn.
• Future Outlook: Looking ahead, Keysight plans to continue its strategic acquisitions to drive growth and expand its technological capabilities. The company is confident in its ability to leverage its first-to-market solutions strategy to capitalize on long-term growth trends in next-generation technologies such as 5G, AI, and defense modernization. Keysight also anticipates capital spending of approximately $150 million in 2025 to support its growth initiatives.

Challenges and Risks

• Economic Risks: Global economic uncertainty, inflation, and potential recession could adversely affect operating results by increasing manufacturing costs, reducing customer purchasing power, and leading to excess inventory.
• International Risks: Operating globally exposes Keysight to risks such as trade restrictions, sanctions, and geopolitical turmoil, which could disrupt business operations and supply chains.
• Regulatory Risks: Changes in tax laws, trade policies, and compliance with international regulations could impact financial results. The company is also subject to ongoing tax examinations, which could result in additional liabilities.
• Operational Risks: Dependence on contract manufacturing and outsourcing could affect the ability to bring solutions to market. Cybersecurity threats and IT system disruptions pose significant risks to business operations and reputation.
• Market Risks: Fluctuations in demand for customer products, industry consolidation, and increased competition could adversely affect revenue and profitability.
• Environmental Risks: Catastrophic events, including those related to climate change, could disrupt operations and result in significant costs.
• Legal Risks: Ongoing litigation, such as the Centripetal Networks patent case, could result in financial liabilities and impact business operations.
• Management Strategies: Management has identified the need to invest in R&D to deliver differentiated solutions as a strategic priority. The company plans to allocate approximately 16% of its revenue to R&D annually to maintain its competitive edge. Keysight is also focusing on expanding its software and services content to grow recurring revenue and enhance customer value.
• Market Risk Management: Keysight is exposed to foreign currency exchange rate fluctuations, which could impact financial results. The company employs hedging strategies to mitigate short-term currency risks but acknowledges that these measures may not fully protect against long-term fluctuations. Additionally, volatility in the global banking industry and credit markets could affect the value of cash investments and liquidity.

SEC Filing: Keysight Technologies, Inc. [ KEYS ] - 10-K - Dec. 17, 2024