10-Q: Keysight Reports Strong Q1 Growth Driven by Acquisitions

Keysight Technologies reports a significant increase in revenue and net income for Q1 2026, fueled by strategic acquisitions and robust demand in next-generation technologies.

Summary

• Total revenue for the three months ended January 31, 2026, increased by 23% to $1,600 million, compared to $1,298 million in the prior year period.
• Net income surged by 67% to $281 million, up from $169 million in the same period last year, resulting in diluted EPS of $1.63, a 68% increase.
• Total orders grew by 30% year-over-year to $1,645 million, with foreign currency movements contributing 1 percentage point and acquisitions contributing 7 percentage points to this growth.
• The company completed three significant acquisitions in October 2025: Spirent Communications plc for $1,564 million, Synopsys Optical Solutions Group (OSG) for $581 million, and Ansys PowerArtist for $26 million.
• A new stock repurchase program was approved on November 24, 2025, authorizing the purchase of up to $1,500 million of common stock, with $1,413 million remaining as of January 31, 2026.
• Operating cash flow increased by $63 million to $441 million for the quarter, compared to $378 million in the prior year.
• The effective tax rate for the quarter was a benefit of (42%), primarily due to $106 million in net income tax benefits from discrete items, including a $93 million favorable audit settlement.

Sentiment

Score: 8

Explanation: StockSavvy.ai views this as a strong positive report, driven by robust revenue and net income growth, strategic acquisitions, and healthy cash flow. While gross and operating margins saw slight pressure, the overall performance and future outlook are highly favorable, despite ongoing legal and tax uncertainties.

Positives

• Revenue increased by 23% to $1,600 million, demonstrating strong top-line growth.
• Net income grew by 67% to $281 million, significantly boosting profitability.
• Diluted EPS rose by 68% to $1.63, indicating enhanced shareholder value.
• Total orders increased by 30% to $1,645 million, suggesting strong future revenue potential.
• Strategic acquisitions of Spirent Communications plc, Synopsys Optical Solutions Group, and Ansys PowerArtist expanded the company's market position and capabilities.
• Net cash provided by operating activities increased by $63 million to $441 million, reflecting healthy cash generation.
• A new $1,500 million stock repurchase program was authorized, signaling confidence in the company's valuation and commitment to returning capital to shareholders.
• The Communications Solutions Group (CSG) revenue increased by 27%, driven by demand in high-speed networks for AI capabilities and aerospace/defense solutions.
• The Electronic Industrial Solutions Group (EISG) revenue increased by 15%, fueled by AI-driven demand for advanced semiconductor technologies and automotive solutions.
• A favorable audit settlement resulted in a $93 million net income tax benefit, significantly lowering the effective tax rate to (42%).

Negatives

• Gross margin decreased by 0.9 percentage points to 62.2%, primarily due to the impact of tariffs, higher acquisition-related amortization, and increased people-related costs.
• Operating margin decreased by 1.3 percentage points to 15.5%, mainly due to gross margin declines.
• Interest expense increased by 46% to $29 million, up from $20 million in the prior year.
• Other income (expense), net, shifted to an expense of $37 million, compared to an expense of $18 million last year, primarily driven by net losses on equity investments.
• The company recorded a $4 million impairment charge related to the cancellation of an in-process R&D project.
• The aggregate of income taxes payable and receivable used net cash of $94 million, compared to providing $29 million in the prior year, partly due to the one-time discrete tax items.

Risks

• Economic, political, and other risks associated with international sales and operations, including U.S. sanctions, trade restrictions, tariffs, and geopolitical turmoil, could adversely affect results.
• Volatility and uncertainty in general economic conditions, such as inflation or potential recession, may impact customer purchasing power, demand, inventory, and pricing.
• Economic and political policies favoring national interests, including increased tariffs and export control regulations, could increase transaction costs, reduce access to components, and decrease demand.
• Volatile geopolitical turmoil, including regional conflicts (e.g., Russia-Ukraine, Middle East, China-Taiwan tensions), could lead to market instability, increased costs, and cybersecurity risks.
• Operating results and financial condition could be harmed if markets decline or do not grow as anticipated, leading to reduced, delayed, or canceled orders.
• Failure to introduce successful new solutions and services in a timely manner could lead to technological obsolescence and reduced revenue.
• Investments in innovative technologies may not be as profitable as anticipated, impacting financial results.
• Inability to adjust purchases to changing market conditions or accurately estimate customer demand could result in excess and obsolete inventory and additional charges.
• Dependence on contract manufacturing and outsourcing could adversely affect the ability to bring solutions to market and damage reputation if providers fail to perform.
• Manufacturing capacity not matching demand could lead to adverse effects on income and operating results during upturns or downturns.
• Key customers or large orders may expose the company to additional business and legal risks, including reduced sales due to trade restrictions.
• Industry consolidation among competitors or customers could lead to increased competition, reduced demand, and pricing pressures.
• Acquisitions, strategic alliances, joint ventures, internal reorganizations, and divestitures may result in financial results different from expectations, including integration difficulties and potential impairment charges.
• The need for additional financing in the future may not be available on favorable terms and could be dilutive to existing shareholders.
• Outstanding debt and potential future debt incurrence could adversely affect financial condition, liquidity, and results of operations through interest payments and restrictive covenants.
• Volatility in currency exchange rates could adversely impact financial results, as hedging programs do not eliminate all risk, especially long-term.
• Ongoing tax examinations by the IRS and other tax authorities could result in adverse outcomes and material impacts on results of operations and financial condition.
• The effective tax rate may be adversely impacted by changes in business mix or tax legislative landscape, including the potential reversal of a $107 million tax benefit if a lawsuit against the U.S. is unsuccessful.
• Loss to factories, facilities, or distribution systems due to catastrophic events, including those caused by climate change, could significantly harm operations.
• Commitment to net zero emissions by fiscal year 2040 will be subject to significant costs and regulations, potentially impacting business operations, revenue, and reputation.
• Third parties may claim infringement of intellectual property rights, leading to costly litigation, licensing expenses, or injunctions against product sales.
• Third parties may infringe Keysight's intellectual property rights, leading to competitive injury or significant enforcement resources.
• Significant cybersecurity attacks or disruptions in IT systems or products could adversely affect business, reputation, and operating results, including risks from AI tools.
• Risks associated with the use of AI tools, including competitive disadvantages, legal/regulatory risks, reputational damage, and unintended consequences.
• Inability to retain and hire key personnel, including challenges with immigration processes, could hinder meeting key objectives.
• Failure to maintain satisfactory compliance with various regulations (export, sanctions, data privacy, environmental, DEI) could result in financial penalties and operational disruptions.
• Failure to comply with anti-corruption laws could adversely affect business and result in financial penalties.
• Adverse conditions in the global banking industry and credit markets may impact the value of cash investments or impair liquidity.
• Future investment returns on pension assets may be lower than expected or interest rates may decline, requiring significant additional cash contributions.
• Environmental contamination from past or ongoing operations could subject the company to unreimbursed costs and liabilities.
• The company's share price may fluctuate significantly due to various market and company-specific factors.
• The company does not currently pay dividends on its common stock, which may not appeal to all investors.
• Certain provisions in the company's certificate of incorporation and bylaws, and Delaware law, may prevent or delay an acquisition, potentially decreasing the trading price of common stock.
• The exclusive forum provision in the certificate of incorporation may limit shareholders' ability to bring certain lawsuits in preferred judicial forums.

Future Outlook

Keysight Technologies maintains a 'first-to-market solutions' strategy, expecting continued customer R&D investments in next-generation technologies such as 5G evolution, early 6G, quantum computing, high-speed data center networks, satellite networks, artificial intelligence (AI), industrial IoT, defense modernization, and next-generation electric and autonomous vehicles. The company is confident in the long-term secular growth trends of its markets and its ability to outperform in various market conditions. Capital spending is projected to be approximately $160 million in 2026, primarily for capacity expansion and technology investments. The company does not expect to contribute to its U.S. defined benefit and post-retirement plans for the remainder of 2026 but anticipates contributing $10 million to non-U.S. defined benefit plans.

Management Comments

• Our mission, accelerating innovation to connect and secure the world, speaks to the value we provide our customers in a world of ever-increasing technological complexity.
• We deliver this value through a broad range of design, emulation, and test solutions that address the critical challenges our customers face in bringing their innovations to market on ever-shorter schedules.
• We invest in research and development (R&D) to align our business with available markets and position the company for growth.
• We anticipate that we will continue to have significant R&D expenditures in order to maintain our competitive position with a continuous flow of innovative, high-quality software, solutions, products, and services.
• We remain committed to investment in R&D and have focused our development efforts on strategic opportunities to capture future growth.
• Our first-to-market solutions strategy enables customers to develop new technologies and accelerate innovation and provides a platform for Keysight's long-term growth.
• We continue to engage actively with our customers and closely monitor the macroeconomic environment, including tariffs, trade restrictions and tightening of export control regulations, monetary and fiscal policies, and geopolitical tensions.
• We remain confident in the long-term secular growth trends of our markets and our ability to outperform in a variety of market conditions.

Industry Context

StockSavvy.ai notes that Keysight's strong performance is aligned with broader industry trends, particularly the escalating demand for advanced testing and emulation solutions driven by the rapid expansion of AI capabilities, high-speed data center infrastructure, and the ongoing evolution of 5G and early 6G technologies. The company's strategic acquisitions in communications test and optical solutions position it well to capitalize on these secular growth trends. Continued R&D investments in areas like quantum computing, industrial IoT, defense modernization, and next-gen electric and autonomous vehicles reflect a proactive approach to emerging high-growth segments, indicating a robust market for advanced electronic design and test solutions.

Comparison to Industry Standards

• The filing does not provide specific comparable companies, projects, or detailed results for direct industry-specific financial comparisons beyond general market trends. It mentions a 'peer group' in the context of valuing TSR-based performance awards, but no specific financial or operational benchmarks against named competitors are provided.

Corporate Governance

Legal Proceedings

• Centripetal Networks filed a lawsuit in Federal District Court in Virginia on January 1, 2022, alleging patent infringement. Keysight has challenged the validity of eight patents at the USPTO, with most claims found invalid. Appeals are ongoing, and the Federal Circuit Court of Appeals affirmed the invalidation of one patent's claims in January 2026. The lawsuit is stayed pending appeals.
• Centripetal filed complaints in Germany in February 2022 alleging infringement of three German patents. Two patents were invalidated, and Keysight was ordered to repay costs in one case. The third patent had all but one claim invalidated at trial and is under appeal.
• Centripetal filed a complaint with the International Trade Commission (ITC) in April 2022. On December 5, 2023, the ITC determined Keysight did not unfairly import products in violation of Section 337, terminating the investigation. Centripetal has appealed this determination, and a hearing occurred in January 2026.
• On August 21, 2024, Keysight was served in Germany with a complaint filed in the Unified Patent Court (UPC) alleging infringement of a European Centripetal patent. In December 2025, the UPC determined Keysight did not infringe, and the EPO revoked the patent in November 2025. Centripetal is appealing both determinations.
• Keysight filed a lawsuit against the United States of America on January 23, 2025, in the U.S. Court of Federal Claims, seeking a $107 million tax refund related to the deductibility of intangible asset amortization for GILTI purposes. The outcome is uncertain, and an unsuccessful defense could materially increase the effective tax rate and income tax liability.

Stakeholder Impact

• Shareholders: Benefit from strong revenue and net income growth, increased EPS, and a new stock repurchase program, but face potential risks from ongoing legal proceedings and tax uncertainties.
• Employees: Increased headcount due to acquisitions, indicating growth and expanded opportunities, with share-based compensation programs in place.
• Customers: Benefit from Keysight's 'first-to-market solutions' strategy and significant R&D investments in next-generation technologies, leading to advanced product offerings.
• Suppliers: May be impacted by supply chain disruptions and changes in trade policies, including tariffs, which the company is actively mitigating.
• Creditors: The company maintains stable long-term debt and has an undrawn revolving credit facility, indicating a solid financial position to meet obligations.

Next Steps

• Finalize the purchase price allocation for the OSG acquisition in the second quarter of fiscal year 2026.
• Evaluate the potential implications of the U.S. Supreme Court ruling on tariffs and ongoing tariff actions, including possible eligibility for refunds.
• Continue to monitor and assess the potential impact of ongoing tariff actions on financial results.
• Continue R&D investments in key growth opportunities and leading-edge technologies, including 5G evolution, early 6G, quantum computing, AI, and autonomous vehicles.
• Contribute an expected $10 million to non-U.S. defined benefit plans for the remainder of 2026.
• Execute planned capital spending of approximately $160 million in 2026 for capacity expansion and technology investments.
• Aggressively defend against ongoing patent infringement lawsuits filed by Centripetal Networks.
• Vigorously defend the lawsuit against the United States of America seeking a $107 million tax refund related to GILTI intangible asset amortization.

Key Dates

Recommendation

Keysight Technologies demonstrates exceptional financial performance with significant year-over-year growth in revenue (23%), net income (67%), and diluted EPS (68%). The 30% increase in total orders signals robust demand and a strong pipeline. Strategic acquisitions of Spirent, OSG, and PowerArtist are expanding market reach and technological capabilities, particularly in high-growth areas like AI, 5G/6G, and advanced semiconductors. While there's a slight dip in margins due to integration costs and tariffs, the underlying business momentum, healthy operating cash flow, and a substantial new stock repurchase program underscore a compelling investment thesis. The ongoing legal and tax challenges, while notable, appear to be well-defended and are not currently overshadowing the strong operational and strategic advancements. This filing suggests a company executing effectively on its growth strategy in critical technology markets.

Keywords

Keysight Technologies, 10-Q, Quarterly Report, Financial Results, Revenue Growth, Net Income, EPS, Acquisitions, Spirent Communications, Synopsys Optical Solutions Group, Ansys PowerArtist, Stock Repurchase, Cash Flow, Operating Margin, Gross Margin, R&D Investment, 5G, 6G, Quantum Computing, AI, Data Center, Aerospace Defense, Semiconductor, Automotive, IoT, Tariffs, Patent Litigation, Tax Refund, Cybersecurity, ESG, Net Zero Emissions