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TRANSCRIPT
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December 2016
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Keysight TechnologiesInvestor Presentation
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Safe Harbor
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This presentation contains forward-looking statements (including, without limitation, information and future guidance
on the company’s goals, priorities, revenues, demand, growth opportunities, customer service and innovation plans,
new product introductions, financial condition, earnings, the company’s ability to pay dividends, ability to access
capital markets, the continued strengths and expected growth of the markets the company sells into, operations,
operating earnings, and tax rates) that involve risks and uncertainties that could cause Keysight’s results to differ
materially from management’s current expectations. Such risks and uncertainties include, but are not limited to,
unforeseen changes in the strength of our customers’ businesses; unforeseen changes in the demand for current and
new products, technologies, and services; customer purchasing decisions and timing, and the risk that we are not
able to realize the savings or benefits expected from integration and restructuring activities. The words “anticipate,”
“plan,” “estimate,” “expect,” “intend,” “will,” “should,” “forecast,” “project,” and similar expressions, as they relate to the
company, are intended to identify forward-looking statements.
In addition, other risks that Keysight faces include those detailed in Keysight’s filings with the Securities and Exchange
Commission, including our Form 10-Q for the fiscal quarter ended July 31, 2016. Forward-looking statements are
based on the beliefs and assumptions of Keysight’s management and on currently available information. Keysight
undertakes no responsibility to publicly update or revise any forward-looking statement.
This presentation also contains non-GAAP measures. Non-GAAP measures exclude primarily the impacts of share-
based compensation, restructuring and related costs, separation and related costs, acquisition and integration costs,
acquisition-related fair value adjustments, asset impairments and non-cash intangible amortization. Also excluded are
tax benefits or expenses that are not directly related to ongoing operations and which are either isolated or cannot be
expected to occur again with any regularity or predictability. Most of these excluded amounts pertain to events that
have not yet occurred and are not currently possible to estimate with a reasonable degree of accuracy. Accordingly,
no reconciliation to GAAP amounts has been provided.
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Agenda
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Executive Overview
4 Growth Initiatives – Wireless, Modular, Software and Services
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Investor Value Proposition Commitment to Growing Long-Term Total Shareholder Returns
#1 market position in key software and hardware
platforms
Market &Technology Leadership
>25 years average industry experience
40% incrementals on revenue growth of 4% or greater
ExperiencedManagement
Team
StrongBusiness
Model
8-10% growth with a balanced return of capital to
investors
Long-termEPS
Growth*
* Non-GAAP 4
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1939–1998: The Hewlett-Packard years
A company founded on electronic measurement innovation
1999–2013: The Agilent Technologies years
Spun off from HP, Agilent became the World’s Premier Measurement Company
2014: Keysight is launched
Focused singularly on electronic design and test solutions
History of Leadership and InnovationUnlocking measurement insights for over 75 years
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KEYSIGHT TODAY:
Market and Technology Leader
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17%
49%
34%
18%
45%
37%
FY16 Revenue by Geography(1)
~10,350 Headcount
Americas
Europe
Asia Pacific
Europe
Asia Pacific
Americas
~30,000Number of customers(2)
100+Countries served
13Countries with R&D centers
$2.9BFY16 Revenue(1)
18.6%FY16 Operating Margin(1)
Data as of October 31, 2016
(1) Non-GAAP measure. See Keysights Q4’16 quarterly results at http://investor.keysight.com for a reconciliation to GAAP numbers
(2) Includes indirect channels
(3) Sites w ith greater than 70 manufacturing employees
3Manufacturing sites(3)
$2.43 FY16 EPS(1)
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Our Value to Customers - Unmatched in the Industry
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We help customers bring breakthrough electronic
products to market faster and at a lower cost
Simulate Manufacture OptimizePrototype
RadarAvionics Surveillance Satellites
ComputersAutomotive electronics
Wireless base stations
Cloud devices & interfaces
Smart phones
Customer Lifecycle
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Technology and market leader in ever-evolving technology
market
Leader in profitable
market
Target fast growing areas and expand Served
Addressable Market (SAM)
Proven operating performance and cash generation
across cycles
Transform for
growth
Strong business
model
The Keysight AdvantageCommitment to Value Creation
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• U.S. Cash Generation
• Appropriate
Leverage
• Strategic Alignment
• Growth
• Value
Creation
• Cost Structure Flexibility
• Cost Reductions
• Margin Expansion
• R&D Investment
• SAM Expansion
• Profit Leverage
A Strong Framework for Value Creation
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OrganicGrowth
Business Model
Mergers & Acquisitions
Return of Capital
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Building Strong Track Record as Independent Public Company
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Post-Separation Stabilization Complete• 6 months ahead of plan
Transforming for Growth• Organizational realignment to end markets
• Progress on growth initiatives• Investing prudently
Leveraging the Business Model• Solid FY16 Financial Results
• Flexing the cost structure
Executing Strategy and Effectively Deploying Capital• Anite and Electroservices acquisitions
• Increased R&D investment• Opportunistic share repurchase
New
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•Commercial
Communications
•Aerospace,
Defense &
Government
•Automotive
•Energy
•General
Electronics
•Semiconductor
•Calibration
•Repair
•Remarketing
• Americas
• Europe
• Asia
• Japan
• Software
Technology
• Hardware
Technology
Organizing to Grow
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Communications Solutions Group
Electronic Industrial
Solutions Group
Services Solutions Group
Mike Gasparian
Gooi Soon Chai
John Page
Worldwide Sales
Mark Wallace
Corporate Planning and
Technology
Jay Alexander
Aligned with End MarketsFirst to Market Trusted Advisor
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Strong Progress on Growth Initiatives
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Be First in 5G
Wireless
Become #1 in
Modular
Solutions
Expand
Leadership in
T&M Software
Grow Services
Business by 50%
• Double-digit order growth in FY16
• 20% increase in the number of available modular solutions
• 2016 Frost and Sullivan award for growth excellence leadership
• Triple-digit 5G order growth in FY16
• Positioning Keysight as the market leader in 5G
• Collaborating with leading consortiums, universities, and research
institutes to define 5G standards and technologies
• Double-digit order growth in FY16
• Anite acquisition materially expanded software business
• Staffing of new software design center ahead of schedule
• 9% order growth in FY16
• New opportunities in multi-vendor support, asset management,
test consulting, systems integration and training
• Continuing to win new multi-vendor business
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Superior and Sustainable Financial Performance Throughout the Cycle
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-10% Baseline* +10%
Revenue ($M) $2,700 $3,000 $3,300
Gross Margin 55%-57% 56-58% 57-59%
R&D 14% 13% 13%
SG&A 25-27% 24%-26% 23-25%
Operating Margin 15-16% 18%-19% 21-22%
Keysight Operating Model
* Baseline includes a full year of Anite f inancials. Not guidance, show n on a non-GAAP basis
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A Phased Approach to Return of Capital
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Completed 3 - 4 Years Beyond
Stabilize as an Independent Company
• Completed April 30, 2015
• 6 months ahead of schedule
Phase 1
Sustained 4% CAGR Over Cycle
• M&A is priority use of cash
• Opportunistic return of capital tied to balance sheet strength, M&A funnel, share price
• Feb 2016, $200M share repurchase authorized
Phase 2
Balanced Returnof Capital
• Return of capital tied to US cash generation
• Appropriate leverage and investment grade credit metrics
• Opportunistic M&A
Phase 3
Return
ofCapital
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Long-Term Expectations
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RevenueGrowth
Op MarginIncremental
ProfitabilityOver the Cycle
Sustainable
4% CAGR
40% on
growth of 4%
or greater
Average
operating margin
of >20%*
Committed Return of Capital
Yields 8-10% EPS* Growth
* Non-GAAP
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• Aligns with strategic growth priorities
• Increases proportion of total revenue from R&D market
• Expands Served Addressable Market (SAM)
• Focuses on faster growing market segments
or adds key technology
• ROIC materially above cost of capital (15% by year 5)
• Quickly accretive (within 18 months)
• Valuation aligns with appropriate market multiples
Keysight’s Discipline and Clear Criteria for Acquisitions
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Strategic
Alignment
Value
Creation
Growth
The Example
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Market Overview
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SegmentsCommunications
Solutions Group
Electronic
Industrial
Solutions
Group
Services
Solutions
Group
End MarketsCommercial
Communications
Aerospace,
Defense & Government
Electronic
IndustrialServices TOTAL
Revenue(1) $1B $0.7B $0.8B $0.4B $2.9B
Revenue Mix(1) 35% 25% 26% 14% 100%
Market Size(2,4) $4B $3B $4B $2B $13B
Market Share(2) 25% 23% 20% 20% 22%
Long-term
Market Growth(3)1-2% 2-3% 2-3% 2-3% 2-3%
(1) FY16 presented on a Non-GAAP basis
(2) Per Company estimates. FY16
(3) Per Company estimates. Average over 3-5 years
(4) Includes netw ork test. Excludes netw ork assurance
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Why Electronic Design and Test is an Attractive Industry for Keysight
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New Customer Needs
Deep Experience Required
Large Installed Base
Intellectual Property
Operational Excellence
Strong Profit & Cash Flow
• Drive evolving electronic design and
test solutions
• Technical knowledge gained only through
years of practical experience
• Well-positioned with loyal customers
• Performance advantages from proprietary
semiconductor technologies
• Optimized manufacturing and supply chain
• Delivering 18-19%* operating margins over
cycle and strong cash flow
SAM Expansion• Opportunity to expand SAM in adjacent
markets
* Non-GAAP
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Multiple Growth Drivers Provide Diversification
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Growth Drivers
Commercial
Communications
• Evolving standards
• All data, all the time
• Internet of Things
Aerospace, Defense &
Government
• World instability
• Defense modernization
Automotive & Energy• Evolving battery technologies
• Connected car
General Electronics • Consumer electronics demand
Semiconductor• Technology evolution
• China ramp up
Services • Customer outsourcing
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Core Platforms Market Position(1)
Simulation Software(2) #1
Network Analyzers #1
Signal Analyzers #1
Signal Sources #1
Oscilloscopes #2
One Box Testers #3
Product Leadership is Necessary but Not Sufficient
20(1) Per Prime Data and Company estimates
(2) RF/Microw ave design simulation software
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Executive Overview
4 Growth Initiatives – Wireless, Modular, Software and Services
Agenda
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Transforming for GrowthGood progress in FY16
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Be first in
5G wireless
Growth Strategies
Become #1 in
modular solutions
Expand leadership in
T&M software
Grow services
business by 50%
• Software-centric solutions
• Organic R&D investments
• Strategic M&A
5G
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Wireless & Software Growth Initiatives
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Persistent Growth in Data Drives Wireless Investment
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– Desire for instantaneous data
in all devices
– IoT significantly increases number
of connected devices
– Adjacent markets such as
Automotive and Medical add
to data growth
– Public service sectors such as fire
and police adopt 4G technologies
30B+
Mobile Data Traffic*
15B
Drivers Results
• 57% CAGR 2014-19
• 10x increase next 5 years
Today 2020
Connected Devices*
* Per Company estimates and Cisco Visual Netw orking Index (VNI) forecast
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5G Collaborations Underway
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Keysight collaborating with over 30 entities world wide
– Consortia write the 5G standard
5GPPP, mmMAGIC, METIS II (Europe); Future Forum (China)…
– Major universities conduct 5G research
New York University Wireless, Bristol University, Southeast University Nanjing
– Commercial customers implement 5G
China Mobile, Datang, Korea Telecom, NTT DOCOMO (Japan)…
5G Timeline
2010-2015
Early Research
2016-2018
Develop
Standards &
Early Trials
2018-2020
Formal Trials
2020+
Commercialize,
Deploy
Examples of Keysight collaborations
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Delivering First-to-Market Solutions for 5G
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Keysight introduced >10 targeted 5G
solutions in the past year
Simulate Prototype Manufacture Optimize
Ramping in 1-3 years
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Simulate Prototype Manufacture Optimize
Simulation Software Measurement Software
Keysight’s Software Business Today –Well-Positioned and Growing
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– Revenues over $400M
– $2B market for electronic test software, ~7% CAGR*
– Gross margins ~30 points above Keysight aggregate
– Growth opportunities across all end markets
Per company estimates
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Software Growth Strategy
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Expand simulation business− to address growth opportunities in High-Speed
Digital and Power design
Deliver solutions focused on growth segments− deliver R&D (prototype test) solutions focused on
growth segments such as 5G Communications,
Power, and Automotive
Pursue selective acquisitions − like Anite to increase our overall software content
Grow subscriptions and services− implement software capabilities to enable revenue
growth from subscriptions and from services
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Modular Solutions Growth Initiative
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Keysight Intends to be #1 in Modular Solutions
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Keysight is growing much faster than
overall modular solutions market
Keysight has a highly differentiated position
Keysight is the trusted advisor for customers’
application needs
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43%Other
Modular
57%PXI/AXIe
Modular
Fast Growing ModularStill Small Portion of Total Market
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2014 Modular Solutions Market
$1.1 Billion*
2016 Total Design & Test Market
$13 Billion*
* Per Company estimates
0
2
4
6
8
10
12
14
16
18
2015 2016 2017 2018 2019 2020
$B$625M*
PXI/AXIe
Modular
15% CAGR*
to 2020
PXI/AXIe
Modular
15% CAGR*
Keysight’s double-digit growth
continued in FY16
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Keysight Modular: PXI and AXIeIndustry Standards for Test and Measurement
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PXIPCI eXtensions for Instrumentation
AXIeATCA* eXtensions for Instrumentation
− Maintained by PXI Systems Alliance
− High-performance for measurement and automation applications
− Members include: ADLINK, Cobham Wireless, Keysight, Marvin Test
Solutions, National Instruments, Pickering, Teradyne…
− Maintained by AXIe Consortium
− “Big brother to PXI”
− More power, more performance per rack inch
− Members include: ADLINK, Anritsu, Cobham, Elma Electronic, Giga-tronics, Guzik Technical Enterprises, Keysight,
Modular Methods, Test Evolution…
* Advanced Telecom Computing Architecture
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“X-Chips” Analog Chipset
• Highly integrated• High performance
• Low power
Handheld
N9918A FieldFox
Microwave Analyzer
Feature Rich Box
N9030A
Signal Analyzer
Modular
M9375A
Network Analyzer
Proprietary intellectual property
developed by central Keysight Labs, manufactured at in-house
semiconductor fab, and deployed
into all three form factors
COMPETITIVE DIFFERENTIATION:
Investments Leveraged into Multiple Form Factors
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Feature Rich Box Modular Handheld
• R&D
• Validation
• Complex device manufacturing
• Full measurement set
• One-button measurements
• Shared equipment in lab
• Manufacturing
• R&D
• Validation
• Small footprint
• Flexible configuration
• Multi-channel applications
• Installation
• Maintenance
• Portability
• Harsh environments
Customer
Best For
UNIQUE VALUE:
Keysight Offers All Form Factors Meeting the Needs of Customer Applications
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HIGHLY DIFFERENTIATED POSITION:
A Trusted Advisor with >75 Years of Expertise
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– Only supplier that offers all form factors to provide complete solutions
that best fit customer needs
– Leverage leading-performance technologies into multiple form factors
– Use common measurement software across all form factors to ensure
measurement accuracy and consistency
– Provide global support network
– Deliver world-class product reliability
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Services Growth Initiative
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Keysight Services is Ideal Growth Opportunity
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Adds $1B* in new
addressable services
opportunities
Aligns with Keysight
solutions strategy
StrategyAlignment
Customer Needs Alignment
ExpandsAddressable Market
$1B Services
$0.5B Anite
Network Test
$11.5B Total
$13B
Outsource
Reduce costs
Asset utilization
Expertise &
consulting
COST
* Per Company estimates
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Today: Strong Customer Services Foundation
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– Calibration
– Repair
– Used equipment
– Global footprint
• Service centers in 30 countries
• Affiliated with 35 calibration
standards bodies in 17
countries
$402M FY16 Services Revenue
– Third-party maintainers
– Original equipment manufacturers
Competitors
Business Focus
Used
Equipment Calibration
Repair
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Goal: Increase Services Revenue 50% by 2020
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2016
$402M Revenue
2020
$600M Revenue
CalibrationUsed
Equipment
Repair
Used
Equipment
Calibration
“Plus”
Repair
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Grow by Expanding Technology Management Services
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Mult i-Vendor,
Extended SupportKeysight Repair and
Calibration
Traditional Offerings
Technology
RefreshUsed Equipment
Instrument & Asset
ManagementInstrument Tracking
Pre-Sales ConsultingProfessional Services
Business
Expanded Offerings
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Moving Up the Customer Value Chain Drives Growth
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Calibration
Asset mgmt. and technology refresh
Professional services
Repair
Multi-vendor calibration
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Attractive Characteristics of the Services Business
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– Immediate opportunities large installed base
– Increases served addressable market access new dollars
– Greater account control strategic selling
– Stable revenue stream less cyclicality,
multi-year contracts
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Key Messages
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Technology and market leader in
ever-evolving technology market
4% revenue CAGR
Deliver >20% operating margin
8-10% EPS growth
Transformation
Objectives
Over the Cycle*Leader in profitable
market
Target fast growing areas
and expand Served Addressable
Market (SAM)
Proven operating performance
and cash generation across cycles
Transform for
growth
Strong business
model
* Non-GAAP measure