tapebrief
KEYS · Q2 2026
Preliminary brief— based on press release only. Full analysis including management tone and Q&A will be added when the transcript is available.

KEYS · Q2 2025 Earnings

Keysight Technologies

Reported May 20, 2025

30-second summary

Revenue grew 7.4% YoY to $1.306B with orders of $1.316B, and management lifted the FY25 revenue growth outlook to the midpoint of the 5–7% long-term target while flagging Q3 as the peak quarter for tariff drag. EISG returned to growth after six quarters of decline, CSG re-accelerated to +9%, and free cash flow margin hit 35%. The signal: this is a confidence raise into a tariff headwind, not in spite of an unknown one.

Headline numbers

EPS

Q2 FY2025

$1.70

Revenue

Q2 FY2025

$1.31B

+7.4% YoY

Gross margin

Q2 FY2025

62.4%

Free cash flow

Q2 FY2025

$0.46B

Operating margin

Q2 FY2025

15.8%

Key financials

Q2 FY2025
MetricQ2 FY2025YoY
Revenue$1.31B+7.4%
EPS$1.70—
Gross margin62.4%—
Operating margin15.8%—
Free cash flow$0.46B—

Guidance

Prior quarter data unavailable — comparison not possible.

Product revenue

Q2 FY2025
SegmentQ2 FY2025YoY
Communications Solutions Group (CSG)$0.913B+9.0%
Electronic Industrial Solutions Group (EISG)$0.393B+5.0%
Aerospace, Defense and Government$0.301B+9.0%
Commercial Communications$0.612B+9.0%

Management tone

The dominant shift this quarter is from "slow, gradual recovery" framing to raising the bar mid-year. Management opened the year saying they expected a gradual climb and now state they are "exactly on" that trajectory — then used the print to lift FY25 revenue growth to the midpoint of the 5–7% target and EPS growth to slightly above the 10% long-term target. That is a confidence move, not a hold.

Wireline has been re-cast from cyclical infrastructure spend to a multi-year secular engine. Management's language — "the challenges in the digital infrastructure that's being put in place for AI are very different… what might be an interconnect really turns into a mission critical fail point if it's not performing right and the cost of failure gets up pretty substantially" — elevates Keysight's role from commodity test vendor to mission-critical validator. The expanding ecosystem of silicon photonics customers reinforces this is content expansion, not just unit growth.

Tariffs are framed as an operational problem, not a demand problem. Management quantified gross annual exposure at $75–100M, absorbed $7M in Q2, projected Q3 as peak, and committed to full mitigation by year-end through supply chain realignment and forward-looking pricing on new quotations starting mid-April (backlog unaffected). The verbatim posture — "we are working to further reduce this exposure and offset any remaining impact… by the time we get to Q1, we expect to have those tariff costs fully mitigated" — signals confidence that supplier flexibility outpaces peers.

EISG's tone shifted from "demand mixed" to growth-resumed. The phrasing — "the demand environment remains mixed while the revenue returned to growth after six quarters of decline" — is hedged on demand but unambiguous on the inflection. Automotive and China remain the drags; semi capex and general electronics did the lifting.

Hedges remain on macro and China, but they are perimeter caveats around a raised outlook rather than the central message. Confidence level: 4/5.

Recurring themes management leaned on this quarter:

AI-driven data center infrastructure as multi-year secular tailwindWireline optical and silicon photonics migration expanding content and TAMAerospace defense modernization globally with record prime contractor backlogsSoftware and services mix expansion (36% of revenue, 28% ARR) as margin hedge and R&D engagement leverTariff mitigation through supply chain agility and forward-looking pricing, minimal near-term customer demand impactRecovery trajectory on track with strong pipeline and backlog ($2.4B) offsetting macro uncertainty

Risks management surfaced:

Tariff exposure of $75-100M gross annually with $7M realized in Q2, peak impact expected in Q3China demand weakness in general electronics manufacturing and automotive segmentsContinuing resolution limiting U.S. defense budget predictability (though not limiting new programs)Macro uncertainty and customer tariff/geopolitical monitoring creating potential demand volatilitySmartphone supply chain softness in certain segments offsetting wireless infrastructure strength

What to watch into next quarter

Tariff absorption math: Q3 is flagged as peak impact. Watch whether Q3 non-GAAP operating margin holds near the 15.8% Q2 level, or compresses materially. Mitigation slipping past fiscal year-end would be the first crack in this story.

EISG durability: One quarter of growth after six down quarters is an inflection, not a trend. Watch whether EISG posts a second consecutive growth quarter and whether automotive stops being a drag.

Orders run-rate: Q2 orders of $1.316B were above revenue. Watch whether Q3 orders sustain a book-to-bill ≥1, particularly given Q3 guidance midpoint ($1.315B) implies roughly flat sequential revenue.

Wireline customer concentration: Management cited an "expanding ecosystem" of silicon photonics customers. Watch any disclosure of customer count or share-of-wallet that confirms breadth versus a hyperscaler-led concentration risk.

Software/services mix: 36% of revenue and 28% recurring this quarter. Watch whether the mix continues climbing, since it is the explicit hedge management is leaning on to protect gross margin against tariff-driven hardware cost inflation.

Sources

  1. Keysight Q2 FY2025 press release (SEC filing): https://www.sec.gov/Archives/edgar/data/1601046/000160104625000053/exhibit991-q225pressrelease.htm
  2. Keysight Q2 FY2025 earnings call prepared remarks (management commentary on tariffs, FY25 raise, segment dynamics)

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