Keysight Reports Record Orders and Revenue as AI Demand Grows

Electronic design and test company Keysight Technologies provides tools for the networks, optical systems and semiconductor technologies used in AI infrastructure. While chipmakers and hyperscalers build increasingly large AI systems, Keysight supplies equipment used to test the networks and components connecting them.

Keysight reported $1.846 billion in revenue for its fiscal third quarter, up 36% from a year earlier, while orders increased 56% to $2.91 billion. Commercial communications revenue rose 56% and crossed $1 billion for the first time.

AI Demand Is Increasing the Need for High-Speed Networking

Wireline communications, which covers the high-speed connections used to move data through AI infrastructure, has become a major source of growth for Keysight. During the earnings call, CEO Satish Dhanasekaran said wireline revenue exceeded wireless revenue for the first time, with AI-related demand contributing to the increase.

AI data centers require networks capable of moving larger volumes of data between processors. Chipmaker AMD has described networking as an increasingly important factor in AI system performance as clusters expand and move toward higher-speed connections. Keysight sells testing and workload-emulation systems for those networks.

In March, Keysight introduced AresONE 1600GE, a 1.6-terabit Ethernet AI workload-emulation platform. The company says the system is designed to help chipmakers, network equipment companies, hyperscalers and AI data center operators validate large-scale AI fabrics using emerging 224G electrical lanes.

Keysight's Communications Solutions Group generated $1.345 billion in third-quarter revenue, up 43% on a reported basis, with an operating margin of 34%.

HPE has also reported growth in its networking business as customers invest in infrastructure for AI workloads.

AI Data Centers Require Faster Optical Systems

Higher network speeds require optical connections capable of carrying more data between components. Keysight has been expanding its photonics portfolio as data center operators prepare for higher-bandwidth links.

In June, Keysight completed its acquisition of VPIphotonics, adding system-level photonic simulation to its design portfolio. Keysight says the combined tools allow engineers to evaluate photonic systems from individual components through complete optical links. Keysight's photonic simulation and testing tools are designed to evaluate optical and electrical components as part of complete links.

Microsoft and 3M are also developing optical connectivity for high-density AI data centers, with Microsoft Azure set to use 3M's Expanded Beam Optical technology.

Keysight's Electronic Industrial Solutions Group also serves the semiconductor market. The segment generated $501 million in third-quarter revenue, up 21%, with the company citing demand in semiconductor wafer testing, advanced nodes, memory and silicon photonics.

Applied Materials raised its outlook in May and pointed to continued semiconductor investment tied to AI infrastructure.

Record Orders Face Supply Constraints

Keysight's ability to convert orders into revenue is currently constrained by supply.

Orders reached $2.91 billion in the third quarter, and management said the pipeline remained at an all-time high. Steve Yoon, Senior Vice President of Global Sales, said the company had added nearly 3,000 customers year to date and expected orders to remain above $2 billion for a third consecutive quarter in Q4.

CFO Neil Dougherty said incoming parts were facing high demand across the broader ecosystem and that supply, rather than demand, was limiting revenue conversion. He expects supply to remain a governor of revenue for the next two quarters.

Supply constraints have also affected components and manufacturing capacity used in AI infrastructure.

Keysight expects fiscal fourth-quarter revenue of $1.93 billion to $1.95 billion, with the midpoint representing 37% year-over-year growth, and earnings per share of $3.34 to $3.40.

Dhanasekaran described AI adoption as being in its early stages and expects AI-related demand to extend into wireless and automotive markets as customers ramp 1.6-terabit transceivers.

Keysight is also developing technology for 6G. Management expects the industry to coalesce around early 6G standards for 2029. Dhanasekaran identifies AI-RAN, integrated sensing and communications, and non-terrestrial networks as areas that will form part of the 6G market.