Keysight Technologies (KEYS - Free Report) is a $19 billion provider of electronic design, measurement and test instrumentation systems. Keysight emerged as a public company from the 2014 move by Agilent Technologies to split apart divisions. 

KEYS provides specialized electronics solutions to dozens of industries including aerospace and defense, automotive and energy, telecommunications, government and education, and, of course, semiconductors.

Keysight calls the top 25 technology enterprises in the world customers, and 78 of the Fortune 100, including Alphabet (GOOGL - Free Report) , Amazon (AMZN - Free Report) , AT&T, Broadcom, Boeing, Cisco, Microsoft (MSFT - Free Report) , NVIDIA (NVDA - Free Report) , Samsung, Tesla (TSLA - Free Report) and Toyota.

In fiscal 2019 (ended October), the company generated revenues of $4.312 billion, up 10% over the 2018 tally. In its Q4 reported on November 26, KEYS delivered sales of $1.122 billion, up 7% year over year.

Keysight generated 40.5% of non-GAAP revenues from Americas in fourth-quarter fiscal 2019. Meanwhile, revenues from Europe and Asia Pacific came in at 15.4% and 44.1%, respectively.

Evolving for the Hyper-Speed IoT/5G/AI World

As Keysight has prepared itself for advanced capabilities in wireless and mobile data environments, management sees a transformation from a hardware-centric product company to a software-centric solutions one.

In the company's most recent investor presentation in May, they outlined the evolution of their new "go-to-market" strategy thus...

Old model of scattered selling across separate channels to multiple divisions:

• Individual Products with hardware bias
• Slower, complex decision-making due to multiple owners interfacing with customers
• Incentivized and compensated on “parts” of a solution 

New model of total system designs:

• Complete Solutions: Hardware + Software + Services
• Faster customer commitments and solution development; one decision owner
• Incentivized and compensated on total customer solutions by industry organization 

Keysight management also announced their goal to be a top 5G solutions provider and have several first-to-market 5G design wins.

And this strategic focus on "complete solutions" also keeps them at the heart of other bleeding-edge innovations in machine learning and artificial intelligence where the requirements for hardware to be embedded with specialized software stacks is only increasing.

Segment Breakdown

Keysight reports under three operating segments namely Communications Solutions Group or CSG, Electronic Industrial Solutions Group or EISG and Ixia Solutions Group (a 2017 acquisition) or ISG. In a bid to remove ambiguity in the reporting processes, Keysight removed Services Solutions Group or SSG as a discrete reportable segment, from first-quarter fiscal 2019.

Under CSG segment (62.9% of the non-GAAP revenues in fourth-quarter fiscal 2019), the company offers radio frequency (RF) and microwave test instruments and allied software, and electronic design automation (EDA) software instruments, laser source products, optical amplifiers, and other software solutions.

EIS Group (25.3%) accounts for design verification devices; general purpose test and measurement equipments; end-to-end manufacturing systems, and material analysis devices.

ISG (11.8%) was formed after conclusion of Ixia buyout on Apr 18, 2017. Under the segment, Keysight offers test and visibility solutions, and software maintenance services.

Quiet, Steady Growth that Investors Favor

Keysight's fortunes and stock price certainly benefited from the tailwinds for the semiconductor industries that were able to shake off supply chain disruptions from the tariff battles.

Even before the hype over 5G, smart technology investors were tuning out the trade war and focusing on the major trends as I described in my 2018 report and video The Technology Super Cycle.

But you may be surprised to learn that the 70% advance of KEYS shares in 2019 -- to trade at 4.5X sales and 20X EPS -- is about to be challenged by revenue growth rates for the current fiscal year and next that are expected to slow to around 6.5%, with EPS growth down to just under 10%.

Yet this growth has been enough for Wall Street because its exceeding the plan that KEYS management laid out in 2015 where they expected 4-5% CAGR.

And management is also delivering on its promise to turn 17-18% operating margins into 20%-plus. They certainly keep giving positive surprises with the past 4 quarters averaging a +19% EPS beat.

With global leadership positions in their key markets, the company currently maintains a 24% market share in a $16-17 billion addressable market. 

That market will keep expanding as new technologies in 5G, data centers, aerospace and autos evolve. Keysight's strategic "complete solutions" approach to serving the world's biggest tech, hardware, communications and transportation companies will keep them growing at a steady 4-5% right along with those markets -- especially as their customers seek more specialized and custom electronics solutions that KEYS has the platform and vision for.