Keysight rides converging tech wave as wireline overtakes wireless

AI infrastructure and Ethernet reshape the communications core

Keysight opened fiscal 2026 with the air of a company that has finally found itself at the confluence of all the themes it has been sketching for several years. Revenue in the first quarter surged 23 per cent year on year to $1.6bn, well above the top end of guidance, while orders accelerated even faster, up 30 per cent. Management’s narrative rested on a deceptively simple claim: multiple secular waves, once staggered, are now breaking simultaneously – and on Keysight’s shoreline.

At the heart of that story sits the Communications Solutions Group, which delivered $1.124bn of revenue, up 27 per cent on a reported basis and 16 per cent on a core basis. The most striking datapoint was within commercial communications: wireline revenue of $758m grew 33 per cent and, for the first time, surpassed wireless. That cross‑over is more than a line on a chart. It mirrors the architectural shift in AI data centres from bespoke interconnects to high‑speed Ethernet fabrics and increasingly optical-heavy infrastructure.

Chief executive Satish Dhanasekaran framed the wireline surge around four intertwined drivers. First, hyperscalers and their ecosystems are scaling AI infrastructure aggressively, both in “scale-up” and “scale-out” topologies, and grappling with the systemic performance implications of ever larger clusters. Keysight is selling not just point instruments but “full stack” validation across electrical, optical, RF and protocol layers from early silicon through deployment.

Second, the industry’s move to 800G and 1.6T Ethernet – with R&D already pushing on 3.2T and 448Gbps per lane – is widening the test and measurement aperture. Keysight’s oscilloscopes, arbitrary waveform generators and high‑speed digital/optical tools are positioned as the metrology backbone for next‑generation switching silicon, SerDes and interconnects.

Third, the optical share of the data-path is rising. As AI racks hit power and bandwidth ceilings, optical interconnects are being pulled deeper into the system: 800G and 1.6T modules today, co-packaged optics and optical circuit switching tomorrow. Keysight’s recently introduced digital and lightwave communication analyzers, along with tunable lasers and polarization synthesizers, are pitched at silicon photonics workflows that must satisfy both standards compliance and unforgiving yield targets.

Finally, as clusters scale, system-level validation and benchmarking has become a non-negotiable. The company stressed demand for workload emulation that can mimic real AI traffic and stress conditions before deployment, a niche where its protocol and network emulation assets – now bolstered by the acquisition of Spirent – should carry pricing power.

All told, Keysight estimates that AI‑related revenue, which it had sized at roughly 10 per cent of company sales by late last year, is now growing at a rate “significantly above” the already-strong 30 per cent order growth of the overall business. Perhaps more tellingly, the AI customer base has doubled, extending from US hyperscalers and chipmakers into manufacturing ecosystems, “neoclouds” and more international accounts, particularly in Southeast Asia.

Wireless, far from being cannibalised, delivered “healthy growth” underpinned by a different constellation of themes: non‑terrestrial networks (NTN), early 6G research and AI at the edge. Keysight highlighted a live NR‑NTN connection with Samsung in a 3GPP satellite band and noted that its Spirent PNT portfolio now extends its reach in satellite emulation. Standardisation work around 6G integrated sensing and communication is gathering pace, with Keysight collaborating with MediaTek ahead of high‑profile demonstrations slated for the 2028 Los Angeles Olympics. The company also touted early wins for its RaySim AI RAN offering, which uses emulated real‑world network environments to train AI models for network functions – an example of AI both driving and being embedded within Keysight’s solutions.

Defense, semiconductors and energy: broadening the growth canvas

The aerospace, defense and government (ADG) business delivered revenue of $366m, up 18 per cent year-on-year, with record first‑quarter orders. Here, the macro context is painfully clear: rising geopolitical tension and the re‑armament of NATO members are translating into what Dhanasekaran called a “structural tailwind”. Orders spanned spectrum operations, radar, space and satellite systems and production automation.

In North America, US “primes” ramped radar production and invested in high‑performance threat emulators to support spectrum operations. A Canadian prime chose Keysight’s digital transceiver payload testing gear for satellite programmes. In Europe, increased defence budgets and national sovereignty agendas are manifesting in demand for signal detection, phased-array radar characterisation, over‑the‑air 5G field deployments and precision angle‑of‑arrival measurements. The newly acquired positioning, navigation and timing (PNT) portfolio from Spirent had “a solid quarter” as customers test anti‑jam and anti‑spoof avionics in contested environments.

The Electronic Industrial Solutions Group (EISG) – often overshadowed by the glamour of AI and 6G – quietly delivered a record quarter with $476m of revenue, up 15 per cent and growing double digits across all three sub‑markets: general electronics, semiconductors, and automotive & energy.

In general electronics, the company is riding the complexity of high‑performance PCBs – denser interconnects, more layers, faster edge rates and tighter tolerances – all of which raise test intensity. Digital health continued to grow across device manufacturing, R&D and biomedical research, while weaker US education funding was offset by sovereign semiconductor and workforce programmes in Asia.

The semiconductor business saw “accelerated” investment, centred on high‑bandwidth memory and AI‑driven capacity expansion. Wafer‑level test and characterisation tools are benefiting from the race to bring HBM and silicon photonics into high‑volume production. Keysight emphasised that major foundry customers are speeding up silicon photonics programmes and that its deep photonics expertise anchors both lab and production solutions.

Automotive and energy remained a “mixed” end market, but Keysight still booked its second consecutive quarter of order growth. EV and robotaxi customers renewed electronic system design (ESI) simulations and placed new orders around software‑defined vehicle manufacturing. While EV and charging R&D spend was stable sequentially, Keysight introduced two megawatt‑class charging solutions intended to compress design times and ensure compliance with proliferating global and local standards.

The common thread across these disparate sectors is a demand profile that is both broader and stickier than in past cycles. Management is keen to highlight that the company’s exposure to any single technology cycle is diminishing, even as it rides pronounced upswings in AI data centres and defence.

Margins, mix and the shape of the fiscal year

Financially, the quarter bore out Keysight’s long‑stated operating model. Gross margin expanded 90 basis points to 66.7 per cent, driven by favourable product mix and the contribution of higher‑margin acquisitions. Operating margin ticked up to 27.4 per cent, while the core business – stripping out recent deals and FX – posted a 28.9 per cent margin, up 170 basis points, aided by 41 per cent core operating leverage.

The Communications Solutions Group, with its much heavier software and high‑performance content, delivered a 68.5 per cent gross margin and 27.5 per cent operating margin. EISG, traditionally more hardware‑weighted, still managed 62.4 per cent gross margin and 27.2 per cent operating margin. Software and services made up around 40 per cent of total revenue, with software alone inching above 25 per cent – a mix shift that has been deliberately cultivated through organic R&D and acquisitions such as ESI, Spirent and the optical design and PowerArtist businesses bought from Synopsys. Those deals alone have reportedly added about three percentage points to Keysight’s overall software mix.

The balance sheet provided little to worry about and some comfort for shareholders: $2.2bn in cash and equivalents, $441m of operating cash flow and $407m of free cash flow in the quarter. Keysight repurchased roughly 420,000 shares for $87m at an average price of $207 and still has a $1.5bn buyback authorisation in place.

Looking ahead, chief financial officer Neil Dougherty guided for second‑quarter revenue between $1.69bn and $1.71bn, implying 30 per cent growth at the midpoint, and EPS between $2.27 and $2.33, up 35 per cent. For the full fiscal year, management now expects total revenue and earnings growth “just above 20 per cent” on an all‑in basis, without revising its earlier assumption of $375m in acquisition‑related revenue or its target of more than $100m in run‑rate cost synergies, weighted towards late 2026 as ERP migrations complete.

The near‑term risk factor lies less in the demand environment – where both the short‑ and long‑term funnels are, in the words of global sales head Steve Yoon, among the strongest in his 36-year tenure – and more in policy. Dougherty explicitly excluded any potential impact from a recent US Supreme Court decision on tariffs from the Q2 guide, noting that Keysight is still assessing the ruling. Tariffs have been an invisible drag on incremental margin comparisons, making the company’s delivery of 40‑plus per cent core leverage all the more notable.

Against that backdrop, the tone from management mixed confidence with a hint of pragmatism. Visibility, they acknowledged, remains best within a one- to two-quarter window, and organic growth in the back half of fiscal 2026 is likely to moderate from the heady levels implied by the first half. Yet the underlying assertion was clear: technology cycles that once arrived in sequence – from 5G to high‑speed Ethernet to silicon photonics to AI at the edge – are now overlapping, compressing and, crucially for Keysight, compounding.

For investors, the question becomes not whether this quarter was unusually strong, but whether the new run‑rate marks an enduring step‑change in the company’s earnings power. On the evidence of the initial presentation, Keysight is positioning itself less as a cyclical test‑gear vendor and more as an embedded partner in the design and deployment of next‑generation infrastructure – from hyperscale AI clusters to radar arrays and megawatt charging stations. The next few quarters will show whether that positioning can withstand both the volatility of capital spending and the shifting sands of trade policy.