Keysight Technologies (KEYS 3.85%), a leading provider of electronic design and test solutions, released its third-quarter fiscal 2025 results on August 19, 2025. The company reported GAAP revenue of $1.35 billion for Q3 FY2025, beating analyst expectations by $32 million, and delivered non-GAAP earnings per share (EPS) of $1.72, outpacing consensus estimates by $0.05. Compared with the prior-year quarter, GAAP revenue increased by 11.1%, and non-GAAP EPS climbed 9.6% year over year. While headline GAAP net income fell due to a one-time tax benefit in the prior year, underlying operational earnings improved. Segment growth was broad-based, margins showed stability despite tariff pressures, and management raised full-year outlook guidance for FY2025, assessing the quarter as one of steady execution and healthy demand.
| Metric | Q3 2025 | Q3 2025 Estimate | Q3 2024 | Y/Y Change |
|---|---|---|---|---|
| EPS (Non-GAAP) | $1.72 | $1.67 | $1.57 | 9.6% |
| Revenue | $1.35 billion | $1.32 billion | $1.22 billion | 11.1% |
| Free Cash Flow | $291 million | $222 million | 31.1% | |
| Revenue – Communications Solutions Group | $940 million | $847 million | 11.0% | |
| Revenue – Electronic Industrial Solutions Group | $412 million | $370 million | 11.4% |
Source: Analyst estimates provided by FactSet. Management expectations based on management's guidance, as provided in Q2 2025 earnings report.
Business Overview and Strategic Focus
Keysight Technologies specializes in electronic measurement instruments and software used throughout the product development cycle—design, test, manufacture, and deployment—for wireless communications, aerospace, defense, semiconductors, and automotive industries. Its business rests on two key product families: electronic measurement hardware and design/test software solutions.
The company's business model stands out for its investment in research and development (R&D), focus on nurturing global customer relationships, and its diversified market exposure. Keysight also places strong emphasis on expanding recurring revenue streams through software and service offerings, aiming for predictable growth and less vulnerability to market cycles.
Quarterly Performance: Segment Growth, Margins, and Financial Trends
During the quarter, total revenue grew 11.1% year over year, coming in at $1.35 billion and exceeding both company guidance and analyst expectations. Non-GAAP earnings per share rose 9.6% year over year to $1.72.
The Communications Solutions Group (CSG)—which includes products for wireless and wireline communications testing—increased sales by 11%. Commercial Communications, a segment specializing in solutions for telecom, data center, and networking, grew GAAP revenue 13% to $644 million. The Aerospace, Defense, and Government end-market within CSG saw revenue climb 8% to $296 million.
The Electronic Industrial Solutions Group (EISG), focused on test equipment and software for semiconductors, automotive electronics, and general electronics manufacturers, EISG reported revenue of $412 million in the third quarter, up 11 percent from the prior year. This division saw expansion in its semiconductor and energy-related lines.
Gross margins in the CSG segment remained stable at 67%, while EISG's gross margin dropped to 57% from 58% in the prior year. The EISG operating margin improved to 22% from 20% in Q3 FY2024. Overall company operating income (GAAP) rose 14.1% year over year to $234 million.
GAAP net income fell to $191 million from $389 million in Q3 FY2024, largely due to a one-time tax benefit recognized in the prior-year quarter. Excluding such impacts, operational profit continues to advance, as shown by the rise in non-GAAP net income. Free cash flow, a key indicator of the cash generated after capital investments, jumped 31% year over year to $291 million (non-GAAP). Cash and equivalents (GAAP) increased to $3.40 billion as of quarter end, although long-term debt climbed to $2.53 billion as of quarter end.
This underscores the company's continued commitment to innovation with the aim to roll out new test solutions and enhance its technology leadership.
Business Model, Technology Investments, and Market Position
Keysight Technologies has built its strong market position on sustained investment in R&D. In 2024, the company invested $919 million in R&D, which was approximately 18.4% of revenue.
Keysight leverages a global direct-sales force to match products and services closely to user needs, reducing reliance on hardware sales alone. The period saw continued execution of these strategies, supported by customer demand for next-generation digital infrastructure and robust capital spending in markets like telecom, AI data centers, and defense.
Keysight's business model is also intentionally diversified. By structuring operations around both high-growth commercial communication technology and steady industrial and defense electronics demand, it spreads risk and captures broad end-market opportunities. In recent quarters, the company expanded through the acquisition of technology firms such as ESI Group and Riscure Holding B.V. While these acquisitions increased long-term debt, Keysight ended the quarter with substantial liquid assets, reinforcing its ability to fund further strategic investments as needed.
Management indicated actions to mitigate tariff impacts through operational efficiencies and pricing strategies. Orders also rose 7.3% year over year.
Looking Forward: Guidance and Watch Points
Management provided Q4 FY2025 guidance projecting GAAP revenue between $1.37 billion and $1.39 billion and non-GAAP EPS in the range of $1.79 to $1.85, the midpoint of which would represent about 5.8% sequential non-GAAP earnings growth. The outlook for FY2025 is once again raised, with leadership now expecting full-year revenue growth of approximately 7% and non-GAAP EPS growth near 13% at the midpoint of guidance.
One important watch point is the company’s ongoing effort to expand recurring software and service revenue, which provides greater financial predictability. While management reaffirmed this as a strategic focus, the current release did not detail the most recent progress on this metric.
Revenue and net income presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.
