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Keysight Technologies Inc  (NYSE:KEYS)
Q1 2019 Earnings Conference Call
Feb. 21, 2019, 4:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen, and welcome to the Keysight Technologies Fiscal First Quarter 2019 Earnings Conference Call. My name is Kinsey and I will be your lead operator today. After the presentation, we will conduct a question-and-answer session. (Operator Instructions) Please note that this call is being recorded today, Thursday, February 21, 2019 at 1:30 p.m. Pacific Time.

I would now like to hand the conference over to Jason Kary, Vice President, Treasurer and Investor Relations. Please go ahead, Mr. Kary.

Jason Kary -- Vice President, Treasurer & Investor Relations

Thank you and welcome everyone to Keysight's first quarter earnings conference call for fiscal year 2019. Joining me are Ron Nersesian, Keysight President and CEO; and Neil Dougherty, Keysight Senior Vice President and CFO. Joining us in the Q&A session will be Mark Wallace, Senior Vice President of Worldwide Sales; and Satish Dhanasekaran, President of the Communications Solutions Group.

You can find the press release and information to supplement today's discussion on our website at investor.keysight.com. While there, please click on the link for quarterly reports under the financial information tab. There you will find an investor presentation along with Keysight's segment results. Following this conference call, we will post a copy of the prepared remarks to the website.

As a reminder and as we previously announced, we have changed our reporting segments due to an organizational change to align our Services business with our customers and end markets. We are now reporting our operating results based on three segments: The Communications Solutions Group, the Electronics Industrial Solutions Group and the Ixia Solutions Group. Prior period results for these segments back to 2016, can also be found on our website.

Today's comments by Ron and Neil will refer to non-GAAP financial measures. We will also make references to core growth, which excludes the impact of currency movements as well as revenue from acquisitions or divestitures completed within the last 12 months. You will find the most directly comparable GAAP financial metrics and reconciliations on our website.

We will make forward-looking statements about the financial performance of the company on today's call. These statements are subject to risks and uncertainties and are only valid as of today. The company assumes no obligation to update them. Please review the company's recent SEC filings for a more complete picture of our risks and other factors. Note that management is scheduled to present at the Susquehanna Technology Conference in New York on March 12. We hope to see many of you there.

And now I'd like to turn the call over to Ron.

Ronald Nersesian -- Chief Executive Officer, President & Director

Thank you, Jason, and thank you all for joining us. Keysight delivered an outstanding first quarter with both revenue and earnings exceeding the high end of our guidance and very strong free cash flow. Our continued focus on strategic execution and commitment to operational excellence are delivering strong results for Keysight.

Today I'll focus my formal comments on three key headlines for the quarter. First: It was a great start to the year and Keysight continue to deliver exceptional results. Revenue was well above our guidance and grew 18% or 20% on a core basis to surpass $1 billion for the third consecutive quarter. We grew earnings high double-digits and delivered $0.93 in EPS, which also exceeded our guidance. And we generated a record $209 million in free cash flow, an increase of 42% year-over-year.

Second: Customers continue to make strong R&D investments in next-generation technologies and we continue to achieve broad-based momentum across multiple end markets with our solutions. Keysight is at the forefront of several emerging technology trends. With our broad and differentiated portfolio of solutions, software and services, we're capturing a significant portion of the demand we see in the marketplace.

And third, looking forward we believe we are well-positioned to continue to build on our success and expand our leadership. Given our strategic positioning in the key areas of the market, strong start to the year and outlook for Q2 we are confident in our revenue growth and earnings profile for the year.

Now let's take a deeper look into our performance for the first quarter. We achieved $0.93 per share in earnings, which was $0.14 above the midpoint and $0.11 above the high end of our guidance. We delivered 81% earnings growth for the quarter versus a low compare in the previous year.

We also delivered record first quarter orders and strong order growth. Orders grew 5% in total and 7% on a core basis to exceed $1 billion. Revenue grew 18% or 20% on a core basis and was also above $1 billion, which is a record for our first quarter revenue. This represents our third consecutive quarter of delivering over $1 billion in both orders and revenue.

Creating value for our customers by providing first-to-market solutions and insights that help them achieve innovation is the cornerstone of our strategy and our Keysight leadership model. Our targeted investments in the key areas of the market undergoing multi-year transformations are delivering results. We are generating broad-based growth across multiple dimensions of the business and software is increasingly becoming a larger part of our portfolio.

Revenue for our software solutions grew substantially higher than our overall growth rate in the first quarter to reach a new record. This growth was driven by demand for our 5G solutions, high-frequency measurement application software and digital and photonics application software.

In the automotive and energy market, we continue to make great strides. Customer demand remained high in Q1, and we delivered our ninth consecutive quarter of double-digit order growth. Auto manufacturers and suppliers have continued to invest in critical new capabilities and are increasingly turning to Keysight as their strategic innovation partner. As a result, we continue to grow our engagements within top customers and add new Tier 1 accounts.

In the quarter, we announced the collaboration with BMW Group to support its Battery Cell Competence Centre in Munich. Keysight will equip their laboratories with battery test systems and provide services for effective laboratory workflow management and operation.

In order to help our automotive customers accelerate innovation, we are committed to serving them in close proximity of their design hubs. In January, we opened a new automotive center in Nagoya, Japan. Keysight now has opened four automotive centers aligned with each of the major global automotive customer ecosystems: Detroit, Michigan in the United States; Boblingen, Germany in Europe; and Nagoya, Japan and Shanghai, China in Asia.

In 5G, we achieved another record quarter of 5G orders and delivered strong double-digit growth in Q1. Network operators, NEMs, device makers and chipset companies are all investing for the early ramp of commercial 5G networks.

Our broad portfolio of 5G solutions and engagement with leading market makers continues to strengthen our position in this fast-growing market. Our pace of innovation and engagements has accelerated and we continue to see major operator ecosystems embrace the Keysight platform.

This quarter we received endorsements from SK Telecom, China Telecom, China Mobile and SoftBank. Next week at Mobile World Congress we will showcase our end-to-end 5G solutions and contributions.

At the event, over a dozen leading innovators across the communications ecosystem will use Keysight solutions to demonstrate their 5G readiness. This highlights the greater role we are playing in R&D and enabling customer innovation.

We're also excited to collaborate with Xilinx, AT&T and others to accelerate Open RAN 5G network deployment through a rapid prototyping approach and Open FPGA architecture. Together at Mobile World Congress we will demonstrate and test the industry's first open radio access network 5G millimeter wave radio unit.

Additionally, earlier today we announced our new scalable 5G user equipment Emulation Solution. It delivers end-to-end testing of 5G networks to ensure they can meet service level agreements for key 5G use cases such as lower latency and high reliability. This solution expands the range of our 5G offerings into a previously unserved area for Keysight, which is a direct result of our acquisition of Ixia.

Beyond 5G our Communications Group also delivered strong growth in network and data center solutions. This growth was driven by R&D investment in next-generation electrical and optical tests for speeds of 400-gig and higher, with new key product wins throughout the network and data center ecosystem.

Our success with 400G at the physical layer creates valuable opportunities for our 400-gigabit Ethernet solutions at the protocol layers with Ixia where customers R&D investments follow over time. Keysight solutions cover the entire customer workflow in both the physical and upper layers of the network.

Looking ahead, we believe we are well positioned to continue to build on our success. Next-generation R&D investment has remained strong and we are still in the early stages of these emerging technologies.

Our focus on bringing solutions to market that help customers accelerate innovation is driving multiple avenues of growth. We have a differentiated portfolio of solutions across a diversified and broad set of end markets. For example, as we mentioned in the past two quarters we are seeing some expected headwinds in China as a result of global trade tensions which we expect to continue in 2019.

Despite this dynamic our breadth of offering and diverse set of end markets has enabled us to offset this impact and deliver record orders in China during the quarter, with growth in multiple segments of that market. That said we continue to closely monitor the macro environment in China, as well as other areas of our business.

Before closing, I will highlight a few of the awards we have recently received in acknowledgment of our corporate social responsibility or CSR efforts, which is one of the core values in our Keysight leadership model.

First, Keysight was ranked among Barron's 100 Most Sustainable Companies for the second year in a row. Additionally, we were named to Fortune's 100 Best Workplaces for Diversity in 2018. CSR has always been a part of Keysight's DNA and we are honored to be recognized for this long-standing commitment to help sustainable a better planet, strengthen communities and create an inclusive work environment that fosters respect for individuals their ideas and their contributions.

In summary, we delivered an outstanding first quarter and the year is off to a great start for Keysight. In addition to driving strong revenue growth, we have maintained our focus on financial discipline and operational excellence to deliver earnings growth and strong cash flow while investing in key areas of the business. With our robust innovation engine, we have built a broad portfolio of solutions that span multiple segments and software is becoming a larger part of our differentiation in business. We will continue to focus our investments in these key areas to drive innovation, create even more value for our customers and outgrow the market.

Now, I will turn it over to Neil to discuss our financial performance and the outlook in more detail.

Neil Dougherty -- Chief Financial Officer & Senior Vice President

Thank you, Ron, and hello, everyone. Before I get started, I will note that all comparisons are on a year-over-year basis unless specifically noted otherwise. Additionally, when viewing our first quarter year-over-year operational compares, please keep in mind that last year's first quarter results were negatively impacted by the closure of our Santa Rosa facility due to the 2017 wildfires.

As Ron mentioned, we're delivered another strong quarter as we continue to execute on the demand we see in core areas of our business, while maintaining focus on our operational excellence.

For the first quarter of 2019, we delivered non-GAAP revenue of $1.009 billion, which was well above our guidance of $965 million to $985 million and grew 20% on a core basis versus the soft compare. Our better-than-expected results were driven by continued strong demand in execution.

Orders exceeded revenue once again this quarter. We delivered $1.016 billion in orders in Q1. Orders were up 5% in total and 7% on a core basis, which excludes the impact of currency movement and two small divestitures completed within the last year.

Looking at our operational results for Q1, we reported gross margin of 62% and operating expenses of $420 million resulting in operating margin of 20%. We also achieved net income of $176 million and delivered $0.93 in earnings per share, which was above our guidance of $0.76 to $0.82 per share. Our weighted average share count for the quarter was 190 million shares.

Moving to the performance of our segments. As Jason mentioned, we made a change to our reporting segments and now results from services, which was previously reported in our Services Solutions Group are reported in the segment in which the services are delivered. That said, I will highlight that in Q1 orders for services grew double-digits.

Our Communications Solutions Group generated total revenue of $623 million, up 25%, while delivering record gross margin of 61.1% and operating margin of 22%. In Q1, Commercial Communications delivered double-digit order growth and revenue of $400 million driven by increased 5G R&D demand across the wireless ecosystem and growth in data center related next-generation 400-gigabit ethernet and higher digital tests.

Aerospace defense and government grew 3% and generated revenue of $223 million. Aerospace defense and government growth was driven by continued demand in space and satellite applications in the U.S. while spending in some international regions slowed.

Our Electronic Industrial Solutions Group or EISG generated first quarter revenue of $257 million, up 13% driven by strength in automotive and emerging IoT applications, while the semiconductor market moderated as expected. EISG reported gross margin of 58.9% and operating margin of 21%.

Our Ixia Solutions Group or ISG reported Q1 revenue of $129 million, which was slightly above last year's revenue of $127 million, driven by network visibility solutions while test revenues remained in line with last year.

ISG reported gross margin of 71.3% and 9% operating margin. We were encouraged to see the improved sequential execution in ISG and the vast majority of the contract manufacturing transition issues that we highlighted last quarter are now resolved.

Moving to the balance sheet and cash flow. We ended our first quarter with $1.1 billion in cash and cash equivalents and reported record cash flow from operations of $240 million and free cash flow of $209 million or 21% of revenue.

Under our existing share repurchase authorization, during the quarter we acquired approximately 686,000 shares on the open market at an average price of $58.28 for a total consideration of $40 million.

Now turning to our outlook and guidance. We expect second quarter 2019 revenue to be in the range of $1.60 billion to $1.80 billion. For the first half of 2019, the midpoint of our guidance reflects 12% revenue growth or 14% on a core basis.

We expect Q2 earnings per share to be in the range of $0.93 to $0.99 based on a weighted diluted share count of approximately 191 million shares. The midpoint of this guidance reflects approximately 41% earnings growth for the first half of 2019.

For 2019 modeling purposes, recall that the quarterly revenue seasonality in 2018 was atypical due to the impact of the October 2017 Northern California wildfires. Historically sequential revenue growth from Q1 to Q2 has averaged mid-single digits and our Q2 guidance reflects the upper end of this range. Additionally, we normally see a small sequential decline from Q2 to Q3 with Q4 being our strongest quarter of the year.

I will also note that in Q1 the ASU 2017-07 pension accounting change went into effect. Under this new standard, our previous credit functionalized within operating income is now reported in other income. For 2019, the impact of this change is projected to shift the credit of approximately $10 million per quarter from above the operating margin line to below it. A retrospective of our historical results reflecting the new standard can be found on our website.

With that, I will now turn it back to Jason for the Q&A.

Jason Kary -- Vice President, Treasurer & Investor Relations

Thank you, Neil. And Kinsey will you please give instructions for the Q&A?

Questions and Answers:

Operator

(Operator Instructions) And the first question comes from the line of John Pitzer from Credit Suisse. Your line is open.

John Pitzer -- Credit Suisse -- Analyst

Yes, good afternoon guys. Thanks for letting me ask a question. Ron may be the first question is for you just on the 5G market and how it's evolved over time. I think one of the investor concerns out there is that you're levered early to deployment of prototype 5G or perhaps not as levered as you get to broader deployment of 5G. I wonder if you can help us understand how you think the markets going to evolve for 5G for you? And as you answer the question, can you talk a little bit about your share from 4G to 5G and kind of what you've done to augment your SIM from 4G to 5G?

Ronald Nersesian -- Chief Executive Officer, President & Director

Sure. Thank you very much, John. Well a couple of comments. The first thing is that we are -- we have invested up and down the overall workflow for 5G. So we have solutions that exist in our EDA software early on when people are developing their designs, solutions for validation and verification, not only of the hardware, but now we have it for the software that is done in R&D. We do have solutions too for manufacturing although that is not the main focus and then at the end of the life cycle once things go into operations that's where Ixia plays in. So with our Ixia acquisition that bolsters up our overall solutions for the workflow along with the Anite solutions that we have earlier in R&D.

There is no doubt that our share is much higher than it was in 4G. In 4G, we did not have the funds to invest as heavily as we needed to in order to win in the protocol space clearly as you look at the network a space as well as in many other subareas. In 5G, we made this decision back in 2013 before we even went public. As soon as we announced the split, we decided to go all in for 5G. So you will see that and see dramatic share gains between 5G versus where we are in 4G. I will let Satish also add a couple more comments with regards to the overall 5G workflow.

Satish Dhanasekaran -- President

Well thank you Ron. Just maybe a few points. A strong 5G quarter for us extending our lead on the double-digit triple-digit growth that we are experiencing to 13th conservative quarter. And when I look at the distribution of orders very pleased that we're seeing success across the ecosystem chipset companies, device companies, network equipment manufacturers, operators and for the first time test labs even that are starting to invest in early 5G. And then when you look at the global spread, all regions participated in this reflecting the strength of our solution portfolio.

There is no doubt the early R&D investments some of them in the prototyping phase played itself out up to know, but if I reflect on this industry and look at the state of what's coming next, it's the scaling and it's still early days, but it's scaling for commercialization that's going to play out. And operators interest to speaking as they vie establish network leadership and that's what's playing out and Ron referenced a few key design wins we had with lead operators in all regions in his narrative. But I would just want to end by saying, it's still early days for the technology. We see that at scale the technology becomes relevant for consumers to buy at 2022 timeframe, plenty of innovation yet to come both from a standards point of view and from productization point of view. And from our plans just this year, we have a number of solutions that we will be launching. We just announced, as a matter of fact, the solution, working closely with our Ixia Solutions Group just today. So a number of solutions that we'll launch this year and we're also planning for more as the industry scales. Thank you.

John Pitzer -- Credit Suisse -- Analyst

That's helpful guys. And then maybe a follow-up, Neil. Neil you highlighted that you guys are rightfully investing to leverage kind of your IP to drive higher growth. I'm just kind of curious as to where you think you are in the investment cycle for the company? And how we should think about kind of operating margin targets over a multiyear period?

Neil Dougherty -- Chief Financial Officer & Senior Vice President

Yes. So we continue to see a very high level of demand for continued innovation investment across multiple platforms within Keysight. As we've talked about, we've talked about driving a 400 basis point improvement on our operating margins from 2017 levels. So we got to get us into the 22%, 23% operating margin range by 2021 and so we remain focused on that. You'll see -- as we look to achieve that we are really not looking to get leverage on the R&D line because of exactly what I have talked about the demand that we are seeing for customers for continued development work from Keysight. But you'll continue to see gross margin improvement from us, as well as leveraging our general and administrative functions to drive increased profitability over that horizon.

Ronald Nersesian -- Chief Executive Officer, President & Director

Yes, I'll just add that we continue to pick up new customers. We announced four more customers for instance today, four large customers, and we continue to go ahead and see our business deliver double-digit growth.

Operator

Your next question comes from the line of Toshiya Hari from Goldman Sachs. Your line is open.

Toshiya Hari -- Goldman Sachs Group -- Analyst

Great. Thanks very much for taking the question and congrats on the strong results. Can you guys talk a little bit about 4G? What you're seeing from a customer activity perspective? How strong or weak that business has been over the past couple of quarters? And how should we think about sustainability in that business relative to 5G?

Ronald Nersesian -- Chief Executive Officer, President & Director

Yes. Satish feel free to fill in.

Satish Dhanasekaran -- President

Yes, will do, Ron. As we have talked before with 5G, there's the non-selling version, which requires a lot of the 4G capabilities, so there's still compute innovation in 4G, but there's no doubt that the 4G -- and if you expand that question a little bit further legacy communications will continue to be down as 5G starts to scale. And in particular, it's all about the way you characterize platforms too because increasingly, as we roll new products and capabilities out, they will have some aspect of legacy comps built into them but they tend to be lumped in under our 4G orders. But, overall, you will see between all our communications, technology evolution focus is resulting in double-digit growth for the quarter and we continue to see the funnel pretty strong for our business across the globe.

Toshiya Hari -- Goldman Sachs Group -- Analyst

Great. And then I had a quick follow-up. Ron you flagged the risk around China over the past couple of quarters. Very impressed to hear that you guys had record bookings in the quarter, so, I guess, the question is how are you achieving record bookings given the weak macro backdrop as well as sort of the difficult political landscape? Thank you.

Ronald Nersesian -- Chief Executive Officer, President & Director

Sure. We're seeing exceptionally strong orders from China right now because we have a broad base of solutions. We have solutions that we're selling for 5G for auto, for 400 gigabit for A&D below certain performance level. And that has given us very, I would say, strong double-digit orders as well as strong double-digit revenue growth for the quarter.

There was some pull-ins but then again there were also some pushouts. And even if you were to factor out the pushouts we still had double-digit growth in China. So, we are winning and the end users and the companies really want our products. So, we hope the trade situation gets a little better, but it's not an excuse for us at all as we've seen outstanding order and revenue growth in China.

Toshiya Hari -- Goldman Sachs Group -- Analyst

Thank you.

Operator

And your next question comes from the line of Jim Suva from Citi. Your line is open.

Jim Suva -- Citigroup -- Analyst

Thank you very much. Most of the Q&A in the conference call was focused on your core business which is definitely very impressive and doing well. Shifting over to areas that could potentially be of improvement I kind of see that Ixia sales grew by 1% year-over-year. Should they ever mirror or kind of fluctuate with orders like an attach rate that's closer to your revenue growth year-over-year or does that not work that way? How should we think about Ixia and what you're doing there?

Ronald Nersesian -- Chief Executive Officer, President & Director

Sure. The Ixia solutions for 5G are laid around downstream. So, a product, for instance, first gets designed and they buy -- or customers buy our Electronic Design Automation software. Then they use our products to go ahead and to develop solutions at the physical layer.

Once that's done, you can start protesting all the protocol layers whether it's for the handsets or the user equipment or whether you're talking about for base stations or for the networks in the cloud. So that follows what you typically see in the beginning.

So, as Satish mentioned, we're at the beginning of this 5G wave and we will see Ixia accelerate because you can't go ahead and test the protocol until you've actually built out physical devices and then you start putting software layers on top of it. So, we will continue to see the Ixia business accelerate in prominence in our business and we're very excited with it, for instance, our new solution that we just came out with.

Jim Suva -- Citigroup -- Analyst

And then a quick follow-up -- back to -- follow-on flow-through for Ixia benefit, is that a 2019 positive or is it more further out to 2020 and beyond? I was just trying to figure out the inflection point of when that business is -- it seems like at some point it's really going to shift into a much higher gear than it is right now?

Ronald Nersesian -- Chief Executive Officer, President & Director

Yes. Well, I'll let Neil get a chance to talk a little bit about that. As you know we've been integrating Ixia and we found areas where we could work together to improve our solutions and our processes for longer term growth and longer term gross margin. We actually had as you saw the record revenue even though it was only up slightly from where we were in the past, but it was the highest level since the acquisition.

Neil, I don't know if you want to add a couple of comments with regards to modeling on Ixia?

Neil Dougherty -- Chief Financial Officer & Senior Vice President

Yes. Jim maybe just a couple of comments. I think the specific quarter or a period of time when these businesses will transition from physical to protocol layers it's difficult to call. That being said we're encouraged by the 400-gigabit growth, we've seen in classic Keysight in Satish's Communications business over the past several quarters and we think that bodes well for future growth in Ixia on the protocol layers. I guess, if I was just going to summarize that we think relative to where we were in 2018 and where we are today? There's upside from Ixia both in terms of increased growth and increased profitability that will be net additive to Keysight going forward.

Jim Suva -- Citigroup -- Analyst

Thank you so much for the details and clarifications. Its greatly appreciated.

Neil Dougherty -- Chief Financial Officer & Senior Vice President

Thanks Jim.

Operator

And your next question comes from the line of Vijay Bhagavath from Deutsche Bank. Your line is open.

Vijay Bhagavath -- Deutsche Bank -- Analyst

Yes, Neil I must (Technical Difficulty)...

Jason Kary -- Vice President, Treasurer & Investor Relations

Vijay there is a problem with your phone. We can't-it's very garbled we can't understand. It's unclear. We have no idea what you're saying.

Vijay Bhagavath -- Deutsche Bank -- Analyst

Okay.

Jason Kary -- Vice President, Treasurer & Investor Relations

Why don't we put -- operator if we can put Vijay back into the queue and let's move to the next caller and we'll come back to Vijay at the end.

Operator

(Operator Instructions) Your next question comes from the line of Adam Thalhimer from Thompson Davis. Your line is open.

Adam Thalhimer -- Thompson, Davis & Company -- Analyst

Hey good afternoon guys. Great quarter. You mentioned the semiconductors dropped off kind of in line with expectations. So can you remind us, what are your expectations for kind of how long this tough patch last? I think you said maybe late 2019 you'll start to see recovery?

Neil Dougherty -- Chief Financial Officer & Senior Vice President

Yes. Ron I'll take this. Just to keep it simple we've essentially model a softness in semi through FY 2019 and we don't have detailed models going beyond that, but at least through the remainder of this fiscal year for us we're expecting semi to be relatively soft.

Adam Thalhimer -- Thompson, Davis & Company -- Analyst

All right. And then I also wanted to ask about cash deployment and kind of the buyback. I mean you've been doing $40 million a quarter pretty consistently here. You got a great price on the stock that you bought in Q1. What are your thoughts on cash deployment going forward?

Neil Dougherty -- Chief Financial Officer & Senior Vice President

No. We don't expect any immediate change to our cash deployment efforts. As we stated when we announced the share buyback program the initial intent would be to remain anti-dilutive and we expect to continue along that track. Obviously we saw a pretty significant increase in cash flow generation this quarter. We do want to maintain some excess cash on the balance sheet so that we can maintain the flexibility needed to invest in the business.

And as that cash balance grows, we'll continue to look at appropriate ways to deploy it. But we continue to have active M&A funnels continue to buyback shares and we'll continue -- no immediate changes to our cash deployment plans.

Ronald Nersesian -- Chief Executive Officer, President & Director

Yes. And just with regards our free cash flow conversion four years ago, we were in the mid-60% range we stated at our last Analyst Day, we would get it to the 80% to 90% range at this time. This quarter was exceptionally strong at 119% on our conversion. That's obviously above average, but we're very, very pleased with our ability to start taking that to the bottom line.

Operator

Our next question comes from the line of Richard Eastman from Baird. Your line is open.

Richard Eastman -- Robert W. Baird & Co. -- Analyst

Yes. Good afternoon. Thanks for the questions. First of all, just wanted to ask, Ron, could you kind of speak -- double back to the aerospace defense business and the growth rate there? I think we had -- generally speaking, we had a fairly easy comp there. Was the government shutdown an issue there at all? Or is the -- has the backlog build on the aerospace and defense side meaningfully? Or maybe just kind of speak to that?

Ronald Nersesian -- Chief Executive Officer, President & Director

Yeah. I'm going to let Mark Wallace make a couple of comments. But as you saw, we saw a 3% revenue growth in aerospace defense. So we think there's a lot of upside, but money did get clogged. The only area where we saw that it was relatively weak was Russia.

But Russia in particular is less than 2% of our total business, but it did pull down once we start looking at just our aerospace defense business. But overall, we saw the U.S. and we saw China being pretty decent. But Mark would you like to add a couple of more comments on aerospace defense, please?

Mark Wallace -- Senior Vice President, Global Sales

Yeah, Ron. Rick and Ron covered it pretty well. We did see strength in the U.S. and China despite the RPL companies that were named last year. So we're continuing to grow. This is year four or five of the China plan, so we expect to see some growth in investment and we're capturing quite a bit of that.

The other thing is, the government shutdown tended to delay some of the process. So we built a nice funnel as we go into Q2. And then seasonally, as you get into the second half of the year, especially as you get closer to the end of the U.S. government fiscal year, we expect to see some of those opportunities strengthen.

Neil Dougherty -- Chief Financial Officer & Senior Vice President

Let me add to that if I could. So we grew 3% -- the revenue line grew 3% in total, but one of the two divestitures we completed within the last 12 months was specific to aerospace defense. So just for that, we don't typically talk about core growth at the segment level, but aerospace defense grew 7% on a core basis on the revenue line.

So it was immaterial in total, but quite material to aerospace defense. And then as Mark said, we saw pretty good order strength in both China and the U.S. offset by weakness in Europe as -- from Russia which is what Ron talked about.

Richard Eastman -- Robert W. Baird & Co. -- Analyst

I see. Okay. If you think about the 7% core number without the divestitures did the -- was the book-to-bill there greater than one in A&D in the quarter?

Neil Dougherty -- Chief Financial Officer & Senior Vice President

We don't talk about...

Ronald Nersesian -- Chief Executive Officer, President & Director

Yeah. Right around 1 at that level, yeah.

Neil Dougherty -- Chief Financial Officer & Senior Vice President

I forgot the level. We don't typically share.

Ronald Nersesian -- Chief Executive Officer, President & Director

6% order growth -- 6% order growth for A&D and the book-to-bill was very, very close to 1. We think money -- as starts to flow, it will change.

Richard Eastman -- Robert W. Baird & Co. -- Analyst

Okay. And then just a question around the 5G marketplace and how Keysight addresses it. What's the strategy, Ron, around the manufacturing test site for 5G? Historically, we've had a very good market share in base station test on the manufacturing side. Hence, the test -- we kind of a pull back there, I believe, earlier in the 2000s, mid-2000s. But I'm curious, what would be the approach this year around 5G, I'm going to say devices test versus base station test on the manufacturing side?

Ronald Nersesian -- Chief Executive Officer, President & Director

Sure. Well, first of all, the first step is component test. And the components are tested when you get to the final, let's say, handset or device that you're trying to test, the components have been rung out. There is very minimal test that is done at the overall device. And that's why we moved away from that.

We are very strong in component test, we're the number one player in the products that are used. We have over 50% share in the network analysis business, which does all that component test and that's a very good business for us.

The second is in base station test, and we continue to be strong in base station test and we have new solutions and we have, I would just say partnerships that are very good there.

The other thing is when you talk about all this and you start moving to 5G, it's not just about getting the signal to the cell tower. You need to go ahead and overhaul the overall network to handle massive amounts of data from 5G as well as IoT in general. And that could be moved to 400-gig. And as we see that, we have a lot of products and solutions that are very, very strong in that area.

On the end of device, let's say a phone or an iPad, there isn't much money there. So we are opportunistic, but we capture a lot of revenue and profit in components in base stations and in the network area.

Richard Eastman -- Robert W. Baird & Co. -- Analyst

Okay. And if I might just one last one sneak one in. Neil around Ixia, 9% op margin in the quarter here, is this a baseline level of operating profit margin at $129 million of revenue? Or is there some self-help margin expansion yet to come against just call it $130 million run rate -- quarterly run rate?

Neil Dougherty -- Chief Financial Officer & Senior Vice President

Yeah. So I think we're, obviously, not satisfied with the 9% operating margin. We'll continue to drive that first into the mid-teens, and ultimately we expect to get operating margins in this business I can go ahead and start with the two as the first digit. I think the primary driver of that profit improvement will come from revenue growth given the high gross margins in this business. That's not to say there aren't other opportunities for us to do things but the primary driver that we're looking for is through the top line.

Richard Eastman -- Robert W. Baird & Co. -- Analyst

Okay, very good. All right. Thank you again.

Neil Dougherty -- Chief Financial Officer & Senior Vice President

Thanks, Rich.

Operator

Your next question comes from the line of Vijay Bhagavath from Deutsche Bank. Your line is open.

Vijay Bhagavath -- Deutsche Bank -- Analyst

Yeah. Hey, congratulations. Hope you guys can hear me now?

Ronald Nersesian -- Chief Executive Officer, President & Director

We can.

Neil Dougherty -- Chief Financial Officer & Senior Vice President

Yeah, Vijay, we can.

Vijay Bhagavath -- Deutsche Bank -- Analyst

Yeah. I'm here in Minnesota, so out of the office. So quickly I mean Ron, Neil my question is on -- there are two questions actually. The first is around any geographical color you can give on the 5G strength, this question does get asked quite a bit from clients. Is this primarily a U.S. order book, or are you also seeing like orders coming from like Japan and Korea who have this nation-state intensity in 5G? And then a quick follow-on for Neil.

Ronald Nersesian -- Chief Executive Officer, President & Director

Sure, I'm going to let Satish answer that, but clearly we saw 5G strength in the Americas. We also saw it in China. We announced and talk about a deal that we had in Japan on the earlier part of the call.

But Satish, why don't you give a little bit more color on our 5G profile?

Satish Dhanasekaran -- President

Well, thank you, Ron. I think as I mentioned before, Vijay, it's very clear that we're contributing broadly across the ecosystem of customers and across the globe. No doubt the countries that Ron referenced are building their local capabilities and many of our customers in those regions Korea, Japan, China and the Americas are dominating but definitely we continue to see broad participation for orders across the globe.

In fact if you will attend Mobile World Congress, we look forward to hosting a number of investors, I know Jason Kary and Clay have put a schedule together and you will see on display a pretty broad diversity of customers who are actually applying Keysight technology to really showcase their pioneering innovation and 5G readiness. I hope you get a chance to see it live.

Vijay Bhagavath -- Deutsche Bank -- Analyst

Yes, I'll be there as well. A quick follow-on for Neil. Any color or puts and takes you can give on order trends? I know there was some wildfire impact and all but just clarify to us in terms of quarter-on-quarter year-on-year kind of the order momentum in the business ideally normalized for the wildfire's impact? Thanks.

Neil Dougherty -- Chief Financial Officer & Senior Vice President

Yes, we were very pleased with the performance that we delivered in Q1. We talked about it being a record for our first quarter. As we look forward to Q2, we have a very strong funnel of opportunities entering the second quarter. So, I think that bodes well. If you think about it from a seasonality perspective, we do typically see our strongest order quarters being in Q2 and Q4. And that's partially linked the way we pay our salesforce.

We essentially have two quarter periods one for the first half one for the second half. So, it tends to be a big push at the end of each of those which then leads to a little bit lower orders and correspondingly revenue in Q1 and Q3.

So, that's how we typically think about the business but we have a great funnel of opportunities. We see broad adoption of our solutions across a number of ecosystems. Most notably the ones we've been talking about 5G, automotive, aerospace, defense; really had a great quarter for our software solutions here in Q1. So we're seeing continued increased penetration of software and that increasing as a mix of our overall order and revenue base.

Vijay Bhagavath -- Deutsche Bank -- Analyst

Congratulations.

Ronald Nersesian -- Chief Executive Officer, President & Director

Yes. It's worthwhile to note that if you combine Q1 and Q2 as we mentioned last year, it normalizes out the fire impact where we had less shipments in Q1 and more in Q2. So as Neil had mentioned we have a very strong funnel going into the quarter. And if you combine Q1 and Q2 our guidance at the midpoint is 14% core revenue growth for the half and 41% earnings growth for the half without effectively neutralizing out fire seasonality.

Vijay Bhagavath -- Deutsche Bank -- Analyst

That's very helpful insights Ron. Thank you.

Ronald Nersesian -- Chief Executive Officer, President & Director

Thank you.

Operator

Thank you. That concludes our question-and-answer session for today. I would like to turn the conference back to Jason Kary for any closing comments.

Jason Kary -- Vice President, Treasurer & Investor Relations

Well, thank you Kinsey and thank you everyone for joining us today. We look forward to seeing you at Mobile World Congress and some of the upcoming conferences and other events that we have and hope you have a great day. Thank you.

Operator

This concludes our conference call. You may now disconnect.

Duration: 47 minutes

Call participants:

Jason Kary -- Vice President, Treasurer & Investor Relations

Ronald Nersesian -- Chief Executive Officer, President & Director

Neil Dougherty -- Chief Financial Officer & Senior Vice President

John Pitzer -- Credit Suisse -- Analyst

Satish Dhanasekaran -- President

Toshiya Hari -- Goldman Sachs Group -- Analyst

Jim Suva -- Citigroup -- Analyst

Vijay Bhagavath -- Deutsche Bank -- Analyst

Adam Thalhimer -- Thompson, Davis & Company -- Analyst

Richard Eastman -- Robert W. Baird & Co. -- Analyst

Mark Wallace -- Senior Vice President, Global Sales

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