What happened

Shares in design and test solutions technology company Keysight Technologies (KEYS -0.10%) were down by almost 17% today at 10 a.m. ET. The decline comes after a disappointing earnings presentation given after the close of trading yesterday. 

There was nothing wrong with the first-quarter earnings report per se, as revenue and earnings came in ahead of management's guidance. However, management's commentary and guidance spooked the market. Management guided toward second-quarter revenue of $1.37 billion to $1.39 billion, compared to market estimates for slightly more than $1.39 billion.

Moreover, CEO Satish Dhanasekaran talked about customers exercising caution in light of the weakening economy, saying, "This was most notable among our largest customers in Commercial Communications, who were impacted by sharp demand decline in consumer electronics and computing segments."

CFO Neil Dougherty said Keysight's top smartphone customer would take a couple of quarters to reduce its inventory and that "if the current demand environment persists through our fourth quarter," Keysight would likely generate low-single-digit revenue growth for the full year -- Wall Street analysts had penciled in 4.9% for 2023.

So what

Keysight's orders declined 13% year over year in the quarter, and one of its top customers is working through an inventory correction. As such, there's uncertainty around Keysight's full-year earnings outlook. 

Now what

Still, it's important to consider that this is likely a cyclical issue rather than any kind of structural problem with end demand for Keysight's solutions. There's clearly a slowdown in the consumer electronics industry as a result of rising interest rates and a correction from the boom in spending in the industry caused by the pandemic. At least, that's how Emerson Electric's management probably looks at matters, because it's making an aggressive bid for Keysight's rival, National Instruments.

It's a disappointing update for Keysight, but the company has better days ahead.