Slide 1: Keysight Technologies Investor Presentation August 2016
Keysight Technologies Investor Presentation August 2016 Page 1
Slide 2: Safe Harbor
Safe Harbor This presentation contains forward-looking statements including, without limitation, statements regarding trends, seasonality, cyclicality and growth in, and drivers of, the markets we sell into, our strategic direction, our future effective tax rate and tax valuation allowance, earnings
Slide 3: Agenda
Agenda Executive Overview 4 Growth Initiatives – Wireless, Modular, Software and Services Page 3
Slide 4: Investor Value Proposition
Investor Value Proposition Commitment to Growing Long-Term Total Shareholder Returns Market & Technology #1 market position in key software and hardware Leadership platforms Experienced Management >25 years average industry experience Team Strong Business 40% incrementals on revenue growth of 4% or
Slide 5: History of Leadership and Innovation
History of Leadership and Innovation Unlocking measurement insights for over 75 years 1939–1998: The Hewlett-Packard years A company founded on electronic measurement innovation 1999–2013: The Agilent Technologies years Spun off from HP, Agilent became the World’s Premier Measurement Company 2014: K
Slide 6: Keysight Today: Market and Technology Leader
KEYSIGHT TODAY: Market and Technology Leader FY15 Revenue by Geography(1) Europe 18% FY15 Revenue(1) $2.9B Americas 38% FY15 Operating Margin(1) 19.5% 44% Asia Pacific FY15 EPS(1) $2.52 Number of customers(2) ~15,500 ~10,250 Headcount Europe Countries served 100+ 17% Americas 34% Countries with R&D
Slide 7: Our Value to Customers - Unmatched in the Industry
Our Value to Customers - Unmatched in the Industry We help customers bring breakthrough electronic products to market faster and at a lower cost Automotive Wireless base Computers Cloud devices Smart electronics stations & interfaces phones Avionics Surveillance Radar Satellites Customer Lifecycle S
Slide 8: The Keysight Advantage
The Keysight Advantage Commitment to Value Creation Leader in Technology and market leader in ever-evolving technology profitable market market Transform Target fast growing areas and expand Served for growth Addressable Market (SAM) 8 Strong Proven operating performance and cash generation business
Slide 9: A Strong Framework for Value Creation
A Strong Framework for Value Creation Business Organic Mergers & Return of Model Growth Acquisitions Capital • Cost Structure • R&D • Strategic • U.S. Cash Flexibility Investment Alignment Generation • Cost • SAM • Growth • Appropriate Reductions Expansion Leverage • Value • Margin • Profit Creation
Slide 10: Building Strong Track Record as Independent Public Company
Building Strong Track Record as Independent Public Company Post-Separation Stabilization Complete • 6 months ahead of plan Transforming for Growth • Organizational realignment to end markets • Progress on growth initiatives • Investing prudently New Leveraging the Business Model • Solid Financ
Slide 11: Organizing to Grow
Organizing to Grow First to Market Aligned with End Markets Trusted Advisor Corporate Electronic Communications Services Planning and Industrial Worldwide Sales Solutions Group Solutions Group Technology Solutions Group Jay Mike Gooi Soon John Page Guy Alexander Gasparian Chai Séné • Software •Comme
Slide 12: Strong Progress on Growth Initiatives
Strong Progress on Growth Initiatives • Grew wireless R&D business and closed Anite acquisition in FY15 Be First in 5G • Collaborating with leading consortiums, universities, and research Wireless institutes to define 5G standards and technologies • Early 5G R&D solution orders continue to exceed ex
Slide 13: Superior and Sustainable Financial Performance Throughout the Cycle
Superior and Sustainable Financial Performance Throughout the Cycle Keysight Operating Model -10% Baseline* +10% Revenue ($M) $2,700 $3,000 $3,300 Gross Margin 55%-57% 56-58% 57-59% R&D 14% 13% 13% SG&A 25-27% 24%-26% 23-25% Operating Margin 15-16% 18%-19% 21-22% * Baseline includes a full year of A
Slide 14: A Phased Approach to Return of Capital
A Phased Approach to Return of Capital Phase 3 Balanced Return Phase 2 of Capital • Return of capital tied Return Sustained 4% CAGR to US cash generation of Over Cycle • Appropriate leverage Capital Phase 1 • M&A is priority use of and investment grade cash credit metrics Stabilize as an • Opportuni
Slide 15: Long-Term Expectations
Long-Term Expectations Revenue Op Margin Profitability Growth Incremental Over the Cycle 40% on Average Sustainable growth of 4% operating margin 4% CAGR or greater of >20%* Committed Return of Capital Yields 8-10% EPS* Growth * Non-GAAP Page 15
Slide 16: Keysight's Discipline and Clear Criteria for Acquisitions
Keysight’s Discipline and Clear Criteria for Acquisitions The Example • Aligns with strategic growth priorities Strategic Alignment • Increases proportion of total revenue from R&D market • Expands Served Addressable Market (SAM) Growth • Focuses on faster growing market segments or adds key technol
Slide 17: Market Overview
Market Overview Electronic Services Communications Industrial Segments Solutions Group Solutions Solutions Group Group Aerospace, Commercial Electronic End Markets Communications Defense & Industrial Services TOTAL Government Revenue(1) $1B $0.7B $0.8B $0.4B $2.9B Revenue Mix(1) 34% 26% 26% 14% 100%
Slide 18: Why Electronic Design and Test is an Attractive Industry for Keysight
Why Electronic Design and Test is an Attractive Industry for Keysight • Opportunity to expand SAM in adjacent SAM Expansion markets • Drive evolving electronic design and New Customer Needs test solutions • Technical knowledge gained only through Deep Experience Required years of practical experienc
Slide 19: Multiple Growth Drivers Provide Diversification
Multiple Growth Drivers Provide Diversification Growth Drivers • Evolving standards Commercial • All data, all the time Communications • Internet of Things Aerospace, Defense & • World instability Government • Defense modernization • Evolving battery technologies Automotive & Energy • Connected car
Slide 20: Product Leadership is Necessary but Not Sufficient
Product Leadership is Necessary but Not Sufficient Core Platforms Market Position(1) Simulation Software(2) #1 Network Analyzers #1 Signal Analyzers #1 Signal Sources #1 Oscilloscopes #2 One Box Testers #3 (1) Per Prime Data and Company estimates (2) RF/Microwave design simulation software Page 20
Slide 21: Agenda
Agenda Executive Overview 4 Growth Initiatives – Wireless, Modular, Software and Services Page 21
Slide 22: Transforming for Growth
Transforming for Growth Good progress in FY15 Growth Strategies • Software-centric solutions • Organic R&D investments • Strategic M&A 5G Be first in Become #1 in Expand leadership in Grow services 5G wireless modular solutions T&M software business by 50% Page 22
Slide 23: Wireless & Software Growth Initiatives
Wireless & Software Growth Initiatives Page 23
Slide 24: Persistent Growth in Data Drives Wireless Investment
Persistent Growth in Data Drives Wireless Investment Drivers Results Connected Devices* – Desire for instantaneous data 30B+ in all devices – IoT significantly increases number 15B of connected devices – Adjacent markets such as Today 2020 Automotive and Medical add to data growth Mobile Data Traffi
Slide 25: 5G Collaborations Underway
5G Collaborations Underway 5G Timeline 2016-2018 2020+ 2010-2015 Develop 2018-2020 Commercialize, Early Research Standards & Formal Trials Deploy Early Trials Keysight collaborates with industry leaders and influencers – Consortia write the 5G standard 5GPPP, mmMAGIC, METIS II (Europe); FutureForum
Slide 26: Delivering First-to-Market Solutions for 5G
Delivering First-to-Market Solutions for 5G Simulate Prototype Manufacture Optimize Ramping in 1-3 years Keysight introduced 10 targeted 5G solutions in the past year Page 26
Slide 27: Strengthening Wireless and Software Portfolio with Anite
Strengthening Wireless and Software Portfolio with Anite Simulate Prototype Manufacture Optimize Anite Profile • A leader in R&D software solutions for wireless handsets • A leader in network test Software layer Network test design and test solutions Advances Keysight’s position in 5G and supports t
Slide 28: Keysight's Software Business Today – Well-Positioned and Growing
Keysight’s Software Business Today – Well-Positioned and Growing – Revenues over $400M* – $2B market for electronic test software, ~7% CAGR* – Gross margins ~30 points above Keysight aggregate – Growth opportunities across all end markets Simulation Software Measurement Software Simulate Prototype M
Slide 29: Software Growth Strategy
Software Growth Strategy Expand simulation business − to address growth opportunities in High-Speed Digital and Power design Deliver solutions focused on growth segments − deliver R&D (prototype test) solutions focused on growth segments such as 5G Communications, Power, and Automotive Grow subscrip
Slide 30: Modular Solutions Growth Initiative
Modular Solutions Growth Initiative Page 30
Slide 31: Keysight Intends to be #1 in Modular Solutions
Keysight Intends to be #1 in Modular Solutions Keysight is growing much faster than overall modular solutions market Keysight has a highly differentiated position Keysight is the trusted advisor for customers’ application needs Page 31
Slide 32: Fast Growing Modular
Fast Growing Modular Still Small Portion of Total Market 2014 Modular Solutions Market 2015 Total Design & Test Market $1.1 Billion* $13.5 Billion* 18 16 14 12 $625M* $B 10 43% 57% PXI/AXIe 8 Other Modular PXI/AXIe PXI/AXIe Modular 6 Modular Modular 15% CAGR* 4 15% CAGR* to 2020 2 0 2015 2016 2017 2
Slide 33: Strong Keysight Growth in PXI/AXIe Modular Solutions
Strong Keysight Growth in PXI/AXIe Modular Solutions Key Initiatives Keysight PXI/AXIe Orders − Growing core catalog: Now >150 modular products and solutions − Introducing state-of-the-art modules that are winning new business and >$150M taking share − Winning systems deals in large 59% accounts wit
Slide 34: Keysight Modular: PXI and AXIe
Keysight Modular: PXI and AXIe Industry Standards for Test and Measurement PXI AXIe PCI eXtensions for Instrumentation ATCA* eXtensions for Instrumentation − Maintained by PXI Systems Alliance − Maintained by AXIe Consortium − High-performance for measurement − “Big brother to PXI” and automation ap
Slide 35: Investments Leveraged into Multiple Form Factors
COMPETITIVE DIFFERENTIATION: Investments Leveraged into Multiple Form Factors “X-Chips” Analog Chipset Feature Rich Box • Highly integrated N9030A • High performance Signal Analyzer • Low power Modular M9375A Network Analyzer Proprietary intellectual property developed by central Keysight Labs, Hand
Slide 36: Keysight Offers All Form Factors Meeting the Needs of Customer Applications
UNIQUE VALUE: Keysight Offers All Form Factors Meeting the Needs of Customer Applications Feature Rich Box Modular Handheld • R&D • Manufacturing • Installation • Validation • R&D • Maintenance Customer • Complex device • Validation manufacturing • Full measurement set • Small footprint • Portabilit
Slide 37: A Trusted Advisor with >75 Years of Expertise
HIGHLY DIFFERENTIATED POSITION: A Trusted Advisor with >75 Years of Expertise – Only supplier that offers all form factors to provide complete solutions that best fit customer needs – Leverage leading-performance technologies into multiple form factors – Use common measurement software across all fo
Slide 38: Services Growth Initiative
Services Growth Initiative Page 38
Slide 39: Keysight Services is Ideal Growth Opportunity
Keysight Services is Ideal Growth Opportunity Strategy Customer Needs Expands Alignment Alignment Addressable Market Aligns with Keysight Reduce costs Adds $1B* in new solutions strategy addressable services Outsource opportunities Asset utilization Expertise & consulting $1B Services $0.5B Anite Ne
Slide 40: Today: Strong Customer Services Foundation
Today: Strong Customer Services Foundation $401M FY15 Services Revenue Business Focus – Calibration Used Calibration Equipment – Repair – Used equipment Repair – Global footprint • Service centers in 30 countries Competitors • Affiliated with 35 calibration standards bodies in 17 – Third-party maint
Slide 41: Goal: Increase Services Revenue 50% by 2020
Goal: Increase Services Revenue 50% by 2020 2020 2015 $600M Revenue $401M Revenue Used Used Equipment Calibration Equipment 8% Calibration CAGR “Plus” Repair Repair Page 41
Slide 42: Grow by Expanding Technology Management Services
Grow by Expanding Technology Management Services Traditional Offerings Expanded Offerings Keysight Repair and Multi-Vendor, Calibration Extended Support Technology Used Equipment Refresh Instrument & Asset Instrument Tracking Management Professional Services Pre-Sales Consulting Business Page 42
Slide 43: Moving Up the Customer Value Chain Drives Growth
Moving Up the Customer Value Chain Drives Growth Professional services Asset mgmt. and technology Multi-vendor refresh calibration Calibration Repair Page 43
Slide 44: Attractive Characteristics of the Services Business
Attractive Characteristics of the Services Business – Immediate opportunities large installed base – Increases served addressable market access new dollars – Greater account control strategic selling – Stable revenue stream less cyclicality, multi-year contracts Page 44
Slide 45: Key Messages
Key Messages Transformation Objectives Leader in Technology and market leader in Over the Cycle profitable market ever-evolving technology market 4% revenue CAGR Transform Target fast growing areas for and expand Served Addressable Deliver >20% growth Market (SAM) operating margin 8-10% EPS gr