Slide 1: Keysight Technologies Investor Presentation
Keysight Technologies Investor Presentation March 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 Advanced Manufacturing Strategy & Capabilities Page 3
Slide 4: 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 5: 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 6: 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) 6 Strong Proven operating performance and cash generation business
Slide 7: A Strong Framework for Value Creation
A Strong Framework for Value Creation Organic Business Mergers & Return of Growth Model Acquisitions Capital • R&D • Cost Structure • Strategic • U.S. Cash Investment Flexibility Alignment Generation • SAM • Cost • Growth • Appropriate Expansion Reductions Leverage • Value • Profit • Margin Creation
Slide 8: 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 9: Organizing to Grow
Organizing to Grow New First to Market Aligned with End Markets Trusted Advisor Corporate Communications Industrial Services Planning and Worldwide Sales Solutions Group Solutions Group Solutions Group Technology Jay Mike Gooi Soon John Page Guy Alexander Gasparian Chai Séné • Repair & • Software •
Slide 10: 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 more than doubled YoY
Slide 11: 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 12: 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 12
Slide 13: 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 14: 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 15: Well-Positioned in Our End Markets
Well-Positioned in Our End Markets Industrial, Computers, Communications Aerospace / Defense Semiconductor Total Revenue(1) $1B $0.6B $1.3B $2.9B Rev. Mix(1) 33% 23% 44% 100% Market Size(2,4) $5B $3B $5.5B $13.5B Market Share(2) 20% 20% 24% 21% Market Growth(3) 1-2% 2-3% 2-3% 2-3% (1) FY15 (2) Per C
Slide 16: 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 17: Multiple Growth Drivers Provide Diversification
Multiple Growth Drivers Provide Diversification Growth Drivers • Evolving standards Communications • All data, all the time • Internet of Things • World instability Aerospace / Defense • Defense modernization Industrial • Electronic content proliferation • Services, data access Computer • Cloud comp
Slide 18: 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 18
Slide 19: Agenda
Agenda Executive Overview 4 Growth Initiatives – Wireless, Modular, Software and Services Advanced Manufacturing Strategy & Capabilities Page 19
Slide 20: 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 20
Slide 21: Wireless & Software Growth Initiatives
Wireless & Software Growth Initiatives Page 21
Slide 22: 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 23: 5G Collaborations Underway
5G Collaborations Underway 5G Timeline 2016-2018 2020+ 2010-2015 2018-2020 Develop Commercialize, Early Research Trials Standards Deploy Keysight collaborates with industry leaders and influencers – Consortia write the 5G standard 5GPPP, mmMAGIC, METIS II (Europe); FutureForum (China)… – Major unive
Slide 24: 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 24
Slide 25: Strengthening Wireless and Software Portfolio with Anite
Strengthening Wireless and Software Portfolio with Anite Anite Profile Simulate Prototype Manufacture Optimize • A leader in R&D software solutions for wireless handsets (~70% of revenue(1)) • A leader in network test applications (~30% of revenue(1)) Software layer Network test design and test solu
Slide 26: 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 27: Anite Expands Keysight's Software Revenue Mix
Anite Expands Keysight’s Software Revenue Mix Keysight Revenue Mix(1) Anite Revenue Mix(2) Services HW SW SW HW Anite’s revenue mix advances the shift toward software (1) FY15 (2) Per Anite 2015 annual report ending April 30, 2015. Includes product software and IP licenses, Page 27 plus software mai
Slide 28: 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 29: Modular Solutions Growth Initiative
Modular Solutions Growth Initiative Page 29
Slide 30: 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 30
Slide 31: Fast Growing Modular Still Small Portion of Total Market
Fast Growing Modular Still Small Portion of Total Market 2014 Modular Solutions 2015 Total 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 2018 2019 2020 Keysigh
Slide 32: 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 33: Keysight Modular: PXI and AXIe Industry Standards for Test and Measurement
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 34: Leveraged Investments into Multiple Form Factors for Competitive Differentiation
Leveraged Investments into Multiple Form Factors for Competitive Differentiation “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, H
Slide 35: Unique Value: Keysight Offers All Form Factors
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 36: Highly Differentiated Position: 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 37: Services Growth Initiative
Services Growth Initiative Page 37
Slide 38: 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 39: 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 40: 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 40
Slide 41: 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 41
Slide 42: 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 42
Slide 43: 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 43
Slide 44: Agenda
Agenda Executive Overview 4 Growth Initiatives – Wireless, Modular, Software and Services Advanced Manufacturing Strategy & Capabilities Page 44
Slide 45: Manufacturing Strategy
Manufacturing Strategy • Relentless focus on cost savings − − Manufacturing in a low cost region LEAN at Keysight • Develop new technologies capability − new materials / new manufacturing process Cost savings to maintain favorable margins • Design for supply chain − rapid launch and ramp-to-vo
Slide 46: Strengths We Are Building On
Strengths We Are Building On Low Cost Region Flexible Advanced Technology Unique Engineering Manufacturing Supply Base Capability Capability • World’s largest • Global sourcing • State of the art • Multi discipline Test & Measurement • Outsourcing technology centers competencies facility in Asia pro
Slide 47: 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