Keysight Technologies, Inc. - 10-Q Summary (Q2 FY2026)
Business Context and Reporting Period
This report covers the quarterly period ended April 30, 2026 (Q2 of Fiscal Year 2026). Keysight Technologies, Inc. is a global innovator in computing, communications, and electronics markets, providing design, emulation, and test solutions. The company operates through two reportable segments: Communications Solutions Group (CSG) and Electronic Industrial Solutions Group (EISG).
Key Financial Metrics
| Metric | Q2 2026 (3 Months) | Q2 2025 (3 Months) | YTD 2026 (6 Months) | YTD 2025 (6 Months) |
|---|---|---|---|---|
| Total Revenue | $1,717 million | $1,306 million | $3,317 million | $2,604 million |
| Net Income | $349 million | $257 million | $630 million | $426 million |
| Diluted EPS | $2.02 | $1.49 | $3.64 | $2.45 |
| Gross Margin | 68.6% | 62.4% | 65.5% | 62.7% |
| Operating Margin | 23.7% | 15.9% | 19.8% | 16.3% |
| Operating Cash Flow (YTD) | $942 million (vs. $862 million YTD 2025) | |||
| Cash & Equivalents (End of Period) | $2,412 million | |||
| Total Debt | $2,531 million ($699m current, $1,832m long-term) |
Material Changes vs. Prior Period
- Revenue Growth: Revenue increased 31% in Q2 and 27% YTD compared to the prior year. Growth was driven by higher demand in AI-driven data center networks, 5G/6G development, and aerospace/defense sectors.
- Acquisition Impact: The acquisition of Spirent Communications (completed Oct 2025) contributed $55 million in incremental revenue for Q2 and $143 million YTD. Acquisitions also added $7 percentage points to revenue growth.
- IEEPA Tariff Refunds: A significant one-time benefit occurred due to a U.S. Supreme Court ruling invalidating certain IEEPA tariffs. Keysight recorded a $100 million receivable for refunds, resulting in a $93 million reduction in cost of sales and a $40 million revenue reduction (due to customer surcharge refunds). This net impact improved operating income by $57 million for the quarter.
- Expense Increases: R&D expenses rose 28% and SG&A expenses rose 26% year-over-year, primarily due to incremental costs from acquisitions, higher personnel costs, and amortization of acquisition-related intangibles.
- Other Income Volatility: Other income (expense), net decreased significantly from $112 million in Q2 2025 to $18 million in Q2 2026, largely due to the absence of previous year net gains on derivative instruments.
Guidance, Outlook, and Risks
- Outlook: Management remains confident in long-term secular growth trends driven by 5G/6G, quantum computing, AI, and defense modernization. Capital spending for FY2026 is expected to be approximately $200 million.
- Tax Litigation: Keysight filed a lawsuit against the U.S. government seeking a $107 million tax refund related to GILTI regulations. If unsuccessful, the company may need to reverse previously recorded benefits, materially increasing the effective tax rate.
- Tariff Uncertainty: While IEEPA tariffs were invalidated, uncertainty remains regarding the timing and processing of refunds. Ongoing trade tensions and potential new tariffs pose risks to supply chains and costs.
- Legal Proceedings: Ongoing patent litigation with Centripetal Networks continues, though Keysight has successfully invalidated several patents in U.S. and European courts. The company is aggressively defending remaining claims.
- Stock Repurchases: A new $1.5 billion repurchase program was approved in November 2025. As of April 30, 2026, $1,192 million remained available. The company repurchased 778,081 shares in Q2.
Investor Verification Checklist
- Verify the timing and certainty of the $100 million IEEPA tariff refund receivable and the associated $40 million customer refund liability.
- Monitor the outcome of the $107 million GILTI tax refund lawsuit against the U.S. government.
- Assess the integration progress and revenue contribution of the Spirent Communications acquisition.
- Review the status of ongoing patent litigation with Centripetal Networks and potential financial exposure.
- Track the impact of foreign currency fluctuations on future margins, given the company's global operations.