Keysight Technologies Investor Presentation. May 2016

Transcription

1 Keysight Technologies Investor Presentation May 2016 Page 1

2 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 from our foreign subsidiaries, remediation activities, new product and service introductions, the ability of our products to meet market needs, changes to our manufacturing processes, the use of contract manufacturers, the impact of local government regulations on our ability to pay vendors or conduct operations, our liquidity position, our ability to generate cash from operations, growth in our businesses, our investments, our stock repurchase program, the potential impact of adopting new accounting pronouncements, our financial results, our purchase commitments, our contributions to our pension plans, the selection of discount rates and recognition of any gains or losses for our benefit plans, our cost-control activities, savings and headcount reduction recognized from our restructuring programs and other cost saving initiatives, and other regulatory approvals, the integration of our acquisitions and other transactions, our transition to lower-cost regions, and the existence of economic instability, that involve risks and uncertainties. Our actual results could differ materially from the results contemplated by these forwardlooking statements due to various factors, including those discussed in our Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on March 4, Page 2

3 Agenda Executive Overview 4 Growth Initiatives Wireless, Modular, Software and Services Advanced Manufacturing Strategy & Capabilities Page 3

4 History of Leadership and Innovation Unlocking measurement insights for over 75 years : The Hewlett-Packard years A company founded on electronic measurement innovation : The Agilent Technologies years Spun off from HP, Agilent became the World s Premier Measurement Company 2014: Keysight is launched Focused singularly on electronic design and test solutions Keysight Investor Value Proposition Market & Technology Leadership: #1 market position in key software and hardware platforms Experienced Management Team: >25 years average industry experience Strong Business Model: 40% incrementals on revenue growth of 4% or greater Long-term EPS Growth*: 8-10% growth with a balanced return of capital to investors * Non-GAAP Page 4

5 KEYSIGHT TODAY: Market and Technology Leader FY15 Revenue by Geography (1) Europe 18% Americas 38% 44% Asia Pacific ~10,250 Headcount Europe 17% Americas 34% FY15 Revenue (1) FY15 Operating Margin (1) FY15 EPS (1) Number of customers (2) Countries served Countries with R&D centers $2.9B 19.5% $2.52 ~15, % Asia Pacific Manufacturing sites (3) 3 Data as of October 31, 2015 (1) Non-GAAP measure. See Keysights Q4 15 quarterly results at for a reconciliation to GAAP numbers (2) Excludes indirect channels (3) Sites with greater than 70 manufacturing employees Page 5

6 Our Value to Customers - Unmatched in the Industry We help customers bring breakthrough electronic products to market faster and at a lower cost Automotive electronics Wireless base stations Computers Cloud devices & interfaces Smart phones Avionics Surveillance Radar Satellites Customer Lifecycle Simulate Prototype Manufacture Optimize Page 6

7 The Keysight Advantage Commitment to Value Creation Leader in profitable market Technology and market leader in ever-evolving technology market Transform for growth Target fast growing areas and expand Served Addressable Market (SAM) 7 Strong business model Proven operating performance and cash generation across cycles Page 6

8 A Strong Framework for Value Creation Business Model Organic Growth Mergers & Acquisitions Return of Capital Cost Structure Flexibility R&D Investment Strategic Alignment U.S. Cash Generation Cost Reductions Margin Expansion SAM Expansion Profit Leverage Growth Value Creation Appropriate Leverage Page 8

9 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 Leveraging the Business Model Solid Financial Results FY 15 & H1 16 Flexing the cost structure New Executing Strategy and Effectively Deploying Capital Anite and Electroservices acquisitions Increased R&D investment Executing share repurchase New Page 9

10 Organizing to Grow New First to Market Aligned with End Markets Trusted Advisor Corporate Planning and Technology Communications Solutions Group Industrial Solutions Group Services Solutions Group Worldwide Sales Jay Alexander Mike Gasparian Gooi Soon Chai John Page Guy Séné Software Technology Hardware Technology Complete wireless ecosystem Aerospace & Defense Automotive Energy Semiconductor General Electronics Repair & Calibration Asset Management Professional Services Remarketing Americas Europe Asia Japan Page 10

11 Strong Progress on Growth Initiatives Be First in 5G Wireless Become #1 in Modular Solutions Grew wireless R&D business and closed Anite acquisition in FY15 Collaborating with leading consortiums, universities, and research institutes to define 5G standards and technologies Early 5G R&D solution orders more than doubled YoY in H1 16 Grew PXI/AXIe product orders to >$150 million in FY15 >60% CAGR over past 3 years and gaining market share PXI/AXIe modular solutions grew at solid double-digit rate in H1 16 Expand Leadership in T&M Software FY15 was a record year for EDA software platform Anite acquisition materially expanded software business Strong year-over-year EDA revenue growth in H1 16 Grow Services Business by 50% $401 million in FY15 sales with service centers in 30+ countries New opportunities in multi-vendor support, asset management, test consulting, systems integration and training Continuing to win new multi-vendor business in H1 16 Page 11

12 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 Anite financials. Not guidance, shown on a non-gaap basis Page 12

13 Long-Term Expectations Revenue Growth Sustainable 4% CAGR Op Margin Incremental 40% on growth of 4% or greater Profitability Over the Cycle Average operating margin of >20%* Committed Return of Capital Yields 8-10% EPS* Growth * Non-GAAP Page 13

14 A Phased Approach to Return of Capital Phase 3 Return of Capital Phase 1 Stabilize as an Independent Company Completed April 30, months ahead of schedule Phase 2 Sustained 4% CAGR Over Cycle M&A is priority use of cash Opportunistic return of capital tied to balance sheet strength, M&A funnel, share price Feb 2016, $200M share repurchase authorized New Balanced Return of Capital Return of capital tied to US cash generation Appropriate leverage and investment grade credit metrics Opportunistic M&A Completed 3-4 Years Beyond Page 14

15 Keysight s Discipline and Clear Criteria for Acquisitions The Example Strategic Alignment Aligns with strategic growth priorities Increases proportion of total revenue from R&D market Growth Expands Served Addressable Market (SAM) Focuses on faster growing market segments or adds key technology ROIC materially above cost of capital (15% by year 5) Value Creation Quickly accretive (within 18 months) Valuation aligns with appropriate market multiples Page 15

16 Well-Positioned in Our End Markets Communications Aerospace / Defense Industrial, Computers, 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 presented on a Non-GAAP basis. See Q4 15 quarterly results at for more information (2) Per Company estimates (3) Per Company estimates. Average over 3 years (4) Includes support and services, and network test. Excludes network assurance Page 16

17 Why Electronic Design and Test is an Attractive Industry for Keysight SAM Expansion New Customer Needs Deep Experience Required Large Installed Base Intellectual Property Operational Excellence Strong Profit & Cash Flow Opportunity to expand SAM in adjacent markets Drive evolving electronic design and test solutions Technical knowledge gained only through years of practical experience Well-positioned with loyal customers Performance advantages from proprietary semiconductor technologies Optimized manufacturing and supply chain Delivering 18-19% operating margins over cycle and strong cash flow Page 17

18 Multiple Growth Drivers Provide Diversification Growth Drivers Communications Aerospace / Defense Evolving standards All data, all the time Internet of Things World instability Defense modernization Industrial Electronic content proliferation Computer Services, data access Cloud computing Semiconductor World-wide demand Services and Support Customer outsourcing Page 18

19 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 19

20 Agenda Executive Overview 4 Growth Initiatives Wireless, Modular, Software and Services Advanced Manufacturing Strategy & Capabilities Page 20

21 Transforming for Growth Good progress in FY15 Growth Strategies Software-centric solutions Organic R&D investments Strategic M&A 5G Be first in 5G wireless Become #1 in modular solutions Expand leadership in T&M software Grow services business by 50% Page 21

22 Wireless & Software Growth Initiatives Page 22

23 Persistent Growth in Data Drives Wireless Investment Drivers Desire for instantaneous data in all devices IoT significantly increases number of connected devices Adjacent markets such as Automotive and Medical add to data growth Public service sectors such as fire and police adopt 4G technologies 15B Results Connected Devices * Mobile Data Traffic * 30B+ Today % CAGR x increase next 5 years * Per Company estimates and Cisco Visual Networking Index (VNI) forecast Page 23

24 5G Collaborations Underway 5G Timeline Early Research Develop Standards & Early Trials Formal Trials Commercialize, Deploy Keysight collaborates with industry leaders and influencers Consortia write the 5G standard 5GPPP, mmmagic, METIS II (Europe); FutureForum (China) Major universities conduct 5G research University of Surrey 5GIC, New York University Wireless, Bristol University Commercial customers implement 5G China Mobile, Korea Telecom, NTT DOCOMO (Japan) Examples of Keysight collaborations Page 24

25 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 25

26 Strengthening Wireless and Software Portfolio with Anite Simulate Prototype Manufacture Optimize Anite Profile 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 design and test Network test solutions Advances Keysight s position in 5G and supports transformation to software-oriented solutions company (1) Per Anite annual FY2015 report for period ending April 30, In USD converted at average rate for the respective year. Presented on IFRS basis. Page 26

27 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 Manufacture Optimize * Keysight FY15 software revenue actuals plus a full year of Anite, per company estimates Page 27

28 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 subscriptions and services implement software capabilities to enable revenue growth from subscriptions and from services Pursue selective acquisitions like Anite to increase our overall software content Page 28

29 Modular Solutions Growth Initiative Page 29

30 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

31 Fast Growing Modular Still Small Portion of Total Market 2014 Modular Solutions $1.1 Billion* Total Market $13.5 Billion* 12 43% Other Modular 57% PXI/AXIe Modular $625M* PXI/AXIe Modular 15% CAGR* to 2020 $B PXI/AXIe Modular 15% CAGR* Keysight s double-digit growth continued in Q2 FY16 * Per Company estimates Page 31

32 Strong Keysight Growth in PXI/AXIe Modular Solutions Growing core catalog: Now >150 modular products and solutions Key Initiatives Introducing state-of-the-art modules that are winning new business and taking share Winning systems deals in large accounts with high performance, smaller footprint, fast test speed, high reliability, and expert application support Keysight PXI/AXIe Orders $59M 59% CAGR $93M >$150M FY13 FY14 FY15 * * Excludes ~$50M in FY15 non-pxi/axie modular orders Page 32

33 Keysight Modular: PXI and AXIe Industry Standards for Test and Measurement PXI PCI extensions for Instrumentation AXIe ATCA* extensions for Instrumentation Maintained by PXI Systems Alliance Maintained by AXIe Consortium High-performance for measurement and automation applications Members include: ADLINK, Cobham Wireless, Keysight, Marvin Test Solutions, National Instruments, Pickering, Teradyne Big brother to PXI More power, more performance per rack inch Members include: ADLINK, Anritsu, Cobham, Elma Electronic, Giga-tronics, Guzik Technical Enterprises, Keysight, Modular Methods, Test Evolution * Advanced Telecom Computing Architecture Page 33

34 Leveraged Investments into Multiple Form Factors for Competitive Differentiation X-Chips Analog Chipset Highly integrated High performance Low power Feature Rich Box N9030A Signal Analyzer Modular M9375A Network Analyzer Proprietary intellectual property developed by central Keysight Labs, manufactured at in-house semiconductor fab, and deployed into all three form factors Handheld N9918A FieldFox Microwave Analyzer Page 34

35 Unique Value: Keysight Offers All Form Factors Meeting the Needs of Customer Applications Feature Rich Box Modular Handheld Customer R&D Validation Complex device manufacturing Manufacturing R&D Validation Installation Maintenance Best For Full measurement set One-button measurements Shared equipment in lab Small footprint Flexible configuration Multi-channel applications Portability Harsh environments Page 35

36 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 form factors to ensure measurement accuracy and consistency Provide global support network Deliver world-class product reliability Page 36

37 Services Growth Initiative Page 37

38 Keysight Services is Ideal Growth Opportunity Strategy Alignment Customer Needs Alignment Expands Addressable Market Aligns with Keysight solutions strategy Reduce costs Outsource Asset utilization Expertise & consulting Adds $1B* in new addressable services opportunities COST $1B Services $0.5B Anite Network Test $12B Total $13.5B * Per Company estimates Page 38

39 Today: Strong Customer Services Foundation $401M FY15 Services Revenue Business Focus Used Equipment Calibration Calibration Repair Used equipment Repair Global footprint Service centers in 30 countries Competitors Third-party maintainers Original equipment manufacturers Affiliated with 35 calibration standards bodies in 17 countries Page 39

40 Goal: Increase Services Revenue 50% by $401M Revenue 2020 $600M Revenue Used Equipment Calibration 8% CAGR Used Equipment Calibration Plus Repair Repair Page 40

41 Grow by Expanding Technology Management Services Traditional Offerings Expanded Offerings Keysight Repair and Calibration Used Equipment Instrument Tracking Pre-Sales Consulting Multi-Vendor, Extended Support Technology Refresh Instrument & Asset Management Professional Services Business Page 41

42 Moving Up the Customer Value Chain Drives Growth Calibration Multi-vendor calibration Asset mgmt. and technology refresh Professional services Repair Page 42

43 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

44 Agenda Executive Overview 4 Growth Initiatives Wireless, Modular, Software and Services Advanced Manufacturing Strategy & Capabilities Page 44

45 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 Design for supply chain rapid launch and ramp-to-volume of new products Cost savings to maintain favorable margins Continued commitment to quality culture of quality, customer satisfaction compliance regulatory requirements Page 45

46 Strengths We Are Building On Low Cost Region Manufacturing Flexible Supply Base Advanced Technology Capability Unique Engineering Capability World s largest Test & Measurement facility in Asia Global sourcing Outsourcing State of the art technology centers providing performance differentiation in products / solutions Multi discipline competencies Value Engineering Total Quality Management Page 46

47 Key Messages Leader in profitable market Technology and market leader in ever-evolving technology market Transformation Objectives Over the Cycle Transform for growth Strong business model Target fast growing areas and expand Served Addressable Market (SAM) Proven operating performance and cash generation across cycles 4% revenue CAGR Deliver >20% operating margin 8-10% EPS growth Page 47