KEYS.US (KEYS.US) Q3 earnings report and guidance both exceeded expectations: AI data center demand led to a 56% year-on-year surge in orders, and commercial communications revenue broke 1 billion US dollars for the first time

The Zhitong Finance App learned that electronic design, simulation and testing equipment supplier KEYS.US (KEYS.US) announced the results for the third fiscal quarter of fiscal year 2026 (ending July 31) after the market on Tuesday. Thanks to the rapid expansion of artificial intelligence (AI) data centers driving demand for its software and testing tools, the company's adjusted earnings per share and revenue were higher than market expectations, and raised the fourth fiscal quarter and full year results guidance. Boosted by this, the stock rose about 5% after the market.

According to financial reports, the company achieved revenue of US$1.85 billion in the third fiscal quarter, up 36.5% year over year, higher than analysts' expectations of US$1.75 billion; adjusted earnings per share were US$3.07, far higher than the forecast of US$2.48.

According to US GAAP, net profit for the third fiscal quarter was US$397 million, or US$2.30 per share, compared with US$191 million or US$1.10 per share for the same period last year. Adjusted net profit was approximately $531 million.

In terms of orders, orders for the third fiscal quarter reached US$2.09 billion, up 56% year on year, and core orders increased 52%, which also far exceeded market expectations of US$1.86 billion. Overall gross margin was 69%, operating expenses were US$661 million, and operating profit margin was 33.2%, up 8.2 percentage points year over year, exceeding the company's long-term target range of 31% to 32%. Operating cash flow for the quarter was $437 million and free cash flow was $403 million.

The boom in data center expansion continues, and commercial communications surpass $1 billion for the first time

Over the past year, the AI-driven data center expansion boom continued to benefit Shide Technology. Its Communications Solutions Group (which accounts for two-thirds of the company's total revenue and mainly produces transceivers and other components used in data centers) achieved revenue of US$1,345 billion in the third fiscal quarter, an increase of 43% over the previous year. Among them, the commercial communications business grew particularly strong, with revenue exceeding US$1 billion for the first time, reaching US$1.06 billion, a sharp increase of 56% over the previous year, and wireline (wireless) business orders reached a record high, more than doubling the year-on-year increase, while revenue surpassed the wireless business for the first time; the aerospace, defense and government business revenue was US$339 million, up 14% year over year.

The Electronics Industry Solutions Group's revenue was US$501 million, up 21% year over year, and the three major markets of semiconductors, general electronics, and automotive and energy all grew. In terms of gross margin, the gross margin of Communications Solutions Group is about 71%, and the gross margin of Electronics Industry Solutions Group is about 64%, all higher than market expectations.

Software and service revenue increased by double digits year on year. Currently, it accounts for about 33% of total revenue, and annual recurring revenue accounts for about 24% of total revenue.

Looking ahead, the company expects adjusted earnings per share for the fourth fiscal quarter to be between $3.34 and $3.40 billion, with revenue between US$1.93 billion and US$1.95 billion, with midpoints of US$3.37 (up about 76% year over year) and US$1.94 billion (up about 37% year over year), respectively. The guidance far exceeded market expectations of $2.68 and $1.83 billion.

For the full year, the company expects full-year revenue growth of about 32% for FY2026, and adjusted earnings per share to increase by about 60%.

Satish Dhanasekaran (Satish Dhanasekaran), CEO of Keysight, said: “The record fiscal third quarter results and outlook reflect the increasing correlation between our strategy and product portfolio to help customers solve complex engineering challenges in various end markets. We are confident that we will keep up the momentum and achieve long-term value creation.”

The company said in a conference call after the financial report was announced that AI data center construction continues to drive commercial communication demand, especially strong orders for high-speed wired services, strong demand for 800G and 1.6T optical transceivers, silicon photonic technology, and pre-silicon verification for hyperscale customers. In addition, the 6G standard time indicates that the modernization of national defense and the expansion of advanced semiconductor nodes have also provided diversified growth support for the company.

The management also revealed that the acquisition and integration work has basically been completed. It is expected that the cost coordination target of 80% to 90% of the 100 million US dollars will be achieved by the end of the fiscal year, and the 2027 fiscal year is expected to bring about a further 50 million US dollars of incremental collaboration. The company's sales pipeline is currently at an all-time high, and orders for the fourth fiscal quarter are expected to exceed $2 billion for the third consecutive quarter.

However, management also suggested that supply chain restrictions are still an important constraint on converting strong demand into revenue recently, but there have been no abnormalities on the demand side, and no signs of customers picking up goods early.