Keysight's Q3 2025: Strong Revenue Growth Meets Tax Anomaly

Keysight Technologies (KEYS), a leading provider of electronic design and test solutions, recently filed its quarterly report for the third quarter of fiscal year 2025. This report, known as a Form 10-Q, offers a detailed look into the company's financial health. Let's break down the key figures from the income statement to understand how the company performed. You can find the full details in the official SEC filing.

For the quarter ending July 31, 2025, Keysight reported a strong top-line performance. Total revenue reached $1,352 million, an impressive 11% increase from the $1,217 million generated in the same period last year. This growth was well-balanced across the company's two main business segments.

• Communications Solutions Group (CSG): This segment, which serves the aerospace, defense, and commercial communications markets (including 5G and future 6G technology), saw its revenue climb 11% to $940 million.
• Electronic Industrial Solutions Group (EISG): Catering to markets like automotive, energy, and general electronics, this segment also posted an 11% revenue increase, bringing in $412 million.

The consistent growth across both segments indicates healthy demand for Keysight's testing and measurement equipment in a variety of high-tech industries.

From Revenue to Profit

To understand how that revenue translates into profit, the following flow diagram visualizes Keysight's income statement for the three months ending July 31, 2025.

While revenue grew, the company's profitability presented a more complex picture. Gross margin, the profit left after accounting for the direct costs of products and services, was 61.7%, a slight dip from 62.0% in the prior year.

However, operational efficiency appeared to improve. Income from operations grew a healthy 14% to $234 million, and the operating margin ticked up slightly to 17.3% from 16.8% last year. This was achieved even as the company increased its Research and Development (R&D) spending by 11% to $250 million, maintaining its investment in innovation at a steady 19% of revenue.

The Tax Anomaly

Here's where the story takes a turn. Despite the solid growth in operating income, Keysight's net income, or the final bottom-line profit, saw a sharp decline. Net income for the quarter was $191 million, a 51% drop from the $389 million reported in the third quarter of 2024.

So, what caused this disconnect? The answer lies in the income tax line.

• This quarter, Keysight recorded a $50 million provision for income taxes.
• In the same quarter last year, it recorded a $176 million benefit from income taxes.

This massive $226 million swing from a tax benefit to a tax expense is the primary reason for the decline in net income. The prior year's results were boosted by an unusually large tax benefit, making the year-over-year comparison appear quite dramatic. The underlying operational performance of the business, however, remained strong.

Concluding Thoughts

Keysight's third-quarter results reveal a company with solid operational momentum. Strong, balanced revenue growth and improving operating income paint a picture of a healthy business capitalizing on demand in key technology sectors. The significant drop in net income, while jarring at first glance, is almost entirely attributable to a non-operational tax variance rather than a decline in business performance.

For a company competing in rapidly evolving fields like next-generation wireless and electric vehicles, sustained investment in R&D is critical. Keysight's commitment to innovation, coupled with its operational execution, suggests it is well-positioned, though it, like any global tech company, faces risks from supply chain disruptions and geopolitical uncertainty. Investors will be watching to see if the company can maintain its growth trajectory while navigating these broader market challenges.