Jason Kary - Vice President, Treasurer and Investor Relations Ron Nersesian - President and Chief Executive Officer Neil Dougherty - Keysight Senior Vice President and Chief Financial Officer Satish Dhanasekaran - President, Communications Solutions Group Gooi Soon Chai - President of the Electronic Industrial Solutions Group John Page - President of the Services Solutions Group Bethany Mayer - President of the Ixia Solutions Group Mark Wallace - Senior Vice President of Worldwide Sales

Brandon Couillard - Jefferies Richard Eastman - Robert W. Baird Toshiya Hari - Goldman Sachs Vijay Bhagavath - Deutsche Bank Krish Sankar - Bank of America Merrill Lynch Patrick Newton - Stifel Nicolaus Farhan Ahmad - Credit Suisse Joseph Wolf - Barclays Capital Stanley Kovler - Citi Research

Good day, ladies and gentlemen. And welcome to Keysight Technologies’ Fiscal Third Quarter 2017 Earnings Conference Call. My name is Julian, and I will be your lead operator today. After the presentation, we will conduct a question-and-answer session [Operator Instructions]. Please note that this call is being recorded today, Wednesday, August 30, 2017 at 1:30 PM Pacific Time. I would now like to hand the conference over to Jason Kary, Vice President, Treasurer and Investor Relations. Please go ahead, Mr. Kary.

Thank you. And welcome everyone to Keysight’s third quarter earnings conference call for fiscal year 2017. Joining me are Ron Nersesian, Keysight President and CEO and Neil Dougherty, Keysight Senior Vice President and CFO. Joining us in the Q&A session will be Satish Dhanasekaran, President of the Communications Solutions Group; Gooi Soon Chai, President of the Electronic Industrial Solutions Group; John Page, President of the Services Solutions Group; Bethany Mayer, President of the Ixia Solutions Group; and Mark Wallace, Senior Vice President of Worldwide Sales. You can find the press release and information that supplement today's discussion on our Web site at investor.keysight.com. While there, please click on the link for quarterly reports under the financial information tab. There you will find an investor presentation along with Keysight’s segment results. Following this conference call, we will post a copy of the prepared remarks to the Web site. Today's comments by Ron and Neil will refer to non-GAAP financial measures. You will find the most directly comparable GAAP financial metrics and reconciliations on our Web site. We will make forward-looking statements about the financial performance of the Company on today’s call. These statements are subject to risks and uncertainties and are only valid as of today. The Company assumes no obligation to update them. Please review the Company’s recent SEC filings for a more complete picture of our risks and other factors. I would also note that management is scheduled to present at the Citi Technology Conference on September 6th in New York City and the Deutsche Bank Technology Conference in Las Vegas on September 12th. And now, I’d like to turn the call over to Ron.

Thank you, Jason. And thank you all for joining us. We will focus today’s discussion on three key topics. First, we delivered strong third quarter results. In total, we achieved 24% order growth, 20% revenue growth, and core order growth accelerated to 8% and we delivered 4% core revenue growth. We generated 19% operating margin and EPS of $0.61, which was $0.03 above the midpoint of our guidance. Second, as we have progressed through the year, we have continued to execute and build momentum in our key growth areas across multiple end-markets. Our success this year demonstrates that our strategy is working and we are pleased with our results. And third, while we have been in business for decades, it is still early days for Keysight and for the technology trends where we are focused. We are just getting started and are excited about our future opportunities. Let’s begin with a review of Keysight’s third quarter performance. Overall, it was a very strong quarter for Keysight. In our markets, we continued to see increased investments in emerging technologies. Our strategy to partner with customers early and to bring full solutions to market that enable customers to accelerate and automate their designs is delivering results, including increased order growth and a strong funnel of opportunities. As a team, we couldn't be more pleased with the momentum we are building in the market with both new and existing customers, developing leading-edge technologies such as 5G, next-generation wireless, high-speed datacenters, and automotive and energy. In total, we delivered 24% order growth or 8% on a core basis. Our investments to bring new solutions to market, our relentless focus on the growth areas like 5G and our go-to-market approach, are fueling our growth. As a result, we are gaining momentum with key players in the industry. Our business is growing as customers increase their investments in R&D, and we believe we are outpacing our competitors. In short, our strategy is working. Keysight is well-aligned with emerging market trends and the needs of our customers. Our continued execution has led to strong year-to-date results and solid progress in our key growth areas. For the nine-month period, we delivered 5% core revenue growth and 9% core order growth, when excluding our aerospace and defense end-market, where we have a solid competitive position but overall market spending has been lower when compared to last year. For the year-to-date period, we have achieved double-digit order growth for our software solutions and high double-digit growth for our 5G solutions. We have maintained our R&D investment level, achieved 19% operating margin, and generated solid cash flow. Even though Keysight has been in business for decades, we are just getting started. We have an incredible bench of talent throughout the organization, a clear defined visions and amazing technology. We are leveraging these strengths to create value for our customers and design our future as a company. Keysight is at the heart of innovation processes and many dynamics end markets. We have a solid foundation to drive continued growth across multiple evolving technology trends, which are in the early days. Today, I will highlight these trends we see in 5G, IoT, automotive and energy, and high-speed datacenters. In 5G, we invested early and have established a leading position and we continue to win business across the communications ecosystem. In the quarter, orders for our 5G solutions more than doubled year-over-year. 5G cellular networks will explore unchartered territory and frequency coverage, data rates, number of simultaneous users, spectral efficiency and reduced latency. Before the standards are even established 5G innovators need to simulate, design and test-in dimensions they’ve never dealt with before. Leveraging our expertise in high frequency and millimeter wave technologies, Keysight has partnered with key industry innovators around the globe and introduced several industry-first solutions, including our new simulation software that provides Verizon and 3GPP standards, 5G link level validation, 5G base stations and handset designs. IoT is also driving growth for Keysight across several of our end markets, including wireless, general consumer electronics and automotive and energy. IoT encompasses a broad range of applications from billions of IoT devices to connected cars, connected grids, and even the connected you. Keysight has a broad portfolio of solutions to help designers fast-track IoT innovation and optimize designs for critical performance attributes, including power consumption, RF performance, interoperability and conformance testing. In our automotive and energy end market, we see growing development activities driven by increasing demands for electric and hybrid cars, as well as the increasing electronic content in vehicles, radar technologies for autonomous driving and high powered devices and applications. Autonomous driving will need multiple sensors, high power computing and artificial intelligence. Additionally, infrastructure will need to support real time information flow. The number of connected cars is estimated to grow to 100 million by 2021, up from just 10 million shipped in 2015. Keysight has achieved double-digit order growth with our automotive and energy solutions for three consecutive quarters. The electronic content in vehicles is rapidly increasing, driving customer investments and manufacturing capacity for the latest generation of capability and R&D investments for next generation features. All of the data traffic created at the edge of the network from the growing number of connected devices and higher speeds requires upgrades across the network, deeper visibility into network operations and greater levels of security; all areas where Ixia has leading technology. While the network test and visibility market dynamics this had been mixed, we are pleased with our competitive position and progress. In network test, our NEM customers have curbed their development investments in speeds up to 100G as they plan and prepare for 400G. While this has decreased demand for 100G and predecessor technologies, we are confident in our 400G technology and believe we are well positioned at spending increases. In the quarter, we achieved strong growth among service provider customers with our visibility and application and security solutions, while we saw continued soft spending with Enterprise accounts in the U.S. While the top line didn't meet our expectations, primarily due to temporary market softness, ISG delivered solid gross margin and operating profit. Additionally, our integration efforts are well on their way, and we are pleased with our progress. Our ability to combine our technologies and to bring complete end-to-end solutions to market enables us to further expand the technology gap between Keysight and the competition. We have already begun partnering on end-to-end development of next-generation technologies and currently have six joint projects under development. We recently introduced our first joint end-to-end solution, well ahead of our planned timeline. Our new Cellular and Wi-Fi emulation system is the industry's first test platform to cover a complete cellular and Wi-Fi system, enabling simultaneous signaling tests over the protocol stack from physical transmission to data traffic transmission. With this new solution, customers can view the performance of the complete protocol stack with end-to-end performance verification needed for emerging and demanding applications such as IoT, connected car and 5G. In summary, we are very pleased with the third quarter performance and continued progress in building multiple avenues of growth across a diverse set of end markets. We are executing on our strategy to create value for our customers and shareholders by building on our heritage, partnering with customers early to create new opportunities, and driving growth across multiple avenues of emerging technology trends. Additionally, we have expanded the value that Keysight brings to the market. To deliver the next world-changing innovation, our customers need help with more than just test and measurement of physical devices. With more complicated and integrated functionality, electronic devices are vulnerable to faults at any point in the technology stack. We need to verify the quality, performance, compliance and security of products at every layer from Layer 1 to Layer 7, as well as how they integrate into live networks. Through our acquisition of Ixia, Keysight helps customers gain insight into how products are functioning at every layer. We believe we are poised to continue to drive growth as customers increase R&D investments and deploy next-generation technologies. We look forward to sharing our progress with you along the way. With that, I will turn the call over to Neil for a detailed review of our financial performance and fourth quarter outlook.

Thank you, Ron, and hello, everyone. Today, we reported third quarter GAAP revenue of $832 million and non-GAAP revenue of $863 million, which excludes the impact of the acquisition related fair value adjustments to Ixia’s deferred revenue balance. Core revenue, which excludes the impact of currency and revenue from acquisitions completed within the last twelve months, grew 4% year-over-year and was ahead of our guidance of 2% core growth. Growth was driven across all geographies. Regionally, core revenue grew 1% in the Americas, 8% in Europe, 2% in Japan and 6% in Asia, excluding Japan. Looking at our operational results, gross margin was 60.9%, a year-over-year increase of 220 basis points, driven by the addition of Ixia. Operating expenses totaled $362 million compared with $281 million in the same period last year, reflecting a full quarter of Ixia expenses and increased sales investment. This resulted in third quarter operating margin of 19%, which was down 50 basis points when compared with 19.5% last year. We reported a GAAP net loss of $18 million or a loss of $0.10 per share, which includes a $134 million unfavorable impact from the amortization of acquisition-related assets related to Ixia. On a non-GAAP basis, we delivered net income of $115 million, up 7% over last year and $0.61 in earnings per share. We ended the quarter with a weighted average diluted share count of 188 million shares. Moving to the performance of our segments. Our Communications Solutions Group, or CSG, includes two primary end-markets. First is the commercial communications end-market, the reported revenue of $254 million compared to $252 million in the prior year third quarter. Growth in wireless was partially offset by softer spending in infrastructure. CSG also includes our aerospace, defense and government end markets, which generated revenue of $164 million in Q3 compared with $172 million in the same quarter last year, reflecting softer spending in the U.S. due to the budget approval delays we saw earlier this year. While [ABG] orders have stabilized and we expect spending in the U.S. to strengthen in Q4, it is difficult to predict exactly when the flow of funding will return to a steady state in this end-market. Over the long-term, we remained bullish on both our market position in aerospace and defense and the prospect for increased defense spending in the U.S. Total CSG revenue for the quarter was $418 million compared with $424 million in the same quarter last year. CSG reported gross margin of 61.2% and operating margin of 15.7%. Our Electronic Industrial Solutions Group, or EISG, generated third quarter revenue of $218 million, up 14% from the same quarter last year. General electronics, semiconductor measurement solutions and automotive and energy solutions all posted double-digit growth. As we noted last quarter, we’ve had several quarters of robust growth in semiconductor measurement solutions and we expect this to moderate somewhat as we move into our fiscal fourth quarter and first quarter of next fiscal year. EISG reported gross margin of 61.1% and operating margin of 25.3%. Our Ixia Solutions Group, generated revenue of $120 million, gross margin of 77%, and an operating margin of 19.9%. As Ron mentioned, we are well on our way with our integration efforts and are on track with our cost synergy timeline. We expect to achieve annualized run-rate cost synergies of $40 million by Q3 of next fiscal year and remain committed to delivering the full $60 million of cost synergies over time. Moving to the Services Solutions Group. SSG generated third quarter revenue of $107 million, a 4% year-over-year increase. SSG reported gross margin of 41.8% and operating margin of 18.1%. Moving to the balance sheet and cash flow. We ended our third quarter with $873 million in cash and cash equivalents. Cash flow from operations in the quarter was $98 million. Capital purchases were $21 million in the quarter, resulting in free cash flow of $77 million. In addition, we paid down $240 million of debt related to the Ixia acquisition this quarter. Turning to our outlook and guidance for the fourth quarter. Our current outlook for the fourth quarter reflects our very healthy 8% core order growth rate in Q3 and strong backlog as we enter into the fourth quarter. As Ron mentioned, partnering with customers early and delivering full solutions is a cornerstone of our go-to-market strategy. As a result, we are seeing a higher mix of solution sales within our business, which have a longer order-to-revenue conversion cycle when compared with our historic product-centric approach to the market, and we have accounted for this in our Q4 outlook. We currently expect Q4 non-GAAP revenue to be in the range of $875 million to $905 million, representing 3% core growth at the midpoint. We expect fourth quarter non-GAAP earnings per share to be in the range of $0.59 to $0.69 or $0.64 at the midpoint, based on a weighted diluted share count of approximately 189 million shares. With that, I will now turn it back to Jason for the Q&A.

Thank you, Neil. Operator, could you please give the instructions for the Q&A.

[Operator Instructions] And your first question comes from the line of Brandon Couillard from Jefferies. Your line is open.

Ron, income would love if you could perhaps share some update on how the integration is going with Ixia so far. How you are bringing the two sales organizations together? And if you could just touch on the revenue performance in the quarter, may be between network testing and visibility growth, specifically available?

First, I’ll answer the first part of your question, and then I’ll let Bethany give a couple of highlights on the breakdown between MTS and NVS. Overall, the integration is going excellent. As you know, we have an integration team; we developed a lot of expertise when we were with Agilent; and also, with our acquisitions that we’ve done here in the services group, as well as what we’ve done with Anite. So things are completely on track. We said we would get the integration done within a year and we are still on track to meet or exceed that timeline. So that’s working extremely well. There have not been any major surprises. As far as the sales force, the two teams are collaborating right now. For instance, we have a solution which is this new Wi-Fi cellular solution that utilizes expertise and product development that was done in the Ixia Group, as well as done in the Communication Solutions Group. So given that, we have sales force collaboration that’s going on, and leads being passed from one sales force to the other. And they are working on going ahead and optimizing our results, going forward. Of course, we look for ways to leverage that even further in the future. And I can’t share anything else with you right now, but I am very optimistic on our prospects. I’ll turn it over to Bethany now to talk a little bit about NTS and NVS.

Just briefly, we did see some softness on the MTS side of the business, and that was primarily in the 100 Gig and below space some softness in spending there. And that has mostly to do with the network equipment manufacturers beginning focus on 400 Gig. We've been doing very well with 400 Gig this year and we anticipate that continuing into next year as we have first to market product there and very, very strong future functionality set. So even though we saw a pause in spending on the 100 Gig side of the business, the 400 Gig in Layer 2, 3 was good. Our apps and security business also did well. But overall, the test business was down this quarter as a result of 100 Gig. On the visibility side of the business, we actually saw double-digit growth there. And although, enterprise was somewhat soft, we saw very good growth in the service provider side of our business there. So mixed this quarter and just hope that gives you a little sense of what's going on right now on the revenue side.

And on the profitability side, Ixia delivered its numbers and was able to deliver excellent gross margin and excellent profitability on the bottom line.

And then one more on the aerospace and defense business. You just characterized how your visibility has improved there, perhaps over the last several months, whether aerospace and defense orders were actually up in the third quarter and whether you think this business can return to more positive growth in 4Q?

First of all, we view the aerospace defense as a real growth opportunity for us that it's added relatively low level compared to historic levels because of the budget issues. But we see the environment in the world becoming most hostile, and the need for more high technology spending in aerospace defense to continue to increase. So that presents opportunities for us here, as well as abroad with our friendly, let's just say, partners. And we're very bullish on the long-term prospect. This quarter, we saw 2% growth in orders for aerospace and defense. And again, we saw orders that were roughly flat last quarter. So where we know that we've bottomed out and we’re also in a very good position on a lot of growth in RFPs. So we're very optimistic as that turns up, things will improve and give us some growth off of the base line that we’re at. On top of that September 30th is the U.S. ended year cycle, budget cycle and we always see some increased performance at the end of September. So we're encouraged by that. We also have a lot of business that comes from prime. So as they get involved in programs, even though it's not direct governments spending, we also will see some improvement there.

Your next question comes from the line of Richard Eastman from Robert W. Baird. Your line is open.

Can I just circle back for a minute around to Ixia? If I do the math right, perhaps the orders in the fiscal Q3 were around $115 million. And the question goes to maybe the fourth quarter that I think as your at you mid-point of revenue guide for the fourth quarter, it suggest maybe Ixia’s revenue would be down maybe $105 million for the quarter, at the midpoint. And I guess, what I’m curious at is, I mean, there is commentary, Bethany made commentary around 400G and some of the growth areas. But is that the backlog that’s maybe stretched out into the first half of ’18? Is that maybe where the delta is coming from between the orders and maybe the outlook at midpoint?

So Rick, first of all, we didn’t make any comments around Ixia orders. So I don’t know what’s math you were doing to get to those numbers.

Well, if core orders were up 8%, and I presume the delta in the order number would be Ixia. That’s how I got there.

Plus currently, yes. But the revenue math, I disagree with your revenue math. I think you’re underestimating what we have baked into our plans for Ixia as far as revenue in the fourth quarter. So we are -- obviously, as Bethany said, there is some market softness there. We do believe the market, this is temporary. We expect the market to return to growth sometime late in the calendar year, so likely our Q1. But we believe this is a relatively small pause in the market, relatively short pause in the market. So check your math, you’re pretty significantly understated that versus what I believe the math should say.

And then the just last question, around the Services Solutions Group. Is the softness on the defense side, aerospace and defense side, you said also impacting the calibration side of that business, on the service side?

I’ll turn it over to John Page, the Head of Services and Solutions.

Yes, there is actually some small impact from the aerospace defense on the calibration side of the business.

And is it a reasonable expectation to assume some step up there in the growth rate as we move forward on the SSG business in the fourth quarter and into next year?

Yes, absolutely. So the services tends to be a longer cycle than the product side so you see a delayed effect. But yes, the spending in the aerospace defense market picks up, we’d expect to see the calibration business and that pick up as well.

Your next question comes from Toshiya Hari from Goldman Sachs. Your line is open.

I wanted to circle back on the 8% core order growth number in the quarter. Ron, I think in response to a prior question, you noted that A&D orders were up 2%. I was hoping you guys could provide some color for the other segments, please.

So, we don’t provide it. On the call, the only other number we put out there was, in fact that I think the only other one. The other comment, I think it was a real strength for the quarter commercial communication, because we have seen some weakness in that area over a number of quarters, particularly as we’ve been in this trough between 4G and 5G. Our commercial communications business orders were up 10% this year or this quarter; so a very strong performance there than that. Those are primary breakdowns that we provide.

Toshiya, I’ll give you just a little bit more insight. As was mentioned earlier, the Electronic Industrial Group had order growth or core order growth that was in the double-digits. And that includes all of the sub-segments in the Group. In particular, if you look at the growth initiatives what we had outlined approximately three years ago on where we would focus and where we could get growth; the software business that we had, had double-digit; our modular business has double-digit growth. And we don’t think that make sense to report that, going forward. But I’ll just mention it casually at this point what makes more sense of the end market applications; auto and energy also a double-digit growth; and the last, which is 5G, had triple-digit order growth. So those are the growth initiatives that are driving our business. We focused around the market trends that really provide growth opportunity and we’re very, very happy with the progress. The matter of fact, if you were to just step back and take a longer term look to the 2018 outlook, we are now two years into the three to four year growth transformation that we outlined in our Investor Day in September of 2015. At that time, we also outlined a long-term expectation of 8% to 10% earnings growth. With our continued operational excellence, the growth initiatives that I’ve mentioned and the addition of Ixia, we expect to be at the high end of this range in fiscal 2018.

And then my second question was on commercial communications. And Neil, you may have partially answered this question in your response. But in your prepared remarks, you guys talked about growth in 5G and new wireless technologies being offset by weaker spending in 4G. And I think this is something that you guys have talked about for a number of quarters. But at what point do you think the strength in 5G and say the new Wi-Fi technologies trump the lower spending in 4G? Thank you.

That’s great question. I am going to get a chance to introduce Satish who is the new President of our Communications Solutions Group. He previously was running the Wireless Device Operations Group, which had done an exceptional job of turning around that business, and getting it to growth. And I’ll let him make some comments on commercial communications.

Just to make some opening remarks, we see a momentum for our 5G business for the past year building. And I’d say that this quarter, with the tripling of orders that we saw, we feel like we’re starting to outpace the declines from legacy communications that you would typically expect in a cycle. If I fast forward, if I go back in time I should say a year ago, most of our customers in the 5G space were from research and technology OEM efforts. Where we are as an industry is pretty exciting, because now the industry is accelerating towards the 3GPP and our specification, the first version is due in December. I think we’ll make it. And then with that comes the tremendous challenge of implementing these things across the entire ecosystem; components, chipsets, devices, base stations, so on and so forth. So we’ve established, consistent with the strategy that Ron has played out, leading edge collaborations with market making customers. Customers are the front end of this technology and we’re in the game with them co-innovating in multiple domains. I would say you’d look at the challenges of 5G, it’s not just 4G times four, it’s in deforming channel modeling, bringing up the software layers. And we have a one-stop shop approach for our customers and walking them through this journey, which we’re in the pre-standard phase and the post-standard phase. So it's really a powerful story. It was still in early days, because the standards are not done yet. But we feel very good about the solutions we are creating. The other point I'll make is about how we’re doing it. We're doing this through a platform approach using our modular innovation sets that will be kicked-off a few years ago. And that's a big differentiator provide us more competitive edge as we look ahead. And lastly, I'll say the fact that we’re with the market makers and we're co-innovating with them, gives us a good run runway for our 5G business looking ahead.

It's great to see all of that add up to 10% core growth for our commercial communications business.

Your next question comes from Vijay Bhagavath from Deutsche Bank. Your line is open.

I mean since you’re the measurement Company that I thought it's helpful to hear from you. One level of resolution, if you could, on the order strength you’re seeing in 5G, and in connected car software. Are there any specific use cases, OEMs, geographies, anything and everything if you could, nested down one level below it will be helpful for us to internalize that order strength? Thanks.

We’ll have Satish give a couple of more comments.

I would just that the strength is pretty broad and it starts with the chipset and components in a way the innovators in the 5G space. As I mentioned, beam forming, channel modeling, earlier tests and including bring up of the entire software stack for 5G, all of this is occurring in parallel. And for us, if we look internally, it's our ability to provide the correlation between base band to IF to millimeter wave, in a singular platform that gives us the competitive edge and we're working with all the market makers. But the strength is broad. We have seen innovators come online across the globe. And so that's why I say that the runway is pretty strong.

I'd like now to turn it over to Soon Chai Gooi, who basically runs the Electronic Industrial Solutions Group, as well as heading up all of our order fulfillment organization. And he is doing an exceptional job and has delivered double-digit order growth and double-digit revenue growth for EISG, as well as delivering double-digit order growth for our automotive business. And I'm sure he can make a couple of comments on automotive.

So I think as what Neil has mentioned. We continue to make good strides in the automotive energy segment, delivering double-digit growth for the last three quarters. In fact, what is exciting is that the automotive industry is actually going through a major transformation, and moving from a mechanical base to electronic base industry. And what we are doing now is that we are leveraging our Keysight call measurement capabilities enable innovation in this space. So we’ve expanded a whole suite of differential solution. So it ranges from design validation and testing of automotive electronic control units. We are involved in the connected car through our ADAS, which is Advanced Driver Assistant System Solution, all the way through our battery testing or EV and hybrid electronic vehicle, so definitely lot of opportunities. And what is also leveraging from our strength is our customer base. Our customer base, essentially spend from the whole automotive supply chain. So again just from the top-tier automotive makers to modules produces to, I think, what Satish mentioned, in chipset suppliers. So overall, I know the secrete momentum, especially in the automotive and energy segment.

A quick follow-on Neil. Any modeling guidelines you could give us on product mix, gross margins, OpEx heading into the back half?

I think our business model remains intact. So obviously, the addition of Ixia is net favorable to gross margins, it’s a couple of points, is approximately takes us into the low 60s from a gross margin perspective. We’ll be looking to obviously maintain our R&D investment. We do typically see, as we move from Q3 to Q4 both in R&D and SG&A, a sequential uptick. And that primarily just relates to the end of summer season. We’ve got a lot of employees that are out on SEO during the third quarter. So we get the vacation benefit as well as just general decreased spending impact from that. So you do tend to see an uptick as you move from Q3 to Q4 on the spending line. Ixia is going to be net additive to gross margin, a couple of points. So I think over the longer term, some of the other trends that we see with the migration towards software, migration towards solutions selling, migration towards R&D solutions, we’ll continue to offer gross margin upside, but that’s over the longer term.

Your next question comes from Krish Sankar with Bank of America Merrill Lynch. Your line is open.

Ron, I have a question. First, since you guys cater to like multiple verticals, like communications, aerospace, defense, auto, et cetera. Can you just tell us a little bit about how to think about seasonality in each of these segments, and also the cyclicality? In other words, where are we in the cycle for these different end-markets? And also had a follow-up after that.

So I’ll just make some generalized comments. And then obviously, there’s some industry research reports on certain areas. The bigger -- there is a couple of things. One of the typical cyclicalities and the second thing is what a really -- some inherent new growth that is coming in each area. So in automotive, we really did not play very much in that market in the past as it was in electro mechanical device. And we’re basically looking for low-tech electronics, which is not necessarily where we focus and where we add the most value. And now as it moves to basically be high speed computer with, high speed wireless signal sources and signal receivers, we’re going to pick-up on the inflection on that. We’re just in the beginning in that cycle. The second thing is aerospace defense. The aerospace defense business has been depressed since the election due to the budgeting cycle. But there is no doubt that everyone is talking about more and they have to work through that. So I don’t think it’s so much cyclical issue there. The only cyclicality that we typically see is a push at the end of the year with the September 30th end of the year cycle. Semiconductors, has plenty of reports to look at the SIA Index. We do have a portion of our business, a small portion of our business that plays into semiconductor R&D manufacturing. We will be affected by that a little bit. But again, it’s less than 10% of our overall business. So those are the major sectors that I would talk about. With the exception of 5G -- 5G, we are in the low between 4G and 5G, right now. And we’ve seen that in certain areas. You see that on the protocol side, the protocol development side. But on the other hand, 5G is accelerating and the timelines are being pulled in and that’s why we keep seeing this doubling of our business. And we’re very, very thankful that when we split from Agilent, we decided to focus and focus early and we’re in a better position in 5G than we were in 4G by a good margin.

And then as a follow-up, on the 5G opportunity, I understand we are still in the pre-standard phase. But is there any cannibalization potential where some of your existing customers could reuse some of the 4G testers? Or would you consider all of 5G to your greenfield opportunity for both you guys and the test and management industry, in general?

There’s no doubt that what happens is some of the equipment can be reused, but they’re going through completely different frequencies that are much higher performance for much of 5G, and that is stuff that cannot be deployed. When you’re talking about sub 6 gigahertz and now you’re talking about going to over 50 gigahertz, those products will not work. There is some reuse, but it’s much smaller than we’ve seen in past -- than in past cycles.

Your next question comes from the line of Patrick Newton from Stifel. Your line is open.

I guess, first one is on the Ixia front. You talked about the current softness being temporary. But I wanted to take more of a longer term view on the business. So I think in the recent filing, you targeted a three to five year long-term growth rate of 14% to 17% for this business. So I am curious, if you can help us understand how that CAGR split between the MPS and the visibility side of the business? And is this still the right long-term growth rate, given the current soft patch and hand off the 400 gig?

So let me make a couple of comments there. I think what you’re referring to is when we completed the acquisition of Ixia, we divided the business into two separate markets; a test market, which we think is growing low to mid single-digits; and a visibility market, which we think is growing much faster than that. So obviously, from an Ixia perspective -- and if you take the combined market growth rate of those, you get to somewhere around that 15% range. But for Ixia’s business, as a whole, it’s heavily weighted towards the test side. There relatively small portion of the revenue exists in the visibility space. So I think as we look forward, obviously, we have seen a temporary slowdown in growth rates. We do believe the market returns to growth early next fiscal year for us, and we continue to be on pace with regard to the synergy capture; so very much optimistic about the future.

And then I guess on the CSG side, the op margin was down about 240 bps year-over-year. I am sorry if I missed this. I didn’t hear maybe a reason behind that. And within the CSG, could you comment a little bit on the optical business, given that there has been some well known softness in the Chinese markets?

Yes, so let me take the first part of that, and I’ll let Satish comment on the optical piece. With regard to the profitability in CSG, I just pointed two things that we had a tough compare from a profit perspective for Q3, because in the year ago quarter, we had $6 million of one-time favorable adjustment to our warranty reserve. And obviously, we’d see achieving the largest ever businesses. They’ve got the majority of that benefit. You also have seen some increased investment in sales in our sales force as we look to capture growth. So I think those are the two primary things. Revenue is down as well, but the primary drivers of the tough compare with a one-time a favorable year ago and increased investment in the field to capture growth.

So maybe elevating the conversation to 100G and 400G, for the past four quarters prior, we’ve being seeing good growth for our 100G solutions in manufacturing. And what we are now projecting is that that growth is tapering off. We're engaged with leading transceiver companies on the 400G bring up, and that's still in early R&D phases. And we expect that market to kick into gear given all the dynamics of optical and other things that you described. But it will probably be a few quarters out.

But it is worthwhile to know Patrick that the wireless device part of commercial communications outpaced the internet infrastructure where you see a lot of the fiber businesses. Both of these sub segments grew, but the wireless device operation pulled the weighted average up to 10%.

Great. And if I can sneak one more in your EISG Group, it was performing incredibly well. Can you help us understand the relative of mix revenue from auto, energy, the semiconductor parametric test, general electronics, or any other bucket I might be missing?

Yes. So I wish we haven’t sized those specific buckets recently. Obviously, the general electronics piece is the largest portion of those relatively speaking semi is second and auto is third. But auto is currently the fastest growing of the three.

Your next question comes from the line of Farhan Ahmad from Credit Suisse. Your line is open.

My first question is on -- you talked about this long before 400 gigs. And I wanted to understand if how long is this linear view, and how should we think about the ramp-up in the 400 gig?

I'll turn that over to Bethany.

So 100G and those speeds that are below that, the 40 gig, 10, 1 gig, those are what have slowed down a bit at the current juncture. But what we're seeing is, I think those will continue to move along. I mean there’s nothing -- will be huge dramatic changes, but continue to move along to certain extent. What we’re really seeing though is that many of the folks that we do business with on a regular basis; so now with equipment manufacturers, many of the providers, cloud providers as well, are very interested in working on the 400 gig opportunities for products rollout, as well as potentially even network rollout. So that opportunity is beginning to take hold for us this year. We launched the product earlier this year in 400-gig. Actually, we’ve had a product now longer than that. But we would launch it earlier this year for our customer base and the datacenter space. And that has done well for us and that will continue to do well for us, going forward, into next year. So we think this wave will continue in through the end of the calendar year, as well as certainly into next year. And we’re excited about the opportunity, because first, we’re first to market but also the functionality in the optical transceiver solution that we provide, we think is superior. So overall, it is a good opportunity for us as a company at Keysight; going into next year, as Satish mentioned, it's also an opportunity for his organization; and overall, with Keysight, high speed datacenter and cloud provider data centers are absolutely a strong trend that will continue into next year.

Then it was really good to see your commercial communication growing 10% year-on-year for orders. I just wanted to understand. If you we should think that this is sustainable level for next few quarters, and as the business turned around, their 5G orders are now picked up to a point that they’re driving the growth already? Or is it just that you have more of the systems solution that you talked about in those longer lead products that are driving the business right now and we will see the growth rate decelerating here?

So I think the most relevant point that Satish made is that this is really the first quarter where we start to see the growth in 5G outpace the declines that are coming from the legacy technologies, including 4G. So, I don’t like to draw long-term conclusions over a single data point. But I think that is significant. I think we believe we’re very well positioned in 5G. We’ve engaged early with customers. We are talking with -- we are working very closely with the companies that we believe are going to be market markers in 5G. And we’re going to capture more than our fair share of the market at the 5G as the 5G story develops.

We have 34 different collaborations with market makers and standards bodies to make sure that we stay in front of this opportunity, and we’re very pleased with what we’ve gotten so far.

I just want to add to that by saying the innovations in 4G are not done. And what we’re seeing is some early signs that some of the 4.5G features, 1 gigabit per second Narrowband IoT are you starting to kick in, providing some stability to some of the drag that we had experienced for the past few quarters. So feel good about the outlook.

My comment would also be on the Ixia side, our advanced LTE is doing very, very well, very strong and good growing this year. So that’s basically what ushers in 5G.

Your next question comes from the line of Joseph Wolf from Barclays. Your line is open.

I guess one more on the 5G opportunity. Would you be so bold or kind to talk about what you think your market share would be? Or maybe from a different angle, what is the competitive landscape looking like if we’re still early on in that development cycle and you’re seeing triple-digit order growth that must be an attractive opportunity. So how do you stay ahead and how sticky are these early wins, or how broad are they across that CASM or that move from the testing into the deployment in the field?

As you noted, we’re still early days in terms of the 5G rollout. I think most notably, as Ron mentioned, we made the decision very early and the formation of Keysight to shift some of R&D investments to make sure we got a first mover advantage in 5G, and we’re seeing that play out now. So we can’t give you specific market share numbers. But sufficed to say, we believe we’re running in the market. That being said, there’s a number of very strong competitors in this space, and they’re not going to sit by and seed to us. So we need to continue to innovate and work closely with our customers, meet their timelines to protect and maintain the first mover advantage that we believe we have at this point in time.

The technology also was not new to us. The fundamental technologies of much higher frequency, is something that we’ve been doing for aerospace, defense for a long period of time. And it is new to many of our competitors. And also, we invested early and we invested more overall. That’s the strategy of what we thought we needed to do laid out three years ago, and now the shareholders are starting to get rewarded.

And then you talked about collaboration, I think it was five or six new projects with Ixia. I was just hoping for a little bit more color there, whether this was customer driven, is it company led? And how should we think about the time from you guys telling us about a project to a product that is producing some revenue or at least an order pattern?

I’ll let Bethany go ahead and describe the six projects, or at least give you a little bit of color on that. And then we will see these projects make its way into our guidance as we guide each quarter.

So we just had a recent announcement about one of the product offerings, which is a Wi-Fi and cellular emulation. So essentially the idea is that we can test for our customers all the way from Layer 1 in the stack, all of the protocols from that point all the way to Layer 7, using our solutions; so whether it’s cellular or whether it’s Wi-Fi, we are capable of testing a full protocol stack across all layers and all spectrums. I mean that’s pretty compelling. And I would say that that is certainly one that was driven in part by customer interest. And so customers took note of the acquisition of Ixia by Keysight and put two and two together themselves as we did almost simultaneously, and we received inbounds from them on this. We’re also doing work on wireless UE, as well and that’s work in conjunction again with the organization in CSG, and that’s beginning in the cycle. Again, that is a customer driven in a certain sense, but also company driven as well, because we can see the real value opportunity between our wireless test load products and some of the capabilities that, on the radio side, that we see in CSG. So we find first that that’s a compelling opportunity, we think, for our customers and we’ve also gotten feedback that that would be of great interest to them as well. Then we have another product activity that I am not going to go into any detail on. But just, I would just say that each of these things are in our wheelhouse, whether it’s security, whether it’s IoT, or whether it’s in the communication spaces, the two I just mentioned. And then the other activities, the other three activities; are really around work in the sales force; ensuring that we can gain the scale of the Keysight sales force across the Ixia product portfolio; working with John Page’s team in the services aspects of our business. Because as you know, Ixia has a services aspect to what we sell and Keysight, obviously, has wonderful scale there to take advantage of; and so the last three are in these sales and services area of focus for the company overall. So I think it's been a very exciting journey, even for the short time that we've been together, to create what we think are compelling value prepositions for customers, as well as to create more scale to bring to market the products that Ixia offers and combine them with Keysight. So that's all I have. Ron?

Thank you very much, Bethany. We have two minutes left and we have one more question. So let's move on to Stanley.

Stanley Kovler from Citi Research. Your line is open.

I'll make this real quick. I just wanted to see if you can comment on some of the investments that you’re making in the CSG sales force. Should be expect that to continue? And then if I may on the 4G business trends. Can you just help us better understand the delta between your 4G business trends, you’re talking about order growth and potential 4.5G opportunities whereas some of the players who are deploying the networks are taking some headwinds. Just wanted to understand the bifurcated trends there? Thank you.

I'll make a comment on the investments we’re making in the sales force, not just for CSG but for the overall Company. As was mentioned by Ron and Satish, one of our go-to-market strategies is to engage early with the industry leaders. We're building up capabilities around that ecosystem, around the different ecosystems, with both sales and support and other types of engineering resources that are innovating with these industry leaders. And then the other part is an expansion of our sales force worldwide to extend our reach to many emerging customers, new accounts and leverage the success we're achieving with the industry leaders. So that's an ongoing campaign where we’re increasing our footprint and our sales capabilities around the world and across all these industry segments aligned with the growth initiatives that Keysight has identified. So this is helping to fuel the order growth that we've been spending most of the day today talking about. So that’s the first part. Now, I'll hand it over to Satish to talk about the second.

Yes, I'll make a couple of quick comments. I think if we look into the 4.5G features, they are all be in spec sort of waiting for adoption. We're starting to see some of it from Verizon announcing the 1 gigabit per second, and you probably saw that at MWC as well. So there have been some innovation trends underway in the 4.5G space. But what we found is, for the past year, the industry was pretty consumed with the shifting emphasis on 5G. So when you combine the fact that early in the cycle now, people are starting to look at this 4.5G features and we also see some operator interest we feel good about where we play. Obviously, the network rollouts for these 4.5G features might be a little bit delayed in the cycle.

Well, this is, Ron. In summary, thank you very much for joining us for the call. Again, I'm very pleased with our growth progress so far. As you know, we have a very diverse business and sub-segments or little pieces can be up or down for a while. But we have multiple ways to win, and that’s why we’re excited to deliver 10% EPS growth in FY ’18 for our investors. Thank you very much. Have a great day.

This concludes today’s conference call. You may now disconnect.