Good day ladies and gentlemen and welcome to Keysight Technologies' fiscal fourth quarter 2019 earnings conference call. My name is Christine and I will be your lead operator today. After the presentation, we will conduct a question-and-answer session. [Operator Instructions]. Please note, this call is being recorded today Tuesday, November 26, 2019 at 1:30 P.M. 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 fourth quarter earnings conference call for fiscal year 2019. Joining me are Ron Nersesian, Keysight's President and CEO; and Neil Dougherty, Keysight's Senior Vice President and CFO. Joining us in the Q&A session will be Mark Wallace, Senior Vice President of Worldwide Sales and Satish Dhanasekaran, President of the Communications Solutions Group. You can find the press release and information to supplement today's discussion on our website 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 website. Today's comments by Ron and Neil will refer to non-GAAP financial measures. We will also make references to core growth which excludes the impact of currency movements and acquisitions or divestitures completed within the last 12 months. You will find the most directly comparable GAAP financial metrics and reconciliations on our website. 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. Lastly, I would note that management is scheduled to participate in upcoming investor conferences in December hosted by Wells Fargo, Credit Suisse, Barclays, and Cowen. We hope to see many of you there. And now, I will turn the call over to Ron.

Thank you Jason, and thank you all for joining us. Keysight delivered an outstanding quarter as we executed on our strategy and exceeded our commitments. This fiscal year 2019 was also an exceptional year of record performance as our strategy of innovation and differentiation solidified Keysight's leadership in our target markets. Today, I will focus my formal comments on three key headlines. First, Keysight finished the year with both record quarterly and annual performance. In Q4 and in fiscal year 2019, in total we achieved record orders, record revenue, record gross margin, record operating margin, and record EPS. For the full year, revenue grew 10% to reach $4.3 billion. We achieved 11% core revenue growth while generating 63% gross margin, 24% operating margin, and delivering a record 46% year-over-year EPS growth. Second, we are well-positioned for continued growth with a broad and differentiated portfolio of solutions targeted at the fastest growing segments of our end-markets. Our focus on the long-term secular growth rate trends in 5G, next-generation auto, networking, IoT, and defense modernization give us confidence in our ability to drive above-market growth even in times of macroeconomic uncertainty. Third, over the last five years since launching Keysight, we have successfully executed a strategy to grow our business and improve our financial performance. Our industry-focused solutions, targeted R&D investments, acquisitions, and operational rigor have enabled Keysight to deliver compounded annual revenue growth of 11% and compounded annual EPS growth of 17% since becoming an independent public company. Now, let's take a deeper look into our record-setting performance across the business. In the fourth quarter, we achieved record earnings of $1.33 per share which was $0.13 above the high-end of our guidance and represents 31% year-over-year earnings growth. We also delivered record orders in the fourth quarter. Orders of $1,194 million grew 6% year-over-year and 7% on a core basis. Excluding the unfavorable impact of trade restrictions of one of our larger customers in China, orders grew 10% reflecting the strength of our broad portfolio of solutions and extensive customer reach. Our continued strong order growth has translated into another quarter of record revenue. Q4 revenue of $1,122 million grew 7% both on a reported and core basis. This quarter, we continue to see good growth in commercial communications, where we have strong differentiation in 5G as well as strength in U.S. aerospace defense solutions. Our Ixia Solutions Group delivered double digit order growth and 15% revenue growth as network visibility remains strong and network tests grew double digits driven by increased investment in 400 gigabit Ethernet solutions. 2019 was truly a record year for Keysight with total order growth of 9%, or 10% on a core basis despite macro uncertainties and global trade tensions. Total orders for the year were $4.4 billion, a new milestone for the company. Total revenue grew 10%, or 11% on a core basis, to a record $4.3 billion. We achieved this growth while increasing gross margin by 280 basis points and operating margin by 520 basis points year-over-year. This resulted in approximately $1 billion in both operating income and cash flow from operations. 2019 earnings per share of $4.72 were up 46% over the last year. Our results this year were driven by the strength of our software-based solutions, broad-based growth across multiple dimensions of the business, and the customer focus and operational discipline of our Keysight Leadership Model. Now I will share some data points that illustrate the strength of our business in a few key areas. Orders for our software solutions grew 19% in 2019 to reach $853 million, representing 19% of total Keysight orders for the year. This growth was driven by strong demand for our 5G solutions, design software, and network visibility solutions. Our recent announcement of the PathWave Test 2020 software suite represented a significant milestone in the ongoing development and deployment of Keysight's PathWave software strategy. PathWave Desktop Edition, the latest PathWave release, delivers an integrated experience for leading electronics manufacturers, accelerating the time-to-market of their digital and wireless platforms and products, including 5G, IoT and automotive electronics. Services are another important element of our solution-centric engagement model with customers. We achieved all-time highs for both services orders and services revenues for the fourth quarter and the full year. Aligning our services business with our industry-focused business groups at the beginning of the fiscal year was the next-level growth catalyst that we expected. I am pleased to report that we achieved over $550 million in services orders this year. Momentum for our services offering continues to build across multiple end-markets. We are also seeing good adoption of our new support offerings, such as KeysightCare, which contributes positively to our margin expansion efforts. Notably, the combination of our services and software solutions now account for over 30% of Keysight’s orders. Moving to our markets. Our comprehensive suite of 5G solutions is driving strong growth in commercial communications as investment across the ecosystems is scaling ahead of deployments. Our broad, differentiated portfolio and leadership in this fast-growing market position us well as the market expands. Another recent example of 5G leadership is the validation of our 5G conformance test solutions by the Global Certification Forum. Our conformance platform has been adopted by all major test labs worldwide as the industry prepares for 5G device certification ahead of commercial launches. In automotive and energy, our revenues grew high single digits for the full year and we continue to see investment in next-generation technologies despite a slowdown in auto production. One example of this next-generation technology investment is in battery formation. This is a core process used in the manufacture of electric vehicle batteries where specialized equipment must be used to generate accurate voltages and currents to charge and discharge a battery. We recently achieved an important win using our battery formation test technology. This solution demonstrates our ability to combine differentiated software and hardware capabilities from multiple R&D teams, spanning Germany, Colorado, New Jersey and Keysight Labs. In our Ixia Solutions Group, both network visibility and network test revenues grew double digits year-over-year in Q4. Network visibility growth remained strong and we see future opportunities to expand our footprint with enterprises deploying dedicated networks. Network test strength was driven by 400 gigabit Ethernet investment in Layer 2, 3 protocol solutions as well as security applications. Our network test solutions have been adopted by many of the large industry players and span this ecosystem from NEMs to ODMs. The differentiated capability of our AresONE 400 gigabit Ethernet platform and our global sales reach position us well to capture the investment expected in 2020. In addition, the integration of ISG into our Communications Solutions Group, which we announced last quarter, is expected to accelerate solution synergies in 5G as the technology is deployed globally. In conjunction with our strong financial performance and execution, Keysight remains committed to our corporate social responsibility vision, which includes the environment, communities, responsible sourcing, ethical governance and our own people and solutions. We continue to be recognized for our efforts by inclusion in multiple CSR-focused indices, most recently the Dow Jones Sustainability Index. Importantly, we outlined key impact goals and our progress in our CSR report earlier this year. To highlight just a few of these results, we have engaged with over 400,000 students and future engineers through STEM education programs and reduced our global energy and water consumption by 7% and 18% respectively. In summary, 2019 has been an exceptional year of great success and record revenue and earnings. As we look ahead, we believe Keysight is well-positioned to expand our leadership as markets evolve. Our financial performance and growth across multiple dimensions of the business are a validation of our strategy to offer customers full solutions that include both software and services. We will continue to focus our investments in these key areas to drive innovation and create even more value for our customers and shareholders while we outgrow the market. Before I turn the call over to Neil, I would like to thank all of our Keysight employees for their dedication and hard work that made our success over the past five years possible. It is an exciting time at Keysight and we believe we are still just getting started.

Thank you Ron and hello everyone. Before I begin, I will note that all comparisons are on a year-over-year basis unless specifically noted otherwise. As Ron mentioned, we delivered an outstanding quarter and fiscal year 2019. We continued to execute on our strategy for growth, while maintaining focus on operational excellence. For the fourth quarter of 2019, we delivered record non-GAAP revenue of $1,122 million, which was above the high end of our guidance range and grew 7% on a core basis. Our better-than-expected Q4 revenue results were driven primarily by continued strong demand where we have a leading position and differentiated solutions in the market such as 5G, aerospace defense, network visibility and general electronics. Total Keysight orders exceeded revenue once again this quarter. We delivered a record $1,194 million in orders, up 6% in total and 7% on a core basis. Looking at our operational results for Q4. We reported record gross margin of 64% and operating expenses of $426 million, resulting in an operating margin of 26%, the highest quarterly operating margin in Keysight's history. We also achieved net income of $254 million and delivered $1.33 in earnings per share, which was well above the high-end of our guidance and an increase of 31% year-over-year. Our weighted average share count for the quarter was 191 million shares. Moving to the performance of our segments. Our Communications Solutions Group generated record revenue of $706 million, up 7%, while delivering gross margin of 63% and an all-time high operating margin of just over 28%. In Q4, Commercial communications delivered record revenue of $443 million, up 9%, driven by strength across the wireless ecosystem as 5G investment continues to build. Aerospace, defense and government achieved record revenue of $263 million, an increase of 5% on a core basis versus a prior all-time high in Q4 last year. Growth was driven by U.S. government year-end spending and continued investment in China, offset by softness in Europe and the rest of Asia. Orders for this end-market grew double digits and we continue to see investment in advanced technology modernization and solutions, such as cyber electromagnetic activities. For the year, CSG revenue grew 12% to reach $2,688 million. EISG generated fourth quarter revenue of $284 million, up 3%, driven by strength in the broad portfolio of products that serve our general electronics market, on-going investment in next-gen auto technologies and better-than-anticipated semiconductor solution demand. EISG reported record gross margin of over 62% and operating margin of 28%. For the year, EISG revenue grew 6% to reach $1,135 million. ISG reported Q4 revenue of $132 million, a record since the acquisition of Ixia which represents 15% growth over last year with double digit revenue growth in both network test and visibility solutions. ISG reported gross margin of 72% and operating margin of 9%. As a reminder, this does not include the full benefit of the approximately $50 million in net annualized cost synergies we generated from the transaction, of which about 70% are being realized within CSG and EISG. In Q1, we will align ISG with our commercial communications end-market, including global sales. At that time, we will report ISG results within our Communications Solutions Group, which will provide solutions across the entire communications ecosystem, both end-to-end and up-and-down the stack. As Ron highlighted, we are pleased with our performance and execution as a company for the 2019 fiscal year. Revenue for the year totaled $4.3 billion and gross margin improved 280 basis points to 63%. To fuel innovation and further strengthen our market position in strategic areas, we continued to invest in R&D while maintaining strong operation discipline. As a result, operating margin improved 520 basis points to 24%. This translated to strong 46% earnings growth as we reported non-GAAP net income of $902 million, or $4.72 per share for the full year. Moving to the balance sheet and cash flow. We ended our fourth quarter with $1.6 billion in cash and cash equivalents and reported cash flow from operations of $263 million and free cash flow of $233 million, which represents 21% of revenue. This brings free cash flow for the year to $878 million, which was 20% of revenue and 97% of non-GAAP net income, well ahead of our 80% to 90% free cash flow conversion target for the year. Under our share repurchase authorization, during the quarter we acquired approximately 300,000 shares on the open market at an average price of $98.30, for a total consideration of approximately $30 million. This brings our total repurchases for the year to approximately 2.1 million shares at an average share price of $76.32, for a total consideration of $160 million. Before moving to our outlook, I would like to remind you about the trade restrictions impacting one of our larger customers in China and the unfavorable impact this will have on our year-over-year comparisons in fiscal 2020. Specifically, this customer represented 6% of revenue in Q1 of 2019 and approximately 4% of revenue in Q2, or just under 5% of revenue for the first half of 2019. Due to on-going trade concerns, we now expect this customer to be approximately 1% of revenue going forward, which represents a five point headwind in Q1 and a three point headwind in Q2 of 2020. Virtually all of this unfavorable year-over-year impact will be reflected in the commercial communications end-market. Now, turning to our outlook and guidance. We expect first quarter 2020 revenue to be in the range of $1,045 million to $1,065 million and Q1 earnings per share to be in the range of $1.04 to $1.10, based on a weighted diluted share count of approximately 191 million shares. For 2020 modeling purposes, we typically expect seasonally higher revenues in Q2 and Q4 versus Q1 and Q3. Interest expense is expected to be approximately $80 million and capital expenditures are expected to be in the range of $120 million to 130 million. Regarding our tax rate, we are modeling a 12% non-GAAP effective tax rate for FY2020. With that, I will now turn it back to Jason for the Q&A.

Thank you Neil. Christine, will you please give the instructions for the Q&A?

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

Thanks, good afternoon.

Good afternoon.

Ron, maybe to start with you in terms of the quarter. Could you just sort of spike out what areas of the business specifically kind of outperformed relative to your plan? And kind of maybe any color you can share with us in terms of how Huawei came in relative to what you had embedded in the guidance on the revenue line for the period?

Sure. I will just make a couple of comments and I will turn it over to Neil to give you the precise numbers with regards to Huawei. Hello, can you hear me, Brandon?

Yes. I can now.

Okay. Very good. The biggest surprise was Ixia. Ixia performed extremely well with 12% order growth and 15% revenue growth, and profitability that was at 9%, not including about seven points of benefit that gets a portion effectively to the other groups due to synergies that are represented in other P&Ls. So, we were very pleased with that and it was great to see not only network visibility but also network test turn on with the acceleration of 400 gigabit Ethernet solutions, which we have talked about in the past. We had mentioned in the past that it would take a little longer for that to turn on. So that was one. The other thing was 5G continues to be exceptionally strong. We had very high double digit growth there for the quarter and we had triple digit order growth there for the year, so we still see very strong momentum in 5G. The semiconductor business had a very good order pick up, not so much on the revenue side, yet you will see that flow later, but that was also very encouraging to see semiconductors turn on as we look at people investing more for 7-nanometer and 5-nanometer solutions where we played very strongly. Also aerospace defense was very solid. And we saw double digit order growth in aerospace defense in the quarter, and that's just the start.

Yes. Brandon, and then you asked a question about Huawei. The actual impact of Huawei on the revenue line was relatively small. Where we saw a bigger impact was in the order line. On a year-over-year basis, in Q4 orders directly to Huawei were down about $40 million and that includes approximately $20 million of orders which we took off the books due to just no direct path to be able to ship them in the immediate future. And so, we have debooked about $20 million in the quarter from that perspective as well.

Okay. Thanks. That's helpful. And then as we think about the full year, Ron, any greater sort of goalposts you can give us in terms of how you are thinking about topline for fiscal 2020? I mean if we just look at the first quarter, you are kind of guiding to 5% which is at the high end of sort of your mid-term model. You know you lapped the toughest comp of the year, and you have got a 5% headwind from Huawei restrictions. Any finer point you can just sort of share with us in terms of full year topline outlook?

Unfortunately, we are not going to be sharing the details beyond Q1 at this point. But I am going to announce that we will be doing an Investor and Analyst Day in New York City in March where we will get a chance to talk about our model and our model going forward. As you have seen some of our results, we have pretty much blown through all of the commitments we made. For instance, 4% to 5% core growth on revenue. We have delivered 11% the last five years. When you look at gross margin, we said in 2018 we would get to 61% to 63% by 2021. We are here in 2019. We already hit 63% operating margin. We said 21% to 22%, and we delivered 24% for the year. Again, that's above what we had committed to two years ahead of schedule. And the same thing with EPS growth. We have delivered 17% EPS growth versus our commitment of greater than 10%, and we did the same thing in free cash flow conversion. So we will get a chance at the Analyst Day to give you more details on the model going forward, but we are very pleased to have exceeded those commitments and we see more opportunity in front of us.

Very good. Thank you.

Your next question comes from the line of Tim Long from Barclays. Your line is open.

Thank you. Just two on the 5G side, if I could. First, could you just update us on kind of competitive landscape and what you are seeing there and any impacts that you might expect market share or pricing, anything like that? And then just following up on China, a lot of moving parts over there. But I would love your take on, obviously we are seeing an acceleration and pull-in of 5G. So, what does that mean for you guys? What does that mean as far as R&D and manufacturing? And with the Huawei ban, they are taking share. So, what do you think that means longer term? Is that business that could come back to you or do you see enough strength with the other players there? Thank you.

Tim, I am going to turn the first question on 5G over to Satish who runs that business and then have Mark, who is the Head of Sales, talk about talk about China and the Huawei impact.

Yes. Tim, first to the aspect of differentiation. The breadth of our portfolio combined with the leadership that we continue to maintain is clearly evident across the ecosystem. The extensibility of our platform, the experience we have gained through all the early collaborations and now with ISG or Ixia capabilities, we are layering on additional capability to help our customers scale and navigate through the challenges of 5G. Through the quarter, as Ron mentioned, very strong quarter for 5G orders. All regions grew from an order perspective. And our commercial communications group grew double digits in revenue, if you exclude the impact of the one customer that we just referenced. Very strong strength in orders from a device ecosystem, particularly the Tier 1, Tier 2 players. The test labs, the operators around the world are embracing our platform. So I would say, both for the quarter and for the year, very strong performance in 5G from traditional customers. But we also saw some 5G orders starting to appear from automotive customers as an example as 5G starts to scale. So when we look forward to 2020, I continue to believe given the massive commercialization that's occurring around the world, the runway that's there with millimeter wave adoption where customers are investing early for that, we think 2020 will be a big year for 5G adoption and we are very well-positioned because of the strength of our portfolio, as I mentioned before. And I will hand it off to Mark to make some comments on China.

Sure. Thanks Satish. So Tim, we have talked about China in the past and it really hasn't changed. It's a very important market for us. We are deeply engaged with all the industry-leading customers, all of our customers over there. In Q4, our business in China was just above the historical average of 17% to 18% with strong growth across virtually every segment from general electronics to automotive to semiconductor and commercial comms. So the one customer that we are talking about is certainly a part of that but we have a very, very broad business, broad set of industries, broad set of solutions around the world and China is no different. And as I look forward, the automotive element continues to grow. Satish mentioned this. It has a tie-in to 5G and our solutions are really providing a lot of value to our customers around the world and including China. So we are very close to the situation. We will keep a close eye on it and continue to monitor the situation closely.

Okay. Thank you.

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

Hi guys. Thanks very much for taking the question. I guess my first question is, I was hoping you could provide us with the split of your business between R&D test and production test, specifically in comms in fiscal 2019 and how you see that evolving into fiscal 2020? And I realize you have got a lot of inputs when you think about margins but how would that evolution impact margins going forward as well? And then I have a quick follow-up. Thank you.

Yes. Toshiya, thanks for the question. So first of all, let's start at the highest level where we are approaching 60% of R&D and other pre-deployment types of solutions with manufacturing being close to 40%. So that's roughly the split. We haven't given that split for other businesses but certainly in commercial comms which is being driven by 5G, that is probably more heavily skewed towards R&D at this point than the overall business. So I think we can say that very clearly. But you can think of it about as a 60-40 split for the company in total.

Okay. Great. And then as my follow-up on Huawei specifically. The 3% to 5% headwind for Q1 and Q2 of this fiscal year, is that a 100% due to the export ban? Or are they not taking product that you can actually ship as well? Meaning like, are the demand signals from that specific customer deteriorating over time? Thank you.

So this is Mark. I will answer that. It is related to the restrictions that are preventing us from shipping some products during the first quarter. So the demand is continuing but the products that we are able to ship is limited.

As we think about that situation where broadly obviously we have got the Huawei situation specifically, you have got trade more broadly, you have got things like the election and general manufacturing headwinds that have us a little bit more cautious going into FY2020. I think as we look at it though, we continue to believe that our end-markets grow in the low to mid single digits and that we are well-positioned as a result of our portfolio of solutions to continue to outgrow the market even in light of those headwinds and even with the Huawei situation that we are facing here in 2020 heavily weighted obviously towards the first half.

Thank you.

Your next question comes from the line of Mehdi Hosseini from SIG. Your line is open.

Yes. Thanks for taking my question. I wanted to go back to your networking test that is actually better than expected. I remember last earnings conference call you talked about that particular segment of Ixia should pick up later in Fy2020 and now we are seeing better-than-expected traction. I wanted to understand the dynamics here what's driving and to what extent this is more of an R&D and if that's the case, when do you expect production-related orders and revenue were to come in? And then I have a follow up.

I would take it. Yes. hi. I would say that we are very pleased, as Ron mentioned, with the recovery in the test business in Q4 maybe slightly ahead of our expectations. But I would attribute it to two factors. One is a slightly improving market dynamic associated with 400 gig where customers or new customers are entering that ecosystem and trying to innovate to address the technology challenges and help scale the technology. And the second one is really the differentiation of our platform and our solution AresONE that we announced last year in October that continued to build strength through the year. So to a large degree, you could say that most of the applications currently AresONE is going into is in the R&D/ early, very early validation phase where people are using it for more automated testing. The rest of our 400 gig portfolio continues to be strong as well in the physical layer including in production test where we had a pretty significant manufacturing test win this quarter. But our sort of outlook for 400 gig is a very steady sort of demand through the year at this point.

Sure. And just a quick follow-up to that. You highlighted new type of customers. Are these like a hyperscalers or is it the original equipment makers, ODMs or OEMs?

Yes. We saw strength across the ecosystem including the ones you referenced.

Okay. Thank you. And just if I may, just as my second question. When you look at your orders and you highlighted semis were a strong in new booking but it's not really impacting your Q1 revenue. So would the semi bookings will start to flow into Q2? And will that also help Q2 as a stronger quarter relative to Q1?

Well, first of all, a lot of the bookings that we received in Q4 will flow out in Q1 not Q2. But the guide that we gave you encompasses that.

Got it. Thank you.

Thank you.

Your next question comes from the line of David Marchetti [ph] from Stifel. Your line is open.

Hi. John Marchetti here. Just a quick question, Satish. If you could go back to some of the comments on the millimeter wave strength. Just curious as you are looking out over the next 12 months or so, if you see that as an additional driver with sort of the sub-six being relatively steady? If those two are maybe moving into different phases? Just how you think of maybe some of those two different technologies playing out for you over the next 12-months or so?

Yes. It's a really good question. I would say that you are very insightful in that a lot of activity that you see that is an a public domain is related to Asia and some of the ramps are happening there in the sub-six gigahertz band. But what we see is also capability building out for a potential millimeter wave ramp 2021, 2022 where customers are buying ahead of it. The strength of our platform, I touched upon the extensibility of it. It allows customers to move from sib-six gigahertz to millimeter wave SA and NSA seamlessly. And that really gives us a strong portfolio and competitive differentiation that we are benefiting from. The other angle that I will probably highlight is the complexity with 5G even though there are some early 60 operators have deployed some sort of commercial service with 5G. As we start to learn from those deployments, the complexities informing greater investment in R&D driven by some of the dynamics such as over 2,000 band combinations.

Thank you. And is that primarily still with OEMS? Or are you seeing increasing demand from the service provider community as well?

Yes. Across the ecosystem and in particular in Q4 we saw strength from the top service providers who are embracing our platform.

Great. And then Neil, if I can just, as I look back on 2019, you had relatively stable spending levels, operating expenses as you went through the year. Just curious as we look out into 2020, any sort of big ticket items or any sort of things to be aware of as we are looking at those OpEx levels heading into next fiscal year?

Nothing specific. The one thing that I would say is that we do continue to model internally 16% of revenue going towards R&D spend. We were a little bit under that in the back half of 2019. But as we move into 2020, we continue to be anchored on 16% of revenue going into R&D.

Thank you.

Thanks John.

Your next question comes from the line of David Ridley-Lane from Bank of America. Your line is open. David Ridley-Lane: Thank you. I had a question on the $550 million in services orders this year. Do you have a comparable figure for the prior-year? Or could you give us a sense of the growth rate on that services business?

Yes. So I will make a couple of comments about that. If you remember, this business was a $400 million business for many, many years. And if you actually went back to our very first Analyst Day after the launch of Keysight, we talked about growing this business to being a $600 million business and being able to do that by 2020. We are not going to hit that target on the revenue line next year, but we would expect that we would be able to come very close to delivering $600 million in orders in 2020. So on a very nice trajectory and continue to see great growth in that business. And it's an important part of our overall solutions offering.

And just to answer the last part of your question, services grew double-digits in FY 2019. David Ridley-Lane: Okay. And then on software sales, can you give a sense of how that sales process is going? Are you displacing existing software providers? Or is this more about when you do get a new program win, you are having better success about adding software to that program win?

Yes. David, this is Mark Wallace. I will take that. So software is an ever-increasing part of our overall solution as we are delivering complete solutions to our customers. So that's a piece of it. We have also been very successful in implementing our software business model and our go-to-market strategy. So when we are selling software that's got a perpetual license, we sell support with that. We are now being successful with growing new business model offerings with time-based licenses. And we are always adding new features and capabilities, as an example that Ron talked about with PathWave 2020. So it's a combination of all those things.

If you break it down, there are three main parts. One is our design software or EDA design software. The second is application software that gives customers answers versus just lots of numbers. And the third is platforms. And platforms such as PathWave will help tie everything together throughout the complete workflow. On top of that, we provide all types of software updates and that's why we are very pleased to see our over $850 million worth of software. You couple that with our services business, our ARR or recurring revenue continues to increase, which is the one of the strategies of our company. And just we had mentioned earlier, software orders were up 19% for the year and revenue was double digits at a lower level, but that's only because it gets recognized over time. David Ridley-Lane: All right. Thank you very much.

Thanks David.

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

Yes. Good afternoon. Thank you.

Good afternoon.

So very quickly, just to return for a second to Huawei. The discussion around the headwind in the first half of the year is reasonably consistent with what you had laid out. But I am curious when you look at the combination of Huawei and HiSilicon, do you expect the revenue of the combination to those one or two customers, however, you define them, do you expect the revenue to be up in fiscal 2020 versus 2019?

No. We consider HiSilicon to be part of Huawei. And so we have a pretty significant headwind as it relates to that combination of customers. Roughly 2% total for the year, but pretty heavily skewed towards the first half with a 5% headwind in Q1 and a 3% revenue headwind in Q2. So it's definitely down from that set of customers over the [indiscernible].

Okay. So you consider them the same entity which I guess they are. But I am curious, in the past, historically, Keysight has had a very, very strong position on kind of the base station test side, manufacturing test within infrastructure. And I am curious where are we in that growth curve? Does Keysight expect to hold share there? And if so, would that business not ramp into fiscal 2020?

Yes. This is a good question. We have secured some early design wins this year that positions us well for the production ramps in 5G. So if you look at it in aggregate, we will maintain or gain position, especially as new forms of base stations, such as millimeter-wave and CPE devices become proliferate across the ecosystem. So we are well-positioned by the products and solutions that we have already had design wins with. And we are also layering in additional capability with PathWave that Ron just referenced where we have been working with Nokia to further accelerate some of the testing needs for base station manufacturers. And I just want to add also that this quarter and for the whole year as well, we had significant uptick for our modular vector network analyzers which are largely used for base station filter manufacturing. We have high share historically and we continue to do well in that market.

And Rick, back to your original question with regards to Huawei and HiSilicon, let me just step back a little bit and talk about China. We were successful this last quarter of crossing the $1 billion mark in orders into China. And the reason I bring that up is we have a very broad portfolio across many end-markets and that is something that is a strength and continues to grow very well.

Okay. And then just a follow-up question. Ron, you had made a comment around the aerospace, defense business and kind of noteworthy, the orders were there plus double digits, revenue was kind of mid single digits, but you made the comment that kind of more to come. But does the order, again I don't know what the shipping cycle would be on the orders, the double- digit orders. But is there an order and momentum backlog around in the A&D business that might suggest you have got line of sight on mid single-digit type growth through 2020 because I think that that business tends to flow out of backlog at more of a six to 12 month pace?

Yes. To put it simply, I think some of the order strength that we saw was successful adoption of our electronic warfare or threat simulation platforms that Neil referenced to cyber and electromagnetic activities. And we are now embedded with all the major labs in the U.S. and some in Europe for that solution. And since it's a solution, it has a longer gestation period between orders and revenue. Now with regard to the outlook, at least for Q1, we continue to see order strength and funnel is very strong for our offerings. Obviously, we monitor the budget situation in the United States as that process evolves.

Okay. Perfect. Thank you. Yes.

And given our position with the government, not only is it a solution play, which makes it longer but also through the overall buying cycle is longer. So there is a bit of hysteresis in that process, which provides more stability in the business.

Got you. Okay. Thank you.

Thank you.

Your next question comes from the line of Jim Suva from Citigroup Investments. Your line is open.

Thank you. And I have two questions and I will ask them at the same time so you can answer them whichever order you feel is best. On the Huawei status, there are some companies that have been putting in applications to the government about being able to still be able to sell to them in the future. I assume Keysight has done this. Did you get a response? Are you still in the waiting pattern of that? Or any feedback on that? Because I know that there are some companies who are getting positives, yes, they can continue to ship in the future? Or is it simply, it's not going to happen much? How should we think about that? And then my second question is on the orders that you gave, I mean they are positive, but there has been a meaningful deceleration from that. It seems like that there will also be maybe is it a one percentage point or two percentage point because of Huawei from that, but also the orders deceleration, is it mostly macro related or trade tensions or peaking of 5G R&D test equipment? How should we think about that? Thank you.

Let me take the second part of that first and then we will let Satish handle the first part. So as we said on the order line, we saw a $40 million impact from Huawei within the quarter. So that's four points, roughly 4 points at the Keysight level, but a much greater level at either the CSG or commercial communications level, which is where that business is very heavily skewed. So we definitely are seeing an impact. But we are offsetting that and making it up via the strength of our portfolio and the broad set of customers that we have that are adopting those commercial communications solutions.

Yes. With regard to your first question, it's a pretty dynamic situation. We monitor this carefully. Some of the announcements on licensing as we read it applies to very low-end technology capabilities, if at that. So it does not apply to some of the capabilities that we offer. At this time now, again, we monitor the situation and remain compliant with U.S. DOC norms. Thank you.

Thank you.

I will just add one other comment that I made a comment earlier that our China orders were over $1 billion, I was referring to Greater China and Greater China obviously includes Taiwan and Hong Kong as well as Mainland China and that's how we look at the business. But just for clarification.

Thank you so much.

Your next question comes from the line of Adam Thalhimer from Thompson Davis. Your line is open.

Hi. Good afternoon guys. congrats on a great quarter and a great year.

Thanks Adam.

Hi Ron. I guess I hear you that you don't want to steal from the upcoming Analyst Day, but you are guiding Q1 operating margins up about 200 basis points year-over-year, I think. And then I mean how would you model the rest of the year? Kind of flattish? Up 50 basis points? I am just trying to figure how to read your comments on that.

Typically we talk about having a softer Q1 given the strong year end that we typically have as the way we finished our year from a sales perspective and we have people on year-end compensation. So we tend to start out slow in Q1. We do salary administration for the whole company in the first quarter of the year, which can put some downward pressure on operating margins for that first quarter. I think as we think about the whole fiscal year, I would guide you back to the kind of the macro level statements we have made in the past. Market growth in the 3% to 5%, us looking to outpace the markets even in the face of the headwinds that we have talked about. When we grow mid single digits or better, we can deliver a 40% incremental to the bottom line. So there is room for increased profitability even from where we are today. Obviously, we did a much better than that incremental this year, but we have come very far, very fast. And I don't think we are going to sustain the 90%-plus incremental that we have put up this year. But you can definitely think about that 40% incremental as a good way to model our business going forward.

Okay. That's fine. And then I wanted to ask about Europe. It seems like you are seeing some broad-based weakness there which perhaps is nothing new. Are you seeing any green shoots in Europe?

Yes. Adam, this is Mark. It's a mixed bag in Europe. We did see some lower investments from some of the network equipment manufacturers, some of the chipset companies. There were some mixed results in aerospace, defense with some of the Western European primes. Russia was down. What's really showing though is that our general electronics business is up with growth from the broad portfolio of solutions that we have. We have invested in IoT-based solutions for a number of companies into education and research and we continue to grow that business and new customers across Western Europe. Another bright spot is the expansion of our Scienlab solutions to many customers around the world as well as across Europe. So it was mixed and those are the headlines.

I will just add a comment that Europe is only 15% of our business or was 15% of our business as we looked at the last quarter. And in addition to the GEMS business or the general electronics business and Scienlab that Mark talked about, we also saw network test grow in Ixia.

Okay. Understood. Thanks guys.

Thank you.

Your next question comes from the line of Brian Yun from Deutsche Bank. Your line is open.

Hi guys. I really appreciate the color on the software solutions revenues. So I just had two questions around that. First, how should we think about sort of the ramp in software revenues over the next couple of years? And are there any goals or initiatives focused on driving software growth specifically? And then second, you kind of broke out the three key pieces of software you sell today. Could you maybe rank order which ones you see the largest opportunities in?

Yes. I mean I definitely think we have continued opportunity to grow software as an overall percentage of the portfolio as we continue this migration from just selling essentially test and design tools to selling complete solutions for our customers. Those solutions have much higher software and services content and that's definitely a trend that has a lot of runway in front of it. I think as you look forward, the big opportunities, I continue to point at 5G. We have very high software content in some of our cutting edge 5G solutions. So that's a big driver of growth, but it's also a big opportunity for us as we look forward, given that we are still in the very early stages of 5G deployment. Ron talked about our EDA tools. We already have very high market share in EDA. And so we are kind of growing with the market more than anything else in the EDA space. And then we are very excited about our PathWave platform, right, where we announced it a while back, but we are going to be designing tools into our PathWave platform for many years to come. And we are really just getting started in terms of connecting the workflow for our customers. And so I think there is a big opportunity for us as it relates to PathWave. And then the last thing that I would just comment on is another big opportunity that we see is the opportunity to take more and more of our software and convert it from kind of one-time sales to more time-based sales. I would say, we are a little bit behind industry norms as it relates to that, but that creates a big opportunity for us as we look forward.

I would just add on software. Just to step back, when we launched the company, we had roughly $370 million worth of software orders and software revenue. And we finished this year with $853 million. So we have dramatically grown our software portfolio. And as Neil mentioned, we have much more opportunity in front of us.

Awesome. Thank you.

Thank you.

Thank you. That concludes our question-and-answer session for today. I would like to turn the conference back to Jason Kary for any closing comments.

Well, thank you Christine and thank you all for joining us today. We look forward to seeing many of you at the upcoming conferences. And have a great day. Thank you.

This concludes our conference call. You may now disconnect.