Keysight FQ4 2024
Excellent print. Low-risk, Medium-reward, High-conviction
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Hello again. I am once again coming to you to shill KEYS 0.00%↑.
Very nice gross margin beat. From the high-end oscilloscopes, BERTs, VNA/PNA, network analyzers, and spectrum analyzers needed for 224G Ethernet and PCIe Gen 7 ramps.
Before going over today’s earnings call transcript, I would like to remind you that I have extensive experience using nearly every product Keysight has, alongside several competing solutions.
A friendly subscriber sends me various sell-side notes so I can cross-reference what finance-land thinks against what I think.
Anritsu is dogshit. The products are dogshit. The support is dogshit.
Rohde & Schwarz has a few competitive products, particularly high-end spectrum analyzers. That does not affect Keysight’s immense pricing power. R&S BERTs and high-end oscilloscopes are mediocre. Their VNA looks good on paper, but nobody uses it.
Wireless is stable. Good to hear. This is the only real risk and Keysight CEO seems very confident that wireless can’t possibly get worse.
Optical communication boom not reflected in results yet. Very exciting.
Interesting that Keysight CEO is optimistic about protocol layer. Could mean that more proprietary specifications are under development by various hyperscalers.
Software is a very nice portion of the Keysight story that I talked about last post. They charge for so many features. It’s crazy. Super expensive too. One high-end Keysight box (oscilloscope, spectrum analyzer, BERT) can generate SaaS revenue (or OpEx…) equivalent to 1-3 full-time engineers.
There is a huge upgrade cycle being driven by 224G and PCIe 7. Old gear is not rated for these speed/bandwidth requirements.
Interesting that emulation platforms are getting called out. This ties into the comment on protocol layer traction earlier. Seems like several big players are cooking some custom protocols. Or maybe CXL is back?
Keysight has earned monopoly status in multiple categories due to their excellent R&D. The pricing power is well deserved. Most of the software tools are quite useful and annoying to replace. Often, it is possible to write ~2K lines of Python code to replicate 80% of the functionality of a particular Keysight software product. However, the UI, responsiveness, excellent support, and rich feature-set Keysight SaaS products offer really is worth the cost in many cases.
This is a low-risk, medium-reward stock. Honestly, one of the safest positions in my portfolio. Friendly reminder to do your own research before investing in any security.
We have a VNA from R&S so you are wrong that nobody buys them, they sold at least one unit and our junior is using it right now. Otherwise we tend to have Lecroy equipment. I once got a presentation of a Keysight scope and was impressed by the UI polish, but since all our other equipment is Lecroy, we did not buy it. There is a great momentum in lab equipment due to vendor lock-in in accessories and probes. We have some Tektronixes but I always felt that Tek is a bit fake now: it tends to give you "good" and "pass" results, so you're happy, but is it the result correct really? I would not bet my life on Tek's compliance report.
Great call, thank you. Why is next Q guide so flat? Can’t imagine there is any seasonality.