Satish Dhanasekaran: Mehdi, the other point with regard to your comment on the downside risk, right? I’ll say that we’ve done a lot of work to enter into more of the R&D markets of our customers. That still remains a priority for us. We’ve also done quite a bit of work to diversify this business to expand into industrial end markets, aerospace defense and auto in particular. And finally, through our sales footprint, we’ve done work to attract new customers, and that remains a critical priority for us, and we — which I remain confident that all of these actions will enable us to outperform in this environment as well.
Operator: Our next question is from Meta Marshall with Morgan Stanley.
Meta Marshall: Just a couple of questions. I mean, maybe you spoke to kind of Open-RAN millimeter wave and kind of some areas of investment. I guess as we think about the communications business, could you just give us a sense of like what are the strongest revenue driver is growing in – moving into kind of calendar year 2023? Is it Open-RAN? Is the millimeter wave? Is it 6G? Just kind of some — what is the general strength of that business coming from? And then, maybe as a follow-up question, you guys mentioned some kind of cost discipline, stronger cost discipline that you are balancing out kind of the lower demand indications from. But just a sense of where investments are still being made, just what degree of those cuts are we kind of talking about as we move throughout the year? Thanks.
Satish Dhanasekaran: Yes. Meta, thank you. So first of all, we remain intensely focused on continuing to innovate and strengthen our portfolio. So from an R&D perspective, the collaborations we have with our customers informs where we invest, and we feel pretty good about it. At best, some of these pullbacks are short-term delays for R&D spend, and we expect those to recover as our customer deals with these inventory dynamics that we mentioned. With regard to 5G, I think I would say that the R&D roadmap remains in place, right? Our customers have a multiyear roadmap, and they continue to invest to realize that roadmap. And at the big picture level, I would say while substantial progress has been made in terms of 5G deployments, we still have about roughly 1 billion subscribers in the world, and the roadmap is to take it from $1 billion to $5 billion in the next five years or so.
So clearly, there’s more deployment activity occurring that’s in front of us with India and other parts of the world leading that effort. The standards progression, which really is a basis for R&D business with Release 16 and Release 17, moving into Release 18, which will be 5G advanced, is pretty strong. And those innovation vectors around non-terrestrial networks, new features such as RedCap for IoT applications — proliferation of 5G into new verticals remains areas of opportunity for us that we’re investing in to continue to differentiate along with Open-RAN as well, which we have talked about. But the industry roadmap remains solid, and our differentiation remains strong in these markets.
Neil Dougherty: And then, Meta, I’ll just address the cost discipline question. So, first and foremost, I’d like to just emphasize that we are continuing growth-oriented investments that are going to drive this business forward in the future. We’re very clear about what those priorities are internally and we’re keeping our foot on the gas with regard to our most important growth-driven investments. That being said, I like the way Satish characterized it, right? We always have onset a tap of efficiency gains that we’re looking to that we’re looking to operate on as part of our continuous improvement culture. And given the environment that we’re in with pressure on the top line, coupled with not just inflation, frankly, but signs that the dollar is going to backtrack on some of the strengthening that we saw last year, which will also put pressure on our foreign currency spending.
We felt it was prudent for us to take actions to accelerate some of that efficiency. So, it’s across the P&L, but we are not putting future growth investments at risk.
Operator: Our next question comes from Samik Chatterjee with JP Morgan.
Samik Chatterjee: I guess if I can just start with orders. And if you can comment on the linearity of orders through the quarter based on your expectations for seeing some of this digestion from customers for another couple of quarters, so just you had more deterioration maybe as you exit the quarter. But just wanted to check if sort of what’s the trend through the month in the quarter that you saw. And the comment that you made about electronics orders holding up better than communication overall. Now, I hate to sort of generalize EISG overall, but it’s seems a bit counterintuitive because my impression was that communication is a bit more R&D aligned for you than EISG in general. But maybe if you can sort of correct me there or why — explain why that’s happening if R&D is most protected? And I have a follow-up. Thank you.
Mark Wallace: Sure. Samik, this is Mark. I’ll take the first question on linearity of orders. And it was — we had about two-thirds of our orders after the second month. We had a big finish to the end of FY22 and our fourth quarter. So, we had a nice rebound in December and the last quarter was about 34% of the total orders of bookings for the quarter. So, it was a pretty linear flow of business. On the electronic industrial side, what we see, as Satish mentioned, is continued demand around next-generation process technologies for our semiconductor business, very long-term secular growth drivers that we’ve been talking about for a long time. The activity level and focus around the next-generation auto, EV in particular, is continuing to ramp.
Again, this is a decade-long transformation. The number of EVs sold last year as opposed to ICE vehicles continues to grow. So, I see this as a long-term trend. And what I was particularly surprised with was how our general electronics business held up, particularly around some of the verticals that we’re focused on, digital health care, advanced research and education. Obviously, some of this is exposed to broader GDP kind of markets, and we saw the PMI stay below 54. I think it was five or six months in a row. But in general, the three segments below EISG continued to show resilience and, overall, continued investments in these next-generation technologies.
Samik Chatterjee: For my follow-up and maybe to just change gears here a bit, there’s a competitor of yours who is going through a strategic review process with interest from multiple parties for an acquisition. I’m not asking you to comment on the interest in that company in itself. But how should we think about benefits to Keysight from scaling the business in a step function from here on? And the level of — leverage — debt leverage on the balance sheet you would be comfortable with if attractive opportunities did come through that are more visible?
Satish Dhanasekaran: Yes. Thank you, Samik. I’d say you’re right. We don’t comment on any specific opportunity. I would just say that we remain confident in the business that we run, its cash generation potential. You’ve seen the strong free cash flow performance of the business. And so congruent with that, we have a consistent capital allocation discipline, which is around organic growth and M&A where it makes sense and return of capital. And with regard to M&A, you’ve seen us be incredibly patient and disciplined with regard to the opportunities we pursue. We look at hundreds of companies after having done market assessments on them. And then we’ve done about 20 to date. And we’ve been — and we’ve done them with a view of the strategy and what scale that we can bring to the target and how we see the — first, the strategic fed, but second and equally important is the return to our shareholders.
So, I think those hurdles will continue to remain in place, and we remain very disciplined.
Operator: Our next question is from Chris Snyder with UBS.
