So as we deploy more solutions to our customers, increasingly, that is in the form of growing software mix. And that goes, again, synergistic with our services strategy. So you look at our software and services revenue this year will end at 3% of the total mix and our ARR, or annual recurring revenue, has reached a new high of $1.2 billion. And we’ll continue to invest to grow those portions of the business and increase our resilience and durability over time as well.
Aaron Rakers: Yes. And then as a quick follow-up, if I can. Just curious, when we think about the progression of backlog, and we appreciate that your backlog is only looking out on a forward six-month basis. And Neil, just curious, how should we think about what a normalized backlog level looks like?
Neil Dougherty: Yes. I mean given some of the dynamics that Satish just talked about, increasing software services, recurring revenue, we have seen growth in our deferred revenue over the same three-year period of time as well as our migration towards systems rather than tools, I think, will drive our ultimate backlog level when things normalize to be significantly higher than it was, say, pre-COVID in the 2018, 2019 time frame. And so I think we’ll have to see how that plays out over time. I think again, we built — you can do the math. We built well north of $1 billion of backlog over the course of the last three years as we’ve had this book-to-bill that I’ve mentioned of 1.09. And as our lead times come in, we’re going to expect ordering patterns to adjust and lead times to pull in.
I’ve said previously that there’s probably four to five weeks’ worth of kind of abnormal backlog as a result of a four- to five-week extension of lead times kind of on average would be a way to think about it.
Satish Dhanasekaran: We’re still in a supply challenge environment. While it’s improving, supply is the constraining factor right now.
Operator: Our next line of questions comes from the line of Jim Suva with Citi. Your line is now open.
Jim Suva: It’s very noteworthy and impressive about your software and services, which I think is about 34%. Is it — can you help us understand, like, reasonable growth as a percent of totality going forward? Because I would imagine it’s very hard to ever get over 50%. Or are you looking at a point where it starts to level off around 35%? Or is that way too low, 40%? Where can this kind of feasibility go for software and services as you kind of look at adding these incremental benefits to your sales process?
Satish Dhanasekaran: Yes. Jim, I think as a strategy, as a company from — in 2015, we’ve been focused on the software-centric solution strategy and really focused on our customers’ most demanding and challenging problems that they have and solving this better than anyone else. And as we have continued to do that, our strategy has taken the form of not just prudency in sales, but our focus on this life cycle value creation for our customers, but also value capture for Keysight. And that’s the journey we’ve been on. Some of the more newer solutions such as in Open RAN that we’ve talked about where we are seeing considerable traction, software alone is nearing 40%, 50% of the total sale value, and with a lot bigger portion of it being in the recurring category as well.
So, we feel good about the continued traction we’re seeing for our solutions. And so we continue to deploy the solution strategy over time, we will enter into new end market verticals. And as you’ve seen some examples I put out this latest earnings announcement, we’ve also had some successes in the automotive sector with deploying software and in the semiconductor as well with our design offerings. Mark may make some comments on the sales side.
