Forward-Looking Statements
This report contains forward-looking statements including, without limitation, statements regarding trends, seasonality, cyclicality and growth in, and drivers of, the markets we sell into, our strategic direction, our future effective tax rate and tax valuation allowance, earnings from our foreign subsidiaries, remediation activities, new product and service introductions, the ability of our products to meet market needs, changes to our manufacturing processes, the use of contract manufacturers, the impact of local government regulations on our ability to pay vendors or conduct operations, our liquidity position, our ability to generate cash from operations, growth in our businesses, our investments, the potential impact of adopting new accounting pronouncements, our financial results, our purchase commitments, our contributions to our pension plans, the selection of discount rates and recognition of any gains or losses for our benefit plans, our cost-control activities, savings and headcount reduction recognized from our restructuring programs and other cost saving initiatives, and other regulatory approvals, the integration of our acquisitions and other transactions, our transition to lower-cost regions, and the existence of economic instability, that involve risks and uncertainties. Our actual results could differ materially from the results contemplated by these forward-looking statements due to various factors, including those discussed in Item 1A and elsewhere in this Form 10-K.
Item 1. Business
Overview
Keysight Technologies, Inc. ("we," "us," "Keysight" or the "company”), incorporated in Delaware on December 6, 2013, is a measurement company providing core electronic design and test solutions to communications and electronics industries. We provide electronic measurement instruments and systems and related software, software design tools, and related services that are used in the design, development, manufacture, installation, deployment and operation of electronics equipment. Related services include start-up assistance, instrument productivity, application services and instrument calibration and repair. We also offer customization, consulting and optimization services throughout the customer's product lifecycle.
On November 1, 2014, Keysight became an independent publicly-traded company through the distribution by Agilent Technologies Inc. ("Agilent") of 100 percent of the outstanding common stock of Keysight to Agilent's shareholders (the "Separation"). Each Agilent shareholder of record as of the close of business on October 22, 2014 received one share of Keysight common stock for every two shares of Agilent common stock held on the record date. Approximately 167 million shares of Keysight common stock were distributed on November 1, 2014 to Agilent shareholders. Keysight's Registration Statement on Form 10 was declared effective by the U.S. Securities and Exchange Commission ("SEC") on October 6, 2014. Keysight's common stock began trading "regular-way" under the ticker symbol "KEYS" on the New York Stock Exchange on November 3, 2014.
After separation, we reorganized our business into two operating segments, the measurement solutions segment and customer support and services segment. The measurement solutions segment consists of businesses that sell hardware and software products including Radio Frequency ("RF"), microwave, digital and other design and test technology solutions. The customer support and services segment consists of businesses that provide repair and calibration services for our customers' installed base of instruments and facilitates the resale of refurbished used equipment.
On August 13, 2015, we acquired all share capital of Anite, for a cash purchase price of $558 million, net of $43 million cash acquired. Anite is a U.K.-based global company with strong software expertise and a leading supplier of wireless test solutions. This acquisition strengthens our wireless software design and test portfolio and its Network Test business expands our served addressable market. Coupled with Keysight's expertise in helping customers design and test hardware, we can now provide customers with more comprehensive wireless hardware and software solutions. Anite’s Network Test business will also enable us to provide innovative solutions that help customers deliver an outstanding experience for mobile users in the network. Keysight funded the acquisition using existing cash.
We have a comprehensive sales strategy that uses our direct sales force, distributors, resellers and manufacturer's representatives. The strategy varies based on the size of customer, the complexity of products and geographical coverage. We generated $2.9 billion of net revenue in fiscal year 2015, 2014 and 2013. Of our total net revenue of $2.9 billion for the fiscal year ended October 31, 2015, we generated 35 percent in the United States and 65 percent outside the United States. As of October 31, 2015, we employed approximately 10,250 people worldwide. Our primary research and development and manufacturing sites are in California and Colorado in the United States and outside of the United States in China, Germany, Great Britain, India, Japan, Malaysia, Singapore and Spain.
Net revenue, income from operations and assets by business segment as of and for the fiscal years ended October 31, 2015, 2014 and 2013 are shown in Note 21, "Segment Information," to our combined and consolidated financial statements, which we incorporate by reference herein.
We had approximately 15,500 direct customers for our products and services in fiscal year 2015 and greater than 30,000 customers including indirect channels. No single customer represented a material amount of our net revenue. Many of our customers acquire products and services across both of our segments.
Strategies
With a singular focus on electronic design and test, we help our customers bring breakthrough electronic products to market faster and at a lower cost. Our research and development investments focus on our customers' design and test challenges, from simulation to design validation to manufacturing and optimization. Market and customer opportunities are driven by the need for faster data rates and new form factors, and by evolving technology standards.
Strengths
Our Electronic Measurement Business originated in 1939. Our legacy encompasses more than 75 years of innovation, measurement science expertise and deep customer relationships. We do business with most Fortune 1000 companies that are developing electronic products. The following strengths are significant:
Technology Leadership as a Competitive Differentiator: Proprietary software and hardware technologies unavailable on the commercial market and developed by our thirteen R&D centers around the world, enable many Keysight products to deliver the best design and measurement solution capability available for our customers’ engineering requirements. Built on an intellectual property foundation developed over a 30 year period, Keysight’s Electronic Design Automation computer aided design software for radio and microwave frequency designs is the premiere tool used by over two-thirds of the world’s engineers doing design work in this field. Some of Keysight’s hardware technologies are designed and manufactured in our own in-house integrated circuit fabrication facilities which were purpose-built and optimized to deliver unmatched capabilities across the broad portfolio of Keysight instruments. Once developed, these technologies can be deployed into multiple instrument form factors which include the Feature Rich Box or Bench Top instruments, modular instruments and handheld portable instruments. For Keysight, deploying technology across all the instrument form factors provides multiple revenue streams from a single technology investment. The result is that Keysight is recognized as being the product leader in four core engineering instrumentation categories; RF and Microwave Design Simulation software, Network Analyzers, Signal Analyzers, and Signal Sources.
Broad Portfolio of Solutions to Address Customer Needs: We believe we have the broadest portfolio of electronic measurement products in the industry. Our hardware product portfolio spans many technologies, price points and form factors. We address time and frequency domain applications with RF, microwave, high-speed digital and general instrumentation. In addition, we have a broad portfolio of software products including Electronic Design Automation software for RF and high-speed digital design, hundreds of measurement application solutions to help customers make specific measurements quickly and consistently, and software tools for programming. We were recognized in December 2014 with the 2014 Global Frost & Sullivan Award for Market Leadership in Instrumentation Software for capturing the highest market share within the industry. We were recognized in September 2015 with the Global Frost & Sullivan Global Electronics Test Systems in Automotive Price/Performance Value Leadership 2015. We were also recognized with the 2015 Global Frost & Sullivan Award for Growth Excellence Leadership in the digital oscilloscope market in December 2015.