Keysight Technologies, Inc. (KEYS) Earnings Call Transcript & Summary

Okay folks, if you want to find your seats, we're going to go ahead and get started here shortly. All right, well very good. Good morning everyone, I'm Jason Kary, Keysight's Treasurer and Head of Investor Relations. On behalf of the management team and Keysight employees around the world I'd like to welcome you to our 2020 Investor and Analyst Day. Two years ago almost to the day, we were here at the NYSE and we spoke with you about the dramatic transformation that Keysight had undergone during our first 3 years as an independent company. We're now 5 years into that journey and while we've made significant progress, we're very excite about the opportunities that are still ahead of us. By focusing on our customer success, we continue to innovate and create differentiated solutions across a diverse set of end markets while at the same time increasing the durability of our business model. You'll hear more from the team today about these 3 dimensions of Keysight: our differentiation, our diversification and our durability. While today's presentation is focus on our long-term outlook and strategy, we're also closely monitoring the COVID-19 situation. We addressed that situation more robustly in our earnings call just last week and have no additional updates to provide as of today. So with that we'll turn some additional logistics for today. Today's event is being webcast live, the presentation is available on our website at investor.keysight.com. As always please refer to our sage harbor, we will make forward-looking statements during today's event. Turning to the agenda and our speakers. So today is a really unique opportunity for you to hear from the majority of the executive management team here at Keysight. We have with us Keysight's Chairman, President and CEO Ron Nersesian as well as our Chief Financial Officer, Neil Dourherty. Joining them are: Jay Alexander, our Chief Technology Officer; and our Chief Administrative Officer and Chief of Staff Ingrid Estrada; our Chief Marketing Officer, Marie Hattar; as well as our President of Global Sales, Mark Wallace; President of Global Services, John Page; and the Presidents of our 2 business groups. Gooi Soon Chai and then Satish is hiding in the back. All right. So Ron will get us started. And then he'll be followed by Ingrid, Jay and Satish. We'll then open up the floor for Q&A. We'll take a short break. After the break, we'll come back and you'll have an opportunity to hear from Soon Chai, John, Marie, Mark and then Neil. And then we'll have a second Q&A and wrap up with a few closing comments from Ron. So without any further ado, I'd like to invite Ron up to the stage, and we'll get started.

Thank you, Jason, and good morning, everyone. Thank you very much for taking time out of your busy day today to hear all about Keysight. We're going to get a chance to talk about the strategy that we have for creating value, the actions we've taken so far and the results that we've delivered. But on top of that, we're also going to talk about the future, talk about our exciting growth opportunities that exist as well as the fantastic opportunity for value creation. So let's get started. First of all, just to give you a little bit of a background on Keysight. I think most of you are very familiar with this. We are $4.3 billion revenue company, looking at our statistics from last year. We have a #1 market position in the markets that we play in, and we serve over 32,000 customers a year as we did last year in 2019. We're a global company where we have employees in 30 different countries, and we serve customers in over 100 different companies. We have a very solid business model and are delivering great value creation. We had 24% operating margin last year, 46% earnings growth, and our free cash flow was over $850 billion -- $850 million, that would be great if it was billion. That is for sure. We have a $17.5 billion addressable market, and we have expanded this over time. And of that market, that market is growing 3% to 5%, but we focus on the sub-segments that we believe provide the longest term secular growth rates and industries and businesses that could actually grow for at least a decade. Our market share is 25%. We grew at 300 basis points during the last 3 years. And we see more opportunity to take share as we are first to market, and we have very differentiated solutions. One of the key strengths of Keysight is our relationship with customers. It's very deep and it's very broad. So first of all, if you look at all of the hardware solutions, we are #1 with the largest share. If you look at software, it is the same situation. And third, if you look at the different industries that we go into commercial communications, aerospace, defense, electronic, industrial, we are also #1 in all 3 of those segments. The most exciting thing is we have such close customer relationships that when we are developing products, we are not guessing. We are working with the market makers in each of these industries and understanding what their roadmaps are all about, where they're going, and then we arrive first with products with 10x the performance. And by -- we need that type of performance in order to make the right measurements on their products and ensure that they work. But as you can see, we have very, very strong penetration and direction, partnering with these market leaders. On top of that, you'll see some names here. We couldn't fit all 32,000 names on this slide, but you get an idea of the scale and the scope that Keysight really partakes in, in the overall electronics industry. If you look at our regional mix, you can see we're a worldwide global company, and the most important part is, take a look at where our employees are. We put our employees where our customers are in the same regions. And that way, they can work with customers, work with the market makers, understand their needs and provide solutions. We do R&D all around the world as well as marketing and as well as sales. So that gives us a nice competitive advantage. We have over 7,000 products and solutions, which is very, very powerful. So when we go into customers, we can put together a solution for them since we have all the pieces to make that happen. Our engineering expertise is second to none. This is not the expertise, this 40,000 year -- person years, this is just the expertise in our engineering community. 40,000 person years of expertise that we bring to bear on our customers' problems. On top of that, we have an installed base of over $30 billion, and that is great news for our growing services business. We didn't focus on it before we spun out of Agilent, but we made that one of our key growth initiatives, and that installed base gives us great opportunity. If you look at the compound annual growth rate over the last 2 years, it was 17 -- it was 17%. And if you look at -- in orders. And if you take a look at our growth rate, even in Q1, that we just announced last week, we also had 17% order growth and 16% revenue growth. We are segmented into 2 main segments: the Communications Solutions Group and the Electronic Industrial Group that, I think, you're familiar with. In the Communication Solutions Group, we do everything from focusing on wireless systems as well as wired systems, when you look at signals, such as 5G, and they go from a handheld device into a base station or a cell tower into the network and into the cloud. We can cover and span that whole solution, and it's important for us to do that with one group that's focused on these customer solutions. Accordingly, we moved Ixia into that group so we could combine wired and wireless solutions and where the wired and wireless solutions meet, it gives us an opportunity to provide a unique solution, since we're the only player that spans the entire ecosystem. On top of that, we have an Electronic Industrial Group that focuses on different markets, such as next-generation automotive where that could be electronic vehicles as well as autonomous vehicles, the semiconductor business, IOT, as you may have seen out in the demos, but it's a broader group, but we focus on particular segments that are growing faster and provide great opportunity for us to gain market share and grow faster than the market as we have been doing. What really gets me excited about Keysight is not what we've done in the past. But the fact when we look at our top 6 markets that we have selected very, very carefully that they all change. There is perpetual change in the technology industry. We've been in this market for 80 years back from when Dave and Bill started Hewlett Packard and started the electronic measurement business. And as we started there, and grew through that, and then went into Agilent, and finally spun off, we always see people working on new technology. That is the best thing for our company. As long as we stay first, we are the ones that can capture the work that engineers are doing. Even if somebody is working on 5G, there are engineers that are focusing -- starting to focus on 6G. We are working with them on the next-generation solutions. You're going to hear more about these 6 different industry applications and opportunities throughout the day from our business leaders. You may ask what's our strategy. To put it at the highest level and to make it simple, we accelerate our customers' success. They are all about innovation, and we do everything to help them innovate faster. And in order for us to do that, we have to provide first-to-market solutions. These first to market solutions are extremely critical. When someone's trying to move up the speed of a network, or they're trying to invent a new cloud, or a 5G cell phone, or a base station, they want the first product that's available. We're typically there 2 years before you see a product in the market providing test tools. So that means 4 years before you hear of something coming to market, we have already been working on it. Just to give you an example, we spun off of Agilent in 2014. We decided in 2013 to make the spin. And I remember in September of 2013, when we announced that, myself and others, we made the decision to focus on 5G. So we've been at this for over 6 years, and that's why we're #1 with the most market share and seeing such great growth. So we have to be first to market with our solutions. That requires a lot of foresight, working with our market leaders, and it requires the right type of investments. This is a easy thing to say, but let's talk about the 6 steps that are necessary in order to make it happen. First, we have to provide complete solutions. Customers do not just want hardware, which was our roots a long time ago, they want hardware, but they also want software, and I'll give you an example. Oscilloscopes, which make measurements, and we'll measure something, they actually go ahead and digitize your measurements. So they'll take a signal in the world, an electrical voltage, and they'll convert it into numbers that you could essentially put in an Excel table, although we have much more sophisticated tools. You could do that a while ago. But right now, our oscilloscopes make 256 billion precision measurements a second. It is physically impossible to go ahead and analyze these signals without having the software to make the measurement, do the calibration and do the analysis and provide answers. So customers, such as a cell phone manufacturer, or a base station manufacturer, they do not want spreadsheets with 1 billion numbers in it. What they want is an answer to find out whether or not the product that they're making will work on a 5G network. And accordingly, software has been a focus for us. It's been a growth area, and we've grown that business tremendously. Services are necessary, too, when people buy products, they need help configuring a total solution, for supporting a solution, be it for repairs and for software upgrades. That was another one of our growth initiatives, and we'll get a chance to talk about that also. And they want to do this all throughout the whole design process, the manufacturing of their products and then the installation and operation of their products. So that is why we acquired -- why we acquired Ixia. So we could provide this total solution, where they focus on optimizing the network. So a network administrator can look at all the data that's flowing into the cloud and find out why the network is not working. Why is it slowing down? Is it slowing down because your engineering capability is overwhelming your system? Or is it because everybody is watching President Trump on YouTube? And that's the type of thing you could do. You can go into any type of application, understand what's going on, and you can help troubleshoot it. But we provide solutions for this total workflow like nobody else. And we do it in the industries which you're going to hear about this morning. The second part of that is to make sure that we are first, and we're first to market. That took a lot of transformation from where we were at spin, and I'd just like to walk through, at a brief level, what those steps were, and then you'll hear more about this throughout the day. The first thing we had to shift was from hardware-centric products to software-centric solutions, which include many hardware products and lots of software for measurement, for analysis, et cetera. So that was a big change, and we had to retool our engineering workforce. We have grown our software engineering headcount, 83% since we launched the company. The second thing was having different divisions, 15 different divisions that all had parts of a solution. One division could have a spectrum analyzer, one could have an oscilloscope. It doesn't matter what they are, but they have to be brought together and software has to be wrapped around them. So trying to get 15 different general managers to agree to focus on a particular company was very slow. You can't be first to market if you do it that way. So what we did was we went ahead and we turned the organization on its side. And we did the biggest reorganization in over 75 years since Dave and Bill set up the company in our HP days. And we organized around customers. Now Satish, for instance, for Communication Solutions or Soon Chai for Electronic Industrial Solutions, they have all the assets at their disposal. Soon Chai could walk into a customer and say, yes, I can give you that solution based on what you're asking for. He has all the hardware resources, he has the software resources, some are in a common group that he has all access to, but most of them are in his group, and he has all the different products and solutions. So the decisions can be made on the spot and not -- it's -- they don't have to go back to the company and spend the month debating on it. Again, first to market is what it's all about. We have invested enough to make this happen. We have increased our R&D investment from $355 million to over $700 million this year, we have doubled it. And that is what is providing the revenue growth. The issue isn't the amount we're spending in R&D. The issue is that we are getting the revenue growth that is available to us by being first and investing in those areas. We leverage our technologies, Jay Alexander, our CTO, is going to talk about technology that is made in our Keysight labs and that is -- he develops things that are used by multiple groups, or from multiple businesses, so we can provide leverage and economies of scale. And of course, none of this makes sense unless you really understand where the markets are, and you're providing solutions where there's long-term growth based on the market trends. Let me just go back. I think you've seen the chart on the right hand slide, our compound annual growth rate has been 11%, and we announced 12%, or 13% order growth last quarter, which is in the first quarter of 2020 and 13% overall order growth, 12% organic growth, not accounting any acquisitions, and we -- 9% overall growth in revenue. So we're continuing to grow on a strong path. It's great that we're growing the top line, but growing the bottom line 11% is not what it's all about. There's so much more potential. So we're working at not only growing the top line, but expanding our margins. So we have focused on gross margin improvement. It's a company-wide initiative that we've had for a couple of years, and we started that, as you can see, first, we focused mostly on growth to get the growth going. And then in '18, we started focusing on margin expansion. And you can start to see some of the results. The first thing, moving the mix of our solutions from manufacturing solutions to more weighted on R&D solutions. We still make manufacturing solutions, and we're going to have great business there, and that's sometimes misunderstood. But we have more R&D solutions, which have higher barriers to entry, have more software upgrades. And on top of it, have higher average selling prices and higher overall gross margins. When we're first to market and there's no competition, we have pricing power. When you're second or third or fourth, you don't. You're in a price war with our competitors. So being first to market is another big part of our expanding margins. And the last thing, we not only want to expand our gross margins, we want to move right down the P&L and expand our G&A. And expand our margins in our G&A becoming more efficient. So as we have grown, we have done that. And we've put in place a lot of continuous improvement to do this. But you can see, we've delivered a 670 basis point improvement in gross margin alone, and we're not close to done. It's nice to be able to grow the top line to expand your margins and to also have a very efficient G&A structure, but you also want a durable business model, one that could withstand bumps and hiccups in the marketplace. You can see from our balance sheet, we're prepared to do that. But more importantly, we're doing other things to make our business model more durable. First, we have a diversified set of businesses. Even though we're organized into 2 groups, there's at least 20 different sub opportunities inside of those groups that we focus on. Not only do we have different businesses, we have a big wide portfolio of over 7,000 products -- products and solutions. We're increasing the amount of software that we sell relative to hardware. Software is very high gross margins. And again, we've grown our software business from about $360 million to over $800 million in this timeframe. We have more than doubled our software efforts. That helps us also with recurring revenue. We do not realize all the revenue upfront. That's why you see a discontinuity between orders and revenue. Some of the orders go in and they're actually realized in revenue over the course of an entire year when we sell subscription services, but we not only do that, we're focused on services, which has a lot of recurring revenue. On top of that, we have a flexible cost structure. I'll mention that a little bit later, where everybody has a component of variable pay. But take a look at our recurring revenue. We have so much more potential, but we've increased that from $472 million a year to $838 million. That provides more stability and more durability for all of our investors. When you do that, you also have to make sure that the organization can keep up with all this growth and all these changes. So we're doubling the number of front-line sellers. With our new solutions, that are not only first to market, but they're the highest performance and the best things that are out there. If you have a clogged sales channel, it's not good. So we are doubling our sales force. We announced this years ago. Mark is going to give an update on that, but we've increased our direct sales headcount by over 50% in the last few years. We've also increased the variability of our sales compensation. So people that are over or paid more, we've basically changed our rate. So we're incenting people to perform more. People that go ahead and exceed, get paid even more, people that are underperforming, get paid even less. This is a motivation force for our sales force, and it's working very well. The other thing is we had to make sure the rest of our G&A organization is in place, and they have the right type of values, and they have the right type of skill level to perform and to perform with passion. So we've made 154 different leadership changes since we've started the company. And that's a lot in a company of our size. We've increased our software engineers, as I mentioned earlier, by 83%. And this over here has been providing the earnings per share growth that you see that's over 80% since we've started the company and the increase in market cap, which is more than tripled. So you may ask, what are we going to do with all this cash now that we're making -- last year, we made $872 million. Our capital allocation priorities have not changed. We know what to do with it. We're going to first invest in organic growth and provide the growth that is there in our key markets, and we're going to augment that where we need to fill some holes to fill out our strategy as long as it meets our strategic intent and meets our financial commitments. And our financial commitments are ROIC-based, and they have to exceed our WACC by a good margin. And by doing that, it provides great opportunities. If we can't find opportunities to provide returns higher than our weighted average cost of capital, we're going to return the money to our shareholders. And right now, we have about $300 million on our share buyback authorization, actually over $300 million, and we'll utilize that as it makes sense. And again, if there's any other price discontinuity, or anything else changed, I will meet with the other Board members, and we will take appropriate action. We have done 10 acquisitions since we've launched the company. Six of them are ahead, 2 of them are on track and 1 of them is delayed. And with Ixia, it took us longer to get that integrated into the company. There was more work that was necessary to bring the product quality up to the Keysight standard that took more work to integrate the supply chain, to realize the cost synergies, but now it is on a very good course. It's integrated in Satish's business unit, so we can provide end-to-end workflow solutions for the Communications Solutions market, and the last 2 quarters, it has delivered double-digit order growth. You're also going to hear today from Jay and also from Satish about Labber. A new acquisition that we've made to give us capability in quantum, which is one of our new growth initiatives. All of this sounds great, but you need to get 13,500 employees, all aligned and all working in the same direction. And I really believe that our unique culture is a real competitive advantage. It's very results oriented. It has very high uncompromising integrity. The focus has been on speed and courage. And you will hear from Ingrid about some of the things that we've done there to accelerate our speed. Of course, continuous improvement has been part of our history. We have lean throughout the whole organization as well as standard [ TQC ] type of programs. But it's not only important to talk this, but to reward the employees for delivering these results that are so important to the company. So everybody in the company has variable pay, based on results. And some people have 93% -- 93% variable pay based on what happens, starting at the top, and it goes all the way down to about 15% in total. But there is a wide range, but everybody has a vested interest in delivering total shareholder return. What's also extremely important to us, and this is part of our culture is CSR. And this is something that's been inbred from back in the DNA in the Hewlett Packard days. But we have a vision to make sure that we have a business framework that provides ethical, environmental and socially responsible operations. We have 3 key goals that you can see on the left, we're already ahead on 2, and we have a 6-stage plan that you see in the middle that goes from ethical governance, as you can see, all the way through to the environment. We've received some awards in this area, but it's a really important focus for us. And this is what helps us keep our employee retention. Our employees really believe this. And that's why you'll hear about where we have our attrition rate of a roughly 6%, on total for the company, and that includes regions where people are changing jobs, in China and other areas where they change jobs more regularly. That's a pretty high rate of retention, and it's something that our employees really thrive on. We put all of this together and communicate with our employees with the Keysight Leadership Model. This is basically a common language to get everybody to understand what our goals are. And in order to enable us to have the right type of conversations so we can go ahead and make sure that people are delivering on what the objectives of the company are. Right at the center is customer success. It doesn't say, make a profit or be good to employees, everybody is focused on making customers successful. Because if we can make customers successful, everything flows from that. We can generate the revenue. We know how to take that revenue and generate great operating margin, great cash flow, et cetera. But customer success is at the middle. By working with them, that gives us opportunities for market insight. Once we understand where to go, we have capital allocation and capital allocation could be myself and Neil deciding to make a $1 billion acquisition, or it could be 2 employees deciding whether or not they both need to go on a trip to visit a customer, or whether or not they could do it with one person if another person cross trains. So capital or investment is basically controlled at multiple levels of a 13,000 plus person organization. It's not just in the C-suite. And we embed this throughout the whole organization. We've talked about first to market, operational excellence and employee growth. You'll hear more about this from Ingrid. That may sound pretty simple. The 6 steps that we've done to transform the company. There's a lot more. So in your handouts, it will show you a time sequence of the high-level steps, although there are a lot more and the first slide, you can see here that's in your book, talks about 2014 to 2017 and then it ends on the next page showing the results that we've delivered last fiscal year which ended October 31. But we -- just a couple points, triple-digit growth in 5G and exceeding our margin targets in everything else. But taking a look at total shareholder return is important, that's the goal and the thing that we have to make sure that we do on a continuous basis. And our fiscal year starts November 1 ends October 31 and we're, as you know, a member of the S&P 500 and now that we're a member of that, we're measured against that and out of all 500 companies, in last year which ended in October, the last fiscal year, we were #4 out of 500. We finished in the top 1% of the S&P 500. So these -- this slide right here shows the combination of the results of what Keysight has delivered. 11% compound annual revenue growth, even though the first couple of years was transforming ourselves. We've increased gross margin 670 basis points. We've increased operating margin 590 basis points, increased our EPS 17% on a compound annual growth rate as well as increasing our market cap. So our strategy is very sound. I showed this before. We're going to continue on this path, and this has decades of runway because the perpetual change in our industry, and we can help go ahead and enable that for our customers. We are also using our culture as a competitive advantage, and I'm very glad to say that our employees are very engaged and very competent. And Ingrid will also share some more information on this. You're going to hear today about our growth initiatives and you're going to hear in more detail not only about what they are and what we've done, but where we're going. And on top of that if you look at #5, you'll see 6G an quantum, 2 new growth initiatives. And again we invest early. People are just starting to roll out 5G. We're talking about things that we'll deliver in a decade from now, and all of these growth initiatives have a runway of at least a decade. So let's talk about what you can count on from a business model and what our expectations are and what we deliver. In 2015 we outlined our business model for revenue growth, operating margin and EPS growth. In 2018, when we were here almost 2 years to the day, we said we achieved all of those and we increased our business model. In particular we said we were going to increase our operating margin targets 400 basis points. And as you can see, we have exceeded that, and we achieved 46% earnings growth last year. You see the operating margin and the revenue growth which were ahead of our targets. So I'm very glad to say that we are upping the measures on ourselves. We are increasing our own expectations and increasing our business model to deliver another 500 basis point improvement in operating margin above the model that we outlined in 2018. The sustainable growth we've also increased that 50 basis points and that's through any type of market, sometimes it will be hotter, sometimes a little softer but we're going to do everything we possibly can to make that greater than the marketplace every single year. And our EPS growth, even though we have a higher target, we're still going to deliver that 10% or greater EPS growth. Last quarter for instance in Q1 of '20, we delivered -- continued to deliver on that path where we delivered EPS growth in the 30s. So you're going to get a chance to hear from the staff. I brought most of the staff with us today. Nine different presenters from the staff are going to present in their own areas of expertise and ownership and I think you're going to find it, hopefully very, very helpful. So in summary I just want to point out a few things about the company. One, we have a very strong leadership team and an exceptional employee base that is delivering on their commitments. We're providing first-to-market solutions and accordingly we're taking share. And we're doing this in markets that are growing and constantly looking at markets that will grow at least a decade. We're moving into more complete solutions which has software as well as hardware and services and overall this provides higher gross margins and more recurring revenue to stabilize earning power on the bottom line. And we have a systematic process for doing this which is the Keysight Leadership Model that puts everything together to help our employees understand the language and to make sure that they know our expectations and we have very productive discussions. So in summary I think you're going to find the opportunities we have in front of us are even greater than the ones we had over the past 5 years. So with that I'd like to bring up Ingrid Estrada, who is our Chief Administrative Officer, who also heads up HR, Workplace Services and about 4 other functions. Thank you.

Good morning. As Ron said my name is Ingrid Estrada, I'm Chief Administrative Officer and Chief of Staff. I've been with the company about 30 years and during that timeframe I've had multiple roles across multiple different functions and domains. Some highlights are -- was a global manufacturing manager, then I ran a business as a VP, also did a corporate role as a VP of Indirect Procurement. And then when we split from the company, I accepted Ron's offer to be Head of HR. And since then that's been expanded to include Workplace solutions which is like facilities, also indirect procurement and some other corporate functions. And that combination has actually been an excellent opportunity to have all of the things that you need to really drive the employee experience. So that's actually what I'm going to talk about today is how we have transformed our culture to support the company and employee success. This is such an integral part of what we do and so important to us. I wish I had more time but I have 4 aspects that I'm going to cover today. One is how our culture enables innovation, how we value a diverse workforce, how the Keysight Leadership Model is part of everything that we do and we continue to maximize our employee engagement. So first let me start off with giving you a glimpse of into our culture and our start off with some -- we have a foundation of very strong values. What's unique about these values is that they date back 80 years to Bill and Dave's beginnings of the company and have basically survived and strengthened that whole time and so it's just really truly a part of our DNA. Layered on top of that is our unique culture. When we started the company 5 years ago, we had some deliberate and intentional conversations about things that we wanted to change in the culture in order to support Keysight's success. So here's some of the highlights. One Keysight, this means that everything that the company's priorities are -- and the company's goals come above any individual business unit or any individual function's priorities. We want to move at the speed of customers. This is an organizational capability that we had but we've really stepped it up in order to be first in markets and be way ahead of the commercialization of some of products that we are involved in in innovating. We have to be way up front, embedded with our customers and their innovations. We deeply care about our people, we care about their learning and their career-long learning and development and growth. We reward results-driven behavior. As Ron mentioned all of employees are part of a variable pay program that aligns them with our financial commitments. And we communicate transparently. On this one we not only communicate transparently, but also we try to be very open and accessible. We communicate the strategy often through multiple different mechanisms and channels. And just as a little side note, in our headquarters and across most of our sites, managers don't have any office walls or doors and even Ron and his staff at headquarters, we don't have any doors on our offices to really role-model the open, transparent and accessible nature of our management style. And we also collaborate globally. We have employees in over -- in 30 countries close to our customers. And this really accelerates the exchange of information and allows us to be productive almost 24/7 in working on customers' problems and solutions. And then layered on top of that is a compelling purpose to accelerate customer innovation to connect and secure the world. We have our deepest technologists working on leading edge technologies years before they're commercialized. That provides a very challenging, interesting and fulfilling career path for many of them. And these are these ingredients when we add them all together we fell is a winning formula for our culture, our success and our competitive advantage. So let me talk a little bit more about how our culture is a catalyst for our success. As Ron mentioned, we have a very low attrition rate of only 6%. And this very low attrition rate help us provide a very stable work environment so that our technologists can really focus on providing customer solutions and company success. That 6% attrition rate compares to the industry average of around 11% to 13%. And not only does that help us have a stable environment, but it also speaks to our robust talent acquisition process where we do a lot of vetting and due diligence with all of our potential candidates to make sure that it's a good cultural fit both ways for the long term. We also do that when we acquire talent. In the 10 acquisitions that we've done, you can see that we have a 99.5% acceptance rate. And when we just do external hiring in this very competitive talent acquisition landscape, we have about a 95% acceptance rate. But our culture is also very open and enthusiastic about having new innovations. Just the fact that we've added so many new talent capabilities in software and solutions, is a testimony to that, but in addition we've also increased our funnel of interns and college hirers by 49% in the last few years. And you'll hear a lot more about the mix shifts that we've done to help support our strategy from just about all of my colleagues today. I want to talk a little bit more about putting the right leaders in the right role. This was one of the most critical success factors to transforming our culture. It was necessary to do that either due to our transformation out of the division structure or just to make sure that we had the people in the right roles with the right cultural role-modeling. We want to have managers that are fast decision makers, flexible, adaptable and customer-oriented. We have about 250 senior managers and executives. So the 154 changes was quite significant and now we feel like that has really turned the corner on our ability to continue to drive company success. All of this has resulted in high performance and high-speed decision-making. We also value diversity and inclusion social responsibility. In the last 2 years, we've applied for and received the Great Places to Work Diversity (sic) [Best Workplaces for Diversity] award. And that's based on everyday experiences that women, people of color. LGBTQ, multi-generational, multi-cultural people have. And these are just everyday experiences with their colleagues at work or with their managers and cultures and values of the company. We've mentioned a few times we've got a very multi-cultural employee base. I'm going to just say that we're also quite proud of the 5 generations of employees starting with the greatest generation, boomers, Gen X, Y and millennials. And we're proud of our women in the workforce and continue to make investments there and encourage all our employees to support society of women engineering and women's leadership networks. Not only do we want our employees to have a good internal experience but externally we also support their volunteerism, STEM activities and our social responsibility initiatives. So I'm going to talk a little bit more about the Keysight Leadership Model and how we're now using that to continue to maximize employee engagement. So Ron already touched on what the model is and he said it's a platform for us to have a common vocabulary amongst all of our employees on how we run the company, how they fit into it and give them line of sight as to how they can contribute to the company's success. So last year was a pretty tremendous undertaking to train all 13,500 employees on this and we did train the vast majority of them. And we did this by using a digital platform that's provided by CorpU. And we put employees through this on sprints of about 1 week long of maybe a couple hundred to up to 1,000 employees at a time. And this is kind of a weird and different way of having an external measurement and of engagement. But what you see up here is CorpU engagement metric of how connected employees are during these sprints and how fast the speed of communications decision -- decisiveness and engagement during this training is. So that's a typical company. And then that's what Keysight looked like. So we're off the charts and just off the charts engagement, even CorpU had never seen anything like that. So that is just like a really good external validation on the engagement of our employees and again how our culture really embraces learning and being aligned with strategy. So we have a lot of different communities that our employees can be part of either social, vocational or career enhancement. And I'm just going to talk about 2. One of them is called the Keysight Emeritus Program. And that's a program that some of our deepest technologists can join as they begin to plan for their retirement. And in this program, they get matched up with a mentee who might be part of our NextGen. That NextGen group is a community of hundreds and hundreds of our newer employees who are looking to learn and accelerate their career. So this is a systematic way that we have to take somebody that has deep technology and pass it on to future generations so that they leave a legacy and accelerates the learning of the new generations and make sure that we don't lose any of our peoples' IP. And in some cases, we even do reverse mentoring where we have some our newer employees like the example here from our software design center who have capabilities and insights to new ways of doing software development, agile methodologies that are of interest and a learning opportunity for some of our more traditional engineers. So again the thing that we're trying to do here is to make sure that we have a systematic formulaic way of doing mentoring with a purpose to make sure that we don't lose any or our IP and continue to be a continuous learning environment. And we're starting to get a lot of recognition for this externally. Up here are some of the awards that we've received. And although it's nice to receive that validation, this is actually really critical for us because it helps us attract and retain what we think are the best employees. So in summary, we feel that we're -- we have a very special culture. It's a competitive advantage, and we're continuing to strengthen it. We have great results, and that is fueling a lot of excitement and engagement. We're continuing to build our next generation of talent. We've got the Keysight Leadership Model to continue to proliferate the company's strategy and make sure everyone is engaged with a line of sight for their contributions. And focusing on R&D and strengthening our talent pools there for future growth. In summary, I wish all of you could visit a Keysight location and experience this firsthand, but instead, I think, we'll continue to get a flavor of it today with the interactions of the rest of the staff members here. Thank you. And with that, I'm going to turn it over to Jay Alexander, our CTO.

Thanks very much, Ingrid. Good morning, everyone. I've got a great update on Keysight's technology leadership and software differentiation that I'm excited to share with you. As a quick background on me, this is my 34th year in the industry. I began with an electrical engineering degree out of Northwestern, went to work for what was then Hewlett Packard as a test engineer in manufacturing, became very interested in software. After several years, attended graduate school, earned a master's in computer science. I did my thesis work in artificial intelligence and neural networks, all the way back in 1994. And so it's been great to see these technologies find so many applications in our world today. I then moved into R&D as a software developer, and then into progressive levels of R&D management, including some strategic planning roles. And in one of those latter roles, I wound up working with Ron to help him turn around the company's oscilloscope business. We started at a market position where we were tied for #3, and we tripled the revenue and the profit using a strategy based on market-leading products and application-specific software solutions. After leading that business as the general manager for 6 years, Ron asked me to take on the CTO role for Keysight when Keysight was established in 2014. And in this capacity, I work very closely with him on the company's strategic plan, and I also lead the central teams that innovate core hardware and software technology for the company. It's certainly been an exciting journey. Now returning to today's journey. Here are the 4 themes that I'll cover. First, Keysight has an incredibly powerful R&D team and innovation engine for creating first to market solutions that drive customer success, the very customer success that's at the heart of the Keysight Leadership Model that you heard Ron and Ingrid speak about. Second, we have proprietary capabilities that we apply for differentiation and sustainable competitive advantage. Third, in executing a key part of the company's strategy, we have increased our software capabilities and our software results tremendously with more to come as we build out the pathway platform. And finally, even with the growth runways still in front of us on software, on 5G, on automotive, on services, we're already working to attack next-generation growth opportunities so that we can continue to grow for many years going forward. I mentioned the strategy a moment ago, and it's important to understand that everything we do with our R&D and our technology flows from the overall company strategy. This strategy was put in place at Keysight's founding, and it recognizes that in our industry, there's an opportunity to deliver additional value and capture more value from software and services that augment the core hardware contributions. And so Keysight decided to lead the way for the industry and transform our offering from hardware-centric products to software-centric solutions with more services content. And to execute strongly on a solutions-based strategy, it didn't make sense to stay organized around traditional product categories. Effective solutions require industry-specific insights. And so Keysight transformed its development and go-to-market approaches to be based on industries and the customer needs within each industry segment. This is the single biggest change and success factor behind Keysight's growth. In contrast to the complex arrangement we had prior to 2016, we now have single decision owners with focused accountabilities backed by strategic growth investments. And this lets us move fast to develop full solutions, solutions that often include multiple hardware, software and services elements that are drawn from the entire company's capabilities. We've strengthened this system since our last Investor Day as well. We've further consolidated the core technology teams into Keysight labs, we've incorporated services into our business segments and our solutions groups, and we've now fully integrated our Ixia teams and capabilities into the Communications Solutions Group. The net result is we can move even faster to create even more capable solutions for our customers. With this industry focus, and looking at customer challenges in adopting new technologies, we had confidence that we could increase our R&D, create high-value solutions to address those customer challenges and set up a virtuous cycle of continued growth and reinvestment, and that's exactly what's happened. As you heard from Ron, we exited Agilent investing $355 million into R&D. We've steadily grown that to we're now at 16% of $4.3 billion in revenue, we're investing over $700 million in R&D. We've more than doubled our R&D. That's a lot of firepower for addressing customer needs. And we've applied it with focus and intention on the growth areas that you see here, such as 5G, such as automotive and energy, such as PathWave and others. And it's very much paid off, whether measured by the number of market-leading solutions that have been developed, the top line growth, or the ROIC. It's also helped us with our margin expansion efforts, as Neil will talk about further later. In addition to strong organic investment, we're also using the M&A lever to drive growth. When we need capabilities or solution offerings for our customers faster than we can develop them ourselves, we've used judicious M&A to gain them. As you heard from Ron, we've completed 10 acquisitions thus far, we're continually assessing others and progressing them in our funnel as appropriate. Here, we can see those 10 completed acquisitions mapped against the areas of impact. And we can see that they span all of the growth opportunities that you've heard Keysight speak about. From 5G and network to automotive and energy to services to new areas like quantum computing, where we recently acquired Labber, and we'll say more about quantum later. Now as Ingrid indicated, the employees and the teams that we've gained through these acquisitions have helped us keep our culture vibrant, and they've added technical expertise and market insight that Keysight can now to bring to bear on a wider set of customer needs. In fact, our technical teams around the world are a huge point of strength for our unique innovation engine. Here, we can see just a sampling of where they're located around the world and some of the areas of expertise. These teams keep us close to customers and they help validate our R&D investments because they work in close collaboration with customers to align on roadmaps and on solution plants, which is critical when we're moving so fast to stay out front. Keysight has 3,000 engineers in R&D alone, over 40% of whom have advanced degrees. We're deeply connected with leading universities around the world, and we're actively engaged in over 30 industry standards' bodies and consortia where Keysight is always sought out as a participant. We're actively generating and protecting the IP that we need to maintain leadership and our sales people are engineers as well. So they have deep credibility with customers. All of this puts Keysight in a unique position as the most trusted adviser and partner for customers around the world. Now our transformed organization, along with the other elements I've been discussing, really makes for a unique innovation engine that's hard to replicate. And there are 3 principal elements. Our central teams at Keysight Labs, innovate game-changing technology components. The breakthroughs that give us long-term competitive advantage. Our centers of excellence create hardware and software products that can be applied to multiple market opportunities. And our solutions groups partner with market-leading customers to create industry-specific solutions that are faster to market and higher performance than what can be achieved by product-oriented competitors. Now I've shown these 3 elements distinct for clarity. But in reality, they're overlapped and they're highly interlocked on roadmaps and on customer commitments. And all 3 of these elements benefit from the market insight and the capital allocation pillars of the Keysight Leadership Model and all 3 of them, in turn, contribute to operational excellence and employee growth. So it's a very powerful overall system. I'd like to highlight the power of this system with an example that involves over-the-air test or OTA. OTA is a way of testing, using antennas and wireless signals to transmit the information instead of cables and connectors. It's become very important for high-frequency applications, including millimeter wave applications at 28 gigahertz and above. It's less well-known and less familiar to many of our customers, and the need for it rose up very quickly for early 5G characterization test. And so engineers at Keysight Labs came up with some experiments involving small chambers, robotic positioning elements to change the orientation of the mobile phone, while it's being tested, and customize reflectors and antennas to channel the energy correctly. And you need a chamber for isolation and for repeatability of the results. Now these were experiments, and they were incomplete, but they wound up providing so much value to market-leading customers who wanted to be first that those customers basically insisted on partnering with Keysight, and they wound up purchasing the prototype units from us. Our solutions groups then productized that work into a full solution involving other hardware and software products that came from our centers of excellence. And so here we have Keysight Labs, we have the centers of excellence, we have the solutions groups all 3 elements of that unique innovation engine that I just described, working together to quickly address an emergent customer need. This is the power of our unique innovation engine. Now to create these solutions and others like them, our engineers draw upon proprietary technology because as Ron explained, we have to be both ahead of customers from a time standpoint, and we have to be ahead of them from a measurement performance standpoint, up to 10x better than what we're measuring. So we have to use our own technologies in the areas that are required for leadership. One of those areas is our proprietary semiconductor fab. This is the facility that gives us the custom, high-speed analog chipsets in gallium arsenide and indium phosphide technologies along with the multi-chip modules and the other packaging in interconnect. These technology sets form the basis for all of our high-end instruments. And you can see at the second image from left here, one of the multi-chip modules. That has several indium phosphide chips on it as well as chips using other technologies. We have dozens of expert practitioners and hundreds of years of experience optimizing both the design processes and the fabrication itself for this facility. So that we get exactly what we need for the utmost in measurement performance. And we're getting not only performance benefits from this capability, we're also getting cost and time to market benefits, both for Keysight and for our customers. On the software front, Keysight has long possessed deep expertise in measurement science, in calibrations, in test algorithms and signal processing. And as we looked deeper into our solution strategy, we realized we needed still more capabilities, in cloud development, in data management, in data analytics. And so we stood up a new software design center in Midtown Atlanta, a hotbed of technology innovation in this country. We did that in partnership with Georgia Tech, a leading university for electrical engineering, computer science and many other technical disciplines. And our teams there are bringing great new energy, new ideas, new ways of working with software that are helping us progress our company and our strategy. They're leading the way on the PathWave work, which I'll talk more about in a few minutes. My second example this morning shows how our proprietary capabilities, both hardware and software, come together to create unmatched performance for our customers. The UXR family of oscilloscopes has the world's highest real-time bandwidth of 110 gigahertz. Real-time means that a signal can come along and occur just once and never again, and we can capture it. We have the highest real-time bandwidth, the fastest sample rate, the lowest noise, the lowest jitter, the widest sensitivity, the best overall measurement performance across 4 simultaneous measurement channels that's ever been created. And we can see how some of those attributes compare to the predecessor Keysight product, which itself was an industry leading product. And so this is also an example of how Keysight continually disrupts itself in order to maintain our leadership position. We can see on the circuit board pictured some of the technology blocks, the digital custom chips, the analog custom chips, which is what the A/D converters are. We can see that multi chip module there that I showed previously. It's packed with custom technology. Of course, we can't see all of the software, but these machines contain some of the most advanced code that we've ever created, more than 1.5 million lines in total, to control all of the custom hardware, to process the data, in the way that Ron described, and to deliver that utmost in measurement performance. Now the 10 terabits per second of data flow inside the machine, along with some of the other technical factors that I've been discussing, they may not personally resonate, but I can tell you that because of those levels of performance these instruments sell for well over $1 million each. Now why is it that customers so value that level of performance? What is it that they're using them for? The answer to this comes from considering our modern, highly connected world. And all of our needs for ever faster data from more devices, all the time, faster and faster and faster. That's giving rise to investments in next-generation semiconductors, in faster electronic and optical circuits in more data handling capacity through the entirety of the network and in higher frequency communication systems. All of those innovations would not be possible without state of the art measurements like the UXR provides. And the UXR, the product, becomes even more valuable as a solution platform when it's combined with additional market-leading software. Here, I'm showing it with Keysight's Vector Signal Analysis Software, which is one of the tremendous pieces of software IP that we've created over many years, and this combination is validating the performance of a 1 terabit per second data link that's using a very advanced form of modulation, for which the measurements were basically impossible to do until this solution was available. And just to calibrate on what 1 terabit per second might mean. If we think of a 1 terabit per second data link located somewhere deep within the network infrastructure, and that had only one job to do at any one moment in time, it could transmit the entire content of a 2-hour, 4K video in about 2 minutes. Now that's certainly fast, but it's far from instantaneous. And when we think about all the other demands for network traffic, everything happening at any one point in time, to say nothing of still higher resolution video format, 3D formats, interactive use cases, like virtual reality and remote surgery, we can appreciate that 1 terabit per second, while being fast, is really just one step along the way for ever higher levels of performance. And so the need for these kind of innovations and the measurement solutions that make them possible is going to be with us for quite some time. And this really shows why we have those proprietary capabilities to capture the value that's available to support these innovations coming from both hardware and software. And I'd like to say more about software now. One of the reasons that Keysight has been so successful in executing our software-centric solution strategy is the number of software engineers that are now working at the company. As you saw from Ron and Ingrid, that figure is up 83%, 83% since our founding. Now some of that is due to the acquisitions that we've made, some of it is due to internal hiring. These engineers are working on cutting-edge architectures, algorithms, data analytics, and our engineering mix today stands at 2/3 software, 1/3 hardware. So Keysight is indeed a software powerhouse, in addition to having world-class hardware talent. All of those engineers, and their many contributions, have enabled us to more than double our software revenue, up 123% since our founding to over $800 million. We've increased the fraction of the total as well to 19%. And yet, at 19%, there's still ample room to grow further, and we're excited to do just that. One of the reasons we're excited is because when we look at the development and deployment processes that are used by the creators of new electronic products, we see that software plays a role at every step of the way from the very early stages of design simulation, where it's EDA or electronic design automation software into testing of the prototype using different types of software, into pilot manufacturing tests, then high-volume manufacturing tests, then the optimization of fielded products, software is critical for all of those workflow stages. Now it takes a lot to successfully move a new electronic product from design into market today. Designs of any complexity wind up traversing parts of this workflow multiple times, basically once for every significant design revision, and that really gives rise to a pain point. The pain point is the fragmented nature of these tools. They work well for any given workflow phase, but they don't interoperate very well. They don't facilitate the easy sharing and reuse of algorithms, of specifications, they don't make it easy to compare and correlate results across phases. And that leads to duplicate work that's costly, time-consuming and error prone. We conducted a survey to quantify the extent of that pain point, and the results were striking. We learned that most engineers spend at least a month, correlating data and results between adjacent life cycle phases. Almost half of the engineers reported spending more than 3 months in those processes. And remember, this is at every revision of the design. So this is time that's coming directly out of their time to market. We also learned that they use at least 3 tools for different parts of the testing and the verification tasks, many of them use a lot more than 3. And further, a full 93% reported wanting to see a significant change to a more integrated approach. This is why we created the PathWave platform. PathWave is designed to encompass the entire workflow, to use common data models in a consistent user interface experience, and to integrate measurement IP that's been built up over decades, to incorporate data analytics, and to connect in with new value-added services to make the platform and the solution even more valuable. PathWave elements can be embedded into measurement instruments, including benchtop instruments and modular instruments and custom form factor instruments. And PathWave can run on the desktop or in the cloud. It's being architected with open APIs, so that it can be extended further over time. It really is an exciting new way to think about electronic design and test software and it continues to progress. Here's the big picture on that progress. We introduced the platform vision and the architecture goals in 2018. That was followed by the release of the initial components, including some data analytics capabilities. The next year, we showed that we could embed parts of the PathWave architecture into a benchtop instrument that's a leading product for 5G measurements today. We also released additional productivity components. We're now using the desktop version of the platform to develop more Keysight solutions. Next up will be the cloud addition and additional components that enable its functionality, followed by the enablement of a larger development community, including partners and others beyond Keysight so we can proliferate solutions further and see the development of a PathWave ecosystem. Our lead customer for the cloud addition is a major 5G company that requires a significant modernization of its test processes for next-generation base stations. Keysight is partnering with this customer to deploy PathWave on the cloud to meet their needs for at scale, management and optimization of their test processes across multiple geographical sites and hundreds of individual test stations. They will have an ability to manage and optimize all of those assets as well as the test processes themselves with data analytics that gives them insights into yields, into test times, into rework, into process improvement opportunities. It really is a breakthrough that's in progress both for Keysight and for our customer, and we're excited to make it happen and then to continue to develop the platform. Now stepping back, Keysight has ample room to grow, as Ron described, on our current growth initiatives. Software is only 19% of our total revenue. 5G is still very early in the total investment that will be made, electric and autonomous vehicles have yet to hit the tipping point. Keysight is driving hard to advance those developments and grow by providing solutions. At the same time, we're already attacking next-generation growth initiatives so that we can go even further. We're already engaged in 6G to understand the design requirements and the likely constituent technologies. We're gaining the early market insights, we're road mapping the technologies. In quantum, we're already making investments, both organic and inorganic, that you can see here to position Keysight for growth. Multiple innovations in hardware and software are going to be required for the control and the measurement of quantum systems as the number of qubits scales. You'll hear more about quantum from Satish in the next section. 6G, quantum, that's not all. We're not stopping there. We're also looking at automotive, drive -- autonomous drive emulation tests with a major OEM, we're looking at the next generation of network visibility as the network continues to transform, and we're looking at ways to apply artificial intelligence and machine learning technologies to our applications to deliver even more value to our customers. And while none of these new initiatives is material to our FY '20 financial commitments. They're all critically important for ensuring our ability to grow as we look further into this new decade. So I hope you now have a deeper understanding of Keysight's technology leadership and software differentiation. We really do have a world-class R&D team and innovation engine. We're applying proprietary capabilities for differentiation and sustainable competitive advantage. We're fueling that engine with $700 million of R&D, augmented by M&A, so that we can win with first-to-market solutions, solutions that set Keysight and our customers apart. We're addressing a major pain point with our PathWave platform, and we're continuing to grow our software revenue and capabilities. And we're attacking next-generation growth initiatives as I've just described. It really is an exciting time at Keysight, for all of us on the team, for technology leadership, for software differentiation and for first-to-market solutions that drive customer success and value creation. Thank you very much, and now we'll move to our Communications Solutions Group, and its president, Satish Dhanasekaran.

Thank you Jay. My name is Satish Dhanasekaran, I'm the President of the Communications Solutions Group. Very excited to be here today to speak to you about 2 things. One the progress we've made in the business and second the exciting opportunities we have looking ahead. Before we get started, a little bit about -- background on my -- a little bit about my background. I've been in the information and communications technology industry for a little over 2 years. Most recently, I've been appointed to the U.S. FCC's Technical Advisory Council (sic) [Technological Advisory Council]. In that capacity, we serve to provide industry input to the commissioner on new technologies such as 5G and AI. I started my career working at more -- in Motorola, in R&D designing handsets. And through that process, was a customer of Keysight, and I still continue to be a power user of design and test tools, although my team will say my sharpness in that area is falling with time as expected. I've since held multiple roles in the company. And most recent role was the General Manager of our wireless business unit to transform the business to an industry leading position, working with the team, and we have delivered substantial growth in the business and profit expansion. I've been in my current role as the President for the last 2.5 years since August of 2017, and I've been driving a solution strategy and commercialization strategy to take our technology assets and commercialize to the end ecosystems, both on the commercial communications front and on our aerospace and defense end markets, and we're off to a great start. As you know, we've delivered 2 consecutive years of strong growth in the business and profitability. With that, let me get started with the content today. I'll get into more details on 4 key themes. First, CSG and Keysight have solidified our #1 position in the communications end market. We have done so by delivering on our commitments and executing flawlessly. Second, we're actioning significant opportunities in key technology waves such as 5G, defense modernization and quantum. Third, we're enhancing the value we bring to the market through first-to-market solutions, aligned with industry priorities, and our capabilities are significantly enhanced by the acquisitions that Ron referenced before. And fourth, as we look ahead, we're driving a portfolio strategy that enables our customers' digital transformation outcomes with even greater opportunity to create value. Let me start with a little bit of fundamentals on the business. In most recent fiscal year, CSG delivered record revenue and profit to the business. And just a couple of numbers to highlight. Over $300 million in top line growth or revenue growth, and $254 million in operating income growth on a year-over-year basis. If I take a multiyear view of the business, we've taken a business that was roughly in the $2 billion range and moved it up to $3.1 billion, still in a market of $12.7 billion, plenty of room to grow. What do we do? We offer communication solutions to 2 end markets, aerospace and defense and commercial communications with substantial leverage in technology solutions and talent between the 2 units. So what have we done since 2018 Investor Day? We made 4 commitments, and I'm happy to say we've exceeded on all the commitments and the actions that we have taken are set us -- set ourselves up for -- with momentum for the future. First, Ron referenced the 5G wave. We are capitalizing on our 5G [ first more ] advantage by delivering and enhancing our industry-leading platform and deploying solutions on a global scale. That has resulted in 4 years to date of double-digit/triple-digit growth in the business, material to the growth of the company, and we're very excited with the progress we've made there. Second, we have taken our Ixia business and return it to growth, and we have done so by upgrading the platform and by accelerating synergies inside CSG. And that business had a high single-digit growth, as you know, in the most recent fiscal year. And as Ron referenced before, strong start in 2020, quarter 1. Our aerospace and defense business, we've recognized opportunities to expand through solutions. The areas that we've prioritized are clearly returning us a great result with our U.S. aerospace defense business growing at a strong 7% CAGR for multiple years now. By the way, the U.S. business in aerospace defense is roughly 55% of the total business there. Our commitment is to always grow profitably. And the actions that we have taken in deploying the Keysight Leadership Model to allocate resources to the best opportunity, resulting in increasing margins for us, and we've grown our gross margin over 300 basis points in the most recent fiscal year. The bottom line, our strategy is working. And the actions that we have taken are setting us up with momentum for the future. Let me now delve into the 2 end markets, just to give us a baseline, starting with commercial communications where we serve a very diverse, robust ecosystem, which focuses on both wireless and wireline ecosystem. We're very unique in that we are able to see the perspective of both parts of the ecosystem really connect that end-to-end workflow, which serves as a strategic advantage for us in the marketplace. And 5G is creating an inflection in investments in this ecosystem, which is just getting ramped up. I'll cover more details on this when I cover the 5G section. For those new to the story, you may want -- it's worth highlighting that the standards-based technology waves are how innovation gets done in this robust ecosystem, starting with chipset companies to device companies, base stations, network equipment manufacturers and the enterprise. And test regimes or test routines are built into part of the standardization process, which enables us to have a sustainable business model from our innovations. We are focused on this ecosystem, and you've seen the results, significantly above-market growth rates, 18% CAGR in the business, and I believe we're on the front end of realizing the fullest potential when we combine all of the acquisition assets in this business. Our aerospace and defense business had a record year in 2019 with $1 billion in sales for the first time. This is a stable business from us -- for us. You can see the results there, and one we've been in for multiple decades. This business and the marketplace continues to be an adopter, incubator and investor in new technologies way ahead of commercial deployment. You can think of millimeter wave and radar as 2 powerful examples of that where this marketplace that we serve, we have been offering solutions to those technologies for well over a decade. And now these technologies are finding greater commercial scale with automotive, embracing radars and millimeter wave in the context of 5G, positions us very well. As we look ahead, we see a shift in inflection building. With new technologies changing the landscape of security, we see many -- Ministry of Defense organization, including the USDOD really focusing on what's known as technology adoption or defense modernization. And towards that end, we have prioritized our pursuits in 4 key areas. I'll expand upon that, expand upon each one of them in my presentation today. When I take a big picture view of the business and look at what's changing. And the biggest opportunity we have, digital transformation is changing the innovation paradigm of our customers in our end markets. The application of connectivity, computation and security is changing the value landscape in all our markets and our customers' realities. So what are our customers' realities? Our customers today have to deal with accelerating design cycles. They have to go faster, and they have to adopt new technologies to be competitive, and they have to keep improving their productivity. So simply put, they have to take schedule, cost and scope, 3 powerful drivers and optimize them, all 3 of them concurrently. So pretty big challenges. But this creates an opportunity for us to grow our value and our contribution to this marketplace. So what are we doing about it? Our actions are starting with disciplined early investments that we're making in these key inflections or megatrends that Ron referenced as well. And we're -- in many cases, in all cases, co-innovating with market-defining customers. That really enables us to pick the right targets. And then when we -- we're really focused not on products alone, but on connecting the workflow and creating value for an ecosystem. And where we have gaps, we have a successful track record of accelerating our pursuits through M&A. This operating system is designed to enhance the value that we create in the marketplace, increase our differentiation and improve the returns to our shareholders over time. So what does this mean to our portfolio? How does our -- how do our customers internalize this? We're transforming ourselves from being a provider of engineering tools to being an outcome enabler to the key ecosystems we serve. We're sustaining our #1 position in design and test tools. In this marketplace, our customers know us for providing the highest precision, reliable, high-quality metrology or measurement sciences that allows them to debug their engineering challenges. We have since expanded to deliver first-to-market solutions in areas of the market where there's value to be had and where there's value to be delivered to the customers, such as in 5G. Here, I was just at the Xiaomi launch at Mobile World Congress last year, and the Xiaomi executive invited us to the launch of their next handset. And they said, "You enabled us to launch our first 5G product, but also enabled us to scale our efforts globally" because they are trying to scale their efforts globally. So that's how an example of how our customers internalize what we do that's different today. And as we move forward, there's a greater value we can capture. As we have delivered more solutions, our customers start the conversation by saying, "Can you get engaged with us earlier? And enable us to develop a test strategy for the enterprise?" I know John Page will speak more about this in his section, but we are currently piloting a couple of value-added service opportunities to many customers in the United States, especially in aerospace and defense. So just in summary, our portfolio today is very robust. Its differentiation is increasing. As we deliver more and more solutions, we create even more opportunities for us to add services and continue to expand the value we bring to our customers and the marketplace. With that, I'm going to switch to what are we doing from a strategy point of view to enable our continued success. There's 3 pillars to a strategy. First, it's about maximizing our life cycle value in 5G where we're well positioned. Second, we're accelerating steady performance and even accelerating growth through our defense modernization solutions. And third, we're seeding our next-generation growth opportunity, an exciting opportunity you'll hear more about today: quantum. Let me just put this slide up there for a minute while I sip a glass of water, and I'll come right back to it. As market leaders in 5G, we've developed a strategic view for what the ecosystem is -- what the progress in the ecosystem is going to be for the next 3 to 5 years. You'll notice this view encompasses the global deployments that are occurring with 5G, the wireline and wireless technology that are also evolving with time. Let's start with the global deployments. The key takeaway here is it's still very early days with global deployments. Despite all the headlines we see, 70-plus operators around the world to date have had limited, and the keyword is limited deployments of 5G. In many cases, those deployments are in the low frequency band or sub-6 gigahertz bandwidth of the technology built on a non-standalone NSA or a 4G core. So what's driving the operator interest in 5G? Is it just a hype? I happen to believe that there is a race occurring for network leadership. To move beyond the smartphone-based business model, operators have to continually embrace 5G as a technology, but also embrace millimeter wave for capacity reasons and embrace the SA versions of 5G in order for them to remain competitive with latency needs of the future. This creates this road map that we see building the ecosystem. And what I -- what we anticipate to happen is the number of operators that will deploy 5G moving from 70 to over 300 in the next 5 years, these limited scale deployments moving to massive scale, adoption of millimeter wave where spectrum allows, and SA where operator wants to differentiate themselves. This creates a powerful inflection in the investments that's building across the ecosystem for the next 3 to 5 years. And as 5G gets deployed, it's not a onetime evolution. We continually see the massive proliferation of data that's going through the networks will require our customers and folks in the ecosystem to embrace new technology waves with 5G wireless and with the wireline standards, which are already in place and we are engaged in. Not to mention that 6G is coming up right around the horizon. So folks you peek -- you piece all this together, it's early days in 5G. The investment is still ramping up in this technology wave, and multiple wireless and wireline technologies are continuing to evolve, and we see a very innovation-rich opportunity-rich landscape as we scan the horizon. So hopefully, this paints the picture for how we view this opportunity. To us, 5G is not just a smartphone that works better and faster, although very soon, some of the smartphone devices, the best ones will be -- will have 5G in them. To us, it's a bigger vision, right? The connectivity -- there is the connectivity fabric for the new digital economy. Many regulators around the world are now contemplating, including the FCC, contemplating, adding latency requirements on a nationwide scale for their networks. This sort of resonates with the message I just landed. 5G is causing a complete change to every aspect of the communication systems that's going to get reengineered and redesigned, creating more investments in -- across the breadth of the ecosystem we serve, which is robust and dynamic. It starts with a physical layer where a new progression of higher speeds is necessitating customers to invest in complex technologies, and you start to see, at the industry level, the physical area evolves every 3 years, roughly, where base stations have to be turned over and devices change as well. But there is sustained investments in the protocol layer. We have long recognized the trend that increasing differentiation for our customers come from the protocol layer that they develop. And so they are sustaining investments for the long run for differentiation purposes, both on the wireless and on the wireline. And then as 5G gets deployed, we see a new opportunity for continued progression on the value dimension and the application layer emerging. This involves rearchitecting today's cloud platforms with micro services, as an example. Security infrastructure will have to get completely redesigned as well. Not to mention, the applications of today that have to get refactored. So again, I go back to the team I started with, early days, investment ramp building in the ecosystem will continue for at least 3 to 5 years and beyond. So how are we as Keysight positioned? I'd say we're uniquely positioned, given our strength in physical layer to enable our customers' physical layer flow and our expansion into the protocol layer is going very well. It's a big part of how we're winning in 5G through the acquisitions that we have made, Anite, AT4, Ixia and PRISMA, we have the largest portfolio of assets in the protocol layer, which gives us a strategic advantage in this marketplace. And as 5G evolves, we see this greenfield space opportunity to continually move our value for our customers. Today, I'll share with you a powerful example of this when I continue my presentation. So what have we done so far in 5G? We have built the industry's most comprehensive, most feature-rich 5G platform that exists. This is a complex picture by design because it's taken us 4,000 man years of effort to build this industry-leading technology stack. It's not about how beautiful the site looks, I think it's very beautiful. But it's about what it enables our customers to do, which is it enables us to deploy solutions at a rapid rate for our customers. Let me go into the -- a little bit about the details of this technology stack. It starts with the physical layer where we can seamlessly migrate our customers between sub-6 gigahertz to millimeter wave, new bands are being added, no problem. We continually evolve them because we've designed this ground up for the life cycle value creation in the technology. As you go higher on the protocol layer, our differentiation continues to increase, and our value potential continues to increase. We support SA, NSA versions of 5G. DSS, we just announced a couple of collaborations recently with Qualcomm and Samsung on DSS, which is a technology to reform spectrum -- 4G spectrum for 5G use cases. We support R&D and manufacturing, grounds up, and we're extending it into operations. Our customers have taken our platform and have embedded their automation tools on top of them to realize even greater productivity. And for us, that's much more of a stickier relationship with our customers. If you take away one thing from this slide, you can see the sheer sort of focus on software in our platform. This creates a runway for improved margins for our business and especially the recurring revenue potential as well. Our customers, over 375 and counting, have today embraced this platform, and they continue to get a lot of value from them. And our interactions with them is very agile. We interact with our customers 2 to 3 times a week given how our relationship has evolved in this technology. This is the reason why we're winning in 5G today. And I believe this is the reason why we'll be -- continue to be differentiated as the life cycle progresses. Our value proposition in 5G is compelling. It may start with our products or technology, but I think it's the work that we have done very early on to enable an ecosystem of customers to be successful. That's the foundation of our differentiation. We do not wait for the standards to be completed, we enable the standards to be completed. Over 900 standards contributions to 3GPP. Over 100 trials that we participated in, all those learnings give us institutional learning and expertise that we're going to monetize over the life cycle. Out in the hall today, you will see some examples of the designs that we've enabled. But over 75% of the designs in 5G, both smart devices, other form factor devices, drones, virtual reality headsets, base stations are currently, we estimate enabled by Keysight's technology. We offer our customers a compelling advantage from a time-to-market perspective that creates a rich relationship for us. So what about the future? We are well positioned for the future. We're executing right now on multiyear industry roadmaps, working with our customers and the industry, and our customers continue to endorse this. We have received over 50 customer endorsements in the last -- within the last 12 months. Now I'll switch over and share 3 powerful examples of our differentiation. The first example is how we've enabled an ecosystem. In Japan, a lead operator was faced with the challenge of embracing a new technology, 5G, very challenging timelines with the Olympics looming, and they had to do -- they had to put in a new frequency band, 3.5 gigahertz. So the trifecta of challenges for this customer. They then went ahead and formed an ecosystem of partners, chipset companies, device makers and network equipment manufacturers to enable that. They selected Keysight as their partner given our early lead in 5G. And this relationship is something we're very proud of, sustained it over 3 years, made significant contributions to enable that deployment. What our customers have told us is, the work they have done with us, with our team, has significantly derisked their launch, but also giving them greater confidence in the performance they can expect in the real-world based on the work they do with us in the lab, validates our value proposition. Not only have we gained tens of millions of dollars in Japan from the work that we have done, but we also continue to see our customer interest in adopting millimeter wave just getting started. So we see a good potential for continued engagement in Japan. The second example, so I know some of our investors are very interested to hear our manufacturing strategy. So this is an example of our manufacturing playbook at play. We're really redefining 5G manufacturing. A lead network equipment manufacturer around the world. I was looking at a very daunting challenge. In the baseline scenario, 5G represented significant improvement -- significant increase -- exponential increase, I should say, of test times for their product. And that was not sustainable for the economies that they needed to -- that they needed for their business. And in the -- as a first point, the new spectrum that they had in 5G, they had to account for that, more bands coming down the road, millimeter wave capabilities, more complexity, and then their use of phase array significantly increased the number of test points that they had to test. So what did we do? We designed a modular transceiver that enabled them to scale for the needs of today, but also gave them a pathway of expansion, just enough performance, focus on speed of test, which is important for this application. Not only that we disaggregated our measurement IP from the cloud, and we have embedded our measurement IP inside of their cloud infrastructure. This gave them another order of magnitude improvement and set us up for a software-based business model in a manufacturing opportunity. So again, we've transformed the way we think about this. And this is not an isolated case. In this particular case with the customer, we secured also a multiyear commitment from them to continue to work with us, as their deployments increase, we'll be well positioned. But over the last quarter, I also spoke about this on the earnings call, we have secured a substantial win in components, which are just ramping. We continue to believe there is increasing complexity in components that will drive more of the test needs with 5G, and we're well positioned there. With millimeter wave, many of the devices out there are tested even in production with Keysight's platform based on this modular architecture. So we're well positioned as the lifecycle -- to transition our customers through their lifecycle journey and as manufacturing opportunity emerges. The third example is something that is an example of speed and culture. I know Ingrid spoke a lot about the culture of the company. Hopefully, this paints the picture. We've launched the industry's only 5G security test bed so far. So why did we do this? It's very clear if you've read the Wall Street Journal or Forbes Magazine, there's considerable concerns around security in the context of 5G. And the concerns are coming from having billions of devices potentially on the network creating increased security vulnerabilities. So we took our Ixia security toolkit, and we connected it to our 5G stack, essentially. And the toolkit gives them -- gives our customers ability to simulate different security vulnerabilities. And our 5G stack allows them to emulate how a 5G device and base stations would behave if they're under attack in this scenario. Our ability to prototype these real-world scenarios in the lab is very unique. We are the only solution that's out there today that enables customers. It took us 3 months and 2 weeks for the teams to get together to do this, demonstrating the speed. And I'm very happy to report within 2 weeks of launching the solution, we've secured our first win, first order from a major Ministry of Defense organization. We continue to partner in this manner and innovate to the future. So you heard from me 3 examples of our differentiation. Our differentiation for the leader -- for -- in the ecosystem. Second, our ability -- our strategy to win in manufacturing. And third is a new emerging greenfield space area, such as in security, we're continuing to innovate. We see this runway in 5G, we're really excited about. We see significant opportunities as the headline with 5G, and we're well positioned to win. With this technology, we'll see increasing complexity as standards roll from '15 to '16 to '17. Even though the standards work is completed on '15, right now, as deployments are occurring, as you probably heard about the Swiss operator, there's considerable challenges that are coming back, requiring even more innovation in R&D. We see the vertical use cases expanding. I know Soon Chai will speak more about auto, which is an exciting opportunity, but there are others with enterprise networks and the industrial IoT applications. All of this in aggregate will result in increasing the number of customers for our 5G platform from 375 to well over 1,000. So we see this runway building. Some of the drivers that our investors may appreciate is, we believe, from an R&D perspective, there is sustaining spend for the long run for differentiation, and we're on the front end of this. And you can see some independent reports from ANSYS in this case, also confirming our hypothesis here. Second, as deployments scale, we'll see opportunities for conformance, validation, manufacturing and operations. Operations, part of the opportunity, is enabled by our Ixia's capabilities, especially visibilities offerings. And then there's a multi-industry proliferation, which is an additional opportunity we're on the front end of. So you heard a lot, but let me summarize. It's early days in 5G, significant opportunities that we see, and we're well positioned to win our differentiation in the space is increasing as the life cycle is growing, and we're investing to continue to win in this opportunity. Let me now move over and speak about the second growth opportunity around our aerospace and defense modernization efforts. Digital transformation, again, is changing the landscape across the aerospace and defense industry, which was a traditional industry that innovated in decade-long cycles. If you looked at the latest U.S. National Defense Strategy document that's in public domain, you will see that the customers are -- I mean, there's a renewed interest to accelerate innovation in this space. There's 4 key areas in the defense modernization trend that we're focused on. Electromagnetic spectrum operations, I'll cover the big inflections in each one of them, and I have a video that sort of brings it all together. Today's modern defense security systems rely on robust communication links between assets on the ground space, air, et cetera. If one of those links, especially the GPS links are compromised, then you could basically render your security systems defunct. So there's increased emphasis on testing that's building the lab. And this is an opportunity we have been working on for the last 5 years, we feel very good about. And I have a video that will sort of bring it home. In space and satellite, there's renewed interest building in the industry, driven by the search for the new high ground and privatization of space. We've offered life cycle solutions to this industry. With the scale increasing, we continue to be well positioned. In general, across communications and research, there's increase in spend in the USDOD and other nations of the world in new materials, in embracing commercial technologies, such as 5G, which we view as very favorable. For example, the U.S. RDT&E line item is currently proposed to be at the all-time high of over $100 billion. With that, let's play the video, and which will make... [Presentation]

As you can see, we are very excited about the progress we're making in our aerospace and defense business with modernization as a trend that will play out for the long term. This opportunity started off as an instrumentation opportunity 5 years ago. We have since evolved this to this complex system integration sale that you see right here with software content and additional services that are bundled in. We're currently designed in and selected by the USDOD in many of the labs, and we continue to make good progress with our efforts internationally. Next, I'll switch over to speak about an exciting opportunity in quantum computing. Many nations around the world are spending billions of dollars to apply quantum physics to solve modern challenges in security, computation and connectivity or communication. For those of you who want a crash course on quantum physics or on quantum computing, you have 2 choices today. One, you can enroll in a program at MIT, week-long program, really in-depth that talks about quantum computing or I may have an easier alternative for you, which is watch Big Bang Theory, the comedy series and look for the episode, Schrödinger's cat, I repeat, Schrödinger's cat. And you may get a crash course and -- well ahead in understanding this opportunity. At the summary, today's best supercomputing technology does not provide scale needed for some of the breakthroughs in several key applications. AI, machine learning, with Big Data as a big driver there, or in encryption and threat simulations and logistics or in drug discovery fields. Quantum, to be perfectly honest, is -- has the potential, but today's technology of quantum is fairly primitive in its uses. And so there's considerable effort in engineering breakthroughs that have to happen over the next decade to provide commercial scale so that the technology can provide these exponential parallel computing capabilities. We've been working with several [ read ] researchers for the last 3 to 4 years in this field to enable success here. And it turns out quantum computers, at its core, have something called qubits, which is the fundamental information element. And to control these qubits, you need high-precision RF or light sources. And Keysight's high-precision instrumentation are a perfect fit for this opportunity. Today, very excited to announce the 3-year partnership that we've had with MIT in public domain to advance innovation. This is a picture that's taken in MIT's quantum lab. And you can see a lot of Keysight content in here. Ron referenced earlier, the first acquisition that we made in lab or quantum, in this space, which really positions us not only for the opportunities we see today, but also to enable customers to solve more software opportunities that are building up in the quantum stack. We're very excited by the possibilities that quantum offers despite the challenges that exist for the technology. And here, we've taken a very early position, which sets us up very nicely for this long-term opportunity. So I covered 3 parts of the strategy: 5G and how we're maximizing life cycle value, our acceleration of defense modernization solutions and a new exciting opportunity we're seeding in quantum technology. To bring it all together, we're well positioned in attractive growing end markets. Our market size today, in CSG, is $12.7 billion and growing, and we only have 25% share. We see strong drivers of sustainable investments in both commercial communications end markets and in aerospace defense end markets driven by 5G and defense modernization efforts that are happening. Digital transformation is further accelerating our customers' investments in technology, one we are well positioned to deliver. Our software-centric solution strategy that Ron and Jay spoke about, position us very well to capture and maximize the potential from this marketplace. So here is what you can expect more of from CSG and Keysight as we look ahead. We're investing to expand our market position and leadership. We'll continue to accelerate our portfolio transformation to enable our customer success. We're increasing the software contributions and services adds that we can add to create greater value and enable our customer success again. And finally, our differentiation in this marketplace is increasing. There has never been a more exciting time to be at Keysight as today, and we're very excited to share with you all the progress we're making in our end markets. But equally important, the huge runway we see in -- building in the marketplace for our solutions. Thank you very much. And with that, I'll hand it off to Jason Kary.

Well, thank you, Satish. And with that, I'd like to invite Ron, Neil, Ingrid, Jay and Satish back up to the platform here for a Q&A session. I know we've given you a lot of very dense content in a short period of time, but we'll open it up now for an opportunity for a bit of Q&A, once we get people settled up here. So you want to go ahead? Keep it good.

Yes. That's okay. I'll just stand.

Okay. Sounds good. So Tim? Yes, go ahead.

Tim Long at Barclays. Just wanted to hit on a two-parter on the recurring revenues, and you can lump software in there. Obviously, it's been a -- impressive move over the years. Number one, could you talk a little bit about kind of push pull? Obviously, this is a directive for the company, but can you talk a little bit about how the customers feel and their appetite for this? And then secondly, can you talk about some of the economic benefits here? Margins, I'm assuming they're better. What does it mean for retention rates and market share? And then third, there -- what does it mean for kind of cyclicality of some of your businesses, let's say, for 5G or so with this move to this -- more of this recurring model, smooth some of the typical cyclicality that you've had in parts of your business?

Sure. I'll mention a couple of things, and then I'll turn it over to Neil. First, with regard to recurring revenue, we were worried at first when we moved from what we call perpetual software licenses where someone pays for it upfront, and we recognize the revenue in conjunction with the orders, and we have moved, obviously, to a more of a subscription service. We're not completely there. We're continuing to migrate customers over to the recurring revenue model, but we have not found a lot of pushback at all on that. Another area, which ties to that is our services area where we've moved to for-pay support. And most industries already do this, and you see very high percentages of revenue that people realize because of their support environment. We were giving it away for free for 75 years, and it just doesn't make sense. We can't staff it properly, and we can't get the recurring revenue. So we were also concerned about moving to what we call Keysight Care, which is a contract that people can buy for 1 year or 3 years to buy in free support or buy in support and pay for it. So that one, we also expected more pushback. But both of them have gone very well from a customer perspective, and it hasn't been an issue. As far as software margins, obviously, it's close to 95%. Depends how much support there is, you take support, it's -- if you put the support cost in your overall cost of sales as opposed to putting them down in the G&A line, like you do on other R&D, positioning it up there. We're seeing 85% margins. And you can see our overall gross margin hit an all-time high where when we started the company, it was in the 56%, 57% range, and now we're at 65%. So you can see how that's going to continue to drive our margins. It's also going to -- it's going to take out a lot of the cyclicality, and you can just do the math. And looking at our 19% of revenue, you can take a look at how much of that's going to be spread over the year and effectively linearize. And that base will continue to build as our order backlog continues to build, and the amount of recurring revenue continues to go up.

The only thing I would add is, I do see it as a big opportunity for us going forward to further expand our recurring revenues. We have about 30% of our revenue today coming from software and services. But our software sales today are still have -- reasonably heavily weighted towards perpetual or onetime sales. We're on a multiyear path to migrate our customers to the point where they're buying software from Keysight on a time base or a subscription basis. And as he -- as Ron has indicated, we're -- that's the industry standard at this point in time. And so we're comfortable that over -- it's not going to happen instantaneously, but over the next several years, we'll be able to migrate our customers in that direction.

Yes. And you can look at our support revenue and see what's happening there, and you could look at our software revenue and our -- in both of those together, you can see our recurring revenue, let's just say, growth rate and do a calculation.

Great. Thank you. Brandon, behind you, Jim.

It's Jim Suva from Citigroup. While I often talk about Keysight as being an agnostic way to play the 5G cycle, the biggest pushback I always get is, when is it going to peak? And people feel like there's a big peak coming or cliff coming. And a lot of your presentations have talked about kind of more communication devices and things like that. For the investors in the room and the webcast, can you talk about how you're viewing this concern or this elephant in the room about a peak, and the -- what's different about 5G that wasn't with 4G, 3G, 2G, LTE?

Sure. First thing I'll say before I'll let Satish say a couple of words is, we're far from the peak. When we were in 4G, we played mostly in manufacturing, which is a more lumpy, lumpy business. Now what we're doing is playing in R&D, which is much more steady state, even when someone's done with design A for 5G, the engineers don't sit around on their hands, whether it's Samsung or Nokia or Ericsson or any one of our other customers, they get put on to the next generation. So the R&D investment does continue. If it does move eventually to 6G, we will be there. As far as manufacturing, we're looking at the value-added manufacturing. So there's a lot of value-added manufacturing, for instance, in components. We're continuing to do that. Not so much in handsets. Handsets, there isn't much value-add because all the subassemblies are tested, and we're involved in that for a lot of the players. Until you move to a base station, where if you have one cell phone that goes out, one person is upset. If you have a base station go out, you could have this whole building pretty irate. So the testing that goes on for base stations is an order of magnitude higher, it requires higher end equipment, much more robust and stable, and that's where we are very, very strong in that area.

Yes. Thanks, Ron. I think you covered it. And Jim, you're right. Keysight is the agnostic way to play 5G. We think so too. So thanks for highlighting that. I'll just say 2 things. On the life cycle front, we cover more -- substantially more than we have covered in 4G. I spoke about all the different phases and that we participate in, including operations that are yet to come. But as 5G evolves, this whole application layer opportunity continues to play out. So that's why we think that when we look at the horizon, given our portfolio, our contributions to both wireless and wireline we're very strong, and we see this 3- to 5-year, at least, runway that we're excited about.

And network test and network visibility, which is back in the operations phase on the wireline side. So we didn't even have those businesses. We acquired those from Ixia, and those haven't even really started to ramp. We've seen the 100-gig build-out, but we're really at the beginning of 400 gig.

Great. Thanks, Ron, Satish. Nicole, right over to Rick. Sorry, we'll come back to you. Yes, Rick?

Rick Eastman at Baird. Just a question maybe for Jay. Is there -- are there examples as PathWave has gained -- I'm assuming this is sold by seats, or is it a license sale? But have you seen customers scale up the applications that they use PathWave for? In other words, if we get a seat of PathWave deployed, has the revenue generated by that seat continued to increase?

I think it's too early still to be able to say that with definitiveness. But I would say that, that's very much what we expect because what happens is we get in there with the first application that the platform delivers, and the platform is still a moving effort that's adding more and more capabilities, as I had described. And it is going to be sticky for those customers, so that successive re-ups, all of the PathWave elements will be subscription based. They will never have perpetual terms available. And so as they re-up, it will become a richer set of solutions that they're subscribing to.

But I think what you're getting at, Rick, it's not built into your model yet, if that's built into looking at our past orders and what's seen. It's just starting to ramp. We spent the first years building the overall architecture for PathWave, so you could have common data and common visibility regardless of any application. And that was a complete rewrite that we had to do to create that overall framework. That's been done. And now the applications are coming. So we're in the first inning of that. The architecture is in the ninth inning, but the actual revenue build-out's in the first inning.

And then can you also provide just a little bit of color around the Service business. Obviously, Keysight customer care. I mean, you're now selling kind of an attachment rate on the Service side. Has that boosted margins on the Service side? Or maybe you could just throw some color on how much they've [ improved ].

Sure. I'll just say a couple of things. First of all, we're going to cover Service right after the break, okay? And at that point, John is going to go into this, and then we're going to have another Q&A session. So we'll hold on that. But I'll just say that we've seen margin expansion in Services. Services is lower than software and hardware in general, but some of the pieces that we're adding like Keysight Care, are really boosting our Services margin, which takes our weighted average up.

All right. We'll take one more over here.

This is Nick Heisler speaking for Mehdi Hosseini at Susquehanna. So first, just on the long-term guide, that 4% to 6%, does that imply just organic growth or organic and/or inorganic? And then I have a follow-up about 5G.

It's an organic growth rate, and it's an organic growth rate for the long term. So we've seen markets move along at different rates. We took that from a lower rate before. We increased it 50 basis points earlier, and we just increased it another 50 basis points. But you can compound that out, and we're pretty confident in that because our share gains have been very steady now for 5 years.

Perfect. And then just on 5G, it's kind of a twofold question. One is, is there a specific component of that -- of the 5G test solutions suite that provides the most revenue opportunity? And then on top of that, what percentage of your customers are buying the entire suite, like through -- from R&D through optimization?

You want to answer?

Yes, I'll take that Ron.

Yes. Sure.

I think the second one is easy. I'd say operational opportunities are still very early. So we're partnering at this point to figure that out. I would say, bulk of the investments right now are in R&D, which we think will sustain longer and for the long run. Manufacturing is just starting to kick in, if you look at the total spend. But if you look at the consistency of customers, we see a large fraction of those 375 customers that we have built over the last 4 years, continuing to be engaged with us on opportunities that lead to orders today, but lead to funnel growth for the future. So we feel good about that visibility. And new customer adds that Mark will talk about, Mark Wallace, in terms of our ability to reach more. The endorsements we are getting from our current customers, position us very well to attract the next set of customers. Because people want to work with an industry leader that simplifies their life.

And we've held back on some of them, obviously, we've only announced about 50 so far.

That's right.

But we have much more than that, as Satish just mentioned.

Okay. We got time for a couple more. Yes, on this side of the room.

It's David Ridley-Lane with BofA. When you look at the third-party software that your clients are using in addition to PathWave, have their possible assets that would be stronger as part of Keysight than independent of it? And would you be -- do you consider software?

Sure. There are some other good assets. We've been very careful to make sure that we have an open platform, so you can plug in the -- you can plug in the software into the PathWave framework. And PathWave will sit at the highest level in your overall software architecture. So whether you're using a LabVIEW product or some other products, or MATLAB, you'll be able to work or use those in conjunction. As far as having them as part of Keysight, there are certain products, and I won't go into which ones, would be great to have, but we're very ROIC conscious. So we're looking at those assets, but we're not going to go ahead and spend a lot of money. You know the multiples, obviously, on software and what's there. There are some that will make sense and that we are pursuing. We've looked at over 300 different acquisitions. We've done 10 because we're very selective. But again, we're not going to do it unless we can really make sure ROIC is above our WACC.

Great. Any others? One more? Okay. Brian?

Brian Yun from Deutsche Bank. Can you expand on the operations life cycle opportunity for you guys? And if you could put that in the context of other life cycle stages, so for example, in R&D, you have possibly the highest pricing power, maybe the highest rate of growth and a long tail of R&D spend to follow that. And then as you move towards production and manufacturing, maybe see a little bit of headwinds -- modest headwinds to margins. So how does operations kind of play there?

So yes, thank you. Clearly, operations is new evolving opportunities to be seen. However, some of the wins that we've had, they're small right now, but they are mostly in the value-added spaces such as analytics. For example, we have a solution for drive test for 5G that's adopted by a few operators already because they're trying to see how the 5G network behaves relative to the 4G network. So that's an example where we're providing them not only those tools, but also giving them more analytics to assess the data that's been collected. And as 5G evolves, with wireless and wireline coming together, we see this convergence in the architecture of the network. So there's a single core network with multiple accesses, both on RF and fiber, if you think of it as examples. And this is creating a complete redesign, which we're currently engaging with customers. And this is mostly a value-added space. It's not just deployment as in, climb up the tower and check if the RF is on. But this is more of a value-added space opportunities where we expect the margins to be high.

Any other comments? Ron?

No.

Okay, great. Well, I know you've been very patient with us here. So let's take a short 10-minute break, and let's come back at about 2 or 3 minutes after the top of the hour, and we'll get started with the second half of the day. [Break]

All right. We're going to get started in about a minute or 2. So this is your minute warning. So you can grab your drink, your coffee and come back to your seats. All right. We're going to get started here in just a moment. So if anyone who's out in the lobby could make their way in. We'll get started here, shortly. All right. Well, certainly been a insightful morning and interesting morning from my perspective. It's been great to hear from the management team in the first half of the morning. In the second half, as I mentioned, we're going to hear from Soon Chai as well as John Page, Marie Hattar, Mark Wallace as well as Neil Dougherty, our CFO. And so I'd like to start off the second half by introducing the President of our Electronic Industrial Solutions Group, who is also responsible for Keysight's overall supply chain operations as well as our IT operations, Mr. Gooi Soon Chai.

Thank you, Jason. Good morning, everyone. It's a great pleasure for me to be here with you today. My name is Gooi Soon Chai, and I'm the President of Electronic Industrial Solutions Group within Keysight. Let me provide a brief introduction of myself. I have well over 30 years' experience in the technology industry, spanning from semiconductor, life science to test and measurement, both in business and operational role. And I'm privileged to be at the forefront of many technology transformation. Currently, I'm based in Asia with team located in multiple geographies around the world. Let me now start off with a summary of the key message that I'll be touching on today. Since we were here 2 years ago, we have built a strong foundation for a sustainable and profitable growth. We have successfully executed and we will continue to drive our strategy to capture key technology inflection point in high-value automotive and emerging IoT application. We will also be capitalizing on our technology leadership to win in a next-generation semiconductor opportunities. I will speak specifically about the investment we are making to win in each of this area. In addition, we are helping our customers to advance their innovation process through our differentiated solution and our global skill. This strong customer engagement, coupled with our technology leadership, position us well to win and grow in our market. Let me now provide an overview of Electronic Industrial Solutions Group, or EISG in short. EISG addressed a $4.8 billion market, which comprises 3 major segments: general electronic, which encompass electronic manufacturers and academia; semiconductor, where our focus is around wafer foundries and semi equipment manufacturers; and automotive, which we focus on automotive OEM and component suppliers. As you can see from the graph, we have been making solid progress over the years. Since the inception of EISG in 2016, we have been growing steadily every single year while improving our operating margin. In fiscal year 2019, our revenue grew by 6% while our operating margin improved by 300 basis points. This results are the outcome of us embarking on the correct strategy and also successfully delivering to our commitment. During our last Investor Day in 2018, we declared our intent to capture major opportunity in high-value automotive, emerging IoT application and next-generation semiconductor technology. We also speak of realigning our resources and investment to deliver a solution that is focusing on customer needs and customer outcome. Well, over the span of 2 years, we have broadened our solution portfolio for automotive and IoT application. We also have extended our solution into high-power application through our acquisition of Scienlab. Today, we have 88 differentiated solutions to support autonomous and electric vehicle. On the semiconductor front, we also have made great headways, working with leading-edge foundries and semi equipment manufacturer to advance the next-generation process nodes. All this are done in conjunction with our relentless focus on operational excellence. The net result, our revenue grew 11% CAGR, our operating margin improved by 340 basis points over the course of 2 years, with our high-value automotive segment growing at a faster rate of 18% CAGR. We also have added more than 600 new customers into our installed base. Moving forward, we do see 3 major technology trends that will drive our business. Firstly, the proliferation of IoT devices will continue to grow exponentially. In fact, even as we speak now, 127 new devices will be connected to the Internet every second. By 2030, 50 billion devices will be connected, and this will dramatically change the way we work, we play and the way we socialize. Secondly, the automotive industry is currently in transition, undergoing a major transformation, moving from a fossil fuel mechanical-based industry moving towards a new e-mobility transportation model. Electronic content will account for more than 50% of a car cost by 2030, 70% of vehicles will be connected, and by 2040, 0.5 billion electric vehicles are expected to be on the road. And thirdly, to support this massive computational power and immense data volume generated by the growing connected devices, chipset design will become more and more complex, smaller footprint, high density, more power-efficient with multi-function capabilities. This technology wave will create a new world of complex and dynamic connected devices, a new world of mobility with smarter and cleaner vehicle, all enabled by increasingly sophisticated chipset. And Keysight is well positioned to address the complexity and challenges of these technology risks. The premise of our strategy is to pivot towards capturing opportunities in this key technology inflection points, and we focus on 3 major pillars: firstly, we are accelerating our investment to grow in a connected device ecosystem, focusing on emerging IoT application; secondly, we are working with technology leader to push the boundaries of chipset architecture and fabrication process; and thirdly, we are driving innovation in a new next-generation automotive world. All this are built upon the foundation of operational excellence, which is a key hallmark of our KLM, Keysight Leadership Model. This strategy are the continuation and the reinforcement of the journey that we have undertaken 2 years ago. Let me now talk specifically about each of this strategy, starting with how we are advancing innovation in the IoT ecosystem. With the rapid evolution of the connected world and IoT application, products are becoming more sophisticated and dynamic. Devices not only need to function individually, but also need to interact with other devices and also with the environment. This complex and dynamic ecosystem are enabled by what we term as the 5 Cs of IoT: connectivity, to ensure the seamless and robust connection with a diversity of communication technology; compliance, ability to work and conform with different global regulatory standards; coexistence, which is to ensure that devices can work harmoniously together; continuity, ensuring the integrity, the safety and the longevity of the IoT devices; and cybersecurity, which is all about fortifying the overall IoT ecosystem. These are the core element that make IoT, the interaction of things, rather than the interference of things. And to support this 5C IoT, we have a full suite of solutions. Solutions ranging from IoT, wireless communication test, high-speed digital connectivity solution, coexistent compliant testing, battery optimizers, 2 IoT security penetration tests. These are solutions that span multiple technology domain from wireless communication to high-speed digital, from power to cybersecurity. In fact, we help to enable innovation in multitudes of IoT application. In this new connected world, the perfusion of IoT devices is pushing the envelope of chipset design and fabrication process, and we are supporting this by enabling the 2 vectors of semiconductor technology advancement. The first vector is per Moore's Law. And this is about device scaling and miniaturization. It's about packing more and more transistors into ever smaller and smaller devices. The second vector is what the industry term as More than Moore's. And it is about functional diversification, combining analog and digital function within an IC package. These are technology advancement, driven by the deployment of 5G, high-performance computing and IoT application. We enable this technology vector through a combination of our design verification solution, our nano positioning tool that's used in lithographic process, parametric testing and on-wafer test solution. In fact, we are currently working with technology leaders on the next-generation process node and new More than Moore's devices such as silicon photonics and millimeter wave IC. Essentially, our solution helped address increasing complexity of wafer fabrication. Now let me talk about one of the biggest Internet of Things, the automobile. This is an exciting market, which is currently in transition. The auto market that we serve can be categorized into 3 subsegments: firstly, EV segment consisting of battery development, cell manufacturing and charging infrastructure; the second segment relates to the development of autonomous vehicle in areas such as advanced driver assist system, radar technology and vehicles communication; and thirdly, electronic manufacturing, which encompass the production of electronic modules and component that goes into cars. At this point, I would say that the overall automotive market is in a depressed state due to the drop in global car sales and also the ongoing transformation that's happening across the whole automotive value chain. However, investments are still ongoing in the development of autonomous and electric vehicle, and this really play into our area of strength. We believe there's a long runway ahead for us. And the speed of the market transformation will be driven by 3 key factors. The first factor is the pace of new technology that we incorporated into the car of future. Take new technologies such as sensor fusion, AI, computational and communicational capabilities. The second factor pertains to the establishment of infrastructure and supply chain to support the new e-mobility model. Key to this will be the deployment of 5G, which is critical for car-to-car and car-to-infrastructure communication, the expansion of charging infrastructure and the cost and efficiency of battery. And the third factor relates to legislature, such as laws that mandates the use of green vehicles and rules that govern autonomous mobility. And to support this evolving market, we are now laying the groundwork for the emerging mobility system. Our technology leadership in multiple domain, put us in a really truly unique position to enable this future of mobility. What you see here are the building blocks for tomorrow's car. Car of the future will be fully networked, self-driving and electric powered. We enable this building block through our 88 differentiated solutions, solutions that span multiple technology domain from C-V2X, which is cellular vehicles to everything communication solution, from radar to battery test solution, from ECU testing to automotive cybersecurity. These are differentiated solutions. They are leveraging from 80 years of measurement expertise, leveraging from our leadership in wireless communication, especially in 5G as what you heard from Satish, our capabilities in aerospace and defense for radar technology and leveraging from our expertise in high power and network expertise in -- from our Ixia and Scienlab acquisition. Effectively, we are bringing together an end-to-end solution to support the building block for the car of the future, comprehensive solution to help make tomorrow's car a reality. Let me now illustrate examples of our battery test solution for EV development. Battery will represent the single biggest cost component of electric vehicle. And this battery system will need to be optimized and ensure safety and efficiency. Our battery test solutions are used in the development and manufacturing of battery cell and power management system. We also have solutions for EV charging, it operated between cars and grid. And most recently, we launched our PathWave lab operation, which is a software tool to manage workflow in a development lab. Our customer ranges from battery developers, cell manufacturers, charging infrastructure makers all the way to automotive OEM. And what you see here are some of the value and validation that we have delivered to our customers. Another dimension of our strategy is around strong customer engagement, and we are doing this by being fully entrenched in every major automotive ecosystem around the world, doing this through our automotive customer innovation center in Detroit, U.S.; Stuttgart, Germany; Shanghai, China; and Nagoya, Japan. The intent is to bring our measurement expertise closer to our customer ecosystem and value chain. Now at this point, I would like to play a short video highlighting how we are driving innovation in the new automotive world. [Presentation]

This truly is exciting edge of mobility. So in summary, we have built a strong foundation that's delivered solid results both in revenue growth and operating margin expansion. The market we serve is currently at an inflection point. And Keysight is poised to capture opportunity in this space. The breadth of our solution, our deep technology domain, our global skill, coupled with our focus on operational excellence, put us in a great position to win and accelerate growth. So thank you. And with that, let me now hand over to John Page, who is the President of our Keysight Global Services. John.

So hello, I'm John Page. I'm the President of Keysight Global Services. When we were here 2 years ago at our last Investor Day, services was the one growth initiative that was not performing the way we knew it could. And shortly before that day, Ron asked me to take over and run that group and gave me the charter to fix that. So I'm very pleased to be here with you today to share with you the dramatic progress we've made in our services business over the last couple of years. So the things I want you to remember are first off, we fundamentally changed our growth algorithm. After not growing for multiple years in the last 2 years, we have grown substantially. We're on target to do $600 million in orders this year. That's an almost 50% organic growth over the last 2 years. Second, services is not an add-on. It is a fundamental and key component of our overall strategy towards software-centric solutions. By taking services, by wrapping them around our solutions, we extend outcomes to our customer and improve their experience. Third, we do this by creating new first-to-market differentiated services that complement those solutions. And when you put all this together, we're very well positioned to continue positive organic growth going forward. So let's just give you a quick snapshot of what our services business looks like. First off, we're a global organization, and we have operations both on our customer sites and off in over 20 different countries around the world. And those folks are focused on delivering an entire portfolio of services to our customers to help them achieve better outcomes. We're growing dramatically in the last 2 years, we've been growing double digits on both our revenue and our orders line. A lot of that growth is coming from new services that we're attaching up front when we sell our initial products and solutions. So before we look forward, let's look backwards a little bit at what we said we would do in our last Investor Day and see how we did. First off, we said we'd fix the growth thing. We take the business to $600 million. We will do $600 million in orders this year, much of that through new services, as I said. And those new services, the attach upfront, are building multiyear agreements. So they're building recurring revenue into the future. So with hitting $600 million in services and a lot of that growth being in recurring revenue, we're well on track to go past the $600 million business mark that we talked about. We also talked about growing our profitability and our margins. Well, those new services don't just grow our top line, they also are higher-margin services than our installed base. So they're adding to our gross margin, expanding our gross margin for our services business. We also talked about adding a number of new services, Ron mentioned premium technical support, and we talked about a number of new services we'd be adding around helping our customers achieve their desired outcomes. We've done all that, but I'll save that because we'll talk more about that a little bit later in the presentation. So let's first give you a little context before we dive into this. Historically, as Ron had mentioned upfront, we were a hardware product company back in the day. And my group was a hardware product support group. Now you've heard from all the other presenters that have come up here, we've successfully shifted. We're now a software-centric solutions company. And that changes everything, including our services business and what they're looking for from our services organization. So we have to do more. We have to climb that maturity curve, which means we need to move up. We need to offer premium technical support that's better than what we've done before to help our customers get to market faster. We need to give them a digital end-to-end experience, so that they have a simplified experience, and they can focus on their products, not on dealing with ours. And we need to be the trusted adviser to our customers. Working with the solutions teams in Soon Chai's and Satish's area, we need to create services that complement those solutions and lend us to be that trusted adviser, that measurement expert that helps them get their stuff to market faster. So we won't focus on the first level, but we'll walk through each of the next 3 levels very quickly. And then we'll talk about a customer example that hopefully will illustrate it and bring it all together for you. So in our new world, our technical support is not -- our old technical support was not where it really needed to be. So what we needed to do is offer a higher level of support. We needed to do it faster. We needed to make it more integrated. Solutions and the shift to solutions really is increasing complication. Solutions are made of multiple pieces of hardware, multiple pieces of software, all working together. So in order to support that, we needed to have better, more integrated and faster customer support. Our answer to that was Keysight Care, which we launched about a year ago. It offers 3 levels of premium technical support for our customers to choose from, and we put an entire new back-end infrastructure to be able to deliver that higher level of support. It's off to a great start and is growing very quickly. It is a key component, but not the only component in the upfront attached services that we now add to our products. And you can see that's the fastest-growing part of our services business. Next, we are moving from reactive to proactive and increasingly predictive services and support. In order to do that, we really need to tie everything together electronically. Network them together. Our products and our solutions are very smart. Now we're tying them together and we're linking them back to a central cloud infrastructure so that we can do more. That allows us to give a simplified experience to our customer. It gives us data we never had before that allows us to enable outcomes we could never do before and creates a whole new set of capabilities for us. And last, being that trusted adviser means understanding our customers' business and understanding their market segment. You heard Satish and Soon Chai walk you through various solutions targeted at various industry segments, and we're right there with them, working hand-in-hand to create solutions and services that wrap around their solutions to help deliver ongoing customer value. So I think the best way to understand this is with an example. And this is an example, specific customer from our aerospace defense segment. They've been a customer for a long time, been a good customer. We've provided ongoing service and support for them for years. But the world is changing, their business is changing, they have new needs. They need a lower cost of test. That does not mean a lower cost of test equipment, that means a lower cost of their entire test processes. And they need to do it faster, they need to do it with higher quality. And they're looking for better utilization, not just of their test equipment, but of their personnel and of their facilities as well. So what could we do for them? Well, you got to know where you're starting and you got to be able to measure progress in order to be able to do anything successfully. So we brought in a brand new software-based unique service called PathWave Asset Advisor that allowed us to connect all their instruments together, allowed us to pull all the information to a central cloud, and that told us what instruments they had? Where they were? How they're being used? How often they were being used? Are they healthy? Increasingly, will they be healthy in the future? That gave us a starting point and a way to measure progress going forward. On top of that, we brought in a new, also unique, first of a kind, first-to-market service, based on software called system calibration. And so imagine, if you will, our customer, they've got giant area filled with all sorts of solutions. Those solutions are racks of equipment, various pieces of test equipment working together, working with software in unison and rack after rack of these things. All these things need to be calibrated every year. And so in the old world, what that would mean is taking each rack apart piece by piece, taking each piece, giving it to us, having us calibrate it, having us hand it back to them, having them reassemble it, recable it, re-put in the software and hope it works the way it worked before. Well, in the new world, what we do is we take a half rack of equipment and our proprietary software, we roll it down the aisle, we plug it into each solution, and we treat the solution like it's one unit in place. And we calibrate the whole thing together. The results are dramatically different. Weeks and days of downtime go to hours and minutes of downtime and the quality goes up dramatically because you're doing this in place, the way the instruments are actually being used. So you get higher quality. So what was the net result for our customer? Well, they got dramatically better utilization of their people and equipment. They got a lower cost of overall test envelope expenses. They got better quality, and they wouldn't actually share with us the number, but they did tell us that they ran an ROI on running our services and buying our services, and it was well into the triple digits. So it was a win for our customer. What does it look like from Keysight's perspective? Well, we took a good customer and made them a great customer. We went up 3x in the total revenue. We turned that revenue into a multiyear contract of recurring revenue. We doubled our gross margins on the deal. And perhaps most importantly, we changed the whole equation in our relationship with the customer from a drop point-of-sale view into an ongoing relationship that's sticky and builds on itself. They're already talking to us about doing more of this type of thing in that same center and then expanding this across their company. So hopefully, that helps illustrate how all these different services come together and work with our solutions companies, our solutions from our other segments. And so what I want you to remember is services is growing. We're growing double digits in the last 2 years. We're a strategic part of the overall equation and delivering software-centric solutions by wrapping our services around these solutions. We provide ongoing value for our customers and open up a new recurring revenue stream for Keysight. These new offerings are only possible by doing things that other people can't, by creating new differentiated services solutions that fill and address needs from our new solutions portfolio. And then when you put all this stuff together, we are very well positioned to continue to grow our services business organically into the future. Thank you. I'll turn it over to Marie Hattar, our Chief Marketing Officer.

Good morning. I'm Marie Hattar, and I'm the Chief Marketing Officer at Keysight. I came through the acquisition of Ixia. Like many of my colleagues, I'm also an electrical engineer, so I can definitely speak geek, but I gave all my good material to Jay. So let me give -- tell you about my marketing credentials since that. I have well over 20 years of executive marketing positions. I spent 10 years at Cisco in executive marketing and then also a CMO of Check Point, a major security provider before joining Ixia. I am Keysight's first CMO, and when I was talking to Ron, he challenged me to bring in the dispersed talent that was in marketing across all the different organizations and create a centralized marketing team that would drive the company objectives. And from my perspective, this meant being much more practical and tactical in getting better brand recognition for Keysight and also in getting many more leads from my colleague, Mark, that you'll hear from. So I'm really excited to be here to talk to you about what we're doing to fuel growth at Keysight. To start off, we really transformed marketing by centralizing the great marketing talent that we had across all the different silos. We focused the team on software-centric solutions, which by now, I'm sure you've heard a lot about already, and we made sure our go-to-market was really aligned against solutions. Today, we are maximizing that impact. As part of all of this, we also harnessed our technological leadership and our world-class reputation to grow our brand. As part of our ongoing evolution in marketing, we're infusing a lot of data science and implementing many digital programs to help us grow awareness and leads for sales. This shift has enabled us to deliver significant revenue growth, but more importantly, we have done all of this while keeping the budget flat. Let me first start by talking about our marketing strategy, which is really centered on building brand and driving growth. The first prong of this is really around solution leadership and aligning all of our go-to-market behind solutions. The second facet to this is a really strong partnership with sales. We are implementing digital programs that allow us to scale as well as allow us to really grow the funnel and generate many more leads. And then the third prong of this, and this is where I do pull back from my mathematical background, is really being very data-driven, implementing a very strong scientific rigor to marketing to look at everything from an ROI centric standpoint and really focus on marketing maximization. We've really built a lot of dashboards to track our customer data extensively to look at every investment that we make and make sure we're getting the return. Sometimes, it even makes our finance guys blush at how extensive our analytics are in marketing. One key thing I wanted to talk to you about was an initiative that we built and scaled, which is Keysight World. It is our marquee event. It's an exclusive technology event where we bring in engineers and engineering management. We also bring in industry thought leaders, our customers, researchers from academia, and it's their opportunity to get together and collaborate, exchange ideas, learn the latest and greatest insights from test and measurement. It also now yields the highest number of leads out of any of our events. Now this started back in 2017 as a 1,000 engineering community event in Tokyo, we've now scaled it to 10 global locations. And in 2019, we had over 24,000 participants in this. But I'm not doing it enough justice. Let me share with you this short video to show you the type of excitement that it generates. [Presentation]

Wasn't that exciting? I sincerely hope you can join us at the next Keysight World in September, first week of September in Santa Clara, so you can participate in this and see how much learning and excitement there really is. We in marketing also support our major growth initiatives by being present at major industry events. Now what we've done with our participation at those events is that with some slight modifications, we've been able to increase our return by 10x for both the leads and also the opportunities for sales. Our focus at all of those events is very much data-driven. We're constantly evaluating them and looking at the ROI that we get from each and every one, so that we can make sure we're maximizing the company's investment in marketing. We also love -- we are marketing, so we love to do some creative things. And one such creative initiative we did was the IoT innovation challenge. And what this allowed us to do is to go out there to all of our education customers and allowed us to engage with them. And this was in partnership with Ingrid from our HR because we married our CSR principles to this. And we challenged the students to come up with IoT inventions for clean air and clean water. Now the wonderful thing about this is it allowed us to get in touch with a lot of the researchers, but also the next-generation of students that will be future customers. And then our launches that we do and our initiatives and solutions messaging really helps us position areas like Keysight Care and PathWave into great awareness and brand leadership, respectively. Now as much as we love our face-to-face events like this one, many of the things we do in marketing are also digital. So one such program that we have done is called Keysight Wave. What Keysight Wave is, is it's a 2-week, every day technical insight webcast where we bring some of the best and the brightest that we have at Keysight to share their how-tos with our customers. It's really technical education, and they get to see what's the latest and greatest in terms of equipment, but also how they can leverage their existing investment with us to maximize its utilization. It's really all about the leading edge stuff, and it actually just started yesterday. Now the great thing -- we do this every year. Last year's results alone were that we had well over 2 million video views of this, we had 85,000 registrants, we gained 3,000 new company logos, and we generated many, many leads because of this digital program. I talked about brand in the beginning and building brand equity is also very important for us, and it's supported by a strong brand purpose. We align our brand with our strategic business planning and work hand-in-hand with Jay to make sure that we're putting our messaging and our focus behind whatever we're developing for the annual plan for the year. We also connect this to our CSR principles. With the key things that we're doing there in targeted advertising and also a leading public relations program, or we actually have others write about us, we've been able to amplify our brand value. And based on the latest brand study that we did, we were able to go up from 25% to 41% in terms of our brand awareness. So our early traction in generating strong ROI for the company has led to us being #1 in unaided brand awareness, and also #1 in the number of media mentions that we get out there. So we're really outpacing all of our competition. Not just that, but also our focus on lead generation has yielded, in the last year, $143 million and what is termed marketing sourced-one opportunities. This was a plus 21% year-on-year growth. And we have added 5,000 new customers in the last 2 years to Keysight. So our strong partnership with the businesses and with sales allows us to quickly pivot on new market opportunities and provide the needed marketing support. So in summary, Keysight global marketing has transformed into a world-class marketing organization at no incremental cost to the company. We take strong ownership for order generation in conjunction with sales. And our strategic industry solutions are the foundations of how we go out there and focus on building awareness and also growing demand in our customer base. Our continuous improvement culture really focuses at looking at the ROI for every investment that we make, so that we can optimize the marketing mix and accelerate company growth. So with that, I'd like to introduce you to my partner in Crime, Mark Wallace, who is our SVP of Global Sales.

Thank you, Marie. Good morning, everyone. It's still morning. Thank you for being here. My name is Mark Wallace. And as the Head of Sales, I am thrilled to be here today to give you this update on Keysight global sales. So for those of you who I have not met before by way of introduction, I started my career with this company in 1985 as an electrical engineer. But I've spent the majority of the last 35 years, more than 31 of them, in sales, in direct sales, in managing indirect channels and across a wide variety of sales leadership roles, okay? So with that, let's get started and begin with 4 themes about Keysight's global sales. But I really take us back 2 years ago, to this room, to the last Investor Day, when I announced a bold initiative to double the number of front-line sellers across the organization without increasing our sales cost envelope. And as Ron mentioned in the opening, we are on schedule and on plan to achieving that objective. And since we began this program a little more than 3 years ago, we've increased the total number of front-line sellers by 60%, 6-0 percent, and we've actually reduced our cost per order dollar, right? So we've increased selling capacity, and we've improved sales productivity. And as a result of that, we have delivered on every commitment that we made 2 years ago at the last Investor Day, most notably the top line performance and the acquisition of new customers. And we're achieving these results by deepening relationships with leading customers across multiple segments and leveraging those successes across the entire ecosystem. We are improving our value selling skills and expanding margins for Keysight, and we are just getting started. We will continue to increase sales capacity, sales capability, sales productivity, with an emphasis on recurring revenue growth and leveraging a new e-commerce channel. So taking a closer look at Keysight global sales. As Ron mentioned, every year, we do business with more than 32,000 customers in more than 100 countries around the world. And last year, that yielded $4.4 billion in orders, which represented a 10% core order growth rate. And with the acceleration and the focus on growing services and software faster than the rest of the business, those 2 combined to equal more than 30% of our total business last year. You can see our global sales footprint, which mirrors the rest of our organization. We're close to customers, and we have increased our selling capacity in each of those 3 regions in the last 2 years, and we prioritized it to where the growth is. For example, across parts of Asia, in Silicon Valley, and as Soon Chai talked about, around the 4 major automotive ecosystems in the U.S., in Germany, in China and in Japan. And while we continue to build out our direct sales channel, we continue to access an extensive network of solution partners and channel resellers and distributors that extend our reach even further and represent about 25% of our total business. So as I mentioned before, we delivered on all of our commitments made 2 years ago, and I'll call out 2 more in particular: number one, the successful deployment of our dedicated global sales channel; and number two, the shift of our entire sales organization to selling solutions, with the right skills and the right onboarding of talent that Ingrid talked about before, helping us create more value for customers and more margin for the company. And the results over the last 2 years speak for themselves. Positive order growth in every region, in every segment with accelerated growth in services and software, and this is all being done while reducing our cost per order dollar by 15%. So these changes, these upgrades that we've made in the last 2 years have really created a global sales machine for Keysight. As pictured in this simplified funnel diagram, which, by the way, is the essence of sales, right? Managing a funnel of opportunities. And it all begins at the top with marketing and the amazing job that Marie and her entire team continue to do to feed more leads to sales. And as a result of that, the top of our funnel is larger than it was 2 years ago, right? A lot larger, 45% larger. And because we've added all these additional sellers and this additional selling capability, we're able to progress and qualify all these additional leads into deals and then convert those deals into orders for Keysight. And the result is a 14% order CAGR over the last 2 years. One additional note on resource deployment. We do this dynamically, real-time to where the best opportunities are, and I'll share 2 more examples with you now: one is around our largest customers, our top 20, to be specific, where we now have more than 400 dedicated sales and application engineering resources, most of which reside on site. With these customers, helping them to innovate and delivering the extraordinary growth that we've been doing from our top customers. And the other is in the geography where we've increased the number of front-line sellers by 50% in the last 2 years, helping to deliver double-digit order growth consistently over the last 2 years and capturing 5,000 new customers, as Marie talked about before. Now we've heard from Jay and Satish and Soon Chai about the market dynamics and how they are shifting across multiple segments. And the customers that we serve and their buying trends are a reflection of these dynamics, and they are accelerating, starting with time-to-market pressures, compounded with increased complexity and more competition is driving our customers to seek more total solutions. Thus, our shift to selling solutions, solution-selling capabilities. As John talked about, our customers are looking to get the most out of all of their assets. And as Jay talked about, they're looking to optimize their engineering workflow, thus the launch of our dedicated services sales channel and the introduction of PathWave. Couple of years ago, technology waves were in the early stages of field trials. Many of them are now advancing rapidly to commercialization and to scale, thus our early and continuing engagement with industry leaders, as Satish was talking about. And I'll tell you, all of our customers are looking to extend their digital buying experience because it's fast, and it's easy, thus, the launch of our new e-commerce platform. So we have had a very consistent go-to-market strategy to drive long-term profitable growth for Keysight with 3 committed priorities: number one, growing our business from new customers and extending our reach to diversify our base; number two, accelerating growth from solutions by engaging early and deeply with industry leaders to gain market share and then to leverage those successes to sell the differentiation of our first-to-market solution to all of our customers; and number three, expanding our business from services and software, adding more value to our customers and growing our recurring revenue. So I'll double-click into each of these in just a minute. But first, let's take a look at how we are improving our sales productivity. So sales productivity is simple. It's 2 things. One is its sales capacity and sales capability, and we are simultaneously growing both of those right now. On the capacity side, I already told you about how we've increased the number of front-line sellers by 60%. And from this higher base, now we will take that up yet another 25% to double the number of front-line sellers. This year, in addition, we've integrated our Ixia sales operation, and we are scaling our e-commerce platform to extend our reach even further. And then sales capability. It is about onboarding the right talent. Again, as Ingrid was talking about, but it's also about the right skills with the right tools and training and measures. And as Ron spoke about really critical, the right incentive compensation to drive the right behaviors and outcomes. So with that, if we look at the 3 growth strategies. The first one is accelerating growth from new customers, right? And again, this begins with marketing. In this case, digital marketing with an emphasis on Keysight's industry expertise, right? Our thought leadership. And it's through this insight that we actually help our customers reframe their entire understanding of the challenges they face. The measurement challenges, the technical challenges, the business challenges and through a guided buying process, we lead them to our solutions. And oftentimes, that solution is a product, a highly differentiated product. And when that's the case, we make it as fast and easy as possible for our customers to acquire that product, either through e-commerce and extending our customers' digital buying experience to 100% or through a partner. Either way, it's fast and it's easy. One other note is, we launched the e-commerce platform about the middle of last year, we are finding that most of the customers that are coming to us through this new platform are new. Nearly 70% of our customers that are coming to us through e-commerce are new customers for Keysight. Number two is accelerating growth from solutions, again, by engaging deeply and early with industry leaders. I've already shown you how we've increased our on-site presence with application engineers and sales resources, helping our customers to innovate. And it's through those resources and that engagement that we bring all of Keysight's capabilities to our leading customers. And then we leverage that through our large and growing global sales organization, combined with our regional solution delivery capabilities to sell those same solutions to thousands of customers every year across multiple segments. And finally, services. As John talked about, we are using the same exact proven solution-selling approaches to selling services. And we're doing it at the same time we're selling the hardware and the software, not later on. And as a result, we are growing our upfront attached value-added services, right? And then with the addition of Keysight Care and the multiyear Keysight Care with those renewals and attach rate, we are growing this even further. So a case study, an example of customer success as the result of solutions and services. In this case, a leading semiconductor customer, a wafer fab and a legacy installed base customer of Keysight. So this customer was faced with new throughput and technology challenges. And I'll tell you, we could have solved those problems by selling them more of the same systems that we sold them before. But instead, we innovated. We innovated with this customer and with the industry, and we found a better way forward in the form of a breakthrough, first-to-market solution called the P9000, which is a massively parallel parametric test solution. So for the customer, what this meant was they achieve their goals with fewer testers and a longer runway of capability in the future. But we didn't stop there. We innovated even further. By working closely with them, we customized a suite of solution ramp around custom services to help them ramp and accelerate their productivity and sustain that over time. So what did this mean for us, for Keysight? It meant a larger sale than it would have been if we sold them the traditional testers, multimillion dollar sale with higher gross margins, stronger competitive differentiation and more recurring revenue from the ongoing stream of services and upgrade path. And for the customer, they solved their problem with fewer testers using less floor space in their clean room with a lower total cost of ownership. This is a very happy and loyal customer. So that's it. That's the story. Keysight global sales continues to be a competitive advantage for Keysight, driving long-term profitable growth. We are diversifying our base by capturing thousands of new customers every year while we continue to deepen our relationships with existing customers. We continue on our journey to doubling the number of front-line sellers while focusing on accelerating growth from services and software to accelerate our recurring revenue and to extend our reach even further with our new e-commerce platform. Thank you very much. And with that, it's my pleasure to introduce Neil Dougherty, our Chief Financial Officer.

Thank you, everyone. Good morning. Good news. You're almost to the end. I'm the last presenter here this morning before we get to our final Q&A session. I think I know most of you, but just by way of a brief introduction, I'm Neil Dougherty, I'm the Chief Financial Officer here at Keysight. I've been with the company for about 24 years, having hired into HP way back in 1996. I've been in this role as the CFO of Keysight since 2013. Ron named me to the position about a year prior to our spin. We spent that first year working on preparing Keysight for its independence. And since that time, we've been working with the team executing the strategy we've talked about today and helping to improve the financial performance of our business. There are 5 themes that I want to touch on today. The first is that we have, in fact, dramatically transformed Keysight's financial performance over our first 5 years as an independent company. And that includes significant progress that was made in our most recent fiscal year when we saw our gross margins climb to 63%, our operating margins elevate to 24% and our free cash flows double to almost $900 million. We are a market leader in a large growing end market that we estimate is currently about $17.5 billion in size, and we've actually taken share in that market in each of our 5 years of Keysight. We've been able to take that share because the sustained investments we have made and that we continue to make in R&D and sales to position us to outgrow the market. And increasingly, that growth is coming from our migration to selling our customers complete solutions, solutions that are first to market, solutions that are differentiated and solutions that have high software and services content. And it's that migration that is helping with the resiliency of our top line as well as helping to drive our improved margin performance. So as a result, today, we are once again in a position to raise the bar and the financial expectations for this business as we look forward. We now expect to drive our operating margins to the 26% or 27% level, and we expect to reach that goal by our fiscal '23. So with that, let's start by taking a look at the financial transformation we've undergone over the last few years. When we spun out, the single biggest challenge that the management team faced was how do you take a business that's been underinvested in and has been basically flat for over a decade and get it to the point where it could once again grow sustainably and consistently. As you can see, we've grown our revenue over the last 5 years at a compounded annual growth rate of 11%. Now that includes the revenue that we've added from the 10 acquisitions that we've completed. But more importantly, it includes the fact that we've once again got this business growing organically. We knew it would take a while for us to achieve that objective. And in fact, it did. But over the course of the last 2 years, this business has averaged a core growth rate that excludes the impact of acquisitions and currency and an average core growth rate of 12%. And as I've said, that growth rate -- or that growth that we've enjoyed in our business has largely been driven by our migration towards selling differentiated solutions with high software content, which has helped to drive dramatic increases in our gross margin performance. Over our first 5 years, we've added almost 700 basis points to our gross margin. And we've been on a good job of converting that gross margin to higher levels of profitability, increasing our operating margins over the same period of time by almost 600 basis points. I think it's important to note that not only have we increased our operating margins by 600 basis points, we've done so while at the same time increasing our investment in R&D by an additional 400 basis points from 12% of revenue at the time of our spend to 16% of revenue, which is what we expect to spend here in our fiscal -- FY '20. Our free cash flows have expanded dramatically, tripling since inception and doubling in our most recent fiscal year, and we've delivered 17% compounded annual EPS growth over the last 5 years, including 46% EPS growth in FY '19. You'll notice that our EPS growth really accelerated over the last 2 years, and that corresponds with the return of this business towards organic growth. I mentioned that our growth and financial performance are being driven by a mix shift that's underway in our business, and so I'd like to take a moment and talk about the current mix of our revenues. We've actually seen mix shifting across a number of different vectors. The first one I want to talk about has been a mix shift that's been underway for quite some time. I'd say, well over a decade that we've been working to migrate our revenues so that we're selling more of our products into our customers' R&D labs than we are into their manufacturing lines. And as you can see, in FY '19, almost 60% of our revenues were sold into those R&D labs with about 30% into manufacturing and the remaining 12% into post-installation, operational and optimization type applications. We like the R&D sale because it's higher gross margin. And it's also a more stable revenue stream as our customers look to maintain their investments in research and development across the macroeconomic cycle. I do think it's important that we don't over-rotate on this message. As you heard from Ron, and as you heard from Satish, we are not looking to get out of the manufacturing business. In fact, we're looking to do the opposite. We want to continue to grow our revenues from high-value manufacturing. We're just focused on those manufacturing markets where there's a premium that's paid for a relatively sophisticated level of test. The second way our mix has been shifting is with the migration towards higher software and services revenues. You can see in FY '19, software and services made up a full 30% of our revenues or $1.3 billion of total revenue in fiscal '19. Both of those businesses have over the last several years, and we expect will continue to grow at an above-average rate for the company, and we expect them to be an ever-larger portion of our total revenues. Our software and services businesses provide the basis of our recurring revenue, which is currently about 18% of our total revenue, and as I mentioned, in the first Q&A, I see this as one of the biggest opportunities that exist for Keysight over the next few years. Not only do we expect software and services to expand at an above-average rate, but we have a big opportunity within our software portfolio to change the way our customers buy software from Keysight. They still predominantly buy software from us on a perpetual or onetime basis, and we want to migrate that purchase and the way customers buy software from us to being a time-based or a subscription-based sale. This mix shift has been an important contributor in enabling us to meet our financial commitments, and I now want to talk about the commitments we made at our last Analyst Day in this room, 2 years ago. The top 4 commitments on this page all relate back to the operating model that we outlined at our last Analyst Day. And whether you're talking about revenue growth; margins, either gross or operating; cash flow; or EPS, we have exceeded the financial hurdles that we set forth at our last analyst meeting. We also talked about the objectives for 2 of our larger acquisitions. The acquisition of Anite, which was completed in August of 2015 and the acquisition of Ixia, which was completed in April of 2017. The Anite acquisition at this point is well ahead of where we expected it to be when we completed that transaction. We certainly realize the cost synergies, but it's on the revenue synergy side that we're significantly ahead of our own expectations. And that's because the technologies that we acquired with the Anite acquisition have been absolutely critical to the success we've enjoyed and are enjoying in the 5G marketplace. With regard to Ixia, as we approach the 3-year anniversary of that transaction, we are behind where we expected to be, but there is good news. The markets for Ixia products have been a little bit slow over the past couple of years as we've been caught in a bit of a lull between 100 gigabit and 400 gigabit. Over the last several quarters, we've started to see those investments in 400-gigabit pick up within our own business and our own business results. And as you heard from Satish, we remain convinced that the strategic thesis for bringing these 2 businesses and these technologies together under one roof absolutely remains intact. Particularly as 5G commercializes and the lines between wireless and wireline, physical air test and protocol air tests continue to blur. Importantly, even though we are behind, we are not lowering our return expectations for this business, although it may take us a little bit longer to reach our original return hurdles. The last thing I wanted to touch on was our growth initiatives. Over the years, we've talked about a number of growth initiatives, 5G, next-gen auto, software, services. In aggregate, those growth initiatives are well ahead of where we expected them to be. And in FY '19, in aggregate, they grew at a rate of about 30%. Keysight -- and those growth initiatives align well with driving our end markets today. That end market is about a $17.5 billion end market. It's growing at a rate of about 3% to 5% on average over the longer term. And our most recent fiscal year, we did $4.3 billion of revenue, making us the #1 player in this market. But as Ron mentioned, we only have 25% share, which leaves us ample room to continue to outgrow the market. We believe there are a number of long-term secular growth themes that will drive growth in our end markets for the foreseeable future, and we believe that our own differentiation in the marketplace aligns well with those themes. So I'm talking about 5G, next-gen auto, IoT, and I think you can add aerospace defense modernization to that list as well. And it's because of these growth themes and our differentiation that we, today, are raising the long-term growth expectations for Keysight to 4% to 6%. That 4% to 6% growth rate is important because we remain committed to the operating model that we've been talking about over the last 5 years. And that operating model calls for us to deliver 40% operating leverage. Any time our core growth rate is 4% or higher. You can do the math on that. But at our current revenue and profit levels, if we grow our top line 4%, deliver on 40% operating leverage, we can add about 60 basis points of operating margin improvement every year. And it's because of our confidence in our end markets and in our ability to execute to this operating model that today, we are raising the long-term operating margin expectations for the business to 26% or 27%. For those of you that were here, you will remember that 2 years ago, we set a target to take our business from the level we were at that point, which is in the high teens of operating margin and drive it to 21% or 22% operating margin, although we expected it would take us to fiscal '21 to get there. Not only did we meet that objective, we exceeded it, delivering 24% operating margin and doing it 2 years early in fiscal '19. So we'll now be working to drive our profitability to 26% or 27% level. That's a full 500 basis point improvement over the prior model and an additional 300 basis point improvement over the record results that we delivered last fiscal year. Although not only is our business, highly profitable and as that profitability continuing to improve, but we believe we have a unique and durable business model that provides resiliency in a wide variety of macroeconomic circumstances. That macro resiliency comes from the structural flexibility that we've worked over the years to add to our cost structure. It comes from the roughly 50% of manufacturing that's been outsourced. It comes from the approximately 25% of sales that flow through an indirect channel. And from my perspective, the most important element is the fact -- id it comes from the fact that we have aligned the compensation of our employees with the results of our business and the interest of our shareholders. 100% of Keysight employees have a portion of their pay that fluctuates with Keysight's business performance. And for our broad employee population, the metrics that drive that variable payout are organic growth and operating margin. So should we get into a macro event that puts downward pressure on our growth rate and on our operating margins, I have an instantaneous, automatic and structural way to make a meaningful reduction in the single largest component of my cost structure. And that gives us greater confidence in our ability to be highly profitable and highly cash flow generative across the macroeconomic cycle. This business, in fact, delivered almost $900 million of free cash flow in FY '19, which allowed us to enter fiscal '20 in a very strong balance sheet situation. If you take a look at our current balance sheet, our gross leverage is approximately 1.5x EBITDA. We have almost $1.7 billion of cash on the balance sheet, and we're in an improved credit position, having recently been upgraded to BBB flat by both Moody's and S&P. I think the summary here is that we're in a very strong balance sheet position, and we have the financial flexibility to continue to make the investments that are necessary to drive the long-term growth of our business. And as we look to allocate capital, we are, in fact, making those investments. You heard from Jay today that we will invest over $700 million in R&D in fiscal 2020. And you heard from Mark about the investments that we continue to make to double the sales capacity that exists with our front-line sellers. Beyond those investments, value creation through M&A is a strategic priority for our management team. We have an active M&A funnel development process. We're looking for targets in near-adjacent markets that are aligned with our targeted growth strategy. But it's important to note, we have and will remain patient and disciplined when it comes to the strategic and financial hurdles we expect from an M&A target. Beyond M&A, we are actively returning capital. We have a $500 million share repurchase authorization with over $300 million remaining. We've been executing that buyback over the last several quarters with the intent of offsetting the dilutive impact of our equity-based compensation programs. But there certainly are scenarios where you could expect us to be more aggressive and opportunistic with that buyback program. And ultimately, that decision will be tied to our liquidity position, the valuation of our stock and the strength and actionability o our M&A funnel. We actually use the same ROIC-based models to evaluate our buyback program that we use to evaluate those M&A opportunities. As we look to build that M&A funnel, strategically, we're looking for targets that will accelerate our ability to achieve our near and long-term strategic objectives. Increasingly, that's driving us to look for targets that have high software content and high recurring revenue. ROIC is the main financial hurdle we use to evaluate potential M&A opportunities. But it's important to note that we take a long-term view of value creation through M&A. We have learned and continue to learn that it can take a significant amount of time to align the technology road maps and R&D teams when bringing 2 high-tech companies together. So we're focused on finding targets that will enable us to generate year 5 return on invested capital that is materially above our cost of capital. Ideal M&A target is one that's accretive to our organic growth rate as well as to our gross margins. And once again, that's increasingly driving us to those targets that have high software content. Before I wrap up today, I want to take a moment to summarize the financial commitments that we're making. We believe our markets have long-term secular growth drivers that align well with our own differentiation. As a result, we're raising the long-term growth expectation for Keysight to 4% to 6%. We remain committed to our operating model and to delivering 40% operating leverage. Anytime our growth is 4%, 40 -- excuse me, 40% operating leverage any time our growth is 4% or higher. And that will enable us to drive our operating margins to the 26% or 27% level, reaching that threshold by fiscal '23. And while we migrate from here to there, we will continue to deliver EPS growth that is at least 10% annually. In summary, I continue to believe that Keysight represents a compelling value proposition for our investors. We're a market leader in a large, diverse growing end market. We have a highly diversified business. We're diversified geographically. We're diversified across a broad range of industries, and we sell to over 30,000 customers, with no customer making up more than 5% of our revenues. We're making significant investments in both our R&D teams and in our sales teams to ensure that we're positioned to continue to outgrow our markets. And increasingly, that growth is being driven by the fact that we're selling our customers complete solutions that are first to market, they're highly differentiated, and they have higher software and services content. That's increasing the resiliency of our top line. It's allowing us to drive higher gross margins, and it positions us today to once again raise the bar in our financial performance as we now expect to drive our operating margins to the 26% or 27% level by fiscal '23. So with that, I'm going to hand it back to Jason, who will get us prepped for the final Q&A.

All right. Thank you, Neil. While the team's coming up here. I just wanted to comment on a couple of logistics as we wrap up for the day. So we'll have the demos out and available after this for about an hour from 12:30 to 1:30. We also have lunches for you to take with you. I know many of you are anxious to get back on the road. So in the Hamilton Room, there's box lunches that you can pick up and take with you. We look forward to chatting with you more after we wrap up the day. But let's move to our second Q&A here as the team comes up, and we've got the whole team here. And then we will wrap up the end with a few comments from Ron.

I see a hand in the back. Please. Okay.

Hello. My name is [ Erica Clower ]. I -- thank you so much for such a thorough presentation. I had a question regarding your market share. Ron, you had mentioned that your share gains have occurred on a steady basis over the last couple of years. And when I listened to what you've presented today, it occurs to me that perhaps those share gains might accelerate somewhat. And I wanted to ask if we could drill down a little bit further on the puts and takes there as it relates to how the acquisitions might assist with further share gains, the evolution of the market and then, in addition, the added tool in your war chest with regards to adding more software as a way to assist your customers further.

Sure. We don't like to talk very much about our competitors and relative to them. We've got a lot of good competitors, but we're very convinced that we can achieve the growth targets and the operating profit targets and the cash flow objectives that we have outlined. Our share gains will -- I believe, will continue. And if you look at certain areas, such as 5G. Our 5G share gains have been massive over 4G. We expect 5G share gains to continue, not only from what we're seeing in R&D as well as the share that we used to have in manufacturing and the expansion there as we have more opportunity with new solutions. But as you go further on, back into the network and look at the opportunities that exist from the network test business and especially the network visibility, that's another large opportunity for us. When you look at the -- when you -- also when you look at the electronic industrial area, there is no doubt that in AV, autonomous vehicles and electric vehicles, that's another big share gain for us. And another way to put it is, if you look at what I said or -- and the team said 5 years ago, we said we were going to go after 5G, and we've had tremendous share gains there. We said we would go after automotive, and we've gotten share gains there. We said we would grow software, and we've grown that well above the market rates. We said we would grow support, and we've done that. And all of that together, where we focused, we've been very successful. I don't anticipate that to change. And when we get into 6G and that becomes material, now it's in the early research phase, there is an opportunity for us to take that up even further as well as in quantum computing.

All right. Thanks, Ron. Other questions? Another one from Tim. And we'll come back over here to the right.

Tim Long at Barclays again. Mark, I had a question for you on the sales force expansion. Could you just talk a little bit and maybe tie e-commerce into this. Talk a little bit about kind of diminishing returns. Obviously, you're not going to find a Nokia and Ericsson or a Qualcomm out there as new customers. So can you talk a little bit about the scale that you're going to need as you kind of go on the longer tail of the potential customer pipeline. And what that means for the metrics that you're going to look at, obviously, revenue per customer or anything like that will probably be a little bit different than the model now? Or are you also just adding more to some of the larger accounts?

Yes. So as I mentioned before, our resource deployment is not being done in a peanut butter fashion. We're prioritizing it where we see the best growth opportunities. Some of those are geographic. Some of those are industry based, some of those are customer based. So where we have been focusing so far is on fortifying our presence with some of the largest customers, the industry leaders, as I talked about, that gives us better influence and insight to their needs. And then the second part is, again, across the geography. To leverage those successes using e-commerce as well, but the solution sale is still a very complex and involved collaborative sale with our customers, whether it's an industry-leading customer or a start-up or somewhere in between, right? So that's the way we're deploying our resources. We're watching this very carefully so that we're getting the return that we expect. And right now, it's above what we expected because our efficiencies and productivities have been improving. The other thing we're finding, which is very exciting is that a high percentage of our first-time customers become repeat customers every year. So as we add thousands of new customers every year, they become recurring customers for us, and we continue to expand our business with them. And then finally, the e-commerce element it's still early days with that, but what we are hearing and what we expect to hear is customer preference. It's not only about creating a lower-cost channel for Keysight. That's part of it. But customers who want to buy their fifth or sixth product, want to do so in a very effective way, and that's what e-commerce is providing them.

Rick?

Yes. Rick Eastman of Baird. Neil, just one thought. When I look at the financial framework that you laid out, you've got gross margin up to kind of 100 to 300 basis points over the next 3 years. And we've heard a lot about software but maybe just give a few puts and takes on the gross margin improvement that you'll show going forward? I mean will we have the same tailwind on mix? Surface growth probably is a little bit of a challenge on the gross margin line, but just maybe puts and takes, what you've tried to factor into that 100 to 300 basis point improvement?

Yes, there are a number of different things that are playing there. Obviously, we are seeing above-average growth from software and services. On a gross margin line, those things tend to offset. Obviously, the software business is materially above our average gross margin. Our services business is below. I also talked about the mix shift towards R&D. But as technologies like 5G move into manufacturing, there's potential for us to add significant manufacturing revenues, at least in that market over this period of time. So you're juggling a number of different puts and takes across the business. But I think in the end, the trend lines for our business are clear, increasing migration towards complete solutions with higher software content should enable us to continue to raise gross margins as we look forward.

Okay. Thanks, Neil. Nick?

Nick, again, on behalf of Mehdi. So first, for EISG. Is there a potential opportunity to bundle kind of the mixed signals, semi sales with the board sales. And mixing those 2 revenue opportunities?

Can you repeat the question? Sorry.

Yes. Is there an opportunity to bundle mixed-signal sales on the component level with board revenue sales on the semiconductor business?

Well, so maybe let me elaborate a little bit about the semiconductor business that we have. The focus that we have is really primarily around wafer fabrication. So I would say that the biggest component of the sale is really around the 3 elements. One is process development. The other one is device characterization. And then the third element is in-process control. And this is the value that we delivered more around wafer fabrication. Now most of the growth that we've seen, and focusing on is really trying to be at the forefront of the innovation stream. And that's really where we are working with all the process node upgrade. So for instance, we are working with the -- at this point, we're working on a [indiscernible] nanometer process. Okay. So I think that really is predominantly is really where most of our business is. Now I did mention in my presentation that the last 2 years or so, we've started to invest into more so-called mixed-signal devices, analog and digital devices. And we have launched recently a couple of solutions around silicon photonics and millimeter-wave ICs, right? So again, the focus there is really around wafer fabrication. I just want to elaborate that. We don't provide the full solution all the way down to packaging. We don't do that. So it's really all around device wafer structure fabrication, okay?

And can I do a quick follow-up, if that's possible. Just about PathWave.

Can you speak up a little bit?

Sorry for PathWave, is the revenue opportunity, primarily about being able to upsell down the stream? So once you get to manufacturing, you're keeping the customer within the Keys' ecosystem? Or is it also about generating revenue internally to get to like weigh those 2?

I'll let Jay get a chance to talk about this, but we want to do a couple of things. What we'd really like to do is have an ecosystem that's like iOS or Android, where that is the framework that you use, and our tools will be plentiful that you can use up and down throughout the process. So from early design all the way through to operations. So by doing that, you create the sticky environment, and it's just a lot easier to work with the Keysight framework, to have the same user interface, to have the exact same data flows. And then what you have there is a simpler solution. So therefore, it helps achieve our company objective of helping customers get -- bring their products to market sooner. So it's all about being first to market. So that's the primary -- the primary reason. Anything else, Jay, to add?

No. I think you covered it.

Okay. Great.

Thank you.

Any other questions? Brian?

Follow the same order. Brian Yun again from Deutsche Bank. Two questions on the profitability outlook. First, can you unpack how you get to 26% to 27% operating margin levels. I understand the revenue growth and gross margin expansion, but are there levers on the OpEx side that you're baking into that guide? And then on EPS growth, the past few years have been significantly above 10%. So curious as to why you kind of kept the new target similar to the prior target?

Yes, so let me touch on the first part of that with regard to the profit expansion towards 26% or 27%. So the high-level model, I think, is clear, right, 40% -- 4% to 6% growth, with the 40% operating leverage gets you to those levels over the course of the next several years. I think as we look beyond that, obviously, we've talked about improvement to -- ability to continue to raise our gross margins. We'll continue to invest significantly in the R&D line. We are not at this point looking for leverage within R&D. I would expect that we would continue to invest, even as our revenues grow at the 16% level. In fact, at the margin, I'd say there's more upward pressure on R&D rather than downward pressure. We continue to see a tremendous amount of pull from our customer base for us to do development work on their behalf. And so right now, we don't see that as a source of leverage. On the G&A line beyond sales, leverage is always the goal, right? We look to look -- we look to grow our broad general and administrative expenses at a rate that's significantly slower than the overall rate of revenue growth, even while we recognize that we need to continue to provide salary increases and such to the employee base in that population. Second part of the question really had to do with EPS growth. Obviously, we've put up a very strong EPS growth over the past couple of years. Period of time when we've seen a pretty dramatic expansion in our gross margins, including almost 300 basis points of gross margin expansion over the most recent fiscal year. Obviously, we see additional opportunity to further that, but not at the same pace. I think some -- we came further faster than we expected. Relative to the model that was outlined 2 years ago, and we do see continued upside, but we do expect that rate of growth to slow.

I would just add that when you look at a balance and manufacturing picks up a little bit, that's going to be a little bit of downward pressure on the margins, but we will outflank that with the other gross margin improvements that we have within the company. We've had a program in place in the company for about 2 years that has been towards driving our gross margins higher. That program will continue, and it provides great opportunities for us. Also, I'd say, but you can see by the numbers that we put up there in all the previous expectations. We're a conservative company. We still think those are the right targets to have and the right thing, but we have guided -- guided the Street 21 quarters in a row since we've been public, and we have met or exceeded 21 times. We've never done anything else. So we will take things up when we think it's appropriate, but we think the level that we're talking now is the right level, especially since we have a much higher hurdle. It's a lot easier to improve your operating margins when you're at 18%, than when you're at 25%. You could take it further, but then you're going to put more competitive pressure on your business, and we want to make sure that we get the right balance of growth and margin expansion.

All right. Great. I think we have time for one last question, and then we'll wrap up for the day. So anyone want to ask the last question? Okay. David? Can you bring a microphone.

David Ridley-Lane, BofA again. So on the $30 billion installed base, can you help us sort of think about the attach rate that you're getting now on services? Is there a way of going back into the base? Or is it all about getting the upfront attach when you sell them new and how those dynamics are playing out? Obviously, you've done a good job over the last 2 years.

Sure. So both are opportunities for us for sure. We've always been good at going after our installed base actually. And we're getting significantly better. So there's still opportunity there. A lot of our growth is coming from attaching things upfront, attaching services upfront. That's a relatively new thing for us to be doing to really focus on. It's growing dramatically. But even as we -- they're complementary. So as we're going out and talking to each one of our customers now about the new Keysight Care programs and so forth, we're having a discussion about their entire installed base. So my team together with Mark's team is going out and doing what we're calling an account-based selling activity. We're actually going and visiting every one of our big customers and having the discussion about Keysight Care and attaching upfront and how do we cover your installed base. So that's early days, but I would say both are opportunities for us.

Okay. Great. Well, thank you to the management team. Why don't you go ahead and -- we'll turn it over to Ron.

Yes, I just have one or 2 comments to make, and then we'll let you go on to lunch. You heard a lot this morning, a lot about Keysight. And I hope it was very worthwhile for you and a good use of your time. But I just want to bring you back to a couple of key points. One, I think one of the biggest differentiator is having a very strong leadership team and an exceptional employee base, which I believe we have both. And they've truly been a differentiator for all the results that you have seen and for the results to come. We have gone ahead and we have changed over 150 managers that -- and made sure that they were aggressive, they are passionate, and they are fiscally responsible in delivering the results that you want to see and that we want to see. We talked about first-to-market solutions and the 6 steps it takes to get those first-to-market solutions from picking -- working closely with customers, having a good relationship with them and working on their road maps, to having that market insight, to going ahead and allocating capital properly, to investing enough in early -- investing enough in R&D, to investing early enough in the cycle and driving that through with relentless operational excellence. We believe that we can continue to do so. And if not, accelerate that. We also talked about shifting our business from not just products but to solutions. That adds software. That adds services. That adds stickiness. Not only does it increase revenue, it increases our gross margins and brings our customers back time and time again. On top of that, we talked about all of that going ahead and making an improvement to our recurring revenue. We're continuing to basically add on layers of recurring revenue. And as you heard about Keysight Care and more and more software, you're going to have more and more backlog in our business, which is going to provide much more stability to our results, although we have been very stable and have been increasing our results quarter after quarter. And the last piece is making sure that we go ahead and we engage all 13,500 employees. We have that one terminology, that one vocabulary on what we expect, and we could have conversations with them, set the right expectations, do a great job coaching and help them contribute to this value creation. So if you put all of this together, I'm absolutely convinced that the opportunities that we see ahead are even better than the opportunities that we've seen over the last 5 years. And I really believe we're just getting started. Thank you very much for coming. Have a great day.