Hi, good morning. I'm Samik Chatterjee, I cover hardware companies at JP Morgan. For the next session, I have the pleasure of hosting Keysight Technologies, and with me is Neil Dougherty, the CFO. Neil, thanks for making it to the conference. Thank you for participating. Let me get started here with some of the common questions we're asking companies just to get a more of a sentiment check. The biggest one sort of being macro. As you look through the remainder of the year, what are the biggest macro risks you see to your business?
You know, I think there's just a tremendous amount of macro uncertainty, and there's a lot of moving parts, whether it's inflation, interest rates, debt ceiling. You know, all of these things are creating a tremendous amount of uncertainty in the marketplace, and I think that uncertainty breeds caution on behalf of our customers and is contributing to, you know, a relative slowing of demand. I think the good news is, obviously from a Keysight perspective, we're not facing anything that the broader industry isn't facing. The sooner that we can get clarity as to direction on some of these large scale macro topics, I think the sooner, you're gonna have a catalyst for positive change.
Okay. Okay. One of the other aspects I've been diving in with the companies is there is some level of demand moderation on account of inventory in the different markets, and there is some sort of real demand slowdown. As you sort of go through your portfolio, how much of this is an inventory challenge, maybe a bit more short-lived versus a real sort of slowdown?
I think a significant portion of it relates to inventory, particularly on the Commercial Communication side of our business, which is one of the areas that's relatively weaker within our current portfolio. You know, the softness that we've seen Commercial Communication has been largely concentrated within our largest customers, and some of those big, customers within the communications ecosystem have been very public with their statements around, you know, trying to deal with the inventory indigestion issues coming out of the supply chain, disruption of last year. They have been taking action, not, you know, including in response to perceived over-hiring in the previous period and having to adjust workforce.
All of these things obviously are disrupted and are causing a pause in investment. I think, again, the positive thing from our perspective is given that Keysight is largely focused in the R&D lab, particularly in the communication segment where our business is even more heavily skewed towards R&D. We know that for this customer set, that their new product pipeline is really their lifeline to future growth. While they can pause, you know, investments in R&D for a period of time, we know that ultimately those investments are gonna pick back up, and they're gonna remain focused on continuing to drive, you know, technology development in their, in their own spaces, and that bode well for us.
Okay. The last of those questions, just AI is a big theme, o bviously, all around and sort of at the conference as well. Any early thoughts in terms of how AI impacts your business? Do you see any areas of disruption, or is it sort of more tailwinds that you see for your business?
Yeah. I think generally at this point, we see it as a market tailwind. I think, you know, first and foremost, just the amount of compute power and bandwidth that's required for these, you know, AI/ML based solutions, I think creates opportunity for, you know, further need for expansion of the network and the ability for both the wireless and wired networks to handle data traffic. First order there's that. I think beyond that, within Keysight, we're looking at how can Keysight as a company, you know, help the folks that are developing these AI-based tools, you know, to continue the development. I'm probably not the right person to address.
We'll very quickly get beyond my ability to talk about these things from a technology perspective. Suffice it to say, we do believe there are intersection points between our capabilities and the work that's happening in the AI/ML space.
Okay. Okay. Let me dive into something more company specific here. Slow demand in Commercial Communication, you mentioned that. General E lectronics overall as a market seems to be doing a bit better for you. What drives the confidence that this is not a structural change in sort of the growth rates between those two segments? I know you mentioned communication, you sort of see that pipeline for your customers being very important, but there's a difference in sort of growing high single-digit versus growing low single-digit, right? That can still sort of they can expand R&D and still sort of grow at a more modest pace than they were. When you think about sort of even going back to the Analyst Day and sort of your guidance there, what sort of indicates to you that this slowdown is not a structural shift in the growth rates?
Yeah. We don't believe it's a structural shift. you know, we continue to believe that there's a tremendous amount of work that still has to happen in Commercial Communication ecosystem, you know, to enable even the current wave of technology, specifically 5G, right? We're working on Release 17 of the standard today. Release 18, 19 are still to follow. There's a lot of work that has to happen around O-RAN. We're seeing the early seeds of research into 6G. Again, you're bringing this back to kind of an insatiable need that the public seems to have for data. And the communications industry is going to have to continue to evolve to meet that underlying demand.
I think, again, bringing it back to our Analyst Day, we have highlighted, you know, some changes where we believe our markets are now growing faster than we previously thought. You know, notably in our EISG markets, largely as a result of the broad scale adoption of EV technology, EV-based technologies. As that automotive business, which is a fast-growing business, has become a larger portion of our overall market exposure, you know, that enabled us to take up the growth rate on our EISG business. Similarly, on the other side, we believe that the Aerospace, Defense, and Government businesses are now positioned to sustain a faster growth rate going forward.
You know, not only have we seen multiple consecutive budgets, I think seven now, within the U.S. with increasing defense spending, again, across two presidential administrations of both political parties. There does seem to be some political alignment around the need to invest in defense technology. We're also seeing our NATO-based allies commit to spending on defense at a higher percentage of GDP, we believe these are long-term trends that are gonna be good for our business moving forward.
Okay. One of the questions that I've been asked to ask you around the Communications Solutions G roup is when you look at the, maybe even when you look at some of your peers who have already reported along with you, we can see sort of different buckets of customers that are spending slower. There's the smartphone sort of chipset suppliers, there's the smartphone OEMs themselves, and then there's the sort of base station companies and sort of more on the radio side. When you think about your Communications Solutions G roup, like is there a bit more sort of there where you can flesh it out for us in terms of what that mix looks like? How much of your communication revenue is really aligned to mobility or sort of the mobile segment overall versus other drivers?
When you talk about sort of 5G standards, et cetera, those are more sort of outside of the smartphone chip, chipsets or the smartphone OEM. Any more color there in terms of what the different big buckets of customers are?
Well, when we think about the wireless ecosystem, we tend to think about it in kind of four segments, right? There's the component and chipset manufacturers, there's the device manufacturers, there's the folks that are working on the network access piece, the legacy base station manufacturers, as well as the folks that are now working on a piece of that solution via O-RAN, there's the service providers. I think for Keysight, in terms of the opportunity ourselves to service providers is the smallest of those from a market perspective. I think the other three are all, you know, reasonably on par with each other. We do significant business, you know, across all three other aspects of the ecosystem. That's not to de-emphasize the service providers. That's an important...
It's an important part of the ecosystem. They're important customers to us. Just on a relative sizing basis, they tend to be smaller than the other three pieces of the pie.
Okay. Then just to clarify on that, when you're seeing the weakness in terms of orders coming in, is that across the three big segments, or are you seeing one being more pronounced than the?
I think it's pretty uniform across the segments at this point. I think generally speaking, you know, the industry itself is dealing with a period of maybe a little bit reduced customer demand and these inventory issues that are. It's all heavily correlated, right? To the extent that one piece gets a cold, I think it tends to flow.
Okay. Okay. For the last couple of quarters, you've highlighted the spend challenges from your smartphone chipset supplier sort of customer group, right? Order trends, can you sort of give more color on the order trends from that customer vertical? How much of a sort of sequential moderation are you seeing? One of the popular questions that I get from investors is, if they're starting to cut back on certain R&D projects, what are they really prioritizing at this point? Are they now sort of saying, "Okay, let's sort of look to 6G and sort of start working on that," and that's probably years out and hence less of a priority to spend immediately? When you look at them in terms of projects that they're still running, what are those priorities looking like?
Yeah, absolutely. First of all, with regard to kind of the short-term or order dynamics, obviously, orders are at a relatively lower level. I think as a positive note, we just, we just announced last week our second quarter results, and we saw pretty good stability, you know, not just at the Keysight level, but within Commercial Communication business as we moved from the first quarter into the second quarter. You know, good news, no incremental deterioration as we move from one quarter to the next. Similarly, as we cast the lens forward and look into the back half of the year, again, based on the. It is a highly uncertain environment, so I'll give that caveat.
Based on the data points that we have and what we can see, the communications that we're having with customers, our sales funnel, we see the second half of the year looking an awful lot like the first half from a demand perspective. That's true both at the Keysight level and at Commercial Communication level. you know, on the downside, we're not ready to call an uptick, and we don't have a significant upswing baked into our expectations. Similarly, we don't see a further downward catalyst at this point either. A little bit of a wait and see approach as the industry is working through, you know, some of these inventory dynamics that we have that we've already discussed.
As for prioritization, you know, we have seen, you know, as we've said, a general slowing in the level of investment. I think they're just being more deliberate with their buying decisions at this point in time. Certainly, the R&D markets have held in significantly better than the manufacturing markets, which was one of our core thesis, you know, for the company generally. I think within the commercial communication space, you know, it's really, you know, probably a deprioritization of kind of legacy-based, and, you know, technologies and a focus on the future. The coming revs of the standards, Release 17 , Release 18 , Release 19 , which are in various phases of definition at this point. Early 6G research, I think, is continuing.
I think, you know, this customer set realizes that, you know, that new product pipeline is critically important and they have to stay on track with the fundamental research that is gonna enable these broader technologies over the longer term. We are seeing that investment in early 6G research continue.
Okay. You brought up the deprioritization of legacy technologies, and I know when you've talked about sort of Commercial C ommunication revenues, 5G has been an expanding part of that revenue and 4G has been declining. I mean, how much of a change has that, this sort of deprioritization made to 4G declines that you've seen on the revenue side?
Yeah. I don't think it's that significant. I mean, I think the. You, you are right. I mean, as we move from one generation to the next, you do eventually go from a growth phase to a deceleration phase. We've seen our 4G and frankly, 3G and earlier technologies, you know, you know, contract over time. I think maybe the more relevant fact is here we are 10+ years after the introduction of 4G, and I still have a very significant 4G business, right? That just goes to the longevity of these cycles and the prolonged level of investment.
The fact that, you know, the, the market positions that you carve out early on in these cycles, you know, really pay dividends for a long time. You would argue that in 4G, maybe we were relatively less successful. Again, 10 years on, still have a significant business, and I think that bodes well for the longevity that we'll see from the, from the market position that we've carved out in 5G.
Got it. One of the interesting technologies that we used to talk about on every earnings call before was millimeter wave and, you know, content opportunity on that. I think just the amount of interest and the amount of discussion around that has dissipated a bit over the sort of moderated bit over the last few quarters. Is it really just because of limited interest outside the U.S. to really adopt that technology? I mean, in your sort of forecast that you laid out at the Analyst Day, what are you now assuming for millimeter wave rollout?
Yeah. I mean, I think the question is, you know, why isn't there maybe less investor interest in the short run on millimeter wave? I do think, you know, as the commercial deployment of higher frequency technologies is pushing out, obviously that is, you know, maybe reduced in investor interest. I think from our perspective, it's a virtual certainty that frequencies have to move up, right? I mean, it's really the only way in the wireless space to deal with the demand for data throughput that is to be handled is through increased frequency. Over time, that is the direction things are headed. The question is: what is that timeline?
Does it happen as part of 5G? Does it ultimately happen as part of 6G? I think we'll wait, we need to take a wait and see approach to how this thing ultimately commercializes. I think from Keysight's perspective, primarily as a provider of tools and solutions in the R&D lab, the key is that, you know, the ecosystem is working to solve the fundamental physics related challenges with higher frequency, and I think it's ultimately gonna be a necessity that the frequencies move north to deal with the demands of the industry.
Okay. Maybe, just moving to sort of the order trends and a bit more near-term of a question, but as you talked about, you're sort of seeing stable demand in terms of orders going forward. You're sort of expecting some seasonality with 3Q orders coming, pulling in a bit, 4Q being a bit better-
That's right.
-from what I gathered. Within that, though, EISG, our general expectation would be that EISG orders continue to improve. Maybe just help us think through that because EISG should looks like to be on a much better trajectory and improves through the year. It almost implies that Commercial C ommunication or Communications Solutions Group overall has to be down a bit. How should we think about it?
Yeah, I mean, it's, you know, as you think about Keysight, right? There are numerous secular, you know, market growth trends that we're exposed to. Within EISG, you know, certainly the Automotive business is continues to be very strong and actually improved as we move from the first quarter to the second quarter, and we continue to be very optimistic about the growth potential for that business as we look forward into the back half of the year. The General Electronics business may be surprisingly stable. You know, if it's surprised to the upside with its stability because that is a business that benefited favorably from, on the manufacturing side, from the supply chain disruptions of the past, say, 18 months.
As that manufacturing piece has fallen off, the fact that business has remained stable, driven by things like investments in advanced research, IoT, you know, Industry 4.0, even MedTech, you know, helping to keep that business stable has been a positive surprise. We've seen relative weakness on the EISG side as we've moved from Q1 to Q2 on the Semiconductor side, which I don't think is terribly surprising, given what others in the industry are seeing. I think, you know, as we look forward, you know, certainly the move to 3 nm, you know, sometime next year, I think is a next potential catalyst for our Semiconductor business. On the CSG side, you know, I think we've already talked about it, right?
The Commercial Communication business, you know, fortunately appears to be stable, albeit at a lower level, and we largely see that continuing through the back half of the year, while at the same time we're seeing relative strength in Aerospace, Defense, and Government that actually improved as we went through from Q1 to Q2. Given that the U.S. government fiscal year end falls in our fourth quarter, we'd expect, you know, continued strength in Aerospace, Defense, and Government demand here throughout the end of the year. It's a little bit of a mixed bag, but that's not uncommon for Keysight, right? Given the breadth of the portfolio, there are typically puts and takes as we think about the very secular drivers that we're facing.
Got it. Again, a near-term question on Commercial Communication, but I think in the last quarter, you generally had orders on the wireless side being a bit stronger sequentially than the wired. Any changes in the landscape there? Is wired now sort of more on, going to see some weakness because of the spending intent from, like, either the data center customers or that ecosystem starting to be a softer... How are you seeing that mix play out within the overall sort of stable backdrop? What's going on underlying between wireless and wired?
Yeah. Yeah, it's interesting. I think the dynamics are largely the same even if the timing is slightly off. I think within the wired side, you're correct. We did see some incremental weakness as we moved into the second quarter here. Yeah, I would describe that weakness as being skewed towards the legacy technologies, primarily 400 Gb, while the ongoing investment on the R&D side in those future technologies, 800 Gb, 1.6 Tb was much more resilient within the quarter. Not dissimilar to what we saw on the wireless space. I think in the wireless space, you know, largely stable moving quarter to quarter, maybe with a slight, a very slight upward tilt.
I would say stability was more the word of the day on the wireless side of things.
Okay. Before I move away from Commercial Communication, what are the big technology changes you're excited about in that group? I mean, I know you've talked about quantum. We are obviously quantum computing, we are talking AI as well, but which of these sort of technologies become material to revenue? Because you can work on them for a while before we start to see any material revenue from them. What should we keep a focus on?
To some extent, you answered your own question. I mean, I think there's a lot of things that we're excited about within Keysight as we look to kind of future growth drivers that'll give us the same growth over the longer term. I think, you know, start with the, you know, ultimately, the transition from 5G to 6G is gonna be very important, and Keysight's very much focused on continuing the market strength that we've achieved here in 5G as the market transitions to 6G. I think that's exciting. Quantum computing is an area where we've been investing both organically and inorganically to enable, you know, the research that's going into quantum technologies.
We see that, you know, in major research institutes and governments investing significant funds in quantum and, you know, we are generating material revenues from that even today. I think beyond that, we've already talked about AI/ML. I think that's gonna be a major industry driver for us moving forward, and one that is gonna continue to be a tailwind for Keysight for the foreseeable future. Even on the EISG side of things, certainly the, you know, the EV and AV transitions in Automotive business, the move to smaller process architectures in Semiconductor business, very exciting. MedTech in the General E lectronics business is something that we're excited about.
I think there are a wide range of technologies and things, you know, to drive our business as we move forward over the longer term.
Okay. Let me just pause here, see if any questions in the audience. Okay. Let me ask you on a couple of topics that are more sort of recent and are more sort of in terms of reacting to the news overall. We were hosting Teradyne yesterday, which is one of your test and measurement peers, and I think one of the broader themes that came through with that session is with the geopolitics, the way it's playing out between the U.S. and China, there is a level of inefficiency that's been built into the supply chain to some extent. Probably one way to look at it is it's a tailwind for companies in the test and measurement space with more sort of players to scale up and more players interested. Like, how do you see geopolitics overall impacting your business?
I know you've been sort of penalized in some cases on your defense business, but in a more broader sort of customer landscape, how are you seeing that play out?
Yeah. I mean, as you said, there are puts and takes, right? In the context of Teradyne, who you met with yesterday, I mean, certainly this, you know, the push that we've seen in the semi industry to assure supply in various regions around the world, I think has been demand generative for us and probably will be for, you know, multiple years to come in the semi space as you're seeing fabs built out around the world. You know, you talked about some of the supply inefficiencies. I think as people look to maybe de-emphasize China-based manufacturing, I think that's a potential catalyst for demand as they build up, you know, mirror capabilities in other regions around the world.
On the put side, you know, the trade situation in China is always a challenge we're constantly facing. Expansion of, you know, restricted party lists and those types of things, but have, you know, proven to be resilient over the last several years in overcoming those and continuing to grow our business in China. I think the other area that you have to look at when you think about geopolitics is the aerospace defense side of things and the investments that the U.S. and our allies are making in defense technology to ensure, you know, that they remain competitive. I think that is also, you know, demand generative for us as we look forward.
Okay. The other question I had for you was really on National Instruments and their purchase by a bigger conglomerate at this point. Any early thoughts in terms of what the implications are? You've been part of a bigger company and sort of spun off. As you think about sort of them going back into the fold of a larger company, how do you think about opportunities that might create?
First and foremost, I look at , you know, the recent situation that's played out as a positive commentary on our end markets, right? The fact that we had a big industrial player that was looking for, you know, new and attractive markets to participate in, focused on the test and measurement markets as a market with not only good growth, but good profit potential, I think bodes well, you know, for our industry, and it is positive from that perspective. I think, you know, in the end, we're not head-to-head with National Instruments all that often. They're a good competitor, and I expect they will continue to be under Emerson's leadership.
I think, you know, we're continued to remain focused on our technologies and our capabilities and on winning in our end markets and putting our customers first. That's not gonna change.
Let's move to the Automotive business. Just maybe, let's start with an overview of what the biggest drivers are. EV obviously is a big driver, but what are your capabilities there? How much of it is battery testing versus other parts of an electric vehicle, and what are you doing on the autonomous vehicle side?
Yeah. Let's start with EV first, right? I think there's two real big touch points on the EV side. The first is as it relates to the vehicle themselves, and there where we're primarily focused is on battery development, right? Again, primarily in the R&D labs helping, you know, the industry develop, you know, better battery technologies. You know, get extend range, help batteries last more, charge dissipation cycles, charge faster. These are the types of challenges that the industry is dealing with. Keysight has a set of tools that can help these companies in the R&D lab with this type of work.
I think the other area that we're focused is on the infrastructure side, the charging infrastructure side, and frankly, the intersection point between the vehicle and charging infrastructure. Obviously, anytime you pull an electric vehicle into a charger, the first and foremost thing you want is a safe transfer of power between the two, but there's a lot of protocol that has to happen. A lot of different companies making charging infrastructure, a lot of different company making cars, and those things need to be, you know, there's a ever-expanding level of possible combinations and we can help to make sure that regardless of what combination you end up with, that you get, you know, safe protocol, software updates, payment, these types of things, we're helping to advance the industry.
I think the other big dynamic is on the AV side, and I think over the longer term, this is potentially the more interesting piece for Keysight, given that ultimately, the advanced levels of autonomous driving, which admittedly, can be quite far out in terms of commercialization and adoption on the roadways, are ultimately gonna be achieved through a confluence of multiple communications technologies. The wireless standards like 4G and 5G, Wi-Fi. There'll be LAN networks in the vehicles, radars, lidars, and these are all areas where Keysight has particular expertise.
Our ability to bring that expertise across a wide range of wireless communication technologies to the industry to help them move the autonomous, you know, vision forward, I think is very exciting over the longer term. I think there are other areas where we play in auto as well. You know, if you think, you know, outside of drivetrain, outside of autonomous driving, there's even beyond that, there's still an explosion of the amount of electronics that are in a modern vehicle. You can think of things like infotainment systems and tire pressure sensors and all of these types of things, and Keysight can help with the development and testing of all that technology as well.
Got it. How much of the auto opportunities are at the system level where you're testing systems? Versus one of the things that's come up more recently is like semiconductor companies putting in more fab capacity or fabs putting in more capacity now directed towards automotive because that's been in short supply. How much does it tie back to the semiconductor ecosystem versus you're testing at the system level?
Yeah. I would say, well, we do both, right? We're certainly supportive of the big silicon-based foundries around the world and even some of the more auto-specific, you know, semiconductor companies that are out there. We sell directly to them as well. Ultimately, the primary portion of our business is selling to the auto OEMs and the Tier 1 suppliers that are working on, you know, various types of systems, be it battery systems or radar systems or these types of things that they're working to optimize in an R&D lab environment.
Okay. Okay. A few more. Actually, let me just do a quick check again. Any questions from the audience? Okay. Let me continue on, though and switch gears here a bit to the financials. One of the thing I noted as you reiterated your guide for modest revenue growth in fiscal 2023, is when I go back to the last earnings call, fiscal first quarter, you still had some hopes of a second half recovery, although you were saying this is the worst case. If orders sort of remain at these levels, we'll be growing modestly. It seemed a lot more on the last earnings call that you sort of this is how the demand environment is, we'll be flat through the year on orders.
Yeah.
Yeah. It seemed to sort of suggest that you're taking out the hope of a second half recovery. Just curious, I mean, is that me interpreting it wrong? Is that sort of what you're seeing in the data, that it's very unlikely, do you see any pickup in the second half?
Well, I think that's an accurate assumption or an accurate interpretation of what we're seeing today, recognizing it's a highly dynamic environment and things could change. I think one of the reasons why you maybe picked up on maybe a little bit of incremental confidence and at least as to where we're heading, is we run a six-month funnel process. Now I have, with the first half in the books, I now have the entire second half that is at least, you know, visible within my funnel.
I think, you know, given the customer, the deep customer relationships that we have and the customer interactions that we're having, I think we have a fair degree of visibility as to what the back half is likely to look like. That led to this comment about, you know, the second half looking an awful lot like the first half. We haven't baked in any incremental upside or downside catalysts at this point in time. That doesn't mean that those can't materialize at some point over the next six months, and we end up, you know, in some place different than where we currently expect. Based on all the data points that we can gather and observe, you know, again, stability seems to be the most likely outcome.
Okay. Yeah. execution, record gross margins, operating margins in the quarter. Firstly, what are the actions you've taken to sort of enable that in the first place? How much of that is just some of the supply premium sort of moderating, which we are seeing across other hardware companies? What's the actions, and does that also replicate in the second half versus the first half?
Yeah. You know, I think over the long term, there's a lot of actions that we've taken to over the past several years to basically keep pace with inflation and make sure that we're able to maintain the margins in our business and pass on those increasing costs to our customers where possible. I think we've largely done that with margins being largely stable over the last couple of years. I think obviously we had record gross margins within the quarter. I think that's a function of the fact that these third party... A couple things.
First, that these third party price premiums, you know, we've all heard the stories about the golden screw or whatever, that you've had to pay some, you know, obnoxious level for it to get a system out the door. You know, that is finally starting to wane, and I think we've seen the big downward inflection here for us here in the second quarter. We also had very favorable mix within the quarter. You know, I think, I do expect the mix in the second half to maybe be less favorable than what we saw in the second quarter. Even there's some good news, right?
I think some of that is the fact that we're finally in a position from a supply chain standpoint, that we can start to work down the backlog of our distribution products. You know, those distribution products tend to be lower priced, lower levels of technology, higher competition, and therefore, can be a little bit lower on the gross margin side of things. While I don't foresee us, you know, sustaining the gross margin level that we delivered in the second quarter over the back half of the year, I think it's a great proof point of our ability to get to the long-term target that we outlined at Analyst Day of 66%-67%.
I think over the long term, we're gonna be in a position where not only can we achieve those levels again, but sustain them going forward.
Okay. Okay. last couple of questions. One, EISG margins had a big increase in the last quarter. maybe just outline what your long-term sort of margin expectations are for the EISG group, and what was sort of contributing to that big increase in margins.
Yeah. I mean, similar to what we just said, I think they maybe saw a little bit of an outsized benefit relative to CSG from these third party price premiums last quarter. They also had very favorable mix within their own portfolio of products. Again, a lot of those distribution-based products are on the EISG side of things, so that'll become a little bit of a headwind here in the second half. Suffice it to say that, you know, in order for Keysight to achieve its long-term margin objectives, you know, we would expect EISG margins to continue to move northward as well.
Okay. Okay. last one, software. I mean, we don't end up talking about it every quarter, you don't report the number every quarter, but, that was a big part of the story, particularly as communication was ramping. Where are you today in terms of software as a portion of revenue? H ow do you see that playing out in terms of both revenue and margins?
Yeah. Software's now north of 20% of our revenue. I think we continue to look for ways to add value to our customers through the addition of software to our current tool environment. As you noted, CSG, our communications business, a very favorable mix within the quarter, in that they tend to have higher software content than on the industrial side. We saw not only that, but relative software strength within CSG within the quarter. You know, our software business over the longer term continues to outpace the growth of the broader business. We continue to look for ways to add to our software portfolio via M&A and our inorganic investments.
I think over the longer term, we look to continue to increase the proportion of our business that is coming from software. As well as look to increase the recurring nature of our software sales. About 50% of our software sales is recurring today. I think there's opportunity for us to continue to move that significantly northward.
Okay. Okay. I'll wrap it up there. Thank you for coming to the conference.
Thank you so much. Appreciate it.
Thank you.
Thank you.