Item 1. Business

Overview

Keysight Technologies, Inc. ("we," "us," "Keysight" or the "company”), incorporated in Delaware on December 6, 2013, is a measurement company providing electronic design and test solutions to communications and electronics industries. We provide electronic design and test instruments and systems and related software, software design tools, and related services that are used in the design, development, manufacture, installation, deployment and operation of electronics equipment. Related services include start-up assistance, instrument productivity, application services and instrument calibration and repair. We also offer customization, consulting and optimization services throughout the customer's product lifecycle.

On November 1, 2014, Keysight became an independent publicly-traded company through the distribution by Agilent Technologies Inc. ("Agilent") of 100 percent of the outstanding common stock of Keysight to Agilent's shareholders (the "Separation"). Each Agilent shareholder of record as of the close of business on October 22, 2014 received one share of Keysight common stock for every two shares of Agilent common stock held on the record date. Approximately 167 million shares of Keysight common stock were distributed on November 1, 2014 to Agilent shareholders. Keysight's Registration Statement on Form 10 was declared effective by the U.S. Securities and Exchange Commission ("SEC") on October 6, 2014. Keysight's common stock began trading the "regular-way" under the ticker symbol "KEYS" on the New York Stock Exchange on November 3, 2014.

On August 13, 2015, we acquired all of the share capital of Anite plc ("Anite"), for a cash purchase price of $558 million, net of $43 million cash acquired. Anite was a United Kingdom ("U.K.")-based global company with strong software expertise and a leading supplier of wireless test solutions. This acquisition strengthened our wireless software design and test portfolio and its Network Test business expanded our served addressable market. Coupled with Keysight's expertise in helping customers design and test hardware, we can now provide customers with more comprehensive wireless hardware and software solutions. Anite’s Network Test business will also enable us to provide innovative solutions that help customers deliver an outstanding experience for mobile users in the network. Keysight funded the acquisition using existing cash.

We have a comprehensive sales strategy that uses our direct sales force, distributors, resellers and manufacturer's representatives. The strategy varies based on the size of customer, the complexity of products and geographical coverage. We generated $2.9 billion of net revenue in fiscal year 2016, 2015 and 2014. Of our total net revenue of $2.9 billion for the fiscal year ended October 31, 2016, we generated 35 percent in the United States and 65 percent outside the United States. As of October 31, 2016, we had approximately 10,300 employees worldwide. Our primary research and development and manufacturing sites are in California and Colorado in the United States and outside of the United States in Belgium, China, Finland, Germany, U.K., India, Japan, Malaysia, Singapore, Spain and Switzerland.

Net revenue, income from operations and assets by business segment as of and for the fiscal years ended October 31, 2016, 2015 and 2014 are shown in Note 21, "Segment Information," to our combined and consolidated financial statements, which we incorporate by reference herein.

We had approximately 15,500 direct customers for our products and services in fiscal year 2016 and approximately 30,000 customers including indirect channels. No single customer represented 10 percent or more of our net revenue. Many of our customers acquire products and services across multiple segments.

Strategies

With a singular focus on electronic design and test, we deliver market-leading solutions across a wide range of industries, including commercial communications, aerospace, defense and government, automotive, energy, semiconductor and electronic industrial. Our research and development focuses on our customers' design and test challenges, from design simulation to prototype validation to manufacturing test, to optimization in the network. Market and customer opportunities are driven by evolving technology standards, as well as the need for faster data rates and new form factors, from feature-rich solutions to modular solutions to handheld instruments. Our strategic focus is to deliver market-leading solutions and growth by investing in the following areas:

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New wireless communication measurement solutions. We are investing in the development of new wireless communications test solutions to satisfy the commercial communications end market which is being driven by growth in mobile data and evolving wireless standards, particularly 5G. The acquisition of Anite in the fourth quarter of fiscal 2015 strengthened our wireless software design and test portfolio and its Network Test business expanded our served addressable market. Our early 5G solutions have also been gaining tangible traction. With our technical breadth and expertise and strategic engagement with customers and partners around the world, we have leading-edge solutions for 5G applications available when needed, even as development schedules accelerate.

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Industry-focused solutions across form factors. With our focus on industry solutions, we provide customers with solutions that utilize our leading-edge technology across form factors, from feature-rich solutions to modular solutions to handheld instruments. We have the broadest portfolio of software, hardware and service solutions in the industry and continue to leverage our strength in feature-rich instrumentation into a portfolio of modular and handheld measurement solutions to address our customers’ complex design and measurement needs.

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Enhanced and expanded software solutions. An increasing percentage of measurement science and functionality is delivered through software solutions. Our portfolio of software solutions and software productivity tools is extensive and represents a significant corporate asset. We continue to invest in software development to capitalize on its growth potential and provide industry-leading measurement applications, electronic design automation ("EDA") software and software protocol design and test solutions.

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New services solutions. Our services business represents a meaningful growth opportunity as we invest in expanding our services solutions portfolio. Our focus on growing services through multi-vendor calibration and asset management builds upon a strong foundation of repair and calibration services. We are also expanding our service solutions into new areas such as technology refresh and professional services.

Strengths

Our Electronic Measurement Business originated in 1939. Our legacy encompasses more than 75 years of innovation, measurement science expertise and deep customer relationships. We do business with most Fortune 1000 companies that are developing electronic products. We help customers bring breakthrough electronic products to market faster and at a lower cost. The following strengths are significant:

Technology Leadership as a Competitive Differentiator: Proprietary software and hardware technologies unavailable on the commercial market and developed by our thirteen R&D centers around the world enable many Keysight products to deliver the best design and measurement solution capability available for our customers’ engineering requirements. Built on an intellectual property foundation developed over a 30-year period, Keysight’s EDA computer aided design software for radio and microwave frequency designs is the premiere tool used by over two-thirds of the world’s engineers doing design work in this field. Some of Keysight’s hardware technologies are designed and manufactured in our own in-house integrated circuit fabrication facilities, which were purpose-built and optimized to deliver unmatched capabilities across the broad portfolio of Keysight instruments. Once developed, these technologies can be deployed into multiple instrument form factors which include the Feature Rich Box or Bench Top instruments, modular instruments and handheld portable instruments. For Keysight, deploying technology across all the instrument form factors provides multiple revenue streams from a single technology investment. The result is that Keysight is recognized as being the product leader in four core engineering instrumentation categories; RF and Microwave Design Simulation software, Network Analyzers, Signal Analyzers, and Signal Sources.

Broad Portfolio of Solutions to Address Customer Needs: We believe we have the broadest portfolio of electronic design and test solutions in the industry. Our hardware product portfolio spans many technologies, price points and form factors. We address time and frequency domain applications with RF, microwave, high-speed digital and general instrumentation. In addition, we have a broad portfolio of software products including EDA software for RF and high-speed digital design, hundreds of measurement application solutions to help customers make specific measurements quickly and consistently, and software tools for programming.

Industry Leading Commitment to Product Quality and Reliability: We believe we have a reputation in the industry for high quality and high reliability electronic measurement instrumentation and software. This reputation for quality is supported by a three-year instrument warranty. Ensuring quality and reliability is an integral part of our new product development processes.

Large Installed Base: We have a large installed base of equipment because of the breadth of our product portfolio and our long history of producing high-performance and high-quality products. This installed base enables a strong and growing Services Solutions Group that provides a wide range of calibration and repair services, on both a per incident and contract basis, and provides a significant source of loyal customers for future sales.

Sales Channel with Global Reach: We have a worldwide and comprehensive sales channel. We have experienced management teams and highly technical sales and application engineers in all parts of the world, including a strong local presence in emerging markets. Our sales channel strategy is segmented by customer size, customer location and product characteristics. We deploy a direct sales organization focused on selling higher performance products and industry solutions to global and geographic accounts. Approximately 79 percent of our business comes from customer interactions with our direct sales organization. To ensure broad geographic coverage and further drive growth, we maintain a network of over 600 channel partners to complement our direct sales force.

Centralized Order Fulfillment: Our order fulfillment organization allows us to leverage the scale and scope of our business to provide high-quality, market-leading instrument solutions to our customers while generating competitive gross margins. Our Penang, Malaysia site is our largest manufacturing facility, with a proven track record of operational excellence, technology capability and quality. We have an established network of suppliers and subcontractors, especially in Asia, that complements our in-house capabilities.

Business Model: Our operating model incorporates a substantial amount of cost structure flexibility with the intent to be materially profitable across the business cycle. Our variable compensation programs, sales channel strategy and the outsourced components of our supply chain have been implemented to improve the flexibility of our cost structure.

Operating Segments

In fiscal year 2016, we completed an organizational change to align our organization with the industries we serve. As a result of this organizational realignment, we have three reportable operating segments, Communications Solutions Group (“CSG”), Electronic Industrial Solutions Group (“EISG”), and Services Solutions Group (“SSG”). CSG and EISG are from our previous Measurement Solutions segment, while SSG was formerly reported as the company's Customer Support and Services segment. The new organizational structure continues to include centralized enterprise functions that provide support across the groups. Prior period amounts were revised to conform to the current presentation.

Communications Solutions Group

The Communications Solutions Group serves customers spanning the worldwide commercial communications end market, which includes internet infrastructure, and the aerospace, defense and government end market. The group provides electronic design and test software, instruments, and systems used in the simulation, design, validation, manufacturing, installation and optimization of electronic equipment. This business generated revenue of $1.8 billion in fiscal 2016, $1.7 billion in fiscal 2015 and $1.8 billion in fiscal 2014.

Communications Solutions Group Markets

Our Communications Solutions Group serve the following two markets:

Commercial Communications Market

We market our electronic design and test solutions to network equipment manufacturers (“NEMs”), wireless device manufacturers, and communications service providers, including the component manufacturers within the supply chain for these customers. Growth in mobile data traffic and increasing complexity in semiconductors and components are drivers of test demand across the communications market.

NEMs manufacture and sell products to enable the transmission of voice, data and video traffic. The NEMs’ customers are communications service providers that deploy and operate the networks and services, as well as distribute end‑user subscriber devices, including wireless personal communication devices and set‑top boxes. To meet their customers’ demands, NEMs require test and measurement instruments, systems and solutions for the development, production and installation of each optical, electrical and wireless network technology.

Wireless device manufacturers require design and test solutions for the design, development, manufacture and repair of a variety of mobile devices. These mobile devices are used for voice, data and video delivery to individuals who connect wirelessly to the service provider’s network. The device manufacturers’ customers are large and small service providers, enterprises and consumers who purchase devices directly from retailers. Wireless device manufacturers require design and test solutions that enable technology development in conformance with the latest standards.

Communications service providers require reliable data center and network equipment that enables new service offerings and allows their networks to operate with ever‑increasing capacities. To achieve this, communications service providers require a range of sophisticated test instruments and systems to ensure conformance to communication standards and network requirements and to evaluate network performance.

Component manufacturers design, develop and manufacture electronic and optical components and modules used in network equipment and mobile devices. The component manufacturers require test and measurement products to verify that the performance of their components and modules meets the specifications of their customers.

Aerospace, Defense and Government Market

We market our electronic design and test solutions to manufacturers and research facilities within the aerospace and defense industries. This market includes commercial and government customers and their contracted suppliers. The modernization of satellite, radar and surveillance systems worldwide is a driver of test demand within the aerospace and defense market.

Government customers include departments or ministries of defense and related agencies around the world. Contractors support the government and commercial customers by providing design and manufacturing capabilities for a variety of programs. We also sell to sub‑contractors and component manufacturers within the supply chain.

Customers use our electronic measurement instruments to develop and manufacture a wide variety of electronic components and systems used in aerospace and defense industries, including commercial and military aircraft, space, satellite, radar, intelligence and surveillance. Customers test the electrical parameters of a broad spectrum of components and assemblies and final products and often require large systems containing multiple electronic instruments.

Communications Solutions Group Products

Our electronic design and test solutions include RF and microwave instruments, digital instruments and various other general purpose test instruments and targeted test solutions. We offer these products and related software in a variety of form factors, including benchtop, modular and handheld, depending on the specific requirements of the customer application.

Software Solutions

Our high-frequency EDA software tools are used to model, simulate and analyze communications product designs at the circuit and system levels. Our measurement application software is an extension of our hardware solutions and enables a wide range of measurement capability used across all end markets to design and manufacture next-generation electronic components and products. The acquisition of Anite provides the software tools used to design and test the software portion of wireless devices and test the performance of networks.

RF and Microwave Products

Our RF and microwave test instruments and related software and EDA software tools are used mainly in wireless and aerospace and defense applications. These products are required for the design and production of wireless network products, communications links, mobile devices and base stations. RF and microwave test instruments include signal analyzers, signal generators, network analyzers, one box testers and power meters. The acquisition of Anite provides the software and hardware tools used to design and test the software portion of wireless devices and test the performance of networks.

Digital Products

Our digital test products are used by research and development engineers across a broad range of industries to validate the function and performance of their digital product and system designs. These designs include a wide range of products from simple digital control circuits to complex high-speed systems such as computer servers and the latest generation gaming consoles. The test products offered include oscilloscopes, logic and serial protocol analyzers, logic‑signal sources, arbitrary waveform generators, and bit error rate testers. Our customers also use our high‑frequency EDA software tools to model signal integrity problems in digital design applications as digital speeds continue to increase.

Other Products

Our suite of fiber optic test products measure and analyze a wide variety of critical optical and electrical parameters in fiber optic networks and their components. Components which can be tested with our solutions include source lasers, optical amplifiers, filters and other passive components. Test products include optical modulation analyzers, optical component analyzers, optical power meters, and optical laser source products.

Communications Solutions Group Customers

Our customers include commercial companies and government agencies around the world. We have customers across the lifecycle that design, develop, manufacture, install and monitor a variety of commercial and government communications networks. Commercial customers include original equipment and contract manufacturers of electronic components, semiconductors, wireless devices and network equipment, as well as network service providers that implement, maintain and manage communication networks and services. Other commercial customers include defense contractors and sub-contractors. Government customers include departments or ministries of defense, government agencies and related research institutes.

Our customers use our products to conduct research and development to manufacture, and to install and maintain radio frequency, microwave frequency, digital, semiconductor, and optical products and systems. Many of our customers purchase solutions across several of our major product lines for their different business units.

No single customer represented 10 percent or more of the group's net revenue.

In general, the orders and revenues from many of the Communications Solutions Group markets and product categories are seasonal, traditionally marked by lower business levels in the first and third quarters of the fiscal year and higher volumes in the second and fourth quarters of the fiscal year. The seasonal impact of our business is tempered by broader economic trends and the diversity of our electronic measurement products and customers, which span multiple industries.

Communications Solutions Group Sales, Marketing and Support

We have a comprehensive sales strategy, using a direct sales force, resellers, manufacturer’s representatives and distributors to meet our customers’ needs.

Our direct sales force focuses on addressing our largest customer needs and recommending solutions involving the effective use and deployment of our equipment, systems and capabilities. Some of our direct sales force concentrates on more complex products such as our high‑performance instruments, where customers require strategic consultation. Our direct sales force consists of field and application engineers who have in‑depth knowledge of the customers’ business and technology needs. Our application engineers provide a combination of consulting, systems integration and application and software engineering services that are pervasive across all stages of the sale, implementation and support of our complex systems and solutions.

To complement our direct sales force, we have agreements with channel partners around the world. These partners, including resellers, manufacturer’s representatives and distributors, serve customers across both of our segments and are expected to provide the same level of service and support as our direct sales force. Lower dollar sales transactions are also served by our tele‑sales and electronic commerce channels.

Communications Solutions Group Manufacturing

We concentrate our Communications Solutions Group manufacturing efforts primarily on final assembly and test of our products. To maximize our productivity and our ability to respond to market conditions, we use contract manufacturers for the production of printed circuit boards, sheet metal fabrication, metal die-casting, plastic molding and standard electronic components. We also manufacture proprietary devices and assemblies in our own fabrication facilities for competitive advantage. We have manufacturing facilities in California and Colorado in the United States. Outside of the United States we have manufacturing centralized in Malaysia with other manufacturing facilities in China, Germany and Japan. Our Penang, Malaysia site is our largest test and measurement manufacturing facility with proven operational excellence through scale, scope and expertise.

Within our business, there are three Technology Centers that collectively provide key components and sub‑systems. The three Technology Centers are located in Boeblingen, Germany, Colorado Springs, Colorado and Santa Rosa, California. These technologies include optical components and sub‑systems, Application-Specific Integrated Circuits (“ASICs”), thick and thin film circuits, high speed probes and precision machining. These Technology Centers provide a competitive advantage by developing unique technologies for our solutions.

We generally only manufacture products when we have received firm orders for delivery and do not generally hold large stocks of finished inventory.

Communications Solutions Group Competition

The market for electronic design and test solutions is highly competitive across our targeted markets. In the commercial communications market, our primary competitors are Anritsu Corporation, Cobham plc, National Instruments Corporation, Rohde & Schwarz GmbH & Co. KG, Tektronix, Inc. (a subsidiary of Fortive Corporation), LeCroy Corporation (a subsidiary of Teledyne Technologies) and Teradyne, Inc. In the aerospace, defense and government market our primary competitors are Cobham plc, Rohde & Schwarz GmbH & Co. KG, LeCroy Corporation and Tektronix, Inc.

Our electronic design and test solutions offer a wide range of products and related software, and these products compete primarily on the basis of product quality, differentiated capability, leading edge technology and long term value to our customers.

Electronic Industrial Solutions Group

The Electronic Industrial Solutions Group provides test and measurement solutions across a broad set of electronic industrial end markets, focusing on high-growth applications in the automotive and energy industry and measurement solutions for semiconductor design and manufacturing, consumer electronics, education and general electronics manufacturing. The group provides electronic design and test software, instruments, and systems used in the simulation, design, validation, manufacturing, installation and optimization of electronic equipment. This business generated revenue of $776 million in fiscal 2016, $758 million in fiscal 2015 and $766 million in fiscal 2014.

Electronic Industrial Solutions Group Markets

We market our electronic design and test solutions to customers with significant electronic content across a broad set of electronic industrial end markets. These industries design, develop and manufacture a wide range of products, including those produced in high volumes, such as computers, computer peripherals, electronic components, consumer electronics, enterprise servers, storage networks and automotive electronics. The components, printed circuit assemblies and functional devices for these products may be designed, developed and manufactured by electronic components companies, by original equipment manufacturers or by contract manufacturers. Other industrial applications for our products include power, energy, automotive, medical, research and education.

Customers use test solutions in developing and manufacturing a wide variety of electronic components and systems. These customers’ test requirements include testing the electrical parameters of digital, radio frequency, and microwave frequency components and assemblies; testing multiple parameters of the printed circuit boards used in almost every electronic device; testing of the final product; and testing of systems containing multiple electronic instruments. For semiconductor and board test applications, customers use our solutions in the design, development, manufacture, installation, deployment, and operation of semiconductor and printed circuit assemblies.

Electronic Industrial Solutions Group Products

Our electronic industrial products include design and design verification tools, a broad range of electronic test and measurement instruments, comprehensive manufacturing systems, material analysis and university education solutions to train the next generation of engineers and scientists.

Design tools include design-for-test (“DFT”) for printed circuit assemblies and automotive radar, and EDA software for wireless and wired communication links in industrial, automotive and power semiconductor devices.

Design verification solutions include physical signal characterization and protocol compliance, notably for those links used in industrial, energy and automotive devices and products. Major industry forces are electrifying transportation and changing how electrical energy is generated, stored and controlled. Examples of verification solutions include those that help design engineers qualify and characterize power semiconductor devices, photo-voltaic/electrical vehicle/storage inverters, AC power analysis, DC battery cells/modules and automotive body/safety/engine electronic modules. High-precision and higher-bandwidth power analysis products address the increased power efficiency required with the proliferation of battery-powered and energy-efficient devices.

General purpose test and measurement products include hand-held (portable), bench instrument and modular forms. Capability includes Digital Multi-Meters, Function Generators, Waveform Synthesizers, Counters, Data Acquisition (“DAQ”), Audio Analyzers, LCR Meters, Thermal imaging, low-cost USB modular, precision SMU (Source Measurement Units), ultra-high precision device current analyzers, test executive software platforms and a wide variety of power supplies ranging from bench to highly scalable AC/DC modular supplies and electronically programmable loads. These products are increasingly integrated with solution-specific software that enable our customers to dramatically accelerate and improve the effectiveness of their product design, design validation, manufacturing and support activities. Our products also support fundamental measurement science for voltage, current, frequency, signal pulse width, sub-nano-meter distance and complex electronic measurements. This enables

industry and government agencies to determine fundamental electrical parameters and ensure customers can calibrate and ensure traceability measurement metrology.

Comprehensive manufacturing systems include: printed-circuit-board-assembly (“PCBA”) testers that ensure complex boards and components are assembled properly, IC parametric testers that ensure semiconductor wafers are processed consistently with high-precision and sub-nano-meter positioning systems for semiconductor wafer manufacturing. We provide effective and efficient manufacturing test solutions for complex transportation electronic control/safety systems that include radar, autonomous capability, and state-of-the-art wired and wireless components. Our flexible and scalable manufacturing systems offer the best-in-class value to enable our manufacturing customers to deliver outstanding yield, quality and productivity resulting in lower overall cost of test.

Material analysis products include atomic-force and scanning-electron microscopy to enable deeper understanding of materials that are driving breakthroughs in new semiconductor devices and sensors used in Internet of Things (“IoT”) and electronic manufacturing processes.

Our highly regarded test and measurement products and software have a long history of broad adoption and use in universities and research centers that teach the next generation of engineers and scientists and enable basic research to flourish. Increasing global competition in education is driving the need for efficient and timely education solutions and we are making those available in areas such as IoT, 5G communications technology and smart devices.

Electronic Industrial Solutions Group Customers

Our customers include original equipment and contract manufacturers of electronic industrial products and services. These customers use our solutions to perform research and development, manufacturing and support their products and services. Customer products include semiconductor devices, printed circuit assemblies, electronic modules and systems. Our customers range from the largest multi-national global companies to the smallest start-ups and include universities and government agencies around the world.

No single customer represented 10 percent or more of the group's net revenue.

In general, the orders and revenues from many of the electronic industrial measurement markets and product categories are seasonal, traditionally marked by lower business levels in the first and third quarters of the fiscal year and higher volumes in the second and fourth quarters of the fiscal year. The seasonal impact of our business is tempered by broader economic trends and the diversity of our electronic measurement products and customers, which span multiple industries.

Electronic Industrial Solutions Group Sales, Marketing and Support

We have a comprehensive sales strategy, using a direct sales force, resellers, manufacturer’s representatives and distributors to meet our customers’ needs.

Our direct sales force focuses on addressing our largest customer needs and recommending solutions involving the effective use and deployment of our equipment, systems and capabilities. Some of our direct sales force concentrates on more complex products such as our high‑performance instruments, where customers require strategic consultation. Our direct sales force consists of field and application engineers who have in‑depth knowledge of the customers’ business and technology needs. Our application engineers provide a combination of consulting, systems integration and application and software engineering services that are pervasive across all stages of the sale, implementation and support of our complex systems and solutions.

To complement our direct sales force, we have agreements with channel partners around the world. These partners, including resellers, manufacturer’s representatives and distributors, serve customers across both of our segments and are expected to provide the same level of service and support as our direct sales force. Lower dollar sales transactions are also served by our tele‑sales and electronic commerce channels.

Electronic Industrial Solutions Group Manufacturing

We concentrate our electronic industrial measurement manufacturing efforts primarily on final assembly and test of our products. To maximize our productivity and our ability to respond to market conditions, we use contract manufacturers for the production of printed circuit boards, sheet metal fabrication, metal die-casting, plastic molding and standard electronic components. We also manufacture proprietary devices and assemblies in our own fabrication facilities for competitive advantage. We have manufacturing facilities in California and Colorado in the United States. Outside of the United States we have manufacturing centralized in Malaysia with other manufacturing facilities in China, Germany and Japan. Our Penang, Malaysia site is our largest test and measurement manufacturing facility with proven operational excellence through scale, scope and expertise.

Within our business, there are three Manufacturing Technology Centers that collectively provide key components and sub‑systems. The three Manufacturing Technology Centers are located in Boeblingen, Germany, Colorado Springs, Colorado and Santa Rosa, California. These technologies include optical components and sub‑systems, ASICs, thick and thin film circuits, high speed probes and precision machining. These Manufacturing Technology Centers provide a competitive advantage by developing unique technologies for our solutions.

We generally only manufacture products when we have received firm orders for delivery and do not generally hold large stocks of finished inventory.

Electronic Industrial Solutions Group Competition

The market for electronic industrial design and test solutions is highly competitive across our targeted markets. In the electronic industrial test market, our primary competitors are Anritsu Corporation, National Instruments Corporation, Rohde & Schwarz GmbH & Co. KG, Keithley/Tektronix/Fluke, Inc. (subsidiaries of Fortive Corporation), LeCroy Corporation (a subsidiary of Teledyne Technologies), Teradyne, Inc. and Advantest.

Our electronic industrial design and test solutions offer a wide range of products, solutions and related software, and these compete primarily on the basis of product quality, differentiated capability, leading edge technology and long term value to our customers.

Services Solutions Group

The Services Solution Group provides worldwide integrated service solutions to optimize test equipment and productivity, including repair and calibration services, professional services and remanufactured equipment. This business generated revenue of approximately $400 million in each of fiscal 2016, 2015 and 2014.

Services Solutions Group Markets

Services Solutions Group broadly addresses the same markets as the Communications Solutions Group and Electronic Industrial Solutions Group, which includes commercial communications, aerospace, defense and government, internet infrastructure, automotive and energy, semiconductor manufacturing and general electronics and manufacturing industries.

Services Solutions Group Products

Keysight offers the following general types of services and products under the Services Solutions Group:

•	Accredited Product Support Services. Comprehensive product support services that combine repair, parts, and accredited calibrations of Keysight and non-Keysight test equipment.

•	Professional Services. Training and technology services to optimize equipment utilization.

•	Remanufactured Equipment. Refurbished used equipment, including Keysight Premium Used, which ensures the same high quality as our new equipment.

•	Asset Management Program. Full service solution to optimize customer’s asset tracking, servicing and utilization requirements throughout the product life cycle.

Services Solutions Group Customers

The customers for our Services Solutions Group include customers of the Communications Solutions Group and Electronic Industrial Solutions Group. No single customer represented 10 percent or more of the group's net revenue.

Services Solutions Group Sales, Marketing and Operations

Services Solutions Group shares the same industry‑leading sales, marketing and support resources as the Communications Solutions Group and Electronic Industrial Solutions Group, including the same direct sales force and complementary channel partners.

Customer demand is fulfilled through regional service centers by trained technicians and engineers, located in close proximity to customers at 69 Keysight service locations in more than 30 countries. Our global presence, with localized service proximity, is an important factor in sustaining our customers’ equipment uptime and utilization requirements.

Services Solutions Group Competition

The Services Solutions Group competes with independent test equipment service providers, government measurement laboratories and other original equipment manufacturers. Many of these competitors offer a wide range of services and can support instruments from multiple manufacturers. Service quality, cost and turn‑around time drive competitiveness within our served industries. In addition, some of our instrument customers have in‑house calibration and repair capabilities. Our primary service competitors are Trescal Limited, Fortive Corporation, and Ceprei Laboratories. Due to differing country and regulatory accreditation standards, the services provided may vary greatly from country to country.

Our remanufactured equipment business faces competition from other electronic measurement instrument competitors with trade‑in programs and from numerous rental companies, equipment dealers, brokers and resellers.

The following discussions of Research and Development, Backlog, Intellectual Property, Materials, Environmental and International Operations include information common to each of our businesses.

Research and Development

Research and development ("R&D") expenditures were $425 million in fiscal 2016, $387 million in fiscal 2015 and $361 million in fiscal 2014. We anticipate that we will continue to have significant R&D expenditures in order to maintain our competitive position with a continuous flow of innovative, high-quality customer solutions, products and services. We are committed to investing in R&D and have focused our development efforts on key strategic opportunities in order to align our business with available markets and position ourselves for growth.

Our R&D efforts focus on improvements to existing products and development to support new product introductions and complete customer solutions aligned to our industry. We conduct R&D in four principal areas: enabling technologies, system design, simulation and measurement. Our R&D seeks to improve on various technical competencies in electronics, software, systems and solution delivery. R&D investments are focused on delivering technology and solutions to market in the short term as well as building a strong foundation for future solutions over a longer time horizon.

Backlog

Backlog represents the amount of revenue expected from orders that have already been booked, including orders for goods and services that have not been delivered to customers, orders invoiced but not yet recognized as revenue, and orders for goods that were shipped but not invoiced, awaiting acceptance by customers.

At October 31, 2016, our unfilled backlog was approximately $807 million, as compared to approximately $779 million at October 31, 2015. We expect that a majority of the unfilled backlog will be recognized as revenue within six months. We believe backlog on any particular date, while indicative of short-term revenue performance, is not necessarily a reliable indicator of medium or long-term revenue performance.

Intellectual Property

We generate patent and other intellectual property rights covering significant inventions and other innovations in order to create a competitive advantage. Although we believe that our licenses, patents and other intellectual property rights have value, in general no single license, patent or other intellectual property right is in itself material, other than the Keysight mark. In addition, our intellectual property rights may be challenged, invalidated or circumvented or may otherwise not provide significant competitive advantage.

Materials

Our manufacturing operations employ a wide variety of semiconductors, electromechanical components and assemblies and raw materials such as plastic resins and sheet metal. We purchase materials from thousands of suppliers on a global basis. Some of the parts that require custom design work are not readily available from alternate suppliers due to their unique design or the length of time necessary for design work. Our long-term relationships with suppliers allow us to proactively manage technology road maps and product discontinuance plans and monitor their financial health. Even so, some suppliers may still extend their lead times, limit supplies, increase prices or cease to produce necessary parts for our products. If these are unique components, we may not be able to find a substitute quickly or at all. To address the potential disruption in our supply chain, we use a number of techniques, including qualifying multiple sources of supply and redesign of products for alternative components. In addition, while we generally attempt to keep our inventory at minimal levels, we do purchase incremental inventory as circumstances warrant to protect the supply chain.

Environmental

Our R&D, manufacturing and distribution operations involve the use of hazardous substances and are regulated under international, federal, state and local laws governing health and safety and the environment. We apply strict standards for protection of the environment and occupational health and safety to sites inside and outside the United States, even if not subject to regulation imposed by foreign governments. We believe that our properties and operations at our facilities comply in all material respects with applicable environmental laws and occupational health and safety laws. However, the risk of environmental liabilities cannot be completely eliminated and there can be no assurance that the application of environmental and health and safety laws will not require us to incur significant expenditures. We are also regulated under a number of international, federal, state, and local laws regarding recycling, product packaging and product content requirements. The environmental, product content/disposal and recycling laws are gradually becoming more stringent and may cause us to incur significant expenditures in the future.

Some of our properties are undergoing remediation by HP Inc. ("HP") for subsurface contaminations that were known at the time of Agilent’s separation from HP in 1999. In connection with Agilent’s separation from HP, HP and Agilent entered into an agreement pursuant to which HP agreed to retain the liability for this subsurface contamination, perform the required remediation and indemnify Agilent with respect to claims arising out of that contamination. Agilent has assigned its rights and obligations under this agreement to Keysight in respect of facilities transferred to Keysight in the separation. As a result, HP has access to a limited number of our properties to perform remediation. Although HP agreed to minimize interference with on-site operations at such properties, remediation activities and subsurface contamination may require us to incur unreimbursed costs and could harm on-site operations and the future use and value of the properties. In connection with the separation, Agilent will indemnify us directly for any liabilities related thereto. We cannot be sure that HP will continue to fulfill its remediation obligations or that Agilent will continue to fulfill its indemnification obligations.

In connection with the separation, Agilent also agreed to indemnify us for any liability associated with contamination from past operations at all properties transferred from Agilent to us. We cannot be sure that Agilent will fulfill its indemnification obligations.

We maintain a comprehensive Environmental Site Liability insurance policy which may cover certain clean-up costs or legal claims related to environmental contamination. This policy covers specified active, inactive and divested locations.

International Operations

Our net revenue originating outside the United States, as a percentage of our total net revenue, was approximately 65 percent in fiscal 2016, 65 percent in fiscal 2015 and 64 percent in fiscal 2014, the majority of which was from customers other than foreign governments. Revenues from external customers are generally attributed to regions based upon the location of our sales representative.

Long-lived assets located outside of the United States as a percentage of our total long-lived assets was approximately 57 percent in fiscal year 2016 and 62 percent in fiscal year 2015. Approximately 30 and 22 percent of our long-lived assets were located in Japan in fiscal years 2016 and 2015, respectively. Approximately 13 and 12 percent of our long-lived assets were located in Malaysia in fiscal years 2016 and 2015, respectively.

Most of our sales in international markets are made by foreign sales subsidiaries. In countries with low sales volumes, sales are made through various representatives and distributors. However, we also sell into international markets directly from the United States.

Our international business is subject to risks customarily encountered in foreign operations, including interruption to transportation flows for delivery of parts to us and finished goods to our customers, changes in a specific country's or region's political or economic conditions, trade protection measures, import or export licensing requirements, consequences from changes in tax laws and regulatory requirements, difficulty in staffing and managing widespread operations, differing labor regulations, differing protection of intellectual property and geopolitical turmoil, including terrorism and war. We are also exposed to foreign currency exchange rate risk inherent in our sales commitments, anticipated sales and expenses, and assets and liabilities denominated in currencies other than the local functional currency, and may also become subject to interest rate risk inherent in any debt we incur, or investment portfolios we hold. There may be an increased risk of political unrest in regions where we have significant manufacturing operations such as Southeast Asia. However, we believe that our international diversification provides stability to our worldwide operations and reduces the impact on us of adverse economic changes in any single country. Financial information about our international operations is contained in Note 21, "Segment Information," to our combined and consolidated financial statements.

Acquisition of Material Assets

On August 13, 2015, we acquired all of the share capital of Anite, a U.K.-based global company, under the scheme document dated July 6, 2015. This acquisition strengthens our wireless software design and test portfolio and its Network Test business expands our served addressable market. Coupled with Keysight's expertise in helping customers design and test hardware, we can now provide customers with more comprehensive wireless hardware and software solutions. Anite’s Network Test business will also enable us to provide innovative solutions that help customers deliver an outstanding experience for mobile users in the network. As a result of the acquisition, Anite has become a wholly-owned subsidiary of Keysight. The consideration paid was $558 million, net of $43 million of cash acquired. We funded the acquisition using our existing cash.

Executive Officers of the Registrant

The names of our executive officers and their ages, titles and biographies as of December 1, 2016 appear below:

Ronald S. Nersesian, 57, has served as President and Chief Executive Officer of Keysight since December 2013 and, prior to the Separation, served as Executive Vice President of Agilent. Mr. Nersesian served as President of Agilent from November 2012 to September 2013 and as Chief Operating Officer, Agilent from November 2011 to September 2013. From November 2011 to November 2012, Mr. Nersesian served as Agilent’s Executive Vice President and Chief Operating Officer. He served as Senior Vice President, Agilent, and President, Electronic Measurement Group from March 2009 to November 2011, as Agilent’s Vice President and General Manager of the Wireless Business Unit of the Electronics Measurement Group from February 2005 to February 2009, and as Agilent’s Vice President and General Manager of the Design Validation Division from May 2002 to February 2005. Prior to joining Agilent, Mr. Nersesian served in management positions with LeCroy Corporation from 1996 to 2002. From 1984 through 1996, Mr. Nersesian served in various roles with HP. Mr. Nersesian serves on the Board of Directors of Trimble Inc.

Neil Dougherty, 47, has served as Senior Vice President and Chief Financial Officer of Keysight since December 2013 and, prior to the Separation, served as Vice President and Treasurer of Agilent, since 2012. He served as Senior Director in Agilent’s Corporate Development Group from 2010 to 2012, and from 2006 to 2010, he served as Agilent’s Assistant Treasurer. Prior to that, Mr. Dougherty held a broad variety of positions in finance for Agilent and HP.

Jay Alexander, 53, has served as Senior Vice President and Chief Technology Officer of Keysight since May 2014 and, from October 2009 until prior to the Separation, he served as Vice President and General Manager for the Oscilloscope and Protocol Division of Agilent.

Ingrid Estrada, 52, has served as Senior Vice President, Human Resources, Keysight since December 2013 and, prior to the Separation, served as Vice President and General Manager of Global Sourcing of Agilent since 2011, and as Vice President and General Manager of Remarketing Solutions Division of Agilent since 2006.

Michael Gasparian, 58, has served as Senior Vice President and President of the Communications Solutions Group since November 2015. From March 2014 to November 2015, Mr. Gasparian served as Senior Vice President of Customer Support and Services and Worldwide Marketing for Keysight and, prior to the Separation, served as Vice President, Agilent since 2000, although he did not work at Agilent from 2009 to 2010. From 2011 to 2012, Mr. Gasparian served as Agilent’s Vice President of Marketing. From 2007 to 2008, Mr. Gasparian served as the General Manager of the Material Science Solutions Unit of Agilent.

Soon Chai Gooi, 55, has served as Senior Vice President and President of the Electronic Industrial Solutions Group since November 2015. From December 2013 to November 2015, Mr. Gooi served as Senior Vice President of Order Fulfillment and Infrastructure for Keysight. Prior to the Separation, Mr. Gooi served as President, from November 2012 to September 2013, and as Senior Vice President, from December 2011 to November 2012, of Agilent's Order Fulfillment and Supply Chain. Previously, Mr. Gooi served as Agilent’s Vice President and General Manager of the Electronic Instruments Business Unit and Electronic Measurement Group Order Fulfillment from May 2006 to December 2011.

John Page, 52, has served as Senior Vice President and President of Services Solutions Group since November 2015 and most recently served as vice president of business finance of Keysight from February 2014 to November 2015. Prior to joining Keysight, Mr. Page served as the Chief Financial Officer of Nanosys, Inc. from 2010 to 2014.

Mark Wallace, 51, has served as Senior Vice President of Worldwide Sales since November 2016. From November 2014 to November 2016, Mr. Wallace served as Vice President and General Manager of Americas Field Operations, and prior to the Separation from Agilent, as Americas Field Operations Vice President of Agilent's Electronic Measurement Group since November 2011. From August 2004 to November 2011 Mr. Wallace served as National Sales Manager of Agilent's Electronic Measurement Group for U.S, and Canada.

Stephen Williams, 44, has served as Senior Vice President, General Counsel and Secretary of Keysight since December 2013 and, prior to the Separation, served as Agilent’s Vice President, Assistant General Counsel and Assistant Secretary since November 2009. From February 2007 to November 2009, Mr. Williams served as Managing Counsel in Agilent’s Legal Department.

John Skinner, 54, has served as Vice President, Corporate Controller and Principal Accounting Officer of Keysight since December 2013 and, prior to the Separation, Mr. Skinner served as Vice President, Agilent and Controller of Global Infrastructure and Enterprise Financial Planning and Analysis from April 2012 to December 2013. From April 2009 to April 2012, Mr. Skinner served as Agilent’s Senior Director of Agilent Business Reporting.

Investor Information

We are subject to the informational requirements of the Securities Exchange Act of 1934 (“Exchange Act”). Therefore, we file periodic reports, proxy statements and other information with the Securities and Exchange Commission (“SEC”). Such reports, proxy statements and other information may be read and copied by visiting the Public Reference Room of the SEC at 100 F Street N.E., Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an Internet site (http://www.sec.gov) that contains reports, proxy and information statements and other information regarding issuers that file electronically.

You can access financial and other information at our Investor Relations website. The address is www.investor.keysight.com. We make available, free of charge, copies of our annual report on Form 10-K, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after filing such material electronically or otherwise furnishing it to the SEC.

Our Corporate Governance Standards, the charters of our Audit and Finance Committee, our Compensation Committee, our Nominating and Corporate Governance Committee, our Executive Committee as well as our Standards of Business Conduct are available on our website at www.investor.keysight.com under “Corporate Governance.” These items are also available in print to any stockholder in the United States and Canada who requests them by calling (800) 829-4444. This information is also available by writing to the company at the address on the cover of this Annual Report on Form 10-K.