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Teradyne(TER) - 2025 Q4 - Earnings Call Transcript

2026-02-03 14:30

Financial Data and Key Metrics Changes - Teradyne reported a strong fourth quarter with a 41% sequential revenue growth and over 100% non-GAAP earnings growth, exceeding high guidance expectations [4][17] - Fourth quarter sales reached $1,083 million, with non-GAAP EPS of $1.80, marking the highest revenue quarter of 2025 and the second highest in company history [17][18] - Full-year revenue for 2025 was $3.2 billion, up 13% from the previous year, with non-GAAP EPS increasing by 23% to $3.96 [22][29] Business Line Data and Key Metrics Changes - The semiconductor test group achieved 19% year-over-year growth, with SoC test revenue growing 23% year-over-year, primarily driven by networking and VIP compute [7][10] - Robotics revenue grew for the third consecutive quarter, reaching $89 million, with a 19% increase from Q3 [18] - The product test group grew revenue by 8% in 2025, supported by strong demand in defense and aerospace [5][6] Market Data and Key Metrics Changes - AI-driven revenue accounted for over 60% of Teradyne's revenue in Q4 2025, with expectations that it will drive upwards of 70% in Q1 2026 [5][10] - The total addressable market (TAM) for SoC reached record levels in 2025, nearly 60% larger than in 2024, with expectations for robust growth driven by data center build-out and edge AI [9][10] - The overall memory TAM was down about 4% from 2024, but Teradyne gained market share, particularly in HBM and DRAM [11][12] Company Strategy and Development Direction - Teradyne's strategy focuses on AI, verticalization, and electrification, with a pivot towards high-growth segments and technologies [5][10] - The company announced a joint venture with MultiLane to serve the growing AI data center demand, expected to close in the first half of 2026 [15][25] - The new target earnings model is framed around an ATE TAM of $12-$14 billion, with expectations of achieving $6 billion in revenue [26][29] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the growth potential in AI data centers and the recovery of markets such as auto industrial and mobile [13][14] - The company anticipates a significant jump in device complexity and a potential increase in market share in the compute space [14][52] - Management cautioned about the lumpiness of revenue patterns and the unpredictability of future growth, particularly in the second half of 2026 [33][64] Other Important Information - Non-GAAP gross margins for Q4 were 57.2%, with operating profit dollars roughly doubling compared to the prior quarter and year [18][19] - Teradyne returned $785 million to shareholders through share repurchases and dividends in 2025, representing 174% of free cash flow [22][29] - The company expects Q1 2026 sales to be between $1.15 billion and $1.25 billion, driven by AI demand [22][23] Q&A Session Summary Question: Near-term outlook for 2026 revenue growth - Management indicated a healthy backlog and better insights for the first half of 2026, but cautioned against linear growth assumptions due to potential revenue lumpiness [32][33] Question: Long-term share growth expectations - Management expects to gain share in the compute space, with a balanced growth model reflecting various market segments [35][52] Question: Breakdown of SoC TAM in 2025 - The SoC TAM was approximately $5 billion for compute, $1 billion for mobility, and just under $1 billion for auto industrial [42] Question: Growth expectations for HDD test revenue - HDD revenue is expected to double between 2025 and 2026, with the new customer complementing internal testing capabilities [75] Question: Sensitivity of ATE market and revenue targets - Management acknowledged that the $6 billion revenue target is balanced, with uncertainties around market growth rates and share gains [51][52]