Teradyne(TER) - 2024 Q3 - Earnings Call Transcript

Financial Data and Key Metrics - Q3 2024 sales were $737 million, at the high end of guidance, with non-GAAP EPS of$ 0.90, above the high-end guide of $0.86 [12] - Non-GAAP gross margins were 59.7%, above guidance due to product mix [12] - Non-GAAP operating expenses were$ 275 million, up sequentially and year-over-year, consistent with guidance [12] - Non-GAAP operating profit was approximately 22% [12] - Free cash flow was $114 million, driven by earnings and net working capital improvements [15] - Q4 sales are expected to be between$ 710 million and $760 million, with gross margins estimated at 59.5% to 60.5% [15] Business Line Performance - Semi Test revenue for Q3 was$ 543 million, with SoC contributing $393 million and Memory$ 150 million [13] - SoC strength was driven by Compute, while Mobile and Industrial continued to ship at consistent levels with Q2 [13] - Memory Test revenue was driven by HBM DRAM shipments, flash tooling for new UFS 4.0 standard in Mobility, and DRAM wafer sort [13] - System Test group revenue was $73 million, with continued weakness across businesses, particularly in Production Board Test and Storage Test [13] - Robotics revenue was approximately$ 89 million, flat sequentially and up 3% year-over-year, with UR contributing $73 million and MiR contributing$ 15 million [14] Market Performance - Cloud AI is driving demand in both the SoC and Memory Test markets, with Semi Test business performing above expectations [5] - Memory business delivered record high revenue in Q3 due to strong HBM demand [5] - SoC business was driven by networking and vertically integrated producers (VIPs) designing silicon for Cloud and Edge AI applications [5] - Robotics business has delivered 8% year-to-date growth despite a worsening industrial macro backdrop [10] Strategic Direction and Industry Competition - AI is a transformational secular growth driver across Teradyne's businesses, both in test and robotics [12] - The company is increasing its SoC SAM forecast for the Compute market segment by $200 million to$ 1.8 billion in 2024, up from $1.4 billion in 2023 [7] - Memory TAM for 2024 is now expected to be over 35% higher than the last peak in 2021, driven by AI-driven HBM DRAM demand [8] - Robotics growth strategy focuses on OEM solutions channel development and innovation-driven SAM expansion [11] Management Commentary on Operating Environment and Future Outlook - Cloud AI demand is expected to continue into Q4, but memory revenue is expected to moderate after a surge in Q3 [9] - The company expects a broader market recovery as it progresses through 2025, with lead times returning to normal [6] - Robotics business is expected to grow 15% to 20% above the industrial automation peer group, despite macroeconomic challenges [18] - The company is planning a low teens increase in year-over-year OPEX for 2025, mainly to fund Semi Test growth initiatives [20] Other Important Information - The company repurchased$ 25 million of shares and paid $20 million in dividends in Q3 [15] - Equity investment in Technoprobe is reflected below the line in the income statement, with 10% of TPI's profit recognized one quarter in arrears [14] - The company expects Q1 2025 revenue to be roughly 5% to 10% down quarter-over-quarter, with gross margins slightly below the target model [16] Q&A Session Summary Question: System-Level Test (SLT) TAM and Opportunities - SLT TAM is difficult to measure accurately, but the company sees growth opportunities in Compute and mobile markets, with significant strength expected in 2025 [22] - SLT is becoming an important part of the test strategy for processors in smartphones, with additional customers in the mobile space expected to drive growth [22] Question: Test Time for AI Blackwell and SLT Opportunities - Higher test times are tied to device complexity, with SLT acting as a backstop to limit growth in test time [23] - The company's future is tied to vertically integrated producers (VIPs) and networking, with increased networking test seconds expected to grow as fast as Compute test seconds [23] Question: TAM Expansion and Sales Growth - TAM expansion is driven by stronger business in AI Compute and HBM Memory, as well as better visibility into the Chinese market [25] - The company expects to stay on model towards its 2026 plan, with growth of 20% to 25% in 2025 [26] Question: Robotics Business Growth and Industry Comparison - The Robotics business has faced a soft end market, but the company has added high payload robots and established an OEM solutions channel, driving growth [28] - The company expects to outgrow traditional suppliers in robotics and industrial automation by 15 to 20 percentage points per year, with a normal market growth rate of 5% [29] Question: OPEX Growth and Operating Leverage - OPEX growth in 2025 is expected to be in the low teens, with investments focused on Semi Test growth initiatives [30] - The company expects to see operating leverage in 2025, with revenue growth outpacing OPEX growth [30] Question: Industrial Test TAM Revision - The industrial test TAM revision is due to better visibility into the size of the TAM in China, served by indigenous suppliers [42] Question: Mobile SoC Test TAM and Long-Term Opportunity - The company expects the floor in mobile SoC Test TAM to be closer to$ 1 billion, with upside depending on AI-enabled smartphones and refresh rates [54] Question: Robotics Business Portfolio and Ownership - The company believes it is the right owner of the Robotics business, with a unique value proposition in the advanced robotics space [57] - The company may consider separating the Robotics business in the future, but currently sees value in maintaining the combined entity [57] Question: Semi Test OPEX Increase and Market Share - The Semi Test OPEX increase is cyclical, with investments in VIP customers and networking test driving market share growth [59] Question: HBM Market Share and Post-Stack Die Test - The company has qualified for post-stack die test with a major HBM supplier and expects to gain share in the wafer sort market [60] Question: Mobile Processor Complexity and AI Integration - The company expects modest complexity increases in mobile processors in 2025, driven by AI capabilities, but no significant modem integration [63] Question: Capacity Utilization Trends - Utilization rates have increased mid- to high single digits quarter-on-quarter, with further improvements expected in Q4 [64]