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    Teradyne Inc (TER)

    CEO Change

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    Teradyne, Inc. is a leading global supplier of automated test equipment and robotics solutions, designing, developing, manufacturing, and selling products used across various industries such as consumer electronics, wireless, automotive, industrial, computing, communications, and aerospace and defense . The company offers a range of automated test systems and robotics products, including semiconductor test systems, storage and system level test systems, and collaborative robotic arms . Teradyne's revenue is geographically diverse, with a significant portion coming from the Asia Pacific region .

    1. Semiconductor Test Systems - Provides automated test systems for semiconductor devices, focusing on System-on-a-Chip and Memory tests.
    2. Robotics Products - Offers collaborative robotic arms and autonomous mobile robots, enhancing automation in various industries.
    3. Storage and System Level Test Systems - Develops test systems for storage devices and complete systems, ensuring reliability and performance.
    4. Defense/Aerospace Test Instrumentation and Systems - Supplies test solutions for defense and aerospace applications, supporting mission-critical operations.
    5. Circuit-Board Test and Inspection Systems - Manufactures systems for testing and inspecting circuit boards, ensuring quality and functionality.
    6. Wireless Test Systems - Delivers test solutions for wireless communication devices, supporting the development and deployment of wireless technologies.
    Initial Price$148.00July 1, 2024
    Final Price$128.99October 1, 2024
    Price Change$-19.01
    % Change-12.84%

    What went well

    • Teradyne is gaining significant share in the High Bandwidth Memory (HBM) test market, with significant second half business from a major HBM supplier after being qualified in mid-2024, and expects to add additional suppliers in 2025, driving revenue growth.
    • The company has pivoted successfully towards compute VIPs (Vertically Integrated Players), achieving a 50% share in compute VIPs this year, up from much lower share in traditional compute, positioning itself strongly in the growing compute market.
    • Teradyne's Robotics business is poised for growth, with new high payload robots, upcoming products to double their served market, and an OEM solutions channel growing 50% year-over-year, setting up for 20% to 25% growth once market conditions improve.

    What went wrong

    • Operating Expenses at New Highs: Teradyne's operating expenses (OpEx) in Q1 are at new highs, while revenues are 37% below the prior peak, raising concerns about the company's ability to achieve operating leverage in 2025.
    • Internal Debate Over Robotics Business: The company is debating whether they are the right owner of the Robotics business, indicating possible underperformance or strategic misalignment in this segment, which could impact overall growth.
    • Limited Growth in Mobile Processor Complexity: Teradyne does not expect significant complexity increases in next-generation mobile processors, potentially limiting growth opportunities in this market segment. Additionally, there is uncertainty due to shifts in modem suppliers rather than increased modem integration.

    Q&A Summary

    1. 2025 Revenue Growth Outlook
      Q: Is 20–25% sales growth realistic for 2025?
      A: Teradyne believes they are positioned to achieve growth in line with their midterm model, expecting a 20–25% sales increase in 2025. They anticipate improvements across mobility, automotive, industrial, and compute segments, and plan to provide a detailed outlook in January. Management feels confident about staying on track towards their 2026 plan.

    2. Compute TAM Expansion and AI Demand
      Q: What's driving TAM expansion in compute and AI markets?
      A: The TAM expansion is driven by significantly stronger business in AI compute and HBM memory, along with better visibility into demand served by Chinese tester companies. Teradyne expects the compute TAM to become even hotter in 2025, fueled by AI market growth and increased adoption by vertically integrated producers (VIPs).

    3. Operating Expenses and Leverage
      Q: Why is OpEx rising, and will you show operating leverage in 2025?
      A: Teradyne plans to increase OpEx by low teens in 2025, focusing on investments in Semiconductor Test to align with market shifts toward AI, HBM, and VIPs. They aim to demonstrate operating leverage next year, expecting revenue growth to outpace OpEx growth. These investments are viewed as necessary and cyclical, not structural, to capture future growth opportunities.

    4. Mobile Test TAM Outlook
      Q: How do you see the mobile test TAM evolving?
      A: Teradyne expects the mobile test TAM floor to be closer to $1 billion rather than the current $800 million once excess capacity is absorbed, likely in 2025. Upside beyond that depends on the adoption of AI-enabled smartphones, which could increase device complexity and shorten the refresh cycle if consumers find value in new features.

    5. Robotics Business Growth Prospects
      Q: What needs to happen for Robotics to grow 20–30%?
      A: Teradyne acknowledges that better end-market conditions are needed to achieve 20–30% growth in Robotics. They have addressed internal issues like distribution by adding high-payload robots, introducing new products, and establishing an OEM channel, positioning themselves to outgrow traditional suppliers by 15–20 percentage points annually in a normal market.

    6. Utilization of Existing Testers
      Q: How has tester utilization changed recently?
      A: Over 100 testers have been repurposed from mobile to other markets like compute, with over 200 expected by year-end. This has led to a meaningful uptick in utilization, with less idle capacity now than a quarter ago, and further improvements anticipated by the end of the year.

    7. HBM Market Share Opportunities
      Q: What's Teradyne's opportunity in HBM stack die and wafer sort?
      A: After being qualified by a major HBM supplier mid-year, Teradyne has significant second-half business in stack-die performance test. They are engaged with an additional HBM supplier, potentially driving revenue in 2025. In wafer sort, their share is expected to remain stable, but they anticipate gaining share in stack-die testing.

    8. Industrial Test TAM Revision Due to China
      Q: Why was the industrial test TAM revised higher?
      A: The revision stems from better visibility into the size of the TAM in China, which is being served by indigenous suppliers. It's not a strengthening of the TAM but an improved understanding of the market dynamics within China.

    9. System Level Test (SLT) Opportunities
      Q: What are the SLT opportunities in compute for Teradyne?
      A: Teradyne sees SLT becoming a critical part of the test strategy for processors in smartphones and has added compute customers to this area. They expect SLT revenue to grow more meaningfully in 2025, driven by increased device complexity and adoption by hyperscalers deploying their own silicon.

    Guidance Changes

    Quarterly guidance for Q4 2024:

    • Sales: $710 million to $760 million (raised from $680 million to $740 million )
    • Gross Margins: 59.5% to 60.5% (raised from 58.5% to 59.5% )
    • Operating Expenses (OpEx): 36.5% to 38.5% of sales (lowered from 38% to 40% of sales )
    • Non-GAAP Operating Profit Rate: 23% at midpoint (raised from 20% at midpoint )
    • Non-GAAP EPS: $0.80 to $0.97 on 164 million diluted shares (raised from $0.66 to $0.86 on 164 million diluted shares )
    • GAAP EPS: $0.73 to $0.91 (raised from $0.62 to $0.82 )
    NamePositionStart DateShort Bio
    Gregory S. SmithPresident and Chief Executive OfficerFebruary 1, 2023Gregory S. Smith has been serving as CEO since February 1, 2023. He was previously the President of Robotics at Teradyne from October 2020 through July 2023 and President of the Semiconductor Test Business from February 2016 to October 2020 .
    Sanjay MehtaVice President, Chief Financial Officer and TreasurerApril 2019Sanjay Mehta has been the Vice President, Chief Financial Officer, and Treasurer of Teradyne since April 2019. He previously held various positions at Qualcomm Technologies, Inc., including Senior Vice President and General Manager of Compute and XR Products .
    Richard J. BurnsPresident, Semiconductor TestOctober 2020Richard J. Burns has been the President of Semiconductor Test at Teradyne since October 2020. He was previously the Vice President of Semiconductor Test Engineering at Teradyne from February 2016 to September 2020 .
    Ujjwal KumarPresident, RoboticsJuly 2023Ujjwal Kumar has been the President of Robotics at Teradyne since July 2023. Before joining Teradyne, he served as President of Honeywell Process Solutions from January 2021 to December 2022 .
    Ryan E. DriscollVice President, General Counsel and SecretaryFebruary 2024Ryan E. Driscoll has been serving as the Vice President, General Counsel, and Secretary of Teradyne since February 2024. He was previously the Deputy General Counsel of Teradyne from November 2009 to February 2024 .
    John F. WoodPresident, Systems Test GroupNovember 2023John F. Wood has been the President of the Systems Test Group at Teradyne since November 2023. He was previously the General Manager and Vice President of the Systems Test Group from November 2018 to October 2023 .
    1. Given that your Robotics business has achieved only a 5% CAGR over the past five years, significantly below your forecasted 20–30% growth, what concrete actions are you taking to close this gap, and how confident are you in achieving these ambitious targets amid current market challenges?

    2. With the increased OpEx in your Semi Test business, is this elevated spending a new structural level due to competition and platform development, or is it a cyclical increase aimed at gaining market share, and how will this impact your long-term profitability?

    3. Considering the divergence in growth and strategic focus between your Semiconductor Test and Robotics divisions, have you evaluated the potential benefits of divesting or spinning off the Robotics business to unlock shareholder value and focus on core competencies?

    4. Given your limited exposure to the accelerated AI market and the escalating test times for next-generation AI chips like Blackwell, how do you plan to leverage System Level Test solutions to penetrate this market and enhance your competitive position?

    5. With the mobile SoC test TAM declining from $2 billion to $800 million due to factors like longer smartphone replacement cycles, what is your strategy to mitigate the impact of this contraction on your business, and how do you plan to drive growth in this segment going forward?

    Program DetailsProgram 1
    Approval DateJanuary 2023
    End Date/DurationN/A
    Total additional amount$2.0 billion
    Remaining authorization$1,544,379,000
    DetailsRepurchase outstanding shares to offset dilution from equity compensation and employee share purchase program

    Q3 2024 Earnings Call

    • Issued Period: Q3 2024
    • Guided Period: Q4 2024
    • Guidance:
      1. Sales: $710 million to $760 million .
      2. Gross Margins: 59.5% to 60.5% .
      3. Operating Expenses (OpEx): 36.5% to 38.5% of sales .
      4. Non-GAAP Operating Profit Rate: 23% at midpoint .
      5. Non-GAAP EPS: $0.80 to $0.97 on 164 million diluted shares .
      6. GAAP EPS: $0.73 to $0.91 .

    Q2 2024 Earnings Call

    • Issued Period: Q2 2024
    • Guided Period: Q3 2024
    • Guidance:
      1. Sales: $680 million to $740 million .
      2. Non-GAAP EPS: $0.66 to $0.86 on 164 million diluted shares .
      3. GAAP EPS: $0.62 to $0.82 .
      4. Gross Margins: 58.5% to 59.5% .
      5. Operating Expenses (OpEx): 38% to 40% of sales .
      6. Non-GAAP Operating Profit Rate: 20% at midpoint .
      7. Full Year 2024 Revenue Growth: Low single-digit range .
      8. Full Year 2024 Gross Margins: 58% to 59% .
      9. Full Year 2024 OpEx Growth: Approximately 8% .
      10. Full Year 2024 GAAP and Non-GAAP Tax Rate: 14.25% and 15% .
      11. Robotics Revenue Growth: Low end of 10% to 20% range .

    Q1 2024 Earnings Call

    • Issued Period: Q1 2024
    • Guided Period: Q2 2024
    • Guidance:
      1. Sales: $665 million to $725 million .
      2. Non-GAAP EPS: $0.64 to $0.84 .
      3. Gross Margins: 57% to 58% .
      4. Operating Expenses (OpEx): 36% to 39% of sales .
      5. Non-GAAP Operating Profit Rate: 20% at midpoint .
      6. Full Year 2024 Revenue Growth: Low single-digit range .
      7. Full Year 2024 Gross Margins: 58% to 59% .
      8. Full Year 2024 OpEx Growth: 5% to 7% .
      9. Full Year 2024 GAAP and Non-GAAP Tax Rate: 15% to 15.5% .
      10. Revenue Distribution for 2024: 47% in first half, 53% in second half .

    Q4 2023 Earnings Call

    • Issued Period: Q4 2023
    • Guided Period: Q1 2024
    • Guidance:
      1. Sales: $540 million to $590 million .
      2. Non-GAAP EPS: $0.22 to $0.38 on 162 million diluted shares .
      3. Gross Margins: 53.5% to 54.5% .
      4. Operating Expenses (OpEx): 42% to 46% of sales .
      5. Non-GAAP Operating Profit Rate: 10% at midpoint .
      6. Full Year 2024 Gross Margins: 58% to 59% .
      7. Full Year 2024 OpEx Growth: 5% to 7% .
      8. Full Year 2024 GAAP and Non-GAAP Tax Rate: 16% .
      9. Robotics Revenue Growth for 2024: 10% to 20% .
      10. Capital Allocation: Limit share buybacks to offset dilution, aim for $800 million cash .

    Competitors mentioned in the company's latest 10K filing.

    • Advantest Corporation - Competitor in the Semiconductor Test and System Test segments .
    • Cohu, Inc. - Competitor in the Semiconductor Test segment .
    • Keysight Technologies, Inc. - Competitor in the System Test and Wireless Test segments .
    • Test Research, Inc. - Competitor in the System Test segment .
    • SPEA S.p.A. - Competitor in the System Test segment .
    • Astronics Corporation - Competitor in the System Test segment .
    • Rohde & Schwarz GmbH & Co. KG - Competitor in the Wireless Test segment .
    • Anritsu Company - Competitor in the Wireless Test segment .
    • National Instruments Corporation - Competitor in the Wireless Test segment .
    • Welzek - Competitor in the Wireless Test segment .
    • iTest - Competitor in the Wireless Test segment .
    • KUKA Robotics Corporation - Competitor in the Robotics segment .
    • ABB - Competitor in the Robotics segment .
    • FANUC - Competitor in the Robotics segment .
    • Staubli - Competitor in the Robotics segment .
    • Yaskawa Electric Corporation - Competitor in the Robotics segment .
    • Techman - Competitor in the Robotics segment with emerging collaborative robot offerings .
    • Doosan - Competitor in the Robotics segment with emerging collaborative robot offerings .
    • Jaka - Competitor in the Robotics segment with emerging collaborative robot offerings .
    • AUBO Robotics - Competitor in the Robotics segment with emerging collaborative robot offerings .
    • Omron - Competitor in the Robotics segment in the material handling space .
    • Rockwell Automation - Competitor in the Robotics segment in the material handling space .
    • Junion - Competitor in the Robotics segment in the material handling space .
    • HikRobot - Competitor in the Robotics segment in the material handling space .
    • Agilox - Competitor in the Robotics segment in the material handling space .
    • KION - Competitor in the Robotics segment in the material handling space .

    Recent developments and announcements about TER.

    Corporate Leadership

      Leadership Change

      ·
      Jan 8, 2025, 9:51 PM

      Ford Tamer is leaving Teradyne, Inc. as he has been appointed as the CEO of Lattice Semiconductor Corporation. His departure is not due to any disagreement with Teradyne's Board or management. He will serve until the 2025 Annual Meeting in May.

      CEO Change

      ·
      Jan 8, 2025, 9:51 PM

      The CEO of Teradyne, Inc., Ford Tamer, has announced that he will not stand for re-election at the company's next annual meeting in May 2025. This decision is due to his recent appointment as the CEO of Lattice Semiconductor Corporation. He will continue to serve as CEO of Teradyne until the end of his term.