Q4 2023 Earnings Summary
- Teradyne's Robotics segment is poised for significant growth, targeting a 20% to 30% CAGR by 2026 while maintaining high gross margins over 60%. The company plans to invest in this low-penetration market to drive growth and profitability.
- Anticipated rebound in mobile and PC markets, driven by the adoption of generative AI and EDGE AI, is expected to increase device complexity and positively impact test demand in both the mobile and automotive segments.
- Strong position in the HBM (High Bandwidth Memory) market, with HBM accounting for more than 50% of Memory shipments in Q4. Upcoming standards like HBM3e and HBM4 are expected to drive retooling and boost demand in the second half of the year.
- Teradyne's Q1 2024 earnings power is expected to be almost half of prior periods with similar revenue levels, primarily due to lower volumes and unfavorable product mix impacting gross margins.
- Despite a strong Q4 in Robotics driven by a new product, underlying weakness in Industrial markets and low PMIs are limiting growth expectations to 10%-20% in 2024, below their long-term target of 20%-30%.
- The company has limited visibility into demand from its historically largest customer, expecting them to remain less than 10% of total revenue in 2024, indicating ongoing weakness in this key customer relationship.
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Largest Customer Outlook
Q: Can your largest customer return to 10%+ revenue in 2024?
A: Management expects their historically largest customer to remain under 10% of total revenue in 2024, similar to 2023. Visibility into second half demand is limited, but there isn't much downside to their base case regarding this customer. -
Midterm Growth Confidence
Q: Why are you confident in hitting high growth rates in '25 and '26?
A: Management believes significant growth after downturns is expected, citing past recoveries in 2001, 2009, and 2020. They anticipate a snapback in mobile phones and PCs, with generative AI driving device complexity, especially in EDGE AI, benefiting mobile and automotive markets. -
Memory Test Market Outlook
Q: Could Memory Test growth be stronger than forecasted?
A: There's potential upside depending on capacity additions at wafer sort as memory inventories decline. While confident in their 2024 view, management notes competitors may have better visibility into customer needs. -
HBM Market Position
Q: How is your competitive position in HBM, and what's the growth outlook?
A: Teradyne is roughly splitting the HBM test market with competitors. In Q4, HBM accounted for more than 50% of their memory shipments. New competitors and standards like HBM3e and HBM4 are expected to drive growth in the latter half of the year. -
New Compute Customer Ramp
Q: When will the new compute customer revenue ramp?
A: Socket wins for vertically integrated producers in cloud compute and EDGE devices will start towards the end of 2024, hitting more significantly in 2025. An SLT win for a compute customer will take until 2025 to reach material volume. -
Gross Margin Outlook
Q: Will gross margins exceed 60% during 2024?
A: Some quarters in 2024 are anticipated to exceed 60% gross margin, driven by stronger product mix, higher volumes, and operational efficiencies, particularly in the back half of the year. -
Robotics Growth and Profitability
Q: Why is Robotics growth guided at 10%-20% for 2024, below long-term targets?
A: Despite a strong Q4 from a blockbuster product, underlying industrial market weakness limits optimism. While expecting continued growth, management is cautious due to low PMIs and softness in certain regions entering Q1 2024. -
Technoprobe Investment
Q: What's the strategic rationale behind investing in Technoprobe?
A: The investment reflects a trend towards tighter integration between testers and interfaces due to increasing complexity and performance demands. Partnering with Technoprobe allows them to unlock value by combining interface technology with their tester architecture. -
SOC TAM Breakdown
Q: How did SOC TAM segments perform and what's expected for '24?
A: In 2023, SOC TAM was $3.9 billion: Compute at $1.3B, Mobility at $0.9B, Auto at $0.6B, Industrial at $0.4B, and Service at $0.7B. For 2024, Compute is expected at $1.4B, Mobility at $0.9B, Auto at $0.5B, maintaining total TAM at $3.9B. -
Second Half SOC Test Recovery
Q: What gives confidence in SOC test recovery in the second half?
A: Improving utilization rates, especially in OSATs, suggest recovery by Q3 if trends continue. Expected unit growth in smartphones and PCs, along with short-term demand lulls in Industrial and Automotive, support recovery expectations. -
Hyperscaler ASICs Market Share
Q: What's your expected share in hyperscaler ASICs growth?
A: Teradyne sees opportunity in the $400-$600 million incremental Compute TAM from hyperscaler VIPs by 2026-2027. They are winning a majority of targeted sockets and are hopeful for a good market share in this segment. -
Q1 Earnings Power
Q: Why is Q1 earnings lower despite similar revenue run rate?
A: Lower earnings are due to much lower volume and an unfavorable product mix in Q1, with product mix being the larger factor. -
China Market Position
Q: Are you pulling out of the China market?
A: Management clarifies there's no change; they have increased supply chain resilience by moving some production. Teradyne still has over 600 employees in China and continues to compete and grow in that market. -
Wins in Mobility and HPC
Q: Can new wins reach the scale of your largest customer?
A: While new system-level test wins in Mobility and Compute are significant, they won't individually reach the scale of the largest customer. They are incremental tailwinds expected to grow over time.
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