Teradyne, Inc. (TER) 2024 Q2 Earnings Call Summary

Optimistic Highlights

• Strong Demand in Cloud AI: Cloud AI is driving strong demand across the SoC and memory test markets, with Teradyne accelerating engineering and sales investments to improve market position and drive share.

• Growth in Memory and SoC: Memory and SoC segments delivered above plan, primarily driven by AI applications. Compute revenue in the first half of 2024 exceeded all of 2023's compute revenue.

• Robotics Business Growth: Despite a weak macro environment, the Advanced Robotics business grew 11% compared to the first half of 2023, outperforming traditional automation space players.

• Expansion in Robotics: New high payload cobots and the AI-powered MiR1200 Pallet Jack are contributing to sales growth, with significant backlog for Q4 shipment.

• AI as a Growth Driver: AI-driven growth in memory, networking, and vertically integrated producers is seen as just the beginning, with larger opportunities ahead as inference applications and edge AI permeate mobile and industrial markets.

Pessimistic Highlights

• Softness in Major Test Markets: Outside of compute and memory, all other major test markets, including mobile, continue to be soft.

• Weak Macro Environment Impacting Robotics: The weak macro environment is affecting the robotics segment, although it still managed to grow.

• Low Single Digit Revenue Growth Expectation: For the full year, Teradyne continues to expect low single-digit revenue growth from 2023, slightly impacted by the sale of DIS to Technoprobe.

Company Outlook

• Continued AI Impact: AI's positive impact on test is expected to continue into Q3, with a meaningful uptick in other end markets not anticipated until 2025.

• Revenue Growth Projections: Full-year revenue growth is expected to be in the low single-digit range compared to 2023, with a more significant impact had DIS not been divested.

• Robotics Growth Towards Lower End: Growth in the robotics segment is expected towards the low end of the year's target 10% to 20% range due to the challenging demand environment.

Q & A Highlights

• Q: Can you speak to visibility and outlook into 2025, particularly around Semi Test, and thoughts around recovery in mobility and progress with securing a second potential customer in HBM? (C.J. Muse, Cantor Fitzgerald)

  A: We are bullish on 2025, seeing strength in computing and upgrade business. Mobility is expected to return strongly in 2025, and we anticipate making progress in HBM, both in market share and breaking into additional accounts. (Greg Smith)

• Q: Could you help us handicap the guidance for the DIS sale? (Timothy Arcuri, UBS)

  A: DIS contributed $16 million in Q2, consistent with expectations. Excluding DIS, full-year revenue growth expectation would be nearly 3 points higher. (Sanjay Mehta)

• Q: On the compute side for next year, how do you see the TAM for compute evolving, especially with N2 ramping up? (Timothy Arcuri, UBS)

  A: N2 is seen as an enabler for higher device complexity, with strong demand expected from cloud AI and edge AI, driving the need for N2 capacity. (Greg Smith)

• Q: Regarding the compute TAM for next year, how do you see the growth, especially with the VIPs? (Mehdi Hosseini, SIG)

  A: Compute is expected to remain strong, with the TAM sizes for compute likely in the same range, maybe a little stronger. Mobile market recovery will likely outweigh compute next year. (Greg Smith)

• Q: Can you update us on VIP and how it impacts the industry this year and its growth next year? (Mehdi Hosseini, SIG)

  A: Hundreds of testers are currently being used for VIP customers, expected to double by year-end. Multiple VIP customers are loading significant numbers of testers, with additional VIPs planning to release parts later this year and into 2025. (Greg Smith)

• Q: How does the turnaround in mobile impact the gross margin profile for next year? (Atif Malik, Citi)

  A: Higher volume levels next year should help as a tailwind for gross margins, depending on specific customer orders and configurations. (Sanjay Mehta)