Teradyne Q4 2024 Earnings Call Transcript

AlphaStreet
Provided by AlphaStreet
January 30, 2025
Skip to Questions & Answers
Operator

Greetings, and welcome to the Fourth Quarter 2024 Teradyne Inc. Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator systems, please press star zero on your telephone keypad. As a reminder, this conference is being recorded.

It is now my pleasure to introduce Tracy Gucci, Vice-President, Investor Relations. Thank you, Tracy. You may begin.

Traci Tsuchiguchi
Vice President of Corporate Relations at Teradyne

Thank you, operator. Good morning, everyone, and welcome to our discussion of Teradyne's most recent financial results. I'm joined this morning by our CEO, Greg Smith; our CFO, Sanjay Mehta; and following our opening remarks, we'll provide details of our performance for the fourth quarter and full-year of 2024 and our outlook for the first-quarter of 2025.

The press release containing our fourth quarter results was issued last evening. We are providing slides as well as a copy of this earnings script on the Investor page of the Teradyne website that may be helpful in following the discussion. Replays of this call will be available via the same page after the call ends.

The matters that we discuss today will include forward-looking statements that involve risks that could cause Teradyne's results to materially differ from management's current expectations. We caution listeners not to place undue reliance on any forward-looking statements included in this presentation. We encourage you to review the safe-harbor statement contained in the slides accompanying this presentation as well as the risk factors described in our annual report on Form 10-K for the fiscal year ended, 31 December 2023, on file with the SEC. Additionally, these forward-looking statements are made only as of today.

During today's call, we will refer to non-GAAP financial measures. We have posted additional information concerning these non-GAAP financial measures, including reconciliation to the most directly-comparable GAAP financial measures were available on the Investor page of our website.

We hope that you plan to join us for our financial Analyst Meeting, which will be webcast beginning at 1:00. Eastern Time on, 11, 2025. Following Greg and Sanjiy's comments this morning, we'll open up the call for questions.

This call is scheduled for one-hour. Greg?

Greg Smith
President and Chief Executive Officer at Teradyne

Thanks, Tracy, and thank you all for joining us today. I'll start-off by summarizing our fourth quarter and full-year 2024 results and provide some context for our initial view of 2025. Then I'll provide context around our updated mid-term earnings model. I'll describe the trends we expect to -- we expect to drive the markets and Teradyne's strategy to drive highly leveraged earnings growth through the mid-term. Sanjay will then go into greater detail on all of these topics.

Our fourth quarter came at the high-end of our guidance range as trends we noted previously continued through the end-of-the year. Cloud AI has been the dominant driver of our semiconductor test business and we have seen some short-term improvement in the mobile space, driven by supply-chain shifts in our customer-base. In industrial and automotive, our fourth quarter benefited from customer-specific equipment purchases. Strength in our test business more than offset the continuing weakness in the industrial automation market, which impacted our robotics business.

In 2024, after two years of semiconductor test market declines, our SOC and memory test revenue grew 17% year-over-year, excluding DIS. AI was the dominant driver of our growth, specifically AI accelerator ASICs, networking and HBM DRAM. We have previously described a class of customers called VIPs or vertically-integrated producers. We use this term because these customers develop custom silicon to provide differentiation in their end-products, whether they are phones, cars or cloud AI computing.

In the first-half of 2024, we saw VIP strength for Edge AI and automotive. In the second-half, strength was driven by Cloud AI compute VIP customers. Our goal in 2024 was to achieve 50% market-share in computing VIPs and we believe that we achieved that goal. This is particularly notable because much of the VIP test demand in 2024 came in the form of upgrades to systems left underutilized by the weak mobile market. If this demand had come in the form of system sales, our VI 2024 VIP revenue would have been more than double what we recognized in the year.

At the company-level, we grew 5% in 2024. If one excludes the divestiture of the DIS business, our total revenue growth was 8%. We grew earnings per share by 10% year-over-year and generated over $470 million in free-cash flow. Our full-year financial results reflect an inflection in our business, both in terms of semiconductor test cyclical recovery, but more importantly, a successful pivot to diversify our customer-base and reduce customer concentration. In 2020 and 2021 timeframe, our business was dominated by mobile with high customer concentration in that market. Back then, we were highly exposed to mobile in SOC, memory and wireless tests.

Now in 2024, the compute end-market was a larger component of our revenue than mobile as our SOC business in the compute market grew more than 3.5 times the prior year. We have been investing to capitalize on the secular shift towards VIP ASICs and that yielded roughly 50% share in what we believe was around a $300 million TAM in 2024. We have seen growth driven by our historical strength in the networking space. And we see opportunities in-system level tests for AI compute.

The pivot we have executed in SOC over the past couple of years is remarkable. In 2023, 11% of our SOC product revenue was in computing and 51% was in auto and industrial. In 2024, 34% was in compute and 34% was in auto and industrial, a balance that underpins our longer-term model. Recent advancements in AI inference, which appear to reduce the cost and time to develop AI applications may be a catalyst to accelerate Edge AI development.

We think this could directly benefit the markets where we have historical strength, mobile and automotive. It's early days, but we believe that lower-cost, lower-power and faster time-to-market AI solutions can drive complexity growth and increased unit demand at the edge, which are key inputs for improving demand for test equipment.

Looking-forward to 2025, we expect the SOC TAM to continue to grow roughly 7% year-over-year. While some of this growth is driven by AI compute, we expect a modest recovery in mobile, automotive and industrial in the back-half of the year. We believe that we are positioned to gain share in the low-single digits in SOC test.

Now shifting gears to memory. In 2024, our memory business grew over five -- grew to over $500 million, up 30% year-over-year. Strength in the market and our growth was fueled by AI compute demand for HBM DRAM. In the second-half of 2024, we were qualified for HBM performance test at a major memory supplier. Our higher throughput and forward compatibility created competitive differentiation, enabling us to capture significant share of the HBM performance test market in the second-half of 2024.

We expect the HBM device end-market to be strong through 2025. However, from a test equipment perspective, we are expecting the market to soften as customers absorb capacity with higher productivity tools. We expect the HBM TAM to recover in 2026. As a result, we expect the entire memory test market to be flattish in 2025, although we do expect to gain share in the low single-digit range.

Beyond AI compute, we believe that there are other segments in the semiconductor test market that offer the opportunity for accelerating long-term growth. One of these areas is power semiconductors. These devices will continue to grow long-term with the crossover to EVs and the demand for more efficient power generation, storage and distribution. We are announcing a strategic partnership with Infineon, the market-leader in power semiconductors to acquire their internal tester development team in Regansburg, Germany. This group will enable us to accelerate our roadmap in power semiconductor space, specifically in areas like silicon carbide and gallium nitride at the scale needed to serve the automotive and renewables market.

While the semi-test business was strong in 2024, Paradigm's other product test businesses, which include our system test and wireless test operating segments, continued to be impacted by weak end-market conditions. Within our product test businesses, we saw some programs push-out from 2024 into 2025, but scored key program wins that we expect to drive healthy growth in 2025. We expect our wireless test business to return to growth in 2025 after securing 74 out of 80 tracked WiFi 7 design-win opportunities in 2024.

Turning to robotics. The industrial automation market continued to be weak in Q4. We typically see strong fourth quarter seasonality as customers place quick turn orders in the back-half of the quarter. Visibility is inherently low in this high turns business. In Q4 of 2024, this seasonality was far more muted than in prior years, and we ended the year down slightly for UR and roughly flat for Mir.

This underperformed our expectations but outperformed our Industrial Automation peer group. Despite the headwinds, there were highlights for robotics. The UR channel transformation continues to progress with the OEM channel delivering 20% growth and the mere large accounts also delivering 24% growth year-over-year in 2024.

In the fourth quarter, as part of our multifaceted partnership with NVIDIA, UR launched its AI accelerator. Late in the fourth quarter, Mir's new flagship product, the AI-enabled Mir 1200 palette Jack began shipping to customers. And most recently, Teradyne Robotics announced a strategic partnership with Analog Devices to develop and deploy robots, AI and software to support ADI's automation initiative.

In 2024, we combined UR and Mir operations into a unified robotics operations group. Now in Q1 of 2025, we are consolidating our go-to-market functions at the robotics level to enable our best partners to sell the full UR and Mir product-line and to serve our customers better with a single customer service organization. This restructuring increases our efficiency and reduces our robotics breakeven revenue from $440 million in 2024 to $365 million in 2025.

Looking ahead to the next four years, we are very optimistic. A year-ago, there were questions as to whether VIPs would matter and if they did, could we win their business. At that time, we thought the compute VIP market would be $100 million to $200 million opportunity in 2024, growing to $400 million to $600 million in the 2026 timeframe.

Our latest estimate is that the compute VIP market was $300 million in 2024 and the compute VIP market will be centered around $600 million in 2026 and could approach $800 million in 2028. We believe that Cloud AI will continue to drive share gains for us in SoC and memory. By the later years of this midterm, as AI moves to the edge for mobile enabled by process technology like 2-nanometer and gate all-around, we expect robust growth of the mobile TAM.

With the remarkable complexity of AI computing systems and the need for highly reliable performance in the training and use of AI models, we expect growing demand for additional test steps. The addition of system-level test insertions for AI compute both in the cloud and at the edge creates an additional growth vector for Teradyne. This was a primary consideration in our decision to align the integrated system test unit within.

Going-forward, we believe that AI will have an outsized impact on the longer-term growth of edge devices, specifically in mobile and automotive applications. Also, the trends towards electrification, whether pure EV or hybrid provide considerable growth potential with increasing silicon content per vehicle. Our investments in this space, including our strategic partnership with Infineon will help us drive share gains in this highly complex test-intensive segment of the market. Based on these long-term trends, we expect to see healthy TAM growth in the automotive and mobile segments of the market over the mid-term.

Our strong market position in these segments will help fuel our revenue growth. These positive trends underpin our 2028 earnings model. At the midpoint of our model, we expect to grow from $2.8 billion of revenue in 2024 to $5 billion in 2028. We expect EPS to grow from $3.22 per share to $8.25 per share over the same-period, implying a 12% to 18% revenue CAGR and a 21% to 31% EPS CAGR over that period, demonstrating considerable operating leverage in our business model.

To sum-up, 2024 was a very good year. We have repositioned the company and are seeing the success from our investments in AI in compute and in-memory. We expect that 2025 will be another good year. We are setting our robotics business up on a sustainable path for long-term growth and our test business will grow driven by continued strength in share gains in VIPs, tightening capacity utilization and the return of higher demand in mobile, industrial and automotive.

With that, I'll turn the call over to Sanjay. Sanjay?

Sanjay Mehta
Vice President, Chief Financial Officer at Teradyne

Thank you, Greg. Good morning, everyone. Today, I'll cover our Q4 and full-year 2024 financial summary, we'll provide our Q1 outlook, some planning guidance for the full-year 2025 and discuss our updated earnings model and capital allocation plan.

Now to Q4. fourth quarter sales were $753 million with non-GAAP EPS of $0.95, both at the high-end of our guidance range. Semi test revenue, which now includes our integrated system test business or IST comprised of product lines for system-level test and HDD tests was $561 million. Within semi-test, SoC revenue was $429 million with memory shipments of $112 million and IST shipments $19 million.

The other product test businesses comprised of defense and aerospace, production board test and wireless tests contributed $94 million. Robotics revenue was $98 million, was up 11% sequentially with muted seasonality due to ongoing weak industrial spending. As Greg noted, we had softer-than-expected performance in the robotics business tied to typical turns business that did not materialize.

Non-GAAP gross margin was 59.4%, just below our guidance range due to robotics. Non-GAAP operating expenses were $284 million in Q4, higher than our guide. A majority of the increase was tied to accelerated engineering spend in semi-test. Non-GAAP operating profit rate was 22%.

Some other financial facts. The tax-rate, excluding discrete items for the quarter was 7.6% on a non-GAAP basis and lower-than-planned because of product mix-shift to semi-test. GAAP tax-rate was 8.7% in Q4, excluding discrete items. We repurchased $144 million of shares in the quarter as we opportunistically accelerated our share buybacks. Dividends were $19 million and we had one 10% customer in the quarter.

Turning to the full-year results. Our revenue was $2.82 billion. Samsung was the only customer greater than 10% of our revenue for the year. Gross margin for the year was 58.6%. OpEx was $1.08 billion and operating profit was 20.4%. Non-GAAP EPS was $3.22. We generated $474 million in free-cash flow-in 2024. We returned $275 million or 58% of free-cash flow to our shareholders through share repurchases and dividends. We ended the year with $724 million of cash and marketable securities. Our tax-rate for the full-year, excluding discrete items was 12.6% on a non-GAAP basis and 12.5% on a GAAP basis.

Business unit revenues for 2024 were as follows: Semi-test revenue for the year, including IST was $2.124 billion with SOC revenue contributing $1.537 billion, memory $502 million and IST $85 million. Excluding the impact of our DEIS divestiture, our SOC and memory revenue was 17% year-over-year. SOC growth in the year was driven by AI compute, specifically Custom ASICs for VIPs and networking. Our memory sales were up 30% year-over-year, driven primarily by AI compute demand for HBM DRAM. IST revenue declined 39% year-over-year, primarily due to underutilized test capacity in HDD.

Turning to our other product test businesses. The System Test Group, which is combined Defense and aerospace and production board test had revenue of $201 million in 2024, flattish in 2023. Wireless test revenue was $130 million, down from 2023 due to slower ramp of WiFi 7. The combined revenue of the two operating segments in 2024 was $331 million, down 4% year-over-year.

Now to robotics. Robotics revenue in 2024 was $365 million with UR contributing $293 million at near $72 million. Considerably lower-than-expected volumes in the fourth quarter drove profitability well below our expectations. The Group had 13% non-GAAP operating loss in both Q4 and the full-year.

As Greg mentioned, we are restructuring the robotics business to create a single-point of contact for customers and partners across UR and Mir sales, marketing and service organizations to improve customer experience. The results of these actions will help drive top-line growth in 2025 and improve our efficiency. These actions will enable our robotics business to continue to outperformers industrial automation market.

Now to our outlook for Q1. Since our October call, our semi-test outlook has remained strong. However, robotics forecast remains seasonably soft. Q1 sales are expected to be between $660 million and $700 million with non-GAAP EPS in the range of $0.58 to $0.68 and 163 million diluted shares. The first-quarter guidance excludes the amortization of acquired intangibles and restructuring charges. First-quarter gross margins are expected to be in the range of 58.5% to 59.5%. OpEx is expected to be roughly flat with Q4 and run at approximately 41.5% to 42.5% of first-quarter sales. The non-GAAP operating profit rate at the midpoint of our first-quarter guidance is 17%.

As Greg noted, we believe the semiconductor SOC test TAM will see healthy growth in 2025, driven by a second-half broad-based recovery. We expect the SOC TAM to be between 4.7% billion and $5.1 billion or $4.9 billion at the midpoint. For a more detailed view of our end-market expectations for SOC, please refer to the table in our earnings deck.

We are forecasting the memory TAM to be between $1.3 billion and $1.5 billion. Recall that within this, HBM has grown from around $100 million in 2023 to over $500 million in 2024. Our memory TAM forecast for 2025 is roughly flat year-over-year with the HBM tester market going through a period of digestion. In both the SOC and memory semi-test markets, we expect to gain low-digit share in 2025.

In robotics, we are currently operating in a difficult low visibility industrial spending environment. The business is still driven by turns. When we look at our plans for 2025, we see SAM expansion and channel growth initiatives expected to yield approximately 10% revenue growth in current market conditions. Of course, there is a wide range around this growth expectation.

A few points to assist you in the modeling 2025 for the enterprise. In Q2, we expect 5% to 10% sequential growth from Q1's midpoint. We expect first-half revenue to be approximately 43% to 44% of full-year revenue. Now to gross margins. We expect full-year gross margins to be 59% to 60%. We expect second-half gross margins to slightly improve from current levels tied to higher revenue expected in the second-half of the year.

Regarding OpEx for the full-year, we expect full-year 2025 opex to increase 8% to 10% year-over-year, which is a reduction from our low-teens view in October. The key changes were restructuring to capture synergies between UR and Premier and robotics and the acceleration of semi-test projects in Q4. Interest and other line is forecasted at $1 million of income per quarter. While we have cash driving a yield, we also have items like FX gains and losses included in this line in our P&L. Our GAAP tax-rate is forecasted to be to be 15.25% and 15% non-GAAP in 2025, excluding discrete items.

Turning to capital allocation. Our strategy remains consistent as we take a balanced approach to maintain cash reserves that enable us to run the business and have dry powder for M&A. For reference, from 2015 to 2024, we've returned over $4.6 billion to shareholders through share repurchases and dividends, which is 93% of free-cash flow. In 2025, we plan on executing up to $400 million of share buybacks along with our current level of dividends.

Moving to our mid-term earnings model. As we do each January, we've updated our model. We share this model with investors to provide insight into how we look at the markets we serve, our competitive positioning and ultimately the growth and earnings power of the company. A few points for context. We're rolling forward our mid-term model to 2028, which replaces our prior 2026 mid-term model.

That said, we believe we are tracking with our prior 2026 model in terms of ranges of revenue and earnings. Over the mid-term, we expect test revenue to grow at a 12% to 17% CAGR off of our 2024 results, driven by continued strength in AI compute-related demand and recovery with long-term growth in broader end-markets, including auto, industrial and mobile. Our mobile assumption is for recovery, but we're not assuming a return to the prior peak in 2021.

In robotics, we're expecting the industrial markets to begin to recover with AI expanding the SAM and persistent labor shortages. We expect these dynamics to drive a top-line of 18% to 24% CAGR off of 2024 with modest growth in 2025, which we expect to accelerate over the mid-term. Going-forward, the robotics operating model will deliver increasing operating leverage through the midterm, ending towards the high-end of our target 5% to 15% operating profit range for this business.

Our updated mid-term model is expected to drive 2028 revenue to $4.5 billion to $5.5 billion and non-GAAP EPS between $7 and $9.50. As Greg mentioned, this implies a 15% CAGR from 2024 to 2028 and a 27% EPS CAGR at the midpoint, demonstrating the operating leverage of our test and robotics businesses. Gross margin is expected to be between 59% and 60%. OpEx as a percentage of sales between 28% to 31%, yielding a non-GAAP operating margin of 28% to 32%.

Summing up, 2024 was a good year overall, driven by strength in. Excluding the DIS divestiture, our overall company revenues grew 8% year-over-year and our SOC and memory combined grew 17% year-over-year, helping to achieve a 10% increase in our EPS to $3.22. We are making strategic investments to drive competitive advantage in the semi-test business and we are leveraging logical synergies between UR and Mir to drive long-term sustainable growth in robotics. We enter 2025 feeling good about the year and our line-of-sight to our mid-term model.

With that, I'll turn the call-back to the operator for questions. Operator?

Skip to Participants
Operator

Thank you. We'll now be conducting a question-and-answer session. If you'd like to ask a question, please press star one on your telephone keypad. The confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick-up your handset before pressing the star keys. One moment please while we poll for questions. Thank you. Our first question is from CJ Muse with Cantor Fitzgerald. Please proceed with your question.

CJ Muse
Analyst at Cantor Fitzgerald

Yeah, good morning. Thank you for taking the question. I guess first question was hoping you could spend a little bit of time expanding on your outlook for low-single-digit share growth in semi-test. Can you kind of walk-through the moving parts in terms of what's driving that? And then considering that you're expecting a bit of a recovery in your non-compute businesses in the second-half, can you speak to what we could see potentially in terms of upside to that low-single-digit number if that were to come in incrementally better?

Greg Smith
President and Chief Executive Officer at Teradyne

Hi, CJ, this is Greg. Yeah, so there's a number of things that are driving our outlook for low-single digit growth in share. In the SOC space, we think that we're going to continue to make progress with the with the compute VIPs maintain that 50% share that we got this year as that TAM continues to grow. And we're expecting to see some incremental improvement in the mobile space, driven primarily by there's been sort of steady increases in complexity that has been filling up the big pool of underutilized testers. And so we would expect that, that sort of continuing march of complexity will actually turn into incremental growth in TAM in that space in this year.

And then when it comes to auto and industrial, right now, we think that there is a short-term slowdown in that space, but the increase of automotive content, the increase of semiconductor content in automotive is kind of proceeding with each model year. So even at similar or depressed end-unit sales of that we expect the -- that to be modest growth in the automotive space.

The other thing that I'll say is that the electronics content in hybrids is nearly as high as the electronic content in pure EVs and the trend in the market towards more hybrid vehicles is something that is -- it's certainly impacting the plans for pure EVs, but it's impacting the auto semiconductors a little bit less.

Now the last is in industrial. In industrial, one of the things that is actually helping to drive the market there is an indirect pass-through from the AI compute space. The AI compute is incredibly power-hungry and it needs really, really good power for all of these GPU fueled servers. And that has been a driver for some of our power and electronics customers to -- with things like point-of-load converters, that's actually helping to sustain that market even when the traditional industrial market is not quite as strong.

Now if you move over to memory, the gradual recovery in mobile is going to help in parts of the market. So incrementally, year-on-year, that part of the market is going to be a little bit stronger. The HBM part of the market is going to be a little bit -- a little bit weaker because of that digestion factor. But the appetite for DRAM in AI servers is incredible and that's driving both LPDR and DDR memories.

So we're expecting the non-HBM part of the DRAM market to sustain a little bit better than the HBM part. So if you look at that whole thing and you look at the share gains or the new test insertions that we've won in HBM in 2024, plus our strong position in final test for DRAM, especially LPDR LPDDR DRAM and flash. We're expecting that to accrue to low-single digits in-memory as well.

CJ Muse
Analyst at Cantor Fitzgerald

Very helpful. And then I guess as a follow-up question, on the robotics side, restructuring that business once again. Obviously, I think you had multiple kind of paths that you could pursue on that front. And I guess, what gives you the confidence that this is the right path? And what kind of timeframe are you giving yourself for proof points of success given the struggles that Teradyne has had within this business for many years?

Greg Smith
President and Chief Executive Officer at Teradyne

Yeah. So I think one of the things that we're trying to do is to tease apart what part of this is Teradyne struggles and what parts of this are market struggles. So if you look at the performance of our robotics unit, it certainly is coming in under what our expectations were, but it is outperforming the companies that we compare ourselves in the industrial automation space. So we actually think we've made some significant progress in a very, very weak market.

Having said that, there's definitely areas that we thought we could -- that we could make changes that would help improve. One of the big things that was a positive in 2024 was the pace of new product introductions. And we think that the R&D groups associated with UR and Mir are really clicking and the releases that we have that are adding AI content to our product or enabling our partners to do AI-based robotics are very important positives.

The positive that we've seen in terms of building an OEM channel for UR is something that we think is a positive and we need to preserve. And we've also made significant progress in terms of building large account competency in the Mir organization.

So if you look at the restructuring that we're doing, we're really -- we are not -- we're making very modest changes in the product creation part of the business. We had already made the changes that we wanted to make in the operations part of our business. And so now we're focusing on the commercial side of the business.

And there, we're trying to really do think -- two things. The first is we want to -- we want to help our partners be more successful. And the way we can help our partners be more successful is by giving them a broader product range that they can sell. And that we think is going to really help out. It also -- it drives natural efficiencies.

50 of our largest partners between UR and Mir actually sell both UR and Mir already. And so we're going to be able to get a natural improvement in efficiency by covering those partners in a single way. Also, as we approach this large account success that we're seeing with Mir, we definitely see that service is a very important component of success.

And so by having a single-service organization, we believe that's going to allow us to expand the success that we've had with large accounts in Mir to the UR product-line as well. So the main thing we're trying to do with this restructuring is to sell more robots.

The next most important thing that we're trying to do is to set-up our breakeven so that we have the ability to overperform, that we have the ability to deliver better operating margin against what is a growth rate that is always going to be impacted by the end-market conditions. Does that help?

CJ Muse
Analyst at Cantor Fitzgerald

Very helpful. Thank you.

Operator

Thank you. Our next question is from Mehdi Hosseini with SIG. Please proceed with your question.

Mehdi Hosseini
Analyst at Susquehanna International Group

Yes, thanks for taking my question. Two from my end is focusing on semi. I wanted better understand this partnership with Infineon. It's interesting that you're doing this at the bottom of the power semi. I'm not sure if silicon carbide could do any worse. But what's for Infineon? And how should I think about partnership benefits to Teradon and benefits to Infineon? And I do have another follow-up.

Greg Smith
President and Chief Executive Officer at Teradyne

Sure. So, yes, it is definitely adverse times in the discrete semiconductor market, especially in like wide bind band gap, silicon carbide gallium nitride. The way we look at that is, this is sort of a classic hype cycle situation where people saw the promise of these technologies on in terms of delivering higher efficiency power conversion for both cars and for alternative energy applications. And there was a -- I think people got ahead of themselves in terms of how quickly the crossover would happen between internal combustion and EVs.

So definitely, there was a lot of enthusiasm around this market and we think that enthusiasm has waned. The -- so actually, we kind of think this is a good time for us to make this kind of a move. The advantage for Teradym here is as we look to this long-term path from here to 2028, we think that the discrete semiconductor market is going to -- the test market is going to be increasing in a pretty healthy way.

We also believe that all of the other semiconductor content associated with that, battery management systems, other conversion products, isolation products is also going to increase. So the advantage for Teradyne by making this partnership with Infineon is that we're going to be able to accelerate our roadmap to be able to cover these new types of devices and the higher powers that they're going to be trying to address.

The advantage to Infineon is inside of this group, they had a number of technologies and a number of specialty test equipment that they were using to support Infineon's market-leading business. By moving those capabilities into a commercial ATE company like Teradyne. Now those products are addressing the entire market rather than just the Infineon market. So that group has a broader horizon than before. Paradigm has an opportunity to accelerate our roadmap and Infineon gets to focus on designing and building chips, which is kind of the point of their company.

Mehdi Hosseini
Analyst at Susquehanna International Group

Should I assume there is a payment here? Are you actually acquiring this asset for purchase price?

Greg Smith
President and Chief Executive Officer at Teradyne

Yes.

Mehdi Hosseini
Analyst at Susquehanna International Group

Have you disclosed how much it is?

Sanjay Mehta
Vice President, Chief Financial Officer at Teradyne

No, we're not disclosing the purchase price. But it is not at a material level for disclosure.

Mehdi Hosseini
Analyst at Susquehanna International Group

Got it. And very quickly switching to Industrial Automation. If I just look at what you have guided for Q2 and extrapolate the year-end and look at the margin and opex, you're better-off with less contribution from Industrial Automation and the numbers speak for themselves. So my question to you is, what's the plan B? And we have -- you have spent several years reorganizing, enhancing the channel partners.

But to me, it seems like you may have to-end up partnering with the system integrator or there needs to be more. And the -- again, the question to the management team is, is there a plan B, how much more investment would you be willing to make before saying, okay, maybe you have to path away with industrial automation?

Greg Smith
President and Chief Executive Officer at Teradyne

Yeah. So we're nowhere near point where we would be making a part ways kind of a decision. But I want to address sort of the first point in your question that we are definitely not better-off with less industrial automation. We are better-off with more industrial automation and that has a lot to do with the leverage that's built into the business model for industrial automation. So we've reset our breakeven to this $365 million level in 2024. But that -- we are given current market conditions, we believe that we'll be delivering 10% growth above that level and we would be delivering positive operating margin from that group.

For certain, it's dilutive to the percentage earnings across the whole company, but it is accretive to earnings and we believe that this is something that's going to be an important growth vector for us over the long-term. So we -- we definitely saw an opportunity to improve customer experience and save money and set us up to be able to put our investments into the things that are driving the highest-growth, but we're not really at a Plan B stage yet.

Mehdi Hosseini
Analyst at Susquehanna International Group

Okay. Thank you.

Operator

Thank you. Our next question is from Timoth -- is from Steve Barger with KeyBanc Capital Markets. Please proceed with your question.

Jacob Moore
Analyst at KeyBanc Capital Markets

Hi, good morning. This is Jacob Moore on for Steve. Thanks for taking the questions. First one for me is on 2-nanometer date all-around. What does your outlook for the timing of that ramp look like over the year? Has that changed at all? And are there any notable differences you'd call-out in testers for the new transistor architecture versus current generations?

Greg Smith
President and Chief Executive Officer at Teradyne

Hi, this is Greg. I'll take that one. So right now, we are looking at the leading-edge of devices that utilize 2 nanometer occurring in the very, very late in 2025, just end early production in late 2025. The bulk of that is going to be in 2026. And at least in terms of our line-of-sight, we see both compute and mobile devices that are going to be taking advantage of that node.

In terms of the differences for that, the primary difference is that these devices have significantly more complexity. And with that higher complexity, it is actually -- these devices are higher -- are requiring higher peak power from the tester and they're requiring much, much more tester memory. And so the impact of that is, there's some -- there's a degree of technical obsolescence that is going to be creating opportunities in the ATE space and also in the system-level test space for us.

So we're -- we think that this discontinuity in device power is going to be helpful. It's not going to be like a cataclysmic increase in-demand because of the transition to 2 nanometer, but we do think that it's an accelerant.

Jacob Moore
Analyst at KeyBanc Capital Markets

Got it. That's helpful. Second one from me is on end-markets. I think AI and compute are clearly strong drivers, but PC notebook and mobile are still big volume base. And I know you -- I think you said gradual improvement over the year, but can you help us frame-up how you're thinking about total growth in those segments for the year? And has there been a more meaningful shift in tester conversion to HPC from mobile that could affect that dynamic?

Greg Smith
President and Chief Executive Officer at Teradyne

Okay, so first-off, we think that the second-half recovery is going to be pretty balanced. And in the compute space, I would -- I would expect that the primary driver is going to continue to be AI cloud-related demand. And that's accelerators, CPUs and networking for that part of the market. There's probably going to be a nudge upward in terms of client compute.

I would expect that our primary benefit from that increase would actually be in our wireless business unit in the LightPoint group. When you -- when you think about mobile, the primary thing is that there -- it depends on which analysts you're looking at, but generally people are a little bit optimistic in terms of units and there's definitely a march towards greater complexity in the phones.

And then I already spoke about industrial and automotive where it's more increasing semiconductor content by model year. And we think that there is a an inventory digestion in a weak spot that we're in now, but we'll be returning to sort of more normal dynamics by the end-of-the year.

Jacob Moore
Analyst at KeyBanc Capital Markets

Got it. Thank you very much.

Operator

Our next question is from Timothy Arcuri with UBS. Please proceed with your question.

Timothy Arcuri
Analyst at UBS Group

Hi, thanks. I had two. So, Greg, I wanted to ask about your VIP test TAM forecast. I think you said 626 and going to maybe 828 billion. I -- so my question on that is, if I listen to what Mar-Vell and Broadcom are basically saying about the custom ASIC TAM, one is saying it's going to be $40 billion in 2027. The others saying it's going to be $140 billion in 2027, 2028. So if I average those two, I can pretty easily get to $80 billion-plus in that timeframe.

So these numbers would imply that the test intensity is like less than 1% for that stuff. And this stuff all has tons of transistors and it seems like that's a pretty conservative forecast. So I'm wondering what your custom ASIC, you know end-market revenue number is that would underpin this because it seems like your test intensity number is very low based upon what the end-customers are talking about relative to the size of the market.

Greg Smith
President and Chief Executive Officer at Teradyne

Yeah, I am -- our model is built more bottoms-up based on like unit quantities, device complexity. The one thing that is definitely not factored into our model is any variability in the margin that you know a Mar-Vell or a Broadcom may be getting on the devices that they're producing. And so that's one area where we see a disconnect in our forecast versus theirs. But to sort of answer your question directly, we would definitely be more aligned with the low-end of that sort of $40 billion to $140 billion outlook for 2027 than the high-end. And that's mainly because we're working off of sort of line-of-sight of what we can -- what we've discerned from these more the actual hyperscalers versus the what we are hearing from the chip folks in the middle.

Timothy Arcuri
Analyst at UBS Group

Okay. Yeah, it seems low. But okay. So then on IA, so PBT has been negative for the past six years. Cumulatively, it's -- you lost more than $150 million. And usually when companies lose money like this, the markets are growing very fast and we're chasing growth. So can you just talk like, is the plan here to cut costs and try to maximize profitability or do you really see something bigger coming that you still want to do this?

And I kind of ask this in like the context of do you need outside investments to really scale this business? Or is it not a dollar investment thing? It's more just that the market hasn't grown what you thought it would and I guess the question there is like what's going to change to actually make this market grow? Thanks.

Greg Smith
President and Chief Executive Officer at Teradyne

Yeah. So I think the X Factor here is an extremely long down-cycle in industrial automation investment, really from a starting in 2022 all the way to now, it's been a -- PMIs have been consistently weak and we've been caught in that while we've outperformed -- while we've outperformed our peers, it hasn't delivered the growth that it's supposed to.

So one of the things that we like our view that may be a little bit idiosyncratic from a other advanced robotics players is that we do believe that growth in this market is going to be a marathon, not a sprint, that we are hoping -- we are hoping to align our opex so that we're able to generate positive operating margin even under weak business conditions and then incrementally increase that operating margin by making sure that we have leverage between any top-line growth and limit the opex increase and improve our gross margin as we go along.

So we think that there is significant growth potential in this space that is being masked by the end-market macro headwind. We don't have visibility into when those headwinds are going to -- are going to come to an end. So we definitely were focused on trying to maximize our efficiency during this period to make sure that we are setting ourselves up so that there isn't incremental negative impact on earnings from our robotics business even under weak business conditions. So that's the primary thing.

I think I'd like to pass it over to Sanjay for a couple of comments on this as well.

Sanjay Mehta
Vice President, Chief Financial Officer at Teradyne

Yeah, just really quick, Tim. Just for a point of reference, since 2019 -- 2019 to 2022 at an operating profit level, we were profitable. I'm not sure where you're kind of $150 million. In the last two years, it's true. We have lost money, but cumulatively, since 2019 to 2024, we'll have lost an operating profit level of about $23 million just for context.

Timothy Arcuri
Analyst at UBS Group

Okay, we can follow-up afterwards. Thanks.

Sanjay Mehta
Vice President, Chief Financial Officer at Teradyne

Yeah.

Operator

Thank you. Our next question is from Krish Sankar with Cowen. Please proceed with your question.

Krish Sankar
Analyst at Cowen and Company

Yeah, hi, thanks for taking my question. I have two of them. First one, Sanjay or Greg, if I look at your color on calendar '25, it looks like your revenues in '25 are going to grow about 15% from 2024 levels. A, is that right? And along the same path, a couple of months ago, you seemed a little more confident on maybe high-teens growth for the year versus mid-teens right now. So what kind of change on your -- on Teradyne's outlook for 2025? And then I have a follow-up.

Sanjay Mehta
Vice President, Chief Financial Officer at Teradyne

Sure. It's Sanjay here. Yeah, at the midpoint of our guide, it's 15%, obviously or the midpoint of our estimation and it could be plus or minus there. And what's changed over the last 90 days, I'd say, is that robotics, our view of the market, obviously from Q4 and our forecast or our thinking of our plan for robotics has come down to a growth rate of about 10% year-over-year.

I will add that what hasn't changed is that our view on semi-test actually over the past 90 days has actually strengthened. Yeah. We saw acceleration into more business into Q4 of '24, while we held our plans roughly the same over a five-quarter period, you know, it's actually been enhanced, which gives us confidence in the year for. And I'd say the other product test businesses are roughly in-line of what we thought about?

Krish Sankar
Analyst at Cowen and Company

Got it. Got it. And then as a follow-up, you know, thanks for the color. You kind of spoke about how your SOC compute revenue has been growing from 11% to 34% last year. I'm curious where do you think it could end-up being this year in the context of your $4.9 billion SOC TAM. If you can just give some color on how much of that is compute, how much is mobile and what percentage SOC revenue you could get from both compute and mobile this year. Thank you.

Sanjay Mehta
Vice President, Chief Financial Officer at Teradyne

Yeah. So I think compute will be one of our largest growers and should increase as a percentage of the SOC revenue that we have. We also see obviously the TAM growing in compute. So we're tracking to it. We see continued strength in VIPs, as Greg noted, roughly a TAM in 2024 for VIPs of 300 of compute VIPs of 300 and in '26, we see that as roughly centered around 600. So as you'd expect, we see growth in 2025 and we're tracking to that growth in compute.

I think from a mobile perspective, we do see it continuing to slightly growing along the 2025 level or consistent with 2024, similar to 2025. And then when we take a look at auto and industrial, we do see that TAM growing along with our business growing. So I'd say a little bit more strength in compute, in TAM as well as from our shipment perspective and then auto and industrial growing with mobility flattish to slightly up.

Krish Sankar
Analyst at Cowen and Company

Got it. Thanks, Greg. Thanks, Sanjay.

Operator

Thank you. Our next question is from Toshiya Hari with Goldman Sachs. Please proceed with your question.

Toshiya Hari
Analyst at The Goldman Sachs Group

Hi, good morning. Thank you so much for taking the question. My first one is on the VIP business. When you think about the growth outlook in '25 and '26. I was hoping you could sort of touch on the breadth of your customer-base in that business? Is the growth expected to mostly come from existing customers or are you looking to -- or do you expect for new products or new customers to ramp-in '25 and '26 as well within the context of the VIP business and AI compute more specifically?

Greg Smith
President and Chief Executive Officer at Teradyne

Yeah. So, hi, it's Greg. The VIP business is pretty concentrated. I mean, there are very few companies that have the scale necessary to pay for a 2 nanometer ASIC accelerator. So this is definitely going to be lumpy. If you -- if you look at our 2025 business, we are expecting a robust ramp of the existing customers that we have. And we're expecting between '25 and into '26 that we'll be adding one or two logos to the to the customers that we have. But like if you're trying to -- if you're trying to get an understanding for this, this is always going to be a situation where it's like very big single sockets that drive a lot of capacity adds, not a broad baseline.

Toshiya Hari
Analyst at The Goldman Sachs Group

Yeah, that makes total sense. Thank you. And then as my follow-up on HBM test, you talked about digestion in '25 and then the potential recovery in '26, I think. But is that view primarily based on a bottoms-up based on customer forecast? Are you guys making internal assumptions around your HBM bit growth, technology evolution, is it a combination? I'm just curious how you formed your view on '25 and '26. Thank you.

Greg Smith
President and Chief Executive Officer at Teradyne

So the -- we have very good relationships with most of the major memory producers. And so a lot of this is based on our conversations with them and their advanced capital planning. The -- and having said that, the -- there is a fair amount of capacity in-place that needs to be filled out, that is capable of doing HBM 3E. The thing that is a -- an X factor-in our model is the timing of a transition to HBM4. If that transition comes in time, then there's upside to the TAM. If that transition delays in time, that would be -- that would mean that TAM would be further weakened. But right now, we've kind of going with our best view from what we're hearing from our customers in terms of when that transition is going to happen.

Toshiya Hari
Analyst at The Goldman Sachs Group

And what do you say in time? Do you mean sort of first-half '26 or just wanted to clarify.

Greg Smith
President and Chief Executive Officer at Teradyne

Yeah. The real question is, yeah, whether -- like people are certain that HBM4 is going to be in volume production in early 2026. There is a -- there's certainly a customer desire to try to have more significant volumes of HBM4 in the latter half of 2025. And if you know if the schedules support that, that would pull-in the capacity needs for that into '25 from '26.

Toshiya Hari
Analyst at The Goldman Sachs Group

Got it. Thank you.

Operator

Thank you. Our next question is from Samik Chatterjee with J.P. Morgan. Please proceed with your question.

Samik Chatterjee
Analyst at J.P. Morgan

Hi, thanks for taking my questions. I guess for the first one, the seasonality between the first-half and the second-half that you're indicating this year is definitely more second-half skewed than sort of the last couple of years and that brings into sort of the question in terms of you're talking about the second-half recovery in some of these markets like mobile and then auto industrial. How are you sort of derisking that second-half when we think about upside, downside risk, particularly given your visibility, how should we think about sort of that first-half versus second-half improvement and sort of upside-downside risk around it? And I have a follow-up. Thank you.

Sanjay Mehta
Vice President, Chief Financial Officer at Teradyne

Yeah. Hi, it's Sanjay. So that's right. Well, as we have the visibility into Q1 or the first-half -- second-half, I'd say we're in a -- in an environment where we see the upgrades that have occurred that we've talked about to underutilized capacity, we see that as coming to and then sometime of these upgrades of really getting to really high levels of utilization of first half-ish and while still be probably some minor upgrades, we see capacity tightening.

You can see that with the DLSI reports as well as how when we go and count the testers and utilization and our methodology of getting there. So we see a tailwind as utilization tightens. The second thing is that we do have a pipeline as we think about the customers we're engaging that gives us confidence in the second-half.

And in the second-half, it's broad-based, I'd say, more focused around compute as well as auto and industrial from a semi-test perspective and then also tied to the end-market recovery. And as Greg noted, end-market recovering in industrial automation as well.

Samik Chatterjee
Analyst at J.P. Morgan

Got it. Thank you. And maybe going back to the VIP ASIC TAM and you sort of highlighted -- you made some comments on the last question as well in terms of logos that you're expecting. But more specifically, I think there is a broader investor concern about your ability to maintain that 50% share that you're talking about?

And when we sort of look into the -- into 2025, 2026, is that visibility in terms of maintaining the 50% share more in terms of will continue to work with your existing customers or how does the pipeline look in terms of sort of new wins, either in terms of sockets with existing customers or new customers that's driving that confidence to keep that 50% share? Thank you.

Greg Smith
President and Chief Executive Officer at Teradyne

Yeah, this is Greg. I'll take that one. So we believe that we have the best product for these leading-edge devices. But one of the critical factors in ATE selection is the installed-base of tools and training and everything else that you have around the platform that you're using. So the Teradyne's traditional low share in the compute space has a lot to do with the way the market was shaped for the last 10 years.

The success that we're having in VIPs is that with these new -- these new devices and the use of these design service providers like a Broadcom or a Marvell or a Samsung GUC that we have excellent relationships with these customers and we are able to demonstrate the differentiation of our product. And we think that people are getting a good result by using our product and they're choosing our product for that for that reason.

So from a product differentiation perspective, we think we have the right -- the right recipe in order to maintain that share. We think that we have the right customer relationships to be able to do that. And we believe that we have the right relationships with the hyperscalers themselves to try and add the logos that we need. So we're pretty confident that we're going to be able to keep going at this 50% level.

Samik Chatterjee
Analyst at J.P. Morgan

Thank you. Thanks for taking my question.

Operator

Thank you. Our next question is from Vivek Arya with Bank of America. Please proceed with your question.

Vivek Arya
Analyst at Bank of America

Thanks for taking my questions. So first one, Compute TAM grew 57% last year, but you're expecting it to grow only 5% in '25. I'm curious what is causing that a slowdown. And then versus the, I think $300 million in VIP last year, what is the VIP TAM for '25?

Greg Smith
President and Chief Executive Officer at Teradyne

So, in terms of compute growth, you can I think you can look at this in a little bit of a similar way to the situation in HBM. The end-market for this stuff is going to stay very, very hot. The -- but the situation in terms of capital equipment or test equipment to support the volumes that are being produced doesn't necessarily follow that in lockstep. Right now, there are a lot of devices in this space that are you still coming up in experience curve and have very, very long test times that could be reduced as parts become more mature.

And we believe that that's going to have -- that's going to limit the sequential growth of the compute space. So we think the primary opportunity in the -- in the compute space is in these new sockets from the VIPs, not in the traditional space where it's sort of a year-after introduction and experience situation. So we think that there is definitely a -- you know there are balloons and anchors that are going to be affecting this. The balloon is obviously this huge capex for data center that's going-in, the anchor is increasing efficiency of production for the devices.

Vivek Arya
Analyst at Bank of America

But then how do we reconcile that with the strong I think almost 30-plus percent half-on-half growth that you are expecting this year driven by compute. If the TAM is not growing, then how can one depend on that to grow much more than what Teradyne's normal seasonality has been half-and-half in the second-half.

Sanjay Mehta
Vice President, Chief Financial Officer at Teradyne

Yeah. So I think you should think about it as share growth. Some of that.

Greg Smith
President and Chief Executive Officer at Teradyne

Yeah, it's share growth. And the other thing that I would say is we're kind of expecting compute to be delivering throughout the year and we're expecting the automotive, industrial and mobile segments to be more back-half loaded. So it's not that we're expecting a big back-half for compute, I think.

Sanjay Mehta
Vice President, Chief Financial Officer at Teradyne

Yeah, I think compute, we are seeing a -- it's a little bit more balanced, but back-half is going to be stronger than the first.

Vivek Arya
Analyst at Bank of America

Okay. But it's not 30% increase, is it?

Sanjay Mehta
Vice President, Chief Financial Officer at Teradyne

It is. Okay. It's going to have a reasonable increase.

Vivek Arya
Analyst at Bank of America

Okay. Okay. Thank you.

Greg Smith
President and Chief Executive Officer at Teradyne

But I think that the logic behind that is related to this new part introduction that if you're introducing new parts, you need capacity to support that. If you are increasing volume on parts that are already in-production, then that's affected by the experience curve.

Sanjay Mehta
Vice President, Chief Financial Officer at Teradyne

And then Vivek, you had a question on the network.

Vivek Arya
Analyst at Bank of America

I think the $300 million, what is it this year? Yeah in '25?

Sanjay Mehta
Vice President, Chief Financial Officer at Teradyne

Yeah. What we've said in our prepared remarks that it's $300 million and then growing to what we expect to be in 2026 centered around $600 million. You should expect that that's going to grow on a trend-line. You know, it has a range. But if you think about $400 million to $400 million to $500 million, maybe bias towards the higher-end a range for 2025 is how you should think about it.

Vivek Arya
Analyst at Bank of America

Understood. Thanks very much.

Operator

Thank you. Our next question is from Brian Chin with Stifel. Please proceed with your question.

Brian Chin
Analyst at Stiffel Nichols

Hi, good morning. Thanks for letting us ask a few questions here. Sorry if I missed this, but -- and I know there were sort of some movement around of certain revenue streams in the different buckets. But what was the size of the SOC test market in 2024? And if no one asked us yet, can you decompose sort of how that $4.9 billion TAM for 2025 breaks down across compute mobile, et-cetera?

Sanjay Mehta
Vice President, Chief Financial Officer at Teradyne

Sure. On '24, I believe we have a slide in the backup, but compute is $2.2 billion, mobile is 0.8 billion, auto and industrials 0.9 services 0.7 and 4.6 SOC TAM in '24. And then if you go to '25, you've got $2.3 billion in compute, mobile at $0.9 billion, auto and industrial at $1 billion and service at $0.7 billion to get us to the 4.9 billion at the midpoint.

Brian Chin
Analyst at Stiffel Nichols

Got it. That's helpful. And just -- and you sort of touched on this a little bit, but just to underpin that view for the modest test recovery in the second-half, can you give us maybe a better sense of where semiconductor test cell utilization rates are now versus a year-ago to kind of how close we are to bridging that gap?

Greg Smith
President and Chief Executive Officer at Teradyne

That yes. So I mean, we've cautioned before in terms of the absolute accuracy of these utilizations. So we tend to look at changes from quarter-to-quarter. I will say that utilization has drifted up through 2024 and it inflected more strongly in the end-of-the year than before. And that's really around the impact of the upgrades that we shipped through the year. The upgrades that we shipped through the year that turned previously idle testers into testers that are being actively loaded.

There was a delay of maybe one quarter from those being shipped to when they are actively loaded by our customers. But it's probably about a 10% increase in utilization year-on-year like exiting '24 from coming into '24. And right now, we're at the point where we think our business has already shifted in mix more away from upgrades and more towards system sales. So we think that that's -- we've kind of passed the tipping point there.

Brian Chin
Analyst at Stiffel Nichols

Okay. Thanks. Maybe if I could sneak into question. Would you mind unpacking a little bit what you mean by consolidating the go-to-market? And also in 2025, does your kind of modest growth outlook suggests that you think the benchmark of the broader robotics industry is down something like 10% this year?

Greg Smith
President and Chief Executive Officer at Teradyne

Yeah. So the details of the consolidation is that we've combined the marketing functions, the sales functions and the service functions of UR and Mir together, so that we have a one unified go-to-market organization. And that is the primary way that we are going to improve our interface to our partners and improve the interface to our largest customers.

There's a lot of overlap in terms of our largest partners and our largest customers where they are customers of both UR and Mir. So it was an obvious place where we could make things simpler for them and also drive some efficiency for us. There's really no change in terms of the primary go-to-market growth vectors that we see for these groups.

And that really is OEMs and for and large customers. And so we're continuing to lean into those programs, but now we're doing those across both product lines versus on an isolated basis. Now the -- could you remind me what your second question was in there?

Brian Chin
Analyst at Stiffel Nichols

Yeah I think you previously said you kind of set the growth targets against a benchmark -- outperforming a benchmark for the industry, something I think like 10% to 15% better than the benchmark. And if you're guiding kind of for modest growth this year, does that mean that benchmark is down maybe 10% this year?

Greg Smith
President and Chief Executive Officer at Teradyne

Yeah. Yeah. I think we're -- everyone is trying to figure out exactly what the shape of a recovery in industrial automation would be? I think you're right in thinking that we are -- our intent is to outgrow the traditional automation players by like 20% per year or maybe more like 15% per year. So I think it's probably more like we're looking at 5% down with us delivering above that so if at a -- if the automation market were flat, I think we would be significantly higher, up around 20% growth. If it's down -- if up around 15% growth, if it's down 5%, then we deliver like 10% growth.

Brian Chin
Analyst at Stiffel Nichols

Okay. That's helpful. That's great.

Operator

Thank. Our next question is from Shane Brett with Morgan Stanley. Please proceed with your question.

Shane Brett
Analyst at Morgan Stanley

Hi, thank you for taking the question. So I understand the importance of giving investors long-term forecast of the 2028 model, but I just wanted to better understand what are the kind of more finer details behind the revenue assumptions for that model and sort of how far your visibility extends? On the context of this question is that since 2022, it appears as though you are continuing to set-up a little bit of a higher bar for your business? Thanks very much.

Sanjay Mehta
Vice President, Chief Financial Officer at Teradyne

Yeah. Hi, it's Sanjay here. Yes. So as we've said in our prepared remarks, we see test revenues. We see overall revenues growing 12% to 18% and that's really broken out from a test perspective of 12% to 17%. And then from robotics, an 18% to 24% level. I would say starting with robotics, there's some key drivers that we have, AI-enabled SAM expansion, really focused on channel growth through OEMs and large accounts and new product introduction.

And so we believe we are in a sub-5% penetrated market. The market has had some tremendous headwinds, as Greg noted for the past couple of years. However, we see that you know as we -- as we develop these incremental solutions, AI-enabled our capabilities in our products that will enable us to help address incremental segment verticals.

And so it's with that, we have the confidence we just need the market to return and we are predicting that in our model. From a test perspective, I would think about it like this. We analyze the TAM, we take a look at and maybe, Greg, do you want to add some comments when I'm done. But we analyze the TAM. We look at things in the different segments like compute, how we -- how we see the AI compute or high-performance compute go in networking as well as the forecast from external players, but also talking to customers and what our view is of the custom ASICs.

So we look at it segment-by-segment, high-level drivers, Greg mentioned, EV silicon content in cars growing as well as a fast-moving driver or an increased driver in hybrid as well as EVs, but it's both a top-down and a bottoms-up.

Greg Smith
President and Chief Executive Officer at Teradyne

Yeah. Well, one bit of color in terms of the semi-test growth. I think one-way that you should think about it is that there was this incredible inflection in 2024 for the memory market. So the memory market like really bumped up in 2024. So if you're looking at 2024 to 2028 growth rates, we think that the memory market has already sort of built-in some of the growth of that -- of that longer period. So we're expecting sort of a lower incremental TAM growth in the memory market going out to 2028 and a more linear model of growth rate for the SOC TAM through that period.

Sanjay Mehta
Vice President, Chief Financial Officer at Teradyne

And maybe I'll turn it up. I'll add one more point on share. You know, in the compute space, as we see the market shift to more custom ASICs, we also see share gain as we believe we're going to continue to win kind of one in two sockets. And then as the market recovers in mobile as well as auto and industrial, markets that we've had traditionally higher share in, as those markets become a larger portion of the TAM relative to 2024 and those markets recover, we should inherently gain share in those markets.

Greg Smith
President and Chief Executive Officer at Teradyne

Yeah. Now one other thing that I think you probably want to try to consider as you're trying to flesh out of view for 2028 is that we think system-level test is going to be a long-term growth vector, that adding those test insertions is going to be important to achieve the quality levels that our customers are demanding. And so we believe that that's going to be one of the things that helps to drive that -- you said it was 12% to 17% growth for the test dress. That there is a chunk of that growth that is coming from that system-level test stuff.

Shane Brett
Analyst at Morgan Stanley

Got it. Thank you very much.

Operator

Thank you. There are no further questions at this time. I'd like to hand the floor back over to Tracy for any closing comments.

Traci Tsuchiguchi
Vice President of Corporate Relations at Teradyne

Thank you again for joining us this morning. We hope that many of you will be able to join us for our Analyst Day on March 11. Until then, we look-forward to speaking with you soon. Bye.

Operator

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.

Corporate Executives
  • Traci Tsuchiguchi
    Vice President of Corporate Relations
  • Greg Smith
    President and Chief Executive Officer
  • Sanjay Mehta
    Vice President, Chief Financial Officer
Analysts

Alpha Street Logo

Transcript Sections