Teradyne Q1 2025 Earnings Call Transcript

Quartr
Provided by Quartr
April 29, 2025

There are 12 speakers on the call.

Operator

Greetings. Welcome to Teradyne Incorporated First Quarter twenty twenty five Earnings Conference Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded.

Operator

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

Speaker 1

Thank you, operator. Good morning, everyone, and welcome to our discussion of Terraline's most recent financial results. I'm joined this morning by our CEO, Greg Smith and our CFO, Sanjay Mehta. Following our opening remarks, we'll provide details of our performance for the first quarter of twenty twenty five and our outlook for the second quarter of twenty twenty five. The press release containing our first quarter results was issued last evening.

Speaker 1

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 differ materially 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 ks for the fiscal year ended 12/31/2024, on file with the SEC.

Speaker 1

Additionally, these forward looking statements are made only as of today, and we do not undertake any obligation to update forward looking statements to reflect subsequent events or circumstances, except to the extent required by law. 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, where available on the Investor page of our website. Looking ahead between now and our next earnings call, Teradyne expects to participate in the technology and industrial focused investor conferences hosted by JPMorgan, TD Cowen and Stifel. Our quiet period will begin at the close of business on 06/20/2025.

Speaker 1

Following Greg and Sanjay's comments this morning, we'll open up the call for questions. This call is scheduled for one hour. Greg?

Speaker 2

Thanks, Tracy. Good morning, everyone, and thanks for joining us. Today, I'll discuss our first quarter results and provide an update on the trends that we are seeing across our businesses. Sanjay will then provide more detail on our first quarter results and second quarter guidance. It's been seven weeks since our Analyst Day and the long term themes that we discussed, AI, verticalization, and electrification remain the primary industry drivers that we expect will accelerate our growth trajectory in the years ahead.

Speaker 2

In the near term, the combination of trade policy and our customers' heightened uncertainty around end market demand has caused orders to push out as we discussed last month. Although the direct impact of current and anticipated ninety day tariffs on our model is minimal, we are more concerned about the impact of tariffs on the end market demand. Many of our customers, primarily in the mobile, automotive and industrial segments, are reviewing their capital acquisition plans, and we do not have firm forecasts from them at this time. Beyond the second quarter, our visibility is very limited. As such, we are not commenting on or reaffirming our expectations beyond the second quarter.

Speaker 2

We delivered first quarter revenue towards the high end of our guidance range with gross margin and earnings per share above the high expectations. Strength in Semi Test, specifically SoC for the mobile end market, drove year over year growth. This mobile demand is transitory and related to some supply chain transitions at our customers rather than a signal of end market recovery. Our compute revenue also grew year over year in Q1 with record loading on our UltraFLEX and UltraFLEX Plus testers for AI accelerators. Revenue in our product test and robotics test divisions were generally in line with our expectations in q one.

Speaker 2

In Semi Test, SOC delivered above our plan, and memory was in line with our expectations as customers digest the HBM or high bandwidth memory capacity that was put in place last year. In the quarter, our memory business unit secured a coveted HBM four performance test win with a major DRAM manufacturer, which is beginning to expected to begin shipping in the second half of this year. This is our first DRAM wafer sort win at this customer and a major milestone for our memory business. Our IST business or integrated system test delivered first quarter results in line with our expectations and achieved initial customer acceptance for the new Titan HP targeted at system level test of AI accelerators. We are seeing new opportunities emerging in the IST space with both new and existing customers.

Speaker 2

All of the businesses in our newly formed Product Test division delivered first quarter results in line with our expectations. While the wireless test end market for our LitePoint business has been generally weak since 2023, the team has continued to secure the majority of opportunities in wireless networking sockets. In the first quarter, LitePoint won 13 of 13 of the WiFi seven wireless test opportunities. A critical aspect of our strategy to gain share in high performance computing is to establish a leadership position in silicon photonics test. In support of that goal, we believe that we are on track to close the acquisition of Quantify Photonics in the second quarter.

Speaker 2

In the first quarter, our Robotics division executed a structural reorganization, consolidating the customer facing sales, marketing and service organizations between UR and MiR. Our robotics team has responded with resilience in what continues to be a very challenging macro backdrop. In the quarter, Teradyne Robotics received the largest order in its history from a global automotive manufacturer for both MiR AMRs and UR cobot arms. The new pallet jack, MiR 1,200, is now in the hands of distributors and select lead customers, and pilot installations are running. Moving on to Q2.

Speaker 2

As we discussed at our Analyst Day, we have seen customers push order delivery out from the second quarter into future quarters due to the uncertainty international trade policy could have on end market demand. Despite this, our view of Q2 remains in line with the expectations that we set in March. Given the lack of visibility and the impact that trade policy may have on the industry and our business, we are prudently managing expenses. While there are systematic OpEx savings that are delivering that are delivered by our flexible business model and variable compensation strategy, we are also actively managing expenses with the objective of generating operating leverage. With our strong balance sheet, consistent free cash flow generation, low capital intensity and variable operating model, we are continuing critical investments and are positioning ourselves to drive growth as customers figure out their strategy in the current macro environment.

Speaker 2

We see green shoots of evidence of this across Teradyne as our business units address emerging opportunities and increasingly work across divisions to better solve customer problems. TAS or Teradyne Automated Solutions is a great example. Semiconductor customers are interested in automating particularly their back end processes, which are still quite labor intensive. In the first quarter, we announced the strategic partnership with ADI, which will deploy UR cobots in mere AMRs to support ADI's collaborative automation initiative. The semiconductor market is one of the segments our robotics business is targeting to drive diversified growth.

Speaker 2

Within Semi Test, IST is working hand in hand with our SOC team to help current and potential customers in the AI compute space cost effectively optimize test insertion points. We are seeing this with our first Titan HP customer acceptance and revenue in q one from a hyperscaler customer. And in product test, our PBT or production board test business, which has historically been strongest in the automotive industry, is making gains in AI compute, where technologies pioneered by Semi Test are being leveraged to help hyperscalers test server level products. The increasing complexity and high cost of failure of these end products is creating sizable opportunities for us. In the mobile space, after years of overcapacity, utilization rates have improved considerably as evidenced by new system orders for AI compute complementing upgrades of underutilized mobile testers.

Speaker 2

We have started to see improvement in LPDDR for mobile applications, and we started shipping our next generation image sensor testers for the mobile market in q one of twenty twenty five. We are also winning new opportunities in SLT in the mobile market. With two nanometer and gate all around on the horizon, we are optimistic that as demand recovers, the setup for our mobile business is good. We cannot predict the impact that dynamic trade policies will have on global end demand, But we know that Teradyne has historically emerged stronger coming out of challenging macroeconomic periods. We expect that to be the case in 2025 as well.

Speaker 2

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

Speaker 3

Thank you, Greg. Good morning, everyone. Today, I'll cover the financial summary of Q1 and provide our Q2 outlook. Now to Q1. First quarter sales were $686,000,000 which was towards the high end of our guidance with non GAAP EPS of $0.75 above our high end guide of $0.68 Non GAAP gross margins were 60.6%.

Speaker 3

This was above our guidance due primarily to product mix. Non GAAP operating expenses were $275,000,000 up year over year as we have increased our investment in target opportunities to drive longer term growth. That said, it's down sequentially as part of our implemented spending controls. Non GAAP operating profit was 20.5%. Turning to our revenue breakdown in Q1.

Speaker 3

Semi Test revenue for the quarter was $543,000,000 with SOC revenue contributing $4.00 $6,000,000 memory, dollars 109,000,000 and IST, 27,000,000. Strength in SoC was driven primarily by mobile. As expected, memory revenue was lower as customers digest the HBM test equipment delivered in 2024. We expect DRAM to dominate the memory mix in 2025 just as it did in 2024. IST revenue was $27,000,000, was up both sequentially and year over year driven by new SLT shipments for mobile and our first AI compute revenue.

Speaker 3

In product test, Q1 revenue was $74,000,000 down 4% year over year, with wireless test revenue of $29,000,000 up 20% year over year. This growth in wireless test was offset with weakness in production board test tied to the automotive industry and timing of programs in defense and aerospace. Now to robotics. Revenue was $69,000,000 declining both sequentially and year over year. In the quarter, UR contributed $49,000,000 and MiR contributed $20,000,000.

Speaker 3

While the long term drivers of AI and onshoring and advanced robotics remain intact, near term macro factors continue to be a headwind. In robotics, the operating loss was $22,000,000 in line with our expectation. Given our restructuring, I'll share the GAAP to non GAAP reconciliation of the loss. On a GAAP basis, our loss in Q1 was $37,000,000 including approximately $11,000,000 in restructuring, primarily associated with our go to market consolidation and $4,000,000 of amortization of intangible assets. This restructuring has reduced our operating breakeven revenue from $440,000,000 to $365,000,000 as described in January.

Speaker 3

I'd like to highlight our life to date robotics GAAP results. Life to date, our GAAP losses are $231,000,000 Breaking that down, approximately $233,000,000 of noncash amortization of intangibles, dollars 45,000,000 of restructuring costs resulting, and $47,000,000 of cumulative non GAAP operating profit. Some other financial information in Q1. We had one customer that directly or indirectly drove more than 10% of our revenue in the first quarter. In Q1, '19 percent of our revenue was shipped to China, Twelve Percent in support of multinational customers, and 7% in support of indigenous Chinese customers.

Speaker 3

For context, in the past two years, shipments to indigenous to Chinese indigenous customers has been 5% of Teradyne's revenue. The tax rate, excluding discrete items for the quarter, was 13.5% on a GAAP and non GAAP basis. At a company level, our free cash flow was $98,000,000 primarily driven by earnings and net working capital improvements in the quarter. We repurchased $157,000,000 of shares in the quarter and paid $19,000,000 in dividends. We ended the quarter with $622,000,000 in cash and marketable securities.

Speaker 3

Now turning to our outlook for Q2. Q2 sales are expected to be between $610,000,000 and $680,000,000 Second quarter gross margins are estimated at 56.557.5%, a decrease quarter over quarter driven by product mix and lower volume. Q2 OpEx is expected to run at 40.5% to 44.5% of second quarter sales. The non GAAP operating profit rate at the midpoint of our second quarter guidance is 14.5%, with non GAAP EPS expected to be in the range of $0.41 to $0.64 on 161,000,000 diluted shares. GAAP EPS is expected to be in the range of $0.35 to $0.58 Moving

Speaker 4

to

Speaker 3

the topic of tariffs. As Greg noted, the primary concern of the tariffs is the impact on the end market demand. As our manufacturing footprint and the location of our customers, we expect only a minimal impact on the efficiency of our business model. The impact of the tariff will generally be passed along to customers in affected regions. In Q2, we expect to have a small increase of cost of sales and operating expenses, which amounts to approximately $02 of earnings for Q2, which is included in our guide.

Speaker 3

While we have assessed the financial impact due to tariffs in Q2, there is little ability to predict either the changes in tariff or trade policy or the magnitude of impact of the trade policy on end market demand. As such, please do not rely on prior financial guidance that extend beyond the second quarter. That said, I'd like to provide additional color on the dynamics we're seeing in some of our markets. In mobile, after two consecutive quarters of strength driven by some supply chain shifts, we expect our Q2 revenue for mobile to be lower. In Q2, we also expect a significant sequential decline in memory revenue as the market continues to digest installed HBM test capacity.

Speaker 3

Looking out further, freight policy, including tariffs, are most likely to impact mobile, automotive, and industrial end markets. Significant changes to the AI diffusion rule or semiconductor trade restrictions may impact the compute market. Turning to share buybacks. As noted in our press release, we've increased our share buyback target from $400,000,000 in 2025 to up to $1,000,000,000 through the end of twenty twenty six, reflecting our confidence in our long term plans and free cash flow generation. Summing up, we delivered strong sales, earnings and free cash flow in the first quarter.

Speaker 3

Our expectations for the second quarter are largely in line with our expectations provided at our Analyst Day, inclusive of the expected impact of tariffs. While visibility remains limited and there is a heightened uncertainty on the end market demand, we are confident in the long term drivers of AI, electrification, and verticalization that will drive the industry and our businesses in the coming years. Our resilient variable business model and strong balance sheet enable us to continue to invest in areas of strategic importance as we await a broader end market recovery. With that, I'll turn the call back to the operator to open the line up for questions. Operator?

Operator

Thank Our first question is from Krish Sankar with TD Cowen. Please proceed.

Speaker 4

Good morning, my question. Greg, you kind of mentioned that, you know, how seven weeks ago at your Analyst Day, you saw tariff related pushouts. But now it seems like some of your OSAT customers are seeing tariff related pull ins. I'm kinda curious what are the dynamics you're seeing? It seems like you're only seeing push outs, no pull ins.

Speaker 4

Kinda like what end vertical is it coming from? Is it mostly auto analog industrials, or are you also seeing this trend in mobile and HPC? And then I had a quick follow-up.

Speaker 2

Yeah, Chris. So, I think the effects of pull ins for end orders, you know, like, people hurrying to get chips are mostly affecting capacity that's, you know, that's it's using capacity that's already in place. It is not we haven't seen significant pull ins into q one or into q two to provide additional capital equipment to support that. So, that's not a factor. The the pushouts that we were talking about at Analyst Day are you know, it it the situation is essentially the same as it was back then, and the push outs are primarily coming from our customers that serve the auto and industrial space.

Speaker 2

Haven't seen significant push outs associated with mobile, but we are concerned about the potential end market impact that, you know, it that, like, that is an effect yet to be seen that we don't have information about.

Speaker 4

Got it. Got it. Thanks, Greg. And then just a follow-up on that XBM basis dot win. Is this an existing HBM customer?

Speaker 4

Is it a new one? And also, typically, Teledyne has been better in final test because speed is more important. So I'm kinda curious what got you the VaporSoft win. Thank you.

Speaker 2

Okay. So the the important thing to remember is that, with HBM memory, there is now a performance test that occurs at wafer level. So this is a post post stack test. So you you do a core test of all of the all of the DRAM wafers, then you dice those wafers, you stack them up onto a substrate wafer, and then you do another wafer level test of the entire stack HBM memory. And that's a performance test that happens at higher speed.

Speaker 2

That's the insertion that we won, and that is a that eight that HBM four win is with a customer where we didn't have existing HBM three or three e business.

Speaker 5

Thank you, Greg. Very helpful.

Operator

Our next question is from C. J. Muse with Cantor Fitzgerald. Please proceed.

Speaker 6

Yes. Good afternoon good morning. Sorry, thank you for taking the question. I guess I understand not guiding to the second half given lack of visibility, but I'm hoping you could kind of speak to what you can control. So how are you thinking about kind of what the new gross margin range would look like for the full calendar year?

Speaker 6

And do you have an updated view on how we should be thinking about OpEx?

Speaker 3

Hi, CJ. It's Sanjay. So for the full calendar year, you know, given the uncertainty on the top line and the impact of the tariffs or the the trade policy, now the revenue mix is is really a large factor. So we're not providing any guide for the gross margin. I will share that our first half from a gross margin perspective is percentage wise is roughly in line with where we expected.

Speaker 3

Q1 a little bit better and as we're guiding Q2, a little bit worse. But overall, in the first half percentage wise, we're aligned. And given the uncertainty of the top line, we're not providing any guide for the second half. From an OpEx perspective, you know, the story is is, it may sound a little bit redundant. But from a from a variable, compensation model perspective, what we'll see is depending on the revenue flex, if if the revenue comes down, we'll have a favorable impact, lower spend.

Speaker 3

If it goes up, we'll we'll have more spend. But the the kind of the narrative is consistent where we're we're gonna prioritize our semi test, our engineering, and our go to market. You saw the restructuring, in robotics in q one. You should you should see that decline, year over year. And and from an, an OpEx perspective and product test, it should be roughly, flattish to the prior year.

Speaker 2

So I'd, if you don't mind, Sanjay, I'd like to add one sort of historical perspective to that If you look into sort of past situations where we have had, you know, like, a a sharp downturn within a year, you know, like so in from twenty twenty two to twenty twenty three, we had the you know, in the middle of '23, we had, a sharp slowdown in the mobile space that occurred midyear. And our margins went from 59% in 2022 to 57% in 2023. So, we're not calling a gross margin for the full year because we don't have a good picture of the full year. The thing I want to emphasize is that it's probably going to move in a pretty narrow range.

Speaker 6

Very helpful context. I guess as my follow-up, I was hoping you could speak to, the SLT wins that you kind of highlighted in your prepared remarks. So can you kind of give us a little more color on what you're seeing with AI accelerators? And then also on the mobility side of two nanometer, is that just a win at your large existing customer? Or have you broadened your design wins in in that arena?

Speaker 6

Thank you.

Speaker 2

Yeah. So I'm I'm glad you asked for clarification around the mobile the mobile SLT win. So in my script, it was sort of two separate thoughts that we have one additional mobile sockets, that are driving that are gonna drive business in 2025 and into 2026. A separate thought is the transition to two nanometer is going to be a positive demand, tailwind in 2026 as well. I didn't mean to imply that we won an SLT two nanometer socket.

Speaker 2

So I just wanna make sure that we're really clear about that. On on AI accelerators, this is sort of a leading edge, trend. What we're seeing is that AI accelerator devices, they're being incorporated into higher level assemblies, Those assemblies have a high, a higher than acceptable failure rate as they're being built into servers. And, it takes a significant amount of time to to get the test coverage that you need for these devices, and many of the failures can only be found when they are running actual, like, training workloads. The most cost effective way to be able to run those training workloads is to do it in a system level test environment.

Speaker 2

And so, we've we've implemented that for a a leading edge AI accelerator. We've delivered that product. That product has been accepted and is being used in production right now. The trend that we believe is going to happen is that with next generation accelerators that are even more complex, that a % SLT is going to be the most economic choice that these customers will make in order to achieve the quality levels that they need. So this is sort of the the the tip of the spear when it comes to to SLT of these devices.

Speaker 2

And the key thing that we have is a great solution around the thermal control and power required to do this. So, it's, you know, it's a an important strategic win that is going to deliver significant revenue in 2026.

Speaker 6

Very helpful. Thank you.

Operator

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

Speaker 7

Thanks a lot. Greg, you talked about I think you said the biggest robotic order ever. I think you talked about that in the script. June has historically been kind of all over the map. It's been I mean, if you said it's, you know, normal seasonal, it's pretty flat, I guess, in June.

Speaker 7

So can you talk about that order? What was it for? What does it tell you about the business, and, when is it gonna hit?

Speaker 2

Yeah. Sure. So, as we've said in the script, it's for an automotive customer, and this has been a historically large strategic customer for us, for both UR and Mir for a while. This is the first, you know, it's it's the largest order, for our AMRs that we've ever received, and it's the first time that we've received an order where, we dealt with this customer in a, combined way as a robotics unit versus a UR and near unit. So it, you know, demonstrated the ability to to transition the Salesforce to selling all of our products to these strategic customers.

Speaker 2

The the product is primarily used in, so for the AMRs, they're primarily used in the the, material handling part of the factory. So, essentially, they bring parts from, from storage to line side, and then the then the, the other automation, takes that and brings it into the product being assembled. The the, cobot arms are generally used to automate manual processes in existing factories. So, when they build a factory, they will, design in the core automation for the assembly line. There is a significant amount of manual, operations that occur, especially as the product gets further through the process.

Speaker 2

And after the test after the factory is commissioned, this customer will continually look for process improvements, and collaborative robotics is one of the key technologies that they use for those kinds of improvements because they don't have to make sure that the product and that that their automation and the workers are separated. So it's, you know, an ongoing, continuous improvement investment from this this customer on the Cobalt side.

Speaker 7

And when does it, when does it help, the business? And then, Sanjay, can you give us some TAM updates from what you provided during the Analyst Day? You had said, you know, four nine SOC, you know, one four memory, you know, and then you had all the, you know, breakdown within SSC. Is there any, you know, change to that that you would wanna highlight?

Speaker 2

It's so, Tim, I didn't quite catch the first part of your question around that.

Speaker 7

Yeah. Greg, I was just trying to understand, like I mean, if, like, this is such a big order, when does it help the business? Does it ship in the back

Speaker 5

half of the year?

Speaker 7

Does it ship in June? When does it ship?

Speaker 2

Oh, no. So it's, its shipments are spread out through from q one into q two. So it's, you know, it it wouldn't extend into the second half of this this this year. The lead times on the robotics products are generally pretty short.

Speaker 3

And then maybe addressing, your next request. You know, as we've said in the prepared remarks, given the uncertainty, we're not providing an update on the TAM, and the breakdown, for the full year.

Speaker 5

Okay. Thanks.

Operator

Our next question is from Samik Chatterjee with JPMorgan. Please proceed.

Speaker 8

Hi. This is Priyanka Thapa on for Samik Chatterjee. This my question is on secondary impacts for tariffs. Have you observed a shift among international customers towards non US competitors in the testing space, or have you noticed that your competitive positioning has remained stable?

Speaker 2

Hi, Priyanka. In terms of competitive impact, so it it especially, you know, the the key thing in the test market is we have, you know, two major international suppliers, and then there are, indigenous, suppliers in China and Korea that also serve the market. What we we have not seen any competitive impact, you know, customers that are deciding to buy from a different vendor because of the tariffs. And, you know, if there are certainly, you know, it's a very competitive market, so we're we're in in competing all the time. Their tariffs has not been the a deciding factor in any of those any of those competitions.

Speaker 8

Alright. And one follow-up. Just to put put on the, gross margin impact, it was noticeably strong this, on product mix this quarter. What measures are necessary in the long term to achieve this sort of 60% gross margin, Or is the narrow range that you spoke of, like, below that?

Speaker 3

Yes. Hi. It's Sanjay. Thanks for the question. The strength, as we noted in the prepared remarks, is really tied to product mix.

Speaker 3

And we overall, when we make our investment decisions, we are looking to differentiate our solutions. And we have an overall business model of 59% to 60%. And that's how we design our products in the markets we enter. I would say in the short run, when we talk about product mix, from a tester perspective, depending on what the needs are for a particular customer, it's really configuration dependent on what goes in there. But overall, in the first half, you know, if you take a look at our guide, the first half, we're about 59%.

Speaker 3

We we do believe over the mid and long term that, we'll continue to operate our business at 59% to 60%.

Speaker 8

All right. Thank you so much.

Operator

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

Speaker 9

Good morning. Thanks for letting us ask a few questions. Maybe to one for you, Greg. When you size the VIP TAM at around $600,000,000 in '26 and potentially $800,000,000 in 2028, were you including SLT? And can you give us a sense, even if you don't want to necessarily reaffirm those targets at the moment, like, material to to those TAM figures could SLT be?

Speaker 2

Yeah. So the numbers that we cited for the s l for the VIP TAM are around semiconductor ATE, and it doesn't include SLT revenue. If there is a you know, if if the the trend that I'm talking about plays out, then I don't think we've we've provided a formal estimate of that TAM. It would not you know, it it's not, like, gonna be as big. But, you know, probably in the 10 to 30% of the total TAM would be the SLT TAM for that.

Speaker 2

We can you know, we we'll be updating that over time, and, you know, we'll let you know, probably in January of next year when we when we start, when we start talking about the long term. But, you should you should look at it as impactful, but not, huge. Not like this.

Speaker 9

Okay. Thanks. And then, I guess, kinda broadly, are you anticipating more meaningful advanced back end test and packaging lines to be onshored here in The States? And what what time frame seems realistic? And should this coincide with the next expansion of advanced logic wafer fab capacity in The US?

Speaker 2

Yeah. So the the thing that we have usually said and we still believe is that customers buy testers that for for the parts that they need to test. And where those parts are produced, whether it's in Taiwan or in China or in The US, doesn't affect the end market demand for those chips. So our ship to locations may change in the future if there's more on-site manufacturing in The US, but the total demand is unlikely to change in any meaningful way. There may be some additional inefficiency if yields are lower at first or if utilization is lower.

Speaker 2

But I think the onshoring of manufacturing is probably a bigger factor for, front end equipment where you need to make a large front end investment whether or not you have the the demand for the product. For things like testers, you're only gonna buy testers, essentially at the point in time when you know that you have the wafer volume that's going to require the test capacity.

Speaker 5

Okay. Thank you.

Operator

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

Speaker 10

Thank you for taking my question. So firstly, memory, you spoke about DRAM dominating the memory mix in 2025 just as it did in 2024, which would imply NAND remains at very low levels. What do you think is needed from customer utilization or technology transitions to speed test towards again? Thank you.

Speaker 2

So the there are two factors that will drive a larger NAND NAND demand. The first is really, mobile phone unit volume. So if mobile phone unit volume, inflects significantly, then we would see an increase in the demand. Also, if, the rise of AI enabled smartphones requires, a lot more, local storage for model parameters. That would increase the amount of NAND per phone.

Speaker 2

So that those are sort of the volume drivers for the market. The other important driver is, interface standards. And this is true both in the in the mobile space and also in the compute space. In the mobile space, there are new protocols in both the iOS ecosystem and the Android ecosystem that require, investment in new tester capacity to be able to verify those devices. So as new phones adopt new standards, that does drive TAM in the mobile space.

Speaker 2

The the last factor around the NAND market is, as the the NAND capacity continues to increase and the need for nearline storage for AI increases, the there's a, you know, a potential, for very high demand in the cloud compute space for, for storage. And that's something that, we think would be a, a positive factor for demand for, ATE. And we also think that that's an interesting market for us for our IST group.

Speaker 10

Got it. Thank you. And as for my follow-up, you previously mentioned that most of the VIP demand in '24 came from upgrades. And if they were system sales, revenue would have doubled. Do you have a gauge on what the utilization are for your testers?

Speaker 10

And at what point would customers have to purchase new testers rather than resorting to upgrade? Thank you.

Speaker 2

So, we don't have an accurate enough measure of utilization that we can share sort of specific numbers. The trend is definitely upward, and, we have already seen an increase in system orders associated with, AI accelerators. So we you know, in the early parts of 2024, it was really quite dominated by the upgrade sales. As we got into the the the latter half of twenty twenty four, we began to see significant system orders in addition to those upgrade orders. And, also, the the, mobile, the mobile business that we've transacted over q four and q one is consuming additional capacity.

Speaker 2

It's mobile it's mobile of one type to mobile of another type, but it is definitely consuming idle testers. So I the best I can do is give you a qualitative answer that we we believe that the the number of upgradable systems is much, much lower now than it was, say, six months ago.

Speaker 10

Got it. Thank you very much.

Operator

Our next question is from Dave Dooley with Steelhead Securities. Please proceed.

Speaker 11

Yes. Thank you for taking my question. I guess I had one clarification. As far as the, HBM stacked test, it just to just to clarify, I guess you now have all three of the HBM guys for stacked dye test. Is that how we interpret this win?

Speaker 2

No. No. We have that is not a correct assumption.

Speaker 11

Okay. And then as far as the at the Analyst Day, you demonstrated a robot that was loading and unloading Foops. And I was kinda wondering and I think you mentioned that that was in production or or in demonstration of one customer. Just help us understand the timing of, you know, when you expect to start to see revenue from that product, and how big a market do you think that can be?

Speaker 2

So we already have we had revenue in q one, in association with the semiconductor vertical for our robotics business. And so that you know, those are we also have semiconductor workflows similar to what we demonstrated at our Analyst Day in production at multiple sites for a different semiconductor customer. In terms of the revenue impact, in 2025, it's kind of single digit millions of dollars, and we expect it to grow over time. But, you know, it also is a key element of a like, an enterprise level value proposition to these customers that we are already in their production facilities to provide support for our test equipment. Equipment.

Speaker 2

We understand their workflows quite well. And, by being able to offer them the, robotics that they need to automate some of these processes, we're able to do that quite efficiently, and we're also a trusted partner. So, we think that this is an important way for us to, demonstrate that we're the right test and robotics partner to these customers.

Speaker 11

Thank you.

Operator

Our next question is from Sussan Ariya, Bank of America. Please proceed.

Speaker 5

Hi. Thank you for taking our question. This is Daksan Jang on behalf of Vivek. One on compute. I know you're you said you're not seeing a lot of pushouts with this end market, and I know you won't guide the second half.

Speaker 5

But should we then expect this business to generally remain on track with your expectations from the Investor Day, just given you're not seeing any pushouts? Thank you.

Speaker 2

Yeah. So we haven't seen significant pushouts in the in terms of affecting our q one, q '2 results. There is uncertainty around the second half of the year, and I'd like to emphasize that it is uncertainty. There are potential upside factors, and there are percent potential downside factors. And that's one of the reasons that we are not trying to guide the full year is that we you know, it's we're not trying to suddenly communicate a downward message or anything.

Speaker 2

We're just hearing a lot of uncertainty from our customers about the timing of projects and the need for capacity. But, yeah, the view from, you know, the view from the Analyst Day to now is essentially the same.

Speaker 5

Got it. And then one on robotics. Obviously, the sales side is a bit uncertain, but you've previously been assuming that this segment will outgrow your industrial peers by a significant margin. So is this still what you're expecting? That would be helpful.

Speaker 5

Thank you.

Speaker 2

Yeah. So we are, you know, the the way that we are typically thinking about our robotics business is that, we would want to significantly outgrow traditional industrial automation peers in this space, mainly because we're addressing an under penetrated market, the advanced robotics, segment, and especially the segment of robotics where people are trying to automate processes that need to be, in the presence of people or interact interoperating with people. So that's a a different market, and we believe a market that is gonna be accelerated by AI. We have not seen anything that changes our opinion that that's possible, but we definitely are struggling with an end market that's quite sluggish. And if people don't have money for projects, then it's difficult for you to, achieve sort of an absolute level of growth in the business.

Speaker 2

So that's the key reason that we undertook the restructuring that we did to try and bring down our breakeven. So our breakeven was at 440,000,000 in 2024. Our breakeven for this year is down at 365,000,000, And that was really a reaction to understanding that we don't have control over those end market conditions, and we needed to set ourselves up so that we could maintain our critical investments and still be more careful in terms of the investments that we are making around the go to market and achieve the synergies that we could between these two groups.

Speaker 5

Understood. Thank you.

Operator

With no further questions in the queue, this will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.

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Earnings Conference Call
Teradyne Q1 2025
00:00 / 00:00