Greg Smith
Director, President & Chief Executive Officer at Teradyne
Hello, everyone, and thanks for joining us this morning.
Today, I will summarize our fourth quarter and full year 2023 results, comment on our early view of 2024 and describe the market assumptions underpinning our updated midterm earnings model. Sanjay will then provide financial details on all of these topics.
We delivered Q4 financial results in line with our guidance. The clear highlights for the quarter were the -- were Memory Test, where DRAM tester revenue more than doubled from Q4 2022 on HBM demand and our Robotics team's execution in growing sales, 17% from Q4 2022 and 50% sequentially, as we ramp shipments to address the record backlog of our new UR20 Cobot at Universal Robots. Balancing these strengths in Memory and Robotics was continued softness in our other test markets.
Shifting now to the full year, 2023 was the second consecutive year that the size of the semiconductor test market declined, as the industry digested record shipments in 2020 and 2021, driven by COVID-related demand. The SOC test market has declined 21% from 2021 and the mobility portion has contracted 55% over the same period. Most of that decline occurred in 2023, with SOC demand down 17% year-on-year. Mobility has historically been the largest subsegment of the SOC market and an area of strength for us in semiconductor test and in wireless test.
Despite the weakness in demand, the trend towards vertically integrated producers is continuing. This new class of customer provides an opportunity for Teradyne to gain share in high-performance computing, a segment where we have historically had low share. These customers will take time to ramp. And so we are focusing on capturing sockets. On that front, 2023 was a great year for us, capturing the majority of key VIP sockets, where we targeted at customers in the United States and in China. Although automotive was strong for most of 2023, at the end of the year, elevated inventories for our automotive customers began to slow down the rate at which they add test capacity.
Our latest estimate of the Semi Test market for 2023 is about $4.8 billion, with $3.9 billion in SOC and $900 million in Memory test. Our 2023 financial results reflected the test market weakness and when combined with a tepid Robotics marketing -- market, company sales were $2.676 billion, down about 15% and non-GAAP earnings of $2.93 were down 31% from 2022. As we enter 2024, let me describe how we're looking at the current market. Visibility is limited, but we are cautiously optimistic. In SOC test, chip inventories remain high and subcon tester utilization remains in the 70s. These combined to create a headwind to tester demand in the first half of 2024.
The inventory overhang now extends to parts of the legacy Automotive market, which began to soften late in Q4. With this softening of demand, lead times for our SOC testers are now back to pre-COVID levels, generally less than 16 weeks. This enables customers to wait to place new orders until their demand is certain, limiting our visibility. Our current view is that these headwinds will abate midyear, and we are planning for a second -- a stronger second half in SOC test. Several leading indicators point to a second half improvement. For example, we've seen no slowdown in chip development activity at our customers, so the product pipeline remains healthy.
While still below normal seasonality, utilization levels are beginning to inch upwards, especially in the OSATs, which points towards improving mobility and compute demand. Mobile phones are expected to adopt AI capabilities in the premium tier in 2024 and more broadly in 2025, which should accelerate complexity and be a positive for test demand. Despite the slowdown we are seeing now in Automotive demand, the key driver for this market is the increased electronics content per vehicle, not end vehicle sales. Automotive semi devices are forecast to grow an 11% CAGR through the midterm, and device -- this and vast complexity is increasing. Therefore, we expect this law will be short-lived.
In Memory Test, the story for 2023 is that despite high end market inventories, demand for new testers was driven by the retooling required to test higher speed flash and DRAM devices, especially HBM DRAM. This drove our memory share to a record 43% in 2023. In 2024, we expect continued Memory revenue growth driven by the volume production ramps of the technology introductions we saw in 2023 and continued R&D investments for even faster devices. As business conditions improve for Memory makers, this may drive increased demand to support capacity expansion. Shifting now to other test markets. Wireless test demand is expected to remain at current levels in 2024, due to weakness in the networking equipment demand and excess capacity in smartphone test.
In System Test, we expect continued strength in Defense and Aerospace markets and expect modest growth in demand and Production Board test, we expect storage test will remain weak in 2024, due to excess test capacity in the HDD and SLT test markets. Having said that, in 2023, we added important new SLT customers in mobility and high-performance computing that are setting us up for midterm growth. Shifting to Robotics. We had a very strong Q4 as our UR20 ramp continued, and we launched the new UR30 late in the quarter. Looking at Robotics for the full year 2023.
In addition to the good progress on the product front, our channel transformation work continued nicely with our OEM sales growing nearly 10%, as we added more than 50 new OEM partners. We've also expanded the number of large accounts we manage directly from approximately 100 to over 250. We expect Q1 of 2024 to be down more than the normal seasonal dip, as the extraordinary Q4 shipments are digested. Thereafter, we expect quarterly year-on-year growth through the rest of 2024.
Combining all these points and with the provisor that our view into the second half is limited, we're modeling 2024 company revenue to be roughly flat year-on-year with 44% in the first half and 56% in the second half. Within that, we expect lower Test revenue in 2024, which reflects the sale of our DIS business, reducing our full year Semiconductor Test revenue by approximately $100 million. Excluding the effects of that sale, expected Test revenue would have been about flat in a roughly flat market. In Semi Test, our early estimate of the SOC market size for 2024 is $3.6 billion to $4.2 billion. Our estimate for Memory is $1 billion to $1.1 billion, for a combined Semiconductor Test market at the midpoint of $4.95 billion. We expect Robotics will grow in the 10% to 20% range in 2024.
Turning now to our midterm model. Despite the longer-than-expected downturn in the Mobile Test market, and the softness in Robotics and demand, we remain optimistic about the long-term potential of our Test and Robotics businesses. This is shown in the update to our midterm earnings model. At the midpoint in 2026, we expect to deliver earnings per share at over 2x the 2023 level and a revenue growth of nearly 60%. As we've noted in past calls, the key drivers of that growth include process node advances to 3-nanometer, 2-nanometer, gate all around and backside power delivery. These are all on track or even accelerating, and they enable higher transistor counts, higher complexity, and that drives longer test times.
Good progress in the emerging VIP space with key wins at design-in targets and high share at 2 of the 3 leading ASIC design houses, all of which drive future revenue. Advanced packaging, including chiplet technology, which requires higher test intensity at the wafer level, driving longer test times. Compelling applications of EDGE AI for ADAS and smartphone co-pilots that are driving demand for more processing power, more memory and wider bandwidth communications. All of these factors accelerate test demand. There is an aggressive road map for increases in Memory interface speeds in DRAM HBM and Flash, that will continue to drive technology-driven retooling in the Memory market.
And finally, in Robotics, we are still at less than 5% market penetration, and we are confident that our channel strategy will unlock the long-term growth potential of this market. In addition, the application of AI is expanding the range of tasks that our robots can serve, while our new products will expand our served market and decrease the effort required for customers to automate. At the company level, compared to last year, our growth outlook has shifted to the right, but the slope of expected growth is largely unchanged. The duration of the downturn in mobile demand has been longer than we expected, and the softness in the Industrial Automation market that we and our peers have seen, has really impacted our expectations of growth in Robotics for 2023. Sanjay will provide more financial details of the model.
As we look at our results for 2023 and the outlook for 2024, we are focused on improving gross margins and maintaining tight financial discipline, while making the necessary R&D and customer-facing investments required to capture the long-term growth potential in both the Test and Robotics markets. To maintain that financial discipline, we will be looking to see signs of top line growth before allowing opex to materially increase. We operate our business with midterm plans that track long-term historical trends and the future demand drivers in each of our businesses rather than trying to predict short-term cycles. In any given year, results will land above or below that trend, but that trend line has provided a reliable baseline for planning. As expected, 2023 was below trend line but the underlying demand drivers remain in place, and we're executing our plans to capture that future demand. We're excited about the opportunities ahead, and we have deep confidence in our team's ability to capture those opportunities.
With that, I'll turn things over to Sanjay. Sanjay?
