The operator welcomes participants to the Teradyne Q3 2023 Earnings Call and Webcast and introduces the CEO and CFO. They will discuss the financial results for the third quarter and provide an outlook for the fourth quarter. The call will include forward-looking statements and reference to non-GAAP financial measures. Teradyne expects to participate in upcoming investor conferences.

In the second paragraph of the article, Greg Smith discusses the company's recent results and market conditions for the fourth quarter. He mentions that sales and earnings for the third quarter were at the high end of their guidance range, with Robotics sales exceeding expectations. He also explains that the second half of 2023 is following their previous predictions, with strong Robotics shipments and softer test shipments. In the semiconductor test sector, there is still a correction cycle in the mobility market, while automotive test shipments remained high. Memory test shipments were down due to timing, but demand for higher-speed testers for LPDDR5 and HBM remained strong. Wireless demand was low due to a weak smartphone market and lack of new standards, while system test, defense and aerospace, and storage test groups were unplanned. However, Robotics demand has stabilized, with revenue almost reaching 2022 levels and a 20% increase from the previous quarter. This is attributed to the aggressive ramp of the new UR20 product and a stabilization of PMI.

The article discusses the estimated market size for SOC testing in 2023, which is expected to be around $3.7 billion to $4.1 billion. The mobility segment is expected to experience a decline of 40% due to slower growth in smartphone semiconductors and a decrease in unit sales. The compute, automotive, and industrial analog segments are expected to remain stable. In the memory test market, high-speed DRAM test demand is expected to help increase market share. Teradyne's System Test Group is expected to see a decrease of 20%, with growth in the defense and aerospace segment. In the robotics sector, the global PMI has improved and the company has successfully ramped up production of their UR20 collaborative robot, with strong demand in welding and pelletizing. The company is also making progress in their distribution channel transformation, adding new OEM partners and expanding their market reach.

MiR has seen a 20% increase in direct OEM orders due to high demand from the pelletizing market. Their top 10 customers have collectively increased their installed base by over 15% this year. Looking towards 2024, MiR expects the SOC market and their revenue to grow due to the adoption of 3-nanometer technology in the mobility space and continued strength in the compute market. The magnitude of the mobility recovery will depend on smartphone unit growth and how quickly the industry can consume idle test capacity. The automotive test market has been sustaining at a higher level than expected, and the memory market is expected to grow next year with the expansion of HBM, DDR5, and LPDDR5 to support AI and computing growth. Flash package test demand is also expected to grow as protocol interface speeds increase.

In 2024, the overall ATE TAM is expected to increase slightly, driven by growth in the mobile and wireless markets. The HDD market is expected to remain weak, while system-level test will depend on smartphone unit growth. The robotics market is seen as a marathon, with an emerging market of $2 billion expected to grow to tens of billions in the future. The company's operating model for robotics focuses on delivering value to customers and aiming for 5% to 15% profit from the portfolio. 2024 is expected to be stronger than 2023, despite uncertainty in chip inventories, utilization rates, and macroeconomic concerns. A clearer view will be gained in the next quarter.

The company is assuming a quarterly revenue profile in 2024 similar to 2023, with Q1 as the low point and growth from there. They are confident about the long-term growth outlook of the semiconductor market and see potential for increased investments in test equipment. They are also expecting growth in Robotics due to increasing demand for advanced automation. The company's CFO will provide financial details for Q3 and outlook for Q4, as well as updates on their supply chain and resiliency efforts.

In the third quarter, the company had sales of $704 million and non-GAAP EPS of $0.80, which were both at the high-end of their guidance. Robotics performed well, supply constraints eased in Test, and non-GAAP gross margins were in line with guidance. Operating expenses were down from the previous quarter and operating profit rate was 22%. The company had two 10% customers and a low tax rate. Semi test revenue was $498 million, with strength in SOC and memory sales focused on technology retooling. System Test Group revenue was $83 million, with muted demand in storage and wireless test. Robotics revenue was $86 million, above plan. The company had $140 million in free cash flow and returned 97% to shareholders through share repurchases, dividends, and debt repayment. They ended the quarter with $820 million in cash and marketable securities. The company will repay the final $24 million of convertible debt in the fourth quarter.

The company expects Q4 sales to be between $640 million and $700 million, with non-GAAP EPS in a range of $0.61 to $0.81 on 162 million diluted shares. This excludes amortization of acquired intangibles, restructuring, and other charges. The outlook is in line with previous expectations and there are no major supply constraints. Lead times are improving and customers can now place orders more in line with production requirements. Gross margins for Q4 are estimated at 56% to 57% and operating expenses are expected to be 35% to 38% of sales. The company's long-term gross margin model is 59% to 60% and they expect full-year 2023 gross margins to be in the 57% to 58% range. Manufacturing spend will continue in Q4, but the spend associated with new factories is behind them. The company has successfully completed their objectives of moving product lines to new locations.

In 2023, the company expects to see flat to slightly lower operating expenses due to spending controls and lower variable compensation. Revenue is expected to be slightly below $2.7 billion with non-GAAP EPS of $2.85 and operating profit of 20%. The company anticipates revenue growth in 2024, but the exact amount is uncertain. The second half of 2023 is going as expected, with strong execution by the UR team and a focus on profitability. The company has also made efforts to de-risk their supply chain and strengthen their operations.

The speaker, Greg Smith, discusses the current state of utilization in the company and its impact on potential growth. He mentions that while the numbers are lower than desired, there are certain points that need to be reached before customers will start buying again. He also notes that there is a difference in utilization between IDM and OSAT customers.

The speaker is discussing the potential impact of a large customer's plans for new chips on the company's business. They mention that the customer is expected to use a new 3-nanometer process in their high-performance computing products, which could lead to increased complexity and loading. The speaker also mentions that they are watching to see if the customer will use the new process to decrease dye size or add features. Lastly, they are monitoring any changes in the customer's strategy for using older processors in lower-end phone products.

The speaker discusses the impact of changes in chip production on peak loading and the uncertainty surrounding demand from a major customer in the auto market. They mention that the customer is expected to be less than 10% in 2023 and that there has been no significant change in their timing. The speaker also notes that the auto market has been strong, with some spot weaknesses, and is expected to continue growing in 2024.

The speaker discusses the current state of the computing market, noting that end equipment such as PCs are weak while cloud computing is being driven by AI acceleration. They mention that GPUs and hyperscalers creating their own silicon are benefiting from this trend.

In the first quarter, there was a decrease in revenue due to seasonality and the mobility of the end market. However, the company is still on track with socket wins and is aiming to win half of the sockets in traditional compute. They are also seeing more book-ship and incremental orders within lead time. The amount of bespoke silicon being used is increasing, but it is still overshadowed by traditional GPU-driven accelerators. The company expects this trend to continue for the next few years.

The company expects to see more bookings at the end of Q4 for Q1 shipments, leading to more volatility. They are targeting 50% of wins in accelerated compute and custom ASICs, which they expect to translate into revenue by 2026-2027, representing 1/4 to 1/3 of the total compute TAM. The company is starting 1Q in line with 1Q '23 and consensus has them growing 20% for the year, but they are unsure if that is a realistic assumption and are looking for uplift throughout the year to achieve that growth.

Sanjay and Greg discussed the potential headwinds and tailwinds for 2024, with a focus on compute, mobility, and robotics. They believe the first half of the year may be weaker, but the company will grow from there. Gross margins were lower in the second half of 2023 due to product mix and deferred spending, but they expect 2024 to be better due to increased volume and product mix.

The speaker notes that operational resiliency costs are expected to decrease in 2024. They also discuss the differences in demand between their company's UR and MiR business and the industrial segment served by companies like Texas Instruments. The speaker explains that their short lead time business is not as correlated to longer lead time projects, and while other industrial automation companies are experiencing weakness, their company is stabilizing. This is because their customers tend to invest in automation after building a factory and running it for some time.

During the conference call, an analyst asks about the impact of industrial semiconductor trends on the company's robotics business. The speaker, Vivek Arya, responds that it is difficult to predict the impact based on these trends. The next question is about the company's semi test lead times, which have decreased from 26 weeks to 16 weeks over the past year. The company aims to further decrease lead times to around 13 weeks. The speaker, Greg Smith, also mentions that the company has the ability to book-ship for high-priority orders. The percentage of turns business in the first quarter of 2024 is not specified, but the company will have a good idea of the majority of their revenue going into the quarter.

The speaker discusses the fluctuations in business and the current revenue from China, which is around 12% and mostly from the semiconductor test group. The growth potential in China is uncertain due to competition and the majority of the revenue comes from indigenous Chinese customers.

The speaker discusses their business in China and the potential for growth in the memory and analog and power segments. They also mention the challenges they face due to US regulations limiting their ability to sell to Huawei. In terms of the overall semiconductor test market, they expect modest growth next year and anticipate their market share to remain flat or slightly increase. The strength of the mobility recovery will be a determining factor in their market share.

The speaker discusses the expected growth of IC units and complexity in the semiconductor industry. They mention that unit growth was down in 2020 and will likely still be below the peak in 2022, but the increasing complexity of processors and demand for advanced technology will drive test capacity requirements. They also mention that the automotive market, particularly for high-performance processors used in ADAS applications, has a higher test threshold and could provide a complexity tailwind. The interviewer asks if there are any specific markets that could fill the gap in unit growth, to which the speaker responds that the move to 3-nanometer technology and chiplet-based design in the digital space could provide a tailwind, as well as the demand for complex devices in the automotive market.

The company is currently going through a strategic planning process and will share an update on their earnings model in January. They have confidence in the long-term key drivers and fundamentals of their model, but are cautious about the short-term visibility. The company believes they will reach their goals in the mid and long term, but the timing is uncertain. In response to a question about the memory business, the company mentioned that they are seeing some volume pickup and are looking for key indicators of when inflections will occur. They also mentioned that some memory customers have underutilized their fabs, but it is unclear when they will come back online.

The market for robotics is stabilizing and the demand for them is expected to remain steady in the long term, despite some plateauing in certain industrial markets. This is due to the continued growth in technology-driven retooling, such as HBM, DDR5, LPDDR5, and next-generation protocols. The company expects to gain share in the memory market, particularly in final test, during these retooling cycles. However, their share may decrease during broader capacity add cycles.

The company is targeting larger customers for their durable robots, but the sales process and application process for these customers is different from smaller customers. It takes longer to get through the sales process with larger customers, but the company expects to see a greater impact from them in 2024. The company also has an OEM channel, where they sell robots to partners who have developed a repeatable solution. However, it takes time for these partners to build out their distribution and customer service, so the impact from this channel will be seen towards the end of 2024 and into 2025.

The speaker, Greg Smith, discusses how the longer selling cycle of their company could help mitigate the cyclicality of the underlying markets. However, there is still some cyclicality due to lean times and investment times for big companies. The company is also focused on increasing software and service revenue to reduce revenue volatility in the long term. They are also always considering M&A opportunities, which is their highest priority for using capital. The speaker does not comment on specific targets in their pipeline. The call concludes with a reminder to reach out to Andy Blanchard with any questions.

This summary was generated with AI and may contain some inaccuracies.