The operator introduces the Q2 2024 Teradyne, Inc. earnings conference call and explains the format for the call. Traci Tsuchiguchi, Teradyne's CEO and CFO, will discuss the company's financial results for the second quarter of 2024 and outlook for the third quarter. The press release and slides with the earnings script are available on the Investor page of the Teradyne website. The discussion will include forward-looking statements and non-GAAP financial measures, and listeners are cautioned to review the Safe Harbor statement and risk factors.

Teradyne expects to participate in technology and investor-focused conferences, and the call will open for questions after the CEO and CFO's comments. The market dynamics identified in the previous earnings call have continued in the second quarter, with strong demand in the SoC and memory test markets driven by cloud AI. The company has invested in engineering and sales to improve market position and drive long-term growth. Other test markets, such as mobile, remain soft. In the second quarter, Teradyne exceeded its revenue, gross margin, and earnings guidance ranges, with strong performance in memory and SoC driven by AI applications. Cloud AI demand also drove compute revenue, particularly in networking devices.

In the first half of 2024, Teradyne's compute revenue exceeded that of 2023 due to their strength in networking and shipments to a vertically integrated producer. They expect their SoC revenue from the compute end market to be on par with mobile revenue this year, and their memory business has grown by nearly 30%. They expect low single digit revenue growth for the full year, with a positive impact from AI on test. Their Advanced Robotics business grew 11% in the first half of 2024, while traditional players in the automation space saw a decline in sales. Teradyne has a three-pronged growth strategy for their Advanced Robotics business.

In the second quarter, progress was made in all three areas of the Robotics go-to-market transformation. This included increasing the number of OEM solutions partners and helping them reach a revenue level of over $1 million. The OEM solutions channel showed over 70% growth from the first half of 2023 to the first half of 2024 and represented over 30% of UR's revenue in the second quarter. Additionally, a strong service business was built and managed service offerings were launched. Teradyne expects growth towards the low end of the 10% to 20% range. AI is expected to be a transformational, secular growth driver for Teradyne's businesses, with considerable growth seen in the first half of 2024 in memory, networking, and vertically integrated producers.

In the fifth paragraph, the speaker discusses the potential for growth in the mobile and industrial markets due to the increasing use of inference applications and edge AI. They also mention the impact of AI on their Robotics business and their belief that they are well positioned to develop AI-based solutions for manufacturing and logistics. The financial summary for Q2 is then provided, with sales of $730 million and non-GAAP EPS of $0.86. The breakdown of revenue shows strength in SOC and memory, with a large purchase in the auto market and significant backlog for HVM. The sale of their device interface solutions business is also mentioned.

In the second quarter, DIS contributed $16 million to revenue, while System test group revenue was $61 million with $17 million in storage tests. Wireless Test revenue was $36 million, and Robotics revenue was $90 million, with 10% of total sales shipped to China. Free cash flow was $171 million, with $8 million in share repurchases and $19 million in dividends. The company ended the quarter with $584 million in cash and marketable securities. The tax rate was 14.25% on a GAAP basis and 15% on a non-GAAP basis. The outlook for Q3 will be discussed.

The company is expecting Q3 sales to be between $680 million and $740 million, with non-GAAP EPS in the range of $0.66 to $0.86. This is higher than their previous forecast due to strong demand in their Semi Test business. Gross margins are estimated to be between 58.5% and 59.5%, and operating expenses are expected to be 38% to 40% of sales. The company is making investments to drive long-term growth, and their estimated TAM for the semiconductor market remains unchanged. However, there have been slight adjustments within the segments, with an increase in compute and a decrease in mobile. The company's estimated memory TAM is tracking towards the higher end of their range. Overall, the company's revenue distribution for the full year is now less back half weighted than previously forecasted.

The company expects around 48% of its revenue to come in the first half of the year and 52% in the second half. Full year revenue is expected to grow in the low single digit range, with a 3 point increase if excluding the impact of a divestiture. Gross margins are expected to reach the company's target by the fourth quarter and remain unchanged for the full year. Operating expenses are expected to grow by 8% for the full year, above previous guidance due to increased investments. The Robotics division is expected to break even in 2024. The company's tax rate is forecasted to be 14.25% and 15% for GAAP and non-GAAP respectively. Share buybacks will continue to be targeted in order to offset dilution and build cash reserves. Overall, the company's first half performance exceeded expectations and the company remains confident in its future growth opportunities.

During a conference call, Cantor Fitzgerald analyst C.J. Muse asked the operator about the company's visibility and outlook for 2025, specifically in the Semi Test market and progress with securing a second customer for HBM. CEO Greg Smith responded that they are bullish on 2025, with strength in computing and upgrades in the Semi Test market. They also expect to gain share in performance tests for HBM and potentially break into new accounts. As for VIP, the company has one large auto customer and expects growth in this market in 2022. Smith did not provide further details on the potential trajectory of this business into 2025.

Sanjay Mehta, CEO of a company, discussed the growth of their VIP (vertically integrated producer) customers and the number of testers being used for them. He mentioned that currently there are hundreds of testers being used for VIP customers, and they expect this number to double by the end of the year. He also mentioned that they have multiple VIP customers who plan to use their testers for parts in 2025. In terms of the DIS sale, which contributed $16 million in June, Mehta expects it to have a low single digit growth impact on the company's overall revenue. Without DIS, the growth would be 3 points higher.

In this paragraph, the speakers discuss the potential impact of N2 (2 nanometer) technology on the semiconductor industry in the coming year. They mention that N2 is not just a process node, but an enabler for higher device complexity. They express optimism that the demand for N2 will be driven by the growth of cloud and edge AI, and that this will create a positive cycle of demand for N2 technology and its impact on other parts of the market. They predict that N2 will be a major demand driver for the next few years.

Mehdi Hosseini asks a question about the commentary on mobile SoC revenue in 2024 being comparable to compute. Greg Smith explains that this is due to a weak mobile market and strong compute revenue in the first half of the year. They anticipate good growth in compute next year, but mobile may outweigh it due to a strong recovery. Mehdi also asks about Robotics business being breakeven in 2024, and Sanjay Mehta clarifies that this is not baked into their 2026 target and there may be an acceleration of profitability.

The speaker discusses the company's expectations for the upcoming year, stating that they anticipate low single digit growth and breakeven profits. They also mention a potential turnaround in the mobile industry and the impact it could have on their business. The speaker then addresses a question about a change in a major customer's modem supplier and notes that it could have both positive and negative effects. They also mention working with another speaker to provide historical context for the mobile industry and potential growth in 2025.

The speaker is discussing the mobile TAM and its potential impact on the company's business. They mention that the TAM is expected to be stronger than in 2023 and 2024, but not as high as during the COVID peak. They also mention that the Robotics business has not met expectations in terms of growth and profitability, and attribute this to factors such as scale and channel. The speaker does not provide a specific timeline for when the Robotics business may achieve its anticipated growth rate.

The company is optimistic about their Robotics business despite a weak macro environment. They have seen an 11% gain in sales due to specific aspects of their strategy, such as expanding their market and building additional channels. They have additional plans for growth, including expanding into new markets and offering service and recurring software. These plans are expected to contribute to significant revenue growth in 2025.

The speaker is optimistic about the company's strategy despite a tough end market. They maintain their full year revenue guide, with Semi Test being stronger and other test businesses weaker. The speaker also mentions strength in networking test and the potential for share gains in the GPU market.

Greg discusses the strength in the compute space and how it is helping to absorb some of the idle capacity in the mobile market. He also mentions that test utilization rates in mobile, auto, and industrial sectors are currently uncertain, but he expects a recovery in 2025 when utilization rates reach a point where customers resume purchases of testers.

Greg Smith, in response to a question, discusses the current state of the market for his company's testing equipment. He believes that the balance between soaking up capacity and driving new system sales is about to shift in favor of driving new sales. This is due to an uptick in test utilization and the conversion of existing systems to new ones. Additionally, customers in the automotive and industrial sectors are still investing in capacity expansion despite a current downturn, as they see the long-term potential for growth in the market, particularly in areas where the company has a strong presence and good relationships.

The utilization in the auto and industrial sectors is currently down, but customers expect it to improve soon. The integration of AI in the UR and MiR products is expected to bring significant benefits, with a strong backlog for the new MiR product to be shipped in Q4. The UR business will benefit from AI through a platform for solution providers to build upon, with four components including the robot, software, AI toolkits, and solution builders.

The speaker discusses their company's solution builder, which takes their robot and toolkit and builds solutions for tasks such as bin picking and inspection. They differentiate themselves from other robots by offering APIs and features that make their platform sticky. They estimate that a small percentage of their sales are going towards AI-based applications currently, but they expect it to grow in the future. They mention a specific partnership with HBM and discuss the potential for upgrades as HBM technology evolves.

The speaker is discussing the expected growth of compute time in the upcoming year and how it compares to the growth of mobility. They mention that compute is expected to remain strong and robust, potentially reaching a level of 1.6. They also mention the role of VIPs in this growth and how it may impact the market in 2025.

Greg Smith and Sanjay Mehta discuss the history and projected growth of the compute TAM (total addressable market) for the company. In 2019, the TAM was $600 million and has since doubled to $1.2 billion in 2021, with a projected increase to $1.6 billion in 2023. Looking towards 2025, the TAM is expected to be 2-3 times larger than in 2019. VIPs (very important projects) are currently at the low end of a $100 million to $200 million range and are projected to reach $500 million by 2026, making up a significant portion of the compute TAM. The company's 2026 plan reiterates a 20-25% CAGR (compound annual growth rate), which is comparable to the exit run rate for this year, even when taking into account the impact of Technoprobe.

The speaker asks for help in understanding the impact of underutilization and mobility on revenue and how to bridge the gap between 10-15% growth in the back half of the year and maintaining a 20-25% CAGR in the next few years. The response is that the amount of underutilized capacity was larger than expected and there is stronger demand in the market. The model shows that mobility will come back but not to peak levels, and there are other factors such as trends in automotive and growth in the Robotics business that will contribute to future growth. In Q2, there was acceleration from Q3 in compute and memory shipments.

The speaker discusses the strong demand in the Semi Test sector and a strong backlog going into Q3. They also mention the size of the installed base of UR cobots and AMRs and their typical useful life, as well as their strategy for service agreements. A question is asked about the potential size of the service and software opportunity in Robotics.

The mobility weakness in the mobile market affects both Android and iOS. However, there are some areas within the mobile space that have seen growth, such as image sensors and wireless charging. The company expects to see a broad-based recovery in 2025. The gross margin for the current year is expected to be 58% to 59%, with potential for improvement. The company expects revenues to grow in the following year, providing more information in January.

The company's growth opportunities in the test and robotics segments for 2025 and 2026 are supported by an increased investment in R&D and sales and marketing expenses. This is to capture new customers and influence their initial platform decisions, as it becomes difficult to change once a decision is made. The focus of the OpEx acceleration is on the test business, as the company is confident in its strategy for robotics.

The company saw an opportunity to invest in their test business and system level test business in order to drive better long-term outcomes. The revenue for services in the industrial sector is not yet tracking the customer uptake due to a gradual rollout of programs and a longer sales cycle. The company expects to see an inflection in service revenue in 2025, but not much in 2024.

The company has an even split of wins in the jump ball market with vertically integrated producers. They are also looking at the number of testers loaded by their customers compared to their competition's customers. Currently, they have a 60/40 advantage in terms of testers loaded for VIP customers. The investment in Technoprobe is not having a significant effect on market share yet, but they expect it to have a low-single-digit, long-term impact. The partnership with Technoprobe allows them to take on difficult projects that require collaboration. They believe they are on track to achieve their market share gains and this includes both VIPs and existing wins and losses.

Teradyne's CEO, Greg Smith, stated that they have not publicly announced which segments of the market they are targeting with their joint development projects with Technoprobe. However, they believe that these projects will enable them to penetrate areas with high power requirements and high parallelism, resulting in share gain for both companies. The moderator, Gus Richard, thanked them for the helpful information and the call was concluded by Traci Tsuchiguchi.

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