The paragraph is an introduction to Teradyne, Inc.'s Fourth Quarter 2024 Earnings Conference Call. The operator introduces Traci Tsuchiguchi, Vice President of Investor Relations, who welcomes participants and outlines the agenda. She mentions that the CEO and CFO will discuss the company's fourth-quarter and full-year 2024 financial results, as well as the outlook for the first quarter of 2025. The related press release, slides, and earnings script can be accessed on Teradyne's website. The presentation will include forward-looking statements, and listeners are advised to refer to the Safe Harbor statement and risk factors in their annual report. The call will also involve non-GAAP financial measures.

The paragraph discusses a company’s financial outlook and recent performance. They posted additional information on non-GAAP financial measures online and announced an upcoming analyst meeting on March 11, 2025. Greg Smith begins by summarizing the results for the fourth quarter and full year 2024, noting that the quarter ended at the high end of their guidance range. The Semiconductor Test business was primarily driven by Cloud AI, with short-term improvements seen in the Mobile space due to supply chain shifts. Gains in the Test business compensated for weaknesses in the Industrial Automation market affecting their Robotics business. In 2024, after two years of decline, their SOC and memory test revenue grew 17% year-over-year, largely driven by AI accelerator ASICs, networking, and HBM, DRAM. A group of customers called VIPs, or vertically-integrated producers, was also mentioned in their growth context.

In 2024, the company achieved significant growth and diversification in its customer base, shifting focus from a mobile-dominated market to computing applications, particularly in VIP ASICs for Edge AI in Automotive and Cloud AI. This shift resulted in capturing about 50% of a $300 million total addressable market, despite the impact of a weak mobile market. The company reported a 5% overall revenue growth, reaching 8% when excluding the divestiture of the DIS business, and increased earnings per share by 10%, generating over $470 million in free cash flow. The strategic pivot towards semiconductor test and reducing customer concentration has been successful, with significant growth in the SOC business within the Compute market. Opportunities are seen in System Level Test for AI Compute.

In 2023, 11% of SOC product revenue was from Computing and 51% from Auto and Industrial sectors. By 2024, both sectors balanced at 34%, supporting the company's long-term goals. Advancements in AI inference could accelerate Edge AI development, benefiting historical strengths in Mobile and Automotive markets. The company anticipates 7% year-over-year growth for the SOC TAM in 2025, driven by AI Compute and a modest recovery in Mobile, Automotive, and Industrial sectors. They aim to slightly increase their SOC test market share. The Memory business grew by 30% in 2024, exceeding $500 million, driven by AI Compute demand for HBM and DRAM. They captured significant market share in HBM performance testing and anticipate a strong HBM market through 2025 but expect test equipment demand to soften as productivity improves. They foresee the Memory test market being flat in 2025, with a potential HBM TAM recovery in 2026, while still aiming to gain low single-digit market share.

The paragraph discusses Teradyne's growth opportunities beyond AI compute in the semiconductor test market, specifically focusing on power semiconductors due to the rise of EVs and efficient power needs. They announced a strategic partnership with Infineon to enhance their capabilities in power semiconductors like silicon carbide and gallium nitride. Despite strong performance in their Semi Test business in 2024, their System Test and Wireless Test segments faced challenges, pushing some programs to 2025. However, Teradyne anticipates growth in their Wireless Test business after securing most WiFi 7 design wins. In robotics, the industrial automation market was weak in Q4, with less seasonal demand than usual, but Teradyne still outperformed peers. Additionally, their UR and MiR channels saw significant growth year-over-year.

In the fourth quarter, UR launched an AI accelerator through its partnership with NVIDIA and began shipping MiR's AI-enabled MiR 1200 Pallet Jack. Teradyne Robotics also partnered with Analog Devices to enhance automation efforts. By 2024, UR and MiR operations were unified, and by Q1 2025, go-to-market functions were consolidated to improve efficiency, reducing the Robotics division's breakeven revenue. The Compute VIP market, initially estimated at $100-$200 million for 2024, was revised to $300 million, with a potential growth to $600 million by 2026 and $800 million by 2028. Increased demand for AI in SOC and Memory, driven by cloud and mobile technology advances, is expected to drive growth and demand for more testing steps due to AI systems' complexity.

The paragraph discusses Teradyne's growth strategies and projections, emphasizing the importance of system-level test insertions for AI in both Cloud and Edge environments as a key growth driver. The company expects significant long-term growth in Edge devices, particularly in Mobile and Automotive sectors, due to AI advancements and trends toward vehicle electrification. Teradyne's investments, including a strategic partnership with Infineon, are anticipated to boost market share in complex test segments. The company forecasts substantial revenue and EPS growth by 2028, highlighting the success of its business model and investments in AI, Compute, and Memory. Additionally, Teradyne is positioning its Robotics and Test businesses for continued growth, with expected demand increases in Mobile, Industrial, and Automotive markets.

The paragraph provides a financial summary for the company's fourth quarter and full year 2024. Q4 sales were $753 million with a non-GAAP EPS of $0.95, both at the high end of guidance. Semi Test revenue, including IST, was $561 million, with SOC revenue at $429 million. Robotics revenue was $98 million, up 11% sequentially despite weak industrial spending. Non-GAAP gross margin was slightly below guidance at 59.4%, primarily due to performance in Robotics, while operating expenses increased due to Semi Test engineering spend. The non-GAAP operating profit rate was 22%, with tax rates lower than planned because of a product mix shift. The company repurchased $144 million in shares, paid $19 million in dividends, and had one 10% customer in Q4. For the year, revenue was $2.82 billion, with Samsung as the only customer over 10% of revenue. The annual gross margin was 58.6%, operating expenses were $1.08 billion, operating profit was 20.4%, and non-GAAP EPS was $3.22. Free cash flow generated was $474 million.

In 2024, the company returned $275 million to shareholders and posted $724 million in cash and marketable securities. Its tax rate was around 12.5% to 12.6%. Semi Test revenue reached $2.124 billion, with particular growth in the SOC sector driven by AI Compute, and Memory sales up 30% due to AI demand. IST revenue declined 39%. System Test and Wireless Test saw declines, with combined revenues down 4% year-over-year. Robotics revenue was $365 million, underperforming expectations and resulting in a 13% operating loss for the year. A restructuring of the Robotics business is planned to enhance customer experience and drive growth in 2025.

The company anticipates strong performance in the Semiconductor Test market for Q1, with sales expected between $660 million and $700 million and non-GAAP EPS of $0.58 to $0.68. Gross margins are projected to be 58.5% to 59.5%, while operating expenses remain stable, representing 41.5% to 42.5% of sales. The outlook for the Semiconductor SOC Test market in 2025 is positive, with growth driven by a second-half recovery, and the SOC TAM is expected to reach $4.9 billion at the midpoint. Memory TAM is forecasted to remain flat, with HBM experiencing significant growth from 2023 to 2024. The company aims to gain low-digit market share in both SOC and Memory Semi Test markets by 2025. The Robotics segment faces a challenging spending environment, but plans for 2025 include growth initiatives targeting 10% revenue growth. Additionally, Q2 is expected to see a 5% to 10% sequential growth from Q1's midpoint.

The company projects that first-half revenue will constitute 43% to 44% of the annual revenue with full-year gross margins of 59% to 60%. Second-half gross margins are expected to improve due to higher revenue. Operating expenses (OpEx) for 2025 are anticipated to rise by 8% to 10% year-over-year, lower than earlier projections, due to restructuring and project acceleration. They forecast $1 million of income per quarter from interest and other factors, including foreign exchange impacts. The GAAP tax rate is set at 15.25% and 15% non-GAAP, excluding discrete items. The company plans a balanced capital allocation to maintain cash reserves, pursue mergers and acquisitions, and continue returning value to shareholders. From 2015 to 2024, $4.6 billion was returned to shareholders through buybacks and dividends. For 2025, they aim to repurchase up to $400 million in shares while maintaining current dividend levels. Lastly, the company has updated its midterm earnings model, now extending to 2028, aligning with its previous 2026 targets for revenue and earnings growth.

The paragraph outlines the company's midterm growth expectations, driven by AI Compute demand and recovery in broad end markets such as Auto, Industrial, and Mobile. Test revenue is projected to grow at a 12% to 17% CAGR from 2024, with an 18% to 24% top-line CAGR anticipated. Robotics is expected to utilize AI and overcome labor shortages for growth, with an ultimate goal of reaching a 5% to 15% operating profit range. The 2028 revenue is targeted between $4.5 billion and $5.5 billion, and non-GAAP EPS is expected to be between $7 and $9.50, with significant operating leverage evident in the Test and Robotics sectors. Anticipated gross margin ranges from 59% to 60% and operating expenses at 28% to 31% of sales. The company highlights a strong 2024 performance, strategic investments in Semi Test, and leveraging synergies for long-term growth in Robotics, expressing confidence as it enters 2025.

In the paragraph, Greg Smith discusses the company's outlook for low single-digit share growth in the Semi Test sector and the factors influencing this projection. In the System-on-Chip (SOC) space, they expect progress with Compute VIPs, maintaining a 50% market share as the Total Addressable Market (TAM) expands. Incremental growth is also anticipated in the Mobile space due to increased complexity, which has filled underutilized testers. Although there is a short-term slowdown in the Automotive and Industrial sectors, the growing semiconductor content in vehicles is expected to drive modest growth, even with similar or decreased unit sales. Additionally, hybrid vehicles, with nearly as much electronic content as pure electric vehicles, are less impacted by market trends, thus impacting auto semiconductors less. Lastly, there is potential upside in these projections, particularly if non-compute businesses recover in the second half of the year.

The paragraph discusses factors driving the industrial and memory markets. In the industrial sector, the demand for AI Compute, which requires substantial power, is boosting the demand for power electronics, such as point-of-load converters. In the memory market, while mobile recovery is expected to strengthen certain areas, the demand for DRAM, particularly in AI servers, is high, helping sustain the non-HBM portion of the market despite a weaker HBM segment. Christopher Muse inquires about Teradyne's restructuring efforts in its Robotics business. Greg Smith responds by distinguishing between challenges inherent to Teradyne and broader market issues, indicating strategic adjustments to overcome long-standing difficulties.

The paragraph discusses the performance and future plans of the company's Robotics unit. While the unit underperformed initial expectations, it is doing well compared to competitors in the industrial automation industry. Significant progress has been made, especially with new product introductions and incorporating AI into products. The company is focusing on improving the commercial side of the business, aiming to support partners by offering a wider product range and achieving efficiencies. Significant advances have been achieved in building OEM channels and large account competencies. Emphasis is also placed on the importance of service for success, particularly for large accounts.

The paragraph discusses a strategic shift by a company aiming to enhance its sales of robots and improve its operating margins by restructuring. This involves forming a partnership with Infineon, particularly in the semiconductor market, amidst challenging conditions for wide bandgap semiconductors like silicon carbide and gallium nitride. Despite current market adversity and overly optimistic past projections about electric vehicle transitions, the company believes that the semiconductors' test market will grow significantly by 2028. This partnership is seen as a beneficial long-term move for both the company and Infineon, as it aligns with the anticipated growth in the discrete semiconductor market.

The paragraph discusses a partnership between Teradyne and Infineon, where Teradyne will help accelerate its roadmap for covering new types of semiconductor devices by utilizing Infineon's specialty test equipment, which will now address a broader market beyond just Infineon's needs. Mehdi Hosseini inquires if Teradyne is purchasing these assets, to which Greg Smith confirms but does not disclose the purchase price, as it's not materially significant. The conversation then shifts to Teradyne's Industrial Automation segment, which appears to contribute less financially, prompting questions about whether Teradyne needs to consider a "Plan B" such as partnering with a system integrator to enhance its strategy in this area.

Greg Smith discusses the company's stance on further investments in Industrial Automation, emphasizing that they are not considering exiting the sector. He believes more investment in Industrial Automation is beneficial due to the business model's leverage and expects 10% growth beyond a $365 million breakeven point in 2024, with a positive operating margin. While it might dilute percentage earnings across the company, it remains accretive overall. No alternative plans are currently being considered. Additionally, a question from Jacob Moore is addressed regarding the 2-nanometer gate-all-around technology, with expectations for early production in late 2025 and bulk production in 2026.

The paragraph discusses the increasing complexity of computing and mobile devices, which is driving higher demands for testing power and memory. This is leading to opportunities in the Automated Test Equipment (ATE) and System Level Test markets due to technical obsolescence. While the transition to 2-nanometer technology isn't expected to drastically increase demand, it will act as an accelerant. Jacob Moore then inquires about market growth, highlighting AI and Compute as drivers, alongside existing PC, notebook, and mobile volumes. Greg Smith responds by predicting a balanced recovery in the second half of the year, with AI Cloud demand being a key driver in the Compute sector. He anticipates a minor increase in client compute, primarily benefiting the Wireless business unit.

The paragraph discusses the mobile and semiconductor industries, noting optimism about mobile phone complexity and increased semiconductor content in industrial and automotive sectors. It mentions a current inventory issue expected to normalize by year's end. Timothy Arcuri from UBS questions Greg Smith about the VIP test total addressable market (TAM) forecast. Arcuri highlights a disparity between Smith's conservative estimates and much larger forecasts by companies like Marvell and Broadcom for the custom ASIC market. Greg Smith explains that their model is based on unit quantities and device complexity, not accounting for potential variability in margins that companies like Marvell or Broadcom might achieve.

The speaker predicts a modest revenue outlook for 2027, aligning with the lower end of a $40-$140 billion range, based on insights from hyperscalers rather than chip manufacturers. Timothy Arcuri highlights the company's six-year, $150 million loss, questioning whether the strategy is to cut costs or continue investing for future growth. Greg Smith attributes the stagnation to a prolonged downturn in Industrial Automation since 2022, with weak PMIs affecting growth. Despite outperforming peers, the company views market growth as a long-term endeavor rather than a quick gain.

The paragraph discusses a company's strategy to align its operating expenses (OpEx) to maintain a positive operating margin even during challenging business conditions, with a focus on incremental growth by managing OpEx increases and improving gross margin. The text mentions external macroeconomic headwinds affecting market growth visibility. Despite recent losses in the past two years, the company has been profitable from 2019 to 2022, and overall losses from 2019 to 2024 are projected to be around $23 million. In a Q&A, Krish Sankar inquires about revenue growth expectations for 2025, which were previously estimated higher, and Sanjay Mehta clarifies that growth is anticipated to be around 15% but remains flexible.

In the paragraph, the speaker discusses changes and expectations in various business segments over a recent 90-day period. Robotics is expected to grow at about 10% year-over-year, while confidence in the Semi Test business has strengthened despite maintaining similar plans. SOC Compute revenue, which grew from 11% to 34% last year, is anticipated to continue growing and become a significant part of the SOC market, with a total addressable market (TAM) for Compute VIPs expected to increase from $300 million in 2024 to $600 million by 2026. The Mobile segment is projected to grow slightly, and both the Auto and Industrial segments are expected to see TAM and business growth.

The paragraph discusses the growth outlook for the VIP business in 2025 and 2026, highlighting that the business is concentrated with only a few companies capable of supporting a 2-nanometer ASIC accelerator. Growth is expected to come from existing customers, with potentially one or two new customers added by 2026. The business relies on large, single orders rather than a broad customer base. Additionally, the discussion touches on the outlook for HBM (High Bandwidth Memory) tests, expecting a period of digestion in 2025 and a potential recovery in 2026. This view is informed by discussions with major memory producers and their capital planning.

The paragraph discusses the capacity and timing issues related to the transition from HBM3E to HBM4 technology. The transition's timing is crucial for the Total Addressable Market (TAM); an early transition could increase the TAM, while a delay might weaken it. Greg Smith confirms that there's an expectation for HBM4 to be in volume production by early 2026, with customers hoping for significant volumes by late 2025. Samik Chatterjee from JPMorgan inquires about the company's expectations for market recovery in the second half of the year, particularly in mobile, auto, and industrial sectors. Sanjay Mehta acknowledges the skewed seasonality towards the second half and suggests considering the visibility and risks associated with the projected recovery.

The paragraph discusses the current state and future outlook of a company's capacity and utilization in the semiconductor testing industry. It notes that upgrades to underutilized capacity are nearing completion, leading to tighter capacity and a positive momentum as utilization increases. There is confidence in the second half of the year, particularly in compute, automotive, and industrial sectors, which are expected to benefit from market recovery. The conversation also touches on maintaining a 50% market share in the VIP ASIC segment. Greg Smith emphasizes the importance of their product's quality and the installed base of tools and training in maintaining customer relationships and winning new business to sustain their market share.

The paragraph discusses Teradyne's strategy and performance in the compute and VIP (Value-Added Intellectual Property) markets. Teradyne has traditionally had a low market share in the compute space due to historical market dynamics. However, they are now achieving success by differentiating their products and maintaining strong relationships with key design service providers and hyperscalers like Broadcom, Marvell, Samsung, Alchip, and GUC. They're confident in maintaining a 50% market share due to these relationships and product differentiation. In response to a question from Vivek Arya of Bank of America, Greg Smith explains that while the Compute Total Addressable Market (TAM) grew significantly last year, future growth is expected to slow. This is attributed to decreasing test times as devices mature, which limits sequential growth in the compute space.

The paragraph discusses the expected growth in the compute sector, highlighting that the primary opportunity lies in new markets, rather than traditional ones. Despite concerns about the total addressable market (TAM) not expanding, the expected growth in Compute is attributed to market share gains rather than a big surge in demand. While computation sectors are expected to deliver results throughout the year, other segments like Automotive, Industrial, and Mobile will see more activity in the latter half of the year. The growth is linked to the need for increased capacity due to new part introductions, rather than increased volume of existing products. Additionally, there's a brief mention of the VIP TAM, with a query about its size remaining unanswered.

The paragraph discusses financial projections and market size estimates related to certain revenue streams, specifically in the semiconductor industry. Initially, it provides a forecast of revenue growth, anticipating an increase from $300 million in 2024 to around $600 million by 2026, with expectations of reaching $400-$500 million, likely on the higher end, by 2025. It then shifts to segment-specific market size data, indicating that the System-on-Chip (SOC) test market in 2024 is worth $4.6 billion, with specific allocations to Compute ($2.2 billion), Mobile ($0.8 billion), Auto and Industrial ($0.9 billion), and Service ($0.7 billion). For 2025, these figures are projected to rise to a total of $4.9 billion, with incremental increases in each category. The discussion also touches on the utilization rates of semiconductor test cells, indicating an upward trend throughout 2024, especially by year's end, due to upgrades implemented during the year.

The paragraph discusses the company's transition from focusing on upgrades to concentrating on system sales, leading to a 10% year-on-year increase in utilization. Brian Chin inquires about the company's strategy in the robotics sector, specifically mentioning the consolidation of go-to-market functions. Greg Smith explains that they have unified the marketing, sales, and service operations of UR and MiR to enhance customer and partner interactions and achieve efficiency. This consolidation is aimed at leveraging the overlap in partners and customers of both entities without altering the company's main growth strategies, which focus on OEMs and large customers.

The conversation involves Greg Smith and Sanjay Mehta discussing growth targets and market expectations for Industrial Automation and revenues by 2028. Greg Smith mentions their goal to outpace traditional automation competitors by 15% to 20% annually, even if the market is down by 5%, they aim to deliver 10% growth. Operator Shane Brett asks about long-term revenue assumptions, to which Sanjay Mehta responds, explaining their revenue growth forecast of 12% to 18%, driven by Robotics and AI-enabled market expansion, emphasizing channel growth and new product introductions in a largely untapped market.

The paragraph discusses the market's challenges and the company's strategy to overcome them by developing AI-enabled solutions for different segment verticals. The focus is on analyzing the Total Addressable Market (TAM) across various segments, especially in AI Compute, high-performance compute, and networking. Greg Smith highlights significant growth in the Memory market in 2024, which is expected to stabilize with a linear growth model for the System on Chip (SOC) TAM through 2028. Sanjay Mehta adds that the shift towards custom ASICs in the Compute space is expected to result in market share gains for the company.

The paragraph discusses future market dynamics, highlighting that as the Mobile, Auto, and Industrial markets recover and grow, the company expects to gain a larger market share in these areas by 2024. Greg Smith also emphasizes the importance of System Level Test as a significant growth factor, which is anticipated to contribute to a 12% to 17% growth within the test group, driven by customer demand for higher quality levels. The conversation concludes with an invitation from Traci Tsuchiguchi for an upcoming Analyst Day event on March 11.

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