TERADYNE, INC Q2 FY2025 earnings call

Market Trends - End market trends were consistent with a strengthening second half, with AI compute strength offsetting lower demand in auto and industrial. Visibility improved, and capacity utilization turned towards new system sales. - AI compute demand strengthened, with UltraFLEXplus getting strong consideration in new areas. - Long-term themes of AI, verticalization, and electrification remained intact, with AI and verticalization as primary near-term growth drivers. ### Business Performance - Semi test: SOC for AI compute drove results above expectations, Memory revenue was lower due to shipment timing but expected to recover in the second half, IST revenue grew. - Robotics: Executed structural reorganization in Q1 2025, Q2 had 9% quarter-on-quarter growth despite market conditions, and plans to open a U.S. manufacturing operation to serve large customers. - Acquisition: Closed acquisition of Quantifi Photonics in Q2, accelerating strategy to gain share in AI compute via silicon photonics test.

In Q2, Semi test revenue was $492 million. SOC revenue contributed $397 million, Memory was $61 million, and IST was $34 million. Product test revenue was $85 million, up 7% year-over-year. Robotics revenue was $75 million, up quarter-over-quarter but down year-over-year. Semi test's SOC revenue, driven by mobile upgrades and AI compute growth exceeding plan, contributed significantly. Memory revenue was lower sequentially and year-over-year due to timing of customer deliveries but expected to rebound in the second half. IST revenue was up sequentially and year-over-year, driven by mobile SLT and HDD testers. Robotics' Q2 revenue showed quarter-over-quarter growth but was down year-over-year despite restructuring efforts.

Q2 Results - Second quarter sales were $652 million, non-GAAP EPS was $0.57, both above the midpoint of guidance ranges. Non-GAAP gross margins were 57.3%, non-GAAP operating expenses were $275 million, and non-GAAP operating profit was 15.1%. ### Q3 Outlook - Q3 sales expected to be between $710 million and $770 million. - Q3 gross margins expected to be at 56.5% to 57.5%. - Q3 OpEx expected to run at 36.5% to 38.5% of sales. - Non-GAAP operating profit rate at midpoint of Q3 guidance is 19.5%. - Q3 non-GAAP EPS expected to be in range of $0.69 to $0.87 on 158 million diluted shares, GAAP EPS expected to be in range of $0.62 to $0.80.

• Supply chain risks: Ensuring supply chain resilience for large customer opportunities, as multiple production facilities are needed for some customers. - Market demand uncertainty: Uncertainty in the timing of demand ramps, especially for HBM and GPU-related products, and the impact of macro factors on robotics market. - Business unit specific risks: Robotics market remains weak with no expectation of breaking even this year.

Q: C.J. Muse asked about the tone on outlook being more positive and framing growth into Q4 and new design wins beyond 2025.

A: Greg Smith responded that confidence is related to uptick in AI compute demand, major driver for Q3 guidance, and many wins achieved in 2024 or early 2025 ramping, with more opportunities in funnel but more impact in 2026.

Q: Timothy Arcuri inquired about sizing the robotics plan of record opportunity and when it impacts business.

A: Greg Smith said the opportunity is primarily in North America, solutions have new product introduction work in 2025, and will be significant growth driver in 2026 but exact number not given.

Q: Mehdi Hosseini followed up on 2026 inflection points and HDD test.

A: Greg Smith said strategy is to drive growth across all businesses, IST business positioned for growth, and HDD test strengthening through 2026 but not doubling like capital budget.

Q: Vivek Arya asked to quantify AI compute business in Q2 and GPU timeline.

A: Sanjay Mehta said compute was roughly 20% of SOC in Q2, Greg Smith said need to execute and prove test capability to gain share in merchant compute, with modest positive impact in 2026.

Q: James Edward Schneider asked about mobile SOC recovery and impact on gross margin.

A: Greg Smith said mobile recovery more of second half thing, Sanjay Mehta said overall volume scaling gives efficiencies but product margins driven by tester configurations.