TERADYNE, INC Q3 FY2025 earnings call

• AI demand is driving semiconductor tests, with compute, networking, and memory being key growth areas. The UltraFLEXplus system benefits from AI device complexity, enabling fast test development and high-efficiency volume production. - Memory test sales doubled in Q3, led by DRAM and HBM, with the Magnum 7H product differentiating in HBM performance test. - Robotics strategy focuses on AI-related products and service, with AI-related sales at 8% in Q3 and service at 14% of sales. - Deployment of UltraFLEX and UltraFLEXplus testers shows higher utilization, and the Integrated Systems division had above-plan shipments. - R&D investments are yielding differentiated capabilities for compute tests, and the company has aligned investments to capture AI-related test opportunities.

Semi Test: Q3 sales were $606 million. SoC revenue was $440 million, up 11% sequentially and 12% year-over-year. Memory revenue was $128 million, up 110% sequentially from Q2, with 75% from DRAM and 25% from flash. IST revenue was $38 million, up 9% sequentially and 46% year-over-year. Product Test revenue was $88 million, up 4% sequentially and 10% year-over-year. Robotics: Revenue was $75 million, flat quarter-on-quarter and down year-over-year. UR contributed $62 million and MiR $13 million. AI-related products made up 8% of robotics sales in Q3, up from 6% in Q2, and service represented 14% of sales in Q3, up from 12% in Q2.

• Q4 sales are expected to be between $920 million and $1 billion. - Fourth quarter gross margins are estimated at 57% to 58%, including one-time supply costs. - Non-GAAP operating profit rate at the midpoint of Q4 guidance is 25.5%. - Q4 non-GAAP EPS is expected to be in the range of $1.20 to $1.46 on 157 million diluted shares, and GAAP EPS in the range of $1.12 to $1.39. - AI-related demand for compute, networking, and memory is the primary engine of Q4 growth.

• Timing of AI projects can significantly swing quarterly results. - Uncertainty in the recovery timing for mobile, auto industrial, and robotics segments. - Supply chain costs and factory expansion headwinds affecting gross margins in Q4.

Q: Short-term upside vs consensus for December, driven by what?

A: Greg says it's mainly compute and memory, with roughly 2/3 from compute and 1/3 from memory, and HBM is strong in the memory component.

Q: Long-term compute intensity and test insertions?

A: Greg talks about die sizes increasing, chiplet-based designs, and dual sourcing affecting test intensity, with customers increasingly dual sourcing supply chains.

Q: How does wafer level test activity manifest into increased penetration?

A: Gregory Smith mentions SLT is critical for late-stage defect checking, and new technologies like CoWoP require extensive system test and burn-in, linking burn-in and SLT as a contiguous market.

Q: Design wins not in guidance, impact on 2028 EPS target?

A: Greg states they'll update the long-term model in January, noting the long-term destination is similar but market composition has changed with more focus on data center build-out.

Q: Semi Test growth in Q4, composition?

A: Gregory Smith says it's more 2/3 compute and networking and 1/3 memory in the growth.

Q: Memory revenue shaping next year?

A: Sanjay Mehta mentions revenue is driven by compute projects, lumpy, and tied to customer launches, with a different seasonality than historical mobile-driven patterns.

Q: VIP customer demand and merchant GPU opportunities?

A: Gregory Smith says VIP customer base is concentrated, with demand driven by a few customers, and merchant GPU opportunities are with specifiers directly, not foundries.

Q: HDD System Test growth expectations?

A: Gregory Smith says HDD growth will have a greater effect in 2026 than 2025, with SLT not expecting significant growth in Q4.

Q: SoC test acceleration and seasonality?

A: Sanjay Mehta and Gregory Smith mention projects accelerating, but demand is lumpy and timing uncertain between quarters.

Q: Memory NAND growth expectations?

A: Sanjay Mehta and Gregory Smith say NAND is low, tied to mobile industry growth, with a protocol shift in mobile and SSD demand for AI data centers potentially driving growth in 2026.

Q: Mobile SoC test expectations next year?

A: Gregory Smith says mobile SoC test depends on unit sales inflection, complexity, and yield, with potential for strong growth if unit sales increase.

Q: OpEx leverage expectations?

A: Sanjay Mehta says OpEx growth is expected to be roughly 50% of revenue growth in 2026, aiming for OpEx leverage.

Q: Memory market share and opportunities?

A: Gregory Smith says memory market share is high in final test, with potential revenue growth in 2026 due to market expansion, though wafer sort share may not significantly increase.

Q: Q4 gross margin drivers?

A: Sanjay Mehta says gross margin is affected by volume tailwinds offset by factory expansion and one-time supply chain costs to meet customer requirements.

Q: AI accelerator revenue in second half and full year?

A: Gregory Smith says AI accelerator revenue in compute and networking is significantly higher than expected at the start of the year, with mobile and auto/industrial weaker.

Q: Robotics Q4 seasonality and growth?

A: Sanjay Mehta and Gregory Smith say there is seasonality expected in robotics, with Q4 stronger than Q3, but growth is cautious due to high turn business.

Q: HBM singulated die test and TAM?

A: Gregory Smith says only one major manufacturer is routinely doing singulated stack testing, and it depends on downstream yield and device performance.

Q: SoC compute composition in second half '25 and 2028?

A: Sanjay Mehta and Gregory Smith say compute is a significant component in the second half, and the 2028 model will be updated, with more focus on compute and AI-driven memory.