TERADYNE, INC Q3 FY2026 earnings call

• AI-Driven Growth: AI demand drove over 60% of total revenue, with the 'wafer-to-data center' strategy delivering results across all business groups.
• Semiconductor Test Strategy: The industry is shifting to dual-vendor strategies to ensure supply chain resilience. Teradyne has multiple hyperscalers at various stages of qualification and fast-follower phases, with major ramps expected in mid-to-late 2027.
• New Product Launches: Introduced Ultraflex Plus instruments (Ultrapin 5000 EM, UltraVS64HP, UltraPort PCIe 6) to address next-gen AI compute needs. Launched Iris 100 for optical test and Magnum E2 for next-gen DRAM testing.
• Memory Dynamics: HBM performance testing TAM is expanding as manufacturers use lower stack heights to maximize wafer output. Memory revenue hit a record $301 million.
• Networking and Interconnects: Strong growth in copper and optical pluggables, with early-stage but significant potential in Co-Packaged Optics (CPO). Open ecosystem partnerships with Technoprobe, Ficontech, and FormFactor are accelerating validation.
• Robotics Expansion: Electronics and semiconductor assembly is now the largest vertical for robotics. Launched Universal Robots Gen 7 Cobot tailored for physical AI applications in data center build-outs.

Semiconductor Test: Total revenue was $1.072 billion (SOC: $676M, Memory: $301M, IST: $95M), representing approximately 82% of total company revenue. This segment grew 77% year-over-year. Product Test: Revenue was $138 million, up 56% year-over-year, contributing approximately 10.6% of total revenue. Robotics: Revenue was $96 million, up 28% year-over-year, contributing approximately 7.4% of total revenue and achieving profitability for the first time in a third quarter.

• Q4 2026 Revenue Guidance: $1.25 billion to $1.35 billion, with a midpoint of $1.3 billion (approx. 20% YoY growth).
• Q4 2026 Non-GAAP EPS Guidance: $1.95 to $2.25.
• Q4 2026 Gross Margin Guidance: 57.5% to 58.5%, reflecting product mix changes and new product launches.
• Q4 2026 Operating Expense Guidance: 28.5% to 29.5% of sales, driven by continued R&D investment.
• Full-Year Outlook: Expected full-year revenue of approx. $5.2 billion (>60% YoY growth). Management expects 2027 to be another year of healthy growth, with a stronger focus on the back half of the year due to compute order timing.

• Supply Chain Constraints: Increasing lead times for components require higher inventory levels ($200M increase over six months) to maintain responsiveness.
• Market Volatility: While long-term demand is strong, quarter-to-quarter visibility remains subject to lumpy customer order timing and test cell completion schedules.
• Competitive Pressure: Competitors are actively pushing back on share gains and expanding capacity through contract manufacturing partners, though Teradyne is doubling its own supply chain capacity via dual sourcing.
• Technology Uncertainty: The ramp timeline for Co-Packaged Optics (CPO) depends on resolving broader assembly flow challenges beyond just testing.

Q: Analyst asked about memory trajectory into Q4/2027 and growth drivers among HBM, DRAM, and NAND.

A: Greg Smith stated memory will remain strong in Q4 with significant YoY growth in 2027 driven by fab expansion. He identified HBM as the primary growth driver next year, followed by strong recoveries in Flash and unexpected strength in DRAM.

Q: Analyst questioned the shape of 2027 revenue given rising inventory and back-end loaded compute ramps.

A: Greg explained inventory increases are due to preparation for robust 2027 growth and longer component lead times. He confirmed compute programs will likely be back-half loaded but emphasized the entire year will be strong, with more detail to follow in Q4 guidance.

Q: Analyst asked about the timing and TAM for Co-Packaged Optics (CPO).

A: Greg noted CPO is in the 'preseason' with a small base but growing to $300-$700M by 2028, potentially exceeding $1B long-term. Timing depends on resolving assembly economics, but Teradyne is investing in an open ecosystem to capture value regardless of the specific interconnect technology chosen.

Q: Analyst inquired about the impact of lower HBM stack heights on test intensity and market share.

A: Greg explained that lower stack heights allow more stacks per DRAM wafer, deconstraining accelerator shipments. Since Teradyne has higher share in HBM performance test than in wafer sort, more stacks mean more testing volume, which is positive for Teradyne's share and revenue despite no change in total bits tested.

Q: Analyst asked about visibility into Q1 2027 and historical seasonality concerns.

A: Michelle Turner clarified that while quarters will grow sequentially in 2027, lumpiness exists within quarters. Greg added that pre-2024 seasonal patterns (driven by mobile cycles) are obsolete; the market is now driven by data center build-out schedules, providing better visibility into Q1 growth compared to previous years.