Q4 2019 Earnings Call
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Thank you Shirley good morning, everyone and welcome to our discussion of Teradyne's. Most recent financial results I'm joined this one or CEO , Mark together and CFO .
Then we are opening remarks will provide details about performance for 28, I teach fourth quarter and full year, along with our oldest for the first quarter 2020.
Its release containing our fourth quarter results was issued last evening.
Writing slides on the Investor page of the website. It may be helpful to you follow me the discussion, replacing coal will be available via the same page after the call them.
The matters that we discussed today will include forward looking statements involve risk factors caused teradyne's results to differ materially from management's current expectations.
Did you to review the Safe Harbor statement contained in the earnings release as well as are most recent SEC filings. Additionally, those forward looking statements were made as of today and we take no obligation to update them as a result of developments occurring after this call.
Today's call will make reference to non-GAAP financial measures, we posted the additional information concerning these non-GAAP financial measures, including reconciliations to the most directly comparable GAAP financial measure were available on the Investor page.
Also please take special notable.
So at least in slide deck for risks associated to potential changes in U.S. export regulations.
Looking ahead between now and our next earnings call sort I will be participating in technology or industrial focused investor conferences hosted by Goldman Sachs City Barclays and Susquehanna.
Now, let's get on with the rest of the agenda first Mark will comment on our recent results in the market conditions as we entered the new year.
Andrew will then offer more details our quarterly results along with our guidance for the first quarter will then to answer your restrooms and this call is scheduled for one hour.
Thanks, Andy and Hello, everyone.
In today's call.
Note our Q4 in 2019 full year highlights and comment on our outlook for 2020, Sanjay will then provide the financial details.
And as we do each January update you on our earnings model and capital allocation plans.
We ended the year on a very strong for with sales up 26% from the fourth quarter 2018, and non-GAAP earnings per share up 40%.
What a full year sales to about $2.3 billion up 9%.
And not yeah, TPS dollars, an 86 cents up 21% versus 2018.
Looking back a 2019 our trust businesses.
Well above our plan.
Industrial automation showed solid growth, but came in below plan on manufacturing sector headwinds in the U.S. in Europe .
In semi test you above trend results came primarily from three areas first fiveg infrastructure build out in China.
Second significant smartphone complexity growth and third memory test share gains.
We estimate the Fiveg infrastructure build out contributed about $200 million to the $3.3 billion. So see Tam in 2019, and we captured a sizable portion of that spending.
As stated in prior calls this build out has for the moment that mostly concentrated in China.
In smartphones complexity growth was very strong driving test intensity and therefore tester demand.
The growth is largely unrelated to five cheap as fiveg handset volume was insignificant in 2019.
Rather steady increases features like multiple.
Cameras enhanced photo and video processing and new conductivity features.
Demand.
In particular image sensor test demand was very strong as there was broad adoption of three to four backside cameras in a wide range.
[noise] ever was memory.
While the memory market declined as expected by about 35% from 2018, our sales were down about 3% as NAND tests, but NAND test spending was what do you.
For higher speed devices and by investments from emerging suppliers and members.
Lets significant in 2019 revenue, but a significant impact going forward.
Shuffle break into the DRAM.
A new Magnum epic L.P.D.D.R. five DRAM tester.
This expense Teradyne's town house are all four.
Just market with our Magnum platform.
Our system test at Lakepointe test businesses also delivered above plan results and system test defense and Aerospace production Board test in storage test also.
Strong growth for the full year.
Storage test performance was especially no.
70% coming from the increase test intensity of terabyte HDD drives.
And a growing business in the system level test of complex semiconductor devices.
Well.
I'd point, you kind of activity standards, along with only buying for the Fiveg handset test market, where the principal drivers of 19% growth for the full year.
Well I guess businesses.
And our <unk> business performance was solid but below plan for the year growing 12% on a pro forma basis individually you are grew 6% and beer grew 43% on a pro forma basis.
As we've discussed that you are we've had high exposure to the global automotive supply chain and general European manufacturing sector.
The which faced strong economic headwinds throughout the year.
The other hand, Mears mobile robots server more diverse range of end markets and showed solid growth in the year.
He was also a big year for care, what I know the new product front.
These new products.
Both strength, our core positions and set us up to profitably grow in the future.
In semi test, we introduced the Ultraflex plus platform targeting AI and big data markets.
Magnum epic platform for Lpddrfour, five DRAM final test and the MX 44 instrument for Fiveg millimeter wave device test.
At Lakepointe, we introduced new members of our acute gig an eye cubic self families or production testers.
Gee handsets and stuff.
Slide five respectively.
Some tests, we ramped production of the spectrum high speed tester for complex defense electronic systems.
[laughter].
Industrial automation.
[laughter].
And industrial automation, we introduced the you are 16 cobalt for higher Halo.
And began to liberty ever been picking solution for multiple beta site customers in Q.
And mobile robots, we introduced the M or 1000.
The increase payloads and Amir <unk> camera system that utilizes AI to improve robot traffic flow and busy industrial sites.
And our engineering pipeline is full of future products across all groups.
Rounding out 2019, our balanced approach to capital allocation resulted in the strategic acquisition of ought to guide serving the needs since autonomous work with market.
We also continue to our capital return program with $500 million and share buybacks and 61 million and give it.
Looking forward to 2020 , we see continued strong momentum in our test businesses and an improvement in our <unk> growth.
Early returns on our new products are positive with Ultraflex plus wouldn't a significant competitive design in during Q4 in the mobility space and the Magnum epic test are winning in L.P.D.. Our final test at a major memory make.
These early wins in semi test contribute to our strong outlook for the first quarter.
I'd like to give you some context on how we're looking into 2020.
First we expect our smartphone test demand to be strong and back to levels similar to what we saw in 2016 and 27.
And then we expect our 2020 revenue will be first half weighted than you.
Second we expect storage test to be especially strong in the first half for both HDD and system level test applications.
For the year, it's expected to grow about 40% from 2019.
Third the design wins for the Magnum epic and.
And the Ultraflex plus we'll begin to ramp in Q1, and this represents new customers and new segments that we expect to contribute revenue growth over the midterm.
Balancing the strength. We are we are seeing the expected pause in the fiveg infrastructure testifying to Howard 2019 sales.
At a high level received the fiveg demand evolved from infrastructure to smartphones as we outlined in past calls.
The global Fiveg infrastructure Buildout is still in the early innings, and we expect test demand will cycle at various geography is built as various geographies build out their networks.
Five you smartphone related test demand will begin in 2020 , but it will be somewhat modest as it's mostly low band or sub 60 technology rolling up millimeter wave investments are still to come over the mid.
Additionally, we do not expect to see any significant recovery automotive for analog markets 2020 .
As Sanjay will describe we will be increasing our 2020 opex and test to expand these design wins accelerate some new products and take advantage of what we now expect to be a faster growing test market over the midterm.
Taken altogether our outlook for the 2020, so see test market is in the $3.1 billion to $3.4 billion range and memory test is going to 650 to 70 50 range 650 to 750 million dollar range.
Of course this assumes no change in the current global trade.
The environment.
Well update you on this outlook as we move through the year.
For reference this compares to about a $3.3 billion, so see and about a $600 million memory test market Wednesday night.
Turning to industrial automation.
Recall, our strategy is to use the power of advanced technology to democratize automation and make industrial warehouse applications more productive safe.
We remain confident of the growth opportunity as we execute this strategy and the addition of auto Guy gives us access to an even broader set of opportunities.
While we expect the automotive in general manufacturing markets in Europe , and the you must have remained weak we do think this headwind has dissipated.
This combined with our expansion into the electronics manufacturing sector.
Other consumer goods manufacturing been picking and the industrial forklift forklift automation Marcus.
Gives us confidence that a higher <unk> rockpile 2020 is like.
Additionally, you are plus Echo system continues to grow and we ended the year with 206 certified plug and play solutions available up from about 130 at the start of 2019.
Similar program for a mobile autonomous robots mere go launched in 2019 nimble expanded 2020.
Overall, we expect or 14% growth in 2019 to increase to above 20%.
In summary.
We entered 2020 very optimistic.
Well, uncertainties remain and trade policies and global economies overall technological economic trends that fuel our business strong.
Our new products are opening new markets and gaining new customers test market growth is strong and we are still in it really any to fiveg.
Hi, good growth is solid in the environment of a U.S. and European manufacturing slow down and we expect that this headwind just dissipate.
This plus a strong M&A pipeline and a commitment to capital returns means our strategy.
Sanjay will now take you through the financial the mounted lenses.
That's it.
Thank you Mark good morning, everyone today ill cover the financial highlights of Q4, you a financial detailed 2019 looking forward I will provide an update for mid term level you want to look and color around 2020, which will include our capital allocation plans.
Now to Q4.
Revenues were $655 million, which were $25 million above the high end or guidance range semi test revenue of 439 million loved the quarter over quarter growth driven by memory and that's what's he I still see test demand, enabling fiveg infrastructure and higher speed flash and DRAM devices. So.
Some test group had revenue of $83 million, which grew quarter over quarter, driven by our storage test solutions, enabling system level test for us will seize industrial automation for Iclusig revenue of $88 million had a seasonal increase in revenue over Q3 and grew year over year in an environment, where significant auto industry.
Headwinds exist.
Lifepoint revenue of $45 million from quarter over quarter and year over year with new conductivity standard why five six and cellular fiveg driving revenue.
non-GAAP gross margins were 58.5% a bit above our plan and slightly down quarter over quarter due to product mix.
You'll see our non-GAAP operating expenses were up $19 million to 204 million.
For the third from the third quarter due to a higher variable compensation on fire profit increased spending to support design.
And an ongoing filing and stuff.
non-GAAP operating profit was 27% and non-GAAP EPS was 88 cents the tax rate, excluding discrete items for the quarter and the year was 15.5% on a GAAP basis, and 16.5% on a non-GAAP basis.
We bought back 2.1 million shares $431 million at an average price of $62.44 in the quarter for the full year, we bought back 10.9 million shares at an average price of $45, maybe not subs.
Since the start of 2015. It we have spent $1.97 billion to repurchase 60.8 million shares with an average price $32.38, which delivered significant shareholder returns over the five year period, we ended the year with cash and marketable security balances proportionately $1 billion.
Turning to the full year results of 2019.
Teradyne revenues of 2.295 billion grew $194 million or 9%.
$157 million of the growth was from our test portfolio and $37 million provider.
Got to customers with 10% or greater revenues in 2019.
We'll be disclosed in our 10-K filing.
Gross margins were 58% an operating profit was 25% which is consistent with 2018.
EPS was $2, an 86 cents or 21% growth year over year.
Breaking down the components of 2019 revenues as Mark Hiltwein, Yes, So see test revenues grew 67 million were 6%.
On strength in Fiveg sub six infrastructure increased complexity and mobile devices and millimeter wave development demand.
In memory revenues were 266 million down 3% the general market demand for higher speed man testers from existing customers and new entrants combined with DRAM wafer test demand highlighted the year.
During the year. We also received initial revenue for our Magnum APIC Lpddrfour five DRAM package tough system.
And system test sales grew for the third year ago revenue of $287 million grew $71 million for 33% year over year, primarily on growth in storage test for both system level test and HDD.
Yes.
Which had sales of $115 million up from 67 million in 2018, we also saw annual growth and our defense and aerospace and production Board test components of the STG.
I'd like point sales grew for third year in a low as well revenue was $157 million, 19% above 2018 level, new conductivity standards. The biggest driver demand, but we also saw surge in fiveg cellular demand before.
Hi revenue of $298 million from 14% from 2018 on an as reported basis were 12% on a pro forma basis.
Universal robots revenue of $248 million for 6% year over year low was below our original plan as discussed by Mark you ours demand has 40% plus exposure to manufacturing in Europe , and the automotive industry.
Both of which faced significant market headwinds in 2019.
Recent eurozone PMI data suggests a moderating trend, but no indication of improvement in the near term.
The auto it look is somewhat.
A mere revenues of $44 million grew 43% on a pro forma basis were 84% on an as reported basis recall, we acquired from here in April of 2018.
Hi in total other non-GAAP operating profit of 10% for the full year earnings that were modeling for 2020 as well.
Shifting to our midterm earnings model.
Factoring in both recent history and our latest outlook, we've updated the high end of our $3.50 to $4 earnings target to $4 in 25 cents of non-GAAP EPS in 2022.
We have growing confidence in the semi test and market drivers such as greater lot of complexity for performance Fiveg sub six millimeter wave driving capacity needs and infrastructure phones and I O T devices. We also expect a continuation of the growing performance trends in memory devices. This along with some specific mobility.
Okay, and memory share gains and device unit growth give us confidence to raise the semi test revenue growth rates, 3% to 5%.
4% to 8% from our baseline 2019 revenue.
At the same time to reflect near term industry conditions I use model growth rate has been reduced to a range of 20% to 35% off of our 2019 baseline revenue as Mark noted, we expect above 20% growth in 2020.
In 2019, we experienced a significant slowdown in sales growth tied to macro conditions noted earlier. However, our long term outlook remains positive and we'll continue to invest in scaling the business, specifically, increasing or distributor asked the sharpening our focus on marketing efforts for lead generation and closure investing.
To expand our reach two major accounts and continuing to invest in software solutions needed to scale and portfolio.
The net result of these updated growth assumptions as a greater revenue contribution in 2022 from our test portfolio versus the prior model.
Our gross margin target has increased roughly 1%, which drops down to operating profit increasing to 26% to 28% at the top end of our elsewhere and increasing the top end of our EPS ranged portals and 25 cents.
Now to our outlook for Q1.
Sales are expected to be between 670 and $710 million non-GAAP EPS range of 86 to 96 cents on 174 million diluted shares.
First quarter guidance, excluding the amortization of acquired intangibles noncash imputed interest on convertible debt first quarter gross margins are estimated to be between 57, 58% down slightly from the for the quarter due to mix.
The first quarter Opex running at 30% to 31% of first quarter sales is up about $6 million from a fourth quarter due to further I, a distribution and product development investments, including the addition of auto God, along with incremental test investments I will discuss shortly.
The non-GAAP operating profit.
At the midpoint of the first quarter guidance is 27%.
Now turning to some color around the full year outlook to help your model.
As Mark noted, we expect a strong first half similar to 2016 in 2017, when the first half revenues were 55 and 54% of the full year sales respectively.
Key drivers of the first half revenue include handset test Matt.
At some level testers diesel to enable key product ramp in our storage test segment and early ramping of Lpddrfour DRAM memory test capacity.
Unlike 2016 17.
Based on our very early estimates, we expect roughly similar sales levels in Q2 as in Q1.
Regarding our opex plants, which will be 20.
[laughter] season.
We expect our opex to grow 10% to 12% from 29 teams 758 million.
This is driven by investments across the business.
And we'll continue to invest to reinforce the competitive position across the sector as noted earlier and our test portfolio, we plan to increase our spending in engineering sales and marketing.
Nearly in semi test.
The engineering efforts will include memory and SLC investments to maintain our leadership.
Maintain our leadership position as well as invest in areas of the market. We believe there's opportunity for us to grow.
Increased sales and marketing investments are driven by share gains, which require effort to convert and ramp customers on teradyne's products and then provide ongoing support.
Beyond 2020, we modeled test opex flat to GDP growth.
Yes.
Capital expenditures in 2012.
Well increase above our normal run rate in 2019, or Capex was $145 million used primarily for customer demonstration equipment operations and engineer.
In 2020, we've earmarked an incremental $40 million are so for real estate investments in locations, where we plan to grow significantly over the next several years, we're buying land and developing it to eliminate lease costs and enable more cost efficient spend profile over the mid to long term.
The projects will take two years to complete with the majority of the spending this year.
Our GAAP and non-GAAP tax rate for 2020 is estimated at 16%.
Shifting to capital allocation will continue to balance the strong cash position to support our operating investments and potential M&A with direct shareholder returns through dividends and share repurchases.
Recall, we have a 460 million face value convertible bond that matures in 2023.
Regarding direct returns, we will be increasing our dividend by 11% to 10 cents per quarter, which reflects our confidence that our operating level and growing markets we serve.
With regards to share repurchases, we canceled the unused portion of the prior program and replace it with a $1 billion share repurchase program. We plan a minimum of 250 million of share repurchase in 2020.
The program does not have a fixed Andy and I was in the past, there's a program programmatic and opportunistic component.
Recall in 2018, and 29 too distant flux minutely one.
1.3 billion and share buybacks, driven by 2017 tax reform.
Which enabled offshore cash to be repatriated efficiently.
Our 2020 target represents our getting back to more normal level of share repurchases.
Excuse me.
In summary, we closed 2019, very strong and enter 2020 with good momentum.
Powered by a strong test portfolio.
Our updated capital allocation plan and earnings model reflects our confidence in test and industrial automation, while acknowledging the short term impacts of global slope of the global slowdown in industrial spending will continue to invest in R&D distribution and internal capability.
To improve.
Our competitive position.
And drive profitable growth.
Across the business.
What we can't predict what lies ahead.
For the full year, we have the products the team and a proven flexible business model that can efficiently scale demand.
During a fluctuating time period and the strategy to thrive in the new year.
With that I'll turn things back to Andy.
Thanks, Sanjay and sugary, we'd now like to take some questions and as a reminder, please limit yourself to one question had to follow.
Thank you as a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound.
Please standby, while we compile the culinary roster.
Our first question comes from the they are you with bank of America.
Thanks for taking my question for the first one and the press release, you called out down Wally and I silicon as significant customers I'm wondering how big where they directly or indirectly in 29, Dean and if you haven't done before.
28, Dean as well and do you have a sense or how much of that.
Related capacity is being utilized versus any extraneous. The FX do you do that if one traderev finishes.
Yeah.
We're not going to get specific numbers would any specific customer, but what I will say is that.
Certainly they are a significant customer teradyne's and utilization is.
On the 100 plus percent there's strong.
Demand that was demand all through the year utilization high at at this point that situation continues with the exception of Fiveg infrastructure, which represents a subset of the demand being weaker now than it was.
Running in the second half of last year.
All right and so my follow up on the Fiveg side. You know you maintained the 200 million dollar so contribution or the market size for velocity I think in the past you had mentioned that three to 400 million dollar opportunity. How do you see your share playing out which areas do you think yours.
<unk> question is your competitor. Thank you yes.
Yes. Good question, so that 200 million dollar number for 2019 was predominantly infrastructure related I think our shared there was probably 70 plus percent.
As we enter 2020 there'll be a shift toward handsets and infrastructure will come down a bit.
And I'd say our share as a consequence of that will probably be somewhere between that 50 to 70, 550% to 70% range and that kind of a mix.
But longer term as more millimeter wave comes online again, we're talking probably post 2020 .
That's wins that total market should grow that that 400 million dollar ish range for semi test.
And then on top of added Lifepoint, there's probably we've been talking about 100 million dollar ish.
Matter for Fiveg handset test, but the way we see it now it's likely that could be a bit higher.
No that meet peak at around 150 or so.
So that's how it progresses out through the next few years.
Thank you.
Thank you. Our next question comes from John Pitzer with Credit Suisse.
Yeah. Good morning, guys. Congratulations on a solid results more than just kind of curious your your view of calendar year 20 half on half being 55 45.
One extended that just lack of visibility into the second half and conservatism versus actually having visibility into the second half is going to be down and I guess help me understand why 16 17 is the right analogy here to compare calendar year 20, and as you answered. The question if we're going through a pause in fiveg infrastructure.
Currently when it's what's your expectation for that to come back.
Yes, that's a good question. So I just like to point out that we have very little visibility into the second half. So the 55 45 split is purely based on historical model or precedents, where in 2016 in 2017, we had significant mobility handset.
Test to even in the first half and we simply looked at that and said Oh everything else being equal, let's let's assume that your follows that pattern, but we don't have any data points that I would say are strong on that and then with no infrastructure. We expect because most of the buildout in infrastructure was concentrated in China.
The last year. It ran very hot it's in a pause right now.
But there's plenty of geography, that's still need to build out so that has to come back at some point people don't think it's in the first half a year, where we do have visibility.
But it could be in the second half of the year or early next year.
That's helpful. The names my follow on to kind of add onto the next first question I understand the desire not to talk about absolute levels for specific customer, but but I'm kind of curious just relative to some of the concerns investors had that might be a change in the de minimus roll some 25 to 10 well.
That changes as you understand it impact your business to walk away or how should we think about that in the investment community.
Yes, hi, it's Andrew so so the first thing is as a I'll just say the terror, Terry and I was going to be compliant with whatever the regulations are.
And then the revenue impact I'd say, it's a little bit hard call. Let me give you see color around there.
Depending on you know the could be a lot of conjecture about what the rules could be and whatever they are I.
I think but if there's if our inability to ship to walk away for whatever reason.
You have to consider if you consider the end market to be the end market. We believe that there would be a shift in to other providers now that would have a time gap as that process takes place, but I think it's very hard aid, we don't actually understand no. What the regulations are going to be and then be the end market impact I think it.
Over the over the midterm would kind of work itself out, but there could be this fluctuation short term.
Thanks, guys appreciate it.
[laughter].
Thank you. Our next question comes from Timothy Arcuri with <unk>.
Hi, Hi, guys. Thanks, the first question.
Mark I, just I'm going back to your comment that the 200 million extra SSC Tam that came from Fiveg. This year your share was about 70%.
But but total SSC share if I take a 3.3 billion dollar market this year.
Actually lost like 300 basis points worth a share for the year. So why why would that be if if you captured a you know sort of an abnormally high portion of that incremental fiveg. Thanks.
Yes, so there's there's lots going on under the covers in S.. So see tests. So the fiveg bump was one component of it but analog and automotive were at a very low level of which is another place where we have very high share. So close to you might say sort of.
[noise] almost negated each other in terms of sheer net share gain then the other effect going on is the there's a segment of the FCC test market is probably the only segment, we don't serve which has LCD driver display driver.
That market has grown quite dramatically with anyone who need it added I think about 100 $150 million of market.
Pretty much going to would be on test.
And that kind of makes up there.
Difference in recalculate.
Okay got it and then I guess just a follow up question on the topic around export control. So if if I take if I take a flat June which you're sort of implying is going to be flat.
And then if I assume that the year sort of plays out that the first half is 55 in the back half is 45.
It says that you're going to be at around 2.5 for the year.
Does that guidance, what what does that assume in terms of export control rule changes because if that if that you know if the.
Threshold goes to 10% and they remove that sensitive content.
Firemen does that assume that you'll still be able to ship to one way or does that assume that there that there will be some intact. Thank you.
Yeah I think.
With what we believe as being contemplated at the moment and again this is still.
Daily discussions, obviously and the Commerce Department and the Department of Defense and everything else that it would it would not have a significant impact to our plans for 2020, but what can be said is true is that let's assume for a minute that something more grand Canyon, but we expect happened restrictions.
The demand the demand in the market won't change so the supply will shift to other suppliers well positioned at the likely other suppliers that shift too. So it's simply a movement of.
One place to another.
Okay awesome. Thanks much.
Thank you. Our next question comes from Toshiya Hari with Goldman Sachs.
Hi, guys congrats on the strong results.
Mark you guys lowered your long term growth assumptions around the IEI business from 30% to 40% to 20 or 35% I appreciate the near term environment in Europe , and automotive from an end demand standpoint remains pretty weak, but why the change have you sense you know any any change the competitive landscape or how do you.
Think about the economics around the adoption of Cobots or what's what's changed there. Thank you.
Yes, it's no competitive and no long term change it simply math meeting.
We've got another ticket to that 2022 year, we've got three years to get there.
We think 2020 is gonna be better than 19 in terms of growth, but not in that 30% to 40% range that would make that viable. So we think we're going to again moved back north on growth rates. This year will be north of 20 for the group.
And we would expect subsequent years to improve beyond that but when you average it out over three years, that's kind of the range, we think will be it longer term nothing's changed.
Got it and then as a follow up I had a question on memory test.
Can you confirm what your market share was in 2019, and NAND and DRAM relative to 2018, and then prefer the Tam for for 2020. I think you guys are thinking you know 15 ish percent growth on a year over year basis that seems a little conservative given what we're seeing in terms of them ever.
The market, what's what's kind of pulling that down if you will thank you.
Well, let's see so our first of all the share in 2018 were roughly 30% share and last year, we think will be around 43 ish sheet percent share 43%.
Looking to 2020 market, how were thinking 700 million roughly would be the market. We've set the long term average should be about 750.
Wouldn't be surprised if it was a bit higher but it's again at this point.
It's hard to forecast now and in terms of our share in 2020. The success. We had you know all last year, we talked about.
This target of crack eat into final wedge of the memory test market DRAM final test if we didn't participate.
And that was a year long project. It finally came to fruition in December so.
So that sets us up go into 2020 to serve all four segments of the market.
China will continue to be pretty.
Aggressive so that's a balloon and I think our share you know what I think in the last call. They said expect our share to fall back into the high Thirtys, 35% to 40% range as DRAM snaps back in 2020, but now that we're playing in that market. We think we're shares going to stay up in that 40% range in 2020.
Thank you.
Thank you. Our next question comes from a T. Smith with Citi.
Hi, Thanks for taking my questions and congratulations on strong results in guide and also good job in winning the Ltd. The our five design win at the accordion many makers.
My first question is.
To your expectations on the industrial auto demand not recovering it's yeah can you remind us how much is that semiconductor test demand down from the prior peak then as my follow up Sanjay can you comment on the profitability object Mandy.
Relative to your overall Democratic pet business.
I'm, sorry, I see if I didn't get your first question could you just ask it again please.
Yeah, Mike what I'm asking is how far.
Field and October test business down from the prior peak and Oh.
And then regarding the building.
Got it thank you yes.
Automotive and analog tends to peak at around $500 million are somewhat the market five 500 to 550 last year. We if we expect that it was somewhere in the 300 to 325 range, so lets down by about $200 million.
From the memory profitability.
Yes.
We see the ER the margins in the profitability similar to the up that's so see mark.
Thank you.
Thank you. Our next question comes from C.J. Muse with Evercore.
Yeah. Good morning, Thanks for taking the question curious on your new tests don't look of 6% growth at the midpoint versus your prior view of 4% and that's off of a higher base in 19, how much of that outlook is based on just what you're seeing overall testing.
Complexity.
Versus some of the share gains.
On the gaming console TV or five et cetera.
Yes, I think that's you could centric or I think that you can view that as we see over the midterm.
Growth really driven by as you said complexity.
In and devices Fiveg cut up both sub six millimeter wave as well as a share gains so I'd say it's more.
25, like 30% tied to market and.
70% tied to shirts.
Roughly.
Over the midterm.
Very helpful and then on the <unk> side.
Clearly help but you are grew 23% sequentially on its own curious what signal that says to you I mean, how much of that was programatic as opposed to perhaps a in early indication of cyclical recovery.
The manufacturing side.
Well I think on the on the you are fronts as well as a year seasonally Q4 as a as a generally high quarter. If you look back over time, so that's encouraging and it was actually one of the drivers of us being higher than our guidance range.
However, as we look into the answer the first half we are seeing that seasonal pattern come down from an eye a perspective and I think it's really early innings to call.
As a recovery and those in industrial and automotive at this point from our standpoint.
So you know when you're thinking about growing that business 20, plus percent and 2020 <unk> that really an indication of kind of the programs that you see for MYR or what's the underlying assumption.
Are you are.
Yes, so we see mirror mirror and you are both contributing obviously to the to the 20 plus percent growth that mark articulated and we are investing and as I said growing and distribution.
As you know mirrors coming from is a little bit later in years that is coming from a smaller base, but but we see both contributed quite significantly so that 20 plus percent growth.
See I just.
I would just add on that that.
You know the you are is has higher exposure to automotive and and sort of the general manufacturing issues that were seen in the market, but the fact that.
We did see this strong sequential performance that you alluded to we did see a little bit at year over year gain we introduced a new product last year with the 16 kilogram payload version, that's just starting to ramp and.
We're just now actually in April gonna be rolling out the been picking solution in North America.
So new products bottoming of the headwinds in the manufacturing sector in Europe , and North America, our strong strong indicators for us.
Other thing is that last year, we saw really good performance in China in terms of growth we grew I.
I think it was.
40% or so in China last year, where those headwinds were absent. So you are in a very competitive region.
They'll showing that kind of Leds.
So were.
You know, we're really confident with the new products and the sort of diminishing headwinds.
Very helpful. Thank you.
Thank you. Our next question comes from Mehdi Hosseini, we think.
Yes. Thanks for taking my question I wanted to tick up more of a brother outlook. If I just look at your coming through for 2020.
On the 55 45 mix it seems to me that and on an earnings side you would come in.
Or slightly above the midpoint of your longer term target.
And I also under impression that.
Millimeter wave.
Could be a big time for us so see but that's most likely a 2022 catalyst. So given these kind of a thought process could we see some fluctuation in the annualized earning as you think about the longer term off maybe a best case.
For 25.
And I'm, just trying to better understand the dynamics of different parts of the company, especially with the change of outlook on and how I see market is going to play out.
Yeah, I you know, we've been blessed with a pretty stable non volatile test market here for quite some number of years and so it's certainly possible on our way to for 25 yacht we could see.
Dropped down we haven't seen that our EPS event monotonically growing here for quite some time.
So there's still likely volatility it doesn't seem.
And so.
The drivers here, especially around Fiveg, you're going to be pretty big balloons.
But but.
At the same time, you know you and I, both there will be in around for as long as you've been in this industry something.
Like of 20% correction occur that in no way changes the fundamentals of where five nanometer three nanometer are going to take us with complexity and what these.
Device.
The Fiveg transceivers and antennas and such that are going to their phones over the next few years are going to bring test will.
So I'm not I, we don't plan or try to.
On a trend line projection as you know and and that that's what we believe.
Thank you and thanks for being sincere just as a follow up I'm, just thinking that four millimeter wave there'll be some changes to the basis station to the networking and that would have to happen before.
There will be an escrow see upgrade cycle.
So and the basis station Tam is like 204 tests and and a piece 400, how do you see the impact of millimeter wave on in networking versus.
The phone itself given the kind of picture the just laid out.
Yes, so I think that from a test intensity point of view.
Handsets will matter more.
So the thing that made last year incredible in terms of infrastructure, what's the concentration in a very short period of time, so to roll out China sub six year low band to put in the infrastructure to do that.
You know tremendous amount of capacity was built out in one year.
To make that happen millimeter wave is gonna be spread over many years.
I don't think that it's going it'll be marginally more test intensive than at the base station level then.
Sub 60.
But it's not going to have the same sort of 150 200 million dollar bump into Tam like we saw last year.
On the other hand.
The the handset side of this is where the real money.
For both Lifepoint.
And semi test.
And.
It is there is going to be a tipping point that we need to reach specifically in the U.S. on deployment of.
Now, let me to wait base stations to shift, let's say half the domestic supply of handsets to millimeter wave capable.
And we still think Thats, probably 2021 or 2022. It me you know, we're a little more optimistic that it's coming sooner on millimeter wave.
But if you go back to that $400 million bump to the Esso C market.
If you're thinking about 2022, it's probably.
300 million plus or that is going to be handset related.
Got it.
Thank you so much on thanks for all the details.
Thank you. Our next question comes from Krish, Sankar with Cowen and company.
Hi, Thanks for taking my question I told them footprint Mark Thanks for the call it one millimeter wave.
Do you think that when you look at millimeter. They know that do you have a dual opportunity both on the.
I still see decide as soon as light point side do you didn't didn't happen in tandem with does like point lead or lag the.
80 business and then at a follow up on cobalt.
Yes, Andrew ethics mode in similar opportunities I think what you're seeing right now and millimeter wave on the on the Esso C test perspective, there's a lot of engineering work and testers associated with that and then you do have the Lakepointe end device tester.
In parallel for what millimeter wave devices, they're up there and then when the and you know as we say that comes as we've said before we believe it comes in waves and arguably 2021 and 2022 I think you'll see both of them come up.
Obviously, the chip guys on the.
The Esso C test.
You know will be slightly ahead, but I think will mainly coming from similarly time.
Come on got.
One more thing about Lifepoint that we haven't mentioned that.
Well lifepoints traditional strength has been like five connectivity test.
And there's a lot going on in the next few years and that's really encouraging to us. So finally able to 11 a acts are what's now been rebranded like five six as well now foams, that's going to propel our connectivity business then we're going to open up.
The seven gigahertz six to seven gigahertz band for life.
That's another new.
Need to retool the tester installed base for that frequency band.
And then we're in the industry is working on this new it'll to 11 B.E. standard that is 16 by 16 Mimo.
360.
Megahertz, a channel bandwidth once again, requiring new test capacity. So unlike the past four years, we're kinda kevin's been kind of dormant.
Let me look over the next four years kind of activity is also going to see significant retooling.
Got it that's very helpful. And then I just had a follow up on the cobalt side.
Two part question Vince will be on the.
Installation time reduction for Cobots, you know I think it used to be four to six weeks, but do you guys are trying to reduce it and also do you have any update on the partnership we're doing that on division frightful cobalt. Thank you.
I think on the on the deployment time, Yeah. We that's you know I alluded earlier to where we're investing we continue to invest don't have specific metrics around that we continue to see improvement and improvement in the initial deployment as well as the fallen deployments at an existing customer.
In decision.
The second question was tied to that.
<unk> partnership.
Vision partnerships.
Yes, if you have a lot of you are plus partners that are that are suppliers.
Yeah I think.
We're fielding a been picking solution that has a vision system embedded in it that we will kind of be a reseller for but there's a wide variety of partners already in or you are plus echo system that are needed Lee embedded in our operating system. So.
All of that is sort of business as usual no real new trends there.
Kind of thinking I think it very much appreciate it.
Thank you. Our next question comes from Richard Eastman with Baird.
Yes. Good morning, just a quick question around.
The.
Industrial automation business in general how did that.
How did there or you know their gross margin and I think finished the year and then also I think you referenced a.
And our profit contribution of contribution margin there of 10% and that will see inspection expectation going forward into 20 as well. So I'm curious is there a kicked up investment there.
You know below the gross margin line as a gross margin line kind of held around 60% there.
Yeah, I think the Sanjay So I think the gross margin is roughly as.
As you'd expect it to be there's been no degradation at all and and I did comment that our operating profit and <unk> in general is 10% either you should expect that next year I think the.
When I think about the industrial automation business our strategy towards it.
Fundamentally as we have significant growth we plan on investing to to improve our competitive position. We believe in this nascent market and our outlook in the long term as Mark said earlier is unchanged I think when you should start thinking about it when when you expect or when we expect.
Growth in single digits, that's when you'd expect us to be out over both kind of our model profit or let's say, 20% operating profit plus.
As growth tends to slow, but as we see the market and as we believe that we're going to grow significant double digits and into the future. We're going to continue to invest to drive the topline and then when we see the growth tape law you'd expect our operating profit to too.
Yes, so the so when the 50% that's a opex there.
<unk> is that kicked up on the R&D side or is this is still kind of go to market support costs.
Expansion of the distribution base or.
Where do you where do you pull that 50% out to to drop to the.
The up the contribution margin of 10%.
Does it have been writing 15 to 20.
Yes, it's a combination of both I'd say.
The other point I'd put that in there or is that our 2020 forecast includes auto got but okay, but it's both really you know investments and and lead generation and closure.
Distribution our partners.
Where we're really putting forward the go to market, but then also things like fleet management system software and different software capability to help drive the scalability of our solutions to customers.
Okay and then just as my second question just Mark I wanted to return to something you talked about the Fiveg infrastructure business in the semi test.
You referenced there that the market there in the demand there was pausing in the China market I'm trying to get my arms around a little bit around the timetable here.
Just from the standpoint of you continue to see some fairly aggressive production and deployment numbers around base stations, you know in China in the Asian market in General and so is your is your reference to the test.
Demand that that is in place ahead of the production. So we're just some inventory of the chip content into the base stations or how do how do we reconcile.
The aggressive forecast around production and deployment a base stations with your commentary about the market pausing up.
Yes, that's exactly what you said so you know in advance of.
Deployments of the equity base stations, a lot of Silicon test capacity goes in place. So now those base stations are churning out like Mad out of the factories, which is why utilization of test equipment is very high so as required additional bump in deployment rate base stations to drive the next round test equipment. So U.S. Europe , the rest of the world.
And you know China as well does not enough really capacity in China to totally facilitate China, where it has to get too, but what they need to do for 2020, probably sufficient.
I understand okay, great. Thank you.
Thank you. Our next question comes from Sidney Ho with Deutsche Bank.
Great. Thanks.
You talk about second quarter revenue to be flat quarter over quarter in Q2, and that's different from how it was.
You are still in 2016 in 2017 can you add a little more color what are some of the factors that make it different than those those two years.
Yeah, Hi, it's Andrew.
So I think.
Q1, we've had so we'll have some significant.
Significant drivers outside of.
So she test and then inside the first one is a storage test for system level test and HDD, where we'll have a significant revenue in Q1, which will decline in Q2.
The second comment I'd make is that within.
Within semi test we've got some share gains that require some initial tooling in Q1.
We will be moderating in Q2.
The last point I'd leave you with leave you with is that it's still early stages you too so roughly where we think we're going to have though.
Okay. That's helpful. My follow up.
In fact, you guided the actual feed him to be called the roughly flat in 2020, how do you think about the different moving parts in terms of end market and related at how do you expect your share in that Celsion has to do this year.
Last year was around 40% any any color end market customer next product makes that that's driving the shares will be helpful. Thanks.
Yeah.
So our expectation this year is that the mix.
The combination of some of the design wins I alluded to it in my remarks around the Ultraflex plus platform plus a little bit I would say of a shift toward our customers in this year.
Will bring our share likely up into the mid 40 areas what we expect.
Okay. Thanks.
Thank you.
Sure Yeah, Patrick just one more question, Okay sounds great I final question will come from Tom definitely with D.A. Davidson.
Yes, Hi, hoping you could talk a little bit more about the service component in Sydney, and particular going forward and how you see that played out.
Yeah. So this semi service for us for years has been very strong part of the portfolio. It's roughly runs around 20% of semi revenue.
And it's up into the 300 million dollar range, we don't expect as a percentage of revenue it will vary that much.
But.
Thats roughly where it is.
Okay, So they've got a.
A few into that increased markedly over the next few years as you get your target model.
Yes, I think it'll scale with what system revenue I think I'm not interested automation side, that's an area where service will go from when we acquired these companies having essentially no service business. We're now growing service in those businesses that are faster rate than the top line. So lots that will be a story that.
The walls here over the next few years, but in semi it should stay consistent.
Okay. That's it thank you.
Thank you.
Alright, everybody. Thank you so much for joining us today apologize for the status of the front end of the Colo and we look forward to talking to you in the days or weeks ahead.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.