Q2 2021 Teradyne Inc Earnings Call

[music].

Okay.

Okay.

Yes.

Good morning, ladies and gentlemen, and welcome to the Q2.2021Teradyne earnings conference call. At this time all participants are in a listen only mode. Later, we will conduct a question and answer.

Answer session.

And instructions will follow at that time, if you have.

If anyone should require assistance during the conference. Please press Star then zero on your Touchtone telephone as a reminder, this conference call is not.

This conference call will read zone.

I would now like to turn the conference over to your house, Mr. Andy Blanchard.

Thank you Phillis and good morning, everyone and welcome to our discussion of Teradyne's. Most recent financial results I'm joined this morning by our CEO, Mark and <unk> and our CFO Sanjay.

Sanjay Mehta following our opening remarks, we'll provide details of our performance for 2021 second quarter, along with our outlook for the third quarter of 2021.

The press release containing our second quarter results was issued last.

And on the Investor page of the website that may be helpful to you and following the discussion.

Replays of this call will be available via the same.

And page after the call and <unk>.

Matters that we discussed today will include statements that involve risk factors that could cause teradyne.

Differ materially from management's current expectations. We encourage you to review the Safe Harbor statement contained and the earnings release as well as our most recent SEC filings. Additionally, those forward looking statements are made as of today and we take.

<unk> obligation to update them as a result of developments occurring after this call.

During today's call, we'll make reference to non-GAAP measures, we've posted additional information concerning those non-GAAP financial measures, including reconciliation to the most directly comparable GAAP financial measures were available on our website looking ahead between now and our next.

Next earnings call Teradyne expects to participate and technology or industrial focused investor conferences hosted by Keybanc Rosenblatt Securities Deutsche Bank and Citi.

Now, let's get onto the agenda first Mark will comment on our recent results and the market conditions as we enter the new quarter. Sanjay will then offer more details on our quarterly results along with our guidance for the third.

Noah will then.

To your questions and this call is scheduled for.

Mark.

Good morning, everyone and thanks for joining us today I'll summarize our results for the second quarter and first half of 'twenty.

Update on current conditions, and both test and industrial automation and comment on our view for the second.

Third quarter of the year Sanjay will then provide the financial details on the quarter and our guidance for Q2.

The strong demand we saw in Q1 accelerated in Q2 as both our test and industrial automation groups grew substantially in the quarter.

The long term demand or demand drivers we've discussed in the past continue to power demand.

And for our products and test it.

Device complexity and unit growth and automation, it's labor scarcity and need for resiliency and productivity improvement.

Opening further performance at the company level from 2016 through 2020 saw our sales and non-GAAP.

<unk> EPS grow at a compounded rate of 16% and 32% respectively.

For the first half of this year sales are running ahead of that rate at 21%.

And non-GAAP earnings per share grew at 29% compared with last year.

This demonstrates both the buyer of the markets we serve.

<unk> and the efficiency of our operating model.

Significantly and Q2, we saw industrial automation demand recovery and all major regions with particular North America.

As a result, our production and.

<unk> operated at a high pace in Q2 and that patients can be seen in Q3.

For the year, our OE business is on track to grow about 30% from 2019 and about 40% from 2020.

Mostly at the segment level and semi test Soc shipments grew 29% and Q2 from Q2 of 2020 with particular strength and both the compute.

<unk> and mobility end markets for.

For the first half Soc sales grew 19%.

For the first time and several years smartphone unit shipments are helping growth in the mobility.

Or as recent years have mostly relied on complexity growth.

And compute are the 2 largest.

Just sub segments and <unk>.

Automotive analog and industrial demand continues to be strong.

The auto related semi test market is expected to exceed $500 million. This year the highest level since 2017.

This is despite the fact that auto and the automobile unit production will be about.

In 2017 lower than 2017.

A portion of this strength is catch up.

We're also seeing the impact of increased semi content and complexity per automobile.

Driving the test market.

Our memory test shipments also grew in Q2 from.

Q2.

On a low 20 up 9% led by flash tester demand.

For the 6 months period overall shipments were up 18% from last year on solid demand for both flash wafer and.

<unk>.

This reflects significant growth and smartphones and the build out of new memory capacity in China.

2 accounts and the growth of SSD demand.

Looking at the full year, we are again revising up the Soc market for 2021 to now be and the range of $4.3 to $4.7 billion.

With increasing strength and the X 86, GPU and display driver and segments.

Recall that we.

Over customer exposure and those markets with much of this incremental growth going to our competitors. So we'll likely see our soc share around 48% for the year.

And memory at the macro level, our market estimates are unchanged with the test market. This year expected to be about $1 billion and our share to be at about the 40%.

Have low.

I will note that the expected ramp of DDR 5 for server applications and the broader adoption of LP DDR 5 is pushing out into 'twenty 2.

Shifting to our system test group sales.

Sales were up 26% and the first half compared with 2020 with strong storage test demand and a recovery.

Level production Board test unit driving the growth.

For the full year.

System Test group the system test group grow in the 10% to 20% range.

And at light point sales and Q2 were up 12% over <unk> 2020.

While <unk> millimeter wave demand is lower than expected.

And our environment and wireless test is improving as we move through the year due to the continued Wifi 6 growth and early Wi Fi 7 investments.

In addition, ultra wideband adoption is increasing adding a new growth vector for light point for the full year light point will likely grow in the 10% range.

Moving on to industrial automation.

And the combination of expanding demand across our major markets and the increase and the range of test served by our Universal robots and Mir units drove group sales up 57% and Q2.

45, <unk> and.

And the first half.

Compared to pre pandemic 2019 first half sales are up 22%.

Supply chain issues have constrained growth a little bit.

And with lead times pushing out about 1 week.

The demand environment for IAA has recovered and most regions from last year's slowdown.

Erika was the fastest growing major region.

And in Q2 with sales up over 90% from last year.

Although we did slow in some countries in Asia, where Covid has spiked in recent months the second half of the year outlook is quite strong and all our major regions.

Our long term growth strategy and IAA continues unchanged and we expect long term annual growth and the.

To 35% range. This year, we will like the growth of about 40% from 2020.

And we will continue to invest to enable this growth target 10%.

Gross margins.

And get a 5% to 15% operating margin during these high growth years.

Right.

2000, and investment perspective, we are expanding our engineering programs to shortening deployment times increase the served market and improve the customer support experience.

We are also growing our capacity to support distributors integrators, and <unk>, plus and <unk> apps development partners as we engage customer.

Customers.

We are also expanding our sales to Oems that integrated power robots into their products.

Last quarter, we noted the expanding range of applications for you our robot and into.

High voltage lines.

Patients with hundreds of <unk>.

Being deployed today.

Today I'd like to highlight the success of <unk>.

You are plus plug and play applications for industrial.

And.

And there was a long standing and chronic shortage of qualified workers.

Wide with an estimated 100000 unfilled welding jobs and the U S alone.

While automated solutions exists for large applications like auto manufacturing customers with lower.

William and higher mix products are not well served by traditional automation.

The integration of a forced torque sensor.

E series Cobalts enabled to precision needed for this application and with U R plus.

And with our partners, we began serving this market about 3 years ago.

Lower during this time welding applications have grown to be about 6% of our global and are on track.

1000, cobalt sold in 2021 more than tripling, our 2020 pace.

As we continue to extend the performance of our view our plant we expect these 2.

And 2 applications.

Factors to traditional industrial applications.

We have similar market expanding initiatives and play on our mirror.

But I'll save those details and your.

Call.

Summing it all up the first half of the year has been.

<unk> sales and strong gross margins and earnings growth.

Yes.

Longer term the markets we serve are showing.

And to future global economy, the importance pervasiveness and enabling capability of electronics and every of our lives and industry is driving more fab investments more complexity and more test.

Likewise, the broadening application.

And fast.

<unk> of robots, and a world with labor shortages and productivity challenges is another growth trend.

Strategically we positioned ourself in line with and plan to continue to make the on test and IAA as our full potential while driving world class.

Well the rate of change and our markets is accelerating.

We are well positioned to thrive as a company and to bring additional value to customers and shareholders on.

And I'll turn things over to Sandy.

From the financing.

Thank you Mark good morning, everyone today on sales on our Q2.

Results comment on current business conditions and describe our Q3 <unk>.

And now the Q2 second quarter sales were $1.86 million with non-GAAP EPS of $1.91.

Up, 29% and 44% respectively from Q2 'twenty.

Non-GAAP gross.

Since were 59, 6% and our non-GAAP operating expenses were $250 million, but $5 million below the high guidance due to the timing of some non recurring engineering expenses.

Non-GAAP.

Profit rate was 36, 5%.

And in the quarter was $59.

And compared with.

And a 58%.

The increase was tied to favorable product mix and the quarter versus plan.

Context.

Q2, 2020 gross margin was approximately 6% and April earnings.

And that this level of gross margin would continue and the near term driven by the introduction of several key test.

Margins in early 2020, which was several quarters to come down the cost curve.

These new product introductions, coupled with heightened costs driven by Covid shortages were impacting our gross margins in 2021.

1 year later, we have now most of these test solutions at volume and they have come down the cost curve.

As expected the results contributed to higher margins and the second quarter, which we expect will continue and the second half of the year.

The component of gross margin improvement over 2020 as higher revenue yielding.

Average and the gross margin line.

We had 110% customer and the quarter.

Excluding discrete items.

<unk> thousand 14, 5% on both GAAP and non-GAAP basis.

Looking at the results from our business unit.

Revenue of $834 million was up 27% from Q2.2020.

And as Soc revenue was 740.

<unk> dollars up 29% driven by strength and compute mobility industrial and automotive <unk>.

Memory revenue was $92 million up 9% from prior year, driven by strength and flash test and flash wafer sort segments.

System Test group had revenue of $105 million, which.

It was up 46% year over year.

This is driven by $58 million and storage test sales, including both <unk>.

And <unk> solutions.

$7 million and defense and aerospace and production Board test.

And storage test HDD and esselte demand remains robust as drive densities continue.

2 million increase and the number of devices adopting <unk>.

<unk>.

At <unk> revenue of $55 million was 12% was up 12% from prior year due to continued strength.

Increases in <unk>.

And ultra wide band test market segments.

And now to industrial automation.

And we did in April I'll provide revenue metrics comparing Q2, 'twenty 1 results with both Q2, 'twenty and Q2 dollars 19, so you'll have the full context, given the impact of a contracting market tied to Covid last year.

Industrial and revenue of $92 million was up 57 from year over year.

At 23% over Q2 thousand 19.

Revenue expanded and all regions and Q2.

And last year with North America, delivering the highest absolute revenue growth U S. Europe represented about 77% of IAA revenue in the quarter with China contributing about 14%.

Net sales were $76 million, and Q2 up 75% year over year and <unk>.

Recycle and 19.

<unk> sales were $16 million up 41% from Q2, 2051% from Q2 dollars 19 recall Mir had on on Q2 'twenty as its rollout.

<unk> were widely deployed and automated cold that COVID-19 disinfect and applications.

The longer term outlook and our IAA business continues to brighten and we expect continued labor shortages to drive new applications for both our fixed and mobile robots Mark highlighted the shortage of welders and how.

That has opened up a new market for our <unk>, but that is just 1 of many job categories with acute short term and long term labor shortages.

Our strategy is to provide and open platform that creative developers average to solve industry specific labor shortages.

Numerous scaling ultra violet.

And our.

Solutions built on our from last year is a shining example of the agility of our partner networks to solve problems.

We're investing and engineering support and marketing resources to make or from your.

Platforms, even easier to build upon which will enable the continued proliferation of <unk>.

High value automated solutions, while challenging problems for an expanding range of customers.

And instantly and these development partners and customers provide great feedback from day development plans.

From a financial perspective, we expect IAA will operate around the low end of our target profit range of 5.

And 15%.

We do expect <unk> to operate above the rule of 40 and 2021.

That is the sum of operating profit and revenue growth.

And over 40%.

Longer term when growth moderates, we expect the IAA group to have a similar operating profit rate as our test portfolio.

<unk> shifting to supply.

We continue to manage through numerous supply constraints, along with increased material manufacturing logistics costs and both our test Nia businesses.

For some products and both test and IAA the supply constraints have extended our comps and we're working closely with customers to minimize the impact of these delays.

No.

<unk> been able to offset these higher costs through operating leverage with higher volumes and other cost saving measures. So the cost increase impact on the P&L has not been material.

We do expect to be dealing with supply line related issues and Q3, and Q4 gear, which are reflected in our forecasts.

Shifting.

Balance sheet and cash flow.

Our cash and marketable securities at the end of the quarter totaled $1.42 billion and <unk>.

<unk> hundred $72 million flow.

And the quarter to $151 million and $17 million on buybacks and dividends respectively.

Year to date, we have repurchased 1.6.

<unk> million shares for $197 million for $197 million.

At on average.

Of $125.69 per share.

Regarding our convertible debt and <unk>.

$15.6 million was paid in Q2, 2 convertible bondholders ahead of maturity.

And by the end of August 2.

<unk> to the.

Bondholders will have early converted a total of $302 million, leaving a face value.

$88 million outstanding.

Looking at our operating model I'd like to make 3 quick points.

First our performance over time from.

And from 10 years ago, our gross margin percent.

Has expanded from the low to mid <unk>.

And to nearly 60%.

And our operating margin from the teens to low twenties to greater than 30% today.

Second our flexible business model shifts fixed cost to variable cost where appropriate through.

And our outsource manufacturing and variable.

Abel compensate.

And which enabled resiliency on the downside and his creative when business is strong.

Third the operating leverage and the model is evident and our Q2 results. Our test businesses are dropping through over 50 per revenue dollar.

Through to the profit line and 2021.

Okay.

And you'll be able to your volume growth on that that we hold.

Although you are connected.

Thank you.

Youre welcome.

Ladies and gentlemen, we're going to have a quick transition issues.

Yes.

Yeah.

Yeah.

I will go back I'll go back I will go back on.

Got it okay, it's Andrew again.

I'll go back to looking at our operating model.

I'd like to make 3 quick points.

And our performance over time from 10 years ago, our gross margin percent has expanded from low to mid fifties and nearly 60.

50% today, and our operating margin from the teens to low twenties.

To greater than 30% today.

Second our flexible business model shifts fixed cost to variable cost where appropriate through contract through contractor outsource manufacturing and variable compensation and other means which enables resiliency on the downside.

And is accretive when business is strong.

Third the operating leverage and the model is evident and our Q2 results. Our test businesses are dropping through over 50 per revenue dollar through to the profit line and 2021, even while we continue to increase our R&D support and support.

And <unk> investments to strengthen our test business.

This enables teradyne to continue to invest and both our test and IAA portfolios.

For IAA, we are building, a deeper product ecosystem and distribution differentiation, while achieving the rule of 40 and our IAA portfolio.

Now to our outlook.

Terrific.

As Mark noted the demand environment across the business remains strong and our guidance assumes no significant changes positive or negative and the availability of materials and also assumes that we won't see additional pandemic related issues.

With that said sales in Q3 are expected to be between.

$880 and $960 million with non-GAAP, EPS and the range of $1.29.

To $1.55 on.

On 176 million diluted shares.

Third quarter guidance excludes the amortization of acquired intangibles and noncash imputed interest on convertible debt.

And for third quarter gross margins are estimated to be between 59% and 60% Opex is expected to run at 27% to 29% of third quarter sales.

The non-GAAP operating profit at the midpoint of our third quarter guidance to 32%.

Regarding opex for the full year.

And while we spent a bit lower and plan in Q2, we expect our full year Opex will be about in line with the plan. We described in April.

We expect total operating expenses for 2021 to be about $1 billion or up approximately 19% from 2020.

We recognize that we are on track to meet our 2020.

Earnings model this year.

And we'll update the model on a regular cadence and January after our detailed midterm planning is complete and Q4.

This year.

In summary, our businesses are performing extremely well delivering strong revenue and earnings.

Earnings growth while funding.

The investments that will drive future success, our first half sales grew 21% and non-GAAP EPS grew 29% above the first half of 2020, which itself was a record.

We expect to deliver the highest Q3 sales and profits and history.

Our employees and production partners around.

For World of delivered a record number of systems under challenging conditions. Our support teams have done whatever was needed to make our customer successful.

And our engineering teams has kept on new product pipeline moving and on schedule.

It's been an impressive display of teamwork and I'm proud to be part of this powerful teradyne team.

With that.

Around and I'll turn things back to Andrew.

Thanks, Sanjay and.

And everybody thanks for it and dealing with our small technical issues here now.

And I'd like to take some questions and as a reminder, please limit yourself to 1 question and a follow up.

Ladies and gentlemen, if you have a question at this time please press.

And then the number 1 key on your Touchtone telephone. If your question has been answered or you wish to remove yourself from the queue. Please press the pound key.

Your first question comes from the line of Brian Chin with.

And this subtle.

Hi, there good morning, and thanks for letting us asset and a couple of questions here.

Maybe just to kick things off I'm, just curious to what degree if any are the extended lead times and <unk> and this sort of the current strong semiconductor environment impacting your shipment outlook.

Or a pattern and second half, obviously teradyne, no longer and disclose as bookings, but your competitor and appears to be building backlog.

And to the December quarter. So I was wondering if you have better than typical backlog visibility beyond September.

Yes, so lead times are definitely bends and moving out I'd say.

Auto and industrial.

Steve and is still out stripping supply.

But but our lead times have pushed out obviously based on the very very tight supply chain environment, we're dealing with.

And so what used to be let's say within a quarter has pushed out too.

And 5.8 weeks incremental too.

Where we were on the path to be and some cases.

And the <unk> and weeks of lead time.

So with that.

We have been seeing.

I guess.

And improved bookings from our customers.

And we're working with them to manage through it.

Okay got it.

Thanks, Sanjay and and then maybe and maybe for Mark.

I think you touched on.

And at least and the smartphone market units are kind of a bigger tailwind this year, which hasn't always been the case in recent years, but I think and into 2022.

What do you think to what degree could increase.

Packaging and complexity across foundries and.

And maybe some IBM has been a more meaningful driver of incremental test intensity next year.

Yes, that's a good question, we bundle that into the complexity side of life and there's already been advanced packaging technologies deployed for several years now and phones, but.

But it's increasing so.

And that.

Trend of multi chip <unk>.

Multi die packaging incrementally adds test time above and beyond what you would get if you were putting all of that silicon on a single integrated died and there is not a good rule of thumb on how much of an average.

<unk>.

But it is a trend thats going to continue to grow and drive tests.

Okay, Great I appreciate the color. Thanks.

Yeah.

Your next question comes from the line of <unk> Malik with Citi.

Hi, Thank you for taking my.

Questions and I have a similar question on and the mobility side and Mark It sounds like you and mobility outlook has improved.

For the year versus 90 days ago. Despite millimeter wave of weakness you talked about units, helping can you talk about the confidence and test intensity and staying elevated for.

And both mobility and compute into next year and if you can also highlight and the steps youre taking to improve your market share in the areas that youre not strong like X 86, GPU and display drivers.

Yes so.

The complexity trends looking even into.

Next year.

All very strong and positive.

In the.

And the case of mobility.

The newer lithography as that are coming online are being widely adopted by the manufacturers of silicon for phones, which portends more transistors, which portends more test time, so that.

Looking into next year, all looks positive and we get at this point and the year early glimpses of what the silicon for next year might might actually look like.

On the compute side similarly, we not only have the trend of.

Lower lithography nodes, but the new interface standards related to <unk>.

5 and DDR 5 as I mentioned in my remarks on the early adoption of that has been pushed out a little bit as the processors that go with it have been delayed a bit but all of the complexity.

Required to run at those higher bandwidth is coming in 2022. So those are 2.

Sort of things I look at it gives me confidence.

And that this.

Driver of complexity growth is definitely going to be strong next year in terms of share.

We said before is that penetrating the traditional X 86, GPU stalwarts is going to be a long term.

Power's endeavor for us that's going on hinge on some kind of technological discontinuity likely.

5% or like a shift to Pam 4 interfaces to crack into them.

So that 1 is episodic and will play out over let's say 3 to 5 years.

On the other front.

Front are the emerging hyperscale is and new people coming into the market are creating complex silicon and user automobile manufacturers hyperscale orders that we've talked about in the past the googles the facebooks the Microsoft the Amazons.

That's where we're focused on getting a position to grow with them as they launch their products and.

And get in the shorter term.

Great very helpful and Sanjay for you are the largest U S..1 maker and your biggest indirect customer talked about supply constraints impacting.

<unk> sales and the September quarter yesterday, and have the materials and ox.

Tightness.

And Mark gotten worse over the last 90 days from your business.

Well first of all I won't comment on any particular customer, but I will speak in general about the environment.

Last year, we were really working through demand increases.

But we had fairly.

Nancy good robust inventory strategies, and we're working through the impact of Covid.

Thousands of components that go into these testers and and we did a lot of them.

Resiliency improvements there and <unk>.

Fast forward to today's environment and the demand has.

<unk> has really kept accelerating and.

And.

The environment is as tighter I would say today and frankly, we don't see it letting up until the second half of 2022.

So I think as as the semiconductor industry goes through.

Fairly continued growth youre seeing supply chain and really getting tested and then with the and.

The increase and the infection rates of Covid, especially I'd say and southeast Asia.

<unk>.

And we're working through and managing the best we can but I believe the net summation is it's a tighter.

And our industry now than it was say 3.6 months ago.

Thanks.

Your next question comes from the line of Matt. He has seen me with S. I G.

Yes, thanks for taking my question.

2 question 1 on arm based basic design I'm trying to get a sense of how you see the Tam.

You can either elaborate is it mix of Soc tests or perhaps you can tell us.

How is the test time for our arm based ASIC chip compared.

And to like a process. So maybe that way, we could get a sense of how demand looks like so either qualitatively or quantitatively.

And you can if you can elaborate on on base SSE tests will be great and then I have a follow up.

Yeah.

Yes, I guess, the first thing I'd say is that a 1.

Dave.

Hi, and map processor, which is whats and most of our phones today driving most of our phones.

Has a transistor count that's equivalent to any laptop X 86 kind of.

Product, you might have and and your <unk>.

Computer and.

And the test times comparatively.

And between those 2 are not that different.

Proportional debt test of a new.

Arm processors that are coming to market for compute applications not smartphone applications.

And perhaps anywhere from about 25%.

60%.

And our on transistor count above.

What's at the highest and of smartphones and the test time associated with them I would say is proportionately longer.

At this point and so.

I think it's <unk>.

Generally speaking scaling with transistor count and transistor count on the arm side.

It's running a little bit at a faster clip than it is on the more <unk>.

Traditional architecture side, if that helps.

Sure.

<unk>.

So the funnel and has to do with actually I wanted to just dig a little bit more.

Would you at some point.

Break this out so we could better understand how.

And on base and sort of see test though.

It's tracking or scaling versus the rest of the SSD market and number 2 is there anything you can give us to better understand the competitive landscape for this specific application.

Yeah.

And I guess I haven't thought about trying to find a way to breakout farm because most of what mobility as his arm and then there is let's say compute applications for arm and then Theres. Some processors that are almost dual use and they go into either application.

So.

And I think.

Fair to say that.

Any compute business that we have at teradyne.

His arm based compute.

And perhaps many in the future we can look at some way to sort of characterize both beat the market.

And our.

Associated revenue for that but I don't have a good good number for you now on debt and in terms of the applications coming to market and the short term. We know we know about the phone applications. We know about some early adopters of arm for compute those are all coming to market or are in the market now.

The Hyperscale orders that were working with are coming.

Inc. At market at various points next year with products that are quite interesting, but highly speculative as to whether they'll latch and the market and obviously I'm not going to talk about those because of pretty confidential, but we'll see what what latches.

If 1 of these applications can become a 100 plus million unit application.

Location, which most of these.

<unk> teams are targeting then that's a significant.

Or to the market.

Great. Thanks for the detail.

Your next question comes from the line of Vivek Arya with Bank of America.

Alright, Thank you for taking my question.

I was curious how has your kind of visibility for Q4 as you kind of stand today versus what it is usually and if you could give us some color by end market and in terms of what is and you're on assumption for Q3 and the second half.

Very helpful.

Sure. So so Q4.

Yeah.

If I look back at my last 2 years here.

We've been surprise, mainly on the positive side.

And I would say that.

Given the tightness of supply.

And and customers, providing a little bit more on the way of backlog and it gives us a little bit more insight on.

However, obviously and the near term, we have much stronger visibility and Q3.

And then in Q4.

And so.

But we do have I'd say a little bit of.

Until visibility.

And color and your question regards to color for Q3.

We see.

Continued strength and.

And semiconductor obviously of the different components within.

Within semi test.

Our.

And are going to be a little volatile, but we do see.

And down it's still what we believe is very strong demand, but we see a trend down.

And we see in our portfolio.

<unk> really.

Strength, obviously with the Covid.

Impact in 2020, industrials are really coming back on.

Right.

<unk> and the <unk> and the U S and Europe.

And we really see that and are as Mark noted and our growth in the U S. But we're seeing that growth in China, as well as and as well as in Europe and the U S. So.

So continued continued expected growth.

And IAA and then from a test perspective.

On coming down debt.

Got it and then on the EUR side Mark on what are the top 3 applications you are serving today and how.

Do you expect these applications to evolve you are maintaining a very strong growth rate and that business and I'm curious what is driving that is it more a number of customers is it more applications within the same customers. So what's giving you the confidence you can maintain this very strong.

In the U R business and is.

He is.

On the gross margin side is it accretive I know on the operating margin side and you know you have given a range, but I imagine on the gross margin side it might be accretive to your business.

Yes.

It's interesting because there's no silver bullet.

And as to what's driving the growth that you are so for example.

And it would be up about 30% from revenue in 2019, 40%.

From 2020.

And.

And the script I mentioned this application or welding, which is a brand new application.

Growth now driving about 6% of our sales for the year.

Last quarter I talked about this service applications for servicing high voltage power lines and that's also running at around that 6% of sales applications.

Non existent essentially non existent 2 years ago.

So already we have 12% of our growth attributable to new applications in new markets with new customers that we didn't have 2 years ago.

So it's a combination of expanding applications like those 2 examples as well as established markets growing.

Driving this.

And.

That is our.

Top 3 applications tend to be the same it's automotive supply chain, it's industrial machine tending and its electronic assembly tend to be the ones that are at the top of the pack, but frankly, they are shrinking as a percentage of sales as these new applications come online.

So what gives.

And the confidence looking forward is there.

That ecosystem of partners, who are developing these application solutions on our platform not our competitors is just continuing to grow and prosper and.

And they're not all going to be a successful as high voltage line.

Pending or welding.

But it only takes 10% of them to fuel the kind of growth numbers that we've been seeing and and.

The activity there is very strong.

And the technology is maturing to the point that more and more applications can economically be served and.

And over the horizon when you look at what AI can bring as a whole new set.

Let's say.

Teachers that will enable yet another expansion on the market. It's it's what gives us the confidence to talk about these kind of decade long growth rates of 25.30, 35%.

Thank you.

Your next question comes from the line of John Pitzer with Credit Suisse.

Yes. Good morning, guys. Thanks from me ask the question Mark maybe another way to ask the calendar fourth quarter question and over the last 3 years the business has run and such a way that the second half has been greater than the first.

First half from a topline perspective, which is broken kind of a trend where if you go back the prior 7 years. It was first half stronger than second half did you have any commentary on sort of how you think the second half over the first half look this year, just given how strong the market environment environment, It is and how tight.

Capacity is.

Youre right.

Perfect student and the history and we.

Has been and San.

And Jay said.

Always a bit surprised and the recent years on how strong the fourth quarter has come in.

And and.

And driven second half to be a bit higher.

Higher than first so if you asked us today.

We'd say first half is a little bit stronger than second.

It's no different than kind of what we thought for the last couple of years too and that's just.

And as a testament to.

Visibility and Q4 on the lack of.

Visibility and Q4 as Sanjay said, though it's a little bit.

More visibility now than before because lead times are a little longer.

But all of the upside that could come in is the obviously the piece that's not feasible. So we feel probably better now.

Q4, then we felt and any prior 2 or 3 years.

But it's sort of what might happen between that 1 October thats invisible.

That's helpful on the market and my follow on I apologize the audio quality.

It was a little poor during your prepared comments I wanted to go back to some of the commentary you made around DDR 5 adoption I think the point you were making is perhaps its a little bit slower than you thought is that correct and I guess more importantly can you give us an update of how you.

You're positioned for DDR 5 when it does start to ramp relative to share and memory test.

Yes, yes, sorry about the audio quality, but in fact, the SPD on 5 for server applications has pushed out a bit as the server chips themselves have been delayed.

And we've seen the impact of that in.

And for DDR 5 testers.

And similar things have happened with LP DDR 5 going into mobility applications.

So despite all that despite all that the debt.

Share position for Teradyne. We think is is unchanged from our earlier estimates of around 40% of the market and it's going to be a tailwind.

The demand next year, when the <unk> 5 and <unk> 5 ramp as was originally thought would happen towards the end of this year. So we're well positioned there.

And I think that's a tailwind for us next year.

Perfect. Thanks, guys.

Your.

Our next question comes from the line of C J Muse with Evercore.

Yes. Good morning. Thank you for taking my question I guess first question Mark you taken.

Test.

Market size.

Higher again, and I guess curious if we were to hit the high end of the range.

And what would be the driver there and what.

And your market share is still be 48% or could you see greater contribution from from what's driving potentially.

On the market to the hiring and the range.

Yeah.

On.

Certainly if the market goes up toward.

The high end of that range, our revenue would grow.

Probably proportional to that what our share go much higher and I gave a number 2 on a number of roughly 48%.

At the midpoint of our market size died.

I would expect our market share is probably going to stay.

Day around that number plus or minus a half a point at this point and the year.

But.

Our debt.

To sort of prognosticate too much about where the share comes from as you know 1 customers buying capacity can swing multiple points of share in any given year.

And so you know 1.

Customers could come in and drive.

On a demand that we don't see right now we have the manufacturing capacity to serve it and yeah, I guess, we could be up at 50% share if that happened.

It's on it's.

It's just a little opaque at the moment.

Okay. That's helpful and I guess a follow on question.

And of our a few of the questions that you got earlier.

Moving to DDR, 5 now being pushed to a tailwind next year you'd spoken too high.

High performance compute, particularly the non X 86 world.

As a tailwind for you guys next year I think the concern out there is that your 1 large customer.

Could could decline meaningfully and and.

And that would cause a.

So for you guys to be down next year. So I guess as you sit here today and you're setting up.

And your supply for customers and lead times have extended how are you thinking about the world into 2022 for HFC for Teradyne.

And 2 very bullish because I think the concern and let's see I am not going to speak too specifically around <unk>.

Customer but.

What I would say is that the portfolio of devices that are being developed.

Hi.

Our hyperscale customers continues to.

And then.

And.

That's going to in addition to the complexity growth of the existing portfolio you had more chips.

On top of that it's it portends a growing market a growing.

Customers.

So you know, there's going to be ups and downs, but I think the cataclysmic or sort of a cliff concern from.

We're now a decade into this almost.

And it just hasnt happened.

So it's a trend line I think that's pretty clear and I think that's not my compensation.

Great. Thank you.

And your next question comes from the line of Joe Shea Hari with Goldman Sachs.

Hi, good morning. Thanks, so much for taking the question I had 2 as well Mark I guess somewhat related to.

C. J's question, just just curious in terms of the auto and Soc test market.

And in your prepared remarks, you mentioned that you expect the market to exceed $500 million this year and how that's the highest.

Mark since since 2017, how.

How are you thinking about sustainability there into into 'twenty 2.

Near term demand is clearly very strong and when we speak with your customers there.

I think kind of complaining about.

Extending lead times, so I guess the bias is to the upside, but curious how you're thinking about that market.

And then as a follow up.

Question on storage test.

It seems like both HDD and F. L T R trend.

Trending very nicely I think the business was up more than 2 X last year and 2020.

All.

Curious what youre thinking about.

The business full year, 2020 wondering if you can differentiate between F. L T and HDD that would be super helpful. Thank you.

It's Angela here, so I'll take a cut at them.

So from an auto market perspective, it's true this year, we've seen tremendous growth and and just about 5.

And 500 million or plus or minus a debt from a market size.

And yes as far as we've seen.

Even even back to 2017 and fundamentally I think and the last call Oh, there was commentary around you know the.

Although industry for years is live and on adjusted time on manufacturing.

<unk>.

And fundamentally.

And back half of 2019.

Sales weren't so high and coming into 'twenty.

Honestly demand has really picked up and so you're seeing just a significant replenishment of inventory.

Back into the.

And that for them and.

And we're we're seeing that continuing we see obviously the lead times and currently the demand is outstripping our supply.

And we see that with good visibility until the end of 2021.2020 2 will be interesting.

Because.

I have to take a look at where.

The system and Torrey levels, and what is the market demand in 2022 and.

And the first half and so.

It's a little bit opaque.

And 2022, but it'll depend on what I believe to be the inventory level and obviously.

And market demand.

And from a from a storage perspective.

<unk>.

You know a little bit of color around 2020 and 2021.

And if I go back to 2020.

HDD and our <unk> business.

Was was kind of split relatively even 1 was a little bigger than the other.

And.

And from an HDD perspective, we've seen continued end market demand fueling that business.

But when we look into 2021 from another.

From <unk> perspective, we're seeing a broadening of devices being adopted for.

S L T testing, which is providing.

And they'll win which is enabling a larger growth and that segment of the storage business. This year relative to the HDD business. So the HDD business is still very strong and market demand very strong.

But the broadening of the SLT or sorry, the asics being tested.

Hiding under Esselte.

Is increasing which is which is really good news so it's growing faster than the HDD shipments from a storage perspective.

Thank you for the color.

Your next question comes from the line of Timothy Arcuri with.

Yes.

Thanks, a lot.

And I had a question.

About your commentary Mark about your SSC share for the year.

And sort of what it implies for SSE and Q4 and more broadly would've been price for total company revenue in Q4, So you sort of given us all the different.

And pieces you guided wireless for the year your guidance systems for the year and you gave us the pieces on the test businesses. So if I just look at what that implies for SSE and Q4, I mean, youre going to do about 575, roughly for assessing and Q3, that's not a big mystery, but the Q4 number imply that goes.

And the like for 25 somewhere in the low fours and that'll be down on a year over year.

So I guess my first question is like why would that be given that you have all this visibility and.

Obviously, you are quite bullish about the market. So why would Q4 be down so much. That's my first question and.

And our associates.

Yes, I don't know that.

Be down so much or not it's a portfolio of businesses and all of those numbers now.

Our margin of plus or minus let's say a percentage of around them. So that creates a large monte Carlo simulation and you can go right down the middle I think you'd probably I'm sure you did the math right, that's probably what you come up with but.

Thats.

Down.

Typical as I said earlier on where we stand at this point in the year and looking into Q4 as in past years, where it's come in higher.

Significant.

Unknown around what look book between now and through October that can drive Q4 shipments and while we have backlog.

Law that extends and some product lines as Sanjay mentioned, all the way through the end of the year.

Others, that's more of a turns business and where we positioned ourself to be very responsive on the SFC front and.

In general.

To capitalize on these sort of.

Short demand.

Requests have come from our customers Thats why leave and the past been able to in the quarter exceed our guidance and even in the fourth quarter and prior years.

Exceed what we thought.

When we were talking back then and July so it could very well turn out that the demand that we've seen the last couple of years and Q4 yet.

And materializes again, and we ended up.

As CJ was Inc.

<unk> net having.

Second half larger than first adjusted at this point in the year given what <unk>.

Customers are talking about we just don't see that as the most likely outcome.

And is that.

Yes.

And in Q4, a lot of it happened in the past couple of years in the December quarter.

Preparing for or product launches that occurred in February timeframe.

No new phones, and things like that and so again with a rash of phone introductions and February.

Although we don't see it now and we could see.

Demand for SSE testers to support that driving December shipments.

Yeah, No. It's I mean, the total company revenue is sort of implied to be below what people were expecting for Q4. So that's kind of on was asking so anyway.

On your on your revised Tam for semi test so can you.

Just update us on the segments I think before you would think and compete with the $1 billion mobility would be 1.6.

Aldo you just gave that number is like $500 and industrial I think before you were talking about.

About 500, and so is the revision mostly in the compute side can you sort of update us on those numbers.

The numbers for computer or about the same mobility is probably.

A couple of hundred million dollars.

Auto is up.

<unk> safety and industrial up about 50.

Okay Awesome Mark Thank you.

Your next question comes from the line.

I'm Krish Shankar with Cowen.

Yeah, Hi, Thanks for taking my question and Mark time from a call. It earlier on the on test opportunity I just wanted to ask the question and a different way when do you think the non X 86 compute.

Well, maybe the total just compute.

Be similar or bigger than the mobility test market and then EDA.

A follow on.

Bigger than the mobility test. So if your question is when will the arm compute tests can be bigger than the.

Our mobility.

Kim.

Our local and he does kind of about $1601.7 billion and use.

<unk> is about $1 billion.

When do you think the total compute or maybe just the non X 86, computer and get to be bigger than mobility.

I don't think it's gonna be on the next 4 or 5 years.

I think.

Much of what's been developed in the arm space.

By the Hyperscale and <unk>.

Will more likely fall into the category of mobility.

So I don't I don't see compute growth.

Growing beyond mobility, and the next 4 or 5 years.

Got it got it.

And then mark and on the other test market and sort of over $500 million.

And I'm guessing that includes auto microcontroller anemia, and et cetera is that is the case.

Are you, giving some more color and deadly things too hard too fragmented.

Yes.

It does include Microcontrollers.

And I would say that auto is outstripped and most of the growth is auto more than Microcontrollers microcontrollers is growing too but.

But it's mostly auto.

Auto and of course, those microcontrollers and auto so when I say auto I mean, mark.

Controllers.

Auto versus Microcontrollers, let's say for white goods and things like that.

Thanks Juan.

And operator, we have time for just 1 more call. Please 1 more question.

Your final question comes from the line of Joe Moore with Morgan Stanley.

Yeah.

Great. Thank you and wanted to ask about the millimeter wave commentary.

It seemed like expectation that was primarily 1 customer and 1 region. So when you say that was kind of short of your expectations. What are you referring to there.

Yeah.

So it's not 1 customer 1 region.

And millimeter wave last year for US grew significantly we probably have 90% share of the early buying for millimeter wave test in 2020, and I would say that was spread out across 6 or 7 customers anybody who's making a chipset.

Related to millimeter wave was pretty much used and the teradyne costs during 2020.

The deployment of millimeter wave by the telecommunication companies has ground to a halt and debt has proportionately ground to a halt the need for incremental test in 2021.

Got it okay. Thank you.

Okay folks.

Thanks, so much for joining us today that concludes the call we apologize for the audio difficulties and <unk>.

We look forward to talking to you and in the days and weeks ahead and those in the queue I'll get back with you directly here. Thank you.

Okay.

Ladies and gentlemen. This concludes today's conference. Thank you for your participation.

<unk> expression and have a wonderful day you may all disconnect.

[music].

Yeah.

[music].

[music].

[music].

Good morning, ladies and gentlemen, and welcome to the Q2.2021Teradyne earnings conference call at this time all participants.

Participants are in a listen only mode. Later, we will conduct a question and answer session.

And instructions will follow at that time, if you have.

If anyone should require assistance during the conference. Please press Star then zero on your Touchtone telephone.

As a reminder, this conference call is not.

This conference call will resume.

I would now like to turn the conference over to your host Mr. Andy Blanchard.

Thank you Phillis and good morning, everyone and welcome to our discussion of Teradyne.

And most recent financial results I'm joined this morning by our CEO, Mark <unk> and our CFO Sanjay Mehta.

Following our opening remarks, we'll provide details of our performance for 2021 second quarter, along with our outlook for the third quarter of 2021 the.

The press release containing our second quarter results was issued last.

And on the Investor.

Page of the website that maybe helpful to you and following the discussion.

Replays of this call will be available via the same page after the call and.

The matters that we discuss today will include statements that involve risk factors that could cause teradyne differ.

He really from management's current expectations. We encourage you to review the Safe Harbor statement contained and the earnings release.

As well as our most recent SEC filings. Additionally, those forward looking statements are made as of today and we take no obligation to update them as a result of developments occurring after this call.

During today's call, we will make reference to non-GAAP measures, we've posted additional information concerning those non-GAAP financial measures, including reconciliation to the most directly comparable.

<unk> GAAP financial measures were available on our website.

Going ahead between now and our next earnings call Teradyne will expects to participate and technology or industrial focused investor conferences hosted by Keybanc Rosenblatt Securities Deutsche Bank and Citi.

Now, let's get onto the agenda first Mark will comment on our recent results and the market conditions.

Additionally, as we enter the new quarter Sanjay will then offer more details on our quarterly results along with our guidance for the third quarter.

To your questions and this call is scheduled for Mark.

Mark.

Good morning, everyone and thanks for joining us today I'll summarize our results for the second quarter and first half of 2000.

Update on current conditions, and both test and industrial automation and.

And comment on our view for the second half of the year. Sanjay will then provide the financial details on the quarter and our guidance for Q2.

The strong demand we saw in Q1 accelerated in Q2 as both our test and industrial automation groups grew substantially in the quarter.

Quarter, the long term demand or demand drivers we've discussed in the past continue to power demand for our products and test it.

<unk> complexity and unit growth and automation, and it's labor scarcity and need for resiliency and productivity improvement.

Opening further.

<unk> performance at the.

A company level from 2016 through 2020.

[music].

Good morning, ladies and gentlemen, and welcome to the Q2.2021 teradyne and earnings conference call at this time all parties.

Participants are in a listen only mode. Later, we will conduct a question and answer session.

And instructions will follow at that time, if you have.

Okay.

If anyone should require assistance during the conference. Please press Star then zero on your Touchtone telephone.

The phone as a reminder, this conference call is not.

This conference call will resume.

I would now like to turn the conference over to your host Mr. Andy Blanchard.

Thank you Phil Good morning, everyone and welcome to our discussion of Teradyne.

And most recent financial results I'm joined this morning by our CEO, Mark and <unk> and our CFO Sanjay Mehta.

Following our opening remarks, we'll provide details of our performance for 2021 second quarter, along with our outlook for the third quarter of 2021.

The press release containing our second quarter results was issued last.

On the Investor.

Website that maybe helpful to you and following the discussion replays.

Replays of this call will be available via the same page after the call and.

The matters that we discuss today will include statements that involve risk factors that could cause teradyne differ materially from management's current expectations. We encourage you to review the safe Harbor statement contained in the earnings release.

As well as our most recent SEC filings. Additionally, those forward looking statements are made as of today and we take no obligation to update them as a result of developments occurring after this call.

During today's call, we'll make reference to non-GAAP measures, we've posted additional information concerning those non-GAAP financial measures, including reconciliation to the most directly comparable.

<unk> GAAP financial measures were available on our.

And our website looking ahead between now and our next earnings call Teradyne expects to participate and technology or industrial focused investor conferences hosted by Keybanc Rosenblatt Securities Deutsche Bank and Citi.

Now, let's get onto the agenda first Mark will comment on our recent results and the market conditions.

Additionally, as we enter the new quarter Sanjay will then offer more details on our quarterly results along with our guidance for the third quarter. We'll then answer your questions and this call is scheduled for Mark.

Mark.

Good morning, everyone and thanks for joining us today I'll summarize our results for the second quarter and first half of 'twenty.

And on current conditions, and both test and industrial automation and comment on our view for the second half of the year. Sanjay will then provide the financial details on the quarter and our guidance for Q3.

The strong demand we saw in Q1 accelerated in Q2 as both our test and industrial automation groups grew substantially in the quarter.

Update on the long term demand or demand drivers we've discussed in the past continue to power demand for our products and test it.

Vice complexity and unit growth and automation, and it's labor scarcity and need for resiliency and productivity improvement.

Opening further.

<unk> performance at the.

And the level from 2016 through 2020 saw our sales and non-GAAP EPS grow at a compounded rate of 16% and 32% respectively.

For the first half of this year sales are running ahead of that rate at 21%.

And non-GAAP earnings per share grew at 29%.

Percent compared with last year.

This demonstrates both the buyer of the markets, we serve and the efficiency of our operating model.

Significantly and Q2, we saw industrial automation demand recover and all major regions with particular North America.

As a result, our production and.

<unk> Apo.

<unk> at a high pace in Q2 and that patients can be seen in Q3.

For the year, our OE business is on track to grow about 30% from 2019 and about 40% from 2020.

Mostly at the segment level and semi test Soc shipments grew 29.

In Q2 from Q2 of 2020, with particular strength and both the compute and mobility and markets.

For the first half Soc sales grew 19%.

For the first time and several years smartphone unit shipments are helping growth in the mobility.

Or as recent years have.

Percent relied on complexity growth.

Good day, and compute are the 2 largest sub segments and <unk>.

Automotive analog and industrial demand continues to be strong.

The auto related semi test market is expected to exceed $500 million. This year the highest level since 2017.

Mostly this is despite the fact that auto automobile unit production will be about lower in 2017 lower than 2017.

A portion of this strength is cash.

We're also seeing the impact of increased semi content and complexity per automobile.

And driving the test market.

Our memory test shipments also grew in Q2 from.

From Q2 of 2020 up 9% led by Flash tester demand.

For the 6 months period overall shipments were up 18% from last year on solid demand for both flash wafer and <unk>.

<unk>.

This reflects.

Significant growth and smartphone and the build out of new memory capacity in China, and the growth of SSD demand.

Looking at the full year, we are again revising up the Soc market for 2021 to now be and the range of 4.3% to $4.7 billion.

With increasing strength and the X.

Next <unk> GPU and display driver.

<unk>.

Recall that we have lower customer exposure and those markets with much of this incremental growth going to our competitors.

And so we'll likely see our soc share around 48% for the year.

And memory at the macro level, our market estimates are unchanged with the.

Test market this year expected to be about $1 billion and our share to be at about the 40% level.

I will note that the expected ramp of DDR 5 for server applications and the broader adoption of LP DDR 5 is pushing out into 'twenty 2.

Shifting to our system test group sales.

Sales were up 26.

<unk> and the first half compared with 2020 with strong storage test demand and a recovery and our production Board test unit driving the growth.

For the full year.

System Test group the system test group grow in the 10% to 20% range.

At light point sales and Q2 were up 12% over <unk>.

6 percentage <unk>.

While <unk> millimeter wave demand is lower than expected the environment and wireless test is improving as we move through the year due to the continued Wifi 6 growth and early Wi Fi 7 investments.

In addition, ultra wideband adoption is increasing adding a new growth vector for light point.

<unk> for the full year light point will likely grow in the 10% range.

Moving on to industrial automation and.

The combination of expanding demand across our major markets and the increase and the range of test served by our Universal robots and Mir units drove group sales up 57% and Q2.

Asked.

45%.

And the first half.

Compared to pre pandemic 2019 first half sales are up 22% supply.

Supply chain issues have constrained growth a little bit.

And with lead times pushing out about 1 week.

The demand environment for IAA has recovered and most.

And from last year's slowdown.

Erika was the fastest growing major region and Q2 with sales up over 90% from last year.

Although we did see slow in some countries in Asia, where Covid has spiked in recent months the second half of the year outlook is quite strong and all our major regions.

Our long.

Re growth strategy and AA continues unchanged and we expect long term annual growth and the $20 to 35% range. This year, we will like the growth of about 40% from 2020.

And we will continue to invest to enable this growth target 10%.

Gross margins.

A $5.

Term green percent operating margin during these high growth years.

From an investment perspective, we are expanding our engineering programs to shortening deployment times increase the served market and improve the customer support experience.

We are also growing our capacity to support distributors integrate.

And to <unk>, plus and mirror go apps development partners has debt.

And we engage customers.

We are also expanding our sales to Oems that integrated power robots into their products.

Last quarter, we noted the expanding range of applications for you are robust and at a high voltage line application with.

Hundreds of.

And being deployed.

Today I'd like to highlight the success of <unk>, plus plug and play applications for industrial.

There was a long standing and chronic shortage of qualified growth.

And we provide with an estimated 100000 unfilled welding jobs and the U S alone.

While automated.

Solutions exist for large applications like auto manufacturing customers with lower volume and higher mix products are not well served by traditional automation.

The integration of a forced torque sensor.

E series Cobalts enabled the precision needed for this application and with Europe.

With our partners, we began serving this market about 3 years ago.

During this time welding applications have grown to be about 6% of our global and are on track.

And cobalt sold in 2021 more than tripling, our 2020 pace.

As we continue to extend that.

Performance of our U R plant, we expect these 2.

And 2 applications had growth factors to traditional industrial applications.

We have similar market expanding initiatives and play on our mirror.

But I'll save those details and your.

Call.

Summing it all up the first half of the year has been.

Plus on sales.

Sales and strong gross margins and earnings growth.

Longer term the markets we serve are showing.

And demand future global economy.

The importance pervasiveness and enabling capability of electronics and every our lives and industry is driving more fab.

Investment more complexity and more test.

Likewise, the broadening application and fast.

<unk> robots, and a world with labor shortages and productivity challenges is another growth trend.

Strategically we positioned ourself in line with and plan to continue to make the on a.

Test and IAA as our full potential while driving world class.

While the rate of change and our markets is accelerating.

We are well positioned to thrive as a company and to bring additional value to customers.

And shareholders.

I'll now turn things over to Sandy.

From the financing.

Thank you Mark.

Everyone today.

Sales on our Q2 results comment on current business conditions and describe it.

3 now.

Now the Q2 second quarter sales were $1.86 million with non-GAAP EPS of $1.91.

Up 20.

29% and 44% respectively from Q2 'twenty.

Non-GAAP gross margins were 59, 6% and our non-GAAP operating expenses were $250 million, but $5 million below the high guidance due to the timing of some non recurring engineering expenses non.

Non-GAAP operating profit rate was 30.

5%.

And in the quarter was 59% compared with Oracle and a 58% the.

The increase was tied to favorable product mix and the quarter versus plan.

Context.

Q2, 2020 gross margin was approximately 6% and April and hearings noted that.

36, all of gross margin would continue and the near term driven by the introduction of several key test systems and early 2020, which was full.

Quarters to come down the cost curve. These.

These new product introductions, coupled with heightened costs driven by Covid shortages were impacting our gross margins in 2020.

1 year.

This letter we have now most of these test solutions and volume and they have come down the cost curve as expected.

The result contributed to higher margins and the second quarter, which we expect will continue and the second half of the year.

Component of gross margin improvement over 2020 as higher revenue yielding.

Leverage.

<unk> and the gross margin line.

We had 110% customer and the quarter.

Excluding discrete items from 14, 5% on both GAAP and non-GAAP basis.

Looking at the results from our business unit.

Revenue of $834 million.

Year lay up 27% from Q2.2020.

<unk> revenue was $742 million up 29% driven by strength and compute mobility industrial and automotive.

Memory revenue was $92 million up 9% from prior year, driven by strength and flat.

<unk>.

Was the actual wafer sort segments.

System Test group had revenue of $105 million, which was up 46% year over year.

This was driven by $58 million and storage test sales, including both <unk>.

And <unk> solutions.

$7 million and defense and aerospace and production Board test.

And flight and storage test HDD and esselte demand remains robust as drive density and continued increase and the number of devices adopting <unk>.

<unk>.

At <unk> revenue of $55 million was 12% was up 12% from prior year due to continued strength.

Increases in <unk>.

<unk> and ultra wideband test market segments.

Now to industrial automation.

As we did in April I'll provide revenue metrics comparing Q2, 'twenty 1 results with both Q2, 'twenty and Q2 dollars 19, so you'll have the full context, given the impact of a contracting market tied to Covid last year.

Adjusted revenue of $92 million was up 57 year over year and 23% over Q2 thousand 19.

Revenue expanded and all regions and Q2.

Last year with North America, delivering the highest absolute revenue growth.

Europe represented about 77% of.

<unk> revenue and the quarter with China contributing about 14%.

<unk> sales were $76 million, and Q2 up 75% year over year and <unk>.

And 19.

<unk> sales were $16 million up 41% from Q2, 2051% from Q2 dollars.

Recall Mir had an on year on Q2 'twenty as its robots were widely deployed and automated cold that COVID-19 disinfect and applications.

The longer term outlook and our IAA business continues to brighten, we expect continued labor shortages to drive new applications for both our fixed.

And 19 mobile robots, Mark highlighted the shortage of welders and how that has opened up a new market for our <unk>, but that is just 1 of many job categories with acute short term and long term labor shortages.

Our strategy is to provide and open platform for creative developers leverage to solve industry specific.

Pacific Labor shortages.

And the numerous scaling ultra violet.

<unk> solutions.

Our solutions built on our <unk> from last year is a shining example of the agility of our partner networks to solve problems.

And we're investing and engineering support and marketing resources to make or from your platforms.

Even easier to build upon which will enable the continued proliferation of high value automated solutions.

Challenging problems for an expanding range of customers.

And <unk> These development partners and customers provide great feedback from day.

And development plans.

From a financial perspective, we.

IAA will operate around the low end of our target profit range of 5% and 15%.

We do expect Aida operate above the rule of 40 and 2021.

That is the sum of operating profit and revenue growth.

And over 40.

Longer term when growth moderates.

We expect the IAA group to have a similar operating profit rate as our test portfolio.

Shifting to supply.

We continue to manage through numerous supply constraints, along with increased material manufacturing logistics costs and both our test Nia businesses.

For some products and both test and IAA the supply.

We experience have extended.

And we're working closely with customers to minimize the impact of these delays.

But we've been able to offset these higher costs through operating leverage with higher volumes and other cost saving measures. So the cost increase impact on the P&L has not been material.

We do expect to be dealing with supply.

<unk> related issues and Q3 and Q4.

<unk>, which are reflected in our forecasts.

Shifting to the balance sheet and cash flow.

Our cash and marketable securities at the end of the quarter totaled $1.42 billion.

The $172 million flow and the quarter and $151 million.

Line $17 million on buybacks and dividends respectively.

Year to date, we have repurchased 1.6 million shares for $197 million for $197 million at an average on.

$125.69 per share rigor.

Regarding our convertible debt $15.6 million.

And was paid in Q2, 2 convertible bondholders to ahead of maturity.

By the end of August 2000.

Bondholders will have early converted a total of $302 million, leaving at face value.

The $8 million outstanding.

Looking at our operating model I'd like to make 3 quick points.

First our performance over time.

And from 10 years ago, our gross margin percent has expanded from the low to mid <unk>.

To nearly 60%.

And our operating margin from the teens to low twenties to greater than 30% today.

Second our flexible business model shifts fixed cost to variable.

<unk> costs, where appropriate through.

Outsource manufacturing and variable compensation and.

And <unk>, which enables resiliency on the downside and his creative when business is strong.

Third the operating leverage and the model is evident and our Q2 results our test businesses are dropping through.

50 per revenue dollar.

Through to the profit line and 2021.

Thank you Mark.

Okay.

Hold on here.

Thank you.

Yes.

Ladies and gentlemen, we're going to have a quick transition.

Yes.

Yeah.

I will go back although that I'll go back on.

Got it okay. It's Andrew again ill go back to looking at on operating model.

I'd like to make 3 quick points first our performance overtime from.

10 years ago, our gross margin percent has expanded from low to mid fifties and nearly 60% today and our operating margin from the teens to low twenties.

Greater than 30% today.

And our flexible business model shifts fixed cost to variable cost where appropriate through contract through contractor outsource.

Outsource manufacturing and variable compensation and other means which enables resiliency on the downside and is accretive when business is strong.

Third the operating leverage and the model is evidenced in our Q2 results. Our test businesses are dropping through over 50 per revenue dollar through to the profit.

2021, even while we continue to increase our R&D support and support investments to strengthen our test business.

This enables teradyne to continue to invest and both our test and IAA portfolios.

For IAA, we are building, a deeper product ecosystem and distribution differentiate.

Line, while achieving the rule of 40 and our IAA portfolio.

Now to our outlook for Q3.

As Mark noted the demand environment across the business remains strong and our guidance assumes no significant changes positive or negative and the availability of materials and also assumes that we won't.

Additional pandemic related issues with asset sales in Q3 are expected to be between $880 and $960 million with non-GAAP EPS and the range of $1.29.

To $1.55.

On a 176 million diluted shares.

Third quarter guidance excludes the amortization.

Position of acquired intangibles and noncash imputed interest on convertible debt.

Third quarter gross margins are estimated to be between 59% and 60%.

Opex is expected to run at 27% to 29% of third quarter sales and.

Non-GAAP operating profit at the midpoint of our third.

And see a guidance to 32%.

Regarding opex for the full year.

While we spent a bit lower and plan and Q2, we expect the full year Opex will be about in line with the plan. We described in April.

We expect total operating expenses for 2021 to be about $1 billion or up approximately.

Ultimately, 19% from 2020.

We recognize that we're on track to meet our 2024 earnings model this year.

And we'll update the model on a regular cadence and January after our detailed midterm planning is complete and Q4.

This year.

In summary, our businesses are performing.

Quarter, Greenlee, well delivering strong revenue and earnings.

Earnings growth, while funding the investments that will drive future success. Our first half sales grew 21% and non-GAAP EPS grew 29% above the first half of 2020, which itself was a record.

We expect to deliver.

And the highest Q3 sales and profits and history.

Our employees and production partners around the world have delivered a record number of systems under challenging conditions. Our support teams have done whatever was needed to make our customer successful.

And our engineering teams have kept the new product pipeline moving on schedule.

It's.

Expressive display of teamwork and I'm proud to be part of this powerful teradyne team.

With that I'll turn things back to Andrew.

Thanks Sanjay.

And everybody thanks for dealing with our on our small technical issues there.

And I'd like to take some questions and as a reminder, please limit yourself to 1 question and a follow up.

Ladies and gentlemen, if you have a question at this time. Please press the star and then the number 1 key on your Touchtone telephone. If your question has been answered or you wish to remove yourself from the queue. Please press the pound key.

And of your first question comes from the line of Brian Chin with Stifel.

Hi, there good morning, and thanks for letting us asset and a couple of questions here.

Maybe just to kick things off I'm, just curious to what degree if any are the extended lead times and ETE and.

This sort of the current.

Strong semiconductor environment impacting your shipment outlook.

Or a pattern and second half, obviously teradyne, no longer and disclosed as bookings, but your competitor and appears to be building backlog.

And to the December quarter. So I was wondering if you have better than typical backlog visibility beyond September.

Yes, so lead times of debt.

<unk> been moving out I'd say.

Auto and industrial demand is still outstripping supply.

But but our lead times have pushed out obviously based on the very very tight supply chain environment, we're dealing with.

And so what used to be let's say within a quarter has pushed out too.

5.8 weeks incremental too.

Where we were on the path to be and some cases.

And the <unk> and weeks of lead time.

So with that.

We have been seeing.

I guess.

Improved bookings from our customers.

<unk>.

And we're working with them to manage through it.

Okay got it.

Thanks, Sanjay and and then maybe and maybe for Mark.

You touched on.

How at least and the smartphone market units are kind of a bigger tailwind this year, which hasn't always been the case in recent years, but.

I think.

2022.

What what do you think to what degree could increase packaging and complexity across foundries and maybe some idea MSB and more meaningful driver of incremental test intensity next year.

Yeah. That's a good question, we bundle that into the complexity side of life and there's already.

And advanced packaging technologies deployed for several years now and phones, but it's increasing so that true.

<unk> trend of multi chip.

Multi die packaging incrementally adds test time above and beyond what you would get if you were putting all of that silly.

Already been a single integrated die and this is not a good rule of thumb on how much of and add or it is.

But it is a trend that's going to continue to grow and drive tests.

Okay, Great I appreciate the color. Thanks.

Yeah.

Your next question comes from the line of Hs.

<unk> with Citi.

Hi, Thank you for taking my questions.

And I have a similar question on and the mobility side and Mark It sounds like you are on.

On mobility outlook has improved.

For the year versus 90 days ago, despite millimeter wave of weakness.

You talked about units, helping can you talk about.

About the confidence and test intensity staying elevated for a both mobility and compute into next year and if you can also highlight and the steps youre taking to improve your market share in the areas that youre not strong like X 86, GPU and display drivers.

Yes so.

I think the complexity trends looking even into.

Next year are all very strong and positive.

And.

The case of mobility.

And newer lithography that are coming online are being widely adopted by the manufacturers.

And manufacturers of silicon for phones, which port.

Portends more transistors, which portends more test time, so that looking into next year, all looks positive and we get at this point and the year early glimpses of what the silicon for next year might might actually look like.

On the compute side similarly, we not only have the trend of.

Lower.

And if he knows but the new interface standards related to LP DDR, 5 and DDR 5 as I mentioned in my remarks, and the early adoption of that has been pushed out a little bit as the processors that go with it have been delayed a bit but all of the complexity.

Required to run.

And at those higher bandwidth is coming in 2022. So those are 2 positive things I look at it.

And the confidence that this <unk>.

Driver of complexity growth is definitely going to be strong next year in terms of share.

We said before is that penetrating the traditional.

And the facts 86, GPU stalwarts is going to be a long term endeavor for us that's going to hinge on some kind of technological discontinuity likely shifted DDR 5 or like a shift to Pam 4 interfaces to crack into that.

So that 1 is episodic.

Prosodic and will play out over let's say 3 to 5 years.

On the other front are the emerging hyperscale orders and new people coming into the market are creating complex silicon and easier automobile manufacturers hyperscale orders that we've talked about in the past the googles the facebooks the Microsoft the Amazons.

That's where.

We're focused on getting a position to grow with them as they launch their products into the market in the shorter term.

Great very helpful and Sanjay for you the largest U S..1 maker and your biggest indirect customer talked about supply constraints impacting smartphone sales into September.

September quarter yesterday, and have the materials and ox.

Tightness.

Gotten worse over the last 90 days from your business.

Well first of all I won't comment on any particular customer, but I will speak in general about the environment.

Last year, we were.

With working through demand increases.

But we had fairly good robust inventory strategies and we're working through the impact of Covid.

Thousands of components that go into these testers and and we did a lot of <unk>.

Resiliency improve.

Were there any fast forward to today's environment and the demand has has really kept accelerating and.

And.

The environment is tighter.

Tighter I would say today and frankly, we don't see it letting up until the second half of 2020.

<unk>, so I think as as the semiconductor industry goes through.

<unk> growth Youre seeing supply chain and really getting tested and then with the.

The increase and the infection rates of Covid, especially I'd say and southeast Asia.

<unk>.

Sure.

And we're working through and managing the best we can but I believe the net summation is it's a tighter industry now than it was say 3.6 months ago.

Thanks.

Your next question comes from the line of Mehdi Hosseini with ESI G.

Yes, thanks for taking my question.

2 question 1 on arm based ASIC design I'm trying to get a sense of how you see the Tam.

You can either elaborate is it mixed <unk> SCC test or perhaps you can tell us how.

How is the test time.

Time for on base, ASIC chip compared to like a process. So maybe that way, we could get a sense of how demand looks like so either qualitatively or quantitatively and.

You can if you can elaborate on on base SFC tests will be great and then I have a follow up.

Yeah.

Yes, I guess, the first thing I'd say is.

On days.

And map processor, which is whats and most of our phones today driving most of our phones.

And has a transistor count that's equivalent to any laptop X 86 kind of.

Product, you might have and and your <unk>.

Computer.

And the test times comparatively between those twos are not that different it's kind of proportional debt test of a new.

Arm processors that are coming to market for compute applications not smartphone applications.

And perhaps anywhere from about 25%.

60%.

And are on transistor count above what's at the highest and of smartphones and the test time associated with them I would say is proportionately longer.

At this point and and so.

I think it's <unk>.

Generally speaking scaling with transistor count and and transit.

And just count on the arm side is running a little bit at a faster clip than it is on the more traditional architecture side if that helps.

Sure.

So the funnel has to do with this actually I wanted to just dig.

And it is a bit more.

Would you at some point break this out so we could better understand how.

Kind of on base and so see test, though is is tracking and we're scaling versus the rest of the SSD market and number 2 is there anything you can give us to better understand the competitive landscape for.

Specific application.

Yeah.

Yes, I haven't thought about trying to find a way to breakout farm.

Because most of what mobility as his arm and then there is let's say compute applications for arm and then Theres. Some processors that are almost dual use and they go into.

Either application.

So.

I think it's fair to say that.

Any compute business that we have at teradyne.

<unk> arm based compute.

And perhaps.

Many in the future we can look at some way to sort of characterize both.

The market.

And our.

Associated revenue per debt, but I don't have a good good number for you now on debt and in terms of the applications coming to market and the short term. We know we know about the phone applications. We know about some early adopters of arm for compute.

Those are all coming to market or are in the market now.

The Hyperscale is that we're working with are coming into market at various points next year with products that are quite.

Interesting, but highly speculative as to whether they will latch on to market and obviously I'm not going to talk about those because they are pretty confidential, but we'll see what what latches.

If 1 of these application.

Applications can become a 100 plus million unit application, which most of these design teams are targeting then that's a significant.

Added to the market.

Great. Thanks for the detail.

Your next question comes from the line.

And Vivek Arya with Bank of America.

Alright, Thank you for.

And my question.

I was curious how does your kind of visibility for Q4 and ask you kind of stand today versus what it is usually and if you could give us some color by end market.

And in terms of what is and you're on assumption for Q3, and the second half that'd be very helpful.

Sure. So so Q4.

Yes.

If I look back at my last 2 years here.

We do.

Surprise, mainly on the positive side.

I would say that.

And given the tightness of supply and and customers, providing a little bit more on the way of backlog it gives us a little bit more insight on.

However, obviously and the near term, we have much stronger visibility and Q3.

And in Q4.

And so.

And I.

But we do have I'd say, a little bit of incremental visibility.

And color from your question regards to color for Q3.

<unk>.

And we see.

Continued strength.

And and semiconductor obviously.

So different components within within semi test are.

Are going to be a little volatile, but we do see.

Trend down it's still what we believe is very strong demand, but we see a trend down.

And we see in our portfolio.

<unk> is really a strength obviously with the COVID-19.

Impact in 2020, industrials are really coming back out of sight from PMI and the <unk> of the U S and Europe, and we really see that and are as Mark noted and our growth in the U S, but we're seeing that growth and China.

As well as and as well as in Europe, and the U S. So continued continued expected growth.

And.

And then from a test perspective.

Coming down debt.

Got it and then on the EUR side Mark.

What are the top 3 obligations you are serving today and how do you expect these applications to evolve you are.

And maintaining a very strong growth rate and that business and I am curious what is driving that is it more a number of customers is it more applications within the same customer.

And what's giving you the confidence you can maintain this very strong growth rate in the U R business and.

And is.

On the gross margin side is it accretive I know on the operating margin side, you have given a range, but I imagine on the gross margin side it might be accretive to your business.

Yes.

It's interesting because there's no silver bullet as to what's driving the growth that you are so for example.

And we're going to be up about 30% from revenue in 2019, 40% from 2020 and.

And the script I mentioned this applicant.

Application for welding, which is a brand new application that is now driving about 6% of our sales for the year.

Last quarter I talked about this service application for servicing high voltage power lines and that's also running at around that 6% of sales applications.

It was non existent essentially non existent 2 years ago. So already we have 12% of our growth attributable to new applications in new markets with new customers that we didn't have 2 years ago.

So it's a combination of expanding applications like those 2 examples as well as.

Well established markets growing that's driving units.

And on.

Top 3 applications tend to be saying, it's automotive supply chain its industrial machine tending and its electronic assembly tend to be the ones that are at the top of the pack, but frankly, they are shrinking as a percentage.

This chip sales as these new applications come online.

So what gives me confidence looking forward is there.

That ecosystem of partners, who are developing these application solutions on our platform not our competitors is just continuing to grow and prosper and.

And they're not all going to be a successful.

Percentage high voltage line.

Pending or welding.

But it only takes 10% of them to fuel the kind of growth numbers that we've been seeing and the.

And the activity there was some very strong.

And the technology is maturing to the point that more and more applications can economically be served and.

And over the horizon when you look at what AI can bring as a whole new set of.

Let's say.

<unk> debt will enable yet another expansion on the market. It's it's what gives us the confidence to talk about these kind of decade long growth rates of 25.30, 35%.

Okay.

Your next question comes from the line of.

John Pitzer with credit Suisse.

Yes. Good morning, guys. Thanks from me ask the question.

Mark maybe another way to ask the calendar fourth quarter question and over the last 3 years.

Business has run and such a way that the second half has been <unk>.

Greater than the first half from a top line perspective, which is broken kind of a trend.

And if you go back the prior 7 years. It was first half stronger than second half did you have any commentary on sort of how you think the second half over the first half will look this year just given how strong.

On the market environment environment, It is and how tight.

<unk> capacity is.

Youre right.

Perfect student and the history and we.

Have been as Sanjay said.

Always a bit surprised and the recent years on how strong the fourth quarter has come.

And in.

And and driven second half to be a bit.

Higher than first so if you asked us today.

And we say first half is a little bit stronger than second, but that's no different than kind of what we thought for the last couple of years too and that just is a testament to <unk>.

Our visibility.

And Q4.

And a lack of visibility and Q4, essentially said, though it's a little bit more visibility now than before because lead times on a little longer but.

But all the upside that could come in is the obviously the piece that's not feasible. So we feel probably better now about Q4 than we felt and any prior.

2 or 3 years.

But it's sort of what might happen between that 1 October thats invisible.

That's helpful and then Mark as my follow on I apologize the audio quality.

And what was a little poor during your prepared comments I wanted to go back to some of the commentary you made around DDR 5 adoption.

I think the point.

And we're making is perhaps its a little bit slower than you thought is that correct and I guess more importantly can you give us an update of how you think you're positioned for DDR 5 when it does start to ramp relative to share and memory test.

Yes, yes, sorry about the audio quality, but in fact USD 5 per server applications.

Patients has pushed out a bit as the server chips themselves have been delayed.

We've seen the impact of that and the demand for DDR 5 testers.

And similar things have happened with LP DDR 5 going into mobility applications.

So despite all that despite all of that.

The share position for Teradyne. We think is is unchanged from our early estimates at around 40% of the market and it's going to be a tailwind next year when the <unk> 5 and <unk> 5 ramp as was originally thought would happened toward the end of this year, so and we're well positioned there.

And I think Thats, a tailwind for us next year.

Perfect. Thanks, guys.

Your next question comes from the line of C J Muse with Evercore.

Yes. Good morning. Thank you for taking my question I guess first question Mark you taken.

Soc test.

Market size.

On a higher again and I guess curious if we were to hit the high end of the range.

What would be the driver there and would your market share is still be 48% or could you see greater contribution from from what's driving potentially.

The market to the hiring of.

And the range.

Yes.

Certainly if the market goes up toward the high end of that range, our revenue would grow from.

Mobley proportional to that what our share go much higher and I gave a number 2 on a number of roughly 48%.

At the midpoint.

And our.

Market size Guy.

I would expect on market share is probably going to stay around that number plus or minus a half a point at this point and the year.

But I you know it's hard to.

To sort of prognosticate too much about where the share comes from as.

Midpoint on 1 customers buying capacity can swing multiple points of share in any given year and.

So 1 of our customers could come in and drive.

A demand that we don't see right now we have the manufacturing capacity to serve it and.

Yeah, I guess, we could be up at 50% share that happen.

<unk>.

It's just a little opaque at the moment.

Okay. That's helpful and I guess a follow on question to a few of the questions that you got earlier you spoke to DDR 5 now being pushed to a tailwind next year you've spoken to.

On a high performance compute, particularly the non.

On X 86 World.

As a tailwind for you guys next year I think the concern out there is that your 1 large customer could could decline meaningfully.

And that would cause.

So for you guys to be down next year. So I guess as you sit here today and Youre setting up.

And your supply for customers and lead.

Times have extended how are you thinking about the world into 2020.2 for HFC for Teradyne.

Very bullish because I.

I think the concern and let's see.

I'm not going to speak too specifically around customer but.

What I would say is that the portfolio.

Leo of devices that are being developed.

By our Hyperscale customers continues to expand.

And.

And that's going to in addition to the complexity growth of the existing portfolio you add more chips.

And on top.

It's it portends a growing market a growing.

Customer.

So you know, there's going to be ups and downs, but I think the cataclysmic or sort of a cliff concern from.

We're now a decade into this almost of and.

And it just hasn't happened.

So.

And the trend line I think that's pretty clear and I think that's right Michael.

Great. Thank you.

Yeah.

And next question comes from the line of Toshi Hari with Goldman Sachs.

Hi, good morning. Thanks, so much for taking the question I had 2 as well.

Mark I guess somewhat related to <unk>.

C. J's question, just just curious in terms of the auto.

Soc test market I think in your prepared remarks, you mentioned that you expect the market to exceed $500 million this year and how that's the highest.

Mark since since 2017.

How are you thinking about sustainability there into into 'twenty 2.

Near term demand is clearly very strong and.

When we speak with your customers, they're all kind of complaining about extending lead.

Lead times, so I guess the bias is to the upside, but curious how you're thinking about that market.

And then as a follow up.

A question on.

<unk> average test it seems like both HDD and S. OTR.

Trending very nicely I think the business was up more than 2 weeks last year and 2020.

Curious what youre thinking about that.

The business full year 2021, if you can differentiate between LTE and HDD that'd be super helpful. Thank you.

Alright. Thank you here, so I'll take a cut at them.

So from an auto market perspective. It is true this year, we've seen tremendous growth and and just about 500 million or plus or minus a debt from a market size.

And yes as far as we've seen.

Even even back to 2017 and fundamentally I think and the last.

On store.

And there was commentary around.

The auto industry for years is live and on adjusted on manufacturing.

And fundamentally.

And back half of 2019.

Sales weren't so high and.

And coming into 'twenty.

Obviously demand.

And really picked up and so you're seeing just a significant replenishment of inventory.

Back into the system.

And we're we're seeing that contingent and we see obviously the lead times and currently the demand is outstripping supply.

And we see that with good visibility.

Call you until the end of 2021.2020 2 will be interesting.

Because I.

And I have to take a look at what are the inventory levels and what is the market demand in 2022.

And the first half and so.

It's a little bit opaque.

I'd say in 2020.

But it all depends on what I believe to be the inventory level, and obviously and market demand.

And from a from a storage perspective.

On a little bit of color around 2020 and 2021.

If I go back to 2020.

HDD and.

Our <unk>.

<unk> business.

Was was kind of split relatively even 1 was a little bigger than the other.

And from an HDD perspective, we've seen continued end market demand fueling that business.

But when we look into 2021 from it.

And <unk>.

<unk> perspective.

We're seeing a broadening of devices being adopted for <unk>.

<unk> testing, which is providing a tailwind which is enabling a larger growth and that segment of the storage business. This year relative to the HDD business. So the HDD business is.

It's still very strong and market demand very strong.

But the broadening of the SLT or sorry, the asics being tested.

Under our <unk>.

And is increasing which is which is really good news. So it's growing faster than the HDD shipments from a storage perspective.

Thank you for the color.

Your next question comes from the line of Timothy Arcuri with UBS.

Thanks, a lot.

I had a question.

About your commentary Mark about your SSD share for the year and.

Sort of what it implies for SSE and Q4 and more broadly would've been price for total company revenue in Q4, So you sort of given us all the different pieces you guided wireless for the year you guided to for the year and you gave us the pieces on the test businesses. So if I just look at what that implies for SSE and Q4.

And youre going to do about 575, roughly for assessing and Q3, that's not a big mystery, but the Q4 number imply that goes down to like $4.25 somewhere in the low fours that would be down year over year.

So I guess my first question is like why would that be given that you have all this visibility and.

And obviously you are quite bullish about the market. So why would Q4 be down so much. That's my first question and.

And our SFC.

Yes, I don't know that we'd be down so much or not it's a portfolio of businesses and all of those numbers now.

Margin of plus or minus let's say a percentage of around them. So.

And so that creates a large monte Carlo simulation and you can go right down the middle I think you probably I'm sure you did the math right, that's probably what you come up with but.

That's.

And that's typical as I said earlier on where we stand at this point and the year and looking into Q4 as in past years, where it's come in hotter Theres a significant.

And.

Unknown around what look book between now and through October that can drive Q4 shipments and while we have backlog that extends and some product lines as Sanjay mentioned all the way through the end of the year Theres others, that's more of a turns business and.

And we've positioned ourselves.

Very responsive on the SFC front.

In general.

And to capitalize on these sort of.

Short demand request to come from our customers and that's why we have in the past been able to in the quarter.

Seed our guidance and even in the fourth quarter and prior years.

See what we thought.

And when we were talking back then and July so it could very well turn.

And out the demand that we've seen the last couple of years and Q4 yet.

Materials is again and we ended up.

As CJ was.

Having a from a.

And second half larger than first adjusted.

And to be point in the year given what.

Customers are talking about we just don't see that as the most likely outcome.

And is that the static to what happens in Q4, a lot of it happens in the past couple of years in the December quarter.

Preparing for or product launches that occurred in February timeframe.

This new phones and things like that and so again with a rash of phone introductions in February.

Although we don't see it now and we could see a demand for SSC testers to support debt driving December shipments.

Yes, no it's I mean.

Total company revenue is sort of implied to be.

And below what people were expecting for Q4, so that's kind of I was asking so anyway.

On your on your revised.

Pam 4 semi test. So can you just update us on the segments I think before you were thinking compete would be $1 billion mobility would be 1.6.

Auto you just gave that number is like 500.

And so yeah, I think before you were talking about.

About 500, and so is the revision mostly in the compute side can you sort of update us on those numbers.

Yes, the <unk>.

Numbers for compute or about the same mobility probably.

A couple of hundred million dollars.

And auto.

And the desktop probably 50 and industrial up about 50.

Okay and Mark Thank you.

Your next question comes from the line.

I've Krish Shankar with Cowen.

Yeah, hi, thank.

My question and Mark Thanks on the color earlier on the on test opportunity I just wanted to ask the question and then a different way when do you think the non X 86 compute.

And maybe the total just compute vs.

Be similar or bigger than the mobility test market and then.

A follow on.

And so the bigger than the mobility test. So if your question is when will the arm compute tests can be bigger than the.

Our mobility test came.

Mobile and he does come on about 1 point, which was $1.7 billion and use the computer is about 1 billion.

When do you think the total compute.

Or maybe just the non X 86, compute them gets to be bigger than mobility.

I don't think it's going to be and the next 4 or 5 years.

I think.

Much of what's been developed in the arm space.

By the Hyperscale and <unk>.

Will more likely fall into the category of.

On mobility.

So I don't I don't see compute.

Growing beyond mobility, and the next 4 or 5 years.

Got it got it.

And then mark on the auto debt market, you said, it's over $500 million.

I'm guessing that includes all doing micro.

<unk> controller and Union et cetera is that is the case.

And I know, you're giving some more color and deadly things too hard too segmented.

Yes. It does include Microcontrollers.

And I would say that auto is outstripped and most of the growth is auto more than Microcontrollers microcontrollers.

And too.

But it's mostly auto.

Auto and of course, as Microcontrollers and auto so when I say auto I mean.

Microphone trolling for auto versus Microcontrollers, let's say for white goods and things like that.

Okay. Thanks Juan.

This is growing and operator, we have time for just 1 more call. Please 1 more question.

Your final question comes from the line of Joe Moore with Morgan Stanley.

Great. Thank you and wanted to ask about the millimeter wave commentary.

It seemed like the expectation that was primarily 1 customer.

And so when you say that was kind of short of your expectations. What are you referring to there.

So it's not 1 customer 1 region millimeter wave last year for US grew significantly we probably have 90% share of the early buying for millimeter wave test and 2020.

And 1 would say that was spread out across 6 or 7 customers and.

And just making a chipset.

Related to millimeter wave was pretty much Houston and the teradyne costs during 2020.

The deployment of millimeter wave by the telecommunication companies has ground to a halt and.

And that has proportionally.

And to a halt the need for incremental test in 2021.

Got it okay. Thank you.

Okay folks. Thanks, so much for joining us today that concludes the call and we apologize for the audio difficulties at the front end of it we look forward to talking to you in the days.

And that and those are the KUOW get back with you directly here and thank you.

Okay.

Ladies and gentlemen. This concludes today's conference. Thank you for your participation and have a wonderful day you may all disconnect.