Q4 2021 Teradyne Inc Earnings Call
Okay.
Good day, and thank you for standing by welcome to the fourth quarter and full year Teradyne earnings Conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During this session you will need a press star one on your telephone. Please be advised that today's conference may be recorded if you require any further.
Their assistance. Please press Star then zero I would now like to hand, the conference over to your host today, Andy Blanchard Vice President of Investor Relations. Please go ahead. Thank.
Thank you Michele good morning, everyone and welcome to our discussion of Teradyne's. 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 fourth quarter and full year, along with our outlook for the first quarter of 2020 to.
The press release containing our fourth quarter results was issued last evening.
Providing slides on the Investor page of the website that maybe helpful to you in following the discussion replays of this call will be available via the same page after the call ends.
The matters that we discuss today will include forward looking statements that involve risk factors that could cause teradyne's results to 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 make 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 financial measures. We've posted additional information concerning these non-GAAP financial measures, including reconciliation to the most directly comparable GAAP financial measure where available on the investor page of our website.
Looking ahead between now and our next earnings call Teradyne will be participating in technology or industrial focused investor conferences hosted by Citi Morgan Stanley and Susquehanna.
Now, let's get on with the rest of the agenda first Mark will comment on our recent results and the market conditions as we as we enter the new year. Sanjay will then offer more details on our results along with our guidance for the first quarter. We'll then answer your questions and this call is scheduled for one hour Mark.
Good morning, and thanks for joining us in.
In our call today, I'll summarize 2000, <unk> fourth quarter and the full year and then comment on our early view of 2022.
Sanjay will then provide the financial details and review our updated earnings model and capital allocation plans.
While we forecast 2022 to be another solid year for teradyne overall sales will likely decline in the first half as we believe Soc test sales will be impacted by modest complexity growth in our largest market as the jumped to three nanometer production is pushed to 2023.
More on that in a minute.
<unk> 2021, we finished the year strong, bringing full year sales non-GAAP earnings growth to 19% and sales growth to 20, sorry.
Sales growth at 19% GAAP earnings growth to 29% respectively.
2021 performance was a result of broad based growth across our test and <unk> businesses semi test sales grew about 17% with our ultra flex family contributing to the expansion into the compute sector and Eagle product line, serving the automotive and analog industrial sectors growing nearly 90%.
For 2021, we estimate the Soc market was about $4 8 billion up from $3 6 billion in 2020, which puts our market share at about 46% for the year.
The memory market in 2021 was about flat with 2020 at approximately $1 billion. Our Magnum family continues to shine in the NAND segment, and we're reinforcing our position in the DRAM segment as the industry prepares for LP DDR, five and DDR five ramps in 2022 and beyond.
Our share remains at about 40%.
Light points wireless test business had a great year growing 25% from 2020, the global demand for connecting and tracking just about everything machines materials and people is nearly insatiable.
Light point is well aligned to this trend with products that simplify testing of the expanding range of wireless standards.
Either in networking with Wi Fi six and seven and location tracking with ultra wideband and cellular with five G are numerous other standards the rate of technology change continues unabated, which is great for our business.
Moving to our industrial automation business at <unk> sales were up 41% from 2020, we continued to expand the number of U R plus partners and certified plug and play apps with Assembly machine tending and Pelletizing among the most popular of the more than 375 available apps.
We also continue to broaden our reach beyond existing markets often with OEM partners.
One exceptional example is our expansion into welding applications, where we finished the year with a growth of more than three X about 2020 levels welding applications now account for more than 6% of your sales.
At near full year sales grew 42% from 2020 on the strength of our new higher payload mirror $2 50, $613 50 kilogram.
Yes.
It's also notable that the value of mirror <unk> with advanced Fleet management software is amplified as the size of the robot fleet grows.
We saw this play out last year with large account sales those with the potential to deploy hundreds of units growing nearly 50% faster than the installed base at large.
Looking ahead to 2022, the long term drivers that power our growth in test and industrial automation are strong in fact as you will hear from Sanjay Our updated 2024 earnings model reflects an expected higher growth in sales and profits for both areas.
However in 2022, while we expect our business to power along with 35% plus growth, we see our <unk> business likely contracting during the year as the shift to three nanometer volume production is pushed to 2023.
You can begin to see some of this effect in our <unk> guidance as we usually see the beginnings of our summer ramp in March.
We expect <unk> to show similar effects as it's usually our peak Thule period for our largest market.
As a result, we are modeling first half sales down 15% to 20%.
We don't expect the impact of this to extend into the second half we expect demand to accelerate again in 2023 as we begin to see the complexity growth related to investments for three nanometer gate all around and advanced packaging overall, we expect the 2022 Soc market to be similar in size to 2021 at <unk>.
<unk> four $6 billion to $5 billion.
Shifting to memory test, we expect the market in 2022 to be in the $900 million to $1 $1 billion range.
Which with a mid point that is similar to 2021.
We expect spending will be weighted toward DRAM as LP DDR five adoption expands and DDR five for server applications ramp.
In the past a shift of spending in DRAM would be a significant headwind for us, but we expect we'll maintain our share at about 40% in 2022 as our Magnum epic DRAM tester grows in market popularity.
In system test after five years of high growth driven by the storage test product line, we expect 2022 to be a digestion year with sales softening slightly wireless test at light point. However is expected to fill that revenue gap. So we expect the combined system test and wireless test will be about flat with 2021.
Shifting from test to industrial automation, and our business outlook is brighter than ever as I noted in our last call the penetration rate of both collaborative robots and autonomous mobile robots is under 3%.
The economic environment is favorable with worker shortages that movement of production capacity closer to end markets and a relentless drive for higher quality and safer operations, all helping to drive demand.
The opportunity in front of US is immense and we are investing to exploit it to the fullest.
At the segment level, we've increased our long term revenue growth rate and expect our sales in 2022 to grow more than 35% off a 2021.
Jay will provide the long term modeling details, but the key point is the investments we've made and will continue to make position us for both short and long term success in this expanding market.
Expanding OEM relationships and served markets is a key part of our strategy like the welding initiatives that is bearing fruit. We have several others. In flight. One example is an e-commerce one of our partners nimble robotics uses AI unique grippers and clever software on our U R cobalt platform.
To pick consumer goods and high volume warehouse operations for numerous national brands.
You may have seen the recent Wall Street Journal article complete with photos of the solution in action.
Our innovative solution dubbed goods to robot.
Complements automated storage and retrieval systems widely used in e-commerce .
Our cobalts ease of use and durability are a natural for this application.
Well over 15 million items across 500000 unique products have been picked to date as nimble executes an ambitious growth plan in the ecommerce space.
Another driver of growth in IAA has been the growing use of <unk> to improve the competitiveness of local manufacturing to support re shoring of production.
<unk>, a Finnish maker of high quality ceramics is a good example.
They've added automation to allow skilled craftspeople to focus on high volume and high value tasks. While you are co bots do the repetitive and physically demanding ones such as glazing and finishing of ceramics.
To summarize 2021 was another year of impressive growth at teradyne and caps, a five year stretch where sales and non-GAAP earnings have grown at a compounded rate of 16% and 32% respectively.
As we've said before we manage the business to a trend line model. Our updated 2024 earnings model shows improved growth trend lines, reflecting our increasing confidence in the business.
These projections are not hockey sticks, they are consistent with our past performance and correlated to investment trends in semiconductor capacity and automation market drivers.
Along the way, we expect some years will perform above the trend line and other years below.
In test 2020 in 2021 were above trend line years, while 2022 will likely be below these year to year swings in customer buying patterns are a part of our market dynamics.
Our underlying business model with outsourced manufacturing and test is designed to efficiently absorbed. These dynamics also are good and improving gross margins give us increasing leverage within this dynamic.
The growth in volume and complexity of semiconductors that propels the test market is stronger than ever.
Our industrial automation portfolio is well positioned against macro trends and back to high growth. All of these dynamics should net out to attractive midterm growth of both sales and earnings.
With that I turn it over to Sanjay for more detailed Sanjay.
Thank you Mark good morning, everyone today I'll cover the financial highlights of Q4 and review the financial details of 2021.
Looking forward I'll provide our Q1 outlook and update our midterm earnings model and our capital allocation plans.
Now to Q4 revenues were $885 million and we delivered a non-GAAP operating profit of 31% and EPS of $1 37.
Semi test revenue of $592 million was strong across the board with notable demand for apps processor, and RF test and Soc, <unk> and higher speed Flash test in memory.
System Test group had revenue of $127 million up 23% year over year, driven by higher sales in storage test in defense and aerospace.
<unk> revenue of $52 million was up over 31% from the year ago period on Wi Fi six feet and early Wi Fi Seven Testament industrial automation revenue of $113 million was up 23% from the fourth quarter of last year on strong demand at both U R and mirror.
non-GAAP gross margins were 59, 5% unplanned down quarter over quarter due to lower volume and product mix.
You'll see our non-GAAP operating expenses were up $11 million to $253 million from the third quarter due primarily to ongoing industrial automation investments, we generated $302 million in free cash in the fourth quarter.
The non-GAAP tax rate, excluding discrete items for the quarter was 13, 6% and on a GAAP basis was 14, 75% for.
For the full year. It was 14, 5% on a non-GAAP basis, and 14, 75% on a GAAP basis.
We ended the year with cash and marketable securities of $1 5 billion.
Regarding debt to date $343 million of our convertible bond has been redeemed early and repaid we have a remaining face value of $117 million.
Turning to the full year results of 2021.
Teradyne revenues of $3 7 billion grew $581 million or 19% year over year.
$485 million of the growth was from our test portfolio, while IAA delivered $96 million of growth we.
We had one customer that directly or indirectly drove approximately 19% of our revenue in 2021.
Gross margins for the year were 59, 6% and operating profit was 33% up from 57, 2% and 30% respectively in 2020 non.
non-GAAP EPS was $5 98.
A 29% increase over 2020.
We generated $966 million in free cash in 2021, and returned $666 million through share repurchases and dividends.
Looking more closely at the components of 2021 revenue growth as Mark outlined.
Soc test revenues grew $371 million or 20% on strength in all market segments, but with particular growth in the compute industrial and automotive markets and memory revenues were $396 million up 3%.
<unk> test demand drove the growth in 2021.
In system test sales sales grew for the fifth consecutive year to $468 million up 14% from 2020.
All sub segments of system test grew in 2021 with storage test delivering the largest increase moving from $242 million in 2000 $20 million to $288 million in 2021.
Flight point is also wanted impressive growth path.
<unk> increased to $217 million, 25% above 2020 and has grown at an 18% CAGR since 2016.
Both drivers included the production ramp of Wi Fi six Wi Fi seven engineering systems and <unk> expansion.
It's notable that uwp.
It is early in its market penetration and we expect our long term growth trajectory as new applications for this technology emerge.
In 2021, IAA revenue was $376 million up 34% from 2020 $280 million level.
You are grew 41% to $311 million, while Mir grew 42% to $64 million.
<unk> sales were under $2 million in 2021, as we continue to reposition that group for sustainable long term growth in.
In 2021, we managed through numerous supply constraints at U R and mirror without a material impact on sales.
We expect those constraints to become more severe and expect they may impact the timing of some shipments in the first half of 2022 weeks.
We've considered that in our guidance.
Now to work now to our outlook for Q1 <unk>.
Sales are expected to be between 700, 777 770 <unk>.
Okay.
Sales are.
Our expected to be between $700 million and $770 million non-GAAP EPS range of <unk> 76 to <unk> 98 on 175 million diluted shares.
Our first quarter guidance excludes the amortization of acquired intangibles and the noncash imputed interest on the convertible debt first.
First quarter gross margins are estimated at 58, 5% and 59, 5%.
First quarter Opex running at 33% to 36% of first quarter sales.
The non-GAAP operating profit rate at the midpoint of our first quarter guidance is 24%.
Looking at 2022, our first half 2022 outlook is down from 2021.
This will be felt in the first and second quarters with expected Q2 company sales to be about 25% lower than Q2, 'twenty one levels.
Regarding our Opex plans for 2020 to Opex growth of 11% to 13% as expected with the majority of the incremental growth.
This will likely put our opex above model in 2022 before coming back to model in 'twenty three.
The Opex investment this year is targeted at R&D to improve ease of use broadened our robot product lines and.
And strengthen our go to market capabilities all in support of long term sales and earnings growth.
Turning to capital expenditures.
Expect capex to be approximately $160 million.
For 2022, our GAAP and non-GAAP tax rate is estimated at 15% based on current tax laws.
Moving to our earnings model, we expect test Nia growth will drive 2020 for company revenue to $4 9 billion in.
And non-GAAP EPS to $8 at the midpoint of our updated model gross margin is estimated at 59% to 60% a 100 basis point increase from the prior model and is based on product mix and operating leverage from higher revenue.
Opex as a percent of sales will decline to 26% to 28%.
And on non <unk>, and non-GAAP operating margin expected to be 31% to 34%.
The model assumes current tax laws.
As shown on the supporting slide the new model is in line with the trend line performance.
Now, let me provide a little color.
2021, non-GAAP EPS of $5 98.
We've achieved our previous 2024 earnings model three years earlier on the strength of our test businesses as we've done in the past when building our earnings model, we considered the year on year demand swings that occur in both test and IAA, but we evaluate our growth on a trend line versus any specific year. Therefore as in past models.
We we use the average of 2020 in 2021 revenue as the baseline for our projections.
From that baseline we expect.
Test revenue to grow at 7% to 11%.
Compounded and IAA revenues to grow 32% to 45% through 2024.
Both growth rates are significant increases both in absolute and relative terms from our earlier model.
In semi test, we expect long term growth will be driven by the steady increase in device complexity across our businesses along with high single digit semiconductor unit growth the transition to three nanometer and gate all around technologies will drive complexity growth and higher transistor densities.
Increased test data collection for process yield learning and longer test times.
The complexity point is illustrated by looking at the recent market size trends when taking an average of 2018 in 2019, the ATV market size was approximately $4 billion.
In 'twenty, one and 'twenty two the average will be approximately $6 billion.
Our earnings model assumes continued growth in the ATV market and we believe Dolby UFC capex as a leading indicator of future test demand.
This capacity is being put in place to service favorable semiconductor end market trends.
First the compute market is benefiting from the growth of both <unk> six and arm based solutions.
Higher performing solutions at a faster cadence than in the past.
The arm solutions include new Hyperscale applications, along with AI devices towards the data center and edge compute.
Automotive market is elevated to a higher level.
Increases in electric and autonomous driving are pushing the growth and complexity and number of chips per car.
Third the analogue industrial end market is expected to continue to operate at a higher.
At a higher level as the digitization of industry continues to broaden.
And we're attacking an attractive and sustainable long term growth opportunity.
The market penetration of co bots autonomous mobile robots remains below 3%, while the range of applications. They economically serve continues to expand.
Our strategy is to drive penetration higher in existing markets and grow the number of new applications and new industry verticals.
To enable this strategy, we continue to lean into our Opex investments will operate the business with the target operating margin of 5% to 15%, while we invest to drive growth and reinforce our competitive position.
We don't expect the growth rate to moderate in the midterm, but at the point in the future that it does we'll dial back the opex growth and expect operating margins above 20%.
In 2022, we expect will operate towards the low end of the 5% to 15% range.
Shifting to capital allocation.
We will continue our balanced strategy. This year will increase our quarterly dividend by 10% to <unk> 11 per share in 2022.
Regarding our share repurchases in 2021, we bought back 4 million shares for $600 million.
At an average price of $125 74.
In 2022, we expect a minimum of $750 million of repurchases, reflecting our confidence in our operating model and the end markets we serve.
In summary, 2021 was a record year for sales and earnings our global team delivered.
Our global team continued to deliver extraordinary results in a challenging environment.
The team's success in balancing customer demands and business needs amidst a constantly changing collection of pandemic induced constraints was impressive as we look ahead on term growth trends in our end markets remains strong and we've updated our model to reflect that outlook.
While we expect 2022 will be below the long term revenue and earnings growth trend lines. We're confident in the long term trends in our markets and our ability to thrive in them.
With that I'll turn things back to Andy.
Thanks, Sanjay Michelle would now like to take some questions and as a reminder, please limit yourself to one question and a follow up.
Thank you.
If you have a question at this time. Please press Star then one.
With your question.
You remove yourself from the queue. Please press the pound key.
First question comes from the line of Matt <unk> with CF with <unk>. Your line is open. Please go ahead.
Yes, thanks for taking my question.
I think it will be great. If you could give us some more detail.
As it relates to your largest customer.
Sure.
Commentary on 2021.
19% contribution is insightful.
Given your.
<unk> 22 suggests that we're on a two year digestion period I understand at three nanometer, which has been known for six months, but I think expectations.
<unk> was for higher unit shipment for that particular customer to make hopeful.
Push out the three nanometer.
And it seems like that's not enough and again, we go back to two year digestion and I'm wondering if you can comment on whether I just.
And as a follow up.
Sure Mehdi.
Of course, I'm, not going to divulge too much about our specific customer because that wouldn't be appropriate, but I'll give you some additional color. So.
So I wouldn't call last year, a digestion period first of all.
Last year, we had tremendous growth outside of that concentration, which sort of brought to bear.
A portion of our revenue from the low twenty's down below 20%.
So it was really growth elsewhere that drove down.
Down a bit versus.
Digestion.
The.
The phenomenon this year is <unk>.
Something that has been in whether we attribute it to a variety of things such as complexity growth due to unit volume I think I don't want to comment too much about that because again it gets into some proprietary information but.
The latest news we have is that as we've indicated there will be a pretty significant reduction here in the first half of the year, which is usually the big ramp of tooling.
Sure.
Fall launch of new products.
<unk>.
We've quantified that as best we can the second half, we don't see but typically tooling starts in March it peaks in the second quarter and a little bit dribbles into July so thats, where we will feel the impact.
Got it thank you.
A quick follow up on IAA.
One is you mentioned that.
For 'twenty, two operating margin target.
5% at the low end, perhaps you can give us some color on the otherwise see difference between IAA and ultimately the test and what is it that you're.
Looking at in the longer term that would make a continued opex investment.
Attractive and perhaps maybe otherwise you'll have some other metrics could help us to better.
Think about the investments that you're making.
Yes, So hi, Matt it's Sanjay so I think the.
Later part of the question first.
As we see revenue continue.
To grow and with the penetration of the market of less than 3%, we're going to continue to invest.
In fast and driving competitive advantage broadened the portfolio go to market.
Across the board in engineering and go to market to continue to capture the market share from a profitability or leverage perspective.
Moving more towards the ROIC comment is.
Fundamentally when the market starts to slow and growth starts to slow at some time in the future and we haven't considered that within our midterm, we don't see that growth moderating over the midterm with our 32% to 45% growth at that point is when we will lower the investment.
I will comment another point on the ROIC as our gross margins in that segment are above the corporate average.
So we will start to see a much higher return on the invested capital when revenue starts to.
<unk>.
Moderate the growth starts to moderate but fundamentally we are leaning into opex to really capture that market.
Thank you.
Thank you and our next question comes from the line of John Pitzer with Credit Suisse. Your line is open. Please go ahead, yes.
Yes. Good morning, guys. Thanks for letting me ask my questions Marc.
Last night Advantest reported overnight and I think it's always a little bit dangerous to compare because starting points can be different but I think they guided kind of their view of the SSC market up about 16% this year versus yours.
Flat I'm, just trying to and it's off the same growth rate that you have for 'twenty one.
Guess I'm, just trying to square the circle as to whether or not I should view your guidance as being particularly conservative or is the way you square. The circle just your relative customer concentration I guess, if you look outside your largest customer how do you see the SFC market trends for this year.
Yes, it's a good question I saw those numbers too.
I think theres two phenomenon that you cited going on I think we are a bit lower than them.
In terms of the annual market size guide part of that.
Is due to the.
The fact that probably.
What our largest concentration is doing this year is somewhat opaque to them.
And so thats a factor thats, probably not in there.
Their numbers.
And.
I do think if you look at the rest of the market excluding that high concentration of ours there is growth.
This year in the market with what we expect.
So.
So probably if it's almost probably 50 50.
It gets the difference.
That's helpful. And then secondly, just going back to <unk> question on the IAA business I think I understand the dynamic of growth rate to op margin, but is there sort of a revenue level of IAA, where you would expect to see scale take over or is this a business that the fast year growing.
The more you have to build out channels I'm just kind of curious is there a revenue level that we can expect you guys hitting and some time out in the future Thats just going to drive some natural operating leverage in that business.
Yes over the midterm in our model, we are seeing a little bit of that play out as revenues grow share the fixed certain fixed costs are going to gain on that leverage, but but I'd ask you to think about it as we grow into different vertical and the applications within those verticals, we're really building both engineering.
<unk> <unk>.
Capability in our product reducing friction.
In those different verticals of how we can get to reducing the time of implementation significantly. So a significant portion is tied to R&D as well as scaling the go to market in different territories and different segments.
But the quick answer is as I said earlier there is some of that scale. We are seeing in the midterm and we will see that come in.
I just wanted to reinforce the point that we continue and plan to continue to invest in broadening the portfolio, reducing friction of implementation and really go to market investments.
Thanks, guys.
Thank you and our next question comes from the line of Vivek Arya with Bank of America. Your line is open. Please go ahead.
Okay. Thanks for taking my question. So my first.
First one I'm curious mark how much does test intensity change as you move from five or four nanometers to 10 nanometers and gig.
Turnaround and is this a step function in 2000, and then it stays flat in 'twenty four or is it a growth from 2004. So just.
Sexually how much does.
Intensity of complexity, but to everybody you want to quantify it.
The change from five four nanometers to 10 nanometers and gate all around.
Okay. There's a couple of ways you can look at it maybe the the economic way to look at it with just look at history a little bit.
When we see a major node transition in the industry you can see that the tester market.
<unk> market.
Our revenue sort of grows faster.
Then, let's say two years into a node so economically if you look at that sort of.
And you can kind of see that in this in the charts, we published with the earnings deck that shows the revenue trends against the trend line over time certain years or above the trend line. So those tend to correlate to win new nodes get introduced and the new nodes enable a big jump economically a big jump in transistor count and transistor count is what drives.
Our business more transistors means more test times means more testers.
So the last part of this is it takes a couple of years for a new node to sort of reach.
Sort of.
Normalized volume so when the first year of production, let's say to three nanometer next year.
Maybe three nanometer will grow to somewhere around 12% plus or minus of semiconductor revenue next year, maybe it's 10, maybe it's 13 something like that in 2024, it will continue to ramp and maybe it will represent closer to 2025%.
So we will see a couple of years.
Benefit from three nanometer.
Is it sort of grows in its contribution to the overall semiconductor revenue stream.
Got it and for my follow up I.
I am curious what is your current exposure to <unk> modems, and how should we think about how it evolves.
From 2023, both from a unit and content.
Thank you.
Modems are.
Yes.
A strong area for us.
The dynamics are changing a bit there because more and more cell phone manufacturers are starting to build their own modems.
So there's been a sort of a disaggregation of that market.
And by and large that's.
A positive trend for us because the.
The relative share position, we have let's say the established suppliers of modems.
<unk> was below our average share in the market and our share at the disaggregated newcomers that are building their own modems is higher.
So we look at that as a positive.
And is that contemplated in your 2000 outlook, yes. It is.
It is complement it is contemplated yes.
Okay. Thank you.
Thank you and our next question comes from the line of BR.
QE with UBS. Your line is open. Please go ahead.
Hi, Thanks, a lot.
I'm wondering mark can you breakdown the $4 $8 billion <unk> in 2021 into the different segments mobility and compute in autos and industrial and all those kind of things and then also can you give us some sense of.
If you assume the market is flat, which I'm going to ask you a follow up it's hard to believe that the market would be just flat, but but if you assume it is can you talk about how you would see the mix shifting in 'twenty two and then.
I had a follow up as well.
Okay.
I'll give you the numbers by the segments as we currently.
See them today and of course. These are estimates for 2022 and 2021 for that matter, but the compute market. As an example, we think last year. It was about a $1 $1 billion ATV market and we think thats going to grow this year to about one three.
This growth in the compute segment mobility last year was about $2 billion.
That will come down to one eight.
Much of that is due to the mark are concentrated area.
Automotive and MCU, we think is flat at about a half a billion dollars year over year.
Industrial's.
Down slightly probably 600 million to $500 million.
And then the service business will grow maybe $100 million from $600 million to $700 million.
Got it okay. Thanks.
I guess I had a question just on.
I mean, having followed this industry for 25 years.
The relationship I mean, it doesn't hold true every year between W. E T.
Market size.
But some of maybe what youre seeing in the SSD market is because some of the W. E suppliers are struggling to get tools installed and whatnot, but once those tools get installed.
You're going to have to test as chips and if you compare the size of the <unk> to the size of the you compare non memory memory.
You have a $60 $65 billion non memory WMC Tam this year and if the Soc Tam is only $4 8 billion I mean, we've never seen a ratio anywhere close to that low. So it would either say that that number. This year has to be a lot higher as that stuff gets installed or you make it up next year can you just sort of talk.
Talk about that I know that you guys look at those numbers, but it just seems sort of hard to believe that the ratio would be.
<unk>.
Youre absolutely right.
And the reason is kind of what you hinted at the.
At the time, it's taking to bring up three nanometer is longer than traditionally its taken to bring up a new note, we're kind of stretching it into a three year.
Window. So the tool a lot of a lot of the tools by the way have been put in place.
Some are a little bit constrained by supply, but a lot of them have been put in place, but tuning the recipe getting it ready for ramp and then the cycle the process cycle time for the wafers themselves is longer.
Once once mass production switch turns on its incrementally longer to crank the wafers through.
The whole recipe.
In the prior node so there is a throughput.
So all of that kind of moves.
Impact of three nanometer to 2023.
But the ratios that you talk about is why we've when you look at this carefully too in our midterm earnings model has increased so significantly compared to a year ago, because all of this equipment going into support this new technology is about wave coming our way and the only all the unfortunate thing is its.
It it didn't make it for 2022.
Got it okay. Thanks Mark.
Thank you and our next question comes from the line of James.
<unk> with Citi. Your line is open. Please go ahead.
Yes, Thanks for taking my question Mark as a follow up to tims.
<unk>.
About the wip relation given that you have.
Very low almost no exposure to <unk> six.
It related spending which is a very big portion of the BSP This year and next year.
I mean, how should we think about.
I mean, I think that correlation it probably breaks down because you don't have.
A lot of exposure data in their spending.
Income from government and whatnot and then.
What about things like advanced packaging and heterogeneous compute if you can talk about.
<unk>.
Yes.
Attach rates become a meaningful driver for those end markets.
Yes.
So.
Okay.
There is let's say teradyne's growth and the market growth to think about and the X 86 World. For example, in 2022 was quite anemic, whereas teradyne's business was quite strong that year.
Because of where we're concentrated in which customers are tooling.
In 2020 to the X 86 World.
I think is going to be more robustly tooling than last year even.
And we won't benefit much from that this year. So that in fact is a true dynamic.
And then other things happening with advanced packaging and chip lifts and all of that.
<unk> R.
Moving I would say modestly into the market as they moved in cell phones, a while ago, but in compute that's something I think that we're probably not going to feel until 2020 for maybe three nanometer will come first.
And then the sort of ubiquitous.
Ubiquitous use of different kinds of advanced packaging will follow shortly thereafter, but but the two things won't jump on top of each other just because the I think the yield concerns of two new technologies at once <unk>.
Keep them staggered.
Great.
Follow up for Sanjay.
Is there any impact from supply constraints and in your guidance for the March quarter that other suppliers have talked about getting.
Getting hit from labor shortages.
<unk>.
Issues.
Sure.
I'd say the supply impact in Q4, there's really no material supply.
Supply impact on sales, but in Q1, I'd say, we have about $30 million to $40 million worth of supply risk, which we've contemplated in our updated revenue guide.
None of this will result in a share loss it will just be.
Pushed into Q2, but.
Little bit of commentary on the supply environment.
Fundamentally we see the supply tightening in 2022.
Many more semiconductor players are going into formal allocation.
Which is incrementally.
Indicates end of incremental tightness in the market in 2022.
We were under the impression that in the second half.
2022, with the fab in substrate investments the supply demand dynamic would alleviate and the tightening with loosen. However, our view currently is that that's being pushed out to the first half of 2023 really based on the discussion with our supply chain partners.
And so while the fab in substrate capital is being deployed and increasing supply we still see tightness over 2022.
Thank you.
Thank you and our next question comes from the line of Toshi Hari with Goldman Sachs. Your line is open. Please go ahead.
Good morning, Thanks, so much for taking the questions I had two as well one on the semi test side and the other on IAA.
Mark I think in your prepared remarks, you talked about Eagle test.
Sort of a platform growing 90% year over year, I think thats very consistent with some of the Tam numbers.
You just gave out.
In response to a prior question just curious how youre thinking about Eagle test in 'twenty two.
When we listen to your customers talk about their capex intentions.
Not only in the wafer processing, but also in test.
The posture is really aggressive whether it be ti or FTE or.
On a micro chip I mean long long list of customers.
Just curious how youre thinking about Eagle test and wiser Tam estimate flattish year over year.
Yes, so there's a couple of things going on there so that the Eagle test product and the thing that we usually talk about called automotive tends to be more of the traditional.
Power related semiconductor content in an automobile.
So as the supply.
Supply chain needed to be replenished last year and automobile production started to come back up.
A lot of the.
Traditional airbag control.
Anti lock brake control all of those things.
Drove eagle demand and we think this year for Eagle.
Are those kind of devices will be similar to what it was last year, so not growth and as I said the market is well not growth.
However, there is another thing that we're having a harder time classifying as automotive which is the digital content of automobiles, we tend to put that.
At the moment in the compute market.
And those <unk>.
Vance.
Controllers are something that is more targeted and put on our ultra flex platform.
So we are expecting to see some growth there for applications automotive applications that our digital content, but for the moment at least because it's it's somewhat nascent and growing its pocketed in compute.
Got it. Thank you for that and then as my follow up on the on the <unk>.
Syed.
I guess I'm curious.
Why wouldn't this business grow faster.
In the near term I realize you've got supply constraints, but when you think about the business on a three to five year basis.
440 ish percent growth certainly not not bad growth, but given the penetration rate of cobalt. So you guys have talked about.
The labor shortages.
With wage inflation I'm guessing payback periods are shorter so so from a user perspective I feel like it's a no brainer, particularly with Covid and all these things going on so is it manufacturing capacity as a distribution I think in the past you guys have talked about getting the word out as kind of an important dynamic as you as you grow that business.
But why wouldn't does grow 60, 70, 80% as opposed to $35 40. Thank you.
Yes.
That is the million dollar question that that I ask every day.
<unk>.
Because youre absolutely right. The dynamics are there the ROI is there everything is there.
The biggest obstacle to.
Sort of faster growth is the unfortunate fact that to deploy a cobalt takes a human.
And it takes it skilled human a technician today to spend some number of weeks depending on the application putting it into production and therefore, we're somewhat.
Constrained by the same labor.
Supply issues.
All global industry is experiencing.
We're growing that 30 plus percent a year that army and its not an army that we ourselves are higher as much as it is an army that our distribution partners higher.
And they are but there are some practical limitation on how quickly they can hire and train. So the way out of this bottleneck is to make that deployment time quicker and quicker and quicker which is why we are actually growing faster than we're growing the human fleet of people to install these things. So we've got to widen that gap we have to get.
To grow 50% only takes 10% more people for example.
In the applications deployment space, but thats the biggest single thing.
And we're working on that we're planning in the model, we presented here with growing continuing to grow at this sort of.
$30 to 45% rate through 2024, or assuming that every year, we're going to make progress on that efficiency.
Very helpful. Thanks Martin.
Thank you and our next question comes from the line of C. J Muse with Evercore. Your line is open. Please go ahead.
Good morning. Thank you for taking the question I guess first question Marc if I go back to kind of your commentary.
Three or four months ago.
It certainly sounded like.
The breadth of spending at your largest customer combined with diversification share gains elsewhere and kind of new arm based emerging players gave you the confidence that even if your top.
Customer awarded decline in 'twenty two.
You would still be well positioned but now youre guiding to an SFC test market.
Two advantages that is $700 million lower.
You told us that your largest customer was 19% which is about $700 million. So are you basically telling us that you are taking your largest customer to zero this year.
And I guess why would that change so dramatically kind of in the last three to four months.
I think that it was widely known at three nanometer was going to be a very kind of small node in 'twenty two much larger 23. So curious what really has changed in the last three to four months.
In your view.
Well I think the.
Certainly the macro number around how much our largest customer represents revenue last year was right around 700 million at 19% of revenue no. It is not going to zero.
It's going to probably be below 10, so the magnitude I think that the change that has occurred represents is larger than we would have expected.
And I think that.
The transparency and even now the amount of visibility into what that will be is still vague.
So it's not something that we typically get.
Full confirmation of it until April of this year so to speak.
So we're kind of working on the <unk>.
Most recent inputs that we've received and I think they're fundamentally as I have said in the past there's always multiple scenarios in flight with.
The area were concentrated in as to how the year can play out and there is a range of forecast that we get that get updated along the way.
And those can swing dramatically as they have done. This time, so I don't have any more insight than that or anything that I think is a prudent to share around what changed with that large account, but I do think.
If you go from $700 million below 10% ish, probably this year.
That's a big.
Portion of the Delta between perhaps what advantest is guiding and we're guiding and then we're down into 5% difference on our forecast for the year.
It could be.
Either way it could be either way I don't think theres, a lot of precision in that on our side or theirs, but.
I think we're pretty close.
Very very helpful.
I guess my follow up question on your target model you are talking about test revenues growing at 7% to 11% CAGR I'm, assuming that that's kind of your underlying.
Growth rate for semi test.
I'd make that assumption then your system tests, plus late point plus HDD.
Revenues essentially are like down $200 million.
In three Years' time, so I guess.
Are you, assuming a slower kind of growth CAGR for semi test or.
Is there something else going on in kind of the other bucket.
Yeah, Hi, it's Sanjay here. So yes. So overall test is growing 7% to 11% obviously semi test is the largest component.
Of our test portfolio, but.
Think of our other businesses is growing marginally in test.
Marginally at the same level of marginally a little bit.
Higher.
Thank you.
Yeah.
Thank you and our next question comes from the line of.
Krish Shankar with Cowen and company. Your line is open. Please go ahead.
Yes, hi, Thanks for taking my question I had two of them.
Thanks for the color on the Soc market size by segments you.
You mentioned that compute should grow to about $1 3 billion from $1 1 billion last year I'm just kind of curious if you can help give a little more color on that on the split between 86 and non <unk> 86 and as.
One of the large U S IDM start doing more foundry business.
Is that an opportunity where they would start looking at outside platforms versus.
<unk> declined as Soc testers, and then had a follow up.
Yes.
Wouldn't attribute it all to X 86, we used that as short hand, sometimes in these conversations but theres other.
Areas like graphics chips.
And <unk> that are also part of that compute things that are growing this year.
So the collection of X 86, plus graphics and.
FPGA is would be the driver.
Of that.
What was the second part of the question.
Andrey.
So yeah, yeah, yeah. So the thing is.
I do believe there is no doubt that.
Yes.
Our companies getting into the foundry business theyre going to have to accommodate external test platforms.
The only thing is that just because there is a new foundry player doesn't it sort of.
It doesn't change the overall global market Theyre, just stealing share from some other foundry who would also by commercial test equipment. The real question is for their internal product development.
Will they shift to commercial equipment, where today they use in house equipment and that.
Let's wait and see it's we're not assuming that in any of our midterm plan. So this plan through 2024 does not assume any of that but you can imagine that the cost.
Of continuing to invest in that is.
Hi, and the rate of the roadmap change now for <unk>.
<unk> six manufacturers is quite high it used to be a very slow predictable cadence and now the competition has heated up and its fast and furious it's harder and harder for the internal tester group to keep up with that so we don't assume it's going to happen, but I think the.
Cards or sort of played in a way that suggests it's probably going to happen maybe not by 'twenty four but certainly out in the next four or five years.
That would be my bet.
Got it fair enough fair enough Super helpful and then.
Just a quick follow up.
Two part question if I can.
On the <unk> side.
Throughput a shoe for you then.
As the industrial robotics folks that getting into down the payload it seems like it might be faster than the cobalt is that an issue from your vantage point and then just a quick follow up as well.
I think the advantage when they talk about their Soc market. So this isn't it.
You guys do not.
What do you think services would be just hear what it was last year, maybe if you can explain a couple of hundred million dollars difference maybe.
Yes.
First on the <unk>.
Speed of the robots question, yes, yes.
Traditional.
Industrial robots tend to have much faster cycle times, they can pick them move in place things at lightning speed, that's partly why they're dangerous partly why they're in cages.
Kept away from people.
And those products have been around for decades, frankly decades.
<unk> robots is really opening up a whole new application space, where those 20 year old fast products Couldnt perform for some reason either because.
The cost of <unk>.
Isolating them from humans was too high or the the flexibility that they had in terms of repeatability and such wasn't good enough or the time to changeover for a higher.
Mix.
Environment.
Onerous, if it's picking up one thing in moving one thing.
In times of minute.
For years, it's the right solution and it's been solved.
So <unk> is a brand new thing it's all of the places those things didn't makes sense that we're opening up with cobalt.
And I think that's what excites.
Exciting so I don't think Theres any news there and your last question was serviced in the Tam and the Tam yeah.
I think we estimated somewhere in the 6% to $700 million range I, frankly don't know what advantest estimates on that but it's probably close.
Thanks Mark.
And operator, we have time for just one more question. Please.
Alright, and our last question will come from the line of Brian Chin with Stifel. Your line is open. Please go ahead.
Hi, good morning, Thanks for squeezing us in Atlanta's ask a few questions I guess first on the semi test side.
On a quarterly basis, Mark it looks like the year over year declines might bottom out in <unk> and certainly first half but.
This lower first half revenue base.
Is it unfair to expect muted seasonality or do you think a typical sort of 52%, 48% first half second half relationships still applies given sort of your views for the Tam This year.
Yes.
Second we've proven in the last two years that were not good forecasting the second half of the year, but because of this abnormality in the first half I would expect on average that youre going to see a little more.
Sir.
Half waiting because we're kind of have this a little bit of an abnormal hole in the first so it wouldn't be a typical.
Year, there'll probably be a little more back weighted.
Okay, so not even level, but maybe even a stronger bias the second half.
Yes.
Okay.
Okay interesting and I guess on the industrial automation side.
Based on your commentary there's constraints in <unk>.
Do you expect year over year growth to slow near term to accelerate moving across the year can you give us a sense of the magnitude of revenue impact.
This is creating in first half and do you view that demand is perishable or are shifting into the second half.
Brian are you asking a question about supply.
Yeah.
The overlay of supply constraints against demand profile, you see in industrial automation. It sounded like there was a talk of some <unk>.
Constraints or even severe constraints in first half in that business.
And so I'm kind of wondering what that revenue impact that is and also if it just shifts the second half or if it's perishable.
Yes so.
The demand is quite strong and in Q1, a $30 to $40 million I noted about 10 of it is tied to IAA and.
And really just given the allocation for Q2.
<unk>.
Our commentary or my.
In my prepared remarks that had a little bit of the impact there. So it's true we are seeing some supply.
Impact in the first half, but I would say that from a first half second half we do expect.
Demand in revenue in the second half for IEA to be larger than the first half.
Okay, great great. Thanks Sanjay.
Alright folks we are out of time for those in the in the queue I'll follow up with you offline and thanks for joining us and we look forward to talking to you in the weeks ahead bye bye.
This concludes today's conference call. Thank you for participating you may now disconnect everyone have a great day.
[music].
[music].
[music].
Good day, and thank you for standing by welcome to the fourth quarter and full year of Teradyne earnings Conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need a press star one on your telephone please be advised that today's conference maybe recorded.
If you require any further assistance. Please press Star then zero I would now like to hand, the conference over to your host today.
Andy Blanchard Vice President of Investor Relations. Please go ahead. Thanks.
Thank you Michele good morning, everyone and welcome to our discussion of Teradyne's. Most recent financial results I'm joined this morning by our CEO , Mark together and our CFO Sanjay Mehta. Following our opening remarks, we'll provide details of our performance for 2021 fourth quarter and full year, along with our outlook for the first quarter of 2020 to.
The press release containing our fourth quarter results was issued last evening.
Providing slides on the Investor page of the website that maybe helpful to you in following the discussion replays of this call will be available via the same page after the call ends.
The matters that we discussed today will include forward looking statements that involve risk factors that could cause teradyne's results to differ materially from management's current expectations. We encourage you to review the safe Harbor statements 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 make no obligation to.
Update them as a result of developments occurring after this call during.
During today's call, we'll make reference to non-GAAP financial measures. We've posted additional information concerning these non-GAAP financial measures, including reconciliation to the most directly comparable GAAP financial measure where available on the investor page of our website looking.
Looking ahead between now on our next earnings call Teradyne will be participating in technology or industrial focused investor conferences hosted by Citi Morgan Stanley and Susquehanna.
Now, let's get on with the rest of the agenda first Mark will comment on our recent results and the market conditions as we as we enter the new year. Sanjay will then offer more details on our results along with our guidance for the first quarter. We'll then answer your questions and this call is scheduled for one hour Mark.
Good morning, and thanks for joining us in.
In our call today, I'll summarize 2000, <unk> fourth quarter and the full year and then comment on our early view of 2022.
Sanjay will then provide the financial details and review our updated earnings model and capital allocation plans.
While we forecast 2022 to be another solid year for teradyne overall sales will likely decline in the first half as we believe <unk> Soc test sales will be impacted by modest complexity growth in our largest market as the jump to three nanometer production is pushed to 2023.
More on that in a minute.
Recapping 2021, we finished the year strong, bringing full year sales non-GAAP earnings growth to 19% and sales growth to 20, sorry.
Sales growth of 19% GAAP earnings growth to 29% respectively.
2020 ones performance was the result of broad based growth across our test and <unk> businesses semi test sales grew about 17% with our ultra flex family contributing to the expansion into the compute sector and Eagle product line, serving the automotive and analog industrial sectors growing nearly 90%.
For 2021, we estimate the Soc market was about $4 8 billion up from $3 6 billion in 2020, which puts our market share at about 46% for the year.
The memory market in 2021 was about flat with 2020 at approximately $1 billion. Our Magnum family continues to shine in the NAND segment, and we're reinforcing our position in the DRAM segment as the industry prepares for LP DDR, five and DDR five ramps in 2022 and beyond our.
Our share remains at about 40%.
Light points wireless test business had a great year growing 25% from 2020, the global demand for connecting and tracking just about everything machines materials and people is nearly insatiable.
Light point is well aligned to this trend with products that simplify testing of the expanding range of wireless standards.
In networking with Wi Fi, six and seven and location tracking with ultra wideband and cellular with five G are numerous other standards the rate of technology change continues unabated, which is great for our business.
Moving to our industrial automation business that you are sales were up 41% from 2020, we continued to expand the number of U R plus partners and certified plug and play apps with Assembly machine tending and Pelletizing among the most popular of the more than 375 available apps.
We also continue to broaden our reach beyond existing markets often with OEM partners.
One exceptional example is our expansion into welding applications, where we finished the year with a growth of more than three X about 2020 levels welding applications now account for more than 6% of our sales.
At near full year sales grew 42% from 2020 on the strength of our new higher payload mirror $2 50, $613 50 kilogram <unk>.
It's also notable that the value of mirror <unk> with advanced Fleet management software is amplified as the size of the robot fleet grows.
We saw this play out last year with large account sales those with the potential to deploy hundreds of units growing nearly 50% faster than the installed base at large.
Looking ahead to 2022, the long term drivers that power our growth in test and industrial automation are strong in fact as you will hear from Sanjay Our updated 2024 earnings model reflects an expected higher growth in sales and profits for both areas.
However in 2022, while the X, we expect our business to power along with 35% plus growth, we see our Src business likely contracting during the year as the shift to three nanometer volume production is pushed to 2023.
You can begin to see some of this effect in our <unk> guidance as we usually see the beginnings of our summer ramp in March.
We expect <unk> to show similar effects as it's usually our peak tooling period for our largest market.
As a result, we are modeling first half sales down 15% to 20%.
We don't expect the impact of this to extend into the second half we expect demand to accelerate again in 2023 as we begin to see the complexity growth related to investments for three nanometer gate all around and advanced packaging overall, we expect the 2022 Soc market to be similar in size to 2021 at <unk>.
<unk> four $6 billion to $5 billion.
Shifting to memory test, we expect the market in 2022 to be in the $900 million to $1 $1 billion range.
Which with a mid point that is similar to 2021.
We expect spending will be weighted towards DRAM as LP DDR five adoption expands and DDR five for server applications ramp.
In the past the shift to spending in DRAM would be a significant headwind for us, but we expect we will maintain our share at about 40% in 2022 as our Magnum epic DRAM tester grows in market popularity.
In system test after five years of high growth driven by the storage test product line, we expect 2022 to be a digestion year with sales of softening slightly wireless.
Wireless test at light point, however is expected to fill that revenue gap. So we expect the combined system test and wireless test will be about flat with 2021.
Shifting from test to industrial automation, and our business outlook is brighter than ever as I noted in our last call the penetration rate of both collaborative robots and autonomous mobile robots is under 3%.
The economic environment is favorable with worker shortages the movement of production capacity closer to end markets and a relentless drive for higher quality and safer operations, all helping to drive demand.
The opportunity in front of US is immense and we are investing to exploit it to the fullest.
At the IAA segment level, we've increased our long term revenue growth rate and expect our sales in 2022 to grow more than 35% off a 2021.
Sanjay will provide a long term modeling details, but the key point is the investments we've made and will continue to make position us for both short and long term success in this expanding market.
Expanding OEM relationships and served markets is a key part of our strategy like the welding initiative that is bearing fruit, we have several others in flight.
One example is an e-commerce , one of our partners nimble robotics uses AI unique grippers and clever software on our U R. Cobalt platform to pick consumer goods and high volume warehouse operations for numerous national brands.
I have seen the recent Wall Street Journal article complete with photos of the solution in action.
Their innovative solution dubbed goods to robot.
Compliments automated storage and retrieval systems widely used in e-commerce .
Our cobalts ease of use and durability are a natural for this application.
All over 15 million items across 500000 unique products have been picked to date as nimble executes an ambitious growth plan and the E Commerce space.
Another driver of growth in IAA has been the growing use of <unk> to improve the competitiveness of local manufacturing to support re shoring of production.
Pentech finish maker of high quality ceramics is a good example, they've added automation to allow skilled craftspeople to focus on high volume and high value tasks. While you are co bots do the repetitive and physically demanding one such as glazing and finishing of ceramics.
To summarize 2021 was another year of impressive growth at teradyne and caps, a five year stretch where sales and non-GAAP earnings have grown at a compounded rate of 16% and 32% respectively.
As we've said before we manage the business to a trend line model.
Updated 2024 earnings model shows improved growth trend lines, reflecting our increasing confidence in the business.
These projections are not hockey sticks, they are consistent with our past performance and correlated to investment trends in semiconductor capacity and automation market drivers.
Along the way we expect some years will perform above the trend line in other years below in test 2020 in 2021 were above trend line years, while 2022 will likely be below.
These year to year swings in customer buying patterns are a part of our market dynamics.
Our underlying business model with outsourced manufacturing and test is designed to efficiently absorb. These dynamics also are good and improving gross margins give us increasing leverage within this dynamic.
The growth in volume and complexity of semiconductors that propels the test market is stronger than ever our.
Our industrial automation portfolio is well positioned against macro trends and back to high growth. All of these dynamics should net out to attractive midterm growth of both sales and earnings.
With that I turn it over to Sanjay for more details Sanjay.
Thank you Mark good morning, everyone today I'll cover the financial highlights of Q4 and review the financial details of 2021.
Looking forward I'll provide our Q1 outlook and update our mid term earnings model and our capital allocation plans.
Now to Q4 revenues were $885 million and we delivered a non-GAAP operating profit of 31% and EPS of $1 37.
Semi test revenue of $592 million was strong across the board with notable demand for apps processor, and RF test and <unk> Soc and higher speed Flash test in memory <unk>.
System Test group had revenue of $127 million up 23% year over year, driven by higher sales in storage test in defense and aerospace light point revenue of $52 million was up over 31% from the year ago period on Wi Fi six.
In early <unk> Wi Fi seven Testament industrial automation revenue of $113 million was up 23% from the fourth quarter of last year on strong demand at both <unk> and <unk>.
non-GAAP gross margins were 59, 5% unplanned down quarter over quarter due to lower volume and product mix Youll.
You'll see our non-GAAP operating expenses were up $11 million to $253 million from the third quarter due primarily to ongoing industrial automation investments, we generated $302 million in free cash in the fourth quarter.
The non-GAAP tax rate, excluding discrete items for the quarter was 13, 6% and on a GAAP basis was <unk> 14, 75% for.
For the full year. It was 14, 5% on a non-GAAP basis, and 14, 75% on a GAAP basis.
We ended the year with cash and marketable securities of $1 5 billion.
Regarding debt to date $343 million of our convertible bond has been redeemed early and repaid we have a remaining face value of $117 million.
Turning to the full year results of 2021.
Teradyne revenues of $3 7 billion grew $581 million or 19% year over year.
$485 million of the growth was from our test portfolio, while IAA delivered $96 million of growth.
We had one customer that directly or indirectly drove approximately 19% of our revenue in 2021.
Gross margins for the year were 59, 6% and operating profit was 33% up from 57, 2% and 30% respectively in 2020 non.
non-GAAP EPS was $5 98.
A 29% increase over 2020.
We generated $966 million in free cash in 2021, and returned $666 million through share repurchases and dividends.
Looking more closely at the components of 2021 revenue growth as Mark outlined.
Soc test revenues grew $371 million or 20% on strength in all market segments, but with particular growth in the compute industrial and automotive markets and memory revenues were $396 million up 3% NAND test demand drove the growth in 2021.
In system test sales sales grew for the fifth consecutive year to $468 million up 14% from 2020.
All sub segments of system test grew in 2021 with storage test delivering the largest increase moving from $242 million.
In 2000 $20 million to $288 million in 2021.
Flight point is also on an impressive growth path sales increased to $217 million, 25% above 2020 and has grown at an 18% CAGR since 2016.
Growth drivers included the production ramp Wi Fi six Wi Fi seven engineering systems and <unk> expansion.
It's notable that uwp.
Is early in its market penetration and we expect our long term growth trajectory as new applications for this technology emerge.
In 2021, IAA revenue was $376 million up 34% from 2020 $280 million level.
<unk> grew 41% to $311 million, while Mir grew 42% to $64 million.
Auto guide sales were under $2 million in 2021, as we continue to reposition that group for sustainable long term growth.
In 2021, we managed through numerous supply constraints at you are amir without a material impact on sales.
We expect those constraints to become more severe and expect they may impact the timing of some shipments in the first half of 2022.
We've considered that in our guidance.
Now to work now to our outlook for Q1 <unk>.
Sales are expected to be between 700, 777 770 <unk>.
Yes.
Sales are expected to be between $700 million and $770 million non-GAAP EPS range of <unk> 76 to <unk> 98 on 175 million diluted shares.
First quarter guidance excludes the amortization of acquired intangibles and the noncash imputed interest on the convertible debt first.
First quarter gross margins are estimated at 58, 5% and 59, 5%.
First quarter Opex running at 33% to 36% of first quarter sales.
non-GAAP operating profit rate at the midpoint of our first quarter guidance is 24%.
Looking at 2022, our first half 2022 outlook is down from 2021.
This will be felt in the first and second quarters with expected Q2 company sales to be about 25% lower than Q2, 'twenty one levels.
Regarding our Opex plans for 2020 to Opex growth of 11% to 13% as expected with the majority of the incremental growth.
This will likely put our opex above model in 2022 before coming back to model in 'twenty three.
The Opex investment this year is targeted at R&D to improve ease of use broadened our robot product lines and strengthen our go to market capabilities. All in support of long term sales and earnings growth.
Turning to capital expenditures, we expect capex to be approximately $160 million.
For 2022, our GAAP and non-GAAP tax rate is estimated at 15% based on current tax laws.
Moving to our earnings model, we expect test Nia growth will drive 2020 for company revenue to $4 9 billion.
And non-GAAP EPS to $8 at the midpoint of our updated model.
<unk> margin is estimated at 59% to 60% a 100 basis point increase from the prior model and is based on product mix and operating leverage from higher revenue.
Opex as a percent of sales will decline to 26, 28%.
And on non <unk>, and non-GAAP operating margin expected to be 31% to 34%.
The model assumes current tax laws as shown on the supporting slide the new model is in line with the trend line performance.
Now, let me provide a little color.
For 2021, non-GAAP EPS of $5 98.
We've achieved our previous 2024 earnings model three years early on the strength of our test businesses as we've done in the past when building our earnings model, we considered the year on year demand swings that occur in both test and IAA, but we evaluate our growth on a trend line versus any specific year. Therefore as in past models.
We we use the average of 2020 in 2021 revenue as the baseline for our projections.
From that baseline we expect.
Test revenue to grow at 7% to 11% comp.
Compounded and IAA revenues to grow 32% to 45% through 2024.
Both growth rates are significant increases both in absolute and relative terms from our earlier model.
In semi test, we expect long term growth will be driven by the steady increase in device complexity across our businesses along with high single digit semiconductor unit growth the transition to three nanometer and gate all around technologies will drive complexity growth in higher transistor densities.
Increased test data collection for process yield learning and longer test times.
The complexity point is illustrated by looking at the recent market size trends when taking an average of 2018 in 2019, the HLA market size was approximately $4 billion.
In 'twenty, one and 'twenty two the average will be approximately $6 billion.
Our earnings model assumes continued growth in the <unk> market and we believe <unk> capex as a leading indicator of future test demand.
This capacity is being put in place to service favorable semiconductor end market trends.
First the compute market is benefiting from the growth of both X 86 and arm based solutions.
Higher performing solutions at a faster cadence than in the past.
The arm solutions include new Hyperscale applications, along with AI devices for the data center and edge compute.
Automotive market has elevated to a higher level.
Increases in electric and autonomous driving are pushing the growth and complexity and number of chips per car.
Third the analogue industrial end market is expected to continue to operate at a higher.
At a higher level at the Digitization of industry continues to broaden.
And we're attacking an attractive and sustainable long term growth opportunity.
The market penetration of co bots autonomous mobile robots remains below 3%, while the range of applications. They economically serve continues to expand.
Our strategy is to drive penetration higher in existing markets and grow the number of new applications and new industry verticals.
To enable this strategy, we continue to lean into our Opex investments will operate the IAA business with a target operating margin of 5% to 15%, while we invest to drive growth and reinforce our competitive position.
We don't expect the growth rate to moderate in the midterm, but at the point in the future that it does we'll dial back the opex growth and expect operating margins above 20%.
In 2022, we expect will operate towards the low end of the 5% to 15% range.
Shifting to capital allocation.
We will continue our balanced strategy. This year will increase our quarterly dividend by 10% to <unk> 11 per share in 2022.
Regarding our share repurchases in 2021, we bought back 4 million shares for $600 million.
At an average price of $125 74.
In 2022, we expect a minimum of $750 million of repurchases, reflecting our confidence in our operating model and the end markets we serve.
In summary, 2021 was a record year for sales and earnings our global team delivered.
Our global team continued to deliver extraordinary results in a challenging environment.
The team's success in balancing customer demands and business needs amidst a constantly changing collection a pandemic induced constraints was impressive as we look ahead long term growth trends in our end markets remains strong and we've updated our model to reflect that outlook.
While we expect 2022 will be below the long term revenue and earnings growth trend lines. We're confident in the long term trends in our markets and our ability to thrive in them.
With that I'll turn things back to Andy.
Thanks, Sanjay Michelle would now like to take some questions and as a reminder, please limit yourself to one question and a follow up.
Thank you.
If you have a question at this time. Please press Star then one.
And your question is answered or you wish to remove yourself from the queue. Please press the pound key.
Question comes from the line of Mehdi Hosseini with CF with <unk>. Your line is open. Please go ahead.
Yes, thanks for taking my question.
I think it will be great. If you could give us some more detail.
As it relates to your largest customer.
Your comment.
Commentary on 2021.
19% contribution is insightful, but given your.
Guy for 22 suggests that within a two year digestion period.
I understand the three nanometer, which has been known for six months, but I think expectation was for higher unit shipments for that particular customer to make hopeful.
Push out in three nanometer and.
It seems like that's not enough and again, we go back to two year digestion.
If you can comment on whether I just.
Follow up.
Sure Mehdi.
Of course, I'm, not going to divulge too much about our specific customer because that wouldn't be appropriate, but I'll give you some additional color.
So I wouldn't call last year, a digestion period first of all.
Last year, we had tremendous growth outside of that concentration, which sort of brought to there.
A portion of our revenue from the low twenty's down below 20%.
It was really growth elsewhere that drove them.
Down a bit versus.
Digestion.
The.
The phenomenon this year is.
Something that has been.
Whether we attributed to a variety of things such as complexity growth due to unit volume I think I don't want to comment too much about that because again it gets into some proprietary information but.
The latest news we have is that as we've indicated there will be a pretty significant reduction here in the first half of the year, which is usually the big ramp of tooling for the fall launch of new products.
And.
We've quantified that as best we can the second half, we don't see but typically tooling starts in March.
<unk> in the second quarter, and a little bit dribbles into July so thats, where we will feel the impact.
Got it thank you.
A quick follow up on.
And it sounds you mentioned that.
22 operating margin is targeted at 5% at the low end, perhaps you can give us some color on the auto IC difference between <unk> and ultimately the test and what is it.
Your.
Looking at the longer term that would make a continued opex investment in IAA.
Attractive and perhaps maybe otherwise you'll have some other metrics could help us to.
Better.
Think about the investments that you're making.
Yes, So hi, Matt it's Sanjay so I think.
The latter part of the question first.
As we see revenue continue.
To grow and with penetration of the market of less than 3%, we're going to continue to in.
In fast and driving competitive advantage broadened the portfolio go to market.
Across the board in engineering and go to market to continue to capture the market share from a profitability or leverage perspective.
Moving more towards the ROIC comment is.
Fundamentally when the market starts to slow and growth starts to slow at some time in the future and we haven't considered that within our mid term, we don't see that growth moderating over the midterm with our 32% to 45% growth at that point is when we will lower the investment.
I will comment another point on the ROIC as our gross margins in that segment are above the corporate average.
So we will start to see a much higher return on invested capital when revenue starts to.
Moderate the growth starts to moderate but fundamentally we are leaning in to opex to really capture that market.
Thank you.
Thank you and our next question comes from the line of John Pitzer with Credit Suisse. Your line is open. Please go ahead, yes.
Yes. Good morning, guys. Thanks for letting me ask my questions Marc.
Last night Advantest reported overnight and I think it's always a little bit dangerous to compare because starting points can be different but I think they guided kind of their view of the Soc market about 16% this year versus yours.
Flat I'm, just trying to and it's off the same growth rate that you have for 'twenty one.
Yes, I'm, just trying to square the circle as to whether or not I should view your guidance as being particularly conservative or is the way you square. The circle just your relative customer concentration I guess, if you look outside your largest customer how do you see the SFC market trends for this year.
Yes, it's a good question I saw those numbers too.
I think theres two phenomena that you cited going on I think we are a bit lower than them.
In terms of the annual market size guide part of that.
Is due to.
The fact that probably.
What our largest concentration is doing this year is somewhat opaque to them.
And so that's a factor that's probably not in their numbers.
And.
I do think if you look at the rest of the market excluding that high concentration of ours there is growth.
This year in the market with what we expect.
So.
It's probably if it's almost probably 50 50 that gets the difference.
That's helpful. And then secondly, just going back to <unk> question on the IAA business I think I understand the dynamic of growth rate to op margin, but is there sort of a revenue level of IAA, where you would expect to see scale take over or is this a business that the fast year growing.
The more you have to build out channels I'm just kind of curious is there a revenue level that we can expect you guys hitting and some time out in the future. That's just going to drive some natural operating leverage in that business.
Yes over the midterm in our model, we are seeing a little bit of that play out as revenues grow share the fixed certain fixed costs are going to gain on that leverage but but.
I would ask you to think about it as we grow into different vertical and the applications within those verticals, we're really building both engineering.
Capability in our product reducing friction.
In those different verticals of how we can get to reducing the time of implementation significantly. So a significant portion is tied to R&D as well as scaling the go to market in different territories and different segments.
But the quick answer is as I said earlier there is some of that scale. We are seeing in the midterm and we will see that come in.
I just wanted to reinforce the point that we continue and plan to continue to invest in broadening the portfolio, reducing friction of implementation and really go to market investments.
Thanks, guys.
Thank you and our next question comes from the line of Vivek Arya with Bank of America. Your line is open. Please go ahead.
Thanks for taking my question. So my first one curious mark how much.
Entity change as you move from five nanometer three nanometer and Gabe.
All around and is this a step function in <unk> and then it stays flat in 24 hour growth from <unk> 2004, So just.
Secondly, how much does ashton.
And density of complexity different Ray you want to quantify it.
It changed from five four nanometers to three nanometer and gate all around.
Okay. There's a couple of ways you can look at it maybe the the economic way to look at it with just look at history a little bit.
When we see a major node transition in the industry you can see that the tester market.
<unk> market.
Our revenue sort of grows faster.
Then, let's say two years into a node so economically if you look at that sort of.
And you can kind of see that in this in the charts, we published with the earnings deck that shows the revenue trends against the trend line over time certain years or above the trend line. So those tend to correlate to win new nodes get introduced and the new nodes enable a big jump economically a big jump in transistor count and transistor count is what drives.
Our business more transistors means more test times means more testers.
So the last part of this is it takes a couple of years for a new node to sort of reach.
Sort of normalized.
Normalized volume so in the first year of production, let's say three nanometer next year.
Maybe three nanometer will grow to somewhere around 12% plus or minus of semiconductor revenue next year, maybe it's 10, maybe it's 13 something like that in 2024, it will continue to ramp and maybe it will represent closer to 2025%.
So we'll see a couple of years of benefit from three nanometer.
Is it sort of grows in its contribution to the overall semiconductor revenue stream.
Got it and for my follow up.
I'm curious what is your current exposure to <unk> modems, and how should we think about how it evolves.
From 2023, both from a unit and that content.
Thank you.
Modems are.
A strong area for us.
The dynamics are changing a bit there because more and more cell phone manufacturers are starting to build their own modems.
So there's been a sort of a disaggregation of that market.
Im.
And by and large that's.
A positive trend for us because the.
The relative share position, we have let's say the established suppliers of modems.
Was below our average share in the market and our share at the disaggregated newcomers that are building their own modems is higher.
So we look at that as a positive.
And is that contemplated in your 2004 outlook, yes. It is.
It is complement it is contemplated yes.
Thank you.
Thank you and our next question comes from the line of BR.
<unk> <unk> with UBS. Your line is open. Please go ahead.
Hi, Thanks, a lot.
I'm wondering mark can you breakdown the $4 8 billion <unk> in 2021 into the different segments mobility and compute in auto and industrial and all those kind of things and then also can you give us some sense of if.
If you assume the market is flat, which I'm going to ask you a follow up it's hard to believe that the market would be just flat, but but if you assume it is can you talk about how you would see the mix shifting in 'twenty two and then.
I had a follow up as well.
Okay.
I'll give you the numbers by the segments as we currently.
See them today and of course. These are estimates for 2022 and 2021 for that matter, but the compute market. As an example, we think last year was about $1 $1 billion ATV market and we think that's going to grow this year to about one three.
This growth has been the compute segment mobility last year was about $2 billion, we think that will come down to one eight.
Much of that is due to the mark are concentrated area.
Automotive and MCU, we think is flat at about a half a billion dollars.
Year over year.
Industrials.
Down slightly probably $600 million to $500 million.
And then the service business will grow maybe $100 million from $600 million to $700 million.
Got it okay. Thanks.
I guess I had a question just on.
I mean, having followed this industry for 25 years.
The relationship I mean, it doesn't hold true every year between W. E T.
Market size.
But some of maybe what youre seeing in the SSD market is because some of the W. E suppliers are struggling to get tools installed and whatnot, but once those tools get installed.
You're going to have to test us chips, and if you compare the size of the <unk> to the size of the you compare non memory to non memory.
Do you have a $60 $65 billion non memory WMC Tam this year and if the <unk> is only $4 8 billion I mean, we've never seen a ratio anywhere close to that low. So it would either say that that number. This year has to be a lot higher as that stuff gets installed or you make it up next year can you just sort of talk.
Talk about that I know that you guys look at those numbers, but it just seems sort of hard to believe that the ratio would be.
<unk>.
You're absolutely right.
And the reason is kind of what you hinted at the.
At the time, it's taking to bring up three nanometer is longer than traditionally its taken to bring up a new note, we're kind of stretching it into a three year.
Window. So the tool a lot of a lot of the tools by the way have been put in place.
Some are a little bit constrained by supply, but a lot of them had been put in place, but tuning the recipe getting it ready for ramp and then the cycle the process cycle time for the wafers themselves is longer.
Once once mass production switch turns on its incrementally longer to crank the wafers through.
The whole recipe.
Then the prior node so there is a throughput.
So all of that kind of moves.
Impact of three nanometer to 2023.
But the ratios that you talk about is why we've when you look at this carefully too in our midterm earnings model has increased so significantly compared to a year ago, because all of this equipment going in to support this new technology is a bow wave coming our way and the only of all the unfortunate thing is its.
It it didn't make it for 2022.
Got it okay. Thanks Mark.
Thank you and our next question comes from the line of Jason.
<unk> with Citi. Your line is open. Please go ahead.
Yes, Thanks for taking my question Mark as a follow up to Tim's.
Question.
The <unk> relation.
Given that you have very low almost <unk>.
We'll get to X 56.
It is expanding.
A very big portion of the BSP this year and next year.
I mean, how should we think about.
You test growth I mean, I think that correlation it probably breaks down because you don't have.
To explore your data in their spending.
Some spending from government and whatnot and then what.
What about things like advanced packaging and heterogeneous compute if you can talk about.
The test.
Tax rates become a meaningful driver for those end markets.
Yes.
So.
The.
There is let's say teradyne's growth and the market growth.
Think about and the X 86 World for example, in 2022 was quite anemic, whereas teradyne's business was quite strong that year.
Because of where we're concentrated in which customers are tooling. So in 2020 to the X 86 world.
I think is going to be more robustly tooling than last year even.
And we won't benefit much from that this year. So that in fact is a true dynamic.
And then other things happening with advanced packaging and chip lifts and all of that.
Those are.
Moving I would say modestly into the market as they moved in cell phones, a while ago, but in compute that's something I think that we're probably not going to feel until 2020 for maybe three nanometer will come first.
And then the sort of.
Ubiquitous use of different kinds of advanced packaging will follow shortly thereafter, but but the two things won't jump on top of each other just because the.
I think the yield concerns of two new technologies at once will call.
Keep them staggered.
Great.
Follow up for Sanjay.
Is there any impact trends supply constraints.
In your guidance for the March quarter as other suppliers have talked about.
Getting hit from labor shortages.
<unk>.
Issues.
Sure.
I'd say the supply impact in Q4, there is really no material.
Supply impact on sales, but in Q1, I'd say, we have about $30 million to $40 million worth of supply risk, which we've contemplated in our updated revenue guide.
None of this will result in a share loss it will just be.
Pushed into Q2, but a little bit of commentary on the supply environment.
Fundamentally we see the supply tightening in 2022.
Many more semiconductor players are going into formal allocation.
Which is incrementally index.
Indicates end of incremental tightness in the market in 2022.
We were under the impression that in the second half.
2022, with the fab in substrate investments the supply demand dynamic would alleviate and the tightening with loosen. However, our view currently is that that's been pushed out to the first half of 2023 really based on the discussion with our supply chain partners.
And so while the fab in substrate capital is being deployed and increasing supply we still see tightness over 2022.
Thank you.
Thank you and our next question comes from the line of Toshi Hari with Goldman Sachs. Your line is open. Please go ahead.
Good morning, Thanks, so much for taking the questions I had two as well one on the semi test side and the other on IAA.
Mark I think in your prepared remarks, you talked about Eagle test.
Sort of a platform growing 90% year over year I think that's very consistent with some of the Tam numbers.
You just gave out.
In response to a prior question just curious how youre thinking about Eagle test in 'twenty two.
When we listen to your customers talk about their capex intentions.
Not only in wafer processing, but also in test.
The posture is really aggressive whether it be ti or FTE or on or microchip long long list of customers.
Just just curious how youre thinking about Eagle test and wiser Tam estimate flattish year over year.
Yes, so there's a.
A couple of things going on there so the Eagle test product and the thing that we usually talk about called automotive tends to be more of the traditional.
Power related semiconductor content in an automobile and so as the <unk>.
Supply chain needed to be replenished last year and automobile production started to come back up.
A lot of the.
Traditional airbag control.
Andy lock brake control all of those things.
Drove eagle demand and we think this year for Eagle.
Are those kind of devices will be similar to what it was last year, so not growth and as I said the market is well not growth.
However, there is another thing that we're having a harder time classifying as automotive which is the digital content of automobiles, we tend to put that.
At the moment in the compute market.
And those advanced.
Controllers are something that is more targeted and put on our ultra flex platform.
So we are expecting to see some growth there for applications automotive applications that our digital content, but for the moment at least because it's it's somewhat nascent and growing its pocketed in compute.
Got it. Thank you for that and then as my follow up on the on the IAA side.
<unk>.
I guess I'm curious.
Why wouldn't this business grow faster.
In the near term I realize you've got supply constraints, but when you think about the business on a three to five year basis.
440% growth is certainly not not back growth, but given the penetration rate of cobalt. So you guys have talked about.
The labor shortages.
With wage inflation I'm guessing payback periods are shorter so so from a user perspective I feel like it's a no brainer, particularly with Covid and all these things going on so is it manufacturing capacity as a distribution I think in the past you guys have talked about getting the word out as kind of an important dynamic as you as you grow that business.
But why wouldn't does grow 60, 70, 80% as opposed to $35 40. Thank you yes.
That is the million dollar question that that I asked every day.
<unk>.
Because youre absolutely right. The dynamics are there the ROI is there everything is there.
The biggest obstacle to.
Sort of faster growth is the unfortunate fact that to deploy a cobalt takes the human.
And it takes it skilled human a technician today to spend some number of weeks depending on the application putting it into production and therefore, we're somewhat.
Constrained by the same labor.
Supply issues.
All global industry is experiencing.
We're growing that 30 plus percent a year that army and its not an army that we ourselves higher as much as it's an army that our distribution partners higher.
And they are but there are some practical limitations on how quickly they can hire and train. So the way out of this bottleneck is to make that deployment time quicker and quicker and quicker which is why we are actually growing faster than we're growing the human fleet of people to install these things. So we've got to widen that gap we have to get.
To grow 50% only takes 10% more people for example.
In the applications deployment space, but thats the biggest single thing.
And we're working on that we're planning in the model, we presented here with growing continuing to grow with this sort of.
30% to 45% rate through 2024, or assuming that every year, we're going to make progress on that efficiency.
Very helpful. Thanks, Michael.
Thank you and our next question comes from the line of C. J Muse with Evercore. Your line is open. Please go ahead.
Good morning. Thank you for taking the question I guess first question Marc if I go back to kind of your commentary.
<unk> three or four months ago.
It certainly sounded like.
The breadth of spending at your largest customer combined with diversification of share gains elsewhere, and kind of new or based emerging players gave you the confidence that even if your top.
Customer awarded decline in 'twenty, two that you'd still be well positioned but now youre guiding to an SFC test market relative to advantage that is $700 million lower.
<unk> told us that your largest customer was 19% which is about $700 million. So are you basically telling us that you are taking your largest customer to zero this year.
And I guess why would that change so dramatically kind of in the <unk>.
Last three to four months.
I think that it was widely known at three nanometer was going to be a very kind of small node in 'twenty two much larger 23. So curious what really has changed in the last three to four months.
In your view.
Well I think the.
Certainly the macro number around how much our largest customer represents revenue last year was right around $700 million and 19% of revenue no. It is not going to zero.
It's going to probably be below 10, so the magnitude I think that the change that has occurred represents is larger than we would have expected.
I think that.
The transparency and even now the amount of visibility into what that will be is still vague. So it's not something that we typically get.
Full confirmation of it until April of this year so to speak.
So we're kind of working on the most recent.
Inputs that we've received and I think they're fundamentally as I have said in the past there's always multiple scenarios in flight with.
The area were concentrated in there as to how the year can play out and there's a range of forecast that we get that get updated along the way and those can swing dramatically as they have done. This time. So I don't have any more insight than that or anything that I think is a prudent to share around what changed with that large account.
But I do think.
If you go from $700 million.
Although 10% ish probably this year.
That's a big.
Portion of the Delta between perhaps what advantest is guiding we're guiding and then we're down into 5% difference on our forecast for the year and it could be.
Either way it could be either way I don't think theres, a lot of precision in that on our side or theirs, but.
I think we're pretty close.
Very very helpful.
My follow up question on your target model you are talking about test revenues growing at 7% to 11% CAGR I'm, assuming that that's kind of your underlying.
The growth rate for semi test.
If I make that assumption.
In your system tests, plus light point plus HDD.
Yes.
Revenues essentially are like down $200 million.
In three Years' time, so I guess.
Are you, assuming a slower kind of growth CAGR for semi test.
Or.
Is there something else going on in kind of the other bucket.
Yeah, Hi, it's Sanjay here. So yes. So overall test is growing 7% to 11% obviously semi test is the largest component.
Of our test portfolio, but.
Think of our other businesses is growing marginally in test.
Marginally at the same level of marginally a little bit.
Higher.
Thank you.
Yeah.
Thank you and our next question comes from the line of.
Krish Shankar with Cowen <unk> Company. Your line is open. Please go ahead.
Hi, Thanks for taking my question I had two of them Mark Thanks for the color on the Soc market size by segments you.
You mentioned that compute should grow to about $1 3 billion from $1 1 billion last year I'm just kind of curious if you can help us a little more color on that.
The split between 86, and non <unk> 86 and as.
One of the large U S IDM start doing more foundry business.
Is that an opportunity where they would start looking at outside platforms versus.
And ill defined Soc testers, and then had a follow up.
Yes.
Wouldn't attribute it all to X 86, we use that as short hand, sometimes in these conversations but theres other.
Areas like graphics chips.
And <unk> that are also part of that compute things that are growing this year.
So the collection of X 86, plus graphics and.
FPGA is would be the driver.
Of that.
What was the second part of the question.
Andre.
So yes, yes, yes.
The thing is.
I do believe there is no doubt that if.
Yes.
Our company is getting into the foundry business, they're going to have to accommodate external test platforms.
The only thing is that just because there is a new foundry player doesn't it.
It's sort of.
It doesn't change the overall global market Theyre, just stealing share from some other foundry who would also by commercial test equipment. The real question is for their internal product development will they shift to commercial equipment, where today they use in house equipment and that.
Let's wait and see it's we're not assuming that in any of our midterm plan. So this plan through 2024 does not assume any of that but you can imagine that the cost.
Of continuing to invest in that is.
Hi, and the rate of the roadmap change now for <unk>.
<unk> six manufacturers is quite high it used to be a very slow predictable cadence and now the competition has heated up and its fast and furious it's harder and harder for the internal tester group to keep up with that so we don't assume it's going to happen, but I think the cards are sort of played in a way that suggests it's probably.
Going to happen, maybe not by 'twenty, four but certainly out in the next four or five years.
That would be my bet.
Got it fair enough fair enough Super helpful and then.
Just a quick follow up.
Two part question if I can.
On the <unk> side.
If throughput issue for you then.
As the industrial robotics folks that getting into down the payload it seems like it might be faster than the cobalt is that an issue from your vantage point and then just a quick follow up as well.
I think the advantage when they talk about the Soc market. So this isn't it.
You guys do not.
What do you think services that would be the Salix has lasted maybe <unk> can explain a couple of hundred million dollars difference maybe.
Yes.
First on the <unk>.
Speed of the robots question, yes, yes.
Traditional.
Industrial robots tend to have much faster cycle times, they can pick them move in place things at lightning speed, that's partly why they're dangerous partly reither engages the.
Kept away from people.
And those products have been around for decades, frankly decades.
Collaborative robots is really opening up a whole new application space, where those 20 year old fast products Couldnt perform for some reason either because.
The cost of.
Isolating them from humans was too high or the the flexibility that they had in terms of repeatability and such wasn't good enough or the time to changeover for a higher.
Mix.
Environment was owner risks, if it's picking up one thing in moving one thing.
In times of minute.
Four years.
The right solution and it's been solved.
So <unk> is a brand new thing it's all of the places those things didn't make sense that we're opening up with cobalt and and I think thats what <unk>.
Exciting so I don't think Theres any news there and your last question was serviced as a Sam and Tam Yeah.
I think we estimated somewhere in the 6% to $700 million range I, frankly don't know what advantest estimates on that but it's probably close.
Thanks Mark.
And operator, we have time for just one more question. Please.
Alright, and our last question will come from the line of Brian Chin with Stifel. Your line is open. Please go ahead.
Hi, good morning, Thanks for squeezing us in Atlanta to ask a few questions I guess first on the semi test side.
On a quarterly basis, Mark it looks like the year over year declines might bottom out in <unk> and certainly first half, but I guess at this lower first half revenue base.
Unfair to expect muted seasonality or do you think a typical sort of 52%, 48% first half second half relationships still applies given sort of your views for the Tam This year.
Yes.
We've proven the last two years that were not good forecast in the second half of the year, but because of this abnormality in the first half I would expect on average that youre going to see a little more.
Hum.
Second half waiting because we kind of have this a little bit of an abnormal hole in the first so it wouldn't be a typical.
Year, there'll probably be a little more back weighted.
Okay, so not even level, but maybe even a stronger bias to second half.
Yes.
Okay.
Okay.
Interesting and I guess on the industrial automation side.
Based on your commentary Theres constraints.
Do you expect year over year growth to slow near term to accelerate moving across the year can you give us a sense of the magnitude of revenue impact.
This is creating in first half and do you view that demand is perishable or shifting into the second half.
Brian are you asking a question about supply.
Yes.
The.
The overlay of supply constraints against demand profile, you see in industrial automation. It sounded like there was a talk of some.
Constraints or even severe constraints in first half in that business.
And so I'm kind of wondering what that revenue impact that is and also if it just shifts the second half or if it's perishable.
Yes so.
Demand is quite strong and in Q1 out of the $30 million to $40 million I noted about 10 of it is tied to IAA and and.
And really just given the allocation for Q2.
Our commentary or my in.
In my prepared remarks, it had a little bit of the impact there. So it's true we are seeing some supply.
Impact in the first half, but I would say that from a first half second half we do expect.
Demand in revenue in the second half for IEA to be larger than the first half.
Okay, great great. Thanks Sanjay.
Alright folks we are out of time for those in the in the queue I'll follow up with you offline and thanks for joining us and we look forward to talking to you in the weeks ahead bye bye.
This concludes today's conference call. Thank you for participating you may now disconnect everyone have a great day.