Q1 2023 Teradyne Inc Earnings Call
Speaker 1: Greetings and welcome to the TerraDyn first quarter 2023 earnings call and webcast. At this time, all participants are in listen-only mode. A brief question and answer session will follow the formal presentation. If you would like to require operator assistance during the conference, please press star zero on your telephone keypad.
Speaker 1: As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Andy Blanchard, VP, Corporate Communications. Thank you, sir. Please begin.
Speaker 2: Thank you, Latanya. Good morning, everyone, and welcome to our discussion of Turinine's most recent financial results. I'm joined this morning by our CEO , Greg Smith, and our CFO , Sanjay Mehta. Following our opening remarks, we'll provide details of our performance for 2023's first quarter, along with our outlook for the second quarter.
Speaker 2: The press release containing our first quarter results was issued last evening. We're providing slides on the investor page of the website that may be helpful to you in following the discussion. Replays of this call will be available via the same page after the call ends.
Speaker 2: The matters that we discussed today will include forward-looking statements that involve risk factors that could cause terrorized results to differ materially from management's current expectations.
Speaker 2: We encourage you to review the safe harbor statement contained in the earnings release as well as our most recent FCC filings.
Speaker 2: Additionally, those forward-looking statements are made as of today and we take no obligation to update them as a result of developments occurring after this call. During today's call, we'll make reference to non-GAAP financial measures. We've posted additional information concerning these non-GAAP financial measures, including reconciliation to the most directly comparable GAAP financial measure where applicable on the investor page of our website.
Speaker 2: Looking ahead, between now and our next earnings call, TeraNine expects to participate in technology- or industrial-focused investor conferences hosted by JP Morgan, KeyBank, Cowen, Stifel, and Bank of America.
Speaker 2: Now let's get on with the rest of the agenda. First, Greg will comment on our results and the market conditions as we enter the...
Speaker 2: for the second quarter. Sanjay will then offer more details on our quarterly results along with our guidance for the second quarter. We'll then answer your questions and this call is scheduled for one hour. Alright.
Speaker 3: Thanks Andy, and good morning everyone. Today I will summarize our Q1 results, comment on the current environment and outline how we see the market developing.
Speaker 3: Sanjay will then provide the financial details on Q1, our outlook for Q2, and some thoughts on full-year planning.
Speaker 3: From a financial perspective, we delivered first quarter sales above the midpoint of our guidance range with earnings above the high-guide on improved gross margins.
Speaker 3: In Q1, our flexible business model enabled us to convert improving component availability and semiconductor tests into additional revenue and profit, and our robotics businesses delivered on plan for the quarter.
Speaker 3: Stepping back from the Q1 results, I would like to outline our view of the current market conditions and how we expect the next few quarters to unfold.
Speaker 3: In semiconductor tests,
Speaker 3: lower end market demand, and high channel inventory is persistent. And our measures of tester utilization in Q1 of 2023 are at their lowest level in over 10 years.
Speaker 3: The weakness is concentrated in compute and mobility SOC tests and reflects further erosion in end-market demand in 2023.
Speaker 3: After a 20% decline in PC shipments in 2022, they are forecast to decline an additional 4% this year.
Speaker 3: Smartphones dropped 10% in 2022 and are forecasted to drop another 4% in 2023.
Speaker 3: We have clearly seen utilization weaken as well.
Speaker 3: Until inventory levels in these supply chains come into balance and the utilization levels improve, we expect test demand for these markets to remain at low levels.
Speaker 3: As a result, we don't expect any 10% customers in these end markets in 2023. Over the past four years, the compute and mobility segments have represented over 70% of the SoC market, so weakness in these segments has an outsized impact on the overall industry. There are, however, several factors beyond inventory alone.
Speaker 3: that make forecasting in this cycle challenging. These factors are likely to impact both the depth of the cycle and the shape of the cycle recovery.
Speaker 3: The first is the strength in the other roughly 30% of the SoC test market, automotive and industrial test.
Speaker 3: The demand that we're seeing here is stronger and more persistent than we expected in January .
Speaker 3: Tester utilization at IDM customers that drive this sector is substantially higher than at OSATs, which primarily serve the compute and mobility markets.
Speaker 3: In fact, high demand has pushed out our tester lead times for some configurations to be longer than our target.
Speaker 3: vote well for sustained demand for us in these segments.
Speaker 3: Strengthening these segments is being driven by a wide range of new and growing device applications such as EVs, autonomous driving, and the digitization of industrial activity.
Speaker 3: We also see these customers working to replenish the inventory that has been depleted over the last three years.
Speaker 3: This strength suggests that the depth of the SOC test market decline of this cycle may not be as deep as past cycles.
Speaker 3: Another factor that makes this cycle very different is very strong tester demand from China-based chip makers. The current test buy rate is substantially greater in 2022 and higher than the broader market and may not be sustainable at these levels. In the vertically integrated producer category
Speaker 3: We have seen no slowdown in R&D or design in activities. However, we expect low OSAT utilizations to significantly impact production capacity buys in 2023.
Speaker 3: When taken together, these three factors make it challenging to predict the timing and the strength of a recovery.
Speaker 3: Having said that, we do have better insight into the full year than we had one quarter ago.
Speaker 3: We estimate the SOC market in 2023 will be between $3.3 and $3.8 billion, down about 20-30% from last year's roughly $4.7 billion. We expect our share of the SOC market will increase 2 or 3 points in the next year's
Speaker 3: from last year's 36%.
Speaker 3: I will note that we have increased our 2022 market size estimate by $100 million since January .
Speaker 3: In the memory segment, while oversupply is limiting capacity expansion investments, the technology transitions we discussed in the past are continuing to drive test them in, especially for LPDDR5 and high speed flash.
Speaker 3: For the full year, we expect the market to be flat to down 10% from last year's approximately $1 billion level.
Speaker 3: This is unchanged from our view in January .
Speaker 3: We expect our share to be in the high 30s, also up a point or so from last year.
Speaker 3: We know that the global trends have driven over $300 billion of wafer front-end investment over the past four years and that has not yet fully been converted into test demand.
Speaker 3: When coupled with a forecast of an additional $160 billion of investment over the next few years, we think the fundamentals for midterm growth are strong. In our light point wireless test segment, we see a more familiar correction cycle.
Speaker 3: We are also a year or so away from the next big complexity leap in connectivity, the transition to Wi-Fi 7. As a result, our early view has light point sales down 20-25% from last year's level.
Speaker 3: In System Test, the storage portion of the business is impacted both by reduced demand for HDDs and declining smartphone shipments. As a result, our System Test Group revenue will likely be down 20 to 25 percent for the year.
Speaker 3: The storage portion of the business is impacted both by reduced demand for HDDs and declining smartphone shipments. As a result, our system test group revenue will likely be down 20-25% for the year. Now.
Speaker 3: Turning to the robotics businesses.
Speaker 3: Robotics revenue in Q1 2023 is down 14% compared to Q1 of 2022.
Speaker 3: The first quarter of 2022 was the last strong quarter before the invasion of Ukraine and slowing industrial growth began to significantly impact our results. As we've discussed in prior calls, there are both external and internal factors that are limiting the growth of our robotics businesses.
Speaker 3: And addressing these challenges remains a high priority for our universal robots and mere teens.
Speaker 3: At Universal Robots, we see a mixed picture.
Summing up we delivered sales above the midpoint of our guidance range with earnings above the high guide on improved gross margins the auto and industrial semi test markets and 23 look incrementally stronger than we expected earlier this year with softer mobility and compute markets.
Robotics demand is also incrementally softer.
In this environment, we're making the investments to strengthen our global supply chain, while maintaining the R&D and go to market focus to support our long term growth strategies and test and robotics.
We're doing this while maintaining roughly flat opex since 2021.
As a result, we expect to generate solid free cash flow in 'twenty, three which will deploy to maximize value for our shareholders through potential M&A dividends and shareholder repurchases.
Share repurchases.
That I will turn the call back to Andy Andy.
Thanks, Sanjay and Latanya would now like to take some questions and as a reminder, please limit yourself to one question and a follow up.
Thank you.
We will now conduct a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad.
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Our first question comes from Mehdi Hosseini with Sig. Please proceed.
Yes, Thanks for taking my question too.
Two follow ups.
To your point could you. Please help me understand opportunities into <unk>.
Hi Fi six area it seems like.
That is already behind us and when would you expect.
Contribution from likely to materialize.
If you do we have to weaken next year and I do have a follow up.
So at.
<unk>.
There is there's sort of multiple phases of Wi Fi six so Wi Fi six is the tooling for that is largely in place, but there is a transition to Wi Fi six which is probably the primary driver of Wi Fi investments.
In 2023.
There is a lot of R&D and development work going on on Wi Fi seven chipsets and equipment that is probably going to ramp in 2024. So we're modeling that will have some some Wi Fi six <unk> investments through this year and then growing Wi Fi seven.
Investment in 24 does that help.
Yes, absolutely and then that same question.
The favorite topic.
Three nanometer capacity ramping 24.
Attribute and the fact that you don't have the top 10 customers. This year does that mean that next year is going to be a big.
<unk> ramp for teradyne, especially given the delayed three nanometer that we finally see nanometer high volume manufacturing next year.
That's a great question so.
First in terms of like technology transition to three nanometer, we've seen no real substantial changes from any of our customers in terms of the pace at which they are trying to move to three nanometer nanometer to support more complex designs. So that that drumbeat is.
The thing that we are seeing is that the declines in unit volume in Pcs and smartphones has created a fair amount of idle capacity that needs to get filled up before tester demand is going to.
Is going to return.
So the.
So we think that that is likely to be <unk>.
Significantly stronger in 2024 at this point in time, we don't know.
Whether 2024 is going to be.
Good or great.
The other things that are going on as you know like I talked about the demand in China that might be sustainable.
The automotive and industrial markets have been going really really well and we think they have great long term potential but there are often.
<unk> temporary supply demand imbalances, so they might get incrementally softer. So there are some things that could mute.
The App that you see in 2024 that I think all of us expect with sort of a return in unit demand.
Got it thank you.
Our next question comes from Timothy Arcuri with UBS. Please proceed.
Thanks, a lot so relative to your prior Soc Tam forecast you were down like.
<unk> 20 at the midpoint off of a $4 six number now I know that you took that to $4 seven last year, but so you're taking basically a few $100 million out of the Tam This year.
So auto it sounds like its better I know that you were thinking that auto would be down it sounds like maybe it's flat at like $700 million. So can you kind of just sort of disaggregate that.
3536 number at the midpoint that you now have for your new SLC Tam.
Sure Hi, it's Sanjay so.
Disaggregated, we think roughly the compute market this year is.
Give you the rounded numbers.
<unk> at the midpoint.
<unk> roughly one <unk>.
<unk>.
Mobility that $900 million.
Although we believe is flattish and again.
Auto and <unk>.
Microcontrollers at about $600 million.
Industrial four.
$400 million, and then service of roughly $700 million.
Got it got it Sanjay thank you for that.
So Greg.
Maybe we can ask about.
There was a question on three nanometer and this year again is going to be typically you have a much more front end loaded year than you are this year. It's.
It's sort of 50 50, it seems like.
So so so I guess I'm just asking about is there something structural going on I know there is this debate the sort of cyclical debate versus the structural debate with your largest customer.
I continue to believe that that it has to be up a lot next year, but is there something under the surface going on there is maybe more has to reuse.
Can you just sort of talk about what's going on.
Under the surface that might kind of inform where the SFC Tam goes next year and what your share could go.
I can I can I can give you a little bit of color. So.
No significant change in the amount of reuse or the tester capacity that we've put in place is largely fungible across all of the technology nodes that are here now or coming so we're really talking about what's the incremental demand how much more capacity needs to be put.
And place the one structural change is that we haven't really seen a peak in demand since leading leading producers of mobile phones have started too.
Reuse silicon.
In lower parts of their product lines, so instead of putting a new processor and all of the phones. They have use last year's processor and a portion of the of the volume.
So at this point, we haven't seen a significantly strong year since that decision has happened. We believes that long term that kind of thing will come out in the wash, but it may make the demand less peaking.
Thank you very much.
Our next question comes from C. J Muse with Evercore. Please proceed yes.
Good morning. Thank you for taking the question I guess a follow on question mobility at $900 million works.
<unk> spending in five years and 55% lower than peak.
You talked about.
Maybe not.
Great year next year, but curious.
What's kind of a base case kind of recovery assumption.
If you were to.
Make it make the view that handset units would be at least flat.
Given what you know content wise.
Kris Test times.
Might that kind of compute for mobility.
Yes, I think we don't have enough visibility into the the way 2024 is going to shape up to really call a market size for next year.
Directionally I think it will be stronger, but I can't really tell you how much.
Okay.
And you talked about Q4 revenues accelerated to.
To some degree.
I'm curious if you can kind of speak to.
DDR five kind of ramp.
When that starts.
And how that impacts Q4, and the same thing for you or 'twenty.
Is that.
Meaningful driver given your backlog or is that something that might get pushed into 'twenty four thanks. So much.
Yes, so the.
The DDR five ramp.
We're kind of running against the same schedules that we've had for a while so we haven't seen any significant push out of the technology shift so I think the.
We've got a pretty steady demand for the <unk>.
<unk> to support the new technology DRAM testers.
For U R 20.
Going to be starting substantial shipments of that in the second half of this year and.
I would say that it's.
It will have a substantial impact on the growth that we're able to achieve and you are this year, it's going to it's going to have.
Meaningful single digit impact on growth.
Thank you.
Our next question comes from Sami <unk> with Jpmorgan. Please proceed.
Yes, hi.
For taking my questions I guess, if I can just start with the auto piece here.
You've called out this trend there.
If you can share your thoughts about how you think how sustainable that is but clearly as you're seeing like how do you think of the correlation data production volumes, particularly in the China market, we are seeing a lot of.
Different players callout risked the production as well as demand in that market and then I'll follow up thank you.
Sure so.
How sustainable.
<unk>.
There is.
A fairly large capacity increase that has come online in terms of ability to produce vehicles.
And the supply chain has reacted to that we are starting to see that the lead times for many of the parts sort of electronics that go into cars are starting to come down but there are a lot of linear devices that still have extremely low inventory.
<unk> is an extremely long lead times and so that appears to be where capacity is being added to support reducing those lead times. So if they catch up if if vehicle sales dropped remarkably.
Or if they bring that more into balance then I would expect that to soften but the thing I'll remind you is that the current situation for us.
Our competitors in this space is we're running with tester lead times that are in excess of 26 weeks. So we have a pretty good idea of what these customers are going to need over the next few quarters.
And so I would say that the likelihood that we're going to see a lot of softening in that space is probably out a little ways in time.
Okay and for my follow up.
On the memory side there is obviously some.
I guess news or sort of just speculation in terms of China looking at sanctions on micron and any thoughts of how that impacts dynamics with Dr.
In terms of your revenue mix in memory as well as with your customers in China in terms of their investment in memory. Thank you.
Yes so.
I really don't think I can speculate on what's going to happen in terms of those regulations I will say that we are a supplier to the the two major memories.
<unk> in China and and.
And if there are regulations that impact that it will have an impact on our sales there to sort of size that.
Our sales too.
Two indigenous memory in China like all indigenous in China is about four 5%.
Of total teradyne revenues and the portion that goes to memory. There is probably between a half and two thirds of that number.
Okay got it got it. Thank you thanks for taking my question.
Our next question comes from Toshi Hari with Goldman Sachs. Please proceed.
Hi, good morning. Thank you so much for taking my question. My first one is on component shortages I just wanted to clarify I think so.
Sanjay you talked about.
The shortage of analog and logic devices impacting semi test revenue in Q2 by 25%.
So the interpretation there should be without the shortages. Your Q2 revenue should be 25% higher am I understanding that correctly.
And when do those headwinds sorry for you.
I noted in my prepared remarks, $25 million, which is outside of our range.
And it's roughly <unk> Soc and memory.
$25 million and $5 million yeah, Okay got it.
And then my second question.
Just on your robotics business, so again youre, taking down your full year growth outlook for the year.
Greg you talked about the macro environment and you talked about the transition from distribution to direct and that having an impact.
I'm curious if competition is having any impact here.
It is difficult to compare and contrast, how you guys are doing relative to your competition because.
Some of your competitors, they're either startups or small businesses within bigger conglomerates, but curious some particularly in China is there anything going on on the competition front. Thank you so much.
So yes, that's it.
A great question in terms of robotics growth. The first just a quick correction the change to distribution isn't like distribution to direct its really establishing an omnichannel strategy.
That we are we're continuing to invest in our traditional distributors, we're adding additional channels through Oems and in some cases direct business. So it's not like a complete flip but it does it is.
Sort of moving resources around in terms of market share I agree with you, it's really hard to get market statistics about the cobalt market.
The best data that we have is that from 2021% to 2022 share was relatively stable.
We've got between 35 and 40% of a in 2023, it will probably be about $1 billion market.
The.
Our nearest competitor has probably <unk>.
Less than a third.
Quarter to a third of that share.
And that number two player has shifted from year to year.
The trend that you noted about China competitors is certainly true that the the Chinese competitors are coming up and they are doing very very well in the Chinese market the price points in that market are significantly lower than the rest of the world.
And their understanding and knowledge of that market is better than our or other foreign competitors.
<unk>.
What's happening in China is that our products are tending to migrate towards sort of a premium tier both international customers and customers that really value the.
The ecosystem that we have in either specialized software specialized adapters that they can get with our products that they can't get with a local supplier. So we.
We are.
We think we can hold the share that we have in China in that particular segment.
But there is definitely a competitive threat a pricing competitive threat from Chinese suppliers that we are really trying to deal with through differentiation.
Very helpful. Thank you.
Our next question comes from Chris <unk> with TD Cowen. Please proceed.
Hi, Thanks for taking my question two of them first one Greg.
Thank you Sanjay auto industry was pretty strong maybe mobility rebounds next year I understand you don't want to give color into calendar 'twenty four but would that change the gross margin profile because it seems like.
Auto industry. It has a much higher gross margin than mobility, and then I had a follow up.
Sure. Thanks for the question.
This year as I noted in my prepared remarks, we're going to be a 57% to 58, and it's really tied to both product mix as well as.
We've got these what I would call transitory costs tied to manufacturing.
Manufacturing resilience I think when when thats materially behind Us I see no reason why we don't get back to our model gross margin of 59% to 60%.
Got it.
Got it thanks for that and then.
You kind of gave some color on the.
The breakdown of compute being $1 billion.
If I remember right historically, the GPU test market has been around 100 million or so give or take and that has not been asked test intensive. So I'm kind of curious as you get into AI stuff GPU that could grow and what is your opportunity set that because historically like very <unk> advantage has been the leader over there. Thank you.
Yes.
It's certainly a question we've been talking a lot about internally so here's the way that we see it.
<unk>.
The rise of AV generative AI things like chat GPT.
Is a significant driver for additional <unk>.
Cloud compute capacity, especially accelerated capacity right now.
Primary way that that acceleration is delivered is through traditional gpus.
So I would expect that that's going to be a tailwind for.
For our competitor who has much higher share with traditional compute.
At the same time the same companies that are making these.
Really aggressive moves to try and capture market share in the AI market are also the same vertically integrated producers that are developing their own ways to accelerate that type of compute and that's where we are investing our energy primarily.
<unk> is to capture those customers as they bring that kind of technology to market I don't want to give you the impression that that like we have vips locked up but it's it's a different situation than the traditional compute suppliers because these new players don't have.
A long history of working with any particular vendor so where we are in shootouts and most of these places and we're winning more than our fair share and so as this market evolves and AI becomes a more important part of.
The the vertically integrated producers are hyper scaler.
The overall value delivery.
Our hope is that these internal devices will long term have a higher growth than traditional compute.
So short term really strong for traditional longer term better for vertically integrated.
Greg is it fair thanks very much for the color is it fit us GPU is probably a $100 million of that $1 billion compute market.
In 2023.
My guess would be that it's bigger, but I don't know an exact number.
Got it. Thank you very much I really appreciate the color.
Our next question comes from Vivek Arya with Bank of America. Please proceed.
Thanks for taking my question I actually had a longer term one it seems like youre keeping your long term sales and earnings model unchanged, but when I look at your largest end markets, mostly on the consumer side they seem to have matured.
Quite a bit so what's underpinning the confidence about.
Accelerating.
That double digit growth in let's say the new model is not for double digit growth, what really you would need to change about your cost structure.
To realize better profitability.
So vivek.
The things that we are looking at is.
We don't see a fundamental change like you said in terms of a maturing of our consumer markets.
We see the primary driver of the growth in semiconductor test to really be the pace at which leading leading chipmakers adopt new process technology and theirs.
The thing that has happened is that the transition from five nanometer to three nanometer has taken longer than people expected and I think that that has contributed to some of the lull in the growth that we've seen in the in this market.
But if you look there is this there's a number of steadily increasing capability three nanometer nodes that are coming from both of the major.
Foundries.
And behind that there is gate all around technology, that's coming as well and so as we talked about the compute and mobility is 70% of the Soc test market and the complexity in the compute in the mobility space is also the primary driver for advanced memory <unk>.
Knowledges and memory density improvements so as long as that fundamental pace around nodes and node technology continues then we think that the fundamentals for the growth are strong I also noted that there is a significant amount of wafer front end capacity.
<unk> that has gone in but has not been turned on yet and we think that that is a long term driver for demand in the test space, because it's essentially the test equipment of dark fiber.
<unk>, it's going to get turned on and when it is it's going to require testers.
Got it and for my.
A follow up Greg.
It seems like Youre SSC business could be down.
Half on half in the second half if I take that 39% share that you suggested off the lower Tam. So I just wanted to confirm that and wouldn't mobility also be down.
And if it is down is it the three nanometer comment that you mentioned is it not as big a node so does that have.
Allegations on what.
We should be thinking about for calendar 'twenty for growth.
Soc test business also.
Yes Ivan.
I haven't really looked at the second half there.
Second half I think you asked about.
<unk> revenue in the second half and.
As I noted in my prepared remarks, we expect revenue to be a bit higher.
In the second half and part of that increment is really tied to <unk>.
While it does have auto and industrial.
Is the main driver so we expect <unk> Soc in the second half to be stronger.
So and to the other other part of your question.
So actually I am sorry could you repeat the second half of your question.
Yes, yes.
Specifically was trying to ask is do you expect your mobility.
Demand in the second half to be better than the first half.
And if it isn't then isn't that a surprise given that your largest customer will get on the three nanometer cycle.
So at three nanometer just not as big a node and does that have implications on how we think about your mobility demand for next year.
Oh, Okay, yeah. So it's.
It's a really it's a really good point and something that I think it is important to communicate clearly.
We believe that the complexity increase enabled by three nanometer.
<unk> is on track to what we've modeled before.
The reason that we are not seeing significant demand increase in 2023 is because the amount of.
Capacity that is available driven by lower unit volumes is sufficient to absorb that complexity increase so as unit volumes increase we believe that we will see the full effect of that higher complexity.
Thank you.
Our next question comes from Brian Chin with Stifel. Please proceed.
Good morning, Thanks for reminding us ask a few questions.
Maybe to start with.
I think yours, and advantest SFC Tam outlooks, I think they rarely align things like service et cetera that might be in or out.
Of your forecast, but they seem especially far apart this year with sort of the high end of your range worst than the low end of theirs.
I'm just wondering what do you think explains the.
Kind of the discrepancy between each of your forecast this year.
Yes.
Brian that's a great question.
<unk>.
Every year this is sort of how the year starts that.
Depending on the view from from our perspective, the view from their perspective, you end up with a different view and and I think the challenging thing for us is predicting how stronger their business will be and the same thing is true for them is trying to predict how stronger.
A week, our business will be and so right now you see that divergence by the way. The same the same thing basically existed last year and quarter by quarter. Those numbers tend to converge and you can you can take a look we basically I would like to say that we feel pretty comfortable with the range that we set the three three to three eight.
And.
We'll see if things strengthen through the year, we'll adjust that range quarter by quarter, but I I don't I guess I don't see it as unusual as you do to see that kind of a spread.
Okay fair enough. So I guess your malls are better than theirs.
Yes.
Actually I don't want you to walk away thinking that.
I think we.
We ended up.
Having a more accurate prediction last year then.
Then they did at the similar time, but if you look at it this year.
I don't know that our malls are better than their malls for shorter okay.
<unk>, sorry, but in terms of the Omnichannel strategy also Greg for automation.
When do you think that will be fairly you may as Don alluded to towards the end of the year I'm not sure, but when do you think that will be.
Kind of somewhat well rooted are established and it will take probably.
More than a few quarters, even potentially but when do you think that'll be pretty well established and then even when you think about from like a scale are critical mass perspective would it not make a lot of sense to market, even maybe a broader portfolio of automation than you do currently once you sort of have that.
Revamp channel strategies established.
Yes, so that's.
It's like you're sitting in our strategy sessions so.
The way to think about the Omnichannel is that we are doing this in steps.
First significant new channel that we're that we've established for you or is the OEM channel and.
From 'twenty, one to 'twenty two.
The OEM channel grew 16% year on year.
From 'twenty two to 'twenty three we expect that same channel to deliver like 20% growth, even though overall you our growth is going to be significantly lower.
And this year, we are we are.
Taking steps to try and establish more effective coverage of large accounts and we expect that to start delivering towards the end of this year and to significantly impact growth in 2024.
After that we have other other channel additions that we'll be making so the idea is each one of these channels. We think is capable of delivering kind of 20% to 30% growth and as we add new ones theyre going to have.
A multiplicative effect. So we have have each channel each channel growing at that rate and then adding a new channel, which adds a new growth source. So that's that's definitely the the reason why we have some confidence about the 20% to 30% growth per year over the midterm.
Even though we're starting at a much lower rate.
Now the second question that you have in terms of a broader portfolio.
Yes, once we build this omnichannel is going to be a very powerful advantage for us in our robotics business and we will be looking to try to find ways to leverage that strength to find other growth engines.
Okay, that's great color. Thanks, Greg.
Our next question comes from Joe Moore with Morgan Stanley . Please proceed.
Great. Thank you I wanted to understand a little bit more of the component constraints and I guess, if you could put that in the context of the last couple of quarters I had thought you guys weren't as constrained as advanced that's wise and I wasn't really thinking it was holding you back from revenue now.
Now it seems like the component constraints are easing, but theres still some negative impact this quarter.
Put that in context, what you've been seeing the last few quarters and how does that affect you from like a market share standpoint to prevent that supply versus your supply.
Yeah, great. So last quarter, we had a little bit of market component.
Component constraints as well.
Brought in roughly $10 million of that constraint into revenue.
Into Q1, and I'd say that overall supply and demand is tightening coming more into balance really with the falloff of demand and fundamentally we see.
Things normalizing I would say that there are a couple of suppliers.
Still very long lead time for some unique components that we source.
And really that's driven by demand that has just started to spring up where obviously, we have supply chain programs, we have available slots and but when several customers in specific.
Industries or end market segments or are coming in that really ends up.
Outstripping, our availability to supply so think about it as a couple of key component suppliers and a couple of the markets that we're seeing.
An uptick in thats higher than our expectation which is great.
Expect that this quarter will be 25, as I noted 25 million outside.
Outside obviously, we're doing our best to service the customers see that hopefully going down.
Into 'twenty, four but with this uptick.
The good news is we have the opportunity to solve these problems and we're working very hard to do it we have a track record of execution. So just think of it is tied to a couple of key components.
Okay, Great and are those I know you had constraints like a year ago is it the same components or is that sort of just different areas like kind of moving hotspots of.
Shortage that are moving around a little bit.
Yes, I would say going back to 'twenty, one and kind of the first part of 'twenty. Two I would say there was a wide variety of.
Of of component supply chain issues.
But that occurred and think about it.
The band is narrowing considerably.
While there is a couple that are that are still out there that we're working through and working very closely with our suppliers that are showing continuous improvement.
That's very helpful. Thank you.
Our next question comes from Steve Barger with Keybanc. Please proceed.
Thanks, Good morning.
Great thinking about your prepared comments, how do you reconcile the strength in semi test for industrial Digitization with the softer forecast for robotics. It seems like those should be correlated to some degree or is there some other aspect of it.
Digitization, that's driving the test volume.
Hi, Steve So.
It's a pretty.
Pretty insightful question so the.
The thing that is going on and if you if you look at us versus other.
Industrial like robotics companies.
Youll see that our results are significantly more volatile.
The biggest difference between us and them and still like if you think about cobalt. So they are a $1 billion of about a $12 billion industrial robot market.
Still very busy <unk>.
Shipping product to help put together a whole bunch of EV factories and battery factories.
Thats business that is not really core to the cobalt space and so I think that the.
One of the things that's going on is there is significant consumption of electronics into the other parts of the robotics business, but our business tracks like PMI and other.
Is it a pure volume game, that's driving the vote the focus on large accounts or do you see the value in the ecosystem that you can provide in the hardware. It's how you sell that or do you think that more value will be in the services and upgrades over time as the installed base grows, whereas where do you think this goes to your benefit.
Yes, so it's.
Better software easier to use capabilities that makes a big difference as does having an ecosystem of partners that can help people build solutions quite quickly the focus on large accounts I think of that primarily in terms of.
Cost of sales by concentrating on a smaller number of larger accounts, we can sell more robots per account and that allows us to grow.
With like that our sales growth will outpace our sales cost growth over time, so I see that as.
Efficiency gain.
The comment that you made about hardware versus services I think that that's an important aspect of our future plants that we think that there are profit pools in.
Retaining and engagement with customers that have bought our product both in terms of providing service, but more importantly in terms of providing new types of software new components that will allow them to get more out of the product in the future.
At the end of the day, our robots are really reliable they don't break that much. So like a break fix business I would not expect to be a huge volume generator, but as robots get into more and more critical processes. These customers are going to want to pay for uptime and thats a more lucrative service model.
Would you get into more <unk> as a service or robotics as a service over time based on that comment.
Well, we might want to get a beer to have that conversation.
Hi.
Think that like.
In a nutshell, we believe in service as a service right that.
The models, where people are trying to offer.
Hardware that depreciates as a service is largely around who carries the depreciation.
And I think it's an it's an interesting model at the at the low levels of penetration that we have right now in robotics, because customers are reluctant there theyre worried about making investments that will pay off and robots as a service allow them to walk away more easily.
We're far more focused on.
Solving those problems so that customers are willing to make those investments because they are smart enough to figure out if they get a better deal by carrying the depreciation versus paying rent for the robot and Thats basically what you are talking about.
Yes.
Thank you I appreciate the time.
Hey, operator, we're going to try to sneak in just one more one more question. Please if you would.
Sure. The next question is Nevada shot right with Jefferies. Please proceed.
Hi, Thanks for taking my question I guess my first question is on.
<unk>.
High bandwidth memory.
Do you think that kind of.
Click.
Thank you Ron Garland.
For the year on the DRAM side is that is that an angle.
Thank you, Dave and Becky Herrick glass packaging does that increase your test intensity.
How should we think about it.
Yes, Hello, everybody. So high bandwidth memory is certainly one of the leading edge technologies that is <unk>.
Driving some tester sales.
Some technology related tester sales, even though overall capacity is down but.
It's actually a really small part of the overall memory business. So it's it's a positive but I don't think its.
Nearly as significant as the transition to LP DDR, five or or the next generation of flash in terms of driving technology sales.
Okay got it.
My follow up.
On the auto and industrial markets.
Alright.
The market share has always been sort of 50 50 between guys Brian gay.
Our market share.
Samos Gameloft.
Power and discrete test that when it comes to gallium nitride Silicon carbide <unk> things like that are Eagle product line and the acquisition that we made of lengths US a few years ago have allowed us to really establish a pretty good position in that space.
As for China restrictions.
And we're getting a.
Something that we are on the lookout for is that that is generally producing parts that you don't need a high performance tester to deal with and there are some smaller test equipment makers locally there that are getting a share of that so we're watching that and we're trying to make sure that we.
Checked ourselves against competitive losses.
That's helpful. Thank you.
Okay folks and we're out of time. So this concludes the call. Thank you all for your interest in Teradyne, and we look forward to working with you in the weeks ahead bye bye.
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