Q3 2023 Teradyne Inc Earnings Call
Greetings and welcome to the Teradyne Q3, 2023 earnings call and webcast. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad.
Speaker 1: transcript
Speaker 1: Greetings. Welcome to the TeraDine Q32023 Ernie's call and webcast. At this time, all parts of
Speaker 1: transcript
Speaker 1: A question in that session will follow the formal presentation. If anyone should require operators to turn the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to your host, Andy Blanchard. You may begin.
This conference is being recorded.
Now I'll turn the conference over to your host Andy Blanchard you may begin.
Speaker 2: transcript
Speaker 2: Thank you and good morning everyone and welcome to our discussion of Terranai's most recent financial results. I'm joined this morning by our CEO , Greg Smith and our CFO Sanjay Metta. Following our opening remarks, we'll provide details of our performance for 2023's third quarter along with our outlook for the fourth quarter. The press release containing our third 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.
Thank you and good morning, everyone and welcome to our discussion of Teradyne's. Most recent financial results I'm joined this morning by our CEO, Greg Smith, and our CFO Sanjay Mehta.
During our opening remarks, we'll provide details of our performance for 2020, Three's third quarter, along with our outlook for the fourth quarter.
Press release containing our third quarter results was issued last evening.
Riding slides on the Investor page of the website that maybe helpful to you in following the discussion.
Speaker 2: transcript
Speaker 2: Replace of this call will be available via the same page after the call end.
Replays of this call will be available via the same page after the call ends.
Speaker 2: transcript
Speaker 2: The matters that we discussed today will include forward-looking statements that involve risk factors, if you cause terrorized results, to different materially from management's current expectations.
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 take no obligation to update them as a result of developments occur.
Speaker 2: transcript
Speaker 2: We encourage you to review the Safe Harbor Statement contained in the earnings release, as well as our most recent SEC filings. Additionally, those forward-looking statements are made as of today, and we take no obligation to update them as a result of developments occurring after this call. During today's call, we'll make reference to non-GAAP 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.
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.
Speaker 2: transcript
Speaker 2: Looking ahead, between now and our next earnings call, Turnite expects to participate in technology or industrial-focused investor conferences hosted by Baird, UBS, and Wolf Research.
Looking ahead between now and our next earnings call turnout expects to participate in technology or industrial focused investor conferences hosted by Baird UBS, Ed Wolfe research.
Speaker 2: transcript
Speaker 2: Now, let's get on with the rest of the agenda. First, Greg will comment on our recent results and the market conditions as we enter the fourth quarter. Sanjaya will then offer more details on our quarterly results along with our guidance for the fourth quarter. We'll then answer your questions, and this call is scheduled for one hour. Greg?
Let's get on with the rest of the agenda first Gregg will comment on our recent results and the market conditions as we enter the fourth quarter.
Jay will then offer more details on our quarterly results along with our guidance for the fourth quarter. We'll then answer your questions and this call is scheduled for one hour Greg.
Yeah.
Speaker 3: transcript
Speaker 3: Thanks, Andy, and good morning, everyone. Today, I will summarize our Q3 results, describe the current business conditions, and provide some insight on how we're thinking about 2024 and beyond.
Thanks, Andy and good morning, everyone. Today, I will summarize our Q2 results describe the current business conditions and provide some insight on how we're thinking about 'twenty 'twenty four and beyond.
Speaker 3: transcript
Speaker 3: Sanji will then provide the financial details on Q3, our outlook for Q4 and offer some comments and modeling next year.
Sanjay will then provide the financial details on Q3, our outlook for Q4 and offer some comments on modeling next year.
Speaker 3: transcript
Speaker 3: Third quarter sales and earnings were at the high end of our guidance range as robotic sales came in above plan and we cleared some supply constraints and tests.
Third quarter sales and earnings were at the high end of our guidance range as robotic sales came in above plan and we cleared some supply constraints in test.
Speaker 3: transcript
Speaker 3: The second half of 2023 is playing out as we described in July .
The second half of 2023 is playing out as we described in July.
Speaker 3: transcript
Speaker 3: We expect to close out the year with strong robotics shipments, amplified by new product shipments at UR, and seasonally softer test shipments.
We expect to close out the year with strong robotics shipments amplified by new product shipments that you are and seasonally softer test shipments.
Speaker 3: transcript
Speaker 3: In semiconductor test, the mobility correction cycle persists and shipments remain well below historic levels, while our automotive test shipments remain high in Q3.
In semiconductor test the mobility correction cycle persists and shipments remain well below historic levels, while our automotive test shipments remained high in Q3.
Memory test shipments in Q3 were down sequentially due to the timing of shipments, but demand remains strong L. P. DDR five and H B M. Both of which require higher speed testers drove the results in.
Speaker 3: transcript
Speaker 3: Memory test shipments in Q3 were down sequentially due to the timing of shipments, but demand remained strong. LPDDR5 and HBM, both of which require higher speed testers, drove the results.
Speaker 3: transcript
Speaker 3: In wireless, demand remained muted in the quarter given the weak smartphone market and lack of new wireless standards.
In wireless demand remained it remained muted in the quarter, given the weak smartphone market and lack of new wireless standards.
Speaker 3: transcript
Speaker 3: In system tests, defense and aerospace and storage test groups were on plan while production board tests softened in the quarter.
In system test defense and aerospace in storage test groups were unplanned well production board tests softened in the quarter.
Speaker 3: transcript
Speaker 3: Robotics demand has stabilized. In the first half of 2023, demand was quite low, down 21% versus the first half of 2022.
Robotics demand has stabilized in the first half was 2023 demand was quite low down 21% versus the first half of 2022 in.
Speaker 3: transcript
Speaker 3: In Q3, demand strengthened with revenue nearly at 2022 levels and up 20% from Q2. Our shipments have stepped up as we execute an aggressive ramp of the new UR20 product and PMI seems to have stabilized a bit.
In Q3 demand strengthened with revenue nearly at 2022 levels and up 20% from Q2 or.
Our shipments have stepped up as we execute an aggressive ramp of the new U R 20 product and PMI seems to have stabilized a bit.
Speaker 3: transcript
Speaker 3: Looking at the full year of 2023, our estimates of the SOC test market size are unchanged at $3.7 to $4.1 billion, down about 15% at the midpoint from last year.
Looking at the full year of 2023, our estimates of the SSD test market size are unchanged at $3 70 to $4 $1 billion down about 15% at the midpoint from last year.
Speaker 3: transcript
Speaker 3: The weakest segment of SOC is mobility, down about 40% from 2022 on slower complexity growth in smartphone semiconductors and year-on decline in units.
The weakest segment of Src as mobility down about 40% from 2022 on slower complexity growth in smartphone semiconductors and year on decline in units.
Speaker 3: transcript
Speaker 3: the compute, automotive, and industrial analog segments of the market will finish the year at similar levels to 2022.
The computer automotive and industrial analog segments of the market will finish the year at similar levels to 2022.
Speaker 3: transcript
Speaker 3: In memory test, we expect the market will be at the low end of the $900 million to $1 billion range. Also unchanged from our July view.
In memory test, we expect the market will be at the low end of the 900 million to $1 billion range also unchanged from our July view.
Speaker 3: transcript
Speaker 3: The demand for high-speed DRM tests remains high as we close out 2023, which will help us pick up a few points of memory share for the whole year.
The demand for high speed DRAM test remains high.
As we close out 2023, which will help us pick up a few points of memory share for the full year.
Teradyne's system Test group will finish 2023 down more than 20% from 2022.
Speaker 3: transcript
Speaker 3: Teradyne's system test group will finish 2023 down more than 20% from 2022. Within this group, we expect defense and aerospace will grow 10% year on year as global defense spending picked up. The other segments of the business were negatively impacted by oversupply in the HDD market and mobility weakness.
Within this group, we expect defense and aerospace will grow 10% year on year as global defense spending ticked up the other segments of the businesses were negatively impacted by oversupply in the HDD market and mobility weakness.
Shifting now to robotics, the macro environment for industry is incrementally better than last quarter with global PMI is stable or improving slightly.
Speaker 3: transcript
Speaker 3: The macro environment for industry is incrementally better than last quarter with global PMI stable or improving slightly.
Speaker 3: transcript
Speaker 3: The highlight of the quarter was a well-executed volume ramp of our UR20 collaborative robot.
The highlight of the quarter. It was a well executed volume ramp of our U R 20 collaborative robot.
Speaker 3: transcript
Speaker 3: We delivered more than 300 units in Q3, and we expected to deliver a multiple of that in Q4.
We delivered more than 300 units in Q3, and we expect to deliver a multiple of that in Q4.
Speaker 3: transcript
Speaker 3: The UR20 extends UR's ease of use and quick ROI to higher payload and longer reach applications, expanding the market in many segments. The strongest segments from UR20 so far are welding in palatine.
The U R. 20 extends you ours ease of use and quick ROI to higher payload and longer reach applications expanding the market in many segments. The strongest segments for the U R 20, so far our welding and Pelletizing.
The distribution channel transformation that we described in the in past calls is also making steady progress complementing our existing distribution channel with direct coverage at large accounts and adding OEM partners as a long term project and we are beginning to see positive benefits.
Speaker 3: transcript
Speaker 3: The distribution channel transformation that we described in past calls is also making steady progress.
Speaker 3: transcript
Speaker 3: Complementing our existing distribution channel with direct coverage at large accounts and adding OEM partners is a long-term project, and we're beginning to see positive benefits.
Speaker 3: transcript
Speaker 3: For example, in the OEM space, we have added 48 new OEM partners so far in 2023, bringing the total to 144. And we have seen direct OEM orders grow nearly 20% driven by the high demand from the palletizing market.
For example in the OEM space, we've added 48, new OEM partners. So far in 2023, bringing the total to 144 and we've seen direct OEM orders grow nearly 20% driven by the high demand from the Pelletizing market.
Speaker 3: transcript
Speaker 3: At Mir, our account strategy continues to deliver with our top 10 customers, expanding their collective install base by over 15% year to date. Our rate that's more than 50% greater than the overall install base growth.
At near our account strategy continues to deliver with our top 10 customers expanding their collective installed base by over 15% year to date, a rate that's more than 50% greater than the overall installed base growth.
Speaker 3: transcript
Speaker 3: Shifting to the future, I'd like to describe our current thinking about 2024. Please bear in mind that it is still too early and visibility is too limited to be certain about what will happen next year. However, there are some longer-term trends that we expect to play out.
Shifting to the future I'd like to describe our current thinking about 2024.
Please bear in mind that it is still too early and visibility is too limited to be certain about what will happen next year. However, there are some longer term trends that we expect to play out.
Okay.
As we've previously discussed we expect the SSD market and our revenue to grow from 2023 on broader three nanometer adoption in the mobility space driving market growth.
Speaker 3: transcript
Speaker 3: As we've previously discussed, we expect the SOC market and our revenue to grow from 2023 on broader 3-nanometer adoption in the mobility space, driving market growth and continued strength in the compute market.
Continued strength in the compute market.
Speaker 3: transcript
Speaker 3: The real question is the magnitude of the mobility recovery, which depends on smartphone unit growth, complexity growth, and how quickly the industry can consume idle test capacity.
The real question is the magnitude of the mobility recovery, which depends on smartphone unit growth complexity growth and how quickly the industry can consume idled test capacity.
Speaker 3: transcript
Speaker 3: For reference, we estimate subcontestor utilization is still low, up only marginally for Marge-Ly estimate and well below the typical Q2 to Q3 increase.
For reference we estimate sub con tester utilization is still low up only marginally from our July estimate and well below the typical Q2 to Q3 increase.
Speaker 3: transcript
Speaker 3: The automotive test market has been sustaining at a higher level in 2023 than we originally expect.
The automotive test market has been sustaining at a higher level in 2023 than we originally expected.
Speaker 3: transcript
Speaker 3: It appears that channel inventories in automotive are stabilizing and we have some seen some spot weakness in the market.
It appears that the channel inventories in automotive are stabilizing and we have some seen some spot weakness in the market.
Speaker 3: transcript
Speaker 3: We aren't expecting a significant change in the full-year market size next year as unit forecasts and semiconductor attach rates driven by the crossover from internal combustion to EV remain bullish.
We arent expecting a significant change in the full year market size next year as unit forecasts and semiconductor attach rates driven by the cross over from internal combustion to EV remained bullish.
Speaker 3: transcript
Speaker 3: The technology buys that have supported the memory TAM in 2023 should continue into next year. And we expect the memory market to grow as HBM, DDR5, and LPDDR5 penetration expands to support AI and computing growth.
The technology buys that have supported the memory Tam in 2023 should continue into next year and we expect the memory market to grow as H B M. DDR, five and LP DDR five penetration expands to support AI and computing growth.
Speaker 3: transcript
Speaker 3: In Flash, as protocol interface speeds continue to increase, we expect Flash package test demand to grow as well.
And flash as protocol interface speeds continue to increase we expect flash package test demand to grow as well.
Speaker 3: transcript
Speaker 3: Overall, we expected total ATE TAM to be up modestly from this year, and the key factor is the strength of recovery in mobile.
Overall, we expect the total <unk> Tam to be up modestly from this year and the key factor is the strength of recovery in mobile.
Speaker 3: transcript
Speaker 3: Growth in our wireless business, LightPoint, will be strongly linked to handset growth, a recovery in the PC market, and the start of the rollout of Wi-Fi 7.
Growth in our wireless business light point will be strongly linked to handset growth a recovery in the PC market and the start of the rollout of Wi Fi seven.
Speaker 3: transcript
Speaker 3: The supply demand imbalance in HDD is likely to persist through 2024, and we expect HDD test to remain weak.
The supply demand imbalance in HDD is likely to persist through 2024, and we expect HDD test to remain weak <unk>.
Speaker 3: transcript
Speaker 3: System-level tests will depend largely on smartphone unit growth in the near term, while we expect our defense and aerospace business to grow in 2024 on increased defense investments worldwide.
System level test will depend largely on smartphone unit growth in the near term, while we expect our defense and aerospace business to grow in 2024 on increased defense investments worldwide.
In robotics, we're finishing 2023 on a positive note in a tough market with Q4 revenues up about 10% year on year on the strength of the new U R 20 product introduction.
Speaker 3: transcript
Speaker 3: In robotics, we're finishing 2023 on a positive note in a tough market with Q4 revenues up about 10% year on year on the strength of the new UR20 product introduction. That performance reinforces our...
That performance reinforces our optimism in robotics, we see robotics as a marathon not a sprint we are serving in a market and emerging market of $2 billion. This year that we expect to grow to tens of billions of dollars per year in the future.
Speaker 3: transcript
Speaker 3: We see robotics as a marathon, not a sprint. We are serving in an emerging market of $2 billion this year that we expect to grow to tens of billions of dollars per year in the future.
Operator: Greetings. Welcome to the TeraDine Q3 2023 Ernie's Call and Webcasts. At this time, all participants are now listening only mode.
Speaker 3: transcript
Speaker 3: Our operating model for robotics is built for that marathon, with a strategy that prioritizes product and support investments that deliver value to customers now.
Our operating model for robotics is built for that marathon with a strategy that prioritizes product and support investments that deliver value to customers now.
Operator: A question and answer session will follow the formal presentation. If anyone should require operators to turn a conference, please press star zero on your telephone keypad. Please note this conference is being recorded.
Speaker 3: transcript
Speaker 3: We are counting on building relationships with those paying customers to help guide our ongoing investments to meet their evolving needs for the future.
We are counting on building relationships with those paying customers to help guide our ongoing investments to meet their evolving needs for the future. The key to this strategy is driving towards our model of 5% to 15% profit from our robotics portfolio.
Andrew Blanchard: I will now turn the conference over to your host, Andy Blanchard. You may begin. Thank you and good morning everyone and welcome to our discussion of TeraDine'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 third quarter along with our outlook for the fourth quarter. The press released containing our third quarter results was issued last evening.
Speaker 3: transcript
Speaker 3: The key to this strategy is driving towards our model of 5% to 15% profit from our robotics portfolio.
Speaker 3: transcript
Speaker 3: While we may, while we will fall short of this objective in 2023, it remains a key operating metric for 2024. We do this to ensure that we remain focused on our customers' most important automation priorities while we grow the business.
While we may while we will fall short of this objective in 2023. It remains a key operating metric for 2024, we do this to ensure that we remain focused on our customers' most important automation priorities, while we grow the business.
Andrew Blanchard: 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. The matters that we discussed today will include forward-looking statements that involve risk factors if you cause TeraDine's results to differ materially from management's current expectations. We encourage you to review the safe harbor statement contained in the Ernie's release as well as our most recent SEC filing.
Speaker 3: transcript
Speaker 3: Rolling it all up, 2024 looks to be stronger than 2023. With all of the uncertainty around chip inventories, low utilization rates and macroeconomic worries.
Rolling It all up 22024 looks to be stronger than 2023.
With all of the uncertainty around chip inventories Logan utilization rates and macroeconomic worries.
Speaker 3: transcript
Speaker 3: I call it incrementally stronger, but we'll get a better view over the next quarter or so. We're also assuming a quarterly revenue profile in 2024, similar to 2023, with Q1 is the low point and then growth from there. While early, we're modeling Q1 sales to be similar to Q1-23.
I'd call it incrementally stronger, but we'll get a better view over the next quarter or so we're also assuming a quarterly revenue profile in 2024 similar to 2023 with Q1 as the low point and then growth from there while early we're modeling Q1 sales to be similar to Q1 'twenty.
Andrew Blanchard: 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-GAB financial measures. We've posted additional information concerning these non-GAB financial measures, including reconciliation to the most directly comparable GAB financial measure we're available on the investor page of our website. Looking ahead, between now and our next earnings call, TeraDine expects to participate in technology or industrial-focused investor conferences hosted by Baird, UBS, and Wolf Research.
<unk>.
Speaker 3: transcript
Speaker 3: As we finish the year, I'm encouraged by indications that our largest market, Semitest, appears to have troughed in 2023 at a level that delivers an operating profit of 20% for the total company.
As we finished the year I am encouraged by indications that our largest market semi test appears to a profit in 2023 at a level that delivers an operating profit of 20% for the total company.
Speaker 3: transcript
Speaker 3: We are confident about the long-term growth outlook of the semiconductor market as the substantial fab equipment investments made in the recent past have not yet seen matching test investments.
We are confident about the long term growth outlook of semi of the semiconductor market as the substantial fab equipment investments made in the recent past have not yet seen matching test investments also we see consistent investment in tooling to enable continued process development.
Andrew Blanchard: Now let's get on with the rest of the agenda. First, Greg will comment on our recent results and the market conditions as we enter the fourth quarter. Sanjay will then offer more details on our quarterly results along with our guidance for the fourth quarter. We'll then answer your questions and this call is scheduled for one hour.
Gregory Smith: Greg?
Speaker 3: transcript
Speaker 3: Also, we see consistent investment in tooling to enable continued process development. Whether it is building a family of process nodes at three nanometer or enabling gate all around and two nanometer technology.
Other it is building a family of process nodes at three nanometer or enabling gate, all around and two nanometer technologies.
Gregory Smith: Thanks, Andy, and good morning everyone. Today, I will summarize our Q3 results, describe the current business conditions, and provide some insight on how we're thinking about 2024 and beyond. Sanjay will then provide the financial details on Q3, our outlook for Q4, and offer some comments and modeling next year. Third quarter sales and earnings were at the high end of our guidance range as robotic sales came in above plan and we cleared some supply constraints and tests.
Speaker 3: transcript
Speaker 3: While the timing of test investments will be driven by end market chip demand and complexity growth, we are confident that this investment will have.
While the timing of test investments will be driven by end market chip demand and complexity growth. We are confident that this investment will happen.
Speaker 3: transcript
Speaker 3: To be clear, our customers are still cautious about their near-term demand, and we're reflecting that caution in our initial outlook for next year. But long-term, there is significant upside potential.
To be clear our customers are still cautious about their near term demand and we're reflecting that caution in our initial outlook for next year, but long term there is significant upside potential.
Speaker 3: transcript
Speaker 3: In robotics, we have a pipeline of new products, new applications, and distribution changes that are now beginning to yield.
In robotics, we have a pipeline of new products, new applications and distribution changes that are now beginning to yield at the end of the day. The global population trends are in arguable. The long term demand for advanced automation must grow to deal with the increasing shortage of manufacturing workers.
Gregory Smith: The second half of 2023 is playing out as we described in July. We expect to close out the year with strong robotic shipments amplified by new product shipments that you are and seasonally softer test shipments. In semiconductor test, the mobility correction cycle persists and shipments remain well below historic levels while our automotive test shipments remain high in Q3. Memory test shipments in Q3 were down sequentially due to the timing of shipments but demand remained strong.
Speaker 3: transcript
Speaker 3: At the end of the day, the global population trends are inarguable. The long-term demand for advanced automation must grow to deal with the increasing shortage of manufacturing workers. That coupled with market conditions that favor low cost, short ROI automation investments, and our teams growing execution skill, I expect renewed growth in robotics in 2024 as well.
That coupled with market conditions that favor low cost short ROI automation investments and our team's growing execution skill I expect renewed growth in robotics in 2024, as well with that I'll turn things over to Sanjay for the financial details Sanjay.
Speaker 3: transcript
Speaker 3: With that, I'll turn things over to Sanjay for the financial details. Sanjay?
Gregory Smith: LPDDR5 and HBM both of which require higher speed testers drove the results. In wireless, demand remained muted in the quarter given the weak smartphone market and lack of new wireless standards this year. In system test, defense and aerospace and storage test groups were on plan while production board tests softened in the quarter. Robotic's demand is stabilized. In the first half of 2023, demand was quite low, down 21% versus the first half of 2022.
Speaker 4: transcript
Speaker 4: Thank you, Greg. Good morning, everyone. Today I'll cover the financial summary of Q3, provide our Q4 outlook, and update you on our supply chain and resiliency progress.
Thank you Greg Good morning, everyone. Today I'll cover the financial summary of Q3 provide our Q4 outlook and update you on our supply chain and resiliency progress now.
Speaker 4: transcript
Speaker 4: Now to Q3. Third quarter sales were $704 million with non-GAAP EPS of $0.80.
<unk> Q3.
Third quarter sales were $704 million with non-GAAP EPS of <unk> 80.
Both at the high end of our guidance as robotics delivered above plan and some supply constraints eased and test <unk>.
Speaker 4: transcript
Speaker 4: both at the high end of our guidance as robotics delivered above plan and some supply constraints eased in tests.
Speaker 4: transcript
Speaker 4: Non-GAP gross margins were 56.6% in line with our guys.
non-GAAP gross margins were 56, 6% in line with our guidance non-GAAP operating expenses were $243 million.
Speaker 4: transcript
Speaker 4: non-GAAP operating expenses were $243 million, down about 3% from the second quarter on spending controls and lower variable compensation.
Gregory Smith: In Q3, demand strengthened, with revenue nearly at 2022 levels, and up 20% from Q2. Our shipments have stepped up as we execute an aggressive ramp of the new UR20 product, and PMI seems to have stabilized a bit. Looking at the full year of 2023, our estimates of the SOC test market size are unchanged at $3.7 to $4.1 billion, down about 15% at the midpoint from last year. The weakest segment of SOC's mobility, down about 40% from 2022, on slower complexity growth in smartphone semiconductors and year on decline in units.
About 3% from the second quarter on spending controls and lower variable compensation.
Speaker 4: transcript
Speaker 4: Non-GAP operating profit rate was 22%. We had 210% customers in the quarter. The tax rate, excluding discrete items for the quarter, was 14.5% on a gap basis and 15.7% on a non-GAP basis.
non-GAAP operating profit rate was 22% we.
We had 210% customers in the quarter.
<unk> rate, excluding discrete items for the quarter was 14, 5% on a GAAP basis, and 15, 7% on a non-GAAP basis.
Speaker 4: transcript
Speaker 4: Semi-test revenue for the quarter was $498 million with SOC revenue contributing $404 million and memory $94 million.
Semi test revenue for the quarter was $498 million with Soc revenue contributing $404 million in memory $94 million.
Speaker 4: transcript
Speaker 4: As noted earlier, we continue to see strength in SOC concentrated in auto end market and image sensor parts of our business in the quarter.
As noted earlier, we continued to see strength in Soc concentrated in auto end market and image sensor parts of our business in the quarter.
Gregory Smith: The compute, automotive, and industrial analog segments of the market will finish the year at similar levels to 2022. In memory test, we expect the market will be at the low end of the $900 million to $1 billion range, also unchanged from our July view. The demand for high-speed DRAM test remains high, as we close out 2023, which will help us pick up a few points of memory share for the full year.
Speaker 4: transcript
Memory sales continue to be weighted towards technology retooling for higher speed protocol flash for smartphones.
Dr Five and HBM DRAM for server applications.
Speaker 4: transcript
Speaker 4: System test group revenue was $83 million with $38 million in storage test as SLT and HDD production demand remains muted.
System Test group revenue was $83 million with $38 million in storage test at <unk>.
S L T and HDD production demand remains muted.
Speaker 4: transcript
Speaker 4: In wireless test, revenue was $37 million in Q3, with low demand from both PC and smartphone end markets.
In wireless test revenue was $37 million in Q3 with low demand from both PC and smartphone end markets. We expect this market trend to continue over the next several quarters.
Gregory Smith: Teradyne's system test group will finish 2023 down more than 20% from 2022. Within this group, we expect defense and aerospace will grow 10% year on year as global defense spending ticked up. The other segments of the business were negatively impacted by oversupply in the HDD market and mobility weakness. Shifting now to robotics, the macro environment for industry is incrementally better than last quarter with global PMI stable or improving slightly. The highlight of the quarter was a well-executed volume ramp of our UR20 collaborative robot.
Speaker 4: transcript
Speaker 4: We expect this market trend to continue over the next several quarters.
Speaker 4: transcript
Speaker 4: Now to robotics. Revenue in Q3 was $86 million, with UR contributing $71 million and MIR $15 million, which was above plan, as Greg noted.
Now to robotics revenue in Q3 was $86 million with you are contributing $71 million and $15 million, which was above plan is correct noted.
Shifting back to the company level financials, our free cash flow was $140 million in the quarter and we returned 97% to shareholders, we repurchased $119 million of shares in the quarter paid $17 million in dividends and settled $9 million of debt, we have the final $24 million of <unk>.
Speaker 4: transcript
Speaker 4: Shifting back to the company level financials, a free cash flow was $140 million in the quarter, and we return 97% to shareholders. We repurchased $119 million of shares in the quarter, paid $17 million in dividends, and settled $9 million of debt. We have the final $24 million of convertible debt, which will be repaid in the fourth quarter.
Gregory Smith: We delivered more than 300 units in Q3 and we expected to deliver a multiple of that in Q4. The UR20 extends UR's ease of use and quick ROI to higher payload and longer reach applications, expanding the market in many segments. The strongest segments from the UR20 so far are welding and palatizing. The distribution channel transformation that we described in past calls is also making steady progress. Complementing our existing distribution channel with direct coverage at large accounts and adding OEM partners is a long-term project and we're beginning to see positive benefits.
<unk> debt, which will be repaid in the fourth quarter.
Speaker 4: transcript
Speaker 4: We ended the quarter with $820 million in cash and marketable securities.
We ended the quarter with $820 million in cash and marketable securities.
Now to our outlook for Q4.
Speaker 4: transcript
Speaker 4: Q4 sales are expected to be between $640 and $700 million with non-GAAP EPS in a range of $0.61 to $0.81 on 162 million diluted shares.
Q4 sales are expected to be between 640 $700 million with non-GAAP EPS in a range of 61 to 81.
On 162 million diluted shares.
Speaker 4: transcript
Speaker 4: Fourth quarter guidance excludes the amortization of acquired intangibles, restructuring, and other charges. This outlook is in line with our July view at the company level for the second half.
The fourth quarter guidance excludes the amortization of acquired intangibles restructuring and other charges. This outlook is in line with our July view at the company level for the second half.
Speaker 4: transcript
Speaker 4: Our revenue guide for Q4 has no material supply constraints.
Our revenue guide for Q4 has no material supply constraints.
Speaker 4: transcript
Speaker 4: As supply has become more in line with demand, we are now back to including normal supply issues in the revenue range. As a result of supply and demand coming into balance, our lead times continue to improve.
Supply has become more in line with demand we are now back to including normal supply issues in the revenue range as a result of supply and demand coming into balance our lead times continue to improve.
Gregory Smith: For example, in the OEM space, we've added 48 new OEM partners so far in 2023 bringing the total to 144 and we have seen direct OEM orders grow nearly 20% driven by the high demand from the palatizing market. At Mir, our account strategy continues to deliver with our top 10 customers expanding their collective install base by over 15% year to date. Our rate that's more than 50% greater than the overall install base growth.
Speaker 4: transcript
Speaker 4: This enables customers to place orders more in line with their incremental production requirements. In Q4, there is a component of this behavior, but we expect to see more bookship variability in Q1 as lead times continue to be reduced.
This enables customers to place orders more in line with our incremental production requirements. In Q4, there is a component of this behavior, but we expect to see more book ship variability in Q1 as lead times continue to be reduced.
Speaker 4: transcript
Speaker 4: Fourth quarter gross margins are estimated at 56 to 57%. OPEX is expected to run at 35 to 38% of fourth quarter sales in line with Q3. Non-GAP operating profit rate at the midpoint of our fourth quarter guidance is 20%.
Fourth quarter gross margins are estimated at 56% to 57%.
Opex is expected to run at 35% to 38% of fourth quarter sales in line with Q3, non-GAAP operating profit rate at the midpoint of our fourth quarter guidance is 20%.
Gregory Smith: Smith. Shifting to the future, I'd like to describe our current thinking about 2024. Please bear in mind that it is still too early and visibility is too limited to be certain about what will happen next year.
Speaker 4: transcript
Speaker 4: A little more color on gross margins and OPEX profile for the second half.
A little more color on gross margins and Opex profile for the second half.
Speaker 4: transcript
Speaker 4: Recall, our long-term model has gross margins of 59 to 60%. In 2021 and 2022, we were in our model range with margins of 59.6 and 59.2% respectively.
Our long term model has gross margins of 59% to 60% in 2021 and 2022, we were in our model range with margins of $59, six and 59, 2% respectively.
Gregory Smith: However, there are some longer term trends that we expect to play out. As we've previously discussed, we expect the SOC market and our revenue to grow from 2023 on broader 3 nanometer adoption in the mobility space, driving market growth and continued strength in the compute market. The real question is the magnitude of the mobility recovery, which depends on smartphone unit growth, complexity growth, and how quickly the industry can consume idle test capacity.
Speaker 4: transcript
Speaker 4: In our July call, we noted the gross margin profile by quarter, which show lower gross margins in Q3 and Q4 due to the timing of spending to strengthen our supply chain, but that we expected our full year 2023 gross margins in the 57 to 58 percent range. That outlook is unchanged.
In our July call. We noted the gross margin profile by quarter, which show lower gross margins in Q3, and Q4 due to the timing of spending to strengthen our supply chain, but that we expected our full year 2023 gross margins in the 57% to 58% range.
That outlook is unchanged.
Turning to resolve resiliency spending in.
Speaker 4: transcript
Speaker 4: and operations manufacturing spend will continue in Q4. But the spend associated with enabling our new factories to be qualified and producing testers is behind us.
In operations manufacturing spend will continue in Q4, but the spend associated with enabling our new factories to be qualified and producing testers is behind us.
Gregory Smith: For reference, we estimate subcontestual utilization is still low, up only marginally from our July estimate and well below the typical Q2 to Q3 increase. The automotive test market has been sustaining at a higher level in 2023 than we originally expected. It appears that channel inventories and automotive are stabilizing and we have seen some spot weakness in the market. We aren't expecting a significant change in the full-year market size next year as unit forecasts and semiconductor attach rates driven by the crossover from internal combustion to EV remain bullish.
Speaker 4: transcript
Speaker 4: Hacking up inventory and some capital equipment from old locations is what is left to do for our manufacturing in Q4.
Backing up inventory and some capital equipment from old locations is what is left to do for our manufacturing in Q4 in short we have successfully completed our objectives of moving many product lines to new locations I would like to thank our internal teams and our partners for their tireless effort and Derisking our supply chain some <unk>.
Speaker 4: transcript
Speaker 4: In short, we have successfully completed our objectives of moving many product lines to new locations.
Speaker 4: transcript
Speaker 4: We'd like to thank our internal teams and our partners for their tireless effort and de-resking our supply chain.
Speaker 4: transcript
Speaker 4: Some component qualification will continue in 2024, but the majority of the test operational resiliency spending is behind us.
Ponant qualification will continue in 'twenty 'twenty four but the majority of the test operational resiliency spending is behind us.
Regarding opex as noted our full year spend will be flat to slightly down versus 2022 spend levels. This is due to both spending controls and lower variable compensation recall, our operating model is a variable component for operating expenses or the model flexes compensation expense with revenue and profits as <unk>.
Speaker 4: transcript
Speaker 4: As noted, our full year spend will be flat, slightly down versus 2022 spend levels. This is due to both spending controls and lower variable compensation. Recall, our operating model has a variable component for operating expenses, where the model flexes compensation expense with revenue and profits. As both are lower than 2022 levels, we're spending less than 2023. As revenues are expected to grow in 2024 in future years, that variable compensation component will also grow.
Gregory Smith: The technology buys that have supported the memory tam in 2023 should continue into next year and we expect the memory market to grow as HBM, DDR5, and LPDDR5 penetration expands to support AI and computing growth. In Flash, as protocol interface speeds continue to increase, we expect Flash package test demand to grow as well. Overall, we expect a total ATD tam to be up modestly from this year and the key factor is the strength of recovery in mobile.
Both are lower than 2022 levels, we're spending less in 2023 as revenues are expected to grow in 2024 in future years that variable compensation component will also grow.
Speaker 4: transcript
Speaker 4: For the full year 2023, at the midpoint of our guidance, revenue will be slightly below $2.7 billion with non-GAAP EPS of $2.85 and operating profit of 20%.
For the full year 2023 at the midpoint of our guidance revenue will be slightly below $2 7 billion with non-GAAP EPS of $2 85 and.
Gregory Smith: Growth in our wireless business white point will be strongly linked to handset growth, a recovery in the PC market, and the start of the rollout of Wi-Fi 7. The supply demand imbalance in HDD is likely to persist through 2024 and we expect HDD tests to remain weak. System-level tests will depend largely on smartphone unit growth in the near term while we expect our defense and aerospace business to grow in 2024 on increased defense investments worldwide.
An operating profit of 20%.
Speaker 4: transcript
Speaker 4: Gross margin for the full year should be about 57.5%.
Gross margin for the full year should be about 57, 5%.
Speaker 4: transcript
Speaker 4: Our GAP and non-GAP tax rates are forecasted to be 15.75 and 16.5% respectively in 2023.
Our GAAP and non-GAAP tax rates are forecasted to be $15, 75, and 16, 5% respectively in 2023.
Speaker 4: transcript
Speaker 4: Looking at 2024 business levels, Greg noted we expected revenue growth in 2024. How much growth is tough to-
Looking at 2024 business levels, Greg noted, we expected revenue growth in 2024.
How much growth is tough to call at this point.
Starting the year with Q1 'twenty four revenues similar to Q1 'twenty three levels Q1 is expected to have unfavorable product mix, yielding lower gross margins in Q4 23 for.
Speaker 4: transcript
Speaker 4: Starting the year with Q-124 revenues, similar to Q-123 levels, Q-1 is expected to have unfavorable product mix yielding lower gross margins than Q-423. For the full year 24, we expect gross margins to be better than 23 on higher volume and lower resillings he spent.
Gregory Smith: In robotics, we're finishing 2023 on a positive note in a tough market with Q4 revenues up about 10% year on year on the strength of the new UR20 product introduction. That performance reinforces our optimism in robotics.
For the full year 'twenty four we expect gross margins to be better than 'twenty, three on higher volume and lower resiliency spending.
Speaker 4: transcript
Speaker 4: Summing up, our second half is playing out as expected, with the highlights being strong execution by our UR team as they ramp UR20 to meet high customer demand. For the full year, while the end markets have softened in 2023, our company operating model has flexed costs down to support profitability, while enabling our R&D and go-to-market investments to support our long-term growth objectives.
Gregory Smith: We see robotics as a marathon, not a sprint. We are serving an emerging market of $2 billion this year that we expect to grow to tens of billions of dollars per year in the future. Our operating model for robotics is built for that marathon with a strategy that prioritizes product and support investments that deliver value to customers now. We are counting on building relationships with those paying customers to help guide our ongoing investments to meet their evolving needs for the future. The key to this strategy is driving towards our model of 5% to 15% profit from our robotics portfolio. Our customers most important automation priorities while we grow the business.
Summing up our second half is playing out as expected with the highlight being strong execution by our U R team as they ramp you are 20% to meet high customer demand for the full year, while the end markets have softened in 2023, our company operating model has flex costs down to support profitability while enabling.
Our R&D and go to market investments to support our long term growth objectives. We've.
Speaker 4: transcript
Speaker 4: We've transformed our supply chain to reduce geographic risk and strengthened our operations capacity.
We've transformed our supply chain to reduce geographic risk and strengthened our operations capacity from a shareholder return perspective year to date, we've returned 181% of our free cash flow to owners.
Speaker 4: transcript
Speaker 4: From a shareholder return perspective, year-to-date, we've returned 181% of our free cash flow to owners.
Speaker 4: transcript
Speaker 4: Our cash position and strength and our balance sheet enables us to continue to invest in strategic organic initiatives and has the firepower to support a wide range of M&A options for inorganic growth in the future.
Our cash position and strength in our balance sheet enables us to continue to invest in strategic organic initiatives and has the firepower to support a wide range of M&A options for inorganic growth in the future.
With that I'll turn the call back to Andy Andy Thanks, Sanjay operator, we'd now like to take some questions and as a reminder, please limit yourself to one question and a follow up.
Speaker 2: transcript
Speaker 2: Turn the call back to Andy. Andy? Thanks, Andre. Operator would now like to take some questions. And as a reminder, please limit yourself to one question and a follow-up.
Gregory Smith: Rolling it all up, 2024 looks to be stronger than 2023. With all of the uncertainty around chip inventories, low utilization rates, and macroeconomic worries, I call it incrementally stronger, but we'll get a better view over the next quarter or so. We're also assuming a quarterly revenue profile in 2024, similar to 2023, with Q1 is the low point and then growth from there, while early we're modeling Q1 sales to be similar to Q1-23.
Thank you at this time, we'll be conducting a question answer session.
If you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue.
Speaker 1: transcript
Speaker 1: If you'd like to ask a question, please press the star one on your top on keypad. A consummate in tone will indicate a line is in the question queue. You may press star two.
Fresh start to if he would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys.
Speaker 1: transcript
Speaker 1: but participants using speaker equipment and may be necessary to pick up your handset before pressing the start keys. And...
Gregory Smith: As we finish the year, I'm encouraged by indications that our largest market semi-test appears to have cropped in 2023 at a level that delivers an operating profit of 20% for the total company. We are confident about the long-term growth outlook of the semiconductor market as the substantial fab equipment investments made in the recent past have not yet seen matching test investments. Also, we see consistent investment in tooling to enable continued process development, whether it is building a family of process nodes at 3 nanometer or enabling gate all around and 2 nanometer technologies.
And one moment, please while we poll for questions.
Our first question comes from the line of Tim Arcuri with UBS. Please proceed with your question.
Speaker 1: transcript
Speaker 1: Our first question comes from the line of Tim Arcuri with UBS, please proceed with your
Thanks, a lot Greg you had talked about there being some critical points, where utilization has to get to to then see mobility start to grow again. So how do you. How do you think about where we are sort of in aggregate I know your large customer has their own dynamic.
Speaker 5: transcript
Speaker 5: Thanks a lot. Greg, you had talked about there being some critical points where utilization has to get to to then see mobility start to grow again. How do you think about where we are? Sort of an aggregate. I know your large customer has their own dynamics, but how do you think about where we are right now in terms of utilization versus where you think we have to get until before the non-large customers would come back and start to buy again? Yeah, that's a thanks to him. So the.
Dynamics, but how do you think about where we are right now in terms of utilization versus where you think we have to get until before.
The non large customers would come back and start to buy again.
Gregory Smith: While the timing of test investments will be driven by end market chip demand and complexity growth, we are confident that this investment will happen. To be clear, our customers are still cautious about their near-term demand, and we're reflecting that caution in our initial outlook for next year, but long-term there is significant upside potential. In robotics, we have a pipeline of new products, new applications, and distribution changes that are now beginning to yield.
Yeah. Thanks.
Thanks, Tim so the.
Right now.
Our.
Speaker 5: transcript
Speaker 5: I'm hesitant to give you exact numbers because our measurements of utilization are indirect.
I'm hesitant to give you exact numbers because our measurements of utilization or indirect. So we tend to look more at the changes from quarter to quarter than the absolute level, but then.
Speaker 5: transcript
Speaker 5: So we tend to look more at the changes from quarter to quarter than the absolute level. But the
They are significantly lower than what we've seen for people to want to buy so.
Speaker 5: transcript
Speaker 5: they are significantly lower than what we've seen for people to want to buy.
Speaker 5: transcript
Speaker 5: So, and there's also a big difference between our IDM customers and our OSAT customers.
And it's also a big difference between our IDM customers and our <unk> customers. So our IDM customer utilization by our measurements are up in the low eighties and thats, usually at a high enough level that trigger buys our <unk> customers are like 20 points lower there's usually a few points of inflection.
Gregory Smith: At the end of the day, the global population trends are inarguable. The long-term demand for advanced automation must grow to deal with the increasing shortage of manufacturing workers. That coupled with market conditions that favor low-cost, short ROI automation investments, and our team's growing execution skill, I expect renewed growth in robotics in 2024 as well.
Speaker 5: transcript
Speaker 5: So our IDM customer utilization by our measurements are up in the low 80s, and that's usually at a high enough level to trigger bot.
Speaker 5: transcript
Speaker 5: Our OSAC customers are like 20 points lower. There's usually a few points of inflection, like an increase in utilization from Q2 to Q3. We saw very little in our data this time. And so it's still on the order of 20 points lower than what we're seeing inside of IDMs. So I think there's a...
Like an increase in utilization from Q2 to Q3, we saw very little in our data. This time and so it's still on the order of 20 points lower than what we're seeing inside of idms. So I think theres a.
Sanjay Mehta: With that, I'll turn things over to Sanjay for the financial details. Sanjay? Thank you, Greg.
Speaker 5: transcript
Speaker 5: There's a pretty big hill to climb in terms of utilization before that would trigger buys from OSATs to support the mobile space.
Theres, a pretty big Hill to climb in terms of unit utilization before that would trigger buys from Oss to support the mobile space.
Sanjay Mehta: Good morning, everyone. Today, I'll cover the financial summary of Q3, provide our Q4O look, and update you on our supply chain and resiliency progress. Now to Q3. Third quarter sales were $700 to $4 million with non-gap EPS of 80 cents, both at the high end of our guidance as robotics delivered above plan and some supply constraints eased in test. Non-gap gross margins were 56.6% in line with our guide. Williams, Non-Gab operating expenses were $243 million, down about 3% from the second quarter on spending controls and lower variable compensation.
Speaker 6: transcript
Speaker 6: Thanks a lot. And then as you think about, I mean, I think a lot depends on your large customer next year. But as you think about, you read some of the plans in terms of what they're planning to do and, you know, having a new chip throughout the entire product portfolio, going from M3B to M3E.
Thanks, a lot and then as you think about your I mean, I think a lot depends on your large customer next year, but as you think about.
You read some of the plans in terms of what they're planning to do in.
Having a new chip throughout the entire product portfolio going from <unk> to <unk> through.
Speaker 6: transcript
Speaker 6: through the entire product portfolio, you do get 30% more transistor density. So it depends on the di-size obviously, but it does seem like there's gonna be a fairly solid increase in transistors across the entire portfolio next year. So maybe can you just, you know, I'm not asking you to predict what happens with that large customer, but can you talk about sort of the, the,
Through the entire product portfolio, you do get 30% more.
Transistor.
Density so it depends on the die size, obviously, but it does seem like there's going to be a fairly solid increase in transistors across the entire portfolio.
Next year. So maybe can you just I'm not asking you to predict what happens with that large customer, but can you talk about sort of the that the.
Speaker 6: transcript
Speaker 6: things that you're watching to sort of determine whether you think that next year could be a good year for that customer or.
The things that you're watching to sort of determine whether you think that next year could be a good year for that customer or or or not.
Speaker 5: transcript
Speaker 5: Sure. So, yeah, I'm, I think we're both sort of working off of the same source data when it comes to like reading the tea leaves about about this large customer.
Sure so.
Sanjay Mehta: $398 million with SOC revenue contributing $404 million and memory $94 million. As noted earlier, we continued to see strength in SOC concentrated in auto and market and image sensor parts of our business in the quarter. Memory sales continued to be weighted towards technology retooling for higher speed protocol flash for smartphones, DDR5 and HBMD RAM for server applications. System test group revenue was $83 million with $38 million in storage test as SLT and HDD production demand remained muted.
Yeah.
I think we're both sort of working off the same source data when it comes to like reading the tea leaves about about this large customer.
Speaker 5: transcript
Speaker 5: We don't really know what their product plans are. The things that we are watching for are how quickly 3-nanometer goes into their high-performance computing process of products. You know, the more of that product line that's on 3-nanometer, the more complexity there will be, and that's a tailwind towards loading.
The we don't really know what their product plans are the things that we are watching for or how quickly three nanometer goes into their high performance computing process.
Products that are the more the more of that product line. That's on three nanometer the more complexity there will be and that's a that's a tailwind towards loading the the next is.
Speaker 5: transcript
Speaker 5: The next is, what's the...
What's the relationship between like how do they use the next generation three nanometer process did they use that to try to decrease.
Speaker 5: transcript
Speaker 5: relationship between, like, how do they use the next generation 3-nanometer process?
Sanjay Mehta: In wireless test, revenue was $37 million in Q3 with low demand from both PC and smartphone and markets. We expect this market trend to continue over the next several quarters. Now to robotics, revenue in Q3 was $86 million with UR contributing $71 million and mere $15 million, which was above plan as Greg noted. Shifting back to the company level financials, a free cash flow was $140 million in the quarter and we returned 97% to shareholders.
Speaker 5: transcript
Speaker 5: Do they use that to try to decrease die size and attack cost, or do they use that to add features, to sort of keep die size the same, add a lot of complexity? So we're watching very closely to see how that plays out. And then the last is, if there's any change to the strategy of using the N minus 1 processor in the lower end phone product line, if that changes, that compresses the period of time that they have to build up.
Decreased die size and attack cost or do they use that to add features to sort of keep die size. The same at a lot of complexity. So we're watching very closely to see how that plays out and then the last is if theres any change to the strategy of using the N minus one processor in the lower end phone.
Product line, if that changes that compresses the period of time that they have to build.
Sanjay Mehta: We repurchased $19 million of shares in the quarter, paid $17 million in dividends and settled $9 million of debt. We have the final $24 million of convertible debt which will be repaid in the fourth quarter. We ended the quarter with $820 million in cash and marketable securities.
To build up.
Chips and that helps to drive peak loading. So we don't have information about that.
Speaker 3: transcript
Speaker 3: and that helps to drive peak loading.
Speaker 3: transcript
Speaker 3: So we don't have information about that. We are, you know, so,
We are.
<unk>.
Speaker 5: transcript
Speaker 5: We're being pretty cautious in terms of how we model that going into the future, but there are, like as you point out, there are a number of things that could drive some upside.
We're being pretty cautious in terms of how we model that going into the future, but there are like as you point out there are a number of things that could drive some upside.
Sanjay Mehta: Now to our outlook for Q4. Q4 sales are expected to be between $640 million and $700 million with non-gap EPS in a range of 61 to 81 cents on 162 million diluted shares. The fourth quarter guidance excludes the amortization of acquired intangibles, restructuring and other charges. This outlook is in line with our July view at the company level for the second half. Our revenue guide for Q4 has no material supply constraints.
Great Greg Thank you.
Speaker 1: transcript
Speaker 1: And our next question comes from the line of Chris Sankar with TD Cowen. Please proceed with your...
And our next question comes from the line of Krish Shankar with TD Cowen. Please proceed with your question.
Speaker 7: transcript
Speaker 7: Yeah, I think for taking a question I've told him to first one is on next year outlook to follow up on earlier question.
Yes, hi, thank for taking my question I feel them. Two first one is on negative outlook to follow up on the earlier question.
Speaker 7: transcript
Speaker 7: Historically, a big customer has come around April or May time frame to confirm kind of like a test route took for the year. Was it a similar pattern? And it seems like that was a different pattern this year. Do you expect to go back to regular patterns next year, or is it still too early to call me a good call? And then a follow-up. Thank you.
Historically, a big customer come around April may timeframe to confirm.
That's the outlook for the year was at a similar path and it seems like that that was a different pattern. This year.
Sanjay Mehta: As supply has become more in line with demand, we are now back to including normal supply issues in the revenue range. As a result of supply and demand coming into balance, our lead times continue to improve. This enables customers to place orders more in line with their incremental production requirements. In Q4, there is a component of this behavior, but we expect to see more book ship variability in Q1 as lead times continue to be reduced.
To go back to regular patterns next year or is it still too early to call me at this call I had a follow up.
So I.
Speaker 5: transcript
Speaker 5: I think that they actually followed a familiar pattern this year. But what ended up happening in April May was that they ended up needing...
I think that the.
They actually followed a familiar pattern this year, but what ended up happening in April may was that they ended up needing not a lot of additional capacity. So I think we've pointed out in prior calls that we expect that major customer to be less than 10% customer in 2023.
Speaker 5: transcript
Speaker 5: not a lot of additional capacity. So I think we've pointed out in prior calls that we expect that major customer to be less than 10% customer in 2023, but we haven't seen any significant change in the timing. The thing that we said in the prior call about this was,
Sanjay Mehta: Fourth quarter gross margins are estimated at 56 to 57 percent. OPEX is expected to run at 35 to 38 percent of fourth quarter sales in line with Q3. Non-gap operating profit rate at the midpoint of our fourth quarter guidance is 20 percent. A little more color on gross margins and OPEX profile for the second half. Recall, our long-term model has gross margins at 59 to 60 percent. In 2021 and 2022, we were in our model range with margins of 59.6 and 59.2 percent respectively.
But we haven't seen any significant change in the <unk>.
And the timing.
The thing that we said in the prior call about this was we didn't see like we didn't have demand confirmed in that April may timeframe, but there was still some uncertainty about what their peak loading might be and whether they need additional capacity and that that played out the way it plays out.
Speaker 5: transcript
Speaker 5: uh... we didn't see like we didn't have demand confirmed in that April may time frame but there was still some uncertainty about what their peak loading might be and whether they need additional capacity and you know that that played out the way it played out you know so i i think they're still basically the same edeninIR
Sanjay Mehta: In our July call, we noticed the gross margin profile by quarter, which show lower gross margins in Q3 and Q4 due to the timing of spending to strengthen our supply chain. But that we expected our full year 2023 gross margins in the 57 to 58 percent range. That outlook is unchanged.
So I think theyre still on basically the same schedule.
Got it very helpful. And then a quick follow up on the auto market. He said that it's been strong we've seen some spots of weakness, but still expect it to grow strong in calendar 'twenty four is that.
Speaker 7: transcript
Speaker 7: Another quick follow-up on the auto market. You said that it's been strong, you've seen some spot weakness, but still expect it to grow or be strong in calendar 24th. Is it purely because you think increasing semi-content is going to offset unit weakness, or is there anything else you're seeing in the auto market?
Purely because you think increasing semi content as an offset unit weakness, but is there anything else you're seeing in autos. Thank you.
Sanjay Mehta: Turning to resiliency spending. In operations, manufacturing spend will continue in Q4. But the spend associated with enabling our new factories to be qualified and producing testers is behind us. Backing up inventory and some capital equipment from old locations is what is left to do for our manufacturing in Q4. In short, we have successfully completed our objectives of moving many product lines to new locations. We would like to thank our internal teams and our partners for their tireless effort and de-resking our supply chain. Some component qualification will continue in 2024. But the majority of the test operational resiliency spending is behind us.
No. So I think what we're seeing in automotive is most of the players in that space. There are large idms and they all have significant capacity expansion projects in process and they've and with the lead times that they have for front end equipment and wear.
Speaker 3: transcript
Speaker 5: No. So I think that what we're seeing in automotive is most of the players in that space, they're large IDMs and they all have significant capacity expansion projects in process.
Speaker 3: transcript
Speaker 3: And with the lead times that they have for front-end equipment and where our lead times were running, say, even six months ago, they needed to place orders way in advance. And as they're building out that capacity, they need to phase their deliveries so that it lines up with their commissioning. And so we've seen some rescheduling, but we haven't seen anything that we would consider to be a significant signal of demand change.
Our lead times were running say, even six months ago, they needed to place orders way in advance and as they're building out that capacity they need to phase their deliveries so that it lines up with their commissioning.
So we've seen some some rescheduling, but we haven't seen anything that we would considered to be a significant signal of demand change.
Sanjay Mehta: Regarding off-backs. As noted, our full year spend will be flat, slightly down versus 20 to 22 spend levels. This is due to both spending controls and lower variable compensation. Recall, our operating model has a variable component for operating expenses where the model flexes compensation expense with revenue and profits. As both are lower than 20 to 22 levels, we're spending less than 20 to 23. As revenues are expected to grow in 2024 in future years, that variable compensation component will also grow.
Got it thank you.
Yeah.
Speaker 1: transcript
Speaker 1: Our next question comes from the line of Mehdi Hosseini with SIG. Please proceed with your question.
Our next question comes from the line of Mehdi Hosseini with H I G. G FTSE with your question.
Speaker 7: transcript
Speaker 7: Yes, thank you. I have to follow up and I'm not going to ask you about it.
Yes. Thank you I have two follow up and I'm not going to ask you about <unk>.
Speaker 7: transcript
Speaker 7: I have a podcast item 16 built for next year, but what I want to learn
Broadcast ICU 16 builds for next year, but what I wanted to learn is.
Speaker 7: transcript
Speaker 7: Actually, I want to get an update on the computer market.
Actually I wanted to get an update on the computing end market.
Sanjay Mehta: For the full year 2023, at the midpoint of our guidance, revenue will be slightly below $2.7 billion with non-gap EPS of $2.85 and operating profit of 20 percent. Gross margin for the full year should be about 57.5 percent. Our gap and non-gap tax rates are forecasted to be 15.75 and 16.5 percent respectively in 2023. Looking at 2024 business levels, Greg noted we expected revenue growth in 2024. How much growth is tough to call at this point?
Speaker 7: transcript
Speaker 7: We all hear of one of the ASIC design, ramping, hyperscalers ramping their own ASIC solution. By now, everyone has seen the graviton and keeping you in the headline. And in that context, what's the update on teradine's content, market share, and how to follow up?
We all hear of World.
A sick designs ramping.
Hyperscale ramping their own ASIC solution by not everyone has seen the graviton and TPU in headline.
And in that context.
What's the update on teradyne's content market share and how the follow up.
Okay. So.
Speaker 5: transcript
Speaker 3: Right now, the computing market, if you, like just to sort of break it down, there are a couple of components of the compute market. There's end equipment PCs, that part is significantly weak and continues to be.
Right now the the computing market.
Like just to sort of break it down there are a couple of components of the compute market and equipment Pcs that part is significantly weak and continues to be.
Sanjay Mehta: Starting the year with Q1-24 revenues, similar to Q1-23 levels, Q1 is expected to have unfavorable product mix yielding lower gross margins in Q4-23. For the full year 24, we expect gross margins to be better than 23 on higher volume and lower resiliency spending. Summing up, our second half is playing out as expected with the highlights being strong execution by our UR team as they ramped UR20 to meet high customer demand. For the full year, while the end markets have softened in 2023, our company operating model has flex cost down to support profitability, while enabling our R&D and go to market investments to support our long-term growth objectives. We've transformed our supply chain to reduce geographic risk and strengthen our operations capacity. From a shareholder return perspective, year-to-day, we've returned 181 percent of our free cash flow to owner.
Speaker 3: transcript
Speaker 3: Then there's cloud computing and the thing that's driving cloud computing is really AI acceleration.
Then theres cloud computing and the thing Thats driving cloud computing is really AI AI acceleration.
Speaker 5: transcript
Speaker 3: The beneficiaries of that are GPUs and then hyperscalers doing their own silicon.
The beneficiaries of that our Gpus, and then hyperscale or is doing their own silicon.
Speaker 5: transcript
Speaker 3: There's definitely increase in the amount of the spoke silicon that's going in, but it's still dwarfed by sort of traditional GPU driven accelerators at this point.
There's definitely increase in the amount of bespoke silicon that's going in but its still dwarfed by sort of traditional GPU.
Accelerators at this point.
Speaker 5: transcript
Speaker 5: The TAM, you know, sort of the amount of testers that are being sold to support the hyperscalers is very
The Tam you also to the amount of testers that are being sold to support the hyper scalar is very.
Speaker 3: transcript
Speaker 3: It's not very consistent at this point. That we had a big hit last year from a revenue perspective. It's quieter this year, but we think that this is something that's gonna play out over probably the next three or four years. So we're really looking at it in terms of socket.
Uh huh.
Very consistent this point that we had a big big hit last year from a revenue perspective. Its quieter this year, but we think that this is something that's going to play out over probably the next three or four years. So we're really looking at it in terms of socket wins.
Sanjay Mehta: Sankar. Our cash position and strength and our balance sheet enables us to continue to invest in strategic organic initiatives and has the firepower to support a wide range of M&A options for inorganic growth in the future.
Speaker 5: transcript
Speaker 5: And right now I can tell you that we are on track with socket winds. We have, you know, we have low share and traditional compute. We were aiming to try and win half and half, like half the battles we get into on hyperscalers. And that's about what we're doing this year, that we're winning half of the sockets that we are fighting for. And the other guy is winning the other half.
And right now I can tell you that we are on track with socket wins, we have we have low share in traditional compute.
We're aiming to try and win half and half like half the battle as we get into on Hyperscale and that's about what we're doing this year that we're winning half of the sockets that we are fighting for and the other guys winning the other half.
Andrew Blanchard: With that, I'll turn the call back to Andy. Thanks, Anjay.
Operator: Operator would now like to take some questions and as a reminder, please limit yourself to one question and a follow-up. Thank you. At this time, we will be conducting any questions in an answer session.
Speaker 7: transcript
Speaker 7: Okay, and my follow-up has to do with your color on Q1, and I appreciate.
Okay and my follow up has to do with your color on Q1 and I appreciate them.
Speaker 7: transcript
Speaker 7: go another short way to better help us with the modeling. The midpoint implies eight percent sequential decline. And SOC test has historically been the weakest in Q1. So should we assume that semi-test SOC will be down by more than eight percent and everything else will be down less than eight percent?
Going out of your way to help us with the modeling.
Operator: If you'd like to ask a question, please press the star one on your top on keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue, but participants using speaker equipment and may be necessary to pick up your handset before pressing the star keys. And one moment, please, while we pull for questions.
The midpoint implies.
The 8% sequential decline.
And so <unk> has historically been the weakest in Q1, so should we assume that.
Tests associate will be down by more than 8% and everything else would be down less than 8%.
Timothy Arcuri: Our first question comes from the line of Tim, our query with UBS. Please proceed with your question. Thanks a lot. Greg, you had talked about there being some critical points where, you know, utilization has to get to to then see mobility start to grow again. How do you think about where we are, sort of an aggregate? I know your large customer has their own dynamics, but how do you think about where we are right now in terms of utilization versus where you think we have to get until, you know, before the, you know, non-large customers would come back and start to buy again?
Speaker 4: transcript
Hi, Manny it's Sanjay yeah, so the seasonality decline.
Is really coming through I would say in robotics.
Speaker 4: transcript
Obviously seasonality comes down and then we're ramping you are 'twenty Q3, and really Q4 that goes down to run rate. The other component of that decline in Q or the forecasted decline in Q1 is tied to storage really the mobility the end market and S. L T.
And from an <unk> perspective.
Timothy Arcuri: Yeah, that's a thanks, Tim. So the right now are, I'm hesitant to give you exact numbers because our measurements of utilization are indirect. So we tend to look more at the changes from quarter to quarter than the absolute level, but they are significantly lower than what we've seen for people to want to buy. So and there's also a big difference between our IDM customers and our OSAT customers. So our IDM customer utilization by our measurements are up in the low 80s and that's usually at a high enough level, the trigger buys. Our OSAT customers are like 20 points lower. There's usually a few points of inflection, like an increase in utilization from Q2 to Q3.
We're seeing that is as you know roughly flattish at this point.
Speaker 4: transcript
Speaker 4: Q4 to Q1. So those are really the drivers of what we see now. And as I said in my prepared remarks, just a reminder that we're seeing as lead times come down, a lot more kind of book, ship, and customers coming to us with incremental orders within lead time. So we're expecting to see more bookings kind of at the tail end of Q4 for Q1 shipment. So there's a little bit more.
Q4 to Q1, so those are really the drivers of of what we see now and as I said in my prepared remarks, I'll just remind you that we're seeing as lead times come down.
A lot more kind of book ship and customers coming to us with incremental orders.
Within lead time, so we are where we're expecting to see kind of more bookings kind of at the tail end of Q4.
For Q1 shipment, so theres, a little bit more volatility there.
Okay. Thank you very helpful.
Speaker 8: transcript
Speaker 8: Thank you very much.
Speaker 1: transcript
Speaker 1: Our next question comes from the line of Sameek Chatterjee with J.P. Morgan. Please proceed with your question.
Our next question comes from the line of Cemig Chatterji with J P. Morgan. Please proceed with your question.
Gregory Smith: We saw very little in our data this time and so it's still on the order of 20 points lower than what we're seeing inside of IDMs. So I think there's a, there's a pretty big hill to climb in terms of utilization before that would trigger buys from OSAT to support the mobile space. Thanks a lot. And then as you think about your, I mean, I think a lot depends on your large customer next year, but as you think about, you read some of the plans in terms of what they're planning to do and, you know, you know, having a new chip throughout the entire product portfolio going from M3B to M3E through the entire product portfolio, you do get 30% more, you know, transistor density.
Yeah, Hi, Thanks for taking my questions I guess, if I can follow up on the.
Speaker 9: transcript
Speaker 9: I guess if I can follow up on the last question we had and actually your response.
Last question, maybe head and.
Back to the response that Youre getting the 50 people sort of wins in the compute so sort of custom Asics that you are targeting can you share a bit more in terms of then when we start to think about that translating the wind translating into revenue when does that happen and particularly like we need to look at a pipeline building Hugh how does that revenue.
Speaker 9: transcript
Speaker 9: share a bit more in terms of then when we start to think about that translating.
Gregory Smith: So it depends on the die size obviously, but it does seem like there's going to be a fairly solid increase in transistors across the entire portfolio next year. So maybe can you just, you know, I'm not asking you to predict what happens with that large customer, but can you talk about sort of the The things that you're watching to sort of determine what do you think that next year could be a good year for that customer or not?
Speaker 9: transcript
Speaker 9: when does that start to happen, and particularly, like when you look at a pipeline building here, how does that revenue progression look?
Progression looked like kind of a follow up.
Yeah. So.
Right now the.
Speaker 5: transcript
Speaker 3: Right now, the noted characteristic of it is volatility year on year. Our model of it, though, is by the time you get out to sort of the 2026, 2027 timeframe, we expect that these vertically integrated producers are going to represent about $400 to $500 million of the compute test cam. And, you know, for reference, that's...
The noted characteristic of it is volatility year on year, our model of it though is by the time you get out to sort of the 2026 2027 timeframe, we expect that.
These vertically integrated producers are going to represent about $4 million to $500 million of the compute test Tam and you know for reference that's probably going to be on the order of a quarter to a third of the total compute tam out in that timeframe.
Speaker 10: transcript
Speaker 10: probably going to be on the order of a quarter to a third of the total compute TAM out in that time frame.
Gregory Smith: Sure, so yeah, I think we're both sort of working off of the same source data when it comes to like reading the tea leaves about this large customer. We don't really know what their product plans are. The things that we are watching for are how quickly 3 nanometer goes into their high performance computing process products, the more of that product line that's on 3 nanometer, the more complexity there will be and that's a tailwind towards loading.
Okay.
For my follow up I know you were talking about 24 being a year of incremental growth and there are lots of puts and takes here, but you're starting <unk> in line with one Q 'twenty three.
Speaker 9: transcript
Speaker 9: and when my look at consensus it has
When we look at consensus.
It has you growing 20% for the yield so it must be at the magnitude sort of.
Speaker 9: transcript
Speaker 9: your, obviously there's a magnitude sort of overall difference.
They're all different and sort of where you're starting with Q versus what consensus is expecting any sort of thoughts around whether that's a realistic assumption or if that 20% growth. What did we realize what do you need to see in terms of sort of uplift, which what does that needs to come through.
Speaker 9: transcript
Speaker 9: thoughts around whether that's a realistic assumption or if that 20% growth were to be realized, what do you need to see in terms of...
Gregory Smith: The next is what's the relationship between like how do they use the next generation 3 nanometer process? Do they use that to try to decrease die size and attack cost or do they use that to add features to sort of keep die size the same add a lot of complexity. We're watching very closely to see how that plays out and then the last is if there's any change to the strategy of using the n minus 1 processor in the lower end phone product line.
Able to realize that kind of a sort of strong growth through the year.
Speaker 4: transcript
Speaker 4: Yeah, I think that it's Andrew. I think that Greg really outlined kind of the potential headwinds and tailwinds in 20.
Yes, I think that it's Sanjay I think Greg.
Really outlined kind of flipped.
The potential headwinds and <unk>.
In 2024.
Speaker 4: transcript
Speaker 4: Um, so, you know, right now, the first half and given the limited visibility, um,
So right now the first half and given the limited visibility.
Speaker 4: transcript
Speaker 4: especially in mobility, it still continues to work.
Especially in mobility. It still continues to look a little dampened or weaker but from a from a model perspective, where we see 24 tail winds are in compute mobility and robotics for 2024.
Speaker 4: transcript
Speaker 4: a little dampened or or weaker. But, you know, from a from a model perspective, where we see 24 tailwinds are in
Gregory Smith: If that changes that compresses the period of time that they have to build to build up chips and that helps to drive peak loading. So we don't have information about that. We are, you know, so we're being pretty cautious in terms of how we model that going into the future, but there are like as you point out, there are a number of things that could drive some upside. Great, great.
Speaker 4: transcript
Speaker 4: mobility and robotics for 2024.
Timothy Arcuri: Thank you.
Speaker 4: transcript
Speaker 4: And so that's where we do see the tailwind. The question is as to what degree? And we've provided some transparency of what we know about in Q1. And we think that that is the low point. We think we'll grow from there. It's tough to call right now, how it appears to be for the rest of the year. And we'll provide an update in January with what we know.
And so that's where we do see the <unk>.
<unk> the question is to what degree and.
Provided some some transparency of what we know about in Q1.
And we think that that is the low point, we think we'll grow from there it's tough to call right now.
Christopher Muse: And our next question comes from the line of Chris Zancar with T.D. Cowan.
How it appears to be for the rest of the year.
And we will provide an update in January with what we know.
Thank you thanks for taking my questions.
Gregory Smith: Please will see which question. Yeah, I think for taking a question. I took them to first one is on next year outlook to follow up on the earlier question. Historically, a big customer has come around April or May time frame to confirm kind of like a test or outlook for the year. Was it a similar path and it seems like that there was a different pattern this year. They expect to go back to, you know, regular patterns next year or is it still too early to call me that call that a follow up.
Our next question comes from the line of Greg <unk> with.
Speaker 1: transcript
Speaker 1: Our next question comes from the line of effect. Arya with Bank of America. Please proceed.
Bank of America. Please proceed with your question.
Oh, Thanks for taking my question first one on gross margins.
Speaker 11: transcript
Speaker 11: Thanks for taking my question. First one on gross margins.
Speaker 11: transcript
Speaker 11: Fundico, do you remind us what growth second half growth margins lower than the first half and what will drive Overall 24 growth margins higher
Sandy could you remind us what drove second half gross margins lower than the first half and what their drive overall twentyfold gross margins higher than 23.
Gregory Smith: So I think that they actually followed a familiar pattern this year, but what ended up happening in April May was that they ended up needing not a lot of additional capacity. So I think we've pointed out in prior calls that we expect that major customer to be less than 10% customer in 2023. But we haven't seen any significant change in the timing. The thing that we said in the prior call about this was we didn't see like we didn't have demand confirmed in that April May time frame. But there was still some uncertainty about what their peak loading might be and whether they'd need additional capacity. And that played out the way it played out.
Speaker 4: transcript
Speaker 4: Yeah, good question. So, it's a similar story to what I noted in July .
Yeah. Good question. So it's a similar story to what I noted in July Vivek.
Speaker 4: transcript
Speaker 4: Fundamentally, it's product mix in the second half, and we deferred resiliency spending in operations, really from first half to second half. In the first half, we were focused on chasing and meeting customer demands. So some of our projects were deferred into the second half. So it's mainly mixed as well as deferred resiliency spending from first half to second half.
You know.
Fundamentally it's product mix in the second half and we deferred a resilient to see spending and an operations really from first half the second half than in the first half we were focused on chasing in meeting customer demand. So some of our projects.
Deferred into the second half so so it's mainly mix as well as deferred resiliency spending from kind of first half second half.
Speaker 4: transcript
Speaker 4: And then 24, why wouldn't you better? Oh, sorry. Thank you. And 2024, really, I think, as we've noted in our prepared remarks.
And at 20 410.
Oh, sorry, thank you and 2024.
I think if <unk>.
We've noted in our prepared remarks.
Incremental volume.
Speaker 4: transcript
Speaker 4: incremental volume. Incremental volume is a main driver, product mix, and then there's a bunch of other puts and takes. And as I've noted in my prepared remarks, we expect to see much of the operational resiliency costs behind us in 24.
Incremental volume.
Gregory Smith: So I think they're still on basically the same schedule. Gary, Gary, I'll put another quick follow up on the auto market. He said that it's been strong. We've seen some spot weakness but still expected to grow or be strong in calendar 24. Is that purely because you think increasing any content is going to ask the unit weakness or is anything else you're seeing in authors.
Product mix is the main driver product mix and then there's a bunch of other puts and takes and as I've noted.
In my prepared remarks, we expect to see much of the operational resiliency costs behind us and 24.
Got it and for my follow up Greg I was hoping you could help us kind of square.
Speaker 11: transcript
Speaker 11: And for my follow up, Rage I was hoping you could help us kind of square some of the more muted commentary from.
Gregory Smith: Thank you. No, so I think that what we're seeing in automotive is most of the players in that space. They're they're large IDMs and they all have significant capacity expansion projects in process and they've and and with the lead times that they have for front end equipment and where our lead times were running. Say you know even six months ago. They needed to place orders way in advance and as they're building out that capacity.
Some of the.
A more muted commentary from customers, sometimes that Texas instruments about industrial demand.
Speaker 11: transcript
Speaker 11: about industrial right demand, not as much automotive, but a lot more industrial demand. I think they said industrial
No not as much automotive, but automotive industrial demand I think they said the industrial weakness is broadening how correlated is that demand to what you see and you know what your you are a.
Speaker 11: transcript
Speaker 11: How correlated is that demand to what you see and what you are
Business.
Speaker 11: transcript
Speaker 11: a few because you're not really strong in in you are but when we look at
Because you're naughty things trend and you are but when we look at.
Speaker 11: transcript
Speaker 11: such as DI or analog devices, you know, they were talking about a weakness on the industrial side. So how correlated have these two trends been historically, and what is the kind of – the
Folks such as D. I R or analog devices. They were talking about a weakness on the industrial side. So how correlated at these two trends been historically and what is the kind of the.
Gregory Smith: They need to phase their deliveries so that it lines up with their commissioning and so we've seen some some rescheduling. But we haven't seen anything that we would consider to be a significant signal of the man change.
Gregory Smith: Thank you.
A right read across.
So.
Speaker 5: I think the answer to your question is not very. The business that we're in with you are in mere, it's a short lead time business. We tend to run with about four weeks of lead time and customers will use our stuff for smaller projects. Much of the rest of the end...
I think the answer to your question is not there.
The business that we're in with you or in near.
Mehdi Hosseini: Our next question comes from the line of Medi Houtani with SIG. Please we'll see with your question. Yes, thank you. I have to follow up and I'm not going to ask you about how to forecast IC 16 build for next year. But what I want to learn is actually want to get an update on the computer market. We all hear of one of the AITIC design, ramping, hyper scalers, ramping their own AITIC solution by not everyone has seen the graviton and keeping you in the headlines.
Tends to be it's a short lead time business, we tend to run with about four weeks of lead time and customers.
Well.
Use our stuff for smaller projects much of the rest of the industrial segment that Ti and Infineon and S. T. R. Serving is towards much longer lead time projects. Some of them. Some of our industrial robot competitors are working off of year long backlogs and FERC process.
Mehdi Hosseini: And in that context, what's the update on teradine's content market share and how to follow up? Okay, so right now the computing market, if you like just to sort of break it down, there are a couple of components of the compute market. There's end equipment, PCs, that part is significantly weak and continues to be. Then there's cloud computing and the thing that's driving cloud computing is really AI, AI acceleration, the beneficiaries of that are GPUs and then hyper scalers doing their own silicon.
Speaker 3: transcript
Speaker 3: that TI and Infineon and ST are serving is towards much longer lead time projects. So some of our industrial robot competitors are working off of year long backlogs and for process control equipment, it can be even longer than that. So what we tend to see is that the cycles of investment for advanced automation like we do are actually a little bit out of phase with the cycles of investment for, say, factory building.
Control equipment, it can be even longer than that so what we tend to see is that the cycles of investment for advanced automation last like we do are actually a little bit out of phase with the cycles of investment for safe factory building.
Speaker 5: transcript
Speaker 3: And right now we're seeing that there's significant weakness in orders for our peers in industrial automation compared to where they were a year ago. And we're actually stabilizing relative to them. And that kind of makes sense. They will build a factory, they'll start running the factory, and then they will look at different tasks in the factory that could be automated using AMRs and COBOTs, and then they'll make a subsequent investment to do that. So I think the answer to your question is that you can't really infer what's going to happen with our robotics business.
And right now we're seeing that there is significant weakness in orders for <unk>.
Our peers in industrial automation compared to where they were a year ago, and we're actually stabilizing relative to them and that that kind of makes sense. They will build a factory that will start running the factory and then they will look at different tasks in the factory that could be automated using <unk> and co bots and then they'll make a subsequent.
The investment to do that so I think the answer to your question is that you can't really infer what what's going to happen with our robotics business based on the industrial semi trends.
Mehdi Hosseini: There's definitely increase in the amount of the spoke silicon that's going in, but it's still dwarfed by sort of traditional GPU driven accelerators at this point. The amount of testers that are being sold to support the hyper scalers is very consistent at this point. We had a big hit last year from a revenue perspective, it's quieter this year, but we think this is something that's going to play out over probably the next three or four years.
Speaker 10: transcript
Thank you.
Our next question comes from the line of.
So she got Harry with Goldman Sachs. Please proceed with your question.
Good morning. Thank you My first question I have two but my first question on semi test lead times, Greg where are they today.
Speaker 12: transcript
Speaker 12: Good morning, thank you. My first question I have to, but my first question on semi-test lead times, Greg, where are they today? How much have they come in over the past couple of quarters and over the next couple of quarters of where do you see them going? And when you talk about Q1 of 24, revenue being flat.
How much have they come in over the past couple of quarters and over the next couple of quarters, where do you see them going.
Mehdi Hosseini: So we're really looking at it in terms of socket wins, and right now I can tell you that we are on track with socket wins. We have low share and traditional compute. We were aiming to try and win half and half, like half the battles we get into on hyper scalers. And that's about what we're doing this year, that we're winning half of the sockets that we are fighting for and the other guys winning the other half.
And when you talk about Q1 of 'twenty four revenue being flat.
Speaker 12: transcript
Speaker 12: year over year, I guess that's for the overall company, but within your SoC test business or semi-test business, what percentage of Q1 revenue do you think will be turns business?
Year over year, I guess, that's for the overall company, but within your SFC test business, our semi test business what percentage of Q1 revenue do you think will be turns business.
Speaker 3: transcript
Speaker 3: So, I'll take the lead time and then I'll pass it off for the percent of turns to Sanjay. The lead times, if you go back about a year, our lead times were running out past 26 weeks out to 39 weeks. We were way oversubscribed.
So I'll take the lead time, and then I'll pass it off for the percent of turns to Sanjay.
The lead times, if you if you go back about a year our lead times were running out past 26 weeks out the 39 weeks there.
Sanjay Mehta: Okay, and my follow-up has to do with your color on the Q1, and I appreciate you going other show way to better help us with the modeling. The midpoint implies eight percent sequential decline, and SOC test has historically been the weakest in Q1, so should we assume that semi-test SOC will be down by more than eight percent, and everything else will be down less than eight percent. Hi, Mehdi, it's Sanjay. Yes, so the seasonality decline is really coming through, I would say, in robotics.
We were way oversubscribed.
Speaker 3: transcript
Speaker 3: And right now we've managed to be able to tighten up the supply chain and get us to the point where our lead times are running in the 16 week timeframe. And we're aiming in the short term to get those down to something that's closer to 13 weeks.
And right now we've managed to be able to to tightened.
Tighten up the supply chain and get us to the point, where our lead times are running in the 16 week.
16 week timeframe and we're aiming in the short term to get those down to.
There's something that's closer to 13 weeks, that's probably where we're going to be sitting but again, that's sort of an average lead time.
Speaker 5: transcript
Speaker 3: That's probably where we're going to be sitting. But again, that's sort of an average lead time. We will be maintaining some inability to work within lead time for particular high priority orders. And so,
We will be maintaining some inability to work within lead time for particular high priority orders.
Sanjay Mehta: Obviously, seasonality comes down, and then we're ramping UR20, Q3, and Q4 that goes down to run rate. The other component of the decline in Q1, or the forecasted decline in Q1, is tied to storage, really the mobility, the end market, and SLT, and from an SOC perspective, we're seeing that as roughly flatish at this point, Q4 to Q1, so those are really the drivers of what we see now. As I said in my prepared remarks, I'll just remind you that we're seeing as lead times come down, a lot more book, ship, and customers coming to us with incremental orders within lead time. We're expecting to see more bookings at the tail end of Q4 for Q1 shipment. So there's a little bit more volatility there.
So.
Speaker 5: transcript
Speaker 3: Going into a quarter, we will probably have a very good idea about the majority of our revenue, but we will have some ability to do book shift. And I don't know, we're scrambling through the papers to make sure we give you a good answer for the terms question here. It's actually kind of fun to watch.
Going into a quarter, we will we will probably have a very good idea about the majority of our revenue, but we will have some ability to do book ship and I don't know were scrambling through the papers to make sure. We give you a good answer for the the turns question here, it's actually kind of fun to watch so I'd say, yes.
Mehdi Hosseini: Thank you, very helpful.
Speaker 4: transcript
Speaker 4: So, I say, have you gotten to the right page yet? Sure. Yeah. Hi. You know, a little bit of context, obviously, with a very long lead times, you know, looking out a quarter, we'd be mainly, we'd be mainly booked. And then there's always the risk-eduling and stuff drops in and just the tactical kind of shifts back and forth.
Have you gotten to the right page yet sure Yeah, Hi, I'm, a little bit of context, obviously with a very long lead times.
Looking out a quarter, we'd be mainly we'd be mainly booked and then there's always the rescheduling and stuff drops in and just the tactical kind of shifts back and forth.
Speaker 4: transcript
Speaker 4: But overall for the business, we see it at 25, 30%, and then dropping down into semi-test, that is in the 15 to 20% range, which we're now starting to see that kind of book shift is starting to become a little bit more increasing and increasing over time.
But overall for the business, we see it at like 25%, 30% and then dropping down into semi test.
That is in the 15% to 20% range, which we're now starting to see that that kind of book ship is starting to become a little bit more increasing and increasing overtime.
As we as you would expect lead times coming down.
Speaker 4: transcript
Speaker 4: As you'd expect, lead times coming down, people are going to place the orders when they believe they need them. And that's when we get the POs.
People are going to place the orders when they believe they need them.
Samik Chatterjee: Our next question comes from the line of semi-chatterty with JP Morgan, please proceed with your question. Hi, thanks for taking my questions. I guess if I can follow up on the last question Mehdi had, actually your response, that you're getting the 50% of wins in the accurate compute source of custom ASICs that you are targeting. Can you share a bit more in terms of then when we start to think about that translating, the win translating into revenue, when does that start to happen?
That's when we get the PFS.
Speaker 12: transcript
Speaker 12: That may sound thank you. And then as my follow up, a question on China.
That makes sense. Thank you and then as my follow up a question on China.
Speaker 12: transcript
Speaker 12: Your peers in WFE are on the front-end side of things. They're seeing 40 to 50% of their revenue come from customers in China. I think your business peaked at about 20% China a couple of years ago, and I think the most recent quarter, you were in the low teens. With new customers and existing customers, expanding capacity is China potentially a growth area for you guys with a time lag over the next, 24 months, or is there a reason to believe that your exposure there could stay low given competition? Or what have you? Thank you.
Your peers and Wi Fi are on the front end side of things Theyre seeing 40% to 50% of their revenue come from customers in China I think your business peaked at about 20%, China, a couple of years ago, and I think the most recent quarter.
We're in the low teens.
With with new customers and existing customers expanding capacity as China potentially a growth area for you guys with a time lag over the next call. It 24 months or is there a reason to believe that your exposure there could could stay low given given competition or what have you. Thank you.
Samik Chatterjee: And particularly, like when you look at a pipeline building here, how does that revenue progression look like and have follow? Yeah, so right now the noted characteristic of it is volatility year on year. Our model of it though is by the time you get out to sort of the 2026, 2027 timeframe, we expect that these vertically integrated producers are going to represent about four to five hundred million dollars of the compute test tab.
Speaker 4: transcript
Speaker 4: or high at Sanjay Elte, kind of the first half and provide some context about our current China kind of revenue. And then maybe Greg, if you want to take a second part about the potential growth competition. So just a thriving context, right. In 2022, 15% of our revenues in China in 23 year to date, we've got about 12% of our revenue from China. And that 12% about a quarter of that 12% is really from robotics, production, board tests.
Sure Hi, it's Andrew I'll take the first half and provide some context about our current China kind of revenue and then maybe Greg if you want to take the second part of the foot.
Central growth competition.
So just to provide context right in 2020% to 15% of our revenue is in China and 23 year to date, we've got about 12% of our revenue from China and in that 12% about a quarter of that 12% is really from robotics production Board test.
Samik Chatterjee: And you know, for reference, that's probably going to be on the order of a quarter to a third of the total compute tab out in that timeframe. Sankarnarayanan, if that 20% growth would be realized, what do you need to see in terms of sort of uplift, which water that needs to come through for you to be able to realize that kind of strong growth through the yield? I think that it's, Sanjay.
Speaker 4: transcript
Speaker 4: and LitePoint. 75% is from our semi-test group and about 60% of that semi-test, I know a lot of percentages, but 60% of that 70% is from Indigenous Chinese customers and 40% is from multi-nationals. So the Indigenous component is roughly about 5% of our overall business really tied to semi-test.
And light point, 75% is from our semi test group and about 60% of that semi test I know a lot of percentages, but 60% of that 70% is from indigenous Chinese customers and 40% is from multinationals. So the indigenous component.
It's roughly about 5% of our overall business really tied to semi test.
Speaker 5: transcript
Speaker 5: And so I'll talk a little bit about the growth trends. If you decompose the business that we have in China right now, probably the part of the segment that's heaviest investment for us is really in memory.
And so I'll talk a little bit about the growth trends. If you. If you decompose the business that we have in China right now probably the the part.
Part of the part of the segment, that's heaviest investment for US is really in memory.
Speaker 3: transcript
Speaker 3: And we expect that to continue to grow. There's a significant capital investment, WFE investment going into memory in China and we have very good exposure to that. And there's also a significant growth in analog and power for automotive and industrial in China. And we serve that segment very well with our Eagle Test Platform.
And we expect that to continue to grow.
Samik Chatterjee: I think that Greg really outlined kind of the potential headwinds and tailwinds in 2024. So right now, the first half and given the limited visibility, especially in mobility, it still continues to look a little dampened or weaker. But from a model perspective, where we see 24 tailwinds are in compute mobility and robotics for 2024. And so that's where we do see the tailwind. The question is as to what degree. And you know, we've provided some transparency of what we know about in Q1.
There is a significant capital investment Wi Fi investment going into memory in China, and we have very good exposure to that.
And there's also a significant growth in analog and power for automotive and industrial in China, and we serve that segment very well with our Eagle test platform. The biggest headwind that we have in China is.
Speaker 3: transcript
Speaker 5: The biggest headwind that we have in China is...
Speaker 3: transcript
Speaker 5: We are unable to sell pest equipment into Huawei. That's, you know, by US regulation.
We are unable to sell test equipment into Huawei.
Uh huh.
By U S regulations, and frankly that takes the biggest single chunk of the test Tam in China out of are off the table for us So where we are in there we have a great team in China, we're competing for all the business that we can go after.
Speaker 5: transcript
Speaker 5: And frankly, that takes the biggest single chunk of the test TAM in China off the table.
Speaker 5: transcript
Speaker 5: So we're, you know, we're in there. We have a great team in China. We're competing for all the business that we can go after. And so we're hoping to kind of hold and potentially grow from where we are.
Samik Chatterjee: And we think that that is the low point. We think we'll grow from there. It's tough to call right now how it appears to be for the rest of the year. And we'll provide an update in January with what we know. Thank you.
And so where we're hoping to kind of hold and potentially grow from where we are.
Thank you for the color.
Samik Chatterjee: Thanks for taking my questions.
Speaker 1: transcript
Speaker 1: Our next question comes from the line of Brian Chin with Stiefel. Please proceed with your question.
Our next question comes from the line of Brian Chin with Stifel. Please proceed with your question.
Vivek Arya: Our next question comes from the line of effect. Arya with Bank of America. Please, we'll see which your question. Thanks for taking my question. First one on growth margins.
Speaker 13: transcript
Speaker 13: Hi there. Good morning. Thanks for letting us ask a few questions.
Hi, there.
Good morning, Thanks for letting us ask a few questions.
Speaker 13: transcript
Speaker 13: Great, maybe taking your starting point, which is modest growth in the test tab, semi-connector test tab next year encounter 24.
Greg maybe taking your starting point, which is modest growth.
Sanjay Mehta: Sanjay, could you remind us what growth second half growth margins lower than the first half and what will drive overall 24 growth margins higher than 23? Yeah, good question. So it's a similar story to what I noted in July. The fact, you know, fundamentally it's product mix in the second half. And we deferred resiliency spending in operations really from first half to second half. And in the first half, we were focused on chasing and meeting customer demands. So some of our projects were deferred into the second half. So it's mainly mixed as well as deferred resiliency spending from kind of first half to second half. Oh, sorry. Thank you.
And then the test Tam semiconductor test Tam next year and counter 'twenty four.
Speaker 13: transcript
Speaker 13: A couple questions, what kind of market share gain might you expect given maybe the initial expected profile of test spending next year? And also, what kind of semiconductor ICU unit growth or demand underpins your initial forecast for next year?
A couple of questions what kind of market share gain might you expect given maybe the initial expected profile of test spending next year and also what kind of semi conductor ICL unit growth or demand.
Underpins your initial forecast for next year.
Okay.
Speaker 5: transcript
Speaker 5: So right now, when we roll it up, we think that our overall ATE share is probably gonna be flat to slightly up next year. No dramatic shifts from where we are.
So.
Right now when we roll it up we think that our overall hte share is probably going to be flat to slightly up next year.
No dramatic shifts from where we are.
Speaker 5: transcript
Speaker 10: And I think there may be a bit of a tailwind because if the, and now depend on sort of the strength of the mobility recovery. You know, so that's probably the biggest X factor in terms of where share goes. Now in terms of IC UnicRO, I don't have the data at my fingertips in terms of what our current expectations are. I think it's typically hang on, I'm almost there.
And I think there may be a bit of a tailwind because if the and that will depend on sort of the strength of the mobility recovery.
Sanjay Mehta: And 2024. Really, I think if if as we've noted our prepare remarks incremental volume incremental volume product mix is a main driver product mix. And then there's a bunch of other puts and takes. And, you know, as I've noted in my prepare remarks, we expect to see much of the operational resiliency cost behind us in 24. All right.
The probably the biggest X factor in terms of where share share goes.
Now in terms of IC unit growth I don't have the data at my fingertips in terms of what our current expectations are I think it's typically.
Hang on I'm almost there.
Okay.
Yes, so we're looking at.
Gregory Smith: And for my follow up, right, I was hoping you could help us kind of square some of the, you know, more muted commentary from customers such as a text. Sincerements about industrial right demand, not as much automotive but a lot more industrial demand. I think they said industrial weakness is broadening. How correlated is that demand to what you see and you know what you are business because you are noticing strength in you are but when we look at folks such as TI or analog devices you know they were talking about weakness on the industrial site.
Speaker 14: transcript
Speaker 14: Probably-
Probably.
Speaker 3: transcript
Speaker 3: Yeah, so unit growth was actually down this year, and it's coming back slightly, but it will still be below the units back in 2022 by our best guess. So the thing that's really going on is even though the units will be sort of at or below the peak that they had in 2022, the complexity growth that's happened since 2022 will drive test capacity requirements.
So unit growth was actually down this year and it's coming back slightly but it will still be below the units back in 2022 by our best guests so that.
The thing Thats really going on is even though the units will be sort of at or below the peak that they had in 2022.
Gregory Smith: So how correlated have these two trends being historically and what is the kind of the right treat across. So I think the answer to your question is not varying. The business that we're in with you are in mirror tends to be it's a shortly time business. We tend to run with about four weeks of lead time and customers will you know use our stuff for smaller projects. Much of the rest of the industrial segment that TI and Infinion and ST are serving is towards much longer lead time projects you know so some of our industrial robot competitors are working off of year long backlogs and for process control equipment.
The complexity growth that's happened since 2022 will drive.
Drive test and capacity requirements.
Got it got it and is there any particular end markets, where you see that sort of that gap fill better in terms of the complexity increase.
Speaker 13: transcript
Speaker 13: Got it. Got it. And is there any particular markets where you see that sort of that gap feel better in terms of the complexity increase?
Okay.
I'm, sorry could you repeat that.
Speaker 13: transcript
Speaker 13: Thinking about sort of the high water mark, semiconductor shipments encounter 22, given some markets maybe won't retest that unit level, where is the complexity increases or quality control increases big enough to sort of, you know.
Thinking about sort of the high watermark.
Semiconductor shipments in calendar 'twenty two.
Yeah, given some markets, maybe retest that unit level.
Whereas the complexity increases our quality control increases big enough to sort of.
Oh, Okay, yes.
Speaker 5: transcript
Speaker 3: Yeah, so the biggest the biggest lever there is the degree to which.
Yes, so the biggest the biggest lever there is the degree to which.
Speaker 5: transcript
Speaker 5: advanced processors move to three nanometer technology. So it's really in the digital space. The, you know, there are some tailwinds as
Advanced processors move to three nanometer technology, so it's really in the digital space.
Gregory Smith: It can be even longer than that. So what we tend to see is that the the cycles of investment for advanced automation like we do are actually a little bit out of phase. With the cycles of investment for say factory building and right now we're seeing that there's significant weakness in orders for our peers and industrial automation compared to where they were a year ago. And we're actually stabilizing relative to them and that that kind of makes sense they they will build a factory they'll start running the factory and then they will look at different tasks in the factory that could be automated using AMRs and covots.
There are some tailwind as more of the compute segment moves towards chip lift based design, that's about a 10% to 20% tailwind on the amount of test thats required and another area that is that that complexity really helps is the more complex.
Gregory Smith: And then they'll make a subsequent investment to do that so I think the answer to your question is that you you can't really infer what's going to happen with our robotics business based on the industrial semi trans. Thank you.
Speaker 3: transcript
Speaker 3: more of the compute segment moves towards chiplet-based design. That's about a 10 to 20% tailwind on the amount of tests that's required. And another area that complexity really helps is
Speaker 5: transcript
Speaker 5: The more complex devices that are going into an automotive environment, it has a much higher test threshold than other markets. So high-performance processors for ADAS applications, those have a very high test intensity for the same number of transistors as the same thing going into a phone.
<unk> devices that are going into an automotive environment.
It has a much higher.
First threshold than other market. So high performance processors for Adas applications and those have a very high test intensity.
For the same number of transistors is the same thing going into a phone.
Speaker 3: transcript
Speaker 5: So that's what we're really looking for, some sort of complexity tailwind, I guess.
So that's where we're really looking for some sort of a complexity tailwind I guess.
Speaker 13: transcript
Speaker 13: Maybe for my second question then, just maybe for Sanjay, I know maybe January is when you guys like to sort of refresh your thinking the most in terms of forward financial targets, but given sort of the more subdued initial outlook for calendar 24, what is sort of your initial thinking in terms of the calendar 26 financial model?
Okay got it and then maybe for my second question then just maybe for Sanjay I know maybe January is when you you guys like to sort of refresh your thinking the most in terms of forward financial targets, but given sort of the more subdued initial outlook for calendar 'twenty for what is sort of your initial thinking in terms of the counter 26 financial.
Gregory Smith: Our next question comes from the line of who's he a Harry would go in sex? Please proceed with your question. Good morning. Thank you. My first question I have to but my first question on semi test lead times Greg where are they today? How much have they come in over the past couple of quarters and you know over the next couple of quarters where do you see them going? And when you talk about Q1 of 24 revenue being flat year over year I guess that's for the overall company but within your SSC test business or semi test business what percentage of Q1 revenue do you think will be turns business?
Hello.
Speaker 4: transcript
Speaker 4: Yeah, great, great question. You know, every year we go through a process where we go through a strategic planning process and keep for, it culminates with a review with our board in January and then we share an update to our earnings.
Yes, great Great question.
You know every year, we go through a process, where we go through our strategic planning process in Q4.
It culminates with a review with our board in January and then we share an update to our earnings model.
Speaker 4: transcript
Speaker 4: And we're just starting to go through that process now. So I think the first quick answer is.
We're just starting to go through that process now so I think the first quick answer is.
Speaker 4: transcript
Speaker 4: So, Tite, we'll share that with you in January . But, you know, let me provide a little bit of color to your question.
So take we will we'll share that with you in January but let.
Let me provide a little bit of color to your question.
Speaker 4: transcript
Speaker 4: We still have conviction in the overall key drivers and fundamentals of the model in test and in robotics.
We still have conviction in the overall <unk>.
Gregory Smith: So I'll take the lead time and then I'll pass it off for the percent of turns to Sanjay. The lead times if you if you go back about a year our lead times were running out past 26 weeks out to 39 weeks there they you know we were way over subscribed. And right now we've managed to be able to tighten up the supply chain and get us to the point where our lead times are running in the 16 week time frame and we're aiming in the short term to get those down to something that's closer to 13 weeks.
Key drivers and fundamentals of the model and test and in robotics.
Speaker 4: transcript
Speaker 4: I think Greg talked a little bit about them. We've narrated them. So, you know, in the, over the mid and long term, we have conviction. Obviously, in the short term, the visibility is very muted and very cautious. And so, you know, we're going through that now. We're looking for key indicators of when the inflections will occur, but, you know,
I think Greg talked a little bit about them, we've narrated them. So.
Over the mid and long term, we have conviction obviously in the short term. The visibility is is very muted and very cautious and so.
We're going through that now we're looking for key indicators of when the inflections will occur but fundamentally.
We believe over the mid and long term, we're going to get to those goals the timing.
Speaker 4: transcript
Speaker 4: We believe over the mid and long term, we're gonna get to those goals, the timing, you know, we're gonna work through and provide an update in January .
Gregory Smith: That's probably where we're going to be sitting but again that's sort of an average lead time. We will be maintaining some inability to work within lead time for particular high priority orders and so going into a quarter we will we will probably have a very good idea about the majority of our revenue but we will have some ability to do book shift. And I don't know we're scrambling through the papers to make sure we give you a good answer for the the turns question here it's actually kind of fun to watch so say if you've gotten to the right page yet.
We're going to work through and provide an update in January.
Okay. Thank you.
Our next question comes from the line of Joe Moore with Morgan Stanley. Please proceed with your question.
Speaker 1: transcript
Speaker 1: Our next question comes from the line of Joe Moore with Morgan Stanley . Please proceed with your...
Speaker 15: transcript
Speaker 15: Great, thank you. You talked about a memory business that's being driven by speeds and new standards. But we are seeing some volume pick up there. So I'm wondering, are you seeing test utilization in memory that could drive business there at some point? And then some of your memory customers have underutilized their fabs, any indication that that supply comes back.
Great. Thank you you talked about the memory business, that's being driven by.
<unk> kind of new standards, but we are seeing some volume pickup there. So I'm wondering are you seeing.
Test utilization and memory that could drive business there at some point and then some of your memory customers have underutilized their fabs any indication that that supply comes back online.
Gregory Smith: Sure yeah hi you know a little bit of context obviously with a very long lead times you know looking out a quarter we'd be mainly we'd be mainly booked. And then there's always a rescheduling and stuff drops in and and just the tactical kind of shifts back and forth. But you know overall for the business you know we see it at like 25 30% and then dropping down into semi test you know that is in the 15 to 20% range which we're now starting to see that that kind of book shift is starting to become a little bit more increasing and increasing over time.
Speaker 5: transcript
Speaker 5: Hi, this is Greg. How are you doing? The, so we definitely are seeing that the market is being driven this year by technology driven retool. You know, so HBM, DDR5, LPDR5, and next generation protocol.
Hi, This is Greg Hi, Joe how are you doing.
So we definitely are seeing that the market is being driven this year by a technology driven retool.
H B M D.
DDR five LP DDR, five and and next generation protocols.
Speaker 5: transcript
Speaker 5: The fundamentals in the memory market are getting better. So inventory levels are coming down a bit and production rates are going up.
The fundamentals.
Fundamentals in the memory market are getting better so inventory levels are coming down a bit and production rates are going up.
Speaker 5: transcript
Speaker 5: Right now we haven't seen that reach a trigger to drive a large amount of capacity buys.
Right now we haven't seen that reach a trigger to drive.
Gregory Smith: As you'd expect, lead times coming down, people are going to place the orders when they believe they need them and that's when we get the POs. That makes sense. Thank you. And then as my follow up a question on China, your peers in WFE are on the front-end side of things. They're seeing 40 to 50% of their revenue come from customers in China. I think your business peaked at about 20% and China a couple of years ago, and I think the most recent quarter, you were in the low teens.
Large amount of capacity buys but that is one of the tailwind that we're expecting to help a little bit in 2024 that we don't we don't expect it to be.
Speaker 5: transcript
Speaker 5: But that is one of the tailwinds that we're expecting to help a little bit in 2024. That we don't expect it to be a dramatic increase and we would expect it to be somewhat back and loaded because there is a fair amount of capacity that needs to be loaded before they trigger more buys. But it's definitely...
Dramatic increase and we would expect it to be somewhat back end loaded because there is a fair amount of capacity that needs to be loaded before they trigger more buys but it's definitely a tailwind.
Speaker 15: transcript
Speaker 15: Great. And do you think that you can continue to gain share within MEMRI, given the transitions that are happening?
Great and do you think you can continue to gain share within memory, given the transitions that are happening.
Gregory Smith: With new customers and existing customers, expanding capacity, is China potentially a growth area for you guys with a time lag over the next, call it 24 months? Or is there reason to believe that your exposure there could stay low, given competition, or what have you? Thank you. Hi, it's Sanjay Elte, kind of a first half and provide some context about our current China kind of revenue, and then maybe Greg, if you want to take a second part about the potential growth competition.
Well.
We would love to the thing that I can tell you is that our share in memory is highest in final test and we also tend to be a.
Speaker 5: transcript
Speaker 5: We would love to. The thing that I can tell you is that our share in memory is highest in final tests.
Speaker 5: transcript
Speaker 5: And we also tend to be a first mover that we have the capability to test next generation standards and protocols.
Our first mover that we have the capability to test next generation standards and protocols.
Speaker 5: transcript
Speaker 5: And that allows us to sort of capture more share in that part of the market.
That allows us to sort of capture more share in that part of the market.
Gregory Smith: [inaudible] So, right now, when we roll it up, we think that our overall ATE share is probably going to be flat to slightly up next year. No dramatic shifts from where we are. And I think there may be a bit of a tailwind because if the, it now depends on sort of the strength of the mobility recovery. You know, so that's probably the biggest X factor in terms of where share, share goes.
Speaker 3: transcript
Speaker 5: In the wafer sort part of the market that's driven really by capacity needs.
The wafer sort part of the market, that's driven really by capacity needs. There is less differentiation less profit and more competitors. So what we tend to see is when we're in a technology driven retooling cycle, our share tends to be high and when we're in a.
Speaker 3: transcript
Speaker 5: There's less differentiation, less profit, and more competitors.
Speaker 5: transcript
Speaker 5: So what we tend to see is when we're in a technology driven retooling cycle, our share tends to be high. And when we're in a much broader capacity at that our share would tend to go down a little bit. But we're always fighting and we do have share in the way for sort space. It's just not as high as our share in the final test space.
Much broader capacity at that our Sherwood tend to go down a little bit, but where we're always fighting and we do have share in the wafer sort space. It's just not as high as our share in the final test space.
Okay. Thank you.
Speaker 1: transcript
Speaker 1: And our next question comes from the line of Steve Barger with KeyBank Capital Markets. Please proceed with your question.
And our next question comes from the line of Steve Barger with Keybanc capital markets. Please proceed with your question.
Speaker 16: transcript
Speaker 16: Hey, thanks. Good morning. Just going back to the robotics demand stabilizing, we are seeing some plateauing in some industrial markets, but the long term model appears unchanged for robotics. So, as you target bigger customers, do they have more durable robotics plans relative to smaller customers? Or what gives you confidence that you can get back on track to that mid twenty percent Kager by.
Hey, Thanks, good morning.
Just going back to the robotics demand stabilizing we are seeing some plateauing and some industrial markets.
But the long term model appears unchanged for our robotics. So as you target bigger customers do they have more durable robotics plans relative to smaller customers or what gives you confidence that you can get back on track to that mid 20% CAGR by 2026.
Speaker 5: transcript
Speaker 5: Hi Steve, so thanks for your question. Definitely large customers are a very different sales process and application process than small customers in robotics. So in small customers, the sales cycle.
Hi, Steve So thanks for your question.
Definitely large customers.
<unk> are a very different sales process and application process than small customers and robotics, so and small customers.
The sales cycle can be quite short, but the level of repeat purchases tends to be low what we're seeing as we increase our direct coverage of large accounts from robotics is that they work against annual planning cycles, and they come up with sort of multi project plans.
Speaker 5: transcript
Speaker 5: but the level of repeat purchases tends to be low.
Speaker 5: transcript
Speaker 5: What we're seeing as we increase our direct coverage of large accounts from robotics is...
Speaker 5: transcript
Speaker 5: They work against annual planning cycles and they come up with sort of multi-project plans that they will put you into or not.
They will put you into or not and so since we started.
Speaker 5: transcript
Speaker 5: And so since we started, you know, assigning more sales people into this space in 2023, we now have a pretty rich opportunity funnel, but it takes longer to get through that funnel than it does with smaller customers. So we expect to see a much greater impact from large customers in 24 than we do in 23.
Assigning more salespeople into this space in 2023, we now have a pretty rich opportunity funnel, but it takes longer to get through that funnel than it does with smaller customers. So we expect to see a much greater impact from large customers in 24 than we do in 'twenty three at the same time.
Speaker 5: transcript
Speaker 5: at the same time, there's also a lag time associated with the build out of our OEM channel. So just to remind you, when I say OEM, what I'm talking about is we'll sell a robot to someone who has developed a...
There's also a lag time associated with the build out of our OEM channel. So just to remind you when I say OEM, what I'm talking about is we'll sell a robot to someone who has developed a.
Speaker 3: transcript
Speaker 5: a repeatable solution, you know, whether it's for adhesive application or welding or palletizing, they basically have a product that has our robot inside of it.
Repeatable solution, whether it's for adhesive application or welding or Palletize ing. They basically have a product that has our robot inside of it and then they have their own sales and marketing and service to take care of distribution and customer service.
Speaker 5: transcript
Speaker 3: And then they have their own sales and marketing and service to take care of distribution and customer service.
Speaker 5: transcript
So we signed up 48, new partners in 2023, those partners have to go through that development process and build out their own distribution. So what we see is that.
Speaker 5: transcript
Speaker 5: Not all of the OEMs succeed. There's a certain percentage that do and they tend to have an inflection about 18 to 24 months after the initial sign-up. So we'll, we'll, you know, we have sign-ups that have come from 2021 and 2022 that haven't reflected and are about to inflect. The ones that we signed up in 2023 are gonna become a factor towards the end of 24 and into 25.
Not all of the Oems succeed there is a certain percentage that do and they tend to have an inflection about 18 to 24 months. After the initial sign up so will we.
Gregory Smith: Now, in terms of IC UNIC growth, I don't have the data at my fingertips in terms of what our current expectations are. I think it's typically hang on, I'm almost there. Yes, so we're looking at probably, yeah, so unit growth was actually down this year and it's coming back slightly, but it will still be below the units back in 2022 by our best guess. So, you know, the thing that's really going on is, even though the units will be sort of at or below the peak that they had in 2022, the complexity growth that's happened since 2022 will drive test capacity requirements.
Sign ups that have come from 2021, and 2022 that have inflected and are about to inflect. The ones that we signed up in 2023 are going to become a factor towards the end of 'twenty four and into 'twenty five.
Okay.
Speaker 16: transcript
Speaker 16: So if I can summarize that, that longer selling cycle could help.
So if I can summarize that that longer selling cycle could help them.
Speaker 16: transcript
Mitigate the cyclicality of the underlying markets just because of the that length is that fair.
It's fair Theres still cyclicality because.
Speaker 5: transcript
Speaker 5: big companies have lean times and investment times as well. So, they sort of follow these PMI cycles a bit, but they work on longer lead times. The thing that I think we're looking at long-term as a key way to reduce revenue volatility is to try to increase the amount of software and service revenue as part of our robotics business.
Big companies have.
Lean times and investment times as well so.
Sort of follow these PMI cycles, a bit but they work on longer lead times. The thing that I think we're looking at long term as a key way to reduce revenue volatility is to try to increase the amount of software and service revenue as part of our robot.
Gregory Smith: You got it, you got it. Is there any, any particular market where you see that sort of that UN gap till better in terms of the complexity increase? I'm sorry, could you repeat that? Thinking about sort of the high water mark, semiconductor shipments in counter-22, given some markets, maybe won't retest that unit level, where is the complexity increases or quality control increases big enough to sort of, you know, fill up. Yeah.
<unk> business. So we're working to try and make sure that we can develop some recurring revenue streams in that space and we think that that will have a good effect.
Speaker 5: transcript
Speaker 5: So we're, we're working to try and make sure that we can develop some recurring revenue streams in that space. And we think that that will have a good effect, not immediately, but by the end of this, by sort of the 26, 27 timeframe.
Not immediately but by the end of this sort of the 'twenty six 'twenty seven timeframe.
Speaker 16: transcript
Speaker 16: And so that's a good segue to a quick follow up. You mentioned being ready to execute M&A if something makes sense, which I don't recall being a big topic the past few quarters. Are you thinking more about that? And where would you focus?
And so that's a good segue to a quick follow up you mentioned being ready to execute M&A, if something makes sense, which I don't recall being a big topic in the past few quarters are you thinking more about that and where would you focus on that across the portfolio.
So.
Speaker 3: transcript
Speaker 5: So we're always thinking about M&A. So just to remind you, our capital allocation strategy is that accretive M&A is the highest priority identified use for capital.
Gregory Smith: Yeah, so the biggest lever there is the degree to which advanced processors move to three nanometer technology. So, it's really in the digital space. There are some tailwinds as more of the compute segment moves towards chiplet-based design. That's about a 10 to 20 percent tailwind on the amount of test that's required. And another area that is that that complexity really helps is the more complex devices that are going into an automotive environment, it has a much higher test threshold than other markets.
We're always thinking about M&A so the just.
Just to remind you our capital allocation strategy is that accretive M&A is the highest priority.
Identified use for capital.
Speaker 5: transcript
Speaker 5: When we do not find suitable M&A targets, we return that cash flow to our investors, primarily through buybacks, and of course we have the dividend as well. We always have a pipeline running, we're always looking at things, and we don't comment on what's in our pipeline.
When we do not find suitable M&A targets.
We return that we return that cash flow.
Our investors primarily through buybacks and of course, we have the dividend as well.
We always have a pipeline running we're always looking at things and we don't comment on what's in our pipeline.
Got it thanks.
Alright, and operated we're about out of time, so I'd like to just thank everybody for joining us. If you have questions. Please reach out directly to me Andy Mitra. Thanks.
Speaker 2: transcript
Speaker 2: All right, and I'm very worried about out of time. So I'd like to just thank everybody for joining. And if you have questions, please reach out directly to me and my friends. Take care and look forward to talking to you over the reach ahead. Bye-bye.
Gregory Smith: So, you know, high performance processors for ADAS applications, those have a very high test intensity for the same number of transistors as the same thing going into a fall. So, that's what we're really looking for some sort of a complexity tailwind, I guess.
Take care and look forward to talking to you over the weeks ahead goodbye.
And this concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.
Speaker 1: transcript
Speaker 1: And this concludes today's conference and you made this connection line at this time. Thank you for your participation.
Speaker 10: transcript
Speaker 17: ?? ?? ??
Yeah.
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Sanjay Mehta: Okay, maybe for my second question then, just maybe for Sanjay. I know maybe January is is when you guys like to sort of refresh your thinking the most in terms of forward financial targets, but given sort of the more subdued initial outlook for counter-24, what is sort of your initial thinking in terms of the counter-26 financial model? No. Yeah, great question. You know, every year we go through a process where we go for a strategic planning process and before it culminates with a review of our board in January and then we share an update to our earnings model.
Speaker 17: transcript
Speaker 17: ?? ?? ?? ?? ?? ?? ?? ??
Sanjay Mehta: And we're just starting to go through that process now. So I think the first quick answer is said tight. We'll share that with you in January. But, you know, let me provide a little bit of color to your questions. We still have conviction in the overall key drivers and fundamentals of the model in test and in robotics. I think Greg talked a little bit about them. We've narrated them. So, you know, in over the mid and long term, we have conviction.
Sanjay Mehta: Obviously, in the short term, the visibility is very muted and very cautious. And so, you know, we're going through that now. We're looking for key indicators of when the inflections will occur. But, you know, fundamentally, we believe over the mid and long term, we're going to get to those goals, the timing, you know, we're going to work through and provide an update in January. Okay, thank you.
Okay.
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Gregory Smith: Our next question comes from the line of Joe Moore with Morgan Stanley. Please proceed with your question. Great. Thank you. You talked about a memory business that's being driven by speeds and kind of new standards. But we are seeing some volume pick up there. So I'm wondering, you know, are you seeing test utilizations in memory that could drive business there at some point. And then, you know, some of your memory customers have underutilized their fabs, any indication that that supply comes back online.
Okay.
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Gregory Smith: Hi, this is Greg. How you doing? So, we definitely are seeing that the market is being driven this year by technology driven retool. You know, so, HBM, DDR5, LPDDR5, and next generation protocols. The fundamentals in the memory market are getting better. You know, so inventory levels are coming down a bit and production rates are going up. Right now we haven't seen that reach a trigger to drive a large amount of capacity buys, but that is one of the tailwinds that we're expecting to to help a little bit in 2024 that we don't we don't expect it to be a dramatic increase.
Gregory Smith: And we would expect it to be somewhat back and loaded because there is a fair amount of capacity that needs to be loaded before they trigger more buys, but it's definitely a tailwind. Great. And do you think that you can continue to be in share within memory given the transitions that are happening? Well, we would love to. The thing that I can tell you is that our share in memory is highest in final tests, and we also tend to be a first mover that we have the capability to test next generation standards and protocols.
Gregory Smith: And that allows us to sort of capture more share in that part of the market in the wafer sort part of the market that's driven really by capacity needs. There's less differentiation, less profit and more competitors. So what we tend to see is when we're in a technology driven retooling cycle, our share tends to be high. And when we're in a much broader capacity at that our share would tend to go down a little bit, but we're always fighting and we do have share in the wafer sort space.
Gregory Smith: It's just not as high as our share in the final test space.
Steve Barger: and our next question comes from the line of Steve Barger with Keybank Capital Markets, please we'll see with your question. Hey, thanks. Good morning. Just going back to the robotics demand stabilizing, we are seeing some plateauing in some industrial markets, but the long-term model appears unchanged for robotics. So, as you target bigger customers, do they have more durable robotics plans relative to smaller customers or what gives you confidence that you can go back on track to that mid 20% Kager by 2026?
Steve Barger: Hi, Steve, so thanks for your question. Definitely large customers are a very different sales process and application process than small customers in robotics. So, in small customers, the sales cycle can be quite short, but the level of repeat purchases tends to be low. What we're seeing as we increase our direct coverage of large accounts from robotics is that they work against annual planning cycles, and they come up with sort of multi-project plans that they will put you into or not.
Steve Barger: And so, since we started, you know, assigning more sales people into this space in 2023, we now have a pretty rich opportunity funnel, but it takes longer to get through that funnel than it does with smaller customers. So, we expect to see a much greater impact from large customers in 24 than we do in 23. At the same time, there's also a lag time associated with the build out of our OEM channel.
Steve Barger: So, just to remind you, when I say OEM, what I'm talking about is we'll sell a robot to someone who has developed a repeatable solution, you know, whether it's for adhesive application or welding or palatizing, they basically have a product that has our robot inside of it. And then they have their own sales and marketing and service to take care of distribution and customer service. So, if we signed up 48 new partners in 2023, those partners have to go through that development process and build out their own distribution.
Steve Barger: So, what we see is that not all of the OEMs succeed. There's a certain percentage that do. And they tend to have an inflection about 18 to 24 months after the initial sign-up. So, we'll, you know, we have sign-ups that have come from 2021 and 2022 that haven't reflected and are about to reflect the ones that we signed up in 2023 are going to become a factor towards the end of 24 and into 25.
Steve Barger: So, if I can summarize that, that longer selling cycle could help mitigate the cyclicality of the underlying markets, just because of that length, is that fair? It's fair. There's still cyclicality because big companies have lean times and investment times as well. So, you know, they sort of follow these PMI cycles a bit, but they work on longer lead times. The thing that I think we're looking at long-term as a key way to reduce revenue volatility is to try to increase the amount of software and service revenue as part of our robotics business.
Steve Barger: So, we're working to try and make sure that we can develop some recurring revenue streams in that space. And we think that that will have a good effect not immediately, but by the end of this, by sort of the 26, 27 timeframe.
Gregory Smith: [inaudible] and so that's a good segue to a quick follow-up. You mentioned being ready to execute M&A if something makes sense, which I don't recall being a big topic the past few quarters. Are you thinking more about that, and where would you focus on that across the portfolio? So we're always thinking about M&A. So just to remind you, our capital allocation strategy is that a creative M&A is the highest priority identity used for capital.
Gregory Smith: When we do not find suitable M&A targets, we return that cash flow to our investors primarily through buybacks, and of course we have the dividend as well. We always have a pipeline running, we're always looking at things, and we don't comment on what's in our pipeline. Got it, thanks. All right, and I'm very worried about out of time. So I'd like to just thank everybody for joining, and if you have questions, please reach out directly to me and my friends. Take care and look forward to talking to you over the reach ahead. And this concludes today's conference and you may disconnect your line at this time. Thank you for your participation. Thank you.