Q4 2023 Teradyne Inc Earnings Call

Operator: with 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 measures, when available, on the investor page of our website. Looking ahead between now and our next earnings call, Turnite expects to participate in technology or industrial-focused investor conferences hosted by Wolf Research, Citi, Susquehanna, and Morgan Stanley. Now, let's get on with the rest of the agenda.

<unk> SEC filings and additionally.

Those forward looking statements are made as of today.

Make no obligation to update them as a result, as a result of developments occurring after this call.

During today's call, we'll make reference to non-GAAP financial measures.

Additional information concerning these non-GAAP financial measures, including reconciliation to the most directly comparable GAAP measure where available on the investor page of our website.

Looking ahead between now and our next earnings call Teradyne expects to participate in technology or industrial focused investor conferences hosted by Wolfe Research City, Susquehanna and Morgan Stanley.

Now, let's get on with the rest of the agenda first Gregg will comment on our recent results and the market conditions as we entered the new year. Sanjay will then offer more details on our quarterly results along with our guidance for the first quarter. We'll then answer your questions and this call is scheduled for one hour Greg.

Operator: First, Greg will comment on our recent results and the market conditions as we enter the new year. Sanjay will then offer more details on our quarterly results, along with our guidance for the first quarter. We'll then answer your questions, and this call is scheduled for one hour.

Greg: Hello, everyone, and thanks for joining us this morning. Today, I will summarize our fourth quarter and full year 2023 results, comment on our early view of 2024, and describe the market assumptions underpinning our updated midterm earnings model. Sanjay will then provide financial details on all of these topics. We delivered Q4 financial results in line with our guidance. The clear highlights for the quarter were memory tests, where DRAM tester revenue more than doubled from Q4 2022 on HBM demand, and our robotics team's execution in growing sales 17% from Q4 2022 and 50% sequentially as we ramped shipments to address the record backlog of our new UR20 Cobot at Universal Robots. Balancing these strengths in memory and robotics was continued softness in our other test markets.

Gregg: Hello, everyone and thanks for joining us this morning.

Gregg: I will summarize our fourth quarter and full year 2023 results call.

Comment on our early view of 2024 and described the market assumptions underpinning our updated mid term earnings model.

Gregg: Sanjay will then provide financial details on all of these topics.

We delivered Q4 financial results in line with our guidance.

Gregg: The clear highlights for the quarter, where the where memory test where DRAM tester revenue more than doubled from Q4 2022 on HBM demand and our robotics team's execution and growing sales, 17% from Q4 2022 and.

Gregg: 50% sequentially as we ramped shipments to address the record backlog of our new U R 20, cobalt at Universal robots.

<unk> these strengths in memory and robotics was continued softness in our other test markets.

Greg: Shifting now to the full year, 2023 was the second consecutive year that the size of the semiconductor test market declined as the industry digested record shipments in 2020 and 2021 driven by COVID-related demand. The SOC test market declined 21% from 2021, and the mobility portion declined 55% over the same period. Most of that decline occurred in 2023, with SoC demand down 17% year on year. Mobility has historically been the largest subsegment of the SoC market and an area of strength for us in semiconductor test and wireless. Despite the weakness and demand, the trend towards vertically integrated producers is continuing.

Gregg: Shifting now to the full year 2023 was the second consecutive year that the size of the semiconductor test market declined as the industry digested record shipments in 2020, and 2021 driven by Covid related demand.

Gregg: Soc test market has declined 21% from 2021 and the mobility portion as contracted 55% over the same period.

Gregg: Most of that decline occurred in 2023 with Soc demand down 17% year on year.

Gregg: Mobility has historically been the largest subsegment of the SSD market and an area of strength for us in semiconductor test and in wireless test.

Gregg: Despite the weakness in demand the trend towards vertically integrated producers is continuing.

Greg: This new class of customer provides an opportunity for Teradyne to gain share in high-performance computing, a segment where we have historically had a low share. These customers will take time to ramp up. And so we are focusing on capturing sockets. On that front, 2023 was a great year for us, capturing the majority of key VIP sockets where we targeted customers in the United States and in China. However, although the automotive industry was strong for most of 2023, at the end of the year, elevated inventories for our automotive customers began to slow down the rate at which they add test capacity. Our latest estimate of the semi-test market for 2023 is about $4.8 billion, with $3.9 billion in SOC and $900 million in memory. Our 2023 financial results reflected test market weakness. And when combined with a tepid robotics marketing market, company sales were $2.676 billion, down about 15%. And non-GAAP earnings of $2.93 were down 31% from 2022.

Gregg: This new class of customer provides an opportunity for teradyne to gain share in high performance computing, a segment, where we have historically had low share.

Gregg: These customers will take time to ramp and so we are focusing on capturing sockets on that front 2023 was a great year for us capturing the majority of key VIP sockets, where we targeted at customers in the United States and in China.

Gregg: Although automotive was strong for most of 2023 at the end of the year elevated inventories for our automotive customers began to slow down the rate at which they add test capacity.

Gregg: Our latest estimate of the semi test market for 2023 is about $4 8 billion with.

Gregg: With $3 9 billion, and SFC and $900 million in memory test.

Gregg: Our 2023 financial results reflected the test market weakness and when combined with a tepid robotics marketing market company sales were 267 6 billion down about 15% and non-GAAP earnings of $2 93 were.

Gregg: We're down 31% from 2022.

Greg: As we enter 2024, let me describe how we're looking at the current market. Visibility is limited, but we are cautiously optimistic. For SLC test, chip inventories remain high, and sub-con tester utilization remains in the 70s.

Speaker Change: As we enter 2024, let me describe how we're looking at the current market.

Speaker Change: Visibility is limited, but we are cautiously optimistic.

Speaker Change: In Soc test chip inventories remain high and sub Con test utilization remains in the seventies. These combined to create a headwind to tester demand in the first half of 2024.

Greg: These combine to create a headwind for testing your demand in the first half of 2024. The inventory overhang now extends to parts of the legacy automotive market, which began to soften late in Q4. With this softening of demand, lead times for our SoC testers are now back to pre-COVID levels, generally less than 16 weeks. This enables customers to wait to place new orders until their demand is certain, limiting our visibility.

Speaker Change: The inventory overhang now extends to part of the parts of the legacy automotive market, which began to soften late in Q4.

Speaker Change: With this softening of demand lead times for our Soc testers are now back to pre COVID-19 levels generally less than 16 weeks. This enables customers to wait to place new orders until their demand as certain limiting our visibility.

Greg: Our current view is that these headwinds will abate mid-year, and we are planning for a stronger second half in SOC2. Several leading indicators point to a second half improvement.

Speaker Change: Our current view is that these headwinds will abate mid year and we are planning for a second a stronger second half in Soc test.

Speaker Change: Several leading indicators point to a second half improvement for example, we've seen no slowdown in chip development activity at our customers. So the product pipeline remains healthy.

Greg: We've seen no slowdown in chip development activity at our customers, so the product pipeline remains healthy. While still below normal seasonality, utilization levels are beginning to inch upwards, especially in the OSAPs, which points towards improving mobility and compute demand. Mobile phones are expected to adopt AI capabilities in the premium tier in 2024, and more broadly in 2025, which should accelerate complexity and be a positive for testing. Despite the slowdown we are seeing now in automotive demand, the key driver for this market is the increased electronics content per vehicle, not end vehicle sales. Automotive semi-devices are forecast to grow at an 11% CAGR through the mid-term, and device and device complexity is increasing. Therefore, we expect this law will be short-lived.

Speaker Change: While still below normal seasonality utilization levels are beginning to inch upwards, especially in the <unk>, which points towards improving mobility and compute demand.

Speaker Change: Mobile phones are expected to adopt AI capabilities in the premium tier in 2024, and more broadly in 2025, which should accelerate complexity and be a positive for test demand.

Speaker Change: Despite the slowdown we are seeing now in automotive demand. The key driver for this market is the increased electronics content per vehicle not end vehicle sales.

Speaker Change: Automotive semi devices are forecast to grow at an 11% CAGR through the midterm and this device this and divest complexity is increasing therefore, we expect this law will be short lived.

Greg: In memory tests, the story for 2023 is that despite high-end market inventories, demand for new testers was driven by the retooling required to test higher-speed flash and DRAM devices, especially HBM DRAM. This drove our memory share to a record 43% in 2023. In 2024, we expect continued memory revenue growth driven by the volume production ramps of the technology introductions we saw in 2023 and continued R&D investments for even faster devices. As business conditions improve for memory makers, this may drive increased demand to support capacity expansion. Shifting now to other testimonies.

Speaker Change: In memory test the story for 2023 is that despite high end market inventories demand for new testers was driven by the retooling required to test higher speed flash and DRAM devices, especially HBM DRAM.

Speaker Change: This drove our memory share to a record 43% in 2023.

Speaker Change: In 2024, we expect continued memory revenue growth driven by the volume production ramps of the technology introductions. We saw in 2023 and continued R&D investments for even faster devices as business.

Speaker Change: Conditions improved for memory makers. This may drive increased demand to support capacity expansion.

Speaker Change: Shifting now to other test markets.

Greg: Wireless test demand is expected to remain at current levels in 2024 due to weakness in networking equipment demand and excess capacity in the smartphone market. In system test, we expect continued strength in defense and aerospace markets and expect modest growth in demand in production board tests. We expect storage tests to remain weak in 2024 due to excess test capacity in the HDD and SLT test markets. Having said that, in 2023, we added important new SLT customers in mobility and high-performance computing that are setting us up for mid-term growth, shifting to a broader, We had a very strong Q4 as our UR20 ramp continued, and we launched the new UR30 late in the quarter. Looking at robotics for the full year 2023, in addition to the good progress on the new product front, our channel transformation work continued nicely with We've also expanded the number of large accounts we manage directly from approximately 100 to over 250.

Wireless test demand is expected to remain at current levels in 2024 due to weakness in the networking equipment demand and excess capacity in smartphone test.

Speaker Change: In system test, we expect continued strength in defense and aerospace markets and expect modest growth in demand and production Board test.

Speaker Change: We expect storage test will remain weak in 2024 due to excess test capacity in the HDD and Esselte test markets.

Speaker Change: Having said that in 2023, we added important new esselte customers and mobility and high performance computing that are setting us up for midterm growth.

Speaker Change: Shifting to robotics, we had a very strong Q4 as our U R. 20 ramp continued and we launched the new EUR 30 late in the quarter.

Speaker Change: Looking at robotics for the full year 2023. In addition to the good progress on the new product front, our channel transformation work continued nicely with our OEM sales growing nearly 10% as we added more than 50, new OEM partners.

Speaker Change: We've also expanded the number of large accounts, we managed directly from approximately 100 to over 250.

Greg: We expect Q1 of 2024 to be down more than the normal seasonal dip as the extraordinary Q4 shipments are digested. Thereafter, we expect quarterly year-on-year growth through the rest of 2024. Combining all these points and with the proviso that our view into the second half is limited, we're modeling 2024 company revenue to be roughly flat year on year, with 44% in the first half and 56% in the second half. Within that, we expect lower test revenue in 2024, which reflects the sale of our DIS business, reducing our full-year semiconductor test revenue by approximately $100 million. Excluding the effects of that sale, expected test revenue would have been about flat in a roughly flat market.

Speaker Change: We expect Q1 of 2024 to be down more than the normal seasonal dip as the extraordinary Q4 shipments are digested.

Speaker Change: Thereafter, we expect quarterly year on year growth through the rest of 2024.

Speaker Change: Combining all these points and with the proviso that our view into the second half is limited we're modeling 2020 for company revenue to be roughly flat year on year with 44% in the first half and 56% in the second half.

Speaker Change: Within that we expect lower test revenue in 2024, which reflects the sale of our EIS business, reducing our full year semiconductor test revenue by approximately $100 million.

Speaker Change: Excluding the effects of that sale expected test revenue would have been about flat and are roughly flat market.

Greg: In semi-test, our early estimate of the SOC market size for 2024 is $3.6 to $4.2 billion, and our estimate for memory is $1 to $1.1 billion, for a combined semiconductor test market at the midpoint of $4.95 billion. We expect robotics will grow in the 10 to 20 percent range in 2024. Now, we turn to our midterm model.

Speaker Change: In semi test our early estimate of the Soc market size for 2024 is three six to $4 2 billion.

Speaker Change: And our estimate for memory is one to $1 1 billion.

Speaker Change: For our combined semiconductor test market at the midpoint of $4 95 billion.

Speaker Change: We expect robotics will grow in the 10% to 20% range in 2024.

Speaker Change: Turning now to our midterm model.

Greg: Despite the longer-than-expected downturn in the mobile test market and the softness in robotics and demand, we remain optimistic about the long-term potential of our test and robotics business, as this is shown in the update to our midterm earnings model. At the midpoint in 2026, we expect to deliver earnings per share of over two times the 2023 level and revenue growth of nearly 60%. As we've noted in past calls, the key drivers of that growth include process node advances to 3nm, 2nm, gate all-around, and backside power delivery. These are all on track or even accelerating, and they enable higher transistor counts and higher complexity, and that drives longer testing.

Speaker Change: Despite the longer than expected downturn in the mobile test market and the softness in robotics and demand we remain optimistic about the long term potential of our test and robotics businesses.

Speaker Change: This is shown in the update to our mid term earnings model at the midpoint in 2026, we expect to deliver earnings per share at over two times, the 2023 level and a revenue growth of nearly 60%.

Speaker Change: As we've noted in past calls the key drivers of that growth include process node advances to three nanometer two nanometer gate all around and backside power delivery. These are all on track or even accelerating and they enable higher transistor counts higher complexity and that drives longer term.

Speaker Change: <unk>.

Greg: Good progress in the emerging VIP space with key wins at design and targets and high share at two of the three leading ASIC design houses, all of which drive future revenue. Advanced packaging, including chiplet technology, which requires higher test intensity at the wafer level, driving longer test times, compelling applications of Edge AI for ADAS and smartphone co-pilots that are driving demand for more processing power, more memory, and wider bandwidth communication. All of these factors accelerate the test.

Speaker Change: Good progress in the emerging VIP space with key wins at design and targets and high share at two of the three leading AC design houses all of which drive future revenue.

Speaker Change: Advanced packaging, including Chip led technology, which requires higher test intensity at the wafer level driving longer test times.

Speaker Change: Compelling applications of edge AI for Adas and smartphone co pilots that are driving demand for more processing power more memory and wider bandwidth communications all of these factors accelerate test demand.

Greg: There is an aggressive roadmap for increases in memory interface speeds in DRAM, HBM, and Flash that will continue to drive technology-driven retooling in the memory market. And finally, in robotics, we are still at less than 5% market penetration, and we are confident that our channel strategy will unlock the long-term growth potential of this market. In addition, the application of AI is expanding the range of tasks that our robots can serve, while our new products will expand our served market and decrease the effort required for customers to automate. At the company level, compared to last year, our growth outlook has shifted to the right, but the slope of expected growth is largely unchanged. The duration of the downturn in mobile demand has been longer than we expected, and the softness in the industrial automation market that we and our peers have seen has really impacted our expectations of growth in robotics for 2023.

Speaker Change: There is an aggressive roadmap for increases in memory interface speeds in DRAM HBM and flash that will continue to drive technology, driven retooling in the memory market.

Speaker Change: And finally in robotics, we are still at less than 5% market penetration and we are confident that our channel strategy will unlock the long term growth potential of this market. In addition, the application of AI is expanding the range of tasks that our robots conserve while our new products will expand our served.

Speaker Change: <unk> and decrease the effort required for customers to automate.

Speaker Change: At the company level compared to last year, our growth outlook has shifted to the right, but the slope of the expected growth is largely unchanged the duration of the downturn in mobile demand has been longer than we expected and the softness in the industrial automation market that we and our peers have seen has really.

Speaker Change: Impacted our expectations of growth in robotics for 2023.

Greg: Sanjay will provide more financial details of the model. As we look at our results for 2023 and the outlook for 2024, we are focused on improving gross margins and maintaining tight financial discipline while making the necessary R&D and customer-facing investments required to capture the long-term growth potential in both the test and robotics market. To maintain that financial discipline, we will be looking to see signs of top-line growth before allowing OPEX to materially increase.

Speaker Change: Sanjay will provide more financial details of the model.

Speaker Change: As we look at our results for 2023 and the outlook for 2024, we are focused on improving gross margins and maintaining tight financial discipline, while making the necessary R&D and customer facing investments required to capture the long term growth potential in both the test and robotics markets.

Speaker Change: To maintain that financial discipline, we will be looking to see signs of top line growth before allowing opex to materially increase.

Speaker Change: We operate our business with mid term plans that track long term historical trends and the future demand drivers in each of our businesses rather than trying to predict short term cycles.

Sanjay Mehta: We operate our business with mid-term plans that track long-term historical trends and the future demand drivers in each of our businesses rather than trying to predict short-term cycles. In any given year, results will land above or below that trend, but that trend line has provided a reliable baseline for planning. As expected, 2023 was below trendline, but the underlying demand drivers remain in place, and we're executing our plans to capture that future demand. We're excited about the opportunities ahead, and we have deep confidence in our team's ability to capture those opportunities. With that, I'll turn things over to Sanjay. Okay? Thank you, Greg. Good morning, everyone.

Speaker Change: In any given year results will land above or below that trend, but that trend line has provided a reliable baseline for planning.

Speaker Change: As expected 2023 was below trend line, but the underlying demand drivers remain in place and we're executing our plans to capture that future demand. We're excited about the opportunities ahead, and we have deep confidence in our team's ability to capture those opportunities with that I'll turn things over to Sanjay.

Sanjay.

Sanjay: Thank you Greg Good morning, everyone. Today I'll cover the financial summary of Q4, the full year 2023 provide our Q1 outlook. Some planning guidance for full year 2024 review, our updated earnings model and outlined our capital allocation plan.

Sanjay Mehta: Today, I'll cover the financial summary of Q4, and the full year 2023, provide our Q1 outlook, some planning guidance for the full year 2024, review our updated earnings model, and outline our capital allocation plan. Now, let's go to Q4. Fourth quarter sales were $671 million, with an on-gap EPS of $0.79, both in line with our guide. Semi-test revenue of $431 million, at SOC revenue of $327 million, with high memory shipment of $104 million, as Greg noted and has highlighted. System Task Group had revenue of $86 million, down 14% from Q4'22. Growth in defense and aerospace was offset by weakness in storage test and production board tests. Lifepoint's revenue of $25 million was weaker year over year due to continued weakness in the cellular and PC markets.

Sanjay: <unk> Q4 fourth quarter sales were $671 million.

Sanjay: With non-GAAP EPS of <unk> 79.

Sanjay: In line with our guidance semi test revenue of $431 million at Soc revenue of $327 million with high memory shipments of $104 million as Greg noted in his highlights.

System Test group had revenue of $86 million down.

Sanjay: Down 14% from Q4 'twenty two.

Sanjay: Growth in defense and aerospace was offset by weakness in storage test and production Board test.

Sanjay: <unk> revenue of $25 million was weaker year over year due to continued weakness in cellular PC markets.

Sanjay: <unk> revenue of $129 million was up 17% from fourth quarter of.

Sanjay: Last year and up 50% sequentially on seasonally high demand and the impact of EUR 20 million and <unk> 30, new product shipments.

Sanjay: non-GAAP gross margin was 56, 6% in the middle of our guidance range and non-GAAP operating expenses were $245 million in Q4 of $2 million from Q3 23.

Sanjay Mehta: Robotics revenue of $129 million was up 17% from the fourth quarter last year and up 50% sequentially on seasonally high demand and the impact of UR-20 and UR-30 new product ships. Non-GAAP gross margin was 56.6%, in the middle of our guidance range, and non-GAAP operating expenses were $245 million in Q4, up $2 million from Q3'23. The non-GAAP operating profit rate was 20.1%, and some other financial facts. We had one 10% customer in the quarter. The tax rate, excluding discrete items for the quarter, was 12.6% on a non-GAAP basis and lower than planned because of geographic mix.

Sanjay: non-GAAP operating profit rate was 21%.

Sanjay: Some other financial facts, we had 110% customer in the quarter.

Sanjay: Tax rate, excluding discrete items for the quarter was 12, 6% on a non-GAAP basis and lower than planned because of geographic mix.

Sanjay: GAAP tax rate was 14% in Q4, excluding discrete items.

Sanjay: We repurchased $51 million of shares in the quarter.

Sanjay: Turning to the full year results we.

Sanjay: We had revenue of $2 $676 billion.

Sanjay: Texas instruments was the only customer greater than 10% of our revenue for the year.

Sanjay: Gross margin for the year was 57, 4%.

Sanjay: Opex was $990 million.

Sanjay: And operating profit was 24%.

Sanjay: non-GAAP EPS was $2 93.

Sanjay: We generated $426 million and free cash flow in 2023, we returned $468 million or 110% of free cash flow to our shareholders through share repurchases and dividends. We ended the year with $937 million of cash and marketable securities.

Sanjay Mehta: GAAP tax rate was 14% in Q4, excluding discrete items. We repurchased $51 million of shares in the quarter. Turning to the full year results, we had revenue of $2.676 billion. Texas Instruments was the only customer greater than 10% of our revenue for the year.

Sanjay: Our tax rate for the full year, excluding discrete items was 55% on a non-GAAP basis, and 15, two 5% on a GAAP basis.

Sanjay: Semi test revenue for the year was approximately $1 8 billion with Soc revenue contributing $143 billion.

Sanjay Mehta: Gross margin for the year was 57.4%. OpEx was $990 million, and operating profit was 20.4%. Non-GAAP EPS was $2.93.

Sanjay: And memory <unk> $386 million.

Sanjay Mehta: We generated $426 million in free cash flow in 2023. We returned $468 million, or 110% of free cash flow to our shareholders through share repurchases and dividends. We ended the year with $937 million of cash in marketable securities. Our tax rate for the full year, excluding discrete items, was 15.5% on a non-GAAP basis and 15.25% on a GAAP basis.

Sanjay: Our Soc sales contracted 16% in 2023 in line with the continued mobility market weakness, partially offset by strength in auto and industrial.

Sanjay: In memory, our sales grew about 4% driven by new technologies like <unk>, four and flash and LP DDR five and HBM in DRAM.

Sanjay: System Test group had revenue of $338 million in 2023.

Sanjay: Combined defense and aerospace and production Board test sales were both flat, while HDD and system level test in our storage business.

Sanjay: We're down in total nearly 50% from 2022.

Sanjay Mehta: Semitest revenue for the year was approximately $1.8 billion, with SoC revenue contributing $1.43 billion, and memory $386 million. Our SOC sales contracted 16% in 2023, in line with a continued mobility market weakness, partially offset by strength in auto and industrial. In memory, our sales grew about 4% driven by new technologies like UFS4 and Flash, and LPDDR5, and HBM and DRAM. The System Test Group had revenue of $338 million in 2023. Combined defense and aerospace and production board test sales were both flat, while HDD and system level tests in our storage business were down in total by nearly 50% from 2022. In wireless tests, revenue of $144 million in 2023 was lower year-on-year given the decline in handset units and continued weakness in the networking and PC market. Nata Robotics

Sanjay: In wireless test revenue of $144 million in 2023 was lower year on year, given the decline in handset units and continued weakness in the networking and PC markets.

Sanjay: Now the robotics robotics revenue in 2023 was $375 million with you are contributing $304 million and near $71 million.

Sanjay: The group had mid teens profitability in Q4, 'twenty three but for the full year at an 8% non-GAAP operating loss.

Sanjay: While you are was profitable in 2023, we continue to lean into R&D and channel enhancement investments in mirror.

Sanjay: Now to our outlook for Q1.

Sanjay: Since our October call Soc test demand has softened, which impacts our Q1 outlook Q.

Sanjay: Q1 sales are expected to be between 540 and $590 million non-GAAP EPS in a range of 22 to <unk> 38.

Sanjay: On a 162 million diluted shares.

Sanjay: Our first quarter guidance excludes the amortization of acquired intangibles.

Sanjay: First quarter gross margins are expected to be the low point for the year are estimated at $53 five to 54, 5% due to lower volume and unfavorable product mix.

Sanjay: Opex is expected to be roughly flat with Q4, 'twenty three and run at 42% to 46% of first quarter sales non.

Sanjay Mehta: Robotics revenue in 2023 was $375 million, with UR contributing $304 million and MIR $71 million. The group had mid-teens profitability in Q4'23, but for the full year had an 8% non-GAAP operating margin. While UR was profitable in 2023, we continue to lean into R&D and channel enhancement investments in MIR. Now to our outlook for Q1. Since our October call, SOC test demand has softened, which impacts our Q1 outlook. Q1 sales are expected to be between $540 and $590 million, with non-GAAP EPS in a range of $0.22 to $0.38 on 162 million diluted shares. Our first quarter guidance excludes the amortization of acquired intangible assets.

Sanjay: non-GAAP operating profit rate at the midpoint of our first quarter guidance is 10%.

Sanjay: A few points to assist you in modeling 2024 first the gross margin profile.

Sanjay: In 2024, we expect gross margins to increase through the year.

Sanjay: Gross margins are forecasted to improve to 58% to 59% for the full year driven by improved product mix, including the sale of the device interface solutions or <unk> business.

Sanjay: Lower business resiliency spending and operational improvements.

Moving to the strategic partnership we announced with Technip probe in November 2023.

Sanjay: The agreement has several key components as follows.

Sanjay: First <unk>.

Sanjay: <unk> purchased Teradyne's Gis business. This business provides advanced interfaces that connect our testers to customers chips for test.

Sanjay Mehta: First quarter gross margins are expected to be the low point for the year and are estimated at 53.5% to 54.5% due to lower volume and unfavorable product mix. POPX is expected to be roughly flat with Q4'23 and run at 42-46% of first quarter sales. The non-GAAP operating profit rate at the midpoint of our first quarter guidance is 10%. Here are a few points to assist you in modeling 2024. First, the gross margin profile. In 2024, we expect gross margins to increase throughout the year. Gross margins are forecasted to improve to 58 to 59% for the full year, driven by an improved product mix, including the sale of the device interface solutions or DIS business, as well as lower Business Resiliency Spending and Operational Improvement. Moving to the strategic partnership we announced with TechnoPro in November 2023, the agreement has several key components, as follows.

Sanjay: Teradyne will make an equity investment and techno probe acquiring 10% of their outstanding shares.

Sanjay: Teradyne and Technophobe will work together on a series of projects to expand the performance of semiconductor device interfaces to enable customers to realize the full performance of our test systems.

Sanjay: We expect the transactions to close in the second quarter.

Sanjay: <unk> had 2023 revenue of $103 million and the sale will.

Sanjay: We will reduce teradyne's expected 2024 revenue by approximately $100 million, assuming a Q2 close date it.

Sanjay: It will not have material impact on earnings.

Sanjay: We plan to account for our investment in Technophobe using the equity accounting method.

Sanjay: Regarding opex for the full year, we expect full year 2024, opex to increase 5% to 7% driven by strategic projects to grow share in our test businesses. The.

The growth will be back half loaded.

Sanjay: Robotics is expected to grow revenue, 10% to 20% in 2024, enabling robotics to be profitable.

Sanjay: The group will have a similar revenue profile as a company with second half expected at 56% of full year revenue.

Sanjay Mehta: First, Technoprobe will purchase Teradyne's DIS business. This business provides advanced interfaces that connect our testers to customers' chips for tests. Second, Caridin will make an equity investment in Technoprobe, acquiring 10% of its outstanding shares.

Sanjay: Our GAAP and non-GAAP tax rate is forecasted to be 16% in 2024, excluding discrete items.

Sanjay: Turning to capital allocation.

Sanjay: Our strategy remains consistent as we take a balanced approach to maintain a minimum cash level of $800 million.

Sanjay: Which enables us to run the business our cash reserves set aside in the event of a significant downturn and have dry powder for M&A for.

Sanjay Mehta: Third, Teradyne and Technoprobe will work together on a series of projects to expand the performance of semiconductor device interfaces to enable customers to realize the full performance of our test system. We expect the transactions to close in the second quarter. DIS had 2023 revenue of $103 million, and the sale will reduce Teradyne's expected 2024 revenue by approximately $100 million, assuming the Q2 close date. It will not have a material impact on Earth.

Sanjay: For reference from 2015 to 2023, we've returned over $4 $3 billion to shareholders through share repurchases and dividends, which is 97% of our free cash flow.

Sanjay: Earlier. This month, we also announced a 9% increase in our dividend to <unk> 12 per quarter.

Sanjay: We expect to close our investment and techno probe and our divestiture of <unk> in Q2, which will consume an estimated $440 million of net cash.

Sanjay: We will limit our share buybacks in 2024 to an amount necessary to offset dilution from equity compensation and employee share purchase program in order to build cash back up to a minimum goal of $800 million.

Sanjay Mehta: We plan to account for our investment in TechnoPro using the equity accounting method. Regarding OPEX for the full year, we expect full year 2024 OPEX to increase 5% to 7% driven by strategic projects to grow share and our test business. The growth will be back half-loaded. Robotics is expected to grow revenue 10 to 20% in 2024, enabling robotics to be profitable. The group will have a similar revenue profile as the company, with the second half expected at 56% of full year revenue. Our GAAP and non-GAAP tax rate is forecasted to be 16% in 2024, excluding discrete items. Now, turning to capital allocation. Our strategy remains consistent as we take a balanced approach to maintain a minimum cash level of $800 million, which enables us to run the business, have cash reserves set aside in the event of a significant downturn, and have dry powder for M&A.

Sanjay: Therefore, we do not expect to materially reduce the share count in 2024.

Sanjay: Moving to our mid term earnings model.

As we do each January we've updated our model.

Sanjay: We share this with investors to provide insight into how we look at the markets, we serve our competitive positioning and ultimately the growth in earnings power of the company.

Sanjay: A few points for context.

Sanjay: We've kept 2026 as of year end. So you can make an easy comparison with last year's update.

Financial ranges or down to reflect our revised view of the markets in which we participate.

Sanjay: Greg outlined the key drivers for the <unk> portfolio, including device technology trends complexity and unit growth, which we anticipate will drive <unk> growth over the three year horizon.

Sanjay: Our test revenues are expected to grow at a CAGR of 12% to 18% from 2020 threes muted level to 2026, driven primarily by a recovery in mobility test demand.

Sanjay: For robotics, we're looking at a strong market opportunity.

Sanjay: The drivers over the mid include labor shortages, new products and applications.

Sanjay Mehta: For reference, from 2015 to 2023, we've returned over $4.3 billion to shareholders through share repurchases and dividends, which is 97% of our free cash. Earlier this month, we also announced a 9% increase in our dividend to $0.12 per quarter. We expect to close our investment in Technoprobe and our divestiture of DIS in Q2, which will consume an estimated $440 million of net cash. We will limit our share buybacks in 2024 to an amount necessary to offset dilution from equity compensation and our employee share purchase program in order to build cash back up to a minimum goal of $800 million.

Sanjay: Including a growing range of AI, driven products and our channel transformation work.

Sanjay: Our robotics revenues are expected to grow at 20% to 30% CAGR from 2023 to 2026.

Sanjay: The updated earnings model will drive 2026 revenue to approximately $4 3 billion.

Sanjay: And non-GAAP EPS to $6 50 at the midpoint of the model range.

Sanjay: Our model at the midpoint.

Sanjay: As a revenue CAGR from 2023 to 2026 of 17% and on Etfs at 30% highlighting the operating leverage of both robotics and test portfolios.

Sanjay: Gross margin is estimated at 59% to 60% Opex as a percentage of sales will be 28% to 31%, yielding a non-GAAP operating margin of 28% to 32%.

Sanjay Mehta: Therefore, we do not expect to materially reduce the share count in 2024. Moving to our mid-term earnings model. As we do each January, we've updated our model. We share this with investors to provide insight into how we look at the markets we serve, our competitive positioning, and ultimately, the growth and earnings power of the company. A few points for context.

Sanjay: Summing up we had a challenging year in 2023 and still deliver 20% operating profit on a non-GAAP basis.

Sanjay: Generated $426 million in free cash flow and returned 110% of that cash to shareholders. We did this while we strengthened our competitive position in test and robotics with new products invested in channel transformation, and robotics and announced a strategic partnership and test interfaces to drive semi test share growth.

Sanjay Mehta: First, we've kept 2026 as a year end so you can make an easy comparison with last year's update. Second, financial ranges are down to reflect a revised view of the markets in which we participate. Greg outlined the key drivers for the test portfolio, including device technology trends, complexity, and unit growth, which we anticipate will drive ATE growth over the three-year horizon. Our test revenues are expected to grow at a CAGR of 12 to 18 percent from 2023's muted level to 2026, driven primarily by a recovery in mobility test demand. For robotics, we're looking at a strong market opportunity.

Looking ahead, we expect a return to growth later this year and beyond driven by favorable trends in both test and robotics and the financial impact of that growth is reflected in our updated mid term earnings model.

Sanjay: With that I will turn the call back to Andy Andy.

Andy: Thanks, Sanjay we would now like to take some questions and as a reminder, please limit yourself to one question and a follow up.

Andy: Thank you.

Speaker Change: I'd like to ask a question today. Please press star one on your telephone keypad.

Speaker Change: Hey, Tommy Kate Your line is in the question queue.

Speaker Change: You May press star two if you'd like to remove your question from the queue.

Okay, Thats using speaker equipment, it may be necessary to pick up your handset before pressing the Cherokee.

Speaker Change: One moment. Please can we poll for questions. Thank you.

Speaker Change: Thank you and our first question will be coming from the line of Mehdi Hosseini with.

Please proceed with your question.

Mehdi Hosseini: Yes, thanks for taking my question.

Sanjay Mehta: The drivers for this mission include labor shortages, new products and applications, including a growing range of AI-driven products and our channel transformation work. Our robotics revenues are expected to grow at 20-30% CAGR from 2023-2026. The updated earnings model will drive 2026 revenue to approximately $4.3 billion and non-GAAP EPS to $6.50 at the midpoint of the model range. Our model, at the midpoint, has a revenue CAGR from 2023 to 2026 of 17% and on EPS of 30%, highlighting the operating leverage of both robotics and test portfolios. Gross margin is estimated at 59 to 60 percent. OPEX, as a percentage of sales, will be 28 to 31 percent, yielding a non-GAAP operating margin of 28 to 32 percent.

Mehdi Hosseini: First one has to do with the mid term guide it seems like there is.

Mehdi Hosseini: But the.

Mehdi Hosseini: 13% decline in U C Tam for 2026.

Mehdi Hosseini: But I understand is how do you think about.

Mehdi Hosseini: The mobile App processor, and especially the transistor density versus a slow start in industrial.

Mehdi Hosseini: Should we think about those two end markets impacting that 50% reduction to your 2026.

Speaker Change: And I have a follow up.

Greg: Hi, This is Greg.

Greg: So.

Greg: The.

Greg: The composition of the Tam in the midterm model if you compared this year to last year I think the biggest changes that we think that the that the compute part of the market is going to.

Greg: At a higher level than we did last year and we think that the mobile portion of the market is going to be up from where it is now, but we will not be at the level that we were modeling last year. So we believe that the pace of transistor dense.

Greg: Density is proceeding basically at the same rate that we thought it was proceeding last year the real differences that.

Sanjay Mehta: Summing up, we had a challenging year in 2023 and still delivered 20% operating profit on a non-gap basis, generated $426 million in free cash flow, and returned 110% of that cash to shareholders. We did this while we strengthened our competitive position in test and robotics with new products, invested in channel transformation in robotics, and announced a strategic partnership in test interfaces to drive semi-test share growth. Looking ahead, we expect a return to growth later this year and beyond, driven by favorable trends in both tests and robotics, and the financial impact of that growth is reflected in our updated midterm earnings model. With that, I'll turn the call back to Andy. Andy?

Greg: The end market.

Greg: Sort of end unit market predictions going out through the midterm are a bit softer in this model than they were last time.

Greg: The certainly the impact of cloud and edge AI in the market is a relatively new factor and in strengthening the compute part of it.

Speaker Change: Okay, Great and then follow up has to do.

Speaker Change: Your prepared remarks.

Speaker Change: Believe you said you have a new compute.

Speaker Change: Customer and if that's true because I hear you correctly, how does the ramp of that new customer will look like is it more like a 25 26.

Speaker Change: Impact.

Speaker Change: And if you could just provide any additional color there would be great.

Speaker Change: Yes.

So there's sort of two two comments in my prepared remarks <unk> talked about.

Operator: Thanks, Azhar. We'd now like to take some questions, and as a reminder, please limit yourself to one question and follow-up. Thank you. If you would like to ask a question today, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. Can we press star 2 for you later and move your question from the queue? Just finished using speaker equipment? It may be necessary to pick up your handset before pressing the star key.

Speaker Change: Socket wins for Vips.

Speaker Change: And those socket wins are.

Speaker Change: In both cloud compute and in edge devices.

Speaker Change: And the right way to model that is.

Speaker Change: Perhaps a little bit starting towards the end of 2024, but definitely hitting much more serious.

Seriously in 2025, the other reference that I made was for an SLT win for a compute customer and Thats definitely something that is going to take until 2025 to build two material volume.

Operator: One moment, please, while we poll for questions. Thank you, and our first question will be coming from the line of Mehdi Hossein with SIG. Yes, thanks for taking my question. The first one has to do with the midterm guide.

Speaker Change: Okay, great perhaps on form <unk>.

VIP is.

Speaker Change: Oh.

Speaker Change: We.

Speaker Change: Because most of the.

Greg: It seems like there's about a 13% decline in your SOC time for 2026. What I want to better understand is how you think about the mobile app processor and especially the transistor density versus a slow start in industrial. How should we think about those two end markets impacting that 13% reduction in your 2026 SOC time? And I have a follow-up. Hi Mehdi, this is Greg.

Speaker Change: There are a number of players that are designing their own silicon.

Speaker Change: And.

Speaker Change: Typically a big portion of those are the hyper scaler, but there are.

Speaker Change: There are players in that space that don't fit the traditional hyper scaler model.

Speaker Change: So like a large integrated automate automaker or people that are.

Speaker Change: Doing custom silicon development for their own handsets are customer devices.

Speaker Change: We prefer the term vertically integrated producer, but you can you can read that as hyperscale.

Greg: The composition of the TAM in the midterm model, if you compare this year to last year, I think the biggest change is that we think that the compute part of the market is going to be at a higher level than we did last year. And we think that the mobile portion of the market is going to be up from where it is now but will not be at the level that we were modeling last year. So we believe that the pace of transistor density is proceeding basically at the same rate as it was proceeding last year. The real difference is that the end market and, you know, sort of end unit market predictions going out through the midterm are a bit softer in this model than they were last time. And, you know, certainly, the impact of cloud and edge AI in the market is a relatively new factor and is strengthening the compute part of it. Okay, great.

Speaker Change: Okay. Thank you for color I appreciate it.

Our next question from the line of Timothy Arcuri with UBS. Please proceed with your question.

Timothy Arcuri: Thanks, a lot I'm wondering if you can go through the Tam numbers, how the different segments came in in 'twenty three I know the breakout before was compute one three mobility was 900 autos, where I think a little more than 600. If you can just did the market came in about as you thought it would for 'twenty three and then.

Timothy Arcuri: Can you shape 24 for those segments I know, it's flat at a high level, but I would imagine the auto is probably down a couple hundred million dollars and maybe computes up a couple hundred million dollars. That's the Delta can you can you just run through that.

Timothy Arcuri: Okay.

Timothy Arcuri: Sure Hi, Tim it's Sanjay so.

Sanjay: We estimate the <unk>.

Sanjay: Soc Tam in 2023.

Sanjay: Going down the correct numbers, but haven't really changed but just for her specifics we view the compute market at $1 3 billion mobility at $900 million auto at $600 million industrial at $400 million of service at 700 million Thats, how you get to the $3 9 billion.

Greg: And the follow-up has to do with your prepared remarks. I believe you said you have a new Compute customer. And if that's true, if I heard you correctly, how does the ramp of that new customer look? Is it more like a 25, 26 impact? And if you could just provide any additional color, it would be great.

Sanjay: And then the midpoint of 2024.

Greg: So there are sort of two comments in my prepared remarks. One talked about socket wins for VIPs. And those socket wins are in both cloud compute and in edge devices. And the right way to model that is, perhaps a little bit starting towards the end of 2024, but definitely hitting much more seriously in 2025. The other reference that I made was for an SLT win for a compute customer, and that's definitely something that's going to take until 2025 to build to material volume. Okay, great.

Sanjay: Compute is $1 4 billion mobility dollars 9 billion.

Sanjay: <unk> 5 billion industrial at <unk> 4 billion.

Sanjay: And service is Youll see service at $7 billion to get to the $3 9 billion at our midpoint.

Speaker Change: Got it okay. So so it is compute.

Speaker Change: It's just a little bit of mix shift Okay. And then can you talk about your largest customer you big customer on the mobility side, which which was actually not your largest customer in 2023.

Speaker Change: I know you have a range of outcomes this year.

Greg: Perhaps I'll follow up with Andy on what we are... Oh, that's sorry, we are because most of the, there are a number of players that are designing their own silicon. And, you know, typically, a big portion of those are hyperscalers. But there are, there are players in that space that don't fit the traditional hyperscaler model.

Speaker Change: I'm not asking for.

Speaker Change: Numbers on that range, but can you talk about sort of what you think at the midpoint.

Speaker Change: How big they could be as a percent.

Speaker Change: Is there a case where there.

<unk>.

Speaker Change: What percent of your revenue range in 2024 or is that just off the table.

Speaker Change: So.

Greg: Hi, This is Greg.

Greg: Our historically largest customer.

Greg: We've said that like in 2023, they are going to come in at under 10%.

Greg: So, you know, like a large integrated automaker or people that are doing custom silicon development for their own handsets or customer devices. So, we prefer the term vertically integrated producer, but you can, you can read that as hyperscaler. Okay, thank you for your time. Our next questions are from the line of Timothy Arcuri with UBS. Thanks a lot.

Greg: Looking forward into 2024, our base case again has them at less than 10% of.

Greg: Total revenue.

Greg: Right now our visibility into their second half demand is quite limited.

And we usually have a better picture of that in the April timeframe. So if we get any better information about it we'll share that at that time, but the thing that you should you should think about is that there isn't.

Sanjay Mehta: I'm wondering if you can go through the TAM numbers, how the different segments came in at 23. I know the breakout before was Compute 1.3. Mobility was 900. And Autos were, I think, a little more than 600. If you can just, did the market come in about as you thought it would for 23? And then can you shape 24 for those segments?

Greg: There isn't much downside to our base case around anything that happens with our historically largest customers.

Speaker Change: Got it okay. Thank you Greg.

Speaker Change: Our next question is from the line of C. J Muse with Cantor Fitzgerald. Please proceed with your question.

Speaker Change: Yes. Good morning, Thank you for taking the question.

In your prepared remarks, you talked about confidence in the second half recovery for SSD test. So I was hoping you could walk through.

Sanjay Mehta: I know it's flat at a high level, but I would imagine cars are probably down a couple hundred million and maybe computers are up a couple hundred million. That's the delta. Can you just run through that?

Speaker Change: What's giving you the confidence and how you see that recovery.

Speaker Change: Emerging and perhaps you could speak to <unk> versus end customers.

Sanjay Mehta: Sure. Hi, Tim, it's Sanjay. So we estimate the SOC TAM in 2023. You were going down the correct numbers that haven't really changed. But just for specifics, we view the compute market at 1.3 billion, mobility at 900 million, auto at 600 million, industrial at 400 million, and service at 700 million. That's how you get to the 3.9 billion.

Speaker Change: Content.

Speaker Change: Whatever you think is really going to move the needle for you guys and drive that second half recovery over the first half.

Speaker Change: Sure so the.

Speaker Change: The leading indicators that we tend to look at most is really around utilization rates and right now those utilization rates are low, but we did start to see <unk> utilization start to tick up. So there is still below normal seasonality, but theyre definitely improving and.

We believe that they could reach sort of the point the level that would trigger buying by the third quarter of this year. If the trend that we're seeing continues the key end market trends that we're looking for is unit growth in smartphones and Pcs Pcs have been in a real pit.

Sanjay Mehta: And then at the midpoint of 2024, compute is 1.4 billion, mobility is 0.9 billion, AutoMCU at $0.5 billion, Industrial at $0.4 billion, and SLC Service at $0.7 billion to get to $3.9 billion at our mid-term. Got it. Okay, so it's just a little bit of a makeshift.

Speaker Change: And so just from a refresh cycle, we're expecting to see that recovering a bit and that would be a tailwind for us.

Speaker Change: The thing that we also saw in the fourth quarter was that utilization came down a bit and ibms and so they are primarily the that's where most of our business is concentrated for industrial and automotive. So we saw the industrial part of that start to weaken in the second half of 2023 and.

Greg: Okay. And then can you talk about your largest customer, your big customer on the mobility side, which was actually not your largest customer in 2023? I know you have a range of outcomes this year. I'm not asking for, you know, numbers on that range, but can you talk about sort of what you think at the midpoint, you know, how big they could be as a whole. Is there a case where they're back at percent of your, you know, revenue range in 2024, or is that just off the table? So, hi, this is Greg.

Speaker Change: Late in 2020.

Late in Q4 of 2023, we also started to see automotive begin to weaken.

Speaker Change: Our model right now has that that's a relatively short lull in demand and we think that thats, mainly driven by the fact that new model year introductions every year for the automakers has a significantly higher attach rate for electronics and thats driving a pretty good <unk>.

Greg: You know, our historically largest customer, we've said that, like in 2023, they are going to come in at under 10%. Looking forward into 2024, our base case again has them at less than 10% of total revenue. Right now, our visibility into their second half demand is quite limited, and we usually have a better picture of that in the April timeframe. So if we get any better information about it, we'll share it at that time. But the thing that you should think about is that there isn't much downside to our base case around anything that happens with our historically large population. Got it.

Speaker Change: <unk> in the automotive semiconductor market. So I think the fundamentals are good to drive growth in automotive. So we think that this demand lull is going to be relatively short.

Very helpful and if I could follow up on the Sop side you talked about.

Wins across both mobility and HBC I know you have one very large customer would be curious.

Speaker Change: <unk>.

Speaker Change: The ramp of revenues here.

Speaker Change: Good day and aggregate get to kind of the scale of your very large customer or or that will take.

Speaker Change: Years to do that.

Speaker Change: So the in the prepared remarks, I was referring to system level test wins for mobility and for compute.

Speaker Change: And if you put that into context.

Greg: Okay. Thank you. Our next question is from the line of C.J. Mews with Candor Fitzgerald.

Speaker Change: The customer that we won for mobility is.

Greg: Please proceed. Yeah, good morning. Thank you for taking the question. You know, in your prepared remarks, you talked about confidence in a second half recovery for the SSC test. So I was hoping you could walk through, you know, what's giving you the confidence and how you see that recovery emerging. And perhaps you could speak to, you know, OSAT versus end customers, content, edge AI, you know, whatever you think is really going to move the needle for you guys and drive that second half recovery over the first. Sure. So, um, the answer is the...

Speaker Change: Not as large as our primary esselte customer, but they have the potential to drive significant volume income Q.

Speaker Change: That's something that's going to take a while to take off.

Speaker Change: The.

Speaker Change: The device plans basically for <unk>.

Speaker Change: <unk> it was.

Speaker Change: A hyperscale customer in compute.

And the the volumes for those devices is going to start at a relatively small level and then increase over time. So I don't think that any of those in isolation would run.

Speaker Change: <unk> to the level of our historically largest customer, but it's more additional additional incremental.

Speaker Change: <unk> for us.

Greg: The leading indicator that we tend to look at most is really around utilization rates. And right now, those utilization rates are low, but we did start to see OSAT utilization start to tick up. So they're still below normal seasonality, but they're definitely improving.

Great. Thank you.

Speaker Change: Our next questions are from the line of Vivek Arya with Bank of America Securities.

With your question.

Vivek Arya: Alright, Thanks for taking my question and I appreciate you, giving that compute time, because now the largest end market.

Vivek Arya: Could you help us break that between.

Vivek Arya: Get them more client compute versus data center and then the growth rate that you are mentioning the one three to one four.

Greg: And we believe that they could reach sort of the point, the level that would trigger buying by the third quarter of this year if the trend that we're seeing continues. The key end market trend that we're looking for is unit growth in smartphones and PCs. PCs have been in a real pit.

Speaker Change: That seems very modest compared to all the very high growth rates that we see.

Speaker Change: In AI and data center right.

Speaker Change: Type products. So if you could just give us a little more color how much is client voice and data center and then why only such modest.

Greg: And so just from a refresh cycle, we're expecting to see that recovering a bit, and that would be a tailwind for us. The thing that we also saw in the fourth quarter was that utilization came down a bit in IDMs. And so they're primarily the, that's where most of our business is concentrated in industrial and automotive.

Speaker Change: Growth in testing why don't we see more of a correlation with the growth in the data center products.

Speaker Change: Hi, This is vivek this is Greg.

Vivek Arya: So first of all let me talk a little bit about client versus data center.

Vivek Arya: As far as we can tell in 2023.

Greg: So we saw the industrial part of that start to weaken in the second half of 2023. And then late in 2020, late in Q4 of 2023, we also started to see the automotive part of that begin to weaken. Our model right now has that.

Greg: Most of the test capacity adds in compute we're really in support of data center.

Speaker Change: The client market has been very very quiet.

Speaker Change: Looking forward into the future we think that the.

Speaker Change: The.

Speaker Change: Capacity adds required for cloud.

Greg: That's a relatively short lull in demand, and we think that that's mainly driven by the fact that new model year introductions every year for the automakers have a significantly higher attach rate for electronics. And that's driving a pretty good tagger in the automotive semiconductor market. So we think the fundamentals are good to drive growth in the automotive industry. So we think that this demand lull is going to be relatively short. Very

Speaker Change: We are going to moderate a bit.

Speaker Change: Dave.

Speaker Change: <unk> added a ton of productive capacity in 2023 and that is going to be felt in higher and volumes in 2024. So there at sort of a new high watermark in terms of that part of the market.

Speaker Change: The client side there are two things that I think are going to accelerate things the.

Greg: And if I could follow up on the SLT side, you talked about wins across both mobility and HPC. I know you have one very large customer. I would be curious, you know, the timing of the ramp of revenues here and, you know, could they, in aggregate, get to kind of the scale of your very large customer, or will that take years? So, in the prepared marks, I was referring to system-level test wins for mobility and for compute. And if you put that into context, the customer that we won for mobility is not as large as our primary SLT customer, but they have the potential to drive significant volume. In compute, that's something that's going to take a while to take off.

Speaker Change: The first is that.

Speaker Change: The.

Speaker Change: The unit volume in Pcs is at a very low point right now, there's really nowhere to go but up and the other is that we've been seeing the push in large language models in AI, primarily on the training side right now and looking at the Roadmaps for <unk>.

Our customers they are putting a huge push on custom silicon for edge AI inference versus the training part so I think we're going to see.

Speaker Change: A shift over the next three years to a much more balanced market, whereas 2023 was dominated by data center as we get out through this midterm, it's going to be much more balanced between data center and.

Greg: The device plans, basically for SLT, it was a hyperscaler customer in compute, and the volumes for those devices are going to start at a relatively small level and then increase over time. So I don't think that any of those, in isolation, would rise to the level of our historically largest customer, but it's more additional incremental tailwinds for us. Great, thank you. Our next questions are from the line of Vivek Arya with Bank of America Securities. Thank you.

Speaker Change: And client now in terms of the modest size the thing that I want to just I wanted to try and provide a little bit of context that if you look back to.

Speaker Change: <unk>.

Speaker Change: A.

Speaker Change: High watermark for the total Soc Tam back in 2021, it was about a $4 9 billion dollar market and in that $4 9 billion dollar market.

Speaker Change: Less than $1 $2 billion of it was in compute.

Speaker Change: Now fast forwarding to this year. The overall Tam is down to $3 nine and compute is representing.

Greg: Thanks for taking my question, and I appreciate you giving the compute time, which is now the largest in the market. Could you help us break that down between, you know, more client compute versus data center? And then the growth rate that you're mentioning, the 1.3 to 1.4, seems very modest compared to all the very high growth rates that we see in AI and data center, right? type products. So if you could just give us a little more color, you know, how much is client versus data center? And then why only such a modest growth in testing? Why don't we see more of a correlation with the growth of a data-centric product? Hi, this is Vivek. This is Greg.

Speaker Change: One 3 billion of that of that total now as you look into 2024.

Speaker Change: That's a very high level that it's at right now and that level supports.

Speaker Change: Significantly increased production for these devices.

Speaker Change: The last thing that I'll point out is these devices are big and complex and they have.

Speaker Change: Hi test intensity, but the unit volumes are relatively relatively small and.

Speaker Change: The margin the margin in the end market for these devices is very high so the revenue that comes.

Greg: So first of all, let me talk a little bit about client versus data center. As far as we can tell in 2023, most of the test capacity ads in Compute were really in support of Datacenter. The client market has been very, very quiet.

Speaker Change: Makers are getting on these devices is.

Speaker Change: Pretty great.

But it means that the number of testers required to fulfill that revenue demand is a little bit lower than it would be in the mobile space.

Speaker Change: Great and for my follow up I actually had two small ones I don't know, whether they are related or not but.

Greg: Looking forward into the future, we think that the capacity ads required for the cloud are going to moderate a bit. They've added a ton of productive capacity in 2023, and that is going to be felt in higher-end volumes in 2024. So they're at sort of a new high watermark in terms of that part of the market. On the client side, there are two things that I think are going to accelerate things. The first is that the unit volume of PCs is at a very low point right now. There's really nowhere to go but up.

Speaker Change: There was some media reports about teledyne.

Speaker Change: Teradyne kind of pulling out of that China market from a just the manufacturing footprint I just wanted to see if there was any clarification around that but the bigger question, Greg that I have is.

Speaker Change: When I look at the midterm model.

Speaker Change: The.

Speaker Change: The forecast of growing kind.

Speaker Change: Kind of low mid <unk> and 'twenty five 'twenty six if I look at the last decade, the only year teradyne grew above that rate was just like one of the years and back to what it was 2020, so why keep such a high forecast and back to four two.

Greg: And the other thing is that we've been seeing the push for large language models in AI primarily on the training side right now. And looking at the roadmaps for our customers, they're putting a huge push on custom silicon for edge AI inference versus the training part. So I think we're going to see a shift over the next three years to a much more balanced market, whereas 2023 was dominated by data centers. As we get out through this midterm, it's going to be much more balanced between data centers and clients. Now, in terms of the modest size, the thing that I want to just, I want to try and provide a little bit of context that if you look back at the high watermark for the total SOC TAM back in 2021, it was about a $4.9 billion market. And in that $4.9 billion market, less than 1.2 billion of it was in compute.

Speaker Change: Two years.

Speaker Change: What is the kind of the visibility and confidence in hitting those kind of growth rate.

Speaker Change: Yes.

Speaker Change: So first just a quick comment on China.

Speaker Change: The news report is really nothing new we've had a multi year.

Speaker Change: Effort going on to increase the resilience of our supply chain.

Speaker Change: And that involved moving production locations for some of our products.

Speaker Change: We still have an expense and extensive supply chain that is in China. We have over 600 people in China, we are competing for business and winning in China and.

Speaker Change: I think that.

Speaker Change: It's.

Speaker Change: It's a good headline but there is nothing new in that story or in our commitment to that region as a place where we expect to grow.

Greg: Now, fast forwarding to this year, the overall TAM is down to 3.9 billion, and compute is representing 1.3 billion of that total. Now, if you look into 2024, that's a very high level that it's at right now. And that level supports a significantly increased production for these devices. The last thing that I'll point out is that these devices are big and complex, and they have a high test intensity, but the unit volumes are relatively small, and the margin in the end market for these devices is very high. So the revenue that compute makers are getting on these devices is pretty great, but it means that the number of testers required to fulfill that revenue demand is a little bit lower than it would be in the mobile system. And for my follow-up, I actually had two small ones.

Speaker Change: So on the midterm model.

Speaker Change: If you look at the.

Speaker Change: No.

Speaker Change: If you look.

Speaker Change: With a longer lens than youre talking about.

Speaker Change: We've been in this market for 60 years.

Speaker Change: And we've seen the the dynamics of the market as it comes out of downturns.

Speaker Change: <unk>.

Speaker Change: In.

Speaker Change: Coming out of 2001 coming out of 2009.

Speaker Change: And then again.

Speaker Change: The COVID-19 related demand increase in 2020.

Speaker Change: Not that unprecedented to see significant growth in the years following a downturn and looking at the state of the end market for.

Greg: I don't know whether they're related or not, but there were some media reports about, you know, Teradyne kind of pulling out of the Chinese market from just the manufacturing footprint. I just wanted to see if there was any clarification around that. But the bigger question, Greg, that I have is: When I look at this midterm model and, you know, the forecast of growing, right, kind of low mid-20s and 25 and 26, if I look at the last decade, the only year Teradyne grew above that rate was just like one of the years, and that too was 2020. So why keep such a high forecast and that too for two years? You know, what is the kind of visibility and confidence in hitting that kind of growth? Yeah. So first, just a quick comment on China. The news report is really nothing new.

For mobile phones, and the end market for Pcs, we really expect to see a pretty good snapback.

Speaker Change: Other X factor that I think we are becoming increasingly confident in is how.

Speaker Change: Generative AI is going to impact complexity of devices. So we were really kind of wondering what was going to be the next thing that drove complexity at the enhanced sets in cars at the edge and it appears that the technologies incorporated in these large language models and.

Speaker Change: The amount of compute that they need to execute is something that is a very positive tailwind both in the mobile and the compute part of the market. One final reminder, is as you look at this when you think about edge AI.

Speaker Change: A lot of that is going to accrue to growth in the mobile.

Greg: We've had a multi-year effort going on to increase the resilience of our supply chain, and that involved moving production locations for some of our products. We still have an extensive supply chain that is in China. We have over 600 people in China.

Speaker Change: Part of the market and the automotive part of the market not in the compute part of the market.

Speaker Change: Thank you Greg.

Speaker Change: Thank you. Our next question is from the line of Krish Shankar with TD Cowen. Please proceed with your question Hi.

Krish Shankar: Thanks for taking my question. The first one either for Greg electron Jay you know when I look at your Q1 guidance compared to the last time, you did that revenue run rate, earning photos almost half of that I'm. Just wondering is that a function of maybe lower gross margin due to product mix like nerf ultra analog testers.

Greg: We're competing for business and winning in China, and, you know, I think that it's a good headline, but there's nothing new in that story or in our commitment to that region as a place where we expect to grow. So on the mid-term model. If you look at the, you know, if you look at it with a longer lens than you're talking about.

Krish Shankar: Cause of higher investments in.

Krish Shankar: The combination of just kind of curious.

Speaker Change: A follow up.

Speaker Change: After that.

Speaker Change: Sure. So I think it's really fundamentally two things.

Greg: You know, we've been in this market for 60 years, and we've seen the dynamics of the market as it comes out of downturns, you know, so in 2001, coming out of 2009, and then again with the COVID-related demand increase in 2020. It's not that unprecedented to see significant growth in the years following a downturn, and looking at the state of the end market for mobile phones and the end market for PCs, we really expect to see a pretty good rebound. The other X factor that I think we are becoming increasingly confident in is how generative AI is going to impact the complexity of devices. So we were really kind of wondering what the next thing that drove complexity in handsets, in cars, at the edge, and it appears that the technologies incorporated in these large language models and the amount of compute that they need to execute are something that is a very positive tailwind, both in the mobile and the compute part of the market.

Speaker Change: In Q1, one as much.

Speaker Change: Much lower volume.

Speaker Change: But then really product mix the product mix is a little bit of a bigger driver.

Speaker Change: More than that.

Speaker Change: Product mix and volume.

Speaker Change: Got it got it.

Speaker Change: And then the kind of like a more philosophical question for Greg Greg clearly, obviously on the mobile Tech side, you have a good position.

Speaker Change: And then the last several years it seems like your focus is on IAA and then now that the big investment and techno probe, which kind of came out of the blue and historic unique vertical integration between test and probe cards a number.

Speaker Change: I'm going to kind of Q2 because of the last few years, particularly audio of the test market that now youre beginning to see a shift from mobile to compute and you need to do certain things or is it something else going on.

Speaker Change: So I.

Speaker Change: I think the.

Speaker Change: There is no real change in our strategic priorities.

Speaker Change: <unk>.

Speaker Change: And so our strategic priorities has always been to look for.

Speaker Change: Accretive investments.

Speaker Change: <unk> opportunities.

Put free cash flow to work for our investors in the most effective way.

Speaker Change: We didn't take our eye off the ball on test when we were.

Greg: One final reminder is, as you look at this, when you think about edge AI, a lot of that is going to go to growth in the mobile part of the market and the automotive part of the market, not in the compute part of the market. Thank you. Our next questions are from the line of Krish Sankar with TD Canada. See you here. Yeah, thanks for taking my question. The first one is for Greg or Sanjay.

Speaker Change: When we were talking about our industrial automation business and as a matter of fact over the period of time that you're talking about the industrial automation business was accretive that we were making money.

Speaker Change: And that business had a rough year in 2023, mainly because of end market conditions. So we haven't changed our our strategy the thing thats different and the thing that really motivated the investment in tech the probe.

Sanjay Mehta: You know, when I look at your Q1 guidance compared to the last time, you know, that revenue run rate, your earning power is almost half of that. I'm just wondering, is it a function of maybe lower gross margin due to product mix, like less auto analog testers? Or is it because of higher investments in IA, a combination? I'm just kind of curious.

Speaker Change: Is that there is a trend in the test market.

Speaker Change: That is drawing the tester and interface closer together and that's really driven by the complexity and performance in the end market. So if you look at the data rates that are required for Soc and memory devices. If you look at the bandwidth required for <unk>.

Sanjay Mehta: And then a follow-up. Sure. So I think it's really fundamentally two things in Q1. One is a much lower volume, but then really product mix.

Sanjay Mehta: Say product mix is a little bit of a bigger driver. Nothing more than that, product mix and quality. Got it, got it. Kind of like a more philosophical question for Greg.

Speaker Change: RF devices. If you look at the number of devices that customers want to test in parallel all of those are driving a tighter integration between tester and interface and by establishing a partnership with TPI. We believed that we were going to be able to achieve.

Greg: You know, Greg, clearly, obviously, on the mobile test side, you have a good position. And then, for the last several years, it seems like your focus has been on IA, and then now you've got this big investment in Technoprobe, which kind of came out of the blue, and historically, like, vertical integration between test and probe cards has never worked. I'm just kind of curious, is it because in the last few years, Good evening.

Speaker Change: An advantage in terms of unlocking value for our customers that exists in the technology that <unk> has in those interfaces and our testers have in their architecture. So I wouldn't say that the like the Technip probe investment reflects a change in strategy more at <unk>.

Greg: Today's session covers the So I think the, There's no real change in our strategic priorities. The, you know, and so our strategic priorities have always been to look for accretive investments and opportunities to put free cash flow to work for our investors in the most effective way. We didn't take our eye off the ball on test when we were talking about our industrial automation business.

Speaker Change: Flex the fact that we have been monitoring the trends in the test market and we discern and opportunity for us to.

Speaker Change: Do something great for our customers and our investors.

Speaker Change: Thank you Vic.

Speaker Change: Our next question is from the line of Brian Chin with Stifel. Please proceed with your question.

Brian Chin: Hi, there good morning, thanks for letting us ask a few questions.

Brian Chin: Maybe Greg and pass discussion, maybe my numbers are a little bit off but.

Greg: And as a matter of fact, over the period of time that you're talking about, the industrial automation business was accretive, you know, we were making money. And that IA business had a rough year in 2023, mainly because of end market conditions. So we haven't changed our strategy.

Brian Chin: I believe you've anticipated the hyperscale or Asa companies, maybe driving representing $400 million or so of incremental growth in the compute pan in coming years.

Brian Chin: I guess, how largely see this market by 2026 and based on your customer wins and ongoing traction what do you think your market share of this incremental could be in that timeframe.

Greg: The thing that's different and the thing that really motivated the investment in Technoprobe is that there is a trend in the test market that is drawing the tester and the interface closer together, and that's really driven by the complexity and performance in the end market. So if you look at the data rates that are required for SOC and memory devices, if you look at the bandwidths required for RF devices, if you look at the number of devices that customers want to test in parallel, all of those are driving a tighter integration between tester and interface.

Brian Chin: So.

Brian Chin: I think I'll end up finding a friend with Andy here in terms of what we've said in terms of projected Tam for that market.

Brian Chin: Okay.

Brian Chin: 2006.

Speaker Change: Right and we've said that there is that has there is modest growth in the overall compute segment right over that period of time, so that we're going to see a slight decline in sort of the traditional compute part of the market and this $400 million to $600 million of new Hyperscale.

Greg: And by establishing a partnership with TPI, we believe that we are going to be able to achieve an advantage in terms of unlocking value for our customers that exists in the technology that Technoprobe has in those interfaces and our testers have in their architecture. So I wouldn't say that the Technoprobe investment reflects a change in strategy. Moreover, it reflects the fact that we have been monitoring the trends in the test market, and we have discerned an opportunity for us to do something great for our customers and our investors. Thank you. Our next question is from the line of Brian Chin. Hi there. Good morning.

Miller VIP.

Speaker Change: The way that you can think about this is where we're always putting up a good fight to try and win share in the traditional compute space.

Speaker Change: But we really think that our opportunity is to gain share in that $400 million to $600 million chunk.

Speaker Change: And what we've seen is.

Speaker Change: We're like I say, we are at a below 20% share in the traditional market in terms of socket wins.

Speaker Change: The sockets that we see in this in the market and we're competing for we're definitely winning more than our fair share.

Greg: Thanks for letting us ask a few questions. Maybe, Greg, in our past discussions, my numbers are a little bit off, but... I believe you've anticipated the hyperscaler ASIC companies maybe driving or representing 400 million or so of incremental growth in the compute TAM in the coming years. I guess, how large do you see this market being by 2026? And based on your customer wins and ongoing traction, what do you think your market share of this incremental could be in that time? So, um, I think I'll end up phoning a friend with Andy here in terms of what we've said in terms of projected TAM for that market. Right?

Speaker Change: We are winning the majority of sockets that we're targeting and so we're we're very hopeful that we will end up with a pretty good split inside of that 400 to 600.

Okay.

Speaker Change: That's helpful and then.

Speaker Change: Maybe focusing on the memory test part of the <unk>.

Speaker Change: Test Tam.

Speaker Change: I think your main competitor as of last night is forecasting much stronger year over year growth in memory test.

Speaker Change: The new this year.

Largely tied also to DRAM.

Speaker Change: How can we reconcile youre up 10 with with their sort of maybe more optimistic forecast does that potentially represent upside to your view this year.

Greg: And we've said that there will be modest growth in the overall compute segment over that period of time. So, you know, we're going to see a slight decline in sort of the traditional compute part of the market and this 400 to 600 million new hyperscaler VIPs. The way that you can think about this is that we're, you know, we're always putting up a good fight to try and win share in the traditional compute space. But we really think that our opportunity is to gain share in that 400 to 600 million dollar chunk. And what we've seen is, you know, we're like to say we're at a below 20 percent share in the traditional market in terms of socket wins. But the sockets that we see in this market and that we're competing for, we're definitely winning more than our fair share. So we're winning the majority of sockets that we're targeting, and we're very hopeful that we'll end up with a pretty good split inside of that 400 to 600. Okay, yeah, that's helpful. And then

Speaker Change: Okay.

Speaker Change: I think it could represent upside to our view, but the thing that ill remind you is that if you look at the memory test market, we typically break it up into four chunks.

Speaker Change: So two types of memory, DRAM and NAND Flash and then the wafer sort and then the final test our highest share is in the final test for both DRAM and for for Flash memory.

Speaker Change: What we've seen in 2023 is technology related buying in those spaces and that has been a great <unk>.

Speaker Change: Aylwin to our share in that market.

Speaker Change: What we don't have clear visibility into a real forecast from our customers is how much capacity, they're going to need to add at wafer sort. So that's not a technology driven retooling space, that's something where they can use the same testers for new generations of parts.

Speaker Change: And they need to have production volumes that drive additional acquisitions.

Greg: Maybe focusing on the memory test part of the test TAM, I think your main competitor, as of last night, is forecasting a much stronger year of your growth in memory tests than you this year, though largely tied off to DRAM. I guess, how can we reconcile your up 10 with their sort of maybe more optimistic forecast? And does that, do you think, potentially represent upside to your view this year?

It's entirely possible that our competitor has better view into the long term needs in the wafer sort for some of those customers than we do.

Speaker Change: So.

Speaker Change: And it's also possible that we have not seen the benefit in that part of the market. So I'm pretty confident in our.

In that we have a good view of our memory business for 2024, I think there is an upside potential depending on how much capacity add is required.

Greg: I think it could represent an upside to our view. But the thing that I'll remind you is that, if you look at the memory test market, we typically break it up into four chunks. So two types of memory, DRAM and NAND flash, and then the wafer sort, and then the final test.

Speaker Change: As the memory inventories come down.

Speaker Change: Okay very helpful. Thanks, Greg.

Speaker Change: Our next question comes from the line of systemic <unk> with J P. Morgan. Please proceed with your question.

Systemic: Hi, good morning, Thanks for taking my questions maybe for the first one if I can ask you in relation to the long term model of between 2006 model you are outlining strong growth in the robotics segment as you see a lot of opportunities for growth how should we think about as you sort of.

Greg: Our highest share is in the final test for both DRAM and flash memory. What we've seen in 2023 is technology-related buying in those spaces, and that has been a great tailwind to our share in that market. What we don't have clear visibility into or real forecast from our customers is how much capacity they're going to need to add at wafer sort. So that's not a technology-driven retooling space.

Systemic: Best towards that growth what profitability can you drive to win that Glen 'twenty six modern robotics.

Greg: That's something where they can use the same testers for new generations of parts, and they need to have production volumes that drive additional acquisition. It's entirely possible that our competitor has a better view into the long-term needs in the wafer sort for some of those customers than we do. And it's also possible that we have not seen the benefits in that part of the market. So I'm pretty confident in our view that we have a good view of our memory business for 2024. I think there is an upside potential depending on how much capacity add is required as the memory inventories come down. Okay, very helpful.

Speaker Change: And a follow up thank you.

Speaker Change: Hi.

Speaker Change: In terms of the long term model.

Speaker Change: Our goals remain kind of consistent for our robotics group that are our target performance is 20% to 30% growth in our target profit is 5% to 15% on what we've said previously and what we are still operating two is as we are watching the growth.

Speaker Change: <unk> in that market if it appears that.

Incremental investment is not yielding higher growth rates than we will feather those back to try to increase the profit range.

Speaker Change: But as long as we believe that we are at this low penetration and there are.

Sanjay Mehta: Thanks. Our next questions come from the line of Samik Chatterjee with J.P. Morgan. Hi, good morning, and thanks for taking my questions. Maybe for the first one, if I can ask you in relation to the long-term model of the 2026 model, you are outlining strong growth in the robotics segment, as you see a lot of opportunities for growth. How should we think about, as you sort of invest in that growth, what profitability can you drive to in that 2026 model? And I have. Hi Samik.

Speaker Change: Fruitful investments that we can make.

We would prefer to make those investments and continued to drive growth. The key thing that we're doing in the op and.

Speaker Change: Operating that.

Speaker Change: That group is we're really focusing on maintaining high gross margins. So were in excess of 60% gross margins for the group now and we are intent on keeping those gross margins at that level. So that we have the option to sort of dial the profit that is appropriate to the growth rate we are achieving.

Speaker Change: Got it Okay. That's helpful and for my follow up just a question on gross margin for the year I think for the full year 2020, full youre guiding to 58% to 59 with the starting point do you have that does imply I think if I do the math that you would be at some point during the year crossing 60.

Greg: So, in terms of the long-term model, our goals remain kind of consistent for our robotics group, that our target performance is 20 to 30 percent growth, and our target profit is 5 to 15 percent. What we've said previously and what we are still operating under is, as we are watching the growth develop in that market, if it appears that incremental investment is not yielding higher growth rates, then we will feather those back to try to increase the profit range. But as long as we believe that we're at this low penetration and there are fruitful investments that we can make, we would prefer to make those investments and continue to drive growth. The key thing that we're doing in operating that group is really focusing on maintaining high gross margins.

Speaker Change: Am I calculating.

Speaker Change: Calculating that right is that sort of what you're implying.

Speaker Change: What are the drivers to get to that $60 and level of doing Duane 20 foot extended with the volume challenges that youre seeing right now in the best market. Thank you.

Yes, so youre right.

Speaker Change: Some of the quarters, we do anticipate to be higher than our model really coming back with stronger product mix in various quarters, we have obviously higher volume and then.

Sanjay Mehta: So, we're in excess of 60 percent gross margin for the group now, and we are intent on keeping those gross margins at that level so that we have the option to sort of dial in the profit that is appropriate to the growth rate we're achieving. And for my follow-up question, just a question on gross margin for the year, I think for the full year 2024, you're guiding to 58 to 59. With the starting point you have, that does, I think, if I do the math, that you would be, at some point during the year, crossing 60.

Speaker Change: Some of our higher product lines or some of our higher margin product lines.

Speaker Change: Do come back so.

Speaker Change: Thats it.

Speaker Change: <unk> volume in the quarters, but mainly product mix and product line mix that are driving the improvement I should add that theres also operational efficiencies that we're working on that we anticipate that that will help margins as well as backup.

Speaker Change: Okay. Okay.

Speaker Change: Great. Thank you thanks for taking my questions.

Sanjay Mehta: Am I sort of calculating that right? Is that sort of what you're implying? And what are the drivers to get to that 60% level during 2024 itself with the volume challenges that you're seeing right now? Yeah, so you're right. In some of the quarters, we do anticipate them to be higher than our model, really coming back with a stronger product mix. In various quarters, we obviously have higher volume, and then some of our higher product lines or some of our higher margin product lines do come back. So it's volume in the borders, but mainly product mix and product line mix that are driving the improvement. I should add that there's also operational efficiencies that we're working on that we anticipate that will help margins as well in the back end. Okay. Great.

The next questions are from the line of <unk> Hari with Goldman Sachs. Please proceed with your question.

Hari: Hi, Good morning, I had two as well the first one on HBM.

Hari: Greg can you characterize your competitive position in this market I guess number one number two.

Hari: How big was HBM as a percentage of your memory business either in calendar 'twenty, three or Q4, and with your customers sort of expecting 50% 60% growth.

Hari: Hum.

Hari: On a on an annual basis over the next couple of years or several years.

Hari: Should we think about should we think you should we should we assume the growth rate in your business to be in that Zip code or could there be retooling or parallel test.

Operator: Thank you. Thanks for taking my question. The next questions are from the line of Toshiya Hari with Goldman Sachs. Hi, good morning. I had two as well.

Hari: Deflate that number.

Speaker Change: Okay. So.

Speaker Change: You packed a lot of parts into that question. So let me start on packing. It so first in terms of competitive position right.

Greg: The first one on HBM, Greg, can you characterize your competitive position in this market, number one? Number two, you know, how big was HBM as a percentage of your memory business, either in calendar 23 or Q4? And with your customers sort of expecting, you know, 50%, 60% growth on an annual basis over the next couple of years or several years, should we assume the growth rate in your business to be in that zip code, or could there be, you know, retooling or parallel tests that sort of deflates that number? Okay, so you packed a lot of parts into that question, so let me start unpacking it.

Speaker Change: Right now.

Speaker Change: We are roughly splitting the HBM test market with our competitors. So if you look at overall share.

Speaker Change: That's a positive to our share that.

Speaker Change: There are multiple competitors in the overall memory space, but the <unk> part of the market is pretty much a clean split between us and our competitor.

Speaker Change: In Q4, we think HBM represented more than 50% of our memory shipments so.

Speaker Change: Huge factor in that quarter.

Speaker Change: And in terms of growth, we think that there is the potential for growth.

Greg: So first, in terms of competitive position, right now, we are roughly splitting the HBM test market with our competitors. So if you look at overall share, that's a positive to our share that, you know, there are multiple competitors in the overall memory space, but the HBM part of the market is pretty much a clean split between us and our competitors. In Q4, we think HBM represented more than 50% of our memory shipments, so it was a huge factor in that quarter. And in terms of growth, we think that there is the potential for growth, that there are new HBM competitors that are coming on the scene. So there's both unit volume growth and, I think that a lot of that, the capacity for a lot of that is in place now.

Speaker Change: There are new HCM competitors that are coming on the scene.

Speaker Change: So there is both a unit volume growth I think that a lot of that the capacity for a lot of that is in place now.

Speaker Change: But there are also standards changes <unk> and HBM four that are coming and those are driving retooling.

Speaker Change: <unk> performance test and we think that that is going to be a potential driver for us in the back half of the year in memory.

Speaker Change: Got it. Thank you and then as my follow up on the Robotics side, just wanted to get your thoughts on 'twenty four youre guiding the business up 10% to 20%.

Speaker Change: You talked about obviously, the long term value proposition, which makes sense.

Greg: But there are also standards changes, HBM3E and HBM4, that are coming, and those are driving retooling for performance tests, and we think that that is going to be a potential driver for us in the back half of the year in memory. Okay. Thank you. And then, as my follow-up on the robotics side, just wanted to get your thoughts on 24.

Speaker Change: You're ramping the EUR 30.

Speaker Change: You talked about some of the initiatives youre doing from a from a channel distribution perspective. So I'm just curious if youre guiding the long term up 20 or 30, YY up 10 to 20 this year.

Speaker Change: Particularly given the fact that 23 was down close to 10% what sort of weighing on growth this year.

Greg: You're guiding the business up 10% to 20%. You talked about, obviously, the long-term value proposition, which makes sense. You're ramping up the UR30.

Speaker Change: Thank you.

Speaker Change: Well I think that the.

Speaker Change: The key thing that is limiting our optimism is that.

Speaker Change: Even though we had a really great Q4, we had a really great Q4, because we introduced basically a blockbuster product, 24% or so of our revenue in Q4 came from that product underlying that there's still some fundamental weakness in the in the industrial.

Greg: You talked about some of the initiatives you're doing from a channel distribution perspective. So I'm just curious, you know, if you're guiding the long-term up 20% to 30%, why up 10% to 20% this year, particularly given the fact that 23% was down close to 10%? What's sort of weighing on growth this year? Thank you. Well, I think the...

Speaker Change: Australia and market and there are predictions that that is going to ease that the demand is going to come back relatively strongly but we are entering Q1 of 2024 with PMI is at a relatively low level and Av and a fair amount of some regions that are quite quiet.

Greg: The key thing that is limiting our optimism is that even though we had a really great Q4, we had a really great Q4 because we introduced basically a blockbuster product. 24% or so of our revenue in Q4 came from that product, underlying that there's still some fundamental weakness in the industrial end market. And there are predictions that that is going to ease, that demand is going to come back relatively strongly. But we are entering Q1 of 2024 with PMIs at a relatively low level and a fair amount of some regions that are quite quiet. So we have optimism for continued growth through the year, both quarter on quarter through the year and each quarter in comparison to the year prior. But we're coming in with a relatively low Q1. So we wanted to be careful in terms of where we set the bar for growth for the full year.

Speaker Change: So we have.

Optimism for continued growth through the year.

Speaker Change: Both quarter on quarter through the year and each quarter in comparison to the year prior but we're coming in with a relatively low Q1. So we wanted to be careful in terms of where we set the bar for our growth for the full year.

Speaker Change: Thanks, Greg.

Speaker Change: And operator, we are out of time, so folks that are still in the queue I'll get back to you. Later. This later this morning.

Speaker Change: Thanks, everyone for joining and we look forward to talk.

Speaker Change: Got it.

Speaker Change: Thank you. This will conclude today's conference you may disconnect. Your lines at this time. Thank you for your participation.

Operator: Thanks, Ray. And operator, we are out of time. So folks that are still in the queue, I'll get back to you later this morning, but thanks everyone for joining us and we look forward to talking. Thanks for having me. Thank you. This will conclude today's conference. You may disconnect your lines at this time. Thank you for your...