Q1 2024 Teradyne Inc Earnings Call
Mhm.
[music].
Traci Tsuchiguchi: Greetings and welcome. Inc. Earnings. Following our opening remarks, we'll provide details of our performance for the first quarter of 2024 and our outlook for the second quarter of 2024. A press release containing our first quarter results was issued last evening. We are providing slides on the investor page of our website that may be helpful in following the discussion. Replays of this call will be available on the same page after the call ends. Greg
Speaker Change: Greetings and welcome to Q1 'twenty 'twenty four time, Inc. Earnings Conference call. At this time all participants are in listen only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference. Please.
Speaker Change: The stars either on your telephone keypad as a reminder, this conference is being recorded it is now my pleasure to introduce your host Tracey switch of Gucci life's precedent Investor relations. Thank you Ms. So Chi Gucci you may begin.
Speaker Change: Yeah.
Tracey: Thank you operator, good morning, everyone and welcome to our discussion of Teradyne's. Most recent financial results I'm joined this morning by our CEO, Greg Smith, and our CFO Sanjay Mehta.
Tracey: In her opening remarks, we'll provide details of our performance for the first quarter of 2024, and our outlook for the second quarter of 2024 press.
Gregory Smith: Thanks, Traci. Hello, everyone, and thanks for joining us this morning. We have lowered our TAM estimates for auto, industrial, and mobile markets as recovery in these end markets appears to be pushing out in time. With the combination of our stronger first half and limited visibility into the second half, our estimate of the 2024 SOC TAM remains unchanged at $3.6 to $4.2 billion, driven mainly by stronger demand for HBM, which we expect to grow 5x last year's level.
A press release containing our first quarter results was issued last evening.
Tracey: We are providing slides on the investor page of our website that maybe helpful. In following the discussion replays of this call will be available via the same page after the call and.
Tracey: The matters discussed today will include forward looking statements that involve risks that could cause teradyne's results to differ materially from management's current expectations.
Tracey: We caution listeners not to place undue reliance on any forward looking statements included in this presentation. We encourage you to review the Safe Harbor statement contained inside the company in this presentation as well as the risk factors described in our annual report on the 10-K with the SEC.
Gregory Smith: For the full year, at the company level, we continue to expect low single-digit growth from 2023. In January, we were expecting the year to be back half-loaded with mobile driving that recovery. We also shared that lead times were decreasing, and our visibility was limited.
Tracey: Additionally, these forward looking statements are made only as of today.
Tracey: During today's call, we will make reference to non-GAAP financial measures.
Tracey: We've posted additional information concerning these non-GAAP financial measures, including reconciliation to the most directly comparable GAAP financial measure where available on the Investor Relations page of our website looking.
Gregory Smith: However, we are being cautious in the second half on what looks like continued weakness in the mobile market. Our operations team is continuing to enable us to pursue short-lead-time opportunities, so it certainly feels as if there's more upside opportunity than downside risk. We are executing a plan that we expect to deliver 10 to 20% growth in 2025. This plan includes three elements.
Tracey: Looking ahead between now and our next earnings call Teradyne expects to participate in technology or Investor focused investor conferences hosted by JP Morgan Keybanc Cowen Bernstein and Stifel.
Speaker Change: Following Greg and Sundries comments. This morning will open up the call for questions. This call is scheduled for one hour Greg.
Gregory Smith: Thanks, Tracy Hello, everyone and thanks for joining us. This morning today I will summarize our first quarter results and discuss some of the trends in the semiconductor industry and robotics that we believe positioned teradyne for long term growth.
Gregory Smith: Second, is growing our OEM solution provider and large account channels. Third, is building increased recurring revenue through service and software offerings. We executed on new SAM expanding initiatives with the announcement of UR's collaboration with NVIDIA and the new MIR 1200 pallet jack. We grew our UR OEM business 58% year-on-year, and we received the single largest order in the history of MIR from a strategic customer. AI applications are already having a profound impact on the test market, but we are in the very early days of a growth trend that will play out over the coming years.
Gregory Smith: It is useful to comprehend these longer term growth drivers because the industries in which we operate are inherently cyclical Sanjay will then provide greater financial detail on our first quarter results, our current outlook and additional financial information.
Gregory Smith: We delivered first quarter financial results above our revenue gross margin and earnings guidance ranges memory and Soc delivered above our plan and showed strong performance in the quarter driven primarily by AI applications.
Gregory Smith: The impact of AI on our business was seen in networking as well as an edge AI applications like Adas.
Gregory Smith: Over 40% of our memory shipments in the first quarter were driven by AI applications.
Gregory Smith: Today, the profit pool generated from AI is concentrated in the build-out of cloud AI capabilities, especially for training LLMs on huge data sets. With our layered approach to safety, high product quality, and an open platform ecosystem, UR and MIR are positioned as the preferred robotics platforms for the development of AI manufacturing and logistics solutions.
Gregory Smith: As we expected mobile continued to be soft in the first quarter, our robotics business delivered to plan for the third consecutive quarter as their go to market execution continues to improve.
Gregory Smith: Moving on to Q2.
Gregory Smith: The impact of AI on test demand, we experienced in the first quarter is continuing into the second quarter, improving our outlook in memory and in compute.
Gregory Smith: However, a meaningful upturn in mobile legacy auto and industrial end markets may not occur until the 2025 time frame.
Gregory Smith: Looking ahead within the semiconductor test market, we expect that the compute Tim which includes networking and many vertically integrated producers to grow at a faster pace than previously expected. We now estimate the compute Tam in 2024 to be $1 5 billion up from $1 4 billion, we have lowered our Tam.
Gregory Smith: Last month, we announced a collaboration with NVIDIA to utilize their robotic stack on UR hardware and demonstrated the power of that collaboration at GTC with a visual inspection application. Advanced robotics is just one of the many early examples of edge AI applications positively impacting our business. We're positioned to benefit from this megatrend, and we're investing in R&D and field resources to capture this opportunity. That said, our flexible operations model will enable us to serve upside demand.
Gregory Smith: And that's for auto industrial and mobile markets as recovery in these end markets appears to be pushing out in time with the combination of our stronger first half and limited visibility into the second half our estimate of the 2020 for Soc Tam remains unchanged at three six to $4 2 billion.
Gregory Smith: In memory test, we are increasing our expectation of Tam growth to one two to $1 3 billion from our prior estimate of one to $1 1 billion driven mainly by stronger demand for HBM, which we expect to grow five X last year's level.
Gregory Smith: We expect that industrial, automotive, and mobile will rebound from their current low levels, and entirely new demand drivers like AI are already contributing to our test business, which was above the high end of our guidance of $0.38. Non-GAAP gross margins were 56.6% above our guidance due to a favorable product mix, higher volumes, and improved operational efficiency. Non-GAAP operating expenses were $251 million, about flat year over year, and up slightly compared to our fourth quarter. Non-GAAP operating profit was approximately 15%.
Gregory Smith: As I'm sure you've noticed our first quarter results and second quarter expectations are significantly above our view from January.
Gregory Smith: For the full year at the company level, we continue to expect low single digit growth from 2023.
Gregory Smith: In January we were expecting the year to be back half loaded with mobile driving that recovery. We also shared that lead times were decreasing and our visibility was limited.
Gregory Smith: The sustained strength in new demand in AI driven applications are boosting our business in the first half. However, we are being cautious on the second half on what looks like continued weakness in the mobile market. Our operations team is continuing to enable us to pursue short lead time opportunities. So it certainly feels as if.
Gregory Smith: Semitest revenue for the quarter was $412 million, with SOC revenue contributing $302 million, and memory $110 million. In memory, our sales were strongest in DRAM as AI-driven demand remained strong. Test for HBM is being prioritized by our customers, and we are seeing customers transition capital spending for testers away from flash to DRAM, in part due to HBM and the return of capacity ads and other DRAM tests. Historically, we've seen the split between flash and DRAM markets be more balanced.
Gregory Smith: There is more upside opportunity than downside risk.
Gregory Smith: Now turning to robotics, the first quarter is typically quite weak for our robotics business and this year is no exception. We were very pleased to see the team delivered on plan and are expecting sequential growth in the second quarter. We are executing our plan, which we expect to deliver 10% to 20% growth in 2020 for this plan include.
Gregory Smith: Three elements first is Sam expansion through new offerings second is growing our OEM solution provider in large account channels third is building increased recurring revenue through service and software offerings.
Gregory Smith: In the first quarter, we made good progress in all of these areas, we executed on new Sam expanding initiatives with the announcement of Urs collaborations with Nvidia and the new mere 200 pallet check we grew our U R. OEM business, 58% year on year, and we received the single largest order in.
Gregory Smith: In the system test group, Q1 revenue was $75 million, with $23 million in storage test on low SLT and HDD devices. Recall, SLT has high exposure to the smartphone market. And even as HDDN markets begin to recover, tester capacity utilization rates remain low. In wireless test, revenue was $25 million in Q1, reflecting continued weakness in the PC and mobile markets. Now to Robocop.
Gregory Smith: In the history of mirror from a strategic customer.
Gregory Smith: Zooming out we see AI as the transformational secular growth driver across all of our businesses.
Gregory Smith: AI applications are already having a profound impact on the test market, but we are in the very early days of the growth trend that will play out over the coming years today. The profit pool generated from AI is concentrated in the build out of cloud AI capabilities, especially for training llm's on huge datasets.
Gregory Smith: The hardware requirements for training are massive and include general purpose fine grained compute high bandwidth memory dense network interconnection and mammoth amounts of power all of which are driving our business today.
Gregory Smith: Shifting to some cash methods. We typically consume cash in the first quarter as we pay taxes and variable employee compensation. We ended the quarter with $871 million in cash and marketable security. The tax rate, excluding discrete items, for the fourth quarter was 15% on a GAAP basis and 15.5% on a non-GAAP basis.
Gregory Smith: However, these llm's will only deliver a business impact when they are used to solve problems in the real world in other words through inference applications. Both in the cloud and at the edge. This is the key opportunity that is driving vertically integrated producers to develop their own devices and will materially affect the complexity of edge.
Gregory Smith: Processors in automotive industrial and mobile applications.
Gregory Smith: In semi-tests, supply lead times continue to decline as supply versus demand is more in line. However, our lead times continue to hold at one to two quarters. However, in some cases, we have been able to service demand inside these lead times. As a result, our customers are moving back towards historical buying patterns with shorter lead times, thus yielding lower second half 2024 visibility consistent with the pre-pandemic environment. Now turning to our Outlook for Q2. The second quarter guidance excludes the amortization of acquired intangibles and the anticipated gain on the expected sale of DIS, which is $0.29 in our GAAP forecast.
Gregory Smith: While our business is benefiting today from the considerable AI driven growth in memory networking and a few early ramps of vertically integrated producers. Our greatest opportunity lies ahead as inference applications and edge AI accelerates because of our strong position with many of the leading providers of mobile and embedded computing.
Gregory Smith: In industrial and Adas applications.
Gregory Smith: AI will also have a profound impact on the robotics industry Teradyne robotics is focused on collaborative applications, where robots need to work safely and efficiently and complex environments.
Gregory Smith: AI provides an opportunity to more easily deploy robots that understand and adapt to their surroundings, making them more resilient and expanding the range of problems that they can address.
Gregory Smith: With our layered approach to safety high product quality and an open platform ecosystem. You are in mirror are positioned as the preferred robotics platforms for the development of AI manufacturing and logistics solutions.
Gregory Smith: Some color around the forecasted increased Q2 revenue versus our January view. As noted, this AI strength has continued into the second quarter, and some orders initially scheduled for shipment in the third quarter have moved into the second quarter, improving our near-term outlook. Second quarter gross margins are estimated at 57% to 58%.
Gregory Smith: Last month, we announced a collaboration with Nvidia to utilize their robotic stack on your hardware and demonstrated the power of that collaboration at GTC with a visual inspection application also in the first quarter, we announced the mere 200 pallet Jack our new AI powered solution that uses three D vision to identify pickup.
Gregory Smith: OPEX is expected to run at 36% to 39% of second quarter sales, up modestly from Q1. The non-GAAP operating profit rate at the midpoint of our second quarter guidance is 20%. We have a few points to assist you in modeling the rest of the year. I'll start with a few more details about the market estimates Greg provided. While our view of the SOC TAM is unchanged in total, under the cover, there are some puts and takes, compute this up approximately $100 million, while mobile, auto, and industrial are down a little over $100 million in the aggregate. In anticipation of questions, let me provide the midpoint of our estimates by second. Compute, $1.5 billion, mobile. The amount is $0.9 billion.
Gregory Smith: And deliver pallets, even in dynamic and complex environments, making it a valuable resource for autonomous material handling in factories and warehouses.
Gregory Smith: Advanced Robotics is just one of the many early examples of edge AI applications positively impacting our business others include driver advanced driver assistance systems, and AI capabilities being added to premium tier mobile handsets.
Gregory Smith: <unk> is becoming a material driver of Tam growth for semi test, but we're in very early days, we expect AI will be an overarching growth driver for years to come and test as a primary demand driver and in robotics as a key enabler of market growth. We're.
Gregory Smith: We're positioned to benefit from this megatrend and were investing R&D and field resources to capture this opportunity.
Gregory Smith: Summing up the quarter, we're off to a strong start with Q1 results and our outlook for Q2, well ahead of our view just three months ago. The strength in test is focused on cloud and edge AI applications, while other parts of the semiconductor industry work through inventory.
Gregory Smith: Auto MCU, $0.5 billion; Industrial, $0.3 billion; and Service, $0.7 billion, summing up to $3.9 billion for SOC. You'll notice the aggregate decline change has been allocated to the industrial sector.
Gregory Smith: Calling the end of these corrections as a challenge so we're being cautious about our second half outlook that said, our flexible operations model will enable us to serve upside demand, we expect that industrial automotive and mobile will rebound from their current low levels and entirely new demand drivers like AI are already contributing to our <unk>.
Gregory Smith: Our memory estimate has increased $200 million with a midpoint of $1.25 billion. Please note, our final estimate for the 2023 SOC TAM is $4 billion, up $100 million in the compute segment from our January view. Back to Revit.
Gregory Smith: <unk> business, the industry's increasing WSI spend in 2024, and 2025, we will drive unit volume and device complexity growth reinforcing our confidence in our midterm outlook and with that I'll turn the call over to Sanjay Sanjay.
Gregory Smith: We expect Q3 sales to be similar to Q2 and Q4 to improve from there. Note that our flattish sequential growth in Q3 does not assume any revenue from DIS. Excluding the impact of the anticipated divestiture, we would expect revenue to grow sequentially in Q3.
Sanjay Mehta: Thank you Greg good morning, everyone.
Sanjay Mehta: I'll cover the financial summary of Q1 provide our Q2 outlook and full year planning assumptions now to Q1 first quarter sales were $600 million, which was $10 million above the high end of our guidance with non-GAAP EPS of <unk> 51.
Sanjay Mehta: Which was above the high end of our guidance of 38 <unk>.
Gregory Smith: non-GAAP gross margins were $56, 6% above our guidance due to favorable product mix higher volumes and improved operational efficiencies.
Gregory Smith: Our expectation for revenue distribution for the full year is now less back half-weighted than our view in January. We currently expect around 47% of the company's revenue to be in the first half and 53% in the second half. We expect full year revenue to grow in the low single digit range compared to 2023. Now to Gross Margin. Gross margins are expected to continue to improve as we progress through the year and should be at our target gross margin model for the fourth quarter. Full year gross margins will likely be in the 58 to 59 percent range, unchanged from our January outlook regarding OPEX for the full year.
Gregory Smith: non-GAAP operating expenses were $251 million, both flat year over year and up slightly compared to our fourth quarter.
Gregory Smith: non-GAAP operating profit was approximately 15%.
Gregory Smith: Turning to our revenue breakdown in Q1.
Gregory Smith: Semi test revenue for the quarter was $412 million with Soc revenue contributing $302 million in memory $110 million.
Gregory Smith: In memory, our sales were strongest in DRAM as AI driven demand remained strong.
Gregory Smith: Test for HBM is being prioritized by our customers and we are seeing customers transition capital spending for testers away from flash and DRAM in part due to <unk> and the return of capacity adds and other DRAM test historically, we've seen split between flash and DRAM markets be more balanced.
Gregory Smith: We expect full-year 2024 OPEX to grow 5 to 7% consistent with prior guidance as we continue to make engineering and go-to-market investments. Our GAAP and non-GAAP tax rates, excluding discrete items, are forecasted to be 15 to 15.5%, respectively, in 2024.
Gregory Smith: And system Test group Q1 revenue was $75 million with $23 million in storage test on low esselte and HDD demand recall <unk> has high exposure to the smartphone market.
Gregory Smith: A quick update on our previously announced strategic partnership with Technopro. As a reminder, the agreement has several key components. First, Technoprobe will purchase Teradyne's DIS, which provides advanced interfaces that connect our testers to customers' chips for testing.
Gregory Smith: And even as HDD end markets begin to recover tester capacity utilization rates remained low.
Gregory Smith: In wireless test revenue was $25 million in Q1, reflecting continued weakness in PC and mobile markets. In Q2, we expect wireless test to improve due to gaming and market and are now beginning to see the ramp of Wi Fi seven.
Gregory Smith: Second, Teradyne will make an equity investment in Technoprobe, acquiring 10% of the company. 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 continue to expect the transactions to close in the second quarter. DIS revenue contribution for the first quarter was approximately $21 million. Post-closing, our cash position will decline as the transaction is expected to consume an estimated $440 million of net cash.
Speaker Change: Now to robotics.
Speaker Change: Revenue was $88 million as planned with you are contributing $68 million and Mir $20 million.
Speaker Change: Shifting to some cash metrics at.
Speaker Change: At a company level, our free cash flow was an outflow of $37 million in the quarter.
Gregory Smith: We typically consume cash in the first quarter as we paid taxes and variable employee compensation.
Gregory Smith: We repurchased $22 million of shares in the quarter and paid $18 million in dividends, we ended the quarter with $871 million in cash and marketable securities.
Gregory Smith: Some other financial information in Q1.
Gregory Smith: We had 110% customer in the quarter the.
Gregory Smith: The tax rate, excluding discrete items for the fourth quarter was 15% on a GAAP basis, and 15, 5% on a non-GAAP basis.
Gregory Smith: We will continue to 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 to a minimum goal of $800 million. Summing up, we delivered sales and earnings above the high end of our guidance range as memory and networking exceeded our plan in Semitest, mainly driven by AI. The mobile, industrial, and legacy auto markets remained soft.
Gregory Smith: In Q1, we incurred an FX loss on the fair value of our currency exchange hedge related to the expected investment in technical <unk>.
Gregory Smith: This drove the larger than typical variance between our GAAP and non-GAAP earnings in the quarter.
Gregory Smith: Turning to our current operational environment.
Gregory Smith: In semi test supply lead times continue to decline of supply versus demand is more in line.
Gregory Smith: Our lead times continue to hold at one to two quarters. However in some cases, we have been able to service demand inside these lead times as a result, our customers are moving back towards historical buying patterns with shorter lead times, thus, yielding lower second half 2024 visibility consistent with our pre pandemic environment.
Gregory Smith: Our robotics team delivered to plan for the third consecutive quarter, as we continue to execute our new product development and go-to-market strategy. Overall, visibility beyond the second quarter is limited given the increased level of turns business in Semitest. Our first quarter performance and the improvement in our second quarter outlook elevate our confidence for the year. Midterm fundamentals remain intact, yielding continued optimism beyond 2024. With that, I'll turn the call back to Traci. Traci?
Gregory Smith: Robotics remains a quick turns business and our execution continues to deliver to these market conditions.
Speaker Change: Now turning to our outlook for Q2.
Speaker Change: Q2 sales are expected to be between $665 $725 million with non-GAAP EPS in a range of 64 to <unk> 84.
Gregory Smith: On a 162 million diluted shares.
Gregory Smith: Second quarter guidance excludes the amortization of acquired intangibles and the anticipated gain on the expected sale of Gis, which is 29 and our GAAP forecast.
Traci Tsuchiguchi: Thanks. Do we have time for questions? We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone. A confirmation tone will indicate your line is busy. Mubasat.
Gregory Smith: Some color around the forecasted increased Q2 revenue versus our January view.
Gregory Smith: The increase was driven by our semi test business, where AWS compute networking and HBM demand has strengthened.
Gregory Smith: As noted this AI strength has continued into the second quarter and some orders initially scheduled for shipment in the third quarter have moved into the second quarter, improving our near term outlook.
Operator: I would like to remove your questions from, It may be necessary to pick up your hands before pressing the start button. One moment, please, while we poll. The first question comes from the line of Mehdi Hosseini with FIDC. Thanks for taking my question. Two follow-up questions. It seems to me that despite the fact that you highlighted mobile as an area of weakness, it has already been dialed into your January guide or commentary for the full year. Would that be fair? Yes, it would, Betty.
Gregory Smith: Second quarter gross margins are estimated at 57% to 58% Opex is expected to run at 36% to 39% of second quarter sales up modestly from Q1 <unk>.
Gregory Smith: non-GAAP operating profit rate at the midpoint of our second quarter guidance is 20%.
Speaker Change: A few points to assist you in modeling the rest of the year.
Speaker Change: I'll start with a few more details of both the market estimates Greg provided.
Speaker Change: While our view of the Soc Tam is unchanged in total under the cover there are some puts and takes.
Speaker Change: <unk> is up approximately $100 million, while mobile auto and industrial are down a little over $100 million in the aggregate.
Mehdi Hosseini: Okay, so, and this brings up what I really want to ask you. When I look at TSMC, they just announced their... [inaudible] beyond the next couple of quarters. Are we thinking, are you also thinking that at some point in the next two to four quarters, those utilization rates are going to get to the point where even if that particular customer of TSM were to continue with the kind of bifurcation of their technology now, they would still have to come back to the market and buy more testers? Hi Mehdi, this is Greg.
Speaker Change: In anticipation of questions. Let me provide the midpoint of our estimates by segment.
Speaker Change: Compute $1 5 billion.
Speaker Change: Mobile.
Gregory Smith: <unk> 9 billion.
Gregory Smith: Auto MCU.
Gregory Smith: <unk> 5 billion.
Gregory Smith: Industrial <unk> 3 billion.
Gregory Smith: And service <unk> 7 billion.
Gregory Smith: Summing up to $3 9 billion for Soc.
Gregory Smith: You'll notice the aggregate decline change has been allocated to the industrial segment.
Gregory Smith: Our memory estimate has increased $200 million with a midpoint of $1 two 5 billion.
Gregory Smith: Please note our final estimate for the 2023 Soc Tam is $4 billion.
Gregory Smith: I think you've got it. You've got it right that utilization is continuing to increase. The equipment that is in place is being used quite efficiently through the year, so the loading is relatively constant, and we... We definitely believe that it's a matter of when, not if, there's gonna be a need for significant additional capacity to support that kind of product line. Thank you. Thank you. The next question comes from the line of Vivek Arya with Bank of America.
Gregory Smith: Up $100 million in.
Gregory Smith: In the compute segment from our January view.
Gregory Smith: Back to revenue we.
Gregory Smith: We expect Q3 sales to be similar to Q2 and Q4 to improve from there.
Gregory Smith: Note that our flattish sequential growth in Q3 does not assume any revenue from Gis excluding.
Gregory Smith: The impact of the anticipated divestiture, we would expect revenue to grow sequentially in Q3.
Gregory Smith: Our expectation for revenue distribution for the full year is now less back half weighted than our view in January.
Gregory Smith: We currently expect around 47% of the company revenue to be in the first half and 53% in the second half we expect full year revenue to grow in low single digit range compared to 2023.
Vivek Arya: Thanks for taking my question. On the compute term, $1.5 billion, I think that's up roughly 15% from last year. When I look at the size of the accelerator market this year, it's supposed to double. So, is that, you know, one kind of high-level way to look at how much the accelerator market is growing versus how much your tester's compute time is growing, or is there another way? So, for example, if, let's say, the accelerator market grows 30 percent? What does that imply for your company? So, an interesting question.
Gregory Smith: Now to gross margins.
Gregory Smith: Gross margins are expected to continue to improve as we progressed through the year and should be at our target gross margin model for the fourth quarter.
Gregory Smith: Full year gross margins will likely be in the 58% to 59% range unchanged from our January outlook.
Gregory Smith: Regarding opex for the full year.
Gregory Smith: We expect full year 2024, opex to grow 5% to 7% consistent with prior guide as we continue to make engineering and go to market investments.
Gregory Smith: Our GAAP and non-GAAP tax rate, excluding discrete items are forecasted to be 15% to 15, 5% respectively in 2024.
Gregory Smith: There's, you know, thinking about the TAM, that is, the overall size of the market, so what would we get, and what would our competitor get? And, The size of the Accelerator market has gone up a lot this year. Most of the testers to support this year's revenue in Accelerators were put in place last year.
Gregory Smith: A quick update on our previously announced strategic partnership with technical as a reminder, the agreement has several key components.
Gregory Smith: Technip probe will purchase teradyne's, Gis business, which provides advanced interfaces that connect our testers to customers chips for test.
Gregory Smith: So if the TAM that was supported last year supported that sort of big growth that we've seen in the end market this year, what's going to happen this year, the 1.5 that we talked about, is going to support a significant increase again next year. And that, you know, this year, the primary beneficiary in terms of that end market is NVIDIA. What we're seeing now is that some vertically integrated producers start to have significant ramps, and they're already loading significant numbers of testers.
Gregory Smith: Teradyne will make an equity investment in technophobe acquiring 10% of the company.
Gregory Smith: Third teradyne and Technip probe will continue 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.
Gregory Smith: We continue to expect the transactions to close in the second quarter.
Gregory Smith: Revenue contribution for the first quarter was approximately $21 million.
Gregory Smith: Post closing our cash position will decline as the transaction is expected to consume an estimated $440 million of net cash.
Gregory Smith: The TAM in 2024 for compute is actually a little bit constrained below what it would otherwise be because these new entrants are actually able to work with their OSAT partners and convert idle testers that would have been in mobile into the compute space. So right now, the load on compute testers is higher than it was, than what you'd see in terms of the buys in the market. As mobile starts to come back, that means that there's less idle capacity to fill. It also means that the compute market is going to be translated into more direct buys. And Vivek, just a quick comment.
Gregory Smith: We will continue to 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 to our minimum goal of $800 million.
Gregory Smith: Summing up we delivered sales and earnings above the high end of our guidance range as the memory and networking exceeded our plan in semi test mainly driven by AI.
Gregory Smith: Mobile industrial and legacy auto markets remained soft our robotics team delivered to plan for the third consecutive quarter as we continue to execute our new product development and go to market strategies overall visibility beyond the second quarter is limited given the increased level of turns business in semi test.
Vivek Arya: In my prepared remarks, I noted that our estimate was revised for 2023 for the compute market. When I do the math of our midpoint of 1.5 billion and 24 versus our old, you do get a 15% increase, but we revise that, in my prepared remarks, I noted to 1.4 billion. So I think the growth is 7% versus 15. Just wanted to point that out.
Gregory Smith: Our first quarter performance and the improvement in our second quarter outlook elevates our confidence for the year.
Gregory Smith: Mid term fundamentals remain intact, yielding continued optimism beyond 2024.
Gregory Smith: With that I'll turn the call back to Tracy.
Gregory Smith: Tracy.
Gregory Smith: Thanks.
Tracy: We are going to ask questions.
Tracy: Thank you.
Tracy: We will now be conducting a question and answer session.
Tracy: If you would like to ask a question. Please press star one on your telephone keypad.
Gregory Smith: Oh, got it. Thank you. And just a quick follow-up. You know, a number of your WFP peers have started to see the benefits of 2 nanometer N-gate all around. I'm wondering, what does that mean for Teradyne?
Tracy: Confirmation tone will indicate your line is in the question queue.
Tracy: Stop to it.
Tracy: If you would like to remove your questions from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys, one moment. Please poll for questions.
Gregory Smith: When will you start to see those benefits? And, you know, what does that mean for tester intensity? I assume that's more like 25 or 26. You know, any color around that would be very helpful.
Mehdi Hosseini: The first question comes from the line of maybe Hosseini.
Tracy: Great.
Hosseini: Please go ahead.
Hosseini: Yes, Thanks for taking my question two follow up.
Gregory Smith: Yeah, Well, I think that's a good question. I think that's a good question. I think that's a good question. I think that's a good question. I think that's a good question. I think that's a good question. I think that's a good question. I think that's a good question.
Hosseini: Seems to me that display.
Hosseini: Despite the fact that you highlighted mobile as an area of weakness.
Hosseini: Already been dialed into your January.
Tracy:
Tracy: Our guide or commentary for the full year.
Speaker Change: Would that be fair.
Speaker Change: Yes, it would be.
Speaker Change: So and this brings up what I wanted to ask you when I look at TSMC.
Speaker Change: They just announced there.
Gregory Smith: Sure. So, we are expecting to see some testers being used to support the engineering work in the early parts of 2 nanometer, probably towards the end of 2025. We don't expect any volume associated with 2 nanometer gates all around until 2026, and the way that we're looking at that right now is that there's nothing particularly idiosyncratic about that node in terms of tester demand. So, we're thinking of it primarily as an enabler for more complex parts.
Speaker Change: Annual report and obviously.
Speaker Change: Apple mixed.
Speaker Change: Mix of revenue went up and I'm user.
Speaker Change: Kind of trying to better understand the dynamics so.
Speaker Change: TSMC is running.
Speaker Change: We're generating more revenues that means more.
Speaker Change: <unk> for that particular customer is coming out.
Speaker Change: And at some point utilization rates with those testers.
Speaker Change: Hit that 85%, 90% threshold.
Speaker Change: And.
Gregory Smith: There are a lot of parts, for example, for cloud AI training that at this point are actually radical limited. And so, anything to allow increased complexity within the same die size is likely to be soaked up by AI.
Speaker Change: And to look beyond the next couple of quarters.
Speaker Change: Are we thinking are you also thinking that at some point in the next two to four quarter those utilization rates are going to get to the point, where even if that particular customer of TSM were to continue with kind of a black box location of two technology nodes.
Speaker Change: Still have to come back to the market and buy more testers.
Gregory Smith: And so, the faster that 2 nanometer comes online, the faster these more complex parts will be developed, and those will likely have longer test times, higher test intensity, which will drive the TAM. Thank you. Next question comes from the line of Toshiya Hari, Goldman Sachs. Hi, good morning.
Speaker Change: Hi, Matt This is Greg I think you've got it you got it right.
Gregory Smith: Utilization is continuing to increase.
Gregory Smith: The the equipment that is in place is being used quite efficiently through the year.
Gregory Smith: The loading is relatively constant.
Gregory Smith: And.
Toshiya Hari: Thank you so much for taking the questions. I had one question on memory and another one on your VIP business. On the memory side, you guys talked about a $1.25 billion TAM for 24. I was hoping you could provide a rough split between DRAM and NAND, how you're viewing the market, what the contribution could be from HBM, and if you could speak to your competitive position, your market share position within HBM, that would be helpful. Sure.
Gregory Smith: We.
Gregory Smith: We definitely believe that.
Gregory Smith: As a matter of when not if there.
Gregory Smith: There's going to be a need for significant additional capacity.
Gregory Smith: To support that kind of product line.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: Next question comes from the line of Vivek Arya with Bank of America. Please go ahead.
Vivek Arya: Thanks for taking my question on the compute than the $1 5 billion I think that's up roughly 15% from last year.
Vivek Arya: When I look at the size of the accelerated market this year as opposed to double.
Gregory Smith: Why don't I take the numbers and maybe the competitive position that Greg, do you want to take? So the range that we provided was $1.2 billion to $1.3 billion with a midpoint of $1.25 billion. And we think from a DRAM perspective, it's roughly 80% of that versus flash at 20%. Historically, I would say DRAM has been in the 40s and 50s percent of the overall memory market. So that's roughly the split. And then HBM.
Vivek Arya: Is that one.
Vivek Arya: One kind of high level way to look at how much the accelerated market is growing versus how much your test or.
Vivek Arya: Computer Tam is growing.
Vivek Arya: Audits that are different based on for example, let's say the accelerated market growth, 30% next year right. What does that imply for your can do with them.
Vivek Arya: So <unk>.
Speaker Change: Interesting question.
Speaker Change: There is.
Speaker Change: Thinking about the Tam that is the overall size of the market.
Speaker Change: So what we would get what our competitor would get.
Speaker Change: And.
Speaker Change: The size of the accelerator market has gone up a lot. This year most of the testers to support this year's revenue and accelerated rate yours was put in place last year.
Gregory Smith: Ramakrishnan, we think it is, Yeah, we think it... Yeah, I think that number is about 500 million. It's going to work out the percent, but we think that number is about $500 million out of the $1.25 billion. So in terms of competitive position, the share patterns that have existed for a few years are persistent. We have a very high share in flash final tests.
Speaker Change: So.
Speaker Change: If if that if the.
Speaker Change: The Tam that was supported last year supporting the.
Speaker Change: That sort of.
Speaker Change: Big growth that we've seen in the end market. This year, what's going to happen. This year the $1 five that we talked about is going to support cigna.
Speaker Change: Significant increase again next year.
Speaker Change: And that.
Speaker Change: This year the primary beneficiary in terms of that end market is nvidia.
Gregory Smith: We have a strong share position in DRAM final tests, and we have a lower share position in both flash wafer sort and DRAM wafer sort. So what's happening in the memory market? Like last year, there was a lot of technology-driven buys that were pushing final test purchases. This year, the...
Speaker Change: Nvidia what we're seeing now is that we are having some <unk>.
Speaker Change: Vertically integrated producers start to have significant ramps and they're already loadings significant numbers of testers. The the Tam in 'twenty 'twenty four for compute is actually a little bit constrained below what it would otherwise be because the.
Gregory Smith: The spark is coming back to the memory market, and that is driving the need for more capacity, and that is driving wafer sort purchases. So there are no customer losses, but we are expecting to see our share come down a little bit this year as those wafer sort capacity buys go in. Now, the subtext underneath that is HBM is a wafer-level technology, so all of the tests for HBM fall into that wafer sort space.
Speaker Change: These new entrants are actually able to.
Speaker Change: We work with there.
Speaker Change: Oh sat partners and convert idle testers that would've been in mobile into the into the compute space. So right now the loading of compute testers is higher than it was.
Speaker Change: And then what you'd see in terms of the buys in the market as mobile starts to come back.
Speaker Change: That means that there's less idle capacity to fill it also means that the compute market is going to be translated into more direct buys.
Speaker Change: And just a quick comment.
Speaker Change: In my prepared remarks, we noted that the our our estimate was revised for 2023 for the compute market when I do the math of our midpoint of $1 5 billion and 24 versus our old.
Gregory Smith: And in HBM, last year, we had about 50% of the test TAM for HBM. This year, we're expecting that that is going to come down modestly in terms of share. Our revenue is going to be up significantly, but the market is five times bigger, so our share is probably going to float down a little bit as people begin to tool up the next generation for the volume expansion in HBM. At the same time, we think that our opportunities for share gain in terms of new test insertions for HBM are quite good, and so we're projecting that we're going to be targeting new customers and new test steps for that this year. Great. Thank you for all the details.
Speaker Change: You do get a 15% increase but we revised that in my prepared remarks, I noted the $1 4 billion. So I think the growth of 7% versus 15, I just wanted to point that out.
Speaker Change: Got it thank.
Speaker Change: Thank you and just a quick follow up in a number of their WMC theaters have started to see the benefits of two nanometer and gate all around I'm wondering what does that mean for teradyne or when will you start to see those benefits and how.
Speaker Change: What does that mean for <unk>.
Speaker Change: And density I assume that's in more 25, or 26 and any color around that would be very useful. Thank you.
Speaker Change: Sure. So we are expecting to see.
Gregory Smith: And then as my follow-up on the VIP side, you know, we've all seen quite a few announcements from, you know, the Googles, the Amazons, the Meadows of the World in terms of what they're working on. I'm curious when those announcements kind of translate into revenue for you guys. You know, I know it takes time for those projects to ramp up, but I think you have pretty good visibility. As a test provider, you're probably pulled into those projects early. So is it a 25 dynamic? Is it 26?
Speaker Change: Some testers being used to support the engineering work and early.
Speaker Change: Early parts into nanometer probably towards the end of 2025, we don't expect any volume associated with two nanometer gate all around until 2026 and the way that we're looking at that right. Now is that there is nothing particularly idiosyncratic about that node in term.
Speaker Change: <unk> of tester tester demand. So we're thinking of it primarily as an enabler to more complex parts. There are a lot of a lot of parts for example for cloud AI training that at this point are actually radical limited and there.
Speaker Change: So anything to allow increased complexity within the same die size is likely to be soaked up by AI and <unk>.
Gregory Smith: And how should we think about that contribution as some of those projects ramp up? Thank you. Well, from a vertically integrated producer perspective, it really kind of started back in 2022, 2023. In 2024, like right now, there are hundreds of testers that are being used to test VIP source parts for us. And probably a similar number from our competitor. So it has happened.
Speaker Change: So the faster that two nanometer comes online the faster. These more complex parts will be developed and those will likely have longer test times higher test intensity, which will drive the Tam.
Speaker Change: Thank you.
Speaker Change: Thank you next question comes from the line of <unk> <unk> with Goldman Sachs. Please go ahead.
Gregory Smith: Hi, good morning. Thank you so much for taking the question I had one question on memory and another one on your VIP business on the memory side, you guys talked about a $1 5 billion Tam.
Gregory Smith: 24.
Gregory Smith: Was hoping you could provide a rough split between DRAM and NAND, how youre viewing the market.
Gregory Smith: The thing that hasn't happened because of the low utilization driven by the mobile slowdown is that it hasn't translated into as many new tester purchases as we would have expected in a stronger market. But we have multiple VIP sockets that are loading more than 50 testers each. And we have a pipeline of new design starts that we are planning on record for that will stretch out all the way into 2026. So this is real.
Gregory Smith: What the contribution could be from HBM and if you can speak to your competitive positioning or market share position within <unk> that would be helpful.
Speaker Change: Sure why don't I take the numbers and maybe the competitive position Greg from a tick so silver split so the range that we provided.
Gregory Smith: Was $1 2 billion to $1 3 billion with a midpoint of one 5 billion and we think from a DRAM perspective, it's roughly 80%.
Gregory Smith: <unk>.
Gregory Smith: Of that versus a flash of of 'twenty historically.
Gregory Smith: It's happening now, but the impact on our financial results has been muted by low utilization because of the mobile downturn. Thank you. Thank you. The next question comes from the line of... Kantor, Sushila.
Gregory Smith: I would say DRAM has been in the 40%, 50% 50% of the overall memory market. So so that's roughly the split and then H b.
Gregory Smith:
Gregory Smith: Okay.
Gregory Smith: Okay.
Gregory Smith: Yeah, good morning. Thank you for taking the time to answer the question. I guess, first question, you know, Greg, in your prepared remarks, you talked about, you know, cautiousness in the second half, though, seeing, you know, greater upside opportunity than downside risk. So, I was hoping to dig deeper into that, if you could share, you know, what would be the end markets that could be an upward surprise, you know, as we progress through the year? So we're. We have limited visibility.
Gregory Smith: We think is.
Gregory Smith: Yes, we think.
Gregory Smith: Yes, we think that number is about $500 million.
Gregory Smith: It's going to work the percent, but we think that number is about $500 million of the out of the $1 $2 5 billion.
Gregory Smith: So in terms of competitive position.
Gregory Smith: <unk>.
Gregory Smith: Yes.
Gregory Smith: The share patterns that have existed for a few years are persisting, we have very high share in flash final test, we have strong share position in DRAM final test and we have a lower share position in.
Gregory Smith: Both flash wafer sort and DRAM wafer sort.
Gregory Smith: So what's happening in the memory market. Unlike last year. There was a lot of technology driven buys that were pushing final test purchases this year the.
Gregory Smith: So I'm like, just bear in mind that I'm going into the realm of speculation here. The things that could drive a higher second half are the leading edge of some sort of recovery in mobile. Right now, we have a pretty low baseline baked into our plan. So, essentially, any capacity shortfalls would immediately turn into business. And then the other thing is that we've seen such a dramatic strengthening in the compute segment with very short lead times in Q1. So that's what really drove our increased outlook for Q2. So there it is. We didn't see it coming.
Gregory Smith: The spark is coming back to the memory market and that is driving the need for more capacity and that is driving wafer sort purchases. So.
Gregory Smith: There is no customer losses, but we are expecting to see our share come down a little bit this year as those wafer start capacity buys go in.
Gregory Smith: Now the sub subtext underneath that is <unk>.
Gregory Smith: <unk> is a.
Gregory Smith: Is a wafer level technology. So all of the test for HBM falls into that wafer sort space and.
Gregory Smith: In <unk> last year, we had about 50% of the.
Gregory Smith: We actually, you know, we had hints that it was coming. We thought it would be further out and smaller. It has come in bigger and faster than we expected. If that trend were to continue, then we'd see continued strengthening in the compute space, and that's another thing that could drive a second half surge. Very helpful. And the other way to think about that is we don't really think that industrial automotive is going to significantly strengthen in the year. That's more of a 2025 projection.
Gregory Smith: Of the test Tam for <unk>. This year, we're expecting that that that that is going to come down modestly.
Gregory Smith: In terms of share our revenue is going to be up significantly, but the market is five times bigger. So our share is probably going to slow down a little bit as the as people begin to tool up.
Gregory Smith: Next.
Gregory Smith: <unk> for the.
Gregory Smith: The volume expansion in HBM at the same time, we think that our opportunities for share gain in terms of new test insertions for HBM are quite good and so we're projecting that we're going to be penetrating new customers and new test steps for that this year.
Gregory Smith: Very helpful. As a follow-up, you talked briefly about Edge AI, and so I was curious to hear your thoughts on how you see that playing out in the SmartCore arena. It sounds like this is a year where everyone is trying to see what sticks and what use cases, and that maybe next year is the year. We'd love to hear whether you agree with that assessment.
Speaker Change: Great. Thank you for all the details and then as my follow up on the VIP side.
Speaker Change: We've all seen quite a few announcements from the googles the Amazons of the meadows of the world in terms of what they're working on.
Speaker Change: I'm curious.
Speaker Change: When those announcements kind of translate into revenue for you guys.
Speaker Change: I know it takes time for those projects to ramp.
Gregory Smith: When do you think the earliest we could see increased content to support Edge AI in smartphones, and how do you see that playing out and impacting Teradyne's best business? Thank you. Yeah, so that's a great question.
Speaker Change: Thank you have pretty good visibility.
Speaker Change: Provided you're probably pulled into those projects early so is it a 25 dynamic is at 26 and how should we think about that contribution at some of those projects ramp. Thank you.
Gregory Smith: We've been having very rich discussions internally about this to try and figure out when a smartphone is AI-enabled, and we're thinking about it in terms of the complexity of the processor that goes into the phone. There have been neural processing units and AI features in phones for years.
Speaker Change: Well from a vertically integrated producer perspective.
Speaker Change: It really kind of started back in 2022 2023.
Speaker Change: <unk>.
Speaker Change: In 2020 for like right now there are hundreds of testers that are being used to test VIP source parts for us.
Speaker Change: And probably a similar number from our competitor. So it has happened the thing that hasn't happened because of the the low utilization driven by the mobile slowdown that hasnt translated to as much new tester purchases as we would've expected and are in a stronger market.
Gregory Smith: But now the AI opportunity, the edge AI opportunity, is driving things towards pushing the amount of silicon area used for AI up towards 50% or a third of the silicon area going into that. So those types of processors are just starting to hit the market now at the premium tier, and there is, I think we've got about a year of people trying to figure out what kind of customer features will actually be compelling using that. And right now, there aren't that many of them.
Speaker Change: But the.
Speaker Change: We have.
Speaker Change: Multiple VIP sockets that are loading more than 50 testers, each and we have a pipeline of new design starts that we our plan of record for that will stretch out all the way into 2026. So this is this is real it's happening now, but the impact on our.
Speaker Change: <unk> financial results has been muted by the low utilization because of the mobile downturn.
Gregory Smith: I think that that's what's going to happen during the rest of 2024. There are some premium smartphones, and some people that are trying to innovate things to do with them. I think the processor generation that's really going to start having enough power to do LLM stuff on a phone is probably the stuff that ramps up towards the end of 2025, and it would become much more mainstream in the generation of silicon coming out in 26. Thank you. Thank you. The next question comes from the line of Samik Chatterjee with JPMorgan Chase. Please go ahead.
Speaker Change: Yes.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: Next question comes from the line of C. J Muse with Cantor Fitzgerald. Please go ahead.
Speaker Change: Yes. Good morning. Thank you for taking the question I guess first question Greg in your prepared remarks, you talked about cautiousness on the second half though.
Speaker Change: <unk> greater upside opportunities and downside risks so was hoping to dig deeper into that if you could share will be the end markets that could be upwards surprise.
Speaker Change: As we progressed through the year.
Speaker Change: So.
Speaker Change: Where.
Speaker Change: We have limited visibility so.
Speaker Change: Just bear in mind that I am going into the realm of speculation here.
Samik Chatterjee: Hi. Thanks for taking my question. Maybe just stick with the mobile ecosystem a bit and any sort of change in your thinking about the primary smartphone customer there? I know you've said previously that it's less than 10% of what your expectation for this year is. Just checking in terms of how much of the sort of change in 2Q or sort of thinking about the back half. Any changes in how you think about the cadence of purchases from the primary customer or any change in your overall thinking for the year for that customer? And I have a follow-up. Thank you. Okay. I hope I have caught all of your questions. If I didn't do it correctly, then please correct me.
Speaker Change: The things that could drive a higher second half is.
Speaker Change: <unk>.
Speaker Change: The leading edge of some sort of a recovery in mobile right now we have of a pretty low baseline baked into our plan so essentially any capacity shortfalls.
Speaker Change: <unk> immediately turn into business and then the other is <unk>.
Speaker Change: We've seen such a.
Speaker Change: Dramatic strengthening in the compute segment.
Speaker Change: Very short lead times in Q1.
Speaker Change: So that's that's what really drove our increased outlook for Q2.
Speaker Change: The.
Speaker Change: So there is we didn't see it coming.
Gregory Smith: We don't comment about specific customers, but I will share that we don't expect that our historically largest customer will be a 10% customer this year. I'll also share that we think that we've gotten sort of the bottom dialed into our plan, that there's definitely more upside to downside in terms of the plan associated with mobile in general. For my follow-up, if I could ask about robotics, can you give us some sense of how you're thinking about first half versus second half there, and what's the right...
Speaker Change: We actually yes, we had hints that it was coming we thought it would be further out and smaller it has come in bigger and faster than we expected if that trend were to continue then we'd see continued strengthening in the compute space and Thats another thing that could drive us.
Speaker Change: Second half up.
Speaker Change: Very helpful.
Speaker Change: The other way to think about that is we don't we don't really think that industrial automotive is going to significantly strengthen in the year, that's more of a 2025.
Speaker Change: Very helpful as a follow up.
Speaker Change: You talked briefly on edge AI and so I was curious to hear your thoughts on how you see.
Gregory Smith: So, I'll start off with sort of a qualitative answer in terms of the drivers, but then I'll pass it off to Sanjay to give you more of the precise split, first half, second half, and profitability. So, what's going on right now is we have a plan for the year that's going to be essentially sequentially growing quarter by quarter. And the reason that the plan is laid out that way is because there are new growth drivers that are coming online throughout the year. There are drivers that are in place from last year in Q1. That's specifically the UR20 and UR30, the heavy payload cobots.
Speaker Change: That play out in this smart for arena. It sounds like this is a year where.
Speaker Change: Everyone is trying to see what sticks and what use cases.
Speaker Change: Maybe next year as the year would love to.
Speaker Change: Here, whether you agree with that assessment.
Speaker Change: When you take the earliest we could see.
Speaker Change: Kris content to <unk>.
Speaker Change: <unk> edge AI in smartphones.
Speaker Change: How do you see that playing out and impacting teradyne's business. Thank you.
Speaker Change: Yes.
Speaker Change: That's a great question, we've been having.
Speaker Change: Very rich discussions internally about this to try and figure out when you consider a smartphone to be AI enabled and we're thinking about it in terms of the complexity of the processor that goes into the phone.
Speaker Change: There've been neuro processing units and AI features in phones FERC for years.
Speaker Change: But now the AI.
Speaker Change: Opportunity the edge AI opportunity is driving things towards.
Speaker Change: Pushing the amount of silicon area used for AI up towards like 50% or 50, or a third of the silicon area going into that so those types of processors are just starting to hit the market now at the premium tier.
Gregory Smith: In Q1, we had the announcement of the MIR 1200 Palette Jack. That's going to start really impacting revenue in the back half, primarily in the fourth quarter, but we're already taking orders, and we're building backlog for that product. We also announced our collaboration with NVIDIA.
Speaker Change: And.
Speaker Change: There is I think we've got about a year of people trying to figure out what kind of customer features will actually be.
Speaker Change: The compelling using that.
Speaker Change: And right now there arent that many of them I think that that's what's going to happen during the rest of 2024 that there's some premium smartphones and some some.
Gregory Smith: That's going to really drive business through our OEM solution channel. So we're going to be providing the platform tools to that channel so that they can create stuff that goes to market. So that's stuff that will also be back half loaded. The other thing that's driving us through the year is that we are continuing to build our OEM channel and our large accounts channel. So those are things that we started. We started OEMs back in 22.
Speaker Change: People that are trying to innovate the things to do with them I think the processor generation thats really going to start having enough power to do LLM stuff on a phone is probably the stuff that would ramp towards the end of 2025 and it will become much more mainstream in the generation of silk.
Speaker Change: Again coming out in 2006.
Speaker Change: Thank you.
Speaker Change: Thank you next question comes from the line of stomach chatted with Jpmorgan Chase. Please go ahead.
Jpmorgan Chase: Yes, hi, Thanks for taking my question, maybe just two.
Sanjay Mehta: We started large accounts in 23. And they had a significant amount of gestation time before they delivered revenue. We're right at the point where OEMs are starting to really click. We talked about the 58% year-on-year increase in that space. I'm expecting to see growth above the aggregate growth for large accounts in 2024. So that's going to be a growth driver through the end of the year. So with that, I'll pass it off to Sanjay to give you sort of the precise breakdowns. Sure. Thanks, Greg.
Jpmorgan Chase: Stick with the ecosystem of it.
Jpmorgan Chase: Any sort of change in your thinking about the.
Jpmorgan Chase: <unk> smartphone customer.
Jpmorgan Chase: I know you've said previously participant that Boston is what are your expectations with the studios just sticking in terms of how much of the sort of changing.
Jpmorgan Chase: Can you sort of thinking about the back half.
Jpmorgan Chase: And how you think about the cadence support to those from your primary customer or any change in deal we're undertaking.
Speaker Change: And I have a follow up thank you.
Speaker Change: Okay.
Speaker Change: I hope I caught all of your question if I didn't then.
Speaker Change: Please correct me.
Speaker Change: <unk>.
Speaker Change: We don't comment about specific customers I will I will share that we don't expect that our historically largest customer will be a 10% customer this year.
Speaker Change: Also shared that we.
Speaker Change: We think that there is.
Speaker Change: More of that debt that we've got and sort of the bottom dialed into our plan that there's definitely more upside to downside in terms of the plan associated with with mobile in general.
Sanjay Mehta: So roughly the first half of the year, well, first, as Greg noted, we expect to grow sequentially in Q2 and we expect to grow throughout the year for the reasons Greg just noted. But the first half, we have, you know, 42 percentage points plus or minus and then, you know, 58% in the back half of the year. We do expect to be profitable this year, I would say over the year. And I would say that that would be single-digit profitability. I will comment. I think you asked about Q1. We were not profitable just given the seasonality of the quarter. But that should give you the context, I think, about what you asked.
Speaker Change: Got it got it and you got that question.
Speaker Change: So my follow up if I can ask on robotics.
Speaker Change: Can you give us some sense of how you're thinking about first half with the second half.
Speaker Change: And what's.
Speaker Change: The right now any updated thinking on profitability for the year for them.
Speaker Change: How do you track and <unk> sort of how you're thinking about the full year for robotics.
Speaker Change: So.
Speaker Change: I'll start off with sort of a qualitative quantitative answer in terms of the drivers, but then I'll pass it off to Sanjay to give you more of the precise split first half second half and the profitability. So what's going on right now is.
Sanjay Mehta: We have a plan for the year thats going to be essentially sequentially growing quarter by quarter.
Sanjay Mehta: And the reason that the plan is laid out that way is because there are new growth drivers that are coming online throughout the year.
Speaker Change: There are drivers that are in place.
Sanjay Mehta: From last year in Q1 that specifically the EUR 20 million EUR 30, the heavy payload co bots in Q1, we had the announcement of the mere 200 pallet, Jack that's going to start really impacting revenue in the back half.
Krish Sankar: Thank you. The next question comes from the line of Krish Sankar with TD Corporation. Yeah, hi. Thanks for taking my question. I had a couple of them.
Sanjay Mehta: Marilee in the fourth quarter, but we're already taking orders we're building backlog for that product, we also announced.
Sanjay Mehta: Announced the.
Krish Sankar: First one, on the memory side, how much of your memory revenues was from HBM in the March quarter? And I think Sanjay mentioned HBM revenues could grow 5x this year. I'm kind of curious, are you over-indexed to one customer? Because my understanding is of the three HBM customers, one of them in sources, and within the other two, can you just talk a little bit about your share position there? Then add a follow-up. I'll take the first one on memory in the quarter.
Sanjay Mehta: The collaboration with Nvidia, that's going to really drive business through our OEM solution channel. So we're going to be providing the platform tools to that channel. So that they can create stuff that goes to market. So that's that's stuff that will also be back half loaded.
Sanjay Mehta: The other thing Thats driving through the year as we are continuing to build our OEM channel and our large accounts channel. So those are.
Sanjay Mehta: Things that we started we started Oems back in 'twenty. Two we started large accounts in 'twenty three and they have a significant amount of gestation time before they deliver revenue we're right at the point, where where Oems are starting to really click we talked about the 58% year.
Gregory Smith: Yeah, so I want to say roughly 45% of the memory revenue that we had was tied in the first quarter to HBM. [inaudible] Yes, I'll take the... So, Krish, one quick comment. The 5x comment about HBM was referring to the market size for HBM memory. So, last year it was about $100 million of TAM for HBM. This year, we think it's about $500 million worth of TAM for HBM. Our revenue is not going to go up by a factor of 5.
Sanjay Mehta: On year increase in that space.
Sanjay Mehta: I'm expecting to see.
Sanjay Mehta: Rose above the aggregate growth for large accounts in 2024, so thats going to be a growth driver through the end of the year, So with that I'll pass it off to Sanjay that gives you a sort of the precise the precise breakdowns sure. Thanks, Craig So roughly the first half of the year, while first as Greg noted we expect to.
Sanjay Mehta: Grow sequentially in Q2, and we expect to grow throughout the year for the reasons, Greg just noted, but the first half we have.
Sanjay Mehta: 42% ish, plus or minus and then 58% in the back half of the year we.
Sanjay Mehta: We do expect to be profitable this year.
Sanjay Mehta: I would say over the year and I would say that that would be single digit profitability.
Sanjay Mehta: We'll comment I think you asked about Q1, we were we were not profitable just given the seasonality of the.
Sanjay Mehta: The quarter.
Gregory Smith: It's going to go up, it's going to go up significantly, but we're not going to be able to hold sort of the 50-ish percent share of HBM that we had last year. Are we over-indexed to one customer?
Sanjay Mehta: That should give you the context I think that Youre right.
Speaker Change: Yes. Thank you thanks for taking my questions.
Speaker Change: Okay.
Speaker Change: Thank you next question comes from the line of Krish Shankar with TD Cowen. Please go ahead.
Krish Sankar: Hi, Thanks for taking my question I had a couple of them first one on the memory side and how much of your memory revenue was from <unk> in the March quarter, and I think funding you mentioned engineering revenues could grow feedbacks.
Krish Sankar: The thing that I'm kind of curious are you over indexed to one customer because my understanding is of the three <unk> customers one of them and sources.
Gregory Smith: Well, the entire world is significantly over-indexed to one supplier in HBM, and that certainly has been driving our results to a great degree both last year and will continue to drive our results this year. The other suppliers that are coming online, one of them is primarily internally based for testing. We don't have any of that baked into our plan, although we think that they would be better off using our equipment. We haven't convinced them of that yet, though.
Krish Sankar: Within the other two can you just talk a little bit about your share position there and then a follow up.
Speaker Change: So I'll take the I'll take the first one on the on the memory in the quarter, yes, So I want to say.
Speaker Change: Roughly about 45% of the of the memory revenue that we had was tied in the first quarter two to HBM.
Speaker Change: <unk>.
Speaker Change: We have it.
Speaker Change: Over indexed to one customer, yes, I'll take that so.
Speaker Change: Chris One one quick comment.
Speaker Change: The <unk> comment about HBM was referring to the market size for HBM memory. So last year was about $100 million of Tam for <unk>. This year, we think it's about $500 million worth of Tam for HBM.
Gregory Smith: And the other supplier in this space is a great customer of ours, although our share there is lower than our share of the leader in this space right now. So that's another reason that we expect to dilute our share a little bit this year. The other point that I'll make is that I like our chances in terms of getting into new insertions for HBM memory this year. I think that that's an important point, and we are hopeful that that's going to be delivering significantly higher revenue for us through the midterm. Very helpful; very helpful.
Speaker Change: Our revenue is not going to go up by a factor of five it's going to go up it's going to go up significantly, but it's it's not we're not going to be able to hold sort of 50 ish 50 ish percent share of HBM that we had last year.
Speaker Change: Are we over index to one customer well the entire world is significantly over index to one supplier in HBM and that certainly has been driving our results.
Speaker Change: To a great degree both last year, and we will continue to drive our results this year.
Speaker Change: The other suppliers that are coming online one of them is.
Speaker Change: <unk>.
Speaker Change: Is primarily internally based for test, we don't have any of that baked into our plan, although where we think that they would be better off using our equipment. We haven't convinced some of that yet and the other the other supplier in this space is as.
Krish Sankar: And then just a quick follow-up. You spoke about your revenue trajectory. So there you said, you know, September should be similar to June and then growth in 4Q. I'm curious because that seems to be against normal seasonality.
Speaker Change: Is a great customer of ours, although our share there is lower than our share in the leader in this space right. Now. So that's another reason that we expect to dilute our share a little bit this year. The other point that I'll make is.
Gregory Smith: So what's the deviation this year? Yeah, an interesting question. I'd say that, you know, I remember several years back when we talked about us being going into a downturn, and that downturn was four to six quarters. And the downturn has gone on a lot longer in the way of mobility. And as Greg noted, you know, we believe that we've, our forecast considers mobility at a point where we feel comfortable that it's going to be achieved.
Speaker Change: I was.
Speaker Change: Saying that we like our chances in terms of getting into new insertions or HBM memory. This year I think that that's a that's an important point and we are hopeful that thats going to be delivering.
Speaker Change: Significantly higher revenue for us through the mid term.
Speaker Change: Very helpful. Very helpful. And then just a quick follow up you spoke about your revenue trajectory through the year you said.
Speaker Change: September should be similar to June and then growth in <unk>. Thank you because that seems to be against normal seasonality or whats the deviation of this year.
Gregory Smith: And so I think as things pick back up, you know, the historical seasonality, I just, you know, I put it in the context of, you know, some segments are, are, are, are going to be recovering. And we have some new segments that are, or some segments that are growing fairly well. So I think the seasonality comment with regard to the test perspective, or test portfolio of businesses we have, is a little bit off this year. Well, I think there's just one additional bit of color.
Speaker Change: Yes interesting question I would say that.
Speaker Change: I remember several years back where we talked about we were going into a downturn in that downturn was four to six quarters and the downturn has gone a lot longer in the way of mobility.
Speaker Change: And as Greg noted, we believe that we've we've.
Gregory Smith: Our forecast considers mobility at at a point, where we feel comfortable that it's going to be achieved.
Gregory Smith: So I think as things pick back up.
Speaker Change: The historical seasonality I just put it in the context of some segments are.
Speaker Change: Are going to be recovering and we have some new segments that are or some segments that are growing.
Speaker Change: Fairly well, so I think the seasonality comment with regards to the test perspective.
Gregory Smith: If you think about the seasonality pattern that we developed really, you know, for a decade, 2010 through 2021, that seasonality, if you looked at all of our segments, with the exception of mobile, there wasn't, there wasn't a really marked seasonality, you know, like the automotive, compute, industrial, they kind of chugged along. The seasonality was really driven by the mobile tamp, and that was driven by consumer buying behavior, right, that you needed to have things for the holiday season, both, you know, and for the Lunar New Year, that all of that inventory needed to be built up. And so there was a concentration of capacity that would go in during Q2 and Q3. With mobile not driving right now, the seasonality is very, very muted.
Speaker Change: <unk> portfolio of businesses, we have.
Speaker Change: It's a little bit off this year.
Speaker Change: I think there is a this is Greg just one additional bit of color.
Gregory Smith: If you think about the seasonality pattern that we developed really.
Gregory Smith: For a decade on 2010 through 2021.
Speaker Change: That seasonality if you looked at all of our segments with the exception of mobile there wasn't.
Gregory Smith: There wasn't a really marked seasonality.
Gregory Smith: Like those automotive compute industrial they kind of chugging along the seasonality.
Gregory Smith: Analogy was really driven by the mobile Tam and that was driven by consumer buying behavior right that you needed to have things for the for the holiday season both.
Gregory Smith: And.
Gregory Smith: For lunar new year that all of that inventory needed to be built up and so there was a concentration of capacity that would go in in Q2 and Q3 with mobile not.
Gregory Smith: Not driving right now the seasonality is very very muted. So I would expect to see that the seasonality return once the mobile market is stronger, but I don't think you can use normal patterns to predict the way things will look in 'twenty four.
Gregory Smith: So I would expect to see seasonality return once the mobile market is stronger, but I don't think you can use normal patterns to predict the way things will look in 24. Got it, got it. Very helpful. Thank you. Next question comes from the line of Joe Moore. Morgan Stammy: Great, thank you.
Speaker Change: Got it got it very helpful. Thank you very much.
Speaker Change: Thank you next question comes from the line of Joe Moore with Morgan Stanley. Please go ahead.
Joseph Moore: Great. Thank you I Wonder if you could talk to.
Joseph Moore: I wonder if you could talk about the smartphone issues that you just mentioned away from your biggest customer. We sort of saw the smartphone suppliers reduce balance sheet inventory by 15-20 days in Q4, and they talked about doing that again in Q1. So I would expect you to have low visibility, but shouldn't you get some recovery as they stop depleting that much inventory? Is there any kind of nuance in terms of how much of that inventory has been tested already and will die back, things like that?
Joseph Moore: Smartphone issues that you just mentioned.
Joseph Moore: Away from your biggest customer.
Joseph Moore: You sort of saw the smartphone suppliers reduce balance sheet inventory by 15 to 20 days in Q4.
Joseph Moore: And then you talked about doing that again in Q1.
Joseph Moore: So I would expect you to have low visibility, but couldnt you get some recovery as they start completing that much inventory is there any kind of nuance in terms of how much of that inventory has been tested already in diabetic things like that.
Joseph Moore: But shouldn't we have some optimism that this is gonna get better? Well, I think we certainly have optimism that it can get better, and that's basically because we've dialed in the bottom. The way we do this is we typically will look at tester utilization numbers, and frankly, those numbers are all over the map.
Joseph Moore: But shouldnt.
Joseph Moore: Couldnt, we have some optimism that this is going to get better.
Joseph Moore: Well I think we certainly have optimism that it can get better and thats basically because we've dialed in the bottom.
Joseph Moore: The.
Joseph Moore: And.
Joseph Moore: The way we do this is we typically will look at.
Joseph Moore: Tester utilization numbers and frankly those numbers are all over the map. Some indicators show that that capacity is tightening other indicators are showing that it's relatively I think utilization is is tightening others showed that it's relatively flat our qualitative checks when we are talking to people in the.
Gregory Smith: Some indicators show that capacity is tightening, while others show that utilization is tightening, and others show that it's relatively flat.
Gregory Smith: Our qualitative checks, when we talk to people in the ecosystem, they tell us that utilization is getting tighter, and it's forecast to go up from there. The thing that that hasn't done is it hasn't turned into a firm forecast for additional business, and there is a fair amount of – I think the lack of visibility that we see, it runs all the way through the supply chain, that people are wondering what's going to happen.
Joseph Moore: In the ecosystem they are.
Joseph Moore: They are telling us that capacity is.
Joseph Moore: Utilization is getting tighter and it's forecast to get even it's forecast to go up from there. So the thing that that hasnt done it as it hasnt turned into firm forecast for additional business and there is a fair amount of.
Joseph Moore: I think the lack of visibility that we see it runs all the way through the supply chain.
Joseph Moore: People are wondering what's going to happen people are wondering how well handset sales will recover and I think it's it's really going to come down to the way that the holiday season demand is shaping up thats the thing thats going to be the lever that either turns on some additional spot buys or will.
Gregory Smith: People are wondering how well handset sales will recover, and I think it's really going to come down to the way that the holiday season demand is shaping up. That's the thing that's going to be the lever that either turns on some additional spot buys or will have people waiting until 2025. Very helpful context
Joseph Moore: Have people waiting until 2025.
Speaker Change: That's very helpful context, thank you.
Joseph Moore: Thank you. Thank you. The next question comes from the line of Brian Chin. Hi there.
Speaker Change: Thank you next question comes from the line of Brian Chin with Stifel. Please go ahead.
Brian Chin: Thanks for taking the questions. Just to clarify, maybe firstly, the third quarter pull-in, was that for AI, for computers, for memory, or for both? Just to be clear, your share of the $200 million memory TAM increase, should we think about that being closer to, say, you know, 40% if the emphasis is on wafer sort? And kind of sorry, one more part to this, but I didn't catch this earlier, but if HBM demand is biased to a single customer, do you expect memory sales to be lumpy this year, kind of from a quarterly perspective? I'll take the...
Brian Chin: Hi, there thanks for taking the questions.
Brian Chin: Just to clarify maybe firstly with the third quarter, Poland was that for AI computer for computer for memory or for both.
Brian Chin: Just to be clear.
Brian Chin: Your share of the 200 million memory Tam increase is it should we think about that being closer to say, 40% is the emphasis is on wafer sort.
Speaker Change: And kind of sorry, one more part to this but.
Brian Chin: I didn't catch this early but at HB and demand is biased to a single customer do you expect memory sales to be lumpy. This year kind of from a quarterly perspective.
Brian Chin: Yeah.
Brian Chin: I'll take the.
Brian Chin: I'll take the kind of the.
Brian Chin: Q3 to Q2.
Brian Chin: It was I'd say, mainly in compute and.
Gregory Smith: I'll take the Q3 to Q2. It was, I'd say, Meili and Compute and some ADAS, but it was accelerated when I was looking up something. Oh yeah, so in terms of the TAM increase, we've moved the TAM up by $200 million, and I think your guess of 40 million is a bit low. I think we'll be up a bit more than that, probably in line with our historical share level, you know, kind of 35 to 40% of that TAM increase should probably go to us.
Brian Chin: And some aid us but was.
Brian Chin: It accelerated.
Brian Chin: Okay.
Brian Chin: Yeah.
Brian Chin: Okay.
Brian Chin: <unk>.
Brian Chin: Looking up something.
Brian Chin: Yes, so in terms of the Tam increase.
Brian Chin: We moved the Tam up by two.
Brian Chin: $200 million.
Brian Chin: And I think.
Brian Chin: I think your guess of $40 million is a bit low I think will be up a bit more than.
Brian Chin: We will get a larger chunk of that up then than that probably in line with our historical share level kind of 35% to 40% of that Tam increase should probably go to us in terms of lumpy sales no I think actually the memory businesses.
Gregory Smith: In terms of lumpy sales, no, I think actually the memory business is driving, you know, that we have deliveries that will be stretching out through the year. And I think the demand is relatively steady and potentially increasing. So I think on a quarterly basis, we don't expect a lot of memory variation. And then, you know, switching gears to robotics, it seems like your omni-channel and new product focus is driving a lot of this improved momentum in that business, but can you also just touch on the broader environment you're seeing in robotics? And where, if any, do you see sort of macro-like headwinds or tailwinds?
Brian Chin: Driving.
Brian Chin: We have we have deliveries that will be stretching out through the year and I think that demand is relatively steady and potentially increasing so I think on a quarterly basis, we don't expect a lot of memory variation.
Brian Chin: Okay.
Speaker Change: Okay. That's helpful.
Speaker Change: And then switching.
Speaker Change: Switching gears to robotics.
Speaker Change: It seems like your omni channel and new product focus is driving a lot of this.
Speaker Change: <unk> momentum in that business, but can you also just touch on the broader environment Youre seeing in robotics.
Speaker Change: And where if any you see sort of macro like headwinds or <unk>.
Brian Chin: And the last part of that, you know, what vertical or application was that customer that placed the record mirror order? And did that include any of the mirror 1200s? Okay, so in terms of the macro environment, it's pretty weak. I mean, it was weak throughout 2023, and we don't see any significant improvement right now in terms of end market conditions. If you look at PMIs, some regions are clicking up slightly, but we haven't really seen that turn into a hot market.
Speaker Change: And last part of that.
Speaker Change: What vertical or application was that customer that placed the record mirror order and did that include any of the mid two hundreds.
Speaker Change: Okay. So.
Speaker Change: In terms of the macro environment.
Speaker Change: Pretty weak it was weak throughout 2023 and we.
Speaker Change: We don't see a significant improvement right now in terms of the end market conditions. If you look at Pmi's. They some regions are clicking up slightly but we haven't really seen that turned into like a hot market, having said that we are.
Brian Chin: Having said that, we are in a part of the robotics market that has very, very low penetration. And so we're not, and we have seen our business results vary with macro conditions. And we think that that is indicative of the, that was one of the things that drove us to make the changes in terms of adding new products and driving channel development because we think we're 5% of the way into something that could be huge. And if we are, if that's the case, then we should be somewhat immune to these cycles.
Speaker Change: Yeah.
Speaker Change: We're in a part of the robotics market that is very very low penetration.
Speaker Change: And so we are not.
Speaker Change: We have seen our business results vary with the macro conditions and we think that that is indicative of the.
Speaker Change: That was one of the things that drove us to go make the changes in terms of adding new products and driving channel development. Because we think were 5% of the way into something that could be huge and if we're if that's if that's the case then we should be somewhat immune to these cycles, but if you look we've been looking at.
Gregory Smith: But if you look, we've been looking at, like, industrial robot competitors, and their results this quarter have been pretty meager, especially if you look at their incoming order rates, which are more comparable. They have long lead times. We have short lead times. So it's better for us to compare their orders to our orders. We feel like we are doing far better than they are in these end market conditions. But we're really focused on kind of controlling our own destiny by finding the things that need support, even when the end market is... One thing that I'll say is that, when I look at other sorts of industrial analyst notes and talk to people in that space, they are expecting improved strength. Like they think that things are going to get better, not worse.
Speaker Change: Light industrial robot competitors.
Speaker Change: And their their results this quarter have been pretty meager like especially if you look at their incoming order rates, which is more comparable.
Speaker Change: Long lead long lead times, we have short lead times, so it's better for us to compare their orders to our orders we feel like we are doing far better than they are in these end market conditions.
Speaker Change: But we're really focused on kind of controlling our own destiny by finding the things that need need support even windsor and marketed.
Speaker Change: One thing that I'll say is looking at other sort of industrial analysts notes and talking to people in that space.
Speaker Change: We are expecting.
Speaker Change: Improved strength.
Speaker Change: They think that things are going to get better not worse. So I'm optimistic that we're going to have some macro tailwind. In addition to the the plan that we baked.
Gregory Smith: So I'm optimistic that we're going to have some macro tailwinds in addition to the plan that we baked that's kind of counting on things staying around where they are. All right, great. Thank you. Thank you. The next question comes from the line of...
Speaker Change: Counting on things staying around where they are.
Speaker Change: Alright, great. Thank you.
Cost Matured: Thank you next question comes from the line of cost matured with Northland Capital. Please go ahead.
Gregory Smith: Yes, thanks for taking my question, and congratulations on the results. On industrial automation, you've got a partnership with NVIDIA on AI, and sort of one of the limiters to penetration is the lack of a VAR channel, having to have to work with people to implement this stuff. Does multimodal AI or AI in general sort of simplify the implementation?
Cost Matured: Yes, Thanks for taking my question and congratulations on the results.
Cost Matured: On the industrial automation and better partnership with Nvidia on AI and sort of one on limon turns to penetration is the lack of a var channel having to have to work with people to implement this stuff does multimodal AI or AI in general sort of simplify the implementation can.
Gregory Smith: Can you... simplify the programming implementation of robotics with that infusion of AI? Yes, so for sure. The great thing about AI is that there are two primary benefits to AI. One is that it's far easier to design a solution that is able to deal with variation, you know, whether it's part variation or location variation or other uncertainties that exist in normal manufacturing environments. The solutions end up being far more resilient, so that means that more people would be willing to adopt them.
Cost Matured: <unk>.
Cost Matured: Simplify the programming implementation of robotics with with that infusion of AI.
Speaker Change: Yes, so for sure.
Cost Matured: <unk>.
Cost Matured: The great thing about AI, there are two primary benefits to AI.
Cost Matured: One is that it's far easier to design a solution that is.
Cost Matured: Able to deal with variation, whether it's part variation or location variation or other other uncertainties that exist in normal manufacturing environments. The solutions end up being far more resilient. So that's that means that more people would be willing to adopt that looks like they people don't want to put fragile things into production.
Gregory Smith: It's like people don't want to put fragile things into production, and AI will help make things more robust. The simplicity of developing things is definitely a huge benefit of AI. So, the demonstration that we did at GTC was a pretty sophisticated visual inspection application. And because we were leveraging a really powerful AI stack from NVIDIA, we were able to put that together in less than two weeks. It was a very fast turnaround to be able to build that solution.
Cost Matured: And AI will help make things more robust.
Cost Matured: The ease the simplicity of developing things is definitely a.
Cost Matured: Huge benefit of AI so.
Cost Matured: The demonstration that we did at GTC.
Cost Matured: <unk> was a pretty sophisticated visual inspection application and because we were leveraging a really powerful AI stack from Nvidia, we're able to put that together in less than two weeks.
Cost Matured: It was a very fast turnaround to be able to build that solution and we expect that both customers and customers and especially solution providers are going to be able to leverage that and create.
Gregory Smith: And we expect that both customers and customers, and especially solution providers, are going to be able to leverage that and create solutions to categories of problems that will help drive growth. Got it, thanks. And then on the semi-test side, you've got sort of, it's gonna be a while before we get to two nanometers. Yields at three, I don't think we're that great.
Cost Matured: Solutions to categories of problems that will help drive growth.
Speaker Change: Got it thanks, and then on the semi test side you've got.
Speaker Change: It's going to be a while before we get to two nanometers yields at three I don't think were to that great.
Speaker Change: And the AI accelerators or reticle limited.
Speaker Change: How are you seeing the.
Speaker Change: Expansion of use of Kip lids sort of beyond AI accelerators, and servers and FPGA is that beginning to broaden out.
Gregory Smith: And the AI accelerators are relatively limited. You know, how are you seeing the... (inaudible) Not really. I mean, the, the, well, one thing is that most of the advanced packaging capacity in the world has been consumed by the people who are doing cloud AI, and high-performance computing. So there's a, you know, there's more demand than there is supply for it. So I think that's limiting it to the markets that are willing to pay the most for the ability to do so.
Speaker Change: Not really I mean.
Speaker Change: Well one thing is that.
Speaker Change: Most of the advanced packaging capacity in the World has been consumed by the people who are doing cloud AI and high performance computing. So there is.
Speaker Change: There's more demand than there is supply for it so I think thats limiting it to the markets that are willing to pay the most for the ability to do it.
Gregory Smith: I think that it's possible that chiplet technology will migrate out of high-performance computing. Potentially, I mean, it could potentially migrate into some mobile applications. I think that's going to be a relatively slow process because the price points are very, very different. And then I think for industrial and automotive AI applications, it's likely to be a long time before you see chiplet technology in there because of the reliability and temperature range issues. It's a much more challenging environment to try and deliver packages.
Speaker Change: I think that it's possible that <unk> technology will migrate out of high performance computing potentially I mean, it could potentially migrate into some mobile applications I think that's going to be a relatively slow process because the price points are very very different and then I think for.
Speaker Change: Industrial and automotive AI applications, it's likely to be a long time before you see chip led technology in there because of the reliability and temperature range questions. It's a much more challenging environment to try and put packages, but that's that's kind of my view I think there that there are people that have.
Gregory Smith: But that's, that's kind of my view. I think there are people that have a more aggressive view in terms of where chiplets will go. Got it. Thanks so much.
Speaker Change: More aggressive view in terms of where chip looks will go.
Speaker Change: Got it thanks, so much.
Speaker Change: Thank you.
Steve Barger: We have time for one last question. The next question comes from the line of Steve Barger with KeyBank Capital Markets. Hey, thanks. I'll be quick.
Speaker Change: Have time for one last question.
Speaker Change: The next question comes from the line of Steve Barger with Keybanc capital markets. Please go ahead.
Steve Barger: Hey, Thanks I'll be quick.
Gregory Smith: Greg, you said share gain opportunities in HBM are good. Is that primarily due to you having capacity to support a fast growing addressable market? Or is there something unique in your current or future testers that will make you a supplier of choice for some variations of HBM? I think it's definitely the latter, you know.
Steve Barger: Greg you said share gain opportunities in HBM are good is that primarily due to you having capacity to support a fast growing addressable market or is there something unique in your current or future test years that will make you a supplier of choice for some variations of HBM.
Steve Barger: I think it's definitely the latter so we have we believe we have a differentiated solution. Both in terms of ability to support data rates out through HBM four and also in terms of being able to use the same platform across multiple insertions.
Gregory Smith: So we have, we believe we have a differentiated solution both in terms of ability to support data rates out through HBM4 and also in terms of being able to use the same platform across multiple insertions. So we think that we have an ability to deliver more cost-effective performance tests of HBM and we believe that we're going to, we're going to make some progress there. And for the large account channel in robotics, you said there's a gestation time before revenue. Was this largest ever mirror order a function of work done prior to the pivot, or did it come after?
Steve Barger: We think that we have an ability to deliver more cost effective performance test of HBM and we believe that we're going to we're going to make some progress there.
Speaker Change: Understood and for the the large account channel in Robotics, you said there is a gestation time before revenue was this largest ever mirror order a function of work prior done to the pivot or did it come after.
Gregory Smith: And then to your point about being more immune to cycles, is that just because large accounts are more likely to invest through cycles and are less swayed by near-term conditions? Yeah, so let me take the large account question first. I need to apologize to Brian because I didn't answer his question before. So the largest order that we've ever gotten from MIR came from an automotive customer, and it is also our historically largest customer for MIR.
Speaker Change: And then to your point about being more immune to cycles is that just because large accounts are more likely to invest through cycles and are less swayed by near term conditions.
Speaker Change: Yes, So let me let me take the.
Speaker Change: The large account question first in and I need to apologize to Brian because I Didnt answer his question before so the largest order that we've ever gotten from mirror. It came from an automotive customer.
Speaker Change: And it is also our historically largest customer for <unk>.
Gregory Smith: By no coincidence, it's also a significantly large customer for UR. So we have been selling them robots for a long time. The one thing that has happened since we established our large account effort is that we've been applying many of the strategic account management techniques that we've been using for decades in semiconductor tests towards addressing those accounts and really organizing ourselves around the way that those large accounts acquire new equipment and also how to take care of the equipment that they have.
Speaker Change: Bye Bye no coincidence. It is also a significantly large customer for you or so we have been selling them robots for a long time. The one thing that has happened since we.
Speaker Change: Since we established our large account effort is that we've been applying.
Speaker Change: Many of.
Speaker Change: The strategic account management techniques that we've been using for decades in semiconductor test towards addressing those accounts and really organizing ourselves around the way that those large accounts acquire new equipment and also how to take care of the equipment that they have.
Gregory Smith: So I think it's certainly an account that predated that effort, but I think our ability to serve that account has improved with this effort. And then, just about being more immune to cycles, is that because large accounts will invest through cycles, and so that pivot will make you less cyclical yourself?
Speaker Change: So I think it's certainly an account that predated that effort, but I think our ability to serve that account has improved with this effort.
Speaker Change: And then just about being more immune to cycles is that because large accounts will invest through cycles, and so that pivot will make you less cyclical yourself.
Gregory Smith: I think, actually, the large accounts may be the segment that will continue to be sensitive to end market conditions because large accounts will work off of budgets, and if they don't provide budgets for automation, then those purchases won't happen. The thing that we're really trying to do is [inaudible] Make sure that we are adding enough new opportunities. to drive growth, even if end market conditions are weak. So a key part of this is being able to find, and um, Binding, and serve customers that have these problems.
Speaker Change: I think actually the large accounts may be the segment that has.
Speaker Change: That will continue to be.
Speaker Change: Sensitive to end market conditions, because large accounts will work off a budget budgets and if they don't provide budgets for automation then that those purchases wont happen.
Speaker Change: The thing that we're really trying to do is.
Speaker Change: Make sure that we are adding enough.
Speaker Change: Enough new opportunities.
Speaker Change: <unk>.
Speaker Change: Two.
Speaker Change: Drive growth, even if end market conditions are weak. So a key part of this is being able to find.
Speaker Change: And.
Speaker Change: Finding and serve customers that have these problems we have.
Gregory Smith: We have 95% of this market that is as yet unserved. So, there is plenty of opportunity, and the key thing that we're trying to do is to pick our shots, pick the specific industry verticals and the specific applications that are likely to be driving growth independent of the aggregate macro conditions.
Speaker Change: 95% of this market that is as you get unserved. So.
Speaker Change: There is plenty of opportunity and the key thing that we're trying to do is to pick our shots pick the specific industry verticals and the specific applications that are likely to be driving growth independent of the aggregate macro conditions.
Gregory Smith: I understand. Thanks very much. Thank you. Ladies and gentlemen, we have reached the end of the question and answer session. I would now like to turn the floor over to Traci. Thank you all for joining us this morning for our first quarter earnings call. We look forward to being in touch with you all through the course of the quarter. Thank you. Good day. Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Speaker Change: Understood Thanks very much.
Traci Tsuchiguchi: Thank you ladies and gentlemen, we have reached the end of our question and answer session I would now like to turn the floor over to Tracy switch Gucci for closing comments.
Traci Tsuchiguchi: Great. Thank you all for joining us this morning for our first quarter earnings call and look forward to being in touch with you I'll ask a good question Macquarie. Thank you.
Traci Tsuchiguchi: Sure.
Tracy: Thank you. This concludes today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation.