Q2 2024 Teradyne Inc Earnings Call

Question.

The question and answer session will follow the formal presentation.

Speaker Change: If anyone should require operator assistance during the conference, please press the star key followed by the number zero on your telephone keypad.

Speaker Change: Please note that this conference is being recorded.

Speaker Change: I'd like to turn the conference over to Traci Tsuchiguchi. Please go ahead ma'am.

Traci Tsuchiguchi: Thank you. 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. Following our opening remarks, we'll provide details of our performance for the second quarter of 2024 and our outlook for the third quarter of 2024. The press release containing our second quarter results with issues last evening. We are providing slides as well as a copy of this earning script on the investor page of the Teradyne website that may be helpful in following the discussion.

Traci Tsuchiguchi: Thank you. Good morning, everyone, and welcome to our discussion of Teradyne's most recent financial results.

Speaker Change: I'm joined this morning by our CEO , Greg Smith, and our CFO , Sanjay Mehta.

Speaker Change: Following our opening remarks, we'll provide details of our performance for the second quarter of 2024 and our outlook for the third quarter of 2024. The press release containing our second quarter results was issued last evening.

Speaker Change: We are providing slides as well as a copy of this earnings script on the investor page of the Teradyne website that may be helpful in following the discussion.

Traci Tsuchiguchi: Replays of this call will be available on the same page after the call ends. The matters we discuss today will include forward-looking statements that involve risk factors that could cause Teradyne's results to differ materially from management's current expectations. We caution listeners not to place undue reliance on any forward-looking statements included in this presentation.

Speaker Change: Replays of this call will be available via the same page after the call ends.

Speaker Change: The matters we discuss today will include forward-looking statements that involve risk factors that could cause Teradyne's results to differ materially from management's current expectations.

Speaker Change: We caution listeners not to place under-reliance on any forward-looking statements included in this presentation. We encourage you to review the Safe Harbor Statement contained in the slides accompanying this presentation, as well as the risk factors described in our annual report on Form 10-K filed with the SEC.

Traci Tsuchiguchi: We encourage you to review the Safe Harbor Statement contained in the slides accompanying this presentation, as well as the risk factors described in our annual report on Form 10-K, filed with the SEC. Additionally, these forward-looking statements are made only as of today. During today's call, we will refer to non-GAAP financial measures. We have posted additional information concerning these non-GAAP financial measures, including reconciliation to the most directly comparable GAAP financial measures, where available, on the investor page of our website.

Speaker Change: Additionally, these four licking statements are made only as of today.

Speaker Change: During today's call we refer to non-GAAP financial measures.

Speaker Change: We have posted additional information concerning these non-GAAP financial measures, including reconciliation to the most directly comparable GAAP financial measures, where available on the investor page of our website.

Traci Tsuchiguchi: Looking ahead between now and our next earnings call, Teradyne expects to participate in technology and industrial-focused investor conferences hosted by KeyBank, Evercore, Jefferies, Citigroup, and Goldman Sachs. Following Greg and Sanjay's comments this morning, we'll open up the call for questions. This call is scheduled for one hour.

Speaker Change: Looking ahead, between now and our next earnings call, Teradyne expects to participate in technology and industrial-focused investor conferences hosted by KeyBank, Evercore, Jefferies, Citigroup, and Goldman Sachs.

Speaker Change: Following Greg and Sanjay's comments this morning, we'll open up the call for questions. This call is scheduled for one hour. Greg?

Gregory Smith: Thank you, Traci. Good morning, everyone, and thanks for joining us. Today, I will summarize our second quarter results and discuss the trends we are seeing in the semiconductor and advanced robotics industry. Then Sanjay will go into more depth about our second quarter results and forward-looking guidance. At a high level, the market dynamics that we identified in our April earnings call have continued through the second quarter. Cloud AI is driving strong demand across the SoC and memory test market.

Gregory Smith: Thank you, Traci. Good morning, everyone, and thanks for joining us. Today, I will summarize our second quarter results and discuss the trends we are seeing in the semiconductor and advanced robotics industries.

Speaker Change: Then Sanjay will go into more depth about our second quarter results and forward-looking guidance.

Sanjay Mehta: At a high level, the market dynamics that we identified in our April earnings call have continued through the second quarter.

Speaker Change: Cloud AI is driving strong demand across the SoC and memory test markets.

Gregory Smith: We have accelerated engineering and sales investments to continue to improve our market position, drive share, and increase our ability to deliver long-term, sustainable growth. However, outside of compute and memory, all other major test markets, including mobile, continue to be soft.

Speaker Change: We have accelerated engineering and sales investments to continue to improve our market position, drive share, and increase our ability to deliver long-term, sustainable growth.

Speaker Change: Outside of compute and memory, all other major test markets, including mobile, continue to be soft.

Gregory Smith: Robotics has delivered on plan results in a weak macro environment, and we continue to expect incremental growth each quarter of this year, focusing on Q2.

Speaker Change: Robotics has delivered on-plan results in a weak macro environment and we continue to expect incremental growth each quarter of this year.

Gregory Smith: We delivered second 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, primarily driven by AI applications. Continuing the trend we noted in the first quarter, cloud AI demand drove compute revenue with considerable strength in networking devices. AI enabled data centers have a very high number of network connection points to sustain to support training large language models, which is changing the mix in this segment to include more networking.

Speaker Change: Focusing in on Q2.

Speaker Change: We delivered second 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, primarily driven by AI applications.

Speaker Change: Continuing the trend we noted in the first quarter, cloud AI demand drove compute revenue with considerable strength in networking devices.

Speaker Change: AI-enabled data centers have a very high number of network connection points to support training large language models.

Gregory Smith: Our historic strength in networking combined with shipments to support a vertically integrated producer, or VIP, resulted in compute revenue in the first half of 2024 exceeding all of our compute revenue in 2023. We currently expect that Teradyne's SoC revenue from the compute end market will be on par with mobile revenue this year. In memory, AI-driven HBM DRAM demand remains strong.

Speaker Change: which is changing the mix in this segment to include more networking silicon.

Speaker Change: Our historic strength in networking combined with shipments to support a vertically integrated producer, or VIP, resulted in compute revenue in the first half of 2024 exceeding all of our compute revenue in 2023.

Speaker Change: We currently expect that Teradyne's SoC revenue from the compute end market will be on par with mobile revenue this year.

Speaker Change: In memory, AI-driven HBM DRAM demand remains strong. We are now seeing AI-driven servers pulling demand across a broader range of memory, including enterprise SSD NAND flash.

Gregory Smith: We are now seeing AI-driven servers pulling demand across a broader range of memory, including enterprise SSD NAND flash. We are also seeing memory demand for the mobile market, with strength in LPDDR and continuing retooling to support the latest protocol-based mobile flash memory technology. As a result, our memory business has grown nearly 30% in the first half of 2024 compared to the first half of 2023. While we are not changing our estimated memory TAM expectation for the year, we expect that the market is trending towards the upper end of our $1.2 to $1.3 billion forecast. Moving on to Q3, the positive impact of AI on tests is expected to continue into the third quarter.

Speaker Change: We are also seeing memory demand for the mobile market with strength in LPDDR and continuing retooling to support the latest protocol based mobile flash memory technologies.

Speaker Change: As a result, our memory business has grown nearly 30% in the first half of 2024 compared to the first half of 2023.

Speaker Change: While we are not changing our estimated memory TAM expectation for the year, we expect that the market is trending towards the upper end of our $1.2 to $1.3 billion forecast.

Speaker Change: Moving on to Q3.

Speaker Change: The positive impact of AI on test is expected to continue into the third quarter. However, a meaningful uptick in other end markets, including legacy auto and industrial, may not occur until the 2025 time frame.

Gregory Smith: However, a meaningful uptick in other end markets, including legacy auto and industrial, may not occur until the 2025 timeframe. As a result, at the company level, for the full year, we continue to expect low single-digit revenue growth in 2023. As a reminder, excluding the impact of the sale of DIS to Technoprobe, our 2024 revenue growth would have been a couple of percentage points higher. Now turning to robotics.

Speaker Change: As a result, at the company level, for the full year, we continue to expect low single-digit revenue growth from 2023.

Speaker Change: As a reminder, excluding the impact of the sale of DIS to Technoprobe, our 2024 revenue growth would have been a couple of percentage points higher.

Gregory Smith: Despite a weak macro environment, our advanced robotics business grew sequentially from Q1 to Q2. Looking at the first half of 2024, we grew 11% compared to the first half of 2023. We estimate that traditional players in the automation space have seen sales actually decline in the range of 5 to 7% over the same period.

Speaker Change: Now turning to robotics. Despite a weak macro environment, our advanced robotics business grew sequentially from Q1 to Q2.

Speaker Change: Looking at the first half of 2024, we grew 11% compared to the first half of 2023.

Speaker Change: We estimate that traditional players in the automation space have seen sales actually decline in the range of five to seven percent over the same period.

Gregory Smith: We are executing a three-pronged growth strategy for our advanced robotics business: Sam Expansion, Channel Transformation, and Recurring Services and Software. In the second quarter, we have made progress in all three areas. First, SAM expansion. Our new high payload cobots, the UR20 and UR30, began shipping late last year. In Q2 of 2024, these products represented over 20% of UR sales. The new AI-powered MIR-1200 Pallet Check was announced in the first quarter and will begin shipments in Q4 of this year.

Speaker Change: We are executing a three-pronged growth strategy for our advanced robotics business. SAM expansion, channel transformation, and recurring services and software.

Speaker Change: In the second quarter, we have made progress in all three areas.

Speaker Change: First, SAM expansion. Our new high payload cobots, the UR20 and UR30, began shipping late last year. In Q2 of 2024, these products represented over 20% of UR sales.

Speaker Change: The new AI-powered MIR-1200 pallet jack was announced in the first quarter and will begin shipments in Q4 of this year.

Speaker Change: This product includes a market-leading pallet detection solution developed in collaboration with NVIDIA and has been well-received by target manufacturing and logistics customers, resulting in significant backlog for Q4 shipment.

Gregory Smith: This product includes a market-leading pallet detection solution developed in collaboration with NVIDIA and has been well-received by target manufacturing and logistics customers, resulting in a significant backlog for Q4 shipments. Our highest priority in our robotics go-to-market transformation is the development of an OEM solutions channel for UR. We have seen that customers purchasing Cobot-based solutions from these partners get into production more quickly and have fewer problems than customers that build their own solutions or rely upon an integration partner. There are two aspects to the OEM channel strategy.

Speaker Change: Our highest priority in our robotics go-to-market transformation is the development of an OEM solutions channel for UR.

Speaker Change: We have seen that customers purchasing Cobot-based solutions from these partners get into production more quickly and have fewer problems than customers that build their own solutions or rely upon an integration partner.

Gregory Smith: There are two aspects to the OEM channel strategy. The first is signing up new OEM solution partners. In the first half of 2024, we have increased the total number of OEM solutions partners by 8%. Second, we work with these partners to get them to scale, which we define as having an annual revenue run rate above $1 million.

Gregory Smith: The first is signing up new OEM solution partners. In the first half of 2024, we have increased the total number of OEM solution partners by 8%. Second, we work with these partners to get them to scale, which we define as having an annual revenue run rate of above $1 million. Midway through the year, we have nearly as many OEM solution partners that have reached that revenue level as we had in all of 2023.

Speaker Change: There are two aspects to the OEM channel strategy.

Speaker Change: The first is signing up new OEM solution partners. In the first half of 2024, we have increased the total number of OEM solutions partners by 8%.

Speaker Change: Second, we work with these partners to get them to scale, which we define as having an annual revenue run rate above $1 million.

Gregory Smith: Midway through the year, we have nearly as many OEM solution partners that have reached that revenue level as we had in all of 2023. One of our largest revenue OEM partners in the first half of 2024 uses our co-bots in an AI-based logistic solution. Overall, the OEM solutions channel has shown over 70% growth from the first half of 2023 to the first half of 2024. In the second quarter, the OEM channel represented over 30% of UR's revenue.

Speaker Change: Midway through the year, we have nearly as many OEM solution partners that have reached that revenue level as we had in all of 2023.

Gregory Smith: One of our largest revenue OEM partners in the first half of 2024 uses our cobots in an AI-based logistics solution. Overall, the OEM Solutions Channel has shown over 70% growth from the first half of 2023 to the first half of 2024. In the second quarter, the OEM Channel represented over 30% of UR's revenue. Finally, because of the criticality of the processes that our robotics are being used to automate, we saw an opportunity to build a strong service business.

Speaker Change: One of our largest revenue OEM partners in the first half of 2024 uses our cobots in an AI-based logistic solution.

Speaker Change: Overall, the OEM solutions channel has shown over 70% growth from the first half of 2023 to the first half of 2024. In the second quarter, the OEM channel represented over 30% of UR's revenue.

Gregory Smith: Finally, because of the criticality of the processes that our robotics are being used to automate, we saw an opportunity to build a strong service business. In the first half of 2024, we launched managed service offerings at UR and Mere and are beginning to see customer uptake.

Speaker Change: Finally, because of the criticality of the processes that our robotics are being used to automate, we saw an opportunity to build a strong service business.

Gregory Smith: In the first half of 2024, we launched managed service offerings at UR and MIR and are beginning to see customer uptake. On balance, the positive effect of these growth vectors and the challenging demand environment, we are expecting growth towards the low end of this year's target 10 to 20 percent range.

Speaker Change: In the first half of 2024, we launched managed service offerings at UR and MIR and are beginning to see customer uptake.

Gregory Smith: On balance, the positive effect of these growth vectors and the challenging demand environment, we are expecting growth towards the low end of this year's target 10 to 20% range.

Speaker Change: On balance, the positive effect of these growth vectors and the challenging demand environment, we are expecting growth towards the low end of this year's target 10-20% range.

Gregory Smith: Last quarter, I shared the idea that AI would be a transformational, secular growth driver across terror lines businesses. In the first half of 2024, we saw the considerable AI-driven growth in memory, networking, and ramps of vertically integrated producers. But we think that this is just the beginning. We believe that a larger opportunity lies ahead as inference applications and edge AI begins to permeate the mobile and industrial markets. Markets for terrorizing is traditionally strong. We are also already seeing the impact of AI on our robotics business with AI-powered OEM solutions for UR and a strong backlog for AI-enabled Palliject.

Gregory Smith: Last quarter, I shared the idea that AI would be a transformational secular growth driver across Teradyne's businesses. In the first half of 2024, we saw considerable AI-driven growth in memory, networking, and ramps of vertically integrated producers. But we think that this is just the beginning.

Speaker Change: Last quarter, I shared the idea that AI would be a transformational, secular growth driver across Teradyne's businesses.

Speaker Change: In the first half of 2024, we saw the considerable AI-driven growth in memory, networking, and ramps of vertically integrated producers. But we think that this is just the beginning.

Gregory Smith: We believe that a larger opportunity lies ahead as inference applications and edge AI begin to permeate the mobile and industrial end market, markets where Teradyne is traditionally strong. We are also already seeing the impact of AI on our robotics business with AI-powered OEM solutions for UR and a strong backlog for our AI-enabled pallet jack. We believe that we are well positioned as a leading platform for the development of AI-based solutions for manufacturing and logistics.

Speaker Change: We believe that a larger opportunity lies ahead as inference applications and edge AI begins to permeate the mobile and industrial end markets. Markets where Teradyne is traditionally strong.

Speaker Change: We are also already seeing the impact of AI on our robotics business, with AI-powered OEM solutions for UR and a strong backlog for our AI-enabled Pallet Jack.

Gregory Smith: We believe that we are well positioned as a leading platform for the development of AI-based solutions for manufacturing and logistics. We are seeing AI-driven growth now, and we expect AI to be an overarching growth driver for years to come in test and in robotics.

Speaker Change: We believe that we are well positioned as a leading platform for the development of AI-based solutions for manufacturing and logistics.

Gregory Smith: We are seeing AI-driven growth now, and we expect AI to be an overarching growth driver for years to come in testing and in robotics. With that, I'll turn the call over to Sanjay. Sanjay? Thank you, Greg. Good morning, everyone.

Speaker Change: We are seeing AI-driven growth now, and we expect AI to be an overarching growth driver for years to come in test and in robotics. With that, I'll turn the call over to Sanjay. Sanjay?

Sanjay Mehta: With that, I'll turn the call over to Sanjay. Thank you, Greg. Good morning, everyone. Today I'll cover the financial summary of Q2, provide our Q3O book and planning assumptions for the full year. Now to Q2. Second quarter sales were $730 million, which was $5 million above the high end of our guidance, with non-GAAP EPS of 86 cents, which was above our high end guide of 84 cents. Non-gap growth margins were 58.3%. This was above our guidance due to higher volumes and product effects. Non-GAAP operating profit was approximately 22%.

Sanjay Mehta: Today, I'll cover the financial summary of Q2, provide our Q3 outlook, and planning assumptions for the full year. Now, for Q2. Second quarter sales were $730 million, which was $5 million above the high end of our guidance, with non-GAAP EPS of 86 cents, which was above our high end guidance of 84 cents. Non-GAAP gross margins were 58.3%. This was above our guidance due to higher volumes and product; non-GAAP operating profit was approximately 22%. Turning to our revenue breakdown in Q2, Semi-test revenue for the quarter was $543 million, with SoC contributing $414 million, and memory $129 million. Strength, and S.O.C.

Sanjay Mehta: was driven by both compute and mobile. Memory test shipments were driven by technology tooling for the new UFS 4.0 standard in mobility. While the broader auto industry remains sluggish, we benefited from a VIP with a large purchase in this segment, reflecting Edge AI's impact on the auto market. In memory, we continue to expect DRAM to dominate the memory mechs. We have a significant backlog for HVM, enabling strength in a memory market driven by AI. We close the sale of our Device Interface Solutions Business, or DIS, to Technoprobe on May 27. D.I.S.

Sanjay Mehta: Thank you, Greg. Good morning, everyone. Today, I'll cover the financial summary of Q2, provide our Q3 Outlook, and planning assumptions for the full year.

Sanjay Mehta: contributed $16 million to our revenue in the quarter, consistent with our expectations. In the system test group, Q2 revenue was $61 million, with $17 million in storage tests on low SLT and HDD demand. Recall, SLT has high exposure to the smartphone market, and even as HDD end markets begin to recover, tester utilization remains low. In wireless test, revenue was $36 million in Q2, improving as expected due to gaming and the initial ramp of Wi-Fi 7. Now to the robot.

Sanjay Mehta: Now to Q2. Second quarter sales were $730 million, which was $5 million above the high end of our guidance with non-GAAP EPS of $0.86, which was above our high end guide of $0.84. non-GAAP gross margins were 58.3%.

Sanjay Mehta: This was above our guidance due to higher volumes and product specs.

Speaker Change: non-GAAP operating profit was approximately 22%.

Speaker Change: Turning to our revenue breakdown in Q2. Semi-test revenue for the quarter was $543 million, with SOC contributing $414 million, and memory $129 million.

Speaker Change: Strength and SoC was driven by both compute and mobile. Memory test shipments were driven by technology tooling for new UFS 4.0 standard in mobility.

Speaker Change: While the broader auto industry remains sluggish, we benefited from a VIP with a large purchase in this segment reflecting Edge AI's impact on the auto market.

Speaker Change: In memory, we continue to expect DRAM to dominate the memory mix. We have significant backlog for HBM, enabling strength in the memory market driven by AI.

Speaker Change: We close the sale of our Device Interface Solutions Business, or DIS, to Technoprobe on May 27th.

Speaker Change: DIS contributed $16 million to our revenue in the quarter, consistent with our expectations.

Speaker Change: In system test group, Q2 revenue was $61 million, with $17 million in storage tests on low SLT and HDD demand.

Speaker Change: Recall, SLT has high exposure to the smartphone market, and even as HDD end markets begin to recover, tester utilization remains low.

Speaker Change: In wireless test, revenue was $36 million in Q2, improving as expected due to gaming and the initial ramp of Wi-Fi 7.

Sanjay Mehta: For the fourth quarter in a row, we executed to our revenue plan in robotics. Revenue was $90 million, up sequentially, and increased 26% year-over-year. In the quarter, UR contributed $75 million, and MIR contributed $16 million. Given the potential changes in the regulatory environment involving China, we thought it would be helpful to provide some insight into our revenue exposure in that region. Year-to-date, approximately 10% of our total company sales were shipped to China. This includes shipments to domestic and multinational customers. Total sales to indigenous customers were less than 5% in the first half of 2024.

Speaker Change: Now to robots.

Speaker Change: For the fourth quarter in a row, we executed to our revenue plan in robotics. Revenue was $90 million, up sequentially, and increased 26% year over year. In the quarter, UR contributed $75 million, and MIR contributed $16 million.

Speaker Change: Given the potential changes in the regulatory environment involving China, we thought it would be helpful to provide some insight into our revenue exposure in that region.

Speaker Change: Year-to-date, approximately 10% of our total company sales were shipped to China. This includes shipments to indigenous and multinational customers.

Speaker Change: Total sales to Indigenous customers was less than 5% in the first half of 2024.

Sanjay Mehta: This is consistent with the full year of 2023. Our team continues to serve our customers in this market while complying with all regulations, shifting to some parts of Kashmir. At a company level, our free cash flow was $171 million in the quarter. Strong free cash flow in the quarter was primarily driven by earnings and networking capital improvement. We repurchased $8 million of fares in the quarter and paid $19 million in dividends.

Speaker Change: This is consistent with the full year of 2023.

Speaker Change: Our team continues to service our customers in this market while complying with all regulations.

Speaker Change: Shifting to some cash metrics.

Speaker Change: At a company level, our free cash flow was $171 million in the quarter. Strong free cash flow in the quarter was primarily driven by earnings and networking capital improvements.

Speaker Change: We repurchased $8 million of fares in the quarter and paid $19 million in dividends. We ended the quarter with $584 million in cash and marketable securities.

Sanjay Mehta: We ended the quarter with $584 million in cash and marketable security. The completion of the Technoprobe transactions resulted in a net cash outlay of $434 million and resulted in a 10% equity stake in Technoprobe. Some other financial information for Q2. We had two 10% customers in the quarter. The tax rate, excluding discreet items for the quarter, is 14.25% on a gap basis and 15% on a non-GAAP basis.

Speaker Change: The completion of the Technoprobe transactions resulted in a net cash outlay of $434 million and resulted in a 10% equity stake in Technoprobe.

Speaker Change: Some other financial information in Q2.

Speaker Change: We had two 10% customers in the quarter. The tax rate, excluding discrete items for the quarter, is 14.25% on a GAAP basis and 15% on a non-GAAP basis.

Sanjay Mehta: Now to our outlook for Q3. Q3 sales are expected to be between $680 and $740 million with non-GAAP EPS in the range of 66 to 86 cents on 164 million diluted shares. GAAP EPS is expected to be in the range of $0.62 to $0.82. Some color on our Q3 revenue expectation and our April call. On our April call, our mid-guide for Q2 was $695 million, and we noted that the

Speaker Change: Now to our Outlook for Q3.

Speaker Change: Q3 sales are expected to be between $680 and $740 million with non-GAAP EPS in the range of $0.66 to $0.86 on 164 million diluted shares.

Speaker Change: GAAF EPS is expected to be in the range of $0.62 to $0.82.

Speaker Change: Some color on our Q3 revenue expectation, and our April call, our mid-guide for Q2 was $695 million.

Sanjay Mehta: Our second quarter revenue came in higher than we forecasted on the heels of strong demand in our semi-test business. Our third quarter revenue forecast, of $710 million at the midpoint, is now higher than it was 90 days ago. Third quarter gross margins are estimated at 58.5 to 59.5 percent, and OPEX is expected to run at 38 to 40 percent of third quarter sales, up from Q2. As Greg discussed, we are acting on opportunities to accelerate investments that we believe will drive share and long-term sustainable growth. The non-GAAP operating profit rate at the midpoint of our third quarter guidance is 20%. Our total semiconductor ATE-TAM estimates remain unchanged from our view in April.

Speaker Change: And we noted that the third quarter would be flattish. Our second quarter revenue came in higher than we forecasted on the heels of strong demand in our semi-test business.

Speaker Change: Our third quarter revenue forecast of $710 million at the midpoint is now higher than it was 90 days ago.

Speaker Change: Third quarter gross margins are estimated at 58.5 to 59.5 percent and OPEX is expected to run at 38 to 40 percent of third quarter sales up from Q2.

Speaker Change: As Greg discussed, we are acting on opportunities to accelerate investments that we believe will drive share and long-term sustainable growth. The non-GAAP operating profit rate at the midpoint of our third quarter guidance is 20%.

Gregory Smith: Our total semiconductor ATE-TAM estimates remain unchanged from our view in April . However, we made some slight adjustments within the segments. We have included a slide in the appendix of our earnings deck with this information.

Sanjay Mehta: However, we made some slight adjustments within the cycle. We have included a slide in the appendix of our earnings deck with this information. Recall our SOC TAM range is $3.6 to $4.2 billion with a midpoint of $3.9 billion. This is comprised of Compute, which we now estimate to be $1.6 billion, up $100 million from our prior estimate. The increase in compute power is offset by a reduction in our estimate for mobile, which is down $100 million to $800 million.

Speaker Change: Recall our SOC TAM range is $3.6 to $4.2 billion with a midpoint of $3.9 billion.

Gregory Smith: This is comprised of Compute, which we now estimate to be $1.6 billion, up $100 million from our prior estimate.

Gregory Smith: The increase in compute is offset by a reduction in our estimate for mobile, which is down $100 million to $800 million.

Sanjay Mehta: We estimate the auto MCU at $500 million, the industrial at $300 million, and services at $700 million, each at the midpoint of our range. Our estimated memory TAM range of 1.2 to 1.3 billion dollars appears to be tracking towards the high end. Back to revenue.

Gregory Smith: We estimate auto MCU at $500 million, industrial at $300 million, and services at $700 million, each at the midpoint of our range.

Speaker Change: Our estimated memory TAM range of 1.2 to 1.3 billion dollars appears to be tracking towards the high end.

Sanjay Mehta: With our outperformance in the first half of the year, our expectation for revenue distribution for the full year is now less back half-weighted than our view in April. We currently expect around 48% of the company's revenue to be in the first half and 52% in the second half. We expect full-year revenue to grow in the low single-digit range compared to 2023. Note that excluding the impact of the DIS divestiture, our full-year revenue growth expectation would be nearly three points higher.

Speaker Change: Back to revenue.

Speaker Change: With our outperformance in the first half of the year, our expectation for revenue distribution for the full year is now less back half-weighted than our view in April . We currently expect around 48% of the company's revenue to be in the first half, and 52% in the second half.

Speaker Change: We expect full-year revenue to grow in the low single-digit range compared to 2023. Note that excluding the impact of the DIS divestiture, our full-year revenue growth expectation would be nearly three points higher.

Sanjay Mehta: Now to gross margins. Gross margins have improved through the course of the year and are expected to be at our full target gross margin model by the fourth quarter. Full year gross margins will likely be in the 58-59% range, unchanged from our prior outline.

Speaker Change: Now to gross margins. Gross margins have improved through the course of the year and are expected to be at our full target gross margin model by the fourth quarter.

Speaker Change: Full year gross margins will likely be in the 58-59% range, unchanged from our prior outlook.

Sanjay Mehta: Regarding OPEX for the full year, we expect full year 2024 OPEX to grow approximately 8%, which is above our prior guidance of 5-7% as we accelerate investment and opportunities to continue to strengthen our position and gain share. Turning to Robotics Profitability. As Greg noted, we expect revenue to grow towards the low end of our 10 to 20 percent range. We expect robotics will be roughly breakeven in 2024. Our GAAP and non-GAAP tax rates, excluding discrete items, are forecasted to be 14.25% and 15%, respectively, in 2024.

Speaker Change: Regarding OPEX for the full year, we expect full year 2024 OPEX to grow approximately 8%, which is above our prior guidance of 5-7%, as we accelerate investment and opportunities to continue to strengthen our position and gain share.

Speaker Change: Turning to robotics profitability. As Greg noted, we expect to grow revenue towards the low end of our 10 to 20 percent range. We expect robotics will be roughly break-even in 2024.

Speaker Change: Our GAAP and non-GAAP tax rate, excluding discrete items, are forecasted to be 14.25% and 15%, respectively in 2024.

Sanjay Mehta: With regard to capital allocation, we will continue to target our share buybacks in 2024 to an amount necessary to offset dilution from equity compensation and our employee share purchase program in order to build cash back up to $800 million. Summing up, we delivered sales and earnings above the high end of our guidance range as memory and compute revenue exceeded our plan in Semitest. However, the mobile, industrial, and legacy auto markets remain soft.

Speaker Change: With regard to capital allocation, we will continue to target our share buybacks in 2024 to an amount necessary to offset dilution from equity compensation and our employee share purchase program in order to build cash back up to $800 million.

Speaker Change: Summing up, we delivered sales and earnings above the high end of our guidance range as memory and compute revenue exceeded our plan and semi-test. The mobile, industrial, and legacy auto markets remain soft.

Sanjay Mehta: Our robotics team delivered sequential and year-over-year growth as we continue to execute our new product development and go-to-market strategy. Our company's first half performance gives us confidence that we are on track for the year. Our midterm fundamentals remain strong, and we are investing to capture the opportunities beyond 2024. In June, I mean, if I run rate that out, it's probably a $20 to $25 million number that we should effectively sort of adjust the September guidance for. Is that correct on a run rate basis? Okay, I got it.

Speaker Change: Our robotics team delivered sequential and year-over-year growth as we continue to execute our new product development and go-to-market strategies.

Speaker Change: Our company's first-half performance gives us confidence that we are on track for the year. Our mid-term fundamentals remain strong, and we are investing to capture the opportunities beyond 2024.

Speaker Change: With that I'll turn the call back to the operator to open the line up for questions. Operator?

Speaker Change: Thank you, sir.

Speaker Change: Ladies and gentlemen, we will now be conducting the question and answer session.

Speaker Change: If you would like to ask a question, please press the star key followed by the number 1 on your touch tone phone.

Speaker Change: If you would like to withdraw the question, you may press star and then again.

Speaker Change: followed by the number two.

Speaker Change: If you are using speaker equipment, please lift the handset before making your selections.

Speaker Change: To give everyone the opportunity to participate, please limit yourself to one question and one follow-up.

Speaker Change: If time allows, you're welcome to rejoin the question queue for further questions.

Speaker Change: Our first question comes from CJ Moose of Canterford's Gerald. Please go ahead.

Christopher Muse: Yeah, good morning. Thank you for taking the question. I was hoping maybe you could speak to visibility and outlook into 2025.

Speaker Change: particularly around semi-tests. And we'd love to hear your thoughts around how you're seeing, you know, recovery and mobility, as well as on the memory side, progress with securing that second potential customer in HBM.

Speaker Change: Hey CJ, this is Greg.

CJ: Basically, we are pretty bullish on 2025.

Christopher Muse: The semi-test market in 2024, we're seeing strength in computing, and we're also seeing a fair amount of

Christopher Muse: Upgrade Business where people are converting testers that were under utilized in mobile to use for compute and VIP applications.

Christopher Muse: So, that's soaking up some of the excess in that market. We expect that to really sort of accelerate business as mobile returns in 2025. It won't have that capacity to grow into.

Speaker Change: On HBM, I think we continue to expect

Speaker Change: that we are going to make progress in two directions.

Speaker Change: on HBM.

Speaker Change: One is that our share has primarily been in the pre-stack wafer test of HBM.

Speaker Change: We believe that we're going to be gaining share in performance tests.

Speaker Change: of HBM Memory after it's been stacked.

Speaker Change: And so we're hoping that we can expand both our market share within the account where we're participating in HBM, and then also break into additional accounts for HBM, and that would be more of a 2025 thing.

Speaker Change: So, I think, you know, overall, our, you know, our outlook for 2025 and into 2026 is, you know, in line with what we talked about in January .

Speaker Change: Excellent. And I guess as a follow-up, could you update us where you are with VIP? I think you talked about one large auto customer in June . Can you kind of size that for the industry for this year?

Speaker Change: How do you see that growing next year and what additional kind of customers or end markets, whatever color you can give us in terms of how to think about the trajectory of that business into 2025?

Speaker Change: Sure. So.

Speaker Change: We, I think the

Speaker Change: The way that we're looking at VIPs right now, because that growth has been happening at a time when there is a fair amount of

Speaker Change: Capacity in OSATs to soak up.

Speaker Change: We're actually trying to keep track of the number of testers that are being used for these VIP customers, and right now it's hundreds of testers. There are currently hundreds of testers that are being used for VIP, and we expect that to, and we have

Speaker Change: VIPs where they've made plan-of-record decisions to put their parts on our testers and those parts are going to be released.

Speaker Change: later in this year and into 2025.

Speaker Change: So, we think that we'll probably exit this year with twice as many testers being used for these vertically integrated producers than we have right now.

Speaker Change: Thank you.

Speaker Change: Our next question comes from Tim Arcuri of UBS. Please go ahead.

Timothy Arcuri: Thanks a lot. Sanjay, can you help us handicap the guidance for the DIS sale? I know you said it contributed $16 million in

Timothy Arcuri: In June , I mean, if I run rate that out, it's probably a $20 to $25 million number that we should effectively sort of adjust the September guidance for. Is that correct on like a run rate basis?

Sanjay Mehta: Yeah, if I go back to 2023, it was about a $100 million business and, you know, 2025 million dollars is...

Sanjay Mehta: is roughly the number. And this quarter, you know, with the sale.

Sanjay Mehta: occurring end of the second month on May 27th. It was 16 million dollars.

Speaker Change: So I think that estimate you have is reasonable and, you know, as I noted in my prepared remarks, you know, we expect growth year over year.

Speaker Change: to be in the low single digits but you know without DIS you'd expect it to or it that's a shortfall of roughly three points so you would increase that by three points if there was no DIS in 23 and 24 from a growth perspective.

Gregory Smith: And then, and then Greg, talking about next year, I mean, you guys have always talked about M2 being a big driver for the SSE TAM. And I mean, we're seeing clear evidence that there's going to be a lot more N2. We're seeing upside pretty much everywhere from N2, you know, wafer demand next year and the speed of the ramp. So I would think you're pretty optimistic about, I mean, sure, there's the mobility piece, but I would think you're pretty optimistic about next year because of N2. Can you speak specifically about the, you know, you've kind of always talked about that as a big driver, and you know, here it is. So can you talk about that?

Speaker Change: Okay, got it.

Sanjay Mehta: And then Greg, talking about next year, I mean, you know, you guys have always talked about M2 being a big driver for

Gregory Smith: for the SSE TAM, and I mean, we're seeing clear evidence that there's going to be a lot more, you know, N2, we're seeing upside pretty much everywhere from, for N2, you know, wafer demand next year and the, and the, you know, speed of the ramp.

Speaker Change: So, I would think you're pretty optimistic about, I mean, sure, there's the mobility piece, but I would think you're pretty optimistic about next year because of that too. Can you speak specifically to the, you know, you've kind of always talked about that as a big driver and, you know, here it is. So, so, so can you talk about that?

Speaker Change: Sure, yeah, so we tend to think of

Gregory Smith: The process nodes, from our business's perspective, not as a driver but as an enabler. So the two nanometers or gate all around, they're gonna be enablers for higher device complexity. But the thing that really drives our business is whether the end market is pulling for that complexity. And we're really optimistic that between cloud AI and especially edge AI, like in mobile, that that is gonna be a major driver for companies to get into N2, even at a faster rate than they got into N3.

Speaker Change: The process nodes, not as, from our business's perspective, not as a driver, but as an enabler, you know, so the two nanometer or, you know, gate all around, they're going to be enablers for higher device complexity.

Speaker Change: But the thing that really drives our business is whether the end market is pulling for that complexity.

Speaker Change: And we're really optimistic that between cloud AI and especially for edge AI, like in mobile, that that is going to be a major driver for companies to get into N2 even at a faster rate than they got into N3. So we think that that's...

Gregory Smith: So we think that it's a good thing that the capacity is being put in place for N2, because we think that it's gonna be needed. In addition, the deployment of edge AI is really going to increase the complexity of the application processors. It's also going to be pulling harder on the mobile part of the memory market.

Speaker Change: B. That it's a good thing that the capacity is being put in place for N2 because we think that it's going to be needed. In addition,

Speaker Change: The deployment of Edge AI, it's really going to increase complexity of the application processors. It's also going to be pulling harder on the mobile part of the memory market. So we think that there's sort of a virtuous circle in terms of the capacity being put in place, the end market demand that's going to use that capacity, and then the pull effect on other parts of the market enabled by the, you know, the features that are going into these products.

Gregory Smith: So we think that there's sort of a virtuous circle in terms of the capacity being put in place, the end market demand that's going to use that capacity, and then the pull effect on other parts of the market enabled by the features that are going into these products. So we think basically this is going to be a good demand driver really through the rest of this midterm, 25, 26, 27. Yes, thanks for taking my question.

Speaker Change: So we think basically this is going to be a good demand driver really through the rest of this midterm, 25, 26, 27.

Speaker Change: Got it. Okay. Thank you.

Speaker Change: The next question comes from Mehdi Hosseini of SIG. Please go ahead.

Mehdi Hosseini: Yes, thanks for taking my question. I want to follow up on your commentary that mobile SOC revenue in 2024 will be comparable to compute.

Gregory Smith: I want to follow up on your commentary that mobile SOC revenue in 2024 will be comparable to compute. Your assumption also is impacted by... So that's a good question, Mehdi, because there's a little bit of subtlety to this.

Mehdi Hosseini: I understand the diversification of customers and additional data center but

Speaker Change: Your assumption also is impacted by...

Speaker Change: [inaudible]

Speaker Change: So that's a good question Mehdi because there's a little bit of subtlety to this. So you're right that one of the reasons that our mobile revenue and our compute revenue are going to be comparable in 2024 is because the mobile market is weak.

Gregory Smith: So you're right that one of the reasons that our mobile revenue and our compute revenue are going to be comparable in 2024 is because the mobile market is weak. Okay, thank you. And then, one follow-up for Sanjay.

Speaker Change: But the other reason is, and I talked about this in my prepared remarks, that our compute revenue for the first half is bigger than all of our compute revenue for 2023, and we see good strength for compute in the second half of this year as well. So, like,

Speaker Change: Things are going great in compute. Next year, we think that compute is going to remain strong.

Speaker Change: But the TAM sizes for compute are likely to be in the same range, maybe a little bit stronger than where they were. The mobile market really should come back pretty strongly.

Speaker Change: And so, our mobile revenue will come back with that. So, we anticipate that we'll have good revenue growth and compute, but it's very possible that mobile will outweigh it next year because of the strength of that recovery.

Speaker Change: Okay, thank you. And then one follow-up for Sanjay.

Sanjay Mehta: If robotics business is going to be breakeven in 2024, then profitable next year

Speaker Change: The underlying assumption...

Speaker Change: baked into your 26 target, or could there be an acceleration of profitability? I just wanna see how the break-even in 24 for robotics fit into your 26 target. Thank you.

Sanjay Mehta: Sure. So, in 2024, we start.

Speaker Change: We started the year with thinking that we'd be just a little bit above break-even.

Speaker Change: As we look to the year and we see the range of 10-20% this year of growth,

Speaker Change: and we see that coming in more to the lower end of the range, we think that number is about breakeven. And in our earnings model, we had 20 to 30 percent growth. So with that incremental scale, we did build in a level of profitability in the outer years.

Speaker Change: and we still believe that that trajectory is going to occur as we move into the future.

Speaker Change: Okay, great. Thank you.

Speaker Change: The next question comes from Vivek Arya of Bank of America. Please go ahead.

Sanjay Mehta: Thanks for taking my question. Greg, for next year, as you suggested, the turnaround in mobile seems to be kind of the biggest catalyst. The thing that I will tell you is that they're all relatively small relative to the magnitude of the overall AP business. So if that was to change, I would expect it to be a slight positive for us, but I don't think it's a game-changer kind of a thing. Okay, so, um... And for my follow-up question on the robotics business, you know, you've taken the growth rate this year towards the lower end of the 10 to 20%, I think.

Vivek Arya: Thanks for taking my question. Greg, for next year, as you suggested, the turnaround in mobile seems to be kind of the biggest catalyst for Teradyne. So when we look at the TAM of about $800 million for this year, could you help us?

Speaker Change: You know give some range for what recovery looks like, you know, are we talking 10% 20% 30 40?

Speaker Change: This can you help us you know have some broad range and how much of this you think comes from mobile industry you know with faster unit growth how much of this comes from

Speaker Change: more testing, complexity, and then a kind of a small nuance question.

Speaker Change: You know, your large customer could also have a change in their modem suppliers for at least some SKUs. Is that, you know, net positive, negative, neutral to your business?

Speaker Change: So

Speaker Change: Let me take the second part of your question first and then I'm actually

Speaker Change: I'm going to tag team the first part with Sanjay because I want to work on sort of a history lesson perspective of the mobile TAM.

Speaker Change: to try and bracket what we would see in 2025.

Sanjay Mehta: The thing to remember is that the...

Sanjay Mehta: Whoever is supplying that modem is also likely supplying all of the ancillary devices associated with that modem. So, you know, there's a modem, there's power management, there's RF.

Speaker Change: If that was to change, there's a lot of pluses and minuses.

Speaker Change: The thing that I will tell you is that they're all relatively small relative to the magnitude of the overall AP business.

Sanjay Mehta: So, if that was to change, I would expect it to be a slight positive for us, but I don't think it's a game-changer kind of a thing.

Sanjay Mehta: And so, on the mobile TAM, so Sanjay,

Sanjay Mehta: So, John , could you just give us sort of the history of the mobile TAM?

Sanjay Mehta: So, this year at the midpoint, as we've noted, $800 million. And last year we noted approximately $900 million.

Speaker Change: And in 22, it was roughly 1.6 billion. It peaked, our view in 2021, at approximately 2 billion.

John: Okay, so...

Speaker Change: Take what I'm going to say with a grain of salt because we are entering into our strategic planning process.

Speaker Change: and Haven completed sort of an updated view of 2025.

Speaker Change: But the thing that I will tell you is that the mobile TAMs are unlikely to go as high as we saw during the COVID peak.

Speaker Change: But they're likely to be significantly stronger than what we're seeing in 23 and 24.

Speaker Change: So, I, you know, going in the middle of that range might not be a bad idea, but it's a pretty big range.

Speaker Change: Vivek, does that does that help at all? Yes, extremely helpful. Thank you so much.

Gregory Smith: So I think you are, in terms of your hypothesis, you're hitting the nail on the head, that part of it is scale, part of it is channel. The thing that we are really, we're actually really optimistic about our robotics business right now is that the macro environment is really weak. Our automation peers are struggling with declining sales. We posted an 11% gain over the first half.

Vivek Arya: So I think you are, in terms of your hypothesis, you're hitting the nail on the head, that part of it is scale, part of it is channel.

Speaker Change: We're actually really optimistic about our robotics business right now, that the macro environment is really weak. Our automation peers are struggling with declining sales.

Gregory Smith: And the thing that is encouraging to us is that that 11% gain is on the back of specific aspects of the strategy that we're executing. You know, we were trying to expand our SAM by adding high payload, high payload options for universal robots. And those robots accounted for 20% of our sales in the quarter. We are trying to build additional channels, and our OEM channel grew by 70% year on year for the first half.

Speaker Change: We posted an 11% gain over the first half.

Speaker Change: The thing that is encouraging to us is that that 11% gain is on the back of

Speaker Change: Hello, and options for Universal robots, and those and those robots are accounting for 20% of our sales in the quarter. We are trying to build additional channels and our OEM channel grew by 70% year on year for the first half we have additional.

Speaker Change: and those.

Gregory Smith: We have additional irons in the fire to drive additional growth that have not yet paid off. And they're primarily other aspects of market expansion. So our pallet jack for the AMR business, and additional products that are coming to market for you are as well.

Speaker Change: Additional irons in the fire to drive additional growth that have not yet paid off and theyre, primarily other aspects of market expansion. So our pallet Jack for the EMR business additional products that are coming to market for you are as well we have additional channel.

Gregory Smith: We have additional channels that we are building. We've been working for the last year and a half on building out a large accounts channel. And we have a significant pilot pipeline for that, but we don't have significant revenue growth to see from it yet. And then, finally, we think that there's a very significant revenue opportunity in service and recurring software. Right now, that's a vanishingly small part of our revenue in robotics, but every business that has machinery in critical processes definitely needs to have a way to keep that stuff running.

Speaker Change: <unk> that we are building, we have been working for the last year and a half on building out a large accounts channel and we have significant pilot pipeline for that but we don't have significant revenue growth to see from it yet and then finally, we are we think that there is a very significant revenue opportunity in <unk>.

Speaker Change: Service and recurring software right now Thats, a vanishingly small part of our revenue in robotics, but every business that has machinery in critical processes definitely needs to have a way to keep that stuff running and we have an example in our semiconductor business were.

Gregory Smith: And we have an example in our semiconductor business where service represents a significant portion of our overall revenue, and we are trying to apply that same model of managed service plans in robotics. And we're actually seeing good customer uptake, but not a lot of revenue yet. So we think that those three engines are gonna be kicking in in 2025, on top of growth that we're gonna still get from the things that we did in 2023 and 2024.

Speaker Change: Service represents a significant portion of our overall revenue and we are trying to apply that same model of managed service plans in robotics, and we're actually seeing good customer uptake, but not a lot of revenue yet. So we think that those three engines are going to be kicking in in 2025 on top of growth that we're going.

Speaker Change: Still get from the things that we've done in 2023 and 2024.

Gregory Smith: So we're pretty optimistic that the end market is terrible, but we're actually doing what we said we were going to do in terms of the strategy. Thank you. Very helpful, Sanjay. And then, Greg, just a quick follow-up.

Speaker Change: We're pretty optimistic that the end market is terrible, but we are we're actually doing what we said we were going to do in terms of the strategy.

Speaker Change: Okay.

Speaker Change: Our next question comes from Krishna Shankar of TD, Kevin. Please go ahead.

Krish Sankar: Hi, Thanks for taking my question I had two of them. Greg just first one clarification you maintain your full year revenue guide of low single digits.

Krish Sankar: I don't think compared to last quarter, you kind of increase the test revenue up modestly.

Speaker Change: So I'm just kind of curious is it just a little bit of nuance that is within the margin of error or anything else happening over there.

Speaker Change: Hi, Krishna Sanjay at a top level, you're right. We did guide the full year consistently with the first half a little bit stronger than we anticipated and what's happening under the covers as semi test is up but our other test businesses are down a little bit in the.

Krish Sankar: <unk>.

Krish Sankar: And storage it's tied to.

Krish Sankar: The global market and Esselte and the H D D. As that market returns there is still underutilized capacity in our defense and aerospace business. We've got some projects push out and our production board business we had.

Krish Sankar: It's tied to the automotive slowdown and so.

Krish Sankar: Overall semi test is stronger and the.

Krish Sankar: Other test is lower and then we did move to the lower end of our robotics range. So at a top level.

Krish Sankar: We're calling the same year, but.

Krish Sankar: Semi test stronger other first a little weaker and robotics is at the low end of the range.

Krish Sankar: Brian I'm going to really help them from Jan and then Greg just a quick follow up you kind of mentioned strength in networking test.

Gregory Smith: You kind of mentioned strength in networking tests. You know, if you look at some of the GPU providers, clearly, you know, VeriG Advantage has a very strong position. Do you think this networking test opportunity can manifest itself into some share gains on the GPU side, or do you think that the AI opportunity is more for the VIPs, not for the semi-device? I'm really, really glad you asked that question. So there are a couple of things going on in the compute space around this topic of cloud AI and building large capabilities to do training of large language models. So the first is obviously the huge demand for GPUs. That's why people have seen NVIDIA's stock run up so much.

Speaker Change: If you look at some of the GPO providers clearly you know of energy advantage has a very strong position do you think there's networking test opportunity James manifests itself into some share gains on the GPU side or do you think that AI opportunity even more to the VIP is not by design not to the semi device makers.

Speaker Change: That's a.

Speaker Change: I'm really really glad you asked that question so.

Speaker Change: There are.

Speaker Change: A couple of things going on in the compute space around this topic of cloud AI and building large training train large capabilities to do training of large language models. So the first is obviously huge demand for Gpus.

Speaker Change: That said as you know.

Speaker Change: That's why people have seen.

Speaker Change: Nvidia run up as much they they are providing an incredibly valuable engine for all of this but if you look at an AI enabled server there is.

Gregory Smith: They are providing an incredibly valuable engine for all of this. But if you look at an AI-enabled server, there is a much larger number of high-speed data links within a server rack than there are for a traditional server. And so we, you know, in more traditional enough end market demand to drive growth for both traditional GPU-based AI models and also drive even faster growth for the VIP or homegrown silicon that is being built into these large server farms. Thank you, Greg. Very helpful.

Speaker Change: A much larger number of high speed data links within a server rack than there is for a traditional traditional server and so you know in.

Speaker Change: In.

Speaker Change: More traditional traditional.

Speaker Change: Accelerated computing.

Speaker Change: We were seeing a ratio of like within a specific account it might be 90% Gpus, 10% networking, that's trending more towards 20% or even higher so there's a there's definitely a tailwind there that is.

Speaker Change: <unk>. The other is as these models become more sophisticated and the.

Speaker Change: The players in this space are trying to differentiate between these large language models, they're each trying to gain an advantage through architecture and that's driving this VIP design.

Speaker Change: Trends that we're seeing so.

Speaker Change: We think that there is enough.

Unnamed Speaker: Anapha, end market demand to drive growth for both sort of traditional GPU based AI models and also drive even faster growth for the VIP or homegrown silicon that is being built into these large server farms. Thank you, very, very helpful.

Speaker Change: Enough end market demand to drive growth for both sort of traditional GPU based AI models and also drive even faster growth for the <unk>.

Speaker Change: The VIP are homegrown silicon that is being built into these large server server farms.

Speaker Change: Got it got it. Thank you that's very helpful.

Toshiya Hari: An expression comes from Toshiya Hari of Goldman Sachs. Please go ahead. Good morning. Thank you so much. We are in mobile across OSAT and your IDM customers to the extent you've got some visibility, and then for auto and industrial as well. Where are utilization rates generally today, and when you talk about a recovery in 2025, you know, I know it's hard to predict, but at what point do you think utilization rates get to a point where customers, you know, resume purchases of testers. So, I think to answer the last part of your question first, I think we're very close to the point where the balance is going to tip back away from.

Toshiya Hari: Our next question comes from tissue, how heavy of Goldman Sachs. Please go ahead.

Toshiya Hari: Hi, good morning. Thank you so much Greg you talked about strength in compute soaking up some of your idle capacity across the mobile space I'm curious.

Speaker Change: We're test utilization rates are in mobile.

Speaker Change: Across you know Osakan and your IDM customers to the extent you've got some visibility.

Speaker Change: And then for auto and industrial as well where are utilization rates generally today and when you talk about a recovery in 2025.

Speaker Change: I know, it's hard to predict but at what point do you think utilization rates get to a point where customers presume purchases of testers.

Gregory Smith: So I think to answer the last part of your question first, I think we're very close to the point where the balance is going to tip back away from soaking up capacity to driving new system sales. Great, thank you. I wonder if you could talk about the HBM test.

Speaker Change: So.

Speaker Change: I think so.

Speaker Change: To answer the last part of your question first I think we're very close to the point, where the balance is going to tip back away from <unk>.

Unnamed Speaker: Soking up capacity to driving new system sales. The trends that we're seeing now is third party data around test utilization are showing a good uptick, you know, a little bit above sort of typical seasonality. Our own data is showing mixed mixed utilization right now. We don't see a clear trend there, but we do have a fair amount of both. Systems that have already been converted and also upgrades, you know, that would be used as conversion kits, and so that is going to essentially occupy hundreds of testers that are underutilized now. So we are expecting utilization to take up pretty strongly in the second half of this year and for that to tip over to the point where it turns into real system demand.

Speaker Change: Soaking up capacity to driving new system sales.

Speaker Change: The.

Speaker Change: The trends that we're seeing now is the third party data around test utilization are showing.

Speaker Change: A good uptick.

Speaker Change: A little bit above sort of typical seasonality.

Speaker Change: Our own data is showing mixed mixed utilization right now we don't see a clear trend there, but we do have a fair amount of both.

Speaker Change: Both.

Speaker Change: Systems that have already been converted and also upgrades that would be used as conversion kits and so that is going to essentially occupy hundreds of testers that are underutilized now. So we are expecting utilization to tick up pretty strongly in the second half of this year.

Speaker Change: And for that to tip over to the point, where it turns into real system demand when you get to the IDM customers, especially in auto and industrial there is a interesting.

Unnamed Speaker: When you get to the IDM customers, especially in auto and industrial, there's an interesting, you know, many of those customers are down significantly year over year from 23 to 24, but a lot of them are persisting in relatively aggressive capacity expansion plans. They, you know, that they see the same thing that we've been talking about in the automotive space, that there are going to be short-term fluctuations. But the crossover to EVs and hybrids is something that it's a question of like when not if that that is going to happen, and the amount of compute power in cars and other electronics in cars is going to can continue to increase. The attach rate of, you know, these are the relationships for cars shipped.

Speaker Change: Many of those customers are down significantly year over year from 23 to 24, but.

Speaker Change: A lot of them are persisting in relatively aggressive capacity expansion plans. They they see the same thing that we've been talking about in the automotive space that there are going to be short term fluctuations, but the crossover to evs and hybrids is some.

Speaker Change: That is a question of like when not if that.

Speaker Change: That is going to happen and the amount of compute power in cars and other electronics in cars is going to.

Speaker Change: Continue to increase the attach rate of more chips per car shipped so they have long term plans to drive capacity and they have long term plans for purchasing our equipment that we think is going to be important. So we're we're really.

Unnamed Speaker: So they have long-term plans to drive capacity, and they have long-term plans for purchasing our equipment that we think is going to be important. So we're really, you know, we are, you know, cautious about the current downturn that we're seeing in automotive, but we're really confident about the long-term potential in that space. Especially parts of it where we have a ton of good share and great customer relationships, like battery management, discrete and power, and more, and more importantly, ADAS stuff. So I think, you know, right now I think the utilization in auto and industrial is down, but what the signals that we're hearing from those customers is that they expect that to be relatively short lift.

Speaker Change: We are.

Speaker Change: Cautious about the current downturn that we're seeing in automotive, but we're really confident about the long term potential in that space, especially parts of it where we have a ton of.

Speaker Change: Good share and great customer relationships like battery management, discrete and power and more and more importantly, Adas stuff. So I think right now I think that utilization in auto industrial is down but.

Speaker Change: The signals that we're hearing from those customers is that they expect that to be relatively short lift.

Speaker Change: Got it that's really helpful. Thank you.

Speaker Change: And as a follow up on the robotics side your point about AI you know, helping your your you our business in the Mira business makes intuitive sense to me.

Speaker Change: I just have a hard time sort of.

Speaker Change: Thinking about the timing and sort of the magnitude of of that kicking in you mentioned backlog for your new mirror product being pretty significant into Q4, maybe we start to see benefits there, but on the U R side.

Speaker Change: What kind of applications should we be looking out for as it pertains to AI, helping that business in.

Speaker Change: At what point.

Speaker Change: Does sort of the contribution of AI start to really show up in numbers. Thank you.

Speaker Change: Okay. So.

Speaker Change: There's a lot to unpack there so, let's let's let's get down to it so.

Speaker Change: The story for Amir is pretty simple that take.

Speaker Change: Take a robot add AI capability and suddenly you have a robot that works better.

Speaker Change: That's our basic hypothesis behind the pallet Jack is that we're going to be able to have a higher success rate picking pallets than competing solutions and so far the customer reception is that they think that those claims have some merit. So we have we have a pretty strong backlog for our product that we are.

Speaker Change: Going to start shipping in Q4 of this year, so that's pretty simple.

Speaker Change: For you are the story has a lot more complex because what we're really doing is creating a platform for our solution providers to build AI based solutions on and there's actually like four chunks of the of an AI based solution on you are at the bottom you have our robot and.

Speaker Change: The software that controls our robot and.

Speaker Change: And then on top of that there is AI toolkits that can come from Nvidia or can come from other providers that really.

Speaker Change: Give the primitives that allow people to use AI capabilities to solve problems then on top of that there is usually a solution builder and so what that solution builder will do is they'll take our robot and that toolkit and they will build a solution to do something like.

Speaker Change: Heterogeneous bin picking our vision based inspection or welding and then they will take that that solution and they will market. It to their end customers. So the key thing that differentiates the <unk> platform from other robots is its features as a platform. So the API.

Speaker Change: Is that people can use the features that that they need in order to build these solutions for and that's what makes US sticky is that once the solution provider builds a solution around a specific toolkit and our robot it's tough for them to move off the thing about that model for you or is that it's a slower burn.

Speaker Change: It's an indirect AI drives our business indirectly because we're not building the IR solution. Our solution providers are so I'll tell you that we have.

Speaker Change: We have AI based solutions in the market right now our estimate is that.

Speaker Change: High single digits of you our sales are going into AI based applications.

Speaker Change: That are in the market right now so that's sort of our baseline and we intend to grow from there.

Speaker Change: These solution providers it can take.

Speaker Change: While from when they begin building their solution to when they see a commercial an inflection and that's often in excess of a year. So we have a great pipeline of of partners that are using AI right now to try and build solutions and we would expect that to deliver material revenue in.

Speaker Change: In 2025, but not in 2024.

Speaker Change: Sorry for going deep, but you've kind of hit a nerve.

Speaker Change: Thank you for all the detail.

Speaker Change: The next question comes from Joe Moore of Morgan Stanley. Please go ahead.

Gregory Smith: In particular, I'm just curious, as we move from HBM3 to HBM3e and then later to HBM4, can you talk about how much? Great, thank you very much. So, I think it'd probably be a good idea to do our TAM history lesson in compute as well. So, you know, really strong this year. Why don't we go back a couple of years and set that as context, and then we'll bracket kind of what we think we'll do in 2025. So, Sanjay, could you do that?

Joseph Moore: Great. Thank you I'm wondering if you could talk about the <unk> test and.

Joseph Moore: In particular I'm, just curious as we move from <unk> three to <unk> and then later to HBM. Four can you talk about how much reuse theres going to be versus upgrade requirements.

Speaker Change: Okay. So on HBM.

Speaker Change: The primary difference from a test perspective as you go from <unk> three to three <unk> to four is that the data rates that are required.

Speaker Change: In the performance test of the final HBM product.

Speaker Change: And the capacity that's in place right now for <unk> three most of it.

Speaker Change: Essentially all of it is in capable of testing.

Speaker Change: The data rates required for <unk> and HBM four so the.

Speaker Change: The the people that are building HBM three E are seeking additional capacity.

Speaker Change: They're essentially retooling.

Speaker Change: To be able to test the <unk> now this is one of the areas, where we believe we have an advantage that will allow us to gain share in HBM performance test that we haven't tester that is going to be effective for both <unk> and <unk> and so.

Speaker Change: That essentially will give customers that adopt that solution longer asset life than if they were to adopt a competing solution. So we.

Speaker Change: We are pretty hopeful about our opportunity to gain share in HBM performance test and we're working on.

Speaker Change: Essentially benchmark competitions in multiple customers to try to prove that.

Speaker Change: Great. Thank you very much.

Speaker Change: The next question comes from semi strategy JP Morgan Chase <unk> co.

Speaker Change: Please go ahead.

Speaker Change #100: Hi, Thank you for taking my questions I guess for the first one Greg if I can go back to one of the comments that you made about the compute them for next year. When you were comparing compute versus mobility and your expectations for next year I'm. Just wondering you said compute to be robust but.

Speaker Change #104: <unk> remain at these sort of strong levels, we've seen the compute them go from I think one point.

Speaker Change: One six this year.

Speaker Change #101: Are you implying that we sort of grew one four to $1 six I'm sorry are you, implying we you sort of hold it on this one six level or a similar increase that youre seeing this yield and what should we think about what's incorporated in that for the portion of the market that's sort of associated with the vips and growth outlook for them in.

Speaker Change: <unk> five in that number.

Speaker Change #103: So I think it probably would be a good idea to do our Tam history lesson in compute as well so.

Speaker Change: Really strong this year why don't we go back a couple of years and set that as context, and then we'll bracket.

Speaker Change: Kind of what we think we will do in 2025, so Sanjay could you do that sure. So Joe let me give some more context so 2019.

Sanjay Mehta: Sure. So, let me give some more context. So, in 2019, the computed TAM, our view was about 600 million. You know, fast forward. We went to nearly double that in 2021, between 1.1 and 1.2 billion. And then in 22, it went to 1.3.

Sanjay Mehta: Compute Tam our view was about $600 million.

Sanjay Mehta: <unk> forward, we went to nearly double that in 2021 between one one and $1 2 billion and then in 'twenty. Two it went to one three and as you noted 23, approximately $1 4 billion and this year at the midpoint, our view was $1 6 billion.

Sanjay Mehta: And as you noted, 23, at approximately 1.4 billion. And this year, at the midpoint, our view was 1.6 billion. Thank you. I'll actually let Sanjay answer that one.

Sanjay Mehta: So as you look into 2025.

Sanjay Mehta: We we don't think that we would see mammoth increases to the compute Tam. It's it is.

Speaker Change: <unk>.

Speaker Change: Between two <unk> and three <unk> larger than it was in 2019 at this point in time and for sure people are trying to add capacity all through the all through the production chain, but it's coming off of a really high base. So looking forward into next year I would I would probably.

Speaker Change: <unk> be looking at kind of where we are this year plus or minus something versus a much a lot of increase in the compute space now you asked about vips.

Speaker Change: Right now.

Speaker Change: Sure.

Speaker Change: Vips are kind of in the.

Speaker Change: Our are towards the low end of.

Speaker Change: A.

Speaker Change: $100 million to $200 million range.

Speaker Change: <unk>.

Speaker Change: It could trend towards the high end of that by the end of this year, we think that by the time, we get out to 2026, Vips will be about $500 million of the of the overall compute spend.

Speaker Change: So that's I think that's a pretty exciting chunk there could be.

Speaker Change: Quarter to a third of the compute compute tam could be driven by Vips.

Speaker Change #106: Okay got it got it and for my follow up.

Speaker Change #107: I know youre reiterating your 2026 blend today, which still sort of implies a 25% CAGR for the next couple of years I'm, just trying to compare that with the exit run rate. This year that you have in terms of growth, even when I add back techno probe and the impact.

Speaker Change #108: Impact of that is in that sort of thing.

Speaker Change #105: 15% range can.

Speaker Change #109: Can you help me just think about what how to think about the impact that.

Speaker Change #102: That the Underutilization in mobile it is having on your revenue just to think whether I mean, how do.

Speaker Change #116: Do you bridge the gap from this 10 to 15 in the back half to maintaining it and 25% CAGR for the next couple of years.

Speaker Change #102: So.

Speaker Change #111: I guess, the best thing to say is that.

Speaker Change #112: At the point in time, there are two things that are going on since we set our plan.

Speaker Change #102: One is that the amount of underutilized capacity is larger was larger than we thought at the point that we built our plan.

Speaker Change #102: The other thing Thats happened since we built our plan is that even in 2020 for compute is strengthened by a couple of hundred million dollars that the.

Speaker Change #102: Sort of the underlying demand drivers in the market are stronger than we were than we were forecasting. So when you balance the the sort of the deeper hole of utilization and the stronger end market demand then I think our hypothesis for 2026 holds.

Speaker Change #110: Maybe I'll just add a little bit when we take a look at our model.

Speaker Change #110: As Greg noted earlier mobility.

Gregory Smith: Comes back, but let me remind also what he said it doesn't come back to the peak levels comes back to kind of a regular level, but mobility comes back the trends in automotive with more silicon going in combustible engines, the conversion to EV and battery management systems.

Speaker Change #123: <unk> is another tailwind and industrial comes back coupled with.

Gregory Smith: The compute and I'll remind you that our robotics business at a 20% to 30%.

Gregory Smith: Growth in there as well so thats kind of how you got there.

Speaker Change #102: Okay.

Speaker Change #113: Thank you thanks for taking the questions.

Speaker Change #113: The next question comes from Brian Chin of Stifel. Please go ahead.

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

Speaker Change #102: Hey, Greg maybe just curious in Q2.

Brian Chin: In memory, which obviously drove a lot of that sequential strength was there any shipment pull in from second half of <unk>.

Gregory Smith: Honestly, let Sanjay answer that one yes, Brian.

Sanjay Mehta: Yeah, Brian, you know, we did see acceleration from Q3 into Q2. We, you know, customers are pulling, and that's, you know, in my view, we've kind of, well, we have a full-year view, and Semitest is a little bit stronger, as I noted earlier. Customers are pulling, and the demand is there, and we see a fairly strong, you know, backlog going into Q3 with kind of low turns. So we're in, I think, from a compute and memory perspective, yes, we did see some acceleration. Okay, great. That's a very helpful color.

Sanjay Mehta: We did see acceleration from Q3 into Q2.

Sanjay Mehta: Customers are pulling in and that's it.

Speaker Change #119: In my view, we've kind of while we have a full year view in semi test is a little bit stronger as I noted earlier cut.

Speaker Change #122: Customers are pulling and the demand is there and we see a fairly strong.

Sanjay Mehta: Backlog going into Q3 with kind of low turns so.

Gregory Smith: We are in a.

Speaker Change #118: From a compute and memory perspective, yes, we did see some acceleration.

Speaker Change #115: Okay, Great that's helpful color and then.

Sanjay Mehta: And then... Um, yeah, maybe just thinking about the service and software opportunity in robotics is small today. You know, how big could service and software be as a percent of revenue by 2020? Yeah, so rough numbers here, but we have on the order of 80,000 UR Cobots out in the field, and probably on the order of 10,000 or more AMRs. The useful life of them is, you know, we have Cobots that were delivered, you know, before Teradyne bought Universal Robots that are still being used.

Speaker Change #121: Maybe just thinking about the service and software opportunity robotic small today.

Speaker Change #117: But just curious can you sort of size up the active installed base of U R and mobile robots in the field and what their typical useful life is in.

Speaker Change #114: How big could service and software as a percent of revenue by 2026.

Speaker Change #114: Yes so.

Speaker Change #131: Rough numbers here, but we have on the order of 80000.

Speaker Change #114: You are co bots out in the field and probably on the order of 10 10000 or more amr's the useful life of them is.

Speaker Change #114: We have we have co bots that were delivered.

Speaker Change #114: Before teradyne bought universal robots that are still being used but most of our customers will depreciate the asset over about a five year period.

Sanjay Mehta: But most of our customers will depreciate the asset over about a five-year period. So, I think if you're trying to model sort of installed base decay, it's not a bad idea to look at maybe a five to seven-year life.

Speaker Change #114: I think its if youre trying to model sort of installed base to K, it's not a bad idea to look at maybe a five to seven year life.

Speaker Change #114: No.

Speaker Change #127: I think in Youre going at this exactly the same way that we're thinking about it that we look at the entire installed base not just new equipment sales as our total available market for service agreements and we're also doing this service agreement build in alignment with the build out of our large account <unk>.

Sanjay Mehta: So, I think, and you're approaching this exactly the same way that we're thinking about it, that we look at the entire installed base, not just new equipment sales, as our total available market for service agreements. And we're also doing this service agreement build in alignment with the build out of our large account channel. So, large accounts are the ones that are most likely to have large fleets and are most likely to see advantages from a managed service plan.

Speaker Change #114: So large accounts are the ones that are most likely to have large fleets and are most likely to see advantage from a managed service plant. So that's another sort of aspect of the strategy that we're building out.

Speaker Change #114: Yes.

Speaker Change #125: Okay, great. Thank you.

Sanjay Mehta: So, that's another sort of aspect to the strategy that we're building out. The next question comes... Hi, thank you for taking my questions and thank you for providing the history lesson on the TAM on slide 13. A quick one: the mobility weakness, it's fair to assume that is on the Android side.

Speaker Change #113: The next question comes from Mike.

Mike: Please go ahead.

Mike: Hi, Thank you for taking my questions.

Speaker Change #130: Thank you for providing the history lesson on the Pam on slide 13.

Mike: A quick one the mobility weakness.

Speaker Change #124: It is assumed that is on the Android side.

Speaker Change #128: The mobility weakness is really both Android and iOS.

Speaker Change #129: If you look across.

Speaker Change #129: The major suppliers to for silicon for all of those ecosystems.

Speaker Change #129: It's generally pretty weak now if you if you peel it back a little bit under the covers there are some out some areas of the mobile space that have done better during this downturn than others. So one aspect of it is in image sensor that the transition to like 48.

Speaker Change #129: Megapixel image sensors are really put some pressure on the suppliers in that space and they've added capacity both in iOS and Android land. The other is the improvements in wireless charging and other charging aspects that even now when we've seen significant.

Speaker Change #129: Weakness in power and linear.

Speaker Change #129: Still seeing some incremental demand.

Speaker Change #129: People always want their constant charge faster they want the discharge faster on wireless charging so and we're seeing increased silicon content. There. So it's been a little bit of a bright spot spot within that market.

Speaker Change #129: So I think.

Speaker Change: We are we've seen broad based weakness.

Speaker Change #129: In 2023, and continuing into 2024, and we expect to see relatively broad based recovery in 2025.

Speaker Change: Great and as my follow up for Sanjay you talked about a full year gross margins of 58% to 59% and if you would assume that the mobility and compute become larger as your large customer next year, all else being equal like auto industrial how can that impact the gross margin profile for next year.

Speaker Change: Yes. So so we're happy with this year's growth gross margin performance kind of playing out as we expected a little bit better LOE in the first half, but 58% to 59% with continuous improvement and I would say that.

Speaker Change #126: Regarding next year, obviously, we'll provide a little bit more color in January but the way I would think about it is we do expect revenues to grow so we'll have a bit of a tailwind tied to volume and it really depends.

Speaker Change: Those segments, you referred to as well specifically the customer is ordering it depends on the configurations of the instruments and so.

Speaker Change #126: I think in my view I think that we're exiting the year at.

Speaker Change: Our our model.

Sanjay Mehta: That's what we expect and look forward to giving you more of an update in January for 2025, but I would leave you with.

Speaker Change: With a higher volume level it should help.

Speaker Change #129: As tailwind.

Speaker Change: Thank you.

Steve Barger: Our next question comes from Steve <unk> of Keybanc capital markets. Please go ahead.

Speaker Change: Hey, good morning, thanks for stretching the call.

Sanjay Mehta: Greg you talked about all the growth opportunities for both test and robotics for 25, and 26% and I wanted to tie that back to the accelerated opex investments.

Speaker Change: Has that increased spend supporting everything we've talked about today are there also new products, you're planning on that add to the existing lineup.

Sanjay Mehta: So I will tell you that our OPEX acceleration is in both R&D and in our sales and marketing expenses. So you can infer from that that that means that we're working on new products and we're working on building relationships with new customers and trying to capture, you know, the key thing in semiconductors is that once customers make a platform decision, then it becomes very, very difficult to change their direction. And so we see a fleeting opportunity with all of the new VIPs to get in the door and influence that initial platform decision.

Speaker Change: So I will tell you that our.

Sanjay Mehta: Our opex acceleration is in both.

Sanjay Mehta: R&D and in our sales and marketing expenses that we are.

Speaker Change: So you can infer from that that that means that we're working on new products and we're working on.

Sanjay Mehta: Building relationships with new customers and trying to capture the key thing in semiconductors is that once customers make a platform decision then it becomes very very difficult to change change their direction and so we see a fleeting opportunity with all of the new VIP.

Sanjay Mehta: So we're going to take those opportunities and we're going to make the investments to try to capture them while that share is available versus trying to move it after the cement sets. The one thing I will say is that the focus of our acceleration is really in our test business, and we see that we have, you know, we're confident in our strategy in robotics, and we're confident in the OPEX plan that we put together. We saw no need to pour on more OPEX in our robotics business.

Sanjay Mehta: Yes.

Sanjay Mehta: To get in the door and influence that initial platform decision. So we're going to take those opportunities and we're going to make the investments to try to capture them, while that share is available versus trying to move it after the cement sets.

Sanjay Mehta: The one thing I will say is that the.

Sanjay Mehta: The focus of our acceleration is really in our test business that we.

Sanjay Mehta: We see that we have.

Sanjay Mehta: We're confident in our strategy in robotics, and we're confident for the Opex.

Sanjay Mehta: Plan that we put together we saw no need to pour on more opex in our robotics business, we're going to execute the plan that we set but when in the test business, especially in the in our semiconductor test business and in the system level test business, we saw an opportunity by accelerating our spend that.

Sanjay Mehta: We're going to execute the plan that we set. But when in the test business, especially in the, you know, our semiconductor test business and in the system level test business, we saw an opportunity by accelerating our spend that we would be able to drive a better outcome long term. So that's where that money's going. Mainly because of the rollout of those programs. We're trying to make sure that we can walk before we run when it comes to these service programs.

Sanjay Mehta: We would be able to drive a better outcome long term, so that's where that money is going.

Speaker Change: Understood and just one last one you said there is good customer uptake and industrials for services, but not a lot of revenue yet is that because of the new customers are not taking all of what you offer or why is revenue not tracking uptake.

Sanjay Mehta: So it is.

Sanjay Mehta: Mainly because the rollout of those programs.

Sanjay Mehta: We're trying to make sure that we can walk before we run when it comes to these service programs. So we have essentially piloted the program in a relatively small region.

Sanjay Mehta: So we have essentially piloted the programs in a relatively small region, and we're seeing good results in that region, but we have not deployed the program worldwide because we have to build out the infrastructure to support it. So that's why I say that we haven't seen material uptake just because it isn't globally deployed at this point. Oh, definitely 25.

Sanjay Mehta: And we're seeing good results in that region, but we have not deployed the <unk>.

Sanjay Mehta: Deployed the program worldwide, because we have to build out the infrastructure to support it so.

Sanjay Mehta: That's why I say that we haven't seen material uptake is just because it isn't globally deployed at this point.

Speaker Change: Does that happen in the back half of this year or more 25.

Sanjay Mehta: Oh definitely twenty-five so in the back half of this year, we're going to be.

Sanjay Mehta: So in the back half of this year, we're going to be, you know, and also the sales cycle time for the service business isn't terribly long, but it's probably a couple of quarters because you have to establish the value for the managed service plan. So we have a lot of interest. We are talking to a lot of customers, but we haven't closed the deals yet because I think some of it is that it needs to be incorporated into their 2025 budgets, you know, so I'm very hopeful that we'll see an inflection in service revenue in 25. I don't think we'll see much in terms of revenue in 2024. Okay. Where's your win rate?

Sanjay Mehta: And also the sales the sales cycle time for the service business is.

Sanjay Mehta: It's not terribly long.

Sanjay Mehta: It's probably a couple of quarters because you have to.

Sanjay Mehta: Establish the value for the managed service plan. So we have a lot of interest we are talking to a lot of customers, but we haven't closed the deals yet because I think some of it is that it needs to be incorporated into their 2025 budgets. So.

Sanjay Mehta: I'm very hopeful that we'll see.

Sanjay Mehta: An inflection in service revenue and 25 I don't think we will see much in terms of revenue in 2024.

Speaker Change: Understood. Thanks.

Sanjay Mehta: The next question comes from Gus Richard of Northland Capital. Please go ahead.

Speaker Change: Yes, thanks for taking the question I'm just curious.

Speaker Change: In terms of the jump balls with a vertically integrated producers.

Sanjay Mehta: How much of that business do you guys think you're picking? Got it. That's helpful. And then the follow-on. You know, thinking about your investment in Technoprobe, you know, how is that helpful? You know, your effort to expand your market share in these jump balls. Yeah, and just to be clear, are these the VIPs or, you know... existing wins and losses that have already happened? Do you think it can increase? in areas where decisions have already been made.

Speaker Change: Where is your win rate how much of that business do you guys think you are picking up.

Sanjay Mehta: Okay.

Sanjay Mehta: So.

Speaker Change: Our win rate on sockets.

Speaker Change: When we when we sort of started describing our plans in CIP as we said that we were trying to make sure that we got at least sort of an even split of sockets and right now in 2024, that's kind of how it's playing out that we're getting we're getting our fair share of wins in terms of the other way that we're looking at this.

Speaker Change: Is in terms of testers loaded so we're not looking at it in terms of tester purchases because of the underutilization, but we are trying to count noses in terms of how many testers are being loaded by our customers versus testers being loaded by our competitions customers and right now I would say that we are kind of six.

Speaker Change: <unk> hundred 40 in favour of teradyne in terms of testers loaded for VIP customers.

Sanjay Mehta: Got it that's helpful and then the follow on is thinking.

Sanjay Mehta: Thinking about your investment in Technip probe.

Speaker Change: How is that helping.

Speaker Change: Your effort to expand your market share in these jump balls.

Speaker Change: So right now.

Speaker Change: Right now, it's not having a significant effect the key thing that we're trying to do in the joint development projects that we have with Technip probe is to take on.

Speaker Change: Relatively hard problems that required collaboration between us and Technip probe.

Speaker Change: Like unless we had a a firm partnership we'd be unwilling to take that risk on speculation.

Speaker Change: We have initiated those projects, but they do require technology development on both sides. So.

Speaker Change: Right now what we said at the point in time, when we announced the deal is that we thought this would have a low single digit long term effect on market share in the semi test space. We still think that that's true and we think that we're on track to achieve those gains.

Sanjay Mehta: Yeah, and just to be clear are these the vips or.

Sanjay Mehta: The.

Speaker Change: Existing wins and losses that have already happened do you think it can increase your penetration.

Speaker Change: In areas, where decisions have already been made.

Sanjay Mehta: So.

Speaker Change: We haven't we haven't publicly announced sort of what segments of the market. We are doing these joint development projects, because we think that we need to we need to keep that.

Speaker Change: A relatively proprietary until we have demonstrated demonstrated the success, but I will say that the.

Speaker Change: The key things that we believe are enabled by <unk>.

Speaker Change: The projects that we're working on with Technip probe are around.

Speaker Change: Devices that have very high power requirements and also devices that have very high parallelism.

Speaker Change: So the TPI probe technology is unlocking sort of the high and scalability of our test platforms in both Soc and memory and we think that that's.

Speaker Change: That's going to result in share gain by sort of opening up a place where both TPI and teradyne are differentiated from their competition.

Unnamed Speaker: Richard, got it. Thank you. Very helpful.

Speaker Change: Got it thank you very helpful.

Sanjay Mehta: Yeah.

Unnamed Speaker: Thank you.

Traci Tsuchiguchi: Thank you. Ladies and gentlemen, we have reached the end of the question-and-answer session. I will now hand over to Traci Tsuchiguchi for closing. Thank you all for joining us this morning. We look forward to seeing many of you through the course of the quarter, and until then, have a great morning. Thank you for attending.

Unnamed Speaker: Ladies and gentlemen, we have reached the end of the question and all of the session.

Sanjay Mehta: Thank you ladies and gentlemen, we have reached the end of the question and answer session I will now hand over to Tracy.

Traci Tsuchiguchi: I will now head over to Traci Tsuchiguchi for closing remarks. Thank you. Thank you all for joining us this morning. We're supporting many of you to the course of the quarter, and we hope that you have a great morning. Bye.

Traci Tsuchiguchi: Okay. Thank remarks thank.

Traci Tsuchiguchi: Thank you. Thank you all.

Traci Tsuchiguchi: Thank you all for joining us this morning.

Speaker Change: In many of the questions <unk>.

Speaker Change: Okay great.

Traci Tsuchiguchi: Yeah.

Unnamed Speaker: Thank you.

Unnamed Speaker: Ladies and gentlemen, I conclude today's event. Thank you for attending. Anyone?

Traci Tsuchiguchi: Thank you ladies and gentlemen that concludes today's events. Thank you for attending and you may now disconnect your lines.