Q3 2024 Teradyne Inc Earnings Call

Opening remarks, we'll provide details of our performance for the third quarter of 2024, and our outlook for the fourth quarter of 2024.

Our chili's containing our third quarter results was issued last evening.

We are providing slides as well as a copy of this earnings script on the Investor page of the chart on website that maybe helpful. In following the discussion.

Advanced robotics industry.

Speaker Change: Sanjay will then provide more color on our third quarter results and forward looking guidance.

Sanjay: Generally the market dynamics that we identified in our July earnings call have continued through the third quarter. The ongoing strength of cloud AI is driving demand in both the Src and memory test markets and our semi test business is performing above our expectations.

Sanjay: Within semi test the memory business delivered record high revenue in the third quarter on strong HBM demand, our Soc business was driven by networking and by vertically integrated producers or vips toward designing silicon for their own use in cloud and edge AI applications.

Sanjay: Beyond compute and memory, we're beginning to see stabilization and in some cases modest levels of improvement in our other semi test segments.

Sanjay: We are seeing utilization rates continue to tick higher as testers. Initially purchased for mobile are increasingly being upgraded to test cloud AI compute devices.

Sanjay: By the beginning of 2024, our lead times had returned to normal and while our customers are not generally providing forecast forecast beyond a quarter or two.

Sanjay: Which limits our visibility, we do expect a broader market recovery as we progress through 2025.

Sanjay: Robotics powered by channel transformation in Sam expansion continues to outpatients peer group as it operates in a difficult macro industrial environment that has now persisted for more than two years.

Sanjay: Focusing in on Q3, we.

Speaker Change: We delivered third quarter financial results at the high end of our revenue guidance range and above the high end of our gross margin and earnings guidance ranges memory and Soc came in above our plan driven mainly by AI applications.

Speaker Change: In Q3 cloud AI drove compute revenue with notable strength in networking devices as we have discussed in the past AI enabled data centers require much denser networks and our incumbent leadership position in networking combined with shipments to support Vips as a resulted in a considerable shift in our revenue.

Speaker Change: <unk> mix.

Business in particular has been impacted by the slower than expected ramp of Wi Fi and access points Pcs and laptops.

Speaker Change: Our <unk> business continues to wait for our primary customer to work through capacity and our production Board test business continues to be weak mainly due to low demand from tier one automotive Oems.

Speaker Change: Now turning to robotics.

Speaker Change: Despite roughly flat quarter on quarter revenue, our robotics business has delivered 8% year to date growth. Despite a worsening industrial macro backdrop, we see our industrial automation peers with year over year declines averaging more than 10%.

Speaker Change: While the basic demand drivers for advanced robotics remains low penetration rate the demographics of an aging population fewer young workers willing to do factory work and the compellingly short ROI.

Speaker Change: Industrial market that we serve is inherently cyclical and our customers have significantly cut back on capital investment plans. We believe a more appropriate short term indicator of progress is to consider performance relative to the peer group rather than an absolute growth metrics for this business to consider absolute growth one.

Speaker Change: Leads to look over complete business cycle.

Speaker Change: Even in the adverse business environment. The robotics team is seeing good progress in executing its growth strategy.

Speaker Change: Our highest priority and robotics go to market transformation is the development of an OEM solutions channel for you or this.

Speaker Change: This channel is highly valuable because customers purchasing cobalt based solutions from these partners get into production more quickly and have fewer problems and customers that develop custom solutions in.

Speaker Change: In the first three quarters of the year OEM revenue at EUR is up over 50% compared to 2023.

Speaker Change: Innovation, driven Sam expansion is central to outgrowing the market.

Speaker Change: non-GAAP gross margins were 59, 7%.

Speaker Change: This was above our high guidance due primarily to product mix.

Speaker Change: non-GAAP operating expenses were $275 million.

Speaker Change: Up sequentially and year over year, consistent with our guidance as we invest in targeted opportunities to drive long term growth.

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

Speaker Change: Turning to our revenue breakdown in Q3.

Speaker Change: <unk> revenue for the quarter was $543 million with Soc, contributing $393 million and memory $150 million.

Speaker Change: Strength in <unk> was driven by compute while mobile and industrial continued to ship at a consistent level with Q2.

Speaker Change: Memory test revenue was driven by HBM DRAM shipments flashed tooling.

Speaker Change: New Uff's Vornado standard in mobility, and DRAM wafer sort.

Speaker Change: In memory, we continue to expect DRAM to dominate the memory mix at over 80% of the memory Tam in 2024.

Speaker Change: And system Test group Q3 revenue was $73 million with continued weakness across the businesses.

Speaker Change: Production Board test business decline was driven by weakness in the automotive end market.

Speaker Change: George test weakness in SLP was tied to the mobile end market.

Speaker Change: While the HDD end market is recovering but demand is being satisfied with underutilized test capacity.

Speaker Change: In wireless test revenue was $33 million in Q3, lower sequentially and year on year.

Speaker Change: On a slower than expected ramp of Wi Fi seven and continued weakness in the PC end market.

Speaker Change: Now to robotics.

Speaker Change: Revenue was approximately $89 million flattish sequentially and up 3% year over year.

Speaker Change: In the quarter, you are contributed $73 million and near contributed $15 million.

Speaker Change: As noted although the overall market is down we are experiencing year over year growth tied to our Sam expansion and channel strategies.

Speaker Change: Some other financial information in Q3.

Speaker Change: Range has been 3.6 to $4 2 billion.

Speaker Change: With a midpoint of $3 9 billion.

Speaker Change: We now expect the Soc Tam to be at the high end of this range around $4 2 billion.

Speaker Change: This is comprised of compute which we now estimate to be $1 8 billion.

Speaker Change: Up $200 million from our prior midpoint estimate and industrial to be around $400 million.

Speaker Change: Up $100 million from our prior estimate.

Speaker Change: We continue to estimate mobile will be around $800 million.

Speaker Change: Auto MCU to be around $500 million.

And services at $700 million.

Speaker Change: We are also raising our memory Tam estimate to $1 4 billion.

Speaker Change: Up from an estimated range of one two to $1 3 billion.

Speaker Change: Within our 2024 expectations as Greg noted.

Speaker Change: We are calibrating, our expectations of growth in robotics around the relative growth of the peer group.

Speaker Change: We are targeting growth in our robotics business to be 15% to 20% above the industrial automation peer group, which contemplates macroeconomic factors that are outside of our control.

Speaker Change: We're confident in the long term growth of this business and we'll continue to have a disciplined approach to spending.

Speaker Change: Given the weak end market, we now expect robotics growth in 2024 to be between five and 10%.

Speaker Change: With regard to capital allocation we.

Speaker Change: 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.

Speaker Change: Looking ahead to 2025 with an uptick in utilization and an expectation of end market improvement, we will be making investments that will increase our operating expenses.

Speaker Change: However, we expect to have a plan with operating leverage.

Speaker Change: We expect revenue growth to accelerate from 2024 levels across all businesses.

Speaker Change: and what are the opportunities that Taradan could benefit from. For context, SLT was mostly opportunities in a smartphone and I'm under in question that the Enmarked diversiflan and I want to hear how Taradan's producers know how to follow.

Speaker Change: The

Erie: I'm Erie.

Erie: Unlike the semiconductor ATE market, there aren't as accurate measures of Pam in the SLT space, because there are a lot of fuzzy edges between SLT and Vernon, there are different methodologies.

Erie: So we look more at this from a major customer perspective and a segment perspective. So you're right.

Erie: The thing that happened over the past few years, maybe the last five years or so, is SLP becoming an important part of the test strategy for the processors that go into smartphones.

Erie: and that has been the primary driver for us, our business. Over in 2024 we have added compute customers to that next.

Erie: and we're really going to hit more, like I think that's only going to be a meaningful contributor to SLT revenue once we get to 2025. There's a little bit in 2024 that'll be more in 2025. We also want this.

Erie: The mobile downturn has been going on. We have been adding additional customers in the mobile space.

Erie: So when the mobile market, you know, hopefully recovers to an extent in 2025.

Erie: We expect that to grow a little bit more robustly because we have an additional customer there.

Erie: So I don't have a firm answer to give you, but we certainly believe that we're looking at a significantly stronger 2025 than 2024 in SLT.

Speaker Change: and just as a follow up.

Speaker Change: When I asked your customers, it seems like the overall test done for the mixed generation of AI Blackwell included by more than 30% versus the prior generation. And I'm just wondering, given the fact that you're having...

Speaker Change: Limited Exposure to Accelerator, part of the AI Monk, with the escalating test time, open the door for a turn-on to come in and reduce the test time, and this is where SLT could potentially become an enabler.

Speaker Change: So, it says this.

Speaker Change: The umm...

Speaker Change: The trend that you're talking about to higher test times is really...

Speaker Change: is finally tied to the complexity of the device. Blackwell is a huge dye. It's test time is...

Speaker Change: quite well optimized to the complexity that's there.

Speaker Change: and...

Speaker Change: there are ICSLT as primarily a way to limit the growth.

Speaker Change: If the test time tracks with the transistor complexity increase, it would go off by a lot more than 30%. SLT is sort of a backstop that's keeping that growth down.

Speaker Change: Um...

Speaker Change: and we have significant opportunities in AI accelerators.

Speaker Change: But I don't see a significant opportunity for us to gain share with, you know, in a specific part like Blackwell. Our future is much more strongly tied.

Speaker Change: to the vertically integrated producers.

Speaker Change: So as the hyperscalers begin to deploy.

Speaker Change: a greater amount of compute power.

Speaker Change: On their own silicon, that's the thing that's going to be driving our improved results in the compute space.

Speaker Change: The other thing about that is coming along with that increased complexity in each of the devices is for when you're trying to do...

Speaker Change: AI model training and the number of nodes in the model are increasing and increasing. The amount of networking is actually increasing at a faster pace than the number of nodes. So that's...

Speaker Change: and then what the next.

Speaker Change: If you look within a single company they don't have AI accelerators and networking devices. The amount of test seconds required for the networking devices is going up at least as fast as the number of test seconds for the...

Speaker Change: for the call of compute devices, because there's simply more links. So, yeah, I think this test time expansion is kind of a broad...

Speaker Change: Hail Win for the APE industry. We're going to be looking at larger TAMs, more testers. And I think that the key messages that our primary opportunity is through the growth of the VIPs in the market.

Speaker Change: Thank you.

Speaker Change: Anxquestion comes from Bivic Arial off Bank of America's securities. Peace, go ahead.

Bivic Arial: Thank you for taking my question. I'm not sure how the Sam is being taken up several hundred million dollars but yours.

Bivic Arial: Q4 and Q1 sales are going to be below Q3 sales and as we look forward, do you think that this 20-25% sales, which is kind of in line with the model figure, that's the realistic target for 20-25.

Speaker Change: So let me take this in two parts. So in terms of the tam expansion, there's...

Speaker Change: Three factors, there's really two factors going on.

Speaker Change: One is that as we are measuring ourselves and our competitors, we're seeing significantly stronger business in AI compute.

Speaker Change: and things that are related to that HBM memory. The other factor is that as the year is going on, we are getting better visibility into the...

Speaker Change: into the size of the tan in China and the success of the local Chinese tester companies.

Speaker Change: Burving that Chinese town. So there's a, you know, there's...

Speaker Change: The man from companies in China that's being served by companies in China. And it's not so much that that is strengthening, but we're getting a clear picture of how much of that's going on.

Speaker Change: So, because of Territion's relatively low exposure in China, that isn't as big of a factor around our share of our growth.

Speaker Change: But it is certainly something that is accelerating the tan. Our estimate of the tan is 2024. Now, the second party of question around like our model would suggest growth of 20 to 25% in 2025.

Speaker Change: will be given you a complete picture of what we believe is like what our estimates are for 2020, I specifically in our January call, but I think the ingredients are there for us to be able to stay on model towards our 2020 six-pointing.

Speaker Change: and follow up. If I do a five year look back for your automation or your robotics business, the 29th to 24th.

Speaker Change: is a model that's right, it shows the 5% cager. So what explains that software grows, you know, how does that long-term trend compare against the industry and what needs to happen, or they're relying to grow at this 2030 percent, you know, forecast for the next handful of years.

Speaker Change: So that's a really good question and it's something that we've spent a fair amount of time doing some soul searching about ourselves. And when you're trying to look at this, we saw a number of different factors.

Speaker Change: One thing that has happened is that if you rewind the tape, you set a sort of a five-year-old

Speaker Change: 2020 was a...

Speaker Change: of business mode year for industrial automation in general. The semiconductor industry recovered very quickly because it was a critical industry during the COVID pandemic. And results were really, really strong there. But for industrial automation, including our industrial automation, it was a very, very difficult environment to try to grow sales.

Speaker Change: There was a strong recovery from that in 2021 and then after that, 2022, our growth really flattened out and we had negative growth in 2023.

Speaker Change: In the period from 2023 up to now, actually the second half of 2022 through now, we've been looking at very soft.

Speaker Change: and Market. The Industrial PMI has been Apple below 50% indicating contraction for two years.

Speaker Change: That coincides with the post.

Speaker Change: COVID, construction in general, and also the period of time when interest rates started going up, making capital title or tighter for industrial expansion.

Speaker Change: We haven't been sitting around while that's going on. We have been looking at our own performance and our own issues in that business.

Speaker Change: and the key thing that we saw in that business was that our distribution was inadequate for the growth.

Speaker Change: The growth objectives that we have.

Speaker Change: and that in order to serve this huge, un-served market that we needed to actually broaden our offerings both in hardware and software. And so that's what we've been doing. While this, you know, while we've had these terrible and market conditions, we've added...

Speaker Change: Hi, pay load. We'll watch the two RUR line. We have, we're about to introduce.

Speaker Change: A product from near that will roughly double our serve market and we've established an effective OEM Solutions Channel for you are. That's now accounting for a material part of their sales and growing 50% year over a year in a week market. So we definitely need...

Speaker Change: Battle!

Speaker Change: and Market Conditions, then we see right now for us to be able to maintain 20 to 30% growth. What Sanjay said I think is right, that we think we can outgrow the sort of traditional suppliers and robotics and industrial automation by 50 to 20% at points per year.

Speaker Change: and that market typically grows a little bit faster than GDP, you know, sort of a 5% growth rate. So that would put us in the 20 to 25% growth just, you know.

Speaker Change: with a normal market. So I think we have pretty strong conviction that we've done the right things to set ourselves up for growth, but we're consistently looking at it and adjusting.

Speaker Change: Thank you very much.

Speaker Change: The next mission comes from the literary of UBS. Please go ahead.

Speaker Change: Thanks a lot. Some Jay, you guided FX next year up low teams and you talked about how that's going to be focused in semi-test, but you'll also think you want to show leverage next year.

Speaker Change: So implicit in that statement, you think you're going to grow revenue something higher than that.

Speaker Change: The street right now has it up low 20s. So is that a reasonable number since you're growing, you know, up, you know, low teens is the street, you know, projection of up low 20s. Is that, is that a reasonable number? Or do you think you can grow this after that?

Speaker Change: Yeah, I can.

Speaker Change: I think it's a couple of things. One is we do have convictions.

Speaker Change: and as I noted my prepared remarks, we believe that across the business we're going to see an improvement.

Speaker Change: However, we are in a downturn or a muted set of demands for mobility, auto and industrial.

Speaker Change: and when that exactly turns, it will be an interesting.

Speaker Change: Dynamics. That'll fluctuate where we end up in 2025. We will provide a view in 2025 in our January call, but the other implicit point that I really wanted to make was.

Speaker Change: Hey, this is a dynamic environment. We're going through our strategic planning process now that culminates with our board and then, you know, we provide an update to the earnings model and January as we always do. And we're still going through that process. But one of the principles that we look at is, is how do we have operating efforts. We wanted to put that out there. Now.

Speaker Change: We do see that the market's changing pretty significantly to go back to.

Speaker Change: in 2008, you see mobility being very, very strong and now obviously with segment shift.

Speaker Change: to compute. You know, we believe we've noted several years ago, we pivoted to the IP or hyper-stale strategy that is, you know, we feel as being very successful.

Speaker Change: in the fourth term and we're making the right.

Speaker Change: Engineering and Go to Market Decisions, we believe. So, tactically, while we have this principle of driving operating leverage, tactically, we are looking at investments very carefully. But this is where we expect to be. We wanted to make sure we set the right expectation from an investment profile as well as came out with a principle of operating leverage.

Speaker Change: If I think just add for one comment that as we were looking at our...

Speaker Change: are 2026 earnings model and trying to make sure that we were providing...

Speaker Change: Useful, like as much useful information as we can know, without having complete plans for 2025.

Speaker Change: The thing that we were most concerned with that, there was a chance that people would misunderstand our trajectory in OPEX going into 2025. We were less concerned about the sort of...

Speaker Change: The impressions that existed, you know, sort of the implication of our 2026 earnings model on 2025. We had less concerns about that in the area of revenue growth.

Speaker Change: Thanks for that.

Speaker Change: I mean, obviously, as you guys know, I don't say good things about the investor, all the nation business often. So I guess maybe I'll ask a question that could be a kind of a green shoot question.

Speaker Change: And if you look at this white paper, I mean Amazon obviously has Kiva for automated, guided robots, but they do have this new white paper where it looks like

Speaker Change: They're looking to fill a niche with co-bots for warehouse and full filament things like that. So is that a green shoot that maybe, I mean, AI obviously hasn't done, you know, has not grown much, but is that a green shoot that maybe...

Speaker Change: would really start to catalyze that business.

Speaker Change: So, um...

Speaker Change: We don't comment on sort of specific customer engagements.

Speaker Change: The thing that I've seen the same white paper that you've seen and it's really exciting technology. The thing that's exciting to me is that they're applying AI to allow for co-vots to be able to react, to deal with hundreds of thousands of skews that they need to deal with on a day-to-day basis.

Speaker Change: We have other customers in the logistics space that are using AI and co-bots in a very similar way. They're for, like, huge storage systems for, you know, online grocery picking, you know, those kinds of applications.

Speaker Change: The Green Shoot in our mind is how AI can be used to allow co-bots to be applied to a much broader range of problems than it's been able to serve before. And I certainly believe that online retelling is one of the richest areas for that to possibly grow.

Speaker Change: Thank you, Greg.

Speaker Change: Anxcresion comes from some ecu-chartigy of JP Morgan. Please go ahead.

Speaker Change: Thanks for taking the question. So for the first one, I'm just trying to go back to your comments on the prepared remarks about growth being significantly higher in 25, rate rate rate 24. I'm just trying to think about it in terms of the term by segments that you outlined. I remember the previous deal outlined that the compute dam probably.

Speaker Change: is really not where you see a lot of upside down to 25 but more in the sickle, part of the damn that you outline like mobility in others. I mean more curious if that's still your view as it's looked forward to 25.

Speaker Change: because it's just outlined today as well that the memory or the HPM time might be sort of flattening out as well. So, is it still very much when we try to think about next year's significantly extra growth as it really is driven by the cyclical parts of the time or either of you changing on compute or memory in aggregate.

Speaker Change: and all in relation to that, then I will be quick follow.

Speaker Change: So I'll give my usual, we'll tell you in more detail what our view of 25 is in January. But since we talked a little bit about this last quarter, what I'll do is I'll give you an update, sort of.

Speaker Change: What we've seen to modify that view.

Speaker Change: So last quarter we've seen what I was saying last quarter is man compute is hot.

Speaker Change: I can't imagine it's going to get much hotter.

Speaker Change: You know what? It's probably going to get a bit hotter. You know, it's probably going to grow a bit from where it is now. We certainly are expecting recovery from the lower levels that we see in 2024 in the automotive and industrial space.

Speaker Change: There's a lot of end-market demand that is going to come. The crossover from internal combustion to EV, even though it's delayed, it's going on and every single model year of car is increasing the semiconductor content.

Speaker Change: We see that there are long-term growth drivers that are going to help us in auto-industrial in memory.

Speaker Change: We do think that HBM will moderate, but...

Speaker Change: Honestly, the other parts of the memory market are still quite weak. The DRAM market is like 80% this year of the dam. And it's usually much more balanced than that. So we think that there's definitely room for influence strengths in the flash part of the memory market.

Speaker Change: So I think, I guess the premise of your question is, is it like AI being the sole growth driver next year? I think that the real story is the rest of the market kind of improves incrementally underneath a very strong AI market.

Speaker Change: Karno, that's helpful. For me, second one, just on Sanjay you mentioned the Seas Lighting too.

Speaker Change: One, Two

Speaker Change: So, if I sort of look at your business as AI versus sort of the more cyclical parts, are the AI pieces also going to go through a seasonality, typical to the rest of the business, or are you seeing those sort of stand out in a railroad seasonality, and it's more driven by the cyclical aspects that you sort of take that step down into one queue. Thank you.

Speaker Change: Yeah, I think if you look at our history, what you'll see is a seasonality come down in Q1 and we're seeing that in robotics, specifically, you know, historically we've seen strong Q4s.

Speaker Change: and then come down to come down and keep one. And then from a test perspective, you know, the AI, the AI strength right now, it'll be interesting to see because you know, one thing I want to tie back to is that

Speaker Change: You know, our lead times have come down.

Speaker Change: and significantly from where they were several years ago. And one of the drivers of our strengths in T3 was really tied to customers pulling in future forecasts to me current way for roads and test requirements.

Speaker Change: and we're seeing that more and more and we're positioned well to service after. There have been some unforecasted demand. So I would say that the visibility is starting to get a little bit lower.

Speaker Change: Looking out into two kind of two-one kind of tactical execution perspective now, we are positioned well that if customers come in and we can service it but even in test we are seeing historically a little bit of seasonality but a large part is driven by

Speaker Change: by Gregory Barak and a little bit in tap.

Speaker Change: Next question, come from Brian Chen, a stifle. Please go ahead.

Speaker Change: Brian, your line is open, you can ask your question.

Brian Chen: Other, sorry, does that. Next, I was going to ask you questions and good morning. Maybe just first question, did you discuss why the industrial test tan was revised higher for this year, is there a connection to China there, or would you explain that in another way?

Speaker Change: Yeah, so you hit the nail on the head. This is in a case of the industrial jam.

Speaker Change: Langstoning from quarter to quarter, it's a case of us getting better visibility into the size of the tan that existed in China that's being served by indigenous suppliers.

Speaker Change: Okay, that's very clear and helpful.

Speaker Change: and Greg Maynard, can you also...

Speaker Change: We need to be references on prior calls and I think this is well but can you help to quantify roughly what percent of the noble?

Speaker Change: installed test or base. I assume that those apps, principally, has been reduced, rationalized repurposed for other chips and markets such as AI accelerator, GPUs and ASICS.

Speaker Change: Oh, yes. So right now, like as of today, based on the upgrade shipments that we've done, over 100 testers have been repurposed.

Speaker Change: and by the end of the year we expected over 200 testers will have been repurposed into other markets. Most of that isn't to compute but not all of it. And the other thing that we look at is...

Speaker Change: TURN!

Speaker Change: Be directionally what's happening with utilization. We don't trust the absolute numbers, but since we keep our measurement methodology consistent, you can get a better idea of whether things, whether capacity is getting tighter or looser. And we've seen a meaningful uptick in utilization as these testers have been converted and put to use.

Speaker Change: So we definitely believe that there's less idle capacity now than there was a quarter ago and there'll be even less when we get the end of the year.

Speaker Change: I think that's helpful. You understand, because the supply side of that and the demand is what you're kind of floating at the moment for next year. They be one last quick question. And I understand maybe the reluctance to give a number for 2025 of that.

Speaker Change: of that VIP compute tab. But you know, you're rather higher again for this year. Yeah, maybe it'll ultimately push higher in terms of what you're 26.

Speaker Change: Do you have been the maybe-canial release talk about the key considerations that maybe drive the size of that opportunity next year and is our constraints for things like co-oscopacity or HBM supply one of those considerations.

Speaker Change: Okay, so um...

Speaker Change: So first in terms of the VITs, what we've said before is...

Speaker Change: That we fight 2026, we believe that the Tam will be about five per VIP compute that we believe the Tam will be about $500 million.

Speaker Change: This year we believe that time is going to be about $300 million and frankly that was a positive surprise in terms of the market size for 2024.

Speaker Change: Because of that, we are currently taking a hard look at whether that $500 million number for 2026 is right. And we'll give you an update in January about whether we think that that's...

Speaker Change: That that needs to be revised upwards. I certainly feel like there's upward pressure on it. The other thing that we've said about the VIP Tam is that, because it's...

Speaker Change: So few producers and so few part types.

Speaker Change: The Tam is really lumpy, you know, so you strike a winner, you get a big amount of orders in one period of time, and then that capacity gets in place and it's used.

Speaker Change: So that market has not sort of reached a level of maturity and breadth.

Speaker Change: where you can draw a straight line to say, it's this in this year, it's this two years later, therefore it's going to be halfway in between in the middle year. But the trend is definitely strengthening. Now in terms of the constraints.

Speaker Change: The things that we are seeing when we talked about the IT customers is that they are constrained in terms of the amount of HBM memory they can get. They're constrained in the amount of advanced packaging in order to be able to assemble these kinds of parts.

Speaker Change: Those are probably the two most important constraints. The other thing that I think is a x-factor in the space is the part has to work.

Speaker Change: These are huge dies, you know, radical, radical constrained dies sizes and they are designing a fair amount of redundancies to try to make sure that they get adequate yields.

Speaker Change: This is not a slam dunk that these parts are going to work the first time around. So the demand for these testers can shift around in time. So it's a kind of challenging space for today, but it's definitely the trend as movement faster than we thought it was.

Speaker Change: Yes, it's a super helpful color, that's great.

Speaker Change: An excretion comes from CJ Moose of Kind of Fritz Gerald. Please go ahead.

Speaker Change: Good morning. Thank you for taking the question. I guess first question, I realize you want to save.

Speaker Change: the Thunder for your analyst day in March.

Speaker Change: But everything that I'm hearing in this call is telling me that 2025 is a transition year. Your op-action Q1 is at new high, small, your revenues are 37% below prior peak. So can you give us a little bit of help here to understand that there's actually real leverage in the model in 25?

Speaker Change: Hi, CJ. So, when we take our as Greg noted, hey, what we're going to do is to teach the planning process and and um...

Speaker Change: So what we're seeing is early indicators are that we are talking to customers and hearing about their plans.

Speaker Change: We have gone through our early market kind of size assessments and as Greg noted, hey look, we are seeing

Speaker Change: We are seeing incremental, or we are planning incremental growth in mobility, auto, industrial.

Speaker Change: and from a percentage wise that's coming off of a low base so that would be higher.

Speaker Change: and compute is doing really well. So we feel comfortable at this point with all the facts we have. We did note that we do expect to see operating well for 12. We do grow low teens in the way of offense.

Speaker Change: and a lot of changes in 90 days and we've got to complete our planning process.

Speaker Change: and we'll provide an update but we feel comfortable at this point. We expect to see if you operate well over in our business in 2015. If I can just add a...

Speaker Change: and a little bit of add-on to that.

Speaker Change: When we hit our prior peak, the upturn that we're serving was...

Speaker Change: from S.P.S.

Speaker Change: played precisely into a terranine strength. You know, like, we are great in mobile, and it was a huge boom in mobile demand.

Speaker Change: and so we were operating at peak efficiency. We did not need to lay our insignificant effects in order to serve that level of revenue.

Speaker Change: Coming out of, you know, like, and it's pretty clear from our earnings model that we believe that we are set up for relatively robust tamgrace over the next couple of years.

Speaker Change: The difference is that that Tam Grove does not naturally play to where Taradine's historic strength was.

Speaker Change: and so we needed to pivot and we needed to invest in order to make sure that we were able to reach the benefit of the change in the market.

Speaker Change: and so we made significant investments to try and align to the HBM market and we are making significant progress in terms of our exposure in our success in the performance stack digest.

Speaker Change: We made significant investments in engineering and sales and marketing in order to align to the IPs. And our share and compute the IPs is 50% this year versus, you know, like.

Speaker Change: Much, much lower share and traditional compute.

Speaker Change: The Earth like...

Speaker Change: The thing that you need to understand is...

Speaker Change: This is a conscious decision on our part.

Speaker Change: We were able to control the changes in the market, but we were able to react to it. And to be able to increase our investments moderately while still maintaining...

Speaker Change: is very, very good operating margins is the thing that we need to do to try and make sure that we maintain a leadership position in this industry.

Speaker Change: Thank you very much. As my follow up, the near-care question on robotics.

Speaker Change: It looks like you're guiding that business to grow 50% to quench the wind December. Can you walk through the drivers there and how to think of what the business will look like after that? I believe that.

Speaker Change: and I'm driven primarily by Mayor Products Michael, but we'd love to hear more calls of there. Thank you.

Speaker Change: Yeah, so the...

Speaker Change: The robotics business has historically had.

Speaker Change: Very, very large Q4

Speaker Change: There's a lot of seasonality in that business and this year is no exception that we re-except.

Speaker Change: is sort of the normal season now with the pattern.

Speaker Change: We also expect that the growth that we're seeing in the OEM channel and with heavy payload is going to continue to contribute.

Speaker Change: Also note like it's a lesser fact to it but now there's a more meaningful amount of service revenue that's coming into those businesses.

Speaker Change: So the mere story is much more of a 2025 story than a 2024 story.

Speaker Change: We need to get our next new palli-check into the hands of customers.

Speaker Change: That is going to happen at the end of this quarter, but it's not going to be a material.

Speaker Change: and the Institute for the World War II. So it's really more of you of the pipeline that we have, like our lead pipeline for Q4, how strongly expect that business to be from what we have going now than any contribution from like a mere new product.

Speaker Change: Thank you.

Tishiyahari: An expression comes from Tishiyahari of Golden Sacks. Peace going ahead.

Tishiyahari: Hi, good morning. I had two questions as well. First on the Mobile SSE Test Tam, I know you're not giving guidance for 25, but Greg, I'm curious how you're thinking about the opportunities that medium to long term. I think the market peaked around 2 billion, you know, a couple years ago several years ago. You're at 800 million today. How do you think about sort of a through cycle?

Tishiyahari: I know there's no steady state, but how do you think about sort of the through cycle opportunity for mobile? You talked about utilization rates coming up per your market intel, but we didn't belong to our, you know, are you thinking a billion, two, a billion, three for mobile tests and some of the reasons behind that would be super helpful.

Speaker Change: Yeah, so I think...

Speaker Change: Once we get to steady state in terms of having shoot up the excess capacity and I think that happens in 2025 I think that kind of I would expect that the floor in Moe was going to be closer to a billion dollars than the 800 that it is now.

Speaker Change: The up from that is really going to depend on whether...

Speaker Change: AI enabled smartphones are a thing or not, and whether AI enabled smartphones deliver compelling customer value.

Speaker Change: because that's a two foot in terms of the market. If a phone comes out that has a much more complex processor, that's going to require more test time, which means that you need more testers to do it. And if it offers...

Speaker Change: Teachers that customers want badly enough, then that drives the refresh cycle down.

Speaker Change: and right now like the average age of smartphones is older now than it's ever been. You know that people have been holding onto their phones much longer because there really hasn't been that compelling new feature that drives people to upgrade.

Speaker Change: So I really think that upside to like a $1 billion loanable is going to depend on whether the refresh rate in phones goes up and phone unit volume goes up.

Speaker Change: Scott, thank you. And then as my follow up, just a question on how you're thinking about.

Speaker Change: the overall business portfolio. It's been, I think, something like...

Speaker Change: 8 years since you guys acquired, you are and I know that pre-day to becoming CEO of the company.

Speaker Change: But since then, I think at the time I think the growth expectation around semi-test was lower perhaps than high-res thinking about the business today.

Speaker Change: and I think the market sort of perceived the acquisition as a diversification play. When you think about the opportunity set today, I think you've got a lot going on in semi-testing. You touched on quite a few of those things, whether it be HPM or the VIP opportunity set. I guess to ask the question bluntly, do you feel like you're still the right owner of the robotic business? Do you feel like you're getting fair value for running this business? And do you guys ever internally debate?

Speaker Change: Separating the two businesses. Thanks.

Speaker Change: Yeah, no, that is a remarkable one question.

Speaker Change: and the White in terms of the initial motivation that the way the world looked to us in 2015 when we bought you are.

Speaker Change: We were coming out of...

Speaker Change: like a decade of shrinking tams in the semiconductor test market.

Speaker Change: and over that same decade.

Speaker Change: and I also double the armshare.

Speaker Change: in the semiconductor test market. So, you know, like in that environment, we managed to become more profitable, we managed to essentially double our share position.

Speaker Change: But we didn't see that as a great long-term growth strategy. You know, like, oh, you know, you can end up owning a market that goes away. That's not particularly satisfying. So we were definitely on the hunt for a way to ensure the long-term growth of the enterprise.

Speaker Change: Dallas are original motivation.

Speaker Change: The thing that we have discovered since we've bought these robotics companies is that paradigm.

Speaker Change: Essentially presents a unique value proposition in the advanced robotics space.

Speaker Change: that if you look at the people that compete with us in the end of the automation world.

Speaker Change: The folks that are coming from industrial robots and industrial automation, the big players.

Speaker Change: Air Typically.

Speaker Change: Not as comfortable in terms of delivering very high tech products with very, very high tech.

Speaker Change: Very, very high reliability requirements.

Speaker Change: Now what we do with testers is honestly kind of astonishing. The level of reliability and the level of complexity is really kind of off the charts.

Speaker Change: and being able to bring that mindset and that skills that to our robotics businesses and also that reputation to our robotics businesses allows them to really compete well against the traditional IA folks that are pivoting into the advanced robotics space.

Speaker Change: and it gives us a killer advantage against the pure play advanced robotic folks because they're typically undersized, they're understale, they're spending beyond the spending to a loss.

Speaker Change: They don't have international distribution for a spares in the existing network. And so we kind of think that we are the right player to bring advanced robotics.

Speaker Change: to an industrial scale.

Speaker Change: So...

Speaker Change: The debate that we have is, there's some point in the future where we may unlock shareholder value by having these two businesses be separate. Maybe. But right now, we think that the paradigm...

Speaker Change: is like attaching paradise to the advanced robotic name is actually a significant differentiator and will allow us to lead in that space.

Speaker Change: An expression comes from Chris Shankar of TD Colton. Please go ahead.

Chris Shankar: He has thanks to the equipment question, Greg, I hope they've focused on how this one will come back to his apex thing, either for Greg or Sanjay

Chris Shankar: I thought the strategy on the semi-taside was with VIPs to engage earlier and then on the GPU customer side was to get into the networking test side with the semi-taside topics, and I tried to build new platforms to compete and basically going to understand this is a structurally new topics level for the semi-taside business.

Chris Shankar: was just strictly confined to get market share.

Chris Shankar: So, um...

Speaker Change: I would consider it more to be cyclical. It's not, and for sure, we're always trying to get more market share, right? So that's kind of a given. The thing that we're seeing is that these VIP customers...

Speaker Change: They're building extremely complex devices and the amount of applications.

Speaker Change: and technical support required to help them get to market is.

Speaker Change: is significant.

Speaker Change: and it's worth it. If you invest that money with that team, then you end up with a part that drives a significant amount of business. So the ROI is there to make those investments, but those investments right now, we are definitely in the phase where we're making more investments than we're breathing the results of them. So I think it is a sickle pull effect.

Speaker Change: Long-term, I would expect that we would be able to, like I think we will grow revenue into the topics that we're taking on, not reduce topics.

Speaker Change: again, and we'll be able to hold and grow without proportionally increasing

Speaker Change: and we have a quick follow up on HP and can you talk a little bit about your opportunity and market share in the post tag, Dite Test and also the info slot.

Speaker Change: Okay, so...

Speaker Change: So on Post Stack Data.

Speaker Change: That's a market that's held in was not able to participate in.

Speaker Change: and how we were qualified by a major supplier in the middle of this year. And so we have significant successes for staff-type performance tests in the second half of this year from one of the major HBM suppliers.

Speaker Change: We are in call at an additional ICBM supplier and that's something that we would expect to drive some revenue in 2025, depending on the success of that particular supplier to get shared.

Speaker Change: Now, when it comes to vapor sort of, that really war align to sort of the traditional market share breakdown in the way for sorts space. So, if you look at the, you know, this.

Speaker Change: There's a few important memory players.

Speaker Change: We have great DRAM wait for start share at one of the majors. We don't have much wait for start share at the biggest.

Speaker Change: and we're doing well in the memory infrastructure that are in China. So as they grow, we will do well as well. So I think way for short.

Speaker Change: is probably the shares in Wapers, we're going to say about the same, but we're going to be gaining share in fact ice.

Speaker Change: Thanks for all Gregory, have fun.

Speaker Change: A final question comes from Gust Richard of Northland Curbiddle. Please go ahead.

Gust Richard: Thanks for taking my question. I just want to...

Gust Richard: Ask about your expectations for complexity growth.

Gust Richard: and Mobile processors in next generation next year, you know, inclusion of more AI capabilities, perhaps, integration of modems. You know, do you have any thoughts or any thoughts on what that might look like in 25?

Speaker Change: Yeah, so it's an interesting take.

Speaker Change: The devices that are going to ramp next year are...

Speaker Change: at the test chip phase now and will we expect that there's modest, modest complexity increases and a lot of that complexity increases associated with AI.

Speaker Change: More than this is a different story that...

Speaker Change: We don't see a trend towards additional mode of integration, but we do see the opportunity for...

Speaker Change: changes in supply chain for multiple, like different handset manufacturers may begin to get modems from different sources and they get now. And that's at play both in the iOS and the Android space.

Speaker Change: So we don't see motor migration, but we do see sort of shifts in terms of who's providing those motor.

Speaker Change: Great, that's super helpful. And then just touching on class utilization, you indicated it was up to quite soon. And I was just wondering if you could quantify that a bit more. What was it in Q3? What do you think it, Q2 Q3 Q4? How is that associated utilization? Trended. Can you quantify that?

Speaker Change: I wish I could, but I can't. So I can say that, so we have the numbers and we use them internally and we don't see all that they are well enough, audited to use them externally in this way. The thing that I can tell you is that it's, you know,

Speaker Change: It's up a fair amount quarter or quarter, you know, sort of mid to high single digits change, but I don't really want to give absolute numbers because it's hard for us to do audits.

Speaker Change: and whether that continues in the fourth quarter, my expectation is that we will see significant.

Speaker Change: Continued increases in utilization in Q4, both because of normal seasonality and also because of the number of testers that we have.

Speaker Change: and I'm going to do a few things to upgrade kits to go from one market to another. Someone is not going to upgrade a utilize tester to use it someplace else. They're going to upgrade and underutilize tester. So that's probably going to slide a bunch of testers from the unutilized column into the utilize column. So I think there's going to be additional, additional improvement in utilization in Q4, but I can't give you a hard number.

Speaker Change: Got it. Thanks so much. Appreciate it.

Speaker Change: Thank you. Ladies and gentlemen, we have reached the end of the question and all of the session. I will now hand over to Traci Tsuchiguchi for closing room off.

Traci Tsuchiguchi: Thanks so much for joining us this morning. We look forward to speaking with many of you to the courses in the quarter. Thanks again.

Traci Tsuchiguchi: Thanks for watching!

Traci Tsuchiguchi: The