Q4 2024 Teradyne Inc Earnings Call
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Speaker Change: Greetings and welcome to the fourth quarter 2020 for Teradyne, Inc. Earnings Conference call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance. Please press star zero on your telephone keypad as a reminder, this conference is being Rick.
Speaker Change: It is now my pleasure to introduce Tracy you Chi Gucci, Vice President Investor Relations. Thank you Tracy you may begin.
Speaker Change: Thank you operator, good morning, everyone and welcome to our discussion of Teradyne's. Most recent financial results I'm joined this morning by our CEO, Greg Smith, our CFO Sanjay Mehta.
Speaker Change: Our opening remarks, we'll provide details on our performance for the fourth quarter and full year of 2024, and our outlook for the first quarter of 2025.
Speaker Change: The press release containing our fourth 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.
Speaker Change: Replays of this call will be available via the same page after the call ends.
Speaker Change: The matters that we discussed today will include forward looking statements that involve risks that could cause teradyne's results to material to materially differ from management's current expectations, we caution listeners not to place undue reliance on any forward looking statements included in this presentation.
Speaker Change: We encourage you to review the Safe Harbor statement contained in the slides accompanying this presentation as long as the risk factors described in our annual report on Form 10-K for the fiscal year ended December 31st 2023 on file with the SEC.
Speaker Change: Additionally, these forward looking statements are made only as of today.
Speaker Change: On 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 were available on the Investor page of our website. We hope that you plan to join us for our financial analyst meeting, which will be webcast beginning at one P. M. Eastern time on March.
Speaker Change: 11% to 2025.
Greg Andrews: Following Greg Andrews comments. This morning will open up the call for questions. This call is scheduled for one hour great. Thanks.
Speaker Change: Thanks, Tracy and thank you all for joining us today I'll start off by summarizing our fourth quarter and full year 2024 results and provide some context for our initial view of 2025.
Speaker Change: Then I'll provide context around our updated midterm earnings model I'll describe the trends, we expect to we expect to drive the markets and teradyne's strategy to drive highly leveraged earnings growth through the midterm. Sanjay will then go into greater detail on all of these topics.
Speaker Change: Our fourth quarter came into the high end of our guidance range as trends. We noted previously continued through the end of the year cloud AI has been the dominant driver of our semiconductor test business and we have seen some short term improvement in the mobile space driven by supply chain shifts in our customer base in industrial and automotive our fourth quarter.
Speaker Change: Benefited from customer specific equipment for purchases strengthen our test business more than offset the continuing weakness in the industrial automation market, which impacted our robotics business.
Speaker Change: In 2024 after two years of semiconductor test market declines, our SSD and memory test revenue grew 17% year over year, excluding D. I S. AI was the dominant driver of our growth specifically AI accelerator Asics networking and H B M. DRAM, we have previously.
Speaker Change: We described a class of customers called Vips or vertically integrated producers. We use this term because these customers develop custom silicon to provide differentiation in their end products, whether their phones cars or cloud AI computing.
Speaker Change: In the first half of 'twenty 'twenty, four we saw VIP strength for edge AI and automotive.
Speaker Change: In the second half strength was driven by cloud AI compute VIP customers. Our goal in 2024 was to achieve 50% market share in computing Vips and we believe that we achieved that goal. This is particularly notable because much of the VIP test demand in 2024 came in the form of upgrades to systems.
Speaker Change: Under utilized by the weak mobile market.
Speaker Change: If this demand had come in the form of system sales are V. 'twenty 'twenty four VIP revenue would have been more than double what we recognized in the year.
Speaker Change: At the company level, we grew 5% in 2024, if one excludes the divestiture of the <unk> business or total revenue growth was 8%. We grew earnings per share by 10% year over year and generated over $470 million in free cash flow.
Speaker Change: Our full year financial results reflect an inflection in our business. Both in terms of semiconductor test cyclical recovery, but more importantly, our successful pivot to diversify our customer base and reduce customer concentration.
Speaker Change: In 2020, and 2021 time frame our business was dominated by mobile with high customer concentration in that market back then we were highly exposed to mobile in Soc see memory and wireless test now and 2024. The computing end market was a larger component of our revenue then.
Speaker Change: Mobile as our Soc business in the compute market grew more than three five times the prior year.
Speaker Change: We have been investing to capitalize on the secular shift towards VIP, asics and that yielded roughly 50% share and what we believe was around $300 million Tam in 2024, we have seen growth driven by his our historical strengths in the networking space.
Speaker Change: And we see opportunities in system level test for AI compute.
Speaker Change: The pivot we have executed an SFC over the past couple of years is remarkable in 2023, 11% of our Soc product revenue was in computing and 51% was in auto and industrial in 2024, 34% was in compute and 34% was in auto and industrial.
Speaker Change: Real a balanced that underpins our longer term model.
Recent advancements in AI inference, which appear to reduce the cost and time to develop AI applications may be a catalyst to accelerate a edge AI development. We think this could directly benefit the markets, where we have historical strength mobile and automotive it's early days, but we believe that lower call.
Speaker Change: <unk> lower power and faster time to market AI solutions can drive complexity growth and increased unit demand at the edge, which are key inputs for improving demand for test equipment.
Speaker Change: Looking forward to 2025, we expect the Soc Tam to continue to grow roughly 7% year over year. While some of this growth is driven by AI compute we expect a modest recovery in mobile automotive and industrial in the back half of the year. We believe that we are positioned to gain share.
Speaker Change: In the low single digits in Soc test now shifting gears to memory in 2024, our memory business grew over five grew to over $500 million up 30% year over year strength in the market and our growth was fueled by AI compute demand for HBM DRAM in.
Speaker Change: The second half of 2024, we were qualified for HBM performance test at a major memory supplier, our higher throughput and forward compatibility created competitive differentiation, enabling us to capture significant share of the HBM performance test market in the second half of 2024.
Speaker Change: We expect the HBM device end market to be strong through 2025, however from a test equipment perspective, we are expecting the market to soften as customers absorb capacity with higher productivity tools.
Speaker Change: We expect the HBM Tam to recover in 2026 as a result, we expect the entire memory test market to be flattish in 2025, although we do expect to gain share in the low single digit range.
Speaker Change: Beyond AI compute we believed that there are other segments in the semiconductor test market that offer the opportunity for accelerating long term growth one of these areas as power semiconductors. These devices will continue to.
Speaker Change: Grow long term with the crossover to Evs and the demand for more efficient power generation storage and distribution.
Speaker Change: We are announcing a strategic partnership with Infineon the market leader in power semiconductors to acquire their internal tester development team and Reagan's Berg, Germany. This group will enable us to accelerate our roadmap and power semiconductor space, specifically in areas like silicon carbide and gallium nitride at the ski.
Speaker Change: Bill needed to serve the automotive in renewables market.
Speaker Change: While the semi test business was strong in 2020 for teradyne's other product test businesses, which include our system test and wireless test operating segments continued to be impacted by weak end market conditions.
Speaker Change: Within our product test businesses, we saw some programs pushed out from 2024 into 2025, but scored key program wins that we expect to drive healthy growth in 2025.
Speaker Change: We expect our wireless test business to return to growth in 2025 after securing 74 out of 80 track Wi Fi seven design win opportunities in 2024.
Speaker Change: Turning to robotics, the industrial automation market continued to be weak in Q4, we typically see strong fourth quarter seasonality as customers placed quick turn orders in the back half of the quarter.
Speaker Change: Visibility is inherently low in this high turns business.
Speaker Change: In Q4 of 2024, this seasonality was far more muted than in prior years, and we ended the year down slightly for U R and roughly flat for Amir this underperformed our expectations, but outperformed our industrial automation peer group.
Speaker Change: Despite the headwinds there were highlights for robotics, the EUR channel transformation continues to progress with the OEM channel delivering 20% growth in the near large accounts also delivering 24% growth year over year in 2024 in.
Speaker Change: In the fourth quarter as part of our multifaceted partnership with Nvidia you are launched its AI accelerator late in the fourth quarter mirrors, new flagship product. The AI enabled a mere 200 pallet Jack began shipping to customers and most recently teradyne robotics announced a strategic partnership with analog devices.
Speaker Change: To develop and deploy robots AI and software to support Adi's automation initiative.
Speaker Change: In 2024, we combined you are in near operations into a unified robotics operations group.
Speaker Change: Now in Q1 of 2025, we are consolidating our go to market functions at the robotics level to enable our best partners to solve the full you are in near product line and to serve our customers better with a single customer service organization.
Speaker Change: This restructuring increases our efficiency and reduces our robotics breakeven revenue from $440 million in 2000 $24 million to $365 million in 2025.
Speaker Change: Looking ahead to the next four years, we are very optimistic a year ago, there were questions as to whether Vips would matter and if they did could we win their business at that time, we thought the compute VIP market would be $100 million to $200 million opportunity in 2024 growing to $400 million to $600 million.
Speaker Change: In the 2026 timeframe. Our latest estimate is that the compute VIP market was $300 million in 2024, and the compute VIP market will be centered around $600 million in 2026 and could approach $800 million in 2028, we believe that cloud AI will continue to do.
Speaker Change: Drive share gains for us in Soc and memory by the later years of this mid term as AI moves to the edge for mobile enabled by process technology like two nanometer and gate all around we expect robust growth of the mobile Tam.
With the remarkable complexity of AI computing systems, and the need for highly reliable performance in the training and the use of AI models, we expect growing demand for additional test steps. The addition of system level test insertions for AI compute both in the cloud and at the edge creates an additional growth vector for.
Speaker Change: Teradyne. This was a primary consideration in our decision to align the integrated system test unit within semi test.
Speaker Change: Going forward, we believe that AI will have an outsized impact on the longer term growth of edge devices, specifically in mobile and automotive applications also the trends towards electrification, whether pure EV or hybrid provide considerable growth potential with increasing silicon content per vehicle or invest.
Speaker Change: <unk> in this space, including our strategic partnership with Infineon will help us drive share gains in this highly complex test intensive segment of the market.
Speaker Change: Based on these long term trends, we expect to see healthy Tam growth in the automotive and mobile segments of the market over the midterm our strong market position in these segments will help fuel our revenue growth.
Speaker Change: These positive trends underpin our 2028 earnings model at the mid point of our model, we expect to grow from $2 $8 billion of revenue in 2000 $24 billion to $5 billion. In 2028, we expect EPS to grow from $3 22 per share to $8 25.
Speaker Change: Per share over the same period, implying a 12% to 18% revenue CAGR and a 21% to 31% EPS CAGR over that period, demonstrating considerable operating leverage in our business model to sum up 2024 was a very good year, we have repositioned the company and are seeing.
Speaker Change: The success firm from our investments in AI in compute and in memory. We expect that 2025 will be another good year, we're setting our robotics business up on a sustainable path for long term growth and our test business will grow driven by continued strength in share gains and vips tightening capacity utilization.
Speaker Change: And the return of higher demand and mobile industrial and automotive with that I'll turn the call over to Sanjay Sanjay. Thank.
Sanjay Mehta: Thank you Greg Good morning, everyone today I'll cover our Q4 and full year 2024 financial summary, provide our Q1 outlook some planning guidance for for the full year 2025, and discuss our updated earnings model and capital allocation plan now.
Speaker Change: Now to Q4 <unk>.
Speaker Change: Fourth quarter sales were $753 million with non-GAAP EPS of <unk> 95.
Speaker Change: Both at the high end of our guidance range.
Speaker Change: Semi test revenue, which now includes our integrated system test business or <unk> T comprised of product lines for system level test and HDD test was $561 million.
Speaker Change: Within semi test Soc revenue was $429 million with.
Speaker Change: With memory shipments of $112 million in ISG shipments $19 million.
Speaker Change: Their product test businesses comprised of defense and Aerospace production Board test and wireless test contributed $94 million.
Speaker Change: Robotics revenue was $98 million.
Greg Andrews: Was up 11% sequentially with muted seasonality due to ongoing weak industrial spending as Greg noted, we had softer than expected performance in the robotics business tied to typical turns business that did not materialize.
Greg Andrews: non-GAAP gross margin was 59, 4% just below our guidance range due to robotics non.
Greg Andrews: non-GAAP operating expenses were $284 million in Q4 higher than our guide a majority of the increase was tied to accelerated engineering spend and semi test non.
Greg Andrews: non-GAAP operating profit rate was 22%.
Greg Andrews: Some other financial facts the tax rate, excluding discrete items for the quarter was seven 6% on a non-GAAP basis and lower than planned because of product mix shifts to semi test.
Greg Andrews: GAAP tax rate was eight 7% in Q4, excluding discrete items.
Greg Andrews: We repurchased $144 million of shares in the quarter as we opportunistically accessed our share buybacks dividends were $19 million and we had 110% customer in the quarter.
Greg Andrews: Turning to our full year results are.
Greg Andrews: Our revenue was $2 82 billion.
Greg Andrews: Samsung was the only customer greater than 10% of our revenue for the year.
Greg Andrews: Gross margin for the year was 58, 6% Opex was 1.08 billion.
Greg Andrews: And operating profit was 24%.
Greg Andrews: non-GAAP EPS was $3 22.
Greg Andrews: We generated $474 million and free cash flow in 2024.
Greg Andrews: We returned $275 million or 58% of free cash flow to our shareholders through share repurchases and dividends.
Greg Andrews: We ended the year with $724 million of cash and marketable securities.
Greg Andrews: Our tax rate for the full year, excluding discrete items was 12, 6% on a non-GAAP basis, and 12, 5% on a GAAP basis.
Greg Andrews: Business unit revenues for 2024 were as follows.
Greg Andrews: Semi test revenue for the year, including ISG was 212 4 billion.
Greg Andrews: With Soc revenue contributing 153 7 billion.
Greg Andrews: Memory $502 million.
Greg Andrews: And ISG $85 million.
Greg Andrews: Excluding the impact of our <unk> divestiture, our Soc and memory revenue was 17% year over year.
Greg Andrews: So see growth in the year was driven by AI compute specifically customized asics for Vips in networking.
Greg Andrews: Our memory sales were up 30% year over year, driven primarily by AI compute demand for HBO DRAM.
Greg Andrews: ISG revenue declined 39% year over year, primarily due to underutilized test capacity and HDD.
Greg Andrews: Turning to our other product test businesses. The system Test group, which is combined defense and aerospace and production Board test had revenue of $201 million in 2020 for flattish in 2023.
Greg Andrews: Wireless test revenue was $130 million down from 2023 due to slower ramp of wildfire.
Greg Andrews: The combined revenue of the two operating segments in 2024 was $331 million down 4% year over year.
Now to robotics robotics revenue in 2024 was $365 million with you are contributing $293 million.
Greg Andrews: Year $72 million.
Greg Andrews: Considerably lower than expected volumes in the fourth quarter drove profitability well below our expectations. The group had 13% non-GAAP operating loss in both Q4 and full year.
Greg Andrews: As Greg mentioned, we are restructuring the robotics business to create a single point of contact for customers and partners across you are a mere sales marketing and service organizations to improve customer experience.
Greg Andrews: <unk> of these actions will help drive top line growth in 2025 and improve our efficiency. These.
Greg Andrews: These actions will enable our robotics business to continue to outperform industrial automation.
Greg Andrews: Automation market.
Greg Andrews: Now to our outlook for Q1.
Greg Andrews: Since our October call our semi test outlook has remained strong however, robotics forecast remain seasonally soft.
Greg Andrews: Q1 sales are expected to be between 660 $700 million with non-GAAP EPS in the range of 50 868.
Greg Andrews: On a 163 million diluted shares.
Greg Andrews: Our first quarter guidance excludes the amortization of acquired intangibles and restructuring charges.
Greg Andrews: First quarter gross margins are expected to be in the range of $58 five to 59, 5%.
Greg Andrews: Opex is expected to be roughly flat with Q4 and run at approximately 41 five to <unk> 42, 5% of first quarter sales.
Greg Andrews: The non-GAAP operating profit rate at the midpoint of our first quarter guidance to 17%.
Greg Andrews: As Greg noted, we believe the semiconductor Soc test Tam, we'll see healthy growth in 2025% driven by a second half broad based recovery.
Greg Andrews: We expect the Soc Tam to be between $4 seven at $5 1 billion.
Greg Andrews: $4 9 billion at the midpoint.
Greg Andrews: For a more detailed view of our end market expectations for <unk>. Please refer to the table in our earnings deck.
Greg Andrews: We are forecasting a memory tam to be between one three and $1 5 billion.
Greg Andrews: Recall that within this HBM is drawn from around $100 million in 2023 to over $500 million in 2024 are.
Greg Andrews: Our memory Tam forecast for 2025 is roughly flat year over year with the hbf tester market going through a period of digestion.
Greg Andrews: In both Soc and memory semi test markets, we expect to gain low digits share for 2025.
Greg Andrews: In robotics, we are currently operating in a difficult low visibility industrial spending environment.
Greg Andrews: The business is still driven by terms when we look at our plans for 2025, we see Sam expansion and channel growth initiatives expected to yield approximately 10% revenue growth and current market conditions of course, there is a wide range around this growth expectation.
Speaker Change: Viewpoints to assist you in the modeling 2025 for the enterprise.
Speaker Change: In Q2, we expect 5% to 10% sequential growth from Q1 midpoint.
Speaker Change: We expect first half revenue to be approximately 43% to 44% of full year revenue.
Speaker Change: Now to gross margins, we expect full year gross margins to be 59% to 60%. We expect second half gross margins to slightly improve from current levels tied to higher revenue expected in the second half of the year.
Speaker Change: Regarding opex for the full year, we expect full year 2025, opex to increase 8% to 10% year over year, which is a reduction from our low teens view in October the.
Speaker Change: The key changes were restructuring to capture synergies between you arent Amir and robotics and the acceleration of semi test projects in Q4.
Speaker Change: Interest and other line is forecasted at $1 million of income per quarter.
Speaker Change: But we have cash driving yield we also have items like FX gains and losses included in this line in our P&L.
Speaker Change: Our GAAP tax rate is forecasted to be EBIT to be 15, 5% and 15% non-GAAP in 2025% excluding discrete items.
Speaker Change: Turning to capital allocation.
Speaker Change: Our strategy remains consistent as we take a balanced approach to maintain cash reserves that enable us to run the business and have dry powder for M&A.
Speaker Change: For reference from 2015 to 2024, we've returned over $4 6 billion to shareholders through share repurchases and dividends, which is 93% free cash flow two.
Speaker Change: <unk> 2025, we plan on executing up to $400 million.
Speaker Change: Share buybacks, along with our current level of dividends.
Speaker Change: Moving to our mid term earnings model.
Speaker Change: As we do each January we've updated our model.
Speaker Change: Sure this model with investors to provide insight into.
Speaker Change: And to how we look at the markets, we serve our competitive positioning and ultimately the growth in earnings power of the company.
A few points for context.
Speaker Change: We're rolling forward, our midterm model to 2028, which replaces our prior 2026 mid term model that.
Speaker Change: That said, we believe we are tracking with our prior 2026 model in terms of ranges of revenue and earnings.
Speaker Change: Over the midterm, we expect test revenue to grow at.
Speaker Change: 12% to 17% CAGR off of our 2024 results driven by continued strength in AI compute related demand and recovery with long term growth and broader end markets, including auto industrial and mobile.
Speaker Change: Our mobile assumption is for recovery.
Speaker Change: But we're not assuming a return to the prior peak in 2021.
Speaker Change: And robotics, we're expecting the industrial markets to begin to recover with AIG spanning the Sam and persistent labor shortages. We expect these dynamics to drive the top line of 18% to 24% CAGR off of 2024 with modest growth in 2025, which we expect to accelerate over the midterm.
Speaker Change: Going forward, the robotics operating model will deliver increasing operating leverage through the midterm.
Speaker Change: Ending towards the high end of our target, 5% to 15% operating profit range for this business.
Speaker Change: Our updated midterm model is expected to drive 2028 revenue to $4 $5 to $5 5 billion.
Speaker Change: non-GAAP EPS between seven and $9 50.
Greg Andrews: Greg mentioned this implies a 15% CAGR from 2024 to 2028, and a 27% EPS CAGR at the midpoint.
Greg Andrews: Demonstrating the operating leverage of our test and robotics businesses.
Greg Andrews: Gross margin is expected to be between 59% and 60%.
Greg Andrews: Opex as a percentage of sales between 28% to 31%, yielding a non-GAAP operating margin of 28% to 32%.
Greg Andrews: <unk> 2024 was a good year overall driven by strength in semi test excluding the Gis divestiture. Our overall company revenues grew 8% year over year, and our <unk> Soc and memory combined grew 17% year over year, helping to achieve a 10% increase in our EPS to $3 22.
Greg Andrews: We are making strategic investments to drive competitive advantage and the semi test business and we are leveraging logical synergies between EUR in the year to drive long term sustainable growth in robotics, we enter 2025, feeling good about the year and our line of sight to our mid term model.
Greg Andrews: With that I will turn the call back to the operator for questions operator.
Speaker Change: Thank you we will now be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question.
Speaker Change: You May press star two if you'd like to remove your question from the queue for participants using speaker equipment may be necessary to pick up your handset before pressing the star keys.
Speaker Change: One moment, please while we poll for questions.
Speaker Change: Thank you. Our first question is from C. J Muse with Cantor Fitzgerald. Please proceed with your question.
Speaker Change: Yes. Good morning. Thank you for taking the question I guess first question was hoping you could spend a little bit of time expanding on your outlook for low single digit share growth in semi test can you kind of walk through the moving parts.
Speaker Change: In terms of what's driving that and then considering that you are expecting a bit of a recovery in your non compute businesses in the second half can.
Speaker Change: Can you speak to what we.
Speaker Change: We could see potentially in terms of upside to that low single digit number.
Speaker Change: Were to come in.
Speaker Change: Incrementally better.
Speaker Change: Hi C. J this is Greg.
Speaker Change: Yes so.
Speaker Change: There is a number of things that are driving our.
Speaker Change: Our outlook for low single digit growth and share.
Speaker Change: In the SSD space.
Speaker Change: That we're going to continue to make progress.
Speaker Change: With the with the compute vips maintain that 50% share that.
Speaker Change: That we got this year as that Tam continues to grow.
Speaker Change: And.
Speaker Change: We're expecting to see.
Speaker Change: Some incremental improvement in the mobile space.
Speaker Change: Driven primarily by.
Speaker Change: There has been sort of steady increases.
Speaker Change: In complexity that has been <unk>.
Speaker Change: <unk> up.
Speaker Change: The big pool of underutilized testers, and so we would expect that that sort of continuing March of complexity will will actually turn into incremental growth in the Tam in that space in this year and then when it comes to auto and industrial.
Speaker Change: Right now we think that there is.
Speaker Change: A short term.
Speaker Change: The.
Speaker Change: Slowdown in that space, but the increase of automotive content. The increase of semiconductor content in automotive is kind of proceeding with each model year. So even at.
Speaker Change: Similar are depressed and unit sales.
Speaker Change: We expect.
Speaker Change: That the B.
Speaker Change: Modest growth in the automotive space. The other thing that I'll say is that the electronics content in hybrids is nearly as high as the electronic content in pure Evs and the trend in the market towards more hybrid vehicles is something that is certainly impacting the.
Speaker Change: Plans for pure Evs, but it's impacting the auto semiconductor is a little bit less.
Speaker Change: Now the last is in industrial and industrial one of the things that is actually helping to drive the market. There is an indirect pass through from the AI compute space.
Speaker Change: The AI compute is incredibly power hungry and it needs really really good power.
Speaker Change: For all of these GPU fueled servers and that has been a driver for some of our power and electronics customers.
Speaker Change: With things like point of load converters, that's actually helping to sustain that market even when.
Speaker Change: Traditional industrial market is not quite as strong now if you move over to memory.
Speaker Change: The gradual recovery in mobile is going to help in parts of the market. So incrementally year on year that part of the market is going to be a little bit stronger. The HBM part of the market is going to be a little bit a little bit weaker because of that digestion factor but.
Speaker Change: The appetite for.
Speaker Change: DRAM in AI servers is incredible and that's driving both LP Edr and DDR memories. So we're expecting the the non <unk> part of the DRAM market to sustain a little bit better than the HBM part.
Speaker Change: So.
Speaker Change: If you look at that whole thing and you look at the share gains are the the new test insertions that we've won in HBM in 2024, plus our strong position in final test for DRAM, especially <unk> Ram and and flash, we're expecting that to accrue to low single digits in memory as well.
Speaker Change: Yes.
Speaker Change: Very helpful. And then I guess as a follow up question on the robotics side unit restructuring that business. Once again, obviously I think you had multiple.
Kind of paths that you could pursue on that front and I guess what gives you the confidence that this is the right path.
Speaker Change: And what kind of timeframe are you, giving yourself for proof points of success.
Speaker Change: Given the struggles that teradyne has had within this business for many years.
Speaker Change: Yes, so I think one of the things that we're trying to do is to tease apart what part of this as teradyne's struggles in what parts of this our market struggles. So if you look at the performance of our robotics unit. It certainly is coming in under what our expectations were but it is outperforming.
Speaker Change: Forming the companies that we that we compare ourselves in the industrial automation space. So we actually think we've made some significant progress in a very very weak market, having said that there's definitely areas that we thought we could.
Speaker Change: That we could make changes that would help improve one of the big things that was a positive in 2024 was the pace of new product introductions, and we think that the R&D groups associated with U R and mirror are really clicking and the releases that we have that are <unk>.
Speaker Change: Adding AI content to our product or enabling our partners to do AI based robotics are very important positives.
Speaker Change: The positive that we've seen in terms of building an OEM channel for for you or is something that we think is a positive and we need to preserve and we've also made significant progress in terms of.
Speaker Change: Building large account competency in the mirror organization. So if you look at the restructuring that we're doing we're really.
Speaker Change: We are not we're making very modest changes in the product creation part of the business. We had already made the changes that we wanted to make in the operations part of our business and so now we're focusing on the commercial side of the business and there we are trying to.
Speaker Change: Really do think that two things.
Speaker Change: The first is we want to.
Speaker Change: We want to help our partners be more successful and the way we can help our partners be more successful is by giving them a broader product range that they can sell and that we think is going to really help out it also.
Speaker Change: <unk> natural efficiencies 50 of our largest partners between you are near actually sell both you are near already and so we're going to be able to get a natural.
Speaker Change: The improvement in efficiency by covering those partners.
Speaker Change: In a single way also as we approach. This large account success that we're seeing with mirror, we definitely see that service is a very important component of success and so by having a single service organization. We believe that's going to allow us to expand the success that we've had with large accounts in nir.
Speaker Change: The <unk> product line as well so that the main thing we're trying to do with this restructuring is to sell more robots.
Speaker Change: The next most important thing that we're trying to do is to setup. Our breakeven. So that we have the ability to over perform that we have the ability to deliver better operating margin against what is.
Speaker Change: A growth rate that is always going to be impacted by the end market.
Speaker Change: Does that help.
Speaker Change: Very helpful. Thank you.
Speaker Change: Thank you. Our next question is from Mehdi Hosseini with Sig. Please proceed with your question.
Mehdi Hosseini: Yes, Thanks for taking my question two.
Mehdi Hosseini: Two from my end is focusing on semi I wanted to understand these partnership with Infineon.
Speaker Change: It's interesting that you're doing this at the bottom of those two.
Mehdi Hosseini: Power semi.
Mehdi Hosseini: I'm not sure we have silicon carbide could get any worse, but what's seen in infineon and how should I think about the partnership benefits with tarragon advantages to <unk>.
Mehdi Hosseini: I do have another site alone.
Mehdi Hosseini: Sure so.
Mehdi Hosseini: Yes.
Mehdi Hosseini: It is definitely a.
Mehdi Hosseini: Okay.
Mehdi Hosseini: Adverse times in the discrete semiconductor market, especially in like wide band gap Silicon carbide gallium nitride.
Mehdi Hosseini: We look at that is this is sort of a classic hype cycle situations, where people saw the promise of these technologies.
Mehdi Hosseini: In terms of delivering higher efficiency power conversion for both cars and for alternative energy applications.
Mehdi Hosseini: And there was.
Mehdi Hosseini: I think people.
Mehdi Hosseini: Got ahead of themselves in terms of how quickly the crossover would happen between.
Mehdi Hosseini: And internal combustion and east so I'll definitely there was.
Mehdi Hosseini: A lot of enthusiasm around this market and we think that that enthusiasm has weighed waned.
Mehdi Hosseini: So actually we kind of think this is a good time for us to make this kind of a move.
Mehdi Hosseini: The advantage for Teradyne here is as we look to this long term path from here to 2028, we think that the discrete semiconductor market is going to the test market is going to be increasing.
Mehdi Hosseini: Pretty healthy way, we also believe that all of.
Mehdi Hosseini: Other semiconductor content associated with that battery management system. Other conversion products isolation products is also going to increase so the advantage for teradyne by making this partnership with Infineon is that we're going to be able to accelerate our roadmap to be able to cover these new <unk>.
Mehdi Hosseini: Types of devices and the higher powers that theyre going to be trying to address the advantaged to infineon is inside of this group they had a number of technologies.
Mehdi Hosseini: And a number of specialty test.
Mehdi Hosseini: Equipment that they were using to support Infineon has market leading business.
Mehdi Hosseini: By moving those capabilities into a commercial <unk> company like Teradyne now those products are addressing the entire market rather than just the infineon market. So.
Mehdi Hosseini: So that group has a broader horizon than before teradyne has the opportunity to accelerate our roadmap and infineon gets to focus on designing and building chips, which is kind of the point of their company.
Mehdi Hosseini: Should I assume there is a payment here.
Mehdi Hosseini: Are you actually.
Mehdi Hosseini: Clearly in this asset.
Mehdi Hosseini: The purchase price.
Mehdi Hosseini: Yes.
Mehdi Hosseini: Have you disclosed how.
Speaker Change: How much it is no we're not disclosing the purchase price.
Mehdi Hosseini: It is not at a material level for disclosure.
Speaker Change: Got it.
Speaker Change: Quickly switching to industrial automation, if I just look at what you have guided for Q2 and extrapolate to year end and look at the margin and Opex do better.
Speaker Change: With less contribution from industrial.
Speaker Change: Sure.
Speaker Change: I think the numbers speak for themselves. So my question to you is.
Speaker Change: What's the plan B.
Speaker Change: We have.
Speaker Change: It's been several years reorganizing enhancing the channel partners, but to me. It seems like you may have to end up partnering with a system integrator.
Speaker Change: There needs to be more and.
Speaker Change: Again the question.
Speaker Change: The management team is is there a plan b how much more investment.
<unk> be willing to make before saying, okay, maybe you have to part ways with industrial automation.
Speaker Change: Yes, so we're we're nowhere near.
Speaker Change: The the.
Speaker Change: Where we would be making a part ways kind of the decision.
Speaker Change: But I wanted to address sort of the first point in your question that.
Speaker Change: We are definitely not better off with less industrial automation, we are better off with more industrial automation and that has a lot to do with the <unk>.
Speaker Change: Leverage that's built into the business model for industrial automation. So we've reset our breakeven to this 365 million dollar level in 2024.
Speaker Change: But that.
Speaker Change: We are.
Speaker Change: Our.
Speaker Change: Given current market conditions, we believe that we'll be delivering 10% growth above that level and we would be delivering positive positive operating margin from that group for certain it's dilutive to the percentage earnings across the whole company, but it is accretive to earnings and we believe that this is something.
Speaker Change: That's going to be an important growth vector for us over the long term.
Speaker Change: So we.
Speaker Change: We definitely saw an opportunity to.
Speaker Change: <unk> improve customer experience and save money and set us up to be able to.
Speaker Change: Put our investments into the things that are driving the highest growth but.
Speaker Change: We're not really at a plan b stage yet.
Speaker Change: Okay. Thank you.
Speaker Change: Thank you. Our next question is from Timothy is from Steve Barger with Keybanc capital markets. Please proceed with your question.
Speaker Change: Hi, Good morning. This is Jacob more on for Steve. Thanks for taking the questions first one for me is on two nanometer data all around what does your outlook for the timing of that ramp look like over the year has that changed at all and are there any notable differences you'd call out in testers for the new transistor architecture versus current generations.
Greg: Hi, This is Greg I'll take that one so.
Greg: Right now we are looking at the leading edge of.
Greg: Devices that utilized two nanometer occurring in the like.
Speaker Change: Very very late in 2025, just and early production in late 2025, the bulk of that is going to be in 2026 and at least in terms of our line of sight, we see both compute and mobile devices that are going to be taking advantage of that note.
Greg: In terms of the differences for that.
Greg: The primary difference is that these devices have significantly more complexity.
Greg: And with that higher complexity it is actually.
Greg: These devices are higher are requiring higher peak power from the tester and they're requiring.
Greg: Much much more.
Speaker Change: <unk> memory and so the impact of that is.
Speaker Change: There is some there is a degree of technical obsolescence that is going to be creating opportunities in the <unk> space and also in the system level test space for us. So we're we think that this this discontinuity in device power is going to be helpful. It's not.
Speaker Change: Going to be like.
Speaker Change: Cataclysmic increase in demand because of the transition to two nanometer, but we do think that it's an accelerant.
Speaker Change: Got it that's helpful. Second one for me is on end markets I think AI and compute are clearly strong drivers, but PC notebook and mobile are still big volume base and I know I think he is a gradual improvement over the year, but can you help us frame up how you're thinking about total growth in those segments for the year and <unk>.
Speaker Change: Has there been a more meaningful shift and test their conversion to <unk> from mobile that could affect that dynamic.
Speaker Change: Okay. So first off.
Speaker Change: We think that the second half recovery is going to be pretty balanced.
Speaker Change: And in the compute space.
Speaker Change: Would I would expect that the primary driver is going to continue to be AI cloud related demand and.
Speaker Change: Accelerators Cpus and networking for that part of the market. There is probably going to be a nudge upward in terms of client compute.
Speaker Change: I would expect that our primary benefit from that increase would actually be in our wireless business unit in the the.
Speaker Change: The light point group.
Speaker Change: When you when you think about mobile.
Speaker Change: Primary thing is that there are it depends on which analysts youre looking at but generally people are a little bit optimistic in terms of units and there is definitely a march towards greater complexity in the phones and then I already spoke about industrial, Illinois, emotive, where it's Morris increasing semiconductor content by model year.
Speaker Change: And we think that there is.
Speaker Change: And inventory digestion and a weak spot that we're in now, but we will be returning to sort of more normal.
Speaker Change: <unk> by the end of the year.
Speaker Change: Alright, Thank you very much.
Speaker Change: Thank you. Our next question is from Timothy Arcuri with UBS. Please proceed with your question.
Timothy Arcuri: Hi, Thanks, I had two so Greg I wanted to ask about your VIP test Tam.
Timothy Arcuri: Forecast I think you said 626 and going to maybe 828.
Timothy Arcuri: So my question on that is if I listen to what.
Timothy Arcuri: Marvell and Broadcom are basically saying about the custom ASIC Tan one is saying, it's going to be $40 billion in 2027, and the others, saying, it's going to be a $140 billion. In 2000 27028. So if I average those two I can pretty easily get to 80 billion plus in that timeframe. So these numbers would imply that the test intensity is like less.
Timothy Arcuri: And 1% for that stuff and the stuff all has tons of 10 <unk>.
It seems like that's a pretty conservative forecast.
Speaker Change: So I'm wondering what your custom ASIC.
Speaker Change: End market revenue numbers that would underpin this because it seems like your test intensity numbers vary based upon what the end customers are.
Speaker Change: Thinking about relative to the size of the.
Speaker Change: Market.
Speaker Change: Yes.
Speaker Change: <unk>.
Speaker Change: Our model is built more bottoms up based on.
Speaker Change: Like unit quantities device complexity.
Speaker Change: The one thing that is.
Speaker Change: Definitely not factored into our model.
Speaker Change: Is any variability in the margin that.
Speaker Change: A marvell over a broadcom may be getting on the devices that they are producing.
Speaker Change: And so.
Speaker Change: That's one one area where.
Speaker Change: See a disconnect in our forecast versus theirs, but let's try to answer your question directly we would definitely be more aligned with the low end of that sort of $40 140 billion dollar outlook.
Speaker Change: Outlook for 2027, and then the high end and Thats, mainly because we're working off of sort of line of sight of what we can what we.
Speaker Change: Discern from these more the the actual hyper scaler versus the.
Speaker Change: What we are hearing from the.
Speaker Change: Chip folks in the middle.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: It seems it seems low but okay. So then on IAA. So PBT has been negative for the past six years cumulatively, you've lost more than $150 million.
Speaker Change: And usually when companies lose money like this market share.
Speaker Change: Growing very fast and we're chasing.
Speaker Change: <unk> growth. So can you just talk like is the plan here to cut costs and try to maximize profitability or do you really see something bigger coming that that debt that you still want to.
Speaker Change: Do this and I kind of asked this in the context of do you need outside investments to really scale this business or is it not.
Speaker Change: Dollar investment thing, it's more just that the market Hasnt grown which you thought it would and I guess the question there is like.
Speaker Change: What's going to change to actually make this market growth. Thanks.
Speaker Change: Yes, so I think the.
Speaker Change: The X factor here is an extremely long.
Speaker Change: A down cycle in.
Speaker Change: Industrial automation investment really from.
Speaker Change: Starting in 2022, all the way to now.
Ben: It's Ben.
Ben: PMI has been consistently weak.
Ben: And we've been.
Ben: Caught in that while we've outperformed while we've outperformed our peers. It hasnt delivered that growth that is supposed to so one of the things that we like our view that may be a little bit idiosyncratic from.
Ben: The.
Ben: Other advanced robotics players is that we do believe that growth in this market is going to be a marathon not a sprint that we are hoping we are hoping to align our opex. So that we're able to generate positive operating margin even under weak biz.
Ben: <unk> conditions, and then incrementally increase that operating margin by making sure that we have leverage between any topline growth.
Ben: And limit the Opex increase and improve our gross margin as we go along so.
Ben: We think that there is significant growth potential in this space that is being masked by the end market macro headwind.
Ben: We don't have visibility into when those headwinds are going to.
Ben: We are going to come to an end. So we definitely we're focused on trying to maximize our efficiency. During this period to make sure that we are setting ourselves up so that there isn't incremental negative impact on earnings from our robotics business, even under business conditions. So that's that's the primary thing.
Ben: I think I'd like to pass it over to Sanjay for a couple of comments on the comments on this as well, yes, just real quick.
Speaker Change: For point of reference since 2019, 2019 to 2022 with an operating profit level, we were profitable I'm not sure where you are kind of $150 million in the last two years. It's true we have lost money, but cumulatively since 2019 to 2024 will have loss in operating profit.
Ben: What level of about $23 million just for context.
Ben: Okay, we can follow up afterwards.
Ben: Yes.
Speaker Change: Thank you. Our next question is from Krish Shankar with Cowen. Please proceed with your question.
Speaker Change: Yes, hi, Thanks for taking my question I told them first one Sanjay Greg if I look at your color on calendar 'twenty file looks like Youll revenues in 'twenty.
Speaker Change: About 15%.
Speaker Change: From 2024 levels is that right and along the same path a couple of months ago, you seem more confident on maybe high teens growth for the year versus mid teens right now so what kind of changed on.
Speaker Change: <unk> outlook for 2025, and then I will follow up.
Sanjay Mehta: Sure. It's Sanjay here, yeah at the midpoint of our guide is 15% obviously.
Sanjay Mehta: Our the midpoint of our our estimation.
Sanjay Mehta: And it could be plus or minus there and what's changed over the last 90 days I would say is that robotics, our view of the market, obviously from Q4 and and and.
Sanjay Mehta: Our forecast or our thinking of our plan for robotics has come down to.
Sanjay Mehta: Our growth rate of about 10% year over year I will add that what hasnt changed is that our view on semi test actually over the past 90 days has actually strengthened.
Sanjay Mehta: We saw acceleration into more.
Sanjay Mehta: More business into Q4 of 24, while we held our plans roughly the same over a five quarter period.
Sanjay Mehta: <unk>.
Sanjay Mehta: It's actually an FID enhanced which gives us confidence in the year for semi test and I'd say the other product test businesses.
Sanjay Mehta: Are roughly in line with what we thought of it.
Sanjay Mehta: Got it got it.
Sanjay Mehta: And then as a follow up.
Sanjay Mehta: So the color you kind of spoke about how yield <unk> compute revenue has been growing from 11% to 34% last year Im curious where do you think it could end up being this year in the context of your.
Sanjay Mehta: $4 9 billion Soc Tam.
Sanjay Mehta: If you can just give some color on how much of that is compute how much is mobile.
Sanjay Mehta: What percentage is youll see revenue you could get from both computer and mobile this year. Thank you.
Yes so.
Sanjay Mehta: I think compute will be one of our largest growers.
Sanjay Mehta: And should increase as a percentage of.
Sanjay Mehta: Of the <unk> revenue that we have.
Sanjay Mehta: We also see obviously the Tam growing.
Sanjay Mehta: Compute so we're tracking to it we see continued strength in VIP as Greg noted.
Sanjay Mehta: Roughly a tam in 2024, perfect Vips AV 300 of compute Vips, a 300 and in 2006, we see that as roughly centered around 600, so as you'd expect we see growth in 2025, and we're tracking to that growth in compute I think from a from a.
Sanjay Mehta: Mobile perspective, we do see it continuing.
Sanjay Mehta: Slightly growing along the 2025 levels are consistent with 2024 similar to 2025 and then when we take a look at auto.
Sanjay Mehta: In industrial we.
Sanjay Mehta: We do see that Tam growing along with our business.
Sanjay Mehta: I'd say, a little bit more strength in compute and Tam as well as from our shipment perspective, and then auto and industrial grow with mobility flattish to slightly up.
Sanjay Mehta: Got it alright, thanks, Nick Thanks Felicia.
Speaker Change: Thank you. Our next question is from Toshi Hari with Goldman Sachs. Please proceed with your question.
Toshi Hari: Hi, good morning. Thank you so much for taking the question.
Speaker Change: The first one is on the VIP business. When you think about the growth outlook and 25 and 26.
Speaker Change: I was hoping you could sort of touch on the breadth of your customer base in that business.
Speaker Change: Is the growth expected to mostly come from existing customers or are you looking to or do you expect for new products or new customers to ramp and $25 26, as well within the context of the VIP business and AI compute more specifically.
Speaker Change: Yes, so hi.
Greg: Hi, Greg.
Greg: The VIP business is.
Greg: Pretty concentrated I mean, there are.
Greg: Very few companies that have the scale necessary to.
Greg: Pay for two nanometer ASIC accelerator. So this is definitely going to be lumpy if you.
Greg: If you look at.
Greg: Our 2025 business, we are expecting a robust ramp of the existing customers that we have.
Greg: And we're expecting between 25 and into 26 that will be adding one or two logos.
Greg: To the to the.
Greg: Customers that we have but like if youre, if youre trying to if you're trying to get an understanding for this this is always going to be a.
Greg: A situation where it's.
Greg: Very big single sockets that drive a lot of capacity adds not a broad based.
Speaker Change: Yes that makes total sense. Thank you and then as my follow up.
Greg: On HBM test you talked about.
Greg: Digestion in 'twenty five and then the potential recovery in 2006 I think.
Greg: Has that view, primarily based on a bottoms up.
Greg: Based on customer forecast are you guys, making internal assumptions around.
Greg: <unk> big growth technology.
Greg: Evolution as it is.
Greg: Combination I'm just curious how you formed your view on 2005 and 26. Thank you.
Greg: So we.
Greg: We have we have <unk>.
Greg: Very good relationships with most of the major memory producers and so a lot of this is based on our conversations with them and their advanced capital planning.
Greg: Having said that the there is a fair amount of capacity in place that needs to be filled out that is capable of doing <unk>.
Greg: The thing that is a.
Greg: An X factor in our model is the timing of the transition to HBM for if that transition comes in in time than there is upside to the Tam if that transition delays and time that would be that would mean that that tam would be further weakened.
Greg: But.
Greg: Right now we've kind of <unk>.
Greg: Going with our best view from what we're hearing from our customers in terms of when that transition is going to happen.
Greg: And what are you, saying time do you mean sort of first half 'twenty fix or.
Greg: I just wanted to clarify yes.
Greg: Real question is yes weather.
Greg: <unk>.
Greg: People are certain that that <unk> is going to be.
Greg: In volume production in early 2026, there is.
Greg: There is certainly a customer desire to try to have more significant volumes of HCM for in the latter half of 2025 and if.
Greg: If the schedule support that that would pull ins and capacity needs for that into 25% from 26.
Greg: Got it thank you.
Speaker Change: Thank you. Our next question is from Cemig Chatterji with Jpmorgan. Please proceed with your question.
Cemig Chatterji: Oh, hi, thanks for taking my questions.
Speaker Change: First one.
Cemig Chatterji: The seasonality between the first half in the second half that you're indicating.
Cemig Chatterji: Definitely more second half skewed so.
Cemig Chatterji: The last couple of few of them.
Speaker Change: Nick brings into sort of the question. So if you're talking about the second half recovery in some of these markets.
Cemig Chatterji: Mobile and then auto and industrial.
Cemig Chatterji: How will you sort of derisking that second half when do we think about upside downside risk, particularly given your visibility how should we think about sort of that.
Cemig Chatterji: First tableau to the second half improvement.
Cemig Chatterji: Sort of upside downside risks.
Cemig Chatterji: No.
Cemig Chatterji: Yeah, Hi, it's Sanjay so thats right.
Cemig Chatterji: Yes.
Cemig Chatterji: As we have the visibility into Q1 or the first half second half I would say we're.
Cemig Chatterji: In an environment, where we.
Cemig Chatterji: We see the.
Cemig Chatterji: Upgrades that have occurred that we've talked about to underutilized capacity, we see that as as coming too.
Cemig Chatterji: And then some time of these upgrades.
Cemig Chatterji: Really getting so really high levels of utilization.
Cemig Chatterji: First half ish and.
Cemig Chatterji: And while we're still be probably some minor upgrades we see.
Cemig Chatterji: Capacity tightening.
You can see that with the VLSI reports as well as how when we go out and count the testers and utilization.
Cemig Chatterji: Our methodology of getting there so we see a tailwind as utilization tightens.
Cemig Chatterji: The second thing is that we do have a pipeline as we.
Cemig Chatterji: Think about the customers were engaging that gives us confidence in the second half than in the second half.
Cemig Chatterji: It's broad based.
Cemig Chatterji: I'd say more focused around compute as well as auto and industrial.
Speaker Change: From a semi test perspective, and then for <unk>.
Greg Andrews: Also tied to the end market recovery and as Greg noted.
Greg Andrews: And market recovering in industrial automation as well.
Greg Andrews: Okay got it thank you and maybe going back to the VIP.
Greg Andrews: You sort of highlighted you made some comments on the last question is that in terms of logos that you're expecting but more specifically I think there is a broad investor concern about D&B.
Greg Andrews: <unk> sure that Youre talking about.
Greg Andrews: When we sort of look.
Greg Andrews: Into the 20.
Greg Andrews: 25 million 26 is that visibility in terms of maintaining the 50, plus a share Orient themselves will continue to work with your existing customers or how does the pipeline look in terms of sort of new wins, either in terms of sockets with existing customers or new customers thats driving the confidence to keep that 50% sure. Thank you.
Greg: Yes. This is Greg I'll take that one so.
Greg Andrews: We.
Greg Andrews: <unk>.
Greg Andrews: We believe that we have.
Greg Andrews: The best product.
Greg Andrews: For these leading edge devices.
Greg Andrews: But.
Greg Andrews: One of the critical factors in Hte selection is the.
Greg Andrews: The installed base of tools and training and everything else that you have around the platform that you're using.
Greg Andrews: So the teradyne's traditional low share in the compute space has a lot to do with the way the market was shaped over the last 10 years.
Greg Andrews: Success that we're having and Vips is that with these new these new devices and the use of these.
Speaker Change: Design service providers, like a broadcom or a marvell or a Samsung how chip do you see that.
Greg Andrews: We have.
Greg Andrews: Excellent relationships with with these customers and.
Greg Andrews: We are able to demonstrate the differentiation of our product and.
Greg Andrews: We think that people are getting.
Greg Andrews: Good result by using our product and they are choosing our product for that for that reason so from a from a product differentiation perspective, we think we have the right.
Greg Andrews: The right recipe in order to maintain that share we think that we have the right customer relationships to be able to do that and we believe that we have the right relationships with the hyperscale or some solves to try and add the logos that we need so we're pretty confident that we're going to be able to keep going at this 50% level.
Speaker Change: Thank you thanks for taking my question.
Speaker Change: Thank you. Our next question is from Vivek Arya with Bank of America. Please proceed with your question.
Vivek Arya: Thanks for taking my questions. So first one.
Vivek Arya: <unk> grew 57% last year, but youre expecting it to grow only 5% and 25 I'm curious what is causing that.
Vivek Arya: Go down and then versus the I think $300 million in VIP last year, what is the VIP Tam for 'twenty.
So.
Vivek Arya: In terms of compute growth.
Vivek Arya: You can I.
Vivek Arya: I think you can look at this.
Vivek Arya: A little bit of a similar way to the.
Vivek Arya: The situation in HBM that end market for this stuff is going to stay very very hot.
Vivek Arya: The.
Vivek Arya: But the situation in terms of capital equipment, our test equipment to support the volumes that are being produced doesn't necessarily.
Vivek Arya: Follow that in lock step right now there are a lot of.
Vivek Arya: <unk> devices in the space that are.
No.
Vivek Arya: Still coming up an experience curve.
Vivek Arya: And.
Have very very long test times that could be reduced as parts become more mature.
Vivek Arya: And we believe that that's going to have that's going to limit the.
Vivek Arya: The sequential growth of the compute space. So we think the primary opportunity in the in the compute space is in these new sockets from the Vips not in the traditional space where.
Vivek Arya: It's sort of a year after introduction and experienced situation. So we think that there is definitely a.
Vivek Arya: There are balloons and anchors that are going to be affecting the balloon is obviously this huge capex for data center thats going in the anchor is increasing efficiency of production for the devices.
Vivek Arya: Okay, but then how do we reconcile that with the strong I think almost 30 plus percent half on half growth that you're expecting this year driven by computer can is not growing and how can one depend on that to grow.
Vivek Arya: Much more than what paradigm anomalous seasonality has been half on half.
Vivek Arya: Yes, So I think you should think about it as share growth.
Vivek Arya: Some of that yes, its share growth and the other thing that I would say is we're kind of expecting compute to be.
Vivek Arya: Delivering throughout the year, and we're expecting the automotive industrial and mobile segments to be more back half loaded. So it's not that we're expecting.
Vivek Arya: A big back half for compute I think.
Vivek Arya: Yes, I think.
Vivek Arya: Compute we are seeing.
Vivek Arya: It's a little bit more balanced but back half.
Vivek Arya: Is going to be stronger than the first okay, but its not 30% increase isn't it is okay.
Vivek Arya: It's going to have a reasonable.
Vivek Arya: Okay.
Vivek Arya: Okay. Thank you.
Vivek Arya: The logic behind that is related to this new part introduction to that if you're introducing new parts you need capacity to support that if you are increasing volume on parts that are already in production then that's affected by the experience curve.
Speaker Change: And then Vivek you had you had a question on <unk>.
Vivek Arya: Yes.
Speaker Change: I think that the $300 million what is it this year.
Speaker Change: Yes, what we've said in our prepared remarks that it's 300, and then growing too we expect to be in 2026 centered around 600 <unk>.
Speaker Change: You should expect that thats going to grow on a on a trend line.
Speaker Change: It has a range, but if you think about a $4 four.
Speaker Change: $4 million to $500 million.
Speaker Change: May be biased towards the higher end.
Speaker Change: Range for 2005.
So I should think about it.
Speaker Change: Understood Thanks very much.
Speaker Change: Yeah.
Speaker Change: Thank you. Our next question is from Brian Chin with Stifel. Please proceed with your question.
Brian Chin: Hi, good morning, Thanks for letting us ask a few questions here sorry, if I missed this but.
Brian Chin: And I know there were sort of some movement around certain revenue streams in the different buckets, but what was the size of the SSD test market in 2024 and <unk>.
Brian Chin: No. One asked this yet can you decompose sort of how that $4 9 billion Tam for 2025 breaks down across compute mobile et cetera.
Brian Chin: Sure 24.
Brian Chin: We have a slide in the in the backup but compute is $2 2 billion mobile is <unk> eight.
Brian Chin: Auto and industrial as 0.9 services.
Brian Chin: Seven and.
Brian Chin: Four six.
Speaker Change: Soc Tam 24, and then if you go to 25.
Speaker Change: You've got $2 3 billion in compute.
Speaker Change: <unk> nine.
Speaker Change: $9 billion auto and industrial at $1 billion and service.
Speaker Change: <unk> 7 billion.
Speaker Change: To get us to the $4 nine.
Speaker Change: At the midpoint.
Got it that's helpful.
Speaker Change: And just any sort of thought.
<unk> on this a little bit, but just to underpin that view for the modest test recovery in second half can you give us maybe a better sense of where semi.
Speaker Change: Semiconductor test cell utilization rates are now versus a year ago, the kind of how close you are to bridging that gap.
Speaker Change: Yes, so I mean, we've cautioned before in terms of the absolute accuracy of these utilization. So we tend to look at changes from quarter to quarter, I will say that Utah.
Speaker Change: Utilization has drifted up through 2024.
Speaker Change: And.
Speaker Change: It inflected more strongly in the end of the year than four and Thats really around the impact of the.
The upgrades that we shift through the year.
Speaker Change: The upgrades that we ship through the year that turns previously idled testers into testers that are being actively loaded there was a.
Speaker Change: A delay of maybe one quarter from those being shipped to when they are.
Speaker Change: Actively loaded by our customers, but it's probably about a 10% increase in utilization year on year like exiting 'twenty four from coming into 'twenty four and right now we're at the point, where we think our business has already shifted in mix more away from upgrades and more towards system sales. So we think that that.
Speaker Change: Yes.
We've kind of passed the tipping point there.
Speaker Change: Okay. Thanks, maybe if I could sneak in a row box question.
Speaker Change: Unpacking that what you mean by consolidating the go to market and also in 2025, because youre kind of modest.
Speaker Change: Growth outlook suggests that you think the benchmark of the broader robotics industry is down something like 10% this year.
Speaker Change: Yes.
Speaker Change: The details of the consolidations that we've combined the.
Speaker Change: The marketing functions the sales functions and the service functions of you are in near together so that we have.
Speaker Change: One unified go to market organization.
Speaker Change: And that is the primary way that we are going to improve our interface to our partners.
Speaker Change: Improve the interface to our largest customers. There is a lot of overlap in terms of our largest partners and our largest customers where they are customers of both you are near so it was an obvious place where we could make things simpler for them and also drive some efficiency for us there's really no.
Speaker Change: Change in terms of the primary go to market growth vectors that we see for these groups and that really is Oems and four and large customers and so we are we're continuing to lean into those those programs, but now we're doing those across both product lines versus on an isolated basis.
Speaker Change: Yes.
Speaker Change: Now the.
Speaker Change: Could you remind me what your second question was in there yes.
Speaker Change: Yes. It was just that I think you'd previously said you kind of set.
Speaker Change: Growth targets against a benchmark outperforming benchmark for the industry is something that I think about 10% to 15%.
Speaker Change: Better than the benchmark and if youre guiding kind of a modest growth. This year does that mean that that benchmark is down maybe 10% this year.
Speaker Change: Yes, I think where everyone is.
Speaker Change: Trying to figure out exactly what the shape of a recovery in industrial automation would be.
Speaker Change: I think you're right in thinking that we are our intent is to outgrow the traditional automation players by like 20% per year or maybe more like 15% per year. So I think it's probably more like we're looking at 5% down with us delivering above that.
Speaker Change: <unk>.
Speaker Change: So.
Speaker Change: If.
Speaker Change: If the automation market were flat I think we would be significantly higher up around 20% growth if it's down.
Speaker Change: Around 15% growth if it's down 5%, then we deliver like 10% growth.
Speaker Change: Okay. That's helpful.
Greg Andrews: Thanks, Greg.
Speaker Change: Thank you. Our next question is from Shane Brian <unk> with Morgan Stanley. Please proceed with your question Hi.
Shane Brian: Thank you for taking the question so I understand the importance of giving investors long term forecasted in 2028 models, but I just wanted to understand better understand what are the kind of more finer details behind the revenue assumptions for that model instead of how far your visibility extend.
Speaker Change: The context of this question is that since 2022. It appears as though you are continuing to set up a little bit of a higher bar for your business.
Shane Brian: Thanks very much.
Speaker Change: Yeah, Hi, it's Sanjay here, yes. So.
Speaker Change: As we've said in our prepared remarks, we see test revenues.
Speaker Change: Overall revenues growing 12% to 18%.
Speaker Change: And that's really broken out from a test perspective of <unk> 12 to <unk>.
Speaker Change: 17%, and then from robotics and 18% to 24%.
Speaker Change: Level I would say starting with robotics. There are some key drivers that we have AI enabled Sam expansion.
<unk> really focused on on channel growth through Oems and large accounts.
And new product introduction and so we believe we are in a sub 5% penetrated market. The market has had some tremendous headwinds as Greg noted over the past couple of years.
Speaker Change: However, we see that.
Speaker Change: As we as we develop these incremental solutions AI enabled.
<unk> capabilities.
Speaker Change: And our products that that will enable us to help address incremental segment verticals.
Speaker Change: And so it's with that we have the confidence we just need the market to to return and we are predicting that in our model.
Speaker Change: A test perspective.
Speaker Change: Think about it like this.
Speaker Change: We and we analyze the Tam we take a look at and maybe Greg do you want to add some comments when I'm done, but we analyze the Tam we look at things in the different segments like compute how we how we see the AI compute offer high performance compute.
Speaker Change: And networking as well as.
Speaker Change: The forecast from external players, but also talking to customers and what our view is of the custom Asics. So we look at it segment by segment high level drivers Greg mentioned.
Speaker Change: EV Silke.
Speaker Change: Silicon content in cars rolling as well as <unk>.
Speaker Change: Fast moving driver or increased driver in hybrid as well as evs, but it's both a top down and a bottoms up.
Speaker Change: One bit of color in terms of the semi test growth I think one way that you should think about it is that there was this incredible inflection in 2024 for the memory market.
Speaker Change: The memory market like really bumped up in 2024, so if you're looking at 2024 to 2028 growth rates.
Speaker Change: We think that the memory market has already sort of.
In some of the growth of that of that longer period. So we're expecting sort of a lower incremental tam growth in the memory market going out to 2028, and a more linear model of growth rate for the Soc Tam through that period.
And maybe I'll frame it up.
Speaker Change: Add one more point on share.
Speaker Change: Sure.
Speaker Change: Yeah.
Speaker Change: In the compute space as we see the market shift to more custom asics.
We also see share gain as we believe we're going to continue to win kind of one and two sockets and then as the market recovers and mobile as well as auto and industrial markets that we've had traditionally higher share and as those markets become a larger portion of the Tam relative to 2024.
Speaker Change: And those markets recover we should inherently gained share.
Those markets.
Speaker Change: Now one other thing that I think you probably want.
Speaker Change: Try to consider as you're trying to flesh out a view for 2028 is that we think.
Speaker Change: System level test is going to be a long term growth vector that.
Speaker Change: That.
Speaker Change: Adding those test insertions is going to be important to achieve the quality levels that our customers are demanding.
Speaker Change: And so we believe that that's going to be one of the things that helps to drive that you said it was 12% to 17% growth for the test growth that there is a.
Speaker Change: Chunk of that growth that is coming from that system level test stuff.
Speaker Change: Got it thank you very much.
Speaker Change: Thank you there are no further questions at this time I would like to hand, the floor back over to Tracy <unk> for any closing comments.
Tracy: Thank you again for joining us. This morning, we hope that many of you will be able to join us for an analyst day on March 11.
Speaker Change: Children, we look forward to speaking with you again.
Speaker Change: This concludes today's conference you may disconnect your lines at this time.
Speaker Change: Thank you for your participation.