Q1 2025 Teradyne Inc Earnings Call
[music].
Greetings and welcome to Teradyne incorporated first quarter 2025 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.
Reminder, this conference is being recorded it is now my pleasure to introduce Tracy.
Sorry, [laughter] Kid She said she vice President Investor Relations. Thank you 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, and our CFO Sanjay Mehta.
Speaker Change: Following our opening remarks, we'll provide details of our performance for the first quarter of 2025, and our outlook for the second quarter of 2025. The press release containing our first quarter results was issued last evening we.
Speaker Change: 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: As of this call will be available via the same page after the call ends.
Speaker Change: The matters that we discuss today will include forward looking statements that involve risks that could cause teradyne's results to differ materially from management's current expectations.
Speaker Change: Caution listeners not to place undue reliance on any forward looking statements, including 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 31, 2024 on file with the SEC.
Speaker Change: Additionally, these forward looking statements are made only as of today and we do not undertake any obligation to update forward looking statements to reflect subsequent events or circumstances, except to the extent required by law.
Speaker Change: During today's call, we will refer to non-GAAP financial measures. We have posted additional information concerning these non-GAAP financial measures, including reconciliation to the most directly comparable GAAP financial measures were available on the Investor page of our website looking ahead between now and our next earnings call Teradyne expects to participate in the technology and industrial.
Speaker Change: Walk us investor conferences hosted by JP Morgan G D Cowen and Stifel.
Speaker Change: Fiat period will begin at the close of business on June 20th 2025.
Speaker Change: And Greg in Sandy's comments. This morning will open up the call for questions. This call is scheduled for one hour.
Speaker Change: Greg.
Greg Smith: Thanks Tracy.
Speaker Change: Good morning, everyone and thanks for joining us today I'll discuss our first quarter results and provide an update on the trends that we're seeing across our businesses.
Speaker Change: Sanjay will then provide more detail on our first quarter results and second quarter guidance.
Speaker Change: It's been seven months since our analyst day, and the long term themes that we discussed a or vertical position in electrification remain the primary industry drivers that we expect will accelerate our growth trajectory in the years ahead and.
Speaker Change: In the near term the combination of trade policy and our customers heightened uncertainty around end market demand has caused the orders to push out as we discussed last month.
Speaker Change: Although the direct impact of current and anticipated 90 day tariffs on our model is minimal we are more concerned about the impact of tariffs on the end market demand.
Speaker Change: Many of our customers primarily in the mobile automotive and industrial segments are reviewing their capital the acquisition plans and we do not have firm forecast from them at this time.
Speaker Change: Beyond the second quarter, our visibility is very limited as such we are not commenting on or reaffirming our expectations beyond the second quarter.
Speaker Change: We delivered first quarter revenue towards the high end of our guidance range with gross margin and earnings per share above the high end of our expectations.
Speaker Change: Strength in semi test specifically S O C for the mobile end market drove year over year growth.
Speaker Change: This mobile demand is transitory and related to some supply chain transitions at our customers rather than a signal of end market recovery.
Speaker Change: Our compute revenue also grew year over year in Q1 with record loading on our ultra flux and ultra flex plus testers for AI accelerators.
Speaker Change: Revenue in our product test and robotics tests divisions were generally in line with our expectations in Q1.
Speaker Change: In semi test Soc delivered above our plan and memory was in line with our expectations as customers Digest, the H B M or high bandwidth memory capacity that was put in place last year.
Speaker Change: In the quarter, our memory business units secured a coveted H P. M for performance test win with a major DRAM manufacturer, which is beginning to expected to begin shipping in the second half of this year. This is our first DRAM wafer sort win at this customer and a major milestone for our memory business.
Speaker Change: Our I S T business or integrated system test delivered first quarter results in line with our expectations and achieved initial customer acceptance for the new tightened HP targeted at system level test of AI accelerators, we are seeing new opportunities emerging in the I S T space with both new and existing customers.
Speaker Change: Okay.
Speaker Change: All of the businesses in our newly formed product Test Division delivered first quarter results in line with our expectations, while the wireless test and market for our life business has been generally weak since 2023. The team has continued to secure the majority of opportunities in wireless networking sockets in the.
Speaker Change: First quarter light 0.1, 13 of 13 of the Wi Fi seven wireless test opportunities.
Speaker Change: A critical aspect of our strategy to gain share in high performance computing is to establish a leadership position in silicon Photonics test.
Speaker Change: In support of that goal, we believe that we are on track to close the acquisition of quantified photonics in the second quarter.
Speaker Change: In the first quarter, our robotics division executed a structural reorganization consolidating the customer facing sales marketing and service organizations between U R in mirror.
Speaker Change: Our robotics team has responded with resilience in what continues to be a very challenging macro backdrop in the quarter Teradyne robotics received the largest order in its history from a global automotive manufacturer for both near a M ours and you are cobalt arms.
Speaker Change: The new power Jack Mirror 1200 is now in the hands of distributors and select lead customers and pilot installations are running.
Speaker Change: Moving on to Q2.
Speaker Change: As we discussed at our analyst day, we have seen customers pushed order delivery out from the second quarter into future quarters due to the uncertainty international trade policy could have on end market demand.
Speaker Change: Despite this our view of Q2 remains in line with the expectations that we set in March.
Speaker Change: Given the lack of visibility and the impact of trade policy may have on the industry and our business we are prudently managing expenses.
Speaker Change: While there were a systematic opex savings that are delivering that are delivered by our flexible business model and variable compensation strategy. We are also actively managing expenses with the objective of generating operating leverage.
Speaker Change: With our strong balance sheet consistent free cash flow generation low capital intensity and variable operating model. We are continuing critical investments and are positioning ourselves to drive growth as customers figure out their strategy in the current macro environment.
Speaker Change: We see green shoots of evidence of this across teradyne as our business units address emerging opportunities and increasingly work across divisions to better solve customer problems.
Speaker Change: TASS or teradyne automated solutions is a great example.
Speaker Change: Semiconductor customers are interested in automating, particularly their back end processes, which are still quite labor intensive in.
Speaker Change: In the first quarter, we announced a strategic partnership with Adi, which will deploy you are co bots and mirror Amr's to support Adi's collaborative automation initiative. The semiconductor market is one of the segments. Our robotics business is targeting to drive diversified growth.
Speaker Change: Within semi test I S. T is working hand in hand, with our <unk> team to help current and potential customers in the AI compute space cost effectively optimize test insertion points.
Speaker Change: We are seeing this with our first tightened HP customer acceptance and revenue in Q1 from a hyperscale customer and in product test, our PBT or production Board test business, which has historically been strongest in the automotive industry is making gains in AI compute where technologies pioneered by semi.
Speaker Change: First are being leveraged to help hyperscale or test server level products.
Speaker Change: The increasing complexity and high cost of failure of these end products is creating sizable opportunities for us.
Speaker Change: In the mobile space after years of overcapacity utilization rates have improved considerably as evidenced by new system orders for AI compute complementing upgrades of underutilized mobile testers, we have started to see improvement in LP DDR for mobile applications and we.
Speaker Change: Started shipping our next generation image sensor testers for the mobile market in Q1 of 2025, we.
Speaker Change: We are also winning new opportunities and esselte and the mobile market with two nanometer and gate all around on the horizon. We are optimistic that as demand recovers the setup for our mobile business is good.
Speaker Change: We cannot predict the impact that dynamic trade policies will have on global and demand but.
Speaker Change: But we know that teradyne has historically emerged stronger coming out of challenging macroeconomic periods, we expect that to be the case in 2025 as well with that I will turn the call over to Sanjay.
Sanjay Mehta: Thank you Greg Good morning, everyone. Today I'll cover the financial summary of Q1 and provide our Q2 outlook now to Q1 first quarter sales were $686 million, which was towards the high end of our guidance with non-GAAP EPS of <unk> 75.
Sanjay Mehta: Our high end guidance of 68.
Sanjay Mehta: non-GAAP gross margins were 66%.
Sanjay Mehta: This was above our guidance due primarily to product mix non-GAAP operating expenses were $275 million up year over year as we have increased our investment in targeted opportunities to drive longer term growth.
Sanjay Mehta: That said, it's down sequentially as part of our implemented spending controls non-GAAP operating profit was 25%.
Sanjay Mehta: Turning to our revenue breakdown in Q1.
Sanjay Mehta: Semi test revenue for the quarter was $543 million with Soc revenue contributing $406 million.
Sanjay Mehta: Memory $109 million and I S T $27 million strength in <unk> was driven primarily by mobile app.
Sanjay Mehta: As expected memory revenue was lower as customers Digest, the HBM test equipment delivered in 2024.
Sanjay Mehta: We expect DRAM to dominate the memory mix in 2025, just as it did in 2020 for.
Sanjay Mehta: ISG revenue was $27 million was.
Sanjay Mehta: It was up both sequentially and year over year, driven by new S. L T shipments for mobile and our first AI compute revenue and.
Sanjay Mehta: Product test Q1 revenue was $74 million down 4% year over year with wireless test revenue of $29 million up 20% year over year.
Sanjay Mehta: This growth in wireless test was offset with weakness in production board test tied to the automotive industry and timing of programs in defense and aerospace.
Sanjay Mehta: Now to robotics revenue was $69 million declining both sequentially and year over year.
Sanjay Mehta: In the quarter, you are contributed $49 million and near contributed $20 million.
Sanjay Mehta: While the long term drivers of AI, and onshoring and advanced robotics remain intact near term macro factors continue to be a headwind.
Sanjay Mehta: And robotics, the operating loss was $22 million in line with our expectation given our restructuring I'll share the GAAP to non-GAAP reconciliation of the loss on a GAAP basis, our loss in Q1 was $37 million, including approximately $11 million of restructuring primarily associated with our go to market consolidation.
Sanjay Mehta: And $4 million of amortization of intangible assets. This restructuring has reduced our operating breakeven revenue from $440 million to $365 million as described in January.
Sanjay Mehta: I'd like to highlight our life to date robotics GAAP results life.
Sanjay Mehta: Life to date, our GAAP losses are $231 million.
Sanjay Mehta: That down approximately $233 million of non cash amortization of intangibles $45 million of restructuring costs, resulting in $47 million of cumulative non-GAAP operating profit.
Sanjay Mehta: Some other financial information in Q1.
Sanjay Mehta: We had one customer that directly or indirectly drove more than 10% of our revenue in the first quarter.
Sanjay Mehta: In Q1, 19% of our revenue was shipped to China, 12% in support of multinational customers and 7% in support of indigenous Chinese customers for.
Sanjay Mehta: For context in the past two years shipments to indigenous to Chinese indigenous customers as being 5% of teradyne's revenue.
Sanjay Mehta: The tax rate, excluding discrete items for the quarter was 13, 5% on a GAAP and non-GAAP basis.
Sanjay Mehta: At a company level, our free cash flow was $98 million primarily.
Sanjay Mehta: Primarily driven by earnings and net working capital improvements in the quarter.
Sanjay Mehta: Repurchased $157 million of shares in the quarter and paid $19 million in dividends, we ended the quarter with $622 million in cash and marketable securities.
Sanjay Mehta: Now turning to our outlook for Q2.
Sanjay Mehta: Q2 sales are expected to be between $610 and $680 million.
Sanjay Mehta: Second quarter gross margins are estimated at $56 five and 57, 5%.
Sanjay Mehta: The decrease quarter over quarter, driven by product mix and lower volume.
Sanjay Mehta: Q2, Opex is expected to run at 45 to 44, 5% of second quarter sales.
Sanjay Mehta: non-GAAP operating profit rate at the midpoint.
Sanjay Mehta: Of our second quarter guidance is 14, 5% with non-GAAP EPS expected to be in the range of 41 to <unk> 64.
Sanjay Mehta: On a 161 million diluted shares GAAP EPS is expected to be in the range of 35 to <unk> 58.
Sanjay Mehta: Moving to moving to the topic of tariffs.
Sanjay Mehta: As Greg noted the primary concern of the tariffs is the impact on the end market demand.
Sanjay Mehta: Our manufacturing footprint and the location of our customers, we expect only a minimal impact on the efficiency of our business model.
Sanjay Mehta: The impact of the tariff will generally be passed along to customers in affected regions. In Q2, we expect to have a small increase of cost of sales and operating expenses, which amounts to approximately <unk> <unk> of earnings for Q2, which is included in our guide.
Sanjay Mehta: While we have assessed the financial impact due to tariffs in Q2, there was little ability to predict the changes in tariff or trade policy or the magnitude.
Sanjay Mehta: Of impact of the trade policy on end market demand.
Sanjay Mehta: As such please do not rely on prior financial guidance.
Sanjay Mehta: Extend beyond the second quarter.
Sanjay Mehta: That said I'd like to provide additional color on the dynamics, we're seeing in some of our markets and mobile after two consecutive quarters of strength driven by some supply chain shifts we expect our Q2 revenue from mobile to be lower in.
Sanjay Mehta: Q2, we also expect a significant sequential decline in memory revenue as the market continues to digest installed HBM test capacity.
Sanjay Mehta: Looking out further.
Sanjay Mehta: Policy, including tariffs are most likely to impact mobile automotive and industrial end markets significant changes to the AI diffusion rule for semiconductor trade restrictions may impact the compute market.
Sanjay Mehta: Turning to share buybacks as noted in our press release, we've increased our share buyback target from $400 million in 2025 to up to $1 billion through the end of 2026, reflecting our confidence in our long term plans and free cash flow generation.
Sanjay Mehta: Summing up we delivered strong sales earnings and free cash flow in the first quarter our expectations for the second quarter are largely in line with our expectations provided at our analyst day inclusive of the expected impact of tariffs.
Sanjay Mehta: While visibility remains limited and there is a heightened uncertainty on the end market demand. We are confident in the long term drivers of AI electrification and Verticalizing <unk> that will drive the industry and our businesses in the coming years, a resilient variable business model and strong balance sheet enable us to continue to invest in areas of strategic <unk>.
Sanjay Mehta: Important as we await a broader end market recovery.
Sanjay Mehta: With that I'll turn the call back to the operator to open the lineup for questions operator.
Speaker Change: Thank you if he would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue.
Speaker Change: You May press star two if he would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys. Please ask one question and one follow up question one moment, while we poll for questions.
Speaker Change: Our first question is from Chris <unk> with TV Cowen. Please proceed.
Speaker Change: Taking my question, Greg you kind of mentioned how seven weeks ago at your analyst day, you saw tightest related push outs, but now it seems like some of your wholesale customers is being that is related to Poland.
Speaker Change: What are the dynamics youre seeing it seems like you're already seeing push outs no pull in kind of like what end vertical is it coming from is it mostly also analog industrials, where he also seen this trend in mobile in SBC.
Speaker Change: A quick follow up.
Chris: Yes, Chris so.
Chris: I think the effect of pull ins for end orders licensed people hurrying to get chips are mostly affecting capacity.
It's using capacity that's already in place. It is not significant we haven't seen significant pull ins into Q1 or into Q2 to provide additional capital equipment to support path. So.
Chris: That's not a factor the the push outs that we were talking about at analyst day or.
Chris: Is the situation is essentially the same as it was back then and the push outs are primarily coming from our customers that serve the auto and industrial space.
Chris: We haven't seen significant push outs associated with mobile, but we are concerned about the potential end market impact on that.
Chris: That has an effect yet to be seen that we don't have information about.
Speaker Change: Got it got it thanks, and then just a follow up on that <unk> basis lots of wins.
Speaker Change: Is this an existing <unk> customers and the new one and also typically Canada has been bedridden finances, because speed is more important from kind of curious what good user basis.
Speaker Change: Yeah.
Speaker Change: Okay. So.
Speaker Change: Important thing to remember is that.
Speaker Change: With HBM memory. There is now a performance tests that occurs at wafer level. So this is a post post stack test.
Speaker Change: We do our core test of all of the all of the DRAM wafers, then you dice those wafers you stack them up onto a substrate wafer and then you do another wafer level test of the entire staff HBM memory and Thats a performance tests that happens at higher speed.
Speaker Change: That's the insertion that we won and that is a.
Speaker Change: That eight that HCM for win is with a customer we didnt have existing <unk> three or <unk> business.
Greg Smith: Thank you Greg very helpful.
Speaker Change: Yeah.
Speaker Change: Our next question is from C. J Muse with Cantor Fitzgerald. Please proceed.
Speaker Change: Yes. Good afternoon. Good morning, Thank you for taking our question.
Speaker Change: I guess I understand not guiding to the second half given lack of visibility, but I'm, hoping you could kind of speak to what you can control. So how are you thinking about kind of what the new.
Speaker Change: Gross margin range would look like for the full calendar year and do you have.
Speaker Change: <unk> view on how we should be thinking about opex.
Sanjay Mehta: Yeah C J, it's Sanjay so for the full calendar year.
Sanjay Mehta: Given the uncertainty on the top line and the impact of the tariffs or the the trade policy of the revenue mix.
Sanjay Mehta: <unk> is really a large factor so we're not providing any guidance for the gross margin I will share that our first half from a gross margin perspective is percentage wise roughly in line with where we expected Q1.
Sanjay Mehta: A bit better and as we are guiding Q2, a little bit worse, but overall in the first half percentage wise, we're aligned and given the uncertainty of the topline.
Sanjay Mehta: We're not we're not providing any guidance for the second half from an opex perspective.
Sanjay Mehta: The story is.
Sanjay Mehta: It may sound, a little bit redundant, but from a from a variable compensation model perspective, what we'll see is depending on the revenue flux.
Sanjay Mehta: If the revenue comes down we will have a favorable impact of lower spend if it goes up.
Sanjay Mehta: We'll have more spend but the kind of the narrative is consistent where we're going to prioritize.
Sanjay Mehta: Our semi test our engineering and our go to market.
Sanjay Mehta: You saw the restructuring in robotics in Q1.
Sanjay Mehta: You should see that decline year over year and and from.
Sanjay Mehta: <unk>.
Sanjay Mehta: And Opex perspective, and product test it should be roughly flattish to the prior year.
Sanjay Mehta: So.
Speaker Change: If you don't mind, Sanjay I'd like to add one sort of historical perspective to that C. J.
Sanjay Mehta: If you look into sort of past situations, where we have had.
Sanjay Mehta: Like a sharp downturn within a year.
Sanjay Mehta: So in from 2022 to 2023, we had the in the middle of 'twenty three we had.
Sanjay Mehta: A sharp slowdown in the mobile space that occurred mid year, and our margins went from 59% in 2022% to 57% in 2023, So we're not calling a gross margin for the full year, because we don't have a good picture of the full year. The thing I want to emphasize is that it's probably.
Sanjay Mehta: Going to move in a pretty narrow range.
Sanjay Mehta: Alright, very helpful context, I guess as my follow up was hoping you could speak to.
Sanjay Mehta: The esselte wings that you kind of highlighted in your prepared remarks. So can you kind of give us a little more color on what youre seeing with AI accelerators and then also on the mobility side of two nanometer is that just the wind at your large existing customer or have you broadened your design wins.
Sanjay Mehta: In that arena. Thank you.
Sanjay Mehta: Yes, I'm glad you asked for clarification around the mobile the mobile esselte win so.
Sanjay Mehta: In my script, it was sort of two separate thoughts that we have one additional mobile sockets.
Sanjay Mehta: That are driving that are going to drive business in 2025, and enter 2026, a separate thought as the transition to two nanometer is going to be a positive demand.
Sanjay Mehta: Tailwind in 2026 as well.
Sanjay Mehta: Didn't mean to imply that we won and esselte two nanometer socket. So I just wanted to make sure that we're really clear about that.
Sanjay Mehta: On AI accelerators.
Sanjay Mehta: This is sort of a leading edge.
Sanjay Mehta: Trend.
Sanjay Mehta: What we're seeing is that.
Sanjay Mehta: AI accelerator devices, when they are being incorporated into higher level assemblies, those assemblies have a high.
Sanjay Mehta: A higher than acceptable failure rate as they are being built into servers and.
Sanjay Mehta: It takes a significant amount of time to get the test coverage that you need for these devices and many of the failures can only be found when they are running actual like training workloads.
Sanjay Mehta: The most cost effective way to be able to run those training workloads is to do it in a system level test environment and so we've we've implemented that for our leading edge AI accelerator, we've delivered that product that product has been accepted and is being used in production right now.
Sanjay Mehta: The trend that we believe is going to happen is that with next generation accelerators that are even more complex that.
Sanjay Mehta: 100% <unk> is going to be the most economic choice that these customers will make in order to achieve the quality levels that they need. So this is sort of the tip of the spear when it comes to two <unk> of these devices and the key thing that we have is.
Sanjay Mehta: A great solution around the thermal control and power required to do this so.
Sanjay Mehta: It is an important strategic win that is going to deliver significant revenue in 2020.
Sanjay Mehta: Very helpful. Thank you.
Sanjay Mehta: Okay.
Speaker Change: Our next question is from Timothy Arcuri with UBS. Please proceed.
Timothy Arcuri: Thanks, a lot Greg you talked about I think you said the biggest robotics order ever I think you've talked about that in the script.
Speaker Change: June has historically been kind of all over the map. It's been I mean, if you said, it's a normal seasonal it's pretty flat I guess in June. So can you talk about that order what was it for what does it tell you about the business and.
Timothy Arcuri: When is it going to hit.
Speaker Change: Yes, sure. So as we've said in the script, it's for an automotive customer.
Speaker Change: And this is been historically large strategic customer for us for both U R and Nir for a while.
Speaker Change: This is the first.
Speaker Change: It's the largest order for our <unk> that we've ever received and it's the first time that we've received an order where we dealt with this customer in a.
Speaker Change: Our combined way as a robotics unit versus AUR and near unit. So it.
Speaker Change: Demonstrated the ability to transition the sales force to selling all of our products to these strategic customers.
Speaker Change: The product is primarily used in.
Speaker Change: So for the <unk> they are primarily used in the <unk>.
Speaker Change: Material handling part of the factory, so essentially they bring parts from.
Speaker Change: From storage to line side, and then that then the.
Speaker Change: The other automation takes that and brings it into the product being assembled.
Speaker Change: Cobalt arms are generally used to automate manual processes in existing factories. So when they build a factory. They will design ins are core automation for the Assembly line.
Speaker Change: There is a significant amount of manual.
Speaker Change: Operations that occur, especially as the product gets further through the process and after the test after the factories commissioned this customer will continuing to look for process improvements and collaborative robotics is one of the key technologies that they use for those kinds of improvements because they don't have to.
Speaker Change: Make sure that the product and that the automation and the workers are separated so it's.
Speaker Change: Ongoing continuous improvement investment from this this customer on the cobalt side.
Speaker Change: And when does it.
Speaker Change: When does it help.
Speaker Change: The business and then.
Timothy Arcuri: Sanjay can you give us some tam updates from which you provided during the analyst day, you had said 49 SSC one for memory and then you had all the breakdown within SSE is there any change.
Speaker Change: Change to that that you would want to highlight.
Speaker Change: So Tim I didn't quite catch the first part of your question around that.
Tim: Yes, Greg I was just trying to understand like I mean, it's like this is such a big order and when does it helps the business does it ship in the back half of the year in.
June one of the ship.
Tim: No. So it's it's shipments are spread out through from Q1 into Q2 so.
Tim: Wouldn't extend into the second half of this this this year the lead times on the robotics products are generally pretty short.
Tim: And then may be addressing your next request.
Tim: As we've said in our prepared remarks, given the uncertainty we're not providing an update on the Tam and the breakdown for.
Tim: For the full year.
Tim: Okay.
Tim: Okay.
Speaker Change: Our next question is from Jimmy <unk> with J P. Morgan. Please proceed.
Tim: Okay.
Priyanka Chopra: Hi, This is priyanka chopra for stomach charity.
Tim: This.
Tim: My question is on secondary impact for tariffs.
Tim: Do you observe a chef.
Tim: Among international customers towards non U S competitors and the testing space or have you noticed that your competitive positioning has remained stable.
Speaker Change: Oh hi.
Priyanka Chopra: Hi, Priyanka.
Priyanka Chopra: In terms of competitive impact so, especially.
The key thing in the test market is we have.
Priyanka Chopra: Two major international suppliers, and then there are indigenous suppliers.
Priyanka Chopra: Suppliers in China, and Korea that also serve the market.
Priyanka Chopra: What we have not seen any competitive impact customers that are deciding to buy from a different vendor because of the tariffs.
Priyanka Chopra: And.
Priyanka Chopra: There are certainly it's a very competitive market, so where we are in in competing all the time Theyre tariffs has not been the a deciding factor in any of those any of those competitions.
Priyanka Chopra: Alright, and one follow up.
Priyanka Chopra: Just to put on the gross margin impact it was noticeably strong this on product mix this quarter.
What measures are necessary in the long term to achieve the sort of 60% gross margin or is that narrow range that you spoke of like somewhat below that.
Priyanka Chopra: Okay.
Sanjay Mehta: Yeah, Hi, it's Sanjay thanks for the question.
Priyanka Chopra: The strength is.
Priyanka Chopra: We noted in the prepared remarks is really tied to product mix.
Priyanka Chopra: Overall, when we make our investment decisions, we are looking to differentiate our solutions and.
Priyanka Chopra: And we have an overall business model of 59% to 60%.
Priyanka Chopra: And that's that's how we design our products in the markets, we enter I would say in the short run.
Priyanka Chopra: When we talk about product mix from a customer perspective, depending on what the needs are for a particular customer it's really configuration dependent on what goes in there, but overall in the first half, which you take a look at our guide the first half were about 59%.
Priyanka Chopra: We do believe over the mid and long term that we will continue to operate our business at 59% to 60%.
Priyanka Chopra: Alright, thank you so much.
Priyanka Chopra: Okay.
Speaker Change: Our next question is from Brian Chin with Stifel. Please proceed.
Priyanka Chopra: Okay.
Brian Chin: Good morning, Thanks for letting us ask a few questions.
Priyanka Chopra: Maybe two.
Speaker Change: One for you Greg.
Speaker Change: When you size the VIP tan at around $600 million in 2006, and potentially $800 million in 2028, where.
Speaker Change: Are you, including Esselte and can you give us a sense, even if you don't want to necessarily reaffirm those targets at the moment how material those Tam figures could S. LTV.
Speaker Change: Yeah.
Speaker Change: Yes, so the numbers that we cited for the <unk> for the <unk>.
Speaker Change: AIP Tam are around semiconductor ATV and it doesn't include <unk> revenue.
Speaker Change: If there is a if.
Speaker Change: The trends that I'm talking about plays out then.
Speaker Change: I don't think we've provided a formal estimate of that Tam.
Speaker Change: It would not it's not like going to be as big.
Speaker Change: But.
Speaker Change: Probably in the 10% to 30% of the total Tam would be the Soc Tam for that we can we'll be updating that over time and.
Speaker Change: We'll let you know probably in January of next year, when we when we start when we start talking about the long term but.
Speaker Change: Should you should look at it is impactful, but not huge not like this.
Speaker Change: Okay. Thanks, and then.
Speaker Change: Yes.
Speaker Change: Kind of broadly are you anticipating more meaningful advanced backend test and packaging lines to the onshore here in the states.
Speaker Change: What timeframe seems realistic and should this coincide with the next expansion of advanced logic wafer fab capacity in the U S.
Speaker Change: Yes so.
Speaker Change: Yeah.
Speaker Change: The thing that we have.
Speaker Change: Usually said and we still believe is that customers buy testers that.
Speaker Change: For the parts that they need to test and.
Speaker Change: Where those parts are produced whether it's in Taiwan or in China or in the U S doesn't affect the end market demand for those chips. So.
Speaker Change: Our ship to locations may change in the future if theres more onsite manufacturing in the U S. But the total demand is unlikely to change in any meaningful way there may be some additional inefficiency if yields are lower at first or if utilization is lower but I think the onshoring.
Speaker Change: Of manufacturing is probably a bigger factor for front end equipment, where you need to make a large front end investment whether or not you have the the demand for the product for things like testers, you are only going to buy testers essentially at the point in time. When you know that you have the wafer volume that's going to <unk>.
Speaker Change: Required the test capacity.
Speaker Change: Okay.
Speaker Change: Thank you.
Speaker Change: Yeah.
Speaker Change: Our next question is from Shane Bret with Morgan Stanley. Please proceed.
Shane Bret: Thank you for taking my question. So firstly on memory you spoke about DRAM dominating the marine mix in 2025, just as it did.
Shane Bret: In 2024, which would imply NAND remains at very low levels, but do you think is needed from customer utilization of technology transitions to see test stores. Okay. Thank you.
Shane Bret: So there are two factors that will drive a larger NAND.
Shane Bret: <unk> NAND demand.
Shane Bret: First is really <unk>.
Shane Bret: Mobile phone unit volume, so if mobile phone unit volume inflect significantly.
Shane Bret: Then we would see an increase in the demand also if.
Shane Bret: The rise of AI enabled smartphones requires a lot more local storage for model parameters that would increase the amount of NAND for phone. So those are sort of the volume drivers for the market.
Shane Bret: Other important driver is interface standards and this is true both in the in the mobile space and also in the compute space in the mobile space. There are new protocols in both the iOS ecosystem and the Android ecosystem that require investment in new tests.
Shane Bret: Capacity to be able to verify those devices, so as new phones adopt new standards that does drive.
Tam in the mobile space.
Shane Bret: The last factor around the NAND market is as the the NAND capacity continues to increase and the need for near line storage for AI increases the there is a potential.
Shane Bret: Potential.
Shane Bret: For very high demand in the cloud compute space for.
Shane Bret: Storage and Thats something that we think would be a.
Shane Bret: Sure.
Shane Bret: A positive factor for demand.
Shane Bret: Sure.
Shane Bret: And we also think that that's an interesting market for us for our ISI group.
Shane Bret: Got it thank you for my follow up.
Speaker Change: You mentioned that most of the VIP demand in 24 came from upgrades and if they were system sales revenue would have doubled do you have a gauge on what the utilization of our for your testers and at what point with customers have to purchase new testers, rather than resorting to upgrades. Thank you.
Shane Bret: So.
Shane Bret: We don't have an accurate enough measure of utilization that we can share sort of specific numbers.
Shane Bret: The trend is definitely upward and we have already seen an increase in system orders associated with.
Shane Bret: Accelerators so we.
Shane Bret: In the early parts of 2024.
Shane Bret: It was really quite dominated by the upgrade sales as we got into the latter half of 2024, we began to see significant system orders. In addition to those upgrade orders and.
Shane Bret: Also the mobile.
Shane Bret: The mobile business that we've transacted over Q4, and Q1 is consuming additional capacity. It's mobile it's mobile of one type to mobile or another type, but it is definitely consuming idled testers. So I had the best I can do is give you a qualitative answer that.
Shane Bret: We believe that the number of Upgradable systems is much much lower now than it was say six months ago.
Shane Bret: Got it thank you very much.
Speaker Change: Our next question is from James <unk> with.
Speaker Change: Go ahead Keith.
Speaker Change: Please proceed.
Speaker Change: Yes. Thank you for taking my question I guess I had one clarification as far as the HBM stacked die test.
Speaker Change: Great.
Speaker Change: Just to clarify I guess you now have all three of the H B M guys for stack Die test is that how we interpret this win.
Speaker Change: No.
Speaker Change: No we have.
Speaker Change: Okay.
Speaker Change: That is not a correct assumption.
Speaker Change: Okay and then.
Speaker Change: As far as the.
Speaker Change: At the Analyst day, you demonstrated a robot that was loading and unloading food.
Speaker Change: And I was kind of wondering and I think you mentioned.
Speaker Change: That was in production or in demonstration of one customer.
Speaker Change: Just help us understand the timing of.
Speaker Change: When do you expect to start to see revenue from that product and how big a market do you think that can be.
Speaker Change: So.
We already have we had revenue in Q1.
Speaker Change: In association with the.
Speaker Change: Semiconductor vertical for our robotics business.
Speaker Change: And so that.
Speaker Change: Those are.
Speaker Change: And we also have.
Speaker Change: Semiconductor workflows similar to what we demonstrated at our analyst day in production at multiple sites.
If for a different semiconductor customer in terms of the revenue impact in 2025, it's kind of single digit millions of dollars.
Speaker Change: And we expect it to grow over time, but.
Speaker Change: It also is a key element of <unk>.
Speaker Change: Like an enterprise level value proposition to these customers.
Speaker Change: We are already in their production facilities to provide support for our test equipment, we understand their workflows quite well and by being able to offer them.
Speaker Change: The robotics that they need to automate some of these processes, we're able to do that quite efficiently and we're also a trusted partner. So we think that this is an important way for us to.
Speaker Change: Demonstrate that we're the right test and robotics partner to these customers.
Speaker Change: Okay.
Speaker Change: Thank you.
Speaker Change: Our next question is from MS fan ARIA.
Speaker Change: Bank of America. Please proceed.
Sanjay Mehta: Hi, Thank you for taking my question. This is talk Sanjay and on behalf of Vivek.
Speaker Change: One on compute I know.
Speaker Change: You said youre not seeing a lot of push outs with this end market.
Speaker Change: And I know you won't guide the second half, but should we expect.
Speaker Change: And as to generally remain on track with your.
Speaker Change: Expectations from the Investor day.
Speaker Change: Just given youre not seeing any push outs. Thank you.
Speaker Change: Yes so.
Speaker Change: We haven't seen significant push outs.
Speaker Change: In terms of affecting our Q1 and Q2 results.
Speaker Change: There is uncertainty around the second half of the year and I'd like to emphasize that it is uncertainty there are potential.
Speaker Change: Potential upside factors in there or potential downside factors and Thats one of the reasons that we are not trying to guide the full year is that we.
Speaker Change: We're not trying to suddenly communicate a downward message or anything we're just hearing a lot of uncertainty from our customers about the timing of projects and the need for capacity.
Speaker Change: But yes, the view from the view from the analyst day to now is essentially the same.
Speaker Change: Got it.
Speaker Change: And then one on robotics, obviously, the sales side is a bit uncertain, but.
Speaker Change: You've previously been assuming that this segment will outgrow your industrial pure Spicer significant margin.
Speaker Change: So is this what youre expecting.
Speaker Change: That'd be helpful. Thank you.
Speaker Change: Yes, so we are.
Speaker Change: The way that we're typically thinking about our robotics business is that we would want to significantly outgrow traditional industrial automation peers in this space, mainly because we're addressing an under penetrated market advanced robotics.
Speaker Change: <unk> segment, and especially the segment of robotics, where people are trying to automate processes that need to be in the presence of people or indirect inter operating with people. So that's a different market and we believe a market that is going to be accelerated by AI.
Speaker Change: We have not seen anything that changes our opinion that that's possible, but we definitely are.
Speaker Change: Struggling with an end market, that's quite sluggish and if people don't have money for projects. Then it's difficult for you to achieve sort of an absolute level of growth in the business. So that's a key reason that we undertook the restructuring that we did to try and bring down our breakeven.
Speaker Change: So our breakeven was at $440 million in 2024, our breakeven for this year is down at $365 million and that was really a reaction to understanding that we don't have control over those end market conditions, and we needed to set ourselves up so that we can maintain our critical investments and still.
Speaker Change: The more careful in terms of the investments that we're making around the go to market and achieve the synergies that we could between these two groups.
Speaker Change: Understood. Thank you.
Speaker Change: With no further questions in the queue. This does conclude today's conference you may disconnect. Your lines at this time and thank you for your participation.