Q2 2025 Teradyne Inc Earnings Call
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I would now like to turn the conference over to your host. Tracy Sushi Gucci. Please go ahead.
Thank you, operator. Good morning, everyone and Welcome to our discussion of paradigms. Most recent Financial results. I'm joined this morning by our CEO, Greg Smith and our CFO Sanjay Mehta following our opening remarks with provide details on our performance. For the second quarter of 2025 and our outlook. For the third quarter of 2025, the press release containing our second quarter results was issued last evening. The slides, as well, as a copy of this earnings script are on the investor page of the Paradigm website. Replays of this call will be available via the same page after the call ends.
The matters that we discussed today will include, or looking statements that involve risks that could cause paradigms results to differ materially, from Management's, current expectations. We caution listers. Not to place under Reliance on any 4 of the king statements included in this presentation,
We encourage you to review the Safe Harbor statement, contained in the slides accompanying this presentation, as well as the risk factors described in our annual report on Form 10-K for the fiscal year ending December 31, 2024, on file with the SEC.
Additionally, these four key statements are made only as of today, and we do not undertake any obligations to update forward-looking statements to reflect subsequent events or circumstances, except to the extent required by law.
During today's call, we will refer to. We will refer to non-bank financial measures. We have posted additional information concerning these non-cap Financial measures including reconciliation to the most directly comparable, gaap Financial measures, we're available on the investor page of our website.
Looking ahead between now and our next earnings call Paradigm expects to participate in technology or industrial focused. Investor conferences hosted by ever KeyBank City group and Goldman Sachs our quiet period will begin at the close of business on, September 19th, 2025,
Following Greg and Sandy's comments, this morning we will open up the call for questions. This call is scheduled for 1 hour, Greg.
thanks Tracy. Good morning everyone and thanks for joining us. Today, I'll discuss our second quarter results and provide an update on what we're seeing across our businesses.
Sanjay will then provide more detail on our second quarter results and third quarter guidance.
Through the second quarter end market trends. Noted in Prior quarters were generally consistent with a strengthening second half
Strengthened AI compute is more than offsetting lower demand in Auto and industrial markets.
Pockets of improvement in Mobile are driven more by customer-specific dynamics than an uptick in end market demand.
Visibility is starting to improve in terms of capacity utilization, we believe that we have turned the corner towards new more new system sales rather than selling upgrades of existing idle. Mobile capacity for new compute and mobile applications.
Demand is strengthening and AI compute. And we are seeing a broadening of opportunities where Paradigm and especially the ultraflex plus is getting strong condition consideration in areas where we have not historically, had a seat at the table.
While new program ramps and new test insertions can drive a lumpy order pattern. We are optimistic about the opportunities on our Horizon in the second half of 2025, we expect AI compute to be the dominant driver of our SOC business.
The long-term themes we've discussed AI, vert verticalization and electrification, remain intact with AI and verticalization emerging as the primary growth drivers in the near term.
Our Q2 results, reflect the evolving composition of our business.
In the past, the typical seasonality in our revenue was heavily driven by consumer mobile demand. This has now been superseded by the waves of demand driven by specific customer program ramps and AI compute.
These have no correlation to consumer holiday buying patterns.
In the second quarter, we delivered Revenue gross, margins and earnings per share above the midpoint of our guidance ranges.
Semi test specifically soc for AI compute drove results above our expectations.
End demand Trends in Mobile persist. But we saw pockets of customer specific strengths in RF and mobile power in the quarter.
In the industrial and automotive and markets, demand has stabilized at a low level.
Is expected to snap back in the second half.
In the quarter, our memory business unit secured an important HPM for post-stack.
HPM suppliers are adding test coverage to improve device quality. Some suppliers are adding a test insertion for HBM Cingulate. While this new insertion is not yet pervasive across the broader industry, we believe that it is an important growth driver for the memory TAM in the future.
This win built on momentum from the HPM 4. Post stack wafer test win in q1 for our memory business unit.
To be discussed in our Analyst Day, there are four elements to growth in our IST business: accelerated bit growth in HDD, share growth, recovery in the mobile SLT market, and emerging SLT for AI accelerators and solid-state drives. In Q2, IST revenue more than doubled compared to the same period last year, mainly driven by HDD and mobile.
All of the businesses within our product test group delivered, second quarter results. Generally in line with our expectations, and up year-on-year. In the quarter, we closed the acquisition of quantify. The tonics accelerating an important element of our strategy to gain share in AI compute by establishing a leadership position in Silicon photonics test.
In robotics recall that we executed a structural reorganization that Consolidated, the customer-facing sales marketing and service organizations of UR and mere in the first quarter of 2025, in Q2, this new organization, delivered 9%, quarter-on-quarter growth, despite persistent difficult, market conditions, and we continue to optimize our Opex envelope to respond in the second quarter as part of our pivot to large customers. We secured a plan of record decision from a large customer. This is not expected to have a material impact on robotics Revenue in 2025 but is expected to be a significant growth driver later in 2026.
In support of this opportunity and others. The team plans to open a manufacturing operation in the United States to best serve customers in this region.
Moving on to Q3 as we progress through the third quarter, we are gaining confidence in AI, compute related Revenue, inflecting in the second half of the Year driven by both SOC and memory. We are less certain of the quarterly timing of shipments between Q3 and Q4, and then between Q4 and q1 due to customer schedules. That said we expect the relative size of AI compute in our SOC and memory business to represent the majority of our semi test Revenue in the second half.
Our expectations for mobile are modest in the third quarter and the second half generally expecting that the bulk of the demand. We'd see for the year has been satisfied in the first half.
Growth in the mobile segment is coupled to the ramp of 2. Nanometer gate all around and the expectation of more compelling AI applications in the generation of smartphones coming in the back, half of 2026.
In the auto and Industrial and markets. Are end. Customers. Remain cautious, about significant capacity ads, but we do not expect test equipment, order, patterns to deteriorate further. There are areas within this end Market that are showing strength like the power semiconductors for Data Center build-ups and we believe that the long-term Trend towards electrification will drive growth Beyond 2025.
Overall, we feel good about where we're headed in the third quarter and the second half of the year. We are significantly more confident than we were 90 days ago. Demand trends in AI compute have strengthened, and we forecast our materializing into orders.
Utilization rates have improved considerably leading to an increase in ultraflex plus system orders with the work that we have done to increase, the resilience of our supply chain and dual Source. Our manufacturing, we are in a position to effectively scale volume with increased demand and provide timely delivery of our testers to fast-moving customers.
I want to emphasize that. We are opening these new opportunities because of the scalability of our newest systems. Our capabilities in Silicon, photonics are parallelism and higher throughput. That lowers the cost of tests for our customers and with that I'll turn the call over to Sanjay.
Expenses were 275 million up year-over-year? As we have increased our R&D Investments and targeted opportunities to drive longer term growth.
Opex came in flattish, sequentially. As we continue to practice discipline spending controls.
Non-gaap operating profit was 15.1%.
Turning to our Revenue breakdown in Q2.
Semi- test revenue for the quarter was 492 million with SOC Revenue, contributing 397, million memory, 61 million in IST 34 million.
Strengthen SOC was driven by mobile upgrades, AI compute growth, exceeded our plan.
Expected memory Revenue was considerably lower sequentially and year-over-year due to the timing of customer deliveries, which is expected to be back, halfway to this year.
In the first half of this year, customers have been digesting the hbm test equipment. Delivered. In 2024, we expect dramm to dominate the memory mechs in 2025, just as it did in 2024 is IST revenue of. 34 million was up, both sequentially and year-over-year driven by mobile SLT and HDD testers.
And Product Test Q2 revenue was $85 million, up 7% year-over-year, with all business units within Product Test up year-over-year. As Greg noted, we closed the acquisition of Quantifi Photonics in the quarter, as its results are included in the segment.
Now, to robotics, revenue was $75 million, a quarter over quarter.
but down year-over-year in the quarter, you are contributed 63 million in mere contributed 12 million,
While the long-term drivers of AI and ensuring advanced robotics remain intact, near-term macro factors continue to be a headwind.
Our second quarter offering results were better than our first quarter and we expect the second half of the year to be better than the first half.
Despite this due to the weak and Market, we had lower volumes yielding, a lower growth margin.
We expect the weak Market to persist and do not expect robotics to break even this year.
Some other financial information in Q2.
We had 1 customer that directly or indirectly drove more than 10% of our Revenue. In the second quarter, the tax rate, excluding the street items for the quarter was 13.5% on a gaap and non-gaap basis.
At a company level, our free cash flow was $132 million, primarily driven by improvements in network and capital in the quarter.
We repurchased 117 million of shares in the quarter and paid $19 million in dividends.
In the first half, we returned 316 million or 138% of our free cash flow through dividends and BuyBacks to shareholders.
We ended the quarter with 489 million in cash and marketable securities.
Now, turning to Q3
Q3 sales are expected to be between 710 million and 77770 million. Third quarter, gross. Margins are expected to be at 56.5% to 57.5%
Q3 Opex is expected to run at 36.5% to 38.5% of third quarter sales.
The non-GAAP operating profit rate at the midpoint of our third quarter guidance is 19.5%.
The Q3 tax rate is expected to be 16.3% on a gaap and non-gaap basis.
The increase in rate is driven by the impact of the new tax legislation which goes into effect in Q3. Hence a year to date. Catch up is included in Q3
A full-year tax rate is expected to be 14.5%.
Q3 non-gaap EPS is expected to be in a range of 69 to 87 cents on 158 million diluted shares.
Gaap EPS is expected to be in the range of 62 to 80 cents.
In terms of guidance, we will continue to guide 1 quarter at a time.
Summing up, we delivered sales and earnings above the midpoint of our guide, we feel more confident and our near-term Outlook than we did 90 days ago. Looking ahead, our visibility is improving driven by demand and artificial intelligence in both SOC and memory
second half of the year is shaping up to be stronger than the first half as we expected earlier in the year.
Our multi-year investments and testing artificial. Intelligence are beginning to deliver New Opportunities and accelerating Topline growth.
We are confident in the long-term growth drivers of AI electrification and verticalization trends that will drive our business in the coming years.
Operator.
This time, we will.
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The first question we have comes from CJ Muse of council for Gerald. Please go ahead.
Good morning, thank you for taking the question. I, I just first question, you know your your tone on on on your outlook clearly much more positive versus 3 months ago and and curious is that a reflection of a pickup in business, you know, that you're seeing today in the second half and is there any way to sort of frame? You know whether growth continues in a Q4 and then perhaps more importantly, is it also related to new design ones that give you confidence Beyond 2025.
Uh, hi CJ. It's Greg. Um, yeah, so it is, uh, the confidence is definitely related to, um, an uptick in demand, primarily in AI compute, both in SOC and in memory. Um, and we expect that to, um, you know, uh, it's a, uh,
The major driver for our Q3 guidance. Um, and it's also the reason for our optimism about the full year. Um, as, as I said earlier in my remarks, a lot of the programs that were designed into are, um, occur. The ramps are recurring late in the year and so the split of demand between Q4 and q1 is a real X Factor. We know uh, we know the demands there. We just don't know the exact timing of it. Um, and your your other question in terms of the for the second half of this year is this related to new wins or existing programs, I would say that um,
Many of the things that we're seeing in the second half of 25 are actually wins that have occurred mainly in 24, you know. So in memory and in SOC, there are customer wins that we achieved either uh, you know, in 24 or early in 25 that are ramping. There are more opportunities in the funnel that we're hoping to close before the end of the year, but we would expect those to have a more positive impact in 26 than in 25.
Very helpful. And then, I guess a follow-up to that, as you look to 2026, is there a framework for thinking about, um, AI contributions to you, uh, and segmenting between custom silicon, networking, HBM, and other?
You know, um, looking out into 2026, we haven't done that analysis, in terms of, uh, how that demand is going to segment. Um, I think the, you know, in general, um, we would expect the same kind of a split in the memory Market that we're seeing now with, you know, kind of between, you know, 85 and 95% of the memory Market being driven by dram and most of that being driven by, uh, Cloud compute AI applications in the S SOC Market, um, looking into 2026. We've had a lot of strength this year, both in, um, VIP, uh, compute and also in the networking part of compute, and we would expect that that's going to continue into 2026. We're hopeful that we're going to be able to add in additional compute, revenue from the merchant suppliers.
Um, but that is, you know, that is an opportunity, not something that we have in the bank right now.
Thank you.
The next question we have come from comes from Timothy oi of UBS. Please go ahead.
Next year can you just help us uh, give us any color on that?
yeah, so the um, uh,
You know, from the, the statement that I made in terms of establishing Manufacturing in the US. Um, it's for us that opportunity is at first primarily driven in, um, in the US, North America, more generally, um, it uh, has the opportunity to spread into other regions as well, um, but we're able to serve, uh, the European region from our Denmark, manufacturing quite well. Um, I do want to emphasize that 1 of the things that is a requirement for many of the larger customer opportunities that were pursuing including the 1 that we won is, um, uh, supply chain resilience that, um, these these manufacturers want to see that you have, uh, multiple production facilities so that they're going to be able to get their material, no matter what. So, um, we believe that having, uh, Geographic diversity in our supply in our operations is kind of
Of a key element of this large customer strategy in general. Now, specifically around this 1 opportunity, um the the solutions are largely developed but there's a lot of kind of new product introduction work that has to happen in 2025. And so the demand associated with this opportunity in 2020.
5 is going to be quite, it's not going to be, it's not going to have a material effect on our robotics results when we get into 2026. Um, I can't give you an exact number but um, it will represent a, you know, a um, sizable fraction of the UR business. Um, and, you know, and you are is the majority of the robotics business. So it's it's definitely a needle mover in 26, but I can't give you an exact number.
Okay, awesome. Thanks and then, um, just on the I know you're not that excited about the opportunities and, you know, mobile this year, but it does seem that your big Mobile customer. They're moving to a new package next year. Um, and what is your assessment? Sort of on what impact that's going to have on test Times? Obviously you have you know, until you have a transistor density going up and test times seem like they're going to also go up. So I know you saw the, you know, modem test orders this year but does it make you optimistic about the, you know, about your, you know, mobile market and your large customer in particular next year? I know you haven't done that that optimistic, you know lightly, but I wonder if you can comment on that.
Yeah, so, um, you know, we've we've talked about the drivers for demand in the mobile space that there's unit volume that there's device complexity and, um, you know, and, uh, yield, you know, the the yield and utilization, sort of the efficiency of the, of the process. Um,
On complexity 2 nanometer, gate all around, is definitely going to enable significant increases in uh, like transistor count. Kind of complexity. The the parts are going to be more complex. The other thing that, um, drives complexity is, uh, the, the packaging methodology and the and things like the memory bandwidth. Um, so if for instance, there are wider buses between the the processor and memory, that means that you'll consume more tester resources per device than you would if the buses were more narrow. So in addition to the, just the transistor complexity, if the device needs more tester resources per device, you can test fewer devices at the same time and that would be another way that it would. You know, that would come through in the in our model as an increase in complexity. So, going into 2026, we think that there is uh
You know, there's a potential inflection in transistor complexity. We also believe that there's a potential inflection around, um, memory technologies and packaging. And so that makes us, you know, uh, optimistic that mobile will be better next year. Um, the thing is that mobile is going to be a smaller part of our overall mix in 2026 because of the strength of compute. So it's, you know, like.
The if, if mobile gets bigger, it's going to be under as a, a part of a more balanced mix than it was in our past.
Got it. Okay, thank you.
Thank you. The next question we have comes from me husin of Sig. Please go ahead.
Thanks for taking my question, Greg. I just want to follow up to the
last statement that you made.
I'm looking at the trend and to me, 2026 could be an inflection inflection point in both Mobile, catalyzed by 2, nanometer and increased complexities, as well as the t's ability scaling Ai. And then the robotics, which is a, a second, derivative, uh, beneficiary of, uh, uh AI, uh, from AI to IA. And I'm not asking for a guy, we all understand that you have a 2028, uh, EPS Target. But um, if if all of these inflection points were to start happening in 26, um, we could see um The Mix Change in and we could see. Um um finally a strategy coming together. Uh, am I thinking about this and I have a follow up.
Uh, yeah, no. You're you're thinking of I, by the way, I love your optimism. Um, the uh, uh, our strategy is to drive growth across all of our businesses, you know, uh, between in semi test, all of the different parts of semi test compute. Uh, auto-industrial mobile memory. We believe that we are positioned for growth in the midterm for all of them. Some of them because that end Market is growing very, very strongly and others because they're positioned for a cyclical recovery. Um, our IST business, we believe
We're positioned for growth because of the growth in HDD bit, you know, HDD bit growth, the rise of ssds. The fact that SLT is going to be needed for AI accelerators and the fact that we're gaining share in the mobile space, so we believe that's going to grow our product test group is positioned for growth through the midterm, um, across all of the different units inside of inside of the product test group, including the new edition quantify, the tonics, which we think is positioned for strong growth. Um, and then robotics robotics, we are pivoting to segments that have higher growth and we are pivoting the organization to be able to effectively serve large customers and winning those customers. So you know our our plan has a fair amount of resiliency in terms of uh the sum of the parts is greater than the whole but there is uncertainty in terms of how fast those things will go.
Yes, sir. I noted a newer term last night regarding one of your key HTTP customers, which indicated almost a doubling in CapEx.
how should we think about the system level test and if there is an uptick in is the details catalyzed by a new technology. Hammer, I is this going to be an immediate impact. Or is it going to take some time for you to actually see it?
I think it's going to take some time that, um, uh, first of all, the, the in that market the, those the, the testers that we build actually have a real. There's a relatively long lead time. Um, they are, you know, built to order and uh, installation takes a little while. So it's not like uh we're not going to crank out a 100 of these things in a quarter. Um, we do believe that demand is going to be strengthening through 2026, but you also have to remember that there was huge amounts of idle capacity in the HDD Market that, um, you know, is being filled more by the the the increase in test time of drives than volume of drives. So um we're actually kind of hopeful about the transition to hammer and uh similar Technologies from other other HDD manufacturers. Um,
Because those those drives take longer to, to go through the test and configuration process. Uh, but I think, you know, generally strength, generally strengthening through 2026 but it won't, you won't see a doubling like you saw from uh, in terms of the capital budget, um, for the player.
Okay, thank you.
Thank you.
Next question, we have comes from ve vivec area of Bank of America Securities. Please go ahead.
For you to get get more confidence and if it does happen, is that a 26 or a 27? Uh, contributor. So just some quantification and then GPU timeline as a 26 or 27.
So what why don't we take those in backwards order? I'm going to. I'll I'll try to answer the uh the GPU related question and I'll hand it off to Sanjay around the sort of the Q2 breakdown. So, um, the what has to happen for us to gain? Share in the merchant computer space? Uh, basically, uh, right now we have to execute and we have to prove that, um, our our test capability is, um, equivalent that we provide the equivalent quality, um, and we provide Superior value and we believe that, uh, we are on a track to be able to accomplish that. Um, we in terms of timing, um, I would expect that if we are successful that this will have a uh, a modest positive impact in 2026 um and it has the potential to build over time. Uh, there's a, you know,
Um when you are working with a customer that is implementing a dual vendor strategy. Um, typically they will need to continue to buy capacity from their the, their prior sole source for a period of time as they increase the number of devices that are tested on a new platform. So, uh, we think that this is a, you know, the the the good news is this puts us on a Level Playing Field for new devices. And we believe that we have a differentiated product that we're playing with. So, um, we think that we, we're very optimistic about where things are going to go, but I think it it's important to remember that. It takes time to shift uh test strategy at customers of this size.
And then on the uh first question, you know in round numbers um the compute was as part of soc was roughly about 20% and it was a key driver of growth uh in Q2 versus expectations and as Greg noted prior. You know, we're seeing significant Traction in the back half of the Year where compute and I'll add memory in there is going to be the majority of uh, of the revenue in um, in semi tests.
And for my follow-up. Um Sanjay, uh, how much did quantify for tonics contribute uh to Q2 if any and how much are you assuming in? Uh, Q3 I assume you include this in AI. Um,
Compute and I know you're not giving a specific number for, uh, Q4. But based on, you know, everything you are suggesting, is it reasonable to assume that, uh, Q4, um, you know, perhaps gross sequentially and, um, year on year to give Paradigm, you know, at least some modest, uh, Topline growth uh overall for 25. Thank you.
Sure. So just uh, quantify foot products, which we closed uh, May 30th. It's actually in the product test group. Um, we're not breaking those numbers out, but um, you know, we've had it for about a month of the results. Um, regarding the, the growth, uh, in compute. Um, you know, we're we're not providing, uh, a Q4 but, but generally speaking. Yeah, we we are seeing, um, incremental growth, uh, you know, as Greg noted in this prepared remarks, we're seeing program launches toggle or straddle between Q3 and Q4, as well as Q4 and q1, um, but but it's our expectation that, you know, there will be significant growth Q3 over Q2 and then Q4 over Q3 as well in queue and just to to also, I think what you said in terms of, um, significant growth for Q4 year-over-year, I think. That's right. I think that, that definitely this Q4 is going to be stronger than 2024 is Q4. Yep.
Sorry, I meant overall for the campaign, not just the computer side like an overall Paradigm sales and Q4 that that was yeah that that was that was what I meant as well.
I see understood. Thank you.
Thank you. The next question we have comes from Jim Schneider. Goldman Sachs, please go ahead.
Good morning and thanks for taking my question. I was wondering if you maybe first talk about, um, the, the trends great. You, you outlined before relative to mobile SSC and when that could recover, um, you know, in terms of that recovery, do you think that's at earliest um, likely to happen in a meaningful way in sort of the the middle of 2026? As we as you sort of prepare for those programs or Could Happen a little bit sooner than that?
A hard and fast Rule and it has a lot to do with, um, you know, sort of the the loading of testers through the year. So um, if there is sufficient capacity, then we'd see the demand drifting towards the second half of the Year versus being in the early. Half of the year, we'll be able to give you big more color about that kind of early in 2026. As we get more firm forecasts about the the demand. But right now I I I think it's definitely more of a second half thing than a first half thing.
Thank you. And then, as a follow-up, can we be just kind of talk about as you uh, continue to ramp the, uh, the compute, uh, SOC, uh, business in the back half of this year, is there any impact on the growth margin line, you either positive or negative in terms of the mix that business contribution above and beyond just the absorption piece, thank you.
Yeah, so I think, um, overall as volume scales up, we'll generally get some efficiencies. But, uh, I will remind you that, uh, or as you recall, um, it's, you know, our, our product margins are, are really driven by test or configurations and, um, you know, we operate the business model at the overall portfolio of about 59 60% and we do expect that, um, we'll continue to operate in that level.
Thank you.
Thank you. The next question we have comes from Summit Chitauri of JP Morgan. Please go ahead.
Oh yep. Hi. Um, thanks for taking my questions. Uh hey maybe just going back to the opportunity on the GPU front, um, that you're looking to execute on and totally understand you're saying it it is more modest.
Um in the past you've Quantified, the VIP is a compute time for us uh 300 million, going to 800 million. Uh how should we think about the site of the test equipment?
Market, when it comes.
historically excluded that it's because you didn't have a seat at the table, but how should we think of the
Opportunity, which cancer? Of course.
Of follow up. Thank you.
So, um, in terms of the merchant AI accelerator space and, you know, so gpus in general, um, that's, that's big. I mean, it is the majority of the compute Tam. Um, in, uh, you know, in general terms we're probably looking at, um,
You know, in back in 2024, uh, there was about 2.3 billion dollars of compute.
um, and uh, you know, so it
Making progress into Merchant Merchant compute uh, Taps us into a pretty big pool, you know? So uh, you know,
Probably in the neighborhood of, you know 2x the size of the VIP compute out in the later parts of this of the term. Um probably more than 2x, the VIP compute. So getting a share of that is going to be a positive impact.
And then maybe for the follow-up, um, for the large customer that you have the plan of record on, um, for the vortex business. Um, I know you, um,
this year robotics you expected to not be Break, Even, but is that embedding some of the
Creative to supporting sort of the products.
to um,
and does that give you better?
Segment.
and get that Revenue next to you just so trying to understand when the expenses
Grateful supporting.
That is it, this?
You know, we'll, we'll have to see how that develops, but there's definitely a few of the expenses that are going to come in in the second half of this year.
Thank you, ladies and gentlemen, just a reminder, if you would like to ask a question, please press star and then 1 now.
Next question, we have comes from 8 of Malik of City, please go ahead.
Hi. Thank you for taking my questions. Uh, Greg you talked about uh, hbm memory Snapback in second, half in the past. You guys have been uh, of the view that the time is more flat this year because of high productivity of your testers. So what has changed are you more optimistic on new hbm qualifications in Korea or is it? Uh, hbm for that's driving. Uh, the improved Outlook
So um just to be clear the Snapback that I'm the the our view of sort of how the memory Market is shaping up for 2025 is not has not changed that much. My comment about Snapback was really in terms of the timing of quarterly revenue. And so you know, we had a uh we had a low quarter for memory. This this quarter at 63 million um we we are expecting that the overall Tam for memory is is kind of stable and the the demand that's coming.
in for HPM is going to be, uh, definitely
You know, primarily in Q4 of this year, um, and there's some uncertainty in terms of the timing of ramps between Q4 of this year and q1 of next year, uh, because especially for hbm 4, there are only certain, um, devices that are designed for it, you know? So it's not it. The hbm is not at the point like, uh, uh, DDR where there it's a commodity and used across a number of a lot of different designs. There's a high linkage between particular, AI accelerators and particular generations of hbm. Um, so that is the thing that's going to be driving the, uh, um, those ramps. So, um, I do think that the, the majority of capacity demand in 2025 is going to be adding capacity for, um, for hbm 4.
Understand. And then in response to an earlier question, uh you mentioned that you know, complex fee is going to be your friend on the mobile side as the packaging moves from integrated fan out to a wafer level multi-chip modules. Um,
There's also discussion going on on substrate, less packaging for new AI chips in the next 2 to 3 years. Um, and, and, and I was hoping that you can kind of pull the curtain a little bit on your optimism around the merchant gpus, is that packaging technology? The the driver where you feel like you can insert, uh, your testers
Um, no, I think that. I mean, we're uh, in general uh, changes in packaging strategy, generally are driving. Um, our customers to invest more in uh, wafer level test of their devices. So that they have less Fallout further down the line, but the opportunities that we have to compute to compete in new parts of compute have a lot more to do with, um, those, uh, those customers seeking to, to have more, um, resilience in their supply chain, um, and more ability to, um, you know, take advantage of the technology that each of the tester companies brings to bear. So it's, you know, like the, the, the opportunity isn't hinging on, uh, like a new technology or an introduction of a new, uh, device generation. It's definitely more.
Around an operation strategy for these companies.
Got it. Thank you.
From Krishna of TD Cohen, please go ahead.
Thanks for taking my question. Uh, Greg, I have two of them. First, on the GPU test: when did having the networking business help with the GPU side, or was it more of a direct comparison and value proposition versus Advantage? And also, how do we think about potential share gains on the A6 side as well, with Advantage being a legacy test supplier?
so, um,
uh,
it isn't a win yet.
So just to make sure that we're staying on the same page, we have an opportunity to compete in parts of the market where we haven't had that opportunity before.
It is, you know, in general, uh, having uh, you know, serving a customer in another segment allows you to establish reputation and allows you to compete in other parts of that customer's business. And, uh, you know, we feel like in customers that do business with Paradigm that that reputation helps us. We think that that opens doors and allows us to uh, you know, certainly demonstrate the capabilities of our equipment and our team. So um I I don't want to go into more detail around any specific customer. Um, now in terms of share of Asic, uh, the the, the the market is becoming for VIP compute. The market is becoming much more complex, um, when the VIPs or the hyperscalers were in their first generation of Parts, they were definitely, uh, following the guidance of their design, a
Aggregators, you know, they were like, whoever their Foundry or the design aggregator was saying you should test your part on this platform. They were pretty much doing that. And as they have ramped, as they have, um, increased the volumes of their parts and increase the expertise of their internal teams, they're taking more and more control over the test strategy and the operation strategy for these devices. And so our, you know, we are definitely doing our best to increase share at the design aggregators. But most of our energy is going into kind of the 2 ends, the the people who actually buy the testers. The founders and the oats, um, demonstrating that we have a better platform a platform that will help help them make better margins. And then for the the specifiers, the hyperscalers, the VIPs that are making these test strategy decisions that they're going to be able to get their parts to Market faster and more effectively on.
Our platform than the competitions. So the power started in the middle and we believe that it's migrating towards the 2 ends.
Compared very helpful Greg and then just to follow up on the robotics. When is there a way to size it in terms of the number of units you'll be shipping either in 2026 or a longer term. And also are you just providing the arm or even the sum of the bells and whistles like the groupers Vision etc for this uh, big robotics win.
So, um, I can't give you exact numbers around units. Um, and over time as as we get further into that program, we may be able to provide more information. But right now um, we're just we're gonna have to we're gonna have to wait and see a lot of things depend on, not just us but also how um quickly and effectively the technology can be introduced across, you know, sort of thousands of locations for this customer. So, um, I I I would hesitate to to put a number on it. There are some interesting analyses that have been done. Um, that I think, uh, are using the right methodology but there are pretty big error bands around it and to answer your other question, um, we are, we are the we are providing the arm, um, in terms of the like the deliverable Hardware. Uh, it's really the arm and the, uh, call it the robotic software platform, you know? And so,
Uh, other software, other, uh, end of arm tooling is being added. Vision—all of that is being done by the end customer. And so, our business is primarily around the arms themselves and the support and service of those arms.
Thanks a lot. Greg very helpful.
Uh, good morning. Thanks for letting us ask, uh, a question or 2. Um,
great maybe just to kind of frame and contextualize some of this.
Taking a step back. How are you sizing? The overall compute Tam this year and also a sub-segment of that the VIP Sam.
Again inclusive of those AI related A6 in tpus. I think in the past earlier this year, you referenced sort of a 222.3 billion for the compute markets 400 million
Hi Brian. Um, so uh,
As I as I said, a lot of the VIP compute is kind of perched.
In Q4 and bridges Q4 and q1. So um, the VIP Tam is really tough to call for 2025. I think, you know, you what you said is that um there's probably upward upward pressure. I would agree with that. That there's probably some upside to last year's 400. And um in terms of like referencing the compute Tam for last year, uh, I believe that there's also um
Significant up this year um and you know, especially in the merchant Merchant GPU space. Um, it's pretty clear that the Tam is going to come in higher, but we're not providing an estimate for the Tam right now.
It's on one hand.
Provide some sense that like networking is a, a very big component in some of this Improvement as well as on the memory side in terms of some recovery or or, or pick up on the hbm for, uh, test.
A new new test insertion activity.
Oh yeah, networking is networking. Is a an important part of our compute Revenue in 2025 certainly
And and it and it has, it has strengthened from where we expected at the beginning of the year.
Got it. Got it. Okay, that's helpful. And that just kind of lastly the the follow-up. Would you ensure the any of the uptick and and test utilization rates to any pull forward of of supply chain activity?
Um,
No, it's I I you know, the the pull forward has shown up in some of our customers results but um, those customers were pulling forward demand in an environment where they, uh, essentially were able to push up utilization versus adding significant capacity. So, um, I it it certainly I don't think it's had a meaningful effect for us.
Okay, great. Thank you.
Thank you. The next question we have comes from Shane. Brett of Morgan Stanley. Please go ahead.
Thank you for taking my question. I just want to clarify on the GPU. Customer question from earlier. You said you don't have the win yet but the tone from the call has been. If you're very confident that you will, could you just level set on whether these wins Beyond networking are looking concrete or are we still kind of in discussion with that customer? Thank you.
Um,
I don't, I don't know that I can put odds on it. I, I believe that we have strong sponsorship from the customers, where we're competing that they, uh, they want to execute a strategy that gives them uh, more, uh, resilience in their supply chain. Um, so I, you know, I, when we, when we set our minds to something, we, we tend to succeed at it, um, but I don't want to, I certainly don't want to claim something as 1 when it isn't 1. Uh,
you know, so I I, I don't know if that's helpful, but, uh, you know, we are, uh, we are proceeding, um, on the, you know, uh, with every intention to be successful in these in these design ends, but until you actually have the part in production, you have to be careful about, you know, uh, what adverse factors you can't you can't you can't predict the other thing is that, um,
We've definitely seen over time that, uh, the amount of, sort of, how long it takes to go through the qualification process can vary by a lot. Um, and so trying to call the timing of it is also a challenge. But I, you know, I think we are very happy that we have an opportunity to compete for stuff that we haven't had the opportunity to compete for for 20 years. Um, but we are, you know, I can't guarantee that we have a win.
Thank you. It's very helpful and my follow-up is so you spoke about VIP driving computer. I need this area. Could you just talk about the kind of customer breath? You're saying there and just visibility towards further market, share gains with those customers. Thank you.
Well, you know, the
Is kind of directly proportional to their Capital spend on data centers, you know? So um,
It also has a great deal to do with the um, number and the number of chips that they're designing the different chips that they're designing and the applications that they're going into the real prizes in this space are the the CPUs and the gpus, um, the CPUs, uh, the ones that are being developed by the hyperscalers, the VIPs in general, their Arm based, um, and uh, uh, you know, they have a very high volume because they're, you know, pervasive across, uh, data centers. The AI accelerators are also very important to win because they have so much, uh, so much complexity a lot of test intensity to them. So, to answer your question directly, uh, our VIP compute is driven by a few customers, not a single customer and certainly, you know, it's like less than 6 more than 1.
Got it. Thank you very much.
Thank you.
The next question we have comes from Steve, Steve Badger of keybanc capital markets, please go ahead.
Thanks, good morning.
Greg, you talked about the consolidation of customer-facing functions in robotics was that 9% growth, primarily a function of that change or were those deals already in progress? I'm just trying to get a sense for how quickly that change can drive sustainable Improvement in sales.
So the um with the magnitude of the restructuring, um, we were really pleased that there that robotics was able to deliver quarter-on-quarter growth.
That said we typically see a stronger Q2 than q1, you know. So the the thing that I was trying to communicate was that the restructuring was executed successfully and it didn't significantly. It didn't have a significant negative impact on our results in Q2. Um I think that we are going to the the positive impact of this restructuring in terms of combining sales, combining Service, uh combining sales. We're going to be giving our partners a broader product line to be able to sell and our sellers are broader broader product line to be able to represent, you know. So um, we believe that that is going to be a uh a Topline positive. Um and by combining service, we're going to be able to offer more consistent. Um, and
Better package service packages for our customers that buy both kinds of robots. I would expect that the positives from this restructuring are going to play out in 2026, not in 2025 that in 2025. We're really focusing on the new product, introductions, and the large customer wins that, we're that we are that we have achieved. And that we're trying to achieve in the back, half of the year. Um, it's it, it was a big change and we were really pleased that um, it went as well as it did.
Got it. And if if this change really does cause robotics to turn the corner in 2026, along with the, the plan of record that you talked about.
Can you talk about how you plan to build internal manufacturing capacity to, uh, will that, are you going to build the where you see future demand? Or some will, some of this be fulfilled by EMS companies and what level of sales do you want a capacitor to?
So, um, we have a significant amount of, uh, production capacity. Um, so we, you know, the reason that we are doing something in North America is around, uh, operations resilience, and uh, customer intimacy more than, um, trying to really, uh, like to meet up to a media demand. Um, and, and answer to your question in terms of internal operations versus EMS.
Our strategy in, um, in Europe. And the US is primarily around internal, um, and our strategy in APAC. If we, as we localized production, um, would probably be to utilize Partners there because they're going to be able to localize the supply chains, uh, more effectively than we could. So, um, we'll have a blended strategy between internal and outsourced manufacturing for robotics.
Got it. Thank you.
Thank you. The next question we have comes from Gus. Richard of Northland Capital markets, please?
As um, you know, the domestic Chinese semiconductor industry grows and you have more fabulous and idms there. Um you know, how is that impacting your business particularly as it pertains to Industrial and Auto
so, um,
Right now the, the market in China. Um, if you look at the at Market in China, uh, the there is a portion of that market that Paradigm cannot serve uh, because of uh, uh, trade regulations. Um, if you leave that aside, the remaining Market is, uh, the biggest part is Chinese memory manufacturers. And, um, our share in Chinese memory manufacturers is actually kind of higher than our average memory share, uh, worldwide. So, um, we compete very, very well there. Um, the, the rest of the soc Market in China. There's there's, you know, just like everywhere else there's compute, there's mobile and there's Auto and Industrial, and we are, uh, competitive in all 3 of those spaces. Most of the local competition in, uh, in terms of at in China.
Is really focused at the the um in the auto and industrial space. So we have we have significant competition and we tend to focus on the higher volume higher quality suppliers in the space, uh, because they value the throughput and the accuracy that our equipment has
Got it, um super helpful and then just in terms of of Robotics, um, you know, 1 out of 2 robots in the planet is installed in China, you know, the EV Market is shifting.
To China and production, I'm just wondering, you know,
Again, you know, is your SAM shrinking because of that? You know, transition to manufacturing in China of autos. And, you know, a little bit of color on how competitive the Chinese manufacturers of robotics have become or have not become.
so, um
There is uh, very there are a number of uh competitors in the cobot space and the AMR space in China and they have they have good products. We believe our products are better. Um, they also have great customer Intimacy in that market. Um, you're right that uh over the, you know from 2018 to now the growth rate for the cobot market in China has been kind of
Twice, the growth rate of the cobot market outside.
The Chinese automaker. And so we're we're very focused on trying to um, compete in China and to make sure that we um, maintain and grow our share in that market, but it is, it is highly competitive. Um,
the Chinese, uh, you know, so
I would say the Chinese auto manufacturers are definitely offering great products in EV, um, and they are growing faster than automakers and other parts of the world. But I am not sure if that is, uh, a sort of an inevitable Trend, or if we'll see changes in the Auto industry in the US and Europe. Um, and in terms of localization that, that uh, sort of, uh, confuse that situation going into the next couple of years,
Got it. Thank you.
Thank you. The final question. We have comes from David Daly of steelhead Securities. Please go ahead.
I guess is really the question.
Okay. So, um, in answer to your first question Paradigm is already delivering a, um, electoral electoral Optical test solution, um, right now and over the, you know, over the next 24 months, that solution is going to incorporate more and more of the quantify Phaeton instrumentation, um, and we expect that that part of the market is going to grow and we expected that having an uh Superior Solution in that space will allow us to grow share in the AI accelerator space both merchants and VIP. Now, in terms of why is there an opportunity in gpus before that? Um I think it has it's mostly to do there are 2 things going on. Um the reason that the opportunity is there is because of customers desire to have more resilience in their supply chain. That's that's why we were invited.
To the dance now that we've been invited to the dance now it is our you know like our level of success is going to be dictated by the differentiation of our product offering. And that is, you know, we believe that we have advantages in throughput in reliability um and in time to Market, but that's exactly what we have to prove and the degree that we
We prove it. We'll have an influence over how quickly we are able to penetrate those accounts.
Okay, great. And then
Is, could you just elaborate a bit more? You talked about? Um,
Another hbm win on on the at the stack level and it sounded like you're talking. You're describing a an, another, another insertion point, could you just kind of like take a step back and help us understand? Um, you know, the the number of insertion points for hbm currently and and you know how you play in space just to kind of um sure. So thank you did like
Thanks for like unleashing my inner Professor Greg here. So um, let me just sort of take a take a step back. So in hbm an hbm, memory stack has uh multiple dram die right now, 8 going to 12 and then a base die. Each 1 of those memory die and the base die. Go through a wafer level test.
Once that wafer level test happens, then all of the dramm, die are diced up and they are assembled down on top of the wafer of Base die. Okay, so now you have a wafer that has a bunch of hbm stacks on it.
And then after those Stacks go through, uh, you know, so the first test is that the wafer level, the second test is after the hbm, die gets stacked on the base die. So we call that, you know, post stack wafer test and then the current production methodology is you chop up that wafer of stack stack die, you pack it up and you send it off and then you assemble it into an AI accelerator.
Um, what is happening is that, um, after those AI accelerators have been assembled, they're actually seeing significant yield Fallout due to hbm problems. And so, what they're trying to do is they're trying to decrease the number of defective hbm Stacks that get installed in these accelerators. And so, the thought is, if you do a test step after you cut that hbm, stack die wafer into individual hbm Stacks. You're going to be able to catch a set of faults that you didn't see before. And so there are there are, uh, suppliers in this space that are experimenting with adding that step to see if it has an and, uh, improves quality.
Thank you.
Thank you. Ladies and gentlemen, we have reached the end of our question and answer session and I would like to turn the call back to Greg Smith for closing remarks. Please go ahead, sir.
So I I just want to add a final thought. Um, AI, you know, as we talked about in our analyst day, we believe that AI was going to have a profound and positive impact on Paradise business. Um, the Investments that we've made in our SOC memory, in IST businesses to align with AI Trends are now delivering New Opportunities socket wins and financial returns.
Be driven by AI applications, and it's clear that our momentum is building. I'd like to thank you very much for joining today.
Thank you. So
ladies and gentlemen, back then concludes today's conference
Thank you for joining us. You may now disconnect your lines.