Q3 2025 Teradyne Inc Earnings Call

Ladies and gentlemen, good afternoon, and welcome to the Teradyne third quarter 2025 earnings Conference call. At this time, all participants are in a listen only mode.

Question and answer session will follow the prepared remarks.

At that time, if you wish to ask a question. Please press star one on your telephone keypad.

As a reminder, today's call is being recorded.

I would now like to turn the call over to Amy Macandrews VP of corporate relations for Teradyne. Please go ahead.

Thank you operator, good morning, everyone and welcome to our discussion of Teradyne's, most recent financial results.

I am joined this morning by our CEO, Greg Smith, and our CFO Sanjay Mehta.

Following our opening remarks, we'll provide details of our performance for the third quarter of 2025.

And our outlook for the fourth quarter of 2025.

The press release containing our third quarter results was issued last evening.

The slides as well as a copy of this earnings script are available on the Investor page of the Teradyne website.

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

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.

We caution listeners not to place undue reliance on any forward looking statements included in this presentation.

We encourage you to review the Safe Harbor statement contained in the slides accompanying this presentation as well as the risk factors described in our annual report on Form 10-K for the fiscal year ended December 31 to 24 on file with the SEC.

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.

During today's call, we will refer to non-GAAP financial measures. We've 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.

Speaker #2: Thank you to .

Speaker #1: Ladies and gentlemen , good afternoon and welcome to the Teradyne Third Quarter 2025 Earnings Conference Call . At this time , all participants are in a listen only mode .

Looking ahead between now and our next earnings call Teradyne expects to participate in the UBS technology Investor Conference or.

Our quiet period will begin at the close of business on December 24th 2025.

Speaker #1: A question and answer session will follow the prepared remarks at that time . If you wish to ask a question , please press star one on your telephone keypad .

Following Greg incentives comments. This morning, we will open up the call for questions.

This call is scheduled for one hour.

Greg.

Speaker #1: As a reminder , today's call is being recorded . I would now like to turn the call over to Amy McAndrews , VP of Corporate Relations for Teradyne .

Thanks, Amy good morning, everyone and thanks for joining us today I will discuss our third quarter results talk a bit about what is driving the business in Q4 and provide a general update.

Speaker #1: Please go ahead .

Jay will then provide more detail on our third quarter results and fourth quarter guidance.

Speaker #3: 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 .

As you saw in the earnings release, we grew sequential revenue, 18% and non-GAAP EPS by 49% in the third quarter.

Speaker #3: Following our opening remarks , we'll provide details of our performance for the third quarter of 2025 . And our outlook for the fourth quarter of 2025 .

This growth was driven by AI demand in semiconductor test or other test businesses delivered on plan in the quarter in robotics, we continue a slow crawl up from our Q1 revenue trough in a challenging environment.

Speaker #3: The press release release , containing our third quarter results was issued last evening . The slides , as well as a copy of this earnings script , are available on the investor page of the Teradyne website .

The huge investments in cloud AI Buildout drove our Q3 performance to the high end of our guidance range as our customers ramped production of a wide range of AI accelerator networking memory and power devices and.

Speaker #3: Replays of this call will be available via the same page after the call ends. 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.

An example of this AI strengthens and compute where our view in the second half of 2025 revenue is more than 50% higher than our expectations just three months ago.

Speaker #3: We caution listeners not to place undue reliance on any forward looking statements included in this presentation . We encourage you to review the Safe Harbor statement contained in the slides accompanying this presentation , as well as the risk factors described in our annual Report on Form 10-K for the fiscal year ended December 31st , 2024 .

Some of this increase comes from us responding to customer poling requests and some as demand increases.

<unk> design process and packaging technologies for AI compute rapidly advance we expect that our growth will continue our ultra flex plus system has been architected from the ground up for high performance processors, and networking devices, which have demanding power pin count and test data requirements.

Speaker #3: On file with the SEC . 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 #3: 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 .

As AI devices become more complex the ultra flex plus architectural advantages become more valuable to potential customers by enabling fast us development times and high efficiency volume production.

Speaker #3: Where available, on the investor page of our website. Looking ahead, between now and our next earnings call, Teradyne expects to participate in the UBS Technology Investor Conference.

Our focused investment in R&D is also yielding new differentiated capabilities for compute tests, some of which have already been announced in Q3.

Speaker #3: Our quiet period will begin at the close of business on December 24, 2025, following Greg and Sanjay's comments this morning. We'll open up the call for questions.

In memory, our Q3 memory test sales more than doubled from Q2 to $128 million with the majority of those shipments supporting AI applications.

Speaker #3: This call is scheduled for one hour . Greg .

In Q3, 75% of our memory revenue was driven by DRAM nearly all of it from final test of DRAM in HBM performance first.

Speaker #4: Thanks , Amy . Good morning , everyone , and thanks for joining us today . I'll discuss our third quarter results . Talk a bit about what is driving the business in Q4 and provide a general update on conditions across our businesses .

25% of revenue was from flash mainly for cloud SSD, another segment being driven by AI data centers.

Speaker #4: Sanjay will then provide more detail on our third quarter results and fourth quarter guidance . As you saw in the earnings release , we grew sequential revenue 18% and non-GAAP EPs by 49% in the third quarter .

Our magnum seven H product is differentiated and HBM performance test because it is a multi generational product. It can cover the test needs of <unk> and <unk> and it provides upgrade headroom for HBM <unk> and HBM five <unk>.

Speaker #4: This growth was driven by AI demand in semiconductor test . Our other test businesses delivered on plan in the quarter . In robotics , we continue a slow crawl up from our Q1 revenue trough in a challenging environment .

The Magnum seven H also supports HBM simulated stack performance test in Q2, we wanted to design in for this insertion and in Q3, we began volume shipments. So at this point teradyne participates in all major test insertions for H B.

Speaker #4: The huge investments in cloud , AI build out drove our Q3 performance to the high end of our guidance range . As our customers ramped production of a wide range of AI accelerator networking , memory and power devices .

Memory die wafer sort post stack wafer test and simulated stack test.

Speaker #4: An example of this AI strength is in compute , where our view of the second half of 2025 revenue is more than 50% higher than our expectations .

Our results in memory test this year are especially satisfying in light of the composition and size of the memory Tam for 2025.

Speaker #4: Just three months ago . Some of this increase comes from us responding to customer pulling requests and some is demand increases as design process and packaging technologies for AI compute rapidly advance .

Our best guess is that the total memory Tam for 2025 will be down low double digits and the weakest part of this market is flash or traditional strongest segment. Despite this we expect our memory revenue will sustain at 2024 levels.

Speaker #4: We expect that our growth will continue . Our ultraflexplus system has been architected from the ground up for high performance processors and networking devices , which have demanding power pin count and test data requirements .

AI driven applications for power Ics were a bright spot in the auto industrial market segment.

Eagle Test platform has a leading position in the test of high performance power conversion devices for data center applications volumes of these devices are forecast to grow over 50% between now and 2027.

Speaker #4: As AI devices become more complex . The Ultraflexplus architectural advantages become more valuable to potential customers by enabling fast test development times and high efficiency volume production .

We expect the demand for VIP compute and networking to continue to grow significantly and we've been investing R&D applications sales support and manufacturing capacity for this expansion. This includes investments to win new VIP and merchant GPU customers were.

Speaker #4: Our focused investment in R&D is also yielding new differentiated capabilities for compute test . Some of which have been already been announced in Q3 in memory .

Speaker #4: Our Q3 memory test sales more than doubled from Q2 to $128 million , with the majority of those shipments supporting AI applications in Q3 , 75% of our memory revenue was driven by Dram .

Making good progress on new design in opportunities and are cautiously optimistic about our potential success, but I would like to make it clear that our Q3 results and our Q4 guidance do not include any revenue from these types of new opportunities for.

Speaker #4: Nearly all of it from final test of Dram and HBM performance Test . 25% of revenue was from flash , mainly for cloud SSD , another segment being driven by AI data centers .

The deployed fleet of ultra flex and ultra flex plus testers, we see higher utilization and fewer system upgrades than in past quarters, which we believe means that customers are exhausting their inventory of under utilized systems.

Speaker #4: Our Magnum product is differentiated in HBM Performance Test because it is a multi-generational product . It can cover the test means of HBM and HBM four , and it provides upgrade headroom for HBM , 4G , and HBM five .

As a result, we now expect a more direct connection between the inflection in end market demand and new system sales.

Looking beyond AI in semi test conditions, and mobile and auto industrial remains somewhat weak.

Speaker #4: The seven also supports HBM Singulated , stack Performance test in Q2 . We want to design in for this insertion and in Q3 we began volume shipments .

Now in our integrated systems Division, our Q3 shipments were above plan as esselte customers accelerated deliveries for mobile processors and compute applications. We also saw increases in orders for both HDD and Esselte systems now recall lead times are generally measured in quarters for this.

Speaker #4: So at this point , paradigm participates in all major test insertions for HBM memory die wafer sort , post stack , wafer test , and single stack test .

Speaker #4: Our results in memory test this year are especially satisfying in light of the composition and size of the memory Tam . For 2025 , our best guess is that the total memory Tam for 2025 will be down low double digits , and the weakest part of this market is Magnum flash .

Business. So most of that order strength will translate into revenue in 2026 and beyond.

In robotics, we are growing slowly from our trough quarter in Q1 2025.

You go down one level of detail, we continue to see persistent weakness in our core indirect distribution channel as we expand our large customer and OEM channels.

Speaker #4: Our traditional , strongest segment . Despite this , we expect our memory revenue will sustain at 2024 levels . AI driven applications for power ICS were a bright spot in the auto industrial market segment .

An important element of our robotic strategy is to establish <unk> as the preferred platform for AI driven work cell applications and to deliver superior performance for our <unk> by leveraging AI features in.

Speaker #4: The Eagle test platform has a leading position in the test of high performance power conversion devices for data center applications . Volumes of these devices are forecast to grow over 50% between now and 2027 .

In the third quarter over 8% of robotic sales were for AI related products up from 6% in Q2.

Another element of our robotic strategy is to deliver value added service to our installed base of over 100000 robots service represented 14% of sales in Q3 up from 12% in Q2.

Speaker #4: We expect the demand for VIP compute and networking to continue to grow significantly , and we have been investing R&D applications , sales support and manufacturing capacity for this expansion .

As we noted in our July call, our semi test business has evolved to where the largest demand driver is AI data center investments rather than consumer end markets.

Speaker #4: This includes investments to win new VIP and merchant GPU customers . We're making good progress on new design and opportunities , and are cautiously optimistic about our potential success .

We have aligned our R&D and go to market investments to capture the tremendous opportunities in test driven by this AI related demand.

Speaker #4: But I would like to make it clear that our Q3 results and our Q4 guidance do not include any revenue from these types of new opportunities for the deployed fleet of Ultraflex and Ultraflexplus testers .

Our investments are focused on extending our product performance advantages with innovative R&D, while also expanding our engineering teams to help customers develop and ramp production of these fantastically complex devices on teradyne platforms. Sanjay will describe how these investments translate into opex, but as we're seeing the return.

Speaker #4: We see higher utilization and fewer system upgrades than in past quarters , which we believe means that customers are exhausting their inventory of underutilized systems .

Speaker #4: As a result , we now expect a more direct connection between inflection and end market demand and new system sales . Looking beyond AI in semi test conditions in mobile and auto industrial remain somewhat weak .

<unk> are well worth the investment.

Looking at Q4, we expect AI related demand for compute networking and memory to be the primary engine of our growth, which reflects both industry trends and the result of our investments to align with those trends.

Speaker #4: Now , in our integrated Systems division , our Q3 shipments were above plan as SLT customers accelerated deliveries for mobile processors and compute applications .

Looking to the future the long term themes that we've highlighted in the past AI vertical <unk> and electrification remain firmly intact.

Speaker #4: We also saw increases in orders for both HDD and SLT systems . Now recall lead times are generally measured in quarters for this business , so most of that order strength will translate into revenue in 2026 .

As we enter 2026, we expect AI and verticals nation will be the primary growth drivers. We have said before that the AI market is both highly concentrated and highly dynamic the timing of any one project can affect the delivery schedule for hundreds of investors. This can swing quarterly results significantly.

Speaker #4: And beyond . In robotics , we are growing slowly from our trough quarter in Q1 2025 . If you go down one level of detail , we continue to see persistent weakness in our core .

So with that understanding let me offer a few high level comments about how we're looking at 2026.

Speaker #4: Indirect distribution channel as we expand our large customer and OEM channels . An important element of our robotics strategy is to establish your Cobots as the preferred platform for AI driven work .

At the company level 2026 looks stronger today than it did six months ago, and all indications suggest solid growth from 2025.

We anticipate that business conditions for mobile auto industrial and robotics will improve but the timing and the intensity of that recovery is uncertain.

Speaker #4: Cell applications , and to deliver superior performance for our Amrs by leveraging AI features . In the third quarter , over 8% of robotic sales were for related products , up from 6% in Q2 .

But the real story in 2026 is AI and the investments that we have made to develop differentiated solutions in that space. We will drive our growth plan I would like to share a few specific examples.

Speaker #4: Another element of our robotics strategy is to deliver value added service to our installed base of over 100,000 robots , service represented 14% of sales in Q3 , up from 12% in Q2 .

Massive investments in building data centers are translating into strong demand for ultra flex plus and VIP compute merchant compute and networking.

Speaker #4: As we noted in our July call , our semi test business has evolved to where the largest demand driver is AI data center investments rather than consumer end markets .

In the memory market AI will drive growth in HBM, DRAM and flash for SSD applications served by Magnum.

Accelerated growth in HDD is driving the demand for more HDD test.

Speaker #4: We have aligned our R&D and go-to-market investments to capture the tremendous opportunities in test AI driven by this AI-related demand.

The deployment of AI capable processors for mobile client computing and cloud AI is driving the demand for more system level test.

Speaker #4: Our investments are focused on extending our product performance advantages with innovative R&D , while also expanding our engineering teams to help customers develop and ramp production of these fantastically complex devices .

We plan to give you a more detailed view as part of our model update in the January call.

Speaker #4: On Teradyne platforms . Sanjay will describe how these investments translate into OpEx . But as we're seeing , the returns are well worth the investment .

Now before I hand, the call over to Sanjay I'd like to say a few words about the CFO transition that we announced last night.

Michelle Turner will be our chief Chief Financial Officer effective November <unk> 2025.

Speaker #4: Looking at Q4 , we expect AI related demand for compute , networking and memory to be the primary engine of our growth , which reflects both industry trends and the result of our investments .

She brings 30 years of financial and strategic leadership experience in the technology and manufacturing sectors and she has a strong track record of driving growth disciplined capital allocation and operational efficiency.

Speaker #4: To align with those trends . Looking to the future . The long term themes that we've highlighted in the past , AI , Verticalization and electrification remain firmly intact as we enter 2026 .

She is looking forward to getting to know all of you in the upcoming quarter I am excited to welcome Michelle to the Teradyne team.

Speaker #4: We expect AI and Verticalization will be the primary growth drivers . We've said before that the AI market is both highly concentrated and highly dynamic .

No Sanjay has been terrible teradyne's CFO since 2019, and he has offered to stay on as an executive advisor to operations as we expand capacity in 2026 I want to thanks, Sanjay for his excellent leadership and contributions over the past six years and I'm grateful that we will have the benefit of this guy.

Speaker #4: The timing of any one project can affect the delivery schedule for hundreds of testers . This can swing quarterly results significantly . So with that understanding , let me offer a few high level comments about how we're looking at 2026 at the company level .

<unk>.

With that I'll turn the call over to Sanjay.

Thank you Greg good morning, everyone.

Speaker #4: 2026 looks stronger today did six months ago . And all indications suggest solid growth from 2025 . We anticipate that business conditions for mobile auto , industrial and robotics will improve , but the timing and the intensity of that recovery is uncertain .

Today I'll cover the financial summary of Q3 and provide our Q4 outlook.

Now to Q3 third quarter sales were $769 million and non-GAAP EPS was <unk> 85.

Both near the high end of our guidance ranges.

non-GAAP gross margin was 58, 5% above our guidance range due to favorable mix.

Speaker #4: But the real story in 2026 is AI and the investments that we have made to develop differentiated solutions in that space will drive our growth plan .

non-GAAP operating expenses were $293 million of.

Speaker #4: I'd like to share a few specific examples . Massive investments in building data centers are translating into strong demand for ultraflexplus and VIP compute , merchant compute and networking in the memory market .

Both sequentially and year over year on higher R&D sales and marketing investments tied to AI as well as increases in our variable compensation.

non-GAAP operating profit was 24%.

Turning to our revenue breakdown in Q3.

Speaker #4: AI will drive growth in HBM , Dram , and flash for SSD applications served by Magnum Accelerated growth in HDD is driving the demand for more HDD test .

Semi test revenue for the quarter was $606 million with Soc revenue contributing $440 million, which was up 11% sequentially and 12% year over year.

Memory revenue was $128 million up 110% sequentially and down 15% year over year stretch.

Speaker #4: The deployment of AI-capable processors for mobile client computing and cloud AI is driving the demand for more system-level tests. We plan to give you a more detailed view as part of our model update in the January call.

Strength in <unk> was driven by AI compute and AI related power test.

Every revenue more than doubled from Q2 on <unk> and AI related LP DDR demand ISP revenue was $38 million up 9% sequentially, 46% year over year, driven by strength in <unk> shipments.

Speaker #4: Now , before I hand the call over to Sanjay , I would like to say a few words about the CFO transition that we announced last night .

Speaker #4: Michelle Turner will be our our chief chief Financial officer , effective November 3rd , 2025 . She brings 30 years of financial and strategic leadership experience in the technology and manufacturing sectors .

The product test Q3 revenue was $88 million up 4% sequentially and 10% year over year, driven by growth in defense and aerospace.

Now to robotics revenue was $75 million flat quarter on quarter and down year over year in the quarter. You are contributed $62 million of mirror contributed $13 million of revenue.

Speaker #4: And she has a strong track record of driving growth , disciplined capital allocation and operational efficiency . She is looking forward to getting to know all of you in the upcoming quarter .

Speaker #4: I'm excited to welcome Michelle to the Teradyne Team . Now , Sanjay has been Teradyne's CFO since 2019 , and he has offered to stay on as an executive advisor to operations .

As we noted in July volume shipments to our large E. Commerce customer are not expected to have a material impact on robotics revenue in 2025.

Some other financial information in Q3, we had two customers directly or indirectly, which drove more than 10% of our revenue in the third quarter.

Speaker #4: As we expand capacity in 2026 . I want to thank Sanjay for his excellent leadership and contributions over the past six years , and I'm grateful that we will have the benefit of his guidance .

The tax rate, excluding discrete items for the quarter was 16% on a GAAP and non-GAAP basis.

Speaker #4: With that , I'll turn the call over to Sanjay . Thank you .

Our free cash flow was $2 million.

Speaker #5: Greg . Good morning everyone . Today I'll cover the financial summary of Q3 and provide our Q4 outlook . Now to Q3 , third quarter sales were $769 million and non-GAAP EPs was $0.85 .

Our net income was offset by our net working capital increases tied to accounts receivable and inventory, which reduced our free cash flow.

<unk> growth was tied to increased sales, which were weighted to the second half of the quarter.

Speaker #5: Both near the high end of our guidance ranges . non-GAAP gross margin was 58.5% above our guidance range due to favorable mix . non-GAAP operating expenses were $293 million , up sequentially and year over year on higher R&D , sales and marketing investments tied to AI , as well as increases in our variable compensation .

Inventory growth was tied to the ramp in compute and memory driven by upcoming AI demand.

Capex of $47 million was reasonably consistent with Q2.

We repurchased $244 million of shares in the quarter and paid $19 million in dividends.

Through the end of the third quarter, we returned $575 million or approximately two five times, our free cash flow through dividends and buybacks to shareholders during the year.

Speaker #5: non-GAAP operating profit was 20.4% . Turning to our revenue breakdown in Q3 , semi test revenue for the quarter was $606 million , with SOC revenue contributing $440 million , which was up 11% sequentially and 12% year over year .

We ended the quarter with $427 million in cash and marketable securities.

Now a little more detail on Opex and our balance sheet strategy to help you with your modeling.

Speaker #5: Revenue was $128 million , up 110% sequentially and down 15% year over year . Strength in SOC was driven by AI , compute and AI related power tests .

In the second half of 2025, we're continuing to lean into R&D and go to market investments for AI opportunities that we expect will drive revenue in 2026 and beyond.

Speaker #5: Memory revenue more than doubled from Q2 on HBM and AI related LP . DDR demand IST revenue was $38 million , up 9% sequentially , 46% year over year , driven by strength in SLT shipments and product test .

Opex in the second half of 2025 is also increasing tied to variable compensation.

The increase in financial performance.

At the midpoint of our Q4 guidance, we'll have full year revenue growth of 9% and opex growth of 7%.

Speaker #5: Q3 revenue was $88 million , up 4% sequentially and 10% year over year , driven by growth in defense and aerospace . Now to robotics .

Long term, we target opex growth at approximately half the rate of our revenue growth.

In 2026 and longer term as AI revenue loss, we expect to meet our Opex target.

Speaker #5: Revenue was $75 million , flat quarter on quarter and down year over year . In the quarter . ER contributed $62 million and near contributed $13 million of revenue .

Regarding the balance sheet.

We expect to keep our cash and marketable securities at roughly $400 million.

Speaker #5: As we noted in July , volume shipments to our large e-commerce customer are not expected to have a material impact on robotics revenue in 2025 .

While also continuing our balanced capital allocation strategy.

In 2025, we saw an opportunity to accelerate buybacks in the short term to further enable shareholder value.

Speaker #5: Some other financial information in Q3 , we had two customers that directly or indirectly , which drove more than 10% of our revenue in the third quarter .

At the operational level, we expect to exercise our credit lines more frequently as we did in Q3 and expect to in Q4.

Speaker #5: The tax rate , excluding discrete items for the quarter was 16% on a GAAP and non-GAAP basis , our free cash flow was $2 million .

From a modeling perspective this means the interest and other line of the P&L will reflect higher interest expense.

You should expect to see a couple of million dollars of net interest expense per quarter, while we utilized our revolver.

Speaker #5: Our net income was offset by our net working capital increases tied to accounts receivable and inventory, which reduced our free cash flow. Receivables growth was tied to increased sales, which were weighted to the second half of the quarter.

Now turning to our outlook for Q4.

Before discussing the details of Q4 guidance I would like to remind you of some of the commentary from our July call. Specifically, we noted that we have large projects expected to ramp, which straddled Q3, Q4 or Q4 Q1.

Speaker #5: Inventory growth was tied to the ramp in compute and memory , driven by upcoming AI demand CapEx of $47 million was reasonably consistent with Q2 .

As we move through the second half of 2025, we saw projects accelerate into Q3 and are now seeing projects accelerate into Q4.

Speaker #5: We repurchased $244 million of shares in the quarter and paid $19 million in dividends through the end of the third quarter. We returned $575 million, or approximately two and a half times our free cash flow, through dividends and buybacks to shareholders during the year.

These projects are AI drop.

In Q3, we were able to meet early ramp demands in Q4, we are seeing demand ramped significantly.

We continue to expedite our supply chain and we are accelerating production capacity growth at factories in multiple geographies to meet the demand.

Speaker #5: We ended the quarter with $427 million in cash and marketable securities. Now, a little more detail on OpEx and our balance sheet strategy to help you with your modeling.

Now the details.

Q4 sales are expected to be between 920.

And $1 billion.

Speaker #5: In the second half of 2025 , we're continuing to lean into R&D and go to market investments for AI opportunities that we expect will drive revenue in 2026 and beyond .

Fourth quarter gross margins are estimated at 57% to 58%.

This includes some one time supply costs in the quarter can be accelerated demand.

Speaker #5: OpEx in the second half of 2025 is also increasing , tied to our variable compensation linked to increasing financial performance at the midpoint of our Q4 guidance , we'll have full year revenue growth of 9% and opex growth of 7% .

Turning to Opex Q4, Opex is expected to run at 31% to 33% of fourth quarter sales.

non-GAAP operating profit rate at the midpoint of our fourth quarter guidance was 25, 5%.

Q4, GAAP non-GAAP tax rate is expected to be 14, 5%.

Speaker #5: Long term , we target OpEx growth at approximately half the rate of our revenue growth in 2026 , and longer term , as AI revenue blossoms , we expect to meet our OpEx target .

Q4, non-GAAP EPS is expected to be in the range of $1 20 to $1 46 on a 157 million diluted shares.

Speaker #5: Regarding the balance sheet , we expect to keep our cash and marketable securities at roughly $400 million . While also continuing our balanced capital allocation strategy .

GAAP EPS is expected to be in the range of $1 12 to $1 39 sites.

Summing up our Q3 results and Q4 guidance AI is growing across the economy driving exceptionally strong semiconductor test demand in the second half of 2025. This.

Speaker #5: In 2025, we saw an opportunity to accelerate buybacks in the short term to further enable shareholder value. At the operational level, we expect to exercise our credit lines more frequently, as we did in Q3 and expect to in Q4.

This is evidenced in our Q3 sales.

<unk> performance and our outlook for Q4.

The acceleration of test demand in Q4 reflects customers drive to pull AI projects.

Speaker #5: From a modeling perspective , this means the interest and other line of the PNL will reflect higher interest expense . You should expect to see a couple million dollars of net interest expense per quarter .

From Q1.

We are optimistic about the AI related market 2020.

We also know shipments can be lumpy.

Speaker #5: While we utilize our revolver . Now , turning to our outlook for Q4 before discussing the details of Q4 guidance , I'd like to remind you of some of the commentary from our July call .

Now it's my final remarks.

After six plus years at Teradyne, it's clear the teradyne is well positioned for significant growth over the midterm.

Many environmental challenges have occurred during my 10 year, such a significant government regulations COVID-19 tariffs CEO transition along with the strategic pivot of investments to AI in 2022.

Speaker #5: Specifically , we noted that we had large projects expected to ramp , which straddled Q3 , Q4 , or Q4 , Q1 . As we move through the second half of 2025 , we saw projects accelerate into Q3 and are now seeing projects accelerate into Q4 .

Through all of these opportunities we have strengthened the company's infrastructure and processes, our operational resilience of significantly stronger as we have derisked our supply chain started the journey of multiple factories in multiple geographies to enable significant growth rooted NII.

Speaker #5: These projects are AI driven in Q3 , we were able to meet early ramp demands in Q4 . We are seeing demand ramp significantly .

Speaker #5: We continue to expedite our supply chain , and we are accelerating production capacity growth at factories in multiple geographies to meet the demand .

Strong management needs, our diversified portfolio enabled through our variable business model, which has consistently delivered tremendous free cash flow through all of the changes that volatility we've experienced.

Speaker #5: Now , the details Q4 sales are expected to be between 920 and $1 billion . Fourth quarter gross margins are estimated at 57 to 58% .

Our balance sheet is strong with firepower to enable strategic investments continue to deliver a balanced capital allocation and strong returns for our shareholders.

Speaker #5: This includes some one time supply costs in the quarter to meet accelerated demand . Turning to opex Q4 OpEx is expected to run at 31 to 33% of fourth quarter sales .

I've had the opportunity to make new England My home built many lasting relationships here internally.

And externally.

Speaker #5: The non-GAAP operating profit rate at the midpoint of our fourth quarter guidance is 25.5%. The Q4 GAAP and non-GAAP tax rate is expected to be 14.5%.

I've enjoyed working with with our shareholders.

And all of you in the investment community.

With that I will turn the call back to the operator to open up the line for questions soon hand, the keys over to Michele.

Later.

Speaker #5: Q4 non-GAAP EPs is expected to be in the range of $1 . $0.20 to $1.46 on 157 million diluted shares . GAAP EPs is expected to be in the range of $1.12 to $1.39 .

We will now be taking questions from Teradyne's research analysts at this time, if you wish to ask a question. Please press star one on your telephone keypad.

You may remove yourself from the queue by pressing star two.

Speaker #5: Summing up a Q3 results and Q4 guidance , AI is growing across the economy , driving exceptionally strong semiconductor test demand in the second half of 2025 .

In the interest of time, we ask that you. Please limit yourself to one question and one quick follow up.

We will take our first question from C. J Muse with Cantor Fitzgerald. Your line is open yes.

Speaker #5: This is evidenced in our Q3 sales profit performance and our outlook for Q4 . The acceleration of test demand in Q4 reflects customers drive to pull AI projects from Q1 .

Yes. Good morning, Thank you for taking the question and Sanjay Big Congrats to you.

I guess when you look at so short term question a longer term question. So short term.

Speaker #5: We're optimistic about the AI related market in 2026 , but we also know shipments can be lumpy . Now to my final remarks .

Roughly $150 million upside versus consensus for December and would be curious if you could kind of share how much of that upside is versus what you thought maybe three months ago is driven by HBM VIP networking SLT or perhaps are there.

Speaker #5: After six plus years at Teradyne , it's clear that Teradyne is well positioned for significant growth over the mid-term . Many environmental challenges have occurred during my tenure , such as significant government regulations , Covid tariffs , CEO transition , along with a strategic pivot of investments to AI in 2022 .

So.

It's Greg.

When you look at Q4.

It's really.

All in compute and memory is where the upside is coming from if you look across the rest of the company.

Speaker #5: Through all of these opportunities , we have strengthened the company's infrastructure and processes . Our operational resilience is significantly stronger as we have in de-risked our supply chain , started the journey of multiple factories and multiple geographies to enable significant growth rooted in AI , strong management leads our diversified portfolio enabled through our variable business model , which has consistently delivered tremendous free cash flow through all of the changes and volatility we've experienced .

Kind of not too different quarter on quarter, maybe a little bit stronger in our product test Division a.

A little bit stronger in robotics, but the real story is in compute and memory and I'd say, it's kind of two thirds. One third in terms of that compute is kind of two thirds of it memory is about a third of it and <unk> is really strongly represented in that memory up.

Speaker #5: Our balance sheet is strong with firepower to enable strategic investments , continue to deliver a balanced capital allocation and strong returns for our shareholders .

Great very helpful. And then I guess longer term question on the compute side.

Would be curious as you think about.

High performance compute leapfrogging mobility reports suggest that video is going to be the lead customer.

Speaker #5: I've had the opportunity to make New England my home and built many lasting relationships here . Internally and externally . I've enjoyed working with with our shareholders and all of you in the investment community .

For St of men at age 16.

How are you thinking about compute intensity how are we thinking about increased test insertions and really how are you thinking about kind of test time.

Speaker #5: With that , I'll turn the call back to the operator to open up the line for questions and soon hand the keys over to Michelle .

World, where compute is driving leading edge.

Speaker #5: Operator .

Speaker #1: We will now be taking questions from Teradyne's research analysts at this time , if you wish to ask a question , please press star one on your telephone keypad .

So the.

We're pretty bullish about it in general that.

As as the die sizes get bigger and the performance required.

Speaker #1: You may remove yourself from the queue by pressing star two . In the interest of time , we ask that you please limit yourself to one question and one quick follow up .

From the devices sort of gets.

<unk>.

The performance goes up the test intensity also has to go up the other thing that makes us pretty optimistic in terms of sort of how this will affect the Tam for compute devices is that triplet based designs are becoming more and more of a thing and when you get to the later stages of building up these complex multi chip.

Speaker #1: We'll take our first question from C.J. muse with Cantor Fitzgerald . Your line is open .

Speaker #4: Yeah .

Speaker #6: Good morning . Yeah . Thank you for taking the question . And , Sanjay , big congrats to you . I guess when you when you look at so short term question and long term question , short term , you know , roughly 150 million upside versus consensus for December .

<unk> the cost of the cost of scrap really really escalates. So that drives this sort of shift left adding test intensity upstream and then there is also the downstream effect, which is these chips are going into data centers.

Speaker #6: And I would be curious if you could kind of

<unk>.

In video likes to say they are being used as if they are like one gigantic GPU and so like.

10000, 50000, 100000 nodes has to work perfectly for an entire training run so their tolerance for latent defects coming out in the middle of those kinds of training runs is very very low so those sort of environmental factors really make us think that the test intensity for the <unk>.

<unk> segment is going to continue to grow over the next few years. The other thing Thats happened in compute is that because it's now the primary driver for the semiconductor industry that many of the strategies that we've seen in the mobile space for years and years around things like dual sourcing or become.

Much more important to the producers in this space.

Does the strategy that you need when you're a small portion of your capital equipment providers.

Overall shipments is different when you actually dominate those shipments you start to you start to feel a little bit more vulnerable and so customers. In this space are increasingly turning to this notion of dual sourcing their supply chain at every step and since we're coming from a low.

Our share position trying to gain share that dual sourcing is actually a very good thing for us.

Thank you Greg I appreciate it.

We will take our next question from Matt He hosseini with.

Your line is open.

Yes, thanks for taking my question.

I wanted to double.

Double click on the structural changes that are happening.

Values testing session.

I wanted to sort of wafer level test how do you see.

Thank you.

Activity and design wins from existing into.

The increase.

Penetration.

In this specific segment.

Gregory Smith: Shift left, adding test intensity upstream. There is also the downstream effect, which is these chips are going into data centers. As NVIDIA likes to say, they're being used as if they're like one gigantic GPU. Like 10,000, 50,000, 100,000 nodes have to work perfectly for an entire training run. Their tolerance for latent defects coming out in the middle of those kinds of training runs is very, very low. Those sort of environmental factors really make us think that the test intensity for the compute segment is going to continue to grow over the next few years. The other thing that's happened in compute is that because it's now the primary driver for the semiconductor industry, many of the strategies that we've seen in the mobile space for years and years around things like dual sourcing are becoming much more important to the producers in this space.

Burned in.

On the wafer level would be part of that those design wins.

Frontline.

Yes so.

We definitely believe that SLT is a critical part for this sort of late stage, ensuring that there arent latent defects going into the into the data centers. So we think that theres positive positive effect. There. The other thing is that there are new technologies that are key.

10000, 50000, 100000 nodes has to work perfectly for an entire training run so their tolerance for latent defects coming out in the middle of those kinds of training runs is very very low so those sort of environmental factors really make us think that the test intensity for the <unk>.

Along like Cotwo.

They're more complex modules are being built up and they need to go through a relatively expensive extensive system test and burn in.

<unk> segment is going to continue to grow over the next few years. The other thing Thats happened in compute is that because it's now the primary driver for the semiconductor industry that many of the strategies that we've seen in the mobile space for years and years around things like dual sourcing or become.

So we believe that so we look at this as sort of a contiguous market between Vernon and esselte because of the burn in is generally done with the devices fully operating not sort of us.

And the test stage.

Much more important to the producers in this space.

Gregory Smith: The strategy that you need when you're a small portion of your capital equipment providers' overall shipments is different. When you actually dominate those shipments, you start to feel a little bit more vulnerable. Customers in this space are increasingly turning to this notion of dual sourcing their supply chain at every step. Since we're coming from a lower share position trying to gain share, that dual sourcing is actually a very good thing for us. Thank you, Greg. Appreciate it.

Okay, maybe we could take this offline.

Does the strategy that you need when you're a small portion of your capital equipment providers.

So much technology, but we're not even look at your commentary that.

Overall shipments is different when you actually dominate those shipments you start to you start to feel a little bit more vulnerable and so customers. In this space are increasingly turning to this notion of dual sourcing their supply chain at every step and since we're coming from a low.

30 months, none of the design wins.

Embedded in your guide now let me go back to 2028 EPS target of seven to 950.

I imagine these design wins were in fact, you provided that the target.

Peter.

Would that be a fair statement and how we should think about those targets.

Sure sure position trying to gain share that dual sourcing is actually a very good thing for us.

In addition to the designers that you highlighted in your prepared remarks.

Thank you Greg I appreciate it.

Yes so.

Operator: We'll take our next question from Mehdi Hosseini. Your line is open.

We will take our next question from Matt <unk> Hosseini with.

We will update everyone in January in terms of our long term model.

Your line is now open.

The thing that I like as we're thinking about it.

[Analyst]: Yes, thanks for taking my question, Greg. I want to double click on these structural changes that are happening at various test insertion, and I want to focus on wafer level tests. How do you see your activity and design wins manifesting into increased penetration in this specific segment? Would the Berlin on the wafer level be part of those design wins? I have a follow up.

Yeah. Thanks for taking my question.

Thing that is apparent to us is that the long term destination is not all that different but the composition of the market is so we believe that we're well positioned.

I wanted to double click on the structural changes that are happening.

Values test insertion.

Focus on wafer level test.

Do you see.

<unk> achieved the the long term.

<unk>.

Activity.

Long term model that we have published prior but we believe that the composition of that business is going to be.

Design wins manifested into increase penetration.

Tricia.

Much more heavily dependent on the things that are being driven by the data center build out and thats across compute networking memory, even power that that is far more important in the in the mix than the way we are looking at the long term before.

Specific segment and with the burn in.

On the wafer level be part of that those design wins and I have a follow up.

Gregory Smith: Yeah, we definitely believe that SLT is a critical part for this sort of late stage, ensuring that there aren't latent defects going into the data centers. We think that there's a positive effect there. The other thing is that there are new technologies that are coming along like COW op, where more complex modules are being built up and they need to go through a relatively expensive, extensive system test and burn in. We believe that, you know, we look at this as sort of a contiguous market between burn in and SLT because the burn in is generally done with the devices fully operating, not in a sort of a test state.

Yes so.

We definitely believe that SLT is a critical part for this sort of late stage, ensuring that there arent latent defects going into the into the data centers. So we think that theres positive positive effect. There. The other thing is that there are new technologies that are.

Okay. Thanks.

Well move next to Timothy Arcuri with UBS. Your line is open.

Thanks, a lot Greg So I assume semi test is up something like $200 million and the guidance for December. So I'm. Just wondering if you can give us a sense I know that this stuff is all pretty lumpy, but can you give us a sense of like it seems like it's maybe evenly split split between memory and SSD is that a fair just general.

Coming along like Cotwo Pete.

Where more complex modules are being built up and they need to go through a relatively expense extensive system test and burn in.

So we believe that so we look at this as sort of a contiguous market between Vernon and esselte because the burn in is generally done with the devices fully operating not in a sort of us.

Number to kind of think about in terms of the composition of the growth in.

Calendar Q4.

Yes so.

The test stage.

The.

[Analyst]: Okay, maybe we could take this offline because there's so much technology. When I look at your commentary that in your prepared remarks none of the design wins have been embedded in your guide, I want to go back to your 2028 EPS target of $7 to $9.50. I imagine these design wins were in fact to end when you provided that target earlier this year. Would that be a fair statement, and how would you think about those targets in addition to the design wins that you highlighted in your prepared remarks?

Okay, maybe we could take this offline.

It's not quite it's not half and half it's more two thirds.

There's so much technology, but we're not even look at your commentary.

In networking and one third memory in the App.

In your prepared remarks, none of the design wins has been embedded in your guide I wanted to go back to your 2020 EPS target of seven to 950.

Okay, Okay, great. Thanks.

And then Sanjay can you talk a little bit about revenue shaping next year I know.

I imagine these designers weighting factor into you provided that the target.

Memory tends to be pretty lumpy I mean in particular.

Emory and I know that there's this big.

This year, we hope.

Stuff shifting in Q in Q4, so can you just maybe give us a little bit of a sense on Q1.

Your first statement and how we should think about those targets.

In addition to the designers that you highlighted in your prepared remarks.

Is it should we expect it to be down a little bit and how do you see next year some loading point of view.

Gregory Smith: Yeah. We'll update everyone in January in terms of our long term model. The thing that I like as we're thinking about it, the thing that is apparent to us is that the long term destination is not all that different, but the composition of the market is. We believe that we're well positioned to achieve the long term model that we have published prior, but we believe that the composition of that business is going to be much more heavily dependent on the things that are being driven by the data center buildup, and that's across compute, networking, memory, even power. That is far more important in the mix than the way we were looking at the long term before. Okay, thank you.

Yes so.

We'll update everyone in January in terms of our long term model.

So I think Greg and Greg's prepared remarks.

The thing that I like as we're thinking about it.

We talked about the key drivers and in my prepared key drivers going into 2026% overall, we thought the revenue would be up relative to 2025 tied to those drivers.

The thing that is apparent to us is that the long term destination is not all that different but the composition of the market is so we believe that we're well positioned to achieve the long term.

In my remarks.

But as well as growing as we talked about the acceleration of key projects that straddled Q3, Q4, and Q4 Q1.

The long term model that we have published prior but we believe that the composition of that business is going to be.

One's in kind of Q1 kind of accelerating into Q4, and so overall, we do see demand accelerating I will share that from a from a seasonality maybe if thats what youre getting to is that the revenue mix has changed.

Much more heavily dependent on the things that are being driven by the data center build out and thats across compute networking memory even power.

As you would note as we've noted in the second half really tied to semi test driven by AI.

That is far more important in the in the mix than the way we are looking at the long term before.

Tied to compute and memory revenue.

Historically.

Our business has been driven by the mobile launches were.

Okay. Thanks.

Operator: We'll move next to Timothy Arcuri with UBS Investment Bank. Your line is open.

Well move next to Timothy Arcuri with UBS. Your line is open.

We've had significant demand in kind of Q2 and Q3 business is no longer driven by by that if it comes insurer will have we will have <unk> on that front, it's more driven by <unk>.

Gregory Smith: Thanks a lot, Greg. I assume Semi Test is up something like $200 million in the guidance for December. I'm just wondering if you can give us a sense. I know that this stuff is all pretty lumpy, but can you give us a sense? It seems like it's maybe evenly split between memory and SSD. Is that a fair, just general number to think about in terms of the composition of the growth in calendar Q4? It's not quite, it's not half and half. It's more 2/3 compute and networking and 1/3 memory in the up. Okay, great, thanks. Sanjay, can you talk a little bit about revenue shaping next year? I know memory tends to be pretty lumpy, in particular memory, and I know that there's this big stuff shipping in Q4. Can you just maybe give us a little bit of a sense on Q1?

Thanks, a lot Greg So I assume semi test is up something like $200 million and the guidance for December. So I'm. Just wondering if you can give us a sense I know that this stuff is all pretty lumpy, but can you give us a sense of like it seems like it's maybe evenly split split between memory and SSD is that a fair just general.

Compute projects and those are lumpy and they are really tied to <unk>.

Customer launches so I think overall, what youll see is a little different shaping in the way of seasonality for our business going forward and we will give you an update in the call in January.

Number to kind of think about.

In terms of the composition of the growth in.

Okay. Thanks.

Calendar Q4.

We will take our next question from Krish Shankar with PD Cowen Your line is open.

Yes so.

The.

It's not quite it's not half and half it's more two thirds compute in networking and one third memory and the App.

Hi, guys. Thanks for taking my questions. This is Steven calling on behalf of Krish.

Greg first question for you.

Related to the VIP customer.

Okay, Okay, great. Thanks.

And as long as you mentioned of merchant GPU opportunity.

And then Sanjay can you talk a little bit about revenue shaping next year I know.

Sure.

I guess first thing is.

Memory tends to be pretty lumpy.

Terms of VIP customers, how much more expansion do you see in terms of the customer base.

Particular.

Memory and I know that there's this big.

For larger CSP.

Stuff shifting in Q in Q4, so can you just maybe give us a little bit of a sense on Q1.

<unk> four <unk> is there a direct relationship that you have also with those customers potentially or is that more of a foundry type relationship and similar question for merchants and piece of that.

Gregory Smith: I mean, should we expect it to be down a little bit and how do you see next year from a loading point of view? Thanks. I think, Greg.

Is it should we expect it to be down a little bit and how do you see next year some.

Loading point of view.

Sanjay Mehta: In Greg's prepared remarks we talked about the key drivers and in my key drivers going into 2026 and overall we thought that the revenue would be up relative to 2025 tied to those drivers. In my remarks as well as Greg's, we talked about the acceleration of key projects that straddled Q3, Q4 and Q4, Q1 and the ones in kind of Q1 kind of are accelerating into Q4. Overall we do see demand accelerating.

Direct or more of a foundry.

Sure I think Greg and Greg's prepared remarks.

Testing and real estate.

So we talked about the key drivers and in my prepared our key drivers going into 2026 on.

So.

In terms of the VIP customer base.

Overall, we thought the revenue would be up relative to 2025 tied to those drivers and in my remarks.

It is incredibly concentrated that there are a lot of design starts there are a lot of chips that are that are being developed but the.

As well as growing as we talked about the acceleration of key projects that straddled Q3, Q4, and Q4 Q1 and the ones in kind of Q1 kind of accelerating into Q4, and so overall, we do see demand accelerating I will share that from a from a seasonality maybe if thats what youre getting to.

Vast majority of the tester demand in the VIP space is really being driven by to two customers.

Gregory Smith: I will share that.

Sanjay Mehta: You know, from a seasonality, maybe that's what you're getting to, is that the revenue mix has changed as we've noted in the second half, really tied to Semi Test driven by AI, tied to compute and memory revenue. Historically, our business has been driven by the mobile launches where we've had significant demand in kind of Q2 and Q3. Business is no longer driven by that. If it comes in, sure, we'll have tailwinds on that front. It's more driven by compute projects and those are lumpy and really tied to customer launches. I think overall what you'll see is a little different shaping in the way of seasonality for our business going forward. We'll give you an update in the call in January.

And.

That.

That's how that market is playing out right now with what seems to be happening is that each of the hyperscale or has their own chip development program.

Is that the revenue mix has changed.

As you would note as we've noted in the second half really tied to semi test driven by AI.

And they benchmark that against what they can do with merchant silicon and if the merchant silicon provides a better sort of tokens per watt than they don't tend to ramp their internal silicon to the same extent so like right now we see that market is as concentrated and it's going to expand that base is going to <unk>.

Tied to compute and memory revenue.

Historically.

Our business has been driven by the mobile launches were.

We've had significant demand in kind of Q2 and Q3 business is no longer driven by by that if it comes insurer will have will have tailwind on that front, it's more driven by <unk>.

<unk> pretty slowly because it's a very competitive environment.

Compute projects and those are lumpy and they are really tied to <unk>.

The thing that we see with Vips is as those vips are growing there.

Customer launches so I think overall, what youll see is a little different shaping in the way of seasonality for our business going forward and we will give you an update in the call in January.

The actual specifier, the chip developer the hyperscale or itself is exerting more control over the whole supply chain. They are moving from aggregators aggregator they are forming different partnerships and they are taking more control over their supply chain.

Gregory Smith: Okay, thanks.

Okay. Thanks.

Operator: We'll take our next question from Krish Sankar with TD Cowen. Your line is open.

We will take our next question from Krish Shankar with PD Cowen Your line is open.

So sort of the the way that people looked at it in terms of the aggregator.

[Analyst]: Hi, thanks for taking my questions. This is Stephen calling on behalf of Krish. Greg, first question for you related to the VIP customer demand as well as your mention of merchant GPU opportunities in the future. I guess first thing is in terms of VIP customers, how much more expansion do you see in terms of the customer base from the larger CSPs, and similarly for Tier 2 CSPs, is there a direct relationship that you have also with those customers potentially, or is that more of a foundry type relationship? Similar question for merchant GPUs, is that direct or more of a foundry type of testing relationship?

Hi, guys. Thanks for taking my questions. This is Steven calling on behalf of Krish.

The design partner as the one influencing the decisions I think that that is something that will fade over time and we've seen it.

Greg first question for you.

Related to the VIP customer.

And as long as you mentioned of merchant GPU opportunity.

Occur in some of the VIP customers.

Sure.

I guess first thing is.

In the merchant space.

Terms of VIP customers, how much more expansion do you see in terms of the customer base.

It is all at the specifier not at the foundries. So the the merchant the merchant GPU or CPU player is the one that is going to decide on the test platform. They are the ones that are going to control the test programs and all of the test IP. So are our efforts.

For the larger CFT and similarly for <unk> is there a direct relationship that you have also with those customers potentially or is that more of the foundry type relationship and similar question for merchants and piece of that.

Direct or more of a foundry.

<unk> around gaining share in merchant Gpus is directed at the specifier themselves not at any one in the supply chain.

Testing and relationships.

Gregory Smith: In terms of the VIP customer base, it is incredibly concentrated. There are a lot of design starts, there are a lot of chips that are being developed, but the vast majority of the tester demand in the VIP space is really being driven by two customers. That is how that market is playing out right now. What seems to be happening is that each of the hyperscalers has their own chip development program and they benchmark that against what they can do with merchant silicon. If the merchant silicon provides a better sort of tokens per watt, then they do not tend to ramp their internal silicon to the same extent. Right now we see that market as concentrated and it is going to expand. That base is going to expand pretty slowly because it is a very competitive environment.

So.

In terms of the VIP customer base.

It is incredibly concentrated that there are a lot of design starts there are a lot of chips that are that are being developed but the.

Great. Thank you so much for that color Vince for my quick follow up in.

For hard disk drives and just some of the strength that you mentioned there from cloud demand I'm just curious like for for systems that are you expecting strong double digit growth in that segment for Q4, as well or could it be higher than that.

Vast majority of the tester demand in the VIP space is really being driven by to two customers.

And.

So the.

That.

The process of adding capacity in HDD as it takes time.

That's how that market is playing out right now with what seems to be happening is that each of the hyperscale or has their own chip development program.

The manufacturing process for HDD is a complex one highly automated.

And they benchmark that against what they can do with merchant silicon and if the merchant silicon provides a better sort of tokens per watt than they don't tend to ramp their internal silicon to the same extent so like right now we see that market is as concentrated and it's going to expand that base is going to.

It's heavily capital intensive and so we're definitely seeing an uptick in the orders associated with that.

Theres a lot of optimism in the space, but we would expect that to have a greater effect.

In 2026, then we would expect to see anything in 2025 2025, I think SLT is.

Spanned pretty slowly because it's a very competitive environment.

Gregory Smith: The thing that we see with VIPs is, as those VIPs are growing, the actual specifier, the chip developer, the hyperscaler itself is exerting more control over the whole supply chain. They are moving from aggregator to aggregator, they are forming different partnerships, and they are taking more control over their supply chain. The way that people looked at it in terms of the aggregator, the design partner as the one influencing the decisions, I think that is something that will fade over time and we have seen that occur in some of the VIP customers in the merchant space. It is all at the specifier, not at the foundry. The merchant GPU or CPU player is the one that is going to decide on the test platform. They are the ones that are going to control the test programs and all the test IP.

The thing that we see with Vips is as those vips are growing there.

We're not expecting to see significant growth in the ISG group in Q4.

The actual specifier, the chip developer the hyperscale or itself is exerting more control over the whole supply chain. They are moving from aggregator to aggregator they are forming different partnerships and they are taking more control over their supply chain.

Great. Thank you so much.

We'll move next to Shane Bret with Morgan Stanley. Your line is open.

Thank you for the EMEA ask a question.

Ken's question in a bit more of a direct way as of this moment do you sort of SSC tests to accelerate from this really strong December quarter into the first half or do you really kind of bake in a bit of a seasonal decline or kind of a bit of conservatism into the March quarter. Thank you.

So sort of the the way that people looked at it in terms of the aggregator.

The design partner as the one in influencing the decisions I think that that is something that will fade over time and we've seen it.

Now I'll, just reiterate some comments and maybe Greg if you want to add to it.

The second half of the year 'twenty five we talked about straddling.

<unk> occur in some of the VIP customers.

In the merchant space.

We talked about the projects.

It is all at the specifier not at the foundries. So the the merchant the merchant GPU or CPU player is the one that is going to decide on the test platform. They are the ones that are going to control the test programs and all of the test IP.

Accelerating and we're seeing that continue to accelerate of course those projects in the pipeline.

In Q1, and Q2 of 2026 is just going to depend on how those projects go generally we're seeing projects accelerate though.

Yes, I think.

Gregory Smith: Our efforts around gaining share in merchant GPUs is directed at the specifier themselves, not at anyone in the supply chain.

Well, yes.

Our our efforts around gaining share in merchant Gpus is directed at the specifier themselves not at any one in the supply chain.

As we've talked about there are things that are perched between quarters.

Thing that I will say is.

Q4 was sort of a new high watermark for us in terms of capacity and shipping against our memory test and our <unk> Soc products, we expect demand to continue to be robust going into 2026.

[Analyst]: Great, thank you so much for that color and for my quick follow-up, for hard disk drives, just some of the strength that you mentioned there from cloud demand. I was just curious for system test, like are you expecting strong double-digit growth in that segment for Q4 as well, or could it be higher than that?

Great. Thank you so much for that color.

For my quick follow up.

For hard disk drives and just some of the strength that you mentioned there from the cloud demand I'm just curious like for for systems that are you expecting strong double digit growth in that segment.

But like as an analyst it would probably be a mistake to like look at the growth from Q3 to Q4 and draw a line straight up from there because there.

Q4 is lower it's going to be higher than that.

Gregory Smith: The process of adding capacity in HDD takes time. The manufacturing process for HDD is a complex one, highly automated, and it's heavily capital intensive. We're definitely seeing an uptick in the orders associated with that. There's a lot of optimism in the space, but we would expect that to have a greater effect in 2026 than we would expect to see anything in 2025. In 2025, I think SLT is, you know, we're not expecting to see significant growth in the IST group in Q4.

So the.

The process of adding capacity in HDD as it takes time.

We're at a relatively high level and we expect we expect continued strength, but it is really lumpy and the timing continues to be uncertain, even between Q1 and Q2 of next year.

The manufacturing process for HDD is a complex one highly automated.

It's heavily capital intensive and so we're definitely seeing an uptick in the orders associated with that there's a lot of optimism in the space, but we would expect that to have a greater effect.

Got it. Thank you that's helpful and for my follow up.

Non memory at a conference intra quarter, you mentioned that on a go forward basis, DRAM and nando grow, but nando grow faster because of how low. It is right now just how does though has not been this area relative to prior years and what sort of growth are you expecting for the non portion of memory going forward. Thank you.

In in 2026, then we would expect to see anything in 2025 2025, I think SLT is we're.

We're not expecting to see significant growth in the ISG group in Q4.

Yeah, Hi, it's Sanjay so demand is really really from a percentage standpoint, I think it's really going to tie to the growth driven in the mobile industry and if we see that growth then it will.

[Analyst]: Great, thank you so much.

Great. Thank you so much.

Operator: We'll move next to Shane Brett with Morgan Stanley. Your line is open.

We'll move next to shame Bret with Morgan Stanley. Your line is open.

But it should take off but right now it's at a.

[Analyst]: Thank you for letting me ask a question. Let me ask Kim's question in a bit more of a direct way. As of this moment, do you sort of expect SOC tests to accelerate from this really strong December quarter into the first half, or should we really kind of bake in a bit of seasonal decline or kind of a bit of conservatism into the March quarter? Thank you.

Thank you for in the ask a question.

Really low point, and where we see it or where we see DRAM is strengthening obviously the hbf environment, yes.

Ken's question in a bit more of a direct way as of this moment do you sort of expect SSD test to accelerate from this really strong December quarter into the first half or do you really kind of taken a bit of a seasonal decline or kind of a bit of conservatism into the March quarter. Thank you.

In the quarter, our business was 75% DRAM, 25% flash.

And.

If you look at the results for our competitors even more.

Sanjay Mehta: I'll just reiterate some comments, and maybe Greg, if you want to add to it, you know, the second half of the year, 2025, we talked about straddling, and we talked about the projects accelerating, and we're seeing that continue to accelerate. Of course, there's projects in the pipeline in Q1 and Q2 of 2026. It's just going to depend on how those projects go. Generally, we're seeing projects accelerate though.

Now I'll, just reiterate some comments and maybe Greg if you want to add to it.

Dominated by their DRAM shipments.

The second half of the year of 25, we talked about straddling.

Going into 2026.

We talked about the projects.

If there is so there's a couple of things going on in flash in 2026, there is likely to be a protocol shift in the mobile market and that will drive.

Accelerating and we're seeing that continue to accelerate of course those projects in the pipeline.

In Q1, and Q2 of 2026, it's just going to depend on how those projects go generally we're seeing projects accelerate though.

Some tester capacity purchased.

Gregory Smith: I think, as we talked about, there are things that are perched between quarters. The thing that I will say is Q4 was sort of a new high watermark for us in terms of capacity and shipping against our Memory test in our SOC products. We expect demand to continue to be robust going into 2026. As an analyst, it would probably be a mistake to look at the growth from Q3 to Q4 and draw a line straight up from there because we're at a relatively high level and we expect continued strength, but it is really lumpy and the timing continues to be uncertain even between Q1 and Q2 of next year.

Just to support those new standards and then there is the X factor around SSD capacity required for AI data centers and right now.

Yes, I think.

Well.

Because as we've talked about there are things that are purchased between quarters.

Thing that I will say is.

I think that there is.

Q4 was sort of a new high watermark for us in terms of capacity and shipping against our memory test in our Soc products, we expect demand to continue to be robust going into 2026.

There are like rumblings in the market that theres going to be demand increase for SSP. We haven't seen that translated in terms of increased forecast, but we're optimistic that that market should be a bit stronger in 'twenty six than it was in 'twenty five.

But like as an analyst it would probably be a mistake to like look at the growth from Q3 to Q4 and draw a line straight up from there because there.

Maybe just to add to my comment for little bit more color you want to go back to 2020 or 2021.

DRAM and flash mix was more like 50 50 in rough numbers, but.

The flash of view of Tam looking backwards was more than double what it is now and so it's really contracted it's a much smaller component of the memory.

We're at a relatively high level and we expect we expect continued strength, but it is really lumpy and the timing continues to be uncertain, even between Q1 and Q2 of next year.

[Analyst]: Got it. Thank you, that's helpful. For my follow up on memory, at a conference in the quarter, you mentioned that on a go forward basis DRAM and NAND grow, but NAND grows faster because of how low it is right now. Just how low has NAND been this year relative to prior years? What sort of growth are you expecting for the NAND portion of memory going forward? Thank you.

Got it. Thank you that's really helpful.

Got it. Thank you that's helpful and for my follow up John.

Well move next to Jim Schneider with Goldman Sachs. Your line is open.

Non memory at a conference intra quarter, you mentioned that on a go forward basis, DRAM or NAND or grow, but nando grow faster because of how low. It is right now just how low has not been this area relative to prior years and what sort of growth are you expecting for the non portion of memory going forward. Thank you.

Good morning, Thanks for taking my question.

Wondering if you could maybe kind of return to your expectation for mobile SSC heading into next year, realizing that Q2, and Q3 are seasonally stronger quarters.

Sanjay Mehta: Yeah, hi, it's Sandy. NAND is really low. Really from a % standpoint, I think it's really going to tie to the growth driven in the mobile industry. If we see that growth, it should take off. Right now it's at a really low point. Where we see it, or where we see DRAM, is strengthening, obviously in the HBM environment.

Yeah, Hi, it's Sanjay so <unk> NAND is really low, but really from a percentage standpoint, I think it's really been a tied to the growth driven in the mobile industry and if we see that growth then it will.

Do you have any sense about.

What you might expect sort of Directionally in terms of improvement next year and maybe you can just remind us of the relative sort of either.

That it should take off but right now it's at.

Test time or content increase you expect moving to the into generation.

Really low point, and where we see it or where we see DRAM is strengthening obviously the hbf environment, yes.

Gregory Smith: Yes. In the quarter our business was 75% DRAM, 25% flash. If you look at the results for our competitors, even more dominated by their DRAM shipments going into 2026. There are a couple of things going on in flash in 2026. There's likely to be a protocol shift in the mobile market and that will drive some tester capacity purchased just to support those new standards. There's the X factor around SSD capacity required for AI data centers. Right now I think that there are rumblings in the market that there's going to be demand increase for SSD. We haven't seen that translated in terms of increased forecast, but we're optimistic that that market should be a bit stronger in 2026 than it was in 2025.

Hi, Jim.

In the quarter, our business was 75% DRAM, 25% flash.

Mobile mobile Soc has been at a pretty low level for the past couple of years.

And.

Looking forward to next year.

If you look at the results for our competitors even more.

We don't know, but I think the honest answer is we don't know exactly how big it would be we are optimistic that it should be.

Dominated by their DRAM shipments.

Going into 2026.

It should be bigger than it is this year, but we're unsure of the magnitude of that and let me tell you.

If there is so there's a couple of things going on in flash in 2026, there is likely to be a protocol shift in the mobile market and that will drive.

Why so.

There are three factors in terms of how big the mobile Tam is really going to be one is the complexity of the part and.

Some tester capacity purchased.

With the.

Just to support those new standards and then there is the X factor around SSD capacity required for AI data centers and right now.

And to and with new packaging technologies like WMC, we expect that the test intensity per part is going to be higher.

I think that there is.

They're like rumblings in the market that theres going to be demand increase for SSP, we haven't seen that translate it in terms of increased forecast, but we're optimistic that that market should be a bit stronger in 'twenty six than it was in 'twenty five.

Double digits kind of higher.

The next factor is like yield for.

New technologies, sometimes yield is lower we do not count on that because.

There has been sort of a pattern of execution at very high yields for these kinds of products. So we are not expecting that to be a particular tailwind, but one that's really the most important factor right now is in unit volume.

Sanjay Mehta: Maybe just to add to my comment, for a little bit more color, if you go back to 2020 or 2021, the DRAM and flash mix was more like 50/50 in rough numbers, but the flash view of TAM looking backwards was more than double what it is now. It has really contracted. It's a much smaller component of the memory.

Just to add to my comment for little bit more color you want to go back to 2020 or 2021.

DRAM and flash mix was more like 50 50 in rough numbers, but.

The flash view of Tam looking backwards was more than double than what it is now.

If there is a significant upward inflection in handset sales people are refreshing phones, because new phones or doing something interesting than that not only drives the whole mobile processor space, but it also drives RF and <unk> and everything else. So I think that's the big X factor for Us is.

Yes, it's really contracted it's a much smaller component of the memory test.

Gregory Smith: Tam.

[Analyst]: Got it. Thank you. That was really helpful.

Got it. Thank you that's really helpful.

Operator: We'll move next to Jim Schneider with Goldman Sachs. Your line is open.

Well move next to Jim Schneider with Goldman Sachs. Your line is open.

Whether we see an inflection in unit sales in 2026, if we do it could be a strong year. If we don't it would probably be just a modest improvement from where it is.

[Analyst]: Good morning. Thanks for taking my question. I was wondering if you maybe could return to your expectations for mobile SoC heading into next year, realizing that Q2 and Q3 are seasonally stronger quarters. Do you have any sense about what you might expect directionally in terms of improvement next year? Maybe just remind us of the relative sort of either test time or content increase you expect moving to the INTU generation.

Good morning, Thanks for taking my question.

Wondering if you could maybe kind of return to your expectation for mobile SSC heading into next year, realizing that Q2, and Q3 are seasonally stronger quarters.

That's helpful. Great. Thank you and then maybe.

Do you have any sense about.

From a from a financial perspective.

What you might expect sort of Directionally in terms of improvement next year and maybe you can just remind us of the relative sort of either.

2026 is shaping up to be a relatively solid growth year for you, but maybe you could remind us of the opex leverage you would expect to get in the model in other words for every dollar of.

Test time or content increase you would expect moving to the into generation.

Revenue increase or every 10% of revenue increase how much opex increase would you expect to flow through thank you.

Gregory Smith: Hi, Jim. Mobile SoC has been at a pretty low level for the past couple of years. Looking forward to next year, we don't know. I think the honest answer is we don't know exactly how big it would be. We're optimistic that it should be bigger than it is this year, but we're unsure of the magnitude of that. Let me tell you why. There are three factors in terms of how big the mobile TAM is really going to be. One is the complexity of the part. With N2 and with new packaging technologies like WMCM, we expect that the test intensity per part is going to be higher, like double digits kind of higher. The next factor is yield for new technologies. Sometimes yield is lower.

Hi, Jim.

Mobile mobile Soc has been at a pretty low level for the past couple of years.

Hi, it's Andrew So as I said in my prepared remarks.

Our growth in Opex was a little bit higher relative to the leverage we wanted to have we have on our overall earnings model and thats going to happen from year to year, but in 2026.

Looking forward to next year.

We don't know, but I think the honest answer is we don't know exactly how big it will be we're optimistic that it should be.

And our operating principle.

It should be bigger than it is this year, but we're unsure of the magnitude of that and let me tell you.

It.

It is basically for every dollar of revenue we wanted to.

Why so.

Of growth, we'd see roughly 50% of that opex growth so kind of like.

<unk>.

There are three factors in terms of how big the mobile Tam is really going to be one is the complexity of the part and.

Ensuring that we are driving opex leverage we expect to be at roughly that rule.

With the.

Going into next year or being at that target roughly.

And to and with new packaging technologies like WMC.

In 2020.

Yes.

We expect that the test intensity per part is going to be higher.

We'll take our next question from Sam Chatter G with J P. Morgan Your line is open.

Like double digits kind of higher.

The next factor is like yield for <unk>.

Hi, Thanks for taking my.

Question.

New technologies, sometimes yield is lower we do not count on that because.

Congrats on the retirement.

Gregory Smith: We do not count on that because there's been a pattern of execution at very high yields for these kinds of products. We are not expecting that to be a particular tailwind. The one that's really the most important factor right now is in unit volume. If there is a significant upward inflection in handset sales, people are refreshing phones because new phones are doing something interesting, then that not only drives the whole mobile processor space, but it also drives RF and PIMIC and everything else. I think the big X factor for us is whether we see an inflection in unit sales in 2026. If we do, it could be a strong year. If we don't, it would probably be just a modest improvement from where it is.

Congrats on the road as well.

Maybe for the first one Greg.

There has been sort of a pattern of execution at very high yields for these kinds of products.

Question about the memory.

Keith.

Overall.

So we are not expecting that to be a particular tailwind, but one that's really the most important factor right now is in unit volume.

<unk>.

It looks like a step up.

Next students.

Okay.

<unk> market share.

And with that you talked about earlier in the year.

If there is a significant upward inflection in handset sales people are refreshing phones, because new phones or doing something interesting than that not only drives the whole mobile processor space, but it also drives RF and <unk> and everything else. So I think that's the big X factor for Us is.

General industrial.

Okay.

And when you look at payroll.

Yeah.

Portfolio would it be in August.

Canada.

If you would sort of highlight opportunities.

26.

Thank you.

Whether we see an inflection in unit sales in 2026, if we do it could be a strong year. If we don't it would probably be just a modest improvement from where it is.

Yes so.

The way that we the way we look at the memory market is primarily.

Think of it as like a two by two grid, we think of DRAM and we think of flash memory and then the other the other axis is wafer sort and then final or performance test.

[Analyst]: That's helpful, Greg. Thank you. Maybe from a sort of financial perspective, obviously 2026 is shaping up to be a relatively solid growth year for you, but maybe you can remind us of the OPEX leverage you expect to get in the model. In other words, for every dollar of revenue increase or every 10% of revenue increase, how much OPEX increase would you expect to flow through? Thank you.

That's helpful. Great. Thank you and then maybe.

From a from a financial perspective.

2026 is shaping up to be a relatively solid growth year for you, but maybe you could remind us of the opex leverage you would expect to get in the model in other words for every dollar of.

And if you look at like within each segment, our share is you'd like very high like Flash final test.

And DRAM final test HBM performance test, we have healthy share in the final test section of the of the grid our share overall in the wafer sort excluding HBM performance test is significantly lower and so when the market is dominated by purchases.

Revenue increase or every 10% of revenue increase how much opex increase would you expect to flow through thank you.

Sanjay Mehta: Hi, it's Sandra.

Hi, it's Andrew So as I said in my prepared remarks.

Gregory Smith: As I said in.

Sanjay Mehta: My prepared remarks, our growth in OPEX was a little bit higher relative to the leverage we wanted to have. We have in our overall earnings model that's going to happen from year to year but in 2026. Our operating principle is basically for every dollar of revenue we want to have of growth, we'd see roughly 50% of that in OPEX growth. Kind of like ensuring that we are driving OPEX leverage, you know, we expect to be at roughly that rule going into next year or being at that target roughly in 2026.

Our growth in Opex was a little bit higher relative to the leverage we wanted to have we have on our overall earnings model and thats going to happen from year to year, but in 2026.

For final test our share tends to go up and when the market is dominated by capacity adds for wafer sort our share tends to go down looking into 2026, we're expecting that it's going to be an expansion year for memory in general and so we think it's going to be a good year for us.

And our operating principle.

It.

Is basically for every dollar of revenue we want to have.

Of growth, we'd see roughly 50% of that opex growth, so kind of like a <unk>.

Ensuring that we are driving opex leverage we expect to be at roughly that rule.

But we also think that there's going to be a significant expansion in the Sam for the wafer sort part of the market. So I don't know if we're going to see significant share increase but I'm pretty sure we're going to see revenue growth.

Going into next year or being at that target roughly.

In 2026.

Gregory Smith: Yeah.

Yes.

Operator: We'll take our next question from Samik Chatterjee with JP Morgan. Your line is open.

We will take our next question from Sam Chatterji with Jpmorgan. Your line is open.

Okay, Great and then a quick one for Sanjay.

And I apologize if this has.

[Analyst]: Hi, thanks for taking my question. Sanjay, congrats on the retirement. Michelle, congrats on the role as well. Maybe for the first one, Greg, I'm curious. You're calling out the Memory increase overall into Q4 and clearly looks like a step up for next year as well. How much of the improvement here is related to market share that you've talked about? Market share wins that you talked about earlier in the year relative to sort of general industry purchasing patterns being better. When you look at the overall portfolio, what are the end markets you would expect to sort of gain share in? Which are the areas you would highlight as share opportunities as you look to 2026? I have a quick follow up.

Chris before I jumped on late but.

Hi, Thanks for taking my question and congrats on the retirement.

The gross margin guide for Q relative to where you ended.

Given the volume leverage that you should I D.

Congrats on the road as well.

Maybe for the first one.

So can you just walk through the gross margin.

Great.

Closing out the memory increase.

The fourth quarter.

Sure. So obviously volumes are going up and Thats, a tailwind and.

Okay.

Q.

It looks like a step up.

At the midpoint of our guide is 57, 5%.

Next students then how much.

As we take market share.

The headwinds really driven by two factors first we.

Thank you.

Are you ready to go.

Investing in factory expansion in multiple geographies, that's a bit of a headwind, but I think the larger headwind is really tied to the significant acceleration tied to projects in end market demand.

Gentlemen.

Just back on <unk>.

And when you look at.

Sure.

Portfolio would it be in August.

And in which areas.

Sort of highlighted.

And to meet our customer delivery requirements.

<unk>.

26.

Gregory Smith: Thank you. Yeah. The way that we look at the memory market is primarily think of it as like a two by two grid. We think of DRAM and we think of flash memory and then the other axis is wafer sort and then final or performance test. If you look at within each segment our share is very high. You know, like flash final test and DRAM final test, HBM4 performance test. We have healthy share in the final test section of the grid. Our share overall in the wafer sort, excluding HBM4 performance tests, is significantly lower. When the market is dominated by purchases for final test, our share tends to go up. When the market is dominated by capacity adds for wafer sort, our share tends to go down. Looking into 2026, we're expecting that it's going to be an expansion year for memory in general.

Thank you.

Gone out and we've sourced some think of it as one time kind of supply.

Yes so.

The way that we the way that we look at the memory market is primarily.

One time, a little bit of elevated cost.

Think of it as like a two by two grid, we think of DRAM and we think of flash memory and then the other the other axis is wafer sort and then final of our performance test.

Tied to meeting customer requirements and so.

That's that's what what's occurring in Q4, so two headwinds offsetting the volume tailwind is really expansion.

The factory and some <unk>.

And if you look at like within each segment, our share is you'd like very high like Flash final test.

Supply chain.

Cost increase that's somewhat transitory or one time.

Great. Thank you thanks for taking the questions.

We'll move next to Brian Chin with Stifel. Your line is open.

And DRAM final test HBM performance test, we have healthy share in the final test section of the grid our share overall in the wafer sort excluding HBM performance test is significantly lower and so when the market is dominated by purchases.

Hi, there good morning, thanks for letting us ask a few questions and thanks, Sanjay and definitely wish you the best.

So the first question.

On the AI accelerator part of the business can you give us a sense of how significantly weighted that was the second half and maybe <unk>. This year and obviously a lot of networking strength this year in SFC.

For final test our share tends to go up and when the market is dominated by capacity adds for wafer sort our share tends to go down looking into 2026, we're expecting that it's going to be an expansion year for memory in general and so we think it's going to be a good year for us.

For the full year as AI accelerator revenue significantly above what you expected entering the year.

Gregory Smith: We think it's going to be a good year for us. We also think that there's going to be a significant expansion in the SAM for the wafer sort part of the market. I don't know if we're going to see significant share increase, but I'm pretty sure we're going to see revenue growth.

It's an interesting question because our view of the year changed pretty dramatically between January and March. So in January we were pretty optimistic about how 2025 would come out by March we were far more pessimistic because there were.

But we also think that there's going to be a significant expansion in the Sam for the wafer sort part of the market. So I don't know if we're going to see significant share increase but I'm pretty sure we're going to see revenue growth.

[Analyst]: Okay, great. A quick one for Sanjay here. Sanjay, I apologize if this has been addressed before. I jumped on a bit late, but the gross margin guide for Q4 relative to where you ended Q3, given the volume leverage that you should ideally have, seems a bit more subdued. Can you just walk through the gross margin driver for the fourth quarter?

A lot of uncertainty in the market.

Okay, Great and then a quick one for Sanjay.

By the time, but leaving the year like looking at it from the towards the end of 2025.

And a couple of days.

This is Chris.

Before I jumped on late.

The gross margin guide for Q relative to where you ended thank you.

I would say that.

Or like sort.

Given the volume leverage that you should think.

Maybe this is at a higher level than you asked the question but.

Good morning.

Can you just walk through the gross margin for the fourth quarter.

Definitely significantly higher revenue in compute both VIP compute and networking have worked out to be stronger than we expected coming into the year.

Sanjay Mehta: Obviously volumes are going up and that's a tailwind and we're at the midpoint. Our guide is 57.5%. The headwinds are really driven by two factors. First, we are investing in factory expansion in multiple geographies. That's a bit of a headwind, but I think the larger headwind is really tied to the significant acceleration tied to projects and end market demand. To meet our customer delivery requirements, we've gone out and we've sourced some, think of it as one-time kind of supply, that's had kind of one-time, a little bit of elevated cost tied to meeting customer requirements. That's what's occurring in Q4. Two headwinds offsetting the volume tailwind are really expansion of the factory and some supply chain cost increase. That's somewhat transitory or one-time.

Sure. So obviously volumes are going up and Thats, a tailwind and.

At the midpoint of our guide is 57, 5%.

And the headwinds really driven by two factors first we are investing in factory expansion in multiple geographies, that's a bit of a headwind, but I think the larger headwind is really tied to the significant acceleration tied to projects in end market demand and to meet our customer does.

I would say that mobile is weaker than we expected coming into the year and auto and industrial is a little bit weaker as well, but the up in the in the compute space as the the thing that really kind of.

<unk> brought us back up to that level.

Memory, I think has strengthened from our perspective at the beginning of the year, but not as significantly as the as the growth in the compute space.

Livery requirements, we've gone out and we've sourced some think of it as one time.

Supply.

Kind of one time, a little bit of elevated cost.

Okay, great. Thank you.

Tied to meeting customer requirements and so.

And then.

That's that's what what's occurring in Q4, so two headwinds offsetting the volume tailwind is really expansion of the factory and some supply chain kind of cost increase that's somewhat transitory or one time.

First maybe just kind of a clarification and a question and industrial robotics do you expect.

Q4 to show some positive seasonality Q on Q or could even approached flat on year over year basis. I know there are some headwinds for the year and probably into the back half of the year and then.

[Analyst]: Great, thank you. Thanks for taking questions.

Great. Thank you thanks for taking the questions.

Kind of maybe not that tied to just very curious on the tightened SLP.

Operator: We'll move next to Brian Chin with Stifel. Your line is open.

We'll move next to Brian Chin with Stifel. Your line is open.

This for any given the accelerated yet because it is a common to just win that insertion kind of towards the backend of that test SKU or is it.

Sanjay Mehta: Hi there.

[Analyst]: Good morning.

Sanjay Mehta: Thanks for letting us ask a few questions. Thanks Sanjay, and definitely wish you the best. For the first question on the AI accelerator part of the business, can you give us a sense of how significantly weighted that was the second half and maybe Q4 this year? Obviously a lot of networking strength this year in SOC for the full year. Is AI accelerator revenue significantly above what you expected entering the year?

Hi, there good morning, thanks for letting us ask a few questions and thanks, Sanjay and definitely wish you the best.

More common you think to win multiple subsequent insertions as well.

For the first question.

On the AI accelerator part of the business can you give us a sense of how significantly weighted that was the second half and maybe <unk>. This year and obviously a lot of networking strength this year in SSA.

So.

In terms of esselte once once you have been designed in for a particular AI accelerator then.

For the full year as AI accelerator revenue significantly above what you expected entering the year.

The Titan the tightened system for these AI accelerators was designed with sort of significant upgrade ability so going from part generation part generation as long as it fits within the general power envelope that we can provide and there is some headroom there than you are able to do change.

Gregory Smith: It's an interesting question because our view of the year changed pretty dramatically between January and March. In January we were pretty optimistic about how 2025 would come out. By March we were far more pessimistic because there was a lot of uncertainty in the market by that time. Leaving the year, looking at it towards the end of 2025, I would say that, you know, maybe this is at a higher level than you asked the question, but definitely significantly higher revenue in compute. Both VIP compute and networking have worked out to be stronger than we expected coming into the year. I would say that mobile is weaker than we expected coming into the year, and auto and industrial is a little bit weaker as well. The up in the compute space is the thing that really kind of brought us back up to that level.

It's an interesting question because.

Our view of the year changed pretty dramatically between January and March. So in January we were pretty optimistic about how 2025 would come out by March we were far more pessimistic because there was a lot of uncertainty in the market.

And upgrades. So there is an incumbency advantage and esselte kind of similar to the incumbency advantage that you have in <unk> not quite as strong but pretty strong.

But the but leaving the year like looking at it from the towards the end of 2025.

I would say that.

And then on the robotic front.

Or like sort of maybe this is at a higher level than you asked the question but.

Sure yes so.

There is some seasonality that we are expecting we do.

Definitely significantly higher revenue in compute both VIP compute and networking have worked out to be stronger than we expected coming into the year.

I expect an increase from Q4 to Q3.

<unk>.

What was he was a weaker.

Automation market.

As you know we're still working through the.

I would say that mobile is weaker than we expected coming into the year and auto and industrial is a little bit weaker as well, but the up in the in the compute space as the.

The strategic shift to large accounts Oems, but we do expect.

Seasonal uplift.

One comment on robotics is that.

Thing that really kind of.

<unk>.

We've seen through this year that.

<unk> brought us back up to that level.

Gregory Smith: Memory I think is strengthened from our perspective at the beginning of the year, but not as significantly as the growth.

Memory, I think has strengthened from our perspective at the beginning of the year, but not as significantly as the as the growth in the compute space.

Our ability to predict our revenue is somewhat limited.

A very high turns business.

[Analyst]: In the compute space, thank you.

We see demand shifting and.

And demand responding to sort of current events, depending on where you are.

Okay, great. Thank you.

Sanjay Mehta: Maybe just kind of a clarification and a question. In industrial robotics, do you expect Q4 to show some positive seasonality, Q1, or could even approach flat on a year over year basis? I know there's definitely some headwinds for the year and probably into the back half of the year. Very curious on the Titan SLP, just for any given accelerator chip, is it common to just win in that insertion kind of towards the back end of that test queue, or is it more common, do you think, to win multiple subsequent insertions as well?

And then.

So we're trying to be as cautious as we can in terms of predicting growth. We do expect that Q4 would be stronger but were.

Maybe just kind of a clarification and a question and industrial robotics do you expect.

Q4 to ship some positive seasonality Q on Q or because even approached flat on year over year basis, I know theres. Some theres some headwinds for the year and probably into the back half of the year and then kind of maybe not that tied to just very curious on the tightened SLP.

We're not predicting a gigantic hockey stick or anything like that.

Great. Thanks, Sanjay Thanks, Greg.

We'll move next to <unk> <unk> with Evercore. Your line is open.

Just for any given accelerated yet because it is a common to just win that insertion kind of towards the back end of that <unk> or is it more.

Hi, Thanks for taking my.

Question, the first one having a foreigner uptick HBM.

Questions you had.

More common you think to win multiple subsequent insertions as well.

So on HBM, you've talked about a new cash in the contingents.

Gregory Smith: Oh, in terms of SLT, once you have been designed in for a particular AI accelerator, the Titan system for these AI accelerators was designed with significant upgradeability. Going from part generation to part generation, as long as it fits within the general power envelope that we can provide and there's some headroom there, you're able to do change kits and upgrades. There is an incumbency advantage in SLT. It's similar to the incumbency advantage that you have in ATE, not quite as strong, but pretty strong.

So.

And Youre shipping volume and <unk>.

In terms of esselte once once you have been designed in for.

I wanted to understand it back now.

Has that increased the dam.

<unk> nine expected data readouts.

A particular AI accelerator then.

Okay.

The Titan the tightened system for these AI accelerators was designed with sort of significant upgrade ability so going from part generation to part generation as long as it fits within the general power envelope that we can provide and there is some headroom there than you are able to do change kits.

Okay.

Yes, so right now.

Only one major manufacturer is routinely doing this simulated stack testing.

And I I wouldn't say that it is even pervasive across all memory types that.

And upgrades.

We're not sure.

There is an incumbency advantage and esselte kind of similar to the incumbency advantage that you have in <unk> not quite as strong but pretty strong.

If there is a significant improvement in downstream.

Yield.

The device that the HBM gets put into if yield of that device goes up and HBM related faults go down as causes of problems downstream then that will proliferate across multiple manufacturers, but right now it's really only one of the three major.

Sanjay Mehta: On the robotics front, yes, there is some seasonality that we are expecting. We do expect an increase from Q4 to Q3 in what we view as a weaker kind of automation market. As you know, we're still working through the strategic shift to large accounts and OEMs, but we do expect a seasonal uplift.

And then on the robotic front.

Sure Yeah. So.

There is some seasonality that we are expecting we do.

But an increase from Q4 to Q3.

Sure.

What was he was a weaker automation.

Automation market.

As you know, we're still working through the strategic.

HBM manufacturers is.

The shift to large accounts and Oems, but we do expect a seasonal uplift.

Doing that for a high volume of devices.

Okay, and then my follow up why.

Gregory Smith: Comment on Robotics is that we've seen through this year that our ability to predict our revenue is somewhat limited. It's a very high turns business. We see demand shifting and demand responding to current events depending on where you are. We're trying to be as cautious as we can in terms of predicting growth. We do expect that Q4 would be stronger, but we're not predicting a gigantic hockey stick or anything like that.

One comment on robotics is that.

Have you.

Can you provide any color.

We've seen through this year that our ability to predict our revenue.

And how much compute Inc.

FERC in second half for <unk> and then even if you think about 2020.

Is somewhat limited we are it's a very high turns business.

We see demand shifting.

During January eight idea right the components combined leasing would be.

And demand responding to sort of current events, depending on where you are.

Our mobile <unk> competed in current auto industrial market do you have any update to that.

So we're trying to be as cautious as we can in terms of predicting growth. We do expect that Q4 would be stronger but were.

Computers.

David.

So to undertake the compute second half pleasure well I won't break out the specific numbers. It is a significant component just as we've talked about in.

We're not predicting a gigantic hockey stick or anything like that.

Sanjay Mehta: Great. Thanks, Sanjay.

[Analyst]: Thanks, Greg.

Great. Thanks, Sanjay Thanks, Greg.

Operator: We'll move next to Vedvati Shrotri with Evercore. Your line is open.

We'll move next to <unk> <unk> with Evercore. Your line is open.

And the second in mobile mobile was more first half dominated by the supply chain shifts and think of the second half of our business. It was very strongly driven by continued really tied to vips and networking.

[Analyst]: Hi. Thanks for taking my question. The first one I have is a follow up to the HBM questions you had. On HBM, you talked about a new test insertion, like a singulated die test, and you're shipping volumes in Q3. I wanted to understand if that is the norm now, has that increased the demand and are all suppliers expected to do this?

Yeah.

Hi, Thanks for taking my question the first one I havent gone around <unk>.

P M.

Questions you had.

So a very significant component.

HBM, you've talked about a new person they continually thank guy and you're shipping volume and <unk>.

I did I did a quick math.

So this is trying to understand.

AI driven so it includes all of the memory driven stuff and the Soc compute stuff.

To understand if that is the norm now has that increased the dam.

<unk> nine expected data readouts.

Just like from Q3 to Q4 like 50% of our total revenue in Q3 was coming from AI driven stuff in those segments. It is up to like 60% in Q4. So this is it's a very different composition of business in 2025.

Okay.

Okay.

Gregory Smith: Right now only one major manufacturer is routinely doing this singulated stack testing. I wouldn't say that it is even pervasive across all memory types. We're not sure if there is a significant improvement in downstream yield, you know, the device that the HBM gets put into. If yield of that device goes up and HBM related faults go down as causes of problems downstream, then that will proliferate across multiple manufacturers. Right now it's really only one of the three major HBM manufacturers is doing that for a high volume of devices.

Yes, so right now.

Only one major manufacturer is routinely doing this simulated stack testing.

And I I wouldn't say that it is even pervasive across all memory types that.

And especially the second half of 2025 from where we were before.

We're not sure.

If there is a significant improvement in downstream.

We will update you in January in terms of what our long term model is but it's safe to assume that that model is going to have a much heavier weight on the compute and the compute part of the market and the AI driven parts of the memory market.

Yield.

The device that the HBM gets put into if yield of that device goes up and HBM related faults go down as causes of problems downstream then that will proliferate across multiple manufacturers, but right now it's really only one of the three major.

Thank you.

Well move next to David Duley with Steelhead Securities. Your line is open.

HBM manufacturers is.

Doing that for a high volume of devices.

Thank you and thank you for squeezing my question I guess first I had a clarification.

[Analyst]: Understood. Okay. My follow up was on SOC. Can you provide any color on how much compute is as a part of SOC in the second half of 2025? Even as we think about 2028, during the analyst day, the idea was the composition would be a third mobility, a third compute, and a third auto industrial market. Do you have an update to that now that compute is a strong driver?

Okay, and then my follow up line.

You talked about strength in AI in Q4, coming from networking and hyper scaler and HBM.

Accuracy.

Can.

Can you provide any color.

How much compute Inc.

Assuming that you have not won any business on Standalone Gpus, yet and that is not included in the guidance statement.

By the FERC in second half drilling side, and then even if you think about 2002.

Thank you.

Yes, that's correct.

During January eight idea right the complaint.

We're making good progress, but we have not included that in our guide and there wasn't revenue for that in Q3.

<unk> would be.

Greg.

<unk>, our computer and auto and industrial market.

Do you have any update to that computer.

Okay and then as my follow on do you think you could update us on the size of the Soc Tam and then perhaps some of the major pieces like the high performance computing piece.

Computers.

Great.

Gregory Smith: Do you want to take the compute second half?

So to undertake the compute second half pleasure well I won't break out the specific numbers. It is a significant component just as we've talked about.

Sanjay Mehta: Sure. I won't break out the specific numbers. It is a significant component, just as we talked about. In mobile, mobile was more first half dominated, tied to supply chain shift. Think of the second half of our business as very strongly driven by compute, really tied to VIP and networking. A very significant component.

And then just one.

One last question is as far as your.

And the second.

Mobile mobile was more first half dominated by the supply chain ship.

HBM four ramp going into Q4, excuse me HBM ramp going into Q4 is that mainly driven by <unk>.

Think of the second half of our business is very strongly driven by compute really tied to vips.

HBM for ramping up or is it driven by new test insertions or is it driven by something else. Thank you.

And networking.

So a very significant component.

Gregory Smith: I did quick math, you know, and like, this is trying to understand AI driven, you know, so it includes all of the memory driven stuff and the SOC compute stuff. Just like from Q3 to Q4, 50% of our total revenue in Q3 was coming from AI driven stuff in those segments. It's up to 60% in Q4. You know, this is, it's a very different composition of business. In 2025 and especially the second half of 2025 from where we were before. We'll update you in January in terms of what our long term model is. It's safe to assume that that model is going to have a much heavier weight on the compute and the compute part of the market and the AI driven parts of the memory market.

I did I did a quick math.

So this is trying to understand.

So let me take the second one.

AI driven so it includes all of the memory driven stuff and SFC compute stuff.

First so the HBM ramp that we're seeing in Q4.

Is.

Probably half and half between new test insertion and additional capacity for.

Just like from Q3 to Q4 like 50% of our total revenue in Q3 was coming from AI driven stuff in those segments, it's up to like 60% in Q4. So this is it's a very different composition of business in 2020.

And it's really like new test insertion of simulated simulated stack test.

Additional capacity is for.

Stack die wafer level test.

So both both of those are increasing but it's all around capacity adds for HBM for.

Five and especially the second half of 2025 from where we were before.

It's all driven by HBM for now.

We'll update you in January in terms of what our long term model is but it's safe to assume that that model is going to have a much heavier weight on the compute and the compute part of the market and the AI driven parts of the memory market.

We are not providing an update to the Soc Tam mainly because the Soc Tam is all over the place and for both for both Teradyne and our competition. There is a lot of dine.

Dynamic action between Q4, and Q1, that's going to have a significant impact on the ultimate size of the market and especially the size of the high performance compute market. So.

[Analyst]: Understand? Thank you.

I understand thank you.

Operator: We'll move next to David Dooley with Steelhead Securities. Your line is open.

Well move next to David Duley with Steelhead Securities. Your line is open.

Gregory Smith: Thank you. Thank you for squeezing my question in. I guess first I had a clarification. You talked about strength in AI in Q4 coming from networking and hyperscalers and HBM. I'm assuming that you have not won any business on standalone GPUs yet.

Sure.

Thank you and thank you for squeezing my question I guess first I had a clarification.

We're going to stick with our overall guide.

And we're going to watch how that turns out.

You talked about strength in AI in Q4, coming from networking and hyper scaler and HBM.

Thank you.

This concludes the Q&A portion of today's conference I would now like to turn the call back over to Greg Smith for closing remarks.

Im assuming that you have not won any business on Standalone Gpus, yet and that is not included in any of the guidance statement.

[Analyst]: That is not included in any of the guidance statements.

Thank you operator, I'd like to offer a quick final thought I mentioned in closing the July call that AI was having a profound and positive impact on teradyne's business.

Gregory Smith: Yes, that's correct. We're making good progress, but we have not included that in our guide and there wasn't revenue for that in Q3. Okay. As my follow on, do you think you could update us on the size of the SOC TAM and then perhaps some of the major pieces like the high performance computing piece? Just one last question, as far as your HBM4 ramp going into Q4, excuse me, HBM ramp going into Q4, is that mainly driven by HBM4 ramping up or is it driven by new test insertions or is it driven by something else? Thank you. Let me take the second one first. The HBM ramp that we're seeing in Q4 is probably half and half between new test insertion and additional capacity. New test insertion is singulated stack test, additional capacity is for stack die wafer level test. Both of those are increasing.

Yes, that's correct.

We're making good progress but.

We have not included that in our guide and there wasn't revenue for that in Q3.

I'm encouraged by how quickly we are seeing returns.

Okay and then as my follow on do you think you could update us on the size of the Soc Tam and then perhaps some of the major pieces like the high performance computing piece.

On our investments to pivot to AI AI is the dominant driver of our business for the foreseeable future and we will continue to align ourselves to the outsized opportunities that it offers.

We've made great strides so far in 2025, and while our progress is not expected to be entirely linear we're more excited than ever about our prospects for continued profitable growth in the years ahead. Thanks for joining us today and I look forward to updating you on our progress in January Thank you.

And then just one last question is as far as your.

<unk> four ramp going into Q4, excuse me HBM ramp going into Q4 is that mainly driven by <unk>.

HBM for ramping up or is it driven by new test insertions or is it driven by something else. Thank you.

This concludes today's teradyne third quarter 2025 earnings call and webcast you may disconnect your lines at this time.

So let me take the second one.

First so the HBM ramp that we're seeing in Q4.

Is.

Probably half and half between new test insertion and additional capacity.

Sure.

And it's really like new test insertion is simulated dah simulated stack test.

Additional capacity is for.

Stack die wafer level test.

So both both of those are increasing but it's all around capacity adds for HBM for.

Gregory Smith: It's all around capacity adds for HBM4. It's all driven by HBM4. We are not providing an update to the SOC TAM mainly because the SOC TAM is all over the place. For both Teradyne and our competition, there is a lot of dynamic action between Q4 and Q1 that's going to have a significant impact on the ultimate size of the market and especially the size of the high performance compute market. We're going to stick with our overall guide and we're going to watch how that turns out. Thank you.

It's all driven by HBM for now.

Are not providing an update to the Soc Tam mainly because the Soc Tam is all over the place and for both for both Teradyne and our competition. There is a lot of dine.

Dynamic action between Q4, and Q1, that's going to have significant impact on the ultimate size of the market and especially the size of the high performance compute market. So.

Sure.

We're going to stick with our overall guide.

And we're going to watch how that turns out.

Thank you.

Operator: This concludes the Q&A portion of today's conference. I would now like to turn the call back over to Greg Smith for closing remarks.

This concludes the Q&A portion of today's conference I would now like to turn the call back over to Greg Smith for closing remarks.

Gregory Smith: Thank you, operator. I'd like to offer a quick final thought. I mentioned in closing the July call that AI was having a profound and positive impact on Teradyne's business. I'm encouraged by how quickly we're seeing returns on our investments to pivot to AI. AI is the dominant driver of our business for the foreseeable future, and we'll continue to align ourselves to the outsized opportunities that it offers. We've made great strides so far in 2025, and while our progress is not expected to be entirely linear, we're more excited than ever about our prospects for continued profitable growth in the years ahead. Thanks for joining us today, and I look forward to updating you on our progress in January. Thank you.

Thank you operator, I'd like to offer a quick final thoughts.

I mentioned in closing the July call that AI was having a profound and positive impact on teradyne's business.

I'm encouraged by how quickly we are seeing returns on our investments to pivot to AI.

AI is the dominant driver of our business for the foreseeable future and we will continue to align ourselves to the outsized opportunities that it offers we've made great strides so far in 2025 and while our progress is not expected to be entirely linear we're more excited than ever about our prospects for continued profitable growth in the years ahead. Thanks for.

Joining us today and I look forward to updating you on our progress in January thank you.

Operator: This concludes today's Teradyne third quarter 2025 earnings call and webcast. You may disconnect your line at this time. Have a wonderful day.

This concludes today's teradyne third quarter 2025 earnings call and webcast. You may disconnect. Your lines at this time have a wonderful day.

Mhm.

Okay.

Mhm.

Sure.

Hum.

Gregory Smith: SA.

Hum.

Uh huh.

Mhm.