Q2 2026 Teradyne Inc Earnings Call

July 29, 2026

Speaker #2: Ladies and gentlemen, good morning and welcome to the TERADYNE second quarter 2026 earnings conference call. At this time, all participants are in a listen-only mode.

Operator 2: Ladies and gentlemen, good morning and welcome to the Teradyne Second Quarter 2026 Earnings Conference Call. At this time, all participants are in a listen-only mode. 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. As a reminder, today's call is being recorded. I would now like to turn the call over to Amy McAndrews, VP of Corporate Affairs for Teradyne. Please go ahead.

Operator: Ladies and gentlemen, good morning and welcome to the Teradyne Second Quarter 2026 Earnings Conference Call. At this time, all participants are in a listen-only mode. 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. As a reminder, today's call is being recorded. I would now like to turn the call over to Amy McAndrews, VP of Corporate Affairs for Teradyne. Please go ahead.

Speaker #2: A question and answer session will follow the prepared remarks. At that time, if you wish to ask a question, please press star 1 on your telephone keypad.

Speaker #2: 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.

Speaker #2: Please go ahead.

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, Michelle Turner.

Amy McAndrews: 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, Michelle Turner. Following our opening remarks, we will provide details of our performance for Q2 2026 and our outlook for Q3. The press release containing our Q2 results was issued last evening. We are providing slides as well as a copy of these prepared remarks on the Teradyne investor website that may be helpful in following the discussion. 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.

Speaker #3: Following our opening remarks, we'll provide details of our performance for the second quarter of 2026 and our outlook for the third quarter. The press release containing our second quarter results was issued last evening.

Speaker #3: We are providing slides as well as a copy of these prepared remarks on the TERADYNE investor website that may be helpful in following the discussion.

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.

Amy McAndrews: 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.

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 31, 2025, on file with the SEC.

Amy McAndrews: 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 31 December 2025, on file with the SEC. Additionally, these forward-looking statements are made only as of today. 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, where available, on our investor website. Looking ahead between now and our next earnings call, Teradyne expects to participate in technology-focused investor conferences hosted by Goldman Sachs and Citi. Our quiet period will begin at the close of business on 11 September 2026. Following Greg and Michelle's comments this morning, we will open up the call for questions. This call is scheduled for 1 hour. Greg?

Speaker #3: Additionally, these forward-looking statements are made only as of today. 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, where available, on our investor website.

Amy McAndrews: We have posted additional information concerning these non-GAAP financial measures, including reconciliation to the most directly comparable GAAP financial measures, where available, on our investor website. Looking ahead between now and our next earnings call, Teradyne expects to participate in technology-focused investor conferences hosted by Goldman Sachs and Citi. Our quiet period will begin at the close of business on 11 September 2026. Following Greg and Michelle's comments this morning, we will open up the call for questions. This call is scheduled for 1 hour. Greg?

Speaker #3: Looking ahead, between now and our next earnings call, TERADYNE expects to participate in technology-focused investor conferences hosted by Goldman Sachs and Citi. Our quiet period will begin at the close of business on September 11, 2026.

Speaker #3: Following Greg and Michelle's comments this morning, we'll open up the call for questions. This call is scheduled for one hour. Greg?

Speaker #4: Good morning. For the second quarter in a row, we delivered record revenue, and once again, AI was the driver. Total company revenue topped $1.3 billion, up over 100% year over year, with non-GAAP EPS of $2.47, up over 300% year over year.

Greg Smith: Good morning. For the Q2 in a row, we delivered record revenue. Once again, AI was the driver. Total company revenue topped $1.3 billion, up over 100% year over year, with non-GAAP EPS of $2.47, up over 300% year over year. All three of our business groups, SemiTest, Product Test, and Robotics, grew year over year and quarter over quarter, highlighting the AI demand across all parts of the business. At more than 60%, AI-driven revenue is the key proof point that our wafer-to-AI data center strategy is delivering results. There are many superlatives that we could use to describe this quarter's results. Michelle is going to walk you through the details. I'd like to use my time today to set context for what we believe is a multi-year growth phase for our entire business, driven by the continued AI build-out.

Speaker #4: All three of our business groups—Semi Test, Product Test, and Robotics—grew year over year and quarter over quarter, highlighting the AI demand across all parts of the business.

Speaker #4: At more than 60%, AI-driven revenue is the key proof point that our wafer-to-AI data center strategy is delivering results. There are many superlatives that we could use to describe this quarter's results, and Michelle is going to walk you through the details.

Greg Smith: At more than 60%, AI-driven revenue is the key proof point that our wafer-to-AI data center strategy is delivering results. There are many superlatives that we could use to describe this quarter's results. Michelle is going to walk you through the details. I'd like to use my time today to set context for what we believe is a multi-year growth phase for our entire business, driven by the continued AI build-out.

Speaker #4: I'd like to use my time today to set context for what we believe is a multi-year growth phase for our entire business, driven by the continued AI build-out.

Speaker #4: Certainly, this is clearest in compute. Across CPUs accelerators, networking, and in memory for HBM However, data centers are now also the primary growth drivers for flash memory, hard disk drives, power, board test, high-speed interconnect, and robotics.

Greg Smith: Certainly, this is clearest in compute. Across CPUs, accelerators, networking, and in memory for HBM and DDR. However, data centers are now also the primary growth drivers for flash memory, hard disk drives, power, board test, high-speed interconnect, and robotics. The long timeline of data center investment plans has given our SoC and memory customers the confidence to aggressively invest in wafer fabrication equipment for new process technologies and additional wafer capacity. For years, semiconductor capital investment grew slowly. ATE grew even more slowly within it. That's changing. Two factors are now tailwinds for the ATE TAM. The first is overall semi cap investment, particularly wafer fab equipment, WFE, which has begun accelerating. More WFE means more wafers. New equipment generations enable denser process nodes. More wafers and higher density together mean more transistors to test in SoC and more bits to test in memory.

Speaker #4: The long timeline of data center investment plans has given our SOC and memory customers the confidence to aggressively invest in wafer fabrication equipment for new process technologies and additional wafer capacity.

Speaker #4: For years, semiconductor capital investment grew slowly. And ATE grew even more slowly within it. That's changing. Two factors are now tailwinds for the ATE TAM.

Greg Smith: For years, semiconductor capital investment grew slowly. ATE grew even more slowly within it. That's changing. Two factors are now tailwinds for the ATE TAM. The first is overall semi cap investment, particularly wafer fab equipment, WFE, which has begun accelerating. More WFE means more wafers. New equipment generations enable denser process nodes. More wafers and higher density together mean more transistors to test in SoC and more bits to test in memory.

Speaker #4: The first is overall semi-cap investment, particularly wafer fab equipment (WFE), which has begun accelerating. More WFE means more wafers, and new equipment generations enable denser process nodes.

Speaker #4: More wafers and higher density together mean more transistors to test in SOC and more bits to test in memory. WFE CAPEX is now forecasted to approach $250 billion by the end of the decade, driving 5 to 10 percent annual growth and $300 millimeter wafer production and 15 to 20 percent CAGR in total transistor production over the midterm.

Greg Smith: WFE CapEx is now forecasted to approach $250 billion by the end of the decade, driving 5% to 10% annual growth in 300-millimeter wafer production. 15% to 20% CAGR in total transistor production over the midterm. Total non-memory transistor production is a reasonable first-order predictor of the SoC TAM. Every transistor must be tested. A given process node yields roughly the same transistor count per wafer regardless of device type. Memory bit production is the analogous predictor for the memory TAM, also forecast to grow at a 15% to 20% CAGR over the midterm. Neither of these predicts the ATE TAM precisely in any given year. Both signal direction. Transistor and bit growth rates have inflected upward and are expected to hold a steeper slope through the end of the decade. The second factor is advanced packaging.

Speaker #4: Total non-memory transistor production is a reasonable first-order predictor of the SoC TAM. Every transistor must be tested, and a given process node yields roughly the same transistor count per wafer regardless of device type.

Speaker #4: Memory bit production is the analogous predictor for the memory TAM. Also forecast to grow at a 15 to 20 percent CAGR over the midterm.

Greg Smith: Memory bit production is the analogous predictor for the memory TAM, also forecast to grow at a 15% to 20% CAGR over the midterm. Neither of these predicts the ATE TAM precisely in any given year. Both signal direction. Transistor and bit growth rates have inflected upward and are expected to hold a steeper slope through the end of the decade. The second factor is advanced packaging.

Speaker #4: Neither of these predicts the ATE TAM precisely in any given year, but both signal direction. Transistor and bit growth rates have inflected upward and are expected to hold a steeper slope through the end of the decade.

Speaker #4: The second factor is advanced packaging. Wafer transistor counts don't vary with die size. But the required test volume scales with acceptable quality level for the devices being tested.

Greg Smith: Wafer transistor counts don't vary with die size. The required test volume scales with acceptable quality level for the devices being tested. As accelerators, CPUs, and networking devices pack in more chiplets, memories, and eventually CPO, a single latent defect has a greater impact on final device yield, raising test intensity per die in multi-chip packages. Both package volume and dies per package are forecast to keep rising through the end of the decade, providing a sustained tailwind to the compute TAM. The result, after more than a decade of semi-cap equipment outgrowing the test TAM, the trend reversed in 2024. Test is now outpacing fab equipment. With WFE long-term forecasts becoming clearer, we're increasingly confident in long-term ATE growth. As WFE CapEx approaches $250 billion by the end of the decade, we see a path for overall ATE TAM to reach or exceed $20 billion.

Speaker #4: As accelerators, CPUs, and networking devices pack in more chiplets, memories, and eventually CPO, a single latent defect has a greater impact on final device yield, raising test intensity per die in multi-chip packages.

Speaker #4: Both package volume and dies per package are forecast to keep rising through the end of the decade, providing a sustained tailwind to the compute TAM.

Speaker #4: The result, after more than a decade of semi-CAP equipment outgrowing the test TAM, the trend reversed in 2024 and test is now outpacing fab equipment.

Greg Smith: The result, after more than a decade of semi-cap equipment outgrowing the test TAM, the trend reversed in 2024. Test is now outpacing fab equipment. With WFE long-term forecasts becoming clearer, we're increasingly confident in long-term ATE growth. As WFE CapEx approaches $250 billion by the end of the decade, we see a path for overall ATE TAM to reach or exceed $20 billion.

Speaker #4: With WFE long-term forecasts becoming clearer, we're increasingly confident in long-term ATE growth. As WFE CAPEX approaches $250 billion by the end of the decade, we see a path for overall ATE TAM to reach or exceed $20 billion.

Speaker #4: In addition to being in a growing market, we are confident that we will be able to gain share over the midterm. With the ramp of merchant GPU, and the initial dual-platform qualification in our second major hyperscaler, we are positioned to gain share in the core compute segment.

Greg Smith: In addition to being in a growing market, we are confident that we will be able to gain share over the midterm. With the ramp of merchant GPU and the initial dual-platform qualification in our second major hyperscaler, we are positioned to gain share in the core compute segment. Our leadership position in HBM and DRAM maximizes our exposure to DRAM-driven growth, and segments where we have historically had high share, like flash memory, mobile, industrial, and automotive, are positioned for growth driven by cloud, edge, and physical AI, whether it's in cars, robots, phones, or wearables. Before I hand off to Michelle, I'd like to share a few demand highlights and their impact to share gains. First, in memory, demand has increased from strength in HBM and DRAM and a resurgence in the NAND final test.

Speaker #4: Our leadership position in HBM and DRAM maximizes our exposure to DRAM-driven growth. And segments where we have historically had high share, like flash memory, mobile, industrial, and automotive, are positioned for growth driven by cloud, edge, and physical AI.

Greg Smith: DRAM-driven growth, and segments where we have historically had high share, like flash memory, mobile, industrial, and automotive, are positioned for growth driven by cloud, edge, and physical AI, whether it's in cars, robots, phones, or wearables. Before I hand off to Michelle, I'd like to share a few demand highlights and their impact to share gains. First, in memory, demand has increased from strength in HBM and DRAM and a resurgence in the NAND final test.

Speaker #4: Whether it's in cars, robots, phones, or wearables. Before I hand off to Michelle, I'd like to share a few demand highlights and their impact to share gains.

Speaker #4: First, in memory. Demand has increased from strength in HBM and DRAM and a resurgence in the NAND final tests. The 2026 memory TAM is likely to be more than 40 percent larger than 2025, with notable growth from the first half of 2026 to the second half.

Greg Smith: The 2026 memory TAM is likely to be more than 40% larger than 2025, with notable growth from H1 2026 to H2. A highlight in memory is the growth in HBM-based die test. Our Magnum testers have logic test capabilities that provide attractive swing tool advantages for memory makers. Now on to compute. In Q1, we received our first order for a merchant GPU customer, which was delivered in Q2. Also in Q3, we completed correlation at a second hyperscaler, increasing our confidence in 2027 market share growth. As we discussed last quarter, our expectation is that our compute business will be concentrated in H1. We have multiple programs across networking and hyperscalers that built out capacity in H1 that is now being utilized.

Speaker #4: A highlight in memory is the growth in HBM-based die tests. Our Magnum testers have logic test capabilities that provide attractive swing-tool advantages for memory makers.

Speaker #4: Now onto compute. In the first quarter, we received our first order from for a merchant GPU customer. Which was delivered in the second quarter.

Speaker #4: Also in Q3, we completed correlation at a second hyperscaler increasing our confidence in 2027 market share growth. As we discussed last quarter, our expectation is that our compute business would be concentrated in the first half.

Greg Smith: Also in Q3, we completed correlation at a second hyperscaler, increasing our confidence in 2027 market share growth. As we discussed last quarter, our expectation is that our compute business will be concentrated in H1. We have multiple programs across networking and hyperscalers that built out capacity in H1 that is now being utilized.

Speaker #4: We have multiple programs across networking and hyperscalers that built out capacity in the first half that is now being utilized. The next surge for these customers is expected to be in the first half of 2027.

Greg Smith: The next surge for these customers is expected to be in H1 2027. Since dual vendor strategies are emerging at the largest compute customers, I'd like to give you a bit more color about how we think this will play out. These customers recognize the importance of de-risking their supply chain. We see this as an important share driver over the next few years. The dual vendor qualification process generally runs through 4 phases. The first, an opportunity to compete. The second, developing a working solution. The third, correlation, and then finally, a production ramp. If successful, it takes 9 to 12 months from the start to the ramp. After the initial dual-sourced part ramps, we enter a fast follower phase where additional parts are converted and ramped. Ultimately, the account reaches a mature dual vendor stage where either platform is used for initial part release.

Speaker #4: Since dual vendor strategies are emerging at the largest compute customers, I'd like to give you a bit more color about how we think this will play out.

Speaker #4: These customers recognize the importance of de-risking their supply chain. We see this as an important share driver over the next few years. The dual vendor qualification process generally runs through four phases.

Speaker #4: The first, an opportunity to compete. Second, developing a working solution. Third, correlation. And then finally, a production ramp. If successful, it takes 9 to 12 months from the start to the ramp.

Greg Smith: The first, an opportunity to compete. The second, developing a working solution. The third, correlation, and then finally, a production ramp. If successful, it takes 9 to 12 months from the start to the ramp. After the initial dual-sourced part ramps, we enter a fast follower phase where additional parts are converted and ramped. Ultimately, the account reaches a mature dual vendor stage where either platform is used for initial part release.

Speaker #4: After the initial dual-sourced part ramps, we enter a fast follower phase where additional parts are converted in ramped. Ultimately, the account reaches a mature dual vendor stage where either platform is used for initial part release.

Speaker #4: It can take a few years to get from fast follower to mature dual vendor. During the fast follower phase, we expect market share to grow incrementally from zero up to about 30 percent.

Greg Smith: It can take a few years to get from fast follower to mature dual vendor. During the fast follower phase, we expect market share to grow incrementally from 0% up to about 30%. Right now, we have one compute customer in the mature dual vendor phase, one in fast follower, and one in qualification prior to ramp. I'd also like to add a little color around networking. Frontier models require ever larger accelerator clusters. This is driving extreme growth in networking for scale-out, scale-across, and scale-up applications. While the total number of network connections is growing fast, the timing of transitions from cable to backplane and from pluggable to XPO and CPO is in constant flux. Our belief is that there is robust growth in all of these technologies.

Speaker #4: Right now, we have one compute customer in the mature dual vendor phase, one in fast follower, and one in qualification prior to ramp. I'd also like to add a little color around networking.

Speaker #4: Frontier models require ever-larger accelerator clusters. This is driving extreme growth in networking for scale-out, scale-across, and scale-up applications. While the total number of network connections is growing fast, the timing of transitions from cable to backplane and from pluggable to XPO and CPO is in constant flux.

Greg Smith: Frontier models require ever larger accelerator clusters. This is driving extreme growth in networking for scale-out, scale-across, and scale-up applications. While the total number of network connections is growing fast, the timing of transitions from cable to backplane and from pluggable to XPO and CPO is in constant flux. Our belief is that there is robust growth in all of these technologies.

Speaker #4: Our belief is that there is robust growth in all of these technologies. This drove our acquisition of Quantify Photonics, the development of the Photon 100 solution for optical connections, and our multi-lane test products joint venture for copper connections.

Greg Smith: This drove our acquisition of Quantifi Photonics, the development of the Photon 100 solution for optical connections, and our MultiLane Test Products JV for copper connections. We are working with multiple ecosystem partners to develop leading-edge solutions from silicon photonics wafers to full data center racks. We expect CPO alone will be a $300 to $700 million market by 2028. Our IST business grew revenue two and a half times quarter-over-quarter on strength in HDD fueled by AI. We expect continued growth of our IST business in H2. Given the strong forecast for greater than 20% annual exabyte growth and our design wins, we are confident this business will grow over the midterm as well. The data center build-out will drive growth for our Product Test and Robotics groups through the end of the decade as well. The logic chain is straightforward.

Speaker #4: We are working with multiple ecosystem partners to develop leading-edge solutions from silicon photonics wafers to full data center racks. We expect CPO alone will be a $300 to $700 million market by 2028.

Speaker #4: Our IST business grew revenue two and a half times quarter over quarter on strength in HDD fueled by AI. We expect continued growth of our IST business in the second half.

Greg Smith: We expect continued growth of our IST business in H2. Given the strong forecast for greater than 20% annual exabyte growth and our design wins, we are confident this business will grow over the midterm as well. The data center build-out will drive growth for our Product Test and Robotics groups through the end of the decade as well. The logic chain is straightforward.

Speaker #4: Given the strong forecast for greater than 20 percent annual exabyte growth and our design wins, we are confident this business will grow over the midterm as well.

Speaker #4: The data center build-out will drive growth for our product test and robotics groups through the end of the decade as well. The logic chain is straightforward.

Speaker #4: More data center construction drives more rack shipments per year, which is driving growth at contract manufacturers and original design manufacturers. This, combined with the rapid advancement of data center architectures, creates a significant opportunity for Teradyne to provide solutions well-matched to the volume, quality, and flexibility data center applications require.

Greg Smith: More data center construction drives more rack shipments per year, which is driving growth at contract manufacturers and Original Design Manufacturers. This, combined with the rapid advancement of data center architectures, creates a significant opportunity for Teradyne to provide solutions well-matched to the volume, quality, and flexibility data center applications required. This is best reflected in the total available market for automation and test among contract manufacturers and ODMs. We believe that there is currently a multi-billion dollar market for assembly automation test and burn-in equipment, and we expect mid-double digit growth rates through the end of the decade. By addressing these applications with enhanced production board test, optical test, back plane test, and robotic assisted test and assembly, Teradyne is uniquely positioned to follow the value chain from wafer to data center. Our wafer-to-data center strategy is working.

Speaker #4: This is market for automation and tests among contract manufacturers and ODMs. We believe that there is currently a multi-billion dollar market for assembly automation, test, and burn-in equipment, and we expect double-digit mid-double-digit growth rates through the end of the decade.

Greg Smith: We believe that there is currently a multi-billion dollar market for assembly automation test and burn-in equipment, and we expect mid-double digit growth rates through the end of the decade. By addressing these applications with enhanced production board test, optical test, back plane test, and robotic assisted test and assembly, Teradyne is uniquely positioned to follow the value chain from wafer to data center. Our wafer-to-data center strategy is working.

Speaker #4: By addressing these applications with enhanced production board test, optical test, backplane test, and robotic-assisted test and assembly, Teradyne is uniquely positioned to follow the value chain from wafer to data center.

Speaker #4: Our wafer to data center strategy is working. Our optimism around 2026 and 2027 and through the midterm has grown. We are leaning further into investments to capture opportunities across the value chain both organically and inorganically.

Greg Smith: Our optimism around 2026 and 2027 and through the midterm has grown. We are leaning further into investments to capture opportunities across the value chain, both organically and inorganically, and we are investing in next generation products across our entire portfolio. As we win business, we build out customer teams for major hyperscalers and semiconductor suppliers. The fact that we are leaning into these investments now is a sign of our confidence in the sustainability of this market growth. We expect 2027 to be another year of healthy growth for Teradyne, consistent with the transistor and bit growth dynamics I described earlier. It's clear to us that increases in WFE spend will be a primary driver to ATE TAM growth, and this sets the approach for how we will be updating our target earnings model, which we will share in our Q4 earnings call.

Speaker #4: And we are investing in next-generation products across our entire entire portfolio. As we win business, we build out customer teams for major hyperscalers and semiconductor suppliers.

Speaker #4: The fact that we are leaning into these investments now is a sign of our confidence in the sustainability of this market growth. We expect 2027 to be another year of healthy growth for TERADYNE, consistent with the transistor and bit growth dynamics I described earlier.

Greg Smith: The fact that we are leaning into these investments now is a sign of our confidence in the sustainability of this market growth. We expect 2027 to be another year of healthy growth for Teradyne, consistent with the transistor and bit growth dynamics I described earlier. It's clear to us that increases in WFE spend will be a primary driver to ATE TAM growth, and this sets the approach for how we will be updating our target earnings model, which we will share in our Q4 earnings call. With that, I'll turn the call over to Michelle.

Speaker #4: It's clear to us that increases in WFE spend will be a primary driver of ATETAM growth, and this sets the approach for how we will be updating our target earnings model, which we will share in our Q4 earnings call.

Speaker #4: With Michelle.

Greg Smith: With that, I'll turn the call over to Michelle.

Speaker #1: Thanks, Greg. Let me build on that with the detailed results for the quarter, starting with total company performance. Both revenue and non-GAAP EPS came in above the high end of our guidance range, as strong AI-driven demand continued across all parts of our portfolio.

Michelle Turner: Thanks, Greg. Let me build on that with the detailed results for the quarter, starting with total company performance. Both revenue and non-GAAP EPS came in above the high end of our guidance range as strong AI-driven demand continued across all parts of our portfolio. Sequentially, total company sales are up 4% from last quarter's previous record. For H1 2026, we delivered $2.6 billion in revenue and $5.02 of non-GAAP EPS, up close to 100% and 275% year over year respectively, driven by all things AI. Building on that, let's take a deeper look at revenue, starting with SemiTest. Our SemiTest team once again cleared the $1 billion high watermark established last quarter, with revenue up $11 million from Q1 and 128% from Q2 2025. The revenue breakdown within SemiTest was SoC of $843 million, memory at $212 million, and IST at $67 million.

Speaker #1: Sequentially, total company sales are up 4 percent from last quarter's previous record. For the first half of 2026, we delivered 2.6 billion in revenue, and $5.02 of non-GAAP EPS up close to 100 percent and 275 percent year-over-year respectively, driven by all things AI.

Speaker #1: Building on that, let's take a deeper look at revenue starting with semi-test. Our semi-test team once again cleared the $1 1 billion high watermark established last quarter with revenue up $11 million from first quarter and $128 percent from Q2 2025.

Michelle Turner: Building on that, let's take a deeper look at revenue, starting with SemiTest. Our SemiTest team once again cleared the $1 billion high watermark established last quarter, with revenue up $11 million from Q1 and 128% from Q2 2025. The revenue breakdown within SemiTest was SoC of $843 million, memory at $212 million, and IST at $67 million.

Speaker #1: The revenue breakdown within semi-test was SOC of $843 million, memory at $212 million, and IST at $67 million. As expected, compute order timing was more than offset by another record memory quarter, and IST growing over 150 percent quarter over quarter.

Michelle Turner: As expected, compute order timing was more than offset by another record memory quarter and IST growing over 150% quarter over quarter. Within SoC, compute remains the largest portion of our SoC product revenue at 70%. Compute revenue grew nearly 600% year over year on strong AI-related demand. In the quarter, as Greg mentioned, we have completed correlation with a second AI hyperscaler customer, and we shipped the previously announced merchant GPU order. This further diversifies our compute portfolio, creating a foundation for future market share gains over the midterm. Auto and industrial continued to strengthen over last year, driven by power management demand increases for AI data center build-outs. Mobile grew seasonally quarter over quarter double digits, though it remains below historical levels and a muted part of the overall SoC portfolio. Now turning to memory. Our memory business delivered another strong quarter at $212 million in revenue.

Speaker #1: Within SOC, compute remains the largest portion of our SOC product revenue at 70 percent. Compute revenue grew nearly 600 percent year over year on strong AI-related demand.

Speaker #1: In the quarter, as Greg mentioned, we have completed correlation with the second AI hyperscaler customer, and we shipped the previously announced merchant GPU order.

Speaker #1: This further diversifies our compute portfolio, creating a foundation for future market share gains over the midterm. Auto and industrial continue to strengthen over last year, driven by power management demand increases for AI data center build-outs.

Michelle Turner: This further diversifies our compute portfolio, creating a foundation for future market share gains over the midterm. Auto and industrial continued to strengthen over last year, driven by power management demand increases for AI data center build-outs. Mobile grew seasonally quarter over quarter double digits, though it remains below historical levels and a muted part of the overall SoC portfolio. Now turning to memory. Our memory business delivered another strong quarter at $212 million in revenue.

Speaker #1: Mobile grew seasonally quarter over quarter, double digits, though it remains at low historical levels in the muted part of the overall SOC portfolio. Now turning to memory, our memory business delivered another strong quarter at $212 million in revenue.

Speaker #1: This is another record quarter up from the previous one set in Q4 2025. This represents our third consecutive quarter of revenue over $200 million, driven by robust HBM and DRAM test solutions demand and a resurgence in NAND.

Michelle Turner: This is another record quarter up from the previous one set in Q4 2025. This represents our third consecutive quarter of revenue over $200 million, driven by robust HBM and DRAM test solutions demand and a resurgence in NAND. Demand signals remain strong as memory manufacturers are planning capacity additions further out in time, driving our book-to-bill ratio in the quarter over two. Finally, turning to IST. Revenue in the quarter was $67 million, up 94% from the prior year, driven by AI-related HDD storage demand from all three major suppliers in this space. Now on to Product Test Group. Revenue was $107 million, up 26% year over year and 33% quarter over quarter.

Speaker #1: Demand signals remain strong as memory manufacturers are planning capacity additions further out in time driving our book-to-bill ratio in the quarter over two. Finally, turning to IST.

Michelle Turner: Finally, turning to IST. Revenue in the quarter was $67 million, up 94% from the prior year, driven by AI-related HDD storage demand from all three major suppliers in this space. Now on to Product Test Group. Revenue was $107 million, up 26% year over year and 33% quarter over quarter. The group experienced broad-based growth across all end markets, from production board test to optical test, to defense and aerospace, to scale-up networking at our newest portfolio addition, the MultiLane Test Products JV, also known as MLTP.

Speaker #1: Revenue in the quarter was $67 million up 94 percent from the prior year, driven by AI-related HDD storage demand from all three major suppliers in this space.

Speaker #1: Now on to Product Test Group. Revenue was $107 million, up 26 percent year over year and 33 percent quarter over quarter. The group experienced broad-based growth across all end markets, from production board test to optical test, to defense and aerospace, to scale-up networking, and our newest portfolio addition, the multi-lane test product JV, also known as MLTP.

Michelle Turner: The group experienced broad-based growth across all end markets, from production board test to optical test, to defense and aerospace, to scale-up networking at our newest portfolio addition, the MultiLane Test Products JV, also known as MLTP. Last quarter, we announced our new production board test platform, Omnyx, which is focused on enabling earlier detection of defects that are impacting the build-out of AI data centers. The initial customer traction is strong, with units already shipping in Q2 and continued growth expected in H2. Similarly, momentum is building in MLTP as the need for high-speed IO and data center interconnect test solutions is increasing. Both Omnyx and MLTP are examples of our wafer-to-AI data center strategy in action. Both solutions focus on solving our customers' most critical pain points along the value chain.

Speaker #1: Last quarter, we announced our new production board test platform, Omnix, which is focused on enabling earlier detection of defects that are impacting the build-out of AI data centers.

Michelle Turner: Last quarter, we announced our new production board test platform, Omnyx, which is focused on enabling earlier detection of defects that are impacting the build-out of AI data centers. The initial customer traction is strong, with units already shipping in Q2 and continued growth expected in H2. Similarly, momentum is building in MLTP as the need for high-speed IO and data center interconnect test solutions is increasing. Both Omnyx and MLTP are examples of our wafer-to-AI data center strategy in action. Both solutions focus on solving our customers' most critical pain points along the value chain.

Speaker #1: The initial customer traction is strong, with units already shipping in the second quarter and continued growth expected in the second half. Similarly, momentum is building in MLTP as the need for high-speed I/O in data center interconnect test solutions is increasing.

Speaker #1: Both Omnix and MLTP are examples of our wafer to AI data center strategy and actions, both solutions focus on solving our customers' most critical pain points along the value chain.

Speaker #1: As a result, we anticipate their continued growth in the second half of the year. Robotics revenue was $100 million up 33 percent year over year and 9 percent quarter over quarter.

Michelle Turner: As a result, we anticipate their continued growth in the H2 of the year. Robotics revenue was $100 million, up 33% year-over-year and 9% quarter-over-quarter. Electronics manufacturing and semiconductor revenue increased by 50% from Q1 and is now the largest end-market segment in this group, which includes AI data centers. Our US sales increased to 32% of the Robotics overall sales. Aligned with this, our US-based manufacturing center is on track for opening later this year. Moving down the P&L, strong earnings results continued in the Q2, driven by robust AI-driven volume and favorable product mix. Gross margins for the quarter were 59.8%, up 250 basis points year-over-year, driven by strong SemiTest volume and product mix, while sequentially gross margins were down 110 basis points, driven in part by one-time benefits in the Q1.

Speaker #1: Electronics manufacturing and semiconductor revenue increased by 50 percent from Q1 and is now the largest end market segment in this group, which includes AI data centers.

Speaker #1: Our US sales increased the 32 percent of the robotics overall sales. Aligned with this, our US-based manufacturing center is on track for opening later this year.

Speaker #1: Now moving down the P&L. Strong earnings results continued in the second quarter, driven by robust AI-driven volume and favorable product mix. Gross margins for the quarter were 59.8 percent up 250 basis points year over year driven by strong semi-test volume and product mix.

Michelle Turner: Moving down the P&L, strong earnings results continued in the Q2, driven by robust AI-driven volume and favorable product mix. Gross margins for the quarter were 59.8%, up 250 basis points year-over-year, driven by strong SemiTest volume and product mix, while sequentially gross margins were down 110 basis points, driven in part by one-time benefits in the Q1.

Speaker #1: While sequentially, gross margins were down 110 basis points, driven in part by one-time benefits in the first quarter. OPEX increased as expected, driven by more R&D and go-to-market investment for 2027 growth, plus higher variable compensation on stronger results. Finally, non-GAAP operating income was $448 million, with an operating margin of 33.7%.

Michelle Turner: OpEx increased as expected, driven by more R&D and go-to-market investment for 2027 growth, plus higher variable compensation on stronger results. non-GAAP operating income was $448 million, with an operating margin of 33.7%. Moving to capital allocation, our first priority for capital continues to be reinvesting back into the business, aligned with the growth opportunities we see along the wafer-to-AI data center value chain. That means continued R&D investment in innovation and next-gen technologies, as well as continued investments in cost of goods sold and CapEx, aligned with scaling our operations and supporting our current and future customers with Mo assets. Beyond that, our capital allocation strategy remains consistent: maintain cash reserves to run the business and keep dry powder available for accretive M&A. We ended the quarter with cash and investments of $517 million, up over 30% from last quarter.

Speaker #1: Now moving to capital allocation. Our first priority for capital continues to be reinvesting back into the business, aligned with the growth opportunities we see along the wafer to AI data center value chain.

Speaker #1: That means continued R&D investment in innovation and next-gen technologies as well as continued investments in cost-to-goods sold and CapEx aligned with scaling our operations and supporting our current and future customers with ML assets.

Michelle Turner: That means continued R&D investment in innovation and next-gen technologies, as well as continued investments in cost of goods sold and CapEx, aligned with scaling our operations and supporting our current and future customers with Mo assets. Beyond that, our capital allocation strategy remains consistent: maintain cash reserves to run the business and keep dry powder available for accretive M&A. We ended the quarter with cash and investments of $517 million, up over 30% from last quarter.

Speaker #1: Beyond that, our capital allocation strategy remains consistent: maintain cash reserves to run the business and keep dry powder available for creative M&A. We ended the quarter with cash and investments of $517 million, up over 30 percent from last quarter.

Speaker #1: We had free cash flow of $378 million in the quarter. For the first half of 2026, free cash flow was $579 million up 150 percent from the prior year period.

Michelle Turner: We had free cash flow of $378 million in the quarter. For the H1 of 2026, free cash flow was $579 million, up 150% from the prior year period. Working capital, predominantly inventory investment, increased in support of future sales. As discussed last earnings call, capital expenditures increased $26 million from last quarter, driven by continued investments in innovation and operations scaling. We paid $20 million in dividends in the quarter, and our share buybacks were $69 million. Looking ahead to our Q3 guidance, for the quarter, we expect revenue in the range of $1.2 billion to $1.3 billion, and non-GAAP EPS of $1.85 to $2.15. Gross margins are expected to be in the range of 58% to 59%, reflective of product mix and new product launches.

Speaker #1: Working capital, predominantly inventory investment, increased and supported future sales. As discussed last earnings call, capital expenditures increased $26 million from last quarter, driven by continued investments in innovation and operations scaling.

Speaker #1: We paid $20 million in dividends in the quarter and our share buybacks were $69 million. Now looking ahead to our third quarter guidance. For the quarter, we expect revenue in the range of $1.2 billion to $1.3 billion and non-GAAP EPS of $1.85 to $2.15.

Michelle Turner: Looking ahead to our Q3 guidance, for the quarter, we expect revenue in the range of $1.2 billion to $1.3 billion, and non-GAAP EPS of $1.85 to $2.15. Gross margins are expected to be in the range of 58% to 59%, reflective of product mix and new product launches. Operating expenses are expected to run at approximately 29% to 30% of Q3 sales, driven by continued investments in R&D and go-to-market. The non-GAAP operating profit rate is expected to be between 28% and 30%.

Speaker #1: Gross margins are expected to be in the range of 58 to 59 percent, reflective of product mix and new product launches. Operating expenses are expected to run at approximately $29 to 30 percent of third-quarter sales.

Michelle Turner: Operating expenses are expected to run at approximately 29% to 30% of Q3 sales, driven by continued investments in R&D and go-to-market. The non-GAAP operating profit rate is expected to be between 28% and 30%. Based on current customer order visibility, we are updating our H1 weighted revenue to 50% to 52% of annual revenue. The outlook for the H2 has strengthened, and we've narrowed the range from three months ago, with increased visibility and continued robust demand signals from our customers. The range also takes into account the timing of orders that could impact revenue timing across quarters or years. To aid in your modeling, we expect growth in H2 in comparison to H1 in memory, auto and industrial, IST, Product Test, and Robotics groups. We expect this growth will be offset by softness in mobile and order timing in compute.

Speaker #1: Driven by continued investments in R&D and go-to-market. The non-GAAP operating profit rate is expected to be between 28 and 30 percent. Based on current customer order visibility, we are updating our first half weighted revenue to 50 to 52 percent of annual revenue.

Michelle Turner: Based on current customer order visibility, we are updating our H1 weighted revenue to 50% to 52% of annual revenue. The outlook for the H2 has strengthened, and we've narrowed the range from three months ago, with increased visibility and continued robust demand signals from our customers. The range also takes into account the timing of orders that could impact revenue timing across quarters or years.

Speaker #1: The outlook for the second half has strengthened, and we've narrowed the range from three months ago with increased visibility and continued robust demand signals from our customers.

Speaker #1: The range also takes into account the timing of orders that could impact revenue timing across quarters or years. To aid in your modeling, we expect growth in the second half in comparison to the first half and in memory, auto and industrial, IST, product test, and robotics groups.

Michelle Turner: To aid in your modeling, we expect growth in H2 in comparison to H1 in memory, auto and industrial, IST, Product Test, and Robotics groups. We expect this growth will be offset by softness in mobile and order timing in compute. We anticipate a resurgence in growth in 2027, driven by overall ATE TAM expansion and market share gains. Aligned with the strengthened demand signal, we expect OpEx in Q4 to be comparable to Q3 guidance, positioning us for further growth in 2027.

Speaker #1: We expect this growth will be offset by softness in mobile and order timing and compute. We anticipate a resurgence in growth in 2027 driven by overall ATE TAM expansion and market share gains.

Michelle Turner: We anticipate a resurgence in growth in 2027, driven by overall ATE TAM expansion and market share gains. Aligned with the strengthened demand signal, we expect OpEx in Q4 to be comparable to Q3 guidance, positioning us for further growth in 2027. In closing, once again, our team delivered exceptional financial results, meeting our customers' increasing AI demand needs through strong execution and a maniacal focus on customer satisfaction. We remain confident in achieving our target earnings model at an accelerated pace and look forward to providing an update in our Q4 earnings call. I'll close by thanking our Teradyne team for their execution and discipline this quarter, delivering for both our customers and shareholders. With that, we'll open the call for questions. Operator?

Speaker #1: Aligned with this strength in demand signal, we expect OPEX in Q4 to be comparable to Q3 guidance, positioning us for further growth in 2027.

Speaker #1: So in closing, once again, our team delivered exceptional financial results, meeting our customers' increasing AI demand needs through strong execution and a maniacal focus on customer satisfaction.

Michelle Turner: In closing, once again, our team delivered exceptional financial results, meeting our customers' increasing AI demand needs through strong execution and a maniacal focus on customer satisfaction. We remain confident in achieving our target earnings model at an accelerated pace and look forward to providing an update in our Q4 earnings call. I'll close by thanking our Teradyne team for their execution and discipline this quarter, delivering for both our customers and shareholders. With that, we'll open the call for questions. Operator?

Speaker #1: We remain confident in achieving our target earnings model at an accelerated pace and look forward to providing an update in our Q4 earnings call.

Speaker #1: I'll close by thanking our TERADYNE team for their execution and disciplined this quarter, delivering for both our customers and shareholders. With that, we'll open the call for questions.

Speaker #1: Operator?

Speaker #2: We will now be taking questions from TERADYNE's research analysts. At this time, if you wish to ask a question, please press star 1 on your telephone keypad.

Operator 2: 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. In the interest of time, we ask that you please limit yourself to one question and one quick follow-up. Our first question today comes from Timothy Arcuri with UBS. Your line is now open.

Operator: 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. In the interest of time, we ask that you please limit yourself to one question and one quick follow-up. Our first question today comes from Timothy Arcuri with UBS. Your line is now open.

Speaker #2: You may remove yourself from the queue by pressing star 2. In the interest of time, we ask that you please limit yourself to one question and one quick follow-up.

Speaker #2: Our first question today comes from Timothy Arcury with UBS. Your line is now open.

Speaker #3: Thanks a lot. Greg, in correlating the test TAM to the WT TAM, typically it's been about 8 percent, and if I look at your TAM slide, it looks like the upper end of the range is around $16 to $17 billion for next year.

Timothy Arcuri: Thanks a lot. Greg, in correlating the test TAM to the WFE TAM, typically it's been about 8%, and if I look at your TAM slide, it looks like the upper end of the range is like $16 to $17 billion for next year, when some of us like me think that WFE is going to be $200 billion. It seems like that number holds next year, and when I look out to 2028, some of us think WFE is going to be $250 billion. That's like $20 billion, which is quite a bit higher than even the upper end of what this slide shows. I guess the question is like, is 8%, like in your mind when you think about it, is 8% the right number, and what are the puts and takes on that?

Speaker #3: When some of us, like me, think that WT is going to be $200 billion, it seems like that number holds for next year. And when I look out to 2028, I mean, you know, some of us think WT is going to be $250 billion, so that's like, you know, $20 billion, which is quite a bit higher than even the upper end of what this slide shows.

Timothy Arcuri: It seems like that number holds next year, and when I look out to 2028, some of us think WFE is going to be $250 billion. That's like $20 billion, which is quite a bit higher than even the upper end of what this slide shows. I guess the question is like, is 8%, like in your mind when you think about it, is 8% the right number, and what are the puts and takes on that?

Speaker #3: So I guess the question is, like, is 8 percent, like, in your mind, when you think about it, is 8 percent the right number, and what does it puts and takes on that?

Speaker #4: Yeah, so Tim, first of all, I want to thank you. The investor meetings that you helped mediate for us recently really gave us a ton of insight in terms of how people were thinking about our market and our model, and so we've been going back and doing some homework on this.

Michelle Turner: Yeah. Tim, first of all, I want to thank you. The investor meetings that you helped mediate for us recently really gave us a ton of insight in terms of how people were thinking about our market and our model, we've been going back and doing some homework on this. The thing that you're bringing up in terms of that 8% is a really interesting trajectory that if you look back to 2023, it was down near 4% of the total CapEx spent on test equipment. By 2025, that had gone up to 7%. The first five months of 2026, it's 8% of total semi CapEx has been on test equipment. It's kind of this rocket trajectory. As I said in my prepared remarks, there are some reasons why we think that is happening connected to advanced packaging.

Greg Smith: Yeah. Tim, first of all, I want to thank you. The investor meetings that you helped mediate for us recently really gave us a ton of insight in terms of how people were thinking about our market and our model, we've been going back and doing some homework on this. The thing that you're bringing up in terms of that 8% is a really interesting trajectory that if you look back to 2023, it was down near 4% of the total CapEx spent on test equipment.

Speaker #4: The thing that you're bringing up in terms of that 8 percent is a really interesting trajectory that if you if you look back to 2023, it was down near 4 percent of the total total CapEx spent on test equipment.

Speaker #4: And by 2025, that had gone up to 7 percent. The first five months of 2026, it's 8 percent of total semi-CapEx has been on test equipment.

Greg Smith: By 2025, that had gone up to 7%. The first five months of 2026, it's 8% of total semi CapEx has been on test equipment. It's kind of this rocket trajectory. As I said in my prepared remarks, there are some reasons why we think that is happening connected to advanced packaging.

Speaker #4: So it's kind of this rocket trajectory. As I said in my prepared remarks, there are some reasons why we think that is happening connected to advanced packaging, but right now we're we're not sure whether it's going to settle that we think it's going to settle somewhere in the 7 to 9 percent range, but it's not going to continue to go up from there.

Michelle Turner: Right now we're not sure whether it's going to settle, we think it's going to settle somewhere in the 7% to 9% range, it's not going to continue to go up from there. I think we're kind of thinking it could settle down in the 7% to 8%, but it could go up to 9%.

Greg Smith: Right now we're not sure whether it's going to settle, we think it's going to settle somewhere in the 7% to 9% range, it's not going to continue to go up from there. I think we're kind of thinking it could settle down in the 7% to 8%, but it could go up to 9%.

Speaker #4: of thinking it could settle down in the 7 to 8, but it could go up to 9 percent.

Speaker #3: Got it. Okay, Greg, thank you. And then from your slide, it looks like you think the range of, like, 12 to 14 is pretty similar to the new TAM range that Advance put out last night, because they don't include burn-in in their TAM.

Timothy Arcuri: Okay, great. Thank you. From your slide, it looks like you think the range of 12 to 14, it's pretty similar to the new TAM range that Advantest put out last night because they don't include burn-in in their TAM. If I use those TAM numbers and I use your loading for the back half, which basically implies that, CQ4 is basically flat Q1 to Q, I get your test share for this year is up just a touch, but it's still basically flat, sort of in the 37% range. The question is, when do all these new quals start to add to share gains? You talked about these quals and what's the right long-term share to use? Like is 40% your sort of aspirational share? Is 42% the right number? When will these start to show up in share gain? Thanks.

Speaker #3: If I if I use those TAM numbers and I use your loading for the for the back half, it's basically implies that, you know, that, you know, CQ4 is basically flat, Q1, Q.

Speaker #3: I get your test share for this year is up just a touch, but it's still basically flat, sort of in the 37 percent range.

Speaker #3: So the question is, when do all these new calls start to add to share gains? You know, when you talked about these calls and, like, what's the right long-term share to use?

Timothy Arcuri: The question is, when do all these new quals start to add to share gains? You talked about these quals and what's the right long-term share to use? Like is 40% your sort of aspirational share? Is 42% the right number? When will these start to show up in share gain? Thanks.

Speaker #3: Like, is 40 percent your sort of aspirational share? Is, you know, 42 percent the right number? And, like, when will these start to show up in share gain?

Speaker #3: Thanks.

Speaker #4: So sort of taking that bit by bit, I think that the the numbers that that admin test put out for total for the total TAM, both SOC and for memory, are kind of in the right zip code.

Greg Smith: Taking that bit by bit, I think that the numbers that Advantest put out for the total TAM, both SoC and for memory, are in the right zip code. That we were surprised when they hadn't brought it up last quarter because it seemed like the writing was on the wall that the TAM was increasing pretty strongly. The other commentary that they had was that they believed that they were going to continue to gain share in SoC, and that they were going to lose a bit of share in memory. I have to say, I agree with their commentary about memory, but I think in terms of SoC, it's probably going to be pretty flat, maybe a slight incremental gain for us year-on-year.

Speaker #4: That we were surprised when they hadn't brought it up last quarter because it seemed like the writing was on the wall that the the TAM was increasing pretty strongly.

Speaker #4: The other commentary that they had was that they believed they were going to continue to gain share in SOC and that they were going to lose a bit of share in memory.

Speaker #4: I have to say I agree with their commentary about memory, but I think in terms of SOC, it's probably going to be pretty flat, maybe a slight incremental gain for us year on year.

Greg Smith: I have to say, I agree with their commentary about memory, but I think in terms of SoC, it's probably going to be pretty flat, maybe a slight incremental gain for us year-on-year. I would say that we are gaining share in most of the segments of the market, the part of the market that is growing most strongly is the part of the market where we're starting with the lowest share.

Speaker #4: So I would say that the we are gaining share in most of the segments of the market, but the part of the market that is growing most strongly is the part of the market where we're starting with the lowest share.

Greg Smith: I would say that we are gaining share in most of the segments of the market, the part of the market that is growing most strongly is the part of the market where we're starting with the lowest share. The important thing for us in 2026 is that our share in the compute segment is actually stabilizing and starting to inflect upward. I would say, to answer your question directly, I think you'll start to see some of the effect of share change in 2027, it's going to be gradual. It's a socket-by-socket thing, we are riding a big upward wave.

Speaker #4: The important thing for us in 2026 is that our share in the compute segment is actually stabilizing and starting to inflect upward. So, I would say to answer your question directly, I think you'll start to see some of the effective share change in 2027, but it's going to be gradual.

Greg Smith: The important thing for us in 2026 is that our share in the compute segment is actually stabilizing and starting to inflect upward. I would say, to answer your question directly, I think you'll start to see some of the effect of share change in 2027, it's going to be gradual. It's a socket-by-socket thing, we are riding a big upward wave.

Speaker #4: It's a you know, it's a socket-by-socket thing, and we are riding a big upward wave.

Speaker #3: Okay, great. Thank you.

Timothy Arcuri: Okay, great. Thank you.

Speaker #2: Thank you. We'll take our next question from Medi Hosseini with SIG. Your line is now open.

Operator 2: Thank you. We'll take our next question from Mehdi Hosseini with SIG. Your line is now open.

Operator: Thank you. We'll take our next question from Mehdi Hosseini with SIG. Your line is now open.

Speaker #5: Yes, sir. Thanks for taking my question, and two from my end. And Greg, when I'm looking at the way you are laying out the company's strategy, especially how you illustrated it in your slide, it seems like you're looking at the test as holistic.

Mehdi Hosseini: Yes, thanks for taking my question. Two from my end. Greg, when I'm looking at the way you are laying out company's strategy, especially how you have illustrated in your slide, it seems like you're looking at the test as holistic, starting from wafer and going all the way to the rack and data center. What I wanted to ask you is, to what extent are you still focused on consolidating the test insertion, especially, before we get to the complete package? Are you facing challenges or is that lower priority and you're more focused on a holistic approach that you've laid out in your slide?

Speaker #5: Starting from wave wafer and going all the way to the rack and data center. And and what what I wanted to ask you is, to what extent are you still focused on consolidating the test insertion especially before we get to the complete package?

Mehdi Hosseini: What I wanted to ask you is, to what extent are you still focused on consolidating the test insertion, especially, before we get to the complete package? Are you facing challenges or is that lower priority and you're more focused on a holistic approach that you've laid out in your slide?

Speaker #5: Are you facing challenges, or does that get lower priority and you're more focused on the holistic approach that you've laid out in your slide?

Speaker #4: So I think the as you as you look at the this wafer, the data center journey, there's a through line of TERADYNE is a company that tests things and our robotics help build things.

Greg Smith: I think as you look at this wafer-to-data center journey, there's a through line of Teradyne as a company that tests things, and our Robotics help build things. Just about at every step of that process, we are a participant in an ecosystem. When we're building test equipment, it's being put into test cells with material handling equipment that come from a number of different suppliers. The same thing is true at every step. We're trying to be very mindful that our customers appreciate what that open ecosystem has delivered. The best example of that ecosystem developing is really in the whole silicon photonic space.

Speaker #4: And just about at every step of that process, we are a participant in an ecosystem. You know, so when we're building test equipment, it's being put into test cells with material handling equipment that comes from a number of different suppliers.

Speaker #4: The same thing is true at every step. And so we're trying to be very mindful that our customers appreciate what that open open ecosystem has delivered.

Speaker #4: So you know, the best example of that ecosystem developing is really in the whole silicon photonics space. That it's early days where there's individual partnerships sort of against the initial customer ramps, but ultimately that's going to turn into the same open ecosystem where all of the like, each test company works with all of the suppliers of material handling and vice versa.

Greg Smith: It's early days where there's individual partnerships sort of against the initial customer ramps, ultimately that's going to turn into the same open ecosystem where each test company works with all of the suppliers of material handling and vice versa. I don't know if that answered your question. I do think that there is some potential pull-through or customer value that customers can get by getting more of their test from the same supplier. In terms of leveraging the work that's done from wafer sort to final test to system test to burn-in into the board test and beyond, there is some advantage to being able to leverage things across those boundaries. Our customers are quite adept at choosing the best solution at each stage, so we have to really compete for everything that we're getting. Did I get what you were talking about?

Speaker #4: I don't know if that answered your question. I do think that there is some potential pull-through or customer value that customers can get by getting more of their test from the same supplier.

Speaker #4: You know, so in terms of leveraging the work that's done from wafer sort to final test, to system test, to burn-in, into the board test and beyond, there is some advantage to being able to leverage things across those boundaries. But our customers are quite adept at choosing the best solution at each stage.

Greg Smith: In terms of leveraging the work that's done from wafer sort to final test to system test to burn-in into the board test and beyond, there is some advantage to being able to leverage things across those boundaries. Our customers are quite adept at choosing the best solution at each stage, so we have to really compete for everything that we're getting. Did I get what you were talking about?

Speaker #4: So we have to really compete for everything that we're getting.

Speaker #3: Sure.

Speaker #4: Did I get what you were talking about?

Speaker #5: Yes. I'm not sure if there's a very concise answer. Is it evolving supply chain with some disruption as as to how is all going to come together is to be determined.

Mehdi Hosseini: Yes. I'm not sure if there is a very concise answer, is evolving supply chain with some disruption as to how it's all going to come together is to be determined. Does that summarize your answer?

Speaker #5: Is that summarize your your answer?

Speaker #4: So I I think that supply chain disruption is definitely on the mind of everybody in this space. That we're all only as strong as the weakest link in our whole supply chain.

Greg Smith: I think the supply disruption is definitely on the mind of everybody in this space. We're all only as strong as the weakest link in our whole supply chain, and our customers feel the same way. That's one of the key things that's underpinning the drive towards a dual-vendor strategy from players in the compute space. They are working to qualify multiple test suppliers because they want to be sure that they're going to be able to get the capacity that they need when they need that capacity. It's not just a matter of how big any one test supplier can get, it's also that they need to have the assurance of different suppliers to be able to do each step in the chain.

Speaker #4: And our customers feel the same way. That and that's one of the key things that's underpinning the drive towards a dual vendor strategy from players in the compute space.

Speaker #4: So they are you know, working to qualify multiple test suppliers. Because they want to be sure that they're going to be able to get the capacity that they need when they need that capacity.

Greg Smith: They are working to qualify multiple test suppliers because they want to be sure that they're going to be able to get the capacity that they need when they need that capacity. It's not just a matter of how big any one test supplier can get, it's also that they need to have the assurance of different suppliers to be able to do each step in the chain.

Speaker #4: And it's not just a matter of how big anyone test supplier can get. It's also that they need to have the assurance of different suppliers to be able to do each step in the chain.

Speaker #3: Got it. And I don't want to monopolize your time, but if I may ask my second question, which has to do with the robotics.

Mehdi Hosseini: Got it. I don't want to monopolize your time, if I may ask my second question, which has to do with Robotics. This is the part of business that is not getting as much headline, it is part of the AI, one of the verticals. Has there been any update to the strategy? I know you have been expanding capacity in the US to capture some of the opportunities there, how should we think about the trajectory of AI recovery, especially as it fits into your longer-term model?

Speaker #3: This is the part of business that is not getting as much headline, but but it is part of the AI is one of the to the strategy?

Speaker #3: I know you have been expanding capacity in the U.S. to capture some of the opportunities there, but how should we think about the trajectory of AI recovery, especially as it fits into your longer-term model?

Speaker #4: So robotics, we believe that robotics is positioned to essentially grow in proportion with the rest of the company over this midterm. And the important stuff that's going to drive that growth are physical AI applications.

Greg Smith: Robotics, we believe that Robotics is positioned to essentially grow in proportion with the rest of the company over this midterm. The important stuff that's going to drive that growth are physical AI applications. Our fastest-growing segment in Robotics is really electronics manufacturing and semiconductors. That's, as Michelle says, that's part of the all things AI. That the data center build-out and the desire to reshore a lot of the data center build-out is pushing automation of the assembly process and the test process with a fair amount of budget behind it. We think that Robotics is going to basically follow the same kind of growth path as all of the chunks that are connected to data center build-out.

Speaker #4: Our fastest growing segment in robotics is really electronics manufacturing and semiconductors. And that's you know, like as Michelle says, that's part of the all things AI.

Greg Smith: That's, as Michelle says, that's part of the all things AI. That the data center build-out and the desire to reshore a lot of the data center build-out is pushing automation of the assembly process and the test process with a fair amount of budget behind it. We think that Robotics is going to basically follow the same kind of growth path as all of the chunks that are connected to data center build-out.

Speaker #4: That you know, the the data center build-out and the desire to reshore a lot of the data center build-out is pushing automation of the assembly process and the test process with a fair amount of budget behind it.

Speaker #4: So we we think that that robotics is going to basically follow the same kind of growth path as all of the chunks that are connected to data center build-out.

Speaker #3: Thank you.

Mehdi Hosseini: Thank you.

Speaker #2: Thank you. Our next question comes from CJ Mews with Canter. Your line is now open.

Operator 2: Thank you. Our next question comes from C.J. Muse with Cantor. Your line is now open.

Operator: Thank you. Our next question comes from C.J. Muse with Cantor. Your line is now open.

Speaker #6: Yeah. Good morning. Thank you for taking the question. I guess first question on memory, you talked about growth half on half. I'm curious if you could speak to any changes in the drivers there, whether you're seeing an uplift in demand and and D5 versus HBM.

C.J. Muse: Good morning. Thank you for taking the question. I guess first question on memory, you talked about growth half-on-half. I'm curious if you could speak to any changes in the drivers there, whether you're seeing an uplift in NAND and DDR5 versus HBM. Then perhaps more importantly, how are you thinking about memory into 2027, and should we expect lumpiness in H1, or will that strength continue in H1?

Speaker #6: And then perhaps more importantly, how are you thinking about memory into 27 and should we expect lumpiness in the first half or or will that strength continue in the first half?

Speaker #4: So this year, I think the coming into the year we expected that HBM was going to be significantly stronger. That if you remember 2024 was a big big year for HBM.

Greg Smith: This year, I think coming into the year, we expected that HBM was going to be significantly stronger. If you remember, 2024 was a big, big year for HBM. 2025, there was a little bit of digestion, but it was clear from the long-term capacity add plans for HBM that 2026 was going to be very strong. The thing that surprised us a little bit was just how strong the DDR business is, and I think that is, to a certain extent, coupled to the resurgence in CPU-oriented applications, agentic AI. There's also use, like some of the SoCs use LPDDRs that are driving that market harder than we would have expected. The DDR market is stronger now than we thought it would be in January.

Speaker #4: 2025, there was a little bit of digestion, but it was clear from the the long-term capacity ad plans for HBM that 26 was going to be very strong.

Speaker #4: The thing that surprised us a little bit was just how strong the DR business is and I think that is to a certain extent coupled to the resurgence in like CPU-oriented applications.

Speaker #4: So agentic AI, there's also use like some of the like SOCAMs use LPDDRs that are driving that that market harder than we would have expected.

Greg Smith: There's also use, like some of the SoCs use LPDDRs that are driving that market harder than we would have expected. The DDR market is stronger now than we thought it would be in January. In January, we were talking a little bit about that we anticipated that we would see a strengthening in NAND, but we didn't hear that from our memory customers yet.

Speaker #4: So the DDR market is stronger now than we thought it would be in January. In January, we were talking a little bit about that—we anticipated that we would see a strengthening in demand, but we didn't see or hear that from our memory customers yet.

Greg Smith: In January, we were talking a little bit about that we anticipated that we would see a strengthening in NAND, but we didn't hear that from our memory customers yet. We were waiting to hear that they were going to need more capacity in NAND because there was a gap between what data center demand was and what memory capacity planning was providing. What's different now is we actually have seen the beginning of that inflection and are actually getting pull from our customers for more NAND capacity. Looking into 2027, I don't think we are looking at particular lumpiness in memory. I think that's going to be the capacity adds are, there's significant WFE investment increase in memory.

Speaker #4: That like we were we were waiting to hear that they're going to need more capacity in demand because there was a gap between what data center demand was and what memory capacity planning was providing.

Greg Smith: We were waiting to hear that they were going to need more capacity in NAND because there was a gap between what data center demand was and what memory capacity planning was providing. What's different now is we actually have seen the beginning of that inflection and are actually getting pull from our customers for more NAND capacity.

Speaker #4: I like what's different now is we're actually have seen the beginning of that inflection and are actually getting pull from our customers for more demand capacity.

Speaker #4: Looking into 2027, I don't think we are looking at particular lumpiness in memory. I think that that's going to be you know, the the capacity ads are you know, there's significant WFE investment increase in memory.

Greg Smith: Looking into 2027, I don't think we are looking at particular lumpiness in memory. I think that's going to be the capacity adds are, there's significant WFE investment increase in memory. There are fabs that are coming online, there are wafers that are being planned for output. They are all making their test capacity add plans out into 2027 now.

Speaker #4: There are fabs that are coming online. There are wafers that are being planned for output. And they are all making their test capacity and plans out into 2027 now.

Greg Smith: There are fabs that are coming online, there are wafers that are being planned for output. They are all making their test capacity add plans out into 2027 now.

Speaker #6: Perfect. And and I guess as a follow-up, if you could speak to gross margin and the guide and driving what's driving kind of the 130 bips headwind.

C.J. Muse: Perfect. I guess as a follow-up, if you could speak to gross margin in the guide and what's driving the 130 basis points headwind. You talked about new products, would be curious how much is from new products, how much is just a mix shift? Then any help into thinking the trajectory into December and 2027 would be very helpful. Thank you.

Speaker #6: You talked about kind of new products, but would be curious, you know, how much is from new products, how much is is just kind of a mix ship.

Speaker #6: And then any help into thinking the trajectory into December and 27 would be very helpful. Thank you.

Speaker #5: Hi. Good morning. CJ. It's Michelle. So I'll start and then Greg, feel free to add any additional callers. So just taking a step back, let me share some context, especially for some that are new to the TERADYNE story.

Michelle Turner: Hi, good morning, C.J. It's Michelle. I'll start and then Greg, feel free to add any additional color. Just taking a step back, let me share some context, especially for some that are new to the Teradyne story. Overall gross margins within our business tends to be variable quarter-to-quarter. If you look at past, like the last 5 years, you'll see about 400 basis points swing when you look quarter-on-quarter. However, when you look at the annualized gross margin amounts, we tend to be pretty tight, within about 200 basis points. Part of what you're seeing H1 to H2 is just the normal quarter-on-quarter variability that we experience. We also did have some non-recurring, non-operational impacts that were favorable in the H1 that aren't repeating.

Speaker #5: So overall gross margins within our business tends to be variable quarter to quarter. So if you look at past like the last five years, you'll see about 400 basis points swing.

Speaker #5: When you look quarter on quarter, however, when you look at kind of the annualized gross margin amount, we tend to be pretty tight within about 200 basis points.

Michelle Turner: However, when you look at the annualized gross margin amounts, we tend to be pretty tight, within about 200 basis points. Part of what you're seeing H1 to H2 is just the normal quarter-on-quarter variability that we experience. We also did have some non-recurring, non-operational impacts that were favorable in the H1 that aren't repeating.

Speaker #5: So part of what you're seeing first half to second half is just kind of the normal quarter on quarter variability that we experience. But we also did have some non-recurring non-operational impacts that were favorable in the first half that aren't repeating.

Speaker #5: So, as you look at going from Q2 to Q3 in the guide, at 58% to 59%, part of that is product mix. So, coming off the high volumes that we had in Semi Test and Compute, as we're starting to ramp the other parts of our portfolios.

Michelle Turner: As you look at going from Q2 to Q3 in the guide at 58% to 59%, part of that is product mix. Coming off the high volumes that we had in SemiTest and Compute, as we're starting to ramp the other parts of our portfolio. Just going back to our opening remarks, we are going to have more auto and industrial in the H2, more IST, more Robotics, as well as more Product Test, along with memory. All of that netted together gets us to a full-year gross margin range, which is just shy of our target earnings model. Right around the 59%. There's going to be a product mix element, there's going to be the new product introductions. There are going to continue to be some pricing elements as well.

Speaker #5: So just going back to our opening remarks, we are going to have more auto and industrial in the second half, more IST, more robotics, as well as more product test along with memory.

Speaker #5: And so, all of that netted together gets us to a full-year gross margin range, which is just shy of our target earnings model—so right around 59 percent.

Michelle Turner: All of that netted together gets us to a full-year gross margin range, which is just shy of our target earnings model. Right around the 59%. There's going to be a product mix element, there's going to be the new product introductions. There are going to continue to be some pricing elements as well. As we know and you guys know as well, memory is going to continue to be a strain from an overall margin perspective, and we expect that that'll continue into 2027.

Speaker #5: So there's going to be a product mix element. There's going to be new product introductions. And there are going to continue to be some pricing elements as well, as we know, and you guys know as well.

Michelle Turner: As we know and you guys know as well, memory is going to continue to be a strain from an overall margin perspective, and we expect that that'll continue into 2027.

Speaker #5: Memory is going to continue to be a strain from an overall margin perspective, and we expect that will continue into 2027.

Speaker #6: Thank you.

Greg Smith: Thank you.

Speaker #2: Thank you. We'll take our next question from Vivek Arya with Bank of America.

Operator 2: Thank you. We'll take our next question from Vivek Arya with BofA Securities. Your line is now open.

Operator: Thank you. We'll take our next question from Vivek Arya with BofA Securities. Your line is now open.

Speaker #3: Thanks for taking my questions. Greg, I just wanted to dig into how tight this correlation is between you know, WFE and your growth prospects.

Vivek Arya: Thanks for taking my questions. Greg, I just wanted to dig into how tight this correlation is between WFE and your growth prospects. When I look at the current year, your sales are roughly growing twice as fast as WFE growth this year. I'm curious as to why that is. If I were to carry that argument into 2027, if WFE does indeed grow 30%, what scenarios would make you grow faster or slower than that base?

Speaker #3: You know, when I look at the current year, your sales are roughly growing twice as fast as WFE growth this year. So I'm curious as to why.

Speaker #3: That is. And then if I were to carry that argument into 27, if WFE does indeed grow 30 percent, what scenarios would make you grow faster or slower than that pace?

Speaker #4: So the correlation is I would say that the correlation is strong over kind of three to five-year periods. That it's not at all correlated when you're down to a quarter level and when you look at the annual data.

Greg Smith: Well, I would say that the correlation is strong over kind of three to five-year periods, that it's not at all correlated when you're down to a quarter level. When you look at the annual data, when we sort of drew out the charts ourselves, we saw that there can be a year lag between a significant increase in WFE and when it echoes in the impact in the ATE space. There's a time lag in the correlation as well. That's why we're saying it's not a great year-by-year predictor, but the thing that it does is it gives us confidence. We were trying to figure out whether 2026 was an unusually strong, non-sustainable market.

Speaker #4: When we when we sort of drew out the the the the charts ourselves, we saw that there a year lag between significant increase in WFE and when it echoes in the impact in the ATE space.

Speaker #4: So it's there's like a time lag in the correlation as well. So I I I think it's like that's why we're saying it's not a great year-by-year predictor, but it does the thing that it does is it gives us confidence that we're not we are trying to figure out whether 2026 was a like an unusual unusually strong non-sustainable market.

Speaker #4: And when we were looking at the WFE data, it certainly gave us confidence that we were looking at something that was different than what we've seen in prior cycles.

Greg Smith: When we were looking at the WFE data, it certainly gave us confidence that we were looking at something that was different than what we've seen in prior cycles, that there's this very heavy lean into WFE investment, and that's going to drag things up. That's the correlation part. Could you repeat the second part of your question? I want to make sure that I get it right.

Speaker #4: That there's this very heavy lean into WFE investment and that's going to drag things up. So that's that's the correlation part. Could you repeat the second part of your question?

Speaker #4: I want to make sure that I get it right.

Speaker #3: Sure. So if we look at 2027 and the expectations are for WFE growth to be you know, say 30 percent plus year on year, under what scenarios you know, would ATE TAM or or TERADYNE for that matter over or under grow that growth rate?

Vivek Arya: Sure. If we look at 2027, and the expectations are for WFE growth to be, say, 30% plus year on year, under what scenarios would ATE TAM or Teradyne, for that matter, over or under grow that growth rate?

Speaker #4: So I think right now we have like we're outpacing WFE growth in 26. You know, so if you draw the line and sort of use the WFE spend to to project what the 2026 TAM should be, it should be smaller than that model would predict.

Greg Smith: I think right now we're outpacing WFE growth in 2026. If you draw the line, and sort of use the WFE spend to project what the 2026 TAM should be, it should be smaller than that model would predict. Looking ahead to 2027, I think that WFE is essentially catching up a bit. The way you sort of think about that in the statistics is that the percentage of semi-cap that is test equipment has gone from 7%, and so far in 2026, it's at 8%. It's possible that next year that could revert down to 6%, 7% or so. I would expect that we're going to see an increased TAM in 2027, but we're still trying to work out kind of whether that percentage is going to stay flat or how far it will go down.

Speaker #4: Looking ahead to 2027, I think that WFE is essentially catching up a bit. And the way you sort of think about that in the statistics is that the percentage of semi-cap that is test equipment has gone from 7 percent and so far in 2026 it's at 8 percent.

Greg Smith: The way you sort of think about that in the statistics is that the percentage of semi-cap that is test equipment has gone from 7%, and so far in 2026, it's at 8%. It's possible that next year that could revert down to 6%, 7% or so. I would expect that we're going to see an increased TAM in 2027, but we're still trying to work out kind of whether that percentage is going to stay flat or how far it will go down.

Speaker #4: It's possible that next year that could revert down to you know, 6 7 percent or so so I would I would expect that we're going to see a increased TAM in 2027, but we're still trying to work out kind of whether that percentage is going to stay flat or how far it will go down.

Speaker #3: I guess my question is to why? Why would it go down?

Vivek Arya: I guess my question is to why. Why would it go down?

Speaker #4: Oh, just the it's the it's the time lag. The the thing is this is a this is correlation, not causation, right? Or well, there is causation, but there's a time lag.

Greg Smith: Oh, just that it's the time lag. The thing is, this is correlation, not causation, right? Well, there is causation, but there's a time lag. When people buy fab equipment, the money changes hands about a year before the wafers start coming out of the factory, because they have to go into front-end facilities that are being built and commissioned and piloted. Once those wafers are coming out, our lead times are in the 16-week-ish range. It's three quarters on from when the revenue for the fab equipment has happened to when the revenue for the test equipment happens, and there's also unpredictability about the required test intensity on a part-by-part basis. You can have situations where, due to yield issues or quality issues, there's significant overbuying in ATE, or you can have other cases where there's higher efficiency test time reductions.

Speaker #4: So when people buy fab equipment, the money changes hands about a year before the wafers start coming out of the factory. Because they have to go into front-end facilities that are being built and commissioned and piloted.

Speaker #4: Once those wafers are coming out, there's about a you know, our lead times are in the 16-week-ish range. So you know, it's three quarters on from when the revenue for the for the fab equipment has happened to when the revenue for the test equipment happens.

Greg Smith: It's three quarters on from when the revenue for the fab equipment has happened to when the revenue for the test equipment happens, and there's also unpredictability about the required test intensity on a part-by-part basis. You can have situations where, due to yield issues or quality issues, there's significant overbuying in ATE, or you can have other cases where there's higher efficiency test time reductions. You're not going to see a tight link between this in any particular period, but it's more of a over time guidance.

Speaker #4: And there's also unpredictability about the required test intensity on a part-by-part basis. So you can have situations where due to yield issues or quality issues, there's significant overbuying in ATE or you can have other cases where there's higher efficiency test time reductions.

Speaker #4: So you're not going to see a tight tight link between this in any particular period, but it's more of a overtime guidance.

Greg Smith: You're not going to see a tight link between this in any particular period, but it's more of a over time guidance.

Speaker #3: And from my follow-up, Greg, I'm curious to understand your position when it comes to server CPU testing. That has become a new area of growth, right?

Vivek Arya: For my follow-up, Greg, I'm curious to understand your position when it comes to server CPU testing, right? That has become a new area of growth, right? 200 billion+ type TAM that different people have mentioned. I know historically Teradyne has been more exposed to Arm rather than the x86 ecosystem. How do you see that developing? If Arm CPUs take share, does that help Teradyne also take share in that market? Thank you.

Speaker #3: 200 billion plus type TAM. That different people have mentioned. So I know historically TERADYNE has been more exposed to ARM rather than the X86 ecosystem.

Speaker #3: So how do you see that developing? And if ARM CPUs take share, does that help TERADYNE also take share in that market? Thank you.

Speaker #4: Yeah. So we certainly are seeing increased strength in CPU business. We definitely benefit more. Like as the share mix of server CPU shifts towards ARM, that gives us a greater share gain opportunity right now.

Greg Smith: We certainly are seeing increased strength in CPU business. We definitely benefit more. As the share mix of server CPU shifts towards Arm, that gives us a greater share gain opportunity right now. We are working hard to try to gain share in the x86 space as well. I think it's a fair assumption that if that market twists more towards Arm, that positions Teradyne for greater share gain in the compute space.

Speaker #4: But we are you know, working hard to try to gain share in the X86 space as well. But you know, I I think it's a it's a fair assumption that if that market twists more towards ARM, that positions TERADYNE for greater share gain in the compute space.

Speaker #3: Thank you.

Vivek Arya: Thank you.

Speaker #1: Thank you. Our next question comes from Krish Sankar with PD Talent. Your line is now open.

Operator 2: Thank you. Our next question comes from Krish Sankar with TD Cowen. Your line is now open.

Operator: Thank you. Our next question comes from Krish Sankar with TD Cowen. Your line is now open.

Speaker #5: Yeah. Hi. Thanks for taking my question. I have two of them too. The first one, I just want to follow up on the CPU side.

Krish Sankar: Yeah, hi. Thanks for taking my question. I have two of them, too. The first one, I just want to follow up on the CPU side. I understand you're more exposed to the Arm ecosystem, but it seems like the test intensity with CPU is only 25% that of a GPU. Is it fair to assume that the merchant GPU opportunities are larger, even with one customer, than trying to get more on the CPU test side?

Speaker #5: I understand you're more exposed to the ARM ecosystem, but it seems like the test intensity of a CPU is only 25 percent of that of a GPU.

Speaker #5: So is that fair to assume that the merchant GPU opportunities are larger even with one customer than trying to get more on the CPU test side?

Speaker #4: Well, the it's a great question, Krish. So the the accelerator market is definitely the one that has the highest test intensity. And I think you're you know, you're one to four ratio is probably not far off.

Greg Smith: Well, it's a great question, Krish. The accelerator market is definitely the one that has the highest test intensity, and I think your one to four ratio is probably not far off. I think that's a reasonable assumption. The key thing is the ratio of accelerators to CPUs. As the number of CPUs increases, that becomes more important. The other thing that I think is one of the ways that we're looking at this is there are a number of bottlenecked resources through the supply chain, the supply of substrates for CoWoS, the supply of HBM memories, and basic advanced node fab capacity. Our customers are trying to optimize the utilization of what allocation they get of those scarce resources.

Speaker #4: I think that's a a reasonable reasonable assumption. The the key thing is the ratio of accelerators to CPUs. So as the as the number of CPUs increases, that becomes more important.

Speaker #4: The other thing that I I I think is like one of the ways that we're looking at this is there are a number of bottlenecked resources through the supply chain, the the supply of substrates for CAWS, the supply of HBM memories, and basic advanced node fab capacity.

Greg Smith: The other thing that I think is one of the ways that we're looking at this is there are a number of bottlenecked resources through the supply chain, the supply of substrates for CoWoS, the supply of HBM memories, and basic advanced node fab capacity. Our customers are trying to optimize the utilization of what allocation they get of those scarce resources.

Speaker #4: And the our customers are trying to optimize the utilization of what what allocation they get of those scarce resources. And you know, the test suppliers, TERADYNE and our competitors, are positioned to like no matter what, all of the wafers that get fabbed are going to need to get tested.

Greg Smith: The test suppliers, Teradyne and our competitors, are positioned to no matter what, all of the wafers that get fabbed are going to need to get tested. The share between VIP accelerators, merchant GPU, and CPU, all of those are places where we are positioned to gain share. We are not overly hung up about whether CPUs grow faster than GPUs, because at the end of the day, most of the test seconds are at the wafer level, and the same number of wafers are going to be produced.

Speaker #4: And the share between VIP accelerators, merchant GPU, and CPU, all of those are places where we are positioned to gain share. And so we're you know, we're we are not overly hung up about whether CPUs grow faster than GPUs because at the end of the day, most of the test seconds are at the wafer level and the same number of wafers are going to be produced.

Speaker #5: Got it. Got it. Very helpful, Greg. And then you have a quick follow-up. I had a question on the silicon photonics testing. Correct me if I'm wrong, but I think the general view is that advantage is strong in insertion one.

Krish Sankar: Got it. Very helpful, Greg. I have a quick follow-up. I had a question on the silicon photonics testing. Correct me if I'm wrong, I think the general view is that Advantest is strong in insertion one and you're more strong in insertion two. A, is that correct? Part B of the question is, there is some view in the industry that insertion two can be skipped if you have known good die and you're going to die for it. Okay, any thoughts on that would be helpful.

Speaker #5: And you're more strong in insertion two. A, is that correct? And part B of the question is there is some view in the industry that insertion two can be skipped if you have known good die and you're going to dice it.

Speaker #5: Any any thoughts on that would be helpful.

Speaker #4: Sure. So I I want to tell you a a funny anecdote. We were having a conversation with a customer in this space. And we were a good 15 minutes into the conversation before we discovered that we and the customer had an entirely different definition of what insertion two was.

Greg Smith: Sure. I want to tell you a funny anecdote. We were having a conversation with a customer in this space, we were a good 15 minutes into the conversation before we discovered that we and the customer had an entirely different definition of what insertion two was. There's certainly a pilot customer in this space that is ramping, there's a certain definition of the different test insertions for that customer. It's so early in the maturation of that production process that I think it's a mistake to draw broad conclusions. Directly to your question, getting a known good die at insertion one doesn't help you all that much in terms of the quality of the optical engine die lid that you need to attach to the CPO.

Speaker #4: So like there's there's certainly a pilot customer in this space that is ramping and there's a certain definition of the different test insertions for that customer.

Speaker #4: But it's so early in the maturation of that production process that I think it's a mistake to draw broad conclusions. But directly to your question, getting a known good die at insertion one doesn't help you all that much.

Greg Smith: It's so early in the maturation of that production process that I think it's a mistake to draw broad conclusions. Directly to your question, getting a known good die at insertion one doesn't help you all that much in terms of the quality of the optical engine die lid that you need to attach to the CPO. The production steps between insertion one and insertion two are the bonding the electronics IC to the photonics IC wafer, and then applying the lens.

Speaker #4: In terms of the the quality of the optical engine dial it that you need to attach to the CPO. The production steps between insertion one and insertion two are the you know, bonding the electronics IC to the photonics IC wafer and then applying the lens that there's a polymer lens that gets applied on top of the photonics to make the connection with to where the the FAU will connect to the device.

Greg Smith: The production steps between insertion one and insertion two are the bonding the electronics IC to the photonics IC wafer, and then applying the lens. There's a polymer lens that gets applied on top of the photonics to make the connection to where the FAU will connect to the device. The types of optical testing that you can do at insertion one are limited because the lens assembly is a critical part of the optical path. Many of the loss and polarization tests that you need to do can't be done until you have the completed wafer. The real question on our mind is how much of that testing needs to happen at the wafer level post-bonding, and how much of it can be deferred to do once those optical engines are singulated.

Greg Smith: There's a polymer lens that gets applied on top of the photonics to make the connection to where the FAU will connect to the device. The types of optical testing that you can do at insertion one are limited because the lens assembly is a critical part of the optical path.

Speaker #4: And the types of optical testing that you can do at insertion one are limited because the lens assembly is a critical part of the optical path.

Speaker #4: So many of the loss and polarization tests that you need to do can't be done until you have the completed wafer. The real question on our mind is how much of that testing needs to happen at the the wafer level post-bonding and how much of it can be deferred to do once those optical engines are singulated.

Greg Smith: Many of the loss and polarization tests that you need to do can't be done until you have the completed wafer. The real question on our mind is how much of that testing needs to happen at the wafer level post-bonding, and how much of it can be deferred to do once those optical engines are singulated. You can't do everything that you need to do to validate the quality of the device at insertion one.

Speaker #4: But you can't do everything that you need to do for to validate the quality of the device at insertion one.

Greg Smith: You can't do everything that you need to do to validate the quality of the device at insertion one.

Speaker #5: Gotcha. Thanks a lot, Greg. Very helpful.

Krish Sankar: Got you. Thanks a lot, Greg. Very helpful.

Speaker #1: Thank you. We'll go next. Jim Schneider with Goldman Sachs. Your line is now open.

Operator 2: Thank you. We'll go next to James Schneider with Goldman Sachs. Your line is now open.

Operator: Thank you. We'll go next to James Schneider with Goldman Sachs. Your line is now open.

Speaker #3: Good morning. Thanks for taking my question. Maybe following up on the on your prior comments and last question, Greg. You you talked about the sort of CPO TAM alone being 3 to 700 million, I believe, in 2028.

James Schneider: Good morning. Thanks for taking my question. Maybe following up on your prior comments and last question, Greg. You talked about the sort of CPO TAM alone being $300 to 700 million, I believe, in 2028. Obviously, that's a very wide range. I'm sort of curious how you would think about maybe what the size could be or is likely to be next year, if at all, or if material. Maybe talk about the sort of certainty level you have in your overall networking business growing sort of strong double digits over the next three years on a compounding basis or at least every year. Thank you.

Speaker #3: Obviously, that's a very wide range. I'm I'm sort of curious how you would think about maybe what the size could be or is likely to be next year if if at all or if material.

Speaker #3: And maybe talk about the sort of certainty level you have in your overall networking business growing sort of you know, strong double digits over the next three years on a compounding basis or at least every year.

Speaker #3: Thank you.

Speaker #4: Okay. So so the the wide range, the 300 to 720 28 is that that's our attempt to be as honest as we can be.

Greg Smith: Okay. The wide range, the $300 to 700 in 2028, that's our attempt to be as honest as we can be. We really are looking at a number of different market sources in terms of the number of CPO ports that are going to be produced, and they're all over the map. It really comes down to how quickly the initial higher volume ramps of CPO, primarily for scale-out, achieve success over the 2027 timeframe. That's what's going to drive that 2028 TAM. If that goes well, then it will drive it towards the $700. If it doesn't, it'll still be closer to the $300. Next year, I think we're probably aiming towards more of the low side of that $300.

Speaker #4: We really are looking at a number of different market sources in terms of the number of CPO ports that are going to be produced, and they're all over the map.

Speaker #4: And so we're you know, it it really comes down to how quickly the initial higher volume ramps of CPO primarily for scale out achieve success over the 2027 time frame.

Speaker #4: That's what's going to drive that 2028 TAM towards the you know, if if that goes well, then it'll drive it towards the 700. If it doesn't, it'll it'll be closer to the 300.

Speaker #4: Next year, I think we're probably you know, like probably aiming towards more of the low side of that 300. So if you draw a line from the 100 to the 300, next year kind of the low end would be in the 200 million dollar range.

Greg Smith: If you draw a line from the $100 to the $300, next year, kind of the low end would be in the $200 million range. I don't think there is as much upside next year as there is upside in 2028. Your last question was around networking, and networking in general is an area where we have a lot of confidence. We're talking about transistors growing at 15% to 20% over this midterm. We feel pretty strongly that the networking TAM is going to be growing proportionate to that. It's not just CPO, it's copper connections going from cable to backplane. Pluggables are still growing, and will transition not just to CPO, there's NPO and XPO stages along that path. Teradyne's strategy is really to make sure that we're positioned to benefit from the growth in all of those segments.

Speaker #4: I don't think there is as much upside next year as there is upside in 2028. Now, your last question was around networking, and networking in general.

Speaker #4: Is an area where we have a lot of confidence of better like we're we're talking about transistors growing at 50 you know, 15 to 20 percent over this midterm.

Speaker #4: We feel pretty strongly that the networking TAM is going to be growing proportionate to that. So you know, and it's not just CPO. It's copper connections going from cable to backplane pluggables are still growing and will transition you know, not just to CPO.

Greg Smith: We feel pretty strongly that the networking TAM is going to be growing proportionate to that. It's not just CPO, it's copper connections going from cable to backplane. Pluggables are still growing, and will transition not just to CPO, there's NPO and XPO stages along that path. Teradyne's strategy is really to make sure that we're positioned to benefit from the growth in all of those segments.

Speaker #4: There's NPO and XPO stages along that path. And so Teradine's strategy is really to make sure that we're positioned to benefit from the growth in all of those segments.

Speaker #4: So that's why we did quantify that's why we did the MLTP JV. And it's why we are in the market with the photon 100 because we think that CPO is going is the is the technology of the future.

Greg Smith: That's why we did Quantifi, that's why we did the MLTP JV, and it's why we are in the market with the Photon 100, because we think that CPO is the technology of the future. There is so much growth in just basic networking that we really want to make sure that we're covering all the modes. The other thing that I'll say is, behind all of that is the networking silicon, the switch silicon. Teradyne has a terrific position in that market that we think will grow over the midterm independent of the physical layer.

Speaker #4: But there is so much growth in just basic networking that we really want to make sure that we're covering all the modes. The other thing that I'll say is behind all of that is the networking silicon, the switch the switch silicon.

Speaker #4: And Teradine has a terrific position in that market that we we think will grow over the midterm independent of of the physical layer.

Speaker #3: That's very helpful color, Greg. Greg, thank you. And then maybe just a quick clarification for Michelle. Relative to your prior commentary on just want to make sure that you don't see anything in 2027, whether that be customer mix or product mix, etc., that would drive a material headwind to growth margins on a year-over-year basis.

James Schneider: That's very helpful color, Greg. Thank you. Maybe just a quick clarification for Michelle. Relative to your prior commentary on gross margins or variability, I just want to make sure that you don't see anything in 2027, whether that be customer mix or product mix, et cetera, that would drive a material headwind to gross margins on a year-over-year basis.

Speaker #2: No. It's it's going to be the consistent as we talked about in terms of the ranges annually. And it'll really come down to, Jim, the the things that we noted.

Michelle Turner: No, it's going to be fairly consistent, as we talked about, in terms of the ranges annually, and it'll really come down to, Jim, the things that we know. It'll come down to product mix, where compute's going to be heavy within the year, along with the rest of the portfolio growing. We're not anticipating any fundamental changes in gross margin.

Speaker #2: It'll come down to product mix, where compute's going to year. Along with the rest of the portfolio growing. So we're we're not anticipating any fundamental changes in growth margin.

Speaker #3: Thank you.

James Schneider: Thank you.

Speaker #1: Thank you. Our next question comes from Shane Brett with Morgan Stanley. Your line is now open.

Operator 2: Thank you. Our next question comes from Shane Brett with Morgan Stanley. Your line is now open.

Operator: Thank you. Our next question comes from Shane Brett with Morgan Stanley. Your line is now open.

Speaker #5: Thank you for letting me ask a question. My first question is on memory. So, if I assume your memory test revenue grows half-on-half, we get to a full year growth of 70 percent.

Shane Brett: Thank you for letting me ask a question. My first question is on memory. If I assume your memory test revenue grows half on half, we get to full year growth in order 70%. Slide six of your presentation deck shows the memory test time growing at approximately half of the rate of memory bit growth. Two-part question here, but one is, how should I think about memory test growing 2X bit growth this year, but also how relevant is test growing at half the run rate of bits given the test intensity of HBM and just extremely low NAND the last few years? Thank you.

Speaker #5: Slide 6 of your presentation deck shows the memory test time growing at approximately half the rate of memory bit growth. Two-part question here, but one is: How should I think about memory test growing 2x bit growth this year?

Speaker #5: But also, how relevant is test growing at half the run rate of bits given the test intensity of HBM and just extremely low NAND the last few years?

Speaker #5: Thank you.

Speaker #4: I think I'm going to need to take that question offline. There are you know, you're you're interpreting a lot of information from that chart that I'm not sure we were intending to communicate.

Greg Smith: I think I'm going to need to take that question offline. You're interpreting a lot of information from that chart that I'm not sure we were intending to communicate. The chart shows sort of the bit growth trajectory and the ATE TAM history. We weren't trying to project the memory ATE TAM. I guess to answer the principles behind what you're saying, in memory, there is a correlation between bit growth and ATE. There's a gain. There's a factor involved in that, because the in-memory test, the part of the market where you test every bit, is served by much lower priced, less differentiated equipment than the final test part of the market. There's a big chunk of the market that follows bit growth.

Speaker #4: So the the chart shows sort of the bit growth trajectory and the ATE TAM history. We weren't trying to project the memory ATE TAM.

Speaker #4: So, but I guess to the principles behind what you're saying, in memory there is a bit growth in ATE, but it's not as if there's a gain.

Greg Smith: There's a gain. There's a factor involved in that, because the in-memory test, the part of the market where you test every bit, is served by much lower priced, less differentiated equipment than the final test part of the market. There's a big chunk of the market that follows bit growth.

Speaker #4: There's a factor involved in that because, in memory test, the part of the market where you test every bit is served by much lower-priced, less differentiated equipment than the final test part of the market.

Speaker #4: So there's a big chunk of the market that follows bit growth. There's also a part of the market that follows technology shifts. The HBM3 to HBM4, DDR5 to DDR6, and then next generations of flash technology.

Greg Smith: There's also a part of the market that follows technology shifts, the HBM3 to HBM4, DDR5 to DDR6, and then next generations of flash technology. Memory has sort of two flywheels. One is bit growth and the other is technology change, it is also a very efficient test market, where just in terms of the overall size, right now the SoC TAM is 5x the size of the memory TAM, even though the memory revenues have caught up because of ASP changes. There's a lot of things going on. Our take is that the memory TAM is likely positioned for similar growth rates over the midterm that the SoC TAM is.

Speaker #4: So memory has sort of two flywheels. One is bit growth and the other is technology change. But it is also a very efficient test market where you know, the just in terms of the overall size, you know, right now the SOC TAM is 5x the size of the memory TAM.

Speaker #4: Even though the memory revenues are much are have caught up because of ASP changes. So there's there's a lot of things going on. Our take is that the memory TAM is likely positioned for similar growth rates over the midterm that the the SOC TAM is.

Speaker #5: Understood. Thank you. And for my follow-up, so you talked about auto industrial being better half on half. Just can you talk a little bit about what the path back to prior peak would look like?

Shane Brett: Understood. Thank you. For my follow-up, you talked about auto industrial being better half on half. Just can you talk a little bit about what the path back to prior peak would look like? I'd also appreciate if you could talk about how much of prior peak was China driven, if there's sort of an element of China localization risk, but also some of the tailwinds you're seeing just on the back of the Infineon strategic partnership back in January 2025. Thank you.

Speaker #5: It would also appreciate it if you could talk about how much of prior peak was China driven? If there's sort of an element of China localization risk, but also some of the tailwinds you're seeing just on the back of the Infineon strategic partnership back in January of 2025.

Speaker #5: Thank you.

Speaker #4: So I think we are—it's likely 2027 is going to be up to or exceeding prior peaks in that space. We haven't done all of the work, but that's my gut feeling around that.

Greg Smith: I think it's likely 2027 is going to be up to or exceeding prior peaks in that space. We haven't done all of the work, that's my gut feeling around that. There's some China localization. I would say that our China power mix between prior peak and now is kind of about the same. We're in that market. There is some local competition, there are also some players that we're doing quite well with. In the power market overall, the part of that market where the Infineon deal that we did is most helpful is in wide bandgap discrete test. That's a smaller chunk of that market, one that is expected to grow robustly over this period of time.

Speaker #4: There's some China localization like that I I would say that our China power mix between prior peak and now is kind of about the same.

Speaker #4: That we're you know, we're in that market. There is some local competition, but there are also some some players that we're doing quite well with.

Speaker #4: The in the in the power market overall, there the the part of that market where the Infineon deal that we did is most helpful is in wideband gap discrete test.

Speaker #4: So that's a a smaller chunk of that market, but one that is expected to grow robustly over this period of time. And I would say that the technologies and the people that we have in that group is positioning us to establish a real leadership position in the testing of wideband gap discretes.

Greg Smith: That's a smaller chunk of that market, one that is expected to grow robustly over this period of time. I would say that the technologies and the people that we have in that group is positioning us to establish a real leadership position in the testing of wide bandgap discretes.

Greg Smith: I would say that the technologies and the people that we have in that group is positioning us to establish a real leadership position in the testing of wide bandgap discretes.

Speaker #5: Got it. Thank you very much.

Shane Brett: Got it. Thank you very much.

Speaker #1: Thank you. At this time, we've reached our allotted time for questions. This will conclude today's TERADYNE second quarter 2026 earnings call and webcast. You may now disconnect your line at this time and have a wonderful day.

Operator 2: Thank you. At this time, we've reached our allotted time for questions. This will conclude today's Teradyne Q2 2026 earnings call and webcast. You may now disconnect your line at this time, and have a wonderful day.

Operator: Thank you. At this time, we've reached our allotted time for questions. This will conclude today's Teradyne Q2 2026 earnings call and webcast. You may now disconnect your line at this time, and have a wonderful day.

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