Operator: Ladies and gentlemen, good morning, and welcome to the Teradyne Q3 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, Vice President of Corporate Relations for Teradyne. Please go ahead.
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 Q3 2026 and our outlook for Q4. The press release containing our Q3 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.
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 a technology-focused investor conference hosted by UBS. Our quiet period will begin at the close of business on 18 December 2026. Following Greg and Michelle's comments this morning, we will open up the call for questions. This call is scheduled for one hour. Greg?
Greg Smith: Thanks, Amy. Good morning. AI was the driver again this quarter. Whole company revenue topped $1.2 billion, up 70% year-over-year, and consistent quarter-over-quarter with non-GAAP EPS of $2.29, up over 150% year-over-year. All three of our business groups, Semi Test, Product Test, and Robotics, grew versus the prior year, highlighting AI demand across all parts of the business. AI-driven revenue represents more than 60% of total revenue, a key proof point that our wafer-to-data center strategy is delivering results. From wafers to modules to trays to racks and into full data centers, Teradyne equipment is used to build and test the high-performance computing that underpins the growth of agentic AI. We have previously discussed our long-term perspective on the AI transformation of the semiconductor industry and global economy.
Greg Smith: The first wave started back in 2024 with the build-out of general-purpose data centers, which were used for both model training and inference. In 2026, we are in the early stages of the second wave, where data centers are optimized to serve these models to support agentic AI and inference on a global scale. The third wave is physical and edge AI. While there are already compelling examples of physical and edge AI in automotive, Robotics, and wearables, the full impact of AI on these segments is still to come. The strength of these waves gives us great confidence in our midterm growth plans. Let's start with Semiconductor Test. The demand for compute is far greater than supply, and the semiconductor industry is seeing dramatic expansion in capacity to meet this burgeoning demand.
Greg Smith: The portion of semi-CapEx associated with test is increasing as well, from 6.4% in 2025 to 8.1% for the first eight months of 2026. With forecasts for semiconductor CapEx being revised upward for 2027, 2028, and beyond, we believe that the conditions are right for prolonged expansion of the ATE TAM. CPUs and AI accelerators are key drivers of the expansion. Through our accelerated investments, Teradyne is positioned for continued growth in both the overall ATE market and share gains driven by customers adopting dual-vendor strategies. Dual vendor provides greater assurance of getting capacity when needed, minimizes the risk of supply chain disruptions, and ensures that the test capability arrives in time for new device technologies. Dual vendor programs progress through several phases over multiple quarters, including initial qualification, fast follower, and mature dual sourcing. We have multiple customers at different stages of this process.
Greg Smith: Our first hyperscaler customer is in the mature phase, and we expect our next major ramp in the middle of 2027. Our merchant GPU customer is in the fast follower phase with multiple devices in development, and we expect to see additional revenue in 2027. Our second hyperscaler customer has passed qualification and is now in fast follower, with an expectation of capacity buys in the second half of 2027. We also have a third hyperscaler in initial qualification. Networking devices, both copper and optical, are growing proportionally with compute. The majority of this TAM is in switches. However, retimers and DSPs are driving significant business. The majority of the networking market is currently copper and optical pluggables. Over the next few years, we believe the NPO and CPO markets will grow strongly from a small base.
Greg Smith: We are working with leaders in this segment on solutions across all test insertions, and it is clear that there are many different approaches and technologies being tried by different customers. As a result, the types of tests and the handling and alignment techniques are in flux. The key to our strategy here is to develop a strong open ecosystem, to develop strong open ecosystem partnerships for instrumentation, handling, and alignment. We have spoken before about our partnerships with Technoprobe and ficonTEC, and we have just announced a partnership with FormFactor to address optical tests amongst other opportunities. Our open, non-exclusive ecosystem of probing, handling, and interface partners allows us to validate complete test cell solutions before they reach our customers' floors, giving them more interoperability, full control over their supply chains and lead times. This provides a faster path to high-volume production.
Greg Smith: The pace of innovation in compute and networking has accelerated, and we have been investing in R&D to ensure that our product roadmap is aligned with those needs. We have discussed before that there is no current ATE solution for the most complex next-generation AI and data center devices that are coming to market in 2027. The trio of new UltraFLEXplus instruments that we just introduced address that need. The first is the UltraPin5000-EM. The EM stands for extended memory. This instrument has up to 80x deeper memory than our current instrument for intensive device characterization work. The second instrument is the UltraVS64-HP. The HP stands for high power. This instrument enables testing accelerators that consume up to 15,000 amps. Finally, the UltraPort-PCIe6. This is the industry's first ATE solution for PCIe Gen 6.
Greg Smith: We also introduced the Iris 100, a solution for optical test of micro LED and VCSEL emitters. This instrument serves both mobile applications and optical networking. To assure data center reliability and uptime, customers are increasingly turning to system-level test and burn-in. In Q3, we introduced new burn-in capabilities for the Titan HP platform, which enables full system test coverage across burn-in temperature ranges. As AI moves out of the data center and into cars, robots, and wearables as part of the third wave of AI, mobile processors and microcontrollers are adding neural processing units and other AI features. To address that coming market, in Q3, we launched the UltraFLEXplus S, a small footprint system that covers both engineering and production insertion for edge AI devices. Moving on now to memory. Memory manufacturers are bringing on more capacity for HBM, DDR, LPDDR, and flash memories.
Greg Smith: More capacity means more wafers. More wafers means more bits and more units, which means more to test in memory. In the past two quarters, it has become clear that the constraints on memory supply are so severe that AI accelerators are turning to lower stack heights of HBM memory to get a larger number of stacks out of the same volume of DRAM wafers. This will tend to increase the TAM for HBM performance tests, an area where we have higher share. The HBM, DDR, LPDDR, and GDDR markets are moving quickly from generation to generation, with higher data rates and new encoding approaches. To support these new technologies, in Q3, we introduced the Magnum E2, our next-generation DRAM tester with the signal integrity and throughput needed to keep pace with our memory customers.
Greg Smith: Linear and power segments, which were previously driven mainly by automotive and industrial verticals, are adding capacity to deliver data center power distribution and regulation components. Our product revenue in the automotive and industrial space has grown from less than $400 million in 2025 to over $600 million in 2026. This trend will accelerate with new 800-volt standards and new technologies like IVR. The demand for AI-accelerated compute goes beyond the semiconductor market. The need for nearline storage and data centers has accelerated the annual exabyte growth for HDD to over 20% in 2026. Since the test time for HDD is more closely related to the capacity than the unit volume, this, as well as adding a third major customer, is driving expansion of our HDD test revenue.
Greg Smith: Scale-up networking to support large GPU clusters is predominantly served by copper connections via backplanes and cable spines running at unprecedented data rates. This has turned backplanes and cables from commodities to highly engineered and tested elements of the HPC system, which is driving significant growth in TDR and BERT test equipment served by our MLTP joint venture. In addition, we have seen strong demand for our Omnyx board test products. Together, these contributed to almost 30% quarter-over-quarter growth for the entire Product Test group. Increasingly, exotic packaging and materials are being used in data center tray assemblies. These trays demand superhuman accuracy and stamina to build. ODMs and CMs are increasingly turning to flexible, physical AI-based robots to assist in assembly and test processes. As a result, electronics and semiconductor is now our largest vertical for Robotics.
Greg Smith: In the third quarter, we introduced the Universal Robots Gen 7 cobot platform. The features of this platform and PolyScope X have been tailored precisely to bring physical AI to electronics assembly work cells and provide a platform for UR+ partners to plug into to support the diverse requirements of server and rack build. To sum up, our wafer-to-AI data center strategy is delivering. Within the third quarter, outside of compute, the rest of our portfolio delivered close to 80% of our overall sales. The R&D that we have been investing has yielded next-generation products. These products allow us to capture opportunity along the entire value chain, from wafers to modules to trays to racks. Our continued investment reflects our optimism about the near and medium-term opportunities in front of us. This was another strong quarter where AI was the driver across our business groups.
Greg Smith: We are riding a rising tide. AI has driven the semiconductor and electronics industry into a new era, and our wafer-to-data center strategy has positioned us to benefit from these positive changes. With that, I'll turn the call over to Michelle.
Michelle Turner: Thanks, Greg, and good morning, everyone. Let's get into the quarter, beginning with the total company. Both revenue and non-GAAP EPS came in above the high end of our guidance range, as our wafer-to-data center strategy and the breadth of our portfolio sustained positive momentum. For the third consecutive quarter, total company sales remained at the high watermark of $1.3 billion. For the first 9 months of 2026, we delivered $3.9 billion in revenue and $7.31 of non-GAAP EPS, up over 85% and 235% year over year, respectively, driven by all things AI. Building on that, let's take a deeper look at revenue, starting with Semi Test. Our Semi Test team once again cleared $1 billion in revenue, up 77% from Q3 2025. The revenue breakdown within Semi Test was SOC at $676 million, memory at $301 million, and IST at $95 million.
Michelle Turner: As expected, compute order timing was predominantly offset by strength across the rest of the Semi Test portfolio. Starting with SoC, compute revenue grew nearly 50% year-over-year on continued AI-related demand. As Greg mentioned, our customers' dual vendor strategies are opening up more opportunities for us in compute, and we expect healthy growth in 2027. Auto and industrial continued to strengthen, up nearly 90% year-over-year, driven primarily by power management demand increases for AI data center build-out. Mobile was up 60% year-over-year from a low base, but remains below historical levels and a muted part of the overall SoC portfolio. Now turning to memory. Our memory business delivered another record quarter at $301 million in revenue, up from the previous record set just last quarter.
Michelle Turner: This represents our fourth consecutive quarter of revenue over $200 million, driven by continued robust HBM and DRAM test solutions demand and a resurgence in NAND. Finally, turning to IST. Revenue in the quarter reached a new record at $95 million, up approximately 150% from the prior year, with continued strength in AI-related HDD storage demand from all three major suppliers in this space. Now on to the Product Test group. Revenue was $138 million, up 56% year-over-year. The group experienced broad-based growth tied to AI infrastructure build-outs from production board tests to optical to high-speed interconnects. Book-to-bill for the quarter was 1.4x, with particular strength in the newest addition to the group, MultiLane Test Products JV, as the need for data center interconnect test solutions increases. Robotics revenue was $96 million, up 28% year-over-year.
Michelle Turner: Our Robotics group delivered its highest Q3 revenue ever and also achieved profitability within the quarter. AI-related revenue remains elevated, with robot-assisted tests and assembly across the data center value chain in high demand. In the first nine months of the year, AI-related revenue was roughly 20%. Aligned with the third wave of AI Greg mentioned, the physical and edge AI ecosystem is in early innings and building momentum. Our Robotics group has announced partnerships with industry leaders such as NVIDIA and Analog Devices, as well as innovative startups, including Scale AI, Generalist, Bright Machines, and Sereact. These partnerships reflect growing interest in physical AI. Now moving down the P&L. Gross margins for the quarter were 59.1%, up 60 basis points year-over-year, driven by strong volume and product mix. While sequentially gross margins were down 70 basis points, driven primarily by product mix.
Michelle Turner: As expected, OPEX increased, driven by more R&D and go-to-market investment in support of future growth. Finally, non-GAAP operating income was $413 million, with an operating margin of 31.6%. Now moving to capital allocation. Reinvesting in the business remains our top priority. In 2026, we will invest close to $1 billion across R&D and CapEx, with R&D investments representing a double-digit percentage of our sales. Beyond that, our strategy is to maintain the cash reserves to grow the business, return capital to shareholders through both dividends and share repurchases, and keep dry powder available for creative M&A. Each pillar of our capital allocation strategy is focused on innovating from wafer to data center, positioning us well over the near and mid-term. We ended the quarter with cash and investments of $625 million, up 21% from last quarter. We had free cash flow of $227 million in the quarter.
Michelle Turner: For the first nine months of 2026, free cash flow was $806 million, up nearly 250% from the prior year period. Additionally, from a working capital perspective, we increased our inventory in support of future revenue growth. We paid $20 million in dividends in the quarter, and our share buybacks were $99 million. Looking ahead to our Q4 guidance. For the quarter, we expect revenue in the range of $1.25 billion to $1.35 billion, and non-GAAP EPS of $1.95 to $2.25. Gross margins are expected to be in the range of 57.5% to 58.5%, reflective of product mix and new product launches. Operating expenses are expected to run at 28.5% to 29.5% of Q4 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%.
Michelle Turner: Our Q4 guidance midpoint of $1.3 billion represents growth of approximately 20% over last year's Q4, which would bring full-year revenue to approximately $5.2 billion, up over 60%. We expect Q4 will be our fourth consecutive quarter of revenue above $1.25 billion, representing a sustained step change in the business from a year ago. As we said last quarter, we expect 2027 to be another year of healthy growth. Our strengthening backlog and the growth in compute give us momentum, and we expect to carry and build throughout the year. For your modeling purposes, we expect FormFactor investment to close in Q4, subject to regulatory approval and customary closing conditions. The rest of our portfolio is in full effect in the H2, as memory, auto and industrial, IST, Product Test, and Robotics grow, offsetting a H2 program timing in compute.
Michelle Turner: In closing, Q3 was another quarter of strong execution. AI demand continued to pull through every part of our portfolio, from the chips that power it to the systems, interconnects, and robots that build it. This is what our wafer-to-data center strategy is designed to capture. As we look to Q4 and into 2027, the demand signals across our end markets remain strong, and we look forward to sharing an updated target earnings model on our Q4 call. I'll close by thanking all of our Teradyne team members around the world for the hard work and dedication that drives our results and positions us well for the opportunities ahead. With that, operator, we're ready for questions.
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. Thank you. We'll take our first question from CJ Muse with Cantor Fitzgerald. Your line is open.
CJ Muse: Yeah, good morning. Thank you for taking the question. I guess first question on memory, you obviously put up a record number for September. I am curious how we should think about the trajectory of that business into December. Then moreover, as you think bigger picture into 2027, I know it is early, you are going to save that for February, your outlook, but as you sit here today and as you look at your book to bill, how are you thinking about maybe the rank order of growth between HBM, traditional DRAM, and NAND?
Greg Smith: Hi, CJ. It is Greg. Looking out to Q4, we think memory is going to continue at a really strong level. Going into 2027, given all of the fab expansion that is coming online in 2027, we are expecting significant growth for the memory business year on year. You were asking in terms of what segment is going to drive most of the growth. We would say that this year, HBM was probably the biggest thing that drove the growth of the memory TAM. Flash came back pretty strong, and DRAM was surprisingly strong based on what we were thinking at the beginning of the year. Looking at next year, I think HBM is the star. There is going to be growth across all of the segments of memory, but I think the biggest impact is going to be in HBM growth.
CJ Muse: Very helpful. Then, maybe on your gross margin guide and the strength in the 1.4 book to bill you highlighted for Product Test, how should we think about Product Test sequentially? I am assuming that is up, and is that what is driving gross margins lower? As you think about that business next year, what impact does that have to what we should be thinking about as a more normalized gross margin for Teradyne?
Michelle Turner: Yeah, so I will start with the gross margins, and then we can talk a little bit about Product Test. So, within the quarter, gross margins came in at 51.1%. This is up 60 basis points from the Q3 last year. Within the Q4 guide, we are also guiding up about 80 basis points in comparative to last year. Then if you extrapolate that for full year, our overall gross margins for the year will be about 59.4%, which is up about 110 basis points year over year. So, we are at the low end of the earnings model that we just put out in January, and we are going to expect to update that in the Q4 call. So, thinking about the three segments, CJ, Product Test is actually accretive to the overall portfolio.
Michelle Turner: So, if you think about modeling for Q4 and into next year, we expect that to continue to be true. As you think about gross margins for 2027, I put it in a couple of buckets in terms of headwinds and tailwinds. From an overall headwinds perspective, I would say volume, we are going to have another year of healthy growth when you think about the overall portfolio, along with some elements of mix as we think about next year. Tailwinds, though, from an overall cost perspective, we are continuing to see cost pressures, inflationary pressures, just across the overall ecosystem, across the supply, along with potential expanded capacity next year as well. As we look at H2 of next year, we are continuing to see robust demand signals.
Michelle Turner: To the extent that we are continuing to build on our capacity, that will also be an expense that we would expect next year as well. I think that is the most-
Greg Smith: Just a- You misspoke. You said 51.1%. I think you meant 59.1%.
Michelle Turner: 59.1%, yeah.
Greg Smith: Just want to make sure that that
Michelle Turner: Yeah
Greg Smith: doesn't stay out in the atmosphere.
Michelle Turner: No, I appreciate that.
Greg Smith: But I completely agree with what you said, that there are kind of, I'd say, equal up and down forces in terms of gross margin going into 2027.
Michelle Turner: Yeah, the only other thing I would add, CJ, in terms of Q4 and comparative to Q3, Greg referenced the continued growth in memory, and we certainly expect that. We do expect, though, that Q3 was the record quarter within 2026, so we think there is a bit of a digestion period, although it is going to continue to grow from Q4 of last year. We expect that compute was at its lowest within Q3, so we expect that that is going to start to reaccelerate from a growth perspective in Q4. Then to your point, we also expect Product Test and Robotics to grow within Q4 as well.
CJ Muse: Thank you.
Operator: Thank you. We will move on now to Timothy Arcuri with UBS. Your line is open.
Timothy Arcuri: You are in kind of the shape of the year. This year kind of played out, you got this big step up in Q1, then it was basically flat throughout the year, Greg. Inventory, though, is up like $200 million over the past six months, so obviously you are portending a pretty big year next year. Can you speak to that? I guess, particularly, it sounds like both your first and your second hyperscaler customers are a little more backend loaded next year. So, does that mean next year is going to be a backend loaded year? Should we think of H1 as kind of flat versus H2 of this year, then a big step up in H2 next year? I ask because people are sort of thinking that it is more of a ratable ramp for the year.
Timothy Arcuri: If you can help us shape that would be great.
Greg Smith: I think there are two things that are driving the increase in inventory that you are seeing. One is, you are right, we are preparing for robust growth in 2027. The other is that many of the components that we are procuring to build these testers, the lead times for those have gone out as well. We are needing to essentially put on order and take inventory against a longer lead time of our inputs. There are two things going on there. I do not think it is a good idea to just extrapolate from that number to a pure growth number. In terms of how next year breaks down, we will have a lot more to say about that in our Q4 call, but I will tell you that in terms of the ASIC programs, I think you are right.
Greg Smith: I think they are going to tend to be more back half loaded, but I do not particularly expect I think it is going to be a strong year all around, and we will talk more about the phasing next quarter.
Timothy Arcuri: Okay. Greg, on the share gain pace, last night your competitor was kind of I mean, they keep pushing back on losing any share, and in the release last night, there were some allusions to contract manufacturing partners adding a bunch of supply for them. How do you see your lead times affecting the pace of the share gains? Are you being proactive enough about having your supply chain add enough for you to keep lead times when you need them so that your customers do not just go to them and place orders with them? Thanks.
Greg Smith: Yeah. We have talked a lot about this in prior calls, that we have added significant capacity already for our primary SoC test platform, the UltraFLEXplus. We are actually at like 4x the capacity that we were about 18 months ago, and we are essentially planning our next capacity step-up for that platform. In addition, we have employed a dual vendor strategy for our own supply chain. In 2026, we qualified a second CM to build that platform. We are in the process of doing that for our memory test platform as well. We are aggressively adding capacity for both memory and our Eagle power test line. We are definitely looking to increase our capacity. We are doing our best to try to hold our lead times.
Greg Smith: One thing that is a little bit different is, we are holding our lead times, but customers are giving us probably better forecast information about when they are going to need capacity in advance of placing those orders. We have a pretty good viewpoint going out further than we did before, and that is helping us map out exactly what we need to do for capacity planning. We are doing our best to try and hold our lead times. I would say that if demand comes in that we have not heard anything about from a forecasting perspective, the drop-in place for that is probably longer than it was a year ago. But we are doing our best in terms of procuring material and expanding capacity so that we can still be very responsive to spot demand.
Timothy Arcuri: Okay, Greg. Thank you very much.
Operator: Thank you. We will move next to Mehdi Hosseini with SIG. Your line is open.
Mehdi Hosseini: Yes, sir. Thanks for taking my question. Two follow-ups for me. Greg, I want to go back and see if you can qualitatively give us an update on the demand vectors. I think the targeted model is now stale. Yes, we are going to have to wait until Q4 earnings to get an update, but I think it would be very helpful if you can shed some light into different demand vectors. It seems like everything is tracking better than expected, and next year could be H2 weighted. Is there anything else you can provide? I just want to make sure that consensus is already well above your target, and we are not being too aggressive. I have a follow-up.
Greg Smith: Yeah, no. I think we can definitely. We are going to give you an updated model in January. The last model was based around a $13 billion ATE TAM, $12 billion to $14 billion. The TAM has grown very, very quickly. When we were building that model, we were trying to give you an idea of what a larger Teradyne would look like without tying down exactly when that would happen because of uncertainty about these growth rates. Having said that, there are multiple independent parts of Teradyne that are each growing associated with their markets and our success there. We had to make assumptions in terms of the mix. In our model, we assumed that Semi Test would be 80% of the revenue, and Robotics would be 10%, and Product Test would be 10%.
Greg Smith: Semiconductors are growing so fast that that mix has changed. Also, the semiconductor TAM growth has been so concentrated in compute, an area where we have low but growing share, that essentially we need more ATE TAM in order to hit the revenue that we had in the model that we published. As we are looking to put together the model that we will talk about in January, we are definitely retiming all of the different groups of the company. If you run through it, compute is growing faster than we anticipated, and we are gaining share there at a modest rate because that is being driven by dual vendor strategies, primarily from those customers, and growth in networking.
Greg Smith: I would say that mobile is underperforming our expectations from the model as we put it together, and we are going to be relooking at that to see whether and when we would see an agentic AI-driven recovery in that space. The automotive and industrial space, we are seeing good growth there, and I think that is tracking to the model that we had before. Both Product Test and Robotics are tracking the growth that we had expected in our model, but the semiconductor growth has outpaced it. When we put it all together, I would expect to see us building an evergreen model against a much larger ATE TAM, and we will talk about that in January. The growth factors are all there, and it is all positive in terms of the direction that we are going.
Mehdi Hosseini: Thank you. Thanks for the detail. And follow-up, your industrial automation for me is basically physical AI, and it has been there. And you have also built a manufacturing capacity in US. What needs to happen for a higher growth rate? Is it just a matter of timing, or do you have to make more modifications to the model? Anything there that could help you with a higher growth rate?
Greg Smith: Yeah. So it is a great question. So with the growth of physical AI, the capabilities of physical AI, we think that that is going to unlock significant growth in the Robotics group. There are a couple of things that have to happen. Over this year, and Michelle talked a little bit about it in her script, we have been building partnerships with the labs that are working on physical AI models and physical AI implementations. We are also aligning with the CMs and ODMs that are serving primarily the AI data center build-out. They are doing server builds, basically. These things are really tough to build, and the customers are quite sophisticated in terms of the adoption of technology. That is kind of fertile ground to be able to deploy robots.
Greg Smith: The thing that I will warn you is that because we are working with the labs, and then the labs are working to solve the problems with the end customers, it is going to have a gestation period. So I would expect us to see robust growth in terms of the transactions that we have to the labs in 2027 and the beginning of end market growth. But I think it is probably more of a 2028 thing than a 2027 thing beyond our sort of major customer in Robotics.
Mehdi Hosseini: Thank you.
Operator: Thank you. We will move on now to Jim Schneider with Goldman Sachs. Your line is open.
Jim Schneider: Good morning. Thanks for taking my question. I was wondering if you could maybe comment on your near-term visibility heading in the next several months. Specifically, I think you have talked about visibility extending beyond the current quarter, so I was wondering if you could maybe, in terms of the longer-dated commentary, help us a little bit, at least directionally, with your view on Q1 preliminarily, directionally, up, flat, or down, and maybe what would be driving that beyond the memory drivers you talked about earlier. Thank you.
Michelle Turner: Yeah. Good morning, Jim. How are you? It is Michelle. So from a visibility perspective, we talked about this over the last couple quarters. Coming into the year, historically, we have had about 13 weeks of visibility. Fast-forward to where we are today, we have pretty good line of sight out a couple quarters. So where we are sitting as we exit 2026 is really strong backlog. So we have pretty good line of sight to what will play out in Q1. The caution we have around putting any guidance around it right now is we do continue to see movement within any given quarter, depending on how test cells are coming together for our customers.
Michelle Turner: So I would say we would expect Q1 from where we sit today to be some level of growth, but we expect the year to progressively grow throughout quarter on quarter versus what we saw this year, which was more of a 50/50 split.
Jim Schneider: Thanks. That is very helpful color. Thank you. Then maybe as a follow-up, I was just wondering if you could sort of give us a view on the Robotics business, very broadly speaking. Obviously, the momentum there is improving, and I know that you have some level of visibility on some very large customers potentially ramping next year. So maybe you give us any update on sort of how your visibility in Robotics compares to the broader visibility in the business you just discussed. Thank you.
Greg Smith: Yeah. So, visibility in Robotics, aside from our largest customer, is pretty short-term. I mean, we have, coming into a quarter, a large portion of our revenue is coming from turns. So we manage that business against sort of a pipeline of opportunities. I will tell you that the pipeline of opportunities is expanding, and our closure rates are relatively consistent. But it is essentially probabilistic. Where in the Semiconductor Test space, we are kind of counting noses. We know how many testers people will need, when they will need them. In terms of the Robotics business, a big chunk of it is essentially driven by an opportunity pipeline. Our large customer, we tripled our revenue for that large customer from 2025 to 2026. We expect to see robust growth next year.
Greg Smith: What is going on with that major customer is that in 2025, they were largely doing engineering work to prove out the solutions they were deploying. In 2026, they deployed that solution to their sort of leading edge of distribution centers and have been working out the kinks and getting it ready, and also sort of developing the processes so that they can install these systems quickly, so that they can quickly flip over a distribution center from manual to automated in these workflows. That is the work that we expect to see happening in 2027, sort of a more broad deployment of these technologies. But we will have to see exactly what pace they are going to be able to do that work.
Michelle Turner: Yeah, and just to follow up on that, Jim, this is an example of where we see more of the back half weighting based on that customer schedule.
Jim Schneider: Great color. Thank you.
Operator: Thank you. We will move on now to Joseph Cardoso with JPMorgan. Your line is open.
Joseph Cardoso: Hi. Good morning, and thanks for the question here. Maybe just for the first one, I just wanted to touch on, in your prepared remarks, I think you made a couple of references around CPO and NPO, so was just curious if we can get an update on how you are thinking about the timing. It sounds like maybe anecdotally there was a little bit of a de-emphasis there in terms of how fast these opportunities could ramp relative to maybe what we are hearing across various suppliers in the broader supply chain there. Just curious whether you are thinking about that any differently as well as the content and TAM associated with the opportunity. Then I do have a quick follow-up. Thank you.
Greg Smith: Hi, Joe. I think we remain quite enthusiastic about CPO. When we have talked about it before, we have tried to be pretty clear that we are in the preseason right now, that there is an initial customer that is driving towards a significant ramp in 2027, but it is growing from a very small base. We have talked about the TAM in 2026, probably somewhere in the neighborhood of $100 million for the test equipment portion, and that could grow to $300 million to $700 million by 2028. I think that is still the right range. As to whether we trend towards the high end or the low end of CPO, I think it really depends on whether the economics of CPO get to the point where it is practical to ramp it hard.
Greg Smith: Right now, the test times and the test intensity required to do CPO is quite high. I think that that is going to be somewhat of a limiter in terms of how broadly it is deployed until those. Test is only part of it. There are other challenges in the whole assembly flow that need to get worked out and refined. I think as those things get refined, this is going to turn into something big, that the 300 to 700 is just sort of a stop along a path of growth. This is likely to continue to be up to a billion-dollar market or beyond. But the exact timing, how fast we go up that ramp, is something that I think is going to be a question mark. The thing that you have to remember is, these network connections have to get made.
Greg Smith: Whether they get made with CPO or NPO or pluggables or copper, the key thing is that clusters are going to get bigger and connectivity is going to be increasing. Our strategy is to make sure that we are able to serve all of those markets and be able to serve that from both our Product Test group for pluggables and copper, and from our Semi Test market for all of the switch silicon and everything else. We are definitely investing towards an open ecosystem in CPO, but I think we are trying to make sure that our business strategy is resilient to any uncertainty in the timing. That is not like a lack of confidence in the end goal. It is more just knowing that the importance of these connections is so high that they are going to have multiple paths to success.
Joseph Cardoso: Yep. Got it. Appreciate the thoughts there, and totally fair. Maybe on the second question, I wanted to go back to compute, but maybe touch on it in a different angle. Obviously, you have your kind of disclosed customers that you will be ramping through 2027, but maybe if we think about more medium-term, longer term, I just want to hear your thoughts around potential engagements beyond those three customers, particularly just given that we are hearing more around maybe a bigger step-up or inflection around custom ASIC opportunities going into 2028 with additional hyperscalers and potentially AI labs. Just curious how you are thinking about your opportunity or the TAM there as you guys are thinking or maybe hearing about these engagements or discussions with customers. Are you seeing maybe a similar trend as we kind of think about 2028 as well?
Joseph Cardoso: I know I am skipping 2027 a little bit here, but it does seem like this is a big talking point around maybe an expanding opportunity set here. Just curious how you guys are thinking about that. Thank you.
Greg Smith: I think it is awesome that you are thinking about 2028, and it really reflects the new reality of this market. We used to be in a world where there was significant uncertainty quarter to quarter around how the end market would develop. Now, any quarter-to-quarter uncertainty is really just around shipment timing and how fast people can build buildings. It is pretty cool that we have the ability to look out to 2028 and have a conversation about long-term targets. In our prepared remarks, I talked about hyperscaler one is mature, hyperscaler two, we are in fast follower. We expect to see stuff in the back half of 2027. We are in qualification for a third. There are other X factors here in terms of what will happen with the Terafab investment, what will happen with OpenAI, with Anthropic.
Greg Smith: All of these folks are leaning hard into developing their own silicon technology for a complete stack. I will say that we are approaching all of them in the same way. In some cases, we are the first-in supplier and working to maintain and maximize our share. In other cases, we are positioning ourselves as a capable dual vendor option for them that will allow them to secure their supply chain. It is essentially the same engagement process that we have used for the first three hyperscalers is going to be what we use on subsequent ones. We think that the same things that are driving those early hyperscalers towards the choices they have made are going to be driving the rest of the market. I think it is logical to be thinking about what is going to happen in the future.
Greg Smith: I will say that our competitor has established a very powerful share position in compute. We are making significant progress in terms of share gains inside of compute in 2026, but the size of the compute market has grown so much that that has essentially had a dilutive effect on overall share. I am very optimistic about what will happen with hyperscaler programs, but it is definitely something that takes time. 2027 is going to be a good year for these programs. 2028 is going to be even better.
Operator: Thank you. We will move on now to Vivek Arya with Bank of America Securities. Your line is open.
Vivek Arya: Thanks for taking my questions. I had a near and then a more of an intermediate term question. On the near term, Michelle, you mentioned that you expect sales to kind of consistently grow over the next several quarters. If I go back to the Q1, the Q4 to Q1 transition in 2022, 2023, 2024, 2025, I think Q1 sales were down double digit. But in Q1 2026, they were up because I imagine compute started to become more important than mobile. So I appreciate it's a lumpy business, but I just wanted to make sure we keep anything in mind that could cause a Q1 to be below Q4 levels.
Michelle Turner: So, let me clarify. So, you were asking about Q4 to Q1. I was referencing sales growing throughout 2027. So we expect the quarters next year to represent growth quarter on quarter when you look at next year. And I also expect between Q4 and Q1 that we're also going to have growth. So just to clarify and set the baseline in terms of, and I'm sure, Maddie, you quoted. The other thing I would point out is coming into this year, when we set the 60/40 split, the visibility we had was really at 13 weeks. As the year has progressed, we have gained additional visibility that's helping better inform how we position for Q1 and as we think about next year. To your point though, we do continue to see lumpiness quarter on quarter, and so I think that's the caution that you're hearing.
Michelle Turner: We feel really strongly in terms of the demand cycles, and we feel strongly that next year is going to be another year of healthy growth, but there could be variability within quarter. But where we sit today, we expect each quarter next year to grow in comparative to 2026.
Greg Smith: Just like the thing I want to add is, I think we talked about this probably two calls ago, maybe three calls ago, that the patterns that we saw up through 2024 are over. That-
Michelle Turner: Yeah
Greg Smith: I know it is a useful analytic technique to look at historical patterns. There has been a seismic shift in the Semiconductor Test market that started in 2024 and really took hold in 2025. Prior to that, the mobile consumer cycle was the tick-tock of the industry. But after that, it is all around data center buildup schedules and capacity coming online in semiconductor manufacturers that are vastly underserving our market demand. I think it is an important thing for us to try to figure out how to give you good directional guidance about what is going on, but part of that is to be very careful about applying patterns that existed prior to 2024 to a market that is twice as big and acting very differently.
Michelle Turner: Yeah, I think the other thing I would call there is, it really is driven by compute order timing, right? That is what drove this year. We expect that that is going to play out next year as well.
Vivek Arya: Very helpful. On my follow-up, Greg, one for you. You made this very interesting point that memory constraints are pushing some accelerators towards lower HBM stack heights. I am curious to know, is this something that you think might happen? Is it already happening? Will it become prevalent? I think you also mentioned that your share might be higher when the different heights are shorter. I would appreciate your perspective on what is the sensitivity here, and for the same amount of HBM bit, how much more test insertion or test time and intensity and opportunity does that create for you?
Greg Smith: I am afraid I cannot give you hard numbers, but I can give you some directional guidance here. I think it is pretty locked in that next generation, there was a trend towards higher stack heights, like from 2024 to 2025 into 2026, there was this progression that stack heights were going to go four, six, eight, up to 12, 16 high. I feel like that has reversed in 2026, and I would expect to see lower stack heights across a number of different devices. How is that good for us? The way to think about it is that there is, the bottleneck is the total number of DRAM wafers that can be produced. Those DRAM wafers, if you think about it, you can build twice as many four-high stacks as you can eight-high stacks out of the same supply of DRAM wafers.
Greg Smith: So, that essentially helps de-constrain the shipments of AI accelerators that are using those HBM memories. The other thing is that with a higher stack height, you are essentially trying to go through a. Like, you are trying to get more data through a narrower pipe. So, you have some data rate advantages from having more DRAM stacks versus higher stacks. The thing that makes it an advantage to us is that our market share in DRAM wafer sort is lower than our market share in HBM performance test. So, if the same number of wafers are going into more stacks, that means more stacks need to get tested, which is where we sell more testers. I think it is a positive indicator for what our share will do going forward, but I do not have a hard number for you.
Vivek Arya: Thank you.
Operator: Thank you. We will move on now to Krish Sankar with TD Cowen. Your line is open.
Krish Sankar: Hi. Thanks for taking my question. The de-stacking argument. There is some chatter that there might be some lowering of the HBM signal or pin speed. Would that have any impact on test complexity? Along the same path, I am curious about HBM competition, not from the Japanese competitors, but more from the Korean players like UniTest, et cetera. How is that shaping up? Then I had a follow-up.
Greg Smith: Krish, I heard part of your question, so if I get it wrong, please feel free to clarify. I think the first part of your question was around HBM de-stacking. Honestly, while we've heard a lot about lower stack heights, I can't say that we have heard a lot from our customers around de-stacking or how de-stacking could affect tests. So far, that is not a factor in the way we're looking at it. In terms of share versus Korean suppliers, Korean suppliers in test for memory are primarily serving the wafer sort part of the business, not the performance test part of the business. We tend to have less of an impact.
Greg Smith: Given the expansion in capacity that's going on right now, I would expect that they're going to see healthy growth, that they're going to get a fair amount of business as the number of DRAM and flash wafers increase.
Krish Sankar: Got it. Thanks for that, Greg. Then a quick follow-up from Michelle. Thanks for the update on the capacity and your inventory position. I'm just wondering, how much of the inventory build-out is actually for true demand versus actually building inventory of components that could be constrained? For example, I think your testers use DDR4 chips and things like that. I'm just wondering how much of that is inventory build to prevent any constraints down the road versus true demand?
Michelle Turner: Yeah, I'd say it's about 50/50. The other thing I would point to, and I think this is important to go back and look at, is when you look at our inventory from a DIO perspective, we had actually reached unusually low levels in Q1. Part of this was we were building in really fast, really quickly to meet the demand and the surge that's occurred over the last six to nine months. Part of this is also a normalization, and I would argue the 189 that we're at, I still think that we should probably be around 200 when you think at kind of normal levels in comparative to some of our peers. I think there's an element of that that has to be factored in as well, and not just extrapolating on the 35% growth within the quarter.
Krish Sankar: Thanks, Michelle.
Operator: Thank you. At this time, we have reached our allotted time for Q&A. I would be happy to return the call to our host for any closing comments.
Greg Smith: Thank you, operator. It was another great quarter for us. We are looking forward to Q4, and especially looking forward to updating you all on an updated model in our next earnings call. We will talk to you then.
Operator: This concludes today's Teradyne Q3 2026 earnings call and webcast. You may disconnect your line at this time, and have a wonderful.
