Q2 2019 Earnings Call
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Progression.
On a high volume perspective, we see four phases of Fiveg rollout.
First an infrastructure buildout for frequencies below six gigahertz.
Followed by a ramp of handsets operating in those same frequencies.
One or two years later, a similar infrastructure buildup for millimeter wave frequencies with a subsequent ramp for handsets that support those higher frequencies.
In terms of volume we are primarily in the first subs sixg infrastructure phase now driven mostly by China infrastructure with the remaining phases, playing out and building momentum over the next two to five years.
While the big millimeter wave ramps are still in the future. There was a very active millimeter wave development work underway across the entire industry.
We've been in the middle of that development and lead customers in both semi test and at Lifepoint.
Recall Lifepoint was first to market with the millimeter wave capable production tester and just last week, we announced the MX 44.
Our semi test millimeter wave product, which has been in the hands of early customers for several quarters.
The MX 44, and instrument for our ultra flex platform delivers the RF performance software ease of use production worthiness and economics necessary to support the development and early production of millimeter wave devices and modules.
In memory test, we continue to expect the market to be at the low end of our $6 million to $700 million range.
Our shipments in Q2 of 58 million.
Were up over 20% from Q1 on the strength of Flash final test and flash and DRAM wafer test growth.
Despite the soft soft overall market, we continue to see strong demand for our NAND flash tester as the push for higher speed interface testing continues to be strong.
In industrial automation Q2 sales grew 20% compared with Q2 of 2018 and for the first half sales grew 27%.
However, the global Molaison in industrial market, the global malaise, and industrial markets, especially those related to automobile production, we're a stiff headwind.
The automotive supply chain remains a large component of cobots sales and weakness in this sector has been difficult to overcome.
Sanjay will provide more details on this sector in a moment.
Given the lower year to date growth, we now expect full year sales growth to be under the low end of our long term range of 30% to 40%.
While below our goal of this year, we remain confident of our long term growth targets.
We see this year slower growth as a natural ebb and flow with the market and not a competitive issue.
As our results compare favorably to the broader industrial automation market in which most companies are reporting sales declines compared with last year's Q2.
We continue to work on ramping our lead generation activities, new market vertical diversification and delivering initial availability of our Tam expanding been picking solution later this year.
While our high growth moderated in the quarter there were several significant milestones to note.
Those include you are the largest account crossing the 1000 robot installed base threshold.
Continued progress on our large account program.
And an OEM partnership with sales growth a leader in plastics manufacturing automation.
At mere we now have several customer sites operating near fleets in excess of 25 mobile robots and our installed base of robots at Chinese hospitals has reached over 80 units and continues to grow.
Before leaving Ian.
I'd like to comment on our recent investment in real where an innovative private company that uses the power of advanced wearable technology. In this case, a head mounted augmented reality device that makes the workplace safer and more productive.
This investment aligns with our strategy of bringing the power of advanced automation to companies of all sizes to improve the productivity of their employees and the quality of their products and services.
Through the investment Teradyne will gain insights into a wide range of applications and enabling technologies with the potential use across our entire business.
So back to the total company level when you look at the full year, we expect the second half revenue and EPS to be slightly above the first half.
With test a bit stronger and a bit weaker than we expected three months ago.
With that I'll turn things over to Sanjay.
Thank you Mark this morning, I'll make some comments on the first half of 2019 go through several highlights related to the business units offer some observations about teradyne. After my first three months on the job and then move to our second quarter results and third quarter of.
We're pleased with our first half performance as Mark noted at the midpoint of our fiscal year. Our first half sales totaled $1.058 billion up 4% from the first half of 2018 and non-GAAP EPS of one dollar and 20 cents up 15% from the first half of 2018.
Gross margin improved one point to 58% in the first half of 2019, primarily driven by favorable product mix in semi test.
The fundamentals of our semi test business remains strong as noted.
With increasing test complexity and acceleration of Fiveg infrastructure investments in the marketplace driving demand industrial automation continued to grow, albeit slower than expectations, but still outpacing the market facing several headwinds turning to the business units.
Semi test had a strong second quarter with sales of $375 million. The key drivers of growth were one continued pull in of testers supporting fiveg infrastructure and to 20% quarter on quarter growth in our memory business driven by DRAM and Flash test shipments, we expect fiveg and memory demand drivers to continue in Q3.
Regarding fiveg, we see accelerated infrastructure spending for test equipment, continuing in the second half of 2019.
While we expect growing fiveg handset related test spending next year, we are forecasting a larger spending ramp in 2021.
Our light point business grew 42% quarter over quarter to $41 million driven by the system test requirements for new wireless standards and early Fiveg handset volume. We expect this level of business to continue into Q3.
In system test revenues grew 25% quarter over quarter to $30 million to $73 million, driven primarily by storage testers for multi terabyte capacity and hard disk drives and increased defense and aerospace shipments.
Now turning to industrial automation business.
Our Q2 revenues were $75 million, which grew approximately 13% quarter over quarter and 20% year over year as Mark noted this was despite the glowing automotive investments.
Which is universal robots single largest market.
Nonetheless, you are up 10% year over year growth to $63 million was less than our forecast.
Geographically growth in China, and Asia Asia Pacific remains relatively strong, but has been offset by slower growth in Europe and North America.
Even in the recent slowdown we believe fundamental demand drivers of the cobot market, specifically the scarcity of labor enhanced quality financial returns and unique ergonomic benefits and manufacturing will continue to drive long term growth. We continue to believe we will go from an installed base of tens of thousands to hundreds of thousands of cobots in the midterm.
In the short term, we're seeing several industry headwinds working against our growth several quick market reference points will help calibrate the situation first robotics industry Association or ROI.
Isn't association focused on the entire North American robot market.
Reported a year over year decline of all robots, all robot units sold of 29% in March this quarter a trend we believe extended through the June quarter. This is principally due to the slowdown in the automobile manufacturing sector, which is over 50% of the North American robotics market.
Global PMI as a proxy for industrial growth have moderated with 30 of 42 regional PMI measures around the world.
Now below 50.
Thus, indicating purchasing managers view that marketing conditions are contracting rather than growing.
Obviously, we're not immune from the industry wide conditions for you are we believe in the market regardless of the short term headwinds and we'll continue to invest to leverage our strengths in the product portfolio.
Ecosystem and channel two.
Invest in the product portfolio.
Ecosystem and channel to extend our competitive differentiation lastly, we continue to train.
And bring on new partners and support lead customers in key vertical segments recall, our strategy is to go to market with our channel partners, but to also develop relationships with the key leaders in large more market verticals. These direct relationships enable us to understand the end market requirements for products accelerate deployment time and enable new solutions with third parties.
Demand will continue to be fulfilled through our channel partners and our view the recovery coming out of market troughs provide an opportunity to extend our competitive lead and hence our continued investments later this year investments will yield and and industrial been picking product with ease of use flexibility and economics that our customers have come to expect from universal robots.
We expect new functionality like been picking will increase the addressable market for you. Our robots sorry, you are cobots by approximately 50% plus.
This investment and others will position us for above market growth when industrial investments Reaccelerate.
Shifting to MYR.
Which is obviously much earlier in its life, we continue to see healthy sales growth with second quarter sales of approximately $11 million up 81% from last year's Q2 on a pro forma basis due in part to the introduction of the mere 500, and Mir 1000 palette moving autonomy as robots.
Well I've been on the job for just a few months I'd like to offer some general observations.
Teradyne has a well positioned core test portfolio with secular market growth in the low single digits. The business model is flexible with variable compensation tied to profitability, which ensures that all employees objectives are aligned with the company's objectives manufacturing is mostly outsourced for the core test business, which reduces capex and brings flexibility and are sometimes volatile market.
We can focus on product road mapping.
Without the burden of managing factory assets, which could hinder optimal roadmap planning and tie up significant capital.
Lowering long term strategic flexibility.
And May I visited several of our contract manufacturing partners in China, and Malaysia, I was impressed with the quality of our joint processes and mechanisms to ensure flexibility of production levels. We operate in markets that are volatile and the flexible manufacturing operation deliver short customer lead times, while modulating spending relative to demand.
The other relevant point about manufacturing in China, Malaysia is that it enables us to minimize the impact of the current trade environment.
I've observed in industrial automation, we have a very different situation and that we are defining and developing new markets.
As these markets are in their infancy.
We are focusing to stay well ahead and fortify our competitive position capturing these opportunities is one thing being able to scale to support these opportunities is another.
Scaling manufacturing, a global operation global distribution and App.
And application ecosystem and so on are areas, where teradyne has delivered synergies with our recent acquisition.
It's also clear to me that our approach to integrating new businesses and to the company as effective to capture the market and realize the opportunities we enable businesses to decentralise with to have decentralized operating decision making.
This allows our acquired companies industry experts to continue to drive at an entrepreneurial pace with minimal bureaucracy.
Synergies are enabled through teradyne's expertise in key support functions to drive efficient scale like supply line management operations legal support global HR and design for quality that all combined to accelerate growth, which is sometimes hindered some smaller companies to truly scale and capture their market.
There is a true collaborative management approach between business and corporate leaders that is focused on supporting the needs of these fast growing businesses.
A key difference between the core semi test business and industrial automation is manufacturing as stated our core test business as outsource manufacturing for many reasons, including cost flexibility scale and diversity of geographic location.
Something that is proving very important in these times, our industrial automation portfolios vertically integrated with manufacturing in house manufacturing in house is a key differentiator in these new markets, but we are trying to grow and enable fast time to market and quality solutions.
Turning to capital allocation now.
We'll stay disciplined and maintain the financial strength to return capital to shareholders, along with making acquisitions, where it makes financial sense over the past three calendar years, we've averaged $420 million of annual free cash flow, which which supports a balanced capital return approach with share buybacks dividends and acquisitions.
We target maintaining approximately $1 billion on the balance sheet earmarking 500 million to ensure we can ride out an economic downturn and continue to invest in our roadmap. This is paramount to our long term success, because when the market turns to growth from such a downturn, we will be well positioned with a competitive roadmap to capture the opportunity.
In addition, we earmarked $500 million for potential acquisition acquisitions to support our M&A pipeline.
We also have $460 million in long term debt in the form of a convertible bond due in 2023.
We annually review our capital allocation approach with our board.
And we'll communicate any changes to you in the January call.
Turning to the balance sheet.
Our cash and marketable securities stands at $994 million about flat to the end of the first quarter, we returned $106 million of capital in the second quarter, principally through $91 million in share repurchases and $15 million of dividends or share repurchases. Since 2015 totaled $1.7 billion at an average buyback price of $30.44.
Recall, we plan to buy back 500 million of stock this year and returned 60 million in dividends.
Turning to the second quarter company revenue of $564 million came in slightly above the high end of our guidance for Q2, mainly driven by the acceleration of tester shipments for Fiveg infrastructure, we had two customers greater than 10% of sales in the quarter.
non-GAAP gross margin was 58% non-GAAP operating profit was 24% and non-GAAP EPS was 66 cents.
You'll see our non-GAAP operating expenses were $190 million up $11 million from the first quarter as planned.
Primarily due to increased distribution investments.
Who's me.
You are and some R&D expenses in the semi test along with higher variable compensation tied to higher profits.
The detailed segment level sales for the second quarter, including the geographic breakdown.
For you RMBS are shown in the table in the presentation.
We continue to scale up our operating expenditures for industrial automation businesses. We've included a schedule showing.
Excuse me.
This breakdown between test and.
Let me mention one GAAP item of note.
In the quarter, we had discrete tax expense of approximately $15 million related to the finalization of our repatriation tax total liability.
Turning to our guidance of the third quarter.
Revenue expected to be is expected to be between 540 and $580 million.
Dollars and the non-GAAP EPS range is 64 to 74 cents.
On 171 million of diluted shares Q3 guidance excludes the amortization of acquired intangibles restructuring.
And other and other and sorry.
Excuse me and noncash convertible debt interest.
Third quarter gross margin should run approximately 58% to 59% and total opex should run from 33% to 35%.
The operating profit of our third quarter guidance is forecasted to be 24% to 26%.
Shifting to taxes.
Our non-GAAP full year tax rate is expected to be 16%, which is consistent with our prior guidance.
In closing we've seen above forecast performance in our semi test business driven by Fiveg infrastructure shipments.
Our Q3 growth in semi test is mainly driven by continuation of Fiveg infrastructure spending.
Industrial automation growth is slowing due to economic headwinds, but we expect the growth to keep outpacing the market.
And we will continue to invest to drive leadership and product ecosystem and channel for our IEI portfolio to achieve our midterm objectives.
With that I will turn the call back to Andy.
Thanks, Sanjay and Shelby with I'd like to take some questions and as a reminder, please limit yourself to one question and a follow up.
If you would like to ask a question you may do so by pressing star one on your telephone keypad.
Once again Thats star one.
Your first question comes from John Pitzer Credit Suisse.
Yes. Good morning, guys. Thanks for let me ask the question then thanks for all the detail.
Prepared comments, Mark just talking about.
The industrial automation business I'm, just kind of curious you said, it's going to be below the low end of your long term growth rate target for the full year.
Much below the low end and how should we think about kind of half on half growth in the industrial automation business in the context that overall business is going to be sort of flattish half on half.
Yes, I think it's obviously a little difficult for us to project with any precision. The second half lead times are pretty short NIH, but I think first you should expect to see an uptick in the second half and a kind of similar to what you've seen in past years first half versus second half. So I do think.
We're going to see growth over the first half in the second half and it will be proportional to what weve.
Seen so far in past years.
And in terms of where we'll end up in the year.
You know in that 30% to 40% target that we set.
I think we are going to be below that as I mentioned somewhere.
I'd, probably give it a wide range somewhere in that low mid twentys to up to that 30 number.
That's helpful and then as my follow up just on the associate test Tam you're raising it by about 300 million I'm, assuming the vast majority of that is fiveg infrastructure, just given where we are on the headset cycle, there, but I'm just kind of curious as you think about the four phases of Fiveg that you talked about what's your kind of view on what it does to the SSD test Tam over time.
Yes, we've talked that through a bit in the past we've said that.
One we're up and running full speed mean.
The majority of the 1.5 billion World handsets have millimeter wave capability embedded we should see about a $3 million to $400 million increase to the semi test Tam.
So in my remarks, I sort of said Thats. The last phase of this thing and we've always said that sort about 2021, plus when that happens.
So we're still in that early infrastructure for primarily.
Subs Sixg deployments, yes, theres here and they're scattered deployments of millimeter wave infrastructure in the us, but nothing compared to sort of the much more major rollout going on in China for sub 60.
Thanks appreciate it.
Your next question comes from Brian Chen of Stifel.
Hi, there good morning, thanks for letting us ask a few questions and Sanjay welcome to the company and the call and I Hope you got a glass of water.
Hi, Thank you.
Our remarks.
First just.
Curious about the third quarter write down relative to the revenue guide just roughly speaking how do you expect your key business segments to trend in Threeq relative to Twoq.
Yes, so I think its andrei here, so specifically I think you'll see continued.
The semi test business will continue along with the the drivers of the Fiveg infrastructure and as Mark mentioned, you should see an increase in.
In the industrial automation similar to what you've seen and increases in the past I think some of our other businesses like.
Light point the growth was really driven by the new wireless standards in other Wi Fi six or 11 apex.
Seven gigahertz or be examples and should see continue on that front and then on the system test group, which should which did grow 25% kind of quarter over quarter in Q2.
To $73 million you should see continued.
The growth there and really from our hard disk drive business really driven by the data center the enterprise disk drives going into data centers.
As well as the defense and aerospace business, which are typically large.
Large programs large deployment programs with government agencies and there are some large ones are moving into the deployment phase.
Okay. Okay got it very helpful. I appreciate that.
And then I guess for my second question, maybe kind of a two parter first in terms of looking at you are versus Amir.
I guess you are was was decelerate a little bit in the quarter to plus 10% year over year growth kind of curious sort of what that monthly progression was.
In the business and or by geography.
Did you see more of a add maybe a pronounced tail off towards or late in the quarter.
And then I guess also mere little surprising you kind of saw earlier phases of adoption Kuwait for that business and some headwinds, but maybe just any commentary you're also seeing us in terms of sort of the ad.
Yes that business and sort of having to need to revise down some of those contingent.
On payouts in Q2.
Yes, so I think from a you are from a you our perspective I think we're seeing your rate, 10% and really when I think about the markets of my prepared remarks, I commented on on Europe , and North America, you're really seeing the impact of the slowdown tied to automotive.
Many other the robotics companies are actually showing negative year on year results.
However, there was we did see strength in Asia Pacific.
When I think of China Korea and.
And Japan, and so we were looking forward, we actually expect that to continue to be relatively strong.
Well have to get back to you on the month.
Monthly profile I don't have that handy.
Okay, and then just maybe a comment on near a little bit.
So beer.
Pad has had a very ambitious plan tied to its earn out from day one.
And as we sit here in Q2 and look at where we think the full year will turn out.
Originally sort of Max out in Q and this year. They would have had to have roughly doubled in sales.
And where we sit now given the first half results is we're probably going to be in the certainly much greater than 50% range, but the doubling potential given some of the headwinds that Sanjay mentioned is less likely.
Okay. Thank you.
Your next question comes from CJ Muse of Evercore.
Yes. Thank you for taking the question I guess first.
So see side.
You'd previously talked about second half tracking.
Maybe 50 million lower than the first half is that still.
In the current year and as you think about moving into 2020 and obviously.
Okay last years, we've seen.
Very elevated us see spending.
And that's in spite of the headwinds we saw from Apple two years ago now this your auto industrial.
How are you can you kind of.
Quantify rising complexity versus some of those headwinds and how we should think about that translating into into a market size into 2020.
Yes, So let me give you a few guy points on that so I do think because of the strengthening semi test environment. We're seeing that first versus second half semi test revenues are probably going to be about flat.
And as I mentioned earlier I should be up.
So that gets to the comment that I made that the second half should be a bit stronger than the first.
So.
And then the complexity drive of the business I think when you look at the two things that are happening this year. Despite the fact that handset.
Unit volumes are declining and have essentially been flat to declining for several years now we still see a very robust uptake of demand for semiconductor testers. So obviously not unit driven.
Complexity, driven and the complexity drivers in the more recent years.
This year and some others have been around a lot of that is the related to the increase in the number of and the density of the cameras that are going into phones.
But some of the higher end phones coming out this year will have six cameras in them.
And that propagates throughout the phone in terms of complexity the amount of NAND Flash you need goes up the speed with which the NAND Flash has to operate goes up same thing.
So all of this is part of the complexity story.
For cell phones that drives our business and we're yet to get into the.
Hi, bandwidth fiveg related silicon that's coming.
So thats sort of the thesis we've had I think the evidence so far as it's playing out pretty well.
That's helpful and I guess, a follow up on the high side.
As you contemplate the weakness that you're seeing today.
Least relative weakness.
Can you kind of pinpoint.
Where that's coming from.
Between auto European exposure to China exposure.
Perhaps.
US companies deciding to buy other components before potential tariffs put in place we'd love to hear your thoughts there.
Yes. So so once again I think Europe , and North America are really tied to the slowdown in the auto industry.
I believe that.
Just to talk a little bit like we're still we still believe we're in a nascent market and once again, we did grow.
Overall, though 20% in the quarter and then these nascent markets.
You know we're continue to invest in different applications for things like been picking that will drive a wave of adoption or we are investing in new market verticals like hospitals for example, with mere there's roughly 80 mobile robots deployed in hospitals and then we're also investing in large accounts and so.
And these large accounts typically have a little bit longer design cycle and qualification process as they're evaluating different competitors, but but we really see again, we really see a big market going forward. We believe we are helping to create and drive this and what we're looking for are the art to market to reaccelerate that spending to then pull the products forward.
Thank you.
Your next question comes from Timothy Arcuri of VBS.
Hi, Thanks, I had two I guess the first one mark is.
The comments around the Fiveg infrastructure.
I think thats pretty consistent that ultimately you think it's going to be $3 million to $400 million incremental to the AMD.
But.
Hey, Tim will work and Tim Whelan, We lost you there Tim could you could you repeat the question.
Sure.
Hi, Andy.
Yes.
So.
So yes my quick.
Hi, James.
Q4 hundred million dollars increments.
Ultimately looking oxygen.
Just very consistent with what we said in the past, but I'm surprised you're basing that can.
Especially as much thats it.
I know some sixs.
I think in Q. This.
Plan and should be misleading.
Objective Thats and.
The next year.
All right Tim you are in and out there we're going to try to paraphrase. The question is you you're you're wondering about.
Raised our raising of the Tam this much this early and attributing it to Fiveg is that is that.
Indicative of a longer term step up in the market size.
Yes, I think Thats, what Tom was asking hopefully.
Okay.
We're looking into Q3, we still see very strong demand a lot of it related to the infrastructure. So I think raising the Tam at this point is really a good solid has a good solid basis.
I think the other part of your question was how how much licenses that have into next year and I think it's too early for us to tell.
Theres, a large build out going on in China.
And there's plans for that to continue over the next several years in fact, it's not.
Like it is going to be over at the end of this year.
On the other hand, there's all kinds of other.
Economic conditions, and tariffs and things that could temper that so I wouldnt go out on a limb yet talking about specifically next year other than to suggest that.
This early innings of this as I said in my comments are generating a significant uptick in the semi test market.
And that.
Should allow us to build confidence in our mid terms earnings model that is actually relatively modest end market growth.
And so we still we feel pretty good about what's happening this year as a positive proof against that.
Model.
Awesome guys. Thank you, yes that was my question. Thank you and then as another question I think Mark you also talked about better smartphones.
Im a little bit surprised about that as well that your biggest customer can you give us a little more comment there. Thank you.
Yeah, I'll, just say, what I said before I have I'm, not going to comment on or any specific customer but.
The thing and smartphones one of the key things has been the proliferation of more cameras denser cameras more pixels more test time.
So without unit growth that complexity growth and that extends into memory.
Is why we see a strong one key element of why we see a strong smartphone semiconductor test market this year.
Okay guys. Thanks, so much.
Thank you.
Your next question comes from Toshiya Hari of Goldman Sachs.
Hey, good morning, guys. Thanks for taking the question I've got two first on memory test Mark I think this was the first quarter.
In a long time, and maybe the first quarter ever your memory test revenue exceeded that of your nearest competitor.
In the quarter I realize it's only a quarter, but you are clearly making good progress on the market share fronts. So so curious if the strength was driven more by your traditional NAND business or increasing your DRAM final test business as well.
I've got a follow up.
Yes, yes, I didnt expect to see that in my lifetime, and I don't expect that will persist but.
Okay, I think what we've been talking about consistently.
It's still the case that.
The growing sub segment of memory test tends to be gathering around the high speed variance of DRAM and flash. So what we saw in the second quarter was a continuation of this deep sort of NAND Flash final test business. We saw in Q1, a lot of the outer is due to wafer test. It's the wafer test of both DRAM and Flash final test. So if you said quarter on quarter growth, what's the main comported.
I don't have that.
It's the wafer test piece.
Got it and then as my follow up.
Unlike point.
I think a couple of years ago when business was really slow at one point you guys were losing money.
In the business.
I think you had some cost cutting initiatives and since then revenue has improved so.
Curious where does.
Where do margins.
Lifepoint today.
And I guess more importantly, going forward when do you expect fiveg to become a meaningful driver for for that business specifically.
Yes, Hi, it's Andrew I'll take that one so so lifepoint into is profitable and you should think about it a little bit above currently running a little bit above our company average.
And indeed includes shipments to support Fiveg and we will continue to grow.
Thank you.
Okay next question please.
Your next question comes from Mehdi Hosseini of ESI G.
Yes. Thanks for taking my question I have a follow up Mark you talked about incremental Tam increase of 300 million three to 400.
For.
By GE sub 60, gigahertz bones, and this year Youre as to see time went up by the same amount a 300 million so should I assume that.
The base than the station to networking Tam is about 300 million and when the phones are out that as another increment of three to 400.
No I wouldn't think of it that way in the three to 400 million that we talk about for the five gene.
Business incorporates phone base stations and the infrastructure associated with five show.
So okay. It's all one thing.
Okay, but yeah. This year is all about base station and you increase the time by 300 million.
So.
Does that mean that as when the phones are out.
It will and the content or the demand drivers changes from base station to smartphone.
Yeah look I think first of all the.
$3 million to $400 million can increase this year isn't exclusively base station. There's also smartphone silicon that I've talked about it's grown that's higher than our expectation related back to a lot of it. These image sensor trends. So it's a combination of phones and base stations, what we're seeing this year.
And then as you project out you know over time the base station piece of this should have good legs for several years to come.
And everything else being equal there should be continued growth for several years to come but then that will that will taper off maybe it's around 2021, 2022, and a handset piece will take over as your main driver. So.
Let me try one more time as the follow up to my first question of the three to 400 million Tam associated with sub six gigahertz fiveg.
How would you characterize.
The base station opportunities like the mix and how does it compare to smartphone.
So.
It depends on what year, you want to talk about.
If you want to talk about the next three years, it's not.
Got to get all the way up to that three to 400 million rate. It will be below that it will be primarily driven by base stations.
After that two to four sort of two to five years out it will get up to the 3%.
400 million Hatter.
And at that point, it will be mostly base station. So this let's say in the next two couple of years, it's let's say two to 300 million.
After that it's three to four and there is a shift from infrastructure phones should take it and my second question has to do could you and should help us quantify opportunity associated with Fiveg are impacting lifepoint and I assume that that's more like the old phone.
And is there any figure you can't give me as it impacts your board level tests or like cool.
Yeah, we've talked about that business too, we've said that adds about $100 million to the market.
And it's it's mostly phones, but there's also a lot of you know with.
Why fix and coming seven gigahertz band why fight because a lot of access points and infrastructure there that will also grow.
So that's probably you know 20% of Lifepoints business, but it's meaningful.
Okay.
Thank you.
Your next question comes from Krish Sankar of Cowen and co.
Yeah, Hi, Thanks for taking my question I have two of them first one mark.
That going forward, but at the moment, we really havent consolidated that.
Got you got you know it is and then as a follow up you know on the light point. So it is a real opportunity for light point on in the frequented in Stuart referred to a leg as millimeter wave or do you think there's opportunity in fr. One also for Lifepoint and along the same path.
I think I asked this question last time too it seems like for like.
Two key players in semi test, but there are like four players in wireless test do you think of that industry in the wireless Lifepoint side consolidated there's better opportunity for everyone involved. Thank you.
Yes, so fr one.
Is less of an opportunity for all of us and how far too but.
But there is still growth.
As as Fr one rolls out.
And.
The competitive dynamics in that business, we've talked about it before it's a crowded market. The thing that like point specializes in is on the production optimum test optimization their products really are not.
Designed for R&D purposes.
And.
Therefore, I think in the production test market, although there are four or five competitors for development test there is truly fewer for production test we may be talking three.
Instead of five so yes, it's still a little bit crowded, but I think for production test a little bit less crowded than you might expect.
Got you thanks Mark.
Your next question comes from Atif Malik of Citigroup.
Hi, Thank you for taking my questions and good job on another beaten raise quarter on Fiveg strength, Mark we hear in Taiwan that you've entered into code there.
Market can you just talk about the strategic rationale I hand, how big that opportunity is and then I have a follow up.
Yeah, I'm not exactly sure what you're referring to certainly interposers are part of.
The sandwich that.
It makes the tester dock for the wafer.
But we havent made any announcements around specific products, there and we're not ready to talk about any of that.
Sure and then on the East side are you seeing any retaliatory actions by China in persuading local cool about that makes you look at this business different strategically.
Yes, hi, its Andrei so actually what we're seeing in China is actually a return to growth.
And what we're finding is that.
Customers are taking a look at the competition.
And I think as it was mentioned on the last call.
What they're finding is that hardware is still a differentiation because to basically run the cobot 24 by seven three shifts.
We can sustain the performance from a hardware perspective, not to mention the software the ecosystem and the other benefits, but even from a hardware perspective were we continue to outperform the competition now that's not to say that the competition isn't coming.
We are seeing competitors competitors come.
And be around specifically in China, but but if anything we actually have a.
A little bit more of an enhanced view as the year unfolded.
Okay. We'll take next question please.
Your next question comes from Richard Eastman of Baird.
Yes, good morning.
Just a first the first question is just around the industrial automation business.
A couple of things there. One is are we seeing any incremental traction on kind of these enterprise agreements are direct sales. We had booked a couple of those I think in the first quarter that you spoke to in the lighting industry.
But I'm curious if if we have any more examples there and then.
Also within.
He is.
As we close through the back half of the year.
Is the is the EBIT on target.
Do we slow investments maybe in is the EBITDA target for the full year in IEI still expected to be 16% or better.
Yes, it's Andrew ill speak to the EBITDA targets, and then kind of what's going on so so first thing is again I'll reiterate we believe in the long term of this market and and we're going to continue to invest and really you should think about as as a trade off where we're going to continue to invest if we believe in the mid and long term, we're going to we're going to reap benefits from a revenue perspective and those investments. So our first priority is to make sure we're developing.
Competitive differentiation either on product channel or the ecosystem to drive revenue and will forego a little bit of operating profit through those investments to obtain that really from an investment standpoint, and I think in 2018, roughly our operating profit was was 18 per se or sorry, 16% and what you should expect in the short term is that that is going to be plus or minus in the long term. We do expect that our investments will be leveraged and will grow towards the the company average.
And just on the large account discussion so yes in the first quarter. We added a couple of large accounts that I was describing that we're rolling out cobots in sort of this 20 ish to thirtyish units per month rate those customers continued to perform and and continue down that path.
And we had this other large account that I mentioned in my remarks, that's now up over a 1000 robots. So there obviously the and that's occurred by the way over about a three year period. So they are obviously rolling out at much at a much higher rate than that.
We didnt have anything of that magnitude and additionally in Q2 to talk about in terms of somebody else who's in that 20 to 30, a month rate, but there are those in the pipeline hopefully.
Our plan would be to talk about those if we get permission.
In coming quarters.
Okay, and then just as a follow up question.
On the semi test side of the business. There were couple of spots flag, there in auto and industrial.
Yeah could you just maybe speak to.
What percentage and perhaps what percentage of semi test our targeted those kind of those.
Those industries, and maybe what tester product line.
We could look to see that that exposure.
Yes, so let's talk about automotive first traditionally automotive has sort of been this 400 million ish.
Test market for us mainly it breaks into Microcontrollers and say control engine control.
Control systems, and then power analog the actual actuators. So it's split between our.
Jay 750, tester line and our Eagle Tester line.
Over time as the electrification of vehicles has been moving forward and complexity is increasing more and more of those devices are finding their way onto our ultraflex Src platforms. So there is a migration occurring.
But as we've talked about automotive before we saw three very strong years of automotive demand that sort of unprecedented from 2016 through 2018.
This year.
The demand is maybe down 40% from what it had been running at for those three year average.
So it's been a pretty significant pause that's.
Normal I would have expected it earlier than that occurred and it typically doesn't last much more than a year year and a half at most.
So I think that.
That's it that's fine.
In.
In the industrial space similar products.
Product lines.
It's the J 750 move into the Ultraflex and the Eagle test platform.
And the trends there are very similar maybe not down as hard as auto, perhaps it's only down 30% or so compared to where it's been running the past couple of years.
But it is in a similar vein, we expect that that.
Last for about a year or so and then there is a recovery after that.
And as a percentage of semi test.
So that leaner.
So again if automotive for.
Hundred ish million.
Out of an s., so see let's say market that's nominally to Sixers two seven you can do the math and then the linear one is probably more nominally.
300 350.
The industrial.
Yes, okay, great. Thank you.
Your next question comes from Sidney Ho of Deutsche Bank.
Great. Thanks for taking my question.
I want to go back to the Fiveg question can you talk about the impact of that while a bad case has not been seen as against you or you don't expect see impact in the future, but if you look at the purchases from them.
Specifically to specifically put aside the infrastructure are you seeing them buying in line with their build plans and how can you tell is that customer is not pre buying.
Future quarters.
Yes, so I am not going to comment specifically about any one customer.
But I will say that.
Whether or not any customer is kind of buying ahead of demand or not is something we're always trying to triangulate on.
And if we look at what we saw in the second quarter in terms of buying.
There is no evidence that there was any.
Buying ahead of demand in the second quarter.
Well, we've got we look at that constantly we got it like you said, we triangulate shipments of end products out.
With what we know we're supplying in and see if that all adds up.
But all I can say is that through the second quarter, we don't see a disconnect.
Okay. That's helpful.
Maybe.
Another end market question other than auto and industrial.
You referred to better than expected growth in psychiatric infrastructure in your in your press release, but you also mentioned strength in networking, we talked about the same thing or is it that it's a different type of networking.
If you can give some color would be great. Thanks.
Yes, it's probably a subtle distinction, but it's it's essentially being driven by the same thing. So you have.
Fiveg rollout you have the radio access network, which has antenna modules down converters and you have modem and then you have a backhaul to a network processing and the networking we talk about as sort of.
The connection of the backhaul through the network processing related to Fiveg infrastructure.
Okay, great. Thank you very much.
And operator, we have time for just one more one more question. Please.
Your final question is from David do you still have security.
Thanks for taking my question just a clarification on the size of the SSC market.
I guess you increase the size of the Tam this year.
Could you just in reference how big was the SSC market in 18, and and this year you expect it to be I guess 2.7 billion is that what you said.
Yes, so last year the SSD market was.
Had a phenomenal peak year of about $3 billion in size.
So at the current midpoint, we're talking about Q2.
Two eight to seven to eight something like that.
Now, it's still down it's down maybe that.
10% ish range.
And.
For the markets down, 10%, we expect teradyne's.
Associates business to do this year.
Teradyne's SSD test business. This year I think go back to what I said.
We're not specifically guiding the full year there.
But we expect our second half to be a roughly equivalent to our first half.
So you can.
Divine it from that.
Okay.
Final question.
You mentioned a couple of different times about.
Test time intensity.
And I imagine you're referring to your.
Customer or or any any sort of complex chip like that could you give us an idea of you know generation over generation, what sort of increase in intensity you are seeing.
Yes, so it depends really it's it's hard to get have a rule of thumb there because first of all generation to generation the devices themselves, obviously get more complex and have more transistors.
So everything else being equal test time would go up generation to generation as a good correlation between transistor count and test time, However, now and then certain things happen too.
Optimize the test methodology that could be some architectural thing in the tester that allows more efficient testing. So you might find a generation where the device got more complex, but test time, Didnt go up or it could be a test technique or a quality issue that improved on the customer side.
So in general.
With with highly complex digital silicon, we kind of see that.
10% to 20% natural migration.
In test time offset by some of these other onetime events.
Finally did you mentioned, what your 10% customers, where I can obviously get to one is but I was curious kind of who the other one was.
No we didnt, we specifically won't call that out.
In the quarter. However, at the end of the year in the 10-K, we will we will provide disclosure and ill just remind you that.
Customer buying patterns are what I would call a little lumpy, so having a 10% customer.
In the quarter.
It Doesnt surprise me, but we will provide that disclosure at the end of the year should they be greater than 10% for the entire year.
Can you help us out as far as in market goes or any sort of color.
No I don't think we're going to get into that to to that but.
If obviously the situation persists, we'll be talking about it as we get into next year.
Thank you.
Okay that about wraps it up folks thank you for joining us and.
As a.
As a.
Reminder, if you have follow up questions. Please reach out to me directly.
We.
Thank you John .
Thank you.
This concludes today's conference call you may now disconnect.