Teradyne, Inc. (NASDAQ:TER) is a leading global supplier of automated test equipment and robotics solutions. The company designs, develops, manufactures, and sells automated test systems and robotics products for a wide range of industries, including consumer electronics, wireless, automotive, industrial, computing, communications, and aerospace and defense.

Teradyne's diverse product portfolio includes semiconductor test ("Semiconductor Test") systems, storage and system level test ("System Test") systems, defense/aerospace test instrumentation and systems, circuit-board test and inspection ("Production Board Test") systems, wireless test ("Wireless Test") systems, and robotics ("Robotics") products. The company's automated test equipment and robotics solutions are essential for testing and validating the performance and reliability of a wide range of electronic devices and systems.

In the first half of 2024, Teradyne delivered impressive financial results, with revenue of $1,330,388,000 and net income of $147,728,000. The company's strong performance was driven by robust demand in the semiconductor test market, particularly in the memory and SoC (system-on-chip) segments, as well as continued growth in its Robotics business.

Semiconductor Test: Riding the Wave of AI-Driven Demand

Teradyne's Semiconductor Test segment has been a standout performer, benefiting from the surge in demand for AI-enabled applications. In the first half of 2024, Semiconductor Test revenue reached $955,562,000, a 15.2% increase compared to the same period in 2023. This growth was primarily driven by strong demand in the memory and SoC markets, which saw revenue increases of 29.7% and 18.4%, respectively, year-over-year.

The rise of cloud-based AI applications has been a significant catalyst for Teradyne's Semiconductor Test business. The company has seen considerable strength in networking devices, as AI-enabled data centers require a high number of network connection points to support the training of large language models. Teradyne's historic strength in networking, combined with shipments to support a vertically integrated producer (VIP), has resulted in compute revenue in the first half of 2024 exceeding the full-year 2023 figure.

Furthermore, AI-driven demand for high-bandwidth memory (HBM) DRAM has remained robust, and Teradyne is now seeing AI-driven servers pulling demand across a broader range of memory, including enterprise SSD NAND flash. The company is also witnessing strength in the mobile market, with demand for LPDDR (low-power double data rate) memory and continued retooling to support the latest protocol-based mobile flash memory technologies.

System Test and Wireless Test: Navigating Headwinds

While the Semiconductor Test segment has been a standout performer, Teradyne's other test businesses have faced some challenges. The System Test segment, which includes storage and system-level test, defense/aerospace test instrumentation and systems, and production board test systems, saw revenue decline by 7.2% year-over-year in the first half of 2024, reaching $135,756,000.

The decrease in System Test revenue was primarily due to lower sales in the Storage Test and Defense/Aerospace businesses, which were partially offset by higher sales in the Production Board Test segment. The Storage Test business has been impacted by weak demand for system-level testers, while the Defense/Aerospace segment experienced project delays.

The Wireless Test segment also faced headwinds, with revenue declining by 26.3% year-over-year to $63,265,000 in the first half of 2024. This decrease was primarily driven by a reduction in demand for connectivity and ultra-wide-band test products.

Robotics: Executing on a Transformative Strategy

Teradyne's Robotics segment, which includes the Universal Robots (UR) and Mobile Industrial Robots (MiR) businesses, has continued to deliver solid performance despite the challenging macroeconomic environment. In the first half of 2024, Robotics revenue grew by 11.0% year-over-year to $175,805,000.

The Robotics segment is executing a three-pronged growth strategy focused on SAM (served available market) expansion, channel transformation, and the development of recurring services and software offerings. In the first half of 2024, the company made significant progress in all three areas.

Teradyne's focus on developing an OEM (original equipment manufacturer) solutions channel for UR has been a key priority. The company has seen that customers purchasing cobot-based solutions from these partners get into production more quickly and have fewer problems than customers that build their own solutions or rely on an integration partner. In the first half of 2024, Teradyne increased the total number of OEM solutions partners by 8% and nearly doubled the number of partners that have reached an annual revenue run rate of over $1 million.

Additionally, Teradyne has launched managed service offerings at UR and MiR, which are beginning to gain traction with customers. The company believes that the criticality of the processes its Robotics products are used to automate presents a significant opportunity to build a strong service business.

Despite the challenging macroeconomic environment, Teradyne's Robotics segment has outperformed its automation industry peers, which have seen sales decline by an estimated 5% to 7% over the same period. The company expects Robotics revenue growth to be towards the low end of its 10% to 20% target range for the full year 2024.

Financials

Teradyne's financial position remains robust, with a strong balance sheet and ample liquidity. As of June 30, 2024, the company had $584,000,000 in cash and marketable securities, and generated $171,000,000 in free cash flow during the second quarter.

The company's capital allocation strategy remains balanced, with a focus on returning capital to shareholders through share repurchases and dividends, while also pursuing strategic acquisitions and investments to drive long-term growth. In the second quarter of 2024, Teradyne repurchased $8,000,000 worth of shares and paid $19,000,000 in dividends.

Outlook

For the full year 2024, Teradyne expects revenue to grow in the low single-digit range compared to 2023, with gross margins in the 58% to 59% range. The company's guidance reflects the continued strength in the Semiconductor Test segment, offset by headwinds in the System Test and Wireless Test businesses.

In the third quarter of 2024, Teradyne expects revenue to be in the range of $680,000,000 to $740,000,000, with non-GAAP earnings per share between $0.66 and $0.86. The company's guidance assumes that the positive impact of AI on test demand will continue into the third quarter, while a meaningful uptick in other end markets, including legacy auto and industrial, may not occur until 2025.

Conclusion

Teradyne's strong performance in the first half of 2024 underscores the company's ability to navigate the evolving semiconductor and robotics landscapes. The surge in demand for AI-enabled applications has been a significant driver for the Semiconductor Test segment, while the Robotics business continues to execute on its transformative strategy.

Despite headwinds in the System Test and Wireless Test segments, Teradyne's diversified product portfolio and strategic investments position the company well for long-term growth. The company's financial strength and disciplined capital allocation approach further reinforce its ability to capitalize on emerging opportunities and deliver value to shareholders.

As Teradyne continues to innovate and adapt to industry trends, the company remains well-positioned to maintain its leadership in the automated test equipment and robotics markets.