Executive Summary / Key Takeaways

• Strategic AI-Driven Pivot: Teradyne's multi-year investments in Artificial Intelligence (AI) are yielding significant results, with AI Compute now dominating its Semiconductor Test revenue and driving new opportunities across its SOC and Memory segments. This pivot is successfully diversifying its customer base and reducing historical mobile concentration.
• Technological Edge and Market Share Gains: Proprietary testing platforms like UltraFLEXplus, strategic acquisitions like Quantifi Photonics and Infineon AET, and innovations in HBM and System-Level Test (SLT) are enhancing Teradyne's competitive moat, enabling market share gains in high-growth AI and vertically integrated producer (VIP) segments.
• Robotics Reorganization for Future Growth: Despite persistent macroeconomic headwinds, the Robotics segment's structural reorganization, new product launches (e.g., MiR 1200 Pallet Jack, UR AI accelerator), and focus on large accounts are positioning it for accelerated long-term growth and improved operating leverage, with a reduced breakeven point.
• Robust Financial Health and Outlook: Teradyne reported solid Q2 2025 performance, with strengthening demand for the second half of the year. Its midterm model projects substantial revenue growth (12%-18% CAGR) and non-GAAP EPS growth (21%-31% CAGR) through 2028, underpinned by strong free cash flow generation and a disciplined capital allocation strategy.
• Key Watchpoints: Investors should monitor the precise timing of AI compute ramps, the pace of recovery in the mobile, automotive, and industrial end markets, and the continued execution of the Robotics segment's strategic initiatives amidst ongoing market weakness.

Teradyne's Strategic Evolution and Core Business

Teradyne, Inc., established in 1960, has evolved into a leading global provider of automated test equipment and robotics solutions. The company's journey has been marked by strategic foresight, particularly its 2015 acquisition of Universal Robots (UR), which signaled a deliberate diversification into industrial automation. This move was a direct response to a decade of shrinking total addressable markets (TAMs) in the semiconductor test sector, aiming to secure long-term enterprise growth beyond its core.

Historically, Teradyne's business was heavily concentrated in the mobile sector, particularly between 2020 and 2021. However, a conscious pivot to diversify its customer base has reshaped its revenue mix. By 2024, the Compute end market emerged as a larger revenue component than Mobile, with the SOC business in Compute growing over 3.5 times its prior-year performance. This strategic shift has been largely fueled by investments in vertically integrated producers (VIPs) designing custom silicon for Cloud and Edge AI applications, where Teradyne captured approximately 50% market share in a roughly $300 million TAM in 2024.

Teradyne's operations are structured across three main segments: Semiconductor Test, Robotics, and the newly formed Product Test division. The Semiconductor Test segment encompasses System-on-a-Chip (SOC), Memory, and Integrated Systems Test (IST) solutions. Robotics focuses on collaborative robotic arms (UR) and autonomous mobile robots (MiR). The Product Test division, created in Q1 2025, consolidates defense and aerospace, production board test, wireless test, and photonic integrated circuit (PIC) test businesses, aiming for enhanced operational synergies. This diversified portfolio, alongside a strategic focus on high-growth areas like AI, verticalization, and electrification, underpins Teradyne's current market positioning.

Technological Differentiation and Innovation: The Engine of Growth

Teradyne's competitive edge is deeply rooted in its differentiated technology and relentless innovation. Its core offerings include advanced automated test systems and cutting-edge robotics solutions, each designed to deliver superior performance and value to customers.

In Semiconductor Test, platforms like the UltraFLEXplus are at the forefront of AI compute applications. This system offers scalability, parallelism, and higher throughput, directly translating to a lower cost of test for customers. Management notes that the UltraFLEXplus is gaining strong consideration in AI Compute areas where Teradyne historically lacked presence, demonstrating its competitive advantage. For High Bandwidth Memory (HBM) testing, Teradyne's solutions boast higher throughput and forward compatibility, enabling the company to capture significant share in the HBM performance test market in the second half of 2024. Recent wins, including an HBM4 post-stack singulated die win and an HBM4 post-stack wafer test win, highlight new test insertions that improve device quality, serving as crucial growth drivers for the Memory TAM.

The Integrated Systems Test (IST) business is also a key technological differentiator, particularly with its new Titan-HP system. Targeted at system-level test (SLT) of AI Accelerators, the Titan-HP achieved initial customer acceptance and generated revenue from a hyperscaler in Q1 2025. This technology addresses the increasing complexity and high cost of failure in advanced chips, with management anticipating that next-generation AI accelerators will drive 100% SLT as the most economic choice for quality assurance. In wireless testing, the LitePoint brand continues to demonstrate leadership, securing 13 out of 13 Wi-Fi 7 wireless test opportunities in Q1 2025.

Teradyne's commitment to innovation extends to strategic acquisitions. The Quantifi Photonics acquisition in May 2025 for approximately $127.2 million is a pivotal move to establish leadership in silicon photonics test for AI compute. This acquisition is expected to deliver scalable PIC test solutions and enhance the functionality of the UltraFlexPlus platform. Similarly, the Infineon AET acquisition in January 2025 for approximately $18.3 million accelerates Teradyne's roadmap in power semiconductors, specifically in critical areas like silicon carbide and gallium nitride for the automotive and renewables markets.

In Robotics, new product introductions are driving market expansion. The MiR 1200 Pallet Jack, an AI-enabled, NVIDIA (NVDA)-powered autonomous mobile robot, began shipping in late Q4 2024, addressing complex industrial material handling problems. The UR AI accelerator, a hardware and software toolkit, aims to reduce time to market for AI-based work cell robotic solutions for UR's partners. The success of new heavy payload UR robots, representing 16% of UR units shipped year-to-date, further underscores the impact of product innovation. These technological advancements collectively contribute to Teradyne's competitive moat, enabling market share gains in high-growth AI and VIP segments, improving margins through operational efficiency, and underpinning its long-term growth strategy.

Competitive Landscape and Strategic Positioning

Teradyne operates within a highly competitive landscape, primarily contending with major players like Advantest Corporation (ATEYY), Cohu, Inc. (COHU), and Keysight Technologies, Inc. (KEYS). Teradyne's strategic positioning is built on a diversified portfolio and a strong emphasis on technological leadership, enabling it to differentiate itself across various market segments.

In the semiconductor test market, Advantest is a formidable competitor, particularly in memory and logic testing. Teradyne distinguishes itself with its versatility in mixed-signal applications and a broader portfolio that extends into robotics and wireless solutions, offering more integrated, end-to-end support. Teradyne's UltraFLEXplus, with its scalability and higher throughput, is gaining traction in AI Compute, an area where Teradyne is actively expanding its presence. This allows Teradyne to compete effectively by offering superior value and quality, as customers increasingly seek supply chain resilience and diversified test capabilities.

Against Cohu, which specializes in semiconductor test and inspection equipment for backend processes, Teradyne's platforms like FLEX and J750 offer greater efficiency in high-volume testing. Teradyne's strategic integration of robotics provides a unique value proposition, enabling automated solutions that Cohu's primarily hardware-centric approach does not directly match. This technological breadth and R&D-driven innovation position Teradyne for stronger growth prospects.

Keysight Technologies, a leader in electronic measurement, competes with Teradyne in wireless and system-level testing. Teradyne's LitePoint wireless test solutions are noted for their ease of use in IoT and 5G applications, potentially enabling faster deployment for customers. While Keysight excels in software-driven analytics, Teradyne's diversified strategy, including its industrial automation focus, provides a balanced market position.

Teradyne's competitive advantages, or moats, are multifaceted. Its proprietary technology in testing platforms delivers tangible benefits like enhanced reliability and integration capabilities, leading to improved pricing power and recurring revenue. The company's strong brand and diversified portfolio across Semiconductor Test, Robotics, and Product Test foster customer loyalty and provide resilience against cyclical downturns in any single segment. Strategic partnerships, such as with Infineon for power semiconductors and Analog Devices (ADI) for robotics automation, further bolster its market position and accelerate its technological roadmap.

Despite these strengths, Teradyne faces inherent vulnerabilities, including exposure to the cyclical nature of the semiconductor market and potential supply chain dependencies. The Robotics segment, in particular, continues to grapple with persistent industrial macroeconomic headwinds. However, the company's strategic responses, such as the consolidation of UR and MiR's go-to-market functions to improve efficiency and customer experience, and the establishment of an OEM channel for UR (up over 50% in OEM revenue in 2023), demonstrate its proactive approach to competitive challenges. The company's ability to leverage its deep expertise in high-reliability, high-complexity test systems to industrial automation provides a "killer advantage" against underscaled pure-play robotics firms.

Financial Performance: A Story of Strategic Pivot and Resilience

Teradyne's financial performance reflects a company in a strategic pivot, demonstrating resilience amidst evolving market dynamics. For the second quarter of 2025, total revenue was $651.8 million, a decrease year-over-year and sequentially, while year-to-date (YTD) Q2 2025 revenue stood at $1.34 billion, a modest 0.75% increase from the prior year. Non-GAAP EPS for Q2 2025 was $0.57, with YTD non-GAAP EPS at $1.10.

Gross profit in Q2 2025 was 57.2%, a slight decline from Q2 2024, primarily due to lower overall volume and margin declines in the Robotics segment. However, for the six months ended June 29, 2025, gross profit improved by 1.40 percentage points to 58.9%, driven by a favorable product mix in Semiconductor Test. Operating expenses saw an increase in Q2 2025, primarily due to higher R&D spending in Semiconductor Test, partially offset by cost reductions in Robotics. The effective tax rate for Q2 2025 decreased to 12.7%, benefiting from a projected shift in geographic income distribution and increased tax credits.

Segment-wise, Semiconductor Test revenue in Q2 2025 was $491.9 million, down 12.15% year-over-year, mainly due to the timing of memory shipments. Despite this, YTD Semiconductor Test revenue was up 3.99%. The Robotics segment continued to face headwinds, with Q2 2025 revenue at $74.9 million, down 17.04% year-over-year, resulting in a quarterly loss. The Product Test segment, however, showed positive momentum, with Q2 2025 revenue increasing 6.69% year-over-year to $85.1 million.

Looking back at the full year 2024, Teradyne delivered robust results, with total company revenue growing 5% to $2.82 billion (8% excluding the DIS divestiture). Non-GAAP EPS grew 10% year-over-year to $3.22. The Semiconductor Test business, particularly SOC and Memory, grew 17% year-over-year (excluding DIS), with AI being the dominant growth driver. The SOC business in Compute grew more than 3.5 times its prior-year performance, and Memory revenue exceeded $500 million, up 30% year-over-year, fueled by HBM DRAM demand.

Teradyne maintains a strong liquidity position. As of June 29, 2025, cash and marketable securities totaled $488.6 million. Operating activities provided $343.7 million in cash during the first six months of 2025, driven by improvements in net working capital. While investing activities consumed $240.2 million (primarily for acquisitions and capital expenditures) and financing activities consumed $313.6 million (largely due to share repurchases and dividends), the company's revolving credit facility was undrawn as of August 1, 2025. Management is confident that its current liquidity and credit facility are sufficient to meet its operational and capital needs for at least the next twelve months, underscoring its financial resilience and capacity for strategic investments.

Outlook and Guidance: Confidence in the Inflection

Teradyne's outlook signals increasing confidence in a strengthening market, particularly driven by AI. For the third quarter of 2025, the company expects sales to be between $710 million and $770 million, with non-GAAP EPS in the range of $0.69 to $0.87. Gross margins are projected to be between 56.5% and 57.5%, while operating expenses are expected to run at 36.5% to 38.5% of sales. Management explicitly stated, "Overall, we feel good about where we're headed in the third quarter and the second half of the year. We are significantly more confident than we were 90 days ago."

The second half of 2025 is anticipated to be stronger than the first, with AI compute-related revenue expected to inflect and represent the majority of Semi Test revenue. While mobile expectations remain modest for Q3 and the latter half of 2025, future growth is tied to the ramp of 2-nanometer gate-all-around technology and compelling AI applications in smartphones by the second half of 2026. The Robotics segment, despite persistent weak market conditions, is expected to achieve approximately 10% revenue growth in 2025, though it is not projected to break even this year. The full year 2025 tax rate is expected to be 14.5%.

For the full year 2025, the SOC TAM is forecasted to grow roughly 7% year-over-year, reaching between $4.7 billion and $5.1 billion (midpoint $4.9 billion), with a modest recovery expected in Mobile, Automotive, and Industrial in the back half. The Memory TAM is projected to be relatively flat year-over-year, between $1.3 billion and $1.5 billion, due to a period of digestion in the HBM tester market. Teradyne anticipates gaining low single-digit share in both the SOC and Memory Semi Test markets. Full year operating expenses are expected to increase 8% to 10% year-over-year, primarily to fund strategic Semi Test growth initiatives.

Looking further ahead, Teradyne's updated midterm earnings model through 2028 projects substantial growth. Total revenue is expected to grow from $2.8 billion in 2024 to $5 billion in 2028, implying a 12%-18% revenue CAGR. Non-GAAP EPS is forecasted to grow from $3.22 in 2024 to $8.25 in 2028, representing an impressive 21%-31% EPS CAGR. This demonstrates significant operating leverage in the business model, with gross margins expected to stabilize between 59% and 60% and non-GAAP operating margins reaching 28% to 32%. These projections are underpinned by the continued strength of AI Compute, the recovery of broader end markets, and the strategic expansion and operational improvements in the Robotics segment.

Conclusion

Teradyne is undergoing a profound transformation, successfully pivoting its core business to capitalize on the secular growth drivers of Artificial Intelligence, verticalization, and electrification. The company's strategic investments in advanced testing technologies, such as the UltraFLEXplus and new HBM solutions, coupled with targeted acquisitions like Quantifi Photonics and Infineon AET, are not only enhancing its competitive moat but also directly translating into market share gains in high-growth AI compute and VIP segments. This technological leadership, combined with a diversified portfolio spanning semiconductor test, product test, and robotics, provides a resilient foundation for future expansion.

Despite persistent macroeconomic headwinds impacting its Robotics segment and some near-term uncertainties in market visibility, Teradyne's proactive restructuring efforts and new product introductions are positioning this business for long-term acceleration. The company's robust financial health, characterized by strong cash flow generation and a disciplined capital allocation strategy, provides the flexibility to continue strategic investments while returning value to shareholders. With a clear midterm roadmap projecting significant revenue and EPS growth, Teradyne is poised to leverage its differentiated technology and strategic agility to solidify its leadership in the evolving landscape of automated test and robotics.