Teradyne, Inc. (TER) Q4 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call presents a positive outlook driven by strong AI-driven demand, optimistic revenue guidance, and anticipated growth in 2026. Despite some uncertainties and lack of specific guidance for Q2, the company expects significant revenue from AI applications, robotics, and GPU share gains. The positive sentiment is reinforced by confidence in meeting the $6 billion revenue target through diversified growth drivers. Although there are concerns about market growth speed and external factors, the overall sentiment leans towards a positive stock price movement over the next two weeks.
Key Financial Performance
Fourth Quarter Sales $1.083 billion with non-GAAP EPS of $1.80, both above the high end of guidance range. Sales were the highest revenue quarter of 2025 and second highest in history, driven by AI compute and memory demand.
Semi Test Revenue $883 million, fueled by AI compute and memory demand. SoC revenue was $647 million, up 47% quarter-on-quarter. Memory revenue was $206 million, up 61% quarter-on-quarter, marking a record sales quarter for memory business.
Product Test Group Revenue $110 million, grew double digits sequentially and year-on-year, driven by strong defense and aerospace demand.
Robotics Revenue $89 million, grew for the third consecutive quarter and was up 19% from Q3. Greater than 5% of Robotics revenue was driven by a large e-commerce customer.
Full Year Revenue $3.2 billion, up 13% from prior year. Semi Test now represents close to 80% of enterprise sales, an increase from the low 70s over the last few years.
Gross Margin (Full Year) 58.3%, reflecting strong AI-driven demand in compute and memory portfolios.
Operating Profit (Full Year) 22%, with non-GAAP EPS of $3.96, up 23% year-over-year.
Free Cash Flow (Full Year) $450 million, with $785 million or 174% of free cash flow returned to shareholders through share repurchases and dividends.
Tax Rate (Full Year) 12.8% on a non-GAAP basis and 12.6% on a GAAP basis.
SoC Revenue Grew 23% year-over-year, driven mainly by networking and VIP compute. Compute is now the largest component of revenue, growing 90% year-over-year.
Memory Test Revenue Up slightly in a roughly flat memory test market, with continued share gains in HBM and DRAM final test.
IST Business Growth Over 50% growth from 2024 to 2025, driven by new customer wins in mobile SLT, compute SLT, and HDD.
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Operating Highlights
AI-driven revenue: AI-driven revenue increased significantly, driving 40%-50% of revenue in Q3 2025, over 60% in Q4 2025, and is expected to drive upwards of 70% in Q1 2026.
Product Test Group: Revenue grew 8% in 2025, driven by defense and aerospace. Integration of Quantifi Photonics was successful, and all business lines are expected to grow in 2026.
Robotics: Saw three consecutive quarters of growth in 2025, with a focus on physical AI and advanced robotics. Revenue grew 19% in Q4 2025.
Semiconductor Test Group: Delivered 19% year-on-year growth in 2025, with SoC test revenue growing 23% and memory test revenue slightly up. Compute became the largest revenue component, growing 90% year-on-year.
AI Data Center Market: Teradyne's exposure to the AI data center market spans from device testing to robot-assisted operations. ATE TAM is expected to grow to $12-$14 billion from $9 billion in 2025.
Memory Market: Memory TAM was down 4% in 2025 but is expected to grow in low double digits in 2026, driven by HBM and DRAM demand.
SoC TAM: SoC TAM grew nearly 60% in 2025 and is expected to grow robustly over the midterm, driven by data center build-out and Edge AI growth.
Revenue Growth: Achieved 41% sequential revenue growth in Q4 2025, with non-GAAP earnings growth exceeding 100%.
Customer Diversification: Expanded customer base in IST group, winning new customers in mobile SLT, compute SLT, and HDD.
Joint Venture: Announced a joint venture with MultiLane to serve AI data center demand, expected to close in H1 2026.
Shift to AI-driven Demand: Pivoted from mobile-dominated revenue in 2020-2021 to AI-driven compute, which now constitutes nearly 50% of SoC product revenue.
Robotics Strategy: Focused on large accounts and verticals like e-commerce, logistics, and semiconductor to drive growth.
Target Earnings Model: Introduced a new model based on an ATE TAM of $12-$14 billion, aiming for $6 billion in revenue and $9.50-$11 EPS in the midterm.
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Risk or Challenges
Revenue lumpiness in Semiconductor Test Group: The Semiconductor Test Group's revenue remains highly concentrated with a few players driving significant ATE purchases, leading to revenue lumpiness and complicating forecasting VIP share in the future.
Uncertainty in SoC TAM growth: The high concentration and less predictable product ramps in the SoC market make it challenging to predict year-to-year growth, with potential significant positive or negative effects on revenue.
Mobile TAM uncertainty: There are questions about unit volume, product mix, and capital efficiency improvements in the mobile TAM, creating uncertainty about its growth.
Memory TAM decline in 2025: The overall memory TAM was down about 4% from 2024, although a resurgent memory market is expected in 2026.
Customer concentration in IST business: Historically, the IST business has had very high segment and customer concentration, which could pose risks if key customers reduce orders.
Revenue lumpiness in compute and memory portfolios: As compute and memory portfolios grow, revenue patterns are expected to remain lumpy and less predictable, breaking historical trends.
Dependence on AI-driven demand: The company's growth is heavily reliant on AI-driven demand, which could pose risks if AI market growth slows or shifts.
Regulatory and market risks in joint ventures: The newly announced MultiLane joint venture introduces potential regulatory and market risks, as well as integration challenges.
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Guidance & Outlook
AI-driven revenue growth: AI-driven revenue is expected to drive upwards of 70% of Teradyne's revenue in Q1 2026, continuing the trend from Q4 2025 where AI accounted for more than 60% of revenue.
Product Test Group growth: All business lines in the Product Test Group are expected to grow in 2026, driven by strength in defense and aerospace.
Robotics growth: The Robotics segment is expected to continue its growth trajectory in 2026, supported by physical AI and advanced robotics applications.
SoC TAM growth: The SoC TAM is expected to grow robustly over the midterm, driven by data center build-out and Edge AI growth. Year-on-year TAM growth is anticipated for 2026, with significant growth in compute and moderate recovery in auto/industrial.
Memory market recovery: The memory market is expected to experience low double-digit TAM growth in 2026, driven by HBM and DRAM demand, with Teradyne continuing to gain incremental market share.
IST revenue growth: The IST segment is set for continued strong revenue growth in 2026, supported by new customer wins in mobile SLT, compute SLT, and HDD.
AI data center market: Teradyne anticipates robust growth in the AI data center market, with the ATE TAM projected to grow to $12 billion to $14 billion in the midterm, up from $9 billion in 2025.
New target earnings model: Teradyne's new target earnings model projects $6 billion in revenue at an ATE TAM of $12 billion to $14 billion, with gross margins of 59%-61%, operating profit of 30%-34%, and non-GAAP EPS of $9.50 to $11.
Capital allocation strategy: Teradyne plans to maintain cash reserves for business operations and M&A opportunities, while continuing to return cash to shareholders through share repurchases and dividends.
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Shareholder Return Plan
Dividends Paid in Q4 2025: $204 million returned to shareholders through share repurchases and dividends.
Full Year 2025 Dividends: $785 million returned to shareholders through share repurchases and dividends, representing 174% of free cash flow.
Share Repurchases in Q4 2025: $204 million returned to shareholders through share repurchases and dividends.
Full Year 2025 Share Repurchases: $785 million returned to shareholders through share repurchases and dividends, representing 174% of free cash flow.
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Key Q&A
Q:Can you help us understand how to better think about calendar '26, including revenue growth rate and June sizing?
A:Michelle Turner highlighted entering the year with a healthy backlog and better demand insights for the first half of 2026. However, she cautioned against assuming linear trends due to lumpiness in sales patterns. Gregory Smith added that Q1 shows strength, but visibility into the second half is limited, suggesting a 2-3 quarter surge followed by a digestion period.
Q:What are the key drivers behind the vision for your share of AAT to grow from 25% to 46%?
A:Gregory Smith explained that the $12-14 billion TAM model reflects moderated growth expectations. Key drivers include gaining share in compute, maintaining share in mobile, proportional gains in auto and industrial, and incremental growth in memory. He noted improved presence in memory segments and the ability to ride market trends.
Q:Does the Semi Test share in your new model imply significant share gain compared to past years?
A:Gregory Smith clarified that the Semi Test share is in the low 40s and that the model assumes roughly the same proportions across segments. He noted that IST revenue is included in overall revenue but not in the ATE TAM.
Q:Can you break down the SoC TAM in 2025 by compute, mobile, auto, and VIP TAM?
A:Gregory Smith provided the breakdown: compute at $5 billion, mobility at $1 billion, auto/industrial just under $1 billion, and service at $700 million. Memory TAM was just under $1.4 billion, with $1.2 billion in DRAM and the rest in FLASH. VIP within compute was just over $600 million.
Q:How do you see the market share for custom ASICs evolving, given new products and increased concentration?
A:Gregory Smith stated that the 2025 share was roughly 50% for VIP compute. He expects long-term maintenance of this share but anticipates fluctuations due to competition and hyperscaler benchmarking. He emphasized the noisy nature of share numbers due to ramp timing.
Q:What is the sensitivity of the $6 billion revenue target to ATE market growth?
A:Gregory Smith described the $6 billion target as balanced, with uncertainties around market growth speed and external factors. He expressed confidence in the target due to diversified growth drivers, including compute share gains, mobile TAM recovery, and contributions from industrial, automotive, and robotics segments.
Q:What is the realistic market share expectation for GPU test this year and over the next three years?
A:Gregory Smith expects incremental share gains over a few years, starting with single-digit share numbers. He noted that Q1 guidance excludes merchant GPU revenue, which is expected to contribute materially in the second half of 2026. Over time, share could balance between 30% and 70% in competitive situations.
Q:Why is 2026 expected to be first-half weighted, and is this due to conservatism?
A:Gregory Smith explained that major programs are first-half loaded, and demand is more concentrated in the first half. Michelle Turner added that strong backlog provides better visibility into the first half, but uncertainty in the second half limits full-year guidance.
Q:Can you provide a sense of Q2 relative to Q1 and the ATE TAM for 2026?
A:Michelle Turner declined to provide Q2 guidance but expects 2026 sales to be the inverse of 2025, with 60% in the first half. Gregory Smith estimated ATE TAM growth of 20-40% for 2026, emphasizing uncertainty in the second half.
Q:Is the new target model achievable in a mid-cycle scenario, and what factors influence this?
A:Gregory Smith believes the $6 billion model is achievable over the next few years, depending on ATE TAM growth. He noted that data center silicon revenue growth is a key driver but cautioned about external factors affecting TAM growth rates.
Q:What are the catalysts for GPU share gain over the next few years?
A:Gregory Smith identified new test insertions, increased chiplet complexity, resilient supply chain, better tester reliability, next-gen instruments with higher power and memory, and advanced mission-mode testing capabilities as catalysts for GPU share gain.
Q:What is the growth expectation for HDD test in 2026, and are there other instances of captive test platforms being replaced?
A:Gregory Smith expects HDD revenue to double between 2025 and 2026. He noted that one SoC and one memory player have captive ATE strategies, with the SoC strategy likely to change as foundry customers demand commercial platforms.
Q:What drives the mobile SoC TAM growth in the target model, and what are the near-term challenges?
A:Gregory Smith attributed TAM growth to increased complexity rather than unit volume. He noted that a large installed tester fleet and optimized utilization could moderate additional capacity needs, contrasting with higher demand in 2020-2021.
Q:Will the customer base for VIP ASICs broaden, and will this reduce lumpiness in the business?
A:Gregory Smith expects 4-5 additional programs in a $12-14 billion TAM model, with generational competition for design wins. He anticipates some reduction in lumpiness but not a dramatic increase in customer base.
Q:Can you provide details on the 10% customers and their contributions?
A:Gregory Smith stated that two specifying customers were in mobile and compute, while one purchasing customer spanned multiple segments. Michelle Turner noted that each contributed roughly 10% of revenue.
Q:What is the expected TAM growth for SoC and memory in 2026, and will Teradyne grow faster than the TAM?
A:Gregory Smith expects SoC TAM to grow faster and memory TAM slower. He noted that share gains depend on segment growth, with compute TAM growth potentially diluting overall share despite gains in all segments.
Q:Does the GPU merchant win affect second-half dynamics, and is it part of the target model?
A:Gregory Smith confirmed that a significant GPU ramp would impact the second half and is included in the $6 billion model. He emphasized incremental share gains over years rather than a dramatic initial impact.
Q:Will the robotics segment grow beyond breakeven revenues in 2026?
A:Gregory Smith expects robotics revenue from a large e-commerce customer to triple between 2025 and 2026, achieving breakeven in 2026 and contributing positively thereafter.
Q:Review of Unclear Management Responses
A:Management avoided providing specific Q2 guidance, citing better visibility in the first half but uncertainty in the second half. They also used adjectives like 'robust growth' instead of numerical estimates for the ATE TAM in 2026, reflecting a lack of clarity. Additionally, they did not specify the exact share expectations for GPU merchant wins or the detailed breakdown of robotics revenue growth.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
AI application
AI center
AI demand
DRAM share
Edge AI
HBM DRAM
HDD
President Corporate
Product Test
Production Test
Semiconductor Test
SoC TAM
SoC test
Turner
VIP compute
auto mobile
component
compute auto
compute device
compute memory
concentration
device test
digit
group
investor
market share
memory TAM
memory test
networking VIP
photonics device
product line
recovery auto
segment customer
server tray
share gain
test compute
test market
test memory
venture MultiLane
TER Transcript
Teradyne, Inc. (TER) Q4 2025 Earnings Call Transcript
Positive2-3
The earnings call presents a positive outlook driven by strong AI-driven demand, optimistic revenue guidance, and anticipated growth in 2026. Despite some uncertainties and lack of specific guidance for Q2, the company expects significant revenue from AI applications, robotics, and GPU share gains. The positive sentiment is reinforced by confidence in meeting the $6 billion revenue target through diversified growth drivers. Although there are concerns about market growth speed and external factors, the overall sentiment leans towards a positive stock price movement over the next two weeks.
Teradyne, Inc. (TER) Presents at UBS Global Technology and AI Conference 2025 Transcript
Neutral12-2
Teradyne, Inc. (TER) Q3 2025 Earnings Call Transcript
Unknown10-29
The earnings call presents a mixed outlook. Strong AI-related revenue and optimistic guidance for 2026 are positives, but current results are weak with high expenses impacting free cash flow. Q&A highlights growth potential in compute and memory but also uncertainties in mobile and robotics. The lack of clear guidance and specifics in some areas adds to the neutral sentiment. Given these factors, the stock is likely to remain stable in the short term, leading to a neutral prediction.
Teradyne, Inc. (TER) Presents At Goldman Sachs Communicopia + Technology Conference 2025 Transcript
Neutral9-8
TER Report
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