Teradyne: Strong Results, But No Design-Test Bridge

Continuing my coverage of the ATE industry, in this post I discuss Teradyne, the leading supplier of Automatic Test Equipment. Teradyne (TER) is a global leader in electronics testing and inspection solutions and is the world’s largest supplier of semiconductor test equipment for logic, RF, analog, power, mixed-signal, and memory technologies.

The company announced impressive Q1 results a couple of months ago. Revenues of $297 million surpassed the market’s expectations of $294 million to grow 15% annually and 14% sequentially. EPS grew to $0.12, compared to $0.04 the previous year and $0.09 the previous quarter. The street was expecting EPS of $0.11. Teradyne repurchased stock worth $3.3 million at an average price of $11.83 in the quarter.

They also revised up their revenue expectations for Q2 to $310-$330 million, with EPS of $0.14-$0.19.

In view of the improved outlook, the stock rose 10% to $13.47 from $12.28 on the day following the announcement. It has since fallen, however, and is currently trading at $11.31.

Teradyne is trying to innovate within the ATE space to maintain growth momentum while managing cost pressures. To manage costs, they are relocating the manufacturing of their FLEX test system to China. FLEX is a multi-site production test system for RF, microwave, automotive, audio and video devices operating under 200 MHz digital speed.

During the quarter, the company spent $280 million on the acquisition of Nextest Systems, a key player in the flash memory ATE market. Teradyne had earlier exited the flash memory market, and this acquisition marks their re-entry into the segment.

Teradyne is doing a few things right, but it is not realizing the need for tighter integration between design and testing. While Verigy’s acquisition of Inovys shows their vision in this area, so far, we haven’t seen anything from Teradyne that indicates an understanding of the need.