Teradyne Q4 Earnings Call Highlights

Key Points

• AI demand surged: AI-related revenue climbed from ~40–50% in Q3 to over 60% in Q4 and management expects it to drive “upwards of 70%” of revenue in Q1 2026, lifting SemiTest, Product Test and Robotics across SoC, memory/HBM, SLT, ICT and optical test.
• Q4 and full-year strength: Teradyne beat the high end of guidance with Q4 sales of $1.083 billion and non-GAAP EPS of $1.80; SemiTest revenue was $883 million (SoC $647M, memory $206M), gross margin 57.2%, free cash flow $219M and $204M returned to shareholders.
• Bullish but cautious outlook: Management guided Q1 2026 to a record $1.15–$1.25 billion (EPS $1.89–$2.25) while warning of lumpiness and limited visibility later in 2026, and unveiled an “evergreen” target model aiming for ~$6 billion revenue and $9.50–$11 EPS if the ATE market expands to $12–$14 billion.

Teradyne NASDAQ: TER reported a strong fourth quarter to close out 2025, driven largely by accelerating demand tied to artificial intelligence applications across its semiconductor test, product test, and robotics businesses. Management said both revenue and earnings exceeded the high end of the company’s prior guidance as trends seen earlier in the year continued through year-end.

AI demand increasingly dominated results

CEO Greg Smith said the company saw a “striking” increase in AI-driven revenue in the second half of 2025, with demand extending beyond compute and memory into areas such as power management, system-level test (SLT), high-bandwidth memory (HBM), in-circuit test (ICT), and optical test. Smith said AI-related demand represented 40%–50% of revenue in the third quarter, rose to more than 60% in the fourth quarter, and the company expects AI applications to drive “upwards of 70%” of revenue in the first quarter of 2026.

Smith also framed the company’s longer-term view around the AI data center build-out, arguing Teradyne’s products span test needs “from wafer to data center,” including device testing, server tray testing through its Production Board Test business, photonics instrumentation through Quantifi Photonics, and robotics used in data center operations.

Fourth-quarter results topped guidance

CFO Michelle Turner said fourth-quarter sales were $1.083 billion and non-GAAP EPS was $1.80, both above the high end of the company’s guidance range. She noted the quarter was Teradyne’s highest revenue quarter of 2025 and its second-highest quarter in history, coming in just $3 million below the company’s 2021 peak.

• Semiconductor Test (SemiTest) revenue was $883 million, fueled by AI, compute, and memory demand.
• Within SemiTest, SoC revenue was $647 million, up 47% quarter-over-quarter.
• Memory test revenue was $206 million, up 61% quarter-over-quarter, which Turner said marked a record quarter for the company’s memory business.
• Product Test Group revenue was $110 million, growing double digits sequentially and year-over-year on defense and aerospace strength.
• Robotics revenue was $89 million, up 19% from Q3 and increasing for the third consecutive quarter; Turner said more than 5% of Robotics revenue in Q4 was driven by a large e-commerce customer.

On profitability, Turner reported non-GAAP gross margin of 57.2%, aligned with guidance. She said margin performance was supported by SemiTest AI demand strength but offset by lower Product Test Group margins, Robotics mix, and an inventory write-down on legacy products. Non-GAAP operating expenses were $306 million and the non-GAAP operating profit rate was 29%. Free cash flow was $219 million in the quarter, and the company returned $204 million to shareholders via repurchases and dividends.

Full-year 2025: revenue up 13%, compute became largest SoC end market

For the full year, Turner said revenue was $3.2 billion, up 13% year-over-year. Non-GAAP EPS was $3.96. Gross margin for the year was 58.3%, operating expenses were $1.2 billion, and operating profit was 22%. Free cash flow totaled $450 million, and the company returned $785 million to shareholders—about 174% of free cash flow—through repurchases and dividends. Teradyne ended 2025 with $448 million of cash and marketable securities.

Smith emphasized the company’s shift away from mobile dependence. He said that while Teradyne’s business in 2020 and 2021 was dominated by mobile, compute became the largest component of revenue in 2025 and grew 90% year-over-year. In SoC test, Smith said compute grew to nearly 50% of SoC product revenue in 2025, with auto, industrial, and mobile each around 25%, which he said helps “de-risk” the company’s new target earnings model.

In SemiTest, Smith said the Semiconductor Test Group delivered 19% year-over-year growth in 2025, with SoC test revenue up 23%, driven mainly by networking and “VIP compute.” He also said memory test revenue was up slightly in a roughly flat memory test market, supported by share gains in HBM and DRAM final test. Smith said the company believes it maintained about 50% market share in the VIP compute market in 2025, while noting the segment’s concentration contributes to revenue lumpiness and makes forecasting difficult.

Q1 2026 outlook: record revenue expected, but management cautioned on visibility

Turner guided first-quarter 2026 sales to $1.15 billion to $1.25 billion, which she said would be a new quarterly record driven by AI. She said the midpoint implies 11% growth from Q4 and 75% growth from the same period in 2025. Non-GAAP EPS is expected in a range of $1.89 to $2.25 on 158 million diluted shares.

Gross margin is expected to be 58.5% to 59.5%. Operating expenses are expected to increase about 6% sequentially and run at approximately 26%–28% of sales, with a midpoint non-GAAP operating profit rate of 32%.

Management repeatedly cautioned investors about lumpiness and limited visibility into the second half of 2026. Turner said the company expects 2026 sales to be the inverse of 2025—roughly 60% in the first half—while Smith added that the Q1 run rate could reflect a “two, three-quarter surge” potentially followed by a digestion period.

On merchant GPU testing, Smith said Teradyne expects to achieve production qualification but that the timing is difficult to pin down. He emphasized that Q1 guidance does not include any merchant GPU revenue and said it is more likely to factor into the second half of 2026, beginning with single-digit share and potentially building over a couple of years.

New evergreen target model tied to ATE market expansion

Teradyne introduced a new “evergreen” target earnings model based on what the company expects its financials could look like when the automated test equipment (ATE) total addressable market reaches $12 billion to $14 billion, which Smith said would be up from about $9 billion in 2025. Under that scenario, Turner said Teradyne’s model assumes about $6 billion in revenue, gross margins of 59% to 61%, operating expenses of 27% to 29% of revenue, operating profit of 30% to 34%, and non-GAAP EPS of $9.50 to $11.

Turner said the company expects growth over the midterm to be proportional across SemiTest, Product Test Group, and Robotics, with SemiTest expected to grow faster than the overall ATE market based on expected share gains. Smith said the biggest uncertainty is how quickly the ATE market grows, noting external conditions can change forecasts. When asked about 2026 ATE market growth, Smith gave a wide range of 20% to 40% and said the company is using adjectives rather than precise numbers due to second-half uncertainty.

On strategic initiatives, management discussed Teradyne’s agreement with MultiLane to form a joint venture called MultiLane Test Products focused on high-speed I/O and data center interconnect test solutions. Turner said the company expects to close the transaction in the first half of 2026 (and later noted expectations to close in Q2 2026), consolidate results within the Product Test Group, and that it should be accretive in 2026 with a de minimis EPS impact.

In Robotics, Smith said the company is targeting breakeven in 2026, supported in part by a large e-commerce program that management expects to “triple-ish” from 2025 to 2026 and grow substantially thereafter as deployments expand to more facilities.

About Teradyne NASDAQ: TER

Teradyne, Inc is a global supplier of automatic test equipment and related services principally used to test semiconductors, wireless products and complex electronic systems. Founded in 1960, the company is headquartered in North Reading, Massachusetts, and has a long history of developing capital equipment and software that help semiconductor manufacturers, electronics OEMs and contract manufacturers validate product performance and reliability during design and production.

The company's product portfolio centers on automatic test equipment (ATE) and system-level test solutions that address chip- and board-level validation, burn-in and reliability screening.

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