Teradyne, Inc.

Teradyne Earnings Conference call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Andy Blanchard. Thank you, sir. You may begin.

Thank you, April. Good morning, everyone, and welcome to our discussion of Teradyne's most recent financial results. I'm joined this morning by our CEO, Mark Gighella, and our CFO, Sanjay Mehta. Following our opening remarks, we'll provide details of our performance for 2021's first quarter, along with our outlook for the second quarter of 21. The press release containing our first quarter results was issued last evening. We're providing slides on the investor page of the website that may be helpful to you in following the discussions. Replays of this call will be available via the same page after the call ends. The matters that we discussed today will include forward-looking statements that involve risk factors that can cause Teradyne's results to differ materially from management's current expectations. We encourage you to review the safe harbor statement contained in the earnings release, as well as the most recent SEC filings. Additionally, these forward-looking statements are made as of today, and we take no obligation to update them as a result of developments occurring after this call. During today's call, we'll make reference to non-GAAP financial measures. We've posted additional information concerning these non-GAAP financial measures, including reconciliation to the most directly comparable GAAP financial measure. We're available on the investor page of the website. Looking ahead between now and our next earnings call, Teradyne expects to participate in technology or industrial-focused investor conferences hosted by Wolf Research, ISI Evercore, Baird, Bank of America, Bernstein, and Stiefel. Now let's get on with the rest of the agenda. First, Mark will comment on our recent results and the market conditions as we enter the new quarter. Sanjay will then offer more details on our quarterly results along with our guidance for the second quarter, and we'll then answer your questions. The call is scheduled for one hour. Mark.

Hello, everyone, and thanks for joining us today. In my remarks, I'll summarize our Q1 results, review current market conditions, and provide an update on how we're looking at Q2 and the full year. Sanjay will then take you through the financial details of the quarter and our outlook for the second quarter. As you saw in our press release, our Q1 sales and profits grew double digits from Q1 of 2020's record level. Test sales grew 9% on broad-based demand with notable strength in automotive, industrial, compute, memory, and storage. Industrial automation sales grew 33% in the quarter with strong demand at both UR and MIR. Notably, since our January call, the market demand in both test and IA has been greater than we expected, as you can see from our Q2 guidance. In semiconductor test, customer orders are very strong as complexity continues to increase and chip units are expected to grow almost 15% this year, more than twice last year's rate. Regarding the sustainability of this demand, our visibility is limited to just a quarter or two, but the growth in WFE from $50 billion in 2017 to $60 billion last year to over $75 billion this year should translate into a healthy tester market in the years ahead. Looking at SOC demand, the auto industrial segment is especially robust with our Q1 Eagle shipments up nearly 90% year on year and deliveries expected to grow further in Q2. Test demand for mobility and compute devices is also running ahead of our January estimates as these end markets push the performance limits of advanced process nodes and drive the highest complexity growth. This higher complexity drives longer chip test times and often demands unique tester capabilities. Our Ultraflex platforms are well aligned to these performance dynamics. As a result of this demand strength, we now expect the SOC test market to be in the $4 to $4.4 billion range, up about $700 million at the midpoint from our January estimate. This equates to about 16% growth from 2020, and we expect our share in SOC to be at about the 50% level. In memory tests, we are seeing continued strengths in both Flash and DRAM. We now expect the full-year memory test market to be in the $900 to $1.1 billion range, up about $100 million from our January estimate, and up about 5% from 2020 levels. Our Magnum platform is in lockstep with the performance trends in both markets, and we expect another strong year in 2021. However, since most of the test market growth is expected to be wafer test applications where we have less exposure, we're likely to see our share dip a few points into the upper 30s. In system test, revenue grew 14 percent from Q1-20, primarily on higher storage test shipments. As we've noted in past calls, storage test is linked to increasing density and complexity of data center hard disk drives and the expanding adoption of system level tests for chip tests. Our full year outlook for this business has improved from January as well on strength in both applications. The defense and aerospace and board test units of STG are also performing well, and we expect the overall group will grow revenue 5% to 10% this year. Our LightPoint business is driven by the complexity of new wireless standards in the connectivity, cellular, and other wireless markets. In Q1, connectivity demand was the dominant revenue driver as Wi-Fi 6E ramps in smartphones and access points. We expect LightPoint to grow in the 0% to 5% range in 2021. Shifting to industrial automation, we are on track to grow 30-plus percent for the year. At the macro level, industrial economies are recovering with global PMIs above 50, indicating growing manufacturing investments. At the ground level, we are seeing increasing customer buying driven by economics, quality, and lack of available shop floor labor. At UR, revenue grew 32 percent from Q1-20, with a notable recovery in China where sales more than doubled in the quarter. Our China performance reflects the compelling value proposition UR offers, even in the face of low-cost competitors. We not only have the durability to operate in high-intensity production environments where downtime can't be tolerated, but we also offer a unique suite of organic and ecosystem-provided software and peripherals to address a wide range of tasks with short deployment times. We're also seeing growth outside of the traditional manufacturing tasks. In the last several quarters, we've seen volume shipments of cobots to perform industrial service tasks, such as maintenance of high-power transmission lines while energized and robotic inspection of wind turbine blades. Together, these two applications account for over 500 installed cobots, and this should approximately double in 2021. Both examples highlight the flexibility of UR arms and the value in performing dangerous service tasks. MIR also delivered strong results in the quarter, growing 55% year-on-year. A big part of that success has been the new MIR 250, which was introduced in March of last year and was our leading seller in Q1. We are also seeing a nice expansion of applications for MIR products. Initially, most applications were moving goods to and fro. Last year, we saw a dramatic expansion in the use of MIR robots as a platform for mobile tasks such as disinfecting workspaces. And now... we're seeing growing use in the conveyor market, where our mobile platform replaces fixed conveyors. This provides owners greater flexibility than traditional fixed conveyor system and allows them to reconfigure their factory on the fly as production requirements dictate. Although at both UR and MIR, our expanding range of plug-and-play apps now totaling over 430 in our URplus and MIRGO ecosystem, shortens the deployment time and increases the addressable market for cobots, adding additional growth factors for us. But we're not firing on all cylinders in IA yet. At Autoguide, we have lowered our expectations for 2021. This year, we will focus on expanding existing customer deployments while we complete a series of engineering projects designed to scale and win new customers in the future. While this is surely a reset, at our AutoGuide plan, we remain confident in the potential of the nascent market for high-payload autonomous mobile robots and our ability to leverage AutoGuide's unique product architecture to deliver differentiated value to this growing market. Rolling it all up, the demand environment in our test businesses has strengthened dramatically since January, and the wafer front-end equipment forecasts suggest that tester demand over the next few years will continue to grow. In industrial automation, you are and me are benefiting from their differentiated products and the improving global economy, which puts us on track for a total IA group revenue growth of 30-plus percent for the year. Our employees are doing a great job, and our operating model is delivering strong financial profits and free cash flow. And finally, I'd like to recognize and thank our board chair, Roy Valley, who will be retiring next month after 20 years on the TerraDyn board. Roy's leadership, integrity, and wise counsel have been invaluable to me and the executive team, and we all wish him the best in his future pursuits. Sanjay will now take you through the financial details. Sanjay?