Teradyne, Inc.

Good morning, ladies and gentlemen, and welcome to the Q2 2021 Teradyne Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. If anyone should require assistance during the conference, please press star, then zero. on your touchtone telephone. As a reminder, this conference call is not... This conference call will resume. I would now like to turn the conference over to your host, Mr. Andy Blanchard.

Thank you, Phyllis. Good morning, everyone, and welcome to our discussion of Teradyne's most recent financial results. I'm joined this morning by our CEO, Mark Giglio, and our CFO, Sanjay Mehta. Following our opening remarks, we'll provide details of our performance for 2021's second quarter, along with our outlook for the third quarter of 2021. The press release containing our second quarter results was issued last week. We're providing guides on the investor page of the website that may be helpful to you in following the discussion. Replays of this call will be available via the same page after the call ends. The matters that we discuss today will include statements that involve risk factors that could cause teradata 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 our most recent SEC filings. Additionally, those 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 those non-GAAP financial measures, including reconciliation to the most directly comparable GAAP financial measures, where available on the integrity of our website. Looking ahead between now and our next earnings call, Teradyne expects to participate in technology or industrial-focused investor conferences hosted by KeyBank, Rosenblatt Securities, Deutsche Bank, and Citi. Now let's get on with 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 third quarter. We'll then answer your questions, and this call is scheduled for one hour. Mark?

Good morning, everyone, and thanks for joining us. Today, I'll summarize our results for the second quarter and first half of 2021, update on current conditions in both test and industrial automation, and comment on our view for the second half of the year. Sanjay will then provide the financial details on the quarter and our guidance for Q3. The strong demand we saw in Q1 accelerated in Q2 as both our test and industrial automation groups grew substantially in the quarter. The long-term demand drivers we've discussed in the past continue to power demand for our products. In test, it's device complexity and unit growth. In automation, it's labor scarcity, need for resiliency, and productivity improvement. Opening up further. Performance at the company level from 2016 through 2020 saw our sales and non-GAAP EPS grow at a compounded rate of 16% and 32% respectively. For the first half of this year, sales are running ahead of that rate at 21%, and non-GAAP earnings per share grew at 29% compared with last year. This demonstrates both the vitality of the markets we serve and the efficiency of our operating model. Significantly, in Q2, we saw industrial automation demand recover in all major regions, with particular in North America. As a result, our production and operations operated at a high pace in Q2, and that pace is increasing in Q3. For the year, our IE business is on track to grow about 30% from 2019 and about 40% from 2020. Mostly at the segment level, in semi-tests, SOC shipments grew 29% in Q2 from Q2 of 2020, with particular strength in both the compute and mobility end markets. For the first half, SOC sales grew 19%. For the first time in several years, smartphone unit shipments are helping growth in the mobility segment, whereas recent years have mostly relied on complexity growth. Mobility and compute are the two largest subsegments in SOC. Automotive, analog, and industrial demand continues to be strong. The auto-related semi-test market is expected to exceed $500 million this year, the highest level since 2017. This is despite the fact that automobile unit production will be about lower than 2017. A portion of this strength is catching up. We're also seeing the impact of increased semi-content and complexity per automobile driving the test market. Our memory test shipments also grew in Q2 from Q2 of 2020, up 9%, led by flash tester demand. For the six-month period, overall shipments were up 18% from last year on solid demand for both flash wafer and systems. This reflects significant growth in smartphone demand, the build-out of new memory capacity in China, and the growth of SSD demand. Looking at the full year, we are again revising up the SOC market for 2021 to now be in the range of $4.3 to $4.7 billion, with increasing strength in the x86 GPU and display driver segments. Recall that we have lower customer exposure in those markets, with much of this incremental growth going to our competitors, so we'll likely see our SOC share around 48% for the year. In memory, at the macro level, our market estimates are unchanged, with the test market this year expected to be about $1 billion and our share to be at about the 40% level. I will note that the expected ramp of DDR5 for server applications and the broader adoption of LPDDR5 is pushing out into 2022. Shifting to our system test group, Sales were up 26% in the first half compared with 2020, with strong storage test demand and a recovery in our production board test unit driving the growth. For the full year, we see the system test group grow in the 10% to 20% range. At Lightpoint, sales in Q2 were up 12% over 2Q 2020. While 5G millimeter wave demand is lower than expected, the environment and wireless test is improving. as we move through the year due to the continued Wi-Fi 6 growth and early Wi-Fi 7 investments. In addition, ultra-wideband adoption is increasing, adding a new growth vector for Lightpoint. For the full year, Lightpoint will likely grow in the 10% range. Moving on to industrial automation, the combination of expanding demand across our major markets and the increase in the range of tasks served by our universal robots and mirror units drove group sales up 57% in Q2 last year and 45% in the first half. Compared to pre-pandemic 2019, first-half sales are up 22%. Supply chain issues have constrained growth a little bit with lead times pushing out about one week. The demand environment for IA has recovered in most regions from last year's slowdown. America was the fastest-growing major region in Q2, with sales up over 90% from last year. Although we did see a slow in some countries in Asia where COVID has spiked in recent months, the second half of the year outlook is quite strong in all our major regions. Our long-term growth strategy in IA continues unchanged, and we expect long-term annual growth in the 20% to 35% range. This year, we will likely see growth of about 40% from 2020, And we will continue to invest to enable this growth, target 5% gross margins, and get a 5% to 15% operating margin during these high growth years. From an investment perspective, we are expanding our engineering programs to shorten employment times, increase the served market, and improve the customer support experience. We are also growing our capacity to support support distributors, integrators, and UR Plus and Mirgo apps development partners as they engage customers. We are also expanding our sales to OEMs that integrate our robots into their products. Last quarter, we noted the expanding range of applications for UR robots and a high-voltage line application with hundreds of being deployed. Today, I'd like to highlight the success of UR Plus plug-and-play applications for industrials There is a long-standing and chronic shortage of qualified welders worldwide with an estimated 100,000 unfilled welding jobs in the U.S. alone. While automated solutions exist for large applications like auto manufacturing, customers with lower volume and higher mix products are not well served by traditional automation. The integration of a force torque sensor into E-series cobots enabled the precision needed for this application and With UR Plus interviewing with our partners, we began serving this market about three years ago. During this time, welding applications have grown to be about 6% of our global sales and are on track to house 1,000 co-bots sold in 2021, more than tripling our 2020 pace. As we continue to extend the performance of our UR platform, we expect these high-end applications to add new growth vectors to our traditional industrial applications. We have similar market expanding initiatives in play on our , but I'll save those details for a future call. Summing it all up, the first half of the year has been a strong sales, strong gross margins, and earnings growth. Longer term, the markets we serve are shown future global economy. The importance, pervasiveness, and enabling capability of electronics in every part of our lives and industry is driving more FAB investment, more complexity, and more test. Likewise, the broadening application and fast RR lab of robots in a world with labor shortages and productivity challenges is another growth trend. Strategically, we've positioned ourselves in line with and plan to continue to make the test and IA as our full potential while driving world-class. While the rate of change in our markets is accelerating, We are well-positioned to thrive as a company and to bring additional value to customers and shareholders. I'll now turn things over to Sandy.