Teradyne, Inc.

Ladies and gentlemen, good morning and welcome to the Teradyne second quarter 2026 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the prepared remarks. At that time, if you wish to ask a question, please press star 1 on your telephone keypad. As a reminder, today's call is being recorded. I would now like to turn the call over to Amy McAndrews, VP of Corporate Relations for Teradyne. Please go ahead.

Thank you, Operator. Good morning, everyone, and welcome to our discussion of Teradyne's most recent financial results. I'm joined this morning by our CEO, Greg Smith, and our CFO, Michelle Turner. Following our opening remarks, we'll provide details of our performance for the second quarter of 2026 and our outlook for the third quarter. The press release containing our second quarter results was issued last evening. We are providing slides as well as a copy of these prepared remarks on the Teradyne Investor website, that may be helpful 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 forward-looking statements that involve risks that could cause Teradyne's results to differ materially from management's current expectations. We caution listeners not to place undue reliance on any forward-looking statements included in this presentation. We encourage you to review the Safe Harbor Statement contained in the slides accompanying this presentation as well as the risk factors described in our annual report on Form 10-K for the fiscal year ended December 31, 2025, on file with the SEC. Additionally, these forward-looking statements are made only as of today. During today's call, we will refer to non-GAAP financial measures. We have posted additional information concerning these non-GAAP financial measures, including reconciliation to the most directly comparable GAAP financial measures, where available, on our investor website. Looking ahead between now and our next earnings call, Teradyne expects to participate in technology-focused investor conferences hosted by Goldman Sachs and Citi. Our quiet period will begin at the close of business on September 11, 2026. Following Greg and Michelle's comments this morning, we'll open up the call for questions. This call is scheduled for one hour. Greg? Good morning.

Good morning. For the second quarter in a row, we delivered record revenue, and once again, AI was the driver. Total company revenue topped $1.3 billion, up over 100% year over year, with non-GAAP EPS of $2.47, up over 300% year over year. All three of our business groups, semi-test, product test, and robotics, grew year over year and quarter over quarter, highlighting the AI demand across all parts of the business. At more than 60%, AI-driven revenue is the key proof point that our wafer-to-AI data center strategy is delivering results. There are many superlatives that we could use to describe this quarter's results, and Michelle is going to walk you through the details. I'd like to use my time today to set context for what we believe is a multi-year growth phase for our entire business, driven by the continued AI buildup. Certainly, this is clearest in compute. and in memory for HBM and DDR. However, data centers are now also the primary growth drivers for flash memory, hard disk drives, power, board tests, high-speed interconnect and robotics. The long timeline of data center investment plans has given our SSC and memory customers the confidence to aggressively invest in wafer fabrication equipment for new process technologies and additional wafer capacity. For years, semiconductor capital investment grew slowly, and ATE grew even more slowly within it. That's changing. Two factors are now tailwinds for the ATE TANs. The first is overall semi-cap investment, particularly wafer fab equipment, WFE, which has begun accelerating. More WFE means more wafers and new equipment generations enable denser process nodes. More wafers and higher density together mean more transistors to test in SOC and more bits to test in memory. WFE CapEx is now forecasted to approach $250 billion by the end of the decade. driving 5-10% annual growth in 300mm wafer production and 15-20% CAGR in total transistor production over the midterm. Total non-memory transistor production is a reasonable first order predictor of the SOC TAM. Every transistor must be tested and a given process node yields roughly the same transistor count per wafer regardless of device type. Memory bit production is the analogous predictor for the memory TAM. also forecast to grow at a 15% to 20% TAGR over the midterm. Neither of these predicts the ATE TAM precisely in any given year, but both signal direction. Transistor and bit growth rates have inflected upward and are expected to hold a steeper slope through the end of the decade. The second factor is advanced packaging. Wafered transistor counts don't vary with die size. The required test volume scales with acceptable quality level for the devices being tested. As accelerators, CPUs, and networking devices pack in more chiplets, memories, and eventually CPO, a single latent defect has a greater impact on final device yield, raising test intensity per die in multi-chip packages. Both package volume and dyes per package are forecast to keep rising through the end of the decade, providing a sustained tailwind to the compute TAM. The result, after more than a decade of semi-cap equipment outgrowing the test TAM, the trend reversed in 2024, and test is now outpacing fab equipment. With WFE long-term forecasts becoming clearer, we're increasingly confident in long-term ATE growth. As WFE CapEx approaches $250 billion by the end of the decade, we see a path for overall ATE TAM to reach or exceed $20 billion. In addition to being in a growing market, we are confident that we will be able to gain share over the midterm. With the ramp of merchant GPU and the initial dual platform qualification in our second major hyperscaler, we are positioned to gain share in the core compute segments. Our leadership position in HBM and DRAM maximizes our exposure to DRAM-driven growth. And segments where we have historically had high share, like flash memory, mobile, industrial, and automotive, are positioned for growth driven by cloud, edge, and physical AI, whether it's in cars, robots, phones, or wearables. Before I hand off to Michelle, I'd like to share a few demand highlights and their impact-to-share gains. First in memory, demand has increased from strength in HBM and DRAM and a resurgence in the NAND final test. The 2026 memory TAM is likely to be more than 40% larger than 2025, with notable growth from the first half of 2026 to the second half. A highlight in memory is the growth in HBM base dye test. Our Magnum testers have logic test capabilities that provide attractive swing tool advantages for memory makers. Now on to compute. In the first quarter, we received our first order for a merchant GPU customer, which was delivered in the second quarter. Also in Q3, we completed correlation at a second hyperscaler, increasing our confidence in 2027 market share growth. As we discussed last quarter, our expectation is that our compute business would be concentrated in the first half. We have multiple programs across networking and hyperscalers that build up capacity in the first half that is now being utilized. The next surge for these customers is expected to be in the first half of 2027. Since dual vendor strategies are emerging at the largest compute customers, I'd like to give you a bit more color about how we think this will play out. These customers recognize the importance of de-risking their supply chain. We see this as an important share driver over the next few years. The dual vendor qualification process generally runs through four phases. The first, an opportunity to compete. Second, developing a working solution. Third, correlation. And then finally, a production ramp. If successful, it takes nine to 12 months from the start to the ramp. After the initial dual source part ramps, we enter a fast follower phase where additional parts are converted and ramped. Ultimately, the account reaches a mature dual vendor stage where either platform is used for initial part release. It can take a few years to get from fast follower to mature dual vendor. During the fast follower phase, we expect market share to grow incrementally from zero up to about 30%. Right now, we have one compute customer in the mature dual vendor phase, one in fast follower, and one in qualification prior to ramp. I'd also like to add a little color around networking. Frontier models require ever larger accelerator clusters. This is driving extreme growth in networking for scale out, scale across, and scale up applications. While the total number of network connections is growing fast, The timing of transitions from cable to backplane and from pluggable to XPO and CPO is in constant flux. Our belief is that there is robust growth in all of these technologies. This drove our acquisition of Quantify Photonics, the development of the Photon 100 solution for optical connections, and our multi-lane test products JV for copper connections. We are working with multiple ecosystem partners to develop leading-edge solutions from silicon photonics wafers to full data center racks. We expect CPO alone will be a $300 to $700 million market by 2028. Our IST business grew revenue two and a half times quarter over quarter on strength in HDD fueled by AI. Thank you for joining us. More data center construction drives more rack shipments per year, which is driving growth at contract manufacturers and original design manufacturers. This, combined with the rapid advancement of data center architectures, creates a significant opportunity for Teradyne to provide solutions well matched to the volume, quality, and flexibility data center applications required. This is best reflected in the total available market for automation and test among contract manufacturers and ODMs. We believe that there is currently a multi-billion dollar market for assembly, automation, test, and burn-in equipment, and we expect mid-double digit growth rates through the end of the decade. By addressing these applications with enhanced production, bore test, optical test, backplane test, and robotic assistant Esten Assembly, Teradyne is uniquely positioned to follow the value chain from wafer to data center. Our wafer to data center strategy is working. Our optimism around 2026 and 2027 and through the midterm has grown. We are leaning further into investments to capture opportunities across the value chain, both organically and inorganically. and we are investing in next-generation products across our entire portfolio. As we win business, we build out customer teams for major hyperscalers and semiconductor suppliers. The fact that we are leaning into these investments now is a sign of our confidence in the sustainability of this market growth. We expect 2027 to be another year of healthy growth for Teradyne consistent with the transistor and bit growth dynamics I described earlier. It's clear to us that increases in WFE spend will be a primary driver to ATE TAM growth, and this sets the approach for how we will be updating our target earnings model, which we will share in our Q4 earnings call. With that, I'll turn the call over to Michelle.