Teradyne (TER) reported strong Q2 earnings for 2024, surpassing analyst expectations on both top and bottom lines. The company posted adjusted earnings of $0.86 per share, beating the consensus estimate of $0.77. Revenues rose 6.6% year-over-year to $729.88 million, exceeding the $701.2 million expected by analysts. These results were driven by significant growth in its core segments.
The company issued in-line guidance for Q3, projecting EPS between $0.66 and $0.86, which aligns with the consensus of $0.86. Expected revenues for Q3 are in the range of $680 to $740 million, close to the analyst estimate of $717.66 million. This guidance reflects cautious optimism amid ongoing market challenges, particularly in the semiconductor and robotics sectors.
Shares of TER fell 11% in reaction to the news. The stock fell below its 50-day moving average ($145) ahead of the report and was ripe for selling as the tech sector faced broad market headwinds. Shares would fall to the $120 but have been able to bounce back 7 points. The $129 area stands as a key resistance level for the stock.
A deeper look into the Q2 results reveals that Semiconductor Test revenue was the largest contributor, amounting to $543 million, or 74.4% of total revenues. This segment experienced a 14% year-over-year growth, driven by strong memory demand and a recovery in system-on-chip (SoC) demand. Other segments also performed well, with System Test contributing $61 million, Wireless Test $36 million, and Robotics $90 million to the total revenue.
The growth in the semiconductor test market was fueled by accelerated demand from AI applications, both in compute and memory sectors. Teradyne's robotics business also showed sequential and year-over-year growth, highlighting the increasing adoption of automation in manufacturing. CEO Greg Smith emphasized the impact of AI on the company’s performance and expressed confidence in continued demand growth in these areas.
However, Teradyne faced some challenges with expenses. Gross margin contracted by 40 basis points year-over-year to 58.3%. Selling and administrative expenses increased by 6% to $154.5 million, while engineering and development expenses rose by 5.8% to $111.8 million. Despite these increases, the company managed to keep these costs relatively stable as a percentage of revenue, showcasing effective cost management.
Teradyne’s balance sheet showed a decrease in cash and cash equivalents, which stood at $460.5 million as of June 30, 2024, down from $748.7 million at the end of the previous quarter. However, the company generated strong operating cash flow, with net cash provided by operating activities rising to $2.16 billion, a substantial increase from the prior quarter.
Looking ahead, Teradyne's Q3 revenue forecast of $680 million to $740 million signals potential challenges, as the midpoint of this range is below analyst expectations. The projected non-GAAP earnings per share of $0.66 to $0.86 also reflects a cautious outlook, especially given the ongoing softness in demand from certain markets like the automotive sector. Despite this, the company remains optimistic about the mid-term, driven by the deployment of edge AI and continued strength in its test and robotics businesses.
In summary, Teradyne's Q2 2024 results highlighted strong performance with revenue and earnings exceeding expectations, driven by robust demand in the semiconductor test and robotics sectors. While the company faces some cost pressures and a cautious outlook for Q3, its strategic focus on AI applications and automation positions it well for continued growth. The revised guidance reflects both the opportunities and challenges ahead, as Teradyne navigates a dynamic market environment.