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Semiconductor testing company Teradyne (NASDAQ:TER) reported Q2 CY2024 results topping analysts' expectations, with revenue up 6.6% year on year to $729.9 million. On the other hand, the company expects next quarter's revenue to be around $710 million, slightly below analysts' estimates. It made a non-GAAP profit of $0.86 per share, improving from its profit of $0.79 per share in the same quarter last year.
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Teradyne (TER) Q2 CY2024 Highlights:
- Revenue: $729.9 million vs analyst estimates of $701 million (4.1% beat)
- Adjusted Operating Income: $159.6 million vs analyst estimates of $141.7 million (12.6% beat)
- EPS (non-GAAP): $0.86 vs analyst estimates of $0.77 (12% beat)
- Revenue Guidance for Q3 CY2024 is $710 million at the midpoint, below analyst estimates of $716.4 million
- Gross Margin (GAAP): 58.3%, in line with the same quarter last year
- Inventory Days Outstanding: 86, down from 110 in the previous quarter
- Free Cash Flow of $171.2 million is up from -$36.74 million in the previous quarter
- Market Capitalization: $23.77 billion
Sporting most major chip manufacturers as its customers, Teradyne (NASDAQ:TER) is a US-based supplier of automated test equipment for semiconductors as well as other technologies and devices.
Semiconductor ManufacturingThe semiconductor industry is driven by demand for advanced electronic products like smartphones, PCs, servers, and data storage. The need for technologies like artificial intelligence, 5G networks, and smart cars is also creating the next wave of growth for the industry. Keeping up with this dynamism requires new tools that can design, fabricate, and test chips at ever smaller sizes and more complex architectures, creating a dire need for semiconductor capital manufacturing equipment.
Sales GrowthTeradyne's revenue has been declining over the last three years, dropping by 6.7% on average per year. But as you can see below, this was a strong quarter for the company, with revenue growing from $684.4 million in the same quarter last year to $729.9 million. Semiconductors are a cyclical industry, and long-term investors should be prepared for periods of high growth followed by periods of revenue contractions (which can sometimes offer opportune times to buy).
While Teradyne beat analysts' revenue estimates, this was a sluggish quarter for the company as its revenue only grew 6.6% year on year. Teradyne's growth, however, flipped from negative to positive this quarter. This encouraging sign will likely be welcomed by shareholders.
Teradyne returned to positive revenue growth this quarter and its management team expects the trend to continue. The company is guiding to 0.9% year-on-year growth next quarter, and analysts seem to agree, forecasting 18.5% growth over the next 12 months.
Product Demand & Outstanding InventoryDays Inventory Outstanding (DIO) is an important metric for chipmakers, as it reflects a business' capital intensity and the cyclical nature of semiconductor supply and demand. In a tight supply environment, inventories tend to be stable, allowing chipmakers to exert pricing power. Steadily increasing DIO can be a warning sign that demand is weak, and if inventories continue to rise, the company may have to downsize production.
This quarter, Teradyne's DIO came in at 86, which is 9 days above its five-year average. These numbers suggest that despite the recent decrease, the company's inventory levels are higher than what we've seen in the past.
Key Takeaways from Teradyne's Q2 Results We were impressed by Teradyne's strong improvement in inventory levels. We were also excited its EPS outperformed Wall Street's estimates. On the other hand, its revenue guidance for next quarter missed analysts' expectations. The guidance seems to be weighing on shares, and the stock traded down 7.8% to $132.10 immediately after reporting.
