Absence Of Innovation Can Plague Teradyne In Competitive ATE Industry; Overwhelming 2Q Results

Semiconductor Equipment & Materials, Technology, TER
Semiconductor Equipment & Materials, Technology, TER

While we see immense growth in SoC test equipment clients and SoC market demand due to healthy mobile SoC activities growth; we upgrade Teradyne (TER) to ‘Buy’ with price target to $25 from $18. The increase in value is also driven by recent second quarter results which were definitely top of consensus expectations. However we see bit seasonal mild growth in the next quarter. We believe shares of Teradyne are bit overvalued suggest investors to wait for an enough margin of safety while investing into this stock.

In second quarter, revenue came in at $526 million, increased by 64 percent from first quarter and 23 percent year over year due to rise in sales of $429 million. Company recorded excellent growth of roughly 40 percent in orders to $627 million compare to $450 million sequentially. Operating income increased to $121 million from $4 million successively.

We noticed terrific growth semiconductor ATE division which contributed $422 million sales (increase of 61 percent quarter on quarter) with bookings of $535 million (vs. $366 million QOQ) in segment. The chip ATE unit was led by mobile device growth, seeing major demand in ATE for testing radio frequency chips, power management chips and application processors. Revenue of systems test division (test equipment provider for electronics circuits, hard disk drives, and defense applications) fell to $35 million, at least 8 percent down compare to first quarter although orders increased to $40 million from $27 million. Wireless test segment (wireless test tools provider for smartphones and tablets applications) revenue increased to $69 million from $21 million sequentially although bookings dropped to $52 million from $57 million.

Management revised revenue for third quarter with 12 percent decline sequentially to range from $440 million to $480 million due to seasonal concerns. However mobility trend may act as tailwinds for company in next quarter. While ATE industry (nearly $3 billion) is becoming significantly competitive (Advantest and LTX-Credence remain key competitors) and is led by the capital expenditure of the unstable semiconductor industry – which can put company in trouble in its downturns.


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