Teradyne (NASDAQ:TER) Exceeds Q1 Expectations, Guides For Strong Sales Next Quarter

Adam Hejl /
2023/04/26 5:07 pm EDT

Semiconductor testing company Teradyne (NASDAQ:TER) reported Q1 FY2023 results topping analyst expectations, with revenue down 18.2% year on year to $617.5 million. Guidance for next quarter's revenue was $655 million at the midpoint, 4.87% above the average of analyst estimates. Next quarter's EPS guidance was even more strongly ahead. Teradyne made a GAAP profit of $83.5 million, down on its profit of $161.9 million, in the same quarter last year.

Is now the time to buy Teradyne? Access our full analysis of the earnings results here, it's free.

Teradyne (TER) Q1 FY2023 Highlights:

  • Revenue: $617.5 million vs analyst estimates of $603 million (2.4% beat)
  • EPS (non-GAAP): $0.55 vs analyst estimates of $0.44 (24% beat)
  • Revenue guidance for Q2 2023 is $655 million at the midpoint, above analyst estimates of $624.6 million
  • Free cash flow was negative $22.1 million, down from positive free cash flow of $148.8 million in previous quarter
  • Inventory Days Outstanding: 123, up from 95 previous quarter
  • Gross Margin (GAAP): 57.7%, down from 60.2% same quarter last year

“A faster recovery from supply chain constraints in our test businesses and Robotics shipments within the range of our expectations contributed to first quarter financial results that were above the mid-point of guidance,” said Teradyne CEO Greg Smith.

With most major chip manufacturers as customers, Teradyne (NASDAQ:TER) is a US-based supplier of automated test equipment for semiconductors as well as other technology and devices.

The semiconductor industry is driven by demand for advanced electronic products like smartphones, PCs, servers and data storage. The growth of data and technologies like artificial intelligence, 5G networks and smart cars are also creating a next wave of growth for the industry. To keep up with ever changing customer needs requires new tools that can design, fabricate and test at ever smaller sizes and more complex architectures, and that is driving the demand for semiconductor capital manufacturing equipment.

Sales Growth

Teradyne's revenue growth over the last three years has been unremarkable, averaging 8.66% annually. Last year the quarterly revenue declined from $755.4 million to $617.5 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).

Teradyne Total Revenue

Despite Teradyne revenues beating analyst estimates, this was still a slow quarter with a 18.2% revenue decline.

Teradyne' appears to be headed for an upturn. While the company is guiding to revenue declines of 22.1% year on year next quarter, analyst consensus sees 1.03% growth over the next twelve months.

In volatile times like these we look for robust businesses with strong pricing power. Unknown to most investors, this company is one of the highest-quality software companies in the world, and their software products have been the default standard in critical industries for decades. The result is an impressive business that is up an incredible 18,152% since the IPO. You can find it on our platform for free.

Product Demand & Outstanding Inventory

Days Inventory Outstanding (DIO) are an important metric for chipmakers, as it reflects the capital intensity of the business 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.

Teradyne Inventory Days Outstanding

This quarter, Teradyne’s inventory days came in at 123, 54 days above the five year average, suggesting that that inventory has grown to higher levels than what we used to see in the past.

Key Takeaways from Teradyne's Q1 Results

With a market capitalization of $14.7 billion, more than $742.1 million in cash and with free cash flow over the last twelve months being positive, the company is in a very strong position to invest in growth.

We were impressed by how strongly Teradyne outperformed analysts’ operating profit and earnings expectations this quarter. And we were also glad that the revenue and EPS guidance for the next quarter exceeded analysts' expectations. On the other hand, it was less good to see that the revenue growth was weak and free cash flow missed. With that said, this was an overall good quarter. The company is up 8.46% on the results and currently trades at $101.17 per share.

Teradyne may have had a tough quarter, but does that actually create an opportunity to invest right now? It is important that you take into account its valuation and business qualities, as well as what happened in the latest quarter. We look at that in our actionable report which you can read here, it's free.

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The author has no position in any of the stocks mentioned.