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A key analysis of Teradyne’s revenues and earnings

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Strong demand for SoC testing drives revenue growth

In the previous parts, we discussed Teradyne’s (TER) product portfolio, business segments, and seasonal patterns. In this part, we’ll see how Teradyne’s financial results have shaped up year-to-date.

In 2013, Teradyne (TER) maneuvered headwinds in the form of a weak demand climate for the app processor market. The company’s revenues recovered, growing 10.0% from $433 million in 3Q13 to $478 million 3Q14. The increase is due largely to strong SoC (system-on-chip) product volume growth.

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The growth was driven by application processors and microcontrollers, which in dollar value have contributed $76 million in incremental revenues year-over-year. This has been partially offset by a $38.3-million decline in wireless test revenues. Over the last 12-month period (or LTM), revenues have reached $1.6 billion compared to $1.4 billion in FY13.

The improved market climate for application processors and microcontrollers also had a favorable impact on competitors in the semiconductor test segment. Competitors include Advantest Corporation (ATE) and Xcerra Corporation (XCRA).

This trend also bodes well for the performance of pooled investment vehicles focused on the semiconductor sector such as the VanEck Vectors Semiconductor ETF (SMH), the iShares PHLX Semiconductor ETF (SOXX), and the SPDR S&P Semiconductor ETF (XSD).

The ongoing market compression of wireless test presented challenges in 2014 for competitors such as Agilent Technologies (A) and National Instruments (NATI).

Profitability is fairly steady

Teradyne’s (TER) gross margin underwent a 4.1% year-over-year decline to 55% in 3Q14. This drop was due to an unfavorable product mix and lower wireless test sales. Teradyne’s income from operations remained fairly steady at 21% over the same period due to controlled expenses.

Over the last five years, Teradyne has been able to deliver an above-the-industry average operating margin of 15%. All else equal, this is expected to continue for all of 2014. In dollar value, Teradyne’s net income increased by $13.4 million year-over-year to $82.9 million in 3Q14.

Teradyne’s (TER) operating performance over the last 12-month period suggests a similar trend. Operating profitability, measured by an EBITDA (earnings before interest, taxes, depreciation, and amortization) margin remained stable at 24% for the last 12-month period.

 

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