Teradyne Inc. (TER): New Analyst Report from Zacks Equity Research - Zacks Equity Research Report

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Summary:
Teradyne is a leading provider of automated test equipment. The company's third-quarter earnings beat the Zacks Consensus Estimate although forward guidance was disappointing. Though weak orders were discouraging in the quarter, a recovery in the core semiconductor business (processors, MCUs and power management), long-term opportunities in the high-growth wireless test market, growing memory market exposure, product lineup, lean cost structure and strong balance sheet are positives. However, excess capacity and pricing pressure could remain near-term headwinds. We are therefore reiterating our Neutral rating on TER shares.

Overview:

Headquartered in North Reading, Mass., Teradyne Inc. (TER) is a leading provider of automated test equipment. The company is primarily focused on the semiconductor test market, which generates the bulk of its revenues. It also provides specialized system testing equipment for specific end markets.

The semiconductor test product line primarily consists of the FLEX platform (including the IG-XL software operating system enabling single or simultaneous testing of semiconductor devices), the J750 testing system based on the IG-XL software (for very high-volume testing, as required for microprocessors) the Magnum test platform (enabling testing of memory devices produced in very large quantities) and the ETS platform (focused on analog/mixed signal discrete devices that usually have a lower pin count for testing through the proprietary SmartPin technology). The installed base of FLEX systems is currently more than 3,500, while that of Magnum systems and ETS systems is more than 1,300 and 2900, respectively. Additionally, the company also offers a broad range of services across the world that helps in the deployment and functioning of its testing systems. Customers primarily consist of semiconductor manufacturers, whether integrated device manufacturers (IDMs) or foundries, as well as outsourced assembly and test subcontractors (OSATs). This segment generated 71% of revenues in fiscal year 2013.

The company has leveraged its expertise in semiconductor testing systems to expand into system testing for military/aerospace instrumentation, hard disk drives, printed circuit boards (including in-circuit test and x-ray inspection) and automotive system diagnosis. This segment accounted for 18% of 2013 revenues.


The remaining 11% came from the wireless test business, which basically represents the LitePoint acquisition.

The largest chunk of revenues is generated in Asia, which accounted for 53% of revenues in 2013. This was followed by China with a 23% revenue share, U.S. with 16%, Europe with 6% and the rest of the world with 2%. Revenues improved across most regions, although some Asian countries, such as Korea, Thailand and the Philippines declined.

Teradyne has a large number of competitors, given its comprehensive product portfolio. The company's semiconductor test systems compete with those from Advantest Corp, Verigy and LTX Credence Corporation. The Systems Test products are pitted against offerings from Agilent Technologies and Xyratex.


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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



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