Teradyne, Inc. (TER)

TER 
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Teradyne, Inc. (TER)

Q3 2010 Earnings Conference Call

October 28, 2010 10 AM ET

Executives

Andrew Blanchard – VP, Corporate Relations

Mike Bradley – President and CEO

Gregory Beecher – VP, Treasurer and CFO

Analysts

Timothy Arcuri – Citigroup

Krish Sankar – Bank of America Merrill Lynch

Mehdi Hosseini – Susquehanna International

Gary Hsueh – Oppenheimer & Co. Inc.

Christopher Muse – Barclays Capital

James Covello – Goldman Sachs

David Duly [ph] – Steel Head

Patrick Ho – Stifel Nicolaus & Co.

Atif Malik – Morgan Stanley

Presentation

Operator

Good morning. My name is Pia, and I will be the conference operator today. At this time, I would like to welcome everyone to the Q3 2010 earnings release conference call. (Operator Instructions)

I would now like to turn the call over to Mr. Andrew Blanchard, sir you may begin.

Andrew Blanchard

Thank you, Pia. Good morning, everyone and welcome to our discussion of Teradyne’s most recent financial results. I am joined this morning by our Chief Executive Officer, Mike Bradley; and, our Chief Financial Officer, Greg Beecher.

Following our opening remarks, we will provide details of our performance for the third quarter of 2010 as well as our outlook for the fourth quarter. First, I’d like to address several administrative issues. The press release containing our most recent financial results was sent out via business wire last evening. Copies are available on our website or by calling Teradyne’s corporate relations office at 978-370-2221.

This call is being simultaneously webcast at www.teradyne.com. Note that during this call, we are providing slides on the website that may be helpful to you in following the discussion. To view them simply access the investor page of the site and click on live webcast icon. In addition, replays of this call will be available via the investor’s page of teradyne.com about 24 hours after the call ends. The replays will be available along with the slides through the 14th of November.

The matters that we discuss today will include forward-looking statements that involve risk factors that could cause Teradyne’s results to differ materially from management’s current expectations. We encourage you to review the Safe Harbor statement contained in the earnings release as well as our most recent SEC filings for a complete description. Additionally, those forward-looking statements are made as of today and we take no obligation to update them as a result of developments occurring after this call.

During today’s call, we will make reference to non-GAAP financial measures. We have posted additional information concerning these non-GAAP financial measures including reconciliation to the most directly comparable GAAP financial measure where available on our website. To view them, go to the investor page and click on GAAP to non-GAAP reconciliation link.

Also, you may want to note that between now and our next conference call, Teradyne will be participating in the Piper Jaffray TMT Conference on November 10th, Sidoti & Company’s Emerging Growth Farm in New York on November the 16th; Credit Suisse Annual Technology Conference in Phoenix on December 1st and 2nd; and Barclays Technology Conference on December 9th in San Francisco and finally, Eric May Luncheon in Chicago in November and New York and Boston in December.

Now, let’s get on with the rest of the agenda. First our CEO, Mike Bradley, will review the state of the company and the industry in the third quarter and will review our outlook for the fourth quarter. Then our CFO, Greg Beecher, will provide more details on our quarterly financial performance along with our guidance for the fourth quarter. We will then answer your questions. For scheduling purposes, you should note that we intend to end this call after one hour. Mike?

Mike Bradley

Good morning, everyone. Thanks for being with us you for joining us today. Our results in the third speak for themselves, so I won’t go into detail there other than to say that we posted record numbers and are quite pleased with how the financial results reflect the overall strength of the company.

We’re significantly different operations from a few years back with a richer product portfolio, stronger market share position, a very efficient cost structure and a solid balance sheet. Add to that the upside of our growth initiatives and we believe the picture going forward is quite promising. So, I’ll let Greg go through how our business model is performing as well as our cash strategy and the cash calendar.

But I’d like to focus my reminders first on what’s happening in the test market in the short run; second, how we expect our full year results to play out and third, what we expect over a longer horizon. The most obvious show term issue is the sharp correction and demand we’ve seen in this past quarter in the SOC space. Although memory orders were up slightly, our SOC test orders declined 47% led by an OSAT pull back of $120 million.

As I’ve mentioned in the past, our industry’s annual run rate was over $3 billion, which is above the trend line, so this correction isn’t unexpected. For 2010, the SOC market will now likely come in at $2.6 to 2.7 billion or double the market size in 2009, but will likely exit year at an annualize ship rate of about $2 billion. So, it’s been a sharp correction down to a level below the average market size of the past few cycles.

I would note that we’ll be operating in Q4 at about model profitability in this correction, roughly 10 points higher than in prior cycles. So, our structure work for the last couple of years should stand up well, equally important is our continued progress on market share. While the overall the SOC market will double in 2010, we’ll grow by nearly 2.5 times. This will lift our share position to somewhere between 45 and 50% for the year. This is obviously a bigger gain than on the last few years, so it deserves some comment.

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