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Please stand by. Your meeting is about to begin. Ladies and gentlemen, good morning and welcome to the Teradyne Third Quarter 2026 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the prepared remarks. At that time, if you wish to ask a question, please press star 1 on your telephone keypad. As a reminder, today's call is being recorded. I would now like to turn the call over to Amy McAndrews, Vice President of Corporate Relations for Teradyne. Please go ahead.

Thank you, Operator. Good morning, everyone, and welcome to our discussion of Teradyne's most recent financial results. I'm joined this morning by our CEO, Greg Smith, and our CFO, Michelle Turner. Following our opening remarks, we'll provide details of our performance for the third quarter of 2026 and our outlook for the fourth quarter. The press release containing our third quarter results was issued last evening. We are providing slides as well as a copy of these prepared remarks on the Teradyne Investor website that may be helpful in following the discussion. Replays of this call will be available via the same page after the call ends. The matters that we discuss today will include forward-looking statements that involve risks that could cause Teradyne's results to differ materially from management's current expectations. We caution listeners not to place undue reliance on any forward-looking statements included in this presentation. We encourage you to review the safe harbor statement contained in the slides accompanying this presentation, as well as the risk factors described in our annual report on Form 10-K for the fiscal year ended December 31, 2025, on file with SEC. Additionally, these forward-looking statements are made only as of today. During today's call, we will refer 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 measures, where available, on our investor website. Looking ahead between now and our next earnings call, Teradyne expects to participate in a technology-focused investor conference hosted by UBS. Our quiet period will begin at the close of business on December 18, 2026. Following Greg and Michelle's comments this morning, we'll open up the call for questions. This call is scheduled for one hour. Greg? Thanks, Amy.

Good morning. AI was the driver again this quarter. Total company revenue topped $1.3 billion, up 70% year-over-year, and consistent quarter-over-quarter with non-GAAP EPS of $2.29, up over 150% year-over-year. All three of our business groups, Semi Test, Product Test, and Robotics, grew versus the prior year, highlighting AI demand across all parts of the business. AI-driven revenue represents more than 60% of total revenue, a key proof point that our wafer-to-data center strategy is delivering results. From wafers to modules to trays to racks and into full data centers, Teradyne equipment is used to build and test the high-performance computing that underpins the growth of agentic AI. We've previously discussed our long-term perspective on the AI transformation of the semiconductor industry and global economy. The first wave started back in 2024 with the build-out of general-purpose data centers, which were used for both model training and inference. In 2026, we are in the early stages of the second wave where data centers are optimized to serve these models to support agentic AI and inference on a global scale. The third wave is physical and edge AI. While there are already compelling examples of physical and edge AI in automotive, robotics, and wearables, the full impact of AI on these segments is still to come. The strength of these waves gives us great confidence in our midterm growth plans. Let's start with semiconductor test. The demand for compute is far greater than supply, and the semiconductor industry is seeing dramatic expansion in capacity to meet this burgeoning demand. The portion of semi-capex associated with test is increasing as well, from 6.4% in 2025 to 8.1% for the first eight months of 2026. With forecasts for semiconductor capex being revised upward for 27, 28, and beyond, we believe that the conditions are right for prolonged expansion of the ATE TAM. CPUs and AI accelerators are key drivers of the expansion. Through our accelerated investments, Paradigm is positioned for continued growth in both the overall ATE market and share gains driven by customers adopting dual vendor strategies. Dual vendor provides greater assurance of getting capacity when needed, minimizes the risk of supply chain disruptions, and ensures that the test capability arrives in time for new device technologies. Dual vendor programs progress through several phases over multiple quarters, including initial qualification, fast follower, and mature dual sourcing. We have multiple customers at different stages of this process. Our first hyperscaler customer is in the mature phase and we expect our next major ramp in the middle of 2027. Our merchant GPU customer is in the fast follower phase with multiple devices in development and we expect to see additional revenue in 2027. Our second hyperscaler customer has past qualification and is now in fast follower with an expectation of capacity buys in the second half of 2027. We also have a third hyperscaler in initial qualification. Networking devices, both copper and optical, are growing proportionally with compute. The majority of this TAM is in switches. However, retimers and DSPs are driving significant business. The majority of the networking market is currently copper and optical pluggables. Over the next few years, we believe the NPO and CPO markets will grow strongly from a small base. We are working with leaders in this segment on solutions across all test insertions, and it is clear that there are many different approaches and technologies being tried by different customers. As a result, the types of tests and the handling and alignment techniques are in flux. The key to our strategy here is to develop strong open ecosystem partnerships for instrumentation, handling, and alignment. We have spoken before about our partnerships with Technoprobe and Ficontech, and we have just announced a partnership with FormFactor to address optical tests, amongst other opportunities. Our open, non-exclusive ecosystem of probing, handling, and interface partners allows us to validate complete test cell solutions before they reach our customers' floors, giving them more interoperability, full control over their supply chains and lead times. This provides a faster path to high volume production. The pace of innovation in compute and networking has accelerated, and we have been investing in R&D to ensure that our product roadmap is aligned to those needs. We've discussed before that there is no current ATE solution for the most complex next-generation AI and data-centered devices that are coming to market in 2027. The trio of new Ultraflex Plus instruments that we just introduced address that need. The first is the Ultrapin 5000 EM. The EM stands for extended memory. This instrument has up to 80 times deeper memories than our current instrument for intensive device characterization work. The second instrument is the UltraVS64HP. The HP stands for high power. This instrument enables testing accelerators that consume up to 15,000 amps. And finally, the UltraPort PCIe 6. This is the industry's first ATE solution for PCIe Gen 6. We also introduced the Iris 100, a solution for optical test of microLED and VEXL emitters. This instrument serves both mobile applications and optical networking. To assure data center reliability and uptime, customers are increasingly turning to system-level test and burn-in. In the third quarter, we introduced new burn-in capabilities for the Titan HP platform, which enables full system test coverage across burn-in temperature ranges. As AI moves out of the data center and into cars, robots, and wearables as part of the third wave of AI, Mobile processors and microcontrollers are adding neural processing units and other AI features. To address that coming market, in the third quarter, we launched the Ultraflex Plus S, a small footprint system that covers both engineering and production insertion for edge AI devices. Moving on now to memory. Memory manufacturers are bringing on more capacity for HPM, DDR, LPDDR, and flash memories. More capacity means more wafers. More wafers means more bits and more units, which means more to test in memory. In the past two quarters, it has become clear that the constraints on memory supply are so severe that AI accelerators are turning to lower stack heights of HBM memory to get a larger number of stacks out of the same volume of DRAM wafers. This will tend to increase the TAM for HBM performance tests, an area where we have higher share. The HBM, DDR, LPDDR, and GDR markets are moving quickly from generation to generation with higher data rates and new encoding approaches. To support these new technologies, in the third quarter we introduced the Magnum E2, our next generation DRAM tester with the signal integrity and throughput needed to keep pace with our memory customers. Linear and power segments, which were previously driven mainly by automotive and industrial verticals, are adding capacity to deliver data center power distribution and regulation components. Our product revenue in the automotive and industrial space has grown from less than $400 million in 2025 to over $600 million in 2026. This trend will accelerate with new 800-volt standards and new technologies like IVR. The demand for AI-accelerated compute goes beyond the semiconductor market. The need for near-line storage and data centers has accelerated the annual exabyte growth for HDD to over 20% in 2026. Since the test time for HDD is more closely related to the capacity than the unit volume, this, as well as adding a third major customer, is driving expansion of our HDD test revenue. Scale-up networking to support large GPU clusters is predominantly served by copper connections via backplanes and cable spines running at unprecedented data rates. This has turned backplanes and cables from commodities to highly engineered and tested elements of the HPC system, which is driving significant growth in TDR and BERT test equipment served by our MLTP joint venture. In addition, we have seen strong demand for our Omnics board test products. Together, these contributed to almost 30% quarter-over-quarter growth for the entire product test group. Increasingly, exotic packaging and materials are being used in data center tray assemblies. These trays demand superhuman accuracy and stamina to build. ODMs and CMs are increasingly turning to flexible, physical AI-based robots to assist in assembly and test processes. As a result, electronics and semiconductor is now our largest vertical for robotics. In the third quarter, we introduced the Universal Robots Gen 7 Cobot platform. The features of this platform and PolyScopeX have been tailored precisely to bring physical AI to electronics assembly work cells and provide a platform for URplus partners to plug into to support the diverse requirements of server and rack build. To sum up, our wafer to AI data center strategy is delivering. Within the third quarter, outside of compute, the rest of our portfolio delivered close to 80% of our overall sales. The R&D that we have been investing has yielded next-generation products. These products allow us to capture opportunity along the entire value chain, from wafers to modules to trays to racks. Our continued investment reflects our optimism about the near and medium-term opportunities in front of us. This was another strong quarter where AI was the driver across our business groups. We are riding a rising tide. AI has driven the semiconductor and electronics industry into a new era, and our way for the data center strategy has positioned us to benefit from these positive changes. With that, I'll turn the call over to Michelle.

Thanks, Greg, and good morning, everyone. Let's get into the quarter, beginning with the total company. Both revenue and non-GAAP ETS came in above the high end of our guidance range, as our wafer-to-data center strategy and the breadth of our portfolio sustained positive momentum. For the third consecutive quarter, total company sales remained at the high watermark of $1.3 billion. For the first nine months of 2026, we delivered $3.9 billion in revenue and $7.31 of non-GAAP EPS, up over 85% and 235% year-over-year, respectively, driven by all things AI. Building on that, let's take a deeper look at revenue, starting with semi-tests. Our Semitest team once again cleared $1 billion in revenue, up 77% from Q3 2025. The revenue breakdown within Semitest was SOC at $676 million, memory at $301 million, and IST at $95 million. As expected, compute order timing was predominantly offset by strength across the rest of the Semitest portfolio. Starting with SOC, compute revenue grew nearly 50% year-over-year on continued AI-related demand. As Greg mentioned, our customers' dual vendor strategies are opening up more opportunities for us in compute, and we expect healthy growth in 2027. Auto and industrial continue to strengthen up nearly 90% year-over-year, driven primarily by power management demand increases for AI data center build-outs. Mobile was up 60% year-over-year from a low base, but remains below historical levels and a muted part of the overall SOC portfolio. Now turning to memory. Our memory business delivered another record quarter at $301 million in revenue, up from the previous record set just last quarter. This represents our fourth consecutive quarter of revenue, over $200 million, driven by continued robust HBM and DRAM test solutions demand and a resurgence in NAND. Finally, turning to IFC. Revenue in the quarter reached a new record at $95 million, up approximately 150% from the prior year, with used storage demand from all three major suppliers in this space. Now on to the product test group. Revenue was $138 million, up 56% year-over-year. The group experienced broad-based growth tied to AI infrastructure build-outs from production board tests to optical to high-speed interconnection. Both the bill for the quarter was 1.4 times with particular strength in the newest addition to the group, multi-lane test product, JV, as the need for data center interconnect test solutions increases. Robotics revenue was $96 million, up 28% year over year. Our robotics group delivered its highest third quarter revenue ever and also achieved profitability within the quarter. AI-related revenue remains elevated with robot-assisted tests and assembly across the data center value chain in high demand. In the first nine months of the year, AI-related revenue was roughly 20%. Aligned with the third wave of AI Greg mentioned, the physical and edge AI ecosystem is in early innings and building momentum. Our robotics group has announced partnerships with industry leaders such as NVIDIA and analog devices, as well as innovative startups including Scale AI, Generalist, Bright Machines, and C-React. These partnerships reflect growing interest in physical AI. Now moving down the P&L. Gross margins for the quarter were 59.1% of 60 basis points year-over-year, driven by strong volume and product mix, while sequentially gross margins were down 70 basis points, driven primarily by product mix. As expected, OPEX increased, driven by more R&D and go-to-market investment in support of future growth. Finally, non-GAAP operating income was $413 million, with an operating margin of 31.6%. Now moving to capital allocation. Reinvesting in the business remains our top priority. In 2026, we will invest close to a billion dollars across R&D and CapEx, with R&D investments representing a double-digit percentage of our sales. Beyond that, our strategy is to maintain the cash reserves to grow the business, return capital to shareholders through both dividends and share repurchases, and keep dry powder available for creative M&A. Each pillar of our capital allocation strategy is focused on innovating from wafer to data center, positioning us well over the near and mid-term. We ended the quarter with cash and investments of $625 million, up 21% from last quarter. We had free cash flow of $227 million in the quarter. For the first nine months of 2026, free cash flow was $806 million, up nearly 250% from the prior year period. Additionally, from a working capital perspective, we increased our inventory in support of future revenue growth. We paid $20 million in dividends in the quarter and our share buybacks were $99 million. Now looking ahead to our fourth quarter guidance. For the quarter, we expect revenue in the range of $1.25 billion to $1.35 billion and non-GAAP EPS of $1.95 to $2.25. Gross margins are expected to be in the range of 57.5% to 58.5%, reflective of product mix and new product launches. Operating expenses are expected to run at 28.5% to 29.5% of fourth quarter sales, driven by continued investments in R&D and go-to-market. The non-GAAP operating profit rate is expected to be between 28 and 30%. Our Q4 guidance midpoint of $1.3 billion represents growth of approximately 20% over the last year's fourth quarter, which would bring full-year revenue to approximately $5.2 billion, up over 60%. We expect Q4 will be our fourth consecutive quarter of revenue above $1.25 billion, representing a sustained step change in the business from a year ago. As we said last quarter, we expect 2027 to be another year of healthy growth. Our strengthening backlog and the growth in compute give us momentum, and we expect to carry and build throughout the year. For your modeling purposes, we expect form factor investment to close in the fourth quarter, subject to regulatory approval and customary closing conditions. The rest of our portfolio is in full effect in the second half as memory, auto and industrial, IST, product tests, and robotics grow, offsetting a second half program timing and compute. In closing, Q3 was another quarter of strong execution. AI demand continued to pull through every part of our portfolio, from the chips that power it to the systems, interconnects, and robots that build it. This is what our Wafer-to-Data Center strategy is designed to capture. As we look to the fourth quarter and into 2027, the demand signals across our end markets remain strong, and we look forward to sharing an updated target earnings model on our Q4 call. I'll host by thanking all of our Teradyne team members around the world for the hard work and dedication that drives our results and positions us well for the opportunities ahead. With that, operator, we're ready for questions.

We will now be taking questions from Teradyne's research analysts. At this time, if you wish to ask a question, please press star 1 on your telephone keypad. You may remove yourself from the queue by pressing star 2. In the interest of time, we ask that you please limit yourself to one question and one quick follow-up. Thank you. We'll take our first question from CJ Muse with Cancer Fitzgerald. Your line is open.

Yeah, good morning. Thank you for taking the question. I guess first question on memory, you know, you obviously put up a record number for September. I'm curious how we should think about the trajectory of that business into December, and then moreover, as you think bigger picture into 27. I know it's early. You're going to save that for February, your outlook. But, you know, as you sit here today and as you look at your book to bill, How are you thinking about maybe the rank order of growth between HBM, traditional DRAM, and NAND?

Hey, CJ, it's Greg. So looking out to Q4, we think memory is going to continue at a really strong level. And going into 27, given all of the fab expansion that is coming online in 27, we're expecting significant growth for the memory business year on year. And you were asking in terms of like what segment is going to drive most of the growth. We would say that this year, HBM was probably the biggest thing that drove the growth of the memory TAM. Flash came back pretty strong, and DRAM was surprisingly strong based on what we were thinking at the beginning of the year. Looking at next year, I think HBM is the star. There's going to be growth across all of the segments of memory, but I think the biggest impact is going to be in HBM growth.

Very helpful. And then, you know, maybe on your gross margin guide and the strength and the 1.4 book to bill you highlighted for product test, how should we think about product tests sequentially? I'm assuming that's up. And is that what's driving gross margins lower? And as you think about that business next year, what impact does that have to what we should be thinking about as a more normalized gross margin for Teradyne?

Yes, I'll start with the gross margins, and then we can talk a little bit about product tests. So within the quarter, gross margins came in at 51.1%. This is up 60 basis points from the Q3 last year. Within the Q4 guide, we're also guiding up about 80 basis points in comparison to last year. And then if you extrapolate that for full year, Our overall gross margins for the year will be about 59.4%, which is up about 110 basis points year-over-year. So we're at the low end of the earnings model that we just put out in January, and we're going to expect to update that in the Q4 call. So thinking about the three segments, CJ, a product test is actually accretive to the overall portfolio. So if you think about modeling for Q4 and into next year, we expect that to continue to be true. As you think about gross margins for 2027, I put it in a couple of buckets in terms of headwinds and tailwinds. Headwinds perspective, I would say volume. We're going to have another year of healthy growth when you think about the overall portfolio, along with some elements of mix as we think about next year. Tailwinds, though, from an overall cost perspective, we are continuing to see cost pressures, inflationary pressures, just across the overall ecosystem, across supply. along with potential expanded capacity next year as well. And so as we look at second half of next year, we're continuing to see robust demand signals. So to the extent that we're continuing to build on our capacity, that will also be an expense that we would expect next year as well. I don't know if we have anything else.

You said 51.1%. I think you meant 59.1%. I just want to make sure that that doesn't stay out in the atmosphere. But I completely agree with what you said, that there are kind of, I'd say, equal up and down forces in terms of gross margin going into 2027.

Yeah, and the only other thing I would add, CJ, in terms of Q4 in comparative to Q3, and Greg referenced kind of the continued growth in memory, and we certainly expect that. We do expect, though, that Q3 was the record quarter within 2026. We think there's a bit of a digestion period, although it's going to continue to grow from Q4 of last year. We expect that compute was at its lowest within Q3, and so we expect that that's going to start to reaccelerate from a growth perspective in Q4. And then to your point, we also expect product tests and robotics to grow within fourth quarter as well.

Thank you.

Thank you. We'll move on now to Timothy Arcuri with UBS. Your line is open.

You're in kind of the shape of the year. So this year kind of played out. You got this big step up in Q1, and then it was basically flat throughout the year, Greg. Inventory, though, is up like $200 million over the past six months. So obviously, you're pretending a pretty big year next year. Can you speak to that? And I guess, particularly, it sounds like both your first and your second hyperscale customers are a little more back-end loaded next year. So does that mean, like, next year is going to be a back-enloaded year? Should we think of the first half as kind of flat versus the back half of this year and then a big step up in, you know, second half next year? I ask because people are sort of thinking that it's more of a, you know, radical end to the year. So if you can help us shape that, that'd be great.

So I think there are two things that are driving the increase in inventory that you're seeing. One is, you're right, we are preparing for robust growth in 2027. The other is that many of the components that we're procuring to build these testers, the lead times for those have gone out as well. So we are needing to essentially put on order and take inventory against a longer lead time of our inputs. So there's two things going on there. I don't think it's a good idea to just sort of extrapolate from that number to a pure growth number. In terms of how next year breaks down, we'll have a lot more to say about that in our Q4 call. But I will tell you that in terms of the ATIC programs, I think you're right. I think they are going to tend to be more back half loaded. But I don't particularly expect, you know, I think it's going to be a strong year all around, and we'll talk more about the facing next quarter.

Okay, and I guess just, Greg, on the share gain pace, so last night your competitor was kind of, I mean, they keep pushing back on, you know, losing any share, and in the release last night, there was some allusions to their contract manufacturing partners adding a bunch of supply for them. So how do you see your lead times affecting the pace of the share gains? Like, are you being proactive enough about adding, you know, having your supply chain add enough, you know, for you to keep, you know, lead times when you need them so that you're customers don't just go to them and place orders with them. Thanks.

Yeah, so we've talked a lot about this in prior calls, that we've added significant capacity already for our primary SOC test platform, the Ultraflex Plus. We're actually at like 4x the capacity that we were about 18 months ago, and we are essentially planning our next capacity step up for that platform. In addition, we've employed a dual vendor strategy for our own supply chain. So in 2026, we qualified a second CM to build that platform. We're in the process of doing that for our memory test platform as well. And we are aggressively adding capacity for both memory and our and the Eagle Power test line. So we are definitely looking to increase our capacity. We are doing our best to try to hold our lead times. One thing that is a little bit different is we're holding our lead times, but customers are giving us probably better forecast information about when they are going to need capacity. in advance of placing those orders. So we have a pretty good viewpoint going out further than we did before, and that's helping us map out exactly what we need to do for capacity planning. We're doing our best to try and hold our lead times I would say that if demand comes in that we haven't heard anything about from a forecasting perspective, the drop-in place for that is probably longer than it was a year ago. But we're doing our best in terms of procuring material and expanding capacity so that we can still be very responsive to spot demand.

Okay, great. Thank you very much.

Thank you. We'll move next to Mehdi Hosseini with SIG. Your line is open.

Mehdi Hosseini Yes, thanks for taking my question. Two follow-ups for me. Greg, I want to go back and see if you can qualitatively give us an update on the demand vectors. I think the targeted model is now stale, and yes, we're going to have to wait until Q4 earnings to get an update, but I think it would be very helpful if you can shift some light into different demand vectors. It seems like everything is tracking a bit unexpected, and next year could be a second half-way there. but is there anything else you can provide because I just want to make sure that consensus is already well above your target and we're not being too aggressive I don't have a follow-up yeah no so I think we can definitely we're going to give you an updated model in January and

The last model was based around a $13 billion ATE TAM, $12 to $14 billion. And the TAM has grown very, very quickly. And when we were building that model, we were trying to give you an idea of what a larger teradyne would look like without tying down sort of exactly when that would happen because of uncertainty about these growth rates. Having said that, There are multiple independent parts of Teradyne that are each growing associated with their markets and our success there. And we have to make assumptions in terms of the mix. You know, that in our model, we assumed that semiconductor test would be 80% of the revenue and robotics would be 10 and product test would be 10. Semiconductors are growing so fast that that mix has changed. Also, the semiconductor TAM growth has been so concentrated in compute, an area where we have low but growing share, that essentially we need more ATE TAM in order to hit the revenue that we have in the model that we published. So, as we're looking to put together the model that we'll talk about in January, We're definitely sort of retiming all of the different groups of the company. But if you sort of run through it, compute is growing faster than we anticipated, and we're gaining share there at a modest rate because that's being driven by dual vendor strategies primarily from those customers and growth and networking. I would say that mobile is underperforming our expectations from the model as we put it together, and we're going to be re-looking at that to see whether and when we would see an edge AI-driven recovery in that space. The automotive and industrial space, we're seeing good growth there, and I think that's tracking to sort of the model that we had before. And both product tests and robotics are tracking the growth that we had expected in our model, but they've been sort of – the semiconductor growth has sort of outpaced it. So when we put it all together, I would expect to see us building an evergreen model against a much larger ATE-CAM, and we'll talk about that in January. But the growth vectors are all there, and it's all positive in terms of the direction that we'll be going.

Thank you. Thanks for the detail. And follow-up, your industrial automation for me is basically physical AI, and it's been there. And you have also built up manufacturing capacity in the U.S. What needs to happen for a high growth rate? Is it just a matter of timing, or do you have to make more modifications to the model? Anything there that could help you with a higher growth rate?

Yeah, so it's a great question. So with the growth of physical AI, the capabilities of physical AI, we think that that is going to unlock significant growth in the robotics group. There are a couple of things that have to happen. Over this year, and Michelle talked a little bit about it in her script, we have been building partnerships with the labs that are working on physical AI models and physical AI implementations. We are also aligning with the CMs and ODMs that are serving primarily the AI data center build-up. They're doing server builds, basically. These things are really tough to build, and the customers are quite sophisticated in terms of the adoption of technology. That is kind of fertile ground to be able to deploy robots. The thing that I will warn you is that because we are working with the labs and then the labs are working to solve the problems with the end customers, it's going to have a gestation period. So I would expect us to see robust growth in terms of the transactions that we have to the labs in 27 years. Thank you. We'll move on now to Jim Schneider with Goldman Sachs. Your line is open.

Good morning. Thanks for taking my question. You know, I was wondering if you could maybe comment on your sort of near-term visibility heading in the next several months. And specifically, you know, I think you've talked about visibility kind of extending beyond the current quarter. So I was wondering if you could maybe, in terms of the longer-dated commentary, help us a little bit, at least directionally, with your view on Q1 preliminarily, directionally sort of up, flat, or down, and maybe what would sort of be driving that beyond the memory drivers you talked about earlier? Thank you.

Good morning, Jim. How are you? It's Michelle. So from a visitability perspective, we talked about this over the last couple quarters. So coming into the year, historically, we've had about 13 weeks of visibility. Fast forward to where we are today, we have a pretty good line of sight out a couple quarters. Where we're sitting as we exit 26 is really strong backlog. So we have a pretty good line of sight to what will play out in Q1. The caution we have around putting any guidance around it right now is we do continue to see movement within any given quarter depending on how test cells are coming together for our customers. So I would say we would expect Q1 from where we sit today to be some level of growth, but we expect the year to progressively grow throughout quarter on quarter versus what we saw this year, which was more of a 50-50 split.

Thanks. That's a very helpful color. Thank you. And then maybe as a follow-up, you know, I was just wondering if you could sort of give us a view on the robotics business very broadly speaking. Obviously, the momentum there is improving, and I know that you have some, you know, some level of visibility on some very large customers potentially ramping next year. So maybe if you could give us any update on, like, sort of how your visibility in robotics compares to the broader visibility in the business you just discussed. Thank you.

Yeah, so visibility in robotics, aside from our largest customer, is pretty short term. I mean, we have, coming into a quarter, A large portion of our revenue is coming from turns. So we manage that business against sort of a pipeline of opportunities. I'll tell you that the pipeline of opportunities is expanding. and our closure rates are relatively consistent, but it is essentially probabilistic. You know, we're in the semiconductor test space, we're kind of counting noses. We know how many testers people will need, when they'll need them. In terms of the robotics business, a big chunk of it is essentially driven by an opportunity pipeline. Our large customer, we tripled our revenue for that large customer from 2025 to 2026. We expect to see robust growth next year. What's going on with that major customer is that in 2025, they were largely doing engineering work to prove out the solution that they were deploying. In 2026, they deployed that solution to their sort of leading edge of distribution centers and have been working out the kinks and getting it ready and also like sort of developing the processes so that they can install these systems quickly, so that they can quickly flip over a distribution center from manual to automated in these workflows. And that's the work that we expect to see happening in 2027, sort of a more broad deployment of these technologies, but we'll have to see exactly what pace they're going to be able to do that work.

Yeah, and just to follow up on that, Jim, this is an example of where we see more of the back half waiting based on that customer schedule.

Great, Keller. Thank you. Thank you. We'll move on now to Joseph Cardoso with J.P. Morgan. Your line is open.

All right, good morning, and thanks for the question here. Maybe just for the first one, you know, I just wanted to touch on, in your prepared remarks, I think you've made a couple of references around CPO and MPO, and so I was just curious if we can get an update on how you're thinking about the timing. You know, it sounds like maybe anecdotally there was a little bit of a de-emphasis there in terms of how fast these opportunities could ramp relative to maybe what we're hearing across and various suppliers in the broader supply chain there. And just curious whether you're thinking about that any differently as well as the content and TAM associated with the opportunity. And then I do have a quick follow-up. Thank you.

Hi, Joe. So I think we remain quite enthusiastic about CPO. And when we've talked about it before, we've tried to be pretty clear that we're kind of in the preseason right now, that there is an initial customer that is driving towards a significant ramp in 2027, but it is growing from a very small base. We've talked about the TAM in 2026. probably somewhere in the neighborhood of $100 million for the test equipment portion, and that could grow to $300 to $700 million by 2028. I think that's still the right range. As to whether we trend towards the high end or the low end of CPO, I think it really depends on whether the economics of CPO get to the point where it's Thank you very much. those and part and test is only part of it there are other challenges in the whole assembly flow um that need to get worked out and refined so i think as those things get refined the this is going to turn into something big that the 300 to 700 is just sort of a stop along a path of growth This is likely to continue to be up to a billion-dollar market or beyond. But the exact timing, how fast we go up that ramp, is something that I think is going to be a question mark. The thing that you have to remember is these network connections have to get made. Whether they get made with CPO or NPO or pluggables or copper, The key thing is that clusters are going to get bigger and connectivity is going to be increasing. And so our strategy is to make sure that we are able to serve all of those markets and be able to serve that from both our product test group for pluggables and copper and from our semi-test market for all of the switched silicon and everything else. So we're definitely investing towards an open ecosystem in CPO, but I think We are trying to make sure that our business strategy is resilient to any uncertainty in the timing. That's not like a lack of confidence in the end goal. It's more just knowing that the importance of these connections is so high that they're going to have multiple paths to success.

Got it. Appreciate the thoughts there and totally fair. And maybe on the second question, and I wanted to go back to Confuse, but maybe touch on it in a different angle. Obviously, you have your kind of disclosed customers that you'll be ramping through 2027. But maybe if we think about more medium term, longer term, I just want to hear your thoughts around potential engagements beyond those three customers, particularly just given that We're hearing more around maybe a bigger step-up or inflection around custom ASIC opportunities going into 2028 with additional hyperscalers and potentially AI labs. So just curious how you're thinking about your opportunity or the TAM there as you guys are thinking or maybe hearing about these engagements or discussions with customers. And are you seeing maybe a similar trend as we kind of think about 2028 as well? I know I'm skipping 27 a little bit here, but... It does seem like this is a big talking point around maybe an expanding opportunity set here. So just curious how you guys are thinking about that.

Thank you. I think it's awesome that you're thinking about 2028. And it really reflects sort of the new reality in this market that we used to be in a world where we were like there was significant uncertainty quarter to quarter around how the end market would develop. Now any quarter-to-quarter uncertainty is really just around like shipment timing and how fast people can build buildings. So it's pretty cool that we have the ability to look out to 2028 and have a conversation about long-term targets. So in our prepared remarks, I talked about, you know, hyperscaler one is mature, hyperscaler two, we're in fast follower. We expect to see stuff in the back half of 27. We're in qualification for a third. There are other X factors here in terms of what will happen with the TerraFab investment, what will happen with OpenAI, with Anthropic. All of these folks are leaning hard into developing their own their own silicon technology for sort of a complete stack. I will say that we are approaching all of them in the same way. In some cases, we are the first in supplier and working to maintain and maximize our share. In other cases, we are positioning ourselves as a capable dual vendor option for them that will allow them to secure their supply chain. It's essentially the same engagement process that we've used for the first three hyperscalers is going to be what we use on subsequent ones. And we think that the same things that are driving those early hyperscalers towards the choices they've made are going to be driving the rest of the market. So I think it's logical to be thinking about what's going to happen in the future. I will say that Our competitor has established a very powerful share position in compute. We are making significant progress in terms of share gain inside of compute in 2026. But the size of the compute market has grown so much that that has essentially had a dilutive effect on overall share. So I'm very optimistic about what will happen Thank you. We'll move on now to Vivek Arya with Bank of America Securities. Your line is open.

Thanks for taking my questions. I had a near and then more of an intermediate term question. So on the near term, Michelle, you mentioned that you expect sales to consistently grow over the next several quarters. If I go back to the Q1, the Q4 to Q1 transition in 22, 23, 24, 25, I think Q1 sales were down double digits. But in Q126, they were up because I imagine, you know, compute started to become more important than mobility. So I appreciate it's a lumpy business, but I just wanted to make sure we keep everything in mind or anything in mind that could cause a Q1 to be below Q4 levels.

So let me clarify. So you're asking about Q4 to Q1. I was referencing sales growing throughout 2027. So we expect the quarters next year to represent growth quarter on quarter when you look at next year. And I also expect between Q4 and Q1 that we're also going to have growth. So just to clarify kind of and set the baseline in terms of the numbers that you quoted. The other thing I would point out is coming into this year when we set the 60-40 split, the visibility we had was really at 13 weeks. As the year has progressed, we have gained additional visibility that's helping better inform how we position for Q1 and as we think about next year. To your point, though, we do continue to see lumpiness quarter on quarter, and so I think that's the caution that you're hearing. We feel really strongly in terms of the demand cycles, and we feel strongly that next year is going to be another year of healthy growth. But there could be variability within quarter, but where we sit today, we expect each quarter next year to grow in comparative to 26.

and just like the the thing I want to add is I think we talked about this probably two calls ago maybe three calls ago that the patterns that we saw up through 2024 are over you know like that so I know it's a you know it's a useful analytic technique to sort of look at historical patterns There has been a seismic shift in the semiconductor test market that started in 2024 and really took hold in 2025. So prior to that, the mobile consumer cycle was the TikTok of the industry. But after that, it's all around data center build-up schedules and capacity coming online in semiconductor manufacturers that are vastly underserving of market demand. I think it's an important thing for us to try to figure out how to give you good directional guidance about what's going on, but part of that is to be very careful about applying patterns that existed prior to 24 to a market that's twice as big and acting very differently.

Yeah, and I think the other thing I caught that is, you know, it really is driven by compute order timing, right? That's what drove this year. We expect that that's going to play out next year as well.

Very helpful. And on my follow-up, Greg, one for you. You made this very interesting point that, you know, memory constraints are pushing some accelerators towards lower HBM stack heights. I'm curious to know, is this and many more. So I think it's something that you think might happen. Is it already happening? Will it become prevalent? And I think you also mentioned that your share might be higher when, you know, the rates are shorter. So I would just, you know, would appreciate your perspective on what is the sensitivity here and for the same amount of HPM bit, you know, how much more test insertion or test time and intensity and opportunity does that create for you?

I'm afraid I can't give you hard numbers, but I can give you some directional guidance here. So I think it is pretty locked in that next generation, like there was a trend towards higher stack heights. from 24 to 25 into 26, there was this progression that stack heights were going to go 4, 6, 8, up to 12, 16 high. And I feel like that has reversed in 2026. And I would expect to see lower stack heights across a number of different devices. Now, how is that good for us? The way to think about it is that the bottleneck is the total number of DRAM wafers that can be produced. Those DRAM wafers, if you think about it, you can build twice as many four high stacks as you can eight high stacks out of the same supply of DRAM wafers. So that essentially helps deconstrain the shipments of AI accelerators that are using those HBM memories. The other thing is that with a higher stack height, you are essentially trying to get more data through a narrower pipe. So you have some data rate advantages from having more DRAM stacks versus higher stacks. The thing that makes it an advantage to us is that our market share in DRAM wafer sort is lower than our market share in HBM performance test. So if the same number of wafers are going into more stacks That means more stacks need to get tested, which is where we sell more testers. So we'll, you know, I think it is a positive indicator for what our share will do going forward, but I don't have a hard number for you. Thank you.

Thank you. We'll move on now to Krish Sankar with TD Cowan. Your line is open.

Hi, thanks for the question. Yes. There's some chatter that there might be some lowering of the HBM signal or pin speed. Would that have any impact on test complexity? And along the same path, I'm curious about HBM competition, not from the Japanese competitors, but more from the Korean players like Unitas, et cetera. How is that shaping up? And then add a follow-up.

Chris, I heard part of your question, so if I get it wrong, please feel free to clarify. I think the first part of your question was around HBM despecking. And honestly, while we've heard a lot about lower stack heights, I can't say that we have heard a lot from our customers around despecking or how despecking could affect tests. So far, that is not a factor in the way we're looking at it. Now, in terms of share versus Korean suppliers, Korean suppliers in test for memory are primarily serving the wafer sort part of the business, not the performance test part of the business. And so we tend to have less of an impact. Given the expansion in capacity that's going on right now, I would expect that they're going to see healthy growth, that they're going to get a fair amount of business as the number of DRAM and flash wafers increase.

Got it. Got it. Thanks for that, Greg. And then a quick follow-up from Michelle. Thanks for touching up on the capacity and your inventory position. I'm just wondering how much of the inventory build-out is actually for true demand versus actually building inventory of components that would be constrained. For example, I think the testers use DDR4 chips and things like that. So I'm just wondering how much of that is inventory built to prevent any constraints down the road versus true demand?

Yeah, I'd say it's about 50-50. The other thing I would come to, and I think this is important to go back and look at, When you look at our inventory from a DIO perspective, we had actually reached unusually low levels in Q1. So part of this was we were building really fast, really quickly to meet the demand and the surge that's occurred over the last six to nine months. And so part of this is also a normalization. And I would argue the 189 that we're at, I still think that we should probably be around 200 when you think at kind of normal levels in Q1. Thank you. At this time, we've reached our allotted time for Q&A. I'd be happy to return the call to our host for any closing comments.

Thank you, Operator. It was another great quarter for us. We're looking forward to Q4 and especially looking forward to updating you all on an updated model in our next earnings call. We'll talk to you then.

This concludes today's Teradyne Third Quarter 2026 Earnings Call and Webcast. You may disconnect your line at this time and have a wonderful day.