Semiconductor testing company Teradyne (NASDAQ:TER) reported Q4 CY2024 results exceeding the market’s revenue expectations, with sales up 12.3% year on year to $752.9 million. Its non-GAAP profit of $0.95 per share was 4.5% above analysts’ consensus estimates.
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Teradyne (TER) Q4 CY2024 Highlights:
- Revenue: $752.9 million vs analyst estimates of $742.1 million (12.3% year-on-year growth, 1.4% beat)
- Adjusted EPS: $0.95 vs analyst estimates of $0.91 (4.5% beat)
- Adjusted Operating Income: $576.3 million vs analyst estimates of $168.1 million (76.5% margin, significant beat)
- Operating Margin: 20.4%, up from 18.5% in the same quarter last year
- Free Cash Flow Margin: 29.9%, similar to the same quarter last year
- Inventory Days Outstanding: 89, down from 91 in the previous quarter
- Market Capitalization: $19.86 billion
“Our Q4 results were toward the high end of our guidance range, driven by demand in our Semi Test business. For the quarter, AI compute and related memory remained strong while Mobile and Auto/Industrial exceeded our expectations,” said Teradyne CEO, Greg Smith.
Company Overview
Sporting most major chip manufacturers as its customers, Teradyne (NASDAQ:TER) is a US-based supplier of automated test equipment for semiconductors as well as other technologies and devices.
Semiconductor Manufacturing
The semiconductor industry is driven by demand for advanced electronic products like smartphones, PCs, servers, and data storage. The need for technologies like artificial intelligence, 5G networks, and smart cars is also creating the next wave of growth for the industry. Keeping up with this dynamism requires new tools that can design, fabricate, and test chips at ever smaller sizes and more complex architectures, creating a dire need for semiconductor capital manufacturing equipment.
Sales Growth
A company’s long-term sales performance can indicate its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Over the last five years, Teradyne grew its sales at a sluggish 4.2% compounded annual growth rate. This was below our standard for the semiconductor sector and is a rough starting point for our analysis. Semiconductors are a cyclical industry, and long-term investors should be prepared for periods of high growth followed by periods of revenue contractions.
We at StockStory place the most emphasis on long-term growth, but within semiconductors, a half-decade historical view may miss new demand cycles or industry trends like AI. Teradyne’s history shows it grew in the past but relinquished its gains over the last two years, as its revenue fell by 5.5% annually. 
This quarter, Teradyne reported year-on-year revenue growth of 12.3%, and its $752.9 million of revenue exceeded Wall Street’s estimates by 1.4%.
Looking ahead, sell-side analysts expect revenue to grow 19.5% over the next 12 months, an improvement versus the last two years. This projection is admirable and suggests its newer products and services will fuel better top-line performance.
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Product Demand & Outstanding Inventory
Days Inventory Outstanding (DIO) is an important metric for chipmakers, as it reflects a business’ capital intensity 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.
This quarter, Teradyne’s DIO came in at 89, which is 9 days above its five-year average. These numbers suggest that despite the recent decrease, the company’s inventory levels are higher than what we’ve seen in the past.
Key Takeaways from Teradyne’s Q4 Results
We were impressed by how significantly Teradyne blew past analysts’ adjusted operating income expectations this quarter. We were also glad its revenue and EPS outperformed Wall Street’s estimates. Zooming out, we think this was a good quarter with some key areas of upside. Shareholders seemed to want more, however, and shares traded down 3.3% to $118.05 immediately after reporting.
Should you buy the stock or not? What happened in the latest quarter matters, but not as much as longer-term business quality and valuation, when deciding whether to invest in this stock. We cover that in our actionable full research report which you can read here, it’s free.
