Earnings Call: Q1 2016

Apr 28, 2016

Morning. My name is Amy, and I will be your conference operator today. At this time, I would like to welcome everyone to the Teradyne Q1 2016 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. Thank you. Mr. Blanchard, you may begin your conference. Thank you, Amy. Good morning, everyone, and welcome to our discussion of Teradyne's most recent financial results. I'm joined this morning by our CEO, Mark Jagiela and our Chief Financial Officer, Greg Beecher. Following our opening remarks, we'll provide details of our performance for the Q1 of 2016 and our outlook for the Q2 of this year. The press release containing our Q1 results was issued last evening. We're providing slides on the Investor page of the website that may be helpful to you in following the discussion. Those slides can be downloaded now or you can follow along live. 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 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. 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'll make reference to non GAAP financial measures. We've posted additional information concerning those non GAAP financial measures, including reconciliation to the most directly comparable GAAP financial measure were available on the Investor page of our website. Also between now and our next earnings call, Teradyne will be participating in investor conferences hosted by Cowen, Craig Hallum, Credit Suisse and Stifel Nicolaus. Now let's get on with the rest of the agenda. First, Mark will comment on our recent results and the market conditions as we enter the Q2. Craig will then offer more details on our quarterly financial results along with our guidance for the Q2. We'll then answer your questions and this call is scheduled for 1 hour. Mark? Thanks, Andy, and good morning, everyone. In my prepared remarks today, I'll cover 3 main topics: the highlights of our Q1, the outlook for the remainder of 2016 and some thoughts on our longer term direction at Teradyne in the context of industry trends we're observing. First, we are off to a very good start in 2016 with our highest Q1 sales since the Q1 of 2,001. Sales were up over $100,000,000 or 37 percent when compared to the Q1 average of the last 3 years, driven by strength in semiconductor test and the added contribution of Universal Robots. Higher revenue also drove our highest Q1 earnings since 2011. As we discussed last call, strong orders in Semi Test in the Q4 of 2015 have resulted in a more level loaded tooling cycle for this year's capacity expansion in mobility test. As a result, when compared to recent periods, we expect to see less revenue volatility in the 1st three quarters of the year. As a result of the 4th quarter pull ins, total company orders for the Q1 softened 25% from Q4. However, if we look at the 6 month Q4, Q1 period, orders were up about $90,000,000 or 11% from the comparable period in 2014 2015. Furthermore, first half revenue at the midpoint of our guidance will be up about $100,000,000 or 12% from the first halves of 2014 2015. So I will again emphasize that what we are seeing in our order patterns is a welcome shift to a more orderly, more efficient and less lumpy shipment stream. In semiconductor test, mobile products continue to power SoC demand. On the one hand, while the slowing growth of semiconductor units is a bit of a headwind in the current environment, other underlying drivers of test demand are operating in full force. Increasing test times from growing device complexity and the reduced impact of parallel test are tailwinds for us going forward. We are also seeing an added lift from the adoption of more advanced packaging technologies as well. In analog test, we are seeing a step up in Eagle demand from the low levels of the second half of twenty fifteen. Similarly, J750 demand is beginning to grow off a soft 2015 second half. Memory test is also seeing strong demand despite the challenging environment as technology buys for increasing NAND flash bus speeds continues. Additionally, 2015 design wins in DRAM wafer test have added a new revenue stream to our memory business. In system test, total orders were down sequentially on light storage test demand, but excluding storage test, orders were up about 5% sequentially and up over 40% from the Q1 of 2015. Production board test demand remained solid in the quarter driven by growing success in the automotive sector and in defense and aerospace. Our AIT module instrument business saw strong demand for serial bus instruments from defense contractors. Storage test orders will continue to remain lumpy on a quarterly basis due to its narrow customer base. At LitePoint, the industry wide slowdown in wireless test demand resulted in softer orders and shipments for the Q1. Despite the overall slowdown, a bright spot was improved demand for our modular instruments used in WiFi and cellular RF front end component characterization. These modular instruments share the same measurement technology with our LitePoint system level production testers, easing device correlation and shortening time to market for new wireless products. Universal Robots had a very good quarter with sales growth of 58 percent to $16,700,000 from the 1Q period of 2015. We are also beginning to see the start of UR revenue synergies with Teradyne System Test and LitePoint customers. As noted at the time of acquisition, sales cycles for these large customers tend to be long as the evaluation periods can last 9 to 12 months. I should also remind everyone that UR sales tend to peak in the Q4 of each year and that our objective is to maintain a minimum 50% annual growth rate in this business. Of particular note, Q1 sales in China nearly tripled year over year and we expect this market to become the largest cobot consumer in 2018 and beyond. Before turning to the rest of 2016, I want to comment on the earthquakes that hit Kumamoto, Japan earlier this month. As you may know, we have engineering production and support operations in Kumamoto and the second and larger earthquake was centered very near our facility. Thankfully, no employees or their families were injured in the quake, but our facility suffered heavy damage and we are temporarily turning some operations to other facilities in Japan and elsewhere while we work to restore full operations at the Kumamoto facility. We do not expect any material impact to our shipments in the quarter. Looking at the full year, the outlook for our end markets remains unchanged from the January call. Semiconductor test is expected to be in the $2,100,000,000 to $2,500,000,000 range for SoC tests driven by mobility and automotive demand. The familiar year off year on pattern is progressing again this year with the market up 10% at the midpoint of our estimated range. High end SoC test demand for mobile products is driving the market early in the year and given past buying patterns, there potential for microcontroller and analog to contribute more meaningfully in the latter half of the year. In memory, we expect a $500,000,000 market unchanged from our January outlook. In system tests, we expect storage tests to slow this year after a very strong 2015. After more than doubling in sales last year to about $90,000,000 we expect to see storage test sales in the range of $60,000,000 to $80,000,000 in 20.16. For the remainder of system test, we expect our production board test and defense businesses to look very similar in 2015 with some modest upside potential from our expanding product lineup. The wireless test market is expected to remain in the $400,000,000 to $500,000,000 range this year, but trending toward the low end of the range. The incremental changes in wireless technology in 2016 have not offset the decline in unit growth rates. New Wi Fi standards such as 802.11ad will roll out over the next few years, which will open up new spectrum and require new tooling of test equipment. The cobot market is not tracked with the level of third party detail that we see in semi test, but based on our analysis, we peg the market at between $150,000,000 to $200,000,000 for 2016. This is up from about $100,000,000 in 2015 and we expect UR to grow at or above the market rate. With a solid core and an efficient operating model in place, we are able to look at the longer term and our strategy for growth. We've positioned the company to serve attractive markets well aligned to long term global trends. Semiconductors and electronic systems provide the building blocks needed to address worldwide challenges in energy, environment, healthcare, transportation, productivity, entertainment and much more. These systems increasingly connected to sensors and wireless communications are exploding in complexity and we're providing the test solutions that ensure they operate as designed. With the addition of universal robots, we are now even more directly enabling the global transition to advanced automation sometimes called Industry 4.0, one of the biggest transformations in industrial production ever experienced. We are at the very early stages of this transformation that should propel industry for decades to come. Already, the Universal Robots Cobot innovation of enabling safe, easy to deploy automation with a quick ROI is reaching a broad range of industries and geographies. Industries as broad as food and agriculture, electronics, automotive, apparel, machining, pharma and chemistry and many others are adopting cobots to improve quality and efficiency. Put this all together and we see a cobot market that will continue to grow at a greater than 50% per year rate creating a $1,000,000,000 plus market by 2020. We've also noted third parties that have pegged the market at over $3,000,000,000 in 2020 and over $6,000,000,000 in 2025. UR's easy to use software allowing quick deployment and equally quick redeployment combined with its safety and operational performance have established us as the clear leader in this market with about a 60% share. As Greg will note shortly, we are making the investments in UR necessary to extend this lead. Additionally, we continue to explore selective M and A investments to further capitalize on our position and extend our lead. Of course, the share repurchase and dividend portion of the capital allocation strategy remains firmly in place. I'll now turn it over to Greg for the financial details on the quarter and our outlook for the Q2. Thanks Mark and good morning everyone. I'll start with some brief comments on the start to the year, our 2016 key goals, then I'll cover the Q1 results and Q2 outlook. 2016 is off on very solid footing with 1st quarter sales of $431,000,000 up 26% from the Q1 of a year ago and up 34% from the Q1 of 2 years ago. Our expanded semi test market share position coupled with rising mobility tester demand and the more recent addition of universal robots in the fast growing cobot space have us well positioned for growth in 2016. We've worked very hard to position ourselves for growth after 2 sequential years of sales over $1,600,000,000 The addition of Universal Robots, continued market share gains in our core businesses and a greater shift in our compensation programs to performance based pay with an emphasis on growth are all part of the equation going forward. Having built a solid profitable core, we've upped the focus on EPS growth through top line growth. As we've outlined in prior calls, we expect a greater leap forward in mobility performance and complexity this year following the every other year pattern of incremental complexity changes in odd years and step function changes in the even years. This tick tock pattern of complexity jumps along with advanced packaging changes is driving up 2016 tester demand. The demand increases has us investing material supply and modestly investing capital to expand our test and calibration fixtures to increase our maximum ultraflex shipment capacity by upwards of about 20% over prior peak levels. Our system test group is also off to a good start with all three businesses, storage test, defense and aero and production board test operating at model profits or better in the Q1. Last year, we made a successful pivot of storage test into cloud and SSD testing and expect good long term performance looking ahead. Defense and aero is showing early demand improvement with its highest quarterly bookings since the Q4 of 2014 with the much improved DoD budget environment. Production board test scored strong demand with automotive customers and delivered solid bottom line performance. Shifting to wireless test. We're clearly in a near term challenging market. You may have noticed reported industry weakness in this space as the wireless test market remains a crowded space and it's in a low between technology inflections. I'll talk more about this later along with our plans to keep LitePoint contributing to our profitability. Our industrial automation's cobot leader, Universal Robots is off to a good start with 1st quarter sales of $16,700,000 up 58% from its 1st quarter standalone results in 2015. Originally UR's 1st quarter sales broke down 45% in Europe, 30% Americas and 25% in Asia. We expanded our footprint by entering 2 new regions, opening up 7 new offices and adding over 20 new distributors in the Q1 alone. This expansion will continue along with new more advanced certification programs for system integrators to accelerate their skill level with UR products even more quickly. Shifting to the company level, we paid $12,000,000 in dividends and used $28,000,000 to buy back 1,500,000 shares at an average price of $18.81 in the first quarter. This leaves us with $172,000,000 remaining under our $500,000,000 stock purchase authorization, which was approved at the beginning of 2015. Also through some tax planning, we grew U. S. Cash and marketable securities to $461,000,000 up $41,000,000 from Q4 despite the normal Q1 payouts and annual incentive compensation programs and various tax payments. Our total cash and marketable securities balances of $975,000,000 was down by $33,000,000 I'll now comment on the key 2016 goals and some of the important trends. In semi test, it's a familiar story. The key goal is to secure selective share gains, a point or 2 from targeting healthcare segments and the growing customers. We do this with differentiated features that offer both superior cost of tests and a programming environment that accelerates our customers' time from tape out to volume production. We also avoid the commoditized and no growth sectors. The Bedrock goal of maintaining healthy financial performance both in gross margins with annual material cost down programs and lean OpEx with ongoing productivity improvements continues unabated. If you contrast our semi test performance with our largest peer, which together captured nearly 90% of the total ATE market, you'll see that the major difference is in our OpEx efficiency. This comes from multiple strategic decisions such as maintaining fewer test platforms, offering superior product software enabling us to invest less in costly application engineering and optimizing our operating model across all areas including placing some G and A functions in low cost regions. Moreover, we've established a culture that constantly finds leaner ways to operate. We of course will continue to look for further opportunities to improve our semi test returns. Before I get to the other test businesses, I want to first cover UR, which clearly is a big part of our long term growth plan. As part of staying on the 50% or better annual sales growth trajectory, we're focused on further developing and strengthen the UR ecosystem. So watch for further announcements geared to 3rd party developers. We'll also continue to grow our system integrators and distribution channel partners while strengthening their capabilities through various development programs. While today our competition tends to be labor or custom automation players, we fully expect to see other cobalt players enter the market. So we're keen to establish a further lead in UR's ecosystem, making it easier for customers to choose UR or making it hard for a new entrant to catch up. Recall quickly, the major advantage that UR brings to Cobaltz is making programming and retraining very easy to do. So UR Cobots can be quickly deployed and repurposed by the small and medium sized enterprise or SMEs. The overwhelming majority of UR Cobots sold today go to SMEs. 3rd party estimates are that there are about 6,000,000 SMEs that perform 70% of worldwide manufacturing. So the range of tasks that can benefit from UR's automation is staggering and should only grow with labor costs rising. We also expect to see larger companies move more aggressively to cobot deployments well beyond the current automotive sector and the other early adopters. Turnitin is helping UR in some of these large account opportunities, particularly with electronics manufacturers. While lowering manufacturing costs is the high level of benefit of cobots, the specific purchase drivers vary by customer and industry and include rising labor costs, skilled labor shortages, demand for greater flexibility and numerous other benefits. We've included an accompanying slide that provides a view of the breadth of benefits customers in different industries see with our cobots. Moving to system tests, the key goals are to expand our storage test penetration in the SSD market with our automated platform, grow defense and aerospace with our recent expansion in avionics bus testing and gain share in high panel count applications in production board tests with our dual head tester. Of course, maintaining model profits across the portfolio is a given. Shifting to LitePoint, we operate with good margins and profitability in the soft 2015 period with our production optimized testers. However, this year we'll likely have even greater headwinds with new technology retooling at a low point. In 2017, we expect 2 new Wi Fi standards, 831-1ad and ax to provide a needed market lift. Later in the decade, we expect 5 gs cellular will begin to materialize, driving additional new tooling buys. Now a reminder on 2016 capital allocation plans. We plan to buy back a minimum of $100,000,000 and up to $200,000,000 of our shares while returning about $50,000,000 in dividends to shareholders. Our cumulative capital return with the buybacks and dividends over the last 5 quarters totals 391,000,000 dollars and has brought our U. S. Cash and marketable securities balance closer to the minimum $300,000,000 level. We've also lowered our share count by 6% since the start of the program in early 2015. Now moving to the details of the Q1, our sales were 431,000,000 dollars The non GAAP operating profit rate was 18% and non GAAP EPS was $0.31 We had 1 10% customer in the quarter. Gross margins were 53%. You'll see our non GAAP operating expenses were $153,000,000 up $12,000,000 from the 4th quarter due to higher variable compensation accruals on increased profit levels and expansion of Universal Robots Distribution Programs and engineering NREAs tied to new products. Moving to the segment level details, Semi Test bookings were $306,000,000 after record 4th quarter bookings of $408,000,000 with demand principally driven by mobility. SoC test orders were $274,000,000 and memory test orders were $32,000,000 Semi test service orders were $64,000,000 of the total. Semi test sales were $340,000,000 in the quarter with SoC making up $323,000,000 and memory test the balance. Semi test service revenue totaled $58,000,000 in the quarter. Moving to system tests, orders were $46,000,000 in the quarter and sales were $54,000,000 Shifting to wireless test, we booked and shipped $20,000,000 in the 1st quarter in a tough demand environment. At UR, orders in the Q1 were $18,000,000 and sales were $16,700,000 Sales for the 2nd quarter are expected to be between $510,000,000 $540,000,000 with a non GAAP EPS range of $0.46 to $0.53 on 205,000,000 diluted shares. Q2 guidance excludes the amortization of acquired intangibles. The 2nd quarter gross margin should run between 53% 54%, up slightly from the Q1 due to higher volume and total OpEx should run from 30% to 31%. The operating profit rate at the midpoint of our 2nd quarter guidance is about 23%. I should add that as we noted in January, we plan to continue scaling up UR's distribution to capture more of the high growth available, which should add a few million to our quarterly OpEx run rate. Elsewhere in our test businesses, we expect full year spending to be flat apart from normal changes in variable compensation tied to profitability levels. Shifting to taxes, our full year tax rate is expected to be about 17%. We start 2016 above the prior 2 sequentially strong years driven by SoC's test strength and the additional universal robots. Combine this with ongoing healthy performance in our other core test businesses and you have the ingredients to another sequentially strong year. Longer term, our added diversification to multiple end market drivers such as mobility, automotive, cloud storage, wireless, defense and aero, Internet of Things and industrial automation should provide less year to year volatility. We're also buyers of our stock again this year and remain on a path to $2 annual EPS in the foreseeable future. With that, I'll turn the call back to Andy. Thanks, Greg. Amy, we'd now like to take some questions. And as a reminder, please limit yourself to one question and a follow-up. Your first question comes from Krish Sankar. Hi, thanks for taking my question. I had 2 quick ones. One is on SoC test market. You guys are maintaining the outlook. How much of the $2,100,000,000 to $2,500,000,000 is mobility? And is it fair to assume the 10% growth rate this year bakes in some of the pull in on the orders you saw in 4Q? And I hope I had a follow-up. Yes. So the pull ins that we saw in the Q4 in bookings certainly ship off in this fiscal year. So part of what's driving the market growth this year is a consequence of those order pull ins. In terms of what percentage of the total SoC space is represented by mobility, roughly speaking, dollars 1,000,000,000 or so of that market is tied to mobility devices. Got it. That's very helpful. And then as a follow-up, based on your current Universal Robots infrastructure in Denmark, how much revenues can it handle before you need to add more CapEx to it? The facility and the line, we could go easily 4 or 5 years before we need to think about another facility. I should add that the assembly times are rather quick in terms of labor hours. It's a very lean model that the way it's been set up. So we're very comfortable that that facility can scale for years to come. Thank you. Your next question is from Tim Acuri. Thanks. I had 2. I guess the first obvious question is, we've been talking about this sort of on off pattern now for a while. So is there any reason why this would change looking into next year? This year is clearly an on year, but is there any reason why next year wouldn't be an off year? It seems like maybe Apple is not shrinking this year. So maybe there's some effect where lack of a shrink this year could sort of make next year a bit better if that dynamic were to shrink next year. But I'm just wondering your view. Yes. It's a good question. And one of the things, if you recall, we saw last year in 2015, even though it was a traditionally off year was a lot of complexity growth in devices that void up certainly Teradyne's business and being heavily concentrated in mobility that was a welcome change. So as we look into 2017, there's a couple of things going on. The complexity growth appears to be on track to run at a higher rate than in a normal odd year. And there's a shift to new lithography nodes that we haven't seen this year. So going to 10 nanometer as an example, we'll bring with it some yield learning that will increase test intensity for a while at that node. So there's a couple of things like that that are coming in semi test for 2017 that are promising. Outside of semi test as we think about LitePoint, we think that 802.11ad will begin showing up in some of the consumer products and that will also drive some tooling due to technology that we haven't seen for a couple of years in LightPoint's business. Great. Thanks for that. And then I guess a question for Greg. Greg, the gross margin guidance is pretty low given the revenue. It looks a lot like 2014, frankly, but the mix, it doesn't look that much like 2014 because then you had a lot of digital test. So I guess I'm just wondering what's going on to drag down gross margin in June? Tim, the mix this year and to date is actually quite similar with the prior 2 even years, 2014 and 2012 where we were about 54% those 2 years. And this is the year where you have the large concentrated buyer and that's happened every even year. So it's actually quite consistent with what we would have expected. We have some other businesses in our mix of portfolio that are down such as LitePoint. So we're losing a little bit of otherwise margin contribution there. But principally it's the semi test mix of customers and their relative size that's driving the percentage back to the same number it was in the prior even years. Got it. Okay. Thanks so much. Your next question is from Mohit Hossani. Yes. Thank you. It's actually Mehdi Hossani. Just as a follow-up to the previous question, isn't that a little bit premature to even think about 2017 and some of the maybe disappointment with booking has to do with a concentrated mix of customers with semi test and it got pulled in and just that's just a reflection of the increased concentration among your customers, especially on the SOC side? Well, look, I think if you want to drop the markers down just between January 1 March 30, you will see that phenomena. But if you look at the total buying for this tooling cycle that started in Q4 and put the 2 together, we're certainly running ahead of the last period's tooling cycle. So that's the way I think about it is, it just so happened we got to an earlier start on the order rate, something we've been working with our customers to encourage for quite some time to get a more orderly shipment stream. So I think it's a positive effect this year that we started sooner and have been able to deploy. So if we look at the first two quarters of shipments, again, we're up over prior periods by almost over 10%. So it's all just in my view, it was similar to what we predicted. Yes. Me rephrase the question. In the previous call, you talked about building $100,000,000 to $200,000,000 of inventory for one customer. Was that a turn business that helped you with upside to the revenues and it kind of adversely also impacted your booking that would be shipping in the later quarters? Mehdi, around Q4 each year we've particularly approaching the even years we build up the inventory pipeline. So there was nothing different going into this cycle than in prior cycles. And I did say earlier, the gross margin is a concentrated large customer and they get better pricing. Got it. And again, we're ahead of where we've been in prior years for the first half. So the second half too early to really talk about. We don't really have a good picture of that, but the first half very good start and it's been playing out the way we expected. The only real soft spot in the portfolio is LitePoint. Apart from that, the businesses are all doing well. Got it. And then the second question with your universal robot, I understand the growth opportunity and but maybe I joined the call late. I quite didn't understand why revenues were down in the Q1? Each Q1, Mehdi, UR's sales the last 3 years consistently dropped in the Q1. They have a very strong Q4. In fact, each year, Q1 is the low quarter and it builds sequentially and then there's a very strong Q4. Now there's a whole set of reasons why 4th quarter is for purchases can be strong, including end of budget money or other sales programs drive that last product or 2 over the finish line. So it's following the same pattern as the past and typically the Q4, just to give you another reference point, the 4th quarter sales tend to be more than 2x what the Q1 was in the last 3 years. So the Q1 was what we were expecting. It's tracking to the 50% or better sales growth line. We would expect the other quarters to do the same and then for the full year we'd expect to be 50% or greater. But again, it's going to build throughout the year and have a strong Q4 is our expectation. And since this is a turn business, we don't really see it in booking, You build and ship. Correct. You're absolutely right Mehdi. We have very little visibility. Got you. Thanks so much. Your next question is from Stephen Chen. Yes, thanks. Just a question on the March quarterly orders for fan out technology. Do you think there were any semi test orders for fan out technology in the March quarter? And do you still think you may see test equipment orders from Teradyne for this fan out technology at some point this year again? Thanks. So rather than speak specifically to one technology, I'd say that for advanced packaging applications, Q1 certainly saw significant orders and we expect that to continue in Q2. Again, there's a cycle that goes on across this year, it'll be 3 quarters. So Q4, Q1 and Q2 will have a significant amount of orders related to advanced packaging. Okay. Thanks, Mark. And then just a follow-up question on STEMI test equipment sales to customers in China. We're hearing about a lot of front end equipment suppliers having pretty good shipment visibility to customers in China. Do you think there needs to be more back end test equipment investment made in China to support this eventual front end fab build out that's going on in China? Thanks. Yes. That will absolutely occur. It will occur much closer to production ramp. You won't you'll see, I don't know whether there's a lag between front end and back end. On the other hand, there are some significantly large semiconductor companies in China already that have been driving a reasonably good amount of tester capacity. It just tends to be off the China shore in Taiwan and other places. So eventually, the combination of local fabs growing and I would say an attempt to repatriate some of the capacity that's offshore for test, it's probably a good year and a half to 2 years before it starts to register, but it'll register and show up on the radar as a big concentrated buying center and about that timeframe is my estimate. Okay. Thanks, Mark. Your next question is from Farhan Ahmad. Thanks for taking my question. My first question is regarding a comment you made earlier on the call that your Q1 to Q3 should be more stable revenue levels. And I just wanted to understand like do you have any visibility into the Q3 given that like your revenues have normally declined somewhere between 1% to 15% quarter on quarter. Does your commentary imply that this year the sequential decline in September quarter would be a lot lower? No, it doesn't necessarily imply that. Although we do have some visibility into 3rd quarter, it isn't perfect. And I think the way I would tend to think about it is we've had $100,000,000 increment in the first half of this year in terms of revenue. The second half of the year at this point in our view is not going to be significantly different from other second halves. So really it's just again this front loading of more capacity. So the year is up and it's spread out over 2 quarters and the orders are spread out over 3 quarters. Got it. And then second question, just longer term, how do you see the margins in the business? I mean, if I compare your margins from say 2010 or 2012, you're even at the similar revenue level, it seems like your margins are down a bit. So given that Semi Test is so consolidated, like why shouldn't margins be higher in this business? Yes. When you look at margins in some of those periods like 2010 2012, but let's take 2012. 2012, you had a very strong year of LitePoint with extraordinary performance. LitePoint grew from $130,000,000 of revenue in 2011 to $289,000,000 in 2012. So when a business grows that fast, the gross margins are super attractive. So we had that in 2012. So that wasn't a semi test issue story. When you go back to 2010, we actually had fewer businesses. In 2010, we didn't have Universal Robots and Universal Robots is consistent with the company model, but as you get more sales with the new business, you're also bringing their fixed manufacturing costs along versus if those additional sales were for semi, they drop through more profit. If you look at our margins over a longer period of time, you generally see in the even years, we're 54% and the odd years, we do better. There's nothing that I've seen that would cause us to deviate from about this range that we've been experiencing. We have ongoing programs to introduce new instruments that are more competitive and we have material cost down programs going on at the same time. So I think we've got a track record over a number of years of taking action so we can stay within this range of healthy gross margins in the 53%, 54% or 55% range with some fluctuation based upon mix. Got it. Thank you. That's all I have. Your next question is from Patrick Ho. Thank you very much. Mark, you mentioned that you saw a pickup in J750 sales. Was this related to an industry pickup in the Chinese low end kind of mid range smartphone market? And what kind of device specifically did you see this pickup in? Yes. So I wouldn't specifically attribute it to China low end smartphones. The J750 is serves such a wide set of markets that it really was a general pickup across a lot of different spaces. Certainly part of its mobility, but automotive is another piece of that. Some consumer IoT type applications would be another. So it's a broad spectrum. Great. That's helpful. And maybe just going to the UR business for a second. You mentioned that you're now starting to see, I guess, some of the traction related to both your system test and the wireless test type of applications. How much do you see that contributing to revenues for 2016 as a whole? Yes. That's hard to prognosticate. I'd say it's going to be a minor piece of the 2016 revenue. We're just starting installations now. So, and then those will go into some sort of evaluation period. So this year not consequential, in out years it will increase. But as we've said before, even over 4 or 5 years, the piece of revenue synergies we get from Teradyne customers and the total UR business will be relatively small, less than 10% of their business. Great. Thank you. Your next question is from Weston Twigg. Hi. Just a couple of quick questions. First, just wondering if you could help us understand your growth expectations in the SSD test segment. And did you say that you still expect systems test to be down year over year this year? Yes, system test, we didn't speak about the full year, but system test, particularly storage test had a very good year last year. We expect that to be down this year, but still operating at model profits. So that would be down. Construction board test flattish, maybe a tiny bit of growth and Miller a little bit of growth. So the total isn't going to change much, but likely down a bit due to storage test with healthy profits. Was there a second question, Wes? Well, I was wondering if you could give us a little color on SSD traction. And then I did have a second question, which was on your expectation for wireless test market share. Right. SSD testing, we have an automated asynchronous test platform. So it has significant benefits versus a manual sort of an oven batch platform. We're speaking to a number of customers about transitioning to a more automated asynchronous test strategy. It's quite early to figure out how they will shake out. There's certainly interest. Some of these customers have internal solutions that probably won't scale well, but it's what they have and are familiar with now. So I think we need probably another couple of quarters to figure out where these things shake out, but we do see we have a product that probably can help them as they move up in volume and SSD. Okay. And wireless test market share expectation? Wireless test market share, this is it's going to be hard to figure that out. We've been gaining a little bit each year. This is going to be more a year of who's buying. It's going to be on the low end of the range that Mark mentioned earlier. And it's really who's situated with whoever's buying. So I think this is really if you found the right watering holes, you're going to do well. My guess is we'll be flattish, but it's early to really be specific. Some of our accounts that we're strong in maybe buying less than they were in the past. So they may have a low year then come back next year. So in market share probably is not going to be great for us this year, but I think if you looked at it over trend line, there's a good story to be told. Great. Thank you. Your next question is from David Duley. Yes. Thanks for taking my question. Just a couple of questions. First of all, if you could just help us, where do you think you finished off 2015 as far as SoC market share? And where do you think it will finish 2016, given the dynamics going on in the mobility sector? Yes. So the official, official 3rd party results aren't in yet, but our view of SOC share last year is in the sort of 50% range. And for this year, we're looking for that to be roughly up a point. Okay. And given you have 50, let's just say a range 50% to 55% share of the SoC test market, How does Teradyne get to $2 in earnings? It seems like you've already got most maybe you can gain more market share, but what are the key levers that the company needs to achieve to get to $2 in earnings? Yes. There's a couple of ways to get there, but the most direct path is further share gains and some market stabilization in semi test. My estimates would be that would probably be the single biggest piece SoC and the market stabilizing. 2 was Universal Robots is another big piece. Then there's a 3rd bucket, it's all the other businesses and share buybacks. Those three things can get us to $2 Okay. And just to frame that, I think I understand how the robot business will help you get to $2 right? With the growth that you expect, it might add $0.10 of earnings every year. But what conditions do you need in the SoC test market to get to a $2 number? Because it seems like you have an on year this year, right? Mobility spending is strong. So I guess what needs to change in the SoC test market for you to get to $2 Yes. I'm not saying the SoC market, we could get there by itself. We need UR and these other actions. But the SoC market, we certainly can. If we stay in our trend line of picking up a point or 2 a share gain a year and the market has shown some healthier signs despite all the confusion that's out there sometimes. There is much more complexity and slowing parallel tests. So what we really need, we need a market that probably is flat to 2% growth and we need a point of share gain a year. If we had those two things with UR and these other actions, we get to $2 Okay. Thank you very much. Yes. Your next question is from Sidney Ho. Hi. Thanks for taking my questions. I just want to follow-up on the gross margin side of the questions earlier. So obviously, you didn't get a big uplift in gross margin in Q2. How should we think about gross margin in the second half when revenue is typically lower? And finally, is gross margin below the operating model in the even year is the right way of thinking about it? I think that's probably a fair way to think about it. In the second half of the year, I think what you'd expect is when volumes typically come down, the gross margin percent shouldn't come down as much as it would otherwise because the mix in the first half of the year is working against us. That mix probably will not be as strong in the second or latter part of the year. So I think gross margins in the second half of the year will hold up better than you might otherwise expect based upon the volume drop. Okay, that's fair. I'm hoping second question, I'm hoping that you guys give us some help in terms of modeling second quarter orders. Clearly, if you add up the last two quarters, you're up more than 10% year over year. So to get to the midpoint of your SoC market forecast, let's just say you're in line with the market. Does that mean 2nd quarter orders should be up 10% year over year and hence like up 40% to 50% sequentially? Is that the right way of thinking about it, or is there some other offset? Well, as you know, we don't guide orders. What I would say though is that for the year to play out as we've described it earlier in the call with the second half being similar to prior year second halves, then the 2nd quarter bookings would need to be up over 1st, but that's about as far as Go with it. Okay. All right. Thanks. And I'll quickly add, our customers have wide ranges now this early in the year. So it really depends upon where they end up in their plans and therefore what ripples back to us. So there still are some pretty wide ranges as to what can occur. There are no further questions at this time, sir. Well, great. Well, that's the end of the call. Thank you for joining us. We look forward to talking to you down the road. Thank you. Thank you. Thank you for participating