Earnings Call: Q4 2015

Jan 28, 2016

Good morning. My name is Brandy, and I will be your conference operator today. At this time, I would like to welcome everyone to the Teradyne Fourth Quarter 2015 Earnings Review 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, Brandy. Good morning, everyone, and welcome to our discussion Teradyne's most recent financial results. I'm joined this morning by our CEO, Mark Jagiela and our CFO, Greg Beecher. Following our opening remarks, we'll provide details of our performance for the Q4 and full year 2015 as well as our outlook for the Q1 of this year. The press release containing our Q4 results was issued last evening and we're providing slides on the Investor page of the website that may be helpful to you in following today's 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 comparable GAAP financial measure were available on the Investor page of the website. Also between now and our next earnings call, Teradyne will be participating in investor conferences hosted by Goldman Sachs, Barclays, Susquehanna and Bank of America. Now let's get on with the rest of the agenda. First, Mark will comment on our recent results and market conditions as we enter the Q1. Greg will then offer more details on our quarterly financial results along with our guidance for the Q1. We'll then answer your questions and this call is scheduled for 1 hour. Mark? Thanks, Andy and good morning everyone. Today I'll provide a summary of our 2015 results followed by an outlook for 2016 including our capital allocation plans. But first, let me say that our strong bookings of over $500,000,000 in the 4th quarter gives us strong momentum heading into 2016. More on that in a minute. 2015 was a very good year for Teradyne. We delivered our 2nd consecutive year of revenue over $1,600,000,000 and we increased our operating profit from 19% to 21%. Full year orders of over $1,800,000,000 were the highest in more than 10 years and all this was accomplished in a soft market year for our core SoC test business. As we've discussed in past calls, the SoC test market has developed an on year off year pattern with the odd years being softer than the even years due mainly to the relative difference in complexity advances in smartphones in those years. In 2015, that pattern continued with the SoC market likely to come in at about $2,100,000,000 down from the $2,400,000,000 in 2014. However, this is up 10% from the comparable odd year of 2013 signaling a positive turn after several years of a declining market. We continued our game plan of disciplined share gains in semi test, ending the year up an estimated 1 point overall to a new record of 47%. This comes from an estimated 1 point share gain in SoC test to about 51% and an estimated 1 to 2 point share gain in memory test to 29%. Our focus on the strongest segments of the market is a key part of our winning recipe. In SoC, the mobility segment continues to dominate capacity buying and our Ultraflex and J750 products continue to increase share. Analog tester sales were also strong with Eagle test sales up 30% for the year. Microcontroller test volume was lower for the year, but growth in image sensor test demand helped fill the gap. In memory, sales grew 3% in a flat market as our Magnum-five tester is winning by capitalizing on the growing trend toward higher flash interface speeds. In 2015, our wireless and system test businesses also performed well. Wireless test improved profitability and increased market share while holding sales flat in a challenging market estimated to be down 15% from 2014 to about 425,000,000 Lower growth in worldwide smartphone shipments pushed the market size lower offsetting the longer test times required for more complex wireless interfaces like LTE and 802.11ac with MIMO. System test sales grew about 30% due to improvements in storage test as HDD capacity buying returned and new SSD test applications grew as well. Finally, on the capital allocation front, our balanced approach continued as we repurchased 300,000,000 shares, paid 51,000,000 in dividends and added a major new axis of growth with the purchase of Universal Robots in June. UR set 4th quarter and full year records for both orders and sales. We continue to lead the industry in the emerging market for collaborative robots and the introduction of our smallest, lowest price UR3 to the product family in 20 15 helped broaden our range of applications. Now let me turn to 2016. As I mentioned, our bookings in the Q4 give us strong momentum coming into the New Year. While the normal seasonal pattern would suggest an increase in 4th quarter orders of 10% 20%, we saw semi test orders jump over 90% from Q3 and over 80% from the Q4 of 2014. While much of this surge is a pull in of orders to deal with the increasing device and packaging complexity in SoC, it is an early signal of confidence for 2016. On the other hand, uncertainties in the macroeconomic environment, particularly China, make estimating the full year SoC market challenging. Our early initial estimate for the SoC market for this year is between $2,100,000,000 $2,500,000,000 with this familiar pattern of the first half stronger than the second. We expect the memory test market to be similar to past years at around 500,000,000 dollars As always, we will focus on disciplined share gains in Semi Test by focusing on the strongest segments of the market. Smartphones grew by an estimated 10% or 135,000,000 units in 2015. And while unit volumes are expected to grow roughly 5% in 2016, the performance of smartphones continues to expand. The growing performance is made possible by more complex semiconductor devices, which for Teradyne Semiconductor Test and LifePoint businesses means more test time per chip to ensure the high quality that consumers expect from their smart devices. While smartphones were the major drivers of our 4th quarter surge in test demand, we see additional device and package complexity driven tailwinds on the horizon. One example is the emerging 60 gigahertz band applications in Wi Fi and Automotive Radar. This band will require additional silicon content for both smartphones and cars. This brings with it the need for an entirely new class of tester instruments that will expand our markets at both Semi Test and LitePoint. The expansion of cameras and vision systems will continue to grow above market averages and our leading position in this segment will similarly allow us to grow share. And while advanced packaging will reduce electronic system sizing costs, it will also raise complexity and require more testing than traditional singulated parts. At Universal Robots, we are coming off a high growth year with annual sales of $61,000,000 We expect both the market for collaborative robots and UR sales to expand again by about 50% in 2016. UR's collaborative robots continue to gain traction at customers as customers increasingly recognize how their low entry cost and ease of deployment completely changes the economic equation for automating manufacturing operations. Driven by compelling economics with ROIs often less than 12 months and the flexibility to perform repetitive or difficult tasks side by side with production workers, we expect the collaborative robot market to grow at a high 50% plus per year rate for this foreseeable future. In 2016, we will increase our OpEx in UR to both enable and capitalize on this growth. To summarize our strategy for 2016, we will continue on the path that has delivered strong results for our customers, stockholders and employees. Number 1, make investments in engineering and distribution to ensure our products continue to grow market share by leading the power future growth and number 3, maintain a capital allocation strategy to balance the share repurchases dividends and attractive M and A. Looking specifically at capital allocation, after repurchasing 300,000,000 shares last year, we have 200,000,000 remaining on our existing authorization and expect to repurchase between $100,000,000 to $200,000,000 more this calendar year, while paying about $50,000,000 in dividends. Additionally, we continue to look at opportunities for profitable growth through M and A. Greg will provide details on our cash position in the U. S. And offshore along with details on our 2015 repurchase program. In summary, Teradyne exited 2015 a stronger company financially, competitively and we added a powerful growth dimension with Universal Robots. Looking further into 20 16, I am very excited about the market position of all the segments of Teradyne and our prospects for the year. While we can't predict macroeconomic conditions, I'm confident we have the people, the products and the business processes that will allow Teradyne to thrive this year and beyond. For additional details on Q4 and 2015 and our outlook for the Q1, I'll turn it over to Greg. Thanks, Mark, and good morning, everyone. I'll start with the key highlights of 2015, then I'll offer some comments on 2016, including our capital allocation plans, and then I'll cover the 4th quarter results and Q1 outlook. On the financial highlights front, we had $1,640,000,000 of sales with a 21% operating profit rate and $323,000,000 in free cash flow. 2015 was our first back to back year at over 1 point $6,000,000,000 in sales in over a decade, overcoming the historical odd year dips to about $1,400,000,000 in sales that we saw in 20 11 2013. The purchase of lease testers along with the SoC test buy rates showing greater stability, strength in storage tests and the addition of universal robots have all contributed to break the oscillating revenue pattern. In 2015, we deployed capital very strategically both to establish a new growth platform in industrial automation, funded with offshore cash and to buy back 6% on a net basis of our shares with domestic cash. Our efficient operating model and proven ability to add new businesses allow us to both return significant capital and fund new high growth platforms concurrently. The first piece of that capital deployment, the purchase of UR is a major highlight of 2015. UR is a standout leader in the fast growing collaborative robot space with its easy to train and redeploy cobots. While it's early, UR is off to a very strong start inside of Teradyne with 4th quarter sales of $22,000,000 bringing its annual calendar year sales to $61,000,000 up 56% from calendar 2014. The second component of our capital deployment plan was the return of $351,000,000 to shareholders through our buyback and dividend programs. We bought back 15,600,000 shares in 2015 at an average price of 19 $21,000,000 and returned $51,000,000 in dividends. So all in all, a good year. And as you can see from our 4th quarter orders at $522,000,000 capturing the beginning of another strong mobility complexity wave, positioning us for a very solid 2016. Now quickly to our 2016 capital allocation plans. We plan on using between $100,000,000 $200,000,000 for buybacks in 2016 depending on our M and A pipeline and other factors. Given our efficient operating model and greater diversification and stability, we've reset our corporate wide minimum cash level from $500,000,000 to $400,000,000 This balance of $400,000,000 is about 8 months' worth of OpEx. I should point out that we have also have a pipeline of a small number of attractive M and A opportunities, which require that we preserve balance sheet flexibility. Of course, we'll constantly review the returns we can achieve from our M and A pipeline against an even greater capital return. The slide deck includes a schedule that shows our total cash and marketable securities balances along with our minimum cash needs. You can also see that we have $588,000,000 of offshore cash, well above our $100,000,000 minimum foreign balance. This is a result of our lower offshore tax rate, which when combined with our U. S. Rate results in an overall tax rate of above 21% for the full year 2015. As we look deeper into 2016, we see another jump up in mobility performance and complexity, consistent with the even year patterns we've talked about. Add to this, the lessening of the impacts of parallel tests and SoC tests and added complexity in devices and packaging and we see another strong year ahead. Beyond semi test, we expect 50% plus growth for Universal Robots and healthy performance in both wireless and system test. Before I add more color on 2016, let me quickly fill out the picture with some information on our performance and some key trends. First, we've shown that we are good stewards in businesses where others struggle. Over the last 5 years, despite the ebb and flow of test demand, we've averaged 21% non GAAP operating profit rate and approximately $260,000,000 in annual free cash flow. In semi test, just over the last 3 years, we've gained 11 points of SoC test share and 13 points in memory tests, reaching 51% share in SoC and 29% share in memory tests, while maintaining healthy gross margins and disciplined OpEx control. We've done this by carefully targeting segments that have tailwinds such as mobility, automotive and flash memory and avoiding those that are in decline or off a razor thin margins such as NPU and peripheral equipment like package handlers. We've designed products that win with clever architectural advantages in throughput, accuracy and fast programming tools. This is how customers get their test economics, high yields and fast time to market with Teradyne. And in turn, they have rewarded us with hard won market share and the top score in the BLSI Research Customer Satisfaction Award for the 3rd year running. We'll continue with this scalable formula while continuing to look for opportunities for further optimization. Shifting quickly to SoC trends, device and package complexity are both increasing as higher performance is designed into thinner packages for mobile products. As you know, our business is driven forward by unit growth and complexity. On the other side of ledger, our testers own use of Moore's Law and parallel tests restrain growth. These competing forces are breaking positive for the first time in years and the SoC test capital intensity appears to have stabilized. And significantly, we're seeing more test drivers beyond smartphones gaining traction. In autos, semi content is forecasted to grow over 30% through 2020 and the fastest growing segment in autos is ATAS, which is rich in device complexity and therefore test intensity. While still early, virtual reality is another driver compute, display and communications IC test demand expected later this decade. We also expect packaging complexity to increase driving higher test times. In memory test, the major trend in NAND is for higher density and increasing bus interface speeds, which is where Magnum excels. It is broken into 5 of the top 6 flash memory manufacturers with its unique architecture for high throughput and performance headroom. Turning now to wireless tests. With LitePoint's strong product differentiation, we delivered flat sales in a down market, which pushed our market share in wireless production test to over 40%, our highest ever. We still have high concentration at one very good customer, but we continue to make progress in broadening our customer base as well. The lower than forecast smartphone production ramps from Asian makers, where we won design ins earlier, were a headwind to these efforts in 2015. Despite this and other market forces, footholds in 2016, which we expect to establish market footholds in 2016 and higher volumes thereafter. Longer term, we expect multi year periods of modest demand growth driven by incremental performance improvements in wireless products such as increased numbers of cellular frequency bands extending up into the unlicensed 5 to 6 gigahertz band, moving from a single WiFi data stream to 8 streams with MIMO and advanced standards such as 802.11ad. Further out in the horizon is the large technology inflection of 5 gs. In system test, the key highlights were successfully ramping our new 3.5 inches hard disk drive tester to 3 different customers and scoring further SSD test business, which brought our total storage test sales to over $80,000,000 dollars up from more than 2 fold from 2014. Overall Storage Test is a completely repositioned business with a versatile platform extendable to a variety of test applications. The end market fundamentals are strong with data center storage capacity growing at a forecast of 15%, CAGR and SSDs at close to 40%. At Universal Robots, sales have grown over 50% annually for the last 3 years. We maintain a significant product lead with faster train and easy to deploy cobots that are highly reliable and repeatable and are very safe to place alongside a human without caging or fencing apparatus. UR cobots can do production tasks that are dirty, dangerous or dull. Some third parties peg the market future market size to be over $3,000,000,000 by 2020 driven by greater adoption across diverse industries. In 2015, UR further developed its distribution network, expanding the number of distributors to about 200 and growing its UR Capped accessories platform, collectively turning our significant product lead into an ecosystem lead as well. UR also successfully launched and is shipping in high volume its 3rd cobot model, the UR3 cobot, which targets lighter tasks or tabletop applications. Now moving to the segment level details. Semi test orders were $408,000,000 the highest 4th quarter demand in over 15 years driven by mobility. SoC test orders were $391,000,000 and memory test orders were $17,000,000 Semi test service orders were $66,000,000 of this total. Semi test sales were $205,000,000 in the 4th quarter with SoC making up $180,000,000 and memory test the balance. Semi test service revenue totaled $57,000,000 in the 4th quarter. Shifting to wireless test, orders were $30,000,000 and sales were $32,000,000 in the 4th quarter. System test orders were $66,000,000 in the quarter and sales were 59,000,000 dollars Universal Robots had orders of $18,000,000 and sales of $22,000,000 in the 4th quarter. Geographically, UR sales were 45%, in Europe 30%, and North America and 20% in Asia. At the company level, our sales were $318,000,000 The non GAAP operating profit rate was 10% and non GAAP EPS was $0.13 We had no 10% customer in the 4th quarter and one for the full year. Non GAAP gross margins were 55%. You'll see our non GAAP operating expenses were down $11,000,000 to $141,000,000 compared to the Q3 due to lower variable compensation accruals and approximately $5,000,000 in certain one time credits. As planned, our inventory increased $26,000,000 in the 4th quarter as we added material to maintain attractive lead times. Sales for the Q1 are expected to be between $410,000,000 $440,000,000 and the non GAAP EPS range is $0.23 to 0.29 on 206,000,000 diluted shares. Q1 guidance excludes the amortization of acquired intangibles. Gross margins are expected at 53% and OpEx should be between 36% 38%, which includes some NREs and added Universal Robots spending. We expect the first half of this year to have higher OpEx tied to new product programs, but for the full year excluding UR, we expect OpEx to be flat on like sales levels. The operating profit rate at the midpoint of our Q1 guidance is about 16%. Our 2016 tax rate is expected to be about 20% down from prior guidance due to a higher mix of offshore profits and the reinstatement of the R and D credit. In 2016, we've earmarked $80,000,000 to $100,000,000 for CapEx, above flat at the midpoint with 20.15 levels of $90,000,000 At the high end, this includes a few tens of 1,000,000 for potential customer leases in 2016. We don't expect the same volume of leases we placed in 2014. We may see some activity in our Semi Test segment. So we start 2016 with our strongest start since 2004 driven by SoC test strength. And with device and packaging complexity going up, while parallel test slows, we see a healthy longer term picture for our largest business even before factoring in modest share gains. Adding Universal Robots 50% plus annual growth, ongoing healthy performance in system tests and wireless tests, we see a bright future ahead. With that, I'll turn the call back to Andy. Thanks, Greg. Brandy, we'd now like to take some questions. And as a reminder, please limit yourself to one question and a follow-up. Our first question comes from the line of Mehdi Hosseini with Thanks for taking my question. It seems like over the past several calls, we come back to the topic of what is really the true TAM for the advanced packaging. And I ask that because you had a very strong booking in your semi test. And I think some of this has to do with the necessary build out for the advanced packaging that requires more wafer level tests. And I do understand that there is increased test time. But again, it's very important for us to understand to what extent this build out for advanced packaging could sustain. So to the extent that you can provide some color either quantitatively or qualitatively will be great. And I have a follow-up. Okay. Well, the build out for advanced packaging at one level has been going on for several years. Now this coming year will be a particularly larger shift to that kind of technology. But our view is whether it's an advanced package or singulated dye packaging, the incremental tester demand is somewhat invariant. Now an advanced package is going to require a little bit more test time because of the complexity and the premium on wafer yields. But incrementally, as the world shifts more and more to advanced package, we'll see incremental tester demand ride that incremental package. Now, if you look at the advanced package part today, it might be 10% longer test time because of the nature of that technology. But over time, if we look at 2017, 2018 2019, that ratio of test time will increase beyond 10%. As more and more diet get put on the package, the premium for good yields will continue to rise. So I think advanced package in and of itself isn't necessarily a tooling exercise. It's incremental capacity that goes in that requires incrementally longer test times beyond what a singulated die would require. Sure. But how does so if this is done at a foundry level, then some of the OSAT guys will be doing less tests. And in that context, how should we think about the trade off between one type of customer doing less and there's a new customer that is doing more of the advanced packaging? Yes, I think that's right. That's true of all technology shifts. So the package types that's been handled in a certain OSAT as that volume declines and shifts to advanced packaging, it just happens to occur at a different site. And but overall, that new site and that new package is going to have a longer test time. It could occur the OSATs themselves are developing their own versions of advanced package. And so it could very well be that there'll be competing packaging technologies as there are today around advanced packaging and that both sides will grow in this new era of multi die on a silicon substrate. Got it. And just one quick follow-up for Greg. Given the fact that your onshore cash has gone down and there's only $120,000,000 left above the minimum, Is there anything that you're thinking or is there any discretion that you have to increase the cash onshore that could help boost the capital return program? Mehdi, absent frankly, borrowing money, not really. We can't get the offshore cash back without some tax consequence. But we certainly could borrow, but we're trying to preserve the borrowing capacity for attractive M and A. Yes, borrowing is out of favor now. Okay, thank you very much. Sure. Our next question comes from the line of Atif Malik with Citigroup. Hi, thanks for taking my question and congratulations on a good quarter and strong guide. Mark, I fully agree with you that the test buy rates has stabilized since mid-two thousand and four. The 3rd party data is showing it, But we haven't seen the multiple expansion in your stock because of that. And I believe a part of that has to do with this odd even effect of the years. But with test pirates stabilizing and you guys benefiting from the secular growth in advanced mobility packaging and auto and industrial kind of outperforming the broader semiconductor market. What can break this odd even pattern moving forward? So I do think the odd even pattern is diminishing. The thing that drove the odd even pattern was a combination of 2 things, unit volume growth and complexity growth. So in even years, as you look at unit volume growth across the past 4 years, it's been declining. So, that particular lever will go down. The complexity issue that an even year will be more intense than an odd year will persist, but begin to slow down as well. When we look back at last year, you can what I can see is the complexity advances in applications processors and LTE that went into the phones was higher than a typical odd year. So I do see I would project that over the next 2 or 3 years, we're going to find that little cycle dampen such that it's down below $100,000,000 kind of number. Okay. And then Greg, can you talk about the gross margin effect from the advanced mobility packaging testers moving forward? Well, what I'll talk about is this year we expect gross margins for the full year to look like gross margins in 20 14 2012, that being 54%. And when it's large concentrated buying, we tend to fall back to that number. Great. Thanks. Our next question comes from the line of Bharat Ahmad with Credit Suisse. Thanks for taking my question. My first question is regarding the Q4 bookings. The bookings came in very strong and you mentioned that it was primarily driven by smartphone related strength. I wanted to ask like is the smartphone strength pretty broad based across customers And how is the customer concentration in the orders that you have received? Was it pretty much like driven by like 1 or 2 customers or was there a broad based strength? Well, there's always been a concentration in that market, but I would say that it wasn't atypical in Q4. Several providers of silicon or smartphones were strong in the Q4. So it wasn't sort of one customer, but a typical mix of, I would say market increase going into the next year. Got it. And do you know like what's driving that? Because it seems kind of surprising that the Q4 is strong. Was it just like apps processor? Was RF apps processor and different applications that are going into smartphone? And it's just that the build cycles for the smartphones are a little bit earlier this year? Yes, I think it's that. The build cycles are a little bit earlier. Certain manufacturers always have announcements of new phones in the late Q1, early Q2 period. So that has always been part of the beginning of a bookings growth in the Q4. Well, what's atypical is that some other manufacturers have moved, I would say, sort of 1 to 2 months in on what would the typical build cycle. Got it. And then one question on China, like obviously like China end market is not doing very well. But on a separate note, China semi incentives have been pretty strong in terms of reported announcements of capital investment in advanced packaging and test area whether through M and A or even like new OSATs. So I just wanted to probe you a little bit there like are you seeing any strength, particular strength out of China in terms of like new OSATs that are entering the space? Or like how is the exposure to China in your revenues? Is that something that you're seeing is inflecting higher? Well, certainly China is growing faster than most regions for us. The OSAT investments they're making are sort of driven by demand. It's not, I would say, incremental. It's really the growth of silicon that drives the aggregate increase in demand. And in China, several major early on, there were a series of small fabless companies in China trying to get a foothold in, as design houses in silicon, as being a silicon provider. But what's emerged over the past few years is some of the major handset manufacturers have really developed robust internal silicon design capability. So we expect that sort of native complex mobility related device volumes will grow above average out of China silicon design houses in the next few years. And so that's obviously a place we've got a footprint and are focusing a lot of our sales energy. Got it. Thanks a lot. That's all I had. Our next question comes from the line of Timothy Arcuri with Cowen and Company. Hi, thanks. I had a couple of things. I guess, first of all, I'm just trying to understand the guidance a little bit. Greg, so you booked $408,000,000 in semi test and the revenue guidance is $425,000,000 for the whole company for Q1. If I look at the coverage usually, I mean, it's just sort of a simple exercise. But if I look at the bookings in semi test in 1 quarter and then I sort of look at what you do in revenue during the next quarter, it seems like you ought to do more in revenue in March. Now maybe that's because some of those shipments are spread out into June. So I guess my first question is, is it seems a little conservative, particularly given that you just saw about $150,000,000 more in semi test orders than we thought. And that's pretty much the amount that the SoC market will grow this year. So I guess you could conclude that you've sort of already seen the bump from info. So maybe can you talk about that? Tim, the way the bookings obviously that come in very strong, there are shipments that are scheduled to ship in April. So they're just going to some of them are going to miss March. So we see Q4, Q1 should be very strong demand and those shipments are going to take place Q1, Q2. And we see mobility as very strong this year, stronger than last year. But it's just how some of these shipments are falling in the particular months. Some are going to fall just outside of Q1. Okay. Then I guess, Greg, just as a bottoms up, I'm just kind of looking at where the street is and your stock is down 5% and everyone's asking why that's the case because it seems like a pretty constructive set of numbers. So when I go through the bottoms up math, it seems like you're guiding if I take the SOC market up like you say and I have you gain a couple of bps of share, a couple of 100 bps of share and then I have you gain a couple of 100 bps of share also in memory, you could gain maybe $150,000,000 year over year in semi test. You've told us that UR is going to double this year. And if I assume LitePoint is flat and I assume that the systems business is flat, that gives me an incremental $200,000,000 in revenue year over year. So that would sort of say that this year's revenue ought to be in the $1,800,000,000 $1,850,000,000 range, which is above where Wall Street is thinking right now. So is that math wrong? I know you don't want to guide full year, but is $1,800,000,000 $1,850,000,000 reasonable? Yes. We don't guide revenues. It's too difficult for us to do. But I think if I had to speculate as to what's going on is while there's some confusion is our Q1 OpEx is higher than what you would expect. So I think that may throw some folks off. And I tried to say in my prepared remarks that in the first half, there's a set of NREs and other one time spending tied to some new product programs. And that's going to lessen and should not be present in the second half. So Teradyne's spending is going to be consistent with last year, except for we're going to invest in universal robots and that's tied to high growth. So my only sort of maybe it's not a direct response Tim is I think the OpEx may throw some off, but I tried to explain another, try to explain right here as well. Our next question comes from the line of Tom Diffely with D. A. Davidson. Yes, good morning. So maybe one more question on the mobility demand. So is this demand solely driven by unit and test times going up? Are there certain chips or functions that need a new tester to perform the test? Yes, there's very little new tester capability in this. It's really units and complexity that's driving it. Okay. And then, so when you look at your demand, how much of it is just having a new player versus the industry needs more capacity? I think overall what's going on, it's the industry that needs more capacity versus new player. And that capacity is not atypical from what we've seen before. And in our case, the one thing perhaps that's different when we look at the packaging change that's going on in conjunction with the complexity change of the silicon itself is there's a double effect here. So typically we would see demand increase just because let's say apps processors or power management ICs or image sensors were increasing in complexity. That drives up test time. We've seen that in prior years. This year, you have to multiply that by maybe 1.1 in order to get the effect of a little bit more fault coverage in the advanced package world. Okay. All right. And then Greg, you talked about the minimum cash level of $400,000,000 Do you have a minimum onshore cash level that you're targeting? Yes, that's 300 $1,000,000 $100,000,000 is offshore, which makes the $400,000,000 Great. Thank you. Sure. Our next question comes from the line of C. J. Muse with Evercore. Good morning. Thank you for taking my question. I guess first question, I guess a couple of parts here on the SoC side. Can you talk about what would get the overall run rate to the high end of the range? And as part of that conversation, can you speak to whether or not there are any leases this year? Thank you. So, again, it's very difficult to look out. The things that could happen and get it at the high or above the high end of the range, 1st would be, we're projecting a relatively weaker microcontroller and automotive market this year. Now that's very hard for us to read, but this is based just on what we see occurring toward the end of the year and some of the conservatism in the customer base. Some of the M and A activity going on also slows down and gives a little bit of a visibility cloud there. So as that clears up, there could be a snapback of tooling needed to get the new entity back up and running full speed. So we're preparing ourselves for that. On mobility, that looks strong. One of the things though that occurred if we look at Q4 is, as we were in the November period of time, the forecast for 2016 capacity for mobility was quite a bit more robust than it ended up toward the end of December as the macroeconomic conditions in China and the stock market started to waver, people became much more cautious. So it could very well be that all that passes by and we see mobility larger than we expect, automotive and MCUs larger than we expect. And that drives it up to the 2.5 number or higher. That's helpful. And then I guess a question on the OpEx side. I know you really can't guide full year OpEx, but maybe I can ask it this way. Right now in Q1, you're running about $6,000,000 above your target model for UR Investments. Can you share with us what the aggregate uplift in UR investments will be for the year relative to your target model? And then as part of that question, when should we see revenues come in from that uptick in your investments in service and field ops? Okay, CJ. You are we would expect the revenue to come in similar to how it has come in every year. It falls back a bit in the Q1 and then increases each quarter thereafter and has a high concentration in the 4th quarter with end of year budget money or what have you. And we expect you are after this about $60,000,000 sales to be $90,000,000 plus. So we are investing there, opening more offices, hiring people, sales, hunters, application people. So there is more spending and advertising going into that. UR was about a 15% profit rate for us in well, for their calendar year, they were 15% in 2015. In 2016, if we see higher growth, we may invest a bit more to get the next round of growth and stay ahead. But in terms of, let's just say, our OpEx, I think the key thing to try to outline for you guys is taking out UR, we expect OpEx for the company at like sales to be flat. And that includes we're funding the salary increases people get each year through productivity or workforce shaping or finding lower costs. So flat with emphasis. In spending and if you say how much, it ranges. It depends what we see. So we can meter it anywhere from say $7,000,000 a quarter OpEx is now, maybe we go to $10,000,000 maybe we go to $11,000,000 It all depends what we see. But the higher we go, the more you're going to see the sales and or the sales right around the corner. So I hope that answered your question with that. Yes, that's great. Thank you. Our next question comes from the line of Stephen Chen with UBS. Hi, guys. Thanks for taking the question. Just following up on the pull ins in the Q4. Just to clarify, it sounds like Q1 and maybe Q2 a little bit are benefiting from those pull ins. But then should we think about modeling the rest of the year a little bit lower than historically? And then so just for the full year that nothing really changed, it's just sort of a more lumpy year than what we've seen typically? Yes, that's really hard for us to see what's going to happen. The question really is what's going to happen out in Q3. Typically, 2nd and Q3 are the peak quarters for the year. And this earlier tooling that's occurring means that the installations are starting a little bit earlier. So the revenue will start a little bit earlier, but I would struggle to say what does that imply for the 3rd quarter. 1st and second should absolutely that's about as far as we have visibility, not even maybe beyond April at this point. But it could very well be the Q3 is strong as well. Got it. Okay. That's helpful. And then just as my follow-up, just more of a high level on the SoC test market returning to a growth CAGR. Have you seen any additional data points of this or either quantitatively or anecdotally that gives you more confidence that the market can actually return to secular growth? At the microcosm level, yes, absolutely. Part of the theory and thesis that it returns to growth is predicated on a slowing effect of parallel tests. And as we look at mobility devices, we've seen that slowing, occur much faster than we expected over the past 2 years. So that is an early, early indicator to us that this is really inflecting back in a positive direction. Now there's other segments of the market such as automotive, linear and microcontroller that still will be on a lag a little bit mobility in terms of its asymptote around parallelism. But what we look at is over the course of 2,002 until 2012, 2013 an increasing deployment of parallelism 2014 2015 in these big, big mobility segments that has stalled and in some cases inflected back the other way. Thanks guys. Our next question comes from the line of Krish Sankar with Bank of America Merrill Lynch. Yes. Hi. Thanks for taking my question and really congrats on such a strong results out there. Two quick questions, not to beat this OpEx question to that, but is it fair to assume the second half of the year OpEx where you guys should come down relative to the first half? Yes, the second half should come down relative to the first half and that decrease will be in all areas other than Universal Robots. I would expect Universal Robots to increase OpEx throughout the year. But the other NREs temporary contractors racing to get some new products completed, that's lined up quite considerably in the first half of the year, which is unusual to have this much going on in multiple divisions. And it's all contributed at the same time in Q1 and leaking into Q2. But again, I try to be clear that for the full year, we expect OpEx to be flat except for UR at like sales levels. And again, that includes funding salary increases. Got it. Got it. And then I think you guys did explain the gross margin. You do see some volume pricing discounts. Is that the main reason for the gross margin being lower or is there also a headwind from the fact that the microcontroller auto market might be weaker, so that is actually being a little bit of headwind on the gross margin side? Well, it's ultimately mix and you can pick different things and get to the same place. So I could have looked at it that way, but the biggest swing factor for us has been the concentrated buying in the even years, albeit last year was a good year. But as you know, we sold lease testers that were partially in the field for a while. But 54% is kind of a normal margin that you'd expect at this level of volume. Fair enough. Thanks a lot. And then just a quick follow-up if I could. Off your $2,300,000,000 roughly in market size, is there a way to quantify how much of that is mobility? Yes, that's a it's always a challenge to do that. Roughly 2,300,000,000 dollars somewhere let me just look it up here. So somewhere close to a $1,000,000,000 of that might be mobility. Got it. Thanks a lot. Thank you very much. Our next question comes from line of Jagadish Iyer with Redstone Technology. Yes. Mark, two questions. I'm just trying to reconcile just as a follow-up to the prior question. I'm just trying to reconcile given all the in the commentary that we have heard from the smartphone makers, what gives you the optimism that the SoC market is going to be up year over year? Why can't it be flat or even down given what all we are seeing on the smartphone market? Is there something that we are missing? And then I have a follow-up. Yes. Is your question up or down in the test market or in the silicon market? Semi test. In the semi test. Yes. So, the thing that gives me confidence is what I describing earlier looking at the test times and the diminishing parallelism. So, the complexity of the devices we know at this point that are going to be launched this year, so that's done. The relative time to test the devices, we know pretty much, it's not completely baked, but we've got a pretty good range on that. So the combination of time and complexity is a known quantity. So what is more speculative is units. And for units, various people are saying smartphone and mobility units could be flat, could be up 5%, could be up 7%. We kind of model it to be probably 0% to 5%. So if it's more than that, that's upside. So the known quantities that we see are time to test, let's say, the unit test time for silicon in a phone. And the thing we have to somewhat guess that is the growth rate of phones. Okay. And then on the wireless test side, I just see that the market seems to be coming down. Is there something that is kind of happening there? Or do we see further declines going out this year and going into next year? Are there any other offerings that you could make in terms of improving your participation in that market? Thank you. Yes. That market, as we mentioned in our opening comments, was about $425,000,000 in size last year. When we look at this year, there's no real major technology wave inflection coming that could drive that significantly higher. So we're looking at this year to be roughly flat with last year. The thing over the horizon that will come is the 802.11ad standard in the 60 gigahertz band. The interesting thing about that is up until now all the success of connectivity standards as you go from B to G to N to AC, that's been all integrated and incorporated into a single piece of silicon. And the test equipment to test those integrated devices has essentially been a light point box that gets reused generation to generation. At 60 gigahertz, it's a whole new ballgame. It's a different piece of silicon. It's not integrated. It can't be integrated. It's just a very different beast and requires a different test insertion. So we look at the 802.11 AD deployment starting in 2017 as to the next connectivity wave. And then the other thing Greg mentioned is further out in the cellular side will be 5 gs technologies, but that's beyond 2017. So what we're doing at LitePoint in addition to going after the AD is looking at other adjacent markets such as protocol testing. So testing not the electronic capability and calibrating the electronic capability of the chips and the devices, but also at a user level, a user experience level testing the parts. So that's another example of a product we'll be introducing this year that will ramp next year in a new market. Okay. Thank you. Our next question comes from the line of David Duley with Steelhead. Yes. Thanks for taking my question. A bunch of questions on the advanced packaging thus far. And I guess simply put, we're kind of trying to figure out how the test intensity changes. Maybe you could just give us an example when an application processor moves into a fan out package. What's the increase in overall test time that you might see from that kind of an event? So, the device simply moving into if that was the only device moving into that advanced package, there would be very little test time impact. But in conjunction with that move, other passive devices, for example, may move into that substrate. That increases the test time. So resistors, capacitors, other things you would typically find perhaps on a printed circuit board in a phone or a flex print board, we'll move on to the substrate. Those things from a semiconductor test point of view were never in the mix for being tested. So that adds some complexity, but that's not the big trend. Over the horizon, we'll be incorporating more and more other pieces of silicon into that package. So the AP alone gives what I was describing earlier maybe a 10% bump to test time. But as you also put in power management ICs, RF transceivers, Wi Fi chips under that substrate, then that intensity increases beyond that 10% factor. So if you added up the test time of, let's say, the 5 or 6 chips, the key chips in a phone singulated, then instead of singulated manufacturing incorporate all the dye on a single advanced package substrate, you're going to see everything else being equal a test time that's 1.2 plus times longer than if they were singulated. And that's still maybe a year or 2 away. This is your first step. Okay. And could you talk a little bit about what you think the impact of the order pull ins were in the Q4? How much do you think did get pulled in from the Q1 or later this year? It's probably on the order of a couple of 100,000,000. So when we look across Q4 and Q1, we expect that the combined 2 quarter period will actually show bookings up pretty significantly over our prior Q4 and Q1 average. So as far as we have visibility at this point, the net momentum in Q1, all in other words, that $200,000,000 order didn't come out of Q1 per se. Q1 still looks pretty strong in terms of orders. So, yes, dollars 200,000,000 showed up in Q4, but that it's not yet clear to us that means we're going to be down $200,000,000 across Q1 and Q2. So you think that Q1 orders will be still be robust and In other words, I don't expect that they would be $200,000,000 down simply because we received $200,000,000 of advanced orders in Q4. Okay. Final thing for me is, you talked about improving mobility demand. Did you see improvement from the Android food chain or is this more of the iOS food chain? Yes. I don't want to get into the specifics around that. Okay. Thank you. And operator, we have time for just one more call, please. Certainly. Our final question comes from the line of Patrick Ho with Stifel Nicholas. Thank you very much. I just have one question on the cobot market as a whole. Given your early entry into that market, you see the opportunities for growth right now. How do you see the competitive environment got it, you had some really early growth, but then obviously the competition helped, I guess, crater that market. How do you see the cobot market shaping up both 2016 and over the next few years? Great question. So first of all, just to go back to the wireless space, it was a little bit different in wireless. LitePoint was a latecomer to that market, but it came with a disruptive purpose built product for manufacturing. So it came in, disrupted the big players. Everybody grew like mad in 2012 in wireless test, including LitePoint. And what's occurred since then is sort of the as the markets contracted, there's 4 or 5 big guys in a shrinking room. LitePoint is picking up share. It's gone from 20% share in that boom period to 40% share today, but they were all latecomers, so very different. On the collaborative robot side of life, here we're in a market where UR is clearly the leader and out ahead, 60%, 70% share. So everybody else is trying to catch up and that as Greg described is why we are spending our time and strategy and money around developing the ecosystem to support our product line, our protocols in advance of this wave in the market developing. The growth rate in collaborative robots is something that we're convinced is going to be at a very high greater than 50% level for many, many years. And so we got to get out and stay out ahead of it. We are ahead. And everybody that's in a traditional robot business and emerging startups will eventually try to enter this market. We're convinced of that. But if we have the ecosystem in place to make our products the easiest to deploy, the access to integrators who can solve whether it's pharmaceutical, chemistry, assembly, machine tending, all these different applications that today we have. We will be the easiest place to go for automating these tasks. So a little bit of a long winded answer, but it's in my mind a very different position we start with here. It's a leading position and it's very promising. Great. Thank you. Well, great. Thanks everyone for joining us today and we look forward to talking with you in the days weeks ahead. Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you for participating.