Welcome back to this session at the BFA Global Tech Conference. I'm Vivek Arya from BFA Semiconductor, SemiCap Equipment research team, and really delighted and honored to have the team from Teradyne join us, Greg Smith, the President and CEO. As always, I'll go through my questions, but please feel free to raise your hand if you would like to bring up something. Greg, really warm welcome. Really happy to see you at our conference. Great to be here. Thank you. Wonderful. Let's just start with kind of a state of the union, and if you could help us frame the addressable opportunity for automated test equipment. I say that because it seems the semiconductor industry is close to achieving its trillion-dollar kind of milestone much sooner than we thought. Wafer fab equipment demand is very strong. How do we connect the dots from those two data points to what the opportunity is for you and how it's going to develop if the semi industry gets to, I don't know, say $2 trillion in a few years? To $2 trillion. Okay. If you look just over the last couple of years, you're definitely seeing an inflection in the test equipment buy rate. If you look back in history, the semiconductor buy rate has been hovering around or slightly below 1% of semiconductor revenue. Over the past couple of years, we've actually seen it begin to inflect, and that's pretty amazing given the fact that the fastest-growing part of the semiconductor market, sort of the three fastest-growing parts of the end semiconductor market are GPU, which is a very high-margin part, HBM, which is the highest margin part, and a shortage of memory, which has resulted in significant increase in revenue without a significant increase in the number of parts. Right being tested. The setup for buy rates to actually go down was actually strong because the inflection in revenue was a lot higher than the inflection in unit volume. Right. It's pretty remarkable that we've seen this kind of an increase in the test intensity along with the increase in the revenue to sort of allow that buy rate to go up. The other way to look at the test equipment opportunity is as a slice of a pie of semiconductor capital equipment in total. Right. That's a market that back in the old days would be $100 billion. Now it's well on its way to $200 billion. We've typically, in a $100 billion semi cap environment, we would've gotten a TAM of $5 billion-$6 billion. Like 5% or 6% of that total pie. The wafer front-end market is expanding. It's early days, the percentage of that total market that ends up being test could actually get larger. If you think about there have been some times in the semi cap space where there've been a significant increase in capital intensity without a significant increase in wafer output. The two best examples is the transition to EUV. Right made that part of the chain a lot more expensive relative to where it was. The other was multilayer flash. That the number of layers in the flash device were increasing radically. The number of flash devices was not increasing at the same rate, and the capital intensity for some process steps was related to layer count. Those are two examples where you could see WFE spend not turning into test equipment TAM. Now the WFE spend is not really around these technology transitions. It's more incremental technologies, but a lot more wafer output. Right. More wafers means more test. That's a driver. The other is a greater percentage of all of the wafers being produced, the die being produced, are actually being packaged into multiple die end products. For example, if you are building a DRAM to go into HBM, the test intensity for that is much higher because of the stacking and the quality requirements downstream. The same thing in terms of an AI accelerator. Right. If you are going to have two big compute die plus six HBM stacks plus a CoWoS interposer, the cost of having a failure downstream is so high that you're willing to invest to get to a higher level of test quality upstream. That's the whole shift left. Because of advanced packaging and because of the wafer output, I think we're in a position to see the test market rising at least proportionally with the whole WFE space. Okay. WFE this year is expected to be about $140 billion-$145-ish billion. The large WFE companies have not given a forecast, but if, let's say, semi industry does get to $2 trillion, we could be talking about $250 billion-$300 billion, right? Yeah. If all we knew was WFE would be $250 billion or $300 billion by the end of the decade, what does that tell you about how large the WFE market? I feel like one of those movie trailers. You're like, "In a world where there's $250 billion of front-end investment." Right now in $140 billion. If you're talking about 2025, the overall test equipment TAM was about $9 billion. Right. Versus 110. Versus 100 For 2025, it was 110? 110, plus or minus. Yeah. Yeah. We're talking about eight-ish%? Right. If you're talking about $250 billion, you'd be talking about easily a $20 billion ATE TAM. The ATE TAM would go up by 150% from where it is. Right. Right. Versus at 12-14, right? Although, I think that's sort of near- No. What you're referencing is our long-term model, and for that model, rather than projecting a growth rate and giving a model for, say, three years from now, we admitted that we don't have great visibility about how fast the TAM is actually going to grow. Like we were talking about before we came on stage, you go to sleep at night, you wake up in the morning, and there's a new headline about higher CapEx or higher wafer front end. We don't have great visibility about how fast the overall semiconductor market is going to grow, and therefore we don't have great intelligence about just how fast the TAM will grow. What we have some high confidence about is if there is a semiconductor ATE TAM of $12 billion-$14 billion, that Teradyne would be a $6 billion company. Got it. Roughly double in size from 2025 in that market. That would represent both participating in this growing market, but also increasing share in that market as well. We believe that we're positioned over the next few years to be able to grow with that market and gain share. Essentially outgrow the pace of the ATE TAM. Got it. What is your share now, or let's say 2025? Because six in a 12 to 14 means just shy of 50%, right? No, no. This is important math. If you look at Teradyne has three businesses. Right. Our semiconductor test business represents about 80% of our revenue. There's 10% in robotics, 10% in product test. Now, in addition to that, there's also a portion of our semiconductor test business which does system-level test, which doesn't actually accrue to the semiconductor ATE TAM. Got it. All right. The percentage, the share in the ATE space in 2025 was 30%. Our expectation in a $12 billion-$14 billion market, that we would have 36% of that $12 billion-$14 billion, so 35%-38%, in that range, and the other parts of the company would essentially grow proportionally with that core. Got it. Okay. It's not 50% of 12 to 14, it's more like 36%. 36%. Got it. Okay. What helps drive that share gain? Is it your investment in specific end markets? Is it that you already have design wins in certain? So- product categories that help you drive that share gain? 36% share is nowhere near the high water mark for our share. We had significantly higher share than that back in the mobile boom in 2021. From 2021 out to 2025, there was very little competitive shift in terms of which customers did business with which ATE company. The thing that changed from that high share point to 2025 was the segment growth in the market. The part of the market that grew the fastest was DRAM and compute, and especially AI compute GPUs. Those were two parts of the market where Teradyne's core share, segment share, was lower than our share in other parts of the market that were not growing as strongly. There was this colossal shift in the market towards these two segments, and what's happened since then is Teradyne has actually gained share inside of compute, and we've gained share inside of DRAM and HBM. We're in this situation right now where these are very big segments. We've increased our share and our position for additional share gain against compute and DRAM. The other parts of our business, mobile, power and industrial, and flash, are all positioned to have significant growth over the next few years. We'll have some of the segment shift helping to pay us back that we lost over the past few years. Got it. Makes sense. We'll talk about the GPU, but it's interesting that the CPU has been a more active area of discussion at our conference so far. What is Teradyne's opportunity in CPU testing? When you hear of these large TAMs. every day there is a larger TAM than the day before, what does that tell you in by way of? How much of CPU testing has been internal so far? How much has been at? What is your share today of CPU testing, and where do you think it can go? Let's start earlier in terms of the test TAM associated with CPU. Okay. All right. The easiest way to talk about this is the relative test intensity for an AI accelerator and a data center CPU. Okay. Right now, that's kind of four to one. That it takes four times as much test for an accelerator as it does for a data center CPU. Right now, the ratio of accelerators to CPUs and data centers is probably greater than four to one. Four or more accelerators to each CPU. Today, where we are in 2025, say, that the amount of test TAM associated with accelerators is 16 to one relative to CPUs. The CPU renaissance that we're talking about is going to change that 4:1 ratio to a 2:1 ratio, or maybe even aggressively, a 1:1 ratio. Nice somewhere in the future. If you get to 2:1, that means that you have eight times as much TAM associated with accelerators as you do with the CPU. Got it. It's a big and important change in the market, and it is a segment that's going to be growing, but it's still not going to be the biggest thing in the compute TAM. Let's talk about share and players. For X86, one of the X86 manufacturers is primarily on my competitor's platform. Right. The other X86 player had its own test solution that it sourced. We don't see a near-term opportunity for us to penetrate the CPU player that uses my competitor's equipment. For the one that uses its own equipment, our understanding is that they are not investing in future generations of their internal tester, and so we think that there's going to be a fight in 2028 for who's going to win that account. We're positioning to compete for that account for 2028 on. The other story in CPU is the balance between X86 and Arm. Right. When it comes to Arm, Teradyne is either qualified or in the qualification process for all major Arm CPUs. Okay, our share gain opportunity in Arm-based data center CPUs is significant. I guess I'm kind of hoping that Arm does really well, because our exposure there is much higher. Understood. Oh, there's a question. Yes, please. What we've talked about is that AI comes in waves. The primary hardware associated with AI up through 2026 has been around building out general purpose data centers. Data centers that can be used for training or for inference. That was very important because the relative allocation of compute was pretty dynamic between research tasks and revenue tasks. Now that the large LLM players are scaling more aggressively in revenue, and look at Anthropic, the revenue growth that they're showing, there's a need to do inference at scale. That's behind the CPU renaissance, and it's also behind silicon specifically to support inference. That'd be like Groq and Cerebras. That's wave number two, and that's really kicking into high gear in 2026 and is going to be a major factor out through 2030. The next wave after that is the edge-deployed AI, and there's three real categories of that. There's autonomous driving, there's mobile electronics, so phones, glasses, things that bring edge AI, real-time AI, to individual users, and then physical AI or robotics. Teradyne is positioning itself as a destination platform for physical AI applications in robotics. We have a lead customer in this space in e-commerce that is deploying a physical AI application for distribution center, both stowing stuff in a distribution center and also picking orders to make up kits that are being delivered. That has really helped us understand what the right platform characteristics are to be able to succeed with other players in physical AI. Our number one priority right now is to win the labs. The people that are determining the physical AI future are people like Skild AI and Generalist, Intrinsic, Microsoft, and NVIDIA. They are adapting the research that they've done in the cloud environment towards physical AI tasks. What we're trying to do is make sure that we can provide a, not to borrow the pharmaceutical term, a safe and effective platform. From a safe perspective, even though the AI job runs on our platform, our platform actually has a safety layer that prevents the robot from operating beyond the safe parameters for the job. That's true for our AMRs and for our arms. Then effective, you need to be able to control the robot from another piece of software through an API. You need scalable compute, you need modular accessories, and you need the operating system to both accept commands at a high frequency and provide feedback at a high frequency. Think of that as the sensory and motor nervous system of the robot, has to be able to be interfaced to these brains. I guess you could say our strategy is to bring the muscle, and the Generalists and Intrinsics and NVIDIAs are going to be bringing the brains. Yes. Can I ask about testing again? Sure. On the CPO cycle package optics, I think you had mentioned that there we think the TAM is about $500 million that we can attest. Can you break it down further? Like there's different assertions. Sure the $500 million. Where can you gain the 50% share that you're confident about? Okay. You okay going in the CPO direction? Absolutely. All right. Right now, in 2026, there's probably going to be about $100 million of test equipment purchased for co-packaged optics. In addition to that, there's probably an equal amount of revenue associated with the device handling and optical alignment. Another $100 million or so of business that will go to players that are not Teradyne or Advantest. All of that investment is going to produce a vanishingly small amount of co-packaged optics in 2026. A crazy high buy rate. Over the next few years, there's a bunch of exponentials that are going to happen. Between now and 2028, the number of scale-out CPO connections is probably going to multiply by more than a factor of 100 from 2026 to 2028. It's growing from nothing, a very high growth rate. Right now, each CPO connection represents minutes of test time. There's a very, very extensive test lists that are very characterization oriented. Between now and 2028, the test intensity is going to be going down. They're going to test less, and the test equipment is going to become much faster because it's going to be focused on the production parameters that are most important. You've got this exponential growth on one side, and you've got a rapid increase in efficiency on the other side. It's always high error uncertainty when you're trying to match up things that are growing at an exponential rate. What we've actually said is that by 2028, we think that the TAM associated with just the test equipment, so what's $100 million now, will be somewhere between $300 million and $700 million. You pick the midpoint and they say that if you're in marketing, if a guy in marketing says that something is going to drop at that spot on the floor, something heavy, stand right there because you're going to be safe. Because we're never going to get it exactly right, but we can give you the band. It's going to be that $300 million-$700 million. The other thing that's interesting is that is really associated with just initial production of scale-out networking. What happens post 2028 is when scale-up networking happens, by the time you get to 2030, there's going to be three times as many CPO ports for scale-up as there is for scale-out. $500 million at that midpoint, that $300 million-$700 million, that is not where this TAM ends up. This TAM ends up bigger than $1 billion. The scale-out stuff, we have a high exposure to that part of the market because of our share in networking, and my competitor has high exposure to scale-up. Both of us are going to be careening into this billion-dollar market, and neither one of us is going to give up. What we'll be doing is we'll be competing on the effectiveness of our testers, the throughput, the accuracy, and I've seen this play before. What ends up happening is a highly competitive duopoly where we're splitting the share. Is it mostly the wafer side that we're selling test strips to, or actually other inside as well? Right now, there are four different test insertions. There's a PIC wafer on its own. There's a combined PIC and EIC wafer. There's a singulated optical engine dielet test, and then there's a test when the whole CPO unit is tied together. Right now, most of the TAM is in the first and second insertion. They are unique test lists, and you can't do all of the tests that you need to do before the EIC and the PIC are put together. There's going to be movement of tests in that chain, but you can't arbitrarily do some of the later tests earlier. Our biggest share is in that second insertion. Excellent. Chao, you had a question? Just on that point, there is also a $100 million equipment for device handling alignment, which you don't do. Is it fair to assume that in the prototyping R&D, working out which product work at least, in some ways, the ETM equipments will get used more, and really the ATE equipments get more when you get into the volume production, of these units? Is that fair to say? I think that's fair. One point that I'd like to make is that for the rest of the whole ATE industry, there is an open ecosystem where test equipment vendors work with multiple device-handling vendors. Like Teradyne works with Acritec and TEL and Advantest and other players to help create test cells. The same thing we believe is going to happen in the co-packaged optics space that Teradyne is going to work with multiple handling vendors, and those handling vendors will work with both Teradyne and Advantest. Do I think that the TAM for handling equipment, I think it's probably going to grow at close to the same rate as test equipment. At the end of the day, the number of CPO dielets that are going to be built is going to be growing dramatically. The specialized equipment that are required to deal with those at not only insertion one and insertion two, but handling the optical engine dielets and getting the fiber bundles in for that third insertion then the handler for a CPO device, that's like a world-class switch device. It's going to be burning a kilowatt, tens of thousands of electrical connections, then you also have to mate to 30 optical connections on there. That's going to be an expensive piece of kit. I think that this is going to be a part of the handling market that is likely to grow really significantly. Maybe just to follow up on your comment on your competitor is stronger in scale-out. No, what I was saying is that if you think about scale-out, scale-out is adding CPO to network switches. If you think about scale-up, it's adding CPO to AI accelerators. If you look at share in AI accelerators versus share in network switches, Teradyne's really high in network switches. My competitor is really high. You're right. The future is yet to be written in terms of CPO share for both of these markets. Yep. All right. Wonderful. On the topic of that large customer right, you received initial production orders. What's the right way, Greg, to think about your market share journey at that customer? What are the milestones? As part of the $12 billion-$14 billion opportunity that you laid out, what share does that imply? Yeah. The way we've been talking about the merchant compute opportunity in this specific account is that there are three phases. The first phase is qualification. That started mid-year last year, and it culminated with qualification of the UltraFLEXplus to be able to test a particular device. The end of that process was two things happened. One, there was an order for a couple dozen tools that we are going to be doing high volume production of this specific device. The other was them asking us to engage in additional follow-on projects for devices that are earlier in their life cycle. We are now in a phase that I'm calling the fast follower phase. Every new part is going to first be brought up on my competitor's platform. For particular devices, especially devices that they see high volume, they are going to be asking us to convert that test solution to be working on the Teradyne platform. Over time, we are going to convert more and more of these devices as they are coming to market, and that will allow us to incrementally gain share. While we are following, we believe that we have a hard ceiling at about 30% share. Because we're the second kid to the dinner table, right? That the company that brings up the part in the first place is always going to get the initial part of the ramp. Right. That fast follower kind of has a natural high limit. After about three or four years, the customer will likely have enough experience with our platform, and we will get into what I call a mature dual-vendor strategy. In a mature dual-vendor strategy, they will generally be selecting an NPI platform, and then the other company would be the follower. That would be either Teradyne or the incumbent would be selected for new devices on the basis of platform capability, throughput, reliability. They're making decisions on the actual differentiation versus incumbency. That's three or four years in the future when we get to there. Got it. Inside of this $12 billion-$14 billion TAM, part of it is how much merchant compute is in there. Part of that depends on how fast we get to $12 billion-$14 billion. If we get to $12 billion-$14 billion next year, then we will still be at a very early stage in this process. Makes sense. We would have lower share. If it took us two years, we would be higher. If it took us three years to get to $12 billion-$14 billion, then we would be getting close to that 30%. It's going to be a gradual increase over the next three to four years to get to 30%. Right. Just a last question, you do expect to maintain or expand your share in networking because that's been an area of strength. Dual vendor is a customer strategy against their entire portfolio of parts. It definitely presents a downside risk in networking and an upside risk in merchant compute. Given the size of the opportunity, we're kind of delighted to take the risk against networking in order to increase our share in that larger part of the account. We also believe that we have a platform that is more performant, that we actually have differentiation in production around reliability and throughput. We believe that we're going to be able to defend a high share in networking. Would we be able to defend 100% share? Probably not. Would we be able to defend a high share? We think so. Got it. With that, thank you so much, Greg. Really appreciate your time.