Teradyne (WKN: 859892) is something special in my eyes. With the company, investors can benefit from two megatrends. Teradyne is a leading manufacturer of test equipment for semiconductor manufacturing. For processor chips, Teradyne claims a 46% market share. The market position for memory chips is similarly strong with a share of 40%.
And now comes the trick. In 2015, Teradyne created a second mainstay with the acquisition of Universal Robots. The company is now the clear market leader in the so-called cobots. In contrast to normal industrial robots, these lightweight robots do not have to do their work in defined areas. Instead, they can work hand-in-hand with humans.
Record year and price collapse
It is not surprising that this combination of digitization and automation is currently in high demand in the market. Teradyne had a record year in 2021. Sales increased by 19% in 2021 compared to the previous year. Free cash flow was also extremely strong at $966 million. The free cash flow margin was a very good 26%.
At the same time, the balance sheet is extremely solid. The equity ratio as of December 31, 2020 was 67.5%. Cash and marketable securities held as current assets fully cover Teradyne’s liabilities. At the same time, the company invests 12% of sales in research and development and buys back shares on a large scale. Since production is outsourced, the business model is not particularly capital intensive either.
Well, that all sounds great. So why has the stock lost about a quarter of its value in the last week? In my opinion, investors overreacted to the muted outlook for the first half of 2022. With the start of 3nm chip manufacturing pushed back to 2023, Teradyne expects revenue to decline by 15% to 20% in the first half of 2022.
Teradyne becomes more optimistic at the same time
At the same time, however, Teradyne has become more optimistic about its medium-term prospects. The company has therefore significantly raised its sales forecast for 2024. While management previously forecast sales of $3.5 billion to $4.25 billion, that figure has now been raised to $4.6 billion to $5.25 billion. By 2024, the rapidly growing area of industrial automation is expected to contribute around 18% to sales. In the last quarter, this share was just under 13%.
As Sanjay Metha, the company’s Chief Financial Officer, aptly noted on the earnings call, “The market penetration of cobots and autonomous mobile robots remains below 3%, while the range of applications that can be exploited commercially by them continues to grow “. It is therefore understandable that the company expects its robots to grow between 32% and 45% annually over the next few years.
At the same time, the demand for test equipment for semiconductor production is likely to increase significantly in the second half of 2022. In 2023, with the launch of 3nm production, Teradyne expects another significant acceleration in demand. This should also continue in the following years.
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