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Introduction & Market Context
Teradyne Inc (NASDAQ:TER) shares jumped 7.47% in premarket trading to $97.31 after the company released its second quarter 2025 financial results on July 30, showing revenue above guidance midpoint despite year-over-year declines. The semiconductor test equipment maker highlighted strength in AI compute applications that helped offset weakness in automotive and industrial markets.
The company reported sales of $652 million and non-GAAP earnings per share of $0.57, both exceeding the midpoint of guidance but declining from the same period last year. More importantly, Teradyne provided an optimistic outlook for the third quarter, projecting substantial sequential growth driven by AI compute demand.
As shown in the following quarterly performance summary:
Quarterly Performance Highlights
Teradyne’s Q2 2025 revenue of $652 million represented a 10.7% decline from $730 million in Q2 2024 and a 5% sequential decrease from $686 million in Q1 2025. Non-GAAP gross margin came in at 57.3%, down from 58.3% year-over-year and 60.6% sequentially. Non-GAAP EPS of $0.57 fell from $0.86 in the prior-year quarter and $0.75 in Q1 2025.
The company’s performance varied significantly across business segments. Semiconductor Test revenue reached $492 million, down 12% year-over-year, with particular weakness in Memory Test, which declined 53% compared to Q2 2024. This reflected customers absorbing High Bandwidth (NASDAQ:BAND) Memory (HBM) capacity installed in 2024. Meanwhile, Product Test revenue grew 7% year-over-year to $85 million, while Robotics revenue fell 17% year-over-year to $75 million, though it showed a 9% sequential improvement.
The business unit breakdown provides more detail on segment performance:
Despite challenging market conditions, Teradyne maintained its capital return program, repurchasing 1.5 million shares for $119 million at an average price of approximately $80 per share. The company also paid $19 million in dividends during the quarter.
Detailed Financial Analysis
Teradyne’s non-GAAP operating profit for Q2 2025 was $98 million, representing a 15% operating margin. This marks a decline from both year-ago and sequential quarters, primarily due to lower revenue and slightly compressed gross margins. R&D expenses held steady at $118 million, while SG&A increased slightly to $157 million, reflecting continued investments in strategic initiatives despite market headwinds.
The company’s detailed non-GAAP results show the financial trends across key metrics:
On the balance sheet, Teradyne reported $489 million in cash and marketable securities, down from $622 million at the end of Q1 2025, largely due to the acquisition of Quantifi Photonics (closed May 30th) and continued share repurchases. Free cash flow remained strong at $132 million, demonstrating the company’s ability to generate cash even during challenging market conditions.
The balance sheet and capital allocation summary shows the company’s financial position:
Forward-Looking Statements
Teradyne provided an optimistic outlook for Q3 2025, projecting revenue between $710 million and $770 million, representing a 14% sequential increase at the midpoint. Non-GAAP EPS is expected to range from $0.69 to $0.87, significantly higher than Q2 results. This guidance reflects anticipated strength in AI compute applications within the Semiconductor Test segment.
The detailed Q3 guidance shows expectations across key financial metrics:
CEO Greg Smith highlighted that SoC strength in AI Compute is offsetting lower demand in automotive and industrial end markets. The company expects a "substantial QoQ increase in SoC and Memory due to AI Compute inflection" in the third quarter, while anticipating only "modest revenue from Mobile and Auto/Industrial" segments.
Looking further ahead, Teradyne maintained its ambitious long-term financial targets, aiming for revenue between $4.5 billion and $5.5 billion, with non-GAAP EPS of $7.00 to $9.50. This represents significant growth from 2024’s revenue of $2.82 billion and EPS of $3.22. The company projects Test Revenue CAGR of 12-17% and Robotics Revenue CAGR of 18-24% off 2024 levels.
The target earnings model illustrates these long-term objectives:
Strategic Initiatives
Teradyne continues to allocate capital strategically, balancing investments in growth with shareholder returns. Since 2015, the company has repurchased 83 million shares at an average price of approximately $52 per share, representing significant value creation given the current share price. The company has committed to share buybacks of up to $1 billion through 2026, an increase from the previous target of $400 million in 2025.
The capital allocation history demonstrates Teradyne’s balanced approach:
In the Robotics segment, despite current market weakness, Teradyne secured a "plan of record" decision from a large customer, potentially setting the stage for future growth. The acquisition of Quantifi Photonics also strengthens the company’s testing capabilities in photonics, an increasingly important area as data center and AI applications drive demand for optical connectivity.
The company continues to invest in Semi Test strategic initiatives despite current market challenges, positioning itself for the anticipated growth in AI compute applications. With a strong balance sheet and consistent free cash flow generation, Teradyne appears well-positioned to navigate current market headwinds while investing for future growth opportunities.
Full presentation:
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