Teradyne (NASDAQ:TER) Reports Q1 In Line With Expectations But Next Quarter's Sales on Track

Semiconductor testing company Teradyne (NASDAQ:TER) met Wall Street’s revenue expectations in Q1 CY2025, with sales up 14.3% year on year to $685.7 million. The company expects next quarter’s revenue to be around $645 million, close to analysts’ estimates. Its non-GAAP profit of $0.75 per share was 21.8% above analysts’ consensus estimates.

Is now the time to buy Teradyne? Find out by accessing our full research report, it’s free.

“Teradyne delivered 14% year-over-year growth in the first quarter driven by strong results in Semiconductor Test. System-on-a-Chip (SOC), primarily for Mobile, was the strongest growth driver,” said Teradyne CEO, Greg Smith.

Company Overview

Sporting most major chip manufacturers as its customers, Teradyne (NASDAQ:TER) is a US-based supplier of automated test equipment for semiconductors as well as other technologies and devices.

Sales Growth

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Unfortunately, Teradyne’s 3% annualized revenue growth over the last five years was sluggish. This was below our standard for the semiconductor sector and is a tough starting point for our analysis. Semiconductors are a cyclical industry, and long-term investors should be prepared for periods of high growth followed by periods of revenue contractions.

Long-term growth is the most important, but short-term results matter for semiconductors because the rapid pace of technological innovation (Moore's Law) could make yesterday's hit product obsolete today. Teradyne’s performance shows it grew in the past but relinquished its gains over the last two years, as its revenue fell by 1.9% annually.

This quarter, Teradyne’s year-on-year revenue growth was 14.3%, and its $685.7 million of revenue was in line with Wall Street’s estimates. Beyond meeting estimates, this marks 4 straight quarters of growth, implying that Teradyne is in the middle of its cycle - a typical upcycle generally lasts 8-10 quarters. Company management is currently guiding for a 11.6% year-on-year decline in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 6% over the next 12 months. Although this projection indicates its newer products and services will catalyze better top-line performance, it is still below average for the sector.

Today’s young investors won’t have read the timeless lessons in Gorilla Game: Picking Winners In High Technology because it was written more than 20 years ago when Microsoft and Apple were first establishing their supremacy. But if we apply the same principles, then enterprise software stocks leveraging their own generative AI capabilities may well be the Gorillas of the future. So, in that spirit, we are excited to present our Special Free Report on a profitable, fast-growing enterprise software stock that is already riding the automation wave and looking to catch the generative AI next.

Product Demand & Outstanding Inventory

Days Inventory Outstanding (DIO) is an important metric for chipmakers, as it reflects a business’ capital intensity and the cyclical nature of semiconductor supply and demand. In a tight supply environment, inventories tend to be stable, allowing chipmakers to exert pricing power. Steadily increasing DIO can be a warning sign that demand is weak, and if inventories continue to rise, the company may have to downsize production.

This quarter, Teradyne’s DIO came in at 116, which is 33 days above its five-year average, suggesting that the company’s inventory has grown to higher levels than we’ve seen in the past.

Key Takeaways from Teradyne’s Q1 Results

We were impressed by how significantly Teradyne blew past analysts’ EPS and adjusted operating income expectations this quarter. On the other hand, its inventory levels increased materially and its revenue and EPS guidance for next quarter were in line with Wall Street’s estimates. Overall, this quarter was mixed but still had some key positives. The stock traded up 4.3% to $80.15 immediately following the results.

Indeed, Teradyne had a rock-solid quarterly earnings result, but is this stock a good investment here? When making that decision, it’s important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it’s free.