Teradyne (TER) Q3 2026 earnings review
Teradyne beats its plan again, but its sales stop growing
Teradyne, the chip-testing equipment maker, beat its own plan again, but its sales stopped growing. Revenue rose 70% from a year ago to $1,306 million, and chief executive Greg Smith said demand reached "high-speed interconnect and robotics". But sales slipped 2% from the second quarter, and the fourth-quarter plan calls for about the same level again.
| Revenue | $1,306M +70% from a year ago |
|---|---|
| Profit per share, excluding one-offs | $2.29 +169% from a year ago |
| Semiconductor Test revenue | $1,072M −4.5% from the second quarter |
| Fourth-quarter revenue outlook | $1,250–1,350M middle of the range: +20% from a year ago, about flat with this quarter |
⚖️ Verdict: ⚪ Neutral
The story is unchanged: the pause that July's arithmetic pointed to is now in the numbers, and the fourth-quarter plan sits in the upper half of the band it allowed. The good news: Robotics made a profit, and the operating margin beat the plan. One caution: landing above what July implied says the plan was cautious, not that the pause in compute orders is shorter.
The question now is whether the fourth quarter is the bottom of the pause or the start of a longer flat stretch. Either the compute orders management expected for early 2027 arrive, or customers keep using the testers they already own. The first-quarter range on the January call will tell.
🐂 Bull Case
Operating Margin Beat the Plan on Lower Costs
In July the company said operating expenses, the cost of selling, administration and engineering, would take 29% to 30% of sales, because it was spending more on research and on its sales teams ahead of 2027. That plan put the operating margin excluding one-offs at 28% to 30%.
- Operating expenses: 27.4% of sales, against the 29% to 30% planned
- Operating margin excluding one-offs: 31.6%, up 11.2 points from a year ago
- Selling and administration: down 6.8 points of revenue from a year ago; engineering down 3.7 points
The margin beat the plan because sales rose 70% from a year ago while expenses grew only 22%. It did slip 2.1 points from the second quarter, though, since gross margin dipped and spending rose while sales did not, so from here the leverage depends on sales starting to grow again.
What to watch: fourth-quarter operating expenses, which management said in July would be comparable to the third quarter. If spending stays near $358 million on flat sales, the margin holds above 30% and the cost step-up is fully absorbed.
Robotics Reached Profit After Three Restructurings
Robotics sells collaborative and mobile robots to factories and warehouses, and it has been Teradyne's loss-making segment. Teradyne cut about 400 jobs there last year, and in January management said it aimed to reach break-even in 2026.
This quarter the segment "achieved profitability", the company said, with its "highest third quarter revenue to date" at $96 million. That ends a run of shrinking losses, from $18.5 million in the second quarter of 2025 to $2.6 million last quarter, rather than marking a sudden jump. The release does not size the profit, and revenue fell 4% from the second quarter.
What to watch: the segment's pre-tax profit in the quarterly filing, and whether it holds in the fourth quarter, when the US manufacturing centre that finance chief Michelle Turner said in July would open later this year starts adding cost.
Product Test Grew Fastest as Interconnect Test Shipped
Product Test checks finished circuit boards, hard disk drives and the high-speed links inside data centres, rather than chips. Chief executive Greg Smith has been building it up for AI data centres, most recently through a 75% stake in a venture called MLTP that closed in April.
This quarter its revenue rose 29% from the second quarter to $138 million, the second big step up in a row. Smith said demand reached "high-speed interconnect", and minority partners' share of profit climbed to $5.3 million from almost nothing, so MLTP is already earning money.
That matters because the growth comes from data centres rather than from chip testers, which adds customers whose orders do not move with compute chips. But the release does not say how much came from MLTP, which Teradyne only began consolidating in April, so the rate from businesses it owned a year ago is not readable.
What to watch: the quarterly filing's figure for MLTP's revenue. If Product Test still grows faster than Teradyne without it, the data-centre business is a second source of growth rather than a purchase.
Positives This Quarter Didn't Test
Two parts of the growth case got no new numbers in the release, so the quarter neither advanced them nor argued against them. Both have a disclosure point that would move them, and both are due soon.
- AI share of revenue: the company put it above 60% in July and gave no figure this time; a number near 70% again would show the dip did not come from AI customers.
- The $20 billion test market by the end of the decade that Smith laid out in July: no update; the long-term targets promised for the January call will restate it.
🐻 Bear Case
Semiconductor Test Sales Stopped Growing
Semiconductor Test, the business that sells machines to check memory and processor chips, is 82% of Teradyne's revenue and has carried the AI boom. Chief executive Greg Smith said the quarter "sustained positive momentum" and that Teradyne has "multiple growth engines across test and robotics".
The segment's revenue fell 4.5% from the second quarter to $1,072 million, its first decline since the second quarter of 2025. Memory and Integrated Systems Test, which both sit inside the segment, set records, the company said, so by our math the rest of the segment, where compute and mobile chip test sit, fell by more.
This is the pause management described in July, when it said the current compute customers had built capacity in the first half and the next wave of orders would come in the first half of 2027. The pause is shallow so far, but the fourth-quarter range puts its middle just below this quarter, so it lasts at least one more quarter.
What to watch: the first-quarter revenue range on the January call. If its middle sits above this quarter's level, the compute orders Smith's team pointed to for early 2027 are arriving on time.
Gross Margin Slipped Again, but Less Than Planned
Memory testers earn a lower gross margin than Teradyne's other products, and finance chief Michelle Turner said in July that memory would strain margins into 2027. So the plan for the quarter was a gross margin of 58% to 59%, down from 59.8% in the second quarter.
Gross margin came in at 59.1%, above the top of that plan. It still fell 0.7 points from the second quarter, because the cost of making the products held at $535 million while sales fell. Memory set a record, so the mix did move the way Turner described, just with a smaller effect than planned.
That argues against the concern without settling it, because the release gives no gross margin range for the fourth quarter, and record memory shipments keep lifting the share of lower-margin products.
What to watch: the fourth-quarter gross margin range on the earnings call. A range at or above 59% would mean new products and volume are offsetting the memory mix.
Inventory and Prepayments Rose While Sales Did Not
At the end of June Teradyne had $1.8 billion of purchase commitments with suppliers, most of them due within a year. This quarter those commitments began turning into stock on the balance sheet, at the moment sales stopped growing.
- Inventories: $575 million, up 43% from the second quarter
- Prepayments and other assets: $165 million more cash tied up in the quarter
- Write-downs of excess inventory: $10.9 million, three times the second quarter
- Operating cash flow: $314 million, 90% of net income
The build matters because the fourth-quarter range calls for flat sales, so the stock is for orders not yet in the outlook. Suppliers finance part of it, since accounts payable nearly doubled since December, but the tripled write-down is the first sign of parts bought for products that did not ship.
What to watch: inventory in the quarterly filing against the first-quarter revenue range in January. If inventory keeps rising while the range stays flat, the test-equipment maker is carrying the cost of a recovery it has not booked.
Risks This Quarter Didn't Answer
Three standing risks got no new numbers in the release. Each stands where it was in July, and each has a disclosure point that would move it one way or the other.
- Test intensity: Smith said in July that test spending could settle back to 7% of chip-making equipment spending from 8%; only the market update due in January reads on it.
- Geographic concentration: Taiwan and Korea were 60% of revenue in the second quarter, with export controls and tariffs active; the quarterly filing's country table will show whether that share rose.
- Share gains at the second and third compute customers: the release says nothing on their qualification progress, and management's stated ramp of nine to twelve months makes this the only early read on 2027.
👓 Other Themes
Teradyne's Partner Stakes Now Add to Profit
Teradyne holds a stake in Technoprobe, the Italian company that bought its device interface business in 2024, and books a share of its results. That share turned to a $3.3 million profit this quarter from a $5.2 million loss a year ago. The loss narrowed each quarter this year, so the stake now adds to earnings instead of subtracting, while the amortization on it stays outside profit excluding one-offs.
💲 Other KPIs
Growing again after stalling in the second quarter: up $13 million from June, to $270 million. From a year ago it is up 53%. Deferred revenue and customer advances are cash customers have paid for testers and service not yet delivered, so the line tends to lead shipments by a quarter or two.
Up 21% from June, with no debt drawn. Operating cash flow of $314 million paid for capital spending, buybacks and the dividend with room to spare. Capital spending ran at 6.6% of revenue, up from 6.1% a year ago, as the test-equipment maker adds capacity.
Buybacks rose to $99 million from $69 million in the second quarter, after a near halt at the start of the year. A year ago Teradyne bought back $246 million. Diluted shares fell 1% from a year ago, and the quarterly dividend is $0.13, up a cent.
🔮 Guidance
New. The plan calls for about $1.3 billion in the fourth quarter, 20% above a year ago but just below this quarter. By our math that puts 2026 revenue near $5.2 billion, the top of what July's first-half weighting implied. Teradyne has beaten the middle of its range by 8.7% on average over four quarters; if the pattern holds, the quarter lands near $1.41 billion.
New. The middle of the range, $2.10, is 17% above a year ago. It is 8% below this quarter, so the plan has profit falling faster than sales from here, and the release gives no margin ranges to explain the gap. The company has beaten the middle of its profit range by 24% on average over the last four quarters.
New. The gap to the figure excluding one-offs is $0.07 a share, made up of amortization on the Technoprobe stake and on acquired intangibles, less a tax effect. The middle of the range, $2.03, is 25% above a year ago and about 6% below this quarter.
❓ Key Questions
What was memory revenue, and are orders still above shipments?
July's memory order-to-shipment ratio above two was the most informative number the company gave. The release says memory set a record but gives no figure, so the size of the step above the second quarter is not readable.
How much of Product Test's growth came from the MLTP venture?
Minority partners booked a meaningful share of profit this quarter, so the venture is sizeable. Without its revenue figure, growth from businesses Teradyne owned a year ago cannot be read, and the segment's record cannot be judged.
What is the inventory build for, and when does it ship?
Inventories rose by more than a third in a quarter when the fourth-quarter range is flat. If the parts are for the compute orders due in early 2027, their timing is the 2027 case; the write-downs already tripled.
Where are the second and third compute customers in qualification?
In July management described one compute customer in volume, one ramping toward a 30% share and one in qualification, with nine to twelve months to ramp. The release says nothing on their progress.
Has the $750 million credit facility been extended past December?
It expires on December 10, and the June filing said only that Teradyne intended to extend it later in 2026. It is undrawn, so the risk is housekeeping, but there is no completion date.