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Teradyne Inc. (TER - Analyst Report) reported second-quarter 2013 earnings of 43 cents per share, beating the Zacks Consensus Estimate of 33 cents. Adjusted earnings per share exclude one-time items but include stock-based compensation expense.

Revenues

Revenues of $428.9 million were up 53.0% sequentially but down 21.8% year over year and slightly above management’s guidance of $380.0–$420.0 million due to improving demand.

Around 68.0% of revenues in the quarter came from semiconductor testing platforms, 23.1% from system testing and the remaining 8.9% from the LitePoint wireless testing business.

Bookings

Total bookings in the quarter amounted to $474.0 million, of which $362.0 million were in Semiconductor Test, $87.0 million in Wireless Test and $25.0 million in the Systems Test Group.

Total orders were up 18.5% sequentially, driven by a 40% increase in Semiconductor Test orders.

Margins

Reported gross margin for the quarter was 56.2%, up 150 basis points (bps) sequentially but down 20 bps year over year. Higher volumes led to sequential gross margin expansion in the quarter.

Operating expenses of $137.0 million were down 2.1% from $139.9 million in the year-ago quarter. The reported operating margin was 20.0%, down 870 bps from 28.7% in the year-ago quarter. Both engineering and development (E&D) expenses and selling and administrative (S&A) expenses increased as a percentage of sales.

The quarter’s GAAP net income was $66.6 million or earnings per share of 28 cents, down from a net income of $111.4 million or 49 cents in the comparable quarter last year. Excluding special items but including stock-based compensation expense, non-GAAP net income was $89.1 million or 43 cents per share compared with $156.3 million or 77 cents a share in the year-ago quarter.

Balance Sheet

The company ended the second quarter with cash and cash equivalents and marketable securities balance of $728.7 million, down from $770.0 million in the prior quarter. Trade receivables were $228.2 million, up from $166.6 million in the prior quarter.

Cash flow from operations was $105.5 million versus $102.1 million in the year-ago quarter. Capex was $28.3 million versus $22.5 million in the year-ago quarter.

Guidance

Management also provided guidance for the third quarter of 2013. Revenues are expected to come in the range of $425–$465 million, up 3.7% sequentially at the mid-point. Non-GAAP earnings from continuing operations are expected to be 39 to 49 cents a share and GAAP earnings per share are expected to be 23 to 31 cents per share.

Conclusion

Teradyne is a leading provider of automated test equipment. The company reported a good quarter, with earnings beating the Zacks Consensus Estimate.

The company reported higher orders and provided modest third quarter revenue guidance, indicating macro visibility and improved demand for Teradyne products in the future.

We also believe the addition of LitePoint is a big positive going forward, given the significant opportunities unfolding in the high-growth wireless market. We remain optimistic about Teradyne in the longer term, given the popularity of its products; the LitePoint acquisition that further rounds out its portfolio and continuous design win momentum.

Currently, Teradyne has a Zacks Rank #3 (Hold). Investors can also consider some other stocks with positive Zacks Rank and expected surprise prediction or ESP (Read: Zacks Earnings ESP: A Better Method).

InvenSense Inc. (INVN - Snapshot Report), Earnings ESP of +8.33% and a Zacks Rank #2 (Buy)

Gartner Inc. (IT - Snapshot Report), Earnings ESP of +1.96% and a Zacks Rank #2 (Buy)

Scientific Games Corporation (SGMS - Analyst Report), with an ESP of +100.0% and a Zacks Rank #3 (Hold)
 

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