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Teradyne Inc (TER - Analyst Report) has reported third-quarter 2012 earnings of 53 cents per share, crushing the Zacks Consensus Estimate of 45 cents. Adjusted earnings per share exclude one-time items, but include stock-based compensation expense.

Revenue

Revenue of $463.4 million was up 34.6% year over year and above the management’s guidance range of $420–$460 million. Around 67.0% of revenue in the quarter came from semiconductor testing platforms, 25.7% from LitePoint wireless testing business and the remaining 7.3% from system testing.

As per management, revenue exceeded the guidance on the back of strong demand in the mobility market for both Semiconductor Test and LitePoint products.

Bookings

Total Bookings in the quarter were $231 million, of which $154 million were in Semiconductor Test, $52 million in LitePoint Wireless Test and $25 million in the Systems Test Group.

Total orders were down 61% sequentially and 4% from the year-ago quarter due to seasonal slowdown and a weak macro economic environment.

Margins

Reported gross margin for the quarter was 56.2%, up 670 bps year over year. A favorable mix and higher revenue led to higher gross margin in the quarter.

Operating expenses of $152.1 million were roughly flat year over year. Reported operating margin was 23.3%, up from 17.6% in the year-ago quarter. The margin improvement was aided by year-over-year decline in engineering and development (E&D) expenses and selling and administrative (S&A) expenses. However, E&D expenses increased as a percentage of sales.

The quarter’s GAAP net income was $88.6 million or earnings per share of 39 cents, up from $56.7 million or 26 cents earned in the comparable quarter last year. Excluding special items but including stock-based compensation expense, non-GAAP net income was $108.4 million or earnings per share of 53 cents compared with $68.1 million or 35 cents a share in the year-ago quarter.

Balance Sheet & Cash Flow

The company has a fairly strong balance sheet, with cash and cash equivalents and marketable securities of $830.5 million, up $135.5 million from the prior quarter. Trade receivables were $205.5 million, down from $346.1 million in the prior quarter.

Cash flow from operations was $249.0 million versus $93.0 million in the year-ago quarter. Capex was $33.3 million versus $22.2 million in the year-ago quarter.

Guidance

Management provided guidance for the fourth quarter of fiscal 2012. Accordingly, revenue is expected to come in at around $235–$260 million. Non-GAAP earnings (loss) from continuing operations are expected to be (4) to 5 cents a share and GAAP loss per share is likely to be 12 to 5 cents.

Conclusion

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

We believe that the company is witnessing higher demand across several markets, which is helping both, semiconductor and LitePoint, to grow.

However, the company announced a conservative guidance, reflecting seasonally slower industry trends and an overall weak macro environment.

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 design win momentum that should continue.

Increasing competition from Advantest Corp. and LTX–Credence Corporation is also a matter of concern. Currently, Teradyne has a Zacks #3 Rank, implying a short-term Hold rating.

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