2008 Shareholders’ Letter
Mike Bradley, Chief Executive Offi cer
Fellow Shareholders,
Few investors, and few of the world’s best-prepared companies, were ready for the economic
meltdown that started in 2008. As a leading supplier of testing technology to factories
producing semiconductor chips and electronics products around the globe, we took our lumps, as
the unfolding fi nancial crisis triggered the sharpest capital equipment pull-back in the history of
the semiconductor industry.
The market numbers weren’t pretty. Orders for
recovery are being pushed out daily. So we’ve continued
semiconductor capital equipment fell approximately 41
to sharpen our focus on new products, customer support
percent in the second half of the year. Integrated Circuits
and cost reductions… all with the intent to be leaner and
(IC) inventories grew to levels not seen since 2001. And
stronger when the markets recover.
wafer fabrication equipment utilization rates plummeted
below 50 percent as the year ended.
While most of the business headlines reviewing 2008 will
A combination of market share gains, productivity
and businesses alike, let me underscore our progress
improvements and cost-cutting enabled us to weather our
toward being one of the most relied upon business partners
undoubtedly dwell on the negatives endured by consumers
own 42 percent decline in orders for the second half of the
in semiconductor and electronics test.
year. But while we were in the black for the full year on a
non-GAAP operating basis, our fourth quarter non-GAAP
Solid Progress on Many Fronts
operating results showed red ink.
We’ve set out in the last few years to accomplish three
things. First, to solidify our position as the leading test
At this writing, the pressure hasn’t subsided. World
equipment supplier for System-On-a-Chip (SOC) technology.
markets continue to tumble… and expectations for a
Second, to expand our served market through entry into
Financial Highlights
(Results and sales from continuing operations • In millions except earnings per share)
Net Sales
(Loss)/Income
Non-GAAP (Loss)/Income
(Loss)/Income per Common Share-Diluted
Non-GAAP (Loss)/Income per Common Share-Diluted
2005
2006
2007
2008
$ 1,045
$ (63.7)
$ ( 11.8)
$ (0.32)
$ (0.06)
$ 1,356
$ 208.2
$ 175.6
$ 1.06
$ 0.90
$ 1,102
$ 71.9
$ 83.2
$ 0.39
$ 0.45
$ 1,107
$ (398.6)
$ 32.4
$ (2.34)
$ 0.19
In November 2005, Teradyne sold its Connection Systems Division (TCS), and in August 2007, Teradyne sold its Broadband Test Division (BTD). BTD and TCS are
classifi ed as discontinued operations and their results are excluded from these numbers. In 2007, the difference between the GAAP and non-GAAP results relates
mainly to an in-process research and development charge related to acquired technology. In 2008, the difference between the GAAP and non-GAAP results
relates mainly to a $333 million goodwill impairment charge and restructuring charges.
memory device testing. And third, to establish a business
Corporation, the up-and-coming player in the fl ash memory
model that delivers industry leading over-the-cycle
test market.
fi nancial performance.
This acquisition proved to be well-timed as the Nextest®
We made headway on all three fronts in 2008.
Magnum I and Magnum II products bucked the memory test
market contraction in 2008, gaining fi ve points of share in
In the SOC test space, our FLEX® and J750™ systems
the overall memory market. At year-end, multiple Magnum
are fi rmly entrenched as market-leading test platforms.
II units were testing some of the industry’s most complex
Nearly 5,000 of these testers were operating on test
multi-chip (DRAM and fl ash) memory packages.
fl oors throughout the world by year-end. That meant that
consumers around the globe could rely upon the silicon
So we’ve grown through a combination of acquisitions and
technology of products like cell phones, PDAs, medical
organic share gains, providing a balance between the cost
electronics and gaming systems because our testers
effi ciency of developing products on our own and the time-
verifi ed that technology.
to-market advantages that come through acquisitions.
In 2008, we added The Eagle Test Systems’, Inc. product
Financial Strength for the Future
line to our stable of SOC products. Eagle Test technology
The strength of our future starts with solid product
is the established standard in analog SOC testing of devices
offerings in every market we serve. As the leading test
like power ICs and audio amplifi ers. With the addition
equipment supplier in our core semiconductor test market,
of Eagle Test Systems, we now offer a full array of test
we further strengthened our position in 2008 through the
solutions for every segment of the SOC device spectrum,
launch of fi ve new products that delivered nearly $150
further expanding our total available market and providing
million of new business in the year.
us with an even greater opportunity to expand our market
share lead.
In 2008, Teradyne grew its
System-On-a-Chip (SOC)
Test market share from 34
percent to 42 percent.
Our Defense & Aerospace business also delivered strong
results and bucked the trends seen in nearly every other
electronics segment. This was fueled by the selection of
Teradyne test instruments for the new Air Force Versatile
Depot Automatic Test Station (VDATS), plus strong
program buying from the Army and Navy. We continued
to post share gains within the in-circuit test market with
TestStation in storage and networking applications, and as
a major supplier into Tier One subcontract manufacturers
in Asia. And automotive test products from our Diagnostic
Solutions unit showed resilience through the year’s end,
*Includes Nextest and Eagle Eagle Test Systems
Source: Teradyne and industry data
even as that industry experienced a worldwide shock wave.
With more than 40 percent of the SOC test market on
tied to the completion of manufacturing transfers to our
Teradyne products, we also set our sights on expanding into
Asia manufacturing partner, and the streamlining of our
memory device test in 2008. A major step in this initiative
cost structure, some of which was connected to synergies
came early in the year when we acquired Nextest Systems
from our two acquisitions. In fact, our cost focus allowed
Other elements of our fi nancial model improvement were
us to add these two new businesses at the same time
smaller, customers will lean toward suppliers who have the
that we lowered our fi xed costs and breakeven… a major
technology and scale to advance through these vicious
accomplishment achieved by the across-the-board efforts
market cycles.
of our combined workforce.
Operating Expenses
Total company expenses
declined even after adding
two new businesses.
We are radically changed from the Teradyne of just a few
years ago. Today, we offer more products to more markets
with more technology leverage… fully integrated and
outsourced manufacturing… and low cost offshore repair.
But, at our core, we are still the same. Our culture and
values remain intact. We continue to focus on providing
world-class products and superior customer service. And
we believe in the fundamental need for silicon-based
innovation in electronic products to improve the quality of
life and expand information across cultures.
We know that test will always be an essential component
of that innovation and that, to continue to be an industry
Change is Constant, but Testing Still Matters
leader, we must remain faithful to our enduring pledge to
We obviously have much ahead of us. We must continue
consumers that they can rely on the electronics critical to
to weather the storm of the economic meltdown; keep
their everyday lives.
the pipeline of new products fl owing; and focus on
tightening costs, all while we show customers the kind
Challenging times? Without a doubt. But we at Teradyne
of responsiveness and support they’ve come to expect.
are up to those challenges. Because, as always, we believe
We will be operating in an economic landscape that is
in a present, and a future, where testing matters.
fundamentally changed. As the number of companies
that can afford the R&D stakes of this industry gets
Mike Bradley
Chief Executive Offi cer
Teradyne, Inc.
Teradyne, Inc.
600 Riverpark Drive
North Reading, MA 01864
978.370.2700
www.teradyne.com
2009 Teradyne, Inc.• All rights reserved • Printed in U.S.A.
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and product names are trademarks or registered trademarks of
Teradyne Inc., including its subsidiaries.