Semiconductor testing company Teradyne (NASDAQ: TER) beat Wall Street’s revenue expectations in Q3 CY2025, with sales up 4.3% year on year to $769.2 million. On top of that, next quarter’s revenue guidance ($960 million at the midpoint) was surprisingly good and 17.1% above what analysts were expecting. Its non-GAAP profit of $0.85 per share was 7.4% above analysts’ consensus estimates.
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Teradyne (TER) Q3 CY2025 Highlights:
- Revenue: $769.2 million vs analyst estimates of $744.9 million (4.3% year-on-year growth, 3.3% beat)
- Adjusted EPS: $0.85 vs analyst estimates of $0.79 (7.4% beat)
- Adjusted Operating Income: $156.9 million vs analyst estimates of $144.7 million (20.4% margin, 8.4% beat)
- Revenue Guidance for Q4 CY2025 is $960 million at the midpoint, above analyst estimates of $819.7 million
- Adjusted EPS guidance for Q4 CY2025 is $1.33 at the midpoint, above analyst estimates of $1.02
- Operating Margin: 18.9%, down from 20.6% in the same quarter last year
- Free Cash Flow Margin: 0.3%, down from 15.5% in the same quarter last year
- Inventory Days Outstanding: 104, down from 114 in the previous quarter
- Market Capitalization: $23.46 billion
“Our Semiconductor Test Group delivered third quarter sales that exceeded expectations, driving company sales and profit to the high end of our Q3 guidance range,” 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.
Revenue Growth
A company’s long-term sales performance is one signal of its overall quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Teradyne’s demand was weak over the last five years as its sales fell at a 1.1% annual rate. This was below our standards and is a poor baseline 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 annualized revenue growth of 2.2% over the last two years is above its five-year trend, suggesting some bright spots. 
This quarter, Teradyne reported modest year-on-year revenue growth of 4.3% but beat Wall Street’s estimates by 3.3%. Adding to the positive news, Teradyne’s growth inflected positively this quarter, news that will likely give some shareholders hope. Company management is currently guiding for a 27.5% year-on-year increase in sales next quarter.
Looking further ahead, sell-side analysts expect revenue to grow 19.1% over the next 12 months, an improvement versus the last two years. This projection is commendable and suggests its newer products and services will spur better top-line performance.
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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 104, which is 15 days above its five-year average. These numbers suggest that despite the recent decrease, the company’s inventory levels are higher than what we’ve seen in the past.
Key Takeaways from Teradyne’s Q3 Results
We were impressed by how significantly Teradyne blew past analysts’ adjusted operating income expectations this quarter. We were also glad its revenue and EPS guidance for next quarter both easily trumped Wall Street’s estimates. Zooming out, we think this was a very solid print. The stock traded up 18.8% to $171.40 immediately after reporting.
Teradyne had an encouraging quarter, but one earnings result doesn’t necessarily make the stock a buy. Let’s see if this is a good investment. If you’re making that decision, you should consider the bigger picture of valuation, business qualities, as well as the latest earnings. We cover that in our actionable full research report which you can read here, it’s free for active Edge members.
