Teradyne Drops 9%, Takes Down Lam, AMAT: Trouble With Robots

Shares of chip equipment vendor Teradyne (TER) are down $3.29, or 9%, at $33.51, after the company yesterday afternoon beat

Q2expectations and also forecast this quarter higher, but came up short with its “bookings” number for new orders.

Some are digger even deeper: An apparent point of weakness was in the company’s “Universal Robots” business, a Danish company Teradyne acquired in June of 2015, for $285 million, whose results came up short relative to expectations. Its products are principally robotic armatures that can be used to automate the inspection of semi wafer surfaces for defects,

The shortfall has depressed shares of equipment peers today, despite an upbeat report yesterday from Lam Research (LRCX).

Lam stock is down $6.75, or 4%, at $161.60, giving up last night’s gains. Shares of Applied Materials (AMAT) are down $1.78, or almost 4%, at $45.67, and KLA-Tencor (KLAC) is down $1.56, or 1.6%, at $99.30.

Teradyne’s orders in the quarter were $462 million, down from the year-earlier $595 million. The company’s “book to bill” ratio slipped to 0.7 from 1.3 a year earlier. More on that in the company’s deck of slides posted on its investor Web site.

Regarding Universal Robots, Credit Suisse analyst Farhan Ahmad, who has a Neutral rating on Teradyne stock, notes that both revenue and bookings for the unit were below what he expected, at $39 million and $33 million, respectively, versus what he thought would be $43 million in both cases.

Ahmad calls this “very concerning,” as bookings growth was only 27%.

On a conference call that was held this morning, CEO Mark Jagiela and CFO Gregory Beecher explained bookings can be “lumpy.” They were higher than normal in Q1 because customers bought in advance of some price increases, said Beecher.

But still the duo had to field a number of questions about the bookings. One analyst, Atif Malik, with Citigroup, asked why Teradyne even reports the number.

Said Jagiela, Teradyne is actually asking itself that. For the moment, it cannot afford not to report bookings, for appearances’ sake:

Well, Atif, ironically we were just talking about that before the call. We’ll revisit that. The reason we continue doing it is if we stop doing it, we don’t want to create some uncertainty in somewhere or some greater speculation that people try so hard to figure out what they are, and that’s all they talk about. But it is something we should look at. And we’ve actually said before the call, let’s look at what others do. Obviously, it’s been very short lead times, booking — reporting order doesn’t do anything. It’s misleading. It’s really shipments. It’s something we will look at come to a conclusion on.

Jagiela was very upbeat about Universal Robots, stating that “we are tracking nicely to our 50% or greater annual growth target, with second quarter and first half sales up 57% and 81% compared with 2016.”

Teradyne’s June quarter delivered $697 million in revenue and 90 cents EPS, topping the average estimate for $684 million and 86 cents. The outlook for this quarter calls for revenue of $455 million to $485 million, ahead of consensus for $456 million. The outlook for EPS is for 39 cents to 46 cents, also better than the 38 cents consensus.

Some bulls were at least positive before this morning’s call.

Stifel Nicolaus‘s Patrick Ho, writing before the call, reiterated his Buy rating on Teradyne, writing that the company’s “sales continue to broaden” and its “distribution reach was also expanding.”

He concludes that “these aspects are key drivers to our more positive take of this business and the stock’s outlook (which drove our recent upgrade in the name).”