J.P. Morgan: Teradyne enters qualification at a third cloud giant as dual-supplier sourcing spreads in chip test equipment

What does qualification at a third cloud giant mean?

Teradyne has entered the initial qualification stage for a project with a third major cloud service provider. JPMorgan believes this may be related to the customer exploring dual-supplier sourcing to reduce risk; SoC test equipment has typically been sourced from a single supplier.
Teradyne hopes to expand its market share over the medium term, but previously said that becoming a second supplier takes about 9 to 12 months, progressing through opportunities to compete, development of a usable solution, provision of a solution consistent with the existing solution’s test results, and volume production.
According to the company, share also rises gradually after volume production begins: it reaches about 30% during a rapid catch-up phase and 30% to 70% at maturity. Several steps therefore remain between initial qualification and securing a large share.

Teradyne said its project with the first cloud service provider is at the mature stage and is scheduled to ramp up in mid-2027; the GPU customer project and the second cloud provider project are in the expansion stage, with the latter scheduled to ramp up in the second half of 2027.
The third cloud service provider remains at the initial qualification stage. JPMorgan will continue to monitor the medium-term spread of dual-supplier sourcing but sees no need for undue concern about Advantest’s SoC test equipment market share at present.

Teradyne’s third-quarter total revenue was 1.306 billion dollars, down 2% sequentially but above the Bloomberg consensus of 1.269 billion dollars. Semiconductor test equipment revenue was 1.072 billion dollars, down 4% sequentially.
Trends diverged within semiconductor test equipment: memory test equipment sales rose 42% sequentially, driven by high-bandwidth memory (HBM), while SoC test equipment sales fell 20% sequentially.
Management expects SoC test equipment sales to bottom in the third quarter and recover in the fourth, while memory test equipment sales will retreat from a strong level. Fourth-quarter total revenue guidance is 1.25 billion to 1.35 billion dollars, with the lower end above the Bloomberg consensus of 1.243 billion dollars.

Management expects memory test equipment demand to continue growing significantly in 2027, with growth in HBM, flash memory and conventional DRAM. HBM remains the main driver.
The company estimates that automatic test equipment’s share of semiconductor investment rose from about 4% in 2023 to 6% in 2025, then further to 8% from 1 January through August 2026. Management also remains optimistic about upward revisions to semiconductor investment and medium-term growth in the test equipment market.
Order visibility has also extended from the traditional 13 weeks to several quarters ahead; management expects sales could continue to grow sequentially from the fourth quarter of 2026 through the fourth quarter of 2027.