Teradyne, Inc. (TER) Q1 2009 Earnings Report, Transcript and Summary

Good morning everyone, and welcome to our discussion of Teradyne's most recent financial results. I'm joined this morning by our Chief Executive Officer, Mike Bradley and our Chief Financial Officer, Greg Beecher. Following our opening remarks, we'll provide details of our performance for the first quarter of 2009 as well as our outlook for the second quarter of 2009. First, I'd like to address some administrative issues. The press release containing our most recent financial results was sent out via Business Wire last evening. Copies are available on our website or by calling Teradyne's Corporate Relations Office at 978-370-2221. This call is being simultaneously webcast over our website at teradyne.com. Note that during this call, we are providing slides on our website that may be helpful to you in following the discussion. To view them, simply access the Investor portion of the site and click on Live Webcast, followed by Click Here for webcast. In addition, replays of this call will be available starting approximately 24 hours after the call ends. The phone replay numbers in the U.S. and Canada is 800-642-1687. Outside the U.S. and Canada the number is 706-645-9291. The pass code for both numbers is 95502319. A web replay will also be available in the same timeframe. You can find it by going to teradyne.com and clicking on Investors. The replays will be available along with the slides through the 14th of May. The matters that we discuss today may include forward-looking statements about events or future financial performance of the company. Such statements involve risks and uncertainties. There can be no assurance that the management's estimates of our future results or other forward-looking statements will be achieved. Actual results can differ materially from such forward-looking statements. Important factors that can cause actual results to differ materially from those presently expected include conditions affecting the markets in which we operate, including decreased product demand, delays in new product introductions, lack of customer acceptance of new products, unanticipated delays and in and cost and expenses relating to the implementation of cost reduction plans, and other events, factors and risks disclosed in our filings with the SEC including but not limited to the risk factor section of Teradyne's annual report on Form 10-K for the ended December 31, 2008. Additionally, those forward-looking statements are made as of today. And we do not take any obligation to update them as a result of developments occurring after this call. Investors should note that only Mike Bradley, Greg Beecher and I are authorized to provide company guidance. During today's call, we will make reference to the non-GAAP financial measures. We have posted additional information concerning these non-GAAP financial measures, including reconciliation to the most directly comparable GAAP financial measure were available on our website. To view them, go to the Investor portion of the website and click on the GAAP to Non-GAAP Reconciliation link. Also, you may want to note that between now and our next conference call, Teradyne will be participating in the Cowen & Company's 37th Annual Technology Conference in New York on May 27th, Eric May Luncheons in New York on June 4th and Boston on June 25th, and the UBS Global Technology and Services Conference on June 10th in New York. Now let's get on with the rest of the agenda. First, our CEO and President Mike Bradley will review the state of the company and the industry in the first quarter of 2009, and will review our outlook for the second quarter. Then, our Vice-President, Treasurer and CFO, Greg Beecher will provide more details on our financial performance in the first quarter and on our guidance for the second quarter of 2009. We will then answer your questions. For scheduling purposes you should note that we intend to end this call after one hour. Mike?

Thanks Andy. Good morning everyone. Thank you for joining us today. I'm going to lead the financial details on the first quarter to Greg, and will only say that our first quarter numbers were inline with our revised guidance that we gave on March 23rd. What I'd like to do this morning is to give you a picture of what's unfolding in the market, to add some color to the new market initiatives we've got in place, and to summarize the trade-offs we've made in our new cost structure. But I hope you'll take a way today some very early signs of the churn in the market. Now it's easy to overdue to these subjects since most companies in the capital equipment sector are eager for any signs of a turnaround no matter how small. So, let me give you a balance view, but one that is slightly more optimistic since our last call. It starts, of course, with the fact that our SOC test business in the first quarter was at rock bottom levels. It couldn't get much lower from a new systems demand standpoint. System bookings were about what we saw in each of the last two quarters of 2001. And you know what the market was doing there. On our last conference call, installed equipment utilization was at 50 or 60% levels in IDMs and in our '07 install base, with some products running at even lower levels. Virtually all of our customers were focused on trying to utilize existing equipment and make no outlays of new capital. As we ended this quarter, the tone is shifted a few degrees. New silicon product grams are being discussed for the second half and we're doing some slot planning to respond to it. May not seem like much, but the flattening to slightly up slope of our Q2 revenue projection is being done in anticipation of some short term CapEx moves in both IDM and OSAT customers. Now, the absolute utilization rates of customers don't just defy much enthusiasm at this point. But the fact is that utilization has started to shift upward and that's promising. We have good traction in the power management area and that's the segment plus wireless where we're seeing signs of life. Market share moves are difficult to measure in a period like this, of course, when there is so little buy. So, the real issue right now is new silicon test development. We've got between 400 and 500 Teradyne applications engineers focused on these efforts, so we ensure steady momentum to extend the share gains made over the last three years. Our Eagle Test business is fully connected at this point, so we're actively selling the ETS product line with our combined distribution system. And we've already got financial results there as we sold our first ETS-88 system in Asia. This is a compact system that can test multiple device types in parallel. And that we'd think we'll have great appeal in the low cost high productivity analog segment. In our Systems Test Group, it's steady as it goes with revenue down slightly from the fourth quarter level. Our defense business is the most stable with orders and shipments driven primarily by deployment within the air forces B depths program. Diagnostic systems had new orders in both automobile and truck sectors in Europe, and in-circuit board test saw continued low ordering from contract manufacturers in Asia. In our new market initiatives, we did book a $31 million multi-system Hard Disk Drive order in the first quarter. As you know from our last call, we have multiple units installed in Asia. And we now expect final acceptance and revenue recognition on those systems in the third quarter. As we've said before this first chunk of 2.5 inch Hard Disk Drive business has very high product in development costs, so it won't make a meaningful impact on the bottom-line. We do expect to gradually improving margin picture in this area for follow-on business as we're aggressively working on number of fronts, including lower cost components and sourcing alternatives. Since, I'm on the subject of new products, I mentioned last quarter that we shift our UltraFLEX high speed memory system for evaluation. That work is proceeding on plan despite a very tough memory CapEx environment. As I said before, we do expect to see revenue for that product in the second half of this year. I also want to comment on our earnings leverage going forward. Greg will take you through some of the details, but the central point is that we've made very significant structural changes in the company this last year. The danger and aggressive actions is of course that you mortgage a future if you make the wrong calls in the short-term. We put great focus on customer support and product development in our new structure. While we have much greater earnings leverage in the recovery, we've been careful to preserve the heart of our business at the same time that we funded some new growth engines. I'll ask Greg to expand on this subject shortly. Finally, I want our investors to know that the workforce Teradyne has shown great backbone for this downturn. Our people have adapted to some very tough choices on workforce sizing, and have joined to cutback on pay and benefits during this period. I'm grateful for the leadership at so many levels in the company, it's just a strong demonstration of there belief and our long term strategy. Now let me turn it over to Greg for the financial perspective.

Thanks Mike. I'd like to cover three topics with you today, in addition to providing details on the first quarter. Versus our guidance for Q2 which reflects a modest increase in our Semi-Test revenues offer our Q1 drop level. Second is our cash flow projection and improved balance sheet flexibility and third is our operating leverage with our current cost structure. As you can see in our release, we've increased revenue guidance in the second quarter to 120 to 130 million and decreased our non-GAAP loss to 26 to $0.23 per share. We're coming off of the bottom of some exceptionally low order rates these last few quarters and are positioning ourselves to respond to potential turns business through the quarter. We're staging some finished goods inventory, so we have flexibility in responding to the inherent mix uncertainty. Our System Test business will remain about flat to Q1 levels. Cash consumption in this past quarter was slightly better than projected. With good performance on receivables and capital expenditures, we ended the first quarter with 321 million of cash and marketable securities. Our 190 million in convertible debt offering was well received and closed on April 6th, the first day of the second quarter. So we paid down our bank debt and our operating was about 360 million in cash as we enter the second quarter. And with the significant cost reductions, we should be about cash flow neutral at about a 155 million of quarterly sales excluding balance sheet changes. We expect to exit the second quarter with about 320 million in cash and marketable securities. Our longer term intent is to settle the convertible principal in cash in 2014, and use net shares as to settle the option element. Economic dilution from the convert will occur when our stock price exceeds $7.67. The important story going forward is the leverage of our new model. As you can see in the exhibits we've provided, 15% model profits are now achieved at $275 million in quarterly sales. That's down from $345 million per quarter, just six months ago. As you quickly note that $275 million per quarter is slightly higher than our initial projections as we've decided to invest a bit more in R&D than earlier planned. With the market at a trough, it's of course very difficult to project the slope of the recovery or when we'll hit new mid-cycle revenue levels. But our steady gain in SOC test market share combined with new market revenue growth, should enables us to meet this new performance level going forward. I do want to emphasis that we believe that vast majority of our work on a cost side of the equation is behind us. It made great progress in lowering our end, verbalizing our cost. We've transferred significant amounts of work to our lower cost offshore centers, whether in Board repair, IT support, material sourcing, application engineering and so on. The demands on the organization to reduce cost while we also maintained our R&D roadmap and customer support has been immense. But I firmly believe these actions are behind us and we can focus on growth opportunities into the future. Of the 190 million of annual cost reductions, 80% are permanent reductions. And they are in place now. These reductions are consistent with the principles Mike described around growth, customers and of course cost. As Mike said, we now have a significant first round of 2.5 inch Hard Disk Drive test business in-hand. For the contribution margins, on this first run of business is very low. We do expect to make gradual progress on margin improving going forward. Now to first quarter results. Sales were 121 million and non-GAAP EPS was $0.38 loss per share. The sales were adjusted above the high end of our revised guidance and the non-GAAP EPS was $0.02 better than our revised guidance primarily due to income tax benefits. Now moving through the P&L, sales were down 74 million or 38% from a 195 million in the fourth quarter. Semi-Test account for all but 6 million of the sequential decline as the System Test Group held up better with our MilAero division actually growing with its very strong position in defense program business. Non-GAAP gross margin was 29%, down 11 points from 40% in the fourth quarter, primarily due to lower volume and higher provisions for slow moving inventory. Inventory provisions were 9 million in the first quarter versus 4 million in the fourth quarter. R&D expenses were 47.2 million or 39.1%, sales, compared to 52.2 million or 26.8% of sales in the fourth quarter. SG&A expenses were 55.4 million or 45.9% of sales, compared to 58.5 million or 30% of sales in the fourth quarter. Operating spending of 102 million was down 8 million or 7% from the fourth quarter. Operating spending should bottom up further to about 85 million once the impact of the leasing cost reductions are in place for a full quarter. This also includes the benefit of about 8 million from temporary salary related reductions. Our net interest and other expense was 5.1 million. We've recorded an income tax benefit of 7.8 million, primarily due to benefits from foreign operating losses. And our head count after the most recent 350 personnel reduction will total about 2,900 people. In the first quarter, semiconductor sales were 65% of the total and the System Test Group was 35%. Our book-to-bill ratios for the first quarter were 1.13 for the overall company, 0.83 For Semiconductor Test and 1.68 for the Systems Test Group. At the end of the quarter, our backlogs stood at 252 million, of which 67% is scheduled to shift within the next six months. We booked 31 million for Hard Disk Drive testers that are expected to recognize in revenue in the third quarter. Cash flow using operations hold approximately 72 million, net capital additions for the quarter were a million, depreciation and amortization for the first quarter was 31.6 million, including 6.1 million for stock-based compensation, 8.2 million for acquired intangible asset amortization. Accounts receivable stood at $67 million or 51 days sales outstanding. We ended quarter with product inventory of a 165 million, above flat with 168 million at year-end, as new product inventory in the quarter offset the inventory burn and write-down for existing products. As noted earlier, sales for the second quarter are expected to be between 120 and 130 million. Non-GAAP loss per share for the second quarter is expected to be between 26 and $0.23, and excludes amortization for acquired intangibles, the non-cash amputee interest on the convertible debt and any special items such as further investment write downs. Now turning to the P&L details. We expect gross margins to be between 36 and 38%. R&D should be between 30 and 32%. Then SG&A should run between 38 and 41%. The tax provision should provide a benefit of about 2 million. So in summary we have significantly improved our operating leverage, strengthened our balance sheet, and we're also making very good progress on our new market expansion plans. Now, I'll turn the call back over to Andy.

Thanks Greg. Allison, we'd like to take some questions please.

(Operator Instructions). Your first question is from CJ Muse with Barclays Capital.

Yeah, good morning. Thank you for taking my question. I guess first half, I was hoping to run through similar line items for the March quarter. In this Semi-Test product area, can you shed some light on core SOC versus Eagle versus the memory side?

This is Greg. In the first quarter, the flash memory was very low. It was about a million dollars. And the SOC, we'll speak to in total, the SOC in total was 64.5 million. I'm sorry. I just forget bookings, excuse me. The sales, I apologize, were flat for 2.5 million and Semi-Test was 76 million. So the Semi-Test in total was 78.5 million.

Okay. And then on the Semi-Test service side?

Semi-Test service was 38.2 million in the first quarter.

Okay. I can figure out the rest after that. All right. And then, I guess second question on the convert front, can you talk about mechanics of the hedging and how that can impact both cash flows and the income statement?

Okay. I mean first say that how it works economically. Then I'll get into the income statement. There are 34.8 million shares that are connected to the convertible note, and that's based upon 190 million divided by 5.475. And those shares based upon the convertible note hedged that we entered into, we basically would have economic dilution if the stock gets above 7.665 at maturity in 2014. And that's different than how it's accounted for, but let me just make sure that's first understood. Again 34.8 million shares and if the stock goes above 7665 is basically an option. So if stock close at 10 bucks, lets' just say it is a gain of $2.30, times 24.8 million shares and we could settle that with net shares in the future. Now from an accounting basis, it's gets a little more complicated in terms of how the EPS works. And that depends upon what is our EPS level, when is it dilutive not dilutive. And I think it's a little too complex to get into that in this call. We can certainly do that offline.

Okay. And then I guess last question, you talked about slotting for the second half of 2009. Can you talk about where you are seeing strength and whether that is IDM based or OSAT based?

The slotting that we're seeing, that we're doing is we're talking about second quarter slotting. Our capacity planning obviously is relatively short, given customer lead time requirements in backlog. But it's in areas like wireless, power management those of the two main ones where we're seeing some capacity planning activity in our customer base. The write-down between IDMs and the OSATs or the specifiers in the OSATs this quarter was 75-25. Last quarter was 85 IDMs, this quarter 75 IDMs. And the OSATs were 15%, last quarter, this quarter 25% because of the total changes. The important thing is the, the OSAT actually have a slight uptick in their Q1 bookings. We don't forecast bookings; we don't break down what's happening but both sides IDM and OSAT are doing or participating in the slotting activity.

Okay. Thank you.

Your next question is from Brett Hodess with Bank of America Merrill Lynch.

Hi good morning. I am wondering if you could talk a little bit about the -- on the SOC side you talked earlier about the applications and the application wins. And if you could give us an update on what you're seeing there in terms of new design wins and the timing that you think those will translate into customers needing to at least buy their initial units for capability.

Brett, at such a low level of activity that when we were talking in this context that it tends to get it exaggerated but I'll give you some flavor of what's going on in the first quarter and what we are seeing going forward. But the segments that have held up for us have been the strongest in the first quarter and again it's very, very level, have been in RF power management and the microcontroller segment. As we go forward in this coming quarter, the quarter we're in now, we expect some strengthening in RF, additional strengthening in power management, image sensor, which has gone down to pretty low levels in Q1, is going come back a little bit. And then the automotive sector, we expect to see some demand. Now the design-in activity that we are working on over these last 13 weeks, we've had some activity and some design win activity at the socket level in automotive power, power managements, the mobile space, medical instrumentation, embedded flash. So those are the places, but I wouldn't want to -- as I have this discussion, it's so anecdotal its socket-by-socket at this point. We just have a lot of activity going on in that area, because we know that the long term share gains will come as some of those sockets in our customer's base win in the marketplace. But those are the anecdotal points that I can share with you.

And a quick follow on if I could, if you look at where you're in those areas, you are getting some socket wins, do you think that when you get -- when we do get growth whenever that is but hopefully sooner than away ahead, that the mix of your semiconductor test business will be different in such a way that it will change the margin profile? In other words, do you think you'll have a higher mix of FLEX and Eagle test and some of the other power management areas versus say some of the traditional higher end SOC or vice versa that would have an impact on what your margins would like positively or negatively?

The short answer is no. I don't think so. The margin -- we are not anticipating a big mix shift. We got 2000 FLEX products out in the marketplace now. 3000 J750s, I guess 1400, 1500 Eagle Testers. So I think we're not going to see a big margin shift as -- nor are we anticipating a big shift in the mix on those products. I guess the important point to say is that the addition of Eagle and the Nextest products does not rationalize or change the product set that we're offering. So we are not taking products out of the market as a result of that, and we don't think we're going to get cannibalization across the boundaries, because they're basically a complementary products. So the short answer is that I don't think we're going to see much in terms of mix shift and therefore margin shift.

Okay, thanks for taking my questions.

Your next question is from Gary Hsueh with Oppenheimer & Company.

Hi guys, thanks for my questions. Greg, I am just looking at your guidance. I am not sure if I really got a great explanation on exactly why gross margin is jumping up 10 percentage points for at the mid-point only a 4 or 5% increase in revenue. I mean that's a monster moving gross margin, and if you can kind of talk around and explain how we're getting at 36-38% gross margin on 125 when we only got 29% gross margin on 120, that would be helpful?

Gary, the single biggest reason is the inventory provisions we took in the first quarter were about $9 million. And we're not anticipating taking a charge of that magnitude at all in the second quarter. So let's just say there is 7 million or so from lower inventory provisions and then we're going to take out further operations cost consistent with some other cost cutting we've done with other lines, that is latest round of letting go about 20, 50 people also -- the operations group and some of the as well. I apologize for the phone.

No, I heard you, no worries. So just to be clear, I mean there's really nothing else happening like beneficial mix shift to more instrumentation cards in the June quarter that would not make that 36 to 38% gross margin number on 125 sustainable. I mean that is a hard sustainable number moving forward in our models in September and December?

It is Gary, it is. And again the biggest piece is from some other revisions. The only thing I'm not changing my answer, only I just want to add is when there are brand new products which we're introducing this year, if they ramp faster, generally speaking, the new products have lower margins at the outset but then they work their way to attractive margins. So that's the only other thing I'd say that depending upon when some of the new products that could impact the margins a bit at the outset.

Okay. Great and just to kind of understand the mechanics here in terms of bookings of revenue, Greg you mentioned -- we haven't recognized any revenue from HDD test, you said that would recognize the majority of the revenues in Q3. And so when I look at your bookings numbers and with no HDD test contributing to revenues in Q2, is it safe to assume basically the rest of the core organic business in terms of bookings is going to hit roughly around 120-130 in the June quarter? And then in terms of revenue in the September quarter, we would just basically on top of that, attack on another $30 million, so something like a 150 for the September quarter is for revenue. Is that kind of how -- just because of the lumpiness of this 30 million HDD test, just want to make sure I got the mechanics of how that rolls out in terms of revenue in bookings in June and September?

Gary, you will see the -- we're anticipating that revenue in the third quarter, as we've said and as you've reinforced. The revenue for second quarter, but I don't want to comment on bookings but the revenue in the second quarter that we're projecting is a function of backlog and of a view that we're going to see most strength there than we saw in the first quarter. That is a pretty low bar since the first quarter was so low. But totally it is moving up. Our early quarter demand is more favorable than it has been in the last two quarters. So that's what's behind the 120 to 130 is some strengthening in the semi test space. But I think you're correct to think about the addition of the $30 million of hard disk drive tester on top of whatever the run rate is for the standard business in Q3.

Okay, great. And just a final question, now that we have gotten one kind of inorganic growth mechanism or driver here materializing, what about the other two? I was wondering if you can give us a little bit more color or light on what the potential range of revenue contribution would be from the DDR3 high speed DRAM tester in the second half. And any commentary on LCD driver IC testing. I feel it's getting relatively tight on the panel side. Just was wondering if there's any hope for the LCD driver IC tester actually contributing to revenue this year as well.

In reverse order, LCD driver is still very quiet for us. So there's not anything that we're commenting on in terms of an uptick there that we can see in the short term. On high speed memory area a little more color than when we talked last quarter and that is a reinforce that we're anticipating revenue in the second half. We are not projecting the size of that revenue because there is a lot of turmoil in the memory CapEx space and the heavy pressure the customers are exerting on their own installed base to try to reuse equipment. The added color is as I said last quarter we have evaluation unit in the field now with a target customer. And that system was a baby unit that's been upgraded to full production configurations. They are evaluating now the product that they would put into production. Hopefully that will occur in the second half of this year but no sizing in terms of revenue forecast on that. We will have to wait until we get out into the third quarter to be able to comment in that area.

Okay, great and by the way Greg, great job here on execution. Thanks a lot.

Okay. Thanks Gary.

Your next question is from Satya Kumar with Credit Suisse

Hi, just a quick clarification on the DRAM testing, could you say on -- the what's the depth of your customer engagements right now, is it at multiple sites or is it at one site how is it -- how should we think about that?

Satya, just a tiny bit of what -- we're talking to lead customers in the space. What we're focusing our energies on a couple of those customers in the early going here to make sure that we're sizing the product and the performance evaluations are done thoroughly with those target customers.

And will these customers have systems right now that are production systems, is at the sales right now?

No we have system out with our initial partner.

Okay, and the other one is sort of an engagement now?

Right.

Okay, on the hard drive business, you said that the margins initially will be low. I was hoping if you could help quantify that. Is it sort of breakeven gross margins or how should I think about that relative to your current margin levels?

You should think about that as breakeven gross margin on this first $30 million and we would expect to improve that with subsequent buys. But the first round is breakeven. We met an incredibly aggressive schedule and had the downside of doing that was we didn't optimize enough on our costs. So we've gotten much of the product performance and the design-in, but we felt short in cost and we're of directing that now.

And if you look at the subcons that are reported so far, they are guiding 60 to 70% of CapEx to be spend with second half. You mention that there was a little bit of uptick in the subcon bookings, but its still pretty low levels or an absolute level. Is there much of subcon revenue that's baked into your second quarter, how is the mix in terms of revenue IDMs have gone in the second quarter?

It tracks what the bookings mix was in the first quarter. And likely would be similar to that. I honestly don't have the breakdown from a bookings standpoint. But we're... as you said, it's at a very low level now. Our customers are fabulous IDM customers. And so we'll expect that any capacity expansion would be spread across the IDMs and the OSATs proportional to the way we're been booking.

Okay. And lastly just a small question, what should be modeling for interest expense and taxes in Q2?

For Q2, taxes will be about a $2 million benefit and interest would be about $2 billion as well.

Thank you.

Your next question is from Jim Covello with Goldman Sachs.

Great. Good morning. Thanks so much for taking the question and congratulations. Couple, couple kind of follow-ups to other questions that have already been asked. Just relative to additional customers for the DRAM Test segment, I heard what you said about where you are with the first couple of customers. But what's the reasonable timeframe to expect orders from multiple customers in the DRAM Test segment? Is that H2 '09 or is that more of the first step 2010 phenomenon?

Jim it's probably a 2010 phenomenon.

Okay. Okay. For multiple customers or just for even for the initial customer?

It really depends on the rate at which the acceptance work and the qualification workers on, combined with the rate at which they are ramping. But just to try to be straight, the efforts right now are very, very concentrated. And we think the long-term success is to do well with the significant customers that we're currently targeting. We'll obviously standout, but I think it's fair to say that the standout probably comes late in the year and into 2010.

Okay. That's helpful. And then I heard what you said about wanting to be careful to size, the revenue opportunity in the segments in the near term. But can you help us understand maybe at the peak of the next cycle, the magnitude of one versus the other HDD Test versus the DRAM Test? I mean which one do you expect to be bigger at the top of the next cycle whenever that is?

That's a good question but a tough one. The Hard Disk Drive, both are very concentrated markets. And therefore, there... it's just a few customers that represent the total market. In Hard Disk Drive, the forecast for growth in the 2.5 inch drive space are 40% plus compound annual growth rates. We think that the tooling in that space could be sized anywhere from a market standpoint between a 100 million and $200 million a year, maybe it's a little bit below a 100 at the low end and up to 200 at the high end. And in Hard Disk Drive based upon the trajectory of DDR3 and so on, that is probably the 200 plus, 200 to $400 million per year as you go out and get far enough out in the growth cycles. So, depending upon our ability to penetrate those markets, just probably twice the buying, but one and a half times the twice the buying power in the high speed memory space.

Great. Terrific. Well, thank you so much and good luck.

Thank you.

Thank you.

Your next question is from David Duley (ph) with Steelhead.

Yes. Thanks for taking my questions. I was wondering if you could give us the breakout of the orders and revenue during the current quarter as a housekeeping question. And then if you can talk about what you think your market share was in SOC and in flash 2008?

Okay. Do you want do the breakout Greg, I'll get the market share.

Okay. The breakout of bookings in the first quarter was SOC Test was 64.5 million, flash was a million, and STG made up the balance. The sales were 75.9 million for SOC test, 2.5 for flash and STG made up the balance.

And then the, I would imagine given your commentary that both of your bookings and the sales number for SOC product inside this was what 15, 20 million?

I'm sorry, I'm not sure I understood that.

The actual product side of SOC I imagine, because the service number is pretty big number, that these numbers were as you've mentioned rock bottom earlier in your commentaries.

The product side of Semi-Test was $40 million in the first quarter.

Okay. Anything else on the, David, I'll talk about market share?

No. Yeah, I'd love to hear the market share numbers.

The share numbers I'll break it down between SOC and memory as you asked. And I'm going to put all of Nextest and Eagle Test and Teradyne altogether. One quick front-end comment as I think I said last conference call. In this last year, the estimates we have for market share movements is that the companies that gain share in the SOC space were Teradyne, Verigy and Eagle Test. And that in memory also Nextest gain shares. So we were able to combine with some good share gaining momentum place with Nextest and Eagle. Total share position as we exited '07 was about 36%. And as we exit '08 we put everyone together we've got about 42% share in SOC. And our share position in memory is last year I remember the memory market last year went to the floors. So went from over $1.5 billion market to about half that. And our share positions was about, we think it's about 8% in that overall market space, and obviously higher in the flash portion.

Okay. One final question is obviously with the semi bookings number on product side being 40 million. You could easily see a very large sequential increase in this upcoming quarter because the number is so low. Can you give us any guidance on what to book-to-bill number might be in the upcoming quarter?

Sorry, I can't do it. It's not. The main reason is the visibility is just so short that it's hard to do that. And as you know we don't guide on bookings, but we do guide on the revenue projections. So it's very tough to do that with any accuracy.

All right. Thank you.

Your next question is from Timothy Arcuri with Citi.

Hi. Couple of things. I would think of that slug-off HDD bookings in March was somewhat a one timer. So, can you kind of tell us what the right sort of run rate there is moving forward on that business?

That is hard to say. And the reason is that the customers that we are engaged with our, most of the customers do big slugs of tooling at a time. So, it's very tough to project how much that could be on an annual basis. I think if they tool on an annual basis, it could be about this level. Single customers could account for anywhere from 20 to $40 million per customer in a year. But we honestly don't have enough track record here with those customers to see whether they buy, they are going to buy in a different pattern than once a year or twice a year. We'll just have to wait and see how that works out. But we do know that the individual, certainly the individual order we got at the front end was a large multi-system order. And it looks as if that pattern is going to continue going forward versus the Semi-Test market where you get one or two systems at a time.

Okay. So that was just so unclear, so that was from one single customer, right?

That's right.

Okay. And do you have penetration at customers beyond that customer?

Not yet.

Okay. And can you give us an update on the lawsuit there, I believe that there is a lawsuit going on. Can you kind give us some color on that?

Unfortunately, I'm going to give you a pat answer on that, and that is that we're engaged in that and we are planning to defend our position as that moves forward. I can't comment with any color on it beyond that.

But I'm just wondering is it kind of going to trial, you know what stages of that?

It's at the discovery stage at this point.

Discovery, okay. And then can you, I found your DDR3 tester numbers interesting. If you compare that tester opportunity for DDR3 relative to say kind of a Probe Card opportunity, and you look at what the delta was at DDR and DDR2, the tester opportunity was much bigger than the Probe Card opportunity at DDR and DDR2. Yet based on the numbers that you gave, it seems like that tester opportunity is going to be about the same as the Probe Card opportunity at DDR3. Is there are some sort of structural dynamic that's happening, that's making or that's kind of cannibalizing the tester opportunity vis-à-vis the Probe Card opportunity at DDR3 versus say DDR or DDR2?

It's a thing that clogging the picture. I know the question was asked to about get passed the cloud and into the normal run rate. So, I don't think we're adding anything to this that says here is a fundamental discontinuity that's occurring. It's more the how customers use their installed base and reuse their installed base, is a factor. And that is accentuated in the current market. We don't know for sure how that plays out long-term, but we think that market is a multi $100 million market that we can participate in.

Okay. I guess I'm just wondering weather you feel like our DDR3 that it's more important that you have to move into the probe card business or you have to have some sort of a foothold in the probe card segment because it becomes much more important?

Not at this point.

Okay. Thanks.

Your next question is a follow-up from CJ Muse with Barclays Capital.

Yeah hi, thank you. I guess quick question on the OpEx side. Big variability in your guide, I guess given the range of revenues but looks like 82 to 95 million -- I guess I was expecting further cost downs looking into the second half of the year. Are there one-time charges in there or I guess could you help me think about modeling the OpEx through the second half of the year?

Sure. The OpEx, let me give you just a little bit of history. The OpEx in the fourth quarter with Eagle and Nextest was 111 million. In the first quarter we took that down 9 million to 102 million. Our second quarter guidance would suggest OpEx of about 88 million. So we're taking it down about 14 million. And I say, I suggest 88 because if I took the percentages and apply them to the high and low range, I'd find that the high percentages against the low revenue number is 88, and the lower percentages against the high revenue number is 88. So I conclude that 88 is what we are signaling. And we said in my prepared comments that we probably get to about mid 85, mid 80s once the cost reductions are in for a full quarter. Some of the reductions, a big chunk of them took place early in this quarter, but so we didn't get the full benefit in the second quarter. The full benefit we should get in the third quarter. So we'd expect the third quarter to be at about 85 million as well as the fourth quarter. I should also add that, this 85 million of OpEx that we get to in Q3 and Q4, this is the level we're at when we're living on flooded water. So if business does come back which we'll hope it does, the OpEx will come up a bit because the variable compensation will kick in and/or some of the salary reductions. It's always possible we reverse those. Our OpEx model when we get to healthy profit is about 95 million. So you can think about a range from 85 to 95 and here if it could be higher than that for above model profitability.

That was good. And then just last question. How should we think about a tax rate for 2009?

I wouldn't think about a rate because I don't that will help you. I think what I would plan is when these losses will probably have a small benefit say $2 million a quarter or credit. And I think when we turn into profitable times in the future, the tax rate is going to be very low, because our NOLs are going to be quite large. So I think for the foreseeable future, it's either small credits or it's very low tax rate and maybe the expense when we turn profitable is 10%, 15%, it's somewhere in that range.

Very helpful, thank you.

Your next question is from Auguste Richard with Piper Jaffray.

Hi, thanks for taking my question. Can you talk about going forward what you see in terms of incremental test requirements DDR3 and sort of the socket you're working on, what's the incremental driver to drive new demand?

You are talking about our high speed memory space.

Yes or either high speed memory or SOC or DRAM, where do you see the requirements in devices driving the need to upgrade the tester base?

Well in the SOC space, I think in the memory space, it's speed and density. In other words, parallelism and higher speeds for the DDR3, DDR4 generation of cards and the graphics DDR parts. Those will all demand higher performance going forward on speed and on density. I don't think that's a new theme, that's just the continuation of what the memory market has been experiencing over the generations of parts. In the SOC space, it's an integration story. There is two things going on, and that is higher integration so that the range of instrumentation required is lighter and lighter. At the same time our customers are doing tremendous amount of work on increasing parallelism for both simple and complex devices. So this discussion that we've been having over the last year that has been in the RF space and port count and parallelism is mirrored in all of the instrumentation that exists inside the systems. So we expect to see a continuation on that access. At the same time the lower end, lower cost products, the products that have smaller footprints and smaller capital costs, do have a place and a significant place in the 750 in our product line and the ETS product line from Eagle I think prove that with almost 5000 of those testers in the world. One of the things that is emerging at that low end, we've got an interesting offering in the ETS product space which is called ETS-88 product, very new product that Eagle has just brought out. First orders are now in, and it's -- think about it as four-in-one low end tester. In other words, it's really 4x, four testers can operate independently and the test different devices all at the same time. So that's another innovation but it carries on the theme of handling a variety and handling things in parallel. So I think that's the general theme you're going to see. The good news from our end is that we've got consolidation of platforms now, and we're able to provide more of our engineering in instrumentation going forward versus platform investments.

Got it, and then in your installed base that's out in the field, as demand improves what do you think the mix is between upgrade versus new chassis? And if you could just kind of help me, as we recover is there an installed base or chassis that could just get new instrumentation and sort of new and upgrade cycle on the backend or do you really need more new chassis and we talk about it across the various markets that will be helpful.

Well, there's definitely going to be additional system or chassis as you call it, capacity growth. Right now that is extremely -- but as the unit device growth turns back up, there would be added capacity from a chassis standpoint. And the installed base will always be available for this upgrade. I don't think there's a ratio that you can put on that, but the installed base does capture -- Greg, do you have a feel for what percentage that is --

I think upgrades are 15% but they can vary quite a bit depending upon volumes plus --

Right volumes slip to denominator.

Okay, thanks. And then just real quickly, is there going to be a restructuring charge in the second quarter and how large might that be?

Yes, there is a restructuring charge in the second quarter, that charge is about $12 million. And there is also a charge for inventory step up, that's purchasing account. But the restructuring charge is 12 million.

Got it. Thanks so much

And operator we have time for just one more question please.

Your next question will be from Mary Lee from Stifel Nicolaus.

Hi, this is Mary for Patrick. Do you have the stock option expense for the quarter?

Hi, yes we do.

Hang on Mary, just one SEC.

Give us one second. We may have to call you, you can pick it offline. I am not sure I have the exact number in front of me.

Okay. Sure it's fine. Thank you.

Okay operator. Thank you and if certainly there are further questions you can call me. This is Andy Blanchard directly at our office here in North Reading.

Thank you everyone. We will talk to you next quarter. Okay thank you.

Thank you all for participating in today's Teradyne Q1 2009 quarter update conference call. You may now disconnect.