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Technology Stocks : Teradyne -- Ignore unavailable to you. Want to Upgrade?

To: Just_Observing who wrote (1065)	8/21/2000 8:59:14 PM
From: Maverick	Respond to of 1184

ML:Order trending up Q-Q,Catalyst demand strong,connection system acq. adds upside Excerpts fr Merrill Lynch 8/21/00 Investment Highlights: • Teradyne is tracking well toward our third quarter estimates. Bookings are on track for Q/Q growth. • Tight supply on certain semiconductor components for the J973 high end product line could cause a slight short fall on this one product line’s shipments and orders. However, other businesses, including Catalyst are stronger than we expected easily offsetting the constraints and allowing the company to meet or slightly exceed our estimates. • Teradyne announced the acquisition of two California based printed circuit board companies last week. These could provide upside to our estimates with in 6 months. • We reiterate our Buy Rating and $110 price target. Fundamental Highlights: • Teradyne is the leading manufacturer of automatic test equipment (ATE) serving the electronics industry. The main product lines include semiconductor, circuit board, and telecom infrastructure test equipment, and software testing. Teradyne is also a leading Electronics Contract Manufacturer. All cylinders are firing this quarter Our checks indicate that Teradyne is seeing strength across most of its product lines this quarter. Thus, at mid-quarter we remain very comfortable with our $850 million revenue estimate and $0.83 EPS estimate. These compare to $759 million in revenues last quarter and $497 million a year ago. EPS is versus $0.76 last quarter and $0.35 a year ago. Orders trending up versus last quarter Typically, at only the mid point of the quarter, it is difficult to judge if orders will be above the previous quarter for Teradyne as the majority of the company’s orders are usually closed in the last few weeks of the quarter. However, our checks indicate that orders are tracking above the second to all time record $826 million in orders recorded last quarter. Thus, we are comfortable that orders will be up quarter to quarter. Demand for Catalyst system-on- a-chip testers and a pick-up from test houses are among the positive factors providing visibility. Supplier constraint could result in slightly different product shipment mix this quarter Teradyne’s High end J973 logic testers use a number of custom, high performance chips. One supplier is having problems obtaining the high performance packages required to meet the record order levels the J973 is seeing. Thus, there is the potential of about a $10 million revenue and order shortfall on the J973 relative to plan. However, the strength in the Catalyst, J750 low cost testers, software test, connectors and backplanes and even solid board test demand will easily offset any J973 shortfall. In fact, we believe that an upside opportunity exists if the supplier can resolve the packaging issue before the end of the quarter. Recent Acquisitions fuel the torrid pace of growth for Connection Systems Teradyne’s Connection Systems division is an outsource manufacturer focused on providing the high performance connectors and backplanes critical to building high speed electronic systems like communications switches, routers, mass storage systems, servers etc. The company has been growing this business internally at nearly a 60% CAGR reaching the high teens percentage level. They achieve the high margins due to proprietary connector technology and backplane manufacturing expertise. Connection systems grew 24% Q/Q last quarter, and is now approaching an $1 billion annualized run rate by our estimates. Connection Systems growth has begun to strain capacity. In order to add capacity quickly, Teradyne acquired 2 California companies last week. Herco Technologies (San Diego) makes very large, multi-layer printed circuit boards (PCBs) and Synthane Taylor supplies laminates for these PCBs. Since backplanes are essentially huge, multi-layer PCBs, the very modern Herco facilities can be quickly converted to backplanes to complement Teradyne’s main New Hampshire facilities. We estimate that Herco was at a $70 million annualized run rate. Synthane Taylor mainly services Herco. Teradyne completed the deal as an all stock transaction for $100 million. We estimate that the acquisition will be neutral to our EPS estimates for 1-2 quarters and then begin to add a several cents per quarter. Investment Opinion Reiterate BUY and price target of $110. We believe the stock should regain a valuation in-line with Applied Materials and KLA-Tencor as the leaders in their respective segments at 25-30x 2001 EPS estimates. Thus, our price target is $110, based on our 2001 EPS estimate of $4.00. We have not adjusted our estimate for the acquisitions discussed above yet. We note that our valuation analysis is very conservative. We estimate that 20% of our $4.00 EPS will come from contract manufacturing (Connection Systems) were the closest comparable is Sanmina. If we value this portion of the EPS at 50x like Sanmina, that yields a $40 price. The remaining $3.20 even at only 20x 2001, yields $64. Thus, the sum of the parts valuation is $104. This is nearly our price target even with a very low P/E multiple on the semiconductor equipment portion. Another way to look at it is that investors are buying the Connection Systems business at a 70% discount at the current price level.

To: Just_Observing who wrote (1065)	8/22/2000 5:53:11 PM
From: Maverick	Read Replies (1) \| Respond to of 1184

Best Kept Secret:TCS to double '00 rev to $1B Teradyne Makes Space, Buys Companies Paul Kallender Aug 22, 2000 --- Think of Them as Teradyne’s Best-Kept Secret. electronicnews.com Twenty years ago, Teradyne's Connection Systems Division (TCS) plied its trade as a $50 million-per-year military contractor supplying GE, Westinghouse and Honeywell with PCBs. Then, in the 1980s TCS got wind of something new: the PC. As demand for consumer electronics grew, so did the Boston-based board maker, carving out about 20 percent of Teradyne’s sales. Fast forward to 2000 and TCS this year could well double last year's sales of backboard and connections business sales to $1 billion, Wayne Morrison, the company’s assembly business manager, told Electronic News today. To meet what Morrison called “the insatiable demand for bandwidth,” TCS today said it is adding about 50 percent extra capacity through purchases and new plant. The expansion comes on two fronts. First, earlier this week TCS confirmed it purchased two California-based companies. One, Herco Technology Corp. of San Diego, is a family-owned manufacturer of PCBs, which will add about 500 staff and 200,000 square feet of capacity for midtech high-volume board fabrication, said Morrison. A related purchase -- that of La Verne-Calif. based Synthane Taylor -- makes the laminate for Herco’s boards. Together, said the company, the acquisitions give TCS nearly 300,000 square feet of multilayer PCB fabrication capacity to support its backplane assembly business. Teradyne declines to reveal the purchase price; the company is believed to have paid anything up to $100 million in a stock deal. While both companies are strategically situated near Teradyne’s West Coast customers, TCS has also added 144,000 square feet of manufacturing plant in Hudson, N.H., and a new 46,000-square-foot manufacturing facility in Fremont, Calif. With the addition of these new dedicated manufacturing facilities, TCS said it will have nearly one million square feet of production space throughout the United States and Europe. Terradyne is due to grow from a $1.8 billion business last year to a $3 billion concern by the end of the year, but TCS’s growth rate could top 100 percent as it struggles to meet the demand for routers and connect technology for customers such as Alcatel, Cisco, Motorola, Lucent and Ericcson. So while Teradyne roars forward in its better-known role as a test equipment maker, TCS is not unhappy to allow its West Coast brother to take the limelight, Morrison said. More than 70 percent of Teradyne’s growth is being driven by the Internet buildout, according to the company. Morrison has a different explanation: “We are the darlings of Wall Street."

To: Just_Observing who wrote (1065)	8/31/2000 8:08:43 PM
From: Maverick	Respond to of 1184

MSDW:tgt $125, 28x '01 EPS 8/18/00 Excerpts follow: Company Description Teradyne is the largest supplier of automatic test equipment (ATE) for the semiconductor industry and a leading supplier of non-semiconductor-related test systems for software, telephone, and circuit board testing. The company is also a leading merchant manufacturer of connection systems, such as high-density backplanes and high-speed connectors. Valuation We rate TER Outperform. Our price target of $125 is based on our belief that TER should trade at 28 times estimated 2001 EPS. Despite the bookings shortfall in the second quarter (down 19% sequentially), we believe the semiconductor cycle is intact and we expect booking to increase sequentially through the remainder of 2000, at least. However, in the near term, risk factors that could keep TER from outperforming the market include: decelerating year-over-year growth rates for semiconductor companies as they begin to face tough comparisons, a seasonal slowdown in the first quarter of 2001 (especially during Chinese New Year). However, we believe tester orders will once again reaccelerate in mid-2001. In our view, TER is suitable for investors with a tolerance for the price volatility associated with technology stocks. Key Investment Positives · We believe the semiconductor cycle is firmly intact. Front-end semiconductor fab capacity continues to run at full throttle as chipmakers scramble to increase fab capacity. As more capacity comes on line in the front-end, we believe that a rising second wave of unit output will drive a re-acceleration of bookings in the back end (which includes test equipment). We believe these orders will materialize for Teradyne in early-to-mid 2001. · Leadership in communications-related chip ATE. While lithography, deposition, or etch tools can be used to produce many types of semiconductor devices, semiconductor test equipment must be specific to the final device type. Therefore, in examining the end markets that are growing faster than historical averages, we can ascertain which types of testers will most likely be in greatest demand. In the current cycle, the connectivity revolution is driving demand for communications-related products. These types of products contain large portions of chips that combine both analog and digital functionality (i.e., mixed-signal devices). Teradyne dominates the mixed-signal tester market with approximately 50% market share — nearly three times greater than its nearest competitor. As the 800-pound gorilla, we believe Teradyne is better positioned in this semiconductor cycle than less mixed-signal centric competitors. · Large global infrastructure and R&D leadership. Teradyne’s global infrastructure is the largest in the ATE industry. It is very difficult for smaller companies to gain critical mass and attain leading market shares in numerous regions. In addition, our research indicates that Teradyne spends more on R&D than any other ATE supplier. As product cycles continue to shorten and the pace of technology accelerates, Teradyne’s large R&D investment strongly positions the company for future growth. · Strong customer relationships. Once a test company gets designed into a certain product cycle, it is difficult for a competitor to overthrow the entrenched supplier. · Highly cyclical semiconductor industry. Although the semiconductor industry has grown at a CAGR in excess of 15% on average over the past twenty years, the industry is highly cyclical with year-over-year growth rates ranging from a positive 100%+ to a negative 30%. Mark Edelstone, Morgan Stanley’s semiconductor analyst is forecasting 35– 40% growth this year with the current semiconductor cycle lasting into 2002.