Good morning. My name is Dennis and I will be your conference operator today. At this time I would like to welcome everyone to the Teradyne third quarter 2008 earnings conference call. (Operator instructions) I will now turn the call over to Mr. Tom Newman, Vice President of Corporate Relations. Please go ahead, sir.

Thank you, Dennis. Good morning everyone and welcome to our discussion of Teradyne’s most recent financial results. I’m joined this morning by our Chief Executive Office, Mike Bradley and our Chief Financial Officer, Greg Beecher. Following our opening remarks, we’ll provide you with details of our performance for the third quarter of 2008 as well as our outlook for the fourth quarter. First however I’d like to address some administrative issues. The press release containing our most recent financial results was sent out by a business wire yesterday evening. Copies are available on our web site or by calling Teradyne’s Corporate Relations office at 978-370-2221. This call is being simultaneously webcast over our web site at www.Teradyne.com. Note that during this call we are providing some slides on our web site that will summarize and reinforce some of the highlights. They may be helpful to you in following the discussion. To view them, simply access the Investor portion of our 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 call replay number 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 68771031. A web replay is also will also be available in the same timeframe. You’ll find it by going to www.teradyne.com and clicking on Investors. The replays will be available along with the slides through the 6th of November. The matters that we discuss today may include forward-looking statements about events such as the pending Eagle Test acquisition or the future financial performance of the company. Such statements involve risks and uncertainties. There can be no assurance that management's estimates of our future results…

Thanks, Tom. Good morning everyone. The worldwide economic upheaval is obviously taking a toll as you all well know. This is reflected in rapidly changing projections for semiconductor and semi-cap companies going forward. You also know that semiconductor test customers have been running a very tight CapEx shift throughout 2008 but the events on the world's stage have put a big reset into those already cautious plans. For us, this is shown up as a quite dramatic downshift in semi-test demand from our OSAT customers in the third quarter. We've seen a $100 million sequential drop off in SOC orders in that sector. In fact, nearly the entire decline in company-wide bookings has centered here as our IDM orders grew 6% sequentially. Now, memory orders dropped by 13% in the quarter and our systems test new orders fell $1 million or 2% sequentially. You'll recall that our OSAT customers had booked over $130 million with us last quarter so they were in for a likely town tick. But it's clear that their declining revenue forecasts have caused them to drastically cut their CapEx budgets. You can see from our revenue guidance that we've dropped our revenue projections accordingly, as we don't expect any resurgence in the short term and because we expect the consumer spending outlook to also effect the IDM sector. So let me get on to what we're doing going forward. First of all, we intend to press ahead on key investments in SOC tests and in our new Magnum II flash memory test product that has held up well these last couple of quarters. We'll also go full speed ahead on the new product investments into DRAM and hard disk drive test, where we're projecting design ins and revenue during 2009. At the same time, we're going…

Now, during our upcoming Q&A session, I do want to restrict our discussion in three areas. First, we won't go into any of the details surrounding the Eagle Test acquisition except to say that we expect to close the acquisition sometime this quarter. I will say that our views on the Eagle Test products and the organization that backs them remain unchanged and we do look forward to the combination. Second, we don't intend to comment on any intellectual property issues surrounding our hot disk drive initiative other than to say we believe we're on solid ground in this area. And finally, given the rapidly changing long-term landscape, it's really not possible to make new product revenue estimates for 2009. I do appreciate your consideration in not addressing questions in those three areas. In summary, there's no getting around the reality of tough times ahead, but we intend to stay focused on our market expansion strategy in semi test and in our systems test group. Obviously, we need an improving P&L plus a solid balance sheet to back that up so I'll turn it over to Greg to outline our game plan on the financial front.

Thanks, Mike and good morning, everyone. Before I get to our third quarter results and our guidance for the fourth quarter, I ‘d like to first talk about our break even reduction plans in our cash and balance sheet strength following the completion of the pending Eagle Test acquisition.

However, given a demand uncertainty and consumer spending concerns, we’re instituting further cost reductions of approximately $50 million on an annual basis or $12 million on a quarterly basis. In quarterly break-even dollars, this translates to about 20 million a quarter. This would improve our mid-cycle operating income lined by about 4 percentage points, so these new actions will take us to a quarterly break-even of about 250 million or less after closing on and including Eagle Test, which we expect will add about 20 million in quarterly break-even dollars. This plan is front-end loaded and is expected to be fully completed by around the middle of next year. The majority of the break-even reductions will be in operating expenses. Before considering Eagle Test, our operating expense model will be reduced to about 110 million a quarter from 118 million a quarter. With these planned break-even reductions, and again without Eagle Test, we would need about 315 million in quarterly revenue, rather than the 345 million to achieve our model 15% operating income profit rate. Adding in Eagle Test, we would need about 345 million or less in mid-cycle revenue to achieve our model profit rate. I want to emphasize, though, that despite these plan reductions, we are fully maintaining our investments and growth initiatives in memory and hard disk drive. Some of these break-even reductions, specifically the ones that begin to occur in the first half of 2009 have been planned for some time, as they are tied to completing major engineering projects in 2009 that expand our served market. But, the larger portion of these cost reductions will begin now, in this quarter, as they are tied to squeezing out additional costs across the company that are not essential to maintaining our growth plan. Now, I’d like to…

Thanks, Greg. Dennis, we’d like to now take some questions.

Yes, sir. (Operator Instructions) and your first question will come from the line of Timothy Arcuri with Citi.

Hi, guys. This is actually Brian Lee calling in for Tim. Just had two quick things. First, is there any assumption of HDD test revenues in Q4. And if not, can you give me a sense of what the revenue opportunity there is over the next few quarters and for 2009?

The answer to your first question is no, there’s nothing in the fourth quarter and we’re not projecting, as I said earlier, what the estimates are for 2009. The key issue for us is to secure some significant lead customers in 2009 and it’s hard to predict what that level of revenue would be. But, we want to get a substantial position with a lead customer in that space.

Okay, maybe if I could ask it a different way, outside of magnitude, can you give me a sense for maybe what you’re thinking with respect to timing of first revenue in that business?

We would hope to be able to recognize some revenue in the first half of next year.

Okay, so there’s really no opportunity in Q4 to recognize revenue?

No.

Okay. And then secondarily, given the capacity cuts that we’ve seen in DRAM and the incremental push-outs in the DDR3 RAM, it would seem the revenue opportunity for you guys next year is smaller there than what you might have expected entering this year. So does that really do anything to change your development efforts in that area?

It really doesn’t because the phase we’re in now is in close development work with target customers and despite all of the turmoil in the general market and certainly the upheaval in the memory market, the new design work is really where the intensity remains with our potential customers. So, there’s been no relaxation on that end from our customers and obviously, that puts the pressure on us to keep the engine full tilt.

Okay, thanks guys.

Your next question will come from the line of Michael Chu with JP Morgan.

Hi, guys. Thanks for taking my questions. I was just wondering if you could provide a little bit of color on where utilization rates in your equipment were at in third quarter and how they’re trending in the current quarter.

. : The OSATS have held up. I think they moved down 2%, 2 or 3% and the IDM’s utilization rates have dipped in our install base by the end of the quarter, compared to the end of second quarter; five, six, seven points, about that amount. So, a bigger move and paradoxically, that move is in the IDM’s versus the sub-cons because the OSAT’s really have the biggest drop in the bookings rate.

Do you think with the pull back that you saw in the OSAT orders that they either maybe over-ordered a little bit in previous quarters or do you think they’re just more aggressively managing inventories or rather, maybe their fabulous customers are managing inventory a little more aggressively than the IDM’s?

I think it’s a combination. I think they always feel it first, number one. Number two, they have really moved in the last year and a half, almost two years to a much tighter business model where they don’t add capacity in anticipation of demand. And number three, the lead times that we’re able to supply and the industry’s able to supply makes everything really operate on a faster cycle. So, I think all of those things together mean that the OSAT’s, when they move, they move very, very quickly. Your other question have they over-bought? As we said in our last call, we had our highest OSAT demand in the second quarter, the highest that we’ve had in at least two years, maybe three or four years, about $130 million. So that was a substantial bite of capacity that they put in place in the second quarter and we were anticipating it to come down, but obviously it’s come down more than that.

Okay, thank you very much.

Yeah.

Your next question comes from the line of CJ Muse, with Barclays Capital.

Yeah, good morning. Thank you for taking my question. First off, I was hoping you could provide a breakdown of the semi test revenues. And if you could give us SOC memory and then what the service revenues as a component of semi tests, that would be great.

Okay, let me start with total semi. Total semi in the third quarter was 243 for revenue and the flash piece of that was 10 million. You want semi service or total service?

Semi service and total.

Okay. Total service was 68 million and semi service was 49 million.

The second question is at 250, including Eagle, hard to know exactly where the trough is there , 25, 30-ish, gets you ex Eagle at around 225. And considering the weakening utilization rates that you just talked about at IDM’s, do you think you’re cutting enough in terms of break-even? Or do you think that you’ll get back up to that level in the next quarter or two and so, that’s the right break-even level?

I think we’re cutting enough and we’ve thought about this many different ways. We’ve thought about from what’s a reasonable estimate of the market side for SOC tests and we think we’ve been conservative estimating on a normalized basis that’s about 2.4 billion. When you look at what our share is we do the math on that and we see that we get close to about 230 million of revenue and we had some flash business in, that’s reasonable, say 20 million. Our STG business, 50 million and then some revenue for our new initiative, such as high speed memory, we see that it’s very reasonable on a normal market that we would be at 315. I think in the short term, the question is what does the market look like? But, I think over a mid-cycle, I think we’re closer than ever to achieving our mid-cycle revenues and achieving our mid-cycle profit and that has the assumption of a $2.4 billion SOC test market, much lower than what we’ve modeled in the past.

And just to reconfirm, that 250 target, including Eagle, that also includes the infrastructure necessary for HDD and high speed memory?

The answer is yes. I want to make one clarification. With Eagle the model would be 345 revenue and we just add Eagle to the numbers I just gave you and you’d see that 345 is quite achievable given Eagle Test’s performance. On HDD, the HDD spending is in this model. We have not put any revenue in this model yet because it carries a different gross margin profile. We will grow through that when we first record revenue for HDD, we’ll take through the HDD model. It’s a little different than the semi test model. So, we’ll explain that to you carefully when we get there.

Okay, great. Thank you.

Your next question comes from the line of Gary Hsueh, with Oppenheimer and Company. Gary Hsueh -Oppenheimer & Co. : Yeah, hi, thanks, just a quick question for me. We’ve seen a few quarters here in the past during inventory corrections where there’s been a pretty big, 30 % gap between orders and revenue. So it’s not the first time this has happened. But I was just wondering if you could describe any similarities, dissimilarities with an inventory correction in ’04 and also a similar situation in Q3 of ’06, where you basically saw bookings race to the bottom in one quarter. And in both of those cases, bookings really stabilized in Q4. So I’m just wondering if you could help us understand within the context of an inventory question in ’04 how this is different and should we be expecting somewhat of a stabilization in orders and what the order forecast or scenario looks like realistically for Q4.

Gary, I think it’s hard to make the comparison because the overall worldwide climate is so different, now. You know, we’re talking to customers daily, and their visibility is extremely uncertain. So I don’t know how to apply the metrics of the past to this. I just think we’re in a different world right now, that’s going to be unstable for a while. We’re battening down the hatches, here, because we’re focusing on what we can do. But I don’t have a good or at all clear crystal ball how things will go. I think it’s going to stay very tough and our customers are saying, you know, through the first half of 2009 it’s going to be tough sledding. So that’s why we’re gearing up for that. Gary Hsueh - Oppenheimer & Co.: Okay. Just another way to ask the question, what do you think tester buy rates are, if that metric means anything, here, in the second half. How much below one is it?

Well, it all depends on what the last quarter is, but through this year it has trended down, and we’re talking about buy rates that are in the 1 % level. I think you know it breaks through one in the fourth quarter, likely breaks through that 1 % level. So I think everybody’s in the predicament of being able to ask, what’s the resolution to that? In the past when it has dipped down, it’s made a comeback. And obviously buy rate has trended down over time. But it’s clearly below even the 1.5% level at this point. And memory, as you know, has come down more sharply than SOC, but SOC is around 1 % right now. Gary Hsueh - Oppenheimer & Co.: Okay, thank you.

Your next question comes from the line of Satya Kumar of Credit Suisse.

Yes, hi, thanks. It feels like 80 to 90 % utilization rate you talked about for stock call-ins is much better than the 50 to 60 % utilization rate some of the largest foundries are talking about or could get to in Q1. How do you explain the difference? Are we at the cusp of some pretty sharp declines in subcon utilization in Q4? Or do you think fundamentally the capitalizations here have been relatively more rational at the Subcons for test equipment than they have been at the foundries or front end?

I think it’s the latter. I think the challenge of 2008 wasn’t presented here in the third quarter, in the fourth quarter. It’s been a high productivity focus throughout the last three quarters. Our customers have been driving utilizations way, was above levels that they’ve had in the past. They’ve been buying at lower rates; they’ve been implementing parallel test; they’ve been pushing productivity hard. So they really held back over the last three quarters. And I think that’s different, certainly different this cycle from the last cycle with regard to how the test, the back-end test community has operated. Having said that, I think we’re in for continued tough times for the short term

Looking at your subcon spending pattern, and realizing it’s very difficult to have any kind of an visibility right now, historically that’s been more first half weighted, at least the last couple of years. At least it’s been more first half weighted. Will ’09, your sense right now, be more back half weighted spending? For the subcon community?

Well, I think the cycles have shifted to where Q2 and Q3 tend to be the capacity-add quarters, wherein older history was in the fourth quarter. But if I look at the trend in ’08, the highest demand quarter will be in Q2. In ’07, that was the same. The highest demand quarter would be in Q2. With Q2 and Q3 the strongest in ’07. So I would tend to look towards the middle of the year as to when the bubbles will occur.

Yes. And a question on Eagle Test. To the extent you can answer this. Obviously the timing of when you announced the acquisition to now the world has changed in terms of the macro outlook, and I’m sure the assumptions that you had for Eagle Test for next year perhaps you might be thinking about them differently, now. Is there any room at all, I understand you’re committed to completing the acquisition. Is there any room at all to either revalue the acquisition or is there any penalty if you decide to walk away? What can you comment about that?

Well, I’ll say that we are very excited about the combination. We haven’t changed our view. Obviously, when you look at the situation, you say, would we have wished we had done something differently? And in this case, it’s not as if Eagle would be a better buy for us. Because eagle’s value is a long term value. If we were in talks combing with Eagle and their valuation was lower, they would be hanging in on their own, would be my view. So we really think that combination long term makes a lot of sense for us, and no different from where we were three or four months ago.

Okay. And lastly, on the IDM you mentioned orders were actually up in the quarter. Any granularity you can give on that in terms of which end segments within IDM that were showing a little strength?

Good question. The IDM uptick, for us, was a very pleasant outcome, but it’s really the result of the designing work that we’ve been doing over the last couple of years. The segments that were strong were in power management, in microcontrollers and in automotive. We also had pretty steady ongoing business in the image sensor space. All of those pieces tend to be dominated by the IDMs. So the segments technology segments were IDM-related. The more important element is, IDMs in fact did decline in aggregate, but we’ve had some very important design wins this past year. In particular in the automotive area, in the ASIC space, power management. Where some platform decisions were made over the last nine to twelve months. And we’ve seen some tooling business in those places. So that offset some of the other IDM decline. If you took our largest three FLEX buyers in the last quarter, three of the five actually were not significant players for us. Or I should say, we did not have as much of a penetration into some nor did we have some at all. So the IDM hanging in there for us is really as much a function of that their business has held up a bit more firmly, but more importantly that we’ve made some headway on the market share front there.

I see. Thank you very much.

Your next question will come from the line of Vernon Esse with Needham. Vernon Esse - Needham & Company: Thank you. Mike, I want to go back through the line of questioning on the utilization and when you last saw something like this. I’m thinking in the back of my mind it’s probably the early 80’s in terms of the economy and I think back then the Japanese were also a big threat to your business. But I really comment on that to put it in the context of just going forward, it would occur that cheap money is gone. I mean, that drove a lot of the cycles in the late 90’s with the Subcons. And just looking at the structure of your company, you’ve got a decent cash relative to the market cash here. If the board thinking about a massive strategic change going on behind the scenes? Because it would seem to me you’re going to have some quite time regarding the test market for at least the next six to nine months. How is that going to look longer term and can we expect anything different along those lines?

Well, point me in the direction that you want me to comment. Because I— the board has been supporting the plan, which has been assuming for the last couple of years that the growth rate in the core SOC space would not sustain our growth ambitions. So our expansion into adjacent markets, in particular memory market, and our expansion in the systems test group into commercial airlines test and hard disk drive next year, all of those things are to get us with more boats in the water, but to do it in areas where we can leverage technology. So say a bit more about where your question goes. Well, candidly, expanding beyond tests, I guess. In the past you’ve done software tests. The company has done a lot of interesting investments. Some of them have turned out well, some of them have not. But is there a thought process of getting beyond that, becoming a more diversified company across other areas, in electronics or tech, for that matter?

Well, we are expanding in that. And I think the difference between the era of the last two or three years and what we did in the 80’s was that the expansions or the acquisitions that took place back then were much further, distant from our core. So we were in the connector business. Software test for example was not a close adjacency to our core competence. Vernon Esse - Needham & Company: Yes.

The reason it didn’t grow inside Teradyne, and in fact hasn’t grown much outside Teradyne, is because there wasn’t much leverage between what we did in electronic test and what we would do in software test. So we’ve been more focused on how to get some kind of unfair edge if we move into other spaces. And if you look at what we’re doing as we expand next year into DRAM, in the hard disk drive area, it will be easier for you as an investor to say, oh, I see what they carted or ported from existing technology bases into those products.

If I could ask, a point to that, Mike, as well. Yes, we’re spending over 20 % of our engineering on access to new markets. And some of these investments should start to deliver revenue in 2009. And we look at our plan the next couple years, getting access to the entire memory market is a big add-on adjacency to us. We also have some growth in STG. So over the next couple years, we have a lot to do to exploit and make sure we get the best returns from some very large investments. I think longer term down the road, I think that’s a fair question in terms of what else is there, what’s the next thing you do? But right now, there’s a lot under the covers that we’ve invested in that I think over time you’ll see that this starts to yield. Vernon Esse - Needham & Company: I appreciate that. I think the problem with the AT industry is it’s always the market share game. And I think we can all agree that you’re doing a great job with what you have, but you have to get beyond that. And I think that’s what you’re getting at. So I appreciate it. Thank you.

Okay.

Your next question will come from the line of Auguste Richard from Piper Jaffrey.

Yes. Just quickly, on the gross margin guidance, you’ve got it down to 41 %. Could you just talk about the components of that decrease and what has been your gross margin? Is that under absorption or pricing pressure in the customer base? A little more color there would be helpful.

It’s simply volume. And if you look at our gross margin compared to prior periods, it’s much better. And this is in part the break-even reductions. But from quarter to quarter it’s volume.

Got it. And then, just on the spend on the new products, on the DRAM products and the hard disk drive products. Is most of that R&D going to be completed in the fourth quarter and you’ll start to see a sharper ramp thereafter, decline after that? No. It will go into 2009, but it will start coming down in 2009.

Okay. Sort of a gradual pace?

Yes.

Okay. And then, just in terms of the installs on the disk drive testing system. How are those going? Has there been any change in demand from your end customer in terms of what they were looking for in Q4? How do you feel about your ability to deliver to that contract?

I can’t say a lot on the detail front, Gus. I’d say we’re in the phase of pilot installations, and there’s a lot of work to do to get those production-worthy. So, great intensity on the front. There’s no flinch in terms of the momentum, whether on our side or on the customer side on it. So it’s really full speed ahead.

All right. So would that potentially be upside if the install and debugging and production goes well? It would be upside in the first quarter, but you should also note that these are pilot, first units, and they’re going to carry a very different gross margin profile. So I think the highlight is, if we’re successful breaking in, later in the year we could have some attractive margin business. The early part of the year, if we’re successful, you could see some volume, but little impact on the bottom line.

Got it. Got it. Okay, so it would be an upside to the top line but not necessarily fall through?

In the short term.

In the short term.

Correct.

And then, finally on your DRAM efforts. I’m assuming you guys are somewhere between a beta alpha and a production system. If you could characterize that, and how quickly you think you can be positioned to deliver production volumes to your customers.

Yes, I’m not going to break that down. I’ll just say we’re in tightly coupled here to the design partner, and we’ve got a lot of work to do on that front.

Okay. All right. That’s it for me. Thanks so much.

Okay.

Your next question comes from Sajit Sankar with Bank of America.

Yes, thanks for taking my question. I have a few questions. When you look at the HTD model on the unarticulated one, is it fair enough to assume the gross margins are much better corporate margins but probably equal in the up margin level?

Exactly correct.

Okay. And then, can 10 million run rate for Nextest this quarter— is it fair enough to view it’s going to be around this level or maybe slower going forth the next few quarters? I mean, is this the trough level for Nextest revenue?

I— it— you’re talking about the flash? Or Nextest?

Oh, yes, yes. The flash. Sorry.

The fourth quarter revenue we actually expect could increase a little bit, but you could think about these as possibly trough level revenues.

Okay.

There are some new products that are likely to be accepted, recognized and read in the fourth quarter. So what’s holding our flash memory business up better is some new products that are being accepted by some large customers.

When you look at the high speed memory or DDR3 opportunity, do you realistically think it’s actually going to be a 2009 opportunity for you guys? Or is it pushed out to a 2010 story at this point? Well, the design-in phase will be in 2009 opportunity. I think the big question mark is how much volume there’ll be in 2009.

Okay. And how much shares did you guys buy back in the quarter?

Zero.

Zero. Okay. And just a couple more quick housekeeping questions. What’s your tax rate guidance going forward?

Well, longer term it’s still about the same rate. It’s 20 to 30 before adding Eagle; if you add Eagle it probably goes up to 30 to 32, or just slightly above 30.

Okay. And on the (inaudible 00:57:32) you were in like 15 % at 345 million revenue run date with Eagle. What are the contributions of mid-cycle Eagle revenues? Is it around the $20 million level?

Actually, let’s make sure I get this clarified. The midcycle revenue model—

The midcycle model that you set at 15 % up margin at 345 million or less of Eagle, right?

Yes. Correct. Thank you.

What are the contributions of Eagle in it? Is it a 20 million run rate?

Yes. It’s 25.

25. Okay. Okay. And just one last question. Did you guys refile the HSR for Eagle?

It gets—the HSR has got to be filed. That’s a regular process that is followed, that there’s a refilling that takes place, triggered by—

Say it—

It was rejected the first time and then you had to go back and revisit it again?

Yes. It’s not a—it’s a normal, normal process. Nothing unusual should happen with Nextest.

All right. Thank you very much.

Your next question will come from the line of Mehdi Hosseini of FBR. Mehdi Hosseini - Friedman, Billings, Ramsey & Co.: Thank you. Thanks for taking my question. Most of my questions have been answered. Just as a follow-up to the cost structure, is there a Plan B in case the lower demand environment doesn’t improve in the second half of ’09? Where you would take additional fixed costs out? Or is there an opportunity, or a thought process to lower the break-even to below 250?

Well, there’s always a Plan B and a Plan C, so there is. I don’t want to detail what that would be. I would say that if we got to Plan B the market is in is putting tremendous pressure on the supplier base and hopefully we could exploit that as part of a Plan B. But we have to be setting up contingency plans for a tougher market. I think the moves we’re making here, Mehdi, are aggressive moves. This is not light dusting for us to move our break-even down this level. But we always have to have in our back pocket what would we do if— Mehdi Hosseini - Friedman, Billings, Ramsey & Co.: Right. I see the test equipment industry consolidating. Obviously there are fewer vendors today compared to a year ago. But at the same time, your customer’s products have become even more commoditized. And to that extent, I’m just curious to hear your thought in the longer term, I would assume that the overall addressable market, in terms of dollars of revenue may have shrunk. So why not become proactive and put the Plan B in the front stage? And I do understand that you want to capture the upside if the industry turns around. But it seems to me that the growth rates have come down. So why not put the Plan B in the front stage?

Mehdi, this is Greg. We’re investing over 20 % of our engineering to get into new markets. And that’s high leverage, with highly differentiated products. That to us is a much greater payback, much greater payback to the shareholders. So, growth and very high drop through, given the standard margins in this business. And we have over many years adjusted the break-even level down quite consistently as it becomes clearer that the market is a different size going forward. And the judgment is, what do we think the long term market size is? And as we look at that, we’re not in a position where we think SOC test is going to be fundamentally different than, say, a $2.4 billion market. If we conclude later on that that assumption is optimistic, we will do what we’ve done in the past. We’ll have to resize the company. But the $2.4 billion assumption is quite conservative compared to history and what we think will ultimately occur, given the desire for consumer electronics and so forth. Mehdi Hosseini - Friedman, Billings, Ramsey & Co.: Okay. Thank you.

Your next question will come from the line of Patrick Ho with Stifel Nicolaus.

Thanks a lot. Mike, you mentioned some of the bright spots on the SOC side with the IDMs. Can you tell us on the subcon side where some of those drops were, where the weakness was as the quarter progressed?

I can. You know, it’s from the specifiers, always, right? The OSATS follow the direction of the specifiers. The segment, let me just get here the segment movements. The biggest down stroke, I gave you where the strength was. We’ve had tremendous three quarter business in the wireless base. And that was the segment that dropped most. Base band also was softer. Consumer audio-video was softer. Those would be the three places that took the biggest downstroke.

Great, that’s helpful. And Greg, maybe can you give a little bit more clarification on the inventory provision, the $26 million? I think you mentioned that? So was that primarily memory, given that you’re moving over to the Magnum II?

No, it wasn’t. It was an SOC test, and we’re introducing a new product that is highly successful. That new product, customers were taking it much faster and at the same time, the power generation product, very successful. There was high demand for that. And we got caught in a product transition and a steep fall-off in demand. So we think the charge is prudent to get it behind us. If we do find out down the road we sell some of this inventory, we’ll fully disclose it to you guys. Thank you very much.

Your next question will come from the line of Brett Hodess with Merrill Lynch.

Good morning. I’m wondering if you could talk a little bit about the system test business in a weak economic environment. Is it as sensitive as the semi side has been at this point, given the end market mix that it has? Should we expect, in a weak economy, that it continues to weaken? Or do you think it’s found a base level?

Brett, it’s held up for a number of reasons. But I think some parts of it will be sensitive. Obviously the Mil Aero space for us is not on the same pulse rate, biorhythm that semiconductor test is. And I think that that will tend to be a steadier place maybe the steadiest of the business segments. In our in circuit tests that has held up mostly for the same reasons the IDMs have held up, and that is we’ve gained some ground there, competitively, in the storage area. And in Asia, subcons. But I think that one has to be sensitive to the overall economy. And so where we’re cautious about that space. Automotive has been—I’ll take—in our commercial airlines, which is an arm of the defense and Mil Aero business, that is obviously also softer for us. So as a subset of the Mil Aero business, that’s a soft spot. And in automotive, it’s very, very choppy, always, naturally because of model implementations. But that business is just under a tremendous amount of pressure, as you know. So it’s a weaker segment for us, right now.

So if you look across the mix, maybe it comes down, the mix adjusted in that system business may it declines a little bit, but probably not a big step down. It’s been running sort of in the same revenue range for quite a while, give or take.

Yes, I don’t think it will have as much volatility. It’s not anywhere close to the level of volatility that we’ve got. Plus or minus what, Greg, would you say?

I think it’s plus or minus 10. It could be 50 or 49 or up to the high 50s.

Great. Thank you.

Your next question will come from the line of Jagadish Iyer with UBF.

Hi.. A couple quick questions. Thank you for taking my question. The first thing is, how should we think about Q4 in terms of your guidance. How much of it is seasonality and how much of it is really customer (inaudible 01:06:23) weakness. Can you help us with that?

It’s tough to separate those two elements. You’re right that Q4 does tend to have a seasonality element to it, given the holiday seasons. And we are actually getting some buys now for the Christmas or holiday demand. But I think in my judgment more the macroeconomic concern, there’s a lot of fear and worry. So I think it’s more the broader macroeconomic issues than the seasonality is what’s behind the short term picture for us.

The other question is, how much should we think about services going in for 2009? Do you think, do you expect this to be stable going into 2009?

Yes. Our goal would be to keep it stable. I think it’s about 68 million. It may drop a few million to 65 or something. But we would work very hard to keep it at about that line. We would not expect it to grow, but we’re going to try to work very hard to keep it close to that. Some of the services we’re selling engineers. And some of that business has not been as profitable. So if the revenue number does come down, I think you’d see that we wouldn’t lose profit. As you might have noticed, the profit rate’s improved in that business quite a bit from, say, a year ago. So we’re more focused on profits and profit dollars than top line. So we’re also working on making sure each piece of business makes sense, or is it just basically not attractive to us.

My last question is, how should we think about, in terms of the 2009 SOC market, what kind of market share are you anticipating you would achieve? And what would be the biggest surprise in terms of the segments with whom they associate which you could have a big surprise, probably in the second half of ’09? Thank you.

Well, the market size, we’re going to enter the year at a, as I was commenting on earlier, to a question that came earlier, that the market is very depressed at this point. You know, one point, 1.0 % buy rate. So we’re going to end, we’re going to get in to a very soft first half. We’re covering all of the spaces now. When we add Eagle into the portfolio of SOC products, we’ll have everything covered, from very analog-centric to most complex integrated SOC devices. The strength this past year has been some of the things that I mentioned earlier, but the wireless area has been very strong. I think the new products that we’ve got will give us the ability to move up in almost any segment that moves. The one thing I’ll say, Jagadish is that we have not— we’re so broad that when a segment moves, it doesn’t uplift us or drop us dramatically on its own. Very diversified and no segment or customer that’s 10 % of our business.

Thank you.

Dennis, we’ll take one more question.

Okay, the final question will come from the line of Jim Covello with Goldman Sachs.

Hi, I’m Kate Kaslarski for Jim Covello. Just have a couple of questions. One is, as you think about your order progression over the next couple of quarters, and recognizing visibility is very low, how much more downside do you think there is to your ’07 orders? Do you think there is a trough levels after this recent drop, or is there a lot more to go? And then, when you think about your IDM customers, obviously it’s held up pretty well. But do you think we could see similar magnitudes of declines as you’ve seen from your OSAT customers this quarter?

Well, we sure hope not. The magnitude on the OSAT is we were at 130 million in the second quarter, and that dropped by about 100. So you can size how much it could be from where we are now and zero. We don’t expect it goes to zero. But that segment of the market is in a very very tight hand to mouth operating mode. IDMs is going to be hard to call. It really depends upon the overall market, which I think is in a downward trajectory, as I think we all agree. Offset by some gains we’ve had in share, and then factoring in utilization. So what I said in my opening comments is I expect that to be down. I can’t actually tell you how much it will go down, but I think the IDM sector has to follow down, here.

And then one more quick question on your OpEx guidance. Obviously your revenues are going down quite a bit. It seems like expenses are sort of staying flat. I was just curious why they’re not coming down a little bit more next quarter.

In the third quarter we had about 10 million of variable compensation credits that hit that quarter because we hit our annual estimate of our profit rate, which many of our composition programs are pegged to. So that credit occurred in Q3, lowering Q3 from what it would otherwise be. A better comparison for you may be to look at Q4 versus Q2, reductions of some significance.

Okay, thank you very much.

Okay, thanks everyone, we’ll talk to you next quarter.

Ladies and gentlemen, this does conclude the Teradyne Third Quarter 2008 conference call.