Good morning. My name is Ginger and I will be your conference operator today. At this time I would like to welcome everyone to the Teradyne Q1 2015 Earnings Conference Call. [Operator Instructions]. I would now like to turn the call over to Mr. Andrew Blanchard, Vice President of Investor Relations. Please go ahead.

Thank you Ginger. Good morning everyone and welcome to our discussion of Teradyne's most recent financial results. I'm joined this morning by our CEO Mark Jagiela and our Chief Financial Officer Greg Beecher. Following our opening remarks, we will provide details of our performance for the first quarter of 2015 as well as our outlook for the second quarter. The press release containing our first-quarter results was issued last evening. We're providing slides on the investor page of the website that may be helpful to you in following today's discussion. Those slides can be downloaded now or you can follow along live. If you don't see the download icon, simply refresh the page. In addition, replays of this call will be available via the same page about 24 hours after the call ends. The matters that we discuss today will include forward-looking statements that involve risk factors that could cause Teradyne's results to differ materially from management's current expectations. We encourage you to review the Safe Harbor statement contained in the earnings release as well as our most recent SEC files, including with respect to dividend and share repurchase programs which may be discontinued depending on general economic and market conditions and other considerations. Additionally, those forward-looking statements are made as of today and we take no obligation to update them as a result of developments occurring after this call. During today's call, we will make reference to non-GAAP financial measures. We've posted additional information concerning these non-GAAP financial measures including reconciliation to the most directly comparable GAAP financial measure where available on the Investor page of our website. Also between now and our next earnings call, Teradyne will be participating in investor conferences hosted by Davidson, Cowen and company and Bank of America. Now let's get on with the rest of the agenda. First Mark will comment on our recent results and the market conditions as we enter the second quarter. Greg will then offer more details on our quarterly financial results along with our guidance for the second quarter. We will then answer your questions and you should note that we intend to end this call after one hour. Mark?

Thanks Andy and good morning everyone. In today's call, I'd like to focus on three topics; our first-quarter highlights, our outlook for the remainder of 2015 and our longer-term view on growth at Teradyne. We're off to an excellent start in 2015. Sales and profits were at the highest level for first quarter since 2012 and bookings were at the highest first-quarter levels in five years, all driven primarily by mobile end markets. Greg will take you through the details that drove the financial performance, but I will provide a few highlights. Semiconductor Test was our outstanding performer in first quarter. On the order front, record demand for our Magnum V memory tester and our UltraFLEX high-speed memory tester drove memory bookings to an all-time high. As I've highlighted in past calls, we continue to see the memory device mix skewing towards higher bus speeds and right into the sweet spot of our product line architecture. In SOC test, stronger than expected demand for applications processor test combined with the rapid adoption of our new J750-based system for image sensor test led to a surge in orders. Analog test applications related to automotive and industrial electronics also showed strong growth where Eagle product bookings more than doubled compared to the first quarter 2014. In our System Test business, storage test continues to strengthen. After two plus years of excess test capacity limiting business in this market, the continued growth in cloud and enterprise drive storage has absorbed this idle capacity, resulting in a return to incremental capacity adds. This return of hard disk drive buying on top of the inroads we made last year in solid-state drive testing sets up a strong year for storage test. At LitePoint, we had our strongest first-quarter revenue in history. However, the outlook remains…

Thanks, Mark and good morning, everyone. I will start with some brief comments on the start to the year, our key 2015 goals and then I will cover the first-quarter results in more detail and the second-quarter outlook. On the demand front, despite our expectation for a smaller sequential semi test market this year, we began 2015 with a stronger start than last year. company sales were $342 million at the high end of our guidance and non-GAAP EPS came in at $0.17, $0.03 above our high-end guidance. Semi test demand and favorable mix drove this strong start. Orders in the first quarter totaled $490 million, up 48% from the fourth quarter and 9% above the first quarter of 2014. Structurally, we're seeing some early benefits from the slowing of parallel test that Mark talked about in October. Specifically, chip to tester interface challenges have been rising for complex SOC parts. Interface layers may cost twice as much or more than their predecessors which when combined with thorny signal integrity issues can negate the payback of higher site counts. We also received orders in the first quarter to buy out about a third of the fleet of leased testers that we put in place last year. We expect more of the remaining balance to be bought this year by third-party financing companies as they have a lower cost of capital than we do and they can offer more attractive lease terms. In memory test, we had our highest quarterly bookings ever at 64 million. The recently introduced Magnum V with its high-frequency range and high pin count is very well positioned for testing flash devices. Mobile NAND is moving from 533 megabits per second today to over a gigabit per second later this year and the Magnum's architecture provides frequency…

Thanks, Greg. Ginger, we would now like to take some questions. As a reminder, please limit yourself to one question and a follow-up.

[Operator Instructions]. You do have a question from Krish Sankar from Bank of America.

I had two quick questions. Congratulations on the share gain. First one on the memory test side, are you actually seeing LP DDR4 adoption driving some of the increase in your memory test revenues or is it purely share gain?

Certainly LP DDR4 is accelerating and because of the interface speeds, that's driving more testing of that type of product onto our tester. So it is share gains, but it's related to that interface speed.

As a follow-up on the Wireless Test side, it seems like it's been structurally challenged for over a year now. The question I have is, is the way to grow this business really by getting into the R&D side of Wireless Test? Because you guys are right on the production side which obviously has better margins, but looks like the bigger dollar run rates are actually in the R&D side. So I'm curious, would you ever consider getting into the R&D side for Wireless Test?

Krish, first, LitePoint over the last three years has operated above the company targets. So it's done well financially albeit the sales have declined, but it's a good profit contributor. But in terms of how to grow the business going forward, there's a whole set of adjacencies around LitePoint that are more connected to some number of production, whether it's smartphones and tablets, there's other test insertions that we can go after. So we're going to target that, but that won't start showing up until next year. We do have a small footprint in pre-production test, but it is small. So there are opportunities there, but we certainly don't cover the entire pre-production portfolio that some of the larger competitors do.

Next question comes from Mehdi Hosseini from SIG.

Wanted to go back to these leased systems that are now purchased. Can you help us understand the order of magnitude of these systems that are still in the market and are categorized as these could turn into an outright purchase? And I have a follow-up.

Last year we talked about putting in about $35 million of leased testers which was more of an aberration, not business as normal. In this call we mentioned about one-third we got orders for. That means there's 2/3rds left. We would not be surprised if over the next some number of quarters a significant portion of those testers could also be purchased.

You said $35 million, correct?

I'm sorry?

You said $35 million, correct?

$75 million was the book value. When we put leased testers in, we do it at our cost, $75 million. We obviously sell them for a different amount than the book value. If we just stick with book value for a moment, $75 million of book value put in place orders for one-third to date with some comments that I provided that we would not be surprised if more of those testers were bought out during this year.

Got you. Just to make sure I understand, what you recognize for revenue for the leased systems, this is above and beyond the SOC TAM. You just raised the SOC TAM slightly and this is something completely different, correct?

Well, this would be a factor as to why the SOC TAM came up among other factors. At the beginning of the year, we weren't expecting to have this volume of testers being converted from lease to purchases. So that drives more revenue into this year. So that's one factor, again, among several others that cause to us adjust our estimate of the market size.

Sure. And I also want to get -- my second question has to do with dynamics in Asia. It's still almost three-quarters of your semi test. Do you see any change in more business in Korea versus Taiwan and there is some -- there's a dynamic going on which could have an impact on your SOC test especially where in Korea it's more of an idea of a purchase wherein Taiwan., more of a sub concept purchase, SOC test. So if you could help us understand how do you see that dynamic playing out in 2015 and is there any pluses and minus these we could think of?

In SOC, I would say that Taiwan continues to be by far the strongest place for demand for capacity. It can episodically move back and forth, but I would say this year there's nothing that's going to clearly shift that Taiwan dominance of demand.

Your next question comes from C.J. Muse from Evercore ISI.

First question, gross margin guidance is pretty phenomenal. I was just looking back at your model and I don't go back far enough I guess, but I don't think you've ever hit a number like that. Couple questions around that. First one is can you talk about whether that's 100% mix related or there are other factors? And presumably around mix, I'm assuming that there's an uplift of Eagle test and analog in there. And curious to hear your thoughts around spend there, considering from the analog guys this last earnings cycle, we've heard about guys lowering utilization to temper their inventories. I'm curious how that has impacted your vision of analog spend for this year.

I will take the first part, then Mark will take the second. The most significant impact is mix and our mix can vary quite considerably. Now, we're obviously doing a lot of work to continue to introduce new instruments and lowering the material costs behind the scenes, but this was a very good quarter for mix in our guidance. When you look at the second quarter, we have no charges in our guidance for ops or retro fits. When you go back to some other quarters, you might find attractive gross margins that have been diluted a little bit by special charges. So we're not expecting any charges next quarter, so that's in part why it might look higher than other periods. But there's no doubt this is very strong gross margins and it's consistent with what we've been trying to do, is target what we go after with differentiation, not try to get market share quickly or too aggressively. Mark, do you want to take the second part?

On the analog business, it's still very strong. So it's not in our view being tempered by anything related to some of the recent announcements. And automotive in particular is an area that continues to draw heavy demand from the Eagle product line, so that's a particularly strong area. But I would say there's other power applications that are more industrial as well as automotive. Inverters and IGBT type devices are also pulling demand. So we see that compared to years past, analog is never quite as volatile as the digital side of test, but that is a steady, growing, good business for us.

I guess as a follow-up, one quick one on the gross margin. How does the lease impact gross margins? And then as my true follow-up -- maybe that's sneaking in three -- in terms of the upside to SOC, you've got the lease conversion, but also curious where else you're seeing the strength. Is it really the image sensors plus Samsung going in-house with captive base band and AP and that's driving upside for you guys or is there another high level area of strength that we should be thinking about?

The lease is just normal product sales. It doesn't move the margins materially one way or the other compared to other semi test like range of product. So that's not a big factor. It's hard to pin down mix. It depends what you look at in terms of our portfolio. But this is a very good quarter for mix, the second quarter and again we have no inventory charges planned or retrofits in the second quarter. So you're looking at the numbers against other quarters where there may have been some of these charges and the charges are found later in the quarter. They're not found at the time you're given the guidance.

And then on the image sensor business, image sensor testing has been a very strong piece of our portfolio for years. It is volatile. It is more volatile than, let's say, the analog market. And this year looks like we could see business levels for image sensor testing twice the size we saw last year. So that's really taking off. A lot of it is mobility, but there's also cameras more and more moving into automotive applications, part of the story there. There's a higher test intensity around that image kind of sensor. There is a wider proliferation of styles of image sensors. There's infrared, for example, compared to just visible light and some other innovations going on. So that looks like a solid, solid piece of the portfolio. On the comment around Korea and such, I don't think that's abnormally distorting any part of the market size estimate that we've given. The increase I would say is by and large the lease conversions, the image sensor business and the analog business, those three pieces being somewhat stronger than we expected.

Your next question comes from Timothy Arcuri from Cowen and Company.

Guys, I had a couple of questions. I guess the first thing is just to dive a little deeper on this TAM improvement in SOC and try and figure out how much is structural versus how much is cyclical. If I go back to this lease number, we had $75 million worth of leases, but at your cost, that was going to support roughly $150 million if they had been ordered up-front. So it seems like the swing factor -- that the TAM factor from the lease element is like $150 million. And you raised the TAM $100 million at the low end and $50 million at the high end. So it seems like the lease factor more than accounts for the raise in the TAM. I'm just trying to figure out how much is structural versus how much is cyclical.

You've got rough math right, but remember, we're not necessarily baking in full conversion. As we've updated our market size forecast, we haven't assumed full conversion of those leases. As Greg mentioned, we got about a third converted in the first quarter. If more convert, it's likely that would raise the estimate for the market size for the year. So that's a piece of what we've looked at. And then the other two, as I mentioned, would be image sensor and analog beam is stronger. So you might think at this point in the year half of the increase comes from the lease conversions and half come from strength in those other two segments. As we go through the year, there's a little bit of a bias here that it could go up.

And then I just had two quick follow-ups. One is the guidance seems to imply that the orders in June and I know that you guys don't guide orders and orders are a tough thing to even talk about. But it seems to imply that the orders in June will be down a bit and that's counter-seasonal. I'm wondering, maybe is my math on that wrong? Lastly, the real question is, Wireless Test is still obviously bad and I'm wondering just what's going to make it better? Does it actually require one or two of your competitors to actually leave the market? What is going to have to structurally happen to make that market better? Thanks.

Maybe on the last point first, so the market for Wireless Test and Teradyne's history has been dominated historically looking backwards by some very large customers. And the benefit of serving those large customers was evident in some of the returns we've had in LitePoint in the past. But as those large customers begin to change their test strategy and come back to a much lower level of buying, it's not yet -- that decline has not yet been offset by growth in other regions like China and Korea. We're very close to the inflection point on that is what we believe. So offsetting that large customer will be growth in other suppliers in other regions of the world. So it will be a slow pull-out from that. There is certainly -- compounding the issue will be oversupply. There are four major suppliers in a $450 million to $600 million market at this point. So that will have pretty intense competition as the market turns around to some modest growth. And so that's why we see in that core connectivity cellular test business modest return to growth for us and the market over the next few years. And that's also why we've launched these other products to go after other test insertions that aren't related to those two areas. We've got to expand the TAM in order to get our target growth rates back in Wireless Test. So that's how we think about it. That's what we see going on.

And then I think the first part of your question was the bookings trend. I should just add that a chunk of the bookings in the first quarter were connected with our new 3.5-inch hard disk drive tester which the lead times are quite long on that that we provided customers. So that's going to ship in the second half of the year, that product. So therefore, bookings come in a bit earlier than they might otherwise.

Next question comes from Jim Covello from Goldman Sachs.

This is Kelsey German [ph] on behalf of Jim. Congratulations on the strong results and thanks for letting me ask a question. You mentioned that you're expecting a fall-off in SOC test demand into each. Can you just talk about if that's based on normal seasonality or if there are other specific factors that are leading you to be more conservative?

No, we're just seeing the normal seasonality expectations for the second half. At the beginning of the year, we outlined how there is a pattern tied to the complexity of new consumer products that are introduced in any given year. And if you look backwards, coincidentally, even years tend to have been larger test markets than odd years. Completely tied to complexity increase in products, our customers' product. That still is a theme this year. So that's what makes the overall market in our estimation down from last year. Albeit we're revising it up a bit, it's still down. And what we see in the second half as a pattern is really not that different from what prior years have shown in the second half.

And then can you talk a little bit about your visibility into the pipeline for other segments in the second half such as memory or Wireless Test or even the image sensor business?

The image sensor business will I think be strong throughout the year. The memory test business will be similar. I don't think there's a seasonal pattern around those two necessarily. And Wireless Test typically has a very front end loaded pattern as well, similar to SOC test. So there we will probably see most of the demand be put in place through mid-third quarter.

Your next question comes from Jairam Nathan from Sidoti.

With regard to Wireless Test, is there a point where you think you would need more restructuring on the cost side in that segment? I know you said it is profitable, but this year you're aligned to lower revenue?

That's not in the plans now. I can't say that would never come to pass, but just last year we were above the company model for operating profits. So even in a down market, I know you hear about our competitors bemoaning the space. We still have very good gross margins and good operating profit, but for us it's less about percentages. It's more the dollars aren't as high as we need them to be or like them to be, particularly given the prior two years when the volumes were substantially higher. But there is always a chance that we will have to fine-tune any of our businesses and LitePoint is not an exception to that. But we have made some adjustments and we need to see how this year plays out and we have a number of new close adjacencies and other test insertions, so we need to see how they latch. We will look at that through the year. We obviously have a history of adjusting where we need to. If that's necessary, we will take the action.

I don't know if you have already answered this question, but on the aps processor segment itself, is the outlook similar to what we had last quarter about the declines?

Yes, I would say that substantially nothing has changed. The lease conversions which is part of the drive for a larger market, really are not new capacity going in. It's just a financial transaction. So in terms of new capacity adds for aps processors through the year, it's tracking about what we expected.

Your next question comes from Farhan Ahmad from Credit Suisse.

My first question is on the smartphone side. The unit growth has been decelerating. I just want to understand like how much of your semi test business is tied to smartphones,? And I believe like wireless is mostly smartphones at this stage, maybe some testing on PCs as well. So if you could just remind us like what the exposure is and how should we think about it as the unit growth decelerates in the smartphones going forward?

We will take smartphones and tablets together.

I would say this is a rough average, but mobility devices probably drive about half of our tester demand in general. So that's a rough way of thinking about it. So it is absolutely right that there's a -- the rate of growth of units is declining. It's less -- what's most important to us is the absolute unit growth in terms of the number of new units per year multiplied by the complexity of the devices that are in those phones. And the complexity of the devices is really what's changing. As I mentioned in my remarks, on the up -- take applications processors. Application processors are now typically more complex than the processors you find in your laptop or desktop computer. Those transistors and that complexity to get low-power, high-performance, move power cores up and down seamlessly without injecting any problems, talk across high-speed buses to LP DDR4 interfaces, all of those things actually compound the complexity compared to a conventional laptop processor. That drives up -- the first thing that drives up is test seconds. So the test seconds we see on these devices is increasing to get better fault coverage and better yields for the parts. That's actually accelerating a bit. The other theme around, the die sizes are shrinking but the transistor counts are increasing. For us, it's really a game of units. As long as units are going up which they are and complexity is going up, the test consequence goes up. The other part of it is that each generation of processor to enable higher bandwidth communications with memory to enable lower power, typically have had more device pin counts. And packaging, like wafer scale packaging and other kinds of technology allow that increased pin count without a lot of added cost for the device. But testing those additional pins is another multiplier effect on the test intensity. So what we've seen and I've talked about in the past is parallel test is something that is flat lined and in some cases inverting backwards. So you might have seen, for example, a year or two ago a complex application processor being tested eight in parallel on a tester. Because of the complexity increase, some of that is inverting back to maybe six in parallel or four in parallel. So that is also a good trend line for the business. And all of that is what gives us the confidence to see a market that has been declining moving to a market that will be growing, looking forward. I could go into similar issues with power management ICs which are even -- in terms of the rate of growth of complexity, are even higher. But that's the general trend.

And then my second question, just a quick follow-up to some of the questions that's already been asked, in terms of the gross margin, your guidance and the reported gross margins are extremely impressive particularly given the currency weakness. I just wanted to understand a little better in terms of the lease systems that you have, I would imagine because those were lease systems, you would be depreciating them over time. So the book value on those systems should have come down. And when you are converting them to sales, the gross margins on them should be significantly higher. I just want to make sure the way I'm thinking about it is correct and also is the gross margin on the leased system higher or not?

You're correct that we were depreciating the systems under GAAP and we've sold them. Keep in mind, we got orders for one-third. Orders. We didn't ship everything. So the leased system and you have to figure out, what was the original economics of the transaction which we're not going to disclose, but they were tied to a large purchase. But certainly depreciating them and then selling them, those two factors would give you a better margin than otherwise. But it's not moving the margin in a material way given the size of this business in this quarter.

Your next question is from David Duley from Steelhead Securities.

You have talked about how the SOC CAGR is moving from a negative 3% to a positive 3%. I think you've outlined it's increased complexity and less parallelism as the key reason why you're seeing a change in the growth rate. Is that an accurate assumption?

Yes, it's those two factors primarily.

And could you talk -- so I guess that would imply, since 50% of your test business is mobility that in the mobility sector, specifically in the application processor sector, you're seeing this unfold as you've described. So we might expect that sector to show more consistent growth rather than this every other year growth?

No, I think it's still going to show every other year growth. The swing in year-over-year differences has not been -- it's the rate of change of complexity. So in any given year, new devices get introduced, they may have a step function increase in their complexity or a more modest increase. And we still expect that cadence to continue. But the test, depending on whether it's a modest or complex increase, the test impact will still proportionally go up compared to the past, we believe. And that's not just true of applications processors. That's also true of power management and RF transceivers.

Okay. As my follow on, could you just -- maybe you said it, could you remind us what memory revenue and memory orders were during the quarter? And then talk about what are some of the key reasons you think that you're picking up market share here on a pretty rapid pace. Thank you.

I will do the numbers. The memory bookings in the first quarter were $64 million. And the memory sales in the first quarter were $44 million.

Just going back to why are we picking up share, if we look at both NAND, flash and DRAM, two things have happened over the past four years that continue to happen that are very favorable for us. When we reentered the memory test market, we made a -- we had to make a decision, how were we going to be different than the large incumbent. We made a bet on building testers that had a lot of high-frequency capability to test emerging bus standards. So take NAND flash for a minute. NAND flash, when it was dominated in audio applications, was a pretty low-speed device. As it moves into smartphones and as it moves into SSDs, the interface speeds on NAND flash have grown dramatically and continue to grow and new standards are coming out faster than had been forecast even two years ago. That means the test system has to be able to both stimulate and read data from that high-speed interface. If it can't do it, it's obsolete. It can't be used. Our testers having been architected with that head room sit there as the only alternative to a customer who is moving up rapidly in bus speed. And that's worked in our favor both on the DRAM side which has a similar story and on the flash side. That's the real single factor.

The next question comes from Weston Twigg from Pacific Crest Securities.

Two questions. First, just following up on the memory commentary, I'm wondering, given that orders have typically peaked in Q2 but you're seeing this longer term trend for higher speeds driving demand for test, does that imply that memory demand could hold up nicely through the year or do you still think it might follow traditional seasonal patterns?

It's hard to tell, but if we just listen to what our customers are telling us, it looks like the demand will be relatively steady through the year.

Just on the other side, SOC test, was wondering if you could help us walk us through the impact on SOC test demand from -- whether it's positive or negative, just from large customers moving between foundries, particularly as they migrate down below 20 nanometer? How does that impact your business?

I think over the long haul, it doesn't have an impact. In any given period, if one customer has excess capacity that could be absorbed, it might have a period impact to us. But in general, test capacity finds utilization over time and it doesn't impact the long term trend lines we're talking about, but it could absolutely impact a couple of quarters.

Your next question is from Tom Diffely from D.A. Davidson.

One more question on the parallelism comments that you made. Do those comments also correspond to wafer level testing and perhaps probe card limitations or is it all just final test that you are referring to?

So, yes it refers to both, although I would say final test is reaching the limits and inflecting earlier than probe. I think probe still has some head room here in terms of the technology can allow parallelism to be maintained at the level it is for a while. But I think on the package test side, the complexity of building these interface boards for these new devices is such that the payback is really not worth it. That's what it's really coming down to.

Okay. And then when you look at this wafer level testing today, what percentage of your business does that include and where do you see that going over the next year or two?

I guess you're asking wafer test versus package test?

Correct, yes. To transition towards wafer.

Yes, well some devices classes have moved to wafer level packaging already. A lot of the RF Wi-Fi and combo parts are already wafer level packages, wafer scale packages. So essential they're only tested at wafer. For other parts, like an applications processor, as an example or power management IC, I see those as package devices for some time. The trend that's emerging is are the people have been trying to enable, are these interposers that allow the mounting of multiple die economically into -- on an interposer, then putting them in a single package. The impact to Teradyne in that world is actually not bad. It's pretty good, because you now have to test the wafer a little more rigorously than before to ensure that the die that you're mounting on the interposer is good. And once that you have package that now has three or four die in it, it has to be tested and it's a much more complex test challenge than a singulated package would be. So the complexity issues that arise from 2.5D and 3D packaging are quite good for us, we think.

So does that factor into your more bullish growth or is it too small to be a major factor?

That inflection of growth, that's absolutely a factor. It's a complexity. It's part of that complexity element of the future.

Your next question comes from Patrick Ho from Stifel Nicolaus.

Mark, maybe can you comment a little bit about the new product introductions, notably on the memory side and how some of that has impacted positively for gross margin? Because I think in the past you've mentioned you've obviously tried to improve a lot of your operations internally and new product introduction gross margins. How is that positively impacting the overall business model?

Well, in memory test, on the flash or low-speed memory test side, we have a product we introduced last year called the Magnum V. And the Magnum V is obviously a legacy of a long line of Magnum products that has come out of the next test group that we acquired several years ago. And typically what happens when you introduce a new tester, every new tester we introduce has an aggressive target around cost down. It gets introduced into the market and as it ramps, it tends to improve the margin mix early in its life. And as it ages, it somewhat diminishes in its positive mix contribution and then the next tester gets introduced. And so there is a bit of a sawtooth effect on margins with new products. That's not atypical. That goes on, has gone on forever, but we're early in the life of the Magnum V at this point and it is helping.

Maybe as a follow-up to that, you mentioned the mix of both DRAM as well as flash. Do you see it, I guess, healthy for both of those markets or is there going to be a bias towards one or the other in terms of the outlook you presented for memory as a whole?

I think that what I would say is that flash and DRAM probe which are all, I would say, not low speed but lower speed insertions, is the more interesting growth area that we see.

Your final question comes from Atif Malik from Citigroup.

Mark, a question on the reuse of equipment. Your OSAP customers have talked about very high reuse rate going from 20 nanometer to 60 nanometer and that's reflected in their CapEx coming down this year. So my question is, how do you see your reuse rate on apps processor going from 16 to maybe 10 nanometer? And could the reuse rate really change that up one year, down one year scenario, to more like flat to down for the next few years?

First of all, for semiconductor test equipment and the specific example you cite, testers rarely go obsolete. They tend to have a 10-plus-year useful life. And this is different than what we saw in LitePoint's business a few years back. These testers that are installed today for applications processor test will be utilized for the next generation of applications processor. There's no doubt about that. But on top of that, because of the other factors that we mentioned, there will need to be incremental capacity added. Just like the surge we saw last year came on top of previously installed capacity that was also reused. So there's going to always be a relatively high level of reuse of Semiconductor Test equipment generation to generation. There's also upgrades that are provided, too, to keep the testers going a longer time period which generates good contribution.

Greg, just a follow-up. You guys are getting more and more vocal about attractive M&A, but you haven't really seen anything for quite some time. I'm just trying to understand, is it the pricing that's an issue or you haven't found anything? And what is the criteria for attractive M&A?

It's like good wine. You can't pop the bottle before its time. There are a couple of good candidates, but we can't rush anything. We have to make sure that we're thoroughly comfortable, it's a good fit, we can help them grow faster. When we describe it to our investors or our board, they're very comfortable with it. It makes sense. But it's about making sure the valuation makes sense relative to the synergies and the advantages we can give the business. We've been work on a small number for a long period of time, but it hasn't stopped us from returning capital, either. So I think we try to say a couple quarters ago, it's not an either/or. We're going to do both. When we look at these targets, we're constantly looking at, at this price, with this plan, with these synergies, are we better off buying back stock. We do that every single opportunity. And sometimes we don't do a deal because we're better off buying stock.

Okay. Folks, thanks so much. This concludes today's call and thank you for your interest in Teradyne and we look forward to working with you down the road.