How do major test companies expect tariffs to impact their businesses?
Amid tariff whiplash from the Trump administration and increased geopolitical and economic tensions, companies in the test equipment and services space are navigating new market uncertainties. During the recent round of first quarter calls, some of analysts’ most frequent questions revolved around what impacts test companies were seeing from tariffs, and how they were dealing with them.
A few common themes: Companies are increasing their prices due to tariffs and expect to also see increased costs on their supplies. They are shifting sourcing and using other strategies to mitigate their exposure to tariffs and the associated costs. Several companies also mentioned eating initial tariff costs for orders which had already been placed, before they put price hikes in place.
Most executives said that they haven’t seen changes in their customer behavior yet, but are wary and watchful—and in many cases, being conservative about their expectations for financial performance for the rest of the year.
Let’s dive further in to more details from Keysight and Teradyne. (Read details from Viavi Solutions and Teledyne in Part 1.)
However, keep in mind that tariff details are shifting from week to week, or even day to day—indeed, two judges ruled this week that Trump overstepped his authority by imposing unilateral tariffs under emergency powers, and that decision is likely to soon be appealed to the U.S. Supreme Court. So specific tariff conditions may have changed since these conversations, which took place over the past month of Q1 reporting.
Keysight Technologies: Prices increase, but so does full-year guidance
Keysight CFO Neil Dougherty told investors that after significant investment, the company’s global supply chain has “minimal exposure to China” and that it has “already taken action across multiple factors to reduce the incremental impact of tariffs,” including sourcing strategies and increasing prices.
The pricing increases, however, were not applied to Keysight’s pre-tariff order backlog, he said. (At the end of the most recent quarter, Keysight had $2.4 billion in backlog.)
“Essentially, we said, hey, if you had orders that were already on our books, that we weren’t going to go back and try and recover tariffs on those,” Doughtery said. “But we have taken actions forward looking on new quotations, starting in about mid-April.”
The most recent quarter had about $7 million in new tariff expenses in cost of sales, according to Dougherty, which reduced the quarter’s earnings per share by about four cents per share. That impact is expected to more than double in the next quarter simply due to the timing of when the tariffs were imposed during the second quarter.
Keysight estimates its annual exposure to increased tariff costs at between $75 million to $100 million, with most of the impact coming in the third quarter.
Doughtery said that Keysight has two opportunities to mitigate tariff costs: It can reduce the tariffs it has to pay by leveraging its supply chain and international manufacturing footprint; or it can pass the cost on through price increases or surcharges.
He added said that the company hasn’t seen material impact on demand as of yet, and it raised its full-year guidance anyway.
“There [are] a lot of macro risks and other things people are monitoring, but we have not seen any material change in customer behavior,” said President and CEO Satish Dhanasekaran, adding that Keysight continues to see a “slow, gradual recovery” across its markets. “But like everybody else, we continue to monitor the risk due to tariffs and the geopolitical environment,” he added.
In terms of a possible silver lining, though, Dhanasekaran hinted that Keysight sees an opportunity to work with customers and partners who are looking to changing their manufacturing footprint due to the tariffs. That could mean, for example, that customers might want to upgrade production test equipment along the way.
“There is a lot of scenario planning that’s occurring, and it will probably be play out over the next 90 days to 180 days,” he said.
Teradyne: Concerns about tariffs’ impact on customer demand in mobile, automotive and industrial
Teradyne CEO Greg Smith said on the company’s most recent call that while the direct impact of the 90-day tariffs was expected to be minimal for Teradyne, the company was more concerned about the impact on customer demand for solutions.
“Many of our customers—primarily in the mobile, automotive, and industrial segments—are reviewing their capital acquisition plans, and we do not have firm forecasts from them at this time,” he said. Those three segments of its customer base are the ones most likely to be impacted by tariffs, Smith said, adding that “significant changes to the AI diffusion rule or semiconductor trade restrictions may impact the compute market.” (Teradyne’s test equipment portfolio includes semiconductor and board production test solutions; it owns wireless test specialist LitePoint as well.)
Due to the level of uncertainty, Teradyne isn’t providing guidance for the second half of this year.
Teradyne CFO Sanjay Mehta noted that 19% of the company’s revenues are from products shipped to China, of which 12% of the products were for multi-national customers and 7% were for Chinese customers. He added: “The impact of the tariff will generally be passed along to customers in affected regions.”
Teradyne has seen some “pull-ins” for orders from automotive and industrial customers, in which customers rushed to get products ahead of anticipated price increases—but Smith said it wasn’t a significant amount and was using existing capacity. But the company is also seeing near-term “push outs,” where the combination of trade policy and heightened uncertainty have caused orders to be delayed.
“We haven’t seen significant push-outs associated with mobile, but we are concerned about the potential end market impact,” Smith said.
On test equipment specifically, Smith said was asked whether international customers were shifting toward non-U.S. test suppliers. He responded: “We have not seen any competitive impact customers that are deciding to buy from a different vendor because of the tariffs,” he added. “It’s a very competitive market, so we’re in competition all the time. The tariffs has not been a deciding factor in any of those competitions.”
Read insights from the executives at Viavi Solutions and Teledyne on tariffs in Part 1.
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