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1. Teradyne Inc.
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   | 2000 Globe 100 |

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The Boston Globe OnlineBoston.com Boston Globe Online / Business / 2001 Globe 100

Teradyne chief George Chamillard
Teradyne CEO George Chamillard, left, in early May with the company's new 2200 pound Tiger System chip tester. Employee Michael Tran is in background. (Globe Staff Photo / Jonathan Wiggs)

Riding the semiconductor wave

Demand for chip-testing gear catapults Teradyne to top spot

By Peter J. Howe, Globe Staff, 5/22/2001

   
Top 10 Companies

1. Teradyne Inc.
2. Analog Devices Inc.
3. LTX Corp.
4. EMC Corp.
5. Helix Tech. Corp.
6. ACT Manufacturing
7. Millipore Corp.
8. Talbots Inc.
9. Cytyc Corp.
10. FleetBoston

Get the chart
The 2001 Globe 100
All the charts



very few years, it seems, the stars align perfectly for Teradyne Inc.

Five years ago, riding the last great boom in computer chips and in demand for its chip-testing gear, Teradyne placed number one in The Globe 100 ranking.

This year, in a testimony to Teradyne's ability to stay at the top of a brutally competitive and rapidly changing industry, the Boston company has grabbed top honors again.

It edged out another tech mainstay, Analog Devices - which makes the chips that Teradyne machines prove will work - for the best composite score.

As delighted as he is by the company's success in continuing to dominate the chip-testing market and in growing new product lines, chief executive George Chamillard said Teradyne is unlikely to stage a ''three-peat'' this coming year.

''There's no question that a 12-month period around 2000 was a phenomenal period of time for us, but it's all going the other way now,'' he said. Teradyne shares have recently traded down two-thirds from last spring's peaks.

Indeed, this spring Teradyne announced it would cut 650 of its 10,000 jobs worldwide, hoping to conserve money to continue funding aggressive research and development. Chamillard expects to see sales drop about 20 percent from last year's $3 billion mark, relating directly to the industrywide high-tech slump.

But let the company bask in at least some temporary glory for its performance last year, when

revenue soared nearly 70 percent, its profit margin grew 58.9 percent to just over $450 million, and stock performance followed with a 36.2 percent return on equity.

''Did I ever think we could earn half a billion dollars worth of profit? That is a lot of money. It is phenomenal,'' Chamillard said. ''We think we have done a great job of positioning ourselves for the next [rising] tide.''

Since the Globe began publishing its analysis of the 100 best-performing companies in 1989, only one other company has ever claimed the top spot twice: data storage giant EMC Corp. of Hopkinton, in 1994 and 1995, when it began grabbing market share from industry leader IBM Corp.

Even as Teradyne has moved to diversify, most of its revenue - about 65 percent - and even more of its profits come from the core semiconductor and electronics testing businesses it has been in since 1960.

Teradyne estimated last year that, one way or another, 70 percent of its business was driven by global growth of the Internet.

Last year's boom in demand for processing chips, used to power everything from Net routers and telecommunications switches to cellphones and Palm Pilots, played right into Teradyne's strength in automated testing gear. Motorola and Texas Instruments are top buyers of its equipment.

''It's not quite as easy as `A rising tide carried all boats,' but it sure helped us,'' Chamillard said. However, he added that with companies like Motorola and Cisco Systems taking huge write-offs for unwanted inventory, ''You might contend that they bought two years' worth of equipment in one year.''

By some measures, Teradyne controls better than a third of the world market for processor-chip testers, according to studies by analysts such as Prime Research Group of Jacksonville, Fla.

It has been ranked among the 10 best suppliers of test equipment for more than 11 years by VLSI Research, a San Jose, Calif., firm that surveys chip industry executives, after competition from Japanese rivals pushed Teradyne into top-to-bottom quality improvement exercises in the 1980s. Last year, it won a top quality award from the influential industry publication Design News.

''Many companies have abandoned total quality management in their quest for the next management fad,'' said Maggie Cadogan, Teradyne's TQM manager. ''Teradyne has made TQM principles an integral part of its cultural fabric over the last 10 years.

''Every aspect of the business - from manufacturing processes through reduction of product development time to company profitability - has been positively impacted,'' she added.

The company has also boosted its presence in the telecom/networking world with a fast-growing business making what are called backplanes, devices that connect circuit boards in routers and telecom switches. Among its customers for this equipment are Cisco Systems, EMC Corp., Sun Microsystems, and Lucent Technologies.

Chamillard ran that division, which now accounts for about one-fifth of total Teradyne sales, before replacing cofounder Alexander V. D'Arbeloff as chief executive in 1997 and becoming chairman last

June.

Last year, Teradyne also poured money and attention into expanding its Chicago-area business of making equipment used to test telephone lines to see if they can support high-speed Internet access via digital subscriber line.

Teradyne systems are now used around the world by phone companies that operate more than 115 million lines to ''qualify'' them for DSL, which uses powerful electronics to extract hundreds of kilobits per second of data access from standard copper phone lines.

Other Teradyne divisions focus on military and avionics applications. Last year, the company spun off a software-testing operation as a new company called Empirix in Waltham.

Teradyne and its investors have had to learn to expect a lot of volatility.

''Selling capital equipment, particularly to the semiconductor industry, is a wild roller coaster,'' Chamillard said. Indeed, though Teradyne topped the 1996 Globe 100, it didn't even make the 1997 list.

But whatever choppiness lies ahead for Teradyne this year before tech spending turns around, it remains positioned, many industry analysts say, as one of the best surfers on the beach, waiting for the waves to return.

After some recent bleak sales numbers for Teradyne, analyst Susan Billat of Robertson Stephens in Palo Alto, Calif., said: ''We don't think this signals either a shift in their dominance or the end of the [long-term growth] cycle.''

Peter Howe can be reached by e-mail at howe@globe.com.

   


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