A Tester Rides The Chipmaking Boom

Semiconductors are on the rebound. Despite ferocious overseas competition, chip orders rose a healthy 28% in the second quarter. Such tidings are a blessing not just for the chipmakers--Intel, Texas Instruments, and so on--but also serve to boost the prospects of a little-known giant in semiconductors: Teradyne.

Teradyne doesn't make chips. It's a leading maker of automatic test equipment that determines if semiconductors, circuit boards, and other high-tech gizmos are in the pink. And in the view of Mark Roberts, who runs Off Wall Street Consulting Group in Cambridge, Mass., there's no better way of betting on the revival of the semiconductor industry. Teradyne is Roberts' No. 1 stock pick--quite a compliment, since most of his recommendations nowadays are in the realm of short sales, not stock purchases.

Teradyne has a commanding market share in the chip-testing business, and thus it's uniquely positioned to benefit from the upturn in the semiconductor industry. The company is noted for technological innovation, and it is getting widespread huzzahs for its snazzy new A580 Mixed-Signal Test System and J971 VLSI Test System. "Companies with advanced computers need increasingly complex test equipment, and Teradyne is the world technology leader in its field," notes Roberts.

Teradyne is blessed with a nearly debt-free balance sheet, and at a recent price of 11 1/2, it's only a modest premium above tangible book value, $10 a share. Roberts expects that earnings, 58 cents a share in 1991, will rise to 67 cents a share this year and almost double that--$1.20--in 1993. With a profit rebound in the offing, Roberts thinks share prices will rise as high as 15 to 18 over the next six months.