Q2 2020 Cohu Inc Earnings Call
[music].
Please be advised these conference is being recorded if you're required to forget assistance. Please press star zero.
I like to end the conference over to your Speaker today Mr., Jeff Jones. Thank you. Please go ahead Sir.
Thank you and good morning, and welcome to our conference call to discuss co Hughes second quarter results and third quarter 2020 outlook.
I'm joined today by our President and CEO Luis Miller.
You need a copy of earnings release, you may access it from our website at <unk> dot com or by contacting Cohu Investor Relations.
Also as slide presentation in conjunction with today's call that may be accessed on co Hughes website in the Investor Relations section replays of this call will be available via the same page after the call concludes.
Now to the Safe Harbor during today's call will make forward looking statements, reflecting management's current expectations concerning co Hughes future business.
These statements are based on future information that we have assessment, which by its nature is subject to rapid and even abrupt changes.
We encourage you to review the forward looking statements section of the slide presentation.
And the earnings release, as well as Cohus filings with the FCC, including the most recently filed form 10-K and form 10-Q.
Our comments speak only as of today July 30 2020.
And Cohu assumes no obligation to update these statements for developments occurring after this call.
Finally during this call we will discuss certain non-GAAP financial measures. Please refer to our earnings release and slide presentation for reconciliations to the most comparable GAAP measures.
Now I'd like to turn the call over to Luis Mueller Co., He was president and CEO Luis.
Thanks, Jeff.
Hello, everyone and thanks for joining us.
Today I'll discuss some of our accomplishments in the second quarter and provide our perspective for the rest of the year.
Jeff will later discuss financial results and provide guidance for the third quarter.
Sales in the second quarter were approximately 144 million and a little better than the midpoint of guidance, we've our manufacturing facilities back to full operation. After the call. Good 19 disruptions that started in mid March.
Thanks to our operations team, we incurred lower outsourcing costs than originally anticipated in delivering higher gross margins and profitability in Q2.
Orders were split, 52% recurring and 48% systems and mobility. Once again represented close to one third of our system bookings.
We saw strong RF tester demand for connectivity in the second quarter with one of our major customers committing their flagship Fiveg RF front end icees to our platform.
Recapture a new opportunity testing transceivers further expanding our product penetration in the RF segment.
There was also increased demand for Io Te connectivity destined devices, using Bluetooth Zigbee and your wife five six technologies.
Go use RF instruments delivered leading throughput in performance and ultimately low cost of test for next generation RF semiconductor devices. This is a segment we have been traditionally strong.
And we're releasing now our third generation solution at the perfect time to catch a wave of growth driven by Fiveg, why five six and RF high LTV.
Other customers are using our systems for testing low noise amplifiers, RF switches and filters and we've made very good progress supporting production ramps of several psas in Taiwan Besson devices for smartphones launching in the coming months.
And the non RF segment, we had several design wins at major Asia Fabless companies testing, a variety of mobility applications, including display drivers bar management fees been connectivity and others at the same time, our handler business captured multiple design wins in the quarter.
We've got an order from a leading European sensor manufacturer for handling wafer level chip scale Mems devices supplied in smartphones in vehicles.
This is the first application of our W. Ell CSP handling solution for sense for test.
Our strip handler was selected by two semiconductor manufacturers for testing high performance analog and sensors used in automotive and industrial applications.
Go use vision inspection system has been gaining a lot of traction and attention at various customers who have a design win in the second quarter and multiple qualification starting in the third quarter.
Our knee on inspection platform lowers over rejection rate for wafer level chip scale packages, effectively increasing yield and maximizing value to our customers.
This system delivers leading throughput and flexibility to inspect all package sides with best in class accuracy and add on true infrared vision and just see below the surface. It really takes inspection quality to the next level.
And customers are starting to recognize the significance of protecting their brand value, we've our new on inspection platform.
In other news, we identified an application for co Hughes active thermal technology testing high performance memory. The sale consists of engineering lab thermal handlers for a us headquarter customer.
Got you equipment continues to be used for medical applications were quality is obviously a prime importance.
Although volumes are not as high as in other segments. This is an area where cohu excels in our team is proud to contribute to the fight against covert 19.
On the contact to front, we know attachment rates will fluctuate quarter over quarter.
And in Q2, it was at 44% with increasing alignment of contact or two handler sales in several of the design wins previously mentioned.
Looking back at order distribution by market segment mobility represented 15% of total and about one third of systems.
Second quarter orders for PCB test systems were at record highs and 10% of total driven by expansion in telecommunications computing and network infrastructure.
For the remaining segments.
System orders accounted for 23% of total and despite lower in semiconductor computing recurring business remain healthy in the second quarter.
Turning to third quarter, our guidance reflects expected strong RF, and PCB test or shipments and new customer traction for handlers and inspection equipment.
We continue to forecast a disproportionately stronger mobility segment through the ended this year, which was slow recovery in automotive initially driven by improved vehicle sales in China and likely accelerating globally in 2021.
With average desktop utilization at 78% at the end of June stronger at mobility customers and weaker in the automotive segment. We expect sales remained relatively flat within plus or minus 5% quarter over quarter through the end of this year.
More importantly, we're actively working on multiple cross selling opportunities that combine our testers handlers in contactors.
This differentiation is becoming important in RF test, where high frequency signal fidelity each of the semiconductor devices increasingly difficult.
I hope to share more details in the next couple of quarters as we demonstrate our value proposition to various customers.
Now I'd like to turn it over to Jeff to reviewer second quarter results and provide for.
Guidance.
Thanks Luis.
Cohu executed well during Q2 sales were higher than the midpoint of our guidance gross margin was also higher than our guidance operating expenses were lower than forecast due to tight control of spending and Q2 non-GAAP profitability was our highest since Q4 2018.
But before I walk through the balance of the Q2 results into Q3 guidance, Let me talk about our GAAP to non-GAAP adjustments. Please note that my comments that follow I'll refer to non-GAAP figures.
For GAAP to non-GAAP, reconciliations and disclosures CD accompanying earnings release and Investor presentation for Q2, the GAAP to non-GAAP adjustments include approximately 3.4 million of stock based compensation expense intangible amortization expense was approximately 9.5 million and restructuring costs, primarily driven.
By the Xcerra acquisition were approximately 700000.
Now turning to Q2 results revenue was 144.1 million.
And 1.6 million higher than the midpoint of guidance in Q2, no customer accounted for 10% or more of sales.
In the second quarter co used gross margin was 42.5% and higher than our guidance from better than anticipated utilization of our Asia factories.
The Q2 gross margin is inline with our business model.
Operating expenses were 47.9 million.
And 1 million lower than forecast temporary cost reductions remain in effect.
Second quarter non-GAAP operating income was 9.3% of sales and adjusted EBITDA was 11.3%.
Co use non-GAAP effective tax rate for Q2 was 23.2% lower than guidance, primarily as a result, the tax benefits derived from operating losses generated in Germany.
Non-GAAP EPS for the second quarter was 17 cents.
I'll now turning to the business model as of the end of fiscal 2019, we completed the actions required to achieve the 40 million.
Of acquisition cost synergies.
As we announced at the end of March we implemented a temporary salary reductions, which took effect at the beginning of April and further reduced operating expenses by approximately $3 million per quarter.
Adding about five cents EPS to our model.
The actions, we've taken to reduce costs further support positive cash flow during periods of low market demand and allows for continued investment in strategic products, while retaining the ability to quickly ramp production in an up cycle.
Now moving to the balance sheet, our cash balance at the end of Q2 was approximately 164 million.
Combining recent cost reduction and cash preservation actions, we've lowered EBITDA breakeven revenue to approximately 110 million per quarter and cash required to run the business has been reduced to approximately 80 million.
Cash used in operations. During Q2 was 4.5 million in Capex for the second quarter was 6.4 million driven mainly by purchases of equipment to increase contact your manufacturing capacity in the Philippines and Japan.
As well as capital additions necessary to consolidate our German test handler operations into one facility.
Now moving to third quarter.
Our third quarter sales forecast has improved since the directional guidance we provided during the first week of May.
For Q3, we're guiding sales to be between 134 million to 146 million. The low end of the revenue range accounts for potential supply chain disruptions due to cobot 19, as well as potential risks associated with book and Bill sales and customer acceptance, which is required for revenue.
Gross margin for Q3 is expected to be between 41% to 44%.
And assumes no operating constraints on our Asia factories as a result to covert 19.
Operating expenses are projected to be approximately 48 million or essentially flat quarter over quarter.
We expect Q3 adjusted EBITDA at the midpoint of guidance to be approximately 11%.
The Q3 forecasted non-GAAP tax rate is approximately 25% the midpoint of guidance for modeling purposes, we expect a normalized effective tax rate of approximately 22% on revenue of 170 million or more and profits in line with the business model.
But diluted share count for Q3 is expected to be approximately 42.4 million shares.
And although the market outlook remains volatile and uncertain. Our guide our current projection for fourth quarter revenue is to be approximately flat with the midpoint of Q3 guidance.
That concludes our prepared remarks, and now we'll open the call to questions.
Thats. A reminder, you asked a question you will need to Chris for one year telephone keypad and two we drove your question first the turnkey hopeless for just a moment couple public spending a roster.
Thanks.
And your first question going from a line of screen Bolton from lead time and company. Your line is now open.
Hey, guys. Congratulations on the results and outlook I guess I just wanted to come back to the.
Second half outlook I think last quarter, you would expect sort of slower.
Quarter on slowing.
And an improvement in the fourth quarter now.
Q3 is better, but maybe Q4 is tempered a little bit do you just think that some of the revenue you thought you would.
Previously you've seen in the fourth quarter has been pulled into the third quarter or how should we think about sort of the changing dynamics between the third quarter in the fourth quarter.
Fair to what you thought a quarter ago.
Hi, Glenn this is luis.
We're in reality, what we've seen is the mobility customers coming in.
Faster a little faster than we originally anticipated in the third quarter and Thats what were seeing here.
We we have limited visibility out to fourth quarter. So we don't think this is a pull in from fourth quarter two third quarter.
And Thats, what we say fourth quarter could still be flat to slightly up slightly down it's difficult to say, but we are reviewing it approximately the same at this time.
Obviously, no more this quarter progresses, but at this point, it's not necessarily a pull in its more of a.
Earlier Q3 ramp than we had expected when we're out in may.
Talking about this in May.
Great and then follow up question, just I know the automotive business has been slow.
That's important segment for you.
Your best guess today when when do you think you start to see perhaps better better demand conditions from the automotive customers.
We were very encouraged actually by seeing the earnings release here over the last week from many of our customers in the automotive space. So we see them.
Have turned the corner, they're guiding many of them are actually guiding up quarter on quarter. So that's very encouraging it's a matter now watching that test cell utilization.
As I said on average we're at about 78% today, it's obviously stronger at the mobility customers and a bit weaker more in the lower seventys at the automotive customers. So we're watching that test utilization and seeing as it creeps up that it would be the turning point, it's difficult to say, whether we're talking late Q4.
Or mid Q1, it's really hard to say in pinpoint that exactly when we do see our customers moving.
Up on the automotive space. So we're encouraged by it would just on though the exact timing.
Last question, if I heard your.
He said the contract or attach rate was 44%.
The June quarter, Thats ready ticket.
I'm done.
Almost 10 basis.
Points quarter on quarter.
I hear you correctly and if I did.
What do you attribute that that higher attach rate too is that just some of the programs you've been working on now for a couple of years have started to go into production or is there.
The mix shift going on that's driving that higher attach rate just just anymore color you could provide would be helpful. Thank you.
Sure.
You're correct, if you did jump up to 44% in the quarter.
There are a couple of couple of reasons for that one is we did indeed see some traction, particularly with the new design wins on the handlers side, we were able to.
Bundle the contactor as part of the product.
Proposal to the customer so that actually drove an increase in attachment rate at the same time I do have to caution that number will fluctuate a bit quarter on quarter, depending on handler sales in which customers are driving the handler sales in that particular quarter. So.
I wouldn't be surprised to see that member jump up and down a little bit on a quarter to quarter basis. I think you may have to take this.
Number over a longer period of time and see the moving average.
Understood. Thank you.
Welcome.
Your next question costs, along the Krish Sankar from Cowen and company. Your line is now open.
Hi, Thanks for taking my question that this is Steve calling on behalf of Krish.
Lisa and I can ask on the comes from finishing and hopefully currently I just wanted to drill down a little more on some of the product a string management.
So just with the more complex signaling.
Four point Fiveg and great Fourg.
Yeah, my knowledge and impact each type modules and also ultra wide band will essentially that are being as well can you perhaps more color on.
Yes.
And with Fiveg upstream today that is ramping we're still in the first year fiveg compared to Fourg backing today.
You back that far.
How much stronger ramp this year.
Moran for Fiveg based on the technology and Ixia that and then.
How much of the strength, it's just it's purely on the capacity.
Pulling.
At year site.
Hi, yes.
Yes, it's it's a bit of a challenge from each of the that comparison, the tester side, because when fourg ramped we didnt.
On.
Tests are assets semiconductor test or assets right we.
We're predominantly supplying handlers at that point in time, but to your point on the tests are side.
We're still in the early stages of Fiveg, obviously, you're looking at.
Less than 15% of.
All semi all cell phones smartphones.
Coming out this year, having embedded fiveg technology, and I think what it's interesting I don't know how it compares to fourg, but what I think it's quite interesting is that with fiveg. The frequencies are jumping up.
Significantly and so would that is the complexity of.
Signal fidelity, all the way to device under the test so it does create a.
Okay.
Really good opportunity for us to combine our testers are contactors, particularly are testers, and our contactors and to some degree or handlers and offering.
And the integrated solution to customers that accelerates their time to volume production. So you don't have to rely on the customer or their expertise to bring together pieces of equipment to perform when function, which is test we bring to the table a complete ironed out ready to go ready.
You're right ramping production solution and so we are seeing we're seeing many of our customers appreciate that value of the integration as well as the.
The value of the test applications team.
For these highly complex high frequency RF devices, and I think thats that opportunity is going to continue to.
Open up new doors for Cohu in the coming quarters, and Thats why I said I hope to talk to more in the coming quarters about the the cross selling in the full test cell.
That's very helpful.
Well I just had a question on gross margin.
Filed relative to.
The end market mix, so edge Sam.
Automotive starts to recover here in coming quarters.
What would the general impact inside of.
Greater automotive sales margins.
The term next year and equal virtual where we are quite you're guiding for Q3.
Now the hasty this Jeff the automotive is primarily handlers that would benefit from increase in the automotive business.
And those handlers are tri temp little more.
Sophisticated complicated if you will and along with that comes a higher gross margin. So they are in line with the corporate gross margins and I guess I would direct you to the business model then.
To to.
Compare the gross margins at the various revenue level. So once automotive comes online.
Completely expect margins to be to be compliant with the business model.
Great. Thank you and that they shop in the quarter.
Thank you.
Your next question comfortable on Brian Chin from Stifel. Your line is open.
Yeah.
Hi, good morning, nice execution in the quarter and thanks for letting its asked a few questions.
Maybe maybe the first question here.
You talked about a number of design wins in the quarter.
We want to Kian on the memory went in particular, the broad memory, Sam is not something co here that historically targeted.
But can you talk about why this engagement is more suited to your technology and whether this could translate into high volume production shipments down the road.
Hi, Brian.
Going on to high performance memory. These these are usually.
Stacked up memory leaders onto a logic controller.
And.
Testing. These devices has has proven to be similar to testing for from a handler perspective similar to testing.
An application processor on a smartphone meaning it is.
Similar geometries complexities.
Touched down pitch on the device and more importantly, they are powered the Sip. It is the devices are dissipating energy during the past cycle or in other words self generating heat.
And in order to ensure yield and quality of test.
The application requires an advanced active terminal control solution. So that that's what lends itself well into our platform.
Now truth be said and as I mentioned in the call here. This this initial sale is for lab engineering use application I mean, we think you will.
It will have the opportunity to drive something on the order a $3 million to $4 million year over the next couple of years, but it's still lab engineering use.
And.
We havent talked about anything related to volume manufacturing at this point.
Volume task.
Okay fair enough. So this could be just a situation where I guess, you're looking at HB amsthree and more diaper stack I, probably would be something that would even increase sort of the thermal dissertation kind of requirements et cetera.
Maybe switching gears to too.
Fiveg, which is clearly a positive influence the company.
Aside from companies that reported yesterday.
Expectations for Fiveg smartphone shipments or maybe back into sort of the 200 250 million range.
Got it it's too early to probably color say that the broader smartphone market has stabilized yet, but let's say it does next year.
And the Fiveg adoption curve remained steep.
Cash might you expect the RF semi test Tam to grow next year.
Yeah that's.
Thats a very interesting question there Brian.
I got to look at the Q2 things one is sort of outside reference Gartner has some projections for Fiveg I don't have it in front of me right now, but it has some projections for Fiveg RF segment going in a double digit rate.
And I look at just the rollout of Fiveg this year in the projected unit.
Cellphones that could have Fiveg technologies next year, and probably also more so the increasing.
Content of RF I season, those phones and the increase in frequencies.
As higher frequency bands get adopted for millimeter wave. So I think I think we're looking at.
Something to the tune of 20 plus percent growth rate for.
RF I see test.
And that's that's stocking in unit volumes and I think you have to compound that a little bit with.
Increasing SP the testers in the instruments that go in it.
Okay Thats helpful Libya.
One more quick hit here.
It just it in terms of the RF content growth in Fiveg phones.
One is that the key rationale why could you maybe say more relative strength into the back end of the calendar year and some of the broader test suppliers, and then kind of not quite relate to that but.
The PCB test sounds like it's been strong can you just remind us what that margin structure is relative to the broader business.
Pete PCB test is is about 40% gross margin very consistent business.
Yes, but and just to get back to the first part of the question.
You're right on the semi test I mean, we our semi test business outside of handlers and thermal subsystems right the handling fees the test for it so.
We're not testing high end digital devices, so we wouldn't be testing application processors.
Today and.
Therefore, we would see the wave naturally later in the cycle because we're in the RF and the power management IC fees also flat panel display drivers are though still a smaller portion of the total.
Is one that we expect you continue to grow.
And then as it pertains to PCB test it really has nothing to do with.
Mobility or smartphones, our PCB test businesses.
More associated with computing.
Our communications network infrastructure, essentially larger pcbs than what you would see on a flexible PCB inside of smartphone.
Okay, great. Thank you.
Your next question, calling from the line of Sidney Ho from Deutsche Bank. Your line is now.
Hi, This is Jack we ran on for Sydney.
On the auto side of your business how much of your recovery in this business is tied to more cars being sold versus increased electronics in cars.
Yes, the it's really a combination of both right because the increasing IC content in vehicles.
In essence will drive an increased demand for test equipment, but at the same time. It can be compounded up if you have an increase unit vehicle sales I think at this point were a lot more focus actually is on the technology shift where we're seeing an increase content of.
Hi, end, Microcontrollers and microprocessors and vehicles for eight as.
We're seeing also an increased number of sensors that actually feed the information should these two this eight thats devices.
And we're seeing an increase in battery management systems for electrification so.
Since we can't drive the industry or the consumer spending what we can do is aligned our investments to the technology shift so that when automotive is back in full swing.
And we likely to see that next year.
We are aligned to the technologies that are actually driving the growth was sort of the new icees that will require different.
Handling equipment, then last generation wave of growth in the semiconductor for autos.
Great and just as a follow up on the inventory front are you seeing any indication that there is an inventory build that your customers or the orders being driven by true end demand.
No. We don't we don't see we don't see an inventory build up in our customers I mean in fact, the checks we had seen everybody seems to announced they are pretty lean and and think this is this is actually end demand driven.
Great. Thank you.
Your next question comes the line of David Duley from Steelhead Securities. Your line is now open.
Hi, Thanks for taking my question.
Was wondering if you could comment a little bit further on the display driver business I think.
As you put the two companies together Xcerra had won some business in that area and I was just wondering if that ramped up or what you can talk about in that area.
That's my first question.
Okay I did.
Yes, we et cetera has has done a good job at.
Designing an architecture to penetrate the display driver market the the.
Got to design win in Taiwan.
Customer in Taiwan, we have been working very closely with that customer in expanding expanding that architecture in.
That debt market segment truth be said hasn't seen big ramp since we acquired et cetera, but we have seen ourselves.
Increased sales in 2019 in 2000 in 20 than.
Albeit still smaller numbers than than we would have hoped at the same time, we put more energy into additional design wins.
And we have.
We have.
Some good traction customers, both in Taiwan and Korea.
And so we expect to continue to execute on that flat panel display driver strategy that was laid out a few years ago.
And as the market evolves as the ramp comes back, particularly we've aligned.
Well, let these.
Next year.
Fully expect to see this this business continues to we'll continue to grow for us.
Okay and then.
I think you mentioned in the past and also in your prepared comments about how fiveg requires higher signal integrity of the test.
And that might help drive higher contact and pin sales.
Could you just talk a little bit about.
Do you expect attach rate to go up with the Fiveg rollouts and what sort of market opportunity does that create.
Above and beyond what was seen in Fourg.
Yes, our contact or attachment rate has been higher in the automotive side than he has been in the mobile side.
With Fiveg.
I really see an opportunity to increase the attachment rate contactor attachment rate in this time actually more towards testers on the mobile site as frequencies go up.
Started three four gigahertz and then you push up to six gigahertz with.
Fr one in Fiveg, and then you push it up to eight and a half gigahertz for why five six and and then it starts going further up to 24 gigahertz and beyond millimeter wave as those frequencies go up the complexity of maintaining signal fidelity all the way each device and the task grows and so gross.
The opportunity for us to sell a complete solution.
Controlling the entire signal path to the device on the test. So yes, fiveg in essence does give us a greater opportunity to increase attachment rate of contactors.
In the mobility market, which is which is not where we were strong we were strong in the automotive market for contactor attachment rate as far as opportunity size.
I don't have a number two chips into that right now for you, but redefinition talking.
Tens tens of millions of dollars.
Business that could be generated.
In the mobile space.
How do you have given a number in the past about how much more the fiveg, who would be for overall revenues versus 40 could you just remind us.
Incremental Tamar Fiveg was however, you afraid that I was just.
Just remind us what the incremental number was talked about.
Yes, it was about $120 million of incremental revenue opportunity.
Fiveg and this is specifically talking about testers I'm not talking about handlers are contactors now.
So we view that the Fiveg RF space would grow by about $120 million.
In a span of two to three years this be in year, one right now pointing 20.
And that that applies to all RF front end I see meaning power amplifiers.
Low noise amplifiers filters switches antenna tuners, so that space basically the whole signal chain.
Okay, I don't think from me I'm, Jeff Historically, I think you've given us up.
A breakout of systems revenue amongst fibers are six or seven categories could you.
Give us those numbers for the June quarter.
Yeah, what we do as do orders.
And thats in the.
Yeah, our deck. So let me just tell you with systems.
They are 48%.
The total orders as Luis mentioned and that breaks down two of the systems piece.
15% is mobility.
CB manufacturing.
10% consumer nine.
Automotive five.
Industrial medical for computing and network three and Aiotv.
We'll be in Opto electronics is too that totals the 48%.
Of system orders.
Okay. Thank you.
Your next question comfortable on us come the Folly from D.A. Davidson. Your line is now open.
Yeah. Good morning, I guess first question just on the breakdown of orders you. Just gave are you surprised that compute and networking is a little stronger right now since there's a lot of effort going on from a capacity point of view.
Hi, Tom's Louise.
Yes, or no there has been strong system orders and computing in the first half of the year and I think theres some digestion an installation right now.
But.
Feuding network represents a substantial portion of our recurring business in that that has remained fairly strong. So if you're thinking in terms of total here. We're looking at a couple of percentage point changes.
In total business in the computing that were because of the fluctuation systems. So it's pretty common for customers to go through.
Spurs of ramp and then digestion for a quarter or sometimes two quarters and then another spur of ramp so not too concerned about it okay, Great Island, Jeff side, some questions on the operating expenses.
Is the temporary cost reduction measures are those time base for a couple of quarters or those who remain in place while revenues are at current levels or how do you look at that going forward.
Hum.
Yes, so so they remain in place as I had mentioned.
The the main item that we're looking for as an improvement in business conditions, particularly orders to improve.
Yeah.
We anticipate it's likely.
That.
These temporary cost reductions will.
I'll be in place until next one Q excuse me Q1 next year.
We could potentially reverses sooner just again depends on business conditions.
Okay and then.
That's helpful is there anything that you've learned or been able to adopt during kind of the stay at home environment. We're in that will impact to reduce cost structures going forward.
Yes, certainly Tom I think that.
Certain areas that have been high cost areas as travel.
I think we're going to look at that a little bit differently.
As you know some of these investor conferences that are done virtually work out pretty well. So I think travel across the board has significant spend and.
That's an area that we're going to look at a little bit differently moving forward I think there were a few others that will take a look at as well, but that's one that really sticks out okay. Great and then I guess its final question here at least when you look at the contactor business and some of the share gains there.
<unk> end markets are driving that today and what are the biggest opportunities from an end market point of view for that segment.
So if I look in total revenue.
The contact or revenues.
Probably going to grow faster is in the coming quarters.
On tried Tim handling test applications in automotive and industrial.
And that is just this year.
Current attachment rate you tried Tim handlers Andy.
Likely resurgence of the automotive market.
Nothing necessarily driven by actions on our side.
Secondly, and I think thats the one that we spend more of the energy is where can we get a design win where can we increase contactor attachment to our products and.
Where are the energy is going today is both in the RF space because of the Fiveg the higher frequencies as I described before in a prior question.
As well as in as well as in computing.
And in computing simply because of our large presence with thermal technology in handlers in the computing space, we would like to we'd like to bring in new solutions and new technologies to that should that segment as well. So those would be more of the actions that we're going to peak.
But if you will the revenue is likely to outpace everything else big because of.
Because of an eventual come back here in the automotive market.
Okay I appreciate the color and thanks for your time this morning.
Thank you that at some.
Okay.
Your next question thoughtful on that Craig Ellis from B. Riley. Your line is now open.
Yes, thanks for taking the question thing congratulations on the company execution guides on Jeff I wanted to just go back to some of your comments regarding the third quarter I missed what you said about gross margins can you.
Repeat what that gross margin.
We gave a range of 41% to 44%.
Okay.
Yes.
Good point would be down I believe quarter on quarter, right and just given the linearity.
Nation manufacturing increase through the second quarter.
Why wouldn't we see with a full quarter spend.
Our flattish gross margin quarter on quarter.
Actually Craig the Midpoints, 42.5% and the midpoint revenues 140 million, so so margins up a bit quarter over quarter, Okay, and that got it and that does and so that does take into consideration full operations in Asia.
Okay, Alright, Thank you and then.
Longer term question Lubys.
The business is building a nice space here with better than previous previously expected are asking the near term and.
Central first flattish sales in the calendar fourth quarter. If we were to look out to the third quarter of 2021 from where we are today can you just rank.
The incremental growth drivers in that business from from largest smallest what are the top three or four things that are kind of drive you're on your growth and any color on magnitude would be real helpful. Just understand longer term outlook. The company babies. Thank you.
Okay, Hi, Greg So I think there will be a albeit costs here on the number one I would have a hard time, just say, which one is one or two but.
The two top ones would be.
Resurgence of demand.
For.
Handlers in associated with that test contactors, because the attachment rate in the automotive segment.
Automotive has been.
Substantially the press here for the last couple of quarters I think.
It was actually last quarter and not couple of quarters. It was coming back up in Q1, and then he got hit hard with the covenant team pandemic and the shutdown of our factories worldwide. So I think automotive.
Return and then the technology shift to aid us in electrification, who will be a substantial driver for handler and contact or sales.
But equally as important in and frankly, I don't know, which one takes the lead on this one is going to be continue to be fiveg.
And Fiveg drive for.
Incremental testers and incremental Esps are sort of higher asps on these testers for higher frequency semiconductor RF device test.
And then how long would that will go contactors as we continue to put together solutions that address the sole signal fidelity all of which the device on the test. So it's across between the two I think those are the two major drivers.
The RF test the contact or attachment you RF is something that requires more action and activity on our side the automotive.
I don't want to I don't want to diminish it but it is perhaps more of a natural event given given our current position in.
Automotive handler today.
And like I said, all in all it would drive both handler sales in one side and tests or sales in the other side and contactors across the board.
Those are the two sort of the two main elements there other things we're doing.
On the tests are front too.
Increase the competitiveness of our products and certain market segments, and I had or not so to divulge competitive information on the call, but there are other activities. There. There are obviously activities on the handler side as well new products in the pipeline.
Continue to drive in gain some good traction with this neon inspection platform and I think these things will sort of widened the base, but but these two other elements I mentioned in the automotive and the RF test for testers handles and contactors or from a numbers perspective, the bigger the biggest elements.
That's helpful. Thanks, very much guys.
Thank you Craig.
Your next question console lined up Christians, Rob from Craig Hallum. Your line is now open.
Great. Thanks, I just have a quick follow up to the previous question, if the automotive market does normalize and come back and.
Fiveg adoption continues to accelerate as far as smart folded.
Percentage of shipments.
Dan.
Is it fair to assume that we should probably be at some place the operating in the business model of 170 to 190 million a quarter.
Next year.
Potentially for a meaningful portion of it depended upon automotive sales.
Yes, Christian is Jeff, Yes, I think you're absolutely right.
Hard to say exactly which quarter that is but it's 170 to 190 I think is a reasonable expectation.
Excellent no other questions congrats on a good quarter.
Thanks Christian.
And again, if you would like to ask the question first forward into number one on your telephone keypad.
Is there no further questions at this time please continue.
Okay I just want to say thank you for joining today's call and have a nice day.
Ladies and gentlemen. This concludes today's conference call. Thank you for park. The speaking you may now disconnect.
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