Q1 2024 Cohu Inc Earnings Call
Okay.
Speaker Change: Good day, and thank you for standing by and welcome to <unk> first quarter 2024 financial results Conference call.
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Speaker Change: Please be advised that today's conference is being recorded.
Speaker Change: I would now like to hand, the conference over to Jeff Jones, Chief Financial Officer. Please go ahead.
Jeffrey D. Jones: Good afternoon, and welcome to our conference call to discuss co. He was first quarter 2024 results and second quarter outlook I'm joined today by our President and CEO Luis Mueller.
Jeffrey D. Jones: You need a copy of our earnings release, you may access it from our website at <unk> dot com or by contacting <unk> Investor Relations.
Jeffrey D. Jones: Also a slide presentation in conjunction with today's call that may be accessed on <unk> website in the Investor Relations section replays of this call will be available via the same page after the call concludes.
Jeffrey D. Jones: Now to the Safe Harbor during today's call, we will make forward looking statements, reflecting managements current expectations concerning <unk> future business.
Jeffrey D. Jones: These statements are based on current information that we have assessed but which by its nature is subject to rapid and even abrupt changes.
Jeffrey D. Jones: We encourage you to review the forward looking statements section of the slide presentation and the earnings release as well as co. He was filings with the SEC, including the most recently filed Form 10-K and Form 10-Q.
Jeffrey D. Jones: Our comments speak only as of today may 2nd 2024, and <unk> assumes no obligation to update these statements for developments occurring after this call.
Jeffrey D. Jones: 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 is president and CEO Luis.
Luis Antonio Muller: Good afternoon.
Luis Antonio Muller: First quarter results were in line or better than guidance with non-GAAP gross margin of 46% and EPS of one cent.
Luis Antonio Muller: As we navigate through the eye of the storm in the semiconductor cycle.
Jeffrey D. Jones: We estimate a test cell utilization at the end of first quarter up one point to 72%.
Jeffrey D. Jones: We expect business conditions to remain more or less at this level for another quarter or two before we start seeing improvements.
Jeffrey D. Jones: That's our utilization at Idms was down 1.2, 74%.
Jeffrey D. Jones: With computing industrial and automotive demand down sequentially.
Jeffrey D. Jones: Oh sat utilization improved slightly to 70%.
Jeffrey D. Jones: Though still well below the trigger threshold for capacity buys at approximately 80%.
Jeffrey D. Jones: There are a couple of bright spots in the quarter.
Jeffrey D. Jones: A leading U S. Fabless semiconductor manufacturer has selected our SaaS plus system with micro sense for testing their next generation high fidelity microphones.
Jeffrey D. Jones: This micro sense microphone tester is <unk> latest products in our Mems solutions portfolio.
Jeffrey D. Jones: And when combined with the SaaS plus automation platform deliver state of the art testing of up to 96 devices in parallel.
Jeffrey D. Jones: According to industry analysts the Mems microphone sensor market is projected to grow 14.5% annually over the next seven years, reaching an estimated revenue of $6 $2 billion.
Jeffrey D. Jones: We estimate a buy rate of approximately 1% for integrated test and vision inspection systems, making this an attractive market opportunity over the midterm.
Jeffrey D. Jones: In the optoelectronics market, we saw increased demand for our testers handlers and interface products for automotive Leds production from a European customer.
Jeffrey D. Jones: A leading automotive Adas customer has selected <unk> high performance RF contactor for testing automotive radar sensors.
Jeffrey D. Jones: Finally, we completed the qualification of Diamond acts for final test of display driver Ics at a large customer in Korea.
Jeffrey D. Jones: Opening the door for the next stage of revenue growth in this important market that we started developing a few years ago.
Jeffrey D. Jones: This has been a fundamental strategy for a tester business Joanna market segment in which you can differentiate and diversify revenue.
Jeffrey D. Jones: As the industry moves through its cycle. It remains critical to call his strategy to leverage our profitable recurring business, which provides for a more stable revenue stream of mostly consumable products.
Jeffrey D. Jones: Recurring was approximately 66% of revenue in the first quarter Serbian install base of about 24700 systems worldwide.
Jeffrey D. Jones: Korea's recurring business delivered revenue of $304 million over the last 12 months with a three year compound growth rate of two 7%.
Jeffrey D. Jones: Finally, we published our 2023 sustainability report with improvements in many areas renewable source energy usage increased to 32%.
Jeffrey D. Jones: We completed construction of a new modern facility in the Philippines with rainwater harvesting system and are investing solar energy installations at our factories in Malaysia and the Philippines.
Jeffrey D. Jones: <unk> has also recently committed to engage with the science based targets initiative or <unk> with the goal to develop near term science based emissions reduction targets.
Jeffrey D. Jones: As the industry goes through this cycle, we remain focused on managing cash flow, while continuing to execute critical new product developments and customer design win initiatives to enable growth when customers resume gas capacity buys.
Jeffrey D. Jones: Let me now turn it over to Jeff to provide further details on first quarter results and second quarter 'twenty 'twenty four guidance.
Jeffrey D. Jones: Jeff.
Jeffrey D. Jones: Thanks, Louise before I walk through the Q1 results and Q2 guidance. Please note that my comments that follow I'll refer to non-GAAP figures information about the non-GAAP financial measures, including the GAAP to non-GAAP reconciliations and other disclosures are included in the accompanying earnings release and Investor presentation, which are located.
Louise: On the Investor page of our website.
Speaker Change: Now turning to the Q1 financial results <unk> delivered revenue and profitability above the midpoint of our guidance Q1 revenue was $107.6 million.
Speaker Change: Recurring revenue, which is largely consumable driven and more stable than systems revenue represented 66% of total revenue in Q1.
Speaker Change: During the first quarter, one customer in the automotive market accounted for more than 10% of sales.
Speaker Change: Q1, gross margin was 46% about 100 basis points higher than guidance driven by better than forecasted margins on co Hughes resilient recurring business.
Speaker Change: Operating expenses for Q1 were lower than guidance at $50 2 million driven by lower labor and labor related costs.
Speaker Change: First quarter non-GAAP operating income was approximately breakeven and adjusted EBITDA was two 6%.
Speaker Change: Interest income net of interest expense loss on extinguishment of debt and a foreign currency loss of approximately half a million was $1 6 million.
Jeffrey D. Jones: Q1 pretax income consists of foreign profits combined with a loss in the U S.
Jeffrey D. Jones: The Q1 tax provision reflects tax on foreign profits, but no tax benefit from the U S loss due to our valuation allowance against deferred tax assets.
Jeffrey D. Jones: Additionally, the non-GAAP tax provision in Q1 of 300000 is net of a one time $2 7 million credit for the reversal of reserves for uncertain tax positions in foreign jurisdictions.
Jeffrey D. Jones: non-GAAP EPS for the first quarter was one set.
Jeffrey D. Jones: Moving to the balance sheet cash and investments decreased by 64 million during Q1 to 271 million due to variable comp and payroll taxes totaling approximately 20 million plus 29 million used to pay off the remaining term loan b balance and approximately $11 million to repurchase 334000 share.
Jeffrey D. Jones: Ours of <unk> common stock.
Jeffrey D. Jones: Capex in Q1 was $3 3 million with approximately $2 million related to our factories in the Philippines, and Malaysia supporting operations for our interface and automation businesses.
Jeffrey D. Jones: Overall <unk> continues to maintain a strong balance sheet to support investment opportunities to expand our served markets and technology portfolio in line with our growth strategy and return capital to shareholders through our share repurchase program.
Jeffrey D. Jones: Now moving to our Q2 outlook, we're guiding Q2 revenue to be in the range of 105 million plus or minus $6 million, reflecting continued weakness across end markets and low test cell utilization, our customers' production facilities Q.
Jeffrey D. Jones: Q2, gross margin is forecasted to be approximately 45% better than the financial target model at this level of revenue due enlarge part to co. He is differentiated products and our stable high margin recurring business, which adds resilience to profitability and provides consistent cash flow through industry cycles.
Jeffrey D. Jones: We expect gross margin to increase again, when our revenue recovers with a broader semiconductor device market recovery and with better absorption of our factories infrastructure costs.
Jeffrey D. Jones: Operating expenses for Q2 are projected to decrease about 1.5 million quarter over quarter to approximately $48 5 million due primarily to a reduction in force and optimizations as we completed certain product developments.
Jeffrey D. Jones: As I noted during our last earnings call, we've taken action to reduce operating expenses without sacrificing critical new product investments, while navigating through the trough of this cycle.
Jeffrey D. Jones: As a result, we're now modeling operating expenses to average approximately $48 million per quarter in the second half of this year.
Jeffrey D. Jones: We're projecting Q2 interest income net of interest expense and foreign currency impacts to be approximately $2 million at current interest rates.
Jeffrey D. Jones: We expect Q2, adjusted EBITDA to be approximately 2%.
Jeffrey D. Jones: Our Q2 non-GAAP tax provision is expected to be approximately $1 6 million because of tax on foreign profits without benefit from the U S loss. Additionally.
Jeffrey D. Jones: Additionally, the $2 7 million credit recorded in Q1 is not expected to repeat in Q2.
Jeffrey D. Jones: Until the markets recover we expect a similar tax provision profile as we navigate through this cycle.
Jeffrey D. Jones: The basic share count for Q2 is expected to be approximately 47 million shares.
Speaker Change: That concludes our prepared remarks, and now we'll open the call to questions.
Jeffrey D. Jones: As a reminder, if you'd like to ask a question at this time. Please press star one one on your Touchtone telephone and wait for your name to be announced to withdraw your question. Please press star one again.
Jeffrey D. Jones: Please standby, while we compile the Q&A roster.
Jeffrey D. Jones: Our first question comes from the line of Brian Chin control.
Jeffrey D. Jones: Yeah.
Brian Edward Chin: Hi, there good afternoon, thanks for letting us ask a few questions.
Brian Edward Chin: Maybe to start with.
Brian Edward Chin: Yes.
Brian Edward Chin: Say that the <unk>.
Brian Edward Chin: The recurring revenue was even maybe a little bit more.
Jeffrey D. Jones: Even even down less than I might have anticipated sequentially given that I think a lot of.
Jeffrey D. Jones: Strong automotive semi related companies seem to have curtailed production quite a bit but again your your your revenue Q on Q actually did not declined by that much.
Jeffrey D. Jones: Do you feel that now that maybe some of your customers' utilization rates are starting to stabilize do you think that revenue is also stabilized and sort of Q1 Q2, what's sort of the trend youre seeing in it and even if you don't have full visibility on the system business you have more confidence that this.
Jeffrey D. Jones: Recurring revenue or.
Jeffrey D. Jones: Improved in the second half.
Jeffrey D. Jones: Hi, Brian This is luis.
Jeffrey D. Jones: Yeah.
Luis Antonio Muller: The way, we see it right now with stabilizing utilization and recurring seems to be stable as well.
Jeffrey D. Jones: Obviously, the expectation and what we've seen in the past is when utilization starts to increase.
Jeffrey D. Jones: Those recurring.
Jeffrey D. Jones: From a usage of the equipment and therefore increase of spares typically customers.
Jeffrey D. Jones: And cannibalizing.
Jeffrey D. Jones: <unk>.
Jeffrey D. Jones: Unutilized equipment for spares and then eventually there is a quick turnaround on that when the utilization picks up as well as device kits a contactor. So at this moment of utilization stable. So is recurring and would expect it to.
Jeffrey D. Jones: Returned to an increase particularly when utilization starts to rise again.
Speaker Change: Thank you.
Speaker Change: Got it and I guess sort of branching out a bit in terms of going back to your comment about maybe revenues kind of stay at this level or another quarter or two.
Speaker Change: Is there something youre. After this sort of retrenchment period here in first half in terms of system business, which sort of now is kind of across every every end market right at this point.
Speaker Change: When you talk to your customers what does give you more degrees of optimism in terms of some pick up at some point.
Speaker Change: Second half.
Speaker Change: Two things one is we have not everybody turns at the same point right, it's never been that way.
Speaker Change: We are seeing.
Speaker Change: Some customers starting to claim.
Speaker Change: The correction is over in the inventory and their inventory lines, so, particularly in Iot.
Speaker Change: We've seen that happening and seen a little bit of traction. So much so that actually our mobile segment revenue was up sequentially from Q4 to Q1.
Speaker Change: We still have other customers that are at the bottom, but they're basically claiming stability now so stability indicates that the next step is improvement. So we're starting to see sort of the parent of <unk>.
Speaker Change: The tide a little bit.
Speaker Change: As I commented in my prepared remarks here right at the beginning actually I called it navigating through the eye of the storm.
Speaker Change: And I really mean it in the sense of we're now at that point of.
Speaker Change: The the headwinds have stopped and we see a few customers are starting to see a little bit of tailwind. So we would expect that.
Speaker Change: In a couple of quarters will be having more customers that say when utilization is starting to pick up and eventually capacity buys now obviously capacity buys require utilization of existing capacity installed chip take up to a level, where you need to buy new equipment like I said, not all customers will be.
Speaker Change: On the same phase and in the same quarter that probably will straddle over a couple of quarters, but it gives us confidence that.
Speaker Change: We're heading towards.
Speaker Change: Better better wins ahead here I don't know if it's okay.
Speaker Change: Quarter, two quarters away from now when things start to pick up again.
Speaker Change: Okay, maybe just one quick question Thanks, Luis for Jeff just.
Speaker Change: Obviously very high gross margins here at trough.
Speaker Change: I noticed you also raised the target model gross margin of 50% anything that goes into that in terms of composition of revenue mix at $1 billion or what considerations kind of go went into that increase.
Speaker Change: Yeah.
Luis Antonio Muller: Historical results really went into that decision to increase we've.
Luis Antonio Muller: Sort of maintaining the same mix of product at that 1 billion $1 billion of revenue with.
Luis Antonio Muller: Roughly 40% automation in 30% test 20%.
Speaker Change: Interface, 10% for.
Speaker Change: Our inspection metrology, so that doesn't change it's just we have seen.
Speaker Change: Better cost profiles lower cost profiles better better margins.
Speaker Change: So that gave us the confidence based on what we've achieved.
Speaker Change: Here over the last call it eight quarters to set the target of 50.
Speaker Change: Okay, great great. Thank you.
Speaker Change: Thank you.
Speaker Change: Our next question will come from the line of Ross coal with Needham.
Ross Coal: Thank you for taking my call and I'll ask this question on behalf of Charles sheet.
Ross Coal: So first of all can you provide some color on what you see on the mobile side of the end market, which drives our tester business are you more incrementally positive or cautious here.
Speaker Change: Hi, Ross yes.
Speaker Change: We are we are incrementally more positive on mobile im not calling this really a.
Speaker Change: Broad market recovery, yet, but what we're seeing in particularly Iot devices, so talking about RF.
Speaker Change: In the mobile space we've seen.
Speaker Change: A little bit of an improvement in orders in the fourth quarter revenue in the first quarter as I mentioned before on the prior call.
Speaker Change: On the prior question sorry.
Speaker Change: The mobile segment is the only segment of our market, we saw an increased revenue quarter over quarter.
Speaker Change: Now.
Speaker Change: That's more particularly focus on the Android segment in some.
Speaker Change: As we understand customer our customers opportunity for sales in China and Korea.
Speaker Change: Not yet a broad based recovery, so I think mobile will be incrementally better going forward.
Speaker Change: But realistically I think a full blown recovery is more of a late this year to 2025 story.
Speaker Change: Great. Thank you and if I can ask a second question a little more broadly.
Speaker Change: What did your ordering our quoting activity is like right now, especially relative to three months ago are you starting to see some green shoots.
Speaker Change: The activity is still very much focused on new technologies, new applications, our customers win of a particular socket that drive some some demand.
Speaker Change: No I can't say that there is much of a broad based.
Ross Coal: Capacity addition, at this point Ross it's.
Ross Coal: We have we have qualifications we have.
Ross Coal: Design wins as a reference here on the call we had a design win for a Mems microphone application, it's a new product.
Ross Coal: The customer selected we we already shipped.
Ross Coal: First system here going into into their lab, and we have a production system shipping in the summertime.
Ross Coal: We had a design win.
Ross Coal: Completed qualification of our caster with the new instrument for display driver IC final test, which we called <unk>. So the second insertion of test. This is the same customer that has selected us for P. One last year and drove a $20 million of revenue in 2023, So we know that qualify.
Ross Coal: For <unk>, so so basically new products new opportunities more so than the general capacity that that is not happening so much at the moment.
Speaker Change: Okay, great. Thank you for clarifying.
Ross Coal: Yes.
Speaker Change: Thanks for taking my question.
Speaker Change: I was wondering.
Speaker Change: When business does recover which segment of your equipment do you think the handlers or testers will recover first and perhaps maybe just handicap, which end market you think will turn on first for Kevin.
Dave Lewis: Hi, Dave Lewis again.
Dave Lewis: No.
Speaker Change: We've been thinking that and it's really good question, but we've been thinking that the.
Dave Lewis: The mobile segment and computing will start coming in first.
Speaker Change: With that said with that comment said the reality of.
Ross Coal: Utilization dynamics today, it's still high.
Ross Coal: Higher in the automotive and industrial segment, when we look at utilization by market.
Ross Coal: And.
Ross Coal: Auto and industrial is hovering at about 78%. So it's pretty close to that capacity addition, threshold that we call that is at 80.
Ross Coal: While computing is much lower at 66 and mobile is at 67% so.
Ross Coal: It's a tale of two stories here because one we believe that the mobile and computing should be the one comment first on the other hand, we're a lot closer to should that threshold in the auto and industrial.
Ross Coal: I think thats, another way of saying it.
Ross Coal: It could actually flipped from what I have originally said it could come back on the auto.
Ross Coal: <unk> mobile.
Ross Coal: Okay.
Ross Coal: And.
Ross Coal:
Ross Coal: With the industrial and.
Ross Coal: In automotive utilization rates.
Ross Coal: I guess that suggests for you and your customers that.
Ross Coal: Is that in market has stabilized and we're done I don't want to say done with the inventory correction, but we're done going down in the in your biggest segment of business.
Speaker Change: I think Thats correct, Dave I think we're done growing down across segments right now I mean mobile has been.
Speaker Change: Fairly depressed for the last three quarters and auto and industrial is also very depressed right now.
Speaker Change: What is encouraging about auto and industrial is our customers' ability.
Speaker Change: To actually operate just below that threshold that 80% threshold it hasn't really sunk utilization hasn't really sunk in as much.
Ross Coal: Nevertheless customers have.
Ross Coal: Largely stopped buying capacity is right now they are buying specific technologies, but not general capacity.
Ross Coal: So, yes, I'm encouraged by the auto and industrial gas.
Ross Coal: Okay and then.
Ross Coal: Could you just remind us what your lead times are now I imagine they are back to normalized levels, but I'm just kind of curious what normalized levels are now.
Ross Coal: They are largely unchanged from last quarter Dave.
Dave Lewis: It's a little tricky to talk about lead times, when we're selling new technologies right. So if you talk about our handlers.
Ross Coal: About 15 weeks is a fair number of testers about 12 weeks and contacts there is about seven weeks with that I have to say, we're selling a lot of handler configurations that are brand new.
Ross Coal: Super High power dissipation.
Ross Coal: T core system for.
Ross Coal: Yeah.
Ross Coal: Sort of four processor test well, that's a new had its a new thermal system and the lead time on that is a little longer. So we're selling new technology applications that lead times are a little bit longer I would expect if we get more capacity buys.
Ross Coal: Standard products that despite having greater demand, we probably would see lead times go down a little bit first at first before they go up again.
Ross Coal: Okay.
Speaker Change: Final question from me is.
Speaker Change: When you kind of look out over the server upgrade cycle that's pending for.
Speaker Change: Artificial intelligence and all that.
Speaker Change: Associated components that are going to go into those new servers, there's going to be a lot more GPU and CPU content.
Speaker Change: Could you just talk about.
Ross Coal: How does that upgrade cycle might impact your product lines like I would think that maybe youre a thermal conditioning handlers would see an uptick from the server upgrade cycle, but.
Ross Coal: So that's my question is like when we do hit the fat part of the upgrade cycle for servers, how will that impact your business.
Speaker Change: Yes, so the <unk>.
Speaker Change: Server upgrade cycle is going to be better for us than the.
Ross Coal: Actual data center cycle, the datacenter cycle is lower volume very high ASP.
Ross Coal: Semiconductors.
Ross Coal: Very low volumes the data center you.
Ross Coal: Changes the equation here, you get a bit more volume so.
Ross Coal: Computing was I think five or 6% of our revenue last quarter, sorry in Q4, it came out at about 3% in Q1.
Ross Coal: I would expect that to improve a little bit on the second half of the year, assuming that that data center cycle is really going to pick up momentum has been as has been set.
Speaker Change: And just so I understand what youre, saying the data center versus the server.
Speaker Change: What do you mean, just help me understand which cycle, you're referring to there.
Speaker Change: The traditional servers or AI.
Speaker Change: I'm, sorry, I'm, sorry, I meant to say the server cycle.
Ross Coal: Okay.
Speaker Change: Thank you.
Speaker Change: Thanks.
Speaker Change: Our next question comes from the line of Krish Shankar with TD Cowen.
Robert: Hi, This is Robert.
Robert: Thanks for taking my question.
Robert: A bit of it's already been answered, but just in terms of the auto and industrial markets.
Robert: How this has shaped up.
Robert: Compared to I guess three months ago, if I remember correctly in the December quarter sales were down but the test utilization was actually on the higher side and you mentioned you can.
Robert: C a bit higher utilization in the March quarter. Despite.
Robert: Sales down a bit.
Robert: I'm just trying to think of how you are looking at that business market.
Robert: In the June quarter, and second half of the year.
Speaker Change: Yeah. So.
Speaker Change: Look I'm going to start with first quarter right.
Speaker Change: The utilization as I said, it's holding up pretty well, but revenue was down first quarter sequentially from fourth quarter both Randy.
Speaker Change: Both on the auto and the industrial side and pretty much the same at the same rate looking at looking forward, we don't really.
Speaker Change: Go ahead to predict revenue by market segment for future quarters, but I'd be tempted to say just based on the order pattern that industrial.
Speaker Change: Industrial will be weaker automotive automotive may hold up a little bit better than the industrial side I think the industrial side continue to.
Speaker Change: To lose some ground.
Speaker Change: Relative to the other markets and in the first quarter orders and therefore second quarter revenue.
Speaker Change: Great. Thank you that's very helpful.
Speaker Change: As a reminder, that is star one one to ask a question.
Speaker Change: Our next question comes from the line of Craig Ellis with B Riley.
Craig Andrew Ellis: Yes, thanks for taking the question what I wanted to do Luis just try a shorter term question and then a longer term question on the shorter term side.
Speaker Change: Sure.
Craig Andrew Ellis: This one goes back to some of the comments around downstream utilization and part of the businesses over the next couple of quarters, but.
Craig Andrew Ellis: Assuming utilization is near current levels for maybe drifts up a little bit in our seasonally stronger second half how do we think about the gives and takes with normal seasonality in the fourth quarter typically that business would be down much more on the system side been recurring.
Craig Andrew Ellis: But typically that would be off.
Craig Andrew Ellis: Much more significantly in platelet levels. So can you just help us understand how we should think about some of the seasonal dynamics given the unusual year rehab thus far.
Speaker Change: Sure Craig.
Speaker Change: As you know well this industry has both seasonality and cyclicality with seasonality essentially being.
Speaker Change: The.
Speaker Change: Obviously, the 12 month.
Speaker Change: Cycle right or the 12 month pattern of the wave and the cyclicality being more of a multi year I call. It as a four year give or take four year period.
Speaker Change: When you.
Speaker Change: When you overlay. The two you may have won obscuring the other and I think this is this is a classical year, where youre not going to see as much seasonality because we're coming off of <unk>.
Speaker Change: Trough, where we are at the moment.
Craig Andrew Ellis: All of the indications as the market starts to improve in the second half of the year and going into 2025 recovery.
Speaker Change: In other words I do.
Speaker Change: Thank you will see your typical seasonality this year thats just not possible when the cycle was dominating what's happening in the market.
Speaker Change: It's very very likely and I've seen this happen in prior cycles that you exit that you exit the year with a strong order momentum going into the next year. When otherwise you should have seen a pretty weak seasonal period in the fourth quarter and I think thats going to be the case again this year.
Speaker Change: Again, I think cyclicality, just overshadows seasonality in this environment.
Speaker Change: That's really helpful.
Speaker Change: And the second question is related to the target model so great to see the business.
Speaker Change: Raise the gross margin target by 100 basis points to 50% you guys have had really strong trailing.
Speaker Change: Two to three year gross margin execution. So can see about my question was more on the line above that revenue so from third quarter levels, we annualize a little north of $400 million.
Speaker Change: And so the target is about two five times that and what I wanted to do is give you the opportunity just to talk about.
Speaker Change: The path that you see for the business to go from.
Speaker Change: Our annualized at $400 million back $2 billion, what are some of the.
Speaker Change: Things that.
Speaker Change: Are going to be the biggest drivers to that growth, whether it's on the product side or other things that you and the team are working on Pip well in a much better demand environment deliver revenues that are at or near target. Thank you.
Pip: Well I can talk can talk a little bit about the business dynamic heading to two that target Craig we.
Speaker Change: And you can't necessarily pick the trough of the cycle and then try to try to explain it to.
Craig Andrew Ellis: Should that 1 billion target I think you've got to look at more of a through cycle. What is the number at the true through cycle level, which tends to be somewhere in the <unk>.
Craig Andrew Ellis: 750, <unk> low $800 million.
Speaker Change: What we typically call a normalized through cycle revenue level, how do we.
Speaker Change: How do we grow from there it's a combination of design wins on the tester side, which we have been scoring and by the way. They just don't translate into volume at the moment.
Speaker Change: Optimization and wins on the interface side.
Speaker Change: Which is holding pretty well considering the.
Speaker Change: Overall low utilization levels in the industry right now and an expansion expansion of our inspection and metrology business right.
Speaker Change: Those are the primary focus areas. We are from a market perspective, we're putting a tremendous amount of effort right now to align more to computing applications were a very strong believer on the long <unk>.
Speaker Change: Prospect long term prospects for computing and I don't mean necessarily just.
Speaker Change: AI data centers, which are low volume, but I think the wave that comes after that which is computing at the edge or AI at the edge. If you will windows get proliferated into cell phones into cars with higher level of autonomous driving.
Speaker Change: When you get more robotic systems and automated manufacturing tools, so basically AI at the edge should be a significant driver of sensors communication and ultimately computing processing power.
Speaker Change: So one of the key areas of investments for US today is on the thermal subsystems and the implementation of those thermal systems into our equipment.
Speaker Change: To enable capturing of share and supplying and supporting our customers when they start proliferating AI at the edge, so to speak or more computing processing at the consumer level products. So those are the primary drivers as we see our target too.
Speaker Change: To get to get up to a $1 billion.
Speaker Change: Great. Thank you.
Speaker Change: Our next question comes from the line of Toshi Hari with Goldman Sachs.
Toshiya Hari: Hi, Thank you so much for taking the question.
Toshiya Hari: Luis you've given quite a bit of color.
Toshiya Hari: In terms of what Youre seeing from an end demand or end market perspective, I was hoping you could share.
Toshiya Hari: What youre seeing by device type.
Toshiya Hari: <unk> exposure to various device types, but.
Speaker Change: Any any specific areas of relative strength or relative weakness MCU.
Speaker Change: MCU analog RF etcetera that would be helpful. Thank you.
Speaker Change: Okay.
Speaker Change: I don't have the data exactly in front of me by device type I can qualitatively tell you.
Speaker Change: The analog to general analog semiconductor space is.
Speaker Change: Weakest at the moment not signal significant strength also in micro controllers.
Speaker Change: We see is.
Speaker Change: Some some interesting dynamics in the processor space as I said earlier more of it is in the high ASP low quantities, but that is said to be migrating more to servers, and therefore, a little bit better improvement in the quantity side. We've also.
Speaker Change: So seen recently some improvement.
Speaker Change: I see.
Speaker Change: Manufacturing and demand for <unk>.
Speaker Change: For test and handling equipment.
Speaker Change: I would say battery management systems, which is part of analog at the end of the day, but BMS is becoming a bit of a mixed signal type device today.
Speaker Change: <unk> management systems are.
Speaker Change: Weak, but maybe coming to a threshold of.
Speaker Change: Threshold demand again.
Speaker Change: So hopefully that gives you a bit of color from a device device segment science.
Speaker Change: We don't participate today in memory right. So I didn't comment on memory, but for future data does not participate in the memory space.
Speaker Change: Sure, Yes, that's really helpful.
Speaker Change: As a quick follow up you talked a little bit about.
Speaker Change: Your win and display drivers I think you've talked about that in the past as well but.
Speaker Change: I think that market is currently.
Speaker Change: Eliminated by one one of your peers. So I'm sure you're Korean customers are very happy that you guys are delivering product and technology, but I guess my question is.
Speaker Change: How big is that Tam today, I think it's a couple of hundred million, but if you can if you can confirm that that would be super helpful. And then how should we think about your ability to grow share over time I know it takes time, but since you have one of the bigger customers.
Speaker Change: Secured.
Speaker Change: Must be a promising opportunity for yourselves. So just curious how youre thinking about that business. Thank you.
Speaker Change: Yes.
Speaker Change: Appreciate you are right about the couple of hundred million dollars, we do pack that that debt.
Speaker Change: <unk> at $200 million. The only problem is you said what is it now.
Speaker Change: They're now part of the now part of it is the problem. So on average it is a $200 million Tam.
Speaker Change: We are now supplying to.
Speaker Change: Two customers that make up about 50% of that Tam. So we view it as a basically a $100 million opportunity.
Speaker Change: That doesn't mean, we're going to get 100% of it I think we will share it with our competitor.
Speaker Change: We have had worked very closely with them supplying to the Taiwanese manufacturer and now now we have been engaged with the Korean manufacturer, where last year, we captured their first insertion.
Speaker Change: <unk> probe.
Speaker Change: Represent about 40% of their capital spending and have generated $20 million of revenue for us last year. We've now got qualified for their second insertion, which is final test.
Speaker Change: We are yet to see how much of the remaining here, which.
Speaker Change: Could be about a $30 million opportunity how much of that we're going to get when business conditions normalize again. So all in all you are correct about a $200 million Tam. This year is depressed out of that $200 million I think we can now serve $100 million.
Speaker Change: That's very helpful. Thank you.
Speaker Change: So I'd just like to close with saying Thank you for joining our call today and we look forward to seeing you soon.
Speaker Change: Okay.
Speaker Change: [music].