Q2 2024 Cohu Inc Earnings Call
Good day and thank you for standing by. Welcome to Cohu's second quarter 2024 financial results conference call.
Operator: Financial results conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during this session, you'll need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again.
Operator: This is a results conference call, so at this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you'll need to press star 1 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to Jeff Jones, Chief Financial Officer. Please go ahead.
Speaker Change: At this time, all participants are in a listen-only mode.
Speaker Change: After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you'll need to press star 1 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 1 again.
Operator: Please be advised that today's conference is being recorded.
Jeff Jones: I would now like to hand the conference over to Jeff Jones, Chief Financial Officer. Please go ahead.
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.
Luis Muller: Good afternoon and welcome to our conference call to discuss Cohu's second quarter, 2022 results, and third quarter outlook. I'm joined today by our President and CEO, Luis Muller. If you need a copy of our earnings release, you may access it from our website at Cohu.com or by contacting Cohu Investor Relations. There's also a slide presentation in conjunction with today's call that may be accessed on Cohu's website in the Investor Relations section. Replace of this call will be available via the same page after the call concludes.
Jeffrey D. Jones: Good afternoon, and welcome to our conference call to discuss Cohu's second quarter 2024 results and third quarter outlook. I'm joined today by our president and CEO, Luis Muller.
Jeffrey D. Jones: Good afternoon and welcome to our conference call to discuss Cohu's second quarter 2024 results and third quarter outlook.
Jeffrey D. Jones: If you need a copy of our earnings release, you may access it from our website at Cohu.com or by contacting Cohu Investor Relations. There is also a slide presentation in conjunction with today's call that may be accessed on Cohu's website in the investor relations section. Replays of this call will be available on the same page after the call concludes. Now, to the safe harbor.
Jeffrey D. Jones: I'm joined today by our President and CEO , Luis Muller. If you need a copy of our earnings release, you may access it from our website at Cohu.com or by contacting Cohu Investor Relations.
Speaker Change: There's also a slide presentation in conjunction with today's call that may be accessed on Cohu's website in the investor relations section. Replays of this call will be available via the same page after the call concludes.
Luis Muller: Now to the safe harbor. During today's call, we will make forward-looking statements reflecting management's current expectations concerning Cohu's future business. These statements are based on current information that we have assessed, but which, by its nature, is subject to rapid and even abrupt changes. We encourage you to review the forward-looking statement section of the slide presentation and the earnings release, as well as Cohu's filings with the SEC, including the most recently filed Form 10-K and Form 10-Q. Our comments speak only as of today, July 31, 2024, and Cohu assumes no obligation to update these statements for developments occurring after this call.
Jeffrey D. Jones: During today's call, we will make forward-looking statements reflecting management's current expectations concerning Cohu's future business. These statements are based on current information that we have assessed, but which, by its nature, is subject to rapid and even abrupt changes. We encourage you to review the forward-looking statement section of the slide presentation and the earnings release, as well as Cohu's filings with the SEC, including the most recently filed Form 10-K and Form 10-Q.
Speaker Change: Now to the safe harbor. During today's call, we will make forward-looking statements reflecting management's current expectations concerning Cohu's future business.
Speaker Change: These statements are based on current information that we have assessed, but which by its nature is subject to rapid and even abrupt changes.
Speaker Change: We encourage you to review the forward-looking statement section of the slide presentation and the earnings release, as well as Cohu's 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, July 31st, 2024, 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 Muller, CoU's president and CEO.
Speaker Change: Our comments speak only as of today, July 31st, 2024, and Cohu assumes no obligation to update these statements for developments occurring after this call.
Luis Muller: Finally, during this call, we will discuss certain non-GAAP financial measures. Please refer to our earnings release and slide presentation for reconciliation for the most comparable GAAP measures.
Speaker Change: 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.
Luis Muller: Now I'd like to turn the call over to Luis Mueller, Cohu's President and CEO, Luis. Good afternoon. Second quarter results were in line with guidance, with non-GAAP gross margin of approximately 45 percent, as we continue to navigate the trough of this semiconductor cycle. Revenue of nearly 105 million was split 66 percent recurring and the balanced systems. Systems revenue increased sequentially in consumer, optoelectronic, and computing markets, although offset by the clients in automotive, industrial, and mobile. Despite soft market conditions, we continue to execute well on new product developments and deliver on design wins to expand customer and addressable markets.
Speaker Change: Now I'd like to turn the call over to Luis Muller, CoU's President and CEO . Luis?
Luis Antonio Muller: Good afternoon. Second quarter results were in line with guidance, with a non-gap gross margin of approximately 45% as we continue to navigate the trough of this semiconductor cycle. Revenue of nearly $105 million was split 66% recurring and the balance system. Systems revenue increased sequentially in consumer, optoelectronic, and computing markets, although offset by declines in automotive, industrial, and mobile. Despite soft market conditions, we continue to execute well on new product developments and deliver on design wins to expand customer and addressable markets.
Luis Antonio Muller: Good afternoon. Second quarter results were in line with guidance with non-gap gross margin of approximately 45% as we continue to navigate the trough of this semiconductor cycle.
Luis Antonio Muller: Revenue of nearly $105 million was split 66% recurring in the balanced systems.
Speaker Change: Systems revenue increased sequentially in consumer, optoelectronic, and computing markets, although offset by declines in automotive, industrial, and mobile.
Speaker Change: Despite soft market conditions, we continue to execute well on new product developments and deliver on design wins to expand customer and addressable markets.
Luis Muller: The most notable validation of our strategy was a recent customer benchmark award of an estimated $100 million business over five years for test automation and inspection systems. This award includes Krypton, our new inspection metrology platform, targeting larger semiconductor devices. We also had a second customer select Krypton last quarter for an aerospace application. Combined with Cohu's AI inspection, which is part of our DI core software suite, Krypton is delivering higher yield and productivity while enabling our customers' push for automating backend manufacturing. Putting this into perspective, Cohu's inspection metrology revenue was about $70 million during the prior upcycle, and primarily driven by mobile semiconductor inspection.
Luis Antonio Muller: The most notable validation of our strategy was a recent Customer Benchmark Award of an estimated $100 million business over five years for test automation and inspection systems. This award includes Krypton, our new inspection metrology platform targeting larger semiconductor devices. We also had a second customer select Krypton last quarter for an aerospace application, combined with Cohu's AI inspection, which is part of our DI core software suite. Krypton is delivering higher yield and productivity while enabling our customers to push for automating back-end manufacturing.
Speaker Change: The most notable validation of our strategy was a recent customer benchmark award of an estimated 100 million dollar business over five years for test automation and inspection systems.
Speaker Change: This award includes Krypton, our new inspection metrology platform targeting larger semiconductor devices.
Speaker Change: We also had a second customer select Krypton last quarter for an aerospace application.
Speaker Change: combined with Cohu's AI inspection, which is part of our DI core software suite, Krypton is delivering higher yield and productivity while enabling our customers push for automating back-end manufacturing.
Luis Antonio Muller: Cohu's inspection metrology revenue was about $70 million during the prior upcycle and primarily driven by mobile semiconductor inspection. We're targeting to grow this business to $100 million over the midterm, expanding applications to other market segments where we can add value to our customers.
Speaker Change: putting this into perspective.
Speaker Change: Cohu's inspection metrology revenue was about 70 million dollars during the prior upcycle and primarily driven by mobile semiconductor inspection.
Luis Muller: We're targeting to grow this business to $100 million over the mid-term, expanding applications to other market segments where we can add value to our customers.
Speaker Change: We're targeting to grow this business to $100 million over the midterm, expanding applications to other market segments where we can add value to our customers.
Luis Muller: We also had a good quarter in our tester business and placed our Diamond X tester at two subcontractors in Taiwan. We received the first order for a Diamond X mix signal configuration from a leading test subcontractor in Chenli, Taiwan, and another Taiwanese OSAT selected Diamond X to test RFIOT devices from a leading IC fabulous company, where tracking to plan to expand the Diamond X customer footprint, positioning the tester as a cost-effective, broad application platform that enables customers to efficiently test or roadmap products in the coming decade.
Luis Antonio Muller: We also had a good quarter in our tester business and placed our Diamond X tester at two subcontractors in Taiwan. We received the first order for a Diamond X mixed signal configuration from a leading test subcontractor in Chengli, Taiwan, and another Taiwanese OSAT selected DiamondX to test RFIoT devices from a leading IC Fabless. We're tracking to plan to expand the DiamondX customer footprint, positioning the tester as a cost-effective, broad application platform that enables customers to efficiently test our roadmap products in the coming decades.
Speaker Change: We also had a good quarter in our tester business and placed our Diamond X tester at two subcontractors in Taiwan.
Speaker Change: We received the first order for a Diamond X mixed-signal configuration from a leading test subcontractor in Chengli, Taiwan, and another Taiwanese OSAT selected Diamond X to test RFIoT devices from a leading IC Fabless company.
Speaker Change: We're tracking to plan to expand the DiamondX customer footprint positioning the tester as a cost-effective broad application platform that enables customers to efficiently test our roadmap products in the coming decade.
Luis Muller: In support of this growth strategy, we announced in June the opening of a new engineering design center in Penang for development of test instrumentation. While sub-seasonal test utilization in the automotive market is impacting near-term revenue for both systems and interface products, we're pleased to have landed a major silicon carbide customer for our new C Strider power probe card. C Strider utilizes co-huse horizontal MEMS technology to enable improved performance and durability for testing power semiconductors such as silicon carbide. The product enables high current carrying capacity and with a multi-site pressure technology enables high voltage test at temperature.
Luis Antonio Muller: In support of this growth strategy, we announced in June the opening of a new engineering design center in Penang for the development of test instrumentation. While sub-seasonal test utilization in the automotive market is impacting near-term revenue for both systems and interface products, we are pleased to have landed a major silicon carbide customer for our new Seastrider Power Probe Cart. C-STRIDER utilizes Cohu's horizontal MEMS technology to enable improved performance and durability for testing power semiconductors, such as silicon carbide.
Speaker Change: In support of this growth strategy, we announced in June the opening of a new engineering design center in Penang for development of test instrumentation.
Speaker Change: While sub-seasonal task utilization in the automotive market is impacting near-term revenue for both systems and interface products,
Speaker Change: We are pleased to have landed a major silicon carbide customer for our new Sea Strider Power Probe Card.
Speaker Change: CSTRIDER utilizes Cohu's Horizontal MEMS technology to enable improved performance and durability for testing power semiconductors such as silicon carbide.
Luis Antonio Muller: The product enables high current carrying capacity and, with its multi-site pressure technology, enables high voltage test at temperature. This is Cohu's newest offering in probe car technology, designed to meet the expanding needs of power semiconductor testing.
Speaker Change: The product enables high current carrying capacity, and with a multi-site pressure technology, enables high voltage test at temperature.
Luis Muller: This is Co-Huse newest offering in probe card technology, designed to meet the expanding needs of power semiconductor testing.
Speaker Change: This is Cohu's newest offering in probe car technology, designed to meet the expanding needs of power semiconductor testing.
Luis Muller: Our goal since the acquisition of Xera almost six years ago has been to drive interface revenue penetration to 50 percent or more of co-huse systems. Last quarter results placed us at a two-year average penetration of 44 percent, or about nine points higher than when we started this journey. In this soft market environment, we're applying the same playbook of past cycles and having diligent and lowering expenses effectively delivering a strong growth margin while preserving critical R&D investments. Estimated test utilization has improved now for the second quarter in a row to 74 percent. A two-point sequential increase over the first quarter.
Speaker Change: Our goal since the acquisition of Xera almost six years ago has been to drive interface revenue penetration to 50% or more of Cohu's systems.
Speaker Change: Last quarter results placed us at a two-year average penetration of 44% or about nine points higher than when we started this journey.
Luis Antonio Muller: In this soft market environment, we're applying the same playbook of past cycles and have been diligent in lowering expenses. The positive news comes tainted by automotive utilization down one point quarter over quarter to 77% at the end of June. Let me now turn it over to Jeff to provide further details on second quarter results and third quarter guidance.
Speaker Change: In this soft market environment, we are applying the same playbook of past cycles and have been diligent in lowering expenses
Speaker Change: effectively delivering a strong gross margin while preserving critical R&D investments.
Speaker Change: Estimated test sterilization has improved now for the second quarter in a row to 74 percent. A two-point sequential increase over the first quarter.
Luis Muller: Although we expect broad capacity orders to be triggered around 80 percent test utilization, it has been encouraging to see the quarter-over-quarter improvements, particularly in computing that is up three points to 20 to 70 percent. and Mobile that suck two points to 69% utilization. The positive news comes tampered by automotive utilization down one point, quarter over quarter, to 77% at the end of June.
Speaker Change: Although we expect broad capacity orders to be triggered around 80% death sterilization, it has been encouraging to see the quarter-over-quarter improvements, particularly in computing, that is up three points sequentially to 70%.
Speaker Change: and Mobil that's up two points to 69% utilization.
Speaker Change: The positive news comes tampered by automotive utilization down one point quarter over quarter to 77% at the end of June .
Luis Muller: Our data indicates that Cohu's largest customers in the analog semiconductor market are starting to see improved test cell utilization, likely at a pace that will put the industry in a recovery mold in the first half of 2025. In the meantime, we're carefully managing expenses to optimize cash flows, but now more than ever, focused on design wins and execution of innovative product developments.
Speaker Change: Our data indicates that Cohu's largest customers in the analog semiconductor market are starting to see improved test cell utilization.
Speaker Change: likely at a pace that will put the industry in a recovery mode in the first half of 2025.
Speaker Change: In the meantime, we're carefully managing expenses to optimize cash flows, but now more than ever focus on design wins and execution of innovative product developments.
Jeff Jones: Let me now turn it over to Jeff to provide further details on second quarter results and third quarter guidance. Jeff, thanks, Luis.
Speaker Change: Let me now turn it over to Jeff to provide further details on second quarter results and third quarter guidance.
Jeff Jones: Before I walk through the Q2 results in Q3 guidance, please note that my comments that follow all 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 on the investor page of our website. Now turning to the Q2 financial results, Cohu delivered revenue and profitability in line with our guidance. Q2 revenue was 104.7 million. Recurring revenue, which is largely consumable driven and more stable than systems revenue, represented 66 percent of total revenue in Q2.
Speaker Change: Jeff.
Jeffrey D. Jones: Thanks Luis. Before I walk through the Q2 results and Q3 guidance, please note that my comments that follow all refer to non-GAAP figures.
Jeffrey D. Jones: 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 on the investor page of our website.
Jeffrey D. Jones: Now turning to the Q2 financial results, Cohu delivered revenue and profitability in line with our guidance.
Jeffrey D. Jones: Q2 revenue was $104.7 million. Recurring revenue, which is largely consumable-driven and more stable than systems revenue, represented 66% of total revenue in Q2.
Jeffrey D. Jones: Q2 revenue was $104.7 million. Recurring revenue, which is largely consumable-driven and more stable than systems revenue, represented 66% of total revenue in Q2.
Jeff Jones: During the second quarter, no customer accounted for more than 10 percent of sales. Q2 gross margin was 45.1% in line with guidance and driven by Cohu's resilient recurring business. Operating expenses for Q2 were 46.9 million and lower than guidance by approximately 1.6 million, driven by lower labor and labor-related costs. Second quarter, non-GAAP operating income was approximately break even and adjusted EBITDA was 3.8%. Interest income, net of interest expense and a foreign currency loss of approximately 400,000, was 1.8 million. Q2 pre-tax income consists of foreign profits combined with a loss in the US. The Q2 tax provision of 2.7 million reflects tax expense on foreign profits, but no tax benefit from the US loss due to our valuation allowance against deferred tax assets.
Jeffrey D. Jones: During the second quarter, no customer accounted for more than 10% of sales.
Jeffrey D. Jones: Q2 gross margin was 45.1% in line with guidance and driven by Cohu's resilient recurring business.
Jeffrey D. Jones: Operating expenses for Q2 were $46.9 million and lower than guidance by approximately $1.6 million, driven by lower labor and labor related costs.
Jeffrey D. Jones: Second quarter non-GAAP operating income was approximately breakeven, and adjusted EBITDA was 3.8%; non-GAAP EPS for the second quarter was a one cent loss. Now moving to the balance sheet, we generated positive cash flow from operations in Q2 of $1.1 million, despite trough revenues. Overall, Cohu's balance sheet remains strong 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: Second quarter non-GAAP operating income was approximately break-even and adjusted EBITDA was 3.8 percent.
Jeffrey D. Jones: Interest income, net of interest expense, and a foreign currency loss of approximately $400,000 was $1.8 million.
Jeffrey D. Jones: Q2 pre-tax income consists of foreign profits combined with a loss in the U.S.
Jeffrey D. Jones: The Q2 tax provision of $2.7 million reflects tax expense on foreign profits, but no tax benefit from the U.S. loss due to our valuation allowance against deferred tax assets.
Jeff Jones: Non-GAAP EPS for the second quarter was a 1-cent loss. Now moving to the balance sheet, we generated positive cash flow from operations in Q2 of 1.1 million, despite trough revenues. Overall, cash and investments decreased by 9 million during Q2 to 262 million due mainly to 8 million used to repurchase 267,000 shares of Cohu common stock. CapEx in Q2 was 2 million, with approximately 1 million related to our factories in the Philippines and Malaysia supporting operations for our interface and automation business. Over all, Cohu's balance sheet remains strong 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: non-GAAP EPS for the second quarter was a one cent loss.
Jeffrey D. Jones: Now moving to the balance sheet, we generated positive cash flow from operations in Q2 of $1.1 million despite trough revenues.
Jeffrey D. Jones: Overall, cash and investments decreased by $9 million during Q2 to $262 million, due mainly to $8 million used to repurchase 267,000 shares of Cohu common stock.
Jeffrey D. Jones: CapEx in Q2 was $2 million, with approximately $1 million related to our factories in the Philippines and Malaysia, supporting operations for our interface and automation businesses.
Jeffrey D. Jones: Overall, Cohu's balance sheet remains strong 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.
Jeff Jones: Now moving to our Q3 outlook, we're guiding Q3 revenue to be in the range of 95 million plus or minus 5 million, reflecting continued weakness across end markets. Although Tesla utilization at customers' production facilities increased quarter over quarter, it remains below the historical threshold for customers to add more test capacity. Q3 gross margin is forecasted to be approximately 45 percent, better than the financial target model at this level of revenue, due in part to Cohu's 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: Now moving to our Q3 outlook. We're guiding Q3 revenue to be in the range of $95 million plus or minus $5 million, reflecting continued weakness across end markets, and although test cell utilization at customers' production facilities increased quarter over quarter, it remains below the historical threshold for customers to add more test capacity, which adds resilience to profitability and provides consistent cash flow through industry cycles. We expect gross margin to increase again when our revenue recovers with a broader semiconductor device market recovery and with better absorption of our factory's infrastructure costs.
Jeffrey D. Jones: Now moving to our Q3 outlook. We're guiding Q3 revenue to be in the range of $95 million plus or minus $5 million.
Jeffrey D. Jones: Reflecting continued weakness across end markets and although test cell utilization at customers production facilities increased quarter over quarter it remains below the historical threshold for customers to add more test capacity.
Jeffrey D. Jones: Q3 gross margin is forecasted to be approximately 45% better than the financial target model at this level of revenue due in part to Cohu's differentiated products and our stable high margin recurring business.
Jeffrey D. Jones: which adds resilience to profitability and provides consistent cash flow through industry cycles.
Jeff 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. Operating expenses for Q3 are projected to decrease about a million dollars quarter over quarter to approximately 46 million due primarily to our reduction labor and optimizations as we completed certain product developments. As I noted on prior earnings calls, we have taken action to reduce operating expenses without sacrificing critical new product investments while navigating through the trough of this cycle. As a result, we're now modeling operating expenses to average approximately 46 million per quarter in the second half of this year.
Speaker Change: We expect gross margin to increase again when our revenue recovers, with a broader semiconductor device market recovery, and with better absorption of our factory's infrastructure costs.
Jeffrey D. Jones: Operating expenses for Q3 are projected to decrease about $1 million quarter over quarter to approximately $46 million due primarily to a reduction in labor and optimizations as we complete certain product developments while navigating through the trough of this cycle. As a result, we're now modeling operating expenses to average approximately $46 million per quarter in the second half of this year. We expect Q3 adjusted EBITDA to be approximately 1%. Until markets recover, we expect a similar tax provision profile as we navigate through this cycle. The basic share count for Q3 is expected to be approximately 47 million shares.
Jeffrey D. Jones: Operating expenses for Q3 are projected to decrease about a million dollars quarter over quarter to approximately 46 million due primarily to a reduction in labor and optimizations as we completed certain product developments.
Jeffrey D. Jones: As I noted on prior earnings calls, we have 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 $46 million per quarter in the second half of this year.
Jeff Jones: We're projecting Q3 interest income net of interest expense and foreign currency impacts to be approximately 1.8 million at current interest rates. We expect Q3 adjusted EBITDA to be approximately 1 percent. The Q3 non-GAAP tax provision is expected to be approximately 1.8 million because of tax on foreign profits without benefit from the U.S. loss. Until markets recover, we expect a similar tax provision profile as we navigate through this cycle. The basic share count for Q3 is expected to be approximately 47 million shares.
Jeffrey D. Jones: We're projecting Q3 interest income, net of interest expense, and foreign currency impacts to be approximately 1.8 million at current interest rates.
Jeffrey D. Jones: We expect Q3 adjusted EBITDA to be approximately 1%.
Jeffrey D. Jones: The Q3 non-GAAP tax provision is expected to be approximately $1.8 million because of tax on foreign profits without benefit from the U.S. loss.
Jeffrey D. Jones: Until markets recover, we expect a similar tax provision profile as we navigate through this cycle.
Jeffrey D. Jones: The basic share count for Q3 is expected to be approximately 47 million shares.
Jeff Jones: That concludes our remarks, and now we'll open the call to questions.
Jeffrey D. Jones: That concludes our remarks and now we'll open the call to questions.
Operator: As a reminder, if you'd like to ask a question at this time, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. Please stand by while we compile the Q&A roster.
Operator: As a reminder, if you'd like to ask a question at this time, please press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 1 again. Our first question will come from the line of Brian Chin with Stiefel.
Speaker Change: As a reminder, if you'd like to ask a question at this time, please press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 1 again.
Speaker Change: Please stand by while we compile the Q&A roster.
Brian Chin: Our first question will come from the line of Brian Chin with Steve Hull. Hi there, good afternoon. Thanks for letting us ask a few questions.
Speaker Change: Our first question will come from the line of Brian Chin with Stiefel.
Brian Chin: I guess King first just provides a little color on the revenue outlook in Q3 by equipment versus recurring and also across the key markets like mobility and industrial and emergency.
Brian Edward Chin: Hi there, good afternoon. Thanks for letting us ask a few questions.
Brian Edward Chin: I guess, can you first just provide a little color on the revenue outlook of 3Q by equipment versus recurring, and also across key markets like mobility and industrial automotive?
Luis Muller: Hey Brian, I'll provide the recurring versus system. So in Q3, we're expecting recurring to be about 68% of the revenue, 32% for system. Yeah, I think you can look at the presentation, Brian.
Speaker Change: Hey Brian , I'll provide the recurring versus system. So in Q3 we're expecting recurring to be about 68% of the revenue, 32% for systems.
Luis Muller: We have the revenue, the systems revenue distribution by markets where it came out stronger in the mobile as a percentage of total, followed by at 9%, automotive 7, industrial, sumer 5, computing 4%. Thank you.
Speaker Change: Yeah, I think you can look at the presentation, Brian . We have the revenue, the systems revenue distribution by markets where it came out stronger in
Speaker Change: In the mobile, as a percentage of total, followed by at 9%, Automotive 7, Industrial, Consumer 5, Computing 4%.
Luis Muller: We're also, and you expect a similar composition in Q3 for those markets? No, when you look forward, we saw sort of strengthening the man in the computing and mobile markets and continued weakness in automotive.
Speaker Change: Thank you. Also, do you expect a similar composition in Q3 for those markets?
Speaker Change: No, when you look when you look forward we saw sort of strengthening demand in the computing
Brian Chin: So I think what you see going forward is maybe computing will climb up the ladder and get closer to the mobile segment. A couple of a couple more.
Speaker Change: in Mobile Markets and Continued Weakness in Automotive. So I think what you see going forward is maybe computing will climb up the ladder and get closer to the mobile segment.
Brian Chin: For me, do you anticipate test cell utilization trending higher into year-end? And yeah, after operating at lower utilization for many quarters of that year, is that, imagine there's been some retirement or maybe cannibalization of some of your installed base? As a precursor to that, maybe shipment pickup that you anticipate in the first half next year. Are you seeing test handler kid or spares revenue start to tick up? And do you have any visibility into sort of the 4-key revenue trend? Yeah, and so multiple questions there.
Speaker Change: [inaudible]
Speaker Change: Just a couple more for me. Do you anticipate test cell utilization trending higher into year-end? And yeah, after operating at lower utilization...
Speaker Change: for many quarters, if not years. I'd imagine there's been some retirement or maybe cannibalization of some of your installed base as a precursor to that maybe shipment pickup that you
Speaker Change: anticipate in first half of next year? Are you seeing test handler kit or spares revenue start to tick up and do you have any visibility into sort of the 4Q revenue trend?
Luis Muller: As far as utilization goes, we don't forecast utilization, Brian. We don't really have a model for that. But at city at 74% and considering that end of the year is typically the evenly lower quarter for the man, I would adventure to say that utilization will be flatish to perhaps up a point or two by the end of the year. So that's why, in the utilization front, it really depends on the puts and takes between improvements in mobile and computing and where automotive goes from here. I forgot what the other elements of your question were, but I think you talked about sort of how that impacts cannibalization of equipment.
Speaker Change: Yeah, so multiple questions there. As far as utilization go, we don't forecast utilization, Brian . We don't really have a model for that.
Speaker Change: But sitting at 74% and considering that end of the year is typically the seasonally...
Speaker Change: Lower Quarter for Demand
Speaker Change: I would venture to say that utilization will be flattish to perhaps up a point or two by the end of the year. So that's all on the utilization front. It really depends on the puts and takes between improvements in mobile and computing and where automotive goes from here.
Speaker Change: I forgot what the other elements of your question were, but I think you talked about sort of how that impacts cannibalization of equipment, and we're certainly seeing that cannibalization happen right now at our customers, which has negatively impacted sale of spare parts.
Luis Muller: And we're certainly seeing that cannibalization happen right now at our customers, which has negatively impacted sale of spare parts. Quite honestly, it has even negatively impacted sale of interface products, where certain customers are sub optimizing the utilization of the equipment that they have simply because they don't have that need in as much to run production, and they're trying to conserve expenses. We expect that the first thing, the first real signs we'll see will be a surge in spares the man before we see a demand increase in equipment. We have not seen that in the second quarter.
Speaker Change: Quite honestly, it has even negatively impacted sale of interface products where certain customers are.
Speaker Change: sub-optimizing the utilization of the equipment that they have simply because they don't have that need in as much to run production and they are trying to conserve expenses.
Speaker Change: We expect that the first thing, the first real signs we'll see will be a surge in spares demand before we see a demand increase in equipment. We have not seen that in the second quarter.
Brian Chin: I guess sort of maybe just to clarify that part of my multiple question there.
Speaker Change: Yeah, got it. And I guess sort of maybe just to clarify that part of my multiple part question there.
Brian Chin: AT companies, they pointed to something like double-digit declines in the auto industrial and even the mobility test markets this year.
Speaker Change: ATE companies, you know, they pointed to something like double-digit declines in the auto industrial and even the mobility test markets this year. How much do you see the test handler market X memory down this year and in relation to ATE?
Brian Chin: How much do you see the test handling market X memory down this year and in relation to ATEs? But I ask that also because these equipment run rates look like made in three and really sub maintenance levels.
Speaker Change: And I ask that also because these equipment run rates, you know, look like maintenance or even really sub-maintenance levels. And so, I mean, when was the last year that Handler Market maybe was this low, maybe 2018? And what was the trend in the market, you know, the following year? I imagine it was a pretty decent bounce back.
Luis Muller: And so, I mean, when was the last year that Hannah market maybe was this low, maybe 2018? And what was the trend in the market the following year? I imagine it was a pretty decent doubt. Yeah, I don't have a specific year over a year; maybe Jeff does, but I don't have it. I think it keeps here for the handler market, but I think it is, I think about this here in a second. Yeah, it's definitely a double-digit sort of into teens decline, perhaps even 20 years over year in 24. It's lasting; it's actually lasting fairly long now if you think about the quarter-over-quarter sequence since kind of the middle of last year into where we are today.
Brian Edward Chin: What was the trend in the market, you know, the following year? I imagine it was a pretty decent decline.
Speaker Change: Yeah, I don't have a specific year-over-year, maybe Jeff does, but I don't have it on my fingertips here for the Handler Market, but I think it is...
Speaker Change: Think about this in a second, I think, yeah, it's definitely a double-digit, sort of in the teens, decline, perhaps even 20% decline year over year in 24.
Luis Antonio Muller: It's actually been going on fairly long now, if you think about the quarter-over-quarter sequence since kind of the middle of last year into where we are today. So to go up 40, 50, even 60% on a year-over-year basis when you have a prolonged drought like we are having right now in the test, in the test, in a test-handled space. But you know, with that said, I don't have a prediction for you right now for 2025 other than
Speaker Change: It's actually lasting fairly long now, if you think about the quarter-over-quarter sequence since kind of the middle of last year into where we are today.
Luis Muller: So, if you look at past cycles, it's not uncommon to see revenue set to go up 40, 50, even 60% on a year-over-year basis when you have a prolonged drought like we are having right now in a test, in a test, in a test handler space. But with that said, don't have a prediction for you right now for 2025 other than the general discussion with customers is positive, particularly in computing and mobile in the near term, some indicative of industrial market recovery as well in the beginning of 25. And then I think the wild card here is with the, where's the turn of the corner on the automotive market?
Speaker Change: If you look at past cycles, it's not uncommon to see revenue
Speaker Change: So to go up 40, 50, even 60% on a year-over-year basis when you have a prolonged drought like we are having right now in the test, in the test and the test handler space.
Speaker Change: But, you know, with that said, I don't have a prediction for you right now for 2025 other than...
Speaker Change: The general discussion with customers is positive.
Speaker Change: particularly in computing and mobile in the near term, some indicatives of industrial market recovery as well in the beginning of 25. And then I think the wild card here is where's the turn of the corner on the automotive market.
Brian Chin: Okay, that's helpful. Thank you.
Speaker Change: Okay, that's helpful. Thanks, Luis.
Ross Cole: Our next question will come from the line of Ross Cole with Needham in Company. Hi, thank you for taking my question on behalf of Charles. So, you had mentioned with crypto on you have two new customers, and previously I know you had mentioned that crypto had been qualified.
Jeffrey D. Jones: Thanks, Jeff.
Speaker Change: Our next question will come from the line of Ross Cole with Needham & Company.
Ross Cole: Hi, thank you for taking my question on behalf of Charles.
Ross Cole: So you had mentioned with Krypton you have two new customers, and previously I know you had mentioned that Krypton had been qualified. So are these the separate customers from the qualification you had previously mentioned, or is it the same?
Ross Cole: So, are these the separate, separate customers from the qualification you had previously mentioned, or is it the same?
Luis Muller: Hi Ross, we issued a press release here at the end of June about a qualification at a major customer automotive customer in Europe. Now, we're talking about two; one of these two is the one that was part of that press release, but we also had a second customer qualified crypto, and at the very end of June, also a European customer, coincidentally, both European customers.
Speaker Change: Hi Ross, we issued a press release here at the end of June about a qualification at a major automotive customer in Europe .
Speaker Change: Now we're talking about two. One of these two is the one that was part of that press release. But we also had a second customer, Qualified Crypton, at the very end of June .
Ross Cole: So, we have two customers qualified: one in the automotive space, one for an aerospace application for starters, and, like I said, one of these was part of the press release we did in the middle of June. Great, thank you for clarifying.
Speaker Change: Also a European customer coincidentally, both European customers. So we have two customers qualified, one in the automotive space, one for an aerospace application for starters, and like I said, one of these were part of the press release we did in the middle of June .
Ross Cole: And then, if I can ask a second question as well, it sounds like you still expect auto and industrial weakness to continue a little longer. So, you're seeing the mobile PC recovery first, and when you're expecting that to start taking the recovery mode to start taking place around the first half 25, it sounds like you said. Computing and mobile, we're going to see the turn this year already. I mean, we're seeing the demand and the revenue expectation here in the fourth quarter.
Speaker Change: Great, thank you for clarifying.
Speaker Change: And then if I can ask a second question as well, it sounds like you still expect auto and industrial weakness to continue a little longer, so you're seeing the mobile PC recovery first?
Luis Antonio Muller: And were you expecting that to start taking, the recovery mode to start taking place around the first half, 25, it sounded like you said?
Speaker Change: And were you expecting that to start taking, the recovery mode to start taking place around the first half, 25, it sounded like you said?
Luis Antonio Muller: Computing, computing, and mobile we will see the turn this year already. I mean, we're seeing the demand.
Speaker Change: Computing and mobile, we're going to see the turn this year already. I mean, we're seeing the demand.
Luis Muller: I think the unfortunate counter to that is the automotive continues to be weak, and so you kind of have to net out the weakness in automotive with the improving demand and mobile and computing for the fourth quarter of this year. All right, great.
Speaker Change: and the revenue expectation here in the fourth quarter. I think, you know, the unfortunate counter to that is the automotive continues to be weak. And so you kind of have to net out the weakness in automotive with the improving demand in mobile and computing for the fourth quarter of this year.
Ross Cole: Thank you.
Operator: As a reminder to ask a question that is star 1-1.
Speaker Change: All right, great. Thank you.
David Duley: Our next question will come from the line of David Duley with Steelhead Securities. Good afternoon. A couple questions from me. I guess you talked about a silken carbide probe card win, which I think is kind of a new piece of business.
Speaker Change: As a reminder, to ask a question, that is star 1 1. Our next question will come from the line of David Duley with Steelhead Securities.
Luis Antonio Muller: Good afternoon. I guess I talked about a silicon carbide probe card wind, which I think is kind of a new piece of business. I was wondering if you might elaborate a little bit more on, you know, why you want the business, you know, what the opportunities are for probe cards for power and silicon carbide for you guys.
David Duley: Good afternoon. A couple questions from me. I guess...
David Duley: You talked about a silicon carbide probe card win, which I think is kind of a new piece of business. I was wondering if you might elaborate a little bit more on why you won the business and what the opportunities are in probe cards for power and silicon carbide for you guys.
Luis Muller: I was wondering if you might elaborate a little bit more on why you want the business and what the opportunities are in probe cards for power and silken carbide for you guys. Hi, Dave. Great question. In your correct. This is a power probe card.
Speaker Change: Hi Dave, yeah great question and you're correct. This is a power probe card is a new completely new product line for us. We have been supplying power contactors for the industry and including silicon carbide actually.
Luis Muller: It's a new, completely new product line for us. We have been supplying power contactors for the industry and including silicon carbide actually. This has been a successful business for us, differentiated business, and customers have asked us to basically bring what we're doing in known good die, simulated die test into a probe card environment, sort of a probe environment. So, we've done exactly what the customers have asked. The first customer has qualified the product, placed in initial PO, and we have two other customers right behind it in qualification mode. We're pretty excited to bring a new solution here that we believe for customers' feedback that it's quite differentiated because it allows you to do multi-site testing of devices that have very high currents, very high voltages.
David Duley: This has been a successful business for us,
David Duley: basically bring what we're doing in known good dye, singulated dye test into a probe card environment, sort of a probe environment. So we've done exactly what the customers have asked, and the first customer has qualified the product.
David Duley: placed in initial PO, and we have two other customers right behind it in qualification mode. So we're pretty excited to...
David Duley: to bring a new solution here that we believe, for customer's feedback, that it's quite differentiated because it allows you to do multi-site testing of devices that have very high currents, very high voltages.
Luis Muller: Could you help us understand what the size of this opportunity is, or what might be for you guys? Yeah, yeah, good. Yeah, and recall you asked that question too. Sorry about that. Yeah.
Speaker Change: And, you know, could you help us understand what the size of this opportunity is, or what might be for you guys?
Luis Antonio Muller: Yeah, I recall you asked that question too. Sorry about that.
Speaker Change: Yeah, yeah, yeah, I recall you asked that question too. Sorry about that.
Luis Muller: Now, we're looking at this particular customer that we broke in. We see their spending being about $7 billion a year. So, let's see how much of that we can get.
Speaker Change: Yeah, we're looking at this particular customer that we broke in, we see their spending being about $7 million a year, so let's see how much of that we can get.
Luis Muller: Okay, and then changing topics to the Diamond X ones.
Luis Antonio Muller: Changing topics to the Diamond X-Wins, I think you mentioned...
Speaker Change: Okay, and then...
Luis Muller: I think you mentioned a mixed signal win and another win in IoT, I guess. Yeah. You know, help, help, you know, maybe help us understand it.
Speaker Change: changing topics to the Diamond X wins I think you mentioned a mixed signal win and another win in IOT I guess yeah you know help help
Luis Muller: Again, the same question is, you know, how big of the opportunity you think the expansion of your Diamond X platform is in total either in the TAM or the opportunities for you guys. I appreciate all the details. Yeah, this one I'm going to have to be a little bit more vague on the opportunity size; frankly, it's not that we have that much precision in this one, but it is a Diamond X mixed signal configuration at a, you know, sort of leading OSAT in Taiwan. You know, the tester selection was largely driven by a fabulous company into that OSAT.
Speaker Change: you know maybe you help us understand again the same question is you know how big of opportunity do you think these
Speaker Change: and the expansion of your DiamondX platform is in total either in the tab or the opportunities for you guys.
Speaker Change: I appreciate all the detail.
Speaker Change: Yeah, this one I'm going to have to be a little bit more vague on the on the opportunity size frankly it's not that we have that that much precision in this one, but it is a
Speaker Change: There's a Diamond X mixed signal configuration at a, you know, sort of leading OSAT in Taiwan.
Speaker Change: You know, the tester selection was largely driven by a fabulous company, Intubet OSAT. We tend to target things that are sort of $5 million chunks of business. Whether this will be that or not, it's a little difficult for us to pinpoint at this time.
Luis Muller: We tend to target things that are sort of $5 million chunks of business; whether this will be that or not, it's a little difficult for us to pinpoint it at this time. And then the other one was an RF IoT device application, also at a OSAT in Taiwan, and driven by eight Taiwanese fabulous RF companies. Also, you know, same story here. You know, we target $5 million chunks. As you know, the RF market is not in its best shape at this moment. So I think we're looking at that as an opportunity for a $5 million bite into next year.
Luis Antonio Muller: We tend to target things that are sort of $5 million chunks of business. Whether this will be that or not, it's a little difficult for us to pinpoint it at this time. And then the other one was an RF IoT device application, also at an OSAT in Taiwan, and driven by a Taiwanese Fabless RF company. Also, the same story here. We target $5 million chunks. As you know, the RF market is not in its best shape at this moment, so I think we're looking at that as an opportunity for a $5 million byte into next year.
Speaker Change: And then the other one was an RF-IoT device application, also at an OSAT in Taiwan, and driven by eight Taiwanese.
Speaker Change: Phabla's RF company.
Speaker Change: Also, you know, same story here, you know, we target $5 million chunks. As you know, the RF market is not in its best shape at this moment, so I think we're looking at that as an opportunity for a $5 million byte into next year.
Luis Antonio Muller: Okay, thank you very much.
Mayura Poverty: Welcome. Our next question will come from the line of Mayura Poverty with B. Riley.
Speaker Change: Okay. Thank you very much.
Speaker Change: Welcome.
Speaker Change: Our next question will come from the line of Mayur Pupuri with B. Reilly.
Mayura Poverty: Hi, I'm calling in for Craig from B. Riley.
Craig Andrew Ellis: Hi, I'm calling in on behalf of Craig from DeRiley. My question is just like, how can we look at the kind of shape of the eventual recovery? And what are some leading indicators that we can take a look at to see when that recovery is starting to pick up?
Speaker Change: Hi, I'm calling in for Craig from Beer Island. My question is just like, how can we look at the kind of shape of the eventual recovery and what are some leading indicators that we can take a look at to see when that recovery is starting to pick up?
Luis Muller: My question is just like how can we look at the kind of shape of the eventual recovery and what are some leading indicators that we can play to our best C1 that we're trying to pick up. Yeah, hi. You know, it's a good question, and realistically you've got to look at it market by market, right? Not every market goes in tandem. It's not one monolithic semiconductor or in market driver. So we're seeing we're seeing the obviously have seen for several quarters now just not that much of a benefit for Cohu, but we've seen the AI data center GPU market rise and concurrent with that the DRAM or HBM application that has been going on for a few quarters now.
Luis Antonio Muller: Yeah, hi. You know, it's a good question. And realistically, you've got to look at it market by market, right? Not every market goes in tandem. It's not one monolithic semiconductor or end market driver. So we're seeing, we're seeing the, obviously, have seen for several quarters now, just not that much of a benefit for Cohu, but we've seen the AI data center GPU market rise. And concurrent with that, the DRAM or HBM application that has been going on for a few quarters now. Reminder: Cohu doesn't participate in memory today.
Speaker Change: Yeah, hi. You know, it's a good question and realistically you got to look at it market by market, right? Not every market goes in tandem. It's not one monolithic...
Speaker Change: Semiconductor or in-market driver
Speaker Change: So we're seeing, we're seeing the...
Speaker Change: Obviously have seen for several quarters now, just not that much of a benefit for Cohu, but we've seen the AI data center GPU market rise and concurrent with that, the DRAM or HBM application that has been going on for a few quarters now. Reminder, Cohu doesn't participate in memory today.
Luis Muller: Reminder: Cohu doesn't participate in memory today. We're now starting to see sort of the computing server market started to show signs of recovery. Along with that, we're seeing some green shoots in the mobile market. As I said before, we'll see some of that revenue materialized in the fourth quarter. What comes behind that is likely to be industrial based on conversations we're seeing with customers today, and that is probably a Q1 2025 story. And I think the big question mark still for us included is at what point does automotive start to recover? And that's very important for Cohu because Cohu's largest market segment is automotive.
Luis Antonio Muller: We're now starting to see the computing server market start to show signs of recovery. Along with that, we're seeing some green shoots in the mobile market. As I said before, we'll see some of that revenue materialize in the fourth quarter. What comes behind that is likely to be industrial, based on conversations we're having with customers today, and that is probably a Q1 2025 story. And I think the big question mark still for us is, at what point does the automotive industry start to recover?
Speaker Change: We're now starting to see sort of the computing server market started to show signs of recovery. Along with that, we're seeing some green shoots in in the mobile market. As I said before, we'll see some of that revenue materialize in the fourth quarter.
Speaker Change: What comes behind that is likely to be industrial, based on conversations we're seeing with customers today, and that is probably a Q1 2025 story.
Speaker Change: And I think the big question mark still for us included is, at what point does automotive start to recover? And that's very important for Cohu because Cohu's largest market segment is automotive.
Luis Antonio Muller: And that's very important for Cohu because Cohu's largest market segment is the automotive industry, so the automotive industry was the last to go down in this cycle and will naturally be the last to come back up. The question mark is it first quarter, second quarter next year; exactly when that will happen is what we're trying to understand. So a recovery has started, but it's going to go through phases, market segment by market segment, probably over the next year.
Luis Muller: So automotive was the last to come down in this cycle and will naturally be the last to come back up. Question mark? Is it first quarter, second quarter, next year exactly when that will happen? We're trying to understand. So a recovery has started, but it's going to go through phases, market segment by market segment, probably over the next year.
Speaker Change: So automotive was the last to come down in this cycle and will naturally be the last to come back up.
Speaker Change: question mark is it first quarter second quarter next year exactly when that will happen is what we're trying to understand so a recovery has started but it's going to go through phases market segment by market segment probably over the next year
Mayura Poverty: Thank you so much.
Jeff Jones: That concludes today's question-and-answer session.
Speaker Change: Thank you so much.
Jeff Jones: I'd like to turn the call back to Jeff Jones for closing remarks. Thank you. And before we sign off, I'd like to mention that we'll be participating in some conferences over the next few months, and they are the Needham virtual conference on August 21st. The Jeff Rees Conference in Chicago on August 27th. The Evacore conference, also in Chicago on August 28th, and the city conference in New York City on September 6th. So if you're interested in meeting with us at any of those conferences, please let me know or reach out to the respective research analysts to schedule a meeting.
Speaker Change: That concludes today's question and answer session. I'd like to turn the call back to Jeff Jones for closing remarks.
Luis Antonio Muller: Thank you. And before we sign off, I'd like to mention that we'll be participating in some conferences over the next few months, and one of them is the Needham virtual conference on August 21. The Jeffreys Conference in Chicago on August 27th. The EVOCOR Conference, also in Chicago, on August 28, and the Citi Conference in New York City on September 6. Thank you for joining today's call, and we look forward to speaking with you soon.
Jeffrey D. Jones: Thank you and before we sign off I'd like to mention that we'll be participating in some conferences over the next few months and they are the Needham virtual conference on August 21st.
Jeffrey D. Jones: The Jeffries Conference in Chicago on August 27th.
Jeffrey D. Jones: the Evacor Conference also in Chicago on August 28th and the City Conference in New York City on September 6th.
Jeffrey D. Jones: So, if you're interested in meeting with us at any of those conferences, please let me know or reach out to the respective research analyst to schedule a meeting.
Jeff Jones: So thank you for joining today's call, and we look forward to speaking with you soon.
Jeffrey D. Jones: So thank you for joining today's call and we look forward to speaking with you soon.
Operator: This concludes today's conference call. Thank you for participating.
Operator: You may now just jacked
Speaker Change: This concludes today's conference call. Thank you for participating. You may now disconnect.