Q3 2025 Cohu Inc Earnings Call
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I'd now like to hand, the conference over to Jeff Jones, Chief Financial Officer. Please go ahead.
Speaker #2: Good day and thank you for standing by . Welcome to Cohu Inc third quarter 2020 Financial Results conference call . At this time , all participants are in a listen only mode .
Jeff Jones: Yes. Good question. The answer is we want to pursue both paths. In order to pursue acquisitions of any meaningful size, we needed to go to the financing market. We needed capital, which basically drove our decision on the convert, strengthen the balance sheet, and have more flexibility when it came to growing through acquisition. We are going to continue to focus on organic development in the areas that Luis has been talking about. Clearly, we want to be opportunistic as well when it comes to M&A. Of course, with the recent hire of Matt, it's a priority for us. That's really the main driver for the convert. Now, with respect to buyback, that's a sort of board decision. Yes, we're on pause for now. Should the stock valuation go to a point where it is more compelling, I think we would, again, get back into the game.
Good afternoon, and welcome to our conference call discussing <unk> third quarter 2025 financial results and our outlook for the fourth quarter of 2025.
Speaker #2: After the speaker's presentation , there will be a question and answer session . To ask a question during the session , you will need to press star one one on your telephone .
Im joined today by Luis Mueller co use president and CEO.
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If you need a copy of our earnings release it can be found on our website at <unk> dot com or by contacting <unk> Investor Relations.
Speaker #2: Please be advised that today's conference is being recorded . I'd now like to hand the conference over to Geoff Jones , Chief Financial Officer .
A slide presentation accompanying today's call is also available in the Investor Relations section of the website.
Speaker #2: Please go ahead .
Replays of this call will be accessible via the same page after the conclusion of the call.
Speaker #3: Good afternoon and welcome to our conference call discussing Cohu Inc third quarter 2020 financial results and our outlook for the fourth quarter of 2025 .
During this call we will be making forward looking statements that reflect management's current expectations concerning <unk> future business.
Speaker #3: I'm joined today by Luis Muller Cohen, President and CEO. If you need a copy of our earnings release, it can be found on our website at Cohu Inc. or by contacting Cohu Inc.
These statements are based on the information available to us at this time, but they are subject to rapid and even abrupt changes.
Speaker #3: Investor Relations. A slide presentation accompanying today's call is also available in the Investor Relations section of the website. Replays of this call will be accessible via the same page after the conclusion of the call.
We encourage everyone to review the forward looking statements section of our slide presentation and the earnings release as well as <unk> filings with the SEC, including the most recently filed Form 10-K and Form 10-Q.
Our comments are current as of today October 29 2025.
Speaker #3: During this call , we will be making forward looking statements that reflect management's current expectations concerning Cohu Inc future business . These statements are based on the information available to us at this time , but they are subject to rapid and even abrupt changes .
Jeff Jones: The objective for 2025 on the share repurchase was to offset dilution from our equity compensation plan. We've essentially done that, did that in Q1. I suspect it'll be similar for next year.
<unk> does not assume any obligation to update these statements for events occurring after this call.
Additionally.
We will discuss certain non-GAAP financial measures. During this call. Please refer to our earnings release and slide presentation for a reconciliation to the most comparable GAAP measures.
Speaker #3: We encourage everyone to review the forward looking statements section of our slide presentation and the earnings release , as well as Cohu Inc filings with the SEC , including the most recently filed form 10-K and form 10-q .
[Analyst]: Got it. Thank you. Thanks for the color on the latest Eclipse system. Maybe just going back to that, in terms of the areas where that's focused, is that sort of more of a broad-based system or any sort of end market, and you're just seeing more traction on the compute side with the power and the heat requirements and just end demand in that end market today versus your traditional auto and industrial? Is that something that auto and industrial customers could start to look into more once their end demand picks back up? Thank you.
Now I'd like to turn the call over to Luis Mueller co use president and CEO Luis.
Speaker #3: Our comments are current as of today, October 29, 2025, and Cohu does not assume any obligation to update these statements for events occurring after this call.
Good day, everyone. Thank you for joining our Q3 2025 earnings call I am pleased to share our latest results and provide guidance for Q4.
First off let's talk about some highlights.
Speaker #3: Additionally , we will discuss certain non-GAAP financial measures during this call . Please refer to our earnings release and slide presentation for reconciliation to the most comparable GAAP measures .
Recurring revenue continues to grow for the third consecutive quarter driven by strength in interface solutions and past handler spares.
Systems revenue improved sequentially for the fourth quarter in a row, though it remains below normalized levels.
Speaker #3: Now, I'd like to turn the call over to Luis Muller, Cohu Inc. President and CEO.
We had several notable events in the third quarter.
Luis Muller: Yeah, Robert, the Eclipse is not really a traditional product for industrial applications or auto applications. You could say we can use it for consumer products. We can use it for RFIC tests. We can use it for general mobile applications. We've been really being more selective here with our engineering resources and putting them more around these complex thermal requirements that we see in general AI processor needs. I think they've shared a collection of letters here that people use in AI today, right? From XPU, TPU, NPU, APU, GPU. We're really focused on that. We're really focused on, look, if it is AI-related, whether it's a training or inference mode or network mode, backbone network connectivity, that's interesting because it applies or it lends itself well to our thermal technology. It lends itself to where we can differentiate.
Speaker #4: Good day, everyone. Thank you for joining our Q3 2025 Cohu Inc. earnings call. I'm pleased to share our latest results and provide guidance for Q4.
We announced an offering of convertible notes on favorable terms, which closed just after the quarter end and we will support future growth and strategic initiatives, Jeff will discuss this in more detail later.
Speaker #4: First off , let's talk about some highlights . Recurring revenue continued to grow for the third consecutive quarter , driven by strength in interface solutions and test handler spares systems .
We welcomed Matthew Hutton, our new Vice President of strategy focused on advancing our growth initiatives, including mergers acquisitions and partnerships.
Speaker #4: Revenue improved sequentially for the fourth quarter in a row , though it remains below normalized levels . We had several notable events in the third quarter .
I actually joining <unk>, Matt was head of corporate development at Aspen Tech.
We communicated repeat orders for neon HBM inspection tools raising this year's revenue forecasts for these systems to between 10 and $11 million.
Speaker #4: We announced an offering of convertible notes on favorable terms, which closed just after the quarter and will support future growth in strategic initiatives.
These systems are used for inspection and metrology or high bandwidth memory devices, which are critical components and high performance computing and.
Speaker #4: Jeff will discuss this in more detail later . We welcomed Matthew Hutton , our new vice president of strategy , focused on advancing our growth initiatives , including mergers , acquisitions and partnerships .
<unk> generated <unk> artificial intelligence applications.
We shipped our first system configured for HBM for inspection reinforcing our optimism for future market prospects and high bandwidth memory.
Speaker #4: Prior to joining Cohu , Matt was Head of corporate Development at Aspentech . We communicated repeat orders for Neon , HBM inspection tools , raising this year's revenue forecast for these systems to between 10 and $11 million .
Our eclipse handler equipped with proprietary active thermal control was selected for production test of next generation AI processor devices by a leading U S based semiconductor manufacturer.
Luis Muller: It lends itself where we can bring value to the table. We're being quite selective on where we are deploying the Eclipse right now and the bandwidth that we're deploying against customers that have those challenges. The product could be used for a variety of other things, not traditionally, not your traditional industrial auto use in this case. We're being more focused on AI and use cases.
Speaker #4: These systems are used for inspection and metrology , a high bandwidth memory devices , which are critical components in high performance computing in and generative artificial intelligence applications .
The eclipse platform is designed to scale seemingly honestly across diverse power applications, providing the flexibility and operational efficiency required to support our customers' evolving high performance processor roadmaps.
Speaker #4: We shipped our first system configured for HBM for inspection , reinforcing our optimism for future market prospects and high bandwidth memory . Our eclipse handler , equipped with proprietary active thermal control , was selected for production test of next generation AI processor devices by a leading US based semiconductor manufacturer .
Adaptability ensures that as processor technology advance our solution remains a reliable foundation for next generation computing needs.
[Analyst]: Got it. Thank you so much.
Our current thermal solution ensures optimal device temperature control and test repeat ability up to 3000 watts power dissipation with ultra fast temperature ramp rates and tight thermal guard band supporting demanding semiconductor test requirements.
Operator: Our next question comes from Dennis Piatinen with Needham.
Speaker #4: The eclipse platform is designed to scale seamlessly across diverse power applications , providing the flexibility and operational efficiency required to support our customers evolving high performance roadmaps .
[Analyst]: Thank you for taking our questions. Even with the recent uptick in Q3, mobile system orders year-to-date versus year-to-date last year seem to be lagging somewhat behind other segments, even in light of utilization recovery there. Why have system purchases in the segment lagged somewhat? Are you perhaps expecting strength in mobile into next quarter, even with systems guided down?
Now, let's dive into the detailed results consol.
Consolidated revenue reached $126 million with both systems and recurring revenue improving quarter over quarter.
Speaker #4: This adaptability ensures that as processor technologies advance , our solution remains a reliable foundation for next generation computing needs . Our current thermal solution ensures optimal device temperature control and test repeatability .
Revenue was split 45% systems and 55% recurring.
Luis Muller: No, not exactly, Dennis. If you look at our Q3 revenue, mobile I think was actually our largest segment, right? Sort of tied hand in hand with automotive. I think the mobile-related shipments we largely completed here in the third quarter. Going into the fourth quarter, we should see more shipments into the auto and computing space. I think mobile goes into, I'm thinking more in terms of our test handlers. We'll see some mobile demand in RF past hit in the fourth quarter. There's going to be a little bit of revenue there on that front. By and large, I don't think mobile is going to be our largest segment in the fourth quarter. I don't expect that to be the case again.
non-GAAP gross margin of 44, 1% reflects the value differentiation of our products and the resilience of our recurring business model.
Speaker #4: Up to 3000W . Power dissipation with ultra ramp rates and tight thermal guard band supporting the demanding semiconductor test requirements . Now let's dive into the detailed results .
Estimated test sterilization remained stable quarter over quarter ending September at 74, 5%.
Speaker #4: Consolidated revenue reached $126 million, with both systems and recurring revenue improving quarter over quarter. Revenue was split 45% systems and 55% recurring. Non-GAAP gross margin of 44.1% reflects the value differentiation of our products and the resilience of our recurring business model.
While systems orders moderated last quarter growth in recurring revenue and new wins position us well for Q4 and beyond we secured new business wins, including orders for our automated test equipment and automated optical inspection for high growth markets.
During the quarter, we secured roughly $1 $70 million of new business highlighted by our first <unk> order from a long standing <unk> handler customer.
Speaker #4: Estimated test remains stable quarter over quarter, ending September at 74.5%, while systems orders moderated last quarter. Growth in recurring revenue and new wins position the U.S. well for Q4 and beyond.
[Analyst]: Great. What about for automotive and industrial, the cyclical recovery continues to be kind of somewhat muted. What are you seeing on these markets in terms of recovery? I think you're saying there's going to be some strength into Q4, but is there any visibility beyond that?
This order will support the testing of application specific analog power integrated circuits, serving key automotive and industrial market segments.
This customer win marks the continuation of <unk> growth in the mixed signal test market with Diamond acts as we push to diversify our test platform beyond RF and display driver IC test.
Speaker #4: We secured new business wins , orders for our automated test equipment and automated optical inspection for high growth markets during the quarter , we secured roughly $1.7 million in new business , highlighted by our first diamond X order from a long standing Cohu handler customer .
Luis Muller: Yeah, there's some puts and takes. You're right. This has been sort of an elusive recovery both in auto and industrial. I think we have had a quarter where we had some green shoots in auto in Q2, I want to say, and then it had some green shoots in industrial. What we're having now is more of talks from customers that are saying that they are back to the mode of needing initial capacity in the auto and industrial segment. Talking about some initial demand in Q1 of next year into Q2 of next year. Nothing dramatic yet, but it's, you know, the talks are starting to improve. We're also seeing an increase in spare sales to our handlers in the auto and industrial segment, basically supporting the fact that they're taking systems that have been put aside, so underutilized segment for test and bringing those systems back online.
We secured a new order of our <unk> system with a European customer, enabling advanced optical inspection of devices used by a prominent U S mobile phone brand.
Speaker #4: This order will support the testing of application specific analog power integrated circuits serving key automotive and industrial market segments . This customer win marks the continuation of Cohu Inc growth in the mixed signal Test market , with diamond X as we pushed through diversify our test platform beyond RF and display driver IC test , we secured a new order of our Krypton system with a European enabling advanced optical inspection of devices used by a prominent US mobile phone brand .
We booked a $2 3 million order for precision analog test contactor is at our U S. IDM and continue to diversify our SaaS platform portfolio of disgusting.
We anticipate a seasonal slowdown in Q4, partially offset by ongoing market recovery and remain optimistic about long term prospects, especially in computing and high bandwidth memory inspection.
<unk> return to the spotlight in recent news I want to reassure everyone that <unk> current exposure to China remains very limited.
Speaker #4: We booked a $2.3 million order for precision analog test contactors at a US IDM , and continue to diversify our test platform with this customer anticipate a seasonal slowdown in Q4 , partially offset by ongoing market recovery , and remain optimistic about long term prospects , especially in computing and high bandwidth memory inspection .
Revenue from customers based in China accounts for only a low single digit percentage of our total consolidated results. Additionally.
Luis Muller: I think, like I said, we had three consecutive quarters now of recurring business improving and continue to project the fourth quarter recurring business to improve again sequentially. This applies both to, like I said, spares for our test handler systems, which is a very good indicator, as well as improvement in our test interface business.
Additionally, a substantial share of our business is generated outside of the U S. Further diversifying our global footprint.
Thank you for your attention and continued support I'll now turn it over to Jeff for a deeper dive insurer financial results and Q4 guidance.
Speaker #4: As tariffs returned to the spotlight in recent news , I want to reassure everyone that Cohu Inc current exposure to China remains very limited .
Jeff.
[Analyst]: Great. Could you discuss the gross margin strength sequentially into Q4, even with revenue being down a little bit? What's driving that?
Thank you Luis before reviewing the third quarter results in providing fourth quarter guidance. Please note that my comments refer to non-GAAP figures details about non-GAAP financial measures, including GAAP to non-GAAP reconciliations and other disclosures or.
Speaker #4: Revenue from customers based in China accounts for only a low single digit percentage of our total consolidated results . Additionally , a substantial share of our business is generated outside of the US .
Jeff Jones: There's a mixed component to it, Dennis. As Luis just mentioned, we've got increasing recurring revenue, which has gross margins in the mid-50%. We're expecting the recurring revenue to be about 60% of the total revenue. It was 55% in Q3. I think that's the main driver of that increase in gross margin quarter over quarter.
Speaker #4: Further diversifying our global footprint . Thank you for your attention and continued support . I'll now turn it over to Jeff for a deeper dive into our financial results and Q4 guidance .
Are included in the earnings release and Investor presentation on our website.
For Q3, 2025 revenue exceeded guidance and reached $126 2 million.
Recurring revenue, which is primarily driven by consumables and is more stable than systems revenue accounted for 55% of total revenue for the quarter.
Speaker #4: Jeff .
Speaker #3: Thank you . Luis . Before reviewing the third quarter results and providing fourth quarter guidance , please note that my refer to non-GAAP figures .
[Analyst]: Great. That's very helpful. Thank you very much.
During the third quarter three customers one in the mobile segment and two in the automotive segment.
Operator: That concludes today's question and answer session. I'd like to turn the call back to Jeff Jones for closing remarks.
Speaker #3: Details about non-GAAP financial measures, including GAAP to non-GAAP reconciliations and other disclosures, are included in the earnings release and investor presentation on our website for Q3 2025.
Each represented more than 10% of our sales.
Jeff Jones: Thank you. Before we sign off, I'd just like to note that Cohu Inc. will be attending several investor conferences over the next three months: the Stifel Midwest Conference on November 6th in Chicago, the New York City CEO Summit Conference on December 16th, and the Needham Virtual Conference on January 15th of next year. If you plan to attend any of these conferences, please reach out to your conference contacts or contact us directly to arrange a one-on-one meeting. Thank you for joining today's call, and we look forward to speaking with you again soon.
The Q3 gross margin was in line with guidance at 44, 1%.
Speaker #3: Revenue exceeded guidance and reached 126.2 million . Recurring revenue , which is primarily driven by consumables and is more stable than systems revenue , accounted for 55% of total revenue for the quarter .
Operating expenses for the quarter were $48 million, which is $2 million lower than guidance.
This reduction was mainly due to the timing of R&D material now scheduled for a receipt in Q4.
Net interest income after accounting for interest expense and a small foreign currency loss was approximately $1 1 million for Q3.
Speaker #3: During the third quarter , three customers , one in the mobile segment and two in the automotive segment . Each represented more than 10% of our sales .
The tax provision came in about $3 $5 million lower than forecast at $11 7 million, resulting from the reversal of tax reserves. Following the completion of a jurisdictional tax authority audit.
Speaker #3: The Q3 gross margin was in line with guidance at 44.1% . Operating expenses for the quarter were 48 million , which is 2 million lower than guidance .
Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Speaker #3: This reduction was mainly due to the timing of R&D material, now scheduled for receipt in Q4. Net interest income, after accounting for interest expense and a small foreign currency loss, was approximately $1.1 million for Q3.
Moving to the balance sheet cash and investments decreased by $11 2 million during Q3. This.
This was primarily due to cash used in operations to support a 17% growth in sales quarter over quarter and to fund a $33 million increase in accounts receivable.
Speaker #3: The tax provision came in about 3.5 million , lower than forecast at 11.7 million , resulting from the reversal of tax reserves following the completion of a jurisdictional tax Authority audit .
No stock repurchases were completed during Q3.
Since the inception of our share repurchase plan, we've repurchased around 4 million shares for approximately $117 million.
Leaving about $23 million available for additional future repurchases.
Speaker #3: Moving to the balance sheet, cash and investments decreased by $11.2 million during Q3. This was primarily cash used in operations to support a 17% growth in sales quarter over quarter, and to fund a $33 million increase in accounts receivable.
Total debt stands at $18 million unchanged from the previous quarter.
Q3 capital expenditures were $4 million, mainly for facility improvements.
We're maintaining our 2025 capital expenditure target of approximately $20 million, which includes the $9 million Melaka facility purchase completed in Q1.
Speaker #3: No stock repurchases were completed during Q3 since the inception of our share repurchase plan , we have repurchased around 4 million shares for approximately 117 million , leaving about 23 million available for additional future repurchases .
In late Q3, we announced a strategic convertible notes offering.
In early Q4, we completed the upsized offering raising gross proceeds of $287 5 million at attractive rates, including one 5% interest rate.
Speaker #3: Total debt stands at 18 million , unchanged from the previous quarter . Q3 capital expenditures were 4 million , mainly for facility improvements .
32, 5% conversion premium and a five year term.
Speaker #3: We're maintaining our 2025 capital expenditure target of approximately 20 million , which includes the 9 million Malaka facility purchase completed in Q1 in late Q3 , we announced a strategic convertible notes offering in early Q4 .
We purchased a 100% capped call to limit shareholder dilution until the stock price doubles and exceeds $41 per share.
The repayment structure of the notes is net share settlement, meaning <unk> will repay the principal of $287 5 million in cash and has the option to settle any in the money amounts in cash shares or a combination of both.
Speaker #3: We completed the upsized offering , raising gross proceeds of 287.5 million at attractive rates , including 1.5% interest rate , 32.5% conversion premium and a five year term .
This structure combined with the up 100% capped call limits shareholder dilution.
Speaker #3: We purchased a 100% capped call to limit shareholder dilution until the stock price doubles and exceeds $41 per share . The repayment structure of the notes is net share settlement , meaning Cohu will repay the principal of 287.5 million in cash and has the option to settle any in the money amounts in cash , shares or combination of both .
The net proceeds will provide additional liquidity to strengthen our balance sheet and support strategic initiatives.
Looking ahead to Q4 as Luis noted, we anticipate a seasonal slowdown for systems, which is partially offset by continued market recovery.
Overall, we expect Q4 revenue to be about $4 million or three 5% lower than Q3, driven by systems revenue.
Speaker #3: This structure , combined with the up 100% capped call limits , shareholder dilution , the net proceeds will provide additional liquidity to strengthen our balance sheet and support strategic initiatives .
Our resilient recurring revenue is forecasted to increase for the fourth straight quarter and should represent about 60% of total Q4 revenue.
Our guidance for Q4 revenue was approximately $122 million plus or minus $7 million.
Speaker #3: Looking ahead to Q4, as Luis noted, we anticipate a seasonal slowdown for systems, which is partially offset by continued market recovery.
The gross margin for Q4 is projected at approximately 45%.
Operating expenses are expected to be about $50 million, including around $2 million for variable R&D product development prototype materials.
Speaker #3: Overall , we expect Q4 revenue to be about 4 million , or 3.5% lower than Q3 , driven by systems revenue . Our resilient recurring revenue is forecasted to increase for the fourth straight quarter , and should represent about 60% of total Q4 revenue .
Total operating expenses are consistent with the restructuring plan targets implemented in late Q1 of this year.
Once the full impact of the restructuring plan is realized at the beginning of 2026 we.
Speaker #3: Our guidance for Q4 revenue is approximately $122 million, plus or minus $7 million. The gross margin for Q4 is projected at approximately 45%.
We anticipate quarterly operating expenses to be approximately $49 million when revenue is around $130 million per quarter.
Q4 interest income net of interest expense and foreign currency impacts is projected to be approximately $1 7 million at current interest rates.
Speaker #3: Operating expenses are expected to be about 50 million , including around 2 million for variable R&D , product development , prototype materials , total operating expenses are consistent with the restructuring plan targets implemented in late Q1 of this year .
The Q4 tax provision is expected to be about $4 million and the diluted share count for Q4 is projected to be about $47 1 million shares.
Speaker #3: Once the full impact of the restructuring plan is realized at the beginning of 2026 , we anticipate quarterly operating expenses to be approximately 49 million .
That concludes our prepared remarks, and now we'll open the call to questions.
Speaker #3: When revenue is around 130 million per quarter . Q4 interest income , net of expense and foreign currency impacts , is projected to be approximately 1.7 million at current interest rates .
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Speaker #3: The Q4 tax provision is expected to be about $4 million, and the diluted share count for Q4 is projected to be about 47.1 million shares.
Our first question comes from Brian Chin with Stifel.
Speaker #3: That concludes our prepared remarks. And now we'll open the call to questions.
Hi, there good afternoon, thanks for letting us ask a few questions.
Speaker #2: As a reminder , if you'd like to ask a question at this time , please press star one one on your touch tone phone and wait for your name to be announced .
So I guess first question nice to see the improved system revenue momentum.
Particularly from the mobile segment. These past few quarters based on the customer broadening metric you shared in the uptick in utilization that the main area of improved near term revenue visibility for the company and how much confidence does this give you on sustaining some topline momentum kind of moving beyond the seasonal period into first half next year.
Speaker #2: To withdraw your question, please press star, one, one again. Please stand by while we compile the Q&A roster. Our first question comes from Brian Chin with Stifel.
Speaker #5: Hi there . Good interest Thanks for letting us ask a few questions . So I guess first question , nice to see the improved system revenue momentum , particularly from the mobile segment these past few quarters .
Hi, Brian.
Yes, you are correct I mean, a lot of.
A lot of the momentum here.
In the third quarter was associated with.
Our customer buying the eclipse handler, but also HBM.
Speaker #5: Based on the customer broadening metric you shared and the uptick in utilization , is that the main area of improved near-term revenue visibility for the company and how much confidence does this give you on sustaining some top line momentum , kind of moving beyond the seasonal period into first half next ?
The neon system I think those are sort of the.
You mean, the highlights of the quarter.
We have the eclipse the qualified at another computing customer I think we press released already in the third quarter just ahead of Silicon West.
Speaker #4: Oh hi , Brian . Yeah , you're correct . I mean , a lot of a lot of the momentum here in the third quarter was associated with a customer buying the eclipse handler .
And then we also have a.
A few other customers that are evaluating the system.
One one going into <unk>.
<unk> application.
We have a new product.
Speaker #4: But also HBM with the Neon system . I think those are sort of the the two main highlights of the quarter . We have the eclipse though , qualified at another computing customer .
Version of <unk> for 2026.
Two others that are associated with <unk>.
Data Center network communication.
In Asia accelerator.
I think it moves.
Speaker #4: I think we press released that already in the third quarter , just ahead of Semicon West . And then we also have a few other customers that are evaluating the system .
Talking about confidence going into 2006, so I think I think we're more confident is that the HVO business is continuing.
Two programs, we have had now since the start of the fourth quarter.
Speaker #4: One one going into a , a GPU application , sort of a new product version of a GPU for 2026 . And then two others that are associated with data center network communication and an ASIC accelerator .
A couple of repeat orders for HBM.
We have.
That engagement for me with the second customer where we're looking at what are the requirements and how we're going to address requirements to gain another qualification.
Going through one of our inspection tools.
Speaker #4: So , you know , I think it moves . Talking about confidence going into 26 , I think I think we're more confident is that the HBM business is continuing to progress .
I said, we get several customers here in.
Different stages of evaluating the eclipse for applications in the data sooner. So I think I think it's going to continue to move around.
Speaker #4: We have had now since the start of the fourth quarter , a couple of repeat orders for HBM . We an engagement for me with a second customer , where we're looking at what are the requirements and how we're going to address requirements to get another qualification going for one of our inspection tools .
Just so a recent announcements from them.
One of our customers for.
Their wins.
Wins in the data center market, where they are going after and inference data sooner device partnership.
And we are planning a record with eclipse for them for that application as well.
Speaker #4: And like I said , we get several customers here in different stages of evaluating the eclipse for applications in the data center . So I think I think it's going to continue to move around .
So I think we're confident that we're broadening.
Our business beyond the traditional.
Auto mobile consumer industrial.
Speaker #4: We just saw a recent announcement from another one of our customers for there wins in the data center market , where they're going after an inference data center device partnership .
More towards the AI use applications, whether it's the GPU or.
For the network processing and we should start seeing some some fruits of that in 2026.
With the eclipse in our inspection systems.
Speaker #4: And we are playing a record with eclipse for that , for that application as well . So I think we're confident that we're broadening our business beyond the traditional auto mobile consumer industrial more towards the AI use applications , whether it's the GPU or or the network processing .
Okay got it and then maybe just to key on that.
The points you made about the eclipse handler with our active thermal.
Core subsystem.
Yes.
Can you help us understand sort of what's driving that when is it the higher higher wattage now for some of the newer AI processors, that's coming out and.
Speaker #4: And we should start seeing some some fruits of that in 2026 with the eclipse . And in our inspection systems .
Does your platform continue to scale it sounds like with every single kind of every year cadence here now in terms of more advance and hotter hotter chips kind of coming.
Speaker #5: Got it . Maybe just to key on the the points you made about the eclipse handler with the active thermal core subsystem is kind of can you help us understand sort of what's driving that win ?
Its introduction in our use of planting.
The incumbents with that tool.
Yeah, Yeah, you bet.
<unk> hit the nail on the head.
We've talked here about 3000 watts of power dissipation as I mentioned it in my prepared remarks, but that's sort of the current state or what would be shipping.
Speaker #5: Is it the higher , higher wattage ? Now for some of the newer AI processors that's coming out and does your platform continue to scale ?
Our production needs in <unk>.
2026 with that said the requirements continue to go and we're already working on the next generation thermals.
Speaker #5: It sounds like with every single kind of every year cadence here . Now , in terms of more advanced and hotter , hotter chips , kind of coming into introduction and are you supplanting existing incumbents with that tool ?
That will support 2027.
And different sets of applications coming up later next year as well so.
Speaker #4: Yeah , yeah . You basically hit the nail on the head . We talk here about 3000W of power dissipation . I mentioned that in my prepared remarks , but that's sort of the current state of what would be shipping for production needs in 2026 .
Your question is pretty much the answer too.
It's all about.
Thermal power dissipation and power densities, we never talk about power densities, but power density per square inch of silicone as well the size of the dies.
Speaker #4: With that said , the requirements continue to go up and we're already working on the next generation thermals that that will support 2027 .
How delicate in the amount of force you have to apply so it's all related to the complexity of.
Dynamically.
Controlling.
Hey Heath dissipation.
Speaker #4: In different sets of applications coming up later next year as well . So you know , your question is pretty much the answer to to it .
Very complex.
Very complex semiconductor is actually doing a test.
Thanks, maybe just one last quick follow up in terms of revenue contribution is that sort of first half next year and just compute.
Speaker #4: It's all about the thermal power dissipation and power densities . We never talk about power densities , but power density per per square inch of silicon as well .
Compute I think has not historically been.
Recent years like a double digit <unk>.
Exposure segment, but do you feel pretty comfortable thinking that could be double digits next year for.
Speaker #4: The size of the dies , the you know how delicate and the amount of force you have to apply . So it's all related to that complexity of dynamically controlling heat dissipation on very complex , very complex semiconductors .
For the year.
Double digit you mean double digit growth double digit from revenue contribution if you look from a revenue contribution I would say.
I would expect computing should be sort of in the low teens.
Speaker #4: Actually , during test .
Speaker #5: Thanks . Maybe just one last quick follow up in terms of revenue contribution , is that sort of first half next year . And just , you know , compute I think is not historically been in recent years like a double digit exposure segment .
We always talk about systems and recurring so not not counting recurring into next year I'm thinking it would be.
Sort of a low teens percentage contribution of revenue going into 2026.
Speaker #5: But do you feel pretty comfortable thinking that could be double digits next year for the year ?
Great. Thank you.
Speaker #4: Double digit ? You mean double digit growth ? Double digit from revenue contribution ? If you look from a revenue contribution , I would say , you know , I would expect computing to be sort of in the low teens , you know , we always talk about systems and recurring .
Our next question comes from David Duley with Steelhead Securities.
Yeah, Thanks for taking my questions.
To follow up on.
Brian's question I guess.
It sounds like based on your eclipse win at a major AI processing company that I think <unk> press release and other.
Speaker #4: So, not counting recurring in the mix here, I'm thinking it would be sort of the low teens percentage contribution of revenue going into 2026.
Our tool of record with the CPU company.
Speaker #5: Great . Thank you .
Is it a fair assumption that basically.
Any of these Apu Cpus XD use gpus, whatever the term is for networking processors.
Speaker #2: Our next question comes from David Dooley with steelhead Securities .
But theyre all going to have to be thermally controlled and tested.
Speaker #6: Yeah . Thanks for taking my questions . To follow up on Brian's question , I guess you know , it sounds like based on your eclipse win at a major AI processing company , and I think you've press released another win or cool of record with the CPU company .
That.
Is it fair to assume that the.
Pam of this market is quite large given that theres lots of large customers that.
You aren't serving yet.
Yes, yes, that's absolutely correct, Dave I mean, we have.
The power dissipation levels vary quite a bit I mean, we have some.
Speaker #6: Is it a fair assumption that basically any of these Apus , CPUs , GPUs , GPUs , whatever the term is for networking processors , that they're all going to have to be thermally controlled and tested .
Inference processors here that.
The talk right now isn't the order of 600 lots of participation we have.
High end GPU as I said, it's approaching 3000 was just under that.
Speaker #6: So that is it fair to assume that the the Tam of this market is quite large , given that there's lots of large customers that you aren't serving yet ?
Have some network processors that you're qualifying right now on the 12% to 1400 watts.
It's a range of powered the sufficient levels, but they are really on the hundreds of two two a couple of thousand watts.
Speaker #4: Yeah , yeah , that's absolutely correct , Dave . I mean , we have , you know , the power dissipation levels vary quite a bit .
And rising the roadmap really shows that the debt going up.
Speaker #4: I mean , we have some inference processors here that the the talk right now is on the order of 600W of power dissipation .
So the higher the wattage the higher.
Got it.
And so that becomes a more and more important.
Speaker #4: We have a high-end GPU; as I said, it's approaching 3,000 W, just under that. We have some network processors that we are qualifying right now.
And so.
Yes, it's a fair assumption that going forward you might have a little bit more exposure on the GPU side with this product.
Speaker #4: On the 12 to 1400 watts . So it's a range of power dissipation levels . But they're really on the hundreds of to to a couple thousand watts .
And networking.
Hyper scaler custom ASIC customers.
That's correct that's correct.
Speaker #4: And and rising , you know , the roadmap really shows that that going up .
The higher the waters the more complex these things are getting.
The more lands itself to expertise that we have a co Hugh.
Speaker #6: So the higher the wattage the higher the heat . And so that becomes a more and more important . And so I guess it's a fair assumption that going forward , you might have a little bit more exposure on the GPU side with this product .
We're being asked by quite a few customers now to <unk>.
Dress some of their requirements.
They are very difficult I mean, as you can imagine when you're approaching 334000 watts of power distribution. This is fairly complex. There are that many people out there that have the engineering and the technology to do this.
Speaker #6: You know , and networking , you know , the Hyperscaler custom ASIC customers .
So we.
Speaker #4: That's that's correct . That's correct . The higher the wattage , the more complex these things are getting , the more it lends itself to expertise that we have at Cohu Inc .
We're working pretty heavily on it.
Needless to say, we're pivoting the business more towards AI applications.
Okay and then.
Speaker #4: We're being asked by quite a few customers now to address some of their requirements . They're very difficult . I mean , as you can imagine , when you're approaching three , three , 4000W of power , dissipation , this is fairly complex .
When you think about overall AI exposure in 2025 could you just help us with you add up the.
HBM and spectrum product and the eclipse and a few other things what do you think your revenue stream is the kind of dedicated to AI in.
Speaker #4: There aren't that many people out there that have the engineering and technology to do this, so we were working pretty heavily on it.
<unk> 2025, and I basically assume with almost next to nothing in 2024.
Speaker #4: That needless to say , you know , we're we're pivoting the business more towards AI applications .
Yes, I would say, it's pretty close to zero in 2024.
The AI.
Speaker #6: Okay . And then when you think about overall AI exposure in 2025 , could you just help us with , you know , you add up this , you know , HBM inspection product and the eclipse and a few other things .
AI here.
Would it be a little careful right talk about AI, everybody tends to think of data centers, but.
There is actually.
Yeah.
Sort of a blend here of.
Processors that are already running some level of language model in them.
Speaker #6: What do you think your revenue stream is ? That's kind of dedicated to AI in 2025 . And I basically assume it was almost next to nothing in 2024 .
I think if you look at 2025.
A little tally here would.
Maybe.
Speaker #4: Yeah , I would say it's pretty close to 0 in 2024 . The AI , I mean , the AI here got to be a little careful , right ?
Sort of in the order of $40 million approximately $40 million of system revenue. This year on things that he could associate with.
Speaker #4: You talk about AI; everybody tends to think of data centers. But there's actually sort of a blend here of processors that are already running some level of language model in them.
Edge AI or data center related AI.
And we.
And we expect that to be growing going into 2026.
Thank you.
Speaker #4: And I think if I look at 2025 a little tally here would , would tally up , maybe sort of on the order of $40 million , approximately $40 million of system revenue .
Our next question comes from Robert Mertens with Judy Cowen.
Hi, This is Robert on behalf of Krish Shankar. Thanks for taking my questions I guess, just the first one.
Speaker #4: This year on things that I could associate with , you know , AGI or data center related AI and and we expect that to to be growing , going into 2026 .
With the recent convertible rate how are you thinking about the best use of cash between developing some of the new areas of expansion.
And the software business.
Murray MRSA historically.
Speaker #6: Thank you .
Completing a number of smaller tuck in M&A deals to bolster the technology portfolio and then maybe I'll just add then.
Speaker #2: Our next question comes from Robert Mertens with TD Cowan .
Your views on using cash for share repurchases.
Speaker #7: Hi . This is Robert on on behalf of Krish Sankar . Thanks for taking my questions . I guess just the first one with the recent convertible race , how are you thinking about the best use of cash between developing some of the new areas of expansion , be investment in the software business or high bandwidth memory versus historically completing a number of smaller tuck in M&A deals to bolster the technology portfolio .
And on cost for the last three quarters. Thank you.
Yes, good question.
Really the answer is we want to pursue both both paths.
And in order to.
Pursue acquisitions.
Of any meaningful size.
We needed to go.
So the financing market, we needed we needed capital, which basically drove our decision.
Speaker #7: And then maybe I'll just add in your views on using cash per share repurchases and some notes have been on pause for the last few quarters .
On the convert strengthening the balance sheet and have more flexibility.
When it came to growing through acquisition and so we're going to continue to focus on organic development in the areas that Luis has been talking about.
Speaker #7: Thank you .
Speaker #3: Yes . Good question . And really , the answer is we you know , we want to pursue both both paths . And in order to pursue acquisitions of any meaningful size , we needed to go to the financing market .
But clearly we want to be opportunistic as well when it comes to M&A and of course with the recent hire of of Matt. It is a it's a <unk>.
Priority for us.
Speaker #3: We needed we needed capital , which basically drove our decision on the convert , strengthen the balance sheet and have more flexibility when it came to growing through acquisition .
And so.
That's that's really.
The main driver for the convert now.
With respect to buyback that's sort of a board decision and yes. We're on pause for now should the stock valuation go to.
Speaker #3: And so we're going to continue to focus on organic development in the areas that Luis has been talking about . But clearly we want to be opportunistic as well when it comes to M&A .
Point, where are we.
As more compelling I think we would have.
Again get back into the game, but.
<unk> objective for 2025 on the share repurchase was to offset dilution from our.
Speaker #3: And of course , you know , with the recent hire of of Matt , it is a it's a priority for us . And so that's that's really the main for the convert .
Equity compensation plan and so we have we've essentially done that did that in Q1.
I suspect it'll be similar for next year.
Speaker #3: Now with respect to buyback . That's a sort of board decision . And we're on pause for now . Should the stock valuation go to a point where we you know , is more compelling ?
Got it thank you and then.
Thanks for the color on the latest eclipse.
This.
Maybe just going back to that.
In terms of the areas, where that's focused is that sort of more of a broad based.
Speaker #3: I think we would again get back into the game . But the objective for 2025 on the share repurchase was to offset dilution from our equity compensation plan .
System or any sort of end market and youre, just seeing more traction on the compute side.
The power and heat requirements interest and demand.
Speaker #3: And so we've we've essentially done that did that in Q1 . I suspect it'll be similar for next year .
The market today.
Versus sort of your traditional.
True.
Is that affecting that audio and industrial customers.
Speaker #7: Got it . Thank you . And then thanks for the color on the latest eclipse system . Maybe just going to that in terms of the areas where that's focused , is that sort of more of a broad based system or any sort of in-market .
Good start to look into more was there and demand picks back up.
Thank you.
Yes, Robert.
Clips is not really.
The traditional product for industrial applications or auto applications. So you could say we can use it for consumer products. We can use it for our FY <unk>. So we can use it for general mobile applications, but we.
Speaker #7: And you're just seeing more traction on the compute side with the power and the heat requirements, and just end demand in that end market today versus sort of your traditional auto industrial? Or is that something that auto and industrial customers could start to look more into once their demand picks back up?
We've been really being more selectively here with our engineering resources in.
Put into more around these complex thermal requirements.
Speaker #7: Thank you .
That we see in general AI processor needs I think Dave.
Speaker #4: Yeah . Robert , the eclipse is not really a traditional product for industrial applications or auto applications . So you could say we can use it for consumer products .
Sure the collection of.
Letters here that people use in AI today right. It from ex view GPU Apu Apu GPU.
Speaker #4: We can use it for RF , tests . We can use it for general mobile applications . But we we've been really being more selective here with our engineering resources .
And so we're really focused on that we're really focused on.
Look if it is if it is AI related whether it's training or inference mode.
Speaker #4: And putting them more around these complex thermal requirements that we see in general , AI processor needs . You know , I think they've , you know , shared a collection of of letters here that people use in AI today , right ?
Our network mode.
Backbone network connectivity, that's interesting because it applies.
Or it lends itself well to our thermal technology.
Lends itself to where we can differentiate it lends itself, where we can bring value to the table.
Speaker #4: From Xpu TPU NPU , Apu , GPU . And so we're really focused on that . We're really focused on , look , if it is if it is AI related , whether it's a training or inference mode or network mode backbone , network connectivity , that's interesting because it applies or it lends itself well to our thermal technology .
So we're being quite selective on where we are deploying the eclipse right now and the bandwidth that were deploying against customers that have those challenges.
The product could be used for a variety of other things not traditionally not your traditional industrial auto use.
In this case.
And so we're being more focus on.
And use cases.
Speaker #4: It lends itself to where we can differentiate. It lends itself to where we can bring value to the table. So, we're being quite selective on where we are deploying the eclipse right now.
Got it thank you so much.
Our next question comes from Dennis <unk> with Needham <unk> Company.
Okay.
Speaker #4: And the bandwidth that we're deploying against customers that that have those challenges . So the product could be used for a variety of other things .
Great. Thanks for taking our questions.
So even if with the recent uptick in Q3 mobile system orders year to date versus year to date last year seem to be lagging.
Speaker #4: Not traditionally , not your traditional industrial auto use . In this case . And so we're being more focused on AI and use cases .
Lagging somewhat behind other segments kind of even in light of utilization recovery there.
System purchases in the segment.
Somewhat and are you, perhaps expecting strength in mobile into next quarter, even with the system to the guided down.
Speaker #7: Got it . Thank you so much .
Okay.
Speaker #2: Our question comes from Dennis Piccinin with Needham and Company .
No not exactly Dennis I mean, we had.
I mean, if you look at our Q3 revenue mobile last name was actually our largest segment right.
Speaker #8: Great . Thanks for taking our questions . So even with the recent in Q3 mobile system orders year to date versus year to date , last year seemed to be somewhat behind other segments .
Hand in hand with automotive.
I think the mobile related shipments, we largely completed here in the third quarter going.
Speaker #8: Kind of even in light of utilization recovery . There . Why have system purchases in the segment lagged somewhat ? And are you perhaps expecting strength in mobile into next quarter , even with systems guided down ?
Going into fourth quarter.
We should see more shipments into the auto and computing space.
And then I think mobile goes into well.
Alright, I'm thinking more in terms of our test handlers, we will see some mobile demand in RF test.
Speaker #4: No , not exactly Dennis . I mean , we had a I mean , if you look at our Q3 revenue , mobile was actually our largest segment , right ?
Hit in the fourth quarter, so theres going to be a little bit of revenue there on that.
Franz.
Speaker #4: Sort of tied hand in hand with automotive . I think the mobile related shipments , we largely completed here in the third quarter , going into fourth quarter , we should see more shipments into the auto and computing space .
By and large I think I don't think mobile is going to be our largest segment in the fourth quarter I don't expect that to be the case again.
Great.
What about for so for automotive and industrial the cyclical recovery continues to be kind of somewhat muted. What are what are you seeing on these markets in terms of recovery. So I. Thank you.
Speaker #4: And then I think mobile goes into , well , sorry , I'm thinking more in terms of our testing . We'll see some mobile demand in RF test hitting the fourth quarter .
Youre, saying its going be some strength into Q4, but is there any visibility beyond that.
Yes, there is some puts and takes you're right.
It has been sort of an elusive recovery both in auto and industrial.
Speaker #4: So there's going to be a little bit of revenue there on that on that front . But but by and large I think I don't think mobile is going to be our largest segment in the fourth quarter .
I think we have a quarter, where we had some green shoots in auto in Q2, I want to say and then it.
Speaker #4: I don't expect that to be the case. Again.
Speaker #8: Great . So what about for for automotive and industrial ? The cyclical recovery continues to be kind of somewhat muted . What are you seeing in these markets in terms of recovery .
Having some green shoots in industrial.
We're having now is more talks from customers that are saying that they are back to the motive needing initial capacity in the auto and industrial segments.
Speaker #8: So I think you're you're saying there's going to be some strength into Q4 . But is there any visibility beyond that ?
Talking about some some initial demand in Q1 of next year and <unk> next year.
Speaker #4: Yeah , there's some puts and takes . You're right . This this this has been sort of an elusive recovery both in auto and industrial .
Nothing dramatic yet, but it's.
Speaker #4: I think we have had a quarter where we had some green shoots in auto in Q2 . I want to say , and then at had some green shoots in industrial , what we're having now is more of talks from customers that that are saying that they are back to the mode of needing initial capacity in the auto industrial segment .
The Pops are starting to improve we also see an increase in.
Spare sales to our handlers in the auto and industrial segment.
Basically supporting the fact that they are taking systems that have been put aside sort of underutilized segment.
For test and bringing those systems back online.
I think like I said, we had three consecutive quarters now of.
Speaker #4: Talking about some some initial demand in Q1 of next year into Q2 next year . Not nothing dramatic yet , but it's , you know , the thoughts are starting to improve .
Recurring business improving.
We continue to project the fourth quarter recurring business due to improved again sequentially. This applies both to like I said spares for our test handler systems, which is a very good indicator as well as improvement in our tester interface business.
Speaker #4: We also see an increase in spare sales to our handlers in the auto industrial segment . Basically supporting the fact that they're taking systems that have been put aside .
Great and then briefly could you discuss the gross margin strength sequentially into Q4, even with revenue being down a little bit about what's driving that.
Speaker #4: So underutilized segment for test and bring those systems back online . I think , like I said , we had three consecutive quarters now of recurring business improving and continue to project the fourth quarter recurring business to to improve again sequentially .
There's a mix component to it Dennis.
And as Luis just mentioned.
The increasing recurring revenue, which has gross margins in the mid fifties and so we're expecting.
Speaker #4: This applies both to, like I said, spares for our test handler systems, which is a very good indicator, as well as improvement in our test interface business.
The recurring revenue to be about 60% of the total revenue. It was 55% in Q3 I think that's the main driver.
Speaker #8: Great . And then briefly , could you discuss the gross margin strength sequentially into Q4 , even with revenue being down a little bit , what's driving that ?
Of that increase in gross margin quarter over quarter.
Great. That's very helpful. Thank you very much.
Okay.
That concludes today's question and answer session I would like to turn the call back to Jeff Jones for closing remarks.
Speaker #3: There's a mix component to it , Dennis . And as Louise just mentioned , we've got increasing recurring revenue , which has gross margins in the mid 50s .
Okay.
Thank you and before we sign off I'd, just like to note that <unk> will be attending several investor conferences over the next three months the.
Speaker #3: And so we're expecting the recurring revenue to be about 60% of the total It was 55% in Q3 . I think that's the main driver of that increase in gross margin quarter over quarter .
The Stifel Midwest Conference on November six in Chicago.
Speaker #3: revenue .
The New York City CEO Summit Conference on December 16th and the Needham Virtual conference on January 15th of next year.
Speaker #8: Great . That's
Speaker #8: very
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