Cohu Inc (COHU) 2003 Q2 法說會逐字稿

Good afternoon Ladies and Gentlemen welcome to the Cohu, Inc. second quarter 2003 earnings conference call. At this time all participants are on a listen only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. James Donahue, President and CEO of Cohu, Inc. Thank you Mr. Donahue, you may begin.

Good afternoon and welcome to Cohu's conference call covering our results for the second quarter of 2003. With me today is John Allen, our Chief Financial Officer. I hope you have a copy of our earnings release and have had a chance to review it. If you need a copy, you can obtain one from our website cohu.com or contact Cohu Investor Relations at (858) 848-8106.

I will provide an overview of our results for the quarter, then John will take us through the numbers and detail. I will conclude with comments on operations and some comments on the business environment at we move forward and will then take some questions. First though, John will make the necessary disclaimers covering forward looking statements, estimates and other matters that we will cover in today's call. John.

Before we go on, I must remind you that the company's discussion this afternoon will include forward looking statements reflecting management's current expectations concerning certain aspects of the company'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. Forward looking statements include our comments regarding the company's expectations regarding industry conditions and future operations and financial results and any comments we make about the company's future in response to your questions. Our comments speak only as of today, July 23, 2003, and the company assumes no obligation to update these comments.

The company's actual results may differ materially from those stated or implied by our forward looking statements due to risks and uncertainties associated with the company's business which include, but are not limited to, the cyclical and unpredictable nature of capital expenditures by semiconductor manufacturers, goodwill and intangible assets right downs due to impairment testing, required by accounting standards, Cohu's ability to convert new products under development into production on a timely basis. Support product development and meet customer delivery and acceptance requirements for next generation equipment, the affect of competitive products, the concentration of revenues from a limited number of customers, inventory write downs, order cancellations, failure to obtain customer acceptance and recognize revenue, difficulties in integrated acquisitions and new technologies, and other risks addressed in filings with the Securities and Exchange Commission, including our form 10K for the year end in December 2002 and our most recently filed form 10Q.

We assume no obligation to update any of the information shared on this conference call. Our comments and responses to any questions will not make reference to any specific customers as we are concluded from disposing such information by our non-disclosure agreement. Jim?

Thanks John. Sales for the second quarter were $32.1m compared to $38.3m for the second quarter of last year and $31.1m for the first quarter of 2003. Net income for the second quarter was $4.1m or 19 cents per share compared to net income of $822,000,000 or four cents per share for the second quarter of last year, and a net loss of $1.4m or seven cents per share for the first quarter of 2003. Orders during the second quarter were $43.7m compared to $31.8m for the first quarter. Backlog at June 30, 2003, was $42.9m compared to $31.3m at the end of the first quarter of this year. Sentiment within the semiconductor industry may be slightly improved, but it seems that for every customer reporting good news or prospects, another is not.

Under the still difficult conditions that persist in the business environment, we are very pleased with the progress we have made and that we can report profitable results. John will now provide details on our financial performance.

Semiconductor equipment related revenues for the second quarter were approximately 53 percent international and 47 percent domestic. International sales were distributed 73 percent Asia/Pacific, 24 percent the Americas, and 3 percent Europe. The second quarter included a $7.9m gain from the sale of land held for future development and a $2.5m charge from an impairment write down of an equity investment. Gross margin in Q2 was 34.2 percent verses 33.4 percent in Q1. The increase in gross margin was primarily due to improved product mix, with a significant amount of revenue recognized from our new thermal upgrades to our [summit] handler that more than offset the $2.5m of inventory-related charges.

R&D expense was $5.6m in Q2 of 2003 verses $6.9m in Q1. The decrease in R&D was primarily due to the closure of our Columbus, Ohio, operation in April. We expect our Q3 R&D to be somewhat higher than R&D in Q2, due to costs related to the consolidation of our Littleton, Massachusetts, operation. SG&A expense was $6m in Q2 verses $5.9m in Q1. We expect Q3 SG&A to be slightly higher than Q2, again, due to costs related to the consolidation of our Littleton operation.

Interest income decreased to $440,000,000 in Q2 compared to $700,000,000 in Q1 primarily as a result of lower interest rates. The income tax benefit in Q2 was based on the estimated annual effective tax rate for 2003 and was lower than the federal statutory rate, primarily due to tax credits. The estimated 2003 effective tax rate will increase or decrease depending upon the estimates of pre-tax income or loss and could be further impacted if we are required to increase the valuation allowance on our deferred tax assets.

Net income per share in the second quarter was computed based on 21.6m weighted average shares. The effective stock options was included in the quarter calculation and the year to date calculation as their inclusion was dilutive.

Moving to the balance sheet, cash and investments increased $8.1m from $103.1m at March 31, to $11.2m at June 30. The increase was due to the net cash proceeds of approximately $8.8m from the sale of land. Net accounts receivable decreased from $24m at March 31 to $18.8m at June 30 and represented about 57 day sales outstanding. The decrease was due primarily to improved cash collections.

Net inventory increased from $26.4m at March 31 to $30.1m at June 30, due primarily to the increase in orders and backlog. Additions to property, plant, and equipment during the first 6 months of 2003 were approximately $400,000,000 and depreciation and amortization approximately $2.2m. Deferred profit decreased from $7.4m at March 31, to $6.2m at June 30. The decrease resulted from the recognition of revenue from our ATC handlers that had been deferred as required by SAB 101. Jim?

During the second quarter, unit orders for handlers increased 14 percent over the first quarter and were the highest since Q2 of 2002. Summit represented 38 percent of orders during Q2 of this year and our new Delta Edge handler accounted for 49 percent of unit orders. Castle and other products contributed the remaining 14 percent. We are very pleased with the positive reception that the Delta Edge is receiving. During the second quarter we received a multi-system order from a major Asia-based test subcontractor that has a large installed base of competitors equipment. This is the second major test house win for Edge this year as during the first quarter the system was selected by another Asia based test subcontractor.

We continue to successfully install field upgrades to our Summit handlers that provide increased thermal control during test. This active thermal control or ATC technology increases the power dissipation capability of the handler and enables customers to optimize the speed grading of the latest fastest microprocessors. This is very important since higher speed means higher ASP.

During the second quarter a significant number of these upgrades were accepted, recognized as revenue, and contributed to our improved operating performance. We expect that most Summits will be upgraded with this ATC capability.

We completed the consolidation of our Columbus, Ohio operations into our Poway headquarters and we finalized the plan for consolidation of our Littleton, Massachusetts operations into Poway as well. The transition of the Littleton operation is occurring in several stages beginning in the second quarter, and will be completed later this year we expect, probably in early 4th quarter.

During the second quarter, VLSI Research released its report on market share in the IC test handler industry for 2002. We are very pleased to report that we were number one, gaining more than six points in market share last year.

Turning briefly from semiconductor equipment to our other operations, in April BMS, our microwave communications equipment business received a contract valued at $8.5m dollars from the United Arab Emirates Armed Services. BMS will provide microwave communications equipment for a command center and infrastructure system for boarder security in the UAE.

They system will utilize the latest COFDM or, Coded Orthogonal Frequency Division Multiplexing technology, from BMS. We expect the system to be installed this year and revenue will be recognized upon acceptance by the customer which may occur in the fourth quarter.

Looking at the current business environment, conditions in the semiconductor industry may be slightly improved, but still we remain cautious. The outlook in our view continues to be mixed and we do not expect any significant change in business conditions in either direction in the near term.

Our operating results are among the best in the back end equipment industry and we are continuing to reduce our costs structure even more. We have solid new products and development programs underway to enhance our market leading position. Our balance sheet remains strong. I am confident in our ability to grow profitably when business conditions improve.

As we noted in our press release, we have a significant amount of quarters and deferred revenues included in June 30 back logs consisting principally of semiconductor test handlers and the $8.5m UAE contract. Assuming acceptance of these test handlers in Q3, as we expect, we estimate that third quarter revenue will be approximately the same or slightly above Q2 levels. And with that, we will be happy to take questions Scott.

Thank you. Ladies and Gentlemen, at this time we will be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in question queue. To remove your question from queue, please press star two. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment while we poll for questions. Once again, it is star one on your telephone keypad; please make sure that you pick up your handset before pressing the star keys. Gentlemen, we appear to have no questions.

Okay, Scott. We would like to thank everyone for attending today's call and we look forward to speaking with you as we report out third quarter results in October. Thank you.

Thank you. Ladies and gentlemen, this concludes today's conference. You may disconnect your lines at this time and have a wonderful evening.