Cohu Inc (COHU) 2003 Q3 法說會逐字稿

Good evening Ladies and Gentlemen welcome to the Cohu, Inc. Third Quarter and Fiscal Year 2003 Operating Results Conference Call. At this time, all participants are on a listen-only mode and a brief question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press "" "0" on your telephone keypad and as a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. James Donahue, President of Cohu, Inc. Thank you Mr. Donahue, you may begin.

Good afternoon and welcome to Cohu's conference call covering our results for the third quarter of 2003. Joining me today is John Allen, our CFO. If you don't have a copy of our earnings release, 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. John will walk us through the numbers in detail and I'll conclude with comments on operations and some comments on the business environment going forward. We will then take your questions. But, first John will make the necessary disclaimer covering forward-looking statements, estimates and other matters that we will cover in today's call.

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 expectation 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 October 22nd 2003, and the company assumes no obligations 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, Cohu's ability to convert new product under development into production on a timely basis, support product development and meet customer delivery and acceptance requirements for next generation equipment, inventory write-downs, the cyclical and unpredictable nature of capital expenditures by semiconductor manufacturers, goodwill and tangible asset write-downs due to impairment testing required by accounting standards, the effect of competitive products, the concentration of revenues from a limited number of customers, order cancellations, failure to obtain customer acceptance and recognize revenue, difficulties in integrating acquisitions and new technologies, and other risks addressed in filings with the Securities & Exchange Commission, including Cohu's Form 10-K for the year ended December 2002 and our most recently filed Form 10-Q. 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 precluded from disclosing such information by a non-disclosure agreement. Jim.

Now an overview of the quarter. Sales for the third quarter was 34.5m compared to 36.8m for the third quarter of 2002 and 32.1m for 2003's second quarter. The net loss for the third quarter was 615,000 or 3 cents per share compared to a net loss of 555,000, also 3 cents per share for the third quarter of 2002. And Net income of 4.1m or 19 cents per share for the second quarter of this year. Results for 2003's second quarter included a pre-tax gain of 7.9m from the sale of land and a pre-tax charge of 2.5m from an impairment write down of an equity investment.

Orders during the third quarter of 2003 were 34.5m compared to 43.7m for the second quarter. However, orders for the second quarter of 2003 included an $8.5m contract from the United Arab Emirates armed forces for microwave communications equipment. Backlog at September 30, 2003 and also at June 30, 2003 was 42.9m. Third quarter results were generally consistent with our expectations. Now John will provide details on our financial performance.

Semiconductor equipment related revenues for the third quarter were approximately 73% international and 27% domestic. International sales were distributed 77% Asia/Pacific, 20% the Americas and 2% Europe. Gross margin in Q3 was 30.5% versus 34.2% in Q2 of this year. The decrease in gross margin was primarily due to the impact of revenue deferrals under SAB 101. Where incertain instances we are required to recognize less than 100% of the sale amount brought 100% of the cost in the period of product to ship. This occurs when customer's pay a portion of the sale amount for example 80% based upon shipments and another portion for example 20% upon final acceptance. In our non semiconductor businesses, our margins were lower as a result of changes in product mix and unfavorable overhead absorption variances. R&D expense was $5.6m in both Q2 and Q3 of this year. We expect our Q4 R&D to be about the same or slightly higher than Q3. SG&A expense was $6.3m in Q3 versus $6m in Q2 of this year and we expect Q4 SG&A to be slightly higher than Q3. Interest income increase to $683,000 in Q3 compared to $442,000 in Q2, primarily as a result of gains from security sale. The income tax benefit in Q3 was based on the estimated annual effective tax rates for 2003, and was lower than the federal statutory rate primarily due to tax credit. The estimated 2003 effective tax rate will increase or decrease depending at on our estimates of pretax income or loss and could be impacted if we are required to increase the valuation allowance on differed tax assets. Net loss per share in the third quarter which was [purely] based on $21.3m weighted average shares of course of the effective of stock option was excluded from the quarter calculation as there inclusion would be anti-dilutive.

Moving briefly to the balance sheet cash and investment decreased $3.6m from $111.2m at June 30 to $107.6m at September 30. The decrease was due to an increase in receivables resulting from slightly higher sales and higher days sales outstanding. Net accounts receivable increased from $18.8m at June 30 to $25.4m at September 30 and represented about 70 days sales outstanding. The increase in days sales outstanding from June 30 was primarily due to slightly lower cash production during the third quarter. Net inventory decreased slightly from $30.1m at June 30 to $29.8m at September 30. Additions to property, plant and equipment during the first nine months of 2003 were approximately $1.1m and depreciation and amortization was approximately $3.1m. Deferred profit increased from $6.2m at June 30 to $7.8m at September 30. The increase resulted primarily from the deferral of revenue pursuant to SAB 101 related to our new Delta Edge handlers and the previously mentioned contract with the UAE for microwave communications equipment. James

During the third quarter our newest IC Test handler the Delta Edge accounted for 47% of unit orders Summit handlers represented 23%, and Castle 28%. We continue to set successfully install fields upgrades for Summit handlers. These upgrades 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 ASPs. During the third quarter a significant number of these upgrades were accepted and recognized as revenue. Going forward we will be recognizing revenue on Summit ATC upgrades on shipment. We expect that most Summits will ultimately be upgraded with the ATC capability.

We have extended the date for final transition of our Littleton, Massachusetts operation to our Poway headquarters. Originally scheduled to be completed by October 31st we are retaining certain engineering development in Littleton into the first quarter of 2004. We expect to have the entire consolidation completed by March 30th 2004.

Turning briefly from semiconductor equipment to our other operations. During the third quarter BMS our microwave communications equipment business began shipments against the $8.5m contract that we received in the second quarter from the United Arab Emirates Armed services. BMS is providing microwave communications equipment for command center and infrastructure system for border security in the UAE. Equipment has been installed and is being used successfully. Additional shipments will be made during Q4 and we expect to complete shipments in Q1, 2004. Under terms of the contract and SAB 101 we will recognize revenue from this contract upon acceptance by the customer, which may occur as early as Q1, 2004.

Looking at the current business environment; business conditions in the semiconductor equipment industry appear to be improving if only gradually. The majority of business is still driven by a few customers, some more customers are increasing their forecast and code activity has increases. Capacity utilization continues to rise and according to some analysts semiconductor unit production is near the record level of 2000. These are key indicators and historically have led to an increase in capital spending. We have new products and development programs underway to enhance our market leading position in IC test handlers. Our balance sheet remains strong and I am confident in our ability to grow the business as industry conditions improve.

As we noted in our press release, we have a significant amount of orders and differed revenue included in backlog at September 30th, consisting principally of the $8.5m UAE contract, which we do not expect to recognize this year, and our new Delta Edge test handlers. As acceptance of most of the Delta Edge handlers occurs in Q4, we estimate that Q4 revenue will be approximately the same or slightly above Q3 levels. With that we will take your questions. Operator.

Gentlemen, its time for the question-and-answer session?

Yes.

At this time we will begin with the question-and-answer session. If you would like to ask a question please press "" "1" on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You may press "" "2" if you like to remove your question from the queue. For participants using speaker equipment it may be necessary to pickup your handset before pressing the "" keys. And our first question for the day will be coming from Owen [Hershley] of [OH] Investments.

Hi, how are you?

Hi Owen.

On the -- the actual booking through the quarter, let's say on a monthly basis [give or take] within the semiconductor area. Did you actually see any change with throughout the quarters that was notable?

Do you mean a further sort of an accelerating trend as the quarter went on something like that?

That's correct.

No, I wouldn't say so Owen, I think, it will take a few quarters I think before we see any trend and I wouldn't necessarily expect a month-to-month trend witching the quarter to be all that meaningful anyway.

Okay. In terms of the competition out there in the semiconductor side any change -- any material change?

I would say no, we as you may know, we were recognized by VLSI research in the second quarter as having the largest market-share in 2002 the most recent data and we are working hard to maintain and grow that position;

Great. Thank you.

Thank you Owen.

As a reminder ladies and gentlemen if you would like to pose a question for our speaker please press "" "1" year telephone handset. Gentlemen there appear to be no further questions at this time. Do you have any closing comments?

I like to thank everyone for attending and we look forward to speaking with you again in January to discuss our full year and Q4 results. Thank you very much.

Thank you very much ladies and gentlemen. This does concludes this evening's teleconference. You may all disconnect your lines at this time and thank you for your participation.