Cohu Inc (COHU) 2005 Q2 法說會逐字稿

Greetings, ladies and gentlemen, and welcome to the Cohu second quarter fiscal year 2005 earnings conference call. [OPERATOR INSTRUCTIONS] As a reminder, this conference call is being recorded.

It is now my pleasure to introduce your host, Mr. James Donahue, President and CEO of Cohu Incorporated. Thank you, Mr. Donahue, you may begin

Good afternoon, and welcome to this conference call covering Cohu's results for the second quarter of 2005. With me today is John Allen, our CFO. 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 by contacting Cohu Investor Relations at (858) 848-8106.

I will provide an overview of our results for the quarter. John will then take us through the numbers and I'll conclude with comments on operations and our view of the business environment looking ahead. And then we'll take your questions.

But first, John has information concerning forward-looking statements, estimates and other matters that we will discuss 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 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 20th, 2005, 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 concentration of our revenues in a limited number of customers; intense competition in the semiconductor test handler industry; inventory write-offs; failure to obtain customer acceptance and recognize revenue; the cyclical and unpredictable nature of capital expenditures by semiconductor manufacturers; our 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; difficulties in integrating acquisitions and new technologies; and other risks addressed in filings with the Securities and Exchange Commission, including our Form 10-K for the year ended December 2004.

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 our nondisclosure agreements. Jim?

This was a strong quarter for Cohu, driven by sales of proprietary thermal IC test handlers by our Delta Design unit.

Sales for the second quarter were 51.8 million, compared to 47.3 million for the second quarter of 2004, and 44.4 million for the first quarter of this year. Net income for the second quarter was 5.6 million, $0.25 per share, compared to net income of 6.9 million, or $0.32 per share for the second quarter of 2004, and net income of 6.5 million, or $0.30 per share, for the first quarter of 2005.

In analyzing our second quarter results, it's important to note that deferred profit increased $3 million, as a result of shipments made during the quarter that were not recognized as revenue, pending customer acceptance.

Orders in the second quarter increased 60%, to 71 million, compared to 44.4 million in the second quarter of 2004. Orders are at the highest level since 2000. Backlog was 81.8 million at June 25, compared to 62.6 million at the end of the first quarter.

Cohu's Board of Directors approved an increase in the quarterly cash dividend to $0.06 per share.

Now John will now provide details on our financial performance.

Semiconductor equipment related revenues for the second quarter of 2005, were approximately 76% international and 24% domestic. International sales were distributed; 78% Asia-Pacific; 13% the Americas; and 9% Other.

Gross margin in Q2 was 39.1% versus 40.4% in Q1. The decrease in gross margin was primarily due to changes in product mix and increased revenue deferrals related to SAB104. Without the increase in deferred revenue and profit under SAB104, our gross margin in Q2 would have been approximately 42%. We expect gross margin in Q3 to be approximately 40%.

R&D expense was 7.1 million in Q2, compared to 6.7 million in Q1. The increase in R&D was due to higher R&D expenditures in our semiconductor equipment business during the second quarter, in part, the result of Q2 being a 13-week period and Q1, 12-weeks. We expect Q3 R&D expense to be about the same as Q2.

SG&A expense was 8.5 million in Q2, compared to 7.3 million in Q1. The increase in SG&A was due to higher business volume, including variable commissions expense and the longer accounting period, with Q2 consisting of 13-weeks, versus 12 in Q1. We expect Q3 SG&A to be higher than in Q2, due to expected higher revenues.

Interest income increased to 890,000 in Q2, compared to 690,000 in Q1, due to higher interest rates. Our income tax benefit for the first 6 months of 200, was $2 million, and was attributable to the reversal of approximately $3 million of accrued income taxes from the completion of a tax examination in March 2005, and a $1.7 million reduction in the valuation allowance on deferred tax assets in June 2005.

The Q2 reduction in the valuation allowance was the result of higher forecasted 2005 income for our Q2 analysis, than the 2005 forecasted income used in the December 31 '04, and March '05 analyses. Based on current projections that are subject to change, we expect additional reduction in the valuation allowance in Q3 and Q4 that would result in an effective tax rate of approximately 12% for the entire year, excluding the impact of the $3 million tax examination adjustment.

Without these items, our effective tax rate for the six-month period would have been approximately 30%. This effective tax rate is based on the estimated annual effects of tax rate for the entire year and is lower than the US 35% federal statutory rate, primarily due to R&D tax credits and export sales benefit.

Lastly, the estimated effective rate is subject to adjustment in future quarters, as estimates of pre-tax income change.

Net income per share in the second quarter was computed based on 22.2 million weighted average shares and share equivalents from stock options.

Moving briefly to the balance sheet, cash and investments at 117.1 million at June 25, decreased approximately 4 million from March 26, 2005. This decrease was primarily attributable to cash used to acquire certain assets of Cryotech.

Net accounts receivable of 40.1 million, compared to 29.6 million at March 26 '05, and represented about 70 days sales outstanding. This is an increase of 10 days, compared to the 60 days sales outstanding at March 26. The increase was due to the significant increase in June sales versus March sales. Net inventory increased slightly, to 41.2 million at June 25th, from 40.3 million in March. The increase was related to the increase in backlog.

Additions to property, plant and equipment during the first 6 months of 2005, were approximately 2.8 million, and depreciation and amortization approximately 2.6 million. Deferred profit at June 25th of 12.6 million, increased 3 million from the 9.7 million at March 26. This increase was the result of increased shipments and revenue deferrals during Q2 and is primarily comprised of revenue deferred, pursuant to Staff Accounting Bulletin, or SAB 104, on Delta test handlers and our contract for microwave communications equipment with the United Arab Emirates. Jim?

Delta Design contributed 80.4% of sales in the second quarter. Test handler unit orders at Delta increased 75%, compared to the preceding quarter. Orders for our proprietary thermal systems were at record levels and represented 66% of unit orders during the second quarter. Orders for general purpose pick and place handlers rose 94% and accounted for 29% of unit orders, with our other products contributing the remaining 5%.

We continue to make strategic investments to enhance our thermal technology. In May, we acquired certain assets, including intellectual property, technology and a new thermal product from Cryotech Incorporated, for $4.1 million. We are now supplying a thermal subsystem for use in a high-power burn-in system.

Looking at the current business environment. We exhibited last week and the Semicon West Trade Show. At the show and in news articles and press releases, we see a wide range of opinions on the near-term prospects for the backend equipment industry. Last week, Semi lowered its forecast for sales of semiconductor equipment in 2005 and predicted that ATE sales would fall 24% this year.

However, yesterday, Semi released preliminary data reporting that bookings for test and assembly increased 16% over the preceding month, in June.

While there are mixed signals at the industry level, we know that Cohu's business, as reflected in our Q2 orders and in our current customer forecast, is improving.

We are excited by the strength of sales of our thermal systems. We are adding new customers and the increasing demand for precise temperature control during tests of a growing array of high-performance logic devices, is creating new opportunities for our proprietary technology.

It's been our view that any improvement in the general purpose pick and place segment, so called capacity related buys, would be sudden and sharp. And that's exactly what we experienced in the second quarter. And the forecast for general-purpose equipment is now the strongest it's been since early last year. We do expect this segment of the business to remain highly volatile.

Cohu's balance sheet remains solid, with cash of 117 million and no debt. Based on our quarter ending backlog and forecast, we expect to report improved sequential results in the third quarter.

And with that, we're ready to take questions.

[OPERATOR INSTRUCTIONS] Michael [Trotsky], PAR Capital.

Hi, congratulations, really strong quarter. Two questions. First, Jim, you mentioned that the business environment will support improved sequential results in Q3. Is the both for revenues and orders? And secondly, could you give us an update on the United Arab Emirate order and revenue recognition? I think in the last filing you said that it would be recognized in Q3.

Sure. With respect to our comments about the third quarter, we're referring to improved revenue. We do not estimate quarters. With respect to the UAE contract, we did, on June 23rd, issue a press release in which we stated that the UAE contract would not be recognized in the second quarter. We currently expect it to be recognized in the third quarter.

The equipment continues to perform well. The pace of business and style of business remains very difficult to predict in that region. It's quite different than what we're accustomed to in our standard commercial dealings. Additionally, the customer is a governmental agency, which introduces some additional unpredictability with respect to the execution of details in the contract acceptance and payment process.

Never the less, we are confident that the contract will be accepted and that we'll be paid and we now expect that to occur in the third quarter.

Okay. What leads you to that confidence, since we've been dealing with this for quite a while now?

Well, we have feet on the ground there and we're in constant contact with both the people who are using our equipment, as well as the various administrators and bureaucrats who are involved in the paperwork process. And all of our interaction there with them supports our conclusion.

Okay. Of the orders, $70 million or so, $71 million, how much of that comes from new customers? New, meaning in the past year.

We don't have that data exactly in front of us. Let me see if I can make a reasonable estimate at that. I would guess that it's somewhere in the maybe 20 to 25% range.

And what is the pipeline of new customers for your thermal product? I know you're ramping one. What's the outlook for ramping other this year?

Well, the base business for our thermal tool has been microprocessor manufacturers. We're now, as of first quarter, shipping to an additional customer who's involved in the CellChip program. That's also a microprocessor, but a special type of microprocessor. So, we are making deliveries against that business currently.

The next emerging opportunity, we believe, is in the high-speed graphics chips. And we are in the business development stage there. We have systems that will be evaluated this quarter and the performance of our machines against the current solutions, that is non-thermal control tools will be assessed. And I think we'll be in a good position in the next three months to assess and size just what the market potential is in high-speed graphic.

But it's fair to say that they would have the same sort of thermal needs as high-speed microprocessors or any other?

We believe that they do. And certainly from a general perspective, they have the same issues, which are the convergence of high-speed and high-power, and performance that degrades with temperature instability during the test process.

So, over the next couple of months, our equipment will be evaluated and the performance improvements will be quantified. We're optimistic that the performance improvements are going to be significant enough to drive sales for our Summit tool. We'll know that more certainly over the next few months.

That's terrific and it sounds like that's an acceleration over the last quarter, coming sooner.

Perhaps a little bit.

James [Puchi], Advest Bank.

Fantastic orders. I didn't really expect anything like that. And the general-purpose capacity buys at the end, were they really accelerating in June, towards the end of the quarter rather than the beginning?

Yes, certainly the second half, if not the end of the quarter. It was definitely the second half. And conditions, as I mentioned, changed very suddenly.

Do you expect that acceleration to continue through the third quarter?

Based on our forecast, we think the third quarter, for general purpose, is going to look good.

Surprising. Well, I was very impressed with the quarter and that's all I have to say today. Thank you very much.

Dennis Wassung, Adams Harkness.

Thanks, guys, great job, great orders. A few questions here. I guess first on the deferred profit line going up a few million dollars here, I'm curious what's driving that? Is that a new customer that you're shipping to that you're not recognizing on shipment yet? What's causing the deferred revenue on that side?

I think that's exactly right, Dennis. It does involve new customers. Either a totally new customer or a new customer for that particular tool. It could be either one. Or a new customer location. It could be multiple things. But essentially, you're right. It would be new customers, that's right.

I don't know if you can say, but is it in the Summit side of the business that's driving that?

Yes, I think that certainly a part of it, no question, it would be new customers for Summit. But it also could be, interestingly enough, other products as well. But it would be Summit primarily, that's true.

Okay. Another question on some of the numbers that Jim gave out here on the units. I just want to make sure I have the numbers right. Jim, I think you said that the number of total handler units increased 75% sequentially, is that right?

Yes, correct.

And 66% of the units were thermal handlers?

Yes.

All right. And then general purpose was up 94% sequentially in units?

Yes.

And I think you said 29% of units were general purpose?

Correct.

So, 5% of units, if you add those two numbers together you get 95. What were the other 5%? Are those the thermal systems that are not Summit or are those--what can you say about those?

It's just miscellaneous handlers that are more legacy products, Dennis.

Okay. So nothing else I'm missing?

Nothing. Just a various legacy products. We did record our first order--part of that are the first orders for this thermal subsystem that I mentioned that we picked up in our asset acquisition from Cryotech.

And when you look at that acquisition, how does that expand your opportunity? Is that something that you'll be able to sell alongside of Summit or one of your other handlers or is that something like a technology that gets integrated into your thermal capabilities going forward?

It's both, but more of the latter. We acquired certain intellectual property and technology that we will utilize to further strengthen our thermal capabilities in Summit, which is our product tool; in the ETC, which is our laboratory tool. We also picked up a new product, which is a thermal subsystem that we're providing to a integrator of high-power burn-in systems.

We will be looking at other opportunities to provide thermal subsystems on an OEM basis. Although at the present time, we only have this one OEM customer for this.

Okay. Another question on sort of the broader business. Obviously, you're seeing a big improvement here--and I think I got cut out on part of the answer to the previous questioner. But, when did you really start to see the improving orders and have you continued to see that strengthen in July?

And since Jim Puchi asked that question, I did find the schedule in our files here. As I said, it was really the second half of the quarter, May, and in particular, June. And we're continuing to see momentum

Okay. [Inaudible] is it more on the general-purpose side, or is it across the board with Summit as well?

It's both.

So, when you look at your Summit opportunity going out through the rest of the year and into next year, are you fairly confident that the business continue to grow here? You're looking at new applications, the cell processor, sounds like a significant opportunity moving towards opportunities at graphic. And also your core microprocessor business, how do you kind of characterize that business as you look forward?

I don't imagine that the cell business is going to be of the magnitude of the traditional microprocessor business. Maybe that will change if the CellChip gains broad acceptance. But it's certainly too early to state that now.

So, I would say the bigger opportunity, should it materialize, and we talked about that in a previous question, would be in the high-speed graphics chip. That would be a potentially sizeable market opportunity.

As far as looking ahead and what do we see for the rest of the year, we're still in the semiconductor equipment industry. Business looks pretty good right now. But this is the semiconductor equipment industry and about one quarter of visibility with confidence is about as good as it gets in this business.

Okay, fair enough. And last question for you. On the general purpose side of the business, and obviously, it's more of a capacity driven piece of business that's been weak for quite some time. The big increase you're seeing, what does that tell you in terms of your customers and their activity? Or is this the result of customers that haven't spent in a long time coming back, adding new capacity? Are you seeing any increases in the subcon market? What do you see driving that piece for the business today?

It's a little bit of both IDM and subcon. More IDM than subcon right now. But I would hesitate to draw any industry-wide conclusions. I think it's more customer-specific than anything else. So, we've got a couple of customers who are ramping and adding capacity.

Okay. Great job, thanks.

Theodore O'Neill, Wells Fargo Securities.

Jim, we're having to deal with a lot of vocabulary in the last two days in terms of talking about business models and the next quarter being up significantly or considerably. And now we have things will be improved. So, could you bound that at all for us?

Well, I don't know what adjective to provide, Theodore, quite honestly. I think, as we've said in the past, you can look at our backlog and make some pretty historically reasonable projections with respect to the next quarter results. It is impacted, unfortunately, in these days, by the realities of SAB104 and revenue recognition, and in our specific case, the UAE contract. So, I'm just not comfortable giving any more specific guidance than that, unfortunately.

Well, that wouldn't be more than the backlog?

No. I think, just to supplement that, Theodore, as Jim pointed out, a difficulty that we struggle with and obviously, we've got internal projections. But the difficulty is, it's not only the UAE contract, which we've indicated we believe will be recognized in Q3. It's also, as we have new customers, particularly for Summit, that constitutes a significant part of our backlog in revenue. Estimating the precise date in which that will be accepted is difficult and it could be that it falls in early October as opposed to late September and therefore, it wouldn't be Q3 revenue.

Obviously, we think, we believe, confidently, that revenue will be up, presumably even without the UAE contract. But for the core business, which I know we've all struggled with in terms of trying to model the UAE revenue. But I think that's a fair statement. But I think the backlog that you look at, for the reasons we stated, would be customer acceptance conditions and delayed revenue recognition, would be higher than any expectation we have internally for revenues next quarter.

So, because it's a new customer, but not a new product, you have to go through that?

Yes.

Oh, got it. Okay.

Absolutely.

Now, the tax rate you said for the year is going to come out to 12%. What rate should we be using for 2006?

Yes, that's a fair question. As I indicated in my brief comments, the rate for this year, sort of the normal highest rate, ignoring the special items, would have been about 30%. That's what we would model for this year. I would guess that that's a pretty good estimate for next year. And that's the statutory rate, less the traditional things like R&D tax credits and export sales benefit. So, I would say 30% for next year at this point.

Michael [Trotsky], PAR Capital.

Just to follow up on the general-purpose strength. Can you elaborate on--I think you said you saw some subcon strength, but can you elaborate on that a little bit? I mean, does it seem to be coming back? Is there a bottleneck there? Or is it really de-minimus at this point?

I think, as I mentioned, Michael, it's driven by a small number of customers right now, the improved general-purpose business for us. So, I think it wouldn't be accurate to say that that's indicative of any overall necessary improvement in the subcons. I would say our business in the second quarter was probably 75% IDM, 25% subcon in the general-purpose area, something in that range.

Right. But the subcons have been largely silent up until now, right?

Yes, they have.

Okay. And I guess what I'm asking is do you see increased requests for pricing or delivery from the subcons?

Actually, we're seeing that more from selected IDMs than any other customers. In general, I would say, except for those couple of subcon customers who ordered equipment in the second quarter, in general, that side of the business is still pretty quiet.

Okay. I guess last cycle it was difficult for you to penetrate the subcon market. You came out with the new product, the Edge. And I'm just kind of curious as to in this cycle if the subcons do come back, do you think you can gain market share in that?

Yes, I think we can.

But right now there's nothing to be had is what you're saying?

It's still pretty quiet. We haven't seen dramatic change. And those customers, the subcons, more than anyone else, are going to wait until the very last moment to order.

Right. That seems consistent with the test equipment companies that were reported.

Dennis Wassung, Adams Harkness.

A couple of more quick ones here, sort of following on a couple of these questions. When you look into Q3, John, you gave a 40% gross margin target. And I'm assuming that's incorporating--that assumes the UAE contract as being revenue?

Yes, that's correct.

If that were not to be revenue, what kind of gross margins would you be looking at here? Would it be 42-43?

Yes, it would clearly be higher, obviously. Maybe 41.5-42 possibly. I haven't modeled that out actually, but it would be higher by at least a full percentage point, probably a little more.

Okay. And you said the gross margins for Q2 would have been 42?

Right.

Okay. And one more question, sort of follow-on to Theodore's question on the revenue here, as we look to Q3. If you look in the backlog, 82 million here, not including the UAE contract that's in backlog, do you see a significant portion of this backlog that has the potential to be a long-term customer acceptance problem or issue or the timeline?

I don't see it as a problem. I think it's the normal progression. And if you look back at our history, it's not unusual for us to take a couple of quarters to work through revenue recognition issues. It's not that there's a problem. It's just the customers want sufficient run time with the product before they will sign off on final customer acceptance.

In many cases, we get paid for the equipment, but we're still pending final customer acceptance. So, I don't see it as a problem, long-term. But certainly it wouldn't surprise me in certain cases if it takes, you know, 4-5-6-months. So if we ship something in June, it may or may not be recognized in the third quarter. And likewise, when you look at the backlog there could be shipments that occur even in early Q3, it may not be accepted by the end of the third quarter. So that's why it's difficult to peg the revenue and use backlog.

We do, as Jim pointed out, we do point to that as a surrogate for a revenue projection, but it hasn't--if you look at the last few quarters, I think the revenue has been less than the backlog coming into the quarter, because of this very issue.

I don't think there's anything in the June 30th backlog, Dennis, that's really any different than sort of normal backlog. There's nothing in there any different.

Okay. So, looking at the fact that May, and as you mentioned earlier, predominantly June, was where the strength came from, a lot of these units were probably late in the quarter anyway?

In terms of orders or shipments?

In terms of things getting in that backlog number.

Yes, that's right. The orders--the momentum was weighted towards the second half of the quarter.

Peter Wright, CIBC World Markets.

Congratulations on a good quarter, guys. First question is looking at your subcon customers and looking to see what type of product mix they've been acquiring. Is it the thermal product specifically?

Well, we're seeing both general purpose pick and place, which historically that has been all that they've purchased. But, over the last 6-9 months, we've seen some subcon business for our Summit tool, which is a first. So it's both product lines into the subcons now, Peter.

And what I'm really trying to understand I guess is kind of the customer penetration on the thermal side of the business. If I was to look at the 71 in a million of orders, I guess if we were to look at the top two customers, could you give us some type of penetration number or concentration number on that?

First of all, of course, this is Cohu consolidated, Peter, the 71 million. The Delta, which I think is what you're looking at obviously, is fairly close. Our traditional percentage of Delta business, the consolidated Cohu, is about 80 to 85%. So you've got to take that $71 million down and prorate it between the businesses. But having said that, the concentration of our orders, I think has been relatively consistent over the last year. If you look in the annual report last year, you would see the two dominant customers, those were still very significant. We have some other customers that have come online in the last six to nine months that weren't disclosed in the prior 10-K that are certainly very significant as well.

So I think there's not surprise there that the concentration is certainly that the traditional top-two customers and certainly another one or two. So I think the concentration, it's fairly similar to what it was before. I think the good news is we have a couple of other customers that are very significant.

One last question. You guys seem to have a little bit better visibility on kind of forward quarters than a lot of other people with such a booking in a blowout. However, you didn't quantify, actually, kind of the direction that revenue could go.

If looking at orders alone, do you think it could be an up tick in the third quarter from these levels or do you think there was a lot of first-time capacity fill in this number?

You're asking about order direction, Peter, in terms of what do we think orders might be in Q3?

Right.

Jim earlier commented that we have never attempted to forecast orders, certainly in any public forum. And so we wouldn't want to start that now. So, we really--other than the comments that were made that business is strong and that there was good order flow throughout the quarter, accelerating somewhat in the latter half, we really haven't indicated anything else and I don't think at this point we are prepared to do that with respect to orders.

And then revenue, can you--?

Just following on an earlier comment that we were asked. I think, Jim indicated and as I also reiterated, we expect revenues to be clearly up over Q2. And that would be even if you didn't have the UAE revenue in there, which we do believe will be recognized in Q3.

As far as trying to pinpoint a number, Peter, I think as we said, because of we have some new customers in there, including for Summit, that represent fairly significant dollars in the quarter. And that would be also shipped during Q3. Depending on when we get final customer sign off, it could occur in September, it could occur in October. That will have a fairly significant effect on exactly what the revenues would be in Q3. It's a little too early to call exactly when their acceptance will occur.

Okay. You know, you've only had a couple of quarters in history, I guess, right in the 2000 bubble timeframe that compared to this type of order number. And I guess, is it fair to assume that your normal cycle times are relatively similar to what they've always been or is there any reason to believe that they might slow down a bit?

With cycle times, you're referring to the lead times for our products, Peter?

I guess orders to revenue type conversion.

Well, certainly in a steep, steep ramp, we are going to see some lengthening of lead times. But I don't think to the extent that it really enters as a significant factor and as a variable in predicting what revenues for the next quarter are going to be, if that's really what you're asking.

That's right. So, you don't think that's impacting this next quarter. It should be somewhat a similar ratio to what you've historically run at?

I would think so.

Michael [Trotsky], PAR Capital.

Yes, you keep mentioning backlog, but did you actually give a backlog number or are you--?

Yes, we did. It's in the press release also, Michael. The consolidated backlog is 81.8 million.

James [Puchi], Advest Bank.

I said I wasn't going to ask anymore, but I've got one. This deferred revenue from previous quarters could fall into this quarter, right?

Oh, sure, yes. That's right.

So, what we might--it's a rolling number. So, we could get--well, we already sold--we recognized in this quarter that could raise this number somewhat.

You're right. The deferred revenue is included in the backlog, because we haven't recognized that revenue yet. Yes, that's no different than any other quarter, Jim. It is a rolling number. Because on a shipment basis, that's product that was shipped in an earlier period and is recognized in a later period. And you get some spill out similarly in the quarter that will be shipped in the quarter that will move to the fourth quarter. So yes, it is a rolling calculation, that is correct.

Well going back, if I say this correctly, it's been pretty accurate that it would be somewhere--let's take the UAE out, it would be somewhere around 73 million for the quarter revenue?

You know what, I would caution somewhat against that. Because it hasn't--we've had, again, with Summit and with some new customers, it's really a function of exactly the date on which the customer acceptance occurs. It's not a completely reliable indicator as to trying to benchmark what revenue would be in the follow on quarter. It could be, but I wouldn't necessarily draw that conclusion, Jim.

Well, if you go back four quarters or five quarters, it seems that it's pretty accurate.

Sometimes it is. I've got a chart that shows me back 10 years. And sometimes it is and sometimes it isn't. It really depends on the product and the customer base and exactly what's going on there.

But 10 years ago we didn't have this deferred revenue recognition problem.

No, but we started it, I think in 2000 or 2001. If you go back like five years you can look at the trend.

Well, I've been keeping track of it. It seems like it's pretty accurate. I don't know what the number's going to be, but that seems to be the experience.

For example, Jim, I mean if you just go back to the most recent quarter, okay, and I have all these numbers in front of me. Our backlog coming into this quarter, 62.6 million, okay? That's in the press release. Our revenue this quarter is 51.7. So there's a $10 million differential there, right?

But mostly it was UAE, right?

Most of it was UAE, that's true.

What was it, about 8?

Yes, roughly, roughly.

So it's within a couple of million dollars.

Right.

Gentlemen, there are no further questions at this time.

Well, we thank you for attending today's conference call and we look forward to speaking to you when we report Cohu's third quarter results. Thank you.

Thank you, ladies and gentlemen, this concludes today's teleconference.