Cohu Inc (COHU) 2009 Q1 法說會逐字稿

Greetings, ladies and gentlemen, and welcome to the Cohu, Inc. Quarter One 2009 Earnings Conference Call. (OPERATOR INSTRUCTIONS.) As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, James Donahue, President and CEO for Cohu, Inc. Thank you. You may begin.

Good afternoon, everyone, and welcome to this conference call that will cover Cohu's results for the first quarter ended March 28, 2009. With me today is Jeff Jones, our Chief Financial Officer. I hope you have a copy of our earnings release and have had an opportunity to review it, but if you need a copy, you may 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 and then Jeff will take us through the financial statements. I'll conclude with comments on the quarter and the business environment and then we'll take your questions. But first, Jeff has information concerning forward-looking statements, estimates, and other matters that we will cover in today's call.

Thanks, Jim. 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, April 23, 2009, and the Company assumes no obligation to update these comments.

Certain matters discussed on this conference call, including statements concerning Cohu's new products and expectations of business conditions, orders, sales, and operating performance are forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from those projected or forecasted. Such risks and uncertainties include, but are not limited, difficulties in integrating the Rasco acquisition, expected synergies and cost savings from the acquisition may not be realized, market opportunities as a result of the acquisition may be smaller than anticipated or may not be realized, reduced demand for our products as a result of the global economic crisis, customer orders may be cancelled or delayed, 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, failure to obtain customer acceptance resulting in the inability to recognize revenue and accounts receivable collection problems, inventory goodwill and other intangible asset and deferred tax asset write-downs, the concentration of our revenues from a limited number of customers, intense competition in the semiconductor test handler industry, our reliance on patents and intellectual property, compliance with US export regulations, and the cyclical and unpredictable nature of capital expenditures by semiconductor manufacturers.

These and other risks and uncertainties are discussed more fully in Cohu's filings with the Securities and Exchange Commission, including the most recently filed Form 10-K and Form 10-Q. Cohu assumes no obligation to update the information in this release. Further, 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.

Thanks, Jeff. The effects of the global recession are pervasive in the semiconductor equipment industry. Our customers, semiconductor manufacturers and test subcontractors of all sizes, have reported revenue drops ranging from 20% to 30%. The semiconductor trade organization, WSTS, recently reported that worldwide chip sales are down 30% year over year.

Of course, lower revenue usually means lower production levels and most IC manufacturers and test subcontractors have taken significant production capacity offline in response to sharply reduced demand. The impact of semiconductor production drops is magnified at backend semiconductor equipment companies. The majority of equipment is purchased to add capacity and when customers have idle equipment, they simple don't buy. In down cycles, semiconductor equipment companies experience steep declines in orders, so sharp and sudden that some refer to this like falling off a cliff.

That's certainly what we've seen in the last six months. Semi reported that February orders for backend equipment were only $21.1 million, down an astounding 95% year over year. And while it's accurate to say that orders increased 43% in March, that obviously doesn't tell the whole story coming on such a low base as orders fell 85% below the year ago level. But still, this is an encouraging sign if only a small one. Moreover, Intel, Texas Instruments, and others have stated that they believe semiconductor sales leveled off in Q1.

We track equipment utilization on customer test floors and it has trended up slightly in recent weeks. Utilization levels vary by customer but range from 50% to 70% in many cases, compared to 40% to 60% earlier this year.

Cohu's first quarter 2009 results reflect current semiconductor equipment industry conditions. Sales of $36.6 million were at the high end of our guidance and compared to $58.4 million for the first quarter of 2008, and $41.4 million for the fourth quarter ended December 27, 2008. The net loss for the first quarter of 2009 was $6.3 million or $0.27 per share compared to net income of $2 million or $0.08 per share for the first quarter of 2008 and a net loss of $7.6 million or $0.33 per share for the fourth quarter of 2008. The net losses for the first quarter of 2009 and the fourth quarter of 2008 include charges to write down inventory of $2.6 million and $5.5 million respectively due to weak conditions in the semiconductor equipment industry.

Consolidated orders for both the first quarter of 2009 and the fourth quarter of 2008 were $34.4. Orders for semiconductor equipment were $20.2 million in the first quarter of 2009 compared to $21 million in the fourth quarter.

First quarter results include the first full quarter of Rasco which we acquired last December. Backlog was $44.4 million at the end of the first quarter compared to $46.6 million at the end of the fourth quarter and we expect second quarter sales to be approximately $31 million.

Now Jeff will provide details on Cohu's financial results for the first quarter.

As Jim mentioned, the 2009 first quarter results include Rasco results for 13 weeks, whereas the fourth quarter only included Rasco from the acquisition date of December 9, 2008. Semiconductor equipment related revenues for Q1 were approximately 76% international and 24% domestic. International sales were distributed, 88% Asia-Pacific, 4% the Americas, and 8% other.

We recorded approximately $700,000 of FASB123R stock based compensation expense, and approximately $1.5 million of purchased intangible amortization expense in Q1. The comments I make regarding operating expenses include the impact of FASB123R and purchased intangible amortization expense.

Gross margin was 20.2% in Q1 compared to 19.7% in Q4, and includes a $2.6 million write-down of inventory due to weak business conditions in the backend semiconductor equipment industry. Excluding the write-down, gross margin in Q1 was 27% and in line with our projection. We expect gross margin in Q2 to be approximately 26% due to lower volume.

Total operating expense consisting of R&D and SG&A was $17 million in Q1 compared to $17.5 million in Q4 excluding the in-process R&D charge. Total operating expense in Q1 was less than our projection due to the actions we've taken to reduce costs including headcount reductions, pay cuts, suspension of the 401(k) matching contribution, and mandatory time off. We expect total operating expense to continue to decrease in Q2 and be slightly lower than Q1.

R&D expense was $8 million in Q1 compared to $8.5 million in Q4, and we expect R&D expense in Q2 to be slightly lower than Q1. SG&A expense was $9 million in both Q1 and Q4 and we expect SG&A expense in Q2 to be approximately the same as Q1.

Interest and other income was $500,000 in Q1, down from $1.2 million in Q4 as a result of lower interest rates and average cash balances. We expect interest and other income in Q2 to be approximately $400,000. Our effective tax rate for Q1 was a benefit of 31.4% reflecting a blend of lower foreign tax rates and the US federal tax rate of 35%. We expect the effective tax rate benefit for 2009 to be approximately 31% based on our current projection of pretax results. Q1 net loss per share on a GAAP basis was $0.27 and was computed based on 23.3 million weighted average shares. Non-GAAP loss per share for the quarter was $0.20.

Moving to the balance sheet, cash and investments were $83 million at March, a decrease of $5.4 million from December due to cash used in the operations and a $1.4 million dividend and $200,000 of CapEx. We expect cash flow in Q2 will benefit from a $4.4 million income tax refund and as a result, we project our net cash burn to be approximately $2 million.

Net accounts receivable were $26.5 million at March compared to $31.9 million at December and represented about 66 days sales outstanding. The decrease in accounts receivable was due to steady cash collections and lower shipments in Q1. Additions to property, plant, and equipment for the first quarter were approximately $200,000 and depreciation was approximately $1.1 million.

Deferred profit at March was $3.4 million compared to $4.4 million at December. Deferred profit relates to revenue deferrals pursuant to SAB104 primarily on semiconductor equipment, test handlers, and thermal subsystems and BMS products. Our deferred revenue at March 28, 2009 was approximately $5.5 million.

Thanks, Jeff. We received the first orders for Pyramid, our next generation handler that incorporates Cohu's proprietary thermal technology. We made the first shipment and the system is undergoing characterization and qualification at a major microprocessor, IDM. Pyramid, like its predecessor Summit, provides enabling capability to optimize speed grading of microprocessors and high-speed graphics chips.

We expect to ship additional qualification systems throughout 2009 in anticipation of a production ramp expected in mid 2010. While our largest customers are not adding capacity due to equipment utilization that is well below normal levels, we are realizing opportunities at some of our historically smaller companies, especially for our gravity handlers. Rasco's relatively wide customer base is a benefit as some smaller customers are successfully pursuing niche markets that require new capability and capacity.

Cohu's non-semiconductor equipment operations continue to be less affected by the economic downturn. Our CCTV business reported lower sales due primarily to a customer order delay but also a lower operating loss as a result of cost reduction measures including a reduction in force and salary cuts. The trend in this business is slightly up and we expect improved sales, orders, and operating income in the second quarter.

Our microwave data link business, BMS, recorded a second consecutive quarter of strong results. Orders were the second highest ever and BMS ended the quarter with a record backlog. BMS designs and manufactures a comprehensive product line of analog and digital transmitters and receivers in both standard and high definition format. Applications include real time video for electronic news gathering, airborne law enforcement, unmanned vehicles, ground and aerial surveillance, and telemetry. While the broadcast market has been affected by the economic downturn, the defense and security markets are quite strong.

BMS systems are used on aircraft and on maritime and ground vehicles to collect critical information from safe distances. These applications include unmanned aerial vehicles that are in use in critical, high-profile areas such as the Middle East and Pakistan. BMS is a recognized leader in the law enforcement market and provides microwave equipment to federal, state, and municipal agencies for security and surveillance activities.

This market is benefiting from Department of Homeland Security funding and the administration's continued commitment to intelligence gathering, reconnaissance, and surveillance as reflected in the new Defense budget. The acquisition of ABS that we made two years ago and that is now operating as BMS Europe has been a critical factor in our success in the security and surveillance markets. The BMS Europe product line and development focus is centered on the digital systems, particularly high-definition transmitters and receivers that are in high demand for these applications. We have excellent opportunities in intelligence, surveillance, and reconnaissance applications, both domestically and internationally.

So while our microwave and CCTV equipment operations have been less affected by the economic downturn thus far, there is no question that business conditions in the semiconductor equipment industry are as difficult as we can remember, and this creates an interesting contrast since at the same time that we are dealing with what is now considered to be the worst recession in 60 years, we have never been more optimistic about Cohu's future. And here's why. With the acquisition of Rasco last December, we increased our served market 70% with products that are 100% complimentary with our pick-and-place systems with no product overlap. The acquisition extends our leadership position, expands our product line, and provides solutions for the fast-growing small IC package segment critical to small form factor consumer electronics, a market that will continue to experience high growth.

We are ahead of schedule with the integration of our global sales and service organization. With our expanded customer base, we are already capitalizing on cross selling opportunities for our pick-and-place and gravity handlers. We have three new products either introduced or in development and we believe that each has leading performance in its market segment. First, Pyramid, our next generation thermal handler that I mentioned is undergoing customer qualification with expectations of a production ramp in 2010. Second, Matrix, our high-speed, high-parallel pick-and-place handler that we introduced last year. And finally, a new high-speed, high-parallel gravity handler that will be ready for customer evaluations later this year.

Together, these products position us for growth and market share gains as business improves and customers once again add capacity. Our gross margin enhancement strategy is well underway. We've completed the transition of the first project, of the first product, the Edge pick-and-place handler, to an Asian contract manufacturer. Work is in progress to move the Matrix and Pyramid handlers as well and we are also in the early stages of assessing the merits of doing so with our gravity handler products.

Despite the downturn, we are expanding our highly successful Philippine handler kit operation. We expect that these activities together will deliver meaningful gross margin enhancement once implemented and when business conditions improve. The actions we've taken to reduce costs and resize the Company during the downturn will continue to deliver benefits going forward. We have lowered our breakeven level and we're a leaner organization.

And finally, we are seeing a solid return on the investments that we've made in our microwave equipment business. BMS is performing well and has a strong pipeline of sales opportunities in security, surveillance, and defense applications.

Certainly no one knows when business conditions will improve, but with our strong balance sheet, we are able to weather a prolonged downturn if necessary while continuing to make strategic investment in new products and operational improvements that will enable Cohu to gain market share, deliver profitable growth, and enhance shareholder value.

That concludes our remarks and we'll now be happy to take your questions.

(Operator Instructions). Kelly Anderson, Sidoti & Company.

Hi, guys, thanks for taking my questions. Just first off, is there any chance you could give us Rasco's revenue contribution for the quarter?

Kelly, we're going to just break out the, in our reporting, the semiconductor equipment sector together. It's all combined, so we're not going to break that out separately going forward.

Okay, is there anyway then maybe you could speak qualitatively to why your customers' feedback has been on the acquisition and how that's progressing?

Sure, absolutely. It's been highly positive. Our sales and marketing team has -- I think it's pretty accurate -- I think it's accurate to say visited 100% of our largest customers and most of our other customers as well and the reception has been uniformly positive.

Excellent. And just in terms of your operating expenses, obviously you've done an excellent job pulling costs out of the business given that we have a full quarter of Rasco and the expenses came down sequentially. Can you maybe talk about where you think OpEx can go from here? I know we're expecting a slight decrease for Q2, but any chance that if these kind of losses proceed, you'll think about taking additional cuts?

Kelly, thanks for that question. We have made some significant reductions as you noted. Sequentially operating expense will be down quarter over quarter. We continue to assess the cost structure and we will make further reductions we feel are appropriate given current and projected business conditions. But we won't jeopardize our ability to complete the key initiatives that we have underway that will continue to drive, will drive our profitable revenue growth in the future. Things such as the integration of Rasco and the realization of those plants' synergies and the completion of our next generation products as well as the transition of our handler manufacturing to Asia.

So I think it's accurate to say, Kelly, that we don't have any current plans to make a further significant reduction in OpEx, but we're constantly reevaluating that, as Jeff said, based on current conditions and what we believe our projected conditions will be. And that's fairly difficult and fast changing so it's an ongoing process.

Is there any sense you can give us as to which percentage of these cuts are permanent versus temporary?

Yes, we've taken about $20 million annually out of our cost structure. The majority of those are permanent. The ones that are temporary would be related to the suspension of the 401(k) and the pay cuts. And those total roughly $3.5 million.

Okay, great, that's very helpful. And then finally, obviously we've seen some signs of improvement in the industry. Jim, you talked about utilization rates sort of trending up. Is there any other evidence that you have that maybe we are reaching a bottom here? I mean some companies have talked about spares revenue trending up. Anything like that?

Well we haven't seen any noticeable uptick in spares spending. As much as anything I think it's almost difficult to imagine it getting much worse. When orders are down 85% to 95%, that alone indicates you have to be pretty close to a bottom. But I wouldn't say there's any tangible signs of improvement, it's more absence of further deterioration at this point.

I definitely think that's a good sign. Thanks for taking my questions.

(Operator Instructions). Gentlemen, it appears there are no further questions. Do you have any closing comments?

Yes. Thank you, everybody, for joining us today and we look forward to speaking to you next when we report results for Cohu's second quarter. Thank you and good day.

Operator; Thank you. Ladies and gentlemen, this concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.