Cohu Inc (COHU) 2012 Q2 法說會逐字稿

Greetings and welcome to the Cohu, Inc. second-quarter 2012 conference call and webcast. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions). As a reminder, this conference is being recorded.

It is now my pleasure to introduce your holes, Mr. James A. Donahue, Chairman, President and Chief Executive Officer of Cohu. Thank you, Mr. Donahue; you may begin.

Good afternoon and thank you for joining us on today's call. With me today is Jeff Jones, our Chief Financial Officer. If you need a copy of our earnings release, you may obtain one from our website, cohu.com, or by contacting Cohu Investor Relations at 858-848-8106.

I'll provide an overview and comments on Cohu's results for the second quarter of 2012. Jeff will take us through the financial statements, and I'll conclude with comments on the current business environment. And then we'll take your questions.

But before we go on, Jeff has information concerning forward-looking statements, estimates, and other matters that we will discuss during today's call.

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, future operations, financial results -- any comments we make about the companies Company's future in response to your questions. Our comments speak only as of today, July 25, 2012, 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 results 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 to inventory; goodwill and other intangible asset write-downs; 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; our reliance on third-party contract manufacturers; failure to obtain customer acceptance, resulting in the inability to recognize revenue and accounts receivable collection problems; customer orders may be canceled or delayed; 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.

Okay, thank you, Jeff. Sales for the second quarter were $59.4 million, at the high end of our guidance. Non-GAAP loss per share was $0.01 compared to a loss of $0.06 per share for the first quarter. Cash and investments were $106.6 million, and Cohu's balance sheet remains free of bank debt.

Orders increased to $69.8 million compared to $53 million in the first quarter. Semiconductor equipment orders increased 44% sequentially to $59.5 million and were at the highest level since the second quarter of 2011. Backlog was $62 million at the end of the second quarter.

The semiconductor group unit order distribution for the second quarter was high-speed handlers, 53%; and thermal handlers, 47%. The equipment utilization on customer test floors has been relatively stable, at near 80% -- still below levels that generally trigger broad-based capacity orders.

The Q2 order increase was primarily driven by stronger demand from mobile and automotive ICs, and by the ramp of Pyramid handler at a major microprocessor IDM.

Now I'll recap key highlights from the second quarter in our test handler business. Orders for high-speed pick-and-place handlers rebounded after a late first quarter, increasing 180% sequentially. Two IDMs placed repeat orders for EDGE handlers, and following a production evaluation, a major test subcontractor qualified the EDGE for testing parts for the fast-growing mobility market. We expect to receive a multiple-unit order from this customer in the third quarter.

In my first quarter remarks I commented that a large IDM was expected to place a follow-on multiple-unit order for Castle handlers this quarter, in the second quarter. These orders were received and are for use in testing automotive ICs. To meet future requirements, we modified the system to enable testing at the higher-than-standard temperature of 175 degrees Celsius.

Matrix handlers were ordered by a major IDM and also by a new customer, a test subcontractor, both for testing automotive devices. We expect follow-on multi-unit orders from both customers in the third quarter.

Currently, three evaluations of the Matrix handler are underway, targeting mobility and automotive applications. We plan at least five more customer evaluations during the second half of the year as we continue to expand the customer base for this product.

Record Pyramid handler orders were received during the quarter, in part due to our customer pulling in some orders originally forecasted for Q3 and Q4. Our proprietary thermal control limits temperature excursions during tests and optimizes device speed grading and ASPs, providing an optimal solution for microprocessors and high-performance graphics chips, including those processors used in servers that are enabling cloud computing.

While these high-power microprocessor applications have historically driven the need for precise temperature control during tests, requirements for low- to mid-range thermal control are increasing due to the explosive growth of processor-intensive smart mobile applications. We are well positioned with our thermal technology, including the T-Core thermal subsystem, which is being installed in development labs at major semiconductor manufacturers to characterize device performance.

Orders for T-Core thermal subsystems were received in the second quarter from 3 different customers, including one new customer. Additionally, we are completing integration of the T-Core subsystem on our EDGE handler for use in testing low- and mid-power processors in consumer mobility applications. We plan two evaluations during the third quarter and future integration of this technology on our Matrix handler to enable cold active thermal control capability for this growing segment of the market.

Our proprietary thermal technology is being integrated across our handler product line, expanding the range of applications. And our thermal subsystems are being incorporated in systems-level test equipment that will be utilized with many of the mobile device processors.

Orders for gravity handlers were the highest in a year and were distributed across our product line, mostly for automotive applications. We're clearly seeing stronger demand for gravity handlers after several quarters of reduced customer activity.

Orders for MEMs test solutions were received from three customers linked to our gravity and pick-and-place handlers, also for automotive-related applications. We're developing a magnetic test unit that we expect will drive future sales of our strip handler. We anticipate near-term demand for our acoustic MEMs units that test microphones used in mobile devices.

In early April a customer successfully completed the beta evaluation of our new gravity handler, Saturn. In June we shipped a derivative version of this system, named Jupiter, for handling large IC packages for another customer.

We're very excited about this platform that's available in both standard and large package configurations, as it provides compelling productivity improvements, particularly in short-test-time type parallel applications, a fast-growing segment of the test market.

Now Jeff will provide details on Cohu's financial results.

Semiconductor-related revenues for Q2 were approximately 88% international and 12% domestic. International sales were distributed 74% Asia Pacific; 22% the Americas; and 4% other.

We recorded $1.3 million of stock-based compensation expense and approximately $1 million of purchased intangible amortization expense in Q2. The comments I make today include the impact of these items.

Gross margin was 29.7% in Q2 and in line with our projection. We expect gross margin in Q3 to improve approximately 100 basis points as a result of favorable product mix.

Operating expense in Q2 was $19.7 million, also in line with our projection. We expect operating expense in Q3 to be approximately $21 million, increasing due to the ramp of development costs of our thermal subsystems, the integration of our proprietary thermal technologies across our handler product lines; support costs for expanding customer evaluations of Matrix and Jupiter; and sales commissions as a result of a Q3 sales mix. Driven by expanding customer evaluations and opportunities for our thermal technology, we expect OpEx in Q4 to be about the same as Q3.

The Q2 income tax provision was $100,000, and we expect a nominal provision for Q3. Q2 loss per share on a GAAP basis was $0.09. Non-GAAP loss per share, which excludes the after-tax impact of share-based compensation and amortization of intangibles, was $0.01 for the quarter.

Moving to the balance sheet, cash and investments were $106.6 million at the end of June, increasing $2.3 million from March. Cash provided by operations in Q2 was approximately $5.2 million. Net accounts receivable were $42.2 million at June, increasing $5.9 million from March. DSO at June was 61, decreasing from 65 at March.

Inventory was $73 million in June, decreasing $9.2 million from March as a result of increased shipments of our Pyramid and Castle handlers and improved inventory and supply chain management. Additions to property, plant, and equipment for Q2 were approximately $300,000, and depreciation was approximately $1.4 million.

Deferred profit at June was $4.2 million compared to $2.3 million at March. The related deferred revenue at the end of Q2 was $6.9 million compared to $3.7 million at March and consists primarily of revenue deferrals on shipments of test handlers and mobile microwave communication equipment.

Thanks, Jeff. And now, commenting briefly on our other businesses. Sales increased sequentially at the electronics division. Key orders received during the quarter were for traffic management projects in the Middle East, Canada, and the United States; and for specialized long-range cameras utilized in a military armored vehicle application.

Traffic market sales have been lower than expected this year due to government funding constraints. The division has been diversifying its strategy and product line and plans to launch a number of new products in Q3, targeted at homeland and industrial security applications.

BMS results were below plan due to order delays from several customers -- in particular, from a government program that was expected to lead to orders beginning in Q2, but deployment of equipment under this program has been delayed.

Activity remains high in the Middle East for government surveillance and security applications. We have a large installed base in the Middle East region, and customers have started to upgrade their surveillance systems to high definition.

We are also pursuing solid opportunities in the region in countries that plan to make their first investment in microwave security and surveillance systems. We expect strong sales to continue to equipment rental companies that are purchasing our systems and then renting them to contractors to provide broadcast services to television shows, in particular, for reality TV.

And now with respect to this current business environment -- during the second quarter, industry-wide orders for back-end equipment increased substantially, and this improvement is reflected in our semiconductor equipment orders as well, which increased 44% from the first quarter. Across the industry many believe that this growth was slightly driven by the ramp by major smartphone and tablet suppliers and their associated IT suppliers, and that this is expected to slow in the second half. As I noted throughout my comments, we also saw strong orders for automotive applications.

After consecutive monthly increases since January, June back-end equipment orders as reported by SEMI declined slightly, and a number of semiconductor companies are guiding to flat or lower results for the third quarter. Recently, several industry analysts have issued downward revisions to their estimates of 2012 semiconductor growth.

Equipment utilization on customer test floors has remained relatively flat over the last several months. At the macro level, it's clear that business and consumer confidence continues to be adversely impacted by unfavorable economic and political factors, both in the United States and globally.

So against this backdrop, it's not surprising that near-term forecasts from our customers are mixed. The investments we've made in customer evaluations of our equipment over the past several quarters, and that we continue to make along with the extension of our thermal technology across our handler product lines, place us in an excellent position for volume production orders as business conditions improve. For the third quarter we expect sales to be approximately $60 million.

Finally, Cohu's Board of Directors approved a quarterly cash dividend of $0.06 per share, payable October 26, 2012, to shareholders of record on August 31, 2012.

That concludes our prepared remarks, and now we'll take questions.

(Operator Instructions). Jairam Nathan, Sidoti & Co.

Thanks for taking my question. Given the strength in orders from the automotive, can you explain -- dig deeper and explain what is driving it -- the growth there? Have you changed your product line-up to better suit that sector?

Sure, Jairam. We've always had a very strong product line that is well suited for automotive applications. And automotive has always been a significant part of our business.

So I think a couple of things are happening; I think automotive content is increasing, driven by continued expansion of features, fuel-efficient features, driver assist. And our product line generally provides full-temperature capability. Most automotive applications require testing at a cold temperature, minus 55 degrees Celsius. And as I indicated in my remarks, a hot temperature, which historically has been in the 150 degree range, but now is moving up to 175. So with our expertise in temperature tests, we're very well positioned, have been for many years, with key suppliers of automotive ICs.

Okay, thanks. And have you mentioned what percentage of the revenues go to automotive and are -- it seems like a pretty large portion of your orders are from automotive right now.

No, we don't break that out. I would say that in the second quarter it was unusually high, for sure.

Okay. And my last question is, did you see any pushbacks, and I'll say -- push-outs on the order front, or have any of your customers reduced CapEx loads?

We haven't seen any push-outs in orders, Jairam, and so far, no indication of reduced CapEx impacting orders.

Yes, as Jeff said, we've had no specific communications from customers in that regard. We're reading, like everyone is, the releases from certain semiconductor companies who are making comments in that regard this weekend and as next week unfolds.

Okay, that's all I had. I'll get back in the queue.

Thank you.

(Operator Instructions). Mr. Donahue, we have no further questions in the queue at this time.

Okay. Thanks for joining us during today's call, and we look forward to speaking to you when we report our third-quarter results in October. Thank you and good day.

Ladies and gentlemen, this concludes today's teleconference. You may disconnect your lines at this time.