Company Overview

Cohu, Inc. is a leading global supplier of semiconductor test and inspection equipment, offering a comprehensive portfolio of solutions that optimize manufacturing yield and productivity. With a rich history spanning over seven decades, the company has established itself as a critical enabler in the semiconductor industry, driving technological advancements and supporting the increasing complexity and quality demands of modern electronics.

Historical Development

Founded in 1947 as an electronics repair business in Poway, California, Cohu has undergone a remarkable transformation, evolving from its humble beginnings to become a diversified and innovative player in the semiconductor equipment market. In the 1990s, the company expanded its product portfolio through strategic acquisitions, including the purchases of Wahl Digitronics and Kita Manufacturing. These acquisitions allowed Cohu to offer a more comprehensive suite of solutions to its semiconductor manufacturing customers.

A significant milestone in Cohu's history was the acquisition of Xcerra Corporation in 2018, which strengthened the company's position in the semiconductor test equipment market and diversified its customer base. However, this acquisition also presented challenges, requiring careful management of manufacturing operations consolidation and organizational restructuring to capture synergies.

Throughout its history, Cohu has successfully navigated cyclical downturns in the semiconductor industry, implementing cost reduction initiatives and portfolio optimization strategies to weather these industry cycles. The company's business is heavily dependent on capital expenditures by semiconductor manufacturers, which can be volatile and unpredictable.

Innovation and Product Development

Cohu's journey has been marked by a relentless pursuit of innovation, as the company has consistently introduced groundbreaking products and technologies that address the evolving needs of its customers. From the development of advanced test handlers and contactors to the introduction of cutting-edge inspection and metrology platforms, Cohu has established itself as a trusted partner in the semiconductor ecosystem.

Financials and Liquidity

One of the hallmarks of Cohu's success is its financial resilience. As of the most recent quarter ended September 28, 2024, the company reported a strong cash and short-term investments position of $269.24 million, providing a solid foundation for continued growth and investment. The company's balance sheet remains healthy, with a low debt-to-equity ratio of 0.01, underscoring its financial discipline and prudent management.

For the fiscal year 2023, Cohu reported revenue of $636.32 million, net income of $28.16 million, operating cash flow of $101.47 million, and free cash flow of $85.42 million. However, the most recent quarter (Q3 2024) saw a decline in performance, with revenue of $95.34 million, a net loss of $18.06 million, operating cash flow of $17.36 million, and free cash flow of $15.11 million. The revenue decline of 36.8% year-over-year was attributed to lower demand across automotive, industrial, computing, and mobile applications amid the current global macroeconomic environment.

Cohu's liquidity position remains strong, with a current ratio of 6.38 and a quick ratio of 4.69. The company has access to several credit facilities, including a $2 million line of credit for its Swiss subsidiary and revolving credit facilities in Japan totaling up to 960 million Japanese Yen, of which 200 million Yen was drawn as of Q3 2024.

Product Portfolio and Market Diversification

Cohu's diversified product portfolio caters to a wide range of applications, spanning the automotive, industrial, computing, mobile, and consumer electronics sectors. This diversification has been a key driver of the company's resilience, as it has allowed Cohu to navigate the cyclical nature of the semiconductor industry and maintain a stable revenue stream.

The company operates in the Semiconductor Test and Inspection Equipment segment, which includes three main product groups:

1. Test Handler Group (THG): Offers a variety of test handler products that transport, test, and inspect semiconductor devices, including test handlers for system-on-chip (SoC) devices, memory devices, and radio frequency (RF) devices.

2. Semiconductor Tester Group (STG): Provides semiconductor testers used to evaluate the electrical and physical performance of integrated circuits (ICs) and electronic devices during and after manufacture, including SoC testers, memory testers, and RF testers.

3. Interface Solutions Group (ISG): Offers a wide range of contactors, sockets, and interface solutions that provide the critical interface between the device under test and the test instrumentation, including test contactors, thermal subsystems, and test and measurement accessories.

In the third quarter of 2024, Cohu reported net sales of $95.3 million, with recurring revenue, which includes consumables and services, accounting for 67% of the total. This revenue mix reflects the company's strategic focus on building a recurring, high-margin business model that can withstand market fluctuations.

Cohu's revenue is diversified globally, with sales to customers in the United States, China, Malaysia, Singapore, Philippines, and Rest of the World. In Q3 2024, the United States accounted for $16.51 million (17.3%) of total revenue, China $12.77 million (13.4%), Malaysia $12.22 million (12.8%), Singapore $9.05 million (9.5%), Philippines $10.45 million (11.0%), and the Rest of the World $34.34 million (36.0%).

Recent Strategic Wins and Innovations

Cohu's commitment to innovation is evident in its recent strategic wins and product introductions. The company has made significant inroads into the high-bandwidth memory (HBM) and silicon carbide (SiC) semiconductor markets, securing key customer orders and expanding its reach into these rapidly growing segments.

In the HBM space, Cohu's Neon inspection metrology platform has been selected by a leading U.S. memory and data storage technologies customer for the inspection of HBM devices used in high-performance computing and generative artificial intelligence applications. This achievement demonstrates Cohu's ability to develop solutions that address the unique challenges faced by its customers in the ever-evolving semiconductor landscape.

Similarly, Cohu has made strides in the SiC market, with a leading European customer selecting the company's Neon system for high-speed handling and inspection of high-power SiC dies in burn-in test applications. This expansion into the SiC market, a critical component in the transition to electric vehicles and renewable energy technologies, further strengthens Cohu's position as a comprehensive solutions provider.

Beyond these strategic wins, Cohu continues to invest in the development of its proprietary DI-Core software platform, which leverages advanced data analytics and machine learning to optimize inspection yield and productivity. The company's ability to offer integrated solutions that combine hardware and software capabilities positions it as a valuable partner for semiconductor manufacturers seeking to enhance their operational efficiency and quality control measures.

Future Outlook and Guidance

Looking ahead, Cohu's guidance for the fourth quarter of 2024 reflects the company's cautious optimism in the face of the current macroeconomic challenges. The company expects to report revenue in the range of $95 million, plus or minus $7 million, which is essentially flat compared to Q3 2024. The non-GAAP gross margin is forecasted to be approximately 44%, which is lower than Q3 2024 but higher than their financial target model at this level of revenue.

Operating expenses for Q4 2024 are projected to increase by about $1 million quarter-over-quarter to approximately $46 million. Cohu is projecting Q4 2024 interest income, net of interest expense and foreign currency impacts, to be approximately $1.8 million. The Q4 2024 non-GAAP tax provision is expected to be approximately $3.1 million, and the basic share count is expected to be approximately 46.5 million shares.

Notably, Cohu's current view of Q1 2025 revenue is approximately 10% higher than Q4 2024, indicating potential improvement in market conditions.

Industry Trends and Market Opportunities

The semiconductor industry is poised for significant growth in several areas that Cohu is targeting. The high-bandwidth memory (HBM) market is estimated to be $23 billion today and projected to grow about 22% annually through the end of the decade. The silicon carbide (SiC) power semiconductor market is expected to grow at a 25% CAGR through 2029. Cohu is making strategic investments to capture share in these fast-growing markets, positioning itself to benefit from the expanding opportunities in these segments.

Conclusion

In conclusion, Cohu, Inc. is a resilient and innovative player in the semiconductor test and inspection equipment market. With a history of technological advancements, a strong financial position, and a diversified product portfolio, the company is well-positioned to capitalize on the industry's evolving needs and drive continued growth. As Cohu continues to expand its footprint in emerging semiconductor segments, such as HBM and SiC, and enhances its software capabilities, it remains a compelling investment opportunity for those seeking exposure to the dynamic and transformative semiconductor industry. Despite current macroeconomic challenges, Cohu's strategic focus on high-growth markets and its robust liquidity position provide a solid foundation for navigating near-term headwinds and capturing long-term growth opportunities.