Cohu, Inc. (COHU) Earnings

Management highlights

- Overall Financial & Market Performance * Delivered Q2 revenue of $149 million, up 38% year-over-year, exceeding the midpoint of prior guidance * Overall semiconductor test utilization improved sequentially to 80% by the end of Q2, a typical turning point for capital expenditure by core IDM customers * Utilization by segment: computing and industrial reached the low 80% range, while automotive and mobile reached the high 70% range * Gross margin came in at 45.5%, above guidance, driven by favorable product mix - Strategic Progress & HPC Expansion * Expanded adoption of the Eclipse Handler, which features differentiated advanced active thermal control for high-power AI processors, with a configurable design that reduces customer capital risk and extends installed base value * Expanded local presence and manufacturing infrastructure at Southeast Asian OSATs to support fabless and hyperscaler production ramps * The total annual HPC pipeline is $850 million: $190 million qualified across 4 customers, $250 million in active qualification across 5 customers, and $445 million in early engagement across 10 additional customers * Expanding manufacturing capacity in Malaysia to double HPC handler output by the end of 2026, with further capacity increases planned by mid-2027, and added thermal head manufacturing capacity in the Philippines - Product & Operational Highlights * Secured a $26 million single-customer order for Eclipse 6 HPC systems, with most shipments planned for Q4 2026 that already fill available HPC capacity for the quarter * Advanced PACE prescriptive analytics software adoption at HPC customers, and progressed the deployment of predictive maintenance software for a leading HPC chipmaker expected to become the company's largest single software customer * On-premise AI appliances run fully autonomous AI models inside customer networks with no data leaving the facility, converting the existing installed base to recurring revenue while improving customer productivity * Established a strategic foothold for Neon HBM inspection at a high-volume Taiwanese OSAT, opening opportunities for additional advanced package and AI-adjacent inspection work * Software analytics has achieved a repeatable 'land and expand' go-to-market motion, with first deployments proving measurable value before account expansion

Guidance

- Q3 2026 revenue is expected to be approximately $170 million (plus or minus $7 million), representing 14% sequential growth and 35% year-over-year growth, with growth split roughly 50% from HPC and 50% from core business segments - Raised full-year 2026 revenue growth guidance from 25% to 35% year-over-year, putting full-year 2026 revenue in the range of $610 million to $615 million - Raised fiscal 2026 HPC revenue guidance to a range of $100 million to $110 million, with the entire $15 million upside from the prior guidance coming from Eclipse HPC handlers, not Neon inspection systems - Q3 2026 gross margin is projected at approximately 45%, with full-year 2026 gross margin expected to remain in the mid-40% range - Q3 2026 operating expenses are expected to be approximately $54 million, with quarterly operating expenses expected to stay in the low-$50 million range for the remainder of 2026 to support HPC growth investments - Q4 2026 revenue is expected to be roughly flat sequentially compared to Q3 2026, as the company is currently at near-full HPC capacity for 2026 while expanding output - Management expects automotive segment test utilization to reach 80% no earlier than late Q1 or Q2 2027, as automotive is currently the lagging core end market - Capacity expansion targets: double HPC output from Q2 2026 levels by early 2027, supporting 200-250 million in annual HPC revenue, with a path to triple output by the end of 2027 if demand continues to grow

Segment performance

Total Q2 2026 revenue was $149 million, with recurring revenue accounting for 53% of total revenue. By end market segment: computing represented 46% of total system orders, with a 150% year-over-year increase driven by Eclipse Handler growth in high performance computing (HPC); industrial orders grew 87% year-over-year; consumer orders grew 29% year-over-year; mobile orders were flat year-over-year; automotive orders were down 24% year-over-year. By product segment: Test Handlers, driven by the Eclipse Handler for high-power HPC AI processors, generated strong growth, with a total annual HPC customer pipeline now estimated at $850 million; Inspection and Metrology shipped additional final inspection systems for HBM3/HBM4/HBM4e, qualified the Neon inspection platform at a Taiwan-based OSAT, and launched a new shortwave infrared vision sensor; Semiconductor Test saw growing adoption of the Diamondx platform for GaN power devices and advanced connectivity applications, with a $340 million mid-term annual addressable market for this segment; Software Analytics delivered its first $1 million revenue quarter, with orders up 140% year-over-year, and advanced on-premise autonomous AI deployment for data sovereign factory environments; Interface Solutions contributed 19% of consolidated revenue, booked $500 thousand in orders for silicon photonics optical engine test, and continued to gain share in core semiconductor applications.

Risks & headwinds

- Longer lead times and higher input costs for certain semiconductors and specialty components, most notably memory and integrated circuits, driven by rapid HPC demand growth across the supply chain - Supply chain expansion is the biggest near-term operational challenge, as the company works to onboard additional suppliers to meet capacity expansion targets - While the company has pre-purchased components to secure supply for Q3, higher input costs may pressure gross margin if cost increases cannot be passed through to customers - Automotive segment demand remains weak in the current recovery cycle, with orders down 24% year-over-year, and a full recovery is not expected until the second half of 2027 - HPC qualification timelines are uncertain, with full conversion of the total $850 million annual pipeline to revenue expected to occur gradually over multiple years

Analyst Q&A

• Q: The $850 million HPC pipeline has 4 qualified customers: are these 3 HPC and 1 HBM, and when will the in-qualification pipeline convert to revenue? /

  A: The breakdown is correct: 3 HPC customers and 1 HBM customer in the qualified $190 million opportunity. One additional customer is expected to receive official qualification within a month, after shipping a production configuration at the end of August. The final customer in the 5-person active qualification bucket is expected to ship qualification units in late August, with a 6-month qualification process leading to revenue in mid-Q1 2027.

• Q: Why did the HPC pipeline increase by $100 million to $850 million, and what counts as recurring revenue in this segment? /

  A: The pipeline increase comes from improved visibility into customer spending, larger estimated annual opportunities from qualified customers, and adding new early-stage engagement customers. Recurring revenue for HPC systems comes from four sources: device application kits for new product cycles, thermal head upgrades to match evolving device power and size requirements, spare parts and consumables for maintenance, and recurring subscription software for equipment monitoring and analytics.

• Q: What is the primary competition for HPC handlers, and what is Cohu's competitive advantage? /

  A: The primary incumbent competitor is Taiwan-based Han Precision. As processor power levels continue to increase for modern AI chips, effective thermal management during test has become a critical requirement. Multiple customers have publicly stated Cohu's thermal technology is the best available in the market, driving new customer adoption and design wins.

• Q: With memory and component costs rising, will Cohu be able to pass these higher costs to customers? /

  A: Cohu has pre-purchased memory and key components to secure supply for the near term, avoiding shortages for Q3, but securing this supply comes at higher input costs. Management has just started conversations with customers regarding passing through these cost increases, and no final decisions or agreements are yet in place.