COHU INC Q3 FY2026 earnings call

• High-Performance Computing (HPC) Growth: Revenue outlook for fiscal year 2026 raised to approximately $120 million. The annual opportunity pipeline expanded by ~18% to ~$1 billion, driven by adoption of Eclipse thermal solutions for data center processors.
• Eclipse Platform Traction: The funnel includes 13 ranked customer programs plus early-stage engagements across CPUs, GPUs, networking, and HBM. $230 million in qualified annual revenue potential and $440 million in active qualifications exist. A major networking customer qualified an initial device in Q3.
• Manufacturing Capacity Expansion: Cohu is scaling manufacturing to deliver approximately three times as many Eclipse handlers in 2027 as in 2026. Capacity is ramping through 2026 and into mid-2027.
• Interface Solutions Wins: Secured first interface orders with two leading hyperscale customers for processor tests. Also won applications in co-package optics and delivered the first interface production solution for a major HPC customer.
• Inspection & HBM Momentum: Shipped final inspection systems for HBM-3 and HBM-4 to a U.S.-based strategic customer. Neon inspection systems shipped in volume to IDMs. Backlog is deep into Q1 2027. An advanced package inspection qualification with NEON is nearing completion.
• AI Power & Semiconductor Test: DiamondX platform is being ramped by a leading customer for testing power management ICs. New high-current/high-voltage capabilities expected in December 2026 ahead of H1 2027 production ramps.
• Software Analytics Record: Annual recurring revenue increased 85% sequentially. Led by large repeat orders and AI-based HBM inspection software deployments. First volume license booked for prescriptive maintenance software on earlier generation handlers.
• Test Cell Utilization: Estimated semiconductor test capitalization improved to 82% at end of Q3, up 7.5 points year-over-year. Compute sector utilization is highest at 84%.

Total revenue for Q3 2026 was $173 million, representing a 37% year-over-year increase. Recurring revenue contributed 48% of total sales. Gross margin stood at 45.7%, exceeding guidance due to improved cost leverage in interface products. Operating expenses were $53.5 million. Net income benefited from a $3.7 million lower tax provision compared to guidance. Non-GAAP EPS was $0.43 with an adjusted EBITDA margin of 16.6%. High-performance computing (HPC) remains the primary growth driver, with systems bookings up 318% year-over-year. Recurring bookings grew 36%. The HPC opportunity pipeline expanded to approximately $1 billion. Interface solutions saw sequential growth and secured first orders with two leading hyperscale customers. Software analytics achieved record bookings and revenue, with annual recurring revenue increasing 85% sequentially. Inspection and HBM businesses showed strong momentum, with Neon inspection systems shipped in volume.

• Q4 2026 Revenue: Expected to be approximately $178 million (+/- $7 million), reflecting 46% year-over-year growth.
• Full Year 2026 Revenue Growth: Raised outlook to approximately 38% over 2025.
• 2027 Revenue Growth: Preliminary view is for 30% to 40% growth over 2026, driven primarily by conversion of the HPC opportunity funnel.
• Gross Margin: Q4 projected at ~44%; Full Year 2026 at ~45%; 2027 expected at 46% to 48%.
• Operating Expenses: Q4 expected at ~$57 million; 2027 quarterly expenses expected to remain in the $54 million to $56 million range.
• Capital Expenditures: Targeting ~2% of revenue for FY 2026, including capacity expansion in Malaysia and Philippines.

• Supply Chain Constraints: Rapid increase in HPC demand is creating longer lead times and higher input costs for certain semiconductors and specialty components. Management is taking proactive steps to secure critical components but notes that suppliers also need to ramp capacity.
• Execution Risk on Ramp: Success depends on converting the HPC funnel into production revenue and maintaining the accelerated manufacturing capacity ramp in 2027.
• Customer Concentration: One compute customer accounted for more than 10% of total sales in Q3 2026.

Q: Analyst asked about the shape of Eclipse system shipments for next year and whether they will be second-half weighted. / A: Management stated shipments will ramp throughout the year, with decent volume in Q2 and Q3. While Q1 will see volume, the peak is expected in Q2/Q3 or potentially continuing into Q4. Total output next year will be three times that of 2026, supported by a capacity ramp exiting 2026 at twice the current rate and continuing to increase through June 2027.

Q: Analyst asked how much of the 30-40% growth forecast for 2027 is attributable to HPC versus core market recovery, noting previous HPC size estimates. / A: CFO indicated the estimate is likely at the high end of the range due to plans to triple Eclipse capacity and output. This aggressive scaling positions Cohu to capture significant revenue from the expanding HPC funnel, suggesting HPC is the dominant driver of the upper bound of growth.

Q: Analyst asked about the drivers behind the expansion of the $1 billion HPC pipeline and whether it involved new customers or better clarity from existing ones. / A: CEO explained that the funnel size increased primarily due to better visibility and specific requirement dates from existing customers moving from qualification to production planning for 2027. Rather than adding many new names, current customers provided clearer forecasts on their capacity needs, causing the aggregate opportunity numbers to grow larger.

Q: Analyst asked about the cycle time from initial engagement to revenue generation for Eclipse systems and the breadth of customers engaged. / A: CEO described a 9-12 month cycle involving qualifying a lower-power first device, followed by a six-to-eight-week qualification for a next-generation thermal head. The customer base is broad, spanning hyperscalers, CPU makers, custom ASIC developers, and network processors. Many late-stage qualifiers are expected to convert to business between late November and Q1 2027.

Q: Analyst asked if mobile seasonality is changing due to a major smartphone OEM shifting its release schedule. / A: CEO noted that mobile is currently the smallest segment and unlikely to change dramatically in the near term. Seasonality remains tied to specific customer cycles, with one major customer ordering late in the year and another picking up in Q3/Q4. He does not expect a structural shift in seasonality despite the OEM's product release changes.