COHU, Inc. — Q2 2011 Form 10-Q
Reporting period: Quarter and six months ended June 25, 2011; each period comprised 13 and 26 weeks, respectively. Amounts below are in U.S. dollars; financial statement amounts are in millions except per-share data.
Business context and performance
Cohu develops and sells semiconductor test-handling equipment and also operates microwave communications and video-camera businesses. Semiconductor equipment accounted for 86.1% of Q2 sales and 87.4% of first-half sales. The company describes semiconductor equipment demand as cyclical and sensitive to customer capital spending.
Key financial metrics
| Metric | Q2 2011 | Q2 2010 | Six months 2011 | Six months 2010 |
|---|---|---|---|---|
| Net sales | $80.9 | $74.9 | $170.6 | $139.7 |
| Gross margin | 32.8% | 36.6% | 32.5% | 33.9% |
| Operating income | $5.8 | $8.9 | $13.5 | $10.4 |
| Net income | $5.1 | $6.7 | $11.6 | $7.6 |
| Diluted EPS | $0.21 | $0.28 | $0.47 | $0.32 |
| Operating cash flow | Not separately reported | Not separately reported | $2.7 | $9.5 |
At June 25, 2011, cash and cash equivalents were $49.4 million and short-term investments were $52.0 million, totaling $101.4 million, up $3.2 million from December 25, 2010. Working capital was $186.8 million. Total assets were $371.9 million and stockholders’ equity was $294.5 million. No borrowings are presented on the balance sheet. Standby letters of credit totaled $0.6 million.
First-half investing cash outflow was $0.3 million, including $0.4 million of capital expenditures; financing cash outflow was $1.4 million, including $2.9 million of dividends. The company declared dividends of $0.06 per share in Q2 and $0.12 per share for the first half.
Changes versus comparable periods
- Q2 sales rose 8.1% year over year, but operating income fell from $8.9 million to $5.8 million and net income declined from $6.7 million to $5.1 million. Gross margin contracted 3.8 percentage points.
- First-half sales increased 22.1%; net income rose 52.8%, while operating cash flow declined to $2.7 million from $9.5 million.
- First-half semiconductor equipment sales rose 22.6%; microwave communications sales rose 28.8%, and video-camera sales rose 6.5%.
- Gross margin was pressured by a discounted large semiconductor-handler order and higher excess-and-obsolete inventory charges: $2.7 million in the first half versus $0.6 million in the prior-year period. Q2 charges were $1.5 million versus $0.2 million, partly offset by a prior-year $0.4 million benefit from selling previously reserved inventory.
Outlook, risks and notable items
- Management reported a 13% sequential increase in semiconductor-equipment orders in Q2, following lower orders in Q4 2010 and Q1 2011 than the 2010 record levels. Management cited near-term uncertainty tied to the U.S. and European debt situation and cautious customers, while expressing long-term optimism about semiconductor applications and content growth.
- The filing gives no company-specific revenue or earnings guidance. Management expects current working capital to cover operating requirements for at least the next 12 months. Industry analysts cited by management projected single-digit semiconductor-equipment industry growth for 2011.
- Customer concentration is material: one semiconductor-equipment customer represented 30% of Q2 consolidated sales; two customers together represented 45% of first-half sales.
- Inventory rose to $76.7 million from $63.2 million at year-end, driven in part by purchases for forecast thermal-handler orders expected to ship in Q4. Lower demand or product changes could require additional inventory reserves.
- Q2’s effective tax rate was 15.1%, primarily reflecting a reduction in the deferred-tax-asset valuation allowance and foreign income taxed at lower rates. The valuation allowance was $21.7 million against gross deferred tax assets of $27.5 million.
- Foreign-currency translation contributed $7.5 million to first-half other comprehensive income. Management reported no material change in legal contingencies, no material changes to previously disclosed risk factors, and no goodwill impairment indicators through June 25, 2011.
Important facts for investors to verify
- Whether Q4 shipments of forecast thermal-handler orders materialize and convert the elevated inventory into sales and cash.
- How much Q2 margin pressure from discounts and inventory reserves persists, and whether demand and order trends support margins.
- The exposure to the major semiconductor customer and the effect of any change in its purchasing plans.
- Why first-half operating cash flow was substantially below net income, including the effects of inventory investment, tax payments, and deferred-profit movements.
- Future dividend decisions, which the filing says remain subject to liquidity, capital availability, and board approval.