Cohu, Inc. — Q2 2012 Form 10-Q
Business context and reporting period. Cohu designs and sells semiconductor test equipment, microwave communications equipment, and video cameras. This unaudited filing covers the 13-week quarter and 26-week first half ended June 30, 2012; comparatives are the periods ended June 25, 2011.
Financial performance and liquidity
Amounts below are in millions, except per-share figures and percentages.
| Metric | Q2 2012 | Q2 2011 | First half 2012 | First half 2011 |
|---|---|---|---|---|
| Net sales | $59.4 | $80.9 | $112.7 | $170.6 |
| Gross margin | 29.7% | 32.8% | 29.5% | 32.5% |
| Operating income (loss) | $(2.1) | $5.8 | $(5.8) | $13.5 |
| Net income (loss) | $(2.1) | $5.1 | $(5.3) | $11.6 |
| Diluted EPS | $(0.09) | $0.21 | $(0.22) | $0.47 |
- Cash flow: First-half operating cash flow was $5.8 million, versus $2.7 million a year earlier. Investing activities provided $2.9 million, largely reflecting net investment maturities and sales; financing activities used $2.0 million, including $2.9 million of dividends.
- Liquidity: At June 30, cash and cash equivalents were $59.2 million and short-term investments were $47.4 million, totaling $106.6 million. Working capital was $188.3 million. The balance sheet reports no borrowings or debt line item. Management said working capital should fund operating needs for at least 12 months.
- Other balance-sheet items: Total assets were $348.0 million; stockholders’ equity was $283.7 million. Goodwill and net intangible assets were $57.1 million and $19.3 million, respectively.
Changes versus comparable periods
- Q2 sales fell 26.6% year over year; first-half sales fell 33.9%. Semiconductor equipment drove the decline, with sales down 30.2% in Q2 and 38.1% in the first half.
- Lower production volume and unfavorable product mix reduced gross margin by 3.1 percentage points in Q2 and 3.0 points in the first half. Inventory-obsolescence charges were approximately $1.5 million in Q2 and $2.8 million in the first half.
- Despite lower absolute R&D and SG&A spending, those expenses increased as a share of revenue because sales declined. Q2 R&D was $8.7 million and SG&A was $11.0 million; first-half amounts were $17.1 million and $21.9 million.
- Microwave communications and video camera sales also declined year over year, but less sharply than semiconductor equipment. First-half net loss replaced prior-year net income.
- First-half other comprehensive loss was $2.3 million, primarily reflecting foreign-currency translation; accumulated other comprehensive loss increased to $2.3 million from $12,000 at year-end 2011.
Outlook, commentary, and risks
- Management reported semiconductor equipment orders improved monthly through the first five months of 2012, then eased slightly in June; the semiconductor segment’s orders increased 44% sequentially in Q2. Management said industry growth was driven largely by smartphone and tablet demand and was expected to slow in the second half.
- Near-term customer forecasts were mixed amid economic weakness and political uncertainty. Management remained optimistic about long-term semiconductor equipment demand, citing expanding applications and growing integrated-circuit content. No quantified earnings or revenue guidance was provided.
- Customer concentration is significant: one semiconductor-equipment customer represented 38% of Q2 sales and 42% of first-half sales. A loss or reduction in orders from this customer could materially affect results.
- Other key risks include semiconductor industry cyclicality, competitive pricing and product transitions, excess or obsolete inventory, customer acceptance and warranty costs, global economic conditions, and foreign-currency exposure. Management noted that sustained market-capitalization weakness could prompt an interim goodwill impairment review; no such review was considered necessary at June 30.
- Approximately $24.6 million of cash and cash equivalents was held by foreign subsidiaries and management intended to reinvest it abroad. Potential U.S. tax could arise if those funds were repatriated.
- Legal proceedings and claims arose in the ordinary course; the company did not believe any pending matter would have a material adverse effect. Standby letters of credit totaled approximately $0.5 million, with no payment considered probable. Disclosure controls were assessed as effective, and no material changes to internal control over financial reporting were reported.
Investor facts to verify
- Whether the reported 44% sequential increase in semiconductor-segment orders translated into shipments and revenue, given management’s expectation of slower industry growth in the second half.
- The outlook for the customer representing 42% of first-half sales and the potential effect of concentration on future results.
- Whether lower utilization, product mix, and inventory conditions continue to pressure gross margin or require further inventory charges.
- The composition and availability of foreign-held cash, and any tax implications of repatriation.
- Whether market-capitalization trends, acquired intangible assets, or goodwill create a future impairment risk.