Cohu, Inc. — Form 10-Q Summary
Reporting period: Third quarter and first nine months of fiscal 2012, ended September 29, 2012; comparative periods ended September 24, 2011. The interim statements are unaudited. Amounts below are in millions of dollars unless stated otherwise.
Business context
Cohu makes semiconductor test-handling and related equipment, its primary business, and also sells microwave communications equipment and video cameras. Semiconductor equipment demand is cyclical and depends on semiconductor manufacturers’ and test subcontractors’ capital spending.
Financial performance and liquidity
| Metric | Q3 2012 | Q3 2011 | Nine months 2012 | Nine months 2011 |
|---|---|---|---|---|
| Net sales | $57.7 | $71.8 | $170.4 | $242.4 |
| Gross margin | 31.4% | 32.5% | 30.1% | 32.5% |
| Operating income (loss) | $(2.6) | $2.7 | $(8.4) | $16.1 |
| Net income (loss) | $(1.7) | $3.4 | $(7.1) | $15.0 |
| Diluted earnings (loss) per share | $(0.07) | $0.14 | $(0.29) | $0.61 |
- Q3 sales fell 19.6% year over year; nine-month sales fell 29.7%. Semiconductor equipment sales declined 20.9% in Q3 and 33.2% for the first nine months. That segment generated 81.4% of Q3 sales.
- Lower production volume and higher excess/obsolete inventory charges pressured gross margin. Such inventory charges were $2.9 million in Q3 2012 versus $0.7 million a year earlier, and $5.6 million for the first nine months versus $3.3 million.
- Research and development expense was $9.1 million in Q3 and $26.2 million year to date; selling, general and administrative expense was $11.6 million and $33.5 million, respectively. Both represented a higher share of sales than in the comparable periods, primarily because sales declined.
- Cash from operations was $10.8 million for the first nine months, compared with $6.5 million in 2011. Cash and cash equivalents were $75.6 million and short-term investments were $34.5 million at September 29, 2012; combined, $110.1 million, up from $105.0 million at year-end 2011. Working capital was $187.4 million.
- Cash dividends paid were $4.4 million during the first nine months ($0.18 per share declared). The balance sheet reports no borrowings or debt line item; verify the full filing for any debt-like or off-balance-sheet obligations.
Changes, outlook, and management commentary
- Management attributed weaker semiconductor demand to a weak global economy, political and economic uncertainty, and excess chip inventories that reduced customers’ need for new equipment. Semiconductor-segment orders declined 35% sequentially in Q3; management noted orders had declined after increasing during the first five months of 2012.
- Management remained optimistic about the industry’s long-term prospects, citing expanding applications and greater integrated-circuit content, but described near-term conditions as weak and uncertain. The filing provides no numerical revenue or earnings guidance.
- Management expected working capital to be sufficient for operating requirements for at least the next 12 months. It intended to keep $25.6 million of cash held by foreign subsidiaries invested in foreign operations; repatriation could trigger U.S. taxes.
- Q3 interest and other income included a $0.7 million gain on the sale of a facility associated with a business divested in 2006. In August 2012, the microwave communications segment acquired Duma Video intellectual property and other assets for about $1.0 million, with up to approximately $0.5 million of additional milestone payments.
- One customer accounted for 39% of Q3 sales and 41% of nine-month sales. Legal proceedings and ordinary-course claims were not expected by management to have a material adverse effect. Standby letters of credit totaled approximately $0.6 million, with no probable payment identified.
- Key risks include semiconductor-market cyclicality, customer concentration, competitive pricing, inventory obsolescence, product development and acceptance, supply and contract-manufacturer dependence, global economic and geopolitical conditions, and potential impairment of goodwill or intangibles. No interim goodwill impairment review was considered necessary at quarter-end; a sustained market-capitalization decline below book value could prompt a review.
Important facts for investors to verify
- Whether semiconductor orders and customer utilization stabilized after the reported 35% sequential order decline, and how that affected subsequent-period revenue.
- Inventory quality, reserve adequacy, and the potential for further write-downs given the $5.6 million year-to-date inventory charge.
- Exposure to the customer contributing 41% of year-to-date sales and the outlook for other significant customers.
- Liquidity available for U.S. operations, including the tax consequences of repatriating foreign-held cash, and any obligations not shown as debt on the balance sheet.
- Progress and commercial prospects for the Duma assets, including the conditions for up to $0.5 million in milestone payments.