Cohu Inc 2026 Q3 Earnings Call

Please go ahead. Good afternoon and welcome to our conference call discussing Cohu's third quarter 2026 financial results and our outlook for the fourth quarter of 2026.

I am joined today by Luis Müller, Cohu's President and CEO, and Jeff Jones, Cohu's Senior Vice President of Finance and CFO. If you need a copy of our earnings release, it can be found on our website at cohu.com or by contacting Cohu Investor Relations. A slide presentation accompanying today's call is also available in the investor relations section of the website. Replays of this call will be accessible via the same page after the conclusion of the call. During this call, we will be making forward-looking statements that reflects management's current expectations concerning Cohu's future business. These statements are based on the information available to us at this time, but they are subject to rapid and sometimes abrupt changes.

We encourage everyone to review the forward-looking statements section of our slide presentation and the earnings release, as well as Cohu's filings with the SEC, including the most recently filed Form 10-K and Form 10-Q. Our comments are current as of today, October 28, 2026, and Cohu does not assume any obligations to update these statements for events occurring after this call. Additionally, we will discuss certain non-GAAP measures during this call. Please refer to our earnings release and slide presentation for reconciliation to the most comparable GAAP measures. Now I would like to turn over the call to Luis Müller, Cohu's President and CEO.

Luis? Good afternoon, and thank you for joining Cohu's third quarter 2026 earnings call.

We delivered solid third-quarter progress as high-performance computing adoption accelerated and recurring revenue growth strengthened. Revenue increased 37% year-over-year to $173 million. Book-to-bill was solidly above one, and total bookings grew 126% year-over-year, driven by a 318% increase in systems bookings and 36% growth in recurring bookings. Systems represented 59% of third-quarter bookings, and recurring business represented 41%. These results reflect broad-based portfolio improvement, growing adoption of our Eclipse thermal solutions for high-performance computing, and accelerating demand for services, consumables, and software that provide a stable foundation for long-term value creation. Our annual high-performance computing opportunity pipeline expanded to approximately $1 billion and continues to mature as more customer programs advance through qualification and into production. We are raising our fiscal year 2026 high-performance computing revenue outlook to approximately $120 million.

To support growing customer interest and an expanding opportunity funnel, we are scaling manufacturing capacity and working closely with supply partners with the goal of delivering approximately 3 times as many Eclipse handlers in 2027 as in 2026. Estimated semiconductor test utilization improved to 82% at the end of the third quarter, up 2 percentage points sequentially and 7.5 points year-over-year. Computing customers drove system demand with bookings increasing 81% sequentially, driven by rapid adoption of our Eclipse thermal handler for testing processors used in data centers. We also delivered continued improvement in interface solutions, strong momentum in inspection, and a record quarter for software analytics bookings and revenue. Let me now review the quarter by product line. Starting with high-performance computing. This remains one of our most important growth areas for the company.

During the quarter, the annual opportunity associated with our Eclipse platform expanded by about 18% to approximately $1 billion. The funnel now includes 13 ranked customer programs, plus additional early-stage engagements spanning server and data center processors, CPUs, GPUs, networking devices, custom accelerators, silicon photonics, HBM inspection, and related services. This breadth diversifies the business opportunity across device architectures, customers, and revenue streams. The traction is visible in both the scale and the maturity of the funnel. We now have programs representing $230 million in qualified annual revenue potential and another $440 million in active qualification. Additional systems and application hardware are being shipped for engineering evaluations, production device qualification, and capacity planning while the funnel continues to expand across more programs and strategic accounts.

At a major networking customer, the initial device has qualified on Eclipse in the third quarter, and we are preparing to ship a production configuration thermal head for a higher power device validation during the fourth quarter. Looking at the next wave, 5 additional customer programs are scheduled to reach major qualification milestones between late November and first quarter of next year, with 2 more targeted to start in the same period. Together, these 7 programs represent approximately $340 million of annual systems revenue based on current customer planning. We remain on track with our internal production expansion, and we are working closely with supply partners to ensure they ramp in tandem with our manufacturing capacity. This coordinated execution is important to support customer schedules and expand Cohu's business in 2027 and beyond.

Customers are evaluating Eclipse because it combines precise thermal control of high power and power density devices during test, scalable automation, and an architecture that can support multiple device generations, including future rollout of optical interfaces. These capabilities are increasingly important as AI processors become larger, hotter, and more complex, and as customers seek standardized platforms that can improve utilization and reduce time to yield. Now turning to high-bandwidth memory and inspection. We continue to ship final inspection systems for HBM3 and HBM4 to a U.S.-based customer during the third quarter. The customer has designated Cohu as a strategic supplier and is working with us to plan for potentially steeper ramp scenarios. Neon inspection systems also shipped in volume to integrated device manufacturers in the third quarter. Backlog is growing, and we are booked deep into the first quarter of 2027.

We also progressed towards an advanced packaging inspection qualification with the Neon platform to prove our vision technology's ability to detect both visible and subsurface micro-cracks. We expect to soon complete an agreement with a large U.S.-based integrated device manufacturer, supporting shipment of demonstration systems in the first quarter of 2027. We're poised to grow our advanced packaging and HBM inspection business meaningfully in 2027 by pursuing large customers that can benefit from the Neon platform's differentiated vision technology. These applications support expanding AI and high-performance computing ecosystem and represent a $330 million addressable market opportunity for Cohu. Moving to interface solutions. We delivered another quarter of sequential growth with increasing momentum in computing test interface applications. During the quarter, we secured first interface orders with two leading hyperscale customers for processor test.

These wins establish new positions in final test and system-level test applications and create pathways to broader production adoption. In co-packaged optics, we won additional interface applications that combine high-speed electrical contact with precise optical alignment for simultaneous electrical and optical testing. We also delivered our first interface production solution for a major HPC customer and are progressing to follow-on opportunities for devices with substantially higher pin counts and data rates. Together, these design wins position us to participate in an estimated $200 million annual market for computing final test and system-level test interface solutions. Our focus is converting current hyperscaler processor networking co-package optics engagements into production revenue. Turning next to AI power and semiconductor test. AI infrastructure is driving a major transition in power architecture.

As rack power moves from traditional levels of 10 to 30 kilowatts to well above 100 kilowatts, data centers are adopting higher voltage distribution and more efficient power conversion to address thermal, reliability, and operating cost challenges. These technologies are expected to extend beyond hyperscale data centers into industrial automation, automotive electrification, edge AI, and physical AI applications. This broadens demand for power devices that operate at higher voltages and currents, increasing the need for scalable and accurate semiconductor test solutions. In semiconductor test, we continue to advance DiamondX in AI power management applications. A leading customer is ramping production with our platform for testing power management ICs used in server boards. We also remain on track to release new high current and high voltage capabilities in December, ahead of anticipated production ramps in the first half of 2027.

These power management applications represent an approximately $290 million serviceable addressable market opportunity for Cohu. Switching to software analytics. Annual recurring revenue in software analytics increased 85% sequentially, contributing to record bookings and revenue for the business. Growth was led by expanding production deployments, including a large repeat order for a leading high-performance computing customer and an expanded AI-based HBM inspection software deployment at a leading memory manufacturer. We also booked our first volume license for prescriptive maintenance software on earlier generation Cohu handlers, creating a meaningful attach opportunity across our install base. Our next release for high-power thermal handlers is designed to reduce troubleshooting from upwards of five days to less than one hour while keeping customers' data inside the factory through our on-site AI appliance.