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Technology Stocks : Cohu, Inc. (COHU)
COHU 14.41+1.1%Oct 14 4:00 PM EDT

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To: robert b furman who wrote (6649)3/13/2019 7:50:30 AM
From: robert b furman1 Recommendation

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Earnings are out:

Very complicated !

Gaap loss of $1.40.

Impaired intangibles,personnel severance, plant shut downs model discontinuations.

Seasonal weakness continues.

5G will pick up H2.

Auto and Industrial holding there own. mobility and Internet of things showing some weakness.

Consumables = 46% of revenue driving margins up to above expectation 44.5%.

Consumables will exceed equipment next month.

One new european automotive customer buying turret handler system. Three new design wins.

Q2 will pick up per seasonality.

Sale of consumables is running 125 million. Projected future sales in 5 years is expected to be 300 million!

IF all test handlers sold by Cohu had the same penetration of consumables as Excerra had (100%) and the market grows 10% per year.

That is an amazing number!!

Consumables have a mid 60% margin. 65% x 300 million = 195 million gross.

New company has a break even of 140 to 145 million .

So even if equipment systems slow down the quarter makes 50 million.

IN 5 years !!

Cohu starts going direct to test chips in Taiwan and China tomorrow. This eliminates the commissions paid to the distribution company. The Xcerra company started the testing centers over 1.5 years ago. This was done at the request of the chip companies. All customer information mustbe turned over to Cohu. They have added engineers to help their customers plan future testing.

This will boost revenue and reduce costs.

There is no expected loss of customers,as the customers asked for more assitance in planning future test processes.

20 million of savings is expected to be achieved by the end of 2019 (one year early).

So business is seasonally soft and trade tariffs are a concern in China.

The consolidation of the merged businesses are going well and ahead of schedule.

There are some strong future business growth opportunities that are aggressively being pursued.

After hours trades were down - only 9000 shares sold and price recovered partially at end of trading period .

After hours trading chart:

Gonna start slow and be a good year !!

40 million in synergies 3-5 years out. My bet is that a lowball number. I suspect any additional savings will be spent on options expense ($4.6 million in this quarter that is a huge increase and I hope a one time only.

Savings of synergies will cost an equal amount of cash in first year. severance costs, plant realignment (2 plants already closed), reorganization of supply channels, people moving etc, make first year expensive, but savings continue out from then on.

Go to Cohu website and look at the bios of the directors. IT IS IMPRESSIVE !

XCERRA's directors have fantastic bios!!

This will take time,but less time than they indicate - sandbaggers on that too!

We'll see what happens to price today?

Q1 earnings in April and we'll get another look at Q2 guidance.

Q2 auto (radar systems on safety systems should pickup - Cohu has unique advantage in this test) and G5 will if it accelerates and T and VZN are accelerating buildout now.

Q3 and 4 G5 should come on strong with out acceleration.

Q2 guidance could well be the first turn we see (April ?)

Time to accumulate cheap shares here folks (if it happens)!!

Hold with confidence!!

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