Cohu, Inc. (COHU) is trading sharply higher this morning after the company raised Q2 revenue guidance after the close yesterday. Cohu expects to report full Q2 results in late July. In case you're not familiar, Cohu is a supplier of semiconductor test and inspection handlers, MEMS test modules, test contactors and thermal sub-systems used by semiconductor manufacturers. Test handlers are electromechanical systems used to automate testing of integrated circuits (ICs) and LEDs in the back-end of the semiconductor manufacturing process.
Testing determines the quality and performance of the semiconductor device prior to shipment to customers. Handlers are automated systems engineered to thermally condition and present for testing the packaged semiconductor devices. By end market, about half COHU sales comes from automotive and industrial markets while another third is mobility. Computing/memory makes up about 9% and solid state lighting is 7%.
Turning to last night's guidance, Cohu now expects Q2 revenue of approximately $93 mln, above prior guidance of approximately $86 mln. The new guidance computes to a 22% YoY increase. Gross margin guidance was in-line with previous non-GAAP guidance of approximately 40%. Looking forward, Cohu projects 2H17 revenue to be approximately the same as 1H17, with the typical seasonality between Q3 and Q4. Running the numbers, that 2H17 guidance is actually slightly below market expectations but perhaps management is just being conservative.
So what accounted for the raised Q2 guidance? Cohu says it was driven by continued momentum in the automotive and mobility markets, further highlighted by record orders in the quarter. These results reflect early acceptance of new products with existing customers as well as an increase in recurring revenue due to higher utilization across the installed base and particularly from computing applications.
Cohu says its business continues to benefit from the growing trends of increased semiconductor content in automotive as well as greater device complexity in mobile handsets and IoT products, all of which drive the need for more advanced test handling equipment with extensive thermal and vision inspection capabilities.
In sum, Cohu has seen good strength from its automotive segment. A big catalyst for this is China accelerating its implementation of emission standards. The higher standards had been set to go into place in 2020, but the Chinese government is pushing for them now. This should drive the auto semiconductor industry for at least the next few quarters and perhaps even for the balance of 2017.
The stock has had its ups and downs over the past year. It jumped in mid-February on a big Q4 earnings beat and hit a high of $21.64 in late April. The stock had held up fairly well for a month after but it has been weak over the past month or so. It's currently trading around $18. We will see if this upside guidance will get the stock moving higher again. But that's the thing with semiconductor equipment names, their earnings and stock charts can be pretty choppy because their sales can be fairly lumpy. But it was good to see Cohu increase its Q2 guidance. Hopefully it will lead to an improved 2H17.