Cohu’s Financial Performance in 2024: Navigating Macroeconomic Headwinds

Overview Cohu is a leading supplier of test and inspection automation systems, MEMS test modules, test contactors, and other products for the global semiconductor industry. The company’s revenue is driven by the capital expenditure and operating budgets of its customers, which can fluctuate significantly based on market demand for semiconductor devices. Cohu has sought to build a more balanced and resilient business model by expanding its portfolio through strategic acquisitions, such as the purchases of MCT and EQT in 2023.

In fiscal year 2024, Cohu faced significant macroeconomic and geopolitical challenges that impacted the semiconductor industry. Global economic conditions, including higher costs of capital and slowing demand, led many chip companies to cut costs, reduce headcount, and delay capacity expansions. As a result, Cohu’s net sales decreased 36.9% year-over-year to $401.8 million. Despite this weakness, the company continued to focus on reducing debt, repurchasing shares, and investing in new product development to position itself for long-term growth.

Revenue and Profit Trends Cohu’s consolidated net sales declined 36.9% from $636.3 million in fiscal 2023 to $401.8 million in fiscal 2024. This decrease was driven by lower demand across automotive, industrial, consumer, and mobile applications due to the challenging macroeconomic environment. The company’s acquisitions of MCT and EQT in 2023 provided some offset, with EQT contributing $14.1 million in sales during 2024.

Gross margin decreased from 47.6% in 2023 to 44.9% in 2024, primarily due to lower business volumes that negatively impacted Cohu’s ability to leverage fixed costs. The company also recorded higher charges for excess and obsolete inventory, totaling $5.4 million in 2024 compared to $4.5 million in 2023.

Research and development (R&D) expenses decreased from $88.6 million (13.9% of sales) in 2023 to $84.8 million (21.1% of sales) in 2024, as Cohu reduced spending on new product development materials and incentive compensation. Selling, general, and administrative (SG&A) expenses also declined from $132.2 million (20.8% of sales) in 2023 to $128.0 million (31.9% of sales) in 2024, driven by cost control measures and lower incentive compensation, partially offset by one-time severance costs and acquisition-related expenses.

Amortization of purchased intangible assets increased from $36.4 million in 2023 to $39.1 million in 2024, reflecting the impact of the EQT acquisition. Restructuring charges were not material in 2024 after Cohu recorded $2.4 million in such charges the prior year related to the integration of MCT.

The combination of these factors resulted in Cohu reporting a net loss of $69.8 million in fiscal 2024, compared to net income of $28.2 million in 2023.

Strengths and Weaknesses Cohu’s key strengths include its diverse product portfolio, strong market position, and continued investment in R&D to develop innovative solutions for the semiconductor industry. The company’s acquisitions of MCT and EQT have expanded its capabilities and customer base, providing a foundation for future growth.

However, Cohu’s financial performance remains highly dependent on the cyclical and volatile nature of the semiconductor equipment market. The company’s reliance on capital equipment sales, which can be subject to abrupt delays or accelerations by customers, creates challenges in managing costs and profitability. Cohu’s high level of intangible asset amortization from acquisitions also weighs on its bottom line.

The company’s ability to maintain a well-balanced business model and effectively manage costs during industry downturns will be critical to its long-term success. Cohu’s efforts to reduce debt, repurchase shares, and invest in new product development are positive steps, but the company will need to demonstrate its resilience in the face of ongoing macroeconomic headwinds.

Outlook and Future Prospects Despite the challenges faced in fiscal 2024, Cohu remains optimistic about the long-term prospects for its business. The company cites several key market drivers that are expected to support growth, including the increasing ubiquity of semiconductors, growing complexity of devices, rising quality demands from customers, and the continued proliferation of electronics across various industries.

Cohu’s focus on building a more resilient business model, executing on customer design wins, and developing innovative products positions the company to capitalize on these trends. The company’s recent debt repayment and share repurchase activities also demonstrate its commitment to maintaining a strong financial position.

However, the semiconductor industry’s cyclical nature and the ongoing macroeconomic uncertainty pose significant risks. Cohu will need to carefully manage its costs, continue investing in R&D, and seek opportunities to further diversify its revenue streams to navigate the challenges ahead. The company’s ability to weather the current downturn and emerge stronger will be a key determinant of its long-term success.

Table 1: Cohu’s Financial Performance (as a percentage of net sales)