Cohu Inc. Rides HPC Wave With Upgraded Outlook

Cohu Inc ((COHU)) has held its Q1 earnings call. Read on for the main highlights of the call.

Cohu Inc.’s latest earnings call struck a confident tone, blending strong commercial momentum with a candid acknowledgment of execution risks. Management highlighted a clear revenue beat, upgraded growth outlook, and powerful high‑performance computing (HPC) and inspection pipelines, while cautioning that margins will face pressure as systems ramp and that some pipeline wins may slip from 2026 into 2027.

Revenue Beat and Upgraded Growth Outlook

Cohu reported Q1 revenue of $125.1 million, topping the midpoint of guidance and setting a solid base for the year. For Q2, management guided revenue to about $144 million, implying 15% sequential growth, 34% year‑on‑year, and supporting a raised 2026 full‑year outlook for 20% to 25% growth versus last year.

Order Momentum and Expanding Compute Pipeline

Orders climbed 57% year‑on‑year and 2% quarter‑on‑quarter, underscoring broadening demand across the portfolio. Compute‑related orders were especially strong, surging roughly 211% and feeding a targeted HPC opportunity pipeline of about $750 million across 12 customers at various stages of qualification and engagement.

Higher HPC Revenue Ambitions

Reflecting this demand, Cohu lifted its 2026 HPC revenue outlook to a range of $80 million to $100 million, up from $60 million to $85 million previously. The Eclipse handler platform and related systems are central to this ramp, with management citing roughly $30 million of revenue attributable to Eclipse in earlier commentary.

Inspection and HBM Platforms Gain Traction

Inspection and metrology orders grew 64% year‑on‑year, signaling rising importance of advanced packaging and quality control. Within this, the Neon HBM platform is set to grow about 80% year‑on‑year to roughly $20 million, helping drive total inspection revenues to an estimated $70 million for the year.

Strong Margins Supported by Recurring Mix

Non‑GAAP gross margin in Q1 reached 46.5%, above guidance, helped by an unusually rich recurring revenue mix. Recurring revenue, largely consumables, made up 60% of total sales and carries roughly 50% gross margin, versus around 40% for systems, giving Cohu a profitable and more predictable base.

Software and High‑Margin Recurring Upside

Management emphasized growing software traction, with annual recurring revenue from software bookings around $1.2 million and 2026 software revenue targeted at about $3 million, more than tripling year‑over‑year. A cited example was a $20 million system order paired with a $330,000 per year subscription that could yield roughly $5 million in lifetime recurring revenue.

Solid Liquidity and Net Interest Income

The balance sheet remains a support for the growth plan, with cash and investments rising about $5 million in Q1 to $489 million. Cash from operations reached $10 million, and net interest income, after interest expense and FX, was approximately $2.1 million, giving Cohu additional financial flexibility.

Key Customer Wins and Large Account Upside

Cohu secured two major Eclipse handler orders, including one account that could drive an estimated $100 million in incremental revenue over the next three years. Management also pointed to five additional customers in qualification with Eclipse, representing roughly $200 million in potential revenue starting late this year and into next year.

Elevated Operating Expenses to Capture Growth

Operating expenses came in at $55 million, above guidance, as the company accelerated hiring, design work, and field support to capture HPC opportunities. Management expects quarterly OpEx to remain in the low‑$50 million range, guiding Q2 to about $53 million as they continue investing ahead of anticipated revenue.

Margin Headwinds from Mix and Ramp Costs

While Q1 margins were strong, Cohu warned of near‑term pressure as lower‑margin systems increasingly dominate the mix and Eclipse ramp costs persist. Q2 gross margin is projected around 44%, about 200 basis points lower, with full‑year margins expected in the mid‑40% range as ramp‑related inefficiencies work through the model.

Incremental Cost Pressures at the Margin

Beyond mix, Cohu flagged modest but real cost headwinds that nibble at profitability. Higher energy and freight costs are expected to trim about 10 basis points from margins, while rising memory IC pricing adds another 10 basis points of pressure, all of which the company is working to offset operationally.

Timing and Conversion Risk in the Pipeline

The sizable $750 million HPC pipeline carries timing risk because many opportunities require multi‑stage qualification and production ramps that typically take about six months. Management cautioned that while the pipeline is robust, some large wins may convert into revenue in 2027 rather than 2026, adding uncertainty to the exact timing of the growth.

Low Software Attachment Leaves Room to Grow

Despite early success stories, software remains a small contributor, with subscription attachment at roughly 1.3% of systems. Current ARR of about $1.2 million is modest relative to total sales, suggesting that while software is high‑margin and strategically important, its financial impact will scale gradually from a low base.

Capacity Constraints and Lead‑Time Management

Cohu highlighted capacity and supply‑chain constraints, particularly for thermal handlers, which currently have around a 14‑week cycle time and face thermal head choke points. The company is re‑configuring facilities and hiring in Malaysia to expand manufacturing capacity, but admits to near‑term pressure as it balances large orders and lead times.

Leverage and Convertible Debt Complexity

Total debt stands at $305 million, including a $288 million convertible issued in Q4 2025, introducing complexity around future dilution. While cash and investments of about $489 million more than offset gross debt, diluted share guidance of roughly 52.6 million already reflects the potential impact of the convertible structure.

Guidance and Outlook Signal Confident Growth Path

Looking ahead, Cohu forecasts Q2 revenue of about $144 million, gross margin around 44%, OpEx of $53 million, net interest income of roughly $2 million, and a tax bill near $5.3 million. For 2026, management sees 20% to 25% revenue growth, mid‑40s gross margin, stable low‑$50 million quarterly OpEx, HPC revenue of $80 million to $100 million, strong inspection growth, and a demand profile that keeps Q3 near Q2 levels with only a modest seasonal dip in Q4.

Cohu’s earnings call painted the picture of a company leaning into a powerful AI‑driven test and inspection cycle, backed by a strong balance sheet and deepening customer relationships. While margin headwinds, OpEx investment, and pipeline timing create execution risk, the upgraded growth guidance, expanding HPC and inspection franchises, and rising recurring revenue suggest an attractive, if volatile, trajectory for investors tracking the semiconductor equipment space.