Cohu's Rough Ride Continues: Why My Bearish View Remains Firm After Q4 Earnings

Well, here we are again, talking about Cohu. You know, I've been pretty open about my skepticism regarding this semiconductor equipment company for a while now, and honestly, their latest fourth-quarter earnings report, along with the subsequent guidance for Q1 2024, hasn't done much to shift my perspective. In fact, it's pretty much solidified my long-held bearish view. It feels like we're watching a movie we’ve seen before, and the plot isn’t getting any happier.

Let's just dive right into the numbers, shall we? Q4 2023 wasn't exactly a stellar performance. The company missed consensus estimates on both the top and bottom lines – revenue came in at $155.1 million against an expectation of $159.2 million, and their non-GAAP EPS was $0.16, falling short of the $0.19 analysts were looking for. Now, I know a small miss might not seem like the end of the world to some, but it's the direction and the context that really matter here. This wasn’t a strong finish to the year, not by a long shot.

But wait, there’s more, and it’s not good news. Their guidance for the first quarter of 2024 really sealed the deal for me. They're projecting revenue to be somewhere between $120 million and $130 million. Let's be clear: that's a pretty significant sequential drop from Q4, and it's a noticeable dip year-over-year too. On top of that, they're expecting a non-GAAP EPS loss in the range of -$0.10 to -$0.25. A loss, folks! When a company, especially one in the cyclical semiconductor space, is guiding for losses, it’s a big red flag waving right there.

What's truly at play here, beyond Cohu's specific operational hiccups, are the broader industry headwinds. We're still navigating a really tough patch in the semiconductor capital equipment market. There's this ongoing cycle of inventory adjustments that just won't seem to end, coupled with reduced capital expenditure by many chipmakers. Everyone's tightening their belts, waiting for a clearer signal of recovery. And Cohu, with its significant exposure to the mobile and computing end markets – areas that have been particularly sluggish – feels the pinch perhaps more acutely than some others.

It's not just the top-line revenue that's suffering either; gross margins are also under pressure. When sales slow down and pricing power weakens, it invariably hits profitability, and we're seeing that here. Operating efficiently becomes incredibly challenging in such an environment, and it’s a constant uphill battle to maintain those margins. For a company like Cohu, which provides critical test and inspection handlers, contactors, and thermal subsystems – essentially the tools that ensure chips are good before they go into your phone or computer – demand directly mirrors the health of the overall chip market. And right now, that market isn't exactly radiating health.

Some might look at Cohu's current valuation and think, "Hey, maybe it's cheap!" And on paper, perhaps it appears that way. But you have to ask yourself, "Cheap compared to what?" If the underlying business fundamentals continue to deteriorate, if revenue keeps sliding and losses pile up, then a seemingly low valuation today might just be a fair reflection of future struggles. Frankly, I just don't see any compelling near-term catalysts that would fundamentally alter this trajectory. There's no clear sign of a significant uptick in demand for their equipment, no major new product cycle that promises to be a game-changer just around the corner.

So, where does that leave us? My conviction remains strong: I'm still bearish on Cohu. The latest earnings report and the forward guidance only reinforced my belief that the company faces an extended period of challenging market conditions. Until we see tangible signs of a broad recovery in semiconductor capital spending and, crucially, a stronger performance from Cohu itself – perhaps even a return to positive EPS guidance – I'll be watching from the sidelines, maintaining my cautious stance. It’s a tough environment out there, and Cohu, unfortunately, seems to be right in the thick of it.