Cohu (COHU) Q3 2026 earnings review
Cohu's AI chip-tester orders quadruple, but new shares dilute profit
Cohu, a maker of machines that test semiconductor chips, turned a reported profit as orders for its AI cooling equipment more than quadrupled. Third-quarter sales grew 37% from a year ago to $173 million, lifting profit per share excluding one-offs to $0.43 because factory overhead stayed flat. Chief executive Luis Müller raised the full-year high-performance computing sales plan to $120 million and set a fourth-quarter revenue target above what the prior full-year plan pointed to.
| Revenue | $173.0M +37% from a year ago |
|---|---|
| Profit per share, excluding one-offs | $0.43 loss of $0.06 a year ago |
| Equipment order bookings | +318% from a year ago (total bookings +126%) |
| Q4 revenue outlook | Raised $178M middle of range (+46% from a year ago) |
⚖️ Verdict: 🟢 Bullish
The story got better because the fourth-quarter outlook eased the fear that factory limits would cap sales for the rest of the year, while gross margin rose despite pricier parts. One caution: the convertible debt Cohu sold last year added 7 million shares to the diluted count this quarter, cutting into per-share profit while $508 million in cash sits unused.
The question now is how fast the $1 billion pipeline of potential AI business turns into shipped machines in 2027. Either newly built factory space in Asia turns those forecasts into a major revenue jump, or slow customer testing and component bottlenecks delay shipments. The 2027 financial targets at the company's November investor day will provide the answer.
🐂 Bull Case
AI Chip Testing Lifts Orders and the 2026 Plan
Cohu makes Eclipse, a machine that controls heat while testing high-power computer chips, and sees factory space as the main limit on sales. Chief executive Luis Müller said "Growing customer adoption of our Eclipse thermal solutions for high-performance computing was a key driver for systems demand as customers respond to increasing device complexity, higher power requirements, and greater test intensity."
- Equipment order bookings: up 318% from a year ago, lifting total bookings 126%
- Full-year high-performance computing sales outlook: raised to about $120 million, up from $100–110 million
- Annual AI-driven compute opportunity pipeline: about $1.0 billion, up 18% from last quarter
- Fourth-quarter sales outlook: $171–185 million, above the $166–171 million implied by the prior full-year plan by our math
This matters because the fourth-quarter target shows the semiconductor equipment maker is loosening its factory bottleneck faster than its prior plan assumed. Still, with "several hundred Eclipse systems currently forecasted for 2027", Cohu must keep "expanding manufacturing capacity and working closely with supply partners to support potential customer production ramps" so delays do not push 2027 orders out.
What to watch: fourth-quarter equipment shipments and the 2027 capacity update on the conference call. A smooth factory expansion in Malaysia and the Philippines would allow the $1 billion pipeline to turn into 2027 revenue.
Higher Sales Turn Operating Margin Positive
Cohu spent the past two years cutting costs through restructurings, yet its reported operating margin was just 0.2% last quarter on $149 million of sales. That weak profit raised the concern that a $54 million quarterly operating expense budget would trap the business near breakeven.
In the third quarter, revenue rose 37% from a year ago to $173.0 million while operating expenses excluding one-offs stayed flat at $53.5 million. Reported operating income reached $12.8 million, or 7.4% of sales, up from a 7.7% loss a year ago. Selling, general and administrative costs (overhead and sales pay) fell 6.2 percentage points of sales to 18.9% by our math. Research and development fell 3.0 percentage points to 14.8%, and intangible amortization dropped 4.0 percentage points to 4.1%.
This matters because revenue has now passed the point where fixed overhead eats up gross profit, so extra sales flow straight into earnings. What to watch: operating expenses on the conference call, because holding quarterly spending near $54 million while sales approach $178 million would lift operating margin again in the fourth quarter.
Gross Margin Held Up Despite Higher Component Costs
Gross margin — the share of sales left after the cost of making the products — normally faces pressure when Cohu sells more testing machines than high-margin spare parts and software. Management also warned last quarter that specialty chip components were getting more expensive and set a third-quarter gross margin target of about 45% excluding one-offs.
Cohu beat that target, delivering 45.7% excluding one-offs (and 45.5% on a reported basis), up 1.6 percentage points from a year ago and 0.2 points from last quarter. The cost of making products fell 1.8 percentage points of sales from a year ago to 54.5% by our math, even as machine bookings grew nearly nine times faster than recurring service and software bookings. Higher factory volume and pricing absorbed the component inflation. What to watch: the fourth-quarter gross margin target on the call, which will show whether component costs stay contained.
Chip Factory Usage Crosses the Buying Threshold
Cohu tracks test cell utilization, the percentage of installed chip-testing machines in active use across customer factories worldwide. When utilization passes 80%, chipmakers typically shift from buying only replacement parts to ordering new testing machines, starting an expansion cycle that management says usually lasts about six quarters.
Utilization rose 2 percentage points from last quarter to 82%, its fifth straight quarterly increase since sitting at 74.5% a year ago. Alongside the jump in machine orders, recurring bookings — services, spare parts, and analytics software — rose 36% from a year ago, which Müller said provides a stable foundation for the business. What to watch: whether utilization stays above 80% next quarter and brings lagging automotive chipmakers back into the order book.
🐻 Bear Case
Convertible Debt Added 7.6 Million Shares to the Count
A year ago, Cohu raised $287.5 million by selling 1.5% convertible notes (debt that turns into stock above a set price) to fund acquisitions. The test equipment maker has not bought a company since, and it did not repurchase any of its own shares in the third quarter, extending its buyback pause to six quarters.
Because the company turned a reported profit this quarter, accounting rules added those convertible notes into the diluted share count. Diluted shares rose 16.3% from a year ago to 54.4 million (up from 46.7 million), while basic shares stood at 47.4 million. That extra 7.0 million diluted shares cut reported profit per share from $0.26 on a basic count to $0.22 on a diluted count, while $507.9 million sits in cash and investments.
What to watch: the fourth-quarter diluted share count projection on the conference call. A rising share count reduces the per-share benefit of the earnings recovery while the borrowed cash goes unused.
Cohu Still Withholds Quarterly AI Sales and Backlog
Müller said the high-performance computing opportunity pipeline expanded to about $1 billion and "continues to mature as more customer programs advance through qualification and into production." Yet the pipeline is management's own estimate of potential yearly customer spending, not signed contracts.
In the same release, the US company omitted actual third-quarter high-performance computing revenue, total order backlog, and the breakdown of how much of the $1 billion pipeline is qualified versus early talks. Because Cohu only gives an annual target of about $120 million for AI compute sales, outsiders cannot verify how much of the 37% revenue growth came from AI versus a normal industry rebound. What to watch: whether management discloses qualified pipeline dollars and customer counts on the call or at its November investor day.
Risks this quarter didn't answer
Three standing concerns from last quarter cannot be checked from the earnings release alone and await the conference call or quarterly filing.
- Automotive demand and customer concentration: the release omits order growth by end market and whether a single customer again exceeded 10% of sales; the call and filing will show both.
- Convertible note conversions: the July-to-September conversion window closed during the quarter, and the quarterly filing will show if any bondholders demanded cash repayment.
- Inventory write-downs: the quarterly filing's footnotes will show whether charges for obsolete parts stayed high after doubling to $3.2 million last quarter.
💲 Other KPIs
Accounts receivable — money customers owe for delivered products — rose 17.2% from a year ago and 18.3% from last quarter, after rising 21.5% in the second quarter. Receivables grew much slower than the 37.0% year-over-year sales increase, showing that Cohu is collecting cash on time as shipments rise.
Inventories — raw parts and unfinished machines in the factory — climbed 11.0% from a year ago and 6.2% from last quarter, continuing the buildup from $129.0 million at year-end. The chip-testing supplier is stocking components to build the machines booked this quarter for fourth-quarter and 2027 delivery, tying up working capital.
Cash and investments rose $9.8 million from last quarter and $24.0 million since the end of 2025, following a $9.5 million increase in the second quarter. The large cash balance earned $3.9 million in interest income this quarter, more than covering the $1.8 million of interest expense on its debt.
🔮 Guidance
Raised. The new fourth-quarter plan calls for 46% growth from a year ago and 3% growth from the third quarter at the $178 million middle of the range, beating the $166–171 million implied by last quarter's full-year outlook by our math. Part of the 46% jump comes from comparing against last year's fourth-quarter slump of $122.2 million. Combining nine-month sales with this target puts full-year revenue at $625 million (up 38%) by our math.
Raised. The full-year target for high-performance computing sales moved up by $15 million at the middle of the range, to about $120 million. It is the second straight $15 million raise in two quarters: from $80–100 million in the first quarter, to $100–110 million in the second, to $120 million now. Achieving the higher target shows Cohu is getting more output from its factories this year than previously planned.
❓ Key Questions
How much of the $1 billion pipeline is qualified?
Last quarter, Cohu broke down its $850 million AI pipeline into $190 million qualified, $215 million in qualification, and $445 million in early talks. Without that breakdown for the new $1 billion figure, investors cannot tell if customers actually passed testing this quarter.
What was actual AI compute revenue in the third quarter?
Management raised the full-year high-performance computing target to $120 million, after estimating first-half sales at roughly $30 million. Disclosing the exact third-quarter number would show how much of the remaining $90 million already shipped and how much is left for the fourth quarter.
What does 'several hundred Eclipse systems' mean in dollars?
Chief executive Luis Müller cited a forecast for several hundred Eclipse thermal machines in 2027. Knowing the average selling price of an Eclipse system and whether those forecasts are backed by firm deposits would clarify 2027 revenue.
What will Cohu do with its $508 million cash pile?
Cohu raised $287.5 million in convertible debt a year ago for acquisitions that never happened, and those notes just added 7.0 million shares to the diluted count. With no share buybacks for six quarters, management needs to explain why it is holding idle cash.