Greetings, and welcome to the Cohu, Inc. Second Quarter 2014 Earnings Conference. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. (Operator Instructions). As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. James Donahue, Chairman and Chief Executive Officer for Cohu, Inc. Thank you, you may begin.

Good afternoon and welcome to this conference call that covers Cohu’s results for the second quarter of fiscal 2014. With me today is our Chief Financial Officer, Jeff Jones. If you need a copy of our press release, you may obtain one from our website, cohu.com or by contacting Cohu Investor Relations at 858-848-8106. I'll provide an overview of Cohu's results for the second quarter, discuss orders and key activities. Then Jeff will takes us through the financial statements and I'll conclude with comments on the business outlook. Finally, we'll take your questions. Jeff?

The company's discussion this afternoon will include forward-looking statements reflecting management's current expectations concerning certain aspects of the Company's future business. These statements are based on current information that we have assessed, but which, by its nature, are subject to rapid and even abrupt changes. Forward-looking statements include our comments regarding the Company's expectations regarding industry conditions, future operations, financial results and any comments we make about the Company's future in response to your questions. Our comments speak only as of today, July 30, 2014, and the Company assumes no obligation to update these comments. Certain matters discussed on this conference call, including statements regarding the transition of manufacturing to Malaysia, expectations of business and market conditions, orders, sales, revenues and operating results are forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from those projected or forecasted. Such risks and uncertainties include, but are not limited to, risks associated with acquisitions, inventory, goodwill and other intangible asset write-downs; our ability to convert new products under development into production on a timely basis; support product development and meet customer delivery and acceptance requirements for next-generation equipment; our reliance on third-party contract manufacturers; failure to obtain customer acceptance, resulting in the inability to recognize revenue and accounts receivable collection problems. Customer orders may be canceled or delayed; the concentration of our revenues from a limited number of customers; intense competition in the semiconductor test handler industry; our reliance on patents and intellectual property; compliance with U.S. export regulations; and the cyclical and unpredictable nature of capital expenditures by semiconductor manufacturers. These and other risks and uncertainties are discussed more fully in Cohu's filings with the Securities and Exchange Commission, including the most recently filed Form 10-K and Form 10-Q. Cohu assumes no obligation to update the information in this release. Further, our comments and response to any questions will not make reference to any specific customers, as we are precluded from disclosing such information by our nondisclosure agreements.

Hey, thank you Jeff. Sales in the sales the second quarter increased to $77.9 million and were at the very top end of our guidance of $70 million to $78 million as our semi-conductor equipment group had a stronger than anticipated quarter. Non-GAAP income was $0.19 per share, compared to $0.02 in the first quarter and a loss of $0.06 per share in the year earlier quarter. Orders increased to $98.5 million. Semiconductor equipment orders were $95.4 million, which is a 28% increase compared to the first quarter and an all time record. Since the fourth quarter of 2013, our semi equipment orders have increased 40%. And our utilization gained a couple of points throughout the quarter to 85% as customers continue to ramp production. Systems represented 64% and recurring comprised 36% of semi equipment orders. As we’ve commented before, recurring business is less cyclical and also less volatile than the systems business. We’ve seen a strengthening in our device kit and contactor orders that drove a sequential 10% in recurring business. Cohu’s solid performance in the second quarter demonstrates the advantages of our broad product line, diversified customer base and the multiple market segments that we serve. It’s encouraging that even the PC sector appears to be improving as we enter the third quarter. Each of our three semi equipment business units recorded strong sales and orders in the second quarter. Orders for gravity handlers were the second highest in Rasco’s history. Since our acquisition of Rasco, the company’s market share in the gravity handler industry has more than doubled and according to recent market survey data, we are within a few points of becoming the market leader. Orders at Ismeca, the turret handler market leader that we acquired at the beginning of 2013 were the highest since 2010.…

In Q2 we recorded approximately $1.7 million of stock-based compensation expense, $2.1 million of purchased intangible amortization expense, and $850,000 of restructuring costs. The downsizing of BMS associated with consolidation of the German operation accounted for $600,000 of the Q2 restructuring cost with the balance related to the pick-in-place handler manufacturing transition to Asia. The following comments are based on our non-GAAP results, which exclude the impact of these items and a reconciliation of non-GAAP measures to equivalent GAAP measures can be found in our earnings release located on the investor sector of our Web site. On June 6, 2014, we announced the completion of the sale of substantially all the assets of our video camera segment, Cohu Electronics, and as a result, the operating results of Cohu electronics have been presented as discontinued operations and all prior period amounts have been reclassified accordingly. Unless otherwise noted all amounts discussed on this call will be from continuing operations. In Q2, we had three customers representing 10% or more of sales of compared to two customers in Q1. Gross margin in Q2 was 35.5% and in line with our projection. In Q2, we continue to ramp production of the new NY20 turret handler in our Malaysia plant, as well as build and ship a 100% of the assembly automation tool from our Philippine’s factory. In Q2, we also shipped the first pick-in-place handlers from our Malaysia plant and will ramp production of this new product in Q3. Order backlog is near record levels and we expect shipments and revenue in Q3 to increase sequentially. Gross margin is expected to be about the same as Q2 as the benefit form higher sales will be offset by the higher initial cost of manufacturing our new handlers. Product costs are expected decline as we…

Thank you, Jeff. Now looking at the current business environment, industry wide orders were backend semi-equipment have increased for eight consecutive months. At Semicon West earlier this month, the tone from customers was upbeat and positive. At the show we announced our next generation strip handler for in process test of 3D advance packages. This system provides precision handling and contacting for delicate bare die devices. We received an initial order for this system that's schedule to ship in the third quarter. Wafer level chip-scale packages are becoming an important package technology for certain RF, power and sensor ICs that are widely used in mobile devices. But we expect additional opportunities to develop for our handling and inspecting equipment that’s well suited to this application. For the third quarter, we expect sales to be between $84 million and $91 million. We continue to benefit from improved business conditions and are gaining share due to sales synergies and the unique combination of capabilities that we bring to the IC test handler industry that includes new products in each market segment, the performance and managers of our equipment, the breadth of our product line, key enabling and proprietary technologies and the largest global sales and service organization in the industry. That concludes our prepared remarks and we’ll now take questions, Scott.

(Operator Instructions) Our first question is coming from the line of Jairam Nathan with Sidoti. Your line is now open. You may proceed with your question.

So my first question was regarding the sales guidance. It still seems a bit lower than normal as we compared to the backlog. Are these revenue recognition issues -- are they kind of continuing here or is there something else?

No, we do have a large percentage Jairam of new product shipping. So there is some deferrals associated with that and Jeff commented on that. So the guidance is difficult to predict precisely because the timing of customer acceptance is impossible frankly to predict with any accuracy. So that’s really the only moving piece in the story.

Okay. And, as a follow-up just on gross margin side, with the divestiture of the video camera business, how should we, what are your gross margin targets now compared to -- we're talking about 40% of $90 million kind of a thing. So can you kind of bridge that?

Sure, Jairam. In association with our release on the sale of electronics division, we did update our financial model. And at $60 million, this was low end of our model. We’ve got gross margin at 35% Jairam. At $75 million, the gross margin grows to 38%. At $90 million per quarter, we’ve got a gross margin of 41%. So that’s been updated. That excludes the electronics division impact.

And lastly just on the OpEx with the 20 -- again excluding the electronics, can you just update us on what we should expect as far as $23 million. Is that $22 million, $23 million, is that pretty good run rate, going forward?

Certainly for the next quarter through the year. Again on our quarterly financial model, the modeling operating expenses at $85 million to $90 million, we expect to hit about $22.5 million to $23 million. So we're right in that range. I would model $23 million for the next two quarters, Q3 and Q4.

Okay. And my last question here is on the BMS business. What’s a breakeven level now? Like what would be the breakeven level once you are done with the restructuring of the German operations?

(Operator Instructions). One moment please while we continue to poll for questions. Our next question is coming from the line of Dick Ryan with Dougherty. Your line is now open. You may proceed with your question.

Jeff, with your new model, it looks like Q3 a little bit lighter than you just kind of gave the breakdown for. Is this primarily due to getting some of these initial products out the door or are there other reasons for that?

That is part of the reason absolutely that we need to complete the manufacturing transition as well, which will take us through the end of the year. We will get through this initial production runs, stabilized supply chain and can produce the systems and volumes. So those are the reasons.

Jim, you talked about good order activity in the backend for the eight months of the year so far. Can you give a sense of what this might mean, if you can give us an initial look for the December quarter?

You mean the September quarter or do you mean.

Just seeing if you'll give any commentary, what you might think of the December quarter as well.

Well, as you know, this is a short sight, limited visibility, inherently volatile business and that’s why we have never provided a guidance. I don’t think, I don’t know -- certainly not many backend equipment companies do that, because we just have such a limited visibility. I would say equipment utilization increased to the 85% level in Q2, that’s a very healthy level historically. So we're glad to see that range. And I will tell you that third quarter orders are off to strong start

Thank you. Our next question is coming from the line of Kim Donavan with Needham. Your line is now open. You may proceed with your question.

My question is how do you see gross margin trending with the transition with the manufacturing to Malaysia? Do you have any color on that?

Once the manufacturing transition is complete, we should be providing results in line with our financial model that we’ve published and again at a revenue level of 90 million or more, we're expecting gross margin of approximately 41%, delivering operating income of 15% or higher.

Thank you. At this time, there are no further questions. I'd like to pass the floor back over to management team for closing comments.

Thank you for joining us on our call today, and we look forward to speaking to you in October when we report Cohu’s third quarter 2014 results. Thank you, and good day.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful afternoon.