Greetings, and welcome to the Cohu Third Quarter 2015 Earnings Conference Call. 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. Jeff Jones, VP of Finance and Chief Financial Officer. Thank you. Sir, you may begin.

Good afternoon and welcome to our discussion of Cohu’s most recent financial results. I am joined today by our President and CEO, Luis Müller. Following our opening remarks, we’ll provide details of our performance for the third quarter of 2015 as well as our outlook for the fourth quarter of this year. If you need a copy of our earnings release, you may obtain one from our Web site, cohu.com, or by contacting Cohu Investor Relations. Before we begin, you should all be aware that during the course of this conference call, we will may forward-looking statements reflecting management’s current expectations concerning the company’s future business. These statements are based on current information that we have assessed, but which by its nature is subject to rapid and even abrupt changes. Forward-looking statements include our comments regarding the company’s expectations for industry conditions, future operations, financial results, market share gains, expansion into new markets and any comments we make about the company’s future in response to your questions. Our comments speak only as of today, October 29, 2015, and the company assumes no obligation to update these comments. We encourage you to review the forward-looking statement section of the earnings release as well as 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 these statements as a result of developments occurring after this call. Further, our comments and responses to any questions will not make reference to any specific customers, as we are precluded from disclosing such information by our non-disclosure agreements. Luis? Luis A. Müller: Thanks, Jeff, and good afternoon. In the third quarter of 2015, Cohu again delivered solid financial results and better than forecasted profitability. We received customer validation of our new equip…

Thanks, Luis. Before I move into Q3 financial details and our Q4 outlook, I’d like to touch on a few highlights from our results. We had strong cash generation with cash from operations of 20.8 million. And this was our seventh consecutive quarter of non-GAAP profitability with adjusted EBITDA of 10.1% and EPS of $0.17, both of which are in line with our near-term financial model at this level of revenue. Our GAAP to non-GAAP adjustments included approximately 1.6 million of stock-based compensation expense, 1.7 million of purchase intangible amortization expense and approximately 200,000 of restructuring costs. My comments are based on our non-GAAP results, which exclude the impact of these items. A reconciliation of non-GAAP measures to GAAP equivalent measures can be found in our earnings release located on the investor information section of Cohu’s Web site. As a reminder, in 2014, we sold our video camera business and on June 10, 2015, we sold our microwave communications business. The operating results for these businesses are presented as discontinued operations with all prior periods announced being reclassified. Unless other noted, all amounts discussed on this call are from continuing operations. Now, moving into Q3, sales and profitability were better than guidance. Sales were 67.5 million compared to our forecast of approximately 66 million due mainly to stronger recurring revenue and demand from our turret handlers. In Q3, two customers represented 10% or more sales, one in mobility and the other in the computing market. Q3 gross margin was also stronger than expected at 35.9% and benefitted from lower product costs and higher margin sales of more complex turret-based systems. Operating expense was 18.4 million, lower than our estimate due to the strengthening of the U.S. dollar against the Swiss Franc and the Malaysian Ringgit. The effective tax rate on…

Thank you. [Operator Instructions]. Our first question is coming from the line of Edwin Mok with Needham & Company. Please proceed with your question.

Thanks for taking my question. Congrats on very good profitability third quarter. So first question I have, did you guys disclose your booking number for the quarter?

No, we did not and that’s consistent with our approaching Q2.

What’s that again, sorry?

We didn’t disclose it in Q3 and that’s consistent with our approaching Q2.

Yes, it is. So can you at least describe what’s the deal about one below one in the general items? Luis A. Müller: I did make a comment that we saw a sequential increase in orders in Q3, Edwin.

Okay, that’s helpful actually. So maybe I want to dive a little bit on the market condition. I think you mentioned that SEMI has reported to be top numbers but it sounds like you guys are doing a little bit better than the market, right, initiating both the products that you have. Do you have a view in terms of how the market is progressing on this quarter? I know [indiscernible] this quarter. Luis A. Müller: It’s difficult to talk about market for beyond this quarter, meaning next year at this point in time, Edwin. It’s too early to talk about that.

Okay, great. That’s fine. On the Eclipse product on the recent announcement, I think you guys gave some color on the prepared remarks. I was wondering how – at least based on what the customer has indicated to you so far, how do you see contact ramp up happening? Is the majority of the orders being shipped in the fourth quarter or are we starting with a slow ramp up and expect a stronger shipment to that order as we get into 2016? Luis A. Müller: Yes. So as I mentioned and actually it was in the last call, we are expecting to see capacity and frankly new capability additions starting already at the end of this year and into the first half of next year for the new smartphone and tablet models that we’ll be launching in 2016. So we continue to forecast additional demand. And this is really from both of our customers. I mentioned we have really two leading customers there for thermal products, which can ship starting Q4 and into next year.

I see. Okay. So it sounds like not everything is happening – or happening in the fourth quarter. There will be some additional or even greater shipment in the coming year. On the [indiscernible] product, I think you mentioned that you received an order during the quarter. That order is for first evaluation or data. Can you give us some color on that and in terms of timing of revenue and potential follow-on order, any way you can give us some views on that? Luis A. Müller: Sure. So for this product, we believe we have sort of a very unique solution solving a real challenge out there in the industry, which is singulated testing of WLP and we received a first order, so obviously what can I say, it’s the very first order for this product which is still in development. That’s actually highly unusual in our industry to be honest with you and a good testament of the value proposition on the product. We may be able to have some revenue in 2016 from this product line. By and large, this is a product that we would see ramping in production 2017 forward.

I see. So basically the two is being developed but the customer is excited about the potential, so they place an order [indiscernible] first two when the development is complete -- Luis A. Müller: That’s right.

I see. Okay. Last question I have and I’ll let the other guys ask, on the contacting side of the business, I think you mentioned you signed a contract related to RF contacts there. Can you give us some color in terms of that opportunity there? I think it’s typically pretty [indiscernible] to highly valued in the marketplace. So is that an area that you guys are focused on driving growth now or is it just one or it depends on growth for the contacting business? Luis A. Müller: I’m not sure I completely understood the question here, Edwin, but just a little bit and hopefully this answers your question. We haven’t really done a lot this year in contacters. A lot of it is actually not visible from the outside. We have developed technologies, products, still in development, built infrastructure or still building infrastructure in the Philippines to manufactured contacters. And we have established a first licensing agreement to get access to key RF technology. Sure, we still have a lot more work to do but I’ll say we’re setting up the stage for growing the revenue stream in the contacter space. That’s one of our key strategic initiatives as I mentioned. On the RF and particularly we see that being about $70 million to potentially $90 million segment, a $650 million contacter market. I continue to be very confident and extremely committed to expanding our revenue stream in this new addressable market. And I hope that answers your question.

Yes, I was having no question [ph] so I looped a few things together, but you kind of touched on key points in terms of price in that market and where you’re in that license agreement. That’s all I have. Thank you very much. Luis A. Müller: Okay. Thank you.

Thank you. Our next question is coming from the line of Jairam Nathan with Sidoti & Company. Please proceed with your questions.

Hi. Thanks for taking my questions. First, Luis, is there a way you can handicap this Eclipse order and not this order specifically but the margin and what could be the potential here? Luis A. Müller: Yes, it’s a little bit tricky to do that but I do believe that in the near term, the opportunity with the Eclipse is probably going to be about half the size of that first major customer in the mobile processor arena that we capture, and the right revenues last year that key element of our 48% organic growth in 2014. So that’s sort of a ballpark for the near-term opportunity.

Okay. And Jeff on the [indiscernible] sale and leaseback, can you – just for modeling purposes, can you let us know like what would be the impact on lower D&A, higher rent expense? Would that kind of knock you to the route or is there an impact?

Right, Jairam. We don’t expect a significant impact to the operating cost as a result of the leaseback. We’re basically replacing the depreciation expense as you mentioned and some other facility costs, replacing that with the rent expense but the rent expense is based on only about 40% of the building.

Right, okay. And what is the – you own the building even in Germany and U.S. moving production out of there as well, so what’s the potential of doing a similar transaction in Germany?

I think it’s very low. The facility there will still be used for Thailand. It’s a much smaller facility, so at the moment we don’t have similar plans for that facility.

Okay, thanks. That’s all I had.

Thank you. Our next question is coming from the line of Patrick Ho with Stifel. Please proceed with your question.

Hi, there. This is Brian [ph] calling in for Patrick. Hi, Luis. Thank you for letting me ask a question. Luis A. Müller: Hi, Brian.

Hi, Brian.

Hi, there. First question again going back, Q4 expected revenue decline has been fairly benign, especially again factoring in the widely reported weaker semiconductor environment. To better appreciate the impact of your share gains, can you give us a sense of how much sales might have pulled back or not to your recent wins or perhaps what you would characterize as normal Q4 seasonality? Luis A. Müller: That’s a difficult one to answer not without going back into typical past few years Q4 seasonality but I think you can perhaps as a better reference look at some of the other companies, maybe even ATE companies in the backhand space. I think that gives you a good gauge for what the ATE which – or pretty much part of that industry is seeing typically for Q4 softness and contrast that with what we’re guiding for.

Sure. Got it. I know some of them have talked about 40%, 50% order declines and you’re talking about a sequential order increase in Q3, okay. Maybe second question, some semiconductor companies have recently talked about weaker demand and inventories that were specifically in their automotive end market. And given your very strong position in the auto market, can you discuss whether this near-term impact to your gravity handler business? Luis A. Müller: Yes, what I’ve seen and again this is perhaps as much deck on hand as you are or directly from customers, which is also deck on hand in some degree is more of a inventory build up on perhaps more of the microcontroller side or more the digital side as I recall on the automotive. But if you go down to the analog ICs, I would say the inventories have – even the challenge seems to be leaner and the opportunities are greater. And that’s why I commented here we’re seeing stronger pull in the quarter on the automotive for our semiconductors or sort of analog type ICs for our gravity handlers, and despite sort of a softer digital side of the automotive market. So it’s kind of – there’s one positive and one negative in there in reality.

Okay, got it. Thank you.

Thank you. [Operator Instructions]. Our next question is coming from the line of Dick Ryan with Dougherty. Please proceed with your question.

Thank you. Luis, you mentioned previously that one of your key auto customers was going through some M&A, hopefully closing the fourth quarter and that was kind of putting a pause in some of your orders. What are you hearing from that customer and is that kind of pushing business into 2016? Luis A. Müller: Yes, look what I got right now is pretty much the same as I said the last quarter. They still haven’t closed and expecting that this is going to happen in Q4. I actually believe individually their businesses may be a little soft right now. I don’t know exactly what it means for 2016 at this time, Dick. I mean we’re in the process of collecting data – our sales team collecting data and building up a future forecast or potential forecast. So I don’t know at this time if – as they close it, there will be sort of a spring back or how soon would there be a spring back in capacity addition for their businesses.

Okay. And Jeff, you talked about the Eclipse production moving to Malaysia. Can you refresh me on where you are with the rest of the capacity move over there?

At the end of this year, so the next couple of months we’ll have capacity in Malaysia to manufacture about 70% of our handlers in total. That will climb to probably roughly 90% at the end of next year. We’ll always have a small amount pilot built and whatnot that we’ll do within our development centers.

Okay. Luis you talked about the utilization rate dipping I think 77%. When you look at Q4 in your various sectors, is there any sort of contribution shift that you’re anticipating, auto, mobility, computing versus what you saw in Q3? Luis A. Müller: You mean looking ahead in orders for Q4.

Yes. Luis A. Müller: I would expect just basically and based on the past couple of years’ seasonality, I would expect the mobility market to start ramping up. Even like I mentioned in our Q2 earnings call, I still feel the same thing that the mobility market would start ramping ahead of everybody else already in Q4. And frankly they already started here in Q3 but I expect that to accelerate into Q4. And then in test, just looking at test seasonal patterns, I would think a lot of the other segments are going to wait and see before or after Chinese New Year as they have seen in the past. I would say LED is typically strong. The solid-state lighting market is typically strong in the fourth quarter or in the second half of the year in general.

Okay. Thank you. Luis A. Müller: Welcome.

Thank you. It appears we have no further questions at this time. I’d now like to turn the floor back over to Mr. Müller for any additional concluding comments. Luis A. Müller: Thank you. Thank you for joining us on today’s call. We look forward to speaking to all of you at the upcoming investor conferences or when we report our fourth quarter and full year 2015 results. Have a good day.

Ladies and gentlemen, this does conclude today’s teleconference. We thank you for your participation and you may disconnect your lines at this time.