Business Overview: Cohu, Inc. (Nasdaq: COHU)

Executive Summary

Cohu is a global supplier of semiconductor test and inspection equipment, providing the automated test handlers, automated test equipment (ATE), interface products (test contactors), inspection/metrology systems, and increasingly software analytics that semiconductor manufacturers use to test and sort chips after fabrication. The company operates as a single reportable segment — "Semiconductor Test & Inspection Equipment" — reflecting a tightly integrated hardware-plus-software product suite sold primarily to integrated device manufacturers (IDMs), outsourced semiconductor assembly and test (OSAT) providers, and fabless semiconductor companies worldwide. In fiscal 2024, Cohu generated meaningful recurring revenue (65% of sales from interface products, spares, software, and services, versus 35% from systems sales), invested $84.8 million in R&D, and closed the year with a backlog of $138.0 million, employing roughly 3,024 people across 25 countries with 86% of revenue derived internationally.

The single most decision-relevant fact right now is that Cohu completed its acquisition of Tignis, Inc. on January 7, 2025, an AI-focused process-control and analytics software provider, marking a deliberate strategic pivot toward higher-margin, stickier software-driven revenue (predictive and prescriptive automation for fabs and test floors) layered on top of its traditional handler and interface hardware business. This move comes as Cohu's core test-handler franchise — where it holds a leading market position — faces a highly cyclical semiconductor capital-equipment spending environment and competition from two substantially larger U.S. and Japanese ATE competitors. Cohu's customer base is well-diversified (no single customer exceeded 10% of 2024 revenue, versus STMicroelectronics at 12% in 2023), and its top ten customers represented 57% of 2024 revenue, reflecting a broad, if still concentrated, blue-chip semiconductor customer roster.

Cohu should be viewed as a cyclical, but strategically improving, semiconductor capital-equipment supplier: its recurring-revenue mix and leading test-handler position provide relative earnings stability through the cycle, while the Tignis acquisition signals a credible attempt to add a software growth vector to a historically hardware-cyclical business.

1. Core Business Model & How They Work

Cohu generates revenue by selling and servicing equipment used at the back end of semiconductor manufacturing, where finished chips are tested and sorted before shipment:

1. Systems sales of automated test equipment (Diamond and PAx tester platforms) and test handlers (turret, gravity, and thermal subsystem configurations) used for wafer-level and packaged-device testing — 35% of fiscal 2024 revenue.
2. Recurring interface product sales — test contactors and probe heads that physically interface handlers/testers with devices under test, a consumable, repeat-purchase product line.
3. Inspection and metrology systems, including vision-based NV-Core technology, for automated visual defect detection on packaged devices.
4. Software analytics via the DI-Core data platform (and now Tignis's AI-driven process control), helping customers optimize equipment utilization, yield, and predictive maintenance.
5. Spare parts, kits, and service contracts tied to the large installed base of Cohu handlers and testers in the field — combined with interface products, software, and services, this recurring stream made up 65% of 2024 revenue.
6. Global sales and support infrastructure across 25 countries, serving IDMs, OSATs, and fabless semiconductor companies as chip production scales and diversifies geographically.

2. Business Segments

Cohu reports as a single segment — Semiconductor Test & Inspection Equipment — with revenue best broken out by systems versus recurring streams: 35% systems-based sales and 65% recurring revenues (interface products, spares, software, and services) in fiscal 2024.

3. Product Portfolio

4. Competitive Landscape

In the core semiconductor ATE market, Cohu competes against two substantially larger competitors headquartered in the U.S. and Japan — commonly understood to be Teradyne (U.S.) and Advantest (Japan), the two dominant global ATE suppliers with far greater scale and R&D budgets. In test handlers, Cohu holds a leading market position but still faces competition from Advantest's handler lines and other specialized equipment makers. In the more fragmented test-contactor/interface market, Cohu competes with numerous smaller specialized suppliers such as Johnstech International and Ismeca-affiliated contactor makers. In inspection, Cohu competes with vision-system providers like Camtek and Onto Innovation, and its new Tignis AI software competes with fab-analytics providers such as PDF Solutions.

Key Competitors:

• Teradyne (large-scale semiconductor ATE)
• Advantest (large-scale semiconductor ATE and test handlers)
• Johnstech International (test contactors/interface products)
• Camtek and Onto Innovation (inspection and metrology)
• PDF Solutions (fab/process analytics software, competing with Tignis)

5. Strategic Strengths & Risks

Competitive Strengths (The Moat)

• Leading global position in semiconductor test handlers, an area requiring deep engineering know-how and long qualification cycles with customers.
• High recurring-revenue mix (65% of 2024 sales from interface products, spares, software, and services) smooths cyclicality relative to a pure systems-sales model.
• Diversified, blue-chip customer base with no single customer exceeding 10% of 2024 revenue, reducing concentration risk.
• Strategic addition of AI-driven process-control software (Tignis) provides a differentiated, higher-margin growth vector beyond traditional hardware.
• Substantial R&D investment ($84.8 million in 2024) sustains technology leadership in handler and inspection technology.

Strategic Risks & Vulnerabilities

1. Semiconductor capital-equipment cyclicality — Cohu's systems revenue is directly tied to volatile fab and OSAT capital spending cycles, which can swing sharply with end-market demand.
2. Scale disadvantage in ATE — Teradyne and Advantest dwarf Cohu in the core automated test equipment market, limiting Cohu's ability to compete for the largest, most complex test programs.
3. Customer concentration at the top-ten level — the top ten customers represented 57% of 2024 revenue, meaning order timing from a handful of large semiconductor customers can materially swing quarterly results.
4. Tignis integration risk — realizing the strategic and financial benefits of the AI software acquisition (completed January 2025) is unproven and requires successful cross-selling into Cohu's hardware customer base.
5. International revenue concentration (86% of 2024 revenue) exposes Cohu to currency, geopolitical, and trade-policy risk affecting global semiconductor supply chains (e.g., China/Taiwan-related export controls).

6. Financial Overview

7. Summary Conclusion

Cohu occupies a leading, technically defensible position in semiconductor test handlers and interface products, with a recurring-revenue mix that meaningfully cushions the inherent cyclicality of semiconductor capital-equipment spending. The January 2025 acquisition of Tignis represents a credible strategic effort to layer AI-driven, higher-margin software analytics onto its hardware franchise, potentially improving the durability and quality of future earnings. The investment case balances Cohu's real technology leadership and diversified blue-chip customer base against its persistent scale disadvantage versus Teradyne and Advantest in the broader ATE market and its ongoing exposure to the boom-bust semiconductor equipment cycle.