Cohu - Earnings Call - Q2 2019

Transcript

Speaker 0

Good afternoon, ladies and gentlemen, and welcome to the Cohu Incorporated Second Quarter twenty nineteen Financial Results Conference Call. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will follow at that time. As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host, Mr.

Jeff Jones, Chief Financial Officer. You may begin.

Speaker 1

Thank you, and good afternoon, and welcome to our conference call to discuss Cohu's second quarter results and third quarter outlook. I'm joined today by our President and CEO, Luis Mueller. If you need a copy of our earnings release, you may access it from our website cohu.com or by contacting Cohu Investor Relations. There's also a slide presentation in conjunction with today's call that may be accessed through the webcast link on Cohu's website and is also posted as a PDF in the Investor Relations section. Replays of this call will be available via the same page after the call concludes.

Between now and our next earnings call, we'll be participating in the Jefferies Semiconductor Hardware Summit in Chicago on Tuesday, August 27. Please contact us if you would like to request a meeting with the company at this event. Now to the safe harbor. During today's call, we will make forward looking statements reflecting management's current expectations concerning Cohu'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.

We encourage you to review the forward looking statements section of the slide presentation and the earnings release as well as Cohu's filings with the Securities and Exchange Commission, including the most recently filed Form 10 ks and Form 10 Q. Our comments speak only as of today, 08/05/2019, and Cohu assumes no obligation to update these statements for developments occurring after this call. Finally, during this call, we will discuss certain non GAAP financial measures. Please refer to our earnings release and slide presentation for reconciliations to the most comparable GAAP measures. Now I'd like to turn the call over to Luis Mueller, Cohu's President and CEO.

Speaker 2

Good afternoon. Today, I plan on discussing second quarter dynamics at Cohu and sharing our perspective on the current business environment. Jeff will then cover detailed financial results and Q3 guidance. Our internal measure of test cell utilization, which started improving in late first quarter supporting an initial recovery in the mobility market, dropped three points in May and June to 77% at the end of the quarter. Second quarter orders were 42% systems and 58% recurring with the mix continuing to indicate soft business conditions in the near term.

Second quarter sales of $150,000,000 were at the low end of guidance due to the impact of export restrictions to Huawei on our customers and continued softness in mobility. Although our direct business of HiSilicon, Huawei affiliated company, is less than 2% of annual sales, some of our U. S. Customers that are part of the Huawei supply chain abruptly lowered their forecasts after mid May when the export restrictions were imposed. In parallel, Huawei announced a sharp reduction in smartphone unit sales forecast for the second half of this year.

It is unclear whether this is a direct consequence of the export restrictions or more of a reflection of lower GDP growth in the region and globally. The compounded effect was a late quarter reduction in RF and flat panel display driver tester sales with some business pivoting to subcontractors in China and other customers pushing out the forecast to later quarters. Mobility was still our largest segment, comprising 29% of system orders. We received and shipped a volume order for thermal handlers testing mobile processors, also third handlers and testers for RF devices. Still in mobility, we recently qualified and sold multiple units of a next generation vision inspection platform featuring extended process integration capabilities that include infrared and microscale defect detection.

Although the automotive semiconductor market remains weak, we continue to benefit from the sale of thermal handlers and testers for the production of power management ICs. While our customers' forecasts are muted in the near term, the fundamentals remain strong for increasing vehicle electrification, growth in automotive ADAS, industrial automation, and moreover, the deployment of five gs communications that will have a significant positive impact on these markets. On this last point, the highlight of the second quarter was the initial shipment of a complete solution for testing next generation RF devices used in a global satellite network. Cohu is delivering the value of cross functional expertise for complex applications that supports customers' needs for rapid volume ramps. We forecast some business in the second half of this year and ramping volume in 2020, not only in satellites, but also at the higher volume units for the ground infrastructure.

Our testers are deployed in volume for four gs RF power amplifiers and being utilized for initial production of five coming out in new mobile products. Customers who require a test solution optimized for high performance RF see the value in Cohu's unique differentiation that enables them to upgrade our large installed base of RF testers to five gs requirements while integrating our high performance contactors to ensure signal fidelity across the device interface. Cohu is well positioned to maintain leadership in RF power amplifier test. We see early production sales this year and expect five gs volume to grow substantially as it transitions from infrastructure build to the production ramp of mobile products starting in the 2020. Our PCB test business continues to see strong demand from customers in China, supporting server, network equipment and telecommunications applications and soft conditions across automotive and industrial customers, mainly in Europe.

We made good progress integrating recently acquired Xcerra, reaching an agreement with the local works council to downsize and consolidate the handler operation with the Cohu business in Germany completing the transfer of our handler manufacturing to our Malaysia factory and on track to finalize the transition of contactors and device kits to our Philippines operation this quarter in all, delivering $17,000,000 of annualized run rate cost synergies in the second quarter and on track to exit this year at approximately $40,000,000 In light of the soft market environment for semiconductor volume manufacturing, we're taking additional actions to reduce expenses and improve profitability, while maintaining critical investments that will drive growth in our test contactor and equipment businesses. With that, I remain optimistic about our future that we're well positioned to capitalize on the five gs opportunity as it transitions from early device characterization and infrastructure build to high volume products. Additionally, we will continue to enjoy strong business in automotive and industrial markets when our customers resume their growth. Now I would like

Speaker 1

to turn it over to Jeff to review our second quarter results and provide third quarter guidance. Okay. Thanks, Luis. I'll start by reviewing our Q2 results, which delivered revenue at the low end of our guidance, but with non GAAP profitability higher than anticipated, supporting the strength of our financial model, including the realization of acquisition related cost synergies. We'll also review our progress in accelerating our planned synergies from the acquisition of Excerra and comment on our business model for 2020 and beyond, which includes estimated non GAAP EPS amounts at different revenue levels.

Finally, I'll provide our third quarter guidance. Please also note that my comments that follow all refer to non GAAP figures. For GAAP to non GAAP reconciliations and disclosures, see the accompanying earnings release and investor presentation. For Q2, the GAAP to non GAAP adjustments include approximately $3,700,000 of stock based compensation expense. GAAP to non GAAP adjustments primarily driven by include $10,000,000 of purchased intangible amortization expense, 1,300,000 of property plant and equipment step up costs and $7,300,000 of restructuring costs.

The Q2 net cash impact of these items is approximately $2,000,000 related primarily to employee severance. Q2 revenue of $150,000,000 was at the low end of our range and impacted by the export restrictions to Huawei on our customers and continued softness in mobility. One customer in data center, cloud and AI accounted for 12% of sales in Q2. No other customer accounted for 10% or more of sales in the quarter. In Q2, we generated gross margin of 41.3%, which is 130 basis points higher than guidance due to a better than expected contribution from recurring revenue.

Operating expenses came in lower than forecast as a result of tight control on labor costs and discretionary spending. During the quarter, we realized approximately $4,300,000 of acquisition cost synergies, which is in line with the forecast. In the second quarter, we generated non GAAP operating income of $8,900,000 or approximately 6% of sales. After interest expense, foreign currency loss of about $500,000 and the tax provision, Cohu had non GAAP EPS of $02 Adjusted EBITDA in the quarter was $11,800,000 or 7.9% of sales. As I stated on a prior earnings call, the effective tax rate is not meaningful at pre tax levels near breakeven.

As a reminder, most of Cohu's operations and related profits are generated and taxed outside of The U. S. Additionally, when The U. S. Operation generates a loss, as it did in Q2, there's no tax benefit to offset the foreign tax expense because of our deferred tax asset valuation allowance.

As a result, in Q2, we recorded tax expense on foreign profits without any benefit from The U. S. Loss, resulting in a high and not meaningful effective tax rate. Now turning to cost synergies and our business model. As announced on our Q1 earnings call, we've taken action that results in pulling forward approximately $20,000,000 of cost synergies into 2019, ahead of the original target of three to five years.

The result is that by the end of this calendar year, we expect to deliver 40,000,000 in annual run rate cost synergies that will favorably impact the business model going into 2020. The annual cost synergy split is approximately $20,000,000 in cost of goods sold and $20,000,000 in operating expense savings. Our business model is inclusive of the impact of the $40,000,000 cost synergies that we expect to achieve when exiting this calendar year and provides anticipated profitability, including estimated non GAAP EPS at various revenue levels. As a point of reference, the pro form a 2018 revenue for Cohu combined with Excerra was approximately $778,000,000 or about $194,000,000 per quarter. The business model shows opportunity for strong profit and cash generation at this level once all synergy savings are in place.

Our long term capital allocation strategy continues to be use excess cash to pay down the debt of $356,000,000 and delever the company subject to business conditions and the cash required to achieve the synergies and support an eventual business ramp. For the balance of 2019, we're projecting cash payments of approximately $13,000,000 in order to achieve the targeted synergies. During Q2, Cohu used approximately $9,500,000 of cash from operations and our cash balance was approximately 144,000,000 at the end of the quarter. Cohu's Board of Directors approved a quarterly cash dividend of $06 per share payable on October 1839 to shareholders of record on August 2339. For third quarter twenty nineteen guidance, we're expecting sales to be approximately $143,000,000 Revenue distribution is expected to be 92% semiconductor test and inspection and eight percent PCB test.

Gross margin is expected to be approximately 41%. Operating expenses are expected to be approximately $51,000,000 Cost synergies of approximately 7,000,000 or about $28,000,000 on an annualized basis are included in the Q3 guidance. We're also taking measures in addition to the acquisition cost synergies to further reduce operating expenses with a forecasted Q3 benefit of approximately $1,000,000 We expect adjusted EBITDA in the third quarter to be approximately 8%. We're projecting the Q3 non GAAP tax provision to be similar in total to Q2 non GAAP amount. For modeling purposes, we expect a normalized effective tax rate of approximately 22% on revenue of $170,000,000 or more and profits in line with the business model.

The diluted share count for Q3 is expected to be approximately 41,700,000 shares. And that concludes our prepared remarks. And now we'll open the call to questions.

Speaker 0

Your first question comes from the line of Brian Chin from Stifel. Your line is now open.

Speaker 3

Hi, good afternoon. Thanks for letting us ask a few questions. Maybe first question just to focus a little bit, hone in on the near term a little bit and your Q3 outlook. You're guiding sales down a little bit sequential. Kind of curious, looking at your order trends by end markets, the system bookings, they were not strong overall in Q2.

But I think the mobility orders maybe were a little bit better than I would have thought, maybe data center and IoT a little bit softer. So just curious, maybe from a market perspective, where are you seeing more weakness quarter to quarter into the third quarter in terms of your revenue outlook?

Speaker 2

Hi, Brian. This is Luis. Just one point here on the slide that talks about Q2 end markets that is system only orders. As we have mentioned in the past, we do have a strong recurring business on data center, cloud and AI. So from a systems perspective, you're right, maybe a little weaker than you would expect, but it is still a strong recurring business for us.

On a quarter to quarter basis, mobility is the one that we expected to have taken off stronger. And for various reasons, I think that we talked here during the call, Huawei in particular, we created sort of a drop quarter on quarter. Automotive continues to be a soft the automotive market continues to be soft and so does the industrial, pretty much also weighing negatively on the third quarter guidance.

Speaker 3

Okay. Thanks for the color, Luis. Maybe perhaps Jeff here, but talking about seasonality and sort of when you expect to be fully in your cost model. This year is more fluid than most probably, but if we think about normal, if you want to call that weaker seasonality, which tends to kind of hit late in the calendar year into early next year, you do have first any way of calibrating what the impact of this could be on your business as we move into the December and March quarters? And secondly, in terms of where you think your EPS and EBITDA breakeven levels from a revenue standpoint might be starting in the March?

Speaker 1

Brian, your last part of that starting in March? Is that what you're asking Yes, for the

Speaker 3

just when you have the full realization of the cost synergies, like at what revenue level do you think you breakeven on an EPS basis and also from an EBITDA basis?

Speaker 1

Right. So let me just I'll just start with that. At breakeven, once all synergies are included in the P and L, we'll be down about $125,000,000 at that revenue level with gross margin in a 42, 43% about 42% range. Now with the other question with regards to seasonality and how that's impacting perhaps Q3 and Q4, I mean, that's tough to say, right? We've given guidance for Q3.

We see it at about $143,000,000 You're right, the Q4 would tend to be a little weaker, Q1 as well until we get past Chinese New Year. So I mean, at this point, we're expecting that to hold as it has in the past.

Speaker 2

Yes, this is a very difficult year to talk about seasonality especially with so much changing on a macro level and impacting the semiconductor supply chain.

Speaker 3

Yes, that's fair. Maybe one last question just to walk this out a little bit further. I was curious, we think about test contactor market as sort of a $650,000,700 million dollars ish market yet growing. Can you remind us how large the RF portion of the market is today? Perhaps how large it could be several years from now, especially as the millimeter wave era is ushered in?

And then maybe, Louise, even if you want to fan out a little bit broader because you did talk about sort of these full test cell solutions. So maybe that's sort of obviously a larger dollar opportunity for you, so if you want to expand upon that more. Thanks.

Speaker 2

Sure. Yes, Brian. So the bundle actually, the RF and the precision analog, which is kind of the high performance signal part of the contactor market, is on or about 90,000,000 to $100,000,000 a year. To broaden up a little bit since you asked, we have had a record quarter for sale of a high performance RF contactor in Q1. I announced that a quarter ago.

And that was mostly for engineering lab characterization on new IC products. Now we have had follow on orders for that in Q2 for initial device production and one more customer that we got designed in for characterization. But all in all, we expect volume sales for RF contactors to really take off with when five gs takes off in mobile devices, which is really not projected until 2020. Now outside of the RF market, we also gained some really good traction with the KETA pins, KETA being the pin business we acquired in Japan beginning of twenty seventeen. So the implementation of Kita pins in our contactors.

And as I mentioned before, we try to track is what's the attachment rate of our contactors and our installed base of handlers. A little bit more difficult now in a down cycle market because obviously there are fewer equipments getting out the door, but we're estimating we're at about a 33% approximately a 33% attachment rate of contactors to our handlers. And with that, the opportunity is to get it up to about 100%, which does create approximately $175,000,000 incremental revenue opportunity that we want to capture over the next five years.

Speaker 3

All right. Thank you.

Speaker 0

Thank you. Next question comes from the line of Tom Diffely from D. A. Davidson. Your line is now open.

Speaker 4

Yes, good afternoon. First question is on the additional cost cutting measures you've taken post last quarter when you announced you're going to pull in all $40,000,000 to this year. Is that just discretionary spending over the next couple of quarters that you've slowed down on? Or are there additions to that $40,000,000 that would entail?

Speaker 1

No, it's aside from the $40,000,000 Tom. It has to do with labor, particularly sort of delaying replacement of particular positions as well as the discretionary spending that you mentioned things like travel and so forth.

Speaker 4

Okay. And so I guess big picture though, you view those more as delayed spending then as opposed to long term spending cuts that would create a new model?

Speaker 1

Yes. At this point, they're not in the model. They're not long term. They are temporary until business conditions improve.

Speaker 4

Okay. That makes sense. All right. And then looking at your two bigger markets, automotive and handsets and mobility, what if

Speaker 3

you look

Speaker 4

at your crystal ball, which of those do you think is poised to recover quicker? Or is there any kind of difference you can point to between the two end markets as far as relative strength?

Speaker 2

Well that's, hi Tom, this is Louise. That's a tough crystal ball question to answer. We both know here that auto is weaker right now and it is our largest business, right? I mean Cohu's exposure to combination of auto and industrial market tended to be the largest segments for Cohu historically, predominantly for handler sales, right? And automotive is down about 30% year over year right now.

And this comes with the decline in vehicle sales at the largest in the larger markets, That would be The U. S, Europe and China. Now in the midst of all of this and as I mentioned in the prepared remarks here, we do see still activity for power management semiconductors that really aligns more so with electrification of vehicles. We also have seen progress on for thermal handlers testing ADAS, Automated Driver Assist processors. And these are processors that dissipate energy during tests.

So overall we're pretty well aligned on the electrification ADAS, but we need volume of automotives growing so that it compounds on top of the greater adoption of semiconductors like I said, electrification and ADAS in particular. On the mobile side, I really think much of the mobile is going to be tied and right now waiting for five gs deployment. Five gs is deploying right now for telecom networks. So it's essentially the starting part of the infrastructure build. Most of the semiconductors in this today are digital with some RF or high end digital, which is not exactly where COHE testers are aligned to.

And then down the road will come the majority of the mobility or smartphones if you will, that's going to drive a large content of RF power amplifiers. We believe that's going to happen starting in the second half of twenty twenty based on all the predictions and forecasts we've seen from our customers. Now naturally there'll be some early volumes ahead of that. But really volume is going to start 2020 and will go on for a few years before it surpasses smartphones with four gs capability. Now you put it all together and we just say which market comes first, I don't know.

I think the five gs has a more well defined path right now than the automotive, but that could change quickly.

Speaker 4

Okay. All right. That makes sense. Maybe switching gears, it's been six months now since the acquisition has been finalized. Just wondering if you've got any success stories on the contactor business you can talk to perhaps seeding for future growth.

Speaker 2

Yes, we have quite a few actually, Tom. We have both a lot of traction getting the KETA pins that I was answering in the prior question, the KETA pins in our contactors. These are in our digital mixed signal contactors that has been gaining quite a bit of volume. We had really a great quarter in Q1 deploying sort of a record quarter for millimeter wave contactor called the X wave for high end RF applications. As I said before, this was early launch of the product, characterization labs.

Now it's going through the work and expecting to see volume towards the end of the year, beginning of next year as five gs starts rolling out. And one of the big highlights of second quarter was winning an application where we are selling the tester, the contactor and then we're able to pull in the handler as well for this satellite network. And right there you can see the tester and the contactor are really sort of the pair that solves the signal fidelity all the way to the device under test. And we're seeing more and more of those cases, with five gs, early stages of five gs right now. Like I said, it's not really volume production, but early stages of five gs, the contactor and the tester are critical to ensuring signal performance.

Speaker 4

Okay. So it sounds like you're still comfortable with the potential growth in contactors over the next few years?

Speaker 3

Yes.

Speaker 4

Okay. And finally, you talked about how Huawei or HiSilicon was less than 2% of your business. But do you have a number for us that describes through your customers as a customer of Huawei, what your indirect exposure is to Huawei silicon, for silicon?

Speaker 2

We have more of the direct exposure than the indirect exposure. So we have less than 2% of our business is direct sales to Huawei or its affiliated companies, right? But as you pointed out, nevertheless, we do have several of our tester customers in the mobility market that supply to Huawei. It's hard to triangulate what the exposure is on the indirect side, right? And this is really impacting not only the RF power amplifier business for us, but also the display driver customers.

Because from one side, you can talk about the export restrictions and the other side, talk about most importantly, I think is the decline in forecast. Huawei's forecasted smartphone sales in the second half of the year. And the net net of this is that we're seeing a push out in both RF and display driver ICs. And frankly, we quantified it to the tune of about $5,000,000 in the second quarter.

Speaker 4

Great. Thanks for your time today.

Speaker 2

Thank you.

Speaker 0

Thank you. Next question comes from the line of Craig Ellis from B. Riley FBR. You may now ask your question.

Speaker 5

Yes, thanks for taking the question. Just to follow-up on a couple items. Louise nice to see some successes with contactor attach and getting KETA pins into Cohu solutions. My question for the opportunity to drive higher attach rates that $175,000,000 opportunity. From what you can see today, how much of that gap do you think you could close in 2020 and 2021?

What's the slope of the trajectory that it looks like we're on here?

Speaker 2

We're looking at a hi Craig. We're looking at a sort of a mid teen growth rate. That's our plan right now, a mid teen growth rate in the contactor business over the next few years.

Speaker 5

And so that includes both your share gain and just the natural sales that would come out of the recurring part of the business?

Speaker 2

That's right. That's right. Okay.

Speaker 5

And then I wanted to go back to one of the wins that you had talked about. You talked about RF tests for global satellite network and it sounded like that was pretty material. Can you scope what the financial opportunity for that win would be for next year?

Speaker 2

Yes. Well first of all we started shipping that in late Q2 so it was not really a Q2 material for that matter. And the expectation is this could generate, call it, in the order of $15,000,000 or so next year.

Speaker 5

I'm sorry, one-five?

Speaker 2

One-five, correct.

Speaker 5

Yes, great. Thank you. And then just a couple more items. We've obviously seen a number of things change geopolitically just within the last week. Just so we all understand how the company is approaching guidance given the abrupt change in tariff tone if you will since late last week, how does the company incorporate that into guidance?

What does that mean for the guidance that we see today for the third quarter?

Speaker 1

Craig, Geoff here. So our visibility isn't fantastic. It doesn't go out more than about three months. And so we base it on we base our forecast as we always do on backlog and what's scheduled to ship. And then in the near term, the orders that we expect to book and bill in the quarter based on immediate feedback from the customer.

And so we do have a lot of noise within the geopolitical landscape as you noted. However, our approach is similar, just try to get as close to the customer as possible, get the best information, most recent information. Customers as you know have shortened lead times. They wait till the last minute to ensure that they have demand for the equipment. So that's how we've approached it.

And certainly the numbers have been impacted from it. 01/1943 is lower than I think any of us would have expected two or three quarters ago. So it's definitely impacted and that's really the process we go through is to stay as close to the customer as possible.

Speaker 5

Thanks for that. And then my last question is a follow-up on something that I think Tom touched on. So in the end market splits the split shows 23% automotive and 29% mobility. There's no question that there's a year on year unit growth headwind in both of those businesses. But underneath that in both cases and I think as you mentioned well Luis there's some technology transitions or secular drivers that are favorable.

The question is in areas like automotive where there's work that has stronger growth in things like ADAS or EV, can you distinguish in your order book when a customer is ordering for that type of application versus more of a legacy application? And if so is it possible to aggregate how significant the businesses are across those two end markets right now are related to secular drivers whether it be five gs or ADAS and ED?

Speaker 2

Yeah, we actually can segregate. We have seen over the last six months when automotive has been weak that the majority, yeah I guess I could say the majority of the orders have been EV related or power management ICs for EV or potentially hybrid, but certainly power management ICs. Not in as much ADAS over the last six months. It's more of a forecast that ADAS is coming up alive in the coming quarters. And so we see a lot of activity both from an evaluation of new devices and our handlers as well as forecasting that are more ADAS related here for like I said for the balance of this year.

So yes we can see them both.

Speaker 5

Okay that's helpful. And then perhaps last for me. You mentioned five gs a number of times. As we look at the early part of this next air interface transition and if we were to compare it to four gs and three gs at Cohu, from what you can see now how significant could five gs be vis a vis those two other air interface transitions that we've been through?

Speaker 2

So let me I'll talk about the five gs but remember the five gs exposure for us come in the form of the Excerra acquisition more so than sort of former Cohu exposure to three gs, four gs, right? I mean five gs today for us is really aligned with testing of RF power amplifiers, which are the Excerra testers. And this is where those products, you know, the Xcerra testers that we acquire are sort of the leader in this approximately $60,000,000 segment of the ATE market, okay? These RF amplifiers are really used in greater quantities in smartphones And to a lesser degree in the network infrastructure, which is where five gs cycle is today, really working on networks, right? So we don't really have testers that are suited for network ICs which require, you know, greater digital, smaller RF test content.

On the other hand, we do have the largest installed base today and we believe the most economical solution for testing focused RF semiconductors that are using these will be deployed in these new five gs phones. So, you know, when these things come out, I mean they're still in low volume. We do know that some of these phones from published teardowns, that they're using devices that have run, or the five gs amplifiers have been tested on our testers. And these initial five gs phones are still sort of in that sub-six gigahertz frequency, with a roadmap of developing millimeter frequencies over the next few quarters, actually coming out soon. Now put it all together, in terms of significance, we do believe that the market size, the $60,000,000 market that we're talking about for RFPAs or F power amplifiers, is bound to grow about 40% to 50% when five gs phones are produced in volume.

Which again won't happen, you know, this year but it should start ramping on the second half of next year and then into 2021 and so on, right? It would take a couple of years for that volume to surpass four gs smartphones out there. But the opportunity is there and I think it's going to drive not only the tester sales but it was

Speaker 4

going to

Speaker 2

drive quite a bit of contactor sales, in this case more of an attachment rate to testers than to handlers per se.

Speaker 5

That's real helpful. Thanks, Luis.

Speaker 0

Thank you. Next question coming from the line of David Gully from Steelhead Securities. Your line is now open.

Speaker 6

Yes. Just one clarification. I think Luis you mentioned the size of the Huawei impact or the estimated size of the

Speaker 4

impact in the quarter just reported.

Speaker 6

Could you repeat that again?

Speaker 2

Hi. Yes, Dave. I mentioned that we triangulated the both the direct and indirect and indirect being harder one to triangulate here. Impact of Huawei on our Q2 sales to been about $5,000,000 So about a $5,000,000 decline than what we would otherwise have expected in Q2.

Speaker 4

Okay. And in your presentation,

Speaker 6

you have all these different revenue levels and the metrics for your business at each different revenue level. And you also mentioned, I think, 2018 quarterly run rate was like $195,000,000 a quarter or so. Is there any reason to think that you can't get back to that level of revenue when the markets recover? Has there been any share losses or anything that might impact the business getting back to those quarterly run rates?

Speaker 2

No, there hasn't been any customer changes over the last six, nine months other than some traction that we gained on the contactor front. As I mentioned, the RF contactor, the XWave, where we had a record quarter in Q1, the integration of KETA pins in our contactors for digital mixed signal applications. But from an equipment side, really hasn't been no change in the market.

Speaker 6

Okay. And I think that there was a couple of programs that you initially expected to be strong in the second half of this calendar year, and I think one or two of them were pushed into next year. Could you just give us an update about those programs and what you expect now?

Speaker 2

Sure. Yes, starting with the positive one actually was the satellite communication business that I just mentioned. That was a program that we've been working on since the acquisition and it's finally starting to bear fruits here, with the initial shipment in late second quarter into third quarter. The other two programs had to do one with five gs RF for five gs, which really got pushed out since the mid May the new export restrictions on Huawei in mid May. That actually changed the dynamics a little bit.

And the third one was penetration in the flat panel display market, which we'll be doing. Actually, this is one that from an execution perspective, we're doing really well, but a decline in forecast for smartphones in the second half of the year is really impacting demand. And as such, the projection that we would see increasing revenues here starting in the third quarter, that also got pushed out.

Speaker 6

And on the flat panel that you're referring to, you've picked up further customers there. They just stopped buying?

Speaker 2

Right. That's right.

Speaker 6

Okay. Thank you. That was all my questions.

Speaker 2

All right. Thanks, David.

Speaker 0

Thank you. I am showing no further questions at this time. I would now like to turn the conference back to our speakers.

Speaker 1

Okay. Thank you for joining us on today's call, we look forward to speaking with you soon.

Speaker 0

Thank you. Ladies and gentlemen, this concludes today's conference. Thank you for your participation and have a wonderful day. You may all disconnect.