Cohu, Inc. ($COHU)

Good day, and thank you for standing by. Welcome to Cohu's First Quarter 2026 Financial Results Conference Call. [Operator Instructions]. Please be advised that today's conference is being recorded. I'd now like to hand the conference over to Jeff Jones, Chief Financial Officer. Please go ahead.

Good afternoon, and welcome to our conference call discussing Cohu's first quarter 2026 financial results and our outlook for the second quarter of 2026. The I'm joined today by Luis Müller, Cohu's President and CEO; and Matt Hutton, Cohu's VP of Strategy and Investor Relations. If you need a copy of our earnings release, it can be found on our website at cohu.com or by contacting Cohu Investor Relations. A slide presentation accompanying today's call is also available in the Investor Relations section of the website. Replays of this call will be accessible via the same page after the conclusion of the call. During this call, we will be making forward-looking statements that reflect management's current expectations concerning Cohu's future business. These statements are based on information available to us at this time, but they are subject to rapid and sometimes abrupt changes. We encourage everyone to review the forward-looking statements section of our slide presentation and the earnings release as well as Cohu's filings with the SEC, including the most recently filed Form 10-K and Form 10-Q. Our comments are current as of today, April 30, 2026, and Cohu does not assume any obligation to update these statements for events occurring after this call. Additionally, we will discuss certain non-GAAP financial measures during this call. Please refer to our earnings release and slide presentation for the reconciliation to the most comparable GAAP measures. Now I'd like to turn the call over to Luis Müller, Cohu's President and CEO. Luis?

Good day, everyone. Thank you for joining our Q1 2026 earnings call. We started the year with strong momentum across multiple product lines with orders up 57% year-over-year, reflecting both improved semiconductor market conditions, and the increasing relevance of our technology portfolio across AI and high-performance compute applications. An important driver of this momentum is the expansion of AI workloads and inference processing, driving greater computing power density that has become a primary bottleneck. AI accelerators and HPC processors generate immense amounts of heat during operation. Testing these chips requires maintaining precise temperature environments to ensure functional accuracy and long-term reliability. A chip is tested at the wrong temperature, its performance metrics may be skewed leading to lower yields or worse latent field failures. As a result, Cohu's proprietary and industry-leading thermal capabilities are highly valued by customers. Based on current engagements and design activity, we now see a computing segment opportunity pipeline of approximately $750 million, including roughly $650 million in test handlers and an additional $100 million from HBM inspection and both growing at rapid rates. For fiscal 2026, we're now increasing our high-performance computing revenue outlook to approximately $80 million to $100 million. We are emboldened by the opportunity pipeline across 12 customers with 5 customers in qualification stage and another 7 in early engagement stage. During the first quarter, we continued to benefit from rising device complexity, higher power density in accelerating AI adoption, trends that are reshaping test, inspection and manufacturing requirements across the semiconductor value chain. In fact, semiconductor value is moving to the mid and the back-end manufacturing, driving substantial growth in the test arena. Estimated semiconductor test sterilization also increased sequentially to 78% at the end of the first quarter. Automotive and industrial markets are gradually improving again as customers started investing in test capital. Many of our customers are broadening their product portfolio to serve AI data centers as these transition to 800-volt DC infrastructure in more power management efficient solutions with gallium nitride technology at Rackscale server boards, such as the new veraruban platform. Across each of these applications, our customers are prioritizing quality performance and scalability. At the same time, software platform gained traction as analytics move from pilot deployments into broader production environments. These wins validate both the technical performance of our solution and the growing appetite for software-enabled yield and productivity investments. There's a significant SAM opportunity for Cohu in this space and a significant lifetime value in software subscription. This is illustrated well in the first quarter. When a $20 million system order came together with $330,000 a year of software subscription which over the course of the lifetime of these systems could yield approximately $5 million in recurring revenue. The financial implication of this shift is twofold. First, Software subscriptions provide high margin, recurring revenue that is less susceptible to CapEx cycles. Second, by improving overall equipment efficiency and reducing mean time to repair for customers, we build deep operational stickiness that makes it difficult for competitors to displace our systems. I would now like to highlight a few customer wins in the first quarter. Starting with our test handler business with orders up 54% year-over-year. We secured 2 major Eclipse orders in the first quarter. The first win supports AI data center applications with a U.S. fabless customer, developing server and inference devices. As power density and mechanical complexity increase. Eclipse combined with our TCR active thermal control, enables the customer to standardize on a common handler platform across multiple device generations. This reduces capital risk while extending the life and value of the installed base. Closed-loop junction temperature control was a key differentiator, ensuring consistent temperature tests, quality, higher yields and faster production ramps. In addition, the customers adopting Cohu's based prescriptive analytics software to improve equipment efficiency, increasing system value, enabling recurring revenue for Cohu and strengthening long-term engagement. Strategically, this win deepens our computing footprint, embeds Eclipse into the customers' road map and positions us as the platform of record, representing an estimated $100 million incremental revenue opportunity at this account over the next 3 years. The second order supports data center computing, mobile and automotive processors and another U.S.-based fabless customer using the Eclipse platform. Our solution allows both the customer and their OSATs to address multiple markets while leveraging T-Core thermal control to maximize yield and asset utilization. Together, these strengthen our engagement across high-performance computing and AI markets. driving near-term system revenue and long-term platform, software and recurring value growth. Our customer engagement for Eclipse expanded in the first quarter with an additional 5 customers in different stages of qualification, representing an incremental $200 million of revenue opportunity starting late this year and into next year. We're very bullish about the customer traction and the growing opportunities to expand our presence in the $750 million high-performance computing market. These opportunities are rapidly taking shape as compute power increases and with the need to actively manage seller conjunction temperature at higher power and power densities. Now turning to our inspection and metrology business, with orders up 64% year-over-year. In HBM memory, we continue to see strong momentum for final inspection of HBM 3 and HBM 4. We're investing in this market in keeping pace with design requirements to support next-generation HBM 5. We're now forecasting revenue growing 80% year-over-year to approximately $20 million with our Neon HBM platform. In the first quarter, we also secured significant volume repeat order for neon inspection system from a U.S. headquarter and also from a Korean customer. Our inspection business is growing fast and we estimate revenue at approximately $70 million this year. Semiconductor Test orders recorded an impressive 163% increase year-over-year, headlines around AI infrastructure typically focus on the massive compute devices required to train and run large language models, along with the memory and networking technologies that enable scale across the data center. Less visible but equally critical, is power delivery. Every AI system depends on precise, efficient power measurement to sustain peak performance. This is where the Diamondx precision instrumentation becomes decisive. Our tester was qualified for testing power devices strategically expanding our footprint in AI-related applications and embedding it more deeply into our customers' road map. Power density increases customers implementing GaN-based technology to minimize energy loss and thermo impact. While GaN offers a clean efficiency advantage, it remains less mature than traditional CMOS creating technical and economic challenges as customers scale production to meet data center demand. Moving to our Interface Solutions Group. We've seen increased adoption of higher current contactors for AI power applications at existing customers. We also expanded our product offering and received multiunit order for a new silicon photonics solution. These photonic switches form the backbone of cloud and AI Ethernet fabric and we're now testing them. In closing, Q1 was a strong start for the year and a clear validation of our strategy. We see momentum rapidly build across AI infrastructure, high-performance compute, power management and smart manufacturing, driven by rising device complexity and increasing power density. Our expanding presence in thermal handling, advanced inspection, precision test and high-value software is translating into larger platform wins, recurring revenue opportunities and deeper customer engagement. With a $750 million computing segment opportunity in front of us, and improving utilization across our core markets, we are accelerating R&D investments to capture new customers, and we are expanding production capacity to move confidently through the remainder of this year and into 2027. These secular tailwinds, combined with disciplined execution and continued investment in innovation position Cohu to deliver durable value for our customers and shareholders. Thank you for your continued support. I'll now turn the call over to Jeff for a deeper review of our financial results and forward-looking guidance. Jeff?

Thank you, Luis. Before reviewing the first quarter results and providing second quarter guidance, please note that my comments refer to non-GAAP figures, details about non-GAAP financial measures, including GAAP to non-GAAP reconciliations and other disclosures are included in the earnings release and investor presentation on our website. For Q1 2026 revenue exceeded midpoint of guidance at $125.1 million. Recurring revenue driven primarily by consumables and typically more stable than systems revenue represented 60% of total revenue. No customer accounted for more than 10% of total sales during the quarter. Gross margin was 46.5%, above guidance, primarily reflecting a more favorable mix as recurring revenue exceeded our forecast. Operating expenses were higher than guidance at $55 million reflecting our decision to scale resources to support the rapid increase in high-performance compute opportunities. This included accelerated spending on design materials as well as incremental engineering and field support to fulfill production orders and complete new opportunity qualifications. Net interest income after interest expense and a small foreign currency loss was approximately $2.1 million. The Q1 tax provision was lower than guidance at $4.8 million. Now moving to the balance sheet. Cash and investments increased approximately $5 million during Q1 to $489 million and cash from operations was $10 million. No stock repurchases were completed during the quarter. Total debt is $305 million and includes $288 million from the Q4 2025 convertible debt offering. Capital expenditures were approximately $2 million, mainly for facility improvements and IT equipment. We're targeting total capital expenditures to be about 2% of revenue in 2026. Looking ahead, we expect Q2 revenue to increase 15% sequentially and 34% year-over-year to approximately $144 million, plus or minus $7 million. The increase is driven by demand tied to the ramp in high-performance compute opportunities and continued recovery in automotive and industrial segments. We're increasing our full year 2026 revenue outlook for growth over last year of 20% to 25%. Q2 gross margin is projected to be approximately 44% for the full year 2026, we project gross margin in the mid-40% range as we ramp our supply chain and production capacity to support the rapid business expansion, in high-performance computing customers. Operating expenses are expected to be lower than Q1 at about $53 million. We intend to continue investing in resources to capitalize on the growing list of HPC opportunities, and we expect quarterly operating expenses through the balance of the year to remain in the low $50 million range, consistent with our Q2 guidance. Net interest income in Q2 after interest expense and foreign currency impacts is projected to be approximately $2 million at current interest rates. The Q2 tax provision is expected to be about $5.3 million and diluted shares are projected to be approximately $52.6 million, including 4.2 million shares attributable to the convertible debt. And of that amount, 3.3 million shares will be fully offset by the capped call, but are required for U.S. GAAP diluted EPS calculations. In summary, our operational focus for 2026 is to support R&D investments and production ramp needed to secure multiple design wins in the compute market, including AI data center infrastructure, HBM memory and physical AI applications while progressively increasing free cash flow generation. That concludes our prepared remarks. And now we'll open the call to questions.

[Operator Instructions]. Our first question comes from Brian Chin with Stifel.

Let me ask a few questions. So a lot here, but in a good way. Maybe firstly, breaking down the guidance for 2Q, 15% Q-on-Q growth. Can you maybe give us a sense how much of that is the ramping new HPC customer business versus maybe ramp in the broader base business, if that makes sense? And also tied to that, of the maybe $100 million if you were to sign up no more new customers through the end of the year, that $100 million, how much of that still remains to be revenue through the second half?

Yes. So at least on your first point here, Brian, the quarter-over-quarter increase in HPC systems revenue, was about $10 million. So it's just under half of our increase quarter-over-quarter. And that puts us then for HPC least systems revenue in the first half of 2026 at roughly about $30 million.

I think that pretty much answers the second part of the question of what's left for the second half right then.

I can do that math. Okay. That's helpful. And in terms of the -- how are you thinking about -- and this maybe could mature over time or on higher volume, but how should we think about the system margin contribution gross margin relative to the overall blended average company?

Yes. What we saw in Q1 was a gross margin split of roughly on recurring roughly 40% on systems. So I think we're going to hold that for the balance of the year. The systems revenue percentage will increase systems revenue is going to increase faster than the recurring. And so that is why we see the 46.5% gross margin in Q2 hitting a little bit of a headwind in the second half. And so we think we're going to end the year somewhere in the mid-40% gross margin.

Okay. Great. And then maybe one other question. You talked about sort of this pipeline where you have 3 customers, was that $100 million kind of the aggregation of this year? Or is that over a multiyear horizon?

No, the qualified $100 million is sort of this year's spend from these customers. Now we're like I said, we're probably going to be getting a portion of that this year, not the entirety of it to see.

Annualized sort of potential.

Yes, yes.

With the other 5 customers are they kind of equal size within that $150 million to $200 million? Or how would you sort of gauge which ones are like further along or less far along in terms of ones that could be contributors even to the back end of this year?

Yes. They're not all equal sized, Brian. I mean we got kind of a $10 million to $40 million spread depending on the customer here on an annual basis the way we see it. We expect to be getting some qualifications completed by early Q3. The question is do we then have an opportunity to get orders and participate on demand still in 2026? Does our lead times support that as well. or not. And so it's hard to call right now if it's going to end up hitting revenue in Q4, plus obviously, revenue recognition as well. You got to account for accounting rules or if this is going to end up spilling more like early 2027 at this point?

Great. Great. And then maybe a good problem to have here. But in terms of where lead times for sort of the thermal test handler, TCOR, Eclipse are where do you think you can kind of keep them this year, not maybe also, like you said, inform what the revenue could be this year versus what may have to be captured next year?

So we are operating at about 14 weeks, I should say, cycle time instead of saying lead time on handlers, right now on our thermal handlers. I think a bit of the challenge is if you get a $30 million order, not all of it's going to ship in 14 weeks, as you can imagine, it's spread over several weeks, several months. And as we start layering additional customers, we are working hard here to open that manufacturing pipeline. Both from a supply chain side, meeting regularly now with suppliers and understanding who are the choke points, particularly for our thermal heads as well as internally, we are hiring resources in Malaysia. We're looking at relay out of the facility in Malaysia to open up more floor space. So I can tell you 14-week cycle time, but lead time really largely depends on the size of the backlog we have in front of it.

Our next question comes from David Duley with Steelhead Securities.

Congratulation on nice -- particularly the outlook. I was wondering, as far as your core business goes, all of your customers on the conference calls are really talking about how their AI data center business are ramping at very rapid growth rate, 50% to 100%. And I get the sense that, that kind of fills all the excess capacity that might have been pointed from those customers at other end markets. And so I guess -- are you hearing that from your customers that essentially that their AI businesses have kind of filled up their utilization rates and they're coming in for more larger volume purchase orders going forward?

What I'm seeing more, Dave, is actually a bit of a pivot towards CPU, large CPU demand ASIC, accelerators. We're seeing also network processing demand. Up until recently, a lot of it seems to be very focused on a singular -- or largely a singular customer driving a lot of GPU capacity in the industry as of maybe a quarter ago, a little bit more than a quarter ago, that seems to be spreading out more broadly here. As inference starting to pick up and sort of the realization, we need more computing power going along with the GPU power that's being deployed. That's more of what I'm seeing. It's sort of that spread out of demand for different types of processors and network processes inclusive.

Okay. That kind of proceed to my next question is, I think you used the term XPU but particularly CPUs, GPUs, XPUs, TPUs whatever you want to call them right, of all sorts all have high voltages, create a lot of heat. So all of these in-market customers that you hear about from the custom ASIC guys to the GPU guys to the CPU guys, all of them need some sort of temperature-controlled handling equipment for their processors, correct?

That is correct.

And is that the market that you're referring to when you talk about the $750 million TAM, is that kind of aggregating what most of these customers thermally controlled temperature handler demand is? Or how do you come up with that $750 million?

Yes. And by the way, we're not calling it necessarily a TAM. We're calling it more like a SAM to be fair, because we have a pretty defined list of customer and customer device classes that we're telling up to $750 million. I think if we were to talk about a TAM, it's likely a bigger number, and we're not attempting to gas that, so we're not going there. We're being very targeted here to the list of the list of 15 customers that we have tallied and customer applications that we have tallied up, that comes up to the $750 million. That's what it is. It's a very targeted list. We know what these customers have for buying pattern this year. And that's how we come up with that number. We also understand that some of these customers are ramping. So I guess the expectation is that SAM itself could be bigger next year. But like I said, we're not trying to guess the TAM, the total available market. We're just guessing here from customer information, what we see for their spending this year.

Okay. And then final question for me is, could you just elaborate a little bit more on the silicon photonics and what exactly the application is you addressed there? And how big a piece of business that could be, let's say, next year, I realize because we're just starting off now. But maybe just elaborate a little bit more on what you're seeing there.

Sure. That is really, I would call a beachhead business at this point. We sold a number of interface, we call it contactors, right? interface products here. for silicon phoponic application at one of the large accounts. There's really 2 major drivers in the industry, I think, today and a few others. But these are interface products. So you're talking about sort of $10,000 or so contactors that we sold several off. We are working to provide solutions that include our handler with the contractors. But I'm not going to venture to guess what kind of revenue opportunity for 2027 that is at this point. It's not included not really included in our $750 million at the moment.

Okay. But the point is, you kind of got your foot in the door with the test contactors and hopefully, you can sell them a piece of capital equipment as well because -- that is going to be a big market.

That is correct.

Our next question comes from Craig Ellis with B. Riley Securities.

Yes. Congratulations on the revenue performance in the quarter and the outlook, guys. Luis, I wanted to start off just by understanding the specific drivers to the increase in HPC system revenues this year, it looks like about a $20 million increase at the midpoint of the prior to the new expected range. Can you just detail what's going on inside of that?

Yes. Yes. Thanks, Greg. Thanks for the question. We -- I think we finished the -- we're very successful on the qualification of the Eclipse at 1 particular account that sort of looked like, okay, we could capture a bigger share of the revenue in 2026. So we qualified, I guess, in time to catch the next round of orders and that just increased the size of the pipeline for this year. That's just simply that.

Okay. And then nice to see orders up 62% quarter-on-quarter. Can you help us with some color on where you're seeing that strength? Is there a performance towards OSAT versus IDM? And do you expect to ship all those systems this year? And any color on linearity would be helpful.

Yes. When we look at orders here, it's actually roughly depending on the market segment you pick, it's about 30%, 40% increase year-over-year. There's 1 segment in particular that is driving -- not surprising given what we're talking about here, it's computing that it's up about 211% year-over-year. That's pretty much what's driving the business. Now I do have to say, the industrial segment is picking up a bit as well. That is also strong, came out pretty decently strong in the first quarter.

Okay. And regarding shipment timing for all those orders?

We see a ramp in Q3. And of course, some of that will fall into Q4 as well.

Got it. And then just going back to the point that the company is making on Page 7 of the deck, where we've got expanded AI computing pipeline with almost $0.5 billion in engagement and then $150 million to $200 million in qualification. Can you provide any color of how quickly we can move some of that engagement activity into qualification. And then through qualification, how much of that is really something that can convert in 2026 versus what you might have your eye on for 2027 guide.

I think at this point, Craig, it would be safe to say that we're working to complete the qualification of the about $200 million opportunity in 2026. As I mentioned earlier on a previous question, we'll see if we can get some of that revenue also in 2026, but largely 2027. On the balance here, the remaining $450 million, $500 million those engagements are likely to move into qual later this year, beginning of '27. I don't expect it should be any sooner than that.

Okay. So a way we could look at it would be you have an opportunity to convert a significant amount this year, but the larger percentage would be something that you could convert next year. Is that right, Louis?

That is right. That is right. And our qualification of these things take a good 6 months time frame and then from their production ramp. I do have to point out a little bit of a -- a little bit here, too. Largely, the recurring portion of this is going to come out about a year after shipping systems, right? So you got to remember, our systems ship of about a year's worth warranty once that expires, you start getting the spares, the service. These devices typically have 18 months lifetime anyways thereafter you start getting new kit orders, you start getting potentially new Thermo had orders for upgrades. It's high-performance computing. So those Thermo heads are very specific to the application. Maybe you can use it across 2 generations, but the thermal heads themselves eventually need to replace. So within a 12-month time frame, we should start seeing the recurring revenue kicking in. And the recurring revenue, maybe it wasn't really clear on the slide here is included on that $500 million bucket as well.

Okay. So you've got a nice one, too, but with the second punch included in the chart.

Yes.

Our next question comes from Robert Mertens with TD Cowen.

This is Rob Mertens on for Chris Sankar. So I believe last quarter, you had highlighted a Crypton inspection metrology system order for an automotive customer had transitioned into -- you've seen some positive benefit in your inspection software subscription. And then also mentioning all the additional software opportunities during this March quarter. I'm just trying to wrap my head around how we should think about the potential software opportunities throughout your business, if there's a specific platform or area that the software opportunity might be higher?

Yes. Sure, Rob. The softer right now is very much going kind of hand-in-hand with our sort of test handlers and inspection systems. So basically, the automation pieces, okay? We have an element of software we call pace inspection goes in with the inspection platforms. It helps optimize yield of the inspection systems. And then we got a PACE prescriptive that goes along with both test handlers as well as inspection metrology systems that help optimize overall equipment efficiency, optimize maintenance, predictability and output of the factory. So if you think about that software base, we are now currently at an ARR, annual recurring revenue here of about $1.2 million. So this is what we have or bookings for annual subscription and software. The attachment rate of that subscription, it's still pretty low. It's really about 1.3% of our systems have a software subscription attached to it. So a little number, so plenty of room to grow. But as I pointed out here in the script, the value of that software is pretty big because if you get it in, like we got here in the example given $20 million system order softer annual subscription through the lifetime of that product that's about a $5 million of recurring revenue we're going to collect through the lifetime of the product at a pretty high margin, right? So it's still a small piece of the business. It is a growing piece of the business. It's growing fast. I think we're expecting it to be close to $3 million in revenue this year. That's more than 200% growth year-over-year. but it does carry out a really nice lifetime value recurring component that adds to our overall recurring business.

Got it. That's very helpful. And then just -- you mentioned some incremental strength in the orders from automotive and industrial markets this quarter. I'm just trying to wonder how you expect that business, the auto handler business to pick up in the back half of the year? And then maybe if I can squeeze one last one in, if there's any typical seasonality in the RF test business?

So on the first portion, I think if I refer to how Jeff answered the question of what's driving the incremental quarter-over-quarter here in Q2, about half of our increase in revenue is driven by noncompute markets, right? And that is fundamentally industrial and to a small degree, auto. But fundamentally industrial, we're seeing that pickup right now. Another interesting data point here. The industrial utilization test sterilization at the end of Q1 was 79%. So it's right there that capacity by threshold of 80%. Industrial is doing well. It had a good increase in orders quarter-over-quarter and about half of the revenue growth quarter-over-quarter going into Q2. On the RF side, to your question, we're also seeing a bit of a pickup on RF tester orders, sales in the second quarter. There is typically a seasonality. That seasonality tends to be late year like Q4 to early Q1 when RF picks up. It's a little late here. We're going to Q2 and seeing a bit of a pickup in RF. I can't completely explain that to you, why? And then obviously, there are technology transition points that are major drivers in RF with one coming up in the next 18 months or so associated with FR3 or what's commonly known as 6G.

Our next question comes from Christian Schwab with Craig-Hallum.

Great. Thanks for all the guidance and congratulations on giving multi-quarter guidance again. My other question has to do with M&A. Previously, we've talked about acquisitions particular possibly in recurring revenue streams that you were looking at and targeting. Can you give us an update on your thoughts on M&A currently?

Chris, it's Matt here. SP26859281 Yes. So I mean, we continue to look at opportunities, as you can imagine from what Luis and Jeff highlighted mostly opportunities in the reoccurring space are growth areas. We'll continue to be disciplined, look at buy versus build analysis and look for opportunities Unfortunately, a lot of the tailwinds that some of these companies are receiving that we're receiving, they're also receiving. So lot of valuations remain elevated, but we'll continue to be disciplined and look at opportunities in our growth areas.

Great. And then, Luis, given -- I know we're moving now a multi-quarter guidance here for '26. But given all the positive dynamics as well as future orders transition to revenue in '27 and in 26%. Should we assume if all things remain consistent that you'll grow in '27 your top line same rate that you expect to grow in '26?

We certainly expect growth in '27. I mean, we have that in qualification bucket there of $150 million to $200 million that will add to 2027. Also pretty encouraged with overall test utilization getting very close to that 80% mark. So all things being equal, yes, growth in '27. At what rate, we haven't tried to pencil that in yet. So we're going to reserve another quarter or 2 before we talk about that.

Our next question comes from Denis Pyatchanin with Needham.

Great. So prior to your HPC forecast was about $25 million to $30 million for this year and now you've moved it up to about $100 million. And I think in your presentation that said that about $30 million of the $100 million or so would be equipped. So can you tell us about the remaining like $50 million to $70 million, is that mostly testers? Is that other handlers? Can you kind of break down that remainder, please?

Yes. Let's back up a little bit. So initially, we came out we said HPC revenue in the $60 million to $85 million range for 2026. What we're doing now is increasing that $60 million to $85 million, we're increasing that to $80 million to $100 million. Most of that relates to the Eclipse handler, the Neon for AM inspection we previously said was 15 to 20. I think we're at the higher end now of that range. And we are -- as Luis had mentioned, we in qualifications or finish qualifications for our testers also participating in some HPC revenue. Does that help clarify, Denis?

Yes. Yes, yes. And then so I think -- so you also said that you're now kind of connecting 2026 total revenue to be up 20% to 25%. So I mean if I kind of just run rate you at $144-ish million basically for the rest of the year, you basically get to that number. So we're basically assuming revenue will be going flat from $144 million through the rest of the year will be -- will there be a little bit of a dip in Q3? Is there anything more you can say about kind of the cadence of revenue?

Yes. The way we see it now, Denis, we would expect Q3 to be pretty similar to Q2, somewhere in that $144 million, $145 million range. Q4, we could have some seasonality. So a slightly weaker Q4, maybe down single mid single digit quarter-over-quarter.

Great. That's helpful. And then lastly, maybe I think you had mentioned some further engagements with the U.S. and Korean customers. Can you tell us more about that, please?

Yes. We were talking about inspection and metrology business here. We saw a big increase in orders in inspection metrology in the first quarter. In fact, -- let's see here. I think it's up year-over-year, 64%. We are expecting that business to hit about $70 million in revenue this year. And what's driving that? One is HBM, which we're now guiding to about $20 million in the year. And the other one is just further demand for our inspection products from both a U.S. and a Korean customer with large orders in the Q1 time.

Our next question comes from Vedvati Shrotre with Evercore ISI.

So I kind of wanted to double click a little bit on the gross margin piece. So you have good ramps on the HPC front in the second half. So like with the systems gross margins, like wouldn't they sort of pick up in second half versus first half?

Yes. I think that's a good observation, V. However, we are having -- we are incurring some higher initial costs here to ramp the Eclipse supply chain and production. It's coming out very quickly. It's a new configuration. And so we're having to pull more money, more cost, again, on supply chain and production I expect those costs to carry through almost probably through this year. So 2027.

We'll see lower costs, particularly for Eclipse. On top of that, I think similar or line with other companies, right? There's a small impact from higher energy and freight costs, something to the tune of about 10 basis points. On top of that, we are also seeing higher cost of memory ICs that we use on our products. It's not a large, huge number, but it's about 10 basis points.

Understand. And are those the drivers for the dip into Q1 gross margins? Is that like the 200 bps of decline that you have, can you maybe characterize what's cost driven, what's kind of mix driven?

Well, yes, it's kind of a combination here. It is definitely cost driven, as I mentioned, for the Eclipse platform in terms of supply chain and production. And then to a certain extent, that also relates to mix, right? But I'd say, cost versus mix second.

Understood. Okay. And then in terms of R&D spend, like how should we think about R&D intensity for the rest of the year? Like I would assume like as you're going after these bigger markets [ 750 million ] SAM opportunities. Essentially, what's the right way to think about R&D intensity? I assume it will be higher, but made some color there.

Yes, you bet. So I'm forecasting Q2 will be lower than Q1, but we're going to still be elevated from the model. So we're going to be about $53 million for Q2 operating expense, and that's because we are going to continue to invest in the -- to capitalize on these opportunities that we have in HPC. So I expect that sort of 53 or call it, low $50 million range to persist through the second half of this year.

For OpEx.

For OpEx, yes.

Okay. And then the last one, on the qualifications you have on the pipeline, $150 million to $200 million, how is that split or maybe the 5 customers? Like how does that split Neon versus Eclipse opportunity?

These are all Eclipse. These are all eclipse thermal, thermal handler application to some form or another of a processor device.

Understood. Yes, that's all the questions I had in.

That concludes today's question-and-answer session. I'd like to turn the call back to Jeff Jones for closing remarks.

Thank you very much. And before we sign off, I'd like to note that we'll be attending the following investor conferences during Q2, and those conferences are the TD Cowen Conference on mid-27 in New York City. Craig-Hallum Conference on May 28 in Minneapolis, the Stifel Conference on June 2 in Boston and the Evercore Conference on June 3 in San Francisco. And if any of you plan on attending these conferences. Please reach out to your conference contacts or let us know and we'll arrange for a one-on-one meeting. So thank you for joining today's call. We look forward to speaking with you again very soon.

This concludes today's conference call. Thank you for participating. You may now disconnect.