Cohu Inc
NASDAQ:COHU
| US |
|
Fubotv Inc
NYSE:FUBO
|
Media
|
| US |
|
Bank of America Corp
NYSE:BAC
|
Banking
|
| US |
|
Palantir Technologies Inc
NYSE:PLTR
|
Technology
|
| US |
C
|
C3.ai Inc
NYSE:AI
|
Technology
|
| US |
|
Uber Technologies Inc
NYSE:UBER
|
Road & Rail
|
| CN |
|
NIO Inc
NYSE:NIO
|
Automobiles
|
| US |
|
Fluor Corp
NYSE:FLR
|
Construction
|
| US |
|
Jacobs Engineering Group Inc
NYSE:J
|
Professional Services
|
| US |
|
TopBuild Corp
NYSE:BLD
|
Consumer products
|
| US |
|
Abbott Laboratories
NYSE:ABT
|
Health Care
|
| US |
|
Chevron Corp
NYSE:CVX
|
Energy
|
| US |
|
Occidental Petroleum Corp
NYSE:OXY
|
Energy
|
| US |
|
Matrix Service Co
NASDAQ:MTRX
|
Construction
|
| US |
|
Automatic Data Processing Inc
NASDAQ:ADP
|
Technology
|
| US |
|
Qualcomm Inc
NASDAQ:QCOM
|
Semiconductors
|
| US |
|
Ambarella Inc
NASDAQ:AMBA
|
Semiconductors
|
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
23.19
36.38
|
| Price Target |
|
We'll email you a reminder when the closing price reaches USD.
Choose the stock you wish to monitor with a price alert.
|
|
Fubotv Inc
NYSE:FUBO
|
US |
|
|
Bank of America Corp
NYSE:BAC
|
US |
|
|
Palantir Technologies Inc
NYSE:PLTR
|
US |
|
C
|
C3.ai Inc
NYSE:AI
|
US |
|
|
Uber Technologies Inc
NYSE:UBER
|
US |
|
|
NIO Inc
NYSE:NIO
|
CN |
|
|
Fluor Corp
NYSE:FLR
|
US |
|
|
Jacobs Engineering Group Inc
NYSE:J
|
US |
|
|
TopBuild Corp
NYSE:BLD
|
US |
|
|
Abbott Laboratories
NYSE:ABT
|
US |
|
|
Chevron Corp
NYSE:CVX
|
US |
|
|
Occidental Petroleum Corp
NYSE:OXY
|
US |
|
|
Matrix Service Co
NASDAQ:MTRX
|
US |
|
|
Automatic Data Processing Inc
NASDAQ:ADP
|
US |
|
|
Qualcomm Inc
NASDAQ:QCOM
|
US |
|
|
Ambarella Inc
NASDAQ:AMBA
|
US |
This alert will be permanently deleted.
Cohu Inc
You don't have any saved screeners yet
Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Cohu Incorporated Fourth Quarter 2018 Financial Results Conference. At this time all participants are in a listen-only mode. [Operator Instructions] Later, we will have a question-and-answer session.
And as a reminder, this conference is being recorded.
Now, it's my pleasure to turn the call to Rich Yerganian, Vice President of IR.
Thank you, Carmen. Good afternoon, and welcome to our conference call to discuss Cohu's fourth quarter and fiscal year 2018 results and first quarter outlook for 2019. I'm joined today by our President and CEO, Luis Müller; and our Vice President of Finance and CFO, Jeff Jones.
If you need a copy of our earnings release, you may access it from our website at www.cohu.com or by contacting Cohu Investor Relations. There is also a slide presentation accompanying 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.
Now to the Safe Harbor. During the course of this conference call, we will make 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. 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-K, Form 10-Q and registration statement on Form S-4.
Our comments speak only as of today, March 12, 2019, and Cohu assumes no obligation to update these statements as a result of developments occurring after this call.
Finally, during the call today, we will also 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 Müller, Cohu's President and CEO. Luis?
Thanks Rich. Good afternoon and thanks for joining us. On today's call, I'll provide commentary on the fourth quarter and fiscal year 2018 results. I'll also discuss the current business environment, provide an update on the integration of Xcerra and share our thoughts on the industry prospects for 2019.
Cohu's fourth quarter sales of 170.6 million were within guidance for the first reported period reflecting the combination of Cohu and Xcerra, following the close of the acquisition on October 1, 2018. Non-GAAP earnings per share of $0.24 was better than expected and reflects the strength in the business model, although the mobility market has weakened since early last fall, there was one positive exception in the fourth quarter as our customer drove volume demand for our testers, handlers and contactors to support production plans for our new device launch in 2019. Holding up relatively well were the automotive and data center, cloud and AI semiconductor markets.
We had a particularly strong quarter for analog IC test with customers driving demand for our testers, gravity handlers and power analog contactors. While not all customers serve in this market continued to see a strong demand into the New Year, several are maintaining a bullish outlook. We also had several design wins in the quarter. Our tri-temperature, pick-and-place handlers were qualified at three new customers and we capture a new win in the European automotive semiconductor market with our turret inspection platform. We continue to see demand for our testers used in engineering for 5G applications, which are expected to ramp in higher-volume later this year. We also had multiple design wins with the xWave contactor at a leading mobility customer testing 5G antenna modules, power amplifiers and transceivers.
Several early adopters of this contactor have begun ramping volume manufacturing for automotive radar applications. Despite weaker market conditions, Cohu has still delivered growth year-over-year including the contribution from Xcerra annual sales reached 451.8 million and non-GAAP earnings per share of $1.49. We are not immune to the same market weakness affecting many semiconductor and semiconductor equipment companies. This includes the impact of continued softness in the mobility and IoT markets that started last fall and persist into the beginning of this year, uncertainty around the U.S. and China trade disputes, slower global GDP growth, and consequently demand from customers particularly in China.
Today even automotive and industrial markets are feeling the impact from soft demand for semiconductors. What is difficult to pinpoint is the exact contribution of each of these various factors are having on the industry and how long they will persist including any seasonal influences. Aside from continued strength in cloud, AI and data center related businesses we are only now emerging from what is typically the seasonally weak period for the industry. At this point, we have not seen any significant change in tone or sentiment from our customers. There are some bright spots, but overall customers see market weakness continuing into Q2 while expecting a return to growth as we approach the middle of the year resulting in a stronger second half. This year is consistent with several customer specific projects we have been working on, that are expected to ramp in high volume later this year.
Our latest data points from the December survey showed equipment utilization at approximately 81%, which is down 3 points quarter-over-quarter. This is consistent with what we could expect given the current market conditions. As for the integration of Xcerra, we announced the plan in late November to rationalize our global handler and contactor manufacturing operations, resulting in the closing our facilities in Penang, Malaysia and Fontana, California by the end of this year. These facility closings are expected to eliminate about 280 positions and reduced cost by approximately 8 million annual run rate by the end of 2019. We have also communicated to customers, plans to consolidate certain handler product lines that are expected to lead to additional reductions in operating expenses and improvements to gross margin in the second half of 2019.
More recently, we have agreed to an early termination with our distributor for Xcerra products in China and Taiwan, effectively going direct in these regions starting tomorrow March 13th, instead of the previously announced date in September 2019. This is expected to help accelerate profitability of business generating these regions and increases ability into new business opportunities. You may recall we committed to $20 million of annual run rate cost synergies within the first two years of the acquisition and these actions put us about a year ahead of schedule.
Turning to 2019, we forecast the non-memory market for semiconductor test and inspection to contract approximately 10% to 15% year-over-year. We estimate that non-memory handler market our largest segment to be about 600 million to 650 million in 2019 and the SoC tester market likely to be in the range of 2.1 billion to 2.3 billion. We also expect the inspection market to decline approximately 10% and model the contactor in PCB test markets to be about flat year-over-year with 5G infrastructure and other millimeter wave applications offsetting some decline in traditional product segments. All of these estimates assume our customers' expectations of a midyear recovery take shape.
Our work on 5G solutions is starting to turning to meaningful business. Our PCB test is leading the way with new high accuracy methods to test the quality of back-drills, a critical concern for high-frequency signal transmission. Our millimeter wave contactors continue to win new opportunities while existing customers are starting to ramp in volume production. There is optimism that investments in 5G related infrastructure will accelerate into the second half of the year, and if so that should also translate into initial volume orders for testers and handlers. Overall, we expect the semiconductor market will continue to grow over the midterm, not only due to 5G but also from the continued expansion of semiconductor content in automobiles and industrial equipment, the proliferation of sensors in IoT and IoV applications, the adoption of industry 4.0 and the general growth in data creation, storage and processing.
Now, I would like to turn it over to Jeff to review our fourth quarter results and provide first quarter guidance.
Okay, thanks, Luis. Let me begin by reviewing Cohu's fourth quarter financial results, which demonstrates the strength of our business model as we generated non-GAAP operating margin of 11.3 million and adjusted EBITDA margin of 13.7 million on sales of 170.6 million. Cohu delivered approximately 2 million of cash from operations during the fourth quarter. Our cash balance decreased sequentially by 6 million to approximately 165 million at the end of the quarter due primarily of cash expenses related to the synergy savings.
For Q4, the GAAP to non-GAAP adjustments include approximately 4.6 million of stock-based compensation expense, 900,000 due to the reduction of indemnification receivable in connection with the Ismeca acquisition in 2013. GAAP to non-GAAP adjustments primarily driven by the Xcerra acquisition include 14.1 million of purchased intangible amortization expense, 16 million of inventory and property, plant and equipment step-up costs, 38.2 million of restructuring costs related to product and the life inventory, and employee severance charges and approximately 4.6 million of acquisition cost.
For Q4 2018, the net cash impact of these items is approximately 8 million related to employee severance and 4.6 million for acquisition cost. My comments that follow, including our Q1 2019 guidance are all based on Cohu's non-GAAP results, which exclude the impact of these items. For fiscal year 2018, the Company achieved record sales of 451.8 million, including one quarter of Xcerra sales. For the full fiscal year, we generated non-GAAP operating margin of 14.1% and adjusted EBITDA margins of 16.5%. Cohu delivered approximately 34 million of cash from operations during the year and our cash balance increased 9.4 million.
As I mentioned, sales for the quarter were 170.6 million. No one customer accounted for 10% or more of sales in the quarter or for the full year 2018. Q4 gross margin was 44.5% and higher than our guidance of 43% due primarily to favorable product mix. Operating expenses for the fourth quarter of 2018 were 56.6 million, approximately 2 million lower than guidance due to lower labor costs in response to soft business conditions. Our non-GAAP effective tax rate for Q4 was 33%, including a 1.5 million accrual for withholding taxes related to anticipated future cash repatriation.
From the synergy perspective, the integration of Xcerra is happening on an accelerated pace. We expect to achieve our target of 20 million in annual run rate cost synergies within the first year, essentially 12 months ahead of schedule. The 20 million in total reflects approximately 6 million from cost of goods sold and approximately 14 million in operating expense savings. The main factor in accelerating the timing of the synergies was the factory consolidation within our handler and interface product operations. Another factor is the earlier than initially anticipated termination of the third-party distribution agreement for Taiwan and China.
Our midterm target within the next three to five years is to double the initial first year synergies by another 20 million for a total of 40 million through additional facility consolidations and manufacturing optimization. Revenue from our recurring business, which includes sales of our test contactors as well as equipment service and spares, represented 46% of total revenue for the fourth quarter. The recurring revenue was composed of three main sources interface products, which is mainly test contactors in pins, service revenue for installed base of capital equipment, and spares that also support the installed base.
Over the next few years, we expect the test contactor portion of the recurring revenue stream to grow significantly through cross-selling efforts and the adoption of our market-leading millimeter wave test contactor for 5G and automotive radar applications. Contactor sales were approximately 31 million in Q4, which represents an annual sales rate of approximately 125 million. Based on our handler market position and our current attach rate for contactor sales, we believe we have an opportunity to grow this business to near 300 million over the next three to five years.
Now turning to Cohu's balance sheet, as of December 29, 2018, the overall increase in the assets and liabilities, compared to prior periods is of course a result of the Xcerra acquisition. At the end of 2018, we had approximately 165 million in total cash and investments. Accounts receivable DSO was at 79 and inventory days was 106. Gross debt at the end of 2018, including the term loan B and the bank debt assumed in the Kita deal total 359 million or 194 million net of cash. During Q4 2018 debt repayment totaled approximately 1.3 million and interest expense was about 4.6 million.
Fixed asset additions in Q4 were approximately 2.5 million, and depreciation was 4.7 million. Deferred profit at the end of December was 6.9 million up 5 million from the third quarter. The related deferred revenue at the end of Q4 was 10.4 million up 6.8 million sequentially. Our long-term cash strategy continues to be maintaining 125 million of cash on the balance sheet to support operations, capital expenditures, and the dividend.
We intend to cash generated in excess of 125 million will be used to pay down the debt and de-lever the Company. Given current business conditions and upcoming cash requirements to achieve cost synergies, we plan to make the minimum debt repayment during Q1, which approximate 1.3 million. Cohu's Board of Directors previously approved a quarterly cash dividend of $0.06 per share payable on April 12, 2019 to shareholders of record on February 26, 2019.
And now for the first quarter 2019 guidance, we are expecting sales to be approximately 145 million, revenue distribution is expected to be 92% semiconductor test and inspection and 8% PCB test, gross margin in Q1 is expected to be approximately 40%, operating expenses are expected to be approximately 54 million, which includes realizing total cost synergies to debt of approximately 2.5 million or 10 million on an annualized basis.
The effective tax rates for periods which are slightly above or below breakeven is not meaningful. For Q1, we expect the tax provision to be nominal to zero. For the full year 2019, we are estimating an effective tax rate of approximately 22%. The diluted share count for Q1 is expected to be approximately 41.5 million shares. Now over the midterm, we are targeting gross margins of 48% and EBITDA of 22% on quarterly sales of approximately 235 million. Profitability targets include the benefit of annual cost synergies totaling 40 million that I discussed previously.
That concludes our prepared remarks and now we'll open the call to questions.
Thank you. [Operator Instructions] And our first question is from Brian Chin with Stifel. Your line is now open.
Maybe first question. Just curious, in terms of the sequential sales decline in Q1, is it fair to think this is more attributable to the industrial and auto markets? And I say that going back to your comments wireless sort of weakened 3Q last year and those markets maybe seem to accelerate to the downside more recently. So number one, is that sort of a fair way to characterize that? And also I know you provided some qualitative commentary on the potential for some sales pickup in second half, but in terms of Q2 which we are almost into now. Can you infer that current order trends maybe suggest kind of a flattish 2Q relative to 1Q?
This is Luis. So to your first part of the question, yes, you're correct in your assumption. As I stated, the mobility in our IoT markets were weak in the fourth quarter, but industrial automotive actually AI data centers do held relatively well. But going into 2019 on the first quarter, we have seen softening also in the automotive and industrial markets. So, your assumption about the markets were correct going into 2019.
And for the second part of the question, as I stated as well, we do see our customers having about the same sentiment for the first half of the year as they are now in this stage of the game. Needless to say, this industry has some seasonality Q1, Q4 should be weaker points in the cycle. But by and large, we think any significant improvement would happen in the second half of the year and this is more based on the projects that we currently have with customers for new device launches and in the timing of those volume ramps.
Maybe I have just two other questions. First, in terms of the financial model, is roughly 150 million kind of the right accounting breakeven level for the Company? And I'm just curious, if is there any temporary cost reduction measures that you're either taking or planning kind of beyond sort of permit reductions you have already communicated, just given the recent pullback in the business?
This is Jeff. The breakeven is closer to 140 million mark, and some of the cost reduction actions that we've taken -- we've pulled a few levers in terms of reducing travel, some discretionary spending if you will. But really haven't taken a significant amount of permanent reductions at the moment. So, as we move forward, we are going to capitalize on additional cost synergies. With today's structure, I would say breakeven is in that 140 million 145 million range, but in the future that will be declining as we reduce OpEx and improve gross margin.
Maybe the one last question perhaps back for Luis. Just looking beyond the current cyclical weakness, just in the test contactor business, you reiterated that starting from 120 million and 125 million annual run rate going to 300 million over the next let's say three or five years. That’s a pretty robust growth rate even over that horizon. So, I'm curious, I think the narrative supporting that growth is pretty well understood and straightforward in terms of your large installed base, but I was hoping maybe, Luis, you can provide couple insights into the key factors that will influence the rate of customer adoption in that business and kind of which markets are device types you see as most right for the picking?
Brian, let me just correct a few things here. We are at about 125 million run rate annual on the contactor and we have said that if we can get to the 100% attachment rate on our handler, it would take that business up to 300 million. Now with that said, we are also modeling about a 10% CAGR in the business today. So, if you think about you're not going to get to 300 million in this three to five year horizon just to correct that statement.
As far as where do we see the attachment right? We see some of the greatest opportunities are actually in the automotive and industrial applications. We have got a large fleet of handler installed base as well as in the millimeter wave applications, whether it's high-frequency RF or radar device test. But we do have very unique solutions and good opportunities in conjunction with our testers.
Our next question comes from Tom Diffely with D.A. Davidson. Your line is now open.
First just a clarification on the last question. Did you say the 10% CAGR was your expected growth on the contactor business or that’s the market growth?
Yes, that’s our expected growth Tom.
And then maybe one more clarification, earlier in the script, you talked about a 10% to 158% decline. Was that for both the tester business and the handler business and on memory portion?
The 10% to 15% decline was for the aggregate, the total addressable market that we serve and in handlers, testers, test contactors all in aggregate essentially semiconductor test and inspection as well.
I'm just kind of curious, if there was any meaningful difference between the main two segments, are those tests or handlers weaker than one another?
Small differences, nothing earth shattering. There are some small differences in our modeling at the handler and the tester market, but like I said very small. We do model the contactor market to stay about flat year-on-year, and that’s essentially some of the new applications particularly millimeter wave and 5G offsetting decline on the standard products.
And then stepping back and just looking at your utilization rate of 81%, it sounds fairly healthy for a backend related company. So is your thought that you don’t have a lot of excess tools in the fields and as soon as the end market unit growth returns and you will pretty quickly get to return to growth?
Yes, Tom, that’s how we feel as well. The 81% will be down from the third quarter is still significantly better than we have seen on past soft market conditions. So yes, we do expect that on a market upturn and we wouldn’t see much of a delay between our customers going up and we seeing our business pick up.
And then finally, Jeff and you look at the reduction in the expenses, it sounds like there is already about $10 million run rate that's reflected in the OpEx guidance. What's the timing of the other $10 million or so this year? Is it more second half weighted?
Well, we are on about a $10 million run rate now, right. So, by the time we exit 2019, we will be on a $20 million run rate. Of course that 2.5 will pick up in the second half of the year, so I'm expecting in Q4 that we are likely going to be somewhere in that $4 million to $5 million a quarter range based on what -- in terms of the actions that we will kick in and be realized over the next two to three quarters.
And then how much would that be offset by variable increases in expenses based on a stronger second half of the year?
Well, yes, so it all depends right on where the revenue goes. So again, I can give in terms of where we are today right in OpEx covering around 37% at the model, which is significantly higher revenue when modeling OpEx that 28%.
And then in terms of OpEx spending if you will the midterm model includes all impacts of the synergies total synergies. And so from where we are in Q1 of about 54 million operating expense we are estimating an increase of about 10 million in OpEx in order to achieve that increase to 235 million of quarterly sales from where we are in Q1.
Let me just add one more thing here, we are here effectively eliminating now one of the biggest variable components on cost of sales which is commission related to former Xcerra product sales in China and Taiwan, so that component of variable OpEx goes away.
So, it looks like if you over the next $90 million of growth, there is about $10 million of incremental expenses, so 10% increase rate. Okay, well thank you very much.
And our next question is from David Duley with Steelhead Securities. Please go ahead. Your line is open.
Just a couple of clarification questions. With you I guess eliminating the agreement of distribution early in China and Taiwan. Is there any negative or positive revenue impact from that particular change?
There is really no impact other than we now have the increased visibility into our customers plans and more direct contact into aligning our development roadmap to their needs, something I view it as a honestly as a positive probably even over the short term as a positive. But no, there is absolutely no negative revenue impact that we can pinpoint right now.
And then gross margins were much better in the current quarter than your guidance and then taking a fairly significant decline in the current quarter. Could you just talk about the mix of business and why gross margin were better in this current quarter and why perhaps going down sequentially in the upcoming quarter?
Dave, so as I mentioned, it was mix related really in Q4, when we achieved 44.5% we had guided to 43%, we had more recurring revenue than we had forecasted. And then the mix of the products we have little bit higher revenue than anticipated on the tester side and as you know that margin is a little -- it's higher than some of our other systems.
And as we look at Q1 that mix goes back to more of a maybe what we would consider to be a standard mix and of course with overall revenue down we lose some leverage on the fixed cost on the manufacturing side.
And then I guess a final clarification. I'm little confused because I thought Jeff you mentioned that getting the incremental revenue in the test contactor business would take three to five years, but then Luis, I thought, you just mentioned that it would -- wasn't that timeframe. So if you could just help us understand on this particular point, picking up the incremental I guess $175 million that you have been talking about the timing of that and how it will unfold over the next couple years?
Dave, this is Luis. We don’t have a timeline laid out for picking up 175 million. We did say as we have a $300 million opportunity on a 100% attachment rate in our handlers and we are modeling a 10% CAGR at least for this year, we will how we can develop that for subsequent years, but at least for this year we are modeling a 10% CAGR. So, I guess you can see it's not going to get to 300 million in three years, but you should eventually trend towards getting there.
And our next question is from Steven Marascia with Capitol Securities. Your line is now open.
Two questions. Will you talk about first quarter debt reduction of about 1.3 million? Have you stated the target on target for the balance of 2018 for 2019 at all?
No, no, we haven't, Steve. What I did was reiterated our longer term position on cash targeting the meeting about $125 million for operations and the balance used to de-lever. And again with soft business conditions that we're in with some cash requirements in order to achieve some of the upcoming cost synergies, we decided she wanted to be the minimum amounts as we get into Q4.
A second question more general generalized question that is. If terms development of the 5G market here in the U.S. and there are talks that the administration wants to keep away from participating in build-out of 5G market. Have you guys talked to any of your customers about how that might affect them and potentially there revenue streams toward you?
Well, Steve, in the end the 5G is and frankly anything in the semiconductor industry is a global -- is a global reach. So, certainly any delay in the U.S. market will have a negative impact, if it delays getting to 5G. But nevertheless our customers are selling products globally, so I don't see 5G in totality being delayed. Actually much of the contrary, I think 5G is being accelerated.
Thank you. Our next question is from Craig Ellis with B. Riley FBR. Your line is now open.
Hi this is actually Peter Peng calling for Craig Ellis, and thanks for taking our questions. On the fourth quarter these sales, it seems a little bit lower versus expectation. Was any in end markets that weaken relative to your expectations?
No, Peter, I would say that we were within the guidance that we gave. You're right, it was slightly below the midpoint, but every time that we examine forecasted revenue we always have some upside and risks. And so, I wouldn't pin it on any particular segment or industry.
And then on the transition to direct customer model, should we be expecting some kind of upward OpEx pressure in the second half, just given the transition?
Over the last quarter, we've been building up our application engineers and Taiwan and China as we prepare for this transition. While we are still paying commission to the distributor will be non-GAAP in out some of those redundant nonproductive costs if you will, as we transition away. The commission goes away than we will have the headcount in place, servicing our customers. So, I wouldn't anticipate any future any pressure in the second half as a result of that.
In fact as it temporarily goes away, there should be net cost synergies once we're completely transition out. We're obviously direct as effective tomorrow, but we were completely transition there will contribute to the cost synergy values.
And then on the tax rate in on low 20 still the tax rate assumptions kind of going forward?
Yes, as we see it right now for the full year Peter the low 20s, I did make a comment about Q1 in particular and really any quarter where you are around breakeven little above little above that. The rate really goes out the window. It becomes not meaningful as such low levels of profitability or breakeven. But in general for the year, the view is still in the low 20s.
And one final question for me is. You talked about the industry growth and contactor being 10% versus interface flat. Maybe just give us some expectations on your handler and tester?
So that's a good question. I mean like I said, we see the overall semi test and inspection going down 10%, 15% year-on-year so the market contracting. As you know, we do have a target to continue to gain market share. Now, I can't tell you exactly how those are going to balance out, but certainly market share gain does require qualification of products there is a time for those things to happen. So in aggregate, I would say this would be a contraction year. I think our market share gains and our growth in contactors are not likely to offset the 10% to 15% contraction in the overall test and inspection market.
Our next question comes from Quinn Bolton with Needham & Company. Your line is now open.
I might have missed this so I apologize, but did you give for the March quarter a sense of the equipment versus the recurring revenue? How those two businesses trend into the March quarter?
Quinn, it's Jeff here. No, we didn't. We tend to give a look back on that, but it's been fairly consistent, it's been anywhere from I would say, low 40s to high 40s. So I think 45% 46% is a good proxy.
So I guess if that’s the case and it holds flat then the recurring revenue drops about the same percentages as equipment which I guess I would have thought that recurring revenue stream would have been much flatter during periods of equipment volatility. So can you just address, is it -- what is it just to think in the recurring business down as much as the equipment kind of in that forward look?
Yes, Quinn, the percentage I gave was historical right, so you make a good point. And the reduced revenue levels that recurring piece of the business has less fluctuation. So, that’s going to be higher in periods similar to Q1 that’s going to be in the high 40 range. So it's going to be at the high end of that range that I gave you.
It's very -- we haven’t modeled it this way, but it's -- we will talk about it once we close the quarter. I wouldn’t be surprised, if it doesn’t completely flip relative to the fourth quarter meaning to low 50% recurring in the mid 40% systems so sort of complete 180 degree.
So, it should see less volatility than the equipment businesses it sounds like, okay.
Yes, it does, absolutely.
The other question I had is you made this transition from a [disti] to a direct model in China Taiwan. I assume the [disti] historically was responsible for demand generation is that right?
That’s right.
And so you bring that in-house and you talked about the building out the application engineer support what happens to sort of customer list? I mean I would think the [disti] potentially is pretty protective of its channel and its contact. I mean, are they obligated to hand over customer list? Or is part of your building out the application engineers also building out that sales channel yourself and then kind of go out and find those customers?
So, two pieces, the last relevant one first. Yes, they are obligated to transfer all the information and the customers list, but that's the less relevant part. The more relevant part is Xcerra had already built a test applications engineering team in Taiwan and China. I want to say started about a year and half, maybe a little more than a year and half ago. When they first actually had an attempt of separation with that distributor and eventually came back together and agreed to put the customer applications team in place in both countries. And that was actually by customer demand to deal directly with Xcerra at the time.
So fast forward to today, we do have direct contact with customers. So, we know who the customers are, we know the people are we talk to them on a regular basis. We do projects to get to that together with them on a regular basis. And then, we augment those projects with the distributor resources who then are responsible for actually managing the commercial. So switching to tomorrow, where we go direct officially all in terms of purposes we know exactly who to deal with and we already set up as a vendor at the customers to final customers are supply chain infrastructure so not, not really much of a transition from that regard.
And so you just kind of go on direct across entire business, you're kind of completing that process rather than making it switch entirely?
What we had to do plan is we had to hire and train additional test applications engineers to augment infrastructure we had. We had to hire additional service engineers to augment the infrastructure that Cohu brought to the table here in those two countries, where Cohu was already direct. So, it's not really a start of an organization, it's more of the increase in the headcount of an organization that was relied on the distributor to fill in the gap.
Thank you [Operator Instructions]. And we have a follow up from Tom Diffely with D.A. Davidson. Please go ahead.
Yes. Thank you for the follow-up. Just one more question on the early termination of Spirox. Do they hold inventory? Or is there any kind of inventory builds you need to do with your own facilities going forward?
Yes, we're working through that Tom. They do have more or less demonstration equipment that we are going through and determining which pieces of equipment that we will require and purchase back from them. So, we're going through that process right now.
And finally, what about service and spares? Do they have a meaningful components of services and spares of the business? Or is it mainly new equipment?
Yes, mainly new equipment.
Thank you. And sir, I'm not showing any further questions in the queue. I would like to turn the call back to Richard Yerganian for his final comments.
Thank you very much for everyone joining us on the call this afternoon and evening and all have a good night. Thank you.
Ladies and gentlemen, thank you for participating in today's conference. This concludes the program and you may all disconnect. Have a wonderful day.