This article first appeared on GuruFocus .
Release Date: July 30, 2026
For the complete transcript of the earnings call, please refer to the full earnings call transcript .
Positive Points
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Strong Q2 2026 results with sales of $149 million, up 38% year-over-year, and Q3 revenue guidance of approximately $170 million, up 35% year-over-year.
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High-performance computing (HPC) pipeline expanded to approximately $850 million annually, with fiscal 2026 HPC revenue estimate raised to $100-$110 million.
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Recurring revenue reached 53% of total revenue, driven by consumables, software, and interface solutions, providing a stable revenue base.
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Test utilization improved to 80%, a typical turning point for capacity additions, with computing orders up 150% and industrial orders up 87% year-over-year.
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Software analytics business delivered its first $1 million revenue quarter, with orders up 140% year-over-year, and is expanding with a major HPC customer.
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Manufacturing capacity expansion in Malaysia is on track to double output by year-end, supporting future HPC growth.
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Gross margin of 45.5% exceeded guidance, reflecting favorable product mix, and operating leverage is strong with 40% of sequential revenue growth converting to operating profit.
Negative Points
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Automotive segment orders declined 24% year-over-year, and utilization remains below 80%, with recovery not expected until late Q1 or Q2 2027.
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Supply chain constraints, particularly for memory and specialty components, are leading to longer lead times and higher input costs, which may pressure margins.
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Operating expenses increased to $52.7 million in Q2 and are expected to remain elevated at ~$54 million in Q3, reflecting investments in HPC resources.
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HPC capacity is currently maxed out, limiting near-term revenue growth potential until the Malaysia expansion is fully operational.
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The company faces a single dominant competitor in the HPC handler market, which could intensify competitive pressures.
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Q4 revenue is expected to be flattish sequentially, as core business seasonality and HPC capacity constraints limit growth.
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Higher input costs for components may not be fully passed on to customers, potentially impacting gross margins in the near term.
Q & A Highlights
Q: Of your $850 million HPC pipeline, are the 4 qualified customers 3 HPC and 1 HBM, and when do you expect the 5 customers in qualification to convert into revenue? A: Luis Mueller (President and CEO): Yes, you are correct. We have 3 HPC and 1 HBM in the qualified bucket, representing about $190 million in annual opportunity. For the qualification bucket, one customer is right on the edge of giving us the green light. We are shipping a production configuration at the end of August and should get the official qualification within a month. The fifth customer on the list is looking at early next year, with a 6-month qualification process putting us around mid-Q1.
Q: Can you break down the $100 million increase in the HPC pipeline from $750 million to $850 million, and explain the recurring revenue components? A: Luis Mueller (President and CEO): The increase is due to better visibility in the forecast and a couple of new customers added in the early engagement phase. The qualified portion of the pipeline has also grown as customers are giving us bigger numbers for next year. On recurring revenue, there are 3 main components: device application kits (which change with each 18-month device life cycle), thermal heads (which must evolve as devices grow in size and power), and equipment maintenance (spares and consumables). A fourth, newer element is software subscriptions, like the $330,000 annual subscription we sold to an HPC customer, which has a lifetime value of a few million dollars.
Q: The full-year revenue guide increased from 25% to 35% growth. How much of that is HPC versus the core business, and what are you seeing in the core? A: Luis Mueller (President and CEO) and Jeff Jones (SVP and CFO): The HPC forecast increased by about $10-15 million, so the majority of the $45 million increase is from the core business coming back, led by industrial. We are seeing utilization rates pick up overall, and recurring revenue has grown at a CAGR of about 5% over the last 6 quarters. The core business is returning to traditional order patterns, with industrial customers placing orders for 10-20 systems in a single PO.
Q: What is your capacity expansion plan for HPC handlers, and how much revenue can you support in 2027? A: Luis Mueller (President and CEO): We are expanding capacity between end of Q2 and end of the year to increase output by about 50% for HPC handlers. Between now and mid-2027, the intent is to more than double output, with a path to triple it by the end of next year if the market takes us there. We are expanding our factory in Malaysia and doing a small expansion in the Philippines for thermal heads. If we deliver $100-110 million this year, we should have capacity to do more than $200 million, probably close to $250 million, by the beginning of next year.
Q: Can you quantify the silicon photonics opportunity for optical engine test, and which insertion are you targeting? A: Luis Mueller (President and CEO): Today we are shipping interface solutions for insertion 3 (optical engine test), and we booked a $0.5 million order in Q2. We are planning to ship a qualification unit for insertion 3 with a handler by the end of the year, and we are demonstrating an insertion 4 configuration. We haven't quantified total CPO revenue for 2027-2028 because we view it as part of the evolution of HPC, so it's embedded in the $850 million pipeline.
Q: How should we think about the mix of the 5 customers in qualification, and what is the range of annual opportunity per customer? A: Luis Mueller (President and CEO): There is a range. We have customers that represent low $30 million annual opportunities, and a couple of customers that are likely to be individually $60 million annual opportunities. So it's roughly a $30-60 million range on a per-customer basis.
Q: Who is the key competition for these HPC handler slots, and are these new opportunities or incumbent switches? A: Luis Mueller (President and CEO): It's pretty much a single competitor, primarily Hon Precision from Taiwan, which has been the forever supplier at test subcontractors. As power levels increase and processors become more complex, power dissipation management is becoming more prevalent, driving stronger interest from fabless companies and hyperscalers to find a solution. Our thermal technology is considered the best in the market, which is driving adoption.
Q: On the automotive segment, which is lagging, what is your visibility on the timing of a turn? A: Luis Mueller (President and CEO): Automotive has been a bit more sporadic, bouncing around with a bump in the last 2 quarters and then coming back down. I would expect automotive would not be at 80% utilization until probably late Q1 or Q2 of next year. It's been the one lagging across the end markets on the core business side.
Q: Can you pursue the full $850 million HPC pipeline at the current OpEx level of about $54 million, or would additional investment be required? A: Jeff Jones (SVP and CFO): That is the plan and forecast at the moment. We think this level is elevated from the prior model, but we intend to continue investing and keep OpEx fairly constant at about $54 million. That provides the resources necessary to capitalize on these opportunities. To clarify, the $850 million represents annual spend, not multi-year, so if we captured the totality immediately, we would see an $850 million revenue stream next year.
Q: With agentic AI changing CPU-to-GPU ratios, how does this play into your HPC opportunity? A: Luis Mueller (President and CEO): We are seeing very strong demand on the CPU side, with CPU power levels approaching GPU levels. However, this doesn't change our strategy because our Eclipse system is designed to be flexible and straddle across applications without changing capital equipmentjust changing configurations like thermal heads. This reusability is a fundamental value proposition, so it doesn't matter to us where the market ratio goes.
Q: How have lead times changed for Eclipse tools in the last 3 months, and are you seeing component shortages? A: Luis Mueller (President and CEO): We haven't seen
For the complete transcript of the earnings call, please refer to the full earnings call transcript .
