Buried within the cautious optimism of Cohu's Q1 2024 earnings call lies a potential seismic shift in the semiconductor test landscape. While analysts focus on the anticipated market recovery and Cohu's resilient gross margins, a less-discussed detail hints at a future where Cohu could challenge the established order in a lucrative niche market: display driver IC testing.

For years, this arena has been dominated by a single player, leaving customers with limited options and potentially stifling innovation. But Cohu, through strategic acquisitions, technological advancements, and patient customer engagement, is quietly positioning itself to disrupt this dynamic.

The evidence lies in the successful qualification of their Diamondx tester for final test of display driver ICs at a major Korean customer. This isn't just another design win; it's a validation of Cohu's strategy to penetrate a market segment where they can differentiate and diversify revenue, a strategy they've successfully employed before.

Remember Cohu's entry into the automotive LED market? Their tailored solutions and interface products quickly gained traction, solidifying their presence in a burgeoning sector. Now, they're replicating this approach with display drivers.

This Korean customer, a leading manufacturer of display drivers, entrusted Cohu with their first insertion test in 2023, generating a hefty $20 million in revenue for Cohu. Now, with the Diamondx qualified for the critical final test phase, Cohu is poised for an even greater share of the pie.

Cohu estimates the total display driver IC test market at $200 million. By securing this Korean giant, alongside a power device manufacturer, Cohu now effectively addresses a $100 million subset of this market. While they acknowledge sharing this space with their competitor, the potential for significant revenue growth is undeniable.

Cohu's Potential Revenue Growth from Display Driver IC Testing

Let's do some back-of-the-envelope calculations. If Cohu captures even 50% of this $100 million opportunity in a normalized market, that's an additional $50 million in annual revenue. Considering their trailing twelve-month recurring revenue of $304 million, this represents a 16% boost.

But the implications go beyond mere numbers. Cohu's entry injects competition into a previously stagnant landscape, potentially driving innovation and price pressures, ultimately benefiting the entire ecosystem.

Furthermore, this win highlights the versatility of the Diamondx tester, already gaining traction in automotive and industrial markets. Could display drivers be the springboard for Diamondx to conquer even broader applications, particularly in the "intelligent edge" that Cohu is strategically targeting?

While it's too early to declare Cohu the future king of display driver IC testing, the signs are compelling. They've secured a major customer, proven their technology, and are actively pursuing wider adoption. As the semiconductor market recovers, don't be surprised if Cohu's quiet revolution in display drivers becomes a loud and profitable reality.

Test Cell Utilization by Market Segment (Q4 2023)

Source: Cohu's Q4 2023 Earnings Call Transcript

"Fun Fact: Did you know that Cohu's history stretches back to 1947? Originally focused on electronic instruments, they've been at the forefront of technological advancements for over seven decades, constantly adapting to the ever-evolving landscape of the electronics industry. Their ability to reinvent themselves and embrace new opportunities is a testament to their resilience and foresight, making their display driver foray all the more intriguing."