Okay, we'll get started. For the next presentation is Cognex Corporation. I'm delighted to have the CFO, Dennis Fehr, with me. My name is Guy Hardwick. I cover industrial technology and distributors. So I'm delighted to have Dennis here. What we will start, though, with our first three ARS questions, just to set the stage. So if we could perhaps put up the first ARS question, please. That is, do you currently own this stock? Majority of the room own it. Okay, the second question, please. What is your general bias towards the stock right now? Two-thirds positive. And then the third question, please. In your opinion, through cycle EPS growth at Cognex Corp will be... universally bullish about peers. Okay, that kind of sets the stage quite nicely, Dennis.
So, I was joking with you earlier that you joined the German brain drain.
Right.
Joined U.S. corporate America, but that's perhaps a discussion for another time. So maybe perhaps you could just start with how would you characterize demand from what you're seeing so far in Q1, if you're able to comment on that?
Yeah, no, happy to. I maybe start with, first, very bigger picture and then go a bit more into the details of kind of near-term demand, right? So in general, we come out of a very pronounced down cycle, right? So last peak of the cycle was in 2021 or 2022- flattish, 2023- very down, 2024- flat again. So almost like three years of down cycle, which is almost unknown for that type of industry. And really, 2025, in that regard, marked the first year for us as a company, to grow organically at a significant rate again, mid single digits.
In that regard, I would say a positive momentum on the growth side, especially if we think towards the end of the year, where we saw in the fourth quarter of 2025, we saw strong year-end demand across our factory automation end markets. That's really kind of driving part of the overachievement in Q4 against our guidance and also the strong guide which we put out for Q1. Not all of this strong year-end demand was fulfilled in terms of revenue or turning into revenue in the fourth quarter. Some of that became into the first quarter as well. We saw basically, in general, we see customer sentiment is improving almost globally.
We saw PMI upticking in the U.S., which is a positive, but I'm still a bit cautious. It's just the one time we saw that. We saw a strong start of semi into the new year, which we thought may only happen in the second half of 2026. So there are many good things which we are actually seeing. At the same time, we clearly want to be a bit cautious that we want to see a couple of more data points over time, right? Kind of this one time good news, are they staying? Is it durable? And how durable is it? Do we see an acceleration of growth happening?
In that regard, you know, January and February are also a bit of strange months in that regard, right? We have right now large parts of Asia are now on Lunar New Year holiday, so that means we really want to see how will these markets coming back after the break. Typically, Europe is starting slowly into the first quarter and then accelerating through the quarter. So how will that play out? So in that regard, I would say, like, we are certainly optimistic by some of the points which we are seeing out there, but at the same time, we really want to see more data points over time before we would feel much more positive that it's a durable acceleration of growth.
The other point I want to make is that, I want to make sure everyone gets the baseline right of, like, what's the, what's the starting point of the growth? Because we had some one-time effects into 2025. We announced some exiting of revenue, so maybe I spend a minute on that. So in 2025, we reported $994 million of revenue. That included that one-time effect of a commercial partnership, which is not recurring. So that basically brings the starting point rather down to $984 million. And then we announced that we would exit about $22 million of revenue through a portfolio optimization. Now, that's an annualized number, and not all of that revenue will go out January first. So let's take out maybe $17 million as a starting point.
That basically brings the baseline number down to $965 million. Then if you now would apply a growth rate, maybe for illustrative purposes, I use 5%-7%, then you basically would land at a $1.015 billion-$1.035 billion in 2026 as a revenue number. Important that everyone also thinks about the baseline of growth.
But you're not an order book business, so any sort of projection of revenue is really based on where you think the growth, the kind of the blended growth of what your end markets look like. Maybe if you go through that and how you, you know, maybe that range of 5-7, or whether there's upside to that 7, depending on what might happen in your-
Right
-end markets.
Yeah, no, thanks for making that point. It's absolutely right. We have a very short cycle business, so we typically have, like, a backlog range of a couple of weeks. So even a full quarter is not covered by backlog. We have a very high portion of book to ship. So in general, when we think about, like, how a quarter and especially like maybe how a year goes, we really look at broader market trends. We use some of the economic indicators like PMI. We look at our end markets, and we provide an initial view, right? So in our last earnings call, we put out an initial view on our key end markets. But then we're really looking at these data points. Are things accelerating? Is there deceleration happening?
That's one of the reasons why we typically don't provide an annual guidance, but really just provide more sentiment of what we are seeing. In that regard, very, very well pointed.
Well, so maybe let's talk about these key end markets. So I think at the, you know, the highest growth expectation is semiconductor, maybe consumer electronics. At the low end, automotive, which seems to be stabilizing. Maybe we can go through those key end markets.
Sure, happy to do that. So our largest end market is logistics. Think about, like, 26% of revenue in 2025. It's a market where we have seen strong growth over eight quarters, basically, that eight quarters of double-digit growth. And with that, certainly, there's a base effect happening that we're now working against stronger comps. And at the same time, after two years of outsized growth in that market, you know, basically, you're thinking a little bit like, okay, 2026, maybe mid-single to high single digits of growth, driven by driving further automation in existing capacity of facilities. So that means logistics is not about adding more facilities. It's right now really automating existing facilities.
That, on the one side, gives us basically a positive view that growth in logistics can be very durable in the sense of several years, because the automation rate is very, very low in these facilities, and, that, that gives a long run rate. But just in terms of the growth expectation, as we have seen now almost 2 years of strong growth, we think growth will be a little bit, more moderate there.
Isn't it highly skewed by one very large e-commerce retailer who could make up for as much as 40% of the total logistics automation market? So does that, their expectations for CapEx in 2026, does that factor in importantly in your guidance or not? I know it's not guidance, you're directionally where you think logistics goes.
It clearly does. I mean, I think, it's well known Amazon is a large customers of ours, and, they have a high share in our total logistics business. So in that regard, we typically, of course, look at like what's happening on their side, and we look broader also into what other players are doing. So in that regard, we definitely try to understand, like, what is CapEx on their side, but at the same time, CapEx disclosures on their side are general for the entire company, not specifically to different parts of their business. So in that regard, there's also only so and so much information there.
Definitely true that clearly, what's happening with a large customer like Amazon drives a lot in our logistics business.
Okay. Can we talk about the semiconductor end market, which in the last couple of years, have become double-digit percentage of revenues? I guess, you know, our space has been impacted by the memory price inflation, but the other side of the coin is that expectations for semiconductor CapEx are rising. Can you say how Cognex benefits, and where does Cognex products fit in semiconductor industry? What is the use? Is it lithography or is it other areas?
Right. Yeah, so I think very interesting, maybe fun fact here, that probably 20 years ago, Cognex was really almost like a, a company solely focused on semicon. So probably 70% of our business was in semi, and we focused on that. So we basically help at different stages of manufacturing, from wafer alignment to continuous identification of serial numbers throughout the entire process, so OCR reading in that regard. So that means we have a very high penetration into the semi market. So that means other than in logistics, where growth really comes through additional penetration, in semi, it's all about underlying capacity growth. And in that regard, there we see clearly the strong demand for high-bandwidth memory chips, and we saw semi growing very, very fast for us in 2024.
We thought 2025, this market would need to digest that growth and basically went into 2025 with the expectation of no growth. I think, to a positive surprise, we saw a mid-single-digit growth. Then we basically expected that we would start to see, again, growth happening in the second half of this year. And as I indicated before, we actually starting to see very positive signals right now in Semi. And so there is clearly a positive note to that. We'll keep on watching it if it's durable. But clearly from a, let's say, two to three years perspective, we see a lot of growth opportunity in terms of underlying capacity growth.
Okay. Consumer electronics, I understand it's among your highest margin business, partly because there's a high software content within your CE portfolio. So maybe can you talk about that, and is it driven really by form factors? And it does have the same trends as semiconductor with the existing customers, dependent on the existing customers' CapEx plans.
Right. So, consumer electronics was really the, the big positive surprise for us in 2025, right? Where we went with rather muted expectation into 2025, and then we saw it growing double-digit. And I think very positively speaking, we saw it growing broad-based. So that means it was not coming from a large single customers, but really from many customers in different, let's say, subsegments of the consumer electronics markets, right? Really from device assembly all the way into a component manufacturing, component inspection there. And I think there were several drivers in 2025. One was the re-location and reallocation of global supply chains. That means moving outside of China, more into India and other ASEAN countries.
We also saw in general that there's clearly out of the pandemic era, where a lot of people bought new devices, that there's kind of an overhang on the consumer side of coming into a refresh cycle. So that means end user demand has been very robust, and that helped certainly as well. I would say, form factors is clearly a topic which could drive additional growth into 2026 and beyond. But I would, at this stage, probably call it a little bit an X factor in that sense that it will depend very much on consumer adoptions. Do consumers like a new form factor or do they not like these form factors? And that's something we can't judge at this moment. So in that regard, I would consider it as an X factor.
What point in the year do you know what the consumer electronics revenue is going to be? I think traditionally, it's been sort of around Q1, Q2.
Correct. So typically, we would know that, yeah, someone like when we, when we report our Q1's earnings, that's where we start to see things shaping up. But then, I think that holds true for the two factors I mentioned at the beginning, kind of that global supply chain shifts and as well as the general broader and consumer demand. But we may not know it for the new form factor because that may only be known when we go into the Christmas business and consumers are really making these purchase decisions.
Okay. What about general factory automation, which I think for Cognex is heavily packaging and some other markets?
Right.
Is that really a penetration story rather, again, than like for like CapEx? It's really growth and driving customers, right?
Right. Yeah, absolutely. So packaging, we combine here fast-moving consumer goods and pharmaceuticals. So we call it packaging because it's typically package inspection. And, you know, it's on the one side, it's one of our most boring end markets because the cyclicality of it is, it's very stable. It doesn't have, you know, like consumer electronics, here are new technological advancements which drive big shifts into this market. So by itself, the underlying market is very stable. But to some extent, we really like that market for that because it drives really also stability into our numbers, and so that the growth there is really coming from penetration. And here it's really all about new AI tools, which we have been releasing and are still releasing and continue to release.
Like last year, we announced a new product called Uncertain , which is basically bringing a deep learning functionality to the device and making it much easier for our customers to use such kind of powerful tools for the inspection application. So it's really, for us, bringing penetration and bringing new applications to our customers, which drive penetration.
Okay, thank you. Just lastly, on the end markets. Automotive, just briefly, I guess, no longer a headwind. Is that the message?
Yeah, that was really the good news for us, coming out of the last earnings call that we saw, especially in 2024, we saw double-digit declines. We still saw year-over-year declines in 2025, but on a sequential basis, we saw stability into the numbers. And then, you know, even on the positive side, we saw small growth in North America. Europe is still declining. So in that regard, we're seeing in automotive a bit geographical diversification of the growth. North America kind of picking up earlier. Europe is still a bit challenged, but in general, I would say getting that headwind out of the overall growth algorithm definitely helps us also when we think about 2026.
I have to ask you about the memory price inflation headwind. So, what more can you tell us about that? Are these, you know, high-end products or edge devices, are they not that memory intensive? Are they more processing intensive? Because you seem to be downplaying it as being an issue based on what you saw on the call.
Right. Yeah, from a cost perspective, I think we're pretty fine. Yeah, it's a smaller piece in the overall bill of material from a cost structure perspective. And so in that regard, I think as a company, we are not looking at it as like a risk in terms of like to our margins and on that side. We're more taking a stance from it from overall supply availability, right? So in that regard, at the moment, we can see that prices are inflated, and certainly supply is short, but supply is still there. But nevertheless, kind of the scenario what we are preparing ourself for is like what if supply gets even tighter? So that means we have a good playbook as a company.
We went through some of this experience in 2021 with the chip shortage. We had a fire in 2022 at one of our contract manufacturers. So we have a good playbook with our supply chain organization. But I would say as a company, we're probably less concerned about the cost impact, we're more looking at it from an overall risk perspective to say, like, "Let's make sure supply is there, and if it costs more, then we'll be able to manage that.
If DRAM price is up 100%, which is kind of the base case in our European semiconductor analyst models, is that something you can just simply pass on in pricing?
I mean, first of all, again, it's not a big impact into the bill of material, overall material cost, and then certainly, we in general think that we have pricing flexibility and pricing powers on that regard overall. Again, like, on the—from a P&L perspective, in terms of the direct impact, much less concerned than on the other side. Let's make sure that it doesn't get into a situation where there's too less supply. And then there's the other side of the coin, which you mentioned before. It can, of course, be a potential big driver for our semi business, and in that regard, there's clearly something positive to it as well. So we certainly would hope that we can come out of that as a beneficiary.
Too early to call it yet, but at the moment, it's probably more on the positive for that.
Okay. So eight months ago, you held an investor day, and you gave a through-the-cycle margin target of 20%-30%. Just eight months later, you've raised that to 25%-31%. You've also announced a major cost-saving program. Maybe you could just encapsulate all, explain why this sudden, just eight months later, significant upgrade to that target?
Yeah. No. So nothing fundamentally changed in terms of how we think about the business, how we think about the margin expansion opportunity, how we think about top-line growth expectation. It's more about execution, time and execution. So in that regard, when we, when we put out that framework, we basically wanted to put out a framework where we had a credible path to get there within 18 months. So that means the low end of the range to 20%, that's what we've defined as our first milestone to get there within 18 months, and we, we actually achieved it ahead of time. And then already at Investor Day, if you would go back to some of the slides there, we already said at that time that when we are exiting, this cycle, we want to be at least a 25%, margin.
So in that regard, the 25% was already on our mind at Investor Day, but we didn't feel at that time it's prudent to put out a 25% because we felt like it takes us too much time to get there. Now, we spent these eight months very well. We executed ahead of our plan, and we have now also clear visibility into the next actions in terms of portfolio optimization and cost out optimization, that we are now again can basically say within this 18 months or so time period, we can come back into the lower end of that guidance range or that financial framework. In that regard, it's really about confidence. First of all, successful execution and then confidence into future execution, which made us adjust that financial framework to the 25%-31%.
If we talk about AI, is Cognex an AI winner or AI loser? If you go back to 2017, 2019, Cognex made some acquisitions in AI, SUALAB and ViDi, but that was before generative AI. So in 2026, where are you positioned in AI, and how are you deploying it in your products?
Yep. I mean, yeah, I think first, maybe important point, we're almost a decade into AI, right? So 2017, we're now in 2026, embraced it early, early on as a company. We're probably one of the first... Today, kind of the buzzword is physical AI, so we're one of the very first physical AI companies before probably that word was, was even created. We launched the first AI-enabled products in 2022, and since then, each of—each product which we launched, new had AI features and AI components, and we, we, have a, a, a wide range of what we call AI vision tools, which are based on our proprietary, machine vision models. So in that regard, we think ourself as a, as a winner in the, in the AI era.
As mentioned before, bringing AI into machine vision unlocks a lot of new additional applications, and we are the leading company in this space. So in that regard, it opens up additional top-line opportunities, and we're very positive about it.
Can you talk about the sales force transformation and how it differs from the prior initiative? I think, and on the customer acquisition strategy, maybe you can combine that.
Sure. See, I would maybe take even a bigger step back, right? So first, as a company, we've, for a very long time, embraced and have been very good with serving large customers and providing them with what they really needed. That means almost like white glove service, you can say in many aspects, but didn't really focus on a broader part of the market. We realized in 2021 as a company that there's probably a much larger market opportunity out there, which we so far haven't gone after. But it really requires a different playbook from a sales perspective if you go after that broader market.
So in that regard, the first step into that was the so-called emerging customer initiative, which was on the one side, like, let's bring in a different type of seller and, deploy it to the market with lots of people, boots on the ground. And I think the positive of that, it was really kind of a transformative thinking to say, like, "Let's do things very differently." But at the same time, it came as a heavy burden to the P&L, and it kind of was not really right to create like a second type of sales organization.
So sales force transformation pretty much more about like, let's still go after this broader market, but let's do it in the most efficient way as we can do it, in a one combined sales organization with three distinctly differently seller types, and then very much rooted in data and process. And that's kind of a bit of a bigger theme, which, Bob and I are driving within Cognex, is this kind of view, like, let's transform the operating model of the company. Let's really look at all the processes which we have from the sales process, to how do we do engineering, how do we run the back office? Like, what does best-in-class look like? And let's bring that best-in-class in terms of process efficiency to Cognex, and that's really a core piece to our margin expansion story.
Is the core opportunity on the SG&A line?
I would say yes, clearly, that SG&A is an opportunity. At the same time, we already said at our Investor Day last year that we think also on the R&D side, having now AI-assisted coding, having invested into a uniform platform strategy, that while we have been in the past around mid-teens % of revenue on the R&D line, also on the R&D side, we can bring that to the low teens. So clearly, the larger opportunity is on SG&A, but there's also an opportunity in R&D.
What about gross margins? For years, gross margins have been trending downward, and they've looked like they're stabilizing, but are those transitory impacts or is it sustainable?
Two things here. So on the one side, if we look back over the last couple of years, gross margin trended down, strongly driven by mix, right? So we brought on Moritex, and then we had strong growth in logistics, which has lower gross margins. And then it's correct that basically we saw a stabilization. And now, looking forward, if we look at kind of our initial market outlook for 2026, we basically see factory automation and logistics growing at a similar pace. So that means basically mixed headwinds and gross margins would go away. So in that regard, think a bit more about like stabilization with some upside opportunity against the 2025 gross margin.
Okay. And to what extent is AI being deployed internally to help you achieve those cost savings?
Material?
I would definitely argue so, yes, right? I mentioned already about AI-assisted coding and software engineering. Great opportunity there. We are deploying it across our sales force automation processes, especially around lead generation. And then we rolled out, for example, across our customer service organization, or if you land at our new website, you will find a chatbot there, which kind of takes away like some of the easy-to-solve questions from customers. But then, even more important, it has really a whole back-end automation in regards to lead generation. So in that regard, absolutely, yes, and we are looking at more areas on the back office side to bring more AI tools there.
Okay. Can we just do the last three ARS questions, please? So, in your opinion, what should Cognex Corp do with the excess cash? Okay, number six, internal investment, 100%.
That's a strong message. Thank you.
In your opinion, on what multiple 2026 earnings should Cognex Corp trade on? I think we know the answer to this one.
Yes, I think so. I think the scale is too low.
Yeah. Maybe the EBITDA for this one, but even then, that wouldn't be high enough. Yes, so two-thirds, I think I show you. Well, we've reached the end of the allotted time. Thank you so much, Dennis, for a very comprehensive discussion.
Yeah.
Thanks for joining.
Yeah. Thanks a lot. Thanks, everyone, for your interest in Cognex. Thank you.