Good afternoon, ladies and gentlemen, and welcome to the Cohu, Inc. second quarter 2019 financial results conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session, and instructions will follow at that time. If anyone should require assistance during the conference, please press star then zero on your touchtone telephone. As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host, Mr. Jeff Jones, Chief Financial Officer. You may begin.
Thank you. Good afternoon, and welcome to our conference call to discuss Cohu's second quarter results and third quarter outlook. I'm joined today by our President and CEO, Luis Müller. If you need a copy of our earnings release, you may access it from our website, cohu.com, or by contacting Cohu Investor Relations. There's also a slide presentation in conjunction with 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. Between now and our next earnings call, we'll be participating in the Jefferies Semiconductor Hardware Summit in Chicago on Tuesday, August 27th. Please contact us if you would like to request a meeting with the company at this event. Now to the safe harbor.
During today's call, we will make forward-looking statements reflecting management's current expectations concerning Cohu'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 statement 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 and Form 10-Q. Our comments speak only as of today, August 5th, 2019, and Cohu assumes no obligation to update these statements for developments occurring after this call. Finally, during this call, we will 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.
Good afternoon. Today, I plan on discussing second quarter dynamics at Cohu and sharing our perspective on the current business environment. Jeff will then cover detailed financial results and Q3 guidance. Our internal measure of test cell utilization, which started improving in late first quarter supporting an initial recovery in the mobility market, dropped three points in May and June to 77% at the end of the quarter. Second quarter orders were 42% systems and 58% recurring, with the mix continuing to indicate soft business conditions in the near term. Second quarter sales of $150 million were at the low end of guidance due to the impact of export restrictions to Huawei on our customers and continued softness in mobility.
Although our direct business with HiSilicon, a Huawei-affiliated company, is less than 2% of annual sales, some of our U.S. customers that are part of the Huawei supply chain abruptly lowered their forecasts after mid-May, when the export restrictions were imposed. In parallel, Huawei announced a sharp reduction in smartphone unit sales forecast for the second half of this year. It is unclear whether this is a direct consequence of the export restrictions or more of a reflection of lower GDP growth in the region and globally. The compounded effect was a late quarter reduction in RF and flat panel display driver tester sales, with some business pivoting to subcontractors in China and other customers pushing out the forecast to later quarters. Mobility was still our largest segment, comprising 29% of system orders.
We received and shipped a volume order for thermal handlers testing mobile processors, also thermal handlers and testers for RF devices. Still, in mobility, we recently qualified and sold multiple units of a next-generation vision inspection platform featuring extended process integration capabilities that include infrared and micro-scale defect detection. Although the automotive semiconductor market remains weak, we continue to benefit from the sale of thermal handlers and testers for the production of power management ICs. While our customers' forecasts are muted in the near term, the fundamentals remain strong for increasing vehicle electrification, growth in automotive ADAS, industrial automation, and moreover, the deployment of 5G communications that will have a significant positive impact on these markets. On this last point, the highlight of the second quarter was the initial shipment of a complete solution for testing next-generation RF devices used in a global satellite network.
Cohu is delivering the value of cross-functional expertise for complex applications that supports customers' needs for rapid volume ramps. We forecast some business in the second half of this year and ramping volume in 2020, not only in satellites, but also with the higher volume units for the ground infrastructure. Our testers are deployed in volume for 4G RF power amplifiers and being utilized for initial production of 5G devices coming out in new mobile products. Customers who require a test solution optimized for high performance RF see the value in Cohu's unique differentiation that enables them to upgrade our large install base of RF testers to 5G requirements, while integrating our high-performance contactors to ensure signal fidelity across the device interface. Cohu is well positioned to maintain leadership in RF power amplifier tests.
We see early production sales this year and expect 5G volume to grow substantially as it transitions from infrastructure build to the production ramp of mobile products starting in the second half of 2020. Our PCB test business continues to see strong demand from customers in China supporting server, network equipment, and telecommunications applications, and soft conditions across automotive and industrial customers, mainly in Europe. We made good progress integrating recently acquired Xcerra, reaching an agreement with the local works council to downsize and consolidate the handler operation with the Cohu business in Germany, completing the transfer of handler manufacturing to our Malaysia factory, and on track to finalize the transition of contactors and device kits to our Philippines operation this quarter. In all, delivering $17 million of annualized run rate cost synergies in the second quarter and on track to exit this year at approximately $40 million.
In light of the soft market environment for semiconductor volume manufacturing, we're taking additional actions to reduce expenses and improve profitability while maintaining critical investments that will drive growth in our test contactor and equipment businesses. With that, I remain optimistic about our future that we're well positioned to capitalize on the 5G opportunity as it transitions from early device characterization and infrastructure build to high-volume products. Additionally, we will continue to enjoy strong business in automotive and industrial markets when our customers resume their growth. Now I would like to turn it over to Jeff to review our second quarter results and provide third quarter guidance.
Thanks, Luis. I'll start by reviewing our Q2 results, which delivered revenue at the low end of our guidance, but with non-GAAP profitability higher than anticipated, supporting the strength of our financial model, including the realization of acquisition-related cost synergies. We'll also review our progress in accelerating our planned synergies from the acquisition of Xcerra and comment on our business model for 2020 and beyond, which includes estimated non-GAAP EPS amounts at different revenue levels. Finally, I'll provide our third quarter guidance. Please also note that my comments that follow all refer to non-GAAP figures. For GAAP to non-GAAP reconciliations and disclosures, see the accompanying earnings release and investor presentation. For Q2, the GAAP to non-GAAP adjustments include approximately $3.7 million of stock-based compensation expense.
GAAP to non-GAAP adjustments primarily driven by the Xcerra acquisition include $10 million of purchased intangible amortization expense, $1.3 million of property plant equipment step-up costs, and $7.3 million of restructuring costs. The Q2 net cash impact of these items was approximately $2 million, related primarily to employee severance. Q2 revenue of $150 million was at the low end of our range and impacted by the export restrictions to Huawei on our customers and continued softness in mobility. One customer in data center, cloud, and AI accounted for 12% of sales in Q2. No other customer accounted for 10% or more of sales in the quarter. In Q2, we generated gross margin of 41.3%, which is 130 basis points higher than guidance due to a better-than-expected contribution from recurring revenue. Operating expenses came in lower than forecast as a result of tight control on labor costs and discretionary spending.
During the quarter, we realized approximately $4.3 million of acquisition cost synergies, which is in line with the forecast. In the second quarter, we generated non-GAAP operating income of $8.9 million, or approximately 6% of sales. After interest expense, foreign currency loss of about $500,000, and the tax provision, Cohu had non-GAAP EPS of $0.02. Adjusted EBITDA in the quarter was $11.8 million or 7.9% of sales. As I stated on a prior earnings call, the effective tax rate is not meaningful at pre-tax levels near breakeven. As a reminder, most of Cohu's operations and related profits are generated and taxed outside of the U.S. Additionally, when the U.S. operation generates a loss, as it did in Q2, there's no tax benefit to offset the foreign tax expense because of our deferred tax asset valuation allowance.
As a result, in Q2, we recorded tax expense on foreign profits without any benefit from the U.S. loss, resulting in a high and not meaningful effective tax rate. Turning to cost synergies in our business model. As announced on our Q1 earnings call, we've taken action that results in pulling forward approximately $20 million of cost synergies into 2019, ahead of the original target of three to five years. The result is that by the end of this calendar year, we expect to deliver $40 million in annual run rate cost synergies that will favorably impact the business model going into 2020. The annual cost synergy split is approximately $20 million in cost of goods sold and $20 million in operating expense savings.
Our business model is inclusive of the impact of the $40 million cost synergies that we expect to achieve when exiting this calendar year and provides anticipated profitability, including estimated non-GAAP EPS at various revenue levels. As a point of reference, the pro forma 2018 revenue for Cohu, combined with Xcerra, was approximately $778 million or about $194 million per quarter. The business model shows opportunity for strong profit and cash generation at this level once all synergy savings are in place. Our long-term capital allocation strategy continues to be use excess cash to pay down the debt of $356 million and deliver the company subject to business conditions and the cash required to achieve the synergies and support an eventual business ramp. For the balance of 2019, we're projecting cash payments of approximately $13 million in order to achieve the targeted synergies.
During Q2, Cohu used approximately $9.5 million of cash from operations, and our cash balance was approximately $144 million at the end of the quarter. Cohu's board of directors approved a quarterly cash dividend of $0.06 per share, payable on October 18th, 2019, to shareholders of record on August 23rd, 2019. For third quarter 2019 guidance, we're expecting sales to be approximately $143 million. Revenue distribution is expected to be 92% semiconductor test and inspection, and 8% PCB test. Gross margin is expected to be approximately 41%. Operating expenses are expected to be approximately $51 million. Cost synergies of approximately $7 million or about $28 million on an annualized basis are included in the Q3 guidance. We're also taking measures in addition to the acquisition cost synergies to further reduce operating expenses with a forecasted Q3 benefit of approximately $1 million.
We expect adjusted EBITDA in the third quarter to be approximately 8%. We're projecting the Q3 non-GAAP tax provision to be similar in total to the Q2 non-GAAP amount. For modeling purposes, we expect a normalized effective tax rate of approximately 22% on revenue of $170 million or more and profits in line with the business model. The diluted share count for Q3 is expected to be approximately 41.7 million shares, and that concludes our prepared remarks. Now we'll open the call to questions.
At this time, I would like to remind everyone in order to ask a question, please press star then the number 1 on your touchtone telephone. Again, if you have a question at this time, please press star, then the number 1 key on your touchtone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. Your first question comes from the line of Brian Chin from Stifel. Your line is now open.
Hi. Good afternoon. Thanks for letting us ask a few questions. Maybe first question just to focus a little bit, hone in on the near term a little bit and your Q3 outlook. You're guiding sales down, a little bit sequential. Kind of curious, looking at your order trends by end markets, the system bookings, they were not strong overall in Q2, but I think the mobility orders maybe were a little bit better than I would've thought. Maybe data center and IoT a little bit softer. Just curious, maybe from a market perspective, where are you seeing more weakness quarter-to-quarter into the third quarter in terms of your revenue outlook?
Hi, Brian. This is Luis. Just one point here on the slide that talks about Q2 end markets. That is system-only orders. As we have mentioned in the past, we do have a strong recurring business on data center, cloud, and AI. From a systems perspective, you're right, maybe a little weaker than you would expect, but it is still a strong recurring business for us. On a quarter-to-quarter basis, mobility is the one that we expected to have taken off stronger and for various reasons, I think that we talked here during the call, Huawei in particular, we created sort of a drop, quarter-on-quarter. The automotive market continues to be soft and so does the industrial, pretty much also weighing negatively on the third quarter guidance.
Okay. Thanks for the color, Luis. Maybe perhaps Jeff here, but talking about seasonality and sort of when you expect to be fully in your cost model. This year is more fluid than most probably, but if we think about normal, if you want to call it that, weaker seasonality, which tends to kind of hit late in the calendar year into early next year, do you have first any way of calibrating what the impact of this could be on your business as we move into the December and March quarters? Secondly, in terms of where you think your EPS and EBITDA breakeven levels from a revenue standpoint might be, starting in the March quarter?
Brian, your last part of that, starting in March of next year, is that where you're asking?
Yeah. Just when you have the full realization of the cost synergies, at what revenue level do you think you break even on an EPS basis and also from an EBITDA basis?
Right. I'll just start with that. A break even, once all synergies are included in the P&L, would be down about $125 million at that revenue level, with gross margin in about 42% range. With your other question with regards to seasonality and how that's impacting perhaps Q3 and Q4, that's tough to say, right? We've given guidance for Q3. We see it at about $143 million. You're right, the Q4 would tend to be a little weaker, Q1 as well, until we get past Chinese New Year. At this point, we're expecting that to hold as it has in the past.
Yeah, this is a very difficult year to talk about seasonality, especially with so much changing on a macro level and impacting the semiconductor supply chain.
Yeah. No, that's fair. Maybe one last question, just to walk this out a little bit further. I was curious, we think about test contactor market as sort of a $650 million, $700 million-ish market, yet growing. Can you remind us how large the RF portion of the market is today, perhaps how large it could be several years from now, especially as the millimeter wave era is ushered in? Maybe, Luis, even if you want to fan out a little bit broader, because you did talk about sort of these full test cell solutions. Maybe that's sort of obviously a larger dollar opportunity for you. Even if you want to expand upon that more. Thanks.
Sure. Yeah, Brian, the bundle, actually, both the RF and the precision analog, which is kind of the high-performance signal part of the contactor market, is on $90 million-$100 million a year. To broaden up a little bit, since you asked, we have had a record quarter for sale of a high-performance RF contactor in Q1. I announced that a quarter ago. That was mostly for engineering lab characterization on new IC products. Now, we have had follow-on orders for that in Q2 for initial device production and one more customer that we got design in for characterization. All in all, we expect volume sales for RF contactors to really take off when 5G takes off in mobile devices, which is really not projected until second half of 2020.
Outside of the RF market, we also gained some really good traction with the Kita pins, Kita being the pin business we acquired in Japan beginning of 2017. The implementation of Kita pins in our contactors. As I mentioned before, we try to track is what's the attachment rate of our contactors and our installed base of handlers. A little bit more difficult now in a down cycle market, because obviously there are fewer equipments getting out the door. We're estimating we're at approximately a 33% attachment rate of contactors to our handlers. With that, the opportunity is to get it up to about 100%, which does create approximately $175 million incremental revenue opportunity that we want to capture over the next five years.
All right. Thank you.
Thank you. Next question comes from the line of Tom Diffely from D.A. Davidson. Your line's now open.
Yes. Good afternoon. First question is on the additional cost-cutting measures you've taken post last quarter, when you announced you're going to pull in all $40 million to this year. Is that just discretionary spending over the next couple of quarters that you've slowed down on, or are there additions to that $40 million that would entail?
No, it's aside from the $40 million, Tom. It has to do with labor, particularly sort of delaying replacement of particular positions, as well as the discretionary spending that you mentioned, things like travel and so forth.
Okay. I guess big picture, though, you view those more as delayed spending then, as opposed to long-term spending cuts that would create a new model?
Yeah. At this point, they're not in the model. They're not long-term. They are temporary until business conditions improve.
Okay. No, that makes sense. All right. Then looking at your two bigger markets, automotive and handsets or mobility, if you look at your crystal ball, which of those do you think is poised to recover quicker? Is there any kind of difference you can point to between the two end markets as far as relative strength?
Hi, Tom. This is Luis. That's a tough crystal ball question to answer. We both know here that auto is weaker right now, and it is our largest business, right? Cohu's exposure to a combination of auto and industrial market tended to be the largest segments for Cohu historically, predominantly for handler sales, right?
Automotive is down about 30% year-over-year right now. This comes with the decline in vehicle sales in the larger markets, right? That would be the U.S., Europe, and China. Now, in the midst of all of this, as I mentioned in the prepared remarks here, we do see solid activity for power management semiconductors that really aligns more so with electrification of vehicles. We also have seen progress for thermal handlers testing ADAS, automated driver-assist processors. These are processors that dissipate energy during tests. Overall, we're pretty well aligned on the electrification ADAS, but we need volume of automotives growing so that it compounds on top of the greater adoption of semiconductors, like I said, electrification and ADAS in particular. On the mobile side, I really think much of the mobile is going to be tied and right now waiting for 5G deployment.
5G is deploying right now for telecom networks, so it's essentially the starting part of the infrastructure build.
Most of the semiconductors in this today are digital with some RF or high-end digital, which is not exactly where Cohu testers are aligned to. Down the road will come the majority of the mobility or smartphones, if you will, that's going to drive a large content of RF power amplifiers. We believe that's going to happen starting in the second half of 2020 based on all the predictions and forecasts we've seen from our customers. Naturally, there'll be some early volumes ahead of that, but really volume is going to start second half of 2020 and will go on for a few years before it surpasses smartphones with 4G capability. You put it all together, and would you say which market comes first? I don't know. I think the 5G has a more well-defined path right now than the automotive, but that could change quickly.
Okay. No, it makes sense. Maybe switching gears. It's been six months now since the acquisition's been finalized. Just wondering if you've got any success stories on the contactor business you can talk to, perhaps seeding for future growth.
Yes, we have quite a few actually, Tom. We have both a lot of traction getting the Kita pins that I was answering the prior question, the Kita pins in our contactors. These are in our digital mixed signal contactors. That has been gaining quite a bit of volume. We had really a great quarter in Q1 deploying with sort of a record quarter for a millimeter wave contactor called the xWave for high-end RF applications. As I said before, this was early launch of the product, characterization labs. Now it's going through the work and expecting to see volume towards the end of the year, beginning of next year, as 5G starts rolling out. One of the big highlights of second quarter was winning an application where we are selling the tester, the contactor, and then we're able to pull in the handler as well for this satellite network.
Right there, you can see the tester and the contactor are really sort of the pair that solves the signal fidelity all the way to the device under test. We're seeing more and more of those cases, particularly with early stages of 5G right now. Like I said, it's not really volume production, but early stages of 5G, the contactor and the tester are critical to ensuring signal performance.
Okay, it sounds like you're still comfortable with the potential growth in contactors over the next few years.
Yes.
Okay. Finally, you talked about how Huawei or HiSilicon was less than 2% of your business, but do you have a number for us that describes, through your customers as a customer of Huawei, what your indirect exposure is to Huawei silicon, or silicon?
We have more of the direct exposure than the indirect exposure. We have less than 2% of our business is direct sales to Huawei or its affiliated companies, right? As you pointed out, nevertheless, we do have several of our tester customers in the mobility market that supply to Huawei. It's hard to triangulate what the exposure is on the indirect side, right? This is really impacting not only the RF power amplifier business for us, but also the display driver customers. From one side, you can talk about the export restrictions, and the other side you talk about, most importantly, I think is the decline in forecasts. Huawei's forecast is smartphone sales in the second half of the year. The net-net of this is that we're seeing a push-out in both RF and display driver ICs.
frankly, we quantified it to the tune of about $5 million in the second quarter.
Okay. Great. Thanks for your time today.
Thank you.
Thank you. Next question coming from the line of Craig Ellis from B. Riley FBR. You may now ask your question.
Yeah. Thanks for taking the question. Just to follow up on a couple items. Luis, nice to see some successes with contactor attach and getting Kita pins into Cohu solutions. My question for the opportunity to drive higher attach rates, that $175 million opportunity. From what you can see today, how much of that gap do you think you could close in 2020 and 2021? What's the slope of the trajectory that it looks like we're on here?
Hi, Craig. We're looking at a sort of a mid-teen growth rate. That's our plan right now, a mid-teen growth rate on the contactor business over the next few years.
That includes both your share gain and just the natural sales that would come out of the recurring part of the business?
That's right.
Okay. I wanted to go back to one of the wins that you had talked about. You talked about RF tests for a global satellite network, and it sounded like that was pretty material. Can you scope what the financial opportunity for that win would be for next year?
Yeah. Well, first of all, we started shipping that in late Q2, so it was not really a Q2 material for that matter. The expectation is this could generate probably in the order of $15 million or so next year.
I'm sorry, 15?
15, correct.
Yeah. Great. Thank you. Just a couple more items. We've obviously seen a number of things change geopolitically just within the last week. Just so we all understand how the company's approaching guidance, given the abrupt change in tariff tone, if you will, since late last week, how does the company incorporate that into guidance? What does that mean for the guidance that we see today for the third quarter?
Yeah. Craig, Jeff here. Our visibility isn't fantastic. It doesn't go out more than about three months. We base our forecast, as we always do, on backlog, what's scheduled to ship, in the near term, the orders that we expect to book and bill in the quarter based on immediate feedback from the customer. We do have a lot of noise within the geopolitical landscape, as you noted. However, our approach is similar. Just try to get as close to the customer as possible, get the best information, most recent information. Customers, as you know, have shortened lead times. They wait till the last minute to ensure that they have demand for the equipment. That's how we've approached it. Certainly the numbers have been impacted from it.
143 is lower than I think any of us would've expected two or three quarters ago. It's definitely impacted, and that's really the process we go through, is to stay as close to the customer as possible.
Thanks for that. My last question is a follow-up on something that I think Tom touched on. In the end market splits, the split shows 23% automotive and 29% mobility, and there's no question that there's a year-on-year unit growth headwind in both of those businesses. Underneath that, in both cases, and I think as you mentioned well, Luis, there's some technology transitions or secular drivers that are favorable. The question is, in areas like automotive where there's work that has stronger growth in things like ADAS or EV, can you distinguish, in your order book, when a customer's ordering for that type of application versus more of a legacy application? If so, is it possible to aggregate how significant the businesses are across those two end markets right now that are related to secular drivers, whether it be 5G or ADAS and EV?
Yeah. We actually can segregate. We have seen over the last six months when automotive has been weak, that the majority, I guess I could say the majority of the orders have been EV related or power management ICs for EV or for potentially hybrid, but certainly power management ICs. Not in as much ADAS over the last six months. It's more of a forecast that ADAS is coming up alive in the coming quarters. We see a lot of activity, both from an evaluation of new devices in our handlers, as well as forecasting that are more ADAS related here for, like I said, for the balance of this year. Yes, we can see them both.
Okay. That's helpful. Then perhaps last for me, you mentioned 5G a number of times. As we look at the early part of this next air interface transition, and if we were to compare it to 4G and 3G at Cohu, from what you can see now, how significant could 5G be vis-a-vis those two other air interface transitions that we've been through?
I'll talk about the 5G, but remember the 5G exposure for us come in the form of the Xcerra acquisition, more so than.
Sort of former Cohu exposure to 3G, 4G, right? I mean, 5G today for us is really aligned with testing of RF power amplifiers, which are the Xcerra testers. This is where those products, the Xcerra testers do acquire sort of the leader in this approximately $60 million segment of the ATE market, okay? These RF amplifiers are really used in greater quantities in smartphones and to a lesser degree in the network infrastructure, which is where 5G cycle is today, really working on networks, right? We don't really have testers that are suited for network ICs, which require greater digital, smaller RF test content. On the other hand, we do have the largest install base today, and we believe the most economical solution for testing focused RF semiconductors that will be deployed in these new 5G phones.
When these things come out, I mean, they're still in low volume. We do know that some of these phones from published tear downs, that they're using devices that have run, or the 5G amplifiers have been tested on our testers. These initial 5G phones are still sort of in that sub six gigahertz frequency with a roadmap of developing millimeter frequencies over the next few quarters, actually coming out soon. Put it all together, in terms of significance, we do believe that the market size, the $60 million market that we're talking about for RF PAs, RF power amplifiers, is bound to grow about 40%-50% when 5G phones are produced in volume. Which again, won't happen this year, but it should start ramping on the second half of next year and then into 2021 and so on, right?
It will take a couple of years for that volume to surpass 4G smartphones out there. The opportunity is there, and I think it's gonna drive not only the tester sales, but it was gonna drive quite a bit of contactor sales. In this case, more of an attachment rate to testers than to handlers, per se.
That's real helpful. Thanks, Luis.
Thank you. Next question coming from the line of David Dooley from Steelhead Securities. Your line's now open.
Just one clarification. I think, Luis, you mentioned the size of the Huawei impact or the estimated size of the impact in the quarter just reported. Could you repeat that again?
Hi. Yeah, Dave, I mentioned that we triangulated both the direct and indirect, and the indirect being harder one to triangulate here, impact of Huawei on our Q2 sales to being about $5 million. About a $5 million decline in what we would otherwise have expected in Q2.
Okay. In your presentation, you have all these different revenue levels, and the metrics for your business at each different revenue level. You also mentioned, I think, the 2018 quarterly run rate was like $195 million a quarter or so. Is there any reason to think that you can't get back to that level of revenue, when the markets recover? Has there been any share losses or anything that might impact the business getting back to those quarterly run rates?
No, there hasn't been any customer changes over the last six, nine months other than some traction that we gain on the contactor front. As I mentioned, the RF contactor, the xWave, where we had a record quarter in Q1. The integration of Kita pins in our contactors for digital mixed signal applications. From an equipment side, really hasn't been no change in the market.
Okay. I think that there was a couple of programs that you initially expected to be strong in the second half of this calendar year, and I think one or two of them were pushed into next year. Could you just give us an update about those programs and what you expect now?
Sure. Yeah. Starting with the positive one actually, was the satellite communication business that I just mentioned. That was a program that we've been working on since the acquisition, and it's finally starting to bear fruits here, with the initial ship in late second quarter into third quarter. The other two programs had to do one with RF for 5G, which it really got pushed out since the new export restrictions on Huawei in mid-May. That actually changed the dynamics a little bit. The third one was penetration in the flat panel display market, which we've been doing. Actually, this is one that from an execution perspective, we're doing really well, but a decline in forecast for smartphones in the second half of the year is really impacting demand.
As such, the projection that we would see increase in revenues here starting in the third quarter, that also got pushed out.
On the flat panel display you're referring to, you've picked up further customers there, they're just not buying.
Right. That's right.
Okay. Thank you. That was all my questions.
All right. Thanks, David.
Thank you. I am showing no further questions at this time. I would now like to turn the conference back to our speakers.
Okay. Thank you for joining us on today's call, and we look forward to speaking with you soon.
Thank you, ladies and gentlemen. This concludes today's conference. Thank you for your participation and have a wonderful day. You may all disconnect.