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Industrial slowdown hits Cognex outlook

08 Aug 2023

Machine vision firm says customers in consumer electronics and chip production are being especially cautious.

Cognex, the Nasdaq-listed machine vision company, says conditions have weakened across many of its key markets in recent months, with sales set to decline in the coming quarter.

The firm’s management outlined the current situation during an investor conference call to discuss its latest financial results.

Cognex CEO Rob Willett said that although the firm’s second-quarter figures were better than expected, conditions weakened as the quarter progressed.

“You can see this in the latest PMI [Purchasing Managers’ Index] data, which has trended downward over the past three months,” he told investors.

“China has not gained the momentum we expected at the time of our last call, and there is slower manufacturing activity in important factory automation markets, including Germany and the US.

“Our customers remain cautious with their capital investments, particularly in consumer electronics and semi[conductor production], where we have seen the steepest decline in demand.”

Weak conditions
For the second quarter, Cognex was able to post a net income of $57.5 million on sales revenues of $243 million - down 12 per cent on the figure of $275 million it recorded during the same period last year.

However, the latest figures have been somewhat distorted by an insurance payout of $2.5 million relating to the fire at one of the firm’s major contract manufacturers in Indonesia last year that damaged key components.

Willett said that those figures were “not representative of the business conditions we are experiencing in our markets”, describing weak conditions in industrial, logistics, and e-commerce applications.

Cognex CFO Paul Todgham detailed how sales had declined most sharply in China, by almost 30 per cent year-on-year in the latest quarter, with the Americas and European regions down 10 per cent and 8 per cent respectively.

Willett pointed to automotive as the strongest of its markets right now, although even here demand is sluggish, with many major manufacturers looking to work through excess inventory rather than place new orders.

EV bright spot
But as with many optics and photonics suppliers, electric vehicle (EV) battery production remains a bright spot, with the CEO saying that this particular line of business had grown 30 per cent year-on-year.

“We see nice strength building in EV, but it’s still representing less than a quarter of our automotive business overall,” he pointed out.

“We see this as a long-term growth driver, as the activity we are now engaged in fuels growth in future years for us,” Willett added. “Some of these projects have faced delays or are ramping up more slowly than our customers anticipated, and we expect EV battery revenue to be lumpy as our customers roll out large projects.”

Looking ahead, the Cognex executive team said that sales revenues in the third quarter would drop to somewhere between $180 million and $190 million.

“The decline is primarily driven by further softening of manufacturing investment, resulting in a step down in demand in our factory automation business,” said Willett.

Asked by investors about the key logistics market, the CEO responded: “I think we’re kind of at the bottom of the trough. When will things pick up, I guess, is the big question. We don’t think [it will] this year, but we’re optimistic about next year.”

• Despite the generally downbeat outlook, Cognex’s stock price held steady following the latest results release. Currently trading at around $49 on the Nasdaq, that price is little changed since the start of this year, and equates to a market capitalization of around $8.5 billion.

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