Cognex (NASDAQ:CGNX) Chief Financial Officer Dennis Fehr outlined signs of improving demand across several end markets, while emphasizing the need for more data points to confirm a durable upcycle, during a conference discussion moderated by analyst Guy Hardwick.
Demand backdrop: emerging improvement, but management remains cautious
Fehr said the company is coming out of what he described as an unusually long downturn, with the prior peak in 2021 or 2022, a “very down” 2023, and a flat 2024. He characterized 2025 as the first year in which the company returned to meaningful organic growth, describing it as “mid single digits,” helped by stronger year-end demand in the fourth quarter across factory automation markets. He said that strength contributed to the company’s outperformance versus guidance in Q4 and to its strong guide for Q1, noting that some year-end demand shifted into the first quarter.
Revenue baseline adjustments and the company’s short-cycle model
Fehr discussed what he called “one-time effects” that affect how investors should think about the baseline for growth. He said Cognex reported $994 million of revenue in 2025, including a non-recurring commercial partnership that he quantified as $10 million, implying a $984 million starting point without that contribution.
He also said the company announced it would exit about $22 million of revenue as part of portfolio optimization, describing the figure as annualized and not fully effective at the start of the year. For baseline purposes, he used an illustrative $17 million reduction, bringing the starting point to about $965 million.
Fehr emphasized that Cognex is a “very short cycle” business with only a few weeks of backlog and a high proportion of “book to ship,” meaning quarterly and annual performance depends heavily on broader market trends rather than an order book. He said this is a key reason the company typically does not provide annual guidance, instead focusing on end-market sentiment and economic indicators.
End-market commentary: logistics, semiconductors, consumer electronics, packaging, and automotive
Fehr walked through several major end markets and how he expects drivers to differ by segment.
- Logistics: Fehr said logistics was Cognex’s largest end market in 2025 at about 26% of revenue. He described eight consecutive quarters of double-digit growth, which he said creates tougher comparisons. Looking to 2026, he said growth could moderate to “mid-single to high single digits,” driven more by automating existing facilities than building new ones. He acknowledged that Amazon is a large customer and that its spending can meaningfully influence Cognex’s logistics results, while noting that Amazon’s disclosed CapEx is not broken out by business line.
- Semiconductors: Fehr said Cognex historically was heavily exposed to semiconductors and retains “very high penetration” in the market, supporting applications such as wafer alignment and optical character recognition (OCR) for serial-number identification through manufacturing. Because penetration is already high, he said growth in semiconductors is more tied to underlying capacity expansion. He cited demand for high-bandwidth memory as a driver and said the company saw semiconductors grow “very, very fast” in 2024. While the company entered 2025 expecting no growth, he said it delivered “mid-single-digit” growth and is now seeing positive signals earlier than anticipated.
- Consumer electronics: Fehr called consumer electronics a “big positive surprise” in 2025, growing double-digit versus muted initial expectations. He said growth was broad-based across many customers and subsegments, from device assembly to component manufacturing and inspection. He attributed 2025 strength to supply-chain relocation outside China into India and ASEAN countries, and to consumers moving into a device refresh cycle. He said new device form factors could drive further growth but described this as an “X factor” dependent on consumer adoption, which may not be clear until the holiday season.
- Packaging (factory automation): Fehr grouped fast-moving consumer goods and pharmaceuticals into packaging and described the segment as stable and “boring” in terms of cyclicality. He said growth is primarily penetration-driven and connected to new AI tools that enable new inspection applications. He cited a product called “Uncertain” that brings deep learning functionality to devices and is intended to simplify adoption for customers.
- Automotive: Fehr said automotive was a headwind in 2024, with double-digit declines, and remained down year over year in 2025. However, he said the trend stabilized sequentially and the company saw small growth in North America, while Europe continued to decline. He said removing the automotive headwind helps the company’s overall growth outlook for 2026.
Memory price inflation: more of a supply risk than a margin issue
Asked about memory price inflation, Fehr said Cognex is “pretty fine” from a cost perspective because memory is a smaller component of its bill of materials. He said the larger concern is supply availability rather than margin pressure. He noted the company has experience managing disruptions, referencing the 2021 chip shortage and a 2022 fire at one of its contract manufacturers. On whether higher DRAM costs could be passed through, he said the direct P&L impact is limited and that the company believes it has pricing flexibility overall, while reiterating the focus on ensuring supply remains available.
Margin framework raised; cost actions and AI in operations
Fehr addressed the company’s updated profitability framework, noting that after an investor day eight months earlier where Cognex targeted 20%–30% through-the-cycle margins, it raised the range to 25%–31% and announced a major cost-saving program. He said the change did not reflect a fundamental shift in how the company views growth or margin potential, but rather improved execution and increased confidence in the company’s ability to reach milestones sooner.
He said Cognex achieved its initial milestone (20% margin) ahead of the 18-month timeframe it had targeted. He also said management had already discussed an ambition to exit the cycle at “at least” 25% margin, but initially did not frame it as a near-term target because it seemed too time-consuming to achieve. After executing over the subsequent eight months, he said the company has “clear visibility” into further actions, including portfolio and cost optimizations, supporting the updated 25%–31% framework.
On where cost opportunities are concentrated, Fehr said the “larger opportunity” is in SG&A, while also pointing to potential in R&D, citing AI-assisted coding and investments in a uniform platform strategy as factors that could reduce R&D spend from mid-teens percent of revenue to low-teens over time.
Fehr also said the company is deploying AI internally across software engineering, sales force automation (including lead generation), and customer service, including the use of a website chatbot that addresses simpler customer questions while also supporting lead-generation processes.
On gross margin, Fehr said the decline in recent years was “strongly driven by mix,” including the addition of Moritex and strong growth in lower-gross-margin logistics. He said gross margin has stabilized, and that based on the company’s initial 2026 outlook—where factory automation and logistics are expected to grow at a similar pace—mix headwinds could abate, supporting stabilization with “some upside opportunity” versus 2025.