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| 8-K - FORM 8-K - DIODES INC /DEL/ | d71033e8vk.htm |
| EX-99.1 - EX-99.1 - DIODES INC /DEL/ | d71033exv99w1.htm |
| EX-99.2 - EX-99.2 - DIODES INC /DEL/ | d71033exv99w2.htm |
Exhibit 99.3
Diodes Inc — 4Q 2009
QUESTION AND ANSWER
(Operator Instructions). John Vinh, Collins Stewart.
Congratulations on the quarter, guys. First question on the guidance. The guidance obviously
above seasonal, but slightly below some of the guidance that some of your peers have given. Is your
guidance still a capacity constraint? Can you talk a little bit about that?
John, let’s look at how do we go through. We grew 33%, then 18%, then 7% quarter over quarter
through our last year. And if you look at our guidance, you know, despite the seasonally Q1
typically is the lowest quarter of the year, we have a very good possibility we’re going to set the
new revenue record for our Company.
Therefore, the reason is we have grew very strongly quarter over quarter the last three quarters.
Now Q1 is the fourth consecutive quarter continuing growth. So I think we actually recover much
faster and earlier than our peers.
So when you focus on the Asian market and you focus on consumer, computer and communication type of
markets, I think we have been growing faster and recovering faster than our peers.
Okay, so just to clarify, it doesn’t sound like capacity is going to be an issue for you in
Q1.
Well, it’s still. But we continue to invest. If you remember our last—quarter conference call,
I always say we return into the profitable growth mode, and therefore, since September we have been
start to put in investment in our capacity expansion.
And therefore, yes, we still continue constrained by our packaging — I’m more talking about
packaging output. We’re still really constrained by that, but we have increased our capacity, too.
Then turning to inventory, you talked about some of the disty inventories increased slightly
in Q4. What do you anticipate that the distys are going to do with inventories in Q1? Are they
going to going to be able to continue to build a little bit of inventory in Q1? And then, the
follow—on to that is what does that imply for kind of your seasonality of the rest of the year? If
they are building inventory in Q1, does that kind of imply that maybe Q2 might be a little bit less
than seasonal?
In our business, typically 4Q — the distributors build up some inventory, and it’s because
everybody gets — every year, everybody gets ready for the Chinese New Year in Q1.
So, it’s typical if you up some inventory when, in fact, this year, or 2009, the inventory build is
actually less than in the past. And typically in Q1, they will continue build up some because
typically start from second quarter and go to third quarter, our capacity will be start to tighten
up, and they have less possibility to get the parts from us, and therefore typically they always
build up more inventory in Q1, so it would not be surprise to us if they increase, but so far we do
not forecast in our forecast there will be increase, but typically there may be.
Okay. Do you anticipate, though, they’ll continue to build inventory into Q2? Or do you think
they’ll get to kind of a level of inventory where they are comfortable with after Q1?
They would love to build up additional inventory. But depend on our growth, our own growth,
and depend on our output of our manufacturing facility, they may not able to build additional
inventory.
And then just last question from me, can you maybe just give some color on the end markets in
terms of your expectations for Q1? Do you expect at all your end markets will be tracking to above
seasonal on Q1? Are there any that are going to be at or slightly below seasonal Q1?
Well, if you are compared with seasonable, then we see now all the markets, okay? Even
computer, typically Q1 is slower from seasonality point of view. But we see some slowdown, but it’s
still higher than seasons.
And so, if you consider just for seniority, actually in our opinion it’s all the end markets we
participate are growing.
Shawn Harrison, Longbow Research.
First question, looking at capacity utilization within the fabs. I think last quarter it was
mentioned that you were targeting about 75% utilization in Zetex, about 85% at FabTech. I’m
wondering where those ended 2009.
I think, Rick, you have the number, right?
Yes, that’s about where we ended up. In FabTech, we were middle 80s, and in Zetex, we were
right below middle 70s.
Okay. And given those capacity utilization rates, is it safe to say that the majority of the
CapEx spending in 2010 will be then focused more on the packaging side and not in trying to
increase efficiency at the fabs?
You are right.
And then beyond that, as we look to 2010, Rick, maybe you could talk about this, do you think
you’ll be free cash flow positive for the year, and maybe just how we should think about that cash
being deployed in terms of more convertible debt being repurchased or some other uses?
I think we, of course, don’t make statements for the full year, but we do expect positive cash
flow. I would say that convertible notes are, if you look at the discounts versus the par value, I
don’t think that you’re going to see us purchase too many convertible notes back.
And we have plenty of opportunities in the assembly test area for CapEx, so I think Keh—Shew is
going to concentrate on capacity expansion and other M&A opportunities that come along.
Then two brief questions to wind up for me. With your comment on good pricing right now, does
that mean you’re are getting any price increases in the market or does that just mean generally
flattish pricing?
And then, second, there was a news release I believe out last week saying a company called Dialog
Semiconductor acquired some power management technology from you. If you could just elaborate for
me on exactly what that was?
From the pricing point of view, we typically don’t like to go to our customers to raise the
price. So I should say the price is stabilized, and then, what we can do typically is adjust to the
product mix, and that product mix will be — enable us to increase the average selling price. And
what is your second question?
There was a news article that came across the wire that — it looked like Diodes had sold some
power management technology to a European semiconductor firm last week. I was just — maybe if you
could elaborate on exactly what that was.
This — we through the acquisition of the Zetex, it has a technology developed, and actually
Zetex acquired that technology through some acquisition several years ago.
And that technology is really a good technology. It’s just not really aligned with our products
developing direction or our product strategy. It’s a growing technology. And Dialog, they are neat,
and therefore, we make the deal between two companies.
It’s not a big acquisition. But the key thing is the technology is great, and there’s good for
them. But for us, it’s just not aligned with our product strategy or product direction.
Thank you very much and congratulations on the good results.
Brian Piccioni, BMO Capital Markets.
Thanks for taking my question. Just to get back on the issue of seasonality, obviously given
the acquisition of Zetex and the economic environment and the recovery from the economic
environment, how would we — just filtering through all that, how would we try to paint the picture
for what normal seasonality would be when business stabilizes, understanding that there’s likely to
be growth on top of that?
Well, if you look back to history, typically Q1 is a 5% to 10% negative drop from Q4 of
previous year. That is typical, and with the Zetex acquisition, it enabled us to get into more
markets, especially — and enabled us to sell those Zetex products into the Asian market, including
our own customers, our Asian customers.
And therefore, it enabled us to start to get to the record setting in the quarter instead of
negative growth quarters. So, I’m very pleased with the acquisition and provides us an opportunity
to setting the record, revenue, in Q1.
I’m sure you don’t want to give us an outlook for Q2 and Q3, but normally speaking, would we
expect Q2 to be a higher quarter than Q1 or a lower quarter than Q1? Because, again, now that
you’ve brought the two businesses — you’ve no sooner brought the two businesses together than we
ran into the economic problems and recovering them from, so we don’t see a clear pattern from the
historical quarterly seasonality. So, what would the quarter—to—quarter seasonality probably look
like when things stabilize?
Second quarter is very difficult to predict. Especially if you look at typically Q1 go down
and then Q2 come back, and Q2 typically is even to Q4 previous year or Q3 previous—year numbers.
But this year, because Q1 didn’t go down, therefore it’s very difficult to see is Q2 going to be
continued growth or not. And that’s one thing is — I touch on it. Everybody here — I am in
Taiwan. Everybody here try to understand it’s actually — look at the March month because after
Chinese New Year, if the March month is very hot, then you will see the momentum continue through
Q2.
But if you — if the March month starts to slow down, then Q2 will be probably flat. But, we don’t
know. And everybody is looking at third month. March month.
In the press release and in the spoken comments, there was — you were referring to continued
momentum in the first half. Presumably that was just a statement of visibility, not so much that
you saw something bad happening in the second half. Is that correct?
You are right. We just say we don’t know the second half, but with Q1 we can feel — the first
half. You know, stronger than normal quarter years — that’s all we’re talking about.
I just figured I’d ask. And then, finally, you mentioned new—product directions and that sort
of thing. Is there anything you can share with us, you know, markets that you hope to open up,
new—product verticals, or anything like that? Are you — would you rather it be a surprise to your
competitors?
I would prefer some surprise.
Ramesh Misra, Brigantine Advisors.
Dr. Lu, in regards to your CapEx level of 10% to 12%, how much capacity expansion would that
support on your facilities — back—end facilities in China?
Majority of our capital expenditure, I think like we’ve mentioned previously, would be all
focused on packaging — back—end capacity. And with 10% to 12%, and we intend to be close to 12%
than close to 10%, and we might spend, because it depends on first quarter, third quarter
situations, we might spend earlier in the second quarter for fourth—quarter growth. Okay (multiple
speakers)
How much increase in capacity would that result in, approximately?
Ramesh, if I can step in for a second, I think it’s really hard to say because there is a
different mix of packages, and some packages generate more units and revenues, so I think it’s
really hard to classify it in just units. Because for our analog product lines, we have some more
sophisticated packaging that we don’t get as many units but we get more revenue value.
So, the key picture is we’re positioning all of our key packages for growth and evaluating it
monthly to make sure that we don’t stymie any product lines or any of our new product lines with
insufficient capacity.
Okay, Mark, so you’d probably guess my follow—up question. If it’s difficult to gauge on a
unit basis, is it easier to gauge on a dollar basis?
Yes, it goes the same way. I think you understand our typical growth patterns and objectives.
And I think there should be nothing to say that we’re not trying to drive ourselves those
directions.
Got it. In regards to the LED drivers that you’ve been talking about, are these predominantly
for the handset market or are they also for laptops? Does it even include TVs?
Dr. Lu, do you want me to take that?
Yes, go ahead.
Most of our LED drivers’ legacy from the Zetex side has been more about in driving
higher—powered LEDs. Now, some of our recent product announcements have been looking at — and last
— couple of quarters ago, we announced something for small—diameter displays and so forth. So I
think you’ll see our product direction moving more into the display world rather than flashlights
and outdoor lighting and so forth.
But I’d say the predominant amount of our revenue now is coming from the present historical Zetex
product line, with the direction moving towards the display market.
And then, in regards to Q1 ordering patterns, and I guess, Dr. Lu, since you are in Taiwan,
you might be able to comment on this, any difference in regards to order patterns out of Asia
surrounding the lunar new year? Or is it pretty in line with historical trends in Asia?
Actually, in January, even until today, a lot of customers want us to ship ahead because this
year Chinese New Year is little bit late. You know, it’s — Chinese New Year start from February
14, which is second half of the February. Okay, so this year, Chinese New Year is later than
normal, and we can see a lot of pull—in for January — and even until today because they are
prepared for gear back up at Chinese New Year shutdown.
And that’s why it’s very difficult to see, and as I earlier mentioned, I will know more after
Chinese New Year and look at the March ordering pattern, and that will tell me how strong the
second quarter will be.
Just a very quick follow—up on that, Dr. Lu. So the strength in your guidance for Q1, is that
driven predominantly by strength out of Asia or is it 50/50 Asia versus North America and Europe?
I think in our speech, we already said actually Europe and U.S. is not just stabilized. They
are — we see some recovery. So, yes, if you look at them both, U.S., Europe, and Asia, all the
region is growing.
And one quick final one. In terms of M&A activity, are there any product area holes that you
see that you would like to fill or any particular direction that you see transitioning Diodes
towards through M&A?
Well, we are looking at different opportunity, and like I previously said, I will prefer some
surprise if we get into the new areas.
Congratulations, guys. Take care.
Steve Smigie, Raymond James & Associates.
Congratulations on the good quarter and guide. I was hoping you could talk a little bit about
option expense. I’m not sure if you guys gave a breakout by R&D versus SG&A versus COGS? If you
could give that, if that’s not in the press release somewhere and I missed it.
Yes, it’s not in the press release. We didn’t give a breakout of that. I don’t have that right
in front of me.
Maybe we can talk later. I guess, could you give some sense what you’re thinking that expense
might be in Q1?
It’s probably going to be about the same as it was in the fourth quarter.
Okay, and then a trade utilization, it seems like you still have pretty low utilization in
your fabs. So would it be reasonable to expect that, since things are tight, that you would see
both a mix improvement plus some continued pickup in cost coverage, or — I think it’s higher
utilization is a better way to say it, that would drive higher gross margin throughout the balance
of the year, potentially?
You’re talking about the back end or you’re talking about front end?
More the front end. It seems like the front end’s still got some utilization to recover.
Yes. Front end if you — this separates from FabTech and Oldham fab. FabTech — we tried to
grow our sales. In the past, almost 50% of that capacity was foundry for other customers, and we
have been growing ourselves to utilize that fab, and unfortunately it’s our customers who, use
foundry from us, they are not really fully recovered yet. That’s why it caused our utilization not
fully loaded.
But we will continue to grow our areas. So we still have the room to grow in our FabTech.
In Zetex, if you remember in the history, we shut down the four—inch line and now we try to grow
the six—inch line, and we actually authorized some capital equipment for each — during the
downturn last year, and then we tried to balance lines then. So we actually authorized another gear
of the equipment late part of last year and tried to balance the line.
So we still have some more room, and actually the capacity was still growing some in the — until
the second quarter. So that piece of equipment — on some piece of equipment to balance the line
will be installed, will be delivered during Q1, and then to start production, start from 2Q, so it
starts from 2Q. We still had even more capacity available.
Then, something you had talked a little bit about, how you are thinking about guidance here in
terms of how are terms in this quarter in terms of your guidance versus what you did in Q4?
Typically, you guys are pretty conservative in terms of how you guide, and you guys beat the last
couple of quarters coming at the high end of your range. Is it fair to say that you behave in your
typical manner or are you more aggressive in the guidance this quarter?
Well, Steve, you know me, right? I’m a little conservative and I prefer we — if we want to be
surprised, we would prefer a positive surprise instead than a negative surprise.
Christopher Longiaru, Sidoti & Company.
Congratulations on the quarter and the guidance. I guess my question has to do with the fact
that a lot of my peers are concerned about inventory levels going forward, and I wanted to know if
there is anything that you’ve seen in your sales channels or in the inventory channels that would
lead you to believe that there is an inventory problem or that there is double ordering going on?
What’s your take on that? And — well, I’ll leave that one and I’ll continue.
I really don’t concern the inventory level because, like in our speech, we typicallyare at a
much higher inventory level than our December inventory.
If you remember 2008, we actually get 2.8 months, and this quarter — in December this year, we
only get two months. So I’m not really concerned about inventory level our distributor had because
this is our business always. Our distributors build up some inventory in Q4 and then build up some
more in end of Q1, and then start to decrease the inventory in Q2, Q3, and then come back to build
up again.
So, we are not concerned. From double order point of view, it may be of some but not in our
business because our lead time is very short and so, therefore, there’s no reason they keep us
double orders. So, I’m not concerned Diodes business has double order, either.
Great. The other question I had was just on the gross margin line, you’ve still got a little
bit more utilization to fill, and I know you’re going to spend money on the packaging side of that
to get that rate up. What do you think your gross margin can go to at full utilization at this
point?
Well, our goal is always try to get to 35%. That’s our — 35% GPM. That’s our business model,
but I’ll always let investors know, we focus more on the GPM dollar instead of GPM percent.
And if you see our announcement, most important is gross profit increased 83% over prior—year
quarter. So this is more important, is profit — gross profit instead of gross margin as a percent.
Our — my direction for the Company is grow as fast as we can, such that your gross profit dollars
will be continuing to grow at a much, much rapid rate.
And so, our business model is 35%, but I’m not — if I get a growth opportunity, I prefer growth
instead of get the percent higher.
Got you. Thank you, guys.
Your last question comes from the line of Stephen Chin, UBS.
Thank you for squeezing me in here. Congratulations on the solid results and outlook.
I had a few questions here. Dr. Lu, first thing on — in terms of the Shanghai back—end packaging
facility, is that facility going through the normal Chinese New Year holiday shutdowns like you
normally would? And if it is, I was curious as to how you’re able to meet the additional unit
growth for Q1 along with the longer lead times that you mentioned earlier.
Is that all — has that all largely been fulfilled during the January month and also first part of
February, or is there additional unit growth that you expect there in March to fulfill the overall
demand for Q1 that you are guiding for?
Okay, number one, we do not really plan for the Chinese New Year shutdown. February, we’re working
on 26.5 days. 26.5, and we only shut down for one day, for the Chinese New Year day, and then prep
half day for maintenance. During that 1.5 days, for the maintenance, for the gear everything up, so
we fill our capacity based on 26.5 days in February.
And what we do, we actually hire more people — storage more people in — from December and
January. So, to do two things. One is try to build up more units; at the same time, prepare for
people don’t return from Chinese New Year.
And actually, we do some more actions. We pay for the people needed to stay over the Chinese New
Year and give them bonus if they stay, and if they — for the whole Chinese New Year holidays, if
they — nobody take any vacation, they even get even more bonus.
So we take a lot of actions to prevent any Chinese New Year slowdowns. And, at the same time,
you’re right, some capital equipment will come in and — which are authorized in the
October/November time frame that were installed and can give us more capacity in the March month.
And I guess, since you’re on Asia, is this approach to meeting some of the upside in demand in
Q1, is this something that is common from — or somewhat more common this quarter at some of your
customers and potentially even your peers, from what you can see and hear out there?
I do stay here, talk to a lot of customers and a lot of peers, and everybody — right now,
everybody is asking for more shipments, and everybody is very bullish. But, again, very caution,
and I think the picture won’t be clear until Chinese New Year, until March.
And if March continues the strength like what we see, then we will know what will be happening in
the second quarter. And I prepare — I’m very careful. That’s why I’m personally here and make sure
because we are — if we see a sign, then who will authorize more capital equipment? Because even
until today, we’re still hand to mouth, and I reduced capital money just ahead of the need, and I
just need to understand in person what will be happening, and especially if second quarter is weak,
I’m not worried because then we will use it up in third quarter.
But if the second quarter is very strong, then I need to prepare for the third—quarter growth and
even fourth—quarter growth. Then I need to authorize more capital equipment. I just don’t want to
lose the opportunity of the growth by not invest enough.
Thanks for all that color. And a couple of quick questions for Mark on the product side. Mark,
you mentioned earlier in terms of your Asia distributors, they’re building some strategic
inventory. Are there certain products within the Diodes product portfolio that they are building a
little bit of inventory in or is it maybe perhaps the end markets like (multiple speakers)
No, I think it’s pretty broad—based and I think that our distributor inventory is pretty
customer—specific, so they’ve drained it down and they’re trying to be — put it back in shape for
— to go forward with their customer base.
But I think that we’ve also been able to position more of our USB switch product, as well as more
of our MOSFET product, in positioning for some new design wins that we expect to ramp in the coming
quarters.
So, both inventory has been specific for customers on a broad—based level, as well as some
positioning due to design wins for ramp—ups in post—Chinese New Year and early second — third —
early — end of first—quarter, beginning of second—quarter ramps.
And lastly, as it’s related to set—top box products and also I guess TVs, products that take
your USB switches, is it purely share gains or are those new customer, that win that is helping to
drive the growth, and are there also underlying upgrade cycles or new product cycles that may be
happening at some of your existing customers that’s helping to drive that growth? Can you help
qualify, I guess, how that’s (multiple speakers)
Yes, I would say it’s a little bit of all. Clearly, as we grow, everything we grow in USB
switches and market—share gains since we are a newcomer a year ago, and if you saw — and when we
talked about our revenue growth doubling in a quarter, so clearly we are taking share and we’re
making significant progress in that area.
But we’re in our second and third generations of some notebooks or set—top box with new products.
So I would say that there is passing on to new units and new products in new units, as well as just
overall gains.
Thanks again and congrats again on the good results.
I would now like to turn the call back over to Dr. Keh—Shew Lu for closing remarks. Please
proceed.
Well, thank you for your participation. 2009 is sure a tough year for us. But with our strong
recovery effort, we actually grew to 33%, 18%, 7% quarter over quarter, and positioned Diodes at a
possible record—setting — record revenue setting quarter in this quarter.
And I think we are very pleased with the results of 2009 and looking forward a good and a strong
2010. So thank you very much for participate and, Operator, you may now disconnect.
Ladies and gentlemen, that concludes today’s presentation. Thank you for your participation.
You may now disconnect and have a great day.