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8-K - FORM 8-K - DIODES INC /DEL/ | d351418d8k.htm |
EX-99.1 - PRESS RELEASE DATED MAY 8, 2012 - DIODES INC /DEL/ | d351418dex991.htm |
EX-99.2 - CONFERENCE CALL SCRIPT DATED MAY 8, 2012 - DIODES INC /DEL/ | d351418dex992.htm |
Exhibit 99.3
DIODES 1Q 2012 EARNINGS CALL
QUESTIONS AND ANSWERS
Operator
(Operator Instructions)
Steve SmigieRaymond James & Associates Analyst
Dr. Lu, you guys had very nice growth in the June quarter, and I just was wondering if you could give us some discussion on where we are in the cycle. I guess Im getting a little bit, given the strong growth in June, can you still get strong seasonal growth into September? Do we have that kind of strength at this point in the cycle, or is it still too early to see seasonal better growth in September?
Keh-Shew LuDiodes IncPresident and CEO
Hi, Steve. We know our seasonal cycle is 1Q typically is lower than 4Q, and second quarter is going up, and third quarter will be another jump, then fourth quarter depends on the market situation, could be slightly down or slightly up, then go to next year, it go down again. Now, fortunately, this year even most the market went down, we are able to take advantage of warm up the market and ship out our finished good inventory which was built in the fourth quarter when we know slow down and we actually have excess capacity so we build those units and we are able to ship those units out and gain the market share and get growth. And second quarter we continue that market is warm but its not really very hot. We are able to due to past design wins and our new product efforts, we are able to significantly gain the market share. And we just believe go to the rest of year, well try to, like we have been doing, but I can tell you in second quarter we performed better in seasonality, and better in our SAMs growth. Now, third quarter, we dont know yet. So we cannot really make too much comment on third quarter.
Steve SmigieRaymond James & Associates Analyst
Okay. Thank you. And I guess similarly, on gross margin, there was some I think difficult pricing near term and you guys were making some effort to work down some lower margin product. So it seems that, again, as we go forward, I mean, you have a very nice jump in gross margin here in June but then going forward throughout the rest of the year it seems like you should continue to get gross margin gains as you get better utilization, as you no longer have the significant pricing impacts and as you start to mix in some better products. Is that sort of a fair way to think about it?
Keh-Shew LuDiodes IncPresident and CEO
Yes. Let me put in more detail. In the past at the last conference call I point out the four key issues affect our gross margin. One is ASP dilution and ASP pressure still continues, but we think in move forward that ASP pressure will be reduced and we should be able to keep the ASP. But whatever the pressure in the past, you go down in semiconductor business, its just very difficult to go to raise the price and we are not we do not have any intention to go to raise the price. But this I can say, that ASP pressure move forward, were going to be much more stabilized than the last two, three quarters. Second thing is the product mix. Due to the demand soft, start from probably June last year, I already start talking about we are moving our product mix to utilize our excess capacity, and that excess capacity is still there until probably 2Q we are able to backfill some. But we do not really or seeing it going to be backfilled full in the second quarter. Therefore, we are not moving our product mix. The product mix will keep the same thing. Now, the third one I think is equipment utilization, and equipment utilization in 4Q, we take advantage of that equipment utilization and we know first quarter due to the Chinese New Year, due to the short of people, shortened working day, were going to have we will not be able to utilize equipment. Therefore, we building in ahead some of the units using our utilization in 4Q. Then in the first quarter, we ship out those inventory and you know we put we reduced our finished good inventory about 20% and its not stacking the channel because the channel inventory actually going down too. So those help us improve the utilization and thats why we focus second quarter our GPM percent will be improved because utilization will be improved too. Copper-wire conversion, we still working on it, but its not going to be very quickly because the one we can convert, which is general market we have converted but for the major customer they typically wont convert it until the next model year or next design. So that one is going to be slow until we get it. So those four effects which affect our GPM. The one we can really improve is utilization. ASP pressure will be we are no longer going to be dropping the price but you are not going to raise the price to improve the GPM.
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Steve SmigieRaymond James & Associates Analyst
Great. Thank you very much.
Richard SewellStephens Inc. Analyst
Yes, its Richard in for Harsh Kumar. Congratulations on the quarter and the guidance. I just had a few housekeeping questions. For the tax rate, should we expect the 7% to 13% for the full year? And then what is your strategy for OpEx as well?
Rick WhiteDiodes Inc CFO
The tax rate will be that, at that rate, 7% to 13% for the year. Thats our projection right now. For OpEx, with the revenue growth, basically our model is to allow OpEx to go up at about half that rate.
Keh-Shew LuDiodes IncPresident and CEO
SG&A.
Rick WhiteDiodes Inc CFO
SG&A, Im sorry. SG&A, thats right, to go up about half that rate. So if revenue goes 10%, the SG&A would go up 5%. R&D, we allow to grow at the same rate. Thats kind of the model that were after.
Richard SewellStephens Inc. Analyst
Thats great. Thank you for the color on that. And then the other question I had is last year you had some the labor situation in China impacted the Company. After the Chinese New Year, did you see any of that again this year, or what steps did you take to kind of solve that problem this year?
Keh-Shew LuDiodes IncPresident and CEO
Well, the situation actually is similar because that phenomenon in China, it just during the Chinese new year a lot of people go home and just dont come back. But this year we take some precaution because we know going to be happen, we are not going to repeat the same problem as last year. So like I mentioned, we take the since we have excess capacity in 4Q last year, which actually build ahead some of the commodity units to use in that capacity. And thats why you see in 1Q we ship out finished goods, and thats what we have been doing. Second thing is, we pay more attention so we hiring the people ahead of the Chinese New Year, so this year we start from December last year, we already start to hire the people, get started getting training and, therefore, this year in 1Q we are much smoother than last year.
Richard SewellStephens Inc. Analyst
Thats great. Thank you. Ill jump back in the queue.
Chris LongiaruSidoti & Company Analyst
My first questions for Mark. Can you elaborate a little bit more on what youre seeing in Europe and what areas there are weak and what areas might be surprising?
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Mark KingDiodes IncSVP, Sales and Marketing
Well, Europe is probably the most uncertain market that were experiencing, although our first quarter was quite strong in Europe relative to fourth quarter. We had a major inventory adjustment in the channel in the fourth quarter, that continued some small decrease but with an actually improved order rates and improved POS rates in Q1. Second quarter is in line with our guidance. I think I mentioned in the speech that we expect continued improvements in Europe, although in the last two weeks we get a little bit more nervous as were seeing a little bit of adjustment, possible adjustment in the Euro that could have some impact. So I think its a little uncertain but we dont see dramatic change in the order rates.
Keh-Shew LuDiodes IncPresident and CEO
The key thing, how many percent of our revenue is in Euro instead of US dollar.
Mark KingDiodes IncSVP, Sales and Marketing
12%. Actually probably of the 12%, probably 10% of it is in Euro.
Chris LongiaruSidoti & Company Analyst
And whats the in terms of the ?
Keh-Shew LuDiodes IncPresident and CEO
More concern because if Europe, due to the election of the France, and the make the Europe very weak, then it would affect us because the revenue would go down.
Chris LongiaruSidoti & Company Analyst
In terms of that weakness, how much just in relative terms, how sensitive is that revenue to the shift in the Euro? Can you give us an idea?
Mark KingDiodes IncSVP, Sales and Marketing
Well, I mean, the only thing about 10% of our revenue globally is in Euros, so the impact of that percentage change whether go to 128 or 130, thats where the impact will be.
Keh-Shew LuDiodes IncPresident and CEO
We really dont know what will be the Euro exchange rate versus US, but that is the one if US significant Euro ratio change, that cause us a problem.
Chris LongiaruSidoti & Company Analyst
Just in terms of utilization, because now youre starting to add capacity again, where were you last quarter and with the added capacity, what is your number going to look like for June? I would imagine it would be a little bit lower?
Keh-Shew LuDiodes IncPresident and CEO
Well, were adding capacity at the area which is newer and advanced package because thats the area our new products start to ramp. So when we say we adding the capacity, that is the area, to support the new product, support new design wins, but from the commodity area which is majority of capacity, we still not fully utilized yet.
Chris LongiaruSidoti & Company Analyst
Okay. Okay. And so all these new products have a little bit of a higher gross margin too than the corporate average, I would imagine?
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Keh-Shew LuDiodes IncPresident and CEO
Yes.
Chris LongiaruSidoti & Company Analyst
Okay. Great. Thats all I had for now. Thank you guys.
Gary MobleyThe Benchmark Company Analyst
Dr. Lu, I know you might not answer this question because you always try to emphasize expansion and gross profit dollars versus gross margin, but hoping to narrow you down on a number here. Now, in the past youve delivered gross margins as high as 38%, roughly, and now were down sub-25%. Im just wondering when we might get back to the low 30% gross margin level, and what the quarterly revenue level needs to be to achieve that goal?
Keh-Shew LuDiodes IncPresident and CEO
Well, I think like I mentioned our gross margin percent is due to those four factors I mentioned about. So ASP pressure I think is there, is stop. So, we are not going to. The key one really is utilization. So we are looking at if the markets stable, then we can change our product mix to utilize the standard product, then we can improve our margin.
You asked me, thats not my focus anyway. My focus is on GPM dollar and as soon as we can continue improve our GPM dollar, we probably will continue try to gain market share and even 10%, 15% product, our GPM percent product business, why not take it. So I do not really spend the time or the focus in how do we get the GPM percent higher. More, how do we continue improve GPM dollar and, therefore, improve earnings per share.
Gary MobleyThe Benchmark Company Analyst
Okay. Fair enough. With respect to your labor cost in China, it is my understanding that Foxconn has a large facility right across the street from Chengdu, and theres been a lot of highly publicized labor wage increases in China. So Im just wondering what sort of labor price increases youre having to deal with on a year-over-year basis, and how that might trend for the balance of the year? And how impactful that is to your overall cost of goods sold?
Keh-Shew LuDiodes IncPresident and CEO
Like I say, labor problem in China, nobody can escape from there, we just need to deal with it. But, fortunately, I think in the past, what Im talking about is every 10% labor cost increase in China it affects us GPM percent somewhere around 0.5% to 1%. And that is really short-term because short-term, but then long-term you try to improve the productivity, you try to improve your utilization to offset that portion. So thats life. We stick with it, and we just need to work it out and its not a major I wouldnt say its a major because somewhere around 0.5% to 1% for every 10% improve, increase.
Gary MobleyThe Benchmark Company Analyst
Okay. Thats helpful. Mark, you mentioned a 3% sequential decrease in channel inventory for your parts out there, following an 8% decline during the fourth quarter. I would imagine your inventory in the channel always decreases sequentially in those respective quarters, so Im just wondering if you can give us some relative metric like days of inventory to give us a better sense of whats out there in the channel?
Mark KingDiodes IncSVP, Sales and Marketing
I dont have the days in front of me. I think that were probably globally just about, I dont know, 3.2 months. Which is probably pretty accurate. We probably have well probably see a little bit, probably flat to downish again in this quarter and then probably further
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down in third quarter as the demand increases. Were kind of in our pattern, actually, the end of the first quarter you might start generally seeing inventory ramping a little bit, preparing for later in the year. Im not sure that ramping down in the first quarter is generally our trend. So I think we were a little bit over and people are still a little bit sensitive to inventory in the channel. So well be flattish to down, and probably down again in the third quarter slightly and then well start to normalize our pattern again.
Gary MobleyThe Benchmark Company Analyst
Thank you, guys.
Suji De SilvaThinkEquity Analyst
Dr. Lu, in terms of the capacity I had, had the sense there was flexible around the low margin and the high margin products and Im surprised youre having to add capacity at the high end. I thought you would just mix up as the demand improved. Can you describe where youre adding this capacity again?
Keh-Shew LuDiodes IncPresident and CEO
Like I said, were adding at the newer and more advanced package, which is if you want to call, is high end or higher GPM type of capacity for the commodities spender in a capacity since it is still underutilized, we are not putting any capacity. As a matter of fact, some of the if I can convert some of the equipment for the supporting higher, then we will. But not everything you can convert. Tender, tester, trim and form you cannot convert. you can.
Mark KingDiodes IncSVP, Sales and Marketing
You might say its kind of a partial add. Some of the areas are very convertible into the new areas but some things we need different or maybe a different precision level than our historic product. So were making sure that we position those so that we dont miss any of the upside demand opportunities that we see in front of us.
Suji De SilvaThinkEquity Analyst
Okay. Maybe I can ask a different way. What percent of your capacity is specific to the lower margin products?
Mark KingDiodes IncSVP, Sales and Marketing
I dont think its that easy to say. I just dont think we could really get into that kind of granulation. Theres just areas that with certain packages that require certain different types of handlers and, or this that were trying to make sure that we have upside capability on and as we go forward, this is the type of equipment that well buy. And our standard products will move towards this as we progress.
Keh-Shew LuDiodes IncPresident and CEO
But you know, a lot of our new package we announced like PowerDI type of package. PowerDi type of package, I think those new package we announce, those is good package and advanced. If you remember our presentation, we are talking about diode move to the thinner, smaller package and (technical difficulty) type of package. PowerDi great example, and like other .
Mark KingDiodes IncSVP, Sales and Marketing
Some of our historical most of our historical stuff is wire-bonded and some of our newer products use clip, which is a different type of gives a different type of performance and so on, so theres just portions of each area of the manufacturing that we need to add to position ourselves to capture this demand.
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Suji De SilvaThinkEquity Analyst
Okay. Quick last question on the second quarter, the guide. I think you said the inventories stay flat to down. Is most of the demand here sell through customers increasing demand or is it some restocking at the customers would this be? Thanks.
Mark KingDiodes IncSVP, Sales and Marketing
I would say its through demand. I think were going to be supporting demand in the quarter.
Keh-Shew LuDiodes IncPresident and CEO
Yes. I think Mark already say we expect the second quarter this inventory will continue going down so you could see based on that statement it should be sell through.
Suji De SilvaThinkEquity Analyst
Perfect. Thanks, guys.
Ramesh MisraNational Securities Analyst
First question in regards to balance sheet, I guess cash went up mostly because of this $42 million draw down. Can you tell me a little more about it? You just paid down your debt about three quarters ago. Now youre borrowing money again. What are your thoughts? Why? Why are you increasing ?
Rick WhiteDiodes Inc CFO
Its a flexibility issue. When you have $300 million or $200 million of cash from a convertible note, you have lots of flexibility and we paid that down and we just decided we wanted to have some additional flexibility for general corporate purposes, M&A, CapEx, if we wanted to do it, those kinds of things.
Ramesh MisraNational Securities Analyst
What are the terms on this debt?
Keh-Shew LuDiodes IncPresident and CEO
The money is for Chengdu expansion.
Rick WhiteDiodes Inc CFO
Sure. So thats part of the CapEx that we do. Its actually, its just an adder to the credit line that we have with BofA anyway. Its actually cheaper than .
Rick WhiteDiodes Inc CFO
Its actually cheaper than a credit line. I think its LIBOR plus 1.25.
Ramesh MisraNational Securities Analyst
Okay.
Rick WhiteDiodes Inc CFO
And the convert was like 2.25, and were at LIBOR plus 1.25, so thats about 1.5, 1.6, something like that.
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Keh-Shew LuDiodes IncPresident and CEO
Cheaper money. So we just said take advantage of that.
Ramesh MisraNational Securities Analyst
Okay.
Keh-Shew LuDiodes IncPresident and CEO
And using it.
Ramesh MisraNational Securities Analyst
Okay. Any thoughts in terms of acquisitions, M&A opportunities?
Keh-Shew LuDiodes IncPresident and CEO
Well, we dont have any major M&A right now under-working.
Ramesh MisraNational Securities Analyst
Okay.
Rick WhiteDiodes Inc CFO
But were still open to it. Were talking to investment bankers and everybody on a weekly or not quite a daily basis, but periodically. So were
open to it.
Keh-Shew LuDiodes IncPresident and CEO
If the opportunity is there, we will take action. But right now we dont have anyone under contract.
Ramesh MisraNational SecuritiesAnalyst
Got it. In regards to Chengdu, Dr. Lu, you had, last quarter you had said that youre holding off on expanding capacity over there. Youre still kind of continuing to add a little bit. Any update on your thoughts in regards to the build out of Chengdu?
Keh-Shew LuDiodes IncPresident and CEO
I think Ill speak today we already say, we finish the building by end of this quarter and then well start to do our to put the facility .
Rick WhiteDiodes IncCFO
To outfit the building with electricity, Murphy, clean room, that kind of stuff.
Keh-Shew LuDiodes IncPresident and CEO
Were hoping just get it ready next year, because the power it take about nine months to 10 months. So I think we finish the building, we start to do the power line and we started getting ready so whenever the market turns, where we see really the need, then we can take advantage of that. And right now is long detail item like power were going to start to do the power line, to bring the power in. So this is what were doing.
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Ramesh MisraNational SecuritiesAnalyst
Got it. In regards to the capital constraints in China and end demand in China, what are you seeing over there? Do you think the worst is now behind us over there, or is it still kind of a little bit murky?
Keh-Shew LuDiodes IncPresident and CEO
This is very difficult question for me. I pay more attention to our market or our customer.
Mark KingDiodes IncSVP, Sales and Marketing
I would say the demand is rising as with the other regions in the second quarter. I dont think that theres any great march forward but I think that the demand is stable to up.
Ramesh MisraNational SecuritiesAnalyst
Okay. So you would feel a little better about China than Europe at this point in terms of just recent developments?
Mark KingDiodes IncSVP, Sales and Marketing
I mean, yes. I mean, I think Europe is its swirling within its own economic turmoil and so the question is, is how people respond to that. I think the underlying issues really havent changed that much. So we just have to see how everybody handles it going forward. And that will probably sort out in the next month or so.
Ramesh MisraNational SecuritiesAnalyst
Got it. And then finally, in regards to the industrial segment, well, at least here in the US we have been seeing more positive signs from the industrial market. In Europe, I guess since a lot of it is kind of export oriented to China, its still kind of a little bit cloudy. So what are your thoughts and outlook in regards to the industrial end market going forward?
Mark KingDiodes IncSVP, Sales and Marketing
I think it looks pretty good. I think were seeing some of the improvements that weve been talking about in North America have been driven by the industrial segment. Actually, we were up in all regions in the industrial segment in the first quarter, and I think we see solid advances in Asia in the industrial segment in Q2.We do a lot of business in power supply with our SBR products so were making some good traction there and again, Europe is a big industrial marketplace so how Europe goes well see that going forward.
Ramesh MisraNational SecuritiesAnalyst
Okay. All right. Thanks very much, folks. Thats very helpful.
Shawn HarrisonLongbow ResearchAnalyst
I just wanted to follow up on smartphones and tablets, a lot of conversation in the beginning of the call, the growth there, and the growth outlooks. What percentage of revenues do those products represent right now and maybe where could they run over the next 12 months as a percentage of sales?
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Mark KingDiodes IncSVP, Sales and Marketing
We really dont break that out. But as you can see, our consumer sector, were 34%.Were 34% consumer. So thats a strong segment for us, along with smartphones, tablets, LED-TVs, also a strong thing. So we dont really break out those two categories as a percentage of revenue.
Shawn HarrisonLongbow ResearchAnalyst
Okay. I mean, is it something that we could over the next 12 to 24 months approach even half the consumer business? Im just trying to get an idea.
Mark KingDiodes IncSVP, Sales and Marketing
I really dont think were going to dissect that.
Shawn HarrisonLongbow ResearchAnalyst
I guess second follow-up, just on end demand. We talked about kind of I guess whats good and some questions within Europe. Maybe any end products that youre selling into or markets that were just not seeing the upturn yet.
Mark KingDiodes IncSVP, Sales and Marketing
In Europe specifically, I mean, I think weve seen some decent expansion in our business in the automotive sector. Maybe a little bit in the consumer sector in some TV applications and so forth. And I think the industrial segment actually did in Q1, increase over Q4. I was kind of when I said I wasnt sure, I was really talking about the outlook for Q2.
Shawn HarrisonLongbow ResearchAnalyst
Okay. And I guess maybe just the notebook PC market in general, expectations for the rest of the year, is it are we going to see growth or are you kind of a little bit more tempered?
Mark KingDiodes IncSVP, Sales and Marketing
No, I think that well see I think well see muted growth in that segment for the balance of the year or through its normal cycle.
Shawn HarrisonLongbow ResearchAnalyst
Okay. And then just one final follow-up. Rick, the tax rate being lower for this year, as we move into 13 was this kind of a permanent structural shift in terms of where taxes will be, or does it rise maybe as end demand continues to improve?
Rick WhiteDiodes IncCFO
Well, I think in general our tax rate has been higher historically and I would think that we would move back more to the historical perspective going forward next year and beyond.
Shawn HarrisonLongbow ResearchAnalyst
Okay. Very helpful. Thanks so much.
Stephen ChinUBSAnalyst
I have a couple questions on the end markets, so for Dr. Lu or for Mark. I guess going back to the commentary on smartphones and tablets, was wondering if you could talk give us a little more color on I guess what products growth in those two end markets or product areas are helping the drive? Is it more commodity discretes that youre selling to those products or is it customer specific discretes or potentially any increase in analog content in those smartphone and tablets?
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Mark KingDiodes IncSVP, Sales and Marketing
I think that were strong, I think weve seen a lot of action in our bjt products. I think weve seen a lot of action in our MOSFET products. Were seeing we see that marketplace as a strong place for our logic business. So were trying to attack with our product line across the board. Yes, we sell commodity products into that area, but were very much more focused on our premium product in those end equipments.
Stephen ChinUBSAnalyst
Okay. And then also as far as notebook, I guess following up to the previous question on notebooks, any comments on how demand surrounding new product cycles such as Intels Ivy Bridge and maybe even comments a little further into and looking out into Q3 for example around back-to-school. Any comments around longer term demand, or medium term demand and also PC demand in other areas such as Asia?
Mark KingDiodes IncSVP, Sales and Marketing
To be honest with you, we kind of follow that month-to-month. The notebook cycle is not something you can I dont know, we dont see it predictable outside of what we see in the next 60 to 90 days. And we see some improvements in the sector. We see opportunities for our growth in those sectors through new design wins and new products that we have going into that product in our USB switch area and some logic areas and then the MOSFET product area. So overall demand, sometimes when I look at our revenue versus the overall demand, Im really more focused on what I see our revenue flow to be and I see some growth opportunities there. Not as much I dont have watch the unit output quite as much. Other people might have a better vision of where thats going to be six months out.
Stephen ChinUBS Analyst
Okay. And just one last one on ASP pressures that you mentioned earlier. Is that expected to abate in the current quarter or in the second half and was this is this because of competitors that started to cut pricing in order to move product or is it some of your direct customers are looking for more pricing concessions? That would be helpful.
Mark KingDiodes IncSVP, Sales and Marketing
Customers are always looking for price concessions. Thats their job. And yes, when utilizations down, theres ASP pressure. And as people get out of mix, they sell things that they dont normally sell. So yes, we believe and we hope that demand stabilizes and as we go to even nominal growth, that ASP pressures will be alleviated. We always have ASP pressure. Our goal is to change our ASP mix as well as the improved market should help that situation.
Stephen ChinUBS Analyst
Great. Thanks, Mark.
Keh-Shew LuDiodes IncPresident and CEO
Thank you for your participation today. Operator, you may now disconnect.
Operator
We thank you for your participation in todays conference, you may now disconnect and have a great day. your week.
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