Diodes Incorporated (DIOD) CEO Keh-Shew Lu On Q4 2021 Results – Earnings Call Transcript

Diodes Incorporated (NASDAQ:DIOD) Q4 2021 Earnings Conference Call February 9, 2022 5:00 PM ET

Company Participants

Leanne Sievers – Shelton Group, IR

Keh-Shew Lu – Chairman, President & CEO

Brett Whitmire – CFO

Emily Yang – SVP, Worldwide Sales and Marketing

Gary Yu – SVP, Business Groups

Conference Call Participants

Matt Ramsay – Cowen & Company

William Stein – Truist Securities

Gary Mobley – Wells Fargo Securities.

Tristan Gerra – Baird

David Williams – Benchmark

Disclaimer*: This transcript is designed for use alongside the freely out there audio recording on this web page. Timestamps throughout the transcript are designed that can assist you navigate the audio ought to the corresponding textual content be unclear. The machine-assisted output offered is partly edited and is designed as a information.


00:02 Good afternoon, and welcome to Diodes Incorporated Fourth Quarter and Fiscal 2021 Financial Results Conference Call. At this time, all members are in a pay attention-solely mode. At the conclusion of at this time’s convention name, directions will probably be given for the query-and-reply session. [Operator Instructions] As a reminder, this convention name is being recorded at this time, Wednesday, February 9, 2022.

00:36 I’d now like to show the decision over to Leanne Sievers of the Shelton Group, Investor Relations. Leanne, please go forward.

Leanne Sievers

00:43 Good afternoon and welcome to Diodes’ fourth quarter and monetary 2021 monetary outcomes convention name. I’m Leanne Sievers, President of Shelton Group, Diodes’ Investor Relations agency. Joining us at this time are Diodes’ Chairman, President and CEO, Dr. Keh-Shew Lu; Chief Financial Officer, Brett Whitmire; Senior Vice President of Worldwide Sales and Marketing, Emily Yang; Senior Vice President of Business Groups, Gary Yu; and Director of Investor Relations, Gurmeet Dhaliwal.

01:09 Before I flip the decision over to Dr. Lu, I’d prefer to remind our listeners that the outcomes introduced at this time are preliminary as they’re topic to the corporate finalizing its closing procedures and customary quarterly overview by the corporate’s unbiased registered public accounting agency. As such, these outcomes are unaudited and topic to revision till the corporate information its Form 10-Ok for its 2021 fiscal yr ending December 31, 2021.

01:34 In addition, the administration’s ready remarks comprise ahead-wanting statements, that are topic to dangers and uncertainties, and administration might make extra ahead-wanting statements in response to your query. Therefore, the corporate claims a safety of the Safe Harbor for ahead-wanting statements that’s contained within the Private Securities Litigation Reform Act of 1995. Actual outcomes might differ from these mentioned at this time, and due to this fact, we refer you to a extra detailed dialogue of the dangers and uncertainties within the firm’s filings with the Securities and Exchange Commission, together with Forms 10-Ok and 10-Q.

02:04 In addition, any projections as to the corporate’s future efficiency symbolize administration’s estimates as of at this time, February 9, 2022. Diodes assumes no obligation to replace these projections sooner or later as market situations might or might not change, besides to the extent required by relevant legislation. Additionally, the corporate’s press launch and administration statements throughout this convention name will embrace discussions of sure measures and monetary info in GAAP and non-GAAP phrases. Included within the firm’s press launch are definitions and reconciliations of GAAP to non-GAAP gadgets, which offer extra particulars.

02:36 Also all through the corporate’s press launch and administration statements throughout this convention name, we refer you to web revenue attributable to widespread stockholders as GAAP web revenue. For these of you unable to hearken to the whole name right now, a recording will probably be out there by way of webcast for 90 days within the Investor Relations part of Diodes’ web site at www.diodes.com.

02:57 And now I’ll flip the decision over to Diodes’ Chairman, President and CEO, Dr. Keh-Shew Lu. Dr. Lu, please go forward.

Keh-Shew Lu

03:06 Thank you, Leanne. Welcome everybody and thanks for becoming a member of us at this time. Diodes had a file yr in 2021, reflecting sustained execution that consisted of 5 consecutive quarter of file income, in addition to seven consecutive quarter of adjusted earnings progress. In truth, full yr income grew 47% and the gross revenue grew 56% with GAAP incomes per share increasing 166% and adjusted earnings per share increasing 120%, demonstrating the numerous working leverage in our mannequin.

04:02 Additionally, gross margin expanded 610 foundation factors from the primary quarter of 2021, the primary full quarter after finishing the LITE-ON Semiconductor acquisition, to the fourth quarter of 2021. This enhance was pushed by a mixture of product combine enhancements, manufacturing efficiencies and improved loading.

4:43 Also contributing to our ongoing margin growth has been the achievement of 5 consecutive quarter of file Pericom income, three consecutive quarters of file industrial income in addition to six consecutive quarters of file automotive income, which grew 59% in 2021 and reached a file 12% of whole income for the total yr.

05:19 With the total yr income of $1.8 billion and gross revenue of $0.7 billion, 2021 represented a big step towards our 2025 targets of $1 billion in gross revenue on $2.5 billion income and 40% gross margin. In addition to the manufacturing synergies offered by LSC acquisition over this previous years, we anticipate to appreciate expanded synergies throughout our product portfolio, prospects and finish markets within the coming yr to drive extra income progress and gross margin growth.

06:16 With that, let me now flip the decision over to Brett to debate our fourth quarter monetary outcomes and our first quarter 2022 steerage in additional element.

Brett Whitmire

06:32 Thanks, Dr. Lu and good afternoon, everybody. As a part of my monetary overview at this time, I’ll focus my feedback on the sequential change for every of the road gadgets and can refer you to our press launch for a extra detailed overview of our outcomes, in addition to the yr-over-yr comparisons.

06:52 Revenue for the fourth quarter 2021 was a file $480.2 million, a rise of 1.9% from $471.4 million within the third quarter 2021. For the total yr 2021, income was a file $1.81 billion, a rise of 46.9% from $1.23 billion within the prior yr.

07:23 Gross revenue for the fourth quarter was additionally a file at $190.7 million, or a file 39.7% of income rising 5.2% or 130 foundation factors from $181.2 million or 38.4% of income within the third quarter 2021. For the total yr, gross revenue elevated 55.5% to a file $670.4 million or 37.1% from $431.1 million or 35.1% in 2020.

08:10 GAAP working bills for the fourth quarter 2021 have been $104.7 million or 21.8% of income and on a non-GAAP foundation have been $100.1 million or 20.8% of income, which excludes $4.1 million of amortization of acquisition-associated intangible asset bills and $0.6 million of acquisition-associated prices. This compares to non-GAAP working bills within the prior quarter of $99.6 million or 21.1% of income. GAAP working bills for the total yr have been $394.4 million or 21.8% of income in comparison with $296.8 million or 24.1% of income in 2020.

09:07 Total different revenue amounted to roughly $22.8 million for the quarter, consisting of $13.2 million of unrealized acquire on investments, a $11.2 million of different revenue, $788,000 of curiosity revenue, $1.1 million in international foreign money losses, and $1.2 million in curiosity expense. Income earlier than taxes and non-controlling curiosity within the fourth quarter 2021 was $108.8 million in comparison with $85.6 million within the earlier quarter.

09:46 Turning to revenue taxes. Our efficient revenue tax fee for the fourth quarter was roughly 39.1%, which incorporates taxes associated to non-GAAP gadgets. On a non-GAAP foundation, the tax fee for the fourth quarter was roughly 18.4%. GAAP web revenue for the fourth quarter 2021 was $65.5 million or a $1.43 per diluted share, in comparison with GAAP web revenue of $68.4 million or $1.50 per diluted share within the third quarter 2021.

10:26 Net revenue per diluted share within the fourth quarter elevated a 142% yr-over-yr from the $0.59 per diluted share within the fourth quarter 2020. The share rely used to compute GAAP diluted EPS for the fourth quarter 2021 was 45.9 million shares. GAAP web revenue for the total yr 2021 was a file $228.8 million or $5 per diluted share, a 166% enchancment in comparison with the $1.88 per diluted share or $98.1 million in 2020.

11:11 On a non-GAAP adjusted web revenue within the fourth quarter was a file $73.3 million or a $1.60 per diluted share, which excluded web of tax $3.3 million of acquisition associated intangible asset prices, $0.4 million of acquisition associated prices, $13.5 million of prices associated to sure LSC investments, and a $9.4 million acquire on the sale of a producing subsidiary. This represents an 8.8% enchancment from the third quarter 2021 of $1.47 per diluted share or $67.3 million and a 116% enchancment from $0.74 per diluted share or $37.3 million within the fourth quarter 2020.

12:08 On a non-GAAP adjusted web revenue for the total yr 2021 was a file $237.2 million or $5.18 per diluted share, a 120% enchancment in comparison with $2.35 per diluted share or $122.7 million in 2020. Excluding share-primarily based compensation expense of $6.5 million for the fourth quarter and $26.2 million for the total yr 2021 each GAAP earnings per share, and non-GAAP adjusted EPS would have elevated by $0.14 per diluted share for the fourth quarter and $0.57 for the total yr.

13:00 EBITDA for the fourth quarter was a file $139 million or 28.9% of income in comparison with $114.5 million or 24.3% of income within the prior quarter. On a yr-over-yr foundation, EBITDA elevated 107.2% from $67.1 million within the fourth quarter 2020, additional highlighting our vital working enhancements over the previous yr. EBITDA for the total yr 2021 elevated 82.1% to a file $434.6 million or 24.1% of income from $238.6 million or 19.4% in 2020. We have included in our earnings launch a reconciliation of GAAP web revenue to non-GAAP adjusted web revenue and GAAP web revenue to EBITDA, which offers extra particulars.

14:09 Cash stream generated from operations was $77.6 million for the fourth quarter 2021 and $338.5 million for the total yr. Free money stream was $22.5 million for the fourth quarter, which included $55 million for capital expenditures and $197.3 million for the total yr, which included $141.2 million of capital expenditures or 7.8% of income. Net money stream within the fourth quarter was a optimistic $82 million and a optimistic $46.3 million for the total yr, which included a pay-down of roughly $152.6 million of lengthy-time period debt throughout the yr.

15:00 Turning to the stability sheet. At the top of fourth quarter, money, money equivalents, restricted money plus brief-time period investments totaled roughly $373 million. Working capital was $717 million and whole debt, together with lengthy-time period and brief-time period was $301 million. In phrases of stock, on the finish of the fourth quarter, whole stock days elevated to roughly 107 within the quarter as in comparison with 99 final quarter. Finished items stock days have been 32 in comparison with 27 final quarter. Total stock {dollars} elevated $26.5 million to roughly $348.6 million. Total stock within the quarter consisted of an $18.5 million enhance in completed items, a $15 million enhance in uncooked supplies, and a $6.9 million lower in work in course of. Capital expenditures on a money foundation for the fourth quarter 2021 have been $55 million or 11.5% of income and seven.8% for the total yr, which is inside our goal mannequin of 5% to 9%.

16:17 Now turning to our outlook. For the primary quarter 2022, we anticipate income to be roughly $480 million plus or minus 3%, which on the midpoint is best than typical seasonality of down 5%. We anticipate GAAP gross margin on a consolidated foundation to be 39.7% plus or minus 1%. Non-GAAP working bills, that are GAAP working bills, adjusted for amortization of acquisition-associated intangible belongings are anticipated to be roughly 21% of income, plus or minus 1%.

16:58 We anticipate web curiosity expense to be roughly $1.4 million. Our revenue tax fee is anticipated to be 18.4% plus or minus 3% and shares used to calculate, diluted EPS for the primary quarter are anticipated to be roughly 46.3 million shares. Please notice that buying accounting changes of $3.3 million after-tax for earlier acquisitions is just not included in these non-GAAP estimates.

17:28 With that stated, I’ll now flip the decision over to Emily Yang.

Emily Yang

17:34 Thank you, Brett and good afternoon. As Dr. Lu and Brett talked about, fourth quarter income elevated 1.9% quarter-over-quarter, which is best than the midpoint of our steerage because of the continued robust demand and file income throughout all of the areas. Distributor stock within the fourth quarter by way of weeks elevated barely quarter-over-quarter, which remains to be under our outlined regular vary of 11 to 14 weeks.

18:00 Looking at international gross sales within the fourth quarter, Asia represented 78% of income, Europe 13%, and North America 9%. In phrases of our finish markets, Computing represented 29% of income, Industrial 24%, Consumer 19%, communication 16%, and automotive 12% of income. We achieved file income within the Automotive, Industrial, Communications and Consumer segments.

18:29 Now, let me overview the top markets in higher element. In the automotive market, we proceed to broaden our robust progress momentum with income rising 37% yr-over-yr and 59% for the total yr to set new information. Since 2013, once we started our growth initiative into the automotive market, now we have achieved an eight-yr compounded annual progress fee of 30%. One key to our success has been our content material growth initiatives and design win momentum that has continued throughout all goal utility areas, significantly in three focus areas of linked driving, consolation, type and security and Powertrain.

19:16 Automotive DC-DC 32 Volt and 40 Volt converters, LED switching drivers and SBRs continued to see robust demand for telematics, entrance and rear LED lighting, daylight raining mild and ADAS purposes. Similarly linear mode LED driver product could be signed into first responders, emergency lighting system and excessive effectivity cost from LED drivers has been seeing traction for indicator LED lighting the family EV plugging charging models.

19:47 Newly launched LDOs present restrict energy switches and Pericom product line of Level Shifters, crystal oscillators, buffers and PCI Express clocks are seeing new design wins in ADAS, telematics, anomalous automobile management models and infotainment system. We are additionally seeing nice success from the excessive-voltage lens, excessive-voltage regulators and Omni-polar Hall switching together with followers, window lifters, motors, water pumps and door lock purposes.

20:20 Additionally trans and voltage suppressors, MOSFETs, gate driver ICs and USB charging controller merchandise are being designed into purposes together with battery handle system, wi-fi charger converters in-automobile USB charging ports. Fast recovering rectifier was additionally effectively accepted in electrical automobile key exchanger purposes in addition to automotive electrical clever controllers. MOSFET design in motor continued for automotive brush and brushless electrical motors purposes together with energy steering, gas, oil and ABS pumps seats and mirrors.

20:58 Our load capability ESV and search safety gadgets are additionally being designed into purposes for cover of in-automobile community and for the IO core protections of its far view cameras for Advanced Driving Assistance. In the commercial market, income elevated 43% yr-over-yr and 46% for the total yr to additionally attain new file. We are persevering with to see progress and adoption of DisplayPort HDMI switches and ReDrivers within the business show purposes.

21:35 Our extremely-quick restoration rectified merchandise and PCI Express Gen 3 packet swap are gaining traction within the synthetic intelligence, video evaluation electrical, 3D sensing digicam modules [indiscernible] and safety purposes. We are additionally seeing robust demand for utility particular multi-chip circuits and normal recovering rectified merchandise pushed by a number of purposes akin to diagnostic take a look at system, brushless DC motor drivers, power metering, energy provides, sensible lighting in electrico-medical purposes together with automated blood and physique stream analyser.

22:15 We have additionally been happy with the robust design win momentum for the Lite-On Semiconductor picture sensor product line being utilized in doc scanners, lottery bar scanners and PCB inspection purposes. Additionally, our ultrafast restoration rectified merchandise bipolar transistors, synchronized controllers and MOSFET proceed to realize momentum in energy provides and inverter purposes. Medium voltage DC-DC LED drivers has been gaining design wins in smoke detectors and SBR merchandise are increasing in GPS monitoring purposes which permits actual-time location monitoring throughout the transportation.

22:58 In the computing market, income was up 72% yr-over-yr and 122% for the total yr. We’re seeing robust tractions for USB Type-C energy switches, TVS, excessive energy density Schottky, low voltage Omni-polar Hall sensors, twin output unit holder corridor sensors, DC-DC buck converters in addition to HDMI 2.0 ReDrivers within the new compute platform together with gaming notebooks and workstations.

23:27 Similarly, we’re seeing rising curiosity for DisplayPort, USB Type-C, HDMI switches and ReDrivers within the docking station, dongles, energetic cable and keyboard, video, MOS purposes. We additionally proceed to see robust demand for SSD MUX, crystal and oscillator product within the enterprise SSD story modules and datacenter server purposes. We have a number of design wins for the common stage shifter product household in numerous purposes together with SSD storage, gaming, server, laptop computer and cellular gadgets.

24:05 Additionally Lite-On Semiconductor picture sensor product proceed to realize momentum with new design wins within the scanner and occasional machines. In the patron market, income elevated 18% yr-over-yr and 12% for the total yr to additionally set new file for the quarter and yr. Diodes proceed to see robust income progress of normal get better rectified merchandise and SBR within the client purposes together with digital mild projection, LED backlit modules and excessive effectivity vacuum cleaners. We even have new design wins for USB MUX and bipolar transistors in LED TV and show panels, in addition to rising demand for low energy Class C audio amplifiers, SBRs and LED drivers using monitor, Bluetooth audio system, LED lighting, as sensible doorbell purposes.

24:58 We additionally proceed to see robust momentum for CSP and small PSA MOSFET for IoT and wearable gadgets in addition to excessive-energy density merchandise securing [indiscernible] the house train tools. Mobile cellphone adaptor generated a powerful demand for Diodes quick restoration rectifiers and AC-DC merchandise proceed to see progress from fast charging purposes.

25:23 Lastly within the Communication market, income was additionally a file and grew 10% yr-over-yr and 13% for the total yr. Design momentum for the Pericom product line continued on this marketplace for our USB MUX and extremely-excessive voltage safety with 5G CPE utility. There has additionally been rising demand for USB ReDrivers, primarily pushed by the USB Type-C purposes. Additionally, our small measurement low saturated transistors proceed with design wins throughout a number of purposes from base station, routers, community cameras to doorbells. We noticed robust demand for our SBR chip scale bundle and design wins for prime PSR LDO product household in smartphone purposes.

26:11 In abstract, 2021 was an distinctive yr for Diodes each operationally and financially. We achieved robust income progress and margin growth for our whole resolution gross sales method and content material growth initiatives, particularly within the automotive, industrial finish markets, in addition to the Pericom product household. We additionally efficiently built-in Lite-On Semiconductor acquisition and benefited from the manufacturing synergies with extra alternatives for the expansion and growth by the product, prospects and finish markets synergies that we anticipate to appreciate over the approaching quarters and years.

26:50 With that, we now open the ground to questions. Operator?

Question-and-Answer Session


26:55 Thank you. [Operator Instructions] Our first query comes from the road of Matt Ramsay from Cowen. Please go forward.

Matt Ramsay

27:18 Thank you very a lot. Good afternoon, everybody. Congrats on the nice outcomes, Dr Lu. I ponder should you would possibly present some commentary over the past, I do not know yr and a half or so, the trade has been very provide constrained and also you — your organization was lucky sufficient to accumulate the capability from Lite-On and did a tremendous job and executing and filling that capability and that is led to some fairly outstanding progress. I ponder as you concentrate on the subsequent yr or two in Diode’s progress plan the place do you’ve the chance so as to add extra capability? And how a lot of the expansion are you pondering coming from pricing versus models versus extra capability? Thanks.

Keh-Shew Lu

28:06 Okay. So I simply reply a number of of your query. Okay. First, you’re speaking about how a lot is the expansion coming from worth enhance and the way a lot is coming from income progress, okay or the capability expansions. So we didn’t actually separate that quantity very clearly, however we solely enhance the worth primarily based on our wafer or our value of fabric enhance. So we retract the fabric enhance to our buyer solely, however we take extra alternative, by you already know higher assist buyer to asking them to present us extra design alternative. So a few of that space, our buyer — wouldn’t enable us to the touch previously. Now with this and of nice assist to our buyer, we will demand or ask them to open up the design in alternative for us. And so that’s what we’re doing at this time and utilizing the capability constrains to at all times benefit of open up extra options alternative.

29:41 Now you’re speaking in regards to the future progress then, now we have our anticipate two 8 inch. We simply on each ramp it as much as totally loading by December final yr, should you’d hearken to what now we have been speaking about final yr the entire yr we ramp up that anticipate to. So this yr that might be totally loaded, okay? So one other is our GFAB, should you bear in mind we purchased that GFAB again to 2019. And we’re dedicated to the initially proprietor whose part for 5 years. And that yearly they’d use load-in to us 10% and so we drastically glorified our manufacturing or our know-how, our product into the GFAB and so we even have extra capability by authentic proprietor requirement use. And so we’re capable of take that chance to present us extra capability for the expansion. And this may proceed as a result of they’ll be — their demand going to go down and we proceed to ramp it up. At the identical time if we nonetheless want greater than that we will — they nonetheless have sufficient capability we will deliver that capability or deliver that load-in even increased as a result of the time we purchased that, we stated they’re totally loaded. But within the wafer fab definition once we say totally loaded is 80%. And should you take a look at a few of our wafer fab is already as much as 100% or 95%. So we nonetheless have extra room within the GFAB to present us extra progress. Then we’re — our provider different exterior results with our relationship we nonetheless can proceed asking for I feel, be extra each quarter or right here, there to get a bit of bit extra. So we nonetheless consider now we have sufficient capability to assist our progress on this yr or subsequent yr. And then when the demand begin loosen up, we will take the chance to proceed our progress path.

Emily Yang

33:09 All proper. And then on high of that, Matt. We additionally will proceed to drive the product combine enchancment. So we wish to focus to higher make the most of out there capability to assist higher enterprise as effectively.

Matt Ramsay

33:21 Got it. Thank you each for the commentary there. As my observe-up query, I suppose, I’d be remiss to not point out that you simply’re bumping proper up in opposition to your lengthy-time period 40% gross margin goal. I feel your run fee of income slightly below $2 billion and also you have been planning to hit 40%, that $2.5 billion in income. So should you might simply sort of stroll me by the places and takes on gross margin as we go ahead. Is that sort of a brand new ground of margin and sustainable, and what are the incremental margin drivers as you add that extra $500 million in income in the direction of the goal mannequin? Thank you.

Keh-Shew Lu

34:05 Well, actually what we’re in search of $1 billion gross revenue, okay. And once I stated that’s actually is the purpose $1 billion gross revenue as a result of that fall by to the EPS so that’s actually to purpose. Now, once I say $1 billion gross revenue that we are saying, how can we make it, then we are saying $2.5 billion income, 40% GP to make up that $1 billion. And if our gross margin will be [indiscernible]. We aren’t too — we proceed enhance our gross margin and we get the consequence 2.5 billion so we are going to achieved that purpose earlier. Then after that then we’ll begin to get to our subsequent goal, however I’m not able to announce that subsequent goal but, however we’re fairly near the goal of $1 billion gross revenue.

Matt Ramsay

35:30 Got it. Thank you. I’ll get again within the queue. Congratulations on the progress.

Keh-Shew Lu

35:33Thank you.


Thank you. I present our subsequent query comes from the road of William Stein from Truist Securities. Please go forward.

William Stein

35:42 Great. Thanks for taking my query. I’ll add my congratulations, particularly to the outlook, however each the outcomes and outlook are nice. I’ve a query in regards to the steerage by finish market. Normally, Q1 is down a bit of bit and I feel the top markets they have an inclination to try this or the — I feel what you name the three Cs proper client, comps and communications. I feel these are usually down sequentially effectively, industrial and automotive are usually up a bit of bit. So if we take into consideration the delta or the distinction on this Q1? Is it extra unfold throughout all finish markets that they are all going to do some higher than usually or is it extra that you’ll see sequential progress a bit of bit in every of the top markets or some, or is there some completely different clarification?

Emily Yang

36:40 Okay. William, hello. This is Emily. So I feel general what we’re seeing is definitely energy throughout all the top market. I feel all-in-all, now we have actually robust demand and, if we glance right down to the precise segments. So for instance, automotive we even have a full-yr progress of 59%. We see that momentum continues. And for the commercial, we’re additionally seeing plenty of progress like 46% for the total yr. And once more plenty of design in pipeline proceed to develop. On the pc t aspect the place we discuss in regards to the low-finish PC, there may be positively a bit of bit softness. But we’re additionally seeing energy on the cloud computing as [indiscernible] sort of stability itself.

37:24 On the patron aspect, you’re proper. Absolutely, Q1 often is just not a brilliant robust quarter and we positively see a bit of bit softness, I’d say extra from the China client aspect, however once more now we have plenty of general different calls for, whether or not it is residence care or another client purposes that we proceed to see the energy proper.

37:43 On the communication aspect, I feel there may be plenty of information in regards to the smartphone, softness a bit of bit in China, however since now we have a really effectively diversified into all of the Tier 1 smartphone producer that we truly are seeing, not that a lot of the influence to the general Diodes. So I’d say all in all, 5G proceed to drive plenty of momentum, not simply on the bottom stations, however 5G associated purposes. So yeah, I’d say all in all, nonetheless very, very robust.

William Stein

38:16 And my observe-up if I can, I feel I noticed an announcement just lately about Diodes dipping its toe into silicon carbide growth. Can you perhaps make clear what you envision? Well, first, what capabilities you are growing and what market or alternative you consider you’ll handle? Thank you.

Gary Yu

38:45 Okay. This is Gary. And we’re — and good to speak to you and really, [indiscernible] growth, we have been beginning with this time a part of a yr in the past and we see that’s as a really robust development from the market. And now we have our design group in-home and we do our wafer design and we use our design utilizing outdoors fabrication to the wafer and significantly that [indiscernible] carbon we’re utilizing, we export the automotive associated half prefer to OBC, On Board Charger like our micro EV and the inverter and it’s OBC information now we have for that the dial set, that’s the JV three way partnership exercise that now we have with the [indiscernible] with that know-how that now we have put right into a module, module go to the inverter, and people inverter going to the digital automobiles motor and that is the realm we’ll give attention to.

William Stein

39:38 Any income to debate in that space but or is all of it.

Gary Yu

39:41 No, not but. Our engineering is straightforward, it must be deliberate by finish of this yr and that we’re wanting ahead as a result of automotive associated, most likely one yr or little bit longer and we’re in search of most likely the primary income going to come back in most likely the center of subsequent yr.

William Stein

40:00 Great. Thank you. Congrats once more.

Gary Yu

40:01 No drawback.


40:04 Thank you. I present our subsequent query comes from the road of Gary Mobley from Wells Fargo Securities. Please go forward.

Gary Mobley

40:11Good afternoon, all people. Thanks for taking my query and congrats to a powerful 2021 and begin to the present calendar yr. I wished to ask about your manufacturing footprint in China. I notice the vast majority of your staff are primarily based in China. So have you ever seen any influence in your manufacturing amenities previous or current or perhaps sooner or later from China’s COVID zero coverage?

Keh-Shew Lu

40:39 Well, let me reply this one. Actually, our wafer FAB majority of wafer FAB internally is just not in China, okay. And now we have exterior however in whole, we — within the GFAB and [indiscernible] in Europe and so they at all times see the wafer FAB in Taiwan. So at this time in China, we solely have – anticipate two, okay. So we do not have majorities in our date. Now for extemporary sure however nearly we — the 2 main web site is in Shanghai which do not have that massive drawback on COVID-19 and Gen 2 once more in Central Park that the China authorities could be very, very cautious too. So we do not see the issue as a result of COVID-19. And truly its serving to us as a result of, for instance, you usually yearly throughout the Chinese New Year, we’re going to have shut down and since plenty of employee going the go residence for the Chinese New Year. So Diode within the Chinese New Year that month our productiveness or our manufacturing is definitely decelerate. That’s why one of many purpose now we have that is within the early in 1Q, the place we can not get sufficient output, however this yr, like final yr, the China authorities truly inspired the folks don’t go residence. Stay within the native and both pack off or proceed working, okay. So due to that this yr our output effected by Chinese New Year is just not that is nice or that vital. And due to this fact, we’re capable of assist our area nonetheless not sufficient, however we’re capable of assist. So due to this fact now we have information our 4Q — our 1Q income Fred (ph) from 4Q for our output is just not actually going to decelerate that a lot. At the identical time, we do construct some stock in 4Q, attempt to get assist for 1Q. So general, we don’t actually impact many [indiscernible] by COVID-19 impact in China, however truly we’re higher than within the tempo is because of the provide, do probably not go residence.

Gary Mobley

44:15 Got it. Appreciate the colour there, Dr Lu. And I’ve a few observe-ups for Emily maybe usually Q1 is down 5%, however I presume that you’ll have a greater than seasonal Q1 as a result of maybe you are having, getting a chance to replenish distributor stock. In associated to that, would you anticipate to be again up within the regular 11 to 13-week vary. And is there any strategy to quantify, excuse me, quantify the influence of your opponents, one specifically that’s exiting few hundred million {dollars} final yr and the subsequent yr in some product classes that you simply straight compete it? Thank you.

Emily Yang

45:04 All proper. So I feel Gary, with like Dr. talked about higher than — perhaps a bit of bit higher than anticipated output in Q1 that is the rationale we offer a slight steerage which you’re absolute proper. This is often about 5% down the quarter, proper. So what we do, we really feel aggressively working with all the shoppers carefully and overview all of the alternatives in entrance of us, proper. So if this can be a proper match for the general Diodes progress and additional into our general technique, we aggressively pursue. And like I discussed earlier, any time there may be some strategic change from my friends or merger and acquisition at all times create a extra alternative for Diodes to pursue after it proper. But once more we’re not simply doubtless going after each enterprise, we actually extra centered on strategic good enterprise that can proceed to drive our product combine enchancment in addition to whole resolution gross sales technique that we initiatives few years in the past, proper.

Gary Mobley

46:11 Got it. And the influence from considered one of your opponents exiting the market?

Emily Yang

46:17 I feel it is actually onerous to essentially say how massive or how small the influence. I additionally assume, considered one of my peer publish plenty of statements, however there’s additionally others could also be did not actually that native, but additionally making adjustments. So once more we monitor all this very carefully so long as lengthy as match into our lengthy-time period plan, so long as that is going to assist us to attain the $1 billion gross revenue after Lu talked about earlier with positively aggressively going after it.

Gary Mobley

46:50 Thanks, Emily.


46:55 Thank you. I present our subsequent query comes from the road of Tristan Gerra from Baird. Please go forward.

Tristan Gerra

47:01 Hi, guys. Quick query on the gross margin trajectory for the subsequent few quarters for this yr. What’s going to be the combo part versus additional mounted value absorption. It appears like you’ve room to additional broaden utilization charges. So how ought to we put that within the combine by way of margin increasing this yr?

Emily Yang

47:29 Well, I feel — yeah. So perhaps let me make a remark and Dr. Lu and a few others perhaps you’ll be able to add some extra. I feel the margin enchancment is admittedly consists of few issues and so they all essential, proper. One of the largest one is product combine enchancment and we have been speaking about this for some time. So we are going to proceed to drive. This is admittedly extra from the entire resolution gross sales changing a number of the legacy begin with a number of the newer merchandise with higher margin, higher ASP as effectively. And we consider that is truly only the start of this complete initiative. And that is truly one thing we established most likely about two, three years in the past and we proceed to drive for enchancment.

48:11 I feel manufacturing effectivity enchancment has at all times been the energy for Diodes. And like, Dr. Lu talked about, we’ll proceed so as to add extra capacities. This will be even including extra tools inside present life or changing a number of the outdated tools with a brand new one, increasing to 4-inch to six-inch or stuff like that. So that can proceed to drive a number of the capability enhancements. And in consequence that can proceed to drive our manufacturing [indiscernible] and proceed to enhance our value, proper.

48:45And then we even have a Lite-On Semiconductor synergies that I talked about. So we begin seeing the good thing about the manufacturing synergy, however they’re nonetheless buyer synergy, finish market synergy and markets synergy and merchandise synergy, that we will truly proceed to see profit over the subsequent few years. So I’d say all in all that is few areas it’ll proceed to assist us to drive the margin. And similar to Dr. Lu talked about we positively not going to cease at 39.7% or 40% and that is continued course and we positively wish to proceed to ship the outcomes to you guys as effectively.

Tristan Gerra

49:28 Okay. Great. And then from a observe-up, it will be about inventories within the channel. So you have talked about that you simply, you talked about the effectively-marketed slowdown in China [indiscernible] that you simply’re additionally very diversified. So, are you seeing any pockets of inventories within the provide chain outdoors of this that you can level out regardless of that diversification? And then additionally, are you seeing stock rebalancing due to the excessive stage of labor in course of inventories. So, are you seeing some prospects principally selecting and selecting what they’ll order as a result of they’ll shut the books, so that you’re sort of ready for that final part?

Emily Yang

50:15 Yeah. I feel Tristan, general, we’re nonetheless seeing the channel stock very lean. So both we see a really barely enhance in our channel stock finish of Q4, that is truly pushed by a number of the assist for the Chinese New Year prospects and likewise the timing of the shipments. But all in all, nonetheless extraordinarily lean. I feel, Gary requested the query, I most likely did not handle it, it’s truly can we anticipate, again to the 11 to the 13 weeks or 14 weeks that we outline as a traditional vary. We do not actually anticipate return to that standard vary in a brief time period. So we consider that with all of the visibility that now we have, with all the shoppers that we even have a direct communication with. So far nobody have a chance to view up plenty of stock on the shelf at this second. So I consider that that can proceed for a number of quarters to come back and we’ll proceed to observe very carefully. That’s just about apply to all of the Tier 1 Tier 2 as that now we have a direct contact. And then with the Tier 3 Tier 4 prospects we truly monitor very carefully with every of our Distributors companion and that additionally they monitor very carefully and so we positively do not see that as a problem at this second.

Tristan Gerra

51:35 Great. Thank you very a lot.


51:39 Thank you. [Operator Instructions] I present our subsequent query comes from the road of David Williams from Benchmark. Please go forward.

David Williams

51:57 Hey. Good afternoon and thanks. Let me ask the query. So, I apologize I jumped on a bit of bit late, however Dr. Lu, I wished to ask you have been by plenty of these cycles, and we have talked about previously, however simply sort of curious the way you’re seeing the panorama at this time and the way you assume perhaps the, it looks as if that the channel stock nonetheless stay extraordinarily lean however at all times tends to be that we have got extra by the, by the availability chain. Do you assume, do you’re feeling fairly comfy at this time that there actually is not perhaps some excesses which might be sort of build up inside that channel that simply perhaps aren’t being seen aren’t as seen. And do you assume there may be even a chance for that to occur I suppose sort of given the demand and the place that the extent that’s been?

Keh-Shew Lu

52:42 Yes. You are proper, I’ve been in [indiscernible] for very long time and I am going by 1970, ‘80, 1990 up and downcycles. It additionally — I’m acquainted with that. But if I going to say, this yr this cycle is admittedly completely different from the earlier cycles, okay. In earlier at all times the person proceed an extension for the capability behind after which orders that you simply get a scarcity. Then folks the wait till they can’t stand then they go to exceed the capability. Then the issue is the deal time of the tools take a very long time. So the time they get capability there and all people get it on the similar time that every one of sure you get overcapacity. Then all the things go down after which go to the down cycle. So should you took a, it is a timing problem of the capability enchancment and that is why, should you bear in mind a number of years in the past what we, our methods put in capability forward of the demand. So construct in (ph) the downtime you truly exceed the capability, as a result of daytime is – the widespread daytime is.

54:34 Now this time that is what we’re capable of develop this yr or 2021 a lot better and 2020 is as a result of we ramp up SFAB2 at a time. We get LSC forward of time after which we get GFAB even one or two years earlier than the scarcity. So we ready for all this every person these scarcity and that is what we’re capable of take the benefit of offers, however now should you’re speaking about transfer ahead, I feel the transfer ahead nonetheless have proven since you do not see the numerous of individuals, it is capability that loopy, okay. Everybody [indiscernible] to hit within the capability. So I do not, I feel this scarcity will probably be proceed a minimum of this yr. Now you will begin to increase it up however [indiscernible] demand truly proceed enhance forward of greater than previously and so lengthy. How we see that mid-man going to proceed very robust. And then the capability enhance step by step meet up with the demand.

David Williams

56:21 Okay. Good, Definitely, nice in although. I definitely respect it. And then perhaps. one different one right here for Emily. But you have had some very nice progress within the automotive aspect and that is been a reasonably diversified I suppose utility space throughout the completely different areas of the automobile. But when you concentrate on, your perhaps I form of conventional automobile versus the EV how does, how do you assume that break up seems like perhaps this yr and, and even in ‘21. Are you seeing a lot adoption throughout the EV house now or is that primarily nonetheless pushed by the standard? And then how do you assume that blend sort of shakes as we go into perhaps the subsequent 12 to 18 months or do you see the demand in EV and sort of the pull-by and it would not occur pretty shortly for you all by way of seeing that mirrored inside your income base.

Emily Yang

57:12 Right. So I feel the EV quantity will increase positively actual proper. I feel there may be plenty of knowledge and public firm that we will discuss with their ARPU unit enhance and anticipate expectations for 2020 progress, 2022 progress in addition to 2023. So there may be additionally plenty of new begin up or any of the Tier 1 conventional manufacturing are all engaged on some form of EV purposes. So we predict that is actual, there may be plenty of alternative for Diodes proceed to broaden and proceed to develop on this space. So that is truly quantity enhance, in addition to content material growth enhance for us.

57:50 On the standard aspect, what we actually give attention to there may be additionally plenty of consolation type security. We are speaking about, the variety of lightings, variety of cameras I discuss brushless DC motors and all this extra content material growth for us to go after. So we actually rising. I’d say each from conventional, I imply conventional automobiles in addition to the EV automobiles proper. So should you bear in mind the three areas, we give attention to is electrification that copper EV the excessive breaks, proper or the opposite battery administration system.

58:25 And then we additionally discuss in regards to the consolation, security and magnificence in addition to connectivity. This is definitely for the ADAS, the Telematic and infotainment system. So I’d say all in all, applies to each. And the excellent news for Diodes as we proceed to have plenty of momentum and proceed to have plenty of alternative in entrance of us. And with our new product introduction we’re very assured that we’ll proceed to drive a really robust momentum within the automotive progress, which try to be and now we have been demonstrated stronger than the general market proper. So if we take a look at the observe file from 2013 until 2021, we even have a compound annual progress fee of 30% and that can proceed to be the main focus for Diodes. And so we might positively prepared.

David Williams

59:19 Great. Thanks a lot. Certainly, respect the assistance.


59:23 Thank you. I’m exhibiting no additional questions within the queue. At this time, I’d like to show the decision again over to Dr. Lu for any closing remarks.

Keh-Shew Lu

59:33 Thank you in your participation on at this time’s name. Operator, it’s possible you’ll now disconnect. Yes.


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