Diodes Incorporated (DIOD) Q4 2021 Earnings Call Transcript

Diodes Incorporated (NASDAQ: DIOD) Q4 2021 earnings name dated Feb. 09, 2022

Corporate Participants:

Leanne Sievers — President, Investor Relations

Keh-Shew Lu — Chairman, President, and Chief Executive Officer

Brett Whitmire — Chief Financial Officer

Emily Yang — Senior Vice President, Worldwide Sales and Marketing

Analysts:

Matt Ramsay — Cowen & Company, Inc. — Analyst

William Stein — Truist Securities — Analyst

Gary Yu — Senior Vice President, Business Groups

Gary Mobley — Wells Fargo Securities — Analyst

Tristan Gerra — Robert W. Baird & Co. — Analyst

David Williams — The Benchmark Company — Analyst

Presentation:

Operator

Good afternoon and welcome to Diodes Incorporated Fourth Quarter and Fiscal 2021 Financial Results Conference Call. [Operator Instructions] As a reminder, this convention name is being recorded at present, Wednesday, February 9, 2022.

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

Leanne Sievers — President, Investor Relations

Good afternoon, and welcome to Diodes’ fourth quarter and financial 2021 monetary outcomes convention name. I’m Leanne Sievers, President of Shelton Group, Diodes’ Investor Relations agency. Joining us at present 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.

Before I flip the decision over to Dr/ Lu, I’d wish to remind our listeners that the outcomes introduced at present 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 recordsdata its Form 10-Okay for its 2021 fiscal 12 months ending December 31, 2021. In addition, administration’s ready remarks include forward-looking statements, that are topic to dangers and uncertainties and administration might make further forward-looking statements in response to your query.

Therefore, the corporate claims a safety of the Safe Harbor for forward-looking statements that’s contained within the Private Securities Litigation Reform Act of 1995. Actual outcomes might differ from these mentioned at present and subsequently 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-Okay and 10-Q. In addition, any projections as to the corporate’s future efficiency signify administration’s estimates as of at present, February 9, 2022. Diodes assumes no obligation to replace these projections sooner or later as market circumstances might or might not change besides to the extent required by relevant regulation.

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 further particulars. Also all through the corporate’s press launch and administration statements throughout this convention name, we refer you to internet earnings attributable to frequent stockholders as GAAP internet earnings. For these of you unable to take heed to your complete name at the moment a recording might be out there through webcast for 90 days within the Investor Relations part of Diodes’ web site at www.diodes.com.

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 — Chairman, President, and Chief Executive Officer

Thank you Leanne. Welcome everybody and thanks for becoming a member of us at present. Diodes had a document 12 months in 2021 reflecting sustained execution that consist of 5 consecutive quarters of adjusted earnings progress. In truth, full 12 months income grew 47% and the gross revenue grew 56% with GAAP earnings per share increasing 166% and adjusted earnings per share increasing 120%, demonstrating the numerous working leverage in our mannequin. 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 mix of product combine enhancements, manufacturing efficiencies and improved loading. Also contributing to our ongoing margin enlargement has been the achievement of 5 consecutive quarters of document Pericom income, three consecutive quarters of document industrial income in addition to six consecutive quarters of document automotive income, which grew 59% in 2021 and reached a document 12% of complete income for the total 12 months.

With full 12 months income of $1.8 billion and gross revenue of $0.7 billion, 2021 represented a major 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 12 months, we count on to understand expanded synergies throughout our product portfolio, prospects and finish markets within the coming years to drive further income progress and gross margin enlargement.

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

Brett Whitmire — Chief Financial Officer

Thanks Dr. Lu, and good afternoon everybody. As a part of my monetary overview at present, 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 year-over-year comparisons. Revenue for the fourth quarter 2021 was a document $480.2 million, a rise of 1.9% from $471.4 million within the third quarter 2021. For the total 12 months 2021 income was a document $1.81 billion, a rise of 46.9% from $1.23 billion within the prior 12 months.

Gross revenue for the fourth quarter was additionally a document at $190.7 million or a document 39.7% of income, growing 5.2% or 130 foundation factors from $181.2 million or 38.4% of income within the third quarter 2021. For the total 12 months, gross revenue elevated 55.5% to a document $670.4 million or 37.1% from $431.1 million or 35.1% in 2020. GAAP working bills for the fourth quarter 2021 had been $104.7 million or 21.8% of income and on a non-GAAP foundation had been $100.1 million or 20.8% of income, which excludes $4.1 million of amortization of acquisition-related 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 12 months had been $394.4 million or 21.8% of income in comparison with $296.8 million or 24.1% of income in 2020. Total different earnings amounted to roughly $22.8 million for the quarter, consisting of $13.2 million of unrealized achieve on investments, $11.2 million of different earnings, $788,000 of curiosity earnings, $1.1 million in overseas 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.

Turning to earnings taxes, our efficient earnings tax charge for the fourth quarter was roughly 39.1%, which incorporates taxes associated to non-GAAP gadgets. On a non-GAAP foundation, the tax charge for the fourth quarter was roughly 18.4%. GAAP internet earnings for the fourth quarter 2021 was $65.5 million or a $1.43 per diluted share in comparison with GAAP internet earnings of $68.4 million or $1.50 per diluted share within the third quarter 2020. Net earnings per diluted share within the fourth quarter elevated 142% year-over-year 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 internet earnings for the total 12 months 2021 was a document $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. On a non-GAAP adjusted internet earnings within the fourth quarter was a document $73.3 million or a $1.60 per diluted share, which excluded internet of tax $3.3 million of acquisition-related intangible asset prices, $0.4 million of acquisition-related prices, $13.5 million of prices associated to sure LSC investments and a $9.4 million achieve 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. On a non-GAAP adjusted internet earnings for the total 12 months 2021 was a document $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-based compensation expense of $6.5 million for the fourth quarter and $26.2 million for the total 12 months 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 12 months.

EBITDA for the fourth quarter was a document $139 million or 28.9% of income in comparison with $114.5 million or 24.3% of income within the prior quarter. On a year-over-year foundation, EBITDA elevated 107.2% from $67.1 million within the fourth quarter 2020 additional highlighting our vital working enhancements over the previous 12 months. EBITDA for the total 12 months 2021 elevated 82.1% to a document $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 internet earnings to non-GAAP adjusted internet earnings and GAAP internet earnings to EBITDA, which gives further particulars.

Cash move generated from operations was $77.6 million for the fourth quarter 2021 and $338.5 million for the total 12 months. Free money move was $22.5 million for the fourth quarter, which included $55 million for capital expenditures and $197.3 million for the total 12 months, which included $141.2 million of capital expenditures or 7.8% of income. Net money move within the fourth quarter was a optimistic $82 million and a optimistic $46.3 million for the total 12 months, which included a pay-down of roughly $152.6 million of long-term debt in the course of the 12 months.

Turning to the stability sheet, on the finish of fourth quarter, money, money equivalents, restricted money plus short-term investments totaled roughly $373 million. Working capital was $717 million and complete debt, together with long-term and short-term was $301 million. In phrases of stock, on the finish of the fourth quarter, complete stock days elevated to roughly 107 within the quarter as in comparison with 99 final quarter. Finished items stock days had 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 had been $55 million or 11.5% of income and seven.8% for the total 12 months, which is inside our goal mannequin of 5% to 9%. Now, turning to our outlook; for the primary quarter 2022, we count on income to be roughly $480 million plus or minus 3%, which on the midpoint is healthier than typical seasonality of down 5%.

We count on 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-related intangible belongings are anticipated to be roughly 21% of income, plus or minus 1%. We count on internet curiosity expense to be roughly $1.4 million, our earnings tax charge is predicted 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 be aware that buying accounting changes of $3.3 million after-tax for earlier acquisitions isn’t included in these non-GAAP estimates.

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

Emily Yang — Senior Vice President, Worldwide Sales and Marketing

Thank you, Brett and good afternoon. As Dr. Lu and Brett talked about, fourth quarter income elevated 1.9% quarter-over-quarter, which is healthier than the midpoint of our steering because of the continued sturdy demand and document income throughout all of the areas. Distributor stock within the fourth quarter when it comes to weeks elevated barely quarter-over-quarter, which continues to be beneath our outlined regular vary of 11 to 14 weeks. Looking at world 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 document income within the Automotive, Industrial, Communications and Consumer segments. Now, let me overview the tip markets in better element. In the automotive market we proceed to increase our sturdy progress momentum with income growing 37% year-over-year and 59% for the total 12 months to set new information.

Since 2013 once we started our enlargement initiative into the automotive market, we’ve got achieved an 8-year compounded annual progress charge of 30%. One key to our success has been our content material enlargement initiatives and design win momentum that has continued throughout all goal utility areas, notably in three focus areas of linked driving, consolation type and security and powertrain. Automotive DC-DC 32 Volt and 40 Volt converters, LED switching drivers and SBRs continued to see sturdy demand for telematics, entrance and rear LED lighting, daylight working gentle and ADAS functions.

Similarly, linear mode LED driver product was designed into first responsers’ emergency lighting system and high-efficiency cost from LED drivers has been seeing traction for indicatorr LED lighting the family UV plugging charging models. 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 car management unit and infotainment system.

We are additionally seeing nice success from the high-voltage lens, high-voltage regulators and Omnipolar Hall switching together with followers, window lifters, motors, water pumps and door lock functions. Additionally, trans and voltage suppressors, MOSFETs, gate driver ICs and USB charging controller merchandise are being designed into functions together with battery handle system, wi-fi charger converters in-vehicle USB charging ports. Fast recovering rectifier was additionally effectively accepted in electrical car warmth exchanger utility in addition to automotive electrical clever controllers.

MOSFET design in motor continued for automotive brush and brushless electrical motors functions together with energy steering gasoline, oil and ABS pumps, seats and mirrors. Our load capability ESV and search safety units are additionally being designed into functions for cover of in-vehicle community and for the IO core protections of it’s far view cameras for Advanced Driving Assistance.

In the economic market income elevated 43% year-over-year and 46% for the total 12 months to additionally attain new document. We are persevering with to see progress and adoption of DisplayPort, HDMI switches and re-drivers within the business show functions. Our ultra-fast restoration rectified merchandise and PCI Express Gen 3 packet change are gaining traction within the synthetic intelligence, video evaluation electrical 3D sensing digicam modules as [Indecipherable] and safety functions.

We are additionally seeing sturdy demand for application-specific multi-chip circuits and commonplace recovering rectified merchandise pushed by a number of functions similar to diagnostic check system, brushless DC motor drivers, vitality metering energy provides, good lighting in electrico-medical functions together with automated blood and physique move analyser. We have additionally been happy with the sturdy design win momentum for the Lite-On Semiconductor picture sensor product line being utilized in doc scanners, lottery bar scanners and PCB inspection utility.

Additionally, our ultrafast restoration rectified merchandise bipolar transistors, centralized controllers and MOSFET proceed to achieve momentum in energy provides and inverter functions. Medium voltage DC-DC LED drivers has been gaining design wins in smoke detectors and SBR merchandise increasing in GPS monitoring functions which allows real-time location monitoring in the course of the transportation. In the computing market income was up 72% year-over-year and 122% for the total 12 months.

We’re seeing sturdy tractions for USB Type C energy switches, TVS, excessive energy density shockey, low voltage Omnipolar Hall sensors, twin output unit holder corridor sensors, DC-DC Buck converters in addition to HDMI 2.0 redivers within the new compute platform together with gaming notebooks and workstations. Similaraly, we’re seeing growing curiosity for show port, USB Type C, HDMI switches and redrivers within the docking station, dongles, energetic cable, and keyboard video MOS functions.

We additionally proceed to see sturdy demand for SSD Muck, crystal and oscillator product within the enterprise SSD story modules and datacenter server utility. We have a number of design wins for the common stage shifter product household in varied functions together with SSD storage, gaming, server, laptop computer and cell units. Additionally Lite-On Semiconductor picture sensor product continued to achieve momentum with new design within the scanner and low machines.

In the buyer market, income elevated 18% year-over-year and 12% for the total 12 months to additionally set new document for the quarter and 12 months. Diodes proceed to see sturdy income progress of normal recuperate rectified merchandise and SBR within the client functions together with digital gentle projection, LED backlit modules and high-efficiency vacuum cleaners. We even have new design wins for USB MOS and bipolar transistors in LED TV and show panels, in addition to growing demand for low energy Class B audio amplifiers SBRs and LED drivers using monitor, Bluetooth audio system, LED lighting, as good doorbell functions.

We additionally proceed to see sturdy momentum for CSP and small PSA MOSFET for IoT and wearable units in addition to high-power density merchandise securing [Indecipherable] the house train gear. Mobile telephone adaptor generated sturdy demand for Diodes quick restoration rectifiers and AC-DC merchandise proceed to see progress from fast charging functions. Lastly, within the Communication market income was additionally a document and grew 10% year-over-year and 13% for the total 12 months.

Design momentum for the Pericom product line continued on this marketplace for our USB MUX and ultra-high voltage safety with 5G CPE utility. There has additionally been rising demand for USB redrivers, primarily pushed by the USB Type C functions. Additionally, our small measurement low saturated transistors proceed with design wins throughout a number of functions from base station, routers, community cameras to doorbells. We noticed sturdy demand for our SBR chip scale bundle and design wins for prime PSR LDO product household in smartphone functions.

In abstract, 2021 was an distinctive 12 months for Diodes each operationally and financially. We achieved sturdy income progress and margin enlargement for our complete answer gross sales strategy and content material enlargement 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 further alternatives for the expansion and enlargement via the product, prospects and finish markets synergies that we count on to understand over the approaching quarters and years.

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

Questions and Answers:

Operator

Thank you. [Operator Instructions] I present our first query comes from the road of Matt Ramsay from Cowen. Please go forward.

Matt Ramsay — Cowen & Company, Inc. — Analyst

Thank you very a lot. Good afternoon, everybody.

Keh-Shew Lu — Chairman, President, and Chief Executive Officer

Hi Matt.

Matt Ramsay — Cowen & Company, Inc. — Analyst

Congrats on the good outcomes, Dr. Lu. I’m wondering if you happen to would possibly present some commentary over the past, I don’t know 12 months and a half or so, the business has been very provide constrained and your organization was lucky sufficient to amass the capability from LITE-ON and did superb job in executing and filling that capability and that’s led to some fairly exceptional progress. I’m wondering as you concentrate on the subsequent 12 months or two in Diodes’ progress plan the place do you may have the chance so as to add extra capability? And how a lot of the expansion are you considering coming from pricing versus unit versus further capability? Thanks.

Keh-Shew Lu — Chairman, President, and Chief Executive Officer

Okay. So I simply reply a number of of your query. Okay. First, you might be speaking about how a lot is the expansion coming from value enhance and 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 value based mostly on our wafer or our price of fabric enhance. So we retract the fabric enhance to our buyer solely, however we take further alternative by you understand better assist buyer to asking them to offer us extra design alternative.

So a few of that space our buyer wouldn’t enable us to the touch up to now. Now with this and of nice assist to our buyer, we are able to debate or ask them to open up the design-in alternative for us. And so that’s what we’re doing at present and utilizing the capability constraint to our benefit of open up extra options alternative. Now, you might be speaking concerning the future progress then, we’ve got our — count on two 8-inch, we simply on each ramp it as much as absolutely loading by December final 12 months. If you’d take heed to what we’ve got been speaking about final 12 months the entire 12 months we ramp up that count on to. So this 12 months that will be absolutely loaded, okay?

So one other is our GFAB, if you happen to bear in mind we purchased that GFAB again to 2019. And we’re dedicated to the initially proprietor whose element for 5 years. And that yearly they might use load-in to us 10% and so we vastly glorified our manufacturing or our know-how, our product into the GFAB and so we even have further capability by authentic proprietor requirement use. And so we’re capable of take that chance to offer us extra capability for the expansion.

And it will proceed as a result of they’re going to 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 are able to — they nonetheless have sufficient capability we are able to deliver that capability or deliver that load-in even increased as a result of the time we purchased that, we stated they’re absolutely loaded. But within the wafer fab definition once we say absolutely loaded is 80%. And if you happen to 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 offer us further progress. Then we’re — our provider different exterior results with our relationship we nonetheless can proceed asking for I believe, be extra each quarter or right here, there to get a little bit bit extra. So we nonetheless consider we’ve got sufficient capability to assist our progress on this 12 months or subsequent 12 months. And then when the demand begin loosen up we are able to take the chance to proceed our progress path.

Emily Yang — Senior Vice President, Worldwide Sales and Marketing

Right. And then on high of that, Matt we additionally will proceed to drive the product combine enchancment. So we need to focus to higher make the most of out there capability to assist higher enterprise as effectively.

Matt Ramsay — Cowen & Company, Inc. — Analyst

Got it. Thank you each for the commentary there. As my follow-up query I assume I’d be remiss to not point out that you just’re leaping proper up in opposition to your long-term 40% gross margin goal. I believe your run charge of income slightly below $2 billion and also you had been planning to hit 40%, that $2.5 billion in income. So if you happen to may simply form of stroll me via the places and takes on gross margin as we go ahead. Is that form of a brand new ground of margin and sustainable, and what are the incremental margin drivers as you add that further $500 million in income in direction of the goal mannequin? Thank you.

Keh-Shew Lu — Chairman, President, and Chief Executive Officer

Well, actually what we in search of, is $1 billion gross revenue, okay. And once I stated that’s actually is the $1 billion gross revenue as a result of that falls via to the EPS so that’s actually to go. Now, once I say $1 billion gross revenue that we are saying how will we make then we are saying coupon $2.5 billion income, 40% GP to make up that one $1 billion and if our gross margin could be higher than 40% we aren’t going to — we are able to proceed enhance our gross margin and we will we promote $2.5 billion. So achieved that purpose earlier then after that and we’ll begin to get to our subsequent goal. But I’m not able to announce that subsequent goal but, however we’re fairly near the goal of $1 billion gross revenue

Matt Ramsay — Cowen & Company, Inc. — Analyst

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

Keh-Shew Lu — Chairman, President, and Chief Executive Officer

Thank you.

Operator

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

William Stein — Truist Securities — Analyst

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 concerning the steering by finish market. Normally, Q1 is down a little bit bit and I believe the tip markets they have a tendency to try this or the I believe what you name the three Cs, proper, client, comms and communications. I believe these are sometimes down sequentially whereas industrial and automotive are sometimes up a little bit bit. So if we take into consideration the delta or is it the distinction on this Q1 is it extra unfold throughout all finish markets that they’re all going to do some higher than sometimes or is it extra that you just’re going to see sequential progress a little bit bit in every of the tip markets or is there some totally different clarification?

Emily Yang — Senior Vice President, Worldwide Sales and Marketing

Okay, William. Hi, that is Emily. So I believe total what we see is definitely energy throughout all the tip market. I believe all in all, we’ve got actually sturdy demand and if we glance all the way down to the particular segments. So for instance, automotive we even have a full-year progress of 59%. We see that momentum proceed. And for the economic we additionally seeing a number of progress like 46% for the total 12 months. And once more a number of the design in pipeline proceed to develop. On the pc facet the place we discuss concerning the low-end PC there positively a little bit bit softness.

But we additionally seeing energy on the cloud computing and servers these form of stability itself. On the buyer facet, you might be proper. Absolutely. Q1 often isn’t a brilliant sturdy quarter and we positively see a little bit bit softness. I’d say extra from the China client facet, once more we’ve got a number of total different calls for, whether or not it’s house care or another client functions that we proceed to see the energy, proper?

On the communication facet, I believe there may be a number of information concerning the smartphone softness a little bit bit there in China, however since we’re very effectively diversified into all of the Tier 1 smartphone producer that we really seeing not that a lot of the affect to the general Diodes. So I’d say all in all, 5G proceed to drive a number of momentum, not simply on the bottom station however 5G associated functions. So yeah, I’d say all in all, really feel very, very sturdy.

William Stein — Truist Securities — Analyst

My follow-up if I can, I believe I noticed an announcement not too long ago about Diodes dipping its toe into silicon carbide improvement. Can you possibly make clear what you envision? Well, first, what capabilities you’re creating and what market or alternative you consider you’ll be capable of handle? Thank you.Okay. This is Gary. And Will, good to speak to you and truly you understand silicon carbide improvement, we’ve been beginning with this time a part of a 12 months in the past and we see it as a really sturdy pattern from the market. And we’ve got our design staff in-house and we do our wafer design and we use our outlined you utilizing exterior fabrication to the wafer and notably that silicon carbide we’re utilizing for the automotive associated half wish to OCBC onboard charger like EV and the inverter. And again EBC information we’ve got for the, that’s the three way partnership exercise that we’ve got with the artwork didn’t lower by most with that know-how that we’ve got put right into a module, module go to the inverter and people who aren’t going to a down the digital automobiles motor and that’s space we’re going to deal with.Any income to debate in that space but or is all of it?

Gary Yu — Senior Vice President, Business Groups

No, not but, not but. Our engineering samples there’ll be deliberate by finish of this 12 months and that we’re in search of work as a result of automotive associated, it most likely one 12 months or dwelling longer and are in search of most likely than the primary income going to coming in most likely the center of subsequent 12 months.

William Stein — Truist Securities — Analyst

Great, thanks. Congrats once more.

Gary Yu — Senior Vice President, Business Groups

No downside.

Operator

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

Gary Mobley — Wells Fargo Securities — Analyst

Good afternoon, everyone. Thanks for taking my query and congrats to a powerful 2021 and a superb begin to the present calendar 12 months. I wished to ask about your manufacturing footprint in China. I notice the vast majority of your workers are based mostly in China. So have you ever seen any affect in your manufacturing amenities previous or current or possibly sooner or later from China’s COVID zero coverage?

Keh-Shew Lu — Chairman, President, and Chief Executive Officer

Well, let me reply this one. Actually, our wafer FAB majority of wafer FAB internally isn’t in China, okay. And we’ve got exterior however in complete, we — within the GFAB and [Indecipherable] in Europe they usually all the time see the wafer FAB in Taiwan. So at present in China, we solely have — count on two, okay. So we don’t have majorities in our date. Now for extemporary sure however nearly we — the 2 main website is in Shanghai which don’t have that massive downside on COVID-19 and Gen 2 once more in Central Park that the China authorities may be very, very cautious too. So we don’t see the issue on account of COVID-19.

And really its serving to us as a result of, for instance, you sometimes yearly in the course of the Chinese New Year, we’re going to have shut down and since a number of employee going the go house 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 cause we’ve got that is within the early in 1Q, the place we can not get sufficient output, however this 12 months, like final 12 months, the China authorities really inspired the folks don’t go house.

Stay within the native and both pack off or proceed working, okay. So due to that this 12 months our output effected by Chinese New Year isn’t that’s nice or that essential. And subsequently, we’re capable of assist our area nonetheless not sufficient, however we’re capable of assist. So subsequently we’ve got information our 4Q — our 1Q income Fred [Phonetic] from 4Q for our output isn’t 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 total, we don’t actually impact many [Indecipherable] by COVID-19 impact in China, however really we’re higher than within the tempo is because of the supply, do not likely go house.

Gary Mobley — Wells Fargo Securities — Analyst

Got it. Appreciate the colour there, Dr Lu. And I’ve a few follow-ups for Emily maybe usually Q1 is down 5%, however I presume that you just’re going to have a greater than seasonal Q1 as a result of maybe you’re having, getting a possibility to replenish distributor stock. In associated to that, would you count on to be again up within the regular 11 to 13-week vary. And is there any solution to quantify, excuse me, quantify the affect of your rivals, one particularly that’s exiting few hundred million {dollars} final 12 months and the subsequent 12 months in some product classes that you just instantly compete it? Thank you.

Emily Yang — Senior Vice President, Worldwide Sales and Marketing

All proper. So I believe Gary, with like Dr. talked about higher than — possibly a little bit bit higher than anticipated output in Q1 that’s the explanation we offer a slight steering which you might be absolute proper. This is often about 5% down the quarter, proper. So what we do, we really feel aggressively working with all the shoppers intently 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 total technique, we aggressively pursue. And like I discussed earlier, any time there may be some strategic change from my friends or merger and acquisition all the time create a extra alternative for Diodes to pursue after it proper. But once more we aren’t simply seemingly going after each enterprise, we actually extra centered on strategic good enterprise that may proceed to drive our product combine enchancment in addition to complete answer gross sales technique that we initiatives few years in the past, proper.

Gary Mobley — Wells Fargo Securities — Analyst

Got it. And the affect from one in all your rivals exiting the market?

Emily Yang — Senior Vice President, Worldwide Sales and Marketing

I believe it’s actually laborious to actually say how massive or how small the affect. I additionally assume, one in all my peer publish a number of statements, however there’s additionally others could also be didn’t actually that native, but in addition making modifications. So once more we monitor all this very intently so long as lengthy as match into our long-term plan, so long as that’s going to assist us to attain the $1 billion gross revenue after Lu talked about earlier with positively aggressively going after it.

Gary Mobley — Wells Fargo Securities — Analyst

Thanks, Emily.

Operator

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

Tristan Gerra — Robert W. Baird & Co. — Analyst

Hi, guys. Quick query on the gross margin trajectory for the subsequent few quarters for this 12 months. What’s going to be the combination element versus additional fastened price absorption. It appears like you may have room to additional increase utilization charges. So how ought to we put that within the combine when it comes to margin increasing this 12 months?

Emily Yang — Senior Vice President, Worldwide Sales and Marketing

Well, I believe — yeah. So possibly let me make a remark and Dr. Lu and a few others possibly you possibly can add some extra. I believe the margin enchancment is actually consists of few issues they usually all crucial, proper. One of the largest one is product combine enchancment and we’ve been speaking about this for some time. So we’ll proceed to drive. This is actually extra from the full answer gross sales changing among the legacy begin with among the newer merchandise with higher margin, higher ASP as effectively. And we consider that is really only the start of this complete initiative. And that is really one thing we established most likely about two, three years in the past and we proceed to drive for enchancment.

I believe manufacturing effectivity enchancment has all the time been the energy for Diodes. And like, Dr. Lu talked about, we’ll proceed so as to add further capacities. This could be even including extra gear inside current life or changing among the previous gear with a brand new one, increasing to 4-inch to 6-inch or stuff like that. So that may proceed to drive among the capability enhancements. And in consequence that may proceed to drive our manufacturing [Indecipherable] and proceed to enhance our price, proper.

And then we even have a Lite-On Semiconductor synergies that I talked about. So we begin seeing the advantage of the manufacturing synergy, however they’re nonetheless buyer synergy, finish market synergy and markets synergy and merchandise synergy, that we are able to really 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 need to proceed to ship the outcomes to you guys as effectively.

Tristan Gerra — Robert W. Baird & Co. — Analyst

Okay, nice. And then from a follow-up, it’s going to be about inventories within the channel. So you’ve talked about that you just, you talked about the well-advertised slowdown in China [Indecipherable] that you just’re additionally very diversified. So, are you seeing any pockets of inventories within the provide chain exterior of this that you may 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’re going to order as a result of they’ll shut the books, so that you’re form of ready for that final element?

Emily Yang — Senior Vice President, Worldwide Sales and Marketing

Yeah. I believe Tristan, total, 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’s really pushed by among the assist for the Chinese New Year prospects and in addition the timing of the shipments. But all in all, nonetheless extraordinarily lean. I believe, Gary requested the query, I most likely didn’t handle it, it’s really will we count on, again to the 11 to the 13 weeks or 14 weeks that we outline as a traditional vary. We don’t actually count on return to that standard vary in a brief time frame. So we consider that with all of the visibility that we’ve got, with all the shoppers that we even have a direct communication with. So far nobody have a possibility to view up a number of stock on the shelf at this second. So I consider that that may proceed for a couple of quarters to come back and we’ll proceed to observe very intently. That’s just about apply to all of the Tier 1 Tier 2 as that we’ve got a direct contact. And then with the Tier 3 Tier 4 prospects we really monitor very intently with every of our Distributors companion and that in addition they monitor very intently and so we positively don’t see that as a difficulty at this second.

Tristan Gerra — Robert W. Baird & Co. — Analyst

Great. Thank you very a lot.

Operator

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

David Williams — The Benchmark Company — Analyst

Hey. Good afternoon and thanks. Let me ask the query. So, I apologize I jumped on a little bit bit late, however Dr. Lu, I wished to ask you’ve been via a number of these cycles, and we’ve talked about up to now, however simply form of curious the way you’re seeing the panorama at present and the way you assume possibly the, it looks as if that the channel stock nonetheless stay extraordinarily lean however all the time tends to be that we’ve bought extra via the, via the availability chain.

Do you assume, do you’re feeling fairly comfy at present that there actually isn’t possibly some excesses which can be form of build up inside that channel that simply possibly aren’t being seen aren’t as seen. And do you assume there may be even a possibility for that to occur I assume form of given the demand and the place that the extent that’s been?

Keh-Shew Lu — Chairman, President, and Chief Executive Officer

Yes. You are proper, I’ve been in [Indecipherable] for very long time and I’m going via 1970, ’80, 1990 up and downcycles. It additionally — I’m aware of that. But if I going to say, this 12 months this cycle is actually totally different from the earlier cycles, okay. In earlier all the time the person proceed an extension for the capability behind after which orders that you just 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 gear take a very long time. So the time they get capability there and everyone get it on the similar time that every one of sure you get overcapacity. Then every part go down after which go to the down cycle. So if you happen to took a, it’s a timing challenge of the capability enchancment and that’s why, if you happen to bear in mind a number of years in the past what we, our methods put in capability forward of the demand. So construct in [Phonetic] the downtime you really exceed the capability, as a result of daytime is — the frequent daytime is.

Now this time that’s what we’re capable of develop this 12 months 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 body these scarcity and that’s what we’re capable of take the benefit of offers, however now if you happen to’re speaking about transfer ahead, I believe the transfer ahead nonetheless have proven since you don’t see the various of individuals, it’s capability that loopy, okay. Everybody [Indecipherable] to hit within the capability. So I don’t, I believe this scarcity might be proceed at the very least this 12 months. Now you’re going to begin to increase it up however [Indecipherable] demand really proceed enhance forward of greater than up to now and so lengthy. How we see that mid-man going to proceed very sturdy. And then the capability enhance steadily meet up with the demand.

David Williams — The Benchmark Company — Analyst

Okay. Good, Definitely, nice in although. I definitely recognize it. And then possibly. one different one right here for Emily. But you’ve had some very nice progress within the automotive facet and that’s been a reasonably diversified I assume utility space throughout the totally different areas of the car. But when you concentrate on, your possibly I type of conventional car versus the EV how does, how do you assume that break up seems like possibly this 12 months and, and even in ’21.

Are you seeing a lot adoption inside the EV house now or is that primarily nonetheless pushed by the standard? And then how do you assume that blend form of shakes as we go into possibly the subsequent 12 to 18 months or do you see the demand in EV and form of the pull-through and it doesn’t occur pretty rapidly for you all when it comes to seeing that mirrored inside your income base.

Emily Yang — Senior Vice President, Worldwide Sales and Marketing

Right. So I believe the EV quantity will increase positively actual proper. I believe there may be a number of information and public firm that we are able to seek advice from their ARPU unit enhance and count on expectations for 2020 progress, 2022 progress in addition to 2023. So there may be additionally a number of new begin up or any of the Tier 1 conventional manufacturing are all engaged on some type of EV functions. So we predict that’s actual, there may be a number of alternative for Diodes proceed to increase and proceed to develop on this space. So that is really quantity enhance, in addition to content material enlargement enhance for us.

On the standard facet, what we actually deal with there may be additionally a number of consolation type security. We are speaking about, the variety of lightings, variety of cameras I speak about brushless DC motors and all this extra content material enlargement 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 if you happen to bear in mind the three areas, we deal with is electrification that copper EV the excessive breaks, proper or the opposite battery administration system.

And then we additionally discuss concerning 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 a number of momentum and proceed to have a number of alternative in entrance of us. And with our new product introduction we’re very assured that we’ll proceed to drive a really sturdy momentum within the automotive progress, which you ought to be and we’ve got been demonstrated stronger than the general market proper. So if we take a look at the observe document from 2013 until 2021, we even have a compound annual progress charge of 30% and that may proceed to be the main focus for Diodes. And so we might positively prepared.

David Williams — The Benchmark Company — Analyst

Great. Thanks a lot. Certainly, recognize the assistance.

Operator

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 — Chairman, President, and Chief Executive Officer

Thank you to your participation on at present’s name. Operator, chances are you’ll now disconnect.