This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk05: Welcome to the Diodes Incorporated's second quarter 2021 financial results conference call. My name is Vanessa, and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. During the question and answer session, if you have a question, please press star then one on your touchtone phone. I will now turn the call over to Leanne Sievers of Shelton Group Investors.
spk06: Good afternoon and welcome to Diode's second quarter 2021 financial results conference call. I'm Leanne Sievers, President of Shelton Group, Diode's investor relations firm. Joining us today are Diode's Chairman, President and CEO, Dr. K. Hsu Liu, 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, Laura Murrell. Before I turn the call over to Dr. Liu, I'd like to remind our listeners that the results announced today are preliminary as they are subject to the company finalizing its closing procedures and customary quarterly review by the company's independent registered public accounting firm. As such, these results are unaudited and subject to revision until the company files its Form 10-Q for its second quarter 2021 ending June 30th, 2021. In addition, management's prepared remarks contain forward-looking statements which are subject to risks and uncertainties and management may make additional forward-looking statements in response to your questions. Therefore, the company claims the protection of the safe harbor for forward-looking statements that is contained in the Private Securities Litigation Reform Act of 1995. Actual results may differ from those discussed today, and therefore we refer you to a more detailed discussion of the risks and uncertainties in the company's filings with the Securities and Exchange Commission, including Forms 10-K and 10-Q. In addition, any projections as to the company's future performance represent management estimates as of today, August 5th, 2021. DIODE assumes no obligation to update these projections in the future as market conditions may or may not change, except to the extent required by applicable law. Additionally, the company's press release and management statements during this conference call will include discussions of certain measures and financial information in GAAP and non-GAAP terms. Included in the company's press release are definitions and reconciliations to GAAP to non-GAAP items, which provide additional details. Also, throughout the company's press release and management statements during this conference call, we refer to net income attributable to common stockholders as GAAP net income. For those of you unable to listen to the entire call at this time, a recording will be available via webcast for 90 days in the investor relations section of DIODE's website at www.diodes.com. And now I'll turn the call over to Diode's Chairman, President, and CEO, Dr. Kexu Liu. Dr. Liu, please go ahead.
spk08: Thank you, Leanne. Welcome, everyone, and thank you for joining us today. Our record second quarter performance across all functional metrics is a testament to our strong execution and global manufacturing footprint, enabling us to meet the growing demand for our product. Our growth was once again driving by record global POS revenue, as well as record revenue in the automotive, industrial, and the consumer end markets, especially in IoT, combined with record revenue in the computing market. driven by our Pelcom product for IMPC, servo, and data center applications. DIOS' continuous success in those markets contributed to gross margin expansion in the quarter of 270 basis points sequentially. and also reflected the continued improvement in the loading at the die-on semiconductor facility. In fact, loading at the LC facility reached 87% in a quarter, which is approximately six months ahead of the original planned ramping schedule. Further highlighting our result was the achievement of record GAAP and non-GAAP net income, as well as EBITDA, which increased 22% sequentially to almost 23% of revenue. The highly accredited LLC acquisition, together with our significant operating leverage, drove adjusted earning per share for the first six months of 2021 to more than double the adjusted EPS reported in the same period of 2020. And with our expression for another quarter of record result in the third quarter driven by strong global demand, a variable capacity due to previous acquisition and internal manufacturing expansions, and improve product dynamics. We are all positioned to deliver continued growth, increasing profitability, and shareholder value. Our achievement of year-over-year revenue growth of 53% and the gross profit increased 57% this quarter, representing a major step toward our long-term goal of $2.5 billion in revenue and $1 billion in gross profit by year 2025. With that, let me now turn the call over to Brett to discuss our second quarter financial results and our third quarter 2021 guidance in more detail.
spk01: Thanks, Dr. Liu, and good afternoon, everyone. As part of my financial review today, I will focus my comments on the sequential change for each of the line items and will refer you to our press release for a more detailed review of our results as well as the year-over-year comparisons. Revenue for the second quarter, 2021, was a record $440.4 million, an increase of 7% from the $413.1 million in the first quarter of 2021. Gross profit for the second quarter was also a record of $159.8 million, or 36.3% of revenue, increasing 15% or 270 basis points from $138.6 million, or 33.6% of revenue in the first quarter 2021. I would also like to point out that the gross profit increased 57% from $101.5 million in the second quarter 2020. GAAP operating expenses for the second quarter 2021 were $94.4 million, or 21.4% of revenue, and on a non-GAAP basis were $90.4 million or 20.5% of revenue, which excludes $4.1 million of amortization of acquisition-related intangible asset expenses. This compares to non-GAAP operating expenses in the prior quarter of $86.4 million or 20.9% of revenue. Total other income amounted to approximately $5.4 million for the quarter consisting of $5.3 million of unrealized gain on investments, $1.8 million of other income, and $818,000 of interest income partially offset by $2 million of interest expense and $500,000 in foreign currency loss. Income before taxes and non-controlling interest in the second quarter 2021 was 70.7 million dollars compared to 50 million dollars in the previous quarter. Turning to income taxes, our effective income tax rate for the second quarter was approximately 17.1 percent. GAAP net income for the second quarter 2021 was a record 55.4 million dollars or a dollar and 22 cents per diluted share compared to GAAP net income of $39.5 million or 87 cents per diluted share in the first quarter 2021. The share count used to compute GAAP diluted EPS for the second quarter 2021 was 45.4 million shares. Non-GAAP adjusted net income in the second quarter was a record $54.6 million or $1.20 per diluted share. which excluded net of tax $3.4 million of acquisition-related and tangible asset costs, $100,000 of acquisition-related costs, and a $4.2 million gain in value on certain LSE investments. This compares to non-GAAP adjusted net income in the first quarter of 2021 of $42 million, or 93 cents per diluted share, and a significant improvement from the $28.6 million or 54 cents per diluted share in the second quarter 2020. Included in the second quarter 2021 GAAP net income and non-GAAP adjusted net income was approximately $6.8 million net of tax of non-cash share-based compensation expense. Excluding share-based compensation expense, both GAAP earnings per share and non-GAAP adjusted EPS would have increased by 15 cents per diluted share for the second quarter 2021 and 11 cents for first quarter 2021. EBITDA for the second quarter was a record $99.4 million, or 22.6% of revenue, compared to $81.7 million, or 19.8% of revenue, in the prior quarter. On a year-over-year basis, EBITDA increased 80%. from $55.3 million in the second quarter of 2020, further highlighting our significant operating improvements over the past year. We have included in our earnings release a reconciliation of GAAP net income to non-GAAP adjusted net income and GAAP net income to EBITDA, which provides additional details. Cash flow generated from operations was $93.9 million for the second quarter of 2021. Free cash flow was $66 million for the second quarter, which included $27.9 million for capital expenditures. Net cash flow in the second quarter was a negative $36.2 million, which included the pay down of $114.2 million of total debt. Turning to the balance sheet, at the end of the second quarter, cash, cash equivalents, restricted cash, plus short-term investments totaled approximately $302 million. Working capital was $582 million, and total debt, including long-term and short-term, was $301 million. Total cash this quarter is greater than our total debt, demonstrating our significant cash generation that has enabled us to be back in a net positive cash position within only two quarters since closing the LSC acquisition. In terms of inventory, at the end of the second quarter, total inventory days decreased to approximately 96 in the quarter as compared to 98 last quarter. Finished good inventory days also decreased to 26 from 27 in the first quarter of 2021. Total inventory dollars increased 14.2 million to approximately 304.1 million dollars. Total inventory in the quarter consisted of 8.2 million increase in raw materials, a 6.9 million increase in work in process, and a $900,000 decrease in finished goods. Capital expenditures on a cash basis for the second quarter of 2021 were $27.9 million, or 6.3% of revenue. We expect to remain within our target model of 5% to 9% for the full year. Now turning to our outlook. For the third quarter of 2021, we expect revenue to increase to approximately $467 million, plus or minus 3%, which represents a record on both an organic and a consolidated basis for a combined increase of about 6% sequentially at the midpoint, which is better than typical seasonality. We expect gap gross margin on a consolidated basis to be 37%. plus or minus 1%. Non-GAAP operating expenses, which are GAAP operating expenses adjusted for the amortization of acquisition-related intangible assets, are expected to be approximately 20% of revenue, plus or minus 1%. We expect net interest expense to be approximately $1.2 million. Our income tax rate is expected to be 18%, plus or minus 3%. and shares used to calculate diluted EPS for the third quarter are anticipated to be approximately 45.8 million shares. Please take note that purchasing accounting adjustments of $3.4 million after tax for Paracom and previous acquisitions is not included in these non-GAAP estimates. With that said, I will now turn the call over to Emily Yang.
spk07: Thank you, Brett, and good afternoon. As Dr. Liu and Brett mentioned, second quarter revenue was a record, an increase 7% quarter over quarter, which was at the high end of our guidance to strong demand across all target end markets and geographies. POS revenue was out of the record, driven by record revenue in all regions. Distributor inventory in terms of weeks was down quarter over quarter, which is below our defined normal range of 11 to 14 weeks. Looking at global sales in the second quarter, Asia represented 80% of the revenue, Europe 12%, and North America 8%. In terms of our end markets, computing represented 30% of revenue, industrial 22%, consumer 19%, communication 17%, and automotive 12% of revenue. We achieved record revenue in automotive, industrial, consumer, as well as computing end markets. which was driven by record Paracom revenue. Now let me review the end markets in greater details. Starting with automotive, revenue increased 83% year over year to other quarterly record and contributing to an increase in our eight-year CAGR to 29% since established the automotive division in 2013. We continue to see significant growth in this market as we capture both increasing market shares and contact gains, despite the overall supply challenges. This growth reflects the success of DIOS solution cells and demand generation efforts in penetrating new and existing automotive customers and applications. We are securing an increasing number of new design-ins for electric vehicles in water pump applications for our high-voltage hall-effect sensors, We're also gaining traction for our dual and quad channel op-amp in multiple applications, as well as LED drivers in day-eye running light, rear brake light lamp control applications. Automotive DC to DC converters continue to see strong growth with newly released product targeting applications such as infotainment power supplies, forward lighting, tail lights, instrument clusters, telematic, and advanced driving assistance. In ADAS specifically, we continue to increase our content in this area with our four-channel low-capacitance TVS products for automotive data line protection due to increased demand for electric vehicles. Additionally, with strong demand in the automotive intelligence applications, we have successfully secured design-ins for Paracom I.O. expanders in Smart Copic and ADAS systems. The Paracom products have gained increasing content opportunities with new design sockets for our Logitor CMOS buffer in infotainment and other in-cabin applications. SBR socket devices also delivered solid revenue across several applications, along with new design inks for battery management system, instrument panels, infotainment, headlights, driver monitor system, and sell-a-vehicle-to-everything applications. In the industrial market, revenue increased 53% year-over-year to a quarterly record as we continue to build strong momentum across our product portfolios. We saw strong demand for LDOs for power tools, emitters, and other industrial applications. Our very broad DC-to-DC product portfolio is getting more design-ins and design-wins for industrial applications such as programmable logic controllers, IoT, security, server motor, smart grid energy, and power supplies. We're also securing increasing design wings for LED drivers in air purifiers with UVC light disinfection and internet camera used for digital intelligence and video analysis security system. We're also seeing new opportunities for shocky diodes and rectifiers in industrial IoT and embedded applications. In the consumer market, revenue was also a record as we continue to see increasing growth momentum in the IoT space. where our small form factor packagings provide a leading advantage for diodes. In addition, home appliances are starting to use higher energy conversion efficiency for their rechargeable batteries, and we have a leading AC to DC product platform for light-low high efficiency features. We're also seeing a strong demand for audio amplifiers, LED drivers, and DC to DC converters along with new design-ins, design-wins in applications like security systems, cameras, smart light bulbs, smart door locks, streaming boxes, cable modems, monitors, and televisions. Our discrete products are also being designed into home security systems and gaming console applications. In the communication market, we continue to focus on mobile, smartphone, and especially 5G applications. We're seeing traction for shock key diodes in access point router, shock keys and super fast rectifier in power over ethernet adapters, and hyper fast rectifier in 100 watt open frame designs. TVS product revenue is also growing as our unique international TVS product are designed into USB type C in new generation smartphone equipped with a quick charging feature. With the demand for the higher working voltage, and higher search capability, TVS demand has been on the rise for the most smartphone manufacturers as the quick charging and wireless charging feature become mainstream. We also enjoyed revenue growth and design wins for LDOs in smartphones, fast recovery rectifiers, and glass-passivated rectifiers in applications like mobile phone charging, sustainable energy, and telecom power supplies. Additionally, we continue to experience increasing demand for our Paracom product in the communication market. As mentioned in the last quarter, Paracom's frequency control products, ultra-low jitter, small-sized crystal oscillators family, has had several design-ins into optical modules. Paracom's packet switch also saw increasing demand and design-in activities in both PCI Express 2.0 and PCI Express 3.0 products in applications. such as set-top boxes and consumer premises equipment. Lastly, in the computing market, revenue grew 141% over the buy-year period to a record, in part driven by record Paracom revenue. Our strong growth in this market has been supported by continuous demand for notebook, Chromebook, and high-end PCs, servers, and data center applications. Overcurrent protection USB power switch and compact load management switch continue to see strong demand and revenue growth from Chromebook and notebook applications, along with design inks and design wings for CSV rectifiers, OMI polar hot sensors, dual output unit polar hot sensors, DC to DC converters, and USE charging type detector in new notebook, educational notebook, and desktop PCs. Also in the PC market, we continue to see new design wins for our 1.8-volt redrivers surfacing USB Type-C and DisplayPort applications. We also have strong growth for HDMI DisplayPort redrivers for high-resolution displays and also release DisplayPort and HDMI ActiveMux redrivers supporting multiple displays. In summary, we are very pleased to have achieved our third consecutive quarter of record revenue, coupled with record performance across all financial matrices. Our increasing contact expansion and market share gain in key target markets like automotive, industrial, and computing are contributing to our growth as well as margin expansion. Additionally, the LLC integration continues to progress well and ahead of the schedule, with early evidence of success and future upside relevant through the market customer product portfolio synergies with our expected for other quarter of record performance we look forward to reporting our continuous progress with that we now open the floor to questions operator and thank you we will now begin our question and answer session if you have a question
spk05: please press star, then 1 on your touchtone phone. If you wish to be removed from the queue, please press the pound sign or the half key. And if you're using a speakerphone, you may need to pick up the handset first before pressing the numbers. Once again, if you have a question, please press star, then 1 on your touchtone phone. We have our first question from Gary Mobley with Wells Fargo Securities. Please go ahead, sir.
spk11: Good afternoon, everybody. Congratulations on another strong quarter. I wanted to start off by asking about inventory in the channel. You mentioned below trend for distribution. I'm assuming you're probably a couple weeks below the low end of the normal range, and you're heading into a seasonally strong quarter. So I presume that we might see another sequential dip in distributor inventory. Correct me if I'm wrong there. But what I'm leading up to is a question about seasonality in the fourth quarter. I would imagine in what is normally a seasonally slow fourth quarter, that is perhaps when you're going to have the opportunity to rebuild some inventory. And so should we assume that you're going to see a very atypical seasonal fourth quarter?
spk07: Hi, Gary. Thank you. This is Emily. Let me address the question. So you are absolutely correct. Our number of weeks in the channel inventory went down. This quarter, definitely below our normal range of 11 to 14 weeks. I think at this moment, it's difficult for us to predict the Q4, but we don't expect in the short term there will be significant inventory situation change in the channel at this moment.
spk11: Okay. I guess this falls under the umbrella.
spk08: Yeah, sure, Doctor. Go ahead. Internally we might want to build some inventory because typically it's a Chinese New Year quarter and from our manufacturing side we might have the worker shortage or the Chinese New Year shutdown. Therefore, by past experience, the best way is build up internal inventory to support customer need in 1Q. Because we still believe the market should be still strong, and we need to have some inventory to support our customer.
spk11: Got it. Okay, appreciate that. I guess this falls under the umbrella that investors always want more. you know, you had a decent beat for the second quarter, but perhaps not by as much as some other competitors. So my question to you is, were you constrained at all by supply, supply of things like silicon wafers or anything like that that may have constrained the second quarter revenue?
spk07: I think, Gary, let me address that question. I think, first of all, we really need to look beyond just a quarter, right? So if you look at... our result. This is actually third consecutive record revenue for DIOS, right? So, you know, we definitely are seeing a supply and demand imbalance and what we've been doing is actually, you know, working through different challenges and also working with the customer very closely understanding their true demand, right? At the same time, we also see this as a great opportunity. It actually gives us a good chance to work with the executive team and continue to expand our relationship, continue to expand our print sockets, right? So I think that's pretty much the strategy we've been working on and definitely showing a great result, right? So even you look at the guidance, our seasonality is 5%, and we actually guided 6%. So this is definitely above the seasonality, and we're still seeing really, really strong overall demand.
spk08: And if you look at, we even have, you know, everybody know that supply is very constrained and shortage. But, you know, virtually, you know, we have a stable opportunity to improve our demand, our supply. You know, virtually, we purchased the GFAB from Texas Nutrient back to 2008. And that, it give us a tremendous of the capacity to support in us. And at the same time, you know, when we consulted LHC, when LHC, the is only half loaded. And so, you know, due to the last, you know, almost 12 months of the effort, we are qualified our process into and because of that you can see we ramp it up almost six months ahead of time. We start from 50% at the end of this last year, then now in the end of second quarter we are up to 87% and that will continue going to be improve our output, the loading. At the same time, we are putting up more expense, some of the facility. So therefore, we believe we are better than our competitors in the supply point of view.
spk11: All right. Appreciate it. Thank you, everybody.
spk05: And thank you. We have our next question from Matt Ramsey with Cowan and Company.
spk03: Yes, thank you very much. Good afternoon, everybody. I guess this is a question for Dr. Liu and then maybe Emily if you have anything to chime in. My observation has been that with the industry and many of your competitors' supply constraint that this might be an opportunity for diodes as a smaller supplier versus some larger competitors for you guys to break in and get qualified with new customers, some that you might have been chasing for some time, and this is an opportunity where you have supply and maybe some of your competitors do not, that you could win some new customer logos. That's the first question is, Dr. Liu, is that in fact happening, and Emily, if you feel like have opportunities to sort of land and expand at those customers that might be one for the first time. Thanks.
spk07: Yes, definitely, Matt. We, like I mentioned earlier, right, we believe this is actually a great opportunity for DIOS and, you know, working with customers closely, building the stronger relationship, make the business and the partnership deeper, expanding the print position is definitely something we focus on driving. And that's also part of the reason you're seeing a really strong Q3 guidance and also Q2 performance rate.
spk03: Got it. That makes sense. I guess as my follow-up question, I don't know if this is for Emily or for Brett, but if you could give us a little color and detail maybe on what you expect from the different segments sequentially as we go into the September quarter guide, that would be helpful for, I think, everybody modeling. Thank you.
spk07: Okay, so maybe let me start addressing that with the end market, right? So we're seeing pretty much strong demand across all the regions and all the end market segments. Automotive, we're still seeing a lot of demand opportunities and also momentum in the ADAS area. We call that, you know, connected driving, ADAS, telematics, infotainment. We continue to see comfort, safety, and lighting. being adapted with a lot of new functions and features. Electrification continues. We're definitely seeing the volume of electric cars output increase, right? So overall we're seeing really strong automotive across all different areas that we focus on. Industrial, we're also seeing very strong demand and industrial crossover to a lot of different applications, but overall we're seeing strong strength in this segment. I would say, you know, some of the personal PC or motherboard definitely, you know, grow a lot, right, throughout the last few quarters. We're still seeing good momentum, but we're definitely seeing stronger, more into the surfer area, you know, the data center area, but overall it's still strong. Consumer Q3 is always a strong quarter for consumer because the holiday bills and stuff like that. And, you know, we really focus more on the IoT-related area, and, you know, we've been talking about that. For communication, you know, smartphone is part of the communication. This is also a strong cycle. We're also seeing, you know, continuous good momentum on the 5G area. I did talk about, you know, the CPEs and, you know, the routers and stuff like that. So I would say all in all, it's really across all regions and markets.
spk08: Well, another... Another test mode is we have the record over record of the POS. And that is the demonstration of our capability to grow our revenue and the capability of pushing and gaining market shares.
spk07: Right. We have also record revenue in automotive segment, record revenue in computing, record revenue in industrial. and also record revenue in the consumer area. Yeah.
spk03: So should I just assume, I guess for everyone's model, that each of the different segments will be up sequentially and then we'll, I mean, some will be more than others. I just wanted to clarify that. But thank you for taking my questions. Congratulations.
spk05: Thank you. Yeah, thank you. And thank you. Our next question is from Tristan Guerra with Robert W. Baird.
spk09: Hi, good afternoon. Given you mentioning that the utilization rate at the light on FAB was, if I heard well, 87% exiting Q2, and I believe you're getting about 10% incremental capacity from the GFAB from TI every year, assuming that the supply constraints continue into next year, it sounds like you probably need to add even more capacity. And Ansami mentioned this morning that they're going to cut in half 25% of their total revenue, which is non-target products. And I know Diodes is more focused on gross margin than just pure growth nowadays. However, do you see this as a market share potential opportunity for Diodes in terms of picking a product, some of the products that OnSumi is going to de-emphasize, perhaps in your automotive business? And then could you even see value in some of the FABs that OnSumi will be selling? Because it seems to me that you've ramped already a lot very quickly in terms of the available capacity you have relative to the competition.
spk07: Right. Tristan, this is Emily. Let me answer first. Anytime there's a strategic change with my peers, it's always a good opportunity for DIOS to really gain more of the market share and pick up some of the business. Related to whether it's a value for the fab or some of the products, I believe we really need to understand more to answer that question. But I would say overall, as a company, we continue to expand our capacity. Dr. Liu mentioned about the GFAB, the SFAB2, the JKFAB from Lyon Semiconductor. Even assembly and test, we continue to expand based on what we see as a strategic need in the longer term. So, you know, I hope I answered your question.
spk09: And then a quick follow-up, you've mentioned that PERICOM is starting to gain traction in communication. Is that the early innings of that and how should we look at the potential of that opportunity for PERICOM? You know, is it the type of, you know, percentage adoption rate that we've seen PERICOM getting in data center, for example, if, you know, any way you can quantify, you know, that opportunity?
spk07: Right, Tristan. You know, I think Paracom overall is gaining traction actually across multiple end markets, right? So it's not just one. I think I just highlight some of the key design wings and momentums in my speech. But overall, right, if you look at the Paracom revenue, we have other record. It was a record the previous quarter. It was a record previously as well, right? So overall, right, in the communication segment, We definitely see, I mean, a lot of opportunity in the data center, in the networking area, especially when the speed and the requirement is getting higher. And, for example, the crystal-crystal oscillator and the clock IC, the timing area supporting the new requirements is definitely giving us even more opportunity than before, right? The 5G, the CPE, the set-top box, so I would say across Even in the automotive, I talk about Paracom in the previous quarter in the automotive. So computing has always been strong for Paracom product. So I think all in all, even in the industrial, so we actually seeing good momentum for the Paracom demand and also the demand creation across all segments.
spk08: If you see, we have continued several quarters. I don't remember how many quarters, we said record Pellcom revenue, a quarter after quarter, probably for several years. And so this is, again, this is the testimony of how we can gain the market share and push the Pellcom products. Right.
spk09: That's great. Very useful. Thank you.
spk05: And thank you. Our next question comes from William Stein with Truist Securities.
spk10: Great. Thank you for taking my question. First, I'd like you to comment on the cyclicality of the business. In particular, your results and even more so your guidance show a very good expectation, not only above seasonal revenue next quarter expected, but a good uplift in operating margins. And I'm wondering how much of that strength you believe is coming from pricing and other cyclical factors versus some structural benefits perhaps from the light on semi transaction. And I have a couple, maybe at least one follow-up if I can.
spk07: Hi, William. This is Emily. So I think when we look at this kind of margins really divided into different areas, right? You know, the product mix improvement has been something we focus on with driving. You know, we've been talking about the new product, right, giving us better features and functions that improve our overall margin, and better product mix is another important milestone that we've been driving over the last few years. It's not just this quarter, right? I think the other portion we're talking about is manufacturing operational improvement. and that will continue, right? So light on definitely is part of it, but I would say all in all, it's really kind of summarizing all different areas, right? So, you know, improve the productivity overall as a company.
spk08: But one thing, you know, you remember from we acquire LSE, we lay out four synergies, right? And the manufacturing energy is the first one we can mature that and it's not even finished yet. That's just, you know, at the first one we can get it, okay? Then we still have more synergy, which is the market synergy, product synergy, and customer synergy, which yet to get it yet, okay? And so we have the hope and we can continue improve our margin because after, you know, we over 10 loads of synergy, you know, that's give us so in addition to what Emily talking about all this operational and product mix synergy, you know, operational synergy and the product mix synergy, another big one is going to come in for the AOC acquisition synergies.
spk10: That's a good segue into my second question, actually. How far is the company into this integration? You talk about 87% utilization. On the surface, it might seem, okay, we're done here, but I'm sure you're not done. You just mentioned that you're not done. What should we think about from a modeling perspective when we consider the uplift from both the revenue and profitability perspective that could come from this deal? Well,
spk08: But from the gross margin model on those, I need to say we do not separate the gross margin improvement from tile only or LSC only. We consider all together because one of the things we really don't want to separate is AOC product, we qualify using Dios and them to push to the marketplace. And those, you cannot say that's AOC or that's Dios. But that's one of, you know, when we're talking about the synergy, we talk about market synergy, we talk about product synergy, all those customer synergy, those really is intend to do is Dios brand and we qualify AOC product using Dio's brand to push to the marketplace. So that we intentionally don't want to separate the improvement based on AOC or Dio. We all report consolidated numbers. And then I think Gary answered the rest of the question.
spk04: Yeah, and this is Gary. Let me address the question about your relations, the LEC-related question. Okay, so we have been driving the manufacturing synergy since the integration with Lion Semi, which including the second source, offload from internal and external . At the same time, we also improved our yield rate, cost reduction, and the bottleneck action in many places, so productivity can be improved a lot. Okay, at the same time, by leveraging the product synergy, as Emily mentioned about, we are able to drive much better to support our customer. Those kind of activities we continue to do and that will be probably improve our GP and the revenue very, very quickly. That's why you see for the past three quarters, we see the from losing money to break even. Now we are making money.
spk10: Great, thank you.
spk05: And thank you. As a reminder, if you have a question, please press star then 1. We have our next question from David Williams with Benchmark. Please go ahead.
spk02: Hey, good afternoon. Thanks for taking my question today. First, congrats on the solid execution and the growth. Very good to see. I guess my first question would be on the margin side and just how sustainable do you think that is as we start to get to a more normalized environment? And have you taken any opportunity maybe to rationalize the portfolio in terms of just where you're contributing your capacity to maybe higher margin products?
spk07: Yeah, hi, David. You know, like I mentioned, right, product mix is the ongoing effort that we've been driving. It's not just one quarter. And, you know, with the product mix change, not just this quarter, you're actually seeing consistent improvement from our overall margin performance point of view, right? So we believe... Building a better product mix is a sustainable approach. Building a stronger relationship, expanding our print position is definitely a sustainable approach as well. And continue to drive the manufacturing operation improvement will also be sustainable. So I think doing the right thing at the right time. and taking the opportunity to continue to expand, it definitely paved a really strong path for us to work towards our 2025 goal, right, which is $2.5 billion and $1 billion gross profit. So I think we are definitely on the right track.
spk02: Okay, great. And then just kind of thinking about you're obviously marching towards the $2.5 billion top line goal. goal pretty quickly here, and we're in a very strong environment. But I guess if you kind of think about the stickiness of that revenue, maybe what you picked up from competitors, and because you are able to supply, do you think that revenue stays fairly sticky? Is there any concern with maybe some of that reversion of some of the revenue that you picked up more recently?
spk07: Well, you know, I really think, right, when you build a stronger relationship with a customer and you really expand the relationship, It definitely gives us more of the print position to compete in a longer term. So I personally believe this is actually a long-term strategy. We've been always striving. So I don't think that will change. Markets are always up and down. I think we all live through a few cycles. There's no surprise over there. But I think the foundation is important to build right now, and we believe we are building a stronger foundation, and we want to continue to expand our market share.
spk08: Yeah, especially customer relationship. You support them when the tough time, I guarantee you, they won't forget about it. Okay? And then if you are able to support, then they would know next time when the the markets tie again, they can turn to us instead of, you know, they cannot get our help. So another thing is they all know Diode has capacity, and we continue improve our capacity. So if they design our product, they don't need to worry about we shut them down. Now they might be hand-in-mouth, When the market is very tight, they might, but at least we will not let them down. And they were still able to ship their product to their customers. And that is most important relationship and the trust we build up during these cycles. So, yeah, actually, in my mind, this is a good opportunity for us to build up the solid foundation for the future. And therefore, you know, since a long time ago, we have been continuing getting the marks here, our growth and our peer, and during this tough time, we're even one step stronger than before.
spk02: Thank you. Well, congrats again on the quarter and looking forward to seeing the third quarter.
spk05: Thank you, David. Thank you. And thank you. We have no further questions at this time. I will turn the call over to management for closing remarks.
spk08: Thank you for your participation. Operator, you may disconnect now.
spk05: And thank you, sir, and thank you, ladies and gentlemen. This concludes our conference. Thank you for your participation. You may now disconnect.
Disclaimer