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spk09: Good afternoon and welcome to Diodes Incorporated 3rd Quarter 2021 Financial Results Conference Call. At this time, all participants are in listen-only mode. At the conclusion of today's conference call, instructions will be given for the question and answer session. If anyone needs assistance at any time during the conference call, please press star followed by zero on your touchtone phone. As a reminder, this conference call is being recorded today, Wednesday, November 3rd, 2021. I would now like to turn the call over to Leanne Seavers of Shelton Group Investor Relations. Leanne, please go ahead.
spk05: Good afternoon, and welcome to DIODE's third quarter 2021 financial results conference call. I'm Leanne Seavers, 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, Ramit Dhaliwal. 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 third quarter 2021 ending September 30th. In addition, the 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's estimates as of today, November 3, 2021. Dowd's assumes no obligation to update those projections in the future as market conditions may or may not change 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 of 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 DIAO's Chairman, President, and CEO, Dr. Kexu Liu. Dr. Liu, please go ahead.
spk03: Thank you, Leanne. Welcome, everyone, and thank you for joining us today. This quarter represented the fourth consecutive quarter of record revenue and our second consecutive quarter of gross margin expansion over $210 billion. basis point resulting in record gross margin and profits. Underpin our growth has been the success of our content expansion initiatives in particularly in automotive market where revenue grew over 65% year over year and 7% sequentially. contributing to an eight-year CAGR of 30%. Additionally, our Pelcom products continued to set new revenue records, achieving four consecutive quarters of growth, primarily driven by traction in high-end computing and several applications. Our growth in those Higher margin and markets, combined with increased loading at our live-on semiconductor facilities, have enabled us to increase our top-line revenue and margins. Even in the midst of this supply-constrained environment, DIO is favorable positioned with a global manufacturing footprint. that provides the flexibility to strategically expand our capacity and reduce cost, either by adding equipment to existing lines or converting equipment to larger wafers. These ongoing actions are expected to support our continued growth and margin improvement into next year and toward our 2025 target of $1 billion in gross profit on $2.5 billion in revenue and a 40% gross margin. With that, Let me now turn the call over to Brett to discuss our third quarter financial results and our fourth quarter 2021 guidance in more detail.
spk02: 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 would 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 third quarter of 2021 was a record $471.4 million, an increase of 7 percent from $440.4 million in the second quarter of 2021. Gross profit for the third quarter was also a record at $181.2 million, or a record 38.4 percent of revenue. increasing 13% or 210 basis points from $159.8 million or 36.3% of revenue in the second quarter of 2021. I would also like to point out that our gross profit increased 63% or 250 basis points from $111.1 million or 35.9% of revenue in the third quarter of 2020. GAAP operating expenses for the third quarter of 2021 were $104 million, or 22.1% of revenue, and on a non-GAAP basis were $99.6 million, or 21.1% 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 $90.4 million or 20.5% of revenue. Total other income amounted to approximately $8.3 million for the quarter, consisting of $5.9 million of unrealized gain on investments, $2.2 million of other income, $765,000 of interest income, $800,000 in foreign currency gain, partially offset by $1.4 million in interest expense. Income before taxes and non-controlling interest in the third quarter 2021 was $85.6 million, compared to $70.7 million in the previous quarter. Turning to income taxes, our effective income tax rate for the third quarter was approximately 17.3%. Gap net income for the third quarter 2021 was a record $68.4 million or $1.50 per diluted share, a 23% increase compared to GAAP net income of $1.22 per diluted share or $55.4 million in second quarter 2021. This represents a 194% improvement from $0.51 per diluted share or $27.2 million in the third quarter 2020. the share count used to compute GAAP diluted EPS for the third quarter 2021 was 45.6 million shares. Non-GAAP adjusted net income in the third quarter was a record $67.3 million, or $1.47 per diluted share, which excluded net of tax $3.3 million of acquisition-related intangible asset costs $0.3 million of acquisition-related and restructuring costs and a $4.7 million gain in value on certain LSC investments. This represents a 23% improvement from the second quarter of 2021 of $1.20 per diluted share, or $54.6 million, and a 137% improvement from $0.62 per diluted share, or $32.8 million, in the third quarter 2020. Included in third quarter 2021 GAAP net income and non-GAAP adjusted net income was approximately $8 million net of tax of non-cash share-based compensation expense. Excluding share-based compensation expense, both GAAP earnings per share EPS and non-GAAP adjusted EPS would have increased by 18 cents per diluted share for the third quarter 2021 and 15 cents for second quarter 2021. EBITDA for the third quarter was a record $114.5 million or 24.3% of revenue compared to $99.4 million or 22.6% of revenue in the prior quarter. On a year-over-year basis, EBITDA increased 81% from $63.3 million in the third quarter 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 $98.9 million for the third quarter 2021. Free cash flow was $57.8 million for the third quarter, which included $41.1 million for capital expenditures. Net cash flow in the third quarter was a negative $10.1 million, which included a pay down of $49.7 million of total debt. Turning to the balance sheet, At the end of third quarter, cash, cash equivalents, restricted cash, plus short-term investments totaled approximately $292 million. Working capital was $619 million, and total debt, including long-term and short-term, was $252 million. Our net cash position demonstrates our significant cash generation and earnings power. In terms of inventory, at the end of third quarter, total inventory days increased to approximately 99 in the quarter as compared to 96 last quarter. Finished goods inventory days were 27 compared to 26 last quarter. Total inventory dollars increased $18 million to approximately $322.1 million. Total inventory in the quarter consisted of $8.9 million increase in finished goods a $5.2 million increase in raw materials, and a $3.8 million increase in work and process. Capital expenditures on a cash basis for the third quarter 2021 were $41.1 million, or 8.7% 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 fourth quarter 2021, we expect revenue to increase to approximately $476 million, plus or minus 3%, which represents a record on both an organic and a consolidated basis for a combined increase of about 1% sequentially at the midpoint, which is better than typical seasonality of down 5%. We expect GAAP gross margin on a consolidated basis to be 38.7%, plus or minus 1%. Non-GAAP operating expenses, which are GAAP operating expenses adjusted for amortization of acquisition-related intangible assets, are expected to be approximately 21% 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 fourth quarter are anticipated to be approximately 46.2 million shares. Please note that purchasing accounting adjustments of $3.4 million after tax for previous acquisitions is not included in these non-GAAP estimates. With that said, I now turn the call over to Emily Yang.
spk06: Thank you, Brett, and good afternoon. In the third quarter, revenue increased 7% sequentially, which is above the midpoint of our guidance and better than typical seasonality, driven by record revenue, market share gain, and strong demand across all regions. Worldwide POS revenue was out of record, driven by record POS revenue in Asia and Europe. Distributor inventory in terms of weeks was flat quarter over quarter, which remains below our defined normal range of 11 to 14 weeks. Looking at global sales in the third quarter, Asia represented 80% of revenue, Europe 12%, and America's 8%. In terms of our end markets, computing represents 30% of revenue, industrial 24%, consumer 18%, communication 16%, and automotive 12% of revenue. We achieved record revenue in the automotive, industrial, computing, and consumer end markets. Now let me review the end market in greater detail. Starting with automotive market, revenue grew over 65% year-over-year and 7% sequentially to other quarterly revenue, even in a supply-constrained environment. Since launching our entrance into the automotive market in 2013, we have achieved a 30% CAGR. Our ongoing success can be contributed to our contact expansion initiatives that have resulted in diode contact opportunity increasing to almost $100 per vehicle. As part of this initiative, we have also expanded our product portfolio for a broader set of automotive applications that has resulted in increased design-ins and design-wins. As evidence of our traction to cover more applications, during the quarter, we have strong design-in momentum for gate drivers, high-voltage regulators, hall-effect sensors and MOSFETs in the brushless DC motors, electric power steering, cooling fans, water pumps, power windows, door locks, infotainment, battery-managed system, and advanced driving assistance system. Wireless charging, USB Type-C charging, and 48-volt battery system continue to drive demand for MOSFETs and protected load switches. We also saw strong demand for automotive grid rectifiers in wiring harness applications, as well as our bipolar transistors and LED linear drivers in various lighting applications, including rear brake lights, turning lights, fog lights, and carpet lighting. DC-DC buck converters also receive strong demand in infotainment, forward lighting, taillights, instrument clusters, telematics, and ADAS. During the quarter, our Paracon products for the automotive space also continued to gain strong momentum with increasing design-ins for USB Type-A charging controllers, I.O. expanders, and crystal-crystal oscillators in the infotainment. A broad portfolio of high-temperature crystal oscillators led to growth in the automotive business, contributing to the strong performance of the Paracon product line during the quarter. In the industrial market, revenue also reached a quarterly record, growing 66% over the prior year and 17% sequentially across a diverse set of applications, including power supplies, power tools, smart metering, power distribution system, machine automation system, and security system. Bipolar transistors and synchronized controllers are gaining traction in power supply applications and PCI Express packet switch from the Paracon product family are gaining momentum in embedded applications. Newly introduced step-down LED drivers in a compound package when several new designs for LED lighting applications. Additionally, our gate driver ICs, trench mount technology, and voltage regulators are seeing continuous success in the brushless DC motor, cooling fans, and the blowers, stepper motors, garage door controls, and LED strip lighting. DIO also continue to support environmental sustainable through the efficiency improvement with our rectifiers in the green factory automated control equipment and high-speed robotics. Additionally, we gain increasing market share in inverter and power over Ethernet applications with our MOSFET and SDR products. We also secured increasing design wings for applications such as programmable logic controllers, IoT, security, servo motors, power supplies, smart grip, and energy. Also, we have been securing the new design wings from our light-on semiconductor image sensor product line in industrial automation machines, including scanners, banknotes detectors, check receive, and PCB inspection. In the consumer market, DC-DC converters and bipolar transistors have been gaining strong growth in monitors, TVs, setup boxes, and cable modems. Similarly, demand for our low-power audio amplifier increased significantly, along with new design wins for Schottky and SDR products in smart speakers, wearable devices, smart routers, and virtual reality applications. With the integration of LSE manufacturing facilities, DIOS is now well-positioned to support the strong demand for our bridge rectifier products family in the consumer applications, such as home theaters, as well as smoke and carbon monoxide detectors. Additionally, USB power delivery decoders and MOSFETs gain an increasing number of design wins in the wireless power charging solutions. Our industrial smallest MOSFET is ramping up to meet the most critical demand in small footprint applications. We also experienced further growth and the new design wings for our USB Max devices with high voltage protection and ultra-high bandwidth features in the IoT applications. Turning to communication, we continue to drive increasing demand for our Paracon products in the 5G market. Our SPDT switch has been designed into 5G active Athena units with a major 5G equipment suppliers. We also seen demand for PMOS to protect the 5G RF amplifier in the remote units and the NMOS in the 5G-based power stations to reduce the power consumption. Also during the quarter, we achieved significant traction for our high PSSR performance LDOs, battery FETs, and SBR product in the smartphone application. DIOS also saw increased revenue from optical applications for fiber optic equipment, including CWDM and DWDM modules, as well as switch gears and switchboard applications. Building on the success of our high-performance crystal oscillators from Paracom, our ultra-low jitter crystal oscillator family also experienced tremendous growth in the optical modules. Lastly, in the computing market, revenue grew over 140% year-over-year to a record, driven by record Paracom revenue and the fourth consecutive quarterly of growth. Energy conservation trend continues in the commercial PC market, which requires arsenal integrity re-drivers. We're seeing USB Type-C and DisplayPort re-drivers, PMOS USB power delivery, buck converters, and only power call sensors design wins in the notebook, motherboard, and AIO platforms. Additionally, strong demand for high-resolution displays propelled our HDMI display redriver product to other volume peak. HDMI 2.0 redrivers are designed in applications like mobile stations, gaming PCs, and notebooks. And our newly released dual-channel LED drivers of inferior LED has winning the designs with major PC manufacturers. Along with Teracon products, Schottky and SBR products are also increasing our new design wins in cloud platforms and data center applications. LSC's image sensor products have also been gaining new design wins in scanners and multifunction printers. In summary, we are very pleased to have achieved our fourth consecutive quarter of record revenue, coupled with record performance across all financial metrics. The continued success of our contact expansion initiative is evident by our record revenue in key target markets like automotive, industrial, and computing, which has also served as a key contributor to our margin expansion. With our expectations for other quarter of above seasonality result and record performance, we look forward to reporting our continuous progress. With that, we now open the floor to questions. Operator.
spk09: Ladies and gentlemen, if you have a question at this time, please press star, then one. If your question has been answered and you'd like to remove yourself from the queue, please press the pound key. Our first question comes from the line of Tristan Gira from Baird. Your question, please.
spk07: Hi, good afternoon. You've mentioned market share gains in a quarter. Is that the ongoing share gains notably driven by Pericom, or are you seeing a change or an acceleration in those share gains due to some of your competitors de-emphasizing lower margin product, which presumably would be an opportunity for you to go out on some additional share there?
spk06: Right, so Tristan, this is Emily. I think the market share gain is really across the board, across all the product lines, right, not only just the Paracom. So, you know, I think with our contact expansion and our total solution sales strategy, driving additional design-ins and design-wins, of course, with the current market situation, also accelerated some of the design-in activities, right? So I would say it's a combination of everything.
spk07: OK, thanks for the feedback. And as a follow-up, how are the shortages potentially weighting on your ability to ship either at your level or at the customer level, meaning customers are waiting for other parts and might be doing some inventory rebalancing? There was a large analog company that talked about it earlier this earnings season. How do you see, generally, the supply potentially constraining you, not necessarily this quarter, but over the next few quarters?
spk06: Right. So, you know, I mean, first of all, right, we definitely are constrained, right, because overall the situation for this run is quite dynamic. So what we have been doing is actually working with customers, understanding their true demand, and overcome different bottlenecks, right? So overall we've seen the backlog is still extremely strong, we haven't really seen any significant changes from the behavior from customer rebalancing their inventory at this moment.
spk07: Great. Thanks again.
spk09: Thank you. Our next question comes from the line. William Stein from Truist Securities. Your question, please.
spk08: Great. Thanks for taking my questions. First, I want to ask about the above seasonal guide. I wonder if there's one of the end markets that we should think about more prominently representing this above seasonal expectation, or is it spread across more than one?
spk06: Right. So let me address that question first. You know, I think overall we've seen strength across all the markets. So let me just break it down a little bit. In the automotive, we're still seeing it very, very strong. Industrial is also very strong. On the computing area, we're seeing a lot of the strong demand driven by the cloud-based applications. Server, data center are extremely strong. You know, enterprise size still very strong. The only area we're seeing a little bit, I would say, you know, maybe soft, is actually consumer-related, low-end PCs. But for DIOS, that was never really a big focus for us, right? And then if we look at the communication, I think overall the backlog is still strong, especially driven by 5G-related stuff, including the smartphones. You know, all the other, I would say, wireless phones, we're definitely seeing a little bit, I wouldn't say slow, but stable demand in general, right? And then, so yeah, so that's communication, computing, industrial, automotive. Yeah, that's about the five segments that we're seeing.
spk08: Sounds like pretty broad-based. I wonder if you could give us an update on lead times, maybe characterize what portion of the portfolio perhaps that's approximating 52 weeks or more, how that's changed, and maybe backlog if you can provide it. Thank you.
spk06: Right. So overall, there's no significant change in terms of lead times. Like I mentioned before, what we do is working with customers, especially the Tier 1, Tier 2 customers, understanding their true demand, right? Back loss, very strong. Book-to-bill ratio, really strong as well. And we also have record revenue, POS revenue for the second quarter. And the strength is really across all regions as well. So as you can see, based on a lot of this kind of information, we did provide a a strong guidance for Q4, which is 1% quarter over quarter growth, and compared to the usual seasonality of 5%, you know, we see that as a strong guidance as well.
spk03: Well, in addition, we implement this non-cancellable six-month backlog, and from there, we still have very strong booking, and our backlog did not really get canceled, and we almost all booked for the next six months' capacities. So you can see the business is still very strong.
spk09: Great. Thank you very much. Thank you. Our next question comes from the line of David Williams from Benchmark. Your question, please.
spk01: Hey, thanks for taking the question and congrats on the excellent results here. So maybe first, Dr. Liu, you had mentioned in your prepared remarks of the expanding capacity by adding equipment or converting to larger wafers. I'm just wondering if you can maybe provide some color as it relates to those remarks and if this is currently in motion or how we should think about the capacity expansion efforts in the intermediate term.
spk03: Okay. These, you know, just several of them, When we acquire LSC, some of the GPV plug is at three inch, we all convert to four inch. Then some of the four inch, we convert it into six inch. And from there you can see the capacity and the cost both will be, capacity will be increased and the cost will go down. you know, on the, our S-FAB tool, we, you know, we expand all this. You know, we have five foot nine is six inch, and the other half is eight inch. We actually ramp it up all the eight inch capacity. And so we supposed to, you know, fully load it by end of fourth quarters. Then, you remember we bought the G-Fab from Texas Instruments. And that G-Fab, you know, we have fund tree service, but it went down 10% a year. And because of that, we had rented up our own demand into that 8-inch G-Fab and even some of the 6-inch FAB. So from there, we do have more capacity to support ourselves by TEI, Texas Instruments, in the contract, they deduce their fund tree support, or our fund tree support to them, 10% a year. And so, due to all those actions, we are able to increase our capacity. And at the same time, You know, some of our own facility, for example, the PELCOM crystal line and oscillator line, we all, SOFU, we actually install two lines, one in the airport this year, and one going to be start to rent by end of this year. So those are all here, there, we are able to increase our capacity to support future remuneration expense.
spk01: Great. Excellent, Keller. Certainly appreciate that. I think you're one of the few that have had that kind of capacity coming into this shortage, so it's good to see. I guess maybe from a component shortage perspective, are there areas where you're maybe seeing any type of inventory excesses or where the visibility is less clear. And the reason I ask is a few others have spoken to potential builds and maybe preparation of scarce components becoming available. And just maybe thinking about the production numbers and the builds that aren't yet in the production numbers, do you think there's any part of the demand trends that you're seeing now maybe that are pulled forward because of those production builds that aren't in the numbers yet?
spk06: Yeah. So, David, this is Emily. Overall, we're still seeing constraints really across all the product lines. We haven't really seen any specific pockets of product lines that seem some of the, I wouldn't say drop, but it's really, you know, relaxed, right? So, we definitely don't see that at this moment. So, like Dr. Liu mentioned, right, we pretty much, you know, booked with our non-cancellation policy and with our visibility on the backlog, you know, we are pretty well positioned for the next few months.
spk03: Well, I think virtually, I think it's virtually because we are getting the market share and because our solution fails, we are able to participate more in the customer design. Therefore, you know, we, our revenue grows. is really very balanced. It's not just one here, there. Another thing is we are target in the product mix, like Emily just mentioned, automotive, we are CAGR 30%. That give us the potential growth in the futures, right? And like we focus on, you know, high-end PC data center and those servos and those is really coming from our product and we continue setting the new record for consecutive quarter now. And so those is, you know, is the growth, the support for our growth and even on consumer, we focus on IOT type of activity and therefore those are still growing, continue growing. And you know, consumer and communication, 5G, you know, related either next station or cell phone or high end, you know, high end phone, those continue grow for in the future. Therefore, I am not concerned even the capacity may start to lose up, but I don't concern our growth will continue.
spk01: Fantastic, Collier. One more, if I can just squeeze in here real quick. Just on the gross margin side, do you have a sense of maybe what the magnitude of margin improvement's been for maybe the volume and pricing versus just the value optimization? How sustainable are the margin trends, do you think?
spk03: Go ahead. Our principle is we only raise the price to reflect our cost increase. So when our vendor raise the price for wafer fab or building material, we increase our ASP to reflect that cost increase. But majority of our gross margin improvement It's not coming from the ASP increase. It is coming from our manufacturing efficiency, okay, and our product mix. And when you look at the manufacturing efficiency, you know, when we consulted AOC at 1Q this year, our GP went down 300 basis points. And it's because the manufacturing efficiency is not as great as DIOS. But then, after we take over, you can see our second quarter growth 270% basis point. Our third quarter growth 210 basis point. It's all due to manufacturing efficiency and product mix, because from product mix point of view, it's like we grow much more in automotive area, and I already mentioned 30%, 30% CAGR, and that give you a much better gross margin, but manufacturing efficiency, I think, you know, the LSC manufacturing, we from, you know, have loaded And we are now get to about the LSC, one of the fab is 91% in the third quarter. So those is really adding to the improvement of the gross margin.
spk06: Yeah, I think on top of that, right, we talk about LSC synergies, right? Besides the manufacturing synergy, we still have three other area, which is product customer base, as well as the market segments. there's still a lot of room for us to continue to grow. We're also seeing a new wave of opportunities, especially open up a lot of new doors, new sockets, at a lot of strategic customers. So we believe this is the beginning of it, and with our total solution sales strategy, our contact expansion focus, that will continue to help us to drive the margin improvement in the near future.
spk03: Our strategy is even... this shortage, the capacity constraint, we are not raise the ASP crazy. We only deflect the ASP increase by our cost increase. So our customer can understand why we need to raise the ASP. But we take this opportunity to develop the deeper relationship with our key customer. We are able to open the door for the area which we are not able to participate in the past, now the customer really welcome us to support it. And by this strategy of not raise ASP too aggressively, we develop a long-term partnership relationship. At the same time, we are able to sell our total solution into the customer's hand. So doses, I believe, is a better strategy than just raise the ASP and hurt our customers' relationship.
spk01: Fantastic. Thanks so much, and the best of luck on the fourth quarter.
spk09: Thank you. Thank you. Once again, ladies and gentlemen, if you have a question at this time, please press star then 1. Our next question comes from the line of Matt Ramsey from Cowan & Company. Your question, please.
spk08: Yeah, hi there. This is Ethan Potasnik, actually on for Matt Ramsey. Congrats on the nice set of results here. I just wanted to follow up on a previous question. In understanding, I guess, the utilization of the light on fabs, given already high levels, how much incremental utilization is to come And then from like a margin revenue perspective, if the fabs are getting close to full, how much of the older lower margin, lower ASP products are running through the facility that can be replaced by higher margin, higher ASP products, and what impact that might have on the P&L going forward?
spk03: Well, let me answer some, and then I'll get Gary to answer the race solving. Okay, if you look at the making function of LHC, then some of the area which common use by dial, then that portion is the one we're talking about, one of the area of FAB, okay, which we call ZK-FAB, and that's the one with half loading now to almost 91%. But there's another FAB, which I mentioned, convert from three inch to four inch, convert from four inch to six inch, those it's just, we put in the equipment, we purchased equipment in September this year, and we'll reinstall and convert it to six inch, then we ramp it up in one queue, then we'll fully ramp by second quarter. So that kind of support for the capacity going to support the growth of the AOC in the future. Because like I said, the AOC synergy, other than making function, the product synergy, the market synergy, and the customer synergy, it takes time. So I prepare for that. It takes one to two years. to be able to ramp it. And so we get the capacity ready to prepare for the mature of those synergies. Now you are asking how much percent. We really don't, we are not focused on that. We know that's the area we're going to enhance, we're going to but we do not put in focus of how much percent going to be. It's ongoing productivity improvement, ongoing capacity increase, ongoing to gain that synergy for AOC. So we are not separate that or idle from that for AOC only.
spk04: Right. Right, let me put more color on top of Dr. Liu's statement on that, and it's really difficult for us to break it out what is a low margin AOC before and what is it now. Okay, but as Dr. Liu mentioned about at the very beginning about the JKFAP loading, okay, from 50% of first quarter this year up to 91%. It does increase the capacity utilization, but also reduce the idle cost on each item, no matter styles, product, and the second source moving from the sub count, okay, or existing Lion product or product, they do have a much better cost structure than like three quarters before. So that does help us to bring up the competition of those devices, no matter if it's Lion product or Dials product.
spk06: Right. So maybe let me add one more comment. Your question regarding lower ASP margin replaced by higher ASP or better margin product, that is actually part of our product mix strategy that we continue to drive And there's still a lot of room for us to continue to improve. And this will also include, I mean, Lion Semiconductor is part of our overall portfolio. So we'll continue to execute this strategy.
spk08: Right. Okay. Totally understand. Thank you for that. And then just a quick follow-up. If you could give us a little color maybe on what you expect from the different segments sequentially as, you know, given the guide.
spk06: So I think, you know, I did went over the segments, right? So automotive is going to be strong. Industrial is going to be strong. PC, higher-end stuff, cloud-driven data center, servers will be strong. Consumer focus more on the IoT area, and then communication is really 5G-driven. We don't really break down and provide the guidance down to each of the segments, but that's, you know, what we see in the market nowadays. Okay.
spk08: I understand. Thank you very much.
spk09: Thank you. This does conclude the question and answer session of today's program. I'd like to hand the program back to Dr. Liu for any further remarks.
spk03: Thank you for your participation on today's call. Operator, you may now disconnect.
spk09: Thank you, and thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.
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