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spk06: Good afternoon and welcome to DIODES Incorporated's third quarter 2022 financial results conference call. At this time, all participants are in a 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 the star key followed by the zero on your touchtone phone. As a reminder, this conference call is being recorded today, Monday, November 7th, 2022. I would now like to turn the conference over to Leanne Seavers of Shelton Group Investor Relations. Leanne, please go ahead.
spk05: Good afternoon and welcome to DIODE's third quarter 2022 financial results conference call. I'm Leanne Seavers, president of Shelton Group, DIODE's investor relations firm. Joining us today from Taiwan are DIODE's chairman and president and CEO, Dr. Kei-Shu 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, Gurmeet 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 2022 fiscal quarter ending September 30, 2022. 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 of 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 7, 2022. DADS 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 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 DIODE's chairman, president, and CEO, Dr. Kashi Liu. Dr. Liu, please go ahead.
spk04: Thank you, Leanne. Welcome, everyone, and thank you for joining us today. I'm very pleased to be reporting today our fifth consecutive quarter of record gross margin, and the seventh consecutive quarter of record adjusted earnings per share and revenue. Our record results were driven by outstanding execution by the team. especially considering the COVID-related lockdown and the power outage in certain regions of China for part of the quarter. Also, contributing to our strong performance was the achievement of record revenue in our automotive and industrial end markets that together totaled 44% of product revenue, which is 4% points above our 2025 target model and above 40% of the third consecutive quarters. Dio's automotive business represented 16% of product revenue for the first time. reflecting the ongoing success of our customer and contact expansion initiatives, as well as sheer gain in this end market. Over the past several quarters, DAO has consistently proved its ability to execute during one of the most challenging supply chain environments that the industry has experienced and was still able to deliver multiple consecutive quarter of record results, expanding margin, and increased profitability. When looking back over the past two years, our revenue has grown 68%. Gross margin expanded 590 basis points. and just earning per share increased over 220%. Those achievements truly set DAO apart as consistent operator through diversified business and economic environment. We are well on our way toward our 2025 financial target of $2.5 billion in revenue and $1 billion in gross profit. With that, let me now turn the call over to Brad to discuss our third quarter financial results and our fourth quarter 2022 guidance in more detail.
spk03: 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 2022 was a record $521.3 million, an increase of 4.1%. from $501 million in the second quarter 2022. Gross profit for the third quarter was also a record at $217.8 million, representing a record 41.8% of revenue, increasing 5.5% or 60 basis points from $206.5 million or 41.2% of revenue in the second quarter 2022. GAAP operating expenses for the third quarter of 2022 were $105.4 million, or 20.2% of revenue, and on a non-GAAP basis were $101.3 million, or 19.4% of revenue, which excludes $3.9 million of amortization of acquisition-related intangible asset expenses and $0.1 million of acquisition-related costs. This compares to non-GAAP operating expenses in the prior quarter of $99.7 million, or 19.9% of revenue. Total other expense amounted to approximately $3.3 million for the quarter, consisting of 2.6 million of unrealized loss on investments, 2.7 million in interest expense, and a $1 million foreign currency loss, 2.2 million of other income, and $862,000 of interest income. Income before taxes and non-controlling interest in the third quarter of 2022 was $109.1 million, compared to $101.2 million in the previous quarter. Turning to income taxes, our effective income tax rate for the third quarter was approximately 18.5 percent. GAAP net income for the third quarter 2022 was a record $86.4 million, or $1.88 per diluted share, compared to GAAP net income of $80.2 million, or $1.75 per diluted share, in second quarter 2022. GAAP earnings per share in the quarter increased 25.3% year-over-year from $1.50 per diluted share in the third quarter 2021. Share count used to compute GAAP diluted EPS for the third quarter, 2022, was 46 million shares. Non-GAAP adjusted net income in the third quarter was a record $92.2 million, or $2 per diluted share, which excluded net of tax $3.2 million of acquisition-related intangible asset costs 2.1 million in non-cash mark-to-market investment adjustments, 0.1 million of acquisition-related costs, and a 0.4 million gain on sale of investments. This represents a 5.3 percent improvement from last quarter of $1.90 per diluted share, or $86.9 million, and a 36.1 percent improvement from $1.47 per diluted share or $67.3 million in third quarter 2021. Excluding non-cash share-based compensation expense of $8.1 million net of tax for third quarter, both GAAP earnings per share and non-GAAP adjusted EPS would have increased by $0.18 per diluted share for the third quarter. EBITDA for the third quarter was a record $106.5 $41.9 million, or 27.2% of revenue, compared to $130.6 million, or 26% of revenue, in the prior quarter. On a year-over-year basis, EBITDA increased 23.9% from $114.5 million in the third quarter 2021, highlighting our continued 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 $132.2 million for the third quarter 2022. Free cash flow was $62.4 million, which included $69.8 million for capital expenditures. Net cash flow was a positive, $78.3 million. Turning to the balance sheet, at the end of third quarter, cash, cash equivalents, restricted cash, plus short-term investments totaled approximately $393 million. Working capital was $765 million, and total debt, including long-term and short-term, was $296 million. In terms of inventory, at the end of third quarter, Total inventory days were approximately 113, as compared to 115 last quarter. Finished goods inventory days were 32, which was flat to 32 last quarter. Total inventory dollars increased $3.5 million from the prior quarter to approximately $374.8 million. Total inventory in the quarter consisted of a $8.3 million increase in finished goods a $6.7 million increase in raw materials, and an $11.5 million decrease in work in process. Capital expenditures on a cash basis were $69.8 million for the third quarter, and for the first nine months, approximately $148 million, or 9.8% of revenue. The year-to-date CapEx is higher than our target model due to our assembly tests and wafer fab capacity expansions. but we still expect to be within our target model of 5% to 9% for the full year. Now turning to our outlook. For the fourth quarter of 2022, we expect revenue to be approximately $494 million, plus or minus 3%, in line with typical seasonality. GAAP gross margin is expected to be 41.0%, 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 21.0% of revenue, plus or minus 1%. We expect net interest expense to be approximately $4 million. Our income tax rate is expected to be 19%, plus or minus 3%. And shares used to calculate EPS for the fourth quarter are anticipated to be approximately 46.5 million. Not included in these non-GAAP estimates is amortization of $3.2 million after tax for previous acquisitions. With that said, I'll now turn the call over to Emily Yang.
spk07: Thank you, Brett, and good afternoon. In the third quarter, revenue increased 4.1% sequentially, reflecting our achievement of record revenue in the automotive and industrial end markets. that also contributed to record revenue in North America and Europe. Additionally, our POS revenue was a record. Distributor inventory in terms of weeks increased slightly quarter over quarter and is within our defined normal range of 11 to 14 weeks. Overall, demand and backlog remain strong across all regions. Looking at global sales in the third quarter, Asia represented 73% of revenue Europe, 15%, and North America, 12%. In terms of our end markets, industrial represented 28% of DIOS product revenue, computing, 23%, consumer, 18%, communication, 15%, and our automotive end market reached a record 16% of product revenue. Our automotive and industrial end markets combined total 44% of product revenue, which is 4% point above our 2025 target and about 40% for the third consecutive quarter. Now let me review the end market in greater detail. Beginning with automotive, revenue increased 48% year over year and 17% sequentially to set other quarterly record, which is a nine consecutive quarter. Our consistent growth has been driven by our ongoing demand creation efforts as well as market share gains. In connected driving, which consists of ADAS, telemetry, and infotainment systems, we continue to see increased interest for USB Type-C redrivers in rear seat entertainment and smart cockpit applications. Also, our video switches for MIPI, DisplayPort, and USB 3.0 and our USB signal and analog switches are also winning designs in ADAS, infotainment, and smart cockpit applications. Our DC-DC buck converters, CMOS LDLs, switching diodes, power switches, and diode controllers experience strong demand as well. For comfort, style, and safety, we secured increasing designs for our DC-DC buck converters bipolar transistors and LED drivers for exterior LED lighting, along with our BUP booster controllers, linear LED drivers, and zener diodes for interior and exterior lighting, electrification, and mobility systems. During the quarter, our gate driver ICs were designed into wireless chargers, while our low-voltage MOSFET 1D science for automotive USB card chargers and power source load switch applications. In addition, our operational amplifiers were designed into onboard chargers, DC-DC converters, battery-managed systems, pumps, airbags, position sensors, and occupancy detection systems. In powertrain, which covers conventional hybrid electric vehicles, we secured increasing designs for automotive I-O extenders for EV central control units, as well as design wings for our bipolar power transistors and Zener diodes in the power modules and electrification systems. Additionally, our TVS devices experience strong demand for EV battery protection, DC fan motor controllers, generators, and starter applications. We also saw solid demand in automated transmission and powertrain applications as we added seven new automotive grid products to our protection portfolio. In the industrial end market, revenues reached out of the record and grew approximately 30% year over year and 6% sequentially, representing a sixth consecutive quarter of growth. Our PCI Express 2.0, 3.0 packet switches and SDR product was designed into multiple power over Ethernet adapters for security and surveillance applications. which is an area that HDMI 6 gigabit per second and 12 gigabit per second redrivers are also being used as well. We also saw healthy demand from our gate driver ICs, TVS diodes, Zener diodes, DC-DC buck converters, LED drivers, linear regulators, and MOSFET products in various applications like energy storage, power distribution system, DC fans, power supplies, air condition, and oil pump applications. Also, our wide-wing LDO product families continue to enjoy solid demand from the power tools and e-meter applications. We also continue to see strong demand for our application-specific multi-chip circuits in industrial lighting and blood glucose monitoring systems. In the computing market, although the PC and notebook and Chromebook market was soft, We continue to focus on cloud surface storage and SSD applications. As I mentioned last quarter, our ability to quickly adjust our support from slowing markets, so high demand market segments, is a strong testament to our team's execution and also has been a contributor to our consistent growth. In terms of design wins during the quarter, we continue to secure designs for our USB signal switches in the enterprise SSD applications, as well as new wings for our SMBus I2C level shifters family in CloudSurfer products. Our customized Zener DIOS product also being used in cloud computing platforms. We also remain well-positioned to support cloud computing and data center customers with a complete timing offering, including crystals, oscillators, PCI Express clock generators, and PCI Express clock buffers. Also during the quarter, we continue to see adoption of our embedded DisplayPort redrivers and embedded DisplayPort MOXs in gaming mobile applications. And our newly released PCI Express 5.0 clock buffers family are now able to support 4, 6, 8, and 12 outputs. Lastly, our current limit power switches continue to see solid uptake from USB-A and USB-C power source applications in notebooks, desktops, and docking stations. In the communication market, our SBR CSP products continue to gain traction in the low earth orbit cyclets and 5G applications, and our shock key products are being designed into 5G Wi-Fi applications. Several diode switching and Zener diodes also continue to gain momentum in the mobile phone segment for various applications, including peripherals, such as quick chargers. And finally, in consumer market, we continue to drive increased adoption of our HDMI 6 gigabit per second and 12 gigabit per second re-drivers and DisplayPort HDMI switches in projectors and digital steel camera applications. while our DC-DC buck converters and audio amplifier also have solid demand from home appliance market for monitor and interactive storytelling devices. We also continue to gain traction for our current limit power switches and USB-C power delivery controllers from USB power applications in gaming consoles and smart speakers. And our LV MOSFET, CSP, and LED drivers win several designs in wearables and portable devices like health, sport watches, wireless earphones, and keyboards. In summary, with the achievement of our seven consecutive quarter of record results, DIODE continues to prove our ability to consistently execute and quickly adjust our support from slowing end market to high demand market statements. Additionally, the ongoing success of our customer and contact expansion initiatives, as well as share gain in both the automotive industrial market, has greatly increased our revenue contribution and mix, which has also contributed to our consistent margin improvement. We believe we are well positioned to continue driving future growth and expansion towards our 2025 targets of $2.5 billion in revenue and $1 billion in gross profit. With that, we now open the floor to questions. Operator.
spk06: We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the key. To withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. And our first question will come from Matt Ramsey of Cowan. Please go ahead.
spk09: Hey, guys. Thanks for taking my questions, and congrats on the awesome results. I wanted to ask a little bit about your end markets. I mean, we've seen all through the starting season consumer and computing from your peers has come in weaker, and there are some signs of industrial softening, but your results don't seem to indicate that on the industrial side. Could you just help us understand what you're seeing in industrial, and in particular, how good you feel about visibility into that market the next couple quarters and what you're seeing in the channel? Thank you.
spk07: Yeah. Hi, Matt. Good afternoon. For industrial, overall, the backlog and everything still seems a lot of strength overall. We do see some specific applications or specific end devices that adjusting a little bit forecast here and there. But if you take an overall picture, it's still strong. And from the visibility point of view, you know, we still have pretty good backlog in place that we, you know, not definitely seeing a significant change overall.
spk09: Understood. Thank you. And I just wanted to ask about geopolitics a little bit. I know you guys have a pretty material footprint over in China, and your products and your manufacturing shouldn't fall under any of the restrictions as they're written now. But I guess, are you anticipating any future potential disruptions? Or I guess, how are you thinking about potential risk? Because we've seen some ancillary disruptions across the supply chain as there's been more of a crackdown in China and whatnot. Thank you.
spk04: Okay, Matt. Actually, we have been doing well even during this year. Especially, you know, when China have different area of the duck down. And so we know how to handle it. And so far you can see our operation. Second quarter in Shanghai area, they have a duck down for two months. And we still okay. And even the third quarter, we have CAT, Chengdu area, have a power problem. And we have, again, the COVID-19 shutdown problem. But we still able to move some of the operation to Shanghai to support the CAT almost one month after shutdown. So we are... We know how to handle these different locations, the operational shutdown. We call close-loop operation and we are able to move around our operation from Chengdu to Shanghai or reverse it or even move to some other operate, you know, other manufacturing area. So, I really not put too much concern in this area.
spk09: Understood. Thank you for all the color.
spk06: The next question comes from Gary Mobley of Wells Fargo Securities. Please go ahead.
spk10: Hello, everybody. Thanks for taking my question. I wanted to double-click on your response, Dr. Liu, related to how you're operating your business over in China amidst a backdrop of a bunch of COVID lockdowns. I understand that you're able to operate those facilities in Chengdu and Shanghai using that closed-loop working environment, but it seems to be, from what we're hearing over here in the U.S., that there seems to be a bit of an employee backlash in China you know, at least in some parts of the country. So I'm curious to know how you're managing that. And, well, let's just start with there.
spk07: Well, maybe, Gary, let me make a comment first, right? So, you know, when and what's going to happen next is something hard to predict. The market overall, the situation in China is still pretty dynamic, right? I think Dr. Liu's point is with our experience in the expertise in the manufacturing side and how to operate during the crisis, I think, you know, definitely give us confidence that no matter what's going to happen next, we'll be able to adjust our strategy and our solution to best support the customer. So I think, you know, that's pretty much, we don't know what's going to happen next, but I think we're ready wherever it's going to happen.
spk10: Okay. Thanks, Emily. Okay. Just a couple of follow-up questions. Any notable change in customer order lead times, whether that be overall or by market, you know, where they're still long? And then as well, I wanted to ask how truly fungible is your manufacturing capacity, you know, whereby you can reallocate manufacturing for end markets that still remain strong? Is that truly possible in markets like automotive where you need automotive grade qualification or whatnot? And that's it for me. Thank you.
spk07: Yeah, so I think let me answer the first question about lead time. Overall, there's really no significant changes of lead time. All along, even during the last two years, we've been focusing on understanding the true customer's demand and making adjustments. I think the second part of your question is really about our ability to quickly adjust our capacity and support from one market segment to the others, right? I think, you know, the Q3 result is a good testament of our, you know, ability. So we did actually quickly adjust it from the slow demand markets, like the low MPC consumers or the smartphone, and to the automotive and industrial customer base, right? So all our factories are automotive qualified. And so that gives us the capability to quickly adjust. So not only the Q3, but also the second quarter, I think we talked about the same thing as well. So I hope that will give you guys the confidence that we do have the capability and the flexibility to quickly adjust our support.
spk10: Thanks, Emily.
spk06: The next question comes from David Williams of Benchmark. Please go ahead.
spk01: Hey, good afternoon, and congratulations on the really solid results here, especially in this macro. Thank you.
spk04: Thank you.
spk01: Emily, just first maybe you, just kind of thinking about the automotive growth, you're clearly seeing a lot of traction, and you've had this initiative to really drive the content and the share gains there. I'm just kind of wondering, it seems like you've had really solid growth over the last several quarters, and this quarter particularly, but just are you seeing anything maybe being pulled in, or is this really just because of the demand that you're seeing and the new design wins, or is there anything there that we should be thinking about in terms of maybe slowing later on on the automotive side?
spk07: Yeah, so, you know, David, if we look at the result, right, so you're absolutely right. For Q3, we actually achieved 16%, which is definitely our record for automotive. If we compare year over year, that's 48% growth, and even quarter over quarter, that's 17% growth. But I want to also point attention not just for the third quarter. So we've been openly talking about from 2013 to 2021, we actually have a compound annual growth rate of 30%. So this is not just a one quarter or a few quarter, but consistently over many years. So we established automotive focus years back. What we've seen is actually a significant change from the topology and design structure point of view. So I've been talking about it. The excitement is we start seeing a lot of new protocols expanded into different areas. So one good example is Paracon product family, right? We start seeing PCI Express and Gigabit Ethernet being adapted. And this adaption is the beginning of the adaption. So that gives us a lot of confidence about the growth in the future. We also look at our design pipeline. So it continues to grow significantly. So that's a reason to support our ongoing growth quarter over quarter and year over year.
spk04: Yeah, David. You know, we implement a policy like this. All the new product, if possible, need to be automotive grade qualified. We call Q part. So most of our new product, when we release it, we focus on Q part, if possible. And therefore, we have a lot of design win. And you know, the automotive parts, they ramp up much slower than consumer or other market segment. It takes almost two years for the parts, for the new product to be ramped up. And so if you look at, we have been consistently, year over year, quarter over quarter, to increase our percent of the revenue. And that's another key measurement we implement is automotive segment as a percent of the total revenue. And you can see now we are getting to 16% of our revenue is coming from automotive segment. So this is not a very short term. This is a long term driving. And so I don't see that growth would be, it might be tap it a little bit, but it won't be go to the other direction. Then we, as a percent of the revenue, Oh, continue. Okay. Okay.
spk01: Fantastic. Thanks, Dr. Lee, for the color there. And then maybe the last one for me, just a broader question, but was there anything maybe in the quarter that surprised you, either from demand shifting or maybe things that are stronger than you would have anticipated? Anything that you should be or maybe we should think about in terms of the next few quarters where we could see some shifting around or any caution?
spk07: Yeah, so I would say, you know, definitely the demand from automotive sites feel very, very strong. So that's really a positive news. And it gave us an opportunity to balance with some of the other slow demand markets. I think the second crisis is really the power constraint in Chengdu. But again, you know, we demonstrated our strong capability to manage through the crisis as well, right?
spk04: And if you say... you are asking for any surprise. You can see we still meet our guidance, and therefore, you know, we can see much clearer. Well, may not be two, three quarter later, but at this, in the third quarter, when we make the third quarter guidance, we can see much clearer. And now, you know, in the fourth quarter, and again, we can see much clear in the fourth quarter, you know, business and market.
spk01: Thanks so much. Appreciate the help.
spk06: The next question comes from Tristan Guerra of Baird. Please go ahead.
spk08: Hi, good afternoon or good morning. Given the commentary about automotive upsetting pockets of weakness in some other end markets, which has been well advertised through this running season, how sustainable is the pricing environment? Would you expect, you know, there's been a lot of non-cancellable orders to the cities, you know, for the rest of this year, for the second half of this year across your peers. Would you expect those non-cancellable orders to be in place in the first half of next year or are we going to see kind of a normalization of how, you know, contracts are made with customers?
spk07: Yeah, hi, Tristan. Overall pricing trend is still unstable, so we don't expect any significant change in the coming short term. And then from the NCNR, non-castable, not returning policy, we're also not making significant change. We implemented that a few quarters back. Again, we don't expect that to be significantly changed overall for first half or the second half of the year.
spk08: Great. And then as my follow-up question, so we know China is weak, but there were also some Q3 specific items in terms of the lockdown and the power constraints. So how would we quantify, you know, the non-recurring portion of that weakness that happened in Q3, even as China continues to be weak in Q4 and in outer quarters? How much of a potential recovery we get from Assuming there is no additional lockdowns versus what happened in Q3.
spk07: Well, I think, Tristan, overall the market is still extremely dynamic. I think it's difficult for us to predict what exactly is going to happen or the recovery. But one thing we did is actually we looked at all different factors and we put the backlog information the record POS result by the end of the Q3, everything together, and we come up with the Q4 guidance, right? So I would say, you know, we did our best based on best knowledge. We put everything into our estimated, you know, guidance already. It's a little bit difficult for us to really predict when the recovery is going to happen in China.
spk04: You know, if you look at Even in China situation that you mentioned, we still moderate our revenue like seasonality. So you typically in the fourth quarter, we typically down seasonality-wise, 5%. And a good time, we may be a little bit better than 5% down. And then even this year, we said we have a difficulty, or we said the market has a difficulty. We still guide our fourth quarter somewhere around 5%. So I think, yes, the market is very dynamic, very unstable, but we're still able to guide and run our business very close to the seasonality type of models.
spk07: Right. I think one more thing I want to add is the China local business, from the consumer portion, It's actually a very small portion of the DIOS overall business.
spk04: Yes.
spk08: Okay, that's very useful. Thank you.
spk06: Once again, if you would like to ask a question, please press star, then 1. And our next question will come from William Stein of Truist Securities. Please go ahead.
spk02: Great. Thanks for taking my question. And I want to add my congratulations on the very good results and outlook. I think I want to sort of distill this to what I think is the big sort of point of contention between investors and many companies right now. You know, we're seeing we've already seen some of these consumer end markets weaken pretty significantly. We've seen that in your model for the last couple of quarters even. And I think the consensus among investors is, look, this is a downturn, and it's just rolling across end markets from one to the next. And when we think about industrial and automotive, it's just a matter of time. What we're hearing from some companies is that it's not really right, that the downturn is really just in a couple bad end markets. And then you have automotive and industrial, which are holding up pretty well, and we don't think they're going to move. I wonder which of those scenarios DIODES sees as likely to play out in the next few quarters. Are you expecting automotive and industrial to sort of take their punishment just like the other end markets have? Or do you anticipate these are going to remain strong? Thank you.
spk07: Well, first of all, we don't really forecast more than a quarter and provide guidance. I think, you know, maybe I'll just share my personal view. over this. I think consumer computing and communication is definitely seeing a bigger adjustment. What I'm seeing is really more, I call it, inventory rebalancing. So over the quarters, the buildup of certain inventory, they need to adjust it and then reset it. So with the industrial and automotive, we've been seeing some adjustments already. It's not like we haven't seen But it's just the skill is a little bit different, right? So I would let Dr. Lu to make a few more comments. That's what I see. OK.
spk04: Actually, for you running the business, is much important than the short-term market reactions, OK? If, for example, automotive, actually, the electronic content of the automotive is increasing. It's not going down. And therefore, from the long-term point of view, that trend or trend is continuing going up. It won't change overnight. Quarter after quarter, that big change. So our strategy is how You know, we're going to participate in this market, and we spent, like I mentioned, we tried to put all our new product to be automotive qualified, and we spent a lot of time to sell as the total solution. And this is the way how we handle the market softness. We were able to continue growth or strong strength in the market. The industrial and even consumer communication, it uses similar way. For example, we focus more from the computing. We focus more in high-end PC, server, data center. If you start focus more in that area, then yes, PC area could be slowed down, but the high-end PC or servo and data center, it could be picked up, okay? So that gives you a balance of the market. So that's why we are able to continue growing and we are able to meet our goals guidance because we are very confident on how do we grow. Consumer, IoT, and communication, 5G, high-end, those is the one how do we balance or how do we improve our market softness, how do we handle.
spk02: I appreciate that. If I can ask one follow-up, I'm hoping you might give us an update on how the South Portland FAB is progressing under your ownership. I forget if you're already manufacturing and selling product out of this facility, or if that's more of a future plan, and any other update you can offer us that would be helpful. Thank you.
spk04: Well, SPFAB is – we just – you know, acquired in June this year, and so we are supporting, or we have the contract to support their demand right now, okay? And if we take that opportunity to develop our own process and qualify our own product. But it takes time. So for example, to implement the BCD process in that phase, it takes more than one year. It probably takes one year to implement and then qualify the product. and then it probably takes a while to ramp it up. So yes, we might have a tough time, but virtually we have supported to our, well, I should now say our customers, to support them for the existing product or for their needs.
spk07: Yeah, so I would say everything is on track based on our plan. It's progressing well. Yeah.
spk02: Thank you.
spk06: This concludes our question and answer session. I would like to turn the conference back over to Dr. K. Shulu for any closing remarks.
spk04: Thank you for your participation on today's call. Operator, you may now disconnect.
spk06: The conference is now concluded. Thank you for attending today's presentation, and you may now disconnect.
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