Release Date: July 30, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Second quarter revenue and earnings per share exceeded guidance, driven by strong demand in the data center market and semiconductor market.
- Data center revenue grew 74% sequentially, benefiting from strong investments in AI.
- Acquisition of Airity Technologies is expected to accelerate innovation with high-voltage power solutions.
- Healthy design win pipeline across product portfolio expected to drive profitable revenue growth.
- Operational productivity expected to improve with factory consolidation efforts, aiming for over 40% gross margin by 2025.
Negative Points
- Industrial/medical revenue was down slightly due to inventory issues, indicating ongoing market pressure.
- Telecom and networking revenue is expected to remain soft due to high customer inventory levels.
- Higher transition costs anticipated in 2024 due to the closure of the last production site in China.
- Gross margin improvement is challenged by less favorable product mix and lower factory loading.
- Visibility in industrial/medical market remains limited, with recovery expected only by late 2024 or early 2025.
Q & A Highlights
Q: Can you discuss your forward visibility in the industrial/medical sector and the channel inventory situation? How should we think about the trajectory beyond the current levels into 2025?
A: Stephen Kelley, President and CEO: We started seeing a correction in industrial/medical in Q4 2023, and we're about 10 months into it. We track inventory closely, and it's steadily declining in the distributor channel. We expect to reach supply/demand balance by Q4 2024 or Q1 2025. We have a strong design win pipeline, which should ramp into production next year, making 2025 a decent year.
Q: Regarding the recovery in gross margin, is the $400 million revenue target for Q4 still the right way to think about reaching 37.5% to 38% gross margin?
A: Paul Oldham, Executive Vice President and CFO: Around $400 million is still the target for that gross margin range. Mix can affect it slightly, but our strategy has improved margins over time. We are closing our last production site in China, which will help reduce fixed costs and improve leverage as markets recover.
Q: How far does your visibility extend in the data center business, and does it go beyond Q4?
A: Stephen Kelley, President and CEO: The hyperscale business is cyclical, and after inventory digestion, the market is typically strong for 4 to 5 quarters. We believe momentum will take us through at least Q1 or Q2 of next year, and we are gaining market share in AI applications, which could sustain strength through most of 2025.
Q: Can you provide more color on the semiconductor market, particularly regarding logic versus memory?
A: Stephen Kelley, President and CEO: We are working closely with customers to secure tool of record status on leading-edge memory and logic processes. We have orders for over 200 eVoS and eVerest products this year, and we expect these technologies to be qualified in wafer fabs by the second half of next year, which should drive market share gains.
Q: How are you preparing for potential rapid changes in demand, especially in the semiconductor sector?
A: Stephen Kelley, President and CEO: We have strategic inventory of critical parts and have maintained staffing levels to respond quickly to demand changes. We are prepared to flex up production as needed, particularly in the last month-and-a-half of the quarter, to meet customer needs.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
