Release Date: August 08, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Diodes Inc (DIOD, Financial) reported second quarter results that exceeded prior expectations, with significant demand recovery in the computing market, particularly in Asia.
- The company is experiencing strong growth in AI server content, with design wins in Tier-1 AI data center projects.
- Revenue for the second quarter increased by 5.9% sequentially, surpassing the midpoint of guidance.
- Diodes Inc (DIOD) is guiding for strong revenue growth of over 8% in the third quarter, marking the highest sequential growth in the last 14 quarters.
- The company is maintaining automotive and industrial product revenue at 41% of total revenue, indicating stable performance in these sectors.
Negative Points
- Gross profit for the second quarter was lower compared to the prior year, reflecting factory underloading and internal demand challenges.
- GAAP net income for the second quarter decreased significantly compared to the prior year, indicating profitability challenges.
- Inventory levels remain higher than the defined normal range, which could impact future financial performance.
- The overall demand recovery in the industrial market is slow, with ongoing inventory rebalancing expected to last until the end of the year.
- The communications market is experiencing slower than expected demand, with inventory depletion rates remaining sluggish.
Q & A Highlights
Q: The sequential growth guidance is above typical seasonality. Is this primarily driven by the compute end market, specifically for data center AI applications?
A: Emily Yang, Senior Vice President - Worldwide Sales and Marketing, explained that the 8% guidance is based on strong POS growth and a robust book-to-bill ratio. While the majority of growth is driven by computing, especially AI server data centers, consumer and communication sectors also contribute due to seasonal patterns.
Q: Can you provide more detail on channel inventory levels and expectations for normalization?
A: Emily Yang noted that while channel inventory has decreased, it remains above the normal range of 11 to 14 weeks. The focus is on continuing POS growth to reduce inventory levels. The timeframe for normalization is uncertain, but higher inventory levels may offer flexibility to meet urgent orders.
Q: Are AI server orders in Asia stockpiling ahead of potential restrictions, or are they for near-term consumption?
A: Emily Yang confirmed that the orders are for actual builds rather than stockpiling. The company works closely with customers on forecasts extending into next year, indicating a genuine ramp-up in demand.
Q: How do you view the demand environment in China, especially with reports of weakness in the automotive market?
A: Emily Yang stated that while demand in the 3C area is soft, there are improvements. Diodes focuses on content expansion and sees strong potential in China by emphasizing technology and new product introductions, avoiding deep commodity products.
Q: How should we view Diodes' M&A strategy in the medium term, given past focus on capacity expansion?
A: Gary Yu, President, mentioned that future M&A would likely focus on enabling top-line growth and complementing the manufacturing footprint. The company is cautious in selecting targets that offer synergy and growth potential.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
