Release Date: October 30, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Advanced Energy Industries Inc (AEIS, Financial) exceeded the midpoint of their guidance for the third quarter, driven by higher demand in the Semiconductor and Data Center markets.
- The company achieved strong design win activity across all target markets, indicating robust future growth potential.
- Factory consolidation efforts are beginning to show financial benefits, with sequential improvements in gross margin.
- Data Center Computing revenue grew 11% sequentially, driven by increased demand from hyperscale customers, mainly for AI applications.
- The company is on track to deliver over 250 units of new semiconductor subsystems by the end of the year, with significant revenue expected in the second half of 2025.
Negative Points
- Industrial & Medical revenue decreased by 3% sequentially and 33% year-over-year, impacted by ongoing inventory destocking.
- Telecom & Networking revenue decreased by 22% sequentially due to lower demand and timing issues.
- The company recorded a restructuring charge related to the closure of their last production site in China, impacting GAAP earnings.
- Despite improvements, gross margin remains below the long-term target of over 40%, with transition costs from factory consolidation still affecting results.
- The Semiconductor market is expected to experience a weaker first half in 2025 compared to the second half, indicating potential volatility.
Q & A Highlights
Q: Can you provide insight into what drove the upside in Semiconductor Equipment revenue in Q3 and the outlook for Q4? How much of your revenue is from leading versus trailing edge?
A: Stephen Kelley, President and CEO, explained that growth in Q3 was driven by logic nodes, both leading and trailing edge. The company anticipates further growth in Q4. However, they do not have an exact breakdown between leading and trailing edge as their equipment is used in both applications.
Q: How do you view the potential for Data Center growth, particularly with high-end AI infrastructure?
A: Stephen Kelley noted that the refresh cycles are accelerating, moving closer to a year due to new GPU technology. This increases power requirements, and Advanced Energy's value proposition of power density, efficiency, and reliability is crucial for AI data centers, potentially extending the growth runway.
Q: What is your confidence level in the Industrial & Medical sector returning to growth as inventory destocking plays out?
A: Stephen Kelley mentioned that the inventory correction started in Q4 of '23 and is nearing completion. Distribution inventory levels are declining, and normalized inventory levels are expected by late Q4 or Q1, which should lead to growth in distributor orders.
Q: Can you elaborate on the gross margin guidance for Q4 and the factors influencing it?
A: Paul Oldham, Executive Vice President and CFO, stated that the 37% gross margin guidance aligns with their model, considering ongoing manufacturing transitions. They expect improvements as transition costs decrease and manufacturing cost improvements continue.
Q: How does the design win funnel compare to a year ago, and what is the conversion rate?
A: Stephen Kelley highlighted that the conversion rate is above one in three, meaning one out of every three opportunities turns into a design win. The company is expanding its funnel through its website, distributor network, and direct sales force, gaining share with major distributors.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
