UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
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Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
Securities registered pursuant to Section 12(b) of the Act:
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Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§ 230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§ 240.12b-2 of this chapter).
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Item 2.02 Results of Operations and Financial Condition.
On August 4, 2022, Dr. Keh-Shew Lu, Chairman, President and Chief Executive Officer of Diodes Incorporated, (the “Company”), as well as Brett R. Whitmire, Chief Financial Officer, Emily Yang, Senior Vice President, Worldwide Sales and Marketing, Gary Yu, Senior Vice President, Business Groups and Gurmeet Dhaliwal, Director of Investor Relations, participated in a conference call to discuss the Company’s second quarter 2022 financial results. A recording of the conference call has been posted on the Company’s website at www.diodes.com, and copy of a transcript of the conference call is furnished as Exhibit 99.1 to this report.
In the earnings conference call, the Company utilizes financial measures and terms not calculated in accordance with generally accepted accounting principles in the United States (“GAAP”) in order to provide investors with an alternative method for assessing the Company’s operating results in a manner that enables investors to more thoroughly evaluate its current performance as compared to past performance. The Company also believes these non-GAAP measures provide investors with a more informed baseline for modeling the Company’s future financial performance. Management uses these non-GAAP measures for the same purpose. The Company believes that investors should have access to the same set of tools that management uses in analyzing results. These non-GAAP measures should be considered in addition to results prepared in accordance with GAAP, but should not be considered a substitute for or superior to GAAP results and may differ from similar measures used by other companies. For a description, and reconciliation with GAAP, of these non-GAAP measures see the Company’s press release dated August 4, 2022, announcing the Company’s second quarter 2022 financial results, a copy of which was furnished as Exhibit 99.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on August 4, 2022. The information furnished in this Item 2.02, including the exhibit incorporated by reference, will not be treated as “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section. This information will not be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended (the “Securities Act”), or into another filing under the Exchange Act, unless that filing expressly refers to specific information in this Report.
Item 7.01 Regulation FD Disclosure.
The transcript of the earnings conference call furnished as Exhibit 99.1 also provides an update on the Company’s business outlook, that is intended to be within the safe harbor provided by the Private Securities Litigation Reform Act of 1995 (the “Act”) as comprising forward looking statements within the meaning of the Act.
The information furnished in this Item 7.01, including the exhibit incorporated by reference, will not be treated as “filed” for the purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities of that section. This information will not be deemed incorporated by reference into any filing under the Securities Act, or into another filing under the Exchange Act, unless that filing expressly refers to specific information in this Report.
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits.
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99.1 |
Transcript of earnings conference call held on August 4, 2022. |
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Cover Page Interactive Data File (embedded within the Inline XBRL document). |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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DIODES INCORPORATED |
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Date: |
August 9, 2022 |
By: |
/s/Brett R. Whitmire |
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Brett R. Whitmire |
Exhibit 99.1
REFINITIV STREETEVENTS
EDITED TRANSCRIPT DIOD.OQ - Q2 2022 Diodes Inc Earnings Call
EVENT DATE/TIME: AUGUST 04, 2022 / 9:00PM GMT
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AUGUST 04, 2022 / 9:00PM, DIOD.OQ - Q2 2022 Diodes Inc Earnings Call
C O R P O R A T E P A R T I C I P A N T S
Brett R. Whitmire Diodes Incorporated - CFO
Emily Yang Diodes Incorporated - SVP of Worldwide Sales & Marketing
Gary Yu Diodes Incorporated - SVP of Business Groups
Ken-Shew Lu Diodes Incorporated - Chairman, CEO & President
C O N F E R E N C E C A L L P A R T I C I P A N T S
David Neil Williams The Benchmark Company, LLC, Research Division - Senior Equity Analyst
Matthew D. Ramsay Cowen and Company, LLC, Research Division - MD & Senior Technology Analyst
Tristan Gerra Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst
William Stein Truist Securities, Inc., Research Division - MD
Leanne K. Sievers Shelton Group - President
P R E S E N T A T I O N
Operator
Good afternoon, and welcome to Diodes Incorporated Second Quarter 2022 Financial Results Conference Call. (Operator Instructions) As a reminder,
this conference call is being recorded today, Thursday, August 4, 2022.
I would now like to turn the call over to Leanne Sievers of Shelton Group Investor Relations. Leanne, please go ahead.
Leanne K. Sievers - Shelton Group - President
Good afternoon, and welcome to Diodes' Second Quarter 2022 Financial Results Conference Call. I'm Leanne Sievers, President of Shelton Group,
Diodes' Investor Relations firm. Joining us today are Diodes' Chairman, President and CEO, Dr. Keh-Shew Lu; 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. Lu, 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 June 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 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, August 4, 2022. Diodes 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.
2
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AUGUST 04, 2022 / 9:00PM, DIOD.OQ - Q2 2022 Diodes Inc Earnings Call
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 Diodes Chairman, President and CEO, Dr. Keh-Shew Lu. Dr. Lu, please go ahead.
Ken-Shew Lu - Diodes Incorporated - Chairman, CEO & President
Thank you, Leanne. Welcome, everyone, and thank you for joining us today.
I'm pleased to be reporting today our achievement of the sixth consecutive quarter of record revenue, gross profit and earnings. This accomplishment
is a strong testament to our team's continuous execution, especially considering the COVID related quarantine in China and Taiwan that constrained
production during the quarter. In the Shanghai area and other major cities, we shifted our manufacturing facilities to closed-loop operations for
two months in the quarter, yet still delivered results above the midpoint of our guidance. Notably, second quarter revenue grew approximately
14% year-over-year, while adjusted earnings per share grew 58% over the same period.
Our execution was also evidenced by our achievement of 41.2% gross margin, which was the fifth consecutive quarter of improvement and the
second consecutive quarter above our target model of 40%, largely due to product mix improvements. Contributing to this improvement was our
industrial and automotive end markets reaching a combined total of 41% of revenue for the first time, which exceeded our 2025 business model
target of 40%. The automotive market, which represented a record 14% of the revenue in the quarter, remains a key focus area for Diodes as we
continue to gain strong traction with both new and existing customers in all regions.
Also, during the quarter, we successfully closed our acquisition of onsemi's South Portland, Maine wafer fab facility, which provides additional
variable capacity to support our future growth, especially in the automotive and industrial end markets. We were pleased to welcome the SPFAB
workforce to Diodes' family as we continue to maintain operational efficiency and fully integrate this facility into our global manufacturing operation.
With our third quarter expectations indicating our 10th consecutive quarter of revenue growth and overall record results, Diodes has solidly
positioned itself not only as a reliable supplier and a partner to our customers, but also a consistent performing investment for our shareholders.
With that, let me now turn the call over to Brett to discuss our second quarter financial results and our third quarter 2022 guidance in more detail.
Brett R. Whitmire - Diodes Incorporated - CFO
Thanks, Dr. Lu, 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 second quarter 2022 was a record $501 million, an increase of 3.9% from the $482.1 million in the first quarter 2022.
Gross profit for the second quarter was also a record at $206.5 million, representing a record 41.2% of revenue, increasing 5% or 40 basis points
from $196.7 million or 40.8% of revenue in the first quarter 2022.
GAAP operating expenses for the second quarter of 2022 were $100.3 million or 20% of revenue, and on a non-GAAP basis, were $99.7 million, or
19.9% of revenue, which excludes $4 million of amortization of acquisition-related intangible asset expenses, $0.2 million of acquisition-related
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AUGUST 04, 2022 / 9:00PM, DIOD.OQ - Q2 2022 Diodes Inc Earnings Call
costs and a $3.6 million gain on insurance recovery. This compares to non-GAAP operating expenses in the prior quarter of $99.5 million or 20.6%
of revenue.
Total other expense amounted to approximately $5 million for the quarter, consisting of $7.8 million of unrealized loss on investments, $1.6 million
in interest expense, a $1.8 million foreign currency gain, a $1.6 million of other income and $861,000 of interest income.
Income before taxes and noncontrolling interest in the second quarter 2022 was $101.2 million compared to $90.8 million in the previous quarter.
Turning to income taxes. Our effective income tax rate for the second quarter was approximately 18.2%.
GAAP net income for the second quarter of 2022 was a record $80.2 million, or $1.75 per diluted share, compared to GAAP net income of $72.7
million or $1.59 per diluted share in the first quarter of 2022. GAAP earnings per share in the quarter increased 43.4% year-over-year from the $1.22
per diluted share in the second quarter 2021. The share count used to compute GAAP diluted EPS for the second quarter of 2022 was 45.8 million
shares.
Non-GAAP adjusted net income in the second quarter was a record $86.9 million or $1.90 per diluted share, which excluded net of tax, $6.2 million
of noncash mark-to-market adjustment of investments, $3.3 million of acquisition-related intangible asset costs, $0.2 million of acquisition-related
costs and $2.9 million gain on insurance recovery. This represents an 8.6% improvement from last quarter of $1.75 per diluted share, or $80.3
million, and a 58.3% improvement from $1.20 per diluted share, or $54.6 million, in the second quarter 2021.
Excluding share-based compensation expense of $6.6 million for the second quarter, both GAAP earnings per share and non-GAAP adjusted EPS
would have increased by $0.14 per diluted share for the second quarter.
EBITDA for the second quarter was $130.6 million, or 26% of revenue, compared to $118.2 million, or 24.5% of revenue, in the prior quarter. On a
year-over-year basis, EBITDA increased 31.1% from $99.4 million in the second quarter 2021, highlighting our continued improvements over the
past year.
I'd like to make the point that if we excluded noncash gains and losses on securities from our EBITDA calculation for a more accurate assessment
of our operating performance, it would have been a record $137.2 million, representing an increase of 10% sequentially and 45% year-over-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 $85 million for the second quarter 2022. Free cash flow was $45.5 million, which included $39.6 million
for capital expenditures. Net cash flow was a positive $1.5 million, including capital expenditures as well as additional borrowings of $35.1 million
related to the purchase of the onsemi wafer facility.
Turning to the balance sheet. At the end of second quarter, cash, cash equivalents, restricted cash plus short-term investments totaled approximately
$316 million. Working capital was $715 million and total debt, including long term and short term was $265 million.
In terms of inventory, at the end of second quarter, total inventory days were approximately 115 as compared to 113 last quarter. Finished goods
inventory days were 32 compared to 34 last quarter. Total inventory dollars increased $1.3 million to approximately $371.4 million. Total inventory
in the quarter consisted of a $7 million decrease in finished goods, a $3.1 million decrease in raw materials and a $11.5 million increase in
work-in-process.
Capital expenditures on a cash basis for the second quarter of 2022 were $39.6 million or 7.9% of revenue, which is within our target model of 5%
to 9%.
4
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AUGUST 04, 2022 / 9:00PM, DIOD.OQ - Q2 2022 Diodes Inc Earnings Call
Now turning to our outlook. With our excellent execution and product mix improvements, we are guiding for our 10th consecutive quarter of
sequential growth and expect revenue to be approximately $521 million, plus or minus 3% and GAAP gross margin to be 41.5%, 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 20.5% of revenue, plus or minus 1%.
We expect net interest expense to be approximately $3 million. Our income tax rate is expected to be 18.5%, plus or minus 3%, and shares used
to calculate diluted EPS for the third quarter are anticipated to be approximately $46.2 million.
Not included in these non-GAAP estimates is amortization of $3.2 million after tax for previous acquisitions.
With that said, I will now turn the call over to Emily Yang.
Emily Yang - Diodes Incorporated - SVP of Worldwide Sales & Marketing
Thank you, Brett, and good afternoon. Second quarter revenue increased 3.9% sequentially and above the midpoint of our guidance, which, as Dr.
Lu mentioned, was a notable accomplishment considering the COVID related lockdowns in Taiwan and China that resulted in shifting our
manufacturing facilities to closed-loop operations, primarily in Shanghai and major surrounding locations.
Looking more closely at second quarter revenue, we had record revenue across all regions. Worldwide POS revenue was down slightly, mainly due
to the weakness in the Euro. Asia POS was supported by very strong demand and increased sequentially even despite the COVID-related lockdown
in Asia. Distributor inventory in terms of weeks increased slightly quarter-over-quarter, which is still within our defined normal range of 11 to 14
weeks. Overall demand and backlog remained very strong.
Looking at the global sales in the second quarter. Asia represented 74% of revenue; Europe 14%; and North America, 12%.
In terms of our end markets, industrial represented 27% of Diodes product revenue, computing 24%, consumer 19%, communication 16%, and
automotive 14% of the product revenue. We achieved record revenue in Automotive, Industrial, Consumer and Communication markets. Our
Pericom products also set a new revenue record, which is the seventh consecutive quarter. I would also like to point out that our Automotive,
Industrial end markets combined totaled 41% of the revenue, which exceeds our 2025 target of 40% of the total revenue.
Our record revenue in multiple end markets demonstrates Diodes strength in our execution. Despite the reported slowdown in low-end PC and
smartphone segments, we have been able to quickly adjust our support to the high-demand market segments like Automotive and Industrial as
well as other areas within the Communication market that are seeing growth like 5G, optical and networking. This has been a key advantage for
Diodes that has contributed to our consistent quarterly growth.
Now let me review the end market in greater details. Starting with the Automotive market. Revenue reached a record for the eighth consecutive
quarter and totaled 14% of the revenue for the first time. Revenue grew 36% year-over-year, driven by our ongoing demand creation efforts as
well as market share gains. Additionally, our expanding dollar content per vehicle continued to fuel our automotive growth.
In Connected Driving, which consists of ADAS, Telematics and Infotainment systems, we continue to expand our content opportunities with new
design wins for analog switches, CMOS, LDOs and DC/DC converters in ADAS as well as 3.3-volt USB re-drivers in infotainment, telematics and
smart cockpits. Our PCIe clocks, buffers, oscillators, and crystals also provided total timing solutions for infotainment applications. We also won a
number of designs for SBR, Schottky diodes, rectifier, USB switches and TVS products in the connected driving, LCD displays, door control units
and I/O expanders in telematics applications.
For the Comfort, Style and Safety, we continue to see solid demand for our CMOS, LDOs and switching diodes for the highlights and body control
modules. Volume for our LED drivers continue to ramp for indicator lights, while back LED drivers, DC/DC buck converters and diodes were designed
into several interior exterior lighting applications.
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AUGUST 04, 2022 / 9:00PM, DIOD.OQ - Q2 2022 Diodes Inc Earnings Call
In Powertrain, which covers conventional hybrid electric vehicles, ourpower TVS products won multiple designs in applications such as surge
protectors for display panel power lines, water pumps, DC/DC fans, motor fans and voltage regulators and battery management system. We also
continue to expand our protection product portfolio with 17 new auto grade products that won multiple designs at several key OEM accounts. We
are also seeing traction for our High Side IntelliFET products in power protection and mechanical relay replacement.
In our Industrial market, revenue was also a record and increased 43% year-over-year representing growth for the fifth consecutive quarter.
Our PCI Express 3.0 packet switches continued to gain traction by enabling mass video data transfer and rich PCIe 3.0 connection flexibility. Our
newly released packet switches can switch multiple serial protocols like PCI Express 5.0 and SAS4 signals and are winning new designs in test and
measurement equipment.
Additionally, our high-voltage step-down converters are being designed into applications like IoT and smart lighting, while our current suppressors
are gaining momentums in the LED lighting.
Our wide Vin LDO product family also continued to see solid demands for power tools and smoke detection systems. We also saw continued growth
for our TVS and switching diode product families for use in HVAC systems as well as strong demand for power Zener diodes in uninterrupted power
supplies for industrial power system applications. And our MOSFETs also continued to gain market share in the inverter applications.
In the Computing market, our USB signal switches and data line protection products are seeing strong traction in storage, enterprise SSDs and
enterprise server applications. SBR and Schottky product has seen strong demand in power-over-ethernet, server and high-performance computing
applications.
We are also seeing increasing adoption of USB-C linear ReDrivers in high-end tablets and also winning designs for our 20-gig USB-C ReDrivers and
display MUX/switches in gaming, laptop and desktop applications. Diodes' power switches achieved multiple design wins in USB-C power source
applications in notebook, AIO and desktop. Also, our LED drivers were designed into notable applications for face recognition, and our LSC Zener
diodes also posted solid growth in computing power supplies and DC fan applications for desktop and notebook PC.
Also during the quarter, we introduced several new products, including timing generators, buffers and MUX/switches that support the PCIe 5.0
protocol and ReDrivers that support PCIe 5.0 as well as SAS4 and CLX protocols.
In the Communication market, we achieved a quarterly revenue record, which is especially noteworthy considering the general slowdown in the
smartphones. During the quarter, we were able to gain strong traction across a number of high-growth applications, including 5G, optical and
networking. In particular, we are winning increasing designs for SBR products in 5G modules, Schottky and diodes in 5G base station and PCI Express
3.0 packet switches in 5G CPE.
4G and 5G mobile phone applications are also driving design activities and demand for the 12-volt CSP battery FETs. With the release of our new
ultra-low jitter crystal oscillators, Diodes has expanded our portfolio as well as pushed the jitter into the sub-100 femtoseconds. Diodes crystal
oscillators are designed into optical modules and other networking applications with high-speed interface such as 200 gig, 400 gig and 800 gig
Ethernet. We are also seeing design-ins for USB-C ReDrivers, CMOS LDOs and TVS product in smartphone applications.
Lastly, in the Consumer market, we also achieved a quarterly record revenue, despite the lockdowns in Taiwan and China. Our LED drivers are
gaining design wins in the smart home applications like floodlights, security cameras and WiFi. DC/DC converters continue to see solid demand
from the consumer and home appliance markets, while our CMOS LDOs and small sized MOSFETs has a number of wins in wearable devices.
Also during the quarter, we secured design wins for power switches, TVS, Zener diodes and audio amplifiers for TVs, gaming consoles, headphones,
Bluetooth trackers, large displays, smoke alarms and security system applications, including cameras, motion sensors and vibration sensors.
Additionally, Diodes AC/DC USB-C power delivery product portfolio and application ecosystem supported a newest EU regulation, which is
mandating a common charging port for smartphones and tablets by the fall of 2024 and laptops by 2026. Our complete USB power delivery solution
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AUGUST 04, 2022 / 9:00PM, DIOD.OQ - Q2 2022 Diodes Inc Earnings Call
provides the source and sink fast-charging capability for a diverse set of devices. We also saw strong design-in activities and revenue growth for
MOSFETs for wireless charging.
In summary, with our sixth consecutive quarter of record results, Diodes continues to prove our ability to consistently execute. We've successfully
expanded margins, 490 basis points over the past year through the product mix improvement, with an increasing contribution from our key focus
areas in the automotive, industrial end market. Additionally, our global manufacturing footprint, including the recent addition of the onsemi wafer
fab, provides the expanded capacity that we need to continue to drive our future growth and expansion towards our 2025 target of $2.5 billion in
revenue and $1 billion in gross profit.
With that, we will now open the floor to questions. Operator?
Q U E S T I O N S A N D A N S W E R S
Operator
(Operator Instructions) Your first question comes from the line of Tristan Gerra with Baird.
Tristan Gerra - Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst
In the context of some of your lead times starting to come down, what percentage of your demand you believe exceed your supply right now?
And how does that compare versus the beginning of the year?
Emily Yang - Diodes Incorporated - SVP of Worldwide Sales & Marketing
Tristan, this is Emily. I think overall, our demand, our backlog is still extremely strong. Like I mentioned in my speech that there is pockets of areas
that there's definitely some slowness like the low-end PCs or the smartphone or some of the consumer area. But what we've been doing is actually
utilizing and balancing the demand and focus on the strong demand areas like automotive, industrial. And you can actually see from the results
that we just shared just alone for automotive, we actually have 36% year-over-year growth, industrial is 43%. So I would say, all in all, right, the
demand is still stronger than our supply at this moment.
Tristan Gerra - Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst
Great. And then any way we could quantify your exposure to IGBT as maybe as a percent of revenue? And remind us of potentially how you get to
silicon carbide technology over time?
Gary Yu - Diodes Incorporated - SVP of Business Groups
Well, this is Gary. Let me try to answer this question for you. Basically, we don't have IGBT, okay? Yes, we don't have IGBT. And we are working very
hard try to get a silicon carbide in place. We do have our design team for silicon carbide. And possibly, we're going to have our silicon carbide
product released to the market at the end of this year.
Operator
Your next question comes from the line of William Stein with Truist.
7
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AUGUST 04, 2022 / 9:00PM, DIOD.OQ - Q2 2022 Diodes Inc Earnings Call
William Stein - Truist Securities, Inc., Research Division - MD
Great. Emily, as always, so many great details, but sometimes it's a little bit hard to make sure we're capturing the big picture. Correct me if I'm
wrong, but it sounds like you are seeing downturn in demand in certain parts of consumer, compute, comms. What I think you're saying is that
you're making up that shortfall in industrial and automotive, is that correct? And maybe more to the point, are there pockets within those 3 weaker
end markets, the 3 Cs, as I think you've called them in the past?
Are there pockets of those that are strong enough to capture or to require the demand for products that were in other parts of those end markets
that -- where there's weakness? And is it sustainable? I think that's the more important thing. Is it something you think is sustainable beyond Q3?
Or you think we're heading to a phase where perhaps lead times continue to fall and backlog and demand continue to fall in these end markets,
and it might have a contagion to other areas?
Emily Yang - Diodes Incorporated - SVP of Worldwide Sales & Marketing
Right. So yes, let me explain a little bit more in details, right? So we specifically talk about 3C: consumer, communication and computing. If we just
refer to the Q2 result, we actually still have a record revenue with the consumer. And within the consumer, we still see certain areas shows a little
bit more weakness than the others. So yes, you're absolutely right. Within the same market end market, there are still different areas that with
strong demand and definitely some softness. So what we've been doing in order to achieve the record is actually shifting our capacities to really
support the good focus areas that will continue. Like within the consumer, we've been talking about IoT areas and stuff like that. We're still seeing
a lot of strength, right?
With communication, I think everybody knows that we have slowed down, especially China smartphone area. But within communication, again,
we have a record, right? So how do we do that? We're still seeing a lot of strength related to 5G enterprise-related networking optical area. So
again, that's how we achieve the record. So basically utilize the capacity. And that, again, is actually one advantage for Diodes is we do have that
kind of flexibility, can dynamically adjust the support and focus on the right area, which the area we've been talking about giving us the focus,
right?
Computing, even within computing, low-end PCs, motherboards, definitely, we've seen softness. But anything related to enterprise, cloud computing
server storage, we're still seeing strength in that area. So I think it's kind of matching what we've been saying all along on top of the automotive,
industrial focus. Within each of the segments, we actually have specific pocket areas of focus. So we'll continue that drive towards.
Ken-Shew Lu - Diodes Incorporated - Chairman, CEO & President
I'd like to talk about one additional strategy we have been talking about, okay? When we designed the product, we designed it such that they go
to multiple end markets, okay? So for example, if you design a product for display in the PC, that product can be used in automotive. When you're
talking about for cell phone, like a MOSFET, the similar product can go to automotive. And that's why when we -- when Emily talking about, we
adjust our capacity to support the demands for different end market is by that, okay? So if for the cell phone slowdown, but we take that capacity,
utilize that product to support automotive. And you can see our automotive growth is very strong. Similar thing for industrial. So the strategy we're
using is we force the designer to design the product for multi markets.
William Stein - Truist Securities, Inc., Research Division - MD
Okay. I appreciate that. If I can ask one brief follow-up. I'm hoping you can help us understand what's going on with the South Portland fab. I assume,
I mean it seems pretty clear you have to have a manufacturing services agreement in place. And so you probably got some revenue from that in
the quarter. So can you help us understand, maybe help us size that and understand how long that support agreement lasts and the timing to run
your own products in that fab?
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AUGUST 04, 2022 / 9:00PM, DIOD.OQ - Q2 2022 Diodes Inc Earnings Call
Ken-Shew Lu - Diodes Incorporated - Chairman, CEO & President
Well, actually, this kind of the foundry support for the seller, onsemi is actually good for both sides. It's a win-win strategy. The important is for us
to qualify the product into that fab, it takes a while, including develop the process and qualify the product and we release the product for production,
it takes 1 year or even longer. And during that time period, we can take that capacity to support the sales and that way, helping us to reduce the
cost. And so this is a win-win. And we believe we should be able to -- when they slow down or when they reduce their loading, we can pick up the
loading at the same time.
So -- and if you're talking about how much, we are not announced the -- or we are not disclosed the percent of the revenue for our foundry business
from there. But it's -- one thing we can tell you it's not material. It's very small amount, the number. The key important if you look at our third quarter
guidance, we still show almost 4% growth and its result record revenue and continue that 10th consecutive quarter of revenue growth. And that's
all, organic majority of the growth will be coming from organic.
Operator
Your next question comes from David Williams with Benchmark.
David Neil Williams - The Benchmark Company, LLC, Research Division - Senior Equity Analyst
Appreciation. Let me ask the question. Apologize for the background noise here. But I wanted to ask real quickly, maybe just on -- maybe on the
automotive side, how do you see that trending over time? Tell us -- you're making very good progress and now you have a little better supply into
that market. Just kind of curious how you think about that growth trajectory?
Emily Yang - Diodes Incorporated - SVP of Worldwide Sales & Marketing
Well, I think, David, if you just look at our track record, right, we've been consistently growing. From 2013, our compounded annual growth rate
to 2021 is 30%. And with the Q2 result, it's actually 36% year-over-year growth. So with all the demand creation of the pipeline and all the engagement
that expanding in this area with strategic customers, we're pretty confident that projection of the growth will continue.
David Neil Williams - The Benchmark Company, LLC, Research Division - Senior Equity Analyst
Great. And I realize this is a shorter-term view, but just kind of wondering how you think about capacity in the near term and maybe what the
impact of margins would potentially be if we saw a more dramatic slowdown in the macro. And I'm realizing you guys are navigating this much
better. But if we did see a significant pullback in the macro, how do you think about the margin impact and maybe some of this capacity coming
online?
Emily Yang - Diodes Incorporated - SVP of Worldwide Sales & Marketing
Yes. So let me answer that question. So if we look back for the past few quarters, we've been really emphasizing about the product mix improvement,
right? So that has always been Diodes' focus. We did have some price adjustment, but we talk about our focus is actually taking the opportunity
to expand our engagement relationships with the customers, so we have a longer-term benefit. So with this approach, with the result for the last
few quarters and we'll continue to go down that path. So we're pretty confident that our margin will continue to improve.
Just based on the Q3 guidance, you can actually see, right? We continue to guide a higher 41.5% as a guidance. So that's -- I think the key message
is we believe our direction and vision was correct from the past, and we will continue to drive the margin improvement from the product mix
improvement side. Meantime, manufacturing efficiency has always been our focus, and we'll continue to drive that direction as well.
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AUGUST 04, 2022 / 9:00PM, DIOD.OQ - Q2 2022 Diodes Inc Earnings Call
Ken-Shew Lu - Diodes Incorporated - Chairman, CEO & President
Well, when Emily talking about product mix, one thing I've been emphasized when you focus on automotive, they are much higher margin. In
automotive and industrial, they are higher margin than consumer, computing and communication, except the high end of the -- those 3C area,
right, when you're talking about them.--So, when we change the product mix, you can see we focus more on automotive and industrial. One
evidence to show you, we already get to 41% of our revenue out of automotive and industrial. And because that if we continue growth in those
segments, then we can continue to improve our margins.
Operator
Your next question comes from Matt Ramsey with Cowen.
Matthew D. Ramsay - Cowen and Company, LLC, Research Division - MD & Senior Technology Analyst
The first question is, I guess, of how things are going with customers. Emily, maybe you can talk about this broadly and if you have any specific
examples. We've had a few conversations over the last couple of years about how your company was able to bring on additional supply and have
ample supply when many of your competitors did not when things got really tight during the pandemic. And one of the consequences of that is
that Diodes was able to get qualified and break into a number of new customers and a lot of different end markets that maybe you hadn't been
able to get into before because you guys had such supply.
And I guess what I want to understand better is in the instances where that did happen, how have the business relationships developed since you
broke into those new customers? And how are you guys doing in sort of a land-and-expand design win point of view? If you could kind of characterize
how those things are going, that would be great.
Emily Yang - Diodes Incorporated - SVP of Worldwide Sales & Marketing
Yes. So I think things is going well and continue. We're actually seeing the momentum continues, right? For some of the customers, we got
opportunity to break into the account. We actually continue to expand our overall dollar content within the same account. So like I mentioned,
right, there's still some imbalance of supply and demand. There's still areas that we think, like automotive still shows a really strong demand. So
we definitely continue to grow the relationship. Diodes, we are not interested to be a gap filler only. So we work with a lot of customers with
long-term agreements and commitments and stuff like that. I would say the momentum is still very, very strong.
Matthew D. Ramsay - Cowen and Company, LLC, Research Division - MD & Senior Technology Analyst
Right. Got it. As my follow-up, I'm surprised it wasn't asked yet, but just given some of the changes in the trajectory of end markets for your company,
if you guys had any more specific commentary about how we should expect trends in each of the segments to go into the third quarter, just
quarter-over-quarter growth rates. That would be really, really helpful.
Emily Yang - Diodes Incorporated - SVP of Worldwide Sales & Marketing
Okay. So let me answer this question as well. So automotive, I mentioned this already, we're still seeing a lot of strength overall. So we continue to
focus and drive. Industrial, again, there we're seeing a lot of strength. So computing, I think we're seeing more like a stabilized and we're hoping
that when some of the inventory depleted in the channel that we can see in some of the upside. There's also some of the new chipset launch
coming up soon. So that will also drive some of the momentum in this segment.
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AUGUST 04, 2022 / 9:00PM, DIOD.OQ - Q2 2022 Diodes Inc Earnings Call
Consumer, I think it's very depends on the actual application and customer demand. It varies a little. But again, we focus on the IoT major block
within the consumer area, so we continue to focus. I think communication, smartphone in China region and in Asia have some slowdown, but
we're also seeing 1 or 2 other smartphone vendors still showing strong momentum. So I think it's a mix and match. Like I said, right, because we
do have the capacity like Dr. Lu mentioned, we can shift things very quickly to really focus on the areas that we want to continue to drive and focus.
I think that's definitely a very key advantage overall to Diodes' approach, right? So I think that's pretty much about the 5 segments that you asked
for.
Ken-Shew Lu - Diodes Incorporated - Chairman, CEO & President
Yes. But the key thing just to remember, when Emily talking about for Diodes, our backlog still very strong. Our demand is still very strong. So yes,
we see pockets of the slowdown --
Emily Yang - Diodes Incorporated - SVP of Worldwide Sales & Marketing
Or adjustments.
Ken-Shew Lu - Diodes Incorporated - Chairman, CEO & President
-- or adjustments. It's the inventory adjustment. But overall, we're still very, very confident on our guidance, and that's the reason we still guide,
we're going to have 4% growth. And this is really, we believe our strength of market demand still there.
Operator
There are no further questions at this time. Dr. Lu, I turn the call back over to you.
Ken-Shew Lu - Diodes Incorporated - Chairman, CEO & President
Okay. Thank you for your participation on today's call. You may now disconnect.
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