• Revenue: $350.1 million, up 9.5% sequentially from $319.8 million in Q2 2024, but down from $404.6 million in Q3 2023.
• Gross Profit: $118 million, representing 33.7% of revenue, compared to $107.4 million or 33.6% in the prior quarter.
• GAAP Net Income: $13.7 million or $0.30 per diluted share, compared to $8 million or $0.17 per diluted share last quarter.
• Non-GAAP Adjusted Net Income: $20.1 million or $0.43 per diluted share.
• EBITDA: $46.9 million or 13.4% of revenue, compared to $41.1 million or 12.8% in the prior quarter.
• Cash Flow from Operations: $54.4 million.
• Free Cash Flow: $39.4 million, including $15 million for capital expenditures.
• Automotive Market Revenue: Increased 18% sequentially, representing 19% of product revenue.
• Inventory Days: Total inventory days were approximately 187, down from 191 last quarter.
• Fourth Quarter Revenue Guidance: Expected to be approximately $337 million, plus or minus 3%.
• Fourth Quarter Gross Margin Guidance: Expected to be 33%, plus or minus 1%.

• Warning! GuruFocus has detected 5 Warning Signs with DIOD.

Release Date: November 07, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Third quarter revenue exceeded expectations, increasing 9.5% sequentially.
• Automotive market revenue increased 18% sequentially, reflecting ongoing content expansion and design win initiatives.
• Channel inventory improved with both inventory dollars and inventory days decreasing sequentially.
• Strong growth in the automotive market, with content expansion and design win momentum.
• Available capacity to support future demand improvements, with moderated CapEx investment to preserve near-term earnings and cash flow.

Negative Points

• Gross margin pressure due to factory underloading related to wafer service agreements and internal demand.
• Revenue for the third quarter was down compared to the same quarter last year ($350.1 million vs. $404.6 million).
• GAAP net income for the third quarter was significantly lower than the prior year quarter ($13.7 million vs. $48.7 million).
• Continued inventory and demand adjustments in both the automotive and industrial markets.
• Visibility into the backlog remains limited, with ongoing short lead time orders.

Q & A Highlights

Q: Can you discuss the demand improvement in Asia and how it is expected to trend through the fourth quarter and into next year? A: Emily Yang, Senior Vice President of Worldwide Sales and Marketing, noted that demand in Asia, particularly in China, has been strong, especially in the automotive market. Despite ongoing inventory adjustments, some customers are depleting inventory faster, contributing to growth. Industrial demand remains challenging, but computing shows good momentum, particularly in AI servers. For Q4, automotive and industrial markets may see continued inventory adjustments, while computing is expected to be flat or slightly up.

Q: What factors are contributing to the pressure on gross margins, and will this recover into the new year? A: Brett Whitmire, Chief Financial Officer, explained that the pressure on gross margins is due to a mix of factors, including a transition in product mix and strategic investments in additional capacity. The current softness in the market also contributes to this pressure. However, as the company progresses with product qualifications and portfolio improvements, margins are expected to recover in 2025.

Q: How is Diodes Inc. positioned in relation to the new administration and its exposure to China? A: Emily Yang emphasized that while Diodes has significant revenue from China, the local portion is smaller. The company sees growth potential in China due to demand for cost-performance value products. Diodes is prepared to adapt to any government policy changes, leveraging its hybrid manufacturing model to maintain flexibility.

Q: Can you provide the revenue split between distribution channels and direct customers, and the impact of pricing on growth? A: Emily Yang stated that in Q3, 64% of revenue came from distribution and 36% from direct sales, with a slight shift from Q2. Brett Whitmire added that year-over-year pricing had about a 10% impact, primarily reflecting unit growth rather than product mix changes.

Q: What is the outlook for automotive pricing negotiations and gross margin targets? A: Emily Yang mentioned that automotive pricing negotiations vary by customer, with some occurring quarterly and others annually. The company anticipates stable pricing with a built-in 1% to 2% price decrease per quarter. Diodes evaluates overall account margins and strategic benefits rather than strict gross margin targets, balancing underutilization with long-term growth potential.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.