International Rectifier Corporation (IRF)
Goldman Sachs Technology and Internet Conference
February 13, 2013 12:30 pm ET
Jim Schneider – Goldman Sachs, Semiconductor Team
Oleg Khaykin – Chief Executive Officer
Jim Schneider – Goldman
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And with us, from the company we’re happy to have CEO, Oleg Khaykin. Welcome Oleg.
Jim Schneider – Goldman
Maybe you can just kind of continue what we were just talking about before the session started which is just in terms of the overall demand environment then some of the near-term drivers in the business, you had couple of quarters of pricing corrections last year. And regarding for sales to be up a little bit sequentially for the March quarter. So, can we talk about what you’re hearing from customers in terms of their confidence levels and their order levels and maybe walk us through some of the trends you’re seeing by end markets.
Sure. Well, last year was quite a bit of a rollercoaster ride. I mean, it started with a strong first positive signal and everybody is rest-house and orders were very good, and March quarter up, June quarter up. And then came big realization, now wait a second, it was a lot of speculation by distributors, contract manufacturers, I think the orders are going to come in but they didn’t.
And as a result, they had a big correction, two quarters, big drops in September and December. And for us it was really a situation where we made a conscious choice, we really got a focus on reducing inventory at the significant expense of oiling to fabs. So, we’ve taken our equalization significantly down, and worked down our inventory. So, even with the revenue decreases from June to September and December to December, we were able to reduce our inventories as well.
So, if you can imagine, it’s doubled where I mean, you have lower revenues you have to take your tuition down. And then to avoid building inventories you got to pick it even further down. So, that said, sometimes towards the end of the December quarter, we started looking at the bookings, for kind of three to six months out, and an interesting picture is starting to emerge like current bookings over the same period, before gradually as they are getting better.
And as we enter January, and especially by second half of January, the increase really has accelerated, which is a bit unusual because usually people stay very conservative of Chinese New Year and then really come out and place all their orders for the June quarter, which my initial reaction was well, it’s a speculative in anticipation for kind of seasonal billed June quarter, and they say well, but if they’re speculating why are they placing orders now rather than until waiting after Chinese New Year. Or if they’re not speculating okay, well, what are the indicators.
Well, if you look at broader indicators, who the orders are coming from, they’re coming not from your slide by night distributors who want to make a quick buck or make some specialty wet, they’re coming from manufacturers, that means they have usually at that point fixed orders kind of three months out and they are setting up supply chain.
So, in that respect, I have more confidence and I just spent most of January in the road, going down R&D, you are actually getting a feeling that across all regions, Europe, North America and China that inventories are did and depleted, they are starting to think about production bills for the summer. And it still varies by segments, but overall broad based it’s all indicators for the first time, I’ll tell in a year and half, the two years appointing in the right direction, to see if the market indicators, GDP purchasing, manager indicators, kind of customer interviews indicators and customer orders.
Now, by market, one thing is very clear, I mean, aside from outside PC market, pretty much all markets that IR addresses we feel is a very good momentum and optimism for at least kind of next three to six months, beyond that I just don’t have the visibility.
And the only thing was PC was more of a point, in transition period of people getting gearing up for next generation Intel processor house well, so they want to burn off whatever inventory they have this quarter and, we see orders for next quarter actually coming in very nicely for the Hassle platform.
Jim Schneider – Goldman Sachs
Fair enough. That’s helpful color. And you think you alluded to it before some of the changes or differences you’re seeing between orders from the distributors and orders from the direct OEM customers, can we maybe talk about some of those differences and specifically when you talk about distributors, address their willingness, the whole inventory at current levels or potentially even restock beyond with the headwind?
It’s actually a good question, I should have said. So, when I looked at it, I’ve done my – down my own and the office go down, deeper and say okay, I have all the bookings are up. The thing to look for are the booking ups from distributors, how did they compare up versus the OEM. If clearly distributors are higher, okay, there is probably some speculation, actually prior to Chinese New Year, the increase in bookings from OEMs were much higher percentage in your relative increase than from distribution. And it kind of fits my picture, the distributors will wait until the very last minute.