Diodes Incorporated (DIOD)

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Diodes Incorporated, (DIOD)

Q4 2010 Earnings Call

February 9, 2011 5:00 p.m. ET


Leanne Sievers – IR, Shelton Group

Keh-Shew Lu – President and CEO

Rick White – CFO, Secretary and Treasurer

Mark King – SVP, Sales and Marketing

Laura Mehrl – Director of Investor Relations


Ramesh Misra - Brigantine Advisors

Steve Smigey - Raymond James

John Venn - Collins Stewart

Shawn Harrison – Longbow Research

Gary Mobley – Benchmark Capital

Harsh Kumar – Morgan Keegan

Vijay Rakesh - Sterne Agee

Brian Piccioni – Capital Markets

Suji De Silva - ThinkEquity

Steven Chin - UBS



Good afternoon and welcome to the Diodes Inc. fourth quarter and fiscal 2010 financial results conference call. (Operator instructions) As a reminder this conference call is being recorded today, Wednesday, February 9, 2011. I would now like to turn the call over to Leanne Sievers of Shelton Group Investor Relations. Leanne, please go ahead.

Leanne Sievers

Good afternoon and welcome to Diodes fourth quarter and fiscal 2010 earnings conference call. I am Leanne Sievers, Executive Vice President of Shelton Group, Diodes' Investor Relations firm. With us today are Diodes' President and CEO, Dr. Keh-Shew Lu; Chief Financial Officer, Rick White; Senior Vice President of Sales and Marketing, Mark King; and Director of Investor Relations, Laura Mehrl.

Before I turn the call over to Dr. Lu, I would like to remind our listeners that 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.

In addition, any projection as to the company's future performance represent management's estimate as of today, February 9, 2011. Diodes assumes no obligation to update these projections in the future as market conditions may or may not change. 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 net income to non-GAAP adjusted net income, and GAAP net income EBITDA which provide additional details. Also, throughout the company's press release and management statements during this conference call, we refer you 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 web cast for 60 days in the Investor Relations' section of Diodes website at www.diodes.com.

Now I will turn the call over to Diodes' President and CEO, Dr. Keh-Shew Lu. Dr. Lu, please go ahead.

Ken Shew Lu

Thank you, Leanne. Welcome everyone, and thank you for joining us today. I'm pleased to once again report another historic quarter in the year of profitable growth of Diodes. We continued to experience strong demand for our products across all of our world-wide markets. Filled in by the continued ramp up of previous design wins and the customer acceptance of our new product portfolio in 2010, we achieved record results which underscore the successful execution of our profit and growth model as we emerged from the 2009 long term as stronger company. This accomplishment was further highlighted by our seventh consecutive quarter of sequential revenue growth and our 20th consecutive year of profitability.

The diversity of our end market and the geographic exposure provide us the flexibility to shift our focus to the product areas of all regions so we can maximize our growth and profits. For example, even though notebooks may be experiencing slow growth in the US, we also participate in the fast-growing tablets market. For we are achieving (inaudible) can grow and the market penetration. Additionally, all industry estimates indicate that US consumer and computing markets may be slowing, those end markets are experiencing higher growth rates in Asia which is a region where we have over 70% of our revenues.

Likewise, during the middle to late part of 2010, we were able to focus on European and North American markets to take advantage of the related strengths in those regions which contributed to our positive growth. I believe that it is this flexibility and the diversity of our business model that allows us to achieve better-than market growth rates and a richer product mix. This strategy has been consistently successful for Diodes and our shareholders. We plan to continue to execute on this strategy for years to come.

In regard to the fourth quarter, we generated a record gross margin of 38.3% primarily due to the benefit of our improved product mix, our aggressive cost reduction, as well as efficiency at our manufacturing facility. As I have stated in the past, our model rate continues to be in the 35% range, but we always strive to improve our gross margins in support of our profitable growth strategy. We will always seek ways to gain more profit dollars when and where we can without sacrificing revenue growth.

Our accomplishment in 2010 has established a strong foundation for continued growth momentum in 2011. We remain positive of our outlook due to our design win situations, highly successful new product initiatives and additional opportunity to capitalize on Zetex growth (inaudible) and synergy. Although typically a slow period, our current environment appears to be exceeded in stronger seasonal demand than in the previous first quarter. We are increasing assembly test equipment capacity in the first quarter, but our manufacturing output is being affected by reduced (inaudible) cost by China's labor shortage, fewer working days, and the Chinese New Year in February. As such, we are guiding revenue for the first quarter of 2011 to be flat to down 5 percentage point with fourth quarter 2010.

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