Diodes Incorporated (DIOD)

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Diodes Incorporated (DIOD)

Q1 2011 Earnings Conference Call

May 9, 2011 17:00 ET


Leanne Sievers – Investor Relations

Dr. Keh-Shew Lu – President and Chief Executive Officer

Rick White – Chief Financial Officer

Mark King – Senior Vice President, Sales and Marketing


Steve Smigie – Raymond James

Shawn Harrison – Longbow Research

Harsh Kumar – Morgan Keegan

Suji De Silva – ThinkEquity

Vijay Rakesh – Stern Agee

John Vinh – Collins Stewart

Stephen Chin – UBS

Christopher Longiaru – Sidoti & Company

Brian Piccioni – BMO Capital Markets

Ramesh Misra – Brigantine Advisors

Gary Mobley – The Benchmark



Good afternoon and welcome to Diodes Incorporated First Quarter 2011 Financial Results Conference Call. (Operator instructions) As a reminder this conference call is being recorded today, Monday, May 9, 2011. I would now like to turn the call to Leanne Sievers of Shelton Group, the investor relations agency for Diodes. Leanne, please go ahead. And please standby. Ladies and gentlemen, please standby for your conference to begin.

Leanne Sievers – Investor Relations

Good afternoon and welcome to Diodes’ first quarter 2011 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, May 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 to EBITDA 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 web cast for 60 days in the Investor Relations' section of Diodes website at www.diodes.com.

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

Dr. Keh-Shew Lu – President and Chief Executive Officer

Thank you, Leanne. Welcome everyone, and thank you for joining us today. Our revenue for the quarter was stronger than typical first quarter seasonal patterns. We continue to achieve market share gains as we expanded our content at key customers, especially in tablets, notebooks, smartphones and LED TV.

We had a strong quarter in Europe and Asia, while North America revenue declined sequentially. The quarter was impacted by reduced unit output from our Shanghai packaging facilities resulting from lower equipment utilization caused by China labor shortages mentioned last quarter and a larger than normal number of workers not returning from the Chinese New Year holiday.

We shipped from finished goods inventory and reduced our contract assembly commitments, which allowed us to achieve sequential revenue growth in our core business. Gross margin for the quarter reflects reduced fixed cost coverage caused by the lower unit output. We continue hiring manufacturing operators to ensure maximum equipment utilization by matching fully-trained manpower with the available equipment. This will require additional time to properly train those individuals, I wish that the labor situation to be resolved during the second quarter and anticipate gross margin will be comparable to the first quarter.

Although, I am pleased with our results in the first quarter and we expect to achieve growth in the second quarter with revenue anticipated to increase 5% to 10%. As we continue to execute on our new product initiatives, design win traction and market share gain.

With that, I will turn the call over to Rich to discuss our first quarter financial results and second quarter guidance in more detail.

Rick White – Chief Financial Officer

Thanks Dr. Lu and good afternoon everyone. Revenue for the first quarter of 2011 was $161.6 million, an increase of 18% over the $136.8 million in the first quarter of 2010, and a decrease of 1% from $163.8 million in the fourth quarter of 2010. As Dr. Lu mentioned revenue in the quarter was stronger than typical seasonal patterns.

Gross profit for the first quarter was $57.4 million, or 35.5% of revenue compared to $47.8 million, or 34.9% in the first quarter of 2010 and $62.6 million, or 38.3% of revenue in the fourth quarter of 2010. The sequential decline in gross margin was primarily due to the previously mentioned manpower shortages at our China packing facilities, which resulted in lower equipment utilization and reduced fixed cost coverage.

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