Diodes Incorporated (DIOD)

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Diodes Incorporated (DIOD)

Q3 2011 Earnings Call

November 8, 2011 05:00 p.m. ET


Leanne Sievers – EVP of Shelton Group

Keh-Shew Lu – CEO and President

Richard D. White – CFO

Mark A. King – Sr. VP of Sales & Marketing

Laura Mehrl – Director of Investor Relations


Steve Smigie – Raymond James

Harsh Kumar – Morgan Keegan

Suji De Silva – ThinkEquity

Gary Mobley – Benchmark

Ramesh Misra -- Brigantine Advisors

Steven Chin -- UBS

Tristan Gerra – Robert W. Baird

Brian Piccioni – BMO

Vijay Rakesh - Sterne Agee

Joe Whitten -- Longbow Research



Good afternoon and welcome to Diodes Incorporated Third Quarter 2011 Financial Results Conference Call. At this time all participant are in a listen-only mode. (Operator Instructions) As a reminder, this conference call is being recorded today, Tuesday, November 8th, 2011.

I would now like to turn the call to Leanne Sievers of Shelton Group, Investor Relations. Leanne, please go ahead.

Leanne Sievers

Good afternoon and welcome to Diodes’ third 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 who is joining us from Taiwan today, 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 projections as to the company’s future performance represent management’s estimates as of today, November 8th, 2011. Diodes assumes no obligation to update those 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 within financial information and 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.

Keh-Shew Lu

Thank you, Leanne. Welcome everyone and thank you for joining us today. Revenue in the third quarter was $161 million, a decrease of 2% over the prior year and 5% sequentially. We continued to see broad weakness across globe market that became in May and accelerated throughout the third quarter especially in the consumer and computing market with the exception of tablets and the smartphones.

Despite this softness, we were still able to execute on our strategy of gaining market share by shifting our product mix to lower margin product to best yield our installed capacity. As has expected by the 10% growth in our year-to-date revenue above the prior year.

Gross margin in the third quarter was 28% of revenue. In addition to our shift in product mix, gross margin was also impacted by a weaker than normal price environment, as well as (inaudible) in the gold prices.

In response to the weaker market environment, we have implement cost reduction actions that including the day of capital investments improves, a reduction in factory over time as well as temporary reduction in (inaudible).

We did above $30 million of CapEx but still invested approximately $20 million during the quarter including $10 million for our Chengdu site expansion.

Our primary goal is to maintain manufacturing efficiency at the our packaging facility in order to avoid slow down on our ongoing productivity improvement. Even with the hurdling freeze, we continue to maximize dilation of all operators. During the quarter we used SS capacity to build finishing goods inventory and to prepare for a three day shutdown for the Chinese national holiday which occurred during the first week in October.

Looking beyond the current market environment we continue to increase our investment in R&D to further divest our new product initiatives, maintain designing momentum and additional tie up for additional market field gains in the future.

We have the additional capacity available to take advantage of upside potential and the return to our historical gross variable as the market improved. We then committed to our business motto and our focus on generating the long term return for our shareholders.

With that I will now turn the call over to Rick to discuss our third quarter financial results and first quarter guidance in more detail.

Richard White

Thanks Dr. Lu and good afternoon everyone. Revenue for the third quarter of 2011 was $160.6 million, a decrease of 2% over the $163.1 million in the third quarter 2010 and a decrease of 5% from the $169.8 million in the second quarter of 2011.

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