DIOD

Diodes Incorporated (DIOD)

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Diodes Incorporated (DIOD)

Q32012 Earnings Call

November 8, 2012 5:00 pm ET

Executives

Leanne Sievers - Executive Vice President, Shelton Group Investor Relations

Keh-Shew Lu - President, Chief Executive Officer, Director

Richard White - Chief Financial Officer, Treasurer, Secretary

Mark King - Senior Vice President of Sales and Marketing

Analysts

Steven Smigie - Raymond James & Associates

Gary Mobley - The Benchmark Co.

Chris Longiaru - Sidoti & Co.

Vernon Essi - Needham & Company

Stephen Chin - UBS Securities

Ramesh Misra - National Securities Corp.

Tristan Gerra - Robert W. Baird & Co.

Shawn Harrison - Longbow Research

Vijay Rakesh - Sterne, Agee & Leach

Presentation

Operator

Good afternoon, and welcome to the Diodes Incorporated third quarter 2012 financial results conference call. At this time, all participants are in a listen-only mode. At the conclusion of today's conference call, instructions will be given for the question-and-answer session. (Operator Instructions) As a reminder, this conference call is being recorded today, Thursday, November 8, 2012.

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 2012 earnings conference call. I am Leanne Sievers, Executive Vice President of Shelton group, Diodes', industrial relations firm. With us today are Diodes' President and CEO Dr. Keh-Shew Lu, Chief Financial Officer, Rick White, Senior Vice President of Sales Marketing, Mark King and Director of Investor Relations, Laura Morrow.

Before I turn the call over to Dr. Lu, I would like to remind our listeners that managements' prepared remarks contains 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 8, 2012. 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. Including in the company's press release are definitions and reconciliations of GAAP net income to non-GAAP adjusted net income, debt, net income to EBITDA and free cash flow, 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 webcast 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.

Keh-Shew Lu

Thank you, Leanne. Welcome everyone and thank you for joining us today. I am pleased to report our third consecutive quarter of growth in which revenue grew 5% sequentially despite the slowdown in the general market. Our new product initiative and the past design wins effort drove further market share gains. As we continued to increase share of our products used in smartphones and tablets.

Gross margin improved slightly in the quarter but remained under pressure primarily due to the effects of the generally weak global economy. Although we are gaining market share for our more advanced packages as supported by the capital investments we made in the second and third quarters, we are still under-loaded on our standard packages.

The unstable demand environment also caused pricing to weaken in the quarter and product mix to be less favorable than we had anticipated. However, our cost reductions and manufacturing efficiency improvements were able to largely offset those factors. As I have stated in the past, improvements in the demand and pricing environment are key factors in our ability to transition available capacity to higher margin products at a more rapid pace, which has been restrained by the slower economic recovery.

As of September 1, Diodes acquired over 50% of the outstanding shares of Eris Technology Corporation. Through this relationship we look to develop Eris' assembly and test equipment automation capabilities which should help reduce the (inaudible) cost increase in the future.

Then, more recently, on October 29, we were pleased to close our acquisition of Power Analog Microelectronics, PAM. The company's product portfolio including Class D audio amplifiers, DC-DC converters and LED backlighting drivers. Our rationale of acquiring PAM was for its advanced analog product portfolio, strong technical teams and a strong customer relationship, including those that allowed Diodes entry into Japan. Even with the narrow technology and product portfolio they have been able to secure a couple of large multinational customers as well as target regional ones.

Their current revenue contribution for Diodes is not material but we believe there are significant long-term growth opportunities as we leverage Diodes' infrastructure and technologies as well as our sales channels and the customer relationships. This is a perfect example of our effort to this acquisition as an effective way to expand our strength.

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

Read the rest of this transcript for free on seekingalpha.com