Exhibit 99.3
DIODES 2Q 2013 EARNINGS CALL
QUESTION AND ANSWER
Operator
(OPERATOR INSTRUCTIONS). STEVE SMIGIE, RAYMOND JAMES.
Steve Smigie —Raymond James & Associates—Analyst
DR. LU,LOOKSLIKEANOTHERGOODQUARTERHERE. LOOKINGFORWARDTOTHEGUIDANCE,ITLOOKSLIKE,ASITISWITHYOURGUIDANCE, EPSISAHEADOFTHE STREET;BUTITALSOSEEMSLIKETHEREWASSOMEADDITIONALPOTENTIALBENEFITTHATYOUWOULD’VEHAD. THEGROSSMARGINHADTHATPOWERPLANTISSUE. CANYOUTALKABOUTWHATMAGNITUDEOFIMPACTTHEGROSSMARGINWASHITBYFROMTHAT —THEPOWERPLANT?
Keh-Shew Lu—Diodes Incorporated—President and CEO
WELL,SINCETHEPOWEROUTAGEJUSTHAPPENED JULY 26,ANDSO —ITJUSTBACKTOINSTALLTHEPOWERONEWEEKLATER,WHICHWASLAST FRIDAY. THEPOWERJUSTGRADUALLYCOMEBACK.
THENITTOOKTIMETORAMPTHEEQUIPMENTANDREQUALIFYTHEEQUIPMENT,THENPUTITINTOPRODUCTION. THATISWHYWEESTIMATEWEWOULDLOSETHEOUTPUTFORABOUTAHALFAMONTH. ANDOBVIOUSLY,ITISNOTCOMPLETEDRECOVERYET. SOWEREALLYDON’THAVETHEFINALNUMBER,BUT IWOULDSAYSOMEWHEREAROUND 0.5%TO 1.0% GPMPROBLEMS. BUTWEDON’TKNOWFORSUREYET.
Steve Smigie —Raymond James & Associates—Analyst
OKAY,GREAT. THANKS. ANDSHOULDWEASSUMETHATTHERE’SALSOPROBABLYSOMESORTOFREVENUEIMPACTHERETOTHETHIRDQUARTERBECAUSEOFTHEDISRUPTIONHEREINYOURMANUFACTURING?
Keh-Shew Lu—Diodes Incorporated—President and CEO
ITIS,BUTWETRIEDTO —SINCEWESTILLHAVETWOMONTHSTOMAKEITUP,ANDWITHFLEXCYCLETIME,WITHASSEMBLYCYCLETIME, IAMHOPINGTHATISMINIMAL. BUTLIKE ISAID,ITJUSTHAPPENED. WEAREASSESSINGTHEDAMAGEOFEVERYTHING.
SOVERYDIFFICULTRIGHTNOWFORMETOSAY. SOWEJUSTPUTACONSERVATIVENUMBERTHATWEHAVE. ANDWHENWEGOTOTHEUPDATEGUIDANCENEXTMONTH,THENWEWILLHAVEAMUCHMORECLEARPICTURE.
Steve Smigie —Raymond James & Associates—Analyst
RIGHT. MAKESSENSE. LASTQUESTION,JUSTFORTHEREPORTEDQUARTER, ITHINKYOUGUYSDIDRELATIVELYWELLCOMINGINABOVETHEMIDPOINT —ORCOMINGINABOVECONSENSUSINTHEFACEOFTHECOMPUTINGWEAKNESSOUTTHERE.
IKNOWYOUMENTIONEDSOMENEWDESIGNWINSRAMPINGANDSOMESHAREGAINSASWELL. ISTHEREONEORTHEOTHEROFTHOSETHATWASMORESIGNIFICANTINYOURBEINGABLETOOUTPERFORMHERE?
Mark King—Diodes Incorporated—SVP, Sales and Marketing
ITHINKITWASBOTH — ITHINKTHATTHENEWDESIGNWINSWERESHAREGAINS. OKAY? SO ITHINKTHEYAREKINDOFONEANDTHESAME. SOWEHADSOMEPRETTYSIGNIFICANTNEWPROJECTSTHATCAMEININTHEQUARTERTHATWEREQUITEHELPFULTOUS.
Steve Smigie —Raymond James & Associates—Analyst
OKAY,GREAT. THANKSALOT. APPRECIATEIT.
Operator
GARY MOBLEY, BENCHMARK.
Gary Mobley—The Benchmark Company—Analyst
COULDYOUSHAREWITHUSWHETHERTHEBOOK-TO-BILLRATIOFORTHEQUARTERWASABOVE 1.0ORBELOW 1.0?
Mark King—Diodes Incorporated—SVP, Sales and Marketing
IWOULDSAYITISABOVE 1.0.
Gary Mobley—The Benchmark Company—Analyst
OKAY. AND MARK,YOUMENTIONEDTHEDISTRIBUTIONINVENTORYBEINGUP 13%. COULDYOUCLARIFYWHETHERTHATWASAQUARTER-OVER-QUARTERCOMPARISON? AND I’MASSUMINGTHATWASCLOUDEDBY BCDASWELL.
Mark King—Diodes Incorporated—SVP, Sales and Marketing
MOSTOFTHATWASJUSTADDINGTHE BCDINVENTORYINTOTHEMIX.
Gary Mobley—The Benchmark Company—Analyst
DOYOUHAVEANYSENSEOFWHATTHEORGANICGROWTHRATEINTHEDISTRIBUTIONINVENTORYWOULDBE?
Mark King—Diodes Incorporated—SVP, Sales and Marketing
IWOULDSAY,TOBEHONESTWITHYOU, IDIDN’TEVENREALLYLOOKATIT. THEYGAVEMEATOTALNUMBER. SO ICAN’TGIVEYOUANESTIMATE, GARY. BUT IWOULDN’TSAYITWOULDBEVERYHIGH.
Gary Mobley—The Benchmark Company—Analyst
OKAY. ANDJUSTTOCLARIFY —MAYBEIFYOUCANJUSTTELLMEIF I’MINTHEBALLPARK. THEORGANICGROWTHADJUSTINGFORTHE BCDCONTRIBUTION —WASTHATSOMEWHEREINTHENEIGHBORHOODOF 5%TO 7%SEQUENTIALFOR Q2?
Keh-Shew Lu—Diodes Incorporated—President and CEO
FROM Q2VERSUS Q1?
Gary Mobley—The Benchmark Company—Analyst
YES.
Keh-Shew Lu—Diodes Incorporated—President and CEO
ORGANICALLYITISABOUT 5%. YES,ITISABOUT 5%.
Gary Mobley—The Benchmark Company—Analyst
OKAY. THATISITFORME. THANKS,GUYS.
Keh-Shew Lu—Diodes Incorporated—President and CEO
THANKYOU. ANDYOUKNOWTHEREASONISBECAUSESUPPOSEDLYSECONDQUARTERISAGOODQUARTERFORUS. BUTTHISYEAR,COMPUTERMARKETISNOTASSTRONGASINTHEPAST. ANDWEHAVEVERYSIGNIFICANTREVENUEFROMTHECONSUMERMARKET — IMEAN,COMPUTINGMARKET.
BUTWE’RESTILLHAPPY,BECAUSE 5%OVERFIRSTQUARTER,ANDYOUKNOWFIRSTQUARTERISAVERYSTRONGQUARTERFORUS. SOWITHAVERYSTRONGFIRSTQUARTER,THENWEAREABLETOGROW 5%? ITHINKWEAREHAPPYWITHEVENTHESOFTCOMPUTERMARKET.
Operator
CHRISTOPHER LONGIARU, SIDOTI.
Christopher Longiaru —Sidoti & Company—Analyst
CONGRATULATIONSONTHEGROSSMARGINGUIDE,CONSIDERINGTHISPOWEROUTAGE.
Keh-Shew Lu—Diodes Incorporated—President and CEO
THANKYOU.
Christopher Longiaru —Sidoti & Company—Analyst
SOMYQUESTIONACTUALLYHASTODOWITH —ISTHEREANYRECOURSEAGAINSTTHELANDLORDORANYTHINGYOU’RETALKINGABOUTINTERMSOFFUTUREPAYMENTSTHATWOULDMAYBEINFLATEEITHERYOURGROSSMARGININTHE DECEMBERQUARTERORFUTUREQUARTERS,ORPOSSIBLYDEFLATEYOUROPERATINGEXPENSES? CANYOUCOMMENTONTHAT?
Keh-Shew Lu—Diodes Incorporated—President and CEO
WELL,YOUKNOWWEAREINTHEAGEOFNEGOTIATIONFORTHENEXTRENTALCONTRACT. SOYES,YOUCANDEMANDONTHOSE,BUTYOUKNOW,ITISNOTTHATEASYFORLANDLORDTOPAYUSBACK.
Christopher Longiaru —Sidoti & Company—Analyst
SOBASICALLY,ITMEANSYOUAREGOINGTOTRYYOURBEST.
Keh-Shew Lu—Diodes Incorporated—President and CEO
TRYOURBEST.
Rick White—Diodes Incorporated—CFO, Secretary and Treasurer
WEALWAYSTRYOURBEST.
Christopher Longiaru —Sidoti & Company—Analyst
OKAY. MYOTHERQUESTIONJUSTHASTODOWITH —INTERMSOFJUSTONTHECOMMUNICATIONSSIDE. YOUTALKEDABOUTJUSTALITTLEBITOFSLOWERORDERRATES. CANYOUTALKABOUTTHETRENDSTHEREOVERTHECOURSEOFTHEQUARTER,ANDHOWITLOOKSTHROUGH JULY?
Mark King—Diodes Incorporated—SVP, Sales and Marketing
OBVIOUSLY,BYOURGUIDANCEWESEESOMEIMPROVEMENTSINTO JULY,AND ITHINKINTOTHETHIRDQUARTERANDINTOTHESECONDHALFOFTHEYEARINSOMEOFOURKEYCUSTOMERS. SO ITHINKBASICALLYITISINLINEWITHOURGUIDANCE.
Christopher Longiaru —Sidoti & Company—Analyst
ANDTHENJUSTINTERMSOFTHETAXRATECONTINUINGTOCOMEDOWNALITTLEBIT,SHOULDWESTILLBEMODELING 20%FORTHEYEAR, RICK? ORSHOULDWETHINKOFTHATMOREINTHEMID-TEENSRANGE?
Rick White—Diodes Incorporated—CFO, Secretary and Treasurer
NO, ITHINKYOUNEEDTOPUSHITUPMORETOTHE 20%, 21%. THATISWHERETHEEFFECTIVETAXRATEMIDPOINTISFORTHETHIRDQUARTER.
Christopher Longiaru —Sidoti & Company—Analyst
OKAY. THAT’SALL IHAVE. THANKS,GUYS.
Keh-Shew Lu—Diodes Incorporated—President and CEO
THANKYOU.
Operator
TRISTAN GERRA, ROBERT W. BAIRD.
Tristan Gerra —Robert W. Baird & Company, Inc.—Analyst
THESLOWDOWNTHATYOUMENTIONEDATCERTAINCUSTOMERS,COULDYOUREMINDUSHOWBIGTHEYAREASAPERCENTOFYOURREVENUE,ANDMAYBESOMECOMMENTARYAROUNDTHECONTENTYOUHAVEATTHOSECUSTOMERS?
Mark King—Diodes Incorporated—SVP, Sales and Marketing
WEDON’TREALLYWANTTOGETINTOTHATDETAIL,BUTWEDON’THAVEANYCUSTOMERSTHATAREOVERTHE 10%RANGE. SO ITHINKTHAT’SASFARASWEWANTTOGETINTOTHEDETAILOFTHAT.
Tristan Gerra —Robert W. Baird & Company, Inc.—Analyst
OKAY. ANDTHENINTERMSOFTHETRANSFEROF BCD’SPACKAGINGTOYOUR SHANGHAIFACILITY,HOWMUCHROOMDOYOUHAVELEFTFOR BCDPRODUCTSATTHATFACILITY? ANDTHENISITGOINGTOBEALLOF BCD’SPRODUCTS,ORJUSTPARTOFIT? ANDTHENFINALLY,IFYOUCOULDGIVEUSSOMESENSEOFHOWMUCHTHATWILLBENEFITGROSSMARGIN.
Keh-Shew Lu—Diodes Incorporated—President and CEO
OKAY. NUMBERONE,NOTALLTHE BCDPACKAGINGTHEYUSEDWEAREABLETOPRODUCEIN SKE. LIKE TO-92 —WEDON’THAVETHATPACKAGEINSIDE DIODESOURSELVES. SOTHENUMBER —THATPACKAGEWEWEREN’TABLETO.
ANDTHENSOMEOFTHEPACKAGEWESTARTEDTOQUALIFY,BUTNOTALLTHECUSTOMERSWILLALLOWUSTOCHANGETHATEASILY. SOWHATWETRIEDTO —WHATWEDO,WESAY,ISWEWILLDOALLOFTHEQUALIFICATION,ALLTHE PCN,BYENDOF SEPTEMBER. ANDTHENASSUME 3MONTHS PCNCHANGE. ANDTHENWESHOULDBEFINISHEDOURCONVERSIONBYENDOFTHEYEAR,WHICHWEHOPEISONEQUARTERAHEADOFSCHEDULE.
BUT IWON’TEXPECTEVERYTHINGWEWANTTOPULLINCANPULLINBEFOREENDOFTHEYEAR.
Tristan Gerra —Robert W. Baird & Company, Inc.—Analyst
OKAY. ANDANYBENEFITTHATYOUAREWILLINGTOTALKABOUTINTERMSOFYOUR COGS?
Keh-Shew Lu—Diodes Incorporated—President and CEO
WHAT?
Tristan Gerra —Robert W. Baird & Company, Inc.—Analyst
IWASWONDERINGIFYOUWOULDBEWILLINGTOELABORATEALITTLEBITONTHETYPEOFSAVINGSTHATYOUWOULDEXPECTFROMTHATMIGRATIONINPACKAGINGFOR BCD.
Keh-Shew Lu—Diodes Incorporated—President and CEO
YES,ITWILLBEHELPED. BUTACTUALLYITHELPSUSALITTLEBITONOURLOADING,BUTITISMOREWILLBEHELPED BCD,BECAUSEWEWILLPROVIDETHEMLOWERCOSTSTHANTHEYAREGETTINGFROMOUTSIDE.
Tristan Gerra —Robert W. Baird & Company, Inc.—Analyst
OKAY,THANKYOU.
Operator
VIJAY RAKESH, STERNE, AGEE.
Vijay Rakesh —Sterne, Agee & Leach, Inc.—Analyst
GOODWORKONTHEGROSSMARGINSIDE. IWASWONDERING —YOUMENTIONEDPRODUCTMIXIMPROVEMENTINYOURPREPAREDREMARKS,ANDYOUALLUDEDTOSOMESMARTPHONEWINSORHANDSETWINSPICKINGUP. CANYOUGIVESOMEMORECOLORONHOWMUCH —WHERETHEMIXISNOW? HOWSHOULDWELOOKATMIXASYOUGOOUTNEXTONE,TWOQUARTERSWITH BCDORANALOGPICKINGUP?
Keh-Shew Lu—Diodes Incorporated—President and CEO
WELL,YOUKNOW,WEMEASUREOUR ASPSBYTWOINDEX —ONEWECALLAMIXDEPENDENT;ONEWECALLMIXINDEPENDENT. FROMAMIXINDEPENDENTPOINTOFVIEW,THATMEANSTHESAMEPRODUCTSELLSLASTQUARTERPRICE;SALESINLASTQUARTERVERSUS —EXACTLYTHESAMEPRODUCTSALESINTHISQUARTER.
THATACTUALLYISHIGHERTHAN —THATPRICEDROPISHIGHERTHANOURTYPICAL. IREMEMBER IMENTIONEDINTHEPASTBEFORE,TYPICALLYWELOOKAT 1.5%TO 2.0%AQUARTER ASPDROP. ANDTHISQUARTERISACTUALLYHIGHERTHANTHATNUMBER.
BUTTHENWELOOKATANOTHERINDEXCALLEDMIX-DEPENDENT,WHICHMEANSWEDON’TCAREWHICHCUSTOMER;WEJUSTLOOKATTHETOTAL ASPREGARDLESSOFTHEPRODUCTTYPE. THATISMIX-DEPENDENT. ANDACTUALLYFROMAMIX-DEPENDENTPOINTOFVIEW,WEAREHAPPY,BECAUSE ASPISACTUALLYGOINGUP. ANDTHATISWHYWHENWESAY GPMIMPROVEMENT,WECREDITTHATTOTHEMIXCHANGE,WHICHMEANSTHAT ASPDUETOMIX-DEPENDENTISINAPOSITIVEINSTEADOFANEGATIVERANGE.
Vijay Rakesh —Sterne, Agee & Leach, Inc.—Analyst
GOTIT. ANDYOUMENTIONEDTWOWINSONTHEHANDSETSIDEWITHYOUR DFN/CSDPACKAGING. DOYOUSEEMOREWINSONTHATSIDEORINSOMEOFTHESMALLERPACKAGESGOINGFORWARD?
Mark King—Diodes Incorporated—SVP, Sales and Marketing
YES,WETHINKTHATTHAT’SAREALLYSTRONGPOINTFORUS,ANDWETHINKTHESESUB-MINIATUREPACKAGINGINOUR LOGICSERIESISGOINGTOBEABIGWINNERFORUSINTHELONGRUN. SOWETHINKTHATWE’RERIGHTONTHEEDGEOFTHETECHNOLOGY. WETHINKWEHAVETHESMALLESTSTUFFOUTTHERE,ANDWETHINKWE’REGOINGTODOVERYWELLINTHATSECTOR.
Keh-Shew Lu—Diodes Incorporated—President and CEO
TYPICALLY,THATKINDOFPRODUCTWILLGIVEUSABETTER GPMORBETTER ASP.
Vijay Rakesh —Sterne, Agee & Leach, Inc.—Analyst
GOTIT. ONTHEUTILIZATIONSIDE,CANYOUGIVEUSSOMETRENDS —WHATSPEEDUTILIZATIONISRUNNINGINTHELAST 2OR 3QUARTERS? ANDWHEREISITNOW?
Keh-Shew Lu—Diodes Incorporated—President and CEO
WELL,WESEPARATEITINTOTWOCATEGORIES,RIGHT? ONEISTHEMOSTADVANCEDINANEWPACKAGE,WHICHISTHEONEWEAREDRIVINGVERYHEAVILYONTHELOADINGANDONTHE —WINNINGTHEBUSINESS. INTHATPORTIONWEAREFULL. ANDTHATISWHEREWESTILLSPENDSOMECAPITALMONEYTOINCREASETHECAPACITYFORTHOSEKINDOFVERYSMALL,VERYPOWER-EFFICIENTPACKAGE.
FORTHESTANDARDCOMMODITYPACKAGE,INTHEMARKETITISSTILLWEAK. ANDSOOURLOADINGINTHATAREAFROMANASSEMBLYPOINTOFVIEW,STILLSOMEWHEREAROUND 75%TO 80%. IDON’TKNOWTHEEXACTNUMBER,BUTIT’SNOTREALLYIMPROVEDTHELOADING,BECAUSETHATISANAREAWEARENOTDRIVINGALREADY.
ANDTHATISWHYWHENWESAYIMPROVETHEMIX,WEAREPUSHINGMOREPRODUCTOUTINTHEADVANCEDPACKAGEINSTEADOFOUTOFACOMMODITYPACKAGE,WHICHISLOWER GPM. ANDTHATISNOTWHEREWEFOCUSOURREVENUEAT.
Vijay Rakesh —Sterne, Agee & Leach, Inc.—Analyst
GOTIT. ANDLASTQUESTION, BCD. YOUAREPULLINGITIN,YOUSAID. YOUSAIDYOU’DBEDONEBYWHAT,FIRSTQUARTER? ORYOUTHINKYOUWILLGETITDONEEARLIER? HOWFARISTHE BCDPULL-NDONEHERE?
Keh-Shew Lu—Diodes Incorporated—President and CEO
WELL, ITHINKWEWILLSTARTTOBENEFITINPROBABLY SEPTEMBER,BUTTHENABIGBENEFITPROBABLYIN Q4.
Vijay Rakesh —Sterne, Agee & Leach, Inc.—Analyst
GOTIT.
Keh-Shew Lu—Diodes Incorporated—President and CEO
YES.
Vijay Rakesh —Sterne, Agee & Leach, Inc.—Analyst
GREAT,THANKS.
Keh-Shew Lu—Diodes Incorporated—President and CEO
THANKYOU.
Operator
VERNON ESSI, NEEDHAM & COMPANY.
Vernon Essi —Needham & Company—Analyst
IWASWONDERINGIFYOUALLHADANYCOLORNOWTHATYOU’VEGOT BCDSORTOFSETTLEDINASTOWHATTHINGSMIGHTLOOKLIKEFROMASEASONALITYPERSPECTIVEINTHEFOURTHQUARTER. YOUUSUALLYTENDTOHAVEALITTLEBITOFADECLINE. ISTHEREANYREASONTOTHINKTHATMIGHTBEALITTLEBITDIFFERENTTHISYEAR? ARETHEREANYTRENDSTHATYOUCANSEENOWTHATMIGHTOFFSETTHAT?
Keh-Shew Lu—Diodes Incorporated—President and CEO
WELL,ITISTOOEARLYTOBETALKINGABOUTFOURTHQUARTER. I’MTRYINGTOCONCENTRATE —MAKEMYTHIRD-QUARTERGUIDANCE. ANDSO,WEARENOTREADYSPENDINGEFFORTTOLOOKINGINTOTHEFOURTH-QUARTERBUSINESSYET.
Vernon Essi —Needham & Company—Analyst
OKAY. ATLEAST ITRIEDTHERE. ACOUPLEOFQUESTIONSFORYOU, RICK. WONDERINGONTHEDEPRECIATIONFRONT,ITWASALITTLEBITLIGHTERTHAN IWOULD’VEANTICIPATEDINTHESECONDQUARTER. SHOULDWEEXPECTITTOGOUPALITTLEBITMOREINTHETHIRDQUARTER? ORISTHISABOUTTHERUNRATEWESHOULDBELOOKINGATONAGO-FORWARDBASIS,ATLEASTFORTHETIMEBEING?
Rick White—Diodes Incorporated—CFO, Secretary and Treasurer
ITHINKTHISISABOUTTHERUNRATE. WE’VECUTOUR CAPEXDOWNTO 5%TO 9%,SO IDON’TSEEANYBIGINCREASES. ITMAYTRENDUPALITTLEBIT,BUTTHISISABOUTTHERUNRATE.
Keh-Shew Lu—Diodes Incorporated—President and CEO
IFYOUREMEMBER,OUROLDBUSINESSMODELISAT 10%TO 12%OFOURREVENUE,BUTSINCENOWWEHAVESTILLCOMMODITYPACKAGINGAVAILABLE,PASTAVAILABLE,WEONLYSPENDTHEMONEYIN —THETHREEAREASWEWILLSPENDTHEMONEY.
ONEIS BCD,ANDYOUKNOW BCDFABTWO,STILLNEEDSEQUIPMENTTOPUTITUP. ANDTHEN CHENGDUISOURFUTURE,SOWENEEDTOSTARTTODOSOMETHINGFOR CHENGDU. ANDTHENTHETHIRDONEWILLBETHOSEADVANCEDPACKAGEINOUR SKE. ANDIFYOULOOKAT —WEEVENCONSIDERALLOFTHOSETHREETOGETHER,OURGUIDANCENOWIS 5%TO 9%. SOYOUCANSEEWEHAVESIGNIFICANTLYREDUCEDOUR CAPEXEXPENDITURE.
Vernon Essi —Needham & Company—Analyst
OKAY. ANDJUSTMOVINGTOTHEBALANCESHEET, RICK,THEPAYABLESWEREUPPRETTYSHARPLYTHERE;OBVIOUSLY,AGOODSOURCEOFCASHFORYOU. WHATWASTHEREASONING? AND IASSUMETHAT’SPROBABLYGOINGTOCOMEBACKTOTRENDLINE. ORISTHEREAREASONITMIGHTSTAYUPATTHISRANGE,JUSTLOOKINGATCASHFLOWNEXTQUARTER?
Rick White—Diodes Incorporated—CFO, Secretary and Treasurer
IMISSEDWHATWASUP.
Vernon Essi —Needham & Company—Analyst
PAYABLES,ACCOUNTSPAYABLE.
Rick White—Diodes Incorporated—CFO, Secretary and Treasurer
YES, ITHINKTHEPAYABLESDAYSWEREDOWN,THOUGH. WEHAD 3MONTHSOF BCDINTHERE,ANDONLY 1MONTHOF BCDLASTTIME. SOITWILLCHANGEAROUNDASWEMOVETHROUGHTIME. BUT ITHINKITPAYABLESDAYSWEREDOWN.
NO,THEYWEREUP? OKAY. PAYABLESDAYSWEREUP. IDON’THAVETHATINFRONTOFME.
Vernon Essi —Needham & Company—Analyst
I’MSHOWINGANINCREASE;ITISPRETTYDRAMATIC,ATLEASTONTHEFORMULAS I’MUSING,ALTHOUGH I’MPROBABLYNOTUSINGANEXHAUSTIVEMETHODLIKEYOUAREBEHINDTHESCENESTHERE. BUTYES, IJUSTWASCURIOUS. IASSUMEIT’SPROBABLYGOINGTOTRENDBACKALITTLEBITONAGO-FORWARDBASIS.
NOTABIGDEAL. BUTFINALLY,JUSTWONDERINGONTHETAXFRONT,TOFOLLOWUPTOAPRIORQUESTION,SHOULDWEBETHINKINGABOUTTHISLEVELGOINGINTO 2014INTHAT 20%, 21%RANGE? ORWEEXPECTTHATTOMODERATELOWER?
Rick White—Diodes Incorporated—CFO, Secretary and Treasurer
NO, ITHINKIT’SGOINGTOSTAYINTHAT 20%TO 21%RANGE.
Vernon Essi —Needham & Company—Analyst
OKAY. THANKSALOT,GUYS.
Operator
HARSH KUMAR, STEPHENS.
Harsh Kumar—Stephens Inc.—Analyst
ACOUPLEOFQUESTIONS. RICK, IWANTEDTOCLARIFY. YOURPRESSRELEASESAYSTHATYOUR GAAPGROSSMARGINSAREEXPECTEDTOBE 30.3%. USUALLYTHENON-GAAPMARGINISALITTLEBITHIGHER. WEMODELNON-GAAPWHENWEMODELYOUR COMPANY.
SHOULD IBETHINKINGOFALITTLEBITHIGHERNUMBERONTHEGROSSMARGINSIDE? ORSHOULD IBETHINKING 30.3? ANDSAMEQUESTIONFORTAXES.
Rick White—Diodes Incorporated—CFO, Secretary and Treasurer
THEGROSSMARGIN, GAAPANDNON-GAAP,WASONLYFORTHEFIRSTQUARTERANDSECONDQUARTERBECAUSEOFTHE BCDPURCHASEPRICEADJUSTMENT. WEDON’TNORMALLYHAVEADIFFERENCEBETWEEN GAAPANDNON-GAAP. SOTHOSEPURCHASEPRICEADJUSTMENTSWEREFINISHEDINTHESECONDQUARTER. ANDGOINGFORWARDINTHETHIRDQUARTER, GAAPANDNON-GAAPMARGINISTHESAME.
Harsh Kumar—Stephens Inc.—Analyst
GOTIT.
Rick White—Diodes Incorporated—CFO, Secretary and Treasurer
30.3%,OKAY?
Harsh Kumar—Stephens Inc.—Analyst
GOTIT.
Rick White—Diodes Incorporated—CFO, Secretary and Treasurer
ANDTHETAXRATE,THETAXRATEISAPPROXIMATELYTHESAMEFORBOTH GAAPANDNON-GAAPSTANDPOINT.
Harsh Kumar—Stephens Inc.—Analyst
FAIRENOUGH. THANKS, RICK. ANDTHEN DR. LU, IKNOWYOUTALKEDABOUTWEAKNESSATCERTAIN OEMCUSTOMERS. WASTHATTHEFACTORINTHE 3%TO 7%GUIDANCE,WHICHISALITTLELESSTHANSEASONAL? ORWASITTHEFACTTHATYOUHADTOLEAVEREVENUESONTHETABLE,BECAUSEYOUCOULDN’TMAKEENOUGHBECAUSEOFTHEACCIDENTATTHEPOWERSUPPLYPOWERSTATION?
Keh-Shew Lu—Diodes Incorporated—President and CEO
ITHINK —WEARETALKINGABOUTTHIRDQUARTER —WEARESTILLAFFECTEDBYTWOFACTORS. ONEISTHE PCMARKETISNOTGROWINGLIKEINTHEPAST. ANDTHAT,SINCEWEHAVE 30-SOMETHINGPERCENTOFOURREVENUE —
Mark King—Diodes Incorporated—SVP, Sales and Marketing
22%.
Keh-Shew Lu—Diodes Incorporated—President and CEO
— 22%OFOURREVENUECOMINGFROMCOMPUTINGMARKET,ITAFFECTSUS,THEGROWTH. BECAUSEINTHEPAST PCISVERYSTRONGINTHIRDQUARTERS. THISYEAR PCISNOTTHATSTRONG.
ANDANOTHERONEISACOUPLEOFOUR OEMSISNOTVERYSTRONG. THEYHAVESOMENEWERINVENTORYINTHESECONDQUARTER. ANDSOITAFFECTSUS.
BUTOVERALLWE’RESTILLGAININGTHEMARKETSHARE,BECAUSE 5%ISSTILLAPRETTYGOODGROWTH. RATHERTHANTHEAVERAGE.
Harsh Kumar—Stephens Inc.—Analyst
NO,TOTALLY. AND DR. LU,WHATISTHEBIGGESTDRIVERTOGETTOYOURTARGET 20%OPERATINGMARGINGOALTHATYOUHAVE? WHATISTHEBIGGESTTHINGYOUNEEDFORTHATTOHAPPEN?
Keh-Shew Lu—Diodes Incorporated—President and CEO
WELL, ITHINK ASPISONE;ANDMOSTIMPORTANTISNOTINOURINDEPENDENT —MIX-INDEPENDENT ASPS. MOSTIMPORTANTISMIX.
ANDTHENSECONDONEWOULDBEWHENTHEMARKETSTARTEDTURNING,WECANSTARTTOREALIZEOURCOMMODITYTYPEOFPACKAGING,ANDTHATLOADINGWILLINCREASEOURPROFITABILITYFROMOURMAKINGFUNCTION.
SOIFYOUASKME,THOSETWOISVERYIMPORTANTFORUS. HIGHENDADVANCEDPACKAGE, ITHINKWEAREVERYHAPPYWITHTHEPROGRESS. ANDWECONTINUEPUTTINGMORECAPACITYOVERTHERE. BUTWESTILLHAVEACERTAINUNREALIZEDCAPACITYDUETOTHEGENERALMARKETISSTILLNOTASSTRONG.
IFYOUGOTOLOOKATOVERALLSEMICONDUCTOR,ESPECIALLYOURSAMEGROUP,IT’SNOTREALLYSTRONG. AND IHOPEWHENTHEMARKETSTARTSTOTURN,THENWEWILLGROWOUR GPMPERCENTWITHIT.
Harsh Kumar—Stephens Inc.—Analyst
GOTIT. ANDLASTQUESTION, DR. LU. INTHEPASTCYCLESYOU’VEBEENABLETOGETTOGROSSMARGINOF —THISISALONG-TERMQUESTION —GROSSMARGINOF 34%, 36%. SOMEWHEREINTHATRANGE;CALLIT 35%.
YOU’VEGOTMOREANALOGNOW. YOUPROBABLYWILLHAVEBETTERUTILIZATION. ISITFAIRTOTHINKTHATYOUCANGETBACKATLEASTTHEREIFNOTHIGHER, DR. LU?
Keh-Shew Lu—Diodes Incorporated—President and CEO
WELL,YOUKNOW,MYBUSINESSMODELISALWAYS 35%. NOWWHENEVERYTHINGISINTHERIGHTWEIGHTING,THERIGHTDIRECTION,LASTTIMEWEWEREABLETOGET 38%. BUTOURBUSINESSMODELIS 35%. AND IAMCONFIDENTWHENTHEMARKETREALLYTURNINGSTRONG,WESHOULDBEABLETOGET 35%.
Harsh Kumar—Stephens Inc.—Analyst
GREAT. THANKYOU, DR. LU. CONGRATULATIONS.
Keh-Shew Lu—Diodes Incorporated—President and CEO
THANKYOU.
Operator
SUJI DE SILVA, TOPEKA.
Suji De Silva—Topeka Capital Markets—Analyst
NICEJOBONTHEQUARTERANDTHEMARGINS. MYFIRSTQUESTIONISABOUTYOURSMARTPHONETABLETEXPOSURE. IKNOWYOUHAVEGOODSHAREPOSITIONATTHETIER 1S. IFTHEMARKETISSTRONGERTHENEXTFEWQUARTERSINTHELOW-ENDSMARTPHONEMARKET,CANYOUTALKABOUTYOURSHAREPOSITIONTHERE, A? AND B,CANYOUTALKABOUTWHETHERIT’STHEPREMIUMPRODUCTSTHATGOINTOTHOSEDEVICES,ORMAYBETHEMORECOMMODITYPRODUCTSFORYOUGUYS?
Keh-Shew Lu—Diodes Incorporated—President and CEO
WELL, MARK?
Mark King—Diodes Incorporated—SVP, Sales and Marketing
OKAY. SO IWOULDSAYTHATHISTORICALLYOURPOSITIONISSTRONGERINTHETIER 1STHANITISINTHETIER 2. BUT ITHINKYOUWILLSEEANEMERGINGPRESENCEINTHETIER 2INTHECOMINGQUARTERSANDINTHEFOCUS —ASWEFOCUSMORETOWARDSIT. WELIKETOFOCUSONTHELEADERSANDTHENMOVETOTHESECONDTIER,SO ITHINKTHAT’SPARTOFOURSTRATEGY.
AND IWOULDSAYTHATIT’SAPRETTYGOODMIXBETWEENPRODUCTS. BUTMOSTOFTHESMARTPHONESINTIER 1SUSEPREMIUMPRODUCT. ASWEGOTOTHETIER 2ITWILLBEMOREBROAD-BASEDANDMAYBELESSSOPHISTICATEDORSLIGHTLYLESSPREMIUMTHANTHETIER 1S.
BUTOBVIOUSLYWESEETHERE’SSOMEEMERGINGDYNAMICSINTHESEMARKETSINMAINLAND CHINATHATWEAREVERY,VERYINTERESTEDIN. AND ITHINKTHATOUR BCDACQUISITIONANDTHEADDITIONALSALESFORCEANDCOVERAGETHATWEHAVETHERESHOULDHELPUSINTHATLONGTERM. SO ITHINKWEAREWELLPOSITIONEDTOCONTINUETOEXPLOITTHOSEMARKETSASTHEYEMERGE.
Suji De Silva—Topeka Capital Markets—Analyst
GREAT. ANDMYSECONDQUESTIONISABOUTGROSSMARGINSANDSOMEOFTHETAILWINDSTHERE. CANYOUTALKABOUTHOWFARALONGYOUARELONG, DR. LU,ONTHECOPPERCONVERSION? ANDALSOMOVINGANYOF DIODES’ANALOGPRODUCTSOVERTO BCD’SFAB. CANEITHEROFTHOSEBEMEANINGFULGROSSMARGINHELPINTHENEXTCOUPLEOFQUARTERS?
Keh-Shew Lu—Diodes Incorporated—President and CEO
WELL, ITHINKIFINACOUPLEOFQUARTERSWHENTHEMARKETHASSTARTEDTOTURN, ITHINKOURMARGINIMPROVEMENTWILLBETHERE. ANDRIGHTNOWEVERYTHINGISREALLYHOLDINGTHERE. GOLDPRICEISNOLONGERGOINGDOWNANDNOLONGERGOINGUP. SOGOLDPRICEISPROBABLYQUITESTABLE.
ANDCOPPERWIRECONVERSION —WECONVERTMOSTOFWHATWEWANTTOCONVERT. NOWONLYONEORTWOCUSTOMERSSTILLARENOTREADYFORUSYET,BUTTHEMAJORITYOFOURCUSTOMERSISALREADYLETUSCONVERT. ANDFROM BCD,LIKE ISAID,WEWILLSTARTTORAMP. WEFINISHEVERYTHINGBYTHEENDOFTHISQUARTER,ANDWEWILLSTARTTORAMP,PROBABLY,BIGPARTOF SEPTEMBER;ANDTHENWEWILLTRYTORAMPWHATEVERWECANRAMPBYENDOFFOURTH —ENDOFTHISYEAR. ANDTHENWEWILLBE —ACOUPLEOFKEYCUSTOMERSMAYNOTLETUSTOCONVERT. AFTERTHATTHEMAJORITYOFWHATWECANCONVERTWILLBECONVERTED.
SONEXTYEARWEWILLBE —IFTHEMARKETTURNS,THENWESHOULDHAVEAHOPETOSIGNIFICANTLYINCREASEOURGROSSMARGIN.
Suji De Silva—Topeka Capital Markets—Analyst
GOODTOHEAR, DR. LU. ANDLASTQUESTIONISIT’SHOPEFULLYNOTTOOSOONSINCEYOUCLOSED BCDANDGOTTHATINTEGRATED,BUTCANYOUGIVEUSTHEUPDATEDTHOUGHTSONFURTHERACQUISITIONATTHISPOINT? THANKS.
Keh-Shew Lu—Diodes Incorporated—President and CEO
WELL,ACQUISITIONTOGIVEUSANOTHERSTEPOFTHEGROWTHISALWAYSINMYSTRATEGY. ANDSO ICANNOTTALKABOUTITUNTILWEAREREADYTOMAKETHEANNOUNCEMENT. BUTLIKE ISAID,THAT’SALWAYSONEOFMYGROWTHSTRATEGIES,AND I’MNOTGOINGTOGIVEUPTHATYET. OKAY?
Suji De Silva—Topeka Capital Markets—Analyst
OKAY,THANKS,GUYS.
Operator
SHAWN HARRISON, LONGBOW RESEARCH.
Shawn Harrison—Longbow Research—Analyst
JUSTTWOFOLLOW-UPQUESTIONS. IKNOWEARLIEROFTHETOPICWASBROACHEDUPONTHESAVINGSAT BCDTHAT —FROMINTEGRATINGITINTOYOURFACILITIES. BUTHOWMUCHOFTHEMARGINIMPROVEMENTISTHAT,EXACTLY,FOR BCD? ISTHAT 5POINTS? AM IBEINGTOOAGGRESSIVEINTHATTYPEOFASSUMPTION?
Mark King—Diodes Incorporated—SVP, Sales and Marketing
IDON’TTHINKWEHAVEREALLYQUANTIFIEDIT.
Keh-Shew Lu—Diodes Incorporated—President and CEO
YES.
Mark King—Diodes Incorporated—SVP, Sales and Marketing
THATMUCH —
Keh-Shew Lu—Diodes Incorporated—President and CEO
5%?
Mark King—Diodes Incorporated—SVP, Sales and Marketing
5%, IMEAN,ONTHEIRSHAREOF —
Keh-Shew Lu—Diodes Incorporated—President and CEO
NO,NO,NO,NO. 5%ISTOOHIGH.
Rick White—Diodes Incorporated—CFO, Secretary and Treasurer
WAYTOOMUCH.
Keh-Shew Lu—Diodes Incorporated—President and CEO
YES, 5%ISWAYTOOMUCH. BECAUSETHEIRREVENUESARENOTTHATMUCHCOMPAREDWITHOURTOTALREVENUE.
Mark King—Diodes Incorporated—SVP, Sales and Marketing
ITHINKHEMEANT 5%OFTHEIRPERCENTAGEOFTHEREVENUE.
Shawn Harrison—Longbow Research—Analyst
5%OFTHEIRPERCENTAGEOFTHEREVENUE,CORRECT.
Keh-Shew Lu—Diodes Incorporated—President and CEO
OKAY. OKAY,THATCOULDBE. LIKE ISAY,WEDONOTHAVETHEDETAILEDNUMBERPUTINYET.
Rick White—Diodes Incorporated—CFO, Secretary and Treasurer
SOTHINKABOUT,WHEREITREALLYHELPSISINTHEOVERHEADABSORPTION. BECAUSEWEHAVETOBUYLEADFRAMES;WEHAVETOBUYGOLDWIRE;WEHAVETOBUYMOLDCOMPOUND —ALLTHOSETHINGSTHATTHEYAREBUYINGEXTERNALLY. SOWHEREITHELPSFROMA DIODESPERSPECTIVEISMOREUNITSABSORBINGINDIRECTOVERHEADANDINDIRECTLABOR. SOITISGRADUALASTHATSTUFFMOVESTHROUGHTHELINE. SOIT’SNOTLIKEIT’SJUSTANIMMEDIATEFLIPUP.
Shawn Harrison—Longbow Research—Analyst
OKAY. ANDTHEN —.
Mark King—Diodes Incorporated—SVP, Sales and Marketing
ANDTHENTHERE’SOTHERADVANTAGESTOITOFCONSISTENCY,CAPACITY,QUALITY.
Rick White—Diodes Incorporated—CFO, Secretary and Treasurer
WELL,SURE.
Mark King—Diodes Incorporated—SVP, Sales and Marketing
ANDALLTHOSEOTHERTHINGS,TOO. SOTHERE’SALOTOFMOTIVATIONALPOINTSINDOINGITBEYONDJUSTTHEMARGIN.
Rick White—Diodes Incorporated—CFO, Secretary and Treasurer
RIGHT.
Shawn Harrison—Longbow Research—Analyst
GOTYOU. YOUHAVEGREATERCONTROLOFTHESUPPLYCHAIN.
Keh-Shew Lu—Diodes Incorporated—President and CEO
YES,CORRECT.
Rick White—Diodes Incorporated—CFO, Secretary and Treasurer
RIGHT. ANDONETHINGTHAT KEH-SHEWTALKEDABOUTEARLIERWASTHEADOPTIONINTOTHEASSEMBLYTESTAREAINTHEFOURTHQUARTER. SOTHEMOVEMENTOFPRODUCTSINTOTHE BCDWAFERFABSISGOINGTOTAKEALOTLONGERTHANTHAT. THATWON’TBEDONEUNTIL —
Keh-Shew Lu—Diodes Incorporated—President and CEO
NEXTYEAR.
Rick White—Diodes Incorporated—CFO, Secretary and Treasurer
NEXTYEAR,RIGHT? SOTHATISALSOANIMPROVEMENT. BUTALONGER-TERMIMPROVEMENT.
Keh-Shew Lu—Diodes Incorporated—President and CEO
YES.
Rick White—Diodes Incorporated—CFO, Secretary and Treasurer
SODON’TGETTHETWOCONFUSEDWITHWE’REGOINGTOBEDONEINTHEFOURTHQUARTER,NOTWITHTHEWAFERFAB.
Shawn Harrison—Longbow Research—Analyst
ANDALLOFTHOSEDYNAMICSAREROLLEDUPINTOTHAT 35%GROSSMARGINTARGET?
Rick White—Diodes Incorporated—CFO, Secretary and Treasurer
YES,SURE.
Shawn Harrison—Longbow Research—Analyst
OKAY.
Rick White—Diodes Incorporated—CFO, Secretary and Treasurer
PLUSAGOODMARKET,PLUSSTRONGPRICING —ALLTHETHINGSTHATGOESALONGWITHTHAT.
Shawn Harrison—Longbow Research—Analyst
THATISMORETHANFAIR. THENTWOBRIEFFOLLOW-UPS, IGUESS. IKNOWTHATTHEREWASARESTRUCTURINGANNOUNCEMENTMADELASTQUARTER —ITWAS, ITHINK,ABOUT $3MILLIONINANNUALIZEDSAVINGS. HOWISTHATPROGRESSING?
ANDTHENTHESECONDQUESTIONISWITHTHEGOODFREECASHFLOWHEREYEARTODATE,ANDWHATLOOKSTOBEREALLYGOODFREECASHFLOWINTHEBACKHALFOFTHEYEAR,HOWQUICKLYAREYOULOOKINGTOPAYDOWNYOURDEBT, RICK?
Keh-Shew Lu—Diodes Incorporated—President and CEO
OKAY,NUMBERONE,THEREDUCTIONISACTUALLYCOMPLETED. OKAY? ITISCOMPLETED. ANDSOTHEN,SECOND,PAYDOWNTHEDEBTS. LIKE ISAID, M&AISSTILLONEOFTHEKEYSTRATEGIESINME,SOINSTEADOFPAYINGDOWNTHEDEBTS, IMIGHT — IWILLMOREFOCUSONUSINGTHATTODO M&A.
Shawn Harrison—Longbow Research—Analyst
THATISMORETHANFAIR. THAT’SAGOODSTRATEGY. THANKSALOT, DR. LU.
Keh-Shew Lu—Diodes Incorporated—President and CEO
OKAY.
Operator
THISCONCLUDESOURQUESTION-AND-ANSWERSESSION. IWOULDNOWLIKETOTURNTHECALLBACKOVERTOMANAGEMENTFORCLOSINGREMARKS.
Keh-Shew Lu—Diodes Incorporated—President and CEO
THANKYOUFORYOURPARTICIPATIONTODAY. OPERATOR,YOUMAYNOWDISCONNECT.
Operator
LADIESANDGENTLEMEN,THANKYOUFORYOURPARTICIPATION. YOUMAYNOWDISCONNECT. HAVEAGREATDAY.
