Diodes Incorporated - 2006 Annual Shareholders' Meeting - May 17, 2006
- - Dr. Keh Shew-Lu's remarks
Good morning everyone and welcome to Diodes' 2006 Annual Shareholders Meeting.
The following remarks will be posted on our Website at www.diodes.com.
Before I start, I'd like to read the customary forward-looking statement.
Safe Harbor Statement
My remarks this morning may contain forward-looking statements, which are
subject to risks and uncertainties. Therefore, the Company claims the protection
of the Safe Harbor for forward-looking statements 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 & Exchange
Commission.
Experienced Management Team
Before I get into the substance of my remarks, I want to take a few moments to
introduce myself. I am Dr. Keh-Shew Lu, President & CEO of Diodes. I was
appointed President & CEO on June 1 of last year, but I have been a Company
director for 4 years and am intimately familiar with Diodes' strategic
initiatives, operations, and product lines. Prior to Diodes, I was with Texas
Instruments for 27 years. Most recently as Senior VP and General Manager of TI's
Worldwide Analog Mixed Signal and Logic Products.
Among Diodes executive, there is an enormous amount of continuity. Carl Wertz,
our CFO, has been with the Company for 12 years; Joseph Liu, Senior VP,
Operations and our former CFO. Joseph has been with Diodes 14 years; Mark King,
Senior VP, Sales & Marketing, has been with Diodes and Lite-On for a combined
total of 21 years. And, Steven Ho, Vice President, Asia Sales, has been with
Diodes and Lite-On for a combined 20 years. Our management team has an enormous
amount of Company-specific and general industry knowledge, and they have
contributed enormously both individually and collectively to Diodes success to
date.
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Outperforming the industry
I am pleased to announce that Diodes performed exceptionally well in 2005, by
far surpassing the overall discrete industry's revenue growth. For 2005, our
revenue growth rate was almost 16%, while the overall discrete industry was down
3.3%. If you look at the 2001-2005 period, Diodes compound annual growth rate,
or CAGR, of 23% far exceeded that of the broader discrete industry, which had a
compound growth rate of only 5.8%. We believe that our superior performance
during an otherwise challenging period for the semiconductor industry as a whole
is evidence of the strength and adaptability of our business model.
In 2005, we again differentiated ourselves within the discrete semiconductor
industry by generating strong top-line and healthy bottom-line growth. Our
achievements included: (1) significantly outperforming the market with our
revenue growth; (2) posting our 15th consecutive year of profitability; (3)
keeping our cost structure low with a sound focus on financial discipline; (4)
ensuring a strong balance sheet and cash flows; and (5) consistently producing
superior earnings and shareholder returns.
Growth Strategy
The focus of our long-term growth strategy remains building on our position as a
global leader in the delivery of discrete, and now, analog components. To
achieve this, we will continue to: (1) rapidly introduce innovative discrete
semiconductor products into the market; (2) expand our addressable market
through adjacent technologies such as analog and mixed signal; (3) maintain
intense customer service focus; (4) optomize our cost structure; and (5) pursue
selective strategic acquisitions.
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Anachip Acquisition
As we announced back in June of 2005, our plan is to take advantage of
higher-margin opportunities by expanding into adjacent analog and mixed signal
technologies. The recent acquisition of Anachip fits in the center of this
strategy. The combination of this acquisition with the proceeds from our
September secondary offering significantly accelerates our move into these new
adjacent markets.
Anachip's main product focus is in power management IC, and their analog devices
are used in a wide array of advanced devices that touch all of our lines of
business - from LCD or TV monitors to Wireless 802.11 LAN access points. They
bring an excellent design team with strong capabilities in a range of desirable
analog and power management technologies. The acquisition was accretive in the
first quarter of 2006 and we expect the acquisition to be accretive to full-year
2006 EPS.
We anticipate significant combined synergies over time as we continue the full
integration of Anachip into our operations. Our marketing and sales
organizations are already combined and the conversion of Anachip products to our
China packaging facility is going as planned. This is the first of our planned
acquisitions that will enhance our growth, while leveraging our innovative
discrete component technology, our world-class packaging capabilities, and our
extensive sales and marketing channels.
Q1'06 was our first quarter of results that included a contribution from our
analog and power management products. The Anachip acquisition has already made a
positive contribution to our growth and profitability, and we see excellent
momentum across our business segments for the remainder of 2006.
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Focused Platform
Our product focus is in the area of discrete semiconductors, in particular
performance devices in sub-miniature, surface mount packaging. Discretes are the
building blocks of the electronics industry, providing support and making
electrical connections to integrated circuits.
Diodes' products enable power management, surge suppression and protection,
power conditioning, data line protection, voltage regulation, signal steering
and data transmission. We recently shifted our product development focus towards
differentiated and proprietary technologies that improve the trade off between
device size, power consumption and performance characteristics. We offer our
world-class customer base a wide range of customized high-density diode and
transistor arrays in ultra-miniature, multi-pin surface mount device (SMD)
packages.
Broad Customer Base
Diodes' products have a diverse set of end uses that can be broadly divided
between communications, computing, consumer electronics, industrial, and
automotive applications. We supply many tier-one companies, including Motorola,
Microsoft, Honeywell, Intel, Bose, and LG, as well as Samsung, Dell Computer and
Apple.
The integration of Anachip's sales and marketing organization into Diodes is
complete, with brand conversion scheduled for completion by the end of Q3'06.
Initial customer and distributor feedback to the acquisition and our analog
strategy is extremely positive.
Global Reach
Diodes' market share for the discrete product line reached record highs in
1Q'06, driven by gains in all geographic regions. During the first quarter of
2006, our revenue in Asia expanded at a rapid pace, up substantially as a result
of the Anachip acquisition. North American sales exceeded our expectation with
brisk demand for TV set-top boxes and health medical devices and broad-based
distributor sales. Increased lead-times and competitor shortages contributed to
this performance, with this trend expected to continue into Q2'06.
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Sales for accounts designed in the United States and built in Asia remained
strong, given intensified design activity and new qualifications to `second
source' long lead-time parts. In Europe, during Q1'06, revenue rose 53%
sequentially on record sales. We view this as a clear sign that our distributor
program is gaining greater traction in Europe. We also enhanced our European
sales and marketing organization with two key new hires in Germany and France to
build on our significant inroads into these markets
Deep Manufacturing Expertise
We also continue to pursue and achieve manufacturing excellence. In 2005, two of
our manufacturing facilities in China were awarded ISO/TS certification. This
certification represents how the automotive industry recognizes quality and it
provides customers with confidence in their decision to partner with Diodes.
We also significantly lowered our production costs through increased economies
of scale with dramatically enhanced process improvements at our manufacturing
facilities, which increased the number of units manufactured at our China
facilities to 8.2 billion in 2005, from 5.4 billion in 2004. From 1998 to 2005,
the unit production at our China facilities experienced an outstanding CAGR of
60%.
Revenue Growth
Our strategic initiatives generated strong revenue growth. From 2001 to 2005,
revenue climbed from $93 million in 2001 to $215 million in 2005 - resulting in
a CAGR of 23%. For the first quarter of 2006, revenue jumped by 51% on a
year-over-year basis to $74 million. Diodes' market share reached new records in
the first quarter, as we continue to lead the discrete semiconductor segment
with strong revenue and healthy profitability.
5
Expanding Margins
Our margins expanded throughout 2005. Gross margin was 34.2% in 2005, versus
32.7% in 2004. As a percentage of revenue, EBITDA was 26.2% in 2005, as compared
to 24.7% in 2004; EBIT was 18.5% in 2005, versus 17.6% in 2004; and net income
was 15.5%, compared to 13.8% in 2004.
Superior Earnings and Returns
Also, for 2005, our net income grew to $33.3 million, or $1.29 per share, from
$25.6 million in 2004, $1.10 per share. The 2005 EPS includes the dilution of
the 3.2 million-share secondary offering, split adjusted.
Stock Price Appreciation
Finally, over the last five years, the successful implementation of our growth
strategy has rewarded shareholders with an over 800% increase in Diodes' stock
price.
In summary, we are ahead of schedule in executing on our analog market strategy,
with packaging integration of Anachip products underway at our China facility
and high customer demand for bundled packages of our discrete and analog power
management offerings. Customer orders were also robust across all of our
geographic regions during the first quarter of 2006. In the discrete segment, we
are continuing to grow share by introducing innovative, value-added solutions to
market. We are expanding our market share in Asia, and gaining traction in the
European market.
In terms of our market segments, the Anachip acquisition has strengthened our
position in the communications segment, resulting in an even more balanced
exposure to the key growth segments for discrete and analog devices. This
enables us to further diversify our revenue sources so as to mitigate the
impacts of fluctuations in customer demand in any one or more market segments.
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Thank you.
I want to thank all of our shareholders for your continued support. Diodes' is
off to a strong start, and we plan on continuing this momentum throughout the
remainder of 2006.
Thank you.
Q&A
We will now entertain questions from stockholders. As I call on you, I ask that
you please state your name and direct your questions to me. I will then address
the question to the appropriate party.
Please state your questions briefly so that your fellow stockholders will also
have a chance to ask questions. If you wish to comment concerning the general
business of the Company, please feel free to contact one of the officers of the
Company after the meeting, and he will be happy to speak with you at a mutually
convenient time.
As you know, it is not the Company's practice to make projections. Any
forward-looking statements contained in my presentation or in the answers to
your questions are subject to a variety of risks and uncertainties, including
those set forth in the Company's reports filed with the Securities and Exchange
Commission.
As there are no further questions, I would like to thank each of you for
attending today.
Thank you very much.
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