Diodes Q2 2024 Earnings Call Transcript

There are 10 speakers on the call.

Operator

Incorporated Second Quarter 20 24 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. As a reminder, this conference call is being recorded today, Thursday, August 8, 2024. I would now like to turn the call over to Leanne Sievers of Shelton Group Investors Relations.

Operator

Leanne, please go ahead.

Speaker 1

Good afternoon, and welcome to Dyad's 2nd quarter fiscal 20 24 financial results conference call. I'm Leanne Sievers, President of Shelton Group, Diodes' Investor Relations firm. Joining us today are Diodes' President, Gary Yu Chief Financial Officer, Brett Whitmire Senior Vice President of Worldwide Sales and Marketing Emily Yang and Director of Investor Relations, Karmet Dhaliwal. I'd like to remind our listeners that the results announced today are preliminary as they are subject to the company finalizing its closing procedures and customary quarterly review by the company's independent registered public accounting firm. As such, these results are unaudited and subject to revision until the company files its Form 10 Q for its fiscal quarter ending June 30, 2024.

Speaker 1

In addition, 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 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, including Forms 10 ks and 10 Q. In addition, any projections as of the company's future performance represent management's estimates as of today, August 8, 2024. Dowd assumes no obligation to update these projections in the future as market conditions may or may not change, except to the extent required by applicable law.

Speaker 1

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 to non GAAP items, 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 90 days in the Investor Relations section of Diodes' website atwww.diodes.com. And now, I'll turn the call over to Diodes' President, Gary Yu.

Speaker 1

Gary, please go ahead.

Speaker 2

Welcome, everyone. Thank you for joining this conference call today. As reported earlier today, 2nd quarter results exceed our prior expectations as sales demand began to recover from the low point in the Q1, especially in the computing market in Asia. Additional positive indicators included improvement in distributor inventory levels with a sequential decrease in channel inventory weeks. Demand improvement during the quarter was most prominent in our computing end market, where Diodes is increasingly prior quarter and that Diodes was able to maintain automotive and industrial product revenue at 41% of total due to the content increases in both markets even though the recovery remains low due to the ongoing inventory adjustments.

Speaker 2

As we look to the Q3, we are guiding for strong revenue growth of over 8% at the midpoint, supported by overall POS growth of more than 7% in the 2nd quarter. Our near term expectation for gross margin continue to reflect factory underloading related to our wafer service agreements as well as our internal demand. However, we expect to continue margin expansion to our target model of 40% as loading improves combined with resumption of growth in the automotive and industrial end markets. As global demand strengthens, we remain focused on driving further operational improvements to deliver increased earnings and cash flow. With that, let me now turn the call over to Brett to discuss our 2nd quarter financial results as well as our Q3 guidance in more detail.

Speaker 3

Thanks, Gary, and good afternoon, everyone. Revenue for the Q2 of 2024 was $467,200,000 in the Q1 of 2024 and $467,200,000 in the Q2 2023. Gross profit for the 2nd quarter was $107,400,000 or 33.6 percent of revenue, which reflects factory underloading at our manufacturing facilities related to our wafer service agreements as well as internal demand. This compares to $99,600,000 or 33 percent of revenue in the prior quarter and $195,400,000 or 41.8 percent of revenue in the prior year quarter. GAAP operating expenses for the Q2 were $103,700,000 or 32.4 percent of revenue and on a non GAAP basis were $90,900,000 or 28.4 percent of revenue, which excludes an $8,300,000 restructuring charge, dollars 3,900,000 amortization of acquisition related intangible asset expenses and $600,000 for officer retirement.

Speaker 3

This compares to GAAP operating expenses in the prior quarter of $86,600,000 or 28.7 percent of revenue. And in the Q2 2023 of $105,800,000 or 22.7 percent of revenue. Non GAAP operating expenses in the prior quarter were $87,600,000 or 29 percent of revenue. Total other income amounted to approximately $9,100,000 for the quarter, consisting of $4,200,000 of interest income, $4,400,000 in unrealized gains from investments, dollars 800,000 of foreign currency gain, $600,000 of other income and $900,000 in interest expense. Income before taxes and non controlling interest in the Q2 of 2024 was $12,800,000 compared to $18,800,000 in the previous quarter and $101,000,000 in the prior year quarter.

Speaker 3

Turning to income taxes, our effective income tax rate for the 2nd quarter was approximately 20.6%. GAAP net income for the 2nd quarter was $8,000,000 or $0.17 per diluted share compared to $14,000,000 or $0.30 per diluted share last quarter and $82,000,000 or $1.77 per diluted share in the prior year quarter. Share count used to compute GAAP diluted EPS in the 2nd quarter was 46,300,000 shares. Non GAAP adjusted net income in the 2nd quarter was $15,400,000 or $0.33 per diluted share, which excluded net of tax $7,200,000 in restructuring charges, dollars 3,500,000 in non cash mark to market investment value adjustment, dollars 3,100,000 of acquisition related intangible asset costs and $500,000 in officer retirement. This compares to $13,000,000 or $0.28 per diluted share in the prior quarter $73,300,000 or $1.59 per diluted share in the Q2 2023.

Speaker 3

Excluding non cash share based compensation expense of $3,400,000 GAAP $2,800,000 non GAAP net of tax for the 2nd quarter, GAAP earnings per share would have increased $0.07 per share and non GAAP adjusted EPS by $0.06 per share. EBITDA for the 2nd quarter was $41,100,000 or 12.8 percent of revenue compared to $48,300,000 or 16 percent of revenue in the prior quarter and 133 point $5,000,000 or 28.6 percent of revenue in the Q2 2023. We have included in our earnings release a reconciliation of GAAP net income to non GAAP adjusted net income and GAAP net income to EBITDA, which provides additional details. Cash flow provided by operations was $14,400,000 for the 2nd quarter. Free cash flow was a negative $3,500,000 which included $17,900,000 for capital expenditures.

Speaker 3

Net cash flow was a negative $2,900,000 including the pay down of $22,200,000 of total debt. Turning to the balance sheet at the end of 2nd quarter, cash, cash equivalents, restricted cash plus short term investments totaled approximately $277,000,000 Working capital was approximately $860,000,000 and total debt, including long term and short term, was approximately $47,000,000 In terms of inventory at the end of second quarter, total inventory days were approximately 191 as compared to 184 last quarter. Finished goods inventory days were 79 compared to 67 last quarter. Total inventory dollars increased $32,200,000 from the prior quarter to $461,500,000 Total inventory in the quarter consisted of a $27,100,000 increase in finished goods, a $3,200,000 increase in raw materials and a $1,900,000 increase in work in process. Capital expenditures on a cash basis were $17,900,000 for the 2nd quarter or 5.6 percent of revenue and within our target range of 5% to 9%.

Speaker 3

Now turning to our outlook. For the Q3 of 2024, we expect revenue to be approximately $346,000,000 plus or minus 3%, representing an 8.2% sequential increase at the midpoint, which is the highest sequential growth in the last 14 quarters. GAAP gross margin is expected to be 34%, plus or minus 1%. Non GAAP operating expenses, which are GAAP operating expenses adjusted for amortization of acquisition related intangible assets, are expected to be approximately 27.5 percent of revenue, plus or minus 1%. We expect net interest income to be approximately $2,500,000 Our income tax rate is expected to be 18.5%, plus or minus 3 percent and shares used to calculate EPS for the Q3 are anticipated to be approximately 46,600,000 dollars Not included in these non GAAP estimates is amortization of $3,100,000 after tax for previous acquisitions.

Speaker 3

With that said, I will now turn the call over to Emily Yang.

Speaker 4

Thank you, Brad, and good afternoon. Revenue in the 2nd quarter increased 5.9% sequentially and was higher than the midpoint of our guidance. Our global POS increased more than 7% in the quarter and our distributor inventory decreased. As Gary mentioned, we are excited to see continuous improvement in the demand going into the Q3 with stronger beginning backlog and book to bill ratio, especially in Asia. Looking at the global sales in the Q2, Asia represented 77% of revenue, Europe 15% and North America 8%.

Speaker 4

In terms of our end markets, industrial was 23% of Diodes product revenue, automotive 18%, computing 26%, consumer 19% and communications, 14% of the product revenue. Our automotive industrial end markets combined totaled 41%, which is comparable to the last quarter on a percentage basis, but slightly higher on the dollar basis. This is the 9th consecutive quarter above our target model of 40%. Now let me review the end markets in greater detail. Starting with automotive market, revenue was 18% of our total product revenue, which was flat to the last quarter on a percentage basis, but 7.6% sequential increase in product revenue.

Speaker 4

Inventory rebalancing continued in the 2nd quarter, and we expect this will extend into the 3rd quarter. However, we are also seeing some customers' inventory getting into healthier levels and demand is more stabilized with some new programs starting to ramp. So we expect a gradual recovery throughout the second half of the year. Our demand creation momentum remains strong throughout the quarter, with expanding design ins and design wins across all focus areas, including connected driving, comfort style safety and electrification. From a product perspective, our LDO product family, DC DC buck converters, transistors and gate drivers received strong demand from power supply, wireless charging, infotainment, telematics and lighting applications.

Speaker 4

We also secured design wins for USB PD Type C charging and video controls for EV cars. Our silicon carbide Schottky diodes and MOSFETs are also gaining traction for inductive charging systems. We are also seeing traction for our linear LED controllers in taillights and aftermarket applications. Diodes SBR products continue to experience strong momentum from our car display, headlight systems, infotainment and sensor lighting applications. Also during the quarter, our TVS diodes and transistors when desized and are ramping up volume in DC fans, protection, ADAS and battery management systems.

Speaker 4

We also continue to see opportunities for automotive clock buffers and PCI Express clocks along with USB Type C switches, USB Type C Display Port retimers and active crossbar muxes in real C entertainment, infotainment, ADAS, smart cockpit applications. Additionally, our hot sensor growth momentum continued this quarter with applications, including fans for the car seat, engine cooling system valve and window lift motors. Diodes also continued to focus on expanding our product portfolio with the introduction of 130 new automotive compliance products in the Q2, covering power protection, battery management system, brushless DC motors, motor control, infotainment, smart cockpit, ADAS, data line IO, ESC protection, power management, backlighting and LED lighting applications. In the industrial market, 2nd quarter revenue represented 23% of total product, which was flat to the last quarter, but up on the dollar basis. Similar to the auto market, the recovery remains slow due to ongoing inventory rebalancing and slower than expected demand recovery, which may last until the end of the year.

Speaker 4

While the overall demand still soft, we are also seeing pockets of growth in areas like medical and and gain momentum across a number of products, and gain momentum across a number of products, including our silicon carbide products that are gaining traction in the power factor correction, energy storage system, heating, validation, air condition as well as server power supply applications. Also in the industrial market, our Schottky and rectifier products are winning in the power products, while bipolar transistors are being designed into solar inverter applications. And our LDO saw solid demand for fans, power tools and e meter applications. We also secured a number of design wins for our contact image sensor product in the automated optical inspection, printers, panels, printed circuit board and battery film inspection applications. In the computing market, revenue increased approximately 12% sequentially with healthy channel inventory and signs of stronger backlog in Asia.

Speaker 4

A key highlight in the computing market is Stylus' growing content in the AI server area. As the AI data center volume continues to expand, we are excited to share that our PCI Express packet switch has been designed into Tier 1 AI data center projects, along with our PCI Express clock buffers, left fold translators, standard logic as well as other discrete products that started to ramp into production. Recently, a Tier 1 EMS customer also named Diodes as one of the key suppliers supporting their AI ecosystem. Due to the rapid increasing power requirement in the AI data center applications, we also have additional content opportunities with our power MOSFET and other discrete products that are being designed into power supply units, backup battery units, thermal DC fan as well as DC DC bricks and hybrid switched capacitor units. Diodes timing solutions, including crystal oscillators, PCI Express clock ICs and power management solutions are also seeing traction in AI computing applications.

Speaker 4

As one of the industry major suppliers of PCI Express Gen 5, Gen 6 clocks, Diodes has been benefiting from the worldwide data center infrastructure build out. Our SSD switches and power switches both have solid demand from SSD, HDD in the storage and in the data center applications. We are also seeing increased adoption of our HDMI redrivers, USB crossbar muxes and MIPI redrivers for laptops, desktop PCs, while our linear redrivers are being adopted for GPU cards and gaming notebooks. Also in the computing market, our Shawki rectifier has been receiving strong demand from notebook adapters, same DC fans and power applications, while our high surge TVS and ESD protection devices are winning designs in the DRAM modules. Turning to communication market.

Speaker 4

On the enterprise side, due to slower than expected demand, the image depletion rate has been slow, and we expect this may last into the second half before returning to the healthy levels. Within the smartphone market, even though inventory communication market, our ultra low jitter crystal oscillators are being designed into gigabit switches and optical modules for AI networking and data center applications, and Diodes protection devices are being adopted in the mobile phone application, while our low voltage MOSFET are also being designed into mobile phone for battery management applications. And lastly, in the consumer market, similar to the PC market, inventory is relatively clean. Although the overall demand in this market was not as strong as we expected, we anticipate some of the new designs will start to ramp in the Q3. In terms of design momentum, our adjustable current limits, power switches and LED controllers saw solid demand in the large screen TVs as well as USB HDMI applications in TVs and monitors.

Speaker 4

We're also seeing solid traction for our boost converters in point of cell machines and portable devices. Additionally, we are securing increasing design wins and ramping production of our LED and low power PCI Express clock generators in sports cameras, smartwatches and home security cameras. In summary, as indicated by our comments today, we are encouraged by the signs of improving demand, especially in Asia and in the 3C markets. Coming off the low point in the Q1. We are guiding for continuous strengthening of demand into the 3rd quarter, which at the midpoint of our revenue guidance represents over 8% growth and the highest sequential increase in the last 14 quarters for Diodes.

Speaker 4

And when combined with our strong design momentum across our end markets, we are well positioned for increasing growth and margin expansion as the global market recover. With that, we now open the floor to questions. Operator?

Speaker 2

Thank you.

Operator

And our first question today will come from William Stein with Truist Securities. Please go ahead.

Speaker 5

Great. Thanks so much for taking my question. Congrats on the good quarter and especially the above seasonal revenue guidance. And that's what I wanted to ask about. The sequentials that you're guiding to are, as you highlighted, strongest in a while and certainly above typical seasonality.

Speaker 5

It sounds like either all of that or the majority of it is in the compute end market, specifically for data center AI applications. Is that the right way to interpret the guidance? Or is the better than seasonal guide more broad based

Speaker 6

than that?

Speaker 4

Hi, Will. This is Emily. Let me address the question. First of all, thank you. I think the 8% guidance is actually based on a couple of area we look at, right?

Speaker 4

So we did mention 2nd quarter POS came in very strong and we expect similar momentum into the Q3. We look at beginning of the backlog, we look at book to bill ratio. I think you're right, majority of the growth is driven by the computing, especially on the AI server data center area with some of the design wins and the ramping of the production. But at the same time, right, if you look at consumer, usually 3Q is the peak for consumer because of the holiday deal. And then if you look specifically under communication, the smartphone area, it also follow a similar pattern, right?

Speaker 4

So based on all these assumptions, that's the reason we actually came up with 8.2% guidance growth for the Q3.

Speaker 5

Thank you. And then a question about channel inventory. Can you maybe offer us a bit more detail in terms of what that level of inventory is currently and maybe where you expect it to be at the end of next quarter? And how long before it's normalized and it's less of a well, let's say no longer a drag on the new performance? Thank you.

Speaker 4

Yes, definitely. So I mentioned, right, first of all, we have a strong POS growth and we also have a decrease in terms of channel inventory. And it's still higher than our defined normal range of 11 to 14 weeks. So we actually definitely want to continue to focus the POS growth for the Q3 and continue to drive the channel inventory down to the normal level. It is a little bit hard to estimate the time frame.

Speaker 4

But on the other hand, just assume the inventory dollar is the same amount, as soon as the POS start growing, the channel inventory weeks will change or decrease significantly, right? So that's really where our focus. At the same time, because of dynamic market situation, we also start seeing a lot more urgent order or short lead time orders, right? And in order for us to better serve our customer, we also feel like a little bit higher channel inventory or internal inventory actually better position us and giving us the flexibility to gain this kind of quick order and market share.

Speaker 5

The expedited course? Sorry.

Speaker 4

So you said Yes. We start seeing a lot of expedite pull ins of the orders and also a very short lead time orders or urgent orders from customer more now than before, right? So we view that as also a very positive indicator of the market turning around.

Operator

And our next question will come from David Williams with Benchmark. Please go ahead.

Speaker 7

Hey, good afternoon. Thanks for letting me ask the question and congrats on the execution and the growth there. It's good to see that return and

Speaker 4

the strength there. Thank you.

Speaker 7

I guess maybe yes, I mean, first, Emily, just kind of thinking about the strength that you're pointing to in AI Server, particularly in Asia, Do you get a sense that we're seeing any maybe orders that are stockpiling ahead of other restrictions that may come down later on this year? Or do you feel like you are shipping maybe to end consumption for consumption that's happening more near term and not something for that's just being built?

Speaker 4

Yes. So David, we actually work with the customer very closely, and we manage closely with their actual forecast, right? So we believe this is actually an actual real bill instead of a vast bill or stuff like that. So we also have the forecast more than just this month, next month. The forecast extended to next year, so we do see a good momentum.

Speaker 4

This is just the beginning of the ramp, so we're actually pretty confident that this will continue.

Speaker 7

Great. And then maybe just on the computing side, if you kind of look across the demand trends you're seeing there, obviously AI server is doing well. But if you kind of think about your AI or your team or your server versus client side mix, how do you think about that? And then maybe as well as you think about growth, not just this in the coming quarter, but longer term, how do you see those 2 performing over the next several quarters? Thank you.

Speaker 4

Yes. I think overall, right, AI server or data center ramp up the volume definitely faster than the regular Surfer, right? I think even with the regular Surfer, we see a lot of stability and it's going to be a slower ramp. But taking into account that inventory is really clean, So any of the improve from the demand is going to drive additional momentum of the orders and the backlog and the revenues, right? So overall, AI Surfer is still a very small percentage among the overall surfer market, right?

Speaker 4

And we also see the continuous of increasing the percentage overall. So I think the next big one would be more into the edge AI area, and that would definitely continue to drive a lot more momentum as well as a faster refresh of the generation. So that's really what we are counting on.

Speaker 7

Thank you again.

Operator

And our next question will come from Matt Ramsay with TD Cowen. Please go ahead.

Speaker 8

Thank you very much. Good afternoon. Emily, not that I mean we can't have 3 sentences on an earnings call this day without talking about AI. So I'll double click on that again. I wonder if you could spend a little bit of time, it's kind of one thing to emphasize maybe unit dynamics and demand dynamic for AI servers.

Speaker 8

But I wonder if you might be able to be a little bit more granular and talk about content. Just what is this AI server content with 1 or 2 server makers or ODMs or is it much broader than that across the board? Maybe you could give us a little bit of an idea of the specific components that you're selling in. And if you think about at the server level, what kind of dollar content are we talking about ballpark? Like just anything to sort of calibrate investor expectations because when folks hear AI server wins, they can let their imaginations do a lot of different things.

Speaker 8

And I just wanted to be a little bit more precise there, if we could. Thank you.

Speaker 4

Yes, definitely, right. We're components, right? So we definitely support the, I would say, complementary chips surrounding the main chipsets and the memory modules and stuff like that. So I did mention a little bit earlier, we are really, really excited, especially for a key win that is actually on the PCI Express, we call the packet switch. Some of the other competitors are called the PCI Express switches.

Speaker 4

So this is actually with the function to expanding additional PCI Express port. So this is really exciting. It's actually definitely a new momentum that we didn't see before. And so, this is definitely more on the content expansion, right? So on top of the PCI Express packet switch, we're also seeing like our PCI Express clocks, clock generators and buffers, crystal oscillators, and there's a wide range of different discrete products being used, right?

Speaker 4

And this is not just on the GPU card or the main board. This is actually beyond. It can be a power supply unit supporting the AI servers. It can be a backup battery unit, thermal DC fans or even a DC DC brick. So this is really expanding more just on one board.

Speaker 4

I think that's really exciting, right? So, like I said, overall AI surfers or data center, still a small percentage overall, but we do expect the percentage will continue to ramp. And when the GPU supply continue to improve, right, we actually start getting a lot of momentum on the inquiry as well as the design ins and design wins, and all of this will be ramping next year. So like I said, this is the initial traction that we've seen, and we do expect this will continue to expand.

Speaker 8

Got it. Thank you for that additional color. I guess as my follow-up question for the team, I'd like to dig in a little bit to gross margin. We've had obviously a period where the cyclicality of the industry has been pretty violent over the last, I don't know, 36 months. We went way up and then we went way down and now we're coming back out, which is great to see.

Speaker 8

And maybe you could has there anything changed at all with sort of rules of thumb about ways to model gross margin as the revenue continues to recover for the company? Any newer different variables there? Any comments on utilization? I just want to make sure we're understanding how the margin impact will be as the company grows forward from the recovery here.

Speaker 3

Yes, Matt. Hey, this is Brett. Make a few comments. I think Gary may follow-up on it. Things we've used in the past still definitely apply.

Speaker 3

The biggest knob that clearly is a part of what we're driving is the mix of our product and the influence that has on margin. And I think something to point to that you see is that we've kind of reiterated foundationally, we've gotten and provided stability to this over 40%, this auto and industrial. But if you look back a year ago, that percentage was probably 6% or 7% higher than we are today and kind of understandable given we're still kind of going through that auto industrial correction. And we're actually quite pleased that in the midst of that, we've been able to maintain that above 40%. And as we go forward, what our expectation is, is that there'd be multiple tailwinds that would support our margin improving over time.

Speaker 3

You'd have the mix of auto and industrial that continues to maintain and grow. The regions that drive a lot of that will continue to strengthen. We're continuing to see the correction and the strength that's particularly in Asia today. I think we'll see that more broadly as we go forward. We also will see that overall demands and the volumes that we're driving be able to increase that will improve our utilization.

Speaker 3

And we're also making a lot of progress in getting a more broad portfolio of things qualified in some of the factories that we bought over the last 4 or 5 years, particularly pointing to our SP fab and our G fab, which is really to get flexibility across our hybrid model, across our analog portfolio and our discrete portfolio. And I think each of those elements has a fairly significant impact to firing on all cylinders and continuing to drive growth as we march back to our business model in total. So Gary, you want to follow that?

Speaker 9

Yes. Actually, no, I think Brett brings a very good point here as to be for the automotive industry. I think we're kind of driving a lot for the content increase in those two area. We released a lot of new product quarter by quarter in those two areas, which can increase our content in the near future. I'm very confident on that.

Speaker 9

Okay. The second here is for the loading. As Brent mentioned about our process and product porting from external foundry is what we're driving for the couple of quarters already. And so far, the qualification progress is very well and achieved several key milestones. Okay.

Speaker 9

So we do see our product being also qualifying in several key customer side and we're starting to receive PEO in short time. So I've got a pretty good confidence on the loading for those 2 major wafer fabs in the future.

Speaker 8

Thank you very much for all the detail, Guy. I really appreciate it. Thanks.

Operator

Our next question will come from Tristan Gerra with Baird. Please go ahead.

Speaker 6

Hi, good afternoon. So for Q3, you've talked about AI content and PC demand. How do you and PC demand notably in Asia, you also talked about consumer potentially picking and part of that is seasonality. How do you see the overall demand environment in China? There's been some companies this week talking about incremental weakness in the automotive China market.

Speaker 6

Are you seeing those trends? And what are kind of the divergent trends that you see in Asia currently from an end demand standpoint for this coming quarter?

Speaker 4

Yes. Hi, Tristan. This is Emily. So let me address this question, right? In Asia, in China specifically, we continue to focus on content expansion, especially on the auto industrial side as well, right?

Speaker 4

So, overall, the demand is a little bit soft, especially on the 3C area from the end consumer consumption point of view, but we're also seeing some improvement as well. So I would say all in all, right, we actually view China still a really good potential territory for us. And we actually looking at the customer, they really look at it's called cost performance value, CP value. As long as Diodes continue to focus on driving the technology and introducing new products, focus on features and functions, walking away from a lot of deep commodity product, which we see most of the competition from the local suppliers, we still see there's a really strong and positive path for Diodes overall to be successful in China and also in Asia overall.

Speaker 6

Okay, that's great. And then in the past, I think it's fair to say that most of the M and A that you've done was centered around increasing capacity and I'm assuming that it's probably not on the table even for next year. Are there any technologies where you feel that could be incremental from a mix standpoint? And how should we be looking at your M and A strategy overall medium term? A

Speaker 9

2 you know, there's 2 wafer fabs we acquired in the past couple of years. 1 is the GFET in Scotland, the other 1 is PFET in U. S. And basically, we identified our GFET as our discrete wafer fab and as well as SPFAT as our analog wafer fab. So we got quite a few technology like split plate battery fab and change MOSFET kind of porting from our external wafer foundry into this wafer fab in Scotland.

Speaker 9

And also very advanced kind of the normal process foundry as well externally and putting internally into the fab in South Portland. So I would say that those 2 kinds of big projects probably will be the most important project in bios, try to make sure that technology and process wise, we can cap that internally. At the same time, our design team also developed a newer process in the product within this, 2 wafer those 2 wafer fab, okay, instead of supporting process.

Speaker 3

Well, and I think Tristan, to add to that, in terms of the M and A that you would most likely see us looking at would be things that would help enable top line and be complementary to the manufacturing footprint we can provide. And so I think over the past, had a combination of organic and acquisition related growth. That activity of Gary and Doctor. Lou continues, and we actively are continuing to look in that area.

Speaker 9

Yes. Actually, we are very, very careful about us to let the right target for the MMA. And we're not only looking for the size, we're also looking for any synergy that can help that dials before more gross revenue and the GP percent wise like that. So definitely, we're looking forward to that.

Speaker 6

Great. Thank you very much.

Operator

And this will conclude our question and answer session. I'd like to turn the conference back over to Gary Yu for any closing remarks.

Speaker 2

Well, thank you, everyone, for participating on today's call. We look forward to reporting our progress on next quarter's conference call. Operator, you may now disconnect.

Operator

The conference has now concluded. Thank you for attending today's presentation and you may now disconnect your lines at this time.

Earnings Conference Call
Diodes Q2 2024
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