Diodes Incorporated (DIOD) Earnings

Management highlights

### Strategic Focus & Market Traction - Core long-term growth strategy centers on expanding product content across three key high-growth focus areas: automotive, industrial, and AI infrastructure-related applications, which is driving overall revenue growth and margin expansion. - The automotive product portfolio is gaining traction across both internal combustion engine (ICE) and electric vehicle (EV) applications, with expanded portfolio coverage for battery management, onboard charging, DC-DC conversion, and zone control architectures. - The company is well positioned to capture growing demand for higher power efficiency, sensing, connectivity, and embedded intelligence in next-generation industrial systems, including emerging humanized robotics that require discrete, voltage translation, and connectivity solutions as commercial deployment scales. ### Operational Progress - Multiple strategic server platform design wins have been secured for the company's clock generators and timing solutions, with new timing products currently ramping into the latest AI server platforms to expand market presence. - Internal wafer fab utilization continues to grow, with key customers already qualifying and using products produced at the company's own SPFAB facility. - Capacity expansion efforts are underway across both internal and external supply chains to meet strong demand: internal utilization of existing fabs is being improved, with migration from 6-inch to 8-inch wafer production to increase output, and additional external capacity is sourced from partners in Korea and Taiwan. Internal assembly and testing capacity is being selectively expanded for high-demand packages like DFN and CSP to serve key customers. - The proposed acquisition of Elevate Semiconductor is expected to add differentiated IP, high-margin signal chain, amplifier, and data converter products that complement the company's existing analog and mixed-signal portfolio.

Guidance

- Management expects 14.5% quarter-over-quarter revenue growth in Q3, with growth expected across almost all end market segments. - Q3 growth will be driven primarily by AI-related applications, particularly for server motherboard products. Automotive growth is expected to continue from market share gains and product expansion, the industrial market is expected to grow after clearing excess inventory, consumer revenue is expected to improve (as Q3 is typically a peak season for the segment), and networking within the communication segment will continue growing driven by AI-enabled networking switches and routers. - The company does not provide guidance beyond one quarter, but management noted positive early momentum for Q4 and expects 2025 (next calendar/fiscal year) to be stronger than a typical year. - Management expects continued growth in revenue, gross margin, and non-GAAP earnings, putting the firm on track to meet its three-year financial goals.

Segment performance

1. Automotive: No specific absolute revenue was provided, but the segment reported strong growth momentum driven by rising vehicle communication/processing demands, increasing semiconductor content per vehicle across ICE and EV applications. Demand is fueled by higher functionality requirements for body electronics, advanced lighting, and intelligent control modules, plus growing adoption of power semiconductors, wide band gap solutions, and signal management devices for 400V/800V EV platforms, faster charging, and battery management systems. 2. Industrial: Revenue increased 5% sequentially and 24% year over year. It accounted for 1% less of total product revenue than the prior quarter, while underlying demand remains strong. Key growth drivers include strong demand across AI infrastructure, industrial automation, robotics, energy management, healthcare, and smart infrastructure, with power management and discrete products leading growth from the shift to higher-voltage power architectures. 3. Computing: Revenue increased 18% sequentially and 33% year over year, and is currently the firm's strongest growth driver. Growth is fueled by accelerating adoption across data center, AI server, cloud infrastructure and storage platforms, with timing solutions ramping into new AI server platforms and expanded opportunities for power, connectivity, interface, and sensing devices from rising semiconductor content per AI server. 4. Consumer: Revenue increased nearly 10% sequentially and 17% year over year, and remained flat as a percentage of total product revenue from the prior quarter. The overall market remains challenged by supply and demand headwinds, but strength in USB power delivery, ESD protection, and interface products for AI IoT and smart home applications offset weakness. 5. Communication: Revenue decreased 7% sequentially and approximately 3% year over year. Overall demand remains soft, particularly for smartphones in China, but networking demand is strong driven by AI infrastructure and enterprise networking investments, and power management products see growing demand from AI-enabled edge mobile devices.

Risks & headwinds

- There are localized pockets of supply constraint across the product portfolio due to overall very strong demand, particularly for power products serving the data center end market. - The consumer market overall remains challenged by memory shortages and slower end demand. - The communication market faces continued soft overall demand, especially for smartphones in China.

Analyst Q&A

• Q: What is the current operational and financial status of SPFAB, the company's internal wafer fab, including utilization and customer qualification progress? /

  A: Management does not disclose separate P&L for the internal fab. They confirm that utilization continues to grow quarter over quarter, and key customers have started qualifying and using wafers produced at SPFAB for their end products. Management expects utilization will continue increasing in the near term.

• Q: What are your Q3 and early Q4 demand expectations, and how would you rank growth opportunities heading toward 2027? /

  A: Management expects broad-based Q3 growth led by AI server-related applications, with continued strong momentum in automotive, recovering industrial growth, improved consumer performance, and growing networking in communications. The company only guides one quarter out, but early momentum for Q4 is positive, and management expects the next full year to be stronger than average. Long-term, the company's core high-priority growth opportunities remain automotive, industrial AI infrastructure, aligned with its existing three-year strategy.

• Q: Are you facing supply constraints, especially for power products to data center customers, and how are you expanding capacity? /

  A: There are small pockets of constrained supply amid broadly strong industry demand. The company prioritizes supporting strategic customers, and is expanding capacity via improving internal fab utilization, shifting to 8-inch wafer production, sourcing additional external capacity from Korean and Taiwanese partners, and selectively adding internal assembly/test capacity for high-demand package types. The current split of internal vs outsourced wafer production is 50-50.

• Q: What is the strategic rationale for the proposed acquisition of Elevate, and are there any unappreciated synergies? /

  A: Elevate has strong differentiated IP in signal chain products for automated test equipment (ATE) applications, which complements the company's existing analog and power semiconductor portfolio. The acquisition increases exposure to the attractive ATE market, adds new customers, expands wallet share with existing customers, and expands the company's total addressable market by at least $1 billion by enabling it to serve as a full platform solution provider for ATE, rather than just a component supplier.

• Q: What is the status of channel inventory, and are you seeing double ordering that could inflate current demand? /

  A: Channel inventory, measured both by dollar value and weeks of supply, has decreased and is currently below the company's normal 11-14 week target range. Management confirmed there is no evidence of double booking or excessive inventory build in the channel at this time, so the current strong demand reflects actual end consumption.