Diodes Inc /Del/ Q3 FY2025 Earnings Call

Good afternoon, and welcome to Diodes Incorporated Third Quarter 2025 Financial Results Conference Call. As a reminder, this conference is being recorded today, Thursday, November 6, 2025. I'd now like to turn the call over to Leanne Sievers of the Shelton Group Investor Relations. Leanne, please go ahead.

Good afternoon, and welcome to Diodes' Third Quarter 2025 Financial Results Conference Call. I'm Leanne Sievers, President of Shelton Group, Diodes Investor Relations firm. Joining us today are Diodes' President and CEO, Gary Yu; CFO, Brett Whitmire; Senior Vice President of Worldwide Sales and Marketing, Emily Yang; and Vice President of Marketing and Investor Relations, Gurmeet 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 quarter ended September 30, 2025. 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 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, including Forms 10-K and 10-Q. In addition, any projections as to the company's future performance represent management's estimates as of today, November 6, 2025. Diodes 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. 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 at www.diodes.com. And now I'll turn the call over to Diodes' President and CEO, Gary Yu. Gary, please go ahead.

Welcome, everyone, and thank you for joining us on today's conference call. As announced in our press release earlier today, revenue in the quarter increased 7% sequentially and 12% year-over-year, driven by strong demand across the general computing market, including for AI-related server applications as well as data center and agent computing. Our global point of sales increased the strongest in Asia, followed by North America. Additionally, our channel inventory is at a healthy level, decreasing again this quarter in terms of dollars and weeks, with overall inventory dollars decreasing over 25% from peak levels. Even though the rate of recovery in the automotive and industrial market continues to be slower than expected, revenue increased both sequentially and year-over-year in both of these end markets. When coupled with the computing market growing the strongest along with the consumer also increasing sequentially, product mix unfavorably weighted on the gross margin during the quarter. Future margin expansion will be driven by ongoing improvement in the product mix as the pace of recovery accelerates in our higher-margin automotive and industrial end markets, combined with increased new product introductions in our target markets as well as improved loading across our manufacturing facilities. At the midpoint of our fourth quarter guidance, we expect to achieve approximately 12% growth for the full year. Looking forward, we are gaining increasing confidence in broader demand improvement in the automotive and industrial markets. Diodes is gaining increasing market share in the automotive market with new programs scheduled to launch early next year, combined with increasing content in industrial applications like AI robotics, power management, medical, and factory automation. With that, let me now turn the call over to Brett to discuss our third quarter 2025 financial results as well as our fourth quarter guidance in more detail.

Thanks, Gary, and good afternoon, everyone. Revenue for the third quarter of 2025 was $392.2 million, an increase of 12% over $350.1 million in the third quarter of 2024 and a 7.1% increase over $366.2 million in the second quarter of 2025. Gross profit for the third quarter was $120.5 million or 30.7% of revenue compared to $118 million or 33.7% of revenue in the prior year quarter and $115.3 million or 31.5% of revenue in the prior quarter. GAAP operating expenses for the third quarter were $108.9 million or 27.8% of revenue and on a non-GAAP basis were $103.1 million or 26.3% of revenue, which excludes $5.9 million amortization of acquisition-related intangible asset costs. This compares to GAAP operating expenses in the third quarter of 2024 of $96.1 million or 27.5% of revenue and $105.9 million or 28.9% of revenue in the prior quarter. Non-GAAP operating expenses in the prior quarter were $99.8 million or 27.3% of revenue. Total other income amounted to approximately $7.5 million for the quarter, consisting of $8.5 million of interest income, $2.4 million in unrealized gains from investments, $0.4 million in other income, $3.3 million in foreign currency losses, and $0.5 million in interest expense. Income before taxes and noncontrolling interest in the third quarter of 2025 was $19 million compared to income of $18.8 million in the prior year period and $53.2 million in the previous quarter. Turning to income taxes, our effective income tax rate for the third quarter was approximately 18.7%. We continue to expect the tax rate for the full year to be approximately 18%, plus or minus 3%. GAAP net income for the third quarter was $14.3 million or $0.31 per diluted share compared to net income of $13.7 million or $0.30 per diluted share in the prior year quarter and net income of $46.1 million or $0.99 per diluted share last quarter. The share count used to compute GAAP income per share for the third quarter of 2025 was 46.4 million shares. Non-GAAP adjusted net income in the third quarter was $17.2 million or $0.37 per diluted share, which excluded net of tax $4.8 million of acquisition-related intangible asset costs and $1.9 million of unrealized gain on investments. This compares to non-GAAP adjusted net income of $20.1 million or $0.43 per diluted share in the third quarter of 2024 and $15 million or $0.32 per diluted share in the prior quarter. Excluding noncash share-based compensation expense of $5.4 million for the third quarter, net of tax, both GAAP net income and non-GAAP adjusted net income would have increased by $0.12 per share. EBITDA for the third quarter was $46.6 million or 11.9% of revenue compared to $46.9 million or 13.4% of revenue in the prior year period and $84.5 million or 23.1% of revenue in the prior quarter. 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 $79.1 million for the third quarter. Free cash flow was $62.8 million, which included $16.3 million of capital expenditures. Net cash flow was a positive $59.3 million. Free cash flow per share was $1.35 for the quarter and $4.02 per share for the trailing 12 months, approaching the historical high of $4.34 per share in 2021. Turning to the balance sheet, at the end of the third quarter, cash, cash equivalents, restricted cash plus short-term investments totaled approximately $392 million. Working capital was approximately $890 million and total debt, including long term and short term, was approximately $58 million. In terms of inventory, at the end of the third quarter, total inventory days were approximately 162 as compared to 173 last quarter, down approximately 11 days sequentially. Finished goods inventory days were 62, a decrease of 9 days from the 71 days last quarter. Total inventory dollars decreased $11.8 million from the prior quarter to $470.9 million, consisting of a $17.3 million decrease in finished goods and a $1 million decrease in work in process and a $6.5 million increase in raw materials. Capital expenditures on a cash basis were $16.3 million for the third quarter or 4.2% of revenue, which was below our targeted annualized range of 5% to 9% of revenue. Now turning to our outlook, for the fourth quarter of 2025, we expect revenue to be approximately $380 million, plus or minus 3%. At the midpoint, this is better than typical seasonality from the third quarter and represents a 12% increase over the prior year period and will be the fifth consecutive quarter of year-over-year growth. GAAP gross margin is expected to be 31%, 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% of revenue, plus or minus 1%. We expect net interest income to be approximately $1 million. Our income tax rate is expected to be 18.5%, plus or minus 3%, and shares used to calculate EPS for the fourth quarter are anticipated to be approximately 46.4 million shares. Not included in these non-GAAP estimates is amortization of $4.8 million after tax for previous acquisitions.

Thank you, Brett, and good afternoon. Revenue in the third quarter was up 7.1% sequentially and at the midpoint of our guidance, mainly driven by strong demand in Asia, especially in Taiwan for the AI computing applications. Our global point of sales increased in Asia, followed by North America and our channel inventory decreased both in dollars and in weeks. During the quarter, we continued to drive our new product initiative with approximately 180 new part numbers, of which 60 were for automotive applications. Looking at the global sales in the third quarter, Asia represented 78% of the revenue; Europe, 12%; and North America, 10%. In terms of our end markets, industrial was 22% of Diodes product revenue; automotive, 19%; computing, 28%; consumer, 18%; and communications, 13% of the product revenue. Our automotive industrial revenue combined was 41%, which was 1 percentage point lower compared to the last quarter. Even though automotive industrial revenue increased quarter-over-quarter, the computing end market experienced stronger growth than the 7% of the company average for the quarter and the industrial market grew at a lower rate than the average. Now let me review the end markets in greater detail. Starting with automotive, revenue in the quarter grew 8.5% sequentially and 18.5% in the first three quarters over last year, even though as a percentage of the total product revenue was flat to the last quarter due to the growth in the other markets. The revenue increase during the quarter serves as further evidence that the inventory situation continued to improve even though the overall demand remained dynamic and the pace of recovery is slower than expected. The other positive news is that we are starting to see more new programs scheduled to ramp early next year. Our controllers and MOSFET combination from the low-voltage MOSFET product line has established a strong presence in the automotive DC source applications. Our newly released 50A and 650-volt automotive-grade Silicon Carbide Schottky Barrier Diodes are specifically seeing traction in energy storage systems. And our small signal bipolar junction transistors devices packaged in DFM are proving to be valuable for general-purpose signal switching, offering flexibility and compactness for various electronic designs. Additionally, our latest NPN and PNP bipolar junction transistor products feature industrial-leading low saturated voltage, making them ideal for a range of automotive applications. These products are ideally suited for voltage regulation, DC-DC converters, motors as well as LED lighting, engine control units, power management and linear controllers. Diodes TVS products are being designed into battery management system applications, providing robust surge and overvoltage protection for reliable automotive battery performance. In addition to our TVS products, our switching diodes, Zener diodes and SBR products have design wins in autonomous driving, telematics, and infotainment applications. And our USB 2 signal booster devices are being adopted for in-car charging solutions and other cockpit electronics, enabling stable signal transmission in long cable environments. We have also seen strong demand for our low quiescent current LDO operating at 40 to 60 volts, driven by increased production of MCU power supply systems. Our automotive Hall effect sensors, including latch and Omnipolar switch variant have experienced double-digit growth, driven by new design wins in DC motors, window and tailgate lifters, cooling fans, and glass ball sensors. This momentum is expected to continue as automotive designs become increasingly more sophisticated. Lastly, our LED driver products are seeing solid demand, supporting a diverse range of applications such as gear shift control indicators, interior cabin lighting, and mood lighting. Turning to the industrial market, similar to the automotive market, the inventory situation continues to improve gradually, with revenue in this market grew almost 4% sequentially and 13% for the first nine months. We continue to expect the overall inventory situation will begin to normalize next year. We are seeing applications such as AI robotics, medical, and factory automation gaining strong demand momentum. With the increasing power consumption by new systems, the importance of power supply and backup power solutions for AI servers is becoming increasingly critical. Next-generation server power supply systems are transitioning from the current 48-volt system to 400-volt and 800-volt systems and adopting a stand-alone power rack design. Diodes SBR products, Silicon Carbide MOSFET, ideal diode controllers are gaining traction in these innovative applications and are increasingly being adopted by a range of power supply customers. Additionally, our portfolio of 50M 1,200-volt Silicon Carbide Schottky Barrier Diodes products are achieving success in energy storage applications, delivering efficient and reliable performance. And our silicon carbide MOSFETs are also seeing increasing adoption, especially for applications such as EV chargers and power supply for AI servers and data center applications. Also in the industrial, Diodes TVS products are being integrated into power adapters to provide robust ESD and surge protection, enhancing device reliability and our high-voltage sensors, low dropout regulators and voltage reference solutions are demonstrating strong momentum in a variety of industrial applications, including fan motors, household appliances, power tools, and e-meters. In the computing market, we saw the strongest growth this quarter, increasing almost 17% sequentially and 22% in the first nine months compared to last year. The highlight continues to be the strong demand momentum for AI-related applications. With the chipset refresh cycle underway, we are gaining strong traction and market share across our connectivity and timing product line with particular strength in PCI Express 5.0 and 6.0 clock solutions. This growth is fueled by increasing demand within AI, data center, and edge computing applications. Our level shifter products are also seeing notable expansion, especially in server applications with major customers. Additionally, our signal integrity and high-speed switch portfolio, including USB4 and PCIe 5 and 6 has gained significant traction. These products are being widely adopted in key applications such as AI cars for server and solid-state drives. Our ESD protection devices are also increasingly being integrated into SSD applications, showing a positive ramp-up. We also continue to secure design wins for our PCI Express 4.0 and 5.0 re-driver solutions and are now entering solid production phase in both notebook and SSD applications. And our power switches are in high demand for the data center SSDs, while USB-C source switches are being utilized in power ports for the desktop and docking stations. Our linear LED drivers are also seeing increased deployment in servers. In the consumer market, revenue also increased 8.5% sequentially and 7% for the first nine months, even though flat as a percentage of the total product revenue. Diodes bridge rectifiers are being designed into multiple power adapters that are ramping up, fueled by increased demand in gaming systems. The adoption of DP 2.0 re-drivers is on the rise in high-resolution gaming monitors, supporting enhanced image quality and faster refresh rates. Additionally, the adoption of our MIPI switches and re-drivers is also ramping up as they are being incorporated into augmented reality glasses, signaling rapid growth opportunities in wearable display technologies. Lastly, in the communication market, overall growth was relatively flat sequentially and a slight decrease for the first nine months. We are, however, seeing pockets of growth driven by AI and high-speed interconnect applications. This demand is being driven by Diodes' introduction of new crystal oscillators that offer significantly lower jitter, less than 60 femtoseconds, and also support higher frequency, now reaching 312.5 megahertz in addition to the previous 156.25 megahertz. These advanced oscillators are gaining adoption in the optical transceiver modules, which are integral to the high-speed 800G and 1.6T optical communications within data centers and the auto directional level shifter and the low dropout regulators experienced strong demand driven by the growth of AI-enabled smartphone applications. In summary, our continued year-over-year growth momentum is a result of our past design wins and content expansion initiatives across our target end markets. Additionally, our continuous investment in new product introduction in our high-margin end markets of automotive and industrial position us well for a return to strong growth in those markets as the recovery accelerates. And with a return to healthier inventory levels and shipments more closely reflecting true end demand, we expect to see increased loading at our manufacturing facilities and improving margins over the coming quarters. With that, we now open the floor to questions. Operator?

We'll take our first question today from David Williams at Benchmark.

Congrats on the solid results here. I guess maybe first question, Emily, you kind of touched on this at the end on the increased loadings. But as you kind of think about the gross margin for the year and what those loadings could look like, can you kind of give us a sense of what your expectations are for growth and maybe how those loadings should look as we move through next year?

Yes, if you examine the gross margin, there are several areas we anticipate will improve over time. Firstly, we expect the product mix to continue enhancing in the upcoming quarters, particularly with our success in automotive and the introduction of new products. We are confident that this will positively impact the product mix. Additionally, we are focusing on the Pericom product family and the AI sectors, which we believe will contribute to this improvement. We will also introduce new products in automotive and other sectors throughout the quarters. Looking ahead to 2026, we expect revenue to grow, which will increase the utilization of our factories as we transition more production in-house. This shift will gradually lead to improvement. Regarding manufacturing efficiency, Gary and the team are actively pursuing cost reductions and enhancements in that area. When you consider all these factors together, they form the basis of our outlook. Furthermore, we expect channel inventory to become more balanced moving forward, as we have been depleting inventory significantly over the past few quarters, leading to greater stability. This is another aspect to consider.

Okay. Great. And then maybe on the tariff side, it seems like some of your peers have had a challenging time kind of sidestepping some of the earlier in the year pull-ins, but that doesn't seem to have impacted you, and we're not seeing it here in the fourth quarter. Maybe talk about that, how you're able to navigate that. But are you seeing that impact? Or could you potentially see that as we move into next year? Is there anything, I guess, from that perspective that we should be thinking about?

So David, I want to make sure you are talking about the tariff importing into the U.S?

Yes. We observed general demand trends influenced by the tariffs that led to some earlier production loadings into the U.S. This relates to the demand dynamics and the channel inventory linked to it.

I would say, overall, we didn't really see the big spike or change overall for the demand point of view. I think the tariff is not new just for last quarter. It has been in place for quite some time. I think we are working aggressively to leverage our flexible manufacturing site and moving things around to minimize the tariff overall impact for U.S. revenue. I think on top of it, right, the majority or there's quite a lot of revenue within North America is actually importing into Mexico or Canada. So that's actually also a different story. I would say, all in all, if you look at the overall percentage of the business for North America, it's still a very small percentage. So that's the reason that we are working different angles, but the overall impact is relatively small for Diodes.

I would like to add a comment on that. The market is very dynamic, especially from country to country, due to these geopolitical issues. At Diodes, we always aim to maintain our flexibility to support customers wherever they need it.

Okay. All right. Very good. Certainly appreciate that. And maybe just lastly for me is on the automotive side. You've talked about things getting better there, inventory is better. How do you see maybe your position given your content growth and these programs that are ramping next year? How do you think we should look at the revenue growth trajectory for automotive specifically as we get into next year?

Yes. So the current percentage for automotive for us based on the Q3 result is 19%, right? We definitely expect our automotive percentage will continue to improve in 2026, especially with the market share gain and the content expansion that you just mentioned.

Next, we will hear from the line of Tristan Gerra at Baird.

You mentioned in-sourcing as a gross margin catalyst for '26. How should we look at the gross margin benefit for an analog product currently outsourced in Korea or in Japan versus once it moved internally? And is it fair to say that the qualification process for your South Portland, Maine fab is ongoing, and it sounds that perhaps it's more of a second half of next year dynamic given that industrial and automotive are still somewhat in recovery mode?

Okay, Tristan, this is Gary. Let me help to answer this question for you, right? And by moving external to internal, definitely going to benefit Diodes a lot, right? For example, if I subcontract my wafer to our subcontract partner, they're definitely going to earn some premium from Diodes, and we can save the premium by loading internally with our very effective cost model. So definitely, we can enjoy the benefit of moving external to internal. As for the analog part, we continue loading or qualifying the process new product into our SP fab. And we do see very good progress so far, and we do have our new product or requalified product from this wafer fab being qualified in our key customer side. We do see the PO coming in just recently from the previous couple of quarters. So to offset our OEM customer under-load issue or continue to drive the demand, we do significantly improve our loading in those particular SP fab to offset this under-loading issue in the cost. So for year 2026, I do believe loading will be improved, and the gross profit coming from this wafer fab will improve, too.

Great. That's very useful. And then you mentioned AI as a key driver of computing, but you also mentioned computing being a negative on mix. What percentage of your computing revenue right now is data center? And then any way to quantify how much of the growth is coming from AI-related products?

Yes, this is Emily. We currently don't have the breakdown information available. However, looking at our Q3 results, computing is our strongest growth market segment, with a 17% sequential increase and a 22% increase when comparing the first three quarters. Most of this growth is driven by AI. It's important to note that AI is not limited to the computing segments; we are also seeing its influence in industrial power supply and various edge AI applications, which are contributing to the refresh cycle. This is part of the reason we haven't been able to provide a specific breakdown. Additionally, our products are well-suited for many applications beyond just AI. Overall, the performance and growth, particularly in the computing market segment, are very positive, and we are excited about it.

Yes. And just like Emily said, no matter AI in computing or industrial, we do see this kind of market segment will continue to grow next year and even the year after next year. At the same time, we continue to introduce new products into this segment. And this new product, usually, we can enjoy much better gross profit on that. So we're really going to put our R&D focus on that but continue to grow our gross profit percentage in the future.

Okay. Great. And just one quick last one. Do you see yourself as a benefit from the disruptions around Nexperia? Because my understanding is that it's a lot of discrete products. And are you second sourcing some of that? Is that a tailwind for next year?

Yes. Tristan, we're definitely aware of the situation. Discretes, Diodes, rectifiers, MOSFETs, logic, definitely part of our broad portfolio, and it does cross over to some of our peers like Nexperia, right? Like I mentioned before, any time there's a change of supply situation, strategic decision, or whether change price or supply or low-margin focus, it always creates opportunities for Diodes, and we always utilize this type of opportunities to really expand and build a stronger relationship with our strategic customers and also focus in the automotive market segment, right? We do review all this business very carefully and engage in the areas that fit into our overall long-term strategy and focus. So our goal, at the end, is really better serve the customers overall.

We'll hear next from William Stein at Truist.

This is Elliott on for Will. You mentioned 2026 being a growth year, and it looks like recent top line growth is holding in around plus 10% year-over-year. Is that a reasonable level for us to expect through 2026? And I'm wondering if you could give us some examples of end markets or products or applications that could maybe trigger a more robust recovery than, say, plus 10%?

Alright, this is Gary. Let me try to help answer this question. Yes, the answer to you is yes, for sure. We do believe the year 2026 will be another good year for Diodes. Not only the revenue growth like a double digit, I want to drive on that way, but also I want to make sure our profitability also grows aligned with our revenue growth. And as for which segment we are looking for the most aggressive growth, one is AI, as Emily mentioned in the previous answer. Another one will be automotive plus industrial because we do see that the automotive and industrial in the near future, not only the segment increases, but also we do have a newer product introduced into these segments and been designing since the past couple of quarters. So we do see the revenue is going to be significant growth in these two segments.

Yes. I think on top of that, right, we went through a period of inventory adjustment. We believe that by 2026, even with few customers' inventory situation will continue to improve, and that naturally is going to drive some of the demand as well.

Exactly.

Okay. And one more question regarding our previous discussions about a 20% operating margin target. Could you provide additional details on the various factors you mentioned earlier that could lead to margin improvements? How might we reach that 20% range again from the current mid-single digits? What are the main contributors to this? Any insights you can share would be helpful.

Okay. Let me try to give you a very high-level direction I want to drive on that. First, we want to drive top line means that revenue is going to be growth, right? And along with the gross profit and gross profit margin improvement in that direction on the growth mode. At the same time, I really want to keep our SG&A flat or less percentage while the revenue growth, but I really want to put more focus on R&D expenditure along with the revenue growth. With that, I do believe we can improve more on our bottom line. So let me emphasize again, revenue growth and along with the gross profit percentage growth. We keep SG&A percentage flat or reduced. And at the same time, I want to focus on investing more on R&D.

Yes, I would like to add a couple of things. This is Brett. When considering the 20% margin, its foundation mainly consists of two elements: our gross margin's ongoing improvement, approaching over 40 percent, and the operational expenses which we anticipate will be around 20% at higher revenue levels. As Gary mentioned, our focus is on increasing investment in R&D rather than in SG&A. These two aspects are crucial. We are prioritizing gross margin and its drivers by enhancing our unique, high-quality products across our range while not expanding our manufacturing capacity. Achieving this will together boost margin improvement and ultimately return us to the margins we experienced a few years ago.

And now we'll take a follow-up from Mr. David Williams at Benchmark.

On the AI side, is there a way to distinguish between the demand you're seeing related to the content expansion? I’m trying to understand whether you are driving both demand increases, but which one is more significant? Is it overall increased demand, or are you simply able to sell more products across each of these solutions?

I think it's really a combination of both, right? I think it's important that we continue to drive new product introductions. Like I mentioned, there's a lot of change even with the AI data center with some shifting of transitioning from 48-volt to 400-volt and 800-volt, which also means that there's a new set of requirements that need to be fitted into the application. So I think it's important for Diodes to continue to focus on the technology, continue to focus on new product introduction that will be well fitted into the new application, right? At the same time, the volume will continue to grow. When you combine those two together, it's going to get the best result overall.

Yes. Another important information I'd like to share is that Diodes and Vantage has a very good relationship with those like Tier 1 customers, no matter any company or other company. That's why we understand from their architecture, from our system point of view, we know what they want three years or five years from now. That's why we cooperate with them to develop the product they wanted.

Okay. Okay. That's great color there. And then maybe just on the inventory side, do you get a sense that some of your customers have started to replenish if you look across your inventory levels? And is that something that's helped here? Or do you think that is still in front of us, just kind of given where inventory levels are today?

I believe a lot of customers' inventory situation changed a lot. There are still some pockets of customers, especially, I would say, in the industrial market segment that's still going through some corrections, but we also expect the situation should be improved or completed by the beginning of next year.

Yes. So David, one way to think about that, too, is that you've seen the last two quarters, the internal inventory as well as, as we've described, our channel inventory continue to come down. And as long as that is happening in that way, you're not getting the full entitlement of the market on our margins. And so I think going forward, we feel a more balanced basically ship in and ship out and then the ability to have the entitlement of the full demand coming through our margin. And as Emily said, we think you'll start to see that as we transition into probably the second quarter next year, especially as we start to see the strength.

And we have no further questions from our audience today. I'm happy to turn the floor back to Mr. Gary Yu for any additional or closing remarks.

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

Ladies and gentlemen, thank you for joining today. You may now disconnect your lines.