Conference Transcript - DIOD 2026-06-02

Tristan Gara, Analyst — Baird

Okay well let's get started and good morning. I'm Tristan Gara, Senior Semiconductor Analyst at Baird. I would like to introduce Diodes, a leading supplier of analog and power platform solutions serving a variety of end markets including AI data center. We're pleased to have with us today Emilie Yang, Senior Vice President, Worldwide Sales and Marketing. And with that let's get started. It's going to be a fire chat with questions only today. We have about 29 minutes. So I'm going to start with my first question, which is about the trends in power. Clearly, things are changing fairly quickly these days. You've obviously had a significant share gain over the past several years you're benefiting from an upcycle but it looks as if there are you know secular trends that are layering on top of that normal increase and i know you're going to provide more data around data center and the ai part of this but there are some emerging exciting thing themes coming you know with 800 volt native and maybe at a high level before we you you you get a chance to later on this year provide you know more metrics you know maybe at a high level how do you see those trends in data center driving your business and any opportunities that you want to

Emily Yang, Analyst — Other

highlight perfect well first of all good morning everyone so good to be here with you guys AI data center power conversions definitely a very hot topic at this moment I think I mentioned AI as a whole ecosystem we did share some of the AI solutions especially focus on the surfer applications we've been growing really fast in this area and benefit a lot for the last few quarters this is actually specific focusing on you know the the PCI Express support finding out additional ports on the timing solutions and stuff like that so on top of it I I think Tristan just actually mentioned 800-volt. This is a transition from 48-volt to an 800-volt application. A lot of, I would say, the science is focused on, I call the power supply area. This is actually the power supply supporting the AI applications, whether it's a data center, whether it's a server, whether different applications. So what we see, the power supply actually consists of different units. There's a power supply unit we call the PSU. There is battery backup unit BBU. There's actually power delivery unit PDU and that there's also ISO ISO You know data DC DC conversion portion I would say all in all right. I don't think you guys need to remember all this acronyms But I think with this voltage translation create a lot of opportunity overall for dials So if we look at the PSU, which Tristan specifically referred to earlier as a good example in the PSU area We actually seen a lot of silicon carbide requirement This is actually not only just on the MOSFET area. We actually also have the you know Dials over this area as well. So, you know, that's actually a great great opportunity for us moving forward on top of it we actually seen a lot of isolation solutions require this actually covers like our gate drivers isolation gate drivers we've seen a lot of current sensing requirement we also have something called digital digital isolation overall in the o-ring this is more on the redundancy of the power supply also create a lot of opportunity I would say all in all this is quite significant and like Tristan mentioned earlier we are putting a lot of materials together that we actually going to share in our investor relationship back so just stay tuned but we are extremely excited and on top of it we have the BBU opportunities we have the PDUs we also have different areas of expansion so couple areas one is actually with the current designs current requirement but we also working new products supporting the future

Tristan Gara, Analyst — Baird

requirements great and and you mentioned silicon carbide how central is that as part of your product offering and and also if you could talk to the extent that you can about plan for doing some of the epitaxy internally or you fabulous right now you know what is the product roadmap on silicon carbide and you know how big do you think it becomes ultimately as part of your portfolio or is it just a small addition that's nice to have in you know on top of some of the products that you have in PSU's or is it going to become more central yeah

Emily Yang, Analyst — Other

so silicon carbide is a big I would say important portion of our product engagement product development this is actually fell under our discrete power management area because a lot of silicon carbide whether satios or MOSFAS is all be lost in the same category this is only a part of a product offering definitely it's not everything that we offers so I think currently what we working with especially on the epi area we work with all the tier one suppliers like the epi cell you know epi work stuff and then all the actual manufacturing happening our Taiwan facility our own fab so we definitely want to continue to engage and continue to expand in this area you know like I mentioned earlier all this product is actually linked together what we really want to do is actually total solutions so if you think about diodes you know whether it's discrete whether it's analog whether it's mixed they know Where there's timing we want to actually loop all these things together Provide a total solution to the customers So, you know a lot of time even with the PSU we mentioned it's not just about silicon carbide There's analog there's discrete on the power protection whether it's power or data line protection With some of the other AIs, you know high-speed protocol PCI Express whether it's USB type 3C USB type C USB 3 right all this is actually linked together if you think about diode other than we don't have CPU GPU we don't have the ASIC or FBGA we actually have a lot of complementary solutions that actually offer to the customers together so I would say silicon carbide is one of the

Tristan Gara, Analyst — Baird

area but definitely is not the whole thing about diodes. So I know you haven't provided a breakdown of product but I think historically you know it's probably fair to assume that a little bit more than 50 percent of your product mix has been you know power discrete and the rest being analog at a high level, how have trends changed in favor potentially of power products or the discrete side where I think in the past people, you know, your peers were really focusing just on analog. You know, I've heard Dr. Acasio saying in the past that, you know, clearly there's very good gross margin opportunities in power as well. I just wanted to understand better with data center, with this whole revamp of power supply is discreet, is power getting an acceleration of the growth? Is it becoming more important, not removing from the value that analog products are providing, but is this a portfolio, a mix of product that you're happy with, given what we're seeing in terms of trends unfolding in the market yeah what

Emily Yang, Analyst — Other

we're seeing the growth is actually coming both from the discrete as well as analog since we cover a wide range of analog power management whether it's DC DC whether it's LDO area together on the discrete side right so we talk specific about 800 volt the 48 volt is not getting away right we still have 12 applications as well so I would say for us we treat everything equally and some specific end application can drive some of the momentum doesn't mean that others would not right so I would say it's really a balance overall for us so we want to be a well balanced overall supplier so even with the end market focus you know we talked about a lot about AI but auto industrial you know if you really think about automotive, there's also a power conversion moving towards from 48 volt to 800 volt or 400 volt. So there's a lot of similarity going on. So I would say all in all is actually very good potential for diodes overall in a longer term.

Tristan Gara, Analyst — Baird

Great. A number of companies have talked about supply constraints over the last earning season. given the demand notably coming from ai that seems to be creating some scarcity in other end market you know how do you mitigate that how big or small is it of an issue do you see the potential at some point for the supply constraint to really have an impact on demand where some other companies could guide on supply as opposed to demand and and again what steps are

Emily Yang, Analyst — Other

you taking you know to to mitigate that okay so demand supply it's always there right we definitely seeing very strong demand across the board I think I talked about it with last earnings call we seeing a really good momentum picking up even in the industrial market seven automotive market seven which is great so we focus on the hybrid manufacturing model so basically what that means is actually we leverage our internal manufacturing capability together with partner outside as well so we believe with our hybrid manufacturing model give us a lot of flexibility to dynamically adjusting things to better support the customer what we see is definitely there's constraint both in the back end I will say more in the back end and majority of the back end assembly and tasks we actually have in-house capability we are extending the capacity you know aggressively but more focus on the strategic level we're not just close our eyes expand everything we want to make sure the area we expand is actually the future trending area so for example smaller package more density of the package that's an area we expanding on the front end so we actually own a lot of our I would say fab in-house together with external partners so with the in-house manufacturing we are aggressively qualifying porting our own internal fab we bought a fab from TI about five six years ago in Scotland we bought all semi fab in South Portland not too far from here about two years ago we are still going through the transition of qualifying the technology process as well as devices so we believe with the front and back end combination actually help dials overall better support the customer working with their real demand true demand there are situations are very hand-to-mouth so it's not like we just have endless capacity but we we try to manage it very closely stay very close especially our tier one tier two customers and work with them on their real demand so on the same topic as we

Tristan Gara, Analyst — Baird

see demand exceeding supply and we've seen lead time expand a lot are we getting back to an environment that perhaps feels like 2020 where you know pricing is stabilizing, you know, what do you see in terms of opportunities for peers to raise pricing? And I mentioned peers because you tend to have a fairly price, you know, price-stable philosophy, you know, where you emphasize share gains, but how do we look at the pricing environment, specifically in discrete, maybe in analog, and also embedded in that question, Given those supply constraints, you know, how do you see? customers Steps to secure potentially 27 capacity

Emily Yang, Analyst — Other

Okay, so on the pricing side demand supply always drive different pricing behavior Overall in the market we definitely see that happen already in some of my peers actually announced the second round of price increases So on the dial side, I think Tristan mentioned, he's right. I was talking about long-term benefits more important than the short-term gain. There are situations we have to adjust the prices as well. So I don't want to say we're not doing it, but we want to do it more strategically. So we want to continue to gain the market share, deciding some of the newer, better product with better margin. So if you really think about at the end, we're talking about product margin or gross margin improvement. So if I can secure some of the newer designs and then with the production cycle It will actually give me more stability. I call this sustainability for a longer term so I would say that's really more our key focus overall and Talking about long-term supply guarantee, you know Amazingly during the Kovac time. There's a lot of LTA long-term long-term agreements people put in place and then got burned and stuff like that and customers kind of shy away from it but um currently there's more customer want to talk about ltas guarantee for like a longer term one to two years minimum supply um overall so i think that is a good indicator of the market overall change and people definitely uh concern more on the supply than the specific pricing at this moment I think overall we also seen the lead time extended the cycle time you know because there's a queue time it's definitely happening in the market at this moment and and how do you feel your

Tristan Gara, Analyst — Baird

position relative to your peers in terms of front-end capacity and and you know We've seen obviously a big build of capacity in analog, including TI and our devices, all at the tail end of the last up cycle in 2023. And in retrospect, does it look like all that aggressive capacity built was actually a good thing because demand seems to be stronger for the next probably three, five years. than it's been the past 10 years so if you have any comment on on that in terms of you know was that big ramp in capacity industry-wide really in faded or is that instead you know really going to help for the next few years and how

Emily Yang, Analyst — Other

are your position within within that yeah so I think from the fab technology point of view we probably need to separate events technology versus I call a more mature technology all the diodes products more sitting on the mature technology we haven't really seen a massive expansion in this area so you know i mean it's always difficult for us to time the market right so if we go back to year 2000 2020 2020 to covet right at that time if you ask everybody said capacity is not enough and then we have the post-covet that everybody say we have too many of the capacity. I think for dials what we try to focus on, we didn't really scale back our capacity whether it's up or down that much. We really focused on the longer term where we want to be as a company. I think last quarter we talked about it. We finished our last year $1.48 billion. We want to grow to $2 billion within the next three years. So what we're looking at is actually our current landscape or manufacturing capability whether it's enough to support our two billion goal right you you can have a little bit up and down who knows what's going to happen tomorrow in the market but we want to make sure we look at our long-term goal to match the overall so if you really think about you know with the 2 billion we actually estimated 10.5 5% KGAR growth for the next three years if I just look at the first half of this year Versus last year first half I believe it represent about 19% First half versus the last year for has growth already So that's really where we want to focus right so you know we believe the current manufacturing footprint will enable dials to continue to grow towards the direction I think the SP fab in US main would be very focused on the analog standard linear logic type of product focus and then the Scotland fab in Greenock will be more focused on the discrete MOSFET type of area so with both of this structure or our you know footprint will actually enable us continue to be you know competitive in the market and compete continue to support from the supply demand point of

Tristan Gara, Analyst — Baird

view in a longer term so given the context of lead time expansion does that facilitate the push industry-wide for customer requalification you know in your case that's you know for outsource capacity of product you know back in house for you know companies like TI and ST that's trying to migrate people to 300 millimeter what's the the appetite you know for customers to requalify I guess in a way to secure capacity maybe that was not the case the past two years

Emily Yang, Analyst — Other

when we were in a down cycle right so customers always more flexible and willing to qualify new product whether it's pricing whether it's capacity so we are leverage every single angle we can and work with customers to better support them in a longer term right so I would say all in all this is all

Tristan Gara, Analyst — Baird

positive for us okay and and in terms of timing is this something that started earlier this year or is the bulk of those re-qualification fitting the Greenock fab and the South Portland main fab happening next year or are you already seeing You know customer Re-qualification this year those fabs or is it more about new product?

Emily Yang, Analyst — Other

Yeah, so I think with the qualification we have to separate into two area one is process qualification so we have to make sure we build a new process with the qualification and that's usually take a little bit longer so once the process is qualified then we qualify devices sit on this specific process technology notes so what we seeing is it's progressing it's not going to be a cliff up or cliff down so it's going to be every quarter graduate improvement throughout the next I was the next year and the year after but we will start seeing improvement gradually so I think we openly talk about it you know there's a lot of changes you know with manufacturing surface agreement and stuff like that we believe the worst is pretty much over so everything is

Tristan Gara, Analyst — Baird

telling from now on great and are you able to share maybe some of your target in terms of front-end in-house versus outsourced and how it is looking now in terms of the split?

Emily Yang, Analyst — Other

Yeah, I think right now probably on the fab side, on the front end, I would say probably a 55-45-ish split and eventually we want to be maybe more 60-70% in-house and then the outsourced portion may be about a percentage somewhere between I would say 30 40 percent and then on the back end so we always have a pretty high percentage that's in-house so we expect to maintain similar percentage I would say that's somewhere between 85 90 percent in-house at this moment so you know we we we want to continue to engage with our partners outside especially on the technology on the new product area so we want to you know whether it is paracom type of product we actually use a lot of third party partners to enable the technology and also enable the new product introduction so that is not going to change so we definitely would continue to remain the hyper manufacturing model for the years to come so back in a few

Tristan Gara, Analyst — Baird

weeks before last turning season there was already feedback from investors that the recovery in analog was counterintuitive because of incremental weakness in PCs and smartphone because of D1 pricing. And obviously those concerns were dismissed on the last earnings season. Could you talk about, you know, how do you see those trends unfolding? You've mentioned on the last earnings call that, you know, you expect those trends to continue in the second half so you must have very good visibility maybe if you could give us a sense of you know the visibility that you have how does that compare versus last year and maybe a quick review by end market in terms of

Emily Yang, Analyst — Other

sure demand trends yeah so because we specific talk about computing consumer so maybe we start with three C's and then I'll talk about auto industrial right I think the biggest challenge for this year is actually memory shortage right so you know the visibility overall in this area probably still kind of limited because most of the customer maybe have three month visibility versus a longer term so I think that remains a concern but all in all if you look at the size of the customers I think the bigger company probably tend to have more of the capacity guaranteed versus smaller companies so I think there's still a lot of dynamic in this area going to the PC area we definitely seen very strong momentum continues in the AI related area right especially AI surfer we definitely see a good forecast and good momentum all in all we also expanding our content in this area so we believe that's gonna continue to help drive for the 2026 as well as 2027 on the PC and motherboard even with the last quarter we definitely see some adjustment down but it kind of helped with the AI portion but all in all that probably still remain a little bit uncertainty usually Q3 Q2 are more of the peak and then usually Q4 is a little bit slowing down that's the base on the our usual seasonality you know trend but like I said we do expect that we're going to be a double-digit growth this year I think even with your estimate definitely reflecting the expectation of the street so we want to continue to execute consumer it's even a little bit more uncertainty very customer dependent some of the customer they can get very good support some definitely challenge a little so I would say you know but from the historic point of view this hasn't been our number one focus overall right communication we've seen a lot of momentum also driven by the AI there's a lot of switches and routers in the networking very focused on the AI support and application overall we've seen good momentum and you know auto continue to be our key focus and we want to continue to grow automotive based on last quarter we finished about 20% and we want to grow much bigger we have a very good momentum so far if I just compare for the last 13 years we actually have a compounded annual growth rate more than 20% and we expect that momentum continues this is more focused on the content expansion not specific to the unit output industrial we actually see very good momentum I think last quarter I talked about it in the earnings call inventory shadow is over right so now we definitely seeing a healthy momentum of picking up of the real demand and so we expect that will continue to grow for for this year as

Tristan Gara, Analyst — Baird

well great and then any signs yet that customers are starting to rebuild inventories we're looking at ODM inventory days maybe picking up a bit the past few the past quarter even though at OEMs inventory levels were still down year over year quarter of a quarter so in automotive and OEMs our data is that we're probably back to pre 21 levels which is amazing so are you getting feedback from customers that they wish they had a bit more buffer inventory or do you expect that to happen into next year so a lot of

Emily Yang, Analyst — Other

customers definitely want to build up is if you really think about when we have an inventory correction sometimes people over react corrected to a really low number which may not be healthy to support their overall production so there's a lot of customer want to rebuild but I want to be honest with you on dial situation we are very hand-to-mouth at this moment so I don't really think we have a lot of luxury to rebuild the inventory if you look at a q1 end of q1 resell I think I talked about it both the channel in terms of inventory days in terms of inventory dollar decrease quarter over quarter so you know I would say I believe if this rebuild would happen probably will be sometime next year I just don't see that as a possibility for this year at this

Tristan Gara, Analyst — Baird

because of the fact that you're not giving the customers all of what they need and that's despite the fabs you know the Greenock fab or the South Portland main fab so is it just a different mix where you see very strong demand in areas that are not served by those fabs or how should we look at it

Emily Yang, Analyst — Other

yeah so I think it's combination of both number one we also don't want to repeat the same situation that we went through in 2023 right so I think there's a lot of lesson learned so we want to make sure we are building the inventory at the right place for the right customers for the right part so that's number one number two there's also some product mix change I think last quarter I talked about one of my peers they have some supply interruption happen right so that also kind of skew the mix a little so I would say combination of both but I think the key message is we want to work with the customer for their real demand because remember 23 we have the golden screw situation so we don't want to repeat that we want to make sure our shipping and ship out at a very healthy level we monitor the POS point of sales with distributions very closely So that's really something we try to do better, learning from before.

Tristan Gara, Analyst — Baird

Any quick questions from the audience? We have 30 seconds left. Great. Thanks, Emily.

Emily Yang, Analyst — Other

Thank you. Thank you, everyone.