Q2 2020 Diodes Inc Earnings Call
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Ladies and gentlemen, please continue to hold your conference call will begin momentarily.
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Good afternoon, and welcome to diodes incorporated second quarter 2020 financial results Conference call at this time, all participants on the listen only.
Mode.
At the conclusion at today's conference call instructions will be given for the question and answer session.
If anyone needs assistance at anytime during the conference call. Please press the Star key followed by the zero on your Touchstone telephone.
As a reminder, this conference call. This man recorded today Thursday August six 2020.
I would now like to turn the call over to Leann Sievers of Shelton Group Investor Relations Leann. Please go ahead.
Good afternoon, and welcome to Diet second quarter 2020 financial results conference call on Leanne Sievers, President of Shelton Group Diodes, Investor Relations firm joining us today your diet, Chairman President and CEO Dr., Casey Lee Chief Financial Officer, Brett Whitmire, Vice President of worldwide sales and marketing and the we Yang and director of Investor Relations Laura.
Before I turn the call over to Dr. Lu I'd like to remind our listeners that the results announced today our preliminary as there 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 filed its form 10-Q, four it second quarter 2020. 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 that.
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 discuss 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 August six 2020 does assumes no obligation to update these projections in the feature as market conditions may or may not change except to the extent required by applicable law.
Additionally, the company's press release and management's statements. During this conference call will include discussions of certain measures and financial information and GAAP and non-GAAP terms, including the company's press release, our definitions and reconciliations of GAAP to non-GAAP items, which provide additional details.
So throughout the company's press release in management's 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 of recording will be available via webcast for 90 days in the Investor Relations section of diodes website at Www Dot Dot com and.
Now I'll turn the call over diodes, President and CEO Dr. Shake case, you lose Dr. Lee. Please go ahead.
Thank you D N.
Welcome everyone.
Thank you for joining us today.
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With that let me know tend to coal over to threat to discuss the second quarter financial result, and Oh, so quarter to sell them 20 guidance in Vone too.
Thanks, Dr. Lu and good afternoon, everyone.
As part of my financial review today, I will focus my comments on the sequential change for each of the line items and we refer you to our press release for a more detailed review of our results as well as the year over year comparisons.
Revenues for the second quarter 2020 was $288.7 million, an increase of 2.8% that's compared to $280.7 billion in the first quarter 2020.
Gross profit for the second quarter was $101.5 million or 35.2% of revenue an increase of 5.9% or 110 basis points compared to the first quarter 2020 of $95.8 million or 34.1% of revenue.
GAAP operating expenses for the second quarter, 2020 were $70.6 million or 24.5% of revenue and on a non-GAAP basis.
Were $64.5 million or 22.3% of revenue, which excluded $4.4 million of acquisition related costs and $1.7 million aboard retirement costs. This compares to non-GAAP operating expenses in the prior quarter $65.4 million or.
23.3% of revenue.
Total other expense amounted to approximately $4.8 million for the quarter, including 3.6 million a foreign currency loss and 2.7 million in interest expense, partially offset by one point threemillion of other income and $200000 of interest income.
Income before taxes and non controlling interest in the second quarter of 2020 was $26.1 million compared to $25 million in the previous quarter.
Turning to income taxes, our effective income tax rate for the second quarter was approximately 17.9%.
GAAP net income for the second quarter, 2020 was $21 million or 40 cents per diluted share.
Compared to GAAP net income of $20.2 million or 38 cents per diluted share in the first quarter 2020.
The share count used to compute GAAP diluted EPS for the second quarter 2020 was 52.6 million shares.
Non-GAAP adjusted net income in the second quarter was $28.6 million or 54 cents per diluted share, which excluded net of tax 6.3 million of acquisition related costs and 1.3 million aboard retirement costs. This compares to non-GAAP adjust.
The net income of $23.9 million or 46 cents per diluted share in the first quarter 2020.
EBITDA for the second quarter was $55.3 million or 19.2% of revenue.
Compared to $52.9 million or 18.9% of revenue in the prior quarter.
We have included in the earnings release, a reconciliation of GAAP net income to non-GAAP adjusted net income and GAAP net income to EBITDA, which it provides additional details.
Cash flow generated from operations was $33.1 million for the second quarter 2020.
Free cash flow was 16.5 million for the second quarter, which includes $16.5 million for capital expenditures.
Net cash flow for the second quarter was a positive $283.7 million.
Turning to the balance sheet at the end of second quarter cash and cash equivalents plus short term investments totaled approximately $507 million.
Working capital was $801 million and long term debt, including the current portion was $295 million.
Both our cash and debt balances increased in the quarter. As result of actions, we took to prepare for our pending acquisition of light on semiconductor, which is expected to close in the second half of this year.
As a reminder, on May 30, Onest, we secured the financing for the light on acquisition, consisting of a 520 million dollar term loan and $150 million revolver.
Very pleased to be able to secure the $670 million credit facility at favorable terms in the midst of the co that financial crisis.
During the second quarter, we took advantage of the low interest rate environment and started drawing on our credit line to begin purchasing new Taiwan dollars as a natural hedge against the U.S. dollar since the transaction will be funded and new Taiwan dollars.
As of the ended the quarter, we had borrowed and converted the equivalent of 200 million U.S. dollars, resulting in our debt and cash balances increasing accordingly.
In terms of inventory at the end of second quarter total inventory days increased slightly to approximately 119 in the quarter compared to 115 last quarter.
Finished goods inventory days were 30 compared to 29 in first quarter 2020.
Total inventory dollars increased $23.6 million to approximately $255.8 million, which reflects a $15.4 million increase in finished goods a $4.8 million increase in work in process and a 3.4 million dollar increase in raw materials.
As Dr. Lou mentioned, we took the initiative to build internal inventory during the quarter to support our expected growth in third quarter, while also providing a level of assurance to customers against possible supply disruptions related to the uncertainty associated with the global pandemic.
Capital expenditures on a cash basis for the second quarter, 2020 were $16.5 million or 5.7% of revenue, which remains at the low end of our target model of 5% to 9%.
Now turning to our outlook.
For the third quarter 2020, we expect revenue to increase to approximately $304 million plus or minus 3%.
We expect GAAP gross margin to be 35.5% 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 23% of revenue plus or minus 1%.
We expect non-GAAP net interest expense to be approximately $1.5 million.
Our income tax rate is expected to be 18% plus or minus 3% and shares used to calculate diluted EPS for the third quarter are anticipated to be approximately 52.8 million.
Please note that purchasing accounting adjustments of 3.3 million.
After tax repair calm and previous acquisitions are not included in these non-GAAP estimates.
Also not included is $2.4 million of light on acquisition related financing costs.
With that said I now turn the call over to Emily gang.
Thank you Brad and good afternoon in the second quarter revenue increased 2.8% quarter over quarter, which was at the high end up our guidance, primarily due to better than expected demand recovery in Asia.
Looking more closely at second quarter revenue Pos was up due to strong demand in Asia increased more than 15% quarter over quarter.
North America, Europe, Pos was down due to sexy closure sheltering place mandates that are still largely in place distributor inventory in terms of weak was flat from last quarter and remain slightly above our targeted range of 11 to 14 weeks, but we expect distributor inventory to be within our normal.
Near term.
Looking at global South in the second quarter Asia represented 77% revenue Europe's 13% in North America, 8%.
In terms of our end market consumer represented 27% of revenue industrial 22% communication also 22% computing, 19% and automotive 10% revenue.
Now, let me review the end markets in greater detail.
Beginning with automotive market, we continue to make great progress in this end market, even though the revenue was down 6% sequentially, which is still far left in the decline in the broader automotive market.
Automotive revenue represented 10% off the total revenue compared to 11% last quarter, reflecting the temporary impact all factory closures in North America Europe due to the pit then.
This was partially offset by the increased demand momentum Asia, especially our pericom products. We continue to focus on capturing additional shares the new and existing product what an expanding number of automotive applications more specifically, we saw the man for our new product infotainment Nike.
Some bad we manage some communication equipment powertrain systems body control modules and controllers.
In the second quarter, we released the industrial first automotive we driver appointing U.S.P. type C. I will turn into mode. This devices on Qualcomm reference designs quite infotainment application, which is fielding tractions <unk> new designs in all regions.
To capitalize on the increasing demands for you see type C. Dietary Dcs the power delivery and data like over voltage protection products and the site in both infotainment system and yes the charges.
We also continue to see design wins for our new release, DC DC converters transistors, and LCD driver point equal 19 badly managed system E bike in wireless charging module that reciting the car council or recharging personal equipment like mobile phones.
Additionally, the automotive Gray Hall sensor product continues strong design win momentum in power see application Wow I Super Barry Rectifier, Shockey diodes, and rectifier has showed solid growth momentum and new design wins with multiple automotive customers across regions.
In the industrial market, we saw greatest impact from the pit then with the large number of customer factory shutdown, primarily in North America Europe, we are making every effort to assist our customers in the ongoing global fight against Cobot 19 by supporting many medical applications, including diagnostic and Palmer.
Graphics imaging system, such as ultra sound monitors X Ray system, and Pos awesome meter monitors science delivered switching diodes product for personal protective equipment used by first response for and health care providers. So they can per watt exelon care, while still maintaining their own health and safety.
Similarly, our Mosfets style, Chris Paulson Crystal oscillator has being adapted number of medical application ranging from testing equipment to stimulators, especially dose to fight cobot 19.
We're also pleased to support of Green factory automation efficiency improvement effort with our red to fire, we try to find protection products and applications, including automated QR scanners computer numeric control matching equipment and robotics dying supported our customers on various clean energy initiative.
Including solar cell system, we empower generator and the conversion to fully electric vehicles system <unk>.
In addition, we saw strong momentum for many discrete product why we are deals in traditional applications such as elevators power supply metering security system and DC. Then we also saw solid growth when new D. release 18, both TCPC comparator for building automation project.
In the consumer market, we continue to achieve solid growth primarily due to strong he may Asia for gaming console and aiotv devices like intelligent vacuum cleaners that smart speakers.
We also continue to secure increasing design win.
Quick Charger thing that takes the applications, even though the high in mobile phone Mark Yes mode.
Neil AC DC charcas motion well position STR capable of supporting you see type C power delivery fast charging function and other fast changing protocol.
We have also seen strong demand for ratify up rich ratified a standard lenient launch a product in home appliance application like air condition vacuum cleaners, Smart audio systems, dishwashers dryers washing machine and automating espresso machine. Additionally demands for larger.
Monitor martinis, and IP phones is increasing and as a result, I see expanding traction for STR shockey switching diodes, LCD driver and controllers optimized for monitor and TV backlight application.
Turning to the communication market as I mentioned previously smartphone demand has slowed considerably as to resell pandemic contributing to the revenue being down both sequentially and year over year, However, videoconferencing needs and demands has increased dramatically as business travel agitation.
The fusion conferences cancer and execution has become virtual globally in the hardware decent area PCR express to thought or packet switch are being deployed at the end point expansion associated with AI medium and networking processors. We also saw a wide range of yes the type C.
Switching and video switching demand for the videoconferencing hardware.
Additionally, the global roll out with Fyeighteen network is beginning to create substantial increasing demands why PBS in Moscow that product speed upgrades and increasing bandwidth needs are also driving demand for 80, 250, well performance Pima and hundred 260 volt ultra low rvs are.
In Fiveg power station to safe power consumption.
Hi are solid momentum in both of this area in the quarter.
Our small size low capacitance Tvs product into small CFM package for wide staffing costs search performance. So he could that Ethernet south they PPL you application.
Similarly, the smartphone market required components within package that offer high efficiency in high performance. Since power density is the key requirement I asked products are well suited for this requirement and we continue to launch new products, leveraging our wafer design combined with DFN CST packaging.
Technology, our state of art small sat for the most switch and battery protection applications are see increasing decitabine activity.
In addition, CSP package SDR Shockey Prada experienced further uptake in battery pack during the quarter.
Our class C audio amplifier product family has also received multiple design wins in the monitor market audio applications.
Additionally, we are seeing increasing demand for high performance no switch with new design wins and volume production in cellphone PPH applications.
Newly released 18, low DC DC converters timing TV ads and bipolar power transistors are capturing design, we think the networking applications, Mike Roffler switch and our App and Tina.
Lastly, in the computing market revenue increase ask work from home mandates drove stronger demand for notebook motherboard suffer and storage applications in particular far Pericom product family ask Dr. Lou mentioned, our Pericom product reach the second highest revenue quarter since the acquisition in fact, our club.
I see income that ace it product reached a record high in the quarter. We also secured a number of new design wins for our high current LDL product family power switches SBR in shockey product in PC projector, yes, the PD and ATM power applications. The computing segment also continued to drive solid demand.
Yes, gratifying and reach ratify prada into display and power supply applications.
The power blot use pdcs Wifi package Masa and revenue from this devices also picking up significantly along with the demand was 600 bone loss that.
In summary, our second quarter reached out once again, demonstrating the resilience of our business and the team's ability to effectively manage through the current environment. We are well positioned with customers and have strong design win momentum across a broad product portfolio that continues to drive increased.
The market share and consistent growth for our business.
With that we'll now open the floor two questions operator.
Thank you ma'am.
As a reminder to ask a question you would need to press star one on your telephone withdraw your question press the pound key.
Please standby, while we compile the kuni roster.
I sure first question comes from the line of Gary Mobley from Wells Fargo Securities. Please go ahead.
Good afternoon, everybody. Thanks for taking my question hope everybody as well.
With that first start with some questions about.
Slide on and so obviously taken steps to close that acquisition in the second half the year, but I think maybe some of your most recent comments.
You know would indicate that you might get does the final approval regulatory approval for the acquisition maybe later this month.
And then a close perhaps in the October timeframe is that still your expectation and then.
Line, obviously said publicly traded companies. So we can see that.
The revenue has been trending quite nicely in the scope environment, but I'm wondering if the profitability assumptions that originally.
There were there that you originally had when you announced the acquisition are still intact in other words.
Is it still as accretive as your original expectations.
Well Kerry I.
Let me first talking about the status.
The.
Anti trust and thank you this to repeat pool formed to agency review in China.
Okay.
First.
Yes, so while we are you sir.
And you always see Heinz.
All the questions for each.
Raised by these two agents.
And.
Typically is when they can you put a question.
And we.
I will give them I answer then come back then that would they will have that if you have the meeting at the survey and then from the for the age and agency. They ask for this survey. It typically we accumulate more question and then.
Again going back to assess what give them I answer then they'll go back to.
Hey, Andy Yep.
So thats.
Cody the process.
And to today, we have several weeks no no Andy additional question.
So we.
Today, we believe we answer all the question they raised.
But this do continue subsidy.
The other agency to make sure no there's no issue.
What a consolidation.
So thats where they are.
No we really don't know.
When they go into be approval because if they have more question tumor by other if you agent then.
No come back to Us US then to go back to the M.
Okay, but only thing than we can stays.
We don't have.
Anymore question.
So for civil weaken, though so we hope that.
A final check, but we don't know.
Now even after they give up the approval.
Then you go back to tie one.
For the the Beast process and the pickup all two week up I'm, sorry, two month of the disease process.
So we cannot.
Even that give us I'm, Sir let's say endo. This month, we still can now close that deal and to you and till October so that's the process.
And that's why we say, we hope and.
Gross it.
Hi.
End of lease your second half of this year so that.
That's where the status.
And second question I think you a token mall.
The business the Raymond you play.
Okay, well now so so most most of the accretion is expected to come from retiring diode shares, but I'm just curious if.
Right on might be more profitable or less profitable underpinning that original accretion assumption.
Okay.
In the pad.
They actually consolidated the Albright Beacon and own right. This is making money.
Okay. So.
If you go to look at they'll go all the whole financial result publication, they show that making money.
But when we.
We make the confusion, we'd make an assumption we will not come solid home right and on Brian will be Sol and do fall opted in based on that consolidation.
I think we already say we've done using their the profit mix by always see us.
As.
The synergy okay, and the we only looking at number one new corporate cost there will not have trouble there were no have the corporate entity. So we'll have the synergy bye now.
A quick.
By not.
I have to corporate entity, then we'll assume.
The two home, we're able to Gordon.
Under loaded.
Manufacturing facility.
And Doug.
We can get some I know some accretive to so since the one when we.
Posts to to purchase you always see we do not.
Nothing.
Any pulpwood human right.
Hey always see.
Yes.
You know to your question.
Correct.
And we basically say immediately system, we can get repo copper at all.
Then from long term, we see when do you.
We should be able to.
Oh Gordondale pulled up by at all.
Yes, hi increased a daunting formed.
Oil and we can pull some order loading currently value outside loading from outside so we can who you too and we see that if the that synergy pulled accretive we've seen a year.
Same from the don't come.
Over one you then we can make good.
Accretive from.
Yes form.
Caught up with sale Paula we designed it.
Yeah.
In the major customer we have using their Florida.
And there's so many different condo synergy I assume I alluded to it's not we have four different kinds of synergy we can we can get it so based on that we believe the elysee deal is pretty.
Quick for us Okay recovery.
Financial point of view by picking up 15% how stuff back and that is a lighter.
Now post Steve.
To us.
Okay appreciate that Dr. Lu what's press you guys little bit on the Opex. It so based on your guidance the third quarter, what you've done so far in the first half of the year. It looks like your non-GAAP opex might be up.
This year, despite what could be maybe a mid single digit person revenue decline in so maybe if you can speak to what you're doing what you could be doing arena that opex and what some of the sources might be too quite trending up specifically quarter over quarter third quarter, Okay well. These.
No actually if you look at the Opex operational expense.
Adult and it's really effected by.
Hi, Andy up and down Hi, Andy and that one of the major reason is because pilgrim Paula.
Using.
Yes, MC or using ill.
Global Fund three.
For the for the Pippo.
It should take Paul is very expensive. This now that could have a regular discrete Paula Otis Newport up the typical it's very cheap.
Okay.
Pill come Paula.
Do you think you know very and defense process.
Paul is it a million dollars.
Okay.
And that's it.
And we do not want to slowdown.
Andy will appeal.
Because if you took a people come helping continues grow quite a well like I am really talking about.
Our second quarter activity is the higher this second high this revenue after we consolidate all of the we merge pilgrim.
Company. So you can see the the crew is quite well and this is really down by the owned the new Paula Schumer it by the appeal come group.
And those Newport up a course.
For each to Paul is quite expensive.
So yes.
Yes.
Quarterly sometimes up sometimes down and you just because that.
That.
R&D cost is the major issue from the formed.
The other DNA potion.
We do not really.
You know any plan to increase its still the same thing.
Although we do if we only cool.
Yep.
The revenue growth.
Now if the green, we knew going down that does.
Support also two quarters.
We're not taking action to nailed the people to deduce that salary.
Bill for our DNA.
Persist, maybe up but as a total cost.
We tried to keep the freight.
Does that answer your question.
Yes, Thank you and I stick have taken up the time, so I'll briefly touched before.
Okay.
Thank you. Our next question comes from Shawn Harrison from Loop capital. Please go ahead.
Hi, good afternoon, everybody going on my congratulations on a solid results.
And when we are Dr. Lu I hope I hope, you'll be able to comment on the work from home related strength and Kennedy Aiotv connected device strength that you saw in the quarter strong growth in the consumer electronics and computing side of it just.
What are you hearing from your customers in terms of the sustainability of that demand into the back half of this year.
Right. So shall I think well next topic I think first if I, if we look at a customer area right. So the Iowa key related you know we're talking about a game console or you know that's for how tracker related soundly definitely seeing outside and Q3, it's usually either a stronger quarter for the consumer.
Yes. So you know I think we we definitely have a confidence that you know we expect consumer would be another good quarter in Q3 and.
Also working from home for the PC and.
Computing area Ray So we we see strong growth in Q2, but we also expect that may slow down a little bit better. So we expect probably going to be more like a flat quarter for Q3.
Instead of you know continue to grow quarter over quarter strongly.
Very helpful. And then Brett a question on gross margin was maybe would have seen a little stronger uplift you're into into the September quarter I Wonder if maybe some of the inventory build in the June quarter here is affecting that are.
The dynamics, such as pricing or product mix or anything that's affecting kind of the sequential uplift to the gross margin into the September quarter.
Well what are the things that we we are encouraged about is that from a pricing perspective, we're continuing to see the consistency of that and we are seeing a big thing is driving our improvement in second quarter was the improvement of our utilization, especially in the assembly test in second quarter after the recovery of the.
Extended grown virus impact in first quarter. So we're seeing that and we're seeing a gradual improvement into third quarter and that's what we're anticipating one of the things just keep in mind is that really mid year last year. The revenue levels. We were driving we're still significantly higher and so we're still not back at that peak.
Level.
Although we do anticipate that at some point, but just not in the near term.
Okay, great. Thank you so much and once again my congratulations.
Thank you.
Thank you.
Next question comes from the line of Matt Ramsey from Cowen. Please go ahead.
Yes. Thank you very much good afternoon, everyone.
Dr. Lu I Wonder if you might talk about the strategic.
Rationale for.
Ramping up inventory.
We've we've heard from a lot of your peer companies about strength, particularly out of China and Asia in terms of end demand and obviously their strength from.
The work from home drivers and the consumer markets that you've mentioned so.
Some of those there's some questions were asked earlier the sustainability of that demand in.
Work from home environment might be something that we can debate, but I imagine if you're taking steps to build inventory you may see some strength in other markets in Asia that might lead you to do that so if you're just talking about the demand environment in Asia I really appreciate it. Thank you.
Okay, maybe just how do you have heard walkways implementing just answer one by one and many platform to I'm. So something else you can repeat it okay from the walking home effect to the operation I know Fortunately.
Most of our operation.
In China and Taiwan.
And that today.
Benefit.
Well, even you'll hold them and it fits into not really affected by China about working.
From off is only Antonio all you know namenda infection.
A few people working from home and from that point of view most of our people is in Asia.
Okay now you Rob yes, they affected by working from home and.
US yes, but.
Fortunately is majority of how our non manufacturing Walker still coming from Taiwan, and China, India. They are allowed this to traveling.
And I would now did just that limited by.
Custom meetings that do effective because adult a customer still do not want them to see placed a fifth and.
Virtually east most all people have been working with the customer for long time, so they're coming in Kibali pickup performed by you know knowing how Florida. So we really don't we see them material effect effect by that will come from home okay.
Okay.
Then the second question, what's the other one.
Yeah, maybe maybe let me address the market sentiment in Asia, I think Thats really all your second question right.
You know in Asia definitely we see really good strong I'd be company momentum and.
Especially you know we talk a little bit about consumer on PC market already in the communication marketplace on pulled the smartphone.
And the Fiveg is definitely going to drive some of the momentum in Q3. So we expect that might be a you know seeing good growth and then for the automotive market. We also seeing strong momentum recovery in Asia, especially in China. We also believe industrial we seen some other signs for improvement as well.
Well, so that's pretty much in Asia right I think for North America in Europe that we have the mandate.
Sheltering plays and also a lot of factory shutdown, but we also seeing some especially in automotive area. Some of the factories early recovery, even not to the full capacity, but we definitely see improvement in that area as well.
Got it thanks, Thank you both that.
The time that was really helpful.
I guess is of follow up question on my side credit when I go back to the gross margin. If you guys are.
Ramping up.
Inventory year in that in the near term.
Might that utilization.
Increase come through and some increase the gross margin in the fourth quarter and into next year and just how do we think about but the pace of that expansion that we should model over the next few quarters. Thank you.
Well I think in terms of.
What we've been saying on that would be.
We expected.
Steady increase as we go from second to third quarter and that's what we're projecting on that I think the.
The verdict is still out in terms of transition of third to fourth into next year on the topline and generally the gross margin will track that pretty closely because we've gotten.
Like I said, we're still seem.
Good strength in the pricing for our products and really it's a reflection of the overall utilization the factories and so I think thats, how I would look at it in terms of how the margins will track against the revenue stream well in additional is the port a mix okay. Because if you look at all.
Our automotive and industrial.
When we get to the.
Last year, we're running almost 35% of our revenue is industrial and automotive.
Now this quarter or second quarter, you went down the cost automotive industrial.
Go down but we.
We believe no cellphone so called her.
Automotive.
Industrial.
Great you are picking up.
And that I mean, just mention to you if they are great you're picking up the end up portion of the gross margin.
Quick.
And so our overall margin should be continue in queens. So.
To better but is the product mix.
One is the godin Beth.
And.
If we assume because we don't know yet I assume in Fourq you seasonality.
Okay, you might slow down.
To see the 90, but thats just history no necessary, what we couldn't see this year.
Okay, but even that then we'll open the port of mix push in automotive and industrial will continue then we're hoping we can continue improve though.
Gross margin.
Very clear thank you both.
Thank you.
As a reminder to ask a question human nature Press Star one on your telephone to withdraw your question. Please proceed.
Okay.
Hi, Sean next question comes from the line of Tristan Gerra from Baird. Please go ahead.
Hi, good afternoon.
Steven.
Yes can you hear me.
Yes.
Yes, hi.
Given your commentary that distributor inventories are expected to be within a normal range in Q3.
Should we assume that the point of sale that you see at your distributors is going to be pretty much in line with the revenue guidance that you provided sequentially or is that number going into the different.
Well I mean, we treat then this is Emily so we definitely see I really good momentum for the second quarter under Pos, especially from.
Asia Ray so I talk about 15% quarter over quarter grow more than 15% right. So we do expect Q3. Our you know we should continue to growth momentum and value now part of that you asked estimate and its into part of our guidance and that's the reason, we actually buy that more than 5% you know Hutchinson.
Okay.
Okay.
And is the does ramp in automotive for Terry can product pretty recent.
Because I know the design cycles are pretty long and is that going to be.
Positive mix catalyst for next year as well just trying to look at the duration of that.
One of which is more recent and data center.
And the impact on mix and also is that incremental content to those Perry come products in the automotive or is that really share gain.
This is other suppliers and if thats. The case, then what wolfberry come to actually get the design wins.
Right. So let me address that question. So that the design win momentum has been really strong and you're absolutely right design cycle is quite high in the automotive. This is really driven by some of the past ever like I said throughout few years.
So most of desktop, especially on new generation of the design and.
Some of the content also our new additional comp.
That we are excited I think I talk about it you know talking about the next generation eight das or Panamax hit a you know topology change and that's really driven some of the new pericom content and Additionals iOS content into a you know that does the pipeline.
If you do correct.
If you took us overall automotive business.
Even the monkey slowdown 30, 40%.
You took a one Q2 Q Raymond automotive remaining we had only down about 6%.
Okay. So you can see decent what the the pool that you know that benefit we have is from long time design win opportunities.
Right.
Really on the contract extension right.
Yes.
Yes, yes, so that's really incrementally in terms of content to expansion as opposed to.
Market share shift.
Right.
Right, we always focus on the new applications right and the new functions and features.
That's really the new strategy carry through dive for the last few years focus on the total solution and a you know the value add to the customers.
Great. Thank you very much.
Thank you.
Thank you I show no further questions in the queue at this time I like to turn the call back to Dr., Acacia Lou President and CEO for closing remarks.
Thank you for your participation on today's call.
We do Q4, two providing an update on our beaches next quarter.
Well put this operator you may now disconnect.
Thank you Dr., ladies and gentlemen, thank you for attending today's conference. This concludes the programs you may now disconnect.
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