Diodes Incorporated Q1 2023 Earnings Call
Good afternoon, everyone and welcome to diodes, Incorporated's first quarter 2023 financial results Conference call.
Before I turn the call over to Doctor Lou I'd like to remind our listeners that the results announced today are preliminary is there a subject to the company finalizing it's 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, it's Form 10-Q for its fiscal quarter ending March 31st 2023.
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 a 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 and.
In addition, any projections as to the company's future performance represents management's estimates as of today may 9th 2023 Gods assumes no obligation to update these projections and 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 statements. During this conference call will include discussions of certain measures and financial information in gap in non-GAAP terms.
And glued to included in the company's press release, our definitions and reconciliations of gap 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 has got net income.
For those of you unable to listen to the entire call. This time, a recording will be available via webcast for 90 days and the Investor Relations section of diodes website at Www Dot <unk> Dot com and now I'll turn the call over to Deimos, Chairman President and CEO Doctor case. She lives Dr. Lee. Please go ahead.
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Thanks, Dr Lou and good afternoon, everyone.
Revenue for the first quarter 2023 was $467.2 million decreasing 3.1% from $482.1 million in the first quarter of 2022 and down 5.8% from $496 2 million.
In the fourth quarter of 2022.
Gross profit for the first quarter was $194.5 million or 41.6% of revenue compared to $196.7 million or 40.8% of revenue in the prior year quarter, and $206 $2 million or 41.6%.
Revenue in the prior quarter.
GAAP operating expenses for the first quarter, where $108 million or 23.1% of revenue and on a non-GAAP basis for $101.3 million or 21.7% of revenue, which excludes $3.9 million a amortization of.
<unk> related intangible asset expenses and $2.8 million related to officer retirement. This compares to GAAP operating expenses in the first quarter 2022 of $103.6 million or 21.5% of revenue in the fourth quarter 2022 of of her.
<unk> $9.7 million or 22.1% of revenue.
non-GAAP operating expenses in the prior quarter, where $105.9 million or 21.3% of revenue.
Total other income amounted to approximately $2.2 million for the quarter, consisting of a 3.9 million dollar unrealized gain on investments 1.8 million of interest income 530000 of other income partially offset by 2.1.
And interest expense and at 1.9 million dollar foreign currency loss.
Income before taxes and Noncontrolling interest in the first quarter 2023 was $88.6 million compared to $98.8 million in the prior year quarter and $94.8 million in the previous quarter.
Turning to income taxes are effective income tax rate for the first quarter was approximately 18.8%.
GAAP net income for the first quarter of 2023 was $71.2 million or one dollar and 54 cents per diluted share compared to $72.7 million or one dollar and 59 cents per diluted share in the first quarter of 2022 and 92.1.
Million dollars or $2 per diluted share in the fourth quarter of 2022.
The share count used to compute gap diluted EPS for the first quarter of 2023 was $46 2 million shares.
non-GAAP adjusted net income in the first quarter was $73.4 million or one dollar and 59 cents per diluted share, which excluded net of tax $3.1 million of acquisition related intangible asset cost $2.3 million, an officer retirement expenses and a three.
1 million dollar gain related to an LSE investment.
This compares to $83 million or one dollar and 75 cents per diluted share in the first quarter of 2022 and $79.6 million or one dollar and 73 cents per diluted share in the prior quarter.
Excluding non-cash share based compensation expense, a $7.7 million net of tax for the first quarter, both GAAP earnings per share and non-GAAP . Adjusted EPS would have increased by 17 cents per diluted share.
EBITDA for the first quarter was $121.8 million or 26.1% of revenue compared to $118.1 million or 24.5% of revenue in the first quarter of 2022.
$129 $6 million or 26.1% 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 gap that income to EBITDA, which provides additional details.
Cash flow generated from operations was $99.8 million for the first quarter free cash flow was $51.8 million, which included $48 million for capital expenditures net.
Net cash flow was a negative $15.2 million, including the paydown of $60.8 million in total debt.
Turning to the balance sheet at the end of first quarter cash cash equivalents restricted cash plus short term investments totaled approximately $335 million.
Working capital was $731 million in total debt, including long term and short term was $125 million.
In terms of inventory at the end of first quarter total inventory days, where approximately 116 compared to 117 last quarter.
Finished goods inventory days, where 31 compared to 33 last quarter.
Totally inventory dollars decreased $18.3 million from the prior quarter to approximately $341.9 million <unk>.
Total inventory in the quarter consisted of a $13.7 million decrease in raw materials, a $3.1 million decrease in finished goods and at $1.5 million decrease in work in process.
Capital expenditures on a cash basis, where $48 million for the first quarter or 10.3% of revenue.
First quarter Capex was higher than our target model due to the strategic expansion of our J K wafer fab and since you Science Park in Taiwan.
Without this investment we would have been within our target model of 5% to 9% and we expect to be in that range for the full year 2023.
Now turning to our outlook.
For the second quarter 2000, twenty-three, we expect revenue to be approximately $467 million plus or minus 3%.
With a slower than expected recovery and the consumer computing and communications markets, we're guiding flat sequentially at the midpoint to reduce three C channel inventory.
The automotive and industrial markets are expected to remain strong. We also expect continued driving our strategy of improved product mix and our guiding gap gross margin to be a record, 41.8% plus or minus 1% non-GAAP operating expenses, which are <unk>.
<unk> operating expenses adjusted for amortization of acquisition related intangible assets are expected to be approximately 22% of revenue plus or minus 1% we.
We expect net interest expense to be approximately $1 million or income tax rate is expected to be 20% plus or minus 3% and shares used to calculate EPS for the second quarter are anticipated to be approximately $46 5 million.
Not included in these non-GAAP estimates as amortization of $3.1 million after tax for previous acquisitions with that said I will now turn the call over to Emily Yang.
Thank you breath and good afternoon in the first quarter rattling your decrease 5.8 per cent quarter acre corner due to the tippit closest an allergy related to that Chinese media holiday combined with <unk>, you can definitely see market.
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That's good news is that we started to see signs of recovery and the computing and consumer My kids are.
Plan Your city, please I'm channel inventory and the second corner, which is reflected in our guidance.
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Automotive industrial Marquez salmon I expect it to remain strong in the second quarter.
Nothing at the Carnival style seeing that first clinic ancient breakfast time with fixing eight per cent off retinue Europe 17 per cent in North America that sounds perfect.
In terms of how far and Martin's industrial with a record 29% a bias product redfin autumn Los Angeles also my record at 18 per cent.
[noise] computing 22 per cent consumer 18 per cent and communications 13 per cent a product revenue.
Our automotive and industrial and Mark has combined reached a record 47 per cent of the product Redfin now, which is the fifth consecutive crawfish about 40 per cent and if certain percentage point about at 2025 target.
That's actually under score Onkelinx affect how far cockpit expansion strategy and Martinez checking.
Now, let me leave me with it and market in greater detail.
Starting with our automotive and Mark in Iceland Nation, Bethany reached a record 18 per cent and I'm proud of rescue and represent it as well about 33 per cent yeah. Okay. Yeah.
Yeah first focus area off connected drafting ipsec depressed and he got all packet switches Pizza Express cough January <unk> cough offers crystal oscillators, yes, the switch it E. S. P. <unk> multichannel shifts, Sir and I owe Expanders I've been designed into a S infotainment telematics.
<unk> domain controlling your neck and electric <unk> applications.
<unk> D C D feedback on their tests L. D. L <unk> bipolar transistor and T V S product <unk> an application.
An accomplished added safety like continue to gain traction so I re drivers and crossbar switches S. E. S. B types. The adoption continues to increase the vehicles.
Our solution selling a product is the key to I'd like to at this moment account. Additionally, we have be winning the science well our pilot during the first solution that includes <unk> personal coffee corner, along with <unk> <unk> and P. B S for the vehicle, yes, the tracking devices.
We're also seeing an increasing number at the sandwich, while this charges.
Thermal management system without current monitor products reckoned later times Mister Smith S D our products and.
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And the power train, which covers conventional heartbreak an accident vehicles are switching dialed product help supply convention applications, such as dry twang electronics, and telling telling and a cargo manage my system S. B R. E talent that products are also seen traction battery manage my system.
In in protection <unk> application, what battery electric vehicles as well as clapping Hydro electric vehicles. We also recently introduced a number of new automotive compliant F. D. R. <unk> and M. P and transistors that has to be decided ancient battery management system.
In the first corner, we introduce 60, a new automotive complain products. This is a good demonstration off our focus on various automotive applications and <unk>.
In our industrial market Rattling your girl seven per cent yeah over here too also reached a record percentage off the total product redfin you're at 29%.
<unk> L D. LS extensors continue to see strong email applications, such as easy fast power twos power supplies circuit breakers, <unk> embedded systems and precision control system.
Additionally annually release industrial Natch switches are gaining traction from local tastes too high voltage applications require the harsh environment.
R F. B I proud of also being wagging using power. Okay, you said that and and by the application Y R. 36 Channel me near L. E. D drivers are being adopted a robotic applications.
Can you drive for iced tea with new socket and power supply unit.
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Our high profile, my transistors and high voltage switching dials have awesome <unk> <unk>, <unk>, <unk> <unk> national energy generation and transmission systems.
Additionally, weight gain any increase traction for switching diagnose and function I'm ready products that are utilizing numerous consciousness sound applications include <unk> H B a C. <unk> L E D lighting digital printing crashing machines, <unk> Assembly test system and <unk> <unk>.
<unk> and the aviation security system.
Early in the first <unk>. Please to release, our first pet <unk> Shockey Bury it values that includes a C. V. S 11, Private League S 650, <unk> and other cereals eight private read it at 1200, well. We also release out first then a cop I'm all set to address the demand for high.
Nancy and have high power density applications, such as industrial multiple drivers solar in furniture data center in telecom power supply D. C. D. C converter S Y S electric vehicle battery charges.
Despite the softness and global computing Marken are designing momentum continues a cross a portfolio of products does include <unk> type C. Charging detectors high speed switches <unk> Master S. B R and T V S pattern in the <unk> applications, including suffers.
Desktops notebooks classic cars and carpet you must need data protection mute.
<unk> at Tiffany's convenience for our contact image sensors, and Multifunction printers, and we felt adaption of H D and my two that all 12 gigabyte per second V drivers E. N N C. Marxist and gaming console Aswell S. H I O N 10, gigabyte per second <unk> an active.
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And the communication Mark yet we continue to renewed besides the five G applications for audio switches I owe Expanders USB switches, Hi, P. S. R. R. L D O and shockey products. Additionally are small signal diet products getting traction in the rapid growing seal of industrial come in.
Indications system and sat they're so cute.
Bipolar transistor <unk> I P camera <unk> and Roger applications.
Lastly, in the consumer market whipping security <unk> switches MOSFET currently isn't it power switches breached rectify it in sports camera adopters gaming console and power all thank me for that net devices. Many.
Manufacturers O P. I N O R. T V and displaced continue to adapt bipolar transistor and their new models. We also continued to see solid growth for our F. B R. L. E D. Drasner P. A so Saturday dry first yes, the power delivery. Thank controllers switching diet and T. B S. Prada in the tracker application.
Place wearable person no care health care devices, and the health and safety monitor system as well as in fire and carpeting Lanasa sensors.
In summary, <unk> highlights the pro Max we have may increasing our Comcast and Martinez checking and automotive industrial markets contributing to our overall private makes improvements are total solution south approach and operating efficiency half being a key factor into our search.
That's S. We continue to drive growth and sustainable Martin Fuchs on it.
With that we now open the floor to questions operator.
Ladies and gentlemen at this time will begin the question and answer session.
Ask a question you May press Star and then one using a touchtone telephone.
Draw your questions you May press start and too.
If your question has been address or you would like to withdraw. Your question you May press starting to <unk>.
Again, if you would like to ask a question. Please press star and one will pause momentarily to assemble the roster.
Our first question today comes from <unk>.
Matt Ramsey from Cowan. Please go ahead with your question.
Yes. Thank you very much good after noon everybody I think for for the team I. My first question, obviously, there's a lot of moving parts here in the macro environment and great to hear about the auto an industrial strength and the momentum the business has there.
But I guess I'm trying to get.
John how you guys are seeing.
Potential recovery and China, I mean, it's anybody's guess as to when that happens, but it is.
A return to.
You're over a year growth for your company sort of predicated on a recovery on cell in until a lotta. These consumer markets in Asia or how do we think about that relative to the design with momentum and the content growth that you're seeing across the business I'm just trying to gauge sort of expectations for the next few quarters and the levers macro.
Why's versus sort of secular content wise for your company. Thanks.
Yeah, Hi, My F. This is Emily let me address your question first I think overall like I mentioned earlier right. We do start to see some recovery in the.
Computing as well as communication area and also consumer it's very I would say the lower than our expectation, but the good news. It was starts to see signs of recovery you know I mean, usually for Q3. It is the peak of all this Marquez said.
<unk>. So that's also part of our cause some assumption as well.
Oh no. Thank you Emily Thank you that for that very much as my follow up question I think the.
Some of the longer term financial model metrics that that you guys have shared are are are a bit older now and and the company has done much much better than some of those metrics and one of them was around getting the business mix to be fought.
Per cent or more of revenue coming from auto industrial and you far past that I think we're at 46 47 per cent of the business now and you just put up a really really strong gross margin quarter and then guided up.
[noise] I'm, just trying to figure out if it.
The team thinks about this mix of business and this margin profile and sort of the 41 42 per cent range is that sort of a new way that we should be thinking about the business or if in fact, the three CS market come back at some point in the mix that the margin would move up or down with that but great margins are just trying to figure out. If this is sort of a level.
He should think about for the foreseeable future. Thank you.
Okay, Let me just answer no number one.
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And we definitely would continue to focus and the total solution south approach as well as manufacturing efficiency with combine of August three we are confident that we will continue to drive the margin overall improvement and if you look at the <unk>.
South <unk> plus industrial 47 total up our product Redfin Neal is a good demonstration of this result, and as well as our guidance for two 241.8 per cent. So I think you know the focus will not change for the company and that will continue to be the direction. If we continue to execute this.
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Alright, well. Thank you very much for all the color Dot W. Emily I I really do appreciate it all jumped back in the queue. Thank you.
Thank you.
Our next question comes from Gary Mobley from Wells Fargo Securities. Please go ahead with your question.
Good afternoon, everybody. Thanks for taking my question.
The comments by Doctor Lou that the second half of the year should be better than the first half.
I guess indicates that you're gonna expected the normal seasonal uptick in the September quarter correctly to a wrong, there and I wanted to get my arms around the impact on the reduction distribution inventory with the understanding that presumably you're about the normal 11 to 14 weeks and each week of distant.
<unk> inventories worth what $22 million in revenue. So so how many weeks of distribution inventory digestion or reduction or are we talking about here that is influencing the sub seasonal guide for the June quarter.
Yeah.
Answered that question. So we we don't really discuss the details about the number of weeks, but in my speech I did nature is higher than our 11 to 14 weeks range that would be fine as normal. So our goal is actually expect the appeal as the channel withdrawal in second quarter.
And at the same time, we wanted the police on with the channel inventory. So we do B b. The number of weeks will come down you know so that's based on what we see based on the market and the information that we have so far.
Cause it's very difficult to just look at the oval, all emo toy, Okay, Oh, <unk> <unk> Oh.
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Thank you for that it's my fault, but what to ask about your operations in China. During Covid you were operating for so many years in a closed loop environment can you give us an update on.
Whether that's still the case and if not you know, whether there's any anticipated or already realized cost benefit from that.
No actually Gary this is Gary and the operation in our China No matter of a fab are simply on no more right now okay. So that's why what you would say okay. The operation for the China, and we want to drive if the cost reduction at a mall operation or Excellency, Okay. So there's no any special.
Locked out or close to the operation at this moment.
Alright, Thank you here no problem.
Our next question comes from David Williams from Benchmark. Please go ahead with your question.
Hey, thanks, so much and.
Congrats on the execution and navigating this challenging backdrop.
I guess one of my one of my questions is if you kind of think about the the margin touched on this a bit earlier, but I guess I'm kind of curious how you think about that if we saw automotive come down a bit or maybe back off and you start to see the three CS really really improving what would you expect to see from the Mars <unk>.
<unk> do you think you'd see a significant or would that'd be moderate and can use what leverage.
Do you have their I guess control that mark profile and in an automotive environment, that's maybe a little less less strong.
Yeah, so with the automotive, we actually still seem pretty strong momentum in general right, there's a little bit inventory adjustment, but if we look at the overall growth right. We actually have a wrecker per cent hater, 18% at the end they'll Q1 that actually represent a 33 per cent yeah <unk>.
So we continued to gain market share. So we're pretty confident with a pipeline definitely have in place with all the opportunities we have in place we're in pretty good shape with the three CS I think doctor <unk> on a little bit earlier.
Really focus on the premium portion within the three CS right, we definitely not chasing the deep commodity or commodity business, we really focusing on the higher end of the applications that surfers of stories that data center, where there's five G Y E phone with a consumer we really focus more on the iron.
People off the power block or the timing block so.
So with this focus and the continued to drive you know the <unk> the product mix improvements you know, we actually confident that will continue to drive the improvement over the margin over the years to come.
Yeah, one more thing I wanted to add too because you know people start thinking automotive <unk> you know, it's a very hot but are going to be slowed down and are you able to continue.
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Okay excellent color. Thank you for that.
Maybe secondly, just it.
Has has outperformed over the last several quarters, but even and maybe even more so over the last couple of quarters relative to peers. What do you think is giving you the improved inventory dynamics, where you're not seeing the same magnitude of digestion that we've heard from others is it more of the managing of the channel or is it just the the growth that you're still saying any color they around.
While you're swimming outperformed the market would be very helpful. I think.
Well I think you know stopped a little kind of mentioned earlier right. So uhm each of the Marquez M. F. We ought to be full test really more on the compact expansion right. So that's really the key especially in the automotive area. I also think that total solution south approach help us to really sell the value proposition to the customers self.
In depth problem and they remember we also talk about price increase for the last two three years, we actually strategically choose to build a relationship with a customers, but not to just purely gotcha. The price up. So I think you know there's a lot of the long term strategy, including the product mix improvement initiatives right. So.
Of course manufacturing efficiency has always a sweet spot for us overall so.
So when you combine this focus and initiatives and the direction over all I think that's actually a good demonstration after rethought that we deliver it to you so far right and then with the two two guidance on the 41.8% Mark and I think that again, it's a different way of demonstrating and are confident.
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We are focused on.
And another one is a new product.
Okay, we do reorder mention just of automotive, we announced 68 eight.
New Paula in one too so you can see with driving.
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Our next question comes from trusting Gareth from Bird. Please go ahead with your question.
Hi, Thank you.
Maybe tweak on Gary's question are you on this call is it fair to assume that without the reduction of <unk>. The channels that you mean, preventing in queue to there's maybe a three per cent impact on me 11 youth I look at the kind of snowboarding season that any you took line nobody would be up about three.
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Is that in the ballpark and.
Do you expect that inventory reduction.
Dynamic to be a one quarter issue would you expect this to linger into Q3.
And finally, what's the delta with the other shipping that you previously expected the <unk> China recovery.
Well I think Tristan you know we did mention the good news is we start seeing some other size <unk>, you know like especially in computing and consumer market. So that's a good news. We also mentioned that slower than expected recovery in China and also the three seem.
<unk> kind of coughing, the channel inventory higher than our expectation right. So we definitely plan to the police I'm channel inventory in the second quarter, but unfortunately, we don't really provide guidance have how many weeks or anything like that but we are confident that you know with the guidance that you'll see a flash with the <unk>.
A job improvement in W. As in the second quarter, you will see the channel inventory start depleting. Some uhm. So that's pretty much what we can share at this moment.
Okay, and then for me capacity stand point keeps being able to gain market share as a result of having a supply train than your competition.
Last year.
Do you think that your peers is Tina <unk>, obviously I can I can send a question, but just interested in your view on it.
The whole industry.
Industry.
I demand Ah, Dinah American and whether you're saying that.
At some point are we getting the supply demand at <unk> in N out again, and and what does that mean for you guys you in terms of.
Capacity management in particular to use and demand trends way to weaken further.
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Then you need to spend it for <unk>.
<unk>.
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We already decided.
We have given away from <unk>.
<unk> <unk> <unk> <unk>.
Paula.
Then we <unk> jewelry.
When we need it.
<unk> <unk> Oh <unk>.
C C for industrial and automotive.
And so.
Mm okay.
The market.
The men.
N Ooh spend.
Spend the money and great jewelry.
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Okay, well, we're not just get the coupons.
<unk> waiting for.
The three C.
Come back.
We intentionally comfort.
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<unk> N.
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<unk> dot and we tried to get away from <unk>.
<unk>, especially the <unk>.
China.
A supplier we are getting away from that right.
Right.
So you can <unk> Oh gross Martin.
Mmm Mmm.
But.
<unk> comeback Hmm.
Yeah, I think from the supply point of view not everything at this moment.
I think it's still Elizabeth dynamic there are still a lot of pocket off shore cage versus we mentioned deep commodity there's more supplies, which is not a focus an area that we chasing after him. So I would say not everything equal at this moment feel pretty dynamic.
Great. Thank you very much.
Our next question comes from Williamstown from true of Security. Please go ahead with your question.
Great. Thank you.
I had a question about your inventory management you've done.
Certainly very well on your own balance sheet, but you've taken it seems to be a different approach from what many others have taken in this regard what we've seen in most of Sammy's in the last couple of quarters is pretty significant balance sheet inventory builds and real restraint at shipping anything into the channel.
And dialed seems to have done you know I.
Dunno, if it's exactly the opposite but you've managed on balance sheet very.
Conservatively, but you've built in the channel.
Certainly I recall last quarter that was a change and I think this quarter sounds like you build up a little bit again.
I'm sure. There's a great reason for this approach, but I'm, hoping you can explain it took us a little bit. Thank you.
Yeah. So I think you know last quarter, we mention the reason we start building more channel inventory if the expectation of the China recovery also the expectation of the three C. Marquez salmon recovery I think we overestimated the recovery speed uhm, So that's actually.
<unk>, what we start seeing channel inventory get an increase of let out this call her as well. That's also the reason we sped heatedly decided to really be police off of the channel inventory in the second quarter, we still believe that China inventory position offer off a diet, it's actually a very good position you know we do actually have.
The good product on the shelf and we also believe the recovery is gonna happen it doesn't matter the speed. So what's the recovery happen. We are confident that the channel inventory will be depleted and also keeping mine. The marquez, you'll really dynamic we believe having the right product on the shelf, it's actually <unk>.
To support the dynamic demand as well as the fast term business right, yeah, but in additional.
And we took in Nepal.
We actually intentionally to doing that.
And I think one of the reason I took care of it okay.
If we want to maintain.
<unk> there is mostly.
Because if you wait.
<unk>.
<unk> cost you a golf Martin.
Going to be.
Quite a bit.
But if you.
Build it.
And then do.
About their inventory.
In total inventory.
N I C U.
Your cost.
<unk> <unk>.
It's the biggest.
And do for <unk>.
Building consistent dirty.
Don't get the dream.
Up <unk>.
<unk> so much you'll get you mainly fiction.
Smoothly produce.
Incase Judy the number.
And you'll get your gross margin.
What.
Okay, because you don't want to be the one with the people.
You don't want to be.
<unk>.
You don't want her depreciation.
<unk>.
Bill for.
240.
Marriage.
H.
Otherwise I kept us the operation.
Oh, it's tuition because that way, we have like parties to move.
Martin.
Bruce <unk>.
<unk>.
Don't get up and done so much.
Same time, we are able to maintain Oh gross Martin.
The whole quota Apple 41 per cent.
And even this <unk> <unk> <unk> <unk> <unk>.
You have the wrecker gross margin.
Okay. So this is a really.
<unk> Oh operational control.
<unk> the Gordon.
Mostly such as that you had the fifth Costa deduction.
The cost of home.
Maybe for T mobile cold to the inventory cost you until it does the cough get the best <unk>.
And what I'm gonna do with them.
Yeah. Both of those were were very helpful and clarifying I appreciate it if I could follow up with one I think <unk>.
There've been a few questions about this I just want to make sure I understand what's going on historically.
Think we've sort of been trained to think about two major drivers of the margin of <unk> well, maybe three drivers of the margin improvement.
Operational excellence I'll acknowledge as one of them, but I think the two that we've been more focused on his end market mix.
Shifting more towards industrial and automotive and then product mix, which is a lot harder for us to measure, but we know that you're leaning into more unique specialized higher end. However, you want to describe it products and less in what Emily called deep commodity it sounds like on this <unk>.
Paul what you're trying to communicate is that the end market mix will matter less going forward because operational excellence continues and there's more room to go and perhaps the product mix is maybe a bigger driver M. I over interpreting what you're saying is that.
Yes, <unk> I'm trying to explain it.
The last four quarters.
Perhaps the second quarter this guidance.
<unk> go through up and down in the <unk>.
But we are able to maintain.
30.
30, and even <unk> off the cost much.
And so that is.
Coming from <unk>.
What a myth.
Operational you know <unk>.
Relational.
Excellent.
<unk> so when the when you do go down we have maintained.
<unk> <unk> <unk> <unk> <unk> <unk>.
<unk>.
Okay, but when we have the beta <unk>. This is going up and does that we said no. Okay. I assume you know.
Flynn.
So does she started growing up.
We are able to continue.
<unk> Oh impulse.
When you're coming from.
Operation I think so I think.
What we want to do.
<unk>.
Focus on how to <unk>.
<unk> the <unk>.
Regardless.
Oh, the market up and down and reproof, we could do that due to <unk>.
We got we ought to know the first two quarters <unk>. This is good very good.
<unk> <unk>.
<unk>.
Even the.
<unk>.
<unk> and <unk>. This is a slowdown, but we're able to continue linton the girls Martin even setting new.
<unk> It tell us that's the right thing.
For us to do.
And that's what we're doing.
Thank you.
And ladies and gentlemen, with that will be concluding today's question and answer session I'd like to turn the floor back over to Doctor look for any closing remarks.
Thank you for your participation on today's call.
Operator, you may now disconnect.
Ladies and gentlemen, with that will conclude today's conference call. We thank you for joining today's call and presentation.
Please have a great evening.