Q3 2023 Diodes Incorporated Earnings Call
Good afternoon, and they'll come to diodes incorporated third quarter 2022 financial results Conference call. At this time all participants are in a listen only mode. At the conclusion of todays conference call instructions will be given for the question and answer questions.
If anyone needs assistance at any time during the conference call. Please press the star followed by zero on your thoughts going forward.
As a reminder, this conference call is being recorded today Wednesday November eight 2023.
I would now like to turn the call over to Leon Sievers Shelton Group Investor Relations Ma'am. Please go ahead.
Good afternoon, and welcome to diode third quarter 2023 financial results Conference call I'm, Liam Sievers President of Shelton Group Diodes, Investor Relations firm joining us today from Taiwan are diets, Chairman President and CEO, Dr case, Ya, Li Chief operating Officer, Gary Yu Chief financial.
The officer, Brett Whitmire, Senior Vice President of worldwide sales and marketing Emily Yang and director of Investor Relations for meat Dhaliwal I'd like to remind our listeners that the results announced today are preliminary as they are subject to the company finalizing its closing procedures and customary quarterly review by the company's independent registered public.
Counting firm.
These results are unaudited and subject to revision until the company filed its Form 10-Q for its fiscal quarter ending September 30th 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 the private Securities Litigation Reform Act of 1995.
Actual results may differ from those discussed today and therefore, we refer you to a more detailed discussion of the risks and uncertainties in the company's filings with the Securities and Exchange Commission, including forms 10-K, and 10-Q. In addition, any projections as to the Companys future performance represent managements estimates as of today November eight 2023.
Diodes assumes no obligation to update these projections in 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 GAAP non-GAAP terms included in the company's press release are definitions and reconciliations of GAAP to non-GAAP items, which provide additional details also throughout the company's press release and management statements during.
This conference call, we refer to net income attributable to common stockholders as GAAP net income for those of you unable to listen to the entire call. At this time, a recording will be available via webcast for 90 days in the Investor Relations section of diodes website at Www Dot diode dot com and now I'll turn the call over to Dr. Lee diode chairman.
It didn't and CEO Dr. Lu. Please go ahead.
Thank you yeah.
Welcome everyone.
And thank you for joining us today.
As announced earlier today.
Our third quarter results despite weaker than expected.
Customer demand.
In the computing.
Assuming and communication market.
As well as the overall Asia market.
Oh, well at least you know assumption of a market recovery did not materialize she will alcohol.
Olivia.
It's a multiple of revenue in the quarter.
Mindy.
19% of revenue.
Contributing to.
Monday automotive and industrial.
45% of revenue.
Our both our Takimoto 40.
40%.
Although the current involvement xanthe charge.
Our beaches.
MTV, we remain well positioned for it.
As we continue to work with Mexico 1 billion dollar gross profit.
Is that.
Let me turn it over to Gary.
I was chief operating officer.
For some additional insights on the ward.
Thank you Dr. Lu.
Revenue in the quarter was $4 six media or 13, 4% ratio decreased reflecting the weaker than expected.
Three key markets.
Especially in Asia.
Oh, so original guidance contemplates a continued reduction in channel inventory global demand throughout the quarter did not support a significant decrease in inventory levels.
No different to the delay recovery increasing market.
In the fourth quarter, we have also begun to see a more broad based slowdown globally industrial as well as softness in some areas of the automotive market.
This is primarily related to the customer inventory adjustments as well as Europe.
And distributor inventory management.
We should get a country beauty to our much lower outlook than our typical seasonality.
The general market is slow yeah search an area, where the demand is beginning to show signs of recovery, especially when computing market.
That said I want to reiterate that.
Despite those weaker demand dynamics, we remain focused on the long term and all product mix improvement initiatives as we continue to invest in R&D for new products targeting and spend it if I wait in the automotive and industrial markets.
Additionally, we are further developing the process technology in all previous acquired fast to build the capability in preparation for debt reduction or waiver of service agreements.
In conjunction with those efforts. We also continue to increase in manufacturing cost savings across all operations.
These steps represent further enhancements to the actions we haven't taken over the past several years have consistently enabled us to deliver increasing growth and profitability and it will continue to do so for years to come.
Let me now turn the call over to Brett to discuss our third quarter financial results and our fourth quarter guidance in more detail.
Thanks, Gary and good afternoon, everyone.
Revenue for the third quarter 2023 was $404 6 million.
Down 13, 4% from $467 $2 million in the second quarter of 2023, and 22, 4% from $521 $3 million in the third quarter 2022.
Gross profit for the third quarter was $155 9 million or 38, 5% of revenue due to the impact of our wafer service agreements combined with higher facility underutilization cost due to the softer than expected demand in the quarter.
This compares to $195 4 million or 41, 8% of revenue in the prior quarter and $217 8 million or 41, 8% of revenue in the prior year quarter.
GAAP operating expenses for the third quarter were $102 million or 25, 2% of revenue and on a non-GAAP basis were $95 6 million or 23, 7% of revenue.
Which excludes $3 8 million of amortization of acquisition related intangible asset expenses and $2 $6 million of restructuring costs. This compares to GAAP operating expenses in the prior quarter of $105 8 million or 22, 6% of revenue and in the third quarter of 2012.
Two of the $105 4 million or.
Our 22% of revenue non-GAAP operating expenses in the prior quarter were $102 million or 21, 8% of revenue.
Total other income amounted to approximately $6 $6 million for the quarter, consisting of $4 5 million of interest income $1 3 million of other income a $1 3 million foreign currency gain and <unk> 4 million unrealized gain on investments and <unk> 9 million and interest expense.
Income from taxes, and Noncontrolling interest in the third quarter, 2023 was $60 5 million compared to $101 million in the previous quarter and $109 $1 million in the prior year quarter, turning to income taxes, our effective income tax rate for the third quarter was.
Proximately 17, 6%.
GAAP net income for the third quarter of 2023 was $48 $7 million or $1 <unk> per diluted share compared to $82 million or $1.77 per diluted share in the second quarter, 2023, and $86 4 million or one.
<unk> 88 per diluted share in the third quarter of 2022, the share count used to compute GAAP diluted EPS for the third quarter 2023 was $46 3 million shares.
non-GAAP adjusted net income for the third quarter was $52 $5 million or $1 13 per diluted share, which excluded net of tax $3 1 million of acquisition related intangible asset amortization $1 9 million in restructuring costs and a zero.
$9 million gain on an equity investment this compares to $73 $3 million or $1 59 per diluted share in the prior quarter and $92 2 million or $2 per diluted share in the third quarter 2022.
Excluding noncash share based compensation expense of $4 $7 million net of tax for the third quarter, both GAAP earnings per share and non-GAAP. Adjusted EPS would have increased by <unk> 10 per diluted share.
EBITDA for the third quarter was $98 $6 million or 22, 4% of revenue compared to $133 5 million or 28, 6% of revenue in the prior quarter and $141 9 million or 27, 2% of revenue in the third quarter of 2020.
Two.
We have included in our earnings release, a reconciliation of GAAP net income to non-GAAP adjusted net income and GAAP net income to EBITDA, which provides additional details.
Cash flow generated from operations was $50 $1 million for the third quarter free cash flow was $11 6 million, which included $38 5 million for capital expenditures net cash flow was a negative $27 $1 million, including the pay down of $35 3 million.
Dollars of total debt.
Turning to the balance sheet at the end of the third quarter cash cash equivalents restricted cash plus short term investments totaled approximately $308 million working capital was $768 million in total debt, including long term and short term was $53 million.
In terms of inventory at the end of the third quarter total inventory days were approximately a 124 as compared to 112 last quarter finished goods inventory days were <unk> 34, compared to 30 last quarter total inventory dollars increased $18 million from the prior quarter to approximately three.
<unk> hundred $43 $7 million total inventory in the quarter consisted of a $16 $5 million increase in raw materials.
And $8 $9 million increase in finished goods and a $7 $4 million decrease in work in process.
Capital expenditures on a cash basis were $38 5 million for the third quarter or nine 5% of revenue, which is at the high end of our target model of 5% to 9%.
Now turning to our outlook for the fourth quarter of 2023, we expect revenue to be approximately $325 million plus or.
Is 3%, we expect GAAP gross margin to be 35% plus or minus 1%, primarily due to higher underutilization cost on the lower expected revenue combined with less favorable product mix from a reduction on the contribution of automotive and industrial revenue non-GAAP op.
Operating expenses, which are GAAP operating expenses adjusted for amortization of acquisition related intangible assets are expected to be approximately 26, 5% of revenue plus or minus 1%. We expect net interest income to be approximately $2 million.
Our income tax rate is expected to be 18% plus or minus 3% and shares used to calculate EPS for the fourth quarter are anticipated to be approximately $46 6 million.
Not included in these non-GAAP estimates as amortization of $3 $1 million after tax for previous acquisitions with that said I'll now turn the call over to Emily Yang.
You, Brett and good afternoon.
And Gary mentioned revenue in the third quarter and was down 13, 4% sequentially and below our original estimate.
Assumption after market recovery in the quarter it did not happen.
Global P O S decreased in the quarter and our channel inventory increased slightly but remained above our define normal range of 11 to reflection of weak automotive market remained relatively stable during the quarter.
Looking at the global sales in the third quarter Asia represented 72% of revenue Europe, 18% and North America, 10%.
In terms of our end markets industrial was 26% of diode product revenue automotive remained a record 19% computing 25 per share, which is improved three percentage points compared to last quarter with most of the improvement driven by AI server demand increased.
<unk> represented 18% and communication and 12% of product revenue with smartphone demand, especially in Asia still low during the quarter.
Our automotive and industrial end markets combined at 45% of product revenue represented the sixth consecutive quarter above 40% and is five percentage points above our 2025 target.
Now, let me review the end market in greater detail.
In the automotive end market revenue and demand remained relatively stable in the third quarter, we continue to focus on expanding our content and various application.
Our design win momentum.
During the quarter, we introduced 139, new automotive compliance products, which included low voltage MOSFET product for automotive battery management system Wifi telecommunications infotainment application.
The content expansion continues to increase in the automotive market.
Demand for managing sensor data informing.
Information infotainment and power line and battery management is increasing dramatically we introduced a serious all powered GBS product with a wide range of operating voltage ideal for protecting EV charging station applications. We're also seeing design wins for protection.
Spices and domain control unit touch panels.
Transmission control unit PCI Express Gen four o'clock generator as well as Crystal oscillators, Adas infotainment and also driving radar systems.
I'll come on to take compliance ideal diode controllers continue to have strong demand from Adas telematics and infotainment system. We also secured design wins for USB type C solutions, including USB power delivery controller, Mark switches and retry first flight in vehicle infotainment system.
We are also seeing increased adoption of free remote USB C U E.
S. P. C claim for alternative cross bought Moxa and different video protocols switches and rear seat entertainment smart topic, Ada and camera monitoring system.
In the industrial market, we began to see broader weakness materialize with a more pronounced inventory back.
Combined with year end distributor inventory controls expected in the fourth quarter.
Like the general market witness our teams remain focused on doing exactly.
Momentum and new product introductions to support future growth, the industrial and automotive market remain our top focus for expanding our content and market share to drive continued product mix improvement and gross margin expansion over time to highlight a few positive during the quarter our <unk>.
Yeah, My Master dry first USB type C. This painful or alternatively drivers and me Peter you dry first south where else in commercial displays while our HDMI said no duplicate tests well adopted in the industrial camera system.
Silicon carbide Schottky diodes continued to gain traction in power factor correction applications for industrial adapters, and medical equipment, Wassa roster and SBR product gained momentum in power over Ethernet surfer it in solar panel applications.
Also continue to secure these families for Armenia L. E D driver handheld power tools and high voltage regulators and fan applications and Rps Alessandra.
To win New design security alarm household smoke alarm and aftermarket dashboard along.
In the computing market after many quarters of inventory adjustments, we're seeing some signs of recovery with particular strength in the AI stuff like the math, we expect U S revenue to increase sequentially in the computing market with a further recovery in the first half of next year in this market.
Our T V S protection products for USB C data line protection U S. B C source power switches low voltage MOSFET and low voltage hall sensors are building momentum in local desktop and documentation applications.
There was also an increased adoption of our connectivity and signal integrity products, including Mark switches, and where you drive for HDMI and USB C displayed for an E&P protocols and applications.
Workstation gaming notebook desktop docking station and at in car applications.
We're also seeing adoption off or what do you get them. They put a second U S. Before re drivers in La channel cases, together with USB for re timer and 20 gigabit per second USB type C displayed for re drivers in the next generation computing platform. Besides our PCI Express three got old package.
Wages are also feeling momentum by enabling high speed seamless connectivity in class surfer and data centers with multiple CPU system support for cross domain and points to improve reliability availability and surface operations.
Also in the computing, our timing products continued to gain design in design win momentum for sofa and storage applications, while our PCI Express Gen. Five Gen six clock generators and buffers would be science into AI surfers.
In the communication market, we continue to secure new design wins for our timing products, including clock buffers and crystal oscillator.
Smart in a car and optical trustee for our modulus R. L. D O family low voltage on these pillars hall sensors low voltage MOSFET and data line protection products saw solid demand and music sideways for camera I O protection Smart coffer at wireless ear buds application in.
The smartphone.
Lastly, in the consumer market, our bridge rectifier haul latch switches and TBS products continue to gain traction in home appliance applications design momentum also continued for our LCD drivers S. B Rps Alessandro I Ferguson audio amplifier.
VR headsets, TV monitor hurtful and tracker applications.
And our L. P O game demand momentum from home monitoring camera system, well, our HDMI passive asset Mark III dry first splitter and the display for mattresses saw increased adoption and keep war video monitors and masters.
In summary, although the global demand environment remained weak and we are being impacted by inventory digestion across certain end markets. Our teams remain focused on driving increased design wins and new product introductions, especially in our strategic focus areas of automotive.
As an industry.
This initiative has been the foundation to our past content expansion and market share gain and we believe also serves to position us well for a return to the growth and margin expansion in the future.
With that we'll now open the floor to questions operator.
Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
If you're using a speakerphone please pick up your handset before pressing the keys.
Is that any time. Your question has been I, just and you would like to withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
Our first question comes from William Stein with Chewy Securities. Please go ahead.
Great. Thanks for taking my questions.
The first is about your capital allocation strategy.
Okay.
There are.
Several similar companies.
Let's say diversified.
Diversified companies with.
Broad end markets a lot of analog products.
Many of them have micro's technology, you don't but.
You're a very consistent generator of free cash flow.
And you've used that to continue to pay down debt over the last few quarters I think last maybe eight or 10 quarters perhaps.
And you now have a net cash balance.
Stocks down a lot from that.
Peak.
What is it going to take to see the company.
Resuming buyback.
And would you consider establishing a dividend.
Yes.
Yes.
Yes. This is bret.
Think that as we've talked about before we we do view our.
Capital strategy is essentially driving growth.
And growth lever.
And we are key part of that is looking at M&A, a key part of that and investing back into business that we've done.
We have openly talked we've talked about our history. We have had some stock buyback programs back in 2015, we had a program and then we brought bought lite on semiconductor. It was a buyback we continue to look at that from a dividend perspective, thats not something that we view on the table right now, but we continue to contemplate the best use of our cash.
We continue to be confident of our growth and cash generation.
Yes, we just continue to consider it absolutely.
Okay as a follow up.
I'm, hoping you can address.
Sort of combined question about the quarter and the outlook I think in the <unk>.
Press release, and then also in the commentary in the call you talked about a recovery that you expect it to happen that didn't.
I didn't.
Perhaps my recollection of my notes just isn't all that strong, but I don't recall.
Q3 being guided for a recovery.
And so maybe you can just refresh my memory, what recovery were you expecting that didn't materialize and then going forward maybe talk about when you think things settle out and start to recover.
We can start thinking about revenue returning to growth. Thank you.
Yeah. So William this is Emily I think during the Q3.
Earnings call, we provided guidance right. The guidance is actually based on a lot of assumptions.
For each of the market sentiment and some of the customers.
I would say overall a situation. So you know looking back right.
Compared to what we assumed in the beginning of the quarter versus <unk> and we saw we still feel like that you know some of that.
Function Didnt realize and we did actually a.
Certain recovery area that should improve because of the channel inventory situation. So I think that's really refer back to our assumption and you know like I said based on the assumption there are certain things that would be in there. Unfortunately did not really materialize.
During the quarter right. So I think your second question is really you know.
When do we think the business went back to that normal range right. So I think that's really a crystal ball question, it's really hard to predict at this moment markets extremely dynamic, but I think what we want to really sure is.
The market deterioration or demand decrease as well as the inventory adjustment should be short term and we want to make sure as a company. We continue to focus on the important areas that really help us with our success in the past right, which is really all focus on the product mix improvement.
You know does include by introducing more new products and continue to drive the automotive industrial contact expansion at the same time working on the manufacturing efficiency right. So you know we cannot really control the market, but with all the right things in place. We're confident that this will continue to drive.
Uh huh.
Revenue improvement as well as margin improvement over time.
Thank you Sir.
And.
Mentioned in my speech.
Continue.
Focus on.
R&D spend the money in R&D focus on new technology, New new full.
Paul says and new boiler and this week.
We still target.
These you know 1 billion.
Gross profit.
So short term, yes, we have some inventory for them or not.
Inventory adjustment, but.
Or do.
Do you need to focus on.
Okay.
Thank you.
Okay.
Our next question comes from David Williams with Benchmark. Please go ahead.
Hey, good afternoon, thanks for taking the question.
I guess, maybe maybe firstly here just.
It seems like there's been some mixed commentary out of our out of the automotive segment and the puts and takes around just where the exposures are and whether it's good or bad, but just kind of wondering if you'd help us kind of square some of your commentary on the automotive where you're seeing the weakness, particularly in terms of geographies and whether that is a traditional <unk>.
Excuse me I saw or even anything that kind of helps us understand where the particular weakness coming from would be helpful.
Yeah. So David this is Emily I think overall in the automotive market that we see in general the inventory level increase right. So we do expect some inventory rebalancing.
Each customer situation can be different from the others.
Each program can be a little bit different as well as down to the part number level. So unfortunately, not everything equal but in general we also are seeing with the inventory rebalance.
Rebalancing, coupled with certain area of the men adjustment as well right. So as a result with this too and I also mentioned and you know what her and inventory control by some of the distributors.
We really believe that's really compounded.
Area that we do expect automotive is going to be under a little bit challenge on a short term.
And from the regional point of view I think for automotive, especially with strategic account is really a global approach right. So it's really kind of difficult to Ah pointed out with specific region, but in general we are seeing more of the weakness from the North America and also Europe market.
So thats really what we see.
And if you look at we still were able to accomplish Richter of 19%.
So automotive.
We knew going into it.
Tim.
You continue improve.
Okay.
After automotive right.
We are focusing and I think we still continue.
<unk> 42 increased.
Yeah. So I think I mentioned, we actually introduced a 139 automotive compliance product testing third Q I believe second quarter is a hunter searching and the previous father is actually other 79 or 88 number. So you can actually see.
The focus overall for the company on driving new product you know.
Introduction as well as getting into a new market area, expanding our Sam and Tam will continue to be the focus.
Hello.
Yes.
Okay.
Perfect.
Is that part of the property, if you're going into the fourth quarter.
Hey, David can you repeat that you really broke up on that question could you repeat.
Yeah My apologies.
The UW strike was that.
Any any.
Any impact to you guys on the fourth quarter.
Yeah, I mean, you know, there's definitely instant rec impact, but I think relatively it's not a big impact.
Okay, Alright, and then just lastly for me is on the gross margin can.
Can you kind of maybe give us some puts and takes there and just the guidance on the margin side is down.
Pretty further than we would've thought but is it just volume or is this part of the service agreement. That's also having impact in any color there would be helpful. Thank you.
Yeah, So I think overall right.
When we look at the margin I talk about the product mix change a little bit, but if you look at auto industrial percentage definitely decrease right.
Mainly the reason is actually due to the under loading situation.
Under realization you know.
Of course, you know that coupled with different reasons right I think the long term agreement and he does surface agreement as part of it as well as the decrease in the revenue right. So but you know again right. This is the thing that we really believe is a short term challenge that we will overcome I think.
Long term focused you know talking about the product mix improvement also industrial as well as introducing new products than we.
We had tougher than that in my longer term, what's continuing to drive the revenue improvement as well as the margin improvement this year.
Sure.
I'll comment on the quicker service.
Really nothing.
Okay.
But what we really think I'm truly that we aggressively annuity our stock price.
<unk> technology, two wafer fabs that we have acquired several years ago.
And that's really the things we want to focus on.
Possibly in the future more loading to resolve that in our loading situation drilling.
Thank you.
Okay.
The next question comes from Gary Mobley with Wells Fargo Securities. Please go ahead.
Hi, everyone I hope you're surviving the early morning wake up.
And this year.
It's really timing.
Taiwan.
So probably what's on most People's mind is how 2024 looks and I'm sure you're not going to go there, but maybe.
Maybe if you can give us a sense of.
Maybe sort of exaggerated seasonal patterns, you might see to start the year or maybe even different.
Some of the atypical seasonal patterns that might unfold during the year, considering the inventory drain that has to take place.
Yeah, I think Gary with the market dynamics, that's going on I think it's hard to put a seasonality a picture any more right just looking at 'twenty two 'twenty three.
It's a little bit all over the map right. So I think in general we feel hopeful that you know.
The market be messy to Asia as well as inventory readjustment is gone to Ofer I'm getting all that so we still think that's going to be a short term.
Issue you know again right. It seems this short term we want to continue to focus on the important things that can't get diode to be more successful sound over all right. So that's what we really see you know I.
I think first half.
It's definitely a visibility and challenge in front of us. So we definitely are hoping for a second half improvement.
Okay.
So I would assume that you're trying to maximize your manufacturing load just like your competitors are.
The macro environment.
So related to that how is pricing holding up on a like for like product basis, giving that maybe people are a little looking.
Through the nooks and crannies for all types of business at this point in time.
Does all of this is driven by demand and supply right. When the demand is a little bit weak and with a little bit more supply there is definitely some shifts.
In that dynamic, but what we still see a majority of the price pressure is really coming from the commodity area and that you know the events or differentiate it you need product Ofer I'll steal all you know my much further so again based on this one.
Nothing new that we'd be talking about them. So we'll continue to focus on the new differentiated new products right, which just refer back to the product mix initiatives. The improvement that we have been focusing for the last.
A number of years already right. So that would continue to be the direction and focus overall for the company.
Okay.
Can just sneak one more in.
Sorry go ahead, Gary go ahead.
First I'll comment on that.
Gross profit that we're facing.
That's really weakened.
Great.
Right.
Oh, sorry.
That way so that we can pick.
Hey, good message on those kind of cost savings.
The other initiative two phases.
EQM and price pressure from that front.
Okay, great. If I can sneak one in you're essentially guiding your opex decreased roughly $10 million sequentially.
Is that anything structural or permanent or is it just lower bonus accruals and some other variable items.
Yes. So basically you have if you look at kind of our trend across the year as we you start we start to see.
Some of the revenue trend you can see the actions that we're taking to bring our employee spend in line with that we're also as you could see some restructuring charges. We took in third quarter as we consolidated some stuff and various actions, we're taking and I think youll continue to see things, we're doing to drive and be stronger.
As we work through this cycle and continue to stay focused on kind of the when.
When you look back a year ago. When we were hitting 500 million, we were right on top of our model and as we think about going forward, we're going to tighten the belt. During this cycle to be stronger and then getting a better position as we go forward and continue to work to enable ourselves to grow back into that.
Thank you.
Yeah.
Our next question comes from Tristan <unk> with Baird. Please go ahead.
Hi, This is Tyler bomba on for Chris and thanks for taking the questions.
You touched on some of the near term dynamics on pricing could you talk about maybe what your expectations for pricing or into next year.
Yeah, So as interest and you know what I think.
Pricing is a dying.
Right, there's different product categories. There are different competitors that we are all facing and they each have the area can be a little bit different versus the other I think the end market also a key factor. So in general you see more of this kind of price pressure coming from that and maybe consumers more on that.
Puting area, because the volume demand driven right. So you know I think in general right, we believe with our new product introduction and with the focus of the content, especially in auto and industrial and together with the manufacturing efficiency can help us to weather further.
From the price pressure and with a long term margin improvement right. So you know I think in general that's what we see overall in the market.
Great and then before this current quarter that you just reported when was the last time that you had underutilization charges and what does that tell us about where we're at in the cycle.
Yes, absolutely.
We are not disclosing too much information.
Our clients at this moment, but we do see that.
Realizations.
The third quarter.
Yes.
To your previous question here, so we really cannot control.
Okay, well, we can do to continue to driving our profit.
And their product qualification.
That would cause soda and to avoid it.
Yeah.
If you are looking at under loaded.
And then I.
I need to separate from <unk>.
One east.
Undue loyalty due to our service we made right okay due to when we do not produce in full.
No no.
The issue then we have a service agreement.
No.
Duane ease.
Hey, Bill.
From Norwich pulled.
Hope you all up to continually speed up yes.
Under loaded.
So just one that niche.
The other dimension.
And the annuity.
It's on manufacturing and do to own Dotage, then we slowdown.
Hi, Steve.
Page.
So you can see that's one.
Capex.
For the.
Fiction.
Capacity.
Did you <unk>.
Yeah.
Sure.
<unk> was deduce that's the way that's why.
Mentioned, we've cut them.
And but it just in time.
I think.
Sure.
<unk>.
Nope.
A good solution.
Of course, if the market slowdown.
And.
You cannot just drop the price and try to gain more knowledge.
So the most important.
Paul on mix and Newport see if you could focus on new Paula.
Bringing the plant on mix than May.
Maybe Sean.
We don't solve it.
Dumped in church teaching that niche diesel what we need to do to get it.
Independence tube.
So you are going to differentiate Paula.
Tech automobile.
You cannot be easily.
Okay shoot boosted by other people.
So the whole thing.
Pasty.
Utilization was due to the mix.
Now due to the dilution to shoes and.
So decent.
So typically that next year.
We will focus on east morning, Paula more automotive industrial more.
Differentiate.
Uh huh.
Two we saw the capacity issue.
Yes.
By choking a point of price.
Uh huh.
No.
Good solutions.
Great. Thanks for all the color there.
As we have no further questions. This concludes our question and answer session I would like to turn the conference back over to Dr. Lu for any closing remarks.
Thank you for your participation on today's call.
Operator.
Now you can disconnect.
The conference has now concluded. Thank you for attending today's presentation you may all now disconnect.