Q3 2024 Diodes Inc Earnings Call
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Yes.
Thank you for standing by my name is Jamie and I will be your conference operator today.
Good afternoon, and welcome to diodes third quarter fiscal 2024 financial results Conference call I'm Leanne Sievers President of Shelton Group Investor Relations firm joining us today are diodes, President Gary Yu, Chief Financial Officer, Brett Whitmire, Senior Vice President of worldwide.
And marketing animal Yang and director of Investor Relations for my follow up.
I'd like to remind our listeners that the results announced today are preliminary as they are subject to the company finalizing its closing procedures and customary quarterly review by the company's independent registered public accounting firm.
As such these results are unaudited and subject to revision until the company filed its Form 10-Q for this fiscal quarter ending September 32024. 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 Companys filings with the Securities and Exchange Commission, including forms 10-K and 10-Q.
In addition, any projections as to.
Future performance represent management estimate there.
November 7th 2020 for diodes assumes no obligation to update these projections in the future as market conditions may or may not change except to the extent required by applicable law. Additionally, the company's press release and management statements. During this conference call will include discussions of certain measures and financial information in GAAP and non-GAAP terms included.
The company's press release or 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 <unk> website at Www Dot <unk> Dot com and now I'll turn the call over to diodes, President Gary you Gary. Please go ahead.
Welcome everyone and thank you for joining us on today's conference call third quarter revenue exceeded our expectation of increased nine 5% sequentially.
So it should be double digit Pos growth in Asia.
Further evidence of our market regarding Asia, our channel inventory continues to improve as both inventory dollars and days decrease sequentially.
Additionally, our automotive market revenue increased 18% sequentially to 19% of product revenue, reflecting our ongoing content expansion and the defined way initiatives, even though both the automotive and industrial market continue to undergo inventory and that demand adjustments for the fourth quarter.
We are guiding revenue to be better than typical seasonality.
Gross margin expectation continues to reflect factory under loading related to our wafer service agreement and internal demand with sufficient capacity available to support future demand improvement. We took the initiative in the third quarter to moderate our capex investment to below our target model. This action combined.
With our past cost reduction will help preserve near term earnings and cash flow until the recovery accelerates, especially in the higher margin automotive and industrial end markets with that let me now turn the call over to Brad to discuss our third quarter financial results as well as our fourth quarter guidance in more detail.
Thanks, Gary and good afternoon, everyone revenue for the third quarter of 2024 was $350 1 million compared to $319 $8 million in the second quarter, 2024, and $404 6 million in the third quarter 2023.
Gross profit for the third quarter was $118 million or 33, 7% of revenue compared to $107 4 million or 33, 6% of revenue in the prior quarter and $155 9 million or 38, 5% of revenue in the prior year.
Year quarter.
GAAP operating expenses for the third quarter were $96 1 million or 27, 5% of revenue and on a non-GAAP basis were $91 7 million or 26, 2% of revenue, which excludes $3 8 million of amortization of acquisition related.
<unk> intangible asset expenses zero point $8 million.
Acquisition related costs, and <unk> $2 million adjustment on restructuring charges. This compares to GAAP operating expenses in the prior quarter of $103 7 million or 32, 4% of revenue and in the third quarter 2023 of 102 million.
Our 25, 2% of revenue.
non-GAAP operating expenses in the prior quarter were $90 9 million or 28, 4% of revenue.
Total other expense amounted to approximately $3 1 million for the quarter, consisting of $4 5 million of interest income $3 $4 million of unrealized losses from investments $4 $4 million of foreign currency loss and zero point $7 million of other income.
<unk> 5 million and interest expense.
effective income tax rate for the third quarter was approximately 19.2 percent.
GAAP net income for the third quarter was $13 7 million or <unk> 30 per diluted share compared to $8 million or <unk> 17 per diluted share last quarter, and $48 $7 million or $1 <unk> per diluted share in the prior year quarter the share.
It used to compute GAAP diluted EPS in the third quarter was 46 4 million shares.
non-GAAP adjusted net income in the third quarter was $20 1 million or <unk> 43 per diluted share, which excluded net of tax $3 1 million of acquisition related asset costs, $2 7 million of noncash mark to market investment value adjustment zero point.
$6 million of acquisition costs, and <unk> 2 million and our restructuring adjustment.
This compares to $15 4 million or <unk> 33 per diluted share in the prior quarter and $52 5 million or $1 13 per diluted share in the third quarter 2023, excluding noncash share based compensation of $5 9 million.
Net of tax for the third quarter, GAAP and non-GAAP earnings per share would have increased by <unk> 13 per share.
EBITDA for the third quarter was $46 9 million or 13.
4% of revenue compared to $41 1 million or 12, 8% of revenue in the prior quarter and $96 million or 22, 4% of revenue in the third quarter 2023. We have included in our earnings release, a reconciliation of GAAP net income to non-GAAP.
Adjusted net income and GAAP net income to EBITDA, which provides additional details.
Cash flow provided by operations was $54 4 million for the third quarter.
Free cash flow was $39 4 million.
Which included $15 million for capital expenditures.
Net cash flow was $49 $4 million, including the borrowing of $9 7 million of total debt.
Turning to the balance sheet at the end of third quarter cash cash equivalents restricted cash plus short term investments totaled approximately $325 million.
Working capital was approximately $910 million in total debt, including long term and short term was approximately $58 million.
In terms of inventory at the end of the third quarter total inventory days were approximately 187 as compared to 191 last quarter finished goods inventory days were 79 compared to <unk> 79 last quarter.
Total inventory dollars increased $25 million from the prior quarter to $482 million total inventory in the quarter consisted of a $21 2 million increase in raw materials, a $5 1 million increase in finished goods and a $5 8 million.
<unk> and work in process.
Speaker Change: Capital expenditures on a cash basis were $15 million for the third quarter or four 3% of revenue and below our targeted range of 5% to 9% as Gary mentioned, we took the initiative to moderate our capex investments to below our target model since we have the available capacity.
Speaker Change: To meet future increases in demand. This action helped to maintain our strong cash flow generation during the quarter.
Speaker Change: Now turning to our outlook for the fourth quarter 2024, we expect revenue to be approximately $337 million.
Speaker Change: Plus or minus 3%, representing a three 7% sequential decrease at the midpoint.
GAAP gross margin is expected to be 33% plus or minus 1% non-GAAP operating expenses GAAP operating expenses adjusted for amortization of acquisition related intangible assets are expected to be approximately 28% of revenue plus or minus 1%.
Speaker Change: We expect net interest income to be approximately $2 $5 million.
Our income tax rate is expected to be 18% plus or minus 3% and the shares used to calculate EPS for the fourth quarter are anticipated to be $46 7 million.
Speaker Change: 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.
Emily Yang: Thank you Brad and good afternoon revenue in the third quarter increased nine 5% sequentially and above the midpoint of our guidance our global appeal as increase in the quarter with a more than 10% increase in Asia.
Emily Yang: Looking at global sales in the third quarter Asia represented 78% of the revenue Europe, 15% in North America, 7%.
Emily Yang: In terms of our end markets industrial was 23% of diodes product revenue automotive, 19% computing, 25% consumer, 18% and communications, 15% of the product revenue.
Emily Yang: Our automotive industrial revenue combined totaled 42% of product revenue, which is the 10th consecutive quarter above our target model of 40% and one percentage point higher than last quarter, primarily driven by our ongoing content expansion and design win initiatives in automotive end market.
Emily Yang: Even though both market continues to undergo inventory and demand adjustments.
Emily Yang: As further evidence of broader market recovery in Asia, Our channel inventory continues to improve as both inventory dollars and inventory days decreased sequentially.
Emily Yang: This ability into the backlog continues to be limited and we are still receiving short lead time orders. So it's important for us to maintain a sufficient level of finished goods inventory as well as channel inventory to meet the potential increase in demand now.
Emily Yang: Now, let me review the end markets in greater details.
Emily Yang: Starting with automotive end market revenue was 19% of our total product revenue, which was up from 18% last quarter due to our content expansion demand creation momentum and market share gains across multiple applications, especially in Asia and China.
Emily Yang: I mentioned inventory rebalancing continued in the third quarter as some customers and we expect this will extend into the fourth quarter. However, I would point out that even though the overall market in North America and Europe is still slow a number of key customers were up in the quarter.
Emily Yang: Especially in the China market.
Emily Yang: On the product portfolio expansion continues into the quarter with the introduction of 115, new automotive compliance parts focus all connected driving comfort style safety and electrification for applications like protection high speed and high bandwidth Ethernet network protections.
Emily Yang: Battery management systems, infotainment, Adas and hybrid electric vehicles, automotive subsystems, including battery Chargers onboard Chargers and high efficiency DC DC converters.
Emily Yang: Additionally, our TBS Hall sensor high end differential Crystal oscillators, and PCI Express clock Ics, along with PCI Express Gen. Six clock buffers and real time cloud modules are seeing traction in Hs cockpit infotainment telematics control units.
Emily Yang: Four and battery management systems, we have.
Emily Yang: Also seeing SaaS adoption of our smart linker PCI Express packet switch USB type C driveways and active cross boxes by Realty entertainments and smart complex applications.
Emily Yang: In the industrial market third quarter revenue represented 23% of total product revenue, which was flat to last quarter, but up in terms of revenue.
Emily Yang: Earlier, the end market continues to undergo inventory rebalancing coupled with slower demand and this may last into early next year.
Emily Yang: Despite the ongoing inventory adjustment, we continue to gain traction with our design wins in industrial market during the quarter, our TBS product would be used in battery management systems for energy storage products.
Speaker Change: LCD driver IC with Linda Tsai.
Speaker Change: Digital signage and traffic signs. Additionally, our.
Speaker Change: <unk> continued to see growth from fifth power tools and E meter applications. We also continue to gain increasing momentum for our silicon carbide commercial grade products for applications like power factor correction for power supply in surfers charging stations solar.
Speaker Change: Inverters energy storage systems converters magical power supplies and heat pumps.
Compere image sensor products have multiple design ins and design wins in various applications that February film inspection checks scanner and ATM money scanners.
Speaker Change: In the computing market overall channel inventory is healthy our design pipeline continue to expand into the AI data center and AI surfer as the market continues to grow AI surfer designs required a lower linkov PCI express switch to expand a CPU.
Speaker Change: Output requirements Dio is well positioned to address this market requirement. We also saw a very strong design momentum into the AI related subsystems like DC power.
Speaker Change: Power supply units.
Speaker Change: D C D C bricks and backup battery unit, we also seeing good growth and demand in enterprise SSD and consumer grade storage with our highest E buses and bus switching solutions.
Speaker Change: Also in the computing market, our ultra low jitter Crystal oscillators are being used in 800 gig and 160 switches and optical module applications, Nick car and GPU car demand remains strong, which is where our standard high speaker and steering logic L. P.
Speaker Change: H CSO Crystal oscillator, and PCI Express Clos are being adopted by major platforms during.
Speaker Change: During the quarter, we experienced strong momentum for different protocol re drivers and mark switches, including HDMI and USB C. Despite poor embedded display port and nippy in many applications like workstations gaming laptop desktop docking stations and <unk>.
Speaker Change: Monitors.
<unk> USB C power switches and high surge TBS products also receive solid demand from power delivery five low scores applications in notebook desktop docking stations and surfer DC.
Speaker Change: Additionally, our 10 gigabit per second single Chip USB type C controller with integrated Max's are gaining strong traction in IP cameras, as well as LTE routers tablets and notebooks.
Speaker Change: So in the computing are four channel <unk> LCD drivers saw increasing demand from TV monitor backlight applications, and our MOSFET and high surge protection devices are winning annuity side.
Speaker Change: For power <unk> applications with surfer and inter process communication customers.
Speaker Change: Turning to consumer market similar to the PC market inventory is clean even though the overall demand is not as strong as we expected customer demand is generally stronger than last year in terms of design wins, our Tvs diode array products are being adopted in display units.
Speaker Change: In our high search Pvs product.
Speaker Change: Strong growth in power delivery systems. We are also seeing design win traction for our bipolar junction transistor products in home appliances and for our gate drivers in large screen display power supply as well as our FIFO charged foam products in TV remote controls.
Speaker Change: Yeah.
Speaker Change: We also secure new design wins for our charge at USB power delivery solutions in mobile applications and our audio stereo amplifier in the half phones, JAKKS as well FCC product in monitors and TV applications.
Lastly, in the communication market, our enterprise side due to the slower than expected demand the inventory depletion rate has been slow and we expect this may last into the first quarter before returning to the healthy level. We have many new designs in the AI data center and are seeing.
Speaker Change: <unk> design momentum for our PCI Express packet switch MOSFET and Crystal oscillators in data center optical module on the smartphone side, we saw increased demand in the third quarter, our battery FET with designed into many smartphone modulus and revenue is ramping up.
Speaker Change: In summary, we were pleased with the strong growth we achieved in the third quarter, especially in the automotive market, where we have been expanding our content and gaining increasing design win momentum.
Speaker Change: We are also encouraged by the strong <unk> performance during the quarter, especially in Asia.
Speaker Change: Though the overall demand recovery remains slow we are well positioned with available capacity to meet future demand increases as well as continued margin expansion as a global market recovery, especially within automotive and industrial markets with that we now own.
Speaker Change: And the floor to questions operator.
Speaker Change: At this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad.
We will pause for just a moment to compile the Q&A roster.
Your first question comes from the line of David Williams with benchmark. Please go ahead.
David Williams: Hey, good afternoon, and thanks for taking my questions everyone.
Yes.
Yes, maybe first if I could maybe you sound like there was quite a bit of demand improvement coming from Asia and just wondering if you could maybe talk through some of that where youre seeing it and maybe what you're what's not doing as well there seems to be some mixed messaging coming out of the region and just kind of wondering if you could help us understand where your demand is.
David Williams: And how you expect that to trend through through maybe the fourth quarter and into next year.
Speaker Change: Yeah, So hi.
Hi, David.
Speaker Change: Definitely seeing good demand coming through Asia as you can see that we actually achieved nine 5% growth quarter over quarter and within Asia, We actually seeing across the board from all the regions not specific one the one I pointed out was specific to China, because among all of this is al.
Speaker Change: Actually the highest growth area right, especially in the automotive market.
Speaker Change: In general what we're seeing is even the automotive market seal.
Speaker Change: Inventory rebalancing going on adjustment going on but we also are seeing some customers.
Speaker Change: Start depleting inventory faster than the others. So definitely this is good to see some movements over there right. So as a result, we actually grow our overall percentage from 18% to 19% right. There is also a contributor to some of the content expansion driven by some of the past design ins design wins.
Speaker Change: Of course also gain some of the market share. So this again is across all regions at the same time, what we see industrial is.
Speaker Change: Challenging, but not everybody the same not everything equal. So we also see some movements, but still kind of slow at this moment I think for the computing is definitely a sentiment that we're seeing good momentum in the third quarter, and especially driven more on the AI surfer tie.
Speaker Change: Of areas and stuff like that so that's really exciting to see on the communications area I would say majority of the activity upside is driven by some of the smartphones, especially the U S base customer that Q3 always being a strong quarter and this year, we definitely seeing good results.
Speaker Change: Also from some of the content expansion that we did.
Speaker Change: And then on the consumer side Q3 is always a peak for consumer market right. So we definitely see some customers doing better than the others.
Speaker Change: Overall, it's exciting to see some movements and I would say all in all is improvement from last year. So that's really what we see and then going to the Q4 right I think auto will continue going through some inventory adjustments we.
Speaker Change: We do expect.
Speaker Change: Q4, probably going to be slightly down quarter from the industrial point of view I think the inventory adjustment definitely will be ongoing.
Speaker Change: We expect that's probably going to be a down quarter as well computing.
Speaker Change: <unk> somewhere between flat, maybe slightly up and then with consumer Q4 is always a down quarter because most of the holiday deal is done and so we don't really expect thats going to be a significant up we also have some other holidays stuff like that.
Speaker Change: Definitely you have less number of ship days in North America and also in Europe on the communication side, I think enterprise inventory adjustment or rebalancing with ongoing.
Speaker Change: Smartphone again similar to the consumer usually the fourth quarter is not going to be a super strong quarter. So.
Speaker Change: That's really what we see.
Speaker Change: Sure.
Speaker Change: Yes.
Speaker Change: Lots of really great color there. Thank you for that and then maybe Brian if I could just on the gross margin. It seemed like there was a little bit more pressure on the guidance side just relative to to the typical dropped here that we would see there and just wondering if there's anything additional that may be playing into that as utilization mix or how should we think about that that grew.
Speaker Change: Margin and then.
Speaker Change: Is that something that will recover into the new year. Thank you.
Speaker Change: Yes, I think the right way to think about that David is that it's.
Speaker Change: You have a few different things kind of coming together that do put pressure on that.
Speaker Change: As we talked about it we.
Speaker Change: Had strengths in third quarter that strength was not really on the full auto plus industrial it did have some automotive strength as we transition into force.
Speaker Change: We transitioned down that puts pressure on margins the mix of where we see things carrying into fourth puts pressure and on top of it.
Speaker Change: We continue to have strategic investments in our additional capacity that's coming on but currently we have service contract arrangements, there's weakness there and in that weakness reflects itself as the overall market is softer from our customers.
Speaker Change: I think the combination of those things kind of culminated in the fourth quarter, but I think as we transition into 2025, Theres really nothing about that that sets any new kind of trend or something that doesn't kind of recover as we transition in because we're making great progress on qualifying our own products.
Speaker Change: In both <unk> and SP fab, and we are making great projects with the mix of our product portfolio continuing to be more automotive industrial analog and high end discrete products. So we're really confident about that.
Speaker Change: Okay, all right perfect and if I could squeeze just one last one and just kind of curious how youre thinking about maybe the new administration and given that the China exposure you have or that the leverage how do you maybe want to see it.
Speaker Change: And then just kind of some of the other puts and takes around that is there anything that you would point to that youre concerned with or any I guess any puts and takes that you're thinking about here around that thank you.
Speaker Change: Yeah, maybe.
Emily Yang: David This is Emily let me answer first.
Speaker Change: I think if we look at China, you look at the total China revenue for diodes is shown on slide 43% to our total but the actual low co. China portion is a much smaller portion right taking.
Speaker Change: Taking that aside just from the opportunity point of view I believe we still have a lot of the potential to grow in China, because a lot of customers really looking for the goods. They call. The C. P value, which is cost performance value. So if diodes continue to drive new products with deferred.
Speaker Change: <unk> functions and features and we continued to drive our total solution sales approach. There is still a lot of opportunity in front of us right.
Speaker Change: I think related to politics.
Speaker Change: I don't know how to judge I think overall as a company we are well positioned to adapt wherever the government policy is going to come next right. So I think that is a little bit I know at this moment, but we definitely are watching very closely but overall with all of the.
Speaker Change: Flexibility, we've built in the <unk>.
Speaker Change: Hybrid manufacturing.
Speaker Change: Our model the way, we continue to drive additional loadings, especially into the U S and Europe region I believe that gives us a lot of flexibility to adjust based on the new government policy.
Speaker Change: Yes, David This is Gary I would like to have more color on that and as you mentioned about how we try to keep our business flexibility in both China and non China customer by leveraging our make function footprint in greater China as well as in Europe, and North America. So I've been sitting here, we don't give up any business anywhere and though we cannot control.
Speaker Change: Our political policy unit between China, and the U S. But what we can continue doing here is to continue to penetrate more designing and prime opioids in most regions.
Speaker Change: Great. Thanks, so much.
Speaker Change: I forget Doug Congrats on the really solid in the quarter in the third quarter here. Thank you. Thank you.
Speaker Change: Your next question comes from the line of William Stein with Truest. Please go ahead.
William Stein: Great. Thanks for taking my questions.
Speaker Change: I'm, hoping you can disclose to us what you have in the past in terms of the split of revenue by.
Speaker Change: Distribution channel versus versus direct customers and also the split of growth between units and pricing and then I'll follow up thank you.
Speaker Change: Let me address the first question first is really the split between distribution and Durant.
Speaker Change: Q3, our number is actually 64% distribution, 36%. The Rep and then Q2 is 60% to 63% versus 37, so if I look from the trend point of view.
Speaker Change: I would say you know I will always refer to a two third one third.
Speaker Change: I think back in 2022, the distribution percentage slightly higher and right now, it's really pretty much down to you know.
Speaker Change: $64 63 range for distribution versus direct.
Speaker Change: And then the number of.
Speaker Change: Yes go ahead, yes, the growth I think you'd normally disclose I forget if it sequential or year over year, but you disclosed growth in use.
Speaker Change: And then I think we can use that to calculate.
Sort of.
Speaker Change: In a sense the combination of mix and.
Speaker Change: And pricing.
Speaker Change: Okay.
Speaker Change: Yes, so it will.
Speaker Change: What we do disclose is the.
Speaker Change: Year over year pricing and that was about a 10% impact but essentially is.
Speaker Change: I. Appreciate this is more of a just a pure unit perspective.
Speaker Change: Yes, so basically the product mix is not in this picture.
Speaker Change: Yes.
Speaker Change: Okay. Thank you for that and as a follow up.
Speaker Change: Hi.
Speaker Change: Pardon me I had one.
Speaker Change: Im just kind of like going on here.
Speaker Change: So the noise.
Oh, it's about seasonality.
Speaker Change: Delighted that the guidance is above seasonal I think it's just a hair above our.
Speaker Change: Expectation of typical seasonality in Q4, but I appreciate the characterization do you think we're in a period now where we should expect the next several quarters to be above seasonal as.
There's sort of this catch up from under shipping demand in the last few quarters or is it too early to call that sort of.
Speaker Change: More let's say solid turn in the cycle.
David Williams: Yeah, I think I mean, you know Williams the challenge we have this dynamic of the market right and you know.
I called it better seasonality, because there's definitely quarters that we actually dropped a lot more than three 7% right. There are some quarters I see going back to the history, there's like minus 7%.
David Williams: Six 8% of course, there are some quarters may be slightly better and I, usually refer to the seasonality is about 5% down in the fourth quarter. So that's the reason we called it better than usual seasonality related to what to expect next year I think all in all right. We are.
David Williams: I'd say, we are confident that things will get better right. So the big question is when.
David Williams: So if you look from the logical point of view right.
David Williams: It took about eight quarters for the PC to adjust the inventory and now we have a little bit more than a year into the inventory adjustment for automotive industrial already I think the passes the Si I mentioned, there are some customer getting into a healthier position already and the others.
David Williams: So it's really difficult for me to call exactly but we are pretty confident that things will get better we usually don't provide guidance more than a quarter, but at the same time. We are confident next year will be a growth year.
Speaker Change: And one final one if I can what is the company's view as to typical seasonality in Q1.
Speaker Change: Q1, because we have Chinese new year right. So usually we call. The Q1, you show seasonality is about 5% down.
Speaker Change: Got it thanks, so much I appreciate your help today.
No problem, we'll thank you.
Speaker Change: Your next question comes from the line of Tristan <unk> with Baird. Please go ahead.
Speaker Change: Hi, good afternoon.
Speaker Change: You touched on pricing a bit.
Speaker Change: In automotive, which is one of the end markets.
You and clearly.
Speaker Change: Many companies have highlighted as being weak.
Speaker Change: <unk> at pricing renegotiation for next year.
Speaker Change: First wanted to get a sense of how you see those discussions going.
Speaker Change: And then I know that.
Speaker Change: As mentioned in the past, how new design wins in the automotive basically at a 50% gross margin threshold or higher.
Speaker Change: But at the same time you do have.
Speaker Change: Their utilization.
Speaker Change: So what is the balance between where you might figure well, maybe I take to slightly less than 50% gross margin, but then they can really feel capacity increase utilization rates on its a net net positive for gross margin. So if you could give us color on that.
Speaker Change: And whether you expect pricing declines to accelerate next year on that.
Emily Yang: Hi, <unk>. This is Emily so I think all in all right auto market customers negotiation really.
Emily Yang: Customer by customer some may be doing a quarterly negotiations some maybe semi yearly.
Emily Yang: <unk> is probably a yearly negotiation I would say all in all I would view that as pretty stable.
Emily Yang: We did actually have a boe in somewhere between 1% to 2%.
Emily Yang: Price decrease.
Emily Yang: Quarter into our model and.
Speaker Change: Thank you have a really good question. So you know how do we balance the under loading or underutilization versus more than 50% margin I think what we look at each of our town or I look at <unk> I don't really look at line by line.
Speaker Change: What we really look at this overall account margin right and the also the overall comp potential to grow in the future. There are times that we will take low margin business. If there's good justification or strategic benefit down the road right. So we don't really use a 50 person.
Speaker Change: <unk> or 55% at the bar, but we look at the overall engagement. The overall relationship I think one thing I've been emphasized before is actually the partnership with our customers the face to face the long term relationships. So that's how we view it of course as part of the negotiation.
Speaker Change: For all under loading caused by which side will be part of the consideration as well. So there are cases.
Speaker Change: If we can help to minimize the overall loading.
Speaker Change: They're loading pressure by doing a little bit some other areas, we definitely would do it but at the same time, we also don't want to.
Speaker Change: Mess up the whole market as well right.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: I'm sorry, Justin this is Gary I would like to put some more color on that too. So so I think the key steel automotive and really want to introduce new products into automotive as Emily mentioned buying her speech and the key thing is just how can we make sure. We do the E&P side, we continuously and also doing content extension expansion.
At this moment, we do see the automotive revenue increased 1% quarter to quarter and will continue going forward direction.
Speaker Change: Okay, that's very useful.
Speaker Change: As a follow up.
Speaker Change: If you could expand a little bit on obviously the success story regarding the pcie.
Switches and.
Speaker Change: How material is that.
Speaker Change: Into next year.
Speaker Change: Is that contributing meaningfully versus.
Typical seasonality in Q1, as youre ramping and what type of market share.
Speaker Change: Are you expecting in some of the leading platform.
Speaker Change: Ramping.
Speaker Change: Yeah. So I think you know we share more information last quarter basically with some of the Gpus or the you know the.
Speaker Change: The AI surfers Theres a requirement for additional PCI express input or output ports. So we actually have a very unique product that was really fulfill this requirement. So we are very well positioned so.
Speaker Change: As everyone knows there is some delay chipset launch and stuff like that so I would say this is still at the very early stage of the deployment and then we still have number of customers that currently still working at the design stage. So we expect that can definitely help us.
Speaker Change: <unk> continued to drive some of the momentum and I also pointed out this quarter, it's not just the AI surfer or the data center, there's a lot of related AI subsystems right, whether it's a D. C fan whether its power supply D. C. D C break et cetera. So we are continue leverage different things.
Speaker Change: Spending even to the sub systems. So that's the reason why it can be quite important for <unk> continue to focus in this direction and continue to drive the total solution sales approach and continue to gain the momentum next year. So like I said, it's just the beginning after.
Speaker Change: Spansion and that the momentum definitely will continue or much stronger into 2025.
Speaker Change: Great. Thank you very much.
Tristan: Thank you Tristan.
Speaker Change: There are no further questions at this time I will now turn the call back over to Gary Yu for closing remarks.
Speaker Change: Thank you Amy.
Gary Yu: Dissipating on today's call, we look forward to reporting our progress on this quarter's conference call. Operator, you may now disconnect.
Speaker Change: Ladies and gentlemen that concludes today's call. Thank you all for joining you may now disconnect.
Speaker Change: Please wait the conference will begin shortly.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: Yes.