Q2 2026 Diodes Inc Earnings Call

August 5, 2026

Operator 2: Good afternoon. Welcome to Diodes Incorporated Q2 2026 Financial Results Conference Call. At this time, all participants are in a listen-only mode. At the conclusion of today's conference call, instructions will be given for the question-and-answer session. If anyone needs assistance at any time during the conference call, please press the star key followed by 0 on your touchtone phone. As a reminder, this conference call is being recorded today, Wednesday, 5 August 2026. I would now like to turn the call over to Leanne Sievers of Shelton Group Investor Relations. Leanne, please go ahead.

Operator: Good afternoon. Welcome to Diodes Incorporated Q2 2026 Financial Results Conference Call. At this time, all participants are in a listen-only mode. At the conclusion of today's conference call, instructions will be given for the question-and-answer session. If anyone needs assistance at any time during the conference call, please press the star key followed by zero on your touchtone phone. As a reminder, this conference call is being recorded today, Wednesday, 5 August 2026. I would now like to turn the call over to Leanne Sievers of Shelton Group Investor Relations. Leanne, please go ahead.

Speaker #1: Good afternoon, and welcome to DIODES Incorporated's second quarter 2026 financial results conference call. At this time, all participants are in a listen-only mode. At the conclusion of today's conference call, instructions will be given for the question-and-answer session.

Speaker #1: needs assistance at any time during the conference call, please press the star key followed by the zero on your touch-tone phone. As a reminder, this conference call is being recorded today, Wednesday, August 5, 2026.

Speaker #1: would now like to turn the call over to Leanne Sievers of Shelton Group Investor Relations. Leanne, please go ahead.

Leanne Sievers: Good afternoon. Welcome to Diodes' Q2 2026 Financial Results Conference Call. I'm Leanne Sievers, president of Shelton Group, Diodes' investor relations firm. Joining us today are Diodes President and CEO, Gary Yu, CFO Brett Whitmire, Senior Vice President of Worldwide Sales and Marketing, Emily Yang, and Vice President of Marketing and Investor Relations, Gurmeet 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 accounting firm. These results are unaudited and subject to revision until the company files its Form 10-Q for its quarter ended 30 June 2026. 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.

Speaker #2: Good afternoon, and welcome to DIODES second quarter 2026 financial results conference call. I'm Leanne Sievers, president of Shelton Group, DIODES Investor Relations Firm. Joining us today are DIODES president and CEO, Gary Yu, CFO Brett Whitmire, senior vice president of worldwide sales and marketing, Emily Yang, and vice president of marketing and investor relations, Grameet Dhaliwal.

Speaker #2: 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 the customary quarterly review by the company's independent registered public accounting firm.

Speaker #2: As such, these results are unaudited and subject to revision until the company files its Form 10-Q for its quarter-ended June 30, 2026. In addition, management's prepared remarks contain forward-looking statements which are subject to risk and uncertainties and management may make additional forward-looking statements in response to your questions.

Speaker #2: 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.

Leanne Sievers: 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. Therefore, we refer you to a more detailed discussion of the risks and uncertainties in the company's filings with the Securities and Exchange Commission, including Forms 10-K and 10-Q. In addition, any projections as to the company's future performance represent management's estimates as of today, 5 August 2026. 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.

Speaker #2: 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.

Speaker #2: In addition, any projections as to the company's future performance represent management's estimates as of today, August 5, 2026. DIODES assumes no obligation to update these projections in the future, as market conditions may or may not change.

Speaker #2: Except for 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 and gap and non-gap terms.

Speaker #2: Included in the company's press release are definitions and reconciliations of gap to non-gap 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 gap net income.

Leanne Sievers: 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.diodes.com. Now I'll turn the call over to Diodes President and CEO, Gary Yu. Gary, please go ahead.

Speaker #2: 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.dioedes.com.

Speaker #2: And now I'll turn the call over to DIODES president and CEO, Gary Yu. Gary, please go ahead.

Speaker #3: Welcome, everyone, and thank you for joining us on today's conference call. As announcing our press release earlier today, we extend our momentum in the second quarter with revenue again increasing more than 20% year over year.

Gary Yu: Welcome, everyone, thank you for joining us on today's conference call. As announced in our press release earlier today, we extend our momentum in the second quarter, with revenue again increasing more than 20% year-over-year, driven by growth across all regions. Revenue also increased 10% sequentially, coupled with a record global POS. As the sixth consecutive quarter of double-digit year-over-year growth, this quarter serves as a further confirmation of strengthening demand in overall market. Combined with Diodes expanding content across our analog and power solutions in our key focus areas of automotive, industrial, and AI server-related applications. Automotive revenue reached a record level of 21% of our product revenue. We continue to drive increased content with an expanding pipeline of new products that's resulting in consistent market share gains across our region's auto manufacturers and suppliers.

Speaker #3: Driven by growth across all regions, revenue also increased 10% sequentially, coupled with a record global POS. As the sixth consecutive quarter of double-digit year-over-year growth, this quarter serves as a further confirmation of strengthening demand in overall market.

Speaker #3: Combined with DIODES expanding content across our analog and our power solutions, in our key focus areas of automotive, industrial, and AI service-related applications. Automotive revenue reached a record level of 21% of our product revenue, which continues to drive increased content with an expanding pipeline of new products that's resulting consistent market share gains across all regions auto manufacturers and suppliers.

Speaker #3: Also, during the quarter, the cost and operating initiative we previously implemented during the market slowdown are producing measurable benefit to gross margin and our bottom line, with margin increasing 160 basis points year over year and a non-gap earnings increasing by more than 100% again this quarter.

Gary Yu: Also, during the quarter, the cost and operating initiative we previously implemented during the market slowdown are producing measurable benefit to gross margin and our bottom line, with margin increasing 160 basis points year-over-year and our non-GAAP earnings increasing by more than 100% again this quarter. These actions have also contributed to increase the cash flow that has enabled us to reinvest in our growth and innovation, while also looking for inorganic opportunity to expand our technology portfolio, such as recent proposed acquisition of Elevate Semiconductor. Elevate is a fabless semiconductor company that specializes in development of integrated circuits for automated test equipment or ATE. The explosive growth, increasing complexity, and the higher performance requirements of ICs using automotive, industrial, data center, and AI applications are driving greater semiconductor production volume and, in turn, increasing demand for automated test equipment.

Speaker #3: These actions have also contributed to increased cash flow that has enabled us to reinvest in our growth and innovation, while also looking for inorganic opportunity to expand our technology portfolio, such as recent proposed acquisition of Elevate Semiconductor.

Speaker #3: Elevate is a fabless semiconductor company that specializes in development of integrated circuit of automated test equipment, or ATE. The explosive growth increasing complexity and higher performance requirements of IC using automotive industrial data center and the AI applications are driving greater semiconductor production volume and, in turn, increasing demand for automated test equipment.

Speaker #3: This acquisition enhanced our ability to provide a broader solution to customers and launch a new advanced product line that will drive increased dollar content in ATE applications.

Gary Yu: This acquisition enhances our ability to provide a broader solution to customers and launch a new advanced product line that will drive increased dollar content in ATE applications. I also want to add that this acquisition is immediately accretive and expect to add approximately $15 million of revenue in the first 12 months post-close, with revenue expected to grow at a CAGR of greater than 20% over the next four years and with gross margin significantly higher than Diodes corporate average. As we look to Q3, we expect to extend our accelerating traction, with revenue anticipated to increase 30% year-over-year and 14% sequentially at the midpoint. We also expect to deliver another 190 basis point sequential improvement in gross margin as our utilization continues to improve, combined with a 2.8 times year-over-year improvement in non-GAAP earnings.

Speaker #3: I also want to add that this acquisition is immediately accretive, and we expect it to add approximately $15 million of revenue in the first 12 months post-close.

Speaker #3: With revenue expect to grow at a CAGR of greater than 20% over the next 4 years, and with gross margin significantly higher than DIODES corporate average.

Speaker #3: As we look to the third quarter, we expect to extend our accelerating traction, with revenue anticipated to increase 30% year over year and 14% sequentially at the midpoint.

Speaker #3: We also expect to deliver another 190 basis points sequential improvement in gross margin. As our realization continues to improve, combined with a 2.8 times year-over-year improvement in non-GAAP earnings, these expected results drive us closer toward our 3-year financial goals of $2 billion in annual revenue and over $4 in non-GAAP EPS.

Gary Yu: These expected results drive us closer toward our three-year financial goals of $2 billion in annual revenue and over $4 in non-GAAP EPS. With that, let me now turn the call over to Brett to discuss our Q2 financial results, as well as Q3 guidance in more detail.

Speaker #3: With that, let me now turn the call over to Brett to discuss our second quarter financial result, as well as third quarter guidance in more detail.

Speaker #4: Thanks, Gary, and good afternoon, everyone. Revenue for the second quarter 2026 was $445.5 million. An increase of 22% over $366.2 million in the second quarter 2025, and up 10% compared to $405.5 million in the first quarter 2026.

Brett Whitmire: Thanks, Gary, and good afternoon, everyone. Revenue for Q2 2026 was $445.5 million, an increase of 22% over $366.2 million in Q2 2025, and up 10% compared to $405.5 million in Q1 2026. Gross profit for Q2 was $147.6 million, or 33.1% of revenue, compared to $115.3 million, or 31.5% of revenue in the prior year quarter, and $128.8 million or 31.8% of revenue in the prior quarter. GAAP operating expenses for Q2 were $114.3 million, or 25.6% of revenue. On a non-GAAP basis, were $108.6 million or 24.4% of revenue, which excludes $3.9 million amortization of acquisition-related intangible asset costs, $1.5 million of board and officer retirement expense, and $0.3 million of acquisition-related costs.

Speaker #4: Gross profit for the second quarter was $147.6 million, or 33.1% of revenue, compared to $115.3 million or 31.5% of revenue in the prior year quarter, and $128.8 million or 31.8% of revenue in the prior quarter.

Speaker #4: Gap operating expenses for the second quarter were $114.3 million, or 25.6% of revenue, and on a non-gap basis were $108.6 million or 24.4% of revenue, which excludes $3.9 million amortization of acquisition-related intangible asset cost, $1.5 million of board and officer retirement expense, and $0.3 million of acquisition-related cost.

Speaker #4: This compares to gap operating expenses in the second quarter 2025 of $105.9 million or 28.9% of revenue, and $109 million or 26.9% of revenue in the prior quarter.

Brett Whitmire: This compares to GAAP operating expenses in Q2 2025 of $105.9 million, or 28.9% of revenue, and $109 million, or 26.9% of revenue in the prior quarter. Non-GAAP operating expenses in the prior quarter were $103.9 million, or 25.6% of revenue. Total other income amounted to approximately $24.7 million for the quarter, consisting of $20 million in unrealized gain on investments, $5.5 million in interest income, $0.5 million in other income, offset by $1 million in foreign currency losses, and $0.3 million in interest expense. Income before taxes, equity, and net earnings of equity investments in non-controlling interest in Q2 2026 was $58 million, compared to $53.2 million in the prior year period, and $22.4 million in the previous quarter. Turning to income taxes, our effective income tax rate for Q2 was approximately 12.3%.

Speaker #4: Non-gap operating expenses in the prior quarter were $103.9 million or 25.6% of revenue. Total other income amounted to approximately $24.7 million for the quarter, consisting of $20 million in unrealized gain on investments, $5.5 million in interest income, $0.5 million in other income offset by $1 million in foreign currency losses and $0.3 million in interest expense.

Speaker #4: Income before taxes equity and net earnings of equity investments and non-controlling interest in the second quarter 2026 was $58 million. Compared to $53.2 million in the prior year period and $22.4 million in the previous quarter.

Speaker #4: Turning to income taxes are effective income tax rate for the second quarter was approximately 12.3%. For 2026, we expect the tax rate for the full year to remain at approximately 18% plus or minus 3%.

Brett Whitmire: For 2026, we expect the tax rate for the full year to remain at approximately 18% ±3%. GAAP net income for Q2 was $46.6 million, or $1 per diluted share, compared to a net income of $46.1 million, or $0.99 per diluted share in the prior year quarter, and net income of $15 million, or $0.32 per diluted share last quarter. The share count used to compute GAAP income per share for Q2 2026 was 46.4 million shares. Non-GAAP adjusted net income in Q2 was $32.5 million, or $0.70 per diluted share, which excluded net of tax, an $18.7 million gain on investments, $3.2 million of acquisition-related intangible asset costs, $1.2 million in board officer retirement expense, and $0.2 million in acquisition-related costs.

Speaker #4: Gap net income for the second quarter was $46.6 million or $1 per diluted share. Compared to a net income of $46.1 million, or 99 cents per diluted share in the prior year quarter, and net income of $15 million or 32 cents per diluted share last quarter, the share count used to compute gap income per share for the second quarter 2026 was $46.4 million shares.

Speaker #4: Non-gap adjusted net income in the second quarter was $32.5 diluted share, which excluded net of tax and 18.7 million gain on investments. $3.2 million of acquisition-related intangible asset cost, $1.2 million in board officer retirement expense, and $0.2 million in acquisition-related cost.

Speaker #4: This compares to non-gap adjusted net income of $15 million or 32 cents per diluted share in the second quarter 2025, and 19.8 million or 43 cents per diluted share in the prior quarter.

Brett Whitmire: This compares to non-GAAP adjusted net income of $15 million, or $0.32 per diluted share in Q2 2025, and $19.8 million, or $0.43 per diluted share in the prior quarter. Excluding non-cash share-based compensation expense of $8.9 million for Q2, net of tax, both GAAP net income and non-GAAP adjusted net income would've increased by $0.19 per share. EBITDA for Q2 was $83.5 million, or 18.7% of revenue, compared to $84.5 million, or 23.1% of revenue in the prior year period, and $49.4 million, or 12.2% 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 GAAP net income to EBITDA, which provides additional details. Cash flow provided by operations was $68.5 million for Q2.

Speaker #4: Excluding non-cash share-based compensation expense, of $8.9 million for the second quarter, net of tax both gap net income and non-gap adjusted net income would have increased by 19 cents per share.

Speaker #4: EBITDA for the second quarter was $83.5 million or 18.7% of revenue. Compared to $84.5 million or 23.1% of revenue in the prior year period, and $49.4 million or 12.2% of revenue in the prior quarter.

Speaker #4: We have included in our earnings release a reconciliation of gap net income to non-gap adjusted net income, and gap net income to EBITDA, which provides additional details.

Speaker #4: Cash flow provided by operations was $68.5 million for the second quarter. Free cash flow was $34.8 million including $33.6 million of capital expenditures. Net cash flow was a positive $32.9 million which includes $10 million for the stock buyback program.

Brett Whitmire: Free cash flow was $34.8 million, including $33.6 million of capital expenditures. Net cash flow was +$32.9 million, which includes $10 million for the stock buyback program. Turning to the balance sheet. At the end of Q2, cash equivalents, restricted cash, plus short-term investments totaled approximately $442 million. Working capital was approximately $931 million, and total debt, including long-term and short-term, was approximately $40 million. In terms of inventory, at the end of Q2, total inventory days decreased to approximately 152. That's compared to 157 last quarter. Finished goods inventory days were approximately 51, compared to 55 days last quarter. Total inventory dollars increased $11.8 million from the prior quarter to $504.6 million, consisting of an $8.7 million increase in raw materials, a $4.2 million increase in work in process, and a $1.1 million decrease in finished goods.

Speaker #4: Turning to the balance sheet at the end of second quarter cash, cash equivalents, restricted cash, plus short-term investments totaled approximately $442 million. Working capital was approximately $931 million in total debt including long-term and short-term was approximately $40 million.

Speaker #4: In terms of inventory at the end of second quarter, total inventory days decreased to approximately $152, as compared to $157 last quarter. Finished goods inventory days were approximately $51, compared to $55 days last quarter.

Speaker #4: Total inventory dollars increased $11.8 million from the prior quarter to $504.6 million, consisting of an $8.7 million increase in raw materials, a $4.2 million increase in work in process, and a $1.1 million decrease in finished goods.

Speaker #4: The increase in inventory helps to support customers and expected growth, as well as longer wait for manufacturing lead times. Capital expenditures on a cash basis were $33.6 million for the second quarter, or 7.5% of revenue.

Brett Whitmire: The increase in inventory helps to support customers and expected growth, as well as longer wafer manufacturing lead times. Capital expenditures on a cash basis were $33.6 million for Q2, or 7.5% of revenue, which was within our targeted annualized range of 5% to 9% of revenue. Now turning to our outlook. For Q3, we expect revenue to increase to approximately $510 million, ±3%. At the midpoint, this represents a 30% increase year over year, and a 14% increase sequentially. GAAP gross margin is expected to expand to 35% ±1%. Non-GAAP adjusted EPS is expected to be $1.05 ±$0.10. With that, I will now turn the call over to Emily Yang.

Speaker #4: Which was within our targeted annualized range of 5 to 9% of revenue. Now turning to our outlook. For the third quarter, we expect revenue to increase to approximately $510 million.

Speaker #4: Plus or minus 3%. At the midpoint, this represents a 30% increase year over year and a 14% increase sequentially. Gap gross margin is expected to expand to 35%, plus or minus 1%.

Speaker #4: Non-gap adjusted EPS is expected to be $1.05, plus or minus 10 cents. With that, I will now turn the call over to Emily Yang.

Speaker #1: Thank you, Brett, and good afternoon. As Gary and Brett mentioned, revenue in the second quarter was up 10% sequentially, and exceeded the midpoint of our guidance.

Emily Yang: Thank you, Brett, and good afternoon. As Gary and Brett mentioned, revenue in Q2 was up 10% sequentially, and exceeded the midpoint of our guidance. This growth was mainly driven by strong demand in Asia, followed by North America. Global POS increased quarter-over-quarter and reached record levels, driven by Americas, followed by Asia and Europe. Our channel inventory decreased both in terms of dollars and weeks again this quarter, with the weeks lower than our normal range of 11 to 14. The supply disruption I'd mentioned on previous call continues, and we remain strategically focused on building long-term sustainable business and content opportunities at key automotive, industrial, and AI-related applications and customers. Our achievement of record automotive revenue in the quarter validates the success of our strategy and market share gain with customers.

Speaker #1: This growth was mainly driven by strong demand in Asia followed by North America. Global POS increased quarter over quarter and reached record levels. Driven by America's followed by Asia and Europe, our channel inventory decreased both in terms of dollars and weeks again this quarter, with the weeks lower than our normal range of 11 to 14.

Speaker #1: The supply disruption I'd mentioned on previous call continues, and we remain strategically focused on building long-term sustainable business and content opportunities at key automotive industrial and AI-related applications and customers.

Speaker #1: Our achievement of record automotive revenue in the quarter validates the success of our strategy and market share gain with customers. With our strong second quarter result and third quarter guidance, this further underscores our solid operational performance and the initial benefit from our aggressive capacity expansion activities and our hybrid manufacturing strategy.

Emily Yang: With our strong Q2 result and Q3 guidance, this further underscores our solid operational performance and the initial benefit from aggressive capacity expansion activities and our hybrid manufacturing strategy. Looking at global sales in Q2, Asia represented 79% of revenue, Europe 12%, and North America 9%. In terms of our end markets, industrial was 23% of DIODES product revenue, automotive a record 21%, computing 28%, consumer 17%, and communication 11% of product revenue. Overall, AI infrastructure is becoming an increasingly important growth driver for DIODES that spans multiple end markets. AI should be viewed not as a single application, but as a broad system-level ecosystem. In a typical AI infrastructure platform, DIODES content can attach across several applications, including the server motherboards, a power network that supports a full power life cycle, networking switches, storage, and high-speed optical interconnect.

Speaker #1: Looking at global sales in the second quarter, Asia represented a 79% of revenue, Europe 12%, and North America 9%. In terms of our end markets, industrial was 23% of DIOS product revenue, automotive a record 21%, computing 28%, consumer 17%, and communication 11% of product revenue.

Speaker #1: Overall, AI infrastructure is becoming an increasingly important growth driver for DIOS that spans multiple end markets. AI should be viewed not as a single application, but as a broad system-level ecosystem.

Speaker #1: In a typical AI infrastructure platform, DIOS content can attach across several applications including the server motherboards, a power network that supports a full power life cycle, networking switches, storage, and high-speed optical interconnect.

Speaker #1: Across this combined AI application areas, our estimated total content opportunity is approximately $267, representing a meaningful incremental increase compared to AI server platforms of $109.

Emily Yang: Across these combined AI application areas, our estimated total content opportunity is approximately $267, representing a meaningful incremental increase compared to AI server platforms of $109. With several new products scheduled for release over the next few quarters, DIODES is well-positioned to expand its BOM content, strengthen socket penetration, and gain share as AI platform continues to scale in power density, connectivity bandwidth, and system complexity. Now let me review the end market in greater detail. Starting with automotive market, revenue grew 15% sequentially and over 37% year-over-year. The increase was driven by continuous business expansion and market share gains. Our design win momentum extended across all focus areas. In connected driving, adoption of ADAS telematics in infotainment systems continued to accelerate as automakers increased the number of sensors, cameras, radar modules, and processors within each vehicle.

Speaker #1: With several new products scheduled, for release over the next few quarters, DIOS is well positioned to expand its BOM content, straighten socket penetration, and gain share as AI platform continues to scale in power density, connectivity bandwidth, and system complexity.

Speaker #1: Now let me reveal the end market in greater detail. Starting with the automotive market, revenue grew 15% sequentially and over 37% year over year. The increase was driven by continuous business expansion and market share gains.

Speaker #1: Our design wind momentum extended across all focus areas. In connected driving, adoption of ADAS telematic infotainment systems continued to accelerate as automakers increased the number of sensors, cameras, radar modules, and processors within each vehicle.

Emily Yang: These architectures require robust interface and protection solutions, and we are seeing strong momentum for our voltage translation ICs, power management, and networking product as vehicle communication and processing requirement continue to increase. Across comfort, style, and safety, we are seeing strong adoption of power protection, smart power switching, motor control, and automotive lighting solutions. The advanced lighting solutions, vehicle body electronics, and intelligent control modules continue to require higher level of functionality and reliability, creating additional opportunities for our products. In the electrification, the transition towards higher voltage EV platforms, faster charging infrastructures, and more sophisticated battery management system is driving demand for our power semiconductors, wide bandgap solutions, and signal management devices. We continue to expand our portfolio to address applications ranging from battery management and onboard charging to DC-DC conversion and zone control architecture.

Speaker #1: This architecture's required robust interface and protection solutions and we are seeing strong momentum for our voltage translation ICs, power management, and networking product as vehicle communication and processing requirement continue to increase.

Speaker #1: Across comfort style and safety, we are seeing strong adoption of power protection, smart power switching, motor control, and automotive lighting solutions. The advanced lighting solutions vehicle body electronics and intelligent control modules continue to require higher level of functionality and reliability creating additional opportunities for our products.

Speaker #1: In the electrification, the transition towards higher voltage EV platforms, faster charging infrastructures, and more sophisticated battery management system is driving demand for our power semiconductors while band gap solutions and signal management devices we continue to expand our portfolio to address applications ranging from battery management and onboard charging to DC/DC conversion and zone control architecture.

Speaker #1: Overall, our automotive portfolio continues to gain traction across both ICE and EV applications. Our emphasis on our three focus areas combined with higher vehicle semiconductor content continue to support our long-term automotive growth strategy.

Emily Yang: Overall, our automotive portfolio continues to gain traction across both ICE and EV applications. Our emphasis on our three focus areas, combined with higher vehicle semiconductor content, continue to support our long-term automotive growth strategy. Turning to industrial market, revenue increased 5% sequentially and over 24% year over year. As a percentage of total product revenue, industrial was down 1% from last quarter, while actual demand remained strong. The industrial market continues to benefit from strong demand across AI infrastructures, industrial automation, robotics, energy management, healthcare, and smart infrastructure applications. Growth is being driven by increasing requirements for power efficiency, sensing, connectivity, and embedded intelligence in next-generation systems. With the shift towards 400-volt and 800-volt power architectures becoming an important trend in AI-related applications, our power management product and discrete products remain key growth drivers.

Speaker #1: Turning to industrial market, revenue increased 5% sequentially and over 24% year over year. As a percentage of total product revenue, industrial was down 1% from last quarter while actual demand remains strong.

Speaker #1: The industrial market continues to benefit from strong demand across AI infrastructures industrial automation, robotics, energy management, healthcare, and smart infrastructure applications. Growth is being driven by increasing requirements for power efficiency, sensing, connectivity, and embedded intelligence in next-generation systems.

Speaker #1: With the shift towards 400-volt and 800-volt power architectures, becoming an important trend in AI-related applications, our power management product and discrete products remain key growth drivers.

Speaker #1: This transition supports higher power density, lower distribution losses, and more efficient immediate bus conversion creating additional content opportunity for us. We are also seeing new growth opportunity emerge through humanized robotic where increasing system complexity is creating demand for discrete products voltage translation and connectivity solutions as commercial deployment move towards scale.

Emily Yang: This transition supports higher power density, lower distribution losses, and more efficient immediate bus conversion, creating additional content opportunity for us. We are also seeing new growth opportunity emerge through humanoid robotics, where increasing system complexity is creating demand for discrete products, voltage translation, and connectivity solutions as commercial deployment moves towards scale. Overall, Diodes is well positioned to benefit from the increasing intelligence, embedded computing, connectivity, and power demands for next-generation industrial systems. In the computing market, revenue increased 18% sequentially and 33% year over year. This market continues to be our strongest growth driver due to accelerating adoption across data center, AI server, cloud infrastructure, and storage platforms. Our timing portfolio continued to gain traction as customers transition to next-generation PCI Express architectures. We secure multiple strategic server platform design wins for our clock generators and timing solutions.

Speaker #1: Overall, DIOS is well positioned to benefit from the increasing intelligence, embedded computing, connectivity, and power demands for next-generation industrial systems. In the computing market, revenue increased 18% sequentially and 33% year over year.

Speaker #1: This market continues to be our strongest growth driver due to accelerating adoption across data center, AI server, cloud infrastructure, and storage platforms. Our timing portfolio continues to gain traction as customers transition to next-generation PCI Express architectures.

Speaker #1: We secured multiple strategic server platform design wins for our clock generators and timing solutions. With strong design activity, customer engagement, and backlog, training remains strong.

Emily Yang: With design activity, customer engagement, and backlog trending remains strong. New timing product are now ramping into the latest AI server platforms, further expanding our presence in this high-growth market. Beyond timing, the AI infrastructure build-out is increasing semiconductor content per server, creating opportunities across connectivity, signal integrity, interface, power management, sensing, and protection devices. We're also benefiting from increasing power density requirement in AI servers and data center, which are driving strong demand for our power distribution, protection, sensing, and voltage reference portfolios. In the consumer market, revenue increased almost 10% sequentially and 17% year over year, but remained flat to the last quarter as a percentage of total product revenue. Overall, the market remained challenged by memory shortage and slower demand. That said, we did see some areas of strength that helped offset the supply challenges.

Speaker #1: New timing product are now ramping into the latest AI server platforms further expanding our presence in this high growth market. Beyond timing, the AI infrastructure build-out is increasing semiconductor content per server creating opportunities across connectivity, signal integrity, interface, power management, sensing, and protection devices.

Speaker #1: We are also benefiting from increasing power density requirement in AI servers and data center which are driving strong demand for our power distribution, protection, sensing, and voltage reference portfolios.

Speaker #1: In the consumer market, revenue increase almost 10% sequentially and 17% year over year but remains flat to the last quarter as a percentage of total product revenue.

Speaker #1: Overall, the market remains challenged by memory shortage and slower demand. That said, we did see some areas of strength that helped offset the supply challenges.

Speaker #1: We saw strength in charging, USB power delivery solutions, ESC protection devices for storage applications, and level shifters and interface product benefiting from increasing adoption of AI-enabled IoT devices.

Emily Yang: We saw strength in charging, USB Power Delivery solutions, ESD protection devices for storage applications, and level shifters and interface product benefiting from increasing adoption of AI-enabled IoT devices, smart home systems, and multi-voltage architectures. Together, these product families reflect our focus on higher value consumer applications, where increasing functionality, connectivity, and power efficiencies are driving greater semiconductor content. Lastly, in the communication market, revenue decreased 7% sequentially and approximately 3% year over year. Demand in this market remains soft, especially in the smartphone market in China. On a positive side, networking remains strong with demand creation momentum supported by growing investments in AI infrastructures, enterprise networking, and next-generation mobile devices. With mobile and edge devices, we continue to benefit from demand for power management product in AI-enabled smartphones, wearables, and emergent smart glasses.

Speaker #1: Smart home systems and multi-voltage architectures. Together, this product family is reflect our focus on higher value consumer applications where increasing functionality connectivity and power efficiencies are driving greater semiconductor content.

Speaker #1: Lastly, in the communication market, revenue decreased 7% sequentially and approximately 3% year over year. Demand in this market remains soft especially in the smartphone market in China.

Speaker #1: On a positive side, networking remains strong with demand creation momentum, supported by growing investments in AI infrastructures, enterprise networking, and next-generation mobile devices. With mobile and edge devices, we continue to benefit from demand for power management product in AI-enabled smartphones wearables and emergent smart glasses.

Speaker #1: AI is driving new opportunities across both networking infrastructures and intelligent edge devices expanding our design wind pipeline and supporting future growth in communication market for DIOS.

Emily Yang: AI is driving new opportunities across both networking infrastructures and intelligent edge devices, expanding our design win pipeline and supporting future growth in communication market for Diodes. In summary, we are pleased with our strong growth momentum and gross margin expansion as we continue to emphasize content expansion initiatives across our key focus area of automotive, industrial, and AI server-related applications. We are guiding for continuous growth in revenue, margins, and non-GAAP earnings, which puts us on a solid track towards the achievement of our three-year financial goals. With that, we now open the floor to questions. Operator?

Speaker #1: In summary, we are pleased with our strong growth momentum and growth margin expansion as we continue to emphasize content expansion initiatives across our key focus area of automotive, industrial, and AI server-related applications.

Speaker #1: We are guiding for continuous growth in revenue, margin, and non-gap earnings which puts us on a solid track towards the achievement of our three-year financial goals.

Speaker #1: With that, we now open the floor to questions, operator.

Speaker #2: We will now begin the question and answer session. If you would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue.

Operator 2: We will now begin the question and answer session. If you would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. To withdraw your question, press star one again. We will pause for a minute for the questions to come in. Your first question comes from the line of William Stein from Truist Securities. Please go ahead.

Operator: We will now begin the question and answer session. If you would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. To withdraw your question, press star one again. We will pause for a minute for the questions to come in. Your first question comes from the line of William Stein from Truist Securities. Please go ahead.

Speaker #2: To withdraw your question, press star one again. We will pause for a minute for the questions to come in. Your first question comes from the line of William Stein from Choice Securities.

Speaker #2: Please go ahead.

[Analyst] (Truist Securities): Hi, this is Elliot on for Will. Thanks for letting me ask a question. First, can you provide some color on your SPFAB, status of revenue and profitability? Maybe where things stand on utilization and getting products qualified and moved in-house?

Speaker #3: Hi, this is Elliot on for Will. Thanks for letting me ask a question. First, can you provide some color on your SPFAB status of revenue and profitability?

Speaker #3: Maybe where things stand on utilization and getting products qualified and moved in-house.

Speaker #4: Well, hi. This is Gary Yu. Let me give you some insight about that wafer fab. Usually, we don't provide this kind of P&L for that particular wafer fab.

Gary Yu: Well, hi, Will. This is Gary. Let me give you some insight about that wafer fab. You know, usually we don't provide this kind of P&L for that particular wafer fab, but as I say so upon a couple quarter, I do believe in the progress on loading that wafer fab continue growing on that. Also, we do see the key customer is starting using the wafer fab, the wafer produced from the wafer fab as their product. I do believe in the near future, we can continue to grow the utilization on this wafer fab.

Speaker #4: But as I say, so from the couple quarters, and I do believe in the progress of loading, that wafer fabs continue growing on that.

Speaker #4: And also, we do see the key customer starting using the wafer fab the wafer produced from the wafer fab as their product and I do believe in the nearly future and we can continue to grow the utilization on this wafer fab.

Gary Yu: The key customer is starting using the wafer fab, the wafer produced from the wafer fab as their product. I do believe in the near future, we can continue to grow the utilization on this wafer fab.

Speaker #3: Okay, thank you. And then if I get one more, can you talk us through in market expectations as we move into Q3 and then potentially into Q4 as well given such strong growth you're expecting and then if I can try if you could look a little further out, maybe ranking your growth opportunities as you move into 2027?

[Analyst] (Truist Securities): Okay, thank you. If I can get one more. Can you talk us through end market expectations as we move into Q3 then potentially into Q4 as well, given such strong growth you're expecting? If I can try, if you can look a little further out, maybe ranking your growth opportunities as you move into 2027. Thank you.

Speaker #3: Thank you.

Emily Yang: Hi, this is Emily. Let me answer this question, Ray. Overall Q3, with a very strong guidance, 14.5 quarter-over-quarter growth. We do expect growth from almost all the end market segments. I would say majority would continue, driven by the AI related applications, especially on the server motherboard side. I think automotive definitely show a lot of strength, very strong growth momentum, and we expect that will continue by market share gain and the expansion of some of the products. On the industrial side, I think the excess inventory is definitely beyond us right now. We definitely also seen the market recover from there. We also expect industrial growth in Q3. Consumer is usually a peak quarter for Q3. I know there's some combination of different things, all in all, we also expect that to see some improvement.

Speaker #5: Hi, this is Emily let me answer this question, right? So overall Q3, with a very strong guidance, 14.5 quarter over quarter growth, we do expect growth from almost all the end market segments.

Speaker #5: I would say majority would continue driven by the AI-related applications. Especially on the server motherboard side, I think automotive definitely show a lot of strength, very strong growth momentum.

Speaker #5: And we expect that will continue by market share gain and the expansion of some of the products on the industrial side. I think the excess inventory is definitely beyond us right now.

Speaker #5: We definitely also see in the market recover from there. So we also expect industrial growth in the third quarter consumers usually a peak quarter for the third quarter.

Speaker #5: I know there's some combination of different things but all in all, we also expect that to see some improvement on the communication side, right?

Emily Yang: On the communication side, smartphone demand is very similar to consumer, similar to the comment I made before. On top of that, we believe the networking portion of this communication market segment should continue to grow, driven especially with some AI networking switches and routers. I would say all in all, we actually have a really good guidance for Q3, we definitely are marching towards to make sure we achieve and meet the goals. Regarding Q4, we usually don't provide more than one quarter's guidance, definitely we're seeing good momentum so far for the Q4. I think for next year, it's a little bit longer out there, all in all, with the market we're seeing, we feel like it should be stronger than usual.

Speaker #5: Smartphone demands very similar to consumer. So similar to the comment I made before. On top of that, we believe the networking portion of this communication market segment should continue to grow driven especially with some AI networking switches and routers, right?

Speaker #5: So I would say all in all, we actually have a really good guidance for Q3 and we definitely marching towards to make sure we achieve and meet the goals.

Speaker #5: Regarding Q4, we usually don't provide more than one quarter's guidance but definitely we're seeing good momentum so far for the Q4. I think for next year, it's a little bit longer out there.

Speaker #5: But all in all, with the market, we're seeing we feels like should be stronger than usual.

Speaker #3: Thank you.

[Analyst] (Truist Securities): Thank you.

Speaker #2: Our next question comes from the line of Tristan Guerra from Baird. Please go ahead.

Operator 2: Our next question comes from the line of Tristan Gerra from Baird. Please go ahead.

Operator: Our next question comes from the line of Tristan Gerra from Baird. Please go ahead.

Tristan Gerra: Hi, good afternoon. Some of your peers have reported some constraints, notably for power product supply. Are you seeing any supply constraints? Would you be able to ship more without it, notably into data center?

Speaker #6: Hi, good afternoon. Some of your peers have reported some constraints notably for power product supply. Are you seeing any supply constraint? Will you be able to ship more without it?

Speaker #6: Notably into data center.

Speaker #5: Right, Tristan. I think overall we've been talking about very strong demand across the board. I think there are definitely pockets of, I would say, areas that are a little bit more constrained than others.

Emily Yang: Right, Tristan. I think overall, we've been talking about very strong demand across the board. I think there's definitely pockets of, I would say, areas that are a little bit more constrained than the others. All in all, what we really want to focus is actually focus working with our strategic customers and give them the best support we can. I think during the COVID, we actually have similar discussions before. Our focus is really working with customer, understand their true demand, and give them the best support, make sure to prevent any of the shortage or line down issue they are facing. I would say all in all, because the demand's so strong, definitely there's pockets of areas of supply is a little bit constrained.

Speaker #5: But all in all, what we really want to focus is actually focus working with our strategic customers and give them the best support we can.

Speaker #5: I think during the COVID, we actually had similar discussions before. Our focus is really working with customers to understand their true demand and give them the best support, making sure to prevent any shortages or lying down issues they are facing.

Speaker #5: But I would say, all in all, because the demand is so strong, there are definitely pockets where supply is a little bit constrained.

Speaker #6: Yeah, and also Tristan, let me add more color on that, right? Because as Emily said, we do see the very strong demand this year even further more in the next year.

Gary Yu: Yeah. Also, Tristan, let me add more color on that. As Emily said, we do see the very strong demand this year, even furthermore in the next year. As we leverage more on our hybrid model, no matter internal or external, we want to make sure we can continue at capacity, no matter by continue utilizing our internal wafer fab and also adding more capacity in our back end to support our customer. Our growth is not only limited on the demand, but also we do have a more capacity we can support the customer for the future need it.

Speaker #6: But as we leverage more on our heavy model, whether internal or external, we want to make sure we can continue at capacity by continuing to utilize our internal wafer fab and also adding more capacity in our backend to support our customers.

Speaker #6: So our growth is not only limited by demand, but we also have more capacity. We can support the customer for future needs.

Speaker #6: Okay, great. And then, just as a quick follow-up—you mentioned capacity expansion efforts. Is that on the front end? Is that internal capacity?

Tristan Gerra: Okay, great. Just as a quick follow-up, you mentioned capacity expansion efforts. Is that on the front end? Is that internal capacity? If so, what's your geography? Are you building capacity?

Speaker #6: And if so, in what geography are you building capacity?

Speaker #4: Well, let me say that in this way, okay? For the wafer fab, we continue utilizing improving the utilization for our GFAB and SPFAB and there's some room we can also do more on that.

Gary Yu: Well, let me say that in this way. For the wafer fab, we continue utilizing, improving the utilization for our GFAB and SPFAB, there's some room we can also do more on that. Also, we are doing some migration from 6 inch to 8 inch to get more capacity on the wafer fab. Also leverage our external partner. No matter if that partner is in Korea or in Taiwan, to get more capacity from them. That's one thing. Second is that for our assembly testing, probably 75% assembly testing we do internally. On the particular package we are doing here, we do add more capacity on that. We are not adding every packaging capacity. We selectively pick out a package which might get more advantage on that. For example, like DFN or CSP.

Speaker #4: And also we're doing some migration from six inch to eight inch, right, to get more capacity on the wafer fab. Also leverage our external partner, right?

Speaker #4: And no matter if the partner is in Korea or in Taiwan to get more capacity from them. So that's one thing. Second is that for our assembly testing, probably 75% assembly testing we do internally.

Speaker #4: For this particular package that we're talking about here, we do add more capacity to it. We're not adding capacity for every package; instead, we selectively pick out packages that might benefit more from that.

Speaker #4: For example, like the FN or CSP. This type of coverage the package we can provide a better value and can provide a better service to our key customers like Emily said.

Gary Yu: This type of package, we can provide a better value and can provide a better service to our key customers, like Emily said. We'll continue to do the investment on that.

Speaker #4: It will continue to do the investment on that.

Speaker #6: Okay. And then lastly, I'll just squeeze one in really quick. What's the percentage of your production that's currently fabbed versus what's outsourced?

Tristan Gerra: Okay. Lastly, I'll just squeeze one in really quick. What's the percentage of your production that's currently fabbed versus what's outsourced?

Speaker #4: It's about like 50/50 at this moment.

Gary Yu: It's about 50/50 at this moment.

Speaker #6: Great. Thank you very much.

Tristan Gerra: Thank you very much.

Speaker #4: Thank you.

Gary Yu: Thank you.

Operator 2: Our next question comes from the line of David Williams from Needham & Company. Please go ahead.

Operator: Our next question comes from the line of David Williams from Needham & Company. Please go ahead.

Speaker #2: Our next question comes from the line of David Williams from Needham and Company. Please go ahead.

Speaker #7: Hey, everyone. Thanks for taking my question. I certainly appreciate it. Hi, David. Hi. So, look, you guys are doing a really great job here of finding the demand and continuing to grow in all the right areas and drive the gross margin.

David Williams: Hey, everyone. Thanks for taking my question. I certainly appreciate it.

Emily Yang: Hi, David.

Gary Yu: Hi, David.

David Williams: Hi. Look, you guys are doing a really great job here of finding the demand and continuing to grow in all the right areas and drive the gross margin. I guess, as I think about the most recent acquisition you made, ElevATE, can you talk maybe through some of that color or maybe rationale? It seems like a really great fit. Just curious if there's anything about that acquisition that maybe we're not thinking of or haven't really understood yet, do you think?

Speaker #7: I guess as I kind of think about the most recent acquisition you made, he talked maybe through some of that color or maybe rationale it seems like a really great fit but just kind of curious if there's anything about that acquisition that maybe we're not thinking of or haven't really understood yet.

Speaker #7: Do you think?

Speaker #4: Of course. And first, we are very excited about the recent proposed acquisition of this company. As I said, Elevate is a fabulous semiconductor company.

Gary Yu: Of course. First, we're very excited about the recent proposed acquisition of this company. As I said, ElevATE is a fabless semiconductor company, very special, and very strong in developing IC for ATE, that kind of application, like automated testing equipment. I think ElevATE complements Diodes' current analog and mixed-signal product portfolio with highly differentiated IP and higher margin products with low power, high density, higher performance signal chain amplifier, and a data converter. We do, of course, see a lot of synergy, especially on product synergy, and also we do see the market synergy, for example, by increasing our exposure on the attractive ATE market and also through this access to new customers and opportunity to expand our share of the wallet to the existing customer.

Speaker #4: Very special and very strong in developing IC for ATE, the kind of application like automated testing equipment. Okay, I think elevate a compliment that is currently analog and I'm a signal product portfolio with highly differentiated IP and a higher margin product with a low power high density, higher performance signal chain amplify and a data converter.

Speaker #4: We do of course see a lot of synergy like especially on product synergy and also we do see the market synergy. For example, like by increasing our exposure on the attractive ATE market and also through this SS new customer and opportunity to expand our share for the wallet to the existing customer.

Speaker #4: So all in all, I would say that with this kind of synergy I can we combine elevate core channel expertise with a dial analog and a power portfolio.

Gary Yu: All in all, I would say that with this kind of synergy, we combine ElevATE's core channel expertise with the Diodes' analog and power portfolio. We can easily expand the test channel provider to ATE platform solution provider. With this kind of synergy together, we can easily, for the addressable market, save probably $1 billion at least at the bottom.

Speaker #4: And we can easily expand the test channel provider to AT platform solution provider. So with this kind of synergy together, we can easily for the addressable market send probably like $1 billion at least and above.

David Williams: Okay. Very good. Certainly appreciate that. I think this question was asked around the edges earlier, just curious if you could give us your thoughts on maybe the demand trends and how the channel inventory, if you feel like you're shipping to consumption and maybe any concerns about double ordering, just given the strength of the demand. Do you think that's beginning to happen, or do you feel like you've got a pretty good handle on that? Thank you.

Speaker #7: Okay. Very good. Certainly appreciate that. And then I think this question was asked around the edges earlier, but just kind of curious if you could give us your thoughts on maybe the demand trends and how the channel inventory, if you feel like you're shipping to consumption and maybe any concerns about double ordering, just kind of given the strength of the demand.

Speaker #7: Do you think that's beginning to happen or do you feel like you've got a pretty good handle on that? Thank you.

Speaker #5: Hi David, this is Emily. If you look at our channel inventory, we actually decreased both in terms of dollars as well as weeks. It's definitely lower than our normal range of 11 to 14 weeks, right?

Emily Yang: Hi, David. This is Emily. If you look at our channel inventory, we actually decreased both in terms of dollars as well as weeks. It's definitely lower than our normal range of 11 to 14 weeks, right? We definitely don't see the double booking or double shipments to the customer building up the channel inventory at this moment. I think what we're looking at is, we try to balance the ship-through at this moment, but we're not there. I don't really think this is a concern, right?

Speaker #5: So, we definitely don't see double booking or double shipments to the customer building up channel inventory at this moment. I think what we're looking at is, we try to balance the ship-through at this moment, but we're not there.

Speaker #5: So I don't really think this is a concern, right?

Speaker #7: Thanks so much. I appreciate the help.

David Williams: Thanks so much. I appreciate the help.

Operator 2: That concludes our question and answer session. I will now turn the call back over to Gary Yu, CEO and President, for closing remarks.

Operator: That concludes our question and answer session. I will now turn the call back over to Gary Yu, CEO and President, for closing remarks.

Speaker #2: That concludes our question and answer session. I will now turn the call back over to Gary Yu, CEO and president for closing remarks.

Speaker #4: Thank you, everyone, for participating in today's call. We look forward to reporting our continued progress on next quarter's conference call. Operator, you may now disconnect.

Gary Yu: Thank you everyone for participating on today's call. We look forward to reporting our continued progress on next quarter's conference call. Operator, you may now disconnect.

Operator 2: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.

Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.

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