Diodes Inc (DIOD) 2006 Q1 法說會逐字稿

Good afternoon. My name is Bridget and I will be your conference operator today. At this time, I would like to welcome everyone to the Diodes first-quarter 2006 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. (OPERATOR INSTRUCTIONS). Thank you. Mr. Crocker Coulson, you may begin your conference.

Thanks a lot, Bridget. Good afternoon, everybody, and welcome to Diodes' first-quarter 2006 earnings conference call. With us today are the Company's President and CEO, Dr. Keh-Shew Lu; Diodes' Chief Financial Officer, Carl Wertz; and Mark King, the Company's Vice President for Sales and Marketing.

Before I turn the call over to them, I would like to remind our listeners that in this call, management's prepared remarks contain forward-looking statements, which are subject to risks and uncertainties and management may make some additional forward-looking statements in response to your questions. Therefore, the Company claims the protection of the Safe Harbor for forward-looking statements that's contained in the Private Securities Litigation Reform Act of 1995. Actual results may differ from those discussed today and therefore we would like to refer you to a more detailed discussion of the risks and uncertainties in the Company's filings with the SEC and in particular on their Form 10-K as well as in today's press release. In addition, you should note that any projections as to the Company's future performance represent management's estimates as of today, May 4, 2006 and Diodes assumes no obligation to update these projections in response to changing market conditions or other reasons. For those of you who are unable to listen to the entire call at this time, a recording is going to be made available via webcast for 60 days in you can find that at the investor relations section of Diodes' Website at www.Diodes.com.

Well, with those formalities out of the way, it's now my pleasure to turn the call over to Diodes' CEO, Dr. Keh-Shew Lu.

Welcome, everyone, and thank you for joining us on the call today. I'm pleased to announce that Diodes started 2006 with robust growth across our business. Diodes' market share reached new records in the quarter. As we continue to lead the discrete semiconductor segment with strong revenue and healthy profitability. In addition, this is our first quarter of results that include a contribution from our analog products. We announced back in June last year that we planned to expand into adjacent technologies in analog and mixed signal. With the secondary offering back in September and the acquisition of Anachip in January this year, we significantly accelerated our move into those new markets. I'm pleased to say that this acquisition is already making a positive contribution to our growth and the profitability and we see excellent momentum across our business segments.

The following are the major financial highlights that we published. First, revenue increased 51% year-over-year and 30% sequentially to $73.6 million.

New product revenue increased to 23% of total sales. Operating income increased 19% and on a pro forma basis, without the option expense, operating income increased 36% to $12.4 million. Net income increased 29% to $9.3 million and on a pro forma basis, net income increased 48% to $10.7 million.

Earnings per share were $0.34, affected by the addition of $32 million here, [sprint] adjusted issued in our secondary offering last December as well as the stock option expense. Pro forma 1Q 2006 EPS of $0.38 compared with $0.31 per share in the first quarter last year and the $0.36 in 4Q last year.

Our strong performance was the result of introducing new innovative products to the market, the efficiency of our manufacturing process, our superior customer service and ability to integrate energy into our operation quickly. We continue to generate profitable growth by taking advantage of our low-cost business model and unique discrete component technology and the packaging capabilities. With the addition of Anachip, we can now pursue opportunities in adjacent product categories that significantly expand our growth horizons and offer attractive margin opportunities.

We are [satisfactorily] executing our business strategy on several fronts. We are on plan for the integration of Anachip's strategic acquisition into Diodes' operations with marketing and the [sales operation] already combined together. And significant conversion of Anachip products to our China packaging facility expected to take place by the end of this year.

For example, in this quarter, we released six industry standard analog products, two service [mound] packaging types that are now manufactured at our China facility. We continue to invest in R&D for next generation technology. We recently launched a new synchronous [buck] pulse with modulations controller, we call PWM Controller into the market that is the first in a series of IC, integrated circuits. Through this schedule for interruption into Diodes' analog power management product line. Our new product, are being well received by our global customers. For first quarter this year, we had 14 analog design wins in North America alone. In conjunction with the Anachip acquisition, we significantly expanded our sales and application teams and the facility in China. We also introduced a total of 13 new hot numbers from eight different series during this quarter.

We continue to emphasize strict financial discipline over operating costs while ensuring our capital structure protecting our shareholder interest by striking the right balance between capital investment and maintaining profitability. Our balance sheet is strong enough to support our ongoing operations and continue to invest in the future growth. As of March 31 this year, Diodes had $99 million in cash and short term investment, $140 million in working capital and only $6.6 million in long-term debt. This provides us with [second] flexibility to make additional acquisitions and we are actively evaluating candidates.

In summary, we made several important achievements in the first quarter of this year that laid a foundation to implement successfully our long-term analog market strategy. We are already seeing excellent synergy from the combination of Anachip's products and our discrete offerings. Given our strong momentum and aggressive product development plan, we feel very positive about our direction for the balance of the year.

With this, I'm going to turn it over to Carl to discuss the financials in more detail.

Thanks, Dr. Lu. Good afternoon, everyone. Our record first-quarter revenues were up considerably, both sequentially and on a year-over-year basis, as Diodes continued to grow its position in discrete semiconductor industry and expand in the analog market. Our pro forma net income of $10.7 million and $0.38 per share were also both new records for Diodes. In reviewing our income statement, keep in mind that beginning in the first quarter, Diodes began expensing our stock option in line with the new 123(R) FASB rules. As a result, our GAAP financials are not directly comparable with prior periods in which this equity compensation was not expensed. For your convenience, we have provided a pro forma reconciliation on our earnings release to show the impact of stock option expense to our gross profit, operating expenses, net income and EPS.

Revenues for the first quarter were a record $73.6 million, an increase of 51.4% from the first quarter of 2005. On a sequential basis, our revenues grew 19.9% from our fourth-quarter sales, which was due to the acquisition of Anachip.

Gross profit increased $2.8 million or 13% sequentially, better than our updated guidance of 10 to 12%. I'm pleased to say that the manufacturing integration is on track and we expect to make significant progress by year-end. We expect that this will have a positive impact on the margins for our analog products over time.

For the quarter, selling, general and administrative expenses were $11.3 million or 15.3% of sales as compared to $6.7 million or 13.8% of sales in the comparable quarter last year. Sequentially, SG&A expenses increased 2.5 million over the fourth quarter of 2005. The increase of SG&A as a percentage of sales primarily reflects the $1.3 million of non-cash expense related to stock-based compensation. Without the impact of stock-based accounting, SG&A would have improved to 13.5%, a significant improvement from 14.4% reported last quarter.

Research and development investment rose by $1.1 million to $2 million or 2.7% of revenue from 900,000 or 1.9% of revenue in the first quarter 2005 as the Company combined the analog investment and continues investing in enhancing current product features and developing new products.

Operating income increased 19% to $10.8 million or 14.7% of sales compared to 9.1 million or 18.7% of sales for the first quarter of 2005. Depreciation was $4.7 million for the quarter. EBITDA for the quarter was $16.3 million. Our effective income tax rate in the first quarter was 15% compared to 16.5% for the previous quarter and 16.1% for the same period last year. The lower tax rate is primarily the result of the preferential tax treatment on Anachip earnings.

Net income for the first quarter increased 28.6% to $9.3 million or $0.34 per diluted share. Excluding the impact from expensing stock options, which began the first quarter this year, pro forma net income increased 48% to $10.7 million or $0.38 per share. This is a $3.5 million increase over the $7.2 million or $0.31 per share before the first quarter last year and better than $0.36 reported last quarter.

Turning to the balance sheet, we had 99 million in cash and short-term investments, 139 million of working capital as of the end of the quarter. For the first quarter, cash flow from operations was $17 million; our total debt to equity improved to 32% from 42% a year ago and our shareholders' equity increased 6.6% during the quarter $240 million.

Inventories were $36.9 million. The inventory turns of 5.4 times turns in the quarter compared to 6.6 times in the fourth quarter of 2005. Without the newly acquired Anachip inventory, our turns would have been 7 times and thus we see significant opportunity with the Anachip acquisition to improve the inventory efficiency. Days sales outstanding were 74 days in the first quarter compared to 80 days in the prior quarter and 82 days for the first quarter of 2005.

Capital expenditures were $10.1 million in the first quarter, slightly ahead of our prior guidance but in line with our objective of meeting increased demand and investing in equipment to increase our manufacturing efficiencies as well as purchases required to bring analog production in-house. We continue to project full-year capital expenditures in the 10 to 12% of revenue range.

Our outlook going into the second quarter of 2006, we continue to experience strong demand for our discrete semiconductor products as Diodes solidifies its leadership position in this sector. The Anachip acquisition is already contributing to our greater profitability and we continue to integrate Anachip's analog products into our offerings.

Entering the second quarter, shipments of orders for delivery continue to show strength with a book to bill ratio above 1. Given our strong momentum in the marketplace and expanded addressable markets, we expect that revenues will increase sequentially by an additional 3 to 6% in the second quarter. We expect second-quarter gross margin percentage to be comparable to the first quarter and we expect to see gradual expansion on our gross margin over the balance of 2006 and beyond as we continue to execute our strategy.

With that said, I'm going to turn the discussion over to Mark King, our Vice President of Sales and Marketing. Mark will discuss our new products, market opportunities and give you a view of the direction of the general marketplace.

Thanks, Carl, and good afternoon, everyone. In the first quarter, Diodes marketing and sales activity included record sales, strong new product revenues and several key design wins. The integration of Anachip's sales and marketing organization into Diodes' was completed in Q1, with brand conversion scheduled to be completed by the end of Q3 '06. Initial customer and distributor feedback to the acquisition and our analog strategy is extremely positive.

In the quarter, we made significant strides in executing our new product roadmap, which combines Anachip's analog and power management devices with our highly efficient packaging capability. As Dr. Lu mentioned, we recently announced a launch of a new PWM Controller, which is part of a series of planned analog product introductions. The PWM Controller delivers power convergent efficiency up to 92% with output currents to 20 amps and output voltages as low as 1.5 volts. With an extremely low operating temperature, the Controller is well-suited for power management design, supporting both commercial and industrial markets.

Also in the quarter, we introduced six industry standard analog products and two new surface mount package types that we released will enable us to compete in the high-volume analog IC market as well as expand our discrete offering into the medium power range.

Geographically, Diodes' market share for discrete product line reached highs in the quarter, driven by gains in all regions. Our revenue in Asia continues to expand at a rapid pace, up substantially as a result of the recent Anachip acquisition. Asia is contributing the most at 69% of total sales with North America and Europe generating 28 and 3%, respectively. North American sales exceeded our expectation with risk demand for TV set-top boxes and health medical devices and broad-based distributor sales. Increased lead times and competitor shortages contributed to this performance with this trend expected to continue into Q2 '06.

Sales for [accounts] designed in the United States and built in Asia remain strong. Our [rated] designs are becoming more widely adopted and customer [rays] gained traction with certain accounts that require very small form factors. There's also robust interest in our new power die packages resulting in several new design wins. Distributor point of sales reached record highs, distributor inventory increased in response to the strong customer demand and is in line with sales.

As expected, wafer sales compressed as we continued converting more wafers for our internal usage. However, wafer average selling prices, ASPs, trended upward by 5% in the quarter while that of our other discretes remained stable.

In Europe, revenue rose 53% sequentially on record sales. OEM was up 46% and distributor POS was up 23% sequentially. Distributor inventory was up in the quarter to support growing POS. We view this as a clear sign that our distributor program is gaining greater traction in Europe.

We also enhanced our European sales and marketing organization with two key new hires in Germany and France to build on our significant inroads into these markets.

In Asia, our computer and consumer sector again drove robust sales, with particularly strong demand in LCD monitors, TVs, wireless LANs and battery chargers. The pricing for commodity products was stable for the quarter and should remain so into Q2. Commodity product lead times continue to lengthen during the quarter.

As for our market segment, for the first quarter '06, our segment breakout, which includes the Anachip acquisition, was 35% consumer, 36% computer and peripheral, 13% industrial, 14% telcom, and 2% automotive. The acquisition of Anachip strengthened our position in the communication segment, resulting in an even more balanced exposure to key growth segments for discrete and analog devices. This enables us to further diversify our revenue sources so as to mitigate the impact to us of fluctuation in customer demand in any one or more market segments.

Onto design wins. We had multiple design wins in a broad base of end equipment categories at over 50 accounts globally, including 14 different accounts in Europe. This was a robust demand for our power die, array and DFN platform. We also secured the Company's first design win via our North American channel on 12 Anachip power products and two Anachip ball sensors.

Notable wins include power die wins in automotive audio and migration to three new notebook platforms. Power die 1-2-3 wins in DC-to-DC converters, downconverter for satellite dish, two LCD panels, two LCD TVs, portable DVD, Flash-memory card, and an automotive actuator. A sole source aid element array using our DFN technology for a digital audio player application. Other array wins include subminiature ESD protected MOSFET arrays and a digital audio player, a quad Zener and a new cell phone platform, as well as other wins in DC-to-DC converters and portable GPS. Three new designs in our Hall-effect line, one in brushless DC motor, two in DC fans, one that includes a motor control.

On the power management side, Anachip's switching regulator family AP 1500 series, the power IC flagship product and their linear regulators, continue to make inroads in the next generation designs. Notable wins include five new design wins at LCD TV, four new designs in LCD monitor, the switching and linear regulators, five new designs in wireless LAN 802.11 market for router and access point and three new designs in VoIP with switching regulators, two new designs in HDTV with a complete power solution switching and linear regulators, reset IC's, a [USD] power switch and a Schottky diode.

We're seeing powerful synergies between Anachip's power management product lines and our discrete offerings. For every new switching regulator design sold, we have the opportunity to sell a Schottky diode as well as various other discrete devices.

In conclusion, customer acceptance of our additional product line is strong. Packaging of Anachip's products is underway at our China facility.

In discrete, we are continuing to grow share by introducing innovative, value-added solutions to the market. We are expanding our product, our market share in Asia and gaining traction in the European market. Customer orders were also robust across all geographic regions. Given the strong momentum in the marketplace, and expanded addressable markets, we expect that revenues will enjoy a solid second quarter. We are ahead of schedule and very excited about our achievements in executing our analog strategy and the significant gain in the Company's key geographic region. Diodes is off to a strong start and we plan to continue this momentum through the remainder of 2006. With that, I will open the floor to questions.

(OPERATOR INSTRUCTIONS). Steve Smigie, Raymond James.

Thank you. Congratulations on another very nice quarter. In terms of total growth, could you give us some sense of what you think 2006 might look like on the top line?

You want to talk about 2006?

The whole projection for the year?

Well, I think we already give the projection for the second quarter and that is 3 to 6%. Now we do not really give a protection or projection for further down. So, I'm sorry but we already said 3 to 6% for this quarter or second quarter.

Could you say at least based on design wins now, the second half, it looks fairly robust? Would that be accurate?

I think we're continuing to execute our strategy. We feel very comfortable with the progress we're making at our customers and with our design wins and our products. So there's no reason that we shouldn't continue to perform positively.

In terms of your guidance for gross margin in the second quarter, I think you said comparable. Is that comparable in terms of sequential change or comparable in terms of an actual percentage of revenue?

I think it's the later part. It's percent of the revenue. As you know, we more emphasize on the gross margin dollar instead of gross margin percent. Because really the bottom line is the dollar not the percent. But, to answer your question, is we said comparable is in percent.

Great, and one last question if I could. You mentioned I think previously that you should be able to get the Anachip gross margin up above 35% at some point. Do you think that happens in 2006? Does that come as a result of moving just on the parts into your back-end facilities, Diodes' back-end facilities?

I think we are talking about -- I think if you look at Carl, he's talking about beyond -- 2006 and beyond. Okay but don't forget to get to the gross margin up, is not just trends for the product to our China facility. That is only one other -- one of the things that can bring our margin up. Another thing is we can open that Anachip product into the area like the U.S., like Europe, which gives us a better ASP. And at the same time, we are able to -- what I could tell -- if you hear what Mark King is talking about, we are able to have more design wins in the major customers. And all those would not be really give benefit to this year. It takes time to do the design in and to go to production. So, we were able to get Anachip -- our analog product gross margin up but it will not be finished by end of this year. It will take a long time.

Alex Gauna, UBS.

I was wondering if I could ask for a little bit more color on analog and gross margin dynamics right now. Are you able to say what your core gross margin might have been for the quarter or ballpark without the contribution from analog at this juncture? And what implicitly are your assumptions in gross margin beginning to accrete in the second half of the year? What is your visibility on that?

I think, Alex, since the day one when we were talking about we're buying analog products and we buy Anachip, we would tell you, I tell everybody, our gross margin percent will be going down because of Anachip acquisition. And if you look at our gross margin dollar, actually, better than what we give the guidance a couple of months ago. And we continue moving the products from outsourcing [out] from the Anachip products, outsourcing to our China facility. So we will continue to improve our gross margin percent.

But like I just mentioned, the customer design wins in Europe and the U.S. and the major customer design wins, it takes time and especially putting more stuff -- putting more units, analog and discrete integrated together it even takes longer to do it. So I can tell you our gross margin will gradually improve. But to get to the level we really would like to have, you probably take time.

And in saying you believe gross margins will accrete in the second half of the year, the principal reason, is that because of migration into your internal facilities? Or is that a view on other design wins or products that you have ramping?

Again, there's a few elements that require us to do this. First of all, we're still getting used to the mix and how we can carry the mix of their product line. Yes, we should have contribution from expanded customer base on global customers. We should have some contribution from the integration of some of the manufacturing into our facility and so on. But you know, we're still only three months in. So how we can move that mix, how soon we can accomplish these tasks, we still want to be a little bit careful in projecting at this point.

Fair enough. I was wondering, you mentioned that pricing is stable right now. Is that sort of across the board in each product segment it's stable? Or is it stable because we are seeing the normal pricing declines in most product categories but you're seeing some higher ASP products ramping to keep the overall average stable?

I would say more of the commodity products are stable, are quite stable. There's still more profitable growth, it still takes some price pressure but I think generally there isn't this much traditional price reduction. It's kind of in a hold mode.

As I mentioned, there's been some transitory shortages. How long they will last and so on. Some people seem more concerned with supply rather than price for a brief period of time. If the third and fourth quarter are as strong as some people project, then that could really stabilize some pricing. But that remains to be seen.

Is it fair to say that you stand to potentially, if you are successful with your analog roadmap as you're seeing them, in areas like PWM, we could actually see blended ASP's for you rising or should see them rising?

Absolutely. Again, we just haven't been in a position to spend a lot of time trying to forecast that and look out at that at this point. We've been basically trying to integrate the business and deal with 20% growth in the quarter. To be honest with you, we just haven't gotten into all of our margin planning and outlining and benchmarking yet.

We pay more attention to the design wins than looking at the pricing at this moment because we really want to move our Anachip products to our U.S. and Europe customers.

We're very comfortable about the ability to shift the mix to higher ASP and to higher margin products than they presently do, fill them cheaper and so forth. It's just a matter of how long it will take and when it could start to be core impact on that margin line.

With regard to your 3 to 6% sequential guidance for June, what kind of growth is Anachip representing with that? Is that a drag at this point or is it growing at the corporate average?

I think you can expect that to grow at the corporate average. They had a relatively good quarter. Some of that I think they got more share because they were associated with us and some of our pay customers. So we expect them to come right along with us.

And is there a potential for, because you're still trying to win customers -- is there a potential for upside here from those conversions happening that aren't necessarily rolled into your guidance at this point?

No, it won't be happening in the second quarter. Remember, I said if -- for the customer design win, it takes time to change that win to the production to the revenue. And don't forget, we just get it -- we just have Anachip January, so we're very happy to get design wins. But to get the production or to convert that design win to the revenue, it probably will be happening in the late part of the year; it won't be in the second quarter.

I will come back with some follow-ups, but congratulations, nice quarter.

Gary Mobley, AG Edwards.

Good afternoon. It sounds as if Anachip provided a little bit of upside relative to your original expectations. So is it fair to say the organic growth of the Diodes discrete business may have been down 100 basis points or so on a sequential basis?

Let me --

When you adjust for the wafer sales and stuff we were pretty much relatively flat which we expected. Remember, we came off of a 7% increase in the third quarter on a sequential almost 14% in the fourth quarter. We, I think that that's kind of what we forecasted in our guidance last quarter.

But if you look at the season adjustment, year-to-year, we actually grow organically our business, we actually grow 20%. And second, we actually gained market share. Even we're talking about [led] organic business, but if you look at year to year, it's 20% growth and we gained market share. So even with the internal -- these wafer sales are external and strong first quarter, at the same time, in a season adjust, you know, a seasonal affect. I feel very happy with our first quarter organic portion of the business.

Mark, when you're sitting down with customers, what are they telling you as far as their behavior and seeing supply constraints and what are they expecting to do with the days of inventory held, whether it be at the system OEM level or distributor level?

I missed what you said -- you described the customer, I didn't hear the first couple of words.

So when you are sitting down with customers, what are customers telling you that they are doing with their inventory levels, whether it be with their distribution partners or whether it be a direct shipment from you guys, et cetera?

Most of our customers -- we're pretty well-known to our customers to deliver our products. So we don't feel that any of our customers are concerned about getting products from us on a direct basis. Okay. We believe that some of our other problems, most of the shortage business that we are seeing is occurring from the distributor network and it's tracking with POS, so it's coming in and out. I don't think the distributors are building significant amounts of inventory. I think they're being a little bit more aggressive than they have been in the last maybe three to six quarters but I don't think it's excessive. I think I said we had our record POS quarter and I think our inventory was up $300,000, which was negligible. So I was very happy to see that even though we had a pretty robust (technical difficulty) of distribution, the inventory didn't go up significantly and the POS was up significantly. So I think we're tracking fine.

Regarding what they're doing with our inventories in the other lines, I just don't have that disability. But I think they are more searching for an outlet rather than duplicate billing.

Okay, and could you give us a little more color on the internal development of the analog integrated circuits as far as the timing of the introduction of these various products?

You know, we are still working through a lot of that. I mean we're getting to new -- redoing the schedule, reprioritizing some things and I don't really think I can give you too much color on that. Hopefully in the next quarter or so we'll be able to give you a little bit more insight into our roadmap and the direction that we're going in that area.

You know, we just got the Anachip products and we started to introduce those to our customer. Now we start taking the feedback from our customers and prioritize what to convert into our China facility and rename it to outside. So it takes time.

As well as the development projects they were working on, you know, putting the who, what, where and why behind it and re-changing the priorities. That's been basically what we've been working on for the last 60 days.

Mark, I think you mentioned that Europe was up 50 some odd percent on a sequential basis. How much of that was organic. And of that organic growth, how much of it was driven by some of your design wins with the cell phone manufacturers over there?

Well I would consider anything we did with design wins organic. So that's all Diodes, Inc., saying there was really no Anachip in there at all. Okay, I think it was a broad-based gain in our automotive customers, and some of our cell phone customers. And clearly the distribution POP was also quite strong. But the distribution POS was up 23% sequentially. The excitement that I had there is that the distributors are now starting to -- are becoming more comfortable with our product line and so forth and they're getting a broader-based customer acceptance of our product line so they're now willing and positioning inventory to ramp the POS further in the second quarter. So all in all, I was -- our excitement about the progress in Europe in the last quarter was quite good. Some of the traditional suppliers in Europe are faltering a little bit and that's opening up great opportunities for us. So we just feel good about everything that's going on over there.

Michael Bertz, W.R. Hambrecht.

Hello, Michael?

Michael, your line is open, sir.

Is that better? Congratulations, guys. Just a couple of quick questions here. I know you talked a little bit about your gross margins improving the second half of the year. I am wondering if we can probe in a little bit farther on that. In terms of, if we thought about the last season improvement, would you think that we might see a little bit more in terms of again, we focus on percentage points on the street, unfortunately -- a little bit more in terms of a percentage point increase in the third quarter versus the fourth quarter, or do you think it somehow increases on a curve over the course of the year?

I'm sorry, I know the market -- I mean investors looking at gross margin percent, but you know I'm training this company and really want to do is bring the bottom line up. EPS, earnings per share, is most important for me. Therefore, I am driving the Company, looking at profit dollar instead of profit percent or gross margin dollar. And that's why we give the guidance of the margin dollar instead of the percent. And like I said, it will take time for us to back to our traditional past number of 35%. It will take time. But right now, I cannot really give you about when to get there.

Okay, that's fair. And then in looking again over the course of the year as far as the R&D goes, obviously, it came up a little bit here in the first quarter. Would you think that would be fairly stable in terms of percentage of revenue over the course of the year?

Yes. I think we said our business model is somewhere about 2.5% to about 3% or 3.5%. So, it will be there. It probably will be stable. Especially we're going to grow quarterly, sequentially, we already said 3 to 6%. I think it will be stable.

Okay. And then talking about that 3 to 6% into Q2, any thoughts on in particular any relative strength you're seeing from any of the categories, computing or consumer, as they might pick up off of a seasonal -- any impacts you're seeing there on the second quarter?

It is kind of all over the place. We see some improvements in some of the -- in the notebook category and in some of their areas. But this is kind of second quarter is always kind of a mixed bag quarter and so forth. So we're not seeing -- we're seeing strong continuation in North America and Europe and Asia and those -- and Asia is pretty similar to the general growth we had this quarter.

What we're trying to say is we don't see any particular market segment cause in the whole growth. It's quite pervasive to almost all the the marketplace we have been [playing].

It is interesting that the LCD TV market seems to be going pretty well because of the World Cup. People are buying a lot of big screen TVs so that marketplace seems to be up significantly.

Actually, I have one question about that. So specifically for the flat-panel TV market that you're seeing, are you, Diodes in particular, seeing more of your strength coming from more of the [natured] OEMs, Samsungs of the world, that kind of thing? Or are you seeing a lot from some of the Taiwanese guys, [that would be] making, either ODM or some of the smaller makers that are making sets for that?

Both.

Oh, you're seeing from both, okay. And then, again, coming back to sort of Q1 by segment. It did look like the industrial and automotive actually declined sequentially but I am assuming that's mainly because of the Anachip contributions came more in the other segments than those. That would be a fair statement?

The Anachip had no automotive and they have a heavy communication. Over the next few quarters, we might see some movement in here as we really dig into the classifications of all the product lines and reclassify and so forth. We will do another analysis of exactly where everything is positioned. But the key difference is that Anachip gives us a much better product or vision into the communication segment.

Okay, fair enough. One thing about industrial, it did decline sequentially. Was there anything in particular that was going on in that category?

Again, it really has to do with -- you know you look at the North American marketplace, we had a great quarter in North America and the percentage of our business decreased from -- I don't remember what it was last quarter but I think it was 31% down to 28%. It's because we added revenue in Anachip and we continued to add in Asia and Anachip is an industrial base or our automotive space.

If you look at dollar wise, it's not really --

Dollar wise, we had the best quarter in a long period of time in the North American marketplace and we had a record quarter in Europe. Okay, so it's just more in the Asia marketplace.

Understood. I guess dollar wise in industrial, it did look like it ticked down a little bit too into March?

You know, I really -- I don't see any significant trend that would cause that. I will investigate that a little bit further but I think it's just a matter of revenue shift in the new profit or the new --

-- model

-- model or the new segment that added with Anachip.

Alex.

Thank you. I thought I would follow up and ask you about some of the design wins you spoke of. You did mention five new wins in wireless LAN. Were those share captures in existing 802.11 G generation or do you believe you're starting to see some opportunity from the 802.11 N that's getting ready to ramp?

I think some of it is both. Some new designs as well as the next generation.

And do you have any color in terms of, can you name the OEMs you're with? Are they Tier 1, are they in Asia?

Yes, a lot of them are reference design based so we do a lot of our work with the chipset and follow it into the Asian thing. But I would say that there's a mixture between Asian suppliers and Tier 1.

Okay and can you help put into context, you mentioned five new LCD TV wins. Same sort of question. How does this compare to what you would normally expect on a quarter? Is this some sort of acceleration or are these particularly high volume type of platforms that we should be getting excited about?

Well, I think that it tells us -- again I don't have all the records of what they tracked before. So I'm just looking at the position of where we were doing business on what board versus what we are now positioned to do and so forth. I really am not positioned to give a revenue estimate for them, but certainly we were very excited they hit our radar screen and they're in the accounts that we are covering to do business with. So I think it's a very positive sign. I can't say what it's replacing and what the overlap is and how much incremental revenue it comes from at this point.

Okay, and last one maybe because it's such a unique new market on the VoIP side, the wins you're talking about there, are these within VoIP handsets that we're talking about or is it VoIP infrastructure?

Infrastructure.

Steve Smigie, Raymond James.

Thank you. I was hoping you could talk a little bit about design wins on handsets and how that is progressing and I apologize if you already said that and I missed it, but.

I think we're continuing to make general progress in that area. The ray we designed in, that was on a new low cost platform for one of our customers. Again we're seeing a significant amount of activity on our DFN product line and designs in Asia and so forth. And I think we're continuing to make progress there and it's clearly a growth opportunity for us going forward and we have become more and more focused on handsets every day.

Clearly, it's a substantial market. I mean would you guys consider this a very important growth driver going forward or is it just sort of you are just more still getting going there?

It can be an important growth driver depending on how we want to position ourselves in it. There's a lot of low cost business in that area that if we want to work on that margin side that we don't necessarily want to focus ourselves into. But in some of the Anachip product areas, we see some opportunities going forward. In our DFN product, we see some opportunity going forward. In the protection area, we see some opportunity going forward. But we want to be selective to position ourselves properly for our margin profile in those areas.

We have gained in market share and you know our growth -- we have lots of areas we could pay a lot of attention. So we're selective getting into the market we want to get into it.

Okay. Could you talk a little bit about some SG&A guidance for Q2 as well and what that might look like throughout the year with Anachip? Are there any -- some small synergies there or anything?

I don't know. But I don't think we really have a major change on our SG&A.

SG&A dollars should track fairly constant in the first quarter.

Yes, we are not hiding a lot of people. At the same time, we're not really (indiscernible) a lot of people.

If you look from the sales channel standpoint, our objective is to redeploy rather than to change so we hopefully can cover more customers. In the China marketplace, it's very difficult to hire good people, okay, and our problem often is having enough people to properly call on enough accounts. So we have some overlap now. We're making sure that we position that overlap -- I mean that we've got everything under control and we're doing some handoff and then redeploying some of those resources. One of the advantages of the Anachip we also picked up an application team in China that we want to exploit. So a lot of those areas, it looks like there might be redundancy but we look at that as an opportunity to create, to increase. We actually picked up a sales branch in Korea that we have been planning to start anyway. So we can afford to take a little bit of time to see whether we can get exponential gains out of these extra people rather than look to save on SG&A.

Yes, so from the sales and marketing point of view, when we do the integration, we actually just adding all the people together. We are not trying to reduce the people. And from an operation point of view from design, you know you don't want to [reduce] any of the design there or product [community]. So therefore, I think from SG&A point of view, we would not be -- see a major change from 1Q to 2Q. Does that answer your question?

Yes, it does, thank you. And the last one, could you talk a little bit about new products? Maybe just on the Diodes ink side, what new products was as a percentage of revenue? I know that can be a little misleading but just sort of how new products are progressing and I you mentioned in the past some of those have upwards of 60% gross margin. And just talk a little bit about what margin your products are coming in at.

I think our new products are staying pretty consistent. Our segment, we were down a little bit in Q1 from the previous quarter as a percentage. I really only looked originally at the combined but most of that was due to --

Some shortfall.

Aging. Yes, we had a bunch of product -- some of the product dropped off. But I think we're making consistent progress. Some of the factory focus has been on the integration and the qualification of these Anachip products in there. So I expect to see some new product platforms coming out in the next quarter from the discrete side.

John [Ven], C.E. Unterberg Towbin.

It's actually Remesh from Unterberg Towbin. Well first, let me comment, congratulations; another characteristically strong quarter. First a few bookkeeping questions. How much did [Licon] account for revenues during the quarter?

I don't think there is a significant change in the number of that. We will put it out in the 10-Q.

I see. So Carl, was it over 10% or is it below 10?

Historically, we have been right around 10%. I think that has not fluctuated.

Got it. Any estimate on what share -- what share for your revenues came from Apple as an end customer?

I don't think we have ever really given that in that detail.

Okay. Mark, let me try this one on you then. I know you have been pretty proactive in moving your packaging over to green compliance and I wanted to get a sense of if that was one of the factors helping you in Europe and in other geographies? And also, where do you see that kind of going over the next maybe one or two quarters?

Actually, frankly, it's a nuisance more than anything, to roll out compliances. But I don't think particularly in Asia or in -- I don't think it's really affected positively our revenue. We may have won some design wins at specific count or on traditional products as they added new sources. Specifically, maybe somebody at like Apple or something where they had a legacy product that we weren't on but when they put it on as green it would go on a new board so they could cut it off. Certain things like that happen. But I don't think it's had a major impact positively or negatively on revenue anywhere.

Finally, Dr. Lu, in terms of the acquisitions, any potential future acquisitions? Are there any particular holes that you hope to fill into in your product portfolio or any kind of guidance that you can provide in where those acquisitions will be in?

In my speech, I'm talking about we will be actively looking for acquisitions. But it's not just in the analog area. We're going to look at acquisitions both in analog and discrete, okay? Because we don't want to forget discrete is still our major business and where we've been successful. Therefore, we won't just because we get into analog and forget about discrete. We're going to look at any potential product opportunity which can give us -- open up more product portfolio, a new market or new technology. We will not hesitate to do an acquisition.

So at this moment, I do not have any particular opportunity in my mind yet. But I am aggressively looking for both potential in analog area and in the discrete area, whichever can give us a good market opportunity, good product portfolio and good -- get us getting into the new technology. We will always think, consider seriously.

Okay. Just one clarification. On the wafer sales out of [WaferTech], what proportion of those wafer sales were internally utilized and how many -- and what proportion was for external sales?

I don't know. Did we give that information out or not?

I think Ramesh, the information we've given in the past I don't think is -- this quarter is, I believe internally we're using around 25% range plus or minus a few. And that's still pretty much I believe holding for this quarter's pattern. But our goal is to increase that more and more into our internal manufacturing. And we are doing that. It's just I don't know if it was a couple thousand more wafers this quarter or where we were.

We take opportunity -- if we can load in our product over there, we will try to over -- load in our product. And we want to gradually convert our (indiscernible) facility to support our sales.

(OPERATOR INSTRUCTIONS).

Actually, I think we're pretty much at the end of our allotted time. I'm encouraged by all the questions we've had today. Keh-Shew, do you want to make any closing remarks?

I think we had a very exciting and very successful 1Q and I think we are looking forward to the second quarter and I think we already said, 3 to 6% growth, which we think will be another great quarter coming in front of us.

Great. And the Company will also be presenting on Monday at the AAA Microcap Conference. So we look forward to seeing as many of you in person as are able to attend that event. Thank you very much.

Thank you for participating in today's conference call. You may now disconnect.