Diodes Inc (DIOD) 2011 Q2 法說會逐字稿

Good afternoon, ladies and gentlemen and welcome to Diodes Incorporated's second-quarter 2011 financial results conference call. At this time all participants are in listen-only mode. At the conclusion of today's conference call instructions will be given for the question and answer session. (Operator Instructions) As a reminder this conference call is being recorded today Tuesday, August 9, 2011. I would now like to turn the call to Leanne Sievers of Shelton Group Investor Relations. Leanne, please go ahead.

Welcome to Diodes' second-quarter 2011 earnings conference call. I'm Leanne Sievers, Executive Vice President of Shelton Group, Diode's Investor Relations firm. With us today are Diodes' President CEO, Dr. Keh-Shew Lu; Chief Financial Officer, Rick White; Senior Vice President of Sales and Marketing, Mark King, and Director of Investor Relations, Laura Mehrl.

Before I turn the call over to Dr. Lu, I'd like to remind our listeners that Management's prepared remarks contain forward-looking statements. Which are subject to risks and uncertainties and Management may make additional forward-looking statements in response to your questions.

Therefore the Company claims the protection of the Safe Harbor for forward-looking statements that is contained in the Private Securities Litigation Reform Act of 1995. Actual results may differ from those discussed today. And therefore we refer you to a more detailed discussion of the risks and uncertainties in the Company's filings with the Securities and Exchange Commission. In addition, any projections as to Company's future performance, represent Management's estimates as of today August 9, 2011.

Diodes assumes no obligation to update these projections in the future as market conditions may or may not change. Additionally, the Company's press release and Management statements during this conference call will include discussions of certain measures and financial information in GAAP and non-GAAP terms.

Included in the Company's press release are definitions and reconciliations of GAAP net income to non-GAAP adjusted net income, and GAAP net income to EBITDA, which provides additional details. Also throughout the Company's press release and Management's 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 this entire call at this time, a recording will be available via webcast for 60 days in the Investor Relations' section of Diodes website at www.diodes.com. And now I'll turn the call over to Diodes' President and CEO, Dr. Keh-Shew Lu. Dr. Lu, please go ahead.

Thank you, Leanne. Welcome everyone and thank you for joining us today. Revenue during the quarter increased over $20 million or 14% from the prior year period, reaching a record of $170 million, as we gained additional market share, leaned through our continued focus on design wins, new products and customer expansion.

In the second quarter, Asia and the North American revenue increased sequentially, while Europe declined, as this region began to show signs of increasing weakness during the quarter, due to the economic instability in a number of European countries. In fact, in May, we started to see a general market slowdown on a global basis, specifically, in the consumer computer and LCD TV market.

And these trends continued to accelerate during the last several weeks of the quarter, orders did not materialize as expected in June, as the customer looked for greater clarity on the global macro environment. We deduce the current climate also results in the weaker consumer confidence during the quarter. This weakness impact several of our customers that (inaudible) product specifically for the US and the Europe markets.

Distributor inventory days were down slightly in the second quarter, while our channel inventory was at the high-end of the preferred range as we exit the quarter. In July, we experienced continued weakening in the consumer and the computer markets and the demand for the rest of the quarter remains uncertain. Gross margin in the second quarter was also impacted, but softened demand which caused a mixed change to lower margin commodity products to support revenue.

Additionally, there was a slower than expected ramp in productivity due to the trending requirement for replacing operators as a result of the previously announced (inaudible) shortage. Although it took longer than anticipated we currently expect to have 4 trained operators in place by the end of the third quarter.

Because of the poor macro economic conditions around the world and our own uncertain market conditions, we have taken actions to minimize the impact on us financially. We have delayed approximately 40% of our planned capital expenditure for the second half of 2011, not including our Chengdu [inaudible], and are maintaining our current accounts until we see how the market develops.

Despite those short-term market challenges, I'm confident that we are well-positioned with our customers. We have a broadened product portfolio which results in momentum and additional capacity that should enable us to extend our revenue in the margin as [event] improves.

1 other comment I would like to make before turning the call over to Rick is about our Chengdu activity. On July 19, Diodes broke ground on our new production site in the Hi-Tech Industrial Development Zone in Chengdu, China. As I have mentioned on previous calls, the Chengdu site would be an extension of our manufacturing presence in China. The ground breaking was well attended by local officials.

We will begin construction of the initial building in August with completion scheduled for the first half of the 2012. Until the buildings are completed, we have established a [private mine] in the east facility next to our site in Chengdu, with about 100 people. The products from this [private mine] has been [codified], and we shipped approximately 12 million units in June and 37 million units in July. We expect [ARPU number] of approximately 120 million per month during the first quarter of 2012. With that, I will now turn the call over to Rick to discuss our second-quarter financial results and the third-quarter guidance in more detail.

Thanks Dr. Lu and good afternoon everyone. Revenue for the second quarter of 2011 was $169.8 million, an increase of 14% from the $149.2 million in the second quarter 2010 and an increase of 5% from the $161.6 million in the first quarter 2011. The increase in revenue was due to the demand for our products used in tablets, notebooks, smart phones, and LCD TVs.

Gross profit for the second quarter was $55.6 million, or 32.8% of revenue. Compared to $53.5 million or 35.8% in the second quarter of 2010 and $57.4 million or 35.5% in the first quarter of 2011. The sequential decline in gross profit margin was due primarily to a shift in product mix to lower part margin products and reduced fixed cost coverage.

Lower factory utilization than forecasted was the result of a slower than expected improvement in productivity related to manufacturing operators hired to replace employees following the previously disclosed manpower shortages at our Shanghai packaging facilities.

Still, operating expenses for the second quarter were $30.3 million or 17.8% of revenue, which was in line with the 18% of revenue last quarter. Looking specifically at selling, general and administrative expenses for the second quarter, SG&A was approximately $22.6 million or 13.3% of revenue, which was in line with the 13.3% of revenue last quarter.

And an improvement from the 14.4% of revenue in the second quarter 2010. Investment in research and development for the second quarter was $6.5 million or 3.8% of revenue, which was comparable to last quarter of $6.5 million or 4% of revenue and a decrease from the $6.8 million or 4.6% of revenue in the previous year period.

Total other expense amounted to $1.9 million for the quarter. Looking at interest income expense we had approximately $312,000 of interest income on our cash balances. And approximately $1 million of interest expense primarily related to our convertible senior notes.

During the second quarter we recorded approximately $2 million of non-cash amortization of debt discount related to the US GAAP requirement to separately account for a liability and equity component of our convertible senior notes. Also included in total other expense was a foreign currency gain of $400,000.

Income before income taxes and non-controlling interest in the second quarter amounted to $23.4 million. Compared to income of $20.6 million in the second quarter of 2010, and $25.1 million in the first quarter of 2011.

Turning to income taxes, our effective income tax rate in the second quarter was 20.1%, which was within our guidance. GAAP net income for the second quarter was $18 million, or $0.38 per diluted share. Compared to $16.6 million or $0.37 per diluted share in the second quarter of 2010, and $19.7 million or $0.42 per diluted share in the first quarter of 2011.

The share count used to compute GAAP diluted EPS for the second quarter was 47.1 million shares. Second quarter non-GAAP adjusted net income was $20.1 million or $0.43 per diluted share, which excluded net of tax, $1.3 million of non-cash interest expense related to the amortization of debt discount on our convertible senior notes, and $800,000 of non-cash acquisition related intangible asset amortization costs.

We included in our earnings release a reconciliation of GAAP net income to non-GAAP adjusted net income which provides additional details. Included in second-quarter GAAP and non-GAAP adjusted net income was approximately $2.4 million net of tax of non-cash share-based compensation expense. Excluding this expense, both GAAP and non-GAAP adjusted diluted EPS would have increased by an additional $0.05 per share.

Turning to the balance sheet, at the end of the second quarter we had approximately $290 million in cash and our working capital was approximately $316 million. We had approximately $273 million in current liabilities of which approximately $132 million related to our convertible senior notes which are reviewable in October 2011.

At the end of the second quarter, inventory was approximately $129 million, an increase of approximately $6 million from the first quarter. This increase was due to a $6 million increase in finished goods and a $1 million increase in a work in process partially offset by a $1 million decrease in raw materials.

Inventory days improved to 100, compared to 105 days in the first quarter of 2011. Accounts receivable was approximately $144 million and AR days were 78. Capital expenditures were $35.8 million during the second quarter, which included $4.5 million for our Chengdu site expansion.

Excluding this amount, CapEx was 18.4% of revenue, compared to 11% in the first quarter. As Dr. Lu mentioned, we're continuing with our Chengdu site development but have delayed approximately 40% of our second half CapEx not excluding Chengdu due to market conditions.

For 2011 we expect CapEx to be at the low end of our targeted range of 10% to 12% of revenues not including Chengdu. Depreciation and amortization expense for the second quarter was $15 million. Cash flow from operations for the second quarter was $32.4 million. Net cash flow was $11.6 million, and free cash flow was break-even including the CapEx investment in the quarter.

Turning now to our outlook. In terms of third-quarter guidance, we expect revenue to range between $160 million and $170 million, or flat to down 6% sequentially. We expect gross margin to be 32% plus or minus 1.5%.

Operating expenses are expected to be comparable to the second quarter on a dollar basis. We expect our income tax rate to range between 17% and 23% and shares used to calculate GAAP EPS for the third quarter are anticipated to be approximately 48 million. With that said, I will now turn the call over to Mark King.

Thank you, Rick, and good afternoon. As Dr. Lu and Rick have mentioned today our second-quarter revenue increased 5% sequentially despite the softening that began in the latter part of the quarter. The increase in revenue was due to demand for products used in tablets, notebooks and smartphones.

The global economic uncertainty began to impact the overall demand late in the quarter and particularly the consumer and computing markets. Distributor POP was up 10% sequentially while distributor POS grew 7% in the quarter. Inventory days improved slightly from first quarter but global channel inventory was up and at the top level of our preferred range.

Our new product momentum remains strong and design win activity continued to be at high levels in both quality and quantity, both of which could help drive revenues and margin expansion once the demand environment improves. In terms of global sales, Asia represented 74% of revenue, Europe 13% and North America also 13%.

Asia and North America increased sequentially in the quarter, while Europe declined due to accelerating weakness in the region. More recently we are beginning to see similar trends in North America due to weaker consumer confidence, but the situation in Europe is far more pronounced than in other regions. Our end-market break-out consisted of consumer representing 34% of revenue, computing 26%, investor of 21%, communications 16%, and automotive 3%.

Now turning to new products, traction remains strong at new product releases and we reached another quarter of record revenue for SBR and MOSFETs products on the discrete side and USB power switches on the analog side. We also saw gains in bipolar transistors as well as continued success in our LED drivers which showed strong growth quarter-over-quarter.

New product introductions and design wins remained exceptionally high and we continue to expect this to be a key driver going forward. Looking specifically at the MOSFET product line, we introduced 63 products across 7 product families. The MOSFETs product line continued its record growth trends and we saw a key designs win ramp for LED TV and smartphones.

During the quarter we introduced our first-fixed scale MOSFETs package which is ideally suited for ultra-portable applications such as smartphones. Another first for us was the introduction of a range of products packaged in our new PowerDI3333 that delivers equivalent performance to an SOA package while occupying only 30% of the PCB area, also with a lower profile.

In XVR product line we announced the expansion of the DIODESTAR product family targeted for high performance applications like LED TVs. We also released the first SBR product family specifically designed for automotive applications offering low VF while maintaining high temperature stability and reliability. Portable design wins in SBR included adapters for portable electronics, printers, and industrial lighting.

Now turning to analog new product introductions, we released 72 new products across 8 product families. We also completed our automotive qualifications on an LDO series and LED drivers. New product highlights include the introduction of the industry's smallest dual-output omni-polar Hall-effect switch.

This micro-power device was developed specifically for portable and battery-powered consumer electronics such as cell phones and camcorders. Design win activity on our Hall-effect switch product line remained strong throughout the quarter with several large wins in major smartphone platforms in addition to continued advances in notebooks.

In the power management area we released our first synchronous DC to DC converters. These highly integrated devices offer a wide operating range while maintaining excellent efficiency. We also continued to expand our USB power switch line with the addition of several new 2-amp devices.

These high performance products support both USB 2.0 and 3.0 standards and their wide operating temperature range is excellent for consumer and industrial applications. Design win, progress and revenue growth was also notable in our LED lighting products driven primarily by general illumination devices. In fact, we are designed into a bubble replacement applications for a major worldwide retailer who has recently announced an initiative to invest in energy efficient technologies for use in their stores worldwide.

Now moving to logic, during the quarter we also significantly expanded our footprint in the logic market with the release of several new families of devices. We added dual gate logic products to our LDC logic family releasing 6 of the industry's most popular functions in 3 different packages including the miniature BFN 1010.

We are the only logic supplier that offers 14 LDC logic functions in this extremely space efficient package. And in the second quarter we also released our first low-power advanced high speed CMOS logic product family. This product is specifically optimized to operate with TCL input voltages enabling communication with legacy circuits which is a capability currently experiencing strong demand.

In summary, we remain positive on our Business. Although the macro environment remains uncertain, we are confident in the progress we are making through customer expansion, new product initiatives, and design win traction. Because of the recent market weakness, we have taken necessary adjustments in our Business and capital investments until present time that the demand environment improves. With that I'll open the floor to questions. Operator?

(Operator Instructions) Steve Smigie, Raymond James.

I guess I just wanted to follow-up a little bit on the productivity you guys have been working on with the new employees. Sound like it's going to be finished at the end of the third quarter. Obviously, there is some issues here with product utilization due to some slower revenue but what kind of benefit could we potentially see gross margin wise as we got into the December quarter from you getting back up to productivity levels?

Well, Steve, it will depend on the demand, okay? What we say now is we put enough capacity in third quarter. Our people should be productive by end of September, so if the peoples' comments are strong, then we'll have the opportunity to gain that [TPN%].

Okay.

Right now we've are positioning ourselves, we have enough capacity, we have enough productivity of our worker by end of September that it really depend on what the market will be looking at in 4Q.

Okay. And Dr. Lu, last cycle 2008 when things got pretty bad, you were sort of one of the first out there to cut back. Not just CapEx but I think to let people go as well. It seems like although you've cut back CapEx here you haven't really made a decision to start cutting back on the workforce, so does that mean you feel a little bit more comfortable that this might be a shallower revenue drop over the next few quarters or so?

Yes. You are correct. Because, we are uncertain but I don't think we are now at the state to say we would let people go. So what we do is we canceled the 4Q capital's and we put it on hold and delayed it, therefore, we said 40% of our second-quarter -- second half capital was stopped in delay. And then we just said no more increase income, okay. Now we are watching it. Now, if the situation gets worse, then what we do is (inaudible) not a hide in back, we just stop hiring then attrition would take care of that automatically. And at this moment, we assume, we want to keep that kind of label off the people so we won't run into the problem if the market turned. We don't have enough people to run the equipment. Capacity is already there so we don't want to run into that problem have the capacity and equipment but no people to run it.

Okay great. Last question was just your guidance for September is down a little bit. Obviously normally for a normal environment it would be up a decent amount. What would that suggest in terms of holiday orders and what would happen as we go into the fourth quarter? So if we start to see holiday orders pick up, could that number potentially go up a little bit? And then as we go into December quarter, normally December would be from down from September but since we didn't have the big spike up in September would that mean we wouldn't have as much of a drop-off in December?

You are right. Exactly in my mind how (inaudible). Currently what we see today, we put that mid-point based on what we see today. Now if the holiday purchase coming out strong, obviously we'll go to the high-end. And if it's worse than what we see now, then we go to the low-end. But if you don't have a good third quarter, then obviously, the fourth quarter will not be going down either. So I think you have that right.

Great. Think a lot, guys. Appreciate it.

Shawn Harrison, Longbow Research.

Really, maybe, Mark if you have some of these statistics available, just you had some commentary on distributor POS versus POP, how that traction -- for the entire quarter but maybe the June, July timeframe, did that gap widen? And how much of kind of the weakness are you seeing, do you believe is actual underlying demand versus maybe an inventory correction? Any commentary on both those dynamics would be helpful.

I think that June and July were relatively soft. I think you could see some conservativeness moving to the channel on POP. But I think you might have seen -- I think the June POS was pretty reasonable. And July was relatively soft. But in North America specifically, Asia, I think was reasonably okay, so I think if you look at North America and Europe, they're a little bit more pronounced. You had the holiday season and the first part of this month so you maybe lost a week from a POS standpoint, so I think all-in-all, July was a relatively soft month.

Okay. And then just kind of a --

Yes. In Europe, it's a little bit looking like the typical Europe that we haven't seen for a couple of years.

So some of this is back to normal seasonality within Europe, with maybe North America a little bit weaker than that?

Right.

Okay. Very helpful. And then the second question, I guess, with getting back to seasonality or worse than seasonal in some geographies, how would you describe the pricing environment? I know it's been relatively benign now for a number of quarters, in part because we've seen better than seasonal growth?

Surprisingly enough, obviously we're seeing a little bit more quote activity and a little bit more duplicate quote activity but it seems that the costing environment has made the competitive base a little more sensitive to movement in price, so we haven't seen a great change. So I don't think it's normally -- I don't think we're seeing as much pressure as we might expect to based on the news, but some of the news that we're seeing right now is pretty new, so maybe it's still a little bit uncertain.

Okay.

If you look at the building material, gold price, everybody faces the same problem, okay? And if you look at the labor shortage, the labor costs increase in general. Again, everybody is seeing the same problem. And therefore, I think people cost is automatic going up, so the price ratio is actually less.

Very helpful. And then just Rick, a quick clarification I think you drew on the credit facility in this quarter for the first time in a while. Anything just behind that?

No. That --

No.

That was just a short-term deal in China. I'm pretty sure that's already been paid back. So it's not a long-term deal.

Okay. Thanks everyone for the insight.

Gary Mobley, Benchmark.

I have 3 questions all relating somewhat to the gross margin. First, I'm hoping you could confirm this, I'm assuming your European mix, product mix is higher margins since probably most of that revenue is coming from pre-tax right? And then second, is gold inter-connect or the high price of gold a problem for you to this date? Or at the time, I should say? Or have you hopefully converted over to copper and then, Rick, could you give us what the utilization rates -- manufacturing utilization rate was for the quarter and then as well what the outlook is for the third quarter?

Number 1, the gold, okay, I think the gold price will continue going up, and we know that. And that's why we continue putting our efforts to convert from gold to copper. Okay? So I think that -- I hope that will cancel each other on the effect. And we continue going to that as a part of the cost reduction amount. Productivity wise, that I mentioned by end of September we should be back to fully trended operator and we should be able to get to fully productive. Now, we will continue improve that productivity, it's just part of cost-reduction but continued improving productivity but we should be back to this normal in September, and the move forward should be better.

And from the commodity, we try to do is using -- the fully utilize our capacity, so we'll change if the business is not there then we will change the product mix to go to commodity product to fully utilize our capacity. So, depend on really the market which is very uncertain for us. But, if the market turn, that's a big if, then we should be able to move to high-end of the product mix, but if the continue of softness, then we will try to fully utilize it, then the product mix will go to the other way. But we really don't know. Our guidance is -- we already gave that guidance and that's what we see. What we will do.

Gary, and the 1 question you missed was the Europe margins and yes, the European territory carries higher-margin so that would have an impact on the margin.

And last question I have, can you give us a rough approximation what your analog mix was for the quarter? And then as well, whether you are generating any revenue from the logic products at this point in time?

We really don't get into the break-out of analog and discrete but I think it's running pretty consistently with what it's always done, and, we continue to make breakthroughs in the logic market, and we continue to win new design wins, and I believe we've been stating we're still on track to starting to see some decent revenues toward the end of the year.

Thanks, guys.

Suji De Silva, ThinkEquity.

Can you start with maybe by the end markets what you think the third quarter will be, roughly?

By end markets a --

Versus the overall consumer computing which will be in line [above glove].

I think that we'll be relatively consistent with computer and computer and consumer running between 64% and 65%. You've got the 30% -- they are there running right between 32% and 34% and so forth so I think it'll be relatively consistent.

Consumer is 34%. Computer is 26%. Actually, industrial is 21% which is not bad. And now communication is going down to 16% so if you look at it, industrial now is out-perform then communications.

Right. So we think that probably the computer and consumer segments of the total will be relatively consistent. The others will just move a little bit and there'll be some movement between those 2 segments during the quarter?

Okay. Good. That helps. And then you talked about I guess China being a little bit stronger in demand versus Europe and the US. Do you see any slowing in the China demand domestically or is that something you continue to solve with lower margin product in to help the revenue in the third quarter?

We need to be careful when we say China, it's actually China manufacturing because our revenue is really go through the manufacturing in Asia, and that's what we said, Asia is strong. We talking about the manufacturing, not the really the consumption in China, because that's different story.

Dr. Lu, do you have any views on the end demand in China, the trend there?

Well, I really -- I was told when I was in Asia last couple of weeks, actually, I was told that China because the inflation is up significantly the spendable money actually is less, and so people don't have the actualmoney, so the consumption actually is going down. Okay? Unlike 2009, the China government spent a lot of money to set aside the product such as that people can afford to buy. This time, the government did not really spend the money. They probably tried to control the inflation. They didn't spend the money to set aside the product. Okay? So this year, this time is different for unlike the 2009. If you remember year 2009, twice the China government put in the money to get the people to buy the right goods and those products.

Okay. That helps. And last question, Dr. Lu. I remember through the last downturn a few years ago which you referred to, you said that building capacity and CapEx is strategic for you to be able to gain share as we came out of the downturn. At this time point in time, you're trying to modulate your CapEx spend. Is that a difference in the strategy here or is that just timing, we're early in the downturn?

No, no, no. Nothing was changed. It just more careful, okay, we continue putting the capacity because our strategy always grow profitable growth, so we always want to make sure we put enough capacity to gain the opportunity when the market turn. So we put in our plan is to put in additional capacity in 3Q and 4Q but now since we see the 3Q is not as strong as what we forecasted, then we adjusted [the data] 4Q. And some -- if for some reason or if the 3Q turns out to be strong and the 4Q is okay, it's good, then we have enough capacity. And on the other hand, since our operator now is -- by September they are fully trending their productivity can be fully utilized then we have additional output in our capacity available. So when I look at both I say okay, we have enough head-room for the growth if the market turn. Then Isaid, let's stop getting putting more capacity.

So you have to remember that we only delayed -- and we delayed, we didn't cancel. We delayed 40% of the capacity and so we still have the other 60% that we're planning on putting in place, so it's more of a modulation rather than a knee-jerk reaction.

Yes.

Very good. Thanks,

Ramesh Misra, Brigantine Advisors.

In terms of the inflationary pressures in China, has that begun to impact salaries for your operators, or do you anticipate that to trend up as the year progresses?

Well, [it's mainly] -- they do publish the minimum salary every year, and our facility in Shanghai -- in Shanghai, in April raised their minimum salary. And we react to that actually before that. So when remember last conference call or 3 months ago when we started feel -- (inaudible) we do for the people dealing with (inaudible) the Chinese New Year we cannot hire the people in January. We go ahead raise the salary in February way above the minimum wage published by Shanghai City in April. So we ought to have those costs in and those we should not see any more raised until probably next year when the city raises the minimum wage again. But we should -- we tried to take action ahead of that, such that we won't lose the people and we are able to recruit the right people.

Okay. That is helpful. In regards to the changes in the PC business, the ramp in tablets, are you seeing a benefit from that? Are you seeing strength in tablets offsetting the weakness in notebooks or PCs?

We see the tablets so far as additive to our Business, okay? And we see strength in the notebook area or we see continued opportunity for growth for us in the notebook area as well as the tablet area. And the PC is not as -- except for a narrow customer base, the PC isn't as important to us any longer.

Okay. All right. Then finally, I missed your commentary on CapEx. I'm sorry I joined the call a little late. Can you just remind us again what Q2 CapEx was and the amount that you are dealing on your Q3 CapEx?

Yes. So we said that capital expenditures were $35.8 million during the second quarter, and that included about $4.5 million for our Chengdu site expansion and that was 18.4% of revenue versus 11% in the first quarter. We're continuing our Chengdu site development but we have delayed about 40% of our second half CapEx not including Chengdu, and we expect that our CapEx we'll be at the low-end of our 10% to 12% of revenue model not including Chengdu.

As from now on, we really (inaudible) Chengdu CapEx separate from our operational CapEx. Because Chengdu we start from beginning and we go (inaudible) in the building, so output won't be ready until probably 1 year later. And so we always put Chengdu separate from our CapEx for production.

Okay. And just a little clarification on that, Rick, if you're pushing up 40% of your second-half CapEx, shouldn't it be below that 10% to 12% that you usually target?

No, not necessarily. It we were at 12% last time and we pushed out -- remember it's 40% of the second half amount that we were planning on spending without Chengdu.

And Ramesh you need to remember the way we typically in the first half spend more than the second half. Okay? Because the nature of our Business -- and we typically have much bigger growth in second quarter and third quarter and then fourth-quarter typically is flat or slightly down. So to be able to achieve that kind of run in rate and put more money in the first half, especially in the second half and then second quarter, okay? In the first half especially in second quarter, because you get ready for big ramp in the third quarter.

So we spent 11% in the first quarter and we spent over 18% in the second quarter.

Okay. All right. And then just if I may have 1 last 1. Historically, Dr. Lu, you've managed to outperform Diodes both in upturns and downturns. Looking forward to 2012, what do you see as the main driver of you being able to do better than the broader market?

Well, we sure want to repeat what we've been doing, and so number 1, we put enough capacity, so we're always putting capacity ahead of the demand. And we are watching very closely -- even now today in the third quarter, our demand is not there but we already have additional capacity there, okay? So we could just get ready. We have a lot of new product and if you go through Mark's comments, we still continue pushing out the new products and a lot of design wins so all those what we are doing on the design win, on the new product and the capacity, it's always going to help, and that just give you a couple of -- MOSFET. I think you know we have been doing is grow more than everybody in the MOSFETs and SBR, especially the new version of SBR. Yes, we called DIODESTAR okay, those kind of SBR 600 volts, those are the one going to be driver for our growth in the future, and on logic, we had a lot of effort and a lot of design win in logic. It's just small and so even grow quite well -- it won't be there. It won't be significant but it will be another drive force. And then LED driver business, you know, has been doing what quite well too. So we do have several of the key drivers for our growth next year. And I just need to make sure we have enough capacity there such that we want to be -- we can take opportunity to gain the market share instead of get capacity limited again.

Okay. Thanks very much.

Tristan Gerra, Robert W Baird.

In terms of your mix in the quarter you talked about a mix shift. Could you talk about what was the change in units sequentially in Q2 and also is mix affecting the Q3 revenue guidance?

What was the units?

First of all, what was the unit difference?

The units increases between first-quarter and second-quarter. We don't normally give that kind of information out, right? The details of the output?

We don't give the detail of the unit output, but obviously, our second-quarter unit is more but if you remember, in 1Q, we actually don't have enough capacity due to the man shortage and due to the Chinese New Year shorter working day. In 1Q favorably Chinese New Year and the shorter working days for us we do for the people during Chinese New Year so our revenue in 1Q actually make it up by shipping the finished good we have in the inventory, in our own inventory to make up the revenue. You go to the second quarter, the units obviously is up significantly but you don't have any more finished good to ship it out. And so our revenue -- and actually we grow 5% so if you look at the revenue grow 5%, the units is more than 5%. And we don't break out how many but I can tell you it's more than 5% revenue growth.

Thank you. That's very useful. Just as a quick follow-up, so when we look at the Q3 revenue guidance, should we expect another mix shift which basically will be an upset to your unit growth because it will impact overall ASPs or would you say that your revenue guidance is pretty much in line with what you expect to ship? I'm trying to put this in relation with some of the other guidances from peer companies.

Okay. The guidance is really, we move the mix downward such that we can fully realize our capacity. If the market turn, then obviously we can move our mix upwards and so, it's really depend on how the market. Right now our mid-point of the revenue and GPM is based on what we see today. And then depend on it could be up or could be down.

Okay. And quick final 1, and sorry if I missed it, could you talk about utilization rate expectation in [inventory] days at distributor Q3 and your expectation relative to Q2?

I think we are seeing that it should come down a little bit in Q3. Actually, days, we hope to improve the days and the raw inventory and create a decrease. That's the expectation.

Okay. And would that be the case at the distributors as well?

Yes. So we believe that the distributor days would decrease as well as the raw inventory dollars.

Great. Thanks a lot.

Our distributor now is very conservative too, so the orders -- since we are the POP, then the order obviously would be slow down on the POP.

So it shouldn't take us long to get right back in the track.

Very good. Thanks again.

Steven Chin, UBS.

Dr. Lu, first question, probably more for you, just since you're fresh back from a trip to Asia. I was wondering if you could provide some color on what your customers and I guess the Taiwan food chain, or maybe your direct customers, what they've been saying quantitatively and qualitatively about end demand. And if you compare that to previous industry cycles like if you could exclude 2008 and you look at product cycle, does it seem like we're currently in a recession or negative consumption from your perspective or is it still kind of too early to tell whether or not overall consumption is actually declining significantly for quarter or Q more specifically?

Okay. Number 1, most of our customer in Taiwan is actually building the product for the major US and Europe Company. So, you're talking about Anhui, Broadcom, Quanta, even LG, Samsung, most our direct customer is building the product for US and Europe consumption. When it comes to them, they -- nobody really know what's going on. They tell me -- and Asia is not -- if you look at Asia market itself, it's not as bad as what we feel. But the problem is they are waiting for the order from the major customer in US and Europe, and when they ask them what is going to be your load-in that can help. We watching the US market too. So when I talk to my people, they just say -- you go back to US and tell us what will be going on over there? Okay. So actually, they don't know. And nobody really understands what will be the Christmas sale this year, so they are waiting for the Christmas order. Christmas building order from the major customer in US and Europe.

Okay.

Inventory isweighted.

Got it.

And you say is this a recession, I don't know. I don't think now I can say yes, it's a recession. I don't know. But everybody waiting.

Okay.

But don't forget, Christmas will become, and so someday somebody going to order for the Christmas. Then we'll know.

Okay. Understood. Great. And next question I had was for Mark, in terms of the PC and consumer end-market to the degree that you could differentiate where your products are going into the end-markets? Any commentary on whether or not the amount of products purchased by your customers, whether it's through the distri or directly. If that -- if the amount of orders I guess, sort of seasonal quarter for PC and consumer, or is there sort of potentially some conservatism in the expected demand for Q3?

I think there is uncertainty in the expected demand for Q3. And obviously we're very consumer and career-based whether it be LCD TV set top box, whether it be tablet, smartphones and so forth. I think where the most question might be is in notebook and the most question might be in LCD and LED TV. Okay? Those could be the things. I think that the smartphone business I think the tablet business, all those remain pretty firm. Obviously, the numbers in some of those other categories are quite large.

Okay.

If that answers your question.

That's very helpful. And final question for Rick regarding CapEx once again for Chengdu, is there a dollar estimate for the full year on how much you expect to spend there? And secondly, is that going to flow to the P&L or is that going to be capitalized for --

All the CapEx will be capitalized, and so it won't have any impact on the P&L directly. Of course, we got 100 people there and we're producing products, so those will impact our P&L as well. As far as a specific number, we've said that we will invest about $50 million, $45 million I think in Chengdu, and you could assume that most of that initial investment would go towards buildings and infrastructure development.

Okay. Perfect. Thanks. And good luck on the quarter, guys.

Christopher Longiaru. Sidoti and Company.

Most my questions have been answered. I just wanted to ask specifically, I know we're a couple of months out from the Japan disaster. I wanted to just see how that specific market is going for you and if you see anything unusual there, based on just the rebuild going on?

I don't think we see anything there. We're still seeing some impact on raw materials coming out of there, so hopefully that will settle down and help us get our costs back in line. But outside of that, I do believe that there is still some opportunity for crossing products from people that had difficulties with Japanese vendors during that period so we see some opportunity in that area, but I think outside of that, everything is pretty stable.

Okay. That's all I have for now. Thanks, guys.

Vijay Rakesh, Sterne Agee.

So just to get the numbers, what was the CapEx before and what is it now after you push out the 40%?

Sorry, your --

Wanted to know what the CapEx was before we pushed it out and versus what we haven't pushed out. What you should do is just look at the 10% to 12% of whatever the revenue is that you have estimated for the year. And you can see what we spent for the first half and you can figure that out. We don't want to give you the specific numbers associated with that.

Got it. And you mentioned that rent in China was a little high. How many weeks was it versus -- and where do you see normal levels at?

Yes. We like to have 3 or just below 3, and I think it was running at about 3.2 to 3.4.

Got it. Okay, great. Thanks, guys.

Ladies and gentlemen, this concludes today's question and answer session. I would now like to turn the call back to Dr. Lu for closing remarks.

Thank you for your participation today. Operator, you may now disconnect.

Ladies and gentlemen, we thank you for your participation in today's conference. This concludes the presentation, and you may now disconnect. Have a good day.