Diodes Inc (DIOD) 2012 Q4 法說會逐字稿

Welcome to the Diodes Inc. fourth-quarter and full-year 2012 financial results conference call. (Operator Instructions).

At this time, I would like to turn the call over to your host for today. Please proceed, ma'am.

Good afternoon, and welcome Diodes' fourth-quarter and fiscal 2012 financial results conference call. I'm Leanne Sievers, Executive Vice President of Shelton Group, Diodes' investor relations firm. With us today in our Diodes' President and CEO, Dr. Keh-Shew Lu; Chief Financial Officer, Rick White; Senior Vice President of Sales and Marketing, Mark King; and; 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 Safe Harbor for forward-looking statements that is contained in the Private Securities Litigation Reform Act 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 the Company's future performance represents managements' estimates as of today, February 13, 2013. Diodes assumes no obligation to update these projections in the future, as markets and 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 of 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; GAAP net income to EBITDA; operating expenses to adjusted operating expenses and free cash flow, 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 60 days in the Investor Relations section of Diodes's website, at www.diodes.com.

And now, I will turn the call over to Diodes' President and CEO, Dr. Keh-Shew Lu. Dr. Lu, please go ahead.

Thank you, LeeAnn. Welcome, everyone, and thank you for joining us today. Diodes once again delivered solid financial results in 2012. A year in which the global markets demanded remain challenging. Fourth-quarter revenue grew 14% over the previous year period as we continued to gain momentum for our products used in smartphones and tablets. Our new product initiatives and increasing customer content remained key drivers of our market share gain throughout the year. Despite gold prices being up approximately 4%, and the loading down from third quarter to fourth quarter, margins improved due mainly to additional copper wire conversion and productivity improvements, coupled with a small mix improvement.

Additionally, we made significant progress on our acquisition strategy by closing our acquisition of Power Analog Microelectronics, PAM, on October 29. We began integrating PAM as well as Eris Technology Corporation, Eris, during the quarter. As you may recall, Diodes acquired over 50% of the outstanding share of Eris on September 1. In order to leverage Eris' assembly and test equipment automation abilities. Then at the end of the year, we announced the proposed acquisition of BCD Semiconductor Manufacturing Limited, BCD. We expect to BCD will greatly enhance our analog product portfolio by expanding our product offering for standard linear and AC to DC solutions for power supply charges and adapters. Combining manufacturing synergies and BCD's established local market position in China with Diodes's global customer base and sales channels provides enhanced profitability and growth opportunity for the Company in 2013 and beyond.

Then in earlier January, we secured a five-year $300 million revolving senior credit facility with an option, pending bank approval, to increase the size of the credit facility by up to an additional $200 million. In addition to fund-raising our proposed acquisition of BCD, the facility also provides Diodes additional flexibility as we continue to execute on our growth initiatives.

With that, I'll now turn the call over to Rick to discuss our fourth-quarter and fiscal 2012 financial results, as well as the first-quarter guidance in more detail.

Thanks, Dr. Lu, and good afternoon, everyone. Revenue for the full year 2012 was $633.8 million compared to $635.3 million in 2011. For the fourth quarter of 2012, revenue was $163.3 million, an increase of 14% over the $143.3 million in the fourth quarter of 2011, and a decrease of 2% from the $166.6 million in the third quarter of 2012. The sequential decline in revenue was primarily due to seasonal weakness, partially offset by initial revenue recognized from PAM and Eris.

Gross profit for 2012 was $161.6 million, or 25.5% of revenue compared to $193.7 million, or 30.5% of revenue in 2011. For the fourth quarter of 2012, gross profit was $43.2 million, or 26.5% of revenue compared to $35.5 million, or 24.8% in the fourth quarter of 2011, and $43.6 million or 26.2% of revenue in the third quarter of 2012. Gross profit margin improved during the quarter due mainly to additional copper wire conversion; productivity improvements; as well as modern improvements in product mix, despite gold prices being up approximately 4% and loading down sequentially.

Total operating expenses for the fourth quarter were $39.7 million or 24.3% of revenue, compared to $30.6 million or 21.3% of revenue in the fourth quarter of 2011, and $36.1 million or 21.7% of revenue last quarter. Operating expenses in the fourth quarter included approximately $1.5 million of BCD acquisition costs, plus approximately $1.6 million of increased operating expenses in the Eris and PAM acquisitions. Excluding the BCD acquisition costs, non-GAAP adjusted operating expenses were $38.2 million or 23.4% of revenue, slightly below the midpoint of our guidance.

Looking specifically at Selling, General and Administrative expenses for the fourth quarter, SG&A was approximately $28.7 million, including expenses for the BCD, Eris, and PAM acquisitions. This was 17.6% of revenue compared to $22.6 million, or 15.8% of revenue in the fourth quarter 2011, and $25.8 million or 15.5% of revenue last quarter.

Investment in research and development for the fourth quarter was approximately $9.3 million or 5.7% of revenue, compared to $6.9 million or 4.8% of revenue in the fourth quarter of 2011, and $9.1 million or 5.5% of revenue last quarter. We continue to increase our investment in R&D to further advance our new product initiatives.

Total other income amounted to $3 million for the fourth quarter. Looking at interest income and expense, we had approximately $194,000 of interest income and approximately $307,000 of interest expense. Also included in total other income was a $3.7 million gain on approximately 938,000 shares of BCD stock previously purchased by the Company. The company filed a Form 13G today with the SEC that gives more details about the Company's purchase of BCD stock.

Income before income taxes and noncontrolling interest in the fourth quarter of 2012 amounted to $6.6 million compared to the income of $4.1 million in the fourth quarter of 2011, and $9.4 million in the third quarter of 2012.

Turning to income taxes, our effective income tax rate for fourth-quarter and full-year 2012 was approximately 43% and 16%, respectively, which includes a one-time $2.7 million non-cash tax expense recorded in the fourth quarter associated with a correction of the Company's foreign tax credits and deferred taxes.

China's corporate tax rate is 25%. But the government also offers a reduced tax rate of 15% for companies that qualify for the high and new technology enterprise program. Certain of our China subsidiaries have qualified for this program. During 2012, the China government began an audit of our largest Chinese subsidiary for our 2009 and 2011 high-tech company status, as part of an overall evaluation of the reduced tax rates provided to many high-tech companies. To date, the government has not issued the results of their audit. For more information about this subject, please see the Risk Factors section -- Item 1A of our third-quarter 2012 10-Q, and our soon-to-be published 10-K.

Turning back to our results, GAAP net income for the full year of 2012 was $24.2 million or $0.51 per diluted share, compared to $50.7 million or $1.09 per diluted share last year. 2012 represented our 22nd consecutive year of profitability.

Non-GAAP adjusted net income for the year was $26.1 million or $0.56 per diluted share. For the fourth quarter, GAAP net income was $4.1 million or $0.09 per diluted share, compared to GAAP net income of $3.1 million or $0.07 per diluted share in the fourth quarter of 2011, and GAAP net income of $8.6 million or $0.18 per share last quarter.

The share count used to compute GAAP diluted EPS for the fourth quarter was 46.9 million shares.

Fourth-quarter non-GAAP adjusted net income was $6.2 million or $0.13 per diluted share, which excluded, net of tax, approximately $1.1 million of non-cash acquisition-related intangible assets amortization costs, and approximately $1 million of acquisition costs. We have included in our earnings release a reconciliation of GAAP net income to non-GAAP adjusted net income, which provides additional details.

Included in fourth-quarter GAAP and non-GAAP adjusted net income was approximately $2.4 million, net of tax, of non-cash share-based compensation expense. Excluding share-based compensation expense, both GAAP and non-GAAP adjusted diluted EPS would've increased by an additional $0.05 per diluted share.

Cash flow generated from operations for 2012 was $64 million, and $16 million for the fourth quarter. Net cash flow for the year was a positive $28 million and a negative $11 million for the fourth quarter, primarily due to the $16 million paid for PAM. Free cash flow for 2012 was $6 million, which included approximately $58 million of capital expenditures. Capital expenditures included approximately $15 million associated with the Chengdu assembly test facility construction.

Free cash flow was $1.1 million for the fourth quarter, which included $15.3 million of capital expenditures. Capital expenditures included $2.1 million associated with Chengdu.

Turning to the balance sheet, at the end of the fourth quarter we had approximately $157 million of cash and cash equivalents. Working capital was approximately $378 million. At the end of the fourth quarter, inventory was approximately $153 million, compared to approximately $158 million at the end of the third quarter of 2012.

Inventory days increased to 119 in the fourth quarter compared to 111 days last quarter. Inventory in the quarter reflects a $12.1 million decrease in raw materials, partially offset by a $2.8 million increase in work-in-process and a $4.5 million increase in finished goods.

At the end of the fourth quarter, accounts receivable was approximately $152 million. And AR days were 87 compared to 85 last quarter. Capital expenditures on an accrual basis for 2012 totaled $60.1 million, which included a $15 million for our Chengdu site expansion. Excluding this amount, capital expenditures were 7.1% of revenue. Fourth-quarter capital expenditures were $11.3 million, which included $2.1 million for our Chengdu site expansion. Excluding this amount, capital expenditures were 5.6% of fourth-quarter revenue compared to 8.8% in the third quarter. For 2013, based on current market conditions and excluding Chengdu building expenditures, we expect capital expenditures to be 7% to 9% of revenue.

Depreciation and amortization expense for the fourth quarter was $17 million.

Now, turning to our outlook. For the first quarter of 2013, we expect revenue to range between $157 million and $170 million; or flat, plus or minus 4% sequentially. We expect gross margins to be 25%, plus or minus 2%. Operating expenditures are expected to be 23% of revenue, plus or minus 1%. We expect our income tax rate to range between 10% and 17%. And shares used to calculate GAAP EPS for the first quarter are anticipated to be approximately $47 million.

With that said, I will now turn the call over to Mark King.

Thank you, Rick, and good afternoon. Revenue in the quarter was down 2% sequentially, primarily due to clients in North America and Europe, while revenue in Asia was flat. Automotive and industrial was down in the quarter were down in the quarter; consumer and computing essentially flat; as communications was up slightly.

Highlights in this quarter included continued advances in smartphones and tablets due to new products and share gains, which were offset primarily by declines in LED TV. We also continue to receive positive momentum and achieve record revenue for MOSFETs, CMOS LBO, and logic product lines driven by solutions for portable and portable power. Additionally, LED drivers, sensors and bipolar transistors also experienced a strong quarter.

OEM sales were up 1%, and distributor POS was down 3.7%. Distributor inventory continued to decrease another 2.5%, and inventory remained in line and under three months.

Turning to global sales, Asia represented 81% of revenue; Europe, 10%; and North America, 9%. Our end-market breakout consisted of consumer representing 34% of revenue; computing, 28%; industrial, 18%; communications, 17%; and automotive 3%.

In terms of new products, fourth quarter proved to be another strong quarter for product launches across a wide spectrum of applications and all end markets. Discrete product introductions totaled 43 new products across 17 product families, as we continue to demonstrate our commitment to growing our broad based of suite portfolios aimed at high-volume, high-growth markets.

During the quarter, Diodes expanded its offering of thermally efficient miniature power devices using a key FM technology, which enables outstanding power handling and space savings in a range of demanding applications. This family of devices offers advantages across a variety of applications including tablets, netbooks, notebooks, power supply, motor control, as well as automotive applications.

Also leveraging Diodes's DSN packaging technologies is the latest in a line of Schottky diodes packaging in a subminiature DSN0603 package. This tiny package uses 66% less board area than the competing DSN1006 Schottky, making it ideally suited for portable applications. We have already secured a design win with a major portable manufacturer, and expect additional design wins in the coming quarters.

Diodes also broadened our range of tight tolerance Zeners in the quarter, which are also aimed at the mobile communications and portable markets. In other applications area, we launched additional MOSFET devices for consumer electronics, notebooks, motor control, LED, voice over IP and power supply. We also introduced SVR devices for power supply, LED TV, and automotive applications, as well as protection and application-specific products for consumer and industrial applications.

In terms of design wins for our discrete products, throughout the quarter Diodes secured major wins in portable devices, computing, automotive applications, as well as power supply and adapters.

Turning to analog new product introductions, we released 24 new products across six product families. New product highlights include the release of several new synchronous DC-to-DC converters, including our first buck regulator offering light load and high efficiency. This device allows for continuous load of 2 amps with efficiency as high as 95%. Design-in activity for our expanding portfolio of synchronous DC-to-DC converters includes early production ramps on two of our new products with a major Japanese electronics manufacturer, as well as a new customer in the US space set-top box market.

Also during this quarter we introduced several new micropower omnipolar hall-effect switches, including high-sensitivity devices designed specifically for portable and battery-powered equipment such as cell phones and tablets. We also offer medium- to low-sensitivity devices targeted at industrial applications, such as smart e-meters. These low-power products provide programmable features and extremely small package footprints that have seen early success in the market with design opportunities in e-meters, smartphones, and desktop printers.

Additionally, we released a family of single-channel precision adjustable USB power switches that further expand our very successful portfolio of devices optimized for hot swap portable consumer applications. Overall design win activity for USB power switches remains very strong, with significant wins across multiple customers in both LED TV as well as the notebook market.

Our LDO design wins were also strong when we saw major design wins across large-scale applications, including DVD players, LED TVs, and computer motherboards. In fact, our CMOS LDO product line continues to set new revenue records as we continue to expand this product family.

Finally, in our LED driver family, we now offer a 30-volt, 1 amp LED driver that features robust protection against LED and over-temperature flaws to ensure reliable system design. This device's low EMI performance reduces the system costs and meets all EMI requirements, while the PWM and analog dimming support provide excellent system flexibility.

We also feature continue to gain significant momentum for our standard logic products, doubling our revenue over the prior quarter. Our outstanding family of logic devices has been well-received by customers as we secure a growing number of design wins in the portable consumer electronics space.

In summary, we are pleased with our continued advances and market share gains in smartphones and tablets during this past year. Although the market environment remains challenging, we believe our past design win momentum, new products, and expanded customer relationships have been key factors to our success.

Diodes' leading packaging capability has enabled us to produce outstanding power and space-saving devices in a broad range of demanding applications. We have a growing product pipeline, and a strong design win pipeline which will only be further enhanced by the addition of a BCD analog product portfolio. This acquisition provides added strength to our geographic presence and global customer base by expanding our sales footprint. Upon closing of the transaction, we look forward to working closely with our customers to familiarize them with our new expanded standard linear and power management offerings.

With that, I will open the floor to questions. Operator?

(Operator Instructions). Steve Smigie, Raymond James.

Great. Thanks a lot. So guys, nice growth year-over-year in the fourth quarter of 14%. That's pretty good in a tough environment. I was hoping you could give a little bit of color, Dr. Lu, on how orders are trending. Are you seeing more positive outlook? Because I think you said in your press release, you're guiding a little bit of both seasonal. And we've been hearing from some of the other guys that are similar companies that have talked about improving order patterns. And I'm just curious if you've seen the better order patterns, and if it's just Chinese New Year or if there's something more meaningful here. Thanks.

Well, Steve, I just came back from China -- or from Taiwan -- yesterday. And I do see some of the uptick of business or market in Asia. But nothing really shows a strongly recovery. It's not. I just see a few companies changed or cancelled the Chinese New Year vacation or holiday, and some of the companies shortened that Chinese New Year holiday.

So, you can feel a little bit uptick. But since right now, they are still in the Chinese New Year holidays. We really don't know until -- after the Chinese New Year, then we will know for sure. Now, I did -- Mark King answer you on the US and Europe. But in Diodes, we do gain the marketshare. We do continue to have very strong design wins. So, we are able to make the guidance flat instead of going seasonally down. And Mark, do you want to talk about US and Europe?

Yes, Steve, we are definitely seeing an uptick in the North American marketplace, and we are seeing some slight signs of recovery in Europe. So, more positive signs rather than a clear indication. I'd I think, definitely, things are improving globally.

Okay, great. And then I was hoping, Rick, if you could talk a little bit more about the taxes? I think, if I did the math right, you are something like a 13.5% tax rate for the March quarter here. Is that something we should think about as the rate throughout the rest of the calendar year? And can you talk a little bit about possible impact of, if you go through the Chinese audit on the taxes, would that increase your tax rate if it goes against you? And what's the likelihood of that going against you?

Yes, sure. So 13.5% is the midpoint of our guidance for the first quarter. And you can assume that it's the same for the rest of the year for 2013. As far as the high-tech tax rate, we have been approved. Our Chinese subsidiaries have been approved for the high-tech tax rate for the next three years already. That occurred in the fourth quarter. So, from that standpoint, we believe that we have no issue going forward with that. It's just the question of this audit, and what the outcome of that audit is going to be. And to date, we don't have any input on that.

Okay, great. The last question was just on gross margin. If we were to get a seasonal uptick in the June quarter, let's say 4% or 5%, or something like that even if it's not seasonal. If we get that sort of uptick, how big of a gross margin impact would that have? Would that have a meaningful impact on utilization, such that we could see a couple of hundred basis points or more jump in gross margin in the June quarter?

Well, you are talking about the second or third quarter. We don't give any guidance on that. But, if the market turns and we start to get a significant growth then you can see a major utilization improvement. And that will help us on the GPM percent. But that really depends on what will be happening in second quarter, or even you're talking about third quarter. But at this moment, we do not have any information, and we do not give that guidance. It completely depends on the loading. And we try to qualify BCD, and that is -- depend on the qualification and depend on customer acceptance. So we really do not have the number in our mind yet about what will be the improvement of the loadings.

Okay, great. Thanks a lot. Congratulations again.

Christopher Longiaru, Sidoti & Company.

Congratulations on the guidance, especially versus competitors.

Thank you.

I guess my question has to do with -- what's the timing on the closure of BCD at this point? And is there any -- how much of that is in the guide at this point? And is that the reason why the guidance range is a little wider than usual?

Okay, number one, on our guidance assumes have no BCD in there. That's number one. Number two, you know that BCD going to the shareholder meeting on February 28th And we would like to, after if they approve it, then we would like to close as fast as we can. And so, if there's no surprise, then maybe at the beginning or at the first portion of March, instead of April. But that really depends on any supplies or any -- anything happen (multiple speakers)

Approval by their shareholders first, right?

Approval, yes.

Okay, great. And then just on the inventories that are in the channel right now -- Mark, can you comment a little bit about how those kind of trended during the course of the quarter, and any indications of what you're seeing at this point into the first quarter?

Yes, I think we are -- actually our inventory position is quite solid. Our European inventory is very low. Our North American inventory continued to decline. I think overall, globally, we were down 2.5% for the quarter. And actually, I think that the distributors have been working their inventory -- I don't know, the last six quarters, and it has continued to decline. So I think it's in very, very good shape.

So, in the scope of a rebound, once we are starting to see some signs of in 2013, would you have to pick up a little bit more inventory internally to hedge against getting out product in time for guys that need it? Or do you think that what you have now is okay? Can you give us a little guidance there?

Go ahead.

No, go ahead, Dr. Lu. Feel free.

Okay. I'm going to talking about the company internal inventory. You know by end of December, we are building up inventory for the Chinese New Year. Because even though the Chinese new year is -- right now, Chinese New Year. And you're going to have a lot of people go home for vacation. And we plan to shut down for a couple, two, three days. And so, we actually build up the inventory in December -- end of December. Then, we -- I think so, we would hoping, or we think internally by end of March that inventory should go down.

Should go down, okay.

We do not plan to build up the inventory for that.

Okay, all right. That's all I have for now. Thank you guys.

Harsh Kumar, Stephens.

Congratulations on a good guide. Dr. Lu, I had a couple of questions. First one, you just did 26.5% margins, gross. And I think the guidance is, at the midpoint, 25%. Is there anything going on in that number that is causing you to guide a little bit lower? And then I had a question about copper conversion as well.

Okay let me -- I will answer that. It's really very simple. Like I say in the December quarters, we are building up some inventory. So the utilization rate would be higher than 1Q -- 1Q, okay. So we originally did not really plan on reduced inventory. So, our GPM, our gross margin would be affected, by that utilization. And 1Q, because the Chinese New Year holiday, less people and output, the physical output from the factory will be lower than 4Q. And that, you have fixed costs and lower output, then your GPM percent will be low.

That's very helpful, Dr. Lu. And then, are you -- Dr. Lu and Mark -- are you done with the copper conversion? How far are you? And can you give me a sense of what this means to profitability?

Number one, we are not finished. From the making function to consent, we almost finished the copper wire qualification. The one we went to move, we want to convert, we almost done. But I think I've been talking about is a customer acceptance; from especially major customers, they do not want to convert it during the production times. So they always want to wait until their new design -- ramp it up. Then, they will qualify our copper wire products. And so, we are not really -- for the major customer -- we are not really converting yet, especially the high-volume one.

Okay, that's -- I think I can understand that. And then, Dr. Lu, is there a big difference from bringing -- last question from me -- PAM and Eris in December quarter contribution, versus PAM and Eris in the March quarter contribution?

Let's check one by one. PAM, we consolidate by end of October. Therefore, in 4Q, you had two months of PAM; and then, 1Q, you had three months. So, that's -- you can see it's -- how much that is. But don't forget in 1Q, typically Chinese New Year season, that will be slowed down slightly. Now for Eris, there is no difference because Eris was consolidate in September, or end of August. Yes, September. So, in the 4Q you have three months of Eris, and 1Q you have three months of Eris.

Okay, perfect. So that's very helpful. I'll get back in line. Thank you and congratulations.

Vijay Rakesh, Sterne, Agee.

Good work on the Q4 gross margins. I was wondering as you look at -- you mentioned the guide is being impacted by fab utilizations. What are the utilizations in Q4, and where do you expect your utilization in Q1?

Okay, utilization is better than what we expected. It's because, like I mentioned, we build up some inventory for Chinese New Year. So your output slightly well, you move even more. Then, 1Q, you can see the output going to be low. And if we give the guidance of 25% versus 26.3%, okay so you know, that is about the difference.

Now, on the -- we said slightly better on copper wire conversion. Those will be continue. So it won't go down. And this, the mix, get changed significantly. If the mix don't change. So, we assume the copper wire will be the same. And, therefore, you can see that difference is really due to the utilization.

And as you look at Q2, do you see the utilization has come back to the kind of the Q4 level? And also, as BCD layers in, are those gross margins nicely incremental to where you are, let's say, at the Q1 level?

Okay, we do not give the guidance on Q2 yet. But you can estimate if the business -- we don't know, but if the business really grow, then utilization will be better. So that is -- we don't know on the Q2 yet. But you need to make your assumption what will be the Q2 revenue; and then from there, you can estimate what kind of improvement.

Now, BCD is a different story, because BCD do announce, due to their fab to chip in, their utilization will be lower. And I think they gave their guidance of 1Q. And if this just turns, than you can estimate what will be the utilization. I do not -- in our number, we assume that no BCD. In our 1Q guidance, we assume no BCD. And then, if we are able to consolidate one month or consolidate March, if we get close sooner then it will be different.

Got it. Okay. And on the BCD side, I mean their fabs -- are you bringing -- when do you start to move their product in-house? Or do you plan to keep their fabs up open through the year?

We will try to bring their assembly subcon not all of them, but the majority of them -- to our assembly side. But it take much longer to bring our product to their fab. Because fab qualifications and the conversion, it typically take longer than packaging conversions.

Okay, great. Thanks a lot, guys.

Vernon Essi, Needham & Company.

Congratulations on this guidance. Really the only thing I would like to focus on, Dr. Lu, is you had mentioned earlier about having the qualifications and acceptances with BCD. Is there any sort of timeline or milestones you could walk us through as to how that might transpire as you try to garner the attention of some of those larger branded companies that you already deal with, and sort of cross-sell other products? What is your expectation on that?

Okay. You know we start working on the packaging qualification even before we closed. We already kick off that actions. And so, let's say it take three months for qualification. It take three months for the PCM product team to notice. You're talking about six months. After that for the general market, you can start to convert. But for key customer, then you need to wait until they say okay. For the very tough customer, they will just say no; you give me the sample, and I wait until my next version of the product, then I will qualify you based on that, on the next version of their next product.

So, the earliest will be six months. But then you cannot convert right away. Then you start from the general market, the key customer, then the tough customer. And that I cannot really talking about, because that really is the customer make a decision. No, we can make a decision.

Okay, so I guess my -- this helps. Just to clarify, you would not really be seeing cross-selling revenue synergy of magnitude this calendar year, because you're going to miss sort of the consumer season. You might get some sampling taking place. But, really, 2014 is where you would start to see that.

You are correct. You know, if want to see some slightly, maybe 4Q this year. But significant won't be until next year.

But the cross (multiple speakers) --

But this is the market really hot, then it's a different story, right? Because when you have a market really hot and the production -- the supply started getting tight, then we'll have more willing to convert. But I don't think this year could be that kind of year. I hope it is, but I don't know. I don't think so.

Okay. All right, that's helpful. Thank you very much.

Tristan Gerra, Baird.

When we look at the second fab that BCD is going to -- is putting in place currently, are there opportunities? And I know it's going to take time for their products to move to your fab. Or how should I look at who has the lowest production costs on the front end?

No, we don't move their product into my fab, because our fab is more discrete fab. And they do not sell discrete product. But, we have most likely to move our product into their fab, because their fab supports analog type of product and we using our foundry to do our analog type of product. Therefore it will be the synergy for us to move our product into their fab.

Okay. And then, I know you that you still have limited visibility on demand. At this stage, do you still plan on putting some capital equipment in Chengdu this year? Or is it more of a 2014 ramp?

Well, for Chengdu, we probably will start to move our pattern line facility into our own facility. If you remember, what we originally do is build up the pattern line so Wu can ship the people and the resource -- started getting training. And then we go to build our own building. And so I think, sometime during this year, we would -- the building is already completed. So sometime this year, we would start move the pattern line into our own facility. And that way, we can easily to expand whenever we need it and no longer consider site core. So we would take this opportunity while the market is slow, and we don't really need that facility. We can do the site core and move the pattern line. So it will help us, in the future, much easier to ramp that.

Okay, that's very useful. And last quick question -- at that point, would you then plan on migrating some production from your Shanghai to Chengdu? Or is Chengdu going to be entirely incremental, and as such, driven by what order rates and trends are going to be at that time?

Okay. It would be very difficult to move the equipment from one export zone to the other export zone. Because due to the China situation, it's very difficult. They don't allow you to move the equipment from one zone to the other zone. And you almost need to ship it out to Hong Kong and then ship it back in. So it's very difficult. Therefore, we don't have any plan today to move our facility or our equipment from our Shanghai to Chengdu. And therefore, Chengdu will be incremental.

Okay. Again, it's very, very useful. Thank you so much.

Shawn Harrison, Longbow Research.

I wanted to just get a clarification. If I remember correctly from last quarter, the expected revenue contribution from PAM and Eris was expected to be around $3 million to $4 million in the fourth quarter. Did it end up being within that range?

Yes.

Second, Mark, I was hoping for a clarification. I believe you said distribution sales, or the sell-through, was down 3.5%. Inventory was down 2.5%, meaning that your sell-in was down around 6%. Is that a correct number?

I didn't say anything about the sell-in. And I don't have that right in front of me. But it was the POS that was down 3.7%, and the inventory was down 2.5%. Let me see if I can come up with that other number.

No, you do not talking about POP.

Yes, I'm talking -- POP. I guess the follow-up question to that is, do you think this spread between point-of-purchase and point-of-sale will narrow to 0 during the March quarter?

Yes, actually, I think that if the upticks that I kind of just talked about a little earlier -- I think that POP will be required to pass POS for a period of time.

Okay. And then that's -- maybe it's the March quarter, maybe not?

Yes, maybe later in the March quarter. I really have to see -- it's really -- it's really early in the quarter. And we are happy to see the positive sign, but certainly nothing to put in concrete yet.

Got you. And then the final question was on pricing. I don't think I've heard any commentary on that, about the fourth quarter. To me, that maybe means it was pretty benign. How was pricing during the fourth quarter?

Well, it's the typical. You know I think we -- in the past I keep talking about typically the prices about 1% to 2%. 1% to 2% per quarter drop. And we didn't say it because it's within that range. It's a typical range. And typically your productivity should recover those, and then just watch out.

Okay. Thanks so much, and congratulations on the guide.

Stephen Chin, UBS.

Dr. Lu, a question for you first, since you're fresh back from Asia. I was wondering if you had any color from your customers on their feedback on the BCD deal so far.

Well, our customer is really very positive about this, because with Diodes' capacity -- manufacturing capacity -- we can give them a better support. And we are not talking over their quality is bad. But Diodes has a very good quality standing in our customer. So I think they all very -- feel very positive about we are able to qualify their product, and bring that large capacity; at the same time, a good quality product for them. That doesn't mean their quality is bad. I didn't say that. I'm just saying our customer feel is good, to be able to get that kind of support.

Got it. That's helpful. I also just related to your expectations for 2013, I was wondering, looking at your different product segments, like consumer, computing, industrial communications -- is there a certain area that you expect to run more than the others? For example, do you expect the bulk of your growth to continue to come from portables, tablets, and LED TVs? Or are there others that you think we'll see trend this year? And also related, do you expect growth to come from greater content or business at existing customers? Or do you see some diversification in your customer base at both of those parts.

Okay, some of the questions I will let Mark King to answer, especially the spread between the consumer computer, those. But for us, we definitely see the improved content of our product in the applications. You know, that's where our growth coming from, is other than more design wins and including that design win is more product, more content into the applications. And Mark, do you want to answer the rest of it?

Yes, I think you're going to see pretty consistent focus in that; and concentration, or continuing concentration, in computer and consumer. I think that that is their strength base or they cite three C's. The one thing I'm going to let everybody know -- probably over the next six months we'll be revamping our segments. Because some of the classifications between the three companies -- us, PAM, and them -- are different. And we're going to have to go through the customer base and look at exactly where we move people around to.

But again, when you get down to the end equipments, they are pretty much the same end equipments and pretty much the same focus. They might be a little bit more focused on the power side on their analog and so forth, but they are going -- those power devices are going into the same end equipment, if that answers your question.

Perfect. Thanks, Mark. And then just one last one if I could on the gross margin side, for Rick. Just based on some of the questions on gross margins earlier, it sounds like any changes in capacity utilization rates -- you have an effect on gross margin in the quarter where those -- where the loading has changed. But is that just a function of the current situation, where inventory levels are a little bit below where your revenue levels are currently, and also the inventory days? And is it safe to assume that, in a more normalized environment, the lead time might be a little bit longer, potentially? Or the cycle times for products to go through the -- into the cogs would take longer than a quarter?

Well, no. I don't think the cycle time has much to do with it right now. And even in the future. It really has to do with the amount of capital equipment you have available versus what the loading of that capital equipment is. You have to have -- of course, you have depreciation. You have fixed costs. You have people manning the equipment. So all of those things add up. And when you're not utilizing that equipment fully, then you just have extra costs that eats away at the margins.

So, as we are able to increase the loading, either through our own sales or bringing BCD in, then that utilization helps. And I also mentioned in my speech that we are -- our normal CapEx as a percent of revenue is about 12%. And we are saying that, in 2013, we are trying to hold that into the 7% to 9% range. And so that will also help utilization, in that if the market grows and the units are needed, that we've held back on the equipment, then that will help with the utilization rates.

Perfect. Thanks, Rick.

Steve Smigie, Raymond James.

I was hoping you guys could just comment on two areas quickly. First is on chip scale packaging. I know you've been investing a lot there. Is that -- the products that you put into that, has that started ramping at this point? And what sort of traction are you seeing there? And then if you just get a little bit more detail on logic, it looks like you're pretty well-positioned there. That uptake of that in a meaningful way; that probably comes sort of Q2, Q3, as the market heats up. Is that the right way to think about it?.

Well, let me answer the chip scale packaging, then I'll let Mark answer the other question. Chip scale packaging, we already announced it, and we actually -- it's in production for both analog and discrete both. And so, it's ramped; and if customers need more, than then we'll get more. But we already ramped.

And Mark, do you want to answer the other question?

Yes, I think the logic thing is going quite well. Our position and our revenue -- I think we, or I, mentioned that we doubled our revenue in the quarter. Logic is a long haul against large competitors. But we are making continued progress at our key accounts. And I expect to see continued revenue growth quarter after quarter. It's I think it's just going to be -- it's just going to -- it goes along with the rest of our stuff. So we are quite excited about it.

We've had a lot of new products in there. We're finally getting to the scale, and number of part numbers, and product mix, and depth that our customers require. So it's getting more and more and more traction. We are getting more and more traction from the channel. So we are quite positive about the long-term future.

Great. Thanks a lot.

This concludes the question-and-answer portion for today's call. I'd like to turn the call back to Dr. Keh-Shew Lu for closing remarks.

Well, thank you for your participation today. Operator, you may now disconnect.

Thank you everyone for participating in today's conference. This concludes today's conference. You may now disconnect, and have a great night.