Diodes Inc (DIOD) 2014 Q3 法說會逐字稿

Good afternoon and welcome to Diodes Incorporated Third Quarter 2014 Financial Results conference call. At this time all participants are in a listen-only mode. At the conclusion of today's conference call, instructions will be given for the question and answer session. (Operator instructions). As a reminder, this conference call is being recorded today, Thursday November 6, 2014.

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

Good afternoon, and welcome to Diodes third quarter 2014 financial results conference call. I am Leanne Sievers, Executive Vice President of Shelton Group, Diodes' Investor Relations firm. With us today are Diodes' President and CEO, Dr. Keh-Shew Lu who's calling in from Taiwan, 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 would 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 the company's future performance represents management's estimate as of today, November 6, 2014. 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 to non-GAAP items, which provide 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 the 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 will 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. Diode achieved another quarter of solid financial results highlighted by record revenue and record gross profit. Growth was driven by continued strength in the consumer communication and the computing market in Asia.

Additionally, ongoing improvement in product mix and our assembly/test capacity utilization contributed to gross margin reaching 32% for the first time since the second quarter of 2011. Earnings per share also reached the highest level in three years demonstrating the company's strong operating performance.

As we look to the fourth quarter we expect revenue to decline due to normal seaonality and the gross margin is expected to be down slightly. The continued benefit from our cost reductions combined with further improvement in product mix are anticipated to largely offset the lower capacity utilization at our Shanghai wafer fabs causing gross margin to come in just under the current quarter's level.

With that I will now turn he call over to Rick to discuss our third quarter financial results as well as the first quarter guidance in more detail.

Thanks Dr. Lu and good afternoon everyone. Revenue for the third quarter of 2014 was a record $233.8 million, an increase of 4.7% from the $223.2 in the second quarter of 2014 and an increase of 4.1% from the $224.5 million in the third quarter of 2013. The increase in revenue was due to growth across the consumer communications and computing end markets. Gross profit for the third quarter also reached a record at $74.7 million for 32% of revenue compared to $70.3 million or 31.5% of revenue in the second quarter of 2014 and compared to $69.6 million or 31% of revenue in the third quarter of 2013.

The increase in gross profit margin was primarily due to continued improvements in product mix and assembly task capacity utilization. GAAP operating expenses for the third quarter were $49.7 million or 21.3% of revenue compared to $47.2 million or 21.1% of revenue in the second quarter of 2014 and $49.3 million or 22% of revenue in the third quarter of 2013.

Third quarter operating expenses as a percent of revenue were back to pre-BCD acquisition levels when considering the second quarter of 2014 benefited from a $1.2 million gain or 0.5% of revenue.

Looking specifically at selling, general and administrative expenses, SG&A was approximately $33.9 million for the third quarter or 14.5% of revenue compared to $33.3 million or 14.9% of revenue in the second quarter and $33.8 million or 15.1% of revenue in the third quarter of 2013. Investment in research and development for the third quarter was approximately $13.9 million or 5.9% of revenue compared to $12.8 million or 5.7% of revenue last quarter and $13.6 million or 6.1% of revenue in the third quarter of 2013.

SG&A plus R&D combined equaled 20.4% of revenue which was down 20 basis points from 20.6% last quarter and 70 basis points from 21.1% in the third quarter of 2013. Total other income amounted to $1.3 million for the quarter. We had approximately $2.1 million of other income and currency gains, approximately $325,000 of interest income and approximately $1.1 million of interest expense.

Income before taxes and non-controlling interest in the third quarter 2014 amounted to $26.3 million compared to the income of $23.5 million in the second quarter of 2014 and $17.5 million in the third quarter of 2013.

Turning to income taxes; are effective income tax rate for the third quarter was approximately 23% which was within our guidance of 22% plus or minus 3%. GAAP net income for the third quarter of 2014 was $19.4 million or $0.40 per diluted share compared to $17.4 million or $0.36 per diluted share in the second quarter of 2014 and compared to $13.6 million or $0.28 per diluted share in the third quarter of 2013.

The shared count used to compute GAAP diluted EPS where the third quarter of 2014 was 48.7 million shares. Third quarter non-GAAP adjusted net income was $21.2 million or $0.43 per diluted share which excluded net of tax $1.6 million of non-cash acquisition related intangible asset amortization costs and approximately $180,000 of retention costs associated with the BCD acquisition.

This compares to non-GAAP adjusted net income of $18.2 million or $0.38 per diluted share in the second quarter of 2014 and $15.8 million or $0.33 per diluted share in the third quarter of 2013.

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 the third quarter of 2014 GAAP and non-GAAP adjusted net income was approximately $2.4 million net of tax, non-cash chair based compensation expense. Excluding chair-based compensation expense both GAAP and non-GAAP adjusted diluted EPS would have increased by an additional $0.05 per diluted share in the third quarter.

Cash flow generated from operations for the third quarter of 2014 was $27.3 million. Free cash flow for the third quarter of 2014 was $13.8 million which included $13.5 million of capital expenditures and net cash flow for the third quarter was a positive $1.4 million which includes the pay-down of approximately $15.2 million of our long-term debt.

Turning to the balance sheet, at the end of the third quarter we had approximately $237 million in cash and cash equivalence and $14 million in short-term cash investment. Working capital was approximately $527 million. At the end of the third quarter inventory increased by $6 million to approximately $189 million compared to approximately $183 million at the end of the second quarter of 2014.

Inventory in the quarter reflects a $3 million increase in finished goods and a $4 million increase in raw materials which were partially offset by an $800,000 decrease work in process. Inventory days were 108 in the third quarter compared to 107 days last quarter.

At the end of the third quarter accounts receivable is approximately $194 million up about $6 million from the second quarter. AR days were 75 compared to 74 last quarter. Our long-term debt totaled approximately $147.5 million down $15.2 million from the second quarter. Third quarter capital expenditures were $16.7 million or 7.2% of revenue which was at the midpoint of our reduced CapEx spending target range of 5% to 9% of revenue. With the nine months of 2014 we are at approximately 6.4% of revenue.

Depreciation and amortization expense for the third quarter was $18.9 million; now turning to our outlook. For the fourth quarter 2014 we expect revenue to range between $217 million to $231 million or down 7% to 1% sequentially. We expect gross margin to be 31.6% plus or minus 2%. Operating expenses are expected to be approximately 22.2% of revenue plus or minus one percent. We expect our income tax rate to be 25% plus or minus 3% and shares used to calculate diluted EPS for the fourth quarter are anticipated to be approximately $49 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 mentioned, revenue reached a record and was up 5% quarter-over-quarter driven primarily by strength in consumer, computing and communications in Asia. OEM sales were up 6% and distributor POS increased by 10% in the quarter. Distributor POP was up 3.6% and global distributor inventory remained in line. In terms of our end markets, consumer represented 34% of revenue, communications 22, computing 21, industrial 19% and automotive was 4%.

Turning to global sales, Asia represented 79% of revenue, Europe 11% and North America 10%. Customer activity level remains strong in all regions and product lines with a growing number of design wins across our end markets. We continue to have a solid pipeline of new products and design wins drive long-term growth.

On the product side it was a record quarter for our discrete product group driven by record sales of MOSFET's, protection devices, SBR and bipolar transistors. On our analog side we also saw a record quarter for load switches, LED drivers, DC-to-DC and audio products. In terms of product introductions we released 64 new discrete products across 13 product families. We continue to expand our broad-based product offering to meet the needs of a wide range of market segments and customer applications. Once again, Diode launched a number of new innovative products aimed at enabling improved energy efficiency in portable devices such as smartphones, tablets and wearable devices as well as chargers, adapters and power supplies.

In addition, we've further capitalized on our recent growth in the automotive market with product launches, design wins and sales momentum with products specifically qualified for the automotive segment.

Looking more closely at the portables device market, our rapidly expanding TVS portfolio was further enhanced by industry leading battery protection products aimed at major suppliers of portable, handheld and wearable electronics. Diodes also delivered first samples of its ultra high speed beta line protectors to a leading portable device manufacturer to meet the needs of their future product roadmap.

A new MOSFET for smartphones and tablets also set industry benchmark featuring the lowest RDS(ON) with a sub 1.5 x 1.5 millimeter footprint. Also in the MOSFET portfolio we added a small DFN dual MOSFET which was optimized for wireless charging application.

Now turning to the automotive market, Diodes continued to expand its content with automotive customers. During the quarter our automotive MOSFET's saw strong design in activity and several important TVS design-ins began ramping to volume production contributing to strong sales momentum. Also in Q3 we began sampling our first MOSFET devices using a new split gate process that are aimed at high-volume auto application.

Finally, in the industrial market Diode's continued to capitalize on its strong capabilities in efficient power management and introduce 50 and 60 volt MOSFET's with the industry's lowest RDS(ON) for industrial power supply application. For high reliability power supply systems and servers we also introduced the latest in a family of OR'ing controllers providing outstanding energy efficiency for this demanding application. For renewable energy we launched an BVR diode where a key solar paneled customer in a ruggedized DFN package with ultra high reliability to maximize panel utilization and solar yield.

Turning to analog, we had 56 new analog product releases across six product lines during the quarter. In support of our LED lighting strategy we released several new products including a Triac Dimmable LED driver which optimized the design of LED lamps by offering a full dimming range of 1% to 100% and also offers 30% reduction in billing materials cost.

This device receive early market acceptance with several knew socket awards for retrofit PAR16 and A40 LED driver opportunities. We also released a backlighting boost controller that is well suited for backlighting TV and monitor applications.

In terms of analog design wins we continue to target large scale consumer products such as flat panel TVs and set-top boxes. In fact, we were awarded more than ten significant design wins across several of the market leading LED television platforms for our products including low dropout regulators, voltage supervisors, load switches and audio amplifiers.

Design win activity was also strong for our Class D audio amplifiers with 15 key new wins in consumer products including televisions, tablets and wireless speakers. In the communications market we saw significant design win activity across a number of product lines including multiple hall sensors, USB power switches, reset supervisors, LDO wins for smartphones, a load switch opportunity for a video phone and a DC-to-DC converter for a new router application.

Also during the quarter we continued to expand our logic product offering with the release of a family of octal CMOS logic functions in space savings, QFN and TSSOP packaging. These devices are well suited for data-lined communications application.

In summary, Diode once again had a solid quarter achieving record revenue and gross profit. We continue to expand our content with customers and secured major design wins in portal, consumer, computing, automotive and industrial applications. In addition, we further executed on our new product initiatives and launched innovative new products and technologies to further establish our leading position across our target markets.

With that I'll open the floor to questions. Operator?

Certainly. (Operator instructions.) Our first question comes from the line of Steve Smigie from Raymond James. Your question please?

Great, thanks a lot guys and congratulations on the record numbers there. Dr. Lu, as I look out to your guidance for the fourth quarter you're down about 4% sequentially at the midpoint, that's in line with the seasonality over the last few years and that compares to other guys with the sell-in that's more like down 8% and so you're in line with seasonal and better than the comps and the comps are below seasonal. I'm just curious if you could talk a little bit about why you're seeing better patterns than competition here?

Well, thank you Steve. You know, we do continue in certain areas to gain the market share, that's really -- and that's really the main reason while we adjust the product mix and we still continue gaining the market share.

Great, thanks. And then as I look at automotive that's been growing as a percentage here, can you talk about what that looks like in terms of growth over the next couple of years relative to the rest of your business and what that does for margins?

Okay, number one, [I think] I mentioned to everybody before, you know, we officially formed the automotive business units last year, okay, in September of last year and that enabled us to put more resources, more focus, in automotive area. That's the reason we are, you know, able to grow significantly in the auto area and we do see [another] design win and especially, you know, automotive ramp up is slower than other market segments and therefore we should see a better growth even better than this years in the auto area so we [will] see a higher growth in next year and, you know, even the year after.

So I think next year we should have a better growth in automotive area than 2014 versus 2013 and our -- we always target at a higher GP percent for automotive product because their requirement is much tougher when I am talking about (inaudible), I am talking about their quality requirement and production requirement and so therefore we would expect automotive to give us a better gross margin business.

Great, thanks a lot. And if I just look at gross margin that's been steadily improving here, can you talk about how that looks into next year? It seems like you're getting better utilization at the BCD [FAB2] and also it seems like as you just referenced with auto the mixes is improving so just talk a little bit about the gross margin trends here?

Well, you know, we have improvement from gross margin from 2013 to 2014 and we'll see that continued improvement going to 2015 and we will expect the same kind of improvement rate in 2015 and especially, you know, we continue in additional yieldizaton, we'll continue to cost reduction and continue to improve our product mix and that product mix including automotive. So product mix, cost adaption and yieldization all three will enable us to continue to improve our GP through 2015.

Our end goal is to try to go to our business model of 35%, that is our business model to go to 35% of the revenue.

All right, thanks a lot Dr. Lu.

Okay, thank you Steve.

Thank you, our next question comes from the line of Christopher Longiaru from Sidoti & Company. Your question please?

-- results?

Yeah, Chris?

Yeah, can you hear us?

Yep.

Okay, so my question sort of has to do with your communications revenue held up in an environment where communications was kind of weak. Can you give us some granularity as to where you saw relative strength and also, you know, what your customers area kind of telling you now in terms of what their expectations are for that business?

Well, Mark, why don't you take this answer?

Okay. No, I think we had some strong new product growth in Q3 that we did not have in Q2 and I thought that in a couple of key customers that we, that our numbers were quite good. So I don't see -- we have one customer on our AC-to-DC side that was a little bit down but outside of that I think we have some new wins and some new position that drove our number relatively strongly in the quarter.

And then just on the auto side, so I think you guys were at something like 3% of revenue for a long time or last on the automotive side and recently it popped up and you showed it could pop up again, how does that, and even though it's a small component it's a big gross margin component, how does that sort of trend in terms of is there going to be big step ups or do you expect this continued gradual 1%, 2% increase per year over the next couple of years, can you give us kind of an outlook on that?

Yeah, I think it's really a long-term plan but I -- you know, it's hard to say because we participate in such, in the highest volume and equipment that are growing fast and so it's hard to predict exactly where and how quickly our revenue will grow in automotive as a percentage but the key is for the first time we're actually developing products specifically for the automotive market and putting teams of people and sales people, as well as business unit people positioned to support that marketplace and it changed the way we approached that market to a very specific strategy.

So, you know, I think that to jump up to 5% is going to take us a period of time to get to jump up to 10% it's going to take us for a really long time but really the progress that we're making, that 3% to 4% area has been great progress for us and the whole positioning of the company within the automotive community is changing a lot.

So I think we just have a lot of momentum in that area. The -- how you'll see it based on the side of it relative to our overall number is hard to predict.

Well what about just in terms of its profile? So normally your parts end up being about a third to two-thirds of the costs are tied to the packaging; is it a similar situation with automotive or is it higher because of the automotive grade packaging, is it lower, can you give us a little relative information on that?

To be honest with you -- do you want to take that Dr. Lu?

yeah, from the cost -- from the manufacturing point of view, you know, they do actually -- you know, if you look at in our business model, you know, wafer or die cost is much than packaging costs and automotive is actually increased in the packaging costs too.

Okay.

So you're going to see some more emphasized in the -- or increase of cost in the packaging but, you know, it's not going to be a big increase. So relative to the -- that's what I should say, that's why we are able to improve the GP for automotive business even the assembly cost is relatively higher.

If I could add, it also has to do with the products we're selecting to sell to automotive. So we're taking -- part of our strategy is to pick a very specific performance parts and focus those into the automotive segment and show different value in that area. So it has to do with the part selection also.

Yeah.

I'm going to jump over, thank you for that, I'm going to jump over to just in terms of BCD, you guys have slowly kind of integrated this and improved your margins. How much of that was a contributing factor to September and I think you had said a couple of quarters ago that you had about 100 to 150 basis points last -- where in progression are you?

Well, I don't know do we answer that or do we have data for that, Rick, can you take over?

Yeah, I don't think we have that data. What we said in the fourth quarter guidance is that there is some capacity utilization issues in BCD wafer fabs in Shanghai. The issue there is that we've been ramping those wafer fabs and we've gotten to a point of enough inventory and so we're toning it down until we can decide exactly which way the markets going to go into the rest of the fourth quarter and the first quarter.

So from the fourth quarter numbers they're a drag rather than being a gain. Over the last several quarters they've been ramping and it's been somewhat of a gain.

Okay, great. I'll jump out, thank you guys.

Okay, thank you.

Thank you, our next question comes from the line of Gary Mobley from Benchmark. Your question please?

Hey Mark and Rick and good morning Dr. Lu. I was hoping that you could share your thoughts on the linearity of bookings as you concluded the third quarter and as we sit here, you know, five weeks into the fourth quarter. I guess what we've been hearing industry wide and especially from companies that participate with pure competition, you know, bookings and shipments in September just didn't live up to normal seasonal strength but what we've heard more recently was some normalization of bookings and shipment trends in October, I guess the first week of November, you know, excluding any sort of impact to seasonality. Is that sort of what you guys have seen as well?

Yeah, I mean I think --

Mark you go ahead.

Go ahead Dr. Lu, go ahead.

Well my answer is yes. I will -- we see, you know, the normal -- that's why in my speech I say, you know, we see the normal similarity and we give a guidance which, you know, like Steve talking about is better than our competitors. And so we don't see any particular weakness or strength, we just see normal marketing and we just concentrate on how do we continue gaining the market, gaining the design win.

Mark, why don't you cover?

Yeah, I mean, I would agree with what you said. I think we're positioning our stuff well and I think we're on track to what we believe we can. It did soften around, in some of the early announcements and then it seemed to pick up a little bit more in the last few weeks.

Okay and it -- that soft conclusions in the third quarter, was that the reason, Rick, why inventories increased sequentially despite your guidance for 4% sequential revenue decline in Q4?

Well I could -- you know, it's particularly on wafer fab in Shanghai, BCD fab. The other fab we do not. Okay, so if you look at the major, our major, our majority of business we do not change the wafer fab loading and wafer fab loading when we ment -- when Rick White mention is only talking about wafer fab in Shanghai which just means BCD wafer fab and that just -- you know, the new fab we have [ramped] it up and we now concentrate -- We are getting enough inventory so we put in a break to holding it and another reason is one of our, you know, major OEM customer,[we do see some, do have some throw down] and so we applied some [break] for the inventory build up or for the wafer fab build up in Shanghai [FAB2].

You also have to remember that the inventory bill was about $6 million, $6 to $7 million and there were about three or four million of just raw material increases in that so although the days went up slightly from 107 to 108, it was focused in the raw material area.

Okay, it's been, I think, just over 18 months since you concluded the BCD acquisition and you've been paying down your bank line to the tune of about $15 million a quarter. So, you know, has enough time lapsed since the acquisition and since you've been able to bolster your balance sheet a bit in that timeframe to where you maybe have an appetite again for some further consolidation of the industry, some more M&A activity, and what is the market environment like for M&A? Are companies out there with realistic valuation expectations?

Well you know M&A always -- one of my growth strategy and so I continue looking for M&A. The problem why we are not able to take action most of them is due to the expectation, the market [poll] expectation. Okay? And so we'll continue and when the opportunity is right then we'll take action.

All right, fair enough. Thank you guys.

Thank you.

Thank you. (Operator instructions.) Our next question comes from the line of Shawn Harrison from Longbow Research. Your question please?

Morning Dr. Lu and afternoon everybody else.

Hi Shawn.

Mark, I guess a question for you, the POS versus POP at distribution and, you know, selling being much less than sell through, is that normal for this time of year? It's been moving around a lot, I'm going back through my notes but I just in terms of what distribution is doing with their inventory, is that normal, are you seeing maybe any abnormal pressure?

I mean, I think towards this part of the year we have, you know, we always have pressure but I think in some cases our distributors did a pretty good job of pre-predicting where they were and I think that they did a better job of positioning inventory in the second quarter than they usually do so I think it -- I was a little surprised by that number also when it first came in but when I looked at the numbers in total there was pretty strong inventory, you know, pretty strong POP in the previous quarter so I think it's a good balancing and, you know, we're really happy about where our inventory is and the cleanliness of our inventory within our channel so I think it's all pretty good. So --

Gotcha. And then I guess Rick on both SG&A and R&A, has it been trending down on dollar basis or I guess trending relatively steady and we had the jump up this quarter. Was there anything within there in terms of specific investments that could pay off in subsequent quarters or what drove kind of the absolute dollar increase quarter-to-quarter?

Yeah, so the offer X in the second quarter was $47 million and it did jump up to $49.7 million in the third quarter but one of the issues there is that we had a gain on the sale of assets in the second quarter of about $1.2 million. So if you take that out then we would have been at $48.5 million, somewhere in that range. And the -- if you look at the increase it's mainly in the R&D area and they're talking about buying mass sets and there's really no increase in spending from a people standpoint so there's really no specific item that's in there that would -- that caused that jump up other than the gain in the second quarter and some increased R&D spending. But the whole goal that we have is to keep reducing this offer X as a percent of revenue as we move forward and we've been, as I've mentioned in my speech, SG&A and R&D's gone down 20 basis points and then 70 basis points from this time last year. So we're still working on that number.

Okay and then final question just --

In addition, let me add an additional, third quarter typically is our salary adjustment quarters, okay? We give the salary adjustment in July, start from July 1 you look at third quarter versus second quarter, typically your salary portion will be increased.

Very helpful Dr. Lu. And then just lastly Rick, you said you have the [FX] gains this quarter, where do you think other income will fall out into the December quarter?

Oh, I think it's going to be more like the interest income and interest expense that I talked about; the currency gains will be where the euro is moving around and the pound is moving around so there will be some adjustment there but I think it's going to be comparable to where we were this quarter.

And where these just gains on hedges you had in place?

No, not gains on hedges and we haven't disclosed where those gains came from so ?-

Gotcha, okay. Thanks a lot and congrats on the results.

Okay.

Thank you.

Thank you, our next question comes from the line of Suji De Silva from Topeka. Your question please?

Dr. Lu, congrats on the record revenues here. In terms of the mixed improvement you described that's going to help offset utilization decline in the fourth quarter, can you talk about in detail where those are coming from because the end market mix is staying relatively -- it's kind of consistent and I'm wondering if that's a sustainable mix improvement you have help as a tailwind in 2015?

Well Mark, do you want to tackle this?

Yeah, I mean, I think we're constantly improving our mix. I think you can look at from our investment strategy that products that we're moving into and the products, the packages, that we're investing with is a constant long-term strategy to improve our mix. So I think you can expect for us to continue on this, in this, direction and improving our mix. I mean, it's a key portion of what we're trying to do.

Okay great, and then if I look at the last two quarters and then the guidance, the year-over-year revenue growth is around 5%. I'm wondering if that's meant to accelerate and, you know, toward what your longer-term target would be and what that target might be relatively -- relative to the 5%?

Mark?

Yeah, I think he's asking our long-term revenue target.

Yeah, relative to the last two quarters Mark, yeah.

Oh, you're talking about -- you're talking about next -- long-term?

Yeah, year-over-year growth Dr. Lu, yep.

Yeah, I think we are more, you know -- we don't know yet but, you know, our business model always try to be two X, you know, of the market growth, okay? And, you know, we still -- I think I mentioned to everybody in our CAGR for the last ten years we are almost at 20% and, you know, half of that will be coming from M&A, the other half will be coming from organic growth. That's roughly our business model and so, you know, next year depend on [if we get] M&A or not so very difficult to say but we will try to grow, out grow, the market. So I cannot tell you next year but the long-term point of view, I think we are looking at much higher growth rate than 5%.

Okay, great. And then last question, what was the [relative utilization] in the fab and the assembly intestine, where are those versus target levels? Thanks.

Okay Rick, you want to echo that question?

Yeah, hang on just a second. Yeah, I've got it right here Keh-Shew. So the assembly task was basically fully loaded, right? So the Shanghai assembly test was above 90%. KFAB has been running about where we've had it in the past three or four quarters so no change there. OFAB has been running very effectively, over 90% and the issue has been with the two Shanghai wafer fabs where they're running lower than where we would like for them to be and that's going to continue in the fourth quarter as well.

Okay, great. Thanks for the color guys.

Okay.

Thank you our next question comes from the line of Tristan Gerra from Baird, your question please?

Hi, good morning Dr. Lu and good afternoon everybody else. First question is regarding the loading so just as a [direct] follow-up to the last question, you've talked about the [FAB1] at BCD having, being, underutilized for some time as you're transitioning or where transitioning loads to [FAB2] which is more efficient. Now, at the time BCD went public the purpose of the IPO at the time was to raise money to build [FAB2] and that was basically expand capacity because [FAB1] at the time was [full]. So just trying to reconcile this, you know, now that we're two years after the acquisition where the [FAB2] loading taking place at the expense of [FAB1] if that's still the case, is any function of BCD revenue not growing in line with expectation, the management team had at the time? If you could just give us a little bit of clarity on that?

Okay. Number one, from the BCD revenue growth, okay, we feel that -- you know, we do see some growth in this year on the BCD and that really is due to, you know, one of their major customer slowdown, okay, OEM customer slowdown and so that, you know, is -- give us some [disappointment] on the growth, okay.

Second is if you are talking about [FAB2], you know, the loading on [FAB2] we are looking at two ways; one if the new product and one is move from [FAB1] to [FAB2] and [FAB1] to [FAB2] basically already completed whatever we want to move in is already move in and then, you know, the new product the design after we consolidate, we start talking the action for any new product need to use in [FAB2] for their design and, you know, you take probably one year to do the design and then you start to do qualification, start to do all of this. So it takes a while for the new product to ramp [it], so we believe -- the management team do believe next year should -- you know, we should see some new product ramp in that area.

Okay, that's very useful. And then I know you're going to provide the China revenue in your filing, in your Q2 filing your China revenue was roughly flat year-over-year and I think that is probably below some of the low teen year-over-year increase that some of your peers, you know, had in China. So maybe that question is related to my first one so now we're excluding the Korea customer or any commentary that could help us reconcile, you know, the market share gains that you're having that seem to be taking place outside of the China region.

You put it in a very tough position, I don't think I should -- I want to -- I can answer that, you know, because, you know, it will be -- I just don't think I want to separate Korean customer versus China customer, versus [you]. What I try -- let me put much Korea [away]. When we look at China our business is from Asia, okay, or you're talking about from China and China actually look at two areas; one is the business they're building for the OEM customer in global, okay, that including U.S., Europe and sometimes including Korea, okay? And that area, U.S. is a strong -- Europe and Korea altogether is not very strong, okay? And that is really we see some of the problem in the first quarter, okay.

And then China internal consumption we see just flat, you know, it's not weaker, it's not stronger. And I think I will stop like that because -- I think that should answer your question.

Okay, no, that's very useful, very much appreciated. And then last quick one, I know you don't provide the mix between discrete and analog but are you able to say whether the mix currently is roughly the same as it was a couple of years ago or whether the mix of analog has changed relative to what it used to be?

Well, it changed with BCD.

It changed with BCD acquisition, that made a big jump up but from then on it's been relatively consistent.

Okay, very good. Thanks again.

Thank you, this does conclude the question and answer session of today's program. I'd like to hand the program back to management for any closing remarks.

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

Thank you ladies and gentlemen for your participation in today's conference. This does conclude the program, you may now disconnect. Good day.