Diodes Earnings Beat Estimates, Rev Up

Zacks

Diodes Inc. (DIOD) reported second-quarter 2013 earnings per share of 33 cents, above the Zacks Consensus Estimate of 26 cents per share.

Revenues

The company reported revenues of $214.4 million, up 21.1% sequentially and 34.7% year over year and within management’s revised guidance of $210–$218 million. The increase was due to design win momentum and new product initiatives, combined with the contribution from the acquisition of BCD Semiconductor (completed on Mar 5, 2013).

Margins

Reported gross margin for the quarter was 28.6%, up 280 basis points (bps) year over year. The increase was due to a more favorable product mix, copper wire conversion and cost reduction efforts.

Operating expenses (SG&A and R&D) of $47.2 million were up 43.0% from $33.0 million in the year-ago quarter. The reported operating margin was 4.8%, down 40 bps from the year-ago quarter margin of 5.2%. Both selling, general and administrative (SG&A) and research and development (R&D) expenses increased as a percentage of sales.

The quarter’s GAAP net income was $8.6 million or earnings per share of 18 cents compared with $6.7 million or 14 cents in the year-ago quarter. Excluding special items but including stock-based compensation expenses, adjusted net income was $15.5 million or earnings per share of 33 cents compared with $6.4 million or 14 cents a share in the year-ago quarter.

Balance Sheet

The company ended the second quarter with cash and short-term investments balance of $213.5 million, up from $200.2 million in the prior quarter. Trade receivables were $181.9 million, up from $172.2 million in the prior quarter. Inventories were $186.8 million, up from $182.2 million in the prior quarter. Inventory days decreased to 110 from 115 days in the last quarter.

Long term debt was $209.3 million versus $213.8 million in the prior quarter.

During the quarter, cash flow from operations was $29.8 million, capital expenditure was $8.1 million and free cash flow was $22.0 million.

Guidance

For the third quarter of 2013, Diodes expects total revenue in the range of $220–$230 million, representing a sequential increase of 3%-7%. On a GAAP basis, gross margins are expected to be 30.3% (+/-2%).

The company expects GAAP operating expenses to be 22.5% (+/-1%) of revenues and non-GAAP operating expenses to be 21.0% (+/-1%) of revenues. Income tax rate is expected in the range of 18% to 24% and shares used to calculate GAAP EPS are expected to be approximately 48.3 million.

Conclusion

Diodes, a leading provider of discrete, analog and logic semiconductors, reported a decent second quarter with earnings exceeding the Zacks Consensus Estimate.

Management also gave a strong third quarter guidance, which indicates improving demand visibility. In the last quarter, the company witnessed strength in Asia and increased its market share.

Management stated that the integration of BCD has been progressing well and the transition is expected to be completed by the end of the first quarter 2014. We believe that the company’s new products, continuous design wins and contribution from BCD Semiconductor will drive growth in the long run.

Currently, Diodes has a Zacks Rank #1 (Strong Buy). Other stocks that are performing well at current levels include SanDisk (SNDK), Syntel Inc. (SYNT), and Gartner Inc. (IT), all carrying a Zacks Rank #1 (Strong Buy).
 

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