Diodes Incorporated (DIOD) Q4 2021 Earnings Report, Transcript and Summary

00:02 Good afternoon, and welcome to Diodes Incorporated Fourth Quarter and Fiscal 2021 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, Wednesday, February 9, 2022. 00:36 I would now like to turn the call over to Leanne Sievers of the Shelton Group, Investor Relations. Leanne, please go ahead.

00:43 Good afternoon and welcome to Diodes’ fourth quarter and fiscal 2021 financial results conference call. I’m Leanne Sievers, President of Shelton Group, Diodes’ Investor Relations firm. Joining us today are Diodes’ Chairman, President and CEO, Dr. Keh-Shew Lu; Chief Financial Officer, Brett Whitmire; Senior Vice President of Worldwide Sales and Marketing, Emily Yang; Senior Vice President of Business Groups, Gary Yu; and Director of Investor Relations, Gurmeet Dhaliwal. 01:09 Before I turn the call over to Dr. Lu, I’d like to remind our listeners that the results announced today are preliminary as they are subject to the company finalizing its closing procedures and customary quarterly review by the company’s independent registered public accounting firm. As such, these results are unaudited and subject to revision until the company files its Form 10-K for its 2021 fiscal year ending December 31, 2021. 01:34 In addition, the 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 question. Therefore, the company claims a 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, including Forms 10-K and 10-Q. 02:04 In addition, any projections as to the company’s future performance represent management’s estimates as of today, February 9, 2022. Diodes assumes no obligation to update these projections in the future as market conditions may or may not change, except to the extent required by applicable law. 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. 02:36 Also throughout the company’s press release and management statements during this conference call, we refer you 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 90 days in the Investor Relations section of Diodes’ website at www.diodes.com. 02:57 And now I’ll turn the call over to Diodes’ Chairman, President and CEO, Dr. Keh-Shew Lu. Dr. Lu, please go ahead.

03:06 Thank you, Leanne. Welcome everyone and thank you for joining us today. Diodes had a record year in 2021, reflecting sustained execution that consisted of five consecutive quarter of record revenue, as well as seven consecutive quarter of adjusted earnings growth. In fact, full year revenue grew 47% and the gross profit grew 56% with GAAP earning per share expanding 166% and adjusted earnings per share expanding 120%, demonstrating the significant operating leverage in our model. 04:02 Additionally, gross margin expanded 610 basis points from the first quarter of 2021, the first full quarter after completing the LITE-ON Semiconductor acquisition, to the fourth quarter of 2021. This increase was driven by a combination of product mix improvements, manufacturing efficiencies and improved loading. 4:43 Also contributing to our ongoing margin expansion has been the achievement of five consecutive quarter of record Pericom revenue, three consecutive quarters of record industrial revenue as well as six consecutive quarters of record automotive revenue, which grew 59% in 2021 and reached a record 12% of total revenue for the full year. 05:19 With the full year revenue of $1.8 billion and gross profit of $0.7 billion, 2021 represented a significant step toward our 2025 targets of $1 billion in gross profit on $2.5 billion revenue and 40% gross margin. In addition to the manufacturing synergies provided by LSC acquisition over this past years, we expect to realize expanded synergies across our product portfolio, customers and end markets in the coming year to drive additional revenue growth and gross margin expansion. 06:16 With that, let me now turn the call over to Brett to discuss our fourth quarter financial results and our first quarter 2022 guidance in more detail.

06:32 Thanks, Dr. Lu and good afternoon, everyone. As part of my financial review today, I will focus my comments on the sequential change for each of the line items and will refer you to our press release for a more detailed review of our results, as well as the year-over-year comparisons. 06:52 Revenue for the fourth quarter 2021 was a record $480.2 million, an increase of 1.9% from $471.4 million in the third quarter 2021. For the full year 2021, revenue was a record $1.81 billion, an increase of 46.9% from $1.23 billion in the prior year. 07:23 Gross profit for the fourth quarter was also a record at $190.7 million, or a record 39.7% of revenue increasing 5.2% or 130 basis points from $181.2 million or 38.4% of revenue in the third quarter 2021. For the full year, gross profit increased 55.5% to a record $670.4 million or 37.1% from $431.1 million or 35.1% in 2020. 08:10 GAAP operating expenses for the fourth quarter 2021 were $104.7 million or 21.8% of revenue and on a non-GAAP basis were $100.1 million or 20.8% of revenue, which excludes $4.1 million of amortization of acquisition-related intangible asset expenses and $0.6 million of acquisition-related costs. This compares to non-GAAP operating expenses in the prior quarter of $99.6 million or 21.1% of revenue. GAAP operating expenses for the full year were $394.4 million or 21.8% of revenue compared to $296.8 million or 24.1% of revenue in 2020. 09:07 Total other income amounted to approximately $22.8 million for the quarter, consisting of $13.2 million of unrealized gain on investments, a $11.2 million of other income, $788,000 of interest income, $1.1 million in foreign currency losses, and $1.2 million in interest expense. Income before taxes and non-controlling interest in the fourth quarter 2021 was $108.8 million compared to $85.6 million in the previous quarter. 09:46 Turning to income taxes. Our effective income tax rate for the fourth quarter was approximately 39.1%, which includes taxes related to non-GAAP items. On a non-GAAP basis, the tax rate for the fourth quarter was approximately 18.4%. GAAP net income for the fourth quarter 2021 was $65.5 million or a $1.43 per diluted share, compared to GAAP net income of $68.4 million or $1.50 per diluted share in the third quarter 2021. 10:26 Net income per diluted share in the fourth quarter increased a 142% year-over-year from the $0.59 per diluted share in the fourth quarter 2020. The share count used to compute GAAP diluted EPS for the fourth quarter 2021 was 45.9 million shares. GAAP net income for the full year 2021 was a record $228.8 million or $5 per diluted share, a 166% improvement compared to the $1.88 per diluted share or $98.1 million in 2020. 11:11 On a non-GAAP adjusted net income in the fourth quarter was a record $73.3 million or a $1.60 per diluted share, which excluded net of tax $3.3 million of acquisition related intangible asset costs, $0.4 million of acquisition related costs, $13.5 million of costs related to certain LSC investments, and a $9.4 million gain on the sale of a manufacturing subsidiary. This represents an 8.8% improvement from the third quarter 2021 of $1.47 per diluted share or $67.3 million and a 116% improvement from $0.74 per diluted share or $37.3 million in the fourth quarter 2020. 12:08 On a non-GAAP adjusted net income for the full year 2021 was a record $237.2 million or $5.18 per diluted share, a 120% improvement compared to $2.35 per diluted share or $122.7 million in 2020. Excluding share-based compensation expense of $6.5 million for the fourth quarter and $26.2 million for the full year 2021 both GAAP earnings per share, and non-GAAP adjusted EPS would have increased by $0.14 per diluted share for the fourth quarter and $0.57 for the full year. 13:00 EBITDA for the fourth quarter was a record $139 million or 28.9% of revenue compared to $114.5 million or 24.3% of revenue in the prior quarter. On a year-over-year basis, EBITDA increased 107.2% from $67.1 million in the fourth quarter 2020, further highlighting our significant operating improvements over the past year. EBITDA for the full year 2021 increased 82.1% to a record $434.6 million or 24.1% of revenue from $238.6 million or 19.4% in 2020. We have included in our earnings release a reconciliation of GAAP net income to non-GAAP adjusted net income and GAAP net income to EBITDA, which provides additional details. 14:09 Cash flow generated from operations was $77.6 million for the fourth quarter 2021 and $338.5 million for the full year. Free cash flow was $22.5 million for the fourth quarter, which included $55 million for capital expenditures and $197.3 million for the full year, which included $141.2 million of capital expenditures or 7.8% of revenue. Net cash flow in the fourth quarter was a positive $82 million and a positive $46.3 million for the full year, which included a pay-down of approximately $152.6 million of long-term debt during the year. 15:00 Turning to the balance sheet. At the end of fourth quarter, cash, cash equivalents, restricted cash plus short-term investments totaled approximately $373 million. Working capital was $717 million and total debt, including long-term and short-term was $301 million. In terms of inventory, at the end of the fourth quarter, total inventory days increased to approximately 107 in the quarter as compared to 99 last quarter. Finished goods inventory days were 32 compared to 27 last quarter. Total inventory dollars increased $26.5 million to approximately $348.6 million. Total inventory in the quarter consisted of an $18.5 million increase in finished goods, a $15 million increase in raw materials, and a $6.9 million decrease in work in process. Capital expenditures on a cash basis for the fourth quarter 2021 were $55 million or 11.5% of revenue and 7.8% for the full year, which is within our target model of 5% to 9%. 16:17 Now turning to our outlook. For the first quarter 2022, we expect revenue to be approximately $480 million plus or minus 3%, which at the midpoint is better than typical seasonality of down 5%. We expect GAAP gross margin on a consolidated basis to be 39.7% plus or minus 1%. Non-GAAP operating expenses, which are GAAP operating expenses, adjusted for amortization of acquisition-related intangible assets are expected to be approximately 21% of revenue, plus or minus 1%. 16:58 We expect net interest expense to be approximately $1.4 million. Our income tax rate is expected to be 18.4% plus or minus 3% and shares used to calculate, diluted EPS for the first quarter are anticipated to be approximately 46.3 million shares. Please note that purchasing accounting adjustments of $3.3 million after-tax for previous acquisitions is not included in these non-GAAP estimates. 17:28 With that said, I will now turn the call over to Emily Yang.

17:34 Thank you, Brett and good afternoon. As Dr. Lu and Brett mentioned, fourth quarter revenue increased 1.9% quarter-over-quarter, which is better than the midpoint of our guidance due to the continued strong demand and record revenue across all the regions. Distributor inventory in the fourth quarter in terms of weeks increased slightly quarter-over-quarter, which is still below our defined normal range of 11 to 14 weeks. 18:00 Looking at global sales in the fourth quarter, Asia represented 78% of revenue, Europe 13%, and North America 9%. In terms of our end markets, Computing represented 29% of revenue, Industrial 24%, Consumer 19%, communication 16%, and automotive 12% of revenue. We achieved record revenue in the Automotive, Industrial, Communications and Consumer segments. 18:29 Now, let me review the end markets in greater detail. In the automotive market, we continue to expand our strong growth momentum with revenue increasing 37% year-over-year and 59% for the full year to set new records. Since 2013, when we began our expansion initiative into the automotive market, we have achieved an eight-year compounded annual growth rate of 30%. One key to our success has been our content expansion initiatives and design win momentum that has continued across all target application areas, particularly in three focus areas of connected driving, comfort, style and safety and Powertrain. 19:16 Automotive DC-DC 32 Volt and 40 Volt converters, LED switching drivers and SBRs continued to see strong demand for telematics, front and rear LED lighting, daylight raining light and ADAS applications. Similarly linear mode LED driver product would be signed into first responders, emergency lighting system and high efficiency charge from LED drivers has been seeing traction for indicator LED lighting the household EV plugging charging units. 19:47 Newly released LDOs current limit power switches and Pericom product line of Level Shifters, crystal oscillators, buffers and PCI Express clocks are seeing new design wins in ADAS, telematics, anomalous vehicle control units and infotainment system. We are also seeing great success from the high-voltage lens, high-voltage regulators and Omni-polar Hall switching including fans, window lifters, motors, water pumps and door lock applications. 20:20 Additionally trans and voltage suppressors, MOSFETs, gate driver ICs and USB charging controller products are being designed into applications including battery manage system, wireless charger converters in-vehicle USB charging ports. Fast recovering rectifier was also well accepted in electric vehicle key exchanger applications as well as automotive electric intelligent controllers. MOSFET design in motor continued for automotive brush and brushless electric motors applications including power steering, fuel, oil and ABS pumps seats and mirrors. 20:58 Our load capacity ESV and search protection devices are also being designed into applications for protection of in-vehicle network and for the IO core protections of its far view cameras for Advanced Driving Assistance. In the industrial market, revenue increased 43% year-over-year and 46% for the full year to also reach new record. We are continuing to see growth and adoption of DisplayPort HDMI switches and ReDrivers in the commercial display applications. 21:35 Our ultra-fast recovery rectified products and PCI Express Gen 3 packet switch are gaining traction in the artificial intelligence, video analysis electric, 3D sensing camera modules [indiscernible] and security applications. We are also seeing strong demand for application specific multi-chip circuits and standard recovering rectified products driven by multiple applications such as diagnostic test system, brushless DC motor drivers, energy metering, power supplies, smart lighting in electrico-medical applications including automated blood and body flow analyser. 22:15 We have also been pleased with the strong design win momentum for the Lite-On Semiconductor image sensor product line being used in document scanners, lottery bar scanners and PCB inspection applications. Additionally, our ultrafast recovery rectified products bipolar transistors, synchronized controllers and MOSFET continue to gain momentum in power supplies and inverter applications. Medium voltage DC-DC LED drivers has been gaining design wins in smoke detectors and SBR products are expanding in GPS tracking applications which enables real-time location monitoring during the transportation. 22:58 In the computing market, revenue was up 72% year-over-year and 122% for the full year. We're seeing strong tractions for USB Type-C power switches, TVS, high power density Schottky, low voltage Omni-polar Hall sensors, dual output unit holder hall sensors, DC-DC buck converters as well as HDMI 2.0 ReDrivers in the new compute platform including gaming notebooks and workstations. 23:27 Similarly, we are seeing increasing interest for DisplayPort, USB Type-C, HDMI switches and ReDrivers in the docking station, dongles, active cable and keyboard, video, MOS applications. We also continue to see strong demand for SSD MUX, crystal and oscillator product in the enterprise SSD story modules and datacenter server applications. We have several design wins for the universal level shifter product family in various applications including SSD storage, gaming, server, laptop and mobile devices. 24:05 Additionally Lite-On Semiconductor image sensor product continue to gain momentum with new design wins in the scanner and coffee machines. In the consumer market, revenue increased 18% year-over-year and 12% for the full year to also set new record for the quarter and year. Diodes continue to see strong revenue growth of standard recover rectified products and SBR in the consumer applications including digital light projection, LED backlit modules and high efficiency vacuum cleaners. We also have new design wins for USB MUX and bipolar transistors in LED TV and display panels, as well as increasing demand for low power Class C audio amplifiers, SBRs and LED drivers utilizing monitor, Bluetooth speakers, LED lighting, as smart doorbell applications. 24:58 We also continue to see strong momentum for CSP and small PSA MOSFET for IoT and wearable devices as well as high-power density products securing [indiscernible] the home exercise equipment. Mobile phone adaptor generated a strong demand for Diodes fast recovery rectifiers and AC-DC products continue to see growth from quick charging applications. 25:23 Lastly in the Communication market, revenue was also a record and grew 10% year-over-year and 13% for the full year. Design momentum for the Pericom product line continued in this market for our USB MUX and ultra-high voltage protection with 5G CPE application. There has also been growing demand for USB ReDrivers, primarily driven by the USB Type-C applications. Additionally, our small size low saturated transistors continue with design wins across multiple applications from base station, routers, network cameras to doorbells. We saw strong demand for our SBR chip scale package and design wins for high PSR LDO product family in smartphone applications. 26:11 In summary, 2021 was an exceptional year for Diodes both operationally and financially. We achieved strong revenue growth and margin expansion for our total solution sales approach and content expansion initiatives, especially in the automotive, industrial end markets, as well as the Pericom product family. We also successfully integrated Lite-On Semiconductor acquisition and benefited from the manufacturing synergies with additional opportunities for the growth and expansion through the product, customers and end markets synergies that we expect to realize over the coming quarters and years. 26:50 With that, we now open the floor to questions. Operator?

26:55 Thank you. [Operator Instructions] Our first question comes from the line of Matt Ramsay from Cowen. Please go ahead.

27:18 Thank you very much. Good afternoon, everyone. Congrats on the great results, Dr Lu. I wonder if you might provide some commentary over the last, I don't know year and a half or so, the industry has been very supply constrained and you -- your company was fortunate enough to acquire the capacity from Lite-On and did an amazing job and executing and filling that capacity and that's led to some pretty remarkable growth. I wonder as you think about the next year or two in Diode’s growth plan where do you have the opportunity to add more capacity? And how much of the growth are you thinking coming from pricing versus units versus additional capacity? Thanks.

28:06 Okay. So I just answer several of your question. Okay. First, you are talking about how much is the growth coming from price increase and how much is coming from revenue growth, okay or the capacity expansions. So we did not really separate that number very clearly, but we only increase the price based on our wafer or our cost of material increase. So we retract the material increase to our customer only, but we take additional opportunity, by you know greater support customer to asking them to give us more design opportunity. So some of that area, our customer -- would not allow us to touch in the past. Now with this and of great support to our customer, we can demand or ask them to open up the design in opportunity for us. And so that is what we are doing today and using the capacity constrains to always advantage of open up more features opportunity. 29:41 Now you are talking about the future growth then, we have our expect two 8 inch. We just on both ramp it up to fully loading by December last year, if you'd listen to what we have been talking about last year the whole year we ramp up that expect to. So this year that would be fully loaded, okay? So another is our GFAB, if you remember we bought that GFAB back to 2019. And we are committed to the originally owner whose component for five years. And that every year they would use load-in to us 10% and so we greatly glorified our production or our technology, our product into the GFAB and so we actually have additional capacity by original owner requirement use. And so we are able to take that opportunity to give us more capacity for the growth. And this will continue because they're going to be -- their demand going to go down and we continue to ramp it up. At the same time if we still need more than that we can -- they still have enough capacity we can bring that capacity or bring that load-in even higher because the time we bought that, we said they are fully loaded. But in the wafer fab definition when we say fully loaded is 80%. And if you look at some of our wafer fab is already up to 100% or 95%. So we still have more room in the GFAB to give us additional growth. Then we are -- our supplier other external effects with our relationship we still can continue asking for I think, be more every quarter or here, there to get a little bit more. So we still believe we have enough capacity to support our growth in this year or next year. And then when the demand start loosen up, we can take the opportunity to continue our growth path.

33:09 All right. And then on top of that, Matt. We also will continue to drive the product mix improvement. So we want to focus to better utilize available capacity to support better business as well.

33:21 Got it. Thank you both for the commentary there. As my follow-up question, I guess, I'd be remiss to not mention that you're bumping right up against your long-term 40% gross margin target. I think your run rate of revenue slightly under $2 billion and you were planning to hit 40%, that $2.5 billion in revenue. So if you could just kind of walk me through the puts and takes on gross margin as we go forward. Is that kind of a new floor of margin and sustainable, and what are the incremental margin drivers as you add that additional $500 million in revenue towards the target model? Thank you.

34:05 Well, really what we are looking for $1 billion gross profit, okay. And when I said that is really is the goal $1 billion gross profit because that fall through to the EPS so that is really to goal. Now, when I say $1 billion gross profit that we say, how do we make it, then we say $2.5 billion revenue, 40% GP to make up that $1 billion. And if our gross margin can be [indiscernible]. We are not too -- we continue improve our gross margin and we get the result 2.5 billion so we will achieved that goal earlier. Then after that then we'll start to get to our next target, but I'm not ready to announce that next target yet, but we are quite close to the target of $1 billion gross profit.

35:30 Got it. Thank you. I'll get back in the queue. Congratulations on the progress.

35:33Thank you.

Thank you. I show our next question comes from the line of William Stein from Truist Securities. Please go ahead.

35:42 Great. Thanks for taking my question. I'll add my congratulations, especially to the outlook, but both the results and outlook are great. I have a question about the guidance by end market. Normally, Q1 is down a little bit and I think the end markets they tend to do that or the -- I think what you call the three Cs right consumer, comps and communications. I think those are typically down sequentially well, industrial and automotive are typically up a little bit. So if we think about the delta or the difference in this Q1? Is it more spread across all end markets that they're all going to do a little better than typically or is it more that you're going to see sequential growth a little bit in each of the end markets or some, or is there some different explanation?

36:40 Okay. William, hi. This is Emily. So I think overall what we are seeing is actually strength across all the end market. I think all-in-all, we have really strong demand and, if we look down to the specific segments. So for example, automotive we actually have a full-year growth of 59%. We see that momentum continues. And for the industrial, we are also seeing a lot of growth like 46% for the full year. And again a lot of design in pipeline continue to grow. On the computer t side where we talk about the low-end PC, there is definitely a little bit softness. But we are also seeing strength on the cloud computing as [indiscernible] kind of balance itself. 37:24 On the consumer side, you are right. Absolutely, Q1 usually is not a super strong quarter and we definitely see a little bit softness, I would say more from the China consumer side, but again we have a lot of overall other demands, whether it's home care or some other consumer applications that we continue to see the strength right. 37:43 On the communication side, I think there is a lot of news about the smartphone, softness a little bit in China, but since we have a very well diversified into all the Tier 1 smartphone manufacturer that we actually are seeing, not that much of the impact to the overall Diodes. So I would say all in all, 5G continue to drive a lot of momentum, not just on the base stations, but 5G related applications. So yeah, I would say all in all, still very, very strong.

38:16 And my follow-up if I can, I think I saw an announcement recently about Diodes dipping its toe into silicon carbide development. Can you maybe clarify what you envision? Well, first, what capabilities you're developing and what market or opportunity you believe you'll be able to address? Thank you.

38:45 Okay. This is Gary. And we are -- and nice to talk to you and actually, [indiscernible] development, we've been starting with this time part of a year ago and we see that’s as a very strong trend from the market. And we have our design team in-house and we do our wafer design and we use our design using outside fabrication to the wafer and particularly that [indiscernible] carbon we are using, we export the automotive related part like to OBC, On Board Charger like our micro EV and the inverter and it’s OBC news we have for that the dial set, that’s the JV joint venture activity that we have with the [indiscernible] with that technology that we have put into a module, module go to the inverter, and those inverter going to the electronic vehicles motor and that's the area we're going to focus on.

39:38 Any revenue to discuss in that area yet or is it all.

39:41 No, not yet. Our engineering is simple, it should be deliberate by end of this year and that we are looking forward because automotive related, probably one year or little bit longer and we are looking for probably the first revenue going to come in probably the middle of next year.

40:00 Great. Thank you. Congrats again.

40:01 No problem.

40:04 Thank you. I show our next question comes from the line of Gary Mobley from Wells Fargo Securities. Please go ahead.

40:11Good afternoon, everybody. Thanks for taking my question and congrats to a strong 2021 and a good start to the current calendar year. I wanted to ask about your manufacturing footprint in China. I realize the majority of your employees are based in China. So have you seen any impact on your production facilities past or present or maybe in the future from China's COVID zero policy?

40:39 Well, let me answer this one. Actually, our wafer FAB majority of wafer FAB internally is not in China, okay. And we have external but in total, we -- in the GFAB and [indiscernible] in Europe and they always see the wafer FAB in Taiwan. So today in China, we only have – expect two, okay. So we don't have majorities in our date. Now for extemporary yes but virtually we -- the two major site is in Shanghai which don't have that big problem on COVID-19 and Gen 2 again in Central Park that the China government is very, very careful too. So we don't see the problem due to COVID-19. And actually its helping us because, for example, you typically every year during the Chinese New Year, we are going to have shut down and because a lot of worker going the go home for the Chinese New Year. So Diode in the Chinese New Year that month our productivity or our production is actually slow down. That's why one of the reason we have this is in the early in 1Q, where we cannot get enough output, but this year, like last year, the China government actually encouraged the people don’t go home. Stay in the local and either pack off or continue working, okay. So because of that this year our output effected by Chinese New Year is not that's great or that critical. And therefore, we are able to support our domain still not enough, but we are able to support. So therefore we have guide our 4Q -- our 1Q revenue Fred (ph) from 4Q for our output is not really going to slow down that much. At the same time, we do build some inventory in 4Q, try to get support for 1Q. So overall, we do not really effect many [indiscernible] by COVID-19 effect in China, but actually we are better than in the pace is due to the offer, do not really go home.

44:15 Got it. Appreciate the color there, Dr Lu. And I have a couple of follow-ups for Emily perhaps normally Q1 is down 5%, but I presume that you're going to have a better than seasonal Q1 because perhaps you're having, getting an opportunity to replenish distributor inventory. In related to that, would you expect to be back up in the normal 11 to 13-week range. And is there any way to quantify, excuse me, quantify the impact of your competitors, one in particular that is exiting few hundred million dollars last year and the next year in some product categories that you directly compete it? Thank you.

45:04 All right. So I think Gary, with like Dr. mentioned better than -- maybe a little bit better than expected output in Q1 that's the reason we provide a slight guidance which you are absolute right. This is usually about 5% down the quarter, right. So what we do, we feel aggressively working with all the customers closely and review all the opportunities in front of us, right. So if this is a right fit for the overall Diodes growth and further into our overall strategy, we aggressively pursue. And like I mentioned earlier, any time there is some strategic change from my peers or merger and acquisition always create a more opportunity for Diodes to pursue after it right. But again we are not just likely going after every business, we really more focused on strategic good business that will continue to drive our product mix improvement as well as total solution sales strategy that we initiatives few years ago, right.

46:11 Got it. And the impact from one of your competitors exiting the market?

46:17 I think it's really hard to really say how big or how small the impact. I also think, one of my peer publish a lot of statements, but there's also others may be didn't really that local, but also making changes. So again we monitor all this very closely as long as long as fit into our long-term plan, as long as that's going to help us to achieve the $1 billion gross profit after Lu mentioned earlier with definitely aggressively going after it.

46:50 Thanks, Emily.

46:55 Thank you. I show our next question comes from the line of Tristan Gerra from Baird. Please go ahead.

47:01 Hi, guys. Quick question on the gross margin trajectory for the next few quarters for this year. What's going to be the mix component versus further fixed cost absorption. It sounds like you have room to further expand utilization rates. So how should we put that in the mix in terms of margin expanding this year?

47:29 Well, I think -- yeah. So maybe let me make a comment and Dr. Lu and some others maybe you can add some more. I think the margin improvement is really consists of few things and they all very important, right. One of the biggest one is product mix improvement and we've been talking about this for a while. So we will continue to drive. This is really more from the total solution sales replacing some of the legacy start with some of the newer products with better margin, better ASP as well. And we believe this is actually just the beginning of this whole initiative. And this is actually something we established probably about two, three years ago and we continue to drive for improvement. 48:11 I think manufacturing efficiency improvement has always been the strength for Diodes. And like, Dr. Lu mentioned, we'll continue to add additional capacities. This can be even adding more equipment within existing life or replacing some of the old equipment with a new one, expanding to 4-inch to 6-inch or stuff like that. So that will continue to drive some of the capacity improvements. And in result that will continue to drive our manufacturing [indiscernible] and continue to improve our cost, right. 48:45And then we also have a Lite-On Semiconductor synergies that I talked about. So we start seeing the benefit of the manufacturing synergy, but they are still customer synergy, end market synergy and markets synergy and products synergy, that we can actually continue to see benefit over the next few years. So I would say all in all this is few areas it will continue to help us to drive the margin. And just like Dr. Lu mentioned we definitely not going to stop at 39.7% or 40% and this is continued direction and we definitely want to continue to deliver the results to you guys as well.

49:28 Okay. Great. And then from a follow-up, it's going to be about inventories in the channel. So you've mentioned that you, you mentioned the well-advertised slowdown in China [indiscernible] that you're also very diversified. So, are you seeing any pockets of inventories in the supply chain outside of this that you could point out despite that diversification? And then also, are you seeing inventory rebalancing because of the high level of work in process inventories. So, are you seeing some customers basically choosing and picking what they're going to order because they can close the books, so you're kind of waiting for that last component?

50:15 Yeah. I think Tristan, overall, we are still seeing the channel inventory very lean. So either we see a very slightly increase in our channel inventory end of Q4, that's actually driven by some of the support for the Chinese New Year customers and also the timing of the shipments. But all in all, still extremely lean. I think, Gary asked the question, I probably didn't address it, it is actually do we expect, back to the 11 to the 13 weeks or 14 weeks that we define as a normal range. We don't really expect return to that normal range in a short period of time. So we believe that with all the visibility that we have, with all the customers that we actually have a direct communication with. So far no one have an opportunity to view up a lot of inventory on the shelf at this moment. So I believe that that will continue for a few quarters to come and we'll continue to monitor very closely. That's pretty much apply to all the Tier 1 Tier 2 as that we have a direct contact. And then with the Tier 3 Tier 4 customers we actually monitor very closely with each of our Distributors partner and that they also monitor very closely and so we definitely don't see that as an issue at this moment.

51:35 Great. Thank you very much.

51:39 Thank you. [Operator Instructions] I show our next question comes from the line of David Williams from Benchmark. Please go ahead.

51:57 Hey. Good afternoon and thanks. Let me ask the question. So, I apologize I jumped on a little bit late, but Dr. Lu, I wanted to ask you've been through a lot of these cycles, and we've talked about in the past, but just kind of curious how you're seeing the landscape today and how you think maybe the, it seems like that the channel inventory still remain extremely lean but always tends to be that we've got excess through the, through the supply chain. Do you think, do you feel pretty comfortable today that there really isn't maybe some excesses that are kind of building up within that channel that just maybe aren't being seen aren't as visible. And do you think there is even an opportunity for that to happen I guess kind of given the demand and where that the level that’s been?

52:42 Yes. You are right, I have been in [indiscernible] for long time and I go through 1970, ‘80, 1990 up and downcycles. It also -- I'm familiar with that. But if I going to say, this year this cycle is really different from the previous cycles, okay. In previous always the man continue an extension for the capacity behind and then orders that you get a shortage. Then people the wait until they cannot stand then they go to exceed the capacity. Then the problem is the deal time of the equipment take a long time. So the time they get capacity there and everybody get it at the same time that all of certain you get overcapacity. Then everything go down and then go to the down cycle. So if you took a, it's a timing issue of the capacity improvement and that's why, if you remember several years ago what we, our strategies put in capacity ahead of the demand. So build in (ph) the downtime you actually exceed the capacity, because daytime is – the common daytime is. 54:34 Now this time that's what we're able to grow this year or 2021 much better and 2020 is because we ramp up SFAB2 at a time. We get LSC ahead of time and then we get GFAB even one or two years before the shortage. So we prepared for all this one and all these shortage and that's what we are able to take the advantage of deals, but now if you're talking about move forward, I think the move forward still have shown because you don't see the many of people, it's capacity that crazy, okay. Everybody [indiscernible] to hit in the capacity. So I don't, I think this shortage will be continue at least this year. Now you are going to start to boost it up but [indiscernible] demand actually continue increase ahead of more than in the past and so long. How we see that mid-man going to continue very strong. And then the capacity increase gradually catch up with the demand.

56:21 Okay. Good, Definitely, great in though. I certainly appreciate it. And then maybe. one other one here for Emily. But you've had some really nice growth in the automotive side and that's been a fairly diversified I guess application area across the different areas of the vehicle. But when you think about, your maybe I sort of traditional vehicle versus the EV how does, how do you think that split looks like maybe this year and, or even in ‘21. Are you seeing much adoption within the EV space now or is that primarily still driven by the traditional? And then how do you think that mix kind of shakes as we go into maybe the next 12 to 18 months or do you see the demand in EV and kind of the pull-through and it doesn't happen fairly quickly for you all in terms of seeing that reflected within your revenue base.

57:12 Right. So I think the EV volume increases definitely real right. I think there is a lot of data and public company that we can refer to their ARPU unit increase and expect expectations for 2020 growth, 2022 growth as well as 2023. So there is also a lot of new start up or any of the Tier 1 traditional manufacturing are all working on some sort of EV applications. So we think that's real, there is a lot of opportunity for Diodes continue to expand and continue to grow in this area. So this is actually volume increase, as well as content expansion increase for us. 57:50 On the traditional side, what we really focus on there is also a lot of comfort style safety. We are talking about, the number of lightings, number of cameras I talk about brushless DC motors and all this additional content expansion for us to go after. So we really growing. I would say both from traditional, I mean traditional vehicles as well as the EV vehicles right. So if you remember the three areas, we focus on is electrification that copper EV the high breaks, right or the other battery management system. 58:25 And then we also talk about the comfort, safety and style as well as connectivity. This is actually for the ADAS, the Telematic and infotainment system. So I would say all in all, applies to both. And the good news for Diodes as we continue to have a lot of momentum and continue to have a lot of opportunity in front of us. And with our new product introduction we are very confident that we'll continue to drive a very strong momentum in the automotive growth, which you should be and we have been demonstrated stronger than the overall market right. So if we look at the track record from 2013 till 2021, we actually have a compound annual growth rate of 30% and that will continue to be the focus for Diodes. And so we would definitely ready.

59:19 Great. Thanks so much. Certainly, appreciate the help.

59:23 Thank you. I'm showing no further questions in the queue. At this time, I'd like to turn the call back over to Dr. Lu for any closing remarks.

59:33 Thank you for your participation on today's call. Operator, you may now disconnect. Yes.