Diodes Incorporated (DIOD) Q3 2022 Earnings Report, Transcript and Summary

Good afternoon, and welcome to Diodes Incorporated Third Quarter 2022 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, Monday, November 7, 2022. 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 2022 financial results conference call. I’m Leanne Sievers, President of Shelton Group, Diodes Investor Relations firm. Joining us today from Taiwan 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. 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-Q for its 2022 fiscal quarter ending September 30, 2022. In addition, 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, including Forms 10-K and 10-Q. In addition, any projections as to the company’s future performance represent management’s estimates as of today, November 7, 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. 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 90 days in the Investor Relations section of Diodes website at www.diodes.com. And now, I’ll turn the call over to Diodes Chairman, President and CEO, Dr. Keh-Shew Lu. Dr. Lu, please go ahead.

Thank you, Leanne. Welcome, everyone, and thank you for joining us today. I am very pleased to be reporting today, our fifth consecutive quarter of record gross margin and the seventh consecutive quarter of record adjusted earnings per share and earning. Our record result were driven by outstanding execution by the team, especially considering the COVID related lockdown and the power outage in certain regions of China for part of the quarter also contributing to our strong performance was the achievement of greater revenue in our automotive and industrial end markets that together totaled 44% of product revenue, which is four percentage points above our 2025 target model and above 40% of the third consecutive quarters. Diodes’ automotive business represented 16% of product revenue for the first time reflecting the ongoing success of our customer and context pension initiative as well as share gain in these end markets. Over the past several quarters, Diode has consistently proved its ability to execute during one of the most challenging supply chain environments that the industry has experienced, and was still able to deliver multiple consecutive quarter of greater results, expanded margin and increased profitability. When looking back over the past two years, our revenue have gone 68%. Gross margin expanded 590 basis points and adjusted earnings per share increased over 220% growth achievements [Indiscernible] Diode consistent operator through diversified business and economic empowerment. We are on our way to our 2025 financial target of 2.5 billion in revenue and $1 billion in gross profit. With that, let me now turn the call over to Brett to discuss our third quarter financial results and our fourth quarter 2022 guidance in more detail.

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 we’d refer you to our press release for a more detailed review of our results as well as the year-over-year comparisons. Revenue for the third quarter 2022 was a record $521.3 million, an increase of 4.1% from $501 million in the second quarter 2022. Gross profit for the third quarter was also a record at $217.8 million, representing a record 41.8% of revenue increasing 5.5% or 60 basis points from $206.5 million or 41.2% of revenue in the second quarter 2022. GAAP operating expenses for the third quarter 2022 were $105.4 million or 20.2% of revenue, and on a non-GAAP basis were $101.3 million or 19.4% of revenue, which excludes $3.9 million of amortization of acquisition related intangible asset expenses, and $0.1 million of acquisition related costs. This compares to non-GAAP operating expenses in the prior quarter of $99.7 million or 19.9% of revenue. Total other expense amounted to approximately $3.3 million for the quarter, consisting of 2.6 million of unrealized loss on investments, 2.7 million and interest expense and a $1 million foreign currency loss, 2.2 million of other income and 862,000 of interest income. Income before taxes and non-controlling interest in the third quarter 2022 was $109.1 million compared to 101.2 million in the previous quarter. Turning to income taxes. Our effective income tax rate for the third quarter was approximately 18.5%. GAAP net income for the third quarter 2022 was a record $86.4 million or $1.88 per diluted share compared to GAAP net income of $80.2 million or $1.75 per diluted share in second quarter 2022. GAAP earnings per share in the quarter increased 25.3% year-over-year from $1.50 per diluted share in the third quarter 2021. Share count used to compute GAAP diluted EPS for the third quarter 2022 was 46 million shares. Non-GAAP adjusted net income in the third quarter was a record $92.2 million or $2 per diluted share which excluded net of tax 3.2 million of acquisition related intangible asset costs, 2.1 million in non-cash marked to market investment adjustments, 0.1 million of acquisition related costs and a 0.4 million gain on sale of investments. This represents a 5.3% improvement from last quarter of $1.90 per diluted share, or $86.9 million and a 36.1% improvement from $1.47 per diluted share or $67.3 million in third quarter 2021. Excluding non-cash share based compensation expense of $8.1 million net of tax for third quarter both GAAP earnings per share and non-GAAP adjusted EPS would have increased by $0.18 per diluted share for the third quarter. EBITDA for the third quarter was a record $141.9 million or 27.2% of revenue compared to $130.6 million, or 26% of revenue in the prior quarter. On a year-over-year basis EBITDA increased 23.9% from $114.5 million in the third quarter 2021 highlighting our continued improvements over the past year. 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. Cash flow generated from operations was $132.2 million for the third quarter 2022. Free cash flow was $62.4 million, which included $69.8 million for capital expenditures. Net cash flow was a positive $78.3 million. Turning to the balance sheet at the end of third quarter cash, cash equivalents, restricted cash plus short term investments totaled approximately $393 million. Working capital was $765 million and total debt including long term and short term was $296 million. In terms of inventory at the end of third quarter, total inventory days were approximately 113 as compared to 115 last quarter. Finished goods inventory days were 32, which was flat to 32 last quarter. Total inventory dollars increased $3.5 million from the prior quarter to approximately $374.8 million. Total inventory in the quarter consisted of a $8.3 million increase in finished goods, a $6.7 million increase in raw materials and an $11.5 million decrease in work in process. Capital expenditures on a cash basis were $69.8 million for the third quarter and for the first nine months approximately $148 million or 9.8% of revenue. The year-to-date CapEx is higher than our target model due to our assembly test and wafer fab capacity expansions. But we still expect to be within our target model of 5% to 9% for the full year. Now turning to our outlook. For the fourth quarter of 2022 we expect revenue to be approximately $494 million plus or minus 3% in line with typical seasonality. GAAP gross margin is expected to be 41.0% 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 21.0% of revenue plus or minus 1%. We expect net interest expense to be approximately $4 million, our income tax rate is expected to be 19% plus or minus 3% and shares used to calculate EPS for the fourth quarter are anticipated to be approximately 46.5 million. Not included in these non-GAAP estimates is amortization of 3.2 million after tax for previous acquisitions. With that said, I will now turn the call over to Emily Yang.

Thank you Brett and good afternoon. In the third quarter revenue increased 4.1% sequentially reflecting our achievement of record revenue in the automotive industrial end markets. That’s also contributed to record revenue in North America and Europe. Additionally, our POS revenue with a record distributor inventory in terms of weeks increased slightly quarter-over-quarter and is within our defined normal range of 11 to 14 weeks. Overall demand and backlog remain strong across all regions. Looking at global sales in the third quarter. Asia represented 73% of revenue, Europe 15% and North America 12%. In terms of our end markets, industrial represented 28% of Diodes’s product revenue, computing 23%, consumer 18%, communication 15% and our automotive end market reached a record 16% of product revenue. Our automotive and industrial end markets combined total 44% of product revenue, which is 4% point above our 2025 target and above 40% for the third consecutive quarter. Now, let me review the end market in greater detail. Beginning with automotive, revenue increased 48% year-over-year and 17% sequentially to set other quarterly record which is a nine consecutive quarters. Our consistent growth has been driven by our ongoing demand creation efforts as well as market share gains. In connected driving which consists of ADAS telematics and infotainment systems. We continue to see increased interest for USB type C drivers in the rear seat entertainment and smart cockpit applications. Also our video switches from EP, DisplayPort and USB 3.0 and our USB signal and analog switches are also winning the sizing ADAD, infotainment and smart card applications. Our DC/PC converter, CMOs LDLs, switching diodes, power switches and diode controllers experienced strong demand as well. With comfort, style and safety, we secured increasing designs for our DC/DC converters, bipolar transistors and LED drivers exterior LED lighting along with our booster controllers, LED drivers and Diodes for interior and exterior lighting, electrification and mobility systems. During the quarter, our gateway for IC were designed into wireless chargers. While our low voltage MOSFET were designed for automotive USB car chargers and power source load switch applications. In addition, our operational amplifiers were designed into onboard chargers, DC/DC converters, battery management system, pump, airbags, position sensors and occupancy detection systems. In powertrain which covers conventional hybrid electric vehicles, we secure increasing designs for automotive IO extenders, so EV central control unit, as well as the design wings for our bipolar power transistors and Zener diodes in the power modules, a electrification system. Additionally, our TVS devices experienced strong enough for EV battery protection, DC fan motor controllers, generators and starter applications. We also saw solid demand in automatic transmission and power train applications as we added seven new automotive grade products to our protection portfolio. In the industrial end market revenue reached other record and grew approximately 30% year-over-year and 6% sequentially, representing a sixth consecutive quarter of growth. Our PCI Express 2.0, 3.0 packet switches and SBR product were designed into multiple power over Ethernet adapters for security and civilians applications which is an area that HDMI 6 gigabit per second and 12 gigabit per second read drivers also being used as well. We also saw healthy demand from our gate drive for IC, TVS diode Zener diodes, DC/DC Buck converters, LED drivers, linear regulators and MOSFET products in various applications like energy storage, power distribution system, DC fan, power supply, air conditioner and oil pump applications. Also our [Indiscernible] product families continue to enjoy solid demand from the power to an E-meter application. We also continue to see strong demand for application specific multichip circuit industrial lighting and blood glucose monitoring system. In the computing market, although the PC and crumble market was soft, We continue to focus on Cloud Servers storage and SSD applications. As I mentioned last quarter, our ability to quickly adjust our support from slowing market so high demand market segment is a strong testament to our team’s execution, and also has been a contributor to our consistent growth. In terms of design wins during the quarter, we continue to secure designs for our USB single switches in the enterprise SSD application, as well as new wings for SM bus, shifters family, in cloud products. Our customized Zener diodes product also being used in cloud computing platforms. We also remain well-positioned to support cloud computing and data center customers with a complete timing offering, including crystal, oscillators, PCI Express clock generators, and PCI Express clock buffers. Also during the quarter, we continue to see adoption of our embedded DisplayPort read drivers and [Indiscernible] in gaming mobile applications. And our newly released PCI Express 5.0 and now able to support for 6, 8and 12 outputs. Lastly, our current limit power switches continue to see solid uptake from USB A and USB C power source application signal both desktop and docking stations. In the communication market, our SPR CSP products continue to gain traction in the low Earth orbit as 5G applications and products are being the sign into 5G WiFi application. Diode switching Zener diodes also continue to gain momentum in the mobile phone centers for various applications including peripherals such as quick chargers. And finally in consumer market, we continue to drive increase adoption of our HDMI 6 gigabits per second and 12 gigabit per second read drivers and display port HDMI switches in projectors and digital still camera applications. While our DC/DC buck converters and audio amplifier also have solid demand from home appliance market for monitor and interactive storytelling devices. We also continue to gain traction for our current limit power switches, and USB C power delivery controllers from USB power applications in gaming consoles and smart speakers and our LV MOSFET CSP and LED drivers won several design wearables and portable devices like health, sport watches, wireless earphones and keyboards. In summary, with achievement of our seventh consecutive quarter of record results, Diode continues to prove our ability to consistently execute and quickly adjust our support from slowing end market to high demand market segments. Additionally, the ongoing success of our customer and content expansion initiatives as well as share gains in both the automotive industrial market has greatly increased our revenue contribution and mix, which has also contributed to our consistent margin improvement. We believe we’re well-positioned to continue driving future growth and expansion towards our 2025 targets of 2.5 billion in revenue, a $1 billion in gross profit. With that we now open the floor to questions. Operator?

We will now begin the question and answer session. [Operator Instructions] And our first question will come from Matt Ramsay of Cowen. Please go ahead.

Thanks for taking my question. And congrats on the awesome results. I wanted to ask a little bit about your end markets. I mean, we’ve seen all through this earnings season consumer and computing from your peers has come in weaker and there are some signs of industrial softening, but your results don’t seem to indicate that on the industrial side. Can you just help us understand what you’re seeing in industrial and in particular, how good you feel about visibility into that market the next couple quarters and what you’re seeing in the channel? Thank you.

For industrial overall, the backlog and everything still seems a lot of strength overall. We do see some specific applications or specific devices that adjusting a little bit forecasts here and there. But if you take the overall picture it’s still strong. And from the visibility point of view, we still have pretty good backlog in place that we, not definitely seeing a significant change overall.

And I just want to ask about geopolitics a little bit. I know you guys have a pretty material footprint over in China and your products, and your manufacturing shouldn’t fall under any of the restrictions as they’re written now, but I guess, are you anticipating any future potential disruptions? Or, I guess, how are you thinking about potential risks, because we’ve seen some ancillary disruptions across the supply chain, as there’s been more of a crackdown in China and whatnot. Thank you.

May I, actually, we have been doing well during last this year. When China have different area of the lockdown down. And so we know how to handle it. And so far, you can see our operation. Second quarter, in Shanghai area, they have lockdown for two months and we see, okay, and even the third quarter, and we have, again, the COVID-19 shutdown problem, but we still able to move some of the operation to Shanghai to support the CNT for almost one month of the shutdown. So we know how to handle these different locations, the operational shutdown, we call close loop operation. And we are able to move around our operation from center to Shanghai or reverse or even moves to some other area. So I really not put too much concern in this area.

Our next question comes from Gary Mobley of Wells Fargo Securities. Please go ahead.

Hello, everybody. Thanks for taking my question. I want to double click on your response. Dr. Lu related to how your business over in China, amidst a backdrop of a bunch of COVID lock downs. I understand that you’re able to operate those facilities in Chengdu and Shanghai using that closed loop working environment that seems to be from what we’re hearing over here in the U.S. that there seems to be a bit of an employee backlash at least in some parts of the country. So I’m curious to know how you’re, managing that. And, well, let’s just start with there.

Well, maybe Gary, let me make a comment first, right. So when and what’s going to happen next is something hard to predict. The market overall, the situation in China still pretty dynamic, right? I think Dr. Lu’s point is with our experience in the expertise in the manufacturing side and how to operate during the crisis, I think definitely gives us confidence that no matter what’s going to happen next, we’ll be able to adjust our strategy and our solution to best support the customer. So I think that’s pretty much we don’t know what’s going to happen next. But I think we’re ready whatever is going to happen.

Emily. Just a couple of follow up questions. Any notable change in customer order lead times, whether that be overall or by market where they’re still long. And then as well, I wanted to ask, how truly fungible is your manufacturing capacity whereby you can reallocate manufacturing for end markets and still remain strong? Is that truly possible end markets like automotive where you need automotive grade qualification or whatnot? That’s it for me. Thank you.

So I think let me answer the first question about the time. Overall there is really no significant changes of lead time. All along even during the last two years, we’ve been focusing on understanding the true customers’ demand and making adjustments. I think the second part of your question is really about our ability to quickly adjust our capacity and support from one market and then to the others. I think, the Q3 result is a good testament of our ability. So we did actually quickly adjusted from the slow demand markets, like the low NPC consumers or the smartphone and to the automotive and industrial customer base. So all our factory is automotive qualified. And so that gives us the capability to quickly adjust. So not only the Q3, but also the second quarter, I think we talked about the same thing as well. So I hope that will give you guys the confidence that we do have the capability and the flexibility to quickly adjust our support.

Our next question comes from David Williams of Benchmark. Please go ahead.

Hey, good afternoon, and congratulations on the really solid results here, especially in this macro. Emily, just first, maybe you just kind of thinking about the automotive growth, you’re clearly seeing a lot of traction. And you’ve had this initiative to really drive that the content, the share gains there. Just kind of wondering, it seems like you’ve had really solid growth over the last several quarters. And in this quarter, particularly, but just are you seeing anything maybe being pulled in? Or is this really just because of the demand that you’re saying and the new design wins? Was there anything there that we should be thinking about in terms of maybe slowing later on the automotive side?

Yes. So David if we look at the result so you’re absolutely right. For Q3 we actually achieved 16%, which is definitely a record for automotive. If we compare year-over-year that’s 48% growth, and even quarter-over-quarter, that’s 17% growth. So but I want to also point the attention, not just for the third quarter. So we’d be openly talking about from 2013 to 2021, we actually have a compound annual growth rate of 30%. So this is not just a one quarter or a few quarter, but consistently over many years. So we established automotive focus years back. What we see is actually a significant change from the topology and design structure point of view. So I’ve been talking about the excitement is we start seeing a lot of new protocols extended into different areas. So one good example is Pericom product family. We start seeing PCI Express, Gigabit Ethernet being adapted. And this adaption is the beginning of adoption. So that gives us a lot of confidence about the growth in the future. We also look at our design pipeline. So it continues to grow significantly. So that’s a reason to support our ongoing growth quarter-over-quarter and year-over-year.

Yes David. We implement a policy that contains all the new products if possible, need to be automotive grade qualified, we call two part. So, most of our new product when we visit, we focus on two parts if possible, and therefore we have allowed the design win and the automotive these parts, they ramp up much slower than consumer or other market signals. It takes almost two years for the part for the new product to be rendered. And so if you look at we have been consistently, year-over-year, quarter-over-quarter to increase our percent of the revenue. And that’s another key measurement we implement is automotive segment as a percent of the total revenue. And you can see now we are getting to 16% of our revenue is coming from automotive segment. So this is not a very short term. This is the long term driving. And so I can see that growth will be, it might be a little bit, but you won’t be go to the other direction that we as a percent of the revenue all continue.

Okay. Fantastic. Thanks Dr. Lu for the color there. And then maybe last one for me just a broader question. But was there anything maybe in the quarter that surprise you either from demand shifting, or maybe things that are stronger than you would have anticipated? Anything that you should be or maybe we should think about in terms of the next few quarters where we could see some shifting around or any caution?

Yes, so I would say, definitely, the demand from automotive sides feel very, very strong. So that’s really a positive news. And it gave us an opportunity of balance with some of the other slow demand markets, I think the second surprises really the power constraint in Chengdu, but again we demonstrated our strong capability to manage through the crisis as well.

And if you say, you will ask me for any surprise, you can see we still meet our guidance. And therefore if we can see much clearer, what may not be two, three quarter later, but indeed, in the third quarter, when we make the third quarter guidance, we can see much clearer. And now in the fourth quarter and again, we can see much clearer in the fourth quarter business in market.

Our next question comes from Tristan Gerra of Baird. Please go ahead.

Hi, good afternoon, or good morning. Given the commentary about automotive of sitting pockets of weakness in some other end markets, which has been well advertised through this earnings season, how sustainable is the pricing environment? And also, would you expect there’s been a lot of non-cancelable orders to these for the rest of this year, for the second half of this year across? So your peers, would you expect those non cancelable orders to be in place in the first half of next year or we’re going to seek the normalization of how contracts are made with customers?

Yes. Hi, Tristan. Overall pricing trend is still unstable. So we don’t expect any significant change in the coming short term. And then from the NCNR, non-cancelable not returning policy, we also not making significant change. We implement that few quarters back. Again, we don’t expect that to be significantly changed overall for first half or the second half of the year.

And then as a follow up question. So we know China’s weak, but there were also some Q3 specific items in terms of the look down and the power constraints. So how we quantify the non-recurring portion of that weakness that happened in Q3 even as China continues to be weak in Q4 and in other quarters, how much of a potential recover we get from assuming there’s no additional lock downs from versus what happened in Q3?

Well, I think Tristan, overall, the market is still extremely dynamic. I think it’s difficult for us to predict what exactly is going to happen or the recovery, but one thing we did is actually we look at all different factors and we put the backlog information, the record POS resell by the end of the Q3, everything together and we come up with the Q4 guidance. So I would say, we did our best based on best knowledge, we put everything into our estimated, guidance already. It’s a bit difficult for us to really predict when the recovery is going to happen in China.

If you look at it, even in China situation, like you mentioned we still move like seasonality. So, typically, in the fourth quarter, we typically down significantly wise 5%. And a good time we may be a bit better than 5%. And then, even this year, we said we have a difficulty of we said the market had a difficulty with the guide, our first quarter pay somewhere around 5%. So yes, the market is very dynamic, very unstable but we still able to guide and is running our business, very close to the seasonality type of multiples.

I think one more thing I want to add is the China local business from the consumer portion it’s actually a very small portion of the Diode overall business.

[Operator Instructions] And our next question will come from William Stein of Truist Securities. Please go ahead.

Great, thanks for taking my question. And I want to add my congratulations on the very good results and outlook. I think I want to sort of distill this to what I think is the big sort of point of contention between investors and many companies right now. We’re seeing, we’ve already seen some of these consumer and markets weaken pretty significantly. We’ve seen that in your model for the last couple quarters even. And I think the consensus among investors is, look, this is a downturn, and it’s just rolling across end markets from one to the next. And when we think about industrial and automotive, it’s just a matter of time. What we’re hearing from some companies is that it’s not really right that the downturn is really just in a couple of bad end markets. And then you have automotive and industrial which are holding up pretty well. And we don’t think they’re going to move. I wonder which of those scenarios diode sees as likely to play out in the next few quarters? Are you expecting automotive and industrial to sort of take their punishment, just like the other end markets have? Or do you anticipate these are going to remain strong? Thank you.

Well, first of all, we don’t really forecast more than a quarter and provide guidance. I think what maybe I’ll just share my personal view over this. I think consumer computing and communications is definitely seeing a bigger adjustment. What I’m seeing is really more I call the inventory rebalancing. So over the quarters, the buildup of certain inventory, they need to adjust it and reset it. So with industrial and automotive we’ve been seeing some adjustments already. It’s not like we haven’t seen, but it just the scale is a little bit different. So I would let Dr. Lu to make few more comments, that’s what I see.

Actually is much important that the short term market be extra, okay. If for example, automotive, actually, the editorial content of the automotive is increasing, not going down. And therefore from [Indiscernible] is continued going up quarter- after- quarter So our strategy, how are we going to participate in this market and we spent that commission we put all our new product to be automotive qualified. And we spent a lot of time to sale as the total solution. And this is the way how do we handle the market softness. We were able to continue strong strength in the market and even consumer communication it use a similar way. For example, we focus more on the computing, we focus more in the high end PC, several data center, if you start focus more in that area, then yes, PC area could be slow down. But the high end PC or server and data center, it could be pick it up. Okay. So that keep you the preview of balance of the market. So that’s the way why we were able to continue growing, and we are able to meet our guidance, because we are very confident on how we grow consumer, IoT and communication, 5G, high end dose is the one how do we balance? Or how do we improve our market softness, how we end up?

I appreciate that. If I can ask one follow up, I’m hoping you might give us an update on how the South Portland fab is progressing under your ownership. I forget if you’re already manufacturing and selling product out of this facility, or if that’s more of a future plan and any other update you can offer us would be helpful. Thank you.

Well, SP fab if we just acquire in June this year, and so we have or we have the contract to support their demand. Okay, and if we take that opportunity to develop our own process and qualify our own product. But it takes time. Okay. So for example, to process in more than one year, it probably take one year to implement and then qualify the product and then it probably takes a while to wrap it up. So yes, we might have a tough time. But fortunately, we have supported to our, I should now tell to support them for that existing -- for their need for while.

Yes so I would say everything is on track based on our plan. It’s progressing well.

This concludes our question and answer session. I would like to turn the conference over to Dr. Keh-Shew Lu for any closing remarks.

Thank you for your participation on today’s call. Operator you may now disconnect.

The conference is now concluded. Thank you for attending today’s presentation and you may now disconnect.