Hi, good afternoon, everyone, and thank you for joining us today for Yageo's first quarter result webcast. Yageo is the world's largest supplier of chip resistor and tantalum capacitors, as well as a top three supplier for MLCCs and inductors. My name is Howard Kao, and I'm the coverage analyst here at Morgan Stanley.
We are very honored to have Mr. David Wang, CEO, Mr. Eddie Chen, CFO, and Mr. Claudio Lollini, Head of Global Sales and Marketing of Yageo here with us today to give insights and comments on the company as well as the market. The management team will first walk us through first quarter results and also provide some forward-looking commentary.
After that, we will open it up to questions. At any time during the webcast, you can send in your questions in the text box on your screen. Now, I would like to turn it over to Eddie and David for opening remarks. Thank you.
You can just go ahead with the financial report. Thank you.
Yes, David. Good afternoon, dear investors. Thank you for taking part in our results conference for first quarter 2025. As usual, let me walk you through some of the highlights of the financials for the first quarter. For first quarter 2025, we have generated TWD 31.1 billion revenue during the quarter.
Quarter-over-quarter sequentially 3.7% growth. If you compare to last year, it's 9.1% growth. On the margin front, first quarter has seen that the margin continued to expand from the previous quarter. As you can see, the gross margin at 35.6%, that's a 2.5 percentage point increase quarter-over-quarter.
Year-over-year, it's 1.8 percentage point as well. If you look at the operating margin, we've seen that first quarter OpEx under great control, so that operating margin even expanded further to 28.8%, or 2.9 percentage points than the previous quarter, or 3.4 percentage point better than last year. EBITDA is showing the same trend as well. The net results for the quarter is TWD 5.5 billion net income, or 49.1% better than the previous quarter, or a hefty 20.5% from last year. EPS at TWD 10.77 per share.
Obviously, the net sales is pretty much gaining momentum from the other robust IT sector, especially the AI-related driven demand, which we'll get to the breakdown later. The cost control, the OpEx control are all well done in first quarter as well. The margin performance in the first quarter has done better than the historical pattern. Next page. Here's more granularity in terms of the sales breakdown by different perspectives. If you look at the products, you can see that the resistors, capacitors are all showing decent growth in the quarter.
If you look at the first quarter breakdown, you can see that, you know, the Tantalum is inching up in terms of its percentage of the sales. MLCC is increasing marginally as well, and so is the Resistors. These are all somewhat related to the demand driven from the higher AI content. The Tantalum, MLCC, Resistors are all getting pretty decent momentum there.
On the other hand, the Magnetics is a bit lower because of the exposure to the automotive sector. If you look at the segments, I think it's even obvious that we're still seeing decent growth from the AI sector. The computing and EMS are gaining momentum there.
Industrials still having some headwinds there, especially in Americas and EMEA. The automotive sector is kind of a mixed bag. We're seeing some positive momentum in the China market, which is offset somewhat by the Americas and EMEA market.
You can see that the exposure to the auto and industrials are showing some weakness in first quarter. Next page. In terms of the region, we see Europe is holding steady at around 18% there. We're seeing more strength in China market, for two continuous quarters, sitting at about 26.6% right now.
The U.S. market is pretty firm in the past several quarters, holding at slightly above 27%. The rest of Asia, predominantly from China, I think the market is strongly driven by some AI and EV demands. If you look at the channel breakdown, you can see that the global distributors seems to be pulling in.
If you see the first quarter exposure to the global distributors, it's gaining momentum there. That sort of signals the inventory situation seems to be under good control there. The next page. A quick look at the financial flexibility for the group.
The free cash flow has demonstrated a pretty consistent and stable flow. Fourth quarter last year, we had some investments come to maturity and also some interest income collection. You're seeing that high volume fourth quarter. Otherwise, you're seeing that every quarter, I think we're generating about, like, TWD 5 billion cash flow.
It's a very stable and sustainable cash generation for the group. That has helped to deleverage Yageo further. The balance sheet is getting stronger and stronger. If you look at the net financial debt to the last twelve months EBITDA, we're down to almost like it's below 20% to 17% in first quarter this year.
If that continues, I think we'll pretty much pretty soon see that cash level to become turning into a positive cash. Next. Shibaura, I'm sure you've seen some highlights in the media recently about the new episodes. Here's a recap of the events in the past quarter or so. We had several rounds of back and forth questions and answers with Shibaura management team and the board.
On March six, we submitted our response to their first list of questions, and then we have another round of interactions on March 26, where we submitted the answers to those questions from Shibaura. We even had a chance to meet up in person with Shibaura management team in beginning of April, which we thought was a great meeting that allowed us to meet up with the management team and express our sincere intention to collaborate with the company.
I think the latest news that the Shibaura turned to support another potential buyer for the company. We're sorry that we didn't really have an adequate engagement with Shibaura enough to present a better proposal to Shibaura. Right now, I think we'll continue to strive to engage and try to get more color on this proposed transaction. We do think that there's a significant synergy that could be generated through the collaboration with Yageo as we have a very, very strong global business presence.
We do think that our product portfolio come in a great match as well. We'll continue to pursue this transaction. In fact, in today's board meeting, we have resolved that we will raise our tender offer price from JPY 4,300-JPY 5,400 per share, with the May seventh commencement of tender offer date remained as scheduled. That's how we would approach this transaction. Next. Well, I'll leave it to David for the guidance for the next quarter.
Thank you, Eddie. Before I guide you through our quarter two outlook, I'd like to give you a couple of highlights of our quarter one performance. If you see our key financial indicators such as top line, bottom line, cash flow, financial leverage, all are with very steady growth and improvement. They also met our Q1 guidance.
I think we have communicated with our investors for a long time. In the past couple of years, Yageo tried very hard to transform ourselves from the standard product-focused company to a premium product-focused company. We also try to look for well balance of the business among the other regions and the other product portfolio. We believe that the recent quarters performance and the improvement are the strong evidence of this transformation. Now, the Q2 guidance.
Our look is low single-digit growth quarter on quarter. We expect that the gross margin percentage and the operating margin percentage will have a slight increase quarter on quarter. On the business side, we still see the book-to-bill ratio is above one, so solid booking in the backlog to support this Q2 net sales.
Especially from the AI related big computing high power server and China EV momentum that remain very strong. I think everyone know that the recent tariff issue, and certainly this is very dynamic. It can be changed every day or every week. For the tariff increase, this is not the first time.
We have experience to deal with this in the past. Inside the company, we do have this mechanism to deal with this. For the time being, we believe that the impact of tariff is manageable. This is the Q2 guidance I like to provide to you. Thank you, Howard.
Thank you. Thank you, Eddie and David, for your very comprehensive comments. Now I guess we will move into the Q&A session. Again, as a reminder, please send in your questions in the text box on your screen, and we will get to them shortly. While we wait for questions to come in, maybe just a couple first from me.
First, in terms of your Q1 kind of top-line momentum, I think it was a little bit stronger than what you guys initially guided for. I believe you guys were expecting flattish Q over Q momentum, but you guys came in at around up 4%. Any color on what drove that? Was that just some conservatism in terms of providing the guidance? Was there some, you know, tariff-related pull in demand that was a little bit unexpected towards end of Q1?
Howard, yes. Howard, let me try to add some color to that. We did ask ourselves the same question, whether that was tariff driven. In all honesty, there might have been some pull-in from some customer or from the channel in some case, but if there was minimum. The major factor for the better than expected result for the top line has been a stronger momentum from those segments and region that were already performing well throughout the quarter.
Namely, Greater China, as a region, mostly. And then segment-wise, AI-driven applications, laptop, notebook, server, as well as global distribution as a whole. Eddie alluded to that. We experienced most of 2024 as a year of destocking.
At the beginning of 2025, finally, we see the channel being in a much healthier position and just getting a little bit ahead and decide to restock certain products a little stronger than we thought. That explains the result better than anticipated for March in particular.
Got it. Thank you, Claudio. Maybe just a similar line of questioning, but maybe to you, David, is related to the tariff impact that you were talking about just now. Can you kinda share with us, for you guys, what is the direct impact from tariffs? Just, you know, any color around that?
Is it because you guys are importing into the U.S., and so, for components that you guys are importing to the U.S. to the global distributors, there is some tariffs placed around those components. Is that the right way to look at this direct impact from tariffs?
Let's ask Claudio to handle this question. Claudio.
Yes. As David said, the tariffs is not a new thing for us and for our industry. The impact is manageable. It's hard to give a number, Howard, in all fairness, the news keeps changing, the amount keeps changing, the implementation date keeps changing. Certain countries that were part of the list were later on dropped off the list or putting on a delayed schedule.
We are running various simulations. In all those instances, we have a few guidelines. First, we are extremely well positioned to handle tariffs, thanks to the variety of manufacturing footprints that we have. It doesn't mean we can switch on and off instantly a production from country A for a certain product to country B.
However, we do operate in more than 30 countries—in more than almost 20 countries production-wise. On top of that, we have warehouses and sales offices, so we can manage the logistics much better than most of our peers, I believe. On top of that, the conversation with our customers and channels for the Americas has been pretty positive.
Everybody is in the same condition. There is a lot of conversation on how to optimize the situation, but in general, there is an understanding in the industry that these tariffs are something out of our control. It may change some customer footprint decision, but I would say it starts from the top of the supply chain, and it may then cascade down and it also still too soon to make any conclusion out of that. In summary, for us as a company, the impact is manageable and we don't believe will have a significant effect on the P&L moving forward.
Got it. Thank you. You mentioned that you guys have production bases in more than 30 countries globally. Is there any kind of high-level breakdown you can provide to us, you know, by some big regions? What is the capacity mix or percentage that we can?
Let me correct the statement. We have more than 30 factories outside of China, and then we have operations in around 19 or 20 countries, depending on some location has more geared towards pilot run and sample production. Still a very large number.
Almost every technology has a manufacturing redundancies in multiple countries. We have not disclosed in terms of revenues or volume or quantity. We don't typically disclose those figures. We do have the possibility for any technology to rely on usually two, if not more, countries. That has always been an advantage, not just for tariffs.
Actually, that was done for risk mitigation on a number of other areas, as well as being close to end customers and shorten logistics lead time and reduce total cost of goods sold. Tantalum is a great example. Maybe I can comment on that specifically.
We do have operations in China, we have operations in Thailand, and we have operations in Mexico for Tantalum. So that provides a lot of flexibility to our customers that happen to be in Greater China as well as in Europe and in North America when it comes to procuring Tantalum product, which is in very high demand these days.
Got it. Just working off of that comment on tantalum, I think there's been recent news that there has been some price increases on tantalum capacitors. Any color you can provide on that?
Yeah. Oh, yeah, certainly. There's been an exercise of cost adjustment towards our customers and distributors. This is something we do regularly on all products. The constant review of the profitability, the cost of labor, cost of material, cost of logistics, cost of energy. We regularly try to make sure that we have the right balance.
In this case, we found that for a specific set of parts for Tantalum, so not across the board of all portfolio, we found that it was getting to a point where we no longer could sustain that level of profitability that we had for those parts, given the cost of material, the cost of labor, and quite frankly, the commitment the company has on R&D and CapEx, capacity expansion for Tantalum. We analyzed that, and we came to the conclusion that it was necessary to adjust that price.
We communicated that very openly to our customer partners and distributors. We gave them guidance and time to adjust their backlog. They have a window that allows them to make plans and make sure that they can digest this. So far it's been very positive. It's not an allocation, and it's not being applied across the whole portfolio, across all customers, just where it was necessary.
Got it. Thank you. Just to follow up on that, across that very specific subset of the portfolio within the Tantalum business, are the end segments for those that are seeing pricing adjustments very specific to, let's say, AI, or is there any specific end segments?
Not really. It is mostly in the notebook and laptop segment. In some cases, some other applications, but it wasn't really linked to a specific segment. I would say the majority of those parts happen to be used in the laptop devices as a broad segment.
Got it. Thank you. Just, you know, coming back to some questions that is being asked regularly, can you talk about your utilization rate, between your commodity and premium businesses in Q1, and I guess what is the outlook for Q2? Thank you.
In Q2, we will slightly increase our utilization. If for Q1 utilization of the standard is around 60%. Q2 will increase slightly to 65%, so from 60% to 65%. This is for the standard product. For premium Q1, this was around 70%, so Q2 will be increased to 75%. So far we see that the inventory level is still healthy, and also in quarter two, we expect the sales growth. This high utilization is just to meet this kind of demand.
Got it. Thank you. In terms of your Q2 revenue guidance of low single-digit quarter-on-quarter growth, I think historically there has been quite a big range for Q2 top line. Can you talk a little bit about what you're seeing this year in terms of the low single-digit QOQ growth, and how does that fit into historical seasonality? You know, is this above or below?
Yes. For now, what we see in Q2 is the continuation of the positive momentum that we had in Q1. We believe that that will translate into some sequential growth. Also, as you noted, Q1 finished stronger than we perhaps anticipated. That is to be taken into consideration. We continue to see the AI and AI-driven application doing well in Q2.
We continue to see demand from the channel being healthy, considering the restocking activity, as well as the EV segment in China and the overall Greater China market continue to give us confidence. We're still facing headwinds from Europe. Industrial and automotive in the Western Hemisphere continue to be behind the curve compared to last year.
When you package all of this together, we believe that Q2 will grow sequentially versus Q1, but we don't expect that to be more than what we are guiding as a low single digit growth. Obviously the tariffs somehow the extent of the tariffs and the uncertainty that tariffs are posing on the whole industry and supply chain is muddling the view a little bit in the sense that we are not like anybody.
We are not quite sure if this uncertainty that is surrounding the tariffs might have an effect or not on the bookings or the confirmed order. For now, we don't see it, so we are planning for some growth, but it is out of our hands to some extent. We're still watching that closely.
Got it. Thank you. Is it fair to say that this guidance is based on like constant currency basis? That's I guess the first part. The second part is any kind of preliminary thoughts on second half, has your visibility changed as a result of tariffs? Then any visibility on your second half outlook? Howard?
Yeah. I think currently the tariffs is also the global economy because of geopolitical issue. This has very dynamic. For us, for the second half to give a solid guidance for us, I think this is difficult. The best guidance we can give is Q2 now. Claudio, you have more comments?
No. Same comment as you, David.
Okay. Thank you so much. There's a question here about your integration progress. Can you talk a bit about the progress of integration with acquired sensor businesses? How are the revenue ramp-ups on your sensor businesses? Also, what about the OpEx reduction in those businesses that you haven't seen?
Progressing well. The starting point that I have to, as a disclaimer, to point out is both businesses rely heavily on automotive and industrial, so not your best segments these days. With that said, I can share, Howard, that the sensor business group is performing according to plan in terms of revenue for this year.
When we got together, somewhat between Q3 end of Q3 last year to budget for this year, we took into consideration where we thought the market would be. So far they are performing both the Telemecanique portfolio and the Nexperia's product portfolio as expected.
That means that in terms of top line, they are growing in some case or flat in some other case, because of the segment they are exposed to, but as expected. In terms of OpEx, there has been significant improvement in both areas, so we are quite pleased with that.
We have also made a lot of effort to integrate the IT systems in the Yageo IT system that is progressing also positively. It's been done for Nexperia and will be done shortly completely also for Telemecanique. Those have been complex carve-outs, but progressing in those regards as expected for this year, and a lot of improvement on the cost side of things.
Got it. Thank you. Is it fair to say that there should be more cost-related synergies in the next couple of quarters to come, as this process is still ongoing?
Marginally. We continue to, like any business unit we have, the cost optimization is always a high priority for us. The Sensor Business Group is no different. I would say that we harvest a lot of gains in the last 12 months. Now moving forward, the benefits will continue to be there, but it will be marginally lower in size because of the gains we already made. We'll continue to believe that there is more that we can extract. Yeah, marginally you can expect some improvement moving ahead.
Got it. Thank you. Just maybe coming back to, I guess related to capacity, but more so on CapEx. Can you update us on your CapEx guidance for this year? Maybe this question I guess is more for Eddie.
Yeah. I don't know if I have a guidance for the whole year, but then for the first quarter, I think we're spending less than $40 million. I would assume that, yeah, the CapEx this year will be more on the maintenance and on certain projects, that type of nature. I would think that this is probably the run rate that we're seeing right now, but I don't have a formal guidance for the whole year, CapEx.
Got it. I guess it's fair to say that based on the very diverse capacity footprint you guys have right now globally, there are no plans to build factories anywhere else in the near term.
Yeah. I mean, it's hard to make a move right now, right? Given the uncertainty, you know, on the geopolitics and the tariffs thing. I think, you know, it's kind of wait and see for us.
Got it. Thank you. Maybe can we just come back to your businesses broken down by standard and premium products. I think last quarter you guys mentioned the EBITDA ratio for both of these segments have reached one or above one and that is something that you guys saw I guess for the first time in a while. Any update to that number now that we are I guess two months later?
I think we maintain this momentum. Currently, we see the book-to-bill ratio, both for standard and the premium, they are slightly above one. Keep it the same momentum as the last couple months.
Got it. Thank you. Okay. In terms of the auto business, is there any incremental color you guys can provide on the China? I know you guys mentioned China has been doing quite well in offsetting some of the other regions, but just any incremental color you can provide on the China auto business?
We look at the China market through the lenses of different angle. We have different angles of looking at it. One is the local channel. We have a vast network of local distributors operating in Greater China. We also have the angle of a lot of the EMS that build, as you know, a lot of the devices that are related to the AI, and that goes for laptop, notebook, smartphone, servers, SSD devices. We also have the EV segment that has been growing domestically with a lot of local players, which has been relying on many brands in the last couple of years. We have the industrial and the more consumer-based market.
When we look at the development of the Greater China for the last year and a half, we really see all these components coming together nicely. The local distribution channel was performing pretty bad couple of years back. But last year came in with a solid growth, and it started Q1 following the same trend.
At the moment, Howard, I have to say that the Greater China business is increasing year-over-year, at least for us, through all those angles that I mentioned before. The local channel, the EV segment, perhaps the industrial not as much, but it's not a huge part of what we do in China. Definitely the AI laptop, notebook, SSD, server, that has been very strong. For Q1, they're all performing well, fairly equally actually.
Got it. Thank you. Sorry for jumping around, but it just in terms of your Q2 guidance, maybe from like a ranking perspective, is there any kind of direction you can help us with in terms of by technology, on a sequential basis, which ones will be growing better than others for like MLCCs, resistors, inductors? You know, which ones will be growing faster than others for Q2?
Fair to say, Howard, that products like Tantalum, in particular Tantalum that is being used in all those applications that have momentum, is expected to continue to perform pretty well. Yeah, our product is used in so many applications. When you think about resistors or MLCC, there is no segment we don't touch.
If you wanna a fairly accurate answer, I would say like Eddie mentioned in his opening remarks, Tantalum resistors and MLCC capacitors, they will probably see good momentum in Q2. Some of the other products like Magnetics overall and sensor, perhaps slightly less so because of the segments that they serve.
Got it. Thank you. Is it fair to assume from a geographical standpoint or perspective, the momentum and growth that in Q2 should be pretty similar to Q1 as well? As in so maybe Greater China continues to do a little bit better in Q2 versus say Europe or other regions?
I would think so, yes.
Got it. Thank you. Just coming back onto the Tantalum pricing adjustments, is that going to be a big tailwind for the revenue guidance in the second quarter?
No, we don't believe that you can expect a significant change in the development of the business because of that adjustment. I think the news that came out was a little bit adding maybe too much of a color or a proportion, a bit out of proportion for what it is. Definitely there is a high demand for Tantalum, and we are very pleased with that. But this cost adjustment is not, again, an allocation-driven adjustment. The growth that you see is mostly volume driven.
Got it. Thank you. In terms of your margin guidance for the second quarter, I think we've been seeing pretty good kind of OP margin expansion versus GM. You know, can we expect similar expansion, OP margin leverage in the second quarter? OP margin grows higher than gross margin. Is that something we can continue to expect?
I think for the time being, the outlook we can see is quarter-on-quarter, this will be a slight increase. More exact numbers, I think we will see.
Got it. Thank you. This question here on inventory. You know, how much inventory, I guess inventory days, you know, what is that at the end of Q1? You know, where do we expect that to go by end of Q2?
In first quarter end, we're around 127 days versus 124, 125 from fourth quarter last year. I would maintain that into second quarter, that should be somewhat stable.
Got it. Thank you. For your distribution partners, both I guess locally and globally, I guess, have they been looking to raise kind of their inventory levels, do you think in light of recent uncertainties?
It's hard to measure. When we talk to them, I don't feel that there has been a conscious decision to accelerate the stocking of passive components in preparation for tariffs. There might be some of that, but it's minimum. The momentum in particular that we see with the global distributors is mostly driven by the fact that, after almost two years of destocking, then they judge their inventory now to be in a much healthier position.
They have more confidence on their sales to the end market, and so they are now starting to allocate more dollars to restock. That's great. I think we're all waiting for that moment. It's been steady, slow but steady growth, and I think that's the right way to go about it.
For the Asian piece, that has been stronger, as I said, it started a year ago. For the global guys, it's more like, this quarter was the first quarter of growth compared to the history. Not much related to getting ahead of tariffs, I feel.
Got it. Thank you. In terms of your capacity in China, may we know what the utilization rate right now is for your Chinese factories specifically? Something that you guys can share with us.
Because of the utilization, this is among the many factories and many product technology. Overall, I can give you the worldwide utilization percentage. That means standard is 65% and premium 60%-75%.
Got it. Thank you. Just related to capacity, do you guys have capacity inside the U.S., right now? If so, for which particular products may we know?
Very, very limited. It's just a prototype. In Americas, basically this is in Mexico, but not in USA.
Got it. Thank you. Okay. I think that is all the questions that we have that was in the queue. I think most of that has been asked. Maybe, David, Eddie, or Claudio, do you guys have any closing remarks?
Thank you, Howard, and thank you for all the investors' participation today. Again, for the Q1, we are happy that the financial performance is in line with our guidance. In Q2, again, sales we see low single-digit growth. We also expect further improvement in gross margin and the operating margin.
Now, from the market side, solid booking, this supports the good sales guidance and tariff concerns. Again, this is very, very dynamic. As mentioned, P&L-wise, we think this is manageable. But how this impact affects the global economy, then we need to monitor that very, very carefully. Thank you for the participation.
Thank you, David. Thank you everyone for joining the webcast today. This concludes our webcast. We'll see you guys next time. Thank you David, Eddie, and Claudio. Thank you so much for your time.
Thank you.
Thanks, Howard. Thank you.
Thank you.