Earnings Call: Q3 2022

Nov 7, 2022

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. As a reminder, this conference call is being recorded today, Monday, November 7, 2022. I would now like to turn the conference over to Leanne Sievers of Shelton Group Investor Relations. Leanne, please go ahead. Good afternoon, and welcome to Diodes' Q3 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 and President and CEO, Doctor. Kei Shue Lou 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 Dholawal. Before I turn the call over to Doctor. Lu, I'd like to remind our listeners 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 ks and 10 Q. In addition, any projections as to the company's future performance represent management's estimates as today, November 7, 2022. Dowdes 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, Doctor. Keishi Liu. Doctor. Liu, please go ahead. Thank you, Lian. Welcome everyone and thank you for joining us today. I'm very pleased To be reporting today, our 5th consecutive quarter of record gross margin and the 7th consecutive quarter of record adjusted earnings per share and the revenue. Our record results were driven by outstanding execution by the team, especially considering the COVID related lockdown and the power outage in certain region of China for part of the quarter. Also contributing to our strong performance was The achievement of record revenue in our automotive and industrial end markets that together totaled 44% of product revenue, which is 4% points above our 2025 target model and above 40% of The 3rd consecutive quarters, Diodes Automotive Business represented 16% of product revenue for the first time, reflecting the ongoing success of our customer and contact expansion initiatives as well as share gain in this end market. Over the past several quarters, Diodes has consistently proved its that the industry has experienced and was still able to deliver multiple Consecutive quarter of record results, expanded margin and increased profitability. When looking back over the past 2 years, our revenue have grown 68%. Gross margin expanded 5.90 basis points and adjusted earnings per share increased over 2 20%. Those achievements Truly Diodes are part of a consistent operator through diversified business and economic environment. We are well on our way toward our 2025 Financial target of $2,500,000,000 in revenue $1,000,000,000 in gross profit. With that, let me now turn the call over to Brad to discuss our Q3 financial results and our Q4 2022 guidance in more detail. Thanks, Doctor. Liu, 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 Q3 2022 was a record $521,300,000 an increase of 4.1 percent from $501,000,000 in the Q2 2022. Gross profit for the 3rd quarter was also a record at $217,800,000 representing a record 41.8 percent of revenue, increasing 5.5% or 60 basis points from $206,500,000 or 41.2 percent of revenue in the Q2 2022. GAAP operating expenses for the Q3 2022 were $105,400,000 or 20.2 percent of revenue and on a non GAAP basis were $101,300,000 or 19.4 percent of revenue, which excludes $3,900,000 of amortization of acquisition related intangible asset expenses and $100,000 of acquisition related costs. This compares to non GAAP operating expenses in the prior quarter of $99,700,000 or 19.9 percent of revenue. Total leather expense amounted to approximately $3,300,000 for the quarter consisting of $2,600,000 of unrealized loss on investments, $2,700,000 in interest expense and a $1,000,000 foreign currency loss, dollars 2,200,000 of other income and the $862,000 of interest income. Income before taxes and non controlling Interest in the Q3 2022 was $109,100,000 compared to $101,200,000 in the previous quarter. Turning to income taxes, our effective income tax rate for the Q3 was approximately 18.5%. GAAP net income for the Q3 2022 was a record $86,400,000 or $1.88 per diluted share compared to GAAP net income of $80,200,000 or $1.75 per diluted share in Q2 2022. GAAP earnings per share in the quarter increased 25.3 percent year over year from $1.50 per diluted share in the Q3 2021. Share count used to compute GAAP diluted EPS for the Q3 2022 was 46,000,000 shares. Non GAAP adjusted net income in the 3rd quarter was a record $92,200,000 or $2 per diluted share, which excluded net of tax $3,200,000 of acquisition related intangible asset costs, $2,100,000 in non cash mark to market investment adjustments, dollars 100,000 of acquisition related costs and a $400,000 gain on sale of investments. This represents a 5.3% improvement from last quarter of $1.90 per diluted share or $86,900,000 and a 36.1 percent improvement from $1.47 per diluted share or $67,300,000 in Q3 2021. Excluding non cash share based compensation expense of $8,100,000 net of tax for 3rd quarter, Both GAAP earnings per share and non GAAP adjusted EPS would have increased by $0.18 per diluted share for the 3rd quarter. EBITDA for the Q3 was a record $141,900,000 or 27.2 percent of revenue compared to $130,600,000 or 26 percent of revenue in the prior quarter. On a year over year basis, EBITDA increased 23.9 percent from $114,500,000 in the Q3 20 21, 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 $132,200,000 for the Q3 2022. Free cash flow was $62,400,000 which included $69,800,000 for capital expenditures. Net cash flow was a positive $78,300,000 Turning to the balance sheet. At the end of 3rd quarter, cash, Cash equivalents, restricted cash plus short term investments totaled approximately $393,000,000 Working capital was $765,000,000 and total debt including long term and short term was $296,000,000 In terms of inventory, at the end of Q3, 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 $3,500,000 from the prior quarter to approximately $374,800,000 Total inventory in the quarter consisted $8,300,000 increase in finished goods, a $6,700,000 increase in raw materials and an $11,500,000 decrease in work in process. Capital expenditures on a cash basis were $69,800,000 for the Q3 and for the 1st 9 months approximately $148,000,000 or 9.8 percent 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 Q4 of 2022, we expect revenue to be approximately $494,000,000 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 percent of revenue, plus or minus 1%. We expect net interest expense to be approximately $4,000,000 Our income tax rate is expected to be 19% plus or minus 3% As shares used to calculate EPS for the Q4 are anticipated to be approximately 46,500,000 Not included in these non GAAP estimates is amortization of $3,200,000 after tax for previous acquisitions. With that said, I'll now turn the call over to Emily Yang. Thank you, Brett, and good afternoon. In the Q3, revenue increased 4.1% sequentially, reflecting our achievement of record revenue in the automotive and industrial end markets that also contributed to record revenue in North America and Europe. Additionally, our POS revenue was 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 remains strong across all regions. Looking at global sales in the 3rd quarter, Asia represented 73% of revenue Europe, 15% and North America, 12 In terms of our end markets, industrial represented 28% of Diodes product revenue Computing, 23 percent consumer, 18% communication, 15% and our automotive end market reached a record 16% of product revenue. Our automotive and industrial end markets combined totaled 44% of product revenue, which is 4% point above our 2025 target and about 40% for the 3rd 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 another quarterly record, which is the 9 consecutive quarter. 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 Playcore and USB 3.0 and our USB signal and analog switches are also winning designs in ADAS, Infotainment and Smart Coptic Applications. Our DC DC converters, CMOS LDO, Switching diodes, power switches and diode controllers experienced strong demand as well. For Comfort style and safety, we secured increasing designs for our DC DC buck converters, bipolar transistors and LED and Zener Diodes for interior and exterior lighting, electrification and mobility systems. During the quarter, our gate driver ICs were designed into wireless chargers, while our low voltage MOSFET when designed for automotive USB car chargers and power source low switch applications. In addition, our operational amplifiers were designed into onboard chargers, BCDC converters, battery managed system, pumps, airbags, position sensors and occupancy detection systems. In Powertrain, which covers conventional hybrid electric vehicles, we secured increasing designs for automotive IO expanders for EV Central Control Unit as well as design wins for our bipolar power transistors and Zener Diodes in the power modules and Electrification Systems. Additionally, our TVS devices experienced strong demand for EV battery protection, DC fan motor controllers, generators and starter applications. We also saw solid demand in automated transmission and powertrain applications as we added 7 new automotive grid 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 6th consecutive quarter of growth. Our PCI Express 2.03.0 packet switches and SDR product will be signed into multiple power over Ethernet adapters for security and surveillance applications, which is an area that HDMI 6 gigabits per second and 12 gigabits per second redrivers are also being used as well. We also saw healthy demand from our gate driver ICs, TVS Diodes, Zener Diodes, DC DC buck converters, LED drivers, linear regulators and MOSFET products in various Applications like energy storage, power distribution system, DC fans, power supplies, air condition and oil pump applications. Also, our wide wing LDO product families continue to enjoy solid demand from the power tools and e meter applications. We also continue to see strong demand for our application specific multi chip circuits in industrial lighting and blood glucose monitoring system. In the computing market, although the PC and notebook and Chromebook market was soft, we continue to focus on cloud, Surfer Storage and SSD Applications. As I mentioned last quarter, our ability to quickly adjust our support from slowing markets to high demand market segments 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 signal switches in the enterprise SSD applications as well as new wins for our SMBus, I2C Level Shifters family in Cloud Surfer products, our customized Zener Diodes product also being used in cloud on computing platforms. We also remain well positioned to support cloud computing and data center customers with a complete timing offering, including crystals, oscillators, PCI Express Clock Generators and PCI Express Clock Buffers. Also during the quarter, we continued to see adoption of our embedded DisplayPort ReDrivers and that is its Play Core MOXS in gaming notebook applications and our newly released PCI Express 5.0 Club offers And now able to support 4, 6, 8 and 12 outputs. Lastly, our current limit power switches Continue to see solid uptake from USB A and USB C power source applications in notebook, desktop and docking stations. In the communication market, our SBR CSP products continue to gain traction in the low earth orbit Cyclades and 5 gs applications and our Shopee product are being designed into 5 gs WiFi application. Safra of Diodes Switching and Zener Diodes also continue to gain momentum in the mobile phone segment for various applications, including peripherals such And finally, in consumer market, we continue to drive increased adoption of our HDMI 6 gigabits per second and 12 giga per second redrivers and DisplayPort 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 the 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 win several designs in wearables and portable devices like health, Sport, Watches, Wireless Earphones and Keyboard. In summary, with achievement of our 7 consecutive quarter of record results. Diodes 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 contact expansion initiatives as well as share gain 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 are well positioned to continue driving future growth and expansion towards our 2025 targets of $2,500,000,000 in revenue and $1,000,000,000 in gross profit. With that, we now open the floor to questions. Operator? And our first question will come from Matt Ramsay of Cowen. Please go ahead. Hey guys, thanks for taking my questions and congrats on the awesome results. I wanted to ask a bit 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 of quarters and what you're seeing in the channel? Thank you. Yes. Hi, Matt. Good afternoon. For Industrial, overall, the backlog and everything still seems a lot of Strength overall, we do see some specific applications or specific end devices that adjusting a little bit forecast here and there. But if you take an 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. Understood. Thank you. And I just wanted 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 risk We've seen some ancillary disruptions across the supply chain as there's been more of a crackdown in China and whatnot. Thank you. Okay. Matt, actually, we have been doing well even During last this year, especially when China have different Area of the dotcom. And so we know how to handle it. And So far, you can see our operation. 2nd quarter in Shanghai area, They have a duck down for 2 months and we're still okay. And Even the Q3, we as CAT, Chengdu area, had a Power problem and we have again the COVID-nineteen shutdown problem, but we're still able to We have moved some of the operation to Shanghai to support the CIT We're almost 1 month of the shutdown. So we are we know how to handle these different Locations, the operational shutdown, and we call closed loop operation And we are able to move around our operation from Chengdu to Shanghai or diversely or even Moved to some other manufacturing area. So I really not Understood. Thank you for all the color. The next question comes from Gary Mobley of Wells Fargo Securities. Please go ahead. Hello, everybody. Thanks for taking my question. I wanted to double click on your response, Doctor. Lu, related to How you're operating your business over in China amidst a backdrop of a bunch of COVID lockdowns. I understand that you're able to operate those facilities in Chengdu and Shanghai using that closed loop working environment. But It 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 So when and what's going to happen next is something hard to predict. The market overall, the situation in China is still pretty Dynamic, right? I think Doctor. 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 customers. So I think that's pretty much we don't know what's going to happen next, but I think we're ready wherever it's going to happen. Okay. Thanks, 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 that still remain strong? Is that truly possible in end markets like automotive where you need automotive grade qualification or whatnot? And that's it for me. Thank you. Yes. So I think let me answer the first question about lead time. Overall, there's 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 segment to the others, right? 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 end PC consumers or the smartphone and to the automotive So all our factories automotive qualified and so that gives us the capability So not only the second the Q3, but also the Q2, 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. Thanks Emily. The 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. Thank you. Thank you. 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 the content and the share gains there. I'm 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 seeing 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, right, so you're 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 attention not just for the Q3. So we've been openly talking about from 2013 to 2021. We actually have a compounded annual growth rate of 30%. So this is not just a 1 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 it. The excitement is we start seeing a lot of new protocol costs expanded into different areas. So one good example is Pericom product family, right? We start seeing PCI Express and gigabit Ethernet being adapted. And this adaption is the beginning of adaption. So that gives us a lot of confidence about the growth in the future. We also look at our design pipeline, so it continued 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 like this. All the new product, if possible, need to be Automotive grade qualified, we call Q part. So most of our New product, when we visit, we focus on 2 parts, if possible. And therefore, We have a lot of design wins and the automotive, these parts, They ramp up much slower than consumer or other market segments. It takes almost 2 years for the parts to for the new product to be ramped up, Okay. 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 don't see that growth would be it might be tepid a little bit, but it won't be Go to the other direction that we as a percent of the revenue will continue, okay? Okay. Fantastic. Thanks, Doctor. Lee for the color there. And then maybe last one for me, just a broader question. But was there anything maybe in the quarter that surprised 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 side feel very, very strong. So that's really a positive news and it gives us an opportunity to balance with some of the other slow demand markets. I think the second surprise is really the power constraint in Chengdu. But again, We demonstrated our strong capability to manage through the crisis as well, right? And if you say you're asking for any surprise, you can see we still meet our guidance. And therefore, we can see much clear, Well, may not be 2, 3 quarters later, but at this, in the 3rd quarter, When we make the Q3 guidance, we can see much clearer. And now, we are in the 4th quarter And again, we can see much clear in the 4th quarter digits and margin. Thanks so much. Appreciate the help. The next question comes from Tristan Dara of Baird. Please go ahead. Hi, good afternoon or good morning. Given the commentary about automotive offsetting pockets of weakness in some other end markets, which has Well, at the time 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 distillate for the rest of this year, for the second half of this year across your peers. Would you expect those non cancelable orders to be In place in the first half of next year or are we going to see kind of a normalization of how Contracts are made with customers. Yes. Hi, Tristan. Overall pricing trend is still stable. So we don't expect any significant change in the coming short term. And then from the NCNR, non cash We're also not making significant change. We implemented that a few quarters back. Again, we don't expect that to be significantly changed overall for first half or the second half of the year. Great. And then as my follow-up question, so we know China is weak, but there were also some Q3 specific items in terms of the lockdown and the power constraints. So How would we quantify the non recurring portion of that weakness that happened in Q3 even as China continues The weak in Q4 and in outer quarters, how much of a potential recovery we get from assuming there is no additional lockdowns 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 resale by the end of the Q3, everything together and we come out with the Q4 guidance, Right. So I would say we did our best based on best knowledge. We put everything into our estimated guidance already. It's a little bit difficult for us to really predict when the recovery is going to happen in China. But if you look at even in China situation Like you mentioned, okay, we still motor Our point of revenue, like, a seasonality, right? So you typically In the Q4, we typically down significantly A little bit. Seasonality wise, 5%. And a good time, we may be a little bit better than 5% down. And then even this year, We said we have difficulty or we said the market had the difficulty. We still guide our 4th quarter Somewhere around 5%. So I think we yes, the market It's very dynamic, very unstable, but we still were able to guide And running our business very close to the seasonality type of Right. I think one more thing I want to add is the China local local business from the Consumer portion, it's actually a very small portion of the Diodes overall business. Yes. Okay. That's very useful. Thank you. 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, Right now, we're seeing we've already seen some of these consumer end markets weaken pretty significantly. We've seen that in your model for the last couple of 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 Diodes 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 communication is definitely seeing a bigger adjustment. What I'm seeing is really more, I call it inventory rebalancing, right? So over the quarters, the buildup of certain inventory, they need to adjust it and then reset it. So with industrial and automotive, we've been seeing some adjustments already. It's not like we haven't seen, But it's just the skill is a little bit different, right? So I would let Doctor. Lu to make a few more comments. That's what I see. Okay. Actually, when you run into business, long term strategy is much important than The short term market reactions, okay. For example, automotive, Actually, the electronic content of the automotive is increasing, is Not going down. And therefore, from the long term point of view, that pain or pain So our strategy is how we're going to participate in this market And we spent, like I mentioned, we tried to put all our new product to be automotive qualified And we spent a lot of time to sell as the total solution. And this is the way how do we handle the market softness. We were able to continue growth or strong strength in the market. The industrial And even consumer communication, if you use a similar way, for example, we Focus more from the computing, we focus more in high end PC, Server, data center, if you start focused more in that area, then yes, PC area could be slowed down, but the high end PC or server and data center, It could be picked up, okay. So that gives you a balance of The March. So that's why we are 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, 5 gs, high end Those is the one how do we balance or how do we improve our market softness, How do we handle? 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 Well, SPFAB is we just acquired In June this year, and so we are supportive or we have The contract to support their demand required, okay? And If we take that opportunity to develop our own And qualify our own product, but it takes time, okay? So for example, More than 1 year, it probably takes 1 year to implement and then qualify The quarter? And then it probably takes a while to ramp it up effectively. So yes, we might have a tough time, but virtually, we have supporting To our well, I should now say our customer to support them Yes. So I would say everything is on track based on our plan. It's progressing well. Yes. Thank you. This concludes our question and answer session. I would like to turn the conference back over to Doctor. Pei Shu Lu for any closing remarks. Thank you for your participation on today's call.