Good afternoon, and welcome to Diodes Incorporated Third Quarter 2021 Financial Results Conference Call. At this time, all participants are in listen-only mode. At the conclusion of today's conference call, instructions will be given for the question and answer session. If anyone needs assistance at any time during the conference call, please press star followed by zero on your touchtone phone. As a reminder, this conference call is being recorded today, Wednesday, November 3, 2021. 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 2021 Financial Results Conference Call. I'm Leanne Sievers, President of Shelton Group, Diodes' investor relations firm. Joining us today are Diodes' Chairman, President, and CEO, Dr. Keh-Shew Lu, Chief Financial Officer, Brett Whitmire, Senior Vice President of Worldwide Sales and Marketing, Emily Yang, Senior Vice President of Business Groups, Gary Yu, and Director of Investor Relations, Gurmeet Dhaliwal. 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 third quarter 2021 ending September 30th, 2021.
In addition, the management's prepared remarks contain forward-looking statements which are subject to risks and uncertainties, and management may make additional forward-looking statements in response to your 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 3, 2021. Diodes assumes no obligation to update those 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. 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. This quarter represented the 4th consecutive quarter of record revenue and our 2nd consecutive quarter of gross margin expansion over 210 basis points, resulting in record gross margin and profits. Underpinning our growth has been the success of our content expansion initiatives, in particular in the automotive market, where revenue grew over 65% year-over-year and 7% sequentially, contributing to an 8-year CAGR of 30%. Additionally, our Pericom products continued to set new revenue records, achieving 4 consecutive quarters of growth, primarily driven by traction in high-end computing and server applications. Our growth in those higher margin end markets, combined with increased loading at our 9 own semiconductor facilities, have enabled us to increase our top line revenue and margins.
Even in the midst of this supply constraint environment, Diodes is favorably positioned with a global manufacturing footprint that provides the flexibility to strategically expand our capacity and to reduce cost, either by adding equipment to existing lines or converting equipment to larger wafers. These ongoing actions are expected to support our continued growth and the margin improvement into next year and toward our 2025 target of $1 billion in gross profit on $2.5 billion in revenue and a 40% gross margin. With that, let me now turn the call over to Brett to discuss our third quarter financial results and our fourth quarter 2021 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 would 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 2021 was a record $471.4 million, an increase of 7% from $440.4 million in the second quarter of 2021.
Gross profit for the third quarter was also a record at $181.2 million, or a record 38.4% of revenue, increasing 13% or 210 basis points from $159.8 million or 36.3% of revenue in the second quarter of 2021. I would also like to point out that our gross profit increased 63% or 250 basis points from $111.1 million or 35.9% of revenue in the third quarter of 2020.
GAAP operating expenses for the third quarter of 2021 were $104 million or 22.1% of revenue, and on a non-GAAP basis were $99.6 million or 21.1% of revenue, which excludes $4.1 million of amortization of acquisition-related intangible asset expenses. This compares to non-GAAP operating expenses in the prior quarter of $90.4 million or 20.5% of revenue. Total other income amounted to approximately $8.3 million for the quarter, consisting of $5.9 million of unrealized gain on investments, $2.2 million of other income, $765,000 of interest income, $800,000 in foreign currency gain, partially offset by $1.4 million in interest expense.
Income before taxes and non-controlling interest in the third quarter 2021 was $85.6 million compared to $70.7 million in the previous quarter. Turning to income taxes, our effective income tax rate for the third quarter was approximately 17.3%. GAAP net income for the third quarter of 2021 was a record $68.4 million or $1.50 per diluted share, a 23% increase compared to GAAP net income of $1.22 per diluted share or $55.4 million in second quarter of 2021. This represents a 194% improvement from $0.51 per diluted share or $27.2 million in the third quarter of 2020.
The share count used to compute GAAP diluted EPS for the third quarter of 2021 was 45.6 million shares. Non-GAAP adjusted net income in the third quarter was a record $67.3 million or $1.47 per diluted share, which excluded net of tax, $3.3 million of acquisition-related intangible asset costs, $0.3 million of acquisition-related and restructuring costs, and a $4.7 million gain in value on certain LSC investments. This represents a 23% improvement from the second quarter of 2021 of $1.20 per diluted share or $54.6 million, and a 137% improvement from $0.62 per diluted share or $32.8 million in the third quarter of 2020.
Included in third quarter 2021 GAAP net income and non-GAAP adjusted net income was approximately $8 million net of tax of non-cash share-based compensation expense. Excluding share-based compensation expense, both GAAP earnings per share EPS and non-GAAP adjusted EPS would have increased by $0.18 per diluted share for the third quarter 2021 and $0.15 for second quarter of 2021. EBITDA for the third quarter was a record $114.5 million or 24.3% of revenue, compared to $99.4 million or 22.6% of revenue in the prior quarter. On a year-over-year basis, EBITDA increased 81% from $63.3 million in the third quarter of 2020, further highlighting our significant operating 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 $98.9 million for the third quarter of 2021. Free cash flow was $57.8 million for the third quarter, which included $41.1 million for capital expenditures. Net cash flow in the third quarter was a negative $10.1 million, which included a paydown of $49.7 million of total debt. Turning to the balance sheet, at the end of third quarter, cash equivalents, restricted cash + short-term investments totaled approximately $292 million. Working capital was $619 million, and total debt, including long-term and short-term, was $252 million.
Our net cash position demonstrates our significant cash generation and earnings power. In terms of inventory, at the end of third quarter, total inventory days increased to approximately 99 in the quarter as compared to 96 last quarter. Finished goods inventory days were 27 compared to 26 last quarter. Total inventory dollars increased $18 million to approximately $322.1 million. Total inventory in the quarter consisted of $8.9 million increase in finished goods, a $5.2 million increase in raw materials, and a $3.8 million increase in work in process. Capital expenditures on a cash basis for the third quarter 2021 were $41.1 million or 8.7% of revenue. We expect to remain within our target model of 5%-9% for the full year. Now turning to our outlook.
For the fourth quarter 2021, we expect revenue to increase to approximately $476 million ±3%, which represents a record on both an organic and a consolidated basis for a combined increase of about 1% sequentially at the midpoint, which is better than typical seasonality of down 5%. We expect GAAP gross margin on a consolidated basis to be 38.7% ±1%. Non-GAAP operating expenses, which are GAAP operating expenses adjusted for amortization of acquisition-related intangible assets, are expected to be approximately 21% of revenue ±1%. We expect net interest expense to be approximately $1.2 million. Our income tax rate is expected to be 18% ±3%.
Shares used to calculate diluted EPS for the fourth quarter are anticipated to be approximately 46.2 million shares. Please note that purchase accounting adjustments of $3.4 million after tax for previous acquisitions is not included in these non-GAAP estimates. With that said, I now turn the call over to Emily Yang.
Thank you, Brett, and good afternoon. In the third quarter, revenue increased 7% sequentially, which is above the midpoint of our guidance and better than typical seasonality, driven by record revenue, market share gain, and strong demand across all regions. Worldwide POS revenue was at a record, driven by record POS revenue in Asia and Europe. Distributor inventory in terms of weeks was flat quarter over quarter, which remains below our defined normal range of 11-14 weeks. Looking at global sales in the third quarter, Asia represented 80% of revenue, Europe 12%, and Americas 8%. In terms of our end markets, computing represents 30% of revenue, industrial 24%, consumer 18%, communication 16%, and automotive 12% of revenue. We achieved record revenue in the automotive, industrial, computing, and consumer end markets.
Now let me review the end markets in greater detail. Starting with automotive market, revenue grew over 65% year-over-year and 7% sequentially to another quarterly record revenues, even in a supply-constrained environment. Since launching our entry into the automotive market in 2013, we have achieved a 30% CAGR. Our ongoing success can be attributed to our content expansion initiatives that have resulted in Diodes' content opportunity increasing to almost $100 per vehicle. As part of this initiative, we have also expanded our product portfolio for a broader set of automotive applications that has resulted in increased design-ins and design wins.
As evidence of our traction to cover more applications, during the quarter, we have strong design-in momentum for gate drivers, high voltage regulators, Hall effect sensors, and MOSFETs in the brushless DC motors, electric power steering, cooling fans, water pumps, power windows, door locks, infotainment, battery management system, and advanced driving assistance system. Wireless charging, USB Type-C charging, and 48-volt battery system continue to drive demand for MOSFETs and protection load switches. We also saw strong demand for automotive-grade rectifiers in wiring harness applications, as well as our bipolar transistors and linear LED drivers in various lighting applications, including rear brake lights, turning lights, fog lights, and carpet lighting. DC/DC buck converters also received strong demand in infotainment, forward lighting, tail lights, instrument clusters, telematics, and ADAS.
During the quarter, our Pericom products for the automotive space also continued to gain strong momentum with increasing design-ins for USB Type-A charging controllers, I/O expanders, and crystal oscillators in the infotainment. Our broad portfolios of high-temperature crystal oscillators led the growth in the automotive business, contributing to the strong performance of the Pericom product line during the quarter. In the industrial market, revenue also reached a quarterly record, growing 66% over the prior year and 17% sequentially across a diverse set of applications, including power supplies, power tools, smart metering, power distribution system, machine automation system, and security system. Bipolar transistors and synchronous controllers are gaining traction in power supply applications, and PCI Express packet switch from the Pericom product family are gaining momentum in embedded applications. Newly introduced step-down LED drivers in a compound package won several new designs for LED lighting applications.
Additionally, our gate driver ICs, trench MOS technology, and voltage regulators are seeing continued success in the brushless DC motor, cooling fans and blowers, stepper motors, garage door controls, and LED strip lighting. Diodes also continue to support environmental sustainability through the efficiency improvement with our rectifiers in the green factory automated control equipment and high-speed robotics. Additionally, we gain increasing market share in inverter and Power over Ethernet applications with our MOSFETs and SBR products. We also secured increasing design wins for applications such as programmable logic controllers, IoT, security, servo motors, power supplies, smart grid, and energy. We have been securing new design wins from our Lite-On Semiconductor image sensor product line in industrial automation machines, including scanners, banknotes detectors, check readers, and PCB inspection.
In the consumer market, DC-DC converters and bipolar transistors has been gaining strong growth in monitors, TVs, set-top boxes, and cable modems. Similarly, demand for our low-power audio amplifier increased significantly, along with new design wins for Schottky and SBR products in smart speakers, wearable devices, smart routers, and virtual reality applications. With the integration of LSC manufacturing facilities, Diodes is now well-positioned to support the strong demand for our bridge rectifier products family in the consumer applications such as home theaters as well as smoke and carbon monoxide detectors. Additionally, USB power delivery decoders and MOSFET gain an increasing number of design wins in the wireless power charging solutions. Our industry's smallest MOSFET is ramping up to meet the most critical demand in small footprint applications.
We also experienced further growth in the new design wins for our USB mux devices with high voltage protection and ultra-high bandwidth features in the IoT applications. Turning to communication, we continue to drive increasing demand for our Pericom products in the 5G market. Our SPDT switch has been designed into 5G active antenna units with a major 5G equipment suppliers. We also seen demand for PMOS to protect the 5G RF amplifier in the remote units and NMOS in the 5G base stations to reduce the power consumption. Also, during the quarter, we achieved significant traction for our high PSRR performance LDOs, battery FETs, and SBR product in the smartphone applications. Diodes also saw increased revenue from optical applications for fiber optic equipment, including CWDM and DWDM modules, as well as switchgear and switchboard applications.
Building on the success of our high-performance crystal oscillators from Pericom, our ultra-low jitter crystal oscillator family also experienced tremendous growth in the optical modules. Lastly, in the computing market, revenue grew over 140% year-over-year to a record, driven by record Pericom revenue and the fourth consecutive quarter of growth. Energy conservation trend continues in the commercial PC market, which requires our signal integrity ReDrivers. We are seeing USB Type-C and DisplayPort ReDrivers, PMOS USB power delivery, buck converters, and OmniPolar Hall sensors design wins in the notebook, motherboard, and AIO platforms. Additionally, strong demand for high-resolution displays propelled our HDMI display ReDriver product to another volume peak. HDMI 2.0 ReDrivers are designed in applications like mobile stations, gaming PCs, and notebooks, and our newly released dual-channel linear LED drivers have design wins with major PC manufacturers.
Along with Pericom products, Schottky and SBR products are also increasing our new design wins in cloud platforms and data center applications. LSC's image sensor products have also been gaining new design wins in scanners and multifunction printers. In summary, we are very pleased to achieve our fourth consecutive quarter of record revenue, coupled with record performance across all financial metrics. The continued success of our content expansion initiative is evident by our record revenue in key target markets like automotive, industrial, and computing, which has also served as a key contributor to our margin expansion. With our expectations for another quarter of above seasonality results and record performance, we look forward to reporting our continuous progress. With that, we now open the floor to questions. Operator?
Our first question comes from the line of Tristan Gerra from Baird. Your question please.
Hi, good afternoon. You've mentioned market share gains in the quarter. Is that the ongoing share gains notably driven by Pericom? Or are you seeing a change or an acceleration in those share gains due to some of your competitors de-emphasizing lower margin product, which presumably would be an opportunity for you to go out on some additional share there?
Right. Tristan, this is Emily. I think the market share gain is really across the board, across all the product lines, right? Not only just the Pericom. You know, I think with our content expansion and our total solution sales strategy, driving additional design-ins and design wins, of course, with the current market situation also accelerated some of the designing activities, right? I would say it's combination of everything.
Okay. Thanks for the feedback. As a follow up, you know, how are the shortages potentially waiting on your ability to ship either at your level or at the customer level, meaning customers are waiting for other parts and might be doing some inventory rebalancing. There was a large analog company that talked about it earlier this earnings season. How do you see generally the supply potentially constraining you, not necessarily this quarter, but over the next few quarters?
Right. You know, I mean, first of all, right, we definitely are constrained, right? Because overall the situation for this round is quite dynamic. What we have been doing is actually working with customers, understanding their true demand and overcome different bottlenecks, right? Overall, we've seen the backlog is still extremely strong. We haven't really seen any significant changes from the behavior from customer rebalancing their inventory at this moment.
Great. Thanks again.
Thank you. Our next question comes from the line of William Stein from Truist Securities. Your question please.
Great. Thanks for taking my questions. First I wanna ask about the above seasonal guide. I wonder if there's one of the end markets that we should think about more prominently representing this above seasonal expectation, or is it spread across more than one?
Right. Let me address that question first. You know, I think overall we've seen strength across all the markets. Let me just break it down a little bit. In the automotive, we're still seeing it very, very strong. Industrial is also very strong. On the computing area, we're seeing a lot of the strong demand driven by the cloud-based applications. Server data center are extremely strong. You know, enterprise side is still very strong. The only area we're seeing a little bit, I would say, you know, maybe soft is actually consumer related, low-end PCs. For Diodes that was never really a big focus for us, right? If we look at the communication, I think overall the backlog's still strong, especially driven by 5G related stuff, including the smartphones.
You know, all the other, I would say, wireless phones, we're definitely seeing a little bit, I wouldn't say slow, but stable demand in general, right? So yeah. That's communication, computing, industrial, automotive. Yeah, that's about the five segments that we're seeing.
Sounds like pretty broad-based. I wonder if you could give us an update on lead times, maybe characterize, you know, what portion of the portfolio perhaps that's approximating 52 weeks or more, how that's changed, and maybe backlog if you can provide it. Thank you.
Right. Overall there's no significant change in terms of lead times. Like I mentioned before, what we do is working with customers, especially the tier one, tier two customers, understanding their true demand, right? Backlogs, very strong. Book-to-bill ratio, really strong as well. We also had a record revenue, POS revenue for the second quarter, and the strength is really across all regions as well. As you can see, based on a lot of this kind of information, we did provided a strong guidance for Q4, which is 1% quarter-over-quarter growth. Compared to the usual seasonality of 5%, you know, we see that as a strong guidance as well.
Well, in addition, we implement this non-cancelable six-month backlog. From there, we still have very strong booking and our backlog did not really get canceled, and we almost all booked for the next six months capacities. You can see the business still very strong.
Great. Thank you very much.
Thank you. Our next question comes from the line of David Williams from Benchmark. Your question please.
Hey, thanks for taking the question and congrats on the excellent results here. Maybe first, Dr. Lu, you had mentioned in your prepared remarks on the expanding capacity by adding equipment or converting to larger wafers. Just wondering if you can maybe provide some color as it relates to those remarks and if this is currently in motion or how we should think about the capacity expansion efforts in the intermediate term.
Okay. This, you know, just several of them from when we acquired LSC, some of the GBV product is at a 3-inch. We will convert to 4-inch. Some of the 4-inch wafer fab cap, we convert it into 6-inch. From there, you can see the capacity will be increased and the cost will go down. You know, on our SFAB 2, you know, we expand all this. You know, we have wafer that is 6-inch, and the other half is 8-inch. We actually ramp it up all the 8-inch capacity. We supposed to, you know, fully load it by end of fourth quarter. You remember we bought the GFAB from Texas Instruments. That GFAB, you know, we have foundry service, but it went down 10% a year.
Because of that, we are ramping up our own demand into that 8-inch GFAB and even some of the 6-inch fab. From there, we do have more capacity to support ourselves by TI, Texas Instruments. In the contract, they reduce their subcon foundry support or our foundry support to them 10% a year. You know, due to all those actions, we are able to increase our capacity. At the same time, you know, some of our own facilities, for example, the Pericom crystal oscillator line, we are so full, we actually install, you know, Two lines, one in the port this year and one going to start to ramp by end of this year.
Those are all here. There, we are able to increase our capacity to support future expansion, you know, revenue expansion.
Great. Excellent color. Certainly appreciate that. I think you're one of the few that's had that kind of capacity coming into this shortage, so it's good to see. I guess maybe from a component shortage perspective, are there areas where you're maybe seeing any type of inventory excesses or where the visibility is less clear? The reason I ask is a few others have spoken to potential builds and maybe preparation of scarce components becoming available. Just maybe thinking about the production numbers and the builds that aren't yet in the production numbers, do you think there's any part of the demand trends that you're seeing now maybe that are pulled forward because of those production builds that haven't been that aren't in the numbers yet?
Yeah. David, this is Emily. Overall, we're still seeing constraints really across all the product lines. We haven't really seen any specific pockets of product lines that's seen some of the, I wouldn't say drop, but it's really, you know, relaxed, right? We definitely don't see that at this moment. Like Dr. Lu mentioned, right, we pretty much, you know, booked with our non-cancellation policy and with our visibility on the backlog. We, you know, we are pretty well positioned for the next few months.
I think fortunately, I think it's fortunately because we are gaining the market share and because our solution sales, we are able to participate more in the customer design. Therefore, you know, our revenue growth is really very balanced. It's not just, you know, one here or there. Another thing is we are targeting in the product mix. Like, Emily just mentioned, automotive, you know, we are CAGR 30%. That give us the potential growth in the future, right? Like we focus on, you know, high-end PC data center and those servers, and those is really coming from our Pericom product, and we continue setting the new revenue record for four consecutive quarters now. Those is, you know, the growth, the support for our growth.
Even on consumer, we focus on IoT type of activity, and therefore, those are still growing, continue growing. You know, yeah, consumer and communication, 5G, you know, related either base station or cell phone or high-end, you know, high-end phone, those will continue grow in the future. Therefore, I am not concerned, even the capacity may start to loosen up, but I don't concern our growth will continue.
Fantastic color. One more if I can just squeeze it in here real quick. Just on the gross margin side, do you have a sense of maybe what the magnitude of margin improvement's been for maybe the volume and pricing versus just the value optimization? How sustainable are the margin trends, do you think?
Well-
Yeah. Go ahead.
Our principle is we only raise the price to re-reflect our cost increase, okay? You know, when our vendor raised the price for wafer fab or building material, we increase our ASP to reflect that cost increase. Majority of our gross margin improvement is not coming from the ASP increase. It is coming from our manufacturing efficiency, okay? Our product mix. When you look at the manufacturing efficiency, when we consulted LSC at 1Q this year, our GP went down 300 basis points. It's because the manufacturing efficiency is not as great as Diodes. Then, after we take over, you can see our second quarter growth 270 basis points.
Our third quarter growth, you know, 210 basis points is all due to manufacturing efficiency and product mix. Because from product mix point of view, it's like we grow much more in automotive area and I already mentioned 30% CAGR. That give you a much better gross margin. Manufacturing efficiency, I think you know the LSC manufacturing, we from half loaded and we are now get to about the LSC, one of the fab is 91% in the third quarter. Those is really 18 to the improvement of the gross margin.
Yeah. I think on top of that, right, we talk about LSC synergies, right? Besides the manufacturing synergy, we still have three other area, which is product customer base, as well as the market segments. There's still a lot of room for us to continue to grow. We're also seeing a new wave of opportunities, especially open up a lot of new doors, new sockets at a lot of strategic customers. So we believe this is the beginning of it. With our total solution sales strategy, our content expansion focus, that will continue to help us to drive the margin improvement in the near future.
Yeah. Our strategy is even this shortage, you know, capacity constraint, we are not raise the ASP crazy. We only reflect the ASP increase by, you know, our cost increase. Our customer can understand why we need to raise the ASP. We take this opportunity to develop the deeper relationship with our key customer. We are able to open the door for the area which we are not able to participate in the past. Now, the customer really welcome us to support it. By this strategy of not raise ASP too aggressively, we develop a long-term partnership relationship. At the same time, we are able to sell our total solution into the customer's hand. You know, this is, I believe, a better strategy than just raise the ASP and hurt our customers' relationship.
Fantastic. Thanks so much, and the best of luck on the fourth quarter.
Thank you.
Thank you.
Once again. Ladies and gentlemen, if you have a question at this time, please press star then one. Our next question comes from the line of Matthew Ramsay from Cowen and Company. Your question please.
Yeah. Hi there. This is Ethan Potasnick actually on for Matthew Ramsay. Congrats on the nice set of results here. Just wanted to follow up on a previous question. In understanding, I guess the utilization of the Lite-On fabs, given already high levels, how much incremental utilization is to come? And then from like a margin revenue perspective, if the fabs are getting close to full, how much of the older, lower margin, lower ASP products are running through the facility that can be replaced by higher margin, higher ASP products? And what impact that might have on the P&L going forward.
Well, let me answer some and then I'll get Gary to answer the rest of it.
Mm-hmm.
Okay. If you look at the manufacturing function of LSC, then some of the areas which are commonly used by Diodes.
Right.
That portion is one we're talking about, one of their analog fab, okay, which we call second fab, and that's one with half loading now to almost 91%.
Right.
They have another fab, which I mentioned convert from 3-inch to 4-inch, convert from 4-inch to 6-inch. That's just we put in the equipment at the in the we purchase equipment in September this year, and we will install and convert it to 6-inch. Then we ramp it up in 1Q, then we'll fully ramp by second quarter. That kind of support for the capacity going to support the growth of the AOC in the future. Because like I said, the AOC synergy other than the making function, the product synergy, the market synergy, and the customer synergy, it take time. I prepare for that. You know, it take 1 to 2 years to be able to ramp it.
We get the capacity ready to prepare for the maturity of those synergies. Now, you are asking how much percent we make- Difficult.
We are not focused on that. We know that's the area-
Right.
We're going to enhance, we're going to improve. But we did not put in forecast of, you know, how much percent going to be. It's ongoing.
Right.
productivity improvement, ongoing capacity increase, ongoing to gain that synergy for LSC. We are not separate that or either from that, for AOC only.
Right. Let me put more color on top of Dr. Lu's statement on that, and it's really difficult for us to break it out what's the low margin AOC before and what is it now. As the doctor mentioned at the very beginning about the GFAB loading, from 50% in the first quarter this year, up to 91%. It does increase the capacity utilization but also reduce the idle cost on each item, no matter Lite-On product as a second source moving from a subcon, or existing Lite-On product. They do have a much better cost structure, you know, than like three quarters before. That does help us to bring up the, you know, the competitiveness of those devices, no matter it's Lite-On product or Lite-On product.
Right. So maybe let me add one more comment. Your question regarding lower ASP margin, replaced by higher ASP or better margin product, that is actually part of our product mix strategy that we continue to drive. There's still a lot of room for us to continue to improve.
Right.
This will also include, I mean, Lite-On Semiconductor is part of our overall portfolio, so we'll continue to execute this strategy.
Right. Okay. Totally understand. Thank you for that. Then just a quick follow up, if you could give us a little color, maybe on what you expect from the different segments, sequentially, as you know, given the guide.
I think, you know, I did went over the segments, right? Automotive's gonna be strong. Industrial's gonna be strong. PC, higher end stuff, cloud driven data center servers will be strong. Consumer focus more on the IoT area and then communication is really 5G driven. We don't really break down and provide the guidance down to each of the segment. That's, you know, what we're seeing in the market, nowadays.
Understood. Thank you very much.
Thank you. This does conclude the question and answer session of today's program. I'd like to hand the program back to Dr. Lu for any further remarks.
Thank you for your participation on today's call. Operator, you may now disconnect.
Thank you. Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.