Diodes Management Issues Updated Q4 Guidance

Diodes, Inc. management issued a mid-quarter update after the market close. Regarding 4Q13 revenue and operating expenses, not a lot has changed since management issued guidance on November 12. Gross margin, however, is now expected to be 60bp higher than the midpoint of previous guidance. The slight positive variance to gross margin could be due to a number of factors including: 1) lower gold prices, 2) less desperation in the market and/or 3) a better mix of revenue.

On q/q basis, 4Q13 gross margin is expected to decrease 240bp due to lower revenue and lower manufacturing utilization rates. Because of this upward revision to gross margin, we are increasing our 4Q13 non-GAAP EPS estimate (ex-options expense) from $0.20 to $0.22. We are maintaining our Buy rating and $28.00.

Mainly due to weaker market conditions, 4Q13 revenue is expected to decline 5.5% q/q (midpoint). Most of Diodes’ peers (e.g. TXN, FCS, IRF, ONNN) guided 4Q13 revenue to decline 2%-8% q/q, which puts Diodes’ guidance of -5.5% in the range of others. Other broadline analog and MCU companies including TXN and MCHP have also recently reconfirmed previous 4Q13 guidance. However, it does sound as though bookings trends for chip companies have stabilized since weak trends unfolded in Sept/Oct.

This said, chip industry bookings and shipments for the next two months will be constrained somewhat by seasonal headwinds. Diodes too should experience normal seasonal weakness during 1Q14, but assuming global economic conditions do not deteriorate during the next few months, 2Q14 should bring a seasonal uptick. At this point, we are not making changes to our FY14 estimates.


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