Diodes (DIOD) Q4 2025 Earnings Call Transcript

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DATE

Tuesday, Feb. 10, 2026 at 5 p.m. ET

CALL PARTICIPANTS

• President and Chief Executive Officer — Gary Yu
• Chief Financial Officer — Brett Whitmire
• Senior Vice President, Worldwide Sales and Marketing — Emily Yang
• Vice President of Marketing, Investor Relations — Gurmeet Dalaiwal

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TAKEAWAYS

• Revenue Growth -- Fourth-quarter revenue was $391.6 million, up 15.4% year over year, and essentially flat sequentially from $392.2 million in the prior quarter.
• Full-Year Revenue -- Annual revenue for 2025 grew 13% to $1.5 billion, the highest since 2021.
• Gross Profit and Margin -- Q4 gross profit reached $121.9 million (31.1% of revenue); full-year GAAP gross profit was $462.4 million (31.3% of revenue), down from 33.2% last year.
• Market Segment Strength -- Automotive market revenue increased 6% sequentially and 24% year over year, with computing up 25% and automotive/industrial both recording double-digit yearly growth.
• GAAP and Non-GAAP EPS -- Q4 GAAP net income was $10.2 million, or 22¢ per diluted share; non-GAAP adjusted net income was $15.7 million, or 34¢ per diluted share.
• EBITDA Performance -- EBITDA for the quarter was $41.9 million (10.7% of revenue), and $199.2 million (13.4% of revenue) for the year.
• Cash Flow and Buybacks -- Q4 cash flow from operations was $38.1 million; free cash flow was $12.4 million after $25.7 million in capex, while $23.8 million was returned to shareholders via a stock buyback.
• Inventory and Capital Expenditures -- Q4 inventory days were 161; capex was $25.7 million in the quarter (6.6% of revenue) and $78.4 million for the year (5.3% of revenue), both within targeted ranges.
• First-Quarter 2026 Guidance -- Management projects revenue of approximately $395 million (plus or minus 3%), representing a 19% year-over-year increase and surpassing typical seasonality per the transcript.
• Interim Three-Year Targets -- CEO Yu introduced three-year financial targets of $2 billion in annual revenue, $700 million in gross profit (35%+ gross margin), and over $4 in non-GAAP EPS, implying a 50% CAGR in non-GAAP EPS.
• Product and Customer Focus -- Over 650 new products introduced in 2025, with 40% targeting automotive; automotive content-per-vehicle rose to $239 from $213 at 2024 close and $160 at 2023 close.
• Geographic Revenue Mix -- Asia accounted for 78% of sales, Europe 12%, and North America 10%.
• Channel Inventory -- Channel inventory decreased and is now within the normal range of 11-14 weeks, according to management.
• Pricing and Cost Structure -- CEO Yu emphasized ongoing cost efficiency, product mix improvement, and “minimizing underloading costs” as drivers for future margin expansion.
• Book-to-Bill and Backlog -- Management cited “strong backlog, really strong bookings, and strong book-to-bill” entering the new year.

SUMMARY

Management announced new medium-term financial targets, outlining a plan for $2 billion in annual revenue, $700 million in gross profit, and greater than $4 in non-GAAP EPS within three years, highlighting expectations for strong operating leverage and earnings growth. Diodes Incorporated (NASDAQ:DIOD) observed outsized growth in AI-related computing and automotive end markets, with the CEO identifying improved manufacturing efficiency and product mix as primary levers for further margin expansion. Guidance for the upcoming quarter indicates a continuation of double-digit revenue growth, underpinned by above-seasonal demand trends and normalized channel inventory. Capital allocation included $23.8 million of stock repurchases in the fourth quarter, and management stated the program’s primary purpose is to return excess capital while “partially offsetting the dilutive impact of shares issued under our equity incentive plans.” Outstanding channel and customer engagement initiatives contributed to design win momentum and increasing content across key segments, as evidenced by the sharp rise in automotive content-per-vehicle and expansion into AI server platforms.

• CEO Yu said, After reaching $1 billion in revenue in 2017, our next billion-dollar goal is to reach $2.5 billion in revenue and $1 billion in gross profit, or 40% in gross margin. underscoring the pathway to longer-term targets.
• Management confirmed channel inventory reductions and backlog improvement, signaling more stable demand visibility heading into 2026.
• Recent supply interruptions in the market created new content and partnership opportunities for Diodes in automotive and communications sectors, as directly discussed by management.
• Gross margin improvements are targeted through reduced manufacturing underloading, further cost reductions, and increased focus on high-margin segments, per management commentary.
• An unstated but transcript-cited driver for future GP percent improvement is the planned transition of wafers to in-house fabs, with CEO Yu saying, probably starting from next year, you'll see the benefit contributing to our GP percent on those two wafer fabs.

INDUSTRY GLOSSARY

• SBR (Schottky Barrier Rectifier): A fast-recovery, low-forward-voltage-drop diode product line frequently referenced in industrial, automotive, and computing applications for efficient power management.
• GAAP: Acronym for Generally Accepted Accounting Principles, referenced here for clarity where call uses both GAAP and non-GAAP reporting.
• Book-to-Bill Ratio: A metric comparing orders received to products shipped and billed during a period, serving as a near-term demand indicator, and referenced by management as an indicator of strength in the call.

Full Conference Call Transcript

Leanne Sievers: Good afternoon, everyone. And welcome to Diodes Incorporated Fourth Quarter and Full Year 2025 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. If anyone needs assistance at any time during the conference, as a reminder, this conference call is being recorded today, Tuesday, 02/10/2026. We'd now like to turn the conference call over to Leanne Sievers of Shelton Group Investor Relations. Leanne, please go ahead.

Leanne Sievers: Good afternoon, and welcome to Diodes' Fourth Quarter 2025 Financial Results Conference Call. I'm Leanne Sievers, President of Shelton Group, Diodes' Investor Relations firm. Joining us today are Diodes' president and CEO, Gary Yu; CFO, Brett Whitmire; senior vice president of worldwide sales and marketing, Emily Yang; and vice president of marketing investor relations, Gurmeet Dalaiwal. 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 Form 10-K for its year ended 12/31/2025.

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 Form 10-Ks and 10-Qs. In addition, any projections as to the company's future performance represent management's estimates as of today, 02/10/2026.

Diodes assumes no obligation to update these projections in the future as market conditions may or may not change, except to the extent required by applicable law. Additionally, the company's press release and management statements during this conference call will include discussions of certain measures and financial information in GAAP and non-GAAP terms. Included in the company's press release are definitions and reconciliations of GAAP to non-GAAP items, which provide additional details. Also throughout the company's press release and management statements during the 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 ninety days in the Investor Relations section of Diodes' website at www.diodes.com. And now I'll turn the call over to Diodes' president and CEO, Gary Yu. Gary, please go ahead.

Gary Yu: Welcome, and I thank you for joining us on today's conference call. As announced in our press release earlier today, we ended 2025 with fourth-quarter revenue growing 15% year-over-year and 13% for the full year, which is the highest level of annual growth since 2021. Additionally, this quarter represents the consecutive quarter of double-digit growth year-over-year, further highlighting the success of our design win initiative and content expansion over the past year.

We have continued to see the main improvement across our target market and geographies with the most significant growth for the full year driven by a 25% increase in the computing market primarily for AI server-related applications as well as a double-digit increase in our automotive and industrial end markets. Also during the quarter, we began to realize initial improvements in gross margin as product mix benefits from growth in the automotive market, which increased 6% sequentially and 24% year-over-year. We also remain focused on increasing manufacturing efficiency and minimizing underloading costs over the next few quarters to further drive future margin expansion.

As we look to the coming quarter, we anticipate extending our success by delivering above-seasonal revenue results and another consecutive quarter of double-digit year-over-year growth. As we look back over this past year and the progress that has been made, I want to take this opportunity to discuss my specific near-term financial target after having been in the role of president and CEO for the past two quarters. After reaching $1 billion in revenue in 2017, our next billion-dollar goal is to reach $2.5 billion in revenue and $1 billion in gross profit, or 40% in gross margin. I want to emphasize that we remain committed to achieving these long-term goals.

In order to help our investors track our progress toward these goals, today, I'm introducing three-year interim financial targets which include achieving $2 billion in annual revenue, with approximately $700 million in gross profit, or 35% plus in gross margin. This equates to a revenue CAGR of 10.5% and a 15% CAGR on gross profit dollars. Most notably, when taking into account our improved cost structure, we are expecting to deliver over $4 in non-GAAP EPS, which equals a 50% CAGR over that three-year period. This interim goal highlights the strong operating leverage in Diodes' financial model and the ability to generate significant earnings power and cash flow on each incremental dollar of revenue growth.

As mentioned earlier in my remarks, we continue to prioritize product mix improvement by focusing our sales efforts and R&D dollars on our three key focus areas of automotive, industrial, and computing for AI-related server applications. Content expansion, design win momentum, and new product introduction will continue to be the cornerstones of our growth initiative, combined with increased manufacturing and cost efficiency to drive margin expansion. With that, let me now turn the call over to Brett Whitmire to discuss our fourth-quarter and full-year financial results as well as our first-quarter guidance in more detail.

Brett Whitmire: Thanks, Gary, and good afternoon, everyone. Revenue for the fourth quarter of 2025 was $391.6 million, an increase of 15.4% over $339.3 million in the fourth quarter of 2024, and essentially flat compared to $392.2 million in the third quarter of 2025. Full-year 2025 revenue increased 13% to $1.5 billion compared to $1.3 billion in 2024. Gross profit for the fourth quarter was $121.9 million, equating to 31.1% of revenue, compared to $110.9 million or 32.7% of revenue in the prior year quarter and $120.5 million or 30.7% of revenue in the prior quarter. For the full year, GAAP gross profit was $462.4 million or 31.3% of revenue compared to $435.9 million or 33.2% of revenue in 2024.

GAAP operating expenses for the fourth quarter were $108.7 million or 27.8% of revenue, and on a non-GAAP basis were $104 million or 26.6% of revenue, which excludes $4.7 million amortization of acquisition-related intangible asset costs. This compares to GAAP operating expenses in the fourth quarter of 2024 of $99 million or 29.2% of revenue and $108.9 million or 27.8% of revenue in the prior quarter. Non-GAAP operating expenses in the prior quarter were $103.1 million or 26.3% of revenue. Total other income amounted to approximately $1.3 million for the quarter, consisting of $7 million in interest income, $2.9 million in foreign currency losses, $1.3 million in interest expense, $1.6 million loss on investment, and $100,000 in other income.

Income before taxes and non-controlling interest in the fourth quarter of 2025 was $14.5 million compared to income of $12.3 million in the prior year period and $19 million in the previous quarter. Turning to income taxes, our effective income tax rate for the fourth quarter was approximately 14.9%. For the full year 2025, the tax rate was approximately 17.6%. For 2026, we continue to expect the tax rate for the full year to remain at approximately 18% plus or minus 3%.

GAAP net income for the fourth quarter was $10.2 million or 22¢ per diluted share compared to net income of $8.2 million or 18¢ per diluted share in the prior year quarter and net income of $14.3 million or 31¢ per diluted share last quarter. Full-year GAAP net income was $66.1 million or $1.43 per diluted share. Compared to $44 million or 95¢ per diluted share in 2024. The share count used to compute GAAP income per share for the fourth quarter of 2025 was 46.3 million shares and 46.4 million for the full year.

Non-GAAP adjusted net income in the fourth quarter was $15.7 million or 34¢ per diluted share, which excluded net of tax $3.9 million of acquisition-related intangible asset costs, and $1.6 million of loss on investment. This compares to non-GAAP adjusted net income of $12.5 million or 27¢ per diluted share in the fourth quarter of 2024 and $17.2 million or 37¢ per diluted share in the prior quarter. For the full year, non-GAAP adjusted net income was $56.7 million or $1.22 per diluted share, as compared to $61 million or $1.31 per diluted share in 2024.

Excluding noncash share-based compensation expense of $5.3 million for the fourth quarter net of tax, both GAAP net income and non-GAAP adjusted net income would have increased by 12¢ per share. For the full year, excluding noncash share-based compensation expense of $20.3 million net of tax, GAAP and non-GAAP diluted earnings per share would have improved by 44¢ per share. EBITDA for the fourth quarter was $41.9 million or 10.7% of revenue, compared to $40.7 million or 12% of revenue in the prior year period and $46.6 million or 11.9% of revenue in the prior quarter.

Brett Whitmire: For the full year, EBITDA was $199.2 million or 13.4% of revenue compared to $177.1 million or 13.5% of revenue in 2024. 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 provided by operations was $38.1 million for the fourth quarter. Free cash flow was $12.4 million which included $25.7 million of capital expenditures. Net cash flow was a negative $9.7 million, which includes $23.8 million that was returned to our shareholders by executing on our previously announced $100 million stock buyback program.

The objective of our share repurchase program is to return excess capital to shareholders while partially offsetting the dilutive impact of shares issued under our equity incentive plans. For the full year, cash flow provided by operations was $215.5 million, an increase of $96.1 million compared to $119 million last year. Free cash flow in 2025 was $137.2 million, which included $78.4 million of capital expenditures. This represents a $90.8 million increase over the $46.4 million in 2024. And net cash flow for the full year was a positive $57.6 million, which includes $33.8 million for the stock buyback program, compared to a negative $3.8 million in net cash flow last year.

I'd also like to point out that our free cash flow per share increased threefold to $2.95 per share in 2025 from $1 per share in 2024. Turning to the balance sheet, at the end of the fourth quarter, cash, cash equivalents, restricted cash plus short-term investments totaled approximately $382 million. Working capital was approximately $879 million, and total debt including long-term and short-term, was approximately $56 million. In terms of inventory, at the end of the fourth quarter, total inventory days were approximately 161, as compared to 162 last quarter. Finished goods inventory days were 59 compared to 62 last quarter.

Total inventory dollars increased $600,000 from the prior quarter to $471.5 million consisting of a $2.1 million increase in work in process, a $1.2 million increase in raw materials, and a $2.7 million decrease in finished goods. Capital expenditures on a cash basis were $25.7 million for the fourth quarter, or 6.6% of revenue and $78.4 million or 5.3% of revenue for the full year. Both of which were within our targeted annualized range of five to 9% of revenue. Now turning to our outlook, for the first quarter of 2026, we expect revenue to be approximately $395 million, plus or minus 3%.

At the midpoint, this represents a 19% increase year-over-year and a slight increase sequentially, which is significantly better than typical seasonality. GAAP gross margin is expected to be 31.5%, 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 26.5% plus or minus 1%. We expect net interest income to be approximately $1 million. Our income tax rate is expected to be 18.5% plus or minus 3%. And shares used to calculate EPS for the first quarter are anticipated to be approximately 46.4 million shares. Not included in these non-GAAP estimates is amortization of $3.9 million after-tax, for previous acquisitions.

With that said, I now turn the call over to Emily Yang.

Emily Yang: Thank you, Brett, and good afternoon. As Gary and Brett mentioned, fourth-quarter revenue was up over 15% year-over-year, flat sequentially and at the high end of our guidance. Mainly driven by strong demand in Asia, especially in Taiwan for AI server-related computing. Our global POS increased sequentially led by North America and Europe, followed by Asia. This is a good indication of the overall market recovery in the automotive and industrial market. And our channel inventory decreased again, both in terms of dollars and weeks, which are now within our normal range of eleven to fourteen weeks.

I will also highlight, with the recent supply interruption in the market, we have been strategically supporting key customers on new opportunities and orders, specifically in the automotive and communication markets, while also further extending our design win momentum across all end markets. Our key focus remains on building a strong win-win partnership with our customers for the long term. Looking at global sales in the fourth quarter, Asia represented 78% of the revenue, Europe 12%, and North America 10%. In terms of our end markets, industrial was 22% of Diodes' product revenue, automotive 20%, computing 28%, consumer 17%, and communication 13% of the product revenue.

Our automotive industrial revenue combined was 42%, which is a one percentage point increase compared to last quarter due to stronger demand in Europe. In 2025, we introduced over 650 new part numbers, approximately 40% specifically for the automotive market, where we have increased our addressable content to $239 per vehicle from $213 at the end of 2024 and from $160 at the end of 2023. Our content in the AI server applications this year increased to 103 from 90 last year. Now let me review the end markets in greater detail. Starting with the automotive market, revenue in the quarter grew 6% sequentially and 20% for the full year as the inventory situation and overall demand continue to improve.

The good news is we have started to see solid bookings with longer visibility on the orders. Additionally, the supply disruption I mentioned previously is expanding content opportunities for Diodes at key automotive customers. During the quarter, we broadened our content and deepened our design win momentum across all focus areas, including connected driving, comfort, style and safety, and electrification. Diodes' level shifter gained broader adoption in-vehicle infotainment, ADAS, and zonal control unit platforms, while our timing solutions saw additional design wins in PCI Express clock generators, buffers, and low-voltage crystal oscillators supporting high-speed ADAS modules.

Complementing this momentum, our USB power delivery controllers and DC-DC converters continue to see strong traction across infotainment, charging interfaces, and body electronics, while our Hall effect sensors expanded into new applications including e-latches, steering locks, and cooling fans. In lighting and motor control applications, we achieved significant wins for multichannel LED drivers across several next-generation lighting programs. Demand for our current monitor remains strong in comfort-focused motor systems such as power seats and power windows, while our LDO solutions continue their run in wireless charging and ADAS-related subsystems. Our bipolar junction transistors portfolio also gained momentum with new program wins supporting actuators and millimeter-wave radar systems.

Turning to the industrial market, revenue in the quarter was flat sequentially, but increased 13% for the full year. Similar to the automotive market, the inventory situation continues to improve. We are beginning to see overall demand visibility and backlog improvement and are seeing more rush orders than ever before, which is further indication of the market recovery in 2026. During the quarter, we saw solid momentum across power, sensing, and automation applications. Our LED driver family continues to win designs in traffic signage projects, while current monitors experienced strong demand as power supply unit volumes increased. Diodes' Hall sensor and DC-DC buck converters also maintain steady growth driven by expanding use in fan motors and energy meter platforms.

Our SBR product family also remains a key enabler in industrial power with design-ins across power rack and server power manufacturers supporting AI applications. In energy-related applications, our 1,200-volt silicon carbide Schottky barrier diodes were designed into next-generation energy storage platforms. Similarly, our gate driver ICs secured new design wins in battery storage inverters reinforcing our position across industrial electrification and power control infrastructures. In the computing market, although revenue was flat sequentially, we saw the strongest growth in this market for the full year, growing 25% over 2024. The highlight in this market continued to be strong demand across multiple product categories driven by AI server adoption and data center expansion.

BIOS I2C repeaters, and USB switches remain high demand for server and AI-related server platforms from major global customers. Our DDR MOX product line also experienced robust growth as AI server and data center consumers expanded memory bandwidth to support the accelerated AI workflow. We also achieved strong momentum for our PCI Express 5.0 and 6.0 clock solutions, especially as server and mobile OEMs migrate to high-performance architectures optimized for AI systems. In connectivity and power, our USB-C source switches with integrated CC controllers along with our 20-volt low-noise LDOs continue to gain traction, especially in 15-watt USB-C power port for desktop and docking station applications.

Additionally, our low-on-power switches saw increased adoption in data center SSD configurations, while our smart low switches captured multiple design wins for notebook power delivery systems. We also secured several design wins for our SBR product in power delivery adapters for notebooks. In the consumer market, revenue was down 5% sequentially and up 8% for the full year. During the quarter, our WLED driver gained momentum in virtual reality headsets supporting next-generation high brightness display architectures, while our 5.0 OCT switches expanded in USB and HDMI port protection designs as connectivity requirements increase across personal electronics.

Also, our bipolar junction transistor portfolio secured new design-ins across home security devices, whereas our discrete switching components remain essential for reliable sensing and control functions. Lastly, in the communication market, revenue was flat sequentially and up 7% for the full year. We are seeing strong momentum across high-speed connectivity and networking applications driven by AI infrastructures. Our bidirectional level shifters continue to win designs in smartphones, and our SBR rectifiers are also gaining traction in both smartphones and SSDs. We are also seeing growing demand for our differential crystal oscillators in smart NIC cards and optical modules targeting next-generation 800-gig 1.6T transceivers supporting the industrial transition to higher bandwidth network infrastructures.

And finally, our USB redrivers secured major design wins in the next-generation Wi-Fi routers. In summary, our focus in 2026 is executing towards our three-year financial target to drive continued year-over-year growth momentum and margin expansion. With channel inventory at more normalized levels and further signs of recovery in the automotive and industrial market, we expect to see improvements in the overall business outlook throughout the year. Additionally, our continued investment in content expansion initiatives targeting our key focus markets of automotive, industrial, and computing for AI software-related applications should contribute to our future top and bottom-line growth. With that, we now open the floor to questions. Operator?

Operator: Ladies and gentlemen, at this time, we'll begin the question and answer session. If you would like to ask a question, please press star and then 1 using a touch tone telephone. To withdraw your questions, you may press star and 2. If you are using a speakerphone, we do ask that you please pick up the handset to ensure the best sound quality. Once again, that is star and then 1 to join the question queue. We'll pause momentarily to assemble the roster. And our first question today comes from David Williams from Benchmark. Please go ahead with your question.

David Williams: Hey. Thanks, everyone, and congrats on the really solid results here and the better outlook. Yeah. I guess maybe first, Gary, you gave some pretty aggressive targets there that you've outlined. Can you kind of maybe walk us through the puts and takes and maybe, you know, how you see getting there, maybe just stepping through the trajectory would be helpful. Thank you.

Gary Yu: Yes. And, David, I think that you are really asking a very good question. You know, first, I really want to emphasize again, we're still committed to achieving the $1 billion GP long-term goal. Right? And, you know, I do believe since the market is still kind of dynamic, the interim target up at $2 billion revenue is an important milestone for investors to understand and model how and when we are going to achieve our long-term $1 billion GP target. So as in my speech, now continue to drive it and gain share in the three key end-market segments like automotive, industrial, and AI server-related, and also continue to improve cost structure and a product mix enhancement.

And that the $2 billion represents a 10.5% CAGR about $700 million gross profit. It's about like 15% CAGR, and 35% and a plus GP percent will deliver $4 EPS, which equates to probably 50% CAGR for the three-year period. And, also, to make this happen, you know, we are talking about more than 45% GP pull-through for any incremental dollar contributing to our revenue, and that's very important.

David Williams: That's very helpful. So I get from the gross margin standpoint, a very nice follow-through. Are you seeing some of the operational efficiencies that you've worked on over the last several quarters or through the downturn? Is that really beginning to flow through? And then how should we think about the cadence of that gross margin improvement?

Gary Yu: Well, actually, you know, that's a very good question too because, you know, we have been working a lot to improve our cost structure, including the manufacturing efficiency and the product mix improvement. And the most important is we bring the revenue up, and that's going to help our underloading issue in our manufacturing currently.

David Williams: And just one more, if I may. Just as you think about the growth trajectory through the year, how should we kind of think about that for the full year?

Gary Yu: Well, we usually do not talk about the full year, but I do get a good feeling of the market demand getting much better this year. Right, especially in the key segments that we're focusing on. And as we continue to drive this initiative, including product mix improvement and pushing more cost reduction and then manufacturing efficiency, as well as continuing to qualify NPC or process product for our And this will help minimize an underloading cost impact. So, overall, the margin improvement for 2026, to me, is very promising.

Emily Yang: Yeah. I think, David, let me just add a little bit. Right? So if you look at the Q1 guidance, we actually guided a 19% year-over-year growth. Right? So even if we do not really guide a whole year guidance, we usually, you know, say, hey. You show seasonality. If you just plug in the usual seasonality, it kind of would give you a good estimate for the year. Right? So I think you can use that as a reference.

David Williams: Great. Thanks so much.

Operator: And our next question comes from William Stein from Truist Securities. Please go ahead with your question. Congrats on the good results.

William Stein: Regarding the new targets, I think you said that's a three-year target. So should we contemplate this interim goal as something you plan to achieve in calendar year 2028?

Gary Yu: Yeah. Definitely. Yes. This is why I come here to the board and also come here to the street.

William Stein: Great. And a couple of others if I can. The delta between your current gross margins and the target that you laid out today, should we think about the majority of that as getting through underutilization charges? Like is that the major driver of this I think you highlighted a 45% drop-through. That does not sound like it's sort of normal operating leverage. It sounds like it's an underutilization charge going away. Is that the way we should think about that dynamic from here through 2028?

Gary Yu: Yeah. Definitely. Under low charge is going to be the key factor, you know, for the RGP percent. And but that's not the only thing we want to improve. Right? Not only the underloading charge, but we also want to improve the product mix, you know, enhancement, and also want to concentrate and focus on high-margin segments like automotive, industrial, and AI-related server. All will contribute more GP dollars and GP percent.

William Stein: Okay. One final one if I can. You have these manufacturing services agreements that I think are coming to an end this year or maybe they are diminishing. If you can clarify that for us and help us prepare for any changes that might cause either positive or negative to profitability? Thank you.

Gary Yu: Yes. You know? And your assumptions are correct. And, you know, and we cannot disclose too much detail about that. Then they are about to actually know about this year. And that's the reason we try to, you know, continue reporting our product and processing to the manufacturing in our G fab and S P fab. And so far, the progress is quite promising, and we do see that quite a few key customers have already adapted the product from produced from those two wafer fabs. And, you know, I will say, you know, probably starting from next year, you'll see the benefit contributing to our GP percent on those two wafer fabs.

William Stein: Thank you.

Gary Yu: Thank you. Thank you.

Operator: Once again, if you would like to ask a question, please press star and then one. To withdraw your questions, you may press star and two. Again, that is star and then one to join the question queue. And we do have a follow-up question. From David Williams from Benchmark. Please go ahead with your follow-up.

David Williams: Hey. Thanks for letting me jump back in here. I get this always real tough. Well, you were so efficient answering my first questions, I figured I should throw in a couple more. But maybe just on the opportunity with Nexperia or the customer that you discussed earlier, can you maybe size the magnitude of that? And then I know that has historically been lower margin business. Can you talk maybe about what you're doing to help stabilize the margin and not see the pressure here that you would typically see with that business?

Emily Yang: Yeah. So, David, this is Emily. Right? So I mentioned this before. Anytime there's a supply interruption, market strategic change, direction, or anything is always favorable for Diodes, right? So, you know, definitely, we're not interested in picking up a lot of deep commodity business and stuff like that, but we actually use the opportunity to work with the customer to really deepen the relationship and make it really, I would say, beneficial long term for both of the companies. Right? So that's pretty much the approach we're taking. So we are using the opportunity to expand our overall portfolio as well as our print position.

David Williams: And just one last one. Just kind of thinking about the Lunar holiday coming up in Asia. I know that typically drives some seasonality. Are you sidestepping that or you're just not seeing the impact or maybe talking about anything you're doing there to offset that typical weakness?

Emily Yang: Yeah, Chinese New Year is pretty standard, right? Definitely, there's going to be some shutdowns and some of the customers, as well as taking the break. So we actually included all these estimates into our number. But like I mentioned, we're definitely seeing really strong backlog, really strong bookings, and strong book-to-bill and everything. So that's the reason we actually guided very strong Q1 estimate guidance to the Street. Like I said, we're seeing a lot of recovery in the market, very good indication of the recovery.

David Williams: Thanks again for the help. Congrats once again.

Emily Yang: Thank you. Thanks, David.

Operator: And ladies and gentlemen, at this time, we'll be concluding today's question and answer session. I'd like to turn the floor back over to the management team for any closing remarks.

Gary Yu: Thank you, everyone, for participating in today's call. We look forward to reporting our progress on next quarter's conference call. Operator, you may now disconnect.

Operator: And ladies and gentlemen, we will conclude today's conference call and presentation. We thank you for joining. You may now disconnect your lines.

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