Diodes Acquisition of Chip Plant Boosts Bottom Line CORPORATE FOCUS By MICHAEL HART, Staff Reporter Diodes Inc. has been in the business of selling semiconductors for a long time, more than 40 years, in fact. And over the last couple of years, it took the same hits others in its industry did. Revenues in 2001 were $95.2 million, down from $118.5 million in 2000. In the third quarter of 2001, Diodes lost $847,000 on $22.7 million in revenue. On Oct. 1, 2001, its stock was trading at $4.20 a share, after starting out the year as high as $15.94. “But we had a good model,” said Mark King, vice president of sales and marketing, after the release of Diodes’ most recent earnings report. Net income for the company’s third quarter was $1.8 million on $30.3 million in revenue, up from that $847,000 loss on $22.7 million in revenue in the same quarter a year earlier. Diodes makes, markets and distributes semiconductors used in a number of other companies’ products, primarily in communications, computing, automotive and consumer electronics. While it is a foregone conclusion that the technology market has yet to stage a comeback, many believe the semiconductor sector which supplies technology’s basic building blocks is making a return. “Industry-wide, supply levels are slowly being rebuilt,” said Diodes CFO Carl Wertz. Diodes, at this point one of the smaller players in the discrete semiconductor sector, is not the only company to notice this. Just as Diodes has boosted sales 33.5 percent since the third quarter of 2001, larger competitors also experienced revenue increases, albeit not as proportionately substantial. For instance, Vishay Intertechnology Inc. increased sales from the second quarter of 2001 to the same quarter of 2002 by 19.4 percent (from $383.4 million to $457.9 million) and Fairchild Semiconductor International Inc. experienced a 10.8-percent increase in sales from the third quarter of 2001 to the same period this year (from $325.4 million to $360.6 million). However, the acquisition of chip manufacturer FabTech Inc. in late 2000 made Diodes’ resurgence a little different. “It’s just starting to have the impact we expected it to have,” King said. Craig Pratesi, an analyst with Standard & Poor’s, noted that, with the manufacturing capacity now available with FabTech’s China facilities, “Diodes aims to become a vertically integrated manufacturer and supplier.” King said, “If you look at our performance before 2002, we lived in a strictly commodity environment,” buying products that were available and passing them along to customers. “We were limited in the direction we could go.” Since then Diodes has begun to invest money, for the first time, in its own research and development ($1.2 million so far this year, up from $450,000 during the first nine months of 2001) and in the last quarter new products accounted for 8 percent of sales, up from 1 percent a year ago. “Those new products are higher margin too,” said King. “So in the long run, it should affect the bottom line.” At the same time, Diodes has begun expanding its sales forces throughout the world. With subsidiaries already in operation in China, Taiwan and Hong Kong, Pratesi noted that sales channels are being developed in Europe to capture greater market share in England, France, Germany, Italy and Israel. The company also ended the third quarter with $6 million in cash on hand, having paid down $12.4 million in debt since the beginning of the year (leaving Diodes with $10.4 million in long-term debt). Even if King says, “We don’t really believe (our stock) is performing that well,” its share price has grown in recent months, at least compared to Fairchild, Vishay Intertechnology and other larger competitors in the same space. After trading as low as $6 a share in late 2001, Diodes stock price was $9.91 on Nov. 8. Meanwhile, Fairchild hit a high of $32.03 on April 17; on Nov. 8 it was trading at $13.20. Vishay’s share price was $26.15 on May 17; on Nov. 8 it was $10.99.
