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Diodes Staying Competitive Due to Asia Expansion Plan

Diodes Staying Competitive Due to Asia Expansion Plan By CARLOS MARTINEZ Staff Reporter Despite a competitive semiconductor market, Westlake Village-based Diodes Inc. has continued to gain ground on its competitors thanks primarily to the growing Chinese market. The company, which two years ago was still reeling from a down semiconductor market, has been on the upswing in the last year, due largely to its aggressive expansion in China where it has built two manufacturing plants the last two years. “Diodes was the first company to establish itself in China and as a result they’ve benefited tremendously,” said Gary Mobley, an analyst for B. Riley & Co. Overall, the company posted record numbers for its second quarter, with a 11.5 percent sales increase from the same period last year along with a 39 percent increase in net income from year-ago numbers. For the quarter ending June 30, the company reported net income of $2.7 million or $0.23 per share on $33.4 million in total sales, compared to a year earlier when it reported $1.6 million net income or $0.18 per share on sales of $29.9 million. The company makes discrete semiconductors or semiconductors that are used as part of other companies’ components in various industries such as communications, computing, automotive and consumer electronics. Most of these units are used in pagers, cellular telephones, notebook computers, garage door remote units and other such devices. C.H. Chen, Diodes president and CEO says the company’s growth is due simply to increased demand. “Our success is largely attributable to the growing market acceptance of our higher margin differentiated discrete products,” he said. Surge in Asia Asia in particular, accounted for 53 percent of the company’s sales up from 46 percent in the same period last year. In China alone, sales increased by 17 percent in the same period. “They have the advantage of having sales teams in mainland China which allows them to market themselves well and better respond to customers,” Mobley said. As a result, the company was able to increase its Asian market share and ramp up production at its Diodes-China facility and at its St. Louis-based Fab-Tech plant to meet the increased demand in Asia. “That was one of the reasons why they weren’t negatively impacted by the SARS outbreak in Asia,” Mobley said. “They had people and product in Asia so nothing had to be brought in from the outside so SARS wasn’t really an issue for them.” The company in recent years has grown from an equipment provider acquiring much of it from outside vendors to then sell it to customers to an integrated manufacturer and supplier. By spending on research and development for the first time ever, the last two years, the company has developed new low-cost products and is passing along the savings to its customers, the company says. It was back in 1990 when the company made only about 10 percent of the products it sold, but today, the figure is about 70 percent and continuing to grow as it expands its manufacturing capacity here and in China. New products Last quarter, the company spent $4.8 million in research and development, compared to a year earlier when it spent $4.4 million. The increased spending is appearing to pay off as new products accounted for 12.5 percent of all sales, compared to a year earlier when they accounted for just 6 percent. The company, which has just 1 percent of the $13 billion discrete semiconductor market, is continuing to grow due largely to the increasing strength of the sector. Mobley estimates the market will grow by 12 percent this year and by 13 percent next year. The company’s stock price has been on the upsurge of late, but not enough to win over Wall Street analysts like Mobley who is still cautious on the stock and sticking to a hold recommendation. Diodes stock closed last Friday at $19.55, with a 52-week high of $24.90, reached on July 14, and a 52-week low of $6.07, reached on Oct. 10. As of June 30, the company reported it had $7.3 million in cash and equivalents along with $15.5 million in long-term debt.

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