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Diodes Incorporated (DIOD - Snapshot Report) recently reported second-quarter 2014 results. Adjusted earnings (excluding amortization of intangible assets and other one-time item) came in at 38 cents per share, which not only beat the Zacks Consensus Estimate by a penny but also increased 15.2% on a year-over-year basis.
 

 

Quarter Details

Diodes’ second-quarter revenues came in at $223.2 million, up 4.1% on a year-over-year basis. Reported revenues came in line with the Zacks Consensus Estimate. The year-over-year improvement was attributed to better-than-expected growth in industrial end markets aided by favorable product mix in North America and Europe.

By end markets, consumer accounted for 33% of total revenue; communications accounted for 22%, industrial represented 21%, computing 20% and automotive accounted for 4% of total revenue.

Diodes’ gross margin expanded 291 basis points from the year-ago quarter to 31.5%, primarily due to favorable product mix and better capacity utilization.

The company’s operating expenses decreased 7.6% from the year-ago quarter, primarily due to lower selling general and administrative expenses. Moreover, as a percentage of revenues, operating expenses contracted 269 bps on a year-over-year basis. This in turn positively impacted operating results. Operating margins came in at 10.4% compared with 4.8% in the year-ago period.

Diodes’ adjusted net income (excluding amortization of intangible assets and other one-time item) came in at $18.2 million or 38 cents per share compared with $15.5 million or 33 cents per share reported in the year-ago quarter.

Diodes exited the second quarter with cash and cash equivalents and short-term investments of $253.1 million compared with $232.2 million in the previous quarter. Receivables were $187.8 million versus $175.6 million in the prior quarter. Long-term debt stood at $162.7million compared with $165.4 million in the previous quarter.

The company reported cash flow from operations of $33.9 million for the three months ended Jun 30, 2014. Free cash flow during the quarter came in at $22.1 million.

Outlook

For the third quarter of 2014, Diodes expects revenues in the range of $228.0 million to $238.0 million (mid-point $233.0 million). The Zacks Consensus Estimate is pegged at $234.0 million. Gross margin is expected to be approximately 31.8% (-/+2%). Operating expenses are expected to be 21% of total revenue (-/+1%).. Income tax rate is expected to be 22% (-/+3%).

Conclusion

Diodes reported modest second-quarter results, with the bottom line beating the Zacks Consensus Estimate and the top line matching the same. The year-over-year comparisons were favorable, primarily due to better-than-expected growth in the end markets. The company also provided a modest third quarter revenue outlook.

The BCD Semiconductor acquisition is benefiting Diodes by expanding its footprint in the broader Analog market and extending its product offerings. We believe that the company’s product launches and product refreshes will boost revenues, going forward.

However, competition from the likes of Fairchild Semiconductor International Inc. (FCS - Snapshot Report) and ON Semiconductor Corp. (ONNN - Analyst Report) remains a concern for the company.

Currently, Diodes has a Zacks Rank #4 (Sell).

Investors can also consider F5 Networks, Inc. (FFIV - Snapshot Report) which has a Zacks Rank #1 (Strong Buy) and is worth buying.
 

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