Diodes' Q3 2025 Earnings Call: Contradictions Emerge on Ai Revenue Growth, Inventory Levels, Tariff Impact, and Automotive Market Corrections

Date of Call: November 6, 2025

Financials Results

• Revenue: $392.2M, up 12% YOY from $350.1M in Q3 2024 and up 7.1% sequentially from $366.2M in Q2 2025
• EPS: GAAP $0.31 per diluted share, compared to $0.30 in Q3 2024 and $0.99 in Q2 2025; Non-GAAP $0.37 per diluted share, compared to $0.43 in Q3 2024 and $0.32 in Q2 2025
• Gross Margin: 30.7% of revenue, compared to 33.7% in Q3 2024 and 31.5% in Q2 2025
• Operating Margin: GAAP operating expenses 27.8% of revenue (non-GAAP 26.3%), compared to GAAP 27.5% in Q3 2024 and 28.9% in Q2 2025 (non-GAAP 27.3% prior quarter)

Guidance:

• Q4 revenue expected approximately $380M ±3% (midpoint ~12% YoY; fifth consecutive quarter of YoY growth)
• GAAP gross margin expected ~31% ±1%
• Non-GAAP operating expenses expected ~27% of revenue ±1%
• Net interest income ~ $1M; tax rate ~18.5% ±3%; diluted share count ~46.4M
• At Q4 midpoint, expect approximately 12% growth for the full year

Business Commentary:

* Revenue Growth and Market Trends: - Diodes Incorporated reported a revenue increase of 7% sequentially and 12% year-over-year for Q3 2025. - The growth was driven by strong demand across the general computing market, including AI-related server applications and data center segments.

• Geographic and Segment Performance:
• Asia was the strongest region with the highest point of sales increase, followed by North America.

• The strongest growth was observed in the computing segment, up 17% sequentially and 22% for the first nine months, with significant demand in AI, data center, and edge computing applications.

• Inventory and Product Mix:

• Channel inventory levels decreased both in dollars and weeks, with overall inventory decreasing over 25% from peak levels.

• The unfavorable product mix impacted gross margin, with future margin expansion expected from improved product mix and increased new product introductions in automotive and industrial markets.

• Automotive Market Recovery:

• Automotive revenue grew both sequentially and year-over-year, albeit at a slower rate than expected.
• Recovery is anticipated with new programs scheduled to launch in the automotive market, indicating increasing market share and content expansion.
  
  

  Sentiment Analysis:

  Overall Tone: Positive

  • Management highlighted revenue up 7% sequentially and 12% YOY, channel inventory down >25% from peak, confidence in automotive/industrial demand recovery and new product ramping, and guidance expecting Q4 ~31% gross margin and full-year ~12% growth, indicating constructive outlook and margin improvement drivers.

Q&A:

• Question from David Williams (The Benchmark Company, LLC, Research Division): As you think about gross margin and factory loadings, what are your expectations for growth and how should loadings look through next year?
  Response: Management expects margin improvement driven by product‑mix shift to higher‑margin automotive/industrial, continued new product introductions, insourcing to internal fabs to improve loading and costs, and channel inventory normalization that will balance ship‑in/ship‑out.

• Question from David Williams (The Benchmark Company, LLC, Research Division): Are you seeing tariff-driven pull‑ins or impacts from tariffs on demand and channel inventory, and could that affect next year?
  Response: No material tariff‑driven spike observed; Diodes leverages flexible manufacturing, routing North America demand via Mexico/Canada where appropriate, and views overall tariff impact as relatively small.

• Question from David Williams (The Benchmark Company, LLC, Research Division): Given improving inventory and content growth, how should we think about automotive revenue trajectory into next year?
  Response: Automotive was 19% of revenue in Q3 and management expects the automotive percentage to increase in 2026 driven by market‑share gains and content expansion with new programs ramping early next year.

• Question from Tristan Gerra (Robert W. Baird & Co. Incorporated, Research Division): How should we think about gross margin benefit from insourcing analog products versus subcontracting, and is South Portland fab qualification on track for second‑half next year?
  Response: Moving outsourced production internal captures subcontractor premium savings; SP fab qualification is progressing with requalified products and recent POs, and management expects improved loading and GP contribution from SP in 2026.

• Question from Tristan Gerra (Robert W. Baird & Co. Incorporated, Research Division): What percentage of computing revenue is data center and how much growth is AI‑related?
  Response: Management did not provide a data‑center percentage breakdown but said computing grew ~17% sequentially and ~22% YTD, with a majority of that growth driven by AI and related applications.

• Question from Tristan Gerra (Robert W. Baird & Co. Incorporated, Research Division): Will you benefit from Nexperia disruptions—are you second‑sourcing their discrete business?
  Response: Diodes sees opportunity from peers' supply changes and actively pursues business that aligns with its long‑term strategy, leveraging its broad discrete portfolio to win strategic customers.

• Question from Paul Smith (Truist Securities, Inc., Research Division) (question asked by Elliott on for Will): Is ~+10% top‑line growth a reasonable expectation for 2026 and which end markets could drive upside?
  Response: Yes—management expects 2026 to be a double‑digit growth year, with AI, automotive and industrial cited as the primary drivers and inventory normalization supporting demand.

• Question from Paul Smith (Truist Securities, Inc., Research Division) (question asked by Elliott on for Will): How do you get back to a ~20% operating margin—what are the key variables?
  Response: Path to 20%: materially higher gross margins (aiming back to 40%+), keeping OpEx near ~20% at higher revenue, prioritizing R&D over SG&A, and leveraging insourcing and differentiated products to improve profitability.

• Question from David Williams (The Benchmark Company, LLC, Research Division): On AI demand, can you parse growth from increased end‑market demand versus content expansion?
  Response: It's both—new architectures (e.g., 48V to 400/800V) drive product introductions and higher content per system, while overall volume growth also contributes; Tier‑1 relationships enable multi‑year design wins.

• Question from David Williams (The Benchmark Company, LLC, Research Division): Have customers begun to replenish inventory and has that helped results, or is replenishment still ahead?
  Response: Customers' inventory positions have improved broadly though pockets (notably in industrial) remain; management expects normalization by early next year and balanced ship‑in/ship‑out by Q2 2026, which will help margins.

Contradiction Point 1

AI Revenue Growth and Demand Drivers

It involves differing explanations of the drivers behind AI revenue growth, which is a key growth area for the company and critical for investor sentiment.

Can you quantify AI-driven revenue as a percentage of the computing market? - Tristan Gerra (Robert W. Baird & Co. Incorporated, Research Division)

2025Q3: AI is a significant driver of growth in the computing market, with sequential growth of 17% and 22% year-over-year. - Emily Yang(Senior Vice President of Worldwide Sales & Marketing)

Does AI demand primarily stem from your PCIe packet switch? What growth rate should we anticipate? - Tristan Gerra (Robert W. Baird & Co. Incorporated, Research Division)

2025Q2: AI-related demand extends beyond the PCIE packet switch, encompassing a range of products across different applications. - Emily Yang(Senior Vice President, Worldwide Sales & Marketing)

Contradiction Point 2

Inventory Levels and Market Conditions

It involves differing assessments of inventory levels and market conditions, which are crucial for understanding the company's financial health and market positioning.

Are customers replenishing inventory? - David Williams (The Benchmark Company, LLC, Research Division)

2025Q3: The overall automotive market is improving, and most of the channel and internal inventory levels have been digested. - Emily Yang(Senior Vice President of Worldwide Sales & Marketing)

How do you view the remaining inventory levels and the excess that still needs to be digested? - David Williams (The Benchmark Company, LLC, Research Division)

2025Q2: The market is seeing improvement, with indications that automotive inventory digestion is ongoing. Although some pockets of inventory remain, the overall automotive market is improving. - Emily Yang(Senior Vice President, Worldwide Sales & Marketing)

Contradiction Point 3

Tariff Impact on Demand

It highlights differing perspectives on the impact of tariffs on demand, which can influence revenue projections and strategic decision-making.

How has the company managed tariff effects on demand compared to peers' challenges? - David Williams (The Benchmark Company, LLC, Research Division)

2025Q3: Tariffs have not significantly impacted demand, and the company has effectively managed this by leveraging flexible manufacturing sites and minimizing tariff impacts. - Emily Yang(Senior Vice President of Worldwide Sales & Marketing)

How are you addressing the impact of tariffs? - David W. Duley (D.A. Davidson)

2025Q1: Many of our competitors have been struggling with tariff-related issues in the U.S. market, and we have been able to avoid that. - Gary Yu(President, CEO & Director)

Contradiction Point 4

AI-Driven Revenue in Computing Market

It involves differing interpretations of the percentage of AI-driven revenue in the computing market, which is crucial for understanding growth drivers and market positioning.

Estimate AI-driven revenue and its percentage in the computing market? - Tristan Gerra (Robert W. Baird & Co. Incorporated, Research Division)

2025Q3: AI is a significant driver of growth in the computing market, with sequential growth of 17% and 22% year-over-year. - Emily Yang(Senior Vice President of Worldwide Sales & Marketing)

Can you provide color on year-to-date growth in the computing segment, particularly regarding AI? - Mark Lipacis (Jefferies & Company, Inc.)

2025Q1: AI and high-performance computing continue to be the early growth drivers for us. And we are seeing both sequential growth and year-over-year growth across those segments. - Gary Yu(President, CEO & Director)

Contradiction Point 5

Inventory Correction and Automotive Market Demand

It highlights differing perspectives on the timing and extent of inventory corrections in the industrial market and demand trends in the automotive market, which could impact revenue projections and market positioning.

Are customers restocking inventory? - David Williams(The Benchmark Company, LLC, Research Division)

2025Q3: We've come through what I would say is the peak of the inventory rebalancing. So we're expecting this to continue to improve. And we've seen significant improvement in the compute market segment already in the compute. - Emily Yang(Senior Vice President of Worldwide Sales and Marketing)

Can you provide guidance on revenue performance by end market for Q1? - William Stein(Truist Securities)

2024Q4: Automotive, still going through inventory rebalancing. - Emily Yang(Senior Vice President of Worldwide Sales and Marketing)