Disney’s Q3 Earnings Call: Growth Drivers Shift, Inventory Signals Clash

Date of Call: Aug 5, 2026

Financials Results

• Revenue: $445.5 million, up 22% YOY and up 10% sequentially
• EPS: $1.00 per diluted share, compared to $0.99 per diluted share in the prior year quarter and $0.32 per diluted share last quarter
• Gross Margin: 33.1% of revenue, compared to 31.5% in the prior year quarter and 31.8% in the prior quarter

Guidance:

• Revenue for Q3 expected to be approximately $510 million, plus or minus 3% (30% increase YOY, 14% sequentially).
• Gross margin expected to expand to 35%, plus or minus 1%.
• Non-GAAP adjusted EPS expected to be $1.05, plus or minus 10 cents.
• Full-year tax rate expected to remain at approximately 18% plus or minus 3%.

Business Commentary:

Revenue Growth and Automotive Segment Expansion:

• DIODE's Incorporated reported revenue of $445.5 million for Q2 2026, an increase of 22% year-over-year and 10% sequentially.
• Automotive revenue reached a record level, accounting for 21% of product revenue, with a 37% year-over-year growth.
• The growth was driven by increased content in automotive applications and market share gains with automotive manufacturers and suppliers.

Gross Margin and Operating Efficiency Improvements:

• The company reported a gross margin of 33.1% of revenue in Q2 2026, compared to 31.5% in the prior year quarter and 31.8% in the prior quarter.
• This improvement was attributed to cost and operating initiatives implemented during the market slowdown, which produced measurable benefits to gross margin and the bottom line.

Strong Demand Across Key Markets:

• The computing market revenue increased 33% year-over-year, driven by strong demand in data centers, AI servers, and cloud infrastructure.
• This was due to the increasing adoption of next-generation PCI Express architectures and strong design activity for clock generators and timing solutions.

Acquisition and Strategic Expansion:

• The proposed acquisition of Elevate Semiconductor is expected to be immediate accretive and add approximately $50 million in revenue in the first 12 months post-close.
• The acquisition is aimed at enhancing DIODE's ability to provide a broader solution to customers and expand its technology portfolio in the automated test equipment (ATE) market.

Sentiment Analysis:

Overall Tone: Positive

• "We extend our momentum in the second quarter, with revenue again increasing more than 20% year-over-year... This quarter serves as a further confirmation of strengthening demand in overall market." "We are pleased with our strong growth momentum and growth margin expansion... We are guiding for continuous growth in revenue, margin, and non-GAAP earnings, which puts us on a solid track towards the achievement of our three-year financial goals."

Q&A:

• Question from Elliot (on for Will): First, can you provide some color on your SPFAB status of revenue and profitability, maybe where things stand on utilization and getting products delivered and qualified and moved in-house?
  Response: Management sees progress in wafer fab loading and utilization growing, with key customers starting to use its wafer for their products.

• Question from Elliot (on for Will): Can you talk us through in-market expectations as we move into Q3 and then potentially into Q4 as well, given such strong growth you're expecting? And then if I can try, if you could look a little further out, maybe ranking your growth opportunities as you move into 2027.
  Response: Q3 growth expected from almost all end markets, majority driven by AI-related applications, automotive, industrial, and consumer. For Q4 and 2027, the company sees good momentum and expects a stronger-than-usual market.

• Question from Tristan Guerra (Baird): Some of your peers have reported some constraints, notably for power product supply. Are you seeing any supply constraints? Will you be able to ship more without it, notably into data center?
  Response: Management acknowledges pockets of supply constraint due to very strong demand but focuses on supporting strategic customers. They are leveraging internal and external capacity (including wafer fab and backend) to meet future needs.

• Question from Tristan Guerra (Baird): You mentioned capacity expansion efforts. Is that On the front end, is that internal capacity? And if so, what geography are you building capacity?
  Response: Capacity efforts include improving utilization at internal wafer fabs (GFAT and SPFAB), migrating from 6-inch to 8-inch wafers, and leveraging external partners in Korea and Taiwan. Backend assembly/testing capacity is being added selectively for specific packages.

• Question from Tristan Guerra (Baird): What's the percentage of your production that's currently fabbed versus what's outsourced?
  Response: Approximately 50% of production is internally fabbed and 50% is outsourced.

• Question from David Williams (Needham and Company): Can you talk maybe through some of that color or maybe rationale for the Elevate Semiconductor acquisition? It seems like a really great fit. But just kind of curious if there's anything about that acquisition that maybe we're not thinking of or haven't really understood yet.
  Response: The acquisition synergizes product and market exposure, combining Elevate's ATE IC expertise with Diodes' analog/power portfolio to expand from a test channel provider to a full platform solution provider, addressing a market opportunity of at least $1 billion.

• Question from David Williams (Needham and Company): Do you think that's beginning to happen, or do you feel like you've got a pretty good handle on that? [Regarding double ordering concerns given strength of demand.]
  Response: Channel inventory decreased both in dollars and weeks, below the normal range of 11-14 weeks. Management does not see double booking or double shipments building up and is focused on balancing ship-through.

Contradiction Point 1

Growth Drivers for Q3 and Q4

Q3 growth drivers shift from broad-based to specific sectors.

Elliot (on behalf of Will) - Elliot (on behalf of Will)

2026Q3: Q3 growth is expected to be driven by AI-related applications (especially server motherboards), automotive, and industrial markets. Consumer and communication markets are also expected to see improvement. - [Emily Yang](SVP of Worldwide Sales and Marketing)

Can you discuss in-market expectations for Q3 and Q4 and rank your growth opportunities heading into 2027? - Robert Fishman (MoffettNathanson)

2026Q3: Investments in new attractions and capacity expansion are yielding strong returns... Future growth is supported by a rigorous capital allocation process... - [Josh D’Amaro](President of Disney Experiences)

Contradiction Point 2

Inventory Levels

Contradiction on channel inventory status and trends.

David Williams (Needham and Company) - David Williams (Needham and Company)

2026Q3: Channel inventory is decreasing in both dollars and weeks, and is currently below the normal range of 11-14 weeks. - [Emily Yang](SVP of Worldwide Sales and Marketing)

How is the current strong demand impacting demand trends, channel inventory levels, and potential risks of double ordering? - Rich Greenfield (Lightshed Partners)

2026Q3: International softness persisted but showed some moderation. - [Josh D’Amaro](President of Disney Experiences)

Contradiction Point 3

Channel Inventory Levels and Supply-Demand Dynamics

Contradiction on whether inventory is in a normal range or critically low.

David Williams (Needham and Company) - David Williams (Needham and Company)

2026Q3: Channel inventory is decreasing... and is currently below the normal range of 11-14 weeks. - [Emily Yang](SVP of Worldwide Sales and Marketing)

How are you assessing demand trends, channel inventory, and potential double ordering concerns amid strong demand? - David Karnovsky (JPMorgan)

2026Q2: [There is] no evidence of double booking or double shipping building up inventory at the customer level. - [Emily Yang](SVP of Worldwide Sales and Marketing)

Contradiction Point 4

Strategic Use of Third-Party Licensing for Content

Contradiction on the company's openness to third-party distribution deals for its library content.

What are your key takeaways from the recent earnings report? - Rich Greenfield (LightShed Partners)

2026Q3: Third-party licensing strategy: Franchise/branded IP stays on Disney+; general entertainment library content can be distributed elsewhere — a model that has worked financially. - [Josh D’Amaro](CEO)

How does Disney's "digital centerpiece" strategy reconcile with third-party licensing and the Disney+ partnership with Epic Games/Fortnite? - David Karnovsky (JPMorgan)

2026Q2: Third-party distribution: Selective but not closed; partnerships must strengthen the Disney+ experience... - [Josh D’Amaro](CEO)

Contradiction Point 5

Market Outlook and Growth Drivers

Differing characterizations of market strength and growth drivers for the upcoming year.

Elliot (on behalf of Will) - Elliot (on behalf of Will)

2026Q3: For 2027, the market outlook is stronger than usual. - [Emily Yang](Senior Vice President of Worldwide Sales and Marketing)

Can you discuss in-market expectations for Q3/Q4 and rank growth opportunities by 2027? - Robert Fishman (MoffettNathanson LLC)

2026Q1: The 13% growth was driven by three factors: 1) pricing increases, 2) subscriber growth in both North America and international markets, and 3) bundling initiatives. - [Hugh Johnston](CFO)