Diodes Incorporated (DIOD) Q2 2021 Earnings Call Transcript

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Diodes Incorporated (DIOD 2.92%)
Q2 2021 Earnings Call
Aug 5, 2021, 5:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Welcome to the Diodes Incorporated Second Quarter 2021 Financial Results Conference Call. My name is Vanessa, and I will be your operator for today's call. [Operator Instructions]

I will now turn the call over to Leanne Sievers of Shelton Group investors.

Leanne Sievers -- President

Good afternoon, and welcome to Diodes Second Quarter 2021 financial results conference Call. I'm Leanne Sievers, President of Shelton Group, Diodes' Investor Relations firm.

Joining us today are Diodes' Chairman, President and CEO, Dr. Keh-Shew Lu; Chief Financial Officer, Brett Whitmire; Senior Vice President of Worldwide Sales and Marketing, Emily Yang; Senior Vice President of Business Group, Gary Yu; and Director of Investor Relations, Laura Mehrl.

Before I turn the call over to Dr. Lu, I'd like to remind our listeners that the results announced today are preliminary, as they are subject to the company finalizing its closing procedures and customary quarterly review by the company's independent registered public accounting firm. As such, these results are unaudited and subject to revision until the company files its Form 10-Q for the second quarter 2021 ending June 30, 2021. In addition, management's prepared remarks contain forward-looking statements, which are subject to risks and uncertainties and management may make additional forward-looking statements in response to your questions. Therefore, the company claims the protection of the Safe Harbor for forward-looking statements that is contained in the Private Securities Litigation Reform Act of 1995. Actual results may differ from those discussed today and therefore we refer you to a more detailed discussion of the risks and uncertainties in the company's filings with the Securities and Exchange Commission, including Forms 10-K and 10-Q. In addition, any projections as to the company's future performance represent management's estimates as of today, August 5, 2021.

Diodes assumes no obligation to update these projections in the future as market conditions may or may not change except to the extent required by applicable law. Additionally, the company's press release and management statements during this conference call will include discussions of certain measures and financial information in GAAP and non-GAAP terms. Included in the company's press release are definitions and reconciliations to GAAP to non-GAAP items, which provide additional details. Also throughout the company's press release and management statements during this conference call, we refer to net income attributable to common stockholders as GAAP net income. For those of you unable to listen to the entire call at this time, a recording will be available via webcast for 90 days in the Investor Relations section of Diodes' website at www.diodes.com.

And now, I'll turn the call over to Diodes' Chairman, President and CEO, Dr. Keh-Shew Lu. Dr.Lu, please go ahead.

Keh-Shew Lu -- Chairman, President, and Chief Executive Officer Member, Risk Oversight Committee

Thank you, Leanne. Welcome everyone, and thank you for joining us today. Our record second quarter performance across all functional matrices is the testament to our strong execution and the global manufacturing footprint, enabling us to meet the growing demand for our product. Our growth was once again driven by record global POS revenue as well as record revenue in the automotive, industrial and the consumer end markets, especially in IoT, combined it with record revenue in the computing market, driven by our Pericom products for high-end PCs, servers and datacenter applications. Diodes continued success in those markets contributed to gross margin expansion in the quarter of 270 basis points sequentially and also reflected the continued improvement in loading at the LITE-ON Semiconductor facilities.

In fact, LITE-ON at the LSC facility reached 87% in the quarter, which is approximately six months ahead of the original planned renting schedule. Further highlighting our great result was the achievement of record GAAP and non-GAAP net income as well EBITDA, which increased 22% sequentially to almost 23% of revenue. The highly accretive LSC acquisition together with our significant operating leverage drove adjusted earnings per share for the first six months of 2021 to more than double the adjusted EPS reported in the same period of 2020. And with our expectation for another quarter of record results in the third quarter driven by strong growth and variable capacity due to previous acquisition and internal manufacturing expansions and improved product mix, we are all positioned to deliver continued growth, increasing profitability and shareholder value. Our achievement of year-over-year revenue growth of 53% and gross profit increased 57% this quarter, representing a major step toward our long-term goal of $2.5 billion in revenue and $1 billion in gross profit by year 2025.

With that, let me now turn the call over to Brett to discuss our second quarter financial results and our third quarter 2021 guidance in more detail.

Brett Whitmire -- Chief Financial Officer

Thanks, Dr. Lu, and good afternoon, everyone. As part of my financial review today, I will focus my comments on the sequential change for each of the line items and we refer you to our press release for a more detailed review of our results as well as the year-over-year comparisons.

Revenue for the second quarter 2021 was a record $440.4 million, an increase of 7% from the $413.1 million in the first quarter of 2021. Gross profit for the second quarter was also a record at $159.8 million or 36.3% of revenue, increasing 15% or 270 basis points from a $138.6 million or 33.6% of revenue in the first quarter 2021. I would also like to point out that the gross profit increased 57% from $101.5 million in the second quarter 2020.

GAAP operating expenses for the second quarter 2021 were $94.4 million or 21.4% of revenue. And on a non-GAAP basis, were $90.4 million or 20.5% of revenue, which excludes $4.1 million of amortization of acquisition-related intangible asset expenses. This compares to non-GAAP operating expenses in the prior quarter of $86.4 million or 20.9% of revenue. Total other income amounted to approximately $5.4 million for the quarter, consisting of $5.3 million of unrealized gain on investments, $1.8 million of other income, and $818,000, partially offset by $2 million of interest expense and $500,000 in foreign currency loss. Income before taxes and non-controlling interest in the second quarter 2021 was $70.7 million compared to $50 million in the previous quarter.

Turning to income taxes. Our effective income tax rate for the second quarter was approximately 17.1%. GAAP net income for the second quarter 2021 was a record $55.4 million or $1.22 per diluted share, compared to GAAP net income of $39.5 million or $0.87 per diluted share in the first quarter 2021. The share count used to compute GAAP diluted EPS for the second quarter 2021 was 45.4 million shares. Non-GAAP adjusted net income in the second quarter was a record $54.6 million or a $1.20 per diluted share, which excluded net of tax $3.4 million of acquisition related intangible asset costs, $100,000 of acquisition related costs, and a $4.2 million gain in value on certain LSC investments. This compares to non-GAAP adjusted net income in the first quarter 2021 of $42 million or $0.93 per diluted share, and a significant improvement from the $28.6 million or $0.54 per diluted share in the second quarter 2020.

Included in the second quarter 2021, GAAP net income and non-GAAP adjusted net income was approximately $6.8 million net of tax of non-cash share-based compensation expense. Excluding share-based compensation expense, both GAAP earnings per share and non-GAAP adjusted EPS would have increased by $0.15 per diluted share for the second quarter 2021 and $0.11 for first quarter 2021. EBITDA for the second quarter was a record $99.4 million or 22.6% of revenue compared to $81.7 million or 19.8% of revenue in the prior quarter. On a year-over-year basis, EBITDA increased 80% from $55.3 million in the second quarter of 2020, further highlighting our significant operating improvements over the past year.

We have included in our earnings release a reconciliation of GAAP net income to non-GAAP adjusted net income and GAAP net income to EBITDA, which provides additional details. Cash flow generated from operations was $93.9 million for the second quarter 2021. Free cash flow was $66 million for the second quarter, which included $27.9 million for capital expenditures. Net cash flow in the second quarter was a negative $36.2 million, which included the pay down of $114.2 million of total debt.

Turning to the balance sheet. At the end of the second quarter, cash, cash equivalents, restricted cash, plus short-term investments totaled approximately $302 million. Working capital was $582 million and total debt including long-term and short-term was $301 million. Total cash this quarter is greater than our total debt, demonstrating our significant cash generation that has enabled us to be back in a net positive cash position within only two quarters since closing the LSC acquisition.

In terms of inventory, at the end of the second quarter, total inventory days decreased to approximately 96 in the quarter as compared to 98 last quarter. Finished good inventory days also decreased to 26 from 27 in the first quarter 2021. Total inventory dollars increased $14.2 million to approximately $304.1 million dollars. Total inventory in the quarter consisted of $8.2 million increase in raw materials, a $6.9 million increase in work in process, and a 900,00 decrease in finished goods. Capital expenditures on a cash basis for the second quarter 2021 were $27.9 million or 6.3% of revenue. We expect to remain within our target model, the 5% to 9% for the full year.

Now turning to our outlook. For the third quarter 2021, we expect revenue to increase to approximately $467 million, plus or minus 3%, which represents a record on both an organic and a consolidated basis, for a combined increase of about 6% sequentially at the midpoint, which is better than typical seasonality. We expect GAAP gross margin on a consolidated basis to be 37% plus or minus 1%. Non-GAAP operating expenses, which are GAAP operating expenses adjusted for the amortization of acquisition-related intangible assets are expected to be approximately 20% of revenue, plus or minus 1%. We expect net interest expense to be approximately $1.2 million. Our income tax rate is expected to be 18%, plus or minus 3% and shares used to calculate diluted EPS for the third quarter are anticipated to be approximately 45.8 million shares.

Please take note that purchasing accounting adjustments of $3.4 million after-tax for Pericom and previous acquisitions is not included in these non-GAAP estimates.

With that said, I will now turn the call over to Emily Yang.

Emily Yang -- Senior Vice President, Worldwide Sales and Marketing

Thank you, Brett. And good afternoon. As Dr. Lu and Brett mentioned, second quarter revenue was a record and increased 7% quarter-over-quarter, which was at the high end of our guidance with strong demand across all target end markets and geographies. POS revenue was other record, driven by record revenue in all regions. Distributor inventory in terms of weeks was down quarter-over-quarter, which is below are normal range of 11 to 14 weeks.

Looking at global sales in the second quarter, Asia represented 80% of the revenue, Europe 12%, and North America 8%. In terms of our end market, computing represented 30% of revenue, industrial 22%, consumer 19%, communication 17%, and automotive 12% of revenue. We achieved record revenue in automotive, industrial, consumer as well as computing end market, which was driven by record Pericom revenue.

Now, let me review the end markets in greater details. Starting with automotive. Revenue increased 83% year-over-year to other quarterly record and contributing to an increase in our eight-year CAGR to 29% since established the automotive division in 2013. We continue to see significant growth in this market as we capture both increasing market shares and contact gains despite the overall supply challenges. This growth reflects the success of Diodes solution sales and demand generation efforts in penetrating new and existing automotive customers and applications.

We are securing an increasing number of new designs for electric vehicles in [Indecipherable] form applications for our high voltage Hall Effect sensors. We are also gaining traction for [Indecipherable] channel up in multiple applications as well as LED drivers in day high running light, like land control applications, automotive DC to DC converters continue to see strong growth with newly released product targeting applications such as infotainment power supplies, forward lighting, tail light, instrument clusters, telematic and advanced driving assistance.

In ADAS specifically, we continue to increase our content in this area with our four channel low capacitance TVS products for automotive data line protection due to increased demand for electric vehicles. Additionally, with strong demand in the automotive intelligence applications, we have successfully secured designs for Pericom IO expanders in smart [Indecipherable] and ADAS system.

The Pericom product have gained increasing content opportunities with new design sockets for our low jitter CMOS buffer in infotainment and other in cabin applications. SBR Shockey devices also delivered solid revenue across several applications along with new designs for battery management system, instrument panels, infotainment headlights, Driver Monitor System, and cellular vehicle to everything applications.

In the industrial market, revenue increased 53% year-over-year to a quarterly record as we continue to see strong momentum across our product portfolios. We saw strong demand for LDO, for power tools, e-meters, and other industrial applications. Our very broad DC to DC product portfolio is getting more design-ins and design wins for industrial applications such as programmable logic controllers, IoT, security several motor, smart grid energy and power supplies.

We also securing increasing design wins for LED drivers in air purifiers, with UVC light disinfection and internet camera used for digital intelligence and video analysis security system. We also see new opportunities for Sharkey dials and rectifiers in industrial IoT and embedded applications.

In the consumer market, revenue was also a record as we continue to see increasing growth momentum in the IoT space, where our small form factor packaging provide a leading advantage for Diodes. In addition, home appliance that are starting to use higher energy conversion efficiencies for their rechargeable batteries and we have a leading AC to DC product platform for light low high efficiency features. We're also seeing a strong demand for audio enterprise, LED drivers and DC to DC converters along with new design-ins design wins in applications like security system, cameras, smart labels, smart door locks, streaming boxes, cable modems, monitors and television. Our discrete product also being designed into home security system and Gaming Council application.

In the communication market, we continue to focus on mobile, smartphone and especially 5G applications. We are seeing tractions for Schottky diodes and access point router, Schottky and super-fast rectify in power over Ethernet adapters and hyper fast rectify in 100 watt open frame designs. TVS product revenue is also growing as our unit national TVS products, a design into USB Type C in new generation smartphone equipped with a quick charging feature, with the demand for the higher working voltage and higher search capability, TVS demand has been on the rise for the most smartphone manufacturers as a quick charging and wireless charging feature become mainstream. We also enjoyed revenue growth and design wins for LDOs in smartphones, fast recovery rectifiers and glass passivated rectifiers in applications like mobile phone charging, sustainable energy and telecom power supplies.

Additionally, we continue to experience increasing demand for our Pericom product in the communication market. As mentioned in the last quarter, Pericom frequency control products, ultra low jitter, small size crystal oscillators family has had several designs into optical modules. Pericom's [Indecipherable] switch also saw increasing demand and designing activities in both PCI Express 2.0 and PCI Express 3.0 product in applications such as set top boxes and Consumer Premises Equipment.

Lastly, in the computing market, revenue grew 141% over the prior year period to a record, in part driven by record Pericom revenue. Our strong growth in this market has been supported by continued demand for notebooks and high-end PCs, surfers and data center applications. Also current protection USB power switch and compact low management switch continue to see strong demand and revenue growth from Chromebook and notebook applications along with the design-ins and design wins for CSP rectifiers, omni-polar Hall sensors, due output unipolar Hall sensors, DC to DC converters and USB charging type detectors in new notebook, educational notebook and desktop PCs. Also in the PC market, we continue to see new design wins for our 1.8 volt redrivers, surfacing USB Type-C and DisplayPort applications. We also have strong growth for [Technical Issues] redrivers for high resolution displays and also DisplayPort HDMI active redriver supporting multiple displays.

In summary, we are very pleased to have achieved our third consecutive quarter of record revenue coupled with record performance across all financial matrices, our increasing content expansion and market share gain in key target markets like automotive, industrial and computing are contributing to our growth as well as margin expansion. Additionally, the LSC integration continues to progress well and ahead of the schedule with early evidence of success and future upside a little bit through the market, customer, product portfolio synergies. With our expected for other quarter of record performance, we look forward to reporting our continued progress.

With that, we now open the floor to questions, operator?

Questions and Answers:

Operator

Thank you. [Operator Instructions] We have our first question from Gary Mobley with Wells Fargo Securities. Please go ahead, sir.

Gary Mobley -- Wells Fargo -- Analyst

Good afternoon, everybody. Congratulations on another strong quarter. I wanted to start off by asking about inventory in the channel. You mentioned below trend for distribution. I'm assuming you're probably a couple of weeks below the low end of the normal range and you're heading into a seasonally strong quarter, so I presume that we might see another sequential dip in distributor inventory. Correct me if I'm wrong there. But what I'm leading up to the question about seasonality in the fourth quarter, I would imagine it was normally a seasonally slow fourth quarter, that is perhaps, when you're going to have the opportunity to rebuild some inventory and so should we assume that you're going to see a very atypical seasonal fourth quarter. Hi, Gary. Thank you. This is Emily. Let me address that question. So you are absolutely correct. Our number weeks in the channel inventory went down this quarter, definitely below our normal range of 11 to 14 weeks. I think at this moment it's difficult for us to predict the Q4, but we don't expect in the short term there will be significant inventory situation change in the channel at this moment [Speech Overlap]

Keh-Shew Lu -- Chairman, President, and Chief Executive Officer Member, Risk Oversight Committee

Internally, we might want to give some inventory because 1Q typically is a Chinese New Year quarter and from our manufacturing site we might have the worker shortage or the Chinese New Year shutdown. Therefore, by past experience, the best way is do up internal inventory to support customer needs in 1Q because we still believe the market should be still strong and we cannot -- we need to have some inventory to support our customers.

Gary Mobley -- Wells Fargo -- Analyst

Got it, OK, appreciate that. I guess this falls under the umbrella that investors always want more. You had a decent beat for the second quarter, but perhaps not by as much as some other competitors. So my question to you is, were you constrained at all by supply, supply of things like silicon wafers or anything like that that may constrain in the second quarter revenue.

Emily Yang -- Senior Vice President, Worldwide Sales and Marketing

I think Gary, let me address that question. See, first of all, we really need to look beyond just the quarter, right? So if you look at our results, this is actually third consecutive record revenue for Diodes, right?. So we definitely seeing supply and demand imbalance. And what we have been doing is actually working through different challenges and also working with the customer very closely, understanding their true demand, right? At the same time we also see this as a great opportunity, actually give us a good chance to work with the executive team and continue to expand our relationship, continue to expand our print sockets, right?. So I think that's pretty much the strategy we've been working on and definitely showing a great result, right. So even you look at the guidance, our seasonality is 5% and we actually guided 6%. So this is definitely above the seasonality and we still see really, really strong overall demand.

Keh-Shew Lu -- Chairman, President, and Chief Executive Officer Member, Risk Oversight Committee

And if you look at, we even have -- everybody know that supply is very constrained and shortage, but virtually we have several opportunity to improve our demand or our supply. Fortunately, we purchased the GFAB from Texas Instruments back to 2019's, and that it give us tremendous capacity to support us and at the same time you know when we consolidate LSC, when LSC wafer fab is only have loaded and so due to the almost 12 months of that wafer, we are qualified our process into[Indecipherable] wafer fab and because of that you can see we ramping up almost six months ahead of time. We start from 50% at the end of this last year, then now is end second quarter we were up to 87% and that will continue going to be improve our output, the ODM, at the same time we are putting up more expand some of the facility. So therefore we are better than our competitors in the supply point of view.

Gary Mobley -- Wells Fargo -- Analyst

All right. Appreciate it. Thank you everybody.

Operator

Thank you. And we have our next question is from Matt Ramsay with Cowen and Company.

Matthew Ramsay -- Cowen and Company -- Analyst

Yes, thank you very much. Good afternoon, everybody. I guess this is a question for Dr. Lu, and then maybe Emily, if you have anything to chime in. My observation has been that with the industry and many of your competitors supply constrained that this might be an opportunity for Diodes as a smaller supplier versus some larger competitors for you guys to break in and get qualified with new customers, some that you might have been chasing for some time and this is an opportunity where you have supply and maybe some of your competitors do not, but you could win some new customer logos. That's the first question. Dr. Lu is that in fact happening? And Emily, if you feel like you have opportunities to sort of land and expand those customers that might be won for the first time? Thanks.

Emily Yang -- Senior Vice President, Worldwide Sales and Marketing

Yes, definitely, Matt. We, we --like I mentioned earlier, right. We believe this is actually great opportunity for Diodes and working with customer closely, building the stronger relationships, make the business and partnership deeper, expanding the print decisions, definitely something we focus on driving and that's also part of the reason you are seeing a really strong Q3 guidance and also Q2 performance, right.

Matthew Ramsay -- Cowen and Company -- Analyst

Got it. That makes sense. I guess as my follow-up question, I don't know if this is our Emily or for Brett. But if you could give us a little color and detail maybe on what you expect from the different segments sequentially as we go into the September quarter guide that would be helpful for I think everybody modeling? Thank you.

Emily Yang -- Senior Vice President, Worldwide Sales and Marketing

Okay. So maybe let me start addressing that with the end market, right. So we are seeing pretty much strong demand across all the regions and all the end-market segments. Automotive, we still seeing a lot of demand opportunities and also momentum in the ADAS area, we call that you know connected driving, ADAS telematic infotainment. We continue to see comfort, safety and lighting being adapted with a lot of new functions and feature electrification continues. We definitely seeing the volume of electric cars, ARPU increase, right. So overall, we've seen really strong automotive across all different areas that we focused on.

Industrial, we also seeing very strong demand and industrial crossover to a lot of different applications. But overall, we've seen strong strength in this computing. I would say, you know, some of the personnel PC or motherboard definitely grow a lot throughout the last few quarters. We're still seeing good momentum, but we definitely seeing stronger more into the server area. You know the data center area. But overall, is still strong. Consumer Q3 is always a strong quarter for consumer because the holiday deals and stuff like that. And we really focus more on the IoT related area and we've been talking about that. For communication, smartphone as part of the communication. This is also a strong cycle. We also seeing continuous good momentum on the 5G area. did talk about the CPE's and the routers and stuff like that. So I would say all all is really across all regions in all end markets.

Keh-Shew Lu -- Chairman, President, and Chief Executive Officer Member, Risk Oversight Committee

Another testament is we have record over the POS. And that is the demonstration of our capability to grow our revenue and the capability of how we push it and gaining market shares.

Emily Yang -- Senior Vice President, Worldwide Sales and Marketing

We have also record revenue in automotive segment, record revenue in computing, record revenue in industrial, and also record revenue in the consumer area.

Matthew Ramsay -- Cowen and Company -- Analyst

So should I just assume as per everyone's models that each of the different segments will be up sequentially and then more, I mean, some will be more than others. I just wanted to clarify that. But thank you for taking my questions. Congratulations.

Emily Yang -- Senior Vice President, Worldwide Sales and Marketing

Thank you.

Keh-Shew Lu -- Chairman, President, and Chief Executive Officer Member, Risk Oversight Committee

Yeah, thank you.

Operator

And thank you. Our next question is from Tristan Gerra with Robert W Baird.

Tristan Gerra -- Robert W. Baird -- Analyst

Hi, good afternoon. Given you mentioning that the utilization rate at the Lite-On on was, if I heard well, 87% exiting Q2, and I believe you're getting about 10% incremental capacity from the GFAB from TI every year. Assuming that the supply constraints continue into next year, it sounds like you probably need to add even more capacity. And also he mentioned this morning that the analyst they're going to to cut in half 25% of their total revenue, which is non-target products and I know Diodes is more focused on gross margin than just pure growth nowadays. However, do you see this as a market share potential opportunity for Diodes in terms of picking up products, some of the products that on semi is going to deemphasized perhaps in your automotive business. And then could you even see value in sort of the fabs that on semi will be setting, because it seems to me that you've ramped already a large very quickly in terms of the available capacity you had relative to the competition.

Emily Yang -- Senior Vice President, Worldwide Sales and Marketing

Right. Tristan, this is Emily. Let me answer first. Any time there is a strategic change with my peers is always a good opportunity for Diodes to really gain more of the market share and pick up some of the business. right. Related to weather is a value for the fab or some of the product, I believe we really need to understand more to answer that question, but I would say overall as a company we continue to expand our capacity. Dr. Lu mentioned about the GFAB, he SFAB too, the JKFAB, from Lite-On Semiconductor, even assembly and test. We continue to expand based on what we see as a strategic need in the longer-term. So I hope I answered your question.

Tristan Gerra -- Robert W. Baird -- Analyst

And then a quick follow-up. You mentioned that Pericom is starting to gain traction in communication. Is that the early innings of that and how should we look at the potential of that opportunity for Pericom? Is it the type of percentage adoption rate that we've seen Pericom getting in data center, for example. Anyway you could quantify that opportunity.

Emily Yang -- Senior Vice President, Worldwide Sales and Marketing

Right, Tristan I think Pericom overall is gaining traction actually across multiple end markets, right. So it's not just one. I think I just highlight some of the key design wins and momentum in my speech, but overall, right, if you look at the Pericom revenue, we have other record. It was a record of previous quarter. It was a record previously as well, right. So overall, right, in the communications statement we definitely seen, I mean a lot of opportunity in the data center, in the networking area, especially when the speed and the requirement is getting higher. And for example, the crystal crystal oscillator and Clock IC, the timing area supporting the new requirements is definitely giving us even more opportunity than before, right.

The 5G, the CPE, the set-top box. So I would say across even in the automotive I talk about Pericom in the previous quarter in the automotive. So computing has always been strong for Pericom product. So I think all in all, even in the industrial, so we actually seeing good momentum for the Pericom demand and also the the demand creation across all segments.

Keh-Shew Lu -- Chairman, President, and Chief Executive Officer Member, Risk Oversight Committee

If you see, we have continued several quarters, I don't remember how many quarters. We set record revenue growth quarter-after-quarter for several years and again this the testament of how we can gain the market share and appreciate the Preicom products.

Tristan Gerra -- Robert W. Baird -- Analyst

That's great, very useful. Thank you.

Operator

Thank you. Our next question comes from William Stein with Truist Securities.

William Stein -- Truist Securities -- Analyst

Great, thank you for taking my question. First, I'd like you to comment on the cyclicality of the business, in particular, your results and even more so your guidance show a very good expectation not only above seasonal revenue next quarter expected, but a good uplift in operating margin. And I'm wondering how much of that strength you believe is coming from pricing and other cyclical factors versus some structural benefits perhaps from the Lite-On transaction and I have a couple, maybe at least one follow-up if I can.

Emily Yang -- Senior Vice President, Worldwide Sales and Marketing

Hi, William. This is, Emily. So I think when we look at this kind of margins really divided into different area, right. So the product mix improvement has been something we focus on, we've driving. we've been talking about the new product, right, giving us better features and functions that improve our overall margin and better product mixes are other important milestone that we've been driving over the last few years, not just this quarter, right.

I think the other portion we are talking about manufacturing operational improvement and that will continue, right. So Lite-On definitely is part of it, but I would say all in all, it's really kind of summarizing all different areas, right. So, improve the productivity overall as a company.

Keh-Shew Lu -- Chairman, President, and Chief Executive Officer Member, Risk Oversight Committee

But one thing. You remember when we acquired LSC, they are our synergies, right. And the multifunctionality is first one we can and mature that and is not even finished yet, that's just know at the first one we can gain, OK. Then, we still have more synergy, which is the market synergy, product synergy, customer synergy, which yet to carry yet. And so we had as whole and we can continue improve our margin because after we over 10 synergy that's give us. So in addition of what Emily talking about operational and product mix synergy in operation as you know and the product mix synergy, another big one is going to come for the acquisition synergies.

William Stein -- Truist Securities -- Analyst

That's a good segue into my second question actually. How far is the company into this integration, you talk about 87% utilization on the surface. It might seem, OK, we're done here, but I'm sure you're not done, you just mentioned that you're done. What should we think about from a modeling perspective when we consider the uplift from both the revenue and profitability perspective that could come from this deal?

Keh-Shew Lu -- Chairman, President, and Chief Executive Officer Member, Risk Oversight Committee

Then that how the day with the answer, LSC from the gross margin on those. I need to say we do not separate the gross margin improvement from LSC only. We can further altogether because one other thing we read and want to separate is I always see product we qualify used in tiles and to push through the marketplace. And those you cannot say as LSC or that's the titles. But that's the fun of what we're talking about the synergy, we talked about market synergy, we talk about product synergy, or those customer synergy, those really it's intend to do [Indecipherable] Diodes brand to push to the marketplace. So that we intentionally don't want to separate the improvement based on LSC or Diodes. Okay, we all report consolidated numbers. And then I think we answer the question.

Gary Yu -- Senior Vice President, Business Groups

Yeah. And this is Gary, and let me address the question about your relations -- the LSC related question. Okay, so we have been driving the manufacturing synergies things integration with SME, which including the second source of flow from internal and external with that at some time and we also improve our a year cost reduction and about the bottleneck action in many place, so productivity can be improved a lot. Okay. At the same time, by leveraging the product synergy as an Emily mentioned about, we are able to drive much better product mix to support our customer. Those kind of activity would continue to do and that will probably improve our GP and the revenue very, very quickly. That's why you see for the past three quarters, we see the rarely see from losing money to breakeven. Now, we are making money.

William Stein -- Truist Securities -- Analyst

Great, thank you.

Operator

And thank you. [Operator Instructions] We have our next question from David Williams with Benchmark. Please go ahead.

David Williams -- Benchmark -- Analyst

Hey, good afternoon and thanks for taking my question today. First, congrats on the solid execution in the growth, very good to see. I guess my first question would be on the margin side, and just how sustainable do you think that is as we start to get to a more normalized environment. And have you taken any opportunity maybe to rationalize the portfolio in terms of just where you're contributing your capacity that maybe higher margin products?

Emily Yang -- Senior Vice President, Worldwide Sales and Marketing

Yeah, hi, David, like I mentioned, right, product mix is ongoing effort that we've been driving. It's not just one quarter and you know with the product mix change not just this quarter, you actually seeing consistent improvement from our overall margin performance point of view, right. So we believe building a better product mix is sustainable approach. Building a stronger relationship, expanding our print position is definitely a sustainable approach as well and continue to drive the manufacturing operation improvement will also be sustainable, right. So you know I think doing the right thing at the right time and taking the opportunity to continue to expand, it definitely pay a really strong half for us to work toward our 2025 goal, right, which is $2.5 billion and $1 billion gross profit. So I think we're definitely on the right track.

David Williams -- Benchmark -- Analyst

Okay. Great. And then just kind of thinking about, you're obviously marching toward the $2.5 billion topline goal pretty quickly here and we're in a very strong environment. But I guess if you kind of think about the stickiness of that revenue may be what you picked up from competitors and because you are able to supply, do you think that revenue stayed fairly sticky. Is there any concern with maybe some of that reversion of some of the revenue that you picked up more recently?

Emily Yang -- Senior Vice President, Worldwide Sales and Marketing

Well, you know, I really thing, right, when you build a stronger relationship with the customer and you really expand the relationship, it definitely gives us more of the print position to compete in a longer-term, right. So I personally believe this is actually a long-term strategy would be always driving and you know, so I don't think that will change. Markets always up and down. I think we all lived through few cycles. There is no surprise over there. But I think the foundation is important to build right now and we believe we are building a stronger foundation and we want to continue to expand our market share.

Keh-Shew Lu -- Chairman, President, and Chief Executive Officer Member, Risk Oversight Committee

Yeah, especially customer relationship. You support them wind up with a tough time. I guarantee you they wont forget about it. Okay, then if you are able to support, then they would know next time when the markets tie again, they can turn to us, instead of you don't, they cannot going to help. And another thing is that they all know title capacity and we continue improve our capacity. So if they design our product, they don't need to worry about we should end up. There might be [Indecipherable] the market is pretty tight, but at least we will not get them done. And this was still able to ship the product to their customers and that is most important relationship and the trust, we view up doing these cycles.

So yeah, actually, in my mind, this is a good opportunity for us to view of the sorted foundation for the future and therefore -- you know Diodes since long time ago we have been continue gaining the market share, out grow and during this tough time even once that stronger than before.

David Williams -- Benchmark -- Analyst

Thank you. Well congrats again on the quarter and looking forward to see in the third quarter.

Emily Yang -- Senior Vice President, Worldwide Sales and Marketing

Thank you, David.

Keh-Shew Lu -- Chairman, President, and Chief Executive Officer Member, Risk Oversight Committee

Thank you.

Operator

And thank you. We have no further questions at this time. I will turn the call over to management for closing remarks.

Keh-Shew Lu -- Chairman, President, and Chief Executive Officer Member, Risk Oversight Committee

Thank you for your participation. Operator, you may disconnect now. [Operator Closing Remarks]

Duration: 50 minutes

Call participants:

Leanne Sievers -- President

Keh-Shew Lu -- Chairman, President, and Chief Executive Officer Member, Risk Oversight Committee

Brett Whitmire -- Chief Financial Officer

Emily Yang -- Senior Vice President, Worldwide Sales and Marketing

Gary Yu -- Senior Vice President, Business Groups

Gary Mobley -- Wells Fargo -- Analyst

Matthew Ramsay -- Cowen and Company -- Analyst

Tristan Gerra -- Robert W. Baird -- Analyst

William Stein -- Truist Securities -- Analyst

David Williams -- Benchmark -- Analyst

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