Diodes Q3 2026 Earnings Call Transcript

Diodes (NASDAQ:DIOD) reported third-quarter financial results on Thursday. The transcript from the company’s third-quarter earnings call has been provided below.

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Summary

Diodes Incorporated reported record third-quarter revenue of $532.6 million, a 36% increase year-over-year, with gross margin improving by over 500 basis points to 36.1%.

The company’s strategic focus on automotive, industrial, and AI-related applications drove significant market share gains and revenue growth, supported by capacity expansion and improved product mix.

Guidance for the fourth quarter anticipates revenue growth to approximately $550 million, with non-GAAP gross margin expected to increase to 37%, reflecting continued strong demand across key markets.

Operational highlights include record automotive revenue, significant gains in computing and industrial markets, and successful execution of capacity expansion strategies.

Management emphasized the positive impact of strategic investments and product mix improvements on financial performance, while also noting strong cash flow generation and a robust balance sheet.

Full Transcript

OPERATOR

If at any time during the conference call, please press the star key followed by zero on your touchtone phone. As a reminder, this conference call is being recorded today, Thursday, Nov. 5, 2026. I would now like to turn the call over to Leeann Sievers of Shelton Group Investor Relations. Leeann, please go ahead.

Leeann Sievers (President)

Good afternoon and welcome to Diodes’ third quarter 2026 financial results conference call. I’m Leigh Ann Sievers, President of Shelton Group, Diodes’ investor relations firm. Joining us today are Diodes President and CEO Gary Yu, CFO Brett Whitmire, Senior Vice President of Worldwide Sales and Marketing Emily Yang, and Vice President of Marketing and Investor Relations Gurmeet Dhaliwal. I’d like to remind our listeners that the results announced today are preliminary as they are subject to the Company finalizing its quarter-end 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 its quarter ended September 30, 2026. 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, November 5, 2026. 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 of 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 the Diodes website at www.diodes.com. And now I’ll turn the call over to Diodes President and CEO Gary Yu. Gary, please go ahead.

Gary Yu (President)

Welcome everyone and thank you for joining us on today’s conference call. As announced in our press release earlier today, our third quarter revenue reached a record level, coupled with an over 500 basis point year-over-year increase in gross margin to 36.1%, driving significant expansion in non-GAAP earnings. Global POS was also a record in the quarter, increasing more than 30% year over year. Our sequential revenue growth of more than 19% was primarily driven by record automotive revenue from continued market share gains, stronger demand for industrial applications, and the sustained momentum in AI ecosystem applications that contributed to record revenue in the computing market. Underpinning this growth is the benefit of the targeted investments we made in capacity expansion over the past year coming online. The resulting increase in loading at our manufacturing facilities also benefited gross margin along with the product mix and pricing improvements.

Based on our current projection for continued growth in the fourth quarter, we expect full-year revenue to increase approximately 30% over 2025 at the midpoint. In addition to being well above our historical CAGR of 10%, we continue to see strong demand momentum resulting from our new product initiatives, market share gains, as well as increasing content at customers. This anticipated sequential growth is once again coupled with further non-GAAP gross margin expansion of 80 basis points sequentially to 37% at the midpoint and increasing earnings leverage, as well as strong cash flow generation.

With that, let me now turn the call over to Brett to discuss our third quarter financial results as well as our fourth quarter guidance in more detail.

Brett Whitmire (Chief Financial Officer)

Thanks Gary and good afternoon everyone. Revenue for the third quarter 2026 was $532.6 million, an increase of approximately 36% over $392.2 million in the third quarter 2025 and up approximately 20% compared to the $445.5 million in the second quarter 2026. Gross profit for the third quarter was $192.5 million or 36.1% of revenue compared to $120.5 million or 30.7% of revenue in the prior year quarter and $147.6 million or 33.1% of revenue in the prior quarter.

Non-GAAP gross profit was $192.9 million and non-GAAP gross profit margin was 36.2%, which excluded $0.4 million of inventory accounting associated with the acquisition of Elevate Semiconductor. GAAP operating expenses for the third quarter were $129.1 million or 24.2% of revenue and on a non-GAAP basis were $122.1 million or 22.9% of revenue, which excludes $5.2 million of acquisition-related intangible asset costs and $1.8 million of acquisition-related costs. This compares to GAAP operating expenses in the third quarter 2025 of $108.9 million or 27.8% of revenue and $114.3 million or 25.6% of revenue in the prior quarter. Non-GAAP operating expenses in the prior quarter were $108.6 million or 24.4% of revenue.

Total other income and expense amounted to approximately $0.4 million expense for the quarter, consisting of $6 million in unrealized loss on investments, $3 million in foreign currency losses, $0.8 million in interest expense offset by $4.8 million in interest income, $3.8 million gain on disposal of subsidiary and $0.8 million in other income. Income before taxes, equity and net earnings of equity investments, and non-controlling interest in the third quarter of 2026 was $63 million compared to $19.5 million in the prior year period and $58 million in the previous quarter.

Turning to income taxes, our effective income tax rate for the third quarter was approximately 23.2% for 2026. We continue to expect the tax rate for the full year to remain at approximately 18% plus or minus 3%. GAAP net income for the third quarter was $43.7 million or $0.95 per diluted share compared to a net income of $14.3 million or $0.31 per diluted share in the prior year quarter and net income of $46.6 million or $1.00 per diluted share last quarter.

The share count used to compute GAAP diluted income per share for the third quarter 2026 was 46.2 million shares. Non-GAAP adjusted net income in the third quarter was $54.5 million or $1.18 per diluted share, which excluded, net of tax, $7.9 million unrealized loss on investments, $4.2 million of acquisition-related intangible asset amortization costs, $3 million gain on disposal of subsidiary, $1.4 million of acquisition-related costs and $0.3 million of acquisition-related inventory amortization costs.

This compares to non-GAAP adjusted net income of $17.2 million or $0.37 per diluted share in the third quarter of 2025 and $32.5 million or $0.70 per diluted share in the prior quarter. Excluding non-cash share-based compensation expense of $7.4 million for the third quarter, net of tax, both GAAP net income and non-GAAP adjusted net income would have increased by $0.16 per share. EBITDA for the third quarter was $89.7 million or 16.8% of revenue, compared to $46.6 million or 11.9% of revenue in the prior year period and $83.5 million or 18.7% of revenue in the prior quarter. 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 provided by operations was $97.2 million for the third quarter. Free cash flow was $43.9 million, including $53.2 million of capital expenditures. Net cash flow was a positive $134.1 million, which includes $35 million for the stock buyback program. Turning to the balance sheet, at the end of the third quarter cash, cash equivalents, restricted cash plus short-term investments totaled approximately $578 million. Working capital was approximately $1.1 billion and total debt was approximately $405 million.

During the quarter we completed the private placement of 0% convertible senior notes due 2031 in the aggregate principal amount of $375 million, including the initial purchasers’ exercise of their option to purchase additional notes in full, generating net proceeds of $342.9 million after deducting $10.2 million in debt issuance costs and $21.9 million of capped call transaction premiums. The Company also used $35 million of the net proceeds to repurchase 360,119 shares of our common stock in a privately negotiated transaction.

In terms of inventory, at the end of the third quarter, total inventory days decreased 11 days to approximately 141 as compared to 152 last quarter. Finished goods inventory days were approximately 44 compared to 51 days last quarter. Total inventory dollars increased $30.5 million from the prior quarter to $535 million, consisting of a $25.1 million increase in work in process, $14.8 million increase in raw materials, and a $9.4 million decrease in finished goods.

The increase in inventory helps to support our customers and expected growth as well as our longer wafer manufacturing lead times. For the third quarter there was a $29.5 million addition to inventory associated with the acquisition of Elevate Semiconductor. Without this increase, total inventory dollars would have been approximately flat compared to last quarter. Capital expenditures on a cash basis were $53.2 million for the third quarter or 10% of revenue, which is above our targeted annualized range of 5% to 9% of revenue but within the range year to date at 8.6% of revenue.

Now turning to our outlook for the fourth quarter, we expect revenue to increase to approximately $550 million plus or minus 3% at the midpoint. This represents a 40.4% increase year over year and a 3.2% increase sequentially. Non-GAAP gross margin is expected to expand to 37% plus or minus 1%. Non-GAAP adjusted EPS is expected to be $1.35 plus or minus $0.10. With that, I now turn the call over to Emily Yang.

Emily Yang (SVP Worldwide Sales/Marketing)

Thank you, Brett, and good afternoon. As Gary and Brett mentioned, revenue in the third quarter was up 19.5% sequentially and up 35.8% over the prior-year period, exceeding the midpoint of our guidance. This is mainly driven by very strong demand across all regions and led by North America followed by Asia and Europe. Pericom product revenue reached a record high, which is greater than 3x since the acquisition. Global POS also reached record revenue driven by the Americas followed by Europe and Asia, and channel inventory decreased in terms of weeks again this quarter, with weeks lower than our normal range of 11 to 14 weeks.

While supply continues to be tight, we remain strategically focused on long-term sustainable business and demand creation. Our third quarter result and the expectation for the continuous growth into the fourth quarter reflects our focus on key customer partnerships as well as market share gains combined with our strong operational performance, capacity expansion activities and the success of our hybrid manufacturing strategy. Looking at the fourth quarter, we see continued strength in automotive, industrial and AI-related applications. With the strong backlog and the demand pipeline, we are guiding more than 3% quarter-over-quarter growth compared to our usual 5% to 6% down during the quarter. Our margin also improved 300 basis points from 33.1% to 36.1%. This was mainly driven by product mix improvement, price adjustments and capacity underloading improvement, and our fourth quarter guidance of 37% underscores our continuous momentum in margin improvement.

Looking at global sales in the third quarter, Asia represented 79% of the revenue, Europe 11% and North America 10%. In terms of our end markets, computing was 27% of Diodes product revenue, industrial 24%, automotive 22%, consumer 17% and communication 10% of product revenues. Our automotive and industrial revenue combined totaled 46% of product revenue, which was up 2 percentage points from last quarter. Now let me review the end markets in greater detail. Starting with automotive, market revenue grew 26% sequentially and almost 60% year over year to reach a quarterly record driven by content expansion and market share gains. This momentum is extending into fourth quarter as demand remains strong. We continue to benefit from the application trend of connected driving, advanced vehicle electronics and electrification, which are driving higher semiconductor content per vehicle.

During the quarter we saw continuous design-win momentum across ADAS, telematics, infotainment and digital cockpit applications. As vehicles incorporate more displays, sensors, processors and communication interfaces, demand for our timing, connectivity and power management solutions continues to increase. We also saw strong traction across lighting, body electronics and safety applications supported by new production ramp and design wins for LED drivers, smart power devices, current monitors and protection products.

In electrification, we secured additional wins in the EV power systems, onboard charging and battery-related applications. Overall, our expanding content position across connected driving, vehicle electronics, lighting, safety and electrification continues to create growth opportunities across both ICE and EV platforms and supports our long-term automotive growth strategy. Turning to industrial, market revenue increased 26% sequentially and 50% year over year. Market demand continues to strengthen, especially for expanded content opportunities across AI infrastructures, automation, energy, smart metering and emerging robotic applications. In humanoid robotics, we secured design-ins for our level shifter portfolio on robot control boards. Demand for power management solutions also remains strong across smart meters, energy systems, embedded systems, industrial automation, cooling applications, smart buildings, outdoor lighting and power adapters.

We also continue to strengthen our position in AI data center power infrastructures, seeing increasing demand for our silicon carbide solutions in high-power, 800-volt and 400-volt server and AI platform power supplies. Through our acquisition of Elevate, we are benefiting from favorable conditions in the semiconductor automated test equipment market, which is experiencing one of the strongest growth cycles in its history. Industrial growth is being driven by increasing demand for higher-voltage and more capable test platforms.

We believe Elevate is well positioned to capitalize on this trend with its differentiated high-voltage product portfolio and new product introductions. In the computing market, revenue increased 16% sequentially and 33% year over year to reach a quarterly record and remains the largest end market for Diodes. During the quarter we continued to see strong momentum in AI server, data center and enterprise storage. Whereas notebook demand was a little bit soft, we expect AI server, data center and enterprise storage will continue to drive momentum in the fourth quarter to offset the slowdown in the notebook and PC market.

AI infrastructure investment is also driving growth across our broader server portfolio. Our configurable low-power PCI Express packet switch business saw significant growth. Demand for our PCI Express 6.0 and 7.0 timing products remains strong, with new clock generators, multiplexers and buffers gaining adoption across next-generation AI server platforms. Our PCI Express timing portfolio has huge traction with several recent design wins with major AI, clock and server customers.

We’re also seeing solid momentum in the enterprise SSD and AI data center storage supported by growing NVMe SSD demand. Increasing AI server power density is creating additional opportunities across power management, monitoring, protection and thermal management. Increasing AI infrastructure complexity and power requirements are expanding our content opportunities across timing, connectivity, storage, power management, protection and thermal management, positioning computing as an important growth driver for Diodes.

In the consumer market, revenue increased over 20% sequentially and 30% year over year. We continue to see positive momentum in our consumer business supported by growth across premium home audio, consumer controls, energy efficiency, lighting, USB-C power and protection products. USB-C adoption continues to expand across connected consumer devices including TV set-top boxes, routers and handheld gaming systems, driving growth for our USB-C power solutions as the interface becomes more widely used for both charging and data connectivity.

These opportunities demonstrate the increased breadth of our product portfolio across audio, power, protection, connectivity and timing for consumer applications. Lastly, in the communication market, revenue increased 10% sequentially and approximately 6% year over year, representing 10% of our total product revenue. Networking driven by AI applications continues with strong momentum. While the smartphone market in China remains soft, AI-driven networking is creating new growth opportunities, with continued demand for 800-gig optical modules and the beginning of the 1.6T ramp expanding opportunities for our connectivity and timing products.

Our level shifting solutions are also gaining traction with optical module manufacturers as data centers move to a higher network speed. Optical transceivers require increasingly precise, ultra-low-jitter timing to support high-speed connectivity between servers and clock infrastructures. This plays to the core Diodes strength in quartz-based timing solutions, including differential oscillators used as a reference clock for optical modules and other communication applications.

In summary, we are very pleased with the achievement of our record quarterly revenue and strong gross margin expansion as we benefit from the improved product mix through the record revenue in automotive and computing markets combined with pricing and loading improvements. With our broad portfolio and diversified end market we are less dependent on any one market segment. Our key focus areas of automotive, industrial and AI applications are well balanced and will continue to drive Diodes’ future growth momentum.

In fourth quarter, we are guiding for further expansion across revenue, gross margin and non-GAAP earnings, which put us well ahead of our timeline towards achievement of our three-year financial goals. With that, we now open the floor to questions. Operator.

OPERATOR

We will now begin the question-and-answer session. To ask a question, you may press star then one on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. At this time we will pause momentarily to assemble our roster. The first question today comes from David Williams with Needham.

Please go ahead.

David Williams (Analyst)

Hey, good afternoon everyone and congratulations on the really solid results here. I guess maybe first thing that comes to mind, and Emily mentioned this, but your targets you set earlier this year are looking a bit out of date given your success here. Just curious if that is something you would revisit here in the near term or if there’s anything we should be thinking about in terms of those targets and how you’re thinking about the growth over the next year.

Emily Yang (SVP Worldwide Sales/Marketing)

Yeah. Hi David, this is Emily. We will definitely revisit again during probably the next earnings call to reset some of the goals. But now for this quarter, I think our IR material will actually reflect the result as of today or as of end of Q3, so you should be able to get some of the information out from the IR presentation. But thank you.

David Williams (Analyst)

All right, very good. And then just kind of thinking about the lead times and the inventories. Can you talk a little bit about the pricing environment that you mentioned? But also, how are your lead times trending and is that creating any issues in terms of are you able to meet demand and maybe how long your forecasts your customers are providing you? Thanks.

Emily Yang (SVP Worldwide Sales/Marketing)

Yeah, so in general lead time is still extended, right? The supply is still a little bit constrained. What we are doing is actually working with the customers, understanding their true demand and provide the best support we can. If you look at overall unit shipment that we provided, I think fiscal calendar year 2025, we ship about 45 billion units, and using Q3 run rate, we are actually at the run rate about 60 billion units. So as you can see, we actually increased the shipment volumes significantly.

This is actually driven by some of the aggressive initiatives that we put together, including capacity expansion, product mix improvement and stuff like that. So I would say all in all, it’s a good representation of the increased focus of expansion, our capacity and better support the customer.

David Williams (Analyst)

Okay, great. And if I could sneak just one last one in, and that is on the AI infrastructure or AI opportunity for you all. That’s been a very big area of growth. Is there a way for us to think about the magnitude of what that contribution is today in terms of your total revenue base?

Emily Yang (SVP Worldwide Sales/Marketing)

Yeah, we haven’t really broken out the AI revenue and reported it that way, but I did mention before the whole AI ecosystem data center servers are definitely a major portion of it. We also mentioned the total content per box is about $109. But on top of that we have the industrial applications, including all the power supplies. We see that as a big potential upside for us, especially next year with some of the new designs’ transition to 800-volt, 400-volt and stuff like that.

We also see networking as an example, whether it’s switches or routers; also the transceivers, the optical modules will continue to drive a lot of momentum. But I would say all in all, this is really positive for us and we are excited for the growth. But one thing I do want to point out, I know AI is a really hot topic today or for the last few months, but one thing about Diodes is we are very well diversified into a lot of different end markets. Using the example of automotive, we actually grew more than 60%, or close to 60%, year over year. Even industrial, we actually grew 50% year over year. Right. So I think that’s one thing I want to point out. AI will continue to drive the momentum as well as automotive, industrial and some other applications.

OPERATOR

The next question comes from Will Stein with Truist. Please go ahead.

Elliot (Analyst)

Hi, this is Elliot on for Will. Thanks for letting me ask a question. First, if we could start with margins as we move into calendar year 27, can you help us think about potential margin expansion and incrementals for both gross and operating, and maybe just generally the puts and takes as we get outside of the next couple of quarters?

Brett Whitmire (Chief Financial Officer)

Yeah. Elliot, this is Brett. I’ll make a couple of comments here. I think, as we’ve kind of said before, we’ll continue to have improvement of our margin and leverage based on improved utilization in our wafer fabs that we have positioned for expansion. We’re also going to see improved margin as our revenue grows, which we would expect to continue. I think we’re growing at a really great rate in the back half. We would expect to continue to grow to gain share as we go into next year.

And so I think those are the main— from an additional leverage we have the manufacturing, but you’ve also got the improved product mix and the improvement that we’re going to be making that will benefit us on the margin side.

Gary Yu (President)

Yes, this is Gary. At this moment we are hitting at 37% as we, you know, give you the guidance in the fourth quarter. I think our target model is $2.5 billion U.S. dollars with a 40% margin and we’re marching forward on the right track toward that direction.

Elliot (Analyst)

Okay, great, thank you. And then for my follow-up, could you talk a little bit about just demand linearity? You saw such a strong quarter. Did it build as the quarter went? You’ve guided for more accelerating growth as we move forward. So how did the linearity trend throughout the quarter and maybe anything you’ve seen in October relative to your prior such strong quarter? Thanks.

Emily Yang (SVP Worldwide Sales/Marketing)

Yeah, so this is Emily. I think Q4 usually is a down quarter, about 5 to 6% for us. We guided more than 3% quarter over quarter. This is actually based on the strong backlog and the design pipeline that we actually have visibility into. I think if you really look at the end market, automotive, industrial, AI-related applications will continue to drive some of the momentum into Q4. October compared to the previous quarter, we definitely have good visibility from the backlog as well as a very strong beginning backlog.

So with all these factors put together, we actually provided much stronger guidance than our usual seasonality.

Elliot (Analyst)

Thank you.

OPERATOR

The next question comes from Tristan Guerra with Baird. Please go ahead.

Tristan Guerra (Analyst)

Hi, good afternoon. Given the decline that’s been well advertised in PCs/notebooks into Q4, is it fair to assume that there is fungibility and you can reallocate quickly via distribution to other end markets, which presumably will be higher margin and that helps mix but also to reduce maybe lead times in some areas that are very constrained.

Emily Yang (SVP Worldwide Sales/Marketing)

Hi Tristan, this is Emily. Right. So of course it’s product by product. It’s not across the board, but in general the capacity should be able to share among different products as well as sometimes the front-end capacity as well as the wafers. So not 100%, but there’s a lot of flexibility that we can work things around. Just also keep in mind that I think I mentioned the AI portion of the servers in the data center will continue to be strong and that also will help us to offset some of the softness in a specific market segment.

Tristan Guerra (Analyst)

Okay. And then as my follow-up, the higher loadings that you described, is it solely driven by higher demand or is there also some migration from products that were previously outsourced that you’re migrating in-house?

Gary Yu (President)

Okay. Hey, Tristan, this is Gary. So like Emily mentioned, market demand for Diodes are very strong. Right. Even though we continue to expand our capacity and most of internal facilities are fully loaded. Right. So, so far our fab in Scotland and fab in South Portland are still not fully loaded yet. But we continue to see utilization improve from the second-source program from outside fabs and also the new demand for our newly designed-in products into those two fabs to support customer needs.

So I would say both.

Tristan Guerra (Analyst)

Great, thank you very much.

OPERATOR

Thank you, Tristan. The next question comes from Michael Manning with Bank of America. Please go ahead.

Michael Manning (Analyst)

Hi. Thanks so much for taking my questions. To start, I wanted to get your sense of where you think we are in this cycle. You know, revenue right now is past your prior peak. You’ve essentially outgrown seasonality for the last two years. So, I mean, are you seeing restocking behavior consistently across all your end markets? And how do you ensure the quality of demand, especially in the distributor channel which grew a lot this past quarter? How do you ensure there’s no double or excess ordering given that there’s some supply constraints cropping up elsewhere in the industry?

Thank you.

Emily Yang (SVP Worldwide Sales/Marketing)

Yes. So I think, Michael, it is a little bit hard to predict the overall market. But all in all, I would just talk specific on the Diodes situation. I did mention our POS quarter-over-quarter growth. If we look at year over year, that’s actually more than 30% year-over-year growth. So you can actually see the demand is very, very strong. Right. So all in all, I also mentioned that our channel inventory decreased in terms of weeks again this quarter, and it definitely is below our normal range, which also means that we don’t really have the privilege to restock anything.

Our key focus is actually continued focus on the POS growth. Right. I think the number of weeks of channel inventory a lot of time is based on the positive resell. What we want to focus on is actually putting the right product, putting the right mix on the shelf of the distribution, continuing to enable our POS future growth down the road. So that will continue to be our focus and I would say that will be our strategy moving forward. We definitely don’t want to repeat the challenge that we faced a few years back.

So we actually monitor this very, very closely.

Michael Manning (Analyst)

Great, thank you. And as a follow-up, this touches on some of the other questions that were asked prior. For gross margins, I know there were a number of initiatives done over the last two to three years to essentially help them structurally improve when demand returns. I think one of those initiatives was moving more wafers internally, right, from your third foundry network. Another one was moving to larger wafers. You were also doing cost reductions on a broad swath of parts.

So for all of those kind of internal initiatives, have you largely completed those? Is there still a lot more to go as you look throughout the rest of the portfolio? And when do we really start to see the margin tailwinds from this? It seems like it’s already happening, but how much more left is there from those internal self-help initiatives? Thank you.

Emily Yang (SVP Worldwide Sales/Marketing)

Yeah, I think like Gary mentioned, right, we have a goal of $1 billion gross profit dollars. And with the model at 40% margin, as you can see, with our fourth quarter at 37, we still have room to go. I think the key focus for margin improvement separates into a few areas. One of the key initiatives is product mix improvement. And as you can see, in the third quarter our auto and industrial increased to 46%, which is a 2 percentage point improvement compared to last quarter.

We also mentioned Pericom products, a record revenue. Right. All this is actually a good demonstration of the product mix improvement initiative that we continue driving. Right. The second thing, as you kind of alluded, we call them manufacturing efficiency improvement. Whether it’s actually moving to a larger wafer or loading more into the factory, this will directly help with the revenue improvement overall. Right. Revenue usually increases the loading.

At the same time, we’re doing a lot of initiatives to maximize the capacity return overall and reducing the underloading cost. Right. So we believe that with the combination with the new product introduction, with the initiatives we put in place, there’s still a lot of room for us to continue to improve the margin for the quarters to come.

OPERATOR

Thank you. The next question comes from Tristan Guerra with Baird. Please go ahead. Hi, Tristan. Tristan, your line is open. You may ask your question.

Tristan Guerra (Analyst)

Can you hear me now?

OPERATOR

We can hear you now. Yeah.

Tristan Guerra (Analyst)

Okay. Sorry about that. Sorry I couldn’t help coming back. Quick follow-up at the OEM level and outside of AI, obviously, is there any attempt to rebuild inventories? You know, there’s been some advertised China automotive softness into European exports or maybe even in industrial, or do you see OEM inventory levels still very low, depending on whether you actually have visibility on that.

Emily Yang (SVP Worldwide Sales/Marketing)

Yeah. Tristan, this is Emily. Based on our visibility, based on our communication with all our Tier 1 customers, at this moment, we feel more on the hand-to-mouth situation. I don’t really think there’s a lot of privilege for us to build up the inventory at this moment. So we are working with them very closely, try to understand their shelf policy, how many weeks, and we actually monitor very closely.

Tristan Guerra (Analyst)

Great. Thank you very much again.

OPERATOR

This concludes our question and answer session. I would like to turn the conference back over to Gary Yu for any closing remarks.

Gary Yu (President)

Thank you everyone for participating on today’s call. We look forward to reporting our continued progress on next quarter’s conference call. Operator, you may now disconnect.

OPERATOR

The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect your lines.

Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company’s SEC filings and official press releases. Corporate participants’ and analysts’ statements reflect their views as of the date of this call and are subject to change without notice.