International Rectifier Corporation (IRF)
Citi Technology Conference Call
September 5, 2012 11:15 am ET
Oleg Khaykin – President and Chief Executive Officer
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Just for a comment on the format, we are going to do a 40-minute session here, and 20 minutes of Q&A initially and then I will turn it over to questions for the audience, so I will give you your chance in a little bit, but we would like to kick things off. So I guess, Oleg, maybe starting from a high level question, how you’ve seen demand change here in the second half versus the first half and how are you responding to that?
Well, in the first half we saw a kind of first drop in December quarter and then as people reassess their needs, we saw nice recovery into the March. And early into the June quarter, there was a lot of enthusiasm going into the summer and feeling that September will be a strong quarter and a recovery here we come. But as the June quarter progressed, the mood had changed and exiting the June quarter, the mood was largely negative in the September quarter.
So for us, we saw a nice recovery in revenue from the trough in December quarter and we have nice growth going from 230 to 270 between December quarter and June quarter. But then going into September quarter, we saw softening
as the mood for the September quarter has shifted, and is largely persistent. What we are seeing today is a lot of kind of just in time orders, very fast kind of short cycle behavior. It tells me a lot of our distributors OEMs, ODMs really don't know what’s the demand is and it comes in and they expect the fulfillment to be very quick. Right now it's fairly easy, because we have still the inventory and we can respond relatively quickly.
Our Discrete business, which is one of the businesses, it can respond to quickest because of the shortest lead time. We saw a big pop in the June quarter, because the feeling was, the mood shifted that things are getting better and it opt, the mood shifted for the September quarter, the demand dropped. But going into the September quarter, we just reported about a week ago, and we are seeing lower quarter than the June quarter mainly, we have a big exposure to industrial and appliance space, that’s where we are seeing the biggest weakness between Europe and China.
And the Discrete business, which because has a short lead times, it has some of the biggest upsides, people don't forecast, but it's generally becoming in weaker for September. Up for December, I tell you, I mean, what I am seeing right now is still a lot of very cautious attitude, people just kind of waiting to see kind of between now and the end of September, the December orders are going to start rolling in to the contract manufacturers and to the OEMs, and they are kind of taking wait-and-see attitude before they placed hard orders.
One area where we are seeing some increased enthusiasm is more on the kind of server side, but it's mainly driven by end of the year push to meet the annual numbers of the big server manufacturers as they try to meet their annual sales calls.
Okay and terrific.
And it's generally typical every year, December quarter, they try to get as much business as they can.
Okay, okay. I think what I’d like to do before digging into each of the specific product lines that maybe take a step back here and talk about, since you and [Alan] joined International Rectifier, can you just recount some of the changes you made to the organization and sort of where you are with regard to milestones of progress towards this initial changes that you’ve made?
Well, when we joined, we identified several major problems, one was the company after divesting $300 million business to be shared with top scale with the infrastructure and footprint that goes significantly bigger than it’s a scaled wood warrant. So the other thing was, there was a significant defocusing from Tier 1 customers to Tier 2 smaller customers, which obviously shrunk your volumes and markets. And the third one, there was growing product and technology gap that would fall needed to be filled especially in the MOSFETs and IGBT technology front.
So when we joined one strategy, I had three key elements, first one was to reengage with Tier 1 customers and win with them, that’s kind of volume drives, it drives volume win with the winners also so to say. The second one is to accelerate product development to close the product gap and technology gap. And the third one was the operational transformation, changing footprint of the company and bring greater level of external manufacturing versus internal.
I would say, the first two things have done very well and the company, we group kind of cycle and cycle about 50%. We’ve done very well in that respect. We have reengaged with all the Tier 1’s, we’ve got very nice attractive design win traction. The area where we’ve paused on was the operational transformation because of the market going back from 2009, pretty soon everything was riding on allocation. And to restructure your footprint, you need to transfer lot of technologies and it requires engineering resource at that foundries, as well as engineering resource internally and you need to have external capacity already
in place before you shutdown your internal assets.