Release Date: May 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Advanced Energy Industries Inc (AEIS, Financial) reported stronger than expected semiconductor revenue in Q1.
- Despite challenges, the company achieved its gross margin target and delivered earnings within the guidance range.
- Advanced Energy Industries Inc (AEIS) is seeing a strong rebound in data center computing demand, expected to drive sequential revenue growth.
- The company has secured major design wins for its next-generation plasma power products, which are expected to drive market share gains.
- Advanced Energy Industries Inc (AEIS) is executing a manufacturing consolidation plan expected to benefit gross margin in the second half of 2024.
Negative Points
- Revenue in non-semiconductor markets declined 19% quarter over quarter due to a challenging demand environment.
- Inventory corrections at OEMs and distributors led to a revenue shortfall, particularly in the industrial and medical markets.
- Telecom and networking revenue decreased significantly, with challenging market conditions expected to persist throughout 2024.
- Data center computing revenue was below expectations due to the push-out of a single hyperscale program.
- First quarter gross margin decreased both sequentially and year-over-year, reflecting the impact of lower volumes and challenging conditions.
Q & A Highlights
Q: Can you discuss the level of visibility forward and what gives you confidence that inventory destocking is reaching an endpoint as we move through the year?
A: Stephen Kelley, President and CEO, explained that Q1 destocking was more significant than forecasted, particularly in telecom, networking, and industrial medical sectors. He noted that recovery is already visible in the medical sector and expects normalization in industrial medical by Q3 or Q4. Kelley highlighted that the inventory correction began in Q4 of 2023 and is now in its third quarter.
Q: What is driving the sequential revenue growth in data center computing, particularly the rebound in hyperscale AI investments?
A: Paul Oldham, CFO, mentioned that initial customer focus on securing chips and modules for AI servers delayed their procurement of power supplies. He emphasized Advanced Energy's strengths in reliability, efficiency, and power density, which are critical for AI servers, and noted improved execution on near-term customer requirements.
Q: How do you measure the all-time high design activity mentioned, and can you quantify this on a year-over-year basis?
A: Stephen Kelley responded that the design win funnel in the industrial medical segment increased by 50% in dollar value in 2023. He also highlighted significant progress and demand for the company's Everest and Bose platforms in the semiconductor segment, indicating strong future growth potential.
Q: Given the forecast for a revenue rebound in Q2, can you discuss your confidence level in this rebound and whether you lean towards the low, middle, or high end of the guidance?
A: Kelley described the Q2 guidance as conservative, noting a surge in data center orders that the company is confident about fulfilling. He expects the rest of the business to remain flat, which is already at a low level.
Q: Can you discuss the current trends in bookings and backlog, particularly which areas are strongest?
A: Paul Oldham indicated that bookings increased across all markets except telecom and networking. He noted that the backlog is slightly down from the previous quarter but did not specify exact figures.
Q: What are the expectations for gross margin improvements and the impact of manufacturing cost actions?
A: Oldham explained that gross margin improvements are expected towards the end of the year, primarily due to manufacturing consolidation activities and recovery in volumes. He noted that material costs are returning to normal, and the company is seeing the benefits of its strategic focus on differentiated products in the data center market.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
