Leanne Sievers - Executive Vice President, Investor Relations, Shelton Group Keh-Shew Lu - President and Chief Executive Officer Rick White - Chief Financial Officer Mark King - Senior Vice President of Sales and Marketing.

Steve Smigie - Raymond James Gary Mobley - Benchmark Tristan Gerra - Baird Shawn Harrison - Longbow Research Christopher Longiaru - Sidoti & Company.

Good afternoon, and welcome to Diodes Incorporated Second Quarter 2016 Financial Results Conference Call. At this time, all participants are in a listen-only mode. At the conclusion of today’s conference call, instructions will be given for the question-and-answer session.

[Operator Instructions] As a reminder, this conference call is being recorded today, Tuesday, August 9, 2016. I would now like to turn the call over to Leanne Sievers of Shelton Group, Investor Relations. Leanne, please go ahead..

Good afternoon, and welcome to Diodes second quarter 2016 financial results conference call. I am Leanne Sievers, Executive Vice President of Shelton Group, Diodes’ Investor Relations firm. Joining us today are Diodes’ President and CEO, Dr.

Keh-Shew Lu; Chief Financial Officer, Rick White; Senior Vice President of Sales and Marketing, Mark King; and Director of Investor Relations, Laura Mehrl. Before I turn the call over to Dr.

Lu, I would like to remind our listeners that 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. In addition, any projections as to the company’s future performance represent management’s estimates as of today August 9, 2016.

Diodes assume no obligation to update these projections in the future as market conditions may or may not change. Additionally, the company’s press release and management’s 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 reconciliation of GAAP to non-GAAP items, which provide additional details. Also throughout the company’s press release and management’s statements during this conference call, we refer to net income attributable to common stockholders as GAAP net income.

As a reminder, the results announced today are preliminary and are subject to Diodes finalizing its closing procedures and customary quarterly review by the company’s independent registered public accounting firm.

As such, these results are subject to revision until the company files its quarterly report on Form 10-Q for the quarter ending June 30, 2016. For those of you unable to listen to the entire call at this time, a recording will be available via webcast for 60 days in the Investor Relations section of Diodes’ website at www.diodes.com.

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

Thank you, Leanne. Welcome, everyone, and thank you for joining us today. I am pleased to report strong second results highlighted the achievement of greater revenue and gross profit dollars. The growth was driven by an approximately 7% sequential increase in Diodes’ core business, with a modest 1% increase in revenue from Pericom.

Our industrial market revenue was higher in the quarter reflecting increased sales in North America and Europe. Revenue from our automotive market also had another solid quarter of growth as this end market continues to outpace the average growth rate of the Company.

In addition, we achieved a 140 basis point sequential improvement in non-GAAP gross margin, due primarily to increased utilization at our manufacturing facilities and improved product mix.

We also continued to generate solid cash flow during the quarter, which enabled us to pay down $40 million of long-term debt, or a total of $73 million since the end of the third quarter 2015.

It took approximately three years to pay off the debt from our BCD Semiconductor acquisition, and we anticipate a similar timeframe for Pericom due to Diodes’ strong cash flow generation.

As we look to the third quarter, we expect revenue to grow 5.6% sequentially at the mid-point, representing $250 million in a quarterly revenue run rate, which is an important milestone toward achieving our goal of $1 billion in annual revenue.

Additionally, gross margin is expected to improve another 90 basis points at the mid-point of our guidance range of 32.5%, with operating expenses decreasing further as a percentage of sales. We are beginning to see improvements in the general market environment and anticipate a more typical seasonal cycle going into the quarter.

With that, I now turn the call over to Rick to discuss our second quarter financial results as well as third quarter guidance in more detail..

Thanks Dr. Lu, and good afternoon, everyone. Revenue for the second quarter 2016 was a record $236.6 million, increasing 6.2% from the $222.7 million in the first quarter 2016 and 7.8% from the $219.5 million in the second quarter 2015.

Gross profit for the second quarter 2016 reached a record $74.8 million, or 31.6% of revenue, compared to the first quarter 2016 of $64.2 million, or 28.8% of revenue and the second quarter 2015 of $69.4 million, or 31.6% of revenue.

The sequential increase in gross profit margin was due primarily to increased utilization at our manufacturing facilities and improved product mix.

GAAP operating expenses for the second quarter 2016 were $63.5 million, or 26.9% of revenue, and on a non-GAAP basis $58.6 million, or 24.8% of revenue, which excludes $4.9 million of transaction, retention, amortization of acquisition-related intangible asset expenses and employee award costs.

This compares to GAAP operating expenses of $62.8 million, or 28.2% of revenue in the first quarter 2016, or 25.5% on a non-GAAP basis. Looking specifically at selling, general and administrative expenses for the second quarter, SG&A was approximately $42.4 or 17.5% of revenue compared to $39.5 million, or 17.7% of revenue in the first quarter 2016.

Investment in research and development for the second quarter was approximately $17 million or 7.2% of revenue compared to $18.1 million for 8.1% of revenue in the first quarter 2016. Combined, SG&A plus R&D was $58.4 million or 24.7% revenue compared to $57.6 million or 25.9% of revenue in the first quarter 2016.

Total other expense amounted to approximately $2.5 million for the quarter including $3.7 million of interest expense which was partially offset by $1.2 million of currency gains and interest income.

Income before taxes and non-controlling interest in the second quarter 2016 amounted to $8.8 million compared to a loss of $2 million in the first quarter of 2016. Turning to income taxes, our effective income tax rate for the second quarter was approximately 27.3%.

Second quarter 2016 GAAP net income was $5.8 million or $0.12 per diluted share compared to GAAP net loss of $1.7 million or negative $0.04 per share in the first quarter 2016 and GAAP net income of $15.1 million or $0.31 per share in the second quarter 2015.

The share count used to compute GAAP diluted EPS for the second quarter 2016 was 49.5 million shares. Non-GAAP adjusted net income was $9.8 million or $0.20 per diluted share which excluded net of tax $5.1 million of non-cash acquisition related intangible asset amortization cost.

This compares to non-GAAP adjusted net income of $5.9 million or $0.12 per diluted share in the first quarter 2016 and $16.6 million or $0.34 per diluted share in the second quarter 2015. We have included in our earnings release a reconciliation of GAAP net income to non-GAAP adjusted net income, which provides additional details.

Included in the second quarter 2016 GAAP and non-GAAP adjusted net income was approximately $3 million net of tax, non-cash, share-based compensation expense. Excluding share-based compensation expense, both GAAP and non-GAAP adjusted EPS would have increased by $0.06 per diluted share in the second quarter.

Cash flow generated from operations was $16.4 million for the second quarter. Free cash flow was $0.9 million for the second quarter which included $15.5 million of capital expenditures. Net cash flow for the quarter was a negative $44.5 million including the pay down of approximately $40 million of long-term debt.

Turning to the balance sheet, at the end of the second quarter, cash and cash equivalents totaled approximately $193 million and short-term investment totaled $44 million. Working capital was approximately $542 million.

At the end of the second quarter, inventory increased approximately $5 million from the end of first quarter 2016 to approximately $210 million. Inventory in the quarter reflects a $9 million increase in finish goods and $3 million decrease in work in process and $1 million decrease in raw materials.

Inventory days are 117 in the quarter which was comparable to last quarter. At the end of the second quarter, cash receivables approximately $230 million, an increase of $13 million from the first quarter. AR days were 86 compared to 89 last quarter.

Our long-term debt totaled approximate $410 million; a total of $73 million has been paid down since the end of the third quarter 2015. Capital expenditures for the second quarter were $15.5 million or 6.6% of revenue. As we mentioned in the past, Chengdu will be included in our full year target model for CapEx which will be 5% to 9% of revenue.

Depreciation and amortization expense for the second quarter was $25 million. Now turning to our outlook. For the third quarter 2016, we expect to grow revenue to a range between $242 million and $258 million or up 2.3% to 9% sequentially. We expect GAAP and non-GAAP gross margin to be 32.5% plus or minus 1%.

Non-GAAP operating expenses are expected to be approximately 24% of revenue plus or minus 1%. We expect interest expense to be approximately $3 million and our income tax rate to be 28% plus or minus 3%. Shares used to calculate diluted EPS for the third quarter are anticipated to be approximately $50 million.

Please note that purchase accounting adjustments for Pericom and previous acquisitions of $4.4 million after tax are not included in these non-GAAP estimates. With that said, I will now turn the call over to Mark King..

Thank you, Rick and good afternoon. The second quarter set a record for both revenue and gross profit dollars with revenue increasing 6.2% sequentially led by strong automotive and industrial growth in North American and Europe. OEM sales were up 6.9% and distributor POP was up 6%.

Distributor inventory increased 9% in preparation for a stronger third quarter, while POS grew 8% with Europe setting another record quarter for POS. Customer activity continued to be strong across all regions with solid design activity and wins.

We are well positioned with customers across our product portfolio to further expand our content and drive growth for the balance of this year. Also the integration of Pericom continues to remain on schedule and we expect the completion of the sales integration by the end of Q3.

We continue to penetrate our key customer with a broader product line and see significant customer synergy in cross selling opportunities with the Pericom products. We also continue to make progress with our automotive and industrial expansion initiatives with increasing revenue growth, new product introductions and design wins.

From a product perspective, the second quarter was a record quarter for our MOSFET and CMOS LDO. We also continue to see strong momentum for our protection products and LED drives along with a bounce back in revenue for our Hall sensors and AC to DC product lines driven primarily by smatphone sales in China.

Turning to global sales, Asia represented 78% of revenue; Europe 12% and North America 10%. In terms of our end-markets, consumer represented 29% of revenue; communications 24%; industrial 22%; computing 19% and automotive was 6%. We continue to make progress on our automotive and industrial initiatives with both end markets increasing sequentially.

Let me now provide more detail within each of our end markets. For the consumer market, we released two new audio devices, the first of which is highly integrated 3 watt Class D power amplifier that provides excellent audio performance and system flexibility for portable speakers.

And the second is stereo line driver designed with top three architecture for high audio performance at low systems cost. We also saw the adoption of our adjustable current limit power switches by several key TV and set-top customers.

For mobile communications applications including portable device charging Diodes once again introduced a wide range of products during the quarter.

From our MOSFET platforms, we launched a family of CSP and DNF packaged parts targeting reverse battery protection, quick charge and load switch application along with two high voltage parts targeted at charger applications.

Building on Diodes close relationships with several mobile communication customers, we released high surge and general purpose protection devices to meet the needs of these customers including one product offering the highest surge in clamping capability of its kind.

Also during the quarter, our Hall Sensor devices gained further market share specifically in China’s smartphone market with several key wins across multiple platforms in major cell phone manufacturers. Other new smartphone wins include a USB signal switch and a high performance single ReDriver with integrated equalization circuitry.

In the computing market, we extended our support of USB application with the release of a new high performance liner ReDriver designed specifically for the USB 3.1 protocol. We are well positioned to support emerging USB 3.1 ReDriver requirement and have several critical early design wins on market leading platforms.

We also released a bidirectional crossbar solution for switching USB 3.1 signals through a Type C connector. Another recent release related the emerging type C connector market was a flexible, cost effective device that detects plug-in orientation of the cable.

Also in the computing space, we’re seeing growing demand for SSDMox [ph] product line to support high density, solid state memory applications for data centers. The need to support these applications will continue to expand with the growth of cloud computing and big data initiatives.

For the industrial applications, Diodes released several new products underpinning our commitment to meeting the needs of the segment. During the second quarter, we released a 200 volt OR’ing controller and N plus one redundant power supply systems to support data center requirements for a 100% system up time.

Also new for the second quarter is a range of Gate Drivers and single channel half-bridge and high-side, low-side configuration as well as a family of 40 volt, 10 milliamp to 20 milliamp linear LED drivers.

Additionally, we released 40 to 100 volt MOSFET products utilizing shift shielded gate technology that were well suited for industrial power supply applications.

Also in the industrial space, we expanded our offering of LED drives for non-dimmable retrofit bulb applications with a family of high power, high efficiency drivers that needs the latest and use our requirement.

Additionally, our Triac Dimmable product series continues to be very successful in LED applications with several major incremental design wins during the quarter. We are also seeing increased opportunities for our products in industrial camera modules for applications such as security cameras as well as e-meters and e-bike applications in China.

And finally, in the automotive market, Diodes once again extended our range of auto qualified MOSFET with the addition of 6, 60-volt and 80-volt products featuring 175 degrees C-rated shielded gate technology. Diodes now has strong design wins and sales momentum with this rugged technology with targeted automotive customers.

Diodes also generated strong demand for its new NPN constant-current linear LED drivers for interior, ambient and courtesy lighting. Also within the automotive market, we are seeing an emerging trend in Telematics, where telecommunications capabilities are being invented in the automotive electronics system.

Our PCI e-Gen two packet switch is on a key Telematics reference design and has also been designed into a smart antenna project. Additionally, our new PCO driver has been adopted in several electronic tag and key fab applications due to the efficiency and performance of this device.

In summary, our initiatives to expand our presence in the automotive and industrial markets continue to show evidence of success.

In conjunction with these efforts we also remain focused on further expanding our presence in the portable and wearable space which our markets ideally suited for Diode’s deep expertise in administration and power efficient packaging.

Our third quarter expectations for continued growth is representative of a solid position with customer and growing content across our portfolio. With that, I’ll open the floor to questions.

Operator?.

[Operator Instructions] Our first question comes from Steve Smigie from Raymond James. Your line is open..

Great. Thanks a lot and congratulations actually on getting the good revenue results here and getting the gross margin backup to your vulnerable levels..

Thank you..

So I think you’re talking to some you talk a little bit more about how we should think about margins here before it sounds like you’re seeing revenue pick backup to more seasonal patterns again and so similar still see some modest growth.

Is it fair to think continue to fill the factories get a little bit better utilization, continue to mix in the new products, so we should see still speaking sort of a modest move up in the gross margin going forward, it’s great way to sort of think about it high level?.

Well, Steve, the key thing really, if you take our product, the gross of our product is above at is above or at this is up 35%. By now the trip down of our product our TP is was due to the under log duration. And you every quarter when you are talking about we say if our utilization get improved then our TP will improve.

And right now if you look at the second quarter we improve revenue and duration is up. And keep the guidance for the third quarter again the revenue we took in that the revenue going up and therefore we think that the duration will be improved and then the TP will improve too.

So we continue our spend expense for our spending on the capitals such that we are getting the capacity, we only hit the capacity as needed a certain type of package which really the new one our DDFM and those is the one we still short in the capacity. But most of the capacity is enough to support our future growth.

Therefore we did our capital in that area and by doing that we believe our utilization will continue improve, therefore our GPU continue improve.

And especially in the fair, we talking about 8 inch fat that’s really the only fab on wafer far and we are hoping into the bridges continually improve then the far specialty BCD fab will continue improve the utilization then all continue improve the gross margin..

Okay, great. Thank you very much. And wanted to give you a little bit more color on how we should think about operating expense improvements going forward.

What are the levels there? Is there any more to be taken out of the Pericom acquisition or you sort of more sort of where you expected to be at this point, I know it wasn’t really about taking cost out but any sort of public company cost going to kind of stuff and just generally, how OpEx should trend it seems like generally should be coming down as percentage of revenues and against another great way to be thinking about the OpEx there? Thanks..

Well from the expense of a clearance point of view we mainly focused on growth in revenue and then as a percent of the expense percent of the revenue will be going down.

Okay, that is reading meaning focused and for the corporate costs some of the corporate cost to you here because on the bonus, the retention bonus and some of the like CFO, some of the people they still stay to helping us for concentration.

Those who been minor savings but our key focus is how to mutual help each other to spend the market share to growth the revenue such that as a percent of the revenue the expense will go down and that’s really our focus..

Okay, great, thanks. And I get could speak last one in just in terms of revenue growth here. It sounds like you’ve got a bunch of new products coming out.

I mean you always do but it seems like if you use Pericom markets indicating there could be some synergies now that you guys have had them for a while, just any update on how you’re viewing growth opportunity? Thanks..

Well, I’ll then mark they don’t answer that at the beginning. I mean I think telecom product it took time to design in and took time to ramp it up. We sure able to help telecom product to explain to gain more this year but it really tech times but we see a lot opportunity and we see a Delta synergy between their product and our product.

But that kind of product it take up to do design win to bring ramp it and we believe next year will be the year would be the year for CWSoft [ph].

Mark?.

Just right there. Yeah, we are very excited about the average ways we’ve seen in our present customer base to - to advance their product line and even outside of their traditional markets even in a consumer market segments and so forth.

So we have a lot of new opportunities that in let’s say the first six months where the [ph] actually surprised how well it’s gone.

The other nice impact is in within their customer base and even within our customer base with their product, it’s allowing them to step see things a little bit earlier and get a little bit more advanced look for some of our more standard product areas.

So actually the match is - is quite good and the progress is actually better than I expected as quickly. So we’re very excited..

Great. Thank you very much..

Thank you. Our next question comes from Gary Mobley with Benchmark. Your line is open..

Good afternoon, everyone. Grab some good strong Q2..

Thank you..

Had a question –had a question about your Q2 revenue guide. I look back and in time that your previous quarterly revenue guidance range is the difference between high and low in your guidance range is about $16 million and sometimes lowest $10 million, this quarter $16 million.

Why are you taking the approach of having a big plus or minus 3% guidance range relative to the midpoint this quarter and what’s the difference between achieving the high and low end of the guidance range..

I know I - who we give the guidance, we just think it. Well first we’ve been given. What is the midpoint then from there we see okay, how much of that potential variance could be and from there we start but how does appear tension to the first sign of something. Yes, it has to do more with the percentage growth rates. So this times its two the nines.

So that’s 7% either way so it was 3.5% so as we get bigger percentage will be bigger dollars that are going to be passed it really doesn’t have anything to do seriously with. We think there’s a larger range or it’s almost….

To be honest that could say full thing that what would be the meet point and until we sight the meet point then we say - say Okay, what kind of range we’re going to be in we think in the mock market when I say fluctuation will be.

And that is what we do in so I never read and finish it off but the real percent of what’s a read them behind them to send its..

I didn’t know if you did have bottoms up analysis done on what it’s scenarios in what not. But 5% sequential revenue growth isn’t too shabby I guess it’s in line with peers.

With respect to the comp business it was up only 1% in Q2, I don’t know what your expectations are for the business in Q3 and I’m not quite sure about the seasonal trends that the business normally sees.

But give you that 1% growth in the June quarter is that it’s a bit of a disappointment and are there any other issues in there whether it be end of life in certain products or anything relating to that that might have caused noise in the number..

Well, we’ve purchased that will come we know the history and if you go back to their history, they’re more focused on improve the gross margin as a percent instead of focus on the [indiscernible] and if you look at Diode, we are little bit different.

Diode is more on growth and [indiscernible] keep that gross margin at 35% and then when we call that when we put it that we all know that their tradition and we are not that’s for Diode do in the past.

So now, move forward what try to do would be how to help them to grow and I think Mark just mentioned this the opportunity is there and we see other synergies and there with the adult a good opportunity for that at a better growth more but that I say it take time.

Their product here - their product is actually need a doubt of a design win, if a fab is for the sales net. Okay, and tech time to grant it too. So who would I to have volt, one is growth at - at the same time improve the gross margin. And so that’s our challenge is how but we have good at that. So I have confidence.

We will most definitely growth at the same time improve the GP..

And last question. Recently been a lot of industry consolidation is taking place think most of your merger competitors and I know this is a very fragmented market the most your larger competitors have been touched one way or another from some type of industry consolidation.

As that helped Mark environment for you and how do you review that as an opportunity to consolidate market share looking forward..

Yes. I mean we see consolidation is - is disruptive. Okay, to the companies that are consolidating specially like products and like sales channels. So I don’t think we seen the benefit of it. We decided to see some interesting and concerns from the customer base.

I don’t think our numbers show benefit but I think you could say that we believe all consolidation is a positive opportunity for our company..

Okay. That’s it for me. Thanks guys..

Thank you. Our next question comes from Tristan Gerra with Baird. Your line is open..

Good afternoon. This is Justin Lee calling for Tristan. Thanks for allowing - allowing me to ask a question. So Dr. Lu, in your prepared remark, you mentioned he began to see improvement in the general market environment. That could you provide more color on that. Is it more about the seasonality or is it improvement on top of the normal seasonality..

I think we do when we see their improvement in the third quarter is really is the similarity, okay because you know typically the third quarter is a good quarter, is a growth quarter from second quarter and we see similar things now.

Last year is the year strength when you go into third quarter all the stuff and it is slow down so third quarter last year actually slowed in second quarter last year. But this year, I just had a formation and when I see the Asia and then I feel is much is caught that to all seniority[ph] cynical type of pitching more that’s not.

So that’s why I put it say his - the correct is better..

I see. Thank you. Rick, so I think you mention the non-GAAP gross margin improved to 140 basis point sequential because of the increased utilization weight. Could you provide a breakdown of the utilization weight for each of that [indiscernible]..

Okay. So let’s talk about the assembly test here is first utilization in our Shanghai assembly test was in the 8% range which is kind of worse than for the last two or three quarters. CAC [ph] has been steadily increasing the CACs are trying to do some retest and they were over 95% in just last quarter which we would consider the fully loaded.

And from a fab standpoint, OFAB look have a [indiscernible] out of England, continues to run way over what we consider to be fully loaded in the 85% range there are - there are way above 90%. As fab one [indiscernible] same have [indiscernible] the all the fab in Shanghai is 80%.

Is there who is newer fab at Shanghai and if you go back in the last part of 2014. The last half of 2014 they were of 35% range and they’ve been steadily increasing a few about a 70% of them in the last couple of quarters, still not fully loaded but getting and that’s why we talk about this increase unitization rights.

And then K fab a little bit lower than what we like but next cycle we will do better in the third quarter..

So overall from that point of view fab including all fab and K fab you can consider one is older, one is flatly under, so you can consider that is about fully rounded 85%, okay. And BDC far is one we still do especially two which is start from zero from we take over and they gruel input now is up to 70% but is still not fully noted year, okay.

From the packaging point of view, all we trying to do we move everything we can move to CIT assembly side, so we are trying to keep fully loaded, okay, and then now that the Shanghai side is under is about 80% and we are in that order upside will push through CIT, so CIT capacity continue increase and continue fully loaded. It’s fully loaded..

Thank you that’s very encouraging. My last question is about telecom.

You guys mentioned by Q3 the sales consolidation will complete, so could you comment about other than sales consolidation what other facts are left in terms of reconsolidation?.

Again within sales we are in the process of the Asian sales consolidation. We have completed the U.S. and North America already. We are working with proper some channel consolidate effort and so forth, let the rest of the administrator I think is actively an ongoing..

Yeah, the rest of it we care for move it because all this revenue and copper entity and the shipping customer, boarder entry, those are portion is took because we need to be clear for because we don’t want to - customer.

Yeah, so from people point of view the sale people by end of the quarter we should all consolidated but then for event in the copper entity and all this one it take time. You probably don’t know that for example in the Asia copper entity we need - they need to be time for telecom and rejoin value.

And when they do that they can choose not set the offer from Diode and then cost delta form. We take it briefly..

We are also looking at the details of the business about where the product warehouse, you have the warehouse in lot of country, are we shipping the from the most efficient warehouse to customer.

So all of those actions are underway but it’s not something that you can de immediately, but over the next three, six, nine months I think we will make big strives and changing and improving that process..

Great, thank you very much..

Thank you. Our next question comes from Shawn Harrison with Longbow Research. Your line is open..

Hi, afternoon, everyone.

Mark if I may - if I heard it right you said distributor inventory increased 9% and the space were strong third quarter, are you seeing continue to grow in the third quarter, is it leveled off here as we get in August?.

I will expect it to level off in the third quarter. I don’t think it is a concern, I think they just saw ramps in the beginning and some new - there is going to insulate, put their inventory in a little early in this. So adding it is in pretty good shape..

Got it.

Rick I guess I had some questions on OpEx, R&D dropped in a dollar basis sequentially in SG&A increase, is that the dollar run rate we should anticipate into the back half of the year or maybe there was a million dollars here, million dollars there but the factor is behind the drop sequentially and the uptick as well?.

Well I don’t have the exact details of why R&D was down but we bought mass and sometimes we buy mass when you don’t have master expense in the next quarter, it seems to fluctuate up and down less 10 point.

I think overall we are looking at the total OpEx and as we move through time, and you can go back and look at historically, we basically gone the purchase of the company that M&A activity and then over the next several quarter the OpEx percent of revenue continues to go down to reach more level as we build through the consolidation process.

So I think the number is going to stay about the same from a dollar standpoint, but as the revenue increases from 237 to the midpoint of 250 that’s why we forecast the percentage here and there..

Perfect.

And maybe one quick follow-up if I may, if I read this right, you had a reversal of Pericom both transaction cost and employee award cost with just related to getting into the business and employees leaving or is there something else in terms of those reversals that happened?.

Those are just cost associated that we took out from a non-GAAP perspective because they are M&A related..

Okay, well I guess we can catch up off line on this, I will hope back in the queue..

Okay, well basically the non-GAAP cost are related to retention costs to the amortization of intangible cost those types of price that are all M&A related either to the Pericom acquisition or to previous acquisition..

Okay, the transaction cost and the employee work cost where negative this quarter, at least reading that it was added back relative to prior charges, but I catch over, I’ll call back..

Okay..

[Operator Instructions] Our next question comes from Christopher Longiaru with Sidoti & Company. Your line is open..

Hey guys congratulations on the quarter..

Thank you..

So my first question is just on Pericom, Pericom had some internally manufactured frequency controlled products than they had a lot of stuff that was manufactured externally, can you talk about where those parts are being manufactured and how the internal facilities are running and just trying to give us more granularity on that front?.

You know when comes to internal manufacturing is there crystal and there was sedater and the crystal majority of the crystal produced form that in China and then in Taiwan, they produce some crystal but the majority of it and majority of the output is sedater.

So look at that is the tool of manufacturing site there have, majority of us - IE is using fund and then packaging, okay, but only crystal and sedater is produced in sales..

Did you bring the other products in-house or you are planning to do that?.

So presently right now there is certain products where we are actually doing some qualification internally but presently right now all of their subcontract product and subcontract far is still where it was and will stay there for some time and nothing is changed for the crystals since our purchase..

Okay..

For sedater is the far not been changed okay and before that we won’t change it either because that we still have the capability to provide because that’s all from the external function. Packaging majority of that packaging is some, we don’t have that packaging we cannot move in, so..

So this is all - so all of the improvement that you’ve seen in gross margin in the combination of the next utilization, is that fair to say and none of it is from moving Pericom in-house at all?.

You are correct..

That’s all I had, guys thank you very much..

Thank you..

Thank you. I am showing no further questions. I would like to turn the call back to Dr. Keh-Shew Lu for closing remarks..

Thank you for your participation today. Operator, you may now disconnect..

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program and you may all disconnect. Everyone have a great day..