Diodes (DIOD) Q3 2026 earnings review
Chipmaker Diodes hits record sales while its prices climb 14%
Diodes, a maker of power and signal chips, posted record sales, and higher prices did much of the work. Revenue grew 36%. Its filing shows average selling prices up 14%, after a decline last quarter. Chief executive Gary Yu credited share gains in cars and new factory capacity. His plan has sales rising again in a quarter that usually shrinks.
| Sales from businesses owned a year ago | $530.7M +35% from a year ago |
|---|---|
| Gross margin | 36.1% 30.7% a year ago |
| Profit per share, excluding one-offs | $1.18 $0.37 a year ago |
| Fourth-quarter sales outlook | New: about $550M middle of the range: 40% growth |
⚖️ Verdict: 🟢 Bullish
The story got better because the margin gains that looked hardest to reach arrived early. Gross margin topped the company's own range, and the plan calls for 37% next quarter. One caution: unit shipments slowed while prices climbed, so growth now leans on tight supply, which can ease.
The question now is whether Diodes is winning lasting business or gaining from a shortage. If design wins and share gains explain it, prices hold when supply loosens; if the shortage does, prices and orders drop together. Next quarter's price figures and distributor stock levels will tell.
🐂 Bull Case
Gross Margin Beat the Top of Its Range
Gross margin is the share of sales left after paying to make the chips. Three months ago Diodes set a range of 34% to 36% for the third quarter. That range looked demanding: by our math, its middle required keeping about 48 cents of gross profit from each extra dollar of sales.
The chipmaker kept about 52 cents, by our math, and gross margin reached 36.1%. Chief executive Gary Yu said higher "loading at our manufacturing facilities" helped, along with "product mix and pricing improvements". The cost of making the chips fell to 63.9% of revenue, 5.4 percentage points below a year ago.
- Gross margin a year ago: 30.7%
- Gross margin last quarter: 33.1%
- Gross profit: $192.5 million, up 60% from a year ago
This matters because the gain arrived well ahead of Diodes' target of at least 35% by 2028. So the chipmaker now has to show where margin goes next. Yu points to a longer-term model of "USD 2.5 billion with a 40% margin".
What to watch: gross margin in the fourth-quarter results, due in early 2027. A reading at or above the outlook would show that fuller factories, not just prices, keep adding to profit.
Car and Factory Chips Lead the Growth
Diodes sells into five end markets, and it calls cars and factory equipment its higher-margin ones. Sales head Emily Yang said automotive revenue rose almost 60% from a year ago, to a record, on "content expansion and market share gains".
- Automotive: 22% of product revenue, against 19% a year ago
- Industrial: 24% of product revenue, against 22%
- Industrial revenue: up 50% from a year ago, Yang said
- Cars and factories together: 46%, against 44% last quarter
This matters because the shift lifts margin even when total sales stop rising. Last year the combined share dipped in the third quarter, when computer and consumer orders peak. This year it climbed, so the mix gain did not depend on a good season.
What to watch: the combined share in the fourth-quarter breakdown, due in early 2027. A share that holds near 46% would show the move toward cars and factories is lasting.
Diodes Now Ships a Third More Chips
Diodes has spent a year adding production lines, because demand outran what its plants could make. Chief executive Gary Yu said the payoff came from "the targeted investments we made in capacity expansion over the past year coming online".
Sales head Emily Yang told analysts the chipmaker shipped about 45 billion units last year. At the third-quarter pace, it now runs at about 60 billion a year, by our math a third more.
Room remains, so growth need not wait for new plants. Yu said "most of our internal facility are fully loaded", but the wafer plants in Scotland and South Portland, Maine, still have space. Those two plants have filled slowly, and management has tied their margin benefit to 2027 and 2028.
What to watch: Yang's unit figures and the loading of the Scotland and Maine plants on the fourth-quarter call. Fuller wafer plants would cut the cost of each chip Diodes makes.
🐻 Bear Case
Price Rises Drove Much of the Growth
Chief executive Gary Yu credited the record quarter to "continued market share gains" in cars, stronger factory and AI demand, and new capacity. The quarterly filing shows how much came from price. Diodes' average selling price rose 13.5% from a year ago, while the number of units it shipped climbed 19.7%.
Three months earlier the pattern ran the other way. In the second quarter prices sat 2.5% below the prior year, and volume did all the work. Sales head Emily Yang said "supply continues to be tight" and "lead time is still extended". She listed "price adjustments" among the reasons margin improved.
This matters because a shortage lifts prices across the industry, and those gains fade when supply returns. China took 51% of shipments, against 43% a year ago. Distributors handled two-thirds of sales. Yang said channel stock sits below its normal range, so "we do not really have the privilege to restock anything".
What to watch: the price and volume split in the fourth-quarter filing, due in early 2027. If unit growth keeps slowing while prices carry the gains, the growth looks like a shortage rather than share wins.
Diodes Still Will Not Size Its AI Sales
Diodes sells timing, connection and power chips for AI servers, and its computing business set a record. Sales head Emily Yang said computing revenue rose 33%, with "strong momentum in AI server, data center and enterprise storage".
Asked again to size the AI business, Yang replied: "We have not really broken out the AI revenue and report it that way." Computing grew slower than Diodes overall and slipped to 27% of product revenue.
This matters because AI carries much of the story, yet nobody outside can check its size. Yang offered content of about $109 per AI server instead.
What to watch: the next call, where Yang said the chipmaker would probably reset its long-term goals. An AI revenue figure there would show how much of computing's record comes from AI.
Plant Spending Cut Free Cash Flow by 30%
Free cash flow is the cash left after running the business and paying for equipment. Diodes generated $43.9 million in the third quarter, against $62.8 million a year earlier, even as profit roughly tripled.
Cash from operations rose 23%, so the drop came from equipment. Capital spending reached $53.2 million, 10% of revenue and above the top of the chipmaker's annual target range.
This matters because Diodes keeps building ahead of demand, so its cash depends on sales holding up. It still owes $30.1 million for equipment already delivered.
What to watch: fourth-quarter capital spending, due in early 2027. By our math, staying inside the 9% annual ceiling allows up to about $55 million. A bigger bill would push spending past the chipmaker's own limit.
Risks this quarter didn't answer
Several standing risks got no clear answer in the results, the filing or the call. Each item below names the reading that would settle it.
- ElevATE: the test-chip business added $1.9 million of sales; a separate revenue and margin line would show whether about $50 million a year arrives.
- Investment marks: a $6.0 million loss on holdings pulled reported profit per share below last quarter; a new mark on Atlas, a design firm Diodes owns but does not control, would swing it again.
- Plant switch-over: contracts with outside manufacturers end in 2026; Diodes has not said how much output its own plants must absorb.
- Rivals' supply problems: management has credited them for some share gains, but has not said how many of those sales rest on design wins.
👓 Other Themes
Diodes Closed Its ElevATE Purchase in August
In late August Diodes completed its purchase of ElevATE, a San Diego firm that "specializes in the development of integrated circuits for the automated test equipment industry". Those machines test other chips. Diodes paid $267.1 million and may pay up to $50 million more if ElevATE hits revenue and margin targets. The business added $1.9 million of sales before the quarter ended.
Phones and PCs Soften While Supply Stays Tight
Not every market helped. Sales head Emily Yang said "mobile demand was a little soft" and the "smartphone market in China remains soft". She expects AI servers "to offset the slowdown in the notebook and the PC market" in the fourth quarter. Communications revenue rose about 6% from a year ago. Yang described supply as still "a little bit constrained".
💲 Other KPIs
Days of stock on hand fell to about 141, from 152 last quarter, finance chief Brett Whitmire said. The measure stood at 162 a year ago. Inventory dollars rose $30.5 million, but ElevATE added $29.5 million, so the rest held about steady.
Net cash, meaning cash minus debt, fell to about $173 million, from about $401 million in June. Diodes borrowed through convertible notes that pay no interest and fall due in 2031. ElevATE then took $262 million of cash. The revolving credit line remains unused.
The share count slipped 0.4% from a year ago. Diodes bought back 360,000 shares for $35 million, using part of the note money. The new notes added no shares to the count this quarter, the filing says.
Running costs took a smaller slice of revenue: 24.2%, against 27.8% a year ago. Research spending held level in dollars, so its share fell to 8.2%. Selling and administrative costs rose $19.7 million, mostly pay and sales expenses.
🔮 Guidance
New. The plan calls for about $550 million in sales, 40% above a year earlier. Sales head Emily Yang said the fourth quarter "usually is a down quarter", yet the forecast adds 3%. By our math, ElevATE's roughly $12.5 million a quarter leaves underlying growth near 1% from the third quarter.
New. The outlook has gross margin climbing again, to about 37%. That sits 0.8 percentage points above the third quarter. By our math, Diodes must keep about 61 cents of gross profit from each extra sales dollar, above any recent quarter.
New. The forecast puts profit per share excluding one-offs at about $1.35, against $0.34 a year ago. Diodes beat the top of its third-quarter range by three cents. Higher sales and margin, not a smaller share count, drive the gain.
New. Chief executive Gary Yu now expects full-year sales about 30% above last year. By our math, that is roughly $1.93 billion. It nearly reaches the $2 billion target Diodes set for 2028. Yang said the chipmaker will probably reset its goals on the next call.
Unchanged. Finance chief Brett Whitmire still expects a full-year tax rate of about 18%. The rate ran at 23.2% in the third quarter, the filing shows. That lifted the year-to-date rate to 18.3%, from about 13.4% at mid-year.
❓ Key Questions
How much of Diodes' revenue comes from AI?
AI servers and networking carry much of the growth story, but Diodes gives only content per server. Without a revenue figure, readers cannot tell whether computing's record reflects AI or ordinary demand.
How much of the 14% price rise comes from shortages?
Average prices swung from a 2.5% decline to a 13.5% gain in one quarter. If tight supply drove it, prices could fall back when rivals catch up, and the margin gain with them.
Will ElevATE's sales and margin appear separately?
Diodes paid $267 million for a business expected to bring about $50 million a year. As a single-segment reporter, it may never show whether that promise and the higher margin arrive.
When will the Scotland and Maine plants fill up?
Chief executive Gary Yu said both wafer plants still have room. Their loading is the next margin step, and outside manufacturing contracts end in 2026.
What targets will replace the 2028 goals?
Diodes is close to its 2028 revenue and margin targets two years early. Sales head Emily Yang said the company will probably reset them next quarter; the new numbers will show what management thinks is sustainable.