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Item 1. Business

2021-02-22 compared with 2020-02-12 · 121 added, 112 removed, 220 unchanged (51% of the section changed)

Diodes Incorporated and its subsidiaries (collectively, the “Company” or “we” or “our”) is a leading global manufacturer and supplier of high-quality, application-specific standard products within the broad discrete, logic, analog and mixed-signal semiconductor markets.

We were incorporated in 1959 in California and reincorporated in Delaware in 1968.

We serve the consumer electronics, computing, communications, industrial, and automotive markets.

Our products include diodes, rectifiers, transistors, MOSFETs, protection devices, function-specific arrays, single gate logic, amplifiers and comparators, Hall-effect and temperature sensors, power management devices, including LED drivers, AC-DC converters and controllers, DC-DC switching and linear voltage regulators, and voltage references along with special function devices, such as USB power switches, load switches, voltage supervisors, and motor controllers.

Diode s Incorporated, together with its subsidiaries (collectively the “Company,” “we” or “our” (Nasdaq:

DIOD), a Standard and Poor's Smallcap 600 and Russell 3000 Index company, is a leading global manufacturer and supplier of high-quality application specific standard products within the broad discrete, logic, analog, and mixed-signal semiconductor markets.

Diodes serves the consumer electronics, computing, communications, industrial, and automotive markets.

Diodes’ products include diodes, rectifiers, transistors, MOSFETs, GPP bridges, GPP Rectifiers, protection devices, function-specific arrays, single gate logic, amplifiers and comparators, Hall-effect and temperature sensors, power management devices, including LED drivers, AC-DC converters and controllers, DC-DC switching and linear voltage regulators, and voltage references along with special function devices, such as USB power switches, load switches, voltage supervisors, and motor controllers.

Diodes also has timing, connectivity, switching, and signal integrity solutions for high-speed signals.

Our corporate headquarters and Americas’ sales offices are located in Plano, Texas and Milpitas, California.

Diodes’ corporate headquarters and Americas’ sales office are located in Plano, Texas, and Milpitas, California.

Design, marketing, and engineering centers are located in Plano;

Taipei, Taoyuan City, and Zhubei City, Taiwan;

Taipei, Taoyuan City, Zhubei City, Taiwan;

Shanghai, Yangzhou, China;

Oldham, England;

and Neuhaus, Germany.

Our wafer fabrication facilities are located in Oldham;

Shanghai, China;

and Greenock, Scotland.

We have assembly and test facilities located in Shanghai, Jinan, and Chengdu, China;

as well as in Hong Kong;

Additional engineering, research and development, sales, warehouse, and logistics offices are located in Taipei;

Shenzhen and Yangzhou, China;

Diodes’ wafer fabrication facilities are located in Oldham, Greenock, UK and Shanghai and Wuxi, China and Keelung and Hsinchu, Taiwan.

Diodes has assembly and test facilities located in Shanghai, Jinan, Chengdu and Wuxi, China as well as in Neuhaus, Germany and Jhongli and Keelung, Taiwan.

Additional engineering, sales, warehouse, and logistics offices are located in Taipei, Taiwan;

Shanghai, Shenzhen, Wuhan and Yangzhou, China;

Seongnam-si, South Korea;

Munich, Germany;

and Tokyo, Japan, with support offices throughout the world.

We design, manufacture and market these semiconductors for diverse end-use applications.

Semiconductors, which provide electronic signal amplification and switching functions, are basic building-blocks that are incorporated into almost every electronic device.

We believe that our focus on application-specific standard products utilizing innovative, highly efficient packaging and cost-effective process technologies, coupled with our collaborative, customer-focused product development, gives us a meaningful competitive advantage relative to other semiconductor companies.

Our product portfolio addresses the design needs of advanced electronic equipment, including high-volume consumer electronic devices such as digital media players, smartphones, tablets, notebook computers, flat-panel displays, mobile handsets, digital cameras and set-top boxes.

We believe that we have particular strength in designing innovative, highly power-efficient semiconductors in miniature packaging for applications with a critical need to minimize product size while maximizing power density and overall performance, and at a lower cost than alternative solutions.

Our product line includes over 25,000 products, and we shipped approximately 43 billion units in 2019 and 46 billion units in each of 2018 and 2017.

and Munich, Frankfurt, Germany;

with support offices throughout the world.

The company’s manufacturing facilities have achieved certification in the internationally recognized standards of ISO9001:2015, IATF16949:2016, and ISO14001:2015.

Diodes Incorporated is also C-TPAT certified.

We believe these Quality Awards reflect the superior quality-control techniques established at Diodes Incorporated and further enhance our credibility as a vendor-of-choice to OEMs increasingly concerned with quality and consistency.

Our product focus is on high-growth end-user equipment markets such as satellite TV set-top boxes, portable DVD players, datacom devices, ADSL modems, power supplies, medical devices (non-life support devices/systems), PCs and notebooks, flat panel displays, digital cameras, mobile handsets, AC-to-DC and DC-to-DC conversion, Wireless 802.11 LAN access points, brushless DC motor fans, serial connectivity, and automotive applications.

Our product line includes over 25,000 products, and we shipped approximately 43 billion units in 2020 and 2019 and approximately 46 billion units in 2018.

From 2016 to 2020, our annual net sales grew from $942.2 million to $1.2 billion, representing a compound annual growth rate of approximately 7.7%.

BUSINESS OUTLOOK

During 2019, our annual revenue grew $35.1 million or 2.9% from the previous record revenue achieved in 2018.

This increase in revenue for 2019 compared to 2018 exhibits progress toward our previously stated goals for 2025 of $2.5 billion in revenue with gross margin of 40%, representing gross profit of $1.0 billion.

Acquisitions remain a key part of our growth strategy to reach our revenue goal and in the third quarter of 2019 we entered into a Share Swap Agreement that provides for the acquisition of Lite-On Semiconductor Corporation (“LSC”) and its subsidiaries by the Company.

At the effective date of the transaction, each share of LSC will be converted into the right to receive TWD $42.50 per share in cash, or approximately US $1.42 per share based on December 31, 2019 exchange rates.

The aggregate consideration payable by the Company, based on the December 31, 2019 exchange rate, is approximately $437 million.

This amount is subject to change, based on the Taiwan dollar to United States dollar exchange rate at closing.

The acquisition received LSC shareholder approval on October 25, 2019, and we anticipate completing the acquisition in the second half of 2020, subject to customary closing conditions and regulatory approvals.

We expect to fund the purchase price of the transaction primarily with proceeds from a new bank financing arrangement.

During 2020 our annual revenue declined approximately $19.9 million or 1.6% from the revenue level achieved in 2019.

This decrease in revenue for 2020 compared to 2019 reflects the impact of the COVID-19 pandemic outbreak on the Company and the world-wide economy.

We continue to work towards our previously stated goals for 2025 of $1.0 billion in gross profit which represents $2.5 billion in revenue and a gross margin of 40%.

Acquisitions remain a key part of our growth strategy to reach our revenue goal and in November 2020 we acquired Lite-On Semiconductor Corporation (“LSC”) and its subsidiaries.

The acquisition of LSC broadens our discrete product offerings, including providing us with a leadership position in glass-passivated bridges and rectifiers that will allow us to further extend our position in the automotive and industrial market spaces consistent with Diodes’ overall growth strategy.

Further, the acquisition expands our wafer fabrication and assembly and test capacity and provides us an opportunity to improve LSC’s profitability through operating and manufacturing improvements as well as increased factory utilization.

We have a solid pipeline of designs and expanded customer relationships across all regions and product lines.

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We believe the long-term outlook for our business remains generally favorable, despite the uncertainties in the global economy, as we continue to execute on the strategy that has proven successful for us over the years.

See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Business Outlook” in Part II, Item 7 and “Risk Factors – The success of our business depends on the strength of the global economy and the stability of the financial markets, and any weaknesses in these areas may have a material adverse effect on our net sales, operating results and financial condition.” in Part I, Item 1A of this Annual Report for additional information.

See “Management’s Discussion and Analysis of

Financial Condition and Results of Operations – Business Outlook” in Part II, Item 7 and “Risk Factors – The success of our business depends on the strength of the global economy and the stability of the financial markets, and any weaknesses in these areas may have a material adverse effect on our net sales, operating results and financial condition.” in Part I, Item 1A of this Annual Report for additional information.

SEGMENT INFORMATION AND ENTERPRISE-WIDE DISCLOSURES

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See Note 16 of “Notes to Consolidated Financial Statements” of this Annual Report for addition information.

Semiconductors are critical components used in the manufacture of a broad range of electronic products and systems.

Semiconductors are critical components used to manufacture of a broad range of electronic products and systems.

Since the invention of the transistor in 1948, continuous improvements in semiconductor processes and design technologies have led to smaller, more complex and more reliable devices at a lower cost per function.

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Broad customer base and diverse end-markets – Our customers are comprised of leading direct sales customers as well as major electronic manufacturing services (“EMS”) providers.

Overall, we serve over 230 direct sales customers worldwide and tens of thousands of additional customers through our 83 distributors.

Overall, we serve 334 direct sales customers worldwide and tens of thousands of additional customers through our 121 distributors.

Our products are ultimately used in end-products in a number of markets served by our broad customer base, which we believe makes us less susceptible to market fluctuations driven by either specific customers or specific end-user applications.

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As we focus on new customers, we try to expand our product portfolio penetration within these new, as well as existing, customers.

As we expand our extensive range of high power efficiency and small form factor packages, we plan to introduce new and existing product functions in these new packages to allow an even greater market range.

Maintain intense customer focus – We intend to continue to strengthen and deepen our customer relationships.

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Pursue selective strategic acquisitions – As part of our strategy to expand our semiconductor product offerings and to maximize our market opportunities, we may acquire technologies, product lines or companies in order to enhance our product portfolio and accelerate our new product offerings.

Since 2006 we have acquired five companies that enhanced our product portfolio, including Pericom Semiconductor Corporation (“Pericom”) in 2015 and i n 2019, we acquired from Texas Instruments a 200mm wafer fabrication facility and operations located in Greenock, Scotland (“GFAB”).

The acquisition of GFAB not only adds to our existing global footprint, but also provides expanded wafer capacity to support our product growth, in particular for the automotive market.

Acquisitions remain a key part of our growth strategy to reach our revenue goal, and in the third quarter of 2019 we entered into a Share Swap Agreement that provides for the acquisition of LSC and its subsidiaries by the Company.

The aggregate consideration payable by the Company, based on the December 31, 2019 exchange rate, is approximately $437 million.

This amount is subject to change, based on the Taiwan dollar to United States dollar exchange rate at closing.

We expect to fund the purchase price of the transaction primarily with proceeds from a new bank financing arrangement.

Since 2006 we have acquired a number of companies that enhanced our product portfolio, including Pericom Semiconductor Corporation (“Pericom”) in 2015.

In 2019, we acquired from Texas Instruments a 200mm wafer fabrication facility and operations located in Greenock, Scotland (“GFAB”).

The acquisition of GFAB adds to our existing global footprint, but also provides expanded wafer capacity to support our product growth, in particular for the automotive market.

In November 2020 we acquired Lite-On Semiconductor Corporation (“LSC”) and its subsidiaries.

See “Risk Factors – Part of our growth strategy involves identifying and acquiring companies.

We may be unable to identify suitable acquisition candidates or consummate desired acquisitions and, if we do make any acquisitions, we may be unable to successfully integrate any acquired companies with our operations, which could adversely affect our business, operating results and financial condition” in Part I, Item 1A and Note 20 Note 22 of “Notes to Consolidated Financial Statements” of this Annual Report for additional information.

We may be unable to identify suitable acquisition candidates or consummate desired acquisitions and, if we do make any acquisitions, we may be unable to successfully integrate any acquired companies with our operations, which could adversely affect our business, operating results and financial condition” in Part I, Item 1A and Note 19 of “Notes to Consolidated Financial Statements” of this Annual Report for additional information.

Our product portfolio includes over 25,000 products that are designed for use in high-volume consumer electronic devices such as LCD and LED televisions and LCD panels, set-top boxes and consumer portables such as smartphones, tablets and notebooks.

Our focus is on low pin count semiconductor devices with one or more active and/or passive components.

focus is on low pin count semiconductor devices with one or more active and/or passive components.

We target and serve end-equipment markets that we believe have larger volumes than other end-market segments served by the overall semiconductor industry.

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Discrete semiconductor products, including:

performance Schottky rectifiers;

performance Schottky diodes;

MOSFET, TVS, performance Schottky rectifiers;

GPP Bridges, GPP Retifiers performance Schottky diodes;

Zener diodes and performance Zener diodes, including tight tolerance and low operating current types;

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and sensor products including Hall-effect sensors and motor drivers;

Mixed-signal products including:

High speed mux/demux, Digital Switches, Interface, Redelivers, Clock IC, Packet Switches;

Standard logic products including low-voltage complementary metal-oxide-semiconductor (“CMOS”) and advanced high-speed CMOS devices;

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Frequency Control Products (“FCP”) used in many of today’s advanced electronic systems.

FCPs are electronic components that provide frequency references such as crystals and oscillators for computer, communication and consumer electronic products.

FCPs are electronic components that provide frequency references such as crystals and crystal oscillators for automotive, industrial, computing, communication and consumer electronic products.

The following table lists the end-markets, some of the applications in which our products are used, and the percentage of net sales for each end-market for the last three years:

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Our products are well suited for battery-powered, hand-held and wireless consumer electronic applications and high-volume consumer electronic devices such as LCD and LED televisions and LCD panels, set-top boxes and consumer portables such as smartphones, tablets and notebooks.

We serve over 230 direct customers worldwide, including major direct sales customers and EMS providers.

We serve 334 direct customers worldwide, including major direct sales customers and EMS providers.

Additionally, we have 121 distribution customers worldwide, through which we indirectly serve tens of thousands of customers.

Our customers represent:

(i) leading direct sales customers including a broad range of industries, such as Continental AG, Delta Electronics, Honeywell, Osram, Philips, Arris, Hella, LG Electronics, Quanta Computer, Seagate, Sagem Communication, and Samsung Electronics;

(ii) leading EMS providers, such as Celestica, Flextronics, Hon Hai Precision Industry, Inventec, Jabil Circuit, and Sanmina-SCI, who build end-market products incorporating our semiconductors for companies such as Google, GoPro, Cisco, Dell, EMC, Intel, Microsoft, Thompson, and Roche Diagnostics;

and (iii) leading distributors such as Arrow, Avnet, Future Electronics, Rutronik, Yosun Industrial, DigiKey, and Zenitron.

Our customers represent leading direct sales customers representing a broad range of industries, leading EMS providers and leading distributors.

For the years 2020, 2019 and 2018, our direct sales and EMS customers together accounted for 41%, 33% and 29%, respectively, of our net sales.

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High volumes of order cancellation or reduction in quantities ordered could adversely affect our net sales, operating results and financial condition.” in Part I, Item 1A of this Annual Report for additional information.

The tables below set forth net sales for the Company disaggregated into geographic locations based on shipment and by type (direct sales or distributor) for the twelve months ended December 31, 2020, 2019 and 2018:

Net Sales by Type for the Twelve Months Ended December 31,

Net Sales by Region

Total net sales

Net Sales by Type

Distributor sales

Total net sales

Many of our customers are based in Asia or have manufacturing facilities in Asia.

Net sales by country consist of sales to customers in that country based on the country to which products are shipped.

We report net sales based on “shipped to” customer locations as we believe this best represents where our customers’ business activities occur.

The table below sets forth net sales by country.

“All others” represents countries with less than 3% of total net sales each.

Percentage of Net Sales

Net sales from products shipped to China for the twelve months ended December 31, 2020, 2019 and 2018, was $649.9 million $633.8 million and $662.6 million, respectively.

SALES AND MARKETING

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This, coupled with a comprehensive competitor cross-reference search, facilitates quick and thorough product selection.

Our website also provides easy access to our worldwide sales contacts and customer support and incorporates a distributor-inventory check to provide component inventory availability.

Our website also provides

easy access to our worldwide sales contacts and customer support and incorporates a distributor-inventory check to provide component inventory availability.

MANUFACTURING OPERATIONS AND FACILITIES

We operate two assembly and test facilities located in Shanghai, China, two in Chengdu, China and one in Neuhaus, Germany.

We have two 150mm wafer fabrication facilities located in Shanghai, a 150mm wafer fabrication facility located in Oldham, U.K.

Historically we have operated two assembly and test facilities located in Shanghai, China, two in Chengdu, China and one in Neuhaus, Germany.

We have two wafer fabrication facilities located in Shanghai, one 150mm and another capable of both 150mm and 200mm, a 150mm wafer fabrication facility located in Oldham, U.K.

and GFAB, a 150mm and 200mm capable wafer fabrication facility located in Greenock, Scotland that we acquired in 2019.

The acquisition of GFAB not only adds to Diodes’ existing global footprint, but also provides expanded wafer capacity to support our product growth, in particular for the automotive market .

One of our Shanghai facilities has completed qualification on the production of 200mm wafers.

With the acquisition of LSC in 2020 we added four wafer fabrication facilities, two in Taiwan and two in China, and three assembly facilities, two in China and one in Taiwan.

In 2010, we entered into an agreement with the Management Committee of the Chengdu Hi-Tech Industrial Development Zone (the “CDHT”).

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As of December 31, 2020, we have invested in this joint venture approximately $193.7 million, primarily for infrastructure, buildings and equipment-related capital expenditures.

In the third quarter of 2019 we entered into a Share Swap Agreement that provides for the acquisition of LSC by the Company.

The aggregate consideration to be paid by the Company, based on the December 31, 2019 exchange rate, is approximately $437 million.

This amount is subject to change, based on the Taiwan dollar to United States dollar exchange rate at closing.

We expect to fund the purchase price of the transaction primarily with proceeds from a new bank financing arrangement.

For the years ending December 31, 2020 and 2019, our total capital expenditures were approximately $75.8 million and $96.2 million, respectively.

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The amount of backlog at any date depends upon various factors, including the timing of the receipt of orders, fluctuations in orders of existing product lines, and the introduction of new product lines.

Accordingly, we believe that the amount of our backlog at any date is

not an accurate measure of our future sales.

Accordingly, we believe that the amount of our backlog at any date is not an accurate measure of our future sales.

We strive to maintain proper inventory levels to support our customers’ just-in-time order expectations.

Our backlog of orders, based on expected ship date, was $618.3 million at December 31, 2020 and $278.7 million at December 31, 2019.

PATENTS, TRADEMARKS AND LICENSES

Historically, patents and trademarks have not been material to our operations, but we expect them to become more important, particularly as they relate to our miniature and power-efficient packaging technologies.

Our initial product patent portfolio was primarily composed of discrete technologies.

In the late 1990s, our engineers began to research and develop innovative packaging technologies, which produced several important breakthroughs and patents, such as the PowerDI ® series of packaging technology to foster our growth in the semiconductor industry.

Our 2006 acquisition of Anachip Corp., a fabless semiconductor company, initiated our presence in the analog product market with a portfolio of standard linear and low dropout regulator products, among others.

Through our acquisition of the assets of APD Semiconductor, Inc.

in 2006, we acquired the SBR® patents and trademark.

SBR® is a state-of-the-art integrated circuit wafer processing technology, which is able to integrate and improve the benefits of the two existing rectifier technologies into a single device.

The creation of a finite conduction cellular IC, combined with inherent design uniformity, has allowed manufacturing costs to be kept competitive with the existing power device technology, and thus has produced a breakthrough in rectifier technology.

In 2008, we acquired Zetex Semiconductor (“Zetex”), which subsequently increased our available discrete and analog technologies with patents and trademarks for bipolar transistors and power management products such as LED drivers.

LED drivers support a wide range of applications for automotive, safety and security, architecture, and portable lighting and are highly efficient and cost effective.

In 2012, we acquired Power Analog Microelectronics, Inc.

(“PAM”), a provider of advanced analog and high-voltage power ICs.

PAM’s product portfolio includes Class D audio amplifiers, DC-DC converters and LED backlighting drivers, which strengthened our position as a global provider of high-quality and high-efficiency, space-saving analog products by expanding our product portfolio with innovative “filter-less” digital audio amplifiers, application-specific power management ICs, as well as high-performance LED drivers and DC-DC converters.

We acquired BCD Semiconductor Manufacturing Limited (“BCD”), a leading supplier of standard linear and power management devices in 2013.

BCD has a product portfolio that includes AC-DC and DC-DC solutions for chargers and power adapters.

BCD’s established presence in Asia, with a particularly strong local market position in China, offers us even greater participation in the consumer electronics, computing and communications end-markets.

Pericom, acquired by us in 2015, designs, develops and markets high-performance ICs and FCPs used in many of today’s advanced electronic systems.

ICs include functions that support the connectivity, timing and signal conditioning of high-speed parallel and serial protocols that transfer data among a system’s microprocessor, memory and various peripherals, such as displays and monitors, and between interconnected systems.

FCPs are electronic components that provide frequency references such as crystals and oscillators for computer, communication and consumer electronic products.

Pericom’s analog, digital and mixed-signal ICs, together with legacy FCPs enable higher system bandwidth and signal quality, resulting in better operating reliability and signal integrity, and lower overall system cost in applications such as notebook computers, servers, network switches and routers, storage area networks, digital TVs, cell phones, GPS devices and digital media players.

Currently, our licensing of patents to other companies is not material.

We do, however, license certain product technology from other companies, but we do not consider licensed technology royalties paid by us to be material.

PATENTS, TRADEMARKS, COPYRIGHTS AND OTHER INTELLECTUAL PROPERTY RIGHTS AND LICENSES

We generally rely on a combination of patents, trademarks, copyrights, trade secrets, confidentiality agreements, license agreements and policies to protect our intellectual property rights and proprietary technology, and to maintain our competitive position.

Despite these measures, we may not always succeed in protecting our intellectual property or preventing misappropriation of our intellectual property rights.

Other companies may independently develop similar technologies or seek to challenge, invalidate or circumvent our intellectual property rights.

We acquired or licensed or sublicensed to numerous intellectual property rights in connection with our acquisitions over the years.

We have registered several of our trademarks in the U.S.

and other countries, and seek to strengthen our brand to distinguish our products in the marketplace.

We maintain a patent portfolio comprised of both U.S.

and foreign patents and have patent applications pending in the U.S.

and other countries.

We expect to continue to file patent applications in the U.S.

and abroad covering technologies and products considered to be important to our business.

We do not believe any individual patent, group of patents, or the expiration thereof would materially affect the operation of our business.

proprietary technology or related know-how that is not covered by our patent strategy, we seek to protect them as trade secrets through contracts and policies to maintain their secrecy and confidentiality.

In the ordinary course of business, we may become party to disputes involving intellectual property rights.

When we become aware of companies infringing our intellectual property rights, we seek to enforce our rights through appropriate actions.

We may receive claims of infringement or inquiries regarding possible infringement of the intellectual property rights of others, demands seeking royalty payments or other remedies, or cease and desist letters.

Depending on the situations, we may defend our position, seek to negotiate a license or engage in other acceptable resolution that is appropriate to our business.

We provide limited intellectual property indemnification for certain customers and may experience financial exposure related to intellectual property indemnity claims.

In certain situations, there are limits on our potential indemnification liability;

however, we cannot reasonably estimate the amount of potential payments, if any.

Although to date we have not paid any significant amounts for intellectual property indemnity claims, there can be no assurance that we will not face significant exposure in the future.

From time to time, we may license our intellectual property rights in connection with the development or sale of our products.

We may license certain product technology from other companies, but we do not consider any particular licensed technology to be material to our operations or royalties paid by us to be material.

We believe the duration and other terms of the licenses are appropriate for our current needs.

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All trademarks appearing in this Annual Report not owned by us are the property of their holders.

Numerous semiconductor manufacturers and distributors serve the discrete, logic and analog semiconductor components market, making competition intense.

Some of our larger competitors include Infineon Technologies A.G., Nexperia, formerly the Standard Products business of NXP Semiconductors N.V., ON Semiconductor Corporation, Rohm Electronics USA, LLC, Toshiba Corporation and Vishay Intertechnology, Inc., many of which have greater financial, marketing, distribution, brand name recognition, research and development, manufacturing and other resources than we do.

Numerous s emiconductor manufacturers and distributors serve the discrete, logic and analog semiconductor components market, making competition intense.

Some of our larger competitors include Infineon Technologies A.G., ON Semiconductor Corporation, Vishay Intertechnology, Inc, Renesas Electronics Corporation, Texas Instruments, and Nexperia, formerly the Standard Products business of NXP Semiconductors N.V., many of which have greater financial, marketing, distribution, brand name recognition, research and development, manufacturing and other resources than we do.

Accordingly, we, from time to time, may reposition product lines or decrease prices, which may affect our sales of, and profit margins on, such product lines.

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We have the capability to capture the customers’ electrical and packaging requirements and translate those requirements into product specifications which can then be designed and manufactured to support customers’ end-system applications.

HUMAN CAPITAL MANAGEMENT

As an international semiconductor company with a global footprint, Diodes recognizes the important role its human capital plays in a talent-based economy, and what the impact of effective and efficient human capital management has on its long-term strategic success and sustainable growth.

Our employees are our most critical asset—they contribute to our financial success for the benefit of all our stakeholders, they are the source of great idea generation that fuels the engine of product innovation, and they are collaborators

and contributors to the success of the communities in which we live and work.

Human capital management affects many aspects of our operations, including recruitment and talent acquisition, retention, training, workforce optimization, performance management, workplace safety, employee health and wellness, employee engagement, and diversity and inclusion.

Employee Communication - Developing two–way communications and deploying effective feedback mechanisms are critical components in our employee engagement process.

We have an open door policy, and encourage employees to have regular conversations with their managers to share feedback and express concerns.

We also solicit employee feedback informally through regular employee interactions.

We hold our managers accountable for setting clear expectations and goals with their teams, for providing coaching, as well as identifying professional development opportunities for their teams, and for engaging in periodic performance reviews.

We assist our managers with performance management tools as needed to help them effectively manage their teams and optimize workforce productivity.

Employee Retention, Training and Coaching - Employee retention is a critical element in our sustainable success.

To maintain a stable workforce, we provide skill advancement training and coaching, where appropriate, to help our employees enhance their existing skillsets.

With our support and preparation, our employees can continue to grow in their current role and maximize the value they contribute to their current teams.

Where a suitable rotation opportunity arises, we provide skill expansion training to equip employees for these new positions.

By honing their skills, our employees can leverage their institutional knowledge and experience to contribute to the overall success of the organization.

The availability of rotational opportunities can also help keep our employees motivated and engaged.

Employee Safety - As an employer with a global workforce, we seek to provide safe working conditions and encourage our employees to engage in safe behaviors while completing their assigned job duties.

We have programs to enhance the occupational health and safety of our employees and to promote employee wellness.

These initiatives are designed yield positive business outcomes, such as less absenteeism, more motivated and engaged workforce, higher productivity, more consistent quality performance, and a better corporate image in our local communities—which in turn should help us attract talent and maintain a stable workforce.

Employee Demographics - We regularly review our workforce demographics and organizational structure to ensure that we have an efficient organization positioned to deliver cost-effective, high quality products to our customers and to serve the markets in which we operate.

Diversity and inclusion considerations are embodied in many aspects of our operations, including pipeline opportunities.

As of December 31, 2020, we employed 8,939 employees (including approximately 633 temporary labor or independent contractors).

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and 800 were in Europe.

The growth in the number of employees is primarily attributable to our acquisition, earlier in 2019, of GFAB.

The increase in our employee numbers during calendar year 2020 reflects, among other factors, the LSC acquisition in November 2020.

None of our employees in Asia or the U.S.

are subject to a collective bargaining agreement, but a majority of our employees in Europe are covered by local labor agreements.

The decrease from 7,710 total employees in 2018 is due to productivity and operational improvements in our China facilities.

are subject to a collective bargaining agreement and in Europe all our employees are covered by individual employment agreements with some collective bargaining agreements in place.

We consider our relations with our employees to be satisfactory.

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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

We conduct business with two related companies:

LSC and its subsidiaries and affiliates, and Nuvoton Technology Corporation and its subsidiaries and affiliates (collectively, “Nuvoton”).

LSC owned approximately 15.2% of our outstanding Common Stock as of December 31, 2019.

In the third quarter of 2019 we entered into a Share Swap Agreement that provides for the acquisition of LSC and

is subsidiaries by the Company.

The aggregate consideration to be paid by the Company, based on the December 31, 2019 exchange rate, is approximately $437 million.

This amount is subject to change, based on the Taiwan dollar to United States dollar exchange rate at closing.

We expect to fund the purchase price of the transaction primarily with proceeds from a new bank financing arrangement.

We conduct business with one related company, Nuvoton Technology Corporation and its subsidiaries and affiliates (collectively, “Nuvoton”).

LSC was a related company until we acquired it in November 2020.

We conduct business with Keylink International (B.V.I.) Inc.

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however, we have no material transactions with Ya Guang, other than the joint venture.

Raymond Soong, the Chairman of the Board of Directors, is also the Chairman of LSC and the Chairman of Lite-On Technology Corporation (“LTC”), a significant shareholder of LSC.

Chen, our former President and Chief Executive Officer and currently the Vice Chairman of the Board of Directors, is also Vice Chairman of LSC and a board member of LTC.

Keh-Shew Lu, a member of our Board of Directors and our President and Chief Executive Officer, is also a board member of Nuvoton.

Raymond Soong, the former Chairman of the Board of Directors of Diodes, was the Chairman of LSC, and was the Chairman of Lite-On Technology Corporation (“LTC”), which was a significant shareholder of LSC.

Chen, our former President and Chief Executive Officer and currently the Vice Chairman of the Board of Directors, was also Vice Chairman of LSC and a board member of LTC.

Keh-Shew Lu, our current Chairman of the Board of Directors, President and Chief Executive Officer, is a board member of

LTC, and a board member of Nuvoton.

We consider our relationships Nuvoton to be mutually beneficial and we plan to continue our strategic alliance with Nuvoton.

We purchase wafers from Nuvoton for use in our production process.

We also conduct business with Nuvoton Technology Corporation and its subsidiaries and affiliates (collectively, “Nuvoton”).

Keh-Shew Lu, our Chairman, President and Chief Executive Officer, is a board member of Nuvoton.

We considered our relationship with Nuvoton to be mutually beneficial and we plan to continue our strategic alliance Nuvoton.

We purchase wafers from Nuvoton for use in our production process.

The Audit Committee of our Board of Directors reviews all related party transactions for potential conflict of interest situations on an ongoing basis.

We believe that all related party transactions are on terms no less favorable to us than would be obtained from unaffiliated third parties.

For more information concerning our relationships with LSC, Keylink and Nuvoton, see “Risk Factors – One of our external suppliers is also a related party.

The loss of this supplier could harm our business, operating results and financial condition.” in Part I, Item 1A and Note 15 of “Notes to Consolidated Financial Statements” of this Annual Report for additional information.

OTHER INFORMATION

We were incorporated in 1959 in California and reincorporated in Delaware in 1968.

Historically, our net sales have been affected by the cyclical nature of the semiconductor industry, whereby typically the fourth quarter is the quarter of the calendar year with the smallest revenue.

20 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business