Semiconductor company bests all other small cap stocks in L.A.

The widespread use of semiconductors in everything from VCRs to autos and toys fueled the stock of Diodes Inc. into being the top performer among small Los Angeles-based public companies this winter.

The stock price shot up by nearly $4 a share, from $5.50 per share on Nov. 30, 1993 to $9.375 per share on Feb. 28, 1994. That represents an increase of over 70 percent in value.

Pedro Morillas, executive vice president of Diodes, a Westlake Village-based supplier and manufacturer of semiconductors, showed little surprise over the jump in the company's stock price. Things are going very well for the company, he said.

Semiconductors are the basic components used to produce transistors and integrated circuits.

It is likely that the jump in Diodes' stock price is a reflection of what is happening in the semiconductor market as a whole. Several sources pointed out that other semiconductor companies are experiencing similar increases in their stock prices.

Millard Phelps, an analyst with San Francisco-based investment banking firm Hambrecht & Quist, said, "the semiconductor industry is enjoying a strong surge of growth." Brian Hilton, corporate vice president of Schaumburg, Ill.-based Motorola Inc., said the semiconductor industry is in a growth phase. "The semiconductor industry grew by about 30 percent last year. It will probably see growth in the 20-percent range this year," he projected.

Diodes reported 1992 revenues of $18.43 million, up from $14.7 million in 1991. Net earnings also increased in 1992, to $404,986, up from $264,732 in 1991. Diodes had not filed its 1993 financial results with the Securities and Exchange Commission as of press time.

Most casual observers probably wouldn't recognize a semiconductor even if it was right in front of their noses, but semiconductors are everywhere. "They look like black specks, or ants or bugs," said Morillas. "There is not much there."

But they are a big part of our lives, whether we know it or not. They are critical to items used in our everyday lives -- VCRs, radios, power suppliers, lighting, computers, cars, games and toys. They are also parts of things less familiar to us, like space stations.

Diodes is not the only semiconductor manufacturer whose stock is on an uptick, either. Santa Clara-based Integrated Device Technology Inc. has seen its stock price double to a 52-week high of about $30 per share since the beginning of the year. IDT's per-share stock price closed on March 18 at $29.50.

Several factors are contributing to the current healthy state of Diodes' stock price, according to Morillas. In recent years, several large semiconductor suppliers have gotten out of the business, thereby reducing the competition.

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"They are concentrating on selling high-end electronic products rather than low-end products," said Morillas. High-end products are such things as memory circuits and central processing units for personal computers.

Semiconductors, by comparison, are inexpensive. They may sell for less than a penny, explained Morillas. So a company must sell quite a few before substantial profits can be realized. High-end electronic products, on the other hand, sell for much more and carry higher profit margins.

Diodes has chosen a route opposite that of many of its former competitors. Rather than get out of selling semiconductors, it has chosen to specialize in the low-end product. Diodes has even narrowed its niche down to supplying primarily discrete semiconductors. Discrete semiconductors are used to produce simple transistors, rather than the more complex integrated circuits.

"Discrete semiconductors come in all colors and flavors," said Morillas. By concentrating in only supplying discretes, Diodes is able to offer its customers more flexibility and better service.

The strategy appears to be working. The stock price is up and the company's list of customers reads like a who's who of high technology. Diodes supplies semiconductors to the likes of General Motors Corp., Dell Computers Corp., Apple Computer and Compaq Computers Corp.

The strength of its customers is another part of Diodes' success. Several of the key industries that use semiconductors are growth industries, such as computers and telecommunications.

The real success of Diodes began when the Lite-On Group of Taiwan assumed majority ownership and management control. As of Dec. 31, 1992, Lite-On owned 47 percent of Diodes' common stock, according to the company's most recent proxy statement.

"That was the turnaround of the company," said Morillas. "They changed the management and the philosophy."

Prior to Lite-On's investment, the company was run "too casually," Morillas said. Lite-On's management team shifted the company's focus to place a greater emphasis on customer service. Lite-On's new team expanded the line of products available and increased its inventory. "We wanted to make sure that what our customers need is available to them," said Morillas. The company has also started to customize semiconductor products to customer specifications.