UPDATE 2-Dialog sees Chinese chip partners near full capacity by end-March

(Adds CEO interview)

By Douglas Busvine

BERLIN, March 4 (Reuters) – Dialog Semiconductor said on Wednesday it expected the chip supply chain and contract manufacturers to return to normal in the second quarter after disruption caused by the coronavirus epidemic that first broke out in China.

At the same time Dialog – a design bureau that has no production facilities of its own – sees no evidence of backlogs that might reflect weakness in demand from customers that include iPhone maker Apple.

Output at Dialog’s main contract manufacturers has recovered to 50%-60% of capacity as workers return and facilities are disinfected following an extended Chinese New Year break, CEO Jalal Bagherli told Reuters.

“By the end of March we should be closer to 100% capacity,” Bagherli said in an interview.

The Anglo-German chip designer forecast 2020 percentage revenue growth in the mid-teens, excluding its legacy business supplying the main power management integrated circuit (PMIC) for older Apple iPhones.

That is in line with existing guidance and reflects the company’s confidence in demand for its current and forthcoming products that span mobile and, increasingly, the so-called Internet of Things for consumers and industrial applications.

“Pent-up demand remains high for the products we’ve announced,” said Bagherli.

Dialog reported fourth-quarter revenue at $381 million, slightly above the mid-point of its guidance range and down 12% year on year, reflecting the transfer of its main PMIC business to Apple in a $600 million deal in late 2018.

Gross margins in the quarter were 50% – a record level and slightly above prior guidance, the company said in a statement.

First-quarter revenue is seen in the range of $220-$250 million, reflecting seasonal trends and the impact of the coronavirus outbreak on its customers, contract manufacturers and demand more broadly in China.

Dialog’s 2020 forecast assumes a return to normal for the chip supply chain from the second quarter.

Dialog, which recently announced it would buy California-based Adesto Technologies for $500 million in an agreed deal, also said it would launch a fresh round of share buybacks for up to 90 million euros ($100 million).

With the company’s shares down 33% in the current year to date, “it’s a good time to buy because we have high confidence in our shares”, said Bagherli.

Dialog had more than $1 billion on its balance sheet at the end of 2019, giving it room to invest 20% of revenue into research and development, pursue acquisitions and return capital to shareholders, he added.

“We think we can do all three,” said Bagherli.

Dialog shares were up 4.4% at 0936 GMT.

$1 = 0.8965 euros Reporting by Douglas Busvine; Editing by Christopher Cushing and David Evans

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