Hendi Susanto

Hendi Susanto asked for more details on AI opportunities, specifically end products/devices (power modules, network switches, AI servers, optical networking), potential for physical AI/humanoid robots, latest views on market recovery and inventory rebuilds, seasonality of A&D sales (especially Interconn), and the playbook for capital allocation and debt payment following the $90 million paydown.

Answer

Farouq Tuweiq (President and CEO) clarified that Bel's AI products are primarily on the power side (Bel Power) and magnetics (RJ45s/magnetic solutions for networking), avoiding hyperscalers where technology/service doesn't matter as much. He noted that the humanoid robot market is R&D-centric and not a dominant discussion for Bel yet. On inventory, he believes customers are largely ordering to demand rather than building buffer stock due to past lessons and geopolitical tariffs. He stated that A&D is generally not a seasonal business, with choppiness more related to funding cycles. Lynn Hutkin (CFO) outlined capital allocation priorities: reinvesting in CapEx, regular dividends, and then debt paydown (targeting $20M-$30M/quarter, with Q1 being lower due to annual payments).

Hendi Susanto asked for more details on Bel Fuse's AI opportunities, specifically regarding end products or devices like power modules, network switches, and AI servers. He also inquired about opportunities in physical AI or humanoid robots, the latest view on market recovery and inventory rebuild activities, and the expected seasonality for aerospace and defense in 2026. Finally, he asked about Bel Fuse's capital allocation and debt payment playbook following the $90 million debt payment in 2025.

Answer

Farouq Tuweiq, President and CEO, specified that Bel Fuse's AI products are primarily in the Power side (Bel Power) and Magnetics (RJ45s, interconnects) for networking, avoiding hyperscalers for commodity products. He stated the humanoid market is R&D-centric, not a significant dollar amount, and far from mass production. He believes customers are generally ordering to demand rather than rebuilding inventory due to past lessons and geopolitical concerns. He clarified that A&D is not a seasonal business for Bel Fuse, with choppiness driven by funding rather than seasonality. Lynn Hutkin, CFO, outlined capital allocation priorities: reinvesting in the business (CapEx), regular dividends, and debt paydown (expecting $20M-$30M/quarter, with Q1 being lower due to bonus/insurance payments), barring M&A.

Hendi Susanto of Gabelli Funds asked for an update on inventory correction and market recovery expectations given the new tariff challenges. He also inquired about the 10% of sales exposed to China tariffs, asking for insight into Bel's sole-supplier positioning and whether competitors face similar challenges. Finally, he asked about the tariff exposure for the Enercon business and lessons learned from past tariff negotiations with customers.

Answer

CFO Farouq Tuweiq reiterated that the underlying business recovery outlook from February remains intact, with the main uncertainty stemming from the 10% of sales exposed to China tariffs. He explained this exposure runs the gamut from sole-sourced, custom products to more commodity items. Tuweiq and VP Lynn Hutkin clarified that Enercon's tariff exposure is manageable as it's largely intercompany and for high-switching-cost defense products where tariffs are passed on. Tuweiq stated Bel's general policy is to pass on tariffs, noting that for about 70% of U.S. imports, the customer is the importer of record, handling the tariffs directly.

Hendi Susanto of Gabelli Funds asked about the business areas impacted by global tariffs, the company's mitigation strategies, and its M&A capacity following the Enercon acquisition.

Answer

Executive Farouq Tuweiq identified the main tariff exposures as imports to the U.S. from China (12-13% of 2024 revenue) and potentially Mexico (under 4%). The strategy is to manufacture locally and pass on costs where possible. Regarding M&A, Tuweiq stated that while leverage is higher, Bel remains 'open for business' but will be more selective on the quality and size of deals.

Hendi Susanto followed up on the market recovery timeline, asking if it was another 6-month delay and which markets might recover first. He also asked about inventory levels, trends in China, Q2 eMobility sales, and whether customers in networking and distribution were under-shipping end demand.

Answer

Executive Daniel Bernstein clarified that the '6 months' recovery timeline from distributors is a standard line that lacks credibility. He identified networking as the hardest-hit market. Executive Farouq Tuweiq added that customers are meeting end demand by drawing down their existing inventory, not by placing new orders. Executive Lynn Hutkin confirmed Q2 eMobility sales were $4 million with no expedite fees. Regarding China, Bernstein noted it is not a primary market for Bel due to its focus on higher-margin, niche opportunities.

Hendy Susanto from Gabelli Funds inquired about CTS Corporation's 2026 guidance assumptions for the smart actuator, specifically regarding customer preferences for dual-sourcing strategies. Susanto also asked about new product expectations for 2026 in both transportation and other diversified end markets. In a follow-up, Susanto questioned the nature of industrial and distributor sales, distinguishing between sales driven by end demand and those contributing to customer inventory rebuilding, and sought CTS Corporation's latest market assessment of the China transportation market and its strategic direction for 2026.

Answer

CEO Kieran O'Sullivan explained that CTS is continuing development on both legacy and new smart actuator platforms, with new platforms launching across various engine types and ongoing cost-reduction efforts planned for the second half of 2026. He highlighted approximately $100 million in new transportation business awards, including accelerator modules, brake-applied sensing, floor-hinged technology (revenue expected 2028), and an advanced development contract for DrivePad. COO Pratik Dantara added that medical markets show strong momentum in therapeutics and diagnostics, with new products in connectivity components for aerospace and defense also showing potential. Regarding industrial and distribution, CEO Kieran O'Sullivan indicated solid demand in true distribution, with customers actively managing and optimizing their inventory levels, leading to positive expectations for future demand. For the China transportation market, he stated it has likely reached a 'new normal,' with CTS focusing on transplant OEMs from Japan and selected local Chinese customers, emphasizing the active engagement of their local team in China for new product development.

Hendi Susanto from Gabelli Funds asked about the expected duration and impact of the adverse tax rate into 2026, the estimated tax rate for financial models, and the inventory levels in the transportation channel, referencing NXP Semiconductor's comments. He also inquired about SideQuest acquisition's revenue performance against targets and the primary drivers behind the increase in operating expenses, specifically SG&A.

Answer

CFO Ashish Agrawal stated that the adverse impact from U.S. tax legislation is expected to continue slightly into 2026, with a target tax rate in the low 20% range (21-23%). CEO Kieran O’Sullivan indicated that light vehicle inventory days of supply are normal around 50 days, with more concern for commercial vehicle softness. Mr. O’Sullivan confirmed SideQuest's revenue performance aligns with expectations, showing seasonality with a stronger second half and positive momentum. Mr. Agrawal clarified that the increase in operating expenses was primarily due to a $4.2 million reserve for an EPA claim and a year-over-year increase in equity-based compensation.

Hendi Susanto asked if the $4.2 million increase in reserve for a prior environmental matter was the primary reason for the meaningfully larger operating expense (SG&A) line this quarter.

Answer

CFO Ashish Agrawal confirmed that the $4.2 million reserve increase was by far the largest contributor to the higher operating expenses. He also mentioned a year-over-year increase in equity-based compensation, noting that the prior year's Q3 had a relatively larger reduction in this area, which made the current year's comparison look unfavorable.

Hendi Susanto of Gabelli Funds sought deeper insights into the medical market's mix, asking about the sustainability of large therapeutic orders and the expected duration of diagnostic softness. He also requested historical revenue for SciQuest, clarification on the size of the China transportation business, and details on the specific products driving the transportation pipeline.

Answer

CEO Kieran O’Sullivan projected the diagnostic softness could last another one to two quarters but affirmed long-term confidence, while therapeutic growth is expected to continue through 2025. CFO Ashish Agrawal declined to provide pre-acquisition revenue for SciQuest but noted that China's transportation revenue as a percentage of total sales is similar to the overall transportation segment's mix, referencing the prior year's total China revenue of over $80 million from the 10-K. Mr. O'Sullivan highlighted accelerator modules, passive safety sensors, and motor position sensing as key products in the transportation pipeline, noting the largest opportunities are in North America.

Hendi Susanto of Gabelli Funds asked for details on the company's manufacturing footprint and its positioning against potential tariffs, including the process for customer requalification if production moves. He also inquired about the timing of the defense and SyQwest pipeline, the outlook for the commercial vehicle segment, the key drivers for expected margin improvement, and the company's sales exposure to the automotive market in China.

Answer

CEO Kieran O'Sullivan explained that production is largely regional and the main tariff watch is on imports from Mexico, which are currently helped by the USMCA exemption. He noted that any manufacturing move would require customer requalification. CFO Ashish Agrawal added that CTS is the importer of record for USMCA products. Regarding the defense pipeline, management indicated some impact this year but most in subsequent years. O'Sullivan confirmed a next-gen commercial vehicle product is launching in Q2. Agrawal stated that the primary driver for margin improvement is the mix shift towards higher-margin diversified markets, supplemented by operational efficiencies.

Hendi Susanto of Gabelli Funds asked for details on the gradual recovery in the industrial market, questioning its timing relative to peers, and requested more color on the eBrake product, including its sales ramp-up, dollar content, and regional adoption prospects.

Answer

CEO Kieran O'Sullivan explained that the inventory destocking in the industrial market took longer than anticipated but that levels are now normalized, leading to a gradual recovery as evidenced by a 2% sequential sales increase. Regarding the eBrake, O'Sullivan confirmed a predevelopment award with a premium European OEM and reiterated a revenue timeline around 2027-2028, with initial sales of $5-$10 million. He noted this timeline is subject to change based on OEM decisions and that the product's initial focus is on the light vehicle market, driven by electrification.

Hendi Susanto of Gabelli Funds inquired about growth opportunities with local Chinese OEMs in the transportation market, the typical product development timelines in China, the expected revenue run rate for SyQwest, and the appropriate interest expense rate to use for modeling.

Answer

CEO Kieran O'Sullivan acknowledged the competitive headwinds in China but stated the company is selectively working with local OEMs it believes will be long-term winners, especially in electrification. He noted that development timelines in China can be 18 months or less, significantly faster than the 2-3 years seen elsewhere. Executive Ashish Agrawal reiterated the SyQwest revenue guidance of $10 million to $14 million for its period of ownership in 2024 and advised using an interest expense rate of 5% to 6% for financial modeling.

Hendi Susanto (Gabelli Funds) inquired about the ranking of AI-driven growth opportunities—modernization, network capacity, and security—and emerging use cases for agentic AI applications.

Answer

Dhrupad Trivedi, President and CEO of A10 Networks, identified network capacity as the core growth driver, with security being integral and already meeting the 65% revenue target. He noted that modernization is relevant for applications, but greenfield 5G builds are not a primary growth assumption. Trivedi added that while agentic AI is early, A10 is working with customers on predictive analytics for network planning and addressing new traffic types and threats from increased AI usage.

Hendi Susanto asked for clarification on the product refresh cycle, the reason for emphasizing enterprise AI inferencing opportunities outside the U.S., and how A10 might approach pricing negotiations with customers if tariffs are imposed.

Answer

Executive Brian Becker clarified that the 'product refresh' refers to normal customer-driven upgrade cycles for end-of-life hardware, not a major A10 product line revamp. Executive Dhrupad Trivedi explained that the opportunity for enterprise AI outside the U.S. is distinct due to data sovereignty laws, which drive demand for private cloud and private LLM build-outs. Regarding potential tariffs, Trivedi stated A10 would aim to work with customers to share the cost burden, but concrete discussions are not possible until the actual impact is known.

Hendi Susanto asked a series of detailed questions, starting with the automotive business in China and its product mix. He inquired about the number of customers for the braking programs, the status of the industrial segment's recovery, and the low-hanging fruit for its growth. He also sought clarification on the consigned inventory sale's revenue impact, the timing of remaining costs for the Tampa closure, and management's view on customer-side inventory digestion.

Answer

CEO Richard Phillips explained that steering systems represent a higher percentage of the auto business in China (around 80%) and that the company works with 2-3 customers in braking. He stated that the climate control and public safety portions of the industrial business have likely bottomed, but smart metering is not expected to be a significant future contributor. CFO Jana Croom clarified the $24M consigned inventory sale impacted the medical vertical by 22% and total sales by 6%, and that the bulk of the remaining Tampa closure costs will be incurred in Q4. Phillips believes the significant customer inventory destocking period is largely past.

Hendi Susanto of Gabelli Funds asked for details on the China automotive market exposure, the new braking program in Romania, and how tariff negotiations would work. He also inquired about the qualification timeline for moving production to Thailand if necessary.

Answer

Chief Operating Officer Steve Korn stated that growth in China is primarily with local OEMs and expressed confidence in their China-for-China operations. He detailed that the new Romania braking program, which launched in January, serves the European market for a German manufacturer, mostly for ICE vehicles. Regarding tariffs, he explained customers would be responsible for costs on finished goods exported to the U.S., while component costs are negotiable. He estimated a production move to Thailand would take approximately three months to qualify.

Inquired about HDD business seasonality, upgrade order patterns, and the risk and value of the remaining TRIO inventory.

Answer

The HDD business is expected to be smooth through 2025 without major cyclicality. Upgrade orders are based on long-lead forecasts. The company holds $1.6M in TRIO inventory and hopes to sell it for R&D use in 2025, so no write-off is being taken.

Asked about the ramp-up timeline for the new HAMR customer, the nature of the additional TRIO systems planned for 2024, the specific end-market for TRIO (smartphones vs. wearables), the resolution of payment terms with their largest HDD customer, the status of canceled orders, and the source of income from discontinued operations.

Answer

The company cannot comment on the new HAMR customer's specific strategy but sees it as a positive development. The additional TRIO systems for 2024 are ready to ship from inventory and are also targeted at the consumer device market. The payment term issue with the major HDD customer was resolved in Q1 and accounts are now current. For the canceled order, Intevac has no financial exposure due to a cash deposit. The income from discontinued operations stemmed from the portion of an employee retention credit claim related to the former Photonics business.

Inquired about the 2024 HDD market, the cyclicality and financial details of HAMR upgrades, inventory management, and the factors influencing the number of TRIO systems a customer might purchase. In a follow-up, he asked about the timing of TRIO sales post-negotiation and potential public filings.

Answer

Executives stated the HAMR opportunity is large but will be lumpy quarter-to-quarter, and the current focus is on resolving customer payment issues before resuming shipments. They confirmed about 15-16 upgrades were done in 2023, valued at $1-2 million each. For TRIO, they expect to ship multiple systems in 2024 but won't comment on negotiation specifics. Post-agreement, they will follow standard practice and issue press releases for new orders.