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    Bel Fuse Inc (BELFA)

    Q2 2024 Summary

    Published Feb 18, 2025, 5:24 PM UTC
    Initial Price$70.05April 1, 2024
    Final Price$82.20July 1, 2024
    Price Change$12.15
    % Change+17.34%

    What went well

    • Bel Fuse's Power segment is the biggest beneficiary of the AI world, with exciting opportunities and expected sequential growth from AI customers through the year and into 2025.
    • Continued growth in space applications, with Q2 2024 revenue of $2.3 million, year-to-date revenue of $4.3 million, and full-year 2024 revenue expected to be $7 million, indicating strong momentum in this market.
    • Expansion in eMobility niche markets, such as school buses, tractors, and large equipment, with eMobility sales reaching $4 million in Q2 2024, demonstrating focused growth in profitable segments of the EV market. ,

    What went wrong

    • Significant anticipated sales decline in Q3 2024, with expected revenues of $118 million to $126 million, down from $159 million in Q3 2023. This decline includes a projected decrease of $20 million to $25 million in the Power segment and a $10 million to $15 million decline related to Magnetics.
    • Trade restrictions on a former China-based supplier are expected to impact sales by $4 million in Q3 2024. The company is uncertain about the ultimate impact and is assuming a full sales loss for the quarter to be conservative. ,
    • Uncertainty about market recovery, with the CEO stating they've been thinking about recovery for 18 months and expressing skepticism about improvement timelines, indicating prolonged weak demand in key markets like networking and distribution. , ,

    Q&A Summary

    1. Trade Restrictions Impact
      Q: Will trade restrictions cut $4 million from Q3 sales?
      A: Yes, due to new trade mandates, we're taking a conservative approach and expect virtually no sales from that Chinese supplier this quarter, potentially reducing sales by $3 to $4 million. We're identifying replacement suppliers, but requalification takes time. We'll update in October.

    2. Pricing Environment
      Q: How is weak demand affecting pricing and margins?
      A: Surprisingly, in this down market, we've seen very little price pressure. The focus has been on inventory management rather than pricing. If demand picks up and lead times stretch, pricing increases may become available.

    3. Market Recovery Timeline
      Q: When do you expect market recovery?
      A: It's hard to predict; in our industry, the standard answer is always "six months," but it could be sooner or later. Inventory levels are decreasing significantly, but it's unclear when demand will normalize.

    4. Networking and Distribution Hit
      Q: Which areas are most affected by the downturn?
      A: The down market has hit us hardest in networking and distribution, our two biggest markets. Customers are using existing inventory to meet demand and delaying new orders until inventories decrease.

    5. AI Opportunities
      Q: Are AI sales cycles shortening?
      A: Our Power segment will benefit most from AI. We're seeing new opportunities and expect sequential growth from AI customers throughout the year and into 2025. However, it will take time as channels clear out.

    6. Power Segment Performance
      Q: How is the Power segment doing in AI, eMobility, data centers?
      A: We're focused on factors influencing data center growth, like new builds and upgrades. Avoiding low-margin hyperscaler business, we're targeting niche markets in eMobility, such as school buses and tractors. We're bullish but note some product clearing in the system.

    7. Military and Aerospace Demand
      Q: What is demand in military and aerospace?
      A: In Q2 '24, commercial aerospace sales were $15.4 million, and military sales were $12 million.

    8. Internal Inventory Levels
      Q: Can inventories be lowered further?
      A: We'd like to reduce inventories further, but it's easier in a healthier sales environment. We're not where we'd like to be yet but are working toward improvement.

    9. Operating Expenses and R&D
      Q: Are current R&D and SG&A levels normal?
      A: Yes, R&D is around $5 to $6 million. SG&A varies with commissions but is about 25%. We're focusing on ways to manage SG&A in the current environment.

    10. China Market Trends
      Q: Any trends in China automotive and industrial?
      A: China isn't our main customer base. We sell some products there but focus selectively due to pricing and competition.

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