Kemet Corp (NYSE:KEM) Q1 2019 Earnings Conference Call - Final Transcript
Aug 01, 2019 • 09:00 am ET
Thank you. [Operator Instructions] Our first question comes from the line of Matt Sheerin from Stifel. Your line is open.
Yes. Thanks. Good morning. First question, Bill, just regarding the gross margin and holding up despite revenue coming down, and it sounds like there's some cost measures you took, particularly in MnO2 and F&E, but what about the pricing environment? Is that helping you on the MLCC? I know that you had some price increases kick in at the beginning of the year? And what's the pricing environment like in the tantalum space?
William M. Lowe
Well, Matt, most of our -- as we mentioned in our previous calls, most of our pricing at least certainly for our OEM contracts are negotiated in the fall and they go into effect primarily in the first calendar quarter of the year. So for the -- by and large for half of our business which is OEM related, those prices came in, in that first calendar quarter. And they're under contract and those are holding, so those are steady. The market is still tight in large case ceramics, as you know. And at least in the high CV space, high CV pricing is stable. There is some certainly in the commercial, when you get into lower CV and some of the commercial chips, there is some pricing pressure there, we've baked that into where we see our margins going.
And then from a polymer tantalum perspective, I think one reason I guess I emphasize the 70% polymer is that we aren't the same. Our dynamics for our tantalum group is different than it was years ago, as MnO2 has declined, we have focused on growing polymer. And with that mix, that helps our margins, as well as we did take steps to reduce manpower and get ahead of the curve as we saw where the market was going to go with MnO2 several months ago. So we were already positioned from a cost structure perspective for the most part, as we came into this quarter to recognize the fact that we would have less volume, both in the June quarter and the September quarter from MnO2.
Okay, that's helpful. And then if you look at the -- in the MLCC space where you play in the high case size, high capacitance area where some of the major competitors have been moving away, do you get a sense of when that's happening? I know some of those deadlines have been pushed out and is that part of the backlog that you're seeing?
William M. Lowe
Yeah. I mean, certainly, it's contributing to keeping it where it is. And I think it's actually a good thing that some of the -- those who have decided to exit certain case sizes are doing it at a pace that's taken it out over time because it would make the situation I think with customers extremely difficult because the rest of us, not just KEMET, but others that are still making those case sizes would