Knowles Corporation (NYSE:KN) Q4 2022 Earnings Call Transcript

Christopher Rolland: Okay, great. Thank you very much. That’s helpful, Jeff.

Jeffrey Niew: Thank you.

Operator: Thank you. Our next question comes from Anthony Stoss with Craig-Hallum. Your line is open.

Anthony Stoss: Hi, guys. Jeff, let me start with you. I wanted to really focus in more of the PD side, which is still doing quite well, do you have view on the inventory in the channel, particularly just for the PD side? Where do you think it is?

Jeffrey Niew: I would sit there and say that, the majority of stuff we do is with the custom stuff, which is defense, medtech and EV. I would say that, there isn’t a lot of inventory in the channel at all. I think they order for specific bills, we deliver their custom products, we’re not seeing people say, oh, I got too much inventory in that portion of the market. So if you look at the PD business, I would say, the industrial/distribution business was somewhere in the neighborhood of $50 million, $60 million on an annualized basis. We are definitely we watched that inventory, it definitely, especially in the distribution, where we can see it, it has been starting to creep up some. So, we are expecting, a little bit of weakness here, in the short term. But, overall, we still expect mid single digit growth for this business in 2023. I mean €“ and driven by very strong defense growth, very strong EV growth and steady medtech growth.

Anthony Stoss: Got it. And then it’s just the nature of your competitors. And I know you guys have shied away from really the mobile market. But I’m curious, generally, what you’re seeing on ASPs? And maybe I guess, I’m more interested on the PD side are your competitors acting fairly rational at this point?

Jeffrey Niew: I would say, in the PD space, again, most of our stuff is custom long-term contracts. And I would sit there and say, I haven’t seen much of pricing on pressure at all in that portion. There’s been a little bit more discussion in that distribution/industrial side, on pricing. But it’s not, big now I’ll make a comment on the CMM business. I’ll be honest, I mean, the pricing has been challenged, as we in Q4 and Q1. If you look at 2022 and 2021, 2020, we really limited price erosion in that microphone business for the last three, four years. We’ve done a pretty good job of keeping that sub for even sub 3%. But as you look at the end of this year as we started saying, okay, we got to fill some of this capacity, the price erosion has become more, and we’re expecting that’s the kind of persist in the first half of 2023.

Because there’s a lot of excess capacity, chasing less business and so we’re hopeful of new products, and things will happen towards the back half of next year and into 2024 that will reverse that trend again. But in the short term, it’s kind of tough on pricing and that business. But I’m Hearing Health, I think, business or MSA business. I think we’re the dynamics really haven’t changed dramatically. I think we’re seeing essentially flattish pricing.