Monolithic Power Systems Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
October 30, 2023

There are 9 speakers on the call.

Operator

Hello, everyone, to the MTS Third Quarter 2023 Earnings Webinar. My name is Genevieve Cunningham, and I will be the moderator for this webinar. Joining me today are Michael Singh, CEO and Founder of MPS and Bernie Blagen, EVP and CFO. In the course of today's webinar, we will make forward looking statements and projections that involve risk and uncertainty, which could cause results to differ materially from management's current views and expectations. Please refer to the Safe Harbor statement contained in the earnings release published today.

Operator

Risks, uncertainties and other factors that could cause actual results to differ are identified in the Safe Harbor statements contained in the Q3 earnings release and in our latest SEC filings, including our Form 10 ks and our Form 10 Q, which are accessible through our website. MPS assumes no obligation to update the information provided on today's call. We will be discussing gross margin, operating expense, operating income, other income, Income before income taxes, net income and earnings on both a GAAP and a non GAAP basis. These non GAAP financial measures are not prepared in accordance with GAAP and should not be considered as a substitute for or superior to Measures of financial performance prepared in accordance with GAAP. Tables that outline the reconciliation between the non GAAP financial measures 2 GAAP financial measures are included in our Q3 2023 earnings release, which we have furnished to the SEC and is currently available on our website.

Operator

I'd also like to remind you that today's conference call is being webcast live over the Internet and will be available for replay on our website for 1 year, along with the earnings release filed with the SEC earlier today. Now, I'd like to turn the call over to Bernie Blagan.

Speaker 1

Thanks, Jen. MPS reported 3rd quarter revenue of $474,900,000 7.6 percent higher than Q2 of 2023 And 4.1% lower than Q3 of 2022. Compared with Q2 2023, sales in enterprise data and Storage and Computing improved sequentially, while Automotive, Industrial and Communications revenue was lower. Turning now to our Q3 2023 revenue by market. In our enterprise data market, Q3 2023 revenue of 98 $900,000 increased 106.2% from the Q2 of 2023 With sequential growth in both GPU and CPU program sales, Q3 2023 enterprise data revenue was up 31.4 percent year over year.

Speaker 1

Enterprise data revenue represented 20.8% of MPS' 3rd quarter 2023 revenue Compared with 15.2 percent in the Q3 of 2022. Storage and Computing revenue of 100 $29,500,000 increased 3.9% from the Q2 of 2023. The sequential revenue improvement primarily Higher Sales in Commercial Notebooks. 3rd quarter 2023 storage and computing revenue was up 14.7% year over year. Storage and Computing revenue represented 27.3 percent of MTS' Q3 2023 revenue compared with 22.8% In the Q3 of 2022.

Speaker 1

3rd quarter consumer revenue of $62,400,000 decreased 4.3% From the Q2 of 2023, as higher gaming and monitor sales were offset by declines in TV and home appliance revenue. Q3 2023 consumer revenue was down 30.1% year over year. Consumer revenue represented 13.1 percent of MPS' 3rd quarter 2023 revenue compared with 18.0 In the Q3 of 2022. 3rd quarter 2023 communications revenue of $46,800,000 was down 5.1% from the Q2 of 2023, primarily reflecting lower infrastructure sales. Q3 2023 Communications revenue was down 35.3% year over year.

Speaker 1

Communication sales represented 9.9% of our total Q3 2023 revenue compared with 14.6 percent in the Q3 of 2022. 3rd quarter automotive revenue of $95,200,000 decreased 8.8% for the Q2 of 2023, primarily due to lower ADAS and digital cockpit sales. 3rd quarter 2023 revenue was up 9.3% year over year. Automotive revenue represented 20.0 percent of MTS' 3rd quarter 3rd quarter 2023 industrial revenue of $42,100,000 decreased 15.3% from the 2nd quarter Of 2023, due to lower sales in security and industrial meter applications. Q3 2023 revenue was down 28.2% year over year.

Speaker 1

Industrial revenue represented 8.9% Our total Q3 of 2023 revenue compared with 11.9% in the Q3 of 2022. I'd like to make some general comments about our business. In our previous earnings calls, we have noted customer ordering patterns We're oscillating within the overall market. This environment persisted through Q3. We continue to see Some orders getting delayed or amended by pull in requests.

Speaker 1

This lack of short term visibility continues to make forecasting beyond the next quarter However, as we said in our last call, our business fundamentals remain unchanged. Our design win pipeline and customer base Tremendously, particularly amongst Tier 1 accounts. Additionally, we continue to innovate and have a strong design win pipeline, Position us well for future growth. Moving now to a few comments on gross margin. GAAP gross margin was 55.5 percent, 60 basis points lower than the Q2 of 2023 And 320 basis points lower than in the Q3 of 2022.

Speaker 1

Our GAAP operating income was $135,600,000 compared to $112,300,000 reported in the Q2 of 2023. Non GAAP gross margins in the Q3 of 2023 was 55.7%, down 80 basis points from the gross margin reported for Q2 of 2023. The quarter over quarter decrease in both GAAP and non GAAP gross margin is attributed largely to an unfavorable product mix. Our non GAAP operating income was $167,800,000 compared to $153,100,000 reported in the Q2 of 2023. Let's review our operating expenses.

Speaker 1

Our GAAP operating expenses were $128,000,000 in the Q3 of 2023 compared with $135,400,000 in the Q2 of 2020 Our non GAAP operating our non GAAP Q3 We're approximately $96,600,000 essentially flat with what we saw in each of the first two quarters of 2023. The differences between non GAAP operating expenses and GAAP operating expenses for the quarters discussed here are primarily stock compensation expense and income or loss On an unfunded deferred compensation plan. For the Q3 of 2023, stock compensation expense, Including approximately $1,000,000 charged cost of goods sold was $33,600,000 Compared with $38,000,000 recorded in the Q2 of 2023. Switching to bottom line, Q3 2023 GAAP net income was $121,200,000 or $2.48 per fully diluted share, Compared with $99,500,000 or $2.04 per share in the Q2 of 2023. 3rd quarter 2023 non GAAP net income was $150,300,000 or $3.08 Per fully diluted share compared with $137,500,000 or $2.82 For fully diluted share in the Q2 of 2023.

Speaker 1

Fully diluted shares outstanding at the end of Q3 2023 were $48,800,000 Now let's look at the balance sheet. Cash, cash equivalents and investments were $1,040,000,000 at the end of Q3 2023 compared with $941,100,000 at the end of the Q2 of 2023. For the quarter, MPS generated operating cash approximately $175,900,000 compared with Q2 2023 operating cash flow of $90,200,000 Accounts receivable ended the quarter of 2023 at $185,800,000 Representing 36 days of sales outstanding, which is one day higher than 35 days reported at the end of the Q2 of 2023. Our internal inventories at the end of the Q3 of 2023 were $397,300,000 Down from $427,400,000 at the end of the Q2 of 2023. Days and inventory of 171 days Came in at the end of the Q3 of 2023 were 30 days lower Then at the end of the Q2 of 2023.

Speaker 1

Comparing current inventory levels with the following As projected revenue, you can see days in inventory decreased to 180 days at the end of the Q3 of 2023 From 184 days at the end of the Q2 of 2023. I would now like to turn to our outlook for the Q4 of 2023. We are forecasting Q4 revenue in the range of $442,000,000 to $462,000,000 GAAP gross margin in the range of 55.2% to 55.8 percent Non GAAP gross margin in the range of 55.4% to 56%. Total stock based compensation expense in the range of $32,200,000 to $34,200,000 including approximately $1,000,000 That would be charged cost of goods sold, GAAP operating expenses between 127 $100,000 to $131,100,000 Non GAAP operating expenses in the range of $95,900,000 $97,900,000 This estimate excludes stock compensation expense, but includes litigation expense. Interest and other income in the range from $4,100,000 to $4,500,000 before foreign exchange gains or losses.

Speaker 1

Fully diluted shares in the range of 48,700,000 to 49,100,000 shares. We are also pleased to announce that our Board of Directors has approved a share buyback program for up to $640,000,000 over the next 3 years with the goal of offsetting future dilution. In conclusion, while we expect visibility to remain limited in the short term, Which was the same as last quarter, we continue to execute on the long term strategy. I will now open the webinar up for questions.

Operator

Thank you, Bernie. Analysts, I would now like to begin our Q and A session. As a reminder, if you would like to ask a question, Please click on the participants icon on the menu bar and then click the raise hand button. Our first question is from Quinn Bolton of Needham. Quinn, your line is now open.

Speaker 2

Michael and Bernie, congratulations on the results and the outlook in a tough market. I guess Bernie and Michael, the enterprise data Business very strong quarter on quarter. Wondering if you could just give us some thoughts as you look into next year, how you see the GPU business? And specifically, do you see sort of expansion of that customer list driving strength in GPUs? And then a question on CPU.

Speaker 2

You said CPU was up in the Q3. Wondering if you're finally starting to see some strength in the Sapphire Rapids and Genworth side of that business. And then I have a follow-up question. Thank you.

Speaker 3

At this time, okay, as Bernie said earlier, some of these markets are very much oscillating. And the net, you see it. We're down from the last From this quarter, so from last year, year to year, we're still down. For the AI and AI, These power modules and we're ramping up as a result Can we maintain growth in this year's And still slight growth from the last year, okay? That's mainly due to AI.

Speaker 3

And Also in the prior quarters, autos, we see it as a very lumpy business, okay, as Let me for ADAS ramping up. But all of these, okay, will We believe that will happen in ramping up in the next year, not only from ADAS And also as you mentioned about on the general CPU and in the server side. And I might as well mention all the other ones. We still have a lot of Greenfield products that haven't really ramped up yet. And many, many projects get delayed in this year, Pushing to next year.

Speaker 3

And we don't want to give a very clear forecast that we still don't know yet. But sometime next year, we believe that they will start to ramping up in all these greenfield products. So that's kind of my summary for the near term's business.

Speaker 2

Thank you, Michael. I guess a follow-up question. Bernie, I think in the script you mentioned some push outs, some Pull ins or expedites, I think the pull ins or expedites may be newer given just the overall Challenging industry. Were the pull ins specific to certain customers or end markets? Or are you starting to see pull in requests across multiple end markets?

Speaker 2

Thank you.

Speaker 1

Yes. Quinn, I think what we're experiencing here is a unique Business cycle. And that right now, our end customers are unwilling to commit beyond A fairly narrow window of expecting lead times within under 10 weeks For delivery. So that makes, as we said earlier in the comments, The predictability, really hard to call right now. But I think as Michael just said that when we look at our Pipeline is strong, and we're confident that we're in a good position to capture share and growth as the market recovers.

Speaker 1

But right now, we're still in a level of unpredictability.

Speaker 2

Okay. Thank you

Speaker 3

very much. He's talking about which segments. Oh, I'm sorry. Which segments? Yes, which segments.

Speaker 3

And We look at it kind of a rough survey, It's actually across the entire product segment, including consumers. Some of the products, they need and Pull it in very quick. As Bernie said, the lead time is very short, and we don't have those products. It's pretty much across the board. And other than AI, we really plan ahead.

Speaker 3

And we really plan ahead from beginning of the year. And We can anticipate that all the ramp up and even for the next few quarters. Got it. Okay. Thank you.

Operator

Our next question is from Tore Svanberg of Stifel. Tore, your line is now open.

Speaker 4

Yes. Thank you, Michael, Bernie, and congratulations on that $1,000,000,000 cash balance. First question is on the Q4 outlook. I know you typically don't guide by segment, but can you just talk about directionally where you expect Each segment to trend in Q4?

Speaker 3

Yes. Q4 is still down. It goes down to like quite a bit from Q3. And Pretty much everything except maybe not autos, okay, I mean, auto probably goes sideways or maybe slightly up, okay, I mean, It's slightly up. And also the AI powers and that still continuously to ramp up.

Speaker 1

Yeah. I think that when you look at the broader market, we're experiencing a lot of the weakness in demand that Many of our peer companies are. And what makes us differentiated is the AI boost we're experiencing.

Speaker 3

And pretty much AI and auto and everything else is pretty much muted. Yes.

Speaker 4

Very good. And as my follow-up and maybe related to the previous question on enterprise data and AI, just wondering If you have any visibility on the sustainable growth here, there's obviously one big partner that's Ramping right now, but it looks like there's some other processor companies that are going to be catching up next year. So if you could give us any color on especially Enterprise Data segment for 2024, that

Speaker 3

Oh, I can tell you overall how the NPS strategy is. Like NPS strategy is always take the get the best We provide the best performance. When the volume gets higher 5 months and lower, okay, we don't chase those low end the low end segment. I see NPS as still in the forefront in terms of provide best efficiencies and the lowest The generating heat, like in smallest areas, we are still the leading We'll be next year and the year after, all these products are In development with our customers and with the leading providers in AI, The GPUs specifically, and that's a huge market, And we don't want to take all of them. And to your other part of the question is general market, right?

Speaker 3

Okay. And general market and other segments we view. CPUs And you'll remember in the VR13, we didn't have a lot of derangeways. And again, But we had we piled up a lot of inventories and when the VR 13.5%, okay, it became a serendipity. And again, we have a few project designer wins and the Other supply couldn't ship, but we ship a lot.

Speaker 3

So that's where you see the server data center growth. That's because of that. And for next year, we were told to get ready To have those projects ramping up in rapid sapphire, right? Yes. Okay.

Speaker 3

That's correct. And so when these markets are already ramping up, NPS are there.

Speaker 1

I think, Tore, you've hit on a couple of very good points that as far as the AI GPU opportunity, we're very well positioned both for the near term in 2024, But more importantly, longer term, and as Michael just emphasized, there is a differentiated market there, and we want to stay at High end of that market. So we've always been aware that there would be competitors entering this space, And that's how we're differentiating ourselves. And then as far as the CPU and GPU markets, what we're preparing to do Is to manage the uptick in demand that we're anticipating by building that inventory during the next couple of quarters.

Speaker 3

Okay. That's what I forgot what I said. Well, I tried to make a point. I want to and NPS doesn't want to be known as I was like an AI powered company, okay? We want to focus on the diversified growth.

Speaker 3

And we do have a lot of greenfield products, Still haven't realized yet. These are across the segment. And Also in the consumer side, in the last years because the last couple of years because of shortages, we kind of neglected. And That will in the last half years, we developed a low cost product And we introduced the market, you will see the growth. That's only on the because of very short term Sure.

Speaker 3

The line cycle, you will see revenue from next year. And all the other products like industrials, automotive and in the traction inverters and the Chargers and also ADAS, these were ramping up. And So we want to achieve a very diversified growth, not only on the AI side.

Speaker 4

Great color and good job with the buyback. Thank you.

Operator

Our next question is from Ross Seymore of Deutsche Bank. Ross, your line is now open.

Speaker 5

Hi, guys. Can you hear me?

Speaker 3

Yes. Hi, Ross.

Speaker 5

Hi, there, guys. So I guess the question I have is, I don't know if cyclicality or seasonality is carrying the day, but the last couple of quarters, You've talked about weakness. You're not unique in that. But the Q4, you seem to be guiding pretty much back to a seasonal drop. If I look into the Q1, is that something that you expect to continue?

Speaker 5

Or is visibility just too limited to really comment on that quite yet?

Speaker 3

Yes. It's a well, the numbers kind of reflect the seasonal, but the reality is it just happened that way. We can't call it seasonal. This is a fast changing market. I mean, it's very difficult For us to forecast, that's difficult, okay?

Speaker 3

Unfortunately, we have a lot of capacities And but these capacity was still the lead time is still shorter than our production cycles, okay? And we have to get ready just

Speaker 1

okay. Ross, you bring up a really good point is that If we look at the outlook for Q4, a portion of that is How competitive we were at going after the notebook market. And so the Q4, we're experiencing A little bit of a decline as those are seasonal sales. When we look at Q1, Michael said it best There isn't a lot of visibility. But as we look at this cycle, we believe that next year It's really back half weighted.

Speaker 1

And so I would probably indicate that we'll have a more conservative profile as we look at the first half of twenty

Speaker 3

Yes. Also, I didn't I forgot to mention about it. And We talk about beginning of the year, we'll be aggressive on price. And Especially in the with it across the board, then we have a new product in the consumer segment come out And already came out. And also in the notebook area, we pretty much And I have a large market share in the commercial side.

Speaker 3

In the beginning of the year, SunOpta, Well, we were very starting become very aggressive on the price. And Now, Q4, you see it in our notebook size Start to gain more shares in the consumer side.

Speaker 5

Got it. Thanks for that. And as my one follow-up, I want to just pivot over to the gross margin side of things. You mentioned Bernie in your script that you were at the low end of your guidance because of mix. I was a little surprised that enterprise data more than doubled sequentially, but yet you pointed to mix.

Speaker 5

Could you just talk a little bit about what's going on? What mix were you referring to? Because I think whether correctly or incorrectly, at least I assume That enterprise data would be an accretive gross margin category.

Speaker 3

Sure. Well, consumer notebook margin is very low, Okay. But it's easier money to be made, okay?

Speaker 1

Yes. Michael is exactly right is that We have been aggressive on pricing across the board. And while that isn't called out specifically As a contributing factor to the lower gross margin, it is reflected in the overall mix, notwithstanding the impact of the GPU and AI Business.

Speaker 5

And has that pricing dynamic, is that starting to kind of normalize from here? Or is that an incremental headwind that we Consider going forward.

Speaker 1

I believe that as the market begins to stabilize, that we'll return to a more normal profile As far as pricing, again, a very specific point to make here is that most of our customers Our attractive and we have secured design wins because of our innovation As opposed to pricing alone. So I believe that as the market stabilizes sometime in 2024, That will probably return to a more normal pricing environment as well.

Speaker 3

Yes. We used to have product mixing mix, right? But also there's other capacities, okay, and capacity utilizations in our China And also add a lot of capacity cost, okay, for us. So it is a mix of all of them, not only the product

Operator

Our next question is from Rick Schafer of Oppenheimer. Brent, your line is now open.

Speaker 6

Hey, guys. And let me add my congratulations. If I could follow-up just one more question on Enterprise Data. You mentioned your greenfield product lineup for next year, I think a couple of times on the call. And One of those that really stands out is the silicon carbide power isolation module you guys are working on.

Speaker 6

And I know that's for a couple of different end markets.

Speaker 3

I was hoping you

Speaker 6

could give some color around the sort of engagements you're seeing right now with the CSPs, So in data center, maybe a sense of timing of when those initial revenues would start showing up in the model. And my bigger question is really do you view sort of PowerEdge solution the PowerEdge solution module as a TAM expander For your existing enterprise data franchise. Thanks.

Speaker 3

Let me answer your first First of all, silicon carbide. Thanks for reminding me this. I almost forgot. Yes. We released the product.

Speaker 3

And first revenue, we'll see sometime the The next year's McHenry will be in the solar inverters. And The green energies has a lot of demand. The products we designed for those that market segments. And We'll start to ramp and also in automotive. And these are not Specifically for charging inverter for these drivers, okay, we do power management.

Speaker 3

And we will see those products and ramping up much later. These are clearly and indeed, there's a void In a market no other company produces that kind of a product, and it became very unique. And so I have a very good confidence But 2 and then second half of next year, the year after, we will see a lot of new revenue come from that segment. And what's the second question? 2nd part of it?

Speaker 6

Yes, within CSP, the full rack I know you guys have discussed, is there any color you could give around how you view that? Is that sort of a TAM expanders for your enterprise data segment?

Speaker 3

Sorry. I'm sorry, the hyperscalers? On the hyperscaler. Hyperscaler is announced You guys know better than we do. We just only provide the power.

Speaker 3

I mean that For the CPU side, GPU side, as we said earlier, in the KBR14, we have a we expect to have a grow on Bigger shares. And if you recruit to silicon carbide, That we will develop those power supplies. And again, these are in play power supply, and These are large modules. And that will ramp in I don't have a time frame. So, okay, probably it's towards the very end of the next year, the 2025.

Speaker 6

Okay. Thanks a lot for that color, Michael.

Speaker 3

And I guess maybe if

Speaker 6

I could try one more slide that Ross' question on gross margin. I don't know, Bernie, if you can give us any kind of rule of thumb. And I understand that it's a mix issue, and I hear everything you're saying about The current pricing environment. But as we look at things sort of normalizing, say, in the second half next year, say, you get back to To your $2,000,000,000 or better kind of run rate, I mean should we be thinking gross margin at that level should be back sort of Tilting toward the high 50s again at that sort of a run rate?

Speaker 1

Yes. I would not be Too quick to jump in the high 50s in the near term here. I think that we what we've I said previously is that we expect for the next few quarters to stay within our model, targeting about 56%, Plus or minus 50 basis points. And then as we look at the second half of next year, as things stabilize and we get a better mix, That we should see return to having incremental improvement.

Speaker 3

Yes. I excuse you, Stephen. I came in and I did look at the In details, and again, we expand a lot of capacities. And from These are strategically not mistake. And we do see a lot of growth from in the next couple of years.

Speaker 3

And so I believe these capacity, the utilization has taken effect on the gross margins. I don't know what's the how many. What's the percentage? I don't know. So maybe Bernie can answer your latest.

Speaker 3

Okay.

Speaker 1

Yes. On the capacity, and I'll take this topic on because it's an important one as we look ahead, is We talked about a year ago as far as developing new relationships with fab partners, particularly in Taiwan and Singapore, as we Not only expand capacity in advance of a future upswing in demand, But also to diversify by geography. And so those investments Our adding to our overall cost profile, more in the R and D side than in gross margin, specifically today, But that capacity will become available here just as we see the second half of next year starting to

Speaker 3

Well, in the fall for the future, China is on the high. But the capacity that we expanded from a year ago is not utilized yet. Yes. Not yet. Okay.

Speaker 3

For the test equipment. Okay. Thanks for all the color, guys.

Operator

Our next question comes from William Stein of Truist. William, your line is now open.

Speaker 1

Great. Thanks for taking my question.

Speaker 7

I'm hoping Michael, you talked about Traction in design wins that will turn into revenue over the next Several quarters years, it sounds like you've been very busy with these as you always are. And Often that means you can see sort of what's coming a little earlier in terms of where the revenue might shift in terms of the end markets and products and that sort of thing. So when you think about the bigger design wins, either the bigger volume runners or the bigger ASP drivers, Is there a shift either in end markets or in mix, let's say for modules or motion control or things like that? Any other Shifts in the revenue mix that we should expect because of these design wins that have yet to ramp?

Speaker 3

Well, thanks for reminding me the motion, I forgot about that. Okay. We do have a lot of design in the motion side And we look at it and the beauty is, I can't call it specifically, Really across the board. And that means we have a bigger set of customers, like 4%, 5%, maybe slightly higher And out of this year, again, all the other customers, a few thousand customers and a few thousand I don't know how many market segments. And they are very healthy And for in terms of design win activities, okay.

Speaker 3

And So all of them will change to revenues. And I can give you some Bigger segment and not many people talking about it. And It's Michael, what is the a USB C and USB PD. And I believe this will be a huge revenue and growth. And NPS has a lot more content in Versus the USB PD versus the USB

Speaker 1

was it USB Earlier versions.

Speaker 3

Yes, earlier versions, like a B, type B, okay, now it's a type C. And some of them in auto will be cannibalizer for USB type as a B type plugs, okay. And but C is a much higher content And that's in auto. And in the consumer side, it's totally new. And USB type B type is a very low is like consumer side.

Speaker 3

And now they're converting to USB C, and that would be a lot broader applications. And it's based on because they're all unified plus And especially European countries and the driver of that standards, and I think they migrate To everywhere, they have a clear mandate when to switch it. And I believe even Apple's for the next version of the fan phone We see NPS has a lot of Lot of opportunities, a lot of growth. So other than that, okay, Berry Management And that will ramp in 2014, and Lot of different applications from 2024. 2024.

Speaker 3

2024. And These are from a power tool to guarding tools and From all kind of other things. And those are already designing Products and okay, we're ramping in the next 12 to 24 months or less than 6 to 24 months, I guess.

Speaker 1

And in addition, just to repeat, as far as the opportunities that we talked about in both green energy, clean energy and As well as in DDR5. So there's a large number of products that are expected to ramp here very quickly for us.

Speaker 7

Great. If I can ask one follow-up. The inventory declines sequentially surprised us a bit. Perhaps this is always your plan, but if it wasn't, can you describe what happened here? Perhaps customer came in With more demand for something or maybe you decided mid quarter to reduce production, what maybe just set me straight on this issue?

Speaker 3

We reduced the overall inventories and that can be in starting the beginning of the year that's probably reflects that. And Yeah. And it doesn't mean we'll keep that low. Okay? We'll boost it up further.

Speaker 1

Yes. What we've done is we've said that we have a range of inventory that we want to operate within between 180 to 200 days. And what you've seen is that we did reduce wafer starts about 9 months or 3 quarters ago, And that's now being reflected in our balance sheet today. But as we anticipate the demand for all of the opportunities that we see possible for 2024, We are beginning to ramp inventory. And as Michael said, we have the capacity available to take advantage of that.

Speaker 1

Thanks, guys.

Operator

Our next question is from Matt Ramsay of Cowen. Matt, your line is now open.

Speaker 8

Thank you very much. Good afternoon, guys. Michael, I wanted to dig into the automotive market a bit and understand The drivers of the business over the next several quarters, I think you guys have some very exciting new content With

Speaker 3

one of

Speaker 8

the leading EV OEMs in the states and obviously some really good content with a number of folks in Asia. So If you could try to help us break down what your expectations are for the drivers of your automotive business over the next, I don't know, 6, 9 months Relative to some, I would say, fluctuations in unit expectations from some key customers, I'd really appreciate it. Thanks.

Speaker 3

Yes. I these type of products is not like a consumer, it's like a Half years, I can design you out, okay? And it took us a year, okay? It took us years and it took us At least 12 months to work with our customers, the major suppliers, and again, they end up To put in the system and make a production worthy in the working. And that's a long effort.

Speaker 3

And Frankly, I don't really care, Sanjay. I mean, as long as you window socket or you window the projects, and again, The revenue will come. So when is the next 3 months or next 9 months? I don't really know. Okay, I mean, we thought from the last year we thought that last year, middle of this year, we'll start to ramp, but it didn't, Okay.

Speaker 3

And but I think it's next year sometimes that we'll see more and more ADAS And also the tracking the new type of tracking inverters. And so that's Pretty much as just as everybody else expected, okay, All these products that we're ramping up is okay. We'll come we'll go with it.

Speaker 1

And if I can just add to that, that A lot of the customers that are picking up on design wins are Skewed more heavily to EVs that are inviting new technology platforms. And that market has Slowed in unit volumes, as we observed. But the exciting part of this story is that we see that new Platform launches for those customers are in position to ramp in the first half of next year, And we're seeing a proliferation or broadening of those technologies going into more traditional internal combustion or IC Brands. So I think that the automotive market, while it's difficult to time, That our positioning is very secure.

Speaker 3

Yes. Okay. That's a good point. And then the but the ADAS, okay, I mean, There's such a ramp, okay, with we were told at the beginning of the year and at the end of the year, and now we were told the next years. But all of these are new for us in the digital cockpit and also in ADAS.

Speaker 3

And so now they tell us early next year. And Got it. Don't walk and believe it or not. Okay. We're not clear.

Speaker 3

We're saying that.

Speaker 8

Thank you, guys. We I guess my follow-up question, it's not to me the most strategically Important part of your business, but I think it has a lot of different benefits is the consumer market in Asia. And I mean, Bernie Use the cookie jar analogy a number of times over the years and the consumer market got down to a small enough percentage of your revenue. It was, I think there was an intention to potentially really lean in and try to regrow that business, both from a revenue perspective and also gives you a lot of Flexibilities around growth and margins. And maybe the demand environment is not there today to really lean in and regrow that.

Speaker 8

But I just wanted To do a pulse check on the strategy, that's still the intention to regrow that business as a percentage of revenue and you feel like you have the product portfolio to go and do that?

Speaker 3

The strategy is correct, okay? And We will it's demand in the last quarter, I said that that came in as a drop to unhealthy Positions are way too long. And there's a lot of money to be made. And Margin, maybe lower, but it helped the EPS a lot. So the second question is whether we have enough products.

Speaker 3

We did a lot of them in last half years. And other ones will release in next couple of quarters And what next quarter also, and those will turn into revenues in the half year to 9 months' time.

Speaker 1

We remain committed to the consumer marketplace as part of our

Speaker 3

diversification. Absolutely. Okay.

Speaker 8

Thank you, guys. Have a good afternoon. Appreciate it. All right. Thank you.

Operator

Our next question is from Tore Svanberg of Stifel. Tore, your line is now open.

Speaker 4

Yes. Thank you. I just had 2 quick follow ups. First of all, on the buyback, I mean, this is from a size perspective, something that's quite large. And We don't have much history with the company in regards to sites like that.

Speaker 4

So how should we think about the, I guess philosophy with the buyback, you mentioned to offset dilution, but are you going to be opportunistic or are you like other companies where you'll buy the stock regardless of the price. Just trying to understand some of the dynamics there.

Speaker 1

Yes. So, I'd like to comment on that very quickly is that when we looked at Doing the buyback, we were demonstrating confidence in our free cash flow over the next 3 year window. And the goal here is to offset dilution That will naturally occur during that period of time. So we're going to apply A go to market strategy that is both opportunistic, but also programmatic. So we don't have a timetable for how to implement it during that period,

Speaker 2

but it will reflect both

Speaker 1

Existing market conditions as well as a systematic program.

Speaker 3

Well, plenty to imply the buy low, keep it high. Yeah. Okay.

Speaker 4

Yes, that's very helpful. The other follow-up, and I know this is a minor detail, but your lighting control business was up quite a bit in the quarter. Was that mainly because of notebook or was there something else going on there?

Speaker 3

Lighting business?

Speaker 1

I'm sorry, you broke up a little bit. Were you talking about Storage and Computing?

Speaker 4

No, no, no. So you have the lighting control business, but I mean you showed this in your filings. It was up about 20% sequentially. And I was just wondering if that was because of notebook or anything else?

Speaker 3

No. These are decorative lighting. We don't have a lot of consumer business anymore. These are but these are small numbers. And like I mean, I don't know specifically, but I do know we don't have a lot of consumers because these are really, really Low price.

Speaker 3

So these are industrial lightings and decorative lighting.

Speaker 1

Yes. I apologize, Tore. I think that you broke up and we missed To the heart of your question, which end market? Lighting. Yes.

Speaker 4

You have a lighting Control versus DC to DC, right? So lighting control, it increased by $4,500,000 sequentially. It was up 20%. It's a $100,000,000 annual business. I mean, it's not trivial, but obviously small in the biggest scheme of things.

Speaker 1

Yes. Okay. Yes. Again, Michael addressed it, that it's a general market up. I don't know Specifically, but that's the market where we're in, okay?

Speaker 1

We will position ourselves, okay,

Speaker 3

not in specifically in the consumer and

Speaker 1

High volumes and also it's in automotive as well.

Speaker 3

Great. Fair enough. Yes. Yes. You're right.

Speaker 3

Okay.

Operator

If there are any follow-up questions, please click the raise hand button. As there are no further questions, I would now like to turn the webinar back over to Bernie.

Speaker 1

Just in closing here, I'd like to thank you all for joining us for this webinar and look forward to talking to you again during the Q4, Which will likely be at the end of January. Thank you. Have a nice day.

Powered by Quartr
Earnings Conference Call
Monolithic Power Systems Q3 2023
00:00 / 00:00