Monolithic Power Systems Q1 2023 Earnings Call Transcript

Quartr
Provided by Quartr
May 4, 2023

There are 9 speakers on the call.

Operator

Welcome, everyone, to the NPS First 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 Bladen, Ng, VP and CFO. In the course of today's conference call, 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 Q1 earnings release and in our SEC filings, including our Form 10 ks filed on February 24, 2023, which is 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, R and D and SG and A 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. A table that outlines the reconciliation between the non GAAP financial measures To GAAP financial measures is included in our Q1 2023 earnings release, which we have furnished to the SEC and is currently available on our website.

Operator

Clay 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 Blaggen.

Speaker 1

Thanks, Jen. MPS' 1st quarter revenue

Speaker 2

of $451,100,000

Speaker 1

came in about as expected, 19.4% higher than the Q1 of 2022, but 1.9% lower than revenue reported in the Q4 of 2022. Our results for the quarter were mixed with weaker quarter to quarter demand in our enterprise data and industrial markets, Overshadowing improvements in consumer and automotive. Let's take a quick look at our Q1 2023 revenue by market. 1st quarter 2023 consumer revenue of $63,400,000 increased 19.5% from the Q4 of 2022. 1st quarter 2023 revenue was down 20.8% year over year.

Speaker 1

Consumer revenue represented 14.0% of our Q1 2023 revenue compared with 21.2 percent a 21.2 percent contribution in the Q1 of 2022. Q1 of 2023 automotive revenue of $105,300,000 increased $8,000,000 or 8.2 percent from the Q4 of 2022. This sequential revenue increase was primarily due to continued acceptance of our highly integrated solutions for advanced driver assistance systems, The digital cockpit and lighting applications. Q1 2023 revenue was up 93.1% year over year. Automotive revenue represented 23.3 percent of MPS' Q1 2023 revenue compared with 14.4% in the Q1 of 2022.

Speaker 1

1st quarter 2023 communications revenue of $67,900,000 rose $3,600,000 were 5.6% from the Q4 of 2022. This quarter over quarter increase primarily reflected a modest revenue improvement in 5 gs Infrastructure. Q1 2023 revenue was up 22.2% year over year. Communications revenue represented 15.1 percent of MPS's Q1 2023 revenue compared with 14.7% in the Q1 of 2022. In our storage and computing market, Q1 2023 revenue of 100 And $19,800,000 was essentially flat with revenue recorded in the Q4 of 2022 As declining storage revenue was offset by higher notebook sales.

Speaker 1

Q1 2023 revenue was up 24.1 percent year over year. Storage and computing revenue represented 26.6 percent of MPS's Q1 2023 revenue compared with 25.6 percent in the Q1 of 2022. Q1 2023 industrial revenue of 47 $5,000,000 decreased $8,600,000 or 15.3 percent from the Q4 of 2022. This quarter over quarter decrease was due to lower security and power source revenue. Q1 2023 industrial revenue was down 2.2% year over year.

Speaker 1

Industrial revenue represented 10.5% of our Q1 2023 revenue compared with 12.9% in the Q1 of 2022. In Enterprise Data, Q1 2023 revenue $47,200,000 decreased $21,300,000 or 31.1 percent from the Q4 of 2022 due to broad based weakness in data center spending. Q1 2023 revenue was up 10.9% year over year. Enterprise data revenue represented 10.5 percent of MPS' Q1 2023 revenue compared with 11.2% in the Q1 of 2022. I'd like to share some general business observations.

Speaker 1

During our Two most recent earnings calls, we highlighted that customers were becoming more concerned with near term business conditions And that ordering patterns might oscillate. This behavior continued through the Q1 of 2023. However, we do see order acceleration for products related to artificial intelligence, autonomous driving and power modules And our customer engagement and design win momentum remains strong across all of our markets. Regarding operating expenses, we continue to invest in our operations to support long term growth. In response to customer concerns, we are expanding and geographically diversifying both our global production operations and our R and D activities.

Speaker 1

In summary, we have strong customer engagement, design win momentum, and are continuing to invest for the long term, even though timing of the revenue ramp from our customers remains uncertain. Moving now to a few comments on gross margin. GAAP gross margin was 57.4%, 80 basis points lower than the Q4 of 2022 and 60 basis points lower than the Q1 of 2022. Our GAAP operating income was $124,300,000 compared with $136,900,000 reported in the Q4 of 2022. For the Q1 of 2023, non GAAP gross margin was 57.7%, quarter of 2022.

Speaker 1

This downward pressure on gross margin is expected to continue near term Our non GAAP operating income was $164,100,000 compared to 174 $1,000,000 reported in the Q4 of 2022. Let's review our operating expenses. Our GAAP operating expenses were $134,500,000 in the Q1 of 2023 compared with $130,900,000 in Q4 of 2022. Our non GAAP Q1 2023 operating expenses were 96.0 $1,000,000 up from $94,800,000 reported in the Q4 of 2022. The differences between GAAP and non GAAP operating expenses for the quarters discussed here are primarily stock compensation expense and income or loss from an Unfunded Deferred Compensation Plan.

Speaker 1

For the Q1 of 2023, total stock compensation expense, Including approximately $1,100,000 charge to cost of goods sold was $37,000,000 compared to $35,300,000 recorded in the Q4 of 2022. Switching to the bottom line. 1st quarter 2023 GAAP net income was $109,800,000 or 2 point And $0.26 per fully diluted share compared with $119,100,000 or $2.45 per fully diluted share in the Q4 of 2022. 1st quarter 2023 non GAAP net income was $146,000,000 or $3 per fully diluted share compared with $154,000,000 were $3.17 per fully diluted share in the Q4 of 2022. Fully diluted shares outstanding at the end of Q1 2023 were $48,700,000 Now, let's look at the balance sheet.

Speaker 1

Cash, cash equivalents and investments were $919,100,000 at the end of the Q1 of 2023 compared to $739,600,000 at the end of the Q4 of 2022. For the quarter, MPS generated operating cash flow of about $218,800,000 compared with operating cash flow of $52,200,000 in the Q4 of 2022. Q1 2023 capital spending totaled 8 $900,000 Accounts receivable ended the Q1 of 2023 at $184,300,000 for 37 days of sales outstanding, up one day from 36 days at the end of the Q4 of 2022. Our internal inventories at the end of the Q1 of 2023 were $430,800,000 down from $447,300,000 at the end of the Q4 of 2022. Days of inventory decreased to 204 days at the end of Q1 2023 compared with 212 days at the end of Q4 of 2022.

Speaker 1

Comparing current inventory levels with the following quarter's projected revenue, you can see Days of inventory decreased to 203 days at the end of the Q1 of 2023 from 212 days at the end of the Q4 of 2022. I would now like to turn to our outlook for the Q2 of 2023. We are forecasting Q2 revenue in the range of $430,000,000 to $450,000,000 We also expect the following: GAAP gross margin in the range of 55.9% to 56.5 percent non GAAP gross margin in the range of 56.2 percent to 56.8 percent. GAAP R and D and SG and A expenses between $132,500,000 $136,500,000 GAAP R and D and SG and A expenses to be in the range of $94,900,000 to $96,900,000 This estimate excludes stock compensation expense, but includes litigation expense. Total stock based compensation expense of $38,800,000 to $40,800,000 including approximately $1,200,000 that would be charged to cost of goods sold.

Speaker 1

Interest and other income is expected to range from $3,800,000 to 4.2 $1,000,000 before foreign exchange gains or losses. Fully diluted shares to be in the range of 48 0.6000000 to 49,000,000 shares. In conclusion, while we remain cautious about near term business conditions, MPS will continue to focus on business development and investing in infrastructure as necessary to support our long term growth. We'll now open the webinar up for questions.

Operator

Thank you, Bernie. Analysts, I would now like to begin our Q and A session. Genevieve. Gallegos. Our first question is from Tore Svanberg of Stifel.

Operator

Tore, your line is now open.

Speaker 3

Yes. Thank you. I was hoping you could elaborate a little bit more, Bernie, on your comment about the business conditions Because it sounds like the design win momentum is still very strong, the activity is very strong, but you also sort of added there was uncertainty in certain ramps. Maybe you could elaborate a little bit of that, especially when thinking about the second half, which seems to be a period where the industry could potentially recover.

Speaker 2

Let me answer my Torrey, let me answer the first one, okay? And You look at all these industries, and okay, we it's about servers, computing, Including that's the servers and AI product, that's about 10% of NPS revenue. And we had a hyper we experienced These areas really all the entire company experienced hyper growth, okay, in the last 2 or 3 years. And now the automotives too, okay, we're about 23% of our business, total togethers. And we're it's about 30 some percent.

Speaker 2

And AI, other than okay, and across the board, Other than AI and automotive, and so far, still we experienced still Very heavy demand. Other than that, again, all these design win activities that happened in the last 4, 5 years. And they start to ramp last couple of years and a lot of Because the reason we have all the inventory, we have expanded capacities and we grow much Faster than average. And now that our to answer Your question directly, there's a our customers, all these products during a ramp, they have a pause. Ki.

Speaker 2

And they don't know, okay, what's coming. And the new products, they push out. And So we just calling in a period, which is not bad to me Because in the last 2 or 3 years, we have been in this unsustainable Growth and hyper growth, it's like a 30%, 40% year over year, and that will break the company. And I'm glad to announce, okay, we're coming to back to the normal, okay? I mean, And we will ride this global market uncertainties, And we just adapt as in the past.

Speaker 2

Okay, Bernie, maybe you can add some more detail. Okay.

Speaker 1

And I think Michael has really laid out a very compelling case as far as the growth that we've experienced over the last 3 years And also identifying that the automotive market remains solidly intact, but Particularly in enterprise data with the exception of AI that we are seeing lag in ordering patterns there and general weakness in our other markets. So, I think the thing to reinforce here is that the business model here remains intact. We've built MPS around sustainable growth over the long haul. And right now, we're looking at a quarter Where the end customer demand is not picking up as well as we might have anticipated a quarter or 2 quarters ago, but again, the business model is intact.

Speaker 3

That's great perspective. And as my follow-up, you talked about gross margin coming down very, very moderately Because of higher value inventory, could you talk about how long you expect that to play out and even some ranges? I mean, I assume maybe you'll get to, I don't know, 55%, 56% gross margin. But yes, any color you can give on The how long that lower gross margin would last?

Speaker 1

Sure. And the Good news here is that cycle times and pricing both in the fab and the assembly houses are coming down. And so we'll be able to participate in the lower costs After we burned down the inventory, which is currently at about 203 days, 204 days. So I would expect that We'll see downward pressure on margins through Q2 and Q3 and then perhaps a moderation leveling In and around Q4.

Speaker 3

Yes. Go ahead, Michael.

Speaker 2

Yes. I'm also aware that in clearly, we see We go into a downturn situation, like Amy and We don't know that some segment will grow. NPS is because of very diverse companies and that gave some area would be still good. And in general, the consumers and the gay products and even some notebook may come back in the 2nd year. And the point is I'll try to make is regarding to gross margins.

Speaker 2

And as you know, in the past, When the industry start to slow down, again, NPS will be more aggressive in price And to gain more consumer segment of the market because it can do 6 months later, when you turn the knob, 6 We actively pursue those products. 6 months later, those are fast designing Cycles and you will turn the knobs in the revenues in about 6 months' time. So We care less about the short term gross margins, but the long term gross margins is Still the same. So we emphasize, as you know, in the last 10 years or so, and we'll still pursue those model. And in the consumer segments, We may just focus on the short term to grow the to maintain the growth.

Speaker 3

Makes sense to me. Thank you.

Speaker 2

Okay.

Operator

Our next question is from Quinn Bolton of Needham. Quinn, your line is Now open.

Speaker 4

Hey, guys. Thanks for taking my question. I just wanted to follow-up on Torrey's question. Really, Michael and Bernie, as you look into the second half of the year, That's normally a seasonally stronger period for the company. Obviously, it feels like there are lots of puts and takes, lots of Genevieve.

Speaker 4

The customer is delaying product ramps, but can you give us any sense how you're thinking about the second half of the year? Will you see sort of a normal seasonal uptick in September? Are you thinking September could be flattish with kind of the 1Q, 2Q run rate? Any Any additional color would be helpful just to try to think about this the second half.

Speaker 1

Sure. I think that Right now, normal seasonality still applies. But in our case, it's a little more muted Because so much of our growth in the business is attached to those new product introductions being made by our customers. So, if we look in enterprise data in which our major customers or the products that we're supporting have had product delays. And when you look at other aspects of our business, for example, communications, That's still what I'd refer to as lumpy.

Speaker 1

It's not necessarily trending in a seasonal pattern. So, I think that your comment is very balanced and all I'm tilting is to the new product introductions being delayed, Probably being a larger factor than just seasonality.

Speaker 2

Yes. I think as we can't say really like a normal seasonality anymore, We experienced in the past. And You have some segments grow really well, okay, I mean, in some segments that have hit kind of a bottoms in the last Q3 last year, Q4, especially like a notebook side, again, Now you see it's awakening up. I mean, MPS has one of the orders design as Those are reference designs and like we have the powers, the e power solutions and We'll see, okay, second half, okay, mostly, okay, all the other rest of our business, okay, Other than AI Automotive, we don't we have no clear views. And so That's a short term.

Speaker 4

Understood. Wanted to follow-up on the Enterprise Data segment. Obviously, weaker results, it sounds like some of the Product or customer delays are sort of focused in that segment. Do you still think As the new server cycle ramps that you can get your share of the Vcore, our management market towards 20%, is that still the right opportunity thinking about longer term even if some of those customer programs have pushed out by Somewhat?

Speaker 2

Absolutely, Genevieve. I confidently say that, okay, I mean, because we see all these projects That's not really fully ramped yet. And the all the data centers, okay, clearly, and you guys know better, Now it's slowed down dramatically. I don't know whether they expand over expanded Last couple of years, like Amy and Anau slowed take a pause, okay, we don't have a clear views. And from last quarter to Q1 from Q4, Q1 to now, And they kind of slowed down.

Speaker 1

And if I can add to that, again, using I know that you're focused Right now on the short term as far as the second half of the year, that in the GPU space for artificial intelligence, We have a very senior market share position. And as we look ahead to even the next generation, We're in a very good position to take advantage of the next generation of GPUs. So, we're really still in early stages as far as being able to leverage up our position and expand our share.

Speaker 2

Oh, yes, yes. But that's yes, I didn't add that part. The GPU part in the AI Seitz. We have a current design win and as well as the next design. And the future is that we'll release end of the year or next year's.

Speaker 2

And those were NPS product will ramp to this. Earlier referred to is the All these are data centers, CPU powers, okay, or data center powers overall. And we still have Maybe just if it's not a single digit, just barely double digit market shares. And a lot of from a transition from VR13 to 2014, and it's not completed yet. We won a lot of design wins in the VR-fourteen, and it will turn into a revenue.

Operator

Our next Question is from Matt Ramsay of Cowen.

Speaker 5

Guys, I wanted to ask, I guess, a 2 part question on gross margin. And this is sort of you guys have been Gone from sort of 54, 55, 56 on that steady cadence of 10 to 20 basis points a quarter, and that was amazingly steady. And then during The period of supply demand imbalance, we jumped up to 58 or so. And now we've come back in and you guys Discuss that in the short term. But as you look out over the next 2, 3 years and you think about the strategy to be aggressive and grow,

Speaker 2

and contrast that to some of the

Speaker 5

opportunities that you have, I'll pass that to some of the opportunities that you have for new design wins and higher content. Maybe you could level set us on the long term gross margin. Has anything changed there? And where's the new normal? And I guess the second part of that thought, guys, is have you seen any specific price pressure in any markets As some of your competitors maybe get more supply.

Speaker 5

Thanks.

Speaker 2

Yes. Okay. Let me answer your last part first. Any high volumes, Our customers have multiple suppliers, okay, and we they always have price pressures, Okay. Other than the last 2 or 3 years, other than that and they couldn't ship only the NPS, so Most of our company have struggled shipments, okay, NPS, we have less.

Speaker 2

And So nowadays, all the high volumes as we expected in the last Couple of years, and I can also remember, we didn't talk that much. We introduced new technologies, which is much lower the cost, And that will be a fight. And so to answer that part of the questions, But earlier, I said it, okay, I care less about our gross margin, Lelio, okay, but we're still operating within the models, Okay. We're not dramatically go down. Clearly, it will go down.

Speaker 2

And but In the long term model, to answer your questions of 2 or 3 years out, the business, NPS business is still pretty much intact, and we are focused on those higher values. We're transitioning from IC to solutions to cell solutions. That still remains our focus. Our long term business will go that way And which generates and offers more values and we have higher gross margins.

Speaker 1

Key. And I think just to polish off the comment there is that, as far as our model, we've been operating over the last Several years between 55% and approaching 60% as far as a non GAAP gross margin. And as we introduce these higher value products, they tend to have Higher margins. And what that allows us to do is then manage the mix of business such that we stay within our model. So, while we've sort of anticipated in the near term downward pressure with a flattening here in the next 3 to 4 quarters, We'll continue to look to be opportunistic in managing gross margin to accelerate revenue growth.

Speaker 5

Got it. Thank you for all the detail there, guys. As my follow-up, and I apologize for this being a nearer term question, but with all the different End market volatility. Bernie, if you could help us on your guidance by segment, just the revenue trends that you guys

Speaker 2

It's It's fair to ask a short term question because this is a very uncertain period.

Speaker 1

So I think to sort of make a simple point on it is that Automotive continues to be doing very well. And there it's both the market itself as well as the share gains that we're enjoying. I said earlier that communications is lumpy and the other areas, including storage and Enterprise Data and Consumer and Industrial are sort of flattish for the near term.

Speaker 2

Yes. Well, Also, the storage, okay, I mean, in the AI segments, in the AI segments, In data center, if we that computing segments maybe is flattish, okay. I mean, I think the majority of our revenues has come from still come from servers. You see it in the ramping in the last Ki. 18 months or so.

Speaker 2

And the AI and the total Porsche and AI in the total revenues, in that case, it's still smaller percentage. And The other things I'm pointing out, there's a memory sections, I mean, Puig. The changing in new format and it start to ramp now. And this is the results that were kind of flattish, Okay. And it depends on how fast you ramp up to DDR5.

Speaker 2

MPS Have engaged with all the major memory companies, okay, that we have a design we have a way where we have design wins. And if they ramp up faster, then we will gain we will increase that portion of revenues and it's depend on what the DDR5 ramp up.

Speaker 1

Okay.

Speaker 2

Yes. Matt, are you still there? Our

Operator

next question is going to be from Rick Schafer of Oppenheimer. Rick, your line is now open.

Speaker 6

Thanks. I appreciate all the color so far you guys. Maybe if I could ask one on 48 volt, back on the AI, for the questions. I know you heard you say, Michael, you know curbside burning said it, I think you've said senior market share position there. I'm curious with your primary competitor, in 48 volt apparently struggling.

Speaker 6

I mean, are we at a point now, if we look at 2023, where you guys think you'll likely stay sort of sole source sort of on the A and H100 this here. And I'm just curious as part of that question, I heard you mentioned content there. So is there any color you can give us around what content does as we Transition to sort of more powerful accelerators over time, I mean, is it similar to what you guys have talked about with the move from VR13 to 14 On Vcore Power, where you're talking about going from sort of $50 a comp or something to something like 70 And then finally, Michael, for you, I'm just really curious, are you who else are you seeing out there working on 48 volt power? I mean, it seems to be Pretty solid and growing market.

Speaker 2

Okay. Let me answer my part first, so I'll get it in the phone.

Speaker 1

That's the more fun part.

Speaker 2

From the landscape, I truly, Tanaka and I say, Tanaka, we don't We see some competitions in the game. I think our products remain the best So far. And so that's why we have and We do see some other competitions, okay, maybe as a generation or later, okay, I mean, As that market segment grows and the competition welcomes, I mean, The market is too big for NPS, and we'll welcome other peoples, okay, and we'll welcome our operations. As a matter of fact, that's what we're doing now, okay? And the NPS is not big enough for that market.

Speaker 2

And but we'll be glad to be a leader.

Speaker 1

Yes. And again, reinforcing Michael's Point there is that it actually when we enjoy a leadership position and we expect to continue to, competition is very important As far as driving technology improvements, as far as your other question, as far as dollar content, When we look at the CPU market, generally, we denominated with a dual processor. And so based on that, we're able to offer an expectation of what the average selling price will be for server. With the GPUs, the model is still sorting itself out Where you can have any number of configurations up to and including 8 GPU boards. So it's very it's a little harder to denominate what our dollar content is.

Speaker 1

And again, We're still in the early stages of watching this model ramp. So I think that we'll have enough experience in about 2 to 3 quarters to have a more accurate read on the dollar content, but it is much higher

Speaker 6

5 gs, RAN. I know you guys have said in the past that you're selling to the big three RAN equipment OEMs. I'm just curious how you would describe the ramp there in terms of content, in terms of share. What I'm trying to do is get a sense of how big 5 gs is now This is versus how big it could be for you guys. And just something you mentioned earlier, Bernie, I'm just really curious here is could the ramp in 5 gs Sort of smooth some of that lumpiness you described in your comm segment.

Speaker 6

Thanks.

Speaker 1

Yes. If I was to draw a comparison of our Experience with enterprise data, where we started out with low dollar content and then graduated up the value Chain, including Power Management. We're probably about 3 to 4 years behind in the communications market, where we're still focusing on low dollar content for like point of low knee fuels. Now, where this is about to get very exciting is we are getting adoptions for later designs that include our power management for the processors. So at this stage, we're sort of moving with the market, again, as an early entrant.

Speaker 1

But yes, long term, I do think you're going to see a similar growth profile as what we expect to have with enterprise data.

Speaker 2

Yes. And Admittedly now, I keep saying NPS is a small company, but we're not nobody anymore. And We engage with all these 5 gs makers and it's only handful Of a company, as speaking now, we're in the process of signing on the contract now. And so all of these, okay, and it's just a matter of time.

Speaker 6

Thanks for the color.

Speaker 2

Yes.

Operator

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

Speaker 4

Hi, guys. Can you hear me?

Speaker 2

Yes. We have a high inventory, yes. We are admitted, okay, Ross.

Speaker 7

How about the channel inventory? We've heard a bunch of companies talk about the channel coming down and that's a headwind of revenue growth. I know you guys proactively manage that, So you put it on your own balance sheet, but what's the channel looking like?

Speaker 2

It's also on the high side.

Speaker 1

About 3 quarters ago, We saw an increase in channel inventories and they've remained at about that same level. So, there isn't any real new news as For the sell through characteristics.

Speaker 7

Is that something that's weighing against your revenue right now? Or are you comfortable running at that relatively higher level?

Speaker 2

No, we want it lower. And we want it lower, and that gave me in particularly in the first And a lot of customer threatens and get much higher volumes, okay? That's why we shipped. And Now, they have a break. And so as a result, inventory didn't decrease that much in the channel.

Speaker 7

So it went down on your books more so than in the channel?

Speaker 1

Yes. The way to look at another Back to this is that the inventory in the channel, it depends on what our end customers' lead times are. And as we even commented on in the prepared comments, we're seeing a very unusual Demand pattern in that we have 3 areas where we're seeing an acceleration As far as the ordering pattern, but they're doing it with a very an expectation of having a very short lead time. So, as Michael said earlier, that the channel is built up in the anticipation that the customers were going to realize The sales gains with the new products, but as those have been pushed out, that's left us in this position. So, we're going to continue to manage the channel as we always have.

Speaker 1

But right now, as I said, it's at an elevated level.

Speaker 2

Got it. And then one on

Speaker 7

the gross margin for you, Bernie, when you talked about the headwinds for it, we see this across the board. So I don't think it's anything particularly different for monolithic. But The one thing you didn't mention was mix. I get that you're carrying higher cost inventory and it takes a while to flush through. But as you go opportunistically Into the consumer market, is that rising as a percentage of sales something that is also weighing against gross margins?

Speaker 7

And if so, when do you think that will Kind of normalized as a percentage of sales, if not decrease.

Speaker 2

Yes, you can see it as a normalized because the consumer market hasn't happened yet. We reduced the way down the Consider it down to the big percentage now, okay. And mostly it's a high value inventory.

Operator

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

Speaker 8

Great. Thank you for taking my questions. Regarding something you just spoke about a moment ago, You spoke about elevated inventory and push outs of projects. I think obsolescence risk is relatively small for Monolithic, but maybe you can reassure us on that matter?

Speaker 1

Absolutely. Actually very helpful question. If you look at our history, we've never had a significant inventory write off. And a lot of the reasons around that is that our products have long life in the market And Long Shelflife. So, we're actually if you look back at 2019, We built up inventories and we're able to capitalize when the market bounced back in 2020 and particularly when the pandemic Infusion of capital occurred.

Speaker 1

So, we don't see inventory on our balance sheet as a negative. And in fact, when the markets do get more stabilized, particularly in enterprise data And in storage and computing, I think we're well positioned to take advantage of that uplift.

Speaker 8

Great. And then I'd just sort of ask a double question about supply and your supply base. Other analog companies have talked about how their foundries are absolutely not cutting cost and they never see it happening. But you've highlighted this trend in your business. Is it because you're on more advanced nodes and so that's just how sort of pricing in that market works?

Speaker 8

And then maybe you could also comment on the manufacturing plan, both in terms of long term capacity and geographic diversity. Thanks, guys.

Speaker 2

Yes. We you know that, okay, we advance our technology every 2 or 3 years. And it's we're relentlessly cutting the cost and utilize the better technologies, okay, better Geometry is in that game. And the fab now, the last 3 years, the fab cost in that game is not lower, it's higher As a matter of fact, but we utilize the geometries and also the new technologies that we implement, we'll be able to lower the cost. And so the other Question that you're making is diversified manufacturing.

Speaker 2

So, okay, We anticipated that, again, we announced that we have a new partnership, okay, outside of China, That's in Singapore, and we will continue to do so. But really outside of that, there is no U. S. Manufacturing for our For our application for our product, I mean, it's all resides in Asia's careers in the Southeast Asia. And with in all our module business, We can do it from outside outside of China.

Speaker 1

Thanks, guys.

Operator

As there are no further questions, I would now like to turn the webinar back over to Bernie.

Speaker 1

I'd like to thank you all for joining us for this Q1 2023 earnings webinar. I look forward to talking to you again during our Q2 conference call, which would likely be in July. Thank you. Have a

Speaker 2

nice day.

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