Monolithic Power Systems Q3 2024 Earnings Call Transcript

Quartr
Provided by Quartr
October 30, 2024

There are 11 speakers on the call.

Operator

Welcome, everyone, to the MPS Third Quarter 2024 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 Bernie Blagen, EVP and CFO and Tony Ballo, Vice President of Finance. Earlier today, along with our earnings announcement, MPS released a written commentary on the results of our operations. Both of these documents can be found on our website.

Operator

Before we begin, I would like to remind everyone that in the course of today's presentation, we may make forward looking statements and projections within the meaning of the Private Securities Litigation Reform Act of 1995 that involve risk and uncertainty. Risks, uncertainties and other factors that could cause actual results to differ from these forward looking statements are identified in the safe harbor statements contained in the Q3 earnings release and in our SEC filings, including our Form 10 ks, which can be found on our website. Our statements are made as of today, and we assume no obligation to update this information. Now I'd like to turn the call over to Bernie Blagen.

Speaker 1

Thanks, Jen. Good afternoon, and welcome to our Q3 'twenty four earnings call. MPS achieved record quarterly revenue of $620,100,000 22% higher than revenue in the Q2 of 2024 30% higher than revenue in the Q3 of 2023. Our performance during the quarter reflected the strength of our diversified market strategy as we experienced improved ordering trends across most end markets and additionally benefited from initial revenue ramps associated with design wins secured in prior years. Let me call out a few highlights.

Speaker 1

Q3 2024 automotive revenue was up 28% sequentially, with improvements in infotainment, lighting, ADAS and body controls. Communication revenue was up 65% from the prior quarter, reflecting new product ramps for Wi Fi, optical, networking and router solutions. Storage and compute revenue was up 25% sequentially on the strength of demand for DDR5 and SSD memory and notebooks. MPS continues to focus on innovation, solving our customers' most challenging problems and maintaining the highest level of quality. In addition, we continue to expand and diversify our global supply chain, which will allow us to capture future growth, maintain supply chain stability and swiftly adapt to market changes as they occur.

Speaker 1

Our proven long term growth strategy remains intact as we continue our transformation from being a chip only semiconductor supplier to a full service silicon based solutions provider. I'll now open the webinar up for questions.

Operator

Thank you, Bernie. Analysts, I would now like to begin our Q and A session. Our first question is from Rick Schafer of Oppenheimer. Rick, your line is now open.

Speaker 2

Thanks. And congrats, you guys. I guess I've got a 2 part question, if I could. The first is on enterprise data. It looks like it was down about 15% sequentially.

Speaker 2

I don't know if you could give some color on that. You know, is that one time in nature or does that reflect a more sustained shift, in that segment as we look into 4Q and then into 25?

Speaker 1

And then my second part of

Speaker 2

my question, I mean, it looked like auto, I know you listed a few of them, Bernie. Automotive, industrial, comms, consumer all look like they were up pretty materially sequentially. So is that how would you characterize those segments, which have sort of been lagging the last few quarters? Do you feel like those have made the turn?

Speaker 1

Sure, Rick. This is Bernie. Let me start with the enterprise data. Sequentially, we were down about 1.5% from Q2. And that a couple of things that we've talked about.

Speaker 1

One is that we don't control our customers' ordering patterns. So as it relates to the current quarter, we did see a different ordering trend than we'd observed in each of the past 6 quarters. And then as far as looking ahead, we've been very open about the fact that as far as supply chain security for our customers, that that's going to require a second or third competitor to be introduced on the share. And so there's a lot of issues here that we've been talking about and that we're managing. But one very important point is that MPS' strength is in the diversity, and we don't try to call out a particular end market's results.

Speaker 1

We try to deliver the company in total. And that's sort of a short term view, but Michael may have a couple comments on longer term view.

Speaker 3

Yes. You probably everybody knows that if you look at the transcript from the last years, we talk about that the market is big and that the market is growing or the AI requirements is growing. And so the customers initially will take the always take the best solutions and to fulfill their needs. And the best solutions and also the speed of the development service, as Bernie said earlier, and that's why we occupied as a pretty large shares. And in the last year, we said that, okay, this market is too big and NPS will be always have best solutions on the in these applications.

Speaker 3

And we will talk we also talk about in the market is bigger, there will be a second or third and a fourth supply to join this segment. And this is the and when would that happen? And we don't know, okay? It happened in the last couple of quarters, okay? And next year, what we see, again, the market is growing very fast.

Speaker 3

We have other ones like SoC side of market segments and that hasn't really ramped up yet or start to ramping. And the other ones like other hyperscale company, cloud computing companies and their own SoCs and their own TPUs, they call it the tensor processes. And those one is still small. We're ramping in the next few quarters. Okay.

Speaker 3

And as Bernie said, NPS in the past, we always emphasize diversity. And we will not be known to be an AI power supply company. Okay.

Speaker 1

And then, Rick, I think you had a question as far as automotive and whether or not the step up that we observed from Q2 to Q3 was more of a broader trend line or if it was a one time event. And this we believe is a step up where a lot of design wins have been waiting in the pipeline for the right opportunity. And so we do believe that specific to us, not a discussion about the broader market, but specific to us that the number of product ramps are expected to come into the stream in the next 2 or 3 quarters.

Speaker 3

Well, again, okay, As we said many, many years ago, there's a lot of new design wins. And when the ramp will take off, we don't know it. Will it be plus minus a year or so? Do we care? We don't.

Speaker 3

Okay. And now all these greenfield products start to germinate. And that's what you see in the revenue today.

Speaker 4

And maybe one more comment just for Rick is that traditionally we've been talking about strength in ADAS, but what you heard Bernie talk about was we saw that strength in automotive across kind of all the segments including infotainment, body controls, really a sign of those sockets that we had won previously now start generating revenue. So it's more broad based within automotive than maybe we talked about previously.

Speaker 2

Thanks for all that color you guys. And maybe right on that point on auto specifically, I realize that this is a broad based pickup and it's basically design win driven as all things are with you guys. But I'm curious specific, I mean, NVIDIA did believe it really well the last year or 2 with Drive, Warren, and I know you guys do power there. So I didn't know if you could talk specifically about China auto, and what content trends look like for you guys there and maybe give a sense of how big China auto is now as sort of a portion of your overall auto segment? Thanks a lot.

Speaker 3

Well, China's again, EV business is booming. And now the tape will offer a little bit and looks like we're booming again. Okay? And we're going the right direction again. Okay?

Speaker 3

And there's a lot of requirements. And the infotainment and the new type of infotainment and also the ADAS. Okay. It's widely adopted in China. And so that's what we see a bigger portion of it is a ramping from China.

Speaker 3

And also, so we see it in the and other than ADAS, okay, we see a lot of other products and will grow in Germany and the U. S.

Speaker 2

Thank you, guys.

Operator

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

Speaker 5

Yes, thank you and congratulations on the record revenue. I wanted to follow-up on Enterprise Data. Obviously, you had 2 very strong quarters first half of the year that took a breather this quarter. But how should we think about that business into the December quarter? And Michael, I know you talked about many new product ramps in 2020 5, but just sort of specifically for Q4, how should we expect that business to perform?

Speaker 3

As far as I know, Q4, we don't lose any shares. And probably it's going in it was the same as forecast. Okay. We don't we can't really tell. And this forecast was given us to us in a few quarters ago.

Speaker 3

And we just fulfill that demand. So we'll have that's what we built for me in the last couple of quarters.

Speaker 1

Yes. And I think as we look to the outlook and the guidance that we provided, really, enterprise data was somewhere in the plus low single digits.

Speaker 3

So

Speaker 1

again, our customers' ordering patterns are really what drives the performance there.

Speaker 5

No, that's very fair. And the one big surprise to me this quarter was communications. I think it was your strongest growth segment this quarter. You highlighted Wi Fi Optical Networking. Could you maybe just give us a little bit more color what's going on there?

Speaker 5

I mean, it does sound like you have some new segments there that you are penetrating especially on the optical side.

Speaker 3

Well, the opticals, okay, is a data converter data communications within the data

Speaker 1

centers, okay, within our reps, okay,

Speaker 3

and that's a portion of it. Okay, within your reps, okay? And that's a portion of it. But that's not all of them, okay? Other one is the new Wi Fi format and start to ramping up, okay?

Speaker 3

That's NPS have a lot of reference designs and that's what we see. It's across the continent, okay. All these projects need to revenue now.

Speaker 1

So I think the outlook for, again, MPS specifically remains very solid. Generally, after you have a big initial stocking in the quarter with a new revenue ramp, it tends to tail off for a quarter, but we see sustainable growth in communications through the first half of twenty twenty five.

Speaker 5

Great. Thank you for the color. I'll go back in line.

Operator

Our next question is from Joshua Buchalter of Cowen. Joshua, your line is now open.

Speaker 6

Hey, guys. Thank you for taking my question. I think in response to Rick's question, you mentioned 2 factors that sort of drove the flattening out of enterprise data being order patterns and second sourcing. I guess could you maybe rank order which one of those had the bigger impact near term? And in particular, as we think about your customers diversifying their suppliers, are you seeing this more on AI accelerator platforms that are already in the market?

Speaker 6

Or is this tied to the newer platforms that are currently ramping? Thank you.

Speaker 1

So I think Michael offered that in Q4, we're not expecting Q3 and Q4 to see share position change. So that was really just trying to acknowledge that that is a function of being the market leader in AI. And then over time, as we see a layering of all these new AI opportunities, Michael referred to the TPUs, which will probably begin to ship late 2020.

Speaker 3

I don't know the TPU is what I remember is a TPU maybe is Google's names, trademarked names. To me, it's a tensor processor.

Speaker 1

Tensor processor.

Speaker 3

Yeah. It's all that's what we mean. And I came to I know it's all related. Some of you refer to this as SoCs. And we have many design we engage with many of our customers in many years ago.

Speaker 3

And those products, okay, is actually we see start to ramp in the last quarter. Yes, okay. Thank you

Speaker 6

for the color. And I realize you've got content in multiple different sockets on many of these accelerator cards. And so my question is going to try to oversimplify it. But how should we think about as we think about some of these new AI accelerator platforms, your content opportunity maybe in relationship to power draw of the actual processors or any other helpful rules of thumbs you can give us as we try to fine tune our models into next year? Thank you.

Speaker 3

Well, Sid, if you believe and if you believe as we believe, our products, our solution is the best and the most power efficient And then the market is bigger. And that portion of our revenue will grow. The rest of the stuff, I don't get we don't care. Just let it happen. Let the numbers speak self.

Speaker 6

Thanks, guys.

Operator

Our next question is from Chris Caso of Wolfe. Chris, your line is now open.

Speaker 7

Yes. Thank you. Good evening. I guess the first question, as we look at your guidance for the December quarter, not a lot changing on a sequential basis. I think you mentioned that the enterprise data will be up low single digits sequentially in December.

Speaker 7

Anything else that you would call out as kind of growing or shrinking different from the average in December? And then following that, given that enterprise data has grown as a percentage of revenue, does that affect seasonality as you look into the March quarter? Is there anything we should be thinking about with respect to the different customer mix as we go into March?

Speaker 1

Sure. If you're looking at Q4 by end market, it's interesting you have some seasonality, but currently we don't believe that any of the end markets are going to change by more than plusorminus mid single digits. So it's a very, very narrow range that we're talking about there. And when we look out into the momentum carried into 2025, obviously, we don't guide beyond Q4, but it has been seasonally down quarter for a lot of companies. But I don't have a view on what that's going to look like currently.

Speaker 7

Okay. Thank you.

Speaker 1

So we

Speaker 3

don't especially, we don't really care. So as long as we have a design we design in we're in the project with our customers. And when those ramps start to happen, our customer, they don't have a clear views. And let those products, okay, let it take its own calls. Let the numbers speak itself.

Speaker 7

Okay. As a follow-up, as you look into next year, the other part of your enterprise data business on traditional server, that's an area that you guys have been favorable on for a while, but I guess you've been waiting for the market to improve. We heard some a little better news from at least one of the CPU vendors this week. Can you give some view of kind of the share content, what you're seeing in that part of the enterprise data business as you go into 2025?

Speaker 3

Yes. These are good questions, okay. I mean, yes, we do see it, okay, and the volumes start picking up. And as we said many, quarter, many years ago, and this was in this rapid software or something, okay? And the VR-four teams, okay, we will pick up shares.

Speaker 3

And that's 13.5, okay, by serendipity of shortages, okay, and we prove we're significant suppliers, okay. And there are 4 teams and what would be a significant one of the big supplier in this rapid sulfide growth.

Speaker 4

And maybe just beyond just the enterprise data segment itself, as you see those ramp, right, they'll pull through other solutions like DDR5 memory continue to be a tailwind in some of the other segments as well. Thank you.

Operator

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

Speaker 8

Great. Thanks for taking my question. Michael, I know you often are involved in some interesting sort of sometimes idiosyncratic growth drivers for the company. I know for some time you were famously tinkering in the automotive end market and sort of searching for more effective solutions than what was available in the market. And I understand your focus has been perhaps more in the home automation market more recently.

Speaker 8

And I wonder if you could talk to us about some things that might be on the come in the next couple of years from the company in that end market.

Speaker 3

Yes. Okay. As you know, it's an NPS that can have a few thousands of products. So we're in lighting. We're in we are in a thermostat and we are in shades controls and we're in all these fan models and security, the window actuators and other window and door open actuators.

Speaker 3

And we're also making MCU now. And those MCU can be a brain of everything while we're just putting the one box. And we're putting one box with the software so that can be in the will sell as a kit. Everything is including it. The key is the ease of use.

Speaker 3

I think this will change the market segment for building automations.

Speaker 8

That's helpful. Maybe as a follow-up, you mentioned your MCUs now, there's another category that you entered relatively recently. You're not really known for it as much, but data converters. I think you hired a team in that area and you had some very good results for initial product maybe in the medical end market. Can you talk about traction in that category please?

Speaker 3

We are growing in that segment. The revenue is still small. As you know, these design cycles are very long. And okay and also the product life cycles, 10, 20 years okay and it will last forever. And those segments win win some industrial site as well as the medical site.

Speaker 3

Okay. And we have as we have more product rolling out as a matter of fact in the next couple of quarters, some family of standard product, we will gain more market shares in this segment.

Speaker 8

Great. Thank you.

Speaker 3

Okay.

Operator

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

Speaker 9

Hi, guys. Thanks for letting me ask a question. I want to go back to the non enterprise data side. I think by my math, it was up about 35%, 36% sequentially. I know you guys have a ton of design wins and you're kind of just waiting on firm to ramp, but the magnitude of that ramp, the diversity of it, and just the commentary that bookings are improving seems to be at odds with the very muted recovery that so many of the peers are seeing.

Speaker 9

So could you just explain, do you think cyclical conditions are getting better or is this a very monolithic power specific dynamic? Any sort of color on that?

Speaker 1

I think, Ross, we're experiencing a little bit of both.

Speaker 3

Can you mute it? Yes. Okay. You can mute it. Yes.

Speaker 3

Okay.

Speaker 1

So Ross, you're asking the difference between growth specific to us and what we're seeing in the market. And in the current quarter, let me go back. The previous quarter, we actually saw improvements in our ordering patterns, but they're not a consistent trend. But what we saw in the current quarter was a lot of new revenue opportunities that we received from design wins secured in previous years that were coming to market now, particularly in communications, particularly in automotive. And then also, we saw an improvement in the overall profile of the memory market.

Speaker 3

Well, as a matter of fact, we see all across the board. Yeah. Other than AI. Other than AI power tonight. And all across the board tonight.

Speaker 9

And how are you I guess as my follow-up, whether it's in the AI side or otherwise, a lot of supply has been added to the market over the last couple of years to address shortages, etcetera. And so a fear people have is that pricing pressure is going to ensue, whether it's more competition in AI power that you mentioned earlier or just a more aggregate holistic increase in pricing pressure. Are you guys seeing any evidence of that?

Speaker 3

Well, our competitors, also some of the Chinese suppliers, they always want to lower the price and to getting the market to getting the socket, okay? That's not the game we played. And so a lot of our customers, they don't change those socket. Don't they don't change our products can swap out in the gate in and quickly. And those kind of things is a and also to Louis emphasize diversity is not in a one segment has a dynamic and a lot of shipments and and like a lot of volumes going into the one particular applications.

Speaker 3

And for example, like AI. And we will provide some values. Our value is the highest performance. And all the other products that came in let our customers choose. And so the history telling us, history showed and as long as we operate in the same principles and the revenue will keep growing and growing the same way.

Speaker 3

And we see next couple of years, especially next years, we see all these products will grow. And now we just see the first sign of it and all these design wins turning into the revenue now.

Speaker 9

Thank you.

Operator

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

Speaker 10

Hey, guys. Thanks for taking my question. I guess, first to start off, I think it was for the first time ever in your June 10 Q, you guys disclosed a 10% plus customer. Disclosed a 10% plus customer. And I'm wondering, I know you haven't filed the Q yet, but if that's going to be an ongoing disclosure, would you be able to provide us if you had any 10% customers in the June sorry, September quarter?

Speaker 10

And if so, what percent of revenue was that customer?

Speaker 1

So Quinn, the what you're referencing is basically revenue exposure by direct customer and indirect. And when the customer hits a certain threshold according to the SEC guidelines, we need to put a reference to that. But we never put in

Speaker 3

a name out there. No, no, we do not. Yes. This time, we will have still have a one customer is bigger than 10%. Yes.

Speaker 3

As a Bernie, you can check that number. It's not getting there. Is that about right? So only 2 customers and above 10%.

Speaker 10

Okay. And we'll get percentages in

Speaker 3

the queue.

Speaker 1

It's 1 or 2.

Speaker 3

I believe it's a one. Okay, Bernie can check that. No, it's only 1. 2 will be very big. I don't believe numbers.

Speaker 3

We don't.

Speaker 10

Yes. Okay. The second question is, I know you don't want to guide to 2025 yet.

Speaker 3

Hold on a second. Tony, could you Check that? Yeah. Could you check that as a 1 or 2? So now I think the second one is a is a less than less than 4%.

Speaker 4

Yes. I'll I'll check it. Give me 10 seconds so I'll get back to you.

Speaker 3

Yeah. Yeah. So we are okay. This had to be on our record. And then let's make it clear.

Speaker 3

Go ahead. Okay.

Speaker 10

Yes. Maybe while we're waiting for Tony, my second question was, I know you're not going to sort of give us specific guidance out to 2025, but the Street is looking for continued pretty strong growth in the enterprise data segment. I know you've talked about lots of crosscurrents in terms of expecting some additional competition to enter that market, some pricing pressure at existing customers, but you also have the ASIC designs that start to ramp next year. The Street's kind of looking for that business to hit almost $1,100,000,000 in revenue. And just wondering is that given your crystal ball, is that sort of a reasonable expectation?

Speaker 10

Do you think that we should be tempering expectations for that segment, given some of the crosscurrents you've mentioned? Or do you want to just kind of keep it 1 quarter at a time?

Speaker 3

Yes. I can tell very confidently we will be okay, let's say that. And when this market when this AI market is turning to like a regular server market, NPS will be a significant player in that. And now this is it's not become a what do you call it, a reach to equilibrium rates yet.

Speaker 2

Not a run rate.

Speaker 3

Not a run rate. Not a yes. This is still ramping up. And it's when this segment is ramping, when you start to ramping, it's kind of lengthy. You don't see this thing, okay?

Speaker 3

You don't see you can't keep going forever like the first 2 since last year and the first couple of this quarter, like our first couple of quarter in this year, okay? And next and so to answer your questions for next year, clearly, we have a lot more customers. I said earlier, we'll start to ramping those design will turn into those design will turn into revenues.

Speaker 4

Michael, just to circle back, relative to disty, we'll call out 2. For direct, we'll call out 1.

Speaker 1

Okay. That's a direct customer, not a disty?

Speaker 4

So we'll call 1 direct. We'll call out multiple distys as far as 10%.

Speaker 3

Yes. Yes. Right. Well, disty, we never come to Danson, okay, because all the reporting, we that's in the reporting. All the design creation, all the exposures for the end customer is only 1.

Speaker 3

The next one is, I believe, is a lessened lessened. It's about definitely is below 5%.

Speaker 10

Yes. Got it. Thank you, Michael. Thank you, Vernon. Okay.

Operator

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

Speaker 5

Yes, thank you. I had a similar question to Quinn, but thinking more about vertical power. So enterprise data this year more than $700,000,000 I assume the contribution from vertical power is still quite low. And if that's the case, as the market does transition to vertical power, could we see this market base basically even accelerate over the next few years?

Speaker 3

Absolutely. Not in the next few years, next few

Speaker 1

quarters.

Speaker 3

Yes. As we said, we are playing the power module market segments since 2017. And all these technology, all these manufacturing capabilities that will really benefit for these vertical powers. And as speaking, now we are shipping those products in good volumes.

Operator

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

Speaker 9

Hi, guys. Let me thanks for letting me get a little follow-up snuck in here. Inventory, I know, Michael, you and I have laughed about that many times since like we've had.

Speaker 3

That's my favorite question.

Speaker 9

There you go. Yeah. In this instance, internal inventory came down by a lot days wise. What did external channel inventory do? How are you looking at that?

Speaker 9

Was some of that 35% sequential growth that I referred to in my initial question a little bit ago inventory fill or is the channel staying lean?

Speaker 1

No, the channel is staying lean. In fact, our total days went down in the quarter.

Speaker 3

Well, we want to this is not good. We want to build up. And as always, we build inventory and it's not synced with the market demand. And you see our Ross, okay, you're the expert of NPS inventory. If you checked back our inventory levels, It's the opposite of the market demand.

Speaker 3

And now the market, it brings for NPS now, it's very high. So the inventory is low. And but we don't think that we're going to reign into a shortage issue, Sunaket. But it's at the inventory levels, it's uncomfortable levels.

Speaker 9

Got you. And I guess just to clarify, Bernie, when you said total inventory actually went down, you mean just total channel inventory days fell essentially? Yes, channel inventory. Yes,

Speaker 3

channel inventory is also low. Yes.

Speaker 9

Got it. Okay. That's it. Thanks, guys.

Operator

This now concludes our Q and A session. I would now like to turn the webinar back over to Bernie.

Speaker 1

Thank you. I'd like to thank you all for joining us for this conference call and look forward to talking to you again in our Q4 conference call, which is likely to be in early February. Thank you. Have a nice day.

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