Bernie Blegen
Vice President and Chief Financial Officer at Monolithic Power Systems
Thanks, Jen. MPS achieved record third quarter revenue of $323.5 million, 10.3% higher than revenue in the second quarter of 2021 and 24.7% higher than the comparable quarter in 2020. Looking at our revenue by market, third quarter 2021 industrial revenue of $52.2 million increased 20.5% from the second quarter of 2021, due primarily to increased revenue for industrial meters and power sources. Industrial revenue represented 16.1% of our total third quarter 2021 revenue. Third quarter 2021 communications revenue of $44.7 million was up 19.3% from the second quarter of 2021, primarily due to increased infrastructure demand. Communication sales represented 13.8% of our total third quarter 2021 revenue. In our computing and storage market, third quarter revenue of $98.6 million increased $10.9 million or 12.4% from the second quarter of 2021. The sequential quarterly revenue growth primarily reflected sales gains in storage applications. Computing and storage revenue represented 30.5% of MPS' third quarter 2021 revenue. Third quarter automotive revenue of $54.4 million grew $5.7 million or 11.7% over the second quarter of 2021. This improvement reflects continued gains in applications for infotainment, lighting and ADAS. Automotive revenue was 16.8% of MPS' total third quarter 2021 revenue.
In our consumer markets, third quarter 2021 revenue of $73.6 million fell 3.3% from revenue reported in the second quarter of 2021. This decrease in consumer revenue reflected lower handset sales. Consumer revenue represented 22.8% of our third quarter 2021 revenue. Third quarter 2021 GAAP gross margin was 57.6%, which was 160 basis points higher than the second quarter of 2021 and 245 basis points higher than the third quarter of 2020. Non-GAAP gross margin for the third quarter of 2021 was 57.8%, 148 basis points higher than the gross margin percentage reported from the second quarter of 2021 and 231 basis points higher than the third quarter from a year ago. Third quarter 2021 gross margin on both a GAAP and a non-GAAP basis included a $4 million litigation settlement. Excluding this onetime benefit, non-GAAP gross margin would have been 56.6%, essentially flat with the second quarter of 2021 and 110 basis points higher than the third quarter of 2020.
Our GAAP operating income was $77.1 million compared to $60.6 million reported in the second quarter of 2021 and $60.0 million reported in the third quarter of 2020. Our third quarter 2021 non-GAAP operating income was $108.4 million compared to $94.9 million reported in the prior quarter and $84.9 million reported in the third quarter of 2020. Let's review our operating expenses. Our GAAP operating expenses were $109.2 million in the third quarter of 2021 compared with $103.6 million in the second quarter of 2021 and $83.1 million in the third quarter of 2020. Our non-GAAP third quarter 2021 operating expenses were $78.7 million, up from the $70.3 million we spent in the second quarter of 2021 and up from the $59.1 million reported in the third quarter of 2020. The sequential increase in Q3 non-GAAP operating expenses primarily reflected in increased spending in R&D for qualifying parts for production and securing foundry capacity. 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 third quarter of 2021, total stock compensation expense, including approximately $922,000 charged cost of goods sold was $31.6 million, compared with $32.1 million recorded in the second quarter of 2021. Switching to the bottom line. Third quarter 2021 GAAP net income was $68.8 million or $1.44 per fully diluted share compared with $55.2 million or $1.16 per share in the second quarter of 2021 and $55.6 million or $1.18 per share in the third quarter of 2020. Q3 non-GAAP net income was $98.6 million or $2.06 per fully diluted share compared with $86.5 million or $1.81 per share in the second quarter of 2021 and $79.4 million or $1.69 per share in the third quarter of 2020. Fully diluted shares outstanding at the end of Q3 2021 were 47.9 million. Now, let's look at the balance sheet. Cash, cash equivalents and investments were $744.5 million at the end of the third quarter of 2021 compared to $672.9 million at the end of the second quarter of 2021. For the quarter, MPS generated operating cash flow of about $117.8 million, compared with Q2 2021 operating cash flow of $96.9 million. Third quarter 2021 capital spending totaled $18.6 million.
Accounts receivable ended the third quarter of 2021 at $79.9 million, representing 22 days of sales outstanding which was two days lower than the 24 days reported at the end of the second quarter of 2021 and 11 days lower than the 33 days at the end of the third quarter of 2020. Our internal inventories at the end of the third quarter of 2021 were $208.1 million, up $30.8 million from the $177.3 million reported at the end of the second quarter of 2021. Inventory at the end of the third quarter of 2021 represented 134 days, which were nine days higher than at the end of the second quarter of 2021.
Historically, we have calculated days of inventory on hand as a function of the current quarter revenue. We believe comparing current inventory levels with the following quarter's revenue provides a better economic match. On this basis, you can see inventory at the end of the third quarter of 2021 represented 135 days, 18 days higher than the 117 days at the end of the second quarter of 2021 and six days higher than the 129 days at the end of the third quarter of 2020. Currently, our inventory levels remain lean. We are working very hard to return inventory to the 180 day to 200 day level necessary to support our future growth. I would now like to turn to our outlook for the fourth quarter of 2021. We are forecasting Q4 revenue in the range of $314 million to $326 million. We also expect the following: GAAP gross margin in the range of 56.0% to 56.6%; non-GAAP gross margin in the range of 56.3% to 56.9%; total stock-based compensation expense of $30.8 million to $32.8 million, including approximately $950,000 that we'd be charged to cost of goods sold.
GAAP R&D and SG&A expenses should be between $107.8 million and $111.8 million. Non-GAAP R&D and SG&A expenses to be in the range of $77.9 million to $79.9 million. Litigation expense is expected to be in the range of $3.5 million to $3.9 million. Interest income is expected to range from $1.0 million to $1.4 million. Fully diluted shares to be in the range of 47.9 million to 48.9 million shares. In conclusion, we are continuing to execute our strategy.
I will now open the webinar up for questions.