Monolithic Power Systems Q3 2021 Earnings Call Transcript

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Provided by Quartr
October 27, 2021

Key Takeaways

  • MPS reported record Q3 2021 revenue of $323.5 million, up 10.3% sequentially and 24.7% year-over-year on continued end-market demand.
  • The computing and storage segment led growth with 12.4% QoQ increase, while industrial (+20.5%), communications (+19.3%) and automotive (+11.7%) also expanded; consumer declined 3.3% QoQ due to handset charger inventory.
  • Gross margins expanded to 57.6% GAAP (57.8% non-GAAP), up 160 bps and 148 bps versus Q2, driven by higher-margin products and pricing stability amid supply constraints.
  • MPS generated strong operating cash flow of $117.8 million in Q3, ending the quarter with $744.5 million in cash and investments and continued to bolster inventories to support future growth.
  • For Q4 2021, the company guided to revenue of $314–326 million, GAAP gross margin of 56.0–56.6% and non-GAAP gross margin of 56.3–56.9%, reflecting sustained demand across key markets.
AI Generated. May Contain Errors.
Earnings Conference Call
Monolithic Power Systems Q3 2021
00:00 / 00:00

There are 10 speakers on the call.

Operator

Welcome everyone to the MPS Third Quarter 2021 Earnings Webinar. Please note that this webinar is being recorded and will be archived for 1 year on our Investor Relations page at www.monolithicpower.com. My name is Genevieve Cunningham and I will be the moderator for this webinar. Joining me today are Michael Singh as CEO and Founder of MPS and Bernie Blagen, VP and CFO. During this webinar, we will discuss our Q3 2021 financial to results and guidance for Q4 2021, followed by a Q and A session.

Operator

Analysts, You are currently muted. If you wish to ask a question during the Q and A session, please click on the participants on the menu bar and then click the raise hand button. 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. Risks, uncertainties, and other factors that could cause actual results to differ are identified in the Safe Harbor statements contained in the Q3 2021 earnings release and in our SEC filings, including our Form 10 ks filed on March 1, 2021, and our Form 10Q filed on August 9, 2021, which are accessible through our website, www.monolithicpower.

Operator

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, interest and other income, net income and earnings on both at 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 earnings release, which we have filed with the SEC. I I would refer investors to the Q3 2020, Q2 2021 and Q3 2021 releases, as well as to the reconciling tables that are posted on our website.

Operator

Now, I would like to turn the call over to Bernie Blaken.

Speaker 1

Thanks, Jen. MPS achieved record 3rd quarter revenue of $323,500,000 10.3% higher than revenue in the Q2 of 2021 and 24.7% higher than the comparable quarter in 2020. Looking at our revenue by market, Q3 2021 industrial revenue of $52,200,000 increased 20.5% from the Q2 of 2021 due primarily to increased revenue for industrial meters and power sources. Industrial revenue represented 16.1 percent of our total Q3 2021 revenue. 3rd quarter 2021 communications revenue of $44,700,000 was up 19.3% from the Q2 of 2021, primarily due to increased infrastructure demand.

Speaker 1

Communication sales represented 13.8% of our total Q3 2021 revenue. In our computing and storage market, 3rd quarter revenue of 98 point and $6,000,000 increased $10,900,000 or 12.4 percent from the Q2 of 2021. The sequential quarterly revenue growth primarily reflected sales gains in storage applications. Computing and storage revenue represented 30.5 percent of MPS' Q3 2021 revenue. 3rd quarter automotive revenue of $54,400,000 grew $5,700,000 or 11.7 percent over the Q2 of 2021.

Speaker 1

This improvement reflects continued gains in applications for infotainment, lighting and ADAS. Automotive revenue was 16.8% of MPS's total Q3 2021 revenue. In our consumer markets, Q3 2021 revenue of $73,600,000 fell 3.3% from revenue reported in the Q2 of 2021. This decrease in consumer revenue reflected lower handset sales. Consumer revenue represented 22.8% of our on Q3 2021 revenue.

Speaker 1

Q3 2021 GAAP gross margin was 57.6%, which was 160 basis points higher than the Q2 of in 20.21 and 2.45 basis points higher than the Q3 of 2020. Non GAAP gross margin for the Q3 of 2021 was 57.8 percent, 148 basis points higher than the gross margin percentage reported from the Q2 of 2021 and 231 basis points higher than the Q3 from a year ago. Excluding this one time benefit, non GAAP gross margin would have been 56.6%, essentially flat with the Q2 of 2021 and 110 basis points higher than the Q3 of 2020. Our GAAP operating income was $77,100,000 compared to $60,600,000 reported in the Q2 of 2021 $60,000,000 reported in the Q3 of 2020. Our Q3 2021 non GAAP operating income was $108,400,000 compared to $94,900,000 reported in the prior quarter and $84,900,000 reported in the Q3 of 2020.

Speaker 1

Let's review our operating expenses. Our GAAP operating expenses were $109,200,000 in the Q3 of 2021, compared with $103,600,000 in the Q2 of 2021 $83,100,000 in the Q3 of 2020. Our non GAAP Q3 2021 operating expenses were $78,700,000 up from the $70,300,000 we and up from the $59,100,000 reported in the Q3 of 2020. The sequential increase in Q3 non GAAP operating expenses primarily reflected an increased spending in R and 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 an income or loss on an unfunded deferred compensation plan.

Speaker 1

For the Q3 of 2021, Total stock compensation expense, including approximately $922,000 charged cost of goods sold was $31,600,000 compared with $32,100,000 recorded in the Q2 of 2021. Switching to the bottom line, Q3 2021 GAAP net income was $68,800,000 or $1.44 per fully diluted share, compared with $55,200,000 or $1.16 per share in the Q2 of 2021 and $55,600,000 or $1.18 per share in the Q3 of 2020. Q3 non GAAP net income was $98,600,000 or $2.06 per fully diluted share, compared with $86,500,000 or $1.81 per share in the Q2 of 2021 in $79,400,000 or $1.69 per share in the Q3 of 2020. Fully diluted shares outstanding at the end of Q3, 2021 were $47,900,000 Now let's look at the balance sheet. Cash, cash equivalents and investments were $744,500,000 at the end of the Q3 of 2021 compared to $672,900,000 at the end of the Q2 of 2021.

Speaker 1

For the quarter, MPS generated operating cash flow of about $117,800,000 compared with Q2, 2021 operating cash flow of $96,900,000 3rd quarter 2021 capital spending totaled $18,600,000 Accounts receivable ended the Q3 of 2021@79,900,000 representing 22 days of sales outstanding, which was 2 days lower than the 24 days reported at the end of the Q2 of 2021 and 11 days lower than the 33 days at the end of the Q3 of 2020. Our internal inventories at the end of the Q3 of 2021 were $208,100,000 up $30,800,000 from the $177,300,000 reported at the end of the Q2 of 2021. Inventory at the end of the Q3 of 2021 represented 134 days, which were 9 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.

Speaker 1

On this basis, you can see Inventory at the end of the Q3 of 2021 represented 135 days, 18 days higher than the 117 days at the end of the Q2 of 2021 and 6 days higher than the 129 days at the end of the Q3 of 2020. Currently, our inventory levels remain lean. We are working very hard to return inventory to the 180 to 200 day level necessary to support our future to growth. I would now like to turn to our outlook for the Q4 of 2021. We are forecasting Q4 revenue in the range of $314,000,000 to $326,000,000 We also expect the following: GAAP Gross margin in the range of 56.0 to 56.6 percent.

Speaker 1

Non GAAP gross margin in the range of 56.3% to 56.9%. Total stock based compensation expense of $30,800,000 to $32,800,000 including approximately $950,000 that we'd be charged to cost of goods sold. GAAP R and D and SG and A expenses should be between $107,800,000 111,800,000 Non GAAP R and D and SG and A expenses to be in the range of $77,900,000 at $79,900,000 Litigation expense is expected to be in the range of $3,500,000 to $3,900,000 Interest income is expected to range from $1,000,000 to $1,400,000 fully diluted shares to be in the range of 47,900,000 to 48,900,000 shares. In conclusion, we are continuing to execute our 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 comes from Tore Svanberg of Stifel. Tore, your line is now open.

Speaker 2

Yes. Thank you and congratulations on these continuous stellar results. First question and not to sort of pick on segments here, but your consumer Segment was down sequentially. And you talked about cell phone. I wasn't aware when I think Power had that much exposure to cell phone.

Speaker 2

Is this mainly on Charter side or you know anything else there that we should be aware of?

Speaker 3

Tore, yeah I think it is on the on the charger side and we do these fast charging and we picked up some revenues in the last few years in those cell phone companies and as They thought that they can have a more more adoption in the market. So they have some inventories, but these are usual We are charging a phone, so I mean, it's still not very popular.

Speaker 2

Great. Thanks for clarifying that. And as my follow-up, you have a luxury No problem now. You have about $0.75 billion in cash on your balance sheet. I know you're out there trying to secure more capacity.

Speaker 2

So first of all, could you update us on where you are on securing capacity, especially for the next few years? And related to that, will you start to use some of that cash more aggressively to potentially buying more equipment You know, as you continue to obviously show very strong growth. Thank you.

Speaker 3

All right. Let me ask Answer the first part first. It is The expansion is still on track, okay, and fab issues we don't have, we have less fab issues. And we came we're on the way to expand our capacity In the sometimes in the middle of the next year's to about over $2,000,000,000 supporting $2,000,000,000 sales. But the same time, we do have to buy more equipment for testing, for qualifications and also we need to hire more people.

Speaker 3

And as you know the qualified each part it takes time and the revenues there, The second part is On the other hand, the investor, our shareholder investors and are very critical about Criticize in the past our spending Okay, I mean, we're out of, we're slightly out of our model now. Okay, I mean, we spend money or we're being a lot more careful. But the opportunity is there, but we do more sensibly.

Speaker 1

Yeah, and I think if I can just add to Michael's comment there, Is that, as far as the model that we've always pursued, it was to have our fab partners and our assembly house Partners absorb much of the capital required in order to build up capacity and that remains, our being as a fabulous company. So nothing has changed in our model. We're just adapting it to this rate of growth that We're enjoying right now.

Speaker 2

Thanks again. I'll go back in line.

Speaker 1

Okay.

Operator

Our next Question is from Matt Ramsay of Cohen. Matt, your line is now open.

Speaker 4

Thank you very much. Good afternoon, everybody. For my first question, Michael, I wanted to ask about a couple of the different computing markets That you guys have products to support. The first one, I think you could, I don't know, from my perspective, you could kind of drive

Speaker 3

a bus

Speaker 4

through What different PC expectations are for next year? And I wonder if you might Touch on what rough percentage, Bernie, of revenue might come from the notebook market and what your underlying planning assumptions are on the See market for next year. And I guess in contrast to that, Intel is launching Sapphire AMD is launching Genoa next year. What kind of a tailwind from a content perspective could those upgrades in the server market be? And then I have a follow-up.

Speaker 4

Thanks,

Speaker 3

Okay for the notebook size obviously we gained some Some market shares in a high end notebook. And these are after the pandemic, Well, still the tail end of a pandemic and we increased quite a bit of a market and but the story there is not it's not just we're gaining that's all we can get. We as we increase our new generation but of technologies that's in place and we will further reduce the cost and we will adjust the high end of our Answer your question, Sonaeke. And on the server side, we are still a Very, very small players. There's a lot more room for NPS to gain.

Speaker 1

Yes. And I don't think that we've ever specifically broken out what percent of the group's revenue is It's tied to any one of the categories that we track. But I think we have been clear that in each of the last two years That the growth in notebooks has outpaced the rest of the sectors including server and storage. Now having said that, one of the things that we're benefiting from is the diversification of how we're positioned in this group. As Michael indicated, we are a relatively small player when it comes to on core power management for servers, and we believe that with both the next generation of Intel and AMD processor Releases that we stand to benefit from market share gains.

Speaker 1

And in the more near term As we called out in Q3, we're actually seeing a nice increase in Storage sales, which is usually a precursor to ongoing infrastructure spending within the data centers. So I think that We're having as great difficulty as anybody in understanding when work from home or work from work as it relates to notebooks Begins or ends, but I think that we're well positioned because of our diversification to enjoy continued growth in this Category for a number of years.

Speaker 3

Let me go back to the notebook side that I can, I think that part of the question I didn't We're still facing shortages and still a lot of demand in the notebook side and We don't see SITA and we see revenues from in the middle of next year?

Speaker 4

Got it. Thank you very much for all that commentary, guys. Just a quick couple of things on gross margin.

Speaker 1

Okay.

Speaker 4

1, Bernie, the one timer that was in Q3, any particular reason you didn't pull that out of the non GAAP number? And secondly, with the pricing environment that we're feeling today, how do you guys think about price increases going forward relative

Speaker 1

I'll take the first half of that question real quickly, and then Michael will give comments on the second. As far as how we try to Manage GAAP and Non GAAP Reporting is really to be a reflection of what is cash. And in this case, we highlighted that there was a settlement, and that was a cash payment, that we received. And so that's the thinking behind not adjusting it as a non GAAP item. Conversely so, if we have something that works to our detriment and it also has cash implications.

Speaker 1

We wouldn't non GAAP that out either. So the The two areas that we stay pretty closely to or 3, I should say, are only stock comp, Gain and loss from a deferred comp plan and if we have any intangible acquisition amortization.

Speaker 3

Okay, the second part is how it affected our gross margins on the current supply Shortages, okay, I mean, as I said, all these new, well, Let me say this, yes, we do see the cost increase and fortunately And all the product that we released, again, the market shares, as you know, all these greenfield products, We started gaining momentum a couple of years ago and these all have a higher margins. And our customers give us a very long term forecast commitment and we honor those. We can absorb some in Some of the cost and because the way these products have a much higher margins. So during this time we value the customer relationship and we don't gouge price.

Operator

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

Speaker 5

Thanks for letting me ask a question. Congrats on continued strong reports and guides. One question on an end market. The communication side, Bernie or Michael, you guys said that that was up because of infrastructure. That's been a really choppy market for you guys between the infrastructure side going on and off And then, the kind of the access side, could you just talk a little bit more about what you meant by the infrastructure side?

Speaker 5

And is that the start of something That's going to continue or should you expect that segment to continue to be lumpy going forward?

Speaker 3

Well, Ross, you know, we're transitioning from these Wi Fi routers and those 2 more in a Real infrastructures and like I mean in the data centers, These are communication between the data centers and the switchers and even towers. So as you know the last year's our customers are pulling a lot of revenues in This time we see all the other things going like 5 gs and including commercial Wi Fi And we are in a we played a critical role on these in these areas and we see the expansions and we will see further I'll continue to explain in the next few quarters.

Speaker 1

Yes. I think we remain very optimistic about our long Firm positioning within the communication sector and in particular infrastructure as it relates to 5 gs. But I think that right now we have not hit a constant investment cadence on the part of the Carriers in either Europe or North America. So we think that as that starts to gain momentum and gets more predictable, We're very well positioned to participate in that.

Speaker 5

Thanks for that color. I guess as my follow-up, seasonality versus This kind of cyclicality and or supply driven moves. Obviously, your Q4 has guided a bit better than your traditional seasonality, kind of flattish this year, but how are you thinking about that as we go into next year and beyond? Is it mainly going to be driven by Product cycles you have in short supply and aggregate, so those would be big tailwinds? Or do you believe seasonality is going to become a framework that's something that Investors should consider as we go into 2022.

Speaker 3

Well, Virost, you see the this market is Strong market and they came in a lot of demand is everywhere and they came in also constrained by the suppliers and we do have delinquencies and that mean and that but We're facing delinquency for many quarters. For I think we still have the my opinion is that we still have the Some kind of a seasonality in 4th quarters and because all these holidays all these issues and It will kind of affect us and so we see As I said earlier, we still demand still very strong. We're just cautious and we are on our guidance.

Speaker 1

And just to add to that is that Right now, what we are continuing to do is investing in expanding our capacity because we do believe that This robust demand that we're experiencing will continue and we want to be able to participate, Optimize to the best of our ability, this growth opportunity.

Speaker 3

Okay. Let me clarify the shortages. Okay. All these what I mean is shortage is that we have a few thousands products and always have some mixed issues. And as we don't have a series, we don't have fab capacity issues And but all these are mixed and for particular product, Products have a facing shortages announcement.

Speaker 3

And as we transfer to a different fab, it just takes time to qualify.

Speaker 5

Got it. Thanks

Speaker 3

guys. Okay.

Operator

Our next question is from Alex Vecchi of William Blair. Alex, your line is now open.

Speaker 6

Hey Congratulations on the strong results. Maybe just to piggyback on Ross' question a little bit with Melanie, can you give a little color on how we should think about the sequential growth by end market for for Q4 in terms of maybe strongest end market to weakest.

Speaker 1

Sure. So when you look at Q4, I think that the 2 primary drivers are going to be computing and in continuation of automotive. And then you would normally expect and we expect to see a slight downturn in consumer. So I think Many of the trend lines that we're familiar with are continuing and ongoing, but the amplitude might be a little up or down from what the traditional seasonality has been.

Speaker 6

Great. That's helpful. And then Similarly, I think on the communications line as well, over the last couple of quarters, I believe you guys have pointed To ramp up that Tier 2 5 gs OEMs, how should we be thinking about the Opportunity eventually, maybe next year to crack into a Tier 1, or just generally how to think about How are you positioned there geographically?

Speaker 3

Yeah. We are designing all in all Tier 1s now and we are so small still in this big growing market segments. As you know when we don't have anything in 4 gs and we expect There will be a significant players in

Speaker 1

there.

Speaker 6

Okay. That's helpful. With that, I'll go back in Thank

Speaker 3

you. Okay.

Operator

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

Speaker 7

Hi, guys. Let me offer my congratulations. Michael or Bernie, I guess I wanted to I know there have been a lot of disruptions in Southeast Asia, More on the package and test side. Wondering if you could just, say whether or not you have any exposure to Malaysia Subcons and Whether that affected your ability to ship or receive products here in the Q3 or in the Q4 Looking forward.

Speaker 3

Yeah, it's not so much and affected that maybe some Some products not gaming, because we controls a lot of our the new product, we controls our own package Technologies and so we always qualify in a in different locations. So we came in The Southeast Asia problems and okay we can go through it. We didn't have that much of issues.

Speaker 1

Correct and either Q3 or Our outlook for Q4.

Speaker 3

Yes.

Speaker 7

Got it. My second question just on the supply chain is, it sounds like from your comments You're not seeing some of the fab constraints that you'd seen earlier and By 30,000,000 sequentially. I guess my question is, as that capacity comes online, as you ramp inventory on And do you think that that could lead to an acceleration in your ability to meet former delinquencies and And see revenue growth rate potentially accelerate as you meet some of those delinquencies or it doesn't really all come down to that Product mix of what customers are demanding versus what you have in inventory that you see that mismatch Tenshey, continuing for several quarters.

Speaker 3

Yeah, to answer your question As today, absolutely. And we have a lot more we can chew off now. And as a shortage is ago, I would go on and all the new product adopt new product adoptions and all the great field products that we ramp up much, much faster than we And we have a lot more out of forecast Orders and that we cannot fulfill and these ones our customers understand that. Okay, I mean that and So we so now as of today we have a blue sky and but doesn't mean we're not regulated so I can't forecast.

Speaker 1

Just to add, it's a balancing act as you can appreciate because for some of the more mature products that we have. They already have developed markets and a fairly predictable you know, growth in the current market. But what we're trying to do is make sure that these new product introductions or can be successful because that is going to be, the future growth opportunity for the company. So we're trying to satisfy sort of the run rate business in this heightened demand, period of heightened demand and at the same time have very successful new product launches with new customers.

Speaker 7

Can I squeeze one last one in? Do you guys have any meaningful exposure to Chromebooks and is that a share gain opportunities to look into 2022? Thank you.

Speaker 3

Yes we have it. And if we have a no old product and mine's wells and I and co designer being everywhere.

Speaker 1

Yeah, Chromebooks are unique because while they're considered a, We tend to go after high value notebooks and Chromebooks are known to be lower priced, but they depend on the access to the cloud and good processing power. So the power management, our power management solution is very key. It's high value for the Chromebooks.

Speaker 3

Yeah. As I said earlier, as our technologies Bring online and become more mature. Why not just attacking all these other markets that we're not in.

Speaker 7

Got it. Thank you.

Operator

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

Speaker 1

Thanks for taking my question. Congrats on

Speaker 8

the great results and outlook. I want to ask one question about supply And what about long term growth? First, on the supply chain, it seems certainly if we look not just at your business but across semis that customers have been in sort of freak out expedite mode for quite some time. I Expedite requests change meaningfully in the quarter. Is it getting hotter or colder in any end market with regard to this sort Urgency of expedites and pull ins and upsides and all that activity we've heard about.

Speaker 8

And then again I have a long term growth question.

Speaker 3

Yeah. Okay. The answer is okay. I wish that they come down a little bit and that they're exactly the same as the last quarter and a quarter before.

Speaker 2

Okay.

Speaker 8

So the long term growth question, Michael, I think we've discussed this many times, but we're aware that there's this long term Potential to transition to more of a solutions provider with modules relative to your traditional semi device business. Can you talk about the trajectory of growth of the modules business and update on perhaps percent of revenues today relative to a quarter ago and where you think that could go over time? Thank you.

Speaker 3

Yeah, I our homegrown Modules and okay and well all the strategy there's a MPS involved, a lot of technicals in the case in terms of Delivering the end product, okay, it feels there's not end product, it's a mid product. I hear you well. Okay. So our strategy is a move up to food chains and since we have the knowledge and while we are not captured all the values. And for currently our module It's much faster than all the semi We tried different ways and again launch our websites and NPS announced and they're also using e commerce.

Speaker 3

Okay. These are doing well. And but now thinking about it, why we just Buying companies, okay, I mean, and we know that we need to gain knowledge, gain sales channels, okay, I mean, And have those company adopting NPS technology, we can provide them a better tools. Again, and I think the first few attempt in a very, very, very encouraging And obviously I can talk the detail now, Tsumaken, and I think that's our strategies.

Speaker 1

And if I can just remind you, Will, that we talked about this, touched on it last quarter and we indicated that what we're trying to do is source different technologies through either IP acquisitions or talent acquisitions that are complementary to our business and that will accelerate our ability to be a solutions provider for our customers in the next, you know, 7, 8 years.

Speaker 3

Yeah, I just don't like it. I just don't like it. We have so much knowledge to put it into it and In the end we sell a piece of silicon average of well below a dollar. Okay, we should sell Solutions and again much more than $1, so again 5, 6, dollars 10, those type of things. And those customers will really appreciate it.

Speaker 3

They don't have to and design from a scratch.

Speaker 8

That's Helpful insight. Thank you both.

Operator

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

Speaker 1

Hi, good afternoon. This is Wei Mok on the call for Rick Schafer. Just wanted to echo our congrats on the results. So for my first question, it's in regards to auto. So it's pretty much well known that the market is supply constrained, though you guys are still growing nearly 90% this year, With industry reports showing vehicle unit production improving in 2022, how should we think about your auto

Speaker 3

Our well it's a very at this Time is up, we see everything's very rosy now. But on the other hand, We're so small, there's no reason we would not grow even the downturns. And As we have a look at the addressable market is this is like over $6,000,000,000 okay even that's conservatively Numbers that's a conservative numbers and as we introduce more product especially in ADAS and EV proportion size and okay we are developing the products in all of these and again we can address the future growth really well. So that give me a there is a 2022 and like there's no reason not enough. I want to say this like last year, so I can also in the auto industry just stopped.

Speaker 3

Okay, I mean if it's in a normal times and there's no reason for us not to grow.

Speaker 1

And I think to just follow on to the previous question, when we look at automotive, We actually have system level design wins in ADAS, regenerative braking systems and in external lighting. And all of these solutions have much higher dollar content for us, $60 to $100 per vehicle. So I think this is a very exciting example of how the solution strategy Could play out in different end markets for us as well. Got it. Great.

Speaker 1

Thanks for that. As for my second question, it's in regards to Console, you guys highlighted consumer being down in 4Q. So is this more of a reflection of normal seasonality

Speaker 3

Well, Q3 in a consumer side it should be the highest. And I think as our customer size they have a too much inventory in the for the cell phones and I came in that affects us And the cell phones especially that's in China. I mean When the U. S. Had the embargo on one of our companies but the other ones they thought they can Gained the market shares and they gave me an actually they didn't and so they stuck with the image.

Speaker 1

And I think that what we tried to do in our prepared comments is really make that dip more narrowly defined that it is really the fast charger in the handsets as opposed to anything that is more broad or pervasive in the rest of consumer.

Speaker 9

Thanks for that.

Speaker 3

Yeah, we didn't have much of an exposure in handsets and that wasn't my favorite anyway. So we've got these products in the last year, okay and why not, okay. But now, okay. We thought it would be good.

Speaker 1

Well, the technology has actually been very well positively received. It's just the imbalance as As far as the demand that was expected has trailed those expectations. And so we believe that they have excess inventory and so we're seeing a slowdown for that particular individual category.

Operator

Our next Question is from Kevin Gerrigan of Rosenblatt. Kevin, your line is now open.

Speaker 9

Hey, this is Hans for Kevin. Hey, guys. Congrats. A couple of questions. Along the lines of inventory.

Speaker 9

I think AMD, Micron on the PC side of things and Texas Instruments on a broader basis are indicating that customers are changing their behavior a bit in terms of, how they take in components in a supply constrained environment. So rather than just take everything that you can get, they're being more selective. Is that something you guys are seeing and is that an unusual if if you are seeing that? Thanks.

Speaker 3

We are too small but these are we are very small much small players compared with the Texas Instruments or the other guys. We don't have a luxury of a Picking market segments. We only focus on the long term focus, not focus. We don't do short term business anyway.

Speaker 1

Yes. To answer your question very succinctly, we haven't seen any change in ordering patterns or our delivery schedule and really don't have an opinion on what the broader market or other market participants are experiencing.

Speaker 9

And so just the last question, your visibility in terms of When you can capture or get back to that 180 to 200 days of inventory, has that changed? And what is The timeline is it the end of next year is it 2023? Thanks.

Speaker 3

I think the end of the next year would be a good number. Yes that's all we are that's if the market goes

Speaker 9

And that's a is that a push out or is that a pull in from last quarter?

Speaker 1

I'm sorry.

Speaker 3

Well again, you said I'll talk about last quarter pulling a push out and again as I said earlier We still have a delinquencies and we have a more delinquency Then our customers will push out. Let's set up.

Speaker 1

Okay, guys. I think the important thing is that even with The demands that are placed upon us, and Michael is correct that we saw no change in Q3 from what we experienced in Q1 or Q2. We were able to increase inventory in a meaningful way this quarter. So again, I refer back to Earlier answer, we said the balancing act that we're trying to do between satisfy, more run rate business at the same time as we're meeting demand for for new products as well as building inventory that gives us more flexibility.

Speaker 9

Great. Thank you.

Operator

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

Speaker 2

Yes, thank you. I just had

Speaker 8

a few follow ups.

Speaker 2

First of all, Bernie, the gross margin guidance for Q4, that does not include any more mitigation impact, right? That's

Speaker 1

That is correct.

Speaker 2

Okay, great. So the other question is, a lot of your competitors are discrete companies and They're probably allocating their products all over the place right now, which I assume means you're gaining share. Can you just talk a little bit to the stickiness of that? I mean, I assume once they go with an integrated solution there, they're not going to go back.

Speaker 3

That's very true. And with the taste of a simple easy solutions, okay, It's difficult. And for these A little bit of high end market that's what we focus on customer pay for it and they deviated from the way They are behavior how they design product and I think that's a huge benefit to us and other customers in the more in the low end consumer business, We don't care.

Speaker 2

Got it. Just one last question. Michael, in the past you've talked about, especially in servers and automotive, Kind of just getting the side dishes, but eventually you'll get the main course. Should we expect those Two segments to see some main course revenue in 2022.

Speaker 3

Yes, Yuli. Yes, We are keep eating the crumbs. We eat a lot of crumbs like a whales. We're not whales. We're More fish trying to eat a lot of crumbs and now the fish we Grow ourselves a little bit we can eat the real meals and okay I mean we as you We keep saying that okay we have the reference design in Intel's and then the real OEMs Pick up a onesie and a twosie and a for these projects and but these are the real beasts and I came in and up a little bit small.

Speaker 3

Okay. I think of the next years we will grow much bigger and so called VR14s and 13.5% we benefit a lot and other than the point of lobes and Efuse and that kind of growth came in, now we really have a core power have a meaningful revenue coming up next Yes. And not talking about VR14 yet, again. And the other thing is that worth to mention about and There's about a 48 votes process as we said earlier. So now give me and by This year's and we forecast about this year and the next year, the cross point had to happen and again we're waiting, We were waiting about 3, 4 years ago.

Speaker 3

And we said that until when the Powers keep increasing and the heat generation, heat dissipations they cannot handle anymore. They Have to use 48 volt solutions and this year's happened and start from AR and next year we see many data centers adopting 48 volt solutions and we will have a benefit of a large layout.

Speaker 4

Great, thank

Speaker 2

you very much.

Speaker 3

Okay, thank you.

Operator

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

Speaker 1

I'd like to thank you all for joining us for this conference call, and we look forward to talking to you again during the Q4 conference call, which will likely be in early February. With that, thank you and have a nice day.

Speaker 3

Okay.

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