Monolithic Power Systems Q4 2021 Earnings Call Transcript

Participants

Corporate Executives

• Genevieve Cunningham, Supervisor-Marketing Communications
• Bernie Blegen, Vice President and Chief Financial Officer
• Michael R. Hsing, Chairman of the Board, President and Chief Executive Officer

Analysts

• Tore Svanberg, Stifel Nicolaus
• William Stein, Truist Financial Co.
• Alessandra Vecchi, William Blair
• Quinn Bolton, Needham & Company LLC
• Ross Seymore, Deutsche Bank Aktiengesellschaft
• Chris Caso, Raymond James
• Rick Schaefer, Oppenheimer Holdings Inc.
• Matt Ramsay, Cowen Inc

Presentation

[Genevieve Cunningham, Supervisor-Marketing Communications at Monolithic Power Systems]

Welcome, everyone, to the MPS Fourth Quarter 2021 Earnings Webinar. Please note that this webinar is being recorded and will be archived for one 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 Hsing, CEO and Founder of MPS; and Bernie Blegen, 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.

Risks, uncertainties, and other factors that could cause actual results to differ are identified in the Safe Harbor statements contained in the Q4 earnings release and in our SEC filings, including our Form 10-K filed on March 1, 2021, and Form 10-Q filed on November 8, 2021, both of which are accessible through our website. MPS assumes no obligation to update the information provided on today's call.

We will be discussing gross margin, operating expense, R&D and SG&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 Q4 and full year 2021 earnings release, which we have filed with the SEC and is currently available on our website. I'd also like to remind you that today's conference call is being webcast live over the Internet and will be available for replay on our website for one year, along with the earnings release filed with the SEC earlier today.

Now, I'd like to turn the call over to Bernie Blegen.

[Bernie Blegen, Vice President and Chief Financial Officer at Monolithic Power Systems]

Thanks, Gen.

In 2021, MPS surpassed the $1 billion revenue milestone by achieving record full year revenue $1.2 billion, 43.0% higher than the prior year. This performance represented consistent execution against our strategies and being recognized by more first tier companies for our superior technologies, product quality and excellent customer support.

As we see more highly quality growth opportunities ahead of us, we continue to invest in our infrastructure and operational capabilities. In 2021, MPS grew capacity by 40%, and we are on track to expand capacity in 2022 well beyond $2 billion, allowing the company to successfully ramp new product revenue and achieve strategic market share gains.

Here are a few highlights which we achieved in 2021. Brought online a new 8-inch fab and continued to qualify parts in the 12-inch fab we brought online in 2020. We will continue to invest in growing fab and assembly capacity. We design processor cores and MCU technology into products requiring more sophisticated power solutions such as USB power delivery, smart motor drives, and high power electrifications.

Our first prototype of a high-precision analog digital converter product for medical applications achieved outstanding silicon performance in lab evaluations. We have started customer sampling in Q1 2022. Validation of this technology is a strong first step in developing a new business segment supporting both industrial and infrastructure end market applications.

We believe new product revenue from a large number of previously released designs will ramp in 2022. The representative sample includes products supporting applications in: VR14, 5G, BMS, ADAS, AI, USB PD, DDR, and many more.

Turning to our full year 2021 revenue by market segment compared with 2020. Automotive revenue was up 87.5%; computing and storage revenue up 47.0%; industrial revenue up, 54.5%; consumer revenue, up 28.1%; and communications revenue up 15.3%, demonstrating just how broad-based our full year 2021 revenue improvement was.

Automotive revenue grew $95.4 million to $204.3 million in 2021. This 87.5% year-over-year gain primarily represented increased sales of our highly integrated applications supporting the digital cockpit, automated driver assistance systems, and connectivity. Automotive revenue represented 16.9% of MPS' full-year 2021 revenue compared with 12.9% in 2020.

Full-year 2021 computing and storage revenue grew $119.1 million over the prior year to $372.3 million. This 47.0% increase primarily resulted from strong sales growth for enterprise notebooks, cloud computing and storage applications. Computing and storage revenue represented 30.8% of MPS' total revenue in 2021 compared with $30.0% in 2020.

Industrial revenue grew $65.2 million to $184.8 million in 2021. This 54.5% year-over-year increase was broad based with each of our primary product lines enjoying better than double-digit revenue growth. Industrial revenue represented 15.3% of MPS' full-year 2021 revenue compared with 14.2% in 2020.

Consumer revenue grew $61.9 million to $282.3 million, reflecting increased product sales for home appliances and smart TVs. Consumer revenue represented 23.4% of MPS' full-year 2021 revenue compared with 26.1% in 2020. Communications revenue grew $21.8 million to $164.1 million. This 15.3% improvement reflected higher sales of products for both infrastructure and wireless routers and gateway applications. Communications revenue represented 13.6% of our 2021 revenue, compared with 16.9% in 2020.

Switching to Q4, MPS had a record fourth quarter with revenue of $336.5 million, 4.0% higher than revenue generated in the third quarter of 2021 and 44.4% higher than the comparable quarter in 2020. By market segment, revenue for Computing and Storage grew 91.6% year-over-year; Communication grew 54.7%; Automotive grew 43.2%; Industrial grew 33.3%; and Consumer grew 1.9%. Fourth quarter 2021 GAAP gross margin was 57.6%, same as third quarter 2021, and 230 basis points higher than the fourth quarter of 2020.

Our GAAP operating income was $78.6 million, compared to $77.1 million reported in the third quarter of 2021, and $40.0 million reported in the fourth quarter of 2020. Fourth quarter 2021 non-GAAP gross margin was 57.9%, 10 basis points higher than the third quarter of 2021 and 220 basis points higher than the fourth quarter of 2020. The year-over year-expansion in fourth quarter, non-GAAP gross margin was largely due to a shift in sales mix, favoring high value greenfield products and operational efficiency gains, which more than offset higher product input cost. MPS achieved noteworthy market share gains in 2021 due in large measure to product availability and disciplined sales price management. Our non-GAAP operating income was $112.0 million compared to $108.4 million reported in the prior quarter, and $66.3 million recorded in the fourth quarter of 2020.

Let's review our operating expenses. Our GAAP operating expenses were $115.3 million in the fourth quarter compared with $109.2 million in the third quarter of 2021, and $88.9 million in the fourth quarter of 2020. Our non-GAAP fourth quarter 2021 operating expenses were $83.0 million, up from the $78.7 million we spent in the third quarter of 2021 and up from the $63.6 million reported in the fourth quarter of 2020.

On both a GAAP and a non-GAAP basis, fourth quarter 2021 litigation expense was a credit balance of $420,000 compared with a $3.4 million expense in Q3 2021, and a $1.5 million expense in Q4 2020. The credit balance in fourth quarter 2021 litigation expense reflected in IP settlement, refund of a legal retainer and lower than anticipated fees. The differences between GAAP and non-GAAP operating expenses for the quarters discussed here are stock compensation expense and income or loss from an unfunded deferred compensation plan. Fourth quarter 2021 stock compensation expense, including $921,000 charge to cost of goods sold was $31.2 million, compared with $31.6 million recorded in the third quarter of 2021.

Switching to the bottom line. Fourth quarter 2021 GAAP net income was $72.7 million or $1.51 for fully diluted share, compared with $1.44 per share in the third quarter of 2021, and $0.90 per share in the fourth quarter of 2020. Q4 2021 non-GAAP net income was $102.1 million or $2.12 per fully diluted share, compared with $2.06 per share in the third quarter of 2021, and $1.31 per share in the fourth quarter of 2020. Fully diluted shares outstanding at the end of Q4 2021 were $48.2 million.

Now, let's look at the balance sheet. As of December 31, 2021, cash, cash equivalents and investments totaled $727.5 million, compared to $744.5 million at the end of the third quarter of 2021. For the fourth quarter of 2021, MPS generated operating cash flow of about $28.2 million compared with Q3 2021 operating cash flow of $117.8 million. The between quarter drop in operating cash flow primarily reflected a $51.3 million increase in inventory and higher accounts receivable.

Fourth quarter 2021 capital spending totaled $17.6 million. Accounts receivable ended the fourth quarter of 2021 at $104.8 million or 28 days of sales outstanding compared with the $79.9 million or 22 days of sales outstanding reported at the end of the third quarter of 2021, and $66.8 million or 26 days reported at the end of the fourth quarter of 2020.

Our internal inventories at the end of the fourth quarter of 2021 were $259.4 million, up from $208.1 million at the end of the third quarter of 2021. Calculated on a basis consistent with our past practice and as you can see from the webinar video, days of inventory rose to 166 days at the end of Q4 2021 from 134 days at the end of the third 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, again, you can see days of inventory increased to 152 days at the end of the fourth quarter of 2021 from 133 days at the end of the third quarter of 2021.

I would now like to turn to our Q1 2022 outlook. We are forecasting Q1 2022 revenue in the range of $354 million to $366 million. We also expect the following, GAAP gross margin in the range of 57.4% to 58.0%, non-GAAP gross margin in the range of 57.7% to 58.3%. Total stock-based compensation expense of $36.9 million to $38.9 million including approximately $1.1 million that would be charged to cost of goods sold. GAAP, R&D and SG&A expenses between $119.2 million and $123.2 million. Non-GAAP, R&D and SG&A expenses to be in the range of $83.4 -- $85.4 million. This estimate excludes stock compensation and litigation expenses.

Litigation expenses to be in the range of $2.3 million to $2.7 million. Interest income is expected to range from $1.0 million to $1.4 million before foreign exchange gains or losses. Fully diluted shares to be in the range of 47.8 million to 48.8 million shares. Finally, I'm pleased to announce a 25% increase in our quarterly dividend to $0.75 per share from $0.60 per share for stockholders of record as of March 31, 2022.

In conclusion, MPS' strong financial performance in 2021 was largely due to a 40% increase in fab and assembly capacity, which supported our high-value greenfield product revenue ramp. Looking ahead, NPS is on track to expand capacity in 2022 well beyond $2 billion, allowing the company to successfully ramp new product revenue and achieve strategic market share gains in 2023, 2024, and beyond.

Questions and Answers

[Genevieve Cunningham, Supervisor-Marketing Communications at Monolithic Power Systems]

Thank you, Bernie. Analysts, I would now like to begin our Q&A session. [Operator Instructions] Our first question is from Tore Svanberg of Stifel Nicolaus. Tore, your line is now open.

[Tore Svanberg, Analyst at Stifel Nicolaus]

Yes. Thank you and congratulations on the very, very strong results. So I'm going to ask this question differently. Usually people ask you, how come you carry so much inventory? This time, I'm going to ask you, how were you able to actually get your inventory there's that. How are you both finding the capacity and again, being able to build the inventory in spite of this very, very tight environment we're seeing in the industry?

[Michael R. Hsing, Chairman of the Board, President and Chief Executive Officer at Monolithic Power Systems]

Well, as you know, the - in this business, okay, breeding inventories and likely a qualifier fabs. Okay. These are now one day, two-day things that are not short term. These are all we planted a few years ago and now, we are just the opportunity presents it and we just attach it. And nothing was a short term, so we couldn't -- we don't have a crystal ball for the futures. And we just to react, we just a plan ahead and then we act as fast as we can.

[Bernie Blegen, Vice President and Chief Financial Officer at Monolithic Power Systems]

And I think to add to that, that shows that we have a lot of inventory on hand that presents the capacity to allow us for sales in the next two quarters. So what we've done is made conscious investments in inventory in the supply chain. And what we're trying to do is manage such that we hold the inventory. We're still keeping channel in the channel inventory lean and we're trying to make sure to the best of our abilities that we're in touch with the inventories that our customers are keeping. So there are likewise well.

[Michael R. Hsing, Chairman of the Board, President and Chief Executive Officer at Monolithic Power Systems]

You know, I also want to add and look, as you remember and a few years ago and I talk about the MPS is going for well beyond a million or couple of million dollars. And I wasn't joking and we plan ahead for our business. That's what we saw a few years ago. And now you grow this much is, of course, we didn't expect that in. But we do have a capacities and look, we do have to do some creative ways in the scrambling to get to a 45%. And so that's all that's is, look, it wasn't when -- we don't have a magic tricks in the last six months or so.

[Bernie Blegen, Vice President and Chief Financial Officer at Monolithic Power Systems]

And it's good. As you note, as Michael noted, we crossed the $1 billion revenue threshold and our revenue growth rate has accelerated from historic precedent.

[Tore Svanberg, Analyst at Stifel Nicolaus]

Yes. Well done. As my final question, could you just add a little bit more color on the $2 billion worth of capacity you've talked about now, you know, ramping in an 8-inch, you're also qualifying products on 12-inch. Will there actually be 12-inch product sales this year?

[Michael R. Hsing, Chairman of the Board, President and Chief Executive Officer at Monolithic Power Systems]

Yes. We'll qualify, as you know, MPS don't view the fab and we don't have a lot of capital spending that came in. But we do have increased all these capacity qualify fabs came in and that costs money. And so to answer your questions, we do transitions. Nowadays, okay, we get all this capacity, whether it's 12-inch or 8-inch as much as we can.

[Bernie Blegen, Vice President and Chief Financial Officer at Monolithic Power Systems]

And just to add to that, that was our second 12-inch fab that we brought online in 2020.

[Michael R. Hsing, Chairman of the Board, President and Chief Executive Officer at Monolithic Power Systems]

Yes.

[Tore Svanberg, Analyst at Stifel Nicolaus]

Very good. I'll go back in line. Thank you and congrats again.

[Michael R. Hsing, Chairman of the Board, President and Chief Executive Officer at Monolithic Power Systems]

Okay, thank you.

[Genevieve Cunningham, Supervisor-Marketing Communications at Monolithic Power Systems]

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

[William Stein, Analyst at Truist Financial]

Great. Thanks for taking my question. Congrats on the eye-popping results and outlook. I want to ask about the module business that you've spoken about in the past, this thing that might even accelerate, grow further over time. I'm wondering what percentage of revenue modules contributes today and how we should think about the trajectory of that business. And if you could also comment on any potential tuck-in acquisitions that were either executed or contemplated for in the future to fulfill your strategy in that area? Thank you.

[Michael R. Hsing, Chairman of the Board, President and Chief Executive Officer at Monolithic Power Systems]

Yes. Okay, I'm glad you asked the question. The module business, I think is shy of 10% in the fall of this year.

[Bernie Blegen, Vice President and Chief Financial Officer at Monolithic Power Systems]

It's actually about mid-single-digits.

[Michael R. Hsing, Chairman of the Board, President and Chief Executive Officer at Monolithic Power Systems]

Okay. Yes, yes. And so you can quantify it much more accurately. I don't know sort of the orders of numbers in detail. All I know, we grow 100% every year in the last couple of years. And now you're using the word accelerating this year and the next couple of years. That's the -- that's what I see it now.

And the other thing is okay. The second part of your question is about acquisitions for the tuck-in technology or to enhance our future growth on the -- using our MPS technology for those companies. Yes. We are engaged with a hand -- there's a handful of a company, like more than five or six companies. And we're -- so far, we're engaging with it. And nothing we -- nothing materialize, we should announce that now.

[William Stein, Analyst at Truist Financial]

Thank you.

[Genevieve Cunningham, Supervisor-Marketing Communications at Monolithic Power Systems]

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

[Alessandra Vecchi, Analyst at William Blair]

Hey, guys. Thanks for taking my question. And I echo the congratulations on the outstanding results. Just maybe to expand on Tore's question with regards to the capacity expansion from $2 billion on -- can you quantify how much more capacity you think you'll be adding in the next year or two or three or the right way to think about it? I think in the past you've alluded to the fact that that the current product portfolio can support upwards of $3 million to $4 million in revenue. So is that sort of the right way to think about the long term trajectory?

[Bernie Blegen, Vice President and Chief Financial Officer at Monolithic Power Systems]

Yes. That's absolutely correct. And for the semiconductors, yes, we have to have a fab capacities and for that kind of revenues. But even going to the future soon, okay, because of we're selling more high dollar modules and the solutions and which utilizes silicon even less. So we have -- we should have -- we shouldn't in our silicon wafer capacity even so in that would be a less factors.

[Alessandra Vecchi, Analyst at William Blair]

That's actually really helpful. And then similarly, with the comments on in terms of the segment break down, the storage and compute segment was very strong in the quarter. And I think you've talked a little bit about enterprise notebooks. It seems like that's one of the areas in notebooks in general where there's a little investor trepidation going forward. Can you maybe talk about what the opportunity there is and or maybe what the CM is for your notebook outlook over the next few years?

[Bernie Blegen, Vice President and Chief Financial Officer at Monolithic Power Systems]

Sure. I think it's important to qualify that the growth that we've experienced in particular over the last two or three years has really been at the enterprise level what we're selling into units that would retail for above $1,200. And we've been very successful as far as capturing a large part of market share that really is not necessarily driven by consumer trends. So they're not as prone to the downward unit numbers that are being projected for notebooks.

[Michael R. Hsing, Chairman of the Board, President and Chief Executive Officer at Monolithic Power Systems]

Yes. Overall, we want to achieve a balanced growth, we don't want to be known as notebook company, and that's all. And as MPS' strategy is diversified growth.

[Bernie Blegen, Vice President and Chief Financial Officer at Monolithic Power Systems]

And just to pick up on Michael's point, we saw a very strong uptick in our cloud and server business particularly in Q4, which we expect to continue to ramp into 2022.

[Michael R. Hsing, Chairman of the Board, President and Chief Executive Officer at Monolithic Power Systems]

Yes. Overall, the notebook revenues are very, very -- a single-digit.

[Alessandra Vecchi, Analyst at William Blair]

Okay. Thank you. With that, I'll hop back into queue.

[Michael R. Hsing, Chairman of the Board, President and Chief Executive Officer at Monolithic Power Systems]

Yeah.

[Genevieve Cunningham, Supervisor-Marketing Communications at Monolithic Power Systems]

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

[Quinn Bolton, Analyst at Needham & Company LLC]

Hey, guys, I'll offer my congratulations as well. And Bernie and Michael, I'm surprised you haven't gotten the question yet, but I follow the company for a long time, I think this is the biggest gross margin beat you guys may have ever put up. If I got my numbers right, you beat gross margin by 130 basis points in this quarter. Looking back to the third quarter, I think you had a $4 million litigation revenue in the number that drove strength and gross margin, but that was clearly a onetime issue. So can you talk first about what drove the strength shrinking in gross margins and you're guiding them effectively flat up 10 basis points technically in the first quarter? So it looks like that margin strength continues. Can you just talk about gross margin?

[Bernie Blegen, Vice President and Chief Financial Officer at Monolithic Power Systems]

Sure. We tried to reflect on that a little bit in the prepared comments where I indicated that we're benefiting right now by a more favorable shift in our product mix, which is higher margins on the new greenfield business, but also operational efficiencies. As far as we indicated earlier, the percentage of silicon that's coming from 12-inch but also is a reflection of our improved quality standards. So, I think that as we've reflected on what the sustainable margin going forward that we've offered sort of a new floor which we look to grow again 10 to 20 basis points sequentially, although obviously we'll keep our eyes open if there is an opportunity to have another step up.

[Michael R. Hsing, Chairman of the Board, President and Chief Executive Officer at Monolithic Power Systems]

There's another side, Quinn. A few years ago, we talk about a greenfield product and you actually, I remember asked Quinn there's no headwind in the -- is there any headwind in the gross margins? So the answer was Quinn and all these new product -- greenfield product will all aim at the high end products and higher values and so the gross margin should be better. So this time, okay, we didn't increase the price much, we are pretty much pass the cost to our customers or not even pass to our customers but as Bernie said those shifted to 12-inch and also the internal efficiency of improvement and with the high gross margin product that is the majority of the gross margin improvement.

[Quinn Bolton, Analyst at Needham & Company LLC]

Got it. And as a follow-on for two quarters now, you see a pretty nice increase in your internal inventory levels. Wondering if you could just comment, as you're building that internal inventory, how much of that is for new greenfield products versus, say, the run rate business?

[Michael R. Hsing, Chairman of the Board, President and Chief Executive Officer at Monolithic Power Systems]

We -- clearly, we shifted away from a consumer side. And so that allocated a lot of product for these high-end, a targeted MPS that targeted a market segment. So we grow the inventories in the fall for those segments.

[Bernie Blegen, Vice President and Chief Financial Officer at Monolithic Power Systems]

I think something to add there is that we do have some high-volume business and we're treating that as run rate, so we're -- it's probably the area that has the tightest capacity. But where we have these new products, the greenfield opportunities and we have new customers and new markets as an insurance policy to make sure that they're perceived very positively and that we can cover upside potential, we have been building inventory to support that, and I think that's been reflected very well as far as the customer acceptance of the new products, as well as market share gains supported by the appropriate inventory levels.

[Quinn Bolton, Analyst at Needham & Company LLC]

Got it. Thank you.

[Genevieve Cunningham, Supervisor-Marketing Communications at Monolithic Power Systems]

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

[Ross Seymore, Analyst at Deutsche Bank Aktiengesellschaft]

Thanks for letting me ask a question, and I'll echo the congrats. I wanted to follow-up on the second half of your answer to Quinn's question there, Bernie. And in the past, you guys have always gained market share and very consistently so. This year was, well, this past year was no different. But you also had significantly greater availability than your competition. So I just wanted to see what the client or the customer relationship, how that's been enhanced because of the availability. Do you believe that the wins you've gotten from availability will lead to sticky relationships going forward? You mentioned moving up into kind of first tier customer base. I'm just trying to figure out the sustainability of the revenue growth because of that availability dynamic.

[Michael R. Hsing, Chairman of the Board, President and Chief Executive Officer at Monolithic Power Systems]

That's a very, very good question. So, okay, how does that -- how we grow like a 45% of the over -- close to $1 billion base. Okay. I mean -- well, you think about it. All these product that we released and the greenfield products. And these two are first tier customers. And usually these are large customers that they ramping a new supply very carefully. So they don't allocate a large percentage. They always have a second source. And now -- and, okay, have a shortage everywhere. MPS has a -- have capacities. So everything shifted to MPS. That's a one factor.

And the second factor is, we talk about MPS product is a more programmable. And our customers find out -- before, they care less. And now they find out. And, okay, our product -- single product can do a multiple purpose. And that contributes another factor. And so we can replace -- and, okay, we can shortly redesign -- our customers redesign and then they source out to adapt the MPS solutions.

So by these two points, our camp is very sticky, okay, especially the second point, and our MPS products are more programmable and they enjoy that, and they solve their problems, and they realized their values. And -- so I would say they're very sticky.

[Ross Seymore, Analyst at Deutsche Bank Aktiengesellschaft]

And I guess as my follow-up question, I thought you talked about another greenfield opportunity which is a huge part of the analog market, which is getting into the converter side of things. Can you just talk a little bit about your aspirations there, some of the applications you're going after, and what sort of opportunity you see unfolding in that?

[Michael R. Hsing, Chairman of the Board, President and Chief Executive Officer at Monolithic Power Systems]

Yes. We do have a silicon in and outs, okay, and the performance are outstanding. And these are the new market segments, and these are purely in a single site, and which we would never have it. And we -- these are internally developed and we have a group of people and they came, and they have a lot of experience. And that's a new market segment for us. So the focus will be the communications and also medical, the medical applications like imaging, X-rays and ultrasounds and those type of things.

[Bernie Blegen, Vice President and Chief Financial Officer at Monolithic Power Systems]

And just to add, as far as the characteristics of this technology, there are not a lot of companies that have been successful with this. And the ones that have, have carved out pretty exclusive markets. And as a result of that, they command very high gross margins. So we look to be a new market entrant, but also with a very -- a big competitive advantage.

[Michael R. Hsing, Chairman of the Board, President and Chief Executive Officer at Monolithic Power Systems]

Yes. So it's a -- yes, it is a milestone for MPS as the so-called high-performance in a lot of company, they tried and they achieve a mediocre result. And now say, okay, see what we can do. And we do have a product for the next couple of years and we'll see what we can do. Okay.

[Ross Seymore, Analyst at Deutsche Bank Aktiengesellschaft]

Thank you.

[Genevieve Cunningham, Supervisor-Marketing Communications at Monolithic Power Systems]

Our next question is from Chris Caso from Raymond James. Chris, your line is now open.

[Chris Caso, Analyst at Raymond James]

Yes, thank you. My first question, which I'll talk a little bit about, about seasonality. And obviously, the Q1 results are better than what we normally expect in the seasonal Q1. And I suspect that's because of some of the capacity additions that you're bringing on. Can you talk about these capacity additions as we go through the year? Are they brought in -- and in the road to the $2 billion revenue level -- capacity level, is that going to come on fairly evenly during the year? Is there a step up at some point? And then when that happens, do you think that you will be fully able to meet your customer requirements presumably this year?

[Bernie Blegen, Vice President and Chief Financial Officer at Monolithic Power Systems]

Chris, I think you get credit for three questions there. Hopefully, I'll be able to keep the thread going. The first issue had to do with seasonality and generally speaking, from Q4 to Q1, we observed a modest dip. In fact, because we have such an imbalance, an unprecedented demand/supply imbalance that in fact seasonality is not as much a function today as opposed to your second question, which has to do with product availability. And that's sort of the gaiting item for how fast a company can grow.

And as Michael pointed out earlier, is that -- as part of our company, we've always built capacity alongside the development of our new products. So we in fact got out in front of this upsurge in the market and have been able to participate and, in fact, accelerate our capacity build out, and that's really a reflection of how we're looking at 2022. But I think that one thing that we've always done is we've had to make intelligent decisions many years ahead of when the capacity has been needed. So in fact, we're in discussions in order to be able to get capacity for 2023, 2024 and beyond, and we feel very secure in what we're capable of doing in 2022.

[Michael R. Hsing, Chairman of the Board, President and Chief Executive Officer at Monolithic Power Systems]

Well, to answer your questions honestly, okay. If it give us another 50% growth, for this year we will be in trouble, okay?

[Chris Caso, Analyst at Raymond James]

Okay. I think that would be welcome trouble, if that were the case.

[Michael R. Hsing, Chairman of the Board, President and Chief Executive Officer at Monolithic Power Systems]

Yes.

[Chris Caso, Analyst at Raymond James]

I'll take the liberty to ask one more that you were nice enough to answer my three, which is with regard to pricing. And Bernie made a comment on the call you spoke about discipline, sales, price, management, as I think how you termed it. Could you explain what that means and the extent to which pricing has been a contributor to year-on-year growth and whether that's something that's in the rearview mirror, where you'd expect to continue to increase?

[Bernie Blegen, Vice President and Chief Financial Officer at Monolithic Power Systems]

I think that most people have recognized within the semiconductors and even specific to analog, that that created a opportunity for many companies to effect price increases with their customers. And a lot of them implemented that as early as Q1 of this year. We showed, we made a conscious decision not to increase our prices on a broad based. So we're in selective market opportunities, but broadly we did not. And we did that along with having the product availability as a means of being able to secure higher level of market share.

And so now as we look at 2022, we are going to implement selective but more broad-based price increases, but they'll be at a more modest level than some of our peer companies have implemented.

[Michael R. Hsing, Chairman of the Board, President and Chief Executive Officer at Monolithic Power Systems]

Yes. Well, we look at it, we invest in our customers for the future growth and for the future opportunities. And, but we do have a modest gross margin expansion as we -- as our models okay. We keep saying it, and we have a steady state growth on every segment.

[Chris Caso, Analyst at Raymond James]

All right. Very helpful. Thank you.

[Genevieve Cunningham, Supervisor-Marketing Communications at Monolithic Power Systems]

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

[Rick Schaefer, Analyst at Oppenheimer]

Oh, thanks. Well, let me add my congratulations guys on a nice quarter -- another nice quarter. Maybe if I could, just a quick question on 5G. I mean, you guys have talked in the past about 5G is a pretty significant opportunity for MPS. I think, Michael, I think you said potentially hundreds of dollars of potential content there, sort of similar to server or datacenter cloud for you guys.

So I don't know if you could give us any update on design momentum, since when the revenue contribution might sort of start to inflect if that's still kind of the second half of this year? And I'm curious as part of that question, I mean, are you going to let QS Mod sort of be part of that initial ramp this year or is it going to be more sort of point of load issues, sort of how you began your journey in server? If you could give any color that'd be great.

[Michael R. Hsing, Chairman of the Board, President and Chief Executive Officer at Monolithic Power Systems]

Yes. So to answer your first part of question, first, like, in the 5Gs, it was actually -- a lot of products and especially in the high current side and again all relate to QS Mod. In a similar technology base product, we follow-up the 5G in all areas. And from the single size and like all the way to a transmitters. And we do -- we don't see a very high rate of ramping. So they're still steady state.

And the other question is QS Mod for the data centers. We are -- this year, we have to say, we occupied still less than a single digit of total percentage of the total 10 of the market. But the significance is from always almost nothing, and to high end of a single digit. And earlier, I said it, if we don't occupy 30% of our -- of the market, we should not be in that business. So we still have a lot of room to grow. And frankly --

[Bernie Blegen, Vice President and Chief Financial Officer at Monolithic Power Systems]

And with the release of VR14, that we're at a very good inflection point in the cloud and in the data center.

[Rick Schaefer, Analyst at Oppenheimer]

And, Michael, I'd like just to follow that. But I think it took you about three or four years to sort of get point of load, to share today, which I think is about 30%. So I think you -- are you saying that's sort of a good proxy for QS Mod could be in the next couple of years?

[Michael R. Hsing, Chairman of the Board, President and Chief Executive Officer at Monolithic Power Systems]

Yes. Okay. Yes. It will take actually longer than that, more than three or four years. And I always wondered, why is it so long. In the early days, I said we could grow very quickly. I didn't know what I was talking about. And for the next -- as Bernie mentioned, the VR14 and the VR13.5, I saw that the MPS accepted it as a player. Okay. And VR14, I think, we have pretty good shares to start to ramp, but it's not happening now. Okay. I mean -- and sometimes this year, right?

[Bernie Blegen, Vice President and Chief Financial Officer at Monolithic Power Systems]

Yes. The VR13 has been delayed again. It's more likely to be Q3.

[Michael R. Hsing, Chairman of the Board, President and Chief Executive Officer at Monolithic Power Systems]

Yes, yes, yes.

[Bernie Blegen, Vice President and Chief Financial Officer at Monolithic Power Systems]

But you are right, we've observed in Q4 an uplift as a result of VR13.5.

[Rick Schaefer, Analyst at Oppenheimer]

Thanks. And if I could ask just a follow-up to Bernie, probably. I wanted to ask -- I've been asking it a long time. Balance sheet looks great, obviously. I was just curious if you could give us an update on use of cash going forward. I mean, obviously you've done a really good job of investing in future growth and R&D. But I'm just curious how much you need to run the business here and feed R&D, etc.? Thanks.

[Bernie Blegen, Vice President and Chief Financial Officer at Monolithic Power Systems]

Yes. And it's a great question because you want to look at it sort of three levels for our particular story. One is we have to keep a certain amount of cash available in order to fund our growth, particularly as it relates to receivables and inventory. But also we're expanding operating expenses worldwide at an accelerated rate. And all of those demand a level of liquidity.

The next thing that we've talked about is building infrastructure and capacity. And even though we're outsourced as far as our fabs and assembly, we do a lot of our own testing. In fact, with the quality requirements of some of the new markets we're going in, we can't outsource that. We do all of our own testing and that requires an additional investment.

And then you have buildings which, as you know, we're one of the few companies that we purchase our own footprint to house our growing staff headcount. So we're going to continue to leverage the balance sheet in order to help accelerate our growth. While at the same time, as we announced in the impaired comments, we're increasing the dividend by 25%. So we're also mindful that we need to return some of the cash back to the shareholders.

[Michael R. Hsing, Chairman of the Board, President and Chief Executive Officer at Monolithic Power Systems]

Yes, well, Bernie said they accelerated at an expensive growth. No, we're not accelerating. No, absolutely not. And let's make that clear. So we are pretty little above our models. The MPS growth, the expenses growth, okay. And for the return of cash to our investors, and we have an overwhelming support from our investors and dividend and not buy back.

So if all are buying a buyback, okay now we said, let's delay it, and because we got a feedback, so don't want to deal with it. I don't know whether it is related to tax issue or not related. So I think it's in a format -- in the past, we said our models are consistently increased dividends.

And the other side of that using our cash is we want to acquire a company, not for revenue growth. It's cheaper to grow an MPS revenue by phone. But we can do this -- so we can MPS has a lot of garden variety of a different product and feed -- can enhance in couple of areas and to mature -- to the end product. And we want to acquire those small tugging products, very unique in a sustainable growth -- in a sustainable. And based on MPS technology, we can grow those companies. And that's the company we're really interested in. So earlier I said we engage with a few companies.

[Rick Schaefer, Analyst at Oppenheimer]

Thanks for all the color, guys. Congrats.

[Genevieve Cunningham, Supervisor-Marketing Communications at Monolithic Power Systems]

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

[Matt Ramsay, Analyst at Cowen]

Thank you very much. Good afternoon, everyone. Michael, I've been asking you about this for, I don't know, three or four years. But in the last, I guess, three or four months, you guys talked a bit more about opportunities for MPS in the electric vehicle market, some in drivetrains, some in regenerative braking. I wonder if you might talk a little bit more about the revenue opportunity per car with your lead customer, the timing of that and how wide is the pipeline in terms of the number of engagements that you might have in the EV market? Thanks.

[Michael R. Hsing, Chairman of the Board, President and Chief Executive Officer at Monolithic Power Systems]

EV market, again, we're in the ADAS area. I think that we are in ADAS 2.5 or 3.0. We almost engage with everybody. And so I can't give you a number. For pure electrical car, MPS has about somewhere $80 to $100 shipping to-date and we're starting this year. Well, not just this year, starting actually last year. If you're involved with a regenerative braking and in a drivetrain, those will add another over $1,000. And we don't have those revenue yet, but we do release those product.

[Matt Ramsay, Analyst at Cowen]

Got it. Of those larger ASP products, any thoughts on timing?

[Michael R. Hsing, Chairman of the Board, President and Chief Executive Officer at Monolithic Power Systems]

There's many product that we are talking now that we have released, a couple of them already, or more than a couple of them already. And the key is we want to offer the total solutions. And our customers pretty much can use the MPS as a reference design.

[Matt Ramsay, Analyst at Cowen]

Got it. As my follow-up question, it's a different topic. And one of the things that I've been having investor conversations about is the broad based industry adding a -- investing a ton of capex and adding a ton of capacity, and this fear that the industry's adding it at a peak, right? You see a couple of new fabs coming online from Texas Instruments in the next number of quarters. Infineon is up in capex, pretty much everyone is. And so you guys have been in a unique position to have a ton of capacity come online when others have struggled to do it. And it sounds like that's going to continue for you.

I just wonder any concerns as the industry catches up with capacity, Michael, and maybe you could contrast the type of capacity, the process node that you're on, the nature of the capacity that you're bringing online for some -- that the rest of the industry may be adding? Thank you.

[Michael R. Hsing, Chairman of the Board, President and Chief Executive Officer at Monolithic Power Systems]

Yes. That's a good question. So first things, I should answer that, MPS don't build anything. We don't build anything, we don't have a fab, but we do have all the technologies. And usually, how we're getting a fab capacity is that those are fab empty. And we go in there, we said, okay, we can fill you up, okay? So it's a long-term partnership. And so -- and then like this year, the last year, so they came and you want to add capacity? Forget it. Okay. I mean, those guys are busy shipping. I mean there's no fab is empty. And so we engage in the downturns. And we implement our technology.

Remember, we don't -- it's not like a building a fab. We don't build a fab. The cost is a minimum. But we do have some commitment and we do have in case some consignment or some equipment. But these costs compared building a fab is much, much less.

[Matt Ramsay, Analyst at Cowen]

Thanks very much, guys. I appreciate it.

[Michael R. Hsing, Chairman of the Board, President and Chief Executive Officer at Monolithic Power Systems]

Yes. Okay.

[Genevieve Cunningham, Supervisor-Marketing Communications at Monolithic Power Systems]

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

[Tore Svanberg, Analyst at Stifel Nicolaus]

Thank you. Just two quick follow ups. I know it's early in the year, but you have -- so you have four horses that are running really fast. You have one horse that's kind of just running slowly. If we look at this year, which of the horses do you think will grow a bit faster? I know there's a lot of talk about auto and server. But yes, which horses should we bet on this year?

[Michael R. Hsing, Chairman of the Board, President and Chief Executive Officer at Monolithic Power Systems]

We don't want to be in those. MPS is auto companies. It's definitely not a normal company. And I think it's a -- we're shifting. Clearly, this year, we're shifting from a consumers to well, at least the last couple of quarters. So we shift from a consumer to automotive and a server -- from a cloud computing site. And again -- and so these are -- for this year, probably remained similar. Okay. That's what we see it.

[Bernie Blegen, Vice President and Chief Financial Officer at Monolithic Power Systems]

Yes. And I think that when you say that we've got five strong horses, that's a more accurate reflection. Because I'd say that in the current year, we were surprised by the strength of industrial. So -- and I think that's going to continue on into the next year. And as we talked about earlier, the communications market, while it may not be coming on as fast as we'd originally hoped for or expected, still looks very promising in the second half of this year. So I think really the thesis remains being broad based growth.

[Michael R. Hsing, Chairman of the Board, President and Chief Executive Officer at Monolithic Power Systems]

Yes. But let's say that all these other market segments slow down and as a consumer business in every half years that we can shift it. And we can shift there quickly. That currently is not a favor. But we can shift quickly. And by end of the year, maybe we'll grow consumer business.

[Tore Svanberg, Analyst at Stifel Nicolaus]

Sounds good. And coming back to the data converter topic, a new segment for you. What are some of the things that we should track for your success there? We all know it's very difficult to crack into that market. And are you going into that market really, really at the high end of data converter technology? And will that be the way for us to track your success there?

[Michael R. Hsing, Chairman of the Board, President and Chief Executive Officer at Monolithic Power Systems]

So far, yes, it's a very, very high end product. But that's a new market segments. So like earlier I said, okay, we said we're going to ramp a -- ramping the data center very quickly, okay, turned out to be it wasn't a case. Okay. So I don't want to predict in that. But I know the technology is good and that the test data showed, okay, we can be -- okay, we're far better than on the -- in the existing market product.

[Tore Svanberg, Analyst at Stifel Nicolaus]

Great. I mean, if you can even get the $100 million there, I'll be very impressed.

[Michael R. Hsing, Chairman of the Board, President and Chief Executive Officer at Monolithic Power Systems]

Oh yes, okay. It's a matter of the time. I am confident of that. And along the way, probably we'll learn a few things.

[Tore Svanberg, Analyst at Stifel Nicolaus]

Very good. Thank you.

[Michael R. Hsing, Chairman of the Board, President and Chief Executive Officer at Monolithic Power Systems]

All right. Okay.

[Genevieve Cunningham, Supervisor-Marketing Communications at Monolithic Power Systems]

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

[Bernie Blegen, Vice President and Chief Financial Officer at Monolithic Power Systems]

Well, once again, I'd like to thank you all for joining us for this conference call and look forward to talking to you again about our first quarter, which will likely hold in April. So thanks again and have a nice day.