Monolithic Power Systems Q1 2022 Earnings Call Transcript

Quartr
Provided by Quartr
May 2, 2022

There are 12 speakers on the call.

Operator

Welcome everyone to the MPS First Quarter 2022 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, CEO and Founder of MPS and Bernie Blagen, 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.

Operator

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 or identified in the Safe Harbor statements contained in the Q1 earnings release and in our SEC filings, including our Form 10 ks filed on February 25, 2022, which is accessible through our website. MPS assumes no obligation to update the information provided on today's call. We will be discussing gross margin, operating expense, R and D and SG and A expense, operating income, other income, income before income taxes, net income and earnings on both a GAAP and a non GAAP basis. These non GAAP financial measures are not prepared in accordance with GAAP and should not be considered as a substitute for or superior to measures of financial performance prepared in accordance with GAAP.

Operator

A table that outlines the reconciliation between the non GAAP financial measures to GAAP financial measures is included in our Q1 2022 earnings release, which we have furnished to the SCE 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 1 year, along with the earnings release filed with the SEC earlier today. Now, I'd like to turn the call over to Bernie.

Speaker 1

Thanks, Jen. MPS has record 1st quarter revenue of $377,700,000 48.4 percent higher than the Q1 of 2021. The year over year revenue increase represented strength in the overall market and, more importantly, broad based market share gains resulting from customer acceptance of our new product introductions. Before looking at our revenue by market, I would like to call to your attention a change in our reporting. In order to provide increased visibility on data center and cloud computing revenue, we broke reporting for Computer and Storage into 2 separate line items.

Speaker 1

The table has been included in this webinar showing the company's quarterly revenue on this basis since 2017. The first line item is called Storage and Computing, which primarily refers to total storage and client computing revenue. The second line item and is called Enterprise Data which captures revenue from data center and cloud computing. In our storage and computing market, Q1 2022 revenue of $96,600,000 increased $18,600,000 or 23.9 percent from the Q4 of 2021 due primarily to higher storage and commercial notebook sales. Computing, storage and computing revenue represented 25.6 percent of MPS's Q1 2022 revenue compared with 20.2 percent in the Q1 of 2021.

Speaker 1

In our enterprise data market, Q1 2022 revenue of $42,500,000 increased 5.0% in the Q4 of 2021 due primarily to continuing strength in data center and workstation computing sales. Enterprise data revenue represented 11.3% of MPS's Q1 2022 revenue compared with 6.4% in the Q1 of 2021. Q1 2022 communications revenue of $55,600,000 rose $9,700,000 or 21.1 percent from the Q4 of 2021. The quarter over quarter increase primarily reflected higher revenue related to 5 gs build outs and satellite communications. Communications revenue represented 14.7 percent of MPS' Q1 2022 revenue compared with 14.2% in the Q1 of 2021.

Speaker 1

Q1 2022 revenue from consumer markets of $80,000,000 increased $13,600,000 or 20.6 percent from the Q4 of 2021. This sequential quarterly improvement the sequential revenue increase reflected the broad based increase particularly related to our IoT business. Consumer revenue represented 21.2% of our Q1 revenue compared with a 26.0 percent contribution in the Q1 of 2021. Q1 2022 automotive revenue of $54,500,000 decreased 3.2% from the Q4 of 2021. Automotive revenue represented 14.4 percent of MTS' Q1 2022 revenue compared with 17.6% in the previous year.

Speaker 1

In our industrial market, revenue of $48,500,000 was essentially flat with revenue recorded in the Q4 of 2021. Industrial revenue represented 12.8% of our 1st quarter revenue compared with 15.6% in the prior year. Moving now to a few comments on gross margin. GAAP Gross margin was 57.9 percent, 30 basis points higher than the Q4 of 2021 and 250 basis points higher in the Q1 of 2021. Our GAAP operating income was $96,100,000 compared with 78 $600,000 recorded in the Q4 of 2021.

Speaker 1

For the Q1 of 2022, Non GAAP gross margin was 58.3 percent, 40 basis points better than the Q4 of 2021 and 250 basis points better than the Q1 of 2021. Our non GAAP operating income was 133 $600,000 compared to $112,000,000 reported in the Q4 of 2021. On both a GAAP and a non GAAP basis. The sequential quarterly gross margin improvement was primarily due to a better product mix as higher value as revenue from higher value new product introductions or ramping. Let's review our operating expenses.

Speaker 1

Our GAAP operating expenses were $122,700,000 in the Q1 of 2022 compared with $115,300,000 in the Q4 of 2021. Our non GAAP Q1 2022 operating expenses were $86,600,000 up from the $83,000,000 reported in the Q4 of 201821. The differences between non GAAP operating expenses and GAAP operating expenses for the quarters discussed here are stock compensation expense, amortization of purchased intangibles and income or loss on an unfunded deferred compensation plan. For the Q1 of 2022, STAR compensation expense, and including approximately $1,300,000 charged to cost of goods sold was $39,800,000 compared with $31,200,000 in the Q4 of 2021. Switching to the bottom line, Q1 2022 GAAP net income was 79 point $6,000,000 or $1.65 per fully diluted share.

Speaker 1

Compare and res, dollars 72,700,000 or 1 point and $0.51 per share in the Q4 of 2021. Q1 2022 Non GAAP net income of $118,300,000 or $2.45 per fully diluted share compared with $102,100,000 or $2.12 per fully diluted share in the Q4 of 2021. Fully diluted shares outstanding at the end of Q1 2022 were $48,200,000 Consenting to the balance sheet. Cash, cash equivalents and investments were $775,900,000 at the end of Q1 of 2022 compared to $727,500,000 at the end of Q4 of 2021. For the quarter, MPS generated operating cash flow of about $107,400,000 compared with operating cash flow of $28,200,000 in Q4 2021.

Speaker 1

Q1 2022 capital spending totaled $26,500,000 Accounts receivable ended the Q1 of 2022 at $120,300,000 with 29 days of sales outstanding, up one day from 28 days at the end of the Q4 from 2021. Our internal inventories at the end of the Q1 of 2022 were $311,000,000 up from at $259,400,000 at the end of the Q4 of 2021. Days of inventory increased to 170 8 days at the end of Q1 2022, compared with 166 days at the end of Q4 of 2021. The story that we calculated days inventory on hand is a function of the current quarter revenue. We believe comparing current inventory levels with the following quarter's projected revenue provides a better economic match.

Speaker 1

On this basis, again, as you can see, days of inventory increased to 159 days at the end of Q1 of 2022, up from 149 days at the end of the Q4 of 2021. I would now like to turn to our outlook for the Q2 of 2022. We are forecasting Q2 revenue in the range of $420,000,000 to $440,000,000 We also expect the following: GAAP gross margin in the range of 58.4% to 59.0 percent. Non GAAP gross margin in the range of between $132,700,000 $136,700,000 and the R and D and SG and A expenses to be in the range of $90,000,000 to $92,000,000 This estimate excludes stock compensation and litigation expenses. Total stock based compensation expense $44,200,000 to $46,200,000 including approximately $1,500,000 and there will be charge to cost of goods sold.

Speaker 1

Litigation expenses ranging between $2,300,000 $2,700,000 Interest and other income is expected to range from $1,300,000 to $1,700,000 before foreign exchange gains or losses. Fully diluted shares to be in the range of 47,800,000 to 48,800,000 shares. In conclusion, We will continue to execute on our long term plan for sustainable growth. 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 is from Ross Seymore of Deutsche Bank. Ross, your line is now open.

Operator

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

Speaker 2

Hey, everyone. Congratulations on a great quarter in a tough environment. Maybe you can address a little bit The supply constraints in some of the China COVID impact, it seems like you guys came out from that completely unscathed. Be interested in in some of the dynamics that have allowed you to do that.

Speaker 3

Well, Alex, We plan this kind of ramp, not from last year, not from this year, last year, many years ago. And, you remember in 2017, even 2016, As we said, we're going to have a lot of greenfield products will grow. And And, exactly we don't know. It's gonna get plus or minus a year or so. And, so we're playing a lot of Every aspect, including logistics and fab assembly house and our internal testing.

Speaker 3

And,

Speaker 1

this

Speaker 3

is not a 1 year We planned a long time ago. And now when the revenues are rent, It is a little better than we we anticipated. And, so that's where you see the result now.

Speaker 1

And if I can add to that, we've also built inventories so that in 178 days, we're just at the Lower end of our goal being between 180200 days, which provides us a good insurance policy as we look ahead to achieving our numbers for the second half of the year.

Speaker 3

Yeah, even the end of second half of twenty nineteen and The business is not as great, but we built according to our plan and we know the business will come. Our at that time I remember our inventory is over 200 days and that part of it Inventories made us our customers feel a lot more reliable, like MPS as a major player.

Speaker 2

Okay. That's really helpful. Thank you. And then maybe one for you, Bernie, just on gross margin. Margins have been very strong as of late.

Speaker 2

You've alluded to product mix. Just on that front, how much more runway do you think you have on the gross margin front from the uplift on sort of your new products going forward.

Speaker 1

Sure. As you've seen, both in the results that we had for Q1 along with our guidance for Q2, which This is around 59% gross margin. I think we've done a fair job of Digesting is an incorrect word, but acknowledging the uplift in the margins as a result of our product mix. So again, I'll give the same answer I did last time that we believe that we've created a new floor on gross margins in which we can expand 10 to 20 basis points sequentially. But again, if opportunistically we see a That said, Blazes will take it up another.

Speaker 1

We will be happy to take that. I want to emphasize that, while most of our peer companies have benefited both in terms of revenue growth and margin expansion from price increases, Ours has been driven primarily by the change in revenue mix, which is favoring these Higher value products and it was only in February of this year that we did a broad based increase of our Prices, but that was still far below what the market has seen. Just I pass

Speaker 3

on the course to our customers. And as the margin expansion for our case, We said earlier, okay, setting the 2017 or 2018, we don't have a headwinds. And About 2019, the market slows down a little bit and we build up a lot of Some amortizations in a production in a pipeline So our margin went slightly lower, but it's not much lower. And now and that you see

Speaker 2

That's helpful. With that, I'll go back into queue.

Operator

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

Speaker 4

Thank you very much. Good afternoon, everybody. Can you guys hear me all right?

Speaker 3

Yes.

Speaker 4

Hey. Michael, I guess for either one of you guys, it was Interesting that you're breaking out sort of the data center piece from the PC and storage Business. And and I guess I wonder a couple of things about that. Like, what what may be our guys are trying to signal by breaking those out Separately, in particular, the new enterprise data segment, is up, I don't know, 160% year over year, but that's really before The 2 primary server processor vendors launch with with new sockets this year. So, Michael, could you maybe talk a little bit about The reason for breaking that out and the relative growth rates you guys expect of these 2 new segments as we go forward.

Speaker 4

Thanks.

Speaker 1

Yeah. If you combine them, okay, if

Speaker 3

you combine them all together, it's a kind of a a we're gonna answer in the In the in the past, we answered those questions anyway. And, but we when we reported, so one learned some numbers. And, so we're just more more more clear and, I mean, publisher, you guys know it. Okay? I mean, Have a have a less, less meaningful less meaningful questions.

Speaker 3

And if anyone wants to Sure. Any other reasons? Okay.

Speaker 1

I think, Matt, you did a good job of saying that this is clearly an inflection point for us, inflection year, which will gain momentum as we see both Intel and AMD are positioned for product releases Coming up here. So, that, in addition to, the expanding footprint we have in both 48 volt and Artificial intelligence. We believe that, this will be one of our areas for sustainable growth for certainly the next 3 to 5 years and exactly as Michael said, we believe that providing better transparency is definitely Better information for our investors.

Speaker 4

No, thanks to you both for that. That's helpful. I guess if you Look at the Q2 guidance that you provided, 430,000,000 at the midpoint was quite a bit above Where consensus was and certainly where my model was. Bernie, if you might take a second to walk us through By segment, how you're thinking about the growth being concentrated, that would be really helpful. Thanks, guys.

Speaker 1

I think that On a dollar and percent basis, we're going to see an accelerating ramp in enterprise, particularly during the second half of the year. I think we're going to see continued growth in our storage and computing, albeit probably not at the same rate. Part of the reason for that is that storage tends to be a precursor, at least in our experience, to a data center ramp. So I think in each of the 2 prior quarters, we've seen A good strong ramp in storage and now we're expecting 2 to 3 quarters in the data center. In the rest of the business, communications, as we said, we've broadened into dot only 5 gs, but also into satellite communications and that's going to continue to be a driver for foreseeable future.

Speaker 1

In the other areas, obviously consumer, that is coming along. We emphasized Internet of Things,

Operator

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

Speaker 5

Hey, guys. Let me offer my congratulations as well. Wanted to come back to Alex's question about China. Obviously, you source most Your assembly and wafer capacity in China. And I just, you know, given the 0 COVID policy in China and some of the Resulting lockdowns, are you rethinking the need to diversify outside of China, either on the assembly and test or assembly and And wafer foundry side.

Speaker 5

And then I guess a related question, I think most of your final test takes place in Chengdu. Have you any contingency plans in place In case Chengdu is is, put under lockdown due to COVID.

Speaker 3

Yeah. We started a a couple of years ago. We already started doing so. And as you know, China's and manufacturing Asia is the center of the world and we can't debate too much about it. I mean, If they have a serious problem, so I think that everybody worry about even bigger things.

Speaker 3

And Yes. The the answer is yes. Okay. We we already started the mechan establishing in a different political environment.

Speaker 5

And Chengdu, Michael, do you have test capacity outside of Chengdu if Chengdu goes under lockdown?

Speaker 3

Yes. As a, we're starting to about, about

Speaker 1

a couple years ago, but Maybe it's a little more than 12 months ago we started. Yeah. With the testing capacity in Chengdu, We've concentrated that on some of our higher value parts, including automotive. And now, as Michael just said, Yes. Now we've started transition, we're going to actually have 3rd parties.

Speaker 1

So we actually have

Speaker 3

a built in contingency plan. Oh, yeah. Outside Chengdu only. Yes. We have, other than these high High reliability product, like in in our site.

Speaker 3

And Other than that, okay, we do pretty high volumes if it's if

Speaker 1

it's not half of it. Okay?

Speaker 3

It's a it's a it's a in a in a in a different facility. When I talk about the, I just mentioned about it is the outside channel.

Speaker 5

Got it. Okay. And then my follow-up question is around the internal Inventory level that you guys have done an absolutely fantastic job of increasing that in a very tight supply environment. I guess my question is, is you're approaching now the low Your target level that may give you the ability to start to reduce lead times to potentially gain even more market share. But wondering if you could Give us a sense what's going on with lead times given that the increase in internal inventory levels.

Speaker 5

Thank you. Our lead time

Speaker 3

is now in this quarter is the same as the last quarter. So probably in our booking, even even I don't see any anything. The rate of a booking is not not reduced. And Bernie, you said,

Speaker 1

You took my answer on both fronts. Lead times have remained very consistent each of the last three quarters. And again, what you're seeing as far as the build with inventories, it has been a very conscious and deliberate decision to build the inventories in advance, particularly on the enterprise side to meet the demand we expect in the second half of the year. And then I think that we've done a good job of positioning ourselves under but has now become uncertain environment.

Speaker 6

Thank you.

Operator

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

Speaker 7

Thanks so much for taking my question and congrats on the very strong results and especially the outlook. You know, we understand though that While we see a great number overall, in particular for the guidance, there's always moving parts when we look at it on a more detailed level. And I wonder if you're seeing either perhaps owing to customers Focusing on getting balanced kits or full sets or however you want to call it, or if you're seeing anything related To Ukraine or the lockdowns in China, whether any of these factors is Influencing either the order rates or the backlog, for example, if none of these things were happening, the outlook would have been even stronger. Any qualification you can

Speaker 3

Yeah. Well, like I mean, and you know, NPS is selling jellybeans. And, we are not the dominant application Application supply, well, concerning in other way. I mean, so whatever we ship, these are the small and part of the solutions. And so we don't know.

Speaker 3

Again, That's actually that's our model. That's a billion. We don't know where where these costs can meet and end up. And, so, so whether the the wall affected us, okay, in We're very, very much diversified. We actually don't melt.

Speaker 3

And So so that, to answer your questions, like I mean, Only things, yeah, we do know where the product goes to the datasets, the product goes to a pause. Okay. We end up these are We pretty much know, okay, where where the product end end up. Okay? And, other than that, we don't.

Speaker 1

Okay. Thank thank you. Again, just for that, it looks like sorry? Just reinforcing the answer from before, There is no significant KPI, whether it's in the, bookings or any other area of our business, We're seeing a change from the past 2, 3 quarters.

Speaker 7

That's helpful, thank you. Puneet, you've talked about various levels of Revenue that you could achieve at full utilization, in other words, the capacity that you're building for. I know this started a couple of years ago, well, I'm It's ongoing, really. But the capacity, you know, and the upsides that we've seen over the last few quarters, of course, those were not You know, planned very quickly. They were planned a long time ago.

Speaker 7

Can you remind us or maybe update us on The medium to long term capacity planning that's in place today, what levels of total capacity we can expect over the next few quarters? Thank you.

Speaker 3

Yeah. That's a that's a good question. I think that we answered our questions like in last quarter. So, like I said, we said that we're going to put in a $4,000,000,000 of revenues in the next couple of years. And so that's what we do.

Speaker 3

And we continue to invest.

Speaker 1

Yeah. And I think, just to sort of lend some credibility to that, you recall about a year ago, that, we offered By the end of Q2, in 2022, that we would be at a $2,000,000,000 run rate. And with the guide that we have provided and the expectations ahead, I think that's A milestone that backs up, you know, the amount of visibility in our supply chain. So, you know, right now, the goal is, As as Michael said, dollars 4,000,000,000

Speaker 3

Yeah. If the demand is there this year, Seneca, we will do it. Yeah. Yeah. And What we do to billing as we said a couple years ago, and We continue to see the demand and We continue to see the demand and we see the demand will be there.

Speaker 3

Okay. This is not A short term, okay, things, okay. And if it's not happened that year, that will happen the year after.

Speaker 7

Guys, congrats again. Thanks for taking my questions.

Operator

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

Speaker 6

Yes, thanks. And I'll echo all the congratulations, another stellar quarter from you guys and outlook. If I could, my first question, I'm just kind of following up on the server breakout and Obviously a big ramp ahead for QSMod and cloud this year. I was curious kind of below that line a little bit if there's any updates you Give us on your 48 coal, expectations this year or next. And within that, I'm curious, You know, I sort of assume 48 volts virtually all AI accelerator for the next, you know, couple of years.

Speaker 6

But I'm curious when you see 48 volts sort of move into other areas like CPU or some broader markets like auto or industrial because I'm curious if you've looked at Sort of what that 48 volt SAM looks like for for MPS because it seems like a like an awful big opportunity.

Speaker 3

Yeah. 48 volts okay. And, 48 volts is actually starting, okay, in the automotive and also the server and the AI, okay, These are CPUs and, for the for the 48 volts for the car, that's a That's a different thing. So that's the same same same same technologies. And also we see these Telecom areas, 4 gs volts can be a it's old standard.

Speaker 3

And, so, Now the 4 gs's and I have to comply with the 4 gs Evo's, again, we have switching there. So there's a there's a lot of area we can grow. And

Speaker 1

I think that the 48 volt, not only are we seeing the ramp It's adoption more broadly, but competitively, I would offer that we're very well positioned with some of the new technologies that we've rolled out and expect to roll out during the course of the next 18 months. So I think here again, we timed our product releases pretty well with the inflection of this market opportunity.

Speaker 3

Yeah. And I think now, we're going to be talking about the app product, the modules, It's Randy. Yeah. We provide whatever customer needs. We're at a

Speaker 6

Thanks. And then maybe as my follow-up, Just on 5 gs, I haven't asked the 5 gs question in a while, but I'm I mean, you guys are engaged with the sort of the big 3 Tier 1 OEMs. And I just was curious if you could give An update on your expectations. I know you flagged 5 gs here from 1Q results. And so I'm curious what your are for this year and if there's any updates you could give us on sort of how content Compares with what you're seeing in server or data center and sort of how that ramp looks and maybe if you could talk about Yeah.

Speaker 6

How you quantify that opportunity in macro base station?

Speaker 1

Thanks. Sure. And The 5 gs is a relatively new market segment for us. So it's not like we can draw from our prior experience and calibrate it up or down. We're sort of living a little hand to mouth on what Demand looks like and how fast for shipping.

Speaker 1

So we don't have a real good predictive model. What we talked to you about in the past has been that, again, we believe on a broad based, not only with, As you referred to the top 3, but with a number of partners, related to 5 gs infrastructure, We're providing content. And while it's easy to look at the base station as a means of calculating out what the SAM is available to us. I think that We're also in fiber optic in the data center support for 5 gs, as well as in the transceiver of the base station. And again, I think as we pointed out, a lot of the initial technology that we're putting in is tending to be lower end and not necessarily specialized or adapted to 5 gs specifically, so we don't have the same level of visibility on how it's being deployed.

Speaker 1

And, we've used this strategy in the past, like, the data center. We come in with lower dollar value content, build the relationships, and then we're able to go to higher value

Speaker 3

Let me let me let me, say that. Okay. Let me say that, Sumit. We do have a custom design for for each of the areas that Bernie just Bernie said. And, from a fiber optics to all the single chains all the way to and we do have a custom design.

Speaker 3

And based on our standard product modules And these are the products that get me it's not it's not really a low end, and that can be in the but These products can be used for for any other telecom. We provide a building block. We provide, provides a power Power solutions for for each of of these blocks. Each of these is a category. And we do see a lot of activity now and the revenues is ranking now.

Speaker 6

Got it. Congrats. Thanks, guys.

Operator

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

Speaker 8

Yes. Thank you and good evening. I guess a question about the profile of revenue growth as we go through the year. And thus far, over the past several Your revenue growth has been pretty broadly based, seeing growth in most segments. I know we've been speaking about and we've been anticipating for a while, and to be broadly based, where do you think there's going to be concentrated in any particular segments?

Speaker 3

Well, the strategy is We fired as many cylinders as we can. Okay? Whatever grows, we grow. Okay? And And, I think that's the strength about the the diversifications, McKinney.

Speaker 3

And In the next few quarters, we see the demand even for 2,000 23 and 24 and these are pretty much similar. Okay. We don't see that much of a difference. And one thing we see at the Akene, they We, our customers demand more, more, higher value product, which means They can easily adapt and ease of use and a Much higher efficiency product and energy conversion efficiency product. And, and, So these are much better for for us.

Speaker 3

Instead of, our customer do a lot of development work, We do a lot of development work for for our, we develop the solution for our our Our customers. So that means a higher dollar amount, a higher dollar content. And So that's a that's a really it, we see that that's a only that's a only only only difference.

Speaker 8

Got it. Thank you. My follow-up question is about the impact of some of the China lockdowns and not from your production side, but rather from your customer side. And what we heard from some others, at least one other, is that part of the challenges in China right now are customers having facilities that are closed or that freight Forwarders are simply unwilling to accept product because of some of the logistics challenges that are going on right now. Is that something you're facing as well?

Speaker 8

And is there any impact on your revenue right now, which might mean some of those issues get solved That some of that, you know, goes into the second half of the year.

Speaker 3

Absolutely, it hit us. And don't get me wrong, even though we even though we grow this much, If we're not that problem, so that could wind ship a whole lot more. And, but we just have a, We anticipated that a little better, like, at Mienda, so we can still roll in our, above our models. Okay? I mean, there's not much about models.

Speaker 3

I mean, and Well, the quality is about our models. Yes. I think even a year to years. Okay? And On the other hand, in the other than our logistics and the production limit, okay, limitations, Our customers, they have a mix too.

Speaker 3

And clearly, you see the auto business, Damien. We have less problem of a shipping product, okay, than Then other, there are other suppliers. So and, you can speculate these. Okay? Because, because, in limited our they are buying They're they're they're purchasing of our our product and for for, because they're missing other parts.

Speaker 1

And I think that we continue to be very resilient under a number of environmental circumstances. Part of that is the planning that, we've set in motion, you know, 3 or 4 years ago, and some of it is how diversified our model is, and some of it is how adaptive we can be in the moment. So again, we did acknowledge an impact. Our customer supply chain affected us, but I wouldn't say that that is a pronounced element and we're continuing to monitor it. Great.

Speaker 1

Thanks very much.

Operator

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

Speaker 9

Thank you and congratulations on another record quarter, quite stunning. First question is on long term growth. So you grew more than 40% last year. It looks like you're on track to growing another 40% this year at least. Michael, in the past you've said, you know, There's no reason why you can't accelerate growth even though you have higher revenues.

Speaker 3

You remember that one. That's good.

Speaker 9

So I'm just trying to understand what you think about long term growth at this point. Is 40 the right number? I know you're probably not going to commit to a number, but, yeah, anything you can add on that would be great.

Speaker 3

Yeah. Okay. As we said, About a few minutes ago, I said that our customers even demands more higher values products, okay, being a Solution kind of, related products. If not, they want to, unload their engineering effort to NPS. And I see that opportunity is It's, the opportunities for, for accelerated growth.

Speaker 3

Because, think about it. If it's NPS, we don't make anything. And, and, we're just only testing the final controller, Quality control. And, that can apply to anything else. And I can then Apply to models, apply to okay.

Speaker 3

Apply to, any other other other solutions. Okay. All but it's all related to all relate to what we know. And so from now on, you will see NPS. Okay?

Speaker 3

We provide the Plug and play solution for all kind of robotics, for industrial automations, and for building controls, And those type of a product and which has a lot higher ASPs. We buy those components or we specify those components and we incorporate into our solutions. So, the unit Price will be much higher. And, now, it's how fast We can put all these solutions together and turn into a meaningful revenue. And that I can predict.

Speaker 3

And that you have acquired a lot of knowledge too. Now at the same times, NPS's semiconductor chip business keep growing. So I don't see In the near term, in the next year or so, I don't see any slowdown. And, it's actually accelerating. And so 2 data model is at the very infancy.

Speaker 3

And if we go 3 or 4, 5 years from now, I think we will be a real solution company. So like a semiconductor semiconductor is a is only a part of it in our in the total content. So I I want to grow more. I see more than $10,000,000,000 of companies. Okay?

Speaker 3

We are in a $10,000,000,000 $15,000,000,000 company and there is no reason why why not.

Speaker 9

That's great perspective. Thank you for that, Michael. As my follow-up, I wasn't aware you had a lot of traction in the Satcom market. I was just hoping you could add a little bit more color there. What types of applications?

Speaker 9

What are some of the strengths the company have today in that market and are you continuing to introduce new products? Because that's To me, it's obviously a very high margin business, right? But it's also a very difficult market to crack into.

Speaker 3

Yes. It's All committed satellite communications and I mean in, not only in the satellite itself, the ground station, there's a huge amount. And there's new standards and there's a lot of new activities, okay, that and we designed it into a a few years ago. And mostly, it is power modules and Also, we have related to these, in the cello itself and then, these are controlled solar panels and and also a lot of power blocks and I think the ground units is a is a so These are ground units everywhere. Okay?

Speaker 3

And these are from an antenna to powering powering up the antenna to power the and the power of the receivers. Okay? And, and also all the way down to the user interface and we all benefited from that.

Speaker 9

Excellent. Very good. Congratulations

Speaker 3

again. Thank you. Thanks.

Operator

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

Speaker 10

Hi. Can you guys hear me this time?

Speaker 1

Yeah. Ross, you're there.

Speaker 3

I've been

Speaker 10

here the whole time. I'm glad that we got it to work. So I guess the first question is a longer term one, then I'll follow-up with the shorter term one. Michael, you talked many times on tonight's call about Moving up the value chain, adding more value, customers want to use Monolithic for more and more. And in the past, that's going from kind of the second or third tier folks in various markets up to the 1st tier.

Speaker 10

So really what I wanted to get at was, are you seeing evidence of moving up to higher and higher value customers? And does the fact that you didn't raise prices as much as your peers and that you had availability, is that getting you longer term design wins, Higher value design wins, anything you could do to quantify that dynamic?

Speaker 3

I don't know how to quantify that, okay, because we don't We don't hold up. We didn't real we didn't increase the price, okay, for those 1st here is the value that strategic customers because these price Negotiated way before that. And we had to audit. And so We always said that what we do is what we say what we do. Okay.

Speaker 3

And so we have we have to honor that. And I think that's that's also is a part of an NPS branding. And So, that benefits from the long long terms. And, for other high High value customers, okay, high value products, okay, and it's a sporadics, okay, this is at the very, very beginnings and A lot of customers don't even know, oh, you offer this solutions. But you offer that that the entire solutions and and So they even don't they don't even know that.

Speaker 3

Okay. NPS is just a spot into it. That that is that that actually relates to a few years ago, we said that we're going to do e commerce. Okay. We will do e commerce plug and play Programmable Osteices and these are all related and so We do solar only for large customers And I said we are a satellite company, we have EV companies, we have a they want NPS to do a lot more.

Speaker 3

Or even the even the data centers and the demand, all these, We provide the entire unit and, and and they don't have to design. So that's actually across the world. We have just a name in a few.

Speaker 10

Thanks.

Speaker 3

But revenue is too small. We're starting.

Speaker 10

Great. Thanks for all that color, Michael. And for my follow-up and nearer term question, Bernie, this could either be both revenues and or the Gross margin and your answer on this, and it's really about the mix. You've talked about the gross margin rising because of mix and new products being the driver of that. If I look The industrial and automotive businesses the last couple of quarters, they're great year over year, but they've been flat to a little bit down sequentially for the last 6 months or so.

Speaker 10

Is there anything going on in that business? Is it just lumpiness? Is it waiting for some design wins? And on the mix side of that equation, for gross margin, I think most people believe those could be some of the more accretive areas. So how is the mix such a positive for your gross margin if the two areas that are supposed to be the highest margins are actually slightly underperforming the others?

Speaker 3

Makes sense. That's a that's a that's a good question. Difficult question. So, yeah. Yeah.

Speaker 1

Uh-huh. Let me Reference, what Michael said earlier, is the power of our model is the diversification of the end markets. And if you go back to Performance, revenue performance that we demonstrated in industrial and automotive last year. They were Leaders that are our growth drivers. In the prior year, it reflected what's the health of the 2 end markets.

Speaker 1

It really came down to it being the timing of shipments. So we believe that as far as the design wins that are coming in, We don't believe that we've over shipped them to the extent that that's going to cause us a problem. Orders on the book remain incredibly positive. So again, it's just it's more different sort of quarter over quarter as Anything fundamentally different about the margin.

Speaker 3

And also, you know, one of the questions is why the margins Goes up if these are 2 segments go sideways. Okay. I mean, in the year to year, year over year would grow. Okay. If you look at it from a from a Q3 last year to now, those segments are growth that contributes A lot of margins, okay, gross margins.

Speaker 3

And the other the other segments, okay, consumers, okay, We we phased out and there can be a this is not from the last year. So, like, maybe the year yeah. Beginning of last year. Yeah. And then when the When the, when the capacities gets issues, like, as you know, so we always face these lower margin.

Speaker 3

That's another another part of it. And, but the overall, the greenfield products that we drive the margins. Yeah.

Speaker 1

And just to add to Michael's point as far as phasing out of a margin business, We're trying to rationalize our wafer starts to capture the largest opportunity. And as a result, some of the Lower margin business that we wouldn't have used to have in our portfolio, we haven't emphasized that in our production plans,

Speaker 3

Yes.

Operator

Our next question is from Hans Mosesmann from Rosenblatt. Hans, your line is now open.

Speaker 11

Hey, thanks. Thanks for fitting me in and congratulations like everybody else has mentioned. Good stuff. Hey, I have two questions. Hey, Michael, if we were to split 48 volts as an opportunity, so I'm thinking it, you know, Getting 48 volts to the rack in your data center and within the rack, getting that 48 volts to the board.

Speaker 11

And every board has to deal with, the accelerators and there's power issues there. So there's 3 touch points. If that's the way to look at it, What is the opportunity for each and where would you be seeing the first incremental business for 48 volts for MPS?

Speaker 3

I think it's the solution. Yeah. You're right. Okay. And then now the question is Depending on applications, the 48 volts and the that are down to 12 volts or down 5 volts are down to directly down to, 1.2 volts.

Speaker 3

That's the that The last part, okay, we don't do that. And that and, our customers, like I mean, and, There's a few providers for the solution is not coming. And so we play in the market, I mean, Start at 1248 convert to 12 and convert to 5, 4 fivables. Okay? That's the that's the market we played.

Speaker 3

We came in And, it's open bill of materials. Everybody else, you can jump into it. And, and we, so, So our competitor provides a similar solutions. And, and, so that that That kind of a we know this is an application, but which one? We don't know.

Speaker 3

Which one? Wait. It's hard to tell. All these high current products, and you probably know more than I do, okay, Goes to a 600 watt to a to a 1000 watt and even some of the couple of 1000 watts. You see these are all NPS solutions now.

Speaker 3

And, and these are is the higher one as you go, the audience is smaller. And, so in the, in the coming, years, in, those accelerated costs, Okay. The population in, in the, in the data centers and, that's where you see it. These are 48 volts and they convert to 12. And, and, then you have a new solutions that we provide.

Speaker 3

So, okay, we can Close to 1% of of of efficiency, which is a lot.

Speaker 11

Thanks. That was very helpful, Michael. And then my follow on just to end this. What is the view of the PC market for MPS? I think Intel mentioned that the low end of the PC market is weak, but the other parts Okay.

Speaker 11

What's your view to the degree that you have participation there? Thanks.

Speaker 3

Yeah. We Obviously, okay, and we do well. So, okay, we do PCs and PCs, the commercial PCs, and even on the Low end of business from, from, from where we see it. And, but for for us is very opportunistic because we have a product developed for server and without much of an engineering effort, okay, we can spin off the the dual other product. I mean, dual Product for for commercial PC and for commercial notebooks.

Speaker 3

And on the other end, we do battery management. We do, we do, actually panel Panel power too. Yeah. And we're pretty much we can offer the anti global solution other than the memories, other than Other than the CPUs. And so that's a that's it's very opportunistic and we Currently, we see the demands are very strong.

Speaker 1

Yeah. And just to add to that, Michael, We have a very good footprint in the commercial side and because we have so many different product offerings, What we're seeing is being able to sell additional content into those same platforms. Yeah.

Speaker 11

Okay. Thank you very much.

Operator

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

Speaker 1

Great. Thanks, Jed. I'd like to thank you all for joining us for the Q1 2022 earnings webinar. I look forward to talking to you again during our Q2 conference call, which will likely be in July. Thank you and have a nice day.

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Earnings Conference Call
Monolithic Power Systems Q1 2022
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