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S&P 500   4,981.80
DOW   38,612.24
QQQ   425.61
Palo Alto Networks, Keysight fall; Garmin, Toll Brothers rise, Wednesday, 2/21/2024
Is Gold Really Boring? (Ad)
Palo Alto Networks aims at cyber security leadership
3 Reasons the Capital One-Discover merger is a big deal
Gold Could Be Heading for Record Highs - But How to Play It? (Ad)
How major US stock indexes fared Wednesday, 2/21/2024
Germany says Europe's largest economy is in 'troubled waters' and cuts its growth forecast
Gold Could Be Heading for Record Highs - But How to Play It? (Ad)
Teladoc Health gaps down to support level after weak guidance
Housing data weakens, but Toll Brothers stock is still a buy
S&P 500   4,981.80
DOW   38,612.24
QQQ   425.61
Palo Alto Networks, Keysight fall; Garmin, Toll Brothers rise, Wednesday, 2/21/2024
Is Gold Really Boring? (Ad)
Palo Alto Networks aims at cyber security leadership
3 Reasons the Capital One-Discover merger is a big deal
Gold Could Be Heading for Record Highs - But How to Play It? (Ad)
How major US stock indexes fared Wednesday, 2/21/2024
Germany says Europe's largest economy is in 'troubled waters' and cuts its growth forecast
Gold Could Be Heading for Record Highs - But How to Play It? (Ad)
Teladoc Health gaps down to support level after weak guidance
Housing data weakens, but Toll Brothers stock is still a buy
S&P 500   4,981.80
DOW   38,612.24
QQQ   425.61
Palo Alto Networks, Keysight fall; Garmin, Toll Brothers rise, Wednesday, 2/21/2024
Is Gold Really Boring? (Ad)
Palo Alto Networks aims at cyber security leadership
3 Reasons the Capital One-Discover merger is a big deal
Gold Could Be Heading for Record Highs - But How to Play It? (Ad)
How major US stock indexes fared Wednesday, 2/21/2024
Germany says Europe's largest economy is in 'troubled waters' and cuts its growth forecast
Gold Could Be Heading for Record Highs - But How to Play It? (Ad)
Teladoc Health gaps down to support level after weak guidance
Housing data weakens, but Toll Brothers stock is still a buy

Monolithic Power Systems Q4 2022 Earnings Call Transcript

Participants

Corporate Executives

  • Bernie Blegen
    Vice President and Chief Financial Officer
  • Michael R. Hsing
    Chairman of The Board, President And Chief Executive Officer

Presentation

Operator

Welcome, everyone, to the MPS Fourth Quarter 2020 Earnings Webinar. 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 2022 earnings release and in our latest 10-K and 10-Q filings that can be found on 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 2022 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, Jen. For the full year, 2022, MPS achieved record revenue of $1.79 billion, growing 48.5% from the prior year. This is despite industry-wide supply chain capacity constraints. This performance represented consistent execution against our strategies and having more Tier one customers recognize MPS for advanced technologies, product quality and excellent customer support. Here are a few highlights from 2022. We introduced a new product line of isolated power modules for applications exceeding one kilowatt with a fully integrated controller, isolator and power devices. Our initial revenue ramp for this highly integrated and reliable solution is targeted for 2024.

These modules are critical building blocks for power management applications for data centers, EVs plug-in traction inverters, EV chargers, solar power, wind turbines, battery power storage and other industrial applications. Our products are designed to set the industry standard for these critical system-level applications. MPS's first advanced data converter products for high precision industrial and medical applications were made commercially available during 2022, and we expect to have an initial revenue ramp in 2023. We continue to diversify our global footprint with expansion of our R&D centers supply chain partnerships and facilities outside of China to better match our resource distribution with our customers' geographic demand profile. With our global presence, we believe MPS is in a strong position to support our customers worldwide.

Turning to our full year 2022 revenue by market segment compared with 2021. Enterprise Data revenue was up 116.1%, Storage and computing revenue up 76.8%, Communication revenue up 53.2%, Automotive revenue up 46.8%, Industrial revenue, up 18.6% and consumer revenue, up 13.2%, demonstrating broad-based full year 2022 revenue improvements. Full year 2022 enterprise data revenue grew $135.1 million over the prior year to $251.4 million. This 116.1% increase is primarily due to higher sales of our power management solutions for cloud-based CPU and GPU server applications. Enterprise data revenue represented 14.0% of MPS's total revenue in 2022 compared with 9.6% in 2021. Storage and computing revenue for 2022 grew $196.7 million over the prior year to $452.6 million. This 76.8% increase primarily resulted from strong sales growth for storage applications and enterprise notebooks.

Storage and computing revenue represented 25.3% of MPS's total revenue in 2022 compared with 21.2% in 2021. Communications revenue grew $87.4 million to $251.5 million. This 53.2% improvement reflected higher sales of products for both 5G and satellite communications infrastructure applications. Communications revenue represented 14.0% of our 2022 revenue compared with 13.6% in 2021. Automotive revenue grew $95.7 million to $300.0 million in 2022. This 46.8% year-over-year gain primarily represented increased sales of our highly integrated applications supporting automated driver assistance systems, the digital cockpit and connectivity. Automotive revenue represented 16.7% of MPS's full year 2022 revenue compared with 16.9% in 2021.

Industrial revenue grew $34.4 million to $218.2 million in 2022. This 18.6% year-over-year increase primarily reflected higher sales in applications for smart meters and industrial automation. Industrial revenue represented 12.2% of MPS's full year 2022 revenue compared with 15.3% in 2021. Consumer revenue grew $37.2 million to $319.5 million in 2022. This 13.2% year-over-year increase primarily reflected increased product sales for home appliances and smart TVs. Consumer revenue represented 17.8% of MPS's full year 2022 revenue compared with 23.4% in 2021. Let's talk about the general business conditions. During our Q3 '22 earnings call, we highlighted that customers were becoming more concerned with near-term business conditions and order patterns might oscillate in the near future.

As a result of this change in ordering patterns, we indicated that our inventory levels would likely catch up to our target of 180 to 200 days and possibly be higher in the near term. During the quarter, ordering patterns stabilized as customers requested pushouts -- customer requested pushouts slowed. When this is positive, customers' orders are still trending below historic norms. In our Q4 '22 inventory is above our target levels. As a result, we remain cautious about near-term business conditions. We also believe MPS can swiftly adapt to market changes as we have done so successfully during similar macroeconomic changes in the past. Switching to Q4. MPS had a record fourth quarter with revenue of $460.0 million, down 7.1% from revenue generated in the third quarter of 2022, but up 36.7% from the comparable quarter of 2021.

On a year-over-year base comparison, by market segment, fourth quarter 2022 revenue for automotive grew 72.8%, Enterprise Data revenue increased 69.0%. Storage and computing revenue grew 55.0%, Communications revenue grew 40.1%, and industrial revenue grew 13.3%, while consumer revenue decreased 20.1%. Fourth quarter 2022 GAAP gross margin was 58.2%, down 50 basis points from third quarter 2022 with 60 basis points higher than the fourth quarter of 2021. Our GAAP operating income was $136.9 million compared to $151.9 million reported in the third quarter of 2022 and $78.6 million reported in the fourth quarter of 2021. Fourth quarter 2022 non-GAAP gross margin was 58.5%, 50 basis points below the third quarter of 2022, but 60 basis points higher than the fourth quarter of 2021.

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 efficiencies, which more than offset higher product input costs. Our non-GAAP operating income was $174.1 million compared to $193.7 million reported in the prior quarter and $102.0 million reported in the fourth quarter of 2021. Let's review our operating expenses. Our GAAP operating expenses were $130.9 million in the fourth quarter compared with $139.0 million in the third quarter of 2022, and $115.3 million in the fourth quarter of 2021. Our non-GAAP fourth quarter 2022 operating expenses were $94.8 million, down from the $98.4 million we spent in the third quarter of 2022 and up from the $83.0 million reported in the fourth quarter of 2021.

On both a GAAP and a non-GAAP basis, fourth quarter 2022 litigation expense was $3.2 million compared with a $2.1 million in Q3 2022 and a $420,000 credit balance in Q4 2021. The fourth quarter 2021 litigation credit reflected in IP settlement in a of a legal retainer. The differences between GAAP and non-GAAP operating expenses for the quarters discussed here are primarily stock compensation expense and income or loss from an unfunded deferred compensation plan. Fourth quarter 2022 stock compensation expense, including $1.0 million charged cost of goods sold was $35.3 million compared with $43.0 million recorded in the third quarter of 2022. The quarter-over-quarter change in stock compensation expense reflected the change in planned vesting assumptions. Switching to the bottom line.

Fourth quarter 2022 GAAP net income was $119.1 million or $2.45 per fully diluted share compared with $2.57 per share in the third quarter of 2022 and $1.51 per share in the fourth quarter of 2021. Q4 2022 non-GAAP net income was $154.0 million or $3.17 per fully diluted share compared with $3.53 per share in the third quarter of 2022 and $2.12 per share in the fourth quarter of 2021. Fully diluted shares outstanding at the end of Q4 2022 were 48.5 million. Now let's look at the balance sheet. As of December 31, 2022, cash, cash equivalents and investments totaled $739.6 million compared to $738.1 million at the end of the third quarter of 2022. For fourth quarter -- for the fourth quarter of 2022, MPS generated operating cash flow of about $52.2 million compared with Q3 2022 operating cash flow consumed of $18.2 million.

Fourth quarter 2022 capital spending totaled $12.8 million. Accounts receivable ended the fourth quarter of 2022 at $182.7 million or 36 days of sales outstanding compared with the $153.4 million or 28 days of sales outstanding reported at the end of the third quarter of 2022 and the $104.8 million or 28 days reported at the end of the fourth quarter of 2021. Our internal inventories at the end of the fourth quarter of 2022 were $447.3 million, up from $397.4 million at the end of the third quarter of 2022. Calculated on a basis consistent with our past practice. And as you can see on the webinar video, days of inventory rose to 212 days at the end of Q4 2022 from the 167 days at the end of the third quarter of 2022. 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 quarters revenue provides a better economic match. On this basis, again, you can see days of inventory increased to 214 days at the end of the fourth quarter of 2022 from 188 days at the end of the third quarter of 2022. I would now like to turn to our Q1 2023 outlook. We are forecasting Q1 2023 revenue in the range of $440 million to $460 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 $40.2 million to $42.2 million, including approximately $1.2 million that would be charged to cost of goods sold. GAAP R&D and SG&A expenses, including litigation expenses between $135.1 million and $139.1 million.

Non-GAAP R&D and SG&A expense to be in the range of $96.1 million to $98.1 million. This estimate excludes stock compensation expense but includes litigation expense. Beginning with the Q1 2023 outlook, MPS will no longer separately forecast litigation expenses. Interest income is expected to be in the range from $1.8 million to $2.2 million before foreign exchange gains or losses and charitable contributions. The non-GAAP tax rate for Q1 2023 will be 12.5%. The non-GAAP tax rate remains unchanged from 2022 as there have not been any material changes in tax regulations. Fully diluted shares to be in the range of $48.2 million to 49.2 million shares.

Finally, I'm pleased to announce a 33% increase in our quarterly dividend to $1 per share from $0.75 per share for stockholders record as of March 31, 2023. In conclusion, while we remain cautious about near-term business conditions, we believe MPS can swiftly adapt to market changes and take advantage of current environment to focus on business development and investing in infrastructure necessary to support long-term growth.

I'll now open the webinar up for questions.


Questions and Answers

Operator

Thank you, Bernie. [Operator Instructions] Our first question is from Quinn Bolton, Needham. Quinn Your line is now open.

Quinn Bolton
Analyst at Needham & Company LLC

Hey guys, congratulations on the strong results and the nice outlook in this environment. I guess I wanted to start, Bernie and Michael the compute and storage business was much stronger than I expected in the fourth quarter. You grew revenue quarter-on-quarter when the rest of the PC market is clearly experiencing softness in inventory correction. So I guess, can you give us sort of your outlook? How do you see that business trending over the next couple of quarters? And then I've got a follow-up.

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

Sure. I think that there's been a lot of press recently around weakness in notebooks as far as unit sales. And in addition, we've started to see some word and hear about declines also in the memory market. Interestingly, memory continued to be very strong for us, offsetting a decline in notebooks. And as we look ahead here, we actually see notebooks beginning to improve in the early part of '23 and probably those gains will offset a decline in memory. So we're basically looking at this category, at least for the first half of the year to be flattish.

Michael R. Hsing
Chairman of The Board, President And Chief Executive Officer at Monolithic Power Systems

The one component, the AI portions still remain to be very strong in the near future, and that we see a very high growth.

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

Absolutely. And the enterprise data we've really got good traction with the GPUs for artificial intelligence. And so that should really be one of our growth drivers in the first half of 2023.

Quinn Bolton
Analyst at Needham & Company LLC

That was going to be my next question. Enterprise data was down slightly in the fourth quarter, but it sounds like you see the ramp or just stronger results in the first half driven pipe. It sounds like specifically, GPU is that right?

Michael R. Hsing
Chairman of The Board, President And Chief Executive Officer at Monolithic Power Systems

That's related to artificial intelligence.

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

Yes. When we look at CPUs in the enterprise data, there's still initial softness as we're waiting for the platform launches for both the Sapphire Rapids and Genoa to take off.

Quinn Bolton
Analyst at Needham & Company LLC

Do you expect that in the second half than the CPU to on the take in more second half of the year?

Michael R. Hsing
Chairman of The Board, President And Chief Executive Officer at Monolithic Power Systems

Yes. Perfect.

Operator

Thank you. Our next question is from Tore Svanberg of Stifel. Tore Your line is now open.

Tore Svanberg
Analyst at Stifel Nicolaus

Yes, thank you and congratulations on the record year. Michael, I was hoping you could talk a little bit more about the power isolation module business that you expect to ramp in 2024 -- is this still based on the company's BCD technology? Or are you now starting to venture into some newer technologies I'm just curious, right, because you haven't talked a whole lot about potentially getting into sort of carbide or GAM or anything like that.

Michael R. Hsing
Chairman of The Board, President And Chief Executive Officer at Monolithic Power Systems

Yes. So we do have a program that are going to a wide Band-Gap materials, okay? And -- in the past, I think we talk about it. And we have a program to make -- to investigating and develop those devices since 2017. And now we see the first result. And we do have some samples ready, but not in production yet. My prediction is that somewhere in the middle of the year or second half of the year. And related to your questions about the isolated modules. When any high power so traction inverters, solar inverters and data centers.

Also chargers, onboard chargers and all these are and the wind turbines. All of these have one basic component in all these very high-power applications, which is all the power devices driven by using the isolated modules. And MPS is using -- again, using our own BCD process and as well as band-gap materials. And we combine together and are making a very simple and very easy to use power modules for those type of applications. Some of these products already in -- in production in EVs correlate and things we expect a higher growth in the next couple of years.

Tore Svanberg
Analyst at Stifel Nicolaus

That's very helpful. And as my follow-up, could you just give us an update on the manufacturing footprint, both from a capacity perspective, but more importantly, about diversification you talked about looking at all sorts of regions to partner with some new manufacturing partners. So yes, both capacity but then also from a geographical perspective, perhaps an update there.

Michael R. Hsing
Chairman of The Board, President And Chief Executive Officer at Monolithic Power Systems

Yes. we see it as everybody else in the geopolitical tensions. And -- as you know, the NPS in the past, we always want to be a local company in every political regions. And we did that successfully in the R&D side. And because for one thing it's close to customers, other ones and other ones we isolated from these tensions further between the countries. And for the manufacturing side, currently, we can fulfill all our customer demand to -- demand for wherever they want to manufacture it. And we want to by end of the year or by the next -- by end of the year and next year, we will have fully ramped and for the new capacities just in case the worlds are really separated.

Tore Svanberg
Analyst at Stifel Nicolaus

Congrats, again.

Operator

Our next question is from Alex Vecchi of William Blair. 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, guys. Can you hear me, okay, Hey, Michael, Bernie, the one question that I wanted to ask you that we've heard -- I mean, you guys, I guess, addressed in your prepared script how you're working to move sort of the operations and the manufacturing footprint and other pieces outside of China to -- in the long term, more sort of align with your TAM and revenue mix for the really, really long term of the company, and you've been very clear about those plans.

But there's been some more I guess, acute reports of maybe some customers that want to very quickly use product sources outside of China, and you'll probably know some of those reports that I'm talking about. I guess, have those impacted your revenues at all? Are you seeing any strange behaviors from customers that way we want to move and source product outside of China more quickly than you're able to? Or are you already sourcing outside of China to support many of your global customers?

Michael R. Hsing
Chairman of The Board, President And Chief Executive Officer at Monolithic Power Systems

Yes. As a misconception for NPS is we are a lot of manufacturers that's in China. That's true. And but it's a misconception okay, we do in the time of COVID, we do most of -- we do at least half of the manufacturer. And at least we have the capacities is outside the countries or outside of China. And to answer your question, we have a 0 impact in -- for whoever customers require us to manufacture outside of China in the past and the future.

Matt Ramsay
Analyst at Cowen

Thank you for that, Michael. That's really clear. It's just a question we get a lot. I wanted to talk a little bit about the consumer business, which is kind of the -- maybe the least important strategic segment, but also the most volatile if you look at where, I guess, the numbers came in, in the fourth quarter. And I guess -- what I'm wanting to understand a little bit is the philosophy that you guys might have if and when some of those consumer markets and the China market, in general, recover. Are the -- are you excited to keep that segment down around 10% of revenue, and we'll continue to prioritize everything else? Or is that a business that you want to serve, Michael, as it potentially rebounds?.

Michael R. Hsing
Chairman of The Board, President And Chief Executive Officer at Monolithic Power Systems

Yes. Again, as I've said in the past, last year capacity issues, it constrain the consumer growth. And we do have a lot of opportunity we just didn't pick it up because of the capacity issues. And in the down terms in the past, as you know that the gaming will be a lot more aggressive in this consumer market segment. Because when you react to a price and you react to the opportunity and how fast you react to the opportunity. And within six months, you will see the -- you will see a big number change in the consumer segment, and that's what we will do.

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

And Matt, keep in mind, the resilience of our business model has to do with the diversity of the end markets, the customers, the geographies that we serve. So the consumer, well, it has dropped to around 10% for the quarter, remains a very important part of that strategy, and we'll continue to invest in it.

Matt Ramsay
Analyst at Cowen

Thank you very much, guys. Appreciate it.

Operator

Our next question is from Alex Becke of William Blair. Our next question is from Gary Mobley of Wells Fargo. Gary Your line is now open.

Gary Mobley
Analyst at Wells Fargo & Company

Hey, Michael. Hey, Bernie. Hope all is well and thanks for taking my question. For the first time as a couple Analyst related to apologize in advance if I ask an uninformed question here. But the inventory for you guys, that 212 days, that's internal inventory. I believe, however, your sales, 83% of your sales roughly go through distribution. So maybe if you can give us a view in terms of distribution inventory and did it increase? And if so, to what extent did it favor revenue?

Michael R. Hsing
Chairman of The Board, President And Chief Executive Officer at Monolithic Power Systems

Gary, opening up. Welcome to the party. -- this is Gary's first call with us.

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

And welcome to the inventory question.

Michael R. Hsing
Chairman of The Board, President And Chief Executive Officer at Monolithic Power Systems

Inventory question. I thought we finished this question. So when I look at the channel inventories from Q4 to Q1 -- or I'm sorry, from Q3 to Q4, they basically stabilized. So we didn't see a significant increase either in terms of dollars or days in the quarter. Likewise, when we talk about inventory on our balance sheet, and I'll address that as well. there's about a six-month lead time from when we can slow down wafer starts to when you see it on the balance sheet. So likewise, as we're looking out ahead to Q1, we see both inventory in terms of dollars on our balance sheet as well as in the channel stabilizing sell-through in the channel remains very good. and then it should normalize in the second half of the year.

It's fair to say, in 2019, we deliberate build 200 days of plus inventory because we did see all these opportunity. And then now the inventory goes this high because go over 200 days again. And that is because the customers demand start to pushing out, and this is on the high side and we will cautiously and reduce it. And it's not -- this is not the same as in 2019.

Gary Mobley
Analyst at Wells Fargo & Company

Got it. And I wanted to ask about contributors to the revenue growth for the fiscal year, for the quarter, 48.5% is quite commendable. I was hoping maybe you can deconstruct that between ASP increases and new increases and how you see that playing out for fiscal year '23 as well?

Michael R. Hsing
Chairman of The Board, President And Chief Executive Officer at Monolithic Power Systems

It's very diverse to growth in -- with a little more aggressive activities in the consumer segment. And this is different from 2020 or 2021. And everything is the same because we are not -- we don't -- it's not a one-track pony and not a two-track pony either. I mean we have a multiple product -- we have a products like 5,000, 6,000 different products. We have a few thousands of customers, large customers, let's say, biggest customer is less than 4% in a different industry. And with our -- that's the same way as we do in the last 10,12 years. And we're still continue to pass.

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

Clearly, as you look at a business driver in 2022 and as we look ahead, you can also see the impact of selling higher value technologies and higher ASPs that go along with it. So while many companies use this supply-demand imbalance as an opportunity to raise prices to their customers, we only had one single-digit of price increase back in February and all of the other is representative of higher ASPs and volume gains.

Gary Mobley
Analyst at Wells Fargo & Company

Helpful, thank you guys.

Operator

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

Ross Seymore
Analyst at Deutsche Bank Aktiengesellschaft

Hi guys, can you hear me.

Michael R. Hsing
Chairman of The Board, President And Chief Executive Officer at Monolithic Power Systems

Yes, it's fine.

Ross Seymore
Analyst at Deutsche Bank Aktiengesellschaft

Perfect. Well, first, I also want to welcome Gary to the call and thank him so much for being the one asking the inventory question.

Michael R. Hsing
Chairman of The Board, President And Chief Executive Officer at Monolithic Power Systems

[Indecipherable]

Ross Seymore
Analyst at Deutsche Bank Aktiengesellschaft

I knew you would. So I had just one question, one follow-up. The question on the near term first was -- you talked a little bit about stabilization in your orders, but said they're still below normal. So any color on that? And then folding another near-term follow-on is the first quarter, you said it sounded like storage and computing would be flat and enterprise data will be up a bit. if you're flat overall, what's going down sequentially in the first quarter to get you to that? So that's kind of an aggregate first question.

Michael R. Hsing
Chairman of The Board, President And Chief Executive Officer at Monolithic Power Systems

So when we look at Q1, and obviously, we've guided down about 2%, which is sort of consistent with seasonal trends. And it's -- the industrial is likely to come down. And I may have left you with an incorrect impression because enterprise data is likely to go down even though GPU, AI will improve. And then on the plus side, the momentum in automotive continues to be very strong.

Ross Seymore
Analyst at Deutsche Bank Aktiengesellschaft

In the stabilization color geographically by end market, the order stuff you said?.

Michael R. Hsing
Chairman of The Board, President And Chief Executive Officer at Monolithic Power Systems

Yes. We're seeing better activity. I think that we commented both in Q3 and repeated it here. that customers have gotten a lot more near-term focused and you can point to consumer, you can point to China as being areas that was very observable. And right now, we're seeing a lot better activity but it hasn't necessarily translated into what I'd call a normalized ordering cover.

Ross Seymore
Analyst at Deutsche Bank Aktiengesellschaft

Got it. And I guess as my longer-term follow-up, a question I get a lot from investors is the really impressive growth you guys did in 2022, up about 50% round numbers. That's about 30% faster than the SIA defined analog category. And that delta is kind of two times what you guys historically have done. And some people are concerned that that's just because of insufficient supply and competition and assume fungibility that you guys are just growing because other people can't, or some of your competitors had some product issues that they'll soon rectify -- and so those tailwinds could turn into headwinds this year. I know you're not going to guide for the full year -- but are you at all concerned about those two dynamics having kind of overinflated 2022 and turning into headwinds this year?.

Michael R. Hsing
Chairman of The Board, President And Chief Executive Officer at Monolithic Power Systems

Tell the customer -- tell those not customers, okay? -- investors, our customers to buy our stocks. And we don't do it in the pay to pay the me-too products. Everything is pretty much single source product. And our products a lot more programmable, a lot more versatile and gave me and our customer can configure those products. And of course, we'll take advantage of it, okay, in a shortage. Our customers can use our product in a multiple way, I mean not on a software based. And announced and as you know, in the software side and a man is a lot more stickier. And we will continue to use our technical strengths and to gain the market share and headwinds, okay, for those people they don't believe that. We have a headwind and that's fair, but our numbers delivered like our past number to show that.

Ross Seymore
Analyst at Deutsche Bank Aktiengesellschaft

Thanks guys.

Operator

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

Rick Schafer
Analyst at Oppenheimer

Thanks. And I'll add my congratulations, guys. If I could ask my first question, it's kind of a broad question on your module, just your overall module strategy. I mean, say, it doubles this year to sort of 10% or so of revenues. Bernie, I'm sure you'll correct me if I'm off base there. But sort of what's the right contribution long term? I mean, Michael, I mean, eventually, do you want sort of everything to move in that direction towards module, or is it weighted more to specific end markets, maybe a couple of them already. And I'm curious if you can comment on the margin implications as module becomes a bigger contributor. I think in the past you said this a 5 times type ASP multiplier. But again, please correct me.

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

So I'll give you the numbers correction and Michael will give you the strategic answer. Modules currently are about 5% of our business.

Michael R. Hsing
Chairman of The Board, President And Chief Executive Officer at Monolithic Power Systems

Yes, it has doubled in the year, year-over-year for the last two years. three years or two years? three years. Yes. And so it's a significant business now. And eventually, yes, that's what I want to see it, and NPS all going to move into a new type of modules in modules, power module has a bad connotation, I know that I mean lot of companies in a power module business and those are in the 30 percent gross margins and I don't know what's the right word to use, it is a power modules and like in place okay with, but that's not your old grandpa's power modules.

And again, this is very different. Our margin is above corporate average. And some of the solutions much, much higher. But -- and we sell so well over $100 stuff and that's kind of -- I see as a part of its hardware plus service and customers, the users -- they don't need to know like how does -- how to use the product or how to -- you have to have a very deep knowledge how to design a power supply. And they should use very simple solutions like what we provide. They don't need the headaches to design a power supply. I think that we're going to end up with MPS or without MPS will be that, but MPS wants to be a leader in that.

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

And I'd like to go back to Rick's earlier question I would say that back in the day, the single biggest ingredient as far as making a decision for design win had to do with the lowest cost. And I think that what our customers are seeing, particularly in the last three years is there are other value drivers considered as far as time to market how much design resource they want to be saved from having to do a total cost of ownership. And those are areas that we're able to meet our customers' demand as well, if not better than any other analog or power provider.

Michael R. Hsing
Chairman of The Board, President And Chief Executive Officer at Monolithic Power Systems

Might as well give you examples. And okay, we build our own test equipment, semi equipment test equipment and all based on the NPS power modules. And if you buy those kind of power modules, they can selling well over $50. And so that in semi equipment market segments. That's a perfect thought for that. And these are very high ASP and very much, much compact than on the current market.

Rick Schafer
Analyst at Oppenheimer

And it actually leads you to my next question. I appreciate all the color that -- and you guys have certainly discussed with the power isolation module. But just specific to the silicon carbide update, just it does -- it sounds like you'll be sampling this year. Do we -- should we expect any material contribution from silicon carbide this year? Or are we kind of looking at 2024? And Michael, I mean, we've heard different numbers, but what is the addition of silicon carbide modules for traction inverter, etc.? What does that do to your potential content per vehicle?

Michael R. Hsing
Chairman of The Board, President And Chief Executive Officer at Monolithic Power Systems

Our traction inverters and using silicon carbide, okay, it's not this year and maybe even if we will see it next year. Our silicon carbide devices, okay? We design our own -- we develop our own. We want -- we pick us some market segment that proves our products are reliable in the first. And that's the first step. To answer your questions, and this year, and there's no large number of building in our revenue stream. And so we don't expect that, but they've just approved the technology now.

Rick Schafer
Analyst at Oppenheimer

Thanks Michael, thanks very. much.

Operator

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

William Stein
Analyst at Truist Financial

Great, thanks for taking my question. So would be me to the module question this time. So I'll focus in a little bit different direction in the past. I know a few quarters ago, you talked about a team that you hired to work in the converter area, which is something you're not really that known for, but I think this is also another being ASP and a big growth opportunity for monolithic. Can you talk about your traction in converters so far and what you expect to come in the coming quarters?.

Michael R. Hsing
Chairman of The Board, President And Chief Executive Officer at Monolithic Power Systems

Yes, we can are glad to ask the question is, okay, a couple of days ago, I saw an image and we received from our customers, and we use our customers, use our imaging for the X-ray machines. And much better than their prior versions. And so when is -- we samplethe other biotech companies and our product is designed in and we will see the revenues probably a small revenue this year and in the next years. This is a slow ramping products that get very high barriers.

And the bottom line is we have the technologies, and we have the know-how to design a very high performance data converter. These are -- is comparable if it's not -- if it's not better. And we will broaden the product portfolio and as we expand our teams and these take a lot of efforts and a lot of investment. And so far, we built up a pretty good sizable teams. And now you will have -- see more general product coming up. in the next couple of quarters.

William Stein
Analyst at Truist Financial

Michael, I appreciate that. Maybe one other, if I can. Something we haven't heard the company speak a whole lot about lately, and that's the e-commerce effort. Any update on how your traction is progressing there?.

Michael R. Hsing
Chairman of The Board, President And Chief Executive Officer at Monolithic Power Systems

E-commerce. Well, maybe not as fast as I want to be. And I set my expectation too high a I think -- but here is that we launched PS now in Actually, I'll take back. I think it's not as -- it's true, not I expect more, okay, but there's a lot of resistance. I mean -- but our modules lot of module ramp-up. It's from e-commerce. And we -- after last year, yes, after maybe 13 months ago, we launched in MPS Now a remote technical support. And that helped a lot. And especially our module side, again, help our customers can schedule a meeting online. And we can solve their -- when they're logging in we solve their technical issues. That helped a lot.

And I think the most part of the ramp-up is from the MPS now, from a website. But overall, all things and it will take time, okay? And you are talking about engineer change their behaviors, okay, how do you design the product and how you're purchasing the product. And I think as next 10, 12 years, not even in the next five to 10 years for the millenniums and to design a power supply and they want to do Google switch rather than do the fundamental design like in the past 20 years ago, like the last 20 years. And so these are the products designed for that, okay, for easy plug and play use and easy to use and can buy from the Internet.

Operator

Thank you. Our next question is from Chris Caso of Credit Suisse. Chris, your line is now open.

Chris Caso
Analyst at Credit Suisse Group

Yes, thank you. Good afternoon, everyone. The question is about where lead times are right now and the degree of product shortages. With your inventory up now, has that helped to bring down lead times and alleviate some of the shortages? And if so, has that taken away perhaps some of the incentive for customers to place orders for a product they didn't -- they don't need. What -- it's obviously one of the things we worry about as we go through the cycle, interested in your view on that.

Michael R. Hsing
Chairman of The Board, President And Chief Executive Officer at Monolithic Power Systems

I'd agree that lead times have been coming down. They were up as long combined as much as 26 weeks or six months. And they're coming down more slowly than you'd think. So I don't know. Obviously, our customers have changed their ordering behavior. And if that could be attributed to the change in lead times or the fact that they have adequate inventory or that they're uncertain about with the next six months, I can't really say which of it is a driver in their decision.

Chris Caso
Analyst at Credit Suisse Group

Got it. Okay. As a follow-up, Michael, you mentioned in some earlier remarks, plans to be a little more aggressive on consumer business as you go through the year. So wondering if you could expand on those comments? Is that something just opportunistic this year, something that you see in the market is that just a function of the diversity of your business model where some other business is slow. So you can go find business elsewhere, if you could give us some more color on that, please.

Michael R. Hsing
Chairman of The Board, President And Chief Executive Officer at Monolithic Power Systems

I think you made a very good -- very good comment. It is opportunistic, okay? Remember, we how many years ago, we -- years ago, let say and we have more than 50% of our MPS revenues is all from consumer. And these are five fast design cycles in fast revenues and cycles product and opportunities. And we have the right product, right support and right price and you can move the needle quickly.

And obviously, in contrary to the other industrial automotive cloud computing and these are much longer design cycles and they're kind of slowing down one segment to the other or relative in -- it's not as -- clearly, it's not as in a last couple of years, and the consumer is our opportunity again, and we know how to do it, okay? And we have the product and we have the price structures and not as high as all the other segments, and we will do that.

Chris Caso
Analyst at Credit Suisse Group

If I could just follow on that, does that imply when business improves elsewhere, we've got a better macro and such some of the product cycles elsewhere with maybe higher margin opportunities develop that you sort of back away from some of that and come back to some of the other segments that have driven growth more recently.

Michael R. Hsing
Chairman of The Board, President And Chief Executive Officer at Monolithic Power Systems

No, it's not. Okay, consumers is a diversity is always our strategies. And last couple of years, we didn't grow because of capacity constraints, okay? And we sacrifice on the consumer side.

Chris Caso
Analyst at Credit Suisse Group

Got it, thank you.

Michael R. Hsing
Chairman of The Board, President And Chief Executive Officer at Monolithic Power Systems

Okay, thanks Chris.

Operator

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

Tore Svanberg
Analyst at Stifel Nicolaus

Yes, thank you. I just wanted to come back to the data converter business. So you're obviously getting into the kitchen of 400-pound gorillas here and I think historically, it's been very difficult to crack into this market. You talked about the high barriers to entry. And other than the product being higher precision, I get that, but is there anything else about your business model that will allow MPS to be successful in this market?.

Michael R. Hsing
Chairman of The Board, President And Chief Executive Officer at Monolithic Power Systems

I think it's -- we don't know what is the business model. I think it's -- I know this size takes time. And the market is large, a few competitors. All these, you said these are 800 pounds of gorillas. We are like hyena's going around -- and we had to run fast. And it's just to take opportunities and okay, what presents the product and our customers. And they do have eyes on the different suppliers especially come from the last couple of years. And it's -- we have a good hope, but we know it will take a while.

Tore Svanberg
Analyst at Stifel Nicolaus

That's fair. And just lastly, could you give us an update on the time line for the $3 billion and the $4 billion capacity that you're working on?.

Michael R. Hsing
Chairman of The Board, President And Chief Executive Officer at Monolithic Power Systems

Yes. As we said in next couple of years in two years, and we're still on it. And we're working with our suppliers and the gaming I just mentioned the consumer business, okay? And one of the reason is we do have obligations and to fill up these facts. And we'll be aggressive and getting all these getting these orders, fill the capacities. And you know that's our gaming in the past. We repeatedly and do this -- have done these kind of things in several cycles already. And this cycle, I don't see a difference from the last downturns. And -- but -- so for the capacity expansion, we're still intact in the game. We're not -- we may slow down a little but we really have obligations with our fabs, okay?

Tore Svanberg
Analyst at Stifel Nicolaus

Great, thank you again.

Operator

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

Quinn Bolton
Analyst at Needham & Company LLC

Great, thanks for letting me Greg or ask a quick follow-up. Bernie, I just wanted to ask your sort of thoughts on gross margin. You guided to 58% at the midpoint. It looks like the street consensus was probably 50 to 100 basis points higher than that through the year. So as you look at '23, do you think March is sort of the bottom and margins can trend higher into the second half of the year? Or is this push in the ability to be opportunistic in the consumer segment likely to keep margins flattish in this 58% level through '23.

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

Yes, I'd probably look at it as being flattish for the remainder of '23. And when you look at what's taken the margin down and while you're right, we're down 50 basis points. It's not a significant deflation from the rate that we've been at trending at over the last two years. And it's really because we have the additional manufacturing capacity, lower revenue. And as we look at the next two quarters at least, the sales mix is not as desirable.

Quinn Bolton
Analyst at Needham & Company LLC

Understood. Thank you.

Ross Seymore
Analyst at Deutsche Bank Aktiengesellschaft

Our next question is from Ross Seymore of Deutsche Bank. Ross, your line is now open. Hi guys, just a quick follow-up on my side, on the margin side as well. And this time on the opex side, you guys did a good job on the opex. I know you're putting litigation expense up into regular opex, which thank you for doing that. But just the trend in opex throughout the year last year grew maybe half the rate of what revenues did? How do we think about it this year?

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

I think as Michael is expressed here between diversifying our supply chain and continuing to invest in R&D capabilities that we have some very real opportunities for additional investment that would show up in growing our operating expenses. Having said that, though, there is a fair amount of uncertainty as far as what the revenue outlook is, and we wanted to be good financial managers as we go through these market conditions. So I would expect that it's likely that operating expenses won't grow much more than 50%, 60% of revenue growth in the current year.

Michael R. Hsing
Chairman of The Board, President And Chief Executive Officer at Monolithic Power Systems

Having said that, in the past, in the past two years, now we reached $2 billion company and they all point okay, whatever...

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

1.8.

Michael R. Hsing
Chairman of The Board, President And Chief Executive Officer at Monolithic Power Systems

Yes, 1.8, okay. I mean our infrastructure hasn't really grown that much. in the last couple of years, and it's difficult to hire people and now we have a lot more breathing room, okay, this is the time to build up a company.

Ross Seymore
Analyst at Deutsche Bank Aktiengesellschaft

Great. And I guess for a quick follow-up, I just wanted to revisit one of the questions that was asked, I think it was the very first question or close to the beginning on the storage and computing strength. I know you said notebook was better than you thought and the memory/storage was weaker, and those two kind of go the opposite direction in the first quarter then. But those markets in aggregate have been weak across the board for quite some time. So I'm still a little surprised at the strength in the fourth quarter and the stability in the first. What would you attribute that to? Obviously, you're getting the orders, but are you guys taking share? Is it the Tier one penetration? Is it content? Just any more color on that because it's such a disconnect to the end market in general?

Michael R. Hsing
Chairman of The Board, President And Chief Executive Officer at Monolithic Power Systems

I think I believe we gained some shares.

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

Absolutely.

Michael R. Hsing
Chairman of The Board, President And Chief Executive Officer at Monolithic Power Systems

Yes. We gained some market shares. Yes, we're a little bit aggressive on in summer low end market.

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

Yes.

Operator

Thank you. [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

Great. Thank you very much and for joining us for this conference call, and we'll be talking again here for the first quarter update, which will likely be in the late April. So thank you very much.

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