Q1 2021 Power Integrations Inc Earnings Call
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Hello, Jeremie life, Alright, yes, we have line.
Alright, and good afternoon, everyone sorry for the delay there was some technical difficulties with the conference call provider.
I'm, Joe Shiffler director of IR for power integrations and.
And with me on the call today are Bob Bob Krishnan, President and CEO of power integrations, and Sandeep and IRR Chief Financial Officer.
During the call we will refer to financial measures not calculated according to GAAP.
Non-GAAP measures exclude stock based compensation expenses.
Amortization of acquisition related intangible assets and the tax effects of these items a reconciliation of our non-GAAP measures to our GAAP results is included in our press release, our discussion today, including the Q&A session will include forward looking statements denoted by words like will would believe should expect outlook forecast anticipate and similar expressions that look toward future.
Events or performance such statements are subject to risks and uncertainties that may cause actual results to differ materially from those projected or implied such.
Such risks and uncertainties are discussed in today's press release and in our form 10-K filed with the SEC on February five 2021.
This call is the property of power integrations and any recording a rebroadcast is expressly prohibited without the written consent and to power integrations now I'll turn the call over to Bob.
Thank you Joe and good afternoon.
First quarter revenues came in well above our expectations growing 58% from the first quarter of 2020.
This outsized growth rate reflects prevailing demand conditions and our industry, but also on a growing market share and the impacts on our secular trends that are expanding our addressable market and driving customers towards our highly integrated products.
These strengths include energy efficiency electrification renewable energy.
And on building automation smart connected appliances.
And the lighting advanced mobile device Chargers.
And the replacement of high voltage silicon switches with gallium nitride.
We expect these trends and deal well beyond the current and semiconductor cycle, and we are making the necessary investments in products people.
<unk> capacity and infrastructure to capitalize on the opportunities in front of us.
One such investment is of a newly redesigned our dot com website.
Rich.
It was launched earlier this month.
The new web site serves as an extension of our sales and applications engineering team, putting now on renowned expert design tool front and center led to engineered to tap into a and <unk> designed and Knowhow.
The site also better reflects our recent expansions and the automotive and motor drive markets and corporates advanced visualization capabilities and pages upgraded e-commerce functionality to enable customers to buy parts immediately from our.
Our distributors.
Okay.
Turning to Q1 results.
Revenues were $174 million up 15% from the plant and water and 58% year over year.
Demonstrating the leverage and our model and our non-GAAP operating margin expanded to 28, 6% and our non-GAAP EPS doubled year over year to 76.
Cash flow from operations was also very strong and $58 million.
All four end market categories exhibited strong year over year growth in the first quarter.
Revenues from computer category.
Nearly tripled from a year ago, driven by strong demand for tablets and <unk>.
And as and monitors as well as penetration on fast charges in the tablet market.
Revenues from communications category were up more than 170% year over year, driven by growth and the handset market share gains by him and OEM customers and most importantly, net have continuing adoption.
And advanced charges, and our success and capturing a large share of that market.
We have built a commanding lead in advanced charges, Thanks, Bill and highly integrated switch products <unk>.
Including our Gan based <unk>.
<unk>, which offers the highest level of efficiency in the market.
Efficiency is essential in fast Chargers, because any huge resulting from based on energy must be dissipated through the focus on the charges.
Mohit requires more surface area.
It means that bigger charges.
Even worse inefficient high power charges, often required and heat sink.
And that size weight and cost.
The efficiency you have already noticed your products how to solve this thermal challenges and enabling the smallest lightest and fastest charges on the market.
We want a broad range of new advanced Charger designs in Q1 <unk>.
Including OEM branded charges and.
As well as aftermarket designs.
From a proliferating number of brands.
Many of the designs features multiple charging ports and provide hana blocks to power and loan book, while rapidly charging a phone or tablet.
We are seeing tremendous uptake on Gan products and such designs and as a result, we believe we are on track to grow our overall again revenues by at least three X. This year.
A particular note either 60, probably watch USB PD charger using again based on <unk> alongside our Gan based many captured.
Which shrinks the charges by drastically reducing the size of the input and capacitors.
This design and you mentioned on the last quarter's call was introduced earlier this week by a major OEM as the inbox adaptor for the newest lineup slim notebook computers.
And as promotional video the OEM prominently mentioned, it's use of Gan and the adapter to save energy, but also highlights the combined weight.
On notebook and the adapter.
This is in contrast to the familiar and experience in which we buy and notebook based on its advertised size and we'd only to find out that it comes on it comes with a huge clunky adapter.
Notably the OEM is also offering.
This same adaptor as a super fast charger for use with their cell phones, and demonstrating that paradigm shift cutting and the mobile device market and the technologies like <unk> and USB PD.
We believe this is just the beginning on the long term trend towards advanced multi use charges, we had the high performance semiconductors and far higher dollar content and charges on the past.
Continuing with the Q1 results industrial revenues were up high teens year over year, driven by home automation and Iot applications as well as battery power tools.
Two of the faster growing verticals in our industrial category.
Consumer revenues grew in the low teens, driven by strong demand from appliances as well as continued share gains and rising dollar content.
China's new efficiency standards for air Conditioners on also contributing to the growth in our consumer category, notably we achieved double digit growth in consumer. Despite a very strong first quarter last year that included panic buying in the early stages from the pandemic.
Regarding the current demand environment like most semiconductor companies and we haven't seen extremely high order rates in recent months.
Lead times have extended on many products and we have experienced sharp reductions in inventories both in the house and the distribution channel.
However, while not immune to the challenges of the current environment.
Have mitigated them to a large extent, thanks to our decision to build inventory and demand softened in the early stages of the pandemic.
And on a cushion against the current demand shock either.
Our unique manufacturing model.
Our proprietary process technologies enable us to rely not on traditional merchant foundries, but rather on trailing edge facilities, a vertically integrated supply us.
And we believe our long term partnerships with suppliers and other industry hits.
History of maintaining a relatively steady production levels in periods of weaker demand help to ensure that we have access to that capacity when demand surges.
Similarly, we have been able to mitigate the tightness and back and capacity across the industry. Thanks total user proprietary IC packages.
And our ownership of equipment used in manufacturing and testing of these packages and our substantial investment in new capacity over the past year.
Looking ahead, we continue to expect that demand will begin to normalize at some point in the coming quarters as the impact on work from home begins to dissipate appliance makers catch up with demand and the dislocation caused by COVID-19 sanctions plays out.
However, in the near term demand continues to be very strong.
The second quarter with a record backlog and bookings have remained elevated throughout the month of April.
Distribution sell through far exceeded sell in again in the first quarter and distributors ended the quarter and then unsustainably low level of inventory.
As a result, we expect our second quarter revenues to be flat compared to the first quarter, plus or minus 5%, which at the midpoint would be up more than 60% year over year.
Looking further ahead, while some cell phone Oems have likely overbuild in an effort to capitalize on Huawei and sanctions.
Our OEM customers have been major beneficiaries of the transition.
And which will magnify the share gains we have achieved through our success and advanced charges more broadly. We believe we have gained share across a number of end markets over the past few quarters.
It should benefit as well after the current cyclical noise subsides.
Finally on behalf of our Chairman Bill George I'd like to note the appointment of Jennifer Lloyd to our board of directors and effective April 1st.
As leader of our major business unit and analog devices, Jennifer brings an exceptional combination of technical expertise and executive management experience to onboard and.
As well as deep knowledge of analog semiconductor industry.
We're delighted that she has joined our board of directors.
And with that I will turn it over to Sandeep.
Thank you Bob and good afternoon as usual I'll focus my remarks, primarily on the non-GAAP results, which are reconciled to GAAP and our press release tables.
First quarter revenues were $174 million.
Up 15% sequentially with all four end market categories up from the prior quarter.
Communication revenues increased more than 25% driven by continued strength in advanced charges.
Computer revenues were up low double digits, driven mainly by fast Chargers for tablets.
Industrial revenues were up low double digits sequentially, driven by broad based industrial application as well as strength and metering home and building automation and high power.
Consumer revenues grew mid single digits, driven by the broad based strength and appliances, which comprised the bulk of our consumer category.
Revenue mix for the quarter was 38% communication, 29% consumer, 25% industrial and 8% computer.
As expected gross margin was sequentially lower reflecting the greater percentage of revenues coming from the communication market.
Non-GAAP gross margin was 49, 4% for the quarter down 70 basis points from the prior quarter.
I noted on last quarter's call that we expect Q1 to be the low watermark in terms of gross margin and I still expect that to be the case and we should see the benefits from manufacturing efficiencies over the next several quarters and possibly a more favorable end market mix and the second half of the year.
Non-GAAP operating expenses were $36 $2 million per the quarter down $1 8 million from the prior quarter and below our expectations, primarily reflecting the timing of hiring.
Non-GAAP operating margin for the quarter was 28, 6%.
Other income for the quarter was about $600000, while the non-GAAP effective tax rate for the quarter was seven 1%.
<unk> and non-GAAP earnings of $46 7 million or <unk> 76 per diluted share.
Cash and investments on the balance sheet growth by $42 million from the prior quarter driven by strong free cash flow.
Cash flow from operations was 40% to $58 million.
While the operating expenditures were $11 million.
We paid out $7 8 million and dividends.
Following the two sales increase that we announced last quarter.
Reflecting the strength of our balance sheet. Our board of directors has allocated an additional $50 million to our share repurchase authorization, bringing the total to $91 3 million.
Internal inventories fell to 92 days a decrease of 30 days from the prior quarter, while channel inventories fell to approximately two weeks.
Sell through once again exceeded sell in.
Looking ahead, we expect second quarter revenues to be flat compared to the first quarter plus or minus 5%.
Gross margin should improve as the impact from manufacturing efficiencies begin to flow through the P&L.
Specifically I expect non-GAAP gross margin to be and the range of 50% to 55%.
Operating expenses will increase sequentially in Q2, driven by annual Merit increases, which took effect in early April as well as continued growth and head count.
For the full year, I expect non-GAAP opex to increase by about 10% coming off a flattish year in 2020.
Other income for Q2 should remain at a similar level to March quarter, while the non-GAAP effective tax rate should also remain steady add on.
7% to 8%.
And now operator, let's begin the Q&A.
Thank you, Sir ladies and gentlemen, if you would like to ask a question at this time.
So let me two questions one on your telephone keypad.
And one on your telephone.
Our first question comes from the line of Karl Ackerman from Cowen. Your line is open and you may ask your question.
Thank you and.
Good afternoon gentlemen.
First off clearly supply chain constraints have been pervasive across the semi supply chain.
I know you are fab light, but I think <unk> been securing capacity at your Japanese foundry partners from last few quarters.
I mean, given the very very strong results and Q1 and for the outlook for June I guess.
And what revenue level are you able to service demand before needing to secure incremental capacity.
Hi call back book.
Question.
And right now I believe we have enough capacity to meet the ongoing true demand.
Not enough to supply all the parts customers wanted to buy.
And as you can imagine customers are ordering way over what they need but we are trying to make sure that we keep all of the inventory in one place assets with us.
Rather than have individual customers build their inventory.
At some point they will have to but at this point and we're trying to manage that so that we can serve all customers.
Well.
So we think for the rest of the year and that will be the case.
And unless something changes and also as we all know the current.
Booking rate is in excess of the normal run rate.
Thanks to work from home and learn from home demand, but there will be a time that will normalize.
We don't know exactly when it is but it could be and the next few quarters.
Our expectation is the second half will be.
Lola and revenue than the first half.
And that's because we believe it will start to normalize at some point so given all of that I don't believe at the moment, we have a problem with our ability to take care of customers but.
The weighted for a while to build inventory and.
And Thats also a group of distributors and we will we will try to build more inventory because two weeks is too low but.
It will all depend upon what the true day Mendez.
Thank you for that I guess that dovetails into my second question, which is.
And Im just getting a little bit better understanding of your view for gross margins next quarter.
Right and you just indicated that hey tissue repair and lead times are quite low.
At the same time, many peers across the supply chain has spoken about rising substrate and shipping costs.
And so I I appreciate the outlook and you are giving for June if I read between the lines, perhaps due to.
A little bit less mix and mobile but.
I guess with many larger peers raising prices across the distribution channel and lead times extending.
How are you thinking about.
Volume versus price and the value that you are offering.
And if your customers.
And I guess purely on volume are you able to sign longer term volume agreements with these customers going forward. Thank you.
I think on the way to look at it is yes, but on a lot of moving parts, whether its thoughts whether it is.
The impact of foreign currency on.
And production.
I think the best to answer you we provided guidance at the beginning of the year and our gross margin for the year with approximately around the around 50%, we still believe that with all the moving parts, we will still achieve the 50%.
And I'd also like to add that.
One of the reasons, we see and confident about meeting the true demand is that we are I believe and a better position.
And then most.
Most of our competitors. So we will not be the long pole in the tent.
And because of the cautious we took they build a lot of inventory we have committed capacity from.
And on a fab partners.
And we are continuing to build additional capacity and preparation for growth next year.
I think we are and much better shape than most other companies.
Thank you.
Thank you, Sir we do have and answer questions from the line of.
Sorry.
And from Brian from Stifel. Your line is open you may ask your question.
Yes, Thank you and congratulations on the record results.
But live on a constant share gains.
And this environment.
The simple ways to gain that share that you mentioned one of them, obviously, keeping our inventory is high and the capacity there.
The other way of course is by having a more integrated solution and.
And when discrete are probably selling and very long lead times.
It's also a good reason why you would gain share could you comment on little bit on that and.
Would those have sort of equal weight on the ability to gain share.
Thanks.
And yes, you hit on several.
And the reasons are gaining share the biggest one is we have by far the most attractive solution in terms of efficiency size and rate in fact, if you want the smallest size adapter and there is no other place to go.
And you'll have to make that assets bigger power supply bigger.
To use somebody else's solution, that's number one and so we have been gaining share and independent of the current cycle.
And that has continued through this cycle, but on top of that you hit on the right point, because it's hard to get.
On the fifth component, we have a huge advantage because our solutions on half the components compared to our competitors. So they preferred power solution that a couple of other things going on as you know our customers and gaining share from Huawei and so that kind of magnifies.
On the share gains so that we have and on top of that and number of power competitors are having trouble shipping products because they have they are prioritizing other areas like automotive.
Ship into so as a result, we are getting share gains sometimes because there are there.
And there are dual sourcing at the power supply level, but sometimes even otherwise because what happens is that if they cannot get that particular type of charger.
Because of on competitors, having challenges the substitute our charger and some cases they have gone from 15 of our charter to a 33 more charges. The 33, one chartered using our solution simply because the 15 on charter they cannot get components from China.
And what's China patent matters, so in some ways, it's accelerating the migration.
Whilst the SaaS charges, Inc.
And to lower and falls. So there are many many reasons, we are gaining share and the good news is we believe a lot of this is permanent because once the shift the share to us they get used to the benefits. We bring so we are very very thrilled that we are getting so much.
Faster than we thought originally thanks to the current cycle.
And anecdotally there are other areas like appliances, where the standard changes happen and that change the.
Switched on the variable frequency motors to the fixed frequency linear power supplies subs.
Substituted with electronic power supply and and again, it's an area, where we have great products and that is enabling us to gain further market share. So the market share gains that we are talking on.
And are seeing in all and applications. That's the big switch that we're seeing right now think stemming all day.
That's great perspective.
Question is on the on the channel inventory at two weeks I mean, thats the lowest ever seen and I think normalized is like 7% to eight weeks did you think the day, we'll try and build back to that level.
Or is there sort of a new norm on new supply chain.
That is not the number we should use going forward.
No no.
And $1 nine weeks or two weeks is on.
And sustainable they just can't serve the customers.
Those levels.
And my expectation is that.
That could come up a couple of weeks.
In Q2, and Thats one of the reasons. We think Q2 is going to be flat. If you remember originally we thought Q2 will be lower because of the strength that <unk> had in Q4 and Q1, but because of the lower channel inventory.
We now expect Q2 to be flat so unless the.
And demand.
The increase was further we expect some buildup in the.
Channel inventory.
Great and last question, you mentioned Theres, a good chance that.
Demand will be lower second half versus first half.
I assume that's primarily associated with the communications market or would you say that the price for other segments as well.
Well it will apply to other segments like computer and.
Ziegler markets.
Look at the demand.
It looks like it's all driven by work at home and learn from home.
Situations right now so people are buying more computers, they are buying more appliances.
In fact, if you look at appliances right now if you try to buy an appliance and you'll have a hard time doing that local just announced that.
<unk> backlog is now six five to six weeks to their retail chain.
So.
The appliance and that is still pretty high and at some point those demand and will be satisfied, especially if we.
Recover from COVID-19 at some point, it will happen and normalized demand and to normalize I don't know weather normalization and will occur in Q3 Q4 Q1.
Our best estimate is that the second half will be lower than.
First half turned on.
The other thing if you remember last year, we did and a 16% growth.
As you know historically, we ceased the upside sooner and then things done and normalize we will see that sooner that's why you're seeing us talk about it and this way because things will normalize and we tend to see that sooner.
Yes.
Really appreciate the transparency there. Thank you so much.
Thanks, Eric.
Thank you, Sir we don't have and answer your question from the line of Ross Seymore from.
Deutsche Bank. Your line is open and you may ask your question.
Hi, guys call on.
The other guys and congrats on the strong results and spending.
And I guess the first question on the channel side and I believe you talked about it refilling that little tailwind for the second quarter, I guess theres two ways, if I blend and the channel inventory and.
And the second half might be a little weaker there's two ways that the weeks of inventory and rise.
Do you believe that it will rise solely by you guys actually shipping more of a channel or are some of the orders and the bookings rates and revenues of your customers going to drop.
They will actually have more weeks of inventory on the same dollar amounts from you guys.
And Thats a good question I have no way of knowing all that noise that it's a very dynamic situation.
Even though we have very strong bookings and very strong backlog and we also see that the backlog gets adjusted in many different ways.
In terms of mix in terms of push outs pull ins and so on.
So I just.
And that at some point this has normalized and better.
And it happens in Q2, I don't know I mean, Q2, and it looks very strong to us that's why we've given the guidance youre, giving but.
I am thinking that Q3 or Q4, there will be some some normalization.
It is hard to predict but it is just a gut feeling at this point.
Fair enough I guess as my follow up and it might fall into the same.
Feeling category.
But the second half versus being below the first half I think your logic on defense and again like choice that I. Appreciate your transparency on that most companies would entail.
And any potential bad news.
Any sort of magnitude.
You said you had the ability to ship to what you deem to be real demand and true demand, but NAV.
And all of the bookings and.
And sort of color as far as what the Delta is between those numbers and the magnitude first half the second half you can roughly that you are considering.
Well again, it will be pure.
Speculation at this point.
Feeling maybe it has and it can add to it because we brought on is speculate on what's going to happen.
I believe it will be slightly lower than first half.
The.
The reason, we don't ship to whatever customer wants is because that's just going to cause more problems because you'll end up building inventory at the customer.
Which means that the normalization will be more drastic and cause a steep what we wanted to make sure that we take out from our customers keep all the inventory in one place so that it will be more smoother and normalization and then if they end up building a lot of inventory. The other day than we do that is that we can serve everybody better.
If you go on inventory gets distributed among several customers we have no way of getting it back in case somebody else who needs it badly either because they didn't anticipate and the book ahead of time.
And therefore, we have to be very careful that we don't.
Ship to customers, who are over became the law and bookings simply because of panic.
They may be looking at multiple.
And with multiple companies.
So is it a perfect.
Situations no we have no way of absolutely annoying that we're not shipping and the inventory in some cases and we are much more confident like and sales force because we know how many cell phones and sold from each OEM, it lockhart, evidenced and fragmented like appliances and industrial markets.
Just have two.
Work with the customer and hope that.
Customer cooperation and.
Only and it takes that products that are needed to run the production not build inventory at this time eventually will have to build and mentioned because they will need safety stock and of course on this.
And it is we'll have to get inventory back to the normal levels, which is on the price of seven weeks, but that won't happen for a while.
That's very helpful. I guess, one final question from me and you just alluded to it a little bit by saying that the handset market you have better visibility.
Last quarter, you also highlighted that.
The share that Huawei is losing and the gains that everybody else is trying to take on.
On that and the latter is bigger than the former and you sort of update on how that has progressed. Obviously you didn't seem to hurt you at all and the first quarter, but any update on that dynamic for us.
Absolutely you know that we have a very good share in the Chinese Oems.
And all of them have benefited.
From the Huawei situation more so than non Chinese Oems and since we already have a very good share and directly benefited from it not only growing share within their mark and we didn't there demand. They also about this additional share from Huawei going away.
And so we got the benefit of that.
So I would say that.
And as far as we know.
And to the best we can calculate there is there is not much inventory that almost no inventory at the power supply guys, meaning the power supply is a build that after for the Chinese Oems. What we don't know of course is that the Oems are have inventory of Chargers.
Anticipation of building more phones and selling more phones.
To get more share from Huawei, but all in all I am more comfortable that we are shipping to demand investment and that market been more fragmented markets because we have no way of.
And knowing how many appliances and built how many Iot devices that will come and SBA devices are built on <unk>.
Power tools.
Tools that build those.
And those are much harder to manage that also smaller customers. So we don't have the bandwidth. So net adds but we do and what we're doing will be pushed back.
And then looking excessively compared to the run rate, we pushed back and see whether that really react and per se.
And it will be one of those new design, we need more parts and we provide them with the path parts.
But as a non exact game.
I think we're doing a pretty good job by the way.
Thank you probably the details and congrats again below.
Okay. Thanks Russ.
Thank you again, everyone. If you would like to ask a question you want me to correct.
And on your telephone keypad and you have another question from the line of David Williams from Loop capital Your language moving.
Thanks, and I appreciate you letting me ask the question, but the first thing is congratulations obviously on the very strong quarter, but value I think you've been you've been right since you've been just talking about the market backdrop, and what you're seeing the inventory build.
So clearly you have a better read I think on the markets and then a lot, but congratulation on the REIT and the steady hand, managing the business through this.
Thanks, David.
And if I could maybe a little bit around the automotive, obviously youre not generating revenue there yet but anything in terms of design activity that you've seen or maybe book if you could size up that opportunity as we look out.
Over several years, but longer term what do you think that could be in terms of the size of your business.
Excellent question.
We're making very good progress.
Getting into a lot of these automotive customers.
We have a automotive version of inner switch, which is a fantastic and grit and almost every customer who visited once they use the product. So our expectation is that.
There'll be a lot of design activity going on this year and next year, but we probably won't see significant revenue until maybe a couple of years from now because that's how long it takes to get design and automotive.
And also it is just a bill and open up we have other products, especially the.
The driver products that go into the inverter that drives the and.
Motor.
And those products.
Very good fit as the voltages on the batteries go up right now most of the contract and 400 volts.
But there is a strong and when this causes more of the 800 volts and the bigger vehicles like.
Trucks are already at 800 volts and add that voltage.
And really have an advantage because we have our drivers have a very robust isolation.
Scheme that is this is using the flux link that we use in the industry, which is the same isolation.
That provides a.
Difficult advantage in that market plus we have so much expertise and driving IGT modules and silicon carbide modules that our drivers are far superior in terms of their ability to get the most efficiency out of these modules and to provide the highest level of protection.
And in terms of under abnormal conditions. So we're very optimistic it's just that because we are new to this market. It takes a long time to get there, but all indications are that we will get there.
And we will have a tiny little bit of revenue. This year. It will grow some next year and the following year, but it really will take two or three years before we go into.
Applications then.
It is related to the safety of the car like the model drive.
And is harder to get into simply because it takes two to three years too.
And our go through all of the qualifications.
Sure.
Good sense, but it does seem like you've got a large contingency maybe a product design and that you are working around and so once that does ramp it could be it could be very meaningful longer term is that is that fair way to think about it.
Absolutely absolutely we are fully committed to this market.
We are working with a number of customers well known customers and we are very optimistic it's just a question on <unk>.
Great. Thanks, and then secondly from me maybe around the Gan capacity, you've obviously had some very good reception there.
And can you talk maybe a little bit on just about from a capacity standpoint, and what you have in terms of Gan and anything maybe there that youre seeing incremental in terms of maybe winning additional design wins and any way to size that up for it with the Gan aspect does for your business.
Sure we mentioned that our Gan revenue is going to grow at least by three X compared to last year.
And every day passes and we get feel better about again. The good news is and we have plenty of capacity per again, and we are also investing more because we see it.
A dramatic growth and again overtime and so we don't expect any restrictions on and again capacity is that when somebody brought up the question about.
How much capacity we have.
It really depends on the mix.
And obviously all silicon capacity is tight around the world, we are and a much verticals and because of our proprietary technology and the fact that we are working with the.
Partners with the 10 year contracts, where they really support us very well.
But when it comes to Gan.
And that's surplus completely separate.
And we have plenty of great right now and they will add more to it I don't see that as a restriction.
For the even and the most optimistic case, we can come up with and that's also through per high power high power is a totally different capacity and we have plenty of capacity and high power if those two growth independent of that.
The capacity that.
We have and on the clinical value.
Okay, Great and one more if I can maybe for you sandeep on the on the margin as we kind of think about the mix of both.
<unk> products, and maybe even you're from and the communication side thinking about the mix of customers. How do you think that the margin can trend as you move I guess from that business thinking about the third party or aftermarket Chargers and then maybe some of the Chinese Oems do you think that margin held fairly steady or or could you see some uplift there.
Well definitely and the after market you will see the margin improvement because of higher power level multipart.
And as I had mentioned again products.
And have much higher ASP generating more much higher gross margin dollars, but when the volumes are lower and you're getting on the pricing benefits that I think for the year gross margin will move and the right direction and for the year as we had said we should still meet our original guidance.
And on the 50% Mark for the year.
We do expect the mix and the second half to be a little more favorable than it is from the first half full on.
Sure.
And because we've had a lot of benefit and the first half from the <unk> transition.
And we do expect that the mix of and state legal and favorable in the second half.
Thanks, so much I appreciate it.
And.
Thank you Sir we do have another question from the line of price from Northland Capital. Your line is open.
Yes, thanks for taking the question.
Well done guys.
Thanks Good question.
On the on the semiconductor I'm, sorry on the cellphone side, how much of your growth is units versus ASP.
Very good question and.
We have grown both.
The <unk>.
Revenue per share is significantly higher than.
And the unit share that simply because of the ASP is at a much higher, especially when you go to the real high end of the market you talked about a 65 watt charger.
So on a cell phone, which is a lot of power for a cell phone on their call it Super Charger.
Youre talking about significantly higher asps than we used to get on the low end of the business day Theyre talking about five to 10 times more ESP for a simple reason that the power level is very high one.
Secondly, it again, because they are looking for the smallest adapter and to do that and at very high efficiency, which means you end up.
Having to pay more.
Customer ends up having to pay more but on top of that we have multiple products in that one charter. It's a single port charter, but we have three chips and it one day.
Pro using Gan as a switch.
One is a mini cat, which also uses gan as a switch.
But we also sell cap zero.
Which is another product we introduced some time ago. So we have.
Lot more footprint lot more dollar content as the whole market and moves towards the high and it all.
And right now the high and is.
On a relatively small business.
You saw we talked about and notebook adaptor using.
Using that solution and the same solution and being used on the high end of the cell phone.
And so it's actually quite reasonable volume, but I think we have a lot of room.
To grow the content and therefore, our Sam in the cell phone and notebook market.
Okay got it and then.
<unk> net.
How much in terms of dollars how much inventory do you want on on the balance sheet.
Ideally on a model is 120 days and quite frankly, and the environment and I wouldn't mind being even higher than that but I think it's going to be a bit of a challenge with the demand where it is right that those things normalize.
Obviously, the channel inventory as <unk> indicated earlier, we do expect that to pop up a bit on the coming quarters.
Won't be surprised even in Q2 and bumping back up because two weeks is not sustainable.
But internally I would at least like 120 days, even though and the short term I wouldn't mind being even a little higher.
Okay.
And assuming the current revenue run rate.
Yeah and.
And we are gaining a lot of share I think would be applied to value us.
And that at some point and things will normalize and as he talked about having that 16% growth that we do see upside disorder and the normalization impact we will see sooner. So we get more of a sort of guide even keel I think.
We will continue to grow our business over the next several years irrespective of what's happening in this marketplace right now I know some quarters of the gyrations of the demands, but even as things normalize and the long term, we believe and our model because of the share gains that youre seeing across.
On the different end markets one thing on it I want to clarify is that we will outperform I believe the industry.
Because of the share gains.
So I can't predict when the normalization of demand and sort of happen, but because of the share gains and we will outperform our peers.
We believe.
Let me, let me try to get at the southern and run rate.
When I think about your older products are pretty steady runners tops, which tiny and and.
Some of the older and switch products.
What what is our unit volume.
Volume done over the last couple of quarters relative to what the run rate was.
It has gone up significantly.
And I cant, even and believe it.
These are legacy products that are some of them on quantified 30 years old.
But the unit volume and the revenue has been growing.
And to the point that we had I believe it or not we are adding capacity for those old processes and also for the old packages. These are really all day.
<unk> packages and <unk> and <unk>.
We.
And you still have to add capacity because of the demand increasing because these are the use and.
Appliances, and industrial markets and those are doing very well.
And so so.
Can you put a number on it for me, how much and perhaps which increase from run rate from let's say 19.
Now.
On a quarter and alike.
And I'll add to rely on us on the EPS is looking up the tables.
But I can tell you that.
And significant part of our revenue is something like that I think the top searches and the high teens.
Percentage of revenue and the timing of switches and the same high teens percentage of revenue and the linked switches about low teens power.
Our total revenue and the rest of it is in a switch and related products.
So those are the products.
And roughly 50% of on a revenue model.
Right.
And what I'm curious about is what is the unit trajectory then.
Is it up on the unit.
Don't have that had been on but yes, we are looking for and if you don't have it handy, but how can you can.
And we'll follow up.
Super helpful.
I'll, let it go thanks, so much guys.
Thanks, guys.
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