Q3 2021 Monolithic Power Systems Inc Earnings Call
Welcome everyone to the M. P S third quarter 2021 earnings webinar.
Please note that this webinar is being recorded and will be archived for one year on our Investor Relations page at Www Dot monolithic power Dotcom mine.
My name is Genovese Cunningham and I will be the moderator for the sweat of NR.
Joining me today are Michael <unk>, our CEO and founder of MTS, and Bernie Blegen VP and CFO.
During this webinar, we will discuss our Q3 2021 financial results and guidance for Q4 2021, followed by Q&A session.
You are currently muted if you wish to ask a question during the Q&A session. Please click on the participants icon on the menu bar and then click the raise hand button.
In the course of today's webinar, we will make forward looking statements and projections that involve risk and uncertainty, which could cause results to differ materially from management's current views and expectations.
Please refer to the Safe Harbor statement contained in the earnings release published today.
Risks uncertainties and other factors that could cause actual results to differ are identified in the safe Harbor statements contained in the Q3 2021 earnings release and in our SEC filings, including our Form 10-K filed on March one 2021, and our form 10.
Q filed on August 19, 2021, which are accessible through our website www dot monolithic power Dot Com M.
<unk> 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 interest and other income 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.
Table that outlines the reconciliation between the non-GAAP financial measures to GAAP financial measures is included in our earnings release, which we have filed with the SEC.
I would refer investors to the Q3 2020, Q2, 2021, and Q3 2021 releases as well as to the reconciling tables that are posted on our website.
Now I would like to turn the call over to Bernie Blegen.
Thanks, John.
NPS achieved record third quarter revenue of $323 5 million 10, 3% higher than revenue in the second quarter of 2021, and 24, 7% higher than the comparable quarter in 2020.
Looking at our revenue by market third quarter 2021, industrial revenue of $52 $2 million increased 25% from the second quarter of 2021, due primarily to increased revenue for industrial meters and power sources industrial revenue represented 16.
1% of our total third quarter 2021 revenue.
Third quarter 2021 communications revenue of $44 $7 million was up 19, 3% from the second quarter of 2021, primarily.
Primarily due to increased infrastructure demand.
Communications sales represented 13, 8% of our total third quarter 2021 revenue.
In our computing and storage market third quarter revenue of $98 $6 million increased $10 $9 million or 12, 4% from the second quarter of 2021 the.
The sequential quarterly revenue growth, primarily reflected sales gains in storage applications.
Computing and storage revenue represented 35% of Mps's third quarter 2021 revenue.
Third quarter automotive revenue of $54 $4 million grew $5 $7 million or 11, 7% over the second quarter of 2021.
This improvement reflects continued gains in applications for infotainment lighting and asos.
Automotive revenue was 16, 8% of Mps's total third quarter 2021 revenue.
And our consumer markets third quarter 2021 revenue of $73 6 million fell three 3% from revenue reported in the second quarter of 2021.
Decrease in consumer revenue reflected lower handset sales.
Consumer revenue represented 22, 8% of our third quarter 2021 revenue.
Third quarter 2021, GAAP gross margin was 57, 6%.
Which was 160 basis points higher than the second quarter of 2021, and 245 basis points higher than the third quarter of 2020.
Non-GAAP gross margin for the third quarter of 2021 was 57, 8%, a 148 basis points higher than the gross margin percentage reported from the second quarter of 2021, and 231 basis points higher than the third quarter from a year ago.
Third quarter 2021 gross margin on both a GAAP and a non-GAAP basis included a $4 million litigation settlement.
Excluding this onetime benefit non-GAAP gross margin would have been 56, 6%.
Essentially flat with the second quarter of 2021, and 110 basis points higher than the third quarter of 2020.
Our GAAP operating income was $77 $1 billion compared to $66 million reported in the second quarter of 2021.
And $60 $1 million reported in the third quarter of 2020.
Our third quarter 2021, non-GAAP operating income was $108 4 million compared to $94 $9 million reported in the prior quarter and $84 9 million.
Reported in the third quarter of 2020.
Let's review, our operating expenses, our GAAP operating expenses were $109 $2 million in the third quarter of 2021, compared with $103 6 million in the second quarter of 2021, and $83 1 million in the third quarter of 2020.
Our non-GAAP third quarter 2021, operating expenses were $78 7 million.
Up from the $73 million, we spent in the second quarter of 2021 and up from $59 1 million reported in the third quarter of 2020.
The sequential increase in Q3, non-GAAP operating expenses, primarily reflected an increased spending in R&D for qualifying parts for production and securing foundry capacity.
The differences between non-GAAP operating expenses and GAAP operating expenses for the quarters discussed here, primarily stock compensation expense and income or loss.
Unfunded deferred compensation plan.
For the third quarter of 2021 total stock compensation expense, including approximately $922000 charged cost of goods sold was $31 6 million compared.
Compared with $32 $1 million recorded in the second quarter of 2021.
Switching to the bottom line third quarter 2021, GAAP net income was $68 8 million or $1 44 per fully diluted share compared with $55 2 million.
Or $1 16 per share in the second quarter of 2021, and $55 6 million or $1 18 per share in the third quarter of 2020.
Q3, non-GAAP net income was $98 6 million or $2 six per fully diluted share compared with $86 5 million or $1 and <unk> 81 per share in the second quarter of 2021, and $79 $4 million or $1 60.
Nine.
Per share in the third quarter of 2020.
Fully diluted shares outstanding at the end of Q3 2021 were $47 9 million.
Now, let's look at the balance sheet cash cash equivalents and investments were $744 5 million at the end of the third quarter of 2021 compared to $672 $9 million at the end of the second quarter of 2021.
For the quarter NPS generated operating cash flow of about $117 8 million.
Compared with Q2, 2021 operating cash flow of $96 9 million.
Third quarter 2021 capital spending totaled $18 6 million.
Accounts receivable ended the third quarter of 2021 at $79 $9 million.
Representing 22 days of sales outstanding which was two days lower than the 24 days reported at the end of the second quarter of 2021, and 11 days lower than the 33 days at the end of the third quarter of 2020.
Our internal inventories at the end of the third quarter of 2021 with $208 1 million up $38 million from the $177 3 million reported at the end of the second quarter of 2021.
Inventory at the end of the third quarter of 2021 represented a 134 days, which were nine days higher than at the end of the second quarter of 2021.
Historically, we have calculated days of inventory on hand, as a function of the current quarter revenue. We believe comparing current inventory levels with the following quarters revenue provides a better economic match on this basis you can see inventory at the end of the third quarter of 2021 represented 135 days.
Days higher than the 117 days at the end of the second quarter of 2021, and six days higher than the 129 days at the end of the third quarter of 2020.
Currently our inventory levels remain lean we are working very hard to return inventory to the 180 to 200 day level necessary to support our future growth.
I would now like to turn to our outlook for the fourth quarter of 2021.
We are forecasting Q4 revenue in the range of $314 million to $326 million.
We also expect following <unk>.
GAAP gross margin in the range of 56 point to 56, 6%.
Non-GAAP gross margin in the range of $56 three to 56, 9%.
Total stock compensation stock based compensation expense of $30 8 million to $32 $8 million, including approximately $950000 that would be charged to cost of goods sold.
GAAP R&D and SG&A expenses should be between 107 $8 million and $111 8 million.
Non-GAAP R&D and SG&A expenses to be in the range of $77 9 million to $79 9 million.
Litigation expense is expected to be in the range of $3 5 billion to $3 9 million.
Interest income is expected to range from $1 1 million to $1 4 million.
Fully diluted shares to be in the range of 47, 9% to $48 9 million shares.
In conclusion.
We are continuing to execute our strategy.
I will now open the webinar up for questions.
Thank you Bernie analysts I would now like to begin our Q&A session. As a reminder, if you would like to ask a question. Please click on the participants icon on the menu bar and then click the raise hand button.
Our first question comes from Tories Farnborough of Stifel. Your line is now open.
Yes, Thank you and congratulations on these continuous stellar results.
The first question and not to sort of pick on segments here, but your consumer segment was down sequentially.
You talked about.
Cellphone.
I wasn't aware monolithic power had that much exposure to the self and this is mainly on the charter side or anything else there that we should be aware of.
Hi, Terry.
It is much.
<unk> sites and.
We do believe the fast charging and EMEA, we've picked up some revenues in.
Last few years.
And.
<unk>.
Those are <unk>.
Cell phone companies.
They thought that they can have.
More and more adoption.
No.
In a market so they have.
Some inventories.
But.
These are usual way of charging our phones.
Students are very popular.
Great. Thanks, Thanks for clarifying that and that's my follow up.
Much of a problem now you have three quarters of $1 billion in cash in your balance sheet I know you're out there trying to secure more capacity. So first.
First of all could you update us on where we're where you are on on securing capacity, especially for the next few years and related to that will you start to use some of that cash more aggressively.
To potentially buying more more equipment.
As you continue to obviously.
So a very strong note.
Alright, let me ask.
Answer the first part of the market.
<unk>.
It is.
The expense change.
On track Okay.
Fab issue that we don't have we have a less fab issues.
We came away on the way too.
Two.
Expand our capacity in there sometimes.
Middle.
Middle of next year.
Over $2 billion of supporting $2 billion of sales.
At the same times.
We do have that.
Our buyer more more equipment in the fall.
Staying for qualification and also we need to hire.
More and more people in them.
The qualify.
Each part.
<unk> clients in that.
Revenues are there opportunities there is just a matter of time.
And so.
The second part is they're buying.
Buying more and more appealing.
On the other hand, investor our shareholders investors and they're very critical.
Uh huh.
Oh.
Criticized in our Paas our spending okay.
Well out of them that were slightly out of our model now.
We spend money on.
There'll be a lot more careful but the opportunity is there, but we do more sensibly.
Yes, I think if I can just add to Michael's comment there.
Is that.
As far as the model that we've always pursued it was to have our fab partners and our Assembly House partners.
Absorb must much of the capital required.
Required in order to build up capacity.
And that remains our being as a Fabless company. So nothing has changed in our model.
Or just adapting it to this rate of growth that we're enjoying right now.
Okay. Thanks, again I'll go back in line.
Okay.
Our next question is from Matt Ramsay of Cowen Matt. Your line is now open.
Thank you very much and good afternoon everybody.
For my first question, Michael I wanted to ask.
About a couple of the different computing markets that you guys have products to support.
The first one I think you could I don't know.
From my perspective, you could kind of Jamba bus through.
What different PC expectations are.
For for next year, and I Wonder if you might touch on what rough percentage Bernie of revenue might come from the notebook market and what your underlying planning assumptions are on the PT market for next year and I guess in contrast to that hub.
Intel is launching Sapphire Rapids, amd's launching Genoa next year, what kind of tailwind from a content perspective could those upgrades in the server market beat and then I have a follow up thanks guys.
Okay.
So the notebook side.
Obviously, we gained some.
Okay.
Market shares in a high end.
Notebook and.
These are often.
Okay, while I stood the tail end of a pandemic.
<unk>.
We we increased a quite a bit of a market shares.
But the story there is not it's not just where.
With any.
That's all we can get.
We.
We increased our new generation, but.
Other technologies, that's the aim.
In place and the way it will further reduce the cost.
Adjust the high end of our consumer site.
And.
And only if I adjust that.
NCR is the crushing market and.
On the service side.
Still a very very small.
A small players there is a lot more room.
Paul for NPS to gate.
Yes, and I don't think that we've ever specifically broken out what percent of the group's revenue is tied to any one of the categories that we track.
But I think we have been clear that in each of the last two years that the growth in notebooks has outpaced.
The rest of the sectors, including server and.
Storage now having said that one.
One of the things that we're benefiting from is the diversification of how we're positioned in this group as.
As Michael indicated.
We are a relatively.
Small player when it comes to core power management for servers, and we believe that with both the next generation of Intel and AMD.
Processor.
Leases.
That we stand to benefit from market share gains.
And in the more near term element as we called out in Q3.
We're actually seeing a nice.
Increase in storage sales, which is usually a precursor to ongoing infrastructure spending within the data centers.
So I think that.
For having us it's great.
Great difficulty as anybody in understanding when work from home or work from work as it relates to notebooks begins or ends, but I think that we're well positioned because of our diversification to enjoy continued growth in this category for a number of years.
No.
Let me let me let me go back to the notebook side that I can I think.
And that part of the question and the answer is in that game.
We're still facing shortages.
And still a lot of debate.
In the notebook side and.
We don't see Cedar.
<unk>.
Yes.
We see in revenues from the mid of next year.
Yeah.
Got it. Thank you very much for all that commentary guys. Just a quick couple of things on gross margin. Okay. One Bernie the one timer that was in Q3 any particular reason you didn't.
Pull that out of the non-GAAP number and secondly, with the pricing environment that we're feeling today, how do you guys think about.
Price increases going forward relative to input costs and what that could mean to margins. Thank you very much.
I'll take the first half of that question real quickly.
And then Michael will give comments on the second.
As far as how we tried to.
Manage GAAP and non-GAAP reporting.
Is really to be a reflection of what what is cash and in this case.
<unk> highlighted that there was a settlement.
And that was a cash payment that we received.
So that's the thinking behind not adjusting it as a non-GAAP item. Conversely, so if we have something that works to our detriment and it also.
Has cash implications.
Non-GAAP that out either so the two areas that we stay pretty closely two or three I should say.
Our only stock comp.
Gain and loss.
From a.
Deferred comp plan and if we have any intangible acquisition amortization.
Okay. The second part is how do you expect that our gross margin.
On the current supply.
<unk> came in.
Sure.
As I said is okay.
All of these.
Hugh.
Well let.
Let me say that yes, we do see the.
The cost increase.
And in.
Fortunately and all the product that we released.
The gain in market shares.
All of these greenfield products installed.
<unk> will maintain a.
A couple of years ago.
And these all have a higher margins.
In.
Our our customers give us a very long long term.
Forecast commitment and we all know dose.
We can absorb some and.
Some of the.
Some of the cost.
Because the way these products have a much higher margin.
And the.
So during this time, we will.
We value the customer relationship and that we don't gouge price.
Alright. Our next question is from Ross Seymore of Deutsche Bank Ross. Your line is now open.
Thanks for letting me ask a question. Congrats on continued strong reports and guys. One question on end market the communication side, Bernie or Michael you guys said that was up because of infrastructure thats been a really choppy market for you guys between the infrastructure side going on and off and then the kind of the access side can you just talk a little bit more about what you meant.
By the infrastructure side and it is that the start of something that's going to continue or should you expect that segment to continue to be lumpy going forward.
Well.
<unk>, we're transitioning from these.
Wifi routers those two mall mall in the real.
$8 structures America meeting.
Data centers.
You'll be the communication between the data centers.
And then the switchers.
And even towers.
So.
The last year as our customers pulling a lot of revenue.
At.
This times and then we see all the other things going on at <unk> and <unk>, including the <unk>.
Our commercial Wi Fi systems.
And nowhere in the world.
Played a critical role.
On these days.
<unk>.
Indeed, there was stress in.
We see that we.
We see the expansion in there.
We will see further <unk>.
Two expanding.
And the next few quarters.
I think we remain very optimistic about our long term positioning.
Within.
The communications sector and in particular infrastructure as it relates to <unk>.
But I think that right now we have not hit a constant.
Investment cadence on the part of the.
Carriers.
In either.
Europe or North America.
So we think that as that starts to gain momentum and gets more predictable.
We're very well positioned to participate in that.
Thanks for that color I guess as my follow up.
Seasonality versus kind of cyclicality <unk> supply driven moves.
Obviously, your fourth quarters guided a bit better than your traditional seasonality kind of flattish.
This year, but how are you thinking about that as we go into next year and beyond is it mainly going to be driven by the product cycles. You have in short supply in aggregate. So those would be big tailwind or do you believe seasonality is it going to become a framework that's something that investors should consider as we go into 'twenty two.
Well you'll.
You'll see that this is the market and the exceptionally strong markets like EMEA.
Sure.
A lot of demand is everywhere it's Nick.
And.
Also constrained by the supply.
And.
We do have a delinquencies in EMEA.
No.
But.
We're facing delinquency for many for many quarters.
<unk>.
Four.
I think we still have the minus my opinion is that we still have some kind of a similar seasonality and the fourth quarters in that because already the holidays all of these <unk> and <unk>.
It will kind of effect on us.
So.
We see that.
As I said.
I said earlier, we stood the demand still very strong so that gave me in a week.
Just cautious in the way.
Our guidance.
And just to add to that is that.
Right now what we are continuing to do is investing in expanding our capacity.
We do believe that.
This robust demand that we're experiencing will continue and we want to be able to participate optimize to the best of our ability.
This growth opportunity.
Oh, Yes, yes, let me just clarify that the shortage.
These are.
Well I mean, the shortages that we have we have a few thousand products.
Always have some mix issues and.
Yes.
Burst capacity issues and but all these are the MX and the <unk>.
And that was both particular product to Doug we may have.
We have a.
Few products to have a facing shortage to announce.
And as we transfer to a different fab, but it just takes time to qualify.
Got it thanks guys.
Yes.
Our next question is from Alex Vecchi of William Blair. Alex Your line is now open.
Hey, guys.
<unk> remarks.
Hum.
Maybe just to piggyback off of.
Pushing locomotive.
Good for you can you give a little color on how we should think about.
The sequential growth by end market for for Q4 in terms of maybe the strongest end market.
Sure.
When you look at that.
Two four.
I think that the.
The two primary drivers are going to be computing and in continuation of automotive.
And then you would normally expect and we expect to see.
A slight downturn in consumer.
So I think many of the trend lines.
That we're familiar with are continuing and ongoing.
But the amplitude might be a little up or down from what to traditional seasonality has been.
Great.
Helpful. And then similarly, I think on the <unk>.
Communications line as well over the last couple of quarters.
You guys had pointed to ramp up the tier two psyche.
How should we be thinking about the opportunity eventually last year to crack into a tier one.
Or just generally how to think about how you're positioned there geographically.
Yes.
We are evaluating all the tier ones.
Now.
And.
We are so small steel.
Amy.
A big growing market segments.
We don't have enough.
We don't have anything in a forging and we expect that there will be a significant player.
Yeah.
Okay. That's helpful with that I'll go back in queue.
Okay.
Our next question is from Quinn Bolton of Needham. Your line is now open.
Hi, guys, let me ask.
Congratulations Mark.
Nickel or Bernie I guess I wanted to.
I know there've been a lot of disruptions in southeast Asia more on the package and test side wondering if you could just.
Say, whether or not you have any exposure to <unk> in Malaysia.
And whether that that affected your ability to ship or received products here.
Here in the third quarter or in the fourth quarter.
Looking forward.
Yeah.
It's not so much in.
And effective May <unk>.
Maybe some are some products in <unk>.
Because of the weak controls a lot of our new product, we control our own package technologies.
And.
So we always are quantifying the difference.
Dependent locations.
And.
So we can.
Doug.
Southeast Asia problems, we can maneuver through it.
We didn't have that much issues.
Correct in either Q3 or our outlook for Q4, yes.
Got it.
My second question just on the supply chain is it sounds like.
From your comments, you're not seeing some of the fab constraints that you had seen earlier and inventory increased by $30 million sequentially. I guess my question is as that capacity comes online as you ramp inventory on hand, do you think that that could lead to an acceleration in your ability.
<unk> can be former delinquencies and key revenue growth rate potentially accelerated you meet some of those delinquencies or does it really all come down to that product mix of what customers are demanding versus what you have in inventory that you see that mismatch potentially continuing for.
Several quarters.
Yeah.
Your question.
Absolutely.
Yes, we have we have a long haul we can chew off now.
And as a shortage is that Golar will.
Go on all the new product.
New product adoption.
<unk>.
And.
All of those Greenfield product that we ramp up at a much much faster than that.
And then we expected and.
And we have a lot more long haul.
Our forecast.
Order.
We can offer fields.
These loans our customers understand that.
And.
So.
Now.
As of today.
We have a blue sky.
And but let me start with our regulators so I can't forecast.
I'd just add its a balancing act as you can appreciate because for some of the more mature products that we have.
They already have developed markets and a fairly predictable.
Growth in the current market, but what we're trying to do is make sure that these new product introductions.
<unk> can be successful because that is going to be the future growth opportunity for the company. So we're trying to satisfy sort of the run rate business in this.
Heightened demand period of heightened demand and at the same time have very successful new product launches with new customers.
Can I squeeze one last one in can you guys have any meaningful exposure to chromebooks and share gain opportunities to look into 2022. Thank you.
Yes, we haven't.
And if.
If we have a local product that model wells in that game.
Yes.
Designer everywhere.
Chromebooks are unique because while they are considered a we tend to go after high value.
Notebooks and chromebooks are known to be.
Lower priced.
But they depend on the access to the cloud and good processing power.
So the power management, our power management solutions.
Is very key high value for the chromebooks.
Yes, as I said earlier is our technologies.
Yes.
Bring on.
Online.
Become more mature.
Why not just attacking all of these other than other markets.
The market, although were not Inc.
Got it thank you.
Yes.
Our next question is from William Stein of true William Your line is now open.
Great. Thanks for taking my question and congrats on the great results and outlook.
I want to ask one question about supply chain stuff and what about long term growth.
First on the supply chain.
Okay.
It seems certainly if we look.
Just your business, but across semi is the customers had been sort of freak out expedite mode for quite some time.
I Wonder if you could give us a sense as to whether that abated at all.
Level, our breath of expedite requests change meaningfully in the quarter or is it getting hotter or colder in any end market with regard to this sort of urgency of expedited Colin good upsides and all that it could be we've heard about it and then they can have long term growth question.
Yeah, Okay, and then the answer is that okay.
I wish they come down a little bit.
They are exactly the same as the last quarter.
And a quarter before.
Okay.
Oh.
Yeah.
Okay. So the long term growth question, Michael I think we've discussed this many times but.
We are aware that there is this long term potential to transition to more of a solutions provider with <unk>.
Modules.
Relative to your traditional setting device business can you talk about the trajectory of growth of the modules business an update on perhaps percent of revenues today relative to a quarter ago, and where you think that could go over time. Thank you.
Yes.
Our homegrown.
Modules.
Well all of the strategy does that NPS to involve other lot of technicals in the K in terms of.
Delivering.
The.
The end product okay.
Okay.
So our strategy is a move up to food stamps and the C suite, we put out we haven't done knowledge and.
And the.
While we are not capture all of them are the values.
Paul currently current our module.
In that.
It's much faster than.
Or the semiconductor side.
Gross selling of chips.
But the volume is.
Overall, it's still very small so if I can.
Compare the entire anti Randy.
We tried a different ways and <unk> launch.
<unk>.
Launch all our websites and NPS analysis and they are also using.
Using our e-commerce. Okay. These are.
These are doing well and but.
Now thinking about it why we just a fine company.
We know that.
Net where we need to gain knowledge gain of sales channels.
In the half.
Those company adopting of NPS technology, we can provide them a better tools again.
I think the.
First Phil.
Attempt.
Very very fair.
Very encouraging and that came in.
So we can I can talk to the detail announce them again.
I think that Thats our strategy.
And if I can just remind you will that we talked about this touched on it last quarter and we indicated that what we're trying to do is source differ.
Different technologies through either IP acquisitions, our talent acquisitions that are complementary to our business and that will accelerate our ability to be a solutions provider for our customers in the next seven eight years.
Yes.
Just don't like it I just don't like we have so much knowledge and put it H.
We sell a piece of it.
Silicon average is well below $1 marker, we should sell them.
Our solutions so that much.
Much more than a $1.
$5 610.
$10 those type of things so and.
And those customers will really appreciate that they don't have to.
Designed from scratch.
That's helpful insight. Thank you both.
Our next question is from Rick Schafer of Oppenheimer. Your line is now open.
Hi, Good afternoon. This is Wayne Marc on the call Rick Schafer just wanted to echo congrats on the results. So.
So for my first question is in cards to auto so it's pretty much spot on that the market is supply constraint. So you guys are still growing nearly 90% this year with industry reports showing vehicle unit production improving in 2022, how should we think about your auto.
Business as we look into 2022.
Our.
Well it is a very.
<unk>.
At this time is that we see everything very rosy now.
Well in the pilot.
On the other hand.
We're so small there is no reason, we would not grow.
Even though even the assumptions.
And.
As we have a look at the addressable market is that this is what I call the six.
Billings came in at that conservatively.
Nimbus, that's a conservative number.
And as we introduce more products, especially aid us and.
EV propulsion sides, and again, where we're developing products.
All of these.
We can address the future growth, so really well so thank you Ian.
There is a plenty of 'twenty twos, but luckily there is a Norwegian.
Yes.
Yes.
I wanted to say there is a lack of it.
Last year some of it also in the auto industry has just stopped.
Yes.
In a normal time and Theres no reason.
Multiple.
And I think to just fall on to the previous question when we look at automotive.
I actually have.
System level design wins.
In Adas.
Regenerative braking systems.
And in external lighting and all of these solutions have much higher dollar content.
<unk> 60.
60 to $100 per vehicle.
So I think this is a very exciting example of how the solutions strategy could play out in different end markets for us as well.
Got it great thanks for that.
For my second question is food cards to Consol, you guys highlighted consumer being down for Q. So is this more of a reflection of normal seasonality where are you seeing any supply constraints impacting consoles.
Well Q3 <unk>.
In Q3.
In the consumer side and it should be the highest.
And.
I think as a customer size they have too much inventory.
And the.
For the self homes and that came in that affects us and them.
The cell phones, especially.
In China that came in.
When they.
When the U S.
Have the embargo on the <unk>.
One of our companies, but the other ones. They saw they cant be gained a market share and that came in.
Actually they did.
So this bucket with Amy.
And I think that.
What we tried to do in our prepared comments is really make that.
That dip more narrowly defined that is really the.
Fast charger.
In the handsets as opposed to anything that is more broader pervasive in the rest of the consumer.
Okay. Thanks for that.
Yes, we didn't have much of an exposure in the handsets and the.
That wasn't my favorite Eastman anyway. So we've got these problems.
Last year and that Guy and why.
Why not okay, but now as America.
We thought it would be good.
Well the technology has actually been very well positively received.
Just the imbalance as far as the demand that was expected has trailed those expectations and so we believe that they have excess inventory and so we're seeing the slowdown for that particular individual category.
Our next question is from Kevin Garrigan Rosenblatt, Kevin Your line is now open.
This is a hamster, Kevin Hey, guys congrats.
Couple of questions.
Along the lines of inventory I think AMD micron.
On the PC side of things.
Texas instruments on a broader basis are indicating that customers are changing their behavior a bit in terms of how they taken components in a supply constrained environment.
Rather than just take everything they can get to being more selective.
That's something you guys are seeing is that unusual if you are seeing that things.
We are too small, but these were very small much smaller players and compare.
Texas.
Extra minutes all of the other.
The other guys. So we don't we don't have a luxury of.
Picking market sentiment.
We're only focused on our long term focus or not focus we don't do short term business anyway.
Yes to answer your questions.
We haven't seen any change in ordering patterns or our delivery schedule.
And really don't have an opinion on what the broader market or other.
Market participants are experiencing.
Fair enough.
The last question.
Your visibility in terms of.
When you can capture or get back to that 180 to 200 days of inventory does that changed and what is that.
The timeline is at the end of next year.
2023.
I think I hand over the next year would be a would be a good number yes.
That's all we have.
If the market goes.
No.
Continues to go this strong stomach.
And Ah.
Hopefully.
We can catch up by the end of next year.
And that is that.
Push out or is that a pooling from last quarter.
I'm, sorry, again again.
I'll talk about Alaska.
Last quarter, pointing a pushout.
As I said earlier.
We have a we still have a delinquency.
And.
We have a more delinquency of them than a customer that pushed up.
No.
Okay, I think the important thing.
Is that.
Even with the demands that are placed upon us.
Michael is correct that we saw no change in Q3 from what we experienced in Q1 or Q2.
We were able to increase.
Inventory in a meaningful way this quarter. So again I refer back to an earlier answer we said the balancing act that were trying to do between the satisfy more run rate business at the same time as we're meeting demand for our new products as well as building inventory that gives us more flexibility.
Great. Thank you.
Okay.
Our next question is from Torrey Sandberg of Stifel. Your line is now open.
Yes. Thank you I just had a few follow ups.
First of all Bernie D. Gross margin guidance for Q4 that does not include any more on litigation impact right.
That is correct okay great.
The other question is.
A lot of your competitors are discrete companies and they're probably allocating their products all over the place right now.
Which I, assuming youre gaining share.
Can you just talk a little bit to the stickiness of that I mean, I assume monthly go with an integrated solution there, they're not going to go back.
That's very true.
And with it tasted of.
Uh huh.
Simple easy solutions NSF.
It's a difficult and and.
While these are.
Hi, a little bit of hide in a market that's weak.
While we focus on our customers pay for it.
They deviated from the way they their behavior, how they design product and.
I think that's a huge benefit to us.
And.
Other customers that are more in the low end low end consumer business.
We don't care.
Got it just one last question Michael in the past, you've talked about especially in servers and automotive.
Kind of just getting the pie dishes, but eventually you'll get them. The main course.
Should we expect those two segments to see some <unk> revenue in 2022.
Yes.
Yes.
Our eating a chrome.
We eat a lot of problems with.
Well not way off.
We're small fish charter from <unk>.
Okay.
And now with efficiency.
We grow our self a little bit.
Real meals.
Yes.
<unk>.
We.
We keep saying is that okay. We have the reference design in E Mail and.
And then the OEM.
OEM the pickup.
And the two of these in the quality of the projects.
But these are the real beef when I came in.
A little bit smaller.
I think as of next year.
We will grow much bigger.
And.
You stockpile of VR for teens and <unk>.
<unk> five we benefit.
The benefit of locked.
And other than a point on loans and the fuse and at that kind of growth that came in.
Now, we really have our core core power have a meaningful revenue coming next year.
Not talking about VR.
We are 14, yet again and then the other thing worth to mention about <unk>.
There's a lot of 48 volt process as we said earlier.
And.
By this year's end, we forecast about this year in the next year.
Cross point happens in like EMEA and <unk>.
We were waiting about 334 years ago and.
We said that the until went up.
When the power is increasing and the heat generation.
Key heat dissipation, they cannot handle any more they have to use the <unk> solution.
<unk>.
This just happened.
And <unk>.
<unk> pharma and.
And next year, we see many data centers adopting.
48 volt solutions.
We will have a benefit.
Largely.
Great. Thank you very much.
Okay. Thank you.
If there are any follow up questions. Please click the raise hand packing.
As there are no further questions I would like to turn the webinar back over to Bernie.
I'd like to thank you all for joining US for this conference call and we look forward to talking to you again during the fourth quarter conference call, which will likely be in early February with that thank you and have a nice day.
Okay Goodbye.