Q2 2022 Power Integrations Inc Earnings Call
Switch design for use in next generation 800 volt vehicles.
Our strategy in automotive is to land and expand.
Our powerplay products establish a presence at customers and are quickly being adopted as platform solutions, enabling us to gain access to higher value opportunities such as gate drivers and drivetrain in water.
For the drivetrain in Nevada.
And we are targeting not just passenger vehicles, but also commercial and industrial vehicles, such as buses trucks mining and construction equipment, where the available dollar content per vehicle is in the hundreds of dollars.
In May we launched our scale EV board level gate drivers targeting heavy vehicles.
Really the drivers are rated at 200 volts to address both 400 and <unk> hundred <unk> systems and are capable of driving <unk> as well as silicon carbide MOSFET modules.
Automotive is shaping up to be our largest addressable market opportunity as the market continues to grow and we expand our portfolio of automotive qualified products. While long design cycles will result in a gradual revenue ramp over the next few years, we expect to be in production this year.
With several customers and we are rapidly expanding funnel of design opportunities.
Finally, we continue to make great progress penetrating the market with a highly integrated gan products, including Enos rich many cap and claims zero as well as the recently introduced power factor chip hyper PFS five.
We won a wide range of Gan designs in Q2, including a 65 watt multipurpose USB PD charger for the Chinese handset and notebook OEM.
And aftermarket designs spanning from 33 to 121.
We also noted the introduction of a compact dual port Gan charger offered as a multipurpose accessory and an inbox notebook charger by a leading personal electronics Oems.
In summary, while the near term demand environment is challenging and uncertain. We have a playbook that has served us well in the past economic cyclical downturns.
We intend to follow it again here focusing on winning market share and bringing innovative products to market. So we can come out stronger at the other end sandeep.
Thanks, <unk> and good afternoon.
Q2 revenues were below the range, reflecting the downturn in demand. We nevertheless had an excellent quarter from an EPS and cash flow standpoint, driven by our strong gross margin and lower than expected opex.
We expect gross margin to remain above the high end of our target range for the next several quarters, thanks to favorable mix and manufacturing efficiencies and the strength of the dollar versus the yen.
And as in past downturns, we are tightening our belt on spending, but we will continue to invest in the people and products, we need to sustain our long term growth.
I will now quickly run through the key numbers for the June quarter and touch on the outlook before we begin the Q&A.
Revenues for the quarter were up 2% year over year to $184 million.
Revenues from communication category fell nearly 50% from a year ago, reflecting the recent weakness in smartphones, but also the unusually strong demand in the first half of 2021.
<unk> revenues were up 15% year over year, driven mainly by notebooks.
Consumer revenues were up mid <unk>, driven by appliances, while industrial revenues increased nearly 40% year over year with strength in a number of verticals, including home and building automation metering high power and broad based industrial.
As <unk> noted however, sell through did lag selling across all end market categories.
Revenue mix for the second quarter was 38% consumer, 35% industrial 18% communication and 9% computer.
The higher margin industrial and consumer categories.
Four nine percentage points more than.
Then in the prior quarter.
Driving non-GAAP gross margin up to 58, 5%.
non-GAAP operating expenses for the quarter were $42 $1 million below our forecast, reflecting a smaller than expected increase in head count.
non-GAAP operating margin for the quarter was 35, 6% and non-GAAP earnings were $1 <unk> per diluted share up 24% from a year ago.
Weighted average diluted share count for the quarter was $58 3 million down $1 8 million shares from the prior quarter.
We repurchased one 9 million shares during the June quarter for $158 million.
In total we bought back about 6% of our shares since November taking advantage of market volatility as well as the dislocation caused by a promotion to the S&P mid cap index late last year.
Cash flow from operations in Q2 was $67 million.
In addition to the buyback other uses of cash were $13 million for Capex and $10 million for dividends.
Cash and investments and the balance sheet fell by $116 million during the quarter to $328 million.
Inventory in the distribution channel Rose to 11 six weeks at the end of June quarter, reflecting the weaker sell through.
Internal inventories rose to 132 days up 17 days from the prior quarter.
As we have said many times before we are comfortable allowing inventories to rise well above our target level during a downturn as we did in the earlier months of the pandemic. When we went as high as 178 days.
We can do this because we have virtually no <unk> risk with the vast majority of our products. Thanks to the long life cycles, and fungibility across customers and applications.
<unk> wafers during periods of slack demand and shows continued access to foundry capacity, which gave us a tremendous competitive advantage throughout the period of supply and demand imbalance over the past year and a half.
Looking ahead, we expect revenues for the September quarter to be $165 million, plus or minus 5%.
We currently have backlog coverage to within this range.
I expect non-GAAP gross margin for Q3 to tick down slightly to about 58%, reflecting the seasonal slowdown in air conditioning, which will result in a slightly less favorable mix.
non-GAAP operating expenses for the third quarter should be approximately $42 5 million.
Essentially flat compared to the June quarter.
In light of the weaker demand environment, we have trimmed up expense budget for the second half of the year and now expect full year non-GAAP expenses of around $170 million rather than the prior expectation of about $177 million.
The non-GAAP effective tax rate for the third quarter should be approximately 10%.
And I expect diluted share count for Q3 to fall by about half a million shares.
And now operator, let's begin the Q&A.
At this time I would like to remind everyone in arc.
Ask a question press Star then the number one on your telephone keypad, we'll pause for just a moment to compile the Q&A roster.
Yeah.
Your first question comes from the line of Christopher Roland with Susquehanna. Your line is open.
Hey, guys. Thanks for the question.
I guess, maybe for Sandeep, you seem to have a great macro crystal ball and.
And you guys have talked about going in and seeing some of the weakness earlier in some of these semi cycles.
Seeing them.
Earlier on the way out as well.
I guess can you talk about.
Maybe where the weaknesses, obviously mobile, but where are the parts that have gone in.
Two weakness where the parts that are still stable would you expect them to go in and then.
Too early to be calling anything coming out but.
But maybe your best guess at this point as well.
Chris.
I think as you heard from our.
Our script that the China handsets is really where we really saw quite a bit but the other area that we are watching and we have talked about in the past.
That.
With the whole housing issue that is happening the inflation factor.
And all that has a big thing and obviously the world has had an impact.
Also so I think we've been calling this for a bit and we're seeing it now the good part for US. However, as we have said in the past is we've had tremendous share gains.
And we typically see this about a quarter or so earlier than others, but we also come out of it much stronger as we have done in the past.
How long the cycle lasts is very difficult to tell because the number of things that are very different. This time is not only the macro situations of the inflation factor the war, which are adding more complexity cycle.
Cycles in the past and you've heard other people talk.
Talk about this I had another company, which I already talked about the fact that they'll see the inventory adjustment take two to three quarters, it's hard to predict.
This is the reason we had cautioned about the sell through in our last call.
And that caution seems to have come through.
The part I think I'd like to leave with is irrespective of this we've had tremendous share gains we feel very good and we've got some very great products coming out.
And we feel we are going to come out of this much stronger.
Fantastic and then also you know.
Gross margins held up pretty well.
Through all of this I think some of that was a function of mix.
Maybe some currency on the yen side that you guys were helped by but any other factors in there and then lastly, if you could maybe force rank.
Strength or weakness.
To that 10% for your verticals next quarter, if there is some.
Some standout.
Vertical Sir Thank you, yes, so I think on margin you're pretty much highlighted the mix.
Thing that really helped us the one part that I think which you probably heard on them I think that the margin will continue to remain strong because of the slowdown what has happened is that the inventory levels have gone out and the cost increases that I talked about in the back half, especially in Q4 will now get pushed out into the next.
Yeah pretty much so as a result, we continue to see.
I mean <unk>.
Similar margin as we have predicted for Q3 for Q4.
I think in terms of the revenue for the next quarter.
The client I think youre going to see the communications.
Maybe down along with consumer Youll see some strength in the computer side for us and I think the industrial is also will be a little bit down. So I think it'll be all three.
Tapering, but I think the computer segment will do a little better there, but all the others I think it will taper down and you'll see a more so than consumer a little bit because of the air conditioning being down and just the whole macro situation and the impact in China.
Thank you guys.
Your next question comes from the line of Toy fund that with Stifel. Your line is open.
Yes. Thank you.
First question is on channel inventory.
It looks like we've gone from six weeks to 12 weeks in about two quarters pretty steep increase.
So obviously sales through has weakened quite significantly.
I was just wondering if you're starting to see any signs of stabilization as a weird question, because obviously, you're guiding down for Q3, but since you tend to see these things early on I'm. Just wondering if you yourself have an opinion about when you expect to start to see some stabilization in the channel.
Yes first of all I think the reason.
The channel inventory went up is because of the suddenness with which the demand went down.
Thank both our end customers and our <unk> were caught off guard.
They were making sure that they have enough inventory.
In case, there is a snapback from the lockdowns, but that really didn't happen.
The other challenge of course is if we don't sell through as much of a denominator is smaller.
For the same revenue on our business the same inventory on higher inventory. It amplifies the number of weeks. So as the number of weeks is a little bit difficult to.
The interest rate.
Under these conditions.
In terms of.
Demand now we believe there is inventory at our end customers that is inventory at our distributors.
And it will take some time for that inventory to burn down.
<unk>.
<unk>.
We are seeing some signs of improvement in the Chinese cell phone demand, but we won't see the benefit of that until the inventory is completely depleted how long the inventory loss will really depend upon the demand.
It could.
We think there is a very good chance that inventory will burn through by the end of this year and depending upon.
When they start ordering.
We may have some pull in from Q1, because the lunar lunar new year. This time is earlier, so we'll benefit from that.
So it's hard to predict exactly.
When they do come back, but I would say it won't come back in Q3, a small amount may come back in Q4.
And that is purely from a inventory standpoint as far as overall demand of course it depends on the macro.
There is obviously challenges.
Around the world because of inflation and so on but there is also specific challenges in China because of the GDP growth is slowing down quite a bit and also there is.
The challenge of <unk>.
The lockdowns that has impacted the demand, which we thought we will come back at him come back, but it could still come back and could snapback.
In Q3 or Q4, but we are very cautious about the overall macro demand.
Going down.
Yes that makes it makes a lot of sense.
Question on gross margin and I understand the.
The drivers near term, but I'm, just thinking a little bit longer term I know you have a target 50 to 55, you're obviously quite a bit above that.
And I know the mix is going to change around from year to year, but.
Sandeep or below.
I mean is there a chance that your gross margin will stay at least at the higher end of the range for the intermediate term.
As we go through this period.
Weak yen mix benefit and so on and so forth.
Thats a good question.
Think if you are talking near term off of next year, obviously the mixes of all.
The wildcard and you'll know how.
How that can change, but I still believe that with the new products like bridge switch and others. The mix I think will still be more towards our richer margins now.
With the macro obviously since we do value pricing I don't know what the macro environment would be dead and that can have an impact.
But obviously the.
The increase in wafer costs coming in next year would be a headwind, but the yen is definitely a tailwind.
Putting all this together and if I had to bigger thing I believe we will still be slightly above the high end of the range for next year.
Great and just one last question the communications business has been correcting for a while now.
And it's obviously gotten to much lower levels than what it was perhaps see that peak was Q2 of last year.
And I know that in this segment you do have some offsets are you starting to see more.
Some more share gains youre, starting to see higher ASP products.
So I'm just wondering at what point do you start to benefit from those higher asps.
Even though the units.
It could perhaps be flat to down.
We are already benefiting from that in spite of the fact that there is softness in terms of units.
On a relative basis the dollar value.
Value is higher for us.
Even though units are lower.
And also have to remember that the softness is almost entirely in the Chinese side of the business as cell phones.
Outside of China, our business is actually doing well, it's actually increasing.
So it's.
Sure change if you will between major companies and we do have significant exposure in China, because China has been very aggressive in adapting faster charging and we have significant shares.
<unk>.
Two of the largest.
Companies in China, and overall worldwide, we have very high share of the top four.
Oems out of five.
But again that most of the challenge is in China.
We are actually benefiting from the non China customers.
Growing.
Sounds good thanks again.
Really appreciate all the candid comments. Thank you so much.
I'm sorry.
Your next question comes from the line of Ross Seymore with Deutsche Bank. Your line is open.
Hi, guys. Thanks for let me ask a question I just had a question about the consumer and the industrial areas I think everybody knew that the communications business in China handset, specifically were weak so while it was weaker than we expected it wasn't necessarily directionally surprising with the consumer and industrial areas. There are two areas probably in that order that people are increase.
Clearly concerned about having somewhat of a similar impact over the next couple of quarters as macro weighs on those just a little bit later, so I know you talked about the AC market in China impacting consumer a little bit more than the down 10%.
For the average of the total company and <unk>, but just talk about any concerns you have kind of later stage weakness in those areas anything beyond the HVAC weakness in China et cetera.
So until now I would say China is the only one which has been impacted but.
On the longer run we are concerned about the overall inflation and the potential impact on GDP across the world.
But I would say.
Significant concerns right and I was in China for multiple reasons. One is the real estate market is incredibly weak as you know the government is.
Against any speculative.
The purchase of real estate and in China until you actually buy the house you don't put the appliances and so to that extent that is the headwinds.
In terms of appliance demand in China, and I must say that not all of the stuff is shipped into China actually gets used in China, a large portion of it comes out of <unk> out of China.
Until now the demand in other geographies have been very very stable I should say.
But but we are cautious about.
Longer term impact across the across.
All geographies.
The rush this could obviously impact the shorter them, but the market share gains that we have gotten over this last year and a half with the ability to supply the innovative products that we have I believe when this thing turns we will still come back very strong in this segment.
Got it and what about the industrial side most of that China side I assume you were referring to the consumer aspect what about industrial from you guys single industrial.
We are actually on a relative basis, we have done extremely well in industrial even on a sell through basis.
If you compare it to.
Year over year for Q2, we grew about 25% on a sell through basis. We grew a lot more on a sell in basis, but as you saw our.
Today's went up in Q2 across all markets, including industrial So I think we're doing very well and their sell the SBA is going really strong high power has really come back. If you remember we were relatively flat on high power and now we are seeing significant growth in high power, we have growth in them.
Utility meters.
Power tools is doing extremely well so I think on a relative basis industrial is doing well, but there is also we have a little bit of a caution about the overall.
Macro across all markets.
Got it and then my second question, maybe my third sorry for that is back on the Disney Channel side of things is the predominance of that in the communications area.
And how should we think about your expectations for that channel inventory.
Underneath the guidance that you gave in <unk> are you expecting to take it down in a decent step and the size of the guide down maybe $20 million sequentially as we look into the fourth quarter. If you think the inventory burn is going to last until then is that kind of the same sort of bogie that we should think about.
As you try to normalize the channel inventory by they exited the year.
As I mentioned, the all of the categories sell through was weak I don't think any one of them stands out in Q2.
And as far as.
Whether that inventory will stay there or go down I don't believe in Q3, it will go down very much.
But Q4 is when I expect it to go down the reason for that is.
Our end customers also have inventory they have to actually purchase that inventory before they pull in from the distributors.
So.
And that is especially true in cell phones, because they build charges ahead of phones.
Therefore, they always have some level of charter inventory and they also did not expect the demand to go down so quickly I'll give you. An example, we just Crazy example in April we had one of the cellphone company executives here pushing us to ship more products to them and literally.
In May the same company decided they have too much inventory.
They see a recession coming and so they wanted to cut the inventory by half, which means we don't see any business for a while I mean that.
How quickly this market changed.
It's.
I remember when they came here to how hard they were pushing us.
<unk> shipped them more products that we were trying to resist that as you know we always try to meet.
Meet the demand rather than what they are asking for but we do have to let them have some inventory because they don't want forms ready, but they don't have charges to go with it because <unk> is lot more expensive than the charter. So this whole thing happened. So quickly I think part of the thing is that they were hoping that after the lockdown is demand would come back very strongly.
And I think they were very surprised when it didn't come back and this is all specific to China just to be clear.
And Ross the other thing is that the Chinese.
New year is much earlier, so there is a possibility there and thats the hypothesis that they would like to keep a little more elevated just in case. There is more demand that they don't want to again be out of inventory in Q4. So that's why I think it may be a little more dragged out and obviously the sell through in.
It was so low so yes the weeks in the channel related to communication is much higher than the others, though everything grew but it is much more in communication.
Got it thanks guys.
Thanks Ross.
And do we have another question.
Yeah.
Your next question comes from the line of Matt Ramsey with Cowen <unk> Company. Your line is open.
Okay.
Thank you very much good afternoon, guys, I guess I need quite the pauses in introduction there.
Yeah.
Thank you for taking my questions.
First one.
Is around obviously the end markets are changing.
Quickly due to some of the things that have been well documented and you guys have talked about so far on the call.
I guess a two part question one is it.
And that kind of an environment, where you guys are taking actions to try to.
Position your company to come come out of this when when the inventory clears and demand picks back up or are you are you seeing your competitors Act rationally and and maybe take similar prudent steps and the second question that's related to that is.
And maybe the answer is yes, then that's fine, but if not have you seen any changes at all yet in the pricing environment as you.
Sort of entered this period, where where inventories building in maybe sell through would come in a little bit. Thank you.
Okay is correctly, we are being much more balanced during downturns, meaning that we don't do anything drastic we continue to hire people in fact downturns, our best time to hire people because we've got very good people when the other people out of other companies are laying off people.
So thats one thing secondly, we continue to build inventory so that we keep our foundry running and we can maintain the capacity.
And we can do that because we're in a unique.
Business model, where.
We have very little obsolescence risk.
Most of our products. So we can build a lot of inventory without worrying about obsolescence and that sets it up perfectly when that demand comes back with whichever Chavez does eventually semiconductor cycles are pretty normal and so we look at it long term and we do judiciously of course, we always tightened up.
Our belt, a little bit, but not at the expense of long term growth of the company. We continue to invest in hiring people in R&D and sales because we need that for future growth and we double down on design wins. So we can gain share and every downturn in the past we have gained significant share.
And Thats, because we take this as an opportunity rather than as a problem and we go after more designs and and you know.
I always think of this as a great opportunity to gain more share and come out of it stronger so that I can tell you about what they're doing today, but I can tell you historically, we have always.
Done better through the downturn and even in 2000.
Eight and nine we not only grow through the downturn in 2010, we grew 40%.
Yes.
Thank you Pat.
David collateral yeah, yeah price.
Pricing thing the way the way I told you we do value pricing.
So you know obviously there are some pockets, where youre seeing a little bit of that and that's why when I had the question from Dori I said I wanted to see what the macro dynamics is but you are seeing some pockets where the value pricing is seeing some impact, but it's a little too early to death.
Got it. Thank you very much for all the detail there just as a follow up I think someone earlier asked.
A little bit about the gross margin being higher than you guys answered some of the overall trends I Wonder if you might.
It seems like more weakness in consumer.
No questions I Wonder if you might quantify for us.
The difference in gross margins for the different end markets. There is there anything on a relative basis, there that would be really helpful. Thank you.
That's one thing as you know we are always range that we get the highest margin in Australia, followed by consumer followed by computer and communication is the lowest and I think the best way to attribute it is look at how the margin changed between what we guided to what we came out in Q3 and I'd give you a relative measure.
What happens when you have tremendous success in the higher margin business.
Got it thank you very much.
Thanks, Matt.
Your next question comes from the line of David Williams with the Benchmark Company. Your line is open.
Hey, guys. Thanks, Thanks for the accident I. Appreciate you let me ask a question here I guess balloon you had talked about the significant executive that has the demand in April and then slowed in May was that it's just across the cell phones or did you see that across maybe other categories as well such as appliances or any of the other business.
Business units you may begin.
I think the suddenness was probably.
Really most significant in the China cell phone customers.
But I must say, we are seeing to a lesser extent a similar reaction in appliances, because the demand has come down in China appliances, as well and they have kept some inventory as you know for our last two years they have been struggling with getting enough supply. So as a result.
They have built some inventory and this again a reduction in demand is affecting.
Affecting our.
Pull through from them in a promoted distributors. So it's not just cell phones, but cell phones is worse than appliances, we are seeing it in both areas in in China.
Okay perfect. Thanks for the color there.
And then maybe just kind of thinking about the guidance and where the macro is today I know you said that your book for the for the guidance mid point.
How comfortable do you feel there do you think there's any downside risk to this where do you think there's more maybe upside opportunity here.
Yes, what we did is we said we guided to the range and.
Theres always the risks you've got some turns business, but you also get some cancellations. So we are watching this very closely is the best estimate that we can make and the only thing that is I think comforting to us is that yes with the Chinese new year being early people are you know people have realized in the past.
The correct dose then they don't have inventory. So I think that gives us a little bit of the comfort, but again, it's we are in.
And very different times right now in a very short period of time, but we have tried our level best to manage the inventory, but even in spite of that the channel inventory has gone up quite a bit. So it's just the balancing of the two quarters in where the Chinese new year. That's why we feel we are okay, but again you know the.
The macro conditions are changing at a pretty rapid pace.
David just to add.
We said for Q2, we were booked to the midpoint and you noticed that we came in below that at that tells you how unexpected this demand slowdown this so.
It may look like or we are being conservative, but we are trying to do the best estimate we can because there could be pluses and minuses. It could go either way that's the way that our range is a little bit wider this time.
Understood you guys are always do a very good job of on the guidance. So I certainly appreciate that and then maybe just one last one if I can on the PC. You said you expect that to be maybe a little bit better next quarter.
Mentioned notebooks, specifically just wondering if youre seeing anything there that maybe improving in terms of the PC market or maybe more of just kind of maybe lesser supply and so that that demand kind of point or just color. There would be helpful. Thank you.
Yeah, I don't I don't think we see any signs of PC business improving its just that we are one such significant share in that market. In spite of the weakness we think we can grow.
We look at Q2.
We were only down 5% of it is the market was down quite a bit more than that that's because we are growing share and that that will amplify in Q3, because of some new design wins and therefore our.
Forecast is that the that category will grow in Q3, even though the other categories will be weaker.
Thanks again.
Youre welcome.
Your next question comes from the line of Gus Richard with Northland. Your line is open.
Yes, thanks for taking the question.
Yes.
Quick one what's the normal turns in a quarter for you guys.
Or there is no.
It's hard to talk about novel, if you go back three or four years, we used to have significant turns business within the quarter. I mean, maybe 50, 60% turns business. The whole world has changed in the last two years I don't know what the normal is anymore, but.
The Best example, I can give you is last quarter, we were booked to the midpoint and then we ended up at the lower end up our guidance.
And so and we are now booked within our range.
So the turns business.
The net turns business is not very much as you can tell.
Got it got it that makes sense and then over the last couple of years.
With the shortage of semiconductor and calls I don't think you have really pass along cost savings to your customers.
Now that.
People are comfortable with their inventory positions or on the other side of having a little too much or are your customers. Starting are you planning on doing the normal 5% price reductions going forward.
As of Sunday have said that we always price our products based on value.
To the extent.
The discrete components.
Supply becomes easier.
The cost on those come down yes, it will have some impact on our pricing.
But it's all value.
So there is a.
It was largely driven by the dynamics of the market.
Got it and then.
Just looking at the the handsets in.
Sort of a follow up I think China has been first to adopt rapid charge and I think that's kind of close to a standard I'm just wondering.
Is there any impact on the attach rate in other words I can use my charges from last year's phone and I don't need to find one that people aren't putting them in the box anymore is is that dynamic having any impact on that business or is this just you know.
Our normal inventory cycle.
I believe it is the latter because in China.
The charges are shipped with the phone there in the box.
They are <unk>.
Instantly, increasing the power level to charge the phone faster. So I don't believe that has the impact at least not in China.
Okay got it.
And.
And in that market, where do you think your market share is.
At this point.
That's a good question.
I don't know whether I have bye bye.
By that geography, I would say overall market share for smartphones, we are probably.
Approximately in the 40 plus percent range.
On a unit basis in a dollar terms were much higher because our ASP is much larger than our competitors, who sell portions of the <unk>.
Solution.
Got it got it okay. That's all for me. Thank you so much.
Thanks, guys.
And your next question comes from the line of tourists Feinberg with Stifel. Your line is open.
Yes. Thank you I just had two follow ups.
So first of all one of the few benefits of raising interest rates of course is the <unk>.
On your other income line and Sandeep I know you have a lot of cash you've obviously talked about buying back stock, but as we go through these next sort of choppy quarters, how should we think about your cash in relation to buying back stock or keeping it on the balance sheet with the higher interest rates.
So good question so as you know.
We've spent over 300 relative in the last six months and in fact, the average price that we bought it back at slightly below where we closed.
So we've just taken a little pause.
You will know we are opportunistic we have always been opportunistic and we're going to be no difference. So we just want to see what the Choppiness is and if you are going to be again opportunistic and buyback is one of one of the ways, we have done value and that's not going to change.
Great and my second question.
I think this is the first time in more than a year that there hasn't been an audio question on the public call. So.
Below you talked about production this year, but still a very gradual ramp at what point will you start breaking out auto revenue will it have to reach 10%.
And as you do start to see some more production revenue are you embedding that on there what categories that industrial.
Yes, right now it's in industrial I think we haven't decided whether youre going to break out obviously, if it becomes 10% I think that'll be a reasonable time to breakout auto revenue.
In terms of when it will.
Auto revenue will really become material I would say it will be starting in 2024, because right now the designs. We are winning are short.
Chart design cycle type of sockets, where you don't need a full safety.
Qualification and so on.
So we will start we will have a little bit of revenue this year in the low single digit millions.
And that could grow very nicely next year, we have a lot of designs going on.
Switches the star I mean, IV every customer reassuring us which are going to use it that either started designing with it that some of them are in production, but everybody loves the product because of the level of integration.
Bring and the performance we bring so that cover a door opener and then behind that we have several products that we are getting traction on <unk>.
And in the big.
Change will come when we have our gate driver products designed into the inverter.
Main inverter for the motor.
So that will not happen until probably 'twenty four because it takes a long time to design that product and.
We also have other Gan based products, we're working on that will open up even more sockets in the car because we can go to much higher power levels with Gan.
So that will add even more Sam so all in all I would say automotive will become our largest Sam.
In a matter of few years.
I think what I've said before 2025 to 2035 and will be the decade for Bobby of automotive, So thats, where youll see.
All this effort that we are talking about to really come about meaningfully.
Yes, I appreciate that.
The.
The reaction from customers has been.
Unexpectedly.
Positive.
We thought this would be a very hard market to get into but.
The enthusiasm we see from customers.
Based on how compelling our product is in the application.
Its really heartening.
Very very optimistic about this market.
Very good thanks again.
Thanks, Matt.
Yeah.
And we have a follow up question from Ross Seymore with Deutsche Bank. Your line is open.
Hi, guys. Thanks for letting me ask a couple more quickly here I wanted to go back to the cash question that Tori just asked and maybe ask it a different way and maybe clarify your answer to him Sandeep.
It looked like you bought back more in the second quarter not less so when you said your opportunistic and you've taken a pause because of what's going on in the end market that's completely understandable, but I don't see the evidence of the policy.
Forward looking statements.
And how much cash in general do you need to run the company I know you have a tunnel that's $328 million is a lot. Most other companies have slightly net debt and you have a ton of cash per share. So it's not an issue, but I just wondered where your comfort level is there.
Yes.
We keep a little bit of a powder drive for you know as you said, we have a four pronged approach whether it be M&A, whether it'd be internal investments like.
Not only expense, but right now we may be growing our inventory that we have done in the past and the dividends that we periodically increase if you look back in the loss.
Six months.
Seven months at over $300 million.
So and if you look back over the last 10 12 years, it's like 800. So its not that we are not going to look at this angle is just we're taking a temporary pause and obviously with the uncertainty. This will continue to be one of the full bronco as I said.
In the coming quarters and Ross, it's Joe the pause refers to the fact that the buyback we did in Q2 actually exhausted the authorization we have them. So we don't we don't have an active authorization at the moment.
Got it okay. Thank you for that clarification, Joe and then I guess, a housekeeping question for you.
You talked about and you guys have evidenced this through every downturn since I've, followed you and investing through downturns coming out stronger still continuing to hire et cetera.
Not that many other people care at all about stock based comp, but this last quarter. It fell by more than half sequentially. It doesn't seem like you added a bunch of people I know share price moving around can change things a little bit but your share price hasn't moved that much either so is that something that is a structural change or how should we interpret that answer.
Charles.
Now our stock compensation is tied to our performance.
To the extent.
Our Q Q3, and Q4 are lower than we originally expected.
We.
<unk> comp goes down because they have to not only correct for the second half. We also have to catch up collection for the first half.
So it's a good thing for me Investor part of it is not good for us obviously.
But.
A large portion of that stock comp is is based on performance.
Financial got it.
So with the weaker second half in general it probably stays at this level, but.
Let's say optimistically return you returned to solid growth.
I think yes, no no let me correct that so we have.
What I would call performance stock short term and performance stock long term, which is has a cliff west.
Especially at the executive over a three year period. So when you have this performance. It also has normally to outperformance in the measure also linked to how the industry is doing so at when you measure. This there is a true up that happens. So this reduction is a result of the true up.
More than what I would say is the ongoing cost.
Okay.
Our relative performance than.
And then the capital requirements. So it's got a it's got a catch up element of the true up which has made it lower than what what is the deal going forward.
Got it thanks guys.
There are no further questions at this time.
I will now turn the call over to Joe Shiffler.
Alright, thanks, everyone for listening once again, if you are interested in attending our analyst day on September 8th either in person or remotely you can find a link to register on our website investors power Dot com.
Thanks, again for listening and good afternoon.
Okay.
This concludes today's conference call you may now disconnect.
[music].