Q4 2022 Monolithic Power Systems Inc Earnings Call
One three.
We continued to diversify our global footprint with expansion of our R&D centers supply chain partnerships and facilities outside of China to better match, our resource distribution with our customers geographic demand profile.
With our global presence, we believe NPS is in a strong position to support our customers worldwide.
Turning to our full year 2022 revenue by market segment compared with 2021.
Enterprise data revenue was up 116, 1%.
Storage and computing revenue up 76, 8% communication revenue up 53, 2% automotive revenue up 46, 8% industrial.
Revenue up 18, 6% in consumer revenue up 13, 2% demonstrating broad based full year 2022 revenue improvements.
Full year 2022 enterprise data revenue grew $135 $1 million over the prior year to 251 $4 million.
This 116, 1% increase is primarily due to higher sales of our power management solutions for cloud based CPU and GPU server applications.
Enterprise data revenue represented 14, 8% of Mps's total revenue in 2022, compared with nine 6% in 2021.
Storage and computing revenue for 2022 grew $196 $7 million over the prior year to 452 $6 million. This 76, 8% increase primarily resulted from strong sales growth for storage applications and.
Enterprise notebooks.
Storage and computing revenue represented 25, 3% of Mps's total revenue in 2022, compared with 21, 2% in 2021.
Communications revenue grew $87 $4 million to $251 5 million.
This 53, 2% improvement reflected higher sales of products for both <unk> and satellite communications infrastructure applications.
Communications revenue represented 14% of our 2022 revenue compared with 13, 6% in 2021.
Automotive revenue grew $95 7 million to $300.1 million in 2022. This 46, 8% year over year gain primarily represented increased sales of our highly integrated applications supporting automated driver assistance systems, the digital cockpit and connectivity.
Automotive revenue represented 16, 7% of Mps's full year 2022 revenue compared with 16, 9% in 2021.
Industrial revenue grew $34 4 million to $218 $2 million in 2022.
This 18, 6% year over year increase primarily reflected higher sales and applications for smart meters and industrial automation.
Industrial revenue represented 12, 2% of Mps's full year 2022 revenue compared with 15, 3% in 2021.
Consumer revenue grew $37 2 million to $319 5 million in 2022.
This 13, 2% year over year increase primarily reflected increased product sales for home appliances and smart Tvs.
Consumer revenue represented 17, 8% of Mps's full year 2022 revenue compared with 23, 4% in 2021.
Let's talk about the general business conditions.
During our Q3 'twenty two earnings call.
We highlighted the customers were becoming more concerned with near term business conditions and order patterns might oscillate in the near future.
As a result of this change in ordering patterns, we indicated that our inventory levels will likely catch up to our target of 180 to 200 days and possibly be higher in the near term.
During the quarter ordering patterns stabilize as customers requested push outs customer requested push outs slowed.
This is positive customer's orders are still trending below historic norms, and our Q4 'twenty two inventory is above our target levels.
As a result, we remain cautious about near term business conditions.
We also believe NPS can swiftly adapt to market changes as we have done so successfully during similar macroeconomic changes in the past.
Switching to Q4.
<unk> had a record fourth quarter with revenue of $468 million down seven 1% from revenue generated in the third quarter of 2022, but up 36, 7% from the comparable quarter of 2021.
On a year over year base comparison by market segment fourth quarter 2022 revenue for automotive grew 72, 8%.
Enterprise data revenue increased 69%.
Storage and computing revenue grew 55%.
Communications revenue grew 41% and industrial revenue grew 13, 3%, while consumer revenue decreased 21%.
Fourth quarter 2022, GAAP gross margin was 58, 2% down.
Down 50 basis points from third quarter, 2022, but 60 basis points higher than the fourth quarter of 2021.
Our GAAP operating income was $136 9 million compared.
Compared to $151 $9 million.
Reported in the third quarter of 2022, and $78 $6 million reported in the fourth quarter of 2021.
Fourth quarter 2022, non-GAAP gross margin was 58, 5% 50 basis points below the third quarter of 2022, but 60 basis points higher than the fourth quarter of 2021.
The year over year expansion in fourth quarter non-GAAP gross margin was largely due to a shift in sales mix favoring high value greenfield products and operational efficiencies.
Which more than offset.
Higher product input costs.
Our non-GAAP operating income was $174 1 million compared to $193 7 million reported.
As reported in the prior quarter and 102.1 million reported in the fourth quarter of 2021.
Let's review, our operating expenses, our GAAP operating expenses were $139 million in the fourth quarter compared with $139 1 million in the third quarter of 2022, and $115 3 million in the fourth quarter of 2021.
Our non-GAAP fourth quarter 2022, operating expenses were $94 8 million down from the $98 $4 million. We spent in the third quarter of 2022 and up from the $83 8 million reported in the fourth quarter of 2021.
On both a GAAP and a non-GAAP basis fourth quarter 2022 litigation expense was $3 2 million compared with a $2 1 million in Q3, 2022, and a $420000 credit balance in Q4 2021 the.
The fourth quarter 2021 litigation credit reflected in IP settlement and refund of a legal retainer.
The difference differences between GAAP and non-GAAP operating expenses for the quarters discussed here are primarily stock compensation expense and income or loss from an unfunded deferred compensation plan.
<unk> fourth quarter, 2022 stock compensation expense, including $1 million charged cost of goods sold was $35 $3 million.
Compared with $43 million recorded in the third quarter of 2022.
The quarter over quarter change in stock compensation expense reflected the change in plan, thus seem assumptions.
Switching to the bottom line fourth quarter 2020 to GAAP net income was $119 $1 million were $2 45 per fully diluted share compared with $2 57 per share in the third quarter of 2022 and $1 51 per share in the fourth quarter of 2012.
Sure.
Q4, 2022, non-GAAP net income was $154 1 million or $3 17 per.
For fully diluted share compared with $3 53 per share in the third quarter of 2022 and $2 12 per share in the fourth quarter of 2021.
Fully diluted shares outstanding at the end of Q4 2022 were $48 5 million.
Now, let's look at the balance sheet as of December 31, 2022, cash cash equivalents and investments totaled $739 6 million compared to $738 1 million at the end of the third quarter of 2022.
For fourth quarter for the fourth quarter of 2022, MPS generated operating cash flow of about $52 $2 million compared with Q3 2022 operating cash flow consumed of $18 2 million.
Fourth quarter 2022 capital spending totaled $12 8 million.
Accounts receivable ended the fourth quarter of 2022 at $182 7 million or <unk> 36 days sales outstanding compared with the $153 $4 million or 28 days sales outstanding reported at the end of the third quarter of 2022.
And the $104 8 million or 28 days reported at the end of the fourth quarter of 2021.
Our internal inventories at the end of the fourth quarter of 2022 were $447 3 million up from $397 4 million at the end of the third quarter of 2022.
Calculated on a basis consistent with our past practice and as you can see on the webinar video days of inventory Rose to 212 days at the end of Q4 2022 from the 167 days at the end of the third quarter of 2022.
Shortly we've calculated days of inventory on hand, as a function of the current quarter revenue. We believe comparing current inventory levels with following quarters revenue provides a better economic match on this basis again, you can see days of inventory increased to 214 days at the end of the fourth quarter of 2022 from <unk>.
188 days at the end of the third quarter of 2022.
I would now like to turn to our Q1 2023 outlook.
We are forecasting Q1 2023 revenue in the range of $440 to $460 million. We also expect the following.
GAAP gross margin in the range of 57, 4% to 58%.
non-GAAP gross margin in the range of 57, 7% to 58, 3%.
Total stock based compensation expense of 42 to $42 2 million, including approximately $1 $2 million that we'd be charged cost of goods sold.
GAAP, R&D and SG&A expenses, including litigation expenses between $135, one and $139 1 million.
non-GAAP R&D and SG&A expense to be in the range of $96 one to $98 $1 million. This estimate excludes stock compensation expense, but includes litigation expense.
Beginning with the Q1 2023 outlook NPS will no longer separately forecast litigation expenses.
Interest income is expected to be in the range from one eight to $2 2 million before foreign exchange gains or losses and charitable contributions.
The non-GAAP tax rate for 'twenty for Q1, 2023 will be 12, 5%.
The non-GAAP tax rate remains unchanged from 2022 as there have not been any material changes in tax regulations.
Fully diluted shares to be in the range of $48 2 million to $49 2 million shares.
Finally, I am pleased to announce a 33% increase in our quarterly dividend to $1 per share from 75 per share for stockholders of record as of March 31 2023.
In conclusion, while we remain cautious about near term business conditions, we believe NPS can swiftly adapt to market changes and take advantage of the current environment to focus on business development and investing in infrastructure necessary to support long term growth.
I will now open the webinar up for questions.
Thank you Bernie.
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 <unk> button.
Our first question is from Quinn Bolton of Needham and Cowen. Your line is now open.
Hey, guys. Congratulations on the strong results in the nice outlook in this environment I guess I wanted to start bringing Michael the compute and storage business was much stronger than at least I expected in the fourth quarter, you grew revenue quarter on quarter. When the rest of the PC market is clearly experiencing softness and inventory.
<unk>. So I guess can you give us sort of your outlook, how do you see that business trending over the next couple of quarters.
And then I've got a follow up thank you.
Sure I think that.
There's been a lot of press recently around.
Weakness in notebooks as far as unit sales.
And in addition, we've started to see some word in here about declines also in the memory market.
Interestingly.
Memory continued to be very strong for us.
Offsetting a decline in notebooks.
And as we look ahead here.
We actually see notebooks beginning to improve.
In the early part of 'twenty, three and probably those gains will offset a decline in memory so base.
Basically looking at this category at least for the first half of the year to be flattish.
Okay.
No one component.
The AI portions and Stuart and remain to be very.
Very strong in the in the near Futures and then we cede.
Very high growth.
Absolutely and the enterprise data.
We really got good traction with the Gpus for artificial intelligence.
And so that should really be one of our growth drivers in the first half of 2023.
I was going to be my next question enterprise data, which was down slightly in the fourth quarter, but it sounds like you see the ramp or just.
Our strong results in the first half driven by.
It sounds like specifically.
<unk> is that right.
Yes related to artificial intelligence.
When we look at Cpus in the enterprise data.
Theres still initial softness as we're waiting for the.
Platform launches for both the Sapphire Rapids in general to take off.
Do you expect that in the second half than the CPU to kind of kick in more second half of the year, yes, perfect. Thank you.
Our next question is from touring Steinberg of Stifel. Your line is now open.
Yes, Thank you and congratulations on another record year.
Michael I was hoping you could talk a little bit more about the <unk>.
Power escalation module business do you expect to ramp in 2024.
Is this still based on the company's BCD technology or are you now starting to venture into some newer technologies.
I'm just curious because you haven't you haven't talked a whole lot about.
Potentially getting into silicon carbide again anything like that.
Yes, so we do have a programs that are going to our wide bandgap materials.
In the past that I think we talk about it.
We have a program too.
To make.
<unk>.
Investigating and develop those devices since 2017 and.
Now we see the first results.
We do we do have some samples ready by the nine of production yet.
<unk>.
My position is that somewhere in the mid over the year. So.
Second half of the year.
And.
Related to your question is about the isolated modules when any.
Hi, Apollo's crushing and borders.
Solar and.
Solar Inverters and the data centers also.
Chargers onboard Chargers and.
All of these are in the wind turbines.
All of these to have one.
Our basic components in in.
In all of these are very high power applications, which is all of the.
Power devices drive or by using the isolated modules.
And.
NPS is using again using our own BCD process in them and.
And as well as.
While bank bank GAAP materials and.
We combined together and making a very simple.
And the very easy ease of use.
Power modules for those type of applications some of the visa products already in.
In production in Evs collate.
And a.
Things are we expected higher growth in the in the next couple of years.
That's very helpful and as my follow up could you just give us an update on the the manufacturing footprint both from a capacity perspective, but more importantly about diversification you talked about looking at all sorts of regions to partner with.
Some new manufacturing partners. So yes, both the capacity, but then also from a geographic geographical perspective, perhaps an update thank you.
Yes.
We see as out of a bit.
<unk> LLC and the geopolitical tensions and.
Of the you know the NPSA in them in the past and we always want to be a local company in every political regions and.
We did that successfully.
R&D and site and because for.
Paul one thing as a close to a customer's other ones.
Other ones that we isolated the farmer.
Pensions funds between the countries.
And.
For the manufacturing sites totally we can fulfill all our customer demand too.
They may fault wherever.
They want to.
Manufacture it and.
We want to have by the end of the year or by the mix.
By end of the next years, we will have.
Fully ramped.
And.
Paul.
For.
The new new capacities just in case of the words really separated.
Great. Thank you so much and congrats again.
I'll start.
Our next question is from Alex <unk> of William Blair. Alex Your line is now open.
Our.
Our next question is from Matt Ramsay of Cowen Matt. Your line is now open.
Thank you very much good afternoon, guys can you hear me okay, yes.
Hey, Michael Hey, Bernie.
The one question that I wanted to ask you that.
We've heard you guys I guess addressed in your prepared script Tao.
We're working to move sort of the operations and the manufacturing footprint and other pieces outside of China too in the long term more sort of align with your Tam and revenue mix for the really really long term in the company and you've been very clear about those plans, but there has been some more I guess acute reports of maybe some <unk>.
Customers that want to very quickly use products sources outside of China, and Youll, probably know some of those reports that I'm talking about I guess.
Have those.
Impacted your revenues at all are you seeing any strange behaviors from customers that maybe want to move and source product outside of China more quickly than you're able to or are you already sourcing.
Outside of China to support many of your global customers.
Yes.
Michigan misconception, Paul NPS is a we are way up Lala manufacturer that's in China, that's tools in that but it's a.
This is a misconception.
We do.
Playa Colgate.
We do.
Most of our window.
At least half of manufacturing and that at.
At least we will have a capacity is outside of outside of countries outside China.
<unk>.
To answer your question, whereas zero impact.
However, customer requests to manufacturer.
Outside of China in the past and the speeches.
Thank you for that Michael that's really clear, it's just a question we get a lot.
I wanted to.
Talk a little bit about the consumer business, which is kind of the maybe the least important strategic segment, but also the most volatile if you look at where the numbers came in.
Fourth quarter and I guess.
What what im wanting to understand a little bit is the philosophy that you guys might have if and when some of those consumer markets and the China market in general recover.
Are you excited to keep that.
Segment down around 10% of revenue and we will continue to prioritize everything else or is that a business that you want to serve Michael as it potentially rebounds. Thank you yes.
Again.
And that can mean.
In the past is a lot of last year capacity issues snuck a constraining.
The consumer growth and we do have a lot of opportunity, we just didn't pick that up because of the capacity issues.
And.
In the in the downturns in the past as you know that in the game and it will be a below more aggressive.
The consumer market segment.
When you when you react to a price and you will react to the opportunity and how fast you react to the opportunity and within six months you will see that.
You will see the.
Big number change in that in the consumer segment and that vessel, we will do it.
And Matt keep in mind there.
The resilience of our business model.
Has to do with the diversity of the end markets the customers the geographies that we serve.
So consumer well it has dropped to around 10% for the quarter remains a very important part of that strategy and we will continue to invest in it.
Thank you very much guys I appreciate it.
Our next question is from Alex <unk> of William Blair. Alex Your line is now open.
Okay.
Hello.
Our next question is from Gary Mobley of Wells Fargo. Gary Your line is now open.
Hey, Michael Hey, Bernie.
Boswell and thanks for taking my question for the first time as a covering analyst.
That relates to I apologize in advance it by asking <unk> question here, but.
The inventory for you guys that 212 days, that's internal inventory.
I believe however, your your sales 80, 383% of your sales roughly go through distribution. So maybe if you can give us a view.
Are you in terms of distribution inventory and did it increase and if so to what extent did it favor revenue.
Aerie opening up welcome.
Welcome to the party.
This is Gary first call with us.
Welcome to the inventory question inventory question.
I thought we finish this question.
Okay. Okay. Okay.
So.
When I look at the channel inventories from Q4 to Q1.
Sorry from Q3 to Q4.
They basically stabilized so we didn't see a significant increase either in terms of dollars of days in the quarter.
Likewise, when we talk about inventory on our balance sheet, and we'll address that as well.
There is about a six month lead time from when we can.
Slowdown wafer starts to when you see it on the balance sheet.
Likewise, we're looking out ahead to Q1.
We see both inventory in terms of dollars on our balance sheet as well as in the channel stabilizing.
Stabilizing sell through in the channel remains very good.
And then.
It should normalize in the second half of the year.
I apologize if by Stephane.
And it's a.
Fair to say, it's in that game.
In 2019.
We deliberately built a 200.
Plus inventory because.
We did have seen all of these opportunity and then now the inventory goes this high is because.
Go over 100 days again and that is because of that.
The customers demand start to pushing out and.
This is on the high side and Wales.
<unk> okay.
While we're cautiously.
In the reduce it.
It's not this is not the same as of 2019.
Got it thank you for that and I wanted to ask about contributors to the revenue growth for the fiscal year for the quarter.
48, 5% is quite commendable.
I was hoping maybe you can deconstruct that between ASP increases and new to increases and how you see that playing out for fiscal year 'twenty three as well.
It's very diverse to growth and.
With a little more aggressive market activities in the in our consumer segment.
<unk>.
This is <unk>.
On different pharma to aside from 'twenty to 'twenty, one and.
Everything is the same so because we're not we don't it's not a one trick pony and again not a two trick pony either so that came in there were multiple product we have a product with a lack of 656 thousands of different products. We have a few thousands of our customers large customers and less and less and less.
<unk> biggest customer is the lesson.
4%.
A different industry and.
Without.
That's the same same way as we do in the in the last 10 pole years than we are.
Still continue the continuing to pass.
Clearly as we look at.
Business driver.
In 2022, and as we look ahead.
You can also see the impact of selling higher value technologies and higher Asps that go along with it so while many companies use this supply demand imbalance as an opportunity to raise prices to their customers. We only had one.
<unk> digit price increase back in February and all of the other.
Representative of higher Asps and volume gains.
Helpful. Thank you guys.
Our next question is from Ross Seymore of Deutsche Bank Ross. Your line is now open.
Hi, guys can you hear me.
Yes, that's fine.
Perfect well first I also want to welcome Gary to the call and thank him so much for being the one asking the inventory question.
Yeah.
I met with.
I knew you would.
So.
Just one question one follow up the question on the near term first was you've talked a little bit about stabilization in your orders that said they are still below normal so any color on that.
Then folding another near term follow on is the.
First quarter, you said it sounded like storage and computing will be flat enterprise data will be up a bit.
If you're flat overall, what's going down sequentially in the first quarter to get you to that so that's kind of the aggregate first question.
So when we look at.
Q1.
Obviously, we've guided down.
<unk>, 2%, which is sort of consistent with <unk>.
Seasonal trends.
And.
It is.
The industrial is likely to come down.
And I may have left you with an incorrect impression because enterprise data.
Is likely to go down even though GPU AI will improve.
And then on the plus side the momentum in automotive continues to be very strong.
And the stabilization color geographically or by end market. The order stuff you said.
Yes, we're seeing better activity.
I think that we commented both in Q3 and repeated it here that customers have gotten a lot more near term focused.
And you can point to consumer you can point to China as being areas that.
It was very observable.
And right now, we're seeing a lot better activity.
But it hasn't necessarily translated into.
I would call a normalized ordering pattern.
Got it thanks for that and I guess as my longer term follow up a question I get a lot from investors is the really impressive growth you guys did in 2022 up about 50% round numbers, that's about 30% faster than the FAA defined analog category and that Delta is kind of two X what you guys historically.
<unk> have done and some people are concerned that that's just because of insufficient supply of competition and assume fungibility that you guys are just growing because other people can't.
Or some of your competitors had some product issues that they'll soon rectify and so those tailwind could turn into headwinds. This year I know youre not going to guide for the full year, but are you at all concerned about those two dynamics, having kind of overinflated 2022, and turning into headwinds this year.
Okay tell those accustomed octel does not customers okay.
Our investors our customer chose a bio of stocks.
And.
Hey, we don't do is in the pace of paying the Mito products everything is pretty much single source product and.
I'll pull our products that a lot more programmable while more vessels and that gave me and our customer can configure those product and.
Yes of course, we would take advantage of it.
And in a shortage our customers can use our product in a multiple way to Merck came in.
<unk> are software based and.
Now as you know and the software sides and that gave us a lot more stickier.
And.
<unk>.
We will continue to use our our technical strengths and gain our market shares.
<unk>.
<unk>, Okay for those people.
They don't believe that and again, we have a headwind okay.
That's fair.
But I'll remember delivered let our past number to show that.
Thanks, guys.
Our next question is from Rick Schafer of Oppenheimer. Your line is now open.
Thanks, and ill add my congratulations guys.
If I could ask my first question.
It's kind of a broad question on your module just your overall module strategy.
Doubled this year to sort of 10% or solar revenues.
Bernie <unk> correct me if that's.
Base there but.
Sort of what's the right contribution long term I mean, Michael I mean, eventually do you want to sort of everything to move in that direction towards module in <unk>.
Weighted more to specific end markets, you've made a couple of them already.
And then I'm curious if you can comment on the margin implications.
Module becomes.
A bigger contributor I think in the past you've said this is up five X type of ASP multiplier, but again, please correct me.
So I'll give you the numbers correction and Michael will give you the strategic answer.
<unk> is currently or about 5% of our business.
And that it has doubled and the doubled a year year by year over year for last.
Two years three years two years.
Three years, yeah, yeah, and so.
It's a significant business now.
Uh huh.
Eventually, yes first of all I will what I want to see it in the NPS all of them move into a new type of modules and that came in.
<unk>.
Modules power module has a backend load patient I know that to market.
All of our companies end up in a power module bidding business.
<unk>.
Those are aimed at least percent gross margins and.
I don't know, what's the what's the right word.
Use it as a power modules and that taking place in that game with but thats not all grandpas again power modules in that game.
It is a very different.
Our margin is above corporate average average.
<unk>.
Some of the solutions much much higher.
<unk>.
With all of us all well over $100 stuff and.
<unk>.
That's kind of a as I see as a part of.
Its hardware plus service and.
Customers the users.
On <unk> how does the.
How to use the product how to you have to have a very deep knowledge how to design a power supply in the game.
And that they should use the very simple solutions, while we while we provide they don't need the headaches to design.
Our power supply I think that we're going to end it up or with the NPS or without NPS it would be that.
The NPS will want to be a leader in that.
And I'd like to go back to Rick's earlier question I would say that back in the day.
The single biggest ingredient as far as making a decision for design win had to do with the lowest cost and I think that what our customers are seeing.
Particularly in the last three years is there are other value drivers consider as far as time to market how.
How much design resource they want to be saved from having to do in total cost of ownership and those are areas that we're able to meet our customers' demand as well if not better than any other analog.
Power provider.
Yes, mothers oils and give you give me examples in the K, we build our own test equipment semi equipment.
Tessa equipment and all based on the NPS.
Paula modules and if you buy those those kind of power modules, Nikkei, sellings, and a well over $50.
And the.
So.
In.
Semi equipment market segments, that's a perfect spot for that and.
And these are very high ASP.
And.
Very much much compact then.
And then on the current market.
Thanks for that color and that actually leads me to my next question.
<unk>.
I appreciate all the color that you guys have certainly discussed with.
Our solution module, but just specific to the silicon carbide update just.
It does it sounds like you'll be sampling. This year do we should we expect any material contribution from from Silicon carbide. This year or are we kind of looking at 2024.
And Michael I mean, we've heard different numbers, but what is the addition of certain.
Silicon carbide module for Protraction inverted or et cetera, what does that do to your potential content per vehicle.
Our <unk>.
Using our silicon carbide.
It's not this year and maybe some of the Evo.
If we will see next year, our silicon carbide devices okay.
Design all with development.
Our own.
<unk>.
We want we picked up some market segment the proves our products that are reliable and the first.
That's the first step to answer your questions.
And this year we didn't.
There is a note with large number of bidding in our.
Our our revenue stream.
So we don't expect that but that was just approved that technology now.
Thanks, Michael Thanks, Brian .
Our next question is from William Stein of Trust William Your line is now open.
Great. Thanks for taking my question somewhat beat me to the module question. This time so.
Our focus in a little bit different direction in the past.
A few quarters ago, you talked about team that you hired to work in the converter area, which is something you are not really that known for but I think this is also another big.
ASP and a big growth opportunity for monolithic can you talk about your traction in converter, so far and what you expect to come in the coming quarters.
Yes, we can.
Glad you asked that.
That question Zach a couple of days ago I saw image.
Sure.
We received a follow our our customers.
And we.
We use that use our customers use our images for the X Ray machines.
And.
Much better than the <unk>.
Prior versions and.
So when is.
We sampled.
The biotech companies and that they are.
Our product is designed at Inc, and.
We will see the revenues probably.
The small revenue this year.
And.
And our next years. This is a slow ramping products very high barriers and.
<unk>.
The bottom line is we have the technologies and we have we have a know how to design a very high performance.
But these are these can come as a comparable if not more.
<unk>.
If there are better and.
We will broaden our broughton.
Our.
Product.
Portfolios.
As we expand our team and the dealer uptake.
While our efforts and investment.
<unk>.
So far we built up a pretty good sizable teams and now Youll have a C Moore general product coming up.
In the next couple of quarters.
Thank you Michael appreciate that maybe just one other if I can.
Something we haven't heard the company speak a whole lot about lately in the e-commerce effort.
Any update on how.
Your traction is progressing there.
E Commerce.
Well I guess.
Maybe as a lot of the fasteners.
<unk>.
Yes.
And my.
My expectation to highest and again I think the button here.
We launched a NPS now and that came in.
I'll tell you I'll take <unk> I think is another.
It is true.
I expect our Mos in that case, but there's a lot of resistance.
But our <unk>.
<unk> modules Lora module.
Our ramp ramp up.
<unk> pharma e-commerce.
And we now after.
Last year, Yeah. After that maybe 13 or 14, 14 15 months ago.
<unk> launch.
NPS analysis remote technical support.
And.
That helped a lot and especially all of our module site I guess help our customers can.
Can schedule a meeting.
On online and.
We can solve there.
And then logging we can sell.
We solve the technical issues that help a lot and I think are the most of part of our ramp up is farmed.
The NPS now so not confirm or from our website, but overall, so again all things.
And it will take time so okay.
You are talking about engineered change their behaviors and how do you design the product and how you're purchasing a product and.
I think as a <unk>.
Next 10, 12 years I can't even not even next five two.
<unk> for the millenniums and two designed.
Our power supply and.
They want to do Google search rather than.
Fundamental designs.
And then in the past 20 years ago.
The last 20 years.
Sure.
So these are the products are designed for that.
Easy plug and play used in.
Is it to use.
Tim.
Biopharma Ethernet.
Great. Thank you.
Our next question is from Chris <unk> of Credit Suisse. Chris Your line is now open.
Yes. Thank you good afternoon, everyone.
Question is about.
Where lead times are right now and the degree of.
Product shortages with your inventory up now has that helped to bring down lead times and alleviate some of the shortages.
And if so has that taken away, perhaps some of the incentive for customers to place the orders for product they didn't they don't need what.
One of the things we worry about as we go through the cycle interested in your view on that.
Yes, I would agree that lead times have been coming down.
They were up as long combined as much as.
The 26 weeks for six months.
And they are coming down more slowly than you'd think.
So I don't know, obviously, our customers have changed their ordering behavior.
And if that can be attributed to the change in lead times or the fact that they have adequate inventory or that they are uncertain about what the next six months I can't I can't really say, which is the driver in their decision.
Got it okay.
As a follow up Michael you mentioned in some earlier remarks.
Plants that to be a little more aggressive on consumer business. As you go through the year I was wondering if you could expand on those comments is that something.
Just opportunistic this year something that you see in the market is that just a function of the diversity of your business model where.
Some other business is slow. So so you can go find business elsewhere. If you could give us some more color on that please I think you made.
Very good.
Very good comment.
It is opportunistic okay remember.
<unk>.
How many years ago and we use.
Years ago, let's say.
We have a.
More than 60% of our MTS revenues and is all from our consumers.
<unk>.
These are fast fast.
Design cycles.
<unk>.
SaaS revenues and you can.
Cycles.
And the.
Yeah.
Opportunities.
And.
Wait.
We have the right product.
<unk> support and the right price.
And you can move the needle quickly.
And.
Obviously.
Our ink in contour.
Our run rate to all the other industrial automotive.
Cloud computing and again these are much longer design cycles, and they're kind of slowing down one segment to the other all relative.
Is it not as clearly is not in the last couple of years and the consumer is our opportunity in that game and we know how to do it and we.
We have the product and we have the price structures and that did not as high as all the other segments and we would do that.
If I could just follow on that does that imply win win business improves elsewhere, we've got a better macro and such some of the product cycles elsewhere.
With maybe higher margin opportunities develop that you're sort of back away from some of that and come back to some of the other segments that have driven growth more recently.
No no.
It's not allocate consumers.
<unk> is always the hour our strategies in the last couple of years within Google because.
Passenger constraints and Lucky and we we sacrifice.
On a consumer site.
Got it. Thank you okay. Thanks, Chris.
Our next question is from touring Steinberg of Stifel. Your line is now open.
I just wanted to come back to the data converter business.
You're obviously getting into the kitchen of two 400 pound gorilla herein.
I think historically, it's been very difficult to crack into this market you talked about the high barriers to entry and other.
Other than the products being high precision I get that but is there anything else about your business model.
That will allow <unk> to be successful in this in this market.
Alright.
I don't know it is a business model I think is that I know this decides it takes time and the market launch.
<unk> competitors all of these that you said is that these are.
100 pounds of gorilla.
We are.
Well in the high investment going around.
Okay.
And we have to run fast methane in.
And just to take opportunities in the K, what part of the answer to that product and our customers.
And they do have a ice and all of that different suppliers.
And especially come from our last couple of years.
It's.
We have a good hope, but we noticed that take them take a while.
Okay, That's fair and just lastly.
Could you give us an update on the timeline for the three and the $4 billion capacity that youre working on.
Yes, So we said.
The next.
Next couple of years and.
Two years, and we're still on it and.
We're working with our suppliers and that came in.
I have just mentioned in our consumer business. Okay. And then one of the reason is that we do have obligations and.
To fill up these effects and would be aggressive and they are getting all these.
Okay.
Getting these orders are filled the capacities that came in.
You know that.
That's our game in the past we repeatedly.
And in doing this.
Have done these kind of things in the several cycles already and this cycles I don't see a difference from the last downturn and.
But.
So for the capacity expansion of snow was doing tact and that came in.
We may slow down a little some that came in.
But we really have obligations away without fabs, okay great.
Great. Thank you again.
Our next question is from Quinn Bolton of Needham Clean Your line is now open great.
Thanks for letting me ask a quick follow up Ernie I just wanted to ask your sort of thoughts on gross margin.
Into 58 at the midpoint looks like the street consensus was probably 50 to 100 basis points higher than that.
Through the year. So as you look at 'twenty three do you think March is sort of the bottom.
Margins can trend higher into the second half of the year or is this push in.
The.
The ability to be opportunistic in the consumer segment likely to keep margins flattish in this 58% level.
Through through 'twenty three.
Yes, I'd, probably look at it as being flattish for the remainder of 'twenty three.
And when you look at.
What's taken the margin down.
Well Youre right were down 50 basis points, it's not a significant deflation from the rate that we've been at.
Trending that over the last.
Two years.
And it's really because we have the additional manufacturing capacity lower revenue and as we look at the next two quarters at least the sales mix is not as desirable.
Understood. Thank you.
Our next question is from Ross Seymore of Deutsche Bank Ross. Your line is now open.
Hi, guys just a quick follow up on my side on the margin side as well in this time on the Opex side you guys did a good job on the Opex line I know Youre, putting litigation expense up into regular Opex, which thank you for doing that but just the trend in opex throughout the year last year grew maybe half the rate of what revenues did how do we think about this year.
I think as Michael has expressed here between.
Diversifying our supply chain and continuing to invest in R&D capabilities.
That we have some.
Very real opportunities for additional investment that would show up in.
Growing.
Our operating expenses.
Having said that though there is a fair amount of uncertainty as far as what the revenue outlook is and we want it to be good.
Financial managers.
As we go through these market conditions.
No.
I would expect that.
It's.
Likely that operating expenses won't grow much more than 50%, 60% of revenue growth in the current year.
Having said that.
Having said that in the past.
In the past two years now, we'll reach a $2 billion company.
The one point, okay what happens.
One eight and that came in.
Our infrastructures hasnt really grown that much and.
<unk>.
And the last couple of years and it's difficult to hire people in the game.
Now we'll have a we'll have a lot more breathing room. So again. This is the time to build up a company.
Great and I guess for a quick follow up I just wanted to revisit one of the questions that was asked I think it was the very first question are close to beginning on the storage and computing strength. I know you said notebooks was better than you thought in the memory flash storage was weaker in those two kind of go the opposite direction in the first quarter then but.
Those markets in aggregate have been weak across the board for quite some time, so I'm still a little surprised at the strength in the fourth quarter and the stability in the first what would you attribute that to obviously youre getting the orders but.
Are you guys taking share or is it the tier one penetration is it content just any more color on that because it's such a disconnect to the end market in general.
I believe the weight gain some shares are permanently yes.
We gained some market shares.
Great. Thank you.
A little bit aggressive on it and some are low end market.
Thank you.
If there are any follow up questions. Please click the raise hand button.
As there are no further questions I would now like to turn the webinar back over to Bernie right.
Thank you very much.
And for joining us for this conference call and we'll be talking again here for the first quarter update which will likely be in late.
Late April so thank you very much.
Okay.