Q1 2023 Monolithic Power Systems Inc Earnings Call
Down from $447 3 million at the end of the fourth quarter of 2022.
Days of inventory decreased to 204 days at the end of Q1 2023, compared with 212 days at the end of fourth quarter of 2022.
Comparing current inventory levels with the following quarters projected revenue you can see days of inventory decreased to 203 days at the end of the first quarter of 2023 from 212 days at the end of the fourth quarter of 2022.
I would now like to turn to our outlook for the second quarter of 2023.
We are forecasting Q2 revenue in the range of $430 million to $450 million.
We also expect the following.
GAAP gross margin in the range of 55, 9% to 56, 5%.
non-GAAP gross margin in the range of 56, two to 56, 8%.
GAAP, R&D and SG&A expenses between $132 $5 million and $136 5 million.
GAAP R&D and SG&A expenses to be in the range of $94 9 million to $96 $9 million. This.
This estimate excludes stock compensation expense, but includes litigation expense.
Total stock based compensation expense of $38 8 million to $48 million, including approximately $1 2 million that.
That would be charged to cost of goods sold.
Interest and other income is expected to range from three eight to $4 2 million before foreign exchange gains or losses.
Fully diluted shares to be in the range of 48, 6% to 49 million shares.
In conclusion, while we remain cautious about near term business conditions NPS will continue to focus on business development and investing in infrastructure as necessary to support our long term growth.
I'll 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'd 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 is from <unk> <unk> of Stifel. Your line is now open.
Yes.
Thank you.
Was hoping you could elaborate a little bit more Bernie on your comment about the business conditions.
Because it sounds like the design win momentum is still very strong activity is very strong, but you also sort of added there was uncertainty in certain ramps. So.
Maybe you could elaborate a little bit of that especially when thinking about the second half which.
Seems to be a period, where the industry could potentially the company.
Let me answer.
Tony Let me ask first and that Guy.
Doug.
You look at all of these industries in our K we.
It's about.
Servers.
Computing, including desktops servers.
And AI.
Product averse about 10% of Mps's revenue and we had the HIFU we experienced these.
These are really the all the entire company experiencing hyper growth came in the last two or three years and.
Now on the Automotives to syndicate, where about 23% of our business total total togethers.
<unk>.
It was about 30, some 30 some percent.
And.
Other than across the board other than AI, and automotive and so far still we experiences.
Still very heavy demand.
Other than that again.
All these design win activities have happened in the last four or five years and.
They start to ramp last couple of years and <unk>.
A lot of.
Because of the reason we have all the inventory we have.
And the capacities and we.
We grow much faster than the than then.
Average and.
Now to answer your.
Question directly.
Our our our customers all these products during a ramp they have a pause.
And they don't know whats coming and the new products and the push out.
And.
So we just cutting.
In the periods in that case, which is not back to me.
Because.
In the last two or three years we.
We have been in this.
Unsustainable.
Growth in hyper growth.
30%, 40% over the year over year and that will break the company and I am glad to announce them okay.
<unk>.
Back to the normals okay.
And we will arrive.
The global market.
Uncertainties, and we adapt and.
As in the past.
Okay <unk>.
More detail okay.
And I think Michael has really laid out.
A very compelling case as far as the growth that we've experienced over the last three years and also identifying that.
The automotive market remains solidly intact, but.
Particularly in enterprise data with the exception of AI.
That we are seeing lag in the ordering patterns, there and general weakness in our other markets.
So I think the thing to reinforce here is that the business model here remains intact.
We built the MTS around sustainable growth over the long haul and right now we're looking at.
A quarter, where the end customer demand is not picking up as well as we might have anticipated a quarter or two quarters ago, but again the business model is intact.
That's great perspective, and as my follow up you talked about gross margin coming down.
Modestly because of higher value inventory.
Could you talk about how long you expect that to play out and even some some some ranges.
I mean, I assume maybe youll get to I don't know 50, 556 gross margin, but yes any color you can give on that.
How long that lower gross margin.
With less.
Sure.
The.
Good news here.
Is that.
Cycle times and pricing both in the fab and the assembly houses are coming down.
And so we'll be able to participate.
In the lower costs.
After we burn down the inventory, which is currently at about 203 204 days.
So I would expect that.
We will see downward pressure on margins through Q2 and Q3.
And then perhaps a moderation leveling in around Q4.
Great. Thank you.
Go ahead Michael.
Mothers.
And clearly we see we go into a downturn situations and that gave me and the <unk>.
<unk>.
We don't know is with I guess some segment.
NPS or is it because of very diverse companies in some area would be still good.
And that being in general the consumers in that Gabe products and even some notebook.
They may come back in the in our second year and the point is I'll try to make their rigs.
Regarding too.
Gross margins and <unk>.
As you know.
In the past when the when the industrials start to slow down and that gay NPS will be more aggressive.
In price and to gain more consumer segment of the market because it can do six months later you when you turn the knob.
We.
Actively pursue those product six months later those.
<unk> designing.
Cycles.
You will turn the knobs in the revenues.
In about six months time.
So.
We care less about the.
The short term gross margins, but the long term gross margins.
It's still the same so we emphasize.
Yes.
As you know in the last.
Last 10 years, or so and we will still pursue those model and.
In our consumer segments, we may.
We made some of the short term.
The focus on the short term to grow them to maintain the growth.
Makes sense, let me thank you okay.
Our next question is from Quinn Bolton of Needham and Cowen. Your line is now open.
Hey, guys. Thanks for taking my question I just wanted to follow up on the tourist question really Michael and Bernie as you look into the second half of the year.
That's normally a seasonally stronger period for the company obviously it feels like there are lots of puts and takes lots of uncertainty customers delaying product ramps, but can you give us any sense. How you were thinking about the second half of the year will you see sort of a normal seasonal uptick in September or are you thinking September could be flattish.
<unk>.
Kind of the <unk> run rate any any additional color would be helpful. Just to try to think about the second half.
Sure I think that.
Right now normal seasonality.
Still applies.
But in our case, it's a little more muted because so much of our growth in the business is attached to those new product introductions being made by our customers. So if we look in enterprise data and which are major customers or the products that were supporting.
Have had product delays.
And when you look at other aspects of our business for example communications.
Thats still what I would refer to as lumpy.
It's not necessarily trending in a seasonal pattern.
So I think that.
Your comment is very balanced and all until team as to the new product introductions being delayed probably being a larger factor than just seasonality.
Yeah.
We can't say, it really got normal seasonality anymore and they came in.
We experienced.
In the past.
<unk>.
You'll have some segments to grow really well.
And the.
Some segments so to hit the kind of a bottoms and that came out last Q3.
Last year, Q4, especially like a notebook side to make them in.
Now you see some lucky is awakening up okay.
NPS has one of the orders are designed as a restaurant those reference designs.
The powers.
The power solutions and the.
With the syndicate.
Second second half, mostly all the other rest of our business okay.
Other than AI automotive, we don't we.
But we have no clear views.
So that's the that's a short term.
Understood wanted to follow up on the enterprise data segment, obviously weaker results it sounds like some of the product.
Or customer delays are sort of focused in that segment.
Do you still think as the new server cycle ramps that you can get your share of the V core.
Our management market towards 20% is that still the right opportunity to be thinking about longer term, even if some of those customer programs that have pushed out by.
Somewhat.
Absolutely.
Ah confidently say that.
Because we see all of these projects has not really fully ramped yet.
<unk>.
The all of the data centers are clearly.
You guys know Butters now is up.
Slowed down dramatically I don't know whether they expand <unk>.
Last couple of years and that gave me and then I'll take a pause we don't have a clear views and.
We know some of that.
From last quarter too.
Q1 for Q4, Q to them to announce and the kind of slow down.
And.
And if I can.
Add to that.
Again, using I know that you are focused right now on the short term as far as the second half of the year.
Debt.
In the GPU space for artificial intelligence.
We have a very senior market share position and as we look ahead to even the next generation.
We're in a very good position to take advantage of.
The next generation of Gpus so.
Really still in early stages as far as being able to leverage up our position and expand our share.
Yes.
<unk>.
Yes, Doug.
The GPU applause.
And the AI side, though we have a current design wing and.
And as well as in our next design.
In the future, though were released at the end of the year or next year.
<unk>.
And those were NPS product will ramp to this only are referred to as the <unk>.
<unk> is a data center CPU powers, all data center power so the overall.
We still have a.
Maybe just.
This is not a single digits just barely double.
Digital market shares.
And a lot of it's in the transition from <unk> to two faulting and.
Not completely yet we want a lot of design wins and that came in the <unk>.
VL, 14th and it will turn into our revenues.
Thanks for all that color, Michael and Bernie.
Our next question is from Matt Ramsay of Cowen Matt. Your line is now open.
Thank you very much good afternoon everybody.
Okay.
I wanted to ask I guess, a two part question on gross margin and this is sort of you guys had been.
Gone from sort of 50, 450, 556 on that steady cadence of 10 to 20 basis points, a quarter and that was amazingly steady and enduring.
The period of supply demand imbalance, we jumped up to 58 or so.
And now we've come back in and you guys discussed that in the short term, but as you look out over the next two three years and you think about the strategy to be aggressive and grow.
And contrast that to.
Some of the opportunities that you have.
For four new design wins and higher content.
Maybe you could level set us on the long term gross margin has anything changed there and wears.
Where is the new normal and I guess, the second part of that thought geysers have you seen any specific price pressure in any markets as some of your competitors maybe get more supply.
Yes, Okay. Let me answer your last part first and then any.
Any high higher volumes, our customers have multiple suppliers.
And we we.
They always have a pricing pressures.
Other than the last.
Three years.
And then they couldnt ship only to Mps's camera will come most of our company have struggled shipments in NPS.
We have a less and.
So nowadays.
All the higher volumes.
We expected.
In the last couple of years also remembers we didn't talk that much.
We introduced a new new technologies, which is a much lower cost and.
That will be a fight.
And so.
That that part of our questions.
<unk>.
Earlier, I said, our care less about gross margin lately.
We're still operating within our models were not dramatically go down clearly it will go down and.
But in the long term model to answer your question, though of course, the two or three years out the business NPS business still pretty much intact and we are focused on those higher values. We can we're transitioning pharma IC solutions to sell solutions.
Is that still remain out.
Our focus our long term business will go.
Golar that weight and that and what you generate in the offers more values and we have a higher higher gross margins.
And I think just to Polish off the comment there is that.
As far as our model.
<unk> been operating over the last several years between 55 and approaching 60% as far as the non-GAAP gross margin.
And.
As we introduce these higher value products.
They tend to have.
Higher margins and what that allows us to do is then manage the mix of business.
Such that we stay within our model.
So while we sort of anticipated in the near term.
Downward pressure with a flattening.
Here in the next three to four quarters.
We will continue to look to be opportunistic.
And managing gross margin to accelerate revenue growth.
Got it thank you for all the detail there guys.
As my follow up and I apologize for this being a nearer term question, but with all the different end market volatility Bernie if you could help us on your guidance by segment.
The revenue trends that you guys see into the June quarter that would be great. Thanks, guys.
Sure I think that we said earlier in the clients.
It's a fair to ask for a short term question, but because of this.
Very uncertain period.
Yeah.
So I think too.
Make a simple point on it is that.
Automotive continues to be.
Doing very well.
There is both the market itself as well as the share gains that were enjoying.
Said earlier that communications is lumpy and the other areas, including storage and compute enterprise data and consumer and industrial are sort of flattish for the near term.
Yes.
Well.
Also the storage and the AI segment.
The second.
<unk> Ing in data center.
The computing segment, maybe as of Friday, Chuck I mean.
I think as the majority of our revenues come from.
Still come from service, you'll see it in the ramping and the loss.
18 months are soft and the AI and the.
Total policies.
Our total revenues in the <unk>.
<unk> percentage.
<unk>.
The other things.
Pointing out to them that there is a memory.
Memory section so that came in.
The changing a new format.
And they start to ramp now.
This is the result of what kind of a flattish okay.
Depending on how fast you ramp.
Ramp up to <unk> five.
NPS it has.
Hum.
<unk> engaged with all the major memory company.
But we have a design we have a weight, where we have a design wings.
And if they ramp up faster than.
We will.
What what game.
We will increase the portion.
Our revenues and it's dependent on what.
The <unk> five and the ramp up.
Okay.
Matt is still there.
Alright, okay.
Oh, we lost.
Okay. Our next question is going to be from Rick Schafer of Oppenheimer. Rick Your line is now open.
Thanks, I appreciate all the color so far you guys.
Maybe if I could ask one on 48 volt back on the AI.
Questions.
I know you I heard you say, Michael sorry, Bernie said it I think.
Senior market share position there.
I'm curious with your primary competitor in 48 volt, apparently still struggling I mean, our read of point now if we look at 2023, where you guys think youll likely stay sort of sole source sort of on the a and H 100, this year and.
I'm just curious as part of that question I heard you mentioned content. There. So is there any color you can give us around what content goes as we transition to a more powerful accelerators over time.
I mean is it similar to.
To what you guys have talked about with some new from VR 13 to 14 on V core power, where youre talking about going from sort of $50 a car or something.
70.
And then finally, Michael for you I'm, just really curious are you who else you're seeing out there working on 48 volt power seems to be a.
Solid and growing market.
Okay, Let me answer on my part so firstly altogether.
Okay, that's the more fun part.
The landscape is our case.
Truly some okay.
No.
Sales in the market.
We don't see we see some competition in that game I think our.
Our products remain the best so far.
Yes.
And.
Uh huh.
So that's why when we have them.
We do see some other competition some okay, maybe as a generation of lasers and that came in.
As that market segment growth.
And the competition will come some that came in.
Yes.
And the <unk>.
The market's too big for NPS.
And well come in other peoples came in in a.
We welcome our cooperations.
Matter of fact that Thats, what were doing announce okay in that.
As the Mps's not not big enough for that.
And for that market and.
But we will be glad to be leaders.
Yes.
Again, reinforcing Michael's point, there is that it.
Actually when.
When we enjoy our leadership position and we expect to continue to competition is very important.
As far as driving.
Technology improvements.
As far as your other question as far as dollar content when we look at.
The CPU market generally we denominate it with a dual processor.
And so based on that we're able to offer an expectation of what the.
Average selling price will be per per server.
With the Gpus.
The model is still sorting itself out.
You can have any number of configurations up to including.
Eight GPU boards.
So it's very it's a little harder to denominate, what our dollar content is.
And again, we're still in early stages of <unk>.
Watching as this model ramp.
So I think that we'll have enough experience in Nevada.
Two to three quarters to have a more accurate read on the dollar content, but.
It is.
<unk> higher than what we're experiencing with Cpus.
Thanks for all that color guys.
A follow up I'd love to ask you about <unk>.
Brand.
You guys have said in the past you are selling to the big three.
Ran equipment Oems.
And just curious how you would describe the ramp there in terms of in terms of content in terms of share and what I'm trying to do is get a sense of how big <unk> is now versus how big it could be for you guys.
And to something you mentioned earlier Bernie I'm, just really curious here.
With the ramp in <unk> sort of smooth some of that Lumpiness you described.
And your Comm segment.
Thanks, Yes, if I was to draw a comparison of our experience with enterprise data, where we started out with a low dollar content and graduated up the value chain.
<unk>, including power management.
We're probably about three to four years behind in the communications market, where we're still focusing.
Low dollar content for like point of load nephews now where this is about to get very exciting as we are getting adoptions for later designs that include our power management for the processors.
So at this stage, we're sort of moving.
With the market again as an early entrant.
But yes long term I do think youre going to see a similar growth profile is what we expect to have with enterprise data yeah.
Admittedly now keep us A&P as a small company, but we're not nobody in any mode and we're engaged with all of the of the custom audiences.
These are <unk> makers.
It's only a handful.
Of our company.
Speaking now since we're in the process of signing on the contract now.
And <unk>.
<unk>.
So all of these okay.
As a matter of time.
Thanks for that color.
No.
Our next question is from Ross Seymore of Deutsche Bank Ross. Your line is now open.
Hi, guys can you hear me.
So do we.
We have a high inventory yes.
Hi, Ross.
How about the channel inventory, we've heard a bunch of companies talk about the channel coming down and that's a headwind to revenue growth I know you guys proactively manage that so you put it on your own balance sheet, but what's the channel looking like.
It's also on the high side.
About three quarters ago, we saw a increase in channel inventories and they've remained at about that same level. So.
There isn't any real new new news as far as the sell through characteristics.
Is that something thats weighing against your revenue right now or are you comfortable running at that relatively higher level.
One of our lower.
We want the lowest and that gave me in.
And particularly in the first quarters and a lot of customer threatens the market much higher volumes. Okay. That's why we shipped.
Now on to have a have a break and so on.
As a result inventory didn't didn't decrease that much in the channel.
So it went down on your books more so than in the channel.
Yes.
The way to look at another aspect to this is that the.
Inventory in the channel.
It depends on what our end customers, leading time Saar and.
As we even commented on in the prepared comments we're.
We're seeing a very unusual.
Demand pattern in that we have three areas, where we're seeing an acceleration.
As far as the ordering pattern.
But they're doing it with.
Barry and expectation of having a very short lead time.
So as Michael said earlier that.
Channel is built up and the anticipation that the customers were going to realize.
Sales gains with the new products, but as those have been pushed out that's left us in this position. So we're going to continue to manage the channel as we always have but right now as I said, it's at an elevated level.
Got it and then one on the gross margin for you Bernie.
You talked about the headwinds for it we see this across the board. So I don't think its anything particularly different from monolithic, but the one thing you didn't mention was mix I get that youre carrying higher cost inventory and it takes a while to flush through but as you go opportunistically into the consumer market.
Is that rising as a percentage of sales something that is also weighing against gross margins and if so when do you think that will kind of normalize as a percentage of sales if not decrease.
Yes, you can see as a normal because the consumer market hasnt happened, yet and I can't we reduced the weight down the consumer download a big percentage now and mostly the hi, Hi, Barry.
Inventory.
Got it thank you.
Our next question is from William Stein of tourists. William Your line is now open.
Thank you for taking my questions.
Regarding something you just spoke about a moment ago.
You spoke about elevated inventory and push outs of projects.
I think obsolescence risk is relatively small for monolithic, but maybe you can reassure us on that matter.
Absolutely.
Actually a very helpful question.
If you look at our history.
We've never had a significant inventory write off.
And a lot of the reasons around that is that our products.
Have long life in the market and long shelf life.
So we're actually if you look back at 2019.
We built up inventories and we're able to capitalize.
When the market bounced back in 2000, and particularly when the pandemic.
Infusion of capital occurred.
So we don't see inventory on our balance sheet as a negative and in fact, when the markets do get.
More stabilized, particularly in enterprise data.
And in storage and computing I think we're well positioned to take advantage of that uplift.
Great and then.
But just sort of ask a double question about supply and your supply base.
Other analog companies have talked about how their foundries.
Absolutely not cutting cost and never see it happening, but you've highlighted this trend in your business is it because youre on more advanced nodes and so thats, just how sort of pricing in that market works and then maybe you could also comment on the manufacturing plan both in terms of.
Long term capacity and geographic diversity, thanks, guys.
Yes.
We are you know.
Okay, we advanced our technology every two or three years and.
And.
We're relentlessly cutting the cost and <unk>.
Utilize the better technologies get better.
Geometries and that came in.
The fab, but now the last three years.
Fab costs and in that case does not mean lowest higher.
As a matter of fact.
But we utilize the geometries and also the new new technology that we're implementing that will be able to lower the cost.
And.
So.
The other.
Yes.
Question that you are making is.
Diversified manufacturing some okay.
And we anticipate of that again, we announced that we have a new partnership and.
Outside of China, that's in Singapore, and we will continue to do so but.
Really outside of that bucket is of no use manufacturing for four hours.
For our application for our product to market.
As all reside in Asia careers in Taiwan and.
In the Southeast Asia and.
And all our module business, we can do from a.
A mile site.
Outside of China.
Thanks, guys.
Okay.
For any follow up questions. Please click the raise hand.
As there are no further questions I would now like to turn the webinar back over to you Bernie.
I'd like to thank you all for joining US for this Q1 2023 earnings Webinar I look forward to talking to you again during our second quarter conference call, which would likely be in July .
Do you have a nice day.