Q4 2023 Power Integrations Inc Earnings Call

Operator: Thank you for standing by, and welcome to the Power Integrations Q4 earnings conference call. I would now like to welcome Joe Shiffler, Director of Investor Relations, to begin the call. Joe, over to you. Thank you. Good afternoon, everyone.

Thank you for standing by and welcome to the power Integrations Q4 earnings Conference call.

Now I'd like to welcome Joe Shiffler director of Investor Relations to begin the call Joe over to you.

Thank you good afternoon, everyone. Thanks for joining us.

Joe Shiffler: Thanks for joining us. With me on the call today are Balu Balakrishnan, Chairman and CEO of Power Integrations, and Sandeep Nayyar, our Chief Financial Officer. During this call, we will refer to financial measures not calculated according to GAAP. Non-GAAP measures for the fourth quarter exclude stock-based compensation expenses, amortization of acquisition-related intangible assets, and the tax effects of these items. A reconciliation of non-GAAP measures to our GAAP results is included in today's press call. Our discussion today, including the Q&A session, will include forward-looking statements denoted by words like will, would, believe, should, expect, outlook, forecast, anticipate, and similar expressions that look toward future events or performance. Such statements are subject to risks and uncertainties that may cause actual results to differ materially from those projected or implied. Such risks are discussed in today's press release and in our most recent Form 10-K filed with the SEC on February 7th, 2020. Finally, this call is the property of Power Integration. Any recording, recording, or rebroadcast is expressly prohibited without the written consent of Power Integration.

With me on the call today are bothered by the Krishnan, Chairman and CEO of power integrations, and Sandeep Nayyar, our Chief Financial Officer.

During this call we will refer to financial measures not calculated according to GAAP.

non-GAAP measures for the fourth quarter excludes stock based compensation expenses amortization of acquisition related intangible assets and the tax effects of these items.

Reconciliation of non-GAAP measures to our GAAP results is included in today's press release.

Our discussion today, including the Q&A session will include forward looking statements denoted by words like will would believe should expect outlook forecast anticipate.

And similar expressions that look toward future events or performance such statements are subject to risks and uncertainties that may cause actual results to differ materially from those projected or implied.

Such risks are discussed in today's press release and in our most recent Form 10-K filed with the SEC on February 7th 2023.

Finally, this call is the property of power integrations.

Any recording a recording a rebroadcast is expressly prohibited without the written consent of power integrations now I'll turn it over to Bob.

Joe Shiffler: Now I'll turn it over to Balu. Thanks, Joe. And good afternoon.

Thanks, Joe and good afternoon as expected fourth quarter revenues were lower as a result of soft demand and elevated supply chain inventories and we expect first quarter revenues to be about flat sequentially, reflecting these continued headwinds.

Balu Balakrishnan: As expected, fourth-quarter revenues were lower as a result of soft demand and elevated supply chain inventories, and we expect first-quarter revenues to be about flat sequentially, reflecting these continued headwinds. However, while channel inventory is still above normal, it fell by more than a week during the quarter, as sell-through exceeded sell-in by a considerable margin. In dollar terms, we are at our lowest level of channel inventory in two years, and we expect further decline in Q1. We are especially encouraged by lower inventories related to the appliance market, which accounts for the bulk of the consumer category.

However, while channel inventory is still above normal it fell by more than a week during the quarter.

Sell through exceeded sell in by a considerable margin.

In dollar terms, we are at our lowest level of channel inventory in two years.

And we expect further decline in Q1.

We are especially encouraged by lower inventories related to the appliance market, which accounts for the bulk of the consumer category.

Distribution sell through for consumer was up sequentially in Q4, and far exceeded seven bringing the channel inventory back to normal in terms of weeks.

Balu Balakrishnan: Distribution sell-through for consumer was up sequentially in Q4 and far exceeded sell-in, bringing the channel inventory back to normal in terms of weeks and to the lowest level in eight quarters based on dollars. End customer inventories have also improved considerably over the past several quarters, and we are seeing an uptick in bookings from customers who were largely dormant throughout the last year. While appliance demand is clearly being hampered by the downturn in housing, our consumer revenues in 2023 were below even the pre-COVID levels of 2019, suggesting that we are shipping well below end demand and could be poised for a recovery in 2024. In fact, we expect consumer to lead the way as we begin to see overall sequential revenue growth beginning in the June quarter with a more meaningful improvement in the second half of the year. While 2023 was a difficult year with revenue down more than 30%.

And to the lowest level in eight quarters based on dollars.

And customer inventories have also improved considerably over the past several quarters and we are seeing an uptick in bookings from customers.

That largely dormant toward the last year.

While appliance demand is clearly being hampered by the downturn in housing.

Our consumer revenues in 2023, well below even the pre COVID-19 levels of 2019.

Suggesting that we are shipping well below end demand and could be poised for a recovery in 2024.

In fact, we expect consumer to lead the way as we begin to see overall sequential revenue growth beginning in the June quarter with a more meaningful improvement in the second half of the year.

While 2023 was a difficult year with revenue down more than 30%.

Balu Balakrishnan: There were pockets of growth in several areas that are key to our long-term growth strategy. For example, our high-power driver business had a second consecutive year of growth, even as the broader industrial category was down almost 40 percent. We had an outstanding year in terms of design wins in high power, with a projected annual revenue value of the design wins up more than 70% from the prior year. Renewable energy was the major driver of that growth, with significant wins not only in the utility-scale solar and wind markets but also in the adjacent high-voltage DC transmission market. On our July call, we announced a major multi-year award for an undersea link connecting the North Sea wind farm to the mainland.

There were pockets of growth in several areas that are key to our long term growth strategy strategy.

Our high power driver business had a second consecutive year of growth even as the broader industrial category was down almost 40%.

We had an outstanding year in terms of design wins in high power with a projected annual revenue value of the design wins up more than 70% from the prior year.

Renewable energy was a major driver of that goal growth with significant wins not only in the utility scale solar and wind markets.

But also and that just sent a high voltage DC transmission market.

On our July call, we announced a major multiyear award.

Bought in undersea link connecting not see wind farm to the mainland.

Balu Balakrishnan: In Q4, we received an initial multi-million dollar purchase order for that design as the project prepares to ramp up later this year. Another bright spot in 2023 was India, where revenues increased year over year and are approaching 10% of total sales. This is not just a result of manufacturing moving out of China but also a rising level of in-country design and production for the domestic market, including a rapidly expanding middle class and modernizing infrastructure. We are participating in a number of ways, with significant design wins in 5G fixed wireless. Smart Utility Meters and appliances, including ceiling fans, which are converting to brushless DC motors utilizing our BridgeSwitch motor drive ICs.

In Q4, we received an initial multi million dollar purchase order for that design as projects to payers to ramp up later this year.

Another bright spot in 2023 was India, where revenues increased year over year and are approaching 10% of total sales.

This is not just a result of manufacturing moving out of China, but also the rising level of in country design and production for the domestic market, including a rapidly expanding middle class and modernizing infrastructure.

We are a part of the thing at participating in a number of ways.

With significant design wins in <unk> fixed wireless smart utility meters and appliances, including ceiling fans, which are converting to brushless DC motors utilizing our British switch motor driver Ics.

Balu Balakrishnan: We also have a strong pipeline of design opportunities in electric transportation, in everything from two-wheelers to buses and locomotives. Speaking of which... We made tremendous progress in our automotive business in 2023, racking up wins and expanding our design pipeline in high-voltage EV applications such as drivetrain emergency power, 12-volt battery replacement, and micro-DC-DC converters. Our automotive-qualified products are extremely well suited for these applications, which not only require high efficiency but also benefit from the reliability and the space savings of a low component count design. Eight car brands are now shipping vehicles using Innerswitch or Scale iDriver in traction inverter applications.

We also have a strong pipeline of design opportunities in electric transportation and everything from two wheelers, two buses and locomotives.

Speaking of which we.

We made tremendous progress in our automotive business in 2023, racking up wins and expanding our design pipeline in high voltage EV applications, such as drivetrain emergency power 12 volt battery replacement and micro DC DC converters.

Our automotive qualified products are extremely well suited for these applications.

Which not only require high efficiency, but also benefit from the reliability and the space savings off of a low component count designs.

Eight car brands are now shipping vehicles using in a switch or scale I driver in traction in water applications.

Balu Balakrishnan: Meanwhile, our pipeline of EV design opportunities grew by more than 80% in 2023, with sample stage designs at various levels of progress across all regions and most major Tier 1s and OEMs. We expect several such designs to start production later this year. Another 2023 success story was GaN, not only in terms of revenue growth but also key technological breakthroughs, including the introduction of 900-volt and 1250-volt GaN, which While other suppliers are limited by the capabilities of foundry-based GaN technology, we designed our proprietary GaN to support higher voltages, and we expect to announce the next step on the roadmap in the near future. GAN has significant cost advantages over silicon carbide in the voltage and power ranges that it can address.

Meanwhile, our pipeline of EV design opportunities grew by more than 80% in 2023 with sample stage designs at various levels of progress across all regions and most major tier ones and Oems.

We expect several such designs to start production later this year.

Another 2023 success story was again not only in terms of revenue growth, but also key technology breakthroughs, including the introduction of 900 volt and 1200 50 volt Gan switches.

While other suppliers are limited by capabilities of foundry based scan technology redesigned our proprietary again to support higher voltages and we expect to announce the next step on the road map in the near future.

Gan has significant cost advantages over silicon carbide in the voltage and power Rangers that it can address.

Balu Balakrishnan: And we expect the overlap between the two technologies to increase over time as we further advance our technology and bring out more system-level GAN products. As indicated by recent M&A activity, market participants are recognizing the potential of GAN to be a transformational technology in power electronics, with huge opportunities in markets such as automotive, data center, appliances, and mobile devices. Proprietary technology and know-how in high-voltage GaN are scarce assets, and Power Integrations has more of them than anyone else in the market. Our latest GaN product introduction came last week with InnoSwitch 5 Pro, which will ship with the choice of 750 or 900 volt GaN switches. You Know Switch 5 is a shining example of our system-level approach to power conversion technology, marrying the efficiency of GAN with a novel control scheme that implements high-efficiency zero-voltage switching, or ZVS, with only a single GaN switch versus two switches required in a typical ZVS design. The combination of GAN and CVS delivers efficiency of better than 95%, with a very low component count enabling exceptional power density for high power charges up to 220 watts.

We expect the overlap between two technologies to increase over time as we further advance our technology and bring out more system level Gan products.

As indicated by recent M&A activity market participants are recognizing the potential again to be a transformational technology in power electronics with the huge opportunities in markets, such as automotive data center appliances and mobile devices.

<unk> technology and Knowhow in high voltage Gan RF case are scarce assets and power integrations has more than any one else in the market.

Our latest Gan product introduction came last week with INO switch Phy pro which will ship with a choice of 750 or 900 volt Gan switch.

You know switch five is a shining example of our system level approach to power conversion technology marrying the efficiency of again with a novel control scheme that.

That implements high efficiencies zero voltage switching our CBS with only a single gas switch versus two switches required in typical DVS designs.

The combination of Gan and Cvs, Delaware sufficiency are better than 95% with very low component count, enabling exceptional power density for our high power charges up to 220 watts.

Balu Balakrishnan: We demonstrated this capability with a new reference design showing a 140-watt USB PD charger with a volume of just 4.2 cubic inches, less than half the size of a standard 90-watt notebook adapter with over 50% more power. To conclude, while 2023 was a challenging year and the current down cycle has been severe, we have weathered it by sticking to our playbook that has served us well in past down cycles, that includes building wafer inventory to protect our dedicated foundry capacity and to be ready for a strong uptake. It includes buying back stock at opportune moments, as we did in Q4, and it includes prudent expense control along with continued investment in GAN, EVs, motor drives, renewable energy, and the Indian market. And while the slope of recovery is uncertain, we see good indications that sequential growth will start in the second quarter, with a better second half to follow. With that, I'll turn it over to Sandeep for a review of the financials. Thanks Balu, and good afternoon.

We demonstrated this capability with a new reference design, showing a 140 watt USB PD charger with a volume of just four two cubic inches less than half the size of standard 90 Watt notebook adaptor with over 50% more power.

To conclude.

In 2023 was a challenging year.

And the current down cycle has been severe we have whether it by sticking to our playbook that has served us well in past downturns.

That includes building wafer inventory to protect our dedicated foundry capacity and to be ready for a strong upturn.

It includes buying back stock at opportune moments as we did in Q4 and it includes prudent expense control along with continued investment in Gan Evs motor drives renewable energy and the India market.

And while the slope of recovery is uncertain, we see good indications that sequential growth will start in the second quarter with a better second half to follow with that I'll turn it over to Sandeep for a review of the financials. Thanks.

Thanks, Pablo and good afternoon fourth quarter revenues were just under $90 million in the middle of our guidance range.

Sandeep Nayyar: Fourth quarter revenues were just under $90 million, in the middle of our guidance range, while non-GAAP earnings were $0.22 per diluted share, above the level implied in our guidance, thanks to lower operating expenses and a 4 cent tax benefit. For the year, revenues were down 32% to $445 million, while non-GAAP earnings were $1.29 compared to $3.29 a year ago. While this was a challenging year from a financial perspective, we believe we have managed the business prudently while staying focused on the long term as always. We held non-GAAP expenses growth to less than 2% in spite of high inflation, without a reduction in employee compensation or benefits.

While non-GAAP earnings were 22 per diluted share.

Above the level of implied in our guidance, thanks to lower operating expenses and a <unk> <unk> tax benefit.

For the year revenues were down 32% to 40.

$445 million, while non-GAAP earnings were $1 29, compared to $3 29, a year ago.

While this was a challenging year from a financial perspective, we believe we have managed the business prudently while staying focused on the long term as always.

We held non-GAAP expenses growth to less than 2% in spite of higher inflation.

Without reduction in employee compensation of benefits.

In fact, we gave normal raises last year and continued our practice of paying an above average portion of the cost of benefits. Despite extreme price pressures in the insurance market.

Sandeep Nayyar: In fact, we gave normal raises last year and continued our practice of paying an above-average portion of the cost of benefits despite extreme price pressures in the insurance market. As Balu noted, we maintain this expense discipline while making necessary investments for long-term growth, including our automotive efforts, our expanding presence in India, continued development of our GaN technology, and the products that will double our SAM by 2027. I will quickly recap the Q4 results and the outcome, and then we will open it up for questions. Revenues for the quarter were just under $90 million, down 29% from the prior quarter, with all 4N market categories sequentially low. As expected, communications was down the most, with a decline of about 40 percent.

As Bob noted, we maintained this expense discipline, while making necessary investments for long term growth, including our automotive efforts, our expanding presence in India continued development on our Gan technology and the products that will double our Sam by 2027.

I will quickly recap the Q4 results and the outlook and then we will open it up for questions.

Revenues for the quarter were just under $90 million down 29% from the prior quarter with all four end market categories sequentially law.

As expected communications was down the most with a decline of about 40%.

Sandeep Nayyar: As we noted on last quarter's call, we had significant restocking in the previous quarter by distributors serving the Chinese handset supply chain. We also saw a steep decline in Q4 related to an inventory correction at a non-Chinese handset customer. The correction also affected tablets, which drove a decrease of about 35% in the computer category.

As we noted on last quarter's call, we had significant restocking in the previous quarter by distributors, serving the Chinese handset supply chain.

We also saw a steep decline in Q4 related to an inventory correction at a non Chinese handset customer.

The correction also affected tablets, which drove a decrease of about 35% in the computer category.

Industrial and consumer revenues were each down about 20% from the prior quarter.

Sandeep Nayyar: Industrial and consumer revenues were each down about 20% from the prior quarter, again driven by elevated supply chain inventories and soft demand. The revenue mix for the quarter was 35% industrial, 29% consumer, 27% communication, and 9% computer. Distribution Inventory, ended the quarter at ten and a half weeks, down more than a week from the prior quarter, as well as sell-through exceeded sell-in by about $12 million. Non-GAAP gross margin for the fourth quarter was 52.7 percent, down 60 basis points from the prior quarter, driven mainly by lower manufacturing volumes, partially offset by a more favorable in-market mix.

Driven by elevated supply chain inventories and soft demand.

Revenue mix for the quarter was 35% industrial 29% consumer, 27% communication and 9% computer.

Distribution inventory ended the quarter at 10, and a half weeks down more than a week from the prior quarter as well.

Sell through exceeded sell in by about $12 million.

non-GAAP gross margin for the fourth quarter was 52, 7% down 60 basis points from the prior quarter, driven mainly by lower manufacturing volumes, partially offset by a more favorable end market mix.

non-GAAP operating expenses for the quarter were $40 3 million down one $5 million sequentially and below our forecast as we continue to manage spending carefully while prioritizing investments in our long term growth.

Sandeep Nayyar: Non-GAAP operating expenses for the quarter were $40.3 million, down $1.5 million sequentially, and below our forecast as we continue to manage spending carefully while prioritizing investments in our long-term growth. As noted earlier, we recognized a tax benefit in the fourth quarter from the reversal of N48 reserves, which contributed about 4 cents to our non-GAAP earnings per share of 22 cents. The FIN 48 reversal had a larger effect on GAAP results, resulting in a negative GAAP tax rate for the quarter and GAAP earnings of $0.25 per diluted share. The weighted average share count fell by about half a million shares to 57.3 million, driven by repurchase. Cash flow from operations for the quarter was $16.3 million.

As noted earlier, we recognized a tax benefit in the fourth quarter from the reversal of fin 48 reserves, which contributed about <unk> <unk> to the non-GAAP earnings per share of 22.

The fin 48 reversal had a larger effect on GAAP results, resulting in a negative GAAP tax rate for the quarter and GAAP earnings of 25 per diluted share.

Weighted average share count fell by about half a million shares to $57 3 million driven by repurchases.

Cash flow from operations for the quarter.

Was $16 $3 million.

Sandeep Nayyar: Inventory days were at 344 at quarter end, up 114 days from the prior quarter, driven largely by lower revenue. As a reminder, the bulk of inventory is held in wafers, which combined with the fungibility of our products across customers and applications results in minimal risk of obsolescence. We expect inventory days to trend down as revenue starts to recover in the June quarter. Our largest use of cash in the fourth quarter was for share buybacks. We repurchased 680,000 shares during the quarter, well above 1% of our shares outstanding, for $47.4 million. The average price per share was just under $70.

Inventory days were at 344 at quarter end up 114 days from the prior quarter driven largely by the lower revenue number.

As a reminder, the bulk of inventories held in wafers, which combined with the fungibility of our products across customers and applications resulted in minimal risk of solar cells.

We expect inventory days to trend down as revenue starts to recover in the June quarter.

Our largest use of cash in the fourth quarter was share buybacks, we repurchased 680000 shares during the quarter well about 1% of our shares outstanding for $47 4 million.

The average price per share was just under $70.

Other uses of cash during the quarter included $6 million for Capex and $11 million for dividends.

Sandeep Nayyar: Other uses of cash during the quarter included $6 million for CapEx and $11 million for dividends. For the year, cash flow from operations was $66 million, while CapEx was $21 million, just below our model of 5% to 7% of sales. We will return $99 million to stockholders in the form of buybacks and dividends during the year, more than twice our free cash flow. Turning to the outlook, we expect revenues for the first quarter to be $90 million, plus or minus $5 million. We expect sell-through to again exceed sell-in, resulting in another decrease in channel inventory and clearing the way for sequential growth in the June quarter. Non-gap gross margin for Q1 should be approximately 52.5%. I expect a rebound in gross margin in the June quarter driven by the favorable yen exchange rate and higher manufacturing utilization as we begin to convert more wafers to finished goods. I also expect a better mix as the industrial and consumer markets begin to recover. Non-GAAP operating expenses should be around $42.5 million in the first quarter.

For the year cash flow from operations was $66 million, while Capex was $21 million just below our model of 5% to 7% of sales.

We returned $99 million to stockholders in the form of buybacks and dividends during the year more than twice our free cash flow.

Turning to the outlook, we expect revenues for the first quarter to be $90 million, plus or minus $5 million.

We expect sell through to again exceed sell in resulting in another decrease in channel inventory.

And clearing the way for sequential growth in the June quarter.

non-GAAP gross margin for Q1 should be approximately 52, 5%.

I expect a rebound in gross margin in the June quarter, driven by the favorable yen exchange rate and higher manufacturing utilization as we begin to convert more wafers to finished goods.

I also expect a better mix as the industrial and consumer markets begin to recover.

non-GAAP operating expenses should be around $42 $5 million in the first quarter.

The increase from the fourth quarter reflects head count increases resumption of FICA taxes, and higher premiums for employee benefits.

Operator: The increase from the fourth quarter reflects headcount increases, the resumption of FICA taxes, and higher premiums for employee benefits. For the full year, I expect non-GAPA OPEX growth to be in the high single digits. Finally, I expect the non-GAAP effective tax rate for the first quarter of the year to be around 7%. Now, Operator, let's begin the Q&A. The floor is now open to your questions. To ask a question at this time, simply press the star followed by the number one on your telephone keypad. Again, the floor is now open to your questions. To ask a question at this time, simply press the star followed by the number one on your telephone keypad.

For the full year, I expect non-GAAP opex growth to be in the high single digits.

Finally, I expect the non-GAAP effective tax rate for the first quarter and the year to be around 7%.

Now operator, let's begin the Q&A.

The floor is now open for your questions to ask a question at this time simply press the star followed by the number one on your telephone keypad.

Again the floor is now open for your questions to ask a question at this time simply press the star followed by the number one on your telephone keypad will now take a moment to compile our roster.

Christopher Rolland: We'll now take a moment to compile our roster. Our first question comes from the line of Christopher Rolland with Susquehanna. Please go ahead.

Our first question comes from the line of Christopher Roland with Susquehanna. Please go ahead.

Yes.

Sandeep Nayyar: Thanks, guys, for the question. I guess, maybe looking into next quarter, if you guys could kind of illuminate. Inventories, how you see the dynamic per end market playing out, and I don't know if you want to force rank those, you know, what's versus flat, what's up or down would be great. Thanks.

Thanks, guys for the question.

Guess, maybe looking into next quarter, if you guys could.

Kind of illuminate.

Inventories, how you see that the dynamic per end market, playing out and I don't know if you want to force rank those.

What's what's versus flat.

Up or down would be great. Thanks.

So as.

Sandeep Nayyar: So, as we had indicated, the overall channel inventory came down to about 10 and a half weeks, but the highlight was that the consumer and the computer segment came down to what I would call a normal level. We are still a little elevated in industrial. And considering that the revenue is – it's at normal levels based on this current level of revenues, which bodes really well for what it looks like, as I've mentioned about the consumer segment in the second quarter and further going forward. So we – I expect the channel inventories to further come down and be below 10 weeks at the end of the first quarter. Yeah, no, I was actually talking about the end markets. You know, where do you have the most inventory? Or, or how did these dynamics play out into March and then force rank versus flat, which might be up and which might be down in March? Sorry.

As we had indicated the overall channel inventory.

It came down to about 10, and a half weeks and by the highlight was that the consumer and the computer segment came down to what I'll call normal levels.

We are still a little elevated in industrial and considering that the revenue is.

It's at normal levels based on this current level of revenues, which bodes really well for what it looks like as I mentioned about the consumer segment in the second quarter and further going forward. So we I expect the channel inventories to further come down and be below 10 weeks in.

At the end of the first quarter.

Yes.

I was actually talking about the end markets.

Where do you have the most inventory or.

Or how did these dynamics play out in the March and then force rank versus flat.

Which might be up and which might be down in March I'm sorry, yes.

Sandeep Nayyar: Chris, that's what I was talking about, the channel inventory, that's where our guidance is what's in the channel and what's, as a result, probably getting impacted with the customers because consumer and consumer category are down to normal levels in the channel, which means things in the end state have become normal, while industrial is still very elevated. And that's why, what I also tried to mention was that, considering it's at such a low level. And if the consumer and computer are already at our level in the channel, at that level, as the revenue increases, it's actually... will become even much below our level. Yeah, you have to remember that in weeks, if you're normal, in dollar terms, we are well below normal because the weeks are based on $90 million in revenue. As revenue grows, it becomes really problematic for the customer if it is that low. This is good for us. Okay. Yeah, I hear you.

Yeah, Chris that's what I was talking about that the channel inventory.

Where our guidance is what's in the channel and what's as a result is probably getting impacted with the customers that consumer and consumer category are down to our normal levels in the channel, which means things in the end state has become normal while as industrial is still very elevated.

<unk> levels and that's as a result, what I also tried to mention was that considering it's at such low level.

And if consumer and computer already at our level in the channel at that level as the revenue increases its actually.

We'll become even much below our level.

Yes, they are driven by the by weeks.

You feel normal.

Dollar terms were well below normal because the weeks are based on a $90 million revenue.

As the revenue grows it becomes.

It is really problematic for the customer if it is that they have to buy products.

Which is good for us.

Okay.

Yeah.

Christopher Rolland: Maybe something on capital allocation, so nice buybacks in the quarter. Sandeep, I think if this chip thing doesn't work for you, you could be a day trader. But what are you guys doing on the capital allocation front? More buybacks kind of at this level, if you could, and or would you entertain something like M&A? Have you looked at that?

I hear you.

Maybe something on capital allocation, so nice buybacks in the quarter.

Sandeep I think if this chip thing doesn't work for you can be a day trader.

But.

But what are you guys doing on the capital allocation front.

Or buybacks kind of at this level. If you if you could and or would you entertain something like M&A have you have you looked at that.

Sandeep Nayyar: How are you feeling on this, you know, particularly if we're at a cyclical bottom? Of course, as we have talked about, we have a four-pronged approach to capital accounts, the first being internal investments. And as you can see, we are investing in working capital as well as the expense investments that we talked about, about high single-digit for next year. We've tightened our belts over the last few years, and, you know, we need to make more investments. So you're going to see, even though we held back in our headcount in 2023, you will see us make quite a bit of investments in headcount to support the initiatives that Balu and I have talked about, whether it be India, whether it be automotive, whether it be motor control, and to, and in GANs. The second thing is M&A, and I think, as we have talked about, we are always looking at that angle, and So that is, I think, something that we do all the time, and we are continuing to look at that.

How are you feeling on this particularly for a cyclical bottom.

Of course, as we've talked about we have a four pronged approach to capital again, the first being the internal investments and as you can see.

We are investing in working capital as well as you will see from the expense investments that we talked about about high single digit.

For next year.

Lightened our belt over the last few years, and we need to make more investments so youre going to see even though we held back in our head count in.

In 2023, you will see us quite a bit of investments in head count to support the initiatives that <unk> and I have talked about whether it be India, whether it'd be automotive, whether it be motor control and to add in Gan.

The second thing is M&A and I think as we've talked about we're always looking at.

At that angle.

And we always will look for other technologies that will complement us are which can help us expand our Sam so that is I think something that we do all the wait time and we are continuing to look at that the.

Sandeep Nayyar: The buyback is really an opportunistic story. And I think, as I presume you like the buyback that we did last quarter and the price of it. We always do that. And it's not that we are rigid; it's opportunistic.

The buybacks is really an opportunistic story and I think as.

I presume you liked the buyback that we did last quarter and the price of it we always do that and it's not that we have Richard its opportunistic and we tend to buy the stocks comes back and I think we're not going to change that and the last one was the dividend and you know a quarter ago or so we up the dividend again, so I think we.

David Williams: And we tend to buy as the stocks comes back. And I think we're not going to change that. And the last one was the dividend. And you know, a quarter ago or so, we upped the dividend again. So I think we've been following the four-pronged approach now. You know, some things happen more frequently than the others, but it is something that is looked at every quarter with the board. And I don't think anything will change in that aspect. Great. Thanks so much, guys. Our next question comes from the line of David Williams with The Benchmark Company. Please go ahead. Hey gentlemen, good afternoon and thanks for letting me ask a question. Good afternoon.

Been following the.

The four pronged approach now some things happen more frequently than the others, but it is something that is looked at every quarter with our board.

I don't think anything will change in that aspect of it.

Great. Thanks, so much guys.

Thanks, Chris.

Okay.

Our next question comes from the line of David Williams with the Benchmark Company. Please go ahead.

Hey, gentlemen, good afternoon, and thanks for letting me ask a question here.

Good afternoon.

First.

Balu Balakrishnan: First, you know you're expecting June to be a bit better, and we've heard that from others. I guess maybe you could talk about what's given, be on the inventory side, but what's giving you that confidence, and maybe if you could speak to the booking velocity across the end markets and kind of how those are trending. Well, there are several reasons that we feel good about Q2 being a growth quarter. The first one is that inventory will be less of a headwind. Now it's getting closer to normal.

It sounds like Youre expecting June to be a bit better and we've heard that from others. I guess, maybe if you could talk about what's giving you maybe on the inventory side, but what's giving you that confidence and maybe if you could speak to the booking velocity across the end markets and kind of how those are trending and maybe what you've seen thus far into the year.

Well there are several reasons that we feel good about Q2 being a growth quarter first one is the inventory will be less of a headwind now it's getting closer to normal.

And the <unk>.

Balu Balakrishnan: And as a result, we expect that this year will have normal seasonality up from Q1. Especially in consumer electronics, because of the air conditioning, seasonality could even be stronger than normal because of the low levels of channel inventory that we talked about. We are at normal levels of weeks, but based on a very low revenue number. And, as you know, air conditioning peaks in Q2. And we have really good exposure to the air conditioning market.

As a result, we expect.

That this year would be we'll have normal seasonality up from Q1.

Especially in consumer because of the air conditioning consumers could even be stronger than normal because of low levels of channel inventory that we talked about.

At normal levels of weeks based on but based on a very low revenue number.

And as you know air conditioning is.

Peaks in Q2, and we have a really good exposure to air conditioning market.

Balu Balakrishnan: Also, we see some recovery in the cell phone customer, where, if you remember, they canceled some orders starting in Q3. And I think that inventory collection will be completed in Q1. We did have a slight uptick in Q1, but we expect it to come back to a higher level in Q2. And that also helps us in terms of growth in the future.

Also we see some recovery in the cell phone customer where who.

If you remember they canceled some orders in the starting in Q3.

And I think that inventory correction will be completed in Q1.

Did have a slight uptick in Q1, but we expect.

To come back to a higher level in Q2.

And that also helps us in terms of growth in Q2.

The industrial market, which has been very soft for a long time, we think will begin to recover sometime in Q2. So that will also contribute we believe so.

Balu Balakrishnan: The industrial market, which has been very soft for a long time, we think it will begin to recover sometime in Q2, so that will also contribute. Probably the last one, which is probably the most important, is that our order trends are improving. January was our best month of booking since last spring, and February is also off to a very good start.

One of the last one which is probably the most important is that our auto trends are improving January was our best month of bookings since last spring and February is also off to a very good start.

Balu Balakrishnan: Of course, the next two weeks will be soft because of the Lunar New Year, so we'll see how things will come back after the holidays. But all of the trends... support Q2 being up from Q1. Okay, great. Very, great color there.

Of course, the next two weeks, we'll be soft because of the lunar new year. So we'll see how things will come back after the holidays, but all of the trends.

Support Q2 being up from Q1.

Okay, great very great color there certainly appreciate that.

David Williams: Certainly appreciate that. And then secondly, I wanted to see if there's maybe a way to think about your design wins. You've had a very healthy pipeline through the downturn, and is there a way to kind of think about that contribution maybe in the next 12 to 18 months from the design wins that you've won in this more recent period? You can't directly correlate because the design wins come in many different shapes and sizes and also you have to remember some of them will be replacing designs that are in production, but going end-of-life So you can't directly correlate, but directionally it's a very good trend, and we are really excited about that You know if you look at Literally almost all markets except maybe cell phones, which is as you know is not a growth market We are seeing significant design win Increases that will board well for the future so the design will design missile convert into revenue in the next You know one to three years depending on the market so that boards well for the market of course all of this is tempered by The macro situation so we are waiting for macro to turn around But the big You know bright star is that our inventories? We should come back to normal in all markets by the middle of this year Which means that we will start seeing the demand as it happens, Thanks so much and best of luck on the... Thanks, David. Our next question comes from the line of Ross Seymour with Deutsche Bank. Please go ahead.

And then secondly, I wanted to see if there is maybe a way to think about your design wins, you've had a very healthy pipeline through the downturn and is there a way to kind of think about that contribution maybe in the next 12 to 18 months.

From the design wins that you've won in this more recent period.

You can directly correlate because.

The design wins come in many different shapes and sizes.

And also you have to remember some of them will be replacing.

Designs that are in production, but going end of life. So you can't directly correlate but directionally. It's a very good trend and we are really excited about that.

If you look at literally almost all markets, except maybe cell phones, which is as you know is not a growth market.

We are seeing significant design win increases that will bode well for the future. So the design will design wins will convert into revenue in the next.

One to three years, depending on the market so that bodes well for the market of course all of this is tempered by the macro situation. So we are waiting for the macro to turnaround.

But the big.

Bright star is that our inventories, which should come back to normal in all markets by the middle of this year, which means that we will start seeing that demand as it happens.

Great. Thanks, so much and best of luck on the quarter.

Thanks, David.

Our next question comes from the line of Ross Seymore with Deutsche Bank. Please go ahead.

Hi, guys. Thanks for asking the question.

Ross Seymore: Hi guys, thanks for asking the question. Just wanted to ask a high-level one first: what do you think the normalized level of demand is for the company, whether you want to talk on a quarterly basis or annual basis? And I know that there's a ton of assumptions underneath that, and it's not the easiest answer, but any help would be appreciated.

Just wanted to ask a high level one first what do you think the normalized level of demand is for the company, whether you want to talk on a quarterly basis or annual basis, and I know that there's a ton of assumptions underneath that and it's not the easiest to answer but any shot would be appreciated.

Okay I think we've answered this question in the last call.

Balu Balakrishnan: Okay, I think we've answered this question in the last call. Our trend analysis would show that if everything came back to normal based on our share gains and market, long-term market trend growth, and so on. We should really be running at 150 million a quarter. However, it is unlikely, I believe, given the demand situation still being very weak, that it will happen in the second half of this year. You know, again, I don't know what the 25 is going to be, but the earliest I can think of that we're getting there will be in the second half of 2025.

Our trend analysis would show that.

<unk> came back to normal based on our share gains in <unk>.

Market long term market trend growth and so on.

We should be really running at $150 million a quarter.

However, it is.

Likely I believe given the demand situation still being very weak.

That it will happen.

In the second half of this year it'll probably be.

Sometime.

Again, I don't know what the 25 is going to be but the earliest I can think of that we are getting there it'll be in the second half of 2025 and Thats just a speculation on my part it really depends upon demand and inventory levels, all coming back to normalcy.

Balu Balakrishnan: And that's just speculation on my part. It really depends upon demand and inventory levels all coming back to normal. Got it.

Got it and then I guess, a gross margin question kind of slightly nearer term and then a little bit longer term sandeep.

Ross Seymore: And then I guess a gross margin question, kind of a slightly nearer term and then a little bit longer term. Sandeep, you do a good job of talking about trends through the year. I know you said the second quarter is going to be up.

Sandeep you do a good job of talking about trend through the year. I know you said the second quarters can be up so I guess part a of the the second question is.

Sandeep Nayyar: So I guess part A of the second question is utilization going up in the June quarter seems a little odd if you just look at, you know, basically a year of inventory on your books internally. And I know days in the channel are somewhat misleading at the bottom of a cycle, but how should we think about utilization? Why are you increasing it, given so much inventory on your books? And what's the trend through the year that you think you're going to have on gross margin if the back half revenue does indeed improve? Yeah, so first of all, we keep the bulk of our inventory in wafer form. And when I talk about utilization, you know, we yes, we do have some of our equipment at the fab power, but that's limited. But the bulk of the equipment is on the back end, which is the testers, handlers, and more machines. So the converting of the wafer into finished goods leads to higher utilization and test outs.

Utilization going up in the June quarter.

It seems a little odd if you just look at you had basically a year of inventory on your books internally and I know days in the channel, it's somewhat misleading at the bottom of a cycle but.

How do we think about utilization why are you increasing it gives them so much inventory on your books and what's the trend through the year that you think youre going to have on gross margin in the back half revenues do indeed improve.

Yeah. So first of all we keep bulk of our inventory in vapor form.

And when I talk about utilization.

Yes, we do have some of our equipment at the fat part, but that's limited, but the bulk of the equipment is on the backend which is the test handler modern machine. So the converting of the wafer into finished goods leads into higher utilization.

Sandeep Nayyar: And that's what helps us in the margin. But I think the bigger piece that is going to help us is going to be the yen. You know, the yen has really moved quite a bit in our favor with the dollar strength thing. But the funny part is that, if you go a year back, it was in the 140s, then it dropped down to the 130s, and then it had gone back into the high 140s.

The desktop and that's what helps us.

In in the margin, but I think the bigger piece that is going to help us is going to be the yen.

The yen has really moved quite a bit up in our favor, but the dollar strengthening but the funny part is that.

If you go a year back it wasn't the 140 <unk> then it dropped down to the 130 and then it had gone back into the high 100 <unk>. So in Q1.

Sandeep Nayyar: So in Q1. As you turn the inventory, it's getting impacted by when it went down, but starting in Q2 and Q3, the favorability starts coming back, and the yen will contribute quite a bit there. Now, we are also getting a mixed benefit. As we have talked about before, we are going to see more consumer and industrial applications as the year goes by, and less communication. For the year, I think I've talked about it before.

As you turn the inventory is getting impacted by when it went down by starting in Q2 and Q3, the favorability starts coming back and the yen will contribute quite a bit. There now we are also getting a mix benefit.

As we have talked about before we're going to see more consumer and industrial as the year goes by and less communication.

For the year I think I've talked about before we.

We should be somewhere in the 53, 554% that's the bottling I can do with the pluses is coming from the yen mix and volume and the minuses coming from input costs with the input costs are still going out best wafer and other costs.

Sandeep Nayyar: We should be somewhere in the 53 and a half, 54 percent, you know, that's the modeling I can do with the pluses coming from the end, mix, and volume, and the minus is coming from input costs. The input costs are still going out the way for another cost. But as I said, even though I'm doing this high-level modeling, the mix is always the wild card. Got it. Thank you. Our next question comes from Alon Tore Svanberg with Stiefel. Please go ahead. Your line is open, please go ahead. Mr. Tore Svanberg

As I said, even though I am doing this high level modeling the mix is always the wildcard.

Got it thank you.

Our next question comes from Milan Tour.

<unk> Berg with Stifel. Please go ahead.

Your line is open. Please go ahead.

Mr Tor Swanberg.

Our next question comes from the line of Matt Ramsay with TD Cowen. Please go ahead.

Tore Egil Svanberg: Our next question comes from a line from Matt Ramsey with TD Cowan. Please go ahead. Thank you very much. Good afternoon.

Thank you very much good afternoon guys.

Afternoon.

Matthew D. Ramsay: Balu, I... one is, obviously, working our way through Inventory Correction across a number of markets. There are companies going through it no different than a lot of others. The Bulletproof Executive 2013, set to the model of this call that we did three months ago. And you guys are going to walk.

Hello.

One is obviously work.

Working our way through Hum.

The inventory correction across a number of markets.

Your company is going through right now is no different than a lot of others.

And we had a.

A reset to the model on this call that we did three months ago.

And you guys kind of walk through how you plan to progress through getting the inventory down and what the model might look like.

Matthew D. Ramsay: How you plan to progress through getting the inventory down and what the model might look like, um, I guess my biggest picture question is, as we've gone through the last 90 days, what's really changed? Progressed and started working the inventory down, and we're closer to coming out the back end. But any big differences in the last, say, 90 days as to what you expected to play out. It's not fun but tangible progress. So I'm just trying to, Actually not.

I guess my biggest picture question is.

As we've gone through the last 90 days.

What's really changed other than you've progressed and started working inventory down and we're closer to coming out the back end of it.

But any big differences.

In the last say 90 days as to what you expect it to play out I mean it.

It's not fun, but it's tangible progress. So I'm just trying to think if anything surprised you in the last 90 days or so.

Actually not it was very much what we expected we had said Q1 will be flat to potentially slightly up.

Balu Balakrishnan: It is very much what we expected. We had said Q1 would be flat to potentially slightly higher. But we really want to get the inventory down as much as possible, so we are happy that the inventory will come down again in Q1, based on our shipments, which are still below demand, which really puts us in a good place for going forward from Q2 onwards. And the only other positive thing I would say is that consumers are really coming back. The consumer market is really coming back. We can see orders being placed by people who have really stopped ordering for almost a year, a little more than a year now. They completely stopped ordering, and they are now coming back.

But we really want to get the inventory down as much as possible. So.

We are happy that the inventory will come down again in Q1 based on.

Our shipments which is still below the demand.

It really puts us in a good place for going forward from Q2 onwards.

And the only other positive thing I would say is.

The consumers are.

Really coming back at the consumer market is really coming back we can see the orders being placed by people, who really stopped ordering for almost a year little more than a year now there is completely stopped priority and they are now coming back that tells us that they are out of inventory as well as not just our channel inventory or end market inventory is also cleared up.

Balu Balakrishnan: That tells us that they are out of inventory as well. It's not just our channel inventory; our end market inventory is also cleared up in the consumer. The consumer is in very good shape.

In the consumer the consumer is in very good shape computer is also very close to normal in terms of inventory is the industrial.

Balu Balakrishnan: Computer is also very close to normal in terms of inventory. It's the industrial market that has extra inventory, and we believe that should come down to normal sometime in the second quarter, and we should start seeing bookings from the industrial market sometime in the second quarter. I don't know exactly when.

As extra inventory and we believe that should.

Come down to normal sometime in the second quarter, and we should start seeing.

Bookings from industrial market is sometime in the second quarter I don't know exactly when.

Balu Balakrishnan: So it's not that different from what we anticipated in Q4, and I think for the whole year, we still expect Q2 to be a growth quarter, and the second half to be even better in terms of growth. And we think we could exit the year with strong year-over-year growth in Q4 because of the comparison to the last quarter. Matt, the other point to add is that nothing has changed in terms of what we were thinking for the year. The good part is it's playing out as we wanted, plus other people, like what Whirlpool said about the second half of 2024, obviously, if they're going to see the second half, we should see better a little earlier because of, you know, power supplies being made earlier. So it's good to see the validation of what we've been saying and how it is playing out, even from an outside party. Got it, no.

So it's not that different from what we anticipated in Q4.

And I think for the whole year, we still expect Q2 to a growth.

<unk> quarter, and second half to be even better in terms of growth and we think we could exit the year with a strong year year over year growth in Q4, because of the comparison to the last year.

Matt to the other point to add is that nothing has changed in terms of what we were thinking for the year. The good part is it's playing out as we have 100 plus.

Other people like if you see what Whirlpool's said about the second half of.

2024, obviously theyre going to see second half, we should see better a little earlier because of power supplies being made earlier. So it's good to see the validation of what we've been saying and how it is playing out even from an outside party.

Got it no.

Matthew D. Ramsay: No, thank you very much, both of you, for all the detail there. That was my initial read as well, really steady progress, but not in this kind of environment. I guess my second question is a little bit more. The auto market, I think there was some commentary in the script about the pipeline, is considerably higher. If you guys could maybe expand on that a little bit, both the nature of the opportunities and also... If you win them, what is the time to revenue?

No. Thank you very much for all the detail there that was my initial read as well.

Really steady progress.

But not all.

Ton of things that I have.

Change, which is go ahead.

And in this kind of environment I guess this is my second question, it's a little bit more specific.

In the auto market I think there was some commentary in the script.

The pipeline.

Design opportunities in the EV market.

Being considerably up maybe 80% or something like that if you guys could maybe expand on that a little bit both the nature of the opportunities and also if.

If you win them, what the time to revenue could look like.

Balu Balakrishnan: So, I mean, to be honest, we are somewhat positively surprised by the level of interest we are getting for our product. I don't think I would have expected this a couple of years ago. If you had asked us, we would have expected a much slower ramp-up of design activity. So it really bodes well for the long term. And I'm getting more and more comfortable that this could be a $100 million business within the next five years. It has a long design cycle.

So I mean to be honest, we are somewhat positively surprised by the level of interest we are getting on our products I don't think it would have expected. This couple of years ago. If you had asked as we would've expected a much slower ramp of design activity.

So it really bodes well for the long term.

And I'm getting more and more comfortable that this could be $100 million business within the next five years.

It is a long design cycle, but as.

Balu Balakrishnan: You know, as we mentioned, we are already in production cars today for eight different models in the market, for eight different customers. And it's quite surprising how quickly they have adapted to our products. You know, usually, design cycles are very long. Many customers are cutting their design cycle short to use our products simply because of the benefits we bring. Whether it's, you know, the size benefit, the component benefit, the component count benefit, the reliability benefit, and so on.

As we mentioned we are already in production cars today at eight.

Different models in the market with eight different customers I should say.

And thats quite surprising how quickly they adapted our products than they usually are.

The design cycles are very long many customers are cutting their design cycles short to use other products simply because of the benefits we bring whether it's <unk>.

<unk> benefit component benefit.

Our account benefit.

The liability benefit.

And so on.

Balu Balakrishnan: And the other thing that's really surprising to me is even OEMs who have historically been the hardest to address, like, for example, the Japanese OEMs, are much more open because of the value we bring to this. And that's true with not only Japanese customers but also with European customers and, of course, Chinese. So everything looks really good for the automotive industry, and that's probably the most exciting growth area we are looking at right now. I really appreciate the call.

And the other thing that's really surprising to me is even Oems what has historically been the hardest to address like for example, the Japanese Oems.

Much more open because of the value we bring.

This market and that's true not only Japanese but also with.

The European customers and of course, the Chinese customers.

So everything looks really good for automotive and that's probably the most exciting growth area.

Looking at right now.

Really appreciate the color. Thank you.

Matthew D. Ramsay: Thanks, Matt. Our next question comes from Alana Tore Svanberg with Stiefel. Please go ahead. Yes, thank you. Can you hear me?

Thanks, Matt.

Our next question comes from the line the tour Swinburne with Stifel. Please go ahead.

Tore Egil Svanberg: Yes, I can hear you, Tore. Okay, great. I don't know what happened there earlier. I could hear you guys, but you couldn't hear me.

Yes. Thank you can you hear me.

Yes can hear you correct okay.

Okay, Great Yeah, I don't know what happened there earlier.

Here you guys, but you Couldnt hear me.

Tore Egil Svanberg: So, my first question for you, Balu. So, you know, all downturns are different. That's pretty clear.

So my first question for you below so all downturns are different but that's pretty clear, but you know most.

Tore Egil Svanberg: But, you know, most people remind us that the upturns are almost always the same, meaning customers start to rent pretty quickly. So, anything that you're seeing this year that would be different? I mean, given your inventory comment, I assume that, you know, you're sort of ready for a stronger ramp as and when it comes. Yeah, that's a good question. I wish I knew the answer.

Most people reminds us that the upturns are almost always the same meaning customers start to ramp pretty quickly. So.

Anything that youre seeing this year that would be different.

Given your inventory comment I assume that you are sort of ready for a stronger ramp as and when it comes.

Yes, that's a good question I wish I knew the answer.

It's I just don't have a good feeling for the ramp of the recovery I had noted is going to recover we think second half will be a really good but we don't know by how much I wish I could really give you that answer now.

Balu Balakrishnan: I just don't have a good feeling for the ramp of the recovery. I know it's going to recover. We think the second half will be really good, but we don't know by how much.

Balu Balakrishnan: I wish I could really give you that answer. Now, let me talk about some areas where we are really feeling good. We already talked about the automotive industry, but that's more long term. But if you look at high power, renewables are doing extremely well. And so we expect, again, another growth year on high power. The HBA market, which was very weak last year, we expect that to come back strong this year. Electric meters are doing extremely well, electronic meters are doing extremely well this year, and so there are several pockets in industrial that are going to come back. So I am feeling really good that industrial will come back this year, even though they still have some inventory.

Let me talk about some areas, where we're really feeling good we already talked about automotive, but that's more longer term.

But if you look at high power and renewables are doing extremely well and so we expect again another growth year on high power.

The hitch VA market, which is very weak last year.

We expect that to come back strong this year.

Electric meters are doing extremely well.

Electronic meters I guess.

<unk> extremely well this year.

So there are several pockets in industrial that's going to come back. So I am I am feeling really good that industrial will come back this year, even though they still have some inventory, but when they come back we will see a significant growth that consumer we already talked about I think the inventory is clean and we're going to start seeing the demand.

Balu Balakrishnan: But when they come back, we will see significant growth there. Consumer, we have already talked about. I think their inventory is clean, and we're going to start seeing demand. But the demand, to the extent we can measure it, is still weak. So the growth in consumers in the near term is going to come from the clearing of inventory, not necessarily because the demand is increasing. We don't see that yet. Now, that doesn't mean in the second half they won't come back strong.

But the demand to the extent, we can measure is too weak.

So.

The growth in consumer in.

In the near term is going to come from clear and clearing of inventory not necessarily because of demand.

Is increasing we don't see that yet that doesn't mean in the second half it won't come back strong. We just don't know about that but just the inventory alone clearing up will help us grow nicely in that market.

Balu Balakrishnan: We just don't know about that. But just the inventory alone, clearing up, will help us grow nicely in that market. Of course, we talked about cell phones before. That is a declining market. We don't expect that to grow over the next few years. All of the growth is going to come from the other three markets, the computer, consumer, and industry. Very good.

Of course.

You talked about cell phones before that is.

A declining market, we don't expect that to grow over the next few years all of the growth is going to come from the other three markets the computer consumer and industrial.

Alright, good and on again you.

Tore Egil Svanberg: And on GAN, you highlighted several segments, several applications. You know, the one segment that, you know, GAN could do well in, and you mentioned data center, but, you know, we haven't quite heard enough from PAUI as far as the traction you're getting there. So are you being, you know, conservative on when you penetrate that market? Do you already have traction there?

<unk> several segments of optical applications, the one segment that.

Dan could do well in and you mentioned as data center, but we haven't quite heard.

Enough from Poway as far as the traction you're getting there so are you being conservative.

Conservative on when you penetrate that market do you already have traction there any any update on Gan for data center would be great.

Balu Balakrishnan: Any update on GAN for data centers would be great. A good question. First of all, if you look at our SAM in 2027, if you go back to our Analyst A presentation, we presented that we would double the SAM to $8 billion in 2027. Roughly about $3 billion of it will be Gansam in that year, of course, Gansam will continue to increase. And out of that $3 billion, half of it, we already have products. You know, we have products already in the market to address one and a half billion. The other $1.5 billion comes from data centers, automotive, DC to DC converters, and onboard chargers, telecom infrastructure like base stations, power supplies, and so on. For that reason, we are working on products that are not yet ready, and until it's ready, we don't engage with customers.

A good good question first of all.

If you look at our Sam in 2027, if you go back to our.

Analyst day presentation, we presented that we would double the Sam to $8 billion in 2027.

Roughly about $3 billion of it.

He will began Sam in that year of course against and will continue to increase.

And out of that 3 billion half of it we already have products for.

We have products already in the market to address $1 5 billion of it.

The other $1 5 billion comes from data centers.

Automotive DC to DC converter and motors and onboard Chargers.

<unk> infrastructure like base station power supplies and so on.

For that we are working on products.

<unk>.

Not yet ready and until it's ready, we don't engage with customers and we have to get those products out.

Balu Balakrishnan: You know, we have to get those products out there. Now, you may be wondering why it takes us longer to get to market than some of the discrete guys. Well, if you have a discrete transistor, you can go broadly in any market you want. But the problem with the discrete model is that it then becomes a commodity of a pin-compatible device that can be replaced by anybody. Especially the Chinese guys, I think are going to be incredibly aggressive in the Pricing of the Dispensary.

You may be wondering how come it takes us longer to get to market than some of the discrete guys well. If you have a disparate trends is that you can go broadly in any market you want.

But the problem with a discrete model is that you then.

It becomes a commodity of a pin compatible device that can be replaced by anybody, especially the Chinese guys. I think are going to be incredibly aggressive in pricing of the displays we just don't see.

Balu Balakrishnan: We just don't see ourselves in the discrete market. It's just not the right business model for us. We have never been in the discrete market.

As in the distillate market is just not there.

The business model for US we have never been in the market.

Balu Balakrishnan: And the way we make the margins we make, compared to discrete guys, is by having a system-level solution that brings significant advantages. So that means it takes longer for us to come up with the products. It's the innovation of packaging, the innovation of control schemes. There's a lot of things that we have to cover when we do a system-level product. So it takes longer.

And we make the margins we make.

Better discrete guys is by having a system level solution that brings significant advantages or discrete.

So that means it takes longer for us to come up with a product innovation packaging innovation of.

Control schemes, there's a lot of things that we have to.

However, when we do a system level product. So it takes longer that's a bad news. The good news is when we come out we have a very compelling product that can make very good margins, which is really hard to make with discrete. So that's why it takes longer it is not that.

Balu Balakrishnan: That's the bad news. The good news is that when we come out, we have a very compelling product that can make a really good one, which is really hard to do with. So that's why it takes longer. It's not that anything has changed.

And that anything has changed we did expect it to take some time, that's why we don't add at $1 5 billion of Sam until 2027.

Balu Balakrishnan: We did expect it to take some time. That's why we don't add that $1.5 billion of SAM until 2027. Yeah, no, that's helpful.

Yeah No. That's helpful. Just one last one on the automotive you talked about the design wins and so on and so forth, but from a from a revenue and timing perspective.

Tore Egil Svanberg: Just one last one, Balu, on the automotive one. You talked about the design wins and so on and so forth, but from a revenue and timing perspective, could this be sort of like, you know, tens of millions in 2025, or is that still more of a 2026 timeline? So yeah, I would think by 2025, you should be, let's see, let me. It could easily be.

Could this be sort of like.

Tens of millions in 25 or is that still more of a 'twenty six.

Timeline.

That's a yes I would think by 2025, you should be at let's see let's let me it could it could easily be.

Yeah.

Balu Balakrishnan: You know, I would say more than 10 million. I don't know exactly how much it will be. I am a lot more comfortable saying that within five years, we will cross 100 million.

I would say more than $10 million I don't know exactly how much it will be I am a lot more comfortable saying.

Within five years, we would cross $100 million.

Balu Balakrishnan: Perfect. Very good. Thank you. Thank you. I would now like to turn the call over to Joe Shiffler for closing remarks. Okay, thanks everyone for joining this afternoon. There will be a replay of this call available on our website, investors.power.com. Thanks again and good afternoon. This concludes today's call. You may now disconnect. www.circlelineartschool.com

Perfect very good thank you.

Thank you.

I would now like to turn the call over to Joe Shiffler for closing remarks.

Okay. Thanks, everyone for joining this afternoon, there will be a replay of this call available on our website investors not power Dot com.

Again and good afternoon.

This concludes today's call you may now disconnect.

Yeah.

Okay.

Okay.

Yeah.

Okay.

Okay.

Okay.

Yeah.

Yeah.