Q3 2024 Monolithic Power Systems Inc Earnings Call - Q&A
Welcome everyone to the MPS third quarter 2024 earnings webinar. My name is Genevieve Cunningham and I will be the moderator for this webinar. Joining me today are Michael Singh, CEO and founder of MPS, Bernie Blegen, EVP and CFO, and Tony Balow, Vice President of Finance.
Earlier today, along with our earnings announcement, NPS released a written commentary on the results of our operations. Both of these documents can be found on our website.
Before we begin, I would like to remind everyone that in the course of today's presentation, we may make forward-looking statements and projections within the meaning of the Private Securities Litigation Reform Act of 1995 that involve risk and uncertainty.
Risks, uncertainties, and other factors that could cause actual results to differ from these forward-looking statements are identified in the Safe Harbor statements contained in the Q3 earnings release.
and in our SEC filings, including our Form 10-K, which can be found on our website. Our statements are made as of today and we assume no obligation to update this information. Now I'd like to turn the call over to Bernie Blegen.
Thanks Jen. Good afternoon and welcome to our Q3-24 earnings call.
MPS achieved record quarterly revenue of $620.1 million, 22% higher than revenue in the second quarter of 2024, and 30% higher than revenue in the third quarter of 2023.
Additionally, benefited from initial revenue ramps associated with design wins secured in prior years. Let me call out a few highlights.
Communication revenue was up 65% from the prior quarter, reflecting new product ramps for Wi-Fi, optical, networking, and router solutions.
Storage and Compute Revenue was up 25% sequentially on the strength of demand for DDR5 and SSD memory and notebooks.
MPS continues to focus on innovation
Solving our customers' most challenging problems and maintaining the highest level of quality.
In addition, we continue to expand and diversify our global supply chain, which will allow us to capture future growth, maintain supply chain stability, and swiftly adapt to market changes as they occur.
Our proven long-term growth strategy remains intact as we continue our transformation from being a chip-only semiconductor supplier to a full-service silicon-based solutions provider. 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 Rick Schaefer of Oppenheimer. Rick, your line is now open.
Thanks and congrats you guys. I guess I've got a two-part question.
I don't know if you could give some color on that, you know, is that one time in nature or does that reflect a more sustained shift in that segment as we look into 4Q and then into 25?
And then my second part of my question, I mean, it looked like Otto. I knew you listed a few of them, Bernie.
You know, automotive, industrial, comms, consumer, all look like they were up pretty materially, sequentially. So, you know, how would you characterize those segments, which have sort of been lagging the last few quarters? You know, do you feel like those have made the turn?
Sure, Rick. This is Bernie.
Bernie Blegen: Let me start with the enterprise data. Sequentially, we were down about 1.5% from Q2.
And that, you know, a couple of things that we've talked about. One is that we don't control our customers' ordering patterns.
So, as it relates to the current quarter, we did see a different ordering trend than we'd observed in each of the past six quarters.
And then, as far as looking ahead,
that that's going to require a second or third competitor to be introduced on the share.
And so there's a lot of issues here that we've been talking about and that we're managing.
But one very important point is that MPS's strength is in the diversity, and we don't try to call out a particular end market's results. We try to deliver the company in total.
And that's sort of a short-term view, but Michael may have a couple comments on longer-term view.
Solder.
Customers initially will always take the best solutions.
and Liz.
to fulfill their needs and the best solutions and also the speed of the development.
service, as Bernie said earlier, and that's why we occupied pretty large shares.
Last year we said, okay, this market is too big and NPS will always have the best solutions.
on the, in this application.
It happened in the last couple of quarters, in the game, in the next year.
SOC side of market segments and like it hasn't really ramped up yet or it starts ramping. And the other ones, like other hyperscales, like a company Krakum,
computing companies and their own SOCs and their own TPUs. They call it the Tensor Processor System and those ones are still small. We're ramping up our next
Bernie Blegen: next few quarters okay
And as Bernie said,
NPS in the past we always emphasize diversity and we we will not be known to be an AI power supply company
And then, Rick, I think you had a question as far as automotive.
and whether or not the step up that we observed from Q2 to Q3 was more of a broader trend line or if it was a one-time event and
This, we believe, is a step up.
have been waiting in the pipeline for the right opportunity. And so we do believe that, specific to us, not a discussion about the broader market.
When the ramp will take off.
We don't know. Will it be plus or minus a year or so? Do we care? We don't. And now, all these Greenfield products start to rejuvenate.
And maybe one more comment, just for record of that.
Traditionally, you know, we'd been talking about strength and ADAS, but what you heard Bernie talk about was...
We saw that strength in automotive across kind of all the segments including infotainment, body controls, really a sign of those sockets that we had won previously now start generating revenue. So it's more broad-based within automotive than maybe we talked about previously.
Thanks for all that color, you guys, and maybe...
Speaker Change: You know, I realize that this is a broad-based pickup and it's basically design-win-driven, as all things are with you guys. But I'm curious, I mean, NVIDIA did, I believe, did really well the last year or two with Drive Oren, and I know you guys do power there. So I didn't know if you could talk specifically about China Auto.
and what content trends look like for you guys there and maybe give a sense of how big China auto is now as a sort of a portion of your overall auto segment. Thanks a lot.
Well China's EV business is booming and now the paper off a little bit and looks like we're booming again okay and we're going the right right direction again and okay and there's a lot of requirements and
in China. And so that's what we see
a bigger portion of it is renting from China. And also we see, other than ADA, okay, we see a lot of other products and will grow from Germany.
in Germany and in the U.S.
Speaker Change: Thank you, guys.
Our next question is from Tori Svonberg of Stiefel. Tori, your line is now open.
Yes, thank you and congratulations on the record revenue. I wanted to follow up on enterprise data. Obviously had two very strong quarters first half of the year. It took a breather this quarter. But how should we think about that business into the December quarter?
Speaker Change: As far as I know, pure folio, we don't lose any shears.
Speaker Change: and probably going and it was the same as the forecast okay we don't okay we don't we can't really tell and
This forecast was given to us in the
Speaker Change: a few quarters ago.
for a few that they made. So, we'll have...
That's what we built for me in the last couple of quarters.
Speaker Change: Yeah, and I think as we look to the outlook and the guidance that we provided, really enterprise data was, you know, somewhere in the, you know, plus low single digits. So again, our customers' ordering patterns are really what drives the performance there.
Speaker Change: Now, that's very fair. And the one big surprise to me this quarter was communications. I think it was your strongest growth segment this quarter. You highlighted Wi-Fi, optical networking. Could you maybe just give us a little bit more color what's going on there? I mean, it does sound like you have some
Some new segments there that you are penetrating, especially on the optical side.
Well, the opticals is a data converter, data communications within a data center, within a REPS. And that's a portion of it. But that's not all of it. The other one is the new Wi-Fi format, and start to ramping up.
That's the NPS that have a lot of reference designs, and that's what we see across the continent, all these projects turning into a revenue now.
So I think the outlook for, again, MPS specifically, remains very solid. Generally, after you have a big initial stocking in a quarter with a new revenue ramp,
It tends to, you know, tail off for a quarter, but we see sustainable growth in communication through, you know, the first half of 25.
Great. Thank you for the call. I'll go back in line.
Speaker Change: Our next question is from Joshua Bukalter of Cohen. Joshua, your line is now open.
Hey guys, thank you for taking my question.
I think in response to Rick's question, you mentioned two factors that sort of drove the flattening out of enterprise data being order patterns and second sourcing.
I guess, could you maybe rank order which one of those had the bigger impact near-term and in particular as we think about your customers diversifying their suppliers. Are you seeing this more on AI accelerator platforms that are already in the market or is this tied to the newer platforms that are currently ramping? Thank you.
Speaker Change: So, I think Michael offered that in Q4, we're not expecting, Q3 and Q4, you know, to see, you know, shared position change.
So that was really just trying to acknowledge...
that that is a function of being the market leader in AI.
And then over time, as we see a layering of all these new AR opportunities, Michael referred to the TPUs, which will probably begin to ship late... I don't know if the TPU, what I remember, the TPU, maybe the...
It's all really you, some of you refer to this as SOC, and we have many design
We engaged with many of our customers many years ago and those products is actually we see start to ramp up in a lot.
in the last quarter.
Yeah, I'm okay.
But thank you for the call there, and I realize you've got, you know, content in.
multiple different sockets on many of these accelerator cars. And so my question is going to try to oversimplify it. But how should we think about, as we think about some of these new AI accelerator platforms,
Your content opportunity may be in relationship to power draw of the actual processors or any other helpful rules of thumbs you can give us as we try to fine-tune our models in the next year. Thank you.
Speaker Change: Well, if you believe as we believe, our products, our solution is the best and the most power-efficient.
Speaker Change: The mark is bigger.
And that portion of our revenue will grow. The rest of the stuff, I don't get, we don't care. Just let the numbers speak for themselves.
Thanks, guys.
Our next question is from Chris Caso of Wolf. Chris, your line is now open.
Chris Caso: Yes, thank you. Good evening.
you know, not a lot changing on a sequential basis. I think you mentioned that the enterprise data will be up low single digits sequentially in December. Anything else that you would call out?
as you know kind of growing or shrinking you know different from the average in December and then following that you know given that enterprise data has grown as a percentage of revenue, does that affect seasonality as you look into the March quarter? You know is there anything we should be thinking about?
Chris Caso: with respect to the different customer mix as we go into March.
Speaker Change: Obviously, we don't guide beyond Q4, but it has been seasonally down quarter for a lot of companies. But I don't have a view on what that's going to look like currently.
When those rents start to happen,
Let those products, let them take their own course. Let the members speak for themselves.
Okay, as a follow-up, as you look into next year,
The other part of your enterprise data business on traditional server. You know, that's an area that you guys have been favorable on for a while, but I guess you've been waiting for the market to improve. You know, we heard a little better news from at least one of the CPU vendors this week. Can you give some view of, you know, kind of the share content, you know,
What you're seeing in that part of the enterprise data business as you go into 2025? Yes, those are good questions.
Yes, we do see it, okay, and the volumes start to picking up. And as we said, many
Speaker Change: many years ago.
the VR-14s and okay, we will pick up a share. So that's 13 and a half, okay, by serendipity of a shortages, okay, and then we prove with significant suppliers, okay, in that
And there are four teams.
Speaker Change: He did the rapid sulfide course.
and maybe just beyond just the enterprise data segment itself. As you see those ramp, right, they'll pull through other solutions like DDR5 memory and continue to be a tailwind in some of the other segments as well.
Speaker Change: Thank you.
Our next question is from William Stein of Truist. William, your line is now open.
and and sort of searching for more effective
solutions than what was available in the market. And I understand your focus has been perhaps more in the home automation market more recently. And I wonder if you can talk to us about.
Some things that might be on the come in the next couple of years from the company in that end market.
Yes, okay. As you know, it's an NPS, so that can have a...
Speaker Change: have a
A few thousands of products. We are in lighting, we are in thermostats, and we are in shade controls, and we are in all these fan models, and security, the window actuators.
We're also making MCU mount.
And those MCUs can be a brain of everything, why are we just putting in one box?
And we're putting one box with the software, and we'll sell as a kit.
Everything including, the key is the ease of use. I think this will change the market segment for building automations.
Speaker Change: That's helpful. Maybe as a follow up.
Speaker Change: You know, you mentioned your MCUs now. There's another category that you...
Speaker Change: entered relatively recently. You're not really known for it as much, but data converters. I think you hired a team in that area and you had some very good results for initial product, maybe in the medical end market. Can you talk about traction in that category, please?
We are growing in that segment. The revenue is still small. As you know, these design cycles are very long. And also the product life cycles.
forever. And those segments will be in some industrial site as well as the medical site, okay. And we have more products rolling out, as a matter of fact, in the next couple of years.
Speaker Change: Cut.
We will gain more market shares in the future.
in this segment.
Ross Seymour: Ross Seymour, Deutsche Bank
Ross Seymour: Hi, guys. Thanks for letting me ask a question. I want to go back to the non-enterprise data side. I think by my math, it was up about 35-36% sequentially. I know you guys have a ton of design wins, and you're kind of just waiting for them to ramp, but the magnitude of that ramp, the diversity of it,
and just the commentary that bookings are improving seems to be at odds with the very muted recovery that so many of the peers are seeing. So could you just explain, do you think sickle conditions are getting better or is this a very monolithic power specific dynamic? Any sort of color on that?
I think, Ross, we're experiencing a little bit of both.
Speaker Change: Are you ready? Yes
Is somebody at your house? Can you mute it? Yeah. Yeah. Okay. Can you mute it? Yeah.
Speaker Change: Okay, so Ross, you're asking the difference between growth specific to us and what we're seeing in the market, and in the current quarter, or let me go back, the previous quarter, we actually saw improvements in our ordering patterns.
Speaker Change: But they're not a consistent trend.
Speaker Change: Well, as a matter of fact, we see all cross the board. Yeah. Other than A.I. Yeah. Other than A.I. powers, and all cross the board tonight.
And how are you, I guess as my follow-up, whether it's in the AI side or otherwise, a lot of supply has been added to the market over the last couple years to address shortages, etc. And so a fear people have is that pricing pressure is going to ensue, whether it's, you know, more competition and AI power that you mentioned earlier, or just a more aggregate holistic increase in pricing pressure. Are you guys seeing any evidence of that?
Well, our competitors, also some of the Chinese suppliers, okay, and they always want to lower the price to get in the market, to get in the socket, okay. That's not the game we played.
Speaker Change: So, a lot of
Our customers
Speaker Change: They don't change those sockets.
particular applications. For example, like AI.
and we will provide the values, our value is the highest performance.
So the history is telling us, history showed, and as long as the way we
We're operating on the same principles.
The revenue will keep growing, and growing the same way, and we see a net
Speaker Change: A couple of years, especially next year, we see all these products will grow.
And now we just see the first sign of it, and all these design wings turning into revenue now.
Speaker Change: Thank you.
Speaker Change: Our next question is from Quinn Bolton of Needham. Quinn, your line is now open.
Hey guys, thanks for taking my question. I guess first to start off, I think it was the first time ever in your June 10 Q, you guys disclosed
So, Quinn, what you're referencing is basically revenue exposure by direct customer and indirect.
and when the customer hits a certain threshold according to the SEC guidelines, we need to put a reference to that. But we never put in a name out there. We don't. No, we do not.
Speaker Change: Yes, this time we will still have one customer that is bigger than 10%. Bernie can check the numbers and I'll get there.
Is that about right though? Only two? Yeah, two customers and above.
Speaker Change: above 10%
Okay, and we'll get the messages in the queue. It's one or two. I think it's one or two. Okay, let me check. I believe it's one. Okay, Bernie can check. Okay. No, it's only one. Two would be very big. I don't believe that. We go.
Speaker Change: Okay, the second question is, I know you don't want to guide to 2025 yet. Hold on a second. Tony, could you check that? Yeah, could you check that, is it one or two? I think the second one is less than 4%.
Yes, I'll check it. Give me 10 seconds. I'll get back to you. Yeah. Yeah. So we are okay. This had to be on our record. Okay
And then let's make it clear.
Speaker Change: Go ahead. Okay.
Speaker Change: The streets kind of looking for that business to hit almost 1.1 billion in revenue. And just wondering if, is that, you know, given your crystal ball, is that sort of a reasonable expectation? Do you think that we should be tempering expectations for that segment?
Speaker Change: Given some of the prosperity you've mentioned, or do you want to just kind of keep it one quarter at a time?
Yes, I can tell you.
very confident confidently we will be okay let's say that
And when this market, when this AI market, turned into like a regular server market,
MPS will be a significant player in that and that now
This is, it's not a, became a, um...
What do you call it?
Richter Equilibrium. This is still ramping up.
Speaker Change: And when this segment starts ramping, it's kind of limpy, you don't see this, you can't keep going.
forever like the first two of since the last years and the first in the first couple of
Speaker Change: This quarter, the first couple of quarters in this year, and the next, and the
So to answer your questions, for next year clearly we have a lot more customers. I said earlier that we'll start to ramping those designs, those designs will turn into revenues.
Speaker Change: Michael, just to circle back, relative to DISTE we'll call out two, for DIRECT we'll call out one.
Speaker Change: Okay, that's a direct customer, not a DISC-E? So we'll call it one direct. We'll call out multiple DISC-Es, it's higher than 10%.
Yeah, yeah, right.
This deal will never come to them, okay, because all the reporting, that's in the reporting, all the design creation, all the exposures for the end customer, it's only one. The next one is, I believe, is the left end.
Listen, it's about, definitely below 5%.
Speaker Change: Got it.
Speaker Change: Thank you, Michael. Thank you, Vernon. Okay. Our next question is from Tori Sponberg of Stiefel. Tori, your line is now open.
Enterprise data, you know, this year more than 700 million. I assume the contribution from vertical power is still quite low and if that's the case, as the market does transition to vertical power
you know, could we see this market base basically even accelerate over the next few years?
Absolutely. Yeah. Not in the next few years, next few quarters.
Speaker Change: Yeah.
As we said, we are playing the power market segments since 2017.
Speaker Change: as a speaking.
Now, we are shipping those products.
in good morning.
Speaker Change: Sounds good. Thank you.
Our next question is from Ross Seymour of Deutsche Bank. Ross, your line is now open.
Ross Seymour: Hi guys, let me, thanks for letting me get a little...
Follow-up snuck in here. Inventory. I know, Michael, you and I have laughed about that many times in Cycles in the past. That's my favorite question! There you go. In this instance, internal inventory came down by a lot, days-wise.
Speaker Change: What did external channel inventory do? How are you looking at that? Was some of that 35% sequential growth that I referred to in my initial question, you know, a little bit ago inventory fill or has the channel stayed lean?
Now, the channel is staying lean. In fact, our total days went down in the quarter.
Well, we want to... this is not good. We want to build up.
It's not synced with the market demand.
It's the opposite of a market inventor.
Speaker Change: And now the mockery of being the.
Speaker Change: Gosh, I guess just to clarify, Bernie, when you said total inventory actually went down, you mean just total channel inventory days fell? Oh, yeah, channel inventory, yes. Channel inventory is also low, yeah.
Got it. Okay, that's it. Thanks guys.
This now concludes our Q&A session. I would now like to turn the webinar back over to Bernie.
Bernie Blegen: Thank you. I'd like to thank you all for joining us for this conference call and look forward to talking to you again in our fourth quarter conference call, which is likely to be in early February. Thank you. Have a nice day.