Monolithic Power Systems Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
May 1, 2024

There are 12 speakers on the call.

Operator

Welcome everyone to the MPS First 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 Blagen, EVP and CFO and Tony Balow, VP of Finance. Earlier today, along with our earnings announcement, MPS released written commentary on the results of our operations. Both of these documents can be found on our website.

Operator

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 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 Q1 earnings release and in our latest SEC filings, including our Form 10 ks, 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.

Speaker 1

Thanks, Jen. We're doing something a little different with today's earnings call. As a detailed recital of performance metrics is included in the company's earnings commentary accompanying the earnings release, I will use this time to provide just a few comments on our Q1, 2024 performance and our outlook before opening the call up to Q and A. Our financial performance improved in the first quarter of 2024 with revenue up both sequentially from Q4 'twenty three and year over year from Q1 'twenty three. Ordering patterns consistently trended upward through the quarter.

Speaker 1

Visibility into the second half of twenty twenty four, however, is limited and many of our customers remain cautious. Despite this uncertainty around the second half of twenty twenty four, customer engagement across all of our end markets remains high and our design win pipeline continues to grow stronger. Additionally, we are continuing to expand our product portfolio and diversify our supply chain globally. We believe both actions position our company for further growth as the market improves. In summary, we saw consistent improvement through the Q1 but we continue to be cautious about the second half of twenty twenty four business conditions.

Speaker 1

Overall, our proven long term growth strategy remains intact and we can swiftly adapt to market changes as they occur. I'll now open the webinar up for questions.

Operator

Thank you, Bernie. Analysts, I would now like to begin our Q and 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 Tore Svanberg of Stifel. Tore, your line is now open.

Speaker 2

Yes, thank you and congratulations on this enviable consistency. I have two questions. My first question is on share gains. And historically, Michael, Monolithic Power tends to really accelerate share gains during downturns And I know there's a lot of focus on enterprise data right now, which is a third of your revenue. But can you maybe call out some other verticals or applications where you are seeing more share gains in the current downturn?

Speaker 3

Clearly, we just went through if we're having out of this downturn. So, like, you you see this, we compare the rest of the industries, like, we like a 10% up. And so that's really a sheer gain. And so in terms of so what's the vertical market is auto is clearly is the one. We won the many sockets in there.

Speaker 3

And NPS is still small compared to all these established our competitors. And other ones, even the servers and the notebooks areas, And these are the ones all gain shares. And the last one is consumer, as we said a year ago or so, we give up some of the shares because the capacity constraints now. So okay, we have a lot more capacity now and you will see some growth in the near futures. And if

Speaker 1

I could add one additional comment there is that we've had a number of greenfield opportunities that have been waiting to launch in the improved micro environment. So in addition to the end markets that Michael just referenced, I think that you'll also see share gains in both communications and industrial.

Speaker 2

Great. Thank you. And for my follow-up question and specifically on Enterprise Data, which is now a 30 year revenues, There's been some chatter lately about lower power management content in next generation AI data centers due to liquid cooling and other techniques to lower overall power. Is this impacting MPS broadly or is this kind of more sort of a very specific use case in the server power management market?

Speaker 3

All these cooling systems, new format or vertical powers and MPS involve all of them. And if they transition to those markets, those systems and NPS in the same games, okay, we will gain and we will grow with it. So, if any other comments, okay? Or Tony, sound okay? Yeah.

Speaker 1

No, I think that

Speaker 4

the point

Speaker 1

that we've demonstrated, particularly with enterprise data, is the ability to leverage up content as we go into higher value technology. For example, the water cooled in vertical represent opportunities, not threats. And if you look down the line, not too far out, we'll also be going into rack power as well.

Speaker 3

Excellent. That's good. That's good. Yeah, good answer.

Speaker 2

Great. Thank you. I'll go back in line. Congrats again.

Speaker 3

Yes. Thank you.

Operator

Our next question is from Quinn Bolton of Needham. Quinn, your line is now open.

Speaker 5

Great. That's all I had my congratulations on very steady performance in a challenging macro environment. I guess I wanted to follow-up on Torey's question on enterprise data. Lots of your competitors making noise about perhaps gaining share at your largest enterprise data customer. And wondering if you could just sort of address your latest thoughts on, you know, competitive landscape in both lateral power and then perhaps looking forward to vertical power?

Speaker 5

And then I've got a follow-up.

Speaker 3

Yeah. As you may remember, 2016, we have a power curve versus the power curve and CPU computing capabilities and versus the power densities. And we projected it for 2018 or 2019 that would be the crossover point that NPS product and for those common footprint and use a driver mouse couldn't fit into the peripheral powers, that's around 700 watts. If you remember that we 2016 we said that. And at that time we projected was a CPU was wrong, is actually turned out to be a GPU.

Speaker 3

But the power is the power, power densities. And but 2018 or 2019 and that's pretty much the peripheral powers that reach the limit. And now from that times, like I mean, and everybody goes to a verticals, like for even higher power AI computations and that can mean in all all all learning. So all of the these powers go to verticals. And peripheral powers that reach the limit.

Speaker 3

And our you I can comment on our competitors. Okay. So far NPS, well as always we want to bring the best technologies. And we are not a champion of volumes, okay? We don't do that, okay?

Speaker 3

I mean, we want to every whatever we do, we do the best and not of volumes that we ship. And so when the market became normalized and became a normal not like the last couple of last year or so And there would be more solution come on board. A lot of our competitors start to copy our product, so be it. That's fine. So okay, we stick our NPS model, we will have

Speaker 1

a very diversified growth. I think it's important to keep in mind, when you look at our history, as Michael just referenced there, that we've always won opportunities due to our innovation. And as we look at the next generation of GPU or TPU or ASIC products that are in this high power end market, we're an enabling technology, meaning that at the front of the design cycle, we're consulted, we're integrated in fact with the development of the next generation of products. So we believe that strategically that yes, there will be competitive influences the market, but we want to continue to position ourselves as the leader.

Speaker 5

Got it. Maybe just a quick follow-up, just any comments you guys have on when you think vertical power may go to volume production? Is that something that happens later in 'twenty four? Is that not in volume until sometime in 2025? And then the follow-up, Bernie, is you look at the consensus estimates, the streets modeled up 9% sequential growth in your December quarter.

Speaker 5

Your typical seasonality, I think, is down 1% to 3%. Wondering if you have any comments as to, that sort of a seasonal pattern out in Q4. I know you're not guiding out that far, but wondering if you could make any comments about that sort of atypical growth.

Speaker 3

Let me answer the first part of it. And the vertical power is happening now. There's a multiple of our customers. They are launching the vertical power now. So like we are shipping those product.

Speaker 1

Yeah. And I'll pick up the second part of your question there is that seasonality, particularly as you're exiting a downturn, is hard to predict. And what we tried to indicate with our prepared comments is that there are signs of optimism from the standpoint of improved ordering patterns. But how that translates into the second half is hard to predict. And so, we have more of a profile of you know, the guide that we've given for Q2.

Speaker 1

But that really as far as the difference between Q3 and Q4, we see them higher than Q2 perhaps, but between the 2 of them flattish. Yeah.

Speaker 3

We see AI, but we still continue to grow and grow very fast rate.

Speaker 5

Great. Thank you.

Operator

Our next question is from Rick Schafer of Oppenheimer. Rick, your line is now open.

Speaker 6

Hi, thanks. I was having trouble with my mute button. I had my congratulations, guys. And I just had a couple of questions. The first one, just since we're talking about power, and I sort of have a pointed one on server CPU power.

Speaker 6

Some of the new X86 platforms that are due out later this year are pushing 500 watts. I mean, is there an expectation? Just like the call you made back in 2016, maybe that was a little premature, but is there expectation that X86 is eventually going to move to 48 volts still? And if so, I guess, where are we in that transition? How far off do you think that is?

Speaker 3

Yeah. Okay. Now since you mentioned 2016, I can go back earlier. So like 2,040, we're not invite. We're outside the door.

Speaker 3

In 2016, we are we can join. We can we're invited as a guest. Okay? And we give us some tokens in the game and so you can play it. Okay?

Speaker 3

And so the transitions and from VR 13, 13.5 to 14. Then this this type this time when these new new CPU powers, we have a significant market shares. That will keep and it's not reflected into revenue yet. And once those CPU release, we will gain significant amount of shares.

Speaker 6

And any comment, Michael, on the transition to 48 volt power for X86?

Speaker 3

That we don't know that probably and the higher powers is over 700 watt. I think those will transition to vertical powers and which were ready And other ones below that, we believe are still using traditional rack powers and use a 12 volt supply.

Speaker 6

Got it. Thanks. And just as a follow-up, shifting gears a little bit to auto, I was just curious what your expectations are for your auto business this year. Obviously, that market is under a little bit of a pressure near term, but I believe you guys have been pretty open about some of your material share gains, for instance, with China within China ADAS, also with some of your top auto while your top auto customer, you've also got some pretty significant share gains, I believe, ramping later this year. But I was curious if you could provide any update there?

Speaker 3

We saw yes. Go ahead. And

Speaker 6

then I just was curious if you could add in there what your expectations are from I know you had a couple of launches that some OEMs delayed in the second half last year, and I didn't know if you still expected to benefit from those this year. I know that's kind of a lot in question, but there's a lot going on in your auto business. Yes, certainly.

Speaker 3

We actually care less what the share gain, what the revenue expectations, of course, where to prepare all the inventories in our game. And that's the only thing we care. Whatever it is, whatever it is, okay? We want to do if we're not the if we're not the best, we we will not win those market segments. Okay?

Speaker 3

And particularly, these are new applications and a new new features. So far, we can tell, we can tell you is an okay and in in this year's or end of the last year's and the Chinese EV makers, they produce a lot more. And with those features that we are we are in, they export it in not to US but to other possible world. They increase somewhere 5 to 6000000 units, okay, 1,000,000 cars. And that's where we see the upside so far.

Operator

Our next question is from Ross Seymore of Deutsche Bank. Ross, your line is now open.

Speaker 7

Hi. I'll echo the congratulations on the stability. Just a question on the visibility into the second half. I understand the caution, especially given everything going out in the broader market, but you also said that your bookings are improving, the order rates, the engagements, etcetera, etcetera. So is the visibility improving?

Speaker 7

It's just not as good as it used to be. I'm just trying to reconcile the booking side improving, but the visibility not.

Speaker 1

Sure, Ross. If we can kind of reflect that, over the course of about the last 6 quarters, ordering patterns have been well below whatever we call normal. And when we're seeing improvement, doesn't mean that we're seeing that they've necessarily stabilized or that they're as predictive as when you have like 5 or 6 consecutive quarters of strong ordering patterns. So all we're trying to do right now is remain cautiously optimistic.

Speaker 4

And hey, Ross, it's Tony. The only thing I'd probably add on that, right, is really focused on the design win engagement, making sure that pipeline is healthy because it's difficult to call when the market would come back. As Bernie said, it's still pretty choppy. But if we have that strong design win pipeline as well as having the supply chain

Speaker 7

a nearer term question for you. Any outliers in the growth that you're guiding to in the Q2 by end market segments, you know, any versus the 7% total?

Speaker 3

No, I Outliers means like the AI stuff. Yeah. Yeah. As I said earlier, so we still see a lot of growth. Okay.

Speaker 3

I mean, we are getting try to get all the inventory ready, okay, start to go even further, okay, And I even have a lot more upside.

Speaker 1

Yes. If I look sequentially between Q2 and Q1, we do see the continuing demand profile for enterprise data and I think we see also some contribution from automotive, but the rest of our end markets are pretty flattish.

Speaker 8

Thank you.

Speaker 3

Okay.

Operator

Our next question is from William Stein of Truist. William, your line is now open.

Speaker 9

Great. Can you hear me?

Speaker 3

Yeah.

Speaker 9

Great. Thanks for question. Congrats on the good results and thanks for the change in format. It's a breath of fresh air.

Speaker 3

Yeah, at least you appreciate it. We try to make it life and make it easy for you.

Speaker 9

Thank you. I'm hoping you can update us on the progress you've pursued to try to diversify your manufacturing geographic footprint and both on the front end and back end? And then I have a follow-up please.

Speaker 4

Yeah, I'll start and then I'll let Michael and Bernie pick up. So I think we continue to make progress on diversification of our supply chain globally. And so, I think that is proceeding as planned. And I think that we're set as customers would ask for that capability that we have it ready for them right now. So, I think based on what we said in the past, I would say no change in the expectation there.

Speaker 4

So Bernie, Michael, anything you want to add?

Speaker 3

Yes. We build all these capacities our customer demands, okay? There's a few of them and they really demand a lot outside of China. So we have more capacity. So that's the comment.

Speaker 3

Okay.

Speaker 9

Okay. Let me try a different topic. Some product types that I know have been ramping maybe over a long period of time. 1 is converter data converters, which is a category. There's I think there's really one very dominant, supplier, but you guys have, started to get into that area.

Speaker 9

And then the other is the modules that you make when when these are, you know, much more complex, you know, and they have many, many chips, I think, in each one. If you can talk to us about the recent growth in those newer categories, that would be helpful color. Thank you.

Speaker 3

Yeah. Okay. Let me answer the first one. The data converters, like data converters, it's a technology that we're talking about and like we we developed in the last few years and we won't design wing. We start to shipping products like I mean and but as however, it's only 1 or 2 products.

Speaker 3

Okay? Now we're going to release a family of a product in less than a year. Less than a year of time. That will meet a more general market. The other topic that when you're talking about, oh, these are modules.

Speaker 3

I can yeah. So called ecommerce modules in that case. And, we actually doing well. So not exactly the e commerce we talked about at 2018. And it's going over well over $100,000,000 Okay?

Speaker 3

I mean, but these multi chip modules are more than $100,000,000 Actually, all these AI product that we're shipping, these are all modules. And, vertical powers and, also the rack powers, we're shipping all these modules. So in the past, I've said, and I'm sick and tired of selling silicon only. I want to leverage our leverage and monetize our know how. We'll sell these power modules, sell solutions.

Speaker 1

And I think that we've sort of hit on one of the strategic differentiators between MPS and a lot of our competitors is that we can offer the most flexible architecture of whether it is delivering a module or a silicon die. So however the customer wants to build our silicon or modules in their end application, we have the flexibility to do just that. Thanks,

Operator

guys. Our next question is from Matt Ramsay of Cowen. Matt, your line is now open.

Speaker 8

Hey, guys. Good afternoon. I guess as my first question, guys, I wanted you to maybe talk a little bit about the content per socket progression that you see for the company in the AI business, in particular, as, your silicon providers that are driving these platforms make, generational transitions. I think there's a little bit of confusion that the big primary guy in AI is not just launching one product, but they're launching 3 different ones, that I expect to have slightly different content. And you obviously have other customers there in AI, not just NVIDIA, but others.

Speaker 8

So if you could talk generally, Michael, about just what you're seeing from a content perspective, generation to generation there? And maybe Bernie, what are the variables on sort of blended content increases that you might see as we move forward? Thanks.

Speaker 3

Yeah. But I can't talk about the well, I don't know we don't know how our customers and these are AI GPU providers, how they use it. Okay. I mean, they sell they have a different model. They have a different model.

Speaker 3

They have a different they have a variety of a product. We as as long as we know something, we they use some they use IC in general for peripheral powers and verticals is all more than 700 watt power, so over 1,000 watt power. So these are from modules. And how many modules per CPUs? We have rough ideas, but we don't know exactly.

Speaker 1

Yeah. And to follow-up on your second point, it's a very content rich environment for us. It also includes memory, for example, and the CPU processor in addition Oh,

Speaker 3

even optical. And optical as well.

Speaker 1

So, you know, I think it's really too early to put limits on content availability. In fact, we're finding new areas in order to deploy.

Speaker 3

And so far, we just want to handle the growth. Yeah. All the demand from a memory side, from opticals, from even the GPU, CPU powers. And this period is really the growth period.

Speaker 8

Got it. No, thank you guys. That's helpful. I know there's a lot of moving parts. I was going to kind of step back and ask a little bit about gross margin trajectory.

Speaker 8

It comes up a lot in my conversations. I know you're kind of in that 55 range. I guess, Bernie, what are the puts and takes here? I know there are big customers ramping in enterprise data and there are variables around that. There's also mix between your segments and where you're sourcing supply from.

Speaker 8

There's a lot of variables here. So what would I mean, are we kind of at a relative floor in the 55 or slightly above range? And what would be the variables that could drive the margin back higher?

Speaker 1

Sure. This is a pretty simple question. So, as you know, the range that we target is between 55% 60%. We demonstrated that during the post pandemic stimulus that our margin was able to go to the higher end of that limit. And right now for the last couple of quarters as well as our guidance here, we've maintained a non GAAP rate of 55.7 and really what will enable us to go up is a change in the mix of business.

Speaker 6

All right.

Speaker 8

Thank you very much guys.

Operator

Yes. Our next question is from Gary Mobley of Wells Fargo. Gary, your line is now open.

Speaker 10

Hey, guys. Congrats and thank you for consistently seeing the expectation. Most of the interesting questions have been asked and answered, but I wanted to touch on pricing trends. I know you don't overlap a whole lot with the analog chip market leader, but clearly they're being aggressive on price. So maybe if you can speak to the different product groups or business segments that might be affected by that and as well just generally speak about the pricing environment for your broad set of products.

Speaker 3

Tony, you want to? Yes, I'll start

Speaker 4

and then let Bernie jump in, right? I think what you've heard from us in the past is that for us, we lead on innovation and we're trying to work on the next generation platforms and work on where we really have a differentiated advantage to our technology. We're probably less susceptible to pricing and some of the segments that are volume related or might be more mainstream. So I do know there's lots of reports out there about pricing right now, but I'd say right now that's not impacting us in a way that's not so not impacting us in any way and you can kind of see that in our outlook. And so, Bert, I will add some more on that.

Speaker 1

Yes. And fundamentally, part of the issue that's driving prices, both additional capacity in China as well as additional capacity that's coming on with a large North American company. And on the cost side, we've always been very, very competitive regardless of the end market opportunity. And the cost of the regardless of what the margin is, we always

Speaker 3

have to go we always drive the cost down. Yeah. Yeah. Oh, I should give you I should give you more than you you you asked. Okay.

Speaker 3

And it's a little bit of former futures. And so far, nobody asked the question yet. We saw in the near term market in the next couple of years, the AI truly trickle downs to all applications, not only in the cars, in all the sensors, all these in the building for the phones, and all kind of things trickle down to a different levels. And we see now all kind of activities is going on now. And we there's a lot of design at this initial phase of and of to forming the product ideas.

Speaker 3

And these are requested from our customers. And we don't see that in the end of the last year, even even in the beginning of beginning of this year. Recently, we see a lot more. So that will drive those product definitely will drive the gross margin up.

Speaker 10

Okay. Thank you for that comprehensive answer. Last quarter, your distribution inventory, I think you characterized it.

Speaker 7

Who owns it?

Speaker 10

I think you characterized the distribution inventory as being a little bit above the target level. What is it now? Have you been able to work that down to more of a normalized level?

Speaker 1

Sure. So there's sort of 2 ways to look at our channel inventory right now. If you keep it narrow to really the AI supply chain, we're trying to keep that elevated so that the inventory is basically available on demand. But then with regard to all of the other end markets, we've seen it coming down nicely. Thank you.

Operator

Our next question is from Tore Svanberg of Stifel. Tore, your line is now open.

Speaker 2

Yes, thank you. I just had 2 quick follow ups. I'm intrigued by the consumer segment, Michael. I know that's surprising when everyone's talking about AI. But I think this is the lowest percentage it's ever been.

Speaker 2

But you did talk about getting some share there in the downturn. So any particular applications that we should keep an eye on as you start to grow back in the consumer area?

Speaker 3

Yes. Okay. That's a good question. Good question, Sumit. I mean, yes, that's I said earlier that's so fell into unhealthy percentage.

Speaker 3

We want to have a diverse fire growth. Okay? We neglected our consumers. Okay? But on the other hand, is during this period, a lot of our competitor care less about cost and okay, we have a less effect, but we did lower the price in the notebook market segment.

Speaker 3

And that's probably you see it now. We grow the notebook revenues faster than notebook market growth. And these are low margin products, okay? But we're looking forward, audio product, a lot of those relate to a consumer product. Maybe Tony, you can mention about, okay, you can talk about

Speaker 4

this. I'll go and then Michael can certainly talk a lot more, but I'd point you back to what we announced last quarter on our XSign acquisition and we really looked at their technology and saw an opportunity to participate in the high end audio market. And MPS's scale and X Science Technology really offered an opportunity to go after customers and we're seeing some traction in that area. So consumers got a wide base of potential applications and I think we'll continue to pick our shots where we can sort of really add value with our innovation.

Speaker 3

Yes. I can tell you, we will start to ship in Q3, but Exxiom and MPS together as a bundle.

Speaker 2

Yes, that's exciting. And my last question is on communications. It was actually up sequentially this quarter. Everything that we're hearing, of course, is that, that market is still very weak. In your prepared remarks, you said that, that growth was driven by networks.

Speaker 2

So can you elaborate a little bit what's going on there? Are you actually starting to see that market turning or is this just pure share gains?

Speaker 1

It remains a flattish market. I think that in quarter by quarter we're going to see infrastructure go up or down But the full year outlook is that it'll probably be flat with 23.

Speaker 3

Sounds good. Thank you. I'm betting on the communication market. It will trickle down from the end of the speed and the domain of a higher speed will trickle down all these segments. And we have a lot of design wins in the 5 gs or using other high speed or the Wi Fi.

Speaker 3

And we're we're we're ready for for that. So so Michael, what

Speaker 2

you mean is AI will trickle down. And as that happens, the comm sector will revive?

Speaker 3

That's right. Yeah. It has to. That's that's a no brainer.

Speaker 2

Okay. Great. Love the color. Thank you.

Operator

Yeah. Our last question is from Melissa Fairbanks of Raymond James. Melissa, your line is now open.

Speaker 11

Hey, guys. Michael, I love a no brainer.

Speaker 9

I mean,

Speaker 3

I love that. Yeah. I don't need my brain to talk about it.

Speaker 11

I'm adjusting my model accordingly. So I know you guys addressed auto earlier and I know everyone is focused on enterprise data, but I would like to understand better. We're coming up on the model year builds, you know, for like model year 2025. I would like to know where you feel comfortable guiding the auto revenue from here?

Speaker 1

Yes. So, let me take that one. A lot of the exposure we have with new content is with the EV companies. And so Michael touched on the opportunity particularly as it relates to Chinese OEMs where we have good installed base particularly as it relates to ADAS or autonomous driving. And those tend not to be as seasonally driven as the internal combustion.

Speaker 1

So while we're seeing some sequential improvement quarter by quarter during the year, we don't necessarily we're not looking for that hockey stick that used to occur automotive sales in Q3.

Speaker 11

Okay. Okay. Got it. Thank you very much, guys.

Speaker 3

All right. Thank you.

Operator

I would now like to turn the webinar back over to Bernie.

Speaker 1

So I'd like to thank you all for joining us on this

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