Monolithic Power Systems Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
August 1, 2024

There are 10 speakers on the call.

Operator

Welcome, everyone, to the MPS Second 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 Ballo, Vice President of Finance. Earlier today, along with our earnings announcement, MPS released a 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 within the meaning of the Private Securities Litigation Reform Act of 1995 that involve risks 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 Q2 earnings release and in our 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 Blagen.

Speaker 1

Thanks, Jen. Good afternoon and a big welcome to all of you. Let me open by saying MPS reported yet another record quarter with Q2 twenty twenty four revenue of $507,400,000 exceeding the high end of our guidance. Our strong revenue growth was attributed to 3 factors: increased demand for AI power solutions improving order trends in several of our end markets and lastly, initial revenue ramps associated with design wins secured in past years. Separately, we continue to expand and diversify our global supply chain to ensure supply stability and capture future growth.

Speaker 1

As we have emphasized for many years, our results reflect continued success of our proven long term growth strategy and our transformation from being only a chip supplier to a full solutions provider. I will now open the webinar up for questions.

Operator

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

Speaker 2

Thank you very much, everybody. Good afternoon. Michael Berney, congratulations on, I'll just say, it's nice to have a calm part in the storm relative to what's been what all of us have been dealing with over the last 2 weeks. So congrats. I wanted to ask a couple of questions.

Speaker 2

I imagine the enterprise data segment is going to be a huge focus on this call. So maybe I'll just start with the first question. Bernie, if you could maybe give us some directional color by end market in your guidance for September, I'd appreciate it. And secondly, Michael, if you could talk a little bit about what you're seeing in some of the nonenterprise data segments, things like consumer, comms, auto, there's the model has been driven by this big growth in enterprise data. But from what I can tell, your company's had a lot of design win success in some of these other areas where the macro has really been challenging.

Speaker 2

And I'm wondering if you're starting to see any green shoots there yet for recovery in some of those other segments. Thanks, guys.

Speaker 1

Okay. Sure. I'll keep my comments fairly short as far as the Q3 outlook by end market. Essentially, the bookings trend that we carried into Q3 has improved quite a bit over the last few quarters and has been fairly broad as far as the end market participation. If you look specifically at enterprise data, you'll see that we took a fairly large step up in each of the last two quarters.

Speaker 1

And then in the Q3 outlook, we see continued growth in communications, storage and computing with incremental improvements also in our other groups.

Speaker 3

Yes. Your second question is, as Bertie said it, we do see some of our other business does not relate to AI. And now it's difficult to, to separate the AI non AI. Other business we design, let's say that, okay, we ship these products half a year ago, a year before, we see the market start to waking up. But that's whatever it is, whatever it is.

Speaker 3

Okay. And we do see a lot of new design, new requirement, which is much higher power for especially for communications. And, well, as a matter of fact, as across the board. And these designs are much higher power than the previous versions. And these are all related to the new design related to AI and AI requirements.

Speaker 3

And these design wins, we probably triggered down in that game of 2 or 3 years in terms of revenues.

Speaker 2

Thank you very much guys. I appreciate I asked 2 questions at once. I'll get back in the queue. Thanks.

Operator

Our next question is from Dustin Fowler of Oppenheimer. Dustin, your line is now open.

Speaker 4

Hey, guys. Just a couple of quick questions. So for Power Isolation, I believe you ramp later this year in auto followed by data center next year. I think both markets could be greenfield opportunities in the 100 of 1,000,000 each. Could you just give us a sense of the ramp in both markets, the competitive landscape and maybe any market sizing if you can?

Speaker 1

Dustin, I apologize. This is Bernie. I didn't hear which two markets.

Speaker 4

Sorry. That was auto and data center for power isolation.

Speaker 1

Okay.

Speaker 3

Yeah. We do start to ship in the product for the higher powers and for data centers. And, this is only the beginning. And that's would you say that that's very true? All those are being known.

Speaker 3

And when ADAS became more and more the cars converge into the ADAS, which we believe being 2 or 3 years, all the cars will have that features. And so far, we have designed in all these carmakers, especially in EVs.

Speaker 4

Okay. And I guess as we think about kind of auto this year, I think Street has auto model flat. I guess how realistic is that given the 70% content gains you have with your largest auto customer before power isolation plus the wins with Chinese OEMs. I guess maybe for Bernie, are you modeling auto flat this year? And how should we kind of think about share gains?

Speaker 3

Well, we cannot pick pick that up. You want to pick the models and they gave me and you want to pick them, but I can't give you a model. My accuracy is the plus -12 months. And going forward, we are very confident.

Speaker 1

Yes. I think the near term outlook for automotive remains a little bit fuzzy. And for example, in Q2, we were expecting a nice uplift, which did not occur. And so Michael was correct is that positioning within the next 2, 3 quarters is hard to predict for auto more broadly and EV specifically, but our long term positioning is only getting better with additional design wins. Our

Operator

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

Speaker 5

Great. Thanks for taking my question. Michael, I'm hoping you can linger on that comment you made about solution selling, I think might have been the term used. I think in the past, we've been conditioned to hear about modules versus semis. Can you linger as to what your maybe spend a minute explaining what sorts of products and what end markets and what growth you see coming from that activity?

Speaker 3

I like that question. Yes. Okay. But as we said, we started that journey a long time ago. And at the beginning, maybe I didn't know.

Speaker 3

We didn't know what the hell we were talking about. Okay. But that's the directions. And that's including a part of e commerce. And we sell plug and play solutions.

Speaker 3

So the effort is the journey would be we are known to be a semiconductor company. And yes, we do. We do all that we provide. And when we sell silicon, we're selling actually we're selling solutions. We know all the technical details in terms of how we implement these solutions.

Speaker 3

So my effort is we want to monetize all our knowledges. NPS in the end doesn't make anything. And we are making the money from our knowledge while we just capitalized all the entire our capabilities. And so the journey we started now, we're selling the solutions. It's probably 20, 25 percent of a total NPS total revenue.

Speaker 3

Every piece of silicon we used to be sellers somewhere between a dollar and a 50¢ to a dollar. Some of them, a lot of them even lower for them mass market and which we kind of very little now. So in especially in the in consumer business. And now we're turning to a solution company is still a semiconductor based solutions. We sell those solutions.

Speaker 3

Now particularly as you call it, it's modules. And I don't know what the appropriate word for that. Okay. And so today is a 20, 25, 20 to 25 percent of the total total revenues. MPS module business, excluding AI, we're running a couple of 100 close to $200,000,000 and we're growing every year by more than companies percentage growth.

Speaker 3

And if you look at this way, every chip we sell, all the solution is more than a chip chip price. Okay. And you generate $4, 5, 6, $10 of a content that we can sell. So that's the result of today and we will commit on the on the journeys and the gateway transforming our company to a silicon only to silicon based solution providers.

Speaker 1

And Will, if I could just add 2 comments quickly. The first is, and this is specific to your question, that it's across all of our markets, it primarily focuses on those that have longer design cycles where we can add expertise in designing solution. And the second point is, again, while we are driving a lot higher percentage of our business to the modules or to the more complete solutions, we have the ability like no other company to be able to deliver the type of solution our customer wants, whether it's a die, a chip or some package in between. Yes. And many traditional

Speaker 3

semiconductor companies and okay, they are hard to distinguish whether they are solution providers or selling modules, selling solutions or selling semiconductor only. And that's especially the case. Okay. And apply for for AI powers. And there's a very few company using a silicon based module solution to power up this AI solution or data centers.

Speaker 5

If I can add a follow-up, please. Can you talk about what you're doing in vertical power delivery? I know there's some there's a lot of companies that are claiming to have it or be ramping it. And I know you guys are one of those companies that are, I think, more clearly delivering, but maybe you can talk about what your efforts are yielding in that area? Thank you.

Speaker 3

We are in the leading positions. Okay. I said that. Okay. And there's maybe 1, I will say the 1 or 2 company, maybe 1 company have the capability, have a similar to MPS.

Speaker 3

The market is huge and it's growing. And MPS is the with the leading position is because not by one day. So like a one and that AI happened, we, we, we developed that. We developed it years ago for that. And there's not many semiconductor companies that are based, the semiconductor company have that kind of a capability.

Operator

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

Speaker 6

Hey, guys. Let me offer my congratulations. Maybe just first, Bernie, a quick follow-up on Matt Ramsay's question on the drivers of sequential growth in the Q3. I think you mentioned, comms and storage and computing, but I didn't hear you specifically say enterprise data. And I just wanted to confirm enterprise data is still one of the big growth drivers in the Q3.

Speaker 6

And then I'll get to the two questions.

Speaker 1

On the enterprise data, the way I tried to tee that up, first off, yes, it is expected to grow, but we have grown significantly in each of the 4 prior quarters to this. So the rate of growth is slowing down. And the biggest for this quarter only, and I offer that because there's a lot of opportunities that have yet to begin to ramp with a number of the different companies that we're currently working on designs with. But I was calling out in particular that both storage and computing and consumer or not consumer, communications will be good drivers in Q3.

Speaker 3

Quig, you know the VR 13.5, we start to have a significant revenues. And that was the beginning. You know that. In VR 14 and which hasn't really ramped up yet. And we have a lot of design.

Speaker 3

We increased VR 13.5 is like an NPS is a test case. And so during the shortages, a lot of revenues, a lot of volumes shifted to NPS and other our competitors couldn't deliver. We delivered it and we delivered. And now the benefit for VR14, we will be a significant players in the market segment.

Speaker 1

And particularly in the second half of this year, it looks like that segment is starting to take off.

Speaker 6

Yeah. Great. That was going to be served. I guess my first question was just, could you talk within the enterprise data about some of the opportunities, whether it's on the CPU power side or just broadening out of your AI portfolio? And then I'll have another question on vertical power, if I could squeeze in that second question.

Speaker 3

Go ahead.

Speaker 6

So the question on vertical power, I mean, different competitors may mean different things when they're talking about vertical power. And I just wanted to kind of get your guys' view on the market. When you guys talk about vertical power, is that true vertical power where the voltage regulator is sitting underneath the processor substrate and supplying current vertically into the processor? Or do you guys consider sort of stacked packages where you've got 1 or more voltage regulators or phases in a module with the power inductors and capacitors and other things that might be stacked vertically, but still delivering current laterally into the processor. What's your definition of vertical?

Speaker 6

Because I think there's some confusion in the market, what may be vertical and, what might look vertical, but actually still supply current laterally.

Speaker 3

Yeah, you're right. There's a one is some customers and I can in using the top surface lateral power supply, which is like very similar to server, the server CPU power supply. And other ones turning into the backside, still lateral powers and more advanced one is directly under the CPU. And so to answer that question, there's an MPS supply currently we're running all 3 solutions, chip, all modules. We have everything there.

Speaker 1

And Quinn, if I could also add to this, that the necessity for the different deliveries of power is as you get into increasingly higher current. And in addition to either lateral or vertical power, we also have liquid cooled that we believe that we have a position on.

Speaker 3

Yeah. To to Quina, to answer your question is that the most efficient and difficult to do is you're making a module directly under the CPU. And that's the highest efficiency power delivery. There's a lot of problems and a lot of technical issues associated with that type of approach. So many companies take a conservative approach.

Speaker 3

Some companies just do only like a service and top surface lateral power delivery. And for those very high powers, well over a 1000 watt, all these powers, these the power modules directly under the CPUs. And then these are the highest efficiency.

Speaker 6

Got it. Thank you, Michael. Thank you, Bernie.

Operator

Our next question is from Chris Caso of Wolf. Chris, your line is now open.

Speaker 7

Chris, can you hear us?

Speaker 8

Sorry, I wasn't muted. I'm mute. Can you hear me now?

Speaker 3

Yeah.

Speaker 6

All right.

Speaker 8

Sorry. Thank you. The first question is on seasonality and how that may be changing for you? In the past, the December quarter typically was a seasonally down quarter, but your business mix has changed quite a bit since those days and the revenue is now coming from segments that are not as seasonally not a seasonal December quarter. You know, with that, you know, how should we look at December seasonality going forward?

Speaker 8

Is the old model no longer appropriate as we look forward? And if there's anything you want to comment on with respect to December?

Speaker 3

Yeah. We're seeking advice from you. What's our strategy? With a new business, with all these, inventory, oscillation from our customers. Okay.

Speaker 3

And we don't know. So not gaming. You have a huge shortage, then it comes up the huge oversupplies and again now and again, demands and I assume our customers consumes all these of inventory, now the market is waking up. And is there another shortage? I don't know.

Speaker 3

And that is difficult to forecast and short the lead time is still very short.

Speaker 8

Okay. So we'll do our best. We're not, we're never going to.

Speaker 3

Yeah. Yeah. You can tell us the food. Okay. Okay.

Speaker 6

All right.

Speaker 8

That's fair enough. As my follow-up question, I wanted to follow-up with vertical power as well. And, you know, what we know, particularly within the enterprise segment AI, we've got some, you know, higher wattage processors coming. Can you talk about what you expect for content on that? And what in particular you expect for vertical power next year?

Speaker 8

Because I know there's some debate, certainly

Speaker 3

doesn't seem

Speaker 8

to be debate over whether you're ready for vertical power, whether ecosystem is ready for vertical power. And does that make a difference with regard to your content as you go into the next generation of processors because the voltage is certainly going higher?

Speaker 3

Yes. I can tell you this. Our customers will not be appreciated talking about how many dollar per their unit or GPU unit. Okay. And so they don't want us to talk about it.

Speaker 3

And, second, I don't know. I don't want to know about it.

Speaker 8

Okay. Right. Understand. But I mean, just in terms of the opportunity, maybe you could speak in more general terms about the opportunity that's available to

Speaker 3

you. Oh, sure. Yes. And now you look at our revenues, right? Okay.

Speaker 3

For a couple of companies, okay, and from last year was like a what is so 1% or 2% or maybe last year's couple of percentage of our total revenue. Well, today, so like we're running like a what 20% and 20%. So that's a $400,000,000 $500,000,000 Okay. And we were told this is at the beginning. And there's a lot of other companies that we have our opportunities and then our design wing hasn't really ramped up in in company like Google's and AWS and Meta and those coming later.

Speaker 3

So I see the huge opportunities and I do see this is not MPS only. The market is way too big. We don't want turning to a AI company only.

Speaker 7

Yeah, I think the one thing I'd probably add on top of that besides for the direct AI opportunity, I think you've heard us talk about the AI trickle down effect, whether that can be memory, it can be optical, it could be pull through of networking. I think there's a lot of opportunity for MPS beyond even the direct AI business.

Speaker 3

Comment. Yeah.

Speaker 8

All right. Appreciate those comments. Thank you.

Operator

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

Speaker 9

Yes. Thank you, Michael, Bernie, and congrats again on another stellar quarter. I wanted to follow-up on enterprise data, but I'm going to move away from the process of power management and ask you more about opportunities elsewhere in the data center, especially power supply. I know historically you haven't talked a whole lot about GaN, silicon carbide, but I'm pretty sure you have some activities there. So can you elaborate a little bit on what you're doing on the power supply side of data centers?

Speaker 3

Yeah. I like that one. Okay. I like that one. But I can't tell you the revenue yet, but it's a small.

Speaker 3

Okay. And since 20 16, in the cave, we start to develop our own silicon carbide. We're not selling us fats. It it will be a part of our solutions. I said it very, very early.

Speaker 3

So I'm okay. We're not intend to sell a FET as a as a power device alone. Only to my gut. So now some like a we designed those 3 kilowatts, 6 kilowatts, 12 kilowatts power supply. And guess what?

Speaker 3

It's a data center. It's a debt evaluating. So we have a very little revenues, but the biggest is the NPS only. All our test plot, we're using a huge amount of power supply and MPS is our own customers. All these are testing equipment.

Speaker 3

That way we have to design. We have to invent it how to test these test these modules, particularly and also as well as burning. And MPS supply these power module to our vendors and our vendors implemented into these systems and it became our test equipment. And so that's the revenues we start to generating. But for 4gs and for data centers, and these are still in the well, we engaged in them a year ago or so, a couple of years ago.

Speaker 3

And so the revenue is small, but we're looking for the big revenue from that segment because NPS provides the high state fishing seat and a smaller size.

Speaker 9

Yes, that's great perspective. As my follow-up, I recall because we've gone through a few cycles together, I recall usually you use downturns to gain a lot of share. I know everyone's excited about AI data centers today, but what are some of the areas where you're starting to see more meaningful share gains from a designer perspective, now that we're sort of navigating here at the bottom of the cycle?

Speaker 1

Sure. So I think that we've been very clear about the positioning that we have in automotive and how that's continuing to grow across multitude of different platforms with a multitude of different Tier 1 suppliers and OEMs. I think the most recent area for improvement where some of these greenfield opportunities are becoming more visible in market would be in particular with communications. We're seeing that in the wireless and 5 gs, and I think that we've seen some early indications of continuing investment in that segment. So I'd say that's probably the area that will be most visible.

Speaker 1

But obviously, I don't want to forget industrial, which even though right now is a relatively modest part of our business and has not shown a lot of momentum towards growth, probably is the next area where we have a lot of greenfield opportunities that will materialize in the next four quarters.

Speaker 3

Yes. And go ahead.

Speaker 9

Yes. I was just going to ask, the RV market, is that going to be under auto or industrial?

Speaker 3

RV.

Speaker 9

The RV market, the camping car market. I know you've talked

Speaker 3

about that. Oh, yes. No. Yes. Okay.

Speaker 3

That's one of my favorite ones. Okay. Yeah. Okay. And I think it's a word being in the industry market because share the all these products that share the same signatures as we do for data centers, for our own test product and for test equipment.

Speaker 3

Okay. We share very much the same characteristics and also for robotics. And especially for those moving not stationary robot and these robot move around and that they all need that type of a power supply and the charging and the battery management. And these are share very much the same characteristics as RV. Okay.

Speaker 3

RV is.

Speaker 7

Yeah. Those could be industrial or consumer or even the humanoid stuff too. So I don't think I want to just put those.

Speaker 3

I think as we're probably in the industrial side. Okay. Yeah.

Speaker 9

Sounds good. Thank you and congrats again.

Speaker 1

Okay. Thanks, Troy.

Operator

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

Speaker 6

Hey, guys. Just wanted a quick follow-up question. There have been a few semiconductor companies earnings season that have sort of mentioned having licenses to Huawei being revoked in the quarter and it's raised some questions from investors. I'm just wondering if you guys could address, do you have a license to ship to Huawei? If you did, has it been revoked?

Speaker 6

Is that is there any real exposure at MPS to that customer? It's obviously not impacting your near term outlook. But I figured I'd just ask because we've gotten a number of questions, on potential Huawei exposure across the semi coverage. Thank you.

Speaker 1

Quinn, I can make this pretty simple. We don't have any licensing or contractual arrangements with Huawei that are at all, so they can't be canceled. Any business we have with them has always just done on a PO basis, and we have no indication of a change in their relationship. Yes.

Speaker 6

So, Bernie, I guess there was more of that export license question. Do you need an export license to ship to them? Because I think that's what sort of

Speaker 3

cost Oh, yes,

Speaker 1

of course.

Speaker 3

No, we we our our product to the it's not like under 20, below 24 nanometer or whatever. So that we are not, as far as I know.

Speaker 1

Yeah, you're right.

Speaker 3

And as far as I know, we're not subject to the to the export limit, have any limitations. Okay. And but we'll talk to our to answer your question precisely, I will consult our legal counsels.

Speaker 6

Got it. Okay. Okay. Thank you.

Operator

As there are no further questions, I would now like to turn the webinar back over to Bernie.

Speaker 1

Great. I'd like to thank you all for joining us for this conference call and look forward to talking to you again during our Q3 conference call, which will likely be in late October. Thank you. Have a nice day.

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