Monolithic Power Systems Q4 2022 Earnings Call Transcript

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Provided by Quartr
February 8, 2023

Key Takeaways

  • MPS achieved record 2022 revenue of $1.79 billion, a 48.5% increase over the prior year despite industry-wide supply chain constraints.
  • Broad-based segment growth drove performance, with enterprise data up 116%, storage & computing up 77%, communications up 53%, automotive up 47%, industrial up 19%, and consumer up 13% year over year.
  • New product pipeline includes isolated power modules for >1 kW applications targeting a 2024 revenue ramp and first advanced data converters commercially launched with initial revenues expected in 2023.
  • Near-term demand remains cautious as customer orders stay below historical norms and inventory days rose to 212, exceeding the 180–200-day target.
  • Board approved a 33% increase in the quarterly dividend to $1.00 per share, underscoring confidence in cash flow and long-term growth prospects.
AI Generated. May Contain Errors.
Earnings Conference Call
Monolithic Power Systems Q4 2022
00:00 / 00:00

There are 11 speakers on the call.

Operator

Welcome, everyone, to the MPS 4th Quarter 2022 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 and Bernie Blagan, VP and CFO. In the course of today's conference call, we will make forward looking statements and projections that involve risk and Certainty, which could cause results to differ materially from management's current views and expectations. Please refer to the Safe Harbor statement contained in the earnings release published today.

Operator

Risks, uncertainties and other factors that could cause Actual results to differ are identified in the Safe Harbor statements contained in the Q4 2022 earnings release and in our latest 10 ks and 10 Q filings that can be found on our website. MPS assumes no obligation to update the information provided on today's call. We will be discussing gross margin, operating expense, R and D and SG and A expense, operating income, other income, income before income taxes, net income and earnings on both a GAAP and a non GAAP basis. These non GAAP financial measures are not prepared in accordance with GAAP and should not be considered as a substitute for or Superior 2, Measures of Financial Performance Prepared in Accordance with GAAP. A table that outlines the reconciliation between the non GAAP financial measures GAAP financial measures is included in our Q4 and full year 2022 earnings release, which we have filed with the SEC, and is currently available on our website.

Operator

I'd also like to remind you that today's conference call is being webcast live over the Internet and will be available for replay on our website for 1 year, along with the earnings release filed with the SEC earlier today. Now, I'd like to turn the call over to Bernie Leggen.

Speaker 1

Thanks, Jen.

Speaker 2

For the full year 2022, MPS achieved record revenue of $1,790,000,000 Growing 48.5 percent from the prior year. This is despite industry wide supply chain capacity constraints. This performance represented consistent execution against our strategies and having more Tier 1 customers recognize MPS For Advanced Technologies, product quality and excellent customer support. Here are a few highlights from 2022. We introduced a new product line of isolated power modules for applications exceeding 1 kilowatt with a fully integrated controller, isolator And Power Devices.

Speaker 2

Our initial revenue ramp for this highly integrated and reliable solution is targeted for 2024. These modules are critical building blocks for power management applications for data centers, EVs, plug in traction inverters, EV chargers, Solar power, wind turbines, battery power storage and other industrial applications. Our products are designed to To set the industry standard for these critical system level applications. MPS' 1st advanced data converter products For high precision industrial and medical applications were made commercially available during 2022 and we expect to have an initial revenue ramp in 20 23. We continue to diversify our global footprint with expansion of our R and D centers, Supply chain partnerships and facilities outside of China to better match our resource distribution with our customers' geographic demand profile.

Speaker 2

With our global presence, we believe MPS is in a strong position to support our customers worldwide. Turning to our full year 2022 revenue by market segment compared with 2021. Enterprise data revenue Was up 116.1 percent, storage and computing revenue up 76.8%, Communication revenue up 53.2 Industrial revenue up 18.6% and consumer revenue up 13.2% demonstrating broad based Full year 2022 revenue improvements. Full year 2022 enterprise data revenue grew $135,100,000 over the prior year to $251,400,000 This 116.1% increase is primarily due to higher sales of our Power management solutions for cloud based CPU and GPU server applications. Enterprise data revenue represented 14.0 percent of MPS's total revenue in 2022 compared with 9.6% in 2021.

Speaker 2

Storage and computing revenue for 2022 grew $196,700,000 over the prior year To $452,600,000 This 76.8% increase primarily resulted from strong sales growth for storage applications and enterprise notebooks. Storage and computing revenue represented 25 3% of MTS' total revenue in 2022 compared with 21.2% in 2021. Communications revenue grew $87,400,000 to $251,500,000 This 53.2% improvement reflected higher sales of products for both 5 gs And satellite communications infrastructure applications. Communications revenue represented 14.0% of our 2022 revenue Compared with 13.6 percent in 2021. Automotive revenue grew $95,700,000 To $300,000 in 2022.

Speaker 2

This 46.8% year over year gain primarily represented increased sales Of our highly integrated applications supporting automated driver assistance systems, the digital cockpit and connectivity. Automotive revenue represents 16.7 percent of MTS' full year 2022 revenue compared with 16.9% in 2021. Industrial revenue grew $34,400,000 to $218,200,000 in 2022. This 18.6% year over year increase primarily reflected higher sales in applications for smart meters In Industrial Automation. Industrial revenue represented 12.2% of MPS's full year 2022 revenue compared with 15.3 percent in 2021.

Speaker 2

Consumer revenue grew $37,200,000 to $319,500,000 in 2022. This 13.2% year over year increase primarily reflected increased product sales for Home Appliances and Smart TVs. Consumer revenue represented 17.8% of MPS's full year 2022 revenue compared with 23.4 percent in 2021. Let's talk about the general business conditions. During our Q3 'twenty two earnings call, we highlighted that customers were becoming more concerned with near term business conditions And order patterns might oscillate in the near future.

Speaker 2

As a result of this change in ordering patterns, we indicated that our inventory levels would likely catch up to our target Of 180 to 200 days and possibly be higher in the near term. During the quarter, ordering patterns stabilized as customers Requested push outs customer requested push outs slowed. While this is positive, customers' orders are still trending below Historic norms and our Q4 'twenty two inventory is above our target levels. As a result, we remain cautious about near term business conditions. We also believe MPS can swiftly adapt to market changes as we have done so successfully during similar macroeconomic changes in the past.

Speaker 2

Switching to Q4, MPS had a record 4th quarter with revenue of $460,000,000 down 7.1% from revenue generated in the Q3 of 2022, But up 36.7 percent from the comparable quarter of 2021. On a year over year based comparison By market segment, Q4 2022 revenue for automotive grew 72.8%. Enterprise data revenue increased 69.0 percent, storage and computing revenue grew 55.0 percent, Communications revenue grew 40.1% and industrial revenue grew 13.3%, While consumer revenue decreased 20.1%. Q4 2022 GAAP gross margin was 58.2%, down 50 basis points from Q3 2022, but 60 basis points higher than the Q4 of 2021. Our GAAP operating income was $136,900,000 compared to $151,900,000 Reported in the Q3 of 2022 $78,600,000

Speaker 3

reported in

Speaker 2

the Q4 of 2021. Q4 2022 non GAAP gross margin was 58.5%, 50 basis points below the Q3 of 2022, But 60 basis points higher than the Q4 of 2021. The year over year expansion in 4th quarter non GAAP gross margin was largely due to a shift in sales mix favoring high value greenfield products and operational efficiencies, which more than offset higher product input costs. Our non GAAP operating income was $174,100,000 compared to $193,700,000 Reported in the prior quarter and $102,000,000 reported in the Q4 of 2021. Let's review our operating expenses.

Speaker 2

Our GAAP operating expenses were $130,900,000 in the 4th quarter compared with $139,000,000 In the Q3 of 2022 and $115,300,000 in the Q4 of 2021. Our non GAAP Q4 2022 operating expenses were $94,800,000 down from the $98,400,000 we spent in the Q3 of 2022 And up from the $83,000,000 reported in the Q4 of 2021. On both a GAAP and a non GAAP basis, Q4 2022 litigation expense Was $3,200,000 compared with a $2,100,000 in Q3 2022 and a 400 and $20,000 credit balance in Q4 2021. The Q4 2021 litigation credit For the quarters discussed here are primarily stock compensation expense and income or loss from an unfunded deferred compensation plan. Q4 2022 stock compensation expense, including $1,000,000 charged to cost of goods sold, was $35,300,000 Compared with $43,000,000 recorded in the Q3 of 2022.

Speaker 2

The quarter over quarter change in stock compensation expense reflected the change in plan vesting assumptions. Switching to the bottom line, Q4 2022 GAAP net income was $119,100,000 or $2.45 per fully diluted share, compared with $2.57 per share In the Q3 of $2,023.51 per share in the Q4 of 2021. Q4 2022 non GAAP net income was $154,000,000 or 3 point and $0.17 per fully diluted share compared with $3.53 per share in the Q3 of 2022 And $2.12 per share in the Q4 of 2021. Fully diluted shares outstanding at the end of Q4 2022 were 48,500,000. Now let's look at the balance sheet.

Speaker 2

As of December 31, 2022, cash, cash equivalents and investments totaled $739,600,000 compared to $738,100,000 at the end of the Q3 of 2022. For Q4 of 2022, MPS generated operating cash flow of about $52,200,000 compared with Q3 20 22 operating cash flow consumed of $18,200,000 Q4 2022 capital spending totaled $12,800,000 Accounts receivable ended the Q4 of 2022 at $182,700,000 or 36 days of sales outstanding compared with the $153,400,000 or 28 days of sales outstanding reported At the end of the Q3 of 2022 and the $104,800,000 or 28 days reported At the end of the Q4 of 2021. Our internal inventories at the end of the Q4 of 2022 were $447,300,000 up from $397,400,000 at the end of the Q3 of 2022. Calculated on a basis consistent Our past practice and as you can see on the webinar video, days of inventory rose to 212 days at the end of Q4 2022 From the 167 days at the end of the Q3 of 2022. Historically, we have calculated the days of inventory on hand as a function of Current quarter revenue.

Speaker 2

We believe comparing current inventory levels with the following quarter's revenue provides a better economic match. On this basis, again, you can see days of inventory increased to 214 days at the end of the Q4 of 20 22 from 188 days at the end of the Q3 of 2022. I would now like to turn to our Q1 2023 outlook. We are forecasting Q1 2023 revenue in the range of $440,000,000 to $460,000,000 We also expect the following: GAAP gross margin in the range of 57.4% to 58.0 percent Non GAAP gross margin in the range of 57.7 percent to 58.3 percent. Total stock based compensation expense of $40,200,000 to $42,200,000 including approximately $1,200,000 that would be charged Cost of goods sold.

Speaker 2

GAAP R and D and SG and A expenses, including litigation expenses Between $135,100,000 $139,100,000 non GAAP R and D and SG and A expense to be in the range of $96,100,000 to $98,100,000 This estimate excludes stock compensation expense, but includes litigation expense. Beginning with the Q1 2023 outlook, MPS will no longer separately forecast litigation expenses. Interest income is expected to be in the range from 1 point $2,200,000 before foreign exchange gains or losses and charitable contributions. The non GAAP tax rate For Q1 2023 will be 12.5%. The non GAAP tax rate remains unchanged from 2022 As there have not been any material changes in tax regulations, fully diluted shares to be in the range of 48,200,000 to 49,200,000 shares.

Speaker 2

Finally, I'm pleased to announce a 33% increase in our quarterly dividend To $1 per share from $0.75 per share for stockholders of record as of March 31, 2023. In conclusion, while we remain cautious about near term business conditions, we believe MPS can swiftly adapt to market changes And take advantage of the current environment to focus on business development and investing in infrastructure necessary to support long term growth. I'll now open the webinar

Speaker 1

up for questions.

Operator

Thank you, Bernie. Analysts, I would now like to begin our Q and A session. Our first question is from Quinn Bolton of Needham. Quinn, your line is now open.

Speaker 4

Hey, guys. Congratulations On the strong results and the nice outlook in this environment. I guess I wanted to start Bernie and Michael. The compute Storage business was much stronger than as I expected in the Q4. You grew revenue quarter on quarter when the rest The PC market is clearly experiencing softness and inventory correction.

Speaker 4

So I guess, can you give us sort of your outlook? How do you see that business trending over the next Couple of quarters, and then I've got a follow-up. Thank you.

Speaker 2

Sure. I think that there's been a lot of Press recently around weakness in notebooks as far as unit sales. And in addition, we've started to see some word in here about declines also in the memory market. Interestingly, memory continued to be very strong for us, offsetting a decline in notebooks. And as we look ahead here, we actually see notebooks beginning to improve In the early part of 'twenty three and probably those gains will offset a decline in memory.

Speaker 2

So we're basically looking at this category at least for the first half of the year to be flattish.

Speaker 1

The one component, the AI portions and still remain To be very strong in the near futures and that we see a very high growth.

Speaker 2

Absolutely. In the enterprise data, we've really got good traction with the GPUs for artificial intelligence. And so that should really be one of our growth drivers in the first half of twenty twenty three.

Speaker 4

That was going to be my next Enterprise data was down slightly in the Q4, but it sounds like you see the ramp or just stronger results in the first half driven It sounds like specifically GPUs, is that right?

Speaker 2

Yes. It's related to artificial intelligence. Yes. When we look at CPUs in the enterprise data, there's still initial softness as we're waiting for the Platform launches for both Sapphire Rapids and Genoa to take off.

Speaker 4

Do you expect that in the second half than the CPU to kind of kick in more second half

Speaker 5

of the year?

Speaker 1

Yes.

Speaker 4

Perfect. Thank you.

Operator

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

Speaker 6

Yes. Thank you and congratulations on another record year. Michael, I was hoping you could talk a little bit more about The power isolation module business, they expect to ramp in 2024. Is this still based on the company's BCD technology? Or are you now starting Into some newer technologists, I'm just curious, right, because you haven't talked a whole lot about Potentially getting into silicon carbide or GaN or anything like that.

Speaker 1

Yes. So we do have programs that are going to wire bank materials, okay? And In the past, I think we talked about it and we have a program to make to investigating and developed those devices since 2017. And now we see the first result. And we do have some samples ready, but they're not in a production yet.

Speaker 1

My prediction is that it's somewhere in the middle of the year, okay, or second half of the year. And related to your questions about the isolated modules, when any Higher power, such as traction inverters, solar inverters And data centers, also, chargers, onboard chargers And all these are in the wind turbines. All of these have one basic component In all these very high power applications, which is all the power devices is driven By using the isolated modules and NPS is using again using our own BCD process and as well as our bank and bank GAAP materials. And We combine together and are making a very simple, nice and very easy to use Power modules for those type of applications. Some of these products already in production In EVs currently.

Speaker 1

And things that we expected higher growth In the next couple of years.

Speaker 6

That's very helpful. And as my follow-up, could you just give us an update on The manufacturing footprint, both from a capacity perspective, but more importantly about diversification, You've talked about looking at all sorts of regions to partner with some new manufacturing partners. So yes, both capacity, but then also from a Geographical perspective, perhaps an update, Dave. Thank you.

Speaker 5

Yes.

Speaker 1

We see as everybody else And as you know, the NPS in the past, we always want to be a local In every political regions. And we did that successfully in the R and D side. And because for one thing is close to customers, other ones and other ones we isolated from all these Tensions from between the countries. And for the manufacturing side, currently, We can fulfill all our customer demand to demand for wherever they want to a manufacturer. And we want to by end of the year or by the next By end of the year and next year, we will have fully rent and

Speaker 7

Thanks, Troy.

Operator

Our next question is from Alex Fekke of William Blair. Alex, your line is now open. Our next question is from Matt Ramsay of Cowen. Matt, your line is now open.

Speaker 8

Thank you very much. Good afternoon, guys. Can you hear me okay?

Speaker 1

Yes.

Speaker 8

Hey, Michael. Hey, Bernie. The one question that I wanted to

Speaker 1

ask you

Speaker 8

that we've heard You guys have, I guess, addressed in your prepared script how you're working to move The operations and the manufacturing footprint and other pieces outside of China to in the long term more sort of align with your TAM and revenue mix for the really, really long term of the company, and you've been very clear about those plans. But there's been some more, I I guess acute reports of maybe some customers that want to very quickly use product sources Outside of China, and you'll probably know some of those reports I'm talking about. I guess, have those impacted your revenues at all? Are you seeing any strange behaviors from customers that maybe want to move and source product outside of China more quickly than you're able to? Or are you already sourcing Outside of China to support many of your global customers.

Speaker 8

Thanks.

Speaker 1

Yes. It's a Conception for NPS is where a lot of manufacturers does in China. That's true. And but It's a misconception, Sonaeke. We do in a prior COVID, we do Most of we do at least half of manufacturing and at least we have the capacities It's outside the countries outside China.

Speaker 1

And to answer your question, we have a zero impact And for whoever customers require us to manufacture Outside of China, in the past and the future.

Speaker 8

All right. Thank I wanted to talk a little bit about the consumer business, which is Kind of the maybe the least important strategic segment, but also the most volatile if you look at where, I guess, the numbers came In the Q4, and I guess what I'm wanting to understand a little bit is the philosophy That you guys might have if and when some of those consumer markets and the China market in general recover, are the Are you excited to keep that segment down around 10% of revenue and we'll continue to prioritize everything Or is that a business that you want to serve, Michael, as it potentially rebounds? Thank you.

Speaker 1

Yes. And again, I said that Kim in the past, there's a last year capacity issues constrained the consumer growth. And we do have a lot of opportunity. We just didn't pick it up because of the capacity issues. And In the downturns, in the past, as you know that, again, and we'll be a lot more aggressive In this consumer market segment, because when you react to a price and you react to the opportunity, And how fast you react to the opportunity?

Speaker 1

And within the 6 months, you will see the A big number change in the consumer segment, and that's what we will do.

Speaker 2

And Matt, keep in mind, the resilience of Business model has to do with the diversity of the end markets, the customers, the geographies that we serve. So consumer, while it has dropped to around 10% for the quarter, remains a very important part of that strategy And we'll continue to invest in it.

Operator

Our next question is from Alex Zekky of William Blair. Alex, your line is now open. Hello? Our next question is from Gary Mobley of Wells Fargo. Gary, your line is now open.

Speaker 5

Hey, Michael. Hey, Bernie. Hope all is well, and thanks for taking my question for the first time as a covering analyst. And I related to that, I apologize in advance if I ask an uninformed question here, but the inventory for you guys, that 212 days, that's internal inventory. I believe, however, your sales 83% of your sales roughly go through distribution.

Speaker 5

So maybe if you can give us A view in terms of distribution inventory and did it increase and if so to what extent did it favor revenue?

Speaker 2

Gary, opening up, welcome to the party. This is Gary's first call with us.

Speaker 1

And welcome to the inventory question.

Speaker 2

The inventory question. I thought we finished this question.

Speaker 1

So Gary is okay.

Speaker 2

Okay. Gary is okay. So when I look at the channel inventories From Q4 to Q1 I'm sorry, from Q3 to Q4, they basically stabilized. So we didn't see a significant increase either in terms of dollars or days in the quarter. Likewise, when we talk about Inventory on our balance sheet, and I'll address that as well.

Speaker 2

There's about a 6 month lead time from when we can Slow down wafer starts when you see it on the balance sheet. So, likewise, as we're looking out ahead to Q1, We see both inventory in terms of dollars on our balance sheet as well as in the channel stabilizing. Sell through in the channel remains very good. And then it should normalize in the second half of the year.

Speaker 5

Got it. I apologize if I step

Speaker 1

And it's fair to say, Mackay, in 2019, we delivered Build 200 days plus inventory because we did see all these opportunity. And then now the inventory goes this high because go over 200 days again. And that is because The customers' demand started pushing out. And this is on the high side. And We will we will cautiously reduce it.

Speaker 1

And it's not This is not the same as the 2019.

Speaker 5

Got it. Thank you for that. And I want to ask about contributors to the revenue growth for The fiscal year for the quarter, 48.5% is quite commendable. I was hoping maybe you can deconstruct that between ASP Increases and unit increases and how you see that playing out for fiscal year 'twenty three as well?

Speaker 1

It's very diverse to growth and with a little more aggressive activities in the consumer segment. And this is Different from 2022 or 2021. And everything is the same, so because we are not we don't it's not a one trick Ponies, not a 2 trick pony eaters, okay. We have a multiple product. We have a product like a 5,000, 6000 different products.

Speaker 1

We have a few thousands of customers, large customers, less than biggest customer is less than 4% in a different industry. And with our That's the same way as we do in the last 10, 12 years, and we still

Speaker 2

continue to pass. Clearly, as you look at a business driver in 2022 and as we look ahead, You can also see the impact of selling higher value technologies and higher ASPs that go along with it. So while many companies use this supply demand imbalance as an opportunity to raise prices to their customers, We only had one single digit price increase back in February and all of the other Yes, it is representative of higher ASPs and volume gains.

Speaker 5

Helpful. Thank you, guys.

Operator

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

Speaker 9

Hi, guys. Can you hear me?

Speaker 2

Yes. Just fine.

Speaker 9

Perfect. Well, first, I also want to welcome Gary to the call and thank him so much for being the one asking the inventory questions.

Speaker 1

I still remember it.

Speaker 9

I knew you would. So I had just one question, one follow-up. The question on the near term first You talked a little bit about stabilization in your orders, but said they're still below normal. So any color on that? And then folding another near term follow On the Q1, you said it sounded like storage and computing will be flat, enterprise data will be up a bit.

Speaker 9

If you're flat overall, what's going down sequentially in the

Speaker 2

So, when we look at Q1, And obviously, we've guided down about 2%, which is sort of consistent with seasonal trends. And it's the industrial is likely to come down. And I may have left you with an incorrect impression because enterprise data is likely to go down even though GPU, AI We'll improve. And then on the plus side, the momentum in automotive continues to be very strong.

Speaker 9

And the stabilization color, geographically by end market, the order stuff you said?

Speaker 2

Yes, we're seeing better activity. I think that we commented both in Q3 and repeated it here The customers have gotten a lot more near term focused, and you can point to consumer, you can point to China as being areas that It was very observable. And right now, we're seeing a lot better activity, but it hasn't necessarily into what I'd call a normalized ordering pattern.

Speaker 9

Got it. Thanks for that. And I guess as my longer term follow-up, a question I get a lot from investors is The really impressive growth you guys did in 2022, up about 50% round numbers, that's about 30% Faster than the SIA defined analog category and that delta is kind of 2x what you guys historically And some people are concerned that that's just because of insufficient supply at competition and assume fungibility You guys are just growing because other people can't, or some of your competitors had some product issues that they'll soon rectify. And so Those tailwinds could turn into headwinds this year. I know you're not going to guide for the full year, but are you at all concerned about those two dynamics having Over inflated 2022 and turning into headwinds this year.

Speaker 1

Hey, let me tell those customers tell those not customers, okay, Investors are our customer too, to buy our stocks. And we don't use the pay to pay in the Me Too products. Everything is pretty much single source product and our products are a lot more programmable, A lot more versatile, so like I mean, our customer can configure those products. And yes, of course, we take advantage of it, Okay. In a shortage, our customers can use our product in a multiple way, okay, I mean, A lot of them are software based.

Speaker 1

And now as you know, in the software side, again, it's a lot more sticky. And we will continue to use our technical strengths and to gain market shares, okay. I mean, Headwinds, okay, for those people believe they don't believe that, okay, we have a headwind, okay, and that's fair, But let our number delivered. I can let our past number to show that.

Speaker 5

Thanks, guys.

Operator

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

Speaker 3

Thanks and I'll add my congratulations guys. If I could ask my first question, It's kind of a broad question on your module, just your overall module strategy. I mean, say it doubles this year to sort of 10% or so of revenues. Bernie, I'm sure you'll correct me if that's if I'm off base there. But sort of what's the right contribution long term?

Speaker 3

I mean, Michael, I mean, eventually, do you want sort of everything Move in that direction toward module or is it weighted more to specific end markets? You made a couple of them already. And I'm curious if you can comment on the margin implications as module becomes a bigger contributor. I think in the past you've said this is a 5x Type ASP multiplier, but again, please correct me.

Speaker 2

So I'll give you the numbers correction and Michael will give you the strategic answer. Modules currently are about 5% of our business.

Speaker 1

Yes. And it has doubled. It has doubled Year over year for last 2 years, 3 years or 2 years?

Speaker 5

3 years.

Speaker 1

3 years. Yes. And so It's a significant business now. And eventually, yes, That's what I want to see it. And NPS all going to move into a new type of modules, okay.

Speaker 1

And modules Power module has a bad connotation, I know that. Okay, I mean, a lot of companies in the power module business And those are in the 30% gross margins. And I don't know what's the right word to use it. It is a power modules and a plug in place and okay with the but it's not your old grandpa's, okay, power modules. And again, this is very different.

Speaker 1

Our margin is above corporate average. And some of the solutions are much, much But in the we sell those all well over $100 stuff. And that's kind of a I See as a part of a it's hardware plus service and customers, The users, they don't need to know how does how to use the product or How to you have to have a very deep knowledge how to design a power supply, okay? And they should use very simple solutions Like what we provide, they don't need the headaches to design a power supply. I think that we're going to end it up with NPS or without NPS, it would be that, but NPS want to be a leader in that.

Speaker 2

And I'd like to go back to Rick's earlier question. I would say that back in the day, The single biggest ingredient as far as making a decision for design win had to do with lowest cost. And I think that what our customers are seeing, particularly in the last 3 years, is there are other value drivers Consider as far as time to market, how much design resource they want to be saved from having to do in total cost of ownership. And those are areas that we're able to meet our customers' demand as well, if not better than any other analog or Power provider.

Speaker 1

Yes, I might as well give you examples. And okay, we build our own test equipment, semi equipment, Test equipment and all based on the NPS power modules. And if you buy those kind of power modules, Lincoln's earnings are well over $50 And so that In the semi equipment market segments, that's a perfect thought for that. And these are very high ASP and very much, much, much compact than on the current market.

Speaker 3

Thanks for that color. And it actually leads me to my next question. Appreciate all the color that and you guys have certainly discussed with the power oscillation module. But just Specific to the silicon carbide update, just it sounds like you'll be sampling this year. Should we expect any material contribution From silicon carbide this year, are we kind of looking at 2024?

Speaker 3

And Michael, I mean, we've heard different numbers, but What is the addition of silicon carbide module for traction inverter, etcetera? What does that do to your potential Content per vehicle.

Speaker 1

Our charging inverters and using a silicon carbide, okay, it's not this year. And maybe even if we will see it next year, our silicon carbide devices, okay, we Design our own, we develop our own, again, and We want we'll pick up some market segment that proves our products are reliable first, And that's the first step. To answer your questions, and this year, okay, we And there's no large number building in our revenue stream yet, okay. And so So we don't expect that, but I just approved the technologies now.

Speaker 3

Thanks, Michael. Thanks, Brian.

Operator

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

Speaker 7

Great. Thanks for taking my question. Someone beat me to I'll focus in a little bit different direction in the past. I know a few quarters ago, You talked about a team that you hired to work in the converter area, which is something you're not really that known for, but I think this is also another Big ASP and big growth opportunity for Monolithic. Can you talk about your traction in converters so far and what you Expect to come in the coming

Speaker 1

quarters? Yes, we can. I'm glad to you asked That question is okay. Couple of days ago, I saw an image and We received from our customers and we use our customers use our imaging for the X-ray machines And much better than the prior versions. And So when is we sampled other biotech companies and that they are our product is designing And we will see the revenues probably the small revenue this year's and the next year's.

Speaker 1

This is a slow ramping product, like a very high barrier. And the bottom line is we have the Technologies, and we have a know how to design a very high performance data converter. These are comparable if it's not betters. And We will broaden our product portfolios, okay, and as we And Avisa takes a lot of efforts and a lot of investment. And So far, we built up a pretty good sizable teams.

Speaker 1

And now you will have seen more general product coming In the next couple of quarters.

Speaker 7

Thank you, Michael. Appreciate that. Maybe one other if I can, Something we haven't heard the company speak a whole lot about lately and that's the e commerce effort. Any update on how Your traction is progressing there.

Speaker 1

E commerce. Well, okay, maybe it's not as I want to be okay. And I set my expectation to heights and okay, I think but here is We launched NPS now, Tanook, I mean, actually, I'll take it back. I think it's not as it's true, it's not as I expect more, but there's a lot of resistance. But our modules, a lot of module ramp up.

Speaker 1

It's from the e commerce. And we after like last year, yes, after maybe 13 or 14 or 15 months ago, We launched NPS announced in a remote technical support and that helped a lot And especially our module side, I guess, help our customers Can schedule a meeting online and we can solve their when they log in, we can solve We solved their technical issues. That helped a lot. And I think the most part of the ramp up is from The NPS now from our website. But overall, all things And it will take times, okay.

Speaker 1

And you are talking about engineer change their behaviors, okay, how do you design The product and how you're purchasing the product. And I think as the next 10, 12 years, okay, even not even next five To 10 years for the millenniums to design a power supply And they want to do Google search rather than do the fundamental design, again, in the past 20 years ago, like the last 20 years. And so these are the products designed for that, okay, for easy plug and Play use and easy to use and can buy from the Internet.

Speaker 7

Great. Thank you.

Operator

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

Speaker 10

Yes. Thank The question is about where lead times are right now and the degree Of product shortages, with your inventory up now, has that helped to bring down lead times and alleviate some of the shortages? And if so, has that taken away perhaps some of the incentive for customers to place orders for product They don't need. It's obviously one of the things we worry about as we go through the cycle, interested in your view on that.

Speaker 2

I'd agree that lead times have been coming down. They were up as long combined as much as 26 weeks or 6 months. And they're coming down more slowly than you'd think. So I don't know. Obviously, our customers have changed their ordering behavior.

Speaker 2

And if that could be attributed to the change in lead times or the fact that They have adequate inventory or that they're uncertain about what the next 6 months, I can't really say which is the driver in their decision.

Speaker 1

Got it.

Speaker 10

Okay. As a follow-up, Michael, you mentioned in some earlier remarks plans To be a little more aggressive on consumer business as you go through the year. So, I wonder if you could expand on those comments. Is that Just opportunistic this year, something that you see in the market is that just a function of the diversity of your business model where Some other business is slow, so you can go find business elsewhere. If you could give us some more color on that, please.

Speaker 1

I think you made A very good comment is it is opportunistic, okay. Remember, we How many years ago, Sanjay, we years ago, let's say, and we have More than 50% of our NPS revenues is all from consumer. And these are fast Design cycles and fast revenues and you can cycles product And opportunities. And we have the right product, Right support and right price, and you can move the needle quickly. And Obviously, like in contrary to All the other industrial automotive, cloud computing, these are much longest design cycles, And they are kind of slowing down one segment to the other or relative and it's not as clearly, it's not as in the last couple of years.

Speaker 1

And the consumer is our opportunity, okay, and we know how to do it, okay. And we have the product, And we have the price structures, not as higher as all the other segments, and we will do that.

Speaker 10

If I can just follow on that, does that imply when business improves elsewhere, we've got a better macro And such, some of the product cycles elsewhere with maybe higher margin opportunities develop That you sort of back away from some of that and come back to some of the other segments that have driven growth more recently?

Speaker 1

No. No, it's not. Consumer is always the diversity is always our strategies. And Last couple of years, we didn't grow because of capacity constraints, okay, and we sacrificed on the consumer side.

Operator

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

Speaker 6

Yes. Thank you. I just wanted to come back to the data converter business. So you're obviously getting into the kitchen of 2 400 pound gorillas here. And I think historically, it's been very difficult To crack into this market, you talked about the high barriers to entry.

Speaker 6

And other than the products being high precision, I get that, but is there anything else about your business model That will allow NPS to be successful in this market.

Speaker 1

I think we don't know what is the business model. I think that I know this takes time and the market is large, a few competitors, All these you said is that these are £800, okay? We are we are little hyenas going around. And we have to run fast, okay? And it just take opportunities and, okay, what presents the product And our customers, they do have eyes on different suppliers, okay, I mean, and especially come from last couple of years.

Speaker 1

And it's we have a good hope, but we know this will take a while.

Speaker 6

That's fair. And just lastly, could you give us an update on the timeline for the $3,000,000,000 $4,000,000,000 capacity that you're working on?

Speaker 1

Yes. As I said in

Speaker 9

the

Speaker 1

next couple of years, in the next 2 years, And we're still on it. And we work with our suppliers, okay. And I've just mentioned the consumer business, Okay. And one of the reason is we do have obligations and to fill up these facts And we'll be aggressive in getting these orders to fill the capacities. And you know that's our game in the past.

Speaker 1

We repeatedly and do these I've done these kind of things in several cycles already. And these cycles, I don't see a difference from the last Down terms. And but so for the capacity expansions, we're still intact. And again, we may slow it down a little, but we really have obligations Without fabs, okay.

Speaker 6

Great. Thank you again.

Operator

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

Speaker 4

Great. Thanks for letting me take a quick or ask a quick follow-up. Bernie, I just wanted to ask your sort of thoughts on gross margin. You guided to 58 at the midpoint. It looks like the Street consensus was probably 50 to 100 basis points higher than that Through the year, so as you look at 'twenty three, do you think March is sort of the bottom and margins Can trend higher into the second half of the year or is this push and the ability to be opportunistic in the consumer segment Likely to keep margins flattish in this 58% level through 'twenty three?

Speaker 2

Yes, I'd probably look at it as being flattish for the remainder of 'twenty three. And when you Look at what's taken the margin down, and while you're right, we're down 50 basis points, it's not a significant deflation from the rate that we've been at trending at over the last 2 years. And it's really because we have the additional manufacturing capacity, lower revenue. And As we look at the next two quarters at least, the sales mix is not as desirable.

Speaker 4

Understood. Thank you.

Operator

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

Speaker 9

Hi, guys. Just a quick follow-up on my side on the margin side as well and this time on the OpEx side, you guys did a good job on the OpEx. I know you're putting litigation expense up into regular OpEx, which Thank you for doing that. But just the trend in OpEx throughout the year, last year it grew maybe half the rate of what revenues did. How do we think about this year?

Speaker 2

I think as Michael has expressed here between diversifying our supply chain and continuing to invest in R and D capabilities, that we have some very real opportunities for additional Investment that would show up in growing our operating expenses. Having said that though, there is a fair amount of Uncertainty as far as what the revenue outlook is, and we want to be good financial managers as we go through these market conditions. So I would expect that it's Likely that operating expenses won't grow much more than 50%, 60% of revenue growth in the current year.

Speaker 1

Having said that, in the past 2 years, Now we've reached $2,000,000,000 companies, okay, or 1.8, okay, whatever. 1.8. Yes, 1.8, okay. And Our infrastructures hasn't really grown that much. And Last couple of years, it's difficult to hire people.

Speaker 1

And again, now we have a lot more breathing rooms. Okay. This is the time to build up a company.

Speaker 9

Great. And I guess for a quick follow-up, I just want to revisit one of I think it was the very first question or close to the beginning on the storage and computing strength. I know you said notebook was better than you thought and the memory Storage was weaker and those 2 kind of go the opposite direction in the Q1 then, but those markets in aggregate have been weak across the board for quite Some time. So I'm still a little surprised at the strength in the 4th quarter and the stability in the first. What would you attribute that to?

Speaker 9

Obviously, you're getting the orders, but are Are you guys taking share? Is it the Tier 1 penetration? Is it content? Just any more color on that because it's such a disconnect to the end market in general.

Speaker 1

I think I believe we gained some shares. Absolutely. Yes. We gained some market shares. Great.

Speaker 1

Thank you. Yes. We're a little bit aggressive on that in some low end market.

Speaker 9

Thank you.

Operator

If there are any follow-up questions, please click the raise hand button. As there are no further questions, I would now like to turn the webinar back over to Bernie.

Speaker 2

Great. Thank you very much and for joining us for this conference call. And we'll be talking again here for the Q1 update, Which will likely be in late April. So thank you very much.

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