Monolithic Power Systems, Inc.

Welcome everyone to the MPS first quarter 2022 earnings webinar. Please note that this webinar is being recorded and will be archived for one year on our investor relations page at .monolithicpower.com. 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 Blagen, VP and CFO. In the course of today's conference call, we will make forward-looking statements and projections that involve risk and uncertainty, which could cause results to differ materially from management's current views and expectations. Please refer to the Safe Harbor Statement containing the earnings release published today. Risks, uncertainties, and other factors that could cause actual results to differ are identified in the Safe Harbor Statements contained in the Q1 earnings release and in our SEC filings, including our Form 10K filed on February 25, 2022, which is accessible through our website. MPS assumes no obligation to update the information provided on today's call. We will be discussing gross margin, operating expense, R&D and SG&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 to measures of financial performance prepared in accordance with GAAP. A table that outlines the reconciliation between the non-GAAP financial measures to GAAP financial measures is included in our Q1 2022 earnings release, which we have furnished to the SCE and is currently available on our website. 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 one year, along with the earnings release filed with the SEC earlier today. Now I'd like to turn the call over to Bernie.

Thanks, Jen. MPS posted record first quarter revenue of $377.7 million, .4% higher than the first quarter of 2021. The year over year revenue increase represented strength in the overall market and, more importantly, broad-based market share gains resulting from customer acceptance of our new product introductions. Before looking at our revenue by market, I would like to call to your attention a change in our reporting. In order to provide increased visibility on data center and cloud computing revenue, we broke reporting for computer and storage into two separate line items. The table has been included in this webinar showing the company's quarterly revenue on this basis since 2017. The first line item is called storage and computing, which primarily refers to total storage and client computing revenue. The second line item is called enterprise data, which captures revenue from data center and cloud computing. In our storage and computing market, first quarter 2022 revenue of $96.6 million increased $18.6 million or .9% from the fourth quarter of 2021, due primarily to higher storage and commercial notebook sales. Storage and computing revenue represented .6% of MPS's first quarter 2022 revenue compared to .2% in the first quarter of 2021. In our enterprise data market, first quarter 2022 revenue of $42.5 million increased .0% in the fourth quarter of 2021, due primarily to continuing strength in data center and workstation computing sales. Enterprise data revenue represented .3% of MPS's first quarter 2022 revenue compared with .4% in the first quarter of 2021. First quarter 2022 communications revenue of $55.6 million rose $9.7 million or .1% from the fourth quarter of 2021. The quarter over quarter increase primarily reflected higher revenue related to 5G buildouts and satellite communications. Communications revenue represented .7% of MPS's first quarter 2022 revenue compared to .2% in the first quarter of 2021. First quarter 2022 revenue from consumer markets of $80.0 million increased .69% or .6% from the fourth quarter of 2021. This sequential quarterly improvement, this sequential revenue increase reflected a broad-based increase particularly related to our IoT business. Consumer revenue represented .2% of our Q1 revenue compared with a .0% contribution in the first quarter of 2021. First quarter 2022 automotive revenue of $54.5 million decreased .2% from the fourth quarter of 2021. Automotive revenue represented .4% of MPS's first quarter 2022 revenue compared with .6% in the previous year. In our industrial market revenue of $48.5 million was essentially flat with revenue recorded in the fourth quarter of 2021. Industrial revenue represented .8% of our first quarter revenue compared with .6% in the prior year. Moving now to a few comments on gross margin. Gap gross margin was 57.9%, 30 basis points higher than the fourth quarter of 2021 and 250 basis points higher than the first quarter of 2021. Our gap operating income was $96.1 million compared with $78.6 million reported in the fourth quarter of 2021. For the first quarter of 2022, non-gap gross margin was 58.3%, 40 basis points better than the fourth quarter of 2021 and 250 basis points better than the first quarter of 2021. Our non-gap operating income was $133.6 million compared to $112.0 million reported in the fourth quarter of 2021. On both a gap and a non-gap basis, the sequential quarterly gross margin improvement was primarily due to a better product mix as revenue from higher value new product introductions or ramping. Let's review our operating expenses. Our gap operating expenses were $122.7 million in the first quarter of 2022 compared with $115.3 million in the fourth quarter of 2021. Our non-gap first quarter 2022 operating expenses were $86.6 million up from the $83.0 million reported in the fourth quarter of 2021. The differences between non-gap operating expenses and gap operating expenses for the quarters discussed here are stock compensation expense, amortization of purchased intangibles, and income or loss in unfunded deferred compensation plan. For the first quarter of 2022, stock compensation expense, including approximately $1.3 million charged to cost of goods sold, was $39.8 million compared with $31.2 million reported in the fourth quarter of 2021. Switching to the bottom line. First quarter 2022 gap net income was $79.6 million or $1.65 per fully included share compared with $72.7 million or $1.51 per share in the fourth quarter of 2021. First quarter 2022 non-gap net income was $118.3 million or $2.45 per fully included share compared with $102.1 million or $2.12 per fully included share in the fourth quarter of 2021. A leading learning share is outstanding at the end of Q1 2022 or 48.2. Let's look at the balance sheet. Cash cash flow limits and investments were $775.9 million at the end of Q1 2022 compared to $727.5 million at the end of Q4 2021. For the quarter, MPS generated operating cash flow of about $107.4 million compared with operating cash flow of $28.2 million in the fourth quarter of 2021. First quarter 2022 capital spending totaled $26.5 million. The accounts receivable ended the first quarter of 2022 at $120.3 million to 29 days of sales outstanding, up one day from 28 days at the end of the fourth quarter of 2021. Our internal inventories at the end of the first quarter of 2022 were $311.0 million, up from a $259.4 million at the end of the fourth quarter of 2021. Days in inventory increased to 178 days at the end of Q1 2022 compared with 166 days at the end of the fourth quarter of 2021. The story from the calculated days in inventory on hand is a function of the current quarter revenue. We believe comparing current inventory levels with the following quarters projected revenue provides a better economic match. On this basis, again, as you can see, days in inventory increased to 159 days at the end of the first quarter of 2022, up from 149 days at the end of the fourth quarter of 2021. I would now like to turn to our outlook in the second quarter of 2022. We are forecasting Q2 revenue in the range of $420 to $440 million. We also expect the following. Gap gross margin in the range of .4% to 59.0%. Non-gap gross margin in the range of .7% to 59.3%. Gap R&D and SG&A expenses between $132.7 million and $136.7 million. Non-gap R&D and SG&A expenses to be in the range of $90.0 million to $92.0 million. This estimate excluded stock compensation and mitigation expenses. Those stock-based compensation expense of $44.2 million to $46.2 million, including approximately $1.5 million that would be charged to cost of good soil. Mitigation expenses ranging between $2.3 million and $2.7 million. Interest and unincome is expected to range from $1.3 million to $1.7 million before foreign exchange gains or losses. Fully-delivered shares to be in the range of $47.8 to $48.8 million shares. In conclusion, we will continue to execute our long-term plan for sustainable growth. I will now open the webinar up for questions.

Thank you, Bernie. Analysts, I would now like to begin our Q&A session. As a reminder, if you would 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 Ross Seymour of Deutsche Bank. Ross, your line is now open.

Janet, if Ross is not there, perhaps we can move on.

Our next question is from Alex Vecchi of William Blair. Alex, your line is now open.

Hey, everyone. Congratulations on a great quarter in a tough environment. Maybe you can address a little bit the supply constraints and some of the China COVID impact. It seems like you guys came out from that completely unscathed. Be interested in some of the dynamics that have allowed you to do that.

Well, Alex, we plan this kind of ramp, not from last year, not from this year, last year, many years ago. And you remember in 2017, even 60, we said that we're going to have a lot of greenfield products will grow. And exactly we don't know, plus or minus a year or so. And so we plan a lot of every aspect, including logistics and staff, assembly house and our internal testing. And this is not a one year thing. So we planned a long time ago. And now, when the revenues rent is a little better than we anticipated. And so that's where you see the result.

And if I can add to that, we've also built inventories so that 178 days, just at the lower end of our goal of being between 180 and 200 days, which provides us a good insurance policy as we look ahead to achieving our numbers for the second half

of the year. Yeah, even the end of the second half of 2019, the business is not as great. But we built according to our plan and we know the business will come. At the time, I remember our inventory is over 200 days. And that part of it, inventories of them made our customers feel a lot more reliable, NPS as a major player.

That's really helpful. Thank you. And then maybe one for you, Bernie, just on gross margin. Margins have been very strong as of late. You've alluded to product mix. Just on that front, how much more runway do you think you have on the gross margin front from the uplift on sort of your new products going forward?

Sure, as you've seen, both in the results that we had for Q1 along with our guidance for Q2, which positions us around 59% gross margin. I think we've done a fair job of digesting the incorrect word, but acknowledging the uplift in the margins as a result of our product mix. So again, I'll give the same answer I did last time that we believe that we created a new floor on gross margins, which we can expand 10 to 20 basis points sequentially. But again, if opportunistically we see a back set, which allows us to take it up another, we'll be happy to take that. I want to emphasize that while most of our peer companies have benefited both in terms of revenue growth and margin expansion from price increases, ours has been driven primarily by the change in the revenue mix, which is favoring these higher value products. And it was only in February of this year that we did a broad-based increase of our prices, but that was still far below what the market has seen. Just pass

on the course to our customers. And as the margin expansion for our case, we said earlier, we said in 2017 or 2018, we don't have a headwinds. And by 2019, the market slows down a little bit and we build up a lot of some amortizations in production pipeline. So our margin went slightly lower, but it's not much lower. And now you see these margins continue to grow.

That's helpful. With that, I'll go back into queue.

Our next question is from Matt Ramsey of Cohen. Matt, your line is now open.

Thank you very much. Good afternoon, everybody. Can you guys hear me all right? Yes. Hey, Michael, I guess for either one of you guys, it was interesting that you're breaking out sort of the data center piece from the PC and storage business. And I guess I wonder a couple things about that, like what maybe you guys are trying to signal by breaking those out separately. In particular, the new enterprise data segment is up 160% year over year, but that's really before the two primary server processor vendors launch with new sockets this year. So, Michael, could you maybe talk a little bit about the reason for breaking that out and the relative growth rates you guys expect of these two new segments as we go forward? Thanks.

Yeah, if you combine them, okay, if you combine all together, it's a kind of a we're going to answer in the past, we answer those questions anyway. And but we when we report it, so one month, some numbers. And so we just more more more clear and publish out that you guys know it. Okay. Have a less, less meaningful, less meaningful questions. And the pony watch and share any other reasons. Okay,

I think that you did a good job of saying that this is clearly an inflection point for us in question here, which will gain momentum, as we see both Intel and AMD are positions for product releases coming up here. So, that in addition to the expanding footprint we have both 48 volt and artificial intelligence. We believe that this will be one of our areas for sustainable growth for certainly the next three to five years. And exactly as Michael said, we believe that providing better transparency is definitely better information for investors.

No, thanks. Thanks to you both for that that that's helpful. I guess if you look at the second quarter guidance that you provided 430 million at the midpoint was was quite a bit above. Work consensus was and certainly where my model was. Bernie, if you might take a second to walk us through by segment how you're thinking about the growth being concentrated that would be really helpful. Thanks, guys.

Yeah, I think that the dollar percent basis, we're going to see an accelerating ramp in enterprise, typically during the second half of the year. I think we're going to see continued growth in our storage and computing, albeit probably not at the same rate. Part of the reason for that is that storage tends to be a precursor, at least in our experience, to a data center ramp. So I think in each of the two prior quarters, we've seen a good strong ramp in storage, and now we're expecting two three quarters in the data center. In the rest of the business, communications, as we said, we've broadened into not only 5G, but also into satellite communications, and that's going to continue to be a driver for the foreseeable future. In the other areas, obviously, consumer that is coming along, we emphasize the Internet of Things, but we actually, the growth there is broad based.

All right. Thanks very much,

guys. Thank

you.

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

Hey guys, let me offer my congratulations as well. I wanted to come back to Alex's question about China. Obviously, you sourced most of your assembly and wafer capacity in China, and I just, given the zero COVID policy in China and some of the resulting lockdowns, are you rethinking the need to diversify outside of China, either on the assembly and test or assembly and wafer foundry side? And then, I guess, a related question, I think most of your final test takes place in Chengdu. Have you any contingency plans in place in case Chengdu is put under lockdown due to COVID?

Yeah, we started a couple years ago. We already started doing so. And as you know, China's manufacturing in Asia is the center of the world, and we can't deviate too much about it. I mean, if they have serious problems, I think everybody worry about even bigger things. Yes, the answer is yes. We already started establishing in a different political environment.

And Chengdu, Michael, do you have test capacity outside of Chengdu if Chengdu goes under lockdown?

Yes, we started about a couple years ago, but maybe a little more than 12 months ago, we started.

Yeah, with the testing capacity in Chengdu, we've concentrated that on some of our higher value parts, including automotive. And now, as Michael just said, is now we've started transition, we can actually have third parties. So we actually have a built-in contingency plan. Outside

Chengdu only, yes, we have other than these high reliability products, we're testing in our site. And other than that, we do pretty high volumes if it's not half of it. It's in a different facility. What I talk about, I just mentioned about it, is outside China.

Got it. Okay. And then my follow-up question is around the internal inventory level that you guys have done an absolutely fantastic job of increasing that in a very tight supply environment. I guess my question is, as you're approaching now the low end of your target range of 180 to 200 days, can you tell us what's going on with lead times? I would think as internal inventories get up to your target level, that may give you the ability to start to reduce lead times to potentially gain even more market share. But I'm wondering if you could give us a sense what's going on with lead times given the increase in internal inventory levels. Thank you.

Our lead time in this quarter is the same as the last quarter. Even our booking, I don't see anything. The rate of our booking is not reduced. And I'm going to use it. You know, you

took my answer on both months. Lead times have remained very consistent in the last three quarters. And again, what you're seeing as far as the build of inventories has been a very conscious and deliberate decision to build the inventories in advance, particularly on the enterprise side to meet the demand we expect the second half of the year. And then I think that we've done a good job of positioning ourselves under what has now become uncertain environment.

Thank

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

Great. Thanks so much for taking my question. Congrats on the very strong results, especially the outlook. You know, we understand, though, that while we see a great number overall, in particular for the guidance, there's always moving parts. You know, when we look at it on a more detailed level, and I wonder if you're seeing either perhaps owing to customers focusing on getting balanced kits or full sets or however you want to call it, or if you're seeing anything related to Ukraine or the lockdowns in China, whether any of these factors is influencing either the order rates or the backlog. For example, if none of these things were happening, the outlook would have been even stronger. Any any qualification you can provide us with the output?

Yeah. Well, in the end, the NPS is selling jelly beans. And we are not the dominant application, application supply. We are not consuming in that way. So whatever we ship is that these are the small part of the solutions. And so we don't know. That's actually that's our model. That's the beauty of it. We don't know where these parts can end up. And so, so whether the wall affected us okay and we're very very much diverse so far we actually don't know. And this is stupid. They call you that. So, so the answer your questions. Only things that we do know where the product was the data sets, the product that goes to a cause. These are, we pretty much know some okay where where the product ended up. Okay. And other than that, we don't.

Okay. Thank you. Again, just like.

Sorry.

Just reinforcing the answer from before. There is no significant KPI, whether it's in the bookings or any other area of our business, we're seeing a change from

the past two to three quarters. That's helpful. Thank you. You, you've talked about various levels of revenue that you could achieve at full utilization in other words the capacity that you're building for. I know this started a couple years ago, well, I'm sure it's ongoing, really. But the capacity, you know, and the upsides that we've seen over the last few quarters of course those were not, you know, planned very quickly they were planned a long time ago. Can you remind us, or, or maybe update us on the medium to long term capacity planning that's in place today what what levels of total capacity when we can expect over the next few quarters. Thank you.

Yeah, that's a, that's a cool question I think that we answered a question like at last quarter. Okay, we said we're not playing a $4 billion of revenue in the, in the next couple years. And so that's what we do. And we continue to invest.

Yeah, and I think just to sort of lends some credibility to that you recall about a year ago that we offered by the end of Q2 in 2022, that we would be a $2 billion run rate. And with the guy that we provided and the expectations ahead. I think that's a milestone that backs up, you know, the amount of visibility in our supply chain. So, you know, right now the goal is, as Michael said, $4 billion.

Yeah, if the demand is there this year, and I've got what we're doing. Yeah. Yeah. And what we do to building, as we said a couple years ago, a couple years ago. And, and we, we continue to see that see the demand and, and, and we, we, we continue to see that demand and we see the demand will be there. Okay, this is not a one short terms. Okay, thanks. Okay. And if it's not happened that year, that will happen the year after.

Guys, congrats again. Thanks for taking my questions.

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

Thanks. And I'll echo all the congratulations. Another stellar quarter from you guys and outlook. If I could, my first question, I'm just kind of following up on the, on the, the server breakout and obviously a big ramp ahead for QS mod and cloud this year. I was curious, kind of below that line a little bit if if there's any updates you could give us like your 48 goal expectations this year or next and within that I'm curious, you know, I sort of assume 48 volts virtually all AI accelerator for the next, you know, couple years but I'm curious when you see 48 bolts or move into other areas like CPU or some broader markets like auto or industrial because I'm curious if you've looked at sort of what that 48 volts Sam looks like for NPS because it seems like a like an awful big opportunity.

Yeah, 48 volts, okay, and 48 volts is actually starting in the automotive and also the server and AI. Okay. These are CPUs and For the 40 volts for the car, that's a, that's a different thing. So, but the same same same same technologies. And also we see these telecom areas for the able to like it is, it's all standard. And so now the four G's and the comply with the 40 volts again, we have searching there. So there's a lot of area we can grow.

And I think that 48 volt. Not only are we seeing the ramp, it's adoption more broadly. But competitively, I would offer that very well positioned with some of the new technologies that we've rolled out and expect to roll out during the course of the next 18 months. So I think here again we time our product releases pretty well with the inflection of this market opportunity. Yeah. And now, as he

talking with the product, the module is is ready. Yeah. But we provide, we provide whatever customer needs. We have a chip level or module level or even solution levels.

Thanks. And then maybe it was my follow up just on five G. I haven't asked the five G question in a while. But I'm mean you guys are engaged with the sort of the big three tier one OEM. So I just was curious if you could give us an update on your expectations. I know you flagged five G here from from one Q results. Awesome. So I'm curious what your expectations are for this year and, you know, if there's any updates you could give us on sort of how content compares with what you're seeing in server or data center, and sort of how that how that ramp looks and, and maybe if you could talk about the, you know, how you quantify that opportunity in macro base station. Thanks.

In the five G relatively new market segment for us. So it's not like we can draw from our prior experience and calibrated up or down. We're sort of living a little hand to mouth on what demand looks like, and how fast for shipping. So we don't have a real good predictive model. What we talked to you about in the past is in that, again, we believe on a broad based, not only with the you referred to the top three, but with a number of partners related to five G infrastructure, we're providing content. And while it's easy to look at the base station as a means of calculating out what the SAM is available to us. I think that we're also in fiber optic in the data center support for five G, as well as in the transceiver of the base station. And again, I think as we pointed out, a lot of the initial technology that we're putting in is tending to be lower end and not necessarily specialized or adaptive to five G specifically. So we don't have the same level of visibility on how it's being deployed. And we've used this strategy in the past, the data center, we come in with lower dollar value content, build the relationships. And then we're able to go to higher value content. So let me say that.

Okay, let me say that. We do have a custom design for each of the areas that Bernie said. And from a fiber optics to all the single chains all the way to transceivers. And we do have a custom design and based on our standard product modules. And these are the products that get me it's not really a low end. But these are products that can be used for for any other telecom with provides a building block with provide provides a power power solutions for for each of these blocks by each of these categories. And we do see a lot of activity now. And the revenues is is a ranking now.

Got it. Congrats. Thanks guys.

Our next question is from Chris case of Raymond James Chris, your line is now open.

Yes, thank you. And good evening. I guess the question about the profile of revenue growth, as we go through the year, and thus far, you know, so the over the past several quarters, your revenue growth has been pretty broadly based seeing growth and in most segments. I know we've been speaking about and we've been anticipating for a while, the server ramp, as we get to the end of the year. But, you know, as we look through revenue, the next kind of 234 quarters, do you expect that revenue growth to continue to be broadly based? What do you think there's going to be concentrated in in any particular segments?

Well, the strategy is we fired as many cylinders as we can. Okay, whatever it was, we grow. Okay. And, and, and I think that's the strength about the diversification. And in, in the next few quarters, we see the demand for 2023 and 2024. And these are pretty much similar. Okay, we don't see that much of a difference. And one thing we see it. Okay. They we our customers demand more, more higher value product, which means they can easily adopt and ease of use and and much higher efficiency product and energy conversion efficiency product. And, and so these are much better for for us. Instead of our customers do a lot of development work. We do a lot of development work for for our we develop the solution for our our customers. So that means a higher dollar higher dollar content. And so that's a that's a really we see that as a only as a only only only difference.

Got it. Thank you. My follow up question is about the impact of some of the China lockdowns and not from your production side but rather from your customer side. And what we heard from some others, at least one other is that, you know, part part of the challenges in China right now are customers having facilities that are closed or that freight forwarders are simply unwilling to accept product because of some of the logistics challenges that are going on right now. Is that something you're facing as well? And is there any impact on on on your revenue right now, which, you know, might mean, you know, some of those issues get get solved that that that some of that goes into the second half of the year?

Absolutely. And don't get me wrong, even though we even though we grow this much, if we're not that problem, so that can we ship a whole lot more in. But we just have a we anticipated a little better. Okay, so we can still grow in our models. There's not much about models. And what a quote unquote is about our models. Even a year to years. And on the other hand, in the other than our logistics and in the production and limitations, our customers, they have a mix to and clearly you see the auto business. I mean, we have less problem of a shipping product than than other other suppliers. So, and you can speculate, okay, because, because. Eliminated our. They're buying their purchasing of our. Our product and for for. Because they're missing other parts.

And I think that we continue to be very resilient under a number of environmental circumstances. Part of that is the planning that we've set in motion three or four years ago. And some of it is how versatile our model is. And some of it is how adaptive we can be in the moment. So, again, we did acknowledge an impact. Our customer supply chain, but I wouldn't say that is a pronounced element. And we're continuing to monitor.

Great. Thank you very much.

Our next question is from Tori's Fomberg of Steve Nicholas. Tori, your line is now open.

Yes, thank you. And congratulations on another record quarter. Quite, quite stunning. First question is on long term growth. So you grew more than 40% last year. Looks like you're on track to growing another 40% this year, at least. Michael, in the past, you've said, you know, there's no reason why you can't accelerate growth, even though you have a higher, higher revenues. You

remember that one.

So I'm just, you know, trying to, you know, understand what you think about long term growth at this point. Is 40 the right number? I know you're probably not going to commit to a number, but yeah, anything you can add on that would be great.

Yeah. Okay. As we said, about a few minutes ago, I said that our customers even demand more higher value products. I mean, solution kind of related products. And I see that opportunity is the opportunities for a for a serrated growth because think about it. If it's an NPS, we don't make any. And we're just only testing the final control, the quality control. And that can apply to anything else. And I apply to models, apply to apply to any other other other solutions. Okay. All but it's all related to power, all related to what we know. And so from now on, you will see NPS. We provide the plug and play solution for all kinds of robotics, for industrial automations and for building controls. And those type of a product and which has a lot higher ASPs. We buy those components or we specify those those components and we incorporate into our solutions. So the unit price will be much higher. And now it's a how fast we can put all these solutions together and turn into a meaningful revenue. And that I can predict. And then you have that quite a lot of knowledge is to know now the same times NPS is a semiconductor chip business keep growing. So I don't see in the near term in the next year or so. I don't see any slowdown and it's actually a salary. And so to the other the other model is a is a very infancy. And if you go three or four or five years from now, I think as a way will be a real solution companies. And like a silicon semiconductor is a is only a part of it in the total content. So I want to grow more. I see more than ten billion dollars companies that gave me a ten, fifteen billion dollar company. And there is no reason why why not.

That's great perspective. Thank you for that, Michael. As my follow up, I wasn't aware you had a lot of traction the Satcom market was just hoping you could add a little bit more color there. What types of applications, you know, what are some of the strengths the company have today in that market? And and are you continue to introduce new products? Because that's to me, it's obviously a very high margin business, right? But it's also very difficult market to crack into.

Yes, it's a committed satellite communications and not only in the satellite cell, the ground station is a huge amount. And there's a new standards and there's a lot of new activities that and we decided to. A few years ago, and mostly it is a power modules. And also we have related to these in the satellite cells and I mean, these are control the solar panels and also a lot of power blocks. And I think the ground units is a is a so. Is a growing this is everywhere. These are from antenna to power powering up the antenna to power the power the receivers and again, and also all the way down to the user interface and the well benefit from.

Excellent. Very good. Congratulations again. Thank you.

Thanks. Our next question is from Ross Seymour of Deutsche Bank Ross. Your line is now open.

Hey, can you guys hear me this time? Yep,

Ross, you're there.

I've been here the whole time. I'm glad that we got it to work. So I guess the first question is a longer term one that I'll follow up with a shorter term one. Michael, you talked many times on tonight's call about moving up the value chain, adding more value. Customers want to use monolithic for more and more. And in the past, that's going from kind of the second or third tier folks in various markets up to the first tier. So really what I wanted to get at was, are you seeing evidence of moving up to higher and higher value customers? And does the fact that you didn't raise prices as much as your peers and that you had availability, is that getting you longer term design wins, higher value design wins, anything you could do to quantify that dynamic?

I don't know how to quantify that. Okay, because we don't, we don't, we didn't increase the price for those first tier, the value, the strategic customers, because these prices negotiated way before that. And we had to audit. And so we always said what we do is what we say, what we do. Okay, so we had to audit that. And I think that's also is a part of NPS branding. And so that benefits from a long term. And for other high value customers, high value products. And it's a sporadic. This is the very, very beginning. A lot of customers don't even know, oh, you offer this, but you offer that, that the entire solutions. And so they don't even know that. Okay, NPS is just a starting point. And that actually relates to a few years ago, we said that we're going to do e-commerce. Okay, we do e-commerce, like programmables, all these things. And these are all related. And so we do sort of only for large customers. And I said we're a satellite company, we have EV companies, we have a day one NPS to do a lot more. Or even the data centers. And they demand all these. We provide the entire unit. And they don't have to design. So that's actually across the world. We have just a main in the field.

But

revenue is still small. We're starting.

Okay, thanks for all that color, Michael. And for my follow up and near term question, Bernie, this could either be both revenues and or the gross margin. And your answer on this, and it's really about the mix. You've talked about the gross margin rising because of mix and new products being the driver of that. If I look at the industrial and automotive businesses, the last couple quarters, they're great year over year, but they've been flat a little bit down sequentially for the last six months or so. Is there anything going on in that business? Is it just lumpiness? Is it waiting for some design wins? And on the mix side of that equation for gross margin, I think most people believe those could be some of the more accretive areas. So how is the mix such a positive for your gross margin if the two areas that are supposed to be the highest margins are actually slightly underperforming the others?

Makes sense. That's a good question. Yeah, yeah.

Let me reference what Michael said earlier is the power of our model is diversification of the end markets. And if you go back to performance, the revenue performance that we demonstrated in industrial and automotive last year, they were leaders that are both drivers. And in the current year, it reflected what's the health of the two end markets. It really came down to it being the timing of shipments. So we believe that as far as the design wins that are coming in, that we don't believe that we over shipped them to the extent that that's going to cause us a problem. The orders on the book remain incredibly positive. So again, it's just it's more difference of quarter to quarter as opposed to anything fundamentally.

And also, you know, one of the questions is, why the margins goes up if these two segments go sideways? The year to year is the year over year with growth. If you look at it from a Q3 last year to now, those segments are all that contributes a lot of margins, most margins. And the other segments, consumers, we face out and this is not from the last year. Maybe the year beginning of last year. And when the when the when the capacities get the issues, as you know, we always face out on these lower margin. That's another part of it. And but the overall the greenfield products drive the margins. Yeah.

And just to add to Michael's point, as far as facing out on the margin business, you know, we're trying to rationalize our way for a starts to capture the largest opportunity. And as a result, some of the lower margin business that we wouldn't have used to have in our portfolio, we haven't emphasized that in our production planning, which is not there as a component of our business. And so it just looks like it has been destroyed.

Thank

you.

Our next question is from Hans Moses man from Rosenblatt. Hans your line is now open.

He thinks. Thanks for fitting me in. And congratulations, like everybody else has mentioned. Good stuff. Hey, I have two questions. Hey Michael, if we were to split 48 bolts as an opportunity. So I'm thinking of getting 48 bolts to the rack in your data center and within the rack, getting that 48 bolts to the board. And every board has to deal with the accelerators and their power issues there. So there's three touch points. If that's the way to look at it, what is the opportunity for each and where would you be seeing the first incremental business for 48 bolts for MPS?

I think it's the solution, you're right. Okay, and then now the question is, depending on the applications, the 48 bolts that are down to 12 bolts are down to five bolts are down to, directly down to 1.2 bolts. That's the last part, okay, we don't do that. And our customers, and that can mean, there's a few providers, or the solution is not common. And so we play the market, I mean, it's down to 12, 48 come up to 12 and then come up to five, four, five bolts, okay. That's the market we played. It can mean that, it's open-bill materials. Everybody else, you can jump into it. So our competitive provides similar solutions. So that kind of, we know this is the application, but which one we don't know? Which one is hard to tell? All these high current product, and you probably know more than I do, so okay, goes to 600 watt to 1,000 watt, and even some was a couple thousand watt. You see these are all NPS solutions now. And these are, the higher wattage you go, the volume is smaller. And so in the coming years, and those are accelerated costs, the population in the data centers, and that's where you see it. These are 48 volts and they come up to 12. And then you have a new solution that we provide, you can come to five volts, okay, and they increase close to 1% of your power. Of efficiency, which is a lot.

Thanks, that was very helpful, Michael. My follow on just to end this, what is the view of the PC market for NPS? I think Intel mentioned that the low end of the PC market is weak, but the other parts are okay. What's your view to the degree that you have participation in things?

Yeah, obviously, okay, we do wells, and we do PCs, and the PC, the commercial PCs, and even the low end of business from what we see. But for us, it's very opportunistic, because we have a product developed for server, and without much of an engineering effort, we can spin off and do other product, do the product for commercial PC, and for commercial notebooks. And on the other end, we do battery management, we do actually panel power, too. And we pretty much, we can offer the entire notebooks, other than the memories, other than the CPUs. And so that's, it's very opportunistic, and currently, we see the demand is very strong.

Yeah, and just add to that, Michael, is we have a very good footprint in the commercial side, and because we have so many different product offerings, what we're seeing is being able to sell additional content into those same platforms.

Okay, thank you very much.

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.

Great, thanks, Jen. I'd like to thank you all for joining us for the Q1 2022 earnings webinar. I look forward to talking to you again during our second quarter conference call, which would like to be in July. Thank you, and have a nice day.