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 www.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 Blagan, VP and CFO. Hello. 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 harbour statement contained in the earnings release published today. Risks, uncertainties, and other factors that could cause actual results to differ are identified in the safe harbour statements contained in the Q1 earnings release and in our SEC filings, including our Form 10-K, filed on February 25, 2022, which is accessible through our website. NPS 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, those record first quarter revenue, $377.7 million. 48.4% 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 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 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 dollars increased 18.6 million dollars for 23.9 percent from the fourth quarter of 2021 due primarily to higher storage and commercial notebook sales computing storage and computing revenue represented 25.6% of MPS's first quarter 2022 revenue compared with 20.2% in the first quarter of 2021. In our enterprise data market, first quarter 2022 revenue of $42.5 million increased 5.0% in the fourth quarter of 2021 due primarily to continuing strength data center at workstation computing sales. Enterprise data revenue represented 11.3% of NPS's first quarter 2022 revenue compared with 6.4% in the first quarter of 2021. First quarter 2022 communications revenue of $55.6 million rose $9.7 million or 21.1% from the fourth quarter of 2021. The quarter-over-quarter increase primarily reflected higher revenue related to 5G build-outs and satellite communications. Communications revenue represented 14.7% of NPS's first quarter 2022 revenue, compared with 14.2% in the first quarter of 2021. First quarter 2022 revenue from consumer markets of $80.0 million increased 13.69 or 20.6% from the fourth quarter of 2021. This sequential quarterly improvement, the sequential revenue increase reflected a broad-based increase, particularly related to our IoT business. Consumer revenue represented 21.2% of our Q1 revenues. compared with a 26.0% contribution in the first quarter of 2021. First quarter 2022 automotive revenue of $54.5 million decreased 3.2% from the fourth quarter of 2021. Automotive revenue represented 14.4% of MTS's first quarter 2022 revenue compared with 17.6% 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 12.8% of our first quarter revenue compared with 15.6% 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 GAAP 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-GAAP gross margin was 58.3%, 40 basis points better in the fourth quarter of 2021 and 250 basis points better than the first quarter of 2021. Our non-GAAP operating income was $133.6 million compared to $112.0 million reported in the fourth quarter of 2021. On both the GAAP and the non-GAAP basis, the sequential quarterly gross margin improvement was primarily due to a better product mix as revenue from higher value new product introductions or ranking. Let's review our operating expenses. Our GAAP 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-GAAP first quarter 2022 86.6 million dollars, up from the 83.0 million dollars reported in the fourth quarter of 2021. The differences between non-GAAP operating expenses and GAAP operating expenses for the quarters discussed here are stock compensation expense, amortization of purchased intangibles, and income or loss on an unfunded deferred compensation 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 recorded in the fourth quarter of 2021. Switching to the bottom line, first quarter 2022 GAAP net income was $79.6 million, or $1.65 for holding and moving shares. compared with $72.7 million for $1.51 per share in the fourth quarter of 2021. First quarter, 2022 non-GAAP net income of $118.3 million for $2.45 per fully remitted share, compared with $102.1 million for $2.2 million in the fourth quarter of 2021. Believe it or not, it shares outstanding at the end of Q1 2022 or 48.2 million. Now let's look at the balance sheet. Cash cash equivalents and investments were $775.9 million at the end of the first quarter of 2022, compared to $727.5 million at the end of the fourth quarter of 2021. For the quarter, NPS generated operating cash flow of about $107.4 million, with operating cash flow of $28.2 million in the fourth quarter of 2021. First quarter of 2022, capital spending totaled $26.9 million. Accounts receivable ended the first quarter of 2022 at $120.3 million, with 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 of inventory increased to 178 days at the end of Q1 2022, 166 days at the end of the fourth quarter of 2021. Historically, we calculated days of inventory on hand as 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 of 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 for the second quarter of 2022. We are forecasting Q2 revenue in the range of $420 to $440 million. We also expect the following. The outgrowth margin in the range of 58.4% and 59.0%. Non-GAAP gross margin in the range of 58.7, 59.3%. GAAP, R&D, and SG&A expenses between $132.7 million and $136.7 million. Non-GAAP R&D and SG&A expenses to be in the range of $90.0 million to $92.0 million. Full stock-based compensation extends from $44.2 million to $46.2 million, including approximately $1.5 million that would be charged to cost of goods sold. Litigation expenses range between $2.3 and $2.7 million. Interest and unrental is expected to range from $1.3 to $1.7 million before 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. Thank you.

Janet, Ross is not there. Perhaps we can move on.

Our next question is from Alex Becky 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's allowed you to do that.

Well, Alex, we plan this kind of ramp, not... not from this year, last year. Many years ago. And you remember in 2017, even 16, 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 fab, assembly house, and our internal testing. And this is not a one-year thing. We planned a long time ago. And now, when the revenue is rent, it's a little better than we anticipated. And so, That's where you see the result now.

And if I can add to that, we've also built inventories so that in 178 days, we're just at the lower end of our goal 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 is in the 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, 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 is an 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've created a new floor on gross margins in 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 a pass on the cost to our customers. And as the margin expansion for our case, we said earlier, okay, said in the 2017 or 18, we don't have a headwinds. In about 2019, the market slows down a little bit and we build up a lot of some amortizations in a production, in a pipeline. So our margin went slightly lower, but it's not much lower. And now you see is that margin continued 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 piece. 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, I don't know, 160% year over year, but that's really before the two primary server processor vendors launch with 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, learned some numbers. And so we're just talking more clear and publish out that you guys know it and have a less meaningful questions. And I've only watched it. Any other reasons? Okay.

I think, Matt, you did a good job of saying that this is clearly an inflection point for us, inflection year. which will gain momentum as we see both Intel and AMD are positioned for political releases coming up here. So that, in addition to the expanding footprint we have in 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 our investors.

No, thanks to you both for that. That's helpful. I guess if you look at the second quarter guidance that you provided, $430 million at the midpoint was quite a bit above. where 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 on a dollar percent basis, we're going to see an accelerating ramp 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 to three quarters more 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 emphasized 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. Wanted to come back to Alex's question about China. Obviously, you source most of your assembly and wait for capacity in China. And I just, you know, 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 of 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 debate too much about it. I mean, if they have a serious problem, I think everybody worry about it, even bigger things. And yes, The answer is yes. We really started to establish in a different political environment.

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

Yes. We started to about a couple years ago, but Maybe it's 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 where we can actually have third parties. So we actually have a built-in contingency plan.

Oh, yeah. 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 mention about it, is the 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, you know, 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 of what's going on with lead times, given that the increase in internal inventory levels. Thank you.

Our lead time is in this quarter is the same as the last quarter. So probably even earlier, even our booking, even, I don't see any things, the rate of our booking is not reduced. And I'm going to use it.

No, you took my answer on both ones, that lead times have remained very consistent each of 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 that 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. We understand, though, that while we see a great number overall, in particular for the guidance, there's always moving parts 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 qualification you can provide us would be helpful.

Yeah. Well, you know, the NPS is selling jelly beans. And we are not the dominant application supplier. We are something in that way. I mean, so whatever we ship, these are the small part of the solutions. And so we don't know. Actually, that's our model. That's the beauty of it. we don't know where these costs ended up. And so whether the wall affected us, okay, and we're very, very much diversified. We actually don't know. This is stupid, okay. They call you the police. So, to answer your questions, like I mean, only things, yeah, we do know where the product goes to the data sets, the product goes to a cost. I mean, these are, we pretty much know, okay, where the product ended up, okay? And other than that, we don't.

Okay, thank you.

Thank you for that.

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, that we're seeing a change from the past two to three quarters.

That's helpful. Thank you. Bernie, 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 a couple of 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 maybe update us on the medium to long-term capacity planning that's in place today? What levels of total capacity we can expect over the next few quarters? Thank you.

Yeah, that's a cool question. I think that we answered that question in the last quarter. We said that we're going to pay $4 billion of revenues in the next couple of years. And so that's what we do. And we continue to invest.

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

If the demand is there this year, we'll do it. We'll do it to bidding, as we said a couple years ago. We continue to see the demand and we continue we continue to see the demand and we see the demand will be there. This is not a one, a short-term things. 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 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 there's any updates you could give us on your 48-volt expectations this year or next. And within that, I'm curious, you know, I, you know, sort of assume 48 volts, virtually all AI accelerator for the next, you know, a couple of years, but I'm curious when you see 48 volts sort of move into other areas like CPU or, or some broader markets like auto or industrial. Cause I'm curious if you've looked at, sort of what that 48-volt SAM looks like for NPS, because it seems like an awful big opportunity.

Yeah. 48 volts, okay, and 48 volts is actually starting in automotives and also the server and AI, okay, these are CPUs. And for the 48 volts for the car, that's a different thing. But the same, same, same, same technologies. And also we see these telecom areas, 48 volts, it's all standard. And so now the 4Gs and the compliant with the 48 volts, again, we have a solution there. So there's a lot of area we can grow.

And I think that the, 48 volt, not only are we seeing the ramp, its adoption more broadly, but competitively, I would offer that we're 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've timed our product releases pretty well with the inflection of this market opportunity. Yeah.

And now, as you're talking, that product, the module, is ramping. Yeah. We provide whatever customer needs. We have a chip level or module level, or even solution levels.

Thanks. And then maybe as my follow-up, just on 5G, I haven't asked a 5G question in a while, but you guys are engaged with sort of the big three tier 1 OEMs, and I just was curious if you could give us an update on your expectations. I know you flagged 5G here from 1Q results, so I'm curious what your expectations are for this year, and 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 ramp looks. And maybe if you could talk about how you quantify that opportunity in macro base station. Thanks.

In the 5G is a relatively new market segment for us. So it's not like we can draw from our prior experience and calibrate it up or down. We're sort of living a little hand-to-mouth on what demand looks like and how fast we're shipping. So we don't have a real good predictive model. What we've talked to you about in the past has been that, again, we believe on a broad base, not only with what you referred to, the top three, but with a number of partners related to 5G 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 5G, 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 adapted to 5G 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, look at 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.

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

Got it. Congrats. Thanks, guys.

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

Yes, thank you, and good evening. I guess a question about the profile of revenue growth as we go through the year. And thus far, you know, over the past several quarters, your revenue growth has been pretty broadly based, seeing growth 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 two, three, four quarters, do you expect that revenue growth to continue to be broadly based? Or do you think there's going to be concentrated in any particular segments?

Well, the strategy is we fired as many cylinders as we can. Okay. Whatever grows, we grow. Okay. And I think that's the strength about the diversifications. In the next few quarters, we see the demand even for 2023 and 2024, and these are pretty much similar. We don't see that much of a difference. one thing we see, our customers demand more higher value product, which means they can easily adapt and easily use, and a much higher efficiency product, an energy conversion efficiency product, and So these are much better for us. Instead of our customer do a lot of development work, we do a lot of development work for our, we develop the solution for our customers. So that means a higher dollar amount, a higher dollar content. So that's really it. We see that that's the 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 part of the challenges in China right now are your 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, you know, goes into the second half of the year.

absolutely hit us, and don't get me wrong, even though we grow this much, if we're not that problem, so like we ship a whole lot more. But we just have a, we anticipated a little better, like I mean, so we can still grow in our, models, even the year-to-year. And on the other hand, other than our logistics and the production limitations, our customers they have a mix too. And clearly you see all the business. We have less product than other, there are other suppliers. So, and you can speculate these, okay, because it limited our, they're buying, they're purchasing of our product, and 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 diversified 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 affected us. But I wouldn't say that that is a pronounced element and we're continuing to monitor it.

Great. Thank you very much.

Our next question is from Tori Svanberg of Stiefel Nicholas. Tori, your line is now open.

Yes, thank you, and congratulations on another record quarter, quite stunning. First question is on long-term growth. So you grew more than 40% last year. It 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 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, solutions kind of related products or not, they want to unload their engineering effort to NPS. And I see that opportunity is the opportunities for accelerated growth. Because think about it, if it's NPS, we don't make anything. And We're just only testing the final control, the quality control. And that can apply to anything else. And I can apply to models, apply to, okay, apply to any 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, okay? 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, which has a lot higher ASPs. We buy those components, or we specify those components, and we incorporate into our solutions. So the unit price will be much higher. Now, it's how fast we can put all these solutions together and turn it into a meaningful revenue. And that I can predict. And you have to acquire a lot of knowledge too. Now, at the same time, 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 accelerating. And so two, the other model is at the very infancy. And if you go three or four or five years from now, I think as we will be a real solution companies and like a semiconductor is a is only a part of it in the total content. So I want to grow more. I see more than $10 billion companies that get me in a $10, $15 billion company. And there is no reason 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 in the SATCOM market. Uh, was just hoping you could add a little bit more color there. What types of applications, uh, you know, what are some of the strengths the company have today in that market? Uh, and, and are you continuing to introduce new products? Because that's, to me, it's, uh, obviously a very high margin business, right? But it's also a very difficult market to, to crack into.

Yes. It's, uh, all committed satellite communications and, and, uh, not only in a satellite self, the ground station, there's a huge amount. And, uh, There's a new standards and there's a lot of new activities. And we designed it into a few years ago. And mostly it is a power modules. And also we have related to these intercellular cells. And I mean, these are control the solar panels and also a lot of power blocks. And I think the ground units is everywhere. These are from antenna to powering up the antenna to power the receivers. And also all the way down to the user interface. And we all benefited from it.

Excellent. Very good. Congratulations again. Thank you. Thanks.

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

Hi. Can you guys hear me this time? Yeah.

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, then 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 change? 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 increase the price, okay, for those first-tier, the value, the strategic customers, because... These prices negotiated way before that. And we had to honor them. And so we always said what we do is what we say what we do. And so we had to honor that. And I think that's also part of NPS branding. And so that benefits from the long term. And for other high value customers, okay, or high value products, okay, and it's a sporadic, okay? This is the very, very beginnings. And a lot of customers don't even know, oh, you offer this, but you offer the entire solutions. And so they don't even know that, okay? NPS is just starting to, okay? And... that actually relates to a few years ago, we said that we're going to do e-commerce, okay, we're going to do e-commerce, like programmables, okay, 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 an EV company, so we have a They want 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, I just name a few. But revenue is still small. We're starting.

Okay, thanks for all that color, Michael. And for my follow-up and nearer term question, Bernie, this could either be both revenues and or the gross margin in 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 to 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. All right.

reference that 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 were our growth drivers. 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 shipment. Um, so we believe that as far as the design rules that are coming in, um, that we don't believe that we've over shipped them, um, uh, to the extent that, uh, that that's going to cause us a problem. Uh, the orders on the book remained incredibly positive. Uh, so again, it's just, it's more different to a quarter of a quarter as opposed to anything fundamentally different about the market.

And, uh, um, Also, you know, one of the questions is why the margin goes up if these two segments go sideways, okay? I mean, the year-to-year, year-over-year would grow, okay? I mean, if you look at it from a Q3 last year to now, those segments are growth, and that contributes a lot of margins, okay, gross 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 capacities gets the issues, as you know, we always face these lower margin. That's another part of it. But the overall, the Greenfield products that we drive the margins.

Yeah. And just to add to Michael's point, as far as phasing out low margin business, you know, we're trying to rationalize our way through 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. is a component of our business that it has been destroyed.

Yeah. Thank you.

Yeah. Our next question is from Hans Mosesman from Rosenblatt. Hans, your line is now open.

Hey, thanks. 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 volts, as an opportunity. So I'm thinking it, you know, getting 48 volts to the rack in your data center and within the rack, getting that 48 volts to the board and every board has to deal with, you know, 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 volts for MPS?

I think it's the solution, yeah, you're right. Okay, and then now the question is, depending on the applications, the 48 volts and the down to 12 volts or down to 5 volts or down to directly down to 1.2 volts. That's the last part. Okay, we don't do that. And our customers, okay, And 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, convert to 12, and convert to five, four, five volts, okay? That's the market we played. And it's open building materials. Everybody else, they can jump into it. And we... So our competitor provides similar solutions. So that kind of, we know this is the application, but which one, we don't know. Which one, it's hard to tell. All these high current product, and you probably know more than I do, goes to a 600 watt to a 1,000 watt. and even some was a couple thousand walls. You see these are all NPS solutions now. And these are, the higher wattage you go, the volume gets smaller. And so in the coming years, those accelerated calls, the population in the data centers, and that's where you see it. These are 48 volts and they convert to 12. And then you have a new solution that we provide that can convert to 5 volts, okay? And they increase close to 1% of efficiency.

Thanks, that was very helpful, Michael. My follow-on is 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, we obviously, okay, we do wells, and we do PCs, and it's the commercial PCs that 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 to 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're 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 we currently, we see the demand is very strong.

Yeah, and just to 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.

Yeah. 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. You know, 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 will likely be in July. Thank you and have a nice day.