Monolithic Power Systems, Inc.

Q4 2022 Earnings Conference Call

2/8/2023

spk00: Welcome everyone to the MPS fourth 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 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 contained in 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 Q4 2022 earnings release and in our latest 10-K and 10-Q filings that can be found on 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 Q4 and full year 2022 earnings release, which we have filed with the SEC 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 Lagan.
spk05: Thanks, Jen. For the full year, 2022, MPS achieved record revenue of $1.79 billion, growing 48.5% 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 one 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 one kilowatt with a fully integrated controller, isolator, and power devices. 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 set the industry standard for these critical system level applications. MPS's first 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 2023. We continued to diversify our global footprint with expansion of our R&D centers, supply chain partnerships and facilities outside of China to better match our resource distribution with our customer's geographic demand profile. 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%. Storage and computing revenue up 76.8%. Communication revenue up 53.2%. Automotive revenue up 46.8%. 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 $135.1 million over the prior year to $251.4 million. 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% of MPS's total revenue in 2022 compared with 9.6% in 2021. Storage and computing revenue for 2022 grew $196.7 million over the prior year to $452.6 million. This 76.8% increase primarily resulted from strong sales growth for storage applications and enterprise notebooks. Storage and computing revenue represented 25.3% of MPS's total revenue in 2022 compared with 21.2% in 2021. Communications revenue grew $87.4 million to $251.5 million. This 53.2% improvement reflected higher sales of products for both 5G and satellite communications infrastructure applications. Communications revenue represented 14.0% of our 2022 revenue compared with 13.6% in 2021. Automotive revenue grew $95.7 million to $300.0 million in 2022. 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 represented 16.7% of MPS's full year 2022 revenue compared with 16.9% in 2021. Industrial revenue grew $34.4 million to $218.2 million in 2022. This 18.6% year over year increase primarily reflected higher sales in applications for smart meters and industrial automation. Industrial revenue represented 12.2% of MPS's full year 2022 revenue compared with 15.3% in 2021. Consumer revenue grew $37.2 million to $319.5 million 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% in 2021. Let's talk about the general business conditions. During our Q3 22 earnings call, we highlighted the customers were becoming more concerned with near-term business conditions and order patterns might oscillate in the near future. 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 customer requested pushouts slowed. While this is positive, customers' orders are still trending below historic norms and our Q4 22 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 macro economic changes in the past. Switching to Q4, MPS had a record fourth quarter with revenue of $460.0 million, down 7.1% from revenue generated in the third quarter of 2022, but up 36.7% from the comparable quarter of 2021. On a year-over-year base comparison by market segment, fourth quarter 2022 revenue for automotive grew 72.8%. Enterprise data revenue increased 69.0%. Storage and computing revenue grew 55.0%. Communications revenue grew 40.1%. And industrial revenue grew 13.3%. While consumer revenue decreased 20.1%. Fourth quarter 2022 gap gross margin was 58.2%, down 50 basis points from third quarter 2022, but 60 basis points higher than the fourth quarter of 2021. Our gap operating income was $136.9 million compared to $151.9 million reported in the third quarter of 2022 and $78.6 million reported in the fourth quarter of 2021. Fourth quarter 2022 non-GAAP gross margin was 58.5%. 50 basis points below the third quarter of 2022, but 60 basis points higher than the fourth quarter of 2021. The year over year expansion in fourth 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 $174.1 million compared to $193.7 million reported in the prior quarter and $102.0 million reported in the fourth quarter of 2021. Let's review our operating expenses. Our GAAP operating expenses were $130.9 million in the fourth quarter compared with $139.0 million in the third quarter of 2022 and $115.3 million in the fourth quarter of 2021. Our non-GAAP fourth quarter 2022 operating expenses were $94.8 million down from the $98.4 million we spent in the third quarter of 2022 and up from the $83.0 million reported in the fourth quarter of 2021. On both a gap and a non-gap basis, fourth quarter 2022 litigation expense was $3.2 million compared with a $2.1 million in Q3 2022 and a $420,000 credit balance in Q4 2021. The fourth quarter 2021 litigation credit reflected an IP settlement and refund of a legal retainer. The differences between GAAP and non-GAAP operating expenses for the quarters discussed here are primarily stock compensation expense and income or loss from an unfunded deferred compensation plan. Fourth quarter 2022 stock compensation expense, including $1.0 million charged cost of goods sold, was $35.3 million, compared with $43.0 million recorded in the third quarter of 2022. The quarter of quarter change in stock compensation expense reflected a change in plan vesting assumptions. Switching to the bottom line, fourth quarter 2022 Gap Man income was $119.1 million or $2.45 per fully diluted share compared with $2.57 per share in the third quarter of 2022 and $1.51 per share in the fourth quarter of 2021. Q4 2022 non-GAAP net income was $154.0 million or $3.17 per fully diluted share compared with $3.53 per share in the third quarter of 2022 and $2.12 per share in the fourth quarter of 2021. Fully diluted shares outstanding at the end of Q4 2022 were $48.5 million. Now let's look at the balance sheet. As of December 31st, 2022, cash, cash equivalents and investments totaled $739.6 million compared to $738.1 million at the end of the third quarter of 2022. For the fourth quarter of 2022, MPS generated operating cash flow of about $52.2 million compared with Q3 2022 operating cash flow consumed of $18.2 million. Fourth quarter 2022 capital spending totaled $12.8 million. The accounts receivable ended the fourth quarter of 2022 at $182.7 million or 36 days of sales outstanding compared with the $153.4 million or 28 days of sales outstanding reported at the end of the third quarter of 2022. and the $104.8 million or 28 days reported at the end of the fourth quarter of 2021. Our internal inventories at the end of the fourth quarter of 2022 were $447.3 million up from $397.4 million at the end of the third quarter of 2022. Calculated on a basis consistent with 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 third quarter of 2022. Historically, we've calculated days of inventory on hand as a function of the current quarter revenue. 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 fourth quarter of 2022 from 188 days at the end of the third quarter of 2022. I would now like to turn to our Q1 2023 outlook. We are forecasting Q1 2023 revenue in the range of $440 to $460 million. We also expect the following. Gap gross margin in the range of 57.4% to 58.0%. Non-gap gross margin in the range of 57.7% to 58.3%. total stock-based compensation expense of 40.2 to $42.2 million, including approximately $1.2 million that would be charged cost of goods sold. GAAP R&D and SG&A expenses, including litigation expenses between 135.1 and $139.1 million. Non-GAAP R&D and SG&A expense to be in the range of $96.1 to $98.1 million. This estimate excludes stock compensation expense, but includes litigation expense. Beginning with the Q1 2023 outlook, NPS will no longer separately forecast litigation expenses. Interest income is expected to be in the range from 1.8 to $2.2 million 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 48.2 to 49.2 million shares. Finally, I'm pleased to announce a 33% increase in our quarterly dividend to $1 per share from 75 cents per share for stockholders of record as of March 31st, 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 will now open the webinar up for questions.
spk00: 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 Quinn Bolton of Needham. Quinn, your line is now open.
spk09: 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 and storage business was much stronger than I expected in the fourth quarter. You grew revenue quarter on quarter when the rest of the PC market is clearly experiencing softness and inventory correction. 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.
spk05: 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 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 23, and probably those gains will offset a decline in memory. So we're basically looking at this category, at least for the first half of the year, to be flattish. Wow.
spk04: Okay. The one component, the AI portions and still remain to be very strong in the near future. And then we see a very high growth.
spk05: Absolutely. And 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 2023.
spk09: That was going to be my next question. Enterprise data was down slightly in the fourth quarter, but it sounds like. you see the ramp or just stronger results in the first half driven by, it sounds like specifically GPUs, is that right?
spk04: That's related to artificial intelligence.
spk05: Yeah, when we look at CPUs in the enterprise data, there's still initial softness as we're waiting for the platform launches for both the Sapphire Rapids and Genoa to take off.
spk09: Do you expect that in the second half, then the CPU to kind of kick in more second half of the year? Yes. Perfect. Thank you.
spk00: Our next question is from Tori Spomberg of Stiefel. Tori, your line is now open.
spk08: 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 that you expect to ramp in 2024. Is this still based on the company's BCD technology, or are you now starting to venture into some newer technologies? 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.
spk04: Yeah, so we do have programs that are going to wire bank materials. And in the past, I think we talked about it. And we have a program to investigating and develop those devices since 2017. And now we see the first result. We do have some samples ready, but they're not in production yet. My prediction is that it's somewhere in the middle of the year, or second half of the year. And related to your questions about the isolated modules, when any higher powers, it's 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 drive by using the isolated modules. And NPS is using, again, using our own BCD process and as well as wire band gap materials. And we combine together and making a very simple, nice, and a very easy to use power modules for those type of applications. Some of these products already in, in production in EVs currently. And things that we expected higher growth in the next couple of years.
spk08: That's very, very helpful. And as my follow-up, could you just give us an update on the, the manufacturing footprint, you know, both from a capacity perspective, but more importantly about diversification, you know, you, you talked about, you know, looking at all sorts of regions to partner with some new manufacturing partners. So yeah, both capacity, but then also from a geographic geographical perspective, perhaps an update there. Thank you.
spk04: Yeah. Um, We see as everybody else see it in the geopolitical tensions. And as you know, the NPS in the past, we always want to be a local company in every political regions. and we did that successfully in the R&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 manufacture it. And we want to, by end of the year or by the next, by end of the year and next years, we will have fully ramped and for the new capacities, just in case the words are really separated.
spk08: Great, thank you so much and congrats again.
spk04: Thanks, Troy.
spk00: Our next question is from Alex Becky of William Blair. Alex, your line is now open. Our next question is from Matt Ramsey of Cohen. Matt, your line is now open.
spk01: Thank you very much. Good afternoon, guys. Can you hear me OK? Yes. Hey, Michael. Hey, Bernie. The one question that I wanted to ask you that we've heard you guys, I guess, addressed in your prepared script, how. you're working to move sort of 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 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 products outside of China to support many of your global customers. Thanks.
spk04: Yeah, it's a misconception for NPS is that we are a lot of manufacturers that's in China. That's true. But it's a misconception. So like we do in a prior COVID, we do most of it, we do at least half of it manufactured and at least we have the capacities is outside the countries or outside China. And to answer your question, we have a zero impact for whoever customers require us to manufacture outside of China in the past and the futures.
spk01: All right. Thank you for that, Michael. That's really clear. It's just a question we get a lot. I wanted to talk a little bit about the consumer business, which is kind of maybe the least important strategic segment, but also the most volatile if you look at where I guess the numbers came in in the fourth quarter. 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 you excited to keep that segment down around 10% of revenue and will continue to prioritize everything else? Or is that a business that you want to serve, Michael, as it potentially rebounds? Thank you.
spk04: Yeah, and again, I've said that in the past, there's a lot of last year capacity issues that can constrain 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 down terms, in the past, as you know that, and again, and it will be a lot more aggressive for in these consumer market segment, because when you react to a price and you react to the opportunity, how fast you react to the opportunity, and then within six months, you will see the turn up, you will see the, a big number change in the consumer segment. And that's what we will do.
spk05: And Matt, keep in mind, the resilience of our business model has to do with the diversity of the end markets, the customers, the geographies that we serve. So consumer, well, it has dropped to around 10% for the quarter, remains a very important part of that strategy and will continue to invest in it.
spk01: Thank you very much, guys. I appreciate it.
spk00: Our next question is from Alex Vecchi of William Blair. Alex, your line is now open.
spk09: Hello?
spk00: Our next question is from Gary Mobley of Wells Fargo. Gary, your line is now open.
spk03: Hey, Michael. Hey, Bernie. football as 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 uh i believe however your your sales 83 83 percent of your sales roughly go through distribution so maybe 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?
spk05: Gary, opening up, welcome to the party. This is Gary's first call with us. And a welcome to the inventory question. Inventory question.
spk04: I thought we finished this question. For Gary, it's OK. OK. Gary, it's OK.
spk05: So when I look at the channel inventories from Q4 to Q1, or 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, there's about a six month lead time from when we can slow down wafer starts to 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.
spk03: I apologize if I step in too much.
spk04: It's fair to say, Sanak, in 2018, 19th, we deliberately built a 200 days plus inventory because we didn't see all these opportunity. And then now the inventory goes this high because go over 200 days again. And that is because the customer's demands start to pushing out. And this is on the high side. And we will cautiously reduce it. And this is not the same as the 2019s.
spk03: Got it. Thank you for that. And I wanted to ask about contributors to the revenue growth for the fiscal year, for the quarter. 48 and a half percent is quite commendable. I was hoping maybe you can deconstruct that between ASP increases and UD increases and how you see that playing out for fiscal year 23 as well.
spk04: It's very diverse to growth and with a little more aggressive activities in a consumer segment. And this is different from a 2020 to 21. And everything is the same. So because we are not, we don't, it's not a one-trick pony. It's not a two-trick pony either. We have multiple products. We have products like 5,000, 6,000 different products. We have a few thousands of customers. Large customers, less than, biggest customer is less than, 4% in a different industry. And that's the same way as we do in the last 10, 12 years. And we still continue to pass.
spk05: 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 is representative of higher ASPs and volume gains.
spk06: Helpful, thank you guys.
spk00: Our next question is from Ross Seymour of Deutsche Bank. Ross, your line is now open.
spk07: Hi guys, can you hear me? Yes. It's fine. 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. I knew you would. So I had just one question, one follow up. The question on the near term first was 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 is the First quarter, you said it sounded like storage and computing would be flat and enterprise data would be up a bit. If you're flat overall, what's going down sequentially in the first quarter to get you to that? So that's kind of an aggregate first question.
spk05: So when we look at Q1, you know, and obviously we've guided down about 2%, which is sort of consistent with seasonal trends. And it is, 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 will improve. And then on the plus side, the momentum in automotive continues to be very strong.
spk07: In the stabilization color, geographically by end market, the order stuff you said?
spk05: Yeah, we're seeing better activity. I think that we commented both in Q3 and repeated it here that customers have gotten a lot more near-term focused and you can point to consumer, you can point to China as being areas that was very observable. And right now we're seeing a lot better activity, but it hasn't necessarily translated into what I'd call a normalized ordering pattern.
spk07: 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 have done. And some people are concerned that that's just because of insufficient supply at competition and assumed fungibility that you guys are just growing because other people can't. um, 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 kind of overinflated 2022 and turning into headwinds this year?
spk04: Hey, okay. Tell those a custom, uh, tell those not customers. Okay. Uh, investors, our investors, our customer tools that buy our stocks. And, uh, uh, Hey, we don't do this in the pain to paying the me to products. Everything is a pretty much single source product. And, uh, our pro our products, a lot more programmable, a lot more versatile. So like me and our customer can configure those product. And, uh, Of course, we take advantage of it, okay, in a shortage. Our customers can use our product in a multiple way, okay, and a lot of them are software-based. And now, as you know, in the software side, it's a lot more stickier. we will continue to use our technical strengths and to gain the market shares. Hair wings, for those people, they don't believe that we have a hair wing. That's fair, but let our number delivered. Let our past number to show that.
spk07: Thanks, guys.
spk00: Our next question is from Rick Schaefer of Oppenheimer. Rick, your line is now open.
spk06: No, 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. uh bernie i'm sure you'll correct me if that's if i'm off base there but you know sort of what's the right contribution long term i mean michael i mean eventually do you want sort of everything to move in that direction toward module and or is it weighted more to specific in markets you've named a couple of them um already uh and i'm curious if you can comment on the margin implications as uh as module becomes a a bigger contributor i think in the past you've said this is a 5x type ASP multiplier, but again, please correct me.
spk05: I'll give you the numbers correction and Michael will give you the strategic answer. Modules currently are about 5% of our business.
spk04: Yeah. And, uh, it is doubled.
spk05: Yeah.
spk04: It doubled a year, year by a year over year for last two, two years, three years or two years, three years. Yeah. And, uh, so, um, it's a significant business now. Okay. And, uh, um, uh, Eventually, yes, that's what I want to see. And the NPS all gonna move into a new type of modules. And modules, power module has a bad connotation, I know that. And 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. But it's not your old grandpa's power modules. This is very different. Our margin is above corporate average. And some of the solutions are much, much higher. But we sell 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, okay, how does a, how to use the product or how to, you have to have a very deep knowledge how to design a power supply. And they should use a very simple solutions like what we provide. They don't need the headaches to design a power supply. I think that we're gonna end up with NPS or without NPS would be that, but NPS want to be a leader in that.
spk05: 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 DesignWin had to do with lowest cost. And I think that what our customers are seeing, particularly in the last three years, is there are other value drivers to 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.
spk04: might as well give you a give you examples and okay we build our own test equipment semi equipment and test equipment and all based on the mps uh power modules and uh if you buy those those kind of power modules you can sell things that are well over fifty dollars and uh and uh um So that in a semi equipment market segments, that's a perfect fault for that. And these are very high ASP and very much, much, much compact than on the current market.
spk06: Thanks for that color. And it actually leads me to my next question. You know, I appreciate all the color that you guys have certainly discussed with the power isolation module, but just specific to the silicon carbide update, just, you know, it sounds like you'll be sampling this year. Should we expect any material contribution from silicon carbide this year? Or are we kind of looking at 2024? Yeah. And Michael, I mean, we've heard different numbers, but what is the addition of, you know, silicon carbide module for traction inverter, et cetera? What does that do to your potential content per vehicle?
spk04: Our charging inverters and using a silicon carbide. It's not this year. And maybe even if we will see it next year. Our silicon carbide devices, we design our own. We develop our own. We pick some market segment that proves our products are reliable first. And that's the first step. To answer your questions, this year, there's no large number building in our revenue stream yet. So we don't expect that, but they just approved the technologies now.
spk06: Thanks, Michael. Thanks, Bernie.
spk00: Our next question is from William Stein of Truist. William, your line is now open.
spk10: Great. Thanks for taking my question. Someone beat me to the module question this time, so 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 quarters?
spk04: Yes, we can. I'm glad you asked that question. That question is okay. A couple of days ago, I saw an image and we received from our customers and our customers use our image for the x-ray machines and much better than their prior versions. And so when is, we sample the other biotech companies and they are, our product is designed in, and we'll see the revenues probably, the small revenue this year and the next years. This is a slow ramping products that get very high barriers. And, bottom line is that we have the technologies and we have we have a know-how to design a very high performance uh data converter these are these are can com is a comparable if it's not not okay um if it's not better and uh um we will brought our broaden uh our uh the product portfolios as we expand our teams. And these take a lot of efforts and a lot of investment. And so far, we built up a pretty good sizeable teams. And now you will see more general product coming out in the next couple of quarters.
spk10: 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?
spk04: E-commerce. Well, Tanaka, maybe I'm not as fast as I want to be. And I set my expectation too high, Tanaka. But here it is. We launched NPS now, Tanaka. Actually, I 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 modules ramp up. It's from the e-commerce. And we, after... like last year, yeah, after maybe 13 or 14 or 15 months ago, we launched NPS Now in a remote technical support. And that helped a lot. And especially our module site, I guess, help our customers can, you know, can schedule a meeting online, and we can solve their, when they log in, we solve their technical issues. That help a lot. And I think the most part of a ramp up is from the NPS Now, from a website. But overall, all the things that, And it will take times, okay? 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 a next 10, 12 years, okay, even not even, next five to, to 10 years for the millenniums to design a power supply, and they want to do Google search rather than do the fundamental design, like in the past 20 years ago, like the last 20 years. So these are the products designed for that, for easy to use and can buy from the internet.
spk10: Thank you.
spk00: Our next question is from Chris Caso of Credit Suisse. Chris, your line is now open.
spk02: Yes, thank you. Good afternoon, everyone. 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.
spk05: I'd agree that lead times have been coming down. They were up as long combined as much as possible. 26 weeks or six 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. 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 six months, I can't really say which is the driver in their decision.
spk02: Got it. 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 something 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.
spk04: I think you made a very good comment. It is opportunistic. Remember, years ago, we have more than 50% of our NPS revenues, and it's all from consumers. And these are fast design cycles and fast revenues. And you can cycle product and opportunities. And when you have the right product, right support, and right price, you can move the needle quickly. And obviously, in contrary to all the other industrial automotives, cloud computing, these are much longer design cycles. And they're kind of slowing down one segment to the other or relative. And clearly it's not as in the last couple of years. 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 and not as high as all the other segments. And we will do that.
spk02: If I could 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?
spk04: No, no, it's not. Okay. Consumers is a diversity is always our, our strategies. And in the last couple of years, we didn't grow because of capacity constraints. Okay. And we, we sacrifice on a, on a, on a consumer side. Got it. Thank you. Okay.
spk05: Thanks Chris.
spk00: Our next question is from Tori Svanberg of Stiefel. Tori, your line is now open.
spk08: Yes, thank you. I just wanted to come back to the data converter business. So you're obviously getting into the kitchen of two 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. And other than the product 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?
spk04: I think we don't know what is the business model. I know this takes time, and the market is large. A few competitors, all these that you said, these are 800 pounds of Guerreras. We are little hyenas going around. And we had to run fast, okay? And it's just to take opportunities and, okay, we'll present to the product and our customers, and they do have eyes on different suppliers, okay? And especially come from the last couple of years. And we have a good hope, but we know it'll take a while.
spk08: That's fair. And just lastly, could you give us an update on the timeline for the three and the $4 billion capacity that you're working on?
spk04: Yeah, it's always said in the next couple of years, and that's two years, and we're still on it. And we work with our suppliers. And I've just mentioned a consumer business. And one of the reason is we do have obligations to fill up these facts. and would be aggressive in getting these orders to fill the capacities. And you know, that's our game in the past. We repeatedly have done these kind of things in several cycles already. And these cycles, I don't see a difference from the last downturns. But so for the capacity expansion, we're still intact. We may slow down a little, but we really have obligations with our fabs. Okay.
spk08: Great. Thank you again.
spk00: Our next question is from Quinn Bolton of Needham. Quinn, your line is now open.
spk09: 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 got into 58 at the midpoint, looks like the straight consensus was probably 50 to 100 basis points higher than that through the year. So as you look at 23, 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 growth to be opportunistic in the consumer segment, likely to keep margins, you know, flattish in this 58% level through 23.
spk05: Yeah, I'd probably look at it as being flattish for the remainder of 23. 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 two 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.
spk09: Understood. Thank you.
spk00: Our next question is from Ross Seymour of Deutsche Bank. Ross, your line is now open.
spk07: Okay, 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?
spk05: I think as Michael has expressed here between diversifying our supply chain and continuing to invest in R&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, you know, 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, you know, I would expect that it's likely that operating expenses won't grow much more than 50, 60 percent of revenue growth in the current year.
spk04: Having said that, in the past two years, now we're reaching two billion dollar companies. Our infrastructure hasn't really grown that much. The last couple of years, it's difficult to hire people. Now, we have a lot more breathing rooms. This is the time to build up a company.
spk07: Great. I guess for a quick follow-up, I just wanted to revisit one of the questions that was asked. 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 slash storage was weaker and those two go the opposite direction in the first quarter 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 fourth quarter and the stability in the first. What would you attribute that to? Obviously you're getting the orders, but are you guys taking share? Is it the tier one penetration? Is it content? Just any more color on that because it's such a disconnect to the end market in general.
spk04: I think, I believe we're getting some shares. Absolutely. Yeah. Yeah. we gain some market shares. Great. Thank you. Yeah, we're a little bit aggressive on it in some low-end market.
spk06: Yeah.
spk04: Thank you.
spk00: 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.
spk05: Great. Thank you very much for joining us for this conference call. And we'll be talking again here for the first quarter update, which will likely be in late April. So thank you very much.
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