Monolithic Power Systems, Inc.

Welcome everyone to the MPS third quarter 2023 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, EVP and CFO. In the course of today's webinar, 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 Q3 earnings release and in our latest SEC filings, including our Form 10-K and our Form 10-Q, which are 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, 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. Tables that outline the reconciliation between the non-GAAP financial measures to GAAP financial measures are included in our Q3 2023 earnings release, which we have furnished to 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 Blagan.

Thanks, Jen. NPS reported third quarter revenue of $474.9 million, 7.6% higher than second quarter of 2023 and 4.1% lower than third quarter of 2022. Compared with Q2 2023, sales in enterprise data and storage and computing improved sequentially, while automotive, industrial, and communications revenue was lower. Turning now to our third quarter, 2023 revenue by market. In our enterprise data market, third quarter 2023 revenue of $98.9 million increased 106.2% from the second quarter of 2023 with sequential growth in both GPU and CPU program sales. Third quarter 2023 enterprise data revenue was up 31.4% year over year. Enterprise data revenue represented 20.8% of MPS's third quarter 2023 revenue compared with 15.2% in the third quarter of 2022. Storage and computing revenue of $129.5 million increased 3.9% from the second quarter of 2023. The sequential revenue improvement primarily reflected higher sales in commercial notebooks. Third quarter 2023 storage and computing revenue was up 14.7% year over year. Storage and computing revenue represented 27.3% of MPS's third quarter 2023 revenue compared with 22.8% in the third quarter of 2022. Third quarter, consumer revenue of $62.4 million decreased 4.3% from the second quarter of 2023 as higher gaming and monitor sales were offset by declines in TV and home appliance revenue. Third quarter, 2023, consumer revenue was down 30.1% year over year. Consumer revenue represented 13.1% of MPS's third quarter 2023 revenue compared with 18.0% in third quarter of 2022. Third quarter 2023 communications revenue of $46.8 million was down 5.1% from the second quarter of 2023, primarily reflecting lower infrastructure sales. Third quarter 2023 communications revenue was down 35.3% year over year. Communication sales represented 9.9% of our total third quarter 2023 revenue compared with 14.6% in the third quarter of 2022. Third quarter automotive revenue of $95.2 million decreased 8.8% from the second quarter of 2023, primarily due to lower ADAS and digital cockpit sales. Third quarter 2023 revenue was up 9.3% year over year. Automotive revenue represented 20.0% of MPS's third quarter 2023 revenue compared with 17.5% in the third quarter of 2022. Third quarter 2023 industrial revenue of $42.1 million decreased 15.3% from the second quarter of 2023 due to lower sales in security and industrial meter applications. Third quarter 2023 revenue was down 28.2% year over year. Industrial revenue represented 8.9% of our total third quarter 2023 revenue compared with 11.9% in the third quarter of 2022. I'd like to make some general comments about our business. In our previous earnings calls, we have noted customer ordering patterns were oscillating within the overall market. This environment persisted through Q3. We continue to see some orders getting delayed or amended by pull-in requests. This lack of short-term visibility continues to make forecasting beyond the next quarter difficult. However, as we said in our last call, our business fundamentals remain unchanged. Our design wind pipeline and customer base have expanded tremendously, particularly amongst Tier 1 accounts. Additionally, we continue to innovate and have a strong design wind pipeline positioned as well for future growth. Moving now to a few comments on gross margin. Gap gross margin was 55.5%. 60 basis points lower than the second quarter of 2023 and 320 basis points lower than the third quarter of 2022. Our GAAP operating income was approximately $135.6 million compared to $112.3 million reported in the second quarter of 2023. Non-GAAP gross margin for the third quarter of 2023 was 55.7%, down 80 basis points from the gross margin reported for the second quarter of 2023. The quarter-to-quarter decrease in both GAAP and non-GAAP gross margin is attributed largely to an unfavorable product mix. Our non-GAAP operating income was $167.8 million compared to $153.1 million reported in the second quarter of 2023. Let's review our operating expenses. Our GAAP operating expenses were $128 million in the third quarter of 2023, compared with $135.4 million in the second quarter of 2023. Our non-GAAP third quarter 2023 operating expenses were approximately $96.6 million, essentially flat with what we saw in each of the first two quarters of 2023. The differences between non-GAAP operating expenses and GAAP operating expenses for the quarters discussed here are primarily stock compensation expense and income or loss on an unfunded deferred compensation plan. For the third quarter of 2023, stock compensation expense, including approximately $1 million charged cost of goods sold, was $33.6 million, compared with $38 million recorded in the second quarter of 2023. Switching to bottom line. Third quarter 2023 gap net income was $121.2 million or $2.48 per fully diluted share compared with $99.5 million or $2.04 per share in the second quarter of 2023. Third quarter 2023 non-GAAP net income was $150.3 million or $3.08 per fully diluted share compared with $137.5 million or $2.82 per fully diluted share in the second quarter of 2023. Fully diluted shares outstanding at the end of Q3 2023 were 48.8 million. Now let's look at the balance sheet. Cash equivalents and investments were $1.04 billion at the end of third quarter 2023 compared with $941.1 million at the end of the second quarter of 2023. For the quarter, NPS generated operating cash flow of approximately $175.9 million compared with Q2 2023 operating cash flow of $90.2 million. Accounts receivable ended the quarter of 2023 at $185.8 million, representing 36 days of sales outstanding, which is one day higher than 35 days reported at the end of the second quarter of 2023. Our internal inventories at the end of the third quarter of 2023 were $397.3 million, down from $427.4 million at the end of the second quarter of 2023. Days of inventory of 171 days came in at the end of the third quarter of 2023 were 30 days lower than at the end of the second quarter of 2023. Comparing current inventory levels with following quarters projected revenue, you can see days of inventory decreased to 180 days at the end of the third quarter of 2023 from 184 days at the end of the second quarter of 2023. I would now like to turn to our outlook for the fourth quarter of 2023. We are forecasting Q4 revenue in the range of $442 to $462 million. Gap gross margin in the range of 55.2 to 55.8%. Non-gap gross margin in the range of 55.4 to 56%. Total stock-based compensation expense in the range of $32.2 million to $34.2 million, including approximately $1 million that would be charged to cost of goods sold. Gap operating expenses between $127.1 million to $131.1 million. Non-gap operating expenses in the range of $95.9 million to $97.9 million. This estimate excludes stock compensation expense, but includes litigation expense. Interest and other income in the range from $4.1 to $4.5 million before foreign exchange gains or losses. Fully diluted shares in the range of 48.7 to 49.1 million shares. We are also pleased to announce that our Board of Directors has approved a share buyback program for up to $640 million over the next three years with the goal of offsetting future dilution. In conclusion, while we expect visibility to remain limited in the short term, which was the same as last quarter, we continue to execute our long-term strategy. 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 Quinn Bolton of Needham. Quinn, your line is now open.

Michael and Bernie, congratulations on the results and the outlook in a tough market. I guess, Bernie and Michael, the enterprise data business, very strong quarter on quarter. Wondering if you could just give us some thoughts as you look into next year, how you see the GPU business And specifically, do you see sort of expansion of that customer list driving strength in GPUs? And then a question on CPU. You said CPU was up in the third quarter. Wondering if you're finally starting to see some strength in the Sapphire Rapids and Genoa side of that business. And then I have a follow-up question. Thank you.

At this time, as Bernie said earlier, these markets are very much oscillating. And the net, you see it, way down from this quarter. So from last year, year to year, we're still down. But the AI and the Now, AI, these power modules, we're ramping up as a result of can maintain growth in these years, and still slight growth from the last years. That's mainly due to AI. also in the prior quarters and all those that we see as a very lumpy business, lumpy for ADAS ramping up, but All of these, OK, we believe that will happen in ramping up in the next year, not only from ADAS and also, as you mentioned, on the general CPU and in the server side. And I might as well mention all the other ones. We still have a lot of Greenfield products that haven't really ramped up yet. many, many projects gets delayed and this year pushing to a next year. And we don't wanna give a very clear forecast that we still don't know yet, but sometimes the next years, we believe that they will start to ramping up and all these are greenfield products. So that's kind of my summary for the near-terms business.

James Rattling Leafs, I think you might call I guess a follow up question Bernie I think in the script you mentioned some push out some pull ins or expedites I think that pull ins or expedites you know, maybe newer. James Rattling Leafs, Given just the overall challenging industry where the pull ins specific to certain customers are in markets or you starting to see pull in requests to press multiple in markets, thank you.

Yeah, Quinn, I think what we're experiencing here is a unique business cycle and that right now our end customers are unwilling to commit beyond a fairly narrow window of expecting lead times within under 10 weeks for delivery. That makes, as we said earlier in the comments, the predictability really hard to call right now. But I think, as Michael just said, that when we look at our design wind pipeline, it's strong. And we're confident that we're in a good position to capture share and growth as the market recovers. But right now, we're still in a level of unpredictability.

Thank you very much. He's talking about which segments. Oh, I'm sorry, which segments? Yeah, which segments. We look at it kind of a rough survey. It's actually crossed the entire product segment, including consumers. Some of the products, they need to pull it in very quick. As Bernie said, the lead time is very, very short. And we don't have those products. It's pretty much across the board. And other than AI, we really plan ahead. And we really plan ahead from beginning of the year. And we can anticipate all the ramp up and even for the next few quarters.

Got it. Okay. Thank you.

Our next question is from Tori Spanberg of Stifel. Tori, your line is now open.

Yes, thank you, Michael, Bernie, and congratulations on that billion-dollar cash balance. First question is on the Q4 outlook. I know you typically don't guide by segment, but can you just talk about directionally where you expect each segment to trend in Q4?

Q4 is still down. Q4 is still down quite a bit from Q3. And pretty much everything's accepted. Maybe not autos. Auto probably goes sideways or maybe slightly up. It's slightly up. And also the AI powers are still continuously to ramp up.

Yeah, I think that when you look at the broader market, we're experiencing a lot of the weakness and demand that many of our peer companies are. And what makes us differentiated is the AI boost we're experiencing.

And pretty much AI and auto and everything else is pretty much muted. Yeah.

Very good. And as my follow-up and maybe related to the previous question on enterprise data and AI, just wondering if you have any visibility on the sustainable growth here. There's obviously one big partner that's ramping right now, but it looks like there's some other processor companies that are going to be catching up next year. So if you could give us any color on, especially enterprise data segment for 2024, that would be really helpful.

Or I can tell you overall how the NPS strategies, like NPS strategies always get the best, we provide the best performance. When the volume gets higher and requirements lower, we don't chase those low-end requirements. the low-end segment. I see NPS is still in the forefront in terms of providing best efficiencies and the lowest generating heat in the smallest areas. we are still the leading, will be next year and the year after, all these products are in development with our customers and with the leading providers in AI, the GPUs. specifically, and that's a huge market, and we don't want to take all of them. And to your other part of the question, there's a general market, right? Okay, and general market in other segments, we CPUs, and you remember the VR 13, we didn't have a lot of data on Wings, and they gave me an But we had... we pile up a lot of inventories and when the VR 13.5, it became a serendipity. We have a few project designer wing and other supply couldn't ship, but we ship a lot. So that's where you see the server data center grows. That's because of that. And for next years, we were told to get ready. to have those projects ramping up in rapid supply. When these markets are ready, ramping up, NPS are there.

I think, Tori, you've hit on a couple of very good points that as far as the AI GPU opportunity, we're very well positioned both for the near term in 2024, but more importantly, longer term. And as Michael just emphasized, there is a differentiated market there, and we want to stay at the high end of that market. So we've always been aware that there would be competitors entering this space. And that's how we're differentiating ourself. And then as far as the CPU and GPU markets, what we're preparing to do is to manage the uptick in demand that we're anticipating by building that inventory during the next couple of quarters.

Oh, yeah. That's why I forgot what I said, what I tried to make a point. And the NPS doesn't want to be known as an AI power company. We want to focus on the diversified growth. And we do have a lot of greenfield products still haven't realized yet. These are across a segment. Also, in the consumer side, in the last couple of years, because of shortages, we kind of neglected. In the last half years, we developed a low-cost product, and we introduced the market. You will see the growth. That's only because of the very short design cycle. You will see revenue from it. from next year. And all the other products like industrials, automotive, and traction inverters, and chargers, and also ADAS, these were ramping up. And so we want to achieve a very diversified growth, not only on the AI side.

Great caller and good job with the buyback. Thank you.

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

Hi, guys. Can you hear me?

Yeah. Hi, Ross.

Hi there, guys. So I guess the question I have is, I don't know if cyclicality or seasonality is carrying the day, but the last couple of quarters, you've talked about weakness. You're not unique in that. But the fourth quarter, you seem to be guiding pretty much back to a seasonal drop. If I look into the first quarter, is that something that you'd expect to continue or is visibility just too limited to really comment on that quite yet?

It's, well, the numbers kind of reflect the seasonal, but the reality is it's just happened that way. We can't call it seasonal. There's a fast changing market. I mean, it's very difficult for us to forecast. That's difficult. Unfortunately, we have a lot of capacities. And, but these are capacity was still, the lead time is still shorter than our production cycles in the game. And we have to get ready just, okay.

Ross, you bring up a really good point, is that if we look at the outlook for Q4, portion of that is how competitive we were at going after the notebook market. And so the Q4, we're experiencing a little bit of a decline as those are seasonal sales. When we look at Q1, Michael said it best, is there isn't a lot of visibility. But as we look at this cycle, we believe that next year is really back half-weighted. And so I would probably indicate that we'll have a more conservative profile as we look at the first half of 2024.

Yeah, also, I forgot to mention about it. We talk about at the beginning of the year, we'll be aggressive on price. And especially we did across the board, then we have a new product in the consumer segment come out and already came out. And also in a notebook area, we pretty much have a large market share in a commercial side. In the beginning of the year, we were starting to become very aggressive on the price. And now, fourth quarter, you see it in our notebook size, start to gain more shares in the consumer side.

Got it. Thanks for that. And as my one follow-up, I wanted to just pivot over to the gross margin side of things. You mentioned, Bernie, in your script that you were at the low end of your guidance because of mix. I was a little surprised that enterprise data more than doubled sequentially, but yet you pointed to mix. Could you just talk a little bit about what's going on? What mix were you referring to? Because I think whether correctly or incorrectly, at least I assume that enterprise data would be an accretive gross margin category.

Sure. Well, the consumer notebook mining is very low. But it's the easier money. to be made.

Michael is exactly right. We have been aggressive on pricing across the board. And while that isn't called out specifically as a contributing factor to the lower gross margin, it is reflected in the overall mix, notwithstanding the impact of the GPU and AI business.

And has that pricing dynamic, is that starting to kind of normalize from here? Or is that an incremental headwind that we should consider going forward?

I believe that as the market begins to stabilize, that we'll return to a more normal profile as far as pricing. Again, a very specific point to make here is that most of our customers are attracted and we secure design wins because of our innovation as opposed to pricing alone. So I believe that as the market stabilizes sometime in 2024, that will probably return to a more normal pricing environment as well.

Yeah, but you said product mix, right? But also there's other capacities, okay, and capacity utilizations out of China and also China. also add a lot of capacity cost, okay, for us. So it is a mix of all of them, not only the product mix.

Thank you.

Okay, yeah.

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

Hey, guys, and let me add my congratulations. If I could follow up just one more question on enterprise data. You know, you mentioned your greenfield. Greenfield product lineup for next year, I think a couple of times on the call. And one of those that really stands out is a silicon carbide power isolation module you guys are working on. And I know that's for a couple of different end markets, but I was hoping you could give some color around the sort of engagements you're seeing right now with the CSPs. So in data center, maybe a sense of timing of when those initial revenues would start showing up in the model and And my bigger question is, really, do you view sort of power isolation, the power isolation module, as a TAM expander for your existing enterprise data franchise? Thanks.

Let me answer your first part of silicon copper. Thanks for reminding me this.

I almost forgot.

Yeah. we release the product and first revenue we'll see sometimes the next years, okay, will be in the solar inverters. And the green energies has a lot of demand. The products we design for those, that market segments. will start to ramp, and also in automotive. And these are not specifically for trashing inverter for these drivers. We do power management. And we will see those products design and ramping up much later. These are clearly, there's a void. In the market, no other company produces that kind of a product. And it became very unique. And so I have a very good confidence. And second half of next year, the year after, we will see a lot of new revenue come from that segment. And what's the second question? A second part of it?

Yeah, within CSP, the full rack power that I know you guys have discussed, is there any color you could give around how you view that? Is that sort of a TAM expander for your enterprise data segment? I'm sorry, the hyperscalers?

Or the hyperscaler. Hyperscaler is now, you guys knows better than we do, we just only provides the power. For the CPU side, GPU side, as we said earlier, VR14, we expect to have a grow a lot bigger shares. Or if you refer to silicon carbide, That, we will develop those product, those are power supplies. And again, these are plug-and-play power supply, and these are large modules. And that will ramping, I don't have a timeframe, so okay, probably is, and towards the very end of the next year, the 2025.

Okay, thanks a lot for that color, Michael. And, you know, I guess maybe if I could try one more swipe at Ross's question on gross margin, you know, I don't know, Bernie, if you can give us any kind of rule of thumb and I understand it's a mix issue and I hear everything you're saying about the current pricing environment but as we look, the thing sort of normalizing say in the second half next year. say you get back to your 2 billion or better kind of run rate. I mean, should we be thinking gross margin at that level should be back sort of tilting toward the high 50s again at that sort of a run rate?

Yeah, I would not be too quick to jump to the high 50s in the near term here. I think that what we've said previously is that we expect for the next few quarters to stay within our model, targeting about 56% plus or minus 50 basis points. And then as we look at the second half of next year, as things stabilize and we get a better mix, that we should see return to having incremental improvement?

Yeah, I still see some, and I didn't look at the membering details, and we expend a lot of capacities. from these are strategically not mistake. And we do see a lot of growth from in the next couple of years. And so I believe these are capacity, the utilization had to taking an effect on the growth margins. I don't know what's the, how many, what's the percentage? I don't know. So maybe Bernie can answer you later.

Yeah, on the capacity, and I'll take this topic on because it's an important one as we look ahead, is we talked about a year ago as far as developing new relationships with FAB partners, particularly in Taiwan and Singapore, as we not only expand capacity in advance of a future upswing in demand, but also to diversify by geography. And so those investments are, you know, adding to our overall cost profile more in the R&D side than in gross margin specifically today. But that capacity will become available here just as we see the second half of next year starting to... Well, these are all for futures.

Our China is on the high. But the capacity that we expanded from a year ago And it's not utilized. Yeah. Yeah. OK. Or the test equipment.

OK. Thanks for all the call, guys.

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

Great. Thanks for taking my question. I'm hoping, Michael, you talked about traction in design wins. that will turn into revenue over the next several quarters and years. It sounds like you've been very busy with these as you always are. And often that means you can see sort of what's coming a little earlier in terms of where the revenue might shift in terms of the end markets and products and that sort of thing. So when you think about the bigger design wins, either the bigger volume runners or the bigger ASP drivers, Is there a shift either in end markets or in mix, let's say, for modules or motion control or things like that? Any other shifts in the revenue mix that we should expect because of these design wins that have yet to ramp?

Well, thanks for reminding me of the motion. I forgot about that one. We do have a lot of design win motion size, too. We look at it and the beauty is, I can't call it specifically, really across the board. And that means we have a biggest customers, like a four or 5%, maybe a slightly higher out of this year. And all the other customers, a few thousand customers and a few thousand product around, I don't know how many market segments. they are very healthy in terms of design wing activities. So all of them will turn into revenues. And I can give you some bigger segments, and not many people talking about it. It's like a USB-C and a USB-PD. And I believe this will be a huge revenue and a growth. And NPS has a lot more content versus a USB-PD versus a USB-PD. Was it USB? Early versions. Yeah, early versions. OK, B. Type B. OK, now it's type C. And some of them in order would be cannibalized for USB type B type products. But C is a much higher content. And that's in order. And in the consumer side, it's totally new. USB type B type is a very low, it's like a consumer site. And now they're converting to USB C. And that would be a lot broader applications. And it's based on because all unified applies. And especially European countries and the drive that standards. and things will migrate to everywhere. So they have a clear mandate when to switch it. And I believe it's even Apple's for the next version of a phone will be USB-C. And we see NPS has a lot of opportunities, a lot of growth. So other than that, battery management, And that will ramp in 2014 and a lot of different applications from- 2024. Yeah, 2024. And these are from a power tool to garden tools and from all kinds of other things. already designed the products and we're ramping in the next 12 to 24 months or less than six to 24 months, I guess.

Yeah. And in addition, just to repeat, as far as the opportunities that we talked about in both green energy, clean energy, and as well as in DDR5. So there's a large number of products that are expected to ramp here very quickly for us.

Great, if I can ask one follow-up, the inventory decline sequentially surprised us a bit. Perhaps this was always your plan, but if it wasn't, can you describe what happened here? Perhaps a customer came in with more demand for something, or maybe you decided mid-quarter to reduce production. Maybe just set me straight on this issue.

We reduced overall inventories and like I mean, starting the beginning of the year, that's probably reflects that. And yeah, and it doesn't mean we'll keep that lower. We'll boost it up a little more.

Yeah, what we've done is we've said that we have a range of inventory that we want to operate within between 180 to 200 days. And what you've seen is that we did reduce wafer starts about nine months or three quarters ago, and that's now being reflected in our balance sheet today. But as we anticipate the demand for all of the opportunities that we see possible for 2024, we are beginning to ramp inventory. And as Michael said, we have the capacity available to take advantage of that.

Thanks, guys.

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

Thank you very much. Good afternoon, guys. Michael, I wanted to dig into the automotive market a bit and understand the drivers of the business over the next several quarters. I think you guys have some... Very exciting new content with one of the leading EV OEMs in the States and obviously some really good content with a number of folks in Asia. So if you could try to help us break down what your expectations are for the drivers of your automotive business over the next, I don't know, six, nine months relative to some, I'd say, fluctuations in unit expectations from some key customers, I'd really appreciate it. Thanks.

Yeah. This type of a product is not like a consumer. It's like half a year so you can design you out. And it took us a year. It took us years and it took us at least 12 months to work with our customers, the major suppliers, to put in the system and make a production worthy and working. And that's a long effort. And frankly, I don't really care. As long as you win those socket or you win those projects, the revenue will come. So when is the next three months or next nine months? I don't really know. We thought from the last year, middle of this year, we'll start to ramp up. It didn't. But I think it's next year, sometimes, that we'll see more and more ADAS and also the new type of attracting inverters. And so that's pretty much what we're trying to do. Just as everybody else expected, OK, all these products are well ramping up. OK, we'll go with it.

And if I can just add to that, that a lot of the customers that are picking up on design wins are skewed more heavily to EVs that are inviting new technology platforms. And that market has slowed in unit volume, as observed. But the exciting part of this story is that we see that new platform launches for those customers are in position to ramp in the first half of next year. And we're seeing a proliferation or a broadening of those technologies going into more traditional internal combustion or IC brands. So I think that the automotive market, while it's difficult to time, that our positioning is very secure.

Oh, yeah. OK, that's a good point. And then the ADAS, OK, I mean, they start to ramp. OK, we were told at the beginning of the year and at the end of the years and now we were told the next years but all of these are new are new for us and uh in the digital cockpit and uh also aid us and um so now they tell us early next year and uh got it don't know i can believe or not i'm not gonna see it we'll see

No, thank you guys. I guess my follow-up question, it's not to me the most strategically important part of your business, but I think it has a lot of different benefits is the consumer market in Asia. And I mean, Bernie used the cookie jar analogy a number of times over the years. And the consumer market got down to a small enough percentage of your revenue. It was I think there was an intention to potentially really lean in and try to regrow that business, both from a revenue perspective and also gives you a lot of flexibilities around growth and margins. And maybe the demand environment is not there today to really lean in and regrow that. But I just wanted to do a pulse check on the strategy. That's still the intention to regrow that business as a percentage of revenue. And you feel like you have the product portfolio to go and do that?

The strategy is correct, okay. And we will, it's demand in the last quarter, I said that it's dropped to unhealthy positions, okay, way too low. And there's a lot of money to be made. And the margin may be lower, but it helped the EPS a lot. So the second question is whether we have enough products. Okay, we did a lot of them in the last half years. And other ones we'll release in the next couple of quarters. and well, next quarter also. And those will turn into revenues in a half year to nine months time.

We remain committed to the consumer marketplace as part of our diversification. Absolutely. Okay.

Thank you guys. Have a good afternoon. Appreciate it. All right. Thank you.

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

Yes, thank you. I just had two quick follow-ups. First of all, on the buyback, I mean, this is from a size perspective, something that's quite large. And we don't have much history with the company in regards to a size like that. So how should we think about the, I guess, philosophy with the buyback? You mentioned the offset dilution, but are you going to be opportunistic or are you like some other companies where you'll buy the stock regardless of the price? Just try to understand some of the dynamics there.

Yeah, so I'd like to comment on that very quickly, is that when we looked at doing the buyback, we were demonstrating confidence in our free cash flow over the next three-year window. And the goal here is to offset dilution that will naturally occur during that period of time. So we're going to apply a go-to-market strategy that is both opportunistic but also programmatic. So we don't have a timetable necessarily for how to implement it during that period, but it will reflect both existing market conditions as well as a systematic program.

Well, burn it implies a buy low, keep it a high. Yeah.

Yeah, that's very helpful. The other follow up, and I know this is a minor detail, but your lighting control business was up quite a bit in the quarter. Was that mainly because of Notebook or was there something else going on there?

Gareth J. lighting business but. Gareth J. i'm sorry for you, you broke up a little bit we're talking about storage and computing.

Torny Davies- No, no you're so you have the lighting control business that I mean you you showed this in your filings it was up about 20% sequentially and I was just wondering if that was was because of notebook or anything else.

No, these are decorated. We don't have a lot of consumer business anymore. But these are small numbers. I don't know specifically, but I do know we don't have a lot of consumer because these are really, really low price. These are industrial lightings and decorative lighting.

Yeah, I apologize, Tori. I think that you broke up and we missed the heart of your question. Which end market? Lighting, you said.

Yeah, you have a lighting control versus DC to DC, right? So lighting control, it increased by $4.5 million sequentially. It was up 20%. You know, it's $100 million annual business. So, I mean, it's not trivial, but obviously small in the bigger scheme of things.

Yeah. Okay. Yeah. Again, Michael addressed it, but it's a general market.

I don't know specifically, but that's the market we're in. Okay. We will position ourselves. Okay. Not in the, not in specifically in the consumer and then a high, high, high volumes.

And also it's an automotive as well. Yeah. Great. Fair enough. Yeah. Yeah.

Yeah. You're right. Okay.

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.

Just in closing here, I'd like to thank you all for joining us for this webinar and look forward to talking to you again during the fourth quarter, which will likely be at the end of January. Thank you. Have a nice day.