Power Integrations, Inc.

Thank you for standing by and welcome to the Power Integrations fourth quarter earnings call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Joe Schiffler, Director of Investor Relations. Thank you. Please go ahead.

Thank you, Mike. Good afternoon, everyone. Thanks for joining us. With me on the call today are Balu Balakrishnan, President and CEO of Power Integrations, and Sandeep Nair, our Chief Financial Officer. During this call, we will refer to financial measures not calculated according to GAAP. Non-GAAP measures exclude stock-based compensation expenses, amortization of acquisition-related intangible assets, and the tax effects of these items. A reconciliation of non-GAAP measures to our GAAP results is included in our press release. Our discussion today, including the Q&A session, will include forward-looking statements denoted by words like will, would, believe, should, expect, outlook, forecast, anticipate, and similar expressions that look toward future events or performance. Such statements are subject to risks and uncertainties that may cause actual results to differ materially from those projected or implied. Such risks and uncertainties are discussed in today's press release and in our Form 10-K filed with the SEC on February 7, 2020, and our most recent quarterly report on Form 10-Q filed with the SEC on October 29th, 2020. This call is the property of Power Integrations, and any recording or rebroadcast is expressly prohibited without the written consent of Power Integrations. Now I'll turn the call over to Balu.

Thank you, Joe, and good afternoon, everyone. Fourth quarter revenues comfortably exceeded our expectations, increasing 32% year-over-year to $151 million. The growth was broad-based, with all four end markets up double digits from prior quarter. Non-GAAP operating margin expanded to 25%. Non-GAAP earnings were $0.60 per diluted share, and we generated $46 million in cash from operations. Reflecting our strong cash flow and healthy balance sheet, our board of directors has increased the quarterly dividend to $0.13 per share. This marks our third dividend hike in the past four quarters, with a total increase of 37% over that time. For the full year, while revenues for the analog semiconductor industry grew just 3%, our revenues grew 16% with growth in all four end market categories. The consumer category, our largest end market entering this year, grew about 10% in 2020 and finished strong, up nearly 20% year-over-year in the fourth quarter. Appliances were the main growth driver, reflecting robust demand as well as continued share gains at a broad range of customers in Europe, China, Korea, Japan, and the U.S. The impact of share gains continues to be magnified by rising dollar content in household appliances driven by features such as network connectivity, LED lighting, and other electronic intelligence, as well as tighter energy efficiency standards. Our InnoSwitch products, which are gaining significant traction in appliances, drive dollar content even higher by providing a greater level of integration than earlier products. We're also seeing strong interest in our GaN products and our bridge switch motor driver chips at many appliance customers, which points to continued growth in dollar content going forward. In the industrial category, demand for high-power products was constrained in 2020 by pandemic-driven delays in infrastructure projects. The lower revenues in high power were offset by growth in home and building automation and battery-operated tools, and broad-based industrial applications, resulting in a low single-digit growth for the overall category. Going forward, we expect our industrial business to benefit from a broad range of secular trends, such as renewable energy, high-voltage DC power transmission, electrification of transportation and tools, smart homes and buildings, and fixed USB charging receptacles. The communications category provided the largest incremental revenue contribution in 2020, growing more than 30% for the year. The smaller computer category grew even faster, up nearly 50%. The common denominator across these categories is the rapid adoption of advanced charges for smartphones, tablets, and notebooks. Over the past couple of years, Power Integrations has demonstrated a commanding lead in terms of technology and product design for advanced chargers, and that advantage is now translating into rapid growth in market share and revenue. Adoption of advanced chargers accelerated last year and shows no sign of slowing as the 5G download continues. Even as 5G phones require higher power chargers due to their larger batteries, many OEMs are pushing power levels even higher to offer much faster charging as a way to differentiate their products. Meanwhile, thanks to new technologies like USB PD and the move to an accessory model at certain OEMs, we are seeing an unprecedented wave of innovation in charger designs at OEMs and aftermarket suppliers. This includes an increasing number of chargers designed to power two or more devices and a robust pipeline of designs with our GAN products. That includes our GaN-based InnoSwitch products, as well as our new Mini-CAP ICs, which use GaN technology to reduce the size of the charger by enabling smaller input capacitors. We won several designs with Mini-CAP in Q4. including a 65-watt design utilizing MiniCap along with GaN-based InnoSwitch and our energy-saving CapZero IPs. While not necessarily typical, such high-value designs exemplify the sea change that has occurred in the charger market over the past several years. Not long ago, chargers were commodities and cost was the only variable that mattered. Today, OEMs are thinking strategically about chargers, either as a value-added feature or revenue-generating accessory, and a wave of third-party aftermarket brands has emerged as well. We have seen this change coming for quite some time, and we were ready for it thanks to R&D investments we have made in technologies like GAN and revolutionary products like InnoSwitch. Our investment in GAN, which began almost a decade ago, is a great example of our long-term thinking that has been a cornerstone of our success. Our approach to managing the challenges of the pandemic is another. While some of our industry peers reduced income or cut salaries in the early stages of the pandemic, we continue to invest in our people, giving normal salary increases and expanding our workforce by 4% last year, with the largest increase coming in R&D. In fact, we hired a number of highly capable people let go by industry peers in the early stages of the pandemic. We also invested in capacity and infrastructure, spending more than $70 million in capital last year, including nearly $50 million on construction of new facilities for our European operations and updates to our San Jose headquarters. We also built inventory as demand softened in the early stages of the pandemic, rising to 178 days at the end of the June quarter. Building inventory is something we can afford, knowing that our products have long shelf lives and are fungible across applications and customers. It brings stability to our founder relationships, helping to preserve our capacity, and enables us to satisfy customers when demand surges, as we are seeing today. While lead times have extended for some of our newer products and the distributed inventories are below normal, we have been able to keep customer production lines running despite an unprecedented surge in bookings in the recent months. Finally, before I turn it over to Sandeep, I'd like to acknowledge Raja Patrakian, who is leading Power Integrations for personal reasons after six years as our VP of Operations.