Power Integrations, Inc.

out of these modules and to provide the highest level of protection in terms of under abnormal conditions. So we are very optimistic. It's just that because we are new to this market, it takes a long time to get there. But all indications are that we will get there. We will have a tiny little bit of revenue this year. It will grow some next year and the following year. But it really will take two or three years before we go into applications where it is related to the safety of the car. Like the motor drive is harder to get into simply because it takes two to three years to go through all the qualifications.

It makes good sense, but it does seem like you've got a large contingency, maybe a product design that you're working around, and so once that does ramp, it could be very meaningful longer term. Is that a fair way to think about it?

Absolutely, absolutely. We are fully committed to this market. We are working with a number of customers, well-known customers, and we are very optimistic. It's just a question of time.

Great, great. And then secondly for me, maybe around the GAN capacity, you've obviously had some very good reception there. And can you talk maybe a little bit just about from a capacity standpoint what you have in terms of GAN and anything maybe there that you're seeing incremental in terms of maybe winning additional design wins? Any way to size that up, what the GAN aspect does for your business?

Sure. We mentioned that our GAN revenue is going to grow at least by 3x compared to last year. and every day passes by, we feel better about our GAN. The good news is we have plenty of capacity for GAN, and we are also investing more because we see a dramatic growth in GAN over time. And so we don't expect any restrictions on GAN capacity. In fact, when somebody brought up the question about how much capacity we have, it really depends on the mix. Obviously, all silicon capacities tied around the world. We are in a much better position because of our proprietary technology and the fact that we are working with partners with 10-year contracts where they really support us very well. But when it comes to GAN, that's a completely separate capacity. And we have plenty of it right now, and we will add more to it. I don't see that as a restriction, even in the most optimistic case we can come up with. And that's also true for high power. High power is a totally different capacity, and we have plenty of capacity in high power. If those two grow, that's independent of the capacity that we have on the silicon side.

Okay, great. And one more, if I can, maybe for you, Sandy. On the margin, as we kind of think about the mix of both products and maybe even you're from in the communication side, thinking about the mix of customers, how do you think that the margin can trend as you move, I guess, from that business, thinking about the third party or aftermarket chargers and then maybe some of the Chinese OEMs? Do you think that margin holds fairly steady or could you see some uplift there?

Well, definitely in the aftermarket, you know, you will see the margin improvement because it's higher power level, multi-port. And as I had mentioned, the GAN products, you know, have much higher ASP generating much higher gross margin dollar. But when the volumes are lower, you get even the pricing benefits there. I think for the year, you know, the growth margin will move in the right direction. And for the year, as we had said, we should still meet our original guidance, you know, around the 50% mark for the year. We do expect the mix in the second half to be a little more favorable than it is for the first half because we've had a lot of benefit in the first half from the Huawei's transition. And we do expect that the mix will slightly go favorable in the second half.

Thanks so much. I appreciate it. Yep.

Thank you, sir. We do have another question from the line of guys from Northland. Your line is open. Yeah, thanks for taking the question. Well done, guys. Thanks, Doug. Good question. On the semiconductor, I'm sorry, on the cell phone side, you know, how much of your growth is units versus ASP?

Very good question. We have grown both, but the revenue share is significantly higher than the unit share, simply because our ASPs are much higher, especially when you go to the real high end of the market. We talked about a 65-watt charger for a cell phone, which is a lot of power for a cell phone. They call it the supercharger. You're talking about significantly higher ASPs than we used to get on the low end of the business. You're talking about 5 to 10 times more ASP for a simple reason that the power level is very high, one. Secondly, it's GAN because they're looking for the smallest adapter. And to do that, you need very high efficiency, which means you end up having to pay more. The customer ends up having to pay more. But on top of that, we have multiple products in that one charger. It's a single port charger, but we have three chips in it. One is our InnoPro using GaN as a switch. The second one is the MiniCap, which also uses GaN as a switch. But we also sell CapZero, which is another product we introduced some time ago. So we have a lot more footprint, a lot more dollar content as the whole market moves towards the high end. Right now, the high end is a relatively small business. You saw we talked about a notebook adapter using that solution, the same solution being used on the high end of the cell phone. And so it's actually quite a reasonable volume, but I think we have a lot of room for us to grow the content and therefore our SAM in the cell phone and notebook market.

Okay, got it. And then, Sandeep, in terms of dollars, how much inventory do you want on the balance sheet?

Yeah, ideally, our model is 120 days. And quite frankly, in the environment, I wouldn't mind being even higher than that. But I think it's going to be a bit of a challenge with the demand where it is right now until things normalize. Obviously, the channel inventory, as Balu indicated earlier, we do expect that to pop up a bit in the coming quarters. I mean, I wouldn't be surprised even in Q2 it popping back up because two weeks is not sustainable. But internally, I would at least like 120 days, even though in the short term I wouldn't mind being even a little higher.

Okay. And assuming the current revenue run rate.

Yeah, and, you know, we're gaining a lot of share. I think what we have tried to tell you is that at some point things will normalize. And as we talked about having that 16% growth, we do see upside sooner and the normalization impact we will see sooner. So, you know, we've always tried to guide even keel. I think... We will continue to grow our business over the next several years, irrespective of what's happening in this marketplace right now. Now, I know some quarters have the gyrations of demand, but even as things normalize, in the long term, we believe in our model because of the share gains that we are seeing across the different markets. Yeah, one thing I want to clarify is that we will outperform, I believe, the industry.

because of the shared gains so i can't predict when the in the normalization of demand is going to happen but because of the share gains we will outperform our peers we believe let me let me try to get at the sort of the run rate um when i think about your older products they're pretty steady runners top switch tiny and and some of the uh older inner switch products What has the unit volume done over the last couple quarters relative to what the run rate was?

It has gone up significantly. I mean, I can't even believe it. You know, these are legacy products that some of them are 45, 30 years old. But the unit volume and the revenue have been growing to the point that, believe it or not, we are adding capacity for those old processes and also for the old packages. These are really old, you know, PDF packages and SOAs and... We still have to add capacity because of the demand increasing because these are used in appliances and industrial markets, and those are doing very well.

So, you know, can you put a number on it for me? You know, how much has PopSwitch increased from run rate from, let's say, 19 to, you know, now?

I'll have to rely on Sandeep here. He's looking up the tables. But I can tell you that it's still a significant part of our revenue. It's something like I think the top switch is in the high teens percentage of our revenue, and the tiny switch is in the same high teens percentage of revenue, and the link switch is about the low teens of our total revenue. And the rest of it is InnoSwitch-related products. So, you know, up to 50% of our revenue, plus or minus.

Right. But what I'm curious about is what is the unit trajectory then? You know, is it up to the unit? I don't have that handy. Yeah, we are looking for it. We don't have it handy. We'll follow up. Yeah, that would be super helpful. I'll let it go. Thanks so much, guys. Thanks, Gus. Thank you. Again, everyone, if you would like to ask a question, you will need to press star 1 on your telephone keypad. There are no further questions at this time, presenters. You may continue, please.

All right. Thanks, everyone, for listening, and thanks for your patience with our technical difficulties at the start of the call. We'll leave it there, and this call will be available as a replay on our website, investors.power.com. Thanks again for listening, and good afternoon.

Thank you, sir. Ladies and gentlemen, this concludes today's conference call. You may now disconnect. Thank you for participating.