Ladies and gentlemen, thank you for standing by and welcome to the Monolithic Power Systems, Inc. first quarter 2020 earnings conference call. At this time all participants lines are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. Now, it is my pleasure to turn the call to Bernie Blegen, Chief Financial Officer.

Thank you. Good afternoon and welcome to the first quarter 2020 Monolithic Power Systems conference call. Michael Hsing, CEO and Founder of MPS is with me on today's call. 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 Q1 earnings release and in our SEC filings, including our Form 10-K filed on February 28, 2020 which is accessible through our website, www.monolithicpower.com. MPS assumes no obligation to update the information provided on today's call. We will be discussing gross margins, operating expenses, R&D and SG&A expenses, operating income, interest and other income, 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 financial 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 earnings release, which we have filed with the SEC. I would refer investors to the Q1 2019, Q4 2019 and Q1 2020 releases as well as to the reconciling tables that are posted on our website. I would 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 earnings release filed with the SEC earlier today. Before going through our financial results, I would like to acknowledge the difficult circumstances we are all operating under. At MPS, we have taken all necessary precautions to ensure the safety of our employees, our suppliers and our customers. At the same time, we remain focused on the need to execute at the highest level possible. Our worldwide efforts are reflected in our continuing level of innovation and customer support. In response to the news of extreme shortages of medical equipment, MPS rose to the occasion to fight the global pandemic. As described in our recent press release, MPS developed and assembled an emergency ventilator prototype in a matter of days leveraging a MIT open-source design concept. We demonstrated our technological superiority and deep system application knowledge to showcase our capability to advance from a component provider to a solution provider in a short period of time. We believe we can help our customers to do the same by taking advantage of MPS' vast and diversified product portfolio, which is highly programmable, flexible and feature-rich. We are also encouraged by the excitement we have received from our existing and potential customers that will lead to many promising opportunities in the medical device industry. Turning now to our financial results. MPS posted record first quarter revenue of $165.8 million, 17.3% higher than the comparable quarter in 2019. MPS continues to benefit from our technology leadership and diversified multi-market strategy. Looking at our revenue by market. In our computing and storage market, first quarter 2020 revenue of $52.0 million increased $12.8 million or 32.6% year-over-year. First quarter 2020 computing and storage revenue represented 31.3% of MPS' first quarter 2020 revenue compared with 27.7% in the first quarter of 2019. The year-over-year revenue increase primarily reflected sales growth for cloud-based servers and storage. First quarter 2020 communications revenue of $27.9 million rose $5.7 million or 25.6% from the first quarter of 2019. The year-over-year revenue increase primarily reflected higher 5G networking sales. Communications revenue represented 16.8% of MPS' first quarter 2020 revenue compared with 15.7% in the first quarter of 2019. First quarter 2020 industrial revenue of $25.2 million increased 18.3% from the first quarter of 2019 and accounted for 15.2% of our total first quarter revenue. The increase over the first quarter of 2019 primarily reflected games and smart meters and security applications. First quarter 2020 automotive revenue of $23.3 million grew 13.6% over the same period of 2019, representing 14.1% of MPS' first quarter 2020 revenue. This growth primarily represented increased sales of infotainment, safety and connectivity application products. First quarter of 2020 revenue from consumer markets of $37.4 million decreased $700,000 or 1.9% from the same period of 2019. The year-over-year revenue decrease reflected continuing reductions in demand for set-top boxes and flat-panel TVs. Consumer revenue represented 22.6% of our Q1 revenue compared with 27.0% contribution in the first quarter of 2019. GAAP gross margin was 55.2%, 10 basis points higher than the fourth quarter of 2019 and flat with the first quarter of 2019. Our GAAP operating income was $31.0 million compared with $30.7 million reported in the fourth quarter of 2019. For the first quarter of 2020, non-GAAP gross margin was 55.5%, matching the fourth quarter of 2019, but 10 basis points lower than the first quarter of 2019. Our non-GAAP operating income was $45.9 million compared to $50.8 million reported in the fourth quarter of 2019. Our GAAP operating expenses were $60.5 million in the first quarter of 2020, compared with $61.2 million in the fourth quarter of 2019. Our non-GAAP first quarter 2020 operating expenses were $46.1 million, up from the $41.8 million reported in the fourth quarter of 2019. This increase primarily reflected higher Q1 payroll taxes and increased investment in new products. The difference between non-GAAP operating expenses and GAAP operating expenses for the quarters discussed here are stock compensation expense and income or loss on an unfunded deferred compensation plan. For the first quarter of 2020, total stock compensation expense including approximately $600,000 charge to cost of goods sold was $18.6 million compared with $18.7 million reported in the fourth quarter of 2019. Switching to the bottom line. First quarter 2020 GAAP net income was $35.8 million or $0.77 per fully diluted share compared with $32.4 million or $0.70 per share in the fourth quarter of 2019. Our Q1 2020 tax provision of minus 22% was due to a one-time discrete tax benefit resulting from stock compensation. First quarter 2020 non-GAAP net income was $44.3 million or $0.95 per fully diluted share compared with $48.4 million or $1.04 per fully diluted share in the fourth quarter of 2019. Fully diluted shares outstanding at the end of Q1 2020 were 46.7 million. Now let's look at the balance sheet. Cash, cash equivalents and investments were $492.3 million at the end of the first quarter of 2020, compared with $458.5 million at the end of the fourth quarter of 2019. For the quarter, MPS generated operating cash flow of about $51.4 million compared with operating cash flow of $61.0 million in the fourth quarter of 2019. First quarter 2020 capital spending totaled $10 million. Accounts receivable ended the first quarter of 2020 $54.3 million or 30 days of sales outstanding, up one day from 29 days at the end of the fourth quarter of 2019. Our internal inventories at the end of the first quarter of 2020 was $131.5 million, up from the $127.5 million at the end of the fourth quarter of 2019. Days of inventory increased to 161 days at the end of Q1 2020, compared with 155 days at the end of the fourth quarter of 2019. I would now like to turn to our outlook for the second quarter of 2020. We are forecasting Q2 revenue in the range of $167 million to $173 million. We also expect the following: GAAP gross margin in the range of 55.02% to 55.6%. Non-GAAP gross margin in the range of 55.3% to 55.9%. GAAP R&D and SG&A expenses between $60.9 million and $64.9 million. Non-GAAP R&D and SG&A expenses to be in the range of $43.4 million to $45.4 million. This estimate excludes stock compensation and litigation expenses. Total stock-based compensation expense of $18.1 million to $20.1 million, including approximately $600,000 that will be charged to cost of goods sold. Litigation expenses are expected to range between $1.7 million to $2.1 million. Interest and other income is expected to range from $1.7 million to $1.9 million before foreign exchange gains or losses. Fully diluted shares to be in the range of 45.8 million to 47.8 million shares. In conclusion, we are not immune to the macroeconomic reality. But our long-term growth prospects remain intact. We will continue to execute to our plan and are prepared to manage volatility of future customer demand. I will now open the phone lines for questions.

Our first question is from Tore Svanberg with Stifel. Please go ahead, Tore.

Yes. Thank you Michael and Bernie and congratulations on these results in a very challenging environment. First question and you maybe this is a bit philosophical but innovative companies tend to gain a lot of share during a downturn. We are obviously in a downturn. I was just wondering, Michael, if there are certain things that you are looking at to obviously come out of this even stronger than going into this?

Tore, you remember the history. Great. We tend to.

Michael, you are breaking up. Michael, you are breaking up unfortunately.

Can you hear me?

Yes. You might go to the handset instead of the speaker.

Sure.

There you go. You are fine.

Okay. Can you hear me now?

Yes, we can. Yes, it's much better.

All right, okay. Yes, as I stated earlier, Tore, if you remember MPS' history, because you do cover those things since day one of MPS become a public company. And somehow, we tend to do that. And in the downturn, we tend to do well and relatively in the normal times, we are just as good as just everybody else. But the percentage of growth tend to be slightly slower or slightly lower. And how we achieved, I think is that we don't really, our target is many years out. And regardless of the downturns or upturns, we are very consistent. So it's not like other company maybe because they have all the large market share and they tend to react to a shorter term. So if you can think about it and the philosophy and we will tend to well during a downturn.

That's very helpful. And on a similar topic, but more specific, your e-commerce business. I do appreciate it's taken a while to get that up and running. But in this sort of virtual environment we live in, I would think that a business like that would be very, very welcome. So maybe you can elaborate a little bit on what's been going on on that front?

Well, as I said in last quarter, we said e-commerce, like we kind of drop a hook in the Pacific Ocean. There is a lot of fish there. But we didn't hook that. Too many things and all of that. So we are still in the early stage. However, in the last couple of months, we launched ventilators. That attracted so many new customers or new potential customers and it overwhelmed us. And it's kind of a surprise to us. I think that we are a small company and we are relatively new company and people don't know us. Just we need time and we need to learn how to do it.

That's great. One last question for Bernie. Bernie, you talked about the computing and storage business being up quite dramatically year-over-year. Some other players in the space obviously are talking about similar strength. Did you get a sense that there is some pull-in activity going on there? Intel, for instance, they talk about obviously the second half being weaker than the first half. Any color you can add on that would be great. Thank you.

Sure. I think we are seeing a pattern that's probably consistent with other companies who have exposure to either 5G or data center or to notebooks as there is continuing investment in order to service the work from home aspect of the economy right now. So there has been a lot of activity, particularly in storage, particularly in data center and we are seeing a continuing level of investment also in 5G. Again, as with any expectation of what the second half of look like, obviously, this is a challenging environment and we normally only forecast one quarter ahead.

Very good. Congratulations again. Thank you.

Thank you.

Thank you.

Thank you. Our next question comes from Matt Ramsay with Cowen. Please go ahead, Matt.

Hi. This is Josh Buchalter, on behalf of Matt. Thanks for taking my question. I hope everyone is hanging in there okay. I know you guys love questions on inventory. But given all the moving parts on both the supply and demand side, could you update us about how you feel and your comfort level after last quarter you sort of lamented bringing levels down? It would be helpful to hear an update on your visibility into both your on books and in the channel. Thanks.

Well, in the last couple of quarters, we said that our bookings are very good and it is still is. And we have inventory problems, the problem to related to and deliver to our customers up and above. And this issues and this growth of this year, we didn't say is from the last couple of quarters. We said it a lot earlier. But our macro market have some uncertainty and we were so criticized we have a way inventory. So last December, we took a step and reduced our inventory. And now, barely we can do beyond our forecast. So the condition is even more murkier now. And we had to just react accordingly.

And if I can add to Michael's good point there is that through the challenges that we are facing in the economy right now, as you can see that we continue to operate at nearly 100% capacity both in terms of our supply chain as well as our internal operations. Now, I do not want to minimize those challenges and anyway take away from a lot of very difficult and hard effort on the part of a lot of employees that made that all happen. But so far, we have had minimal disruptions to the supply chain.

Yes. Thank you. I appreciate all the color. And then as my follow-up, are you able to provide any color on your expectations by segment for the second quarter? Thanks and congratulations on the stellar results.

Sure. I can take this one quickly on the numbers front is, is responded to the earlier question is that I believe that much of the growth that we expect to enjoy should come from the computing and storage as well as in 5G. There is a weakening in demand in traditional consumer and also in automotive.

Here is, as added, okay. We try to have a very diverse growth. And my job is, if I do the best job, is for you guys not to know which segment is the growth. And we want to so diversify and you don't know which side, which one and we occupy a very small percentage of each market. And look at the consumer and actually within the consumer, there is a lot of fundamental shift. We shift from traditional TV set-top box and which still have some percentage and within that we have a huge change. We chose to do a much higher high-end of our consumer products and as well the Internet of Things.

Thanks guys.

Okay.

Thank you. Our next question comes from Quinn Bolton with Needham & Company. Go ahead, Quinn.

Hi guys. Let me offer my congratulations on the nice results and outlook. You guys are significantly outperforming a number of the analog peers sequentially and certainly year-over-year. And I think that that we have seen a number of the analog peers talk about in their forecast, I think they refer to seeing some customers buying ahead or building inventory. And just wondering if you might be able to address that specifically on the compute and 5G side? I know you mentioned that auto and consumer is softening. So maybe just kind of go through just whether you think there is any buy ahead activity that may be influencing second quarter guidance? And then I have got a follow-up.

Yes. And of course, we are concerned. It's like a toilet paper effect, right. Just a few months ago, all the shelf and the toilet papers are gone. I mean and whether we have seen the same kind of effect on us, we really don't know. In some of the areas like in PCs and data centers have a surge. But we kind of expected that. And other ones in the consumer area and it's actually slower than our expectations. But we have to be quick on the feet and we have to react quickly. And in the meantime, we ship as much as we can.

Got it. And then just looking in that data center business, I think Intel has recently canceled the Cooper Lake processor generation to focus on the 10 nanometer Ice Lake to launch late this year. Just wondering if that's had any impact on the Whitley ramp as if you see it? Or are you seeing pretty good design activity, either for existing Purley systems or the initial ramp of Whitley just over the balance of the year? Thank you.

Yes. Good question. So our experience has been showing that we are receiving the same level of customer engagement. And that going back to Michael's point about Q2, that the level of order momentum has continued unabated, regardless of the product change, the change in the product cycle. So at this point, we may not have the full benefit of how end demand will be shaped by this change. But I don't see any early indicators that give me pause. And one other thing to make this specific is going back to Michael's point on being diversified. The business model is not dependent on any individual product launch or the timing. So as I said, that's the advantage of our diversified portfolio.

Great. Congratulations again guys.

Thank you.

Thank you.

Thank you. Our next question comes from Chris Caso with Raymond James. Please go ahead, Chris.

Yes. Thank you. First question is just regarding product cycles for the year. And I would imagine much like last year, there is a certain part of the business, a large part of the business, which is just driven by product cycles getting customer designs out the door and another portion of it which is related to run rate business. So perhaps that might be affected by downtick in demand. Could you characterize the business? What parts would be more driven by product cycles? What parts would be driven more by run rate demand? And take a look and give us some sense of how that plays out through the second half?

The second half, okay, look, it's not just a philosophical rate, it's not very clear, okay. But our customers' demand is as high as ever. But we divided and we engage our customers in a variety of assignments. And so when they ramp up and it's kind of very short notice, a few and when they test the market and their market is reacting well then they have a huge ramp. And so that's why we need enough inventory to support these new product win. And to answer your question of which particular market segment, in the last couple months, there is the total ship target, the engagement with the customer's total ship in the medical field now. And a lot of parts and a lot of inquiries and all this is particularly helped by the ventilator is totally to our surprise. And at the same time, we didn't expect the computing ramp as this much, okay. And it's just and particularly in the memory side, in the memory power, what is the Bernie, SMD?

Yes, SMD.

Yes. So that's our scenario now. And going forward, we are not very clear. And I know that if the new trend is you can work from home and you can work remotely and the cloud computing, the data center, the communication will keep going on. And we are accelerating.

Thank you. I am sorry.

I am sorry. I just had two small thing to add to that is that on the notebooks, seasonally, those are driven where you have a high Q3 and Q4 and then it tails off. But we see nothing in the aside from cyclical changes there. And then obviously, we have a gaming console that will start to ramp here in the end of the Q2.

That's helpful. Thank you. As a follow-up, you talked about qualifying some new capacity on 300 millimeter into the second half. Could you give us an update on that? And you know, in the current environment has there been any change to your plans or your need for that capacity either greater or less?

Yes. If we see some push outs, it is above and beyond. And if they don't have those push out we are even in deep trouble. And in terms of a customer relationship, not in terms of delivery the numbers. And we are working very hard. We try very hard to bring up another fab and as you know that this is not like an overnight, okay, at least take the half years. And I think that we can meet our demand and qualify some of the high runners.

Yes. We should be able to qualify the high runners before the end of this year and actually be shipping from that fab.

Thank you. Our next question comes from William Stein with SunTrust. Please go ahead, William.

Great. Thanks for taking my questions. Michael and Bernie, congrats on the good result and outlook. Michael, you mentioned at the start of the call, a transition from a component to a solutions company and you highlighted the ventilator as an example. But at the Analyst Day, you also showed several things that looked like a precursor to this in a way, not only e.Motion, but these programmable modules. And I wonder if there is anything more sort of quantitative that you could disclose to us in terms of revenue or growth or designs or orders as it relates to that, what we might describe as a transition or a new leg of growth to the business?

Yes. We haven't really prepared a qualitative numbers to use. And as a business, that type of a business, we have to think about how we how we disclose it very accurately to our investors. And it is clearly that trend and we want to make our solutions like our product, a chip-based solution is really ease-of-use. That is the trick. And to lot of like power supplies, lot of motor controls, okay, motion controls and even for the power supply for the data center, lot of technology are maturing, okay. What is on top of that? It's really a plug-in place solution. And you want to take away all the design effort from our customers. And in terms of, maybe Bernie, our modules are doing really well, right? Our modules and if you are talking about only power modules, so we from two, three years ago, like in single low digit million dollars of sales, we now at least of $35 million, $40 million in last year. And that number is great. This is the fastest the growth in percentage wise in MPS revenue streak.

I think I would probably add to that, if I can, that Mike was exactly right, that we haven't really articulated a financial model where we can quantify it in a way that would be meaningful to you. I agree with Michael's assessment of how we are doing with power modules. The thing that I would add though is, whether you are looking at programmability, you are looking at e-commerce solution, you are looking at e.Motion or the power modules integrated solutions that we were just talking about it, it's all about an overarching strategy as far as how to differentiate and leverage all of our multiple technologies and differentiate ourselves in the market.

Well, that's helpful. If I can have a follow-up, please. I think last quarter, you talked a little bit about a new area that the business was on investing in and that was high performance converters. I am wondering if you can provide an update on design wins, revenue, any sort of traction that we could think about there. Thank you.

Yes. Okay. That group will be joining and they brought in opportunity. We have six, seven guys joining the company and they brought in opportunities. We have the customers, okay, now. And they engage with the customers for the medical companies for a while. And so actually we don't any significant inputs, not a change. And I think that we work with these kind of things that takes about, this is very unusual, okay. So it takes less than a year, we can some results. Usually our product, even internal developments and the ground-up development, we are taking about two or three years to see anything. And this one is, okay, so far is looking good.

Thank you so much. Our next question is from Rick Schafer with Oppenheimer. Please go ahead, Rick.

Thank you and congratulations to you guys. In a tough time, you continue to execute. I guess my first question, talking about tough times. I know everybody's seen IHS forecast auto SAAR, I think, down over 20% this year. You guys obviously have a content and it's a pretty significant share gains in that vertical. Do you look at that this year and say that that's enough to offset down, let's say, 20% SAAR? I mean, could your auto revenues be flat for the year? Could they grow in this kind of environment?

I think that we look at our history, okay. And we can tag on what is your macro economy segment growth in a downwards in our segment. And we are confident enough, we can say that we can beat it by 10%.

Yes. We got an education in 2019 when there was a complete falloff in production in China and a soft demand in North America and Europe in particular. So I think if you use that as a guide, you can say that the SAAR was down but we were able to grow at about 13%, 14% last year. So to Michael's point is, you cannot apply whatever you think the market is going to do and we are going to outperform by a minimum of 10 percentage points. And last year, it's closer 20%.

Great. And then just pivoting into 5G and just maybe if you could provide an update on your 5G ramp opportunity? Maybe give us sense of the MPS dollar opportunity in a macro base station? And part of my question, I am just curious, it seems like such a massive opportunity for you guys. Could 5G be as big as server for you if we fast forwarded two or three years?

Yes. Okay. That's a good question. And I only can tell you this. We know 4G, we were out the door. We didn't have any chance. And this the first time we engage with a variety of customers and the ODMs and OEMs and event their suppliers. And so we engage both side, okay. And the real telecom companies and also their supply. And all we see of the opportunity is that we have never seen it before. How big the market is, okay? And we cannot quantify and I am not trying to tell we are in the dark here. We are new. We are a newcomer. And all I know, the opportunity is huge and we don't even try to quantify what's the opportunity. And we all notice as long it is very big.

Yes. And I think you were asking for guidance on the dollar content for the base station. And Michael was correct that we don't have a number. We are too new.

Yes. I can tell you why we don't, okay. In a particularly and which segments of the 5G. Our product is in the building box of a 5G. So if you think about it as a brick for the building. And our product there is the standard product in those companies and that's going to be used everywhere.

Got it. Thanks a lot guys.

Thank you. Our next question is from Kamil Mielczarek with William Blair. Go ahead, Kamil.

Hi. Congratulations on strong results in this uncertain environment. Can you tell me how design win activity has been trending during the pandemic versus your expectations? And how do you balance growth and margin in this environment? What levers you have to maintain or potentially expand gross margin? Thank you.

Yes. The gross margin obviously wiggles a little bit on the sideways in the second half of last year and we are not happy about it. But we try to be very consistent. And given the macro conditions, it kind of makes sense to us. But the new product, particularly the new product is slower. It's ramped at a pretty good rate. But in some of the higher value product it was slower. So that's why the margins go. But in the long term and the margin will steadily go up.

And first part of the question was design activity?

Yes. Okay. Sorry, forgot about it. That was a very good question. And obviously normal activity slow down which doesn't impact us, okay. We are very much used to it in a work from outside office. And we still very much engage with our customer but in a very different way, okay, very different market segments. Lot of them relates to medical equipment. And we shift our head where MPS in the past was always a pretty fast on the feet. And so we shift all our interests and we support those customers. But it's not like a normal business now.

One thing I can add to that is that interestingly our operations and our customers' operations in China and in Asia came back online about a month ago. And so not going to try to say that our business as usual. But in the area of the world where we have up to 90% of our employees including a large share of our design professional as well as a majority of our end customer engagement, we were actually seeing a good cadence, good momentum. And as Michael said, on the U.S. front where we are still in the shelter in place, both in our Washington and in our San Jose offices, we have developed over the last several years the ability to both do field application engineering and customer engagement via Zoom and we are fairly competent of that.

Bernie, it's not like 90%. It more like a 60% some percent, okay. Yes, we do have a testing and a reliability center that's in China, but in terms of the number of people, Asia, across the Asia, including Japan and most of the U.S. and Europe is okay, including Japan, probably as some percent, okay.

Yes.

And our next question is from Hans Mosesmann with Rosenblatt Securities.

Hi guys. This is Kevin Garrigan, on for Hans. Thank you for taking my question. And congrats on the results. Just one quick one for me and my apologies if you had alluded to this already. You had mentioned that you are seeing minimal supply disruptions and that's driving good momentum with your Chinese customers. Can you give us any color in terms of if you are seeing any demand disruption?

I don't know it was the Chinese customers. Did we say that, may be, okay. That's a misunderstanding, okay. And Bernie, you want to say that, okay?

Yes. As far as any demand disruption occurring, we haven't seen any cancellation of projects or push-outs in orders in a material basis. Obviously, the duration of the macro environment is not understood right now. So we are very sensitive to seeing any early warning signs that we need to react to in this volatile environment. But as at this point in time, we have not seen a step down in demand on a broad base. There are some pockets that we mentioned in an earlier answer.

Okay. Got it. Thank you.

Thank you, Kevin.

Thank you. And our next question comes from David Williams with Loop Capital. Please go ahead, David.

Hi. Good afternoon and congrats on the quarter. Thanks for taking the question as well. I just wanted to see if you had any color on maybe the console launches that are expected, you said, in the second half. How do you think that will ramp? Do you have a sense of what the demand is going to look like or what those volumes could potentially be?

Yes. We have a pretty good knowledge but I cannot say that, okay. But that business is very cyclical, okay. And that's a very, for MPS is good money. And for stock value, okay, it's very contrary to what we do. It is very cyclical and that it ramp up and it buys once a year and for most of the year, they don't do anything, okay. And we have, after that, we had to fill up the gas. We have done pretty good in the last two or three years. But as the revenue keep growing, that will be a small part of our MPS business.

Great. Thank you. And then just kind of thinking about the comm segment and the design wins and maybe design activity there. Are you seeing a broader base of designs outside of maybe Huawei or some of the other larger companies? Just kind of can you talk about where your seeing the most potential or the most opportunity there?

Sure. And if you look worldwide as far as where a lot of the deployment is, it is in those China and South Korea right now. Europe and North America has been a little slower. So most of our design engagement for now has been in the lab as opposed to actually being commercially rolled out.

Okay. Great. Sorry, go ahead.

No. I just wanted to clarify, we don't employ any customers in our core. And we disclosed that we have large customers, okay. And by rules, okay. So in the 5G, as I said earlier, we engage not only one, okay and many different kind of different like telephone companies. We are also engaged with many different of their space.

Okay. Very good. And then lastly for me is, if you are thinking about the rest of the year and even the second quarter perhaps, what are your largest unknowns or potential hurdles that you kind of think about, areas of weakness could be seen? Or what are the areas, I guess, that you are most either troubled or concerned with or I guess paying most attention to, through the back of the year here?

I'm sorry, but I can't provide a rewrite for that remark as it is indiscernible.

Michael, you are breaking up again. I am sorry. You are breaking up.

I will give you a philosophical joke, okay. Have a joke. We really worry about toilet paper effect. And it's actually, we don't know, then again the demands are very good for the second half of the year. And using, so as we do, okay. And when everything is good, they cancel and over order. And we won't see it, okay. Of course we try very hard, okay, to find what is the real reason, okay. And so far, we have a very good, that's what we try to do, okay. And until our customers start screaming at it. And then we are shipping a product.

Yes. So as opposed to a concern of a rapid fall off, right now we are managing is the toilet paper effect where there is so much in badgering the demand we want to make sure that we are not building inventory on in the channel or in the distributor's warehouses. And the way we do that is we don't ship to the level that they requested. And then if they really do have a stock outage where they are going to lines down, we will hear about it quickly and respond to that. So that's the issue that we are managing now as far as looking beyond that. Maybe we will have better guidance or outlook next quarter.

Okay. Well, thanks so much. I appreciate. And the best of luck.

Thank you.

Thank you.

Thank you. Ladies and gentlemen, this concludes our Q&A session for today. I will turn the call back to Bernie Blegen for his final remarks.

Right. Thank you very much. I would like to thank you all for joining us in this conference call. I look forward to talking to you again during our second quarter conference call, which will likely be at the end of July. Thank you and have a nice day.

And with that, ladies and gentlemen, we thank you for participating in today's program. You may now disconnect.