Welcome, everyone, to the MPS Third Quarter 2024 Earnings Webinar. My name is Genevieve Cunningham and I will be the moderator for this webinar. Joining me today are Michael Hsing, CEO and Founder of MPS; Bernie Blegen, EVP and CFO; and Tony Balow, Vice President of Finance. Earlier today, along with our earnings announcement, MPS released a written commentary on the results of our operations. Both of these documents can be found on our website. Before we begin, I would like to remind everyone that in the course of today's presentation, we may make forward-looking statements and projections within the meaning of the Private Securities Litigation Reform Act of 1995 that involve risks and uncertainty. Risks, uncertainties, and other factors that could cause actual results to differ from these forward-looking statements are identified in the Safe Harbor statements contained in the Q3 earnings release and in our SEC filings, including our Form 10-K, which can be found on our website. Our statements are made as of today, and we assume no obligation to update this information. Now I'd like to turn the call over to Bernie Blegen.

Thanks, Gen. Good afternoon, and welcome to our Q3 '24 earnings call. MPS achieved record quarterly revenue of $620.1 million, which is 22% higher than revenue in the second quarter of 2024 and 30% higher than revenue in the third quarter of 2023. Our performance during the quarter reflected the strength of our diversified market strategy as we experienced improved ordering trends across most end markets and additionally benefited from initial revenue ramps associated with design wins secured in prior years. Let me call out a few highlights. Q3 2024 automotive revenue was up 28% sequentially, with improvements in infotainment, lighting, ADAS, and body controls. Communication revenue was up 65% from the prior quarter, reflecting new product ramps for Wi-Fi, optical, networking, and router solutions. Storage and Compute revenue was up 25% sequentially on the strength of demand for DDR5 and SSD memory in notebooks. MPS continues to focus on innovation, solving our customers' most challenging problems, and maintaining the highest level of quality. In addition, we continue to expand and diversify our global supply chain, which will allow us to capture future growth, maintain supply chain stability, and swiftly adapt to market changes as they occur. Our proven long-term growth strategy remains intact as we continue our transformation from being a chip-only semiconductor supplier to a full-service silicon-based solutions provider. I'll now open the webinar up for questions.

Thank you, Bernie. Analysts, I would now like to begin our Q&A session. Our first question is from Rick Schafer of Oppenheimer. Rick, your line is now open.

Thanks, and congratulations to you all. I have a two-part question. First, regarding enterprise data, it seems to have declined about 15% sequentially. Can you provide some insights on that? Is this a one-time occurrence, or does it indicate a more lasting trend in that segment as we approach the fourth quarter and into 2025? For my second question, it appears that automotive, industrial, and consumer segments have seen significant sequential growth. How would you describe these segments, considering they have been lagging recently? Do you believe they have turned a corner?

Sure, Rick. This is Bernie. Let me start with the enterprise data. Sequentially, we were down about 1.5% from Q2. And that a couple of things that we've talked about. One is that we don't control our customers' ordering patterns. So as it relates to the current quarter, we did see a different ordering trend than we'd observed in each of the past six quarters. And then as far as looking ahead, we've been very open about the fact that as far as supply chain security for our customers, that's going to require a second or third competitor to be introduced on the share. And so there are a lot of issues here that we've been talking about and that we're managing. But one very important point is that MPS's strength is in the diversity and we don't try to call out a particular end market's results. We try to deliver the company in total. And that's sort of a short-term view, but Michael may have a couple of comments on the longer-term view.

Yeah. You probably know that if you look at the transcript from last year, we talked about it. The market is big and the market is growing. The AI requirements are growing. And so the customers initially will take the best solutions to fulfill their needs, and the best solutions also includes the speed of the development service, as Bernie said earlier. And that's why we occupy a pretty large share, okay? And I mean, last year, we said that this market is too big and MPS will always have the best solutions in these applications. We will also talk about in a market that is larger; there will be a second, third, and fourth supplier to join this segment. And, okay, and this is when would that happen? We don't know, okay? It happened in the last couple of quarters, and it will happen in the next years. What we see again is that the market is growing very fast. We have other segments like SOC that has not really ramped up yet or started ramping. Other hyperscale companies with their own SOCs and their own TPUs, as they call it the tensor processing system. Those are still small; we're ramping them in the next few quarters, okay? And as Bernie said, MPS in the past, we always emphasized diversity, and we will not be known to be an AI power supply company.

And then, Rick, I think you had a question regarding automotive and whether or not the step up that we observed from Q2 to Q3 was more of a broader trend line or if it was a one-time event. We believe this is a step up where many design wins have been waiting in the pipeline for the right opportunity. We do believe that specific to us, not a discussion about the broader market, but specific to us that the number of product ramps are expected to come into the stream in the next two or three quarters.

Well, again, okay, as we said many, many years ago, there are a lot of new design wins. And when the ramp will take off, we don't know. It will be plus-minus a year or so. Do we care? We don't, okay? And now all these greenfield products are starting to rejuvenate, and that's what you see in the revenue to date.

And maybe one more comment just for Rick, is that traditionally, we've been talking about strength in ADAS, but what you heard Bernie talk about was we saw that strength in automotive across all the segments, including infotainment and body controls, really a sign of those sockets that we had won previously now starting to generate revenue. So it's more broad-based within automotive than maybe we talked about previously.

Thanks for all that color, you guys. And maybe, right on that point on auto specifically. I realize that this is a broad-based pickup, and it's some place basically design win driven as all things are with you guys. But I'm curious, specific, I mean, NVIDIA did believe it did really well the last year or two with drive, Warren, and I know you guys do power there. So I didn't know if you could talk specifically about China auto and what content trends look like for you guys there and maybe give a sense of how big China auto is now as sort of a portion of your overall auto segment. Thanks a lot.

Well, China is again, the EV business is booming. It tapered off a little bit and looks like it will be booming again. We are going in the right direction again, okay? And there are a lot of requirements in infotainment and the new type of infotainment and ADAS, okay. It's widely adopted in China. So, that's what we see; a bigger portion of it is ramping from China. And also we see it in other areas beyond ADAS, which is growing from Germany and in the US.

Our next question is from Tore Svanberg of Stifel. Tore, your line is now open.

Yes, thank you, and congratulations on the record revenue. I wanted to follow up on enterprise data. Obviously, you had two very strong quarters, first half of the year; it took a breather this quarter. But how should we think about that business into the December quarter? And Michael, I know you talked about many new product ramps in 2025, but just sort of specifically for Q4, how should we expect that business to perform?

In Q4, we expect to maintain our market share, and it aligns with our previous forecast. Although we can't provide precise details, this forecast was established a few quarters ago, and we've been preparing to meet that demand over the last couple of quarters.

Yeah. And I think as we look to the outlook and the guidance that we provided, really enterprise data was somewhere in the plus low-single-digits. So again, our customers' ordering patterns are really what drives the performance there.

No, that's very fair. And the one big surprise to me this quarter was communications. I think it was your strongest growth segment this quarter. You highlighted Wi-Fi optical networking. Could you maybe just give us a little bit more color on what's going on there? I mean, it does sound like you have some new segments there that you are penetrating, especially on the optical side.

Well, the opticals are data converters, data communications, within the data centers, within the reps, okay. And that's a portion of it. But that's not all of them, okay? Other one is the new Wi-Fi format, and okay, it's starting to ramp up. That's the MPS will have a lot of reference designs, and that's what we see. It's across the continent, all these projects turning into revenue now.

So I think the outlook for MPS specifically remains very solid. Generally, after you have a big initial stocking in the quarter with a new revenue ramp, it tends to tail off for a quarter, but we see sustainable growth in communications through the first half of '25.

Great. Thank you for the color. I'll go back in line.

Our next question is from Joshua Buchalter of Cowen. Joshua, your line is now open.

Thank you for answering my question. In response to Rick's inquiry, you noted two factors that contributed to the stabilization of enterprise data: order patterns and second sourcing. Could you rank which of these had a more significant near-term impact? Additionally, when considering how your customers are diversifying their suppliers, are you observing this trend more with the AI accelerator platforms already available, or is it related to the newer platforms that are just starting to ramp up? Thank you.

So I think Michael offered that in Q4, we're not expecting Q3 and Q4 to see share position change. So that was really just trying to acknowledge that is a function of being the market leader in AI. And then over time, as we see a layering of all these new AI opportunities, Michael referred to the TPUs, which will probably begin to ship late.

I’m not sure if what I remember as TPU is actually what it is; maybe it's just a trademark name from Google. To me, it's a tensor processor.

Tensor processor.

Yes, some of you referred to this as SOCs. We have secured numerous design wins and have been collaborating with many of our customers for several years. We are starting to see these products ramp up in the last quarter.

Yeah. Okay.

Thank you for the color. And I realize you've got content in multiple different sockets on many of these accelerator cards. And so my question is going to try to oversimplify it. But how should we think about, as we think about some of these new AI accelerator platforms, your content opportunity may be in relationship to power draw of the actual processors or any other helpful rules of thumb you can give us as we try to fine-tune our models in the next year. Thank you.

Well, if you believe as we do, our products and solutions are the best and most power-efficient, and the market is expanding. That part of our revenue will increase. The other aspects are not a concern for us. We just want the numbers to reflect that.

Thanks, guys.

Our next question is from Chris Caso of Wolfe. Chris, your line is now open.

Yes. Thank you. Good evening. I guess, the first question, as we look at your guidance for the December quarter, not a lot changing on a sequential basis. I think you mentioned that the enterprise data will be up low-single digits sequentially in December. Anything else that you would call out as kind of growing or shrinking different from the average in December? And then following that, given that enterprise data has grown as a percentage of revenue, does that affect seasonality as you look into the March quarter? Is there anything we should be thinking about with respect to the different customer mix as we go into March?

Sure. If you're looking at Q4 by end market, it's interesting you have some seasonality, but currently, we don't believe that any of the end markets are going to change by more than plus or minus mid-single digits. So it's a very, very narrow range that we're talking about there. And when we look out into the momentum carried into 2025, obviously, we don't guide beyond Q4, but it has been a seasonally down quarter for a lot of companies, but I don't have a view on what that's going to look like currently.

Okay. Thank you.

We don't really concern ourselves too much with that. As long as we have a design and are collaborating with our customers on the project, we let things unfold naturally when those ramps begin. Our customers might not have a clear perspective, so we allow the products to progress on their own and let the results speak for themselves.

Okay. As a follow-up, as you look into next year, the other part of your enterprise data business on traditional server, that's an area that you guys have been favorable on for a while, but I guess, you've been waiting for the market to improve. We heard some better news from at least one of the CPU vendors this week. Can you give some view on the share content, what you're seeing in that part of the enterprise data business as you go into 2025?

Yes, that's a great question. We are seeing an uptick, and the volumes have begun to increase. As we mentioned several quarters ago, this situation is similar to the rapid growth we experienced with sapphire. The VR 14 will gain traction in the 13.5 category, partly due to a supply shortage, and we are making progress with key suppliers in that area. The VR 14 will play a major role in the growth of sapphire.

And maybe just beyond just the enterprise data segment itself, as you see those ramps, right, they'll pull through other solutions like DDR5 memory and continue to be a tailwind in some of the other segments as well.

Thank you.

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

Great. Thanks for taking my question. Michael, I know you often are involved in some interesting sort of sometimes idiosyncratic growth drivers for the company. I know for some time, you were famously tinkering in the automotive end market and sort of searching for more effective solutions than what was available in the market. And I understand your focus has been perhaps more in the home automation market more recently. I wonder if you can talk to us about some things that might be on the come in the next couple of years from the company in that end market.

Yes. As you know, MPS has a few thousand of our products. So we're in lighting, we're in thermostats, and we are in shades controls and we're in all these fan models and security, the window actuators, and the window and door opening actuators. We're also making MCUs now. Those MCUs can be the brain of everything while we're just putting one box with the software. So we sell as a kit. Everything is included. The key is the ease of use. I think this will change the market segment for building automations.

That's helpful. Maybe as a follow-up, you mentioned your MCUs now. There's another category that you entered relatively recently. You're not really known for it as much, but data converters. I know I think you hired a team in that area and you had some very good results for initial products, maybe in the medical end market. Can you talk about traction in that category, please?

We are growing in that segment. The revenue is still small. As you know, these design cycles are very long. The product life cycles are 10 to 20 years. I mean, they will last forever. Those segments win-win some in some industrial side as well as the medical side. We have more products rolling out, in fact, in the next couple of quarters for some families of standard products. We will gain more market shares in this segment.

Great. Thank you.

Okay.

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

Hi, guys. Thanks for letting me ask a question. I want to go back to the non-enterprise data side. I think by my math, it was up about 35%, 36% sequentially. I know you guys have a ton of design wins and you're kind of just waiting for them to ramp, but the magnitude of that ramp, the diversity of it, and just the commentary that bookings are improving seems to be at odds with the very muted recovery that so many of the peers are seeing. So could you just explain, do you think cyclical conditions are getting better or is this a very monolithic power-specific dynamic? Any sort of color on that.

I think, Ross, we're experiencing a little bit of both.

Well, as a matter of fact, we see all across the board.

Other than AI. Other than AI power and all across the board.

As a follow-up, I’d like to know if you are observing any evidence of pricing pressure resulting from the increased supply that has entered the market over the past couple of years, whether it's related to AI competition or a more general increase in pricing pressure.

Our competitors, including some Chinese suppliers, often try to reduce prices to enter the market and gain a share. However, that's not our approach. Many of our customers do not frequently change their sockets, and our products can easily integrate into existing systems. We focus on diversity across multiple segments, leading to significant shipments and volumes across various applications, including AI, where we will deliver value. Our value lies in our high performance. We allow customers to choose from a range of products, and our history, though brief, indicates that if we operate under the same principles, our revenue will continue to expand. We anticipate that over the next couple of years, particularly next year, all these products will experience growth. We are already witnessing the initial signs of this, as many design wins are beginning to convert into revenue.

Thank you.

Our next question is from Quinn Bolton of Needham. Quinn, your line is now open.

Hey, guys. Thanks for taking my question. I guess, first to start off, I think it was for the first time ever in your June 10-Q, you guys disclosed a 10% plus customer. I'm wondering, I know you haven't filed the Q yet, but if that's going to be an ongoing disclosure, would you be able to provide us if you had any 10% customers in the June, sorry, September quarter? And if so, what percent of revenue was that customer?

So, Quinn, what you're referencing is basically revenue exposure by direct customer and indirect. When the customer hits a certain threshold according to the SEC guidelines, we need to put a reference to that.

But we're never putting a name out there.

No, no. We do not.

Yes, we still have one customer that accounts for over 10%.

Yeah.

Bernie, you can check that number. Is that right? Only two customers and above 10%?

Okay. And we'll get percentages in the Q.

It's one or two.

I believe it's one customer. Bernie, you can verify that. No, it's only one. Having two would be significant, and I don't trust the figures.

We don't. We don't.

Okay. The second question is, I know you don't want to guide to 2025 yet.

Hold on a second. Tony, could you?

Check that?

Yeah, could you check that? Is that one or two? I think the second one is less than 4%.

Yes, I'll check it. Give me 10 seconds, so I'll get back to you.

Yeah. So we are, okay, this had to be on our record. And then let's make it clear. Go ahead.

Yes. Maybe while we're waiting for Tony, my second question was, I know you're not going to sort of give specific guidance out to 2025, but The Street is looking for continued pretty strong growth in the enterprise data segment. I know you've talked about lots of crosscurrents in terms of expecting some additional competition to enter that market, some pricing pressure at existing customers, but you also have the ASIC designs that start to ramp next year. The Street is looking for that business to hit almost $1.1 billion in revenue. Just wondering if that's given your crystal ball, is that sort of a reasonable expectation? Do you think that we should be tempering expectations for that segment, given some of the crosscurrents you've mentioned, or do you want to just kind of keep it one quarter at a time?

Yes, I can say with confidence that we will be a significant player when the AI market evolves into a standard server market. However, the market has not yet reached an equilibrium.

Not a run rate.

No, this is still in the ramp-up phase. When this segment begins to ramp, it tends to be uneven, and you cannot expect a consistent trend like we saw in the early quarters of this year. To address your question about next year, we will clearly have many more customers who will begin to ramp their designs, which will eventually lead to increased revenues.

Michael, just to circle back relative to distie, we'll call out two; for direct, we'll call out one.

Okay, that's a direct customer, not a distie.

So we'll call one direct. We'll call out multiple distie is higher than 10%.

Distie will not come, and all the reporting involves the design creation and all the exposure for the end customer is only one. The next one is definitely below 5%.

Yeah.

Got it. Thank you, Michael. Thank you, Bernie.

Okay.

Our next question is from Tore Svanberg of Stifel. Tore, your line is now open.

Yes. Thank you. I had a similar question to Quinn, but thinking more about vertical power. So enterprise data this year more than $700 million. I assume the contribution from vertical power is still quite low. If that's the case, as the market does transition to vertical power, could we see this market base basically accelerate over the next few years?

Absolutely. Not in the next few years; next few quarters. Yes. As we said, look, we are playing the power module market segments since 2017. All these technologies and manufacturing capabilities will really benefit from these vertical power. As speaking, now we are shipping those products in good volumes.

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

Hi, guys. Thanks for letting me get a little follow-up snuck in here. Inventory, I know Michael, you and I have laughed about that many times like this in the past.

That's my favorite topic.

In this instance, internal inventory came down by a lot days-wise. What did external channel do? How are you looking at that? Was some of that 35% sequential growth that I referred to in my initial question a little bit ago, inventory fill, or has the channel stayed lean?

No, the channel stayed lean. In fact, our total days went down in the quarter.

We want to improve our situation. Our inventory buildup is not aligned with market demand. Ross, you're the expert on MPS inventory. If you look at our inventory levels, they contrast sharply with market demand, which is currently very high. While the inventory is low, we don't anticipate a shortage issue, but the inventory levels are not comfortable.

Got you. And I guess just to clarify, Bernie, when you said total inventory actually went down, you mean just total channel inventory days fell?

Total channel inventory, yes.

Channel inventory is also low. Yeah.

Got it. Okay. That's it. Thanks, guys.

This now concludes our Q&A session. I would now like to turn the webinar back over to Bernie.

Thank you. I'd like to thank you all for joining us for this conference call and look forward to talking to you again in our fourth quarter conference call, which is likely to be in early February. Thank you. Have a nice day.