Earnings Call Transcript
MONOLITHIC POWER SYSTEMS INC (MPWR)
Earnings Call Transcript - MPWR Q1 2021
Genevieve Cunningham, Moderator
Welcome everyone to the MPS First Quarter 2021 Earnings Webinar. Please note that this webinar is being recorded and will be archived for one year on our Investor Relations page at www.monolithicpower.com. My name is Genevieve and I will be the moderator for this webinar. Joining me today are Michael Hsing, CEO and Founder of MPS; and Bernie Blegen, VP and CFO. In the course of today's conference call, we will be making 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.
Bernie Blegen, CFO
Thanks Genevieve. MPS posted record first quarter revenue of $254.5 million, 53.5% higher than the first quarter of 2020. The year-over-year revenue increase represented strength in the overall market and more importantly, broad-based market share gains resulting from customer acceptance of our new product introductions. 37% of our first quarter 2021 revenue resulted from new products introduced in the last three years. New product acceptance on this scale has paved the way for accelerated growth. Looking at our revenue by market, first quarter 2021 revenue from consumer markets of $66.2 million increased $28.8 million or 77.1% from the same period of 2020. The year-over-year revenue increase reflected a broad increase in overall demand, along with the initial revenue ramp from our new mobile device charging IC. Consumer revenue represented 26.0% of our Q1 revenue compared with 22.6% contribution in the first quarter of 2020. First quarter 2021 automotive revenue of $44.9 million grew 92.5% over the same period of 2020. This growth primarily reflected continuing sales growth for infotainment, safety and connectivity application products and first-time revenue from products introduced in the 2021 model year. Automotive revenue represented 17.6% of MPS’ first quarter 2021 revenue compared with 14.1% in the previous year.
Genevieve Cunningham, Moderator
Thank you, Bernie. Our first question comes from Joshua Buchalter of Cowen. Joshua, your line is now open.
Joshua Buchalter, Analyst
Yes, thanks for taking my question and congrats on another set of solid results. I was hoping you could elaborate on the inventory dynamics. You're one of the few companies that invested proactively ahead of the supply issues across the industry, but you're still not near your 180 to 200-day target. So just wondering how you're thinking about balancing rebuilding the channel versus taking business from some of your peers or endorsing your share gains? Thank you.
Michael Hsing, CEO
Well, as we continue to expand our capacities, as we mentioned earlier - we expect that with the current rate of increase, the capacity will be reached by the end of the year or early next year. So we will achieve that level of inventory if the demand does not continue to rise this much.
Bernie Blegen, CFO
And I think it's notable, Josh, that we did increase both in terms of dollars and days, the amount of inventory we had from Q4 to Q1, which runs counter to the capacity constraints that some peer companies are experiencing.
Joshua Buchalter, Analyst
Got it, thank you that makes sense. And any more granularity you can provide in the guidance by end market for next quarter, any of the buckets moving materially more than the others? Thanks and congrats again.
Michael Hsing, CEO
Yes, I would probably look to computing where there was a couple of quarter gap in data centers that should begin to take off again. I think automotive appears to be continuing to grow nicely both in terms of year-over-year performance and sequentially. And we’re seeing that same continuation in consumer.
Genevieve Cunningham, Moderator
Our next question comes from Ross Seymore of Deutsche Bank. Ross, your line is now open.
Ross Seymore, Analyst
Hi guys, thanks for letting me ask a question. I want to talk about the sustainability of demand. Recently in this earning season, a lot of semi-stocks have sold off on really good numbers. And it clearly looks like the market is worried about double ordering and those sorts of peak cyclical activities?
Michael Hsing, CEO
Yes, of course, we are concerned about double ordering. In the past, we mentioned that we have rigorous procedures to prevent that. We have been practicing partial shipments for the last six quarters, and we ensure that our customers have minimal on-hand inventories. At the same time, we're not preventing their production lines from going down. To go back to your question about demand, we believe much of our demand is sustainable. As Bernie mentioned earlier, these are Greenfield markets and product lines we are growing, and 37% of our products come from new products that we released in the last three years. There’s no reason to believe that in the next couple of years these products will not continue to grow. We expect our growth to be sustainable.
Ross Seymore, Analyst
Okay, thanks Michael. I guess for my follow-up a little more specific on one of your segments, the communications area has been very volatile. I know there are bans on different customers that can ship at different points in time. But can you talk a little bit about what's driving the sequential growth that was up so much in the first quarter, admittedly off of a weaker fourth quarter? And then as this year progresses, how do you see that market specifically more at the 5G side of things rather than the networking and gateway sides?
Michael Hsing, CEO
We see, in fact, we have had committee meetings with top tier and non-Chinese 5G manufacturers. So we believe this year and next year is when we will see a significant upturn.
Bernie Blegen, CFO
We believe we're very well positioned just as Michael said there because the reach of new customers that we're addressing with our 5G solutions is very broad. So, we think that as the market gains momentum, we're very well positioned to take full advantage of it.
Ross Seymore, Analyst
Great thanks, guys and congrats again.
Michael Hsing, CEO
Thank you.
Bernie Blegen, CFO
Thank you.
Genevieve Cunningham, Moderator
Our next question comes from Tore Svanberg of Stifel. Tore, your line is now open.
Tore Svanberg, Analyst
Yes, thank you, Michael and Bernie, congrats again on a very strong quarter. First question, I was hoping you could talk a little bit about your share gains, especially during times when capacities are really tight. Your solutions tend to be more integrated especially versus discrete and a lot of those discretes are in shortage. So I'm just wondering if you are seeing an acceleration in your share gains during this very tight semiconductor environment?
Michael Hsing, CEO
Well, I can give you a couple of examples. We’re seeing that if one of our customers is using dual or triple sourcing, we tend to have much more favorable conditions because our competitors are too reliant on fewer components. This is one scenario showing why the demand for our products is high. Another scenario is, we have gained a lot of market shares because of many new projects that are ramping production for the next six to twelve months, where we have seen a lot of design wins.
Tore Svanberg, Analyst
Great and as my follow-up, you talked about the contribution from the new products. I know you're not going to give us specific information on pricing, but is it fair to say that the average selling price of those new products is considerably higher than perhaps the last year or two?
Michael Hsing, CEO
Yes, for the gross margins, we stay on course and we are not looking for price hikes because that is probably not sustainable. This protects our model, again, as before.
Bernie Blegen, CFO
Yes, and just to add to that, yes, certainly the new products that we're introducing, particularly those that are more heavily integrated, favor a higher average selling price.
Tore Svanberg, Analyst
Yes, that's what I thought. Okay, thank you congrats again.
Michael Hsing, CEO
Thank you.
Bernie Blegen, CFO
Thank you.
Genevieve Cunningham, Moderator
Our next question comes from William Stein of Truist. William, your line is now open.
William Stein, Analyst
Great, thanks for taking my questions. Bernie, you think it was you in the opening remarks? You said something about paved the way for accelerated growth? We all know Monolithic done a pretty amazing job with regard to growth relative to the industry. But should we interpret that as meaning perhaps we stay above 20% for a more protracted period of time?
Michael Hsing, CEO
I think that's all we can see announced. What we see announced could only grow like 8% compared to last years 30 percentage and so far this year. So, we're looking at this kind of growth continuing.
Bernie Blegen, CFO
Yes, I think that's the message that we've tried to convey. Michael added that if you look at the reasons for our growth, both last year and this year, it has much more to do with market share gains and new products rather than just the broader market. Certainly in 2019, we had high expectations, and we are not immune to downturns in the market. But I think that if we have more normalized demand, we can perpetuate an accelerated rate of revenue growth, perhaps in excess of the 20% mark.
William Stein, Analyst
And then on these lines, I think a couple of other questions alluded to it with regard to higher average selling prices. I think of a big driver of that is your transition to selling more of these integrated solutions. Is that the case? I'm hoping you might quantify that for us. I think in the past you've talked about growth rates at least offline of the module business, maybe you can talk about whether this is reaching a size where it makes sense to disclose revenue from that piece?
Michael Hsing, CEO
Yes, the module business is doing really well, and like our e-commerce business is also doing well. We are beginning to figure out how to grow that business. Though it's not a fully mature business yet, we haven't really broken out the revenue for that. But that business is contributing to higher ASP; in two years, it will be a significant contributor to our revenue growth.
Bernie Blegen, CFO
One other aspect to add is, if you look at certain of our end markets, for example, automotive, much more of what they are demanding are not for a specific IC. They want a system solution. So, if you consider autonomous driving or ADAS, there must be built-in fail-safe redundancy. You also require system communications throughout with the cameras, sensors, and processing units. We're designing complete chipsets that are dynamic solutions priced at significantly higher average selling prices.
Michael Hsing, CEO
Yes, and to elaborate on that, these solutions are not limited to semiconductors alone; we create entire solutions and design other components. As Bernie pointed out, even in the automotive sector, we provide entire solutions, which is a departure from our past approach where we mainly sold individual silicon products.
William Stein, Analyst
Yes, that's great. Thanks, guys.
Michael Hsing, CEO
Thank you.
Genevieve Cunningham, Moderator
Our next question comes from David Williams of Loop Capital. David, your line is now open.
David Williams, Analyst
Thank you, and congrats on the quarter.
Michael Hsing, CEO
Thanks, David.
David Williams, Analyst
I wanted to touch on the capacity expansion and you had mentioned this earlier. But how is that progressing? Is it moving at the same pace you would have expected given some of the tightness we're seeing within the industry? Or is it moving at the pace you expected, and anything surprising in pricing?
Michael Hsing, CEO
Yes, about six quarters ago we mentioned capacity expansions. We have been steadily increasing over the last year, and we did some extra work to increase capacity. From now on, we expect pretty continuous increases.
Bernie Blegen, CFO
Yes, I think we've been clear that in 2020, we brought up the 12-inch fab, and now we're continuing to qualify parts on that. In 2021, we're midstream and bringing up an 8-inch capacity, which we are continuing to qualify parts. We have outstanding relationships with our fab partners that date back 15 to 20 years. Those relationships help us manage capacity and, despite the market's under or over capacity situations, they have been very positive contributors in helping us increase capacity. Continuous investment has always been part of MPS, and we see it as a differentiator to expand and keep up with the increased demand we anticipate.
David Williams, Analyst
Great, and then maybe just on the leverage, do you think that's remaining in the model here? Obviously, there's quite a bit that's embedded, but how are you thinking about gross margin and maybe even the operating margin? Where do you think those could go as you really start to hit on all cylinders and get the revenue acceleration that you've mentioned?
Michael Hsing, CEO
Well, as revenue accelerates, we need to continue to invest. We can't grow out of thin air. We are aiming for growth, even in the next four years or four months. Once we achieve that growth, we will invest.
David Williams, Analyst
Thank you.
Genevieve Cunningham, Moderator
Our next question comes from Rick Schafer of Oppenheimer. Rick, your line is now open.
Rick Schafer, Analyst
Thanks. Hey guys, I'll add my congratulations as well. Maybe a couple of questions by end market. I guess the first one is automotive. I think you guys outgrew SAR by 35%, 40% last year. And I know tight component supplies curved first quarter auto production didn't seem to hurt you guys too much. I know your auto business was up almost 100%. So I guess my question is, do you see that as an ongoing risk or something that could impact your auto growth? I'm curious; you almost doubled it this past quarter. Could it have been better if it weren't for components, supply constraints out there, whether they're direct or indirect? Are there any signs things are getting better in that auto supply chain?
Michael Hsing, CEO
Yes, we can't really say whether our growth is restricted by the shortage of components from our customer side. Our total market share is small, so we will continue to notice all these new demand opportunities. These new products are taking off.
Rick Schafer, Analyst
Okay thanks, sorry Bernie.
Bernie Blegen, CFO
I'm sorry, just to add one more comment, we have seen nothing at this point to indicate that there's necessarily been a slowdown in ordering in automotive. As Michael said, we can't guess if there is a limit on demand, but we still see strong numbers in our backlog.
Rick Schafer, Analyst
Great, thanks. And maybe just a follow-up on hyperscale as you highlighted, Bernie. You mentioned hyperscale spend is picking up or data centers are starting to show signs of life. So I'm curious, just with the launch of Ice Lake and things are, is hyperscale getting better? How do you see QSMOD data center ramping this year? I mean, is it relatively linear from here? Are we going to see a second-half inflection of some kind? Is that when we expect some momentum build? Also, I'm curious about 48-volt; is it still too small to break out or talk about, or can you provide a sense of what kind of contribution 48-volt QSMODs are making now?
Bernie Blegen, CFO
Sure. Let me start with the 48-volt question. I believe there is significant growth opportunity for us in 48-volt. We are well positioned for both GPUs and down the road in AI applications, as well as automotive applications.
Michael Hsing, CEO
And that these revenues will not significantly ramp up until nine months from now.
Bernie Blegen, CFO
Turning to the inflection point for QSMOD, that is our dynamic power management system for CPU processors. We see good growth in what we refer to as VR 13.5. However, it’s when it goes to seven nanometer VR 14, which is expected for next year, that we may see a significant uplift in market share gains.
Rick Schafer, Analyst
Got it, thank you guys.
Operator, Operator
Our next question is from Quinn Bolton of Needham. Quinn, your line is now open.
Quinn Bolton, Analyst
Thanks, I will offer my congratulations. Michael and Bernie, I guess my first question is I think you've sort of said 2020 and 2021 would be investment years, which would somewhat constrain your operating margin. Here in the near term, it looks like your revenue is coming in stronger than expected? And so even with that investment, your margin is expanding, and if I’m doing my math right, it looks like your margin will be over 31% in June. How should we think about your level of investment as revenue continues to come in better than expected? Will you continue to invest or do you think you'll drive further operating leverage going forward?
Michael Hsing, CEO
I think from now onward, we see growth opportunities even higher than three years ago. So we will continue to invest as long as we can keep up with that kind of growth rate. If not, we’ll slow it down until we regroup. So far, we have seen too many opportunities.
Bernie Blegen, CFO
Quinn, I do think that there are further opportunities for operating margin expansion. We've tried to be clear, especially over the last 18 months, that we believe we provide more value to our shareholders by accelerating our rate of revenue growth, which is what we’ve focused on.
Quinn Bolton, Analyst
Got it? And the second question is, I think you touched on some of this with your disclosure, that new products were 37% of sales, but obviously, there are concerns about how much double ordering may be happening given the overall industry tightness. Do you have a figure you can give us for the percentage of your products that are either sole sourced and/or new products? Because it seems that the double ordering threat may be more relevant to older products that are dual-sourced. I'm trying to figure out what percentage of your revenue today might be from older products that have alternative sources.
Michael Hsing, CEO
Yes, we have 37% of our products, which is part of our 4,000 to 5,000 products. So think about it that and these are really just starting to ramp up in terms of revenue. These products are mostly single source, and as you mentioned, these are legacy products, which we plan to stabilize and hopefully add second sourcing as production volume ramps. We are experiencing some urgency to prevent double ordering, and we aim to keep inventories low.
Quinn Bolton, Analyst
Yes, that's helpful. I guess my last quick one for you. Bernie, do you expect to increase your absolute inventory dollars on hand in the June quarter?
Bernie Blegen, CFO
Yes, currently, that's what we're modeling yes. Now again, Michael is careful to add that, with the supply chain, we have good visibility on the demand. We must continually ensure we understand that. So, on the supply chain front, we’re looking at continuing to increase the dollar value of inventory sequentially in quarters. We just have to continue to assess demand, but we've focused on our 15 to 18-month horizon rather than the next quarter or two.
Quinn Bolton, Analyst
Got it. Thank you.
Operator, Operator
Our next question is from Kevin Garrigan of Rosenblatt. Kevin, your line is now open.
Kevin Garrigan, Analyst
Hi guys, let me echo my congratulations on the quarter. Just a quick one from me, you alluded to it before; I was just kind of wondering how your MPS Now service and e-commerce business did this quarter. How does that compare to last quarter, which I believe also had some pretty strong growth, and just kind of looking further out, as things start to open back up, do you think that business will take a pause?
Michael Hsing, CEO
I don't think that business will take a pause, as that would be quite concerning. We just started, and it would be very upsetting if it were to pause. So far, in the last four or five quarters, our key metrics have all been trending upwards in terms of orders and demand creation, which is reflected in our growing revenues.
Bernie Blegen, CFO
Yes Kevin, if I could add to that, the e-commerce and MPS Now are essential legs of the broader story of our transition from an IC company to a solutions provider. This also includes providing complete reference designs and a wide array of solutions across our end markets. While we’re still in the early stages of this, everything is encouraging that we're heading in a sustainable direction.
Kevin Garrigan, Analyst
Got it, that's very helpful. Thanks, guys.
Michael Hsing, CEO
Thank you.
Genevieve Cunningham, Moderator
As there are no further questions, I would now like to turn the webinar back over to Bernie.
Bernie Blegen, CFO
Thanks, Genevieve. I'd like to thank you all for joining us for the Q1 2021 earnings webinar. I look forward to talking to you again during our second quarter conference call which will likely be in July. Thank you. Have a nice day.