Earnings Call Transcript
MONOLITHIC POWER SYSTEMS INC (MPWR)
Earnings Call Transcript - MPWR Q3 2020
Genevieve Cunningham, Moderator
Welcome, everyone, to the MPS Third Quarter 2020 Earnings Webinar. Please note that this webinar is being recorded and will be archived for one year on our Investor Relations page at monolithicpower.com. 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; and Bernie Blegen, VP and CFO. During this webinar, we will discuss our Q3 2020 financial results and guidance for Q4 2020, followed by a Q&A session. Analysts, you are currently needed; if you wish to ask a question during the Q&A session, please click on the participants icon on the menu bar and then click the raise hand button. In the course of today's webinar, 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. Risks, uncertainties and other factors that could cause actual results to differ are identified in the Safe Harbor statements contained in the Q3 2020 earnings release and in our SEC filings, including our Form 10-K filed on February 28, 2020 and in our Form 10-Q filed on August 3, 2020, which are accessible through our website, monolithicpower.com. MPS assumes no obligation to update the information provided on today's call. We will be discussing gross margin, operating expense, R&D and SG&A expense, 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 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 Q3 2019, Q2 2020 and Q3 2020 releases as well as to the reconciling tables posted on our website. Now, I'd like to turn the call over to Bernie Blegen.
Bernie Blegen, CFO
Thanks, Gen. MPS achieved record third quarter revenue of $259.4 million, 39.3% higher than revenue in the second quarter of 2020, and 53.7% higher than the comparable quarter in 2019. As noted in our September 14, 2020 update to our Q3 financial guidance, our revenue increased beyond expectations for two key reasons: first, we were able to fulfill our customers' demand that had been delinquent due to past capacity constraints; second, certain China-based customers requested previously scheduled shipment dates be pulled into the third quarter of 2020. We believe this request was related to trade and regulatory policy changes that occurred during the quarter. These two factors contributed significantly to this quarter's performance relative to the prior quarter of 2020 and to Q3 of 2019. Looking at our revenue by market, third quarter 2020 communications revenue of $54.7 million was up 81.8% from the second quarter of 2020, primarily due to a pull-in of customers' requested ship dates. Communications sales represented 21.1% of our total third quarter 2020 revenue. In our consumer markets, third quarter 2020 revenue of $70.2 million increased 47.4% from revenue reported for the prior quarter of 2020. This extraordinary growth in consumer reflects a combination of market share gains in gaming, wearables and IoT applications along with normal seasonality. Consumer revenue represented 27.1% of our third quarter 2020 revenue. In our computing and storage market, third quarter revenue of $75.3 million increased $11.2 million or 17.5% from the second quarter of 2020. The sequential quarterly revenue growth was broad-based with sales gains recorded in high-end notebooks, servers and storage. Computing and storage revenue represented 29% of MPS' third quarter 2020 revenue. Third quarter automotive revenue of $28.5 million grew $10.7 million or 60.4% over the second quarter of 2020. This improvement reflects a more normal ordering level following the Q2 2020 industry-wide slowdown resulting from the pandemic. We believe MPS' market share will continue to expand in the coming years as we have been awarded multiple design wins in infotainment, smart lighting, ADAS, and autonomous driving. Automotive revenue was 11.0% of MPS' total third quarter 2020 revenue. Third quarter 2020 industrial revenue of $30.7 million increased 15.3% from the second quarter of 2020, due primarily to increased revenue for power sources and industrial meters. Industrial revenue represented 11.8% of our total third quarter 2020 revenue. GAAP gross margin was 55.1%, matching the second quarter of 2020 and 10 basis points lower than the third quarter of 2019. Our GAAP operating income was $60.0 million compared to $28.0 million reported in the second quarter of 2020 and $30.0 million reported in the third quarter of 2019. Non-GAAP gross margin for the second quarter of 2020 was 55.5%, 20 basis points below the gross margin reported for the second quarter of 2020 and 10 basis points lower than the third quarter from a year ago. Our non-GAAP operating income was $84.9 million compared to $53.0 million reported in the prior quarter and $51.4 million reported in the third quarter of 2019. Let's review our operating expenses. Our GAAP operating expenses were $83.1 million in the third quarter of 2020 compared with $74.6 million in the second quarter of 2020 and $63.1 million in the third quarter of 2019. Our non-GAAP third quarter 2020 operating expenses were $59.1 million, up from the $50.7 million we spent in the second quarter of 2020 and up from the $42.5 million reported in the third quarter of 2019. The sequential increase in Q3 non-GAAP operating expenses primarily reflected higher variable costs associated with the increase in revenue and an increased level of investment in securing foundry capacity. The differences between non-GAAP operating expenses and GAAP operating expenses for the quarters discussed here are stock compensation expense and an income or loss on an unfunded deferred compensation plan. For the third quarter of 2020, total stock compensation expense, including approximately $707,000 charged to cost of goods sold was $23.0 million compared with $21.0 million recorded in the second quarter of 2020. Switching to the bottom line, third quarter 2020 GAAP net income was $55.6 million or $1.18 per fully diluted share compared with $30.2 million or $0.64 per share in the second quarter of 2020 and $29.5 million or $0.64 per share in the third quarter of 2019. Q3 non-GAAP net income was $79.4 million or $1.69 per fully diluted share compared with $50.6 million or $1.08 per share in the second quarter of 2020 and $49.5 million or $1.08 per share in the third quarter of 2019. Fully diluted shares at the end of Q3 2020 were $47.0 million. Now let's look at the balance sheet. Cash, cash equivalents and investments were $554.5 million at the end of the third quarter of 2020 compared to $515.4 million at the end of the second quarter of 2020. For the quarter, MPS generated operating cash flow of about $77.4 million compared with Q2 2020 operating cash flow of $59.3 million. Third quarter 2020 capital spending totaled $19.6 million. Accounts receivable ended the third quarter of 2020 at $93.5 million representing 33 days of sales outstanding which was six days higher than the 27 days reported at the end of the second quarter of 2020 and two days higher than the 31 days at the end of the third quarter of 2019. Our internal inventories at the end of the third quarter of 2020 were $148.1 million, down from the $152.1 million at the end of the second quarter of 2020. Days of inventory of 116 days at the end of the third quarter 2020 were 50 days lower than at the end of the second quarter of 2020. The sequential drop in days inventory on hand represented an anomaly due to a decrease in the dollar value of inventory and a 39% increase in quarterly revenue. Currently, our inventory levels are lean. We are working very hard to return inventory to the 180 to 200 day level necessary to support our future growth. I would now like to turn to the outlook for the fourth quarter of 2020. We are forecasting Q4 revenue in the range of $218 million to $230 million. We also expect the following: GAAP gross margin in the range of 55.1% to 55.7%; non-GAAP gross margin in the range of 55.4% to 56.0%; total stock-based compensation expense of $21.8 million to $23.8 million, including approximately $700,000 that would be charged to cost of goods sold; GAAP R&D and SG&A expenses between $81.3 million and $85.3 million; non-GAAP R&D and SG&A expenses to be in the range of $60.2 million to $62.2 million; litigation expense should range between $1.8 million to $2.2 million; interest income is expected to range from $1.0 million to $1.4 million; fully diluted shares to be in the range of 47.1 million to 48.1 million shares. In conclusion, we will monitor market conditions closely and continue to execute. I'll now open the webinar up for questions.
Genevieve Cunningham, Moderator
Thank you, Bernie. Analysts, I would now like to begin our Q&A session. Our first question comes from Tore Svanberg from Stifel. Tore, your line is now open.
Tore Svanberg, Analyst
Congratulations on the $1 billion run rate. First question is Q4 guidance. Could you talk a little bit about which are some of the end markets that are going to be performing in Q4? Obviously, I know communications is going to be down, but what about some of the other markets for the December quarter?
Bernie Blegen, CFO
Tore, thanks for commenting on the $1 billion run rate. Yes, if you compare ourselves against Q3, obviously, that was a high watermark. So probably a more relevant comparison is against Q4 of 2019. And on that basis, we're expecting all of our major markets to be up significantly from the prior year. And then, when you do the comparison against Q3, you'll see that there'll probably be declines in communications and computing, and also in consumer, the consumer is seasonally adjusted but we'll still expect to see improvements in industrial and automotive.
Tore Svanberg, Analyst
Very good. And as my follow-up, you mentioned inventories are pretty lean, so can you just elaborate a little bit on what you're doing to try and get the inventories back up? You said you had some OpEx to maybe secure some foundry capacity, but anything else you can add on sort of how you're going to get back to that 180 days of inventory?
Bernie Blegen, CFO
Sure. I think as we acknowledged in Q3 that we were able to catch up as far as having adequate capacity in order to service near-term demand and in giving guidance for Q4 that expectation follows along. When we look ahead over the course of the next 24 months, we previously mentioned that we're entering into new relationships with other fabs and expect to grow our overall capacity. So this will be an ongoing investment that we would project for at least about the next six quarters.
Genevieve Cunningham, Moderator
Our next question comes from David Williams from Loop Capital. David, your line is now open.
Will Stein, Analyst
I think there is a mistake. It's Will Stein from Truist. How are you? I guess I'll just go. Bernie, first a clarification. The inventory target that you called out in your script, I think you said 180 to 200. I think that's 20 days higher than what you said on the last conference call. Is that correct? And if so, can you help us understand what's changed?
Bernie Blegen, CFO
The previous metrics we used were about 20 days lower, but we've made this adjustment to clarify our position to analysts and investors over the last two to three quarters. I want to address your question regarding our growth. To sustain our growth above the market level, we need to maintain a higher level of inventory. We are building inventory now to support sales that will happen in one or two quarters. This does not perfectly align with other companies that are not growing as rapidly and can keep lower inventory levels. We need to make an incremental investment to support our growth.
Michael Hsing, CEO
Let me add that at the end of last year, we had about 200 days of inventory. If we use that model to achieve this year's growth, that's roughly the right amount. That's where the additional 20 days comes from. Diving into more details, MPS is a great company, but we have our own unique technologies. I can't think of any competitors that have the same manufacturing approach we do. Most have their own fabrication facilities. Given the volatility in the market and our growth, along with the number of products we have to address in the greenfield market segments, we likely need more than 200 days of inventory.
Will Stein, Analyst
Okay. That helps a lot. If I can have one quick follow-up. The guidance, while great overall on revenue and EPS, the margins are a little bit different from what maybe some would have expected. And Bernie, I'm just wondering if you can tell us if the model we should be thinking about, which historically was that gross would grow at 10 to 20 bps a quarter. And op margin, either there was, I guess, a change in that view that perhaps we wouldn't get an operating margin leverage for the next year or two. Maybe you could just update us on that model for both those lines.
Bernie Blegen, CFO
Sure. And I think that you captured it very well is that obviously, our model has been to improve gross margin 10 to 20 basis points sequentially. Now a lot of factors weigh into being able to deliver against those results, including both our mix of business as well as what the market looks like. So again, you have to use these as guidelines, not as an absolute guarantee of what our performance will look like. And then, on the operating expenses, right now, we are going to be continuing to invest in capacity as I said in each of the next six quarters. So that will be an additional layer of investment from what we've seen and so as a result, we're not projecting our operating margins to improve significantly over the course of the next two years.
Will Stein, Analyst
OpEx, I think, is that right? In other words, op margin would just expand with gross, which is 10 to 20 bps a quarter? Or...
Bernie Blegen, CFO
Yes.
Genevieve Cunningham, Moderator
Our next question comes from David Williams from Loop Capital. David, your line is now open. Our next question comes from Quinn Bolton from Needham. Quinn, your line is now open.
Quinn Bolton, Analyst
Let me offer my congratulations on a very strong September and good December outlook. Bernie and Michael, these are sort of unprecedented times in the business and I know you don't typically look out more than a quarter. But I guess, one of the questions I'm hearing from investors is whether there is any sort of inflated demand still impacting the business in the December quarter. And wondering, to the extent you can give us any sort of thoughts on March, would March show a typical seasonal decline from the December quarter of, say, 3% to 5%, what you would see in a typical year or do you think it could show a greater seasonal factor? I know you don't typically go out two quarters, but again, this is really strong results here in the near term.
Michael Hsing, CEO
Let me answer that question. If you're talking about normal seasonality, then the outlook is great. We have so many design-in activities and we see so many award projects and as well as you know, these were in unprecedented era, pandemics and geopolitical issues and I can't predict and frankly, I care less.
Bernie Blegen, CFO
And if I can just add to that is that I really think that there are certain aspects of our business that we have in good control, as Michael hit on as far as the design wind activity, but right now, we do not have control over what the end customer demand is ultimately going to be about. So I think that as far as executing against our strategy and seeing it show up in our results, I think we're going to continue along that path but there are just too many factors for us, it would be pure speculation at this point.
Quinn Bolton, Analyst
Maybe I could ask, in past calls, you've oftentimes given us some idea of your sort of starting backlog coverage and I know that typically runs a very high percentage of the revenue guidance. I guess is, with some of the delinquencies you had a past quarter, you had very strong backlog. But as you head into the December quarter, so backlog is sort of back to more normal levels that it would have typically run in the last couple of years? Is it still elevated? Can you give us any thoughts on kind of the backlog coverage?
Michael Hsing, CEO
As we approach the December quarter, we are still experiencing delinquencies, which means our capacity remains limited.
Bernie Blegen, CFO
And I think what we're seeing here is that, as I said, in the guidance that we offered, it anticipates both the demand, including the backlog that we had coming into the quarter and it's matched with what our supply chain and capacity limits are. So I guess that I would probably offer that we have some ability for upside, but it's going to be a little bit limited by the supply chain.
Genevieve Cunningham, Moderator
Our next question comes from Alex Vecchi from William Blair. Alex, your line is now open.
Alex Vecchi, Analyst
Michael and Bernie, congratulations, again, in a very volatile environment. If we can just touch base a little more on the automotive segment. This appears to be the highest revenue quarter you guys have posted since really starting to gain traction in the segment. I've realized the environment is just starting now to get a little bit better. But can you maybe update us on how we should think about the long-term growth targets there? In the past, you've said 40% to 60% growth, obviously, that may be a little premature at this point, but perhaps, update us on how you're feeling on that segment.
Bernie Blegen, CFO
I would probably say that automotive is one of the more exciting end markets for us for the next several years. Now if you look at our track record in 2019 and 2020, 2019 was affected by the recession, 2020 by factory closings related to the COVID-19 pandemic. So again, those are circumstances that were largely outside of our control. But what we're seeing is that we're expanding now from our traditional infotainment base into some of these more exciting technologies, including the lighting systems, the ADAS, and the autonomous driving. So we think that this is a sustainable revenue growth should be well ahead of what our corporate average is going to be. At one time, we were promoting the concept of being able to grow consistently at 20% to 60% per year, but that would probably back off to a more reasonable between 30% and 40%, but still a very exciting end market for us.
Michael Hsing, CEO
Bernie talking. Okay. Frankly, I don't have clear pictures. And what's the growth? Frankly, I never put MPS' as we have to grow a certain percentage, okay? And what I'm looking at is what kind of product, which project and how well we're positioned and which customers, which projects we want designing. And a lot more importantly, okay, what kind of products in the pipeline. That really drives the top line. And so how we predicted what's the next lowest growth percentage, I can't tell you.
Alex Vecchi, Analyst
No, no, that's fair, but it's good to hear that the trajectory seems to be sort of back on track. And then, similarly, I don't think in the prepared comments you guys commented on the extent of the pull-ins into Q3. Is it fair to say that the vast majority of the sequential decline in Q4 is related to the pull-in activities or is there also a little bit of normalization of demand in there as well?
Michael Hsing, CEO
Well, we had a lot of pulling from Q3 and partially in Q4. As I said earlier, we're still facing delinquencies. And so I think that's a combination of the growth and also in a capacity shortage from that past. Okay.
Alex Vecchi, Analyst
From that past, okay. And then lastly, if I can, on just the days inventory, the 180 to 200 days, how long will it take you to get back to that level? Is that something you can achieve in Q4 or are we really looking to more the first half of 2021?
Michael Hsing, CEO
If the market slows down, we will reach our goals quickly. We are currently at uncomfortable levels, and I can address that. We want to increase our output as much as possible. Our engineers are actively working at the different fabs to qualify the processes and technologies. We hope to make significant progress in the next six months.
Genevieve Cunningham, Moderator
Our next question comes from Joshua Buchalter from Cowen. Joshua, your line is now open.
Joshua Buchalter, Analyst
Let me echo my congrats. As for my first question, earlier this year, you'd mentioned bringing an additional 12-inch fab online in the second half. I was wondering, was this the primary driver of the additional capacity you were able to secure in the third quarter? And then looking ahead, how much more capacity do you feel you need to both serve your customers and get the inventory levels up to that you raised to 180 to 200 days?
Michael Hsing, CEO
Yes. Okay. The first question is, yes, absolutely, okay. We said earlier this year, we expanded another 12-inch fab; it wasn't in our plan, but we hurried up and got that thing going. And we start shipping product in Q3. That's unprecedented, and thanks to our people. They really worked day and night to manage and qualify these products. Going forward, we just want to expand the capacity to reach 180 to 200 days' inventory. And going in the future, if we have a very linear world and it's very easy to calculate. I think we are living in a very non-linear environment and 200 days inventory, that's what we want to do.
Joshua Buchalter, Analyst
Got it. That's very helpful. And then for my follow-up, a bit of a bigger picture question. I mean, you guys are now at a $1 billion or you reached a $1 billion run rate this quarter. Are you seeing any increase or changes in the competitive responses from your peers as you move higher on both a unit basis and as well in the socket value?
Michael Hsing, CEO
Our ASPs are increasing, and when we move to high-end market segments. Our competition is always pretty similar. I mean, our customers don't even know MPS is at $1 billion. There are no MPS. MPS is very small potatoes against all these giants.
Bernie Blegen, CFO
But I think you go back to what our competitive basis is, and it really is that we're winning with superior technology and a higher level of customer service and I think that's what our customers are recognizing.
Michael Hsing, CEO
That's right, yes.
Genevieve Cunningham, Moderator
Our next question comes from Rick Schafer from Oppenheimer. Rick, your line is now open.
Rick Schafer, Analyst
Maybe just a quick follow-on, if I can, on that production question. I know you guys have been pulling in new production and foundry partners pretty aggressively. I mean, I know you've spoken, I think in the past about sort of once it's done, the goal is to kind of be at that $1.2 billion or so in kind of annual revenues. And that's not a lot of headroom for you guys at your current run rate at your current growth rate. So I'm curious, is that $1.2 billion still the right number we should be thinking of in terms of your capacity when all said and done? And maybe what does the timeline look like for that now since you're pulling stuff in?
Michael Hsing, CEO
Yes. Okay. Obviously, the $1.2 billion is not enough. If you want to build a fast on the 200 days' inventories, it's more than double it right now. So that's what we try to do, and it's not easy and that's what we're aiming for, just double it.
Bernie Blegen, CFO
And I think that in the past, securing fab capacity and being able to introduce new products at the rate that we are is really nothing new to MPS. But the scale has been getting bigger and so that's why the investments and the time that we have to plan ahead makes a difference. And so all we're doing is preparing both for the capacity but also recognizing the investment that goes with it.
Rick Schafer, Analyst
So if we fast forward 18 months, 24 months, I mean, is there a bogey for where you think your capacity will be? I mean if it's not $1.2 billion, I assume higher than that, but I'm just curious if there is a number you can share or if you know at this point?
Michael Hsing, CEO
I'm sorry, I wasn't clear. We're shooting for $2 billion.
Rick Schafer, Analyst
$2 billion? I'm sorry, I misunderstood. Sorry. Thanks, Michael. And then just maybe a question, if I could, on 5G. And maybe I was hoping you could talk a little bit about your exposure to the Tier-1 5G ran OEMs, the one that you're allowed to sell to, of course. Where you are in terms of revenue ramp or design win activity? I mean, are any of these guys buying QSMOD yet? Or are you sort of initially seeing more POL issues kind of similar to what you saw in the early stages of your cloud server ramp?
Michael Hsing, CEO
I think 5G overall is at an early stage. All I can say now is that we engage with all the 5G station makers. We do have a design activity and we do have award projects but it's not significant revenue yet.
Genevieve Cunningham, Moderator
Our next question comes from Ross Seymore from Deutsche Bank. Ross, your line is now open.
Ross Seymore, Analyst
I want to give the same congrats that everybody else did, stupendous work here. A couple of quick questions. First, when do you expect the delinquencies to be gone?
Michael Hsing, CEO
If the market slows down, we'll address that next quarter. If the demand remains strong, we'll continue to deal with it. We are seeing some improvement compared to the last two quarters.
Ross Seymore, Analyst
And then on the supply side of the equation somewhat, but maybe even more of a regulatory issue. What's the exposure? And how are you dealing with the Huawei ban? And does the SMIC ban have any impact on you, whether it's in the supply side or otherwise?
Michael Hsing, CEO
Well, Huawei is not our supplier. But SMIC, it is our supplier. So far, it's not affecting us, and we don't know. We can't speculate what all these policies mean that came in. But on the other hand, we diversified our foundry sources. We started from a beginning of this year. We speed it up.
Ross Seymore, Analyst
So on the Huawei side, just to be clear, you had them as a customer, I believe, in the first half of the year one way or the other. And I assume you're no longer shipping to them and I just wondered if that's part of fourth quarter guidance is then going to zero.
Michael Hsing, CEO
Well, we can say zero or some non-zero, and so far, we cannot ship. But there are other rules and regulations coming out and all the other permits; I mean, we cannot speculate what kind of things we can do and it's all depending on our government now.
Ross Seymore, Analyst
I guess the last question then away from government type questions is, Bernie, you and Michael have had a framework in for many, many years about the percentage superior growth versus the analog market that you guys have delivered. I think it's been kind of a 10% to 15% positive delta in your favor. Is that rule just thrown out the window now? This year it's 25, 30 points above that peer group. And I know one year doesn't make a trend, but as you look at it, is there something that's creating some semblance of escape velocity where that delta expands meaningfully just due to the breadth of your design wins, the markets you're targeting or do we expect a little bit of a reversion to the mean in 2021 after such a great 2020?
Michael Hsing, CEO
The world operates in a non-linear manner. I recall facing numerous questions regarding our projection of a 20% to 25% growth rate. Back in 2016, 2017, or even 2015, there was skepticism about whether we could achieve that, despite being around 17% to 18%. You asked repeatedly, compelling me to say that by 2018 or 2019, we would surpass 20%. That statement has stuck with me; predicting in a non-linear world is challenging. As I mentioned earlier, we can only prepare by managing our inventory levels. If there's a significant downturn, we won't deplete our stocks rapidly and will adjust our production accordingly. Regarding growth, I'm optimistic about the positive developments in our design activities and projects over the last couple of years compared to the previous years. We've secured a lot more high-value products and sockets.
Genevieve Cunningham, Moderator
Our next question comes from Tore Svanberg from Stifel. Tore, your line is now open.
Tore Svanberg, Analyst
I just had a follow-up, Michael, on e-commerce. That's obviously a business model that could help you manage capacity, inventory and so on and so forth. Have you been able to keep up with the investments there in this environment? Maybe you could just update us on where the e-commerce business stands today?
Michael Hsing, CEO
We didn't prepare the numbers. We're doing really good. And I thought that there was nobody going to ask the question because...
Bernie Blegen, CFO
We have so much other news.
Michael Hsing, CEO
It is okay. I feel I can say we've figured out the way to do it. Until we prove ourselves wrong again. The new website, as I think you see it, it's very different and we increased a whole lot more clicks and the customers stay on the pages for a lot longer. And also, we're creating virtual labs and that part also helps e-commerce. So we don't have the product FAEs and have them pounding the pavement to generate opportunities and we're using the website. The numbers are increasing weekly and I'm very pleased; so we're talking about a few hundred percentage increase from a small number. It doesn't mean a lot, but for us and we learned it. That's the trick. That's the area we're going to do. We're going to enhance that.
Bernie Blegen, CFO
I didn't know that there's an even higher arching strategy here where e-commerce is a significant part, and it's really how do you go after underserved customers. What was surprising to me is we did look at the last three years as far as how many customers did we have that were under $100,000 and how is that base growing. Because if you can use the linear model, where what they used to do is get in there early...
Michael Hsing, CEO
The linear technology.
Bernie Blegen, CFO
We are focusing on getting involved early, developing long-term relationships, and growing alongside our customers. Based on the numbers I've reviewed, we are performing very well and starting to see positive results from these efforts.
Michael Hsing, CEO
We increased these numbers like three or four times.
Bernie Blegen, CFO
Yes.
Michael Hsing, CEO
And from a small base, that is significant and has occurred over the last few years. Now, we can clearly assess the metrics. An old saying goes that you measure what you get, and we are beginning to understand what to measure, which is very important to me. Looking at revenue, it has become meaningful, but I don't have specific details and I prefer not to disclose my higher numbers.
Genevieve Cunningham, Moderator
Our next question comes from Rick Schafer from Oppenheimer. Rick, your line is now open.
Rick Schafer, Analyst
And speaking of things that haven't been talked about as much in the last couple of quarters, I'm curious if you could give us an update on the design win pipeline or revenue color for your converter business. I'm just curious, has ADI, Maxim opened any doors for you guys? And have you seen the level of engagement with customers increase maybe as a side note, or are you seeing more analog does it line into your resumes or is it easier to find guys? So I'm just curious if you could give us any update there.
Michael Hsing, CEO
Finding good people is always hard. All these good companies keep the good people and that's always a challenge. We know that we need to diversify. That came in a lot of times in the last 10 to 15 years or more likely the last 20 years. We have a lot of people from China who came in. And now two or four, five years ago, we migrated to Europe and Taiwan and outside of Mainland China. Now in the last couple of years, it will come back to the U.S., and we do see, not necessarily in the Bay Area but other parts of the country, we do find some talents there.
Rick Schafer, Analyst
And Michael, any update on what's happening with converters for you guys?
Michael Hsing, CEO
The converters, which...
Rick Schafer, Analyst
The signal chain stuff the team you brought in. I think it's been a couple of quarters since we talked about ADAS.
Bernie Blegen, CFO
High-performance analog, yes.
Michael Hsing, CEO
Oh, yes. The data converters. Okay. Yes. Okay. I think we received the first chip.
Bernie Blegen, CFO
This is prototyping.
Michael Hsing, CEO
Yes. And I think we're building solutions, and as most of the time, the first chip will have some bugs, and we are building a prototype. We still can't put it in a system yet now.
Genevieve Cunningham, Moderator
Our next question comes from William Stein of Truist. William, your line is now open.
Will Stein, Analyst
Can you provide an update on the eMotion and module business, as well as on programmable traction? I see these aspects as somewhat distinct from e-commerce, and an update on them would be very helpful.
Michael Hsing, CEO
Yes. I think we use that e-commerce platform to promote those products. And that eMotion side, I think the revenues, I had to say some number now, otherwise I don't know whether you guys think of whether I do have numbers. I want to have Bernie's. Sometimes it increases almost double. The motion side.
Bernie Blegen, CFO
Yes. The eMotion is right in that sort of transition phase because we have a lot of design wins that are going in. So last year, the revenue run rate was somewhere in the $10 million to $12 million, but now the doubling is going to start, particularly as we go into both automotive and industrial applications.
Michael Hsing, CEO
Yes. So I'm correct. It was about double.
Bernie Blegen, CFO
I think also when we look at the modules business, that is taking off very nicely.
Michael Hsing, CEO
The modules started with a smaller base, like a few hundred percent increase. That was $30 million, $40 million.
Will Stein, Analyst
And is the strength that you're seeing there at all related to the pull-ins and delivering against delinquencies that you had previously or is this part of the rest of the business? What I want to think of as core that might not have...
Michael Hsing, CEO
No, a small portion is due to delinquencies. This is a new market segment where people order online and we never see those orders. Since these are very small customers who have not ordered these parts before, the numbers may be small, but there are a large number of customers using these plug-and-play modules. They can simply plug them in without needing to design anything. Regarding the programming aspect, we've learned that our customers prefer us to handle the programming for them. Therefore, we set up virtual labs where customers communicate their needs, and we program everything before shipping. What we are discussing now is essentially a custom design for each customer, and I'm pleased to see that it is taking off.
Will Stein, Analyst
And just a final comment there is on the modules, they're not necessarily tied to any one end market. They're actually very broad-based; initially, we thought that they would be plug-and-play solutions, particularly for prototyping or small volumes, but it turns out that they're actually going to mainstream production.
Michael Hsing, CEO
Yes. And so that's something we learned and I'm a former engineer. I'm a skilled engineer. Our people and we created a great product that we see and we're reporting like 30 parameters, 70 parameters on the website. They can program it and they can see what the result from simulations. It turned out to be and we put a lot there nobody looking at it and we're wondering why. So we reduced to half and then we cut another half, reduced to five, six, seven; they still don't want to see it. They want to pick the numbers in total; you do that for me, and that's great. We can do the work; they pay for it. That's fine.
Genevieve Cunningham, Moderator
Our next question comes from Quinn Bolton from Needham. Quinn, your line is now open.
Quinn Bolton, Analyst
Just wanted to see if you might be able to give us an update on your efforts in the GPU space for either desktop or data center GPUs. Just looking at the power consumption of those devices, I think you're seeing desktop GPUs now consuming up to 300 watts. I think data center, maybe up to 400 watts. You guys, I think I talked about that back at Analyst Day as a potential opportunity. Just wondering if you're starting to see any real traction or if you start to need in the curve on either the sort of the gaming or the data center side of GPUs.
Bernie Blegen, CFO
We are experiencing significant progress in both areas. We initially began our revenue generation with desktop GPUs about 18 months to two years ago. Now, we are expanding into the data center sector, particularly focusing on 48-volt solutions for artificial intelligence. The potential is considerable, but we are still in the early phases of this market. Overall, we are well positioned, though it may take another year or two before we see substantial revenue growth.
Michael Hsing, CEO
Those are AR, Bernie is talking about; these are over 1,000 watts, and it's not a 200 or 300 or 400-watt level. If you get to that high level, you're only talking about only a few companies; they can supply those types of products. Again, I think we are in good positions but always can be better.
Genevieve Cunningham, Moderator
There appear to be no further questions. I would now like to turn the webinar back over to Bernie.
Bernie Blegen, CFO
Great. Thanks, Gen. I would like to thank you all for joining us for this conference and look forward to talking to you again about our fourth quarter results which will likely be in early February. Thank you and have a nice day.