Earnings Call Transcript - MPWR Q4 2021

Genevieve Cunningham, Moderator

Welcome, everyone, to the MPS Fourth 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 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. 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 Q4 earnings release and in our SEC filings, including our Form 10-K filed on March 1, 2021, and Form 10-Q filed on November 8, 2021, both of which are accessible through our website. 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, other income, income before income taxes, 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 Q4 and full year 2021 earnings release, which we have filed with the SEC and is currently available on our website. I’d 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 the earnings release filed with the SEC earlier today. Now, I’d like to turn the call over to Bernie Blegen.

Bernie Blegen, CFO

Thanks, Genevieve. In 2021, MPS surpassed the $1 billion revenue milestone by achieving record full year revenue of $1.2 billion, 43.0% higher than the prior year. This performance represented consistent execution against our strategies and being recognized by more first-tier companies for our superior technologies, product quality, and excellent customer support. As we see more high-quality growth opportunities ahead of us, we continue to invest in our infrastructure and operational capabilities. In 2021, MPS grew capacity by 40% and we are on track to expand capacity in 2022, well beyond $2 billion allowing the company to successfully ramp new product revenue and achieve strategic market share gains. Here are a few highlights we achieved in 2021. We brought online a new 8-inch fab and continued to qualify parts in the 12-inch fab we brought online in 2020. We will continue to invest in growing fab and assembly capacity. We design processor cores and MCU technology into products requiring more sophisticated power solutions such as USB power delivery, smart motor drives, and high power electrification. Our first prototype of a high precision analog digital converter for medical applications achieved outstanding silicon performance in lab evaluations. We have started customer sampling in Q1 2022. Validation of this technology is a strong first step in developing a new business segment supporting both industrial and infrastructure end market applications. We believe new product revenue from a large number of previously released designs will ramp in 2022, including applications for VR14, 5G, BMS, ADAS, AI, USB PD, DDR, and many more. Turning to our full year 2021 revenue by market segment compared to 2020, automotive revenue was up 87.5%, computing and storage revenue was up 47.0%, industrial revenue was up 54.5%, consumer revenue was up 28.1%, and communications revenue was up 15.3%, demonstrating how broad-based our full year 2021 revenue improvement was. Automotive revenue grew $95.4 million to $204.3 million in 2021, representing a 87.5% year-over-year gain primarily due to increased sales of our highly integrated applications supporting the digital cockpit, automated driver assistance systems, and connectivity. Automotive revenue represented 16.9% of MPS’ full year 2021 revenue compared with 12.9% in 2020. Full year computing and storage revenue grew $119.1 million over the prior year to $372.3 million. This 47.0% increase primarily resulted from strong sales growth for enterprise notebooks, cloud computing, and storage applications. Computing and storage revenue represented 30.8% of MPS’ revenue in 2021, compared with 30.0% in 2020. Industrial revenue grew $65.2 million to $184.8 million in 2021, which was broad-based with each of our primary product lines enjoying better than double-digit revenue growth. Industrial revenue represented 15.3% of MPS’ full year 2021 revenue, compared with 14.2% in 2020. Consumer revenue grew $61.9 million to $282.3 million reflecting increased product sales for home appliances and smart TVs, representing 23.4% of MPS’ full year 2021 revenue, compared with 26.1% in 2020. Communications revenue grew $21.8 million to $164.1 million, reflecting higher sales of products for both infrastructure and wireless routers, and gateway applications, representing 13.6% of our 2021 revenue, compared with 16.9% in 2020. Switching to Q4, MPS had a record fourth quarter with revenue of $336.5 million, 4.0% higher than revenue generated in Q3 2021 and 44.4% higher than the comparable quarter in 2020. By market segment, revenue for computing and storage grew 91.6% year-over-year, communications grew 54.7%, automotive grew 43.2%, industrial grew 33.3%, and consumer grew 1.9%. Fourth quarter 2021 GAAP gross margin was 57.6%, same as Q3 2021 and 230 basis points higher than Q4 of 2020. Our GAAP operating income was $78.6 million compared to $77.1 million reported in Q3 2021 and $40.0 million in Q4 2020. Fourth quarter 2021 non-GAAP gross margin was 57.9%, 10 basis points higher than Q3 2021 and 220 basis points higher than the fourth quarter of 2020. The year-over-year expansion in fourth quarter non-GAAP gross margin was largely due to a shift in sales mix favoring high-value greenfield products and operational efficiency gains, which more than offset higher product input costs. MPS achieved noteworthy market share gains in 2021 due in large measure to product availability and disciplined sales price management. Our non-GAAP operating income was $112.0 million compared to $108.4 million reported in the prior quarter and $66.3 million in Q4 2020. Let’s review our operating expenses. Our GAAP operating expenses were $115.3 million in the fourth quarter compared with $109.2 million in Q3 2021 and $88.9 million in Q4 2020. Our non-GAAP Q4 2021 operating expenses were $83.0 million, up from $78.7 million in Q3 2021 and from $63.6 million in Q4 2020. On both a GAAP and a non-GAAP basis, fourth quarter 2021 litigation expense was a credit balance of $420,000 compared with a $3.4 million expense in Q3 2021 and a $1.5 million expense in Q4 2020. The credit balance in fourth quarter 2021 litigation expense reflected an intellectual property settlement refund of a legal retainer and lower than anticipated fees. The differences between GAAP and non-GAAP operating expenses for the quarters discussed here are stock compensation expense and income or loss from an unfunded deferred compensation plan. Fourth quarter 2021 stock compensation expense, including $921,000 charged to cost of goods sold, was $31.2 million compared with $31.6 million recorded in Q3 2021. Switching to the bottom line, fourth quarter 2021 GAAP net income was $72.7 million or $1.51 per fully diluted share compared with $1.44 per share in Q3 2021 and $0.90 per share in Q4 2020. Q4 2021 non-GAAP net income was $102.1 million or $2.12 per fully diluted share, compared with $2.06 per share in Q3 2021 and $1.31 per share in Q4 2020. Fully diluted shares outstanding at the end of Q4 2021 were 48.2 million. Now let’s look at the balance sheet. As of December 31, 2021, cash, cash equivalents, and investments totaled $727.5 million compared to $744.5 million at the end of Q3 2021. For Q4 2021, MPS generated operating cash flow of about $28.2 million compared with Q3 2021 operating cash flow of $117.8 million. The quarter-to-quarter drop in operating cash flow primarily reflected a $51.3 million increase in inventory and higher accounts receivable. Fourth quarter 2021 capital spending totaled $17.6 million. Accounts receivable at the end of Q4 2021 was $104.8 million or 28 days of sales outstanding compared with $79.9 million or 22 days of sales outstanding reported at the end of Q3 2021 and the $66.8 million or 26 days reported at the end of Q4 2020. Our internal inventories at the end of Q4 2021 were $259.4 million, up from $208.1 million at the end of Q3 2021. Calculated on a basis consistent with our past practice, and as you can see from the webinar video, days of inventory rose to 166 days at the end of Q4 2021 from 134 days at the end of Q3 2021. Historically, we have calculated days of inventory on hand as a function of the current quarter's revenue. We believe comparing current inventory levels with the following quarter’s revenue provides a better economic match. On this basis, days of inventory increased to 152 days at the end of Q4 2021 from 133 days at the end of Q3 2021. I would now like to turn to our Q1 2022 outlook. We are forecasting Q1 2022 revenue in the range of $354 million to $366 million. We also expect the following: GAAP gross margin in the range of 57.4% to 58.0%; non-GAAP gross margin in the range of 57.7% to 58.3%; total stock-based compensation expense of $36.9 million to $38.9 million, including approximately $1.1 million that would be charged to cost of goods sold; GAAP R&D and SG&A expenses between $119.2 million and $123.2 million; non-GAAP R&D and SG&A expenses to be in the range of $83.4 million and $85.4 million, excluding stock compensation and litigation expenses; litigation expenses to be in the range of $2.3 million to $2.7 million; interest income is expected to range from $1.0 million to $1.4 million before foreign exchange gains or losses; and fully diluted shares to be in the range of 47.8 million to 48.8 million shares. Finally, I’m pleased to announce a 25% increase in our quarterly dividend to $0.75 per share from $0.60 per share for stockholders of record as of March 31, 2022. In conclusion, MPS’ strong financial performance in 2021 was largely due to a 40% increase in fab and assembly capacity, which supported our high-value greenfield-product revenue ramp. Looking ahead, MPS is on track to expand capacity in 2022 well beyond $2 billion, allowing the company to successfully ramp new product revenue and achieve strategic market share gains in 2023, 2024, and beyond.

Genevieve Cunningham, Moderator

Thank you, Bernie. Analysts, I would now like to begin our Q&A session. [Operator Instructions] Our first question is from Tore Svanberg of Stifel Nicolaus. Tore, your line is now open.

Tore Svanberg, Analyst

Yes. Thank you. And congratulations on the very, very strong results. So I’m going to ask this question differently. Usually, people ask you how come you carry so much inventory, this time I’m going to ask you, how were you able to actually get your inventory that high? How are you both finding the capacity and again being able to build the inventory in spite of this very, very tight environment we’re seeing in the industry?

Michael Hsing, CEO

Well, as you know, in this business, building an inventory is qualifying a fab. These are not one-day, two-day things, they are short-term. These were all planned a few years ago. And now we are just reacting as the opportunity presents itself and we just catch it. And nothing was short term and we don’t have a crystal ball for the futures, we just plan ahead and react as fast as we can.

Bernie Blegen, CFO

And I think to add to that, that shows that we have a lot of inventory on hand that presents the capacity to allow us for sales in the next two quarters. So what we’ve done is made conscious investments in inventory, in the supply chain. And what we’re trying to do is manage in such a way that we hold the inventory, while still keeping channel inventory lean. We’re striving to ensure that we are in touch with the inventories that our customers are keeping so they’re likewise lean.

Michael Hsing, CEO

Yes. I also want to add that a few years ago, I talked about MPS going for well beyond a million or a couple million dollars. I wasn’t joking, we planned ahead for our business. That’s what we saw a few years ago, and now we’ve grown this much. Of course, we didn’t expect that. But we do have capacities, and we have to be creative in scrambling, working to achieve 45%. There’s no magic tricks in the last six months or so.

Bernie Blegen, CFO

And as you have noted, as Michael mentioned, we crossed the $1 billion revenue threshold and our revenue growth rate has accelerated from historic precedent.

Tore Svanberg, Analyst

Well done. As my follow-up question, could you just add a little more color on the $2 billion worth of capacity? You’ve talked about now ramping on 8-inch, you’re also qualifying products on 12-inch. Will there actually be 12-inch product sales this year?

Michael Hsing, CEO

Yes. We’re qualifying, as you know, MPS doesn’t build a fab, and we don’t have a lot of capital spending. But we are increasing all these capacity qualifier fabs which does cost money. To answer your question, we are transitioning and getting all this capacity whether it is 12-inch or 8-inch as much as we can.

Bernie Blegen, CFO

And just to add to that, that was our second 12-inch fab that we brought online in 2020.

Tore Svanberg, Analyst

Right. Very good. I’ll go back in line. Thank you and congrats again.

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 question. Congrats on the strong results and outlook. I want to ask about the module business that you’ve spoken about in the past, which might even accelerate growth further over time. I’m wondering what percentage of revenue modules contribute today and how we should think about the trajectory of that business? And if you could also comment on any potential tuck-in acquisitions that were either executed or contemplated for the future to fulfill your strategy in that area. Thank you.

Michael Hsing, CEO

Yes. I’m glad you asked the question, the module business I think is around 10% for this year.

Bernie Blegen, CFO

It’s actually mid single digits.

Michael Hsing, CEO

Okay. Yes, and so you can quantify that more accurately. I don’t know the specific numbers in detail but what I do know is that we grew 100% every year in the last couple of years. And now using the word accelerating this year and the next couple of years, that’s how I see it right now. And regarding potential tuck-in acquisitions to enhance our future growth using MPS technology, we are engaged with a handful of companies, more than six, and we’re currently in discussions. Nothing has materialized yet, so we should announce it when it's appropriate.

William Stein, Analyst

Thank you.

Genevieve Cunningham, Moderator

Our next question is from Alex Vecchi of William Blair. Alex, your line is now open.

Alex Vecchi, Analyst

Thanks for taking my question. And I echo the congratulations on the outstanding results. Just expanding on Tore’s question regarding the capacity expansion from $2 billion, can you quantify how much more capacity you think you’ll be adding in the next year or two or three? I think in the past, you’ve alluded to the current product portfolio supporting upwards of $3 billion to $4 billion in revenues. Is that the right trajectory to think about?

Michael Hsing, CEO

Yes. That’s absolutely correct. And for semiconductors, we have to have fab capacities for that kind of revenues. But even moving forward, because we’re selling more high-dollar modules and solutions which utilize silicon even less, our CPU wafer capacity will be less.

Alex Vecchi, Analyst

That’s actually really helpful. And similarly, regarding your comments about the segment breakdown, the Storage and Compute segment was very strong in the quarter. You’ve talked a bit about enterprise notebooks; it seems like that’s one of the areas where there’s some investor trepidation going forward. Can you talk about what the opportunity is and what the SAM is for your notebook outlook over the next few years?

Bernie Blegen, CFO

Sure. I think it’s important to qualify that the growth we’ve experienced, particularly over the last two or three years, has really been at the enterprise level, where we’re selling into units that would retail for above $1,200. We’ve been very successful in capturing a large part of market share that is not necessarily driven by consumer trends, and therefore, they’re not as prone to the downward unit numbers that are being projected for notebooks.

Michael Hsing, CEO

Yes. Overall, we want to achieve balanced growth. We don’t want to be known solely as a notebook company. That’s MPS’ strategy is to diversify our growth.

Bernie Blegen, CFO

Additionally, we saw a very strong uptick in our cloud and server business, particularly in Q4, which we expect to continue to ramp in 2022.

Michael Hsing, CEO

Overall, the notebook revenue is very, very low – it is at a single digit now.

Alex Vecchi, Analyst

Okay. Thank you. With that, I’ll hop back into the queue.

Genevieve Cunningham, Moderator

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

Quinn Bolton, Analyst

Hey, guys. I offer my congratulations as well. Bernie and Michael, I’m surprised you haven’t gotten the question yet, but I followed the company for a long time. I think this is the biggest gross margin beat you guys may have ever put up. If I got my numbers right, you beat gross margin by 130 basis points in this quarter. Looking back to the third quarter, I think you had a $4 million litigation revenue in the number that drove strength in gross margin, but that was clearly a one-time issue. So can you talk first about what drove the strength in gross margins and you’re guiding them effectively flat, up 10 basis points technically in the first quarter. It looks like that margin strength continues. Can you discuss gross margin?

Bernie Blegen, CFO

Sure. We tried to reflect on that a little bit in the prepared comments, where I indicated that we’re benefiting right now by a more favorable shift in our product mix, which has higher margins on the new greenfield business, but also operational efficiencies. As I indicated earlier, the percentage of silicon that’s coming from 12-inch is also a reflection of our improved quality standards. So, as we’ve reflected on what the sustainable margin going forward looks like, we offered a new floor, which we look to grow again 10 to 20 basis points sequentially, although we’ll keep our eyes open if there is an opportunity for another step-up.

Michael Hsing, CEO

If there’s another side, a few years ago, we talked about a greenfield product. And you actually asked if there is any headwind in gross margins. The answer was all these new products, greenfield products aim at high-end products and high values, so the gross margin should be better. This time, we didn’t increase the price that much. We pretty much passed the cost to our customers, or not even passed it to our customers. But as Bernie said, we shifted to 12-inch and also improved internal efficiency, along with high gross margin products being the majority of our gross margin improvement.

Quinn Bolton, Analyst

Got it. And as a follow-on, for two quarters now, you’ve seen a nice increase in your internal inventory levels. Wondering if you could just comment, as you’re building that internal inventory, how much of that is for new greenfield products versus, say, the run rate business?

Michael Hsing, CEO

Clearly, we’ve shifted away from a consumer side. So that we allocated a lot of products for these high-end targeted MPS market segments. So we grow the inventories for those segments.

Bernie Blegen, CFO

I think something to add there is that we do have some high-volume businesses, and we’re treating that as a run rate. So it’s probably the area that has the tightest capacity. But where we have these new products, the greenfield opportunities, we have new customers and new markets as a safeguard to ensure they are perceived very positively and we can cover upside potential. We have been building inventory to support that. I think that’s been reflected very well as far as customer acceptance of the new products and market share gains afforded by appropriate inventory levels.

Quinn Bolton, Analyst

Got it. Thank you.

Genevieve Cunningham, Moderator

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

Ross Seymore, Analyst

I’ll echo the congrats. I wanted to follow up on the second half of your answer to Quinn’s question there, Bernie. In the past, you guys have always gained market share, and consistently so. This past year was no different. But you also had significantly greater availability than your competition. I just wanted to see how customer relationships have enhanced because of availability. Do you believe that the wins you’ve gotten from availability will lead to sticky relationships going forward? You mentioned moving up into kind of first-tier customer base. I’m just trying to figure out the sustainability of the revenue growth because of that availability dynamic?

Michael Hsing, CEO

That’s a very, very good question. How did we grow like 45% over close to a $1 billion base? All these products we released in greenfield products and these two first-tier customers. Usually, these are large customers ramping a new supply very carefully; they don’t allocate a large percentage. They always have a second source, and now we have shortages everywhere. MPS has capacities, so everything shifted to us. That’s one factor. The second factor is MPS products are more programmable, and our customers are realizing that our single product can serve multiple purposes, which contributes to our value. They find ways to redesign and source to adopt MPS solutions. Those aspects are particularly sticky.

Ross Seymore, Analyst

Great. And as my follow-up question, I thought you talked about another greenfield opportunity, which is a huge part of the analog market, which is getting into the converter side of things. Can you just talk a little bit about your aspirations there, especially some of the applications you’re going after? What sort of opportunity do you see unfolding in that?

Michael Hsing, CEO

Yes. We just completed our silicon [indiscernible], and the performance is outstanding. These are new market segments we’ve never been in before. The focus will be the communications and medical applications, such as imaging, X-rays, and ultrasounds.

Bernie Blegen, CFO

Just to add, there are not many companies that have been successful in this area. The ones that have, command very high gross margins. We look to be a new market entrant but have a significant competitive advantage.

Michael Hsing, CEO

Yes, this is a milestone for MPS. Many have tried and achieved mediocre results; now let’s see what we can do. We have a product, so the next couple of years will be telling.

Ross Seymore, Analyst

Thank you.

Genevieve Cunningham, Moderator

Our next question is from Chris Caso from Raymond James. Chris, your line is now open.

Chris Caso, Analyst

Yes, thank you. For my first question, talk a little bit about seasonality. The Q1 results are better than what we normally expect in a seasonal Q1, which I suspect is because of some of the capacity additions you’re bringing on. Can you talk about these capacity additions as we go through the year? Are they all coming in on the way to the $2 billion revenue level? Will that capacity come on evenly during the year? And at that point, will you think you’ll be fully able to meet customer requirements this year?

Bernie Blegen, CFO

Chris, I think you get credit for three questions there. Hopefully, I’ll continue the thread. The first issue had to do with seasonality. Generally speaking, from Q4 to Q1, we observe a modest dip. In fact, because we have such an imbalance in demand and supply, seasonality is not as much a function today as it used to be. Moving forward, product availability is sort of the gating item for how fast a company can grow. As Michael pointed out earlier, we’ve always built capacity alongside our new product development. We got ahead of this market upturn and have been able to participate and accelerate our capacity buildup. That’s how we’re looking at 2022. One thing we’ve consistently done is make intelligent decisions many years ahead of when the capacity is needed, and we’re currently in discussions to secure capacity for 2023, 2024, and beyond. We feel very secure in what we’re capable of doing in 2022.

Michael Hsing, CEO

To answer your question directly, if it gives us another 50% growth for this year, we’ll likely be in trouble.

Chris Caso, Analyst

Okay. I think that would be welcome trouble if that were to happen. I’ll take liberty to ask one more that you were nice enough to answer, Mike and Bernie. Regarding pricing, Bernie, you made a comment about disciplined sales price management. Could you explain what that means and the extent to which pricing has been a contributor to year-on-year growth and whether that’s something that’s in the rearview mirror or if you’d expect to continue to increase it?

Bernie Blegen, CFO

Most people have recognized that many companies, within semiconductors and in analog specifically, created an opportunity for companies to implement price increases with their customers. A lot of them implemented this as early as Q1 of this year. We made a conscious decision not to increase our prices broadly but to select opportunities, and by doing that, we were able to secure a higher level of market share when product availability was scarce. Now as we conceptually look at 2022, we anticipate selective but broader price increases, although they will be at a more modest level than those of our peers.

Michael Hsing, CEO

When we look at it, we invest in our customers for future growth and future opportunities. We do have modest gross margin expansions as our model dictates. We maintain steady-state growth in every segment.

Genevieve Cunningham, Moderator

Our next question is from Rick Schafer of Oppenheimer. Rick, your line is now open.

Rick Schafer, Analyst

Hi, thanks and congratulations guys on another nice quarter. If I could quickly ask about 5G – you’ve talked about 5G as a significant opportunity for MPS. I think, Michael, you said potentially hundreds of dollars of content per car, sort of similar to server or data center cloud for you. If you could provide an update on design momentum since or when the revenue contribution might sort of start showing, if that’s still in the second half of this year? Also, will QSMOD sort of be a part of that initial ramp this year, or is it going to align more with point of load ECU as you began your server journey? Any color would be great.

Michael Hsing, CEO

To answer the first part of your question, the 5G relates to a lot of products, especially in the high current side, all connected to QSMOD. We see growth in all areas going from a single size to transmitters. We don’t see a very high rate of ramping; everything is steady state. As for QSMOD related to data centers, this year has shown there’s still less than a single-digit percentage of the total share of the expanding market. The significance of growth will come from almost nothing to a high-end single-digit, and earlier I said if we do not capture at least 30% of the market, we should stay out of the business, so there’s still a lot of room for growth.

Bernie Blegen, CFO

With the release of VR14, we are entering a very good inflection point in the cloud and data center.

Rick Schafer, Analyst

Thanks. And if I could just follow up with Bernie, I wanted to ask about your balance sheet. It looks great, obviously. I was just curious if you could give us an update on the use of cash going forward. Obviously, you’ve done a good job of investing in growth and R&D, but I’m curious how much you need to run the business and fund R&D, etc.? Thanks.

Bernie Blegen, CFO

Yes. It’s a great question. You want to look at it from three levels. We have to keep a certain amount of cash available to fund our growth, particularly as it relates to receivables and inventory, but also we’re expanding operating expenses worldwide at an accelerated rate, which demands a level of liquidity. Next, we’ve talked about building infrastructure and capacity. Even though we’re outsourced regarding our fabs and assembly, we perform a lot of our own testing, and with the quality required for the new markets, we can’t outsource that. This testing requires additional investment. Furthermore, we’ve acquired buildings for our footprint to house our growing staff headcount. We’ll continue leveraging the balance sheet to accelerate growth while being mindful of returning some cash back to shareholders.

Michael Hsing, CEO

Yes. Bernie’s point aside, we’re not accelerating our expenses. I want to make it clear that we’re slightly above our MPS growth model regarding expense growth. Regarding the return of cash to our investors, we have overwhelming support for dividends. We reconsidered buybacks; we’ve chosen to delay them because our investors prefer dividends. I’m not sure whether that’s related to tax issues, but we consistently aim for dividend increases. We want to acquire companies, but not just for revenue growth. It’s cheaper to grow MPS revenue autonomously, but we want to acquire small, unique tuck-in products that would enhance our sustainable growth based on MPS technology. As I mentioned earlier, we are engaged with a few companies now.

Rick Schafer, Analyst

Thanks for all the color, guys. Congrats.

Genevieve Cunningham, Moderator

Our next question is from Matt Ramsay of Cowen. Matt, your line is now open.

Matt Ramsay, Analyst

Thank you very much. Good afternoon, everyone. Michael, I’ve been asking you about this for three or four years, but in the last few months, you’ve talked more about opportunities for MPS in the electric vehicle market, both in drivetrains and regenerative braking. I wonder if you might talk a bit more about the revenue opportunity per car with your lead customer, the timing of that, and how wide is the pipeline in terms of the number of engagements you have in the EV market. Thanks.

Michael Hsing, CEO

In the EV market, we are in the ADAS area; I think we are at ADAS 2.5 or 3.0. We’ve almost engaged with every customer in some capacity. I can’t give you revenue numbers, but for pure electric cars, MPS has about $80 to $100 in shipments to date. We started this process last year, and for regenerative braking and drivetrains, we’re expecting to see revenue soon, entering this year.

Matt Ramsay, Analyst

Got it. Any thoughts on timing for those larger ASP products?

Michael Hsing, CEO

There are several products we are discussing now. We’ve released a few already, but our focus is to provide total solutions. Customers can utilize MPS reference designs.

Matt Ramsay, Analyst

Got it. As my follow-up question, it’s different. There’s a broad-based industry adding tremendous CapEx and capacity, and there’s a fear that the industry is doing this at a peak. You see new fabs coming online from Texas Instruments in the coming quarters. Everyone seems to be ramping CapEx. Are you concerned that as the industry catches up with capacity, we might see changes?

Michael Hsing, CEO

That’s a good question. First things first, MPS doesn’t build anything. We don’t own aseparate fab; we have the technology and capacity. Usually, as we gain capacity, those fabs are empty, and we go in and fill that. It’s a long-term partnership. If you want to add capacity today, that’s tough; they’re busy shipping and there are no available fabs. We engage with them during downturns to implement our technology. Remember, we don’t build a fab; our costs are minimal compared to building a fab. We may have equipment consignment but those costs are significantly lower.

Matt Ramsay, Analyst

Thanks very much, guys. I appreciate it.

Genevieve Cunningham, Moderator

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

Tore Svanberg, Analyst

Yes. Thank you. Just two quick follow-ups. I know it’s early in the year, but if we look at this year, which of your segments do you think will grow might grow faster? There’s been a lot of discussion about auto and server. Which segments should we bet on this year?

Michael Hsing, CEO

We don’t want to narrow it down to a single segment. MPS is a diverse company, not a narrow one. This year we’re shifting from consumers to focus on automotive, servers, and services in the cloud computing side, and these likely will remain similar. So that’s why we see it.

Bernie Blegen, CFO

When saying we’ve got multiple strong segments, that’s a more accurate reflection as the current year surprised with the strength of the Industrial segment. This area will continue into the next year. While the communications market may not be accelerating as we anticipated, it still looks promising for the second half of this year.

Michael Hsing, CEO

But who knows? If all these segments slow down and the consumer sector grows, we can pivot quickly, which is not favored right now, but we can do it. By the end of the year, there may be growth in the consumer sector.

Tore Svanberg, Analyst

That sounds good. Coming back to the data converter topic, what metrics should we track for your success in that? We all know it’s difficult to enter that market. Will you be focused on the high-end of data converter technology?

Michael Hsing, CEO

So far, yes, it’s a very high-end product and a new market segment. We previously stated we would ramp at the data center quickly, but it hasn’t unfolded as expected. I’m reluctant to make a prediction, but I know the technology is solid and our test data shows we can outperform existing market products.

Tore Svanberg, Analyst

Great. If you could even reach $100 million in this segment, I’d be very impressed.

Michael Hsing, CEO

Oh, yes, it’s just a matter of time. I’m confident.

Genevieve Cunningham, Moderator

Thank you. As there are no further questions, I would like to turn the webinar back over to Bernie.

Bernie Blegen, CFO

Once again, I’d like to thank you all for joining us in this conference call, and look forward to discussing our first quarter, which we’ll likely hold in April. So thanks again, and have a nice day.