Earnings Call Transcript - POWI Q1 2021

Joe Shiffler, Director of IR

Good afternoon, everyone. Sorry for the delay. There were some technical difficulties with the conference call provider. I’m Joe Shiffler, Director of IR for Power Integrations. And with me on the call today are Balu Balakrishnan, President and CEO of Power Integrations; and Sandeep Nayyar, our Chief Financial Officer. During the call, we will refer to financial measures not calculated according to GAAP. Non-GAAP measures exclude stock-based compensation expenses, amortization of acquisition-related intangible assets, and the tax effects of these items. A reconciliation of our non-GAAP measures to our GAAP results is included in our press release. Our discussion today, including the Q&A session, will include forward-looking statements denoted by words like will, would, believe, should, expect, outlook, forecast, anticipate, and similar expressions that look toward future events or performance. Such statements are subject to risks and uncertainties that may cause actual results to differ materially from those projected or implied. Such risks and uncertainties are discussed in today’s press release and in our Form 10-K filed with the SEC on February 5, 2021. This call is the property of Power Integrations, and any recording or rebroadcast is expressly prohibited without the written consent of Power Integrations. Now, I’ll turn the call over to Balu.

Balu Balakrishnan, President and CEO

Thank you, Joe, and good afternoon. First quarter revenues came in well above our expectations, growing 58% from the first quarter of 2020. This outsized growth rate reflects prevailing demand conditions in our industry but also our growing market share and the impact of secular trends that are expanding our addressable market and driving customers toward our highly integrated products. These trends include energy efficiency, electrification, renewable energy, home and building automation, smart connector appliances, LED lighting, advanced mobile device chargers, and the replacement of high-voltage silicon switches with gallium nitride. We expect these trends to endure well beyond the current semiconductor cycle, and we are making the necessary investments in products, people, facilities, capacity, and infrastructure to capitalize on the opportunities in front of us. One such investment is our newly redesigned power.com website, which was launched earlier this month. The new website serves as an extension of our sales and applications engineering team, putting our renowned PI expert design tool front and center to let engineers tap into our vast reservoir of design know-how. The site also better reflects our recent expansions into automotive and motor drive markets, incorporates advanced authorization capabilities, and features upgraded e-commerce functionality to enable customers to buy parts immediately from our distributors. Turning to Q1 results. Revenues were $174 million, up 15% from the prior quarter and 58% year-over-year, demonstrating the leverage in our model, and our non-GAAP operating margin expanded to 28.6% and our non-GAAP EPS doubled year-over-year to $0.76. Cash flow from operations was also very strong at $58 million. All four end-market categories exhibited strong year-over-year growth in the first quarter. Revenues from the computer category nearly tripled from a year ago, driven by strong demand for tablets, PCs, and monitors, as well as penetration of fast chargers in the tablet market. Revenues from the communications category were up more than 170% year-over-year, driven by growth in the handset market, share gains by our OEM customers, and most importantly, the continuing adoption of advanced chargers and our success in capturing a large share of that market. We have built a commanding lead in advanced chargers, thanks to our highly integrated products, including our GaN-based InnoSwitch devices, which offer the highest level of efficiency in the market. Efficiency is essential in fast chargers because any heat resulting from wasted energy must be dissipated through the surface of the charger. Most importantly, it requires more surface area, which means a bigger charger. Even worse, inefficient high-power chargers often require heat sinks, which add size, weight, and cost. The efficiency of our InnoSwitch products helps solve these thermal challenges, enabling the smallest, lightest, and fastest chargers on the market. We won a broad range of new advanced charger designs in Q1, including OEM branded chargers as well as aftermarket designs from a proliferating number of brands. Many of these designs feature multiple charging ports and provide enough watts to power a laptop while rapidly charging a phone or tablet. We are seeing tremendous uptake of our GaN products in such designs. As a result, we believe we are on track to grow our overall GaN revenues by at least three times this year. Of particular note is a 65-watt USB PD charger using a GaN-based InnoSwitch alongside our GaN-based mini-captures, which shrinks the charger by drastically reducing the size of the input capacitors. This design, as mentioned on last quarter’s call, was introduced earlier this week by a major OEM as the inbox adapter for the newest line of slim notebook computers. In its promotional video, the OEM prominently mentioned its use of GaN in the adapter to save energy, but it also highlights the combined weight of the notebook and the adapter. This is in contrast to the familiar experience in which we buy a notebook based on its advertised size and weight, only to find out that it comes with a huge clunky adapter. Notably, the OEM is also offering this same adapter as a super-fast charger for use with their cell phones, demonstrating the paradigm shift occurring in the mobile device market thanks to technologies like GaN and USB PD. We believe this is just the beginning of the long-term trend toward advanced multi-use chargers with high-performance semiconductors and far higher dollar content than chargers of the past. Continuing with the Q1 results, industrial revenues were up in the high teens year-over-year, driven by home automation and IoT applications, as well as battery-powered tools, two of the fastest-growing verticals in our industrial category. Consumer revenues grew in the low teens, driven by strong demand for appliances as well as continued share gains and rising dollar content. China’s new efficiency standards for air conditioners are also contributing to the growth in our consumer category. Notably, we achieved double-digit growth in consumer despite a very strong first quarter last year that included panic buying in the early stages of the pandemic. Regarding the current demand environment, like most semiconductor companies, we have seen extremely high order rates in recent months. Lead times have extended on many products, and we have experienced sharp reductions in inventories both in-house and in the distribution channel. However, while we are not immune to the challenges of the current environment, we have mitigated them to a large extent, thanks to our decision to build inventory as demand softened in the early stages of the pandemic. Another cushion against the current demand shock is our unique manufacturing model. Our proprietary process technologies enable us to rely not on traditional merchant foundries, but rather on the trailing edge facilities of vertically integrated suppliers. We believe our long-term partnerships with such suppliers, and our history of maintaining relatively steady production levels in periods of weaker demand helps to ensure that we have access to fab capacity when demand surges. Similarly, we have been able to mitigate the tightness in back-end capacity across the industry, thanks to the use of proprietary IT packages, our ownership of equipment used in the manufacturing and testing of these packages, and our substantial investment in new capacity over the past year. Looking ahead, we continue to expect that demand will begin to normalize at some point in the coming quarters as the impact of work-from-home begins to dissipate, appliance makers catch up with demand, and the dislocation caused by Huawei sanctions plays out. However, in the near term, demand continues to be very strong. We entered the second quarter with a record backlog and bookings have remained elevated throughout the month of April. Distribution sell-through far exceeded sell-in again in the first quarter, and distributors ended the quarter with an unsustainably low level of inventory. As a result, we expect our second quarter revenues to be flat compared to the first quarter, plus or minus 5%, which at the midpoint would be up more than 60% year-over-year. Looking further ahead, while some cellphone OEMs have likely overbuilt in an effort to capitalize on Huawei sanctions, our OEM customers have been major beneficiaries of this transition, which will magnify the share gains we have achieved through our success in advanced chargers. More broadly, we believe we have gained share across a number of end markets over the past few quarters, which should benefit as well after the current cyclical noise subsides. Finally, on behalf of our Chairman, Bill George, I’d like to note the appointment of Jennifer Lloyd to our Board of Directors effective April 1. As leader of a major business unit at Analog Devices, Jennifer brings an exceptional combination of technical expertise and executive management experience to our Board as well as deep knowledge of the analog semiconductor industry. We are delighted that she has joined our Board of Directors. And with that, I will turn it over to Sandeep.

Sandeep Nayyar, Chief Financial Officer

Thank you, Balu, and good afternoon. As usual, I will focus my remarks primarily on the non-GAAP results, which are reconciled to GAAP in our press release tables. First quarter revenues were $174 million, up 15% sequentially, with all four end market categories up from the prior quarter. Communication revenues increased more than 25%, driven by continued strength in advanced chargers. Computer revenues were up low double digits, driven mainly by fast chargers for tablets. Industrial revenues were up low double digits sequentially, driven by broad-based industrial applications as well as strength in metering, home and building automation, and high power. Consumer revenues grew mid-single digits, driven by broad-based strength in appliances, which comprise the bulk of our consumer category. Revenue mix for the quarter was 38% communications, 29% consumer, 25% industrial, and 8% computer. As expected, gross margin was sequentially lower, reflecting the greater percentage of revenues coming from the communications market. Non-GAAP gross margin was 49.4% for the quarter, down 70 basis points from the prior quarter. I noted on last quarter’s call that we expect Q1 to be the low watermark in terms of gross margin, and I still expect that to be the case as we should see the benefits of manufacturing efficiencies over the next several quarters and possibly a more favorable end-market mix in the second half of the year. Non-GAAP operating expenses were $36.2 million for the quarter, down $1.8 million from the prior quarter and below our expectations, primarily reflecting the timing of hiring. Non-GAAP operating margin for the quarter was 28.6%. The other income for the quarter was about $600,000, while the non-GAAP effective tax rate for the quarter was 7.1%, resulting in non-GAAP earnings of $46.7 million or $0.76 per diluted share. Cash and investments on the balance sheet rose by $42 million from the prior quarter, driven by strong free cash flow. Cash flow from operations was $58 million, while capital expenditures were $11 million. We paid out $7.8 million in dividends following the $0.02 increase that we announced last quarter. Reflecting the strength of our balance sheet, our Board of Directors has allocated an additional $50 million to our share repurchase authorization, bringing the total to $91.3 million. Internal inventories fell to 92 days, a decrease of 30 days from the prior quarter, while channel inventories fell to approximately two weeks as sell-through once again exceeded sell-in. Looking ahead, we expect second quarter revenues to be flat compared to the first quarter, plus or minus 5%. The gross margin should improve as the impact of manufacturing efficiencies begin to flow through the profit and loss statement. Specifically, I expect non-GAAP gross margin to be in the range of 50% to 50.5%. The operating expenses will increase sequentially in Q2, driven by annual merit increases, which took effect in early April, as well as continued growth in headcount. For the full year, I expect non-GAAP operating expenses to increase by about 10%, coming off a flattish year in 2020. Other income for Q2 should remain at a similar level to March quarter, while the non-GAAP effective tax rate should also remain steady at around 7% to 8%. And now operator, let’s begin the Q&A.

Operator, Operator

Our first question comes from Karl Ackerman from Cowen. Your line is open. You may ask your question.

Karl Ackerman, Analyst

Thank you, and good afternoon, gentlemen. First off, clearly, supply chain constraints have been pervasive across the semiconductor supply chain. I know you are fab light, but I think you’ve been securing capacity at your Japanese foundry partners for the last few quarters. I mean, given the very strong results in Q1 and for the outlook for June, I guess, at what revenue level are you able to service demand before needing to secure incremental capacity?

Balu Balakrishnan, President and CEO

Karl, thanks for the question. Right now, I believe we have enough capacity to meet the ongoing customer demand but not enough to supply all the parts customers want to buy. As you can imagine, customers are ordering far beyond what they need. But we are trying to make sure that we keep all of the inventory in one place, which is with us rather than have individual customers build their inventory. They’ll have to at some point, but at this moment, we are trying to manage that so that we can serve all customers well. We think for the rest of the year, that will be the case, unless something changes. Also, as we all know, the current booking rate is in excess of the normal run rate, thanks to the work-from-home and learn-from-home demand. But there will be a time that will normalize. We don’t know exactly when that is, but it could be in the next few quarters. Our expectation is that the second half will be lower in revenue than the first half. That’s because we believe it will start to normalize at some point. Given all of that, I don’t believe at the moment we have a problem with our ability to take care of customers, but they’ll have to wait for a while to build inventory. And that’s also true for distributors. We will try to build more inventory because two weeks is too low. But it all depends upon what the true demand is.

Karl Ackerman, Analyst

I guess that dovetails on my second question, which is just getting a little bit better understanding of your view for gross margins next quarter. You just indicated that distributor lead times are quite low. At the same time, many peers across the supply chain have spoken about rising substrate and shipping costs. I appreciate the outlook that you are giving for June, if I read between the lines, perhaps if due to a little bit less mix in mobile. But I guess with many larger peers raising prices across the distribution channel and lead times extending, how are you thinking about volume versus price and the value that you are offering many of your customers? And I guess, purely in volume, are you able to sign longer-term volume agreements with these customers going forward?

Balu Balakrishnan, President and CEO

I think the way to look at it is, yes, there are a lot of moving parts, whether it’s cost or the impact of foreign currency. The way I think the best to answer you is we provided guidance at the beginning of the year that our gross margin for the year would be approximately around 50%. We still believe that with all the moving parts, we will still achieve that 50%. I’d also like to add that one of the reasons we feel confident about meeting the true demand is that we believe we are in a better position than most of our competitors. We will not be the long-haul tent because of the cautions we took; we built a lot of inventory. We have committed capacity from our foundry partners, and we are continuing to build additional capacity in preparation for growth next year. I think we are in much better shape than most other companies.

Operator, Operator

Thank you, sir. We do have another question from the line of Tore Svanberg from Stifel. Your line is open. You may ask your question.

Tore Svanberg, Analyst

Yes. Thank you and congratulations on the record results. Balu, when it comes to share gains, I guess in this environment, there are several ways to gain that share. But you mentioned one of them, obviously, keeping your inventories high and the capacity. But the other way, of course, is by having a more integrated solution, and when discretes are probably selling at very long lead times. I would guess that is also a good reason why you would gain share. Could you comment a little bit on that? And would those hold sort of equal weight in your ability to gain share?

Balu Balakrishnan, President and CEO

Thanks, Tore. Yes, you hit on several reasons for gaining share. The biggest one is we have by far the most attractive solution in terms of efficiency, size, and performance. In fact, if you want the smallest size adapter, there is no other place to go; you have to make that up in a bigger power supply to use somebody else’s solution. That’s number one. We have been gaining share independent of the current cycle, and that has continued through this cycle. But on top of that, you hit on the right point because it’s hard to get discrete components, we have a huge advantage because our solutions involve fewer components compared to our competitors. So they prefer our solution. There are a couple of other things going on. Our customers are gaining share from Huawei, and that kind of magnifies the share gains that we have achieved. Additionally, a number of our competitors are having trouble shipping products because they are prioritizing other areas like automotive to ship into. As a result, we are gaining share. Sometimes because our customers are dual-sourcing at the power supply level, but sometimes even otherwise, if they cannot get a particular type of charger because of our competitors having challenges, they substitute our charger. In some cases, they’ve gone from a 15-watt charger to a 33-watt charger using our solution simply because the 15-watt charger is unavailable. So, there are many reasons we are gaining share. The good news is we believe much of this is permanent because once the shift is shared with us, they get used to the benefits we provide. So we are very thrilled that we are gaining so much share, faster than we had originally anticipated, thanks to the current cycle. In total, there are other areas like appliances where the standard changes happen. That change also drives a switch from variable frequency motors to fixed frequency power supplies substituted with electronic power supplies. Again, we have great products in that market, enabling us to gain further market share. So we are seeing market share gains across all applications.

Tore Svanberg, Analyst

That’s great perspective. My second question is on the channel inventory at two weeks. I mean, that’s the lowest I’ve seen. And I think normalized is about seven to eight weeks. Do you think that this ties will try to build back to that level? Or is there sort of a new norm or a new supply chain where that is not the number we should use going forward?

Balu Balakrishnan, President and CEO

No, no. The 1.9 weeks or two weeks is unsustainable. They just can’t serve the customers at those levels. My expectation is that could come up a couple of weeks in Q2. That’s one of the reasons we think Q2 will be flat. If you remember, originally we thought Q2 would be lower because of the strength we had in Q4 and Q1. But because of the low channel inventory, we now expect Q2 to be flat. Unless demand increases further, we expect some buildup in the channel inventory.

Tore Svanberg, Analyst

Great. And last question, you mentioned there’s a good chance that demand will be lower second half versus the first half. I assume that’s primarily associated with the communications market? Or would you say that applies to other segments as well?

Balu Balakrishnan, President and CEO

Well, it will apply to other segments as well, including computer and consumer markets. If you look at the demand, it appears to be driven by work-at-home and learn-from-home situations right now. So, people are buying more computers, and they are buying more appliances. In fact, if you look at appliances right now, if you try to buy an appliance, you’ll have a hard time doing that. Whirlpool just announced that their backlog is now five to six weeks at their retail chain. The appliance market is still quite robust, and at some point, that demand will be satisfied, especially as we recover from COVID. At some point, it will have to normalize. I don’t know whether normalization will occur in Q3, Q4, or Q1. Our best estimate is that the second half will be lower than the first half. Last year, we achieved a 16% growth. As you know historically, we see the upside sooner and then things turn and normalize, so we will see that sooner. That’s why you’re hearing our thoughts expressed in this way, as we believe things will normalize sooner rather than later.

Tore Svanberg, Analyst

Yes. I really appreciate the transparency there. Thank you so much.

Balu Balakrishnan, President and CEO

Thanks, Tore.

Operator, Operator

Thank you, sir. We do have another question from the line of Ross Seymore from Deutsche Bank. Your line is open. You may ask your question.

Ross Seymore, Analyst

Hi guys, I just want to echo the sentiments of others by congratulating you on the ridiculously strong results. It’s very impressive. I guess the first question is on the channel side. Balu, you talked about refilling that as a little tailwind for the second quarter. I guess first, there are two ways if I blend the channel inventory comment and then the second half might be a little weaker, there’s two ways that the weeks of inventory can rise. Do you believe that it will rise solely by you guys actually shipping more into the channel? Or are some of the orders and the booking rates and revenues of your customers going to drop so that they will actually have more weeks of inventory on the same dollar amounts from you guys?

Balu Balakrishnan, President and CEO

That’s a good question. I have no way of knowing. All I know is that it’s a very dynamic situation. Even though we have very strong bookings and a very strong backlog, we also see that the backlog gets adjusted in various ways in terms of mix and push-outs, pull-ins, and so on. I feel that at some point, this has to normalize. Whether it happens in Q2, I don’t know. It looks pretty strong to us. That’s why we’re giving the guidance we’re giving. However, I think that Q3 or Q4 may see some normalization. It is hard to predict, but it’s just a gut feeling at this point.

Ross Seymore, Analyst

Fair enough. I guess as my follow-up, and it might fall into the same gut feeling category, but the second half versus being below the first half. I think your logic makes tons of sense. And again, like Tore said, I appreciate your transparency on that. Most companies wouldn’t front-run any potential bad news. Any sort of magnitude, you’ve said you have the ability to shift to what you deem to be real demand or true demand, but not all the bookings. Any sort of color as far as what the delta is between those numbers, roughly, that you’re considering?

Balu Balakrishnan, President and CEO

Again, it would be pure speculation at this point. I believe, and Sandeep can add to it because we both speculate on what’s going to happen. I believe it will be slightly lower than the first half. We don't ship to whatever customer wants because that’s just going to cause more problems. If we build inventory at the customer, the normalization will be more drastic, so we want to make sure we take care of our customers. We have to be very careful that we don’t ship to customers who are overtaking the lower bookings simply because they’re panic buying. They may be looking at multiple semiconductor companies. So, is it a perfect situation? No, we have no way of knowing that we’re not shipping into inventory. In some cases, we are much more confident, especially in areas like cell phones, because we know how many cell phones are sold from each OEM. But in fragmented markets like appliances and industrial markets, it’s much harder to manage. They are also smaller customers, so they don’t have the bandwidth to manage it either. What we do is push back if they’re booking excessively compared to the run rate. We ask them if they really need it, and if they confirm, we provide them with the parts. However, it’s a non-exact gain. I think we are doing a pretty good job, by the way.

Ross Seymore, Analyst

That’s very helpful. I guess one final question for me, and you just alluded to it a little bit by saying that in the handset market you have better visibility. Last quarter, you also highlighted where you know the share that Huawei is losing and you know the gains that everyone else is trying to take on that. The latter is bigger than the former. Any sort of update on how that has progressed? It obviously didn’t seem to hurt you at all in the first quarter, but any updates on that dynamic for us?

Balu Balakrishnan, President and CEO

Absolutely. You know that we have a very good share in the Chinese OEMs, and all of them have benefited from the Huawei situation more so than non-Chinese OEMs. Since we already have a very good share, we have indirectly benefited from it. We not only have been growing share within their demand but they also got additional share from Huawei going away. So, I would say that as far as we know, to the best that we can, there is almost no inventory at the power supply guys, which means the power supply guys who build the adapters for the Chinese OEMs have no stock. What we don’t know, of course, is whether the OEMs have inventory of chargers in anticipation of building more phones and selling more phones to capture more of Huawei's market share. But overall, I am more comfortable that we are shipping to demand in that market than more fragmented markets because we have no way of knowing how many appliances are built, how many IoT devices are built, or how many power tools are built. Those are much harder to manage, and there are also smaller customers, so they don’t have the bandwidth to manage it either. However, we do manage relationships carefully and push back if they are booking excessively compared to their run rate.

David Williams, Analyst

Thanks, and I appreciate you letting me ask the question. But the first thing is, congratulations on the very strong quarter. But Balu, I think you’ve been right since you’ve been talking about the market backdrop and what you’ve seen in the inventory build. So clearly, you have a better read, I think, on the market than a lot. But congratulations on the read and the steady hand managing the business through this. If I could, maybe a little bit around automotive. Obviously, you’re not generating revenue there yet, but anything in terms of design activity that you’ve seen? Or maybe can you size up that opportunity as we look out over several years? What do you think that could be in terms of the size of your business?

Balu Balakrishnan, President and CEO

Excellent question. We are making very good progress in getting into a lot of these automotive customers. We have an automotive version of InnoSwitch that is a fantastic fit. Almost every customer who visits wants to use the product. Our expectation is that there will be a lot of design activity going on this year and next year. But we probably won’t see significant revenue until maybe a couple of years from now because that’s how long it takes to get designs into automotive. Now InnoSwitch is just the start for us. We have other products, especially the driver products that go into the inverter that drives the motor. Those products fit well as the voltages on the batteries go up. Most of the current costs are at 400 volts, but there is a strong trend toward these cars moving up to 800 volts. The bigger vehicles, like trucks, are already at higher voltages. At that voltage, we really have an advantage because our drivers have a very robust isolation scheme. We use the same isolation technique across the industry, which provides a significant advantage in that market. Additionally, we have extensive expertise in driving IGBT modules and silicon carbide modules, allowing our drivers to achieve maximum efficiency and provide the highest level of protection under abnormal conditions. We are very optimistic. It’s just that because we are new to this market, it takes a while to get there. However, all indications are that we will get there, and we expect to have a tiny bit of revenue this year, grow some next year, and see significant growth in subsequent years, but it will take two to three years to get into applications related to the car's safety, like the motor drive that is harder to get into because extensive qualifications are needed. Absolutely. We are fully committed to this market. We are working with a number of well-known customers and we are very optimistic. It’s just a question of time.

Sandeep Nayyar, Chief Financial Officer

Sure. We mentioned that our GaN revenue is going to grow at least by three times compared to last year. Every day that passes, we feel better about our GaN. The good news is we have plenty of capacity for GaN, and we are also investing more because we see dramatic growth in GaN over time. We don’t expect any restrictions on GaN capacity. In fact, when somebody brought up the question about how much capacity we have, it really depends on the mix. Obviously, all silicon capacities worldwide are tied down, but we are in a much better position because of our proprietary technology and the fact that we are working with partners we have 10-year contracts with, who support us very well. When it comes to GaN, that’s completely separate capacity, and right now we have plenty of it, and we will add more to it. I don’t see that as a restriction even in the most optimistic cases we can envision. Okay. Great. And one more if I can, maybe for you, Sandeep. On the margin, as we kind of think about the mix of both products and perhaps from a communications perspective considering the mix of customers, how do you think that the margin can trend as you move, particularly in terms of thinking about the third-party or aftermarket chargers and possibly some of the Chinese OEMs? Do you think that margin holds fairly steady, or could you see some uplift? Yes, definitely, in the aftermarket, you will see margin improvement because it involves higher power levels and multi-port designs. As I had mentioned, GaN products carry much higher average selling prices, generating more gross margin dollars. However, when the volumes are lower, you may see some pricing benefits there. I think for the year, the gross margin will move in the right direction, and for the year, as we had said, we should meet our original guidance around the 50% mark. We do expect the mix in the second half to be a little more favorable than it is for the first half because we’ve had a lot of benefits from the Huawei transition in the first half.

Operator, Operator

Thank you, sir. We do have another question from the line of Gus Richard from Northland Capital. Your line is open.

Gus Richard, Analyst

Yes. Thanks for taking the question. Well done, guys.

Balu Balakrishnan, President and CEO

Thanks, Gus.

Gus Richard, Analyst

Quick question – on the semiconductor – I’m sorry, on the cellphone side, how much of your growth is units versus average selling price?

Balu Balakrishnan, President and CEO

Very good question. We have grown both. However, the revenue share is significantly higher than the unit share, primarily because our average selling prices are much higher, especially when you operate in the high end of the market. We talked about a 65-watt charger for a cellphone, which is a lot of power for the cellphone. They call it the super charger. You’re talking about significantly higher average selling prices than we used to get in the low end of the business. We are talking about five to ten times higher average selling prices for several reasons: one, the power level is very high; and two, it’s GaN because they’re looking for the smallest adapter. To achieve that requires high efficiency, which means the customer ends up paying more. Additionally, we have multiple products within that one charger. It’s a single port charger, but we have three chips in it. One is our primary product using GaN as a switch, the second one is the mini-cap that also uses GaN as a switch, and we also sell CaP 0, which is another product we introduced some time ago. As a result, we have a lot more footprint and a lot more dollar content as the whole market shifts toward the high end. Currently, the high-end segment is relatively small but significant room remains for us to grow in terms of product content and average selling price in the cellphone and notebook market.

Gus Richard, Analyst

Okay. Got it. And Sandeep, how much, in terms of dollars, how much inventory do you want on the balance sheet?

Sandeep Nayyar, Chief Financial Officer

Ideally, our model is 120 days, and honestly, in the current environment, I wouldn’t mind being even higher than that. However, it’s going to be a bit of a challenge with the demand where it is right now until things normalize. Obviously, the channel inventory, as Balu indicated earlier, we do expect that to increase a bit in the coming quarters. I wouldn’t be surprised if it pops back up in Q2 because two weeks isn’t sustainable.

Gus Richard, Analyst

Okay. And assuming the current revenue run rate?

Sandeep Nayyar, Chief Financial Officer

Yes. We’re gaining a lot of share. What we have tried to express is that at some point, things will normalize. We’ve talked about a 16% growth rate, and we do see upside sooner. While there may be gyrations in demand in some quarters, we will continue to grow our business over the next several years, irrespective of market conditions. Some quarters may have demand fluctuations, but we believe our model will remain strong due to share gains across diverse end markets. One thing I want to clarify is that we will outperform, I believe, the industry because of these share gains. I can’t predict when normalization will occur, but I believe we will outperform our peers over that timeframe.

Gus Richard, Analyst

Let me try to get at the sort of run rate. When I think about your older products, they’re pretty steady runners, top switch, tiny, and some of the older InnoSwitch products. What has the unit volume done over the last couple of quarters relative to what the run rate was?

Balu Balakrishnan, President and CEO

It has gone up significantly. I can’t even believe it. These are legacy products that are some of them are 25 or 30 years old. However, the unit volume and the revenue has seen growth. Believe it or not, we are adding capacity for those old processes and also for the old packages. These are really all pet packages and escalates. We still have capacity because the demand is increasing for these products, which are used in appliances and industrial markets, and those sectors are performing very well.

Gus Richard, Analyst

So can you put a number on it for me? How much is TopSwitch increased from the run rate from, I’d say, 2019 to now?

Balu Balakrishnan, President and CEO

I’d like to rely on Sandeep here. He is looking at the tables. But I can tell you that it’s still a significant part of our revenue, something like – I think the TopSwitch is in the high-teens percentage of revenue. The Chinese switch is in the same high-teens percentage of revenue, and the link with is about low teens of our total revenue, and the rest of it is InnoSwitch-related products.

Sandeep Nayyar, Chief Financial Officer

The InnoSwitch-related products roughly account for 50% of our revenue.

Gus Richard, Analyst

Right. But what I’m curious about is what has the unit trajectory been? Is it up on the unit?

Sandeep Nayyar, Chief Financial Officer

I don’t have that number.

Balu Balakrishnan, President and CEO

Yes. We are looking for it. We don’t have it handy. So we can…

Gus Richard, Analyst

We’ll follow up. Yes. That would be super helpful. I’ll let it go. Thanks so much guys.

Balu Balakrishnan, President and CEO

Thanks Gus.

Operator, Operator

Thank you. There are no further questions at this time to answer. You may continue, please.

Joe Shiffler, Director of IR

Thanks, everyone, for listening, and thanks for your patience with our technical difficulties at the start of the call. We’ll leave it there. This call will be available as a replay on our website, investors.power.com. Thanks again for listening, and good afternoon.

Operator, Operator

Thank you, sir. Ladies and gentlemen, this concludes today's conference call. You may now disconnect.