Monolithic Power Systems - Q2 2023

Transcript

Moderator (participant)

everyone to the MPS Second Quarter 2023 earnings webinar. My name is Genevieve Cunningham, 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 webinar, 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 Q2 earnings release and in our SEC filings, including our Form 10-K filed on February 24, 2023, and our Form 10-Q, filed on May 5, 2023, 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, 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. Tables that outline the reconciliation between the non-GAAP financial measures to GAAP's financial measures are included in our Q2 2023 earnings release, which we have furnished to 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 1 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 (EVP and CFO)

Thanks, Jen. MPS reported second quarter revenue of $441.1 million, 2.2% lower than the first quarter of 2023, and 4.3% lower than the second quarter of 2022. Compared with Q1 2023, sales and communications were lower, while industrial, storage and computing, consumer, and enterprise data improved sequentially. Turning now to our second quarter 2023 revenue by market. Storage and computing revenue of $124.5 million increased 3.9% from the first quarter of 2023. The sequential revenue improvement primarily reflected higher commercial notebook sales. Second quarter 2023 storage and computing revenue was up 1.8% year-over-year.

Storage and computing revenue represented 28.2% of MPS's second quarter 2023 revenue, compared with 26.5% in the second quarter of 2022. Second quarter 2023 industrial revenue of $49.7 million increased 4.8% from the first quarter of 2023, reflecting increased sales of products for power source and industrial meter applications. Second quarter of 2023, industrial revenue was down 11.0% year-over-year. Industrial revenue represented 11.3% of our total second quarter 2023 revenue, compared with 12.1% in the second quarter of 2022. Second quarter consumer revenue of $65.2 million increased 2.9% from the first quarter of 2023. The sequential quarterly revenue improvement reflected higher gaming, TV, and mobile device sales.

Second quarter 2023, consumer revenue was down 33.0% year-over-year. Consumer revenue represented 14.8% of MPS's second quarter 2023 revenue, compared with 21.1% in the second quarter of 2022. In our enterprise data market, second quarter 2023 revenue of $48.0 million increased 1.7% from the first quarter of 2023, primarily due to initial shipments of new generation AI applications, which offset softer demand for CPU applications. Second quarter 2023, enterprise data revenue was down 26.4% year-over-year. Enterprise data revenue represented 10.9% of MPS's second quarter 2023 revenue, compared with 14.2% in the second quarter of 2022.

Second quarter automotive revenue of $104.4 million decreased 0.9% from the first quarter of 2023. Second quarter 2023, automotive revenue was up 71.1% year-over-year. Automotive revenue represented 23.6% of MPS's second quarter 2023 revenue, compared with 13.2% in the second quarter of 2022. Second quarter 2023, communications revenue of $49.3 million was down 27.4% from the first quarter of 2023, primarily reflecting lower infrastructure sales. Second quarter 2023, communications revenue was down 16.9% year-over-year. Communication sales represent 11.2% of our total second quarter 2023 revenue, compared with 12.9% in the second quarter of 2022. I'd like to make some general comments about our business.

In our previous earnings calls, we have noted customer ordering patterns could oscillate. This has turned out to be the case. We continue to see some orders getting delayed or amended by pull-in requests. This lack of short-term visibility has made forecasting beyond Q3 2023 more difficult. However, our business fundamentals remain unchanged. In the last few years, our revenue and customer base have expanded tremendously, particularly amongst Tier 1 accounts. We believe we've solidified our market share gains by delivering quality products and services. Additionally, we have a strong design win pipeline, which positions us well for future growth. Here are a few of our recent highlights: We have been designated a preferred supplier with multiple Tier 1 customers in automotive and telecom markets. We have started sampling silicon carbide power solutions for data centers and green energy conversion.

We are also continuing development for EV power management applications. We are continuing to broaden our customer base for AI applications and developing solutions for next generation platforms. We have new design wins in battery management solutions and USB-PD for automotive, industrial, and consumer applications. These will be major revenue drivers as we look ahead to 2024 and 2025. Moving now to a few comments on gross margin. GAAP gross margin was 56.1%, 120 basis points lower than the first quarter of 2023, and 260 basis points lower than the second quarter of 2022. Our GAAP operating income was $112.3 million, compared to $124.3 million reported in the first quarter of 2023.

Non-GAAP gross margin for the second quarter of 2023 was 56.5%, down 120 basis points from the gross margin reported in the first quarter of 2023. The quarter-over-quarter decrease in both GAAP and non-GAAP gross margin is attributed largely to unfavorable variances and higher direct expenses. Our Q2 2023 non-GAAP operating income was $153.1 million, compared to $164.1 million reported in the first quarter of 2023. Let's review our operating expenses. Our GAAP operating expenses were $135.4 million in the second quarter of 2023, compared with $134.5 million in the first quarter of 2023.

Our non-GAAP second quarter 2023 operating expenses were $96.0 million, matching what was reported in the first quarter of 2023. The difference between non-GAAP operating expenses and GAAP operating expenses for the quarters discussed here are primarily stock compensation expense and income or loss on an unfunded, deferred compensation plan. For the second quarter of 2023, total stock compensation expense, including approximately $1.1 million, charged to cost of goods sold, was $38.0 million, compared with $37.0 million recorded in the first quarter of 2023.

Switching to the bottom line, second quarter 2023 GAAP net income was $99.5 million or $2.04 per fully diluted share, compared with $109.8 million or $2.26 per share in the first quarter of 2023. Second quarter 2023 non-GAAP net income was $137.5 million, or $2.82 per fully diluted share, compared with $146.0 million, or $3 per fully diluted share in the first quarter of 2023. Fully diluted shares outstanding at the end of Q2 2023 were 48.8 million. Let's look at balance sheet.

Cash, cash equivalents, and investments were $941.1 million at the end of the second quarter of 2023, compared to $919.1 million at the end of the first quarter of 2023. For the quarter, MPS generated operating cash flow of approximately $90.2 million, compared with Q1 2023 operating cash flow of $218.8 million. Accounts receivable ended the second quarter of 2023 at $169.2 million, representing 35 days of sales outstanding, which was 2 days lower than the 37 days reported at the end of the first quarter of 2023.

Our internal inventories at the end of the second quarter of 2023 were $427.4 million, down from the $430.8 million at the end of the first quarter of 2023. Days of inventory of 201 days at the end of the second quarter of 2023 were 3 days lower than at the end of the first quarter of 2023. Comparing current inventory levels with the following quarter's projected revenue, you can see days of inventory decrease to 184 days at the end of the second quarter of 2023, from 203 days at the end of the first quarter of 2023. I would now like to turn to our outlook for the third quarter of 2023.

We are forecasting Q3 revenue in the range of $464 million-$484 million. GAAP gross margin in the range of 55.5%-56.1%. Non-GAAP gross margin in the range of 55.7%-56.3%. Total stock-based compensation expense in the range of $33.5 million-$35.5 million, including approximately $1.0 million that would be charged to cost of goods sold. GAAP operating expenses between $129.4 million and $133.4 million. Non-GAAP operating expenses in the range of $96.9 million-$98.9 million. This estimate excludes stock compensation expense, but includes litigation expense.

Interest and other income in the range of $3.0 million-$3.4 million before foreign exchange gains or losses. Fully diluted shares in the range of 48.6 million-49.0 million shares. In conclusion, we continue to execute our long-term strategy. I will now open the webinar for questions.

Moderator (participant)

Thank you, Bernie. Analysts, I would now like to begin our Q&A session. As a reminder, if you would like to ask a question, please click on the participant's icon on the menu bar and then click the Raise Hand button. Our first question is from Ross Seymore of Deutsche Bank. Ross, your line is now open.

Ross Seymore (Managing Director)

Thanks for letting me ask a question. Just wanted to ask Bernie, first, when you had your general business condition update about orders remaining volatile, et cetera, I wonder if you could just give us a little more color. Are things kind of improving, staying the same? Is there any changes in things like competitive intensity, pricing, geographic differences? Any color, a little bit more detailed than what you gave in your original preamble.

Bernie Blegen (EVP and CFO)

Sure. Be glad to help out with that. I think that we started that part of the conversation by acknowledging that in each of the last, the prior 3 quarters, that we believe that ordering patterns would oscillate. That's pretty consistent when you're coming off of the period where there's been an extra normal level of ordering that created a demand, supply and balance, that afterwards, you're sort of draining your backlog as you are watching your customers try to align around what they're guessing is end customer demand. As a result of that, we have not had the same level of visibility out, you know, past 90 to 120 days than we would have during the more normal ordering pattern.

As a result of that, we don't have the same level of predictability. On the second half of your question, the one thing that remains consistent, whether it's under normal conditions or whether it's today, is we've always been in a very competitive market, marketplace. Obviously, price downs are the norm, and that, we have competitors like ourselves that are trying to go after as much incremental business during this trans-transitory period, as is possible.

Michael Hsing (Chairman of the Board, President, and CEO)

Let me add to. We do see a slight improvement in a, in a versus in the first quarters, and essentially it's, it's similar. We do see the a consumer business improvement and from both from the US side to Asia side. Other ones pretty much stay the same.

Ross Seymore (Managing Director)

Great. Thanks for that. I guess as my follow-up, Bernie, you guys have had relatively volatile end markets, you know, not specific to you, but just in a general sense. Any sort of color in your guide for the third quarter between the various end markets? The one I think most people are most interested in, albeit still a relatively smaller part of your business, is your enterprise data segment. Any sort of color between the AI side you talked about last for the second quarter, and the CPU side, which has been a little bit weaker?

Michael Hsing (Chairman of the Board, President, and CEO)

Yeah, you, you really answered all your, all your questions there. We don't see some... Okay, we're the, all the products related with the AI, and we are, we cannot ship enough now. The other ones, a part of enterprise data, so like data centers, CPU powers, and these are still delayed.

Bernie Blegen (EVP and CFO)

Yeah. One other thing to add, and this is specific to MPS, not necessarily a broader comment of the general market, but automotive came in a little bit lower than would have been expected. As we look at the ramp in the second half, we're observing that at least for two of our customers, unit volumes appear to be lower, and we have two product launches which have been delayed into Q4 and Q1.

Rick Schafer (Managing Director)

Thanks, guys.

Bernie Blegen (EVP and CFO)

Okay.

Moderator (participant)

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

Quinn Bolton (Senior Analyst)

Hey, Michael and Bernie. I just wanted to ask on the GPU side of the business, there's been recent chatter in the market that one of your large customers may be bringing in Renesas as a second source as well as potentially Vicor. Just wondering if you might share any thoughts you have as you look forward with that customer, you know, about the impact of multisourcing of that customer. Maybe a related question: how are you feeling about your position looking into the next generation 3-nanometer processor at that customer? Then I've got a follow-up. Thanks.

Michael Hsing (Chairman of the Board, President, and CEO)

Okay. I think so far, and we're in the lead positions, and I can't, we are engaged deeply in the, in the future design and develop a new product for the second, second generations, or for the other, the next generations. Other than that, we can't speculate anything, so okay.

Bernie Blegen (EVP and CFO)

I, I think, I think in most scenarios, and this particular customer is representative, is they want to take a leadership position through innovation, and they found us an equal partner for that. It's in everybody's best interest that it be a competitive, not a single source. Yes, we've, we've always anticipated that there would be redesigns that allow competition into the market.

Michael Hsing (Chairman of the Board, President, and CEO)

you know, the, we have to provide the best solutions, at the same time, we understand that our customers, you know, requires, other, other, other solutions. This is a very large market. There's no means an MPS can supply everything, so, okay. Also, MPS is always diverse. We emphasize diversified growth. If there's a performance need, I believe the MPS is the best solutions, now and, for the near future.

Quinn Bolton (Senior Analyst)

Thank you, Michael.

Michael Hsing (Chairman of the Board, President, and CEO)

Yeah.

Quinn Bolton (Senior Analyst)

Bernie, you mentioned sort of visibility out beyond 90-120 days is, is, pretty choppy at this point, just given the industry dynamics. I, I guess I look out to the fourth quarter, and it looks like the Street has modeled the fourth quarter approximately flat, which I think is an above-seasonal pattern for MPS historically. And I'm just wondering, can you comment whether you think an above-seasonal fourth quarter looks right to you, perhaps given the ramp in the GPU business and some of the timing shifts you just mentioned in automotive? Or do you think it would be best to, to, you know, for investors to think that the December quarter is going to see a, sort of a, a seasonal decline in the December quarter? Thank you.

Bernie Blegen (EVP and CFO)

Yeah. I, I think that normal seasonality for MPS would be somewhere between a sequential decline of between 4 to 5 percentage points. I can point to, you know, the increase in the notebook sales during Q3, which precedes Christmas, so that's a normal seasonal factor that's expected to come down, and we're not seeing the uplift that had been anticipated from automotive. I, I would be more comfortable with a seasonal down in Q4.

Michael Hsing (Chairman of the Board, President, and CEO)

Well, if you, you, you mentioned there's a seasonality. Well, we're talking about seasonality, and I try to figure out what is seasonality now. Last year, and we last couple years, we have a very strong Q4, at least the year before that, okay? The customers see all the shortages, okay, now, the demand is clearly is much less. So you have a we experienced, like, a year-over-year, so like in the last couple of years, like over 40%. This year, and clearly is not as much, okay? Much less. I can't really call it seasonality anymore, and so it's just as I said, it's not very clear, okay, but as Bernie said, usually in the seasonality, we're, we're lower.

Quinn Bolton (Senior Analyst)

Understood. Thank you, Michael. Thank you, Bernie.

Moderator (participant)

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

Rick Schafer (Managing Director)

Yeah, thanks. Yeah, guys, I just had a couple questions, if I could, and the, the first one is, is, if I could kind of maybe revisit auto for a second. I mean, you mentioned power isolation module in your prepared remarks, and I don't know if you could give us a little bit more color there, like, kind of an update on, on how many customers are evaluating, you know, the product now. Talk a little bit about it, if you could, you know, like design win timing, revenue timing, kind of expectation there? And, you know, is auto going to be the first to ramp and then data center and then more of the green stuff? Or how does it all kind of shake out, I guess, is what, is what I'm asking.

Michael Hsing (Chairman of the Board, President, and CEO)

Yeah, that part, that we saw it and delay a little bit, but we will reintroduce to our resampling and announce, okay. It was a delay due to technical issues. As I'm speaking now, we have resample it. Mostly in automotives and also data centers. Same as we mentioned earlier, is the silicon carbides, and these are products that we start to sample.

Rick Schafer (Managing Director)

Okay. thanks, Michael. Second question is, you know, you guys have almost a $2 billion power management business now, you know, I think modules are on track to be 10% of that or so this year. I think that's up from basically nothing, just a couple of years ago. You know, if this business sort of has, I, I believe, Bernie will sure correct me, that, you know, in line with better margins, I think, the core average, I think it's a 5x ASP multiplier. I'm just trying to get a sense of, you know, Michael, how, how big do you envision this business, you know, becoming, as a percent of mix going forward?

Are there any in particular end markets that are going to be favored, at least initially, by, by the move into modules? Thanks.

Michael Hsing (Chairman of the Board, President, and CEO)

Yes. Okay, I believe that's our, that's our futures. When customers want to have a plug-and-play solutions, and they want less technically involved with, with, power management, and that, that's the module, solution is the way to go. Okay, and people doesn't want to buy ICs and design all of the, all these, other components, okay? Initially, that's where we're ramping a lot of them in the auto business, in the industrials, again, in the industrial side, and, as well as the telecom. Or even semi equipment. A lot of, I think you could go on, go on and on, and again, a lot of things to be mentioned.

Okay, I mean, the most of our these products is not price sensitive, and they are, they're not, volume consumer-related product. So this is still at the, at the, at the very beginning. We have all these customer base, and we have all the new product coming out. We will see the similar growth rates in the, in the, in the next few years.

Rick Schafer (Managing Director)

Got it. Thanks, Michael.

Moderator (participant)

Our next question is from Jeremy Kwan of Stifel. Jeremy, your line is now open.

Jeremy Kwan (Associate VP)

Thank you. Yes, this is Jeremy on for Tori. I guess, maybe a first question on the comms business. It was down meaningfully as you guys expected, and we're probably not there really much to call out last quarter. I guess, what's your sense of where things are now? You know, should we expect this business to kind of, sort of bounce along at these levels, in the second half or maybe picking up next year? What are your customers telling you in terms of their expectations?

Michael Hsing (Chairman of the Board, President, and CEO)

Yeah, as you, as you see, we didn't participate at 4G. 5Gs and other infrastructure business are all new to us. So you know that 5G hasn't really ramped up quickly yet. Our products in the, were designed in the last, last few years. We're just waiting for our customers to give us orders. So far, it's not clear. Okay, next question?

Moderator (participant)

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

William Stein (Managing Director and Senior Analyst)

Hey, there we go. Thanks for taking my questions. First, I'm hoping you can talk to us about channel inventory. When we look at your P&L, you know, you had nearly 50% revenue growth last year. I think there's a pretty strong sense among investors that there might be some inventory still in the channel to be worked through. We'd love to hear any update or any measurement you have of that.

Bernie Blegen (EVP and CFO)

Sure. What we observed in Q2 is that there was a meaningful decrease in channel inventories, both in terms of $ and days. The sort of phenomena that we've seen has been a time delay between when the end customer places an order and when they want to do a pullback because of uncertainty with what end customer demand has been. I can point to a couple of our end markets where that, you know, that was very clear. We believe right now that we're in a position to continue to bring to normalize channel inventories over the next 2 quarters.

William Stein (Managing Director and Senior Analyst)

Not normalized yet, so, so is what it sounds like. In the September guidance, I assume there's some expectation that sell in will be lower than sell through, is that, is that fair?

Bernie Blegen (EVP and CFO)

Yeah. Again, going back to the comments about the visibility and predictability out past 90, 120 days, that's not just the demand that the new net orders that we're receiving, but also the strength of the sell through is also a little harder to predict.

William Stein (Managing Director and Senior Analyst)

Great. Thank you.

Moderator (participant)

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

Matthew Ramsay (Managing Director)

Thank you very much. Michael, Bernie, can you guys hear me okay?

Bernie Blegen (EVP and CFO)

Yes.

Matthew Ramsay (Managing Director)

Awesome. I, I guess for, for my first question, Michael, we, we've, you and I have had some conversations about, you, the company strategically wanting to sort of rebuild, the consumer business as a percentage of revenue over time, and, and get it back to, to a higher level than it's been now. I, I guess I'd, I'd like to revisit some of those conversations and just see if you had any comments about how you feel about supply, the demand environment, and the competitive environment in order to try to push to, to sort of reemphasize your company in, in certain parts, strategically, of that consumer segment. Thank you.

Michael Hsing (Chairman of the Board, President, and CEO)

Yes. That's, that's a good question. Now we see some improvement and, but it's at the, at, at the beginning. As we see our supply, the cost, the, and went down dramatically, and then, as Bernie said, our inventory values even, I mean, it reflect in inventory value now. So, you know, in the past, MPS, M-MPS named in the price killers, okay? It's a very simple game, okay? We, we don't mind and, we don't buy in the consumer segments, and okay, we have a fight. All the high growth margins is, it's on the other segments, and it's all because of share our technology strengths. We provide a much better and much smaller size.

In consumer segments, in the last couple of years, we neglected that. Because we don't have enough revenues or enough capacities. So it's not that difficult to go back to the same games that we played since IPO.

Matthew Ramsay (Managing Director)

Yeah. Thanks. Thanks, Michael. I, I think as my follow-up question, I, I wanted to really focus on the enterprise data segment, just because that's where a, a large percentage of my investor questions come from. I, I think there's, there's two dynamics going on here, right? The, the, the, the strength of the AI business, with, with your lead customer there, and some softness in the CPU market that's well documented. So the, the question is really, what would you guys, I think, have built, on books inventory to support ramps of all the customers in that space? So I guess the question is: how quickly, and what would the lead times be to respond to an uptick in demand? Do you have, any visibility into the timing of, of a potential re-acceleration of that segment? How long is that visibility? Thanks.

Michael Hsing (Chairman of the Board, President, and CEO)

Our visibility is, okay, probably is well documented, okay. If you listen to all these major AI supply, you will see MPS, okay. You will see the MPS in the next few quarters of potentials, okay. I can talk to you about the technical issues, okay. I think that the MPS is so far, the solutions is far better than our competitor. We for the next generation of AI processor, we're not working on now. Okay, we're working a year ago, even 18 months ago. The relationship is strong and also for the technical, is an even more challenging. The space is critical.

You have to radiate all the heat out. For, for the next generation, the power even higher. We provide all these vertical solutions, we pioneer with it. You... all the other solutions had to fit into the, into the form, in the, in the form factors. The integrated solution is the only way to go.

Bernie Blegen (EVP and CFO)

I think if I could just add to that, it's also the breadth of the customer opportunities that we're engaged with. Over the course of the next four quarters, we're gonna see multiple new customer applications launch initially with MPS. Yes, we have a very powerful initial position with one customer, but we expect to branch that out very quickly.

Michael Hsing (Chairman of the Board, President, and CEO)

With multiple customers.

Bernie Blegen (EVP and CFO)

Multiple customers.

Matthew Ramsay (Managing Director)

Thank you, guys. Really appreciate it.

Moderator (participant)

Our next question is from Hans Mosesmann of Rosenblatt. Hans, your line is now open.

Michael Hsing (Chairman of the Board, President, and CEO)

Oh, I have a problem.

Moderator (participant)

Our next question is from Jeremy Kwan of Stifel. Jeremy, your line is now open.

Jeremy Kwan (Associate VP)

Yes. Hi, thank you for allowing me to follow up here. I guess I, I wanted to ask about capacity. You guys have always been, you know, very ahead of the curve on long-term capacity and, you know, through up and down cycles. I was wondering how you're thinking about it in this environment, and whether or not that may give you guys a competitive advantage, you know, in, in some of these applications that you're, you're really targeting, and also if you have a CapEx number for this quarter. Thank you.

Michael Hsing (Chairman of the Board, President, and CEO)

Yeah. As we, we stated earlier, many of our, our, our customers requested move out of China. Now we kind of achieved more than 50%. We can have a more than 50% of the capability out of China. The overall capacities, we don't have a problem now, okay? We have more inventories, and we want to sell more from our, our, our inventory. Does that answer your questions? Okay.

Bernie Blegen (EVP and CFO)

Yeah. I, I think that when you look at capacity today, it's really when this environment turns around and becomes more predictable, how are we positioned to service our customers, you know, 1 year and 2 years from now? I think the investments that we're making, both in terms of expanding capacity and diversifying it geographically, both on the front end and the back end, will pay very good dividends as far as customer satisfaction.

Moderator (participant)

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

Chris Caso (Managing Director)

Yes. Thank you. Good evening. The first question is regarding order visibility, and I ask because for the past several quarters, there really hasn't been any requirement for turns business going forward. Is that something that's changing going forward, you know, given some of the changes in the end markets? What does that mean with regard to revenue visibility as we look out over the next few quarters?

Bernie Blegen (EVP and CFO)

Sure. I, I think that Michael responded to this pretty nicely in that we saw some improvement in Q2 from Q1 as far as our net bookings. It's still not to the degree that we historically enjoyed in either 2018 or 2020, just to pick two, two more recent years. In the past, we would have up to 90%, 95% of our next quarter's revenue in hand at the end of the preceding quarter. You're only relying on a fraction of a percent in order to... Of turns business, in order to accomplish the numbers for that particular quarter. We're seeing steady improvement, but we're still not at the level yet where we have that predictability.

Chris Caso (Managing Director)

Got it. Thank you. As a follow-up, I just had a follow-up question about supply. I understand that, that supply is, is getting a bit easier out there. Historically, I, I, I think, your ability to procure supply from places from your competitors has been a source of competitive advantage for Monolithic Power. You know, how do you see the landscape going forward? I know you're bringing on some different foundry partners, as you try to diversify outside of China. You know, what do you think that means for your both your access to wafers over the long term as, as well as the pricing? Do, do you think that competitive advantage remains?

Michael Hsing (Chairman of the Board, President, and CEO)

Well, you're mentioning about pricing. Like, of course, okay, all these material costs is much lower than the... or go back to normal, I should say, okay, as a pre-pandemic. In terms of the capacities, like I didn't mention earlier, okay, we want to expand out of China. That's from our customers' request. The other one is, we want to expand it because just for our next couple years' growth. Mostly we are still in a follow our long-term plan, and we invest, okay? Of course, now we should slow down a little bit, okay, in the next few quarters.

Over the, over the long term, we should expand, okay, we should continue the course.

Chris Caso (Managing Director)

Thank you.

Moderator (participant)

If there are any follow-up questions, please click the Raise Hand button. As there are no further questions, I would like to turn the webinar back over to Bernie.

Bernie Blegen (EVP and CFO)

Thanks again, Jen. I'd like to thank you all for joining us for this webinar. Look forward to talking to you again during our third quarter webinar, which will likely be at the end of October. Thank you. Have a nice day.