Monolithic Power Systems - Q2 2024

Transcript

Genevieve Cunningham (Senior Manager of Marketing Communications)

Welcome, everyone, to the MPS Second Quarter 2024 earnings webinar. 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; Bernie Blegen, EVP and CFO; and Tony Balow, Vice President of Finance. Earlier today, along with our earnings announcement, MPS released a written commentary on the results of our operations. Both of these documents can be found on our website. Before we begin, I would like to remind everyone that in the course of today's presentation, we may make forward-looking statements and projections within the meaning of the Private Securities Litigation Reform Act of 1995 that involve risk and uncertainty.

Risks, uncertainties, and other factors that could cause actual results to differ from these forward-looking statements are identified in the Safe Harbor Statements contained in the Q2 earnings release and in our SEC filings, including our Form 10-K, which can be found on our website. Our statements are made as of today, and we assume no obligation to update this information. Now, I'd like to turn the call over to Bernie Blegen.

Bernie Blegen (EVP and CFO)

Thanks, Jen. Good afternoon and a big welcome to all of you. Let me open by saying MPS reported yet another record quarter with Q2 2024 revenue of $507.4 million, exceeding the high end of our guidance. Our strong revenue growth was attributed to three factors: increased demand for AI-powered solutions, improving order trends in several of our end markets, and lastly, initial revenue ramps associated with design wins secured in past years. Separately, we continue to expand and diversify our global supply chain to ensure supply stability and capture future growth. As we have emphasized for many years, our results reflect continued success of our proven long-term growth strategy and our transformation from being only a chip supplier to a full solutions provider. I will now open the webinar up for questions.

Jen, could you please let in the first caller?

Genevieve Cunningham (Senior Manager of Marketing Communications)

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

Matt Ramsay (Managing Director and Senior Analyst)

Thank you very much, everybody. Good afternoon. Michael, Bernie, congratulations on, I'll just say, it's nice to have a calm part in the storm relative to what all of us have been dealing with over the last two weeks. So congrats. I wanted to ask a couple of questions, and I imagine the enterprise data segment is going to be a huge focus on this call. So maybe I'll just start with the first question. Bernie, if you could maybe give us some directional color by end market in your guidance for September, I'd appreciate it. And secondly, Michael, if you could talk a little bit about what you're seeing in some of the non-enterprise data segments, like things like consumer, comms, auto.

The model's been driven by this big growth in enterprise data, but from what I can tell, your company's had a lot of design win success in some of these other areas where the macro has really been challenging. I'm wondering if you're starting to see any green shoots there yet for recovery in some of those other segments. Thanks, guys.

Bernie Blegen (EVP and CFO)

Okay. Sure. I'll keep my comments fairly short as far as the Q3 outlook by end market. Essentially, the bookings trend that we carried into Q3 has improved quite a bit over the last few quarters and has been fairly broad as far as the end market participation. If you look specifically at enterprise data, you'll see that we took a fairly large step up in each of the last two quarters. And then in the third quarter outlook, we see continued growth in communications, storage, and computing with incremental improvements also in our other groups.

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

Yeah. Your second one of the questions, as Bernie said it, we do see some of our other business would not relate to AI. And now it is difficult to separate AI, non-AI, other business we design, they wish we let's say that, okay, we ship these products half a year ago, a year before, we see the market start to waking up. But that's whatever it is, whatever it is, okay? And we do see a lot of new design, new requirement, which is much, much higher power, especially for communications. And, well, as a matter of fact, it's across the board. And these designs are much higher power than the previous versions. And these are all related to the new design, related to AI and AI requirements. And these design wins, we probably will trickle down in, again, two or three years into revenues.

Matt Ramsay (Managing Director and Senior Analyst)

Got it. No, thank you very much, guys. I appreciate it. I asked two questions at once, so I'll get back in the queue. Thanks.

Genevieve Cunningham (Senior Manager of Marketing Communications)

Our next question is from Dustin Fowler of Oppenheimer. Dustin, your line is now open.

Dustin Fowler (Equity Research Associate Director)

Hey, guys. Just a couple of quick questions. So for power isolation, I believe you ramp later this year in auto, followed by data center next year. I think both markets could be greenfield opportunities in the $ hundreds of millions each. Could you just give us a sense of the ramp in both markets, the competitive landscape, and maybe any market sizing if you can?

Bernie Blegen (EVP and CFO)

Dustin, I apologize. This is Bernie. I didn't hear which two markets.

Dustin Fowler (Equity Research Associate Director)

Oh, sorry. That was auto and data center for power isolation.

Bernie Blegen (EVP and CFO)

Okay.

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

Yeah. We do start to ship in the product for the higher powers and for data centers. This is only the beginning. Would you say that that's very true? Although it's being known, and when ADAS became more and more the cars convert into the ADAS, okay, which we believe in being two or three years, all the cars will have that features. So far, we provide all the, we have designed in all these car makers, especially in the EVs.

Dustin Fowler (Equity Research Associate Director)

Okay. I guess as we think about kind of auto this year, I think Street has auto modeled flat. I guess how realistic is that given 70% content gains you have with your largest auto customer before power isolation plus the wins with Chinese OEMs? I guess maybe for Bernie, are you modeling auto flat this year? And how should we kind of think about share gains?

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

Well, we cannot pick the hour. You want to pick the models. You want to pick. I can't give you a model. My accuracy is ±12 months. Going forward, we are very confident.

Bernie Blegen (EVP and CFO)

Yeah. I think the near-term outlook for automotive remains a little bit fuzzy. For example, in Q2, we were expecting a nice uplift, which did not occur. And so, Michael's correct is that positioning within the next two, three quarters is hard to predict for auto more broadly and EVs specifically, but our long-term positioning is only getting better with additional design wins.

Dustin Fowler (Equity Research Associate Director)

All right. Thanks, guys.

Genevieve Cunningham (Senior Manager of Marketing Communications)

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

William Stein (Managing Director and Senior Analyst)

Great. Thanks for taking my question. Michael, I'm hoping you can linger on that comment you made about solution selling. I think that might have been the term used. I think in the past, we've been conditioned to hear about modules versus semis. Can you linger as to what you're maybe spend a minute explaining what sorts of products and what end markets and what growth you see coming from that activity?

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

I like that question. Yes. Okay. But as we said, we started that journey a long time ago. And at the beginning, maybe I didn't know we didn't know what the hell we are talking about. But that's the directions. And that's including a part of e-commerce. And we sell plug-and-play solutions. So the effort is that the journey will be we are known to be a semiconductor company. And yes, we do. We do all that we provide. And when we sell silicon, we're selling actually we're selling solutions. We know all the technical details in terms of how we implement these solutions. So my effort is we want to monetize all our knowledge. MPS in the end doesn't make anything. And we are making the money from our knowledge while we just capitalize all the entire our capabilities.

And so the journey we started, now we're selling the solutions; it's probably 20%-25% of total MPS revenue. Every piece of silicon used to be selling somewhere between $0.50 to $1, some of them a lot of them even lower for the mass market, and which we kind of very little now, especially in the consumer business. And now we're turning to a solution company. It's still semiconductor-based solutions. We sell those solutions. Now, particularly, as you call it, it's modules. I don't know what the appropriate word for that. Okay. And so today, it's 20%-25% of our total revenues. MPS module business, excluding AI, we're running a couple hundred, close to $200 million. And we're growing every year by more than company percentage growth.

If you look at this way, every chip we sell, all the solution is more than a chip price. Okay. You generate $4, $5, $6, $10 of a content that we can sell. So that's the result of today. We will commit on the journeys. Again, we're transforming a company to a silicon-only to silicon-based solution providers.

Bernie Blegen (EVP and CFO)

And Will, if I could just add two comments quickly. The first is, and this is specific to your question, that it's across all of our markets. It primarily focuses on those that have longer design cycles where we can add expertise in designing the solution. And the second point is, again, while we are driving a lot higher percentage of our business to the modules or to the more complete solutions, we have the ability, like no other company, to be able to deliver the type of solution our customer wants, whether it's a die, a chip, or some package in between.

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

Yeah. Many traditional semiconductor companies, they are hard to distinguish whether they are solution providers or selling modules, selling solutions, or selling semiconductor only. That's especially the case, okay, and apply for AI powers. There's very few companies using a silicon-based module solution to power up this AI solution or data centers.

William Stein (Managing Director and Senior Analyst)

If I can add a follow-up, please. Can you talk about what you're doing in vertical power delivery? I know there's a lot of companies that are claiming to have it or be ramping it. And I know you guys are one of those companies that are, I think, more clearly delivering. But maybe you can talk about what your efforts are yielding in that area. Thank you.

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

We are in the leading positions. Okay, I said. There's maybe one, I will say one or two companies, maybe one company have the capability similar to MPS. The market is huge. And it's growing. And MPS is with the leading position is because not by one day. And AI happened, we developed that. We developed years ago for that. And there's not many semiconductor companies that are based on the semiconductor company have that kind of a capability.

William Stein (Managing Director and Senior Analyst)

Thanks, guys. Good job on the quarter.

Genevieve Cunningham (Senior Manager of Marketing Communications)

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

Quinn Bolton (Wall Street Analyst)

Hey, guys. Let me offer my congratulations. Maybe just first, Bernie, a quick follow-up on Matt Ramsay's question on the drivers of sequential growth in the third quarter. I think you mentioned comms and storage and computing, but I didn't hear you specifically say enterprise data. And I just wanted to confirm enterprise data is still one of the big growth drivers in the third quarter. And then I'll get to the two questions.

Bernie Blegen (EVP and CFO)

On the enterprise data, the way I tried to tee that up, first off, yes, it is expected to grow. But we have grown significantly in each of the four prior quarters to this. So the rate of growth is slowing down. And the biggest for this quarter only. And I offer that because there's a lot of opportunities that have yet to begin to ramp with a number of the different companies that we're currently working on designs with. But I was calling out in particular that both storage and computing and consumer or not consumer communications will be good drivers in Q3.

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

Quinn, you know the VR 13.5, 13.5, and we start to have significant revenues. Okay. And that was the beginning. You know that. And VR 14, which hasn't really ramped up yet. And we have a lot of design. We increase it. VR 13.5 is like an MPS is a test case. And so when during the shortages, okay, a lot of revenues, a lot of volumes shifted to MPS. And our competitor couldn't deliver it. And we delivered it. And we delivered it. And now the benefit it is, okay, for VR 14, we will be a significant player in the market segment.

Bernie Blegen (EVP and CFO)

Particularly in the second half of this year, it looks like that segment is starting to take off.

Quinn Bolton (Wall Street Analyst)

Yeah. Great. That was going to be sort of, I guess, my first question was just, could you talk within the enterprise data about some of the opportunities, whether it's on the CPU power side or just broadening out of your AI portfolio? And then I'll have another question on vertical power if I could squeeze in that second question.

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

Go ahead.

Quinn Bolton (Wall Street Analyst)

So the question on vertical power, I guess different competitors may mean different things when they're talking about vertical power. And I just wanted to kind of get your guys' view on the market. When you guys talk about vertical power, is that true vertical power where the voltage regulator is sitting underneath the processor substrate and supplying current vertically into the processor? Or do you guys consider sort of stacked packages where you've got one or more voltage regulators or phases in a module with the power inductors and capacitors and other things that might be stacked vertically, but still delivering current laterally into the processor? What's your definition of vertical? Because I think there's some confusion in the market, what may be vertical and what might look vertical, but actually still supply current laterally.

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

Yeah. You're right. There is some customers using top surface lateral power supply, which is very similar to server CPU power supply. Other ones turning into the backside, still lateral powers. More advanced one is directly under the CPU. To answer that question, there's an MPS supply currently. We're running all three solutions, chip or modules. We have everything there.

Bernie Blegen (EVP and CFO)

Quinn, if I could also add to this that the necessity for the different deliveries of power is as you get into increasingly higher current. In addition to either lateral or vertical power, we also have Liquid Cool that we believe that we have a position on.

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

Yeah. To answer your question, the most efficient and difficult to do is you're making a module directly under the CPU. And that's the highest efficiency power delivery. There's a lot of problems and a lot of technical issues associated with that type of approach. So many companies take a conservative approach, okay? And some companies just do only like servers and pop surface lateral power delivery. And for those very high powers, well over 1,000 watts, all these powers, the power modules directly under the CPUs. And these are the highest efficiency.

Quinn Bolton (Wall Street Analyst)

Got it. Thank you, Michael. Thank you, Bernie.

Genevieve Cunningham (Senior Manager of Marketing Communications)

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

Bernie Blegen (EVP and CFO)

Chris, can you hear us?

Chris Caso (Managing Director and Senior Analyst)

Sorry, I wasn't muted. You can hear me now?

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

Yeah.

Chris Caso (Managing Director and Senior Analyst)

All right. Sorry. Thank you. The first question is on seasonality and how that may be changing for you. In the past, the December quarter typically was a seasonally down quarter, but your business mix has changed quite a bit since those days. The revenue is now coming from segments that are not as seasonal, not a seasonal December quarter. With that, how should we look at December seasonality going forward? Is the old model no longer appropriate as we look forward? If there's anything you want to comment on with respect to December?

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

Yeah. We're seeking advice from you. What's the new business with all these inventory oscillations from our customers? We don't know. You have a huge shortage. Then it comes up the huge oversupplies. Now demand, and I assume our customers consume all this excessive inventory. Now the market is waking up. Is there another shortage? I don't know. That is difficult to forecast. In short, the lead time is still very short.

Chris Caso (Managing Director and Senior Analyst)

Okay. So we'll do our best. We're not very good at forecasting.

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

Yeah, yeah. You can tell us. Okay. Okay.

Chris Caso (Managing Director and Senior Analyst)

All right. That's fair enough. As my follow-up question, I wanted to follow up with vertical power as well. And what we know, particularly within the enterprise segment AI, we've got some higher wattage processors coming. Can you talk about what you expect for content on that? And what in particular you expect for vertical power next year? Because I know there's some debate. Certainly doesn't seem to be debate over whether you're ready for vertical power, whether the ecosystem is ready for vertical power. And does that make a difference with regard to your content as you go into the next generation of processors because the wattage is certainly going higher?

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

Yes. I can tell you this. Our customers will not be appreciated talking about how many dollars per their unit or GPU unit. Okay? And so they don't want us to talk about it. And second, I don't know. I don't want to know about it.

Chris Caso (Managing Director and Senior Analyst)

Okay. Right. Understand. But I mean, just in terms of the opportunity, maybe you could speak in more general terms about the opportunity that's available to you.

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

Oh, sure. Yeah. Now you look at our revenues, right? Okay. For a couple of companies, okay, and from last year was like what? It's 1% or 2%, or maybe last year's a couple of percent of our total revenue. Well, today, we're running like what, 20%? And 20%. So that's $450 million. Okay. And we were told this is at the beginning. And there's a lot of other companies like our opportunities in our design win hasn't really ramped up in companies like Google's and AWS and Meta. And those coming later. So I see the huge opportunities. And I do see, okay, this is not MPS only. The market's way too big. We don't want to turn into an AI company only.

Bernie Blegen (EVP and CFO)

Yeah. I think the only thing I'd probably add on top of that, besides for the direct AI opportunity, I think you've heard us talk about the AI trickle-down effect. Whether that could be memory, it can be optical, it could be pull-through of networking. I think there's a lot of opportunity for MPS beyond even the direct AI business.

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

That's a good comment. Yeah.

Chris Caso (Managing Director and Senior Analyst)

All right. Appreciate those comments. Thank you.

Genevieve Cunningham (Senior Manager of Marketing Communications)

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

Tore Svanberg (Managing Director and Senior Analyst)

Yes. Thank you, Michael Bernie. And congrats again on another stellar quarter. I wanted to follow up on enterprise data, but I'm going to move away from the processor power management and ask you more about opportunities elsewhere in the data center, especially power supply. I know historically you haven't talked a whole lot about GaN, silicon carbide, but I'm pretty sure you have some activities there. So can you elaborate a little bit on what you're doing on the power supply side of data centers?

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

Yeah, I like that one. Okay. I like that one. But I can't tell you the revenue yet, but it's small. Okay. And since 2016, okay, we start to develop our own silicon carbides. We're not selling a FETs. It will be a part of our solutions. I said very, very early. And okay, we're not intend to sell a FET as a power device only. So now, okay, we designed those 3-kilowatt, 6-kilowatt, 12-kilowatt power supplies. And you guess what? It's a data center. It's evaluating. So we have very little revenues. But the biggest is MPS only. All our test plot, we're using a huge amount of power supplies. And MPS is our own customers. All these testing equipment that we have to design, we have to invent it, how to test these modules, particularly, and also as well as burning.

MPS supplied these power modules to our vendors, and our vendors implemented into these systems, and it became our test equipment. So that's the revenues we start to generate. But for 4Gs and for data centers, and these are still in the, well, we engaged in them a year ago or so, a couple of years ago. So the revenue is small, but we're looking for the big revenues from that segment because MPS provides the highest efficiency and the smaller size.

Tore Svanberg (Managing Director and Senior Analyst)

Yeah. That's great perspective. As my follow-up, I recall because we've gone through a few cycles together, I recall usually you use downturns to gain a lot of share. I know everyone's excited about AI data centers today, but what are some of the areas where you're starting to see more meaningful share gains from a designer perspective now that we're sort of navigating here at the bottom of the cycle?

Bernie Blegen (EVP and CFO)

Sure. So I think that we've been very clear about the positioning that we have in automotive and how that's continuing to grow across a multitude of different platforms with a multitude of different tier one suppliers and OEMs. I think the most recent area for improvement where some of these greenfield opportunities are becoming more visible in the market would be in particular with communications. We're seeing that in the wireless and 5G. And I think that we've seen some early indications of continuing investment in that segment. So I'd say that's probably the area that will be most visible.

But obviously, I don't want to forget industrial, which even though right now is a relatively modest part of our business and has not shown a lot of momentum towards growth, probably is the next area where we have a lot of greenfield opportunities that will materialize in the next four quarters.

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

Yeah. And then go ahead.

Tore Svanberg (Managing Director and Senior Analyst)

Yeah. I was just going to ask, and the RV market, is that going to be under auto or industrial?

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

RV.

Tore Svanberg (Managing Director and Senior Analyst)

The RV market, the camping car market? I know you've talked about that.

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

Oh, yeah. No. No. Yes. Okay. That's one of my favorite ones. Okay. Yeah. Okay. And I think it will be in the industrial market. Yeah. Because share all these products share the same signatures as we do for data centers for our own test plot and for test equipment. Okay. We'll be sharing very much share the same characteristics. And also for robotics. And especially for those moving, not stationary robot. And these robots move around. And they all need that type of power supply and charging and battery management. And these share very much the same characteristics as RVs.

Tore Svanberg (Managing Director and Senior Analyst)

Okay.

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

RVs.

Tony Balow (VP of Finance)

Yeah. Those could be industrial or consumer or even the humanoid stuff too. So I don't think I want to just put those.

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

I think it's a way we're probably in the industrial side. Okay. Yeah.

Tore Svanberg (Managing Director and Senior Analyst)

Sounds good. Thank you. And congrats again.

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

Okay. Thanks, Torrey.

Genevieve Cunningham (Senior Manager of Marketing Communications)

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

Quinn Bolton (Wall Street Analyst)

Hey, guys. Just wanted a quick follow-up question. There have been a few semiconductor companies this earning season that have sort of mentioned having licenses to Huawei being revoked in the quarter. It's raised some questions from investors. I'm just wondering if you guys could address, do you have a license to ship to Huawei? If you did, has it been revoked? Is there any real exposure at MPS to that customer? It's obviously not impacting your near-term outlook, but I figured I'd just ask because we've gotten a number of questions on potential Huawei exposure across the semi coverage. Thank you.

Bernie Blegen (EVP and CFO)

Quinn, I can make this pretty simple. We don't have any licensing or contractual arrangements with Huawei that are at all, so they can't be canceled. Any business we have with them has always just done on a PO basis, and we have no indication of a change in their relationship.

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

Yeah.

Quinn Bolton (Wall Street Analyst)

So Bernie, I guess it was more the export license question. Do you need an export license to ship to them? Because I think that's what's sort of causing the issue.

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

Oh, the export license. Yeah. Our product, it's not below 24 nanometer or whatever. So we are not, as far as I know. Yeah.

Quinn Bolton (Wall Street Analyst)

Yeah. You're right.

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

As far as I know, we're not subjected to the export limit, have any limitations. Okay. But we will talk to our, to answer your question precisely, I will consult our legal counsels.

Quinn Bolton (Wall Street Analyst)

Yeah. Okay. Okay. Thank you.

Genevieve Cunningham (Senior Manager of Marketing Communications)

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

Bernie Blegen (EVP and CFO)

Great. I'd like to thank you all for joining us for this conference call and look forward to talking to you again during our third quarter conference call, which will likely be in late October. Thank you. Have a nice day.