Monolithic Power Systems - Q4 2023
February 7, 2024
Transcript
Genevieve Cunningham (Senior Manager and Marketing Communications)
Welcome everyone to the MPS fourth quarter 2023 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, and Bernie Blegen, EVP 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. Risks, uncertainties, and other factors that could cause actual results to differ are identified in the safe harbor statements contained in the Q4 earnings release and in our latest SEC filings, including our Form 10-K and our Form 10-Q, 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 financial measures are included in our Q4 2023 earnings release. I'd also like to remind you that today's conference call is being webcast live over the Internet and will be available for replay on our website for one year, along with the earnings release, which was furnished to the SEC earlier today and is available on our website as well. Now, I'd like to turn the call over to Bernie Blegen.
Bernie Blegen (EVP and CFO)
Thanks, Gen. For the full year of 2023, MPS achieved record revenue of $1.82 billion. This is our twelfth consecutive year of revenue growth, driven by consistent execution, continued innovation, and strong customer focus. As announced today, MPS is expanding into a new $1 billion market with the acquisition of our partner, Axign BV. Axign is a Netherlands-based startup with early revenue, specializing in programmable multi-core digital signal processors. Axign's competitive difference is its ability to deliver signals with near zero distortion and reduced power consumption for automotive and consumer audio systems. The combination of Axign and MPS's IP, which has been accepted by several high-end audio customers, will change people's experience in their cars, homes, concert venues, and stadiums. Let me turn to a few highlights from this past year.
Our integrated power management solutions for artificial intelligence enabled our customers to unlock previously untapped opportunities for innovation and growth. We created new automotive content, powering the ramp of autonomous driving, the digital cockpit, and lighting systems for both conventional and electric vehicles. We continued to diversify our global R&D footprint with the further expansion of our engineering centers of excellence in Europe and Taiwan. And finally, we continued to expand and diversify our operating footprint with the qualification of multiple new fab and packaging partners in Taiwan, Singapore, and Malaysia. Turning to our full year 2023 revenue by market segment. Automotive revenue grew $94.6 million year-over-year to $394.7 million in 2023.
This 31.5% gain was primarily driven by increased sales of our highly integrated applications supporting advanced driver assistance systems, the digital cockpit, and lighting applications. Automotive revenue represented 21.7% of MPS's full year 2023 revenue, compared with 16.7% in 2022. Full year 2023 enterprise data revenue grew $71.6 million over the prior year to $323 million. This 28.5% increase was primarily due to higher sales of our power management solutions for AI applications. Enterprise data revenue represented 17.7% of MPS's total revenue in 2023, compared with 14.0% in 2022. Storage and computing revenue for 2023 grew $38.5 million over the prior year to $491.1 million.
This 8.5% increase was primarily driven by increased sales of products for notebooks. Storage and computing revenue represented 27.0% of MPS's total revenue in 2023, compared with 25.3% in 2022. Communications revenue fell by $46.5 million to $204.9 million. This 18.5% reduction was a result of lower 4G and 5G infrastructure sales. Communications revenue represented 11.3% of our 2023 revenue, compared with 14.0% in 2022.... Industrial revenue fell by $46.5 million to $172.7 million in 2023. This 21.2% decrease primarily reflected lower sales in applications for industrial automation, security, and power sources.
Industrial revenue represented 9.4% of MPS's full year 2023 revenue, compared with 12.2% in 2022. Consumer revenue decreased $84.8 million to $234.7 million in 2023. This 26.6% year-over-year decrease was a result of broad market weakness across all segments. Consumer revenue represented 12.9% of MPS's full year 2023 revenue, compared with 17.8% in 2022. Let me take a moment to talk about the general business conditions. Throughout 2023, we highlighted that customer ordering patterns were oscillating, reflecting general economic uncertainty. While we saw a nominal improvement in Q4 ordering patterns, we remain cautious as visibility beyond the current quarter is limited.
Despite this ongoing uncertainty, we continue to execute against our long-term strategy by bringing innovative new products to market and expanding design wins across our broad base of customers. We believe these ongoing investments position us well for future growth when the macro environment stabilizes. Switching to Q4 results, MPS had fourth quarter revenue of $454.0 million, down 4.4% from the third quarter of 2023, and down 1.3% from the fourth quarter of 2022. Comparing year-over-year results, fourth quarter 2023 revenue for enterprise data grew by 88.4%. Storage and computing fell 2.9%. Automotive was down 7.8%. Consumer decreased 17.5%. Communications decreased 36.3%, and industrial fell 40.5%.
Fourth quarter 2023 GAAP gross margin was 55.3%, down 20 basis points from the third quarter of 2023, and 290 basis points below the fourth quarter of 2022. Fourth quarter 2023 non-GAAP gross margin was 55.7%, flat with the third quarter of 2023, but 280 basis points lower than the fourth quarter of 2022. This year-over-year reduction in fourth quarter non-GAAP gross margin is largely due to sales mix. Turning to operating expenses. Our GAAP operating expenses were $141.6 million in the fourth quarter, compared with $128 million in the third quarter of 2023, and $130.9 million in the fourth quarter of 2022.
Our non-GAAP fourth quarter 2023 operating expenses were $96.7 million, roughly flat with the third quarter of 2023, and up from the $94.8 million reported in the fourth quarter of 2022. The differences between GAAP and non-GAAP operating expenses for the quarters discussed here are primarily stock compensation expense and income or loss from an unfunded deferred compensation plan. Fourth quarter 2023 stock compensation expense, including $1.2 million charged to cost of goods sold, was $41.1 million, compared with $33.6 million recorded in the third quarter of 2023.
Switching to the bottom line, fourth quarter 2023 GAAP net income was $96.9 million, or $1.98 per fully diluted share, compared with $2.48 per share in the third quarter of 2023, and $2.45 per share in the fourth quarter of 2022. Q4 2023 non-GAAP net income was $140.9 million, or $2.88 per fully diluted share, compared with $3.08 per share in the third quarter of 2023, and $3.17 per share in the fourth quarter of 2022. Fully diluted shares outstanding at the end of Q4 2023 were 48.9 million.
As for our balance sheet, as of December 31, 2023, cash, cash equivalents, and investments totaled $1.11 billion, compared to $1.04 billion at the end of the third quarter of 2023. For the fourth quarter of 2023, MPS generated operating cash flow of about $153.3 million, compared with $175.9 million in Q3 2023. Fourth quarter 2023, capital spending totaled $13.8 million. Accounts receivable ended the fourth quarter of 2023 at $179.9 million, compared with the $185.8 million reported at the end of the third quarter of 2023, and $182.7 million at the end of the fourth quarter of 2022. There were 36 days of sales outstanding across these comparable periods....
Our internal inventories at the end of the fourth quarter of 2023 were $383.7 million, down from the $397.3 million at the end of the third quarter of 2023. Days of inventory rose to 172 days at the end of Q4 2023, from 171 days at the end of third quarter of 2023. We have carefully managed our internal inventories throughout the year, given the uncertainty in the market. Using next quarter revenue as a basis, inventory was 175 days at the end of the fourth quarter of 2023, down from 178 days at the end of the third quarter of 2023. I would now like to turn to our Q1 2024 outlook.
We are forecasting Q1 2024 revenue in the range of $437.0 million-$457.0 million. GAAP gross margin in the range of 55.1%-55.7%. Non-GAAP gross margin in the range of 55.4%-56.0%. Total stock-based compensation expense, including associated employer taxes of $46.2 million-$48.2 million, including approximately $1.4 million that would be charged to cost of goods sold. GAAP operating expenses between $147.2 million and $151.2 million. Non-GAAP operating expenses to be in the range of $101.8 million-$103.8 million.
This estimate excludes stock-based compensation expense and amortization of recently purchased intangible assets, but includes litigation expense and the expense from our recent Axign acquisition. Other income before foreign exchange gains or losses expected to range from $5.3 million-$5.7 million. Fully diluted shares to be in the range of $48.8 million-$49.2 million, of shares. We continue to execute the share buyback program that was announced in our Q3 2023 earnings call. Finally, I am pleased to announce a 25% increase in our quarterly dividend to $1.25 per share from $1 per share for stockholders of record as of March 29, 2024.
In conclusion, while we continue to be cautious about the near-term business conditions, we believe our long-term growth strategy remains intact, and we can swiftly adapt to market changes as they occur. I will now open the webinar up for questions.
Genevieve Cunningham (Senior Manager and Marketing Communications)
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 Participants icon on the menu bar and then click the Raise Hand button. Our first question is from Quinn Bolton of Needham. Quinn, your line is now open.
Quinn Bolton (Senior Analyst)
Can you hear me? Hey, Michael, Bernie, can you hear me?
Michael Hsing (CEO and Founder)
Yes.
Bernie Blegen (EVP and CFO)
Yeah,
[crosstalk]
Quinn Bolton (Senior Analyst)
Hey, congratulations on the very stable outlook in a pretty choppy environment. Looks like the enterprise data segment was up $30 million quarter-over-quarter, really driving a lot of the growth in the near term. As you look into 2024, can you just talk about your expectations for enterprise data, specifically your opportunity to perhaps expand the customer set with some of the other leading GPU and AI accelerator companies? And then I've got a follow-on question. Thank you.
Bernie Blegen (EVP and CFO)
Sure, I'll take that, Quinn. As far as the initial ramp that we've been experiencing over about the last four quarters, we've really seen or benefited from the acceleration of demand for these applications and solutions. As we look ahead, we see a broadening of the number of market participants, our customers, that would be participating in that. But at the same time, we also believe that competition within the supply chain will continue. So for a majority of the period to date, we've enjoyed a pretty high percentage of market share, but expect that that to decrease as we introduce second and third suppliers.
Michael Hsing (CEO and Founder)
Yeah, but the overall, I want to add, and overall the market segment is grow, and grow very rapidly, rapidly. And, we're expanding our production lines and, and we will meet in the second half of the demand.
Quinn Bolton (Senior Analyst)
Got it. Maybe just looking at sort of the roadmap for some of these accelerators in 2024, I think you guys have some new ramps with probably higher content, but I think you also have perhaps lower cost, you know, cards coming out where you guys may see a step down in your dollar content. Can you just kind of walk through the puts and takes, how we should be thinking about, you know, your average dollar content per win? Do you still see that trending higher as power consumption goes up, or is the increase in competition and perhaps efforts to design cost down cards starting to perhaps limit that dollar content opportunity?
Michael Hsing (CEO and Founder)
The dollar content is a, well, it's a, as a market and a, accelerating, and again, we have a more, our competitor joining, joining, okay? Especially, this rate of the ramp. Also we see, other players, other AI players will enter the market, that we are, so far we're behind, we're pretty much the sole source of, of power solutions. As I see in the second half or sometimes, I mean, next year, okay, you will see a lot of other players, to be qualified or they solve, their whatever the technical, problem is, okay, or there are. That's what we- that's what we expect.
The cost side, okay, we're always lowering our cost, and at this time, we want to solve all the problems, and we believe we resolve all these issues, and during this fast ramp. And also the cost is, at this time, not really an issue. It's all about the throughput and to meet the customer demand.
Bernie Blegen (EVP and CFO)
One final comment on content is that, with each following generation of new products that are being introduced for AI, the power requirements are increasing. At this point, we have a belief that the dollar content will go up per server, but at this point, it's very hard to gauge that.
Michael Hsing (CEO and Founder)
For AI system.
Bernie Blegen (EVP and CFO)
For AI, yeah.
Michael Hsing (CEO and Founder)
Yeah. And the next version of it, it's the power is even higher, is much higher as Bernie said. And we started to do these product developments back in a couple of years ago, and we're about to release it, okay, I mean, to our customers in this quarter or next couple of quarters.
Quinn Bolton (Senior Analyst)
Perfect. Thank you for all that color.
Genevieve Cunningham (Senior Manager and Marketing Communications)
Our next question is from Rick Schafer of Oppenheimer. Rick, your line is now open.
Rick Schafer (Managing Director and Semiconductor Equity Analyst)
Yeah, thanks, and I'll add my congratulations as well. A couple of questions, if I could. I guess, Michael, I'm curious if you could kind of elaborate a little bit, but I'm curious what surprised you the most the last 90 days or so? I'm thinking particularly of auto. Obviously, enterprise data was stronger than expected, but auto seems like it's kind of materially gotten softer for most in the last 90 days. So I was curious if you could comment on what you're seeing there.
Of course, you guys had, I think, a couple of delayed model year launches last year in the second half, and I was just trying to get a sense of when those might ramp, and if you consider that an offset maybe to a slower, you know, slower auto market at large?
Michael Hsing (CEO and Founder)
Good question. It's a good observation, and toward the end of the last year, it kind of auto slows, slower down. But overall, we, as Bernie said earlier, we still grow some high 20%-30%.
Bernie Blegen (EVP and CFO)
Yeah
Michael Hsing (CEO and Founder)
... somewhere in the, in the overall, in the auto segment.
Bernie Blegen (EVP and CFO)
Yep.
Michael Hsing (CEO and Founder)
These are mostly primary, mostly due to the ADAS and the infotainment or whatever the head unit is called, our digital cockpit.
Bernie Blegen (EVP and CFO)
Yeah.
Michael Hsing (CEO and Founder)
Going for next years, and again, we believe, and we see all the activities, and customers nowadays are consuming all these inventories that we shipped in the May or June period times, and then now they start to have a higher volume ramp, and that's especially in the EV side. So for this year's first part of this years.
Bernie Blegen (EVP and CFO)
So I think that there has been some softness that has occurred in Q3 and Q4 of last year, that was observable both for IC and EVs. And as we said in our earlier comments, and it applies to automotive, we don't have great visibility beyond just the next quarter, so it's hard for us to predict what the second half of 2024, the ramp might look like for automotive.
Michael Hsing (CEO and Founder)
Right. Right. The ramp is in the early adoption in an EV is very limited, and the different automakers and the ramp in a different schedules, okay? I mean, but overall, the trend is they will pull out more EV with more our products.
Rick Schafer (Managing Director and Semiconductor Equity Analyst)
... Oh, thanks, Michael. And if I could follow up, I know Quinn was asking about some of the 48-volt stuff. I was curious, I mean, you guys are so dominant on this and in second stage 48-volt, and I know you've got a stage one product now as well. So I didn't know if you could give us a sense of what your expectations are for share or revenue contribution, however you'd like to discuss it. But I'm curious sort of what stage one power will do to your content, will do for your, you know, for that enterprise data segment.
And I also was curious, only because you mentioned it, a couple times, new competition coming in 48-volt, and I was just curious to get your thoughts on, if it gets harder, or could the competition, you know, going forward as guys like NVIDIA move from a two-year cadence on new processor development to an annual cadence? Thanks.
Michael Hsing (CEO and Founder)
All right. Yeah, this game is always the best performance, okay? So far, our competition, so we don't—I don't want to speak our competition, okay? So far in what we have, okay, and our customers, and again, and they're very receptive to our solution. So far, we pretty much have a majority of the volumes, okay? And they keep requesting it, and keep requesting we solve all these ap- issues, okay, related to their system issues, ours, and our the issues from our side. And so when the even the volume gets even bigger, it's good to have a have another source, okay?
Otherwise, then again, you don't want MPS become all of them. So again, that's not what we intend to do. And, so and, all, also, the competitions in is exactly like a server side. And, we're the newcomer in a server market, back in two couple of years ago.
Bernie Blegen (EVP and CFO)
Yep.
Michael Hsing (CEO and Founder)
That's how we won the market. We had a product long before that, and we also had to dumb it down to meet the common footprints because the power density is not high enough. When this AI came on the market, the common footprint is not a requirement. So we start to win a lot of market, a lot of shares, and the same as in the servers, and have a very similar trend. That's how we win the market. We always want to do as we said in the past, we want to pushing the technology, we want to make sure we're the best.
Rick Schafer (Managing Director and Semiconductor Equity Analyst)
Michael, any sense of stage two, or sorry, stage one contribution this year for you guys? Thanks.
Michael Hsing (CEO and Founder)
Yes. Okay, we had some issues in our stage ones, and that came in, and we had some design wins and very small volumes, and in different systems actually, and again. Now, okay, we don't have all these issues are resolved, and, like I mean, that will significantly gain the content and in each AI systems.
Bernie Blegen (EVP and CFO)
Stage one, for us at least, is represented about 20%-25% of the dollar content of Stage Two, and we expect to see the incremental ramp from these products in Q1 and Q2.
Michael Hsing (CEO and Founder)
Yeah. We had shipping these products for and some of the 48-volt systems, and also we supplied as a supplier for chip and for the silicon, not for the modules. And now we step up to our modules.
Rick Schafer (Managing Director and Semiconductor Equity Analyst)
Great. Thank you, guys.
Genevieve Cunningham (Senior Manager and Marketing Communications)
Our next question is from Matt Ramsay of Cowen. Matt, your line is now open.
Matt Ramsay (Managing Director and Senior Semiconductor Analyst)
Thank you very much. Congrats, guys. Good afternoon. I'm gonna ask both of my questions here together, 'cause we got two or three calls going on tonight, and I don't want to end up on two lines at once. I, I don't know that we want to go interweaving earnings calls, but,
Michael Hsing (CEO and Founder)
Okay.
Matt Ramsay (Managing Director and Senior Semiconductor Analyst)
... My two questions are, the first one, Michael, since you helped found the company, you guys have not been active in M&A traditionally. So I'd be interested to hear a little bit more about the company you're acquiring, the markets that you're going to go after, how that whole deal came together and what the prospects for that new technologies that you may, and people that you may roll into the company. Just any background there. And then-
Michael Hsing (CEO and Founder)
That's a great question. So like, otherwise, we'll attend to the overall AI part.
Matt Ramsay (Managing Director and Senior Semiconductor Analyst)
Just really quickly on my second one, so I'll go back on mute.
Michael Hsing (CEO and Founder)
Oh, you go back to AI?
Matt Ramsay (Managing Director and Senior Semiconductor Analyst)
Bernie, if you could just help us out, with the guidance for March by segment, that would be helpful to make sure we're all modeling from the same footing. Thanks.
Michael Hsing (CEO and Founder)
... All right, let me answer your first question. So, okay, and you said is inactive in the M&A market sector. That's not true. So, okay, and we follow our-- Well, it's not really a policy, so we follow our what we do for the best for our shareholders. We don't acquire revenue. The reason is, it's cheap to grow revenue for MPS. But we do look do acquire technology, and so this is the in the past, actually, we acquired a few. And financially is in materials with our shareholder, and at this times, and is big enough. We made this these disclosures.
Talking about this Axign is the company that we work with, I mean, for three years already. It's proven that their technology and with our power stage and that would be a huge benefit in audio signals to audio amplifications fields. We have proven in very high-end customers and make these products, okay, as very unique. It never achieved in the histories, like, no zero distortions signals, and, like, sent to speakers. The cost is very low. The way we achieve that, and also, we achieve a lot of programmable. It's also software adaptive.
That I see it when I listen to those sounds. It's really you bring an audiophile, as we put in a press release, putting an audiophile quality to everybody's home to lower down a real low, really low down the cost, and that will revolutionize how we listen. Yeah, you want second-
Bernie Blegen (EVP and CFO)
Yeah, Matt, I'll take the second question then, on the guidance as far as what we're looking at for Q1 here. The growth driver is still remains the enterprise data. The positive there is that in addition to AI, we're also seeing incremental positive demand for our traditional CPU data center solutions. When you look at the other groups, you basically, we see a flattening in comms, but then we see declines that sort of range between the high single digits and low double digits in the sequential growth between Q4 and Q1 for the other groups.
Michael Hsing (CEO and Founder)
Does that answer your question, Matt?
Bernie Blegen (EVP and CFO)
Gen, I think we can move to the next one.
Genevieve Cunningham (Senior Manager and Marketing Communications)
Our next question is from Tore Svanberg of Stifel. Tore, your line is now open.
Tore Svanberg (Managing Director)
Yes, thank you, Michael, Bernie, and congratulations on twelfth consecutive year of growth, especially in this environment. That's stunning. My first question for you, Michael, is, you know, 2024, so you've already talked about AI, and, you know, Bernie just sort of gave us directionally things for Q1, but, you always seem to surprise us a little bit with something, you know, throughout the year. So I'm just wondering, is there anything that you could share with us that could happen either in industrial or communications? I'm not thinking about cyclical stuff. I'm thinking about more sort of new secular stuff that you're working on that could surprise us on the upside this year.
Michael Hsing (CEO and Founder)
Well, you said, well, last year the growth is not very spectacular. Is it like a one, what is a single digit? Oh, one-
Bernie Blegen (EVP and CFO)
1.5%.
Michael Hsing (CEO and Founder)
1.5%. Okay. It's... Yeah, okay. But this year's, I think it's—who knows? Last year, we didn't know until ChatGPT happened, okay, and then the AI business took off and was out of our expectations, okay, and we didn't know. But to answer your questions or to comment on your questions, 11—what is it? 12 years, 11 years in a consecutive...
Bernie Blegen (EVP and CFO)
Yeah
Michael Hsing (CEO and Founder)
... year by year growth. And, it's—we follow our principles, and okay, we want to, first things, okay, we want to have, make sure it's all the product, what we deliver to our customers is the best product, best performance. And, we want to beat all our competitions. That's number one. Number two is we react. We react faster, we're nimble, and, we fulfill our customer demand. And, that's the pretty simple, strategies that we followed, and—we kind of disregarded what the market segment does, okay? And, and we don't chase those market segment. This year, who knows, okay, whether one of the segments in the world will grow, but I don't expect it will grow as big as AI, okay?
But maybe a couple of small segments happening, and I do see that. We do see in the recent quarters, in the last quarter or so, and we see all these orders come in, okay, as we expected it, those products are truly better than our competitors.
Tore Svanberg (Managing Director)
Yeah, well, that makes sense. And as my follow-up, I think most people when they think about MPS, obviously they think about power management and, you know, how much share you've gained there. But when I look at, you know, the Axign acquisition, I think about your penetration into the data converter space. You know, you're doing much more stuff on the signal processing side. I mean, you're clearly building out, I think, a pretty impressive portfolio in what I would call more the mixed signal part of the market. So, will you be able to maybe, you know, share that with us over time? You know, I don't know, percentage of revenue collectively, how much, you know, these subsegments can represent for the overall business?
Michael Hsing (CEO and Founder)
Yes. Okay, I think in the next couple of years, you will see some significant growth from different area. From signal processing and data converters and, of course, we talk about it today and the audio process, okay? And which we already designed it in some consumer, high-volume consumer market segment. And later we're gonna get into automotive and automotive business. And other ones, we have a lot of small things, okay, a lot of other things like silicon carbide and silicon carbide projects for green energy and for solar and for solar inverters. And...
Well, these are still kind of power management and so on, but a lot of them. So okay, we are other power, and these are for communications. For communications in between, in a solar site, okay, so from an inverter site. Even the automotive side. Look back to automotive side, and there's a lot of other communication within a car, and we're developing those type of products. You see, MPS in the next few years will migrate out into-
Tore Svanberg (Managing Director)
Excellent
Michael Hsing (CEO and Founder)
... to those second, to those segment.
Tore Svanberg (Managing Director)
Excellent. Thank you, and congrats again.
Michael Hsing (CEO and Founder)
Thank you.
Genevieve Cunningham (Senior Manager and Marketing Communications)
Our next question is from William Stein of Truist. William, your line is now open.
William Stein (Managing Director and Senior Analyst of Technology)
Hey, thanks. I'll add my congrats to the remarkably stable outlook. And along those lines, you know, the company has had a longer term revenue growth and margin model that you have talked about in the past. I think the way you say it is either 15+ semi growth or around 20 top line, and then 10-20 basis points per quarter on gross margin. We've been sort of really outside of that model as things have been really volatile since really since COVID started, I guess. But I wonder if we're potentially honing back into that model, or should we sort of throw that away and not think about that anymore? And how would you encourage us to think about revenue growth and margins longer term?
Michael Hsing (CEO and Founder)
Yeah, those kind of models, okay? But I think in the given times, we will be back in the models. And the model can be... It's like a weather forecasting, right? Okay, so we build up models, and okay, we didn't predict this thunderstorm. And for like the last couple of years, with our models is not correct. And either we have too much or we have too little, okay? And so given those kind of environment, economic, weather environment, okay, and that model is not quite right. And okay, and also our model is not very sort of scientific either. So okay, it's based on our empirical historical reasons, okay?
But we should not, okay, deviate from what we see now, okay.
Bernie Blegen (EVP and CFO)
Just to give people a refresh of what the model is that Will is referring to, is generally speaking, we outperform the market by 10-15 percentage points. In a stable market conditions where it's growing between about 5% and 8%, it's easy to assume that we'd be between 15% and 20% growth. On the gross margin or range that we target on a non-GAAP basis is between 55% and 60%. And then when the environment is more predictable, we look to be able to grow gross margin 10-15 percentage point or basis points on quarterly successive quarters.
Michael Hsing (CEO and Founder)
Yeah, I might as well add it, okay. We emphasize the product development and also customer's design wins. And I do see a lot of wins, and many different segments. I said earlier, and probably I forgot even half of it, okay, in my mind, and there were so many things going on. And so going forward, and I mean, when it's normalized, as Bernie said, as more normalized economic conditions, and there's no reason we will not grow, we grow 1.5%. Okay, let's do it. Let's at least say it that way, so okay.
Bernie Blegen (EVP and CFO)
But the market contracted 10%.
Michael Hsing (CEO and Founder)
Yeah, yeah. Okay.
Bernie Blegen (EVP and CFO)
Yeah.
William Stein (Managing Director and Senior Analyst of Technology)
We certainly are outgrowing long term, no doubt. The other thing I'd like to ask about is inventories. I think on your own balance sheet, you're running below your long-term target now. Maybe my view of the target is stale. I'm not sure. Maybe you can just update us on inventory relative to your target, and also in the channel, what you think is going on there, please. Thanks so much.
Bernie Blegen (EVP and CFO)
Sure, I can take that one. So, as a reminder, the model is days on our balance sheet between 180-200 days. We came in at about the low 170s this quarter, which was really a reflection of how we have been managing our inventory in this uncertain environment. Having said that, we've started a lot of wafer starts ahead of what we believe will be a potential upside, certainly in the next few quarters. As far as the channel, that's been a difficult aspect of this market for everybody.
We've had our share of putting inventory in the channel, but I'm very happy to report that over the last three quarters, it's been coming down appreciably, and we're right now just a little bit above our model.
Michael Hsing (CEO and Founder)
Mm. We will start to build inventory.
Bernie Blegen (EVP and CFO)
Yeah, yeah.
William Stein (Managing Director and Senior Analyst of Technology)
Great. Thanks so much, guys.
Genevieve Cunningham (Senior Manager and Marketing Communications)
Our next question is from Travis Poulin of Wells Fargo. Travis, your line is now open.
Travis Poulin (Equity Research Associate)
Hi, guys. This is Travis on for Gary. Thanks for taking my question, and congratulations on the results. I was wondering if you could provide color on how your customer base has evolved through 2023. Historically, MPS has been diverse from this perspective, but did any customer approach 10%? And along those lines, how do you expect this mix to evolve as we move into 2024?
Michael Hsing (CEO and Founder)
Yeah, and I see these data as we grow our small customer base and by a few thousand in the last year. And that's kind of exciting. Again, I mean, and it doesn't mean we add a lot of revenues. And but in the longer term, they're wealth, okay? I mean, and the bigger the base, the better it is, the more stable MPS will be. And also, you don't know, okay, and what's the next hardest things, okay? And our customer will decide that, okay, or the market will decide it. Our customer will take opportunity, if not this one, that one will.
Okay, I mean, we just playing the percentage, and we just have our products goes out the doors, and okay, and goes to designing those to those customers. And in terms of which segments, I have to say it's everywhere. This is okay. I can't remember any numbers more than, so as I grow older than more than five or six things than that. And but that's the beauty is you won't go thousands, okay? I mean, that take a few years, and it will turning to bigger revenues.
Bernie Blegen (EVP and CFO)
Travis, it's an excellent question because I think to align with Michael's points there, is that the strength of MPS, as far as resilience in different market conditions, is the breadth of the customer base, and not have high levels of concentration. Now, obviously, with this environment, where it has been generally weak, except for AI, we're in sort of an unusual profile, but we don't expect that to last, you know, over the next couple, three years.
Michael Hsing (CEO and Founder)
Yeah.
Travis Poulin (Equity Research Associate)
Got it. Thank you for the call. That's all from me.
Bernie Blegen (EVP and CFO)
Yeah. Okay.
Genevieve Cunningham (Senior Manager and Marketing Communications)
Our next question is from Tore Svanberg of Stifel. Tore, the line is now open.
Tore Svanberg (Managing Director)
Yes, thank you. I just had two quick follow-ups. First of all, is on revenue capacity. So I know in the past, Michael, you talked about sort of getting to $2 billion in capacity. Obviously, you're there now, but then, you know, also any updates on getting to $3 billion and even $4 billion of revenue capacity?
Michael Hsing (CEO and Founder)
We are building for $4 billion revenues, okay, in the capacities. We actually never changed.
Especially out of China, okay, that actually fits our plan. We'll continue to do that. These kind of capacity issues, you look at MPS, MPS business, and we see, we believe these are business world growth, okay, we grow our capacity accordingly. It's really a disregard of what's occurring environment. Okay, we address for long-term issues.
Tore Svanberg (Managing Director)
Very good. And then the other follow-up, any updates on the e-commerce business? You know, we haven't heard about that in a while, so, you know, just wanna make sure we, we check in with you and get an update there.
Michael Hsing (CEO and Founder)
Our module business, okay, I mean, pure e-commerce, okay, I said it. Okay, we didn't know what we are talking about, and it wasn't that exciting. But the combination of it and with our web service and the e-commerce and also some interactions, and like if help from our website, that generates 150 million units now, last year.
Bernie Blegen (EVP and CFO)
Yeah.
Michael Hsing (CEO and Founder)
I can't call it that in a... What, what was that? Like, seven, eight years ago, seven, eight years ago, we got these, these, these e-commerce business, customer can log in our websites, and we're gonna- they can change their part num- they can, they can input their parameters and, program our parts, and we ship the product in, in, within a week or so. That didn't happen that much. But, and, yeah, it's, it's happening. I- but I still believe in the long term, that will be the business because, we're lowering the power management, we're lowering all these, product designing barriers. And, why not?
People can program the part, and especially younger generations, they rather program a product rather than use a solid line, putting in their arms and get and go to a lab, because I came to make it happen. I think it's a little longer. Younger generations would do that, and it would be different from older generations, in fact, my generation, okay? That business, I believe in the long term, will still picking up. But for now, wasn't that bad. Okay, let's say that way.
Tore Svanberg (Managing Director)
Great. Thank you again.
Genevieve Cunningham (Senior Manager and Marketing Communications)
Our next question is from Melissa Fairbanks of Raymond James. Melissa, your line is now open.
Melissa Fairbanks (VP of IT Supply Chain/Semiconductors)
Hey, guys. Thanks very much. I was wondering if maybe I could squeeze one in about storage and computing business. I know it's not quite as exciting maybe as what's going on in enterprise data.
Michael Hsing (CEO and Founder)
It's not, that's not good.
Melissa Fairbanks (VP of IT Supply Chain/Semiconductors)
I know that you know, you did pick up some business on the notebook side last year. That was kind of opportunistic. We've got some seasonal factors coming in in March. We've kind of heard that channel inventories, at least on the PC notebook side, have normalized somewhat, but wondering if you could just give us a little bit of color on the storage, you know, portion of that business that, you know, we don't seem to talk about very much.
Michael Hsing (CEO and Founder)
You know, you-
Melissa Fairbanks (VP of IT Supply Chain/Semiconductors)
On the computing side.
Michael Hsing (CEO and Founder)
You know the answer already. I said, overall, it's not good. Overall, it's, yeah, the notebook, so we pick up some, we pick up some market shares, and then we start to grow a little bit.
Bernie Blegen (EVP and CFO)
Yeah.
Michael Hsing (CEO and Founder)
Yeah.
Bernie Blegen (EVP and CFO)
So, I think the way to look at it is that we anticipated softness in the storage market, and so as a result, we became more competitive on notebooks and accepted lower margin business. But it was offsetting declines, particularly in SSD, where we've seen a decline. We increased share with a lot of the major customers in the SSD market, but their business was in decline for much of 2023. And then the other positive in the group is that we've saw the initial ramp of DDR5 during the year, and also graphic cards expanded pretty nicely during the year.
So, this is a group that has different characteristics, and net-net did pretty okay in a pretty difficult market.
Michael Hsing (CEO and Founder)
Well, I think the DDR5, we expect to ramp it last year, right?
Bernie Blegen (EVP and CFO)
Yeah.
Michael Hsing (CEO and Founder)
And it happened, didn't happen that fast.
Bernie Blegen (EVP and CFO)
Yeah.
Michael Hsing (CEO and Founder)
So the key is, again, okay, we make sure our product's designing, and when these product will ramp, okay, it's not up to us-
Bernie Blegen (EVP and CFO)
Right
Michael Hsing (CEO and Founder)
... and, we actually care less. Okay? But we only care is, we have a product to ship. Okay.
Melissa Fairbanks (VP of IT Supply Chain/Semiconductors)
All right. Thanks very much. Michael, I'm sorry to bring up a sore point. That's all for me.
Michael Hsing (CEO and Founder)
No, it's not a sore point. It's a reality like everybody else is facing.
Bernie Blegen (EVP and CFO)
Yeah.
Melissa Fairbanks (VP of IT Supply Chain/Semiconductors)
Sure.
Michael Hsing (CEO and Founder)
Yeah.
Melissa Fairbanks (VP of IT Supply Chain/Semiconductors)
Sure. All right. Thanks, guys.
Michael Hsing (CEO and Founder)
All right. Thank you.
Genevieve Cunningham (Senior Manager and Marketing Communications)
Our next question is from Quinn Bolton of Needham. Quinn, your line is now open.
Quinn Bolton (Senior Analyst)
Hey, hey, guys, just wanted to follow up. Bernie, I think you had mentioned that in addition to the GPU and AI, you guys are starting to see better traction on just the core CPU server market. I know in the past you've talked about your goal to try to get your share in that segment to 25%. Wondering if you might just give us an update, where do you think your share is in CPU core power today, and, you know, how are you feeling about that 25% market share target over, say, the next couple of years? Thanks.
Bernie Blegen (EVP and CFO)
... Sure. So, what really generates interest for their customers is when they see the new product launches at both Intel and AMD ramping, and we do the power management for both of those. And I think that, as we observed in the last year or even 18 months, that the most recent versions of their products have been delayed. And so, we've experienced a slower ramp as far as being able to increase share or content on those platforms. But at least initially, as I was observing for Q1, as well as for the balance of 2024, we see that both of those ramps starting to improve, and that we'll participate with them.
At this point, we don't have any reason to doubt our earlier projections as far as overall share opportunity between 20% and 30%, but right at this particular moment, it's hard to say what we have.
Michael Hsing (CEO and Founder)
Yeah, yeah, let me talk about, this. In the VR13, and we didn't have any. In the VR13.5, and because, that was about two and 2.5 years ago-
We have a lot of design win. We have a design win, a few, but by default, and I gave me and other customers, their customer, they couldn't get the. They couldn't ship.
Bernie Blegen (EVP and CFO)
Right.
Michael Hsing (CEO and Founder)
We are turning to be a bigger player, and okay, VR14. In the past few years ago, that we're designing many different projects. We expect to be a bigger player, and so that's, we still believe the same story.
Bernie Blegen (EVP and CFO)
Yeah.
Michael Hsing (CEO and Founder)
When the CPU market picks up, our revenue will start to resume to growth, so what is it? The last years, and I don't even remember, was the last years, and it wasn't spectacular numbers anyway, 10 again.
Bernie Blegen (EVP and CFO)
No.
Michael Hsing (CEO and Founder)
I think sooner or later we'll turn around. Yeah.
Quinn Bolton (Senior Analyst)
Got it. Thank you.
Genevieve Cunningham (Senior Manager and 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. Thank you very much, everybody. I'd like to thank you for joining us on this conference call, and look forward to talking to you again in our first quarter, which will be in late April. And just to add to that, at that time, we'll be introducing a new format for this call. We will provide you content and context on how the end markets have performed in a written manner, and then we will use the conference call portion more for Q&A. So we believe that that'll be a more efficient use of your time and ours, and also more complete communication. So with that, I will thank you, and again, I look forward to seeing you again in April.
