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PI

POWER INTEGRATIONS INC (POWI)·Q3 2025 Earnings Summary

Executive Summary

  • Q3 revenue was $118.9M (+3% q/q, +3% y/y) with non-GAAP EPS of $0.36; both modestly beat consensus. GAAP EPS was $(0.02) due primarily to elevated stock-based compensation and other operating expenses . Q3 consensus: revenue $118.5M*, EPS $0.350*; actual: revenue $118.9M, EPS $0.36 (non-GAAP) .
  • Guidance implies a softer Q4: revenue $100–$105M, non-GAAP GM 53.5–54.0%, non-GAAP opex ~$47M, tax ~3%, with consumer appliances driving declines and industrial down seasonally; management expects GM to rebound in 1H26 as mix normalizes and the yen impact turns favorable .
  • Industrial remains the structural growth engine (up ~20% YTD; high-power gate drivers >30% YTD), while consumer appliance demand is digesting tariff-driven preload; channel inventory rose to 9.8 weeks in Q3 but is being worked down in Q4 .
  • Strategic catalyst: AI data centers. POWI detailed 1250V/1700V PowiGaN for 800VDC architectures and a collaboration with NVIDIA; early samples for rack-level AC-DC system GaN product are expected by year-end 2025, with a main DC-DC product release planned for 2027 .

What Went Well and What Went Wrong

What Went Well

  • Industrial strength continues: Q3 industrial revenue mix rose to 42% (from 36% in Q3’24), with YTD industrial up nearly 20% and high-power gate drivers up >30% YTD; new design wins in Indian rail and heavy vehicles reinforce pipeline .
  • Consistent cash generation and capital returns: Cash from operations was ~$29.9M; POWI repurchased 919k shares for $42.4M and announced a 2026 dividend increase to $0.215/quarter .
  • AI data center positioning validated: Company published 800VDC white paper and announced NVIDIA collaboration; management emphasized high-voltage GaN advantages vs. 650V GaN stacking and 1200V SiC in efficiency/power density and reliability .

What Went Wrong

  • Consumer appliances softened significantly following tariff-driven preload; management expects Q4 revenue declines led by consumer, with industrial also down seasonally .
  • Gross margin pressure: Non-GAAP GM fell 70 bps q/q to 55.1% on higher input costs and FX tailwinds fading; Q4 non-GAAP GM guided to 53.5–54.0% before a rebound in 1H26 .
  • GAAP loss: $(1.4)M GAAP net income ( $(0.02) diluted EPS) driven by $21.2M in stock-based compensation and other operating expense items; non-GAAP EPS was $0.36 .

Financial Results

P&L Summary (USD)

MetricQ1 2025Q2 2025Q3 2025
Revenue ($M)$105.529 $115.852 $118.919
GAAP Gross Margin %55.2% 55.2% 54.5%
Non-GAAP Gross Margin %55.9% 55.8% 55.1%
GAAP Diluted EPS ($)$0.15 $0.02 $(0.02)
Non-GAAP Diluted EPS ($)$0.31 $0.35 $0.36
Non-GAAP OpEx ($M)$43.491 $46.663 $47.391
Non-GAAP Op Margin %14.7% 15.6% 15.2%
Cash from Operations ($M)$26.386 $29.072 $29.854
Diluted Shares (Non-GAAP calc, M)57.123 56.387 56.162

Results vs. S&P Global Consensus

MetricQ1 2025Q2 2025Q3 2025
Revenue Actual ($M)105.529 115.852 118.919
Revenue Consensus ($M)105.441*115.017*118.538*
Surprise+0.1%+0.7%+0.3%
EPS Actual (non-GAAP, $)0.31 0.35 0.36
EPS Consensus ($)0.285*0.345*0.350*
Surprise+8.9%+1.4%+2.7%

Values retrieved from S&P Global.*

End-Market Mix (% of Revenue)

End MarketQ3 2024Q2 2025Q3 2025
Communications12% 11% 11%
Computer14% 12% 13%
Consumer38% 37% 34%
Industrial36% 40% 42%

KPIs and Capital Returns

KPIQ2 2025Q3 2025
Inventory Days (on balance sheet)296 days 278 days
Channel Inventory (weeks)7.6 weeks 9.8 weeks (being reduced in Oct)
Share Repurchases706k sh; $32.6M 919k sh; $42.4M
Dividend per Share (paid)$0.21 on Jun 30 $0.21 on Sep 30; $0.21 set for Dec 31
CapEx ($M)$5.926 $5.694

Non-GAAP/GAAP Adjustments (Q3 2025)

  • Stock-based compensation: $21.205M total; “Other operating expenses” line items also present; amortization of intangibles $0.147M in COGS .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
RevenueQ4 2025N/A$100–$105M New guide
GAAP Gross MarginQ4 2025N/A53.0–53.5% New guide
Non-GAAP Gross MarginQ4 2025N/A53.5–54.0% New guide
GAAP OpExQ4 2025N/A~ $56M New guide
Non-GAAP OpExQ4 2025N/A~ $47M (excl. ~$9M SBC) New guide
Effective Tax RateQ4 2025N/A~3% New guide
Share CountQ4 2025N/ADown 0.4–0.5M q/q; <56M diluted New guide
Dividend2026$0.21/quarter in 2025$0.215/quarter throughout 2026 Raised

Management also expects non-GAAP GM to rebound in 1H26 as mix normalizes and yen impact reverses; recent yen weakness could further support GM later in 2026 .

Earnings Call Themes & Trends

TopicQ1 2025 (prior)Q2 2025 (prior)Q3 2025 (current)Trend
AI/Data Center (800VDC)Emphasized AI as secular driver Detailed 1250V/1700V GaN roadmap; content per rack up to ~$1,000 (existing arch) NVIDIA collaboration, 800VDC white paper; early samples for rack AC-DC by YE’25; main DC-DC product target 2027 Improving engagement
Consumer Appliances/TariffsTrade-policy uncertainty; normal channel inventory Tariff-driven preload; July bookings down ~20% m/m; appliances to soften H2 Consumer to be “significantly” down in Q4; normalization expected as preloaded inventory clears; 2026 growth potential Near-term headwind, stabilizing 2026
IndustrialGrowth driver; metering, high power Industrial +~30% q/q in Q2; high power, HVDC, metering strong YTD industrial ~+20%; high-power gate drivers >+30% YTD; new rail/heavy-vehicle wins Strong/steady
AutomotiveBuilding to material revenue in 2026 Multiple regional wins; EPS socket; EV architectures adding sockets 6 additional design wins; heavy-vehicle traction inverter content ~10x vs passenger power-supply-only Expanding
Channel InventoryNormal range 7.6 weeks at Q2 end 9.8 weeks at Q3 end; sell-through > sell-in in Oct to reduce Elevated, improving in Q4
Margins/FX (Yen)~55–55.5% non-GAAP GM outlook 55.8% NG GM; FX benefit smaller q/q NG GM 55.1%; Q4 guide 53.5–54%; yen impact lag ~1 year; rebound expected in 1H26; recent yen weakness supportive Near-term down, medium-term up
R&D/OpEx Discipline—Litigation expense impacted Q2; opex slated ~$47.5M in Q3 CEO prioritizing ROI on R&D, resource realignment; hiring limited to critical needs; opex discipline stressed Tighter execution

Management Commentary

  • “Our industrial business remains on track for strong growth in 2025… we are on course for solid growth in 2025 despite the challenging economic backdrop… 1250- and 1700-volt PowiGaN technologies for next-gen AI data centers, including our collaboration with NVIDIA” .
  • “We generated $30 million in cash from operations in Q3 and are on track for more than $80 million in free cash flow this year… we will return nearly $150 million to stockholders this year… board has declared a $0.005 per share dividend increase effective in Q1 of 2026” .
  • “We need to adapt our organization… increase the ROI on our R&D spending… Data center, auto, and high power have different requirements… pushing the team to tighten up on OpEx and capital spending” .

Q&A Highlights

  • Consumer correction and normalization: Management expects significant Q4 consumer decline and channel inventory normalization as tariff-driven preloads clear; Whirlpool commentary supports finished-goods inventory clearing by year-end .
  • End-market cadence Q4: Consumer down most; industrial modestly down on seasonality and project timing; computer/comms roughly flat to slightly down .
  • Data center GaN vs. SiC: POWI sees 1700V GaN advantaged in 800V AUX supply and 1250V GaN for main DC-DC, with SiC at front-end AC-DC; has OEM wins in AUX supply; main DC-DC product planned for 2027 .
  • AI data center content and timing: Content per rack ~“around $1,000” today (higher in 800VDC); near-term revenue from existing arch products sampling by YE’25; meaningful main-supply revenue a few years out .
  • Automotive traction: Heavy-vehicle traction inverter win (10x content vs. passenger power-supply-only), plus passenger-car EPS socket momentum .

Estimates Context

  • Q3 outcome vs. S&P Global consensus: Revenue $118.9M vs. $118.5M*; non-GAAP EPS $0.36 vs. $0.350* — both modest beats. Q1 and Q2 also modest beats on both revenue and EPS, indicating estimate discipline even through tariff-related volatility .
  • Q4 setup: Management guided revenue to $100–$105M (consensus revenue $103.0M*), non-GAAP GM 53.5–54.0%, and non-GAAP opex ~$47M; consensus EPS for Q4 is $0.187* with limited visibility given mix/GM headwinds .

Values retrieved from S&P Global.*

Key Takeaways for Investors

  • Near-term: Expect a soft Q4 led by appliance digestion and seasonal industrial; mix and FX reduce GM to ~54% before rebounding in 1H26 — watch for the Q4 channel inventory cleanup to set up 1H seasonality (AC builds) .
  • Medium-term margin recovery: As industrial regains mix and yen turns favorable with a ~1-year lag, non-GAAP GM should improve from Q4 levels; focus on 1H26 cadence .
  • Structural growth intact: Industrial electrification (HVDC, metering, rail) and automotive sockets continue to expand with multiple new design wins; these carry higher-margin profiles .
  • AI optionality: Collaboration with NVIDIA and 1250V/1700V GaN portfolio position POWI for 800VDC architectures; earlier revenue likely from rack-level AC-DC GaN system product sampling by YE’25; larger main DC-DC opportunity targeted for 2027 .
  • Capital returns discipline: Strong cash generation (~$29.9M CFO in Q3) supports buybacks and a raised 2026 dividend; diluted shares expected to fall below 56M in Q4 .
  • Watch consumer normalization: Appliances remain sensitive to tariffs and housing; management expects normalization as preloaded inventory clears with 2026 growth potential aided by efficiency and GaN adoption .
  • Risk checklist: Tariff regime, end-demand for appliances/housing, FX (yen lag), and timing of AI and auto ramps remain the key swing factors .

Appendix: Additional Detail

Q4 2025 Outlook (Selected items)

  • Revenue: $100–$105M; non-GAAP GM 53.5–54.0%; non-GAAP opex ~ $47M; tax ~3%; diluted share count down 0.4–0.5M q/q to <56M .

Balance Sheet/Cash Flow Highlights (Q3 2025)

  • Cash and equivalents $48.6M; short-term marketable securities $193.2M; inventories $164.6M; operating cash flow $29.9M; CapEx $5.7M .

Non-GAAP Reconciliations (Q3 2025)

  • Non-GAAP gross profit $65.5M; non-GAAP gross margin 55.1%; non-GAAP income from operations $18.1M; non-GAAP EPS $0.36 .

Selected Quotes

  • “We expect fourth-quarter revenues of $100–$105 million, with the consumer category driving a large portion of the decrease… Our industrial business continues to be strong” .
  • “By the end of this year, we expect to deliver early samples of our system-level GaN product for rack-level AC-to-DC converters… production release planned for late 2026” .
  • “We will be taking steps in the months ahead to better align our R&D and go-to-market resources… I am pushing the team to tighten up on OpEx and capital spending” .

All document data and quotes are cited to the company’s Q3 2025 8-K/press release and earnings call; estimate figures are from S&P Global as noted.