Bernie Blegen:

Thanks, Gen. We're doing something a little different in today's earnings call. As a detailed recital performance metrics is included in the company's earnings commentary, accompanying the earnings release, I'll use this time to provide just a few comments on our Q1 2024 performance and our outlook before opening the call up to Q&A.

Tore Svanberg:

Congratulations on this enviable consistency. I have two questions. My first question is on share gains. And historically, Michael, Monolithic Power tends to really accelerate share gains during downturns. And I know there's a lot of focus on Enterprise Data right now, which is 1/3 of your revenue, but -- can you maybe call out some other verticals or applications where you are seeing more share gains in the current downturn?

Tore Svanberg:

Great. And for my follow-up question and specifically on Enterprise Data, which is now 1/3 of our revenues. There's been some chatter lately about lower power management content in next-generation AI data centers due to liquid cooling and other techniques to lower overall power. Is this impacting MPS broadly? Or is this kind of more sort of a very specific use case in the server power management market?

Bernie Blegen:

No, I think that the point that we've demonstrated, particularly with Enterprise Data is the ability to leverage up content as we go into higher-value technology. For example, the water cooled and vertical represent opportunities, not threats. And if you look down the line not to -- not far out, we'll also be going into rack power as well.

Operator:

Our next question is from Quinn Bolton of Needham.

Michael R. Hsing:

Yes. As you may remember, 2016, we have a power curve versus -- the power curve CPU computing capabilities and versus the power densities. And we projected it for 2018 or '19. That would be the crossover point that MPS product. And for those common footprint, driver [ mass ] couldn't fit into the peripheral powers. That's around 700 watts. If you remember that in 2016, we said that. And at the time, we projected with the CPU was wrong. It's actually turned out to be GPUs. But the power is the power, power densities.

Bernie Blegen:

I think it's important to keep in mind when you look at our history, as Michael just referenced there, that we have always won opportunities due to our innovation. And as we look at the next generation of GPU or TPU or ASIC products that are in this high power end market. We're an enabling technology meaning that at the front of the design cycle, we're consulted, we're integrated, in fact, with the development of the next generation of products. So we believe that strategically that, yes, there will be competitive influences on the market but we want to continue to position ourselves as the leader.

Bernie Blegen:

Yes. And I'll pick up the second part of your question there is that seasonality, particularly as you are exiting a downturn is hard to predict. And what we tried to indicate with our prepared comments is that there are signs of optimism from the standpoint of improved ordering patterns. But how that translates into the second half is hard to predict.

Michael R. Hsing:

Yes. We see AI probably still continue to grow and grow very fast rate.

Richard Schafer:

My congratulations guys, and I just had a couple of questions. The first one just since we're talking about power, and I sort of have a point in one on server CPU power. Some of the new x86 platforms that are due out later this year are pushing 500 watts. I mean is there an expectation? Just like the call you made back in 2016, maybe that was a little premature. But is there expectation that x86 is eventually going to move to 48-volt still?

Michael R. Hsing:

Yes. Okay. Now since you mentioned 2016, I can go back to earlier. 2014 we were not even -- we were outside the door, in 2016, we can join, we were invited as a guest. And we gave some tokens so you can play it. And so the transitions and from VR 13.5 to 14, then this type -- this time, when these new CPU power, we have a significant market share. That will keep -- and it's not reflected into revenue yet. And once those CPU release, we will gain a significant amount of shares.

Michael R. Hsing:

That we don't -- that's probably -- the higher powers is over 700 watts. I think those will transition to vertical powers. And -- which were ready and other ones below that, we believe, are still using a traditional rack power that came in and use 12-volt supply.

Richard Schafer:

I just was curious if you could add in there, what your expectations are from -- I know you had a couple of launches that some OEMs delayed in the second half last year, and I didn't know if you still expect it to benefit from those this year. I know that's kind of a lot in one question, but there's a lot going on in your auto business.

Ross Seymore:

Congratulations on the stability. Just a question on the visibility into the second half. I understand the caution, especially given everything going on in the broader market. But you also said that your bookings are improving, the order rates, the engagements, et cetera, et cetera. So is the visibility improving? It's just not as good as it used to be? I'm just trying to reconcile the bookings side improving, but the visibility not.

Tony Balow:

Ross, it's Tony. The only thing I'd probably add on that, right, is really focused on the design win engagement, making sure that pipeline is healthy because it's difficult to call when the market would come back. As Bernie said, it's still pretty choppy. But if we have that strong design win pipeline as well as having the supply chain diversification we were talking about, we're set to take advantage when the markets do come back.

Michael R. Hsing:

No. Outliers means like AI stuff, Yes. As I said earlier, we still -- we still see a lot of growth, okay? I mean we are getting -- try to get all the inventory ready, okay, start to go even further, okay, and they even have a lot more upside.

Genevieve Cunningham:

Our next question is from William Stein of Truist.

Michael R. Hsing:

And -- you appreciate it. We try to make it life and make it easy for you.

Tony Balow:

Yes, I'll start, and then I'll let Michael and Bernie pick up. So I think we continue to make progress on diversification of our supply chain globally. And so I think that is proceeding as planned. And I think that we're set as customers would ask for that capability that we have it ready for them right now. So I think based on what we said in the past, so I would say no change in the expectation there. So Bernie or Michael, anything you want to add?

William Stein:

Okay. Let me try a different topic. Some product types that I know have been ramping maybe over a long period of time. One is converter -- data converters, which is a category, there's -- I think there's really one very dominant supplier, but you guys have started to get into that area. And then the other is the modules that you make when these are much more complex and they have many, many chips, I think, in each one. If you can talk to us about the recent growth in those newer categories, that would be helpful color.

Genevieve Cunningham:

Our next question is from Matt Ramsay of Cowen.

Bernie Blegen:

Yes. And to follow up on your second point, it's a very content-rich environment for us. It also includes memory, for example, and the CPU process -- processor in addition...

Bernie Blegen:

An optical as well. So I think it's really too early to put limits on content availability. In fact, we're finding new areas in order to deploy.

Matthew Ramsay:

Got it. That's helpful. I know there's a lot of moving parts. I was going to kind of step back and ask a little bit about gross margin trajectory, it comes up a lot in my conversations. I know you're kind of in that 55% range. I guess, Bernie, what are the puts and takes here? I know there are big customers ramping in enterprise data and there are variables around that.

Bernie Blegen:

Sure. This is a pretty simple question. So as you know, the range that we target is between 55% and 60%. We demonstrated that during the post pandemic stimulus that our margin was able to go to the higher end of that limit. And right now, for the last couple of quarters as well as our guidance here, we've maintained a non-GAAP rate of 55.7%. And really, what will enable us to go up is a change in the mix of business.

Gary Mobley:

Congrats, and thank you for persistently seeing the expectation. Most of the interesting questions have been asked and answered, but I wanted to touch on pricing trends. I know you don't overlap a whole lot with the analog chip market leader. But clearly, they're being aggressive on price. So maybe if you can speak to the different product groups or business segments that might be affected by that? And as well, just generally speak about the pricing environments for your broad set of products.

Tony Balow:

I'll start and then let Bernie jump in, right, I think what you've heard from us in the past is that for us, because we lead on innovation and we're trying to work on the next-generation platforms and work on where we really have a differentiated advantage to our technology. We're probably less susceptible to pricing than some of the segments that are volume related or might be more mainstream. So I do know there's lots of reports out there about pricing right now. But I'd say right now, that's not impacting us in a way -- that's not impacting us in any way, and you can kind of see that in our outlook. And so Bernie will add some more on that.

Michael R. Hsing:

The cost regardless of what the margin is, we always have to -- we always drive the cost down. I shouldn't give you more than you asked, and it's a little bit from the futures. And so far, have nobody asked the question yet. We saw in the near-term market in the next couple of years, the AI truly trickle down to all applications. not only in the cars, and all -- in the sensors, all these -- in building for the phones and all kind of things trickle down to a different level. And that we see now all kind of activities is going on now.

Gary Mobley:

Thank you for that comprehensive answer. Last quarter, your distribution inventory, I think you characterized it -- I think you characterized the distribution inventory as being a little bit above the target level, what is it now? Have you been able to work that down to more of a normalized level?

Genevieve Cunningham:

Our next question is from Tore Svanberg of Stifel.

Michael R. Hsing:

Yes. Okay. That's good question, I mean, yes, that's -- I said earlier that fell into an unhealthy percentage. We want to have a diversified growth, we neglected our consumers. But on the other hand, is during this period, a lot of our competitors care less about cost. We have less effect, but we did lower the price in the notebook market segment. And that's probably you see it now, we grow the notebook revenues faster than notebook market growth. And these are low-margin products.

Tony Balow:

I'll go and Michael can certainly talk a lot more, but I'd point you back to what we announced last quarter on Axign acquisition. And we really looked at their technology and saw an opportunity to participate in the high-end audio market and MPS's scale and Axign's technology really offered an opportunity to go after customers, and we're seeing some traction in that area. So consumers got a wide base of potential applications, and I think we'll continue to pick our shots where we can sort of really add value with our innovation.

Tore Svanberg:

Yes. That's exciting. And my last question is on communications. It was actually up sequentially this quarter. Everything that we're hearing, of course, is that, that market is still very weak. In your prepared remarks, you said that, that growth was driven by networks. So can you elaborate a little bit what's going on there? Are you actually starting to see that market turning? Or is this just pure share gains?

Michael R. Hsing:

I'm betting on the communication market, it will trickle down from the speed, and demand of higher speed will trickle down all these segments. And we have a lot of design wins in 5Gs or in other high speed or Wi-Fi, and we're ready for that.

Michael R. Hsing:

That's right. Yes, it has to. That's no brainer.

Melissa Dailey Fairbanks:

Michael, I love a no-brainer. I mean -- I love that.

Melissa Dailey Fairbanks:

I'm adjusting my model accordingly. So I know you guys addressed auto earlier, and I know everyone is focused on enterprise data. But I would like to understand better, we're coming up on the model year builds for like model year 2025. I would like to know where you feel comfortable guiding the auto revenue from here?

Bernie Blegen:

So I'd like to thank you all for joining us on this conference call and look forward to talking to you again during the second quarter conference call, which will likely be in late July. Thank you. Have a nice day.

Bernie Blegen:

Thanks Gen. For the full-year of 2023 MPS achieved record revenue of $1.82 billion. This is our 12th 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 B.V. Axign is a Netherlands-based startup with early revenue, specializing in programmable multi-core digital signal processors. Axign competitive difference is its ability to deliver signals with near-zero distortion and reduce 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 continue 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 MTS'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’ total revenue in 2023, compared with 14.8% 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’ 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' 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' 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 charge 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 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 to $457.0 million. GAAP gross margin in the range of 55.1% to 55.7%. Non-GAAP gross margin in the range of 55.4% to 56.0%. Total stock-based compensation expense, including associated employer taxes of $46.2 million to $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 to $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 to $5.7 million. Fully diluted shares to be in the range of $48.8 million to $49.2 million of shares. We continue to execute the share buyback program that was announced in our Q3 '23 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.

A - Genevieve Cunningham:

Thank you, Bernie. Analysts, I would now like to begin our Q&A session. [Operator Instructions] Our first question is from Quinn Bolton of Needham. Quinn, your line is now open.

Michael Hsing:

Yes.

Quinn Bolton:

Hey, congratulations on the very stable outlook in a pretty choppy environment. Looks like the enterprise data segment was up $30 million quarter-on-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.

Michael Hsing:

But overall, the overall added -- overall, the market segment is and grow very rapidly. And we're expanding our production lines and we will meet in the second-half for the demand.

Michael Hsing:

The dollar content is -- well, it's -- as a market accelerating again, we have more -- our competitor joining and especially this rate of ramp in -- and also, we see other players, other AI players will enter the market that we are so far, we're behind whether pretty much the sole source of power solutions. And as you see the second half or sometime next year, you will see a lot of other players to be qualified or they solve their -- one of the technical problem is, okay, or the odds. So 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 at this time is not really the issue. It's all about the throughput and to meet the customer demand.

Michael Hsing:

In the next version of it is -- 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 to our customers in this quarter and the next couple of quarters.

Genevieve Cunningham:

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

Michael Hsing:

Good questions, good observation. And towards the end of the last year, it kind of -- auto slowed down. But overall, we as Bernie said earlier, we still grow some high 20%, 30% somewhere in the overall -- in the auto segment. These are mostly primary -- mostly due to the ADS the infotainment or whatever the head units, call it, the digital cockpit. And going for next year we believe we see all the activities and customers and nowadays consuming all these inventories that we shipped and in May or June period times, and now they start to have a higher volume ramp and especially in the EV side. So for this year's first part of this year.

Michael Hsing:

Right, the ramp is in the early adoption in EV is very lumpy and a different automakers and ramping in different schedules, I mean -- but overall, the trend is they will pull out more EV with more our products.

Michael Hsing:

All right. Yes. This game is always the best performers. So far, our competition, we don't -- I don't want to speak our competition. So far, in what we have, okay, and our customers can be very receptive to our solution. So far, we pretty much have a majority of the volumes. And they keep requesting it and keep requesting we solve all these issues related to their system issues, ours and issues from our side. And -- so when -- even the volume gets even bigger it's good to have another source. Otherwise, again, you don't want the MPS, they can all of them. So again, that's not what we intend to do. And so -- and also the competition in -- it's exactly like a server side. And we are the newcomer in the server market back in -- a couple of years ago, and that's how we win the market. And we had a product long before that. And we also need -- we had to dump the down to meet the common footprints. And because the power density is not high enough. And when this AI come out on the market, the common footprint is not a requirement. So we start to win a lot of -- a lot of shares. And the same is in the servers and have a very similar trend. And that's how we win the market. And 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.

Michael Hsing:

Yes, okay. We had some issues on the Stage 1s and we had some design wins and very small volumes in different systems, actually. And now we don't have -- all these issues are resolved. That will significantly gain the content. And in each AR systems.

Michael Hsing:

Yes. We had shipping these products for some of the 48-Volt systems. And also, we supply the -- we are as a supplier for chip and for the silicon, not for the modules. And now we step up the two modules.

Genevieve Cunningham:

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

Michael Hsing:

That's a great question. So otherwise, we are taking to the old AI call.

Michael Hsing:

All right. Let me answer your first question. And you said it's inactive in the M&A market. That's not true, okay? And we follow our -- well, it's not really a policy. So we follow what we do for the best for our shareholders. We don't acquire revenue. The reason is cheap to grow revenue for MPS. But we do look -- do apply technology. And so this is the -- in the past, actually, we acquired a field and financially immaterial with our shareholders. And at this time, and it's big enough, we made these disclosures. And to talking about this Axign, is the company that we work with in for three years already. And it's proven that their technology and with our power stage and there will be a huge benefit for -- in audio signal to audio amplification fields. And we have a proven in a very, very, very high-end customers and make these products as a very unique and never achieved in histories that no zero disposing signals and same to speakers. And the cost is very low. The way we achieved that. And also, we achieved a lot of programmable is also software adaptive. And that -- I see it when I listen to those sounds, it's really -- you bring audio first we put in the press release, putting audio quality to everybody's home to lower down -- really low down the cost. And that will revolutionize how we listened.

Genevieve Cunningham:

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

Michael Hsing:

Well, instead of -- well, last year, the growth is not very spectacular. It's like what is a single digit -- 1.5%. Okay. It's -- Yes, okay. But this year, I think is who knows. In last year, we didn't know until ChatGPT happened. Then the AI business took off and was out of our expectations, I mean, we didn't know. But to answer your questions to comment your question 11, what is it, 12 years, 11 years in consecutive year-by-year growth. And it's -- we follow our principles. And again, we want to -- first thing, okay, we want to make sure it’s all the product, what we deliver to our customers is the best product, best performers. And we want to beat all our competition. That's number one. Number two is, we react. We react fast, we're nimble, and we fulfill our customer demand. And that's sort of pretty simple strategy that we followed and we kind of disregarded of what the market segment does. And we don't chase those market segments. This year, who knows, okay, with one of the segments and we'll grow, but I don't expect it we'll grow as big as AI, okay? But maybe a couple of small segments happening and I do see that. And we do see that in the recent quarters and the last quarter source and we see all these orders come in and they came in as we expected, those products are truly better than our competitors.

Michael Hsing:

Yes. Okay. I think in the next couple of years, and you will see some significant growth from a different area, from a single processing and for data converters and for -- of course, we talk about today and the audio process, and which we're already designing and some consumer -- high-volume consumer market segment. And later, we're going to get into automotive and automotive business. And other ones, we have a lot of small things. A lot of other things like silicon carbides and for silicon carbide projects for green energies for solar -- and for solar inverters. And -- well, these are still kind of power management, but a lot of them, we are other power, and these are for communications. And for communications in between -- in the solar side, okay, so from the inverter side. And even the automotive side back to automotive side, and there's a lot of other communication in the -- within the car, and we'll develop those type of products. And you see MPS in the next few years will migrate out to dose a second to those segments.

Michael Hsing:

Thank you.

William Stein:

Hey, thanks. I'll add my congrats to the remarkably stable outlook. And along those lines, 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 plus growth or around 20 top line and then 10 to 20 bps 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? How would you encourage us to think about revenue growth and margins longer term?

Bernie Blegen:

And just to give people a refresh of what the model is that Will is referring to is, generally speaking, we outperformed the market by 10 to 15 percentage points and in the stable market conditions where it's growing between about 5% and 8%, it's easy to assume that would be between 15% and 20% growth. On the gross margin or range that we targeted about 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 to 15 percentage points -- or basis points on quarterly successive quarters.

Bernie Blegen:

But the market contracted 10%.

William Stein:

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 the maybe my view of the targeted sale. 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.

Michael Hsing:

We will start to build inventory.

William Stein:

Great. Thanks so much guys.

Travis Polan:

Hi, guys. This is Travis on for Gary. 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?

Bernie Blegen:

And Travis, it's an excellent question because I think to align with Michael's point 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 over the next couple three years.

Michael Hsing:

Yes, okay.

Tore Svanberg:

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 also any updates on getting to $3 and even $4 billion of revenue capacity?

Tore Svanberg:

Very good. And then the other follow-up, any updates on the e-commerce business. We haven't heard about that in a while. So I just want to make sure we check in with you and get an update there.

Tore Svanberg:

Great. Thank you, again.

Melissa Fairbanks:

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.

Melissa Fairbanks:

I noted that 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 portion of that business that we don't seem to talk about very much.

Bernie Blegen:

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 an accepted lower-margin business. And 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 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.

Melissa Fairbanks:

All right. Thanks very much, Michael, I'm sorry to bring up a sore point.

Melissa Fairbanks:

Sure. Alright thanks guys.

Genevieve Cunningham:

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

Bernie Blegen:

Sure. So what really generates interest with our 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, is it was observing for Q1 as well as for the balance of '24, 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.

Quinn Bolton:

Got it. Thank you.

Bernie Blegen:

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 will 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.

Bernie Blegen:

Thanks, Gen. MPS reported third quarter revenue of $474.9 million, 7.6% higher than the second quarter of 2023 and 4.1% lower than third quarter of 2022. Compared with Q2 2023, sales in enterprise data and storage and computing improved sequentially, while automotive, industrial and communications revenue was lower. Turning now to our third quarter 2023 revenue by market. In our enterprise data market, third quarter 2023 revenue of $98.9 million increased 106.2% from the second quarter of 2023 with sequential growth in both GPU and CPU program sales. Third quarter 2023 enterprise data revenue was up 31.4% year-over-year. Enterprise data revenue represented 20.8% of MPS' third quarter 2023 revenue compared with 15.2% in the third quarter of 2022. Storage and computing revenue of $129.5 million increased 3.9% from the second quarter of 2023. The sequential revenue improvement primarily reflected higher sales in commercial notebooks. Third quarter 2023 storage and computing revenue was up 14.7% year-over-year. Storage and computing revenue represented 27.3% of MPS' third quarter 2023 revenue compared with 22.8% in the third quarter of 2022. Third quarter consumer revenue of $62.4 million decreased 4.3% from the second quarter of 2023 as higher gaming and monitor sales were offset by declines in TV and home appliance revenue. Third quarter 2023 consumer revenue was down 30.1% year-over-year. Consumer revenue represented 13.1% of MPS' third quarter 2023 revenue compared with 18.0% in third quarter of 2022. Third quarter 2023 communications revenue of $46.8 million was down 5.1% from the second quarter of 2023, primarily reflecting lower infrastructure sales. Third quarter 2023 communications revenue was down 35.3% year-over-year. Communications sales represented 9.9% of our total third quarter 2023 revenue compared with 14.6% in the third quarter of 2022. Third quarter automotive revenue of $95.2 million decreased 8.8% from the second quarter of 2023 primarily due to lower ADAS and digital cockpit sales. Third quarter 2023 revenue was up 9.3% year-over-year. Automotive revenue represented 20.0% of MPS' third quarter 2023 revenue compared with 17.5% in the third quarter of 2022. Third quarter 2023 industrial revenue of $42.1 million decreased 15.3% from the second quarter of 2023 due to lower sales in security and industrial meter applications. Third quarter 2023 revenue was down 28.2% year-over-year. Industrial revenue represented 8.9% of our total third quarter 2023 revenue compared with 11.9% in the third 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 were oscillating within the overall market. This environment persisted through Q3. We continue to see some orders getting delayed or amended by pull-in requests. This lack of short-term visibility continues to make forecasting beyond the next quarter difficult. However, as we said in our last call, our business fundamentals remain unchanged. Our design win pipeline and customer base expanded tremendously, particularly amongst Tier 1 accounts. Additionally, we continue to innovate and have a strong design win pipeline position us well for future growth. Moving now to a few comments on gross margin. GAAP gross margin was 55.5%, 60 basis points lower than the second quarter of 2023 and 320 basis points lower than the third quarter of 2022. Our GAAP operating income was approximately $135.6 million compared to $112.3 million reported in the second quarter of 2023. Non-GAAP gross margin for the third quarter of 2023 was 55.7%, down 80 basis points from the gross margin reported for the second quarter of 2023. The quarter-over-quarter decrease in both GAAP and non-GAAP gross margin is attributed largely to an unfavorable product mix. Our non-GAAP operating income was $167.8 million compared to $153.1 million reported in the second quarter of 2023. Let's review our operating expenses. Our GAAP operating expenses were $128 million in third quarter of 2023 compared with $135.4 million in the second quarter of 2023. Our non-GAAP third quarter 2023 operating expenses were approximately $96.6 million, essentially flat with what we saw in each of the first two quarters of 2023. The differences 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 third quarter of 2023, stock compensation expense, including approximately $1 million charged cost of goods sold, was $33.6 million compared with $38 million recorded in the second quarter of 2023. Switching to bottom line. Third quarter 2023 GAAP net income was $121.2 million or $2.48 per fully diluted share compared with $99.5 million or $2.04 per share in the second quarter of 2023. Third quarter 2023 non-GAAP net income was $150.3 million or $3.08 per fully diluted share compared with $137.5 million, or $2.82 per fully diluted share in the second quarter of 2023. Fully diluted shares outstanding at the end of Q3 2023 were $48.8 million. Now let's look at the balance sheet. Cash, cash equivalents and investments were $1.04 billion at the end of third quarter 2023 compared with $941.1 million at the end of the second quarter of 2023. For the quarter, MPS generated operating cash flow of approximately $175.9 million compared with Q2 2023 operating cash flow of $90.2 million. Accounts receivable ended the quarter of 2023 at $185.8 million, representing 36 days of sales outstanding, which was one-day higher than the 35 days reported at the end of the second quarter of 2023. Our internal inventories at the end of the third quarter of 2023 were $397.3 million, down from $427.4 million at the end of the second quarter of 2023. Days of inventory of 171 days came in at the end of the third quarter of 2023 were 30 days lower than at the end of the second quarter of 2023. Comparing current inventory levels with following quarter's projected revenue, you can see days of inventory decreased to 180 days at the end of the third quarter of 2023 from 184 days at the end of the second quarter of 2023. I would now like to turn to our outlook for the fourth quarter of 2023. We are forecasting Q4 revenue in the range of $442 million to $462 million. GAAP gross margin in the range of 55.2% to 55.8%. Non-GAAP gross margin in the range of 55.4% to 56%. Total stock-based compensation expense in the range of $32.2 million to $34.2 million, including approximately $1 million that would be charged to cost of goods sold. GAAP operating expenses between $127.1 million to $131.1 million. Non-GAAP operating expenses in the range of $95.9 million to $97.9 million. This estimate excludes stock compensation expense but includes litigation expense. Interest and other income in the range from $4.1 million to $4.5 million before foreign exchange gains or losses. Fully diluted shares in the range of 48.7 million to 49.1 million shares. We are also pleased to announce that our Board of Directors has approved a share buyback program for up to $640 million over the next 3 years with the goal of offsetting future dilution. In conclusion, while we expect visibility to remain limited in the short term, which was the same as last quarter, we continue to execute on the long-term strategy. I will now open the webinar up for questions.

Quinn Bolton:

Hi. Michael and Bernie, congratulations on the results and the outlook in a tough market. I guess, Bernie, Michael, the enterprise data business is very strong quarter-on-quarter. Wondering if you could just give us some thoughts as you look into next year, how you see the GPU business. And specifically, do you see sort of expansion of that customer list driving strength in GPUs? And then a question on CPU. You said CPU was up in the third quarter. Wondering if you're finally starting to see some strength in the Sapphire Rapids and Genoa side of that business? And then I have a follow-up question. Thank you.

Quinn Bolton:

Thank you, Michael. I guess a follow-up question. Bernie, I think in the script, you mentioned some pushouts, some pull-ins or expedites. I think the pull-ins or expedites maybe newer given just the overall challenging industry. Were the pull-ins specific to certain customers or end markets or are you starting to see pull-in requests across multiple end markets? Thank you.

Michael Hsing:

He's talking about which segments.

Michael Hsing:

Yes, which segments. We look at it kind of a rough surveys. Like it's actually across the entire product segment, including consumers. Some of the products, they need and pull-it in very quick. As Bernie said, the lead time is very, very short. And we don't have those products, it's pretty much across the board. And other than AI, we really planned ahead, and we really plan ahead from the beginning of the year. And we can anticipate all the ramp-up even for the next few quarters.

Genevieve Cunningham:

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

Michael Hsing:

Yes. Q4 is still down quite a bit from Q3 and pretty much everything except maybe not auto. I mean all the public sideways are maybe is slightly up and also that AI power still continuously ramp up.

Michael Hsing:

And pretty much AI and auto and everything else is pretty much muted, yes.

Michael Hsing:

I can tell you, overall, how the MPS strategies. Like the MPS strategy always get the best -- which provides the best performance. When the volume gets higher and requirement is lower, we don't chase those low-end segment. I see MPS is still in the forefront in terms of best efficiencies and the lowest generate heat in smallest areas. We are still the leading -- would be next year and the year after, all these products are eyeing in development with our customers and with the leading-edge -- leading providers in AI GPUs specifically. And that's a huge market, and we don't want to take all of them. And to your other part of the question is the general market. In general market, in other segments, we view CPUs. And you'll remember in the VR13, we didn't have a lot of design wins. But we put up a lot of inventories in the VR13.5, it became a serendipity. And again, we have a few project design win and other supply -- but we ship a lot. So that's where you see the server data center growth. That's because of that. And for next years, we were told to get ready to have those projects ramping up in a rapid supply, let's call it. And so when these markets are already ramping up, MPS are there.

Michael Hsing:

Oh, yes. That's what I forgot, while I tried to make a point. And MPS doesn't want to be known as AI power company. We want to focus on the diversified growth. And we do have a lot of greenfield products still haven't realized yet. These are across the segment. And also in the consumer side, in the last years, okay, because last couple of years because the shortages we kind of neglect it. And that will -- in the last half years, we developed a low-cost product and we introduced the market where you'll see the growth. That's only on the -- because of very short design cycle, you will see revenue from next year. And all the other product like industrials, automotive, in tracking inverters, in chargers and also ADAS, these were ramping up. And so we want to achieve very diversified growth, not only on the AI side.

Genevieve Cunningham:

Our next question is from Ross Seymore of Deutsche Bank. Ross, your line is now open.

Michael Hsing:

Yes. Hi, Ross.

Michael Hsing:

Yes. Well, the numbers kind of reflected seasonal, but the reality is it just happened that way, we can't call it seasonal. This is a fast-changing market, I mean, it's very difficult for us to forecast. That's difficult. Unfortunately, we have a lot of capacities. But these capacity were still the lead time still shorter than our production cycle and we have to get ready just that.

Michael Hsing:

Yes. Also, I forgot to mention about it. And we talked about beginning of the year, we'll be aggressive on price and especially within the course of board. And then we have a new product in the consumer segment come out -- already came out. And also in a notebook area, we pretty much have a large market share in the commercial side. In the beginning of the year, we were very starting -- become very aggressive on the price. And now, fourth quarter, you see it in our notebook side start to gain more shares in the consumer side.

Michael Hsing:

Sure. Well, consumer notebook, margins are very low. But it's an easier money to be made.

Ross Seymore:

And has that pricing dynamic, is that starting to kind of normalize from here? Or is that an incremental headwind that we should consider going forward?

Michael Hsing:

Yes. You said product mix, right? But also, there's other capacities, and capacity utilizations in [indiscernible] and also add a lot of capacity cost for us. So it's a mix of all of them, not only the product mix.

Genevieve Cunningham:

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

Michael Hsing:

Let me answer your first for silicon cover. Thanks for reminding me this. I almost forgot. Yes, we released the product. And first revenue, we'll see sometime in the next years, would be in the solar inverters. And the green energies had a lot of demand, we have got products we designed for those -- that market segment and will start to ramp and also in automotive. And these are not specifically for tracking inverter for these drivers. We do power management. And we will see those products designed and ramping up much later. I mean these are clearly in the dip -- there's a void in the market. No other company produces that kind of a product, and it became very unique. And so I have a very good confidence in the second half of next year, the year after. We will see a lot of new revenue coming from that segment. And what's the second questions, second part of the --

Michael Hsing:

Oh, the hyperscaler. Hyperscaler is now -- you guys know better than we do. We just only provide the power. So I can mean that, for the CPU side, GPU side, as we said earlier, VR14, we expect to have bigger shares. And if you refer to silicon carbide in that we will develop those products. Those are power supplies. And again, these are plug-and-play power supply, and these are large modules. And that will ramp up -- I don't have a time frame. Probably is towards the very end of the next year, the 2025.

Bernie Blegen:

Yes. I would not be too quick to jump to the high 50s in the near term here. I think that what we've said previously is that we expect for the next few quarters to stay within our model, targeting about 56% plus or minus 50 basis points. And then, as we look at the second half of next year, as things stabilize and we get a better mix that we should see return to have an incremental improvement.

Bernie Blegen:

Yes. On the capacity, and I'll take this topic on because it's an important one as we look ahead, is we talked about a year ago as far as developing new relationships with fab partners, particularly in Taiwan and Singapore as we not only expand capacity in advance of a future upswing in demand but also to diversify by geography. And so those investments are adding to our overall cost profile more in the R&D side than in gross margin specifically today, but that capacity will become available here just as we see the second half of next year starting to --

Bernie Blegen:

Yes.

Bernie Blegen:

Yes, not yet.

Rick Schafer:

Thanks for all the color guys.

William Stein:

Great. Thanks for taking my question. I'm hoping Michael, you talked about traction in design wins that will turn into revenue over the next several quarters and years. It sounds like you've been very busy with these, as you always are. And often, that means you can see sort of what's coming a little earlier in terms of where the revenue might shift in terms of the end markets and products and that sort of thing. So when you think about the bigger design wins, either the bigger volume runners or the bigger ASP drivers, is there a shift either in end markets or in mix, let's say, for modules or motion control or things like that? Any other shifts in the revenue mix that we should expect because of these design wins that have yet to ramp?

Bernie Blegen:

Earlier versions.

Bernie Blegen:

2024.

Bernie Blegen:

And in addition, just to repeat sort of the opportunities that we talked about in both green energy, clean energy and as well as in DDR5. So there's a large number of products that are expected to ramp here very quickly for us.

Michael Hsing:

We reduced the overall inventories that came in starting at the beginning of the year. That's probably reflects that. And yes, and it doesn't mean we will keep that low. We will boost that up more.

William Stein:

Thanks, guys.

Matt Ramsay:

Thank you very much. Good afternoon, guys. Michael, I wanted to dig into the automotive market a bit and understand the drivers of the business over the next several quarters. I think you guys have some very exciting new content with one of the leading EV OEMs in the States and obviously some really good content with a number of folks in Asia. So if you could try to help us break down what your expectations are for the drivers of your automotive business over the next, I don't know, 6, 9 months relative to some, I'd say, fluctuations in unit expectations from some key customers, I'd really appreciate it. Thanks.

Bernie Blegen:

And if I can just add to that, that a lot of the customers that are picking up on design wins are skewed more heavily to EVs that are inviting new technology platforms. And that market has slowed in unit volumes observed. But the exciting part of this story is that we see that new platform launches for those customers are in position to ramp in the first half of next year. And we're seeing a proliferation of a broadening of those technologies going into more traditional internal combustion, or IC brands. So I think that the automotive market, while it's difficult to time that our positioning is very secure.

Bernie Blegen:

We'll see, we'll see.

Michael Hsing:

The strategy is correct. And as in the last quarter, I said like has dropped to unhealthy positions, way too low. And there's a lot of money to be made. And margin may be lower but it helped the EPS a lot. So the second question is whether we have enough product? We did a lot of them, and that came in last 0.5 years. And other ones will release in next couple of quarters and our next quarter also, and those will turn into revenues in the 0.5 year to 9 months' time.

Michael Hsing:

Absolutely. Okay.

Genevieve Cunningham:

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

Bernie Blegen:

Yes. So I'd like to comment on that very quickly is that when we looked at doing the buyback, we were demonstrating confidence in our free cash flow over the next 3-year window. And the goal here is to offset dilution that will naturally occur during that period of time. So we're going to apply a go-to-market strategy that is both opportunistic but also programmatic. So we don't have a timetable necessarily for how to implement it during that period, but it will reflect both existing market conditions as well as a systematic program.

Tore Svanberg:

Yes, that's very helpful. The other follow-up, and I know this is a minor detail, but your lighting control business was up quite a bit in the quarter. Was that mainly because of notebook, or was there something else going on there?

Bernie Blegen:

I'm sorry, Tore, you broke up a little bit. Were you talking about storage and computing?

Michael Hsing:

No, these are decorate lighting. We don't have a lot of consumer business anymore. But these are small numbers, okay? I mean I don't know that specifically, but I do know we don't have a lot of consumers because these are really, really low price. These are industrial lightings and decorative lighting.

Michael Hsing:

Lighting, he said.

Michael Hsing:

Yes.

Michael Hsing:

I don't know it specifically, but that's the market where we're in. We will position ourself. We're not specifically in the consumer and in high volumes.

Michael Hsing:

Yes. You're right.

Bernie Blegen:

Just closing here, I'd like to thank you all for joining us this webinar and I look forward to talking to you again during the fourth quarter, which will likely be at the end of January. Thank you. Have a nice day.

Bernie Blegen:

Thanks, Gen. 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' 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 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' 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' 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' 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. Communications sales represented 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 earning 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] (ph) 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 highlights -- 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 $3.00 per fully diluted share in the first quarter of 2023. Fully diluted shares outstanding at the end of Q2 2023 were 48.8 million. Now, 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 two 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 three 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 decreased 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 to $484 million; GAAP gross margin in the range of 55.5% to 56.1%; non-GAAP gross margin in the range of 55.7% to 56.3%; total stock-based compensation expense in the range of $33.5 million to $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 to $98.9 million, this estimate excludes stock compensation expense, but includes litigation expense; interest and other income in the range of $3.0 million to $3.4 million before foreign exchange gains or losses; fully diluted shares in the range of 48.6 million to 49.0 million shares. In conclusion, we continue to execute our long-term strategy. I will now open the webinar for questions.

Ross Seymore:

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? And is there any changes in things like competitive intensity, pricing, geographic differences? Any color, a little bit more detail than what you gave on your original preamble?

Michael Hsing:

Let me add, too. We do see a slight improvement in first quarters, and essentially, it's similar. And we do see the consumer business improvement and -- from both -- from U.S. [side] (ph) to Asia side, and other ones, pretty much stay the same.

Michael Hsing:

Yes, you already answered your -- all your questions there. We don't see -- we are -- all the products relate to -- with the AI, like, we cannot ship enough now. And the other ones -- other part of enterprise data, it's like data centers, CPU powers, and these are still delayed.

Ross Seymore:

Thanks, guys.

Quinn Bolton:

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 maybe 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 about the impact of multi-sourcing with that customer? And maybe a related question, how are you feeling about your position looking into the next generation 3-nanometer processor at that customer? And then, I've got a follow-up. Thanks.

Bernie Blegen:

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

Quinn Bolton:

Thank you, Michael. Bernie, you'd mentioned sort of visibility out beyond 90 to 120 days is pretty choppy at this point just given the industry dynamics. 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 for investors to think that the December quarter is going to see a -- sort of a seasonal decline in the December quarter? Thank you.

Michael Hsing:

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

Genevieve Cunningham:

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

Michael Hsing:

Yeah, that [we saw] (ph) delay a little bit, but we will reintroduce to resampling and announce, and it was a delay due to the technical issues. And so, as speaking right now, we have resampled it. And mostly, it's in automotive and also data centers. And same as we mentioned earlier, the silicon carbides and -- these are product that we'll start to sample.

Michael Hsing:

Yes. Okay. I believe that's our future. And when customers want to have a plug-in-play solutions and they want a less technically involved with power management, and that's -- module solution is the way to go. People doesn't want to buy ICs, design all of -- all these up -- the component. And, initially, that's where we're ramping a lot of them in the auto business, in the industrials, that can be an industrial site, and as well as a telecom, and -- or even semi equipment. And a lot of -- I can give -- go on and on, like, a lot of things to be mentioned. But most of all these products is not price sensitive, and they're not volume consumer-related product. And so, this is still at the very beginning. We have all these customer base, and we have all the new product coming out, and we'll see the similar growth rate in next few years.

Genevieve Cunningham:

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

Michael Hsing:

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

William Stein:

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 had nearly 50% revenue growth last year. I think there's a lot of -- 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?

William Stein:

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

William Stein:

Great. Thank you.

Matt Ramsay:

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

Matt Ramsay:

Awesome. So, I guess for my first question, Michael, we've -- you and I've had some conversations about the company strategically wanting to sort of rebuild the consumer business as a percentage of revenue over time and get it back to a higher level than it's been now. I guess 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 sort of reemphasize your company and certain parts strategically of that consumer segment. Thank you.

Matt Ramsay:

Thanks, Michael. I think as my follow-up question, I wanted to really focus on the enterprise data segment just because that's where a large percentage of my investor questions come from. And I think there's two dynamics going on here, right, the strength of the AI business with your lead customer there, and some softness in the CPU market that's well documented. And so, 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? And do you have any visibility into the timing of a potential reacceleration of that segment? And how long is that visibility? Thanks.

Bernie Blegen:

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

Bernie Blegen:

Multiple customers.

Genevieve Cunningham:

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

Michael Hsing:

Yeah. As we stated it earlier, many of our customers requested move out of China. And now we kind of achieved more than 50%. We can have more than 50% of our capability out of China. And so, the overall capacities, we don't have it. Problem now is, we have more inventories, and we want to sell more from our inventory. And -- does that answer your questions?

Genevieve Cunningham:

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

Bernie Blegen:

Sure. 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, but it's still not to the degree that we historically enjoyed in either 2018 or 2020, just to pick 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. And so, 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. So, we're seeing steady improvement, but we're still not at the level yet where we have that predictability.

Michael Hsing:

Well, you're mentioning of pricing, of course, all these material costs is a much lower than -- or go back to normal, I should say, to -- as pre-pandemic. And so, in terms of a capacities, look, I didn't mention earlier, we want to expand out of China, that's from our customers' request. And the other one is we want to expand it because just for our next couple of years' growth. And mostly, we we're still in a -- follow our long-term plan, and we invest, of course, now which will slow down a little bit in the next few quarters, and -- but over the long term, so we should spin -- we should continue the course.

Genevieve Cunningham:

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:

Thanks, Jen. MPS' first quarter revenue of $451.1 million came in about as expected, 19.4% higher than the first quarter of 2022 or 1.9% lower than revenue reported in the fourth quarter of 2022. Our results for the quarter were mixed with weaker quarter-to-quarter demand in our enterprise data and industrial markets, overshadowing improvements in consumer and automotive. Let's take a quick look at our first quarter 2023 revenue by market. First quarter 2023 consumer revenue of $63.4 million increased 19.5% from the fourth quarter of 2022. First quarter 2023 revenue was down 20.8% year-over-year. Consumer revenue represented 14.8% of our first quarter 2023 revenue compared with 21.2 -- a 21.2% contribution in the first quarter of 2022. First quarter 2023 automotive revenue of $105.3 million increased $8.0 million or 8.2% from the fourth quarter of 2022. This sequential revenue increase was primarily due to continued acceptance of our highly integrated solutions for advanced driver assistance systems, the digital cockpit and lighting applications. First quarter 2023 revenue was up 93.1% year-over-year. Automotive revenue represented 23.3% of MPS' first quarter 2023 revenue compared with 14.4% in the first quarter of 2022. First quarter 2023 Communications revenue of $67.9 million rose $3.6 million or 5.6% from the fourth quarter of 2022. This quarter-over-quarter increase primarily reflected a modest revenue improvement in 5G infrastructure. First quarter 2023 revenue was up 22.2% year-over-year. Communications revenue represented 15.1% of MPS' first quarter 2023 revenue compared with 14.7% in the first quarter of 2022. In our storage and computing market, first quarter 2023 revenue of $119.8 million was essentially flat with revenue recorded in the fourth quarter of 2022, as declining storage revenue was offset by higher notebook sales. First quarter 2023 revenue was up 24.1% year-over-year. Storage and computing revenue represented 26.6% of MPS' first quarter 2023 revenue compared with 25.6% in the first quarter of 2022. First quarter 2023 Industrial revenue of $47.5 million decreased $8.6 million or 15.3% from the fourth quarter of 2022. This quarter-over-quarter decrease was due to lower security and power source revenue. First quarter 2023 Industrial revenue was down 2.2% year-over-year. Industrial revenue represented 10.5% of our first quarter 2023 revenue compared with 12.9% in the first quarter of 2022. In Enterprise Data, first quarter 2023 revenue of $47.2 million decreased $21.3 million or 31.1% from the fourth quarter of 2022 due to broad-based weakness in data center spending. First quarter 2023 revenue was up 10.9% year-over-year. Enterprise data revenue represented 10.5% of MPS' first quarter 2023 revenue compared with 11.2% in the first quarter of 2022. I'd like to share some general business observations. During our 2 most recent earnings calls, we highlighted that customers were becoming more concerned with near-term business conditions and that ordering patterns might oscillate. This behavior continued through the first quarter of 2023. However, we do see order acceleration for products related to artificial intelligence, autonomous driving, and power modules, and our customer engagement and design win momentum remains strong across all of our markets. Regarding operating expenses, we continue to invest in our operations to support long-term growth. In response to customer concerns, we are expanding and geographically diversifying both our global production, operations and our R&D activities. In summary, we have strong customer engagement, design win momentum and are continuing to invest for the long term, even though timing of the revenue ramp from our customers remains uncertain. Moving now to a few comments on gross margin. GAAP gross margin was 57.4% and 80 basis points lower than the fourth quarter of 2022 and 60 basis points lower than the first quarter of 2022. Our GAAP operating income was $124.3 million compared with $136.9 million reported in the fourth quarter of 2022. For the first quarter of 2023, non-GAAP gross margin was 57.7%, 80 basis points lower than the fourth quarter of 2022 and 60 basis points lower than the first quarter of 2022. This downward pressure on gross margin is expected to continue near term as we work through higher value inventory built up during the supply-demand imbalance following the pandemic. Our non-GAAP operating income was $164.1 million compared to $174.1 million reported in the fourth quarter of 2022. Let's review our operating expenses. Our GAAP operating expenses were $134.5 million in the first quarter of 2023 compared with $130.9 million in the fourth quarter of 2022. Our non-GAAP first quarter 2023 operating expenses were $96.0 million up from $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. For the first quarter of 2023, total stock compensation expense, including approximately $1.1 million charge to cost of goods sold, was $37.0 million compared to $35.3 million reported in the fourth quarter of 2022. Switching to the bottom line. First quarter 2023 GAAP net income was $109.8 million or $2.26 per fully diluted share compared with $119.1 million or $2.45 per fully diluted share in the fourth quarter of 2022. First quarter 2023 non-GAAP net income was $146 million or $3.00 per fully diluted share compared with $154 million or $3.17 per fully diluted share in the fourth quarter of 2022. Fully diluted shares outstanding at the end of Q1 2023 were $48.7 million. Now let's look at the balance sheet. Cash, cash equivalents and investments were $919.1 million at the end of the first quarter of 2023 compared to $739.6 million at the end of the fourth quarter of 2022. For the quarter, MPS generated operating cash flow of about $218.8 million compared with operating cash flow of $52.2 million in the fourth quarter of 2022. First quarter 2023 capital spending totaled $8.9 million. Accounts receivable ended the first quarter of 2023 at $184.3 million or 37 days of sales outstanding, up 1 day from 36 days at the end of the fourth quarter of 2022. Our internal inventories at the end of the first quarter of 2023 were $430.8 million, down from $447.3 million at the end of the fourth quarter of 2022. Days of inventory decreased to 204 days at the end of Q1 2023 compared with 212 days at the end of fourth quarter of 2022. Comparing current inventory levels with the following quarter's projected revenue, you can see days of inventory decreased to 203 days at the end of the first quarter of 2023, from 212 days at the end of the fourth quarter of 2022. I would now like to turn to our outlook for the second quarter of 2023. We are forecasting Q2 revenue in the range of $430 million to $450 million. We also expect the following

Tore Svanberg:

I was hoping you could elaborate a little bit more, Bernie, on your comment about the business conditions. Because it sounds like the design win momentum is still very strong. The activity is very strong, but you also sort of added there was uncertainty in certain ramps. So maybe you could elaborate a little bit on that, especially when thinking about the second half which seems to be a period where the industry could potentially recover.

Bernie Blegen:

And I think Michael has really laid out a very compelling case as far as the growth that we've experienced over the last 3 years, and also identifying that the automotive market remains solidly intact, but particularly in Enterprise Data with the exception of AI that we are seeing lag in ordering patterns there and general weakness in our other markets. So I think the thing to reinforce here is that the business model here remains intact. We've built MPS around sustainable growth over the long haul. And right now, we're looking at a quarter where the end customer demand is not picking up as well as we might have anticipated a quarter or 2 quarters ago. But again, the business model is intact.

Bernie Blegen:

Sure. And the good news here is that cycle times and pricing both in the fab, the assembly houses are coming down. And so we'll be able to participate in the lower cost after we burn down the inventory, which is currently at about 203, 204 days. So I would expect that we'll see a downward pressure on margins through Q2 and Q3, and then perhaps a moderation leveling in around Q4.

Michael Hsing:

Yes. I might as well add, clearly, we see -- we go into a downturn situation and gave me and -- we don't know, I guess, some segment will grow in MPS because of very diverse companies and some area would be still good. And in general, the consumers and they get products and even some notebook may come back in the second year. And the point is I'll try to make is regarding to gross margins, and as you know in the past, when the industry starts to slow down, and again, MPS will be more aggressive in price. And to gain more consumer segment of the market because it can do 6 months later, when you turn the knob, we actively pursue those products 6 months later, those are fast design cycles, and you will turn the knob in the revenues in about 6 months' time. So we care less about the short-term gross margins, but the long-term gross margins is still the same. So we emphasize and as you know, in the last 10 years or so, and we'll still pursue those models. And in the consumer segment, we may -- we made just a short -- focus on in the short term to grow the -- to maintain the growth.

Nathaniel Bolton:

I guess I wanted to follow up on Tore's question. Really, Michael and Bernie, as you look into the second half of the year, that's normally a seasonally stronger period for the company. Obviously, it feels like there are lots of puts and takes, lots of uncertainty, customers delaying product ramps. But can you give us any sense how you're thinking about the second half of the year? Will you see sort of a normal seasonal uptick in September? Or are you thinking September could be flattish with kind of the 1Q, 2Q run rate? Any additional color would be helpful just to try to think about the second half.

Michael Hsing:

Yes. I think we can't say really like a normal seasonality anymore. I mean we -- we experienced in the past. And you have some segments that grow really well. I mean some segments hit kind of a bottom that came last Q3, last year, Q4, especially like a notebook side. I mean now you see okay, it's a wakening up. I mean, MPS has won orders in design as those reference designs and we have the power -- the power solutions -- and we will see, second half, mostly all the other reservoir business, other than AI, automotive, we don't -- we have no clear views. And so that's the short term.

Michael Hsing:

Absolutely. I confidently say that. I mean, because we see all these projects has not really fully ramped yet. In all the data centers, clearly, you guys know better, I mean now slowed down dramatically. I don't know whether they overexpanded last couple of years and now slowed, take a pause, okay? We don't have clear views. And what we know from last quarter to Q1 -- or Q4, Q1 to now, and they kind of slowed down.

Michael Hsing:

Yes, yes. That's I didn't add that part. The GPU part came in the AI side, we have a current design win and as well as the next design, and the futures we will release end of the year or next year. And those were MPS product will ramp to this. Earlier, I referred to is that all these data centers, CPU powers or data center power overall, and we still have maybe just -- if it's not a single digit, just barely double-digit market shares. And a lot of -- and from a transition from a VR13 to 14, and it's not completed yet. We won a lot of design wins in VR14 and it will turn into revenues.

Matthew Ramsay:

Guys, I wanted to ask, I guess, a two part question on gross margin, and this is sort of -- you guys have been in -- gone from sort of 54, 55, 56 on that steady cadence of 10 to 20 basis points a quarter, and that was amazingly steady. And then during the period of supply-demand imbalance, we jumped up to 58 or so, and now we've come back in and you guys discussed that in the short term. But as you look out over the next 2, 3 years and you think about the strategy to be aggressive and grow, and contrast that to some of the opportunities that you have for new design wins and higher content, maybe you could level set us on the long-term gross margin. Has anything changed there? And where is the new normal? And I guess the second part of that thought, guys, is, have you seen any specific price pressure in any markets as some of your competitors maybe get more supply?

Bernie Blegen:

And I think just to polish off the comment there is that as far as our model, we've been operating over the last several years between 55% and approaching 60% as far as a non-GAAP gross margin. And as we introduce these higher-value products, they tend to have higher margins. And what that allows us to do is then manage the mix of business such that we stay within our model. So while we sort of anticipated in the near term downward pressure with a flattening here in the next 3 to 4 quarters, we'll continue to look to be opportunistic and managing gross margin to accelerate revenue growth.

Bernie Blegen:

Sure. I think that we said earlier in the call...

Bernie Blegen:

So I think to sort of make a simple point on it is that automotive continues to be doing very well. And there, it's both the market itself as well as the share gains that we're enjoying. I said earlier that Communications is lumpy and the other areas, including Storage and Compute, Enterprise Data and Consumer and Industrial are sort of flattish for the near term.

Operator:

Our next question is going to be from Rick Schafer of Oppenheimer.

Michael Hsing:

Okay. Let me answer my part first, and I'll get in...

Michael Hsing:

On the landscape is okay, I truly okay, says we don't -- we see some competition in the game. I think our products remain the best so far. And so that's why we have -- and we do see some other competition, maybe as a generation of later that came in. As that market segment grows, and the competition will come. I mean the market is too big for MPS. And we welcome other people. And we welcome the cooperations. As a matter of fact, that's what we're doing and not, okay? And -- as MPS is not big enough for that market. And -- but we will be glad to be leaders.

Richard Schafer:

And for my follow-up, I'd love to ask you about 5G band. I know you guys have said in the past you're selling to the big 3 RAN equipment OEMs. I'm just curious how you would describe the ramp there in terms of content, in terms of share? And what I am trying to do is get a sense of how big 5G is now versus how big it could be for you guys. And to something you mentioned earlier, Bernie, I'm just really curious here, could the ramp in 5G sort of smooth some of that lumpiness you described in your comm segment?

Michael Hsing:

Yes, and immediately now, I keep saying MPS is a small company, but we're not nobody anymore. And we engage with all these customers -- these 5G makers and it's only a handful of a companies as speaking now. So we're in the process of signing on the contract now. And so all of these -- okay, and it's just a matter of time.

Ross Seymore:

Can you hear me?

Ross Seymore:

How about the channel inventory. We've heard a bunch of companies talk about the channel coming down, and that's a headwind to revenue growth. I know you guys proactively manage that. So you put it on your own balance sheet, but what's the channel looking like?

Bernie Blegen:

Yes. About 3 quarters ago, we saw an increase in channel inventories, and they've remained at about that same level. So there isn't any real new news as far as the sell-through characteristics.

Michael Hsing:

No, we want to go lower and we want to lower and particularly in the first quarters and a lot of customer threatens and get much higher volumes, okay? That's why we shipped and now they have a break. And so as a result, inventory didn't decrease that much in the channel.

Bernie Blegen:

Yes. The way to look at another aspect to this is that the inventory in the channel, it depends on what our end customers' lead times are. And as we even commented on in the prepared comments, we're seeing a very unusual demand pattern in that we have 3 areas where we're seeing an acceleration as far as the ordering pattern. But they're doing it with a very -- an expectation of having a very short lead time. So as Michael said earlier, that the channel is built up in the anticipation that the customers were going to realize the sales gains with the new products, but as those have been pushed out, that's left us in this position. So we're going to continue to manage the channel as we always have. But right now, as I said, it's at an elevated level.

Michael Hsing:

Yes, you can see as a normal because the consumer market hasn't happened yet. We reduced -- we downed to the big percentage now, okay? And mostly it's a high-value inventory.

William Stein:

Regarding something you just spoke about a moment ago, you spoke about elevated inventory and push outs of projects. I think obsolescence risk is relatively small for Monolithic, but maybe you can reassure us on that matter.

William Stein:

Great. And then like to sort of ask a double question about supply and your supply base. Other analog companies have talked about how their foundries are absolutely not cutting cost and they never see it happening, but you've highlighted this trend in your business. Is it because you're on more advanced nodes and so that's just how sort of pricing in that market works? And then maybe you could also comment on the manufacturing plan, both in terms of long-term capacity and geographic diversity.

Operator:

[Operator Instructions]. As there are no further questions, I would now like to turn the webinar back over to Bernie.

Bernie Blegen:

Thanks, Gen. For the full year, 2022, MPS achieved record revenue of $1.79 billion, growing 48.5% from the prior year. This is despite industry-wide supply chain capacity constraints. This performance represented consistent execution against our strategies and having more Tier 1 customers recognize MPS for advanced technologies, product quality and excellent customer support. Here are a few highlights from 2022. We introduced a new product line of isolated power modules for applications exceeding 1 kilowatt with a fully integrated controller, isolator and power devices. Our initial revenue ramp for this highly integrated and reliable solution is targeted for 2024. These modules are critical building blocks for power management applications for data centers, EVs, plug-in traction inverters, EV chargers, solar power, wind turbines, battery power storage and other industrial applications. Our products are designed to set the industry standard for these critical system-level applications. MPS’ first advanced data converter products for high precision industrial and medical applications were made commercially available during 2022, and we expect to have an initial revenue ramp in 2023. We continue to diversify our global footprint in the expansion of our R&D centers, supply chain partnerships and facilities outside of China to better match our resource distribution with our customers’ geographic demand profile. With our global presence, we believe MPS is in a strong position to support our customers worldwide. Turning to our full year 2022 revenue by market segment compared with 2021. Enterprise Data revenue was up 116.1%, Storage and Computing revenue up 76.8%, Communication revenue up 53.2%, Automotive revenue up 46.8%, Industrial revenue up 18.6% and Consumer revenue up 13.2%, demonstrating broad-based full year 2022 revenue improvement. Full year 2022 Enterprise Data revenue grew $135.1 million over the prior year to $251.4 million. This 116.1% increase is primarily due to higher sales of our power management solutions for cloud-based CPU and GPU server applications. Enterprise Data revenue represented 14.0% of MPS’ total revenue in 2022, compared with 9.6% in 2021. Storage and Computing revenue for 2022 grew $196.7 million over the prior year to $452.6 million. This 76.8% increase primarily resulted from strong sales growth for storage applications and enterprise notebooks. Storage and Computing revenue represented 25.3% of MPS’ total revenue in 2022, compared with 21.2% in 2021. Communications revenue grew $87.4 million to $251.5 million. This 53.2% improvement reflected higher sales of products for both 5G and satellite communications infrastructure applications. Communications revenue represented 14.0% of our 2022 revenue compared with 13.6% in 2021. Automotive revenue grew $95.7 million to $300.0 million in 2022. This 46.8% year-over-year gain primarily represented increased sales of our highly integrated applications supporting automated driver assistance systems, the digital cockpit and connectivity. Automotive revenue represented 16.7% of MPS’ full year 2022 revenue compared with 16.9% in 2021. Industrial revenue grew $34.4 million to $218.2 million in 2022. This 18.6% year-over-year increase primarily reflected higher sales in applications for smart meters and industrial automation. Industrial revenue represented 12.2% of MPS’ full year 2022 revenue compared with 15.3% in 2021. Consumer revenue grew $37.2 million to $319.5 million in 2022. This 13.2% year-over-year increase primarily reflected increased product sales for home appliances and smart TVs. Consumer revenue represented 17.8% of MPS’ full year 2022 revenue compared with 23.4% in 2021. Let’s talk about the general business conditions. During our Q3 2022 earnings call, we highlighted that customers were becoming more concerned with near-term business conditions and order patterns might oscillate in the near future. As a result of this change in ordering patterns, we indicated that our inventory levels would likely catch up to our target of 180 to 200 days and possibly be higher in the near-term. During the quarter, ordering patterns stabilized as customers requested push outs slowed. While this is positive, customers’ orders are still trending below historic norms. In our Q4 2022 inventory is above our target levels. As a result, we remain cautious about near-term business conditions. We also believe MPS can swiftly adapt to market changes as we have done so successfully during similar macroeconomic changes in the past. Switching to Q4. MPS had a record fourth quarter with revenue of $460.0 million, down 7.1% from revenue generated in the third quarter of 2022, but up 36.7% from the comparable quarter of 2021. On a year-over-year basis comparison by market segment, fourth quarter 2022 revenue for automotive grew 72.8%. Enterprise Data revenue increased 69.0%. Storage and computing revenue grew 55.0%. Communications revenue grew 40.1%, and industrial revenue grew 13.3%, while consumer revenue decreased 20.1%. Fourth quarter 2022 GAAP gross margin was 58.2%, down 50 basis points from third quarter 2022 with 60 basis points higher than the fourth quarter of 2021. Our GAAP operating income was $136.9 million compared to $151.9 million reported in the third quarter of 2022 and $78.6 million reported in the fourth quarter of 2021. Fourth quarter 2022 non-GAAP gross margin was 58.5%, 50 basis points below the third quarter of 2022, but 60 basis points higher than the fourth quarter of 2021. The year-over-year expansion in fourth quarter non-GAAP gross margin was largely due to a shift in sales mix favoring high-value greenfield products and operational efficiencies, which more than offset higher product input costs. Our non-GAAP operating income was $174.1 million compared to $193.7 million reported in the prior quarter and $102.0 million reported in the fourth quarter of 2021. Let’s review our operating expenses. Our GAAP operating expenses were $130.9 million in the fourth quarter compared with $139.0 million in the third quarter of 2022, and $115.3 million in the fourth quarter of 2021. Our non-GAAP fourth quarter 2022 operating expenses were $94.8 million, down from the $98.4 million we spent in the third quarter of 2022 and up from the $83.0 million reported in the fourth quarter of 2021. On both a GAAP and a non-GAAP basis, fourth quarter 2022 litigation expense was $3.2 million compared with a $2.1 million in Q3 2022 and a $420,000 credit balance in Q4 2021. The fourth quarter 2021 litigation credit reflected in IP settlement and refund of a legal retainer. 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 2022 stock compensation expense, including $1.0 million charged to cost of goods sold was $35.3 million compared with $43.0 million recorded in the third quarter of 2022. The quarter-over-quarter change in stock compensation expense reflected a change in the planned vesting assumptions. Switching to the bottom line. Fourth quarter 2022 GAAP net income was $119.1 million or $2.45 per fully diluted share compared with $2.57 per share in the third quarter of 2022 and $1.51 per share in the fourth quarter of 2021. Q4 2022 non-GAAP net income was $154.0 million or $3.17 per fully diluted share compared with $3.53 per share in the third quarter of 2022, and $2.12 per share in the fourth quarter of 2021. Fully diluted shares outstanding at the end of Q4 2022 were 48.5 million. Now let’s look at the balance sheet. As of December 31, 2022, cash, cash equivalents and investments totaled $739.6 million compared to $738.1 million at the end of the third quarter of 2022. For fourth quarter – for the fourth quarter of 2022, MPS generated operating cash flow of about $52.2 million compared with Q3 2022 operating cash flow consumed of $18.2 million. Fourth quarter 2022 capital spending totaled $12.8 million. Accounts receivable ended the fourth quarter of 2022 at $182.7 million or 36 days of sales outstanding compared with the $153.4 million or 28 days of sales outstanding reported at the end of the third quarter of 2022, and the $104.8 million or 28 days reported at the end of the fourth quarter of 2021. Our internal inventories at the end of the fourth quarter of 2022 were $447.3 million, up from $397.4 million at the end of the third quarter of 2022. Calculated on a basis consistent with our past practice, and as you can see on the webinar video, days of inventory rose to 212 days at the end of Q4 2022 from the 167 days at the end of the third quarter of 2022. Historically, we’ve calculated days of inventory on hand as a function of current quarter revenue. We believe comparing current inventory levels with the following quarter’s revenue provides a better economic match. On this basis, again, you can see days of inventory increased to 214 days at the end of the fourth quarter of 2022 from 188 days at the end of the third quarter of 2022. I would now like to turn to our Q1 2023 outlook. We are forecasting Q1 2023 revenue in the range of $440 million to $460 million. We also expect the following

Quinn Bolton:

Hey, guys. Congratulations on the strong results and the nice outlook in this environment. I guess I wanted to start Bernie and Michael, the computing storage business was much stronger than at least I expected in the fourth quarter. You grew revenue quarter-on-quarter when the rest of the PC [ph] market is clearly experiencing softness and inventory correction. So I guess, can you give us sort of your outlook? How do you see that business trending over the next couple of quarters? And then I’ve got a follow up. Thank you.

Quinn Bolton:

Okay.

Bernie Blegen:

Absolutely. In the enterprise data we’ve really got good traction with the GPUs for artificial intelligence and so that should really be one of our growth drivers in the first half of 2023.

Michael Hsing:

Yes, that’s related to artificial intelligence.

Quinn Bolton:

Do you expect that in the second half than the CPU to on a take [ph] in more second half of the year?

Quinn Bolton:

Perfect. Thank you.

Tore Svanberg:

Yes. Thank you. And congratulations on another record year. Michael, I was hoping you could talk a little bit more about the power isolation module business, they expect to ramp in 2024. Is this still based on the company’s BCD technology or are you now starting to venture into some newer technologists? I’m just curious, because you haven’t talked a whole lot about potentially getting into silicon carbide or GaN or anything like that?

Tore Svanberg:

That’s very helpful. And as my follow-up, could you just give us an update on the manufacturing footprint both from a capacity perspective, but more importantly about diversification. You talked about, looking at all sorts of regions to partner with some new manufacturing partners, so yes, both capacity, but then also from a geographic – geographical perspective perhaps an update that? Thank you.

Tore Svanberg:

Great. Thank you so much, and congrats again.

Genevieve Cunningham:

Our next question is from Alex Vecchi of William Blair. Alex, your line is now open. Our next question is from Matt Ramsay of Cowen. Matt, your line is now open.

Michael Hsing:

Yes.

Michael Hsing:

Yes, it’s a misconception for MPS is that we are – lot of manufacturers that’s in China. That’s true. But it’s a misconception. So, okay, we do in a prior COVID – we do – most of, we do at least half of it manufacturer and at least we have capacities is outside the countries or outside of China. And to answer your question, whether zero impact in the – for whoever customers request to manufacture in the outside of China in the past and the futures.

Michael Hsing:

Yes, and again, I would say that I mean, in the past, last year capacity issues like a constrain the consumer growth. And we do have a lot of opportunity. We just didn’t pick it up because of the capacity issues. And in the downturns in the past, as you know, that again and will be a lot more aggressive for in these consumer market segment because when you react to a price and you react to the opportunity how fast you react to the opportunity. And within the six months, you’ll see the – you’ll see the bigger number change in a consumer segment. And that’s what we would do.

MattRamsay:

Thank you very much, guys. Appreciate it.

Michael Hsing:

Hello?

Gary Mobley:

Hey, Michael. Hey, Bernie. [Indiscernible] And thanks for taking my question for the first time as a covering analyst. And related to that, I apologize in advance if I ask an uninformed question here. But the inventory for you guys, that 212 days, that’s internal inventory. I believe, however, your sales, 83% of your sales roughly go through distribution. So maybe you can give us a view in terms of distribution inventory and did it increase and if so, to what extent did it favor revenue?

Michael Hsing:

And welcome to the inventory question.

Michael Hsing:

For Gary’s, okay.

Gary Mobley:

I apologize if I step into…

Gary Mobley:

Got it. Thank you for that. And I wanted to ask about contributors to the revenue growth for the fiscal year, for the quarter, 48.5% is quite commendable. I was hoping maybe you can deconstruct that between ASP increases and unit increases and how you see that playing out for fiscal year 2023 as well?

Bernie Blegen:

Clearly, as you look at a business driver in 2022 and as we look ahead, you can also see the impact of selling higher value technologies and higher ASPs that go along with it. So while many companies use this supply-demand imbalance as an opportunity to raise prices to their customers, we only had one single-digit price increase back in February and all of the other is representative of higher ASPs and volume gains.

Genevieve Cunningham:

Our next question is from Ross Seymore of Deutsche Bank. Ross, your line is now open.

Michael Hsing:

Yes. Its fine.

Michael Hsing:

You still remember.

Bernie Blegen:

So when we look at Q1, and obviously, we’ve guided down about 2%, which is sort of consistent with seasonal trends. And it’s – the industrial is likely to come down. And I may have left you with an incorrect impression because Enterprise Data is likely to go down even though GPU, AI will improve. And then on the plus side, the momentum in automotive continues to be very strong.

Michael Hsing:

Yes. We’re seeing better activity. I think that we commented both in Q3 and repeated it here, that customers have gotten a lot more near-term focused and you can point to consumer, you can point China as being areas that was very observable. And right now, we’re seeing a lot better activity but it hasn’t necessarily translated into what I call a normalized ordering cover.

Michael Hsing:

Okay, tell those customer – tell those not customers, okay?

Michael Hsing:

Our investors, our customers choose to buy our stocks. And hey, we don’t do it in the pay to pay, the me-too products. Everything is pretty much single source product. And our products a lot more programmable, a lot more versatile and gave me and our customer can configure those products. And of course, we’ll take advantage of it, okay, in a shortage. Our customers can use our product in a multiple way, I mean, lot of them are software based. And announced and as you know, in the software side and I mean is a lot more stickier. And we will continue to use our technical strengths and to gain the market share and I mean headwinds, okay, for those people they don’t believe that, okay. We have a hearing I mean that’s fair, but our numbers delivered like our past number to show that.

Genevieve Cunningham:

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

Bernie Blegen:

So I’ll give you the numbers correction and Michael will give you this strategic answer. Modules currently are about 5% of our business.

Bernie Blegen:

Yes.

Bernie Blegen:

Yes, three.

Bernie Blegen:

Yes.

Bernie Blegen:

And I’d like to go back to Rick’s earlier question, I would say that back in the day, the single biggest ingredient as far as making a decision for design win had to do with the lowest cost. And I think that what our customers are seeing, particularly in the last three years is there are other value drivers consider as far as time to market how much design resource they want to be saved from having to do a total cost of ownership. And those are areas that we’re able to meet our customers’ demand as well, if not better than any other analog or power provider…

Rick Schafer:

Okay. Thanks for that color. And it actually leads you to my next question. I appreciate all the color that and you guys have certainly discussed with the power isolation module. But just specific to the silicon carbide update, just it does – it sounds like you’ll be sampling this year. Do we – should we expect any material contribution from silicon carbide this year? Or are we kind of looking at 2024? And Michael, I mean, we’ve heard different numbers, but what is the addition of silicon carbide modules for traction inverter, et cetera? What does that do to your potential content per vehicle?

Rick Schafer:

Thanks, Michael. Thanks, Bernie.

William Stein:

Great. Thanks for taking my question. Someone beat me to the module question this time. So I’ll focus in a little bit different direction in the past. I know a few quarters ago, you talked about a team that you hired to work in the converter area, which is something you’re not really that known for, but I think this is also another being ASP and a big growth opportunity for Monolithic. Can you talk about your traction in converters so far and what you expect to come in the coming quarters?

William Stein:

Thank you, Michael, appreciate that. Maybe one other, if I can. Something we haven’t heard the company speak a whole lot about lately, and that’s the e-commerce effort. Any update on how your traction is progressing there?

William Stein:

Okay, thank you.

Chris Caso:

Yes, thank you. Good afternoon, everyone. The question is about where lead times are right now and the degree of product shortages. With your inventory up now, has that helped to bring down lead times and alleviate some of the shortages? And if so, has that taken away perhaps some of the incentive for customers to place orders for a product they didn’t – they don’t need. What – it’s obviously one of the things we worry about as we go through the cycle, interested in your view on that.

Chris Caso:

Got it. Okay. As a follow-up, Michael, you mentioned in some earlier remarks, plans to be a little more aggressive on consumer business as you go through the year. So wondering if you could expand on those comments? Is that something just opportunistic this year, something that you see in the market is that just a function of the diversity of your business model where some other business is slow. So you can go find business elsewhere, if you could give us some more color on that, please.

Chris Caso:

If I could just follow on that, does that imply when business improves elsewhere, we’ve got a better macro and such some of the product cycles elsewhere with maybe higher margin opportunities develop that you sort of back away from some of that and come back to some of the other segments that have driven growth more recently.

Chris Caso:

Got it. Thank you.

Genevieve Cunningham:

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

Michael Hsing:

I think it’s – we don’t know what is the business model. I think it’s – I know this size takes time. And the market is large, a few competitors. All these, you said these are 800 pounds of gorilla, okay. We are well little highs going around – and we had to run fast. And it’s just to take opportunities and okay, what presents the product and our customers. And they do have an eye on the different suppliers especially come from the last couple of years. And it’s – we have a good hope, but we know it take a while.

Michael Hsing:

Yes. As we said in next couple of years – next two years, and we’re still on it. And we work with our suppliers and the gaming I just mentioned the consumer business, okay? And one of the reason is we do have obligations and to fill up these facts. And we’ll be aggressive and getting all these – getting these orders, fill the capacities. And that’s our gaming in the past. We repeatedly and do this – have done these kind of things in several cycles already. And this cycle, I don’t see a difference from the last downturns. And – but – so for the capacity expansion, we’re still intact in the game. We’re not – we may slow down a little, so I mean, but we really have obligations with our fabs, okay?

Genevieve Cunningham:

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

Bernie Blegen:

Yes, I’d probably look at it as being flattish for the remainder of 2023. And when you look at what’s taken the margin down and while you’re right, we’re down 50 basis points. It’s not a significant deflation from the rate that we’ve been at trending at over the last two years. And it’s really because we have the additional manufacturing capacity, lower revenue. And as we look at the next two quarters at least, the sales mix is not as desirable.

Genevieve Cunningham:

Our next question is from Ross Seymore of Deutsche Bank. Ross, your line is now open.

Bernie Blegen:

I think as Michael is expressed here between diversifying our supply chain and continuing to invest in R&D capabilities that we have some very real opportunities for additional investment that would show up in growing our operating expenses. Having said that, though, there is a fair amount of uncertainty as far as what the revenue outlook is, and we want to be good financial managers as we go through these market conditions. So I would expect that it’s likely that operating expenses won’t grow much more than 50%, 60% of revenue growth in the current year.

Bernie Blegen:

1.8.

Ross Seymore:

Great. And I guess for a quick follow-up, I just wanted to revisit one of the questions that was asked, I think it was the very first question or close to the beginning on the storage and computing strength. I know you said notebook was better than you thought and the memory/storage was weaker, and those two kind of go the opposite direction in the first quarter then. But those markets in aggregate have been weak across the board for quite some time. So I’m still a little surprised at the strength in the fourth quarter and the stability in the first. What would you attribute that to? Obviously, you’re getting the orders, but are you guys taking share? Is it the Tier 1 penetration? Is it content? Just any more color on that because it’s such a disconnect to the end market in general?

Bernie Blegen:

Absolutely.

Ross Seymore:

Great. Thank you.

Bernie Blegen:

Yes.

Genevieve Cunningham:

[Operator Instructions] As there are no further questions, I would now like to turn the webinar back over to Bernie.

Genevieve Cunningham :

Welcome everyone to the MPS Third Quarter 2022 Earnings Webinar. Please note that this webinar is bring recorded and will be archived for one year on our Investor Relations page at www.monolithicpower.com. 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, VP and CFO. In the course of today’s webinar we will be making 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 Q3 2022 earnings release and in our latest 10-K and 10-Q filings that can be found on our website. MPS assumes no obligation to update the information provided on today’s call. We will be discussing gross margin, operating expense, R&D and SG&A 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. A table that outlines the reconciliation between the non-GAAP financial measures to GAAP financial measures is included in our Q3 2022 earnings release, which we have furnished to the SEC and is currently available on our website. Now I’d like to turn the call over to Bernie Blegen.

A - Genevieve Cunningham:

Thank you, Bernie. Analysts, I would now like to begin our Q&A session. [Operator Instructions] Our first question is from Matt Ramsay of Cowen. Matt your line is now open.

Bernie Blegen :

Yeah, buenos noches.

Bernie Blegen :

Sure, just to clarify that the softness that we're seeing is both in the storage and computing as well as consumer. The other segments are still positioned to show growth between Q3 and Q4. The only sort of qualifier that we're still trying to learn about the strength and the runrate of the communications of that segment. So I think what we've done is we feel very, very comfortable with both, how we've been communicating our expected results, but we've added a little conservatism to the outlook.

Michael Hsing:

Yes, very nice questions. Michael, I'm glad you asked, that what all your concern is I think most of the people totally misconstrued whatever the regulation is. And we do have a presence, we have a large presence within China. This is a U.S. companies, okay, and we’re not subject for sanctions at all. We don't have to have the people to leave – Americans have to leave an MPS office within China and that's not in the sanction entity list, and we are not in a sanction entity list. And other one is the manufacturing in the last couple of quarters, we already talked about it. We’ve diversified out of China and we’re starting five, six years ago. Also, I should mention that we talk about it on the engineering manpower. This MPS started at 2017, and we are in Barcelona now. We’ve moved a very large team here with the local government support. We are outside of China, and that's not because we – because of sanctions, because we want to diversify. Geometrically we’ll – we will grow into a different region, in the same time zones, wherever we want. We give our customers the better support.

Matt Ramsay:

No, thank you very much. Just a really, really quick follow-up. What would you say the percentage Michael of the products or the revenue that is actually sourced from manufacturing footprints inside of China today versus outside. And thank you very much for indulging my question guys, I appreciate it.

Bernie Blegen :

And if I can just follow-up on one quick point as we made in our script here, is that as the supply demand imbalance has normalized, that frees us up from just being in pure production mode to actually be able to invest time in business relationships, to be able to expand and diversify our capacity, which we talked about about three quarters ago, where we're going to go from $2 billion of capacity currently to $4 billion within the next two years, two to three years.

Bernie Blegen :

Yeah.

Quinn Bolton:

Thanks. I don't want to pile on the export control questions that Matt was just asked, but I have one other clarification. You're at 40 nanometer and above and so you're not directly affected. But my understanding is that to the extent a facility, a manufacturing facility in China has multiple process nodes, some above 16 nanometer and some below 16 nanometer that that mixed-use facility would be affected. So I'm just wondering you know, for those Chinese manufacturing facilities, the fab-by-fab, are any of the fabs that you're running 40 nanometer and above, do they also produce 16 nanometer and below and might therefore be affected by equipment and/or support restrictions.

Quinn Bolton:

Thanks Michael. That's right, but I just wanted to clarify because I know that yeah, as Matt said, there have been lots of questions on this topic. Maybe one for Bernie. I know you're not guiding beyond the December quarter. But obviously the environment is pretty tough right now, especially on orders. And so I guess as you look out beyond December, can you give us any thoughts as to whether you would see less than normal seasonality in March as some of this weakness continues into next year? And I guess the offset would be, Monolithic Power has some pretty, I think meaningful market share gains, both on the server CPU side, as well as the data center GPU side. When would you think that those share gains start to kick in and might get you back to normal seasonal if not better than seasonal patterns.

Michael Hsing:

Yes, that's our guess and that's our experience. And I might as well add. You mentioned the CPUs and the CPU power, data centers and MPS is a lot more than that. And you look at Bernie’s, read our script and you have automotive and the data – the enterprise data centers and other ones in communication - the other ones, the communications, these are still, all of them are grown, except the consumer related notebooks, gaming, those type of things, and as everybody is aware of, they are softening. They swings from shortage to oversupplies and then you know kind of almost overnight. These kind of things we cannot predict. I mean you guys probably predict it better than we know. We just have to react fast, and the overall MPS business, all these are greenfield products will start to ramp in the last few years and will continue to ramp.

Bernie Blegen :

Thank you.

William Stein :

Hey! Thank you so much for taking questions. I have one near-term one and then a longer-term one. From a near-term perspective, I'm hoping you can talk about pricing trends and also how your backlog might be changing in terms of the duration of what you have on the books today versus where we've been recently? And then again, I have a sort of longer-term follow-up question, please.

Bernie Blegen:

And well, you also mentioned backlog, the sort of condition in the backlog overall. And relative to historical norms, we still remain very – you know we're much higher than we have been historically, and – but this has given us an opportunity to address with our customers. In fact, we've been engaged in these conversations for several quarters now, on what they expect real demand to be. So I think that as far as our book of business is looking ahead, it remains very healthy.

Michael Hsing:

Yes, all the products, the modules and the e-commerce business okay, and we don't see any changes and they are just continuing and that's where MPS future business would be and we're even more diversified than MPS' current business.

Michael Hsing:

Yes, frankly if you ask me where these module goes, we don't have ideas and that is the beauty of it.

Operator:

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

Bernie Blegen :

Yes.

Bernie Blegen :

Automotive.

Bernie Blegen :

Yes. As we said in the prepared comments, that there were new platforms that were launched, most of them are tied to the 2023 model year and there were probably three areas, lighting being one of them that really contributed to the uplift in the automotive in Q3.

Michael Hsing :

Well, the lighting is – in automotive lighting have a variety. You have a down light, you have indicators, all kind of indicators, you have the signals, then you have the headlight, okay. So this is the last couple of quarters you see stepping up and that's kind of, that's part of the Greenfield product and automotive start to ramp. The content in the cars, we're growing the content. For the number of cars we have okay, and just at the beginning, we still have a small, very small market here, so it will continue to grow.

Bernie Blegen :

Sure. So when you think about the period of the supply-demand imbalance that we came out of, we had actually a superior competitive position because we had invested in our supply chain earlier than our competition, and that allowed us to have part availability when they didn't and that allowed for incremental market share gains. So as we continue to expand capacity, we're looking for new opportunities and with existing as well as with new fabs, and so in this instance we wanted to secure a purchasing agreement that in order – that gave us dedicated capacity regardless of what the economic environment was.

Michael Hsing:

Most of it – let me answer it that way. Most of our modules assembly is outside of China.

Operator:

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

Rick Schafer:

Yes, sorry I was muted. Can you hear me now, Bernie?

Rick Schafer:

Great. Well hey guys! Thanks for letting me ask you a question. Maybe my first one just on supply. You know TSM, obviously your newest foundry partner, I was just curious if you could kind of level set us on where you guys are at in terms of the qualification process, you know eventual capacity ramp, sort of maybe even get a sense of how much capacity they are going to have for you ultimately and how much of that might be eight versus 12-inch? Just trying to get a better handle on them as a partner.

Rick Schafer:

So Michael, just to kind of get a sense. I mean, is this – could TSM be sort of a 10% contributor to capacity in say a year's time or is that too aggressive to kind of think of how quickly they could ramp?

Rick Schafer:

Thanks a lot and then a follow-up, I'm just curious to get an update on silicon carbide progress, particularly traction inverters. I mean how many customers you're engaged with now and when we might expect to see initial revenues? And I know you've talked about it in the past Michael, but just kind of remind us what that dollar content for MPS looks like ex-EV? And I'm assuming it would be sort of subsystem, but would anything be discrete or would that all be sort of module/subsystem?

Rick Schafer:

And Michael, just a reminder just sort of what it does to content for you guys or potential content in a car or a vehicle?

Rick Schafer:

Great! Thanks a lot for all the color.

Alex Vecchi:

Hey everyone! Thanks for taking my questions. Bernie, maybe one for you just on a housekeeping question around gross margins. Can you elaborate a little bit on the down sequential? The only reason I'm asking is given the end market weakness and notebooks in consumer I would have thought is lower gross margin mix. So anything you can do to help on that and how to think of it like from here.

Alex Vecchi:

Okay. And then similarly to that extent, just expand on Rick's questions regarding the new fab partner or TSMC. Do you view that relationship eventually being gross margin accretive or dilutive versus your Chinese partners?

Bernie Blegen :

And I think that when you look at TSMC, these are new and advanced products that we're developing with them, whereas we're at the same time doing an expansion and diversification away from China and that would include other fabs, both in South Korea as well as in Taiwan.

Operator:

Our next question is from Melissa Fairbanks of Raymond James. Melissa, your line is now open.

Michael Hsing:

Well, it's a – we always – if you look at our past. If you look at how we expand our capacity, what is our investment, and if you look at the past eight, nine, 12 years, it's the same pattern as the next four, five years. And we're not going to over invest. We're not going to less invest it, okay. So the trend, if you look at it. If you're plotting our OpEx and also the growth rate, and it should remain pretty constant in the past four years and in the past eight years, in 12 years, in also the last two or three years the growth pattern is really different from previous four years, and whatever the growth rate we have in the next four years, you can use the plotting – you can use the same kind of percentage range.

Michael Hsing:

Yes, let me clarify this a little more, rather than give you a model. You know MPS, we don't own the fab, we don't own fab equipment, and the cost of associating with capacity expansion, one is we have to qualify the process, and the large portion of it is to qualify our products. We have 4,000, well over 4,000 products, and each product to go through a qualification, that takes about eight to nine months. That cost, that's very costly and so that's – if we don't – if we slow down and the demand slows down, we don't have to qualify as fast okay, and so the cost will be spread out.

Melissa Fairbanks:

Okay great, that’s very clear. Thanks very much guys.

Bernie Blegen :

Thanks Jen. I'd like to thank you all for joining us for this conference call and look forward to talking to you again during the fourth quarter conference call, which is likely to be held in early February. Thank you and have a nice day!

Bernie Blegen:

Thanks, Gen. MPS achieved record second quarter revenue of $461.0 million, 22.1% higher than the first quarter of 2022, and 57.2% higher than the second quarter of 2021. This broad-based year-over-year revenue growth was a result of consistent execution against our strategies. Turning now to the second quarter 2022 revenue by market, in our enterprise data market, second quarter 2022 revenue of $65.2 million increased 53.4% from the first quarter of 2022, primarily due to an accelerated ramp in our data center and workstation computing sales. Second quarter 2022 revenue was up 117.9% year-over-year. Enterprise data revenue represented 14.2% of MPS’s second quarter 2022 revenue compared with 10.2% in the second quarter of 2021. Storage and computing revenue of $122.3 million increased 26.6% from the first quarter of 2022. The sequential revenue improvement reflected higher commercial notebook and storage sales. Second quarter 2022 revenue was up 111.6% year-over-year. Storage and computing revenue represented 26.5% of MPS’s second quarter 2022 revenue compared with 19.7% in the second quarter of 2021. Second quarter consumer market revenue of $97.3 million increased 21.7% from the first quarter of 2022. The sequential quarterly revenue improvement was broad-based with particular strength noted in home appliances and gaming. Second quarter 2022 revenue was up 27.9% year-over-year. Consumer revenue represented 21.1% of MPS’s second quarter 2022 revenue compared with 25.9% in the second quarter of 2021. Second quarter 2022 industrial revenue of $55.9 million increased 15.1% from the first quarter of 2022, reflecting increased sales of products for power source and security applications. Second quarter 2022 revenue was up 28.9% year-over-year. Industrial revenue represented 12.1% of our total second quarter 2022 revenue compared with 14.8% in the second quarter of 2021. Second quarter automobile revenue of $61.0 million increased 11.9% from the first quarter of 2022. Primarily – due primarily to increased sales of applications for advanced driver system systems, the digital cockpit and lighting products. Second quarter 2022 revenue was up 25.3% year-over-year. Automotive revenue represented 13.2% of MPS’s second quarter 2022 revenue compared with 16.6% in the second quarter of 2021. Second quarter 2022 communications revenue of $59.3 million was up 6.7% from the first quarter of 2022. Most of the sequential revenue increase was related to 5G infrastructure. Second quarter 2022 revenue was up 58.3% year-over-year. Communications sales represented 12.9% of our total second quarter 2022 revenue compared with 12.8% in the second quarter of 2021. Moving now to a few comments on gross margin. GAAP gross margin was 58.8%, 90 basis points higher than the first quarter of 2022 and 280 basis points higher than the second quarter of 2021. Our GAAP operating income was $141.9 million compared to $96.1 million reported in the first quarter of 2022 and $60.6 million reported in the second quarter of 2021. Non-GAAP gross margin for the second quarter of 2022 was 59.0%, up 70 basis points from the gross margin reported for the first quarter of 2022 and 270 basis points higher than the second quarter from a year ago. The quarter-over-quarter and year-over-year increases in both GAAP and non-GAAP gross margin is attributed largely to operational efficiency gains and a more favorable sales mix. Our non-GAAP operating income was $179.4 million compared to $133.6 million reported in the first quarter of 2022. Let’s review our operating expenses. Our GAAP operating expenses were $129.1 million in the second quarter of 2022 compared with $122.7 million in the first quarter of 2022 and $103.6 million in the second quarter of 2021. Our non-GAAP second quarter 2022 operating expenses were $92.7 million, up from the $86.6 million we spent in the first quarter of 2022 and up from the $70.3 million reported in the second quarter of 2021. The differences 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 2022, total stock compensation expense, including approximately $1.2 million charged to cost of goods sold was $42.9 million compared with $39.8 million recorded in the first quarter of 2022. Our second quarter 2022 GAAP other income – other expense was $5.1 million compared with $634,000 in the first quarter of 2022. Our second quarter 2022 non-GAAP other expense was $7,000 compared with non-GAAP other income of $1.6 million in the first quarter of 2022. The decrease is due to a $2 million increase in charitable contributions, partly offset by the favorable impact of currency exchange rates. The difference in non-GAAP other income and GAAP other income is the income or loss on an unfunded deferred compensation plan. Switching to the bottom line. Second quarter 2022 GAAP net income was $114.7 million or $2.37 per fully diluted share compared with $79.6 million or $1.65 per share in the first quarter of 2022 and $55.2 million or $1.16 per share in the second quarter of 2021. Second quarter 2022 non-GAAP net income was $157.0 million, or $3.25 per fully diluted share compared with $118.3 million or $2.45 per fully diluted share in the first quarter of 2022 and $86.5 million or $1.81 on a per share – per fully diluted share in the second quarter of 2021. Fully diluted shares outstanding at the end of Q2 2022 were 48.3 million. Now, let’s look at the balance sheet. Cash, cash equivalents and investments were $814.1 million at the end of the second quarter of 2022 compared with $775.9 million at the end of the first quarter of 2022. For the quarter, MPS generated operating cash flow of approximately $105.2 million compared with Q1 2022 operating cash flow of $107.4 million. Accounts receivable ended the second quarter of 2022 at $125.5 million, representing 25 days of sales outstanding, which was 4 days lower than the 29 days reported at the end of the first quarter of 2022 and 1 day higher than the 24 days in the second quarter of 2021. Our internal inventories at the end of the second quarter of 2022 were $359.6 million, up from the $311 million at the end of the first quarter of 2022. Days of inventory of 172 days at the end of the second quarter of 2022 were 6 days lower than at the end of the first quarter of 2022. Historically, we have calculated days of inventory on hand as a function of current order revenue. We believe comparing current inventory levels with the following quarter’s revenue provides a better economic match. On this basis, you can see days of inventory of 162 days at the end of the second quarter of 2022, which were 13 days higher than the 149 days at the end of the first quarter of 2022 and 44 days higher than the 118 days at the end of the second quarter of 2021. I would like now to turn to our outlook for the third quarter of 2022. We are forecasting Q3 revenue in the range of $480 million to $500 million; GAAP gross margin in the range of 58.4% to 59.0%; non-GAAP gross margin in the range of 58.7% to 59.3%; total stock-based compensation expense in the range of $42.8 million to $44.8 million, including approximately $1.3 million that would be charged to cost of goods sold; GAAP R&D and SG&A expenses between $136.2 million and $140.2 million; non-GAAP R&D and SG&A expenses in the range of $94.7 million to $96.7 million; litigation expense in the range between $2.3 million and $2.7 million; interest and other income in the range from $1.3 million to $1.7 million before foreign exchange gains and losses; fully diluted shares in the range of 47.9 million to 48.9 million shares. In conclusion, we are continuing to execute on our growth strategies, including expansion and diversification of our R&D centers and manufacturing partnerships in multiple countries. I will now open the webinar up for questions.

Rick Schafer:

Thanks and congratulations to you guys. Another great quarter. This may seem like a silly question given the guidance. But I am just curious, are you seeing any impact from the delayed launch of Sapphire Rapids? I mean I know your accelerator content is a lot higher than your CPU core power content. I think 48-volt, and please correct me if I am wrong, I think our math shows 48-volt track into sort of $100 million this year, so I guess I’m just looking at sort of the puts and takes. I know it’s – this is a pretty much a monster guide. But I am just a little curious if you were seeing any drag there from that delayed launch?

Rick Schafer:

Okay. Thanks a lot, Michael, for the color. And if I could follow-up maybe on the supply question, majority of your wafer supply is still in China, plus you have got to pay your big Chengdu back end facility. So I guess, how concerned are you if with trying to derisk supply chain as we keep watching headlines with the U.S. government trying to tighten restrictions, etcetera on equipment and everything in China? So just curious, your thoughts there? And maybe as part of that, if you could talk about where things stand now with TSMC and give a sense maybe of timing and capacity plans there? Thanks.

Bernie Blegen:

And just to add to that, that as the capacity restrictions are becoming less of a concern for the market in general, customers are asking for diversification as in a China plus one strategy. So we are working along those lines in companion to expanding our overall capacity.

Rick Schafer:

Okay, thanks a lot for the color. Congrats again.

Matt Ramsay:

Thank you very much, guys. Hopefully, you can hear me okay. Congratulations on the results. So I had two questions, and I’ll just go ahead and ask both at the same time because I think we’ve got multiple calls going tonight. The first one, Michael, both in the server business, so the new enterprise data segment and in the PC business, could you give us some indication of how far ahead of the unit sales to your power – your core CPU power or accelerator power products actually sell in versus the unit shipments that they get reported by the end customers? And burning the second question, completely unrelated, like $800 million in cash, give or take, if you could kind of walk us through some of the uses of cash there. I’m sure Michael would like to build some inventory, which is kind of always the case. But if you have any new things to say there, that would be really helpful? Thanks, guys.

Bernie Blegen:

And on the issue as far as our cash position, which, let’s put it on the table, it’s sort of an enviable position to have over $800 million of cash and cash equivalents. And there is probably three things that we look at. The first is we’ve been consistently paying out a routine dividend. This year, it’s $3 – $0.75 per quarter, $3 for the full year. and we’re evaluating the sustainability at a even higher level. We generally announced dividend increases in February, comparing with our Q4 operating results and we’d expect to do so again this year. Another area that we found is very key and strategic to us is building out capacity. And we’re looking, as Michael said earlier, for different avenues in order to build out additional capacity. And in some cases, that may require additional investment. And then finally, as you also added is working capital, making sure that we have adequate inventory on hand in order to sustain our customers’ demand profile. And so right now, we’re still below our target of 180 to 200 days of inventory. So we will continue to be investing in inventories as well.

Genevieve Cunningham:

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

Michael Hsing:

Yes. The module is doing well, I mean, but the revenue is still quite small. It’s a hundred-some million dollars, but in – but I know in the next few years will grow double or triple it. And that’s what we’ve seen in the pipeline, in the design win activities. And so as we said a few years ago, we do e-commerce and okay, we do programmable modules these show true benefits to our customers truly realize it in the end.

William Stein:

That’s great. And as a follow-up, if I can. I am wondering if you can talk about your lead times now and how they might have changed in the last, I don’t know a couple of months and to the degree to which that’s been a competitive advantage. My understanding is that you’re offering lead times that enable customers to switch away from competitors’ products that have lead times that are so long that it suddenly makes sense to switch. Any sort of comments or update on that would help a lot? Thanks, guys.

Bernie Blegen:

Yes. And just to top off that answer is that I don’t think our lead times were necessarily different from anybody else necessarily in the industry. But we have the advantage of having so many new products coming on the market, Greenfield opportunities, that we invested ahead of the curve, and that’s where we were able to have product availability when others didn’t.

Genevieve Cunningham:

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

Michael Hsing:

We – for the notebooks, okay. And for our side, still – demand is still pretty good and still good, like I mean, and I think as the orders and the orders slow down than before. And but we still have delinquency. And for memory side, for memory side, and there is a lot of new format, okay, starting, we’re still facing shortages now.

Michael Hsing:

The rate of a booking and the rate of cancellations and I would say they are very similar in the last few years. I mean last few quarters, yes.

Bernie Blegen:

Yes.

Michael Hsing:

I think it’s both. And not only the CPU size for the servers, we gain – and we gain the market share. We stepped into – in that game a couple of years ago, but a very small percentage, and we start to ramp. But we’re still far distance, then they need a bigger suppliers. And that’s one of – from the server side. And the 48-volts, as you know, we talk about it. And we talked about since 2017 or ‘18. And we said that this is the inevitable and a trend. You had to go move to 48 volt. And we are now in the forefront of, and we’re not replacing anybody, okay? We set up this market trend. And so – and also in the data center and the rack itself is a big opportunities and MPS are ramping revenue from there, to from the AC power, and these are 380 volts and I guess, 240 volts input convert into 48 volt. And also the battery backup, and we provide the same – we provide the solutions for battery management and also cooling side. And so MPS is almost one-stop shopping place for data center.

Genevieve Cunningham:

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

Michael Hsing:

Well, these are one thing, right? We do – of course, we have the fab, we have the mobile. And we will have increased more capacities outside of China. We started about a couple of years ago, also more than a couple of years ago. And now we engage with some bigger DRAM fabs, okay? We will fill that up in the next couple of years. And – but going to futures, MPS actually require less semiconductors and because a lot of products are more programmable and we can use for multiple use. And at the same time, we’re growing our revenues. We’re selling a lot more than semiconductor. We’re selling power solutions, more modules. And – so we kind of move up the food chain as the new requirement comes in, we play in the market, we’re not competing with anybody. And we just provide the solutions. And so those are manufacturer. These are clearly – they are different. They are building modules. And we sign up partnerships, okay, for assemble these new modules. And it’s unprecedented. And a lot of testings, a lot of qualifications, MPS designed the whole system from a ground up. And so these are the – there is no such a facility out there. So we had to invent it, that work.

Michael Hsing:

But these are – the bigger effect hasn’t really taken place yet. That would be a couple – a year or a couple of years down the road, you will see much bigger effect and – so there is a lot of the new – a lot of work to do ahead of us. And these are – particularly, these are new types of modules. Nobody else build the kind of things, okay? We’re ground up, we developed and we even develop a manufacturing and as well as testing the qualifications part of it.

Michael Hsing:

Gaining share, it’s – gaining share is a difficult to count because gaining share, if the equals product is gaining share and going to be in a similar product. And – so you – our price betters, our performance better, we’re gaining shares. Okay. Now we’re talking about completely different things. And those market segments we want to get in there is less price sensitive, but quality, performance a lot more important. And now okay, we offer something that is a lot more than that. And 10 years ago, we said who do we compete with? And not a company sell controller and power MOSFET, they are separate, MPS is integrated. And now you’re talking about MPS, we – our product even on the silicon side. And we have microcontroller, we have a memory, we have digital, we have power. And very unique how we – what we – who do we display. It’s difficult to say it. Now it’s getting to use these type of silicon-based technology, we migrate out. We became a provider of total solutions. So how do we – who do we display, and okay, how we gain market share? It’s very difficult to say.

Bernie Blegen:

No, we really didn’t have much impact from the China shutdown. Obviously, we were able to record revenue growth that is well above the industry average. And the concern we might have had is if our customer supply chains got impacted. But we continue to hit our delivery schedules. And if there was an impact, I am sure we felt some of it, but it was very marginal.

Michael Hsing:

Thank you.

Genevieve Cunningham:

Our next question is from Ross Seymore of Deutsche Bank. Ross, your line is now open.

Michael Hsing:

Yes. I think what you said partially is correct. I mean the other company couldn’t ship, okay, we have the inventories and again, we have a capacity to ship. But this year, particularly, we see things are very different. And a lot of products, especially we ship to these Tier 1 companies are from the industrial side, from automotive side and even the data centers. And they don’t – they didn’t intend to have MPS has a big – has a majority as a bigger supplier, where they give us as a backup and to test a lot. And in the last years, we shipped all these units, our failures, okay. We are far better than everybody else, and that’s one thing. The quality of – quality is everything. And – but they took a chance when they have shortages. And so we proved that, give us a bigger opportunity. We proved it, these products as better. Okay, as good as better than our – whatever the parts they design them out. And in the last year, this year, all the new product or the new segment start to grow out. And as our product, we can change it, we can reconfigure it. And that will continue, we continue to grow up. And as we see it at, we cannot handle all the projects. And so in the foreseeable features and these products will continue to grow.

Michael Hsing:

Yes. I will come back to your questions. Okay. Now you said that you are growing a large basis, so you grow, okay, it’s difficult to grow. That’s kind of a built in everybody’s mind, okay? In my mind, I don’t have a limit. And the limit is within yourself, what to do. And people told me, okay, early on $200 million, it’s your barriers, like $500 million of barriers. $200 million at the time, it was a barrier at one time. It happened. And $500 million, it wasn’t okay, then people tell me, okay, you are going to grow $1 billion, you need to slowdown. And at the time seriously, that was 2017, 2017 or ‘18, yes, ‘17, I actually said it, okay, when we get to $1 billion, we are going to accelerate it. And that’s at the time, that’s how I see it. And now, okay, MPS, we are not selling silicon anymore. We are selling raw more than the silicon, and why not accelerating the growth. So, it’s – of course, I am not saying that now okay, a lot of things still depend on our execution. But only thing is the mindset when not dwell on selling semiconductors. And selling semiconductor is limited, but you have a lot of service engineering manpower, we can – our customers can benefit to it. That’s not – that’s unlimited almost.

Ross Seymore:

Hi. Thanks for all that color guys. I guess hopefully, a quicker follow-up to all of this as you expand beyond the semiconductor side, you get into – I don’t want to say systems, but more solutions in general, some of the stuff you talked about with the entire rack, the AC to DC, the cooling, all the above. What do we look at the gross margin doing in that? That sounds like higher gross margin business. And I know consistency of gross margin expansion is the mantra that you guys have lived by and delivered on. But it seems like mix would go in a big tail or would be a big tailwind for you going forward from a gross margin perspective. So, just talk about what this changing in your revenue mix means, whether it’s end market or system solutions versus chips to your gross margin?

Bernie Blegen:

Right. I would just add that I think that we reported gross margin of 59.0%. And as Michael said, somewhere in that area is sort of the sweet spot for our model that allows us also to accelerate our rate of revenue growth. So, it’s something that we will continue to evaluate. But I think right now, we are very comfortable with this being our model.

Ross Seymore:

Thank you.