雅虎香港財經 Power Integrations, Inc. (NASDAQ:POWI) Q3 2023 Earnings Call Transcript
Power Integrations, Inc. (NASDAQ:POWI) Q3 2023 Earnings Call Transcript November 7, 2023
Power Integrations, Inc. misses on earnings expectations. Reported EPS is $0.46 EPS, expectations were $0.48.
Operator: Thank you for standing by. We do apologize for the delay in starting today. My name is Christina, and I will be your conference operator. At this time, I would like to welcome everyone to the Power Integrations Q3 Earnings Conference Call. All lines have been placed on mute to prevent any background noise, and after the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] I would now like to turn the floor over to Joe Shiffler, Director of Investor Relations. Joe, you may begin your conference.
Joe Shiffler: Thank you. Good afternoon, everyone. Thanks for joining us. With me on the call today are Balu Balakrishnan, Chairman and CEO of Power Integrations; and Sandeep Nayyar, our Chief Financial Officer. During the call, we will refer to financial measures not calculated according to GAAP. Non-GAAP measures for the third quarter exclude stock-based compensation expenses, amortization of acquisition-related intangible assets and the tax effects of these items. A reconciliation of non-GAAP measures to our GAAP results is included in today's press release. Our discussion today, including the Q&A session, will include forward-looking statements denoted by words like will, would, believe, should, expect, outlook, vision, view, forecast, anticipate, prospects and similar expressions that look toward future events or performance.
Such statements are subject to risks and uncertainties that may cause actual results to differ materially from those projected or implied. Such risks and uncertainties are discussed in today's press release and in our most recent Form 10-K filed with the SEC on February 7, 2023. Finally, this call is the property of Power Integrations, and any recording or rebroadcast is expressly prohibited about the written consent of Power Integrations. Now I'll turn it over to Balu.
Balu Balakrishnan: Thank you, Joe, and good afternoon. Third quarter revenues were up 2% from the prior quarter but came in at the low end of our guidance range at $125 million. And for the fourth quarter, we expect a sequential decrease to $90 million at the midpoint of the range. Our results and outlook largely reflects the broad-based weakness cited by many of our peers this earnings season. In the industrial category, we are seeing strength in renewable energy, thanks to recent design wins, but the broader industrial market has weakened as several of our peers have noted. The appliance market, which now accounts for about 1/4 of our revenues has been affected by the slowdown in home sales and the residual effects of the pandemic when many appliance purchases were pulled forward.
We also had an unexpected cancellation late in the quarter, affecting both third quarter revenues and fourth quarter backlog in the computer and communications categories. We believe this reflects efforts on part of an OEM to reduce charger and component inventories. Notwithstanding the short-term outlook, we continue to see strong design activity and design wins that position us well for the eventual upturn in demand, and we feel as good as ever about our long-term growth prospects. We are on track to double our addressable market by 2027, driven by electric vehicles, motor drives, renewable energy, expanding dollar content and a host of upcoming products featuring our proprietary GaN technology. We are full speed ahead on GaN development more confident than ever that GaN will not only overtake silicon as a technology of choice for most high-voltage applications.
but will also be a more cost-effective and greener alternative to silicon carbide over the long term. Most GaN suppliers rely on the technology of a single foundry, leaving little room for differentiation and affording them no control over technology road map. Our GaN is proprietary, which means that we not only control the road map, but also that we can tailor our GaN switch for optimal system performance in each application. Our GaN technology is also unique with characteristics that make it better suited for higher voltages than any other technology in the market today. In March, we introduced a 900-volt version of our GaN InnoSwitch products. And last week, we took the next step on the road map with our latest InnoSwitch featuring a 1,250 volt GaN switch.
Higher voltage InnoSwitch ICs are ideal for many industrial applications and for geographies with unstable main voltages as well as power supplies in 400-volt electric vehicles. These higher voltage GaN technologies will also enable us to expand our SAM with new products that address higher power applications up to 10 kilowatts, such as EV onboard chargers and DC to DC converters and a range of industrial applications. Many of these applications are served today by silicon carbide because there is no viable alternative that delivers the necessary level of efficiency. However, we have products in our pipeline that will offer system-level GaN solution at a much higher level of performance than silicon carbide. GaN is fundamentally more cost-effective than silicon carbide because it uses lower-cost raw materials and requires a tiny fraction of the energy needed to produce silicon carbide, which is processed at extremely high temperatures.
That also makes GaN a more sustainable technology than silicon carbide, which quants a portion of the efficiency benefits in its own manufacturer. Our GaN road map does not end at 1250 volts. We expect to introduce even higher voltage can in the near future, and our vision includes potential to drive GaN beyond 10 kilowatts, making it a viable replacement for silicon carbide in a wider range of applications. While pushing GaN beyond 10 kilowatts is a longer-term proposition, our current game products are making significant gains in power supplies. We won more than a dozen smartphone and notebook designs in Q3, including a 100-watt inbox designed for a top notebook OEM which uses our hyper PFS 5 power factor chip in tandem with InnoSwitch, both incorporating GaN switches.
We won an even greater number of GaN designs in nonmobile applications including a multimillion dollar design for a new platform at a top European appliance OEM as well as designs in home automation, lighting, audio and industrial controls. GaN also features prominently in our road map for motor drive products and will enable us to more than double the addressable market for our BridgeSwitch products. Meanwhile, current BridgeSwitch products, which incorporate our proprietary silicon threaded technology, continue to win designs despite strong headwinds in the appliance market. In addition to exceptional efficiency in active mode, BridgeSwitch offers very low standby consumption, which is attracting strong interest from appliance customers in light of upcoming changes in the European eco design standards.
As we mentioned last quarter, the allowable standby consumption for a wide range of electronic products will be reduced beginning in 2025, and we expect the new standards to be especially impactful in the appliance market. The low sand by performance of BridgeSwitch perfectly complements our EcoSmart technology, which has helped us win a dominant share in the appliance Axillary power supplies. In September, we introduced our latest EcoSmart product, LinkSwitch-XT2 SR, which offers no-load consumption of less than 5 milliwatts. In Q3, we won a design at a top European customer for chipsets combining LinkSwitch-XT2 SR and BridgeSwitch in a refrigerator compressor scheduled to begin production in the middle of 2024. At a higher level, customer interest in our products has never been stronger.
On last quarter's call, we said that we had added more potential revenue to our design pipeline than any quarter in our history. And we beat that record again in the third quarter. This reflects the broader range of applications we are addressing and our rising dollar content as evidenced by the fact that our average selling price has increased by almost 70% over the past six years. And we are well positioned for growth once demand returns, thanks to recent design wins, including a Q3 design win that will give us a significant role in India's 5G fixed wireless rollout which is expected to ramp over the next several years. Finally, we demonstrated the superior efficiency and ruggedness of GaN InnoSwitch ICs last month in the Bridgestone World Solar Challenge where we co-sponsored a team of engineering students in a race across the Australian outback in a solar-powered car.
With the help of our applications team, rates implemented a DC to DC converter that achieved almost 96% efficiency at full power and a 50% improvement in light load efficiency compared to an earlier solution, greatly reducing the car's energy use. I'm happy to report that of the nearly 30 entrants in the race, Fovea sponsored team was one of only 12 to complete the seven-day 300-kilometer journey. To conclude, in spite of the tough demand environment, our long-term outlook is unchanged, and we are focused on what we control, sticking to the playbook we have followed in every downturn. We are keeping inventory elevated to retain foundry capacity and to be ready for the strong upturn knowing that we will be among the first to see the turn when it comes.
We are managing expenses prudently but investing in the products and technologies that will drive our long-term growth, such as GaN, automotive, motor drive and our next-generation gate drivers. And we are buying back our stock when it's down and growing our dividend, knowing that we will continue to generate strong cash flow as revenues recover. With that, I will turn it over to Sandeep for a review of the financials.
Sandeep Nayyar: Thanks, Balu, and good afternoon. In face of the weak demand environment, we are managing expenses prudently while continuing to invest in the opportunities that will drive our long-term growth. We are also moderating our manufacturing volumes but as always, we are cognizant of maintaining foundry capacity and having inventory to respond to an upturn when it comes. Revenues for the third quarter were $125.5 million, up 2% from the prior quarter and down 22% year-over-year. On a sequential basis, the communication category was up mid-teens, driven by design wins and channel restocking associated with the China handset market. Chinese OEMs, their charger ODMs and distributors have run at unsustainably low levels of inventory over the past several quarters and we view the restocking as a further sign of normalization in that market.
The industrial category was also up mid-teens sequentially driven by high power where we have seen strong growth in utility scale solar. Automotive, while still small, was also up from the prior quarter. Computer revenues were down more than 30% sequentially, driven by tablets and to a lesser extent, notebooks and aftermarket charges. Consumer revenues were down mid-single digits, driven mainly by seasonality and air conditioning and the continued softness in the overall appliance market. Revenue mix for the quarter was 32% Industrial, 32% communication, 26% consumer and 10% computer. Non-GAAP gross margin of 53.3% was modestly below our expectation due to end market mix, but nevertheless increased by 150 basis points from the prior quarter driven by manufacturing efficiency and the weaker yen.
Distribution inventory ended at 11.6 week, up 1.5 weeks from the prior quarter driven primarily by the channel restocking for China handset customers, as mentioned earlier, while distributors for other end markets remain at elevated levels due to weaker sell-through. However, we did see a reduction in channel inventories in October. Non-GAAP operating expenses for the quarter were $41.8 million down more than $2 million sequentially and well below our forecast as we continue to adjust the pace of hiring and manage discretionary spending carefully. Non-GAAP operating margin for the quarter was 20%, up almost 4 points from the prior quarter. Non-GAAP earnings were $0.46 per diluted share, up $0.10 from the prior quarter. Cash flow from operations for the quarter was $26.7 million.
Inventory dollars on the balance sheet were essentially flat from the prior quarter and rose by four days to 230 days at the end of quarter end. Uses of cash during the quarter included $8 million for CapEx, $11 million for dividends and $2 million for share repurchase. The buyback at $73 million remaining at quarter end, and has been significantly more active since the end of the quarter as dictated by our preset price volume matrix. As noted in our press release, our board has increased the quarterly dividend to $0.20 per share beginning with the fourth quarter payout in December. Turning to the outlook. We expect revenues for the fourth quarter to be $90 million, plus or minus $5 million. Non-GAAP gross margin should be similar to the Q3 level of 53.3%.
Non-GAAP operating expenses should be around $42.5 million. That puts us on a course for a full year expense growth of only 3% despite this year's high inflation. Finally, I expect non-GAAP effective tax rate for the fourth quarter to be around 7%. And now operator, let's begin the Q&A.
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