芯源系統 (MPWR) 2012 Q4 法說會逐字稿

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Monolithic Power Systems Incorporated fourth quarter and full year 2012 earnings conference call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will be followed at that time.

( Operator instructions )

As a reminder, today's conference may be recorded. It is now my pleasure to turn the floor over to Meera Rao, Chief Financial Officer. Please go ahead.

Thank you. Good afternoon and welcome to the fourth quarter and fiscal year 2012 Monolithic Power Systems conference call. Michael Hsing, CEO and Founder of MPS, is with me on today's call.

In the course of today's conference call we will make forward-looking statements and projections that involve risk and uncertainties 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 statement contained in the Q4 earnings release and in our SEC filings, including our form 10-K filed on March 12, 2012, and form 10-Q filed on November 5, 2012, which are accessible to our website, www.monolithicpower.com. MPS assumes no obligation to update the information provided on today's call.

We will be discussing operating expense, 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 earnings release, which we have filed with the SEC. I would refer investors to the Q1, Q2, Q3 and Q4 2011 and 2012 releases as well as to the reconciling tables that are posted on our website. I would also like to remind you that today's conference call is being webcast live over the internet and will be available for replay on our website for one year along with the earnings release filed with the SEC on year-to-date.

We would like to start this call by reviewing our business highlights for 2012 followed by first quarter operating results and finally our expectations for the first quarter of 2013 . We will then open up the call to your questions. Let's start with the business highlights for the year. We are pleased to announce MPS revenue grew 8.8% to $213.8 million in 2012, clearly outperforming the Analog industry which SIA estimates shrank 7.2%. Gross margin also expanded 120 basis points to 52.9% in 2012. Our non-GAAP operating income for the full year rose $9.4 million to $35.9 million in 2012. Non-GAAP net income grew from $0.71 per fully diluted share in 2011 to $0.93 per share in 2012.

In 2012 we grew revenue in each of our targeted market segments--industrial, computing and communication. Industrial is up 93.2%, computing group 36.4%, and communications increased 13.5% compared with 2011. Clearly, we are executing according to our plan. We saw our strongest growth in industrial markets where sales increased $12.3 million to $25.6 million over the prior year. This performance was fueled by increased product sales for applications in smart meters and general industrials as well as commercial med lighting. We have seen significant design win activities in building automation, security, appliances, environmental controls and automotive. All these design win activities will continue to translate into revenue growth in 2013 and 2014.

In 2012, computing revenue grew $11.1 million to $41.5 million, fueled by strong growth in storage. In two years we have been able to grow storage revenues to more than $25 million and we see tremendous new opportunities for growth in this market. More importantly, our industry-leading, point-of-load products have gained wide acceptance in servers and ultra books and are expected to generate significant revenue in 2013. Revenue in the communications and telecom markets also grew $6.1 million in 2012 to $50.9 million, primarily reflecting market share gains. In 2011, we introduced our first power module, and in 2012 we introduced additional [end of use] power module products targeting high efficiency and safe constrained applications in networking and other markets. These products have generated great interest from networking as well as top-tier customers in other market segments.

Revenue from consumer markets declined $12.2 million in 2012, $295.8 million due to large part to unique market conditions in the second half of the year. The TV market in particular was impacted by weaker demand. Looking forward, additional cool power projects are starting production. Most significantly, we introduced a family of high-current switching battery chargers targeted at power applications such as mobile phones and tablets. Our BCD3 technology has allowed us to make very small ,competitive and high-performance switching battery chargers. Initial feedback is very encouraging and we are currently projecting production ramps in the second half of 2013.

2012 has been a great year for our technology development. We launched our next generation BCD4 process technology, which represents as much as a 50% die size reduction from our BCD3 technology released just a year ago. Our BCD3 technology leapfrogged the competition and we believe that BCD4 will extend our lead even further. BCD4 will enable us to develop the highest power density products in the semiconductor industry, greatly reducing system size and complexity. The first products target networking, servers, and storage.

Switching to Q4. Our fourth quarter revenue of $48.2 million was at the midpoint of our guidance. Compared with Q3, revenue was down by $8.3 million or 14.7%. Q4 revenue increased approximately $750,000 or 1.6% from the fourth quarter of 2011. Our fourth quarter gross margin was 53% compared with the 53.1% reported in the previous quarter and the 52.5% posted in the same quarter from one year ago.

Our non-GAAP operating income of $8.3 million was lower than the $10.5 million reported in the prior quarter but higher than the $5.5 million from the same quarter of the prior year. Q4 non-GAAP net income was $7.7 million or $0.21 per fully diluted share compared with $0.27 per share in the previous quarter and $0.15 per share in the prior year. Let's review our non-GAAP operating expenses. Excluding stock compensation our non-GAAP operating expenses for the fourth quarter of 2012 were $17.4 million, a reduction of $2.2 million from the $19.6 million we spent in the third quarter. This reduction was largely due to a $2.5 million legal judgment in our favor during the fourth quarter, which was recorded as a benefit to litigation expenses.

Moving on to our GAAP operating expenses -- GAAP operating expenses. Our GAAP operating expenses were $24.6 million in the fourth quarter compared with $23.7 million in the third quarter. Since the only difference between non-GAAP operating expenses and GAAP operating expenses for these quarters is stock compensation expense, let's take a look at the stock comp expense. Stock comp expense was $7.1 million in the fourth quarter compared with $4.1 million in the prior quarter. As you know, MPS declared and paid a one-time special $1 per share dividend in December 2012. An equitable adjustment of vested stock options outstanding resulted in a $2.8 million stock comp charge in the fourth quarter.

Switching to the bottom line. On a non-GAAP basis our Q4 net income was $7.7 million, or $0.21 per fully diluted share. This result is computed with an estimated tax rate of 7.5%. Q4 2012 GAAP net income was $248,000 or $0.01 per fully diluted share. On the topic of taxes, our GAAP tax rate in the last few years has been below 10%. However, our 2012 GAAP tax rate was 11.9%. Stock comp charges related to the special dividend that we mentioned earlier, increased the 2012 tax rate by about 4% -- 4 percentage points.

Now let's look at the balance sheet. Cash, cash equivalents and investments were $122.4 million at the end of 2012, down from the $197.3 million at the end of the prior quarter. This reduction in cash is attributable to the $35.7 million in special dividend that we paid in December 2012. We also spent $2.1 million on capital equipment. MPS generated operating cash flow of about $12 million in Q4, and cash proceeds from employee stock options exercises contributed another $1.2 million. Cash, cash equivalents and investments were down $15.5 million from the $187.9 million at the end of 2011, mainly due to the one-time special dividend of $35.7 million paid in December 2012. We also spent about $21.2 million on capital equipment and headquarter building improvements.

During the year, MPS generated $26.5 million in operating cash flow and $15.2 million from stock option exercises and ESPP purchases by employees. Accounts receivable ended the year at $19.4 million compared with $21.6 million at the end of the prior quarter and $15.1 million at the end of 2011. Days of sales outstanding were up slightly, 37 days in Q4, from 35 days in Q3 2012, and up from 29 days in Q4 2011. Our internal inventories at the end of the year were $32.1 million, slightly lower than the $32.6 million at the end of the prior quarter. Days of inventory, on the other hand, increased from 112 days at the end of Q3, to 129 days at the end of Q4 in line with lower Q4 revenues. While days of inventory in the distributor channels remain the same as the prior quarter, inventory in the channel declined in dollar value. We also observed that most of the decrease in distributor inventory was in older products, while new product inventory increased.

I would now like to turn to our outlook for the first quarter of 2013. Entering the first quarter, the cool power projects pushed out of Q4 have begun their production ramp. With the economy improving and design wins ramping, we're seeing positive momentum in our business. Our revenue guidance is in the range of $49 million to $53 million. We expect gross margin to be in the range of 52.8% to 53.8%. We expect stock-based compensation expense to be in the range of $4.2 million to $4.7 million.

In 2012 and 2013 we implemented pay-for-performance equity compensation program for our key employees. As a result, we are required under the accounting rules to assess the probability of hitting the performance metrics on a quarterly basis. This will add volatility to stock comp, compared to the typical straight-line approach associated with time-based grants. We expect non-GAAP R&D and SG&A expense to be in the range of $20 million to $21.5 million. This estimate excludes the stock compensation estimate mentioned above. In conclusion, we are executing to our vision of growing MPS to a $500 million Company and evolving from a consumer-centric Company to a diversified Company targeting cloud computing, internet appliances, industrial and automotive markets. We are at the beginning of a new era of growth and diversification. I will now open the microphone for questions.

Thank you, ma'am. ( Operator instructions )

Patrick Wang with Evercore.

Very good guidance. My first question is this one. When we take a look at 2012, you guys grew the business -- overall business about 9% year-over-year and that's in a pretty tough market. I'm just curious when you look out over the next year or so, how do you see you guys performing versus peers? I'm curious how much out-performance do you guys expect versus the overall analog group when you look at it all-in.

We expect to -- definitely expect to outperform the market. And the extent we outperform the market all depends upon the market conditions that we have in 2013. But we have a very strong mix of design wins that we have. We are diversifying into several new markets that we have not diversified into before and I think this will give us very good momentum.

Patrick, if you look at our long-term model, as I said it before, in 2013 we will try to hit our target model. That is also given the macroeconomic conditions. If the market is really against us, I think there will be a percentage difference will show that.

That makes a lot of sense. And you know -- and I apologize for the drilling in the background, when I take a look at your end markets here, you guys have significant growth in industrial and computing and within computing, some high quality storage business. Can you talk about some of the product cycles we should look forward to on the horizon? It sounds like you guys have got a lot of great stuff in the pipeline. If you could just walk us through a couple of the key ones, that would be helpful. Thanks.

Yes. There are so many of them, [markets made] in the field. Storage continues to be strong in 2013 and 2014. And also a point [overload] for communications for servers and for ultra books, as Meera mentioned in the script, will generate meaningful revenue in 2013.

In industrial, we are in various different sub-segments in the industrial market like LED lighting or general industrial meters, so we expect to grow in those as well. And battery chargers is a new area that we are -- expect to have additional incremental revenue this year that we have not discussed in the past.

Also Patrick Wang talked about computing.

Yes computing. Sorry.

I realize there's a lot of other -- last question. You had a push out last quarter from Q4 to Q1 of a couple million. Meera, you talked about that on the call. I'm kind of curious how much of that came in -- came through in the fourth quarter? How much more do you expect to get in the first quarter? Thanks.

Some of the cool power production ramps that were pushed out of Q4, as we had said in the last call, we are seeing some of it come in this quarter and we expect some of it to start next quarter. So, there is no change from what we had discussed in the last earnings call.

Tore Svanberg with Stifel Nicolaus.

This is Evan Wang calling in for Tore Svanberg. Thank you for taking my questions. You had mentioned in your prepared remarks that you are seeing good business momentum. I was wondering if you could add some color to that comment? Where are you seeing the indications and what are some of your customers saying and maybe what are your bookings trend in disty channels looking like?

We said in the last quarter there were a few customers -- a couple of customers that push out orders to Q1 and we also said that we see a positive momentum in the -- for MPS in the business. So as our customers [steadily] push out of -- to Q1 and the orders came in. In other business segments, we are new to the market and we see a huge amount of growth opportunity. We see all the tailwinds. We feel the tailwinds now.

Just to add to that, we have been hearing from our customers increased confidence in the fourth quarter and in the last few weeks we have seen a pick up in orders, we have seen higher resale, all of which support the feeling that the momentum is building.

And for my follow-up question, you had mentioned earlier in your response to one of the questions that you would try to hit your target model in 2013. Were you also including your revenue growth in that hitting the target model? I understand you have a long-term revenue target of $500 million. So the given that 2012 from a macroeconomics perspective hasn't been all that helpful, do you see some catching up in 2013?

Of course, MPS as a business [bombarded by] macroeconomic conditions. What I'm talking about you can't really absolutely talk about the numbers. What you said, yes, of course, the revenue is included in the target models. And I think what I really mean is the percentage is different from the industrial growth to MPS growth.

We are not speaking to our growth rate number. I just want to make that clear. We just expect to be able to continue to outperform industry. If the market stays the same we will still outperform. If the market improves we expect that can be sharper.

Steven Smigie with Raymond James.

Thanks a lot and good to hear that things are looking up a little bit and nice guide here for the March quarter. I was hoping you could talk a little bit more about EasyPower. It seems like you have a fairly compelling solution there. And can you talk a little bit about some color you might have had in bake-offs where you've gone up against competition and they've looked at the size and capability of your solution and told you why -- how would that bake-off go? Then specifically, can you update us on what the market opportunity could be in 2013 and then what kind of growth do you get in 2014?

I think that EasyPower is really at the beginning of a ramp and we see a lot of applications of building automation and also some of the infrastructures for environmental monitoring, and those are widely accepted by our customers. We will see the revenues continue to grow -- or will start to grow in 2013 and continue to grow in 2014 as we call the Internet of Things become more and more popular.

And then your server power solutions for Grantley, have you seen anything that would suggest maybe Haswell ramp starts more quickly for you -- or Grantley ramp starts more quickly for you than you might have thought it. It seems like there's some urgency or desire to push that forward. Does that pull revenue forward for you a little bit or have you already accounted for that in what you've told us.

I think that we have a lot of design winning in the Haswell and the Grantley solutions and we will see the revenue -- we will see the strong revenues in 2013.

On the Haswell ultrabook front, we expect that to be bigger in the second half of the year because that is when Haswell really ramps, but we are already seeing some pre-production ramps now.

Ross Seymore with Deutsche Bank.

Thanks for letting me ask a question and congrats on the solid guide, especially. Just looking at the first quarter guide, first and foremost, is there any large deltas from an end market perspective in what you expect these segments to grow versus the 6% average at the midpoint of your guidance.

In terms of will we be able to get very granular on this towards the end of the quarter. So what I can see from the early signs right now I would say that I would expect growth in all three of the market segment that they're targeting -- communications, computing and industrial.

And then a bit of housekeeping more than anything else. What should we think of as far as how OpEx grows versus revenue, tax rate for the year and CapEx for the year?

Let's start with CapEx. We expect CapEx to be around the $20 million level. In terms of the tax rate I would say we still expect to be below 10%, so I would say -- we usually say 5% to 10%. The reason we give that range is that a bunch of discrete items that we won't know until as the year plays out, but we expect to be 5% to 10%. In terms of OpEx, a lot of it depends upon the market. If market conditions continue -- if our revenue continues to be at the level we are projecting now we will keep our expenses down as much as we can. So I would expect that we would have some increase in new product costs while some additional costs for key hires in marketing and sales. So once, say business were to go back to normal and we see normal cyclicality out there, then we would see -- we've been holding down a lot of discretion in spending and we'll see that increase. We will also start investing in the future and start hiring more sales and marketing people in particular.

Cheng Cheng with Pacific Crest.

Maybe a first question on the charger product you talked about seeing revenues in the second half. I was wondering if you could give a little more color around the quantity or the quality of customer wins you have there, or how big the opportunity you think it is?

We feel -- the consumer -- or MPS was a consumer-centered Company. We, in the last couple of years, we would try to diversify from the consumer market segment and although the revenues we start to -- we see the growth in 2013 in a bit more opportunistic. That's not the segment where we'll really focus on.

You guys have a variety of different ramps and designs, just looking at the segments outside of consumer. Which end market do feel most excited about in 2013? Is that the computing or -- ?

Meera talked about it earlier. Industrial growth almost 100% in 2012 and we see the similar momentum. I don't imply the similar percentage. We will grow tremendously in that market segment and also the computing, telecom, and these are all -- and storage, these are all our opportunities.

Three target markets that we have we expect to be able to grow in all of them. Industrial, as you know, is typically slower just by the nature of that market. But we have design wins in various (inaudible) from different customers that will ramp, computing clearly you've got the ultrabooks, you've got the storage that's going to be driving it. Communications is also an area where we expect revenues -- incremental revenue from telco, but that is again a slightly slower market to ramp. But as we go out this year you will definitely see design ramps -- I mean, revenue ramps from all three segments.

Gus Richard with Piper Jaffray

On a little bit different tack here. Just curious what you are seeing in terms of wafer availability and in terms of wafer pricing these days. Has it gotten better or worse or are the foundries tightening up at all? How is that supply side of the equation working these days?

In terms of availability, we do not see any tightening up there. If you remember, as compared to 2010, we have a couple of different facts in our favor. One is that we have a smaller die size, which means we can get more wafers out of the two fab -- these foundries which you have then. We also have a third foundry. So between that, we have higher wafer capacity and also remember that we are going into this upturn with a higher level of inventory than we had in prior upturns and I think the combination of that, we are not as concerned about the supply side of the equation right now.

And then just -- I may have missed it, but did you have the mix of BCD2 versus BCD3 at this point?

I think we exited Q4 with about 40% of our revenue was from BCD3 and we expect that to grow as we exit 2014 to maybe a 60%, 70% level.

( Operator instructions ) Lena Zhang with Blaylock RV

I am just confused about gross margin. In Q4 your revenue is down around the 15%-ish and of course margin held pretty well, but look at your midpoint of Q1 revenue guidance and up sequentially but it's much better than the seasonality. But gross margin guidance just seems a little bit weak, so would you please help me understand that?

Okay. This is not precise point index. Any small percentage of a change, there's a lot of factors in there. We can have a product mix in a new product ramp and so any small percent of a change, like it's a real business, not a real financial model.

I just want to add to Michael's comments. What we have is, we are diversifying market and we're introducing new products that have better gross margin profiles, so what we are targeting is to see continued gross margin expansion. If you look at our guide for Q1, that's what you're seeing. We have some revenue growth so we also have an attendant gross margin expansion that we're forecasting right now.

Patrick Wang with Evercore Partners.

I just wanted to follow up one thing, can you remind us what your long-term targets are? I think on revenues and in terms of OpEx., I think as we look ahead with all these product cycles and growth drivers, I just want a refresh on that.

The long-term business model that we've been talking about is the one that we announced back in July of 2010 when we were focusing on more a high-volume market strategy. While some of those elements might not be quite as applicable, the key point that we have is our operating margin. We want to be a Company that has a high operating margin and we are targeting about 25% to 30%. That's our long-term model and we recognize that we have two levers that we can pull, revenue and gross margin. We want to be -- continue to be a high growth -- high-growth stock -- I mean, high-revenue growth Company as well as having a very attractive gross margin.

Steven Smigie with Raymond James.

I just wanted to follow-up on an earlier question on BCD3. So with regard to the penetration you're talking about, is that just on the parts where you want BCD3? I know you're rolling out BCD4 somewhat for separate parts, so something you could talk a little bit about? Is that penetration you're talking about? It's just on the parts you want? And just give an update on where you're you are on the BCD4.

The BCD3 product at this time is really the industrial leader for power density and we -- all the parts that we released from the second half -- from the beginning of the first half of last year's, all the parts released were all based on BCD3. Now these are products that are hitting the market for across the board from telecom and computing and also the EasyPower product line. And so in the 2013 we will continue to grow and, as Meera said, the percentage of -- production shift from the BCD2 to BCD3 we see it exiting for this year as more than 60%, 70%. We release the BCD4 product, which is further up to about 15% of a shrink from a BCD3, and those products initially we are targeting for telecoms and some of the industrial servers use.

We will be rolling out those products on BCD4 this year and I'm expecting revenue from them more in 2014.

And then just on the margin, can you talk a little bit about what the gross margin might be on some of the newer products versus, say, some of the consumer stuff that you are focusing less on and let's just say in an environment where the product's been in production for little while and so you don't have any ramping issues. What sort of differential would you expect in that mix?

For the gross margin side, all the market segments we targeted tend to have a higher margins and so as we grow -- and the margin will grow. We also -- at the same time we still have a large percentage of our product revenue being in the consumer segments. We still have to [defend] that. Let's say overall going forward we do see a margin creep up but we don't -- at this time we don't give a -- it's not the right time to give a long-term gross margin model now.

If I could just sneak one more in on storage. That's obviously been pretty successful for you guys. What's the product cycle for that product? Does that run just through 2013 and then you have to introduce something new in 2014? How does that play out?

The [product] that we introduced for SSD is just one of a series of family of products that we have, so we expect to be able to continue to play and expand our revenues in this market as we come out with new products. So we expect to be able to continue to play and expand our revenues in this market as we come out with new products. So we expect that cycle to extend beyond 2013.

It is -- to answer your question more clearly, yes, it is model dependent and we do have to an executing. The design cycle is about a year or so.

Thank you, sir. Presenters, I am showing no additional questioners in the phone queue. I would like to turn the program back over to Meera Rao for any additional or closing remarks.

We'd like to thank you all for joining us on this call and look forward to talking to you again in April. Thanks, and have a nice day.

Thank you, presenters. Again, ladies and gentlemen, this does conclude today's conference. Thank you for your participation and have a wonderful day. Attendees, you may log off at this time.