Power Integrations (POWI) 3 Aug 232023 Q2 Earnings call transcript

Thank you for standing by. My name is Maria and I will be your conference operator today. At this time, I would like to welcome everyone to the Power Integrations Second Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. Instructions] [Operator

would Director turn Shiffler, of ahead. I to call please like Shiffler, Joe Investor now you. the to over go Thank Relations. Mr.

you, Chief Chairman, and joining of Power Thanks the Thank Sandeep today CEO afternoon Nayyar, and me our call Balakrishnan, With Officer. on for Balu are Integrations; Good Maria. Financial us. everyone.

of second of this today's acquisition-related items. compensation GAAP. Non-GAAP to call, calculated not according stock-based the and we During assets, to included A exclude for intangible will GAAP quarter the tax measures expenses, these in XXXX refer is release. results amortization non-GAAP to financial of our of measures press effects measures reconciliation

believe, session, include performance. forecast, the discussion plan, denoted expressions should, anticipate, including prospects, Our and would, look forward-looking or expect, will events today, toward future similar outlook, by Q&A statements that will, words like

risks materially in the our to Such Form with projected SEC or to actual statements are XX-K seven most subject on Such results uncertainties and uncertainties cause and XXXX. from filed in those press may release and that are differ recent risks February implied. today's discussed

of expressly this and any is Power call of the prohibited Integrations. Integrations without is written rebroadcast or Finally recording the consent Power property

to I'll Balu. it Now, turn over

Thanks Joe and good afternoon.

our cyclical results a trough As quarter. of expected, the QX marked reached from prior recovery start the in the

soft in first especially in go continue environment, the production. expect growth inventories improve reflects China, demand compared revenue half the second new While to a the of recovery designs as of pace do meaningful the into half the and to we year

the half. in like and cycles. market efficiency, operating margins significantly -- products and secular of going are margins energy, industry margins winning gross gross the higher significant our expect in renewable are regardless second the importantly, also strong and Most electrification energy trends We higher

DC for power reducing these electric position and in a lights, our in energy-efficient energy drivers motors of leading and trends expertise participating and renewable contributes lower in transportation, our standby all in are waste. of through and to brushless LED future we carbon them GaN, presence Each our

Now, standby who power and never synergy from remains to thanks place. that priority the energy makers is quality the electronic first today grid relevant ever the it as cleaner used in technology ever-increasing remains for devices recognize of number a drawing the as the we

that in With talk has I'll its in standby more a and revised mind, moment. about that EU standards ecodesign recently consumption for

slightly. consumer Second category quarter appliances the from our XX%, line in revenues were air strong Industrial, conditioning. other growth All led sequential by XX% declined the showed at with prior to $XXX last up driven quarter. guidance categories enter correction, and by million, cyclical grew the which

aftermarket fell and category consumer computer associated inventories desktops, market was sequentially, normal are driven GaN approaching XX% significantly by charges. with Channel tablets, levels. up QX and the than more The in

high were from Revenues despite sequentially, teens the continued communications category the softness market. in up Android

Android to months essentially Chinese orders revenues have were inventories flat prior below a rush from While the from channel customers in we and OEMs. be from well received of recent serving normal distributors number quarter, continue

down weeks, beginning at and year. the than ended three of more half half and Overall, distributor the a quarter week the about since XX from inventories and the weeks quarter a prior a down

reductions the quarter. inventory further September channel expect We in in

in a sequential for continued reflect inventories growth demand Lower do quarter near-term though weaker channel China. should enable expectations especially QX our September in environment,

pipeline and our growth well-positioned activity. look bottom reduction product strength and believe be of not also the of expanding to an we quarter. the in design we driven cyclical forward are year-over-year of XXXX, for cycle pleased are just the we but fourth past the Nevertheless, in by to We a growth of portfolio recovery,

of our the quarter. use ease and applications in superior of we of content design increased In addressing breadth and rising appliances opportunities are high revenue potential reflects of of all-time we during terms performance product. and and QX, achieved created in value the dollar an charges This

supply technology ICs ICs of a the and the applications separate or switches available, with interface secondary InnoSwitch the now power of flagship highest choice GaN integrated well silicon with of set protocol FluxLink isolation fourth for silicon eliminate in Our carbide and for InnoSwitch couplers. a technology mobile integration the as the PD including generation primary continue an level chip. site as in art removing to control state offer USB need

our the charger PD increase customers high-volume and driving designing the dollar has this out cellphone version substantial recently capability largest to of taken InnoSwitch our advantage content. upgrading chip PD of a a One USB in of protocol in

products won factor receptocls with of in also search QX power and non-mobile in a of as aftermarket wide QX half applications. about well we ICs, XXX of equipment, non-cellphone won revenue HiperPFS-X/GAN year of USB with medical number chargers controls, advanced this air our range Overall, a designs protectors. InnoSwitch GaN to our applications as correction from conditioners, designs output. PD including other We GaN two devices in including GaN's walled charger interswitch come expect USB, watts industrial

us far racking for inverters. interest A we new our solution InnoSwitch silicon and XXX-volt the power up production InnoSwitch significant replacement and European supplies automotive, with products battery have strong products design car Chinese with in In of total supplies are by XX-volt emergency the GaN passenger and away in In best vehicles with year. supplies in for at ramping our Chinese to in Tier-X and in we which XXX-volt seeing we power carbide wins recent Tier-X brand now this be production emergency a cars. XXX-volt are power of are end the are a we with is four QX Two drivetrain design models major activity car same customer. expect follow-on beginning for with win customers

in at a opportunity brushless to than end in strong much wins The appliance in million. equipment design as back as prior appliances creating motors power higher bidswitch And us become products. automotive of $XXX supplies other our set is market. gives calls, have opportunities position rate opportunities up all, design and converting our in In are broad for transition pipeline incumbent sockets a high into the And available. we we leg exceeds motor dry any DC our noted

mandate drive pipeline systems XXXX. than than grew In opportunity and motor the $XX for allowable on circulation light our standards beginning more in XXXX. to secured a begin computing in range greater ICs million power of pumps reduction design to standby major the QX, but capability also Bridge takes electronic solutions, of when not more a use. of minimize heating supplier we our in efficiently as production a wide This in for an power first is importance radiant updated in Switch consumption EcoDesign only which in motors of not appliance products Europe's early scheduled

applications customers. loss provide and been two but end This every and saving a stricter the It eliminated introduced cost these the of of estimates. is more EcoSmart update or than by added without electivity million the year part standby the tailwind broad since worth waste since regulations without our first technology user homes reducing ago. range produces of on consumption our should a design any power savings usage standby OEMs years in of supplies for products technology major across our Integrations effort functionality the to all XXXX to leader meet redesign in we've as standby has EcoSmart Power limits. XX

modules power addition carbide drivers we active IGPT with In silicon technology mode and in and drive to savings our de-carbonization efficiency gate driving GaN, contribute EcoSmart applications. with which standby with to higher also scale high-power

by are where of renewables are on for mainly inverters key our utility-scale for growth installations. year driven wind solar drivers gate We track this business components turbines of and another in

This to revenues and to have are production for it recently and from get in of heavy the link well attention energy to XXXX. And a won positioned locomotives. equally we in a Sea is half in millions project second multiyear dollars wind worth of passenger DC cars connecting as farm grid a vehicles while Just begin generating we electrification as of their the important high-voltage scheduled the electric renewable benefit most to North transmission is delivering efficiently design Mainland.

We In strong we largest manufacturer a EV won in scale our in design ahead as locomotive traction inverter a years such vehicles and seeing high-power for customers our lower and trucks, towards for the benefit the as buses, equipment. from business carbon construction high-volume all QX boards gatedriver are world interest driver at a is heavy Europe's in drives poised tremendously to future.

of review With turn it Sandeep over the a to I financials. that, for will

profitability, XXXX We than the all environment demand Balu, challenging in cash delivered half the And with guidance. we the second key much good in line while to afternoon. respects and QX inventories. significant improvements our revenues, be flow with in and expect Thanks, is better first of results

guidance a compared to the Revenues and our roughly were XX% with of by XX% and each range ago. $XXX compared the quarter up prior consumer industrial cycle. for the middle million year down the year-over-year from quarter of fell drove was second categories quarter. which The decline in Revenues of the the year, peak last QX half to

However, further have the in sell-in mix up with mid-single and Consumer, distribution the computer. XX% each a Revenue exceeded them growing for QX. categories resulting the digits of consecutive a resumed communication quarter inventory. in third communication XX% for and was in computer quarter, XX% on XX% Industrial, basis Sell-through year-over-year reduction

benefit dollar-yen last weeks and our December. that of driven year and modestly at the by XX.X mainly quarter as quarter the expected weeks of quarter end a prior in gross now favorable beginning began at the to from more XX.X XX.X exchange was compared of Non-GAAP the to channel rates ended second We margin the affect XX.X%, last half P&L. up weeks is from inventory slight

well production kids. in more a favorable bigger higher wafers benefit into as more half from mix the volumes and I as finished second from expect benefit back-end as a a end we market then convert

to release, drive effect up in expected September of margins took indicated press a with come to around sequentially Non-GAAP annual quarter. operating gross as this around for million, increases quarter which due our As quarter. the the the increase our the start were XX% in salary expenses $XX.X quarter, further fourth non-GAAP to the in mainly should

However, per guidance non-GAAP quarter Non-GAAP as slowed discretionary was on the XX.X% the $X.XX operating we for and came headcount deferred we some below margin spending. were in OpEx our share. diluted earnings of additions and pace

$X.X in unfavorable should which should the million quarter. quarter ended and for in from days the days operations over Inventory quarters. terms reflecting we QX from QX. of balance was peak sheet working June flow XX days the several on reverse down the flows capital the begin and dollars XXX inventory was declining the at prior next quarter in March Cash peaked

an at Uses million bought about million quarter for back repurchases. dividends and share. average during for shares $XX of million of cash $XX price We CapEx the per share included $X during XX,XXX $X quarter for the

Turning to outlook. the

expect third should quarter for We million channel or to the inventories be fall. to million. reported once again higher plus Sell-through revenues $XXX revenues continue $X as minus than be

I expect As operating light we as non-GAAP the third noted and expenses of continue slightly down gross environment. demand be in manage growth margin about earlier, QX Non-GAAP around to discretionary $XX.X to soft million headcount spending for quarter from should be the XX%.

the non-GAAP Finally, effective between tax the and X%. be year to and I X% for expect rate third quarter

And the now, operator, let's begin Q&A.

[Operator question Please Instructions] Mr. Susquehanna. go Christopher Rolland Your you. Thank with from comes first ahead.

if even looking guess and to industrial clues force a you perhaps as is in could segments dragging those little can your here some forward maybe like It performers. worse us shrank sounds of give for I us. bit better the you here terms

the you going And of if the amount to would about do we year, about normalized the industrial if year at basically, the getting consumer channel and talked what was this inventories. and the of had look well, be track at communication in talked – during and beginning specially it that and So COVID, if computer was you we consumer a of reflected and the demand. look pull-in in segment, had biggest that are the there segment, you was is remember significant

I higher, still the in issue. are in and channel actually that's the normalized where it's consumer while below a timing think communication as industrial inventories the but have is Now, segment

it's the to our half and got were the demand pushed in think as which benefit goes I has QX. expect which margins -- with come quarter in get conditioning down. appliances seeing do our second the the benefit from volume And customer, we And But we expecting air coming year is because in is Korean which typically were in we along to comes going the the move third there the by like the growth back. favorable, second half. higher in are into from the that more mix some revenue where yen we even As industrial the reflected

in second you And half. you, higher about Great. Thank Sandeep. the gross talked margins

the You talk production kind volumes we margin you think, yen. through just attribute the more end rising how and to factors? favorable yen mix. Maybe year to those we and alluded would called I what But, out the year might three gross end Thanks. of a progression about each of then

Yes.

levels moved move second typically And into a P&L. our year. last taking the we that about about first the how we now of in know XX.X%. up but if you the it's talked to the it we QX half talked you it So inched And in half longer look had months, about takes little at with were in QX. But months. inventory XX.X% if about as yen nine six to you We bit a it had around remember

will XX% up from will we gross our in around at then margin inch So QX, non-GAAP it there. see and

have the the towards I going of model. to in about in talked And the but we are our higher as the model, past, our end volumes and But think As I second the is benefit revenue starts I be think more it yen benefit. come in have mix, what of back those both the I more quarters half from discussed. reflective in coming

much, guys. so Thanks

The Bank. Deutsche Mr. comes Please ahead. next Seymore from go from question Ross

for Thanks question. asking guys. Hi,

just guys It you end situation channel you other weaker at like to the done on true have Just demand they great have side wondering, than clear being job hoped. the very coming is otherwise inventory that a might rub on the see is and seems that.

this much bigger have quarter the the it's might up but quarter fourth on color third year-over-year. still as second the express you the not just fourth you bottom even magnitude in quite Any confidence the You being in quarter up hoped up year? is half the being because of of sort earlier directional the as set

Well, is This hi, Ross. Balu.

seasonality the down look the at some If can of areas is year to come these of we comes the number of down. know be of and that for exactly years back, this upon will is compared year this going or end XX QX you an last the slightly revenue markets QX. best incrementally years, higher to really some X% because XX it depletion inventory And estimate the the coming the about think we we hopefully much What it QX. because the quarter back demand depend whether don't of how be higher into will a it's will by end on whether it

it's that to be comfortable feel we going So how much.

while To I pipeline. That -- me, million have you. And you limited. billion pipeline $XXX extent Got excuse fair. over know visibility the seems guys is dollar that

again kind know general. design number in markets of of end a wins You diversifying with the different different

but the year company-specific the for can you for control could think us will at puts incremental and just design the Walk uncertainty, be you stuff a look If macro in those what for you an negative XXXX? can drivers that talk the wins you takes generally about be control speaking or through next would layer might you how stuff

we'll growth quarter. I optimistic that strong am have XXXX, a

out that we Now just in our on down industry. better during this gains we have a the is our based experience of -- Because actually downturn. whenever the of previous we share do the cycle, than come

year. all grow next expect markets we So to

in growth QX deplenishment If and should inventory from I lot inventory the inventory you the a coming depletion the just of say. year are seeing it revenue look replenshiment, you're at this QX –

is point. but has turn weak, at to The still real demand it around very some

I happens. that happens will in growth QX year know. turnaround of magnitude don’t it the upon depend QX, whether But Now when next or

strong computers. that design it QX not it's could will history end in and but growth year. in year say, and increase automotive, just next industrial, our in incremental a year have impact significant be the pretty on have big will of but this on based by we based fact -- a have the happens Let's consumer, automotive wins it

ports is just we some even are because but growing, we gaining market higher increase of and the of level we – ASP integration ASP So in mentioned. gaining not as are itself

Rgith.

you talked that this end about QX, we a year going took it, which the to about thing you if of The year. we you is is get adjusted if was if look had really COVID. talked in remember, demand the full how anniversary at at pull-in and impact other And during the has an as the that the on

So if you that look at really segment.

then was an came in you The in communication talking and he that than other do is came area look what share and and alluded, the Balu continues it, the if and came back content believe, at high XXXX an back that about to analogy three stronger back the happened we power when we before continuing to well years much after, are business really have so market. as we

things you when we depending come better. turns, historically considering, on So so back when do if typically these look at and it much we does,

why part the Is that's the will for a does think that QX ramp? it So be and issue the the I issue. QX is that's when hope XXXX, it timing

Got it. Thank you.

call ahead. next Company. from Mr. Please is The Benchmark go David Our Williams

good the gentlemen orders had quarter question. some expected had thanks replenishment the for half last afternoon, of you taking about expedited as just talked talk guess, and and Thanks, more my and well. Sandeep second about strength I

where of curious get on Just color to around versus kind it's maybe the edges. some change what soft dramatically

changed any quarter? what the Just of you guess during I magnitude might color on have the

this Hi, is David, Balu.

the But be QX talk than the a of Paul this declared when depend recovery half. was bottom better me take [ph], Dennis demand. will first Let on we and slope should second to the significantly question. Last we quarter the half

demand changed to significantly has last is weakened our six the weeks. And what has All time of but short-term the has over eight of that that environment. through view

we last cliff people COVID reshape was after that were that’s That’s not just they orders pessimistic. was and March, the in I gave had then the second clear, based QX in and much it in about fell June. and stronger. June orders quarter customers, and actually being April, And thinking thought we the but a would believed in be And Now, the also in very confidence And and low what restrictions was that on why visiting the demand they placed the the QX very strongly strong were back QX. they recovery will lot the lifted reason in us come bookings half was in China off of May. orders.

But that. than the came and what demand. of they better erring is much of and for on is serious, really demand, only local US think demand problem any want the China actually serious some an in was genuinely be Europe they keep believe, – But a that also better I the demand happened very and very of they too pessimistic not confusing on customers Chinese But sense better side and because never of demand. pessimistic they much demand a of had to are inventory. because China caution for than truly going believe, demand in I have back export local is become that what in probably which were is in see really for don't little bit export terms terms demand, We but should

when parts mean some them inventory it's normal and very them until way need still a I The but rush won't they need order. evident buy they that's always is cases. in they below

weakness. two customers I this China. have the a mentality maybe the by in that's causing of might tell only but to its that think is is a So this gotten possible that's issue they it is cautious more delayed of hard and quarter psychology demand too of And short-term kind

hopefully position. than a QX XXXX, demand and will was So though this restart we’re I'm and in good to lot to that our It's question year, a for there of has hoping even well right time in times. fingers demand of more come really it fundamentally pull-in the now because just eventually of back, will a during It's very, COVID has back. a this bodes very year crossing which and come

will so the are confident demand very we outperform And the when comes market. we back

guidance, about have important, need comfortable are but backlog through meet In strong to the they tells on what terms have very with more we the again a based need very have, will significantly better because business them. minimize because are parts But to that are below we had turns of June. July they May, when guidance. trying our so QX get they our improved. And me And they bookings June, we XX% we low March to than order improved are and Actually them. turns so of the when they still from times that it's people lead inventory only luxury roughly its midpoint have are able parts need

as QX but of makes as I'm that So personally not I optimistic. the visibility clear said

really I like Great. there. just revenue out. is good And for that would updates on that. of any But A Thank that you know there maybe side. you lot the time color to then share? automotive some still

just gives is is extraordinary. attractive much so significant As couple opportunities. rate I products going able in we everyday. of to even business. script, The in so to as is, or many be twice ramp conversion as of automotive is more in the though, us that said rest are identified market, wins. and there our terms that of feeling years But the have $XXX least very, of of we million we confidence those convert real better interesting level very mean, is to in plus design I a how interest at away But the a my are

with are you all of large that big of recognize. engaged would We a OEMs number

use. that of number talk the cases, integration number efficiency we such thing, the keeps changes fact that large Tier offer In want finding time the high is that and increasing Xs And OEMs. that another every to actually we the to architecture supply other can fit And to customer. we socket we're the they the of some

we very totally For driven reliable and power very the efficient whether batteries XXX of volts by XX-volts directly example, or main voltage that its a supply XXX XX-old the fact eliminate from volt -- offer battery the supply the really replacement battery. can is

for Great. color. the Thanks

welcome You’re

Svanberg, next [Operator's from question Stifel. Our is go Tore Please ahead. Instructions] call Mr. -- next our

That's Yes. the in Sandeep, what inventory expect you do be have September channel quarter. at Stifel. to would you -- the

to just I about XX weeks. this I think your X%. X% quarter know was is target

think September at do come in it you will the quarter? in what So,

Yes.

think, it this in reflected And around the had came I XX sell-and and and that's at expected should see exceed the to come tell I'll X%. you XX% why sell-through you to quarter I in XX it our guidance. buyback being that is QX

next nine expect should to For somewhere that around do about and I higher give to inventory X than be to and to the the take. the XX million X% quarter sell-through sell-in enable come

Balu, XX% the right? Perfect. sounds your for wondering like with eventually And I gross could or is is Switch to I line average? starting just it. Bridge margin revenues, be Switch, is guess it off of take this now. still really in Got potentially was higher corporate like Bridge the Because

could Bridge similar could be in automotive Absolutely. of Xbillion each. I the terms $ in mean level Switch similar level of that be and are they remember

of optimistic are about we very So them. both

have by year digit time. that very many but because designs it the of not Bridge seeing mid terms a year low fast demand million next originally we thanks we could we ramp simply strong wins. expect as design as into will in this be anticipated. design growth the a Switch production In of But are nevertheless go But lot have wins being single will of we to these

it's margin consistent margin our as far with market. again overall gross for As gross various

my I'm is, to Cellphone right? in Because or mentioned what we then in move accessory adapter last computing be adapter to of should accessory? know like category because how classify And a don't feel PD was I as And just so you confused, do adapter starting Perfect. is anymore the third charger. an the versus the a I question computing PC what discussion you accessory communications guess, versus up

excellent question. an That's

me let talk So radios about concept.

notebook in for areas of port the power. computer a multiport. simply cell notebooks aftermarket very Tablet have but we think on pick have multiport of phones if watts a charge about have we in but computer it And classify is the grown because It's its we us well a and as if usually . very power power terms high nice done a or bourdon charges very is them adapters on That’s One level. it to can as plus is that so and one classify XX other we up I to port it's

picked where the it about If okay it's that power notebook. it's have said We that we below is cellphones. definitely

how classify we that's So it.

So standby power that. charges from the the on growth strong supply supply power there aftermarket GaN have primarily. And also quarter desktop for we came

we So of inroads are -- but significant actually for notebooks. making in terms design activity

So that allow we notebooks further still should share to help low grow because relatively grow that should even percentage us computers us to and a have over time.

clarifying Perfect. Thanks for that. Thank you.

Thanks, Tore.

remarks. Mr. Joe Investor of closing Relations I will over Shiffler now turn the for to Director back call

it listening. a listening investors.power.com. this and website there is good call will afternoon for a which I’ll available earnings be this Thanks on replay leave on everyone afternoon. busy for there. have Thanks our Okay. of again,

Thank call. Ladies you and gentlemen that concludes for today's all joining.

disconnect. now may You