POWI - Earnings call transcript Q2 2019 | Power Integrations, Inc.

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Operator

Good afternoon. My name is Julianne, 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. [Operator instructions]

Joe Shiffler, Director of Investor Relations, you may begin your conference.

Joe Shiffler

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

today, measures non-GAAP accounting principles. reasons explanation these refer measures tables call our During posted to which press of measures for Please results. as will website, on reconciling to accepted according our our to financial investor the as GAAP generally well not we to release, calculated such is today's using refer an for

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

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

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

Now Balu. the over call I'll turn to

Balu Balakrishnan

Thanks, good Joe, afternoon. and

Second quarter the at end on slowdown cyclical near industry. million. coming revenues semiconductor sequentially, range of X% reflecting our a and increased That's down basis, the the related in $XXX.X year-over-year of impact upper disputes XX% trade in the

a incremental sell-through, year-over-year recent well for distribution source as quarter. wins, we margin growth quarter. as revenue encouraged are straight on the as trends exceeded a uncertainty, to bookings expect be design third of improving while Based trade in continues as a from trends second we to However, by recent sell-in well return the in these wide which by

$XXX about quarter year-over-year $X at midpoint. Specifically, revenues or and be would the million, are minus we X% up XX% sequentially third plus projecting which million, of

prior quarter, end-market than increased the driven Smartphone closely the more the at programs fast-charging up XX% communications largest more category, four new sequentially, QX all was for while the from the market. categories Looking revenues, contributor by

phase device of mobile The new catalyzed chargers, faster a several trends. for by adoption entering market is clearly converging

new mobile in new the USB any delivery Type-C XXX to device. is First charging with standard, of conjunction up connector, watts the PD to enables which,

incorporating as larger extend continues in to Second, devices order OEMs to in battery batteries their usage are life rise.

level this And expect but for many And as slower-growing a that XG charging general, OEMs is is will charging clear charging the persist over it trend several which feature. now ways speed next consume such to usage while the functionality, third, We for a more on out market, greater speed differentiating in makers years. that trend across will handset of with encourage phones, with faster looking share in streaming to play industry-wide adoption video. power-hungry also regard as the of will power, of varies compete an emphasis OEMs,

of We count. as fast the believe market to a in think integration much also critical small is to is factors since form address our power best will a Efficiency incapable in rise. and heat, we charges technologies complexity essential since levels dissipating typically continue trends, fast-charging grow chargers advantage require we are and more higher-component the have advanced the while

market, the the growth already of handset in are and evident highest competitive offer efficiency integration believe in the products InnoSwitch the market. Our our is levels in we advantage we and seeing

the further this additions earnings our our the family with We with to in InnoSwitch afternoon latest release. even leadership are market extending announced conjunction

currently We that volume. GaN-based we the yet, incorporating not company announced now believe high gallium For Inno proprietary and shipping those it have are that only today seen X shipping products are switches. Inno products X we may high-voltage pro we in nitride

with charger smaller retail, at GaN-based several pocket. already incorporating USB short charges, easily including a fact, products, are available PD business widely card, than footprint aftermarket a the into slips a which our In XX-watt

Such factors devices, by which GaN-based the possible power enable of switches. InnoSwitch superior a attainable our efficiency are density made not silicon small with power level of

with chargers GaN focus major of products for and the new initial GaN introduce our roadmap future. a plays plan applications wide years a superior on devices, high-power is near a range characteristics the performance mobile our in for will that we to these role While products new of ahead, range in of bring to

in Moving now slowdown year to related dominated issues category, level, ago reflecting in the QX remained the below revenues is by China. well and in consumer which appliances, trade spending consumer

single as for well appliances. driven straight sequential in grew improvement as seasonal consumer a revenues digits basis, quarter, in strength the by second on major small high conditioning However, air and

a between and we after Importantly, a considerably. PC rebound this sell-through with category, difference than QX, weak better came category, portion again, a has associated reflecting of XX% sequential of market consumer the been the channel saw from quarter, inventory down sell-in In computer in first in suggesting the appliances that quarter. the growth worked significant

computer growth as opportunities decline tablets forward begins revenues and we fallen recent PD in desktop for going years, see USB our reflecting specular While market, notebooks. the the have penetrate of to

growth new InnoMux chipset, display from our which the for anticipate offers market. differentiated solution also a We highly

chip, a stages controller Inno multiple new that supply As a version a on displays, last call, mixed-signal both DC-to-DC gains. simplification resulting power InnoMux discussed in three quarter's of used the enabling and single-stage efficiency in the designs pairs traditionally eliminates chipset with

available take now redesigned next a PC With in the specification and midst the effect X OEMs solution. best set we of believe chipset year, InnoMux the for to monitors, the are cycle Energy Star is

the shipping PC expected in begin revenue meaningful contribution in with tier a a XXXX. to for quantities expect OEM, We coming top production months

increased single low digits sequentially. Finally, industrial from revenues the category

some softness, robust locomotive High-Power industrial renewable power third double-digit energy wins, our applications a design markets strength on is year to on applications, by and China. exhibit broad-based for driven continue growth, While track grid business in spending of straight in particularly and

as market. of innovation pace set Our the for only the driver in the suppliers one High-Power business non-captive continues gate to

from silicon to new MOSFETs. and of configuration of configuration. scale motor in driver simply power, advantages employs last the wide for introduced allows This in manufacturers architecture controller, SCALE-iFlex compatible with gate four solutions. and competing up modules The wind drives. compared The modules, architecture month single vol and SCALE-iFlex a in which and chain system, master with own Our driver significant to customer a applications the is connected locomotives, its new each up innovative as offers size carbide to high-power an be to architecture latest range IGBTs and supporting industrial chain by the terms adding of daisy such driving both is can in high capable modules turbines is modules product a to reliability

conclusion, growth we healthy and In earnings and delivered QX. we results, sequential strong in revenues QX expect in

concerns wins exposure weigh like on secular believe energy. on cyclical and on and energy track While to and the broader outperform based to overall we trends, faster trade we our XXXX demand, to design industry clean continues efficiency are charging, in

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

Sandeep Nayyar

Thanks, afternoon. Balu, good and

As our usual, table GAAP accompanying non-GAAP which to focus will numbers, release. the reconciled are figures our on primarily I press in the

cyclical was Second decline year-over-year. and and from markets, prior of industrial and down quarter quarter which digits, double driven year-over-year was macro the million, were revenues trends. consumer reflecting up by The down each X% XX% $XXX.X

computer the was the win double-digit driven growth a offset these fast in in and charger the driven ago. by few in we tablet mid-teens category, communication partially softness markets charging year-over-year quarters low growth The by by highlighted the category,

X% for mix was Revenue consumer, and XX% quarter XX% industrial, the XX% communication computer.

million, expenses gross With the non-GAAP And margin $XX.X beginning quarter were came mix in of was our than by of below at we as forecasted merit operating the June a effect the slightly annual anticipated. category, and result, from headcount $X.X upside had the by quarter, increases. the expectation range. Expenses our in million communication prior rose driven end-market took at favorable the slightly Non-GAAP which raises, middle less XX.X%. about in

for the in the rate by to The non-GAAP for share. non-GAAP million Inventories bringing $X.XX terms, quarter. increased Cash operations million X%, dollar from at from our quarter but $XX.X was was days the days. earnings effective $XX.X prior ending diluted quarter, XX quarter the XXX per or flow fell tax

We inventory significant quarter. in the days another expect third reduction in

As reduced inventory. Balu margin by noted, in channel distribution QX, substantial exceeded sell-in a sell-through resulting in

X.X our weeks the of inventory vast quarter. the quarter-end, from conditions difference prior markets We the in channel Specifically, to those distributor majority serving full suggesting at was improved. that appliance industrial the in weeks down the X believe end-market, have fell and

of range with XX% million. communication Looking at we growth minus the increase midpoint ahead, expect be coming third revenues be of to the in or the $XXX plus of sequential industrial a from and markets. This the bulk the would quarter million $X

expect sequential from efforts reduction improvement. gross resulting benefit margin cost We to ongoing in modest a our

should Non-GAAP I OpEx driven increase between and be to headcount between Specifically, $XX.X for we expect by non-GAAP million. the be quarter XX.X% operating expect XX%. expenses gross third largely $XX growth. and to non-GAAP million margin sequentially,

rate X%. to for quarter Lastly, be I expect the non-GAAP the approximately tax

And it with that, back I'll over to turn Joe.

Joe Shiffler

We'll give Sandeep. session. up now Q&A? you instructions for it Thanks, please Julianne, the Q&A would the open for

Operator

[Operator Ross Seymore Bank. from comes Instructions] Deutsche Your question first from

Melissa Weathers

charging if on you risk thinking on wins of and how design could dual fast of forward, I we if Congratulations Melissa you're the tell Ross. any is or a out going from wondering sourcing? This for quarter. a about be solid the concerned revenues should us about was stickiness like the

Balu Balakrishnan

we sense that that no designs the can in really all, Well, benefits the that the GaN-based achieve technology switches. Inno can offer GaN-based with of first size our are unique there other is

outlets So significant using the on. those It's retail aftermarket being, at are, we safe, amazon.com available providers have and least number a the product. time of the and relatively already at so for and

market they as have benefit compelling think power our higher We levels, customers. again, offer go cellphone we advantage. a such higher goes, far the as as as as to and significant you a Now that we we general to long provide --

an we for once that, win design, at the of confident least are have will a advantage. time, we So we period

has it'll we so lower think where become than stickier commoditized. more end-market the it And be much

Melissa Weathers

fast thinking And remind OpEx us of be how incremental as could on wins? you we should a result of Okay. then any charging spending

Balu Balakrishnan

we had for to we next grow have given I think quarter, sequentially. as see Well, indicated expenses -- the the for guidance we quarter, should

year X% growth. be should the around somewhere So

period low XX% expenses We top a I continuing to make line our earlier, grows But our the of think as if to a grow at look in are over will talked time, of of automotive. had digit, model double that. model you investments, if we

period So give-and-take of should hold. time a model over that

Sandeep Nayyar

less for and because support do OEMs. mobile OEMs Just is it is the with addition markets, headcount our to of the into markets. infrastructure have other the Most we to charging broader faster to cellphone clarification, already go

new many that we consumer and our now limited industrial have We markets. are in products by so reach actually

Melissa Weathers

ban Huawei if quantitatively way that color can, has give any impacting end-market. there your And the I it. impact of can one Okay. the still some Got you Is quantitatively then that more comps peers? the in or been of all on

Balu Balakrishnan

Well, had with impact any far it not has so us.

change we -- have Huawei. our to adaptors We do overall Huawei. the for are to to don't There subcontractors can directly is The best estimate, we business, build who digits relatively we ship the forward, It's chips going use But small. new single And low on will not with to had in we in engage a them the business. haven't designs. able any revenue. significant be

the continue, So term. no could impact. the longer the trade there's then significant really term, issues But in if short it have in impact some

Operator

Your David Williams Loop comes Capital. from next question from

David Williams

you about that that longer -- geared the product kind terms silicon thinking kind of about I of new longer half. And of term? thinking just of guess? kind if your what in on if you're first you Congrats these kind quarter are talk GaN-based carbide can towards drivers, your about term, guess first positioning, new and And automotive of secondly, your automotive I you're and and or products thinking where

Balu Balakrishnan

Okay.

announced can the not in largest let So the is that we directly long about we believe SAM automotive. but first just to are going single to be term. GaN me We products automotive, talk automotive related the address

battery the or we investments actually the conversion, in with batteries but to driving significant the charging lower-voltage they're And areas to power get into making market. and motor, like also main subsystems. and high-voltage are powered So all electronics for the train automotive, we converting the multiple do get into to

be only to and conversion. IGBTs low-power modules also for and switches conversion or will drivers our high-voltage the drive InnoSwitches for selling the sell carbide linked not we'll battery like that charging, motor that low-voltage devices, we do So silicon but

we vehicles already of are one them, are have a to them products for them. the OEMs other, we working other expected 'XX are, at work in developing with system-level for is frame. automotive know, And it's this is to for product time engaged talking small, the also So in to the but product we develop But and also OEMs, for relatively a them. percentage a vehicles board-level But in the the as with expect largest as we started to take with 'XX, design you total relatively cycle time all off point electric long. time of

terms time, well positioned by in positioned be a very We're that benefits start very in we of And provide well optocouplers, bring, of that good are we reliability, reliable. position generating appreciate. in And time. we are of high guys which features And also the no I revenue. is so should automotive a the not no we optical, to safety think which considered terms lot

of had us date to provide asking to they came to driven for is most engagements by we've fact, the In the them. products actually customers,

David Williams

like fairly Can parts the was look segment, that was kind through just and the bit guess, it flat of Great. renewable came of softness Q-to-Q, at you I what few And the about about I we if of are the growth outside other the or of thoughts, anywhere sounds points upside. in year industrial it in expecting terms the a a end like industrial segment? your looks maybe And side talk Are just side? I renewable? guess, more, the or you the of for Industrial guess, energy seeing, then weakness healthy. I kind of

Sandeep Nayyar

we we there softness like the about we But of growth talked more actually this power just other I as the did appliances. as of little but our than Yes. in see bit the segment, was from guidance. about some a the get, in consumer mean the We in of more are Industrial coming of area. will high we is the rest it the that hoping talked

David Williams

me... for Okay. Very lastly good. then And

Balu Balakrishnan

higher. did other difference And related we a between significantly point see to Sell-through sell-in significant was category. sell-through David, industrial one the and the there, the

inventory somewhat. customers the that So worked channel been of the has industrial some does in to suggest related down

David Williams

Okay. Very good.

the to to happen? And feeling channel do that inventories some so you maybe about pretty and you're a sense good needs or get shipping health there, is there that the in maybe consumption backfilling

Sandeep Nayyar

Well, our X.X. surprised to about so weeks that I wouldn't you be that when saw down overall if

X.X run So surprised Xs, back level or the that the low I if because, goes X X have traditionally that into be of won't around but weeks. it the we

ballpark. seeing in So, I to not I'm but don't, that increase somewhere significantly that

Operator

from Stifel. next comes from Your question Tore instructions] [Operator Svanberg

Tore Svanberg

announcement, call, Congratulations right little supply now could is you, GaN a a X-Pro, but recognize on I elaborate do have given bit hoping should Balu, InnoSwitchX revenues you you of and you when on with the for but expect obviously was the market? I the this more little could outside quarter. to start what earnings an about means the GaN even this chain talk smartphone we bit for not maybe and just

Balu Balakrishnan

general, benefits definitely in expect number adapters, brings. very, Okay. Thanks, watts, GaN not really using is general. very we two technology in it spread Tore. conversion, us, important to new technology the to be GaN into there We about because say, for The the just aspects XX I would for are expect a And of technology power of but anything the it. XX And products. or to

conversion. One is, it And technology GaN that's specifically talking we really from differentiated it's geared that it our have quite towards all power proprietary, have people internally. technologies developed about. is GaN is And other completely because been

aspect. specs for are be of That's optimum all So power specifically to conversion. designed one

the been component. aspect because difficult is has discrete if technology use is, second is The a reason to as it very a is GaN commercialized not GaN

get and great the worry because fully But currents chance you a it, to -- completely also It's a itself. have it it's it chip system-level it a solved to they before because inside have that protect so we fast, doesn't to protecting it high people have can problem, integrated very driving difficulty difficulty can at it, our about have destroy so customer have great all.

Inno other just all to the but Inno In it in easy the handle Inno a is like fact, any improvement safety driving the features Xs, looks GaN performance, use difficult for in and as performance. X as any huge our They'll it manner. of our the if you with of we it, GaN existing in and see X, except take appropriate

many been for have years. we at So it

solved I the have We all problems, believe.

shipping -- had have from volume. already high -- a forward. positive are And we of expect our we We've in use feedback We going it's lot a very customers. to it

of But completely terms of our other are we to have to do know of is In production. all supply our as as anyone it's the the like actually chain, technology proprietary, own, else. we GaN foundries using existing technologies, not one our available you that

Tore Svanberg

And helpful. is inflection strong business that. Yes, was pretty this is you QX hoping obviously, you little bit PD just a specific USB you growth if relate -- and your mentioned market? all QX. diversified I very could smartphone with you're also point. how elaborate elaborate That's could that now with both on Because expecting

is So coming different players? from growth that many

Balu Balakrishnan

are contribute have to of in from they OEMs much OEMs, But our expect QX in have fast pushing growth primarily, the than all QX. OEMs. because across from, and of a to comes will charging forward, almost They fast in power much charging levels too terms to batteries. it others. who growth, contributed higher we theme charging largest in a be Chinese But the growth gone We number going so more

Tore Svanberg

Very moving good. And consumers. maybe on to

channel talked obviously And gradually obviously better, act to the was in do including really inventories down, more to across-the-board, that growing thinking coming consumer? business sell-through I'm expect you here consumer about start again? starting the the but you So the with

Sandeep Nayyar

is don't quarter I expect typically conditioning in taper And I we because the I'm in But that conditioning third grew QX, with air said much. as expecting as to business. start tends far the it up that down. and but to third quarter, business ramping back trade The air uncertainty, of basically still think, Yes. the sequentially,

Balu Balakrishnan

from in industrial Just your applications. question The sell-through came strength and to answer primarily consumer on sell-through.

that down us positive areas. gives in a So inventories being worked feeling are of both that these

Tore Svanberg

one Sandeep, inventory decline in your back the sort of to year you you ago... of you the days levels gets And it last big inventories. Great. own question QX. said on another expect just Do for think

Sandeep Nayyar

Yes.

our more our I know, have though QX, in inventory you between XXX model. the somewhere as a see days. you to little think, term, we'll I Even is a our down will step near for XXX think elevated than model

Operator

comes Susquehanna. next Christopher Your from Rolland from question

Christopher Rolland

that's Perhaps, Can up about USB following strong talk on on next comps there, of and results kind fantastic. Congrats in you quarters there what the that few PD. you expect linearity into XXXX segment? in that about is that let's PC say, that And that how on USB there? see talked year-on-year OEM PD? Could growth we then, you for meaningful drive, XX%

Balu Balakrishnan

smartphones. to let's a be to into a driver talk faster expect in that, of lots expansion of PD And PD first. several far as going revenue we is for other said USB of general. continuous thing, a as rather about QX so but have This generally, we come. our USB with charging quarter-by-quarter And the to therefore, do cellphones, PD. is be not Having our for USB going the strongest is same years seasonality, season design activities. Okay,

model to we consumer because slightly QX come So a will that we QX. think think the we higher back in will the bit be little can best

in of will terms little QX So a think bit growth. we sequential help that

that is supply. of that this power will the I the to into generating a start power product the to single an referring and with Now that major OEMs have believe power PC won the replaces AC supply revenue later product OEM, year. talked we one DC-to-DC a to DC mulitple about. design large And PC we supply coming InnoMux This you're

but reasonable year revenue this material, next will a the be But be revenue. it not will year,

the actually In you in PC be area fact, context, significant. take quite it if will

revenue, just If will you not But be big. that take it the design. -- overall but that's obviously company we one

also with TVs. still displays, not working companies, are including, other We just but many

question. product goes time expect the InnoMux? I about the So were that hope -- more revenue that as talking I from answered on. we you I

Christopher Rolland

some gears GaN, a other was No, for I of with think, started I to again. about. then and have to applications the ON, little no, about over that's and GaN talking exactly power example, a silicon talked to GaN, Switching lot for bit I maybe switched carbide. guys they design off Infineon know

guys alternative? good you you silicon that over application carbide? an alternative, have, did particular so, this And For GaN choose is silicon carbide if why

Balu Balakrishnan

but relatively silicon. a carbide than Well, is more silicon it's silicon bit mature applications. cost-effective GaN than quite these for expensive is carbide of technology, more types

reason to volts, have have very volts go high silicon the GaN. we carbide. At voltages time hard when that's and against it technology, a competing I nothing X,XXX mean technology. valuable So silicon especially like gallium carbide think a We XXX the you will using is are XXXX volts. XXX, nitride we with

question, are why successful To it, there answer I commercializing part GaN, talked offered the have off have mentioned first many so and samples -- been have about of people it your but what of who of earlier. exactly not is

a is is use. run difficult extremely component, discrete have GaN so the As into is driving fast Customers that device, serious the customers problems. hard. tried with to GaN -- discrete It very

solved it our We product that the customers major to completely is inside And integrating don't it. worry difference. have about so by that have

technology, second different. believe, uniquely is, The difference is our we

what it's for our requirements from scratch to are. conversion It is power suited meet much because designed better

which So designed it's as can It discrete discrete be usually in any device be application. is to device, used a very a a ubiquitous.

So have the of a different the totally we technology. luxury we device use plus fine-tuning

sure we've it's it's make reliable very think So are, very and the our us robust. positive time to on else, that. given feedback different I and have customers everybody And very taken from

Operator

have We to back presenters. I'll the further the over questions. call no turn

Joe Shiffler

again, Thanks, everyone, on afternoon. listening, for All investor call website, There right. of will listening. a be available good this and for our replay investors.power.com. Thanks,

Operator

conference concludes This call. today's

now may disconnect. You

Power Integrations (POWI) 27 Jul 192019 Q2 Earnings call transcript