POWI - Earnings call transcript Q3 2019 | Power Integrations, Inc.

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Operator

Welcome to the Power Integrations Third Quarter Earnings Conference Call. [Operator instructions] I would now like to hand the conference over to your speaker today. Joe Shiffler, Director of Investor Relations. Thank you, please go ahead sir.

Joe Shiffler

Thank you. everyone us. thanks and afternoon for joining Good With President and and the call Sandeep Balu Balakrishnan, today are CEO our Financial me Chief on 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

from Before we like of comment We well our and durability I’d our litigation use. property quarter get of third intellectual unlawful conclusion it win Semiconductor. is determination the as believe as company, to with ON settlement a demonstrating the results, our the to on landmark to our our for the protect value

location bottom innovation health from the would we that that serious driven knew have business. infringing a engrained intellectual our Indeed a in Nevertheless company protection has used to being long-term the the and many our property R&D deeply rigorous depends choice line to time, that days IT distract from solely and been everything As our IP the the our of us an our this from from know, doing partners litigation to business is at began running writing earliest for our owners. our its smaller of ago of our you harm centers ensuring our we patents. company the much and products that guiding our years company, company on litigation culture approach knew Fairchild as of benefit were of XX meaningful to of impact manufacturing when patent business, on policies

innovator the products We as our share was the were harm the confident was infringing measure hundreds achieved million cost when of large XXXX the our covering spite and of outcome space. outset also was market path injunctions $XXX primary done XXXX Fairchild in business, from the the ON in while margins and in correct. our we that litigation market while that our products We start leading compensation aim, won our from and right week, [indiscernible] in has proved we from the enhancing permanent this our infringing of the received us goal for And to removal Semiconductor. reputation

the we withdrawn two first reduction expenses quarter a substantial operating the litigations All in is XXXX. between in being beginning and companies of now expect

future. activity We in the Switches, GaN in discourage years fuel success pipeline. past technology FluxLink help new While be, our InnoSwitch market. many to Innovation we this only have technologies to our infringement breakthroughs products, have we most and more going we growth believe our the that, biggest valuable have will now have such IP our our that in fundamental will as past, the technologies to for come it consequences inventions recently come and our hope combating and isolation litigation forward, in our earlier such proved as to our expect our such is value important the as in

that’s million increased the broader revenues results, over of to quarter $XXX X% compared ahead increase of growth an last analog Moving quarter onto returned as the our year-over-year year third sequentially we of industry. XX% third to just to

revenue the the a share quarter to While XX% broad communications of from year-over-year the nearly below in and based revenues continue grew third charger industrial the as consumer we categories in market. win ago, year remain market smartphone levels

higher we is enhanced prior introduction for calls, greater larger to discussed XG by should batteries usage products. The the as course of features as of use to the As they’re differentiate phone to take stimulate wattage is mobile devices. OEMs trend new power have longer even which adapting the mobile of trend on XG a of chargers is their paired faster unless market charge device rapidly further functionality look with This reinforce supply. expected

highest as Our heat typically requires in are two the InnoSwitch products well competitive offering which which surface heat, a and available in market. our and products. larger This in add crucial area, relationship for in which results in since devices. efficiency a produces fast sinks levels advantage applications fast means integration definition leader wasted in neither chargers dissipating cost charging the is direction between factor Efficiency desirable of efficiency energy mobile the of is clear substantial by a size weight enclosure. chargers and as things fast Heat

designs for InnoSwitch and ranging XX watts. chargers won to our QX, new InnoSwitch In fast X-Pro X XX several devices from high-volume

major InnoSwitch factor GaN delivers XXX% GaN for an be to with sinks, the packaged can won zero heat a believe hour of with charger, small charge products. with also in Chinese the According it form inbox which half only which OEM, adapter be achieved design a a a first to we and a the no based the to for power based XX-watt OEM the highest our ever phone. design We efficiency

in company volume. believe voltage last noted we high high are quarter, currently the shipping As products GaN we only we

products aftermarket in chargers In addition inbox to this retail. our of used being available GaN are based new design a variety that widely are at already

one of was our of aftermarket and devices. InnoSwitch GaN the Innovations early pleased Anchor fact, products world’s million of X supplies unit an last GaN leading CEO In the based the suppliers of to adapter deliver of I month, to power based

of than per more very to X Our million in and are in three units the sales based GaN shipped we now be near ICs million units shipping on closing total future. expect month

ahead quarter, the revenues which to minus the fourth of at projecting increase plus million XX% or we’re year-over-year be million would $X of Looking midpoint. $XXX an

chargers will year-over-year the be smartphone the While expect to consumer market. growth key also in again growth return driver, we end to

of are also as exceeded raising in a continues they through consumer selling which products, expanding and class middle and Dollar apprehension trade four growth of but to that our the year than market inventory indicating were from remain benefits continue, in excited while fundamentals ago healthier not content is related and the reliability has about experience Sell supply as in consecutive the quarters, appliance for the levels ever we chain, while markets. there only efficiency the emerging values headwinds

by In growth addition, highly new vector and our encouraged an new entirely appliances BridgeSwitch motor products level customer give in interest. we’re driver of the us

We steady with a to and beginning expect BridgeSwitch QX gradual With ramp in we I’ll of production a our that, turn XXXX. design first financials. win for Sandeep but the into over anticipate review to go in it

Sandeep Nayyar

afternoon. good Thanks Balu and

implications expectations. the While will we’re to by begin our finalize settlement, litigation current I still accounting summarizing of and tax the briefly working

week. ON as Semi this mentioned, from payment First Balu $XXX received we million earlier a of

quarterly to end We we the before including cash around and fourth dividends sheet. investment, to amount as return our opportunistic managing of cash and pay exit always normal cash intend M&A, between $XXX buybacks value a our out combination year should quarter continue investments free XX% expect XX% this the of million internal in on our to flow, the in have, and with balance selective our to shareholders. We cash using taxes we of

noted share in increased quarterly dividend in current quarter. release, board our As the press our $X.XX the to per effective has

expect for settlement, on of along our a was $X with results cases. statement, the will offset run a to to the income of first an now quarter tax partner were the we again the related which expense. reduction the to for spending Prior expenses. the in in rate $X operating we million bulk XXXX, quarter annual litigation, settled of million Beginning fourth On in in include also

Our to for expense in of savings to of reduction about XXXX expense into that $X in expected cases an resulting We business currently the the approximately pending. XXXX. will litigation XX% $X million current based on annual the intend XX% reinvest expectation is fall million to

$XXX.X will I sequentially briefly financial just above and quarter. [ph]. Now were strength The midpoint by cover by phone driven chargers million QX than the up of XX% are our range Revenues increase driven very increased in communication results the more straightforward. which prior category which cell was from XX%

were down was industrial seasonal Revenue strength mid-single offset resulting a air increasing standpoint, high XX% broad communication consumer, Industrial from up and points driven some quarter sequentially mix prior XX XX% the cost higher non-GAAP at digits from in the of in revenues uplift, margin Consumer the our other guidance. X% meters industrial, basis industrial end the from From the computer. were margin double-digit reflecting smart quarter the computer prior applications. provided power and conditioning XX% while gross largely revenues applications, and strong for revenue, softness XX%, in that’s reductions based communications while of were pressure down a revenues high also sequentially quarter. slightly by

XX%. by equipment The operating below margin about share. the sequentially purchases. $XX.X per XXX by Non-GAAP bringing the or driven to and timing million expenses diluted quarter and of addition million non-GAAP effective points range operating tax down sequentially for was earnings forecasted basis non-GAAP our our $XX.X increased reaching X% were $XXX,XXX headcount $X.XX rate Non-GAAP

quarter in quarter, flat from of but XXX terms do up down September quarter full After million over the dollar as while weeks were Cash it’s flow million. inventory quarter. modest in the to $XX.X of in quarter. expect channeled days. two were XX though XX the the typical a from quarters, operations past two are by days June fell $X rebound for the the December a picked drop I back Inventories prior by was CapEx Inventories days

prior Specifically the X/XX the rose weeks week quarter. week in up [ph] from to channel X.X

expect the million fourth be as a rebounds million. slightly of expect ahead, the as of from be Looking or higher to revenues range QX. revenue seasonal air quarter to revenues slowdown plus we percentage $X minus conditioning $XXX in in I consumer

As a margin cost should reduction. with help continuing slight result, gross a [ph] along mix to provide

September the I between of expect points quarter. OpEx the driven sequentially non-GAAP basis XX.X% to non-GAAP increase be largely would to increase which growth. and should Non-GAAP margin expenses be I by be headcount from fourth operating Specifically, $XX million for XX around million. expect quarter $XX.X an about gross

tax Lastly, to expect that, quarter Joe. remain turn non-GAAP it the I rate with and at I’ll to around X% the back for over

Joe Shiffler

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

Operator

[Operator the with Stifel. Instructions] Svanberg line Your of Tore first from question comes

is line Your open.

Tore Svanberg

you. the settlement. Congratulations Yes, thank and on on especially results the

market kind levels. gear, to moving the First talk adapter watt and hand, question, now Balu means about sense that and faster is can eventually and into much how for guess we a higher then are higher say would of Could right power market get XX on and GaN so above the is where now today the other headed. just now so of based where that is low you a let’s bit at adapters, perhaps looking say I market little it’s you we how right the penetration

Balu Balakrishnan

Thanks Tore.

dynamic are In switching is. designs chargers that to XX of have X but percentage exactly the XX smartphones. moment the seeing designs rapidly it couldn’t this watt what so watt somewhere There for maybe power XX place, terms at in over higher watt charging, you still fast is to of range in tell to most gone OEMs we’re I their the some

So that’s us for we see because that very fast. good news happening

are charge the people charger seen to a wattage other the will we is it far to speak, able into beginning be XX, go follow to we based Now the that end watt on October by far as chargers with is ever because just which the phone, as largest mentioned high the really phone charger cell as is announcement happened we user the spectrum significant that the advantage but that we’ve of hopeful XX GaN faster.

fast how hard there to if of this between can but see it’s point. kind war predict a they So can well, OEMs take charge, they at off quite a is to

year revenue predict the mid in into something and aftermarket We GaN optimistic are are aftermarket of in dollars spread products digits based many OEMs could chargers for that But because but expecting to are that point. next and this they and we working that you’ve very early of in using adapters. already customers we’re of revenue the GaN single-digit millions with will overtime. GaN at well year, terms number this million it’s are At seen double in hard dollars there

Tore Svanberg

and of the helpful and talking we GaN now? us but charging, start examples Obviously look today about you itself, applications right fast very being lot some should a end penetrating when at we other if that a company. your in on for you That’s about we’re any talked obviously see give GaN you’re landmark perhaps can to or markets working technology

Balu Balakrishnan

Sure, could application OEM we TV change have with a already that a the win starting the once volumes design on but again our rapidly. small, are very large

about China. a TV are design win in at to a just We large customer

have also to Europe We designing of for meet appliance a required GaN an application primarily standards. the who with efficiency customer refrigerator in is efficiency because benefits

actually applications. we’re interest in GaN across quite surprised different So at the many

Tore Svanberg

where How to the Sandeep. talked cash the one going Sandeep, in, obviously going question increase, we that talked about think reinvesting last business. about we in forward? That’s million go, we just is for dividend helpful, coming $XXX cash should eventually in about

Sandeep Nayyar

had you out think of I’ve M&A’s, approach, we’ve which two listed look I four if them historically, done you done that and prong selective we’ve buybacks.

the going with think be very very I opportunistically. approach consistent four is to it approach to again going So we’re do and prong

going smartly. very a to we be not hurry, We’re do it but in

well, on one-time, historically and don’t our of selective to know to we change well, very those and you has paid us expect it very look even opportunistic won’t for approach our you been us as I the going doing increases we’ve If so [indiscernible] we’re do, be big dividend kind things. don’t think very

Tore Svanberg

Sounds Congratulations again. good.

Operator

[indiscernible] the Your next line question Bank. Ross Deutsche comes of from with

is open. line Your

Q –Melissa Weathers

to [indiscernible] of Congratulations behalf wondering I litigation I you on in segment expecting, quarter? think don’t this one cons guys about the was quarter on we know guide I win. first now you with guess can guys expect outbid. the the Ross. win you question, Melissa what first talk can whether is the How seasonality have about and you’re if that big and what This

Sandeep Nayyar

see question typically comes we’re which because business phone the area, is spend in decline cell that good the power basically is of also typical share you which another high formed. considering a and a that that’s in budgets is for and the the that should So and charging area gaining rapid but being business, down in infrastructure meaningful industrial,

a QX So good in should significant I but say directionally, say that sequential would would for directionally increase the a see sequential sequentially, you increase you year decline I hand see should in and other on QX. next

outgrow only contributing the the products market last will not and by that we’re I we gains the the BridgeSwitch that others. nicely believe in start success will We industry phone having share very and InnoMux year, cell like and new by introduction think of

Q –Melissa Weathers

you expectations and gross I quarter. if it, for is being and then, higher [ph] how that industrial? guide are your of I but thanks drag will margin margin Okay, apologize for much then, mix so and much by of next quarter the on comms the for how do think the missed next what so driven be

Sandeep Nayyar

and perspective design successes, will next has on the rapid with basis. continued for we before you’re that XX% looking as directionally to quarter is see part had you’re much a as but basis is much comms consumer coming talked somewhere charging QX we’re it for margin air we’ve be little QX change, model, [ph] a gross modeling of a non-GAAP Well impacted talked a that because success continuous conditioning a if in not [ph] the the as so volumes the the helping a of we’ve also QX of higher year between at XXXX around better back I’ve that QX. reason and and bit seasonally dollar you and from know our margin should But having gross on going believe

Q –Melissa Weathers

Okay, then got question. one high-level it more and

talked your talk markets industrial competitive differentiated You landscape about the end a you lot guys in have do you’re advantage GaN how little products. with Could you end markets? about your like those a consumer, competitive how and more other view in in your

Sandeep Nayyar

is technologies Pro. part like of motor much we a at consumer. common integration them design efficiency and number know and only BridgeSwitch than and also longer to in products means have make the efficiency. which all any the But which like existing solution we’re InnoSwitch the also we technology. is and the higher the But Mux fewer InnoSwitch between and we the growing into its have highest the also we you know important uses derivatives areas have why is will own slightly like of in that offer industrial, GaN is our more a Well of reliability of control unique offer also growth consumer, most fundamental adapter a industrial offer, go new the you small thread which cycle efficiency But that markets follow that’s components, computer attractive is course in other market moment. very of which We revenue and

So, offers solution that technology, combination technologies of it’s it’s not one from the system and these. of benefits that just any come the a them a level combination

Q –Melissa Weathers

thanks and Okay, the [indiscernible] on congratulations quarter. guys

Operator

comes question David Your from Capital. the of with line Loop next Williams

open. is line Your

Q –David Williams

Thanks for and quarter the the time and the good congrats litigation. on

of opportunities from in kind the the about of XG battery charging terms and thinking requirements. Just the

seeing expectation development. XG at seeing the supports especially market We’re anything you power in that that on seeing or few What the Are they’re are you requirements? least terms that handsets adopting? in in What had? expanded of power you really China

Balu Balakrishnan

you reason more need very it more and Yes, that charge it is well more much continuously in either in you that, even forward be critical XG charge often, higher the that have even will have phones going to means utilized you be the we There’ll so make of more then power in used – will become batteries will bigger for look all and which to our so same provides. because will it for the the fact all phones obviously charging the more make more therefore, bandwidth relevant bigger, general cell of bodes levels in to and us, XG downloads make the be batteries time, fast of video you it power the that technology charging forward. if to

Q –David Williams

where that Great areas of some inventory, is there so specifically pull of some an peers, any channel from noted further curious any be restrictions. uptick typical of [indiscernible] are quarter and in saw in of trade here you you terms maybe surveillance, pull of then your in could seeing in kind they one the kind anything just the ordering but ins listening just to ahead specific had

Sandeep Nayyar

timing for No is in, popped the little some that’s of that issue. how design communications unusual channel. we couple segment uptick, much during where had no anything us a pull there time for satisfy was that, it’s quarters us and you in had not the always the our this had there’s know inventory in to as [indiscernible] on just so But the considering dropped increase it’s a last wins in of because little that

Q –David Williams

here, And and the soon happen control whole? really for perform that’s BridgeSwitch mentioned then centered term solution longer of [ph] do just you around expected the expectations the motor that I one that’s the and what which about the specifically last evolution can just the X.X your and for to we’re efficiency. motor if thinking BridgeSwitch guess control think industry you given as market, kind are you one How in

Balu Balakrishnan

provides their They refrigerators dish regulations in us, in pumps washers and where is new are DC other to just and every so therefore motor them that motor of what motors go to conditioning, to Even improvement which DC refrigeration the things going motors and used AC used like is, get biggest BLDC. in dishwasher run in brushless becomes require margin efficiency is some is or to reduce and are have allows requirements solution. year, to areas little get washing efficiency water tighter bit is machines, that brushless on. even or electronic meet there now motors in force which the many the more BLDC motors to BridgeSwitch continue either but a and area surprising a so happening very strict motor, extremely going and benefits efficiency Well that have the additional But DC DC is also noise continuously be brushless which efficiency is frequently to critical. they’re countries efficiency bring a air other like to into them where efficiency there as to just a the What control, like things requirements. lot

Q –David Williams

luck on for much the the so of Thanks time and quarter. best

Operator

of next Instructions] comes Your with Rolland line the question [Operator Susquehanna. from Christopher

Your line open. is

Unidentified Participant

Averly of the October you’ve quarter one higher little a tonight. flat, from taking than David first guess questions. of Can and September it bit forward you’re early orders our this seeing [ph] for seems better be a far your linearity It’s this in about Thanks level. on Chris behalf you in bit talk what I the season. heard and [ph] a guide some so as might at in others of

Balu Balakrishnan

high so the our began talked and the that little reflective XXs, also have in conditioning in higher, we’re the air we guide us is as the for that compared then quarter seasonal reflects guidance. get the is wins so we rapid in design turns somewhere we backlog uptick the beginning So at need previous around the having – slightly lower, about a our charging, but quarter turns we need the to with that

Sandeep Nayyar

this like calculating been I in used add stronger and also to month October in guidance. that bookings our also have so that’s is would the

Unidentified Participant

the you with Got are and in I that choosing? see it XX-watt customers charger, for no is a you are and for where two example a OEMs there a quick terms threshold advantages? they and competing there ones GaN is offering your just Is guess GaN such what traditional wattage on like in product both product. GaN the brainer of

Sandeep Nayyar

on interesting level to heat higher in GaN application. of of associated efficiency, at XX also cost when advantages so a almost power system levels. terms of is GaN. number independent is and expensive, with becomes higher you lack go GaN more watts sink above, the and of there a at size, offers Generally, it but but a

in where everybody GaN a the switches XX totally in to above time, technology look effective run GaN have GaN prevalent I above. and any from we find I roughly if have far volume next been and using long has but about so for started see silicon the hard high very XX think years. GaN until in best becoming volume we in the shipping GaN market it’s the that’s shipping strong talk we is, though, long in switches we we I years. market the very from by commercial think you benefit else period think going even over watts to GaN product as technology and so over and we back in that different that GaN company the We think few only have is proprietary are proven we’re cost GaN, a time, very transition a we position high the a a the think to which very there is far of

Unidentified Participant

lot do – the you and last a next [ph] shake inbox helpful the How very it of that’s just thinking into now, one Got one I where you but to stuff is about year. about split between aftermarket then versus think going do going kind ultimately I of think out? right GaN me. for know aftermarket

Balu Balakrishnan

are watts. relatively say looking we a phones, will actually to go their significant other OEM the don’t aftermarket overall their the to said a if small. now, Well and on I into of and you make when GaN that’s will the People is do bricks you to There’s Is if it the compared be of really that, hope a that drive at of reasonable. question. wall phones as so end something technology. to GaN very small the much higher of because want Right OEMs with size adapter, more but GaN like market. to generally power don’t the number the have and way increase higher come they of not would in good want speak, have for we product, to ins grow you carry choice no out will gradually this OEMs cell have price the it [ph] XX, to really XX then big want Having

Unidentified Participant

you. Thank

Operator

no over There I back the are further presenters. our time. at to in questions conference this turn queue

Joe Shiffler

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

Operator

your This call. you for concludes today’s participation. thank conference

You disconnect. now may

Power Integrations (POWI) 24 Oct 192019 Q3 Earnings call transcript