Power Integrations(POWI)

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Power Integrations(POWI) - 2021 Q2 - Earnings Call Transcript
2021-08-01 10:20
Power Integrations, Inc. (NASDAQ:POWI) Q2 2021 Earnings Conference Call July 29, 2021 4:30 AM ET Company Participants Joe Shiffler - Director-Investor Relations Balu Balakrishnan - President & Chief Executive Officer Sandeep Nayyar - Chief Financial Officer Conference Call Participants Ross Seymore - Deutsche Bank Christopher Rolland - SIG Tore Svanberg - Stifel Gus Richard - Northland Capital Karl Ackerman – Cowen Operator Welcome to the Power Integrations Second Quarter Earnings Call. At this time, all pa ...
Power Integrations(POWI) - 2021 Q2 - Quarterly Report
2021-07-29 20:25
Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q (Mark One) ☒ Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended June 30, 2021 or ☐ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from ______ to ______ Commission File Number 000-23441 POWER INTEGRATIONS, INC. (Exact name of registrant as specified in its charter) | Delaware | ...
Power Integrations(POWI) - 2021 Q1 - Earnings Call Transcript
2021-05-02 03:38
Power Integrations, Inc. (NASDAQ:POWI) Q1 2021 Earnings Conference Call April 29, 2021 4:30 PM ET Company Participants Joe Shiffler – Director-Investor Relations Balu Balakrishnan – President and Chief Executive Officer Sandeep Nayyar – Chief Financial Officer Conference Call Participants Karl Ackerman – Cowen Tore Svanberg – Stifel Ross Seymore – Deutsche Bank David Williams – Loop Capital Gus Richard – Northland Capital Joe Shiffler All right. Good afternoon, everyone. Sorry for the delay. There were some ...
Power Integrations(POWI) - 2021 Q1 - Earnings Call Presentation
2021-04-30 23:07
IS™ g Magic Strip Power Integrations, Inc. Nasdaq: POWI o ු 0 (3) April 2021 ac-dc converters led drivers Forward-Looking Statements/Non-GAAP Metrics These slides accompany an oral presentation by Power Integrations, Inc., which contains forward-looking statements. Each statement relating to events that will or may occur in the future is a forward-looking statement. The Company's actual 2 results may differ materially from those suggested in the presentation. Information concerning factors that could cause ...
Power Integrations(POWI) - 2021 Q1 - Quarterly Report
2021-04-29 20:11
Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q (Mark One) ☒ Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended March 31, 2021 or ☐ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from ______ to ______ Commission File Number 000-23441 POWER INTEGRATIONS, INC. (Exact name of registrant as specified in its charter) | Delaware | ...
Power Integrations(POWI) - 2020 Q4 - Annual Report
2021-02-05 21:45
[Front Matter](index=1&type=section&id=Front%20Matter) This part contains introductory information for the annual report, including SEC filing details, table of contents, and cautionary notes on forward-looking statements [SEC Filing Information](index=1&type=section&id=SEC%20Filing%20Information) This section provides basic information about the company's 10-K annual report filed with the SEC, including company name, jurisdiction, IRS EIN, principal office address, phone number, and common stock trading symbol POWI on the Nasdaq Global Select Market, identifying the company as a well-known seasoned issuer and large accelerated filer that has filed all required reports and interactive data files - Company Name: **POWER INTEGRATIONS, INC.**[1](index=1&type=chunk) - Jurisdiction of Incorporation: Delaware[2](index=2&type=chunk) - Trading Symbol: POWI, listed on the Nasdaq Global Select Market[3](index=3&type=chunk) - The company is identified as a well-known seasoned issuer and a large accelerated filer[4](index=4&type=chunk) - As of February 2, 2021, the company had **60,053,859 shares** of common stock outstanding[5](index=5&type=chunk) [Table of Contents](index=2&type=section&id=Table%20of%20Contents) This section provides a detailed table of contents for the annual report, listing all major parts (PART I, II, III, IV) and their corresponding items, along with their starting page numbers for easy navigation - The table of contents details the four main parts of the report (PART I, II, III, IV) and their respective contents, providing corresponding page numbers[11](index=11&type=chunk) [Cautionary Note Regarding Forward-Looking Statements](index=3&type=section&id=Cautionary%20Note%20Regarding%20Forward-Looking%20Statements) This section warns investors that forward-looking statements in the report involve multiple risks and uncertainties that could cause actual results to differ materially from expectations, including but not limited to COVID-19 impacts, product demand decline, reliance on third-party suppliers, market competition, intellectual property protection, and other factors described in "Risk Factors" - Forward-looking statements involve multiple risks and uncertainties that could cause actual results to differ materially from expectations[12](index=12&type=chunk) - Key risk factors include the COVID-19 pandemic, declining product demand, reliance on third-party suppliers, market competition, and intellectual property protection[12](index=12&type=chunk) - The company does not undertake any obligation to update or revise any forward-looking statements, unless required by law[12](index=12&type=chunk) [PART I](index=4&type=section&id=PART%20I.) This part covers the company's business operations, risk factors, properties, legal proceedings, and mine safety disclosures [ITEM 1. BUSINESS](index=4&type=section&id=ITEM%201.%20BUSINESS) Power Integrations designs, develops, and sells analog and mixed-signal integrated circuits (ICs) and other electronic components for high-voltage power conversion, with products widely used in mobile phones, computing devices, home appliances, LED lighting, and electric vehicles, achieving growth through high integration, energy-efficient technologies, and market expansion strategies, while operating a fabless manufacturing model, relying on third-party foundries and distributors, and prioritizing intellectual property protection and talent development - The company's primary business is designing, developing, and selling analog and mixed-signal integrated circuits (ICs) and other electronic components for high-voltage power conversion[16](index=16&type=chunk) - Products are widely used in AC-DC power supplies, high-voltage LED drivers, and brushless DC (BLDC) motor drivers, covering multiple end markets such as mobile phones, computing devices, home appliances, industrial control, smart homes, and electric vehicles[17](index=17&type=chunk)[18](index=18&type=chunk) - The company's growth strategy includes increasing penetration in existing markets and expanding its addressable market (SAM) by introducing more advanced products (e.g., Hiper™, SCALE-iDriver™, BridgeSwitch™) and GaN transistor technology[20](index=20&type=chunk)[22](index=22&type=chunk)[23](index=23&type=chunk) [Overview](index=4&type=section&id=Overview) Power Integrations specializes in the design and sale of integrated circuits for high-voltage power conversion, offering products with high integration, reliability, small size, and energy efficiency, expanding its addressable market through deeper penetration in existing sectors and new applications like electric vehicles and smart meters, and actively adopting new technologies such as GaN to enhance product value and energy efficiency - Company products are used for high-voltage power conversion, converting high-voltage power into electricity required for specific downstream uses, primarily including AC-DC power supplies, high-voltage LED drivers, and motor drive ICs[16](index=16&type=chunk)[17](index=17&type=chunk) - Product advantages include reduced component count and design complexity, smaller size, higher reliability, faster time-to-market, and lower energy consumption[19](index=19&type=chunk) - The company increases market penetration by developing more advanced, highly integrated products, expanding sales and application engineering teams, and providing design support tools such as PI Expert™ software[20](index=20&type=chunk) - The addressable market (SAM) has expanded from approximately **$1.5 billion in 2010** to over **$4 billion**, achieved by introducing higher-power AC-DC products, LED drivers, gate drivers, and BLDC motor drivers, with electric vehicle applications expected to become a significant part of SAM[22](index=22&type=chunk) - The company enhances product value and energy efficiency by developing new technologies such as InnoSwitch™ ICs integrating secondary circuits and GaN transistors[23](index=23&type=chunk) [Industry Background](index=6&type=section&id=Industry%20Background) Power supplies are essential components for almost all electronic devices, evolving from traditional bulky, inefficient linear transformers to smaller, lighter, and more energy-efficient switching mode power supplies (Switchers), yet discrete component designs for switchers and gate drivers often remain complex, component-heavy, costly, and lack protection and efficiency features - Electronic devices require power supplies to convert high-voltage AC into low-voltage DC[25](index=25&type=chunk) - Power supplies evolved from linear transformers before the 1970s to switching mode power supplies (Switchers), which are smaller, lighter, and more energy-efficient[26](index=26&type=chunk)[27](index=27&type=chunk) - Discrete component designs for switching power supplies and high-power gate drivers (for IGBT modules) are typically complex, component-heavy, costly, and prone to failure[27](index=27&type=chunk)[28](index=28&type=chunk)[29](index=29&type=chunk) [Our Highly Integrated Approach](index=8&type=section&id=Our%20Highly%20Integrated%20Approach) Power Integrations significantly reduces the complexity and component count of power converters through highly integrated ICs and gate drivers, achieving smaller size, higher reliability, faster time-to-market, greater energy efficiency, and a wider power range, while maintaining or lowering total cost - The company launched TOPSwitch in 1994, the industry's first cost-effective switching mode AC-DC power high-voltage IC, and expanded into the high-voltage gate driver market in 2012[30](index=30&type=chunk) - Company products reduce power converter component count by up to **70%** through integrated functions and innovative system design, thereby improving reliability, efficiency, and reducing size and manufacturing costs[31](index=31&type=chunk)[32](index=32&type=chunk) - Products offer faster time-to-market, higher manufacturability, significant energy efficiency through EcoSmart and GaN technologies, and a wide power range and scalability[33](index=33&type=chunk)[34](index=34&type=chunk)[35](index=35&type=chunk) [Energy Efficiency](index=8&type=section&id=Energy%20Efficiency) Energy waste is a global issue, particularly in electronic devices during active and standby modes, prompting governments and agencies worldwide to implement stringent energy efficiency standards such as ENERGY STAR, EU EcoDesign, CEC, and EISA, which Power Integrations addresses with its EcoSmart technology, CapZero and SenZero IC series, and LED lighting products to help manufacturers meet or exceed these regulations and significantly reduce energy waste - Electronic devices waste significant energy in both active and standby modes, leading to **billions of dollars** in wasted electricity and **millions of tons** of greenhouse gas emissions[36](index=36&type=chunk) - Policymakers have acted to promote energy efficiency, including mandatory standards like the ENERGY STAR® program, EU Code of Conduct, California Energy Commission (CEC), and the Energy Independence and Security Act of 2007 (EISA)[39](index=39&type=chunk)[40](index=40&type=chunk) - The company's EcoSmart technology (introduced in 1998) significantly reduces energy waste in active and standby modes, while CapZero and SenZero IC series further eliminate standby waste, and specialized products are offered for LED lighting[41](index=41&type=chunk) [Products](index=10&type=section&id=Products) Power Integrations offers a diverse portfolio of power conversion products, including AC-DC power conversion products like TOPSwitch and InnoSwitch series (up to 500 watts), high-voltage gate drivers such as SCALE and SCALE-iDriver series (from kilowatts to gigawatts), and motor drive products like BridgeSwitch series (for BLDC motors, up to 400 watts), all delivering superior performance and energy efficiency through high integration, proprietary technologies like FluxLink, and GaN transistor technology - AC-DC power conversion products include TOPSwitch, TinySwitch, LinkSwitch, Hiper series, as well as CapZero and SenZero for reducing standby power consumption, LYTSwitch for LED lighting, and Qspeed diodes for high performance[42](index=42&type=chunk) - The InnoSwitch product family (introduced in 2014) was the first power IC to integrate primary, secondary, and feedback circuits into a single package, using proprietary FluxLink technology for precise control[43](index=43&type=chunk) - High-voltage gate driver products include SCALE and SCALE-2 series, and the SCALE-iDriver series ICs introduced in 2016, capable of handling applications from several kilowatts to approximately **100 kilowatts**[45](index=45&type=chunk)[47](index=47&type=chunk) - The BridgeSwitch motor driver series (introduced in 2018) targets BLDC motor applications, with power up to **400 watts**, used in home appliances such as refrigerator compressors, ceiling fans, and air purifiers[48](index=48&type=chunk) - The company holds multiple trademarks, including TOPSwitch, TinySwitch, LinkSwitch, EcoSmart, InnoSwitch, BridgeSwitch, SCALE, PI Expert, and others[49](index=49&type=chunk) [End Markets and Applications](index=12&type=section&id=End%20Markets%20and%20Applications) Power Integrations' net revenue primarily originates from four end markets: communications, computing, consumer, and industrial, with communications and consumer markets contributing the majority of revenue in 2020, and products widely applied in mobile phone chargers, home appliances, industrial control, LED lighting, and electric vehicles - The company categorizes sales into four main end markets: communications, computing, consumer, and industrial[50](index=50&type=chunk) Net Sales by End Market (2018-2020) | End Market | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | Communications | 30 % | 26 % | 20 % | | Computing | 7 % | 5 % | 5 % | | Consumer | 33 % | 35 % | 38 % | | Industrial | 30 % | 34 % | 37 % | - Key applications include mobile phone chargers, router adapters, desktop computers, monitors, small and large home appliances, air conditioners, LED lighting, smart meters, industrial motor drivers, renewable energy systems, and electric vehicles[51](index=51&type=chunk) [Sales, Distribution and Marketing](index=12&type=section&id=Sales%2C%20Distribution%20and%20Marketing) The company sells products to OEMs and power supply manufacturers through a direct sales team and a global network of distributors, with distributor sales accounting for the vast majority of net product revenue, **75% in 2020**, and the top ten customers (including distributors) contributing most of the net revenue, with two distributors exceeding **10% of revenue in 2020**, while international sales represent the vast majority of net revenue, **98% in 2020** - The company sells products through direct sales personnel and a global network of independent sales representatives and distributors[52](index=52&type=chunk) Net Product Revenue Composition (2018-2020) | Sales Channel | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | Direct Sales (OEMs and Power Supply Manufacturers) | 25 % | 28 % | 25 % | | Distributor Sales | 75 % | 72 % | 75 % | - The company's top ten customers (including distributors) accounted for **62%**, **54%**, and **56%** of net revenue in 2020, 2019, and 2018, respectively[55](index=55&type=chunk) - In 2020, two distributors (Avnet and Honestar Technologies Co., Ltd.) accounted for **19%** and **11%** of net revenue, respectively[55](index=55&type=chunk) - International sales accounted for the vast majority of net revenue, approximately **98%**, **97%**, and **96%** in 2020, 2019, and 2018, respectively[156](index=156&type=chunk) [Research and Development](index=14&type=section&id=Research%20and%20Development) The company's R&D efforts focus on improving technology, launching new products to expand the addressable market, reducing costs of existing products, and enhancing the cost-effectiveness and functionality of customer power converters, with the R&D team possessing expertise in high-voltage device structures, process technology, analog and digital IC design, system architecture, and packaging - R&D focuses on improving technology, launching new products, reducing existing product costs, and enhancing the cost-effectiveness and functionality of customer power converters[56](index=56&type=chunk) - The R&D team possesses expertise in high-voltage device structures and process technology, analog and digital IC design, system architecture, and packaging[56](index=56&type=chunk) [Intellectual Property and Other Proprietary Rights](index=14&type=section&id=Intellectual%20Property%20and%20Other%20Proprietary%20Rights) The company protects its intellectual property through patents, trademarks, copyrights, trade secrets, and confidentiality procedures, holding **450 US patents** and **360 foreign patents** as of December 31, 2020, with validity extending to 2041, and also maintaining proprietary high-yield production processes used in high-voltage IC manufacturing as trade secrets - The company protects intellectual property through patents, trademarks, copyrights, trade secrets, and confidentiality procedures[57](index=57&type=chunk) - In 2020, **29 US patents** and **54 foreign patents** were granted[57](index=57&type=chunk) - As of December 31, 2020, the company held **450 US patents** and **360 foreign patents**, with validity ranging from 2021 to 2041[57](index=57&type=chunk) - The company's proprietary high-yield production processes used in high-voltage IC manufacturing are considered trade secrets[58](index=58&type=chunk) [Manufacturing](index=14&type=section&id=Manufacturing) The company employs a fabless manufacturing model, outsourcing most silicon wafer fabrication to foundries like Lapis Semiconductor, Seiko Epson, and X-FAB, and conducting IC assembly, packaging, and testing in China, Malaysia, Thailand, the Philippines, Sri Lanka, and Switzerland, working closely with foundries to utilize proprietary high-voltage process technologies, and maintaining significant wafer and finished goods inventory to manage demand fluctuations and supply chain risks - The company contracts with three foundries, Lapis Semiconductor, Seiko Epson, and X-FAB, to manufacture most silicon wafers using proprietary high-voltage process technology[59](index=59&type=chunk) - IC assembly, packaging, and testing are performed by independent subcontractors in China, Malaysia, Thailand, and the Philippines; gate driver boards are assembled and tested by subcontractors in Sri Lanka and Thailand[60](index=60&type=chunk) - The fabless manufacturing model allows the company to focus on engineering and design strengths while minimizing capital expenditures and gaining high-volume manufacturing capabilities[61](index=61&type=chunk) - Wafer supply agreements with Lapis, Epson, and X-FAB expire in April 2028, December 2025, and December 2028, respectively, including capacity reservations and fixed-price terms, with shared impact from JPY to USD exchange rate fluctuations[62](index=62&type=chunk)[64](index=64&type=chunk) - The company typically holds significant wafer and finished goods inventory to mitigate risks from short customer order lead times and demand fluctuations[66](index=66&type=chunk) [Competition](index=16&type=section&id=Competition) The high-voltage power industry is highly competitive, with the company facing competition from monolithic and hybrid ICs from companies like ON Semiconductor, STMicroelectronics, and Infineon, as well as from PWM controller chips combined with discrete high-voltage transistors, with the company primarily competing on product integration, functionality (e.g., safety and energy efficiency features), and technical support, rather than solely on price - The company faces competition in the high-voltage power market from monolithic and hybrid ICs from companies such as ON Semiconductor, STMicroelectronics, Infineon, and Sanken Electric Company[67](index=67&type=chunk) - Competition also includes combinations of PWM controller chips with discrete high-voltage bipolar transistors and MOSFETs, as well as self-oscillating switchers built with discrete components[67](index=67&type=chunk) - The company primarily competes through the high integration of its products (reducing component count, accelerating design, improving manufacturing efficiency and reliability), product functionality (such as safety and energy efficiency features), and provided technical support (e.g., design software and reference designs)[69](index=69&type=chunk) [Warranty](index=16&type=section&id=Warranty) The company generally warrants its products to conform substantially to published specifications for **12 months** from the date of shipment, with liability typically limited to a credit equal to the purchase price or replacement of defective parts, according to its terms and conditions of sale - Company products generally conform to published specifications for **12 months** from the date of shipment[70](index=70&type=chunk) - Warranty liability is limited to a credit equal to the purchase price or replacement of defective parts[70](index=70&type=chunk) [Human Capital](index=18&type=section&id=Human%20Capital) As of December 31, 2020, the company had **725 full-time employees** across **14 countries**, with **50% in North America**, attracting and retaining talent through competitive compensation, comprehensive benefits (including health insurance, 401(k) matching, employee stock purchase plans, paid time off), and a corporate culture of innovation and sustainable growth, resulting in an average employee tenure of nearly **10 years**, while committing to equal employment opportunities and encouraging employee-management communication - As of December 31, 2020, the company had **725 full-time employees**, with **50% in North America**, **259 in Asia Pacific**, and **103 in Europe, Middle East, and Africa**[72](index=72&type=chunk) - The company offers attractive compensation and comprehensive benefits, including health, dental, and vision insurance, 401(k) matching, employee stock purchase plans, paid time off, and family leave[73](index=73&type=chunk) - The company culture emphasizes innovation and sustainable growth, with an average employee tenure of nearly **10 years** and low employee turnover[73](index=73&type=chunk) - The company is committed to providing equal employment opportunities and offers training and development opportunities, such as tuition reimbursement and various courses[74](index=74&type=chunk)[75](index=75&type=chunk) [Investor Information](index=18&type=section&id=Investor%20Information) The company provides its annual reports (Form 10-K), quarterly reports (Form 10-Q), current reports (Form 8-K), and amendments free of charge, accessible to investors through the "For Investors" section of the company's website or the SEC website, with the company website also offering corporate governance guidelines, board committee charters, and codes of business conduct and ethics - The company provides its annual reports (Form 10-K), quarterly reports (Form 10-Q), current reports (Form 8-K), and amendments free of charge[77](index=77&type=chunk) - Investors can access reports through the "For Investors" section of the company's website at www.power.com or the SEC website at www.sec.gov[77](index=77&type=chunk) - Corporate governance guidelines, board committee charters, and codes of business conduct and ethics are also available through the investor website[78](index=78&type=chunk) [Company History](index=18&type=section&id=Company%20History) Power Integrations, Inc. was incorporated in California on March 25, 1988, and reincorporated in Delaware in December 1997 - The company was incorporated in California on March 25, 1988, and reincorporated in Delaware in December 1997[79](index=79&type=chunk) [Information About Our Executive Officers](index=20&type=section&id=Information%20About%20Our%20Executive%20Officers) This section lists the company's executive officers as of February 1, 2021, along with their positions, ages, and brief biographies, including Balu Balakrishnan (President and CEO), Douglas Bailey (VP of Marketing), Radu Barsan (VP of Technology), Sunil Gupta (VP of Operations), David "Mike" Matthews (VP of Product Development), Sandeep Nayyar (VP of Finance and CFO), Ben Sutherland (VP of Worldwide Sales), and Clifford Walker (VP of Corporate Development) Executive Officer Information (as of February 1, 2021) | Name | Position | Age | | :--- | :--- | :--- | | Balu Balakrishnan | President, Chief Executive Officer and Director | 66 | | Douglas Bailey | Vice President of Marketing | 54 | | Radu Barsan | Vice President of Technology | 68 | | Sunil Gupta | Vice President of Operations | 48 | | David "Mike" Matthews | Vice President of Product Development | 56 | | Sandeep Nayyar | Vice President of Finance and Chief Financial Officer | 61 | | Ben Sutherland | Vice President of Worldwide Sales | 49 | | Clifford Walker | Vice President of Corporate Development | 69 | - Executive officers are appointed by and serve at the discretion of the Board of Directors, with their biographies covering various fields such as semiconductors, photonics technology, operations, marketing, and finance[80](index=80&type=chunk)[81](index=81&type=chunk)[82](index=82&type=chunk)[83](index=83&type=chunk)[84](index=84&type=chunk)[86](index=86&type=chunk)[87](index=87&type=chunk)[88](index=88&type=chunk) [ITEM 1A. RISK FACTORS](index=22&type=section&id=ITEM%201A.%20RISK%20FACTORS) This section details various risks that could materially and adversely affect the company's business, financial condition, and operating results, covering risks related to common stock ownership, business operations and growth, financial performance or macroeconomic conditions, and legal and regulatory matters, including but not limited to COVID-19 impacts, supply chain reliance, market competition, intellectual property litigation, talent attrition, and changes in tax laws - The company's operating results are volatile and difficult to predict, and failure to meet market expectations could lead to a significant decline in stock price[90](index=90&type=chunk) - The COVID-19 pandemic has disrupted and may continue to disrupt the company's operations, including manufacturing, R&D, sales, and marketing activities, with a material adverse impact on business, financial condition, and cash flows[94](index=94&type=chunk) - The company relies on third-party suppliers for wafers, and insufficient or interrupted supply could harm the business, with finding alternative suppliers taking **12-24 months**[95](index=95&type=chunk)[97](index=97&type=chunk) - The company does not have long-term contracts with customers, orders may be canceled or rescheduled, and a few large customers contribute a significant portion of revenue, posing customer concentration risk[101](index=101&type=chunk) - Selling products through distributors limits the company's direct interaction with end customers, increasing the difficulty of sales forecasting and business complexity, potentially leading to excess inventory in the distribution channel[102](index=102&type=chunk) - International sales account for the vast majority of net revenue (**98% in 2020**), facing risks such as tariffs, inadequate intellectual property protection, economic downturns, and exchange rate fluctuations[105](index=105&type=chunk)[106](index=106&type=chunk) - The high-voltage power industry is highly competitive, potentially leading to declining average selling prices and reduced sales volume, with patent expirations possibly intensifying competition[107](index=107&type=chunk) - Failure to successfully penetrate new markets or timely introduce new products will hinder business growth and demand generation[108](index=108&type=chunk)[109](index=109&type=chunk) - Product sales cycles are long, potentially incurring significant R&D and sales and marketing expenses before generating substantial revenue[113](index=113&type=chunk) - Declining demand in key end markets such as mobile phone chargers and consumer appliances will result in reduced net revenue[114](index=114&type=chunk) - Competition for attracting and retaining qualified talent (especially analog design engineers) is intense, and talent attrition could harm the business[115](index=115&type=chunk) - Disruptions to information technology systems, earthquakes, terrorist attacks, or other disasters could interrupt operations and harm the business[116](index=116&type=chunk)[117](index=117&type=chunk) - Fluctuations in USD exchange rates against JPY, CHF, and EUR could impact gross margins and net income[118](index=118&type=chunk)[120](index=120&type=chunk) - Failure to adequately protect or enforce intellectual property could lead to market share loss, costly litigation, and impaired profitability[121](index=121&type=chunk) - Product defects and failures could result in customer returns, cessation of product purchases, or significant costs[124](index=124&type=chunk) - Acquisitions and strategic investments carry risks, including failure to realize anticipated benefits, integration difficulties, and goodwill impairment[125](index=125&type=chunk)[129](index=129&type=chunk) - Changes in tax laws and regulations or adverse assessments from tax audits could increase the company's tax liabilities[130](index=130&type=chunk)[131](index=131&type=chunk) - Changes in environmental laws and regulations could increase disposal costs for existing inventory[132](index=132&type=chunk) - The ongoing impact of securities laws and regulations, as well as economic consequences from military actions or terrorist activities, could adversely affect the business[133](index=133&type=chunk)[137](index=137&type=chunk) [ITEM 1B. UNRESOLVED STAFF COMMENTS](index=36&type=section&id=ITEM%201B.%20UNRESOLVED%20STAFF%20COMMENTS) This section states that the company has no unresolved staff comments - Not applicable, the company has no unresolved staff comments[138](index=138&type=chunk) [ITEM 2. PROPERTIES](index=36&type=section&id=ITEM%202.%20PROPERTIES) The company owns its principal administrative, management, manufacturing, and technical offices in San Jose, California, along with R&D facilities in New Jersey, a design center in Germany, and a test facility in Switzerland, additionally leasing office and R&D space in Singapore, Switzerland, Canada, the UK, and Malaysia, and maintaining sales offices worldwide, believing its current facilities are sufficient but may need to lease additional space if employee numbers increase - The company owns its principal administrative, management, manufacturing, and technical offices in San Jose, California[139](index=139&type=chunk) - It also owns R&D facilities in New Jersey, a design center in Germany, and a test facility in Switzerland[139](index=139&type=chunk) - The company leases administrative office space and R&D facilities in Singapore, Switzerland, Canada, the UK, and Malaysia, and maintains sales offices worldwide[139](index=139&type=chunk) [ITEM 3. LEGAL PROCEEDINGS](index=36&type=section&id=ITEM%203.%20LEGAL%20PROCEEDINGS) This section refers to information regarding legal proceedings and contingencies in Note 13 to the consolidated financial statements, which is incorporated by reference into this report - Legal proceedings information can be found in Note 13, "Legal Proceedings and Contingencies," to the consolidated financial statements, and is incorporated by reference into this report[140](index=140&type=chunk) [ITEM 4. MINE SAFETY DISCLOSURES](index=36&type=section&id=ITEM%204.%20MINE%20SAFETY%20DISCLOSURES) This section states that the company has no mine safety disclosures - Not applicable, the company has no mine safety disclosures[141](index=141&type=chunk) [PART II](index=36&type=section&id=PART%20II.) This part covers market information for common equity, selected financial data, management's discussion and analysis of financial condition and results of operations, quantitative and qualitative disclosures about market risk, financial statements and supplementary data, changes in and disagreements with accountants, controls and procedures, and other information [ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES](index=36&type=section&id=ITEM%205.%20MARKET%20FOR%20REGISTRANT%27S%20COMMON%20EQUITY%2C%20RELATED%20STOCKHOLDER%20MATTERS%20AND%20ISSUER%20PURCHASES%20OF%20EQUITY%20SECURITIES) The company's common stock trades on the Nasdaq Global Select Market under the symbol "POWI", with approximately **43 record holders** as of February 2, 2021, and the Board of Directors has authorized common stock repurchases, with **$41.3 million** available for future repurchases as of December 31, 2020, while the company's stock price outperformed the Nasdaq Composite Index and Nasdaq Electronic Components Index between 2015 and 2020 - The company's common stock trades on the Nasdaq Global Select Market, with the trading symbol "POWI"[143](index=143&type=chunk) - As of February 2, 2021, there were approximately **43 record holders**[143](index=143&type=chunk) - The Board of Directors has authorized common stock repurchases, with **$41.3 million** available for future stock repurchases as of December 31, 2020, with no expiration date[144](index=144&type=chunk) Cumulative Total Return of Power Integrations, Inc., Nasdaq Composite Index, and Nasdaq Electronic Components Index (2015-2020) | Company/Index | 12/31/15 | 12/31/16 | 12/31/17 | 12/31/18 | 12/31/19 | 12/31/20 | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Power Integrations, Inc. | 100.00 | 140.87 | 153.94 | 128.81 | 210.80 | 351.57 | | Nasdaq Composite | 100.00 | 108.87 | 141.13 | 137.12 | 187.44 | 271.64 | | Nasdaq Electronic Components | 100.00 | 121.48 | 146.21 | 119.92 | 178.71 | 252.83 | [ITEM 6. SELECTED FINANCIAL DATA](index=39&type=section&id=ITEM%206.%20SELECTED%20FINANCIAL%20DATA) This section provides selected consolidated financial data for the company for the five-year period ended December 31, 2020, including key income statement and balance sheet metrics, showing growth in net revenue and net income in 2020, though 2019 net income significantly increased due to a one-time litigation settlement, with continuous growth in cash and cash equivalents and short-term marketable securities, and increasing dividends year over year Consolidated Statements of Income Data (2016-2020, in thousands of dollars, except per share amounts) | Metric | 2020 | 2019(2) | 2018 | 2017(3)(4) | 2016(3) | | :--- | :--- | :--- | :--- | :--- | :--- | | Net Revenue | $488,318 | $420,669 | $415,955 | $431,755 | $389,668 | | Operating Income | 70,487 | 217,022 | 55,648 | 57,637 | 48,874 | | Income Tax Provision (Benefit) | 4,075 | 28,946 | (10,220) | 32,690 | 1,054 | | Net Income | $71,176 | $193,468 | $69,984 | $27,609 | $48,898 | | Earnings Per Share (Basic) | $1.19 | $3.31 | $1.19 | $0.47 | $0.85 | | Earnings Per Share (Diluted) | $1.17 | $3.25 | $1.16 | $0.45 | $0.83 | | Dividends Per Share | $0.42 | $0.35 | $0.32 | $0.28 | $0.26 | Consolidated Balance Sheet Data (2016-2020, in thousands of dollars) | Metric | 2020 | 2019(2) | 2018 | 2017(3)(4) | 2016(3) | | :--- | :--- | :--- | :--- | :--- | :--- | | Cash and Cash Equivalents | $258,874 | $178,690 | $134,137 | $93,655 | $62,134 | | Short-Term Marketable Securities | 190,318 | 232,398 | 94,451 | 189,236 | 188,323 | | Cash, Cash Equivalents and Short-Term Marketable Securities | 449,192 | 411,088 | 228,588 | 282,891 | 250,457 | | Working Capital | 538,706 | 490,863 | 284,066 | 313,483 | 274,318 | | Total Assets | 903,339 | 803,896 | 588,697 | 621,074 | 554,410 | | Long-Term Liabilities | 30,402 | 28,874 | 13,259 | 22,341 | 7,380 | | Total Stockholders' Equity | $810,411 | $724,546 | $527,072 | $547,682 | $503,084 | - In 2019, the company reached a favorable litigation settlement with ON Semiconductor Corporation, resulting in **$169 million** in net benefit[150](index=150&type=chunk) - In July 2020, the Board of Directors approved a **2-for-1 stock split** in the form of a stock dividend[149](index=149&type=chunk) [ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS](index=40&type=section&id=ITEM%207.%20MANAGEMENT%27S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) This section discusses the company's financial condition and results of operations for fiscal years 2020, 2019, and 2018, noting a **$67.6 million** increase in net revenue in 2020 driven by growth across all end markets, while gross margin declined in 2020 and 2019 due to product mix and increased wafer substrate costs, and operating income significantly increased in 2019 due to a litigation settlement, with the COVID-19 pandemic causing short-term supply chain disruptions but demand remaining strong, and the company maintaining ample liquidity, primarily generating cash from operating activities, and continuing dividend payments and stock repurchases - Net revenue in 2020 was **$488.3 million**, an increase of **$67.6 million** from 2019, primarily due to growth across all end markets, including high-power chargers for mobile phones and tablets, desktop computers and monitors, and industrial and consumer appliance applications[155](index=155&type=chunk) - Net revenue in 2019 was **$420.7 million**, an increase of **$4.7 million** from 2018, primarily driven by growth in the communications end market, partially offset by decreased sales in the consumer and industrial markets[155](index=155&type=chunk) - Gross margin in 2020 was **49.9%**, lower than **50.7% in 2019** and **51.6% in 2018**, primarily due to an unfavorable end market mix (more revenue from lower-margin markets) and increased wafer substrate costs[159](index=159&type=chunk)[186](index=186&type=chunk) - Total operating expenses in 2019 resulted in a net benefit of **$3.6 million** due to a **$169 million** net benefit from the litigation settlement with ON Semiconductor[160](index=160&type=chunk)[192](index=192&type=chunk) - The COVID-19 pandemic caused supply chain disruptions, but the company mitigated the impact through higher-than-normal wafer and finished goods inventory, safety stock of key inputs, and multi-source procurement, with demand remaining strong[162](index=162&type=chunk)[163](index=163&type=chunk) - As of December 31, 2020, the company had **$449.2 million** in cash, cash equivalents, and short-term marketable securities, and **$538.7 million** in working capital, indicating ample liquidity[195](index=195&type=chunk) - Cash flow from operating activities was **$125.6 million in 2020**, **$224.5 million in 2019** (influenced by litigation settlement), and **$84.0 million in 2018**[197](index=197&type=chunk) - The company consistently pays cash dividends and conducts stock repurchase programs, with **$41.3 million** still available for future stock repurchases as of December 31, 2020[208](index=208&type=chunk)[211](index=211&type=chunk) [Business Overview](index=40&type=section&id=Business%20Overview) Power Integrations designs, develops, and sells ICs and other electronic components for high-voltage power conversion, with products widely used in AC-DC power supplies, LED drivers, and motor drive ICs, covering markets such as mobile phones, computing devices, home appliances, industrial control, and electric vehicles, experiencing a **$67.6 million** net revenue increase in 2020 driven by growth across all end markets, with international and distributor sales accounting for the vast majority of total revenue, and gross margin influenced by product mix, end market mix, customer mix, and USD to JPY exchange rate fluctuations - The company designs, develops, and sells analog and mixed-signal integrated circuits (ICs) and other electronic components for high-voltage power conversion[152](index=152&type=chunk) - Products are primarily used in AC-DC power supplies, high-voltage LED drivers, and brushless DC (BLDC) motor drivers, applied in mobile phones, computing and networking equipment, home appliances, electronic meters, battery-powered tools, industrial control, and smart homes[153](index=153&type=chunk)[154](index=154&type=chunk) Net Revenue (2018-2020, in millions of dollars) | Year | Net Revenue | | :--- | :--- | | 2020 | $488.3 | | 2019 | $420.7 | | 2018 | $416.0 | - Revenue increased by **$67.6 million in 2020**, primarily due to growth across all end markets, including high-power chargers for mobile phones and tablets, desktop computers and monitors, and industrial and consumer appliance applications[155](index=155&type=chunk) - International sales accounted for approximately **98%**, **97%**, and **96%** of net revenue in 2020, 2019, and 2018, respectively[156](index=156&type=chunk) - Gross margin is affected by product mix, end market mix, customer mix, and USD to JPY exchange rate fluctuations, with a **10% change in the USD to JPY exchange rate** potentially leading to approximately a **1.0% change in gross margin**[157](index=157&type=chunk) [COVID-19 Pandemic](index=42&type=section&id=COVID-19%20Pandemic) The COVID-19 pandemic caused global market and daily life disruptions, leading to work-from-home and restriction measures at the company's headquarters and other global locations, with initial temporary closures of subcontractor factories causing some customer shipment delays, but the company mitigated supply chain disruptions through high inventory levels and multi-source procurement, and despite economic downturns, product demand remained strong, with plans to continue R&D investments, dividend payments, and stock repurchases - The COVID-19 pandemic caused global market and daily life disruptions, leading to work-from-home and restriction measures at the company's headquarters and other global locations[161](index=161&type=chunk) - In the early stages of the pandemic, subcontractor factories in China, Malaysia, Sri Lanka, and the Philippines temporarily closed, causing some customer shipment delays[162](index=162&type=chunk) - The company mitigated supply chain disruptions through higher-than-normal wafer and finished goods inventory, safety stock of key inputs, and multi-source procurement[162](index=162&type=chunk) - Despite economic downturns, company product demand remained strong, with plans to continue investing in R&D, paying cash dividends, and repurchasing stock[163](index=163&type=chunk) [Critical Accounting Policies and Estimates](index=42&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) The company makes estimates and assumptions for key accounting policies such as revenue recognition and income taxes when preparing financial statements, with revenue recognition following ASC 606-10's five-step approach to identify contracts, performance obligations, determine transaction price, allocate transaction price, and recognize revenue when control transfers, while income taxes are recognized under ASC 740 for deferred tax assets and liabilities, assessing the realizability of deferred tax assets, and making judgments on uncertain tax positions - Key accounting policies include revenue recognition and income taxes, requiring management to make estimates and assumptions[165](index=165&type=chunk) - Revenue recognition follows the five-step approach of ASC 606-10, recognizing revenue when control transfers to the customer, typically at shipment[169](index=169&type=chunk)[170](index=170&type=chunk) - Sales to distributors involve price adjustments and limited rights of return (stock rotation), which are considered variable consideration and estimated using the expected value method[173](index=173&type=chunk)[175](index=175&type=chunk) - Income taxes are recognized under ASC 740 for deferred tax assets and liabilities, with the realizability of deferred tax assets assessed and valuation allowances provided when necessary[178](index=178&type=chunk) - As of December 31, 2020, the company maintained valuation allowances for deferred tax assets in California, New Jersey, and Canada[179](index=179&type=chunk) [Results of Operations](index=46&type=section&id=Results%20of%20Operations) Net revenue increased in 2020, while gross margin declined due to changes in market mix and rising wafer costs, and operating expenses increased in 2020, primarily driven by salaries, equity compensation, and equipment costs, but legal and travel expenses decreased, with 2019 operating expenses showing a net benefit due to a litigation settlement, and other income declining in 2020 mainly due to lower interest rates, while the effective tax rate was influenced by global earnings distribution, R&D tax credits, and equity compensation tax benefits Income Statement Data as a Percentage of Net Revenue (2018-2020) | Metric | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | Net Revenue | 100.0 % | 100.0 % | 100.0 % | | Cost of Sales | 50.1 | 49.3 | 48.4 | | Gross Profit | 49.9 | 50.7 | 51.6 | | Operating Expenses: | | | | | Research and Development | 16.7 | 17.5 | 17.0 | | Selling and Marketing | 11.2 | 12.9 | 12.8 | | General and Administrative | 7.6 | 8.9 | 8.4 | | Litigation Settlement | — | (40.2) | — | | Total Operating Expenses | 35.4 | (0.9) | 38.2 | | Operating Income | 14.4 | 51.6 | 13.4 | | Other Income | 1.0 | 1.3 | 1.0 | | Income Before Taxes | 15.4 | 52.9 | 14.4 | | Income Tax Provision (Benefit) | 0.8 | 6.9 | (2.4) | | Net Income | 14.6 % | 46.0 % | 16.8 % | - Net revenue in 2020 increased by **$67.6 million** compared to 2019, primarily due to growth across all end markets[182](index=182&type=chunk) Gross Profit and Gross Margin (2018-2020, in millions of dollars) | Metric | 2020 | Change | 2019 | Change | 2018 | | :--- | :--- | :--- | :--- | :--- | :--- | | Gross Profit | $243.6 | 14.1 % | $213.4 | (0.7)% | $214.8 | | Gross Margin | 49.9 % | | 50.7 % | | 51.6 % | - The decline in gross margin in 2020 was primarily due to an unfavorable end market mix (more revenue from lower-margin markets), while the decline in 2019 was mainly due to increased wafer substrate costs[186](index=186&type=chunk) Research and Development Expenses (2018-2020, in millions of dollars) | Metric | 2020 | Change | 2019 | Change | 2018 | | :--- | :--- | :--- | :--- | :--- | :--- | | R&D Expenses | $81.7 | 11.2 % | $73.5 | 4.1 % | $70.6 | | As a % of Net Revenue | 16.7 % | | 17.5 % | | 17.0 % | - R&D expenses increased in 2020 primarily due to higher employee salaries and related expenses, equipment-related expenses, and equity compensation expenses[189](index=189&type=chunk) Selling and Marketing Expenses (2018-2020, in millions of dollars) | Metric | 2020 | Change | 2019 | Change | 2018 | | :--- | :--- | :--- | :--- | :--- | :--- | | Selling and Marketing Expenses | $54.5 | 0.4 % | $54.3 | 2.3 % | $53.1 | | As a % of Net Revenue | 11.2 % | | 12.9 % | | 12.8 % | - Selling and marketing expenses increased in 2020 primarily due to higher employee salaries and equity compensation expenses, partially offset by reduced COVID-19 related travel, trade shows, and promotional activities, and lower intangible asset amortization[190](index=190&type=chunk) General and Administrative Expenses (2018-2020, in millions of dollars) | Metric | 2020 | Change | 2019 | Change | 2018 | | :--- | :--- | :--- | :--- | :--- | :--- | | General and Administrative Expenses | $36.9 | (1.9)% | $37.6 | 5.9 % | $35.5 | | As a % of Net Revenue | 7.6 % | | 8.9 % | | 8.4 % | - General and administrative expenses decreased in 2020 primarily due to lower patent litigation expenses, partially offset by increased equity compensation expenses[191](index=191&type=chunk) - A litigation settlement in 2019 generated a net benefit of **$169 million**[192](index=192&type=chunk) Other Income (2018-2020, in millions of dollars) | Metric | 2020 | Change | 2019 | Change | 2018 | | :--- | :--- | :--- | :--- | :--- | :--- | | Other Income | $4.8 | (11.8)% | $5.4 | 32.0 % | $4.1 | | As a % of Net Revenue | 1.0 % | | 1.3 % | | 1.0 % | - Other income decreased in 2020 primarily due to lower interest income resulting from reduced interest rates[193](index=193&type=chunk) Income Tax Provision (Benefit) and Effective Tax Rate (2018-2020, in millions of dollars) | Metric | 2020 | Change | 2019 | Change | 2018 | | :--- | :--- | :--- | :--- | :--- | :--- | | Income Tax Provision (Benefit) | $4.1 | (85.9)% | $28.9 | 383.2 % | $(10.2) | | As a % of Net Revenue | 0.8 % | | 6.9 % | | (2.4)% | | Effective Tax Rate | 5.4 % | | 13.0 % | | (17.1)% | - The effective tax rate is lower than the US federal statutory rate of **21%**, primarily benefiting from the global distribution of earnings in lower-tax jurisdictions, federal R&D tax credits, and excess tax benefits related to equity compensation[194](index=194&type=chunk) [Liquidity and Capital Resources](index=51&type=section&id=Liquidity%20and%20Capital%20Resources) As of December 31, 2020, the company had **$449.2 million** in cash, cash equivalents, and short-term marketable securities, and **$538.7 million** in working capital, indicating ample liquidity, primarily generating cash from operating activities, with 2019 cash flow significantly boosted by a litigation settlement, and the company also maintaining a **$75 million** revolving credit facility and consistently engaging in dividend payments and stock repurchases, expecting existing liquidity to meet working capital needs for the next **12 months** Cash, Cash Equivalents and Short-Term Marketable Securities (2018-2020, in millions of dollars) | Year | Cash, Cash Equivalents and Short-Term Marketable Securities | | :--- | :--- | | 2020 | $449.2 | | 2019 | $411.1 | | 2018 | $228.6 | Working Capital (2018-2020, in millions of dollars) | Year | Working Capital | | :--- | :--- | | 2020 | $538.7 | | 2019 | $490.9 | | 2018 | $284.1 | - The company has a **$75 million** revolving credit facility, with no outstanding borrowings as of December 31, 2020 and 2019[196](index=196&type=chunk) Cash Flow from Operating Activities (2018-2020, in millions of dollars) | Year | Cash Flow from Operating Activities | | :--- | :--- | | 2020 | $125.6 | | 2019 | $224.5 | | 2018 | $84.0 | - Cash flow from operating activities in 2019 was favorably impacted by the patent litigation settlement with ON Semiconductor[197](index=197&type=chunk) - Net cash used in investing activities in 2020 was **$28.3 million**, primarily for purchases of marketable securities and property and equipment[202](index=202&type=chunk) - Net cash used in financing activities in 2020 was **$17.2 million**, primarily for dividend payments of **$25.1 million** and stock repurchases of **$2.6 million**, partially offset by **$10.5 million** from common stock issuances[205](index=205&type=chunk) Quarterly Dividends Per Share (2018-2020) | Quarter | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | Q1 | $0.095 | $0.085 | $0.080 | | Q2 | $0.105 | $0.085 | $0.080 | | Q3 | $0.110 | $0.085 | $0.080 | | Q4 | $0.110 | $0.095 | $0.080 | - As of December 31, 2020, the company had **$41.3 million** available for future stock repurchases[211](index=211&type=chunk) - The company expects cash flow from operating activities and existing liquidity to meet working capital and other cash needs for at least the next **12 months**[214](index=214&type=chunk) [Off-Balance-Sheet Arrangements](index=55&type=section&id=Off-Balance-Sheet%20Arrangements) As of December 31, 2020 and 2019, the company had no off-balance-sheet arrangements or relationships with unconsolidated entities or financial partnerships - As of December 31, 2020 and 2019, the company had no off-balance-sheet arrangements or relationships with unconsolidated entities or financial partnerships[215](index=215&type=chunk) [Contractual Obligations](index=55&type=section&id=Contractual%20Obligations) As of December 31, 2020, the company's primary contractual obligations included **$8.22 million** in operating lease obligations and **$60.084 million** in purchase obligations, in addition to approximately **$21.1 million** in income tax obligations related to unrecognized tax benefits and **$4.5 million** in transition tax related to the US Tax Cuts and Jobs Act, payable over five years Contractual Obligations (as of December 31, 2020, in thousands of dollars) | (in thousands) | Total | Less than 1 year | 1-3 years | 4-5 years | More than 5 years | | :--- | :--- | :--- | :--- | :--- | :--- | | Operating Lease Obligations | $8,220 | $2,909 | $4,478 | $833 | $— | | Purchase Obligations | $60,084 | $60,084 | $— | $— | $— | - Purchase obligations primarily include wafer and other inventory purchases, assembly and other manufacturing services, and property and equipment purchases[217](index=217&type=chunk) - As of December 31, 2020, the company also had approximately **$21.1 million** in income tax obligations related to unrecognized tax benefits[217](index=217&type=chunk)[218](index=218&type=chunk) - As of December 31, 2020, the company also had approximately **$4.5 million** in estimated one-time transition tax related to the US Tax Cuts and Jobs Act, payable over five years[219](index=219&type=chunk) [Recently Issued Accounting Pronouncements](index=57&type=section&id=Recently%20Issued%20Accounting%20Pronouncements) This section refers to information on recently issued accounting pronouncements in Note 2, "Significant Accounting Policies and Recently Issued Accounting Pronouncements," to the consolidated financial statements - Information on recently issued accounting pronouncements can be found in Note 2 to the consolidated financial statements[220](index=220&type=chunk) [ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK](index=57&type=section&id=ITEM%207A.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) The company faces interest rate risk and foreign currency risk, with interest rate risk primarily related to its investment portfolio, managed by investing in high-credit-quality issuers and limiting exposure to single issuers, while foreign currency risk stems mainly from fluctuations in USD against JPY, CHF, and EUR, where a **10% change in the USD to JPY exchange rate** could lead to approximately a **1.0% change in gross margin**, and the company holds foreign currency cash to support Swiss subsidiary operations and may use foreign exchange hedging contracts - The company faces interest rate risk and foreign currency risk[221](index=221&type=chunk) - Interest rate risk is primarily related to the investment portfolio, with the company investing in high-credit-quality issuers and limiting single issuer credit exposure to ensure principal safety and liquidity[221](index=221&type=chunk)[222](index=222&type=chunk) - Foreign currency risk primarily arises from fluctuations in USD against JPY, CHF, and EUR[223](index=223&type=chunk) Swiss Franc and Euro Foreign Exchange Impact (as of December 31, 2020, in thousands of dollars) | | December 31, 2020 | | :--- | :--- | | 5% Impact | $121 | | 10% Impact | $242 | - A **10% change in the USD to JPY exchange rate** could lead to approximately a **1.0% change in gross margin**, as the company's wafer supply agreements with key suppliers (Epson and Lapis) include terms for sharing exchange rate fluctuation impacts[226](index=226&type=chunk)[228](index=228&type=chunk) [ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA](index=60&type=section&id=ITEM%208.%20FINANCIAL%20STATEMENTS%20AND%20SUPPLEMENTARY%20DATA) This section contains the company's consolidated financial statements as of December 31, 2020, including the balance sheets, statements of income, comprehensive income, stockholders' equity, and cash flows, along with the independent registered public accounting firm's audit report, and also provides detailed notes to the financial statements covering company overview, significant accounting policies, balance sheet components, fair value measurements, marketable securities, goodwill and intangible assets, equity plans and equity compensation, significant customers and geographic net revenue, common stock repurchases and cash dividends, earnings per share, income tax provision, leases and commitments, legal proceedings and contingencies, retirement plans, bank credit facilities, and unaudited quarterly information - This section contains the company's consolidated financial statements as of December 31, 2020, including the balance sheets, statements of income, comprehensive income, stockholders' equity, and cash flows[231](index=231&type=chunk)[237](index=237&type=chunk)[240](index=240&type=chunk)[243](index=243&type=chunk)[245](index=245&type=chunk)[247](index=247&type=chunk) - Deloitte & Touche LLP issued an unqualified opinion on the financial statements and an unqualified opinion on the effectiveness of internal control over financial reporting[231](index=231&type=chunk)[232](index=232&type=chunk) - The notes to the financial statements provide company overview, significant accounting policies, balance sheet components, fair value measurements, marketable securities, goodwill and intangible assets, equity plans and equity compensation, significant customers and geographic net revenue, common stock repurchases and cash dividends, earnings per share, income tax provision, leases and commitments, legal proceedings and contingencies, retirement plans, bank credit facilities, and unaudited quarterly information[249](index=249&type=chunk)[250](index=250&type=chunk)[285](index=285&type=chunk)[291](index=291&type=chunk)[295](index=295&type=chunk)[300](index=300&type=chunk)[303](index=303&type=chunk)[326](index=326&type=chunk)[331](index=331&type=chunk)[337](index=337&type=chunk)[341](index=341&type=chunk)[353](index=353&type=chunk)[358](index=358&type=chunk)[363](index=363&type=chunk)[368](index=368&type=chunk)[369](index=369&type=chunk) [Report of Independent Registered Public Accounting Firm](index=60&type=section&id=Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm) Deloitte & Touche LLP issued an unqualified opinion on Power Integrations, Inc.'s consolidated financial statements as of December 31, 2020, affirming that the financial statements fairly present the company's financial position and operating results in all material respects, and also issued an unqualified opinion on the effectiveness of the company's internal control over financial reporting as of December 31, 2020 - Deloitte & Touche LLP issued an unqualified opinion on the company's consolidated financial statements as of December 31, 2020[231](index=231&type=chunk) - The firm also issued an unqualified opinion on the effectiveness of the company's internal control over financial reporting as of December 31, 2020[232](index=232&type=chunk) - The company adopted Accounting Standards Update 2016-02, Leases (Topic 842), on January 1, 2019[233](index=233&type=chunk) [Consolidated Balance Sheets](index=62&type=section&id=Consolidated%20Balance%20Sheets) As of December 31, 2020, the company's total assets were **$903.3 million**, an increase from **$803.9 million in 2019**, with cash and cash equivalents and short-term marketable securities totaling **$449.2 million**, total liabilities at **$92.9 million**, and stockholders' equity at **$810.4 million** Consolidated Balance Sheets (as of December 31, 2020 and 2019, in thousands of dollars) | (In thousands, except par value) | December 31, 2020 | December 31, 2019 | | :--- | :--- | :--- | | **Assets** | | | | Cash and Cash Equivalents | $258,874 | $178,690 | | Short-Term Marketable Securities | 190,318 | 232,398 | | Accounts Receivable, Net | 35,910 | 24,274 | | Inventories | 102,878 | 90,380 | | Prepaid Expenses and Other Current Assets | 13,252 | 15,597 | | **Total Current Assets** | **601,232** | **541,339** | | Property and Equipment, Net | 166,188 | 116,619 | | Intangible Assets, Net | 12,506 | 16,865 | | Goodwill | 91,849 | 91,849 | | Deferred Tax Assets | 3,339 | 2,836 | | Other Assets | 28,225 | 34,388 | | **Total Assets** | **$903,339** | **$803,896** | | **Liabilities and Stockholders' Equity** | | | | Accounts Payable | $34,712 | $27,433 | | Accrued Payroll and Related Expenses | 14,806 | 13,408 | | Income Taxes Payable | 902 | 584 | | Other Accrued Liabilities | 12,106 | 9,051 | | **Total Current Liabilities** | **62,526** | **50,476** | | Long-Term Income Taxes Payable | 15,588 | 14,617 | | Deferred Tax Liabilities | 75 | 164 | | Other Liabilities | 14,739 | 14,093 | | **Total Liabilities** | **92,928** | **79,350** | | Common Stock | 28 | 28 | | Additional Paid-in Capital | 190,920 | 152,117 | | Accumulated Other Comprehensive Loss | (2,163) | (3,130) | | Retained Earnings | 621,626 | 575,531 | | **Total Stockholders' Equity** | **810,411** | **724,546** | | **Total Liabilities and Stockholders' Equity** | **$903,339** | **$803,896** | - As of December 31, 2020, total assets were **$903.3 million**, an increase of **12.38%** from 2019[238](index=238&type=chunk) - As of December 31, 2020, cash and cash equivalents were **$258.9 million**, and short-term marketable securities were **$190.3 million**[238](index=238&type=chunk) - As of December 31, 2020, stockholders' equity was **$810.4 million**, and total liabilities were **$92.9 million**[238](index=238&type=chunk) [Consolidated Statements of Income](index=63&type=section&id=Consolidated%20Statements%20of%20Income) In 2020, the company reported net revenue of **$488.3 million**, gross profit of **$243.6 million**, and net income of **$71.2 million**, with 2019 net income reaching **$193.5 million** due to a litigation settlement, and basic earnings per share at **$1.19** and diluted earnings per share at **$1.17** in 2020 Consolidated Statements of Income (for the years ended December 31, 2020, in thousands of dollars, except per share amounts) | (In thousands, except per share amounts) | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | Net Revenue | $488,318 | $420,669 | $415,955 | | Cost of Sales | 244,728 | 207,267 | 201,167 | | Gross Profit | 243,590 | 213,402 | 214,788 | | Operating Expenses: | | | | | Research and Development | 81,711 | 73,470 | 70,580 | | Selling and Marketing | 54,497 | 54,297 | 53,064 | | General and Administrative | 36,895 | 37,582 | 35,496 | | Litigation Settlement | — | (168,969) | — | | Total Operating Expenses | 173,103 | (3,620) | 159,140 | | Operating Income | 70,487 | 217,022 | 55,648 | | Other Income | 4,764 | 5,392 | 4,116 | | Income Before Taxes | 75,251 | 222,414 | 59,764 | | Income Tax Provision (Benefit) | 4,075 | 28,946 | (10,220) | | Net Income | $71,176 | $193,468 | $69,984 | | Earnings Per Share (Basic) | $1.19 | $3.31 | $1.19 | | Earnings Per Share (Diluted) | $1.17 | $3.24 | $1.16 | - Net revenue in 2020 was **$488.3 million**, an increase of **16.08%** from 2019[241](index=241&type=chunk) - Net income in 2019 was **$193.5 million**, primarily benefiting from a **$169 million** litigation settlement[241](index=241&type=chunk) - Basic earnings per share in 2020 were **$1.19**, and diluted earnings per share were **$1.17**[241](index=241&type=chunk) [Consolidated Statements of Comprehensive Income](index=64&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income) In 2020, the company's total comprehensive income was **$72.1 million**, comprising **$71.2 million** in net income and **$967 thousand** in other comprehensive income (net of tax), primarily including unrealized actuarial gains on pension benefits, unrealized gains on marketable securities, and foreign currency translation adjustments Consolidated Statements of Comprehensive Income (for the years ended December 31, 2020, in thousands of dollars) | (In thousands) | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | Net Income | $71,176 | $193,468 | $69,984 | | Other Comprehensive Income (Loss), Net of Tax: | | | | | Foreign Currency Translation Adjustments | (183) | (518) | (236) | | Unrealized Gains on Marketable Securities | 307 | 849 | 161 | | Unrealized Actuarial Gains (Losses) on Pension Benefits | 843 | (1,772) | 525 | | **Total Other Comprehensive Income (Loss)** | **967** | **(1,441)** | **450** | | **Total Comprehensive Income** | **$72,143** | **$192,027** | **$70,434** | - Total comprehensive income in 2020 was **$72.1 million**, with net income at **$71.2 million**[243](index=243&type=chunk) - Other comprehensive income (loss) primarily includes foreign currency translation adjustments, unrealized gains on marketable securities, and unrealized actuarial gains (losses) on pension benefits[243](index=243&type=chunk) [Consolidated Statements of Stockholders' Equity](index=65&type=section&id=Consolidated%20Statements%20of%20Stockholders%27%20Equity) As of December 31, 2020, the company's total stockholders' equity was **$810.4 million**, an increase from 2019, with changes primarily influenced by net income, equity compensation expense, dividend payments, and stock repurchases, and in 2020, the company issued **$10.5 million** in common stock, repurchased **$2.6 million** in stock, and paid **$25.1 million** in dividends Consolidated Statements of Stockholders' Equity (as of December 31, 2020, in thousands of dollars) | (In thousands) | Shares | Amount | Additional Paid-in Capital | Accumulated Other Comprehensive Loss | Retained Earnings | Total Stockholders' Equity | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Balance at January 1, 2018 | 59,564 | $29 | $198,384 | $(2,139) | $351,408 | $547,682 | | Balance at December 31, 2018 | 57,778 | $28 | $126,164 | $(1,689) | $402,569 | $527,072 | | Balance at December 31, 2019 | 58,862 | $28 | $152,117 | $(3,130) | $575,531 | $724,546 | | Balance at December 31, 2020 | 59,910 | $28 | $190,920 | $(2,163) | $621,626 | $810,411 | - As of December 31, 2020, total stockholders' equity was **$810.4 million**, an increase of **11.85%** from 2019[245](index=245&type=chunk) - In 2020, the company issued **$10.5 million** from common stock, repurchased **$2.6 million** in stock, and paid **$25.1 million** in dividends[245](index=245&type=chunk) - Equity compensation expense was **$30.9 million in 2020**, **$23.3 million in 2019**, and **$21.6 million in 2018**[245](index=245&type=chunk) [Consolidated Statements of Cash Flows](index=67&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) In 2020, operating activities generated **$125.6 million** in cash, investing activities used **$28.3 million**, and financing activities used **$17.2 million**, resulting in a net increase of **$80.2 million** in ca
Power Integrations(POWI) - 2020 Q4 - Earnings Call Presentation
2021-02-03 21:41
NEWS RELEASE Power Integrations Reports Fourth-Quarter and Full-Year Financial Results Quarterly revenues increased 32 percent year-over-year to $150.7 million; GAAP earnings were $0.45 per diluted share; non-GAAP earnings were $0.60 per diluted share Full-year revenues grew 16 percent to $488.3 million; cash flow from operations was $125.6 million; quarterly dividend increases by 18 percent to $0.13 per share SAN JOSE, CALIF. – February 2, 2021 – Power Integrations (Nasdaq: POWI) today announced financial ...
Power Integrations(POWI) - 2020 Q4 - Earnings Call Transcript
2021-02-03 02:40
Financial Data and Key Metrics Changes - Fourth quarter revenues increased 32% year-over-year to $151 million, exceeding expectations [5] - Non-GAAP operating margin expanded to 25%, with non-GAAP earnings at $0.60 per diluted share [5][17] - Cash flow from operations for the fourth quarter was $46 million, with capital expenditures of $35 million [19] Business Line Data and Key Metrics Changes - Consumer category, the largest end market, grew nearly 20% year-over-year in Q4, driven by robust demand in appliances [6] - Communications category grew more than 30% for the year, with significant contributions from fast charging for smartphones [9][17] - Industrial category saw low single-digit growth, constrained by pandemic-related delays, but is expected to benefit from secular trends [8][9] Market Data and Key Metrics Changes - Revenue mix for the quarter was 34% communication, 31% consumer, 26% industrial, and 9% computer [18] - The company expects first quarter revenues to be flat compared to Q4, with continued strength in cell phones offsetting seasonal declines in other categories [21] Company Strategy and Development Direction - The company is focusing on GaN products, which are gaining traction and expected to double or triple in revenue in 2021 [47][49] - Investments in R&D and capacity expansion are prioritized, with over $70 million spent on capital last year [12][19] - The company is strategically managing inventory to meet customer demand while avoiding excess stock [13][38] Management's Comments on Operating Environment and Future Outlook - Management acknowledges challenges due to the pandemic but remains optimistic about long-term growth in high power and renewable energy sectors [27] - The company anticipates a potential slowdown in cell phone demand but expects to gain market share from competitors [21][60] - Management expects gross margin to be around 50% for the full year, despite short-term fluctuations [22] Other Important Information - The quarterly dividend was increased to $0.13 per share, marking a total increase of 37% over the past four quarters [5] - The company is undergoing a leadership transition in operations, with Sunny Gupta taking over from Raja Petrakian [14][15] Q&A Session Summary Question: Visibility for the high power area of the industrial business - Management expects industrial segment growth but acknowledges pandemic-related delays may slow project resumption [26][27] Question: Impact of rising input costs on margin outlook - Prices have firmed but not increased; costs have slightly risen due to capacity pushes [28][29] Question: Dynamics of multi-port chargers and their impact on business - Multiple ports increase ASP significantly, benefiting from GaN products [31][32] Question: Supply constraints affecting revenue growth - Management believes they can meet customer demand and maintain capacity [37][38] Question: Seasonality shifts in the wireless side - The impact of out-of-the-box chargers is uncertain, but long-term prospects are positive [40][42] Question: Importance and growth of GaN products - GaN revenue is expected to double or triple in 2021, with significant inroads into OEM business [46][47] Question: Automotive segment design cycles - Long design cycles in automotive mean revenue from this segment will take time to materialize [50] Question: Visibility on inventory replenishment - Management anticipates potential channel replenishment in Q1, depending on demand post-Lunar New Year [64]
Power Integrations (POWI) Investor Presentation - Slideshow
2020-12-07 23:30
ls" Magic Strip Power Integrations, Inc. Nasdaq: POWI o ු 0 () December 2020 ac-dc converters led drivers Forward-Looking Statements/Non-GAAP Metrics These slides accompany an oral presentation by Power Integrations, Inc., which contains forward-looking statements. Each statement relating to events that will or may occur in the future is a forward-looking statement. The Company's actual 2 results may differ materially from those suggested in the presentation. Information concerning factors that could cause ...
Power Integrations(POWI) - 2020 Q3 - Earnings Call Transcript
2020-11-01 07:33
Financial Data and Key Metrics Changes - Q3 revenues were $121 million, up 13% sequentially and above the top end of guidance, with a forecast for Q4 revenues of $130 million, plus or minus $5 million [8][19] - Non-GAAP gross margin decreased by 80 basis points to 50.3% due to a revenue mix shift towards lower-margin categories [22] - Non-GAAP earnings were $0.40 per diluted share, with cash flow from operations at $16.2 million [23][24] Business Line Data and Key Metrics Changes - Computer category revenues grew over 75% sequentially, driven by demand for inbox fast chargers for tablets [19] - Communication revenues increased by about 25% sequentially, while consumer revenues rose in the mid-teens, and industrial revenues declined in high single digits [20] - Revenue mix for the quarter was 32% communication, 31% consumer, 28% industrial, and 9% computer [22] Market Data and Key Metrics Changes - Strong demand in the consumer category was driven by appliances, while the communications sector benefited from trends in the smartphone market [9][10] - Channel inventories fell sharply, ending September at 4.3 weeks, down three weeks compared to the prior quarter [25] Company Strategy and Development Direction - The company is focused on expanding its GaN product offerings and expects to double GaN product revenue this year, with potential for further doubling in 2021 [16][96] - The company anticipates that fast charging will be the largest contributor to growth in Q4 and expects continued success in this area in 2021 [14][15] - The automotive market is seen as a long-term opportunity, with gradual revenue increases expected over the next several years [55][56] Management's Comments on Operating Environment and Future Outlook - Management noted that the operating environment remains uncertain due to the pandemic, but they expect a rebound in demand for appliances and continued strength in fast charging [19][26] - The company is optimistic about the growth potential in the computer market, driven by work-from-home trends and new design wins [84][85] - Management highlighted that the fast charging market is expanding into lower-end smartphones, which will contribute to revenue growth [71][72] Other Important Information - The company paid out $6.6 million in dividends following a dividend increase announced in conjunction with a stock split [24] - Capital expenditures for the quarter were $14.1 million, primarily for building construction and capacity additions [23][91] Q&A Session Summary Question: How is seasonality expected to behave in Q1? - Management indicated that Q1 could be slightly higher than normal due to strong sell-through in appliances and communications [35][36] Question: What are the expectations for OpEx growth relative to revenue growth in 2021? - Management provided a framework suggesting a slight increase in OpEx, with revenue growth expected to be in the low double digits [38] Question: Is GaN penetrating non-smartphone applications faster than expected? - Management expressed enthusiasm about design activity in non-smartphone applications, noting significant interest in areas like TVs and refrigerators [44] Question: What is the outlook for the automotive market? - Management stated that the automotive market will take several years to develop, but they are well-positioned for future growth [55][56] Question: How does the competitive landscape look with recent partnerships in high-voltage applications? - Management noted that they do not compete in the high-voltage market but have been gaining share in lower power levels against competitors [64] Question: What is the growth outlook for the computer market? - Management expects continued growth in the computer market, driven by strong demand for tablets and new design wins in notebooks [84][85]