Power Integrations: The Possibility Of A Further Decline Cannot Be Excluded

Company Performance - Power Integrations (POWI) released its Q2 FY2024 report on August 6, showing positive developments, but the stock fell to a new 52-week low despite the report [1] - The company's Q2 FY2024 revenue was $106.2M, a 15.83$15.87M, a 51.29% QoQ increase but a 24.45% YoY decline [5] - POWI's Q3 FY2024 guidance projects revenue of $110-120M, an 8.37$290.48M in cash, cash equivalents, and short-term marketable securities, with no debt [4] - The company's non-GAAP gross margin improved to 54.1% in Q2 FY2024, up 110bps QoQ and 230bps YoY [5] - Non-GAAP operating margin for Q2 FY2024 was 12.5%, up 450bps QoQ but down 360bps YoY [5] Market and Demand Conditions - POWI is experiencing a slump in demand, particularly in China, where demand for appliances is much lower than expected [8] - Distribution inventory decreased to 7.8 weeks at the end of Q2 FY2024, down one week sequentially [7] - The company faces challenges with low visibility for Q4 FY2024, as customers are ordering at the last minute due to high inventory levels [8] Stock Performance and Valuation - POWI's stock lost about 20% of its value since May 2024, closing at $60.92 on August 8, giving it a market cap of$3.46B [3] - The stock is near oversold territory after losing more than 16% since the start of August 2024 [3] - POWI's P/E ratio is estimated at 48.7x based on FY2024 non-GAAP EPS projections of $1.25-1.30 [4] Long-Term Outlook - POWI's financial model targets revenue growth with a CAGR in the low teens for FY2022-2027, aiming for$1.2B in revenue by FY2027 [9][10] - The company needs to achieve strong growth in the next three years to meet its targets, but FY2024 is likely to be flat or slightly down compared to FY2023 [10] - POWI's high P/E multiples are justified only if EPS grows to $5+ over the next three years, which is uncertain given current demand conditions [10] Industry Context - The semiconductor industry, including POWI, has been adversely affected by geopolitical factors and a broader stock market selloff in August 2024 [4] - The company's performance is tied to the recovery of the semiconductor market, which remains uncertain [11]