Power Integrations(POWI) - 2023 Q1 - Earnings Call Transcript

Financial Data and Key Metrics - Q1 revenues were $106 million, in line with guidance and down 15$18 million, driving a significant reduction in channel inventories [19] - Bookings were the strongest since Q1 of last year, with March being particularly strong due to post-holiday activity and China's reopening [19] - Gross margin for Q1 was 51.5% on a non-GAAP basis, impacted by unfavorable revenue mix and lower production volumes [39] - Non-GAAP operating expenses were $41.1 million, slightly up from the prior quarter [40] - Non-GAAP earnings were$0.25 per diluted share, and cash flow from operations was $16.6 million [40] - Share repurchases totaled$1.7 million, with $80 million remaining on the authorization at quarter-end [25] Business Line Data and Key Metrics - Industrial and consumer markets declined by 25$1 billion SAM by 2027, with design activity accelerating [35] - Renewable energy continues to drive growth in the High-Power business, with a major design win for utility-scale inverters in Europe [9] - China's reopening contributed to a surge in March bookings, but demand sustainability remains uncertain [72] Company Strategy and Industry Competition - The company is focused on long-term growth, particularly in GaN technology, which is a cornerstone of its strategy [33] - GaN products are differentiated by their integration and cost-performance advantages, with a roadmap to achieve cost parity with silicon within a couple of years [34] - The company is gaining market share during the downturn and expects to emerge stronger [52] - Automotive opportunities are growing rapidly, with a high conversion rate of opportunities into design wins [68] Management Commentary on Operating Environment and Future Outlook - Q1 was the bottom of the cycle, with recovery beginning in Q2, led by the smartphone market [14] - The company expects Q2 revenues of $122 million, plus or minus$5 million, with further reductions in channel inventory [15][41] - Gross margin is expected to improve in Q2 and more significantly in the second half, driven by favorable yen impact, higher production volumes, and improved revenue mix [39][41] - The second half of 2023 is expected to be significantly stronger than the first half, with revenue and margin improvements [23][44] Other Important Information - The company announced the launch of 900-volt GaN products, expanding its offerings for industrial, appliance, and EV markets [8] - Two board members will step down, and Ravi Vig, former CEO of Allegro Micro-Systems, will join the board [37] - Inventory levels are expected to decline steadily over the next several quarters, with a target range of $150-$170 million by year-end [58] Q&A Session Summary Question: Channel inventory burn and normalized revenue levels [27] - Answer: Sell-through exceeded sell-in by $18 million in Q1, and a similar trend is expected in Q2, bringing channel inventories close to normal levels [28] Question: True end demand and market recovery [51] - Answer: The company expects demand to improve, particularly in appliances, but the exact slope of recovery is uncertain [52] Question: Consumer and industrial segment recovery [55] - Answer: Consumer is expected to recover by Q3, while industrial will follow, with high-power business continuing to grow [85] Question: Gross margin improvement drivers [63] - Answer: Weaker yen, higher production volumes, and favorable revenue mix are expected to drive gross margin improvement in the second half [57] Question: Automotive market progress [74] - Answer: Design activity in automotive is accelerating, with a high conversion rate of opportunities into design wins, though significant revenue growth is expected in 2025-2026 [68][69] Question: Geographic trends, particularly in China [72] - Answer: March saw a surge in bookings due to China's reopening, but demand sustainability remains uncertain [72] Question: Normalized revenue range [78] - Answer: The company expects the second half of 2023 to be significantly stronger than the first half, but exact normalized revenue levels are unclear [79][83]