Power Integrations(POWI) - 2024 Q3 - Earnings Call Transcript

Financial Data and Key Metrics - Q3 2024 revenue increased 9% sequentially to $116 million, with non-GAAP gross margin of 55.1% and non-GAAP earnings of$ 0.40 per share [7] - Q4 2024 revenue outlook is $105 million ±$ 5 million, reflecting soft demand in the appliance market and inventory buildup in China [7] - Year-over-year growth expected in Q4, with midpoint of forecast up 17% compared to last year [8] - Industrial segment expected to show strongest growth in 2025, driven by high-power applications and metering [8][9] - GaN products expected to account for over 10% of sales by 2025, with potential to reach $100 million in revenue by 2028 [25][53] Business Line Data and Key Metrics - Industrial revenues grew mid-teens sequentially in Q3, driven by high-power, home automation, and metering applications [32] - Communication category revenue up 20% sequentially, driven by 5G fixed wireless business in India and seasonal growth in smartphone chargers [33] - Computer category revenue up 10% sequentially, supported by OEM and aftermarket notebook chargers [33] - Consumer category flat sequentially, with strength in major appliances and gaming offsetting seasonal softness in air conditioning [34] Market Data and Key Metrics - High-voltage DC transmission projects and metering in India are key growth drivers in the industrial segment [9][11] - Automotive segment expected to contribute to industrial revenues in 2025, with significant growth in EV-related applications [12][13] - Consumer segment impacted by weak demand in China, with appliance inventory buildup ahead of government stimulus program [7][59] Company Strategy and Industry Competition - Focus on GaN technology, with advancements in voltage and power capabilities, targeting high-power applications in AI data centers, EVs, and telecom infrastructure [22][23][24] - GaN technology nearing cost parity with silicon MOSFETs, with superior performance and reliability [17][18][19] - Expansion into higher voltage GaN products (750V, 900V, 1250V, 1700V) to address industrial and automotive markets [23][41] - Acquisition of Odyssey Semiconductor to accelerate development of high-power GaN technology [24][49] Management Commentary on Operating Environment and Future Outlook - Soft demand environment in consumer segment, particularly in China, expected to persist in Q4 [7][59] - Strong growth anticipated in 2025, driven by GaN products, high-power applications, and new design wins [28] - Management confident in long-term growth, with Board approving a 5% dividend increase and$ 50 million share repurchase program [31] Other Important Information - Channel inventory increased to 8.6 weeks, driven by consumer segment, while other categories saw inventory declines [34] - Non-GAAP operating expenses for Q3 were $43.7 million, down$ 500,000 sequentially despite Odyssey acquisition [35] - Cash flow from operations was $33 million, with$ 10 million spent on Odyssey acquisition and $11 million on dividends [36] Q&A Session Summary Question: Demand for 1700V GaN and its market fit - 1700V GaN is essential for 800V and 1000V battery systems in EVs and 3-phase industrial applications, currently served by silicon carbide [41] - GaN offers superior efficiency and cost advantages over silicon carbide [41] Question: Impact of new administration on renewables and energy efficiency - Renewables and EVs are expected to continue growing, driven by cost advantages and environmental benefits [43] - High-voltage DC transmission systems are critical for efficient power delivery, particularly for renewable energy and AI data centers [44] Question: GaN technology lead and cost comparison with silicon carbide - GaN is nearing cost parity with silicon MOSFETs and is significantly more cost-effective than silicon carbide [48] - GaN technology is competitive with silicon carbide up to 100+ watts, with ongoing development for higher power applications [49] Question: GaN revenue contribution and product migration - GaN expected to replace silicon in high-voltage switches across most products, with 20% of revenue projected to come from GaN in the next 2-3 years [52][54] Question: Segment performance and inventory dynamics - Industrial segment expected to be flat in Q4, while other segments decline [56] - Consumer inventory buildup in China due to weak demand and delayed government stimulus [59][60]