Power Integrations(US:POWI)2023-11-08 04:16Financial Data and Key Metrics Changes - Third quarter revenues were $125 million, up 2% from the prior quarter but down 22% year-over-year [3][45] - For the fourth quarter, the company expects a sequential decrease to $90 million at the midpoint of the range [3] - Non-GAAP gross margin for Q3 was 53.3%, modestly below expectations but increased by 150 basis points from the prior quarter [95] - Non-GAAP operating expenses for the quarter were $41.8 million, down more than $2 million sequentially [26] Business Line Data and Key Metrics Changes - The communication category saw a mid-teens percentage increase sequentially, driven by design wins and channel restocking in the China handset market [45] - Computer revenues were down more than 30% sequentially, primarily due to tablets and notebooks [46] - Consumer revenues decreased in the mid-single digits, affected by seasonality and ongoing softness in the appliance market [46] - The industrial category was up mid-teens sequentially, driven by high power applications, particularly in utility-scale solar [103] Market Data and Key Metrics Changes - Distribution inventory ended at 11.6 weeks, up 1.5 weeks from the prior quarter, primarily due to channel restocking for China handset customers [47] - The appliance market, accounting for about 25% of revenues, has been impacted by a slowdown in home sales and residual pandemic effects [16] Company Strategy and Development Direction - The company aims to double its addressable market by 2027, focusing on electric vehicles, motor drives, renewable energy, and proprietary GaN technology [4] - GaN technology is positioned to overtake silicon in high-voltage applications and is seen as a more cost-effective and sustainable alternative to silicon carbide [5][6] - The company is focused on maintaining foundry capacity and inventory levels to respond to future demand upturns [10][44] Management Comments on Operating Environment and Future Outlook - Management acknowledged a broad-based weakness in demand, similar to trends observed by peers, but remains optimistic about long-term growth prospects [15] - The company expects a recovery in demand starting in Q1, with a focus on managing expenses while investing in growth opportunities [58][88] - Management noted that customer interest in products has never been stronger, with record design wins in Q3 [22] Other Important Information - The company introduced the LinkSwitch-XT2 SR product, which offers low no-load consumption, and won a design at a top European customer for a refrigerator compressor [8] - The board has increased the quarterly dividend to $0.20 per share starting with the fourth quarter payout [27] Q&A Session Summary Question: What is the outlook for channel inventory? - Management indicated that channel inventory is expected to decline, with hopes of reaching normal levels by Q4 [49] Question: What is the impact of OEM cancellations on revenue? - Management noted that cancellations affected both Q3 revenues and Q4 backlog, particularly in the computer and communications categories [101] Question: When can the new 1,250 Volt GaN switch be expected in production? - The 1,250 Volt GaN switch could be in production sometime next year, primarily targeting the industrial market [52] Question: What is the expected revenue for Q4? - Management guided for Q4 revenues to be around $90 million, with declines expected across all segments [84] Question: How does the company view the long-term demand outlook? - Management expressed optimism for a rebound in demand, particularly in Q1, and noted that many designs are expected to go into production in 2024 [58][59]