Power Integrations(POWI) - 2024 Q2 - Earnings Call Transcript

Financial Data and Key Metrics - Q2 revenues were $106 million, up 16$0.28 per diluted share, above guidance due to better gross margin and operating expenses [8] - Non-GAAP gross margin was 54.1%, up more than 1 percentage point sequentially, driven by favorable yen exchange rates and higher manufacturing volumes [9] - Inventory days decreased to 312, down 37 days from the prior quarter [9] - Q3 revenue guidance is $115 million, plus or minus$5 million, representing an 8% sequential increase at the midpoint [10] - Non-GAAP gross margin for Q3 is expected to be between 54.5% and 55% [10] Business Line Performance - Consumer category, the largest segment, saw high-teens sequential growth, driven by strength in major and small appliances, as well as air conditioning [8] - Industrial category revenues grew mid-single digits sequentially, supported by improved inventories and design wins in metering applications [8] - Computer category revenues increased more than 40% sequentially, driven by tablets, aftermarket notebook chargers, and monitors [8] - Communication category revenues grew 10% sequentially, due to inventory clearance at a key handset customer [8] Market Performance - In China, appliance demand remains soft, with no significant pickup in demand despite inventory normalization [12] - The cell phone market in China has shifted towards low-end phones, with Huawei gaining share in the high-end segment, negatively impacting the company's performance [12][13] - Outside of China, the company is performing well, with overall growth (excluding cell phones) projected to exceed 15% for the year [13] - India's metering market shows strong interest in higher voltage GaN products, with plans to deploy 250 million new meters in the coming years [6] Strategic Direction and Industry Competition - The company expects 2025 to be an inflection point for GaN adoption, driven by product portfolio migration from silicon to GaN and broader customer awareness [6] - GaN revenue is projected to grow by 50% in 2025, with potential to reach $100 million by 2028 [18] - The acquisition of Odyssey Semiconductor adds expertise in vertical GaN technology, aiming to address high-power applications like EV drivetrain inverters [7] - The company continues to win market share in appliances, leveraging its leadership in energy-efficient power supplies and new product innovations like BridgeSwitch 2 and InnoMux-2 [4][5] Management Commentary on Operating Environment and Future Outlook - Near-term visibility remains limited, with customers ordering products only when needed due to cautious behavior and short lead times [3] - The recovery is being led by the consumer category, which has seen a 70$11 million during the quarter and paid $11 million in dividends [9] - Non-GAAP operating expenses for Q3 are expected to be between$44.5 million and 45 million, driven by the Odyssey acquisition [10] Q&A Session Question: Geographic performance, particularly in China - In China, appliance demand remains weak, with no significant pickup expected due to challenges in the real estate market [12] - The cell phone market in China has shifted towards low-end phones, with Huawei gaining share in the high-end segment, negatively impacting the company's performance [12][13] - Outside of China, the company is performing well, with overall growth (excluding cell phones) projected to exceed 15% for the year [13] Question: Second-half outlook and factors influencing growth - The inventory situation has normalized, but demand visibility remains poor, with customers ordering at the last minute [16] - Growth in the second half is expected to be slower than anticipated, with limited visibility into Q4 [16] Question: GaN adoption and future revenue potential - GaN adoption is expected to accelerate in 2025, driven by new product introductions and broader market awareness [18] - GaN revenue could grow by 50% in 2025, with potential to reach 100 million by 2028 [18] Question: Impact of yen fluctuations on financials - A 10% change in the yen typically affects gross margin by 120 basis points, with the impact flowing into the P&L over three to four quarters due to higher inventory levels [20] - Recent yen fluctuations are expected to impact the P&L in Q4 2025 or Q1 2026 [20]