Monolithic Power Systems (NASDAQ:MPWR) Delivers Impressive Q2, Provides Optimistic Guidance For Next Quarter

Adam Hejl /
2022/08/01 4:07 pm EDT

Power management chips maker Monolithic Power Systems (NASDAQ: MPWR) reported Q2 FY2022 results beating Wall St's expectations, with revenue up 57.1% year on year to $461 million. On top of that, guidance for next quarter's revenue was surprisingly good, being $490 million at the midpoint, 6.44% above what analysts were expecting. Monolithic Power Systems made a GAAP profit of $114.6 million, improving on its profit of $55.1 million, in the same quarter last year.

Is now the time to buy Monolithic Power Systems? Access our full analysis of the earnings results here, it's free.

Monolithic Power Systems (MPWR) Q2 FY2022 Highlights:

  • Revenue: $461 million vs analyst estimates of $430.5 million (7.06% beat)
  • EPS (non-GAAP): $3.25 vs analyst estimates of $2.94 (10.6% beat)
  • Revenue guidance for Q3 2022 is $490 million at the midpoint, above analyst estimates of $460.3 million
  • Inventory Days Outstanding: 172, down from 178 previous quarter
  • Gross Margin (GAAP): 58.7%, up from 55.9% same quarter last year

“We are continuing to execute on our growth strategies, including expansion and diversification of our R&D centers and manufacturing partnerships in multiple countries,” said Michael Hsing, CEO and founder of MPS.

Founded in 1997 by its longtime CEO Michael Hsing, Monolithic Power Systems (NASDAQ: MPWR) is an analog and mixed signal chipmaker that specializes in power management chips meant to minimize total energy consumption.

Demand for analog chips is generally linked to the overall level of economic growth, as analog chips serve as the building blocks of most electronic goods and equipment. The biggest secular growth drivers currently are the adoption of electric vehicles, 5G networks and Internet of Things connectivity, and demand for chips that reduce power consumption. Unlike digital chip designers, analog chip makers tend to produce the majority of their own chips, as analog chip production does not require expensive leading edge nodes. Less dependent on major secular growth drivers, analog product cycles are much longer, often 5-7 years.

Sales Growth

Monolithic Power Systems's revenue growth over the last three years has been very strong, averaging 36.1% annually. And as you can see below, last year has been especially strong, with quarterly revenue growing from $293.3 million to $461 million. Semiconductors are a cyclical industry and long-term investors should be prepared for periods of high growth, followed by periods of revenue contractions (which can sometimes offer opportune times to buy).

Monolithic Power Systems Total Revenue

This was a fantastic quarter for Monolithic Power Systems with 57.1% revenue growth, beating analyst estimates by 7.06%.

Monolithic Power Systems believes the growth is set to continue, and is guiding for revenue to grow 51.4% YoY next quarter, and Wall St analysts are estimating growth 27.4% over the next twelve months.

In volatile times like these we look for robust businesses with strong pricing power. Unknown to most investors, this company is one of the highest-quality software companies in the world, and their software products have been the default standard in critical industries for decades. The result is an impressive business that is up an incredible 18,152% since the IPO. You can find it on our platform for free.

Product Demand & Outstanding Inventory

Days Inventory Outstanding (DIO) are an important metric for chipmakers, as it reflects the capital intensity of the business and the cyclical nature of semiconductor supply and demand. In a tight supply environment, inventories tend to be stable, allowing chipmakers to exert pricing power. Steadily increasing DIO can be a warning sign that demand is weak, and if inventories continue to rise the company may have to downsize production.

Monolithic Power Systems Inventory Days Outstanding

This quarter, Monolithic Power Systems’s inventory days came in at 172, 10 days above the five year average, suggesting that despite the recent decrease the inventory levels are still higher than what we used to see in the past.

Key Takeaways from Monolithic Power Systems's Q2 Results

With a market capitalization of $21.6 billion and more than $811.8 million in cash, the company has the capacity to continue to prioritise growth.

We were impressed by how strongly Monolithic Power Systems outperformed analysts’ earnings expectations this quarter. And we were also glad to see the improvement in operating margin. Zooming out, we think this impressive quarter should have shareholders feeling very positive. The company is up 3.96% on the results and currently trades at $480.01 per share.

Monolithic Power Systems may have had a good quarter, so should you invest right now? It is important that you take into account its valuation and business qualities, as well as what happened in the latest quarter. We look at that in our actionable report which you can read here, it's free.

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The author has no position in any of the stocks mentioned.