Monolithic Power Systems (NASDAQ:MPWR) Q3 Sales Beat Estimates But Stock Drops

Kayode Omotosho /
2022/10/27 4:07 pm EDT
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Power management chips maker Monolithic Power Systems (NASDAQ: MPWR) reported results in line with analyst expectations in Q3 FY2022 quarter, with revenue up 53.1% year on year to $495.4 million. However, guidance for the next quarter was less impressive, coming in at $460 million at the midpoint, being 5.74% below analyst estimates. Monolithic Power Systems made a GAAP profit of $124.3 million, improving on its profit of $68.7 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) Q3 FY2022 Highlights:

  • Revenue: $495.4 million vs analyst estimates of $490.7 million (0.95% beat)
  • EPS (non-GAAP): $3.53 vs analyst estimates of $3.49 (1.24% beat)
  • Revenue guidance for Q4 2022 is $460 million at the midpoint, below analyst estimates of $488 million
  • Inventory Days Outstanding: 177, up from 172 previous quarter
  • Gross Margin (GAAP): 58.7%, up from 57.5% same quarter last year

“Even though business conditions are softening, our market share continues to expand reflecting high customer engagement and our ability to secure design wins. We can now focus on growing our long-term business,” 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. 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 impressive, averaging 40.1% annually. And as you can see below, last year has been especially strong, with quarterly revenue growing from $323.5 million to $495.4 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 53.1% revenue growth, beating analyst estimates by 0.95%.

Monolithic Power Systems believes the growth is set to continue, and is guiding for revenue to grow 36.6% YoY next quarter, and Wall St analysts are estimating growth 23.9% 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 177, 13 days above the five year average, suggesting that that inventory has grown to higher levels than what we used to see in the past.

Key Takeaways from Monolithic Power Systems's Q3 Results

With a market capitalization of $15.5 billion and more than $736 million in cash, the company has the capacity to continue to prioritise growth.

We were very impressed by the strong improvements in Monolithic Power Systems’s operating margin this quarter. And we were also excited to see the really strong revenue growth. On the other hand, it was unfortunate to see that the revenue guidance for the next quarter missed analysts' expectations and the inventory levels increased a little. Zooming out, we think this was still a decent, albeit mixed, quarter. But investors might have been expecting more and the company is down 5.92% on the results and currently trades at $310 per share.

Should you invest in Monolithic Power Systems 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.