Monolithic Power Systems (NASDAQ:MPWR) Reports Q4 In Line With Expectations But Inventory Levels Increase

Anthony Lee /
2023/02/08 4:08 pm EST

Power management chips maker Monolithic Power Systems (NASDAQ: MPWR) reported results in line with analyst expectations in Q4 FY2022 quarter, with revenue up 36.7% year on year to $460 million. The company expects that next quarter's revenue would be around $450 million, which is the midpoint of the guidance range. That was in roughly line with analyst expectations. Monolithic Power made a GAAP profit of $119.1 million, improving on its profit of $72.7 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) Q4 FY2022 Highlights:

  • Revenue: $460 million vs analyst estimates of $460.6 million (small miss)
  • EPS (non-GAAP): $3.17 vs analyst estimates of $3.13 (1.13% beat)
  • Revenue guidance for Q1 2023 is $450 million at the midpoint, roughly in line with what analysts were expecting
  • Inventory Days Outstanding: 212, up from 177 previous quarter
  • Gross Margin (GAAP): 58.2%, up from 57.6% same quarter last year

“While we remain cautious about near-term business conditions, we believe MPS can swiftly adapt to market changes and take advantage of the current environment to focus on business development and investing in infrastructure necessary to support our long-term growth,” 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's revenue growth over the last three years has been impressive, averaging 42.5% annually. And as you can see below, last year has been especially strong, with quarterly revenue growing from $336.5 million to $460 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

Despite missing analyst estimates this quarter, 36.7% revenue growth for Monolithic Power Systems' was still good.

MPS believes the growth is set to continue, and is guiding for revenue to grow 19.1% YoY next quarter, and Wall St analysts are estimating growth 10.1% 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’ inventory days came in at 212, 46 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 Q4 Results

With a market capitalization of $22 billion and more than $737.9 million in cash, the company has the capacity to continue to prioritise growth.

We enjoyed seeing Monolithic Power Systems’ improve their operating margin materially this quarter. And we were also excited to see the really strong revenue growth. On the other hand, it was less good to see the inventory levels increase and it missed analysts' revenue expectations. Overall, it seems to us that this was a complicated quarter for Monolithic Power. The company is up 1.69% on the results and currently trades at $471.16 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.