Monolithic Power Systems (NASDAQ:MPWR) Surprises With Strong Q4, Provides Optimistic Guidance For Next Quarter

Jabin Bastian /
2022/02/10 4:07 pm EST

Power management chips maker Monolithic Power Systems (NASDAQ: MPWR) beat analyst expectations in Q4 FY2021 quarter, with revenue up 44.3% year on year to $336.5 million. On top of that, guidance for next quarter's revenue was surprisingly good, being $360 million at the midpoint, 11.7% above what analysts were expecting. Monolithic Power Systems made a GAAP profit of $72.6 million, improving on its profit of $42.8 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 FY2021 Highlights:

  • Revenue: $336.5 million vs analyst estimates of $321.7 million (4.57% beat)
  • EPS (non-GAAP): $2.12 vs analyst estimates of $1.88 (12.9% beat)
  • Revenue guidance for Q1 2022 is $360 million at the midpoint, above analyst estimates of $322 million
  • Inventory Days Outstanding: 166, up from 138 previous quarter
  • Gross Margin (GAAP): 57.6%, up from 55.3% same quarter last year

“MPS’s strong financial performance in 2021 was largely due to a 40 percent increase in fab and assembly capacity, which supported our high-value, greenfield-product, revenue ramp. Looking ahead, MPS is on track to expand capacity in 2022 well beyond $2 billion, allowing the company to successfully ramp new product revenue and achieve strategic market share gains in 2023, 2024 and beyond,” 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 strong, averaging 28.8% annually. And as you can see below, last year has been especially strong, with quarterly revenue growing from $233 million to $336.5 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 great quarter for Monolithic Power Systems with 44.3% revenue growth, beating analyst estimates by 4.57%.

Monolithic Power Systems believes the growth is set to continue, and is guiding for revenue to grow 41.4% YoY next quarter, and Wall St analysts are estimating growth 18.9% over the next twelve months.

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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 166, 5 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 $19.4 billion and more than $725 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 that the revenue guidance for the next quarter exceeded analysts' expectations. On the other hand, it was less good to see the inventory levels increase. Overall, we think this was a strong quarter, that should leave shareholders feeling very positive. The company is up 3.43% on the results and currently trades at $421 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.