No Surprises In Monolithic Power Systems's (NASDAQ:MPWR) Q1 Sales Numbers But Stock Drops

Adam Hejl /
2023/05/04 4:08 pm EDT

Power management chips maker Monolithic Power Systems (NASDAQ: MPWR) reported results in line with analyst expectations in Q1 FY2023 quarter, with revenue up 19.4% year on year to $451.1 million. However, guidance for the next quarter was less impressive, coming in at $440 million at the midpoint, being 3.57% below analyst estimates. Monolithic Power Systems made a GAAP profit of $109.8 million, improving on its profit of $79.6 million, in the same quarter last year.

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Monolithic Power Systems (MPWR) Q1 FY2023 Highlights:

  • Revenue: $451.1 million vs analyst estimates of $449 million (small beat)
  • EPS (non-GAAP): $3 vs analyst estimates of $2.97 (1.07% beat)
  • Revenue guidance for Q2 2023 is $440 million at the midpoint, below analyst estimates of $456.3 million
  • Inventory Days Outstanding: 204, down from 212 previous quarter
  • Gross Margin (GAAP): 57.4%, in line with same quarter last year

“While we remain cautious about near-term business conditions, MPS will continue to focus on business development and investing in infrastructure as 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 Systems's revenue growth over the last three years has been impressive, averaging 42.6% annually. But as you can see below, last year has not been especially strong, with quarterly revenue growing from $377.7 million to $451.1 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 decent quarter for Monolithic Power Systems as revenues grew 19.4%, topping analyst estimates by 0.47%. This was the third straight quarter of decelerating growth for Monolithic Power Systems, potentially indicating a coming cycle downturn.

Monolithic Power Systems's revenue growth has slowed for the last three quarters and the company expects growth to turn negative next quarter guiding to a 4.56% year on year decline, but analysts think it will recover next year, as consensus NTM revenues are forecast to grow 9.63%.

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 204, 36 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 Q1 Results

With a market capitalization of $22 billion and more than $917.6 million in cash, the company has the capacity to continue to prioritise growth.

A highlight was Monolithic Power Systems’s improvement of their inventory levels this quarter. And we were also happy to see that earnings topped expectations. On the other hand, it was unfortunate to see that the revenue guidance for the next quarter missed analysts' expectations. Overall, this quarter's results were not the best we've seen from Monolithic Power Systems. The company is down 8.78% on the results and currently trades at $418.66 per share.

Monolithic Power Systems may have had a tough quarter, but does that actually create an opportunity to 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.