No Surprises In Monolithic Power Systems's (NASDAQ:MPWR) Q3 Sales Numbers But Quarterly Guidance Underwhelms

Radek Strnad /
2023/10/30 4:05 pm EDT

Power management chips maker Monolithic Power Systems (NASDAQ:MPWR) reported results in line with analysts' expectations in Q3 FY2023, with revenue down 4.15% year on year to $474.9 million. The company also expects next quarter's revenue to be around $452 million, slightly below analysts' estimates. Turning to EPS, Monolithic Power Systems made a non-GAAP profit of $3.08 per share, down from its profit of $3.53 per share in the same quarter last year.

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Monolithic Power Systems (MPWR) Q3 FY2023 Highlights:

  • Revenue: $474.9 million vs analyst estimates of $473.7 million (small beat)
  • EPS (non-GAAP): $3.08 vs analyst estimates of $3.06 (small beat)
  • Revenue Guidance for Q4 2023 is $452 million at the midpoint, roughly in line with what analysts were expecting
  • Inventory Days Outstanding: 171, down from 201 in the previous quarter
  • Gross Margin (GAAP): 55.5%, down from 58.7% in the same quarter last year

“While we expect visibility to remain limited in the short term, which was the same as last quarter, we continue to execute on our long-term strategy,” 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.

Analog Semiconductors

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 very strong, averaging 35.5% annually. But as you can see below, its revenue declined from $495.4 million in the same quarter last year to $474.9 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 slow quarter for the company as its revenue dropped 4.15% year on year, in line with analysts' estimates. This could mean that the current downcycle is deepening.

Monolithic Power Systems's revenue growth has slowed over the last three quarters and its management team projects growth to turn negative next quarter. As such, the company is guiding for a 1.74% year-on-year revenue decline, but Wall Street thinks there will be a recovery next year. Analysts' estimates call for 7.47% growth over the next 12 months.

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Product Demand & Outstanding Inventory

Days Inventory Outstanding (DIO) is an important metric for chipmakers, as it reflects a business' capital intensity 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 DIO came in at 171, which is 3 more days than its five-year average. These numbers suggest that despite the recent decrease, the company's inventory levels are slightly above the long-term average.

Key Takeaways from Monolithic Power Systems's Q3 Results

With a market capitalization of $19.4 billion and more than $1.04 billion in cash on hand, Monolithic Power Systems can continue prioritizing growth.

We were impressed by Monolithic Power Systems's strong improvement in inventory levels. That really stood out as a positive in these results. On the other hand, its gross margin fell and its operating margin decreased. Overall, this was a mediocre quarter for Monolithic Power Systems, but the stock is up 4.3% after reporting. This is likely because the rest of the semiconductor industry, starting with Texas Instruments, has reported subpar quarters so far and expectations were low. The stock currently trades at $421.11 per share.

So should you invest in Monolithic Power Systems right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.

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