Power Integrations (NASDAQ:POWI) Q1 Sales Beat Estimates, Provides Encouraging Quarterly Guidance

Adam Hejl /
2023/05/04 4:46 pm EDT

Semiconductor designer Power Integrations (NASDAQ:POWI) reported results in line with analyst expectations in Q1 FY2023 quarter, with revenue down 41.6% year on year to $106.3 million. Guidance for next quarter's revenue was $122 million at the midpoint, which is 1.53% above the analyst consensus. Power Integrations made a GAAP profit of $6.88 million, down on its profit of $46.2 million, in the same quarter last year.

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Power Integrations (POWI) Q1 FY2023 Highlights:

  • Revenue: $106.3 million vs analyst estimates of $105.4 million (0.82% beat)
  • EPS (non-GAAP): $0.25 vs analyst estimates of $0.25 (2.04% beat)
  • Revenue guidance for Q2 2023 is $122 million at the midpoint, above analyst estimates of $120.2 million
  • Free cash flow of $12.5 million, down 31.8% from previous quarter
  • Inventory Days Outstanding: 248, up from 215 previous quarter
  • Gross Margin (GAAP): 50.8%, down from 55.3% same quarter last year

Balu Balakrishnan, president and CEO of Power Integrations: “First-quarter revenues were in line with our expectations, and sell-through exceeded sell-in by a wider-than-expected margin. The resulting reduction in distributor inventories combined with improved order trends indicates that while end-market demand remains subdued, our revenues have bottomed and a cyclical recovery is underway.

A leading supplier of parts for electronics such as home appliances, Power Integrations (NASDAQ:POWI) is a semiconductor designer and developer specializing in products used for high-voltage power conversion.

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

Power Integrations's revenue growth over the last three years has been mediocre, averaging 13.1% annually. Last year the quarterly revenue declined from $182.1 million to $106.3 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).

Power Integrations Total Revenue

Despite Power Integrations revenues beating analyst estimates, this was still a slow quarter with a 41.6% revenue decline.

Power Integrations's revenue growth has slowed for the last three quarters and the company expects growth to turn negative next quarter guiding to a 33.7% year on year decline, but analysts think it will recover next year, as consensus NTM revenues are forecast to grow 12.3%.

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.

Power Integrations Inventory Days Outstanding

This quarter, Power Integrations’s inventory days came in at 248, 102 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 Power Integrations's Q1 Results

With a market capitalization of $4.27 billion Power Integrations is among smaller companies, but its more than $358.6 million in cash and positive free cash flow over the last twelve months give us confidence that Power Integrations has the resources it needs to pursue a high growth business strategy.

It was good to see Power Integrations outperform Wall St’s earnings expectations this quarter. And we were also glad that the revenue guidance for the next quarter exceeded analysts' expectations, although implied operating profit guidance (based on explicit expense guidance) was below. It was less good to see that the revenue growth was quite weak and operating margin deteriorated. However, management commentary was bullish: "The resulting reduction in distributor inventories combined with improved order trends indicates that while end-market demand remains subdued, our revenues have bottomed and a cyclical recovery is underway." Overall, this quarter's results were mixed but the commentary on a cyclical bottom is encouraging. The company is up 4.58% on the results and currently trades at $77 per share.

Power Integrations 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.