Power Integrations (NASDAQ:POWI) Surprises With Q1 Sales, Provides Encouraging Quarterly Guidance

Jabin Bastian /
2024/05/07 4:09 pm EDT

Semiconductor designer Power Integrations (NASDAQ:POWI) beat analysts' expectations in Q1 CY2024, with revenue down 13.7% year on year to $91.69 million. Guidance for next quarter's revenue was also better than expected at $105 million at the midpoint, 1.4% above analysts' estimates. It made a non-GAAP profit of $0.18 per share, down from its profit of $0.25 per share in the same quarter last year.

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Power Integrations (POWI) Q1 CY2024 Highlights:

  • Revenue: $91.69 million vs analyst estimates of $89.96 million (1.9% beat)
  • EPS (non-GAAP): $0.18 vs analyst estimates of $0.13 (39.5% beat)
  • Revenue Guidance for Q2 CY2024 is $105 million at the midpoint, above analyst estimates of $103.5 million
  • Gross Margin (GAAP): 52.1%, up from 50.8% in the same quarter last year
  • Inventory Days Outstanding: 348, up from 343 in the previous quarter
  • Free Cash Flow of $11.56 million, up 14.2% from the previous quarter
  • Market Capitalization: $3.96 billion

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.

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

Power Integrations's revenue has been declining over the last three years, dropping by 3.3% on average per year. This quarter, its revenue declined from $106.3 million in the same quarter last year to $91.69 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

Even though Power Integrations surpassed analysts' revenue estimates, this was a slow quarter for the company as its revenue dropped 13.7% year on year. This could mean that the current downcycle is deepening.

Power Integrations may be headed for an upturn. Although the company is guiding for a year-on-year revenue decline of 14.8% next quarter, analysts are expecting revenue to grow 17.5% 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.

Power Integrations Inventory Days Outstanding

This quarter, Power Integrations's DIO came in at 348, which is 174 days above its five-year average, suggesting that the company's inventory has grown to higher levels than we've seen in the past.

Key Takeaways from Power Integrations's Q1 Results

We were impressed by how significantly Power Integrations blew past analysts' EPS expectations this quarter. We were also glad its revenue outperformed Wall Street's estimates. On the other hand, its operating margin regrettably fell. Zooming out, we think this was still a decent, albeit mixed, quarter, showing that the company is staying on track. The stock is flat after reporting and currently trades at $70.17 per share.

So should you invest in Power Integrations 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.