Power management chips maker Monolithic Power Systems (NASDAQ: MPWR) reported results in line with analysts' expectations in Q2 FY2023, with revenue down 4.31% year on year to $441.1 million. The company also expects next quarter's revenue to be around $474 million, roughly in line with analysts' estimates. Monolithic Power Systems made a GAAP profit of $99.5 million, down from its profit of $114.7 million in the same quarter last year.
Is now the time to buy Monolithic Power Systems? Find out by accessing our full research report free of charge.
Monolithic Power Systems (MPWR) Q2 FY2023 Highlights:
- Revenue: $441.1 million vs analyst estimates of $440.8 million (small beat)
- EPS (non-GAAP): $2.82 vs analyst estimates of $2.81 (small beat)
- Revenue guidance for Q3 2023 is $474 million at the midpoint, roughly in line with what analysts were expecting
- Inventory Days Outstanding: 201, down from 204 in the previous quarter
- Gross Margin (GAAP): 56.1%, down from 58.8% in the same quarter last year
“We continue to execute 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.
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 40.3% annually. But as you can see below, its revenue declined from $461 million in the same quarter last year to $441.1 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).
Even though Monolithic Power Systems surpassed analysts' revenue estimates, this was a slow quarter for the company as its revenue dropped 4.31% year on year.
Monolithic Power Systems's revenue inverted from positive to negative growth this quarter, which was unfortunate to see. Looking ahead to the next quarter, the company's management team forecasts a 4.32% year-on-year revenue decline. On the other hand, analysts expect revenue to turn positive over the next 12 months, with average estimates of 6.06% growth.
The pandemic fundamentally changed several consumer habits. There is a founder-led company that is massively benefiting from this shift. The business has grown astonishingly fast, with 40%+ free cash flow margins. Its fundamentals are undoubtedly best-in-class. Still, the total addressable market is so big that the company has room to grow many times in size. You can find it on our platform for free.
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.
This quarter, Monolithic Power Systems's DIO came in at 201, which is 33 days above its five-year average. These numbers suggest that despite the recent decrease, the company's inventory levels are higher than what we've seen in the past.
Key Takeaways from Monolithic Power Systems's Q2 Results
With a market capitalization of $25.9 billion and more than $940.5 million in cash on hand, Monolithic Power Systems can continue prioritizing growth.
This was a mainly in-line quarter for MPWR, with no big surprises. Revenue came in as expected and so did the guidance. Declining operating margin was a little concerning and its gross margin shrunk. Overall, this was a mixed quarter for Monolithic Power Systems. The company is down 3.1% on the results and currently trades at $542.15 per share.
Monolithic Power Systems may have had a tough quarter, but does that actually create an opportunity to invest 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.
One way to find opportunities in the market is to watch for generational shifts in the economy. Almost every company is slowly finding itself becoming a technology company and facing cybersecurity risks and as a result, the demand for cloud-native cybersecurity is skyrocketing. This company is leading a massive technological shift in the industry and with revenue growth of 50% year on year and best-in-class SaaS metrics it should definitely be on your radar.
The author has no position in any of the stocks mentioned in this report.
/Broadcom%20Inc%20logo%20on%20building-by%20Poetra_%20RH%20via%20Shutterstock.jpg)
/Nvidia%20logo%20on%20phone%20screen%20with%20stock%20chart%20by%20xalien%20via%20Shutterstock.jpg)
