Bernie Blegen – Vice President and Chief Financial Officer Michael Hsing – Chairman, President and Chief Executive Officer.

Quinn Bolton – Needham Rick Schafer – Oppenheimer Matt O’Connor – Deutsche Bank Tore Svanberg – Stifel.

Good day, ladies and gentlemen, and thank you for your patience. You joined the Monolithic Power Systems’ Q1 2017 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time.

[Operator Instructions] As a reminder, this conference may be recorded. I would now like to turn the call over to your host Chief Financial Officer of Monolithic Power Systems, Mr. Bernie Blegen. Sir, you may begin..

GAAP gross margin in the range of 54.1% to 55.1%; non-GAAP gross margin in the range of 55.0% to 56.0%; total stock-based compensation expense of $12.5 million to $14.5 million, including approximately $400,000 that would be charged to cost of goods sold; litigation expenses ranging between $200,000 to $300,000; GAAP R&D and SG&A expenses between $42.0 million and $46.0 million; non-GAAP R&D and SG&A expenses to be in the range of $29.9 million to $31.9 million.

This estimate excludes stock compensation and litigation expenses; other income is expected to be in the range from $400,000 to $500,000 before foreign exchange, gains or losses; fully diluted shares to be in the range of 42.9 million to 43.9 million shares before share buyback.

In conclusion, we continue to grow and continue to enhance shareholder value. I will now open the phone lines for questions..

Thank you, sir. [Operator Instructions] Our first question comes from the line of Quinn Bolton of Needham. Your line is open..

Hey guys, congratulations on the nice result. So I just wanted to start up with some of the revenue drivers for 2017-2018, it just sounds like the transition share gains on game console related devices and then server power management are kind of the three near-term next 12 months drivers.

And just in terms of the timing kind of it feels like probably notebooks first, game consoles maybe starts to ramp late here in Q2 and then servers closer to year-end and just wanted to see if that’s kind of the right timing from your perspective in terms of the ramp of those three opportunities..

Hi, Quinn. Thank you very much. I think that the way that you’ve sequenced those opportunities is correct and let me just add a little bit of color. So the notebook opportunities, we expect to be sort of steady and consistent growth. It’s not as if there’s a big bang that’s going to occur in one quarter and then grow from there.

When we look at gaming, obviously, that’s driven around the holiday season, so we would expect that with the adoption of the gaming console business that that should be weighted more heavily into Q3 although it may have a tail into Q4 as well.

And then certainly with the servers as we’ve discussed in the past much of that while we’ve continued to see good revenue growth, much of the next layer of growth we believe is expected with the Grantley the Purley transition, which is expected to the second half.

And there again, we see good games to come for as we are designed into new platforms and also we branched out into dual OEMs and that would include both our POL and our E-Fuse products.

And then we believe over time that we’ll see adoption rates for our VCORE power management solution that we called QS Mod as that goes from that tier-2 to tier-1 and in particularly the cloud providers..

And on these cloud providers, they tend to be sort of earlier adaptors in the sort of server upgrade cycle.

Did that that kind of ramp do you think maybe enters the tailwind of 2017? I know Intel often provides early access to some of those Hyper-Scale guys or do you think that’s still kind of more closer to year end and in to early 2018 for that Hyper-Scale Cloud opportunity..

I think that when we look at the MPS is overall energy efficiency solutions, they really do bases for growth in the cloud based data centers. And yes, they do have earlier adoption rates..

Quinn, this is Michael. All these are the Company’s strategies, we don’t really care which market segment, how we time it and how we time it and that relates to growing our MPS revenues.

So these – we actually in opposite, we don’t want to – we want to disassociated with or we are tied to Xbox, or we are tied to whatever the game – whatever the game console, in game platforms and in the game – in the Intel’s of when we were to release – release productions for whatever the process so yes.

These are just our opportunity and that we only want to getting show our gross margin in the steady growth. And our customers facing – whatever the – whichever the product is, I can – we don’t contact and it’s all within a plus minus six, seven months, as I said earlier..

Okay, great. And then just….

I’m sorry just a finishing thought on Michael there, one of the interesting characteristics as Michael has just laid it out as well is that it provides for a steady growth ramp both for the second half of 2017, as well as throughout 2018..

Great. And then just the follow up question about JV, you’ve talked about sort of some general macro economic weakness in the automotive sector, but share gains would allow you sort of over the next several years to grow faster than the market.

And I’m just kind of wondering, do you think that there’s any point in time where macroeconomic conditions can change the near-term outlook, I mean, does macro change so quickly that it can fetch your quarter-to-quarter revenue ramp on automotive or do you think the share gains are really the driving factor there and even with soft macro environment sort of steady share gains that you have for more consistent growth.

Just trying to get your sense on whether or not, we should be thinking automotive could be lumpy..

For the automotive Quinn in MPS as you know, we entered a market about four or five years ago, and four or five years ago our revenue almost is zero. And even two, three years ago very teeny-tiny. And it takes a long time to get the revenue. And so design cycle is about three to four years.

And we our total ten in Automotive is about $6 billion, probably now is more than that. And so what is our percentage is less than a percent. So it’s a total greenfield for us to grow. As I see it in the next few years all the design win activities happen in the last couple of years. So it’s all designing.

Unless they cancelled a car, they canceled their entire cars and are now going to move to a production market and of course the very effective MPS revenue. But it’s highly unlikely they’ll not introduce a car any more. So, we yes that’s why we said lucky. Is we – and also at the same time we’re gaining share.

We’re gaining share we’re entering other applications and we’re winning other sockets. So the overall for us it’s very optimistic..

Great, that’s great. Now Samsung Galaxy Note7 automobiles coming into marketing anytime soon. And thanks and congratulations..

Okay, thank you..

Thank you. Our next question comes from Rick Schafer of Oppenheimer. Your line is open..

Thanks and I’ll add my congratulations on another nice quarter. Maybe just a quick follow-up on [indiscernible] I’m just curious which your guys thoughts are and how you see that mix migration and what it looks like over the next 12 months to 18 months.

I mean, are we going to – is it a relatively rapid crossover possibly like the first half of 2018 or is it going to take a little while longer for that mix to shift?.

I don’t think it’s going to be are very sharp cross over. So that will be a gradual, a gradual change. So our revenue as I said in the last few quarters so the second half this year we start to gradually see revenue coming..

And I think I would add to that a lot of the initial revenue will come from similar dollar content hence we have in the in the Grantley cycle. And that is based on the POL and the eFUSE opportunities.

And then we’ll continue to gradually layer in our next generation as far as power management the QS Mod, over the next, the course of the next two years. So I think that Michael is summed it up nicely that we see it steady ramping in that for us..

Okay. Thanks..

Again, the opportunity for us in a car computing is well over $1 billion. And we have a very few, I don’t know what is the percentage – it’s less than the couple of percent..

And maybe just a follow-on to that then I mean how do you guys feel like you’re positioned with ARM servers for co-power or Point of Load or eFUSE do you expect any revenue are you working on any projects along those lines in the next, same kind timeframe next 12, 18 months?.

Of course, we want to cover everything like if we entered the market okay, without taking our technologies and we can be easily adapted into different platforms. And so we are working on it all these other solutions of them and a lot of them where we have it now..

Okay.

And then maybe just on switching gears to e-commerce and the initiative there maybe could, first I guess is the website live and is it up and running, I know you talked about sort of March, April timeframe for launch maybe if you could remind us or kind of frame out how big that opportunity is in terms of potential new customers and when we might start to see revenues from that effort?.

Yes, I will open up by saying that e-commerce solution and the opportunity that is afforded through ask field programmability and we’ve been viewing that really the second half of 2018 and 2019 as far as when the revenue ramp begins.

So to answer your question specifically, this quarter we did have a rollout of basically an upgrade over our all website. And then we’re expecting in about another 3 to 4 months time that will go up at the first generation of the next-gen website which will have an e-commerce component..

Got it. Okay thanks, guys..

Just an update, okay its very I call it baby steps I mean it’s just we show – we have other components in all the interactive and the e-commerce question haven’t really kicking yet and I hope in the next few months the new website will be live..

Got it. Thanks guys..

Thank you. Our next question comes from Ross Seymore of Deutsche Bank. Your question please..

Hey, guys, this is actually Matt on Ross’ behalf. Congrats on the results once again, but I’m curious about two in-markets in particular, comms and storage and computing. It looks like they – you’re just a tad bit softer than at least we expected.

Was there anything beyond your prepared remarks that could explain the directionality of those two? And it sounds like that you’re pretty optimistic about both of them in the second half, but anything you could talk about one in the near-term and anything over and beyond what was already answered from the previous caller concerning the long-term?.

Yes. So let me address just focusing quarter – year-over-year on the quarter’s performance. So the computing – storage and computing revenue for that market went up 34% year-over-year and a lot of it was driven by storage SSD in particular.

And if I could offer sort of a thought is that storage for us has been somewhat constrained because lack of availability of NAND.

And we had a very good bump and we expect that to continue for the next several quarters as there have been certain of the larger suppliers that have been able to extend greater availability, and so that’s removed a bottleneck for us.

And then as far as the server and the notebook; notebook, we are benefiting as we transition from Skylake to Kaby Lake, and that is going to increase the number of OEMs that we serve, it actually increases it by building five or six.

And we expect that to ramp incrementally right now, but have continued growth through the remainder of this year and well into next year. And likewise, I think we’ve already addressed the server which is going to be driven by the Grantley Proleague conversion.

On the comms market, I think we sort of had a very consistent theme that we are very enthusiastic of the opportunity there, we believe that the field programmable solutions for power management that we have are ideally suited, particularly for high voltage opportunities in the wireless infrastructure, but that is a long-term proposition.

And so, quarter-to-quarter we expect the comms market to sort of increase or decrease by a margin of about $1 million until we really start to get some attraction in next generation products and new customers..

Yes, as I’ve said, we’re going to introduce some acquainted product and that killer product is out, will be introduced. And I expected to have a next couple years that we’re going to grow that business significantly..

Okay, great. And on the OpEx front, could you give any rough color on this second half outlook. It sounds like again we talked about the growth drivers on OCM, but just a rough idea of what OpEx should do in the second half of the year..

Sure. I think that we said in the last call that, we expect to be within our financial model growing operating expenses in this year at a rate that is represents 50% to 60% the rate of revenue growth. In Q1, we actually came in middle, low end of that point.

And I sort of say that we’re targeting plus or minus 2 percentage points of the midpoint of that for the full year..

Okay. Thanks so much..

Thank you. [Operator Instructions] Our next question comes from the line of Tore Svanberg of Stifel. Your question please..

Yes. Thank you and congratulations on another consistent quarter. My first question is for you Michael on all the consolidation we’ve seen so far especially our power and management companies.

I’m just wondering if it seems that changed in the marketplace whether it’s pricing or capacity because it seems like your competitors are getting global got the recorder how so, any thoughts on that would be helpful. Thanks..

I think of the – we gained a lot of large, but these are first here customers in the recent years. I think of that attribute to, I was there to first our technologies and that came – and secondly I came out I think that yes I do agree there is some effect. And our customers need a multiple sources and the source of that kind of dried out.

And the some it kind of forced them to looking into another supplied. And a combination we’re both I think we gain a lot of recognition in the last couple of years. And particular, these are very well established at first year customers in auto and a industrial side..

Yes, that’s helpful. And on the high end note books other than the process or change, is it anything about the power management architecture there that’s along you to gain some incremental share..

I think of for the high end note books I get where we are – consider now we can provide a total solutions and for the power management. And so obviously – and other peripheral we can gain some more shares. But we don’t want to associate that to MPS is a notebook company.

And we only address that those are small vary thing, vary portable and long battery running times..

Yes. And then on the industrial side, which obviously have the strongest growth the last 12 months, any further thoughts on the distribution strategy. There seems to be some mixed strategies out there, some companies are relying less on distributors, some are kind of stepping them up.

What do you stand as far as leveraging the distribution channel in the industrial market?.

Yes. We’re in the past [indiscernible] sales guys are really have a hard work as opining the pavements to get our customers attentions. And all these distributors just frankly just ignore us. And then now they’re run out of source they come to us too.

And so I think as where we’re going to futures in the next couple years there will huge benefit to MPS..

Yes. Very good just one last question for Bernie, Bernie the inventory days were not, but little bit sequentially I understand it tends to do that in the March quarter but anything else going on there basically just getting ready for a strong period in Q2, Q3..

Sorry. That’s exactly I think that as you look at the market that the fab capacity is being mentioned as a concern for some people. And I believe we’ve positioned ourselves very well to manage the growth that we expect to get in the second half of this year..

Very good. Again congratulations for the consistency. Thank you..

Thank you, Tore..

Thank you. At this time I like to turn the call back over to Mr. Blegen for any closing remarks, sir..

Sure, thank you. I’d like to thank you all for joining us for this conference call and look forward to talking to you again during our second quarter conference call, which will likely be at the end of July. Thank you and have a nice day..

Ladies and gentlemen that does conclude your program. Thank you for your participation and have a wonderful day. You may disconnect your lines at this time..