Ladies and gentlemen, thank you for standing by, and welcome to Monolithic Power Systems Q3 2019 Earnings Conference Call. At this time all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded.

[Operator Instructions] I would now like to hand the conference over to your speaker today, Chief Executive Officer of Monolithic Power Systems, Michael Hsing. Sir, please go ahead..

Thank you. Hello, everyone. Good morning from Shanghai. We held our third quarter board meeting in a newly established customer support and marketing center for China. We had our board members for the facilities and to overseas operations here.

In the last few days, we received many messages that have showed overwhelming support in response to a recent publication. I’m representing MPS management to express our deep appreciation for your trust and support. Our reaction to this publication is that it is malicious and manipulative. We will not bore your intelligence to go through the details.

Lastly, I assure you we will take appropriate actions, including legal actions, against any malicious and unlawful activities damaging MPS reputation and our shareholders interest. Thank you again. Now with that I’ll let Bernie to speak about earnings..

GAAP gross margin in the range of 54.8% to 55.4%; non-GAAP gross margin in the range of 55.2% to 55.8%; total stock-based compensation expense of $18.3 million to $20.3 million, including approximately $600,000 that would be charged to cost of goods sold; GAAP R&D and SG&A expenses between $56.2 million and $60.2 million; non-GAAP R&D and SG&A expenses expected to be in the range of $38.5 million to $40.5 million.

Litigation expense should range between $800,000 to $1.2 million. Interest income is expected to range from $1.4 million to $1.6 million. Fully diluted shares to be in the range of 45.8 million to 46.8 million shares. In conclusion, we continue to execute and deliver the results that speak for themselves. I will now open the phone lines for questions.

Hello?.

Yes, sir.

Are we ready for questions?.

Yes..

Thank you. [Operator Instructions] Our first question comes from Rick Schafer of Oppenheimer. Your line is open..

Hi, guys, congratulations on a nice quarter and another tough setup, but a nice job on the quarter. I guess my first question is really compute, industrial, auto, I mean, all these sort of high-margin kind of new verticals for you, are all up nicely, I think, double digits year-over-year.

Maybe could you talk a little bit about relative strength by region or any color you could give there and if you had any 10% customers or anybody close to 10%, any particular customer strength in the quarter?.

Sure. Let me sort of stuck that off. It wasn’t [indiscernible]. I think to restate Rick’s question, if that will help [indiscernible] is that we are observing that there is a good relative strength in the quarter for automotive, computing and industrial.

And so if you’re looking for a little bit of color as far as the geographic distribution and if there are any 10% customers or what the level of concentration is like. So yes, I got it. So Rick, if you put your finger on that right mix of what drove our Q3 performance, so if I can comment first on the computing and storage.

Computing and storage, for us, in the first half exhibited some weakness over what it has done in 2018. And we saw in Q3 strong momentum across all of our lines of business, and there was no individual concentration that drove that nor geographic. So that was nice to see just because in the first half of this year, there has been weak demand.

In industrial, that has been an area that has been benefiting or maybe I should say affected by ordering ahead of demand today. And some of that is occurring in China, anticipating any further trading actions. So that was pretty concentrated in power sources and surveillance.

Automotive is very broad-based as far as seeing a beginning of sales in new model years to Europe and Korea as well as return of some ordering levels in China. And while I don’t have it exactly at my fingertips, I do not believe we have any 10% customers that we’ll be expecting this quarter..

Okay. Thanks. I apologize if it’s difficult to hear me. My second question and my follow-up is just on 5G. It’s obviously becoming a bigger contributor to the MPS growth story. And I know you talked about it being softer in the recent quarter, but obviously, the order book looks good.

So what’s your visibility on reacceleration in your 5G business? And maybe if you could provide a little bit of color about what that dollar content opportunity is for you guys, some color on your competition there and maybe share assumptions or expectations. Just some general color on 5G, please..

Okay.

General color on 5G?.

Yes..

Okay. On the 5G, what we see is that our customers telling us that there’s more to ramp, okay, as they said, this current – this quarter than that. And I see this is very initial ramp. So it is somewhat lumpy. And for the next few quarters, our customers, they will follow – our forecast is that they will start pulling in materials.

And so whether from the last few quarters to this quarter to the next few quarters, okay, our guess is that still the initial ramp, that kind of looks – the ramp is not very smooth, kind of lumpy..

Okay.

Michael, any comment on sort of dollar opportunity, dollar content opportunity when you think about a 5G base station for MPS?.

For us, it is difficult to capture because we provide the very basic building block. From the base station to signal chain and to central stations, we provide just the basic building block. We actually don’t know where the product ended up..

Okay. Understood. Thanks and congrats again..

Thanks Rick..

Thank you. Our next question comes from William Stein of SunTrust. Your line is open..

Great. I think it’s – we’re all having trouble hearing each other perhaps. So, I’ll speak really slowly.

I’m hoping you can comment on channel inventory levels, perhaps remind us what the target level is, what that level of inventory was earlier in the year, where it was in Q3 and perhaps where you expect it to go in Q4?.

Sure. So at the beginning of this year, and let me open up with, is that we haven’t disclosed the range that we manage to. We talk in more qualitative terms. But certainly, as we look at the end of Q1, we finished above our normal range.

And a lot of that has to do with the fact that in the quarter, we had higher sales in January and March with the March sales being disproportional to an even spread. The distributor did not have an opportunity to sell through to end customers. So that’s why that was up.

In Q2, we had a more even distribution, and days in the channel returned to normal – at the upper end but normal range. And then in the current quarter, we actually saw terrific sell-through. And again, this is broad-based in all of our geographies. And what we have seen is that we’re actually at the lower end of our range as we finished Q3.

So, I’d make that similar comment as I did on the inventories on the book. But that’s probably not a level that we care to sustain that, but it certainly was positive to show that, the strong sell-through..

Yes. Let me remind everybody. I think that in the early – regarding to the inventory, in early this year, in one of – I think it’s in February earnings call, we commented that the outlook was uncertain and our inventory buildup, that was due to last December quarters that we anticipated the normal growth for MPS is over 20% growth for the entire 2019.

And in February, we started to reduce our wafer starts in reacting to more criticism. And also, we don’t see clear futures. And now we ended up at the very low inventory days and low inventory. We have to build it up again..

And this is referring to the inventory that’s on our books, not in the channel..

Great. If I can have one follow-up, please. I think we’re all very interested in your expectations for growth in the coming year. I’m not expecting you to guide necessarily for next year, but I think we have an expectation that through the cycle, you post something on the order of up 20 per year.

Do you think next year is going to be typical or reflect a recovery in the broader market so you could at least get close to that number? Or do you think that the current trade situation or anything else would hinder that and keep you materially below it?.

Yes. Good question. And on this quarter, we delivered – remember, we don’t want to forecast the next quarter – no, we don’t want to forecast the next year. And throughout this period and I think last year, we said that it was not very clear.

Now, we did say that all the greenfield products for MPS, our greenfield market segments, they will start to grow. And the initial growth, as we just said, even with the 5G ramp, it’s not very smooth. It’s not very – it’s kind of lumpy. And we – this quarter, we see 5G is not as good as expected. And now the next few quarters start to put in.

And so we do see all these – we see this very similar to other segments in auto and in industrial. And so next year, we can forecast our – what’s the growth rate. I think we’ll be better than the industry by 10% to 15%..

Good enough. Thank you very much and congratulations on the good results and outlook in this tough environment..

Thank you..

Thank you. Our next question comes from line of Tore Svanberg of Stifel. Your line is open..

Yes. Let me echo the congratulations and especially on the record cash flows. So first question, and maybe just to get a clarification in here. So right now, your inventory days are at 160.

So what you’re saying is that they will probably go back up again in Q4? That – will they sort of go back to the level you were in Q1 of this year?.

Yes. The range that we’re trying to manage between is 160 to 180 days for inventory in our balance sheet. And that may be a little bit higher than what industry and peer norms would be. But again, just going back to Michael’s point that we’re growing at 10 to 15 percentage points ahead of the market.

And as a result, this growth is coming from greenfield opportunities with new products and new markets. And so what we do is we invest above the initial demand so that we have positive experiences with our customers..

Very good. And yes, I mean that’s obviously why you had record cash flows this quarter, right, that inventory started selling through. That’s great. Second question is on automotive. So it’s about $100 million a year business now. And I think there’s no secret that you’re starting to gain a lot of traction with – directly with some of the OEMs.

And you even mentioned one big contract.

So as you think about $100 million, that does not include any other sort of direct OEM relationships that you started to have, correct?.

Sorry. I apologize. I didn’t know which end market you were talking about..

Automotive. Automotive..

Automotive?.

Yes. $100 million business now, yes..

Okay. And so the question then is how much exposure do we have to the OEMs..

No, no, no. The question is you started to establish some deeper relationships with the OEMs. I’m wondering if that’s sort of already contributing to that $100 million run rate.

Or is that all new business that’s still on the come?.

So let me say back the question because we’re having difficulty hearing you. And I apologize about that. So you’re saying that on the $100 million run rate, as far as what is our exposure to the OEMs and how much of that is still – that’s roughly the question, yes..

Yes, I mean that’s fine, yes. I’m just trying to understand how much of that business is coming from your more recent wins with bigger OEMs..

Oh, yes, yes. Okay. Recent win and the recent award, which is a relatively large project from a Tier 1 automotive supplier, it’s a relatively large project. This will be in the next two or three years. And so far, the existing revenues all ramp up from the Tier 2, some we’ve got very little from Tier 1.

And as we will see in the next six to nine months, we will win a lot more in this type of large project. So that will pave the next two to three, three to even four years away..

That’s exactly what I was asking. Just one last question, and I’ll ask a more simple question.

When will you be in production with 48-volt?.

It’s starting now..

Great. Thank you..

Thank you The next question comes from Alessandra Vecchi of William Blair. Your line is open..

Hi everyone. Congratulations also on an amazing quarter in this environment. Just on the OpEx side, you guys have done a phenomenal job sort of holding that steady and managing it.

How do we sort of think about balancing your operating expenses going forward with future revenue growth? And then additionally, sort of similar question on the gross margin front, as you guys similarly have done an outstanding job holding those steady.

Where do we think – how do we think about the puts and takes of potential margin improvement next year or 2021?.

I think as we stick to our models, which I wrestled with our large shareholders, I want to spend more money and they want to see the EPS growth as well.

And – but here, we stick to our models, which is now, I think that this year, we’re slightly above, right?.

Yes, yes. It’s – again, Alex, it’s a fair question. We have a model which I believe our investors are familiar with where we want to be able to provide operating leverage along with revenue growth.

However, in the current market conditions, what we’ve done is we tried to hold our gross margin steady while continuing to invest in certain of what we consider long-term strategic investments that will position MPS for the long term..

Okay. That’s very helpful.

And then similarly, I apologize if I didn’t hear it, but did you give any color on sort of what end markets you expect to be strongest or weakest within the Q4 guide?.

When you look at Q4, there’s actually a continuation of some of the positive trends that we saw in Q3 with respect to computing and storage and also with automotive. And as I said before, we think that some of industrial had to do with pull-ins. And I look at the 5G, just to echo Michael’s point there, is that this is a lumpy business.

And while it had down Q3, we still believe that, that end market has a lot of traction..

So, the Q4 would be better. And consumer, like normal, would be slightly lower. And the other ones will keep a very similar level..

Very similar, okay. That’s very helpful. That’s it from me..

Thank you..

Thanks, Alex..

Thank you. Our next question comes from David Williams of Loop Capital. Your line is open..

Thank you. And let me echo the congratulations, guys. It’s an impressive quarter and guide, and happy to see that. But I was hoping you might be able to give maybe, a little more information on your 48-volt architecture, maybe, the benefits there and what that opportunity could be for you and maybe what traction that you’ve already begun to see there..

Okay. The 48-volt system, we started four, five years ago that we see the trend. And we – in the 48-volt system, there’s many components that we ship, and we started shipment about a year ago for some power components. And for the – for converting 48 volts to the GPU, those are the products we started to win..

What do you think that total opportunity could be if we look a year or two out? What do you think the revenue potential is there?.

We have actually – we don’t have any idea like what’s the IRR and what’s the artificial intelligence market, okay, and what’s the market size. And for us, it’s very big, and that will certainly move the MPS revenue needle. And we’ve done some efforts to find out how big it can be. Certainly, hundreds of million dollars.

And in the data centers, the adoption rate in the 48-volt as the income piece, we don’t see many data centers going to 48 volts other than the one I can think of. They’re advocating 48 volts, but that’s still – their majority of servers still running at 12 volts..

David, if I can add one more comment. I think that the 48-volt is the direction that nearly all data centers, whether it’s for supercomputing or for e-commerce or artificial intelligence, will be migrating to..

That’s what we believe. And we believe that those market segments, sooner or later, give us two or three years, they will merge to 48-volts..

Okay, excellent. And then just lastly for me. Can you comment just maybe, on the data center inventory? It’s been obviously an issue.

But what are you seeing now? And maybe, from your perspective, are you seeing inventory issues there? Or are you maybe, benefiting from just the design wins and company-specific drivers versus the macro?.

Well, if you’re looking at it now, all the new product wins for us, including the – you just mentioned the 48-volt, these are new products. In the past, I’ve said again and again, all these new products, our customers take a risk on new products and we’re taking a risk.

And we don’t want to have any problem in the – during the shipping to the supply market. We don’t have to have any interruption with the qualities or with all these annual issues. We want to build inventory. So, we have more material we can ship. Now, we are at the stage.

We have to put a lot of effort to which – who do we ship, and we have to build more inventory..

David, were you also talking about the data centers as far as whether that was penetration in new markets?.

Yes. I was just curious if there was still excess inventories within the data center that had caused some softness prior, if that had been mopped up yet..

Oh, the data center. Okay..

I didn’t get that. Yes..

So, I think that the way to characterize this is that – and what’s interesting is that the downturn that we experienced as a result of overcapacity in the data center was broad-based. And likewise, with just our one – Q3 experience, that also was an individual customer, individual geography.

It was an example of very diversified growth, both in terms of our products as well as customers..

Great. Thanks so much. Appreciate it..

Thank you..

Thank you. The next question comes from Quinn Bolton of Needham & Company. Your line is open..

Hey, guys. Thanks for squeezing me in. I wanted to just start, and I know you probably haven’t had a lot of time to go through Texas Instruments’ results. But they had a pretty poor outlook, talked about, at the midpoint of their December guide, revenue being down 14%.

And that’s, I think, the eighth quarter in a row, where their revenue has decelerated on a year-over-year basis. So, if I use Texas Instruments as a proxy for the analog market, it certainly looks like Texas Instruments might be looking to a mid-single-digit revenue decline in 2020.

And so I guess can you talk about, if the analog market is down again next year, how comfortable are you with kind of The Street consensus for 18%, 19% growth? And to the extent you’re comfortable; can you give us some points, where you think you’re seeing growth or where you’re differentiated versus some of your broader analog peers? I know that’s a big, big question, but let’s start there..

Sure. At this point, we’ve only had the opportunity to review the flash reports on TI. So, I am at a deficit to understand how much of the business was affected by downturn in analog versus other elements of their business.

But certainly, the significance of the decrease that they projected, both from Q3 and Q4, along with the difference between them and consensus, I think they’re a market driver. We found in 2019 that we’re not – MPS is not immune to what the market movements are like.

We continue to focus on the elements that are within our control, which is we introduce the new products. And as Michael said earlier on this call, we still continue to believe that we can outperform the market at 10 to 15 percentage points, but this market hasn’t found its equilibrium yet..

Yes. There is no comparison between MPS and TI, because they are so big. They are the markets. We are very small. We can’t – but we do have a lot of opportunities. And so there’s no comparison. But for us, our – we start building 5% to 10% of these market shares in the different segments.

And – but at the same time, we’re also expanding our opportunities, so that growth for us in this market segment is enormous and we – in the – we should be much less affected by the macroeconomic conditions..

Thanks, Bernie and Michael. The second question I had is, I think in the June quarter, you guys saw one customer that was over 10% of sales, and you thought that some of that activity was build ahead. You were able to provide and hit your guidance for Q3.

You mentioned some additional build ahead activity in the industrial segment here in Q3 in power sources and surveillance equipment.

Have you sort of factored that build ahead in Q3 into your fourth quarter guidance, meaning that if you did see some unexpected strength in build ahead demand in Q3 that you’ve sort of tempered those segments in Q4 and that’s still reflected in your 160 to 166 guidance?.

Yes. Well obviously, we’re aiming for that in Q4. We don’t know, but we have to be in it already for Q4..

Yes, he said it all..

Okay..

Okay.

So, the answer is yes?.

Oh, yes, yes, absolutely. Otherwise, we will miss quarter by quarter..

Got it. And then lastly, Michael, I just want to come back to 48-volt. You mentioned that you’ve been sampling product, I think, for about a year. I think in the third quarter, GPUs was one of the areas, where you saw strength.

And I just wanted to clarify, was that strength in GPU more from your existing 12-volt design wins? Or have you seen – was that GPU strength in Q3 from 48-volt product?.

No. It’s – GPU is a more traditional. It’s 12-volt. The 48-volt is not moving the needle yet, but we do see a healthy growth of a revenue stream coming..

Got it. Thank you..

Yes..

Thank you. Our next question comes from Matt Ramsay of Cowen. Your line is open..

Thank you very much. Good morning over there, guys. Michael, one relationship that my team has been watching closely that MPS has continued to grow is the relationship with Microsoft across the business.

Maybe, you could – to the extent that you can, could you give us a little bit of color as to the nature of that relationship strategically and how it might benefit the different segments of the business as you move forward?.

Oh, sure. Yes. We don’t comment on customers. But with all our customers, I – in the past, I’ve said this, it doesn’t mean, I don’t like very cyclical business, which move our revenue up or down. And it’s not as smooth as we can manage it. In that regard, I made a statement that is not my favorite, for gaming.

And we want to – for our shareholders, we want to build a model that’s very predictable and very predictable growth and – the top-line growth, margin growth. And so in that regard, in gaming, you have every year or every two years in that you have extra revenue, and then the next two or three quarters they start to get lower.

So that is giving us difficulty. And then our customers said that this is not your favorite, and we are also listening. And in the following conference call, I clarified we love gaming, because that is still money for our shareholders, still value. And that’s all in models. But that’s all in business models.

And as MPS grows, well, revenue grows in roughly over $600 million range. And we – in the last couple of years, we see that accelerating growth and that effect is much, much less. So, I love gaming. I love gaming..

If I can add one additional comment. While we do not talk to individual customers, one thing that I believe separates MPS from our peers and competition is that we’re very responsive to our customers’ requirements. So, if they have an engineering challenge, well, often than not, they turn to us in order to find a solution.

And as a result, all of our customers benefit from the innovation, and the level of technology that we’re bringing forward is differentiated..

By the way, what we said, this is not corporate BS, our customers are telling us we provide the best support, we provide the best service..

Got it. No. I appreciate the sensitivity to the individual customer. As a follow-up question from my side, there’s obviously been – not on the 5G side, but in just general, data center spending over the last 12 to 15 months, there’s been some challenges.

And it seems like the market now is anticipating a reacceleration in cloud spending in the server market. You guys have some great content with certain Intel-based servers, but my understanding is there’s some diversity of that customer base into other computing providers.

Maybe, you could talk a little bit about the data center customer base overall and how you’re expecting that business to grow in the next few quarters..

Sure. I think the strength of MPS is diversity. We have all kinds of different technologies that are suitable for different solutions. So, right now, we tend to think very much in terms of the e-commerce data center model.

And while that model is very solid and is going to continue for several generations to come, we’re seeing, as Michael mentioned earlier, the initial growth through artificial intelligence. And it’s hard to really size what those market opportunities look like, but here again; we're positioned to take advantage of it.

When we look at some of the applications, data center and support of 5G, we're also very well positioned and it's also very initial stage of growth.

So I think that when you look at customer relationships we've developed and how adaptive our technology is for different power solutions, I think we're as well positioned as anybody to take advantage of the new developments of an evolving market..

Thank you very much guys. All the best..

Thank you..

Thank you. Our next question comes from the line of Ross Seymore of Deutsche Bank. Your line is open..

Hi, guys. Thanks for the question or two. First on the 5G side, just want to understand a little bit better where you guys are playing there.

Is the power management that you're doing largely for one form of processor versus another? Are you more FPGA related? ASIC related? ASSP related? Is there any kind of evolution of how you see that progress as people are a little bit worried that the FPGA side might come down and then other sorts of processors would backfill? And trying to figure out how, if that does occur, it would impact or benefit Monolithic?.

The answer is all of the above. I don't want to be vague, but we try to figure out where our product goes. We – just as a reminder to everybody, our products are fundamental blocks. And that's the power supply blocks. All the eyes are on value making.

They all need power and our customers typically design several size of these power blocks with our products. And so when each segment from transmitters to the processing – the data processing to the communication to the fiber line, the optical line, they all need to build the power.

And we – they don't – within their company we've become a standard product, standard component that their design engineers design to be in the same systems. So we actually really don't know where our product ended up..

I think you have two parts to your question here, Ross. The first is sort of we have an initial ramp and how defensible or predictable is that. And I think we've been very clear that we're in the early stages of 5G, and it's really hard to foresee how that's going to develop.

But to Michael's point, as far as the long-term, when this ramp does occur, I think that we get to take advantage of all aspects of 5G and that's what we're looking forward to..

Got it. My next question is it wouldn't be an earnings call at Monolithic if I didn't ask about inventory, so congratulations on that one as well..

I've lost my focus in the February call after Ross. Okay, that's a fair question. Actually, we view it as a little too high still because we don't know what the market actually will do..

Well, if I'm going to give you grief when it goes up, I have to congratulate you when it comes down.

But not to blow too much sunshine at you guys, when you talk about it needing to go back up, how do I – one, is that a dollars or a day's comment? And secondarily, how do I reconcile kind of controlling utilization and lowering utilization with inventory rising?.

Sure. So if you think about what you do to manage inventory levels and it starts with the wafer starts, so back in February, we really started to ratchet down the wafer starts. And we did that for an extended period of time [indiscernible] over the last six months.

Well, those wafers are now coming into our balance sheet, we're receiving them and it's at a much lower level than we've historically seen [indiscernible]. And yes, we had at the same time, okay demand and there's a lot of good sell-through as well. So that means that our finished goods started to come back into aligning as well.

So when we look at composition, we're a little bit light on the raw materials, work in process, and we're probably at about the right level of finished goods. When you look at the ramp that we expect for Q2 [Technical Difficulty].

[Operator Instructions] The next question comes from the line of Chris Caso of Raymond James. Your line is open..

Yes, hello. Can you guys hear us now? Operator, we may have lost the management team..

I believe. Ladies and gentlemen, please stand by. Apologize. There may be a slight delay in today's conference. Please hold. The conference will resume shortly. Thank you for your patience. Speakers you may precede..

Bernie and Michael will back online..

We'll go ahead and go to the next question. Ross Seymore from Deutsche Bank. Your line is open..

Hi guys, can you hear me?.

Yes, fine, thank you. Now it's perfect, yes..

Yes. So I guess you were halfway through, and you probably continued talking even though we couldn't hear you. The inventory side of things, Bernie, you were walking through the utilization and the whip versus the raw materials versus all of that. I think the punch-line to it was what you didn't say.

Does that mean that dollars of inventory are going to start going back up, days of inventory, both? And any sort of target range that you expect to get to?.

Again, while we closed our range in days between 160 and 180, the fact is that we manage internally to dollars of inventory anticipating wafers starts about six months to eight months in advance of when the revenues are expected to ramp. So right now, we're starting to put wafer starts in support of business for Q2 and Q3 of 2020.

And so in that regard, we expect to sort of see a replenishment on a dollar basis. And then obviously, as you look at the cyclicality of our revenues where normally Q1 is about two percentage points to four percentage points lower than Q4, that is a lower denominator, the days will also go up because of that.

So my comment was really intended to talk in terms of dollars. And then I think that will have to reflect the impact on the days given our seasonality..

Got it. Two relatively quick ones I just wanted to understand. One, the litigation expense seems like it's guided to be about double of what it usually is.

Is that something a court case coming due? Or is it something that is one-time in nature? Or is that a new base we should be looking at?.

Yes. We have....

Definitely not a long time..

It's a worth one-time case, and we have a trial date coming up here in the next quarter or so..

Got you. And then the last quick one is IT security camera side of things. I just wanted to – I know you commented on that earlier.

But when you said that its customers who were building inventory, is that something that was meant to be a retrospective comment for the first half of this year or second quarter, whatever have you? Or did you see that as an ongoing benefit to your revenues in the third quarter? And then if so, what is it – what do you believe that will do in the fourth quarter?.

Well, again, it just speaks to sort of the market uncertainty that we're all experiencing. And I think that if I look at the trend lines for industrial where we reported this revenue stream, it is then significantly higher than its normal run rate for us.

And so I think you can infer that there were some pull-ins and that could have some impact on how this particular segment and market performs in the next quarter or two..

We heard different messages from our customers and from our end customers. And so the good news is that they have a few new large projects and are starting to ramp, and at the same time, we also heard they're pulling in because of the tariffs. And so again, we're building very basic building blocks and we're not Intel.

So we're building them a building processor, and you can see how many servers or how many PCs they built. We can help our still very small cost of the entire build of materials..

Got it. All right, guys, that's it from me..

Thank you..

Thank you. Our next question comes from Chris Caso of Raymond James. Your line is open..

Yes, thank you. Good evening and good morning for you guys. First question is with regard to the 10% plus customer that you had in the second quarter. It sounds like that customer wasn't a 10% customer in the third quarter.

Could you give some color about what was going on there? And has the revenue level at that customer now normalized as you look forward into the Q4 guidance?.

Yes. I think that we don't talk about individual customers since they get reported in our 10-Q for the Q2. We'll say that we have a number of relationships beyond this particular customer that are very broad-based and where they can have multiple product ramps that are occurring at the same time and that's clearly what transpired here..

Yes. And we don't have consistent more than 10% customers. This quarter we don't have it, okay? And we don't have it. And in the past, I don't remember whether we reported it or not. There's one for a certain week and a certain period of time where they swapped all their simple things. But it can be different customers.

And overall, we have a very long tail of a number of customers. That's due to our business. We build the building blocks and many customers, they can use that..

Got it. Thank you. I guess the last question is with respect to your goal of growing 10% to 15% above the industry, it's sort of an abstract goal that – the way I'm thinking about it, and tell me if you agree, is that you need to generate somewhere between $75 million and $90 million of incremental revenue.

Perhaps your run rate business grows at the market rate, and this would be on top of that.

And I guess if that's the right framework to think about it, what gets you to that? What sort of things can you point to as you look into next year that drive that visibility for that level of design win as you look into next year?.

Yes. It's a very simple business process and we have product line – we have sales – geographic sales group and we have a product line review there for projecting for the next couple of years and more in the longer term. And the sales is more immediate in the next few quarters.

And we gather all these numbers, and the numbers, we're checking against the product line and also sales group. And also – and we see some wide swings in the last nine months due to the tariffs, due to what is modeled in the last year or so. And it's much more rougher than the previous two or three years.

That's because due to the tariff, government policies and those, we cannot predict. We cannot predict. And now we're looking for next year why we can say we can do that. One is based on historical numbers and that we can always – we can do that. And what is that real theory behind it is this is more empirical than really a theory.

And on the other hand, we're looking at all these sales numbers. These sales numbers are sometimes much bigger than we expected. And so we believe that, and we can grow a lot more than that. Even at the beginning of the year, in January, we forecast to grow more than 20%. But the reality is very different.

So to our shareholders, we say that that's based on the historical numbers, we can grow this much..

All right, thank you..

Okay. Thank you..

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

Sir?.

Great. I'd like to thank you all for joining us in this conference call and look forward to talking to you again during our fourth quarter conference call, which will likely be in early February. Thank you, and have a great day. Thank you very much..

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect..