Welcome everyone to the MPS Fourth Quarter 2020 Earnings Webinar. Please note that this webinar is being recorded and will be archived for one year on our Investor Relations page at monolithicpower.com. My name is Genevieve Cunningham and I will be the moderator for this webinar.

Joining me today are Michael Hsing, CEO and Founder of MPS; and Bernie Blegen, VP and CFO. In the course of today's conference call, we will make forward-looking statements and projections that involve risk and uncertainty, which could cause results to differ materially from management's current views and expectations.

Please refer to the Safe Harbor statement contained in the earnings release published today..

Thanks Gen. For the full year 2020, MPS achieved record revenue $844.5 million, growing 34.5% from the prior year. This performance represented consistent execution against our strategies and being recognized by more first tier companies for superior technologies, product quality and excellent customer.

As we see more high quality growth opportunities ahead of us, we continue to successfully invest in our infrastructure and capabilities that support that growth. Here are a few highlights, which we achieved in 2020. Brought online a new 12-inch fab one year ahead of schedule allowing for qualified parts to be shipped in Q4 of this year.

We will continue to invest in the capacity and diversity of our supply chain with plans to bring up a new 8-inch fab in 2021; began volume shipments of 48 volt QSMOD technology for AI applications, proving the commercial viability of our leading edge system solutions in this critically important market; Designed an integrated power management solution for autonomous driving vehicles.

Shipments began to ramp in Q3 of 2020. Launched our ESG website, aggregating all of our environmental, social and governance values, policies and practices into one easily access location.

Customers, employees, shareholders are now able to fully appreciate MPS's commitment to sustainability, transparency of our business practices and our ongoing social responsibility..

Thank you, Bernie. Analysts, I would now like to begin our Q&A session. Our first question is from Matt Ramsay from Cohen. Matt, your line is now open..

Thank you very much. Good afternoon. Good evening everybody. Hey, Michael and Bernie. Hope you're well. My first question is around the supply that you guys are bringing online. You talked about a couple of different efforts and you have done over the last few quarters to add supply.

And I guess, Michael, I wonder if you might characterize it as -- anyway, one, how much supply can you bring online and say the immediate term versus over the next couple of years to support what revenue levels?.

Well, we said in a couple of quarters ago, we're building a capacity to bidding dollars capability. And so that's all our long-term strategy. We'll do that anyway. And just reason -- in a reason from a last year we pulling a little faster, like we can active -- anticipated these goes up and down.

So, as we play for a long-term futures and -- but in the recent years, obviously, with the pulling and increased capacities, okay, as we started in the early last year and we are a little bit ahead of the game -- ahead of the market demands. And from -- looking at near futures we are continued to do so. We still facing delinquent..

Got it. No, that makes sense in the long-term. I guess for my follow-up question is a more near term oriented one. Bernie, if you might give some color as how you're expecting -- I mean, the guidance was well above consensus for the March quarter.

Maybe you could talk about it by segment what you're expecting the trends to be as you move from December into March. Thanks guys..

Sure. I think that we saw in 2020 that revenue in both automotive and industrial were probably most heavily impacted because of the COVID pandemic. So what we saw in the second half of the year is that both of those two markets showed marked improvement and have significant momentum as we go into 2021. But really we're broad based.

So a lot of the trends that we saw that we benefited from in 2020 will continue on, possibly the only exception is communications, which had a strong three quarters that would be difficult to compare against..

Our next question is from Tore Svanberg from Stifel. Tore, your line is now open..

Yes. Thank you. Congratulations on the execution. So far I think you're the only company that I've seen actually increasing your inventory days. So, congratulations on that too. Last quarter you talked about the size of the delinquencies you had in 2019.

Could you give us a ballpark for where they stand right now?.

I think last quarter -- we talk about last couple of quarters, we have continued facing a delinquent -- delinquencies and this quarter is in the last quarter we are relatively similar and two quarters ago we're facing a bit quite more..

Yeah. And I think that that's a reflection of continued strong demand in the face of industry-wide capacity constraints. So, we've actually had to manage at this level now for about the last three to four quarters.

And I'm not saying that we're getting good at it, but we're certainly believe we have it as well under control as possible, a good handle on it. So that we're escalating shipments only based on the needs of the end-user, as opposed to anyone building inventory in either the channel or on customer shelves.

And the reason we can meet the most off our customer's demand is -- due to we end -- we add a capacity at the beginning of last year and now we can fulfill most of it..

Very good. And as my follow-up on capacity, you talked about the second 12-inch, also new 8-inch. I know you typically don't name your foundries on these calls.

But could you at least talk about sort of the geographical aspect to where your foundry partners are at this point?.

Now, we tried to diversify outside the China as we speaking and these fabs what could be -- we're still exploring and engaged -- at the beginning of the engagement with both -- with a fab within China and outside of China..

Great. Thank you very much. Congrats again..

Thanks Tore..

Our next question is for Ross Seymore from Deutsche Bank. Ross, your line is now open..

Hi, guys.

Can you hear me?.

Yes. Loud, clear..

Hi, Ross..

Hi, there. So congratulations on the growth, especially impressive, not only relative to the analog group, but the diversity of it. As you looked at 2020 is a whole, other than the year-over-year in coms, which I know is difficult. You talked a little bit about you expected to be diverse.

If you just said, what some of the idiosyncratic drivers, company specific things in 2020 would be just a kind of by end market, obviously not customer specific..

Sure. I think that in the computing, we had seen in 2018 and 2019 a run up in notebooks and really in 2020 it was increased demand in the data center, both in terms of powering servers, as well as the storage. In the consumer market, we've benefited from the once every three year refresh of the gaming console.

And also we saw a nice uptick, both in home appliances, as well as wearables or mobility. And then when we look at industrial and automotive, as I said earlier, both of those seem to be handicapped at the beginning of the year where we have design wins, but we can't guarantee what the market circumstances are going to be.

So, the unit sales on some of the new products we were introduced were a little limited, but certainly showed a lot of strength in the second half of the year..

And actually, Bernie, forgive me if I misspoke. I was actually talking more about 2021. What those drive -- similar sort of story, but 2021 more looking forward then back..

I think it's a repeat of same -- it’s a 2020 to 2021..

I'd say the only thing in the first half that gives us a little pause aside from the communications comparable is that there's probably going to be some softness in the first half of the year related to computing on the -- at the data center. But outside of that, Michael's exactly right..

Well, maybe that's a good ….

But the softness -- it's not going down. So, still going as not as a strong, but the demand is still -- slightly more than we expected. Yeah..

Got it. And then I guess as my real follow-up. A lot of companies are questioning the sustainability of this demand and I know crystal balls are always foggy. But you guys would grow if I just analyze your first quarter guidance, 15%.

I know seasonality might not be the breast framework, but there seems to be an active debate amongst investors on is, are things just too hot and there's got to be a stumble because there's excess ordering, inventory is going to build et cetera, et cetera.

How are you guys viewing that kind of supply versus demand balance and the trust in the quality of the orders?.

Well -- and if you look at it in the past three or four years, okay, I mean, we grow some things like in -- from 17% to 25% in the levels. In 2019, right, we grow only 8% and -- but our designing -- all these opportunities still there. Okay? I mean, we just shifted to -- from 2019 to 2020.

And so again, in the automotive, industrial in the first half a year, wasn't there. So like a catch up in the second half a year. And in a computing, communications and -- what else I'm missing.

Consumers..

Yeah, consumers, okay. In the beginning, is a stronger than -- a little bit stronger than normal. And I will say that it's probably even out from 2019s and this year we can see that -- we never forecast a macro economy condition, but we do see these product and we facing a shortages on Amazon's on these the Best Buy and we believe these all are real..

Okay. Thank you and congrats..

Our next question is from Rick Schafer from Oppenheimer. Rick, your line is now open..

Thanks. And let me add my congratulations on the execution guys. I'm sure it wasn't easy up there this quarter, especially. A couple of questions. I guess I'd like to ask about a couple of your bigger growth pillars, maybe start with auto. I think it grew about 15% last year, with SAR down about 15.

So just optically, it looks like you guys could do something around 50% growth this year. I mean, maybe you could talk about what leads that growth. I mean, is it ADAS, body control? Does BMS kick-in at all and kind of add -- give a little more wind to the sales this year.

And I guess the second part of that question, I'm just curious, are you worried at all about indirect supply constraints, potentially limiting -- limiting your upside here?.

Let me talk about your second part first. Growth overall for MPS is limiting by our capacities and utilization of a total capacity. As you know, we have a few thousand -- 4,000 parts and it's inconceivable. We can utilize it in the entire capacities.

For the auto growth, yes, okay, we -- as Bernie said earlier, we have ADAS in the stock to rent in the last quarter or so.

And we have more customers start to ramp that can -- these are the very high end product and we are very pleased with it Other products in orders, we talk about it in the past, okay, from a lighting to liftgates to -- all the other power modules in auto and now we see start to ramp.

We just -- just at the beginning we see all these products start to ramp. But these are still at the beginning..

And Rick, just one more point is that, I think we've read that the auto industry is suffering from its own capacity issues or being able to have a stable supply chain. As I look at our Q1 numbers that is not directly impacting our demand or our ability to ship..

Yeah. We are so small in a market presence in auto industry, but all of these initial ramp and it changes the needles in a revenue stream..

Thanks. And that's kind of what I was asking about. Just worried if those secondary supply constraints could end up hurting -- somebody else can't ship. Maybe my second question, Michael, just on cloud server.

If you could talk about how that data center ramp looks like for QSMOD this year? I mean, it's isolate still a needle mover, or is it really more Sapphire Rapids later this year where you were kind of maybe potentially see a step function in revenues as that starts to pick up?.

Yeah. I can't relate those acronym, these names with that. I know the VR 13.5 is mostly -- is a ramp -- is a ramping now, as we see the revenue growth. Now VR 14, I think is a -- that'll be a next year story..

Thanks..

Our next question is from Alex Vecchi from William Blair. Alex, your line is now open..

Hi, guys. Congratulations on the impressive quarter from me as well. Maybe Bernie, just on a more housekeeping question, your guidance for gross margin at the midpoint is looking flat quarter-over-quarter.

Is that a -- is that due to end market mix or are you seeing any increasing manufacturing costs weighing on margins? And then, how should we think about sort of that resumption back to the 10 to 20 basis points going forward?.

Yes. We -- obviously now you see the consumers segment is growth too, and we have some -- and the slightly, or even with the lower gross margin. On the other hand, yes. The manufacturer costs is going up..

Okay. That's helpful. And then just on your inventory days, you guys have talked in the past about the 180, 200 day target. You've made some improvements quarter.

How do we think about getting back to an ideal inventory level in terms of timing?.

Well, it's -- demand keep coming as is now. It wouldn't be difficult. We think about it end of the end of the year, we hope we will can go back to 180 to 200 days of inventory..

Yeah. I think if you look at whether it's the inventory that we hold on our books or particularly in the channel, it's very lean right now, and then we've already discussed delinquencies. So, we have a lot of catch up to do before we really can get the model to the 180 to 200-day goal..

Understood. That's it for me. I'll pass it along to the next..

Our next question is from Quinn Bolton from Needham. Quinn, Your line is now open..

Hey, guys. I will offer my congratulations as well. Just wanted to follow-up on Alex's question on the delinquencies and your ability to catch up with some of those delinquencies. I mean, how much of the ability to meet those delinquencies is going to come from the new 12-inch fab that you brought online in the fourth quarter of last year.

Are you able to qualify more parts and other high volume runners on that fab? Or just kind of curious your ability to actually get to secure more wafer capacity from your five foundry partners in this very tight environment.

I guess, a lot of companies are saying that they think supply constraints -- supply is going to remain constraint all year, which makes it sound like being able to get back to 180 to 200 days, delinquencies is a pretty tall order in calendar 2021..

Yeah. It's a great question. And thanks for allowing us the opportunity to give a little more context here. With the new fab, I mean, we were very pleased to report is one of our highlights that we were able to qualify parts and be able to inventory and ship them.

But that process of qualifying more parts so that it can be meaningful as far as both deliveries and the dressing our delinquencies is ongoing. And it's going to require an investment both in the 12-inch capability, as well as this new fab that we're bringing up in 2021.

So just because we've qualified a few parts and we've got the process started, it still takes about nine to 12 months before you have the full capability of..

In 2020, we increase our capacity by 25%. It's -- pointing of off from my head, my rough calculations is about 20% to 25% increase last year..

I guess, my follow-up question was just on the comms space. Obviously, you had three very strong quarters in 2020, and then one of your large customers was no longer able to ship. I believe you may now have a license to resume shipments to that customer.

And I'm just wondering if that's the case, do you have now perhaps a better outlook than you might have 90 days ago for the comms business in 2021?.

Absolutely. We will have a more clear -- and the customer start to place -- placing orders now..

Yeah. And I think there's two forms. There's a -- you identified one customer in particular. And I think we might see that begin to ramp in the second half of this year. But I think more broadly other opportunities are starting to come on not just with the top tier, but some of the second tier customers in the 5G and infrastructure area..

Great. Thank you..

Our next question is from William Stein from Truist. William, your line is now open..

Great. Thanks for taking my question. Michael, I'm wondering if you can update us on the longer term transition to selling more modules. I know that's something that is from a long-term perspective, potentially very creative to growth and margins.

I think we're still pretty early in that process, but any movement in the quarter that you'd like to highlight?.

I think it's -- the result is a very good in the middle of this high demand. Actually, Bernie can tell you what is the ramps, okay, what is the increase..

Yeah. We had -- revenue doubled in 2020, and we exited the year where it continued to increase sequentially quarter. And it's interesting because we thought that it would have more narrow applications, particularly in industrial. But in fact, it's proven to be very broad based and also is sustainable.

What I mean by that last point is that we thought that if people want to unit volumes, they might be more likely to go to components and just buy Silicon. And in fact, we're seeing a lot of people that are going into volume shipments with the modules as well..

Yeah. It's all across our product lines. That's so I don't have total numbers for the modules that are -- in roughly, so like a $30 million, $40 million now, okay, I mean, compare a year ago. As Bernie said, it is half of that..

Great. And then one other thing I'd like to ask about is your MPS NOW service, did you see any change in that in the quarter? I know that's something that seemed to come online sort of just in time for the work-from-home COVID situation that I think was very helpful for you.

Any change in that and any anticipated change if we hopefully are able to return to offices in the next quarter or two..

Yeah. This is -- it's a great help. We set it up, okay, just at the beginning of our -- just the right before pandemics. All these softwares, videos everything's and also the bench, okay, the working bench, we just set that up we turn it on when the pandemic happens and it's receiver enormous praise from our customers.

And in terms of how many new customers, we are really, really careful about. We increased a few thousand percent from the videos, from the virtual bench. Yeah..

Great. Thank you..

Our next question is from Kevin Garrigan from Rosenblatt. Kevin, your line is now open..

Hi, guys. Congrats on the quarter and thanks for taking my question. Just a quick one for me. You alluded a little to this earlier, but in your automotive segment, you've expanded into several other features of the automobile besides kind of infotainment.

But can you give us -- can you talk a little bit about some of your design wins there? Are you kind of seeing more design wins and the ones you already have, how are kind of those progressing?.

Well, I think I should answer Rick Schafer's questions the more precise. The BMS is not -- we don't have a clear design wins in all those sites. And -- but to answer -- your question is we have pretty much across the board in from the body controls to ADAS and to lightings and to ADAS and also to all the sensors.

And we have pretty much across the board, but our content that we expanded from $150, $140, and essentially doubled it. And -- but everything's at the beginning, while MPS' revenue so small, so we just -- but you see the net change..

On the dollar content, I just want to go back to that because it's an important part is this is not just unit sales, but some of the new applications that we're bringing on. We go from having $10 of available content to upwards of $40 or $50 for a complete system. So, we're getting both the unit as well as the ASP expansion..

We're not talking about revenue small as a compare the market opportunity. As we said, we address the $6 billion market segments. And as now all MPS' product became as a total -- that's a total state. And we only have over hundred some million dollars in revenues..

$110 million..

Yeah. $110 million in the most of a new product and ramping started from last year, second half of year..

Yeah..

Okay. Got it. Thank you..

Our next question is from Ross Seymore from Deutsche Bank. Ross, your line is now open..

Hey guys, thanks for letting me ask a couple of quick follow-ups. Just two quick ones. First, you mentioned an answering a prior question about your ability to ship to the formerly banned product or banned customer.

Is that just in the comms space or is that ban some of why your computing and storage segment also went down sequentially in the fourth quarter?.

Again, we don't generally talk about individual customers. Sine this one's gotten so much visibility. We actually have three primary lines of business with them. One is in the consumer, one is in the data center and the other is an infrastructure..

Infrastructure meaning comms, right?.

Yes..

Gotcha. Okay.

And is there any difference in what you're able to ship going forward out of those three things? Are you able to ship all of them, or is it just -- not the 5G stuff, but the other two?.

Well, our products there -- again, there's a -- says the building blocks, okay. I mean, particularly in form former comm business and also ….

Data center..

The data centers, okay. And the shared same product. And we don't know exactly what they -- how they divide it. But consumer device -- consumer device more in the chargers, in the -- that we know. It's a pretty much -- it's continues..

Yeah..

Gotcha. And then, the last question is a little bit more housekeeping wise.

Bernie, what are you thinking about tax rate for 2021?.

Yeah. So, on a non-GAAP basis, we've historically used 7.5% and now we've moved to 10%, which represents that there's certain stock comp that is not as a deductible as it was in prior years. And then, looking ahead, we're not going to try to out guess what the Biden administration is going to do.

But I think that we need to be sensitive to the fact that there may be increases both in the domestic rate as well as a higher tax rate on any international profits..

Yeah. We don't know at this point. .

Got it. Thanks guys..

If there are any follow-up questions, please click the raise hand button. As there are no further questions, I'd like to turn the webinar back over to Bernie..

Great. Thank you everybody. Appreciate your joining us for this conference call and look forward to talking to you again the first quarter of 2021, which should likely be in the April timeframe. Thanks again, and have a nice day..