Power Integrations, Inc. Price & Performance (POWI)

Without the written consent of Power Integrations. Now I'll turn it over to Balu. Thank you, Joe, and good afternoon.

We will discuss our results in a moment, but I'll begin with 2 other pieces of news that we are announcing today.

The first is that I have informed our Board of Directors that I intend to retire from my role as CEO. The Board has engaged an executive search firm to help identify our next CEO, and we'll consider both internal and external candidates. I will remain as CEO until the search is concluded and the successor is in place. I've been CEO for twenty three years and I will turn 71 later this year. And while I have not lost an ounce of my passion, for this company, are my excitement the opportunities ahead of us I believe now is the time for me to step back from the day to day responsibilities of a CEO and take on a reduced role supporting a new leader.

That role will include serving as Executive Chairman of the Board for as long as needed to help my successor settle into the job. Once the transition period is passed, I expect to remain on the Board with the consent of the Board and our stockholders, of course. [indiscernible] Second piece of news we are announcing today is that Greg Lowe will join our Board on February '15. Until last year, Greg was CEO of Full Speed, and previously served as CEO of Freescale Semiconductor through the time of its merger with NXP in 2015.

He also spent twenty seven years at TI culminating in the role of senior VP running that company's Analog business. Greg's experience in Analog and Power Semiconductors makes him an ideal fit especially his extensive knowledge of the sales and distribution landscape, and deep customer relationships in key end markets including automotive and industrial. His long history in the industry also means he can make a significant contribution to our CEO search. We are delighted to welcome him to the Board. Now turning to the results. Revenues were in line with our guidance up 18% year over year to $105,000,000 Revenues for the full year were $4.19,000,000 dollars while that was down 6% from the prior year, the underlying details demonstrate why we are excited about The decline was driven primarily by the communications category.

I should say entirely by the communications category. Which fell more than 60% following our exit of the China OEM cell phone business at the start of the last year. The rest of the business grew 17% with consumer up more than 35% computer more than 10%, and industrial up about 3%. Looking ahead to 2025, the cell phone headwind is behind us. And in fact, we expect our communications category to grow driven by the 5 gs fixed wireless rollout in India, and increasing dollar content in our remaining cell phone business. We also began the year with channel inventories down more than two weeks from the prior Most importantly, we expect incremental revenue this year from an array of markets and products. And I will touch on several of those in a moment.

Our revenue guidance is for flat sequential revenues at the midpoint of the range which equates to a year over year increase of 15%. While forecasting beyond the current quarter is difficult in light of uncertainty, around the trade policy and end market demand. We expect to sustain a healthy rate of revenue growth over the course of the year. Growth should accelerate this year in the industrial category driven partly by lower channel inventories compared to a year ago but also by design ramps in high voltage DC transmission, renewables, and traction in our high power business as well as metering home and building automation, and Automotive. The consumer category, the rate of growth will moderate after last year's strong recovery especially with soft housing markets still holding back demand for major appliances. However, we expect growth in Air Conditioning this year based on share gains and a solid demand outlook from our customers. We also expect new revenues from the TV market after recent GaN design wins which I will discuss in a moment. Potential growth drivers in the computer category this year include notebooks, and tablets auxiliary power supplies or AI servers and also monitors where our Innomax 2 ICs are in production with a major PC OEM.

Underpinning our growth across 4 end market categories are 2 common themes. 1 is our success in India where we have expanded our presence in recent years. A priority of India's government is to design and build domestically more of the products purchased by is growing middle class.

The country is also modernizing its infrastructure Power with electric transportation, residential broadband, renewable energy and a more robust power grid including the planned installation of two fifty million smart utility meters. We are winning in each of these areas, supplying gate drivers to 1 of India's largest suppliers of traction systems for electric locomotives and winning a substantial share of the metering and fixed wireless rollouts. The second key theme for this year is GaN. Last year, we talked a lot about progress in our technology, roadmap including the launch of 1700 volt technology. We believe 2025 will bring an inflection point in terms of adoption and growth. We expect revenues from GaN based products to grow at a high rate this year and to comfortably exceed 10% of our sales. In we won a follow on design at our Indian 5 gs fixed wireless customer which is upgrading to GAAP again after ramping last year with the silicon based Metering customers in India are also now moving up to 900 volts and twelve fifty volt GaN products to gain extra safety margin against India's fluctuating grid voltages. We also recently received our first purchase order for GaN based Inomux II ICs at 1 of the world's largest TV manufacturers.

We have won power supply sockets in 3 models largest being 65 inches screen which will not only use Innomax 2, but also our GaN based Hyper PFS power factor correction chip. Along with accelerating customer adoption, our leadership in GaN technology and products is also being recognized by industry experts. Our 1700 volt Inomax 2 ICs received a 2024 Product of the Year award from a leading UK technical journal. And a Power Best Award from Electronic Design Magazine. Enoswitch 3 with twelve fifty volt GaN won an engineering achievement award from Design World best power management product from Aspen Core in China and 2 industry Excellence Awards from twenty one Daya Yoon also in China While 2025 is shaping up as an exciting year for GaN, We are still in the early we are still very early in the GaN revolution. With huge opportunities [indiscernible] in the short, medium and long term. Short term, GaN has just begun to penetrate the power supply market and adoption is accelerating across a wide range of low power AC to DC applications including the ones we talked about today and many more. In the medium term, the opportunity for GaN at high power levels is massive.

Nowhere more so than in AI data centers. While data center operators are eager for innovative power solutions for AI, Adoption of GaN has been inhibited by the challenges of using discrete GaN in high reliability systems. We are tackling that problem with our system level approach to product design and expect to have our first product for AI server power supplies next year. We estimate the SAM for this product alone to be more than $50,000,000,0.0 in 2027. With additional products to follow that will take our data center SAN to well over $1,000,000,000 Longer term, we believe GaN can achieve power levels sufficient for EV drivetrains at much lower cast than silicon carbide. We are pleased with the progress we are making on high power GaN aided by our acquisition of Odyssey Semiconductor And we continue to believe that a market ready high power GaN technology is attainable within the next three to five years. I'll conclude with an update on our automotive efforts which are progressing nicely. EV power architectures are not only evolving in ways that benefit power integrations, but in some cases are being shaped by our expertise in high voltage systems and the unique capabilities of our products.

Automotive revenues will grow rapidly in 2025 from a modest pace of few million dollars in 2024. More importantly, customers in the EV industry including pure battery EVs and plug in hybrids, which should result in a more substantial revenue contribution starting in 2026. Building on our early success in China, we are now expanding quickly into other markets. We have several customers scheduled to begin production this year in Europe and The U. S. In Japan, we were initially expected we initially expected resistance as a non Japanese supplier we were instead being invited into the market because of the capabilities of our products. Following our recent qualification at 1 of JAP Japan's largest Tier 1 suppliers, we have now been invited to begin qualification at Japan's largest Tier 1 and we hope to complete that process by the With that, I'll turn it over to Sandeep for review of the financials.

Thanks, Balu, and good afternoon.

Our results are straightforward, so I will just briefly recap the numbers and the outlook and then we will take questions. As usual, I will focus on non GAAP results which are reconciled to GAAP in our press release.

Revenues were $105,000,000 in the middle of our guidance range. Revenues were up 18% year over year and down 9% sequentially. I will briefly speak to the sequential changes in each category. Consumer revenues were down mid teens sequentially reflecting continued softness in major appliances in The U. S, Europe and China. Finished goods inventory at Chinese OEMs remain elevated as the impact of consumer stimulus program thus far appears to have been fairly modest. However, we did see a meaningful drawdown in channel inventory for consumer in giving us added confidence in our growth expectations for 2025. Industrial revenues were down 10% sequentially largely driven by the timing of shipments for metering applications. Revenues from the Computer category were down mid single digits sequentially on lower sales in notebooks, while the communication category was up mid single digits, on stronger cell phone revenue. [indiscernible] Total channel inventory fell slightly to eight point four weeks compared to eight point six weeks last quarter.

As distribution sell through exceeded sell in by about $2,000,000 For the full year, sell through exceeded sell in by about $12,000,000 Revenue mix for the quarter was 37% consumer 35% industrial 15% Computer, and 13% communications. Non GAAP gross margin for the was 55.1% unchanged from the prior quarter.

Full year non GAAP gross margin was up more than 2 percentage points from the prior year driven by the weaker yen and favorable mix with lower self hold revenues and higher percentage of sales from industrial and consumer. Non GAAP operating expenses were $4,460,000,0.0 for the quarter consistent with our guidance. For the full year, non GAAP OpEx was $174,000,000 up 4% from the prior year including about 0.5 percentage points stemming from the Odyssey acquisition. The non GAAP tax rate for the quarter was negative 3 of FIN 48 reserves.

Reversal resulted in an EPS benefit of $0,.02 per share. Including the tax benefit, non GAAP earnings for were $0.3 per diluted share.

Share count for the quarter was $5,710,000,0.0 up slightly from $57,000,000 in the prior quarter. Inventory days rose to three fifteen at quarter end up twenty four days from the prior quarter, reflecting the sequentially lower revenues. Inventory on the balance sheet fell by $2,000,000 during the quarter. Inventory will remain well above our target level throughout the year but should begin to taper down the second half. Cash flow from operations was $15,000,000 for the quarter while CapEx was $3,000,000 We used $12,000,000 for dividends after the 5% increase that took effect in and we used $2,000,000 to buy back shares.

For the year, we generated $81,000,000 in cash from operations with just over $17,000,000 in CapEx resulting in free cash flow of $64,000,000 We returned $74,000,000 to stockholders through dividends and buyback. Turning to the outlook, we expect revenues to be flat sequentially plus or minus 5%. Non GAAP gross margin should be between 55.556% compared to 55.1% in The sequential increase reflects favorable end market mix and incremental benefit from the dollar yen exchange rate.

For the year, I expect gross margin to be around 55.5%.

That would be up about 1 versus 2024.

With higher back end production volumes and favorable mix offsetting higher input costs. Non GAAP operating expenses for should be around $45,000,000 a slight increase from driven by the resumption of FICA taxes and modestly higher headcount. For the year, I expect non GAAP OpEx to increase by about 6% About 1 percentage point of the increase is a result of the full year of Odyssey expenses compared to half a year in 2024. Finally, I expect our effective tax rate for the and the year to be in the range of 5% to 6% And now operator, let's begin the Q and A. Thank you. Ladies and gentlemen, we'll now begin the question and answer session. Your first question is from David Williams from The Benchmark Company. Please go ahead.

Good afternoon, everyone. And by the way, let me just first say congratulations on the retirement. It's well deserved and we'll miss you. And wish you the best. Thanks, David. So first, Balu, it really seems I mean, you've obviously been very upbeat on GaN you you've got greater conviction today in it meeting that higher power and even talking about the EV drivetrain, in those areas.

Has anything changed maybe over the last couple of quarters that's given you more confidence there, maybe something that's come along with the Odyssey just maybe internal efforts, but just anything around that your confidence in that in the GaN to Power powertrain potential. Thank you.

Thanks, David. Absolutely, we talked about it in the last quarter as well. Would say in the last year, we have made significant strides in our technology that will allow us now to address tens of kilowatts And that's why we are now talking about AI data center opportunity We think with the technology we have today, we can go up to perhaps 50 kilowatts worth of applications Now, the new technology we are working on which is the reason we acquired Odyssey Semiconductor, will allow us to go to much higher power loads, 100s of kilowatts. That's when we'll be able to get into EV drivetrain and we believe we can be very competitive or actually much lower cost than silicon carbide and provide even higher performance than silicon carbide. So that's kind of the holy grail that we are working towards. And there we are making good progress. We still have some ways to go. We think we can be there in the three to five year timeframe. And acquiring Odyssey is really going to help us get there faster than we originally thought. And that's the reason I'm very optimistic about GAD in general. But I would also say from a business side, I'm really impressed how broadly GAN has been adopted.

It's no longer just cell phones. We are talking about notebooks, tablets, monitors, TVs, appliances, industrial applications, So it's really across all of the markets and that's why we believe this year is going to be significant growth for us And going forward, it will grow even faster. So I am very, very confident GaN will be high voltage switch of choice for the future. And of course, all of our products have them. So that's going to make a huge difference to us. And also, we are so far ahead of our competitor in terms of we feel very, very strong that GaN would be a huge benefit for us, differential benefit for us as a company.

Fantastic progress there and making a lot of headway. But I guess maybe secondly, on the automotive, you also talked about that now and where you're playing. Can you update us on maybe many design wins you have in the automotive space? And maybe just kind of speak to the magnitude that you're expecting from Gannon automotive this year and maybe in the next couple of years, how that should trend? Thanks.

Yes. Just to be clear, lot of the designs that we are already in, we have about 20 designs that are in production right now. They are either silicon or silicon carbide.

We recently introduced the 900 volt GaN that will be suitable for the 400 volt battery systems and we are actually getting design wins on that. And of course, we have the 1700 volt silicon carbide, but we will also have the 1700 volt GaN based device for automotive as well. And that is required for the 800 volt battery. So the 400 will be required 900 volts GaN, and the 800 volt battery will require 1700 volt CAT. So we are in very good shape to address those mark But on top of that, there are other sockets in the car like for example, DC to DC converters to replace 12 volt batteries So we are working on products using GaN it is a higher power version of InnoSwitch, And that will provide us additional sockets and significant dollars for that matter. Right now, our primary socket is the emergency power supply in the drivetrain and also auxiliary power supplies for various subsystems. But the DC to DC converter is a much bigger dollar content And then once we have the 10 kilowatt type of solutions that we're working on, can also address the onboard charger application. And then we have to wait for our high power GaN to go into the EV Drive train.

Your next question is from Ross Seymore from Deutsche Bank. Please go ahead.

Hi, guys. Thanks. May I ask a couple of questions? And first and foremost, Belu congratulations, as David said, very, very well deserved and we'll be missing you on these calls.

So I guess for my first question, report and guide were pretty much in line. It didn't even look like the end markets were terribly surprising. So what would you describe as the biggest update of what you're seeing overall from a end market environment today versus thirty days ago?

What's changed? Well, that's a good question. Not a significant change. Only thing I would say is in 2025, that is this year, we expect to see a significant growth in Industrial, which is kind of a little bit out of sync with the rest of the semiconductor market. And that's because we have some really unique opportunities that will go into production. Things like infrastructure related projects, renewables, high voltage DC transmission systems, electric locomotives, and that's in the high power part of the business. But beyond that, we are also doing very well in meters, which is also infrastructure related. We talked about the India meter opportunity. And then we are doing very well in home and building automation. And power tools and so on. So this year, industrial is going to be the strongest growth market. Which again is a little bit unique, but part of it is because some of the infrastructure projects, which is supposed to start last year have been pushed to this year, but that boards really well for the industry of this year.

I guess as my second question and not to ask too much, but I think in your last call you talked about you thought all 4 segments would grow this year. Is that still the case?

From the best modeling we have done, all 4 should grow. But industrial would be the largest.

Growth?

Yes, in dollar terms industrial will grow followed by consumer, but we expect all 4.

And even in communication, we are expecting growth with the 2 areas of cell phone as well as in networking product. [indiscernible] we have got growth in all areas.

Yes. Just to amplify that, we talked about the networking product, there is a residential networking the fixed 5 gs network. But we are also going to see growth in the remaining cell phone market because of content growth. We have growth because we are able to upgrade to Switch PD, which has the PD product [indiscernible] So that increases our dollar content. Also, many of the products are good I mean there is also a move towards higher power to charge AI based phones.

And that loss increase our dial content because they'll then move on to GaN for higher Power.

Chargers.

Got it. Thanks guys and Balu. Congrats again. Thanks Ross. Appreciate it.

Your next question is from Tore Sandberg from Stifel. Please go ahead. [indiscernible] Yes. Thank you. And congratulations on your retirement. It's been a true honor working with you and [indiscernible] prior integrations during your tenure. I wish you all the best. So the first question that I had is on the near term by segment. I assume the Communications segment will probably be down seasonally But how should we think about the 4 segments into the March?

Yes. The way I would look at it that you would see that basically the consumer and industrial will grow [indiscernible] communication and computer would be down.

Great. And as my follow-up question, channel inventory, Sandeep, I know sometimes in the March, there's a lot of moving parts, especially with Chinese New Year and so on and so forth. So I know channel inventory came down a couple of days, I believe you said, just in but how should we think about channel inventory target in I think, as the best I know, I think sell in and sell through to should be around similar. So I think the channel inventory should hold. And in fact, this is 1 of the good things for us for 2025 We are coming starting off with what I call the normal weeks and with all the growth drivers that Balu talked about, I really feel very good about our growth. And really think even for the year sell in and sell through should be pretty close give and take. Very good. And just 1 last question for you, Balu.

You talked about some early revenues in data center power supplies scheduled for early next year. Are those GaN and silicon products or either 1 or the other?

Sorry, first of all, thank you for the congratulations.

Yes, just to be clear, I said that our first product for data centers will be available next year. But we won't see revenue until 2027 or 2028.

We may get a little bit in 2027, but really it will be 2028 before we get significant revenue. And the products are entirely GaN, GaN is where we have a really an advantage in the AI data center [indiscernible] designed into AI server power supplies with our standby products, which are also GaN based. And we that will grow very nicely this year and next year. But that market is not as big as the main power supply.

For example, the standby market is about roughly $100,000,000 of Sam, whereas the main power supply is we're talking about more than $1,000,000,000 once we introduce the 2 or 3 products we are planning for it. Great. Congrats again. Thank you. Thanks, Tori.

Your next question is from Christopher Lola from Susquehanna. Please go ahead. Thanks for the question. And Balu, I echo my congrats. You look great for '71, by the way. That picture is a little old.

I need your skincare routine.

Okay. So my question is around GaN and it seems like you're really focused on high Power. Do you think like the low end of the market commoditizes between like Innoscience on 1 side and 300 millimeter from Infineon on the other at the low end and then on Power, is this like a sustainable competitive advantage or do you think others are going to catch up here? As well.

I believe first of all, thank you for the compliments. But I believe we can compete very well across the entire power spectrum from low power to high power. Let me talk a little bit of the 2 examples you gave. First of all, we don't sell discrete GaN. People who sell discrete GaN, I think, have a very tough challenge with some of the Chinese suppliers, especially neuroscience. We sell a system and the benefit there is that we really can extract the most value out of the GaN at the system level in terms of efficiency, in terms of protection and so on and so forth. So that's 1 thing. So we think we can compete very well in the low power area. When you go to high power, the dollar content is much higher and the benefits we can bring is also more significant And we think that that's a huge growth that for us. If you look at the data center, we think that will provide us a strong revenue growth because of the products will bring such significant advantage in terms of size, and efficiency. Now talking about 300 millimeter, there are 2 things I think is really important to know.

First of all, at this point, we don't know of any equipment that can do high voltage GaN on 300 millimeters I believe the announcement that were made are for low voltage GaN. When I say low voltage, less than [indiscernible] In 100, 200 volts may be possible. But to really go to higher voltages, you need much thicker epi. And the challenge with that is, first of all, the cost of GaN is really in the epi. So the size of wafer makes not that much difference. And to the extent the wafer size makes some difference, The fact that we have grown such the KP on such a large wafer creates a humongous amount of stress. I mean, they call it I think they call it as a potato chip. That's what it looks like. And what that means is that to deal with that stress, when you do that, the yield goes down significantly. So it is not clear to me that going to a larger size wafer is a benefit for high voltage CAT. Just to be clear. What we are doing is reducing the cost in other ways like device design, process design, and really dramatically reducing the die size.

The difference in wafer size is not very significant in terms of cost. Interesting.

Thank Thank you, Balu.

Next 1 is maybe for Sandeep.

Sandeep, you always have macro thoughts. I appreciate those.

Sounded like in the press release there was some commentary around tariffs.

Wanted your thoughts there. Also, your U. Seems like you had some commentary there as well.

And then anything else macro that you want to add, I would appreciate. [indiscernible] I mean, basically, we felt the subsidies have the full effect of that hasn't been. Now there was also there could be some put it pull in because of tariffs. I really want to see the sell through In which will give me a better idea of whether it was tariffs or whether it is the subsidies, I'm waiting to watch that.

I think the trade policy is obviously something we are watching because we have a lot of tariffs and as an impact on end market demand. That can also impact us. At the end of the day, we go into things like appliances and there are other and that becomes very expensive, can impact demand. But I think if things really don't go extreme and are normal, I think the areas that Balu has highlighted of growth in our appliances as well as in our industrial applications, [indiscernible] We really believe [indiscernible] we will have a very good growth year this year.

So obviously, a thing which is hard to predict is the real impact of tariffs, which whether it's a wait and watch.

But I think all these things that come even out over a period of time, but do have short term impacts. So but I think we have enough growth drivers if things are normal that we'll have a very good Excellent. Thanks so much guys. Ladies and gentlemen, as a reminder, There are no further questions at this time. Please proceed with closing remarks.

Okay. Thanks Andrew. I know it's a busy day of earnings out there. Thanks everyone for listening.

Thanks again and good afternoon.

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.