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Edited Transcript of MPWR earnings conference call or presentation 8-Feb-18 10:00pm GMT

Q4 2017 Monolithic Power Systems Inc Earnings Call

SAN JOSE Feb 14, 2020 (Thomson StreetEvents) -- Edited Transcript of Monolithic Power Systems Inc earnings conference call or presentation Thursday, February 8, 2018 at 10:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Bernie Blegen

Monolithic Power Systems, Inc. - VP & CFO

* Michael R. Hsing

Monolithic Power Systems, Inc. - Founder, Chairman, President & CEO

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Conference Call Participants

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* Amit Chandra

Wells Capital Management Incorporated - Member of Global Strategic Products team

* Jeremy Lobyen Kwan

Stifel, Nicolaus & Company, Incorporated, Research Division - Associate

* John Nguyen Vinh

KeyBanc Capital Markets Inc., Research Division - Senior Research Analyst

* Joseph Daniel Meares

SunTrust Robinson Humphrey, Inc., Research Division - Associate

* Kanghui Ong

Deutsche Bank AG, Research Division - Research Analyst

* Quinn Bolton

Needham & Company, LLC, Research Division - Senior Analyst

* William Stein

SunTrust Robinson Humphrey, Inc., Research Division - MD

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Presentation

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Operator [1]

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Good day, ladies and gentlemen, and welcome to the Monolithic Power Systems Fourth Quarter 2017 Earnings Conference Call. (Operator Instructions) And as a reminder, this conference is being recorded. I would now like to turn the conference over to Monolithic's Vice President and Chief Financial Officer, Bernie Blegen. Please go ahead.

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Bernie Blegen, Monolithic Power Systems, Inc. - VP & CFO [2]

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Thank you very much. Good afternoon, and welcome to the fourth quarter and fiscal year 2017 Monolithic Power Systems conference call. Michael Hsing, CEO and Founder of MPS is with me on today's call. In the course of today's conference call, we will make forward-looking statements and projections that involve risk and uncertainty, which could causes 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. Risks, uncertainties and other factors that could cause actual results to differ are identified in the safe harbor statements contained in the Q4 earnings release and in our SEC filings, including our Form 10-K filed on March 1, 2017, and Form 10-Q, filed on November 6, 2017, both of which are accessible through our website, www.monolithicpower.com.

MPS assumes no obligation to update the information provided on today's call. We will be discussing gross margin, operating expense, R&D and SG&A expense, operating income, interest and other income, pretax income, net income and earnings on both a GAAP and a non-GAAP basis. These non-GAAP financial measures are not prepared in accordance with GAAP and should not be considered as a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP.

A table that outlines the reconciliation between the non-GAAP financial measures to GAAP financial measures is included in our earnings release, which we have filed with the SEC. I would refer investors to the Q1 through Q4 releases for both 2016 and 2017, as well as to the reconciling tables that are posted on our website.

I'd also like to remind you that today's conference call is being webcast live over the Internet, and will be available for replay on our website for one year, along with the earnings release filed with the SEC earlier today.

Continuing with our now 5-year trend, we are pleased to announce 2017 was another record year for revenue. Full year revenue of $470.9 million was up 21.2% from 2016. The year-over-year growth was nearly double that of the analog semiconductor industry, which SIA estimates grew 10.9% over the prior year.

Looking at our 2017 over 2016 revenue growth by market segment; automotive revenue, up 58.7%; compute and storage, up 25.1%; consumer, up 23.4%; and industrial revenue, up 12.9%.

Communications revenue was essentially flat between years. Let me speak to highlights by market segment. Full year automotive revenue grew $19.9 million to $53.9 million in 2017. This growth primarily represented increased sales of infotainment, safety and connectivity application products. Automotive is MPS's largest SAM opportunity at $6 billion, and we are in the early stages of penetrating this market.

In the years ahead, we plan to offer a number of new products for applications in infotainment, body controls, lighting, EV batteries and ADAS. Automotive revenue represented 11.4% of MPS's full year 2017 revenue compared with 8.7% for 2016.

Compute and storage revenue grew $20.2 million to $100.8 million in 2017. This growth reflected strong sales growth for cloud computing, SSD storage and high-end notebooks. Compute and storage revenue represented 21.4% of MPS's total revenue in 2017.

Consumer revenue grew $36.0 million to $189.8 million in 2017. This growth reflected gains in gaming and high-value consumer markets, including home appliances and battery management systems. Consumer revenue represented 40.3% of MPS's full year 2017 revenue.

Industrial revenue grew $7.2 million to $62.9 million in 2017. This growth reflected sales for applications and power sources, point of sale systems and industrial meters. Industrial revenue represented 13.4% of MPS's full year 2017 revenue.

Turning back to our overall financial performance.

On a GAAP basis, full year 2017 gross margin of 54.8% expanded 50 basis points from the prior year. GAAP pretax income grew 44.8% over 2016 to $82.9 million. On a per share basis, GAAP net earnings of $1.50 were 19% higher in 2016.

The enactment of the Tax Cuts and Jobs Act of 2017 resulted in a one-time GAAP tax expense of $13.5 million or $0.31 per share. This new tax legislation also allows MPS to repatriate foreign-sourced earnings. The one-time charge increased our 2017 tax rate from 5.1% to 21.4%.

On a non-GAAP basis, full year gross margin of 55.6% expanded 40 basis points from the prior year. Non-GAAP pretax income of $137.9 million grew 32.4% over 2016.

MPS achieved record full year non-GAAP earnings of $2.93 per share, which was 27.4% higher than 2016.

Switching to Q4. MPS had a record fourth quarter, with revenue of $129.4 million, 24.9% higher than the comparable quarter in 2016 and slightly higher than revenue generated in the prior quarter.

Looking at our 2017 over 2016 fourth quarter revenue growth by market segment; automotive, up 57.7%; consumer, up 44.6%; compute and storage, up 14.0%; and industrial, up 6.7%. Fourth quarter revenue for the communications segment fell 7.0% from the prior-year period.

Fourth quarter GAAP gross margin was 55.0%, matching the prior quarter of 2017 and 50 basis points higher than the fourth quarter of 2016. Our GAAP pretax income was $26.7 million compared to the $25.1 million reported in the prior quarter of 2017 and $18.4 million reported in the fourth quarter of 2016.

For the fourth quarter of 2017, non-GAAP gross margin was 55.7%, matching the prior quarter of 2017 and 30 basis points higher than the fourth quarter from a year ago. Our non-GAAP pretax income was $39.2 million compared to the $39.5 million reported in the prior quarter and the $29.7 million reported in the fourth quarter of 2016.

Let's review our operating expenses. Our GAAP operating expenses were $46.1 million in the fourth quarter compared with $47.0 million in the third quarter of 2017. On a non-GAAP basis, fourth quarter 2017 operating expenses were $33.9 million, $1 million up from the $32.9 million expense in the third quarter, primarily reflecting an increase in R&D, new product spending.

Fourth quarter 2017 operating expenses were up $5.5 million from the $28.4 million reported in the fourth quarter of 2016.

On both a GAAP and a non-GAAP basis, fourth quarter litigation expenses were $340,000. The difference between non-GAAP operating expenses and GAAP operating expenses for the quarters discussed here are stock compensation expenses and expenses from an unfunded deferred compensation plan.

Stock comp expense was $11.9 million in the fourth quarter of 2017 compared with $14.0 million in the prior quarter of 2017 and $10.7 million in the fourth quarter of 2016.

Switching to the bottom line. Q4 GAAP net income was $12.1 million or $0.27 per fully diluted share compared with $0.54 per share in the previous quarter of 2017 and $0.39 per share in the fourth quarter of 2016.

The current quarter GAAP results included the one-time expense of $13.5 million or $0.31 per fully diluted share resulting from the newly passed tax legislation. Q4 non-GAAP net income was $36.3 million or $0.82 per fully diluted share compared with $0.84 per share in the previous quarter of 2017 and $0.65 per share in the fourth quarter of 2016.

Now let's look at the balance sheet. Cash, cash equivalents and investments were $304.3 million at the end of the fourth quarter of 2017, $620,000 less than the prior quarter of 2017. For Q4 2017, operating cash flow was $53.4 million, and for the full year 2017, MPS generated operating cash flow of about $133.8 million. Cash proceeds from employees stock option exercises and ESPP were $20,000 in Q4 and $2.9 million for all of 2017.

Q4 2017 capital equipment purchases were $40.7 million, and for the full year were $65.8 million. Dividend payments were $8.7 million for the quarter and $33.9 million for the year. Fourth quarter accounts receivable was $38.0 million or 27 days of sales -- days sales outstanding, which was lower than the 36 days we reported at the end of the prior quarter of 2017. This decrease was due to a higher proportion of the quarter sales being recorded in the first 2 months of Q4 compared with the prior quarter.

Fourth quarter 2017 days sales outstanding were 3 days lower than the 30 days posted in the fourth quarter of 2016. Our internal inventories at the end of the fourth quarter of 2017 were $99.3 million, down slightly from the $99.9 million at the end of the prior quarter. Days of inventory decreased from -- to 155 days at the end of Q4 from 156 days at the end of Q3 2017.

I would now like to turn to our outlook. First and foremost, MPS is announcing a 50% increase in our quarterly dividend from $0.20 per share to $0.30 per share for shareholders of record as of March 30, 2018. During the next year, MPS will look for future opportunities to return value to our shareholders. As of January 1, 2018, MPS adopted ASC 606. This new accounting standard, which modifies the revenue recognition rules will have a minimal impact on our Q1 revenue.

Looking at Q1, we are forecasting revenue in the range of $122 million to $128 million. We also expect the following: GAAP gross margin in the range of 54.8% to 55.8%; non-GAAP gross margin in the range of 55.3% to 56.3%; total stock-based compensation expense of $13.9 million to $15.9 million, including approximately $400,000 that will be charged to cost of goods sold; litigation expenses of $250,000 to $350,000; non-GAAP R&D and SG&A expenses to be in the range of $32.1 million to 35.1% million.

This estimate excludes stock compensation and litigation expenses. Other income of $600,000 to $700,000 before foreign exchange gains or losses. Fully diluted shares to be in the range of 43.9 to 44.9 million shares. Our tax rate for 2018 is expected to be between 5% and 10% on both a GAAP and a non-GAAP basis.

In conclusion, we continue to grow and continue to enhance shareholder value. I'll now open the microphone for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from Quinn Bolton with Needham & Company.

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Quinn Bolton, Needham & Company, LLC, Research Division - Senior Analyst [2]

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Michael, Bernie, congratulations on the -- another record year and nice to see the 50% increase in the dividend. Michael or Bernie, just a couple of questions. First on the compute business quarter-to-quarter, it looks like it was down sequentially despite the ramp of Purley. I'm wondering if could give us an update on the Purley ramp and superpower management for you guys? And then, Bernie, it looks like CapEx was up significant in the fourth quarter, can you go into a little bit of detail on what you were spending that CapEx on?

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Bernie Blegen, Monolithic Power Systems, Inc. - VP & CFO [3]

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Sure. Let me start off with your first question as far as what we're observing in compute and storage in the Q3 to Q4. So interestingly, we had very good continuation of growth in our cloud computing, which was closely associated with the server business. And that was offset by declines in both the storage and notebook. So I think that -- versus our expectations internally as far as what the opportunity for servers are, we are tracking at or in fact, a little bit ahead of what -- where we expected to be. And the business that we have to date has been primarily in some of the lower dollar categories, and we expect to see our Intelli-Phase or QSMod side of the business, which is higher dollar, to pick up early in 2018. With regard to the cap spending, we've made some purchases of office space in the quarter, and we picked up 2 offices, one for $25 million and the other for $15 million, and believe that this is a good way to secure capacity at a fixed price that will benefit the -- accretive to earnings over the years to come.

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Quinn Bolton, Needham & Company, LLC, Research Division - Senior Analyst [4]

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Great. And then, maybe just one, sort of, forward-looking question. As you look into 2018, could you size or maybe rank order for us what you see is perhaps some of the biggest incremental revenue drivers heading into this year?

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Bernie Blegen, Monolithic Power Systems, Inc. - VP & CFO [5]

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Sure. I'm going to address this on a percentage basis. And so the dollars maybe a little bit different. But automotive, as I've been saying in the recent past is expected to grow in any quarter-over-quarter between 30% to 60%. And that was consistent with the experience that we had in 2017. So that -- with the design wins and visibility that we have in the long term, we believe that for 2018 and '19 and '20, automotive...

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Michael R. Hsing, Monolithic Power Systems, Inc. - Founder, Chairman, President & CEO [6]

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Well, the growth on each market segment, there is going to be -- if you look at our last 2 or 3 years, and if you're looking to forward, okay? And that's just a plus or minus of fewer percentage on the each market segments. And the trend will be very similar to 2018 and 2019, 2020, that's as far we see, is a pretty much all set. The percentage is just only a few percentage change.

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Operator [7]

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Our next question comes from William Stein with SunTrust.

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Joseph Daniel Meares, SunTrust Robinson Humphrey, Inc., Research Division - Associate [8]

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This is Joe on for Will. Nice quarter. I'm just wondering if you guys had an update on the web-based e-commerce analog for the masses project?

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Michael R. Hsing, Monolithic Power Systems, Inc. - Founder, Chairman, President & CEO [9]

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Well, (inaudible) it's delayed again. I promised in January, it didn't happen (inaudible) . I think that we rather have a very good user experience to launch it first and rather than at the mediocre ones. And so I made a very hard decision not to do it and not to launch it. And you will see probably in a -- now I don't have credibility on that. I postponed it several times already. Look, I promised, I postponed it several times and hopefully it will be in Q2.

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Bernie Blegen, Monolithic Power Systems, Inc. - VP & CFO [10]

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Just to add to that. I think that Michael has a lot of credibility, typically when you look at the results we turned in 2017 and going forward. And that secondary point...

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Michael R. Hsing, Monolithic Power Systems, Inc. - Founder, Chairman, President & CEO [11]

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Well, this is one area I (expletive) it up.

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Bernie Blegen, Monolithic Power Systems, Inc. - VP & CFO [12]

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Well, that's honest. We will manage that in the transcript. The expectations set as far as 0 revenue generation is a result of e-commerce in 2018 and 2019. So to the extent that we have a successful launch and we're able to incorporate customer feedback into making quick adaptations of that platform, I think it's time well spent.

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Michael R. Hsing, Monolithic Power Systems, Inc. - Founder, Chairman, President & CEO [13]

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But on the other (inaudible) I do emphasize that's the direction we're really going. And that doesn't -- the delay doesn't cause any doubt. And as a matter of fact, all the -- the testings that can be -- without the website, is doing really, really well. And we in the last few months, every months we increase 600, 700 customers, and those customers we never know of even.

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Bernie Blegen, Monolithic Power Systems, Inc. - VP & CFO [14]

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No marketing, just coming over to transom.

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Michael R. Hsing, Monolithic Power Systems, Inc. - Founder, Chairman, President & CEO [15]

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That's right. Yes. And so the trainings even I can't imagine with our own website and that these -- with these -- acquired the customers from our distributors and from other sites. And I can't imagine from our own site, the marketings and other effort we were putting in and it will be a phenomenal growth.

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Joseph Daniel Meares, SunTrust Robinson Humphrey, Inc., Research Division - Associate [16]

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It's really helpful detail. Just as a follow-up, if you could give any update on customer order patterns, are you getting any sense for double ordering given the strength of the revenue growth?

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Bernie Blegen, Monolithic Power Systems, Inc. - VP & CFO [17]

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Yes, it's a concern that we had going into Q4 because we had very high level of backlog compared to what historical norms have been. And going into Q1, that has remained also on the high side. And what we're very conscious of is that we don't want to either participate in double ordering or where we're selling demand or that the inventories is just going to sit in the channel. And as a result, we've been very cautious as far as meeting customer demands that we believe are in excess of what they need to keep their facilities going. So in the end of Q4, I think we did a very good job because we were able to generate the revenue we did and we did not increase the days in the channel.

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Operator [18]

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Our next question comes from Ross Seymore with Deutsche Bank.

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Kanghui Ong, Deutsche Bank AG, Research Division - Research Analyst [19]

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This is Jeriel on behalf of Ross. So I just want to get some clarity on your tax rates. Some peers in the semi industry who reported so far that presently pay higher taxes than you and who reported an increase in their tax -- ongoing tax rate going forward. So with your 7.5% rate, it appears you guys are guiding to a rate that's flat, I assume on an ongoing basis. Could you walk me through how you guys arrived with your tax guidance?

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Michael R. Hsing, Monolithic Power Systems, Inc. - Founder, Chairman, President & CEO [20]

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Well, if you look it -- and thanks for our last year effort, we bought a lot of buildings. These are tax free.

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Bernie Blegen, Monolithic Power Systems, Inc. - VP & CFO [21]

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Let me try and clarify that. So there are 2 components to the tax, you have the transition of the toll tax, which we recorded in Q4. That's what Michael is referring to. Because we've invested in a lot of property, we actually had a lower blended tax rate that we had to pay there. Going forward, as far as how we can guide to the 5% to 10% rate, there is a step-up as far as the GILTI tax, but we have some discrete items that can offset that. And so as a result, for 2018, you won't see a change in our tax rate from what we reported in the current year.

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Kanghui Ong, Deutsche Bank AG, Research Division - Research Analyst [22]

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Got it. That's really helpful. And I think next question I guess, switching over to automotive, it was really strong in 4Q and strong in 2017 in general north of (inaudible) growth rate. What's driving that strength from like maybe its infotainment or lighting, et cetera, perspective, and (inaudible) at this rate in 2018?

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Michael R. Hsing, Monolithic Power Systems, Inc. - Founder, Chairman, President & CEO [23]

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Yes, it is fair that the growth rate it will not change much. Okay, but don't quote me exactly what's the rate. It would be very similar to this year. Which applications or which segments, I think in the next couple of years we're going to expand lot more segments. Now the lighting, infotainments and the safeties, and we will have a lot more safety products come out. And as Bernie said in his script, we have an ADAS and also the battery management as well as the connectivities. And those areas have a very little revenue or some of the items have no revenue, only sampling. And we expect to have a very high percentage growth in -- a very dollar amount growth in 2019, '20 and '21.

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Bernie Blegen, Monolithic Power Systems, Inc. - VP & CFO [24]

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And to add one more point is that, we're getting good penetration in all the major geographies known for automotive.

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Kanghui Ong, Deutsche Bank AG, Research Division - Research Analyst [25]

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All right. And if I could squeeze one last in, just a clarity on the CapEx spend. You mentioned it was office space, so is this -- this is of more capacity to manufacture goods or there's is some office space for workers? I'm trying to...

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Michael R. Hsing, Monolithic Power Systems, Inc. - Founder, Chairman, President & CEO [26]

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Well, I think it's everything. Everything for the factories and for engineering facility, for automotive, quality control systems and everything.

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Bernie Blegen, Monolithic Power Systems, Inc. - VP & CFO [27]

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And down the road software as well. Software design.

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Operator [28]

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(Operator Instructions) Our next question comes from Tore Svanberg with Stifel, Nicolaus.

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Jeremy Lobyen Kwan, Stifel, Nicolaus & Company, Incorporated, Research Division - Associate [29]

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This is actually Jeremy calling in for Tore. Let me add my congratulations again to you, another great quarter. Just I want to follow-up briefly on the automotive segment. You mentioned connectivity. Can you give us a little bit more detail on what this piece is? Is it USB-type stuff? Or is it serialing-type stuff?

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Bernie Blegen, Monolithic Power Systems, Inc. - VP & CFO [30]

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Michael, on the connectivity.

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Michael R. Hsing, Monolithic Power Systems, Inc. - Founder, Chairman, President & CEO [31]

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Which one? The automotive?

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Bernie Blegen, Monolithic Power Systems, Inc. - VP & CFO [32]

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Yes, go ahead.

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Michael R. Hsing, Monolithic Power Systems, Inc. - Founder, Chairman, President & CEO [33]

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Pushing up here. Could you repeat the question, I was looking at a lot of people.

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Jeremy Lobyen Kwan, Stifel, Nicolaus & Company, Incorporated, Research Division - Associate [34]

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Just wanted a little bit more insight into what's the connectivity portion of this business was related to you?

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Michael R. Hsing, Monolithic Power Systems, Inc. - Founder, Chairman, President & CEO [35]

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Yes, sorry, I didn't -- wasn't paying attention. The connectivity for the car and a lot of ADAS and a lot of safety things, okay? And safety cameras such as the cameras (inaudible) and these all will be connected to the cloud. And those are the areas we really focused on it and those are our customers' requirements.

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Jeremy Lobyen Kwan, Stifel, Nicolaus & Company, Incorporated, Research Division - Associate [36]

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So it's more of a car to infrastructure or car to cloud kind of connectivity versus an in-car connectivity system?

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Michael R. Hsing, Monolithic Power Systems, Inc. - Founder, Chairman, President & CEO [37]

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Actually both. In the in-car, the connectivities are between the (inaudible) all these sensors to the control units, and the control units to the cloud. And these are all add up to all this self-learning capability. And that's the area we're really focused on it and that's the way we receive a huge requirements and for joint development with these larger automotive companies.

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Jeremy Lobyen Kwan, Stifel, Nicolaus & Company, Incorporated, Research Division - Associate [38]

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Great. That's very helpful. Second question, in terms of your industrial market, can you give us an update in terms of how e.Motion is doing and how you're penetrating that and also with medical?

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Michael R. Hsing, Monolithic Power Systems, Inc. - Founder, Chairman, President & CEO [39]

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Yes, the emotional -- it's not emotional, e.Motion product lines, in the past and there's other people asking me, okay, the product didn't do well and actually it's doing really well. This year, we will generate somewhere between $8 million to $12 million business. And we develop the new product, the integrated -- fully integrated the modules and we received how many requests, is beyond my belief, actually. And those ones that will do well in the 2018 and '19, particularly.

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Jeremy Lobyen Kwan, Stifel, Nicolaus & Company, Incorporated, Research Division - Associate [40]

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Okay. And just one question, on the longer term on the outlook, you've done obviously very well using your -- leveraging your process expansion both in markets and applications. As we look out 3 to 5-plus years, can you still -- is there something that you can still ride do you intend to invest in maybe adjacent processes or something completely new?

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Michael R. Hsing, Monolithic Power Systems, Inc. - Founder, Chairman, President & CEO [41]

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Well, that's a good question. As we said, in the last conference call, we move -- we started with 2 12-inch wafer fab. So we migrated from a 6-inch, 8-inch, now the 12-inch. And on the each upgrade, we add a lot more new features. And so you can think about it, okay, now we can integrate microcontrollers and is not inconceivable, we even put a Wi-Fi system on it.

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Operator [42]

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We do have a follow-up question from William Stein with SunTrust.

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William Stein, SunTrust Robinson Humphrey, Inc., Research Division - MD [43]

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Just on 2018, given that you're guiding for 25% growth in Q1, and given like the multiple growth drivers you have coming on Purley, gaming, notebooks, is there any reason we shouldn't think that calendar '18 can grow in the low 20% range year-over-year?

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Bernie Blegen, Monolithic Power Systems, Inc. - VP & CFO [44]

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We don't offer specific guidance for -- beyond one quarter. But the way I can respond to it is that we have been promoting our strategic business model now for about last 4 years. And if you look at 2017, we had revenue growth of 20% (inaudible) 21%, which was a little better than our model. We had gross margin that increased at 40 basis points for the full year, which was consistent with our margin -- with our model. And our operating expenses came in between 50% and 60% of what our revenue growth was. And I think what we've done is, we've achieved the model and expect to continue along that line. The one thing that will offer just some concern is that there are risk factors associated with introducing new products to new customers and particularly, in what is becoming a sort of a more clouded longer-term outlook as far as what the economy is going to do. So we tend to believe that we're capable of achieving our model, but I add just cautionary note that there are risk factors and so you might build in a little bit of a cushion when looking at what full year outlook might be.

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Michael R. Hsing, Monolithic Power Systems, Inc. - Founder, Chairman, President & CEO [45]

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Let me comment on your question. In early 2005, 2006, we had a model like a 20% to 30%, and we never achieved that. We achieved close to 18%, 19% in between 15% to 20%. And I was very criticized by the -- some of the shareholders and I spend too much money is not grow enough. Okay, as I can't figure out there's a 20% or not 20%. In 2006 -- 2016 in the first quarter's and I made announcements -- I mean -- or some people asked me are we going to achieve the models. I said that okay, it will be 2017, and we did it, okay. Now since you ask for this year, again, I think I can't predict in a couple of percentage difference. But we will grow double or triple than the industrial growth. If the industrial growth is negative 5%, okay, we'll be 3 times -- we will grow from somewhere 10% to 15% range.

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Bernie Blegen, Monolithic Power Systems, Inc. - VP & CFO [46]

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And that's if the industry grows 5%, that we will grow 10% to 15%.

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William Stein, SunTrust Robinson Humphrey, Inc., Research Division - MD [47]

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Yes, I got it. And just a housekeeping question, are you guys having an analyst day this year?

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Bernie Blegen, Monolithic Power Systems, Inc. - VP & CFO [48]

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We are planning on it, but we haven't announced the date yet.

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Michael R. Hsing, Monolithic Power Systems, Inc. - Founder, Chairman, President & CEO [49]

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Yes, we were planning to and because our website (expletive) up, so we delayed it.

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Operator [50]

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We have another question from John Vinh with KeyBanc Capital.

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John Nguyen Vinh, KeyBanc Capital Markets Inc., Research Division - Senior Research Analyst [51]

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Bernie, last year you came in at the high end of kind of OpEx as a percentage of sales growth, I think at high-end of the 60% range. What's your sense in terms of how we should be thinking about OpEx growth this year as a percentage of sales? You've got a 50% to 60% model. Could we get a little bit more leverage and be at the lower end of the range or how should we be thinking about that?

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Bernie Blegen, Monolithic Power Systems, Inc. - VP & CFO [52]

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When I say the 50% to 60% range, that's really focused on R&D and SG&A, and does not include litigation, which can be a little hard to manage. So for 2017, my calculations show this for the full year being at 58% of our revenue growth rate. When you look ahead here, I think we've got 3 drivers that we're going to invest in. Automotive in particular, we want to continue to fuel that revenue growth through sales and marketing as well as a QA and some -- also some R&D specific to it. On top of that, Michael also mentioned to you, as far as our investment in 12-inch fabs, that's going to be continuing for about 5 to 6 quarters beginning in Q2 -- beginning in earnest in Q2. And then finally, with the launch of the website in the e-commerce platform, we're going to make a big investment in marketing to be able to really launch that successfully and get the word out. So I think that in that instance, and I don't have a firm number yet, but we want to be able to strike and make these investments and that will put us at a minimum with the high-end of that range.

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Michael R. Hsing, Monolithic Power Systems, Inc. - Founder, Chairman, President & CEO [53]

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Yes. But Bernie is talking about a lot of investments. But if you look in our history, we never have a wide spending. And we will -- if we spend, we spend a couple of more percent. That will be it. And we don't have a wide, which has open pocket spending. We never happened in the entire MPS history. So the 50% -- 60% to 61%, 62%, that's probably I don't see we go beyond that.

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John Nguyen Vinh, KeyBanc Capital Markets Inc., Research Division - Senior Research Analyst [54]

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Great. And then my follow-up is just on growth question. I know you guys are trying to avoid guidance specific -- to a specific number for '18 again, but if I think about the computing segment, you've got kind of uplift to higher ASPs in QSMod and then you get the full year's benefit of the Purley ramp. And then on consumer, you've got obviously the full benefit of a full year's worth of a gaming console ramp where you've kind of increased your market share. Is there any reason to think that the growth rates of these 2 segments could be positively bias, slightly higher in 2018 versus '17?

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Bernie Blegen, Monolithic Power Systems, Inc. - VP & CFO [55]

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I think Michael did a good job of responding to that saying that, if you look at the growth profile of '17 and plus or minus a couple of percentage points off of what we enjoyed there, that's pretty much what we're expecting for '18 as well.

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Michael R. Hsing, Monolithic Power Systems, Inc. - Founder, Chairman, President & CEO [56]

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Well, in the gaming, and I can't openly say it. It's not my favorite topics. And it goes up by a quarter a lot, and then the next couple of quarters it comes down. And I want to manage a very, very smooth growth and then comes sustainable growth. And so these things you mentioned about gaming, of course, there is a lot of dollars to be made. And these are very opportunistics, so that's why we said, we have a few percentage variation.

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Bernie Blegen, Monolithic Power Systems, Inc. - VP & CFO [57]

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But on the gaming, I think, it's very important to offer that we're fully committed to the gaming platforms, and -- but there are limited opportunities for growth. And so we have to be able to make sure that the market understands that we're positioned for the long term there, and to be able to enjoy the benefits of future design wins to help accelerate that growth.

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Operator [58]

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Our next question comes from David Wong with Wells Fargo.

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Amit Chandra, Wells Capital Management Incorporated - Member of Global Strategic Products team [59]

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This is a Amit Chandra dialing in for David. Bernie, for the December quarter, could you share with us what percentage of your cash flows are onshore versus offshore? And should we expect the majority of offshore cash to be brought back to the U.S. post tax reform? And what are your priorities for uses of cash in 2018?

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Bernie Blegen, Monolithic Power Systems, Inc. - VP & CFO [60]

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So at the end of the year, we had about 40% of our cash is onshore, 60% was offshore. We are continuing to evaluate what the impact of the new tax reform means for us. We took an initial step by increasing the dividend this quarter, and we're going to use the remainder of this year to consider other opportunities where we can increase shareholder value either through dividends or acquisitions or perhaps even a stock buyback. But right now, we haven't firmed up any specific plans around that.

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Amit Chandra, Wells Capital Management Incorporated - Member of Global Strategic Products team [61]

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Okay, great. And then as a follow-up, in your high-end notebook business, can you maybe talk about the product cycles that you expect that are upcoming in 2018 to drive that business higher?

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Bernie Blegen, Monolithic Power Systems, Inc. - VP & CFO [62]

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Yes, I'd say that the notebook business and a lot of that has to do with customer adoption. And we have a couple of very good prospects that we've been designed in with. And we're looking at various scenarios as far as what the timing and the unit volumes could be. One of the things that you may be aware of is that Canyon Lake was canceled and that the next opportunity for a new design will be, I believe it's called Whiskey Lake, which is supposed to be in mid-2019. So I think we feel very, very well positioned there. We have very good new adoptions that are occurring right now, but that the product cycle from Intel got moved out by a year.

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Michael R. Hsing, Monolithic Power Systems, Inc. - Founder, Chairman, President & CEO [63]

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Well, since you mentioned notebook, notebook is not my favorite either. And these are kind of low-margin but the way Bernie emphasize high value notebooks. And those are generally they sell like a retailing price like a $1,200 or $1,300 above. And some of the models they pay it. And so they appreciate our technology. Those are products that we deliver.

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Bernie Blegen, Monolithic Power Systems, Inc. - VP & CFO [64]

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We want to go after.

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Michael R. Hsing, Monolithic Power Systems, Inc. - Founder, Chairman, President & CEO [65]

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Yes.

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Amit Chandra, Wells Capital Management Incorporated - Member of Global Strategic Products team [66]

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Okay. And then one final one for me, for your E-Fuse opportunities, can you talk about that in 2018?

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Bernie Blegen, Monolithic Power Systems, Inc. - VP & CFO [67]

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Sure. E-Fuse tends to be lower dollar content, but what they've been very helpful for us is being able to open the door for opportunities that we haven't else wise had.

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Michael R. Hsing, Monolithic Power Systems, Inc. - Founder, Chairman, President & CEO [68]

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Are you talking about a server area or talking about all area?

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Bernie Blegen, Monolithic Power Systems, Inc. - VP & CFO [69]

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Broadly.

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Amit Chandra, Wells Capital Management Incorporated - Member of Global Strategic Products team [70]

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Yes, broadly speaking.

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Michael R. Hsing, Monolithic Power Systems, Inc. - Founder, Chairman, President & CEO [71]

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Server area is MPS become a single source and adoption in some very large customers. And our product now is realized, just start to realize by all the large first tier server makers. And those are not small low dollar, very high margins. And what we are more excited about in order. In the -- the train is to replace the blowup fuse and the use of – use an electronic fuse, that's where the MPS opportunity is.

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Bernie Blegen, Monolithic Power Systems, Inc. - VP & CFO [72]

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There is also an opportunity in the communications networking as well and that should start to roll out here at the end of 2018.

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Operator [73]

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I show no further questions. Thank you. So I'd like to turn the conference back over to Mr. Blegen for closing remarks.

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Bernie Blegen, Monolithic Power Systems, Inc. - VP & CFO [74]

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Thank you very much. So thank you for joining us on the conference call. And I look forward to talking to you again during our first quarter conference call, which is likely to be at the end of April. Thank you, and have nice day.

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Operator [75]

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Thank you. Ladies and gentlemen, that does conclude today's conference. Thank you very much for your participation. You may all disconnect. Have a wonderful day.