Monolithic Power Systems (MPWR) – Ramping to the Upside
Back on July 16th, a Home Page article was published outlining a number of opportunities for this company (See HERE), including WiFi 6 adoption and next gen consoles. Shares have been on a decent run since and now additional commentary has surfaced following a meeting between Needham analyst N. Quinn Bolton and Monolithic’s CEO Michael Hsing and CFO Bernie Blegen. Some of the topics discussed were:
Segment Growth –
Automotive – Last quarter, the company reported that auto revenue was $28.5M, an increase of 60.4% Q/Q. It experienced a recovery in model year 2020 auto production as the industry recovered from the COVID-19 manufacturing trough in 1H20. In Q4 and Q1, MPWR has several design wins in model year 2021 cars that are ramping to production. These design wins expand the company’s content into the lighting and ADAS segments from its historical position in the infotainment segment. “We note some of the company’s new ADAS designs have up to $50 of content per vehicle.”
Storage & Computing – In Q3, this segment increased 17.5% Q/Q and in the recent meetings, said it expects to gain share in the data center server market with the transition to Intel’s Whitley server platform in 2021. It expects to grow its share of the server CPU Vcore power management market from 4%-5% this year to 15%-20% over the next two years. Further, MPWR expects strong demand in data center SSDs and HDDs in 2021.
Consumer – Game console demand has proven to be stronger than expected and the company’s key gaming customer expects units to be flat in 2021 compared to 2020. Management noted that this is an improvement compared to the launch of the previous generation gaming console platform where units declined 50% in 2018 after launching in 2017.
Needham notes that with Huawei removed from their and the Street’s estimates, MPWR’s license to resume shipments to Huawei presents an opportunity for upside. However, at the time of the meetings, the company had yet to receive a new revenue forecast from Huawei. “We believe MPS was granted this license because it supplies Huawei with power components that effectively serve as building blocks for all sorts of applications, including networking, 4G and 5G infrastructure equipment, fiber optic communications equipment and consumer/wearable devices. While Huawei still faces other supply sourcing challenges that may weigh on its overall demand, we note that any resumption in MPS’ shipments to Huawei represents upside to our and the Street’s current estimates.”
Fab-ulous Ramp –
Monolithic Power had originally planned to ramp a second 12-inch fab in 2021, but accelerated this plan upon entering 2020 as the company believed it would be constrained to meet its customers’ demand. Through its accelerated investment, this 12-inch fab is now on-line and has commenced manufacturing of products in Q4. Further, the company plans to ramp a new 8-inch fab with a fifth foundry partner in 2021. “With these capacity expansion initiatives, MPS expects its order delinquencies will return to normalized levels by mid-2021 and its inventory levels to reach its targeted range of 180-200 days in 2H21. We note as the new 12-inch and 8-inch fabs come on-line, MPS’ production capacity should reach a level of ~$2bn by late 2021 or early 2022.”