Monolithic Power Systems, a new force in power management expertise

Monolithic

Company Profile

Founded

Founded in 1997, Monolithic Power Systems (ticker: MPWR) is an analog and mixed-signal chip manufacturer focusing on power management solutions.

Main business

The company specializes in small form factor, energy efficient and easy-to-use power solutions for systems in high-performance industrial applications, telecom infrastructure, cloud computing, automotive and consumer applications. is a company specializing in the production of integrated circuits for controlling power systems.

IPO

Monolithic Power Systems was listed on the Nasdaq stock market in the United States in 2004.

Products and solutions

Monolithic Power Systems’s MPM3695-100 – Power module with PMBus interface Monolithic Power Systems provides digital, analog and mixed-signal integrated circuits. It provides energy-efficient DC-to-DC converter ICs for converting and controlling voltage in a variety of electronic systems such as portable electronic devices, wireless LAN access points, computers, set-top boxes, monitors, automotive and medical equipment.

The company also provides backlighting control ICs for systems that provide light sources for LCD panels in notebook computers, LCD monitors, car navigation systems and LCD televisions.

In addition, Monolithic Power Systems also supports transportation electrification and manufactures Class D audio amplifier products.

Main competitors

Monolithic Power Systems’s main competitors are much larger semiconductor and industrial leaders, including Texas Instruments (ticker: TXN), Infineon Technologies (ticker: IFNNY), ​​NXP Semiconductors (ticker: NXPI), Analog Devices (ticker: ADI), etc.

Operating performance

Operational tailwinds

Monolithic Power Systems has performed amazingly in the past few years, mainly due to the booming demand for data centers, cloud computing, and artificial intelligence technology trends for servers farm and infrastructure.

Q4, 2023

The highlights of the fourth quarter 2023 financial report announced on February 8, 2024 are as follows:

  • Monolithic Power Systems has achieved breakthroughs in both revenue and profit.
  • Margins are still shrinking, as are sales.
  • The good news is that Monolithic Power Systems expects next quarter’s sales to be better than expected.

Earnings per share in the fourth quarter of 2023 was $2.88, a year-over-year decrease of 19%. Revenue was $454 million, down 4.4% annually. Both beat expectations slightly. But earnings per share based on generally accepted accounting principles (GAAP) were just $1.98 per share.

Operating costs rose almost twice as fast as revenue fell, growing 8.2%, resulting in a 20% annual decrease in operating profit and a 19% decrease in net profit.

Also because the quarterly profit exceeded expectations, the stock price soared 17.2% as soon as the market opened the next day.

Outlook

Full-year results for fiscal 2023 were only slightly better. Gross margins are still down, operating costs are still up, and earnings per share are just $8.76. But that’s down just 3% from 2022, in part because 2023 revenue grew 1.5% from 2022.

The CEO said he was “cautious about near-term business conditions.” Still, he forecast first-quarter 2024 revenue in the range of $437 million to $457 million, a range that exceeded Wall Street forecasts of $431 million. There may be some improvement in terms of gross margin, which will be between 55.1% and 55.7% in the first quarter of 2024.

Taking all factors into account, revenue in the first quarter of 2024 may still be inferior to revenue in the first quarter of 2023. However, if top-line results come in better than expected and gross margins stop shrinking, the company’s earnings could beat estimates again in the first quarter of 2024.

Capital market performance

Stock performance

As of May 16, 2024, the stock price has increased by 483.73% in the past five years. The stock price has risen 75.1% in the past year, which can be said to be an unusually strong performance.

Market valuation

As of May 16, 2024, its important valuation indicators are:

  • Price to earnings ratio 86.68
  • US$35.43 billion
  • Yield 0.69%

Risks

With Monolithic Power stock selling for a whopping 86 times earnings and earnings still shrinking (by any amount), the stock is simply too expensive. Although the company’s stock price has performed very well in the past few years, I do not intend to pour cold water on investors. This semiconductor stock, based on the performance of Monolithic Power Systems, is really not worth the current valuation level.

Monolithic
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