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Monolithic Power (MPWR) Q3 Earnings & Revenues Top Estimates

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Monolithic Power Systems, Inc. (MPWR - Free Report) reported third-quarter 2020 non-GAAP earnings of $1.69 per share, which beat the Zacks Consensus Estimate by 0.6%. Notably, the bottom line surged 56.5% on a year-over-year basis.

Revenues of $259.4 million climbed 53.7% from the year-ago quarter’s figure and surpassed the Zacks Consensus Estimate by 0.5%. On a sequential basis, the top line improved 39.3%. The reported figure was also above the higher end of management’s revised guidance of $257-$259 million.

Monolithic Power had raised third-quarter outlook for revenues. Per management, business significantly improved in the third quarter as it was able to quickly fulfil customers’ orders that were previously marred by capacity constraints stemming from the coronavirus crisis.

Moreover, on account of recent trade policy amendment, many China-based clients pulled the shipment dates in to the third quarter, thereby driving the top line.

Strong demand across each of the end-markets, and a diversified multi-market strategy drove year-over-year growth.

Quarter in Details

Revenues by Product Family

Revenues in the DC to DC segment (95.4% of total revenues) soared 55% year over year to $247.6 million. Moreover, Lighting Control (4.6% of total revenues) revenues improved 30.5% to $11.9 million.

Revenues by End Market

Computing & Storage (29% of total revenues) revenues rallied 17.5% sequentially to $75.3 million. The market’s solid performance was driven by broad-based sales strength, solid uptick in cloud servers and storage, and high-end notebooks.

Consumer (27.1%) revenues improved 47.4% from the prior quarter to $70.2 million, reflecting gains from seasonality and solid uptake of wearables, gaming consoles, and IOT applications.

Industrial (11.8%) revenues increased 15.3% sequentially to $30.7 million owing to strong performance of power devices, and uptick in industrial meters.

Automotive (11%) revenues were $28.5 million, up 60.7% from the prior quarter. Normalizing order levels following easing of coronavirus crisis-induced shutdowns of major automotive OEMs led to improvement in business. The company has won design deals in infotainment, smart lighting, ADAS, which is expected to boost performance in the quarters ahead.

Communications (21.1%) revenues increased 81.8% sequentially to $54.7 million. The end-market benefited as China-based clients pulled the shipment dates in to the third quarter.

Margins in Detail

Non-GAAP gross margin contracted 10 basis points (bps) from the year-ago quarter’s level to 55.5%. Management had predicted the figure between 55.4% and 55.6% per the revised guidance.

Non-GAAP operating expenses amounted to $59.1 million during the reported quarter, up 39.1% year over year. As a percentage of revenues, the figure contracted 240 bps on a year-over-year basis to 22.8%.

Non-GAAP operating income improved 65.3% year over year to $84.9 million. Non-GAAP operating margin (as a percentage of revenues) expanded 230 bps from the year-ago quarter’s level to 32.7%.

Balance Sheet & Cash Flow

As of Sep 30, 2020, cash, cash equivalents and short-term investments were $551.5 million, up from $512.3 million reported as of Jun 30, 2020.

Monolithic Power generated operating cash flow of $77.4 million compared with $59.3 million in the prior quarter.

Encouraging Q4 Guidance

For fourth-quarter 2020, the company projects revenues between $218 million and $230 million. The Zacks Consensus Estimate for revenues is currently pegged at $197.3 million, which indicates growth of 18.3% from the year-ago reported figure.

Management anticipates non-GAAP gross margin between 55.4% and 56%.

Conclusion

We believe that Monolithic Power has significant prospects on account of increased demand for storage and computing, and data centers and cloud due to COVID-19-induced work-from-home trend.

Also, demand recovery across automotive end market is a tailwind.

Zacks Rank & Other Stocks to Consider

Currently, Monolithic Power carries a Zacks Rank #2 (Buy).

Some better-ranked stocks in the broader technology sector are CDW Corporation (CDW - Free Report) , Qorvo (QRVO - Free Report) and Skyworks Solutions (SWKS - Free Report) . Qorvo sports a Zacks Rank #1 (Strong Buy), while CDW and Skyworks both carry a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Both CDW and Skyworks are scheduled to report their quarterly earnings on Nov 2, while Qorvo is set to report on Nov 4.

Long-term earnings growth rate for CDW, Skyworks and Qorvo is currently pegged at 13.1%, 12.66% and 12.35%, respectively.

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