Monolithic Power (MPWR) Q1 Earnings In Line With Estimates

Monolithic Power Systems, Inc. (NASDAQ:MPWR) reported first-quarter 2019 non-GAAP earnings of 84 cents per share which came in line with the Zacks Consensus Estimate. Notably, the figure improved 6.3% on a year-over-year basis.

Revenues of $141.36 million improved 9.5% from the year-ago quarter, coming within management’s guidance of $138-$144 million. The reported figure came marginally ahead of the Zacks Consensus Estimate of $141.16 million.

Sturdy demand in high-end consumer markets, including the likes of 5G based networking products, lighting and home appliances, aided year-over-year growth.

DC to DC segment (93.9% of total revenues) revenues increased 11.3% year over year to $132.7 million. However, Lighting Control (6.1% of total revenues) declined 12.4% to $8.7 million.

End-Market Highlights

Computing & Storage (27.7% of total revenues) revenues rose 26.5% to $39.2 million. Sales gain in GPU and data center servers, and high end notebooks aided performance.

Industrial (15.1%) revenues advanced 21.6% to $21.3 million, primarily on the back of increased adoption of industrial power supplies and security applications.

Automotive (14.5%) revenues were $20.5 million, up 15.7%. The upside can be attributed to higher product sales for applications in safety, infotainment and connectivity application products.

Communications (15.7%) revenues surged 40.8% to $22.2 million. Sturdy adoption of wireless gateway and 5G networking devices, and home router products drove year-over-year growth.

However, Consumer (27%) revenues declined 19.1% from the year-ago quarter to $38.1 million. The decline can be attributed to sluggishness in broad-based end-market.

Operating Details

Non-GAAP gross margin contracted 30 bps from the year-ago quarter to 55.6%, primarily owing to unfavorable business mix. Management had predicted the figure in the range of 55.3-55.9%.

Non-GAAP operating expenses were $39 million during the reported quarter, up 11.5% on a year-over-year basis.

Non-GAAP operating income grew 6.4% year over year to $39.6 million. Non-GAAP operating margin (as a percentage of revenues) contracted 80 bps from the year-ago quarter to 30.4%.

Balance Sheet & Cash Flow

Cash, cash equivalents and short-term investments were $359 million at the end of the first quarter, up from $377.3 million reported at the end of the previous quarter.

Monolithic Power generated operating cash flow of approximately $38.8 million compared with $47.6 million reported in the previous quarter.

Guidance

For the second quarter of 2019, Monolithic Power forecasts revenues in the range of $147.5 million to $153.5 million.

The Zacks Consensus Estimate for revenues is pegged at $149.67 million.

Management anticipates non-GAAP gross margin between 55.3% and 55.9%.

Conclusion

We believe Monolithic Power has strong growth potential on account of robust product portfolio that targets In-Car connectivity and infotainment, advanced driver assistance system (ADAS), and rapid adoption of LED lightings in cars and vehicles.

The company is expected to benefit from diversified end-markets. Reducing dependence on consumer end-market, which has been on the decline lately, holds promise.

However, the company faces significant competition in the highly fragmented analog market. Moreover, sluggishness in China and uncertain macroeconomic environment remains a concern.

Zacks Rank & Stocks to Consider

Currently, Monolithic Power carries a Zacks Rank #3 (Hold).

A few better-ranked stocks in the broader technology sector are Cadence Design Systems, Inc. (NASDAQ:CDNS) , Avid Technology, Inc. (NASDAQ:AVID) and Synopsys, Inc. (NASDAQ:SNPS) , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for Cadence Design, Avid Technology and Synopsys is pegged at 12%, 10% and 10%, respectively.

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