POWI
#Thanks <UNK>.
Good afternoon.
Fourth quarter revenues were $87.3 million, down 2% from the prior quarter.
That\
Thanks <UNK>.
Good afternoon.
I will briefly cover the Q4 financials, and the Q1 outlook, and then we will take questions.
My remarks will focus mainly on the non-GAAP numbers, which are reconciled to the corresponding GAAP figures in the tables accompanying our press release.
Q4 revenues were $87.3 million, down 2% from the prior quarter, but up 1% year-over-year, driven by growth in the communications end market.
While modest, this return to year-over-year growth does compare favorably to the broader peer group.
Revenue mix for the quarter was 34% consumer, 33% industrial, and 26% communication, and 7% computer.
As <UNK> stated in his remarks, the appliance market was a soft spot in Q4.
As appliances are a relatively high margin end market for us, the end market mix was slightly unfavorable versus our expectations, resulting in a 0.5 point decline in non-GAAP gross margins for the quarter, coming in at 50.5%.
As indicated in the press release we expect gross margin to rebound in the March quarter to about 51%, reflecting a slightly more favorable end market mix.
Fourth quarter operating expenses decreased by $0.5 million compared to the third quarter, coming in well below our projections.
This was largely a function of timing and some expenses that were expected to occur in Q4 were pushed out to Q1.
Notably non-GAAP expenses for the full year were essentially flat, as we made every effort to keep spending aligned with revenue in a challenging demand environment.
Our tax provision for the fourth quarter reflects the full year impact of the Federal R&D credit which was enacted in December.
This resulted in a negative effective tax rate for the quarter adding $0.05 per share to our non-GAAP earnings.
Including the tax benefit, fourth quarter non-GAAP earnings were $0.58 per diluted share.
Diluted share count for the quarter was 29.1 million shares, down slightly from the prior quarter, as the prior quarter's buyback activity was fully reflected in the weighted average calculation.
No shares were repurchased in the fourth quarter as our share price exceeded the maximum purchase price specified in our buyback plan.
However over the course of the year, we repurchased 1.25 million shares for $53.7 million, resulting in a 4% reduction in weighted average share count for the full year.
Cash flow from operations for the year was $92 million, with capital expenditures totaling $22 million.
We returned virtually all of our free cash flow to investors during the year, using a total of $68 million for buyback and dividends.
As a result, our balance of cash and investments were virtually unchanged from the end of the prior year at $174 million.
Inventory on our balance sheet decreased further during the quarter to 107 days on hand, down 6 days from the prior quarter, and remaining well within our targeted range.
Looking ahead to the first quarter, we anticipate a sequential decline in revenues reflecting the effect of the lunar new year holiday, as <UNK> noted.
Specifically we are projecting a revenue range of $84 million plus or minus $3 million.
This would be a 2% increase year-over-year at the midpoint of the range.
While not prepared to give a forecast for the second quarter, we do think an acceleration of our growth rate is likely in Q2 based on the current booking trends, and the expected contributions of new design wins.
As mentioned earlier we expect gross margin to tick higher in the first quarter to approximately 51% on a non-GAAP basis.
We expect non-GAAP gross margin to hover around the same level for the balance of the year, as the cost reductions roughly offset the impact of further growth from InnoSwitch.
Non-GAAP operating expenses will be sequentially higher, reflecting the pushout of expenses from Q4, as well as the seasonal effects of payroll taxes, and the December shutdown.
Specifically we expect non-GAAP expenses for the December quarter to be between $30 million and $31 million.
I expect the non-GAAP tax rate for the first quarter and the year to be in the range of 4% to 5%, reflecting the benefit of the R&D tax credit which was made permanent in the December legislation.
With that, I will turn it back over to <UNK>.
We have a number of design wins that will be ramping in Q2.
Specifically in cell phones for rapid charging, but also in industrial applications, high power and a number of other areas.
And also it is supported by the bookings we have in January, which has been very strong.
Significantly stronger than the January of last year, and our discussions with the distributors indicate that they are building inventory in preparation for Q2.
To the best we can, and assuming the macro remains reasonable, we think Q3 will also be a growth quarter, a strong growth quarter for us.
And Q4 is usually flat, approximately flat to slightly down.
Well, already we are seeing all of the major OEMs, or most of the major OEMs offering rapid charge.
And the power level varies from 10 watts, actually 7.5 watts all of the way up to 20 or 22 watts or so.
And I think for the cell phone, that's probably where it is going to end up, roughly around 20 watts.
There may be some customers that will go to 25 or 30 watts, but if you go to tablets and so on, you will need higher power.
Well, we had significant revenue on InnoSwitch in 2015.
If you remember in 2014, we had about $5 million worth of revenue, and we were expecting it to quadruple, and it actually did quadruple in 2015, and we expect that to continue to grow and add maybe somewhere between $10 million to $15 million additional sales dollars this year.
And 2017 could be even stronger, because we will be introducing our next generation InnoSwitch, which will address higher power levels, and expand the adjustable market significantly.
Oh non handset.
So non handset we have about 30 different applications where there is a significant design activity going on right now, of the ones that are significant that were announced already are in the appliance business.
We have one major design win at a large appliance customer in Europe, that will go into production in the second half.
It has been designed into a platform, but the first design is going to be a washer.
It is not significant in dollar terms, but it is the beginning of the use of InnoSwitch by this customer, and we expect that most of the new products will use InnoSwitch.
There is another appliance customer who is very close to qualifying our product, but beyond that as I said, there are about 30 different applications where people are designing in InnoSwitch as we speak.
Well, it is fundamentally a demand issue which has become an inventory problem last year.
To the extent that we can find out, it is related to the Chinese economy in general, but specifically the housing market in China which is very, very weak.
There was an inventory build up at appliance customers that we think will be pretty much worked out by Q1 or this quarter.
So we expect the appliance market to come back up in the second quarter.
That's a good question.
Let me answer the second question first, the fast charge.
I think we are in a very strong position in fast charge.
There is only one other competitor who is in a similar strong position, and that's primarily because of one specific design win at a large OEM, who uses a unique protocol that we intentionally decided not to support, because it is very customer specific.
We also believe most of the OEMs will move to USB-PD in the long-term.
So in terms of the number of design wins, the breadth of customers, we clearly lead in the rapid charging market.
As far as what percentage of the phones is rapid charging, it is really hard to tell because it is very dynamic.
As we speak people are moving to rapid charging.
It is changing very quickly.
But it is clear that rapid charging is going to be the trend moving forward.
My expectation is over time most of the smartphones will convert to rapid charging.
And to answer the second question, which was your first question I guess, the LED market.
As you know our LED revenue declined last year by double digits.
Primarily because of us deciding to walk away from the low end bulb market, which had become very commoditized, and we didn't want to go after the market and hurt our margins when the market, this low end market doesn't care about any of the values we bring, such as integration efficiency, power factor, and so on and so forth.
So we decided to focus on the higher end bulbs for the western consumption, that is the US and Europe, and also the commercial and industrial lighting.
I think again there we have finally turned the corner on that.
The revenue from LED in Q4 was sequentially slightly higher than in Q3.
And going forward we expect to be able to grow that with the new products we will be introducing.
We just introduced LYTSwitch-5.
We have other products that will be introduced very shortly, which will address the higher end of that market.
In addition to that, what we are finding is the higher end which used to be very crowded, because most of the analog semiconductor companies had decided to get into that market.
Now we are finding that the lot of them are de-emphasizing that market.
I think we talked about this earlier, most of those new companies did not have a lot of experience in the AC/DC power supplies.
As long as the cost of power supply was a small part of the LED market, nobody really cared about the cost of the driver.
But now that the LEDs have become very inexpensive, the driver becomes a significant part of the LED cost, and I think we are in a better position on the higher end of that market now, and so we expect the LED revenue to grow this year.
Excellent question.
Certainly we are not pleased with the 2015 performance, and the main reason we could not outgrow the market is to do with the PC market, where our revenue went down by 30%.
Even though our other markets, especially the communications markets grew dramatically.
It barely compensated for the decline in the PC market.
If you look at 2014, we were specifically hurt by two largest customers in the communications market, which caused us the decline in driven units in the communications market in 2014.
The good news is we have gone past that.
First of all we grew very nicely in communications market in 2015.
We expect that to continue to grow not only in 2016, and for several years to come.
Also the other thing that hurt us in 2015, was the high-power market which was down because of China, because of the exchange rate, because of the oil prices being low.
Again we have reached a steady state there, and we expect the high power to also come back from Q2 onwards.
Our plan is to get back to the outperformance we have been delivering in the past.
And we expect to do that starting this year, and even more next year with the new products we will be introducing.
We have a broad range of products that will dramatically expand our SAM, from where we are now, 2.5 billion to 3 billion, actually 2.5 billion going to 3 billion this year, and going to as much as 3.5 billion to 4 billion next year.
So our goal is to get back to the kind of outperformance as we have delivered in the past.
That's a good question.
We have talked about it ourselves about it, but the only explanation that we have from our customers is that they had a much larger inventory of the power supplies.
If you look at the way the computer companies work, they have power supplies already stocked at their manufacturing sites, which are replenished on a continuous basis.
So when the market goes down you have a much bigger inventory problem on power supplies, than you have on the motherboards and the microprocessors, which are much more expensive components, as you can imagine.
I think that is the fundamental problem is that we had a much bigger inventory correction than other PC semiconductor manufacturers have had.
And the other thing that also hurt us, is that once the PC market started going down so dramatically, most of our customers stopped designing new power supplies, which would have helped us because of our Hiper products.
We were making good inroads into the main power supply, but what we found out is that nobody wants to design a new power supply when the market is tanking.
So that also is kind of an unfortunate situation.
So that's the reason we kind of guided that we are going to grow the OpEx to mid-single digits this year because of the challenging demand environment we kind of tightened our belt.
Because you have had a lot of, as <UNK> indicated, a lot of technological breakthroughs, we are going to make significant investments in R&D, that is why our OpEx will be mid-single digits, but I think this spend in R&D will not only help us with new products coming out this year, but set the stage very well for 2017.
And that's why as we indicated in total that we have an unusually large number of products that are coming out in 2016 and 2017.
Percent.
As we indicated in the December quarter what happens is not only do we have the shutdown, but as we have tightened our belt a little bit, certain expenses whether it was for what we talked about the R&D materials, but also some head count got pushed out.
What happens in Q1 is the FICA kicks in.
In Q1 you have roughly about a $1 million impact, just between the shutdown and the FICA kicking in.
Again the other expenses that got shifted out, that's why we are giving guidance of $30 million to $31 million.
It will taper up a little bit in Q2 from there, and then come down in Q3 and Q4 as FICA tapers off.
And then basically for the year we will have a mid single digit percentage increase from the totals we were at the end of FY15.
Our non-GAAP FY15 numbers are roughly around $117 million non-GAAP.
So we will go up mid single digit percentages from there.
Absolutely.
I can just run through them if you like.
The important thing is the contribution from those markets will be gradual, meaning we will have some contributions this year, but it won't be very significant.
It will be really consistent over the next two or three years.
It will ramp up very nicely.
Other than cell phone chargers, which is a big one, the second biggest one is major appliances, and then residential networking, set top boxes, metering, merchant adapters, consumer, other consumer products, computers, server standby, comfort appliances, the air conditioning units, power tools, industrial battery chargers, monitors, industrial control.
I can go on and on and on.
The important thing is, it covers all of the four major markets.
The best we can tell you is the InnoSwitch revenue in 2016, we expect to be $10 million to $15 million higher than last year.
A lot of that is from cell phones, but there is a portion of that from a non cell phone applications.
Next year 2017 we think the dollar increase could be even higher, because of these other applications coming into the revenue picture.
You're welcome.
<UNK>, typically the guide is within plus or minus $3 million, so this is pretty typical what we do.
The range that you always get, this is the lunar new year as you look traditionally in the last three years, has caused us some difficulty and to be much more precise.
If you look at the last couple of years, our shipments as we indicated have been higher than the revenue sold through.
We are on sell through accounting.
And it is because of the holidays, and typically while we are seeing such large bookings, is because people are prepping for a nice ramp up in Q2.
We are at about 6.5 weeks in Q4 which is kind of similar to what we had in Q3.
Based on the bookings and expecting that the shipments will be much higher than revenues so we expect the channel inventory to grow in the first quarter.
I think we have kind of, if you are looking at it, I think it is kind of normalized, but as we are looking ahead in our models, we are not looking for a huge growth in the computer segment.
We are expecting it to be kind of flattish.
But we are expecting all of our other three end markets to grow very nicely this year.
That is the reason we have given the 51 plus or minus guidance.
We were thinking that we would also have a little more benefit from yen.
With the yen changing we are not going to get all of that benefit this year that we were originally talking about.
That has impacted it a little bit.
It is a mix, so it is a combination of all of this, but we feel that we will be in this range of 51 plus or minus.
It could be a little up.
It could be a little off plus or minus, very close to that throughout the year.
Basically it is we have a lot of cost reductions coming in, which will offset the impact of the growth in InnoSwitch, which is a headwind a little bit, in terms of margin.
