Release Date: August 06, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Q2 revenues increased by 16% sequentially, indicating the beginning of a recovery.
- Inventory levels have significantly improved, with channel inventory down to 7.8 weeks from a peak of 13.6 weeks in Q3 2022.
- Consumer category revenues surged by 70% over the past two quarters, showing strong recovery in this segment.
- Introduction of new products like BridgeSwitch-2 and InnoMux-2, which have received positive market reception and initial purchase orders.
- Strong design wins and market share gains in various segments, including appliances, industrial applications, and automotive.
Negative Points
- Near-term outlook remains uncertain due to limited visibility and challenging macroeconomic conditions.
- Appliance demand remains soft, with seasonally lower air conditioning sales expected in the September quarter.
- Cell phone market revenues have declined by more than 50% this year, particularly in China.
- High inventory levels are still a concern, with inventory days at 312, although down from the prior quarter.
- Input costs are expected to remain a challenge, potentially impacting margins despite favorable yen exchange rates.
Q & A Highlights
Q: How are you seeing things geographically, particularly in China?
A: (Balu Balakrishnan, CEO) In China, our biggest exposure is appliances, and we are not seeing a pickup in demand. The inventory situation has cleared out, but current demand is lower than expected. However, thanks to design wins and increased ASP due to higher power levels, we are seeing growth above demand. The cell phone market in China has shifted to low-end phones, and Huawei is doing better on the high end, which we cannot supply to. Overall, our cell phone market has been down more than 50% this year, but other markets are up more than 15%.
Q: What is different today than 90 days ago regarding the second half outlook?
A: (Balu Balakrishnan, CEO) The inventory situation has normalized as expected, but the growth in the second half is less than anticipated due to poor visibility in demand. Customers are ordering at the last minute, making it difficult to predict Q4. The growth is less than we would have anticipated, but this was not visible last quarter.
Q: Can you unpack the potential inflection for GaN in 2025 and beyond?
A: (Balu Balakrishnan, CEO) Most of our new products use GaN, and we are seeing its proliferation into all markets. We expect GaN revenue to grow by 50% next year, with an inflection point starting in 2025. By 2028, GaN revenue could be around $100 million.
Q: How does the recent yen fluctuation affect the model, and when will it show up in the P&L?
A: (Sandeep Nayyar, CFO) A 10% change in yen typically affects us by about 120 basis points, but with our current inventory levels, it takes about three to four quarters to flow into the P&L. If the recent yen change holds, it will impact us slightly in Q4 or Q1 of '26. We still see some benefit from the yen next year, but input costs will be a headwind.
Q: What are the key drivers for the growth in the consumer category?
A: (Sandeep Nayyar, CFO) The consumer category was up high-teens sequentially, driven by strength in major and small appliances and air conditioning, which typically peaks in the June quarter. Design wins and improved inventories also contributed to the growth.
Q: How is the industrial category performing?
A: (Sandeep Nayyar, CFO) The industrial category saw mid-single-digit sequential growth, driven by improved inventories and design wins in applications like metering, particularly in India. Channel inventory remains slightly elevated but is gradually improving.
Q: What is the outlook for the computer category?
A: (Sandeep Nayyar, CFO) The computer category was up more than 40% sequentially, driven by tablets as a key customer worked through excess inventory. We also saw strength in aftermarket notebook chargers and monitors.
Q: How is the communication category performing?
A: (Sandeep Nayyar, CFO) The communication category was up 10% sequentially, driven by the clearance of inventory at a key handset customer. The overall performance in this category is stabilizing.
Q: What are the expectations for Q3 revenues and gross margin?
A: (Sandeep Nayyar, CFO) We expect Q3 revenues to be $115 million, plus or minus $5 million, with a sequential increase of 8% at the midpoint. Non-GAAP gross margin should be between 54.5% and 55%, driven by higher manufacturing utilization and favorable yen exchange rates.
Q: What is the impact of the Odyssey Semiconductor acquisition?
A: (Balu Balakrishnan, CEO) The acquisition adds expertise in vertical GaN technology, supporting higher current than today's lateral devices. It includes a clean room for quick wafer turnaround, shortening development time. We aim to make high-power GaN a reality in the next three to five years, potentially competing with silicon carbide in high-power applications like EV drivetrain inverters.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
