Monolithic Power (MPWR) Q2 Earnings Meet Estimates, Up Y/Y

Monolithic Power Systems, Inc. MPWR reported second-quarter 2019 non-GAAP earnings of 92 cents per share which came in line with the Zacks Consensus Estimate. Notably, the figure advanced 2.2% on a year-over-year basis.

Revenues of $151.01 million improved 8.1% from the year-ago quarter, coming within management’s guidance of $147.5 million to $153.5 million. The reported figure came almost in line with the Zacks Consensus Estimate of $151 million.

Sturdy demand of industrial security applications, 5G based networking products, and smart lighting aided year-over-year growth.

DC to DC segment (92.5% of total revenues) revenues improved 9.6% year over year to $139.7 million. However, Lighting Control (6.1% of total revenues) declined 7.7% to $11.3 million.

End-Market Performance

Computing & Storage (27.5% of total revenues) revenues rose 12.5% year over year to $41.6 million. Design wins in AI applications and high-end servers drove performance.

Industrial (14.9%) revenues advanced 17.3% to $22.4 million, primarily on the back of increased adoption of point of sales systems, security applications and smart meters.

Automotive (14.1%) revenues were $21.2 million, up 4.4%. Higher product sales for applications in smart lighting, infotainment and autonomous driving application products aided growth.

Communications (14.5%) revenues surged 41.4% to almost $22 million. Robust adoption of 5G related infrastructure networking devices drove year-over-year growth.

However, Consumer (29%) revenues fell 8.4% from the year-ago quarter to $43.8 million.

Margins in Detail

Non-GAAP gross margin contracted 40 bps from the year-ago quarter to 55.6%. Management had predicted the figure in the range of 55.3-55.9%.

Non-GAAP operating expenses were $40.3 million during the reported quarter, up 9.3% year over year. As a percentage of revenues, the figure expanded 30 bps on a year-over-year basis.

Non-GAAP operating income grew 5.5% year over year to $43.7 million. Non-GAAP operating margin (as a percentage of revenues) contracted 70 bps from the year-ago quarter to 28.9%.

Balance Sheet & Cash Flow

Cash, cash equivalents and short-term investments were $366.5 million at the end of the second quarter, up from $359 million reported at the end of the previous quarter.

Monolithic Power generated operating cash flow of approximately $44.1 million compared with $38.8 million reported in the previous quarter.

Guidance

For the third quarter of 2019, Monolithic Power forecasts revenues in the range of $162 million to $168 million, whose mid-point of $165 million is marginally higher than the current Zacks Consensus Estimate of $164.3 million.

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

Conclusion

We believe Monolithic Power has substantial 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. Accelerated deployment of 5G is expected to favor growth in Communications end-market.

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

Zacks Rank & Stocks to Consider

Currently, Monolithic Power carries a Zacks Rank #4 (Sell).

Some better-ranked stocks in the broader technology sector worth considering are Alteryx AYX, Rosetta Stone RST and Anixter International AXE. All the three stocks flaunt 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 Alteryx, Rosetta Stone and Anixter is currently pegged at 13.7%, 12.5% and 8%, respectively.

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