01—Abstract
Summary
Summary of the 10-K filed March 4, 2011. Cited figures are marked; the original filing is the authoritative source.
Monolithic Power Systems (MPWR) reported strong full-year 2010 results, with revenue up 32.6% to $218.8 milliona from $165.0 million in 2009.
Net income rose 50% to $29.6 million, and diluted EPS increased to $0.78b from $0.54. Growth was driven mainly by DC-to-DC converters, which grew 48.1% to $183.1 million and now make up 83.7% of revenue. Audio amplifiers fell 46.8%, and lighting control rose only 2.6%.
Growth was uneven through the year. Q3 2010 was the strongest quarter at $65.8 million, but Q4 fell to $47.1 millionc after Korean customers shifted to alternative suppliers following early-2010 capacity shortages and distributors worked down inventory. Margins weakened even as sales grew.
Gross margin fell to 55.5% from 59.2%, reflecting product mix, higher wafer and gold costs, underutilized capacity late in the year, and higher inventory reserves. Operating expenses rose 16.4% to $91.0 million, though litigation expense dropped to $5.4 milliond from $9.5 million after the O2Micro dispute settled. The company ended the year with $196.9 million in cash and investments, including $19.2 million of auction-rate securities whose $20.2 million face value has been illiquid since 2008.
Operating cash flow was $48.5 million, and the company repurchased $31.5 million of stock. In February 2011, the board raised the buyback authorization to $70.0 million.
Key risks for investors are high customer and geographic concentration, with 87% of revenue from Asia and the largest distributor at about 14% of revenue; dependence on two foundries for wafer supply; capacity constraints; continued patent litigation; and a pending IRS examination of 2006 and 2007 returns, including a February 2011 Notice of Proposed Adjustments to research and development credits. The company is fabless, reports one segment, and had 889 employees at year-end 2010.
02—Key points
Key Highlights
- Revenue grew 32.6% to $218.8 million in 2010, led by DC-to-DC converters, which rose 48.1% to $183.1 million (83.7% of revenue).
- Net income increased 50.2% to $29.6 million, and diluted EPS rose to $0.78 from $0.54, with operating income up 56% to $30.5 million.
- Gross margin declined to 55.5% from 59.2% due to product mix, higher wafer and gold costs, underutilized capacity, and higher inventory reserves.
- Q4 2010 revenue fell to $47.1 million from $65.8 million in Q3, as Korean customers moved to alternative suppliers and distributors reduced inventory.
- Liquidity remains strong: $196.9 million in cash and investments, $195.4 million working capital, and $48.5 million operating cash flow. The company repurchased $31.5 million of stock in 2010 and raised its buyback authorization to $70.0 million in February 2011.
- Concentration risk is high: about 87% of 2010 revenue came from Asia, the largest distributor accounted for about 14% of revenue, and the company relies on two third-party wafer suppliers.
- Legal and tax exposures persist: $20.2 million face value of auction-rate securities remains illiquid, the O2Micro case produced a $339,315 cost award, and the IRS issued a February 2011 Notice of Proposed Adjustments to R&D credits for 2000-2007.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2010, Monolithic Power Systems kept $0.14.
- Revenue$218.8M100.0%
- Cost of revenue−$97.4M44.5%
- Gross profit$121.5M55.5%
- Operating costs−$91.0M41.6%
- Operating income$30.5M13.9%
- Interest, other & tax−$935,0000.4%
- Net income$29.6M13.5%
Where FY2010 revenue went
$218.8M- Cost of revenue: $97.4M, 44% of revenue
- R&D: $44.4M, 20% of revenue
- SG&A: $41.2M, 19% of revenue
- Net income: $29.6M, 14% of revenue
- Other operating costs: $5.4M, 2.5% of revenue
Kept 14% as net incomeNet income $29.6M · 14%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2010filed March 4, 2011Financial Statements
FY2010 against FY2009
| Line item | FY2010FY2009 | Change |
|---|---|---|
| Revenue | $218.84M$165.01M | +32.6% |
| Cost of Revenue | $97.38M$67.33M | +44.6% |
| Gross Profit | $121.46M$97.68M | +24.3% |
| R&D Expenses | $44.37M$38.30M | +15.9% |
| SG&A Expenses | $41.17M$36.75M | +12.0% |
| Operating Expenses | $90.96M$78.15M | +16.4% |
| Operating Income | $30.50M$19.53M | +56.2% |
| Net Income | $29.56M$19.67M | +50.3% |
| EPS (Basic) | $0.83$0.57 | +45.6% |
| EPS (Diluted) | $0.78$0.54 | +44.4% |
| Shares Outstanding (Basic) | 36K34.31M | −99.9% |
| Shares Outstanding (Diluted) | 38K36.63M | −99.9% |
05—Questions
Frequently Asked Questions
What drove the revenue increase in 2010?
Revenue rose 32.6% to $218.8 million. DC-to-DC converter sales grew 48.1% to $183.1 million, driven by higher demand in consumer and communications markets. Lighting control sales rose 2.6% to $28.6 million, supported by WLED demand but partly offset by lower CCFL sales. Audio amplifier sales fell 46.8% to $7.2 million on lower volume and lower average selling prices.
Why did gross margin decline, and is it likely to recover?
Gross margin fell to 55.5% from 59.2% because of an unfavorable product mix, higher wafer and gold costs, underutilized capacity late in 2010, and higher inventory reserves. The 10-K does not give a margin outlook. Investors should watch whether the company can keep introducing differentiated products with above-industry margins, as the risk factors emphasize.
How strong is the balance sheet, and what is the auction-rate securities exposure?
At year-end 2010, the company held $48.0 million in cash, $129.7 million in short-term investments, and $19.2 million in long-term investments, with no debt. Working capital was $195.4 million. The long-term investments are student-loan auction-rate securities with a $20.2 million face value and a carrying value of $19.2 million after $1.0 million of impairment. They have failed to reset since 2008, and management expects it could take about two years to recover value. A further decline could affect cash and earnings.
What are the biggest operating and legal risks for investors?
The main operating risks are heavy reliance on Asian customers (about 87% of revenue), dependence on two foundries with capacity constraints, and fixed-cost exposure in a cyclical industry. Legal risks include ongoing patent disputes, the company's obligation to post bonds in some countries, and difficulty forecasting legal expenses. The company also faces an IRS audit of its 2006 and 2007 returns and a February 2011 Notice of Proposed Adjustments reducing R&D credits.
What capital return and expansion activities did the company undertake?
The company repurchased 1,899,789 shares for $31.5 million in 2010, and in February 2011 the board raised the buyback authorization from $50.0 million to $70.0 million. It has never paid cash dividends and expects to retain earnings. Capital spending rose to $22.8 million, mainly for the Chengdu facility, where a 150,000 square foot R&D building entered service in October 2010. The company also has an option to purchase its Chengdu manufacturing facility, which becomes exercisable in March 2011.
06—Continue