10-QPeriod: Q3 FY2008

MONOLITHIC POWER SYSTEMS INC Quarterly Report for Q3 Ended Sep 30, 2008

Filed October 23, 2008For Securities:MPWR

Summary

Monolithic Power Systems, Inc. (MPWR) reported strong revenue growth for the nine months ended September 30, 2008, with a 31.7% increase to $125.8 million, primarily driven by its DC to DC converters. This growth outpaced the previous year's performance and was further bolstered by increased sales in consumer end-market devices. The company's gross margin remained robust, hovering around 63%, indicating consistent profitability on its core products despite slight decreases in average selling prices for some mature DC to DC converters. Financially, MPWR demonstrated healthy operating cash flow generation, totaling $18.9 million for the nine-month period. However, the company's investing activities showed a net outflow of $21.1 million, largely due to the purchase of investments affected by illiquid auction-rate securities, which also resulted in a $2.0 million temporary impairment charge. The company also repurchased $20.0 million of its common stock as part of an authorized $25.0 million repurchase program. Despite these investments and buybacks, MPWR projects that cash generated from operations and existing liquid assets will be sufficient to meet its liquidity needs for the next 12 months.

Key Highlights

  • 1Revenue increased by 31.7% to $125.8 million for the nine months ended September 30, 2008, compared to the same period in 2007, driven by strong DC to DC converter sales.
  • 2Gross margin remained stable at approximately 63% for both the three and nine-month periods, indicating consistent profitability.
  • 3Operating cash flow for the nine months ended September 30, 2008, was $18.9 million, demonstrating healthy cash generation from core operations.
  • 4The company repurchased $20.0 million of its common stock during the nine-month period, as part of its approved stock repurchase program.
  • 5MPWR holds $36.8 million in auction-rate securities, which experienced a temporary impairment of $2.0 million due to illiquidity in the market.
  • 6The company is involved in ongoing patent litigation with O2 Micro, Inc. and other parties, which carries potential financial and operational risks.
  • 7SG&A expenses as a percentage of revenue decreased due to scaling efficiencies, despite an overall increase in dollar amount.

Frequently Asked Questions

The primary driver of revenue growth for Monolithic Power Systems (MPWR) in the nine months ended September 30, 2008, was the significant increase in sales of its DC to DC converters, which grew by 43.4% year-over-year. This was further supported by increased sales in consumer end-market devices.

As of September 30, 2008, MPWR had $75.9 million in cash and cash equivalents and $8.7 million in short-term investments. While the company generated $18.9 million in operating cash flow, it also held $36.8 million in auction-rate securities which became illiquid and experienced a temporary impairment of $2.0 million. Management believes existing cash and cash equivalents will be sufficient for liquidity needs over the next 12 months.

The main risks highlighted include ongoing patent litigation with O2 Micro, Inc., which could lead to substantial damages or product sales restrictions. Additionally, the illiquidity of auction-rate securities presents a financial risk. The company also faces risks related to the cyclical nature of the semiconductor industry, potential competition, dependence on key customers and suppliers, and the challenges of developing and introducing new products.

Yes, the company restated its financial statements for the three and nine months ended September 30, 2007, due to an error in recording the tax effect of stock-based compensation expense. This resulted in a change to the reported income tax provision and net income for those periods. The company also identified a material weakness in internal control over financial reporting related to this issue.