10-QPeriod: Q3 FY2009

MONOLITHIC POWER SYSTEMS INC Quarterly Report for Q3 Ended Sep 30, 2009

Filed October 22, 2009For Securities:MPWR

Summary

Monolithic Power Systems, Inc. (MPWR) reported its third-quarter 2009 financial results, showing a slight revenue decline of 1.9% year-over-year to $48.0 million, impacted by shifts in backlighting technology and a softer market for audio products. However, this was partially offset by increased demand for DC to DC converters. Despite the revenue dip, the company managed its expenses effectively. While R&D increased to support new product development, Selling, General, and Administrative (SG&A) expenses remained flat or declined. A significant event was the reversal of a $7.4 million litigation provision related to the Taiwan Sumida Electronics lawsuit, which boosted net income substantially. The company ended the quarter with a strong liquidity position, with $52.0 million in cash and cash equivalents and $97.8 million in short-term investments.

Key Highlights

  • 1Revenue for the third quarter of 2009 was $48.0 million, a slight decrease of 1.9% from $48.9 million in the prior year, primarily due to a shift away from CCFL lighting and reduced audio product sales, partially offset by DC to DC converter growth.
  • 2Net income for the quarter was $12.6 million, a significant increase from $10.5 million in Q3 2008, largely driven by a $7.4 million reversal of a litigation provision.
  • 3Gross margin decreased to 60.7% from 62.8% year-over-year, attributed to pricing pressures and increased inventory reserves.
  • 4Operating expenses saw increased R&D spending (up 7.0%) for new product development, while SG&A expenses were largely flat.
  • 5Litigation expenses, excluding the provision reversal, rose significantly (up 157.9%) due to ongoing legal defense against O2Micro.
  • 6The company maintained a strong liquidity position with $52.0 million in cash and cash equivalents and $97.8 million in short-term investments as of September 30, 2009.
  • 7The company reported $35.7 million in government-backed student loan auction-rate securities, with $1.8 million in impairment charges, and noted ongoing illiquidity in the auction-rate securities market.

Frequently Asked Questions

The substantial increase in net income to $12.6 million from $10.5 million in the prior year was primarily due to a $7.4 million reversal of a litigation provision related to the Taiwan Sumida Electronics lawsuit, which more than offset a slight decrease in revenue and increased litigation expenses.

MPWR maintains a strong liquidity position with $52.0 million in cash and cash equivalents and $97.8 million in short-term investments as of September 30, 2009. While the company holds $35.7 million in government-backed student loan auction-rate securities with some impairment, it also has a put option with UBS to sell eligible auction-rate securities in June 2010, providing a path to liquidity for a portion of these holdings.

The decrease in revenue for Lighting Control Products is attributed to a continuing shift in the market from CCFL (cold cathode fluorescent lamp) backlighting to WLED (white LED) solutions. Additionally, sales of Audio Amplifiers also declined. This was partially offset by an increase in DC to DC Converter sales, driven by demand in consumer and communication markets.

The litigation with O2Micro is generating significant legal expenses, which increased substantially by 157.9% in the third quarter of 2009 compared to the prior year. The company notes it cannot reasonably estimate the probability or range of loss in this case, which poses a material risk to future financial performance.