10-QPeriod: Q1 FY2011

MONOLITHIC POWER SYSTEMS INC Quarterly Report for Q1 Ended Mar 31, 2011

Filed April 28, 2011For Securities:MPWR

Summary

Monolithic Power Systems, Inc. (MPWR) reported a decrease in revenue for the first quarter of 2011 compared to the same period in 2010, primarily driven by a decline in DC to DC converter sales due to lost customers in Korea resulting from production capacity issues in the prior year. Gross margins also saw a significant decrease year-over-year, attributed to declining average selling prices, shifts in product mix, higher product costs, and increased inventory reserves. Despite the revenue and margin pressures, the company maintained positive operating cash flow. Management highlighted the ongoing development of new products and market segments as key to future growth. The company also continued its stock repurchase program, increasing the authorization and executing repurchases during the quarter. Investors should note the company's significant exposure to Asian markets and ongoing litigation and tax examination risks.

Financial Highlights

28 data points
Beta

Revenue

$44.47M

50.2% Gross Margin

Net Income

$1.89M

4.3% Net Margin

EPS (Diluted)

$0.05

Cash & Equivalents

$74.06M

Free Cash Flow

$5.17M

Financial Statements
Beta
Revenue$44.47M
Cost of Revenue$22.16M
Gross Profit$22.30M
R&D Expenses$10.09M
SG&A Expenses$9.49M
Operating Expenses$20.39M
Operating Income$1.92M
Net Income$1.89M
EPS (Basic)$0.05
EPS (Diluted)$0.05
Shares Outstanding (Basic)35K
Shares Outstanding (Diluted)36K

Key Highlights

  • 1Revenue decreased by 11.5% year-over-year to $44.5 million for the first quarter of 2011.
  • 2Gross margin declined to 50.2% from 58.3% in the prior year's comparable period, impacted by pricing, product mix, and costs.
  • 3Net income decreased to $1.9 million ($0.05 per diluted share) from $6.4 million ($0.17 per diluted share) in the first quarter of 2010.
  • 4Operating cash flow remained stable at $8.2 million for the quarter.
  • 5The company repurchased $13.7 million of its common stock in Q1 2011 under an expanded $70 million repurchase program.
  • 6Substantially all revenue (89% in Q1 2011) is derived from customers located outside North America, primarily in Asia.
  • 7The company faces significant risks related to ongoing IRS tax examinations, potential litigation outcomes, and supply chain capacity constraints.

Frequently Asked Questions

The primary driver for the revenue decline was a decrease in DC to DC converter sales, largely due to losing customers in Korea because of production capacity shortages in 2010. Sales of lighting control products also decreased due to reduced demand for CCFL products.

As of March 31, 2011, the company had $74.1 million in cash and cash equivalents and $102.0 million in short-term investments, resulting in working capital of $192.9 million. Operating cash flow was positive at $8.2 million for the quarter. Management believes these resources are sufficient to meet liquidity requirements for at least the next 12 months.

Key risks include intense competition in the semiconductor industry, dependency on Asian markets and suppliers, potential adverse outcomes from ongoing IRS tax examinations and litigation, fluctuations in commodity prices, and the cyclical nature of the semiconductor market. The company also highlighted risks associated with manufacturing capacity constraints and product shortages that impacted customers in the past.

Monolithic Power Systems has an active stock repurchase program. In Q1 2011, the company repurchased $13.7 million of its common stock. The Board of Directors increased the authorized repurchase amount from $50 million to $70 million in February 2011, with the program authorized through December 31, 2011.