Power management chips maker Monolithic Power Systems (NASDAQ:MPWR) reported Q1 CY2024 results beating Wall Street analysts' expectations, with revenue up 1.5% year on year to $457.9 million. Guidance for next quarter's revenue was also optimistic at $490 million at the midpoint, 3.6% above analysts' estimates. It made a non-GAAP profit of $2.81 per share, down from its profit of $3.00 per share in the same quarter last year.

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“We saw consistent improvement through the first quarter, but we continue to be cautious about second half 2024 business conditions. Overall, our proven, long-term growth strategy remains intact, and we can swiftly adapt to market changes as they occur,” said Michael Hsing, CEO and founder of MPS.

Founded in 1997 by its longtime CEO Michael Hsing, Monolithic Power Systems (NASDAQ:MPWR) is an analog and mixed signal chipmaker that specializes in power management chips meant to minimize total energy consumption.

Analog Semiconductors

Demand for analog chips is generally linked to the overall level of economic growth, as analog chips serve as the building blocks of most electronic goods and equipment. Unlike digital chip designers, analog chip makers tend to produce the majority of their own chips, as analog chip production does not require expensive leading edge nodes. Less dependent on major secular growth drivers, analog product cycles are much longer, often 5-7 years.

Sales Growth

Monolithic Power Systems's revenue growth over the last three years has been strong, averaging 27.8% annually. But as you can see below, this quarter wasn't particularly strong, with revenue growing from $451.1 million in the same quarter last year to $457.9 million. Semiconductors are a cyclical industry, and long-term investors should be prepared for periods of high growth followed by periods of revenue contractions (which can sometimes offer opportune times to buy).

While Monolithic Power Systems beat analysts' revenue estimates, this was a sluggish quarter for the company as its revenue only grew 1.5% year on year. Monolithic Power Systems's growth, however, flipped from negative to positive this quarter. This encouraging sign will likely be welcomed by shareholders.

Monolithic Power Systems returned to positive revenue growth this quarter and its management team expects the trend to continue. The company is guiding to 11.1% year-on-year growth next quarter, and analysts seem to agree, forecasting 16.5% growth over the next 12 months.

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Product Demand & Outstanding Inventory

Days Inventory Outstanding (DIO) is an important metric for chipmakers, as it reflects a business' capital intensity and the cyclical nature of semiconductor supply and demand. In a tight supply environment, inventories tend to be stable, allowing chipmakers to exert pricing power. Steadily increasing DIO can be a warning sign that demand is weak, and if inventories continue to rise, the company may have to downsize production.

This quarter, Monolithic Power Systems's DIO came in at 175, which is 8 days above its five-year average, suggesting that the company's inventory has grown to higher levels than we've seen in the past.

Key Takeaways from Monolithic Power Systems's Q1 Results

We were impressed by how significantly Monolithic Power Systems blew past analysts' EPS expectations this quarter. We were also glad next quarter's revenue guidance came in higher than Wall Street's estimates. On the other hand, its gross margin declined and its operating margin decreased. Overall, this quarter's results still seemed fairly positive and shareholders should feel optimistic. The stock is up 2.2% after reporting and currently trades at $665 per share.

Monolithic Power Systems may have had a good quarter, but does that mean you should invest right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.