Computer-chip maker Monolithic Power Systems might not be a
household name, at least compared to rivals such as Intel,
Qualcomm and Texas Instruments.
But anyone who has fired upSony 's (
) PlayStation 4 orMicrosoft 's (
) Xbox One video game consoles or used a Blu-ray or DVD player
has usedMonolithic Power 's (
) state-of-the-art technology.
The San Jose, Calif.-based company designs semiconductors,
integrated circuits and other building blocks found in computers,
medical equipment, LCD monitors, flat-panel TVs, set-top boxes
and many other consumer electronics.
One of Monolithic's advantages over rivals is its ability to
get more from less, analysts say. Some of its modules are 90%
smaller than those of competitors, use less energy and work
"I characterize their growth as growth by a thousand cuts,
because they have so many design wins across so many different
end markets," said Michael Lucarelli, an analyst at Evercore
Lately, Monolithic's growth has moved into a higher gear. The
company has run off three straight quarters of double-digit
revenue gains, which hadn't happened in years.
Outpacing Its Industry
During this year's first quarter, Monolithic logged revenue of
$60.1 million, a gain of 17% from the previous year. That growth
rate far outpaced the industry's average sales growth rate of
10%, according to Thomson Reuters.
Meanwhile, Monolithic's stock price touched an all-time high
of 43.49 on July 1 and is up about 20% since the beginning of the
Using a fabless business model, Monolithic focuses solely on
design and engineering. It outsources manufacturing to a third
party to keep costs low.
This model has helped Monolithic produce steady profits
through the years, even though profit growth has fluctuated.
First-quarter earnings this year more than doubled from a year
earlier to 39 cents a share, topping analyst views for 33
Monolithic is due to report second-quarter results on July 24.
Analysts polled by Thomson Reuters expect EPS of 35 cents, a gain
of 46% from the prior year. Sales are seen rising 16% to $67.1
On June 9, the company announced that it will pay a dividend
of 15 cents per share for the second quarter.
"Their dividend initiation is a signal to the investing world
that they're confident in their near-term and long-term outlook,"
Lucarelli said. "They plan on growing that as the design wins
turn into revenues. They want to make shares more attractive to
More Growth Ahead
Angelo Zino, an analyst at S&P Capital IQ, says that
Monolithic can generate sales growth at an annualized rate of
over 20% per year over the next three to five years.
"There has been a major transformation that's taken place
since 2011," Zino said. "They've been able to diversify their
market to new areas: industrial, automotive, cloud
Consumer products used to account for about 70% of Monolithic
sales. But by next year, they should account for around 50% as
the company develops more components for commercial products,
which carry higher profit margins, Lucarelli says.
Although the consumer electronics market grows quickly, the
products are not always profitable and may have short life
One product that the company is bullish about is a
high-current battery charger for tablets and battery packs,
introduced a few quarters ago.
These new chargers "deliver the best efficiency performance in
the market, which equates to faster time to charge for users,"
Monolithic Chief Financial Officer Meera Rao said.
In addition, she says, Monolithic introduced the industry's
first massive 900-volt flyback regulator designed specifically
for industrial power-grid applications supporting wireless
"This product saves our customers from having to include a
high-voltage blockage device," Rao said. "And due to its high
integration, it allows for improved ease of use, high reliability
and the lowest overall solution cost."
Monolithic Power Module (MPM) solutions are roughly two years
ahead of the competition and are expected to help drive
Monolithic's growth over the next several years, Anil Doradla, an
analyst with William Blair, wrote in a client note last
"While the company's competition is able to offer only
discrete solutions (that include multiple chips and are less
power-efficient), Monolithic Power is able to differentiate its
products by providing customers integrated solutions with
superior performance," Doradla added.
One risk for Monolithic is that its design wins don't
guarantee that manufacturers will use its chips in their end
products, and the company does not receive any payments up
130 Days Of Inventory
Manufacturers might not need as many chips as they initially
ordered, which can leave chipmakers with a glut of inventory.
Monolithic currently has about "$40 million in inventory, or
about 130 days' worth, which is about average for them,"
The chip industry globally is split between five major
),Taiwan Semiconductor Manufacturing (TSM),Texas Instruments
(TXN) and SK Hynix.
These five accounted for about 30% of industry sales and half
of its profits as of 2013's third quarter, according to
AlixPartners' 2014 Global Semiconductor Industry Outlook.
The industry struggles with heavy price competition, high
production costs and products with a short shelf life, the
AlixPartners report said.
Monolithic's own sales prospects are sensitive to ebbs and
flows in consumer spending because of its heavy focus on consumer
"If we see significant downturn in the economy or in consumer
spending, that would likely have a bigger impact on Monolithic
than your typical semiconductor company," Zino said.