Power Integrations, Inc. (POWI)

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Power Integrations, Inc. (POWI)

Q4 2008 Earnings Call

February 4, 2009 at 4:30 pm ET


Balu Balakrishnan - President and Chief Executive Officer

Bill Roeschlein - Chief Financial Officer and Corporate Secretary

Joe Shiffler - Director of Investor Relations and Corporate Communications


Tore Svanberg - Thomas Wiesel Partners

Ross Seymore - Deutsche Bank Securities

Steven Smigie - Raymond James

Vernon Essi - Needham & Company, LLC

Auguste Richard - Piper Jaffray

Sumit Dhanda - Merrill Lynch

Christopher Longiaru - Sidoti & Company, LLC



Good day everyone and welcome to the fourth quarter and yearend 2008 financial results conference call for Power Integration. Today’s conference is being recorded. Now, at this time, it is my pleasure to turn the conference over to Mr. Joe Shiffler. Please go ahead, sir.

Joe Shiffler

Thank you, and good afternoon. I am Joe Shiffler, Director of IR and Corporate Communications for Power Integrations. With me today are Balu Balakrishnan, President and CEO of Power Integrations, and Bill Roeschlein, our CFO.

During today’s call we will make reference to financial measures that are not calculated according to Generally Accepted Accounting Principles. Please refer to today’s press release for an explanation of our reasons for using such non-GAAP measures as well as tables reconciling these measures to our GAAP results. Also our discussion today, including the Q&A session, will include forward-looking statements reflecting management’s current forecast of certain aspects of the Company’s future business. Forward-looking statements are denoted by such words as will, would, believe, should, expect, outlook, estimate, plan, anticipate, suggest, project, forecast, and similar expressions that look toward future events or performance.

Forward-looking statements are based on current information that is, by its nature, dynamic and subject to rapid and even abrupt changes. Our forward-looking statements are subject to risks and uncertainties, which may cause actual results to differ materially from those projected or implied in our statements. Such risks and uncertainties are discussed in today's press release and under the caption Item 1A, Risk Factors, in part 2 of our Form 10-Q filed on November 7, 2008.

Lastly this conference call is the property of Power Integrations, and any recording or rebroadcast of this conference call is expressly prohibited without the consent of Power Integrations.

With that, I will turn the call over to Balu.

Balu Balakrishnan

Thank you, Joe, and good afternoon. Obviously the impact of economic downturn is on everyone’s minds. So, I will begin with an update on recent trends.

As you may recall, we had already seen a significant slowdown in orders at the time of October conference call and projected that steeper fourth quarter revenue decline than many of our peers did at that time. That forecast proved accurate and revenues came in near the bit point of an original projection at $42.4 million, down 21% sequentially. With distributors and end customers reducing inventories, bookings declined at a faster rate than revenue. Compared to soft October bookings, orders dropped sharply in November before recovering slightly in December. In total, bookings for the quarter were down more than 50% from the third quarter.

As a result, we enter January with a backlog nearly 50% lower than the prior quarter. January bookings increased from December marking the second straight month of improvement but remained below October level. Forecasting of the first quarter revenue is exceptionally difficult due to the combination of lower backlog, the Asian holidays and the general uncertainty of the economic climate. Our expectation at this point is that our first quarter revenues will be between $32 million and $36 million and sequential decline of 15% to 25%.

We began the quarter with about 30% of our bookings needed to reach the midpoint of the range and including turns orders received thus far in the quarter; we have approximately 65% of the bookings we need to reach the midpoint. As we navigate this downturn, we are working to strike an appropriate balance between near-term profitability and longer term growth. Setting aside patent litigation cost, we have reduced our non-GAAP operating expense run rate by nearly $2 million per quarter since the second quarter of last year through a combination of headcount reductions and other cost saving measures. We are also taking steps in the production area including headcount reductions to mitigate the gross margin impact of lower production levels.

In total, we have reduced the size of the workforce by approximately 6% including deductions taken in Q4 and Q1. Lastly, we have total balance sheet to work returning a significant amount of cash to stockholders while reducing our share count, option overhang and stock compensation expenses. At the same time, we remained confident in the gross aspects of our business overtime and we are encouraged that design activity remains healthy despite the weak economy. The power supply industry is moving inevitably towards higher levels of integration and secular trend that Power Integrations has led since 1994 through a relentless focus on innovation.

While we continue to evaluate the balance between profitability and growth as economic conditions change, we believe that the continuing regiment in R&D and new products to support our future growth is the right thing for our business. In the fourth quarter, we introduced two products, LinkSwitch TV and Hyper PLC. LinkSwitch TV is an extension of our LinkSwitch-II products family targeting applications that require constant voltage but not constant cutting. This expands the range of applications in which we can offer the highly cost effective primary side regulation capabilities of LinkSwitch-II.

Hyper PLC is our first ever product for applications about 200 watt. The product integrates a resilient LLC power supply controller with power factor correction circuitry on a single chip and combines this with our high voltage driver chip in a single package providing a level of integration never before seen at such high power levels. This product targets high power application that we have not historically addressed including main power supply for flat panel TVs and ultra high efficiency desktop PCs and servers as well as high power LED streetlights and industrial controls.

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