POWI

Power Integrations, Inc. (POWI)

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Power Integrations, Inc. (POWI)

Q2 2008 Earnings Call Transcript

July 24, 2008 4:45 pm ET

Executives

Joe Shiffler – Director of IR and Corporate Communications

Balu Balakrishnan – President and CEO

Bill Roeschlein – CFO and Corporate Secretary

Analysts

Ross Seymore – Deutsche Bank

Sumit Dhanda – Banc of America

Auguste Richard – Piper Jaffray

Steve Smigie – Raymond

Presentation

Operator

Thank you for standing by, and welcome to the second quarter 2008 financial results conference call for Power Integrations. Today’s conference is being recorded. At this time, it’s my pleasure to turn the conference over to Joe Shiffler, Director of Investor Relations and Corporate Communications. Mr. Shiffler, please go ahead.

Joe Shiffler

Thank you, and good afternoon. I’m Joe Shiffler, Director of IR and Corporate Communications for Power Integrations. With me on the call today are Balu Balakrishnan, President and CEO of Power Integrations, and Bill Roeschlein, our Chief Financial Officer. Balu and Bill each have some prepared there marks. After which, we’ll take your questions.

During today’s call we will make reference to certain financial metrics 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 metrics as well as tables reconciling these measures to our GAAP results. I would also like to note that 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 even 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 our Form 10-K filed with the SEC on March 10th, 2008 and our form 10-Q filed on May 9th, 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 written consent of Power Integrations.

With that I’ll turn the call over to Balu.

Balu Balakrishnan

Thanks, Joe, and good afternoon. I’d like to begin by welcoming Bill Roeschlein to Power Integrations as our new Chief Financial Officer. Bill joined us on June 30th from Selectica, where he had been CEO since 2006. He has an outstanding background in finance in the technology sector, including public accounting and investment banking experience as well as corporate financial management experience at Ultra Clean Holdings, Asyst Technology, and Hewlett-Packard. I am delighted to have him on our team and I’m confident that he’ll make a big impact here at Power Integrations.

Turning now to our second quarter results, revenues where up 3% sequentially and 24% year-over-year to a record $53.6 million. That was within our guidance despite the sudden and unexpected bankruptcy of H&T company, which had been the largest supplier of cell phone chargers to Samsung.

As we reported on our Q1 call, we had expected two new designs to ramp up at H&T during the quarter in place of the competing solutions from BCD Semiconductor. Unfortunately, after taking a small pre-production order, H&T closed its doors and cancelled its outstanding orders. We estimate the shutdown cost is about $1 million dollars in revenues for Q2, which could have put us right on our mid point of our guidance.

While this was obviously a disappointing development, our business with another one of Samsung’s subcontractors is on track and should contribute material revenues in the September quarter. In fact, the customer has now awarded us a second design, which should ramp up over the next couple of quarters. While it remains to be seen how Samsung reallocates its charger volumes after the shutdown of H&T because they expect these two designs to reach an annualized run rate of $8 million to $10 million once they reach full production volume.

While Q2 (inaudible) we are otherwise in line with our expectations, we are cautious about the broad demand picture. We observed a broad base slow down in bookings during the later part of the quarter, and orders have remained subdued thus far in July. We also saw weaker than expected distribution sell through for Q2, and exited the quarter with channel inventories higher than our normal range of four to four and a half weeks. These trends strongly suggest that macroeconomic factors have begun to impact end-market demand. The uncertain macro environment limits our visibility even more than usual, making it very difficult to predict the strength of the seasonal ramp.

Accordingly, we are projecting a relatively wide range of $55 million to $60 million in revenue for the September quarter, on an increase of 10% to 20 % year-over-year. Notwithstanding the challenge – challenging macroeconomic environment, our secular growth story is gaining momentum. Energy efficiency standards raising labor costs, higher raw material prices are tilting the economics of power supply industry in favor of higher levels of integration. Pricing of the stiff components has remained firm in recent quarters reflecting the higher cost of raw materials. But the cost of manufacturing power supplies has risen due to higher labor costs in Asia. These trends obviously favor the use of integrated solutions like ours, which use fewer components than the (inaudible) solutions, and are much less labor intensive than manufacturer.

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