Saturday, October 12, 2013

Should You Invest In Monolithic Power's Rally?

The following is a "small cainsight" column by Sarfaraz A. Khan about a company with a market cap of less than $5 billion.

Monolithic Power is an impressive player in a fiercely competitive analog and mixed-signal semiconductor industry with a strong balance sheet. So why shouldn’t you invest in its rally?

Monolithic Power Systems (MPWR), or MPS, is one of the leading manufacturers of analog and mixed-signal semiconductors based in San Jose, California. The business offers highly integrated monolithic products to its clients who are looking for energy efficient and cost effective solutions. MPS's clientele includes some of the leading players in the technology sectors such as Samsung, Microsoft, Siemens, BenQ and Toshiba.

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Last month, MPS announced its Q2 results in which its net revenues rose 12.1% sequentially and dropped by 1.5% year-over-year to $57.7 million. Its gross margins increased by 40 basis points both sequentially and year-over-year to 53.6%. This happened due to a greater contribution of high margin products to the company's sales (discussed later). MPS's net income for the quarter fell from $6.6 million or $0.18 per share in Q2-2012 to $5.5 million or $0.14 per share. However, once again, the results were well above Wall Street's expectations and the company ended up beating EPS and revenue estimates by $0.01 and $0.15 million respectively.

Growth Story: Above Average

MPS's products can be divided into two broad categories; DC to DC converters and Lighting Control Products. The company generally earns more than 85% of its revenues from DC to DC converters and the rest from lighting control products. MPS's products serve four end-markets; consumer, communication, storage & computing and industrial. In the previous calendar year, MPS witnessed +5% organic growth while maintaining a healthy gross margin of +50%. In these terms, MPS has been ahead of its competitors such as …. Read full article with figures.