Monolithic Power Systems, Inc. (MPWR) Q4 2017 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Monolithic Power Systems Fourth Quarter 2017 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-answer-session and instructions will be provided at that time. [Operator Instructions] And as a reminder, this conference call is being recorded. Now I would like to turn the conference over to Monolithic's, Vice President and Chief Financial Officer, Bernie Blegen. Please go ahead.

Thank you very much. Good afternoon and welcome to the fourth quarter and fiscal year 2017 Monolithic Power Systems conference call. Michael Hsing, CEO and founder of MPS is with me on today's call. In the course of today's conference call, we will make forward-looking statements and projections that involve risks and uncertainty, which could cause results to differ materially from management's current views and expectations. Please refer to the Safe Harbor Statement contained in the earnings release published today. Risks, uncertainties and other factors that could cause actual results to differ are identified in Safe Harbor statements contained in the Q4 earnings release and in our SEC filings, including our Form 10-K filed on March 1, 2017 and Form 10-Q filed on November 6, 2017 both of which are accessible through our website, www.monolithicpower.com. MPS assumes no obligation to update the information provided on today's call. We will be discussing gross margin, operating expense, R&D and SG&A expense, operating income, interest and other income, pre-tax income, net income and earnings on both the GAAP and non-GAAP basis. These non-GAAP financial measures are not prepared in accordance with GAAP and should not be considered as a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP. A table of that outlines the reconciliation between the non-GAAP financial measures to GAAP financial measures is included in our earnings release, which we have filed with the SEC. I would refer investors to the Q1 through Q4 releases for both 2016 and 2017, as well as to the reconciling tables that are posted on our website. I'd also like to remind you that today's conference call is being webcast live over the Internet, and will be available for replay on our website for one year, along with the earnings release filed with the SEC earlier today. Continuing with our now five year trend, we are pleased to announce 2017 with another record year for revenue. Full year revenue of $470.9 million was up 21.2% from 2016. The year-over-year growth was nearly double that of the analog semiconductor industry, which SIA estimates grew 10.9% over the prior year. Looking at our 2017 over 2016, revenue growth by market segments, automotive revenue up 58.7%, computing and storage up 25.1%, consumer up 23.4% and industrial revenue up 12.9%, communications revenue essentially flat between years. Let me speak to highlights by market segment. Full year automotive revenue grew $19.9 million to $53.9 million in 2017. This growth primarily represented increased sales of infotainment, safety and connectivity application products. Automotive is MPS's largest SAM opportunity at $6 billion, and we are in the early stages of penetrating this market. In the years ahead, we plan to offer a number of new products will application in infotainment, body controls, lighting, EV batteries and Ados. Automotive revenue represented 11.4% of MPS's full year 2017 revenue compared with 8.7% for 2016. Compute and storage revenue grew $20.2 million to $100.8 million in 2017. This growth reflected strong sales growth for cloud computing, SSD storage and high-end notebooks. Compute and storage revenue represented 21.4% of MPS's total revenue in 2017. Consumer revenue grew $36.0 million to $189.8 million in 2017. This growth reflected games in gaming and high-value consumer markets, including home appliances and battery management systems. Consumer revenue represented 40.3% of MPS's full year 2017 revenue. Industrial revenue grew $7.2 million to $62.9 million in 2017. This growth reflected sales for applications and power sources, point of sales system and industrial meters. Industrial revenue represented 13.4% of MPS's full year 2017 revenue. Turning back to our overall financial performance. On a GAAP basis, full year 2017 gross margin of 54.8% expanded 50 basis points from the prior year. GAAP pre-tax income grew 44.8% over 2016 to $82.9 million. On a per share basis, GAAP net earnings of $1.50 were 19% higher in 2016. The enactment of the Tax Cuts and Jobs Act of 2017 resulted in a one-time GAAP tax expense of $13.5 million or $0.31 per share. This new tax legislation also allows MPS to repatriate foreign sourced earnings. The one-time charge increased our 2017 tax rate from 5.1% to 21.4%. On a non-GAAP basis, full year gross margin of 55.6% expanded 40 basis points from the prior year. Non-GAAP pretax income of $137.9 million grew 32.4% over 2016. MPS achieved record full year non-GAAP earnings of $2.93 per share, which was 27.4% higher than 2016. Switching to Q4. MPS had a record fourth quarter with revenue of $129.4 million, 24.9% higher than the comparable quarter in 2016 and slightly higher than revenue generated in the prior quarter. Looking at our 2017 over 2016 fourth quarter revenue growth by market segment, automotive up 57.7%, consumer up 44.6%, compute and storage up 14.0% and industrial up 6.7%. Fourth quarter revenue for the communication segment fell 7.0% from the prior-year period. Fourth quarter GAAP gross margin was 55.0%, matching the prior quarter of 2017 and 50 basis points higher than the fourth quarter of 2016. Our GAAP pre-tax income was $26.7 million compared to the $25.1 million reported in the prior quarter of 2017 and $18.4 million reported in the fourth quarter of 2016. For the fourth quarter of 2017, non-GAAP gross margin was 55.7%, matching the prior quarter of 2017 and 30 basis points higher than the fourth quarter from a year ago. Our non-GAAP pre-tax income was $39.2 million compared to the $39.5 million reported in the prior quarter and the $29.7 million reported in the fourth quarter of 2016. Let's review our operating expenses. Our GAAP operating expenses were $46.1 million in the fourth quarter compared with $47.0 million in the third quarter of 2017. On a non-GAAP basis, fourth quarter 2017 operating expenses were $33.9 million, $1 million up from the $32.9 million expense in the third quarter, primarily reflecting, an increase in R&D, new product spending. Fourth quarter 2017 operating expenses were up $5.5 million from the $28.4 million reported in the fourth quarter of 2016. From both and the GAAP and a non-GAAP basis, fourth quarter litigation expenses were $340,000. The difference between non-GAAP operating expenses and GAAP operating expenses for the quarter discussed here are stock compensation expenses and expenses from an unfunded deferred compensation plan. Stock comp expense was $11.9 million in the fourth quarter of 2017 compared with $14.0 million in the prior quarter of 2017 and $10.7 million in the fourth quarter of 2016. Switching to the bottom line. Q4 GAAP net income was $12.1 million or $0.27 per fully diluted share compared with $0.54 per share in the previous quarter of 2017 and $0.39 per share in the fourth quarter of 2016. The current quarter GAAP results included the one-time expense of $13.5 million or $0.31 per fully diluted share resulting from the newly passed tax legislation. Q4 non-GAAP net income was $36.3 million or $0.82 per fully diluted share compared with $0.84 per share in the previous quarter of 2017 and $0.65 per share in the fourth quarter of 2016. Now let's look at the balance sheet. Cash, cash equivalents and investments were $304.3 million at the end of the fourth quarter of 2017, $620,000 less than the prior quarter of 2017. For Q4 2017 operating cash flow was $53.4 million, and for the full year 2017, MPS generated operating cash flow of about $133.8 million. Cash proceeds from employee's stock option exercises and the ESPP were $20,000 in Q4 and $2.9 million for all of 2017. Q4 2017 capital equipment purchases were $40.7 million, and for the full year, were $65.8 million. Dividend payments were $8.7 million for the quarter and $33.9 million for the year. Fourth quarter accounts receivable was $38.0 million or 27 days of sales outstanding, which was lower than the 36 days we reported at the end of the prior quarter of 2017. This decrease was due to a higher proportion of the quarter sales being recorded in the first two months of Q4 compared with the prior quarter. Fourth quarter of 2017 day sales outstanding were three days lower than the 30 days in the fourth quarter of 2016. Our internal inventories at the end of the fourth quarter of 2017 were $99.3 million, down slightly from the $99.9 million at the end of the prior quarter. Days of inventory decreased from - to 155 days at the end of Q4 from 156 days at the end of Q3 2017. I would now like to turn to our outlook. First and foremost, MPS is announcing a 50% increase in our quarterly dividend from $0.20 per share to $0.30 per share for shareholders of record as of March 30, 2018. During the next year, MPS will look for future opportunities return value to our shareholders. As of January 1, 2018, MPS adopted ASC 606. This new accounting standard, which modifies the revenue recognition role will have a minimal impact on our Q1 revenue. Looking at Q1, we are forecasting revenue in the range of $122 million to $128 million. We also expect the following, GAAP gross margin in the range of 54.8% to 55.8%; non-GAAP gross margin in the range of 55.3% to 56. 3%; total stock-based compensation expense of $13.9 million to $15.9 million, including approximately $400,000 that will be charged to cost of goods sold; litigation expenses of $250,000 to $350,000; non-GAAP R&D and SG&A expenses to be in the range of $32.1 million to 35.1% million. This estimate excludes stock compensation and litigation expenses. Other income of $600,000 to $700,000 before foreign exchange gains or losses. Fully diluted shares to be in the range of 43.9 to 44.9 million shares. Our tax rate for 2018 is expected to be between 5% and 10% on both a GAAP and a non-GAAP basis. In conclusion, we continue to grow and continue to enhance shareholder value. I'll now open the microphone for questions.

Thank you. [Operator Instructions] Our first question comes from Quinn Bolton with Needham & Company. Your line is open.

Hi, Michael, hi, Bernie. Congratulations on another record and nice to see the 50% increase in dividend. Michael and Bernie just a couple of questions. First on the compute business quarter-on-quarter, looks like it was down sequentially despite the ramp of Purley. I wonder if could give us an update on the Purley ramp and superpower management for you guys? And then, Bernie, it looks like CapEx was up significant in the fourth quarter, can you give a little bit of detail on what you were spending that CapEx on?

Sure. Let me start up with your first question as far as what we're observing in computing and storage in the Q3 to Q4. So interestingly, we had a very good continuation of growth in our cloud computing, which is supposed to be associated with the server business, and that was offset by declines in both the storage and notebook. So I think that - versus our expectation internally as far as what the opportunity for servers are, we are tracking at or in fact, a little bit ahead of what we expected to be. And the business that we'll had to date has been primarily in some of the lower dollar categories, and we expect to see are in telophase our QSMod side of the business, which is higher dollars to pick up early in 2018. With regard to the cap spending, we've made some purchases of office space in the quarter, and we picked up two offices, one for $25 million and the other for $15 million. And believe that this is a good way to secure capacity at a fixed price that will benefit the - accretive to earnings over the years to come.

Great. And then Maybe just one sort of forward-looking question, as you look into 2018, could you size or maybe rank quarter for us, what you see is perhaps some of the biggest incremental revenue drivers heading into this year?

Sure. I'm going to address it on a percentage basis. And so the dollars maybe a little bit different. But automotive, as I've been saying in the recent past is expected to grow in any quarter-over-quarter between 30% to 60%. And that was consistent the experience that we had in 2017. So that - the design wins and the visibility that we have in the long-term, we believe that for 2018 and 2019 and 2020, automotive…

The growth on each market segment, if you look at our last two or three years, and you looking forward in our K [ph] that's just plus or minus fewer percentage on the each market segments. And the trend will be very similar. 2018 and 2019, 2020 that we see as a pretty much all set. The percentage is just only a few percentage change.

Understood. Great. Thank you.

Thank you, Quinn.

Thank you. Our next question comes from William Stein with SunTrust. Your line is open.

Hey, guys. This is John for Will. Thanks for taking my question. Nice quarter. I'm just wondering if you guys had an update on web based e-commerce analog for the masses project.

Well, I see it's - it's delayed again. I promised it in January, it didn't happen. I think that we rather have a very good user experience to launch it first. And rather than - and a mediocre one. And so I made a very hard decision not to do it and not to launch it. And you will see the probably in a - now I don't have a creditability on that. I postponed it several times already, and like I promised, I postponed it several times, and hopefully it will be in Q2.

Okay. And thank for that.

Just to add to that. I think Michael has a lot of credibility typically when you look at the results we turned in that 2017 and going forward. And that secondary point is -

Well, this is one area I buck it up.

We will manage that in the transcript. The expectations set as far as zero revenue generation as a result of e-commerce in 2018 and 2019. So to the extent that we have a successful launch and we're able to incorporate customer feedback into making quick adaptations of that platform, I think it's time well spend.

Very helpful.

But on the other bucket, I do emphasize that's the direction we're really going.

Yeah.

And that doesn't - the delay doesn't cause any doubt. And as a matter of fact, all the testings that can be without the website, it's doing really, really well. And we in the last few months, every months we increase 600, 700 customers, and those customers whenever low off even.

No marketing just coming over and trying some.

That's right. Yeah. So the train - even I can't imagine with our own website and these acquired - acquired customers from our distributors and from other sites. And I can't imagine from our own site, the marketing all other effort we will put it in and it will be a phenomenal growth.

It's really helpful detail. Thank you. Just as a follow-up, if you could give you any update on customer order patterns, are you getting any sense for double ordering given the strength of the revenue growth?

Yes, it's a concern that we had going into Q4 because we had very high level of backlog compared to what historical norms have been. And going into Q1 that has remained also on high side and what we're very conscience of is that we don't want to either participate in double ordering, or where we're selling demand with inventories just going to sit in the channel, excuse me. And as a result, we've been very cautious as far as meeting customer demands that we believe in excess of what they need to keep-up - keep their facilities going. So in the end of Q4, I think we did a very good job because we were able to generate the revenue we did and that increase the days in the channel.

Very helpful. Thanks guys.

Thank you. Our next question comes from Ross Seymore with Deutsche Bank. Your line is now open.

Thanks for letting me ask question. This is Jeriel Ong on behalf of Ross. So just wondering to get some clarity on the tax rate, so it appears the semi industry you reported so far that presently pay a higher tax than you, and you reported an increase in their tax - ongoing tax rate going forward. So with your 7.5% rate, it appears you guys are guiding to a rate that flat, I assume on an ongoing basis. Could you walk me how you guys derived with your tax guidance?

Well, you look at our outlook and thanks for our last year effort, we bought a lot of buildings. These are tax free.

So let me try and clarify that. So there are two components to the tax, the transition of the toll tax, which we recorded in Q4. That's what Michel is referring to. Because we've invested in a lot of property, we actually had a lower blended tax rate that we had to pay there. Going forward, as far as how we can guide to the 5% to 10% rate, there is a step up as far as the guilty [ph] tax, but we have some discrete items that can offset that. And so as a result, for 2018, we won't see a change in our tax rate from what we reported in the current year.

Got it. That's really helpful. And I think next question I guess, switching over to automotive, it was really strong in 4Q and strong in 2017 in general, north of 50% growth rate, what's driving the strength from like a various infotainment or lighting, et cetera perspective? And staying at this rate in 2018?

Yes, it's fair that the growth rate it will not changes much. Okay, but don't follow me them exactly what the rate. It would be very similar to this year. Which applications or which segments, I think in the next couple of years we're going to expand lot more segments. Now the lighting, infotainment and the safeties, and we will have a lot more safety products come out. And as Bernie said in his script, we have an ADAS and also the…

Battery.

Battery management, as well as the connectivity.

Yeah.

And those areas have a very little revenue or some of the item have no revenue, only sampling cut. And we expect to have a very high percentage growth in dollar amount growth that in 2019, '20 and '21.

And one more point is that, we've getting good penetration in all the major geographies known for automotive.

All right. If I could squeeze one last one, just clarity on the CapEx spend. You mentioned it was office space, so is this more capacity to manufacture goods or is this some office space for workers. I'm trying to …

Well, I think it's everything. Everything so for the factories [ph] and for engineering facility, for automotive, quality control systems and everything.

And down the road software as well. Software design.

Yeah.

All right. Thank you.

Thank you.

Thank you.

Thank you. [Operator Instructions] Our next question comes from Tore Svanberg with Stifel, Nicolaus. Your line is now open.

Hi. This is actually Jerome calling in for Tore. Let me add my congratulations again to you, another great quarter. Just want to follow-up briefly on the automotive segment. You mentioned connectivity. Can you give us a little bit more detail on what this piece is, is it USB tech stuff or is it serial [ph] tech stuff?

Michael, Connectivity?

On the automotive?

Yes.

Could you repeat the question. I was looking at people.

Just wanted a little bit more incentive what the connectivity portion of this business was related to?

Yes, okay, sorry, I've been in the [indiscernible] I wasn't paying attention. The connectivity for the car and lot of ADAS and a lot of safety things and safety cameras such as the cameras, the LIDARs [ph] and these will be connected to the cloud. And those are the areas we really focused on it. And those are our customers' requirements.

So it's more of a card to you - infrastructure cloud connectivity versus in car connectivity system?

Actually both. In the connectivity between the - all these sensors to the control units, and the control units to the cloud and these all add up to all this self-learning capability. And that's the area we are really focused on it and that's where we receive huge requirements and for joint development with these larger automotive companies.

Great. That's very helpful. Second question, in terms of your industrial market, can you give us an update in terms how E Motion is doing and how you are penetrating that and also with medical?

Yes, emotion, it's not emotion - E Motion product line in the past and other - a lot of people asked me, okay, the product didn't do well and actually it's doing really well. This year, we will generate somewhere between $8 million to $12 million business. And we develop at the newer product the integrated - fully integrated…

Modules.

The modules and we receive how many request, it's beyond my belief actually. And those will do well in the 2018 and 2019 particularly.

Great. And just one question more on the longer-term on the outlook, you've done obviously very well using - leveraging your DC/DC process, expanding to multi markets and applications. And as you look out three to five-plus years, can you still - there is something you can still ride or do you intend to invest in may be adjacent processes - there something could be new?

Well, that's a good question. As we said, in the last conference call, we will move - we started the two 12-inch wafer fab. So we migrate from a 6-inch, 8-inch, now the 12-inch. And on the each upgrade, we add a lot more new features. And so you can think about it, okay, now we can integrate microcontrollers and is not inconceivable, we even put a Wi-Fi system on it.

Very good. Thank you very much for this insight.

Thank you. We do have a follow-up question from William Stein with SunTrust. Your line is now open.

Thanks for letting me ask follow-up guys. Just on 2018, given that you are guiding for 25% growth in Q1, and given like the multiple growth drivers you have coming on Purley gaming, notebooks, is there any reason we shouldn't think that calendar '18 can grow in the low 20% range year-over-year?

We don't offer a specific guidance for - beyond one quarter. But the way I can respond to it is that we've been promoting our strategic business model now for about last four years. If you look at 2017, we had revenue growth of 20%, which map 21% which was little better than our model. We had gross margin increased at 40 basis points for the full year, which is consistent with our margin - with our model. And our operating expenses came in between 50% and 60% of what our revenue growth was. And I think what we've done is, we've achieved the model and expect to continue along that line. The one thing that will offer just some concern is that there are risk factors associated with introducing new products to new customers and particularly, in what is becoming a sort of a more clouded longer-term outlook as far as what the economy is going to do. So we've tend to believe that we're capable of achieving our model, but I add just cautionary note that there are risk factors and say you might build in little bit of cushion when looking at full year outlook might be.

Got it. Understood.

Let me comment on your question. Okay. In early 2005, 2006, and again we had a model like a got 20% to 30%, and we never achieved that. We achieved close to 18%, 19% in between 15% to 20%. And I was very criticized by that - some of the shareholders, and I spend too much money and not grow enough. Okay. I can't figure out 20% or not 20%. In 2006 - 2016 in the first quarter, I made an announcement, or some people asked me, if we're going to achieve the models. I said that okay, it will be 2017, and we did it okay. Now since you ask for this year again, I think as a - I can't predict in a couple of percentage difference. But we will grow double or triple than the industrial growth. If the industrial growth negative 5%, okay, we'll be three times - okay, well, we grow from somewhere 10% to 15% range.

Yeah. And that's if the industry grows 5%, that we will grow 10% to 15%.

Yeah.

Yeah. I got it. Thank you.

Yeah.

And just a housekeeping question, are you guys having an Analyst Day this year?

We are planning on it. But we haven't announced a date yet.

We will plan in to it - and because our website stuck up, so, okay, we delayed it.

Okay. Thanks very much guys.

Thank you. We have another question from John Vinh with KeyBanc Capital. You're now - line is now open.

Hi. Thanks for taking my question. Hey, Bernie, last year you came in at the high end of kind of OpEx as a percentage of sales growth. I think at the - high-end of the 60% range. What's your sense in terms of how we should be thinking about OpEx growth this year as a percentage of sales? You've got to 50% to 60% model, could we get a little bit more leverage and be at the lower end of the range or how should we be thinking about that?

When I say the 50% to 60% range, that's really focused on R&D and SG&A, and does not include litigation, which can be a little hard to manage. So for 2017, my calculations show this for the full year being at 58% of our revenue growth rate. When you look ahead here, I think we've got three drivers that we're going to invest in. Automotive in particular, we want to continue to fuel that revenue growth through sales and marketing as well as a QA and some - also some R&D specific to it the. On top of that, Michael also mentioned to you, as far as our investment in 12-inch fabs, that's going to be continuing for about five to six quarters beginning in Q2 - beginning in earnest in Q2. And then finally, with the launch of the website in the e-commerce platform, we are going to make a big investment in marketing to be able to really launch that successfully and get the word out. So I think that in that - and I don't have a firm number yet, but we want to be able to strike and make these investments and that will put us, at a minimum, at the high end of that range.

Yeah. But Bernie is talking about lot of investment. Okay. But if you look in our history, we never had a wide spending…

Yeah.

And we will - if we spend, we'll spend a couple of more percent. That's - that will be it. And we don't have a wide - open pocket spending bracket, will never happen in the entire MPS history. And - so there's 50% - 60% to 61%, 62%, so that's probably - I don't see we go beyond that.

Yeah. Great. And then my follow-up is just on growth question. I know you guys are trying to avoid guiding specific - to a specific number 2018 again, but if I think about the computing segment, you've got kind of uplift, higher ASPs in QSMod and then you get the full year's benefit of the Purley ramp. And then on consumer you've got obviously the full benefit of a full year's worth of a gaming consoles ramp or you've kind of increased your market shares. Is there any reason to think that the growth rates of these two segments could be positively bias, slightly higher in 2018 versus 2017?

I think Michael did a good job responding to that, saying that if you look at the growth profile of 2017 and plus or minus a couple of percentage points off of what we enjoyed there, that's pretty much what we're expecting for '18 as well.

Well, it's a gaming, and I can't openly fit it. It's not my favorite topic. And it goes up by a quarter a lot, and then next couple of quarters it comes down again. And I want to manage a very, very smooth growth and that can - and sustainable growth. And so since you mention of for gaming, of course, there is a lot of dollars to be made. And these are very opportunistic. So that's why we have a few percentage variations.

But on the gaming, and I think it's very important to offer that we're fully committed to the gaming platforms, and but there are limited opportunities for growth. And so we have to be able to make sure that the market understands that we are positioned for the long term there, and to be able to enjoy the benefits of future design wins to help accelerate that growth.

Great. Thank you.

Thank you. Our next question comes from David Wong with Wells Fargo. Your line is now open.

Yes. Hi. This is Amit Chandra dialing in for David. Thanks for me letting me ask a question. Bernie, for the December quarter, could you share with us what percentage of your cash flows are onshore versus offshore? And should we expect the majority of offshore cash to be brought back to the U.S. post tax reform? And what are your priorities for uses of cash in 2018?

So at the end of the year, we had about 40% of our cash is onshore, 60% was offshore. We are continuing to evaluate what the impact of the new tax reform means for us. We took an initial step by increasing the dividend this quarter, and we're going to use the remainder of this year to consider other opportunities where we increase shareholder value even through dividends or acquisitions or perhaps even a stock buyback. But right now, we haven't firmed up any specific plans around that.

Okay. Great. And then as a follow-up, in your high end notebook business can you maybe talk about the product cycles that you expect better upcoming in 2018 to drive that business higher?

Yeah, I'd say that the notebook business, a lot of that has to do with customer adoption. And we have a couple of very good prospects that we've been designed with. And we're looking at various scenarios as far as what the timing and the unit volumes could be. One of the things that you may be aware of is that Cannon Lake was cancelled and the next opportunity for a new design will be, I believe it's called Whiskey Lake, which is supposed to be in mid 2019. So I think we feel very, very well positioned there. We have very good new adoptions that are occurring right now, but that the product cycle from Intel got moved out by a year.

Well, since you mentioned, notebook is not my favorite either. And these are kind of low-margin but the way Bernie emphasize high value notebook. And those are generally their sales are retailing price like $1200 or $1300 and above. And some of the models they pay it. And so they appreciate our technology, as those are product that we deliver…

That we want to go after.

Yes.

Okay. And then one final one for me, for your E-Fuse opportunities, can you talk about that in 2018?

Sure. E-Fuse tends to be lower dollar content, but what they been very helpful for us is being able to open the door for opportunities that we haven't else wise had.

Are you talking about server area or talking about all the area?

Broadly.

Yes, broadly speaking.

The server area is - the MPS become a single source and adoption in some very large customers. And our product now is realized - just start to realize by all the large first tier makers. And those are not small lower dollar, very high margin and what we are more excited about in all. And the trend is to replace the blowup fuse and use an electronic fuse, so that's where the MPS opportunity lies.

There is also an opportunity in the communications network as well. And that should start to roll out here at the end of 2018.

Okay, great. Thank you very much, gentlemen. Appreciate it.

Thank you. I show no further questions in queue. So I would like to turn the conference back over to Mr. Blegen for closing remarks.

Thank you very much. So thank you for joining us on the conference call. And I look forward to talking to you again during our first quarter conference call, which is likely to be at the end of April. Thank you, and have nice day.

Thank you. Ladies and gentlemen, that does conclude today's conference. Thank you very much for your participation. You may all disconnect. Have a wonderful day.