Monolithic Power Systems, Inc. (MPWR) Q1 2019 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Monolithic Power Systems First Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions]As a reminder, this call is being recorded. I would now like to introduce your host for today's conference, Bernie Blegen, Chief Financial Officer. Please go ahead.

Thank you very much. Good afternoon and welcome to the first quarter of 2019 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 uncertainties, which could cause results to differ materially from management's current views and expectations. Please refer to the safe harbor statement contained in earnings release published today. Risks, uncertainties and other factors that could cause actual results to differ are identified in the safe harbor statements contained in the Q1 earnings release and in our SEC filings, including our Form 10-K filed on March 1, 2019, which is 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, net income and earnings on both a GAAP and a 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 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 2018, Q4 2018 and Q1 2019 releases, 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. MPS had another record first quarter with revenue of $141.4 million, 9.5% higher than the comparable quarter in 2018. MPS continues to benefit from our technology leadership and diversified multi-market strategy. Looking at our revenue by market, first quarter 2019 communications revenue of $22.2 million rose $6.4 million or 40.8% from the first quarter of 2018. Communications revenue represented 15.7% of MPS' first quarter 2019 revenue compared with 12.2% in the first quarter of 2018. The year-over-year increase primarily reflected an initial 5G networking sales, as well as higher sales in the residential gateway and router market. First quarter 2019 industrial revenue of $21.3 million increased 21.6% from the first quarter of 2018 and accounted for 15.1% of our total first quarter revenue, up from 13.6% in the first quarter of 2018. The increase over the first quarter of 2018 primarily reflected gains in power sources and security applications. First quarter 2019 automotive revenue of $20.5 million grew 15.7% over the same period of 2018 and represented 14.5% of MPS' first quarter 2019 revenue versus 13.7% in the same period of 2018. This growth primarily represented increased sales of infotainment, safety and connectivity application products. In our computing and storage market revenue $39.2 million, increased $8.2 million or 26.5% year-over-year. First quarter 2019 computing and storage revenue represented 27.7% of MPS' first quarter 2019 revenue compared with 24% in the first quarter of 2018. The year-over-year revenue increase primarily reflected the sales growth for notebooks and servers. Compared with the first quarter of 2018, revenue from consumer markets decreased $9 million or 19.1%. The year-over-year revenue decrease reflected across the board reductions in traditional consumer markets. Consumer revenue of $38.1 million represented 27% of our Q1 revenue compared with a 36.5% contribution in the first quarter of 2018. GAAP gross margin was 55.2%, 10 basis points higher than the fourth quarter of 2018 and 20 basis points lower than the first quarter of 2018. Our GAAP operating income was $21.7 million compared with $22.0 million reported in the first quarter of 2018. For the first quarter of 2019, non-GAAP gross margin was 55.6%, matching the fourth quarter of 2018, but 30 basis points lower than the first quarter of 2018. Our non-GAAP operating income was $39.6 million compared to $37.2 million reported in the first quarter of 2018. Let's review our operating expenses. Our GAAP operating expenses were $56.3 million in the first quarter of 2019, compared to $49.5 million in the first quarter of 2018. Our non-GAAP first quarter 2019 operating expenses were $39.0 million, up from the $35.0 million reported in the first quarter of 2018. The differences between non-GAAP operating expenses and GAAP operating expenses for the quarters discussed here are stock compensation expense and income or loss on unfunded deferred compensation plan. For the first quarter of 2019, total stock compensation expense including approximately $531,000 charged to cost of goods sold, was $16.0 million compared with $15.0 million reported in the first quarter of 2018. Switching to the bottom line, first quarter 2019 GAAP net income was $26.2 million or $0.58 per fully diluted share compared with $21.9 million or $0.49 per share in the first quarter of 2018. First quarter 2019, non-GAAP net income was $37.9 million or $0.84 per fully diluted share compared with $35.0 million or $0.79 per fully diluted share in the first quarter of 2018. Fully diluted shares outstanding at the end of Q1 2019 were 45.2 million. Now let's look at the balance sheet. Cash, cash equivalents and investments were $362.3 million at the end of the first quarter of 2019 compared to $380.5 million at the end of the fourth quarter of 2018. For the quarter, MPS generated operating cash flow of about $38.8 million compared with operating cash flow of $16.3 million in the first quarter of 2018. First quarter of 2019 capital spending totaled $59.4 million. Accounts receivable ended the first quarter of 2019 at $58.9 million or 38 days of sales outstanding, up five days from 33 days at the end of the fourth quarter of 2018 and four days higher than the 34 days posted in the first quarter of 2018 reflecting the back-end weighting of shipments within Q1 2019. Our internal inventories at the end of the first quarter of 2019 were $142.5 million, up from the $136.4 million at the end of the fourth quarter of 2018. Days of inventory increased to 205 days at the end of Q1 2019, compared with 180 days at the end of the fourth quarter of 2018 and 177 days at the end of the first quarter of 2018. The 25 days sequential increase is primarily due to an unexpected delay in customers' new product ramps and legacy business push outs. As we've said in the past, we're comfortable carrying a higher than normal level of inventory during the downturn given that most of our products are not customer or application specific and carry minimal obsolescence risk. Having said that, while inventories are likely to remain elevated through the second quarter we do not expect meaningful reductions until early 2020. I would like now to turn to our outlook for the second quarter of 2019. We are forecasting Q2 revenue in the range of $147.5 million to $153.5 million. We also expect the following, GAAP gross margin in the range of 54.9% to 55.5%, non-GAAP gross margin in the range of 55.3% to 55.9%, GAAP R&D and SG&A expenses between $55.5 million and $59.5 million, non-GAAP R&D and SG&A expenses to be in the range of $38.5 million to $40.5 million. This estimate excludes stock compensation and litigation expenses. Total stock compensation expense is $17.6 million to $19.6 million including $550,000 that will be charged to cost of goods sold, litigation expenses ranging between $300,000 to $500,000. Interest and other income is expected to range from $1.4 million to $1.6 million before foreign exchange gains or losses, fully diluted share to be in the range of 45.1 million to 46.1 million shares. For the second half of the year, we still see some uncertainty in our end markets and remain cautious. We will continue to adapt to the changing market conditions and execute as planned. I will now open the phone lines for questions.

Thank you. [Operator Instructions] Our first question comes from the line of Matt Ramsay with Cowen. Your line is now open.

Hey. This is Josh Buchalter on behalf of Matt. I was hoping to dig a bit into the computing and storage portion of the business. The year-over-year growth is still solid, but it is below your expectations heading into the quarter. Given the overall weakness we've seen across the board in datacenter, storage and PCs, I was wondering if you could provide a little more granularity there and how that dynamic between weak units in your content increases and new platforms plays out. Thank you.

Sure, Josh, and good to hear from you. I think what we're seeing is in Q3 of 2018, there was a step down in SSD revenue, and that's essentially stayed at that lower plateau in each of the two following quarters. And then in Q4 of last year, we also saw a decrease in server content. And the belief is that certain of the hyper scales have over build the data centers and are taking a pause as they justify the next round in investment.

I think as an overall all the design win activities to the same and we compare the last couple of quarters on the server side we still gained shares and I think the revenues also increased. The momentum is the same.

Got it, thank you and then more broadly, given the soft start to the year. I was hoping to hear some thoughts on your seasonality into the second half. And sort of how you're multiple content verticals are paying off on this soft macro that we've seen throughout the entire industry. Thanks for taking my questions and congrats on the solid results.

Yeah, okay. Well second half, that I recon [ph], we don't have a - last year we prepared all inventories and we expect to have a huge win 2019 and up till now still not very certain, and our customers give us a different signals and that came in. So we just are waiting to see.

Yeah, I think that you're aware of that MPS didn't specifically guide beyond the current quarter. But certainly, these are unusual market conditions. If you look at our seasonality going from Q1 to Q2, over the last five years, you'd probably see a trend that we've increased it between 10% and 12% sequentially. Currently, we are forecasting revenues grow at a slower 7% rate, which I believe is probably indicative of a more gradual broad based recovery in the macro environment. So I don't see any one catalyzing event that will necessarily turn the tide for us, as we said, MPS expects to see a more gradual improvement in demand through the remainder of 2019.

And overall, we still expect to grow and just because the market share gain. And, but how much growth came in is very difficult to tell now.

Got it, thank you, guys, and congrats again.

Thank you.

Thank you. Our next question comes from the line of Tore Svanberg with Stifel. Your line is now open.

Yes. Thank you. Couple of questions, maybe we can start off with some of the end markets for Q2 specifically. So, yes, Bernie you mentioned the growth is sub-seasonal, but it's still growth. So, are you seeing all segments recovering or are some still a bit slower than others?

Well, I think that we are actually very well positioned across the board and I think that speaks well on our diversification. If I had to pick out a high runner, as we look at going into - for Q2, I think communications which took a big step-up as a result of initial 5G investments will continue at a little bit elevated level over what we saw in Q1. And certainly that represents a significant improvement over the prior year. I think that computing, you're going to see that also is expected to take a step-up. But recognizing that it's been at a fairly, I don't want to say depressed, but lower level as the data centers have sort of hit the pause button. I think also that automotive, I don't see an immediate turnaround there, but I do see an uptick as we go from Q1 to Q2. And then, industrial, which has really been in a very elevated level for a number of quarters, would probably return to its normal cadence. And consumer again is still being impacted by soft demand.

I think the worst one is as Bernie, even said, the last one is the consumer. And all the other one is we gain market shares and actually in Q2 we see better than Q1.

Very good and Bernie, I don't - did I catch - did you say CapEx was $59.4 million in the quarter?

I'm sorry, CapEx?

Yeah.

Yes.

Yes. Can you maybe elaborate a little bit on what that money was spent on because that's a little bit higher than usual?

Sure. We purchased a building in Kirkland, Washington, which we will be using as both our regional executive offices, as well as this is going to be our center for e-commerce, which will give us the opportunity to recruit software engineers with this experience in their background. And if you take sort of a larger view because if you look back, we have been purchasing office space over the course of the last two years and this is part of our geographic diversification program, which allows us to draw talent worldwide for specific end market applications. So as we look forward, we also completed the purchase here a couple weeks ago of a building in Detroit, which will allow us to create a Center of Excellence servicing automotive. And we're in the process of buying office space in Barcelona, where we have a design center. And then also, we are going to be building another location, a couple hours out of Stuttgart, Germany, in the Rhine Valley. So not only do these moves aid our future growth, but we believe that owning the buildings is accretive to the P&L versus the alternatives of renting the facilities.

And those money - and we got a better return than we are putting in the bank. But it really help the - it's all EPS plus and particularly in Washington we need more space and so we can acquire building as the EPS plus actually.

Very good, just one last one for you, Michael, the e-commerce business, I always look for updates there. Could you maybe give us the latest and greatest there please?

We're still learning. I think it's - overall, we launched websites and that came in - we launched the website frankly and the activities is not as high as we think, but on our distributed website our product sell well. And so obviously, we're still in the learning stage and also all the programmable parts, all the modules, if we give them a floppy disk they can download them and that is doing really well and we have to somehow had it linked to our e-commerce. Again, how do we provide a better usage for our website and how they solve their current problem of using those programmable parts? And we're still learning, but the product itself is not selling through e-commerce, and we're doing really well. It's a better than any - we really expected it. And some glitch on the websites, because there maybe or the way we told is too confusing. We may know to how to use it, auto program the parts. And every other week we are upgrading our website. But the concepts from feedback from our customers, these are revolution parts - these are revolution way of designing power supplied and that they are like that and obviously this still have some missing link.

Very helpful. Thank you.

Okay.

Thank you. Our next question comes from the line of Rick Schafer with Oppenheimer. Your line is now open.

Thanks and I'll offer my congrats on a solid quarter in a tough environment, maybe my first question on server. I know your Whitley [ph] - we've talked about anyway your Whitley content going from, I think, something like $50 probably to $70 or something all in. I think most of that increase is QSMod, I believe. Is there any sense or can you give us any sense of how much incremental server contents you'll see as AI accelerator attach rates grow and we migrate to 48-volt? I mean I would assume that those two things would be incremental for you guys to that move to $70 a content, but I'm just curious what that looks like to you guys.

Yes. We have all the design wins, and that came in, 48-volts. We now started selling - many customers, we started selling, designing the modules. And we expect the Q2 have some kind of a ramp, and it didn't happen. But we'll still hold the second half. And some projects, we understand it has engineering delay. Other ones, we're not very sure. But what we're for sure is we're winning all these projects.

And Michael, to be clear, it is - you're not including 48-volt or GPU accelerator or FPGA accelerators in that move from $50 to $70?

No, no, those are separate. Those GPUs and also the AR, these are the content that are much higher - much, much higher. And it's the same kind of thing for ADAS, Jim [ph] four or five. And these are essentially - is the same product, and we are on winning many of these sockets now.

Okay. Okay. And then my follow-up question, and this is - I haven't asked in a while, on gross margin. As you guys ramp 55-nanometer, and I know this is a multiyear progression or transition, but as you ramp 55-nanometer on 12-inch wafers and you mix favors, increasingly favors server, auto, industrial and eventually SMB or e-commerce, can we see it kind of a similar scenario that we saw in your top line over the last couple of years where you saw the revenue top line actually accelerate? Could we see an acceleration in your gross margin expansion or just give us maybe some color there on what those puts and takes are as you see them?

Yes. I think I mentioned it before. We are not going to - the current margin is not - it's not - we don't plan to use - we don't use this as our long-term model, okay. Our long-term model, the margin will go up. And because we're going after all these high-value products, these are with the higher margin associated with it. And in the next couple of years, these products - obviously, as Bernie mentioned in the - especially in the industrial/automotive and part of the servers and even high-value consumer, the consumer product line, the margin steadily move up and they move kind of slower. But all the other ones, the industrial, automotive and, in particularly, e-commerce, when those things taking off, I think our margin will, in a few years later, you'll see a dramatic improvement.

Okay, thanks a lot.

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

Hey, thanks for taking my questions. I want to offer congratulations in weathering a tough demand environment very well. I'd like to first ask, as it relates to the cycle, though, Monolithic was a little bit later to see the downturn. I think your company was still presenting this 20% through the cycle as also sort of the current environment situation a little bit longer or you saw the downturn a little bit later. Should we likewise see the recovery a little bit later for Monolithic as well? Is that a reasonable assumption?

I think - because you said - as you said, it is a delay, but I don't see a delay, because all these activities, these are green fields. We didn't have it in the four, five years ago. And that design cycle takes two or three years. And all we see is either entered a new product market segments or share gain. And when it recovers - when the market recovers, I think it will accelerate the growth. It will grow faster, much faster than everybody else. And as I said, okay, we will beat the market by 15% at least.

Yeah. I think that's a key ingredient there, Will, is that part and parcel to our belief that we can model annual revenue growth at 20% is that we will outperform the market by 10 to 15 percentage points. So when you look at full year 2018, the market grew at about 11% and we grew at about a little over 24%. So that metric works out. When I look at the guidance for some of our largest peer companies and you aggregate it, there's sort of an acknowledgment, really, in just the last quarter that full year 2019 probably is going to shrink by about 4% to 5%. So if you look at us as being able to perform a 10 to 15 percentage points better, that gets you into the middle single digits, which is not our historic growth. But again, that margin of how we can outperform the market remains intact.

So to your questions, I don't see how and why we can delay the recovery. So that's my take.

Okay. I appreciate that answer, maybe two other real quick ones. First, I think last quarter, inventory at distribution increased a little bit at the end of the quarter. I'd love an update on that. And also on E Motion please. Thanks.

Yeah, okay. I'll take the first question, and Michael will take the second. So on the channel inventory, and you have to kind of look at the cadence of how this quarter played out. In January, we actually had a very good month, both as far as new business that we booked, the business that sold as well as sell-through by the distributors. I think a lot of that was in advance of an earlier-than-normal Chinese New Year. February was a little lackluster, and what that ended up doing is making - the quarter was really backended loaded, which did not allow the channel time to sell that inventory through. So again, we went up a couple of days, partly because of the order - or the shipping pattern and ordering pattern as well as you have a lower denominator for the quarter. And a lot of that increase did occur in China.

Okay. The E Motion - and actually, that product is doing great. And if you notice it, we have online MPS, we're selling small models, including the model now. So like these are meant to be for a demonstration purpose. Actually, we sell quite a bit models now. And overall, it's still too soon to break out the product line, and it's a meaningful to move the needle now and move the overall revenue needle.

Great, thank you.

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

Hi, guys. I want to ask a couple of questions. The first one is on the inventory side of the equation. You mentioned that there were some push outs and obviously the end demand is weak as well. But when you talked, Bernie, about you didn't expect it to come down until early 2020, is that mainly on a days basis? Or are you talking in dollars basis? And is there some level at which the dollars become worrisome to you? And any sort of obsolescence, risk or anything like that, that we should be concerned about.

So when you look at the increase that we had in Q1 inventory, again, a lot of it reflected wafer starts that began in earlier periods and were now going through WIP and finished goods. And so that, in conjunction with the fact that we did have delays in some of our customers' new programs. And there were some legacy business push outs, particularly in consumer, accounted for much of the increase. We are taking steps as far as lowering wafer starts, and the impact of that should be visible here in Q2 in terms of dollars. But again, the reason we're not expecting the days in the inventory necessarily to come down rapidly is again partly a reflection of the continued weakness or the slower uptick in a recovery here. So I don't think that there is a dollar or a days' quotient that would really get me concerned. But I would like to believe that we're at a level that we're plateauing and then with the opportunity as the recovery gains steam to come down. And as I said in my prepared comments, that's more likely to be in the next year.

Under this current market conditions, let's say, the business is same as the second half of the year, we don't plan to write off a bigger chunk of the inventories because these products are all good. We made those products - made a way - created this inventory for - prepare for a big ramp. And it may still happen for Q3. If you look at the inventory, 200 days, okay, 200 days is based on - was it the Q1's number, the Q2's number?

Q1.

Yes, Q1 then. And if you're looking at a ramp to somewhere 170 million, 180 million, that's nothing and so we still don't know whether they're going to recover or not. We need this inventory. But this inventory, under an uncertain environment, it is too high to make it.

Yes.

Got it and I guess on the comms side of things, great growth year-over-year. You mentioned, in the past, there was some of the gateway in the router side, and then you also mentioned the 5G side of things. Can you remind us on two aspects with the 5G side of things roughly what size is that as a percentage of either the segment or total revenues and then the content that you have in 5G, if you could just remind us of how to think about that.

I think the increase are both similar dollar amount. And 5G, Ross, if you remember, a few quarters ago or a year ago or so, our communication was to go sidelines - or go sideways. And I mentioned that in the comms, we have some killer products come out in the comms. And also, we're waiting for new product cycles. And this product hit the market and now move the revenue needles now. In the gateway, it's very price competitive. And under the current situation, we want the revenues, and we just grab those market shares.

Yes. I think this is actually a terrific story. Michael, didn't necessarily take full credit because we have remained very committed to the comms market. But what Michael had just said is we never had a killer application to go after it. And I think that that's the reason that for years this segment has underperformed, really going sideways between $15 million and $16 million per quarter. But now - so we basically missed out on a lot of the 4G wave. But we've recognized the significance of this market, and we developed new products that are exceeding our customers' expectations and their requirements. And I believe that we're very well positioned in a time when the 5G infrastructure investments are about to explode. So as Michael said that we're about 50-50 as far as the mix between the lower-margin gateway and the infrastructure networking. But I think that that's going to tip very much in favor of the higher-margin networking and infrastructure as this rolls out over the next two years.

Got it, then one last one for me, given the current market environment, you talked about what the implications were for inventory and revenue, et cetera. How do you guys think about the implications on your OpEx growth related to the aftermarket?

I think that we're very selective about hiring. Our hiring plan we changed. They were much reduced. And that's our biggest expense. So we - but we're hiring still and only hire for the best talent. And overall for the company growth, we freeze.

Yeah. And I think just to add to that real quickly is that we also are continuing our investment with the 12-inch and 55-nanometer, which will continue through this year because we believe that's a strategic goal that we want to have in position by 2020.

Yeah, okay.

Got it. Thanks guys.

Thank you. [Operator Instructions] Our next question comes from the line of Quinn Bolton with Needham. Your line is now open.

Hi, guys. Wanted to first follow up on some comments you made last quarter about the new product slips given the slower environment. I think you had mentioned a number of areas: China new model automotives, smart meters in China and then it sounded like a few things in the data center GPU server segment. Can you give us some sense when you think those programs may now start to ship?

It's smaller amount. We expected more, but there's not as much. And order - however, all the activities, and especially these are first-tier customers, and we engaged a lot more than before. And we're engaging with - even at the executive levels. And before, like a couple of years ago, nobody knows who is MPS. Okay. And now all these activities went up a lot in the infrastructures as well as the server market segments.

And I'd just like to emphasize something is that if you look at automotive where the growth rate is definitely taking a haircut as a result of slowdown particularly in China, but also it's been - actually, geographically, almost every region was down this quarter. But I really don't want to - I want to avoid putting too much stock on a single quarter-on-quarter deviation and really focus, as Michael did, on sort of the macro view that in these areas where we have invested and we have new greenfield opportunities, we're still having a very high level of customer engagement. We're still achieving at the same pace our design win activity. And there have been delays in some of our customers going into markets, but we're not losing any competitive position out of it. And particularly, in the areas that we've said are going to be growth areas, for example, ADAS and lighting and infotainment and automotive, those are on track. Obviously, you saw the initial results in the comms market with the 5G. So I think that the basic cadence of the business remains very strong. And it's just a matter of - and I think we're going to be very well positioned when the market returns to a more normal level.

Understood, a second question, if the market is down 4% to 5% this year, and you can grow 10 to 15 points faster, it seems like that should get you somewhere between 5% to 10% year-on-year growth, which, if I'm doing my numbers right, kind of puts you around where the Street consensus is looking for 2019. But I guess, Street consensus probably had you growing at your normal rate of seasonality in the third quarter. And that's I think typically your biggest quarter-on-quarter increase. And then the Street is actually up a little bit in December, which is an atypical pattern. You mentioned in the prepared comments that you still see - you saw limited visibility. The industry is still sort of not yet fully recovered. So I guess I'm trying to get a sense, do you think then expectation for normal seasonality in Q3 makes sense? Or would you say that may be aggressive where you stand today?

Yeah. Again, if you use Q2 as an example, even Q1 as an example, our normal seasonality for Q1 would be down sequentially by four percentage points. So we came down at about 7.9% or 8%. So there is a four percentage point delta from our normal sequential movement. And then if you look at what we've guided here, again if you look back the last four or five years, the growth between Q1 to Q2 would have us going up somewhere in the neighborhood of 10% to 12% - 11% just call it. And we've guided revenue to grow at a slower 7% rate. And again, I referenced that as being a more gradual, broad-based recovery in the macro environment. So I probably suggest that the sequential growth rates for the second half of the year are probably - are likely to also be about four percentage points below their seasonal norms.

All this, Quinn, are still unknown. And some of our products, some of the applications and market segments, we see pull in. And other ones push out. So as Bernie said in the script is it's uncertain. And so in terms of what's the numbers, okay, why don't you make a number lower, and let us beat it.

Understood and then last question for me. In the first half of the year, it looks like your benefiting, from a revenue perspective, from this residential gateway business. It is a lower-margin business for you. Can you give us any thoughts how long do you see residential gateways continuing at sort of an elevated level, which was maybe part of the reason why margins are lower than where they were second half of last year or third quarter of last year?

Yeah. Okay. These are - okay, I want revenues now. I want revenues. And in this kind of things, a half a year ago, we're a little bit aggressive on it, and that's reflecting now. Okay. And we also try it to consumers, but it didn't have any effect. Okay and so we didn't increase - we're still losing - we still have a - this quarter, we have it significantly lower than last year, right? And - but it's not because of if we lower the price, okay, we can't - could not get more market share. And so we made a decision to stay as is. Okay. At least, we don't lose our bigger, major sockets in the consumer side. Come back to the comms, to the router business, we're still aggressive. And this period - and it still makes very good money but the margin is lowered. As we gradually - everything else recovers, speed ups or the new product in a ramp-up. And we can go less aggressive on that.

Yeah. And I think specific to the residential gateway, you'll remember that products stepped up in sales beginning in Q3 of '18. And if we hold with our forecast, we'll pretty much fulfill that opportunity by the end of Q2. So I think that there is an opportunity within communications to see a step up in the more favorable product mix. But again, Michael has said it three times, all there is - right now, there remains uncertainty. And so it's really hard to say how our margins are going to improve in the near term. I think when we look longer term, certainly there will be an accelerated impact on our margins. But timing that right now again is uncertain as timing the return to normal for revenue.

Yeah. Actually, there's other reason why we do this, okay? We want to ensure our supply have a continued - have a continuity. And so we actually are doing a part of it for our wafer fab and we ensure they are constantly loading.

Got it. Thank you.

Okay.

Thank you. This concludes today's question-and-answer session. I would now like to turn the call back to Bernie Blegen for any closing remarks.

Great, I'd like to thank you all for joining us for this conference call. I look forward to talking to you again during our second quarter conference call, which would likely be at the end of July. Thank you, and have a nice day.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program. You may all disconnect. Everyone have a great day.