Power Integrations (POWI) Q4 2004 earnings summary

Executive summary

• Record 2004 net revenue of $136.6M; net income rose 13% YoY, cash and investments increased by nearly $20M, and a first share-repurchase program was launched.

• Innovation and product diversification supported growth in consumer and industrial markets; communications revenue fell amid a China cell-phone inventory glut and competitive pressures.

Financial highlights

• Net revenue was $136.6M, up 8.7% YoY; product sales contributed $134.3M.

• Net income was $20.4M vs. $18.1M in 2003; diluted EPS was $0.63 vs. $0.57.

• Operating income was $25.7M vs. $24.1M; gross profit was $65.2M vs. $62.9M.

• Operating cash flow was $30.1M vs. $20.4M; cash, cash equivalents and short-term investments totaled $122.3M at year-end.

Outlook and guidance

• 2005 operating expenses expected to increase significantly due to SFAS 123R adoption, patent-litigation costs, and added R&D and sales resources.

• Gross margin expected relatively flat in H1 2005 vs. FY 2004, then lower in H2 with SFAS 123R; pricing pressure or further yen strengthening could also reduce margin.

• 2005 effective tax rate expected to be ~26%; cash from operations and existing liquidity expected to cover working capital and other needs for at least 12 months.

• California external-power-supply efficiency rules take effect in July 2006; EcoSmart products positioned to help manufacturers comply and capture demand.