Power Integrations (POWI) Q4 2007 earnings summary

Executive summary

• FY07 revenue rose 18% to $191.0M, while GAAP net income nearly tripled to $26.6M; operating cash flow reached $62.6M.

• Growth reflected broader product penetration, especially LinkSwitch and TinySwitch-III, as efficiency rules encouraged replacement of inefficient linear power supplies.

• The December acquisition of Potentia is intended to extend products into higher-power applications and expand the addressable market.

Financial highlights

• Net revenue was $191.0M in FY07, up 18% YoY; gross profit was $103.5M versus $88.6M in FY06.

• Operating income was $25.8M versus $3.8M; net income was $26.6M versus $9.4M, with FY06 weighed by elevated investigation and restatement costs.

• FY07 operating expenses were $77.7M, down from $84.8M; stock-option investigation costs were ~$5.4M versus ~$13.7M in FY06.

• Operating cash flow was $62.6M, up from $29.2M; year-end cash, cash equivalents and short-term investments totaled $205.5M.

Outlook and guidance

• FY08 operating expenses were expected to decrease from FY07 as investigation and restatement costs ended; R&D and sales and marketing expenses were expected to rise, while G&A was expected to decline.

• R&D spending was expected to increase in FY08, primarily from Potentia-related headcount; sales and marketing costs were also expected to rise with international business growth.

• Potentia-related high-power products were expected to begin creating potential new revenue streams in 2009; estimated addressable market could grow from $1.6B to $2B or more over the next two years.

• Cash from operations and existing liquidity were expected to cover working capital and other cash needs for at least 12 months.