Power Integrations (POWI) Earnings Transcript

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DATE

Wednesday, November 5, 2025 at 4:30 p.m. ET

CALL PARTICIPANTS

Chief Executive Officer — Jennifer Lloyd

Interim Chief Financial Officer — Eric Verity

Vice President, Investor Relations — Joe Shiffler

Need a quote from a Motley Fool analyst? Email pr@fool.com

RISKS

CEO Lloyd said, "tariffs have severely disrupted that industry, adding to the difficulties caused by stagnant home sales in the US and China's weak housing market," contributing to revenue volatility.

Interim CFO Verity reported that non-GAAP gross margin is expected to decrease to 53.5%-54% in fiscal Q4 2025 (ending Dec. 31, 2025), driven by a "less favorable end market mix" and "Lower back-end production volumes."

Management expects "significantly lower consumer revenues driven by the softness in appliances" and lower industrial revenues in fiscal Q4, with uncertainty about the timing of recovery in the consumer segment.

The non-GAAP effective tax rate is projected to rise to the high single digits in 2026, driven by a lower exemption for overseas income, according to Eric Verity, which may reduce net earnings.

TAKEAWAYS

Revenue -- $100 million in fiscal Q3 2025 (ended Sept. 30, 2025), up 3% sequentially (non-GAAP); Full-year revenue growth (non-GAAP) is expected to be about 6% at the midpoint of fiscal Q4 guidance.

Q4 Revenue Outlook -- $100 million to $105 million, with both consumer and industrial end markets projected to decline sequentially, mainly from appliance weakness and industrial seasonality.

Business Mix -- In fiscal Q3, the non-GAAP revenue mix was 42% industrial, 34% consumer, 13% computer, and 11% communications.

Industrial Segment -- with high power gate-driver business up over 30% year to date and continued strength in electrification and grid modernization applications.

Consumer Segment -- Appliance orders fell about 40% in fiscal Q3 compared to the first half; appliances were previously 40% of first-half sales, and management anticipates further weakness in fiscal Q4 driven by this segment.

Gross Margin -- Non-GAAP gross margin was 55.1% in fiscal Q3 2025, down 70 bps from the prior quarter (non-GAAP); fiscal Q4 non-GAAP gross margin guided to 53.5%-54% reflecting unfavorable mix and currency impacts.

Operating Expenses -- Non-GAAP operating expenses were $47.4 million in fiscal Q3 2025, up sequentially due mainly to higher legal expenses; fiscal Q4 non-GAAP operating expenses are guided slightly lower at approximately $47 million.

EPS -- Non-GAAP earnings per diluted share were 36¢ in fiscal Q3 2025, with a diluted share count of 56.2 million (non-GAAP) in fiscal Q3 2025 which declined by about 200,000 sequentially in fiscal Q3 2025 due to share repurchases.

Cash Flow -- $30 million in cash flow from operations in fiscal Q3 2025 and $6 million in CapEx in fiscal Q3 2025; Full-year free cash flow is on track to exceed $80 million in 2025.

Shareholder Returns -- $42 million spent on share repurchases and $11.8 million in dividends in fiscal Q3 2025, bringing total 2025 expected returns to nearly $150 million; Board has declared a dividend increase of $0.005 to $0.215 per share effective in 2026.

Channel Inventory -- Channel inventory at the end of fiscal Q3 2025 was 9.8 weeks, up from 7.6 weeks in Q2; management reports significant fiscal Q4 inventory sell-through exceeding sell-in.

Data Center Strategy -- Management highlighted collaboration with NVIDIA on 800V DC architecture for AI data centers, with production targeted for late 2026.

Automotive and High Power Design Wins -- Added a major Indian electric locomotive customer and won largest design with a German heavy vehicle drive systems firm; Six new design wins in passenger EVs in fiscal Q3 2025 augment the existing presence in over 40 EV models.

Tax Rate -- The non-GAAP effective tax rate was 2% in fiscal Q3 2025, with an outlook for a non-GAAP effective tax rate of 3% in fiscal Q4 and an increase to high single digits in 2026 due to US tax code changes.

Inventory Management -- Inventories on the balance sheet fell by 18 days to 278 days in fiscal Q3 2025; Channel inventory improvements are anticipated as fiscal Q4 2025 begins.

SUMMARY

Power Integrations (NASDAQ:POWI) reported sequential revenue and cash flow growth in fiscal Q3 2025 despite pronounced volatility driven by appliance-related demand and industry tariffs. The industrial segment showed continued expansion, validated by strong year-to-date gate-driver sales and strategic design wins in transportation and electrification markets. Management is actively reallocating R&D and go-to-market resources toward data center, automotive, and high power, reflecting strategic intent to leverage differentiated GaN technology. The company explicitly forecasts a sequential decline in fiscal Q4 consumer and industrial revenues (non-GAAP), while guiding for improved gross margin in 2026 supported by more favorable mix and FX movements.

CEO Lloyd highlighted that "the softness we're seeing in the second half is not a surprise," reiterating that major appliance revenue is expected to return to growth in 2026 as preloaded inventory clears.

Interim CFO Verity stated, "Sell-through has exceeded sell-in thus far in the fourth quarter," indicating that channel inventory normalization is in progress for fiscal Q4 2025.

Management announced that early samples of its system-level GaN product for rack-level AC/DC conversion will be delivered before the end of 2025, with production release planned for late 2026.

The board increased the quarterly dividend to $0.215 per share effective 2026, reflecting commitment to shareholder returns despite near-term top-line pressure.

CEO Lloyd emphasized reallocating, rather than increasing, R&D and OpEx: "we need to adapt our organization and our processes to increase the ROI on our R&D spending." while keeping spending disciplined.

INDUSTRY GLOSSARY

GaN (Gallium Nitride): A wide-bandgap semiconductor material used in high-efficiency, high-power electronic components enabling advanced power conversion applications including data centers and electric vehicles.

Gate Driver: An electronic circuit that controls the switching behavior of power transistors such as IGBTs and MOSFETs, crucial for efficient power conversion in industrial and automotive systems.

Channel Inventory: The amount of product held in the distribution channel (e.g., by distributors) rather than on the company’s balance sheet, used as an indicator of supply-demand alignment.

AC to DC Converter: An electronic device or circuit that converts alternating current (AC) to direct current (DC), fundamental in supplying power to electronic systems.

InnoMux: Proprietary product line from Power Integrations for multi-output power supply applications, particularly in data centers and auxiliary power sockets.

Full Conference Call Transcript

Jennifer Lloyd: I'm gonna cover three topics in my remarks today. First, I'll review current business trends and the Q3 results. Next, I'll expand on the opportunity for Power Integrations, Inc. in data center following the announcement last month of our collaboration with NVIDIA on their 800-volt DC power architecture. And finally, I'll offer some thoughts on my first hundred days in the CEO role and priorities for the months ahead. Starting with recent trends, we said on the Q2 call that we had seen a slowdown in orders in July, with bookings down about 20% compared to the monthly run rate of the first half of the year.

The lower run rate continued through the third quarter accompanied by weaker distribution sell-through. Appliances are by far the largest driver of the slowdown with orders down about 40% in Q3, compared to the first half. Appliances make up the bulk of our consumer category, which accounted for about 40% of our sales in the first half. Throughout the year, we have called out the sensitivity of white goods and other appliances to tariffs, owing to their high dollar value and their steel content. We've talked about the unusually strong growth in our appliance business in the first half.

And we've highlighted commentary from the largest US appliance OEM regarding what they've called, quote, extensive preloading, unquote, of imports from Asia in the first half. This was a key topic again on their Q3 earnings call last week. All of this is to say that the softness we're seeing in the second half is not a surprise. Appliances are a great business for us and typically generate a steady and fairly predictable revenue stream. But tariffs have severely disrupted that industry, adding to the difficulties caused by stagnant home sales in the US and China's weak housing market. Because it's such an important part of our business, we are seeing volatility in our revenues.

We expect fourth-quarter revenues of $100 million to $105 million with the consumer category driving a large portion of the decrease compared to the third quarter. We also expect industrial to be sequentially lower. Directionally consistent with recent Q4 seasonality but our industrial business continues to be strong with revenues up nearly 20% for 2025. That growth is coming from a broad range of applications, where we are capitalizing on big picture trends like electrification and grid modernization. Encompassing renewables, energy storage, high voltage DC transmission, and smart meters. Our high power gate driver business sits squarely in line with these trends and continues to gain momentum with revenues up more than 30% year to date.

In Q3, we built on our already strong position in the growing Indian rail business adding a major new customer with our first design win at one of India's largest suppliers, of systems for electric locomotives. We also won our largest design yet with our scale AV automotive driver boards at a major German manufacturer of drive systems for heavy vehicles. In low power, we continued our progress in passenger cars with six more design wins in Q3. Adding to the 40 plus EV models now on the road using our products.

We continue to win a robust share of inverter emergency power supplies and are using that foothold to go after other high voltage sockets like auxiliary power supplies for battery management and onboard charging. We see strong interest in our GaN-based solutions helping to drive the market to higher power micro DC to DC converter architectures. We have a strong pipeline of design activity in these applications and healthy revenue ramp over the next several years. Eric will cover the finer details of the quarterly numbers but I do want to highlight our cash generation and return to stockholders.

We generated $30 million in cash from operations in Q3, are on track for more than $80 million in free cash flow this year. We naturally expect free cash flow and free cash flow margins to rise as revenues recover, and that confidence is reflected in our cash returns. Including our fourth-quarter dividend, we will return nearly $150 million to stockholders this year through buybacks and dividends. Our Board has also declared a $0.05 per share dividend increase effective in 2026. Turning now to data center. At last month's OCP Global Summit, we published a paper demonstrating the advantages of our 1250 and 1700-volt GaN technologies in 800-volt DC AI data centers.

We also announced our collaboration with NVIDIA to help realize the potential of the new architecture to improve efficiency use less copper, and reduce the amount of data center space consumed by power infrastructure. The white paper is available on our website I encourage you to take a look at it. In short, our proprietary 1250-volt GaN accommodates an 800-volt input in a conventional power supply topology while standard 650-volt GaN requires stacking of multiple devices compromising power density and reliability while adding complexity. Another alternative, silicon carbide, can handle 800 volts, has significant limitations in terms of power density, due to its slower switching speed.

The paper also explains why our 1,700-volt InnoMux two is an excellent fit for the auxiliary power socket the 800-volt architecture. White paper includes reliability data comparing POWEGAN to other GaN technologies Reliability has been an obstacle to GaN adoption in the data center as well as the automotive market, And the fact that we are seeing traction in both these markets speaks to the superior reliability of our unique GaN technology. Fact, one of the key attributes of our technology that NVIDIA and other in the data center ecosystem have found attractive is the fact that it is automotive qualified and already shipping into the automotive market.

While we are excited about the 800-volt opportunity, GaN can also bring significant improvements in power density to existing AI data center architectures, which are expected to remain prevalent for years to come. By the end of this year, we expect to deliver early samples of our system-level GaN product for rack-level AC to DC converters, with production release planned for late 2026. And now I'll conclude with a few thoughts on my first hundred days in the CEO role. As I said on our call last quarter, just after I joined, that I was excited about our unique technologies and the depth of our expertise high voltage processes. Packaging, and systems.

I could also see that the need for innovative high voltage technology is growing because of the global trends that we've talked about, grid modernization, electrification, decarbonization, and, of course, AI. A hundred days in, I'm just as excited about the opportunities ahead of us and developing a clearer picture of the steps we need to take to best capitalize on them. As I said last quarter, our core power supply business is back on a growth trajectory with a mix moving toward higher margin industrial applications. The growth in our high power and automotive businesses shows that our products and expertise have significant value in those markets.

While our collaboration with NVIDIA validates the unique capabilities of our GaN technology. We continue to receive encouraging feedback in our conversations with other key participants in the AI ecosystem. I'm confident we have a lot of what we need in terms of technology and engineering talent though it's clear to me that we need to adapt our organization and our processes to increase the ROI on our R&D spending. And better match the needs of the markets that we expect to drive our longer-term growth.

Data center, auto and high power have different requirements and a different geographic footprint, than the mass market power supply business, and we'll be taking steps in the months ahead to better align our R&D and go-to-market resources with those markets. And while we need to reallocate some resources I don't believe we need to spend more to accomplish what we need to do. Have important hires to make, including some at the senior level, are limiting hiring to critical needs, and I'm pushing the team to tighten up on OpEx and capital spending. Our top priority is to drive shareholder value by growing our cash flow.

While revenue growth is really the key to that, disciplined spending will enable us to expand cash flow margins as we grow our revenues. It's something I'm emphasizing as we plan for 2026. And now for a review of the financial details, I'll turn it over to Eric Verity, Eric has been with Power Integrations, Inc. for more than fifteen years. Serving as senior director of finance for most of that time, and we're very pleased to have him step into the interim CFO role. Eric.

Eric Verity: Thanks, Jen, and good morning, everyone. I'll focus my remarks on the non-GAAP results, which are reconciled to GAAP in our press release, Third quarter revenues were up 3% sequentially to $100 million. Looking at the sequential changes, industrial was up high single digits on strength and traction and high voltage DC transmission in our high power business, as well as growth in metering and automotive. Communications was up high single digits driven by strength in cell phones. Due in part to a design win that we announced earlier in the year for a GaN accessory charger recently launched by a major device OEM. The computer category was up mid-single digits driven by tablets and aftermarket chargers.

Consumer revenues were down mid-single digits driven by softness in major appliances as well as seasonality air conditioning, offset by strength in gaming. Revenue mix for the quarter was 42% industrial, 34% consumer, 13% computer, and 11% communications. Non-GAAP gross margin for the third quarter was 55.1%, in line with our guidance and down 70 basis points from the prior quarter driven by higher input costs flowing through our inventory as well as small smaller benefit from the dollar and exchange rate. Non-GAAP operating expenses were $47.4 million in line with our guidance and up sequentially due mainly to higher legal expenses. The non-GAAP effective tax rate was 2%, resulting in non-GAAP earnings of 36¢ per diluted share.

Diluted share count was 56.2 million, down about 200,000 from the prior quarter driven by repurchases. Inventories on the balance sheet fell by eighteen days to two hundred and seventy-eight days, As Jen noted, we saw lower distribution sell-through in the quarter, which resulted in higher channel inventory of nine point eight weeks at quarter end. Sell-through has exceeded sell-in thus far in the fourth quarter, drawing down a significant portion of the channel inventory that accumulated In Q3. Cash flow from operations was $30 million for the quarter, while CapEx was $6 million. We used $42 million for the buybacks during the quarter, repurchasing 919,000 shares and completing our buyback authorization.

We also returned $11.8 million during the quarter in the form of dividends. As Jen noted, the board has increased the dividend by half a cent to 21.5¢ per share effective in 2026. Turning to the Q4 outlook, expect revenues of $100 to $105 million. We expect significantly lower consumer revenues driven by the softness in appliances as well as somewhat lower industrial revenues. At the midpoint of the Q4 range, full-year revenue growth would be about 6%. We expect non-GAAP gross margin for the fourth quarter to be between 53.5-54%. The decrease from Q3 reflects a less favorable end market mix with appliances and industrial driving the sequential revenue decline.

Lower back-end production volumes will also contribute along with the increase in the yen versus the dollar that took place in September. As a reminder, at our current level of inventory, changes in the yen dollar exchange rate take roughly a year to affect our gross margin. We expect gross margin to rebound from the Q4 level in 2026, as mix swings back toward industrial and appliances, and the impact of the yen moves back in a favorable direction. The yen has weakened considerably against the dollar of late, should provide further support for a gross margin towards the end of 2026.

Non-GAAP operating expenses for Q4 should be around $47 million down slightly from Q3, The effective tax rate for the fourth quarter should be around 3% before rising to high single digits in 2026, driven by a lower exemption for overseas income a provision of the 2017 tax reform legislation. Finally, I expect share count to come down by 400 to 500,000 shares compared to Q3, bringing our share count below 56 million. On a split-adjusted basis, that's significantly below the share count at the time of our IPO in 1997. And now operator, let's begin the Q&A session.

Operator: Thank you. We will now begin the 9 on your telephone keypad to raise your hand. Your first question comes from the line of Tore Svanberg with Stifel. Please go ahead.

Tore Svanberg: Yes. Thank you. Jen, I was hoping you could talk a little bit more about the consumer business directionally here. You know, obviously, there was some into the first half that are now being digested in the second half. But it does sound like you expect consumer to bounce back in the first half of next year, at least based on Eric's gross margin comments there. So help us understand some of the dynamics there. And maybe also you could include, what the, what this would mean for the, channel inventory, whether it's gonna be back sort of to that eight-week level as you exit the year? Thank you.

Jennifer Lloyd: Sure. Yeah. So, first, maybe let me talk about the decline that we saw you know, what we're expecting, and then maybe talk a little bit about slightly longer term. So we knew that the appliance know, decline was happening. We knew that Q4 was gonna be sequentially lower. It was difficult to forecast just because of the lack of visibility. And the inventory situation there is really finished goods that were shipped into the US, and you know, we have very limited visibility to that. But we what we did see at our distributors is they did bulk up in Q3. So as you said, the sell-through ended up being somewhat soft.

But know, we are already, seeing that channel inventory coming down right now, you know, where we are in the in the fourth quarter. So we are expecting that to bounce back. We're just not a 100% sure where the timing is gonna be when that comes back. But we have heard from example, Whirlpool said in 2026, they're expecting that to normalize as that preloaded inventory click clears out at the end of this year. So we are expecting our consumer business to get back to growth in 2026. Just it's a little bit hard to predict the timing of that. I know. Joe or Eric wants to add to that.

Eric Verity: Yeah. We did see a significant sell-through in October to take down that inventory. That you were mentioning? And we do see it normalizing next year, and we're expecting moderate growth in appliances for 2026.

Jennifer Lloyd: Very good. And that one more one more point on that. Sorry. The consumer business typically has some positive seasonality in the first half of the year because of air conditioning. Builds are going on for the summer. So that should that piece of the business should grow sequentially in Q1. The bigger question mark, obviously, is around major appliances, which is the biggest component of the consumer category. And, you know, as, generally, the world expects the preloaded inventory to be largely cleared out by the end of this year. The bigger question really for 2026 is just happens with consumer demand for appliances. As you know, housing has been a challenge.

Certainly in China, but also, you know, in the US. There's not a lot of turnover in existing homes, which is a pretty big driver of major appliance sales. So, you know, with rates coming down, there's a that could potentially help with demand for major appliances. Maybe I'll add one last comment on that is that you know, we still do see a great future for appliances. It's a great business for us. And I just wanted to reemphasize some of the growth drivers for that are really efficiency standards, and the GaN adoption, which means more dollar content. So we do think there's gonna be growth in units and, yeah, on top of these macro and cyclical factors.

The growth drivers are there.

Tore Svanberg: Very good. That's very helpful. As my follow-up, I had a sort of longer-term question, and I think, Jen, you mentioned a little bit of this on the call where it does sound like data center, automotive, and high power are gonna be a big focus for the company. So I'm just wondering, you know, the does that mean, you know, you're gonna change a little bit how you go to market, how you're structured internally? Obviously, today, you have the you know, the four main, you know, end markets, and you got, you know, tons of applications within each one.

But, yeah, just wondering if that's gonna cause a reorg, and so do the focus being more on data center auto and high power. Thank you.

Jennifer Lloyd: Yeah. Thanks for that question. Yeah. Maybe two comments there. The first one is you're correct. We are going to be focusing more on those markets both in terms of our R&D investment, but also in terms of our go-to-market approach. And, you know, we've already taken some steps, realigning our project spend to accelerate some of the developments that are in those areas. But I did wanna comment that know, we still have a very strong core business, and we will still be investing to drive that business. We're just being we're we're we are gonna be pivoting more towards the data center automotive and high power.

Tore Svanberg: Great. Thank you very much.

Operator: Your next question comes from the line of Christopher Rolland with Susquehanna. Please go ahead.

Christopher Rolland: Hi, guys. Thanks for the question. I guess, first, if we could maybe talk about next quarter, and how you see things playing out, in terms of strength or weakness between comms, computer, consumer, and industrial? That would be that would be very helpful for us.

Joe Shiffler: You make Q4, Chris?

Christopher Rolland: Yeah.

Joe Shiffler: Yeah. Yeah. I think the, as we, you know, indicated in the script, consumer, we expect to be down pretty significantly after the, you know, the accumulation of the channel inventory in Q3 that took place when the when the sell-through there you know, didn't didn't quite match what the distributors were buying for. And, you know, this is very consistent with what we've what we've heard from Whirlpool about the that happened. In the first half, you know, shipments coming in being preloaded from Asia. So there's there's clearly one more quarter there of inventory burn in the finished goods. And it needs to happen. So consumer you know, makes up the biggest part of the decline.

Industrial, also down sequentially. That's really just a kind of a function of some seasonality in parts of the market like tools. You know, some of the electrified or battery powered equipment and other tools. That have a seasonal aspect to them. Also, you know, some of the other parts of the business, high power has some kind of normal lumpiness in order patterns. These are big project driven It's a project driven business, so the timing of orders in high power and also metering, which is driven by government tenders in India. So it's really just a timing of orders thing there. But as Jen said, the industrial business is still doing very well.

So those two are really going to drive the sequential decline. Think computer and comms are probably closer to flat, maybe slightly down, but the bulk of the decline comes from consumer and industrial.

Christopher Rolland: Thanks, Joe. And then, Jennifer, maybe a data center question for you. So, you know, as I understand it, you're doing I believe it would be the main power conversion in the PSU for data center AI. Power supplies. And I think, originally, this is silicon. I believe most, think this is going to move to silicon carbide. Of course, you have this unique high voltage GaN product. And so, it does seem like maybe they're could be a debate here, silicon carbide versus high power GaN. How are your engagements going with the PSU OEMs? How do you guys ultimately view share shaking out?

And is do you think you will be the primary here or the backup here seems like GAM would have some cost advantages over SIC. So, I'm I'm curious if you have any prognostications as to how share shakes out between these. Two technologies longer term. Okay. Let me let me try to address that. Maybe I can address that by talking about where we think the opportunities are. For Ganna, I can talk a little bit about silicon carbide. I think it will be difficult to say how the share is gonna shake out. There are as you know, a lot of players going after this market.

But know, what we talked about recently about what we think is the future opportunity as the data centers move to higher voltage, like 800 volt DC, So the first opportunity there really for and the aux supplies, and, you know, that's an application we already address in existing data center architectures. But in the 800 volt DC architecture, that really requires a 1,700 volt. So and that is where the other option would be silicon carbide. But we think the 1,700 volt GaN provides some advantages. So you know, that remains to be to remains to be seen. But that we believe that the power density achieved by the GaN will be stronger and make that a better choice.

You know, there's also opportunity for POE in the 800 volt DC to DC conversion, and that's where we think the twelve fifty volt technology will come in. And we've talked about advantages there. That technology is shipping into other markets, but now we're working to build products for it. Sorry, for the 800 volt data centers. And we're engaged there with NVIDIA, but others as well at the ARC architectural level to build products that will best suit their specs and just add that product we expect to be released in 2027. We also think there's other opportunities.

The high power AC to DC converter that sits at the front end of the data center We have gate driver boards there that are a good fit for that. And you know, we have drivers for the silicon carbide modules that will be used there. So that's a place where silicon carbide will show up. So I think it depends socket to socket whether you're gonna see GaN or silicon carbide. But we believe that the GaN, the high voltage GaN, will prevail in the aux supplies and the main DC to DC conversion.

Christopher Rolland: And, Jennifer, do you have wins at the power supply OEMs or through the supply chain, or is it too early given the 2027?

Jennifer Lloyd: We do have wins in the oh, OEMs. Yes. With the aux supply.

Christopher Rolland: Thank you.

Operator: Your next question comes from the line of Ross Seymore with Deutsche Bank. Please go ahead.

Ross Seymore: Hi, guys. Thanks for letting me ask a question. Why don't I just stick with the long-term question first, which is Jen, what do you view to be the TAM opportunity where Powi is playing in the AI data center side of things? And roughly speaking, what the kind of time to revenue? What sort of slope are you looking at? And it's great that you guys got added to the collaboration list. Definitely a positive. But you are just one of 13 other companies, so it seems like it, is gonna be a competitive field.

Jennifer Lloyd: Yeah. Definitely. There are quite a few involved. And as far as the TAM, I think you know, we think it's for us, it's too early to know. I mean, I think it's too early for everybody to know how fast that 800 volt DC market will take off. So it is really hard to estimate the size of the market. What we focused on is looking at what our content would be and in the AI server rack. So we feel like at this point that our content is probably somewhere around one k. But, you know, higher in the 800 volt, DC.

So that's a little bit about you know, you can size based on what our rack content is. As far as time to revenue, I mean, we have products today. That can serve the existing data center market. The content will go up, as I said, is it shifts to the 800 volt DC architecture. But meaningful revenue generation is gonna be a few years out for us. So I think 2027 is when we'll be releasing the first products that can go into the main supply of the of the data center architecture.

Ross Seymore: Gotcha. Thank you for that color. Point, Ross. The you know, that list of 14, you know, that are a lot of different sockets in play here, and not every one of those 14 players is going after every one of those sockets. So you know, the in the 800 volt architecture, the two sockets know, we're best positioned for are the auxiliary power supply with the, you amongst two products. And the main converter the 800 volt to either 12 or 54 volt socket And, you know, we think you really need high voltage GaN for that socket. And, you know, not everybody on that list has high voltage GaN.

So it's not that we're competing against, you know, 14 other companies for these sockets. Everybody's going after different pieces of that market. So and then just to add one more thing. The you know, we're talking here about the 800 volt opportunity. But you know, the bigger piece of the AI data center market for the, you know, at least the near future is still gonna be the existing architectures where you have rack level ACDC converters We have a product that's gonna be sampling. We as Jen mentioned in her prepared remarks, gonna be sampling here before the end of this year. And then be ready for release in the latter part of 2026.

We've we've got a, you know, a good lineup of customers interested in those early samples. And that's a product that can start to generate revenue sooner than the 800 volt opportunity.

Ross Seymore: Thanks for that color. And I guess the near-term question I have I guess, it'll be more on the consumer side. But just thinking about the channel inventory side of things, it seems like you guys are burning a ton in the December quarter. Has that normalizes, do you expect how big of a tailwind do you expect is, I guess, the first half of the year in the consumer business? So whether you wanna talk about what the revenue would be without the inventory burn in the fourth quarter guide or the size of that revenue on kind of a normalized consumer run rate?

Whatever is the easiest framework, I'm just trying to figure out how much pain you're taking now. And when it bounces back to normal, what does that really mean? Yeah. Well, you know, the,

Joe Shiffler: were at, I think, seven point six weeks, of inventory coming out of the third quarter. Added a couple of weeks here in during the third quarter. Coming out of the second quarter, we were at seven point six. Added a couple of weeks, largely in the consumer category. You know, based on what we're seeing so far through October, it looks like we'll we'll burn off most, if not all, of the inventory that accumulated During Q3. That lands us in terms of weeks exactly, it's hard to say. It kinda depends on the denominator a little But we should be in a much a much cleaner position as we start the first quarter.

And then from there, it really just depends on end demand in the appliance category as to what happens with consumer growth. As I mentioned earlier, the air conditioning part of the business typically trends up in the first half. Major appliances, you know, really more of a quest a question mark. You know, tariffs, not only kind of disrupted order patterns, with the pull-ins, but also, you know, there's a little bit of demand destruction aspect to them as well because you get you know, it affects pricing. For consumers. And, you know, there's some of the inflation data earlier this year showed some pretty significant increases in appliance prices. So a lot of variables there.

But yeah, what seems pretty clear is the preloaded inventory should be cleared out by the end of this year, at least that's according to Whirlpool. And our own channel inventory should be in better shape as we exit the year. So from there, it'll be a question of demand.

Operator: Your next question comes from the line of David Williams. With The Benchmark Company. Please go ahead.

David Williams: Hey, good morning, and thanks for taking my questions. Maybe first, Jeff, we're thinking about the PC market. And potential adjacent opportunities there to expand the business. How do you think about maybe more of the on the PC side and compute Just where you think some additional opportunities could be for you guys?

Eric Verity: So I let me clarify the question. Are you talking about the data center, the server, or more in the in the

David Williams: Yeah. No. Yeah. Yeah. No. Outside of the server, more on the PC just the more on the compute side, the more mainstream consumer based, type products.

Joe Shiffler: Yes. Dave, I think the real opportunity in that in the PC market is really in GaN penetration in notebooks. I mean, that's that's the key opportunity for us. And that's an area we've, you know, we've been making kind of know, steady progress. There hasn't really been a mass move yet by the PC OEMs. Towards GaN, but have been some. We've had some, you know, some good design wins, and notebooks become a pretty meaningful part of our consumer category over the last couple of years. So I think the, you know, the story in PC for us is really just how quickly does scan get adopted.

Over the next few years We have a lot of design activity going on. And it's really just a question of, yeah, how quickly we PC OEMs who haven't gone towards GaN yet. Wanna do that. Great.

David Williams: And then maybe just on the automotive side, you mentioned some nice design wins there this quarter on top of the 40 that are already on. Can you talk about maybe about the traction you're seeing there, what those opportunities look like? And do you see that as a as a large or, I guess, how would you size the magnitude of that potential opportunity going forward? Thanks.

Jennifer Lloyd: Wanna talk about yeah. I'll talk about the design win that we were referencing was for heavy vehicle when some let me describe that a little bit. Basically, that was a win with a systems company that sells to bugle. Manufacturers. So kind of like a tier one for passenger cars, and we believe that design is for a mining vehicle. So the unit there, it's much smaller than what you'd see for passenger vehicles. Maybe 15 to one, but the content is higher. So our content there is probably about 10 x with current products. That's where we're selling gate drivers for the traction inverters in addition to power supply chips.

So we think that's a good area where we can see more wins. But it is a bit fragmented of a business, so difficult to grow rapidly, but we do expect it to be part of the mix in our auto business over time.

Joe Shiffler: Yeah. And then on the passenger side, you know, which is obviously gonna be the bigger part of the automotive business for us. You know, we talked a little bit about it in the script. It's an area we're seeing a lot of success. The emergency power supply in the inverter is a an application we're we're doing extremely well in. Winning most of the opportunities that we go after. We just have a we have a very elegant very effective solution for that. With our automotive qualified InnoSwitch products. And that, you know, that's a socket that we're using as a foothold in the automotive space.

And it's getting us you know, on the, you know, vendor list for a lot of these OEMs, getting us access to more sockets. The architectures in EVs are evolving in a way that's that's very favorable for us. More power supply sockets are being built into these evolving EV architectures. You know, auxiliary power supplies for some of the subsystems, We mentioned micro DC converters, are small power supplies. That allow some of these ancillary systems to run more efficiently. You know, handling things like over the air updates and you know, video surveillance that car that the cars are doing when they're when they're not being driven. Those kinds of functions all need power.

And they all need efficiency because you don't wanna be draining, you know, draining the battery you know, while your car is in what you might call standby mode. So lot of opportunity in automotive. You know, the sand long term, of course, is gonna depend on EV adoption. But it's it's gonna be a very large continue to be a very, you know, large TAM for us and we're having a lot of success there.

Operator: A reminder, if you would like to ask a question, please raise your hand now. If you have dialed in to today's call, please press 9 on your telephone keypad to raise your hand and 6 to unmute yourself when it is your turn to speak. There are no further questions at this time. I will now hand it back to Joe Shiffler for closing remarks.

Joe Shiffler: All right. Thanks, Aiden. Thanks, everyone, for joining. There will be a replay of this call available on our website, investors.power.com. I look forward to seeing some of you tomorrow in Chicago. And thanks again for listening.

Operator: This concludes today's call. Thank you for attending. You may now disconnect.

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