Monolithic Power Systems (MPWR) Q2 2026 Earnings Call Transcript

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DATE

Thursday, July 30, 2026 at 5:00 p.m. ET

CALL PARTICIPANTS

• Chief Executive Officer and Founder - Michael R. Hsing
• Vice President, Finance - Tony Balow

TAKEAWAYS

• Quarterly Revenue -- $981 million, representing a 22% increase from the first quarter and a 48% increase year over year.
• Enterprise Data Growth -- 45% sequential revenue growth, reflecting strong broad-based ordering patterns and demand for AI and server power management solutions.
• Enterprise Data Annual Target -- Management raised the full-year revenue growth floor for the segment from 85% to 130%.
• Manufacturing Capacity -- The company extended its capacity goal beyond $6 billion to support its transformation into a full-solution provider.
• Automotive Socket Wins -- Shipped products into more than 1,500 new sockets year to date, expanding the company's footprint in ADAS and other vehicle applications.
• Stock Repurchase Authorization -- The Board of Directors authorized an additional $500 million for share buybacks, increasing the total current authorization to $1 billion.
• DDR5 Memory Orders -- Received initial orders for high-speed interface controllers, which the company expects to expand its total addressable market through 2027.
• 800-Volt Solutions -- Began sampling high-voltage AC-to-DC products designed for 800-volt data center architectures.
• Automotive Segment Outlook -- Management projected year-over-year revenue growth in the mid-teens percentage, with a second-half ramp driven by diversification across ADAS, zonal systems, and battery applications.
• Book-to-Bill Ratio -- Remained well above 1, providing management with visibility beyond the immediate quarter.
• Vertical Power Modules -- Shipping 48-volt vertical power solutions to multiple customers as power density requirements increase across end markets.
• Communications Segment -- Growth driven by optical module solutions and switches, including power for TPUs and NIC cards.
• CPU Server Share -- Management indicated market share in the CPU segment has exceeded its internal target of 30%.
• Building Automation Market -- The company identified a potential serviceable addressable market between $40 billion to $50 billion for its building control technologies.
• Industrial Segment Performance -- Segment performance was characterized as lagging as the company focuses on a multiyear design-win cycle rather than immediate revenue.
• Non-GAAP Tax Rate -- Projected at 15% for the 2026 fiscal year.
• Operating Cash Flow -- $250.3 million generated in the first quarter, according to official regulatory filings.
• Internal Inventory -- Stood at $619.2 million at the end of the first quarter, representing 157 days of inventory based on current revenue levels.
• First Quarter GAAP EPS -- $3.92 per diluted share, representing a 39.5% increase year over year.
• First Quarter Non-GAAP EPS -- $5.10 per diluted share, a 26.2% increase compared to the prior year.

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RISKS

• Hsing stated, "consumer 1 where we are kind of still lagging because of all the efforts that we focus on it," indicating segment-specific headwinds despite broader growth.
• Balow stated, "I think the notebook side of storage and compute will continue to remain cautious on that 1 as we go into the second half," identifying potential weakness in the consumer-facing computing market.

SUMMARY

Monolithic Power Systems, Inc. (NASDAQ:MPWR) reported record second quarter revenue driven by accelerated demand in enterprise data and communications. Management emphasized a strategic evolution from a component supplier to a full-solution provider, expanding manufacturing capacity and diversifying the global supply chain to support high-current density module production. While industrial and consumer segments remained soft, the company reported significant socket wins in automotive and initial orders for high-speed memory controllers. Management also announced a substantial increase in its stock repurchase program and raised its full-year outlook for the enterprise data segment.

• Chief Executive Officer Hsing characterized the company's transition, stating, "MPS is transitioning from a chip company, a semiconductor company to be a semiconductor-based solution providers."
• The company is developing its own Gallium Nitride (GaN) technology, with Hsing noting, "I think I was proven wrong. But it is up to a point where we cannot ignore GaN."
• Strategic expansion includes building automation and robotics, where hardware development is complete and the current focus is on ease-of-use software.
• Supply chain diversification targets both front-end foundry capacity and back-end assembly, particularly for complex 3D power modules.
• Management reported that the enterprise data business does not have customer concentration, engaging with a broad range of large and small accounts.
• Building automation solutions are currently being piloted in a 1 million square foot facility to demonstrate technology reliability.
• The company is using its own motion control and robotics products in its factories to improve module production testing and reliability.

INDUSTRY GLOSSARY

• ADAS: Advanced Driver Assistance Systems, electronic technologies that assist drivers in driving and parking functions.
• DDR5: Double Data Rate 5, the latest generation of synchronous dynamic random-access memory.
• GaN: Gallium Nitride, a wide-bandgap semiconductor material used for high-efficiency power conversion.
• PMIC: Power Management Integrated Circuit, an IC used to manage power requirements of the host system.
• RCD: Registering Clock Driver, a semiconductor component used on memory modules to improve signal integrity and clock distribution.
• SAM: Serviceable Addressable Market, the portion of the total addressable market that can be reached by a company's products.
• TPU: Tensor Processing Unit, an AI accelerator circuit developed specifically for neural network machine learning.
• Vertical Power Modules: A power delivery architecture where converters are placed directly beneath the processor to minimize resistance and improve power density.

Full Conference Call Transcript

Operator: Good day, and thank you for standing by. Welcome to Monolithic Power Systems Inc. Second Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising that your hand is ready. Please be advised that today's conference is being recorded. Now I would like to turn the conference over to Arthur Lee to read the Safe Harbor statement. Please go ahead.

Arthur Lee: Earlier today, MPS released a written commentary on the results of its operations for the second quarter ended 06/30/2026. This document can be found on our website. Before we begin, I would like to remind everyone that in the course of today's presentation, we may make forward looking statements and projections within the meaning of the Private Securities Litigation Reform Act of 2000 that involve risk and uncertainties. The risk, uncertainties, and other factors that could cause actual results to differ from these forward looking statements are identified in the safe harbor statements contained in the Q2 26 earnings commentary and in our SEC filings, including our Forms 10-K and Forms 10-Q, which can be found on our website.

Our statements are made as of today, and we assume no obligation to update this information. Now I would like to turn the call over to Tony.

Tony Balow: Thanks, Arthur. Good afternoon, and welcome to our Q2 26 earnings call. In Q2, MPS achieved record quarterly revenue of $981 million 22% higher than the first quarter of 26 and 48% higher than the second quarter of 25. Our performance was a result of our continued innovation, our consistent and the resilience of our diversified market strategy. Let me take a few moments to call out a few of the highlights from the quarter. All end markets grew sequentially with enterprise data growing 45% as we continue to see strong broad based ordering patterns. We extended our capacity goals significantly beyond $6 billion to support future revenue growth and our transformation into a full solution provider.

We received initial orders for high speed DDR5 memory we expect to grow our SAM into next year. We began sampling high voltage AC-to-DC products for 800-volt data center architectures as an expand beyond our current AI and server core power solutions. And finally, in our automotive market, so far this year, we have shipped products over 1.5 thousand new sockets as we increase our footprint in both ADAS as well as in other applications within the vehicle. Overall, while we continue to adjust for the fluid geopolitical and macroeconomic environment, our diversified market strategy remains unchanged. MPS focuses on innovation and solving our customers' most challenging problems.

We consistently invest in new technologies that open new end markets and applications and accelerate our transition from chip only to a full service silicon solution based provider. And finally, we continuously expand and diversify our global supply chain allowing us to capture future growth opportunities, maintain supply stability, and rapidly adapt to market changes as they occur. Before moving to Q&A, I am also pleased to announce that our Board of Directors has authorized an additional $500 million for stock repurchases increasing our total current authorization to $1 billion. Operator, you may now open the webinar for questions.

Operator: Ladies and gentlemen, to ask a question at this time, you will need to press. Please stand by while we can call the county roster. And our first question coming from the line of Rick Schafer with Oppenheimer. Your line is now open.

Rick Schafer: Thank you, and congrats on the beat you raised you guys. I guess I have to ask about capacity, Tony. Communications was up 80% I think last quarter, it was up about 50% if memory serves. that is a pretty big step up. You know, I am just curious. Is that mostly transceiver power, or are you seeing meaningful contribution now from the other, the other sockets of Switch, DPUs, SmartNIC, I mean, does that kick in? Is that helping drive that? And then any color you can give on how the second half sets up. I mean, is that momentum continues to grow into Q3?

Michael R. Hsing: Yeah. We see I reckon that we see a lot of growth. And a lot of demand. Modules, chips, and we see from multiple of our customers. And Tony, do you want to have the detail?

Tony Balow: Yeah. I will just add a little more color. Rick, you do see contribution from both optical modules solutions as well as from what we generally bucketed as switches. As I think as I have mentioned previously, that is that is kind of a big bucket that would including power solutions for not only top of rack switches, but TPUs, NIC cards, and other things in the rack. So you are starting to see that grow as well. Optical is still with a bigger portion just because it is had a longer runway since last year, but you are seeing growth from both of those really driving the comms end market.

Rick Schafer: Okay. As soon as my follow-up. I am just curious. I mean, I believe you are shipping 48-volt vertical power modules to a couple customers now. And I do not know if you could update us on that. I mean, do you expect to add any more this year? Maybe a sense of what your expectations are for 48-volt vertical power mods, in terms of maybe the mix versus VR this year? Or next year? How do you want to couch it? Thanks.

Michael R. Hsing: it is more than a couple of customers. Okay. And we see new customers that were coming online. So okay. We start to ship. Yeah.

Tony Balow: I think over the long term, as power requirements continue to increase across our end markets, Rick, we have talked about the fact that modules and solutions will increasingly be an important part of our business. So I think you will see that trend continue over the next couple of years.

Rick Schafer: Thanks, you guys.

Operator: Our next question in queue coming from the line of Joshua Buchalter with TD Cowen. Your line is now open.

Joshua Buchalter: Hey, guys. Thank you for taking my question, and let me echo the congrats on the fantastic results. Maybe to start, I mean, you gained nearly $120 million in the data segment in 1 quarter, which is pretty astounding. Can you walk through the drivers of that upside and growth? And I think importantly, you have the inventory dynamics play out a couple of years ago. Can you speak to your confidence that there is no inventory building here and the overall visibility in that segment Thank you.

Michael R. Hsing: Thanks for remembering last couple of years. We have all these shortages in the industry. We pull it off. Okay? Thanks for remember that. We will continue to there is no reason not to believe we are we are not we are we are not pro pulling off. Although it is very difficult. Okay? I mean, but we are going to make it happen.

Tony Balow: Yeah. And I will just add if you look at kind of the underlying growth drivers for that particular end market, they really have not changed from what we have talked about. You know, we have talked about ramping existing customers, ramping new customers, seeing the module content increase, per Rick's question previously. Deming platform refreshes that drive content, then, of course, CPU. And we saw all that was very strong in Q2. And I think since you are kind of talking about the sustainability of that, there is probably a couple of different ways, additional Michael said. I always start channeling and inventory. is 1 indicator, and that remains very low.

So we believe that is continuing to sell through. Over time. And I think right now, based on what we can see, we are willing to raise floor for that particular end market from 85% for the year to 130% for the year.

Michael R. Hsing: Yeah. I want to add in this enterprise data centers, and then it is relatively new. And we start to see these significant business about 2-3 years ago 3 years ago. Starting. And we do not have any concentrated customers. And pretty much, we engage from a large to small. And where you see the revenue happen now. And it will continue that way in the in the next year.

Joshua Buchalter: Thank you both for all the color. I will take the hint and not ask about AI servers again. That said, I guess, we feel very much. Yeah. I was like, great. Thank you. So yeah. I know your policies, Michael. You know, it is great to see the initial orders for the DDR5, high speed interface controller. You know, you mentioned that could be SAM-expansive. Can you maybe help us with how much And it does seem like a quite a new capability for monolithic Are there other applications that you could use this technology for that beyond memory controllers as well? Thank you.

Michael R. Hsing: Yeah. Yes. This is a new to us. This is a high-speed, very high speed into the gigahertz. Kind of things. And, again, in a very precision. Okay. And pretty much the analog. Circuitry. And we can expand the technology to other communications. And, once we have established a know how. So that is a very-- these are a true fundamental know hows. And, okay, and other business, we want to get this 1 to launch it first. And then we will migrate to other applications. Yeah.

Operator: In terms of the second part of your question, which was how expansive it could be, I would still say we are very much early innings.

Tony Balow: We want to prove ourselves in this particular market. I think it is too early for us to call any kind of revenue ramp on our side. We are just signaling that we continue to run our playbook and look for new sockets out there that can expand overall SAM over time.

Michael R. Hsing: But in the history, when we are mentioning something, it will take you into a revenue. Yep.

Joshua Buchalter: Thank you both, and congratulations again.

Operator: Our next question in queue coming from the line of Tore Svanberg with Stifel.

Tore Svanberg: Yes. Thank you. Let me echo congratulations for another record quarter. How should we think about the segments for Q3? I mean it sounds like all markets are growing right now. But just wondering on a relative basis, could give us some color on each segment into Q3.

Michael R. Hsing: Well, I know the oil market-- maybe Tony can point out some of the not so good ones. Okay. I think the consumer 1 where we are kind of still lagging because of all the efforts that we focus on it. And the consumer market, it does not mean we give it up. Okay? And we will continue a very diversified way of growing our business. And, as we talk as I talk, talk about it in the past, NPS is transitioning from a chip company, a semiconductor company to be a semiconductor-based solution providers. With our solutions. And so other segments that I can and automotive con continue to grow.

So, okay, other ones, the communication side will continue to grow. So, like, and industrial's kind of lagging a little bit. And that came in-- that does not mean we are defocusing.

Tony Balow: Yeah. And I will just add a little bit. I think the story is going to feel pretty similar You are certainly being led by the data-centric businesses, with enterprise data and comms, of course, leading the pack. I think industrials could grow a little bit with the market, but again, we primarily said that is a design win type year for us this year where we continue to pile up additional sockets that will turn into revenue in the future. Think the areas that we are cautious on are the ones Michael had pointed out and then we said this last quarter as well, consumer being 1.

And then I think the notebook side of storage and compute will continue to remain cautious on that 1 as we go into the second half.

Tore Svanberg: Yes. that is great color. As my follow-up, you mentioned you are now sampling the 800-volt solution. When should we expect to see some revenues from Monolithic Power there? And are these products based on silicon GaN and silicon carbide, or is it 1 or the other? Thanks.

Michael R. Hsing: We have a well, in the past, Tony, you know, I will openly say, I do not believe GaN. And now I think I was proven wrong. But it is up to a point where we cannot ignore GaN. And we think last year, we developed our own GaN, and we will have a working device. And in terms of 800-volt solution, we totally rely on NPS silicon carbide device. And revenue wise, probably, you will know you will know, and I gave me and all the market will know. And, okay, where the data center transition happened? When that happens, and we will have the revenues. In terms of the wins, again, then we do not know.

We know as much as you know. Great.

Tore Svanberg: Thank you very much. Congrats again. Thank you.

Operator: Our next question coming from the line of William Stein with Truist Securities. Your line is now open.

William Stein: Great. Thanks for taking my question. I want to add my congrats to the fantastic results and outlook. I am wondering if you could talk about whether pricing meaningfully influenced the sequential growth or the outlook in Q3?

Michael R. Hsing: Yes. Yes. I know what you mean whether we increase price or not. And we do not NPS never gouges prices when the supply chain is tight. And we want to build a consistent model where we execute consistently within our models, And when supply chain is tight and raise the price, how about a way over the way we reduce the price? We do not. And we operate in a consistent way. And our customers appreciate that. So in terms of whether due to the price increase, definitely, it is not. it is all products. Yeah.

Tony Balow: The only thing I would add to that at all is for us on pricing, it is very consistent to Michael's point. We have raised some prices, but it is primarily been in kind of 1 of 3 areas in general, right, where we have seen input costs go up, to make sure that we do not get diluted on the margin line. Where people are asking for expedites, because obviously that can influence our own supply chain and then finally, where people might be asking for specific supply chains outside of China, which can be naturally more expensive. So maintain a very consistent approach to what you have heard previously as we look at our pricing.

William Stein: that is really helpful. Michael, I want to shift for a second to some things that I think are closer to your interests, some of the smaller but emerging growth opportunities like robotics, humanoid robotics, and home automation or building automation. Can you talk about your traction in those 2 emerging-- and they are of interest to us?

Michael R. Hsing: I am speaking. A million square feet building is installing our building controls. But I have to tell you, it is like we are still lagging of the software. The hardware is all done. And with some minor revisions, and, like, I may not have-- but the software is the key, the ease of use. And how we implement it. And by the end of this year, we should be able to complete everything. And there is a multiple of our customer-- it is not our customers. In that case, the potential customers they are waiting for us to install in their building.

And I am looking at that when I am in the market segment, but we are looking at this opportunity and to my surprise, it is about $40 billion to $50 billion. And the MPS has all the key product and the and the technology. The software is what we were building. And that is again, you exactly talking about my topics that I am working on. The other 1 is the robotics. Again, robotics. Okay. there is a lot of-- there is, especially, a lot of Chinese companies show a lot of entertainment and we will see. And, we have all our design-in solutions. Okay. They all happen in the US side and also the China side. Okay.

And they are all using NPS solutions. And now the next question is, okay, how are we going to-- where the robot is going to be used? And from our own factory, and this is not humanoid. Robot. We use our own product to, to improve, especially the modules. Production not the production, the testing. And also the reliability test. And we use our own motion controls and the robotics. Again, and it is the same as the equivalent to a robot. And to make all these things happen. And, our customers are actually our suppliers. to our own automation. They will use those solutions sell it everywhere else. Thank you.

William Stein: Thank you.

Operator: Our next question in the queue coming from the line of Quinn Bolton with Needham and Company. Your line is now open.

Quinn Bolton: Hey, guys. I will offer my congratulations as well. Tony or Michael, I wanted to come back to the optical transceiver part of the business, since I think that is the biggest part of comms. Can you just sort of discuss what you are seeing on the competitive landscape Is competition mostly PMICs? Is it mostly discrete DC-to-DC converters from folks like TI or analog devices? And then can you give us any sense what you think your share might be for power management within those optical transceivers? And then I have got a follow-up.

Michael R. Hsing: that is a very boring topic. Okay. that is over the last few years, we talked about power modules. Okay? I think that you realize those very early on. And, okay, I mean, it is more than 5 years ago now. And we have these power modules. And very high power density modules. And These are encapsulated modules. And since we have the highest power density ICs and we integrate fully integrate it each of these module with the inductors. And with all the capacitors and it is a total power solution, plug-in power solutions in a very small form factor. And I said with a straight face, we are the highest-power-density company in the world now.

And I do not know about optical, market segment as long as I know we provide the best power density we will win all these sockets and including optical modules.

Tony Balow: As the share comment goes, obviously, we will not talk about specific customers. But certainly, I think if you look at the overall market, there is still room for us to grow. And I think just net of both the TAM growth and share, I think it can actually be a primary growth driver in the comm segment going forward. I do not think we can actually quote the exact percentage of share at this time.

Quinn Bolton: Okay. But you certainly still see share gain opportunities in that market, sounds like?

Tony Balow: Yes. I think at some customers, we would see additional opportunity to gain share in some of the sockets. But I think the net of this is that within the comm segment between TAM and share, there is still a very substantial growth opportunity ahead of interest to us?

Quinn Bolton: Great. And then I guess just coming back to the capacity support, in the past, I think when you went from $2 billion to $4 billion you talked about the incremental capacity largely coming from outside of China. As you have now built capacity up to and beyond $6 billion. Can you give us some sense what the geographic split of that capacity is? Is it fairly balanced between China? And non China? Does it lean 1 way or the other?

Michael R. Hsing: it is not settled down yet. We now can do it depending on what our customers' requirements. Okay. At this time, wherever the all we need, it goes. Okay. And wherever we can provide a product, they will buy. Okay. And but we built a very balanced approach. And what is the percentage in the end? Okay. it is hard. it is difficult to call now.

Tony Balow: The only thing I would add on that is, you know, when you just call a total number, it sometimes gets lost in the detail, but I think we have been increasingly focused not just on the foundry side of business. But also the back end part of the business because as Michael alluded to, modules and solutions will become increasingly important. And so that is actually more complicated back end process as well. So as we look to bring out new partners and look to bring them on in a geographically balanced way, that goes for both the front end and the back end.

Quinn Bolton: Understood. Thank you.

Michael R. Hsing: Yeah. Especially, yeah, especially our module assembly. it is more difficult. it is a 3D effect. it is more complicated than the assembly of a phone even. And so it requires a lot of experiments and then a lot of know-how. You know, to getting all these modules. And so we now, so, like, expand to and, anyway, in a way that we will find these equipments and these capability to make it happen.

Quinn Bolton: Thank you.

Operator: Our next question coming from the line of Joseph Quatrochi with Wells Fargo. Your line is now open.

Joseph Quatrochi: Yeah. Thanks for taking the questions. Was wondering if maybe you could just kind of give us an update on how you are thinking about automotive demand in the second half of this year? You talked about 1.5 thousand new design sockets year to date. How should we think about the ramp-up revenue from those new wins as well?

Tony Balow: Yeah. I think Yeah. I think the year is still playing out pretty much as expected. And just to repeat what you said in the past, we thought the first half would be flat with the second half ramping up. And I think we feel pretty comfortable with that second half overall ramp. I think we land on a year over year basis, we are still thinking the end market can be in the mid teens kind of year over year.

The 1 thing about the ramp that gives us additional confidence is that it is very broadly based. it is not isolated to 1 or 2 customers for what Michael was talking about and so the diversification that we look for in all of our end markets right now. They called out the 1.5 thousand specifically to show that is not just very much focused on ADAS, which has been a historical strength for us. But we continue to see it broadening out in the portfolio for other sockets in the vehicle.

Michael R. Hsing: Yeah. Yeah. We are focused on things like zonal, the 48-volt systems. And also, we address the battery side. Okay? and LiDAR, and so these are the emerging market. And or emerging requirements from automotive. I think that, in the next few years, they all will be okay. And installed in the car, it will see very popular. And on the market. and we will always see MPS revenue growth.

Joseph Quatrochi: Thanks for that. And then as a follow-up, I think last quarter, you talked about your plans to enter the RCD market. And starting to sample with customers? Just curious. Any update in terms of how that is going?

Michael R. Hsing: We are sampling. Okay. And we are still developing. And a lot of new product. And is a very new to us. And but we are confident that we will be turned into revenue. Although, we have some revenue now. Okay. Yeah.

Tony Balow: I Yeah, just to keep it from a model basis, you know, we have that is not going to be a needle mover in 2026 for us. Right, in terms of revenue. Yep.

Joseph Quatrochi: Thank you.

Operator: Our next coming from the line of Christopher Caso with Wolfe Research. Your line is now open.

Chris Caso: Thank you. Good evening. I guess the first question is an update on where CPU server power stands right now. I know that you guys have gained a lot of share over the years on that. That market is heating up because of the Gen 6 CPU. So how impactful has that been to the ED segment? And where do you see that going as you go into the end of the year into next year?

Tony Balow: Yeah. Thanks, Christopher. Let me start, and then Michael and Robert can jump in as well. I think 1 of the things is we have been talking about it for close to a year that CPU has been 1 of the growth drivers for us in enterprise data. So it is it is something that has been and I think will continue to be part of the overall growth story. To the extent that Gen 6 AI drives further CPU growth, that will continue to be a tailwind for us. As you know, it is difficult for us to separate sometimes a pure AI sale from a CPU sale.

So it is a little difficult for us to parse those specifically. But if we start to see some of the forecasts come to play that you have seen from some of those in industry, we think that could be, you know, an additional growth factor for us even going forward. From a share perspective, again, I think we will probably pass on specific share. I think we are very broadly indexed across both x86 and ARM players. And so no matter who sort of wins in that race, we think we can participate.

Operator: I think I answered your question 1 time in terms of the-- okay.

Michael R. Hsing: What is the percentage at the time? In the CPU side, we want to get in the CPU market segment. Think that what I was asked to know what the share-- market shares. We want to be. Okay. I mentioned it in earnings calls that if it is lower than 30% I call it a failure. Okay. I think that we are comfortable with it now. So we are past that. And that is where the good position we are in. Now. And then we will continue that. Thank you for that.

Chris Caso: As a follow-up, maybe a bit of a longer term question. And maybe as we look out, you know, say, over the next, you know, 2 years, 2 plus years, do you still expect that I mean, enterprise data has been the fastest growing part of your business because it has been the fastest end market. Do you expect that to continue to be the case? And, you know, I know, Michael, you like to run a diversified business. But, you know, that end market is just growing so quickly. So I guess maybe the question is, is the growth in that end market and enterprise data going to make it more difficult to diversify the business.

Michael R. Hsing: Good question. Okay. And we never focus on any market segments. And we provide picks in the shovels and the blue jeans. And, as long as we are making the best of it, we will win those segments. And, so we are not really a gold diggers. Okay? Be asking us to find out the empty mountains and okay. But we do not do that kind of things. And we just provide the basic best elements for other people to succeed at it. And 1 time, automotive was big. 1 and other times, like consumer was big. And we learn from our customers. We let the market demand. to decide that.

As long as we focus on the fundamental development, I think that we will win in the very long term. And a clear example was a couple of years ago, it is in a-- the AI is not gaining and went sideways or enterprise data go went sideways, even dropped slightly. And that year, all the other business grow tremendously, like including automotive. And that is exactly what we wanna see and okay. And we have a we want to provide to our investors a very consistent way of growing MPS.

Tony Balow: I mean, even this last Q2, right, outside of enterprise data, the rest of the businesses saw double digit growth. So I understand your comment on what TAM might be growing faster, but you can see you are still seeing pretty substantial growth outside of ED.

Chris Caso: Thank you.

Operator: Our next coming from the line of Kelsey Cha with Citi. Your line is now open.

Kelsey Chia: Hi. Good evening. So based on the strong and broad based ordering patterns guys have, I am wondering how much visibility do you have in the enterprise data end market? And I was wondering if you can provide any color as to how the 2027 outlook could look like based on the design wins, visibility, expected product ramps, or elaborate on any incremental revenue opportunities and ramp within that segment?

Tony Balow: Yeah. I will start on that 1. And I think in general, 2027 is a bit far away. We are still trying to land 2026. But I think if you to answer the first part of your question and the visibility, again, the longer term ordering patterns that we saw begin even late last year have really maintained. And our book to bill this cycle was again well above 1, So we do have, you know, more than a quarter type visibility like we were dealing with maybe midway through 2025. That does not mean we necessarily have visibility all the way out to the end of 2027, though.

But I think the way I would address it is I think the underlying structural growth drivers have not really changed. Right? We have best of breed from a current density and modules you see more and more of our end markets adopting those high current density modules for their applications. And we continue to win new sockets. So I think our ability to continue to grow into 2027 is still structurally very sound. I think it is too early to put a number on it.

Michael R. Hsing: We well, here is a the true demand. Is determined by the market. And we do not want our customers to end it up in a lot of wasteful inventory. At the same time, we will watch us. Okay. Our own inventory. We will end up a lot of a lot of inventory with we cannot sell. So we clearly balance that. And what is the forecast We do not do them. Okay. Even though we have a NCNRs. Okay. And we shovel into our customer's throat. That there is a bad relationships. And our relationship is very long term. And so it cannot and although the order booking is very good, as a as Tony said it. Okay.

But we do not see the business in that way. And we do things swiftly according to our customer demand.

Kelsey Chia: Got it. And, also, with such strong revenue outlook, could you help us think about gross margins and OpEx trajectory? It seems that you guys are lending somewhat below your long term OpEx guidance right now.

Michael R. Hsing: We are in the models. And we are still in the models, although in the low end. My-- I said I was-- I will be heavier, so we are higher. I was not-- I said I was not happy. And look at this. We focus on grow growing the revenue and growing the net profit. EPS that is the key reason. The other 1 is nobody wants us to have a high gross margin. for less of a-- lack of a growth. Nobody wants us to do that. And our shareholder does not want us to do that certainly. Okay? And so we focus on this.

It will be-- gross margins, I said that we will figure out, you know, we will grow higher. Certainly, it is not in the near future, as well. They will stay similar or maybe slightly higher.

Robert W. Dean: Hi, Kelsey. This is Robert. I will add to what Michael was saying and I will add on to what Tony was saying about the strong order levels which continued into Q2. Gave us the ability to incrementally expand our guidance on gross margin again just slightly, but it is there. So as Michael said, we are at the low end of where we want to be, but we are feeling comfortable about where we are at for Q3.

Operator: And, Kelsey, the last part of your question was a little bit on OpEx.

Tony Balow: And I think in general, we have not changed any of our thesis around how we are trying to invest for the future. I think what you see is when you get to higher levels of revenue, it is difficult to keep the levels of spending up to that model. And so you see some additional leverage as you pull through to operating margin. And I think you have seen pretty healthy expansion in operating margin over the past couple of quarters.

Kelsey Chia: Got it. Thank you.

Operator: Our last question will come from the line of Sebastian Naji with William Blair.

Sebastian Naj: Yeah. Thanks for taking the questions, and congrats on a great quarter here. it is great to see the momentum across the business. AI data center is clearly a strong tailwind for the enterprise data business, also in communications. A little bit even in storage and compute. I mean, if I start to add up all these segments, you are you are looking at data center exposure that is approaching roughly 50%. I mean, is that the right way to think about it across your different end markets?

Tony Balow: I think you are picking the right components as you go in there. Right? Obviously, the optical module business, the switch business can be pulled to the data center, all of enterprise data. Then, remember inside of storage, you really kind of have 3 big sub buckets. DDR 5, HDD, and SDD. HDD and SSD, I think, over time, are becoming increasingly focused, whereas at 1 point, you know, they might have been more consumer based. We have not broken out, you know, storage and compute versus notebook.

In there, but I think you are picking the right components as you look at those things that could ride some of the of the healthy demand pull-through from the data center right now.

Sebastian Naj: Okay. Great. And maybe just as a quick follow-up on the incremental supply capacity that you are bringing online. Is any of that on newer node processes, like 40-nanometer, or is that mostly on existing 65-nanometer solutions?

Michael R. Hsing: I think it is mostly the existing. So, like I have-- this same thing we are talking about for some time now, we have an increase in capacity. Again, Tony said this is not only about the silicons and the wafers. Okay? We are building a lot more, we are building systems. And that changes the complexities of the buy silicon only. I mean, we have been on this journey for-- since 2017. And all the procurement and the qualification component called qualification, we have become mature. And now it is not-- we have to pull some more new tricks in the next year or so. to increase all these capacities. Okay. Right.

Would you say it is the worst or the hardest to increase capacity? Over the last 10 years that you see? it is it is different periods, different times, and, okay, and the qualified vendors. Okay, and in the silicon side, we have a lot of experience. And again, you move up onto a system. How you assemble all these sys-- all these systems. And how you qualify all these vendors and how you are going to take the-- UL is a completely different model. That we have to operate on it. And we became I would say that we became a lot more mature, and there is a lot more room to go. A lot more improvement. To go.

Sebastian Naj: Got it. Great. Thank you so much. Thank you.

Operator: And I am showing there are no further questions in the queue at this time. I will now turn the call back over to Tony Balow for any closing comments.

Tony Balow: All right. Thank you, operator. Thank you all for joining us for the conference call today. We look forward to speaking with all of you for our next call for our third quarter 26 results. Thank you again and have a nice day.

Operator: This concludes today's conference call. Thank you for your participation. And you may now disconnect.

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