Power Integrations (Nasdaq:POWI), the leader in high-voltage analog integrated circuits for power conversion, announced its financial results for the quarter ended September 30, 2005. The company reported record net revenues of $36.5 million, up 4 percent compared to the prior quarter and 11 percent from the year-ago quarter. Gross margin was 49.5 percent, up from 48.9 percent in the prior quarter and 47.8 percent in the year-ago quarter.
Operating margin for the quarter was 15.0 percent, compared to 16.9 percent in the prior quarter and 17.8 percent in the year-ago quarter. The decline in operating margin was driven by patent-litigation expenses, which totaled $1.8 million in the third quarter, up from $0.8 million in the prior quarter and $0.2 million in the year-ago quarter.
Net income for the quarter was $5.7 million, or $0.18 per diluted share, compared to $5.0 million or $0.16 per diluted share in the prior quarter and $5.7 million or $0.18 per diluted share in the year-ago quarter. Patent-litigation expenses reduced the company’s net income in the third quarter of 2005 by $0.05 per diluted share.
The company’s effective tax rate for the third quarter was 12 percent, down from 24 percent in the prior quarter reflecting a reduction in the expected full-year effective tax rate to 21 percent. The effective tax rate in the year-ago quarter was 8 percent, reflecting the favorable conclusion of certain tax contingencies, which resulted in a net-income benefit of $1.1 million, or $0.03 per diluted share.
“Net revenues for the third quarter grew at a double-digit rate year-over-year, driven by nearly 20 percent growth in unit shipments, representing gains in overall market share,” said Balu Balakrishnan, president and CEO of Power Integrations. “Our gross margin increased once again despite a very competitive business environment, and aside from the impact of patent-litigation expenses, we delivered strong growth in operating income and earnings per share.
“We are very excited about our prospects for 2006,” Balakrishnan added. “Design wins and ongoing design activity remain strong, including a great deal of activity related to the new energy-efficiency standards for external power supplies. For example, we are now making inroads into the cordless phone market, winning three designs in the third quarter as a result of the new standards.
The company announced today that its board of directors has authorized the repurchase of up to $25 million of the company’s shares. The repurchases are to take place from time to time on the open market. As of September 30, 2005, the company had approximately 29.5 million shares outstanding.
Revenue mix by market for the third quarter was: 31 percent consumer, 28 percent communications, 23 percent computer, 11 percent industrial, and 7 percent other. Product revenue mix for the quarter was 53 percent TinySwitch-I and TinySwitch-II, 31 percent TOPSwitch-FX and TOPSwitch-GX, 10 percent TOPSwitch-I and TOPSwitch-II and 6 percent LinkSwitch and DPA-Switch.
Power Integrations received 2 U.S. patents during the quarter, bringing the company’s totals to 128 U.S. and 82 foreign patents. Financial Outlook
The company anticipates that net revenues in the fourth quarter will increase by 2 to 6 percent compared to the third quarter. Gross margin for the fourth quarter is expected to be approximately 50 percent. The company anticipates that operating expenses will increase by 1 to 3 percent compared to the third quarter, driven primarily by patent-litigation expenses, which are expected to be approximately $2 million. Earnings for the fourth quarter are expected to be between $0.16 and $0.19 per diluted share.
Conference Call Information
Power Integrations will hold a conference call today at 1:30 pm Pacific time to discuss its quarterly results. Members of the investment community may access the call by dialing (877) 407-0784 from within the United States or (201) 689-8560 from outside the U.S. A replay of the conference call will be available for one week by dialing (877) 660-6853 from within the U.S. or (201) 612-7415 from outside the U.S. Listeners can access the replay by entering account number 3055 and conference ID number 171536. The call will also be available live and archived on the investor information page of the Power Integrations website:
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