Power Integrations (Nasdaq:POWI), a leader in energy efficient chips, reported record revenues for Q4 of $37.9 million, up 13 percent compared to Q4 last year, and up 4 percent from Q3.
Revenue growth was driven primarily by industrial and communications revenues, which increased 63 percent and 15 percent respectively on a year-over-year basis. Gross margin for the fourth quarter was 51.1 percent, up from 48.3 percent in the year-ago quarter and 49.5 percent in the prior quarter.
Said CEO Balu Balakrishnan, “We improved our gross margin in 2005 while expanding our market share and reducing inventories by nearly 30 percent. We also grew our net income and cash flow for the year despite significant patent-litigation expenses. While patent litigation is a temporary drag on our operating results, protecting our intellectual property is critical to maximizing our long-term profitability.
“We have strong momentum entering 2006,” he added. “2005 was a record year in terms of design wins, and we have a number of incremental growth drivers coming into play in the year ahead. Energy-efficiency standards for external power supplies are having a major impact on markets such as cordless phones and cell phones. We have recently won designs for Panasonic and Sharp cordless phones, and we have ongoing design activity related to a number of other major cordless and cell-phone OEMs. In all, our LinkSwitch products won more than 60 designs in the fourth quarter, indicating that linear power supplies are being replaced at an accelerating rate.
“Other key drivers for 2006 and beyond include new products such as TinySwitch-III and LinkSwitch-LP, an expanded sales force, and emerging markets such as power over Ethernet and LED lighting,” continued Balakrishnan. “We also look forward to the conclusion of our two legal actions to protect our patents against infringement.”
Operating margin for the quarter was 14.6 percent, including a 6.3-point impact from expenses related to the company’s patent litigation against System General Corp. and Fairchild Semiconductor. This compares to operating margins of 19.4 percent in the year-ago quarter and 15.0 percent in the prior quarter. Patent-litigation expenses totaled $2.4 million in the fourth quarter, up from $0.1 million in the year-ago quarter and $1.8 million in the prior quarter.
Net income for the quarter was $5.5 million, or $0.18 per diluted share, compared to $5.7 million or $0.18 per diluted share in the prior quarter and $4.5 million or $0.14 per diluted share in the year-ago quarter. Patent-litigation expenses reduced the company’s fourth-quarter earnings by $0.06 per diluted share.
For the full year 2005, net revenues totaled $144.1 million, an increase of 5 percent compared to the prior year. Gross margin for the full year was 49.5 percent, up from 47.7 percent in 2004. Full-year operating margin was 15.7 percent, down from 18.8 percent in 2004 as a result of patent-litigation expenses, which reduced the full-year operating margin by 3.8 percentage points.
Net income for 2005 was $20.9 million, or $0.68 per diluted share, up from $20.4 million or $0.63 per diluted share in 2004. Patent-litigation expenses totaled $5.5 million for the full year, reducing net income by $0.14 per diluted share. Nevertheless, cash flow from operations increased to $35.7 million for the full year, up from $30.1 million in 2004.
Financial Outlook for First Quarter of 2006
For the first quarter of 2006, the company anticipates that net revenues will be approximately flat compared to the fourth quarter of 2005. The company expects its gross margin to be in a range of 50 to 51 percent excluding the impact of costs related to share-based compensation. The company expects operating expenses to increase slightly compared to the fourth quarter, excluding the impact of share-based compensation. Operating expenses are expected to include patent-litigation expenses of approximately $2.5 million. Earnings per share are expected to be in a range of $0.15 to $0.17 excluding the impact of share-based compensation expenses.
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