Deep Dive Brief: Monolithic Power Systems
Growth and Quality in One Often Overlooked Semiconductor Name
Welcome back explorer! 🧑🚀
This is the third edition of my Deep Dive Briefs, where I break down growth and high-quality businesses.
I'm excited to share my research and insights about Monolithic Power Systems (MPS), a standout innovative player in the power management chip industry.
Recently, the stock price has taken a hit after some market drama, which makes the stock even more interesting and worth a closer look in my opinion.
Here are the topics I’ll cover:
Company Overview (History, technology, key markets and revenue drivers)
Business Strategy
Economic Moat and Long-term Growth Drivers
Risk & Challenges
Blending MPS Fundamentals with Technical Analysis
Final Thoughts
Let’s dive in!
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Company Overview
This business story began as a bold vision. In 1997, Michael Hsing set out to revolutionize power management technology.
His idea was ambitious: integrate an entire power system onto a single chip. What seemed improbable at the time became the foundation of Monolithic Power Systems, Inc (MPS). Under Hsing's leadership, MPS has not only realized this vision with its innovative monolithic power modules but has consistently broken industry norms with its patented technologies.
A bit of History
Drawing from his experience as a Senior Silicon Technology Developer Engineer, Hsing launched MPS in 1997 and introduced innovative products like a single-chip CCFL backlighting solution that captured 80% of the laptop market by 2005 (Source, link).
Following this success, MPS diversified into DC/DC products, went public in 2004, and expanded into six product lines with over 1,000 products, serving thousands of customers worldwide. In 2013, MPS debuted the world’s first Monolithic Power Module, redefining power management with fully integrated, efficient, and compact solutions.
Known for his creativity and ingenuity, Hsing has grown MPS into a global leader that continues to lead the industry, pushing boundaries with cutting-edge technologies and redefining what’s possible in power management.
Understanding the Industry Landscape
Semiconductors form the backbone of modern technology, powering everything from smartphones to industrial machinery. These components fall into three main categories: digital integrated circuits (ICs), analog ICs, and mixed-signal ICs, with MPS specializing in the high-performance analog and mixed-signal segments.
What are analog and mixed-signal ICs?
Analog ICs process continuous, real-world signals like voltage, temperature, or sound, often used for amplifying, regulating, or converting electrical signals in devices.
Mixed-Signal ICs combine analog and digital functions on a single chip, bridging real-world signals with digital systems for applications like audio processing, communication, and power management.
What makes analog and mixed-signal ICs unique?
Longer Product Cycles: Unlike fast-evolving digital ICs, analog products have lifespans that often span decades.
High Design Complexity: Analog ICs are challenging to design and manufacture, creating barriers to entry for competitors.
Diverse Markets: Analog and mixed-signal ICs serve a broad range of industries, reducing reliance on any single market.
Efficiency Focus: These chips bridge the gap between real-world signals (e.g., temperature, sound) and digital systems, with a focus on precision and power efficiency.
What sets MPS Apart?
MPS stands out in the semiconductor industry through a combination of deep system-level knowledge, semiconductor design expertise, and innovative proprietary technologies.
These strengths have allowed the company to create monolithic solutions that are smaller, more energy-efficient, and cost-effective than competing products. For instance, its chips excel in markets that demand high integration, such as AI-powered data centers, electric vehicles, and 5G infrastructure.
Here’s how MPS differentiates itself:
By integrating digital and analog functions onto a single chip, MPS delivers products with greater power density, reduced heat output, and improved precision.
MPS aims to create solutions that consume less energy and materials, aligning with sustainability goals.
The company regularly expands its product portfolio, introducing new offerings with a focus on emerging markets like cloud computing, autonomous driving, and smart appliances.
Key Markets and Revenue drivers
MPS serves six major markets, each contributing to its revenue providing balance and diversification — Source: Latest Annual Report on Form 10-K
Storage and Computing (27.0% of Revenue)
Applications: Storage devices, laptops, notebooks, GPUs, etc.
Growth Driver: Rising demand for AI-enabled GPUs and data-driven applications.
Automotive (21.7%)
Applications: Advanced driver-assistance systems (ADAS), infotainment, USB connectors, and EV battery management.
Opportunity: Electrification and autonomy are driving demand for compact, reliable chips in vehicles.
Enterprise Data Servers (17.7%)
Applications: Cloud servers, AI server CPUs and GPUs.
Competitive Edge: MPS precision power management chips support the processing needs of AI and cloud computing.
Consumer (12.9%)
Applications: Smart TVs, gaming consoles, home appliances, and monitors.
Challenge: Cyclicality in consumer demand creates revenue volatility.
Communications (11.3%)
Applications: 4G/5G infrastructure, satellite systems, and wireless networks.
Driver: The ongoing 5G rollout and satellite expansion.
Industrial (9.4%)
Applications: Power sources, security systems, and industrial meters.
Potential: Despite the ongoing industry’s downcycle, growth in IoT and smart manufacturing is expected to pick up and boost demand for low-power chips.
This diverse market exposure enables MPS to remain resilient against fluctuations in any one sector, while ensuring sustained growth in high-potential areas like AI-driven enterprise data and electric mobility.
Business Strategy
MPS has established itself as a disruptor in the power management chip industry, leveraging innovation and efficiency through its proprietary bipolar-CMOS-DMOS (BCD) process. This pivotal technology enables the integration of specialized transistors, optimized for power management and mixed-signal applications, on a single chip. For a deeper dive into BCD technology, check out this excellent resource on AnySilicon, referred to as the 'Google of the Semiconductor Industry': The Ultimate Guide to: BCDMOS.
While power management chips often come from well-established giants like Texas Instruments or Analog Devices, MPS has carved its niche by offering something different: chips that are smaller, smarter, and lighter, providing a competitive edge.
Key strategies include:
Differentiation through advanced manufacturing techniques that combine analog, digital, and memory functions into a single chip.
Focus on high-growth markets, such as data centers (AI-driven demand) and automotive applications (advanced driver-assist systems and EV batteries).
An asset-light fabless model that enables high returns on invested capital and adaptability to changing market needs.
Economic Moat
MPS’ moat is built on two pillars.
Intangible assets: Innovative design and Proprietary Technology
Take its sixth-generation BCD technology, for instance. By achieving a 55-nanometer manufacturing process—ahead of main competitors stuck at 90-110 nm—MPS can deliver chips with greater power density, a smaller form factor, and better energy efficiency.
Integrated solutions with its "monolithic" approach replaces multiple discrete components, offering customers cost-effective and reliable designs. Consider its Quantum State Modulation (QSMod) controller, which fine-tunes power delivery for GPUs and other processors (FPGAs and ASICs), slashing power loss and allowing for even smaller designs.
Imagine replacing a bulky three-piece system with a smoother, smaller and more power efficient all-in-one chip. That’s MPS value proposition in a nutshell. This isn’t just a better technology, it’s real-world impact, enabling longer battery life in EVs and cooler, more efficient data centers.
Customer switching costs
When customers integrate MPS’ chips into their products, they effectively manage to “lock” customers into long-term relationships due to the complexity and expense of system redesigns.
This is especially true in industries with long product cycles, like automotive and industrial equipment. For example, automakers often work with suppliers years in advance of launching a new model. Switching to a different chip mid-cycle would require a full redesign, driving up costs and delaying production. For many clients, sticking with MPS is not just easier; it’s smarter.
Long-term Growth Drivers
MPS growth story is anchored in three main areas:
Data Centers: Increased adoption of GPUs for AI workloads. MPS is well-positioned as its QSMod controllers offer high precision and efficiency.
Automotive Applications: Electrification and autonomy are driving demand for compact, reliable chips in vehicles, and MPS is capturing sockets in electric vehicle systems and advanced driver-assist technologies.
Manufacturing Efficiency: A shift to higher-value end markets and efficient processes should drive gross margins higher.
Long-term, MPS is expected to sustain low double-digit revenue growth, with an emphasis on organic investments over acquisitions.
Risks & Challenges
First, competition is fierce, especially from heavyweights like Texas Instruments or Analog Devices. If they decided to channel their deep pockets into replicating MPS’ BCD technology, it could eroding MPS competitive edge but this would require big investments and a shift in business strategies that so far has not happened on any of them.
Second, cyclical nature of semiconductors which comes with demand volatility and may impact financial performance. But, as long as long-term secular tailwinds keep blowing in favor of the overall semiconductor industry, this represents more an opportunity than a risk, in my opinion.
Third, geopolitical risks (China) loom large. With over 1/4 of revenues tied to Chinese customers and significant manufacturing reliance on Chinese foundries, MPS is vulnerable to trade tensions or regulatory crackdowns. The company is working to diversify its supply chain, but this is no overnight fix.
Finally, human capital poses a unique challenge. In the analog semiconductor space, skilled engineers are a rare breed, and losing top talent could slow MPS’ innovation engine. Add to this the personal involvement of its founder and CEO, Michael Hsing, in the technology side of the business, and there’s an undeniable element of key-person risk.
⚠ Recent Developments: Market Drama
In November 2024, a research note by Edgewater (some info here) claimed MPS might lose significant market share in NVIDIA GPU systems due to performance issues with their power modules, triggering a 25% stock drop. However, MPS itself dismissed these fears, citing no evidence of performance issues or order cancellations. While secondary suppliers like Infineon or Renesas might nibble at MPS GPU related market share over time, MPS core position, diversification with different revenue streams remains strong, and this recent selloff could end up being a rare buying opportunity.
Blending Fundamentals with Technical Analysis
When evaluating a business, it's important to balance fundamentals with technical signals. In a market molded by algorithms and sentiment, it's easy to be distracted by short-term fluctuations. My focus remains on long-term trends, filtering out daily noise to get a clearer picture.
Some key valuation metrics I’ll focus on include:
Growth metrics: Revenue Growth, Earnings Per Share (EPS) Growth and R&D Spending Growth critical for a technology-driven company like MPS
Financial Sustainability and Capital Efficiency ratios: Return on Invested Capital (ROIC), Cash Reserves, Free Cash Flow (FCF), Debt-to-Equity
Profitability: Gross Margin, EBITDA Margin
Valuation: Forward EV/Sales
For technical analysis, I prefer simplicity, sticking to a few core indicators for weekly timeframes:
50-week MA: To track trends and support/resistance levels
MACD: To gauge momentum and identify buy/sell signals through crossovers and divergences
Volume: To measure the strength of price movements and confirm breakouts
⚡ MPS - MPWR 0.00%↑
Weekly Technical Analysis
Price Trend: MPWR has taken a sharp downturn following a critical research report by Edgewater. Before this event, the stock was riding a wave of positive momentum after breaking out of a multi-year base (2021–2024), retesting the breakout, and continuing its ascent alongside the 50-week MA. The recent sell-off has erased this momentum, with the price now testing key levels near its rising 200-week MA and the upper range of its prior multi-year base.
Price Levels and Support
Support: Strong support at $550 and low-$500s (200-week MA).
Resistance: Around the mid-$700s (50-week MA).
Key Indicators
Moving Averages: The 200-week MA is acting as a critical support level, historically a zone for high-volume buying and rebounds in quality stocks like MPWR. The stock's past behavior suggests it could repeat this trend, although further confirmation is needed.
MACD: Currently in a downward trend below the zero line, indicative of bearish momentum, but showing early signs of stabilization.
Volume: Elevated trading volume during the sell-off is beginning to normalize as the stock searches for a bottom.
Commentary
Fear-driven sell-offs following short reports often create opportunities for long-term investors. If the claims from Edgewater about MPS's alleged faulty power modules for NVIDIA GPUs prove true, it could lead to more downside:
Potential loss of future revenue from the data center segment (~25% of total revenue).
Damage to the company’s reputation as a leading innovator.
That said, MPS categorically denies the claims, and the business remains well-diversified. Whether these concerns are valid remains to be seen. In the meantime, MPWR appears to be at a pivotal technical and sentiment-driven juncture, offering a good risk-reward scenario for investors confident in the company’s fundamentals.
Growth Trends
After a sharp slowdown in total revenue growth at the end of the COVID-driven frenzy—declining from high-40% growth to flat or negative growth in 2023—MPS appears to be regaining momentum. Year-to-date (YTD) revenue growth is rebounding strongly, with an impressive +30.6% growth in Q3 2024 (see Chart 2).
Key Growth Drivers by Segment (CAGR over the past two years):
Enterprise Segment: +72% CAGR driving important share of revenue growth (Chart 1)
Data Center Segment: +31.2% CAGR, supported by industry demand for high-efficiency power solutions (Chart 1)
The Automotive Segment has also contribute to growth more recently, +30% growth, benefitting from increasing electrification trends. Meanwhile, other segments, including Consumer, Industrial, and Communications, are only starting to show early signs of recovery.
Operational Resilience
What’s particularly noteworthy is MPS's ability to maintain relatively stable EPS during the 2023 downturn, despite the sharp revenue slowdown. Now, with revenue growth accelerating across key segments backed by industry tailwinds, the potential for EPS growth to follow seems highly likely. This could serve as a catalyst to drive further stock price appreciation.
Profitability and Valuation
The recent short report has sharply reduced MPWR's valuation, with its Forward EV/Sales multiple dropping from 18x to 10.8x, pushing it below its 5-year average.
While this valuation may still seem elevated, it’s important to consider its profitability resilience, with 55% gross margin demonstrating stability despite headwinds, and strong operating efficiency, with 28% EBITDA margin, which remains high and gradually improving.
When paired with the company’s high quality (we will see this on the next section), current levels appear more compelling than it seems for long-term investors.
Sustainability and Capital Efficiency: Hallmarks of Quality
When evaluating a business’s quality, two key metrics come to mind: Return on Invested Capital (ROIC) and cash flow growth. ROIC shows how well a company uses its capital to generate profits, while cash flow growth—such as increases in cash reserves and free cash flow per share (FCF/Share) —indicates a stock’s intrinsic value and future potential.
MPS has maintained a high ROIC of 34-35% over the past two years, despite the industry downcycle, consistent with its 5-year average of 35.63%. This is impressive, especially compared to competitors like Infineon (11.4%) and Analog Devices (7.4%). Even Texas Instruments (TXN), a leader in capital efficiency, has a 5-year ROIC of 50%. MPS is one of the few businesses within the semi industry able to stand a face to face with TXN by achieving high capital efficiency while growing faster.
In addition to its capital efficiency, MPS excels at generating and growing cash flows. Over the past five years, it has grown its cash reserves at an impressive CAGR of 34.2%. Even more remarkable is its FCF/share, which has expanded at a 41.9% CAGR over the same period, positioning it strongly for future growth.
The company is also debt-free, giving it the flexibility to prioritize R&D spending in technology and innovation, without the burden of debt, and further cementing its technology competitive edge.
All in all, MPS combines outstanding capital efficiency, rapid cash flow growth, and an impeccable balance sheet to rank among the semiconductor industry’s elite companies.
🧠 My Final Take
MPS is a textbook example of what happens when you mix innovation with discipline. From its advanced BCD process to its fabless model, MPS has shown that being small and scrappy can outmaneuver the big players such as Texas Instruments or Analog Devices.
The chart below speaks for itself, 10-year performance of MPWR vs TXN and ADI:
Sure, there are risks (geopolitics, competition, and talent retention), but the company’s strategy of doubling down on its strengths—innovation and proprietary technology, coupled with exceptional capital efficiency, rapid cash flow growth, and a pristine balance sheet—gives it a solid foundation to keep winning and compounding.
For investors, the question is simple: Are you betting on MPS’ ability to continue out-innovating its rivals? If so, the recent market selloff might just be the “golden goose” moment and a chance to pick up a proven innovator at a discount. But if you’re more wary of its risks, it may be worth waiting on the sidelines. Either way, one thing is clear: MPS is a company worth watching, whether you’re a bull or a bear.
That’s all, thank you for reading until the end! I hope you enjoyed this take on MPS. Keep an eye out for more deep dives, including my take on Cloudflare or Parsons, new upcoming Hidden Gems and a 🎅 Christmas Special: TOP 5 Picks for 2025.
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