Morningstar | Narrow-Moat Monolithic Looks Likely to Continue Dynamic Growth; Initiating With $130 FVE
Though it’s one of the smaller players in the analog market, Monolithic Power Systems has demonstrated marked expertise in designing integrated power solutions for a variety of end markets. The firm’s portfolio ranges from power converters, switches, sensors, and control systems to address industrial, automotive, communications, computing, and consumer markets, and we believe the firm’s outperformance in these markets has been a result of highly engineered expertise that has been difficult to replicate. We also believe the design wins and resulting share gains in sticky areas like automotive safety systems, industrial controls, and server platforms come with customer switching costs. In sum, we believe Monolithic benefits from a combination of intangible assets and switching costs that warrant a narrow economic moat rating.Monolithic boasts a portfolio of thousands of power conversion, charging, switches, and lighting products that we believe make it well-placed to benefit from the secular growth trends in a variety of markets. This includes trends like artificial intelligence and machine learning, which are increasing demand for dynamic power solutions in data centers, while in the industrial market, the firm’s sensing solutions should enable it to benefit from the growth of robotics. In automotive, the firm’s lighting solutions have already reaped gains from the growth of infotainment, while other power solutions should benefit from longer-term opportunities in driving-assistance systems.We expect solid growth in these three end markets—industrial, automotive, and data centers—which should account for much of the firm’s strong performance in the future. However, competition from large peers like NXP Semiconductors and Analog Devices could cause the firm to miss its ambitious revenue and profitability targets. While Monolithic’s portfolio of highly engineered and differentiated technology may give it an edge in certain applications today, the scale of its peers’ resources may not allow it to maintain its strong rate of design wins and share gains.Monolithic Power Systems is a fabless semiconductor company. The company designs, develops and markets power solutions for systems found in consumer, computing and storage, automotive, industrial, communications and consumer applications. The company's primary product families include the following: Direct Current (DC) to DC products, which are used to convert and control voltages within a range of electronic systems such as portable electronic devices, wireless Local Area Network access points, computers, and monitors, automobiles and medical equipment; and Lighting Control Products, which include lighting control integrated circuits that are used in backlighting and general illumination products.
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