Ladies and gentlemen, thank you for standing by, and welcome to the Monolithic Power Systems, Inc., first quarter 2020 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. Please be advised that today's conference is being recorded. Now it's my pleasure to turn the call to Bernie Blegen, Chief Financial Officer.
Thank you. Good afternoon, welcome to the first- quarter 2020 Monolithic Power Systems conference call. Michael Hsing, CEO and Founder of MPS, is with me on today's call. In the course of today's conference call, we will make forward-looking statements and projections that involve risk and uncertainty, which could cause results to differ materially from management's current views and expectations. Please refer to the safe harbor statement contained in the earnings release published today. Risks, uncertainties, and other factors that could cause actual results to differ are identified in the safe harbor statements contained in the Q1 earnings release and in our SEC filings, including our Form 10-K filed on February 28, 2020, which is accessible through our website, www.monolithicpower.com. MPS assumes no obligation to update the information provided on today's call.
We'll be discussing gross margin, operating expense, R&D and SG&A expense, operating income, interest and other income, net income, and earnings on both a GAAP and a non-GAAP basis. These non-GAAP financial measures are not prepared in accordance with GAAP and should not be considered as a substitute for or superior to financial measures of financial performance prepared in accordance with GAAP. A table that outlines the reconciliation between the non-GAAP financial measures to GAAP financial measures is included in our earnings release, which we have filed with the SEC. I would refer investors to the Q1 2019, Q4 2019, and Q1 2020 releases, as well as to the reconciling tables that are posted on our website.
I'd also like to remind you that today's conference call is being webcast live over the internet and will be available for replay on our website for one year, along with the earnings release filed with the SEC earlier today. Before going through our financial results, I would like to acknowledge the difficult circumstances we are all operating under. At MPS, we have taken all necessary precautions to ensure the safety of our employees, our suppliers, and our customers. At the same time, we have remained focused on the need to execute to the highest level possible. Our worldwide efforts are reflected in our continuing level of innovation and customer support. In response to the news of extreme shortages of medical equipment, MPS rose to the occasion to fight the global pandemic.
As described in our recent press release, MPS developed and assembled an emergency ventilator prototype in a matter of days, leveraging an MIT open-source design concept. We demonstrated our technological superiority and deep system application knowledge to showcase our capability to advance from a component provider to a solution provider in a short period of time. We believe we can help our customers to do the same by taking advantage of MPS's vast and diversified product portfolio, which is highly programmable, flexible, and feature-rich.
We are also encouraged by the excitement we have received from our existing and potential customers, that will lead to many promising opportunities in the medical device industry. Turning now to our financial results. MPS posted record first- quarter revenue of $165.8 million, 17.3% higher than the comparable quarter in 2019. MPS continues to benefit from our technology leadership and diversified multi-market strategy.
Looking at our revenue by market. In our computing and storage market, first quarter 2020 revenue of $52.0 million increased to $12.8 million, or 32.6% year-over-year. First quarter 2020 computing and storage revenue represented 31.3% of MPS's first quarter 2020 revenue, compared with 27.7% in the first quarter of 2019. The year-over-year revenue increase primarily reflected sales growth for cloud-based servers and storage. First quarter 2020 communications revenue of $27.9 million rose to $5.7 million, or 25.6%, from the first quarter of 2019. The year-over-year revenue increase primarily reflected higher 5G networking sales. Communications revenue represented 16.8% of MPS's first quarter 2020 revenue, compared with 15.7% in the first quarter of 2019.
First quarter 2020 industrial revenue of $25.2 million increased 18.3% from the first quarter of 2019 and accounted for 15.2% of our total first quarter revenue. The increase over the first quarter of 2019 primarily reflected gains in smart meters and security applications. First quarter 2020 automotive revenue of $23.3 million grew 13.6% over the same period of 2019, representing 14.1% of MPS's first quarter 2020 revenue. This growth primarily represented increased sales of infotainment, safety, and connectivity application products. First quarter of 2020 revenue from consumer markets of $37.4 million, decreased $700,000, or 1.9%, from the same period of 2019. The year-over-year revenue decrease reflected continuing reductions in demand for set-top boxes and flat- panel TVs. Consumer revenue represented 22.6% of our Q1 revenue, compared with 27.0% contribution in the first quarter of 2019.
The GAAP gross margin was 55.2%, 10 basis points higher than the fourth quarter of 2019, and flat with the first quarter of 2019. Our GAAP operating income was $31.0 million, compared with $30.7 million reported in the fourth quarter of 2019. For the first quarter of 2020, non-GAAP gross margin was 55.5%, matching the fourth quarter of 2019, but 10 basis points lower than the first quarter of 2019. Our non-GAAP operating income was $45.9 million, compared to $50.8 million reported in the fourth quarter of 2019. Our GAAP operating expenses were $60.5 million in the first quarter of 2020, compared with $61.2 million in the fourth quarter of 2019.
Our non-GAAP first quarter 2020 operating expenses were $46.1 million, up from the $41.8 million reported in the fourth quarter of 2019. This increase primarily reflected higher Q1 payroll taxes and increased investment in new products.
The difference between non-GAAP operating expenses and GAAP operating expenses of the quarters discussed here are stock compensation expense and income or loss on an unfunded deferred compensation plan. For the first quarter of 2020, total stock compensation expense, including approximately $600,000 charged to cost of goods sold, was $18.6 million, compared with $18.7 million reported in the fourth quarter of 2019. Switching to the bottom line.
First quarter 2020 GAAP net income was $35.8 million, or $0.77 per fully diluted share, compared with $32.4 million, or $0.70 per share in the fourth quarter of 2019. Our Q1 2020 tax provision of -22% was due to a one-time discrete tax benefit resulting from stock compensation. First quarter 2020 non-GAAP net income was $44.3 million, or $0.95 per fully diluted share, compared with $48.4 million, or $1.04 per fully diluted share, in the fourth quarter of 2019.
Fully diluted shares outstanding at the end of Q1 2020 were 46.7 million. Let's look at the balance sheet. Cash, cash equivalents, and investments were $492.3 million at the end of the first quarter of 2020, compared with $458.5 million at the end of the fourth quarter of 2019. For the quarter, MPS generated operating cash flow of about $51.4 million, compared with operating cash flow of $61.0 million in the fourth quarter of 2019. First quarter 2020 capital spending totaled $10 million. Accounts receivable ended the first quarter of 2020 at $54.3 million, or 30 days of sales outstanding, up one day from 29 days at the end of the fourth quarter of 2019. Our internal inventories at the end of the first quarter of 2020 were $131.5 million, up from the $127.5 million at the end of the fourth quarter of 2019.
Days of inventory increased to 161 days at the end of Q1 2020, compared with 155 days at the end of the fourth quarter of 2019. I would now like to turn to our outlook for the second quarter of 2020. We are forecasting Q2 revenue in the range of $167 million-$173 million. We also expect the following: GAAP gross margin in the range of 55.0%-55.6%. Non-GAAP gross margin in the range of 55.3%-55.9%. GAAP R&D and SG&A expenses between $60.9 million and $64.9 million. Non-GAAP R&D and SG&A expenses to be in the range of $43.4 million-$45.4 million. This estimate excludes stock compensation and litigation expenses. Total stock-based compensation expense of $18.1 million
To $20.1 million, including approximately $600,000 that would be charged to cost of goods sold. Litigation expenses are expected to range between $1.7 million-$2.1 million. Interest and other income is expected to range from $1.7 million-$1.9 million before foreign exchange gains or losses. Fully diluted shares to be in the range of 45.8 million-47.8 million shares. In conclusion, we are not immune to the macroeconomic reality, but our long-term growth prospects remain intact. We will continue to execute to our plan and are prepared to manage the volatility of future customer demand. I will now open the phone lines for questions.
Thank you. Ladies and gentlemen, as a reminder, to ask a question, you will need to press star one on your telephone. To withdraw your question, press the pound or hash key. Again, if you have a question, just press star then one on your telephone keypad. Our first question is from Tore Svanberg with Stifel. Please go ahead, Tore.
Yes. Thank you, Michael and Bernie. Congratulations on these results in a very challenging environment. First question, and maybe this is a bit philosophical, but innovative companies tend to gain a lot of share during a downturn. We're obviously in the downturn. I was just wondering, Michael, if there are certain things that you're looking at to obviously come out of this even stronger than going into this.
Tore, if you remember the history we tend to learn about.
Michael, you're breaking up. Michael, you're breaking up, unfortunately.
Can you hear me?
Yeah. You might go to the handset instead of the speaker. There you go. You're fine.
Can you hear me now?
Yes, we can.
Yes, much better.
All right. Okay. As I said earlier, Tore is a member in the MPS's history because you covered those things on day one of MPS becoming a public company. Somehow, we tend to do that. In the downturns, we tend to do well, and upward relatively. In normal times, we are just as good as just everybody else; the percentage of growth tends to be slightly slower or slightly lower. How we can achieve that, I think, is that our target is many years out, irregardless of the downturns or upturns. We are very consistent, it's not like other companies, maybe because they have all the large market shares, and they tend to react to a shorter term. If you can think about it philosophically, and we will tend to do well during a downturn.
That's very helpful. On a similar topic, but more specific, your e-commerce business, I do appreciate it's taken a while to get that up and running, but in this sort of virtual environment we live in, I would think that a business like that would be very welcome. Maybe you could elaborate a little bit on what's been going on that front.
Well, as I said in the last quarter, we said that e-commerce, we kind of dropped a hook in the Pacific Ocean. There's a lot of fish there, but we didn't hook that too many things in out of that. We're still in the early stage. However, in the last couple of months, we launched ventilators. That attracts so many new customers or new potential customers, and it overwhelmed us, and it's kind of a surprise to us. I think that we are a small company, and we are a relatively new company, and the people don't know us. We just need some time. We need to learn how to do it.
That's great. One last question for Bernie. Bernie, you talked about the computing and storage business being up quite dramatically year-over-year. Some other players in the space obviously are talking about similar strength. Did you get a sense that there's some pull-in activity going on there? Intel, for instance, talks about, obviously, the second half being weaker than the first half. Any color you can add on that would be great. Thank you.
Sure. I think we're seeing a pattern that's probably consistent with other companies who have exposure to either 5G or data center or to notebooks, as there's continuing investment in order to service the work- from- home aspect of the economy right now. There has been a lot of activity, particularly in storage particularly in data centers, and we're seeing a continuing level of investment also in 5G. Again, as with any expectation of what the second half would look like, obviously, this is a challenging environment, and we normally only forecast one quarter ahead.
Very good. Congratulations again. Thank you.
Thank you.
Thank you. Okay.
Thank you. Our next question comes from Matt Ramsay with Cowen. Please go ahead, Matt.
Hey, this is Joshua Buchalter on behalf of Matt. Thanks for taking my question. Hope everyone's hanging in there okay. I know you guys love questions on inventories, but given all the moving parts on both the supply and demand side, could you update us on how you feel and your comfort level? After last quarter, you sort of lamented bringing levels down. It'd be helpful to hear an update on your visibility into both your on books and in the channel. Thanks.
Okay. In the last couple of quarters, we said that our bookings is very good. It still is. We have inventory problems. That's the problems related to and delivered to our customers up and above. This issue, and this growth of this year, we didn't say it is from the last couple of quarters. We said a lot earlier. The macro market have some uncertainty, and we were so criticized. We have more inventory.
Right.
Last December, we took a step and reduced our inventory. Now, we can barely do up and beyond our forecast. The conditions are even more murkier now, and we have to just react accordingly.
If I could add to Michael's good point there, is that through the challenges that we're facing in the economy right now, as you can see that, we continue to operate at nearly 100% capacity, both in terms of our supply chain as well as our internal operations. Now, I don't want to minimize those challenges and in any way take away from a lot of very difficult and hard effort on the part of a lot of employees that made that all happen. So far, we've had minimal disruption to the supply chain.
Yeah. Thank you. Appreciate all the color. As my follow-up, are you able to provide any color on your expectations by segment for the second quarter? Thanks. Congratulations on the stellar results.
Sure. I can take this one quickly on the numbers front. Responded to the earlier question is that I believe that much of the growth that we expect to enjoy should come from computing and storage, as well as in 5G. There is a weakening in demand in the traditional consumer and also in the automotive.
Here is, okay, I might as well edit, okay. We try to have a very diverse growth. My job is that if I do the best job is not to know which segment is the growth. We want to so diversify, and you don't know which side, which one. Every week, we occupy a very small percentage of each market. Look at the consumers. Actually, within the consumer, there's a lot of fundamental shift. We shift from a traditional TV set-top box, and we still have some percentage. Within that, we have a huge change. We change it to a much higher high end of consumer products, and as well as the Internet of Things.
Thanks, guys.
Okay.
Thank you. Our next question comes from Quinn Bolton with Needham & Company. Go ahead, Quinn.
Hey, guys. Let me offer my congratulations on the nice results and outlook. You guys are significantly outperforming a number of the analog peers sequentially and certainly year-over-year. I think that we've seen a number of the analog peers talk about, in their forecast, I think they refer to seeing some customers buying ahead or building inventory. Just wondering if you might be able to address that, specifically on the compute and 5G side. I know you mentioned that auto and consumer is softening. Maybe just go through just whether you think there is any buy-ahead activity that may be influencing second- quarter guidance? I've got a follow-up.
Yeah. Of course, we're concerned. It's like a toilet paper effect, right? Just a few months ago, all the shelves and the toilet papers are gone. Whether we see the same kind of effect or not, we really don't know. In some of the areas, like in the PCs and in the data centers, have a surge. We kind of expected that. Other ones in the consumer area, and it's actually slower than our expectations. We have to be quick on the feet, and we have to react quickly. In the meantime, we ship as much as we can.
Got it. Then, just looking in that data center business, I think Intel has recently sort of canceled the Cooper Lake processor generation to focus on the 10-nm Ice Lake for launch late this year. Just wondering if that's had any impact on the Whitley ramp as you see it, or are you seeing pretty good design activity, either for existing Purley systems or the initial ramp of Whitley, just over the balance of the year? Thank you.
Yeah. Good question. Our experience has been showing that we're receiving the same level of customer engagement and that, going back to Michael's point about Q2, the level of order momentum has continued unabated, regardless of the change in the product cycle. At this point, we may not have the full benefit of how end demand will be shaped by this change, but I don't see any early indicators that give me pause. One other thing to make specific is going back to Michael's point on being diversified. The business model is not dependent on any individual product launch with the timing. As I said, that's the advantage of our diversified portfolio.
Great. Congratulations again, guys.
Thank you.
Thank you.
Thank you. Our next question comes from Chris Caso with Raymond James. Please go ahead, Chris.
Yes, thank you. First question is just regarding product cycles for the year. I'd imagine, much like last year, there's a certain part of the business, a large part of the business, which is just driven by product cycles, getting customer designs out the door, and another portion of it, which is related to run- rate business. Perhaps that might be affected by a downtick in demand. Could you characterize the business, kind of what parts would be more driven by product cycles, what parts would be driven more by run rate demand, and take a look and give us some sense of how that plays out into the second half?
The second half, just philosophically, it was not very clear. Our customers' demand is as high as ever. We engage our customers in a variety of segments. When they step up, and it's kind of very short notice, a few months. When they test the market, if the market is reacting well, they have a huge ramp. That's why we need enough inventory to support the new product ramp. To answer your questions of which particular market segments, in the last couple of months, the engagement with the customers total shift. We're in the medical field now. A lot of parts and a lot of inquiries, and all these things are particularly helped by the ventilator. It's totally to our surprise. At the same time, we didn't expect the computing ramp has this much.
It's just particularly in the memory side, in the memory power. What is that, Bernie?
SSD.
Yeah. SSD. That's our scenarios now. Going forward, we're not very clear. I know that the new trend is that you can work from home, and you can work remotely, and the cloud computing, the cloud, the data center, the communication will keep going and will accelerate.
Thank you.
Yeah.
I'm sorry?
I'm sorry. I had just two small things to add to that, is that on the notebooks, seasonally, those are driven where you have a high Q3 and Q4, it tails off. We see nothing aside from cyclical changes there. Obviously, we have a gaming console that will start to ramp here in the end of Q2.
That's helpful. Thank you. As a follow-up, you had talked about qualifying some new capacity on 300 mm into the second half. Could you give us an update on that, and in the current environment, has there been any change to your plans or your need for that capacity, either greater or less?
Yeah. If we see some push out, this is above and beyond; if they don't have those push out, we're even in deep trouble. In terms of customer relationship, not in terms of delivering the numbers. We're working very hard. We try very hard to bring up another fab. As you know, this is not overnight. At least it takes half years. I think that we can meet our demand and qualify some of the high runners.
Yeah, we should be able to qualify the high runners before the end of this year and actually be shipping from that fab.
Great. Thank you.
Okay.
Thank you. Our next question comes from William Stein with SunTrust. Please go ahead, William.
Great. Thanks for taking my questions. Michael and Bernie, congrats on the good result and outlook. Michael, you mentioned at the start of the call a transition from a component to a solutions company, and you highlighted the ventilator as an example. At the Analyst Day, you also showed several things that looked like a precursor to this in a way, not only eMotion, but these programmable modules. I wonder if there's anything more quantitative that you could disclose to us in terms of revenue or growth or designs or orders as it relates to that, what we might describe as a transition or a new leg of growth to the business.
Yeah. We haven't really prepared qualitative numbers to use. That type of a business is picking up, but we have to think about how we disclose very accurately to our investors. It is clear that trend, and we want to make our solutions, our product, chip-based solutions, is really easy to use. That's the trend. To a lot of power supplies, a lot of motor controls, eMotion controls, and even for the power supply for the data center, these are a lot of technology are maturing. What is on top of that? It's really a plug-and-play solution. You want to take away all the design effort from our customers. In terms of, maybe Bernie, you can say, our modules are doing really well, right?
Our modules, if you're talking about only power modules, so from two to three years ago, in a single low- digit million dollars of sales, we're now at least $35 million-$40 million.
Yeah.
In last year. That number is great. This is the fastest growth percentage-wise in the MPS revenue stream.
I think that I'd probably add to that, if I can. That Michael is exactly right, that we haven't really articulated the financial model where we can quantify it in a way that would be meaningful to you. I agree with Michael's assessment of how we're doing with power modules. The thing that I would add, though, is whether you're looking at programmability, you're looking at the e-commerce solution, you're looking at eMotion, or the power modules or the integrated solutions that we were just talking about, it's all about an overarching strategy as far as how to differentiate and leverage all of our multiple technologies and differentiate ourselves in the market.
That's helpful. If I can have a follow-up, please. I think last quarter, you talked a little bit about a new area that the business was investing in that was high-performance converters. I'm wondering if you can provide an update on design wins, revenue, and any sort of traction that we could think about there. Thank you.
Yeah. Okay. That group will be joining, and they brought in an opportunity. We have six, seven guys joining the company, and they brought in the opportunities. We have the customers now, and they engage with the customers for the medical companies for wires. Actually, we don't have any significant inputs that can change. I think these kinds of things it takes about two. This is very unusual. It takes less than a year, and we can see some results. Usually, our product, even internal developments, like ground-up development, will take us about two or three years to see anything. This one, so far, is looking good.
Great. Thank you.
Thank you so much. Our next question is from Rick Schafer with Oppenheimer. Please go ahead, Rick.
Oh, thank you, and congratulations to you guys in a tough time. You continue to execute. I guess my first question, talking about tough times, I know everybody's seen the IHS forecast autos are, I think, down over 20% this year. You guys obviously have content and some pretty significant share gains in that vertical. Do you look at that this year and say that that's enough to offset a down, let's say, 20% SAR? Could your auto revenues be flat for the year? Could they grow in this kind of environment?
I think that we look at our histories, and we can tag on what is your macroeconomy segment growth all downwards in our segment. We're confident enough we can say that we can beat it by 10%.
Yeah, I think that we got an education in 2019 when there was a complete falloff in production in China and a soft demand in North America and Europe in particular. I think if you use that as a guide, and you can say that the SAR was down, but we were able to grow at about 13%, 14% last year. To Michael's point is, you can apply whatever you think the market's going to do, and we're going to outperform by a minimum of 10 percentage points. Last year, it was closer to 20 percentage points.
Great. Just pivoting to 5G, and just maybe if you could provide an update on your 5G RAN opportunity, maybe give a sense of the MPS dollar opportunity in a macro base station. Part of my question, I'm just curious, it just seems like such a massive opportunity for you guys. Could 5G be as big a server for you, if we fast-forward it two or three years?
Yeah. Okay. That's a good question. I can only tell you this: we know 4G, we were out the door. We didn't have any chance. This is the first time we engaged with a variety of customers, the ODMs and the OEMs, and even their suppliers. We engage both sides, the real telecom companies and also their suppliers. All we see are the opportunities that we've never seen before. How big the market is, we cannot quantify it, and I'm not trying to wag the dog here. We are new. We're newcomers. All I know, the opportunity is huge, and we don't even try to quantify what the opportunity is. We all know this, as long as it's very big.
Yeah. I think you were asking for guidance on the dollar content for the base station, and Michael is correct that we don't have a number. We're too new to be able.
Yeah. Okay. I can tell you why we don't, particularly, in which segment of 5G. Our product is in the building block of 5G. If you think about it as a brick for the building, and our product is the standard product in those companies, and they can use it everywhere.
Got it. Thanks a lot, guys.
Thank you. Our next question is from Kamil Mielczarek with William Blair. Go ahead, Kamil.
Hi. Congratulations on strong results in this uncertain environment. Can you tell me how the design win activity has been trending during the pandemic versus your expectations? How do you balance growth and margin in this environment? What leverage do you have to maintain or potentially expand gross margin? Thank you.
Yeah, the gross margin obviously is, the way it goes kind of a little bit on the sideways in the second half of the last year. We're not happy about it, but we try to be very consistent. Given the macro conditions, and it kind of makes sense for us. The new product, particularly the new product, its ramp is a pretty good rate. Some of the higher value products was slower. That's why the margins go. In the long term, the margin will steadily go up.
First part of the question was a design activity.
Yes. Okay. Sorry, I forgot about it. That was a very good question. Obviously, normal activities kind of slow down, which really doesn't affect us. Okay. We're very much used to it, working from outside the office. We still very much engage with our customers, but in very different ways, okay. Very different market segments. A lot of them relate to medical equipment. We will shift our heads. MPS, in the past, is always pretty fast on the feet. So we shift all our interests, and we support those customers. It's not like a normal business now.
One thing I can add to that is that, interestingly, our operations and our customers' operations in China and in Asia came back online about one month ago. Not that I'm trying to say that we're business as usual, but in the area of the world where we have up to 90% of our employees, including a large share of our design professionals, as well as a majority of our end customer engagement, we're actually seeing a good cadence, good momentum. As Michael said, on the U.S. front, where we're still in the shelter in place, both in our Washington and in our San Jose offices, we have developed over the last several years the ability to both do field application engineering and customer engagement via Zoom. We're fairly competent at that.
Yeah. Bernie, it's not like 90%. It's more like 60%-some. Okay?
Yeah.
Yes, we do have a testing and a reliability center that's in China. In terms of the number of people, across Asia, including Japan, and versus the U.S. and Europe, okay, including Japan, so that probably is about 70%-some.
Yeah. Okay.
Yeah. We are more diverse across the world.
All right. Ladies and gentlemen, if you have a question at this time, just press star then one on your telephone keypad. To withdraw your question, just press the pound key. Our next question is from Hans Mosesmann with Rosenblatt Securities.
Hi, guys. This is Kevin Garrigan in on for Hans. Thanks for taking my question, and congrats on the results. Just one quick one for me, and my apologies if you had alluded to this already. You had mentioned that you're seeing minimal supply disruptions and that you're having good momentum with your Chinese customers. Can you give us any color in terms of if you're seeing any demand destruction?
I don't know if it's the Chinese customers. Did we say that? Maybe, okay, that's a misunderstanding. Okay. Bernie, you want to say that? Okay.
As far as any demand destruction occurring, we haven't seen any cancellation of projects or push- outs in orders on a material basis. Obviously, the duration of the macro environment is not understood right now. We're very sensitive to seeing any early warning signs that we need to react to in this volatile environment. As of this point in time, we have not seen a step- down in demand on a broad base. There are some pockets, as we mentioned in an earlier answer.
Okay. Got it. Thank you.
Thank you, Kevin.
Thank you. Our next question comes from David Williams with Loop Capital. Please go ahead, David.
Hey, good afternoon, and congrats on the quarter. Thanks for taking the question as well. Just wanted to see if you had any color on maybe the console launches that are expected, you said in the second half. How do you think that ramps? Do you have a sense of what the demand is going to look like or what those volumes could potentially be?
Yeah. We have a pretty good knowledge, but I cannot say that. Okay? In that business, very cyclical. For MPS, it's good money. For stock values, it's very contrary to what we do. It's very cyclical, and it buys once a year, and for most of the year, they don't do anything. After that wave, we have to fill up the gap. We have done pretty good in the last two or three years, but as the revenue keeps growing, that will be a small part of our MPS business.
Great. Thank you. Just kind of thinking about the comm segment and the design wins and maybe the design activity there, are you seeing a broader base of designs outside of maybe Huawei or some of the other larger companies? Just kind of, can you talk about where you're seeing the most potential or the most opportunities there?
Sure. If you look worldwide, as far as where a lot of the deployment is, it's in both China and South Korea right now. Europe and North America have been a little slower. Most of our design engagement for now has been in the lab as opposed to actually being commercially rolled out.
Okay, great.
Yeah.
Oh, sorry. Go ahead.
Oh, no, I just wanted to clarify, we don't employ any customers in our calls, and we disclose that we have large customers by rule. In 5G, as I said earlier, we engage not only once and many different telecom companies. We also engage with many different things.
Okay. Very good. I guess lastly from me is, if you're kind of thinking about the rest of the year and even the second quarter perhaps, what are your largest unknowns or potential hurdles that you kind of think about, areas of weakness that you could be seeing, or what are the areas, I guess, that you're most either troubled or concerned with or I guess paying most attention to through the back of the year here?
Okay. Good. What we.
Michael, you're breaking up again. I'm sorry. You're breaking up.
I'll give you a philosophical joke, half joke. We really worry about the toilet paper effect. Actually, we don't know. Again, the demands are very good for the second half of the year. You folks in the As we do, and when everything's good, they tend to overorder, and we won't see it. Of course, we try very hard to find out what is the real reasons. So far, that's what we try to do. Until our customers start to screaming, and then we're shipping a product.
Yeah. As opposed to a concern of a rapid fall off, right now, what we're managing is the toilet paper effect, where there's so much exaggerated demand, we want to make sure that we're not building inventory in the channel or in our distributors' warehouses. The way we do that is we don't ship to the level that they requested, and then if they really do have a stock outage where they're going to go lines down, we'll hear about it quickly and respond to that. That's the issue that we're managing now. As far as looking beyond that, maybe we'll have better guidance or outlook next quarter.
Great. Well, thanks so much, sir. I appreciate it, and the best of luck.
Thank you. Thank you.
Thank you, ladies and gentlemen. This concludes our Q&A session for today. I will turn the call back to Bernie Blegen for his final remarks.
Great. Thank you very much. I'd like to thank you all for joining us in this conference call. I look forward to talking to you again during our second- quarter conference call, which will likely be at the end of July. Thank you, and have a nice day.
With that, ladies and gentlemen, we thank you for participating in today's program. You may now disconnect.