Good day, and thank you for standing by. Welcome to the Power Integrations second quarter earnings call. At this time, all participant's lines are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one on your telephone keypad. Please be advised that today's conference is being recorded. If you require any further assistance, please press star zero. I would now like to hand the conference over to your speaker today, Mr. Joe Shiffler. Sir, please go ahead.
Thank you, Mel, and good afternoon, everyone. Thanks for joining us. With me on the call today are Balu Balakrishnan, President and CEO of Power Integrations, and Sandeep Nayyar, our Chief Financial Officer. During the call today, we will refer to financial measures not calculated according to GAAP. Non-GAAP measures exclude stock-based compensation expenses, amortization of acquisition-related intangible assets, and the tax effects of these items. The reconciliation of non-GAAP measures to our GAAP results is included in our press release. Our discussion today, including the Q&A session, will include forward-looking statements denoted by words like will, would, believe, should, expect, outlook, forecast, anticipate, and similar expressions that look toward future events or performance. Such statements are subject to risks and uncertainties that may cause actual results to differ materially from those projected or implied.
Such risks and uncertainties are discussed in today's press release and in our Form 10-K filed with the SEC on February 5th, 2021. This call is the property of Power Integrations, and any recording or rebroadcast is expressly prohibited without the written consent of Power Integrations. Now I'll turn the call over to Balu.
Thanks, Joe, and good afternoon, everybody. This was another record quarter for Power Integrations, with revenues of $180 million, up 69% from a year ago. Demonstrating the leverage in our model, our non-GAAP operating margin surpassed 30% for the quarter and increased our non-GAAP EPS by more than 2.5 times year-over-year. For the first half of 2021, the revenues grew 63% from the prior year. We are growing well above the growth rate of the analog industry, thanks to broad market share gains and secular trends that will endure even as demand normalizes over the coming quarters. One such trend is energy efficiency, which has been a key part of our story since the introduction of our EcoSmart technology over two decades ago. Energy efficiency has provided a tailwind ever since, driving OEMs to redesign their products in response to regulatory standards and consumer demand.
At times, these tailwinds have been boosted by highly impactful standards like the 2007 California regulations on external power supplies, which quickly drove linear power supplies out of that market. Power Integrations won an outsized share of that opportunity because our LinkSwitch were an ideal replacement for linears. A similar transition has now taken place in the air conditioning market due to China's mandatory standards for room AC units, which were announced late 2019 and have been phased in over the past year. China's updated minimum efficiency performance standards essentially rule out fixed-frequency AC units, which accounted for nearly half of China's production before the standards took effect. In response to the standards, manufacturers have transitioned most of their production to variable speed brushless DC motors and have also converted from linear to switched-mode power supplies to drive the electronics.
Power Integrations is a market leader in switched-mode power supplies for air conditioners, and our incumbent position has allowed us to capture much of the volume transitioning away from linears. It has also created opportunities for our BridgeSwitch motor drive chips, which drive brushless DC motors such as those used in variable speed AC units. In fact, we won one of our largest BridgeSwitch designs to date in Q2 at a major customer in the air conditioning market. We are also gaining share in major appliances where we are already the leader in AC-DC power supplies, thanks to the efficiency and reliability benefits of our products. Our share gains have accelerated as competitors with capacity constraints have prioritized other products ahead of the power supply chips, and other competitors have de-emphasized or exited the power supply market altogether.
These gains are compounding the revenue benefits of rising dollar content in appliances driven by tighter efficiency standards and the increasing penetration of electronic features such as network connectivity, electrically controlled motors, and LED lighting. We also expect meaningful revenues from motor drive applications next year as BridgeSwitch begins to ramp in earnest. Another important secular trend in the power supply market is the adoption of advanced chargers for mobile devices, which continues to drive strong growth in our communications and computer categories.
Combined revenues from these categories more than doubled year-over-year in Q2, reflecting the market shares we have gained in OEM-branded chargers for smartphones, tablets, and notebooks, as well as multipurpose chargers from a wide range of aftermarket brands. We have made it a priority to win share in this market today, knowing the revenue stream will be stickier, less volatile, and more profitable than the commodity cell phone charger business of the past. Charger designs have always had longer life cycles than the mobile devices themselves, which are refreshed every year. While simplistic low-power chargers could easily be redesigned just to shave a few pennies off the BOM cost, today's highly sophisticated chargers are more like appliances with a greater focus on features and performance and longer design life cycles.
In short, we expect many of the designs in our pipeline to be in production for a long time, and we are pressing our advantage to lock in these designs today. We've got a wide assortment of advanced charger designs in Q2, including a 33-W inbox charger that will significantly increase our penetration at a top-tier handset OEM. Another OEM recently placed the largest single order to date for our GaN-based InnoSwitch products, which they have selected for a new 67-W inbox cell phone charger for use with high-volume phone models. We also won 130-W design for a leading supplier of gaming notebooks featuring four charging ports and using three GaN-based InnoSwitches. As announced in May, we have also been designed into Anker's next-generation Nano II chargers, which comes in 30-W, 45-W, and 65-W versions.
Notably, the 65-W version is approximately the same size as a 30-W charger from the first generation of Nano chargers. This improved power density is enabled by our latest product, InnoSwitch4, which will be produced exclusively with GaN. GaN enables InnoSwitch4 to operate at higher frequency, resulting in a significant reduction in the size of the power supply transformer. We pair the InnoSwitch4 device with our new clamp driver chip, which implements active clamp technology to recover losses associated with the higher switching frequency, enabling a truly exceptional level of efficiency. Then combined with our MinE-CAP product, which uses GaN to enable the use of a much smaller input capacitor, we can deliver power density far superior to any solution available in the market today.
The synergy between these products demonstrates the value of a comprehensive approach to power supply technology, including proprietary process technologies, high voltage transistor technologies, highly integrated controllers, proprietary packaging, and system-level know-how. This has always been our approach, and we have continued it with our GaN technology, which we have seamlessly folded into our product offerings. In fact, a GaN InnoSwitch works exactly like a silicon-based InnoSwitch, such that the customer doesn't have to know anything about GaN in order to realize its performance benefits. Other GaN devices offered in the market, including some marketed as ICs, are essentially discrete switches that require dozens of external components and many times even a separate circuit board, which are incorporated into the power supply using an external controller chip sourced from a third party.
Engineers must learn the idiosyncrasies of GaN to design a working power supply, and even when successful, they end up with a design containing two to three times as many components and multiple circuit boards. This greatly complicates manufacturing and brings compromises on reliability, time to market, cost, and form factor. While the transition to GaN is a secular trend that will lift many boards, the benefits of integration are inescapable, and we believe our approach is proving superior in the GaN world, just as it has with silicon over the past three decades. In fact, based on recent design wins, we are accelerating our capacity additions for GaN to accommodate a substantially higher level of growth than previously expected.
Looking ahead, we had been anticipating significantly lower revenues in the second half, reflecting reduced demand from cell phone customers after aggressive handset builds meant to capitalize on the Huawei sanctions. We now believe that a significant portion of this adjustment took place in Q2, as evidenced by a sharp reduction in sell-through as customers rapidly adjusted their charger inventories. With this correction largely behind us and taking into account our continuing market share gains and new design wins, we expect a more moderate reduction in the second half revenues compared to our prior expectations. For Q3, we expect a 3% sequential decline in revenues, ±5%, and we believe we are on track for a full-year revenue growth in excess of 40%, compared to a projected growth rate of about 20% for the analog semiconductor industry, according to WSTS. With that, I'll turn it over to Sandeep.
Thanks, Balu, and good afternoon. As usual, I will focus my remarks primarily on the non-GAAP results, which are reconciled to GAAP in our press release tables. Revenues for the June quarter were $180 million, up 4% sequentially and above the midpoint of our guidance. Consumer revenues were up about 10% sequentially, driven by broad-based growth in appliances and consumer electronics. Industrial revenues were also up about 10% sequentially, driven by a range of verticals including home and building automation, lighting applications, and broad-based industrial applications. Computer revenues increased mid-single digits driven by share gains in notebook chargers, which offset broader softness, likely reflecting less demand related to work from home. Communications revenues were down mid-single digits, reflecting the lower demand from cell phone customers, offset partially by channel replenishment. Revenue mix for the quarter was 35% communication, 31% consumer, 26% industrial, and 8% computer.
We stated last quarter that March would be the low watermark for gross margin, and that is proving to be the case. Non-GAAP gross margin rose to 51.4% in the June quarter, up 200 basis points sequentially, driven primarily by more favorable end market mix and manufacturing efficiencies. Non-GAAP operating expenses were $37.6 million for the quarter, up $1.4 million from the prior quarter, driven by annual salary increases and higher R&D investment, but slightly below our expectations, reflecting the pace of headcount additions. Non-GAAP operating margin for the quarter was 30.5%. While I expect operating margin to settle back into the high 20s over the next couple of quarters, crossing the 30% threshold in the June quarter clearly demonstrates the leverage in our financial model. This leverage can also be seen in our EPS growth.
Non-GAAP earnings were $50.8 million in the June quarter, or $0.83 per diluted share. That's an increase of more than 150% from the second quarter of 2020 on a revenue growth of 69%. Cash flow was also strong, with $67 million generated from operations, while CapEx was just over $8 million. We paid out just under $8 million in dividends and utilized $26 million for share repurchases, buying back 335,000 shares, or roughly 0.5% of our flow, at an average price of less than $79 per share. Buyback activity has been ongoing since the end of the quarter and will continue to be driven by a preset price-volume matrix. Cash and investments on the balance sheet rose by $24 million from the prior quarter and stood at $515 million at quarter end.
Internal inventories held steady at 92 days, while channel inventories recovered from the unsustainably low levels reached last quarter, ending June at 5.2 weeks, still below our expected steady-state levels of about six to seven weeks. Looking ahead, we expect third-quarter revenues to be down 3% sequentially, ±5%. At the midpoint of the range, that would be an increase of 44% year-over-year. While it is too early to project revenues for the fourth quarter, we believe we are on track for revenue growth in excess of 40% for 2021, and we believe we are very well positioned for growth in 2022 based on the market share gains and the secular drivers that Balu outlined in his remarks. Our gross margin outlook for the year has improved, reflecting our expectations for end market mix and the impact of manufacturing efficiencies.
I expect non-GAAP gross margin for the third quarter to be approximately 51.5% and around 51% for the full year. Operating expenses will continue to rise gradually as we add headcount in both R&D and sales and work to bring more products to market with our industry-leading technologies such as FluxLink and GaN. For the September quarter, non-GAAP OpEx should be between $38.5 million and $39 million. For the full year, expenses should grow about 9%-10%, coming off a flat year in 2020. Other income for Q3 should be in the range of $300,000-$400,000, while the non-GAAP effective tax rate should remain at approximately 80%. Now, operator, let's begin the Q&A session.
Thank you. As a reminder, to ask a question, you will need to press star one on your telephone keypad, and to withdraw your question, press the pound key. Again, that will be star one on your telephone keypad to ask a question, and to withdraw your question, press the pound key. We have the first question, comes from the line of Ross Seymore from Deutsche Bank. Your line is now open. You may ask your question.
Hi, guys. Thanks for letting me ask the question. Congrats on the solid results. I wanted to talk about the channel first and foremost, and really what it means to your s econd half expectations being higher or less bad than you said a quarter ago. The channel looks like it got back closer to normal. Is that going to be a tailwind to get back to normal in your second half expectations? Do you think that the cell phone is going to be strong enough that refilling the channel is going to take a little bit longer?
As we said, our normal levels are six to seven weeks, and here we are at five. The predominant growth in the channel came from the cell phone area. We believe because of the share gains that we have had and the secular drivers, we are going to have a better second half than we had previously anticipated. In terms of the channel, we expect it to be relatively flat for Q3. There is a possibility it could go a little bit higher in Q4. You mentioned it will go to our normal, but that's our best guess at this point.
Got it. Thanks for the color on that. I guess as my follow-up, nice performance on the gross margin side of things. Sandeep, you talked about the two reasons. Mix, I think we can see a little bit of that mix, and why that would happen. Was the manufacturing side a little bit more of a surprise to you? You're usually pretty accurate on that. It's always good to be surprised to the upside more than the downside, but I just want to get a little bit more color on the drivers, especially on the manufacturing side, what happened there and how sustainable it is.
Well, the volumes are going up and we've had yields improvements, test time reduction, and also as the mix in communication moves to aftermarket chargers, that helps our margin also because the volumes are lower and it has a favorable contribution. With the environment where we are where costs have gone up, we do value pricing. As a result of that, when you're competing against the discrete and you're doing value pricing, that also helps a bit. Yeah, utilization and also test cost improvements are probably the biggest manufacturing cost improvements. In the test, we have migrated to a new test platform, which is more cost-effective, and that happened over the last 12 months or so. That has helped us.
As Sandeep said, even in communications, we are seeing improving gross margins for the reasons you mentioned, like the aftermarket, and the fact that everybody's going to very high-end chargers.
Got it. Congrats again. Thanks, guys.
Thanks, Brad.
Thank you. Next question we have the line of Christopher Rolland from SIG. Your line is now open. You may ask your question.
Thanks, guys. Congrats on the quarter. I actually wanted to talk about the non-GAAP operating margin for a second here. I think your long-term model is 20%+, and I know you guys had an outstanding quarter of +30% this quarter, and I know you said it was going to go back into the high 20s%, but I was wondering if you had any plans on updating that long-term operating margin target and where that might go over time.
Our long-term model continues to grow our top line, low double-digit for revenue growth with OpEx growing at about 60%. We have always talked about this to be with a three to five- year period on an average. We've had a step function increase in the revenues that has caused our operating margin to go up. Our goal has always been there to maximize our operating margin over a period of time and not in a particular given year.
Yeah. Would you say that 30% + could be a stretch goal for you guys over time?
Well, I really think if you remember, I talked about 20%, and again, you have to look over a three to five-year period. We had talked about this mid 20% goal. We're not ready to again state it, but I think being in the mid-20s plus seems to be definitely in the direction where we are, and obviously, our goal as we move forward will be keep enhancing that towards the number that you indicated. At this point, what we want to do is talk in terms of three to five years, but I think we have achieved the mid-20s and hopefully we can sustain that and start going in the north direction from there.
Yeah. Okay, great. Then, it does seem like there are one or two newer GaN companies out there looking to go public. Maybe you can talk about that market, how you see share shaking out, and then ultimately pricing dynamics moving forward as we have some more newer entrants into the market.
Sure. Just to be clear, all other GaN companies offer discrete devices. They don't provide a system-level solution. I think that's where we have a huge advantage. GaN is very difficult to use. It's a very fast device. A lot of customers struggle with it. Whereas when they use our product, the GaN is embedded within our product, so we take care of all of the idiosyncrasies of the GaN. We deal with that. As far as the customer is concerned, they can't even tell the difference from a design point of view. Of course, they can tell the difference in terms of performance. That's how easy we made GaN to our customers. Excuse me. As far as the other side of it is that the number of components required to implement our solution is far less.
We typically have anywhere from 1/2-1/3 the number of components, which is really needed to make the power supply small. It's not just a question of using GaN. You have to be able to reduce the size of the power supply. For that, you have to reduce the component count. We also have to implement features like current limit inside of a product in a lossless way. Otherwise, you end up having additional losses outside, which really negates the use of GaN. Talking about GaN as a device is not very useful. You have to look at the system, and that's why GaN has had the challenges for many years now, and we are able to break through that.
Lastly, I would say that in terms of the technology, we believe we have the most cost-effective technology in the world in GaN, and that's because our structure is very different from everybody else's, and it's uniquely different because we wanted the most cost-effective technology for our switching mode power supplies, and that's where we are now. I think we're in a fantastic position compared to any of the other competitors.
Awesome. Thanks, guys.
Thank you. We have the next question. Comes from the line of Tore Svanberg from Stifel. Your line is now open. You may ask your question.
Yes, thank you, and congratulations on a few records. I think it's revenue, operating margin, and operating cash flow. Congratulations on that.
Great.
First question is on the communications business. It was down sequentially this quarter. You said that the correction seems to be behind you. I assume that this will still be down in Q3. Is that how we should read it?
To the best we can model, it will be slightly down in Q3. I think the Huawei redistribution has completed to the best that we can estimate, and that's why we saw a significant reduction offset by, of course, our channels replenishment. In Q3, we think it'll be slightly down. Yes.
Got it. What takes the revenues down then? Is the consumer business going to take a beating?
The consumer business should be relatively flat from what we can tell, even though it's usually seasonally down because of AC. AC is down in Q3, but we have so many new design wins that we believe will offset that. That's the reason, Tore, we have given the range as we do. It gets hard to get precise from what we have guided to take the 3% decline ±. We know directionally, communication is going to be slightly down, and typically, air conditioning goes down in Q3, but we think because of shared gains, that could offset that and deflatish. Industrial have so many moving parts that it gets a little difficult to be very precise. That's why the range gets difficult to say, but it's the best directional answer we can give at this point.
Yeah. That's great. Thanks for that color. Moving on to the product. BridgeSwitch, it sounds like that product line is really hitting the momentum. You talked about some big design wins there. How should we think about the margin profile of that product or that business? Is it similar to the other products?
Again, it depends on the market and the consumer market. It will be similar to the consumer gross margin we have, and we expect it to grow very nicely next year. We have many design wins this year. We will get a few million dollars in revenue this year, but it will really start accelerating next year. The revenue growth on BridgeSwitch has been delayed because of COVID, because in appliances, when they go to a totally new platform like BridgeSwitch, it takes quite a bit of design work, and we were unable to physically go and help them, and so it made the design-in process much longer, trying to help them remotely. The interest level always has been high, but we are finally seeing the benefit of this revolutionary product. We think it's going to do extremely well going forward.
Great. Just one last question. I know the trend in the fast charging market has been for charging moving out of the box, but you talked about several in-box design wins. I think you said even your largest single order to date for InnoSwitch for a 67 -W in-box. Is there still sort of a mixed bag as far as where the trend is between out-of-box and in-box?
Yes, that's still true because the Chinese OEMs are really focusing on charge time, and they believe that their unique approach allows them to charge at a much faster rate. You can imagine, 57 W is a lot of power. If you are used to the 5-W cube charger, this is substantially higher. It's about 13, 14 times higher in charge rate. They believe that their protocol allows them to do that. They're not too anxious to go to a standardized protocol like USB-PD because they think they lose their advantage. They're able to do something that other people can't do. We don't see them transitioning in the near future. Now, could it happen in the long term? Yes. Is it going to happen quickly? I think it's happening slower than even we anticipated.
As you already know, one of the major OEMs have switched to USB-PD. Another one is switching partially to USB-PD. Beyond that, we have not seen a significant move to USB-PD, which is actually good for us because it's all different designs, and therefore, the fact that they are focusing on fast charging means that they're going to continue to put it in box, because each generation has a much higher feature level, whether it's higher power or higher performance. They use it as a marketing tool. They haven't transitioned out of the box.
Sounds good. Congrats again on an outstanding quarter. Thank you.
Yep. Thanks, Tore.
Thank you. We have the next question comes from the line of Gus Richard of Northland. Your line is now open. You may ask your question.
Yes, thanks for taking the question. My congratulations on a good quarter as well. Just real quick, can you talk a little bit about channel inventory on the consumer side? You said it built up in communications, but I was wondering if that was true for consumer as well.
It's not gone up as much in consumer because the demand on the appliance side continues to be extremely strong. As we have said, and we had talked earlier, the normalizations in different end markets would happen at different points of time. The demand on the consumer, especially on the major appliances, continues to be very strong. That's an area we're waiting to see when that normalizes because it has been way above normal levels. Also the other part, which is very good that is happening as we talked about in our remarks, is our gains have accelerated. Because of people prioritizing other stuff, plus people exiting this marketing or defocusing, the gains that we would have had over a period of time have actually accelerated.
That is going to be very positive even when things normalize, because that'll be a nice offset to that that you're giving.
Got it. Just thinking about the model going forward, if one were to assume that you hit normal seasonality, whatever that is, going forward, would your operating margin stay above 25% but below 30% going through next year?
I think at this point of time, because even though I haven't done my annual plan, but I'll do my model, I feel if you take where we will end up this year, which will be in the range, somewhere in the range that you're telling, I think it's in the middle of the range, I think it'll be give and take that. Yeah, I think next year for the full year model will be similar to the whole year gross margin this year. We believe we are going to grow next year. It's hard to tell how much, but we feel very good about growing next year.
Right. Is the gross margin of the communications market better because you've got more aftermarket guys that are taking smaller volume? Is that a good way to think about it?
Exactly, yeah. Our communication gross margin is increasing because of that.
Okay, got it. I've talked to you guys, I've talked to your competitors, and trying to suss out what topology is the best, and their argument that they have better energy efficiency because they use soft switching. In other words, current and voltage don't cross over at the same time. Could you talk about that topology versus yours and why you think your topology and how that relates to how you spend current, et cetera? Can you, in layman's terms, explain what's going on?
Yes, absolutely. This is almost strange because our InnoSwitch product is soft switching. It's called quasi-resonant converter. The InnoSwitch4 is even better, zero voltage switching, which is even more efficient by using our ClampZero product. I don't think anybody can even come close to our efficiency at all. It's just if you want to build the smallest adapter in the world, we are it today.
Does that enable you to use smaller magnetics?
We talked about it in my prepared remarks that our latest product, InnoSwitch4, operates at high frequency, and that's why it only uses, again, it doesn't have a silicon switch at all because of the higher frequency operation. When you go to higher frequency, you can reduce the size of the transformer, but you end up increasing the losses in the transformer and the switch. To recover that, we have another companion chip called ClampZero, which recovers the losses and sends it to the output. You can not only maintain efficiency, you can actually further increase efficiency using zero voltage switching. On top of that, we also have MinE-CAP that nobody else has, by the way, that will also reduce the size of the capacitor by 40%.
Between MinE-CAP and ClampZero, we are able to reduce the size of the transformer and capacitor, which are the biggest components in a power supply. In both cases, we reduce it by about 40% of each one of them. To make the power supply small, even that is not sufficient because you have to have very few components so that you can actually fit it into a small enclosure. That's where we really excel because we have typically 1/3 the components of a competitor's GaN-based design.
I understand. Thank you. Last one for me, you said you're going to add capacity for GaN products because of the demand. Is that MOCVD? Is it testing? What do you need to add?
We will have to add primarily on the front end. I can't go into details, but I could say that from a packaging standpoint, we already have enough capacity. We are expanding as we speak, but that's easier to do because of the shorter lead times. But it's the front end where we are significantly expanding capacity in preparation for substantial growth, not only next year, for the next several years.
Got it. Very good. Thank you so much.
Thanks, Gus.
Again, if anyone would like to ask a question, you will need to press star one on the telephone keypad. Again, that will be star one on the telephone keypad. Next question, we have the line of Karl Ackerman of Cowen. Your line is now open. You may ask a question.
Yes, good afternoon, gentlemen. I wanted to follow up to the last question that Gus had asked, which was, and some of your prepared comments, you indicated that channel inventory could possibly creep higher into Q4, and maybe eventually get back to normal. I know you had invested in late 2020 and early 2021 on additional capacity adds on the front end, which did prove fortuitous for you as others struggled with capacity. My question is, does a normalization in channel inventory dampen any plans for you to further expand capacity from here? I have a follow-up.
Well, first of all, until the market normalizes, we want to keep as much inventory with us, because that way we can serve the real demand most effectively. If our inventory gets distributed among many customers and distributors, it makes it really hard for us to take care of upsides like we are seeing in appliances. We are seeing a significant upside that we did not anticipate simply because our share gains have suddenly accelerated for reasons that Sandeep already mentioned. It's really important for us to have that with us. However, as things normalize, we will be able to build inventory as close to a normal as possible. Will it happen in Q3? I don't think so. I think their demand is still pretty high. In Q4, there's a likelihood that we could go up or creep up a little bit.
It's also possible that we won't be able to do that. It all depends upon how long this normalization will take in appliances and the cell phones, the normalization has happened to a large extent in Q2, but in appliances, it's still very, very hot. I mean, the demand is very high, it is possible to take one, two, or three quarters for it to normalize. Having said that, we are continuing to expand capacity across all of our technologies, especially GaN. GaN is where we see the most dramatic growth in terms of capacity requirements. We are focusing on that. We also need silicon capacity, which we are expanding as we speak, and we will have more capacity available next year.
You can see, we are going to grow 40%, we are on target to grow 40%+ , the only way we could have done that is we have the capacity in place. We put the capacity in place. We built enough inventory. We are in a much better position than almost anybody in the semiconductor industry. We also have a very unique manufacturing model. We don't use what we call standard foundries. We use fabs that are owned by product companies who have excess capacity. They give it to us, it's committed to us, because we are committed through contracts. We are able to do this much better than almost any other semiconductor company you can think of.
The other thing I'd like to add is our internal inventory is only sitting at 92 days. Our running model is 125 days, so we are well below the model that we would really like to run. In spite of the growth that we have this year and the growth in the prior year, we feel very good because of the share gains and the secular that we will grow again very nicely next year.
I appreciate that follow on, Sandeep. Very helpful. There's been much discussion on today's call regarding, I think your competitive differentiation within GaN, and so I don't want to belabor that point. I think what is interesting is, and one of the questions that I've received quite a bit intra-quarter is the growth trajectory that your peer has articulated over the next couple of years for GaN, and the question is that indicative of a rapidly expanding TAM that's also very beneficial to you, or does that constrain your growth? As you address that question, I was hoping you could also talk about whether you are seeing new opportunities to maybe move into the server market, or outside of your consumer offerings that could also expand your TAM over time. Thank you.
Let me answer the last question first. That is that GaN will enable us to go to much higher power levels with an integrated switch. However, we don't talk about the products in the higher power areas until we have them. That's one of the reasons we don't go crazy on what this could be in the next five years. If you're going public through a SPAC, you have complete freedom to show whatever you want for the next five years. We are just very conservative in that regard. As far as the GaN propelling other companies, GaN is a very important technology. As GaN gets popular, it lifts all the boats, obviously. The question is who's going to benefit the most?
I believe the one who will benefit is the one who makes it easy for our customers to use the GaN, and secondly, the company that has the most cost-effective and reliable technology. I think we have really proven that by shipping very high volume for the last four years, that we have a very reliable technology and a very cost-effective technology. The proof is in the fact that we are now in a mainline, in-the-box charger at 67 W. This is the first large volume GaN design that we know of, where we are in a very high volume charger design with one of our OEMs.
Very helpful. Thank you.
Thank you. Again, if anyone would like to ask a question, you will need to press star one on your telephone keypad. There are no further questions at this time. Please continue, presenters.
All right. Thanks, everyone, for listening. There'll be a replay of this call available via our website, investors.power.com. Thanks again, and good afternoon.
Thank you. Ladies and gentlemen, that concludes today's conference call. Thank you all for participating. You may now disconnect.