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Monolithic Power Systems Inc  (NASDAQ:MPWR)
Q1 2019 Earnings Call
May. 02, 2019, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen, and welcome to the Monolithic Power Systems First Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions) As a reminder, this call is being recorded.

I would now like to introduce your host for today's conference, Bernie Blegen, Chief Financial Officer. Please go ahead.

Bernie Blegen -- Vice President and Chief Financial Officer

Thank you very much. Good afternoon and welcome to the first quarter of 2019 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 risks and uncertainties, which could cause results to differ materially from management's current views and expectations. Please refer to the safe harbor statement contained in 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 March 1, 2019, which is accessible through our website www.monolithicpower.com. MPS assumes no obligation to update the information provided on today's call.

We will 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 measures of financial performance prepared in accordance with GAAP. A table that -- excuse me, 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 2018, Q4 2018 and Q1 2019 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.

MPS had another record first quarter with revenue of $141.4 million, 9.5% higher than the comparable quarter in 2018. MPS continues to benefit from our technology leadership and diversified multi-market strategy. Looking at our revenue by market, first quarter 2019 communications revenue of $22.2 million, rose $6.4 million or 40.8% from the first quarter of 2018. Communications revenue represented 15.7% of MPS' first quarter 2019 revenue compared with 12.2% in the first quarter of 2018. The year-over-year increase primarily reflected an initial 5G networking sales, as well as higher sales in the residential gateway and router market.

First quarter 2019 industrial revenue of $21.3 million increased 21.6% from the first quarter of 2018 and accounted for 15.1% of our total first quarter revenue, up from 13.6% in the first quarter of 2018. The increase over the first quarter of 2018 primarily reflected gains in power sources and security applications. First quarter 2019 automotive revenue of $20.5 million grew 15.7% over the same period of 2018 and represented 14.5% of MPS' first quarter 2019 revenue versus 13.7% in the same period of 2018. This growth primarily represented, increased sales of infotainment, safety and connectivity application products.

In our computing and storage market revenue $39.2 million, increased $8.2 million or 26.5% year-over-year. First quarter 2019 computing and storage revenue represented 27.7% of MPS' first quarter 2019 revenue compared with 24% in the first quarter of 2018. The year-over-year revenue increase primarily reflected the sales growth for notebooks and servers. Compared with the first quarter of 2018, revenue from consumer markets decreased $9 million or 19.1%. The year-over-year revenue decrease reflected across the board reductions in traditional consumer markets. Consumer revenue of $38.1 million represented 27% of our Q1 revenue compared with a 36.5% contribution in the first quarter of 2018.

GAAP gross margin was 55.2%, 10 basis points higher than the fourth quarter of 2018 and 20 basis points lower than the first quarter of 2018. Our GAAP operating income was $21.7 million compared with $22.0 million reported in the first quarter of 2018. For the first quarter of 2019, non-GAAP gross margin was 55.6%, matching the fourth quarter of 2018, but 30 basis points lower than the first quarter of 2018. Our non-GAAP operating income was $39.6 million compared to $37.2 million reported in the first quarter of 2018.

Let's review our operating expenses. Our GAAP operating expenses were $56.3 million in the first quarter of 2019, compared to $49.5 million in the first quarter of 2018. Our non-GAAP first quarter 2019 operating expenses were $39.0 million, up from the $35.0 million reported in the first quarter of 2018. The differences between non-GAAP operating expenses and GAAP operating expenses for the quarters discussed here, are stock compensation expense and income or loss on unfunded deferred compensation plan.

For the first quarter of 2019, total stock compensation expense including approximately $531,000 charged to cost of goods sold, was $16.0 million compared with $15.0 million reported in the first quarter of 2018. Switching to the bottom line. First quarter 2019 GAAP net income was $26.2 million or $0.58 per fully diluted share compared with $21.9 million or $0.49 per share in the first quarter of 2018. First quarter 2019, non-GAAP net income was $37.9 million or $0.84 per fully diluted share compared with $35.0 million or $0.79 per fully diluted share in the first quarter of 2018. Fully diluted shares outstanding at the end of Q1 2019 were 45.2 million.

Now let's look at the balance sheet. Cash, cash equivalents and investments were $362.3 million at the end of the first quarter of 2019 compared to $380.5 million at the end of the fourth quarter of 2018. For the quarter, MPS generated operating cash flow of about $38.8 million compared with operating cash flow of $16.3 million in the first quarter of 2018. First quarter of 2019 capital spending totaled $59.4 million. Accounts receivable ended the first quarter of 2019 at $58.9 million or 38 days of sales outstanding, up 5 days from 33 days at the end of the fourth quarter of 2018 and 4 days higher than the 34 days posted in the first quarter of 2018 reflecting the back-end weighting of shipments within Q1 2019.

Our internal inventories at the end of the first quarter of 2019 were $142.5 million, up from the $136.4 million at the end of the fourth quarter of 2018. Days of inventory increased to 205 days at the end of Q1 2019, compared with 180 days at the end of the fourth quarter of 2018 and 177 days at the end of the first quarter of 2018. The 25 days sequential increase is primarily due to an unexpected delay in customers' new product ramps and legacy business push outs. As we've said in the past, we're comfortable carrying a higher than normal level of inventory during the downturn given that most of our products are not customer or application specific and carry minimal obsolescence risk.

Having said that, while inventories are likely to remain elevated through the second quarter, we do not expect meaningful reductions until early 2020.

I would like now to turn to our outlook for the second quarter of 2019. We are forecasting Q2 revenue in the range of $147.5 million to $153.5 million. We also expect the following. GAAP gross margin in the range of 54.9% to 55.5%. Non-GAAP gross margin in the range of 55.3% to 55.9%. GAAP R&D and SG&A expenses between $55.5 million and $59.5 million. Non-GAAP R&D and SG&A expenses to be in the range of $38.5 million to $40.5 million. This estimate excludes stock compensation and litigation expenses.

Total stock compensation expense of $17.6 million to $19.6 million including $550,000 that will be charged to cost of goods sold. Litigation expenses ranging between $300,000 to $500,000. Interest and other income is expected to range from $1.4 million to $1.6 million before foreign exchange gains or losses. Fully diluted shares to be in the range of 45.1 million to 46.1 million shares.

For the second half of the year, we still see some uncertainty in our end markets and remain cautious. We will continue to adapt to the changing market conditions and execute as planned.

I will now open the phone lines for questions.

Questions and Answers:

Operator

(Operator Instructions) Our first question comes from the line of Matt Ramsay with Cowen. Your line is now open.

Joshua Buchalter -- Cowen and Company -- Analyst

Hey. This is Josh Buchalter on behalf of Matt. I was hoping to dig a bit into the computing and storage portion of the business. The year-over-year growth is still solid, but it is below your expectations heading into the quarter. Given the overall weakness we've seen across the board in datacenter, storage and PCs, I was wondering if you could provide a little more granularity there and how that dynamic between weak units in your content increases and new platforms plays out. Thank you.

Bernie Blegen -- Vice President and Chief Financial Officer

Sure, Josh, and good to hear from you. I think what we're seeing is in Q3 of 2018, there was a step down in SSD revenue, and that's essentially stayed at that lower plateau in each of the two following quarters. And then in Q4 of last year, we also saw a decrease in server content. And the belief is that certain of the hyper scales have over build the data centers and are taking a pause as they justify the next round of investment.

Michael R. Hsing -- Chairman, President and Chief Executive Officer

I think as an overall or the design win activities to the same, and we compare the last couple of quarters on the server side, we still gained shares, and I think the revenues also increased. The momentum is the same.

Joshua Buchalter -- Cowen and Company -- Analyst

Got it. Thank you. And then more broadly, given the soft start to the year. I was hoping to hear some thoughts on your seasonality into the second half. And sort of how you're multiple (inaudible) verticals are paying off on this soft macro that we've seen throughout the entire industry. Thanks for taking my questions and congrats on the solid results.

Michael R. Hsing -- Chairman, President and Chief Executive Officer

Yes, OK. Well second half, that (inaudible), we don't have a -- last year we prepared all inventories and we expect to have a huge win 2019 and up till now still not very certain, and our customers give us a different signals and that came in. So we just wait and see.

Bernie Blegen -- Vice President and Chief Financial Officer

Yeah, I think that you're aware of that MPS didn't specifically guide beyond the current quarter. But certainly, these are unusual market conditions. If you look at our seasonality going from Q1 to Q2, over the last five years, you'd probably see a trend that we've increased it between 10% and 12% sequentially. Currently, we are forecasting revenues grow slower -- at a slower 7% rate, which I believe is probably indicative of a more gradual broad based recovery in the macro environment. So I don't see any one catalyzing event that will necessarily turn the tide for us, as we said, MPS expects to see a more gradual improvement in demand through the remainder of 2019.

Michael R. Hsing -- Chairman, President and Chief Executive Officer

And overall, we still expect to grow. And just because the market share gain. And, but how much growth came in is very difficult to tell now.

Joshua Buchalter -- Cowen and Company -- Analyst

Got it. Thank you, guys, and congrats again.

Michael R. Hsing -- Chairman, President and Chief Executive Officer

Thank you.

Operator

Thank you. Our next question comes from the line of Tore Svanberg with Stifel. Your line is now open.

Tore Svanberg -- Stifel -- Analyst

Yes. Thank you. Couple of questions. Maybe we can start off with some of the end markets for Q2 specifically. So, yes, Bernie you mentioned the growth is sub-seasonal, but it's still growth. So, are you seeing all segments recovering or are some still a bit slower than others?

Bernie Blegen -- Vice President and Chief Financial Officer

Well, I think that we are actually very well positioned across the board and I think that speaks well on our diversification. If I had to pick out a high runner, as we look at going into -- for Q2, I think communications which took a big step-up as a result of initial 5G investments will continue at a little bit elevated level over what we saw in Q1. And certainly that represents a significant improvement over the prior year. I think that computing, you're going to see that also -- is expected to take a step-up. But recognizing that it's been at a fairly, I don't want to say depressed, but lower level as the data centers have sort of hit the pause button. I think also that automotive, I don't see an immediate turnaround there, but I do see an uptick as we go from Q1 to Q2. And then, industrial, which has really been in a very elevated level for a number of quarters would probably return to its normal cadence. And consumer again is still being impacted by soft demand.

Michael R. Hsing -- Chairman, President and Chief Executive Officer

I think the worst one is as Bernie, even said -- the last one is the consumer. And all the other one is we gain market shares and actually in Q2 we see better than Q1.

Tore Svanberg -- Stifel -- Analyst

Very good. And Bernie, I don't -- did I catch -- did you say CapEx was $59.4 million in the quarter?

Bernie Blegen -- Vice President and Chief Financial Officer

I'm sorry, CapEx?

Michael R. Hsing -- Chairman, President and Chief Executive Officer

Yes.

Bernie Blegen -- Vice President and Chief Financial Officer

Yes.

Tore Svanberg -- Stifel -- Analyst

Yes. Can you maybe elaborate a little bit on what that money was spent on because that's a little bit higher than usual?

Bernie Blegen -- Vice President and Chief Financial Officer

Sure. We purchased a building in Kirkland, Washington, which we will be using as both our regional executive offices, as well as this is going to be our center for e-commerce, which will give us the opportunity to recruit software engineers with this experience in their background. And if you take sort of a larger view, because if you look back we have been purchasing office space over the course of the last two years. And this is part of our geographic diversification program, which allows us to draw from -- draw talent worldwide for specific end market applications.

So as we look forward, we also completed the purchase here a couple weeks ago of a building in Detroit, which will allow us to create a Center of Excellence servicing automotive. And we're in the process of buying office space in Barcelona, where we have a design center. And then also, we are going to be building another location, a couple hours out of Stuttgart, Germany, in the Rhine Valley. So not only do these moves aid our future growth, but we believe that owning the buildings is accretive to the P&L versus the alternatives of renting the facilities.

Michael R. Hsing -- Chairman, President and Chief Executive Officer

And those money -- and we got a better return than we are putting in the bank.

Tore Svanberg -- Stifel -- Analyst

Yes.

Michael R. Hsing -- Chairman, President and Chief Executive Officer

But it's -- it really help the -- it's all EPS plus and we -- and particularly in Washington, we need more space. And so we can acquire building as the EPS plus actually.

Tore Svanberg -- Stifel -- Analyst

Very good. Just one last one for you, Michael. The e-commerce business, I always look for updates there. Could you maybe give us the latest and greatest there? Please.

Michael R. Hsing -- Chairman, President and Chief Executive Officer

We're still learning. I think -- overall, we launched websites and that came in -- we launched the website frankly and the activities is not as high as we think. But on our distributed website, our product sell well. And so, obviously we're still in the learning stage and also all the programmable parts, all the modules, if we give them a floppy disk they can download them and that is doing really well. And we have to somehow had it linked to our e-commerce. How do we provide a better usage for our website and how do -- how they solve their current problem of using those programmable parts. And we're still learning, but the product itself is not selling through e-commerce, and we're doing really well.

It's a better than any -- we really expected it. And some glitch on the websites, because there maybe or the way we told is too confusing. We may know to how to use it, auto program the parts. And we -- every other week we have -- we are upgrading our website. But the concepts from feedback from our customers, these are revolution parts -- these are revolution way of designing power supplied and that they are like that and obviously this still have some missing link.

Tore Svanberg -- Stifel -- Analyst

Very helpful. Thank you.

Michael R. Hsing -- Chairman, President and Chief Executive Officer

Okay.

Operator

Thank you. Our next question comes from the line of Rick Schafer with Oppenheimer. Your line is now open.

Rick Schafer -- Oppenheimer & Co -- Analyst

Thanks, and my congrats on a solid quarter in a tough environment. Maybe my first question on server. I know, you're -- we've talked about it but (inaudible) content going from, I think something like $50 (inaudible) to $70 or something all in. I think most of that increase is QSMod, I believe. Is there any sense or can you give us any sense of how much incremental server content you'll see as AI Accelerator attach rates grow and we migrate to 48-volt. I mean, I would assume that those two things would be incremental for you guys to that move to $70 a content. But I just -- I'm just curious what that looks like to you guys?

Michael R. Hsing -- Chairman, President and Chief Executive Officer

Yes. We have all the design wins and that came in 48-volts, we now started selling many customers that we start to sell designing the modules. And we expect the second -- Q2 have some kind of ramp, and it didn't happen. And -- but we stood bold in the second half, and some projects we understand it is the engineering delayed, other ones we were not very sure, but for sure is, we are winning all these projects.

Rick Schafer -- Oppenheimer & Co -- Analyst

And Michael, to be clear, it is you're not including 48-volt or GPU Accelerator or FPGA Accelerators in that move to get $70?

Michael R. Hsing -- Chairman, President and Chief Executive Officer

No I include -- those are seperate. Those GPUs and also the AR, these are the contents much higher -- much, much higher and the same kind of things aid us. (inaudible) four or five. And these are essentially the same product, and way of winning on many of these sockets now.

Rick Schafer -- Oppenheimer & Co -- Analyst

Okay. Okay. Thanks, Michael. And then my follow-up question. This is I might have asked in a while it is on gross margin. As you guys ramp 55- nanometer, I know this is a multiyear progression or transition. But as you ramp 55-nanometer on 12-inch wafers and your mix favors increasingly favors server, auto, industrial and eventually SMB or e-commerce, could we see that kind of a similar scenario that we saw in your top line over the last couple of years, where you saw the revenue top line actually accelerate. Could we see an acceleration in your gross margin expansion or just give us some, maybe some color there on what those puts and takes are as you see them?

Michael R. Hsing -- Chairman, President and Chief Executive Officer

Yes I have -- I think, I mentioned it before. We are not going to -- the current margin is not -- we don't plan to use that -- we don't use this as our long-term model. Okay. Our long-term model, the margin will go up and because we are going after all these high value products, these are with a higher margin associated with it. And in the next couple of years these products, obviously as Bernie mentioned -- especially in the industrial automotive. And part of that are servers and even high value of consumer. The consumer product line, the margin steadily move up and the move is kind of slower. But on the other one, the industrial automotive and particularly e-commerce, when those things taking off, I think -- our margin will -- in a few years later, you will see a dramatic improvement.

Rick Schafer -- Oppenheimer & Co -- Analyst

Okay. Thanks a lot.

Operator

Thank you. Our next question comes from the line of William Stein with SunTrust. Your line is now open.

William Stein -- SunTrust -- Analyst

Great. Thanks for taking my questions. I want to offer congratulations in weathering a tough demand environment very well. I'd like to first ask as it relates to the cycle though, Monolithic was a little bit later to see the downturn. I think your company was still presenting this 20% through the cycle, as also sort of the current environment situation a little bit longer? Or you saw the downturn a little bit later. Should we likewise, see the recovery a little bit later for Monolithic as well. Is that a reasonable assumption?

Michael R. Hsing -- Chairman, President and Chief Executive Officer

I think it is a -- because you said, as you said it is delayed, I don't see a delay. Because all the -- all these activities, these are greenfields. We didn't have it in the four, five years ago, and that that design cycle takes two or three years. And all we see is -- enter into the new product market segments of share gain. And when it recovers -- when the market recovers, I think a it will surrey the growth. We will grow faster, much faster than everybody else. And as I said we will beat the market by 15% at least.

Bernie Blegen -- Vice President and Chief Financial Officer

Yes. I think that's the key ingredient there is that part and parcel to our belief that we can model annual revenue growth of 20% is that we will outperform the market by 10 to 15 percentage points. So when you look at full year 2018, the market grew at about 11%, and we grew at about a little over 24%. So that metric works out. When I look at the guidance for some of our largest peer companies and you aggregate it, there's sort of an acknowledgment really in just the last quarter that full year 2019 probably is going to shrink by 4% to 5%. So if you look at us as being able to perform a 10 to 15 percentage points better, that gets you into the middle single-digits, which is not our historic growth, but again that margin of how we can outperform the market remains intact.

Michael R. Hsing -- Chairman, President and Chief Executive Officer

So to your questions, I don't see how and why we can delay the recovery. So that's my...

William Stein -- SunTrust -- Analyst

Okay. I appreciate the answer. Maybe two other real quick ones. First, I think last quarter inventory at distribution increased a little bit at the end of the quarter. I'd love an update on that and also on e-motion. Please. Thanks.

Michael R. Hsing -- Chairman, President and Chief Executive Officer

Yes. Okay.

Bernie Blegen -- Vice President and Chief Financial Officer

I'll take the first question. And Michael will take the second. So on the channel inventory. And you have to kind of look at the cadence of how this quarter played out. In January, we actually had a very good month both as far as new business that we've booked. The business that we saw as well as sell-through by the distributors. I think a lot of that was in advance of an earlier than normal Chinese New Year. February was a little lackluster. And what that ended up doing is making -- the quarter was really back end loaded, which did not allow the channel time to sell that inventory through. So again, we went up a couple of days, partly because of the ordering pattern -- or shipping pattern and ordering pattern as well as you have a lower denominator for the quarter and a lot of that increase did occur in China.

Michael R. Hsing -- Chairman, President and Chief Executive Officer

Okay. The e-motion and actually that product is doing great. And if you notice that we have an online, MPS is selling small models, including the models, and these are meant to be for a demonstration purpose. Actually we sell quite a bit models now. Overall, it is still too soon to break out the product line and it's a meaningful as a move of the needle now, and move the overall revenue needle.

William Stein -- SunTrust -- Analyst

Thank you.

Operator

Thank you. Our next question comes from the line of Ross Seymore with Deutsche Bank. Your line is now open.

Ross Seymore -- Deutsche Bank -- Analyst

Hi guys. I wanted to ask a couple of questions. The first one is on the inventory side of the equation. You mentioned that there were some push outs and obviously the end demand is weak as well. But when you talked Bernie about you didn't expect it to come down until early 2020, is that mainly be -- on a days basis, are you talking in dollars basis. And is there some level at which the dollars become worrisome to you and any sort of obsolescence risk or anything like that that we should be concerned about?

Bernie Blegen -- Vice President and Chief Financial Officer

So when you look at the increase that we had in Q1 inventory. Again a lot of it reflected wafer starts that began in earlier periods and we are now going through -- in finished goods. And so that in conjunction with the fact that we did have delays in the -- our customers new programs and there were some legacy business push outs, particularly in consumer accounted for much of the increase. We are taking steps as far as lowering wafer starts and the impact of that should be visible here in Q2 in terms of dollars.

But again the reason we are not expecting the days in inventory necessarily to come down rapidly is again partly reflection of the continued weakness or slower uptick in a recovery here. So I don't think that there is a $1 or a days quotient that would really get me concerned, but I would like to believe that we're at a level that it's plateauing. And then with the opportunity as the recovery gains themed to come down, as I said in my prepared comments, that's more likely to be into next year.

Michael R. Hsing -- Chairman, President and Chief Executive Officer

Under this current market conditions, let's say, if it's same as the second half of the year, we don't plan to write-off a bigger chunk of inventory, because of these products are all good. We made those product a way, created this inventory for -- prepare for a big ramp, and it may still happen for Q3. If you look at the inventory 200 days. Okay. 200 days based on Q1's numbers of Q2 numbers?

Bernie Blegen -- Vice President and Chief Financial Officer

Q1.

Michael R. Hsing -- Chairman, President and Chief Executive Officer

Q1. And if you're looking at a ramp to somewhere $170 million or $180 million, that's nothing. So we still don't know whether they're going to recover or not. We need these inventory, but these are inventory under the uncertain environment. It is too high.

Ross Seymore -- Deutsche Bank -- Analyst

Got it. And I guess on the comp side of things, great growth year-over-year. You mentioned in the past, there were some of the gateway in the router side and then you also mentioned in the 5G side of things. Can you remind us in two aspects of the 5G side of things. Roughly what size is that as a percentage of either the segment of total revenues. And then the content that you have in 5G, if you could just remind us of how to think about that?

Michael R. Hsing -- Chairman, President and Chief Executive Officer

I think the increase are both similar in dollar amount. And 5G the -- Ross, if you remember a few quarters ago, or a year ago, so our communication was a go sidelines or go sideways. And I mentioned it in our -- we have some killer products comes out and that can be also we are waiting for a new product cycles, and these products hit the market and now move the revenue needles now.

In the gateways, it is a very price competitive and under the current situation we want the revenues and we just grab those market shares.

Bernie Blegen -- Vice President and Chief Financial Officer

Yeah, I think this is actually a terrific story that Michael didn't necessarily take full credit, because we have remained very committed to the comps market, that -- what Michael just said is we never had a killer application to go after it. And I think that's the reason that for years this segment is underperformed, really it's going sideways between $15 million and $16 million per quarter.

But now, so we basically missed out on the lot of the 4G wave, but we've recognized a significance of this market and we developed new products that are exceeding our customers' expectations and the requirements. And I believe that, we're very well positioned at a time when the 5G infrastructure investments are about to explode. So, as Michael said, that we're about 50-50 as far as the mix between the lower margin gateway and the infrastructure networking. But I think that that's going to tip very much in favor of the higher margin networking and infrastructure, as this rolls out over the next two years.

Ross Seymore -- Deutsche Bank -- Analyst

Got it. Then, one last one for me. Given the current market environment, you talked about what the implications were for inventory and revenue, et cetera. How do you guys think about the implications on your OpEx growth related to the aftermarket?

Michael R. Hsing -- Chairman, President and Chief Executive Officer

I think we are very selective for hiring. Our hiring plan we changed and were much reduced. And that's our biggest expense. And so we -- but we still hiring and only hire for the best talent. And overall, the company -- for the company growth we freezed.

Bernie Blegen -- Vice President and Chief Financial Officer

Just to add to that real quickly is that, we also are continuing our investment with the 12-inch and 55-nanometer, which will continue through this year, because we believe that's the strategic goal that we want to have in position by 2020.

Ross Seymore -- Deutsche Bank -- Analyst

Yes. Okay. Got it. Thanks guys.

Operator

Thank you. (Operator Instructions) Our next question comes from the line of Quinn Bolton with Needham. Your line is now open.

Quinn Bolton -- Needham -- Analyst

Hi guys. I wanted to first follow-up on some comments you made last quarter about the new product slips given the slower environment. I think you had mentioned a number of areas, China, new model, automotives, smart meters in China and then it sounds like a few things in the datacenter, GPU server segment. Can you give us some sense, when do you think those programs may now start to ship?

Michael R. Hsing -- Chairman, President and Chief Executive Officer

It's smaller amount. We expected for more, but it is not as a much. And all the -- but however, all the activities and especially these are first tier customers and we engage a lot more than before. And we're engaged with even their executive levels. And before -- couple of years ago, nobody knows MPS, who is the MPS. And now in all these activities went up a lot and in the infrastructures and as well as the servers -- server market segments.

Bernie Blegen -- Vice President and Chief Financial Officer

Yes. And I would just like to emphasize something that, if you look at automotive, where the growth rate is definitely taken a haircut as a result of slowdown, particularly in China. But also it's been actually geographically almost every region was down this quarter. But I really don't want to -- I want to avoid putting too much stock on a single quarter-on-quarter deviation. And really focus as Michael did on -- sort of the macro view that, in these areas where we have invested and we have new greenfield opportunities, we're still having very high level of customer engagement. We're still achieving at the same pace, our design win activity. And there have been delays in some of our customers going into markets, but we're not losing any competitive position out of it. And particularly in the areas that we've said, they're are going to be growth areas, for example, ADAS and lighting and infotainment and automotive, those are on track. Obviously, you saw the initial results in the comps market with 5G, so I think that the basic cadence of the business remains very strong. And it's just a matter of -- and I think we're going to be very well positioned, when the market returns to a more normal level.

Quinn Bolton -- Needham -- Analyst

Understood. The second question, if the inland markets down 4% to 5% this year, and you can grow 10 to 15 points faster. It seems like that should get you somewhere between 5% to 10% year-on-year growth, which -- if I'm doing my numbers right, kind of puts you around where the Street consensus is looking for 2019. But I guess Street consensus probably has you growing at your normal rate of seasonality in the third quarter and that's I think typically your biggest quarter-on-quarter increase. And then The Street is actually up a little bit in December, which is a typical pattern. You mentioned in the prepared comments that you still see -- you saw limited visibility, the industry is still sort of not yet fully recovered. And so I guess I'm trying to get a sense, do you think an expectation for normal seasonality in Q3 makes sense or would you say that may be aggressive where you stand today?

Bernie Blegen -- Vice President and Chief Financial Officer

Yes. Again, if you use Q2 as an example, even Q1 as an example, our normal seasonality for Q1 would be down sequentially by 4 percentage points and we came down at about 7.9% or 8%. So there was a 4 percentage point delta from our normal sequential movement. And then if you look at what we've guided here, again if you look back to the last four or five years, the growth between Q1 to Q2 would have us going up somewhere in the neighborhood of 10% to 12%, 11% just call it. And we've guided revenue to grow at a slower 7% rate. And again, I referenced that as being a more gradual broad based recovery in the macro environment. So I'd probably suggest that the sequential growth rates for the second half of the year are probably are likely to also be about 4 percentage points below their seasonal norms.

Michael R. Hsing -- Chairman, President and Chief Executive Officer

All instruments is owned few are not. And some products we -- some of the applications and market segments we see pull-in and other ones push-out. So as Bernie said in the script it's uncertain. And so in terms of our what's the number and OK, why don't you make a number lower -- let us beat it. Okay.

Quinn Bolton -- Needham -- Analyst

Understood. And the last question from me. In the first half of the year, it looks like you're benefiting from a revenue perspective, from this residential gateway business. It is a lower margin business for you. Can you give us any thoughts, how long do you see residential gateways continuing that sort of an elevated level which may be part of the reason why margins are lower than where they were second half of last year or third quarter of last year?

Michael R. Hsing -- Chairman, President and Chief Executive Officer

Yes. These are -- OK -- I want revenues now. I want revenues and these kind of things half-year ago were a little bit aggressive on it and that's reflecting now. And we also tried with consumers but that didn't have an effect. I mean -- and so within the increase of -- we are still losing -- we still have -- this quarter we have a significantly lower than last year, right. And but it's not because of, if we lower the price, OK, we can -- we could not get more market shares. And so we made a decision stay at this and we didn't lose up bigger major sockets in the consumer side. It comes back to the comps -- to the router business, we are still aggressive and this period -- and it still makes a very good money and, but the margin is lowered. As we gradually -- everything else recovers the speed ups or the the new product and ramp-up in a way can go less aggressive on that.

Bernie Blegen -- Vice President and Chief Financial Officer

Yes. And I think, specific to the residential gateway. You remember that product stepped up in sales beginning in Q3 of '18 and if we hold with our forecast we will have pretty much fulfilled that opportunity by the end of Q2. So I think that there is an opportunity within communications to see a step-up in the more favorable product mix. But again, Michael said it 3 times all of it is right now there's remains uncertainty and so it's really hard to say how our margins are going to improve in the near term. I think when we look longer term certainly there will be an accelerated impact on our margins. But timing that right now, again is uncertain as timing the return to normal to revenue.

Michael R. Hsing -- Chairman, President and Chief Executive Officer

Yes. Actually there is other reason why we do this. Okay. We want to ensure our supply have a continuity, and so we actually doing a part of our wafer fab and we ensure their constant loading.

Quinn Bolton -- Needham -- Analyst

Got it. Thank you.

Michael R. Hsing -- Chairman, President and Chief Executive Officer

Okay.

Operator

Thank you, this concludes today's question-and-answer session. I would now like to turn the call back to Bernie Blegen for any closing remarks.

Bernie Blegen -- Vice President and Chief Financial Officer

Great. I'd like to thank you all for joining us for 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.

Operator

Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program. You may all disconnect. Everyone have a great day.

Duration: 50 minutes

Call participants:

Bernie Blegen -- Vice President and Chief Financial Officer

Joshua Buchalter -- Cowen and Company -- Analyst

Michael R. Hsing -- Chairman, President and Chief Executive Officer

Tore Svanberg -- Stifel -- Analyst

Rick Schafer -- Oppenheimer & Co -- Analyst

William Stein -- SunTrust -- Analyst

Ross Seymore -- Deutsche Bank -- Analyst

Quinn Bolton -- Needham -- Analyst

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