Monolithic Power Systems Inc  (NASDAQ:MPWR)

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Q4 2018 Earnings Conference Call
Feb. 12, 2019, 5:00 p.m. ET

Contents:

Prepared Remarks:

Operator

Good day, ladies and gentlemen, and welcome to the Monolithic Power Systems Fourth Quarter 2018 Earnings Conference Call. At this time, all participants are in a listen-only mode. (Operator Instructions). Later we will conduct a question-and-answer session and instructions will follow at that time. As a reminder, today's conference is being recorded.

I'd now like to introduce your host for today's conference, Mr. Bernie Blegen, Chief Financial Officer. Sir, please go ahead.

Bernie Blegen -- Vice President and Chief Financial Officer

Good afternoon and welcome to the fourth quarter 2018 Monolithic Power Systems Conference 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 Q4 earnings release and in our SEC filings, included in our Form 10-K filed on March 1, 2018, and Form 10-Q filed on November 2, 2018, both of which are 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 expenses, R&D and SG&A expense, operating income, interest and other income, net income and earnings on both a GAAP and on 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 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 Q4 2017, Q3 2018, and Q4 2018 earnings 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.

I'd like to begin today's comments with a few highlights of what was a very successful year for MPS. For the full year 2018, MPS achieved record revenue of $582.4 million, 23.7% higher than revenue from 2017, the $111 million increase in year-over-year revenue was the largest annual gain in the company's history. The 23.7% annual increase was the highest growth rate for MPS since the company redirected its focus in 2010 to the industrial, cloud computing, automotive and high-end consumer markets. Although we cannot escape the current macroeconomic conditions, we see momentum in these segments continuing strong for the next several years. This was the sixth consecutive year of double-digit growth.

2018 was a significant year for MPS. On the technology front, we widened our lead with BCD5 solidly in volume production, and with the development of BCD6 a 55-nanometer process designed on a 12-inch wafer. Both of these advancements will significantly increase our products' functionality, improve energy efficiency, reduce our solution size, ease our customers' adoption efforts and keep our product costs competitive. In addition, we are increasing production capacity both in 12-inch and 8-inch wafer, in anticipation of future revenue growth.

On the customer front, MPS penetrated a number of new Tier 1 companies in the automotive and cloud server markets, generating initial and meaningful revenue. More importantly we are co-developing next generation products with a number of these Tier 1 companies that will revolutionize their industries. We expect these partnerships to drive substantial technological advancements and represent an important source of MPS' future revenue growth.

A few examples include, developing specific leading-edge system solutions using QSMOD technologies for GPU based artificial intelligence and machine learning applications, using MPS' 48 volt QSMOD technology for both cloud-based and automotive applications. Working with automotive companies to develop specific solutions for smart driving systems and unique lighting applications with a 2020 target for market introduction. Developing a mechanical relay replacement servicing the IoT and automotive markets, using MPS high-current, high density process technology for improved reliability in a compact form. And we completed the integration of high current, programmable power modules for communications applications, such as 5G networks. The target market applications to these modules are base stations and switchers, which require compact and reliable solutions.

In addition to these exciting co-development projects, 2018 was important, as we've launched our e-commerce website, allowing engineers to design their own customized solutions from their desktop. This catalog of programmable solutions will greatly enhance our customers' time-to-market, lower their total cost of ownership, and optimize the efficiency of their designs.

Now let's look at our full year 2018 revenue by market segment, compared with 2017. Computing and storage up 57.9%; automotive, up 48.6%; industrial, up 40.7%, and communications revenue up 11%.

Consumer revenue was down 3%. Full year computing and storage revenue grew $58.3 million to $159.1 million in 2018. This increase primarily reflected strong sales growth for cloud computing, SSD storage, high end notebooks, and initial GPU Power Management sales.

Computing and storage revenue represented 27.3% of MPS' total revenue in 2018, compared with 21.4% in 2017. Automotive revenue grew $26.2 million to $80.1 million in 2018. This growth primarily represents increased sales of infotainment, safety and connectivity applications and products.

Automotive represented 13.8% of MPS' full year 2018 revenue compared with 11.4% in 2017. Industrial revenue grew $25.6 million to $88.5 million in 2018. This growth reflected sales for applications in power sources, security and industrial meters.

Industrial revenue represented 15.2% of MPS' full year 2018 revenue, compared with 13.4% in 2017.

Communications revenue grew $7.0 million to $70.6 million. This improvement was primarily due to higher sales of our legacy home router and wireless gateway products. More importantly though, we see initial ramping in the 5G market segment. Communications revenue represented 12.1% of our 2018 revenue compared with 13.5% in 2017.

Switching to Q4 while we started to see the impact of macroeconomic headwinds in Q4, MPS still had a record fourth quarter with revenue of $153.5 million, 4% lower than the revenue generated in the third quarter of 2018, but 18.6% higher than the comparable quarter of 2017. By market segment, revenue for industrial grew 66.6% over the same period of 2017. Computing and storage grew 63.2%, and automotive grew 40.2%. Communications revenue -- Communications grew 27.1% ,due primarily to increased revenue from MPS' legacy home router and wireless gateway products.

Fourth quarter revenue for consumer fell 25.9% from the prior year. MPS experienced continued weakness in high volume consumer related businesses, with especially the soft demand in the Greater China region.

In the fourth quarter, MPS continued to see strong design win momentum. However, many customers concerned about the economic outlook and trade policies delayed their production ramps for new products in automotive, computing and industrial, which resulted in a less desirable sales product mix. As a result, the fourth quarter 2018 non-GAAP gross margin was 55.6%, 50 basis points lower than the third quarter of 2018 and 10 basis points lower than the fourth quarter of 2017.

Our non-GAAP operating income was $46.6 million compared to $49.2 million reported in the prior quarter, and $38.2 million reported in the fourth quarter of 2017. Fourth quarter 2018 GAAP gross margin was 55.1%, 50 basis points lower than the third quarter of 2018, but 10 basis points higher than the fourth quarter of 2017. Our GAAP operating income was $33.1 million compared to $33.5 million reported in the third quarter of 2018, and $25.1 million reported in the fourth quarter of 2017.

Let's review our operating expenses. Our GAAP operating expenses were $51.5 million in the fourth quarter compared with $55.5 million in the third quarter of 2018 and $46.1 million in the fourth quarter of 2017. Our non-GAAP fourth quarter 2018 operating expenses were $38.7 million, down from the $40.5 million we spent in the third quarter of 2018 and up from the $33.9 million reported in the fourth quarter of 2017.

On both a GAAP and a non-GAAP basis, fourth quarter litigation expenses were $409,000 compared with $343,000 expense in Q3 2018 and a $340,000 expense in Q4 2017. The difference between non-GAAP operating expenses and GAAP operating expenses for the quarters discussed here are stock compensation expense and income or loss from an unfunded deferred compensation plan. Total stock compensation expense, including $504,000 charged to cost of goods sold for the fourth quarter of 2018 was $14.8 million compared with $14.8 million recorded in the third quarter of 2018.

Switching to the bottom line. Fourth quarter 2018 GAAP net income was $27.6 million or $0.61 per fully diluted share compared with $0.71 per share in the third quarter of 2018 and $0.27 per share in the fourth quarter of 2017. Q4 Non-GAAP net income was $44.6 million or $0.99 per fully diluted share, compared with $1.06 per share in the third quarter of 2018 and $0.82 per share in the fourth quarter of 2017. Fully diluted shares outstanding at the end of Q4 2018 were $45.1 million.

Now let's look at the balance sheet. Cash, cash equivalents and investments were $380.5 million at the end of the fourth quarter of 2018, compared to $353.1 million at the end of the third quarter of 2018. For the quarter, MPS generated operating cash flow of about $47.6 million compared with Q3 2018 operating cash flow of $52.2 million. Fourth quarter 2018 capital spending totaled $4.5 million. Accounts receivable ended the fourth quarter of 2018 at $55.2 million or 33 days sales outstanding, compared with the $59.9 million or 34 days reported at the end of the third quarter of 2018 and the $38.0 million or 27 days reported in the fourth quarter of 2017.

Our internal inventories at the end of the fourth quarter of 2018 were $136.4 million, down slightly from the $136.8 million at the end of the third quarter of 2018. Days of inventory rose to 180 days at the end of Q4 2018 from the 175 days at the end of third quarter of 2018.

I would now like to turn to the outlook. First, MPS is announcing a 33% increase in our quarterly dividend to $0.40 per share from $0.30 per share for shareholders of record as of March 29, 2019. We are forecasting Q1 2019 revenue in the range of $138 million to a $144 million. We also expect the following; GAAP gross margin in the range of 54.8% to 55.4%. Non-GAAP gross margin in the range of 55.3% to 55.9%. Total stock-based compensation expense of $17.6 million to $19.6 million, including approximately $600,000 that would be charged to cost of goods sold. GAAP R&D and SG&A expenses between $55 million and $59 million. Non-GAAP R&D and SG&A expense to be in the range of $38 million to $40 million. This estimate excludes stock compensation and litigation expenses.

Our other income is expected to be in the range of $1.4 million to $1.6 million before foreign exchange gains or losses. Fully diluted shares to be in the range of 44.7 million to 45.7 million shares.

In conclusion, despite uncertainty in the macro economy, we expect to continue winning market share in the cloud computing, automotive and telecommunications market. We believe the future is bright.

I will now open the phone lines for questions.

Questions and Answers:

Operator

(Operator Instructions). Our first question comes from the line of Ross Seymore with Deutsche Bank. Your line is now open.

Ross Seymore -- Deutsche Bank -- Analyst

Hi guys, congrats on the solid execution. Michael or Bernie, just want to get your view on the macro environment. You guys have a lot of company specifics where you can take share, but you're not immune. The tide rising or if it's falling like it is right now. So, any color on the linearity of demand you saw and how you view 2019 growth potential relative to what the overall market is doing versus what sort of incremental share gains you guys can take any number of product areas where you have new design wins.

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

Ross, OK. So good questions. As you know, all MPS growth is from the new product, and then you -- in the new market segment that Bernie mentioned, the automotive and industrials and computing. And later -- especially in the Q4 last year, we see slowing down dramatically. And we asked around our customers and all due to the -- it seems to me, it is all due to -- all this economic uncertainty in the future. And however, in the middle of all of these, we see -- so not all the products have stopped, and delayed their introductions. But as some stop -- some of the -- their end product still introduced or still, we have a replacement, we gained some market shares. And in 2019, we still expect to grow and have a very healthy year, but the percentage against the growth, whether the same as the last couple of years, that we cannot tell.

Bernie Blegen -- Vice President and Chief Financial Officer

And if I could add to that, Ross that -- what we are observing, again only from our specific position, is that the design wins are in place. Our end customers are interested in going to market, but there are just not the right conditions for them to invest in that type of new product ramp. And so, I don't have any view as far as, you know how long this will last or when we start to see the improvement come around. But I believe very confidently, that we're well positioned to take full advantage of that turnaround.

Ross Seymore -- Deutsche Bank -- Analyst

Thanks for all that color. I guess as my follow-up, just on the inventory side, I know you guys have talked about increasing your own internal inventory to be ready for those ramps. So I guess a two part question; one, is that still the case, or should that inventory come down if those ramps, continue to be delayed? And then two, could you give us an update on what the channel inventory situation is and what your expectations are for that as well?

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

Ross, I like that question now. The inventory, I think of that -- and we see it as a lag, OK. Clearly, this is very valid, OK, and in this kind of a transitional market conditions, and we watch very carefully. So that's why I like that question. And of course, there is a delayed, and we see if it is a --

of course, demand is flowing down, and we control our -- inventory will come down and we control very entirely -- now, Bernie you can answer it more (inaudible).

Bernie Blegen -- Vice President and Chief Financial Officer

Yeah, on the second side of that question, as far as how the channel performed is -- what we do is, we will fill orders based upon our customer demand and that's 90% distributor related. And then the distributors are creating that demand or those orders on us, based on the information they are getting from their customers. And the slowdown occurred during the quarter. So we ended up in a position where the -- in terms of both dollars and days that the channel inventories did increase, and managing that going forward. Some of the management of that is reflected in our guidance for Q1.

Ross Seymore -- Deutsche Bank -- Analyst

Got it. Thanks guys.

Operator

Our next question comes from the line of Quinn Bolton with Needham. Your line is now open.

Quinn Bolton -- Needham & Company -- Analyst

Hey guys, I will apologize, because I missed most of the prepared comments. But obviously a slightly weaker guide from March. Just wondering as you look into the full year, you typically see a much stronger second and third quarter, in terms of seasonality. Is there any reason to think some of the near-term effects you see here, that are hitting Q1 extended into Q2, Q3 or should we be thinking about a more traditional seasonal pattern, as we get out to the June and September quarters?

Bernie Blegen -- Vice President and Chief Financial Officer

Yeah. I think when we responded to Ross on this, is that we really don't have good visibility. There is lot of uncertainty relative to the out quarters. So when we look more short-term at Q1 even -- let me go back to Q4 for a second, we put up some very significant numbers in all of our groups, except for consumer, which was most price-sensitively impacted by trade and tariffs and the macro, particularly in Greater China. So it is -- the point that we also observed is that, a lot of the new product ramps that our customers, were building expectations around, have been pushed out in this period in time, and so it's hard for us to say concretely, how that's going to affect our overall growth rate for the year, or when do we expect a turnaround to begin.

Quinn Bolton -- Needham & Company -- Analyst

Okay, great. And then just a second question again, I apologize. Did you sort of give a backlog number? I think you know for -- much of the past three, four years, you tended to be at 80% or so of guidance in backlog starting in the quarter. Are we in that metric range for the March quarter?

Bernie Blegen -- Vice President and Chief Financial Officer

Yes, we are.

Quinn Bolton -- Needham & Company -- Analyst

Great. Thank you.

Operator

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

Rick Schafer -- Oppenheimer -- Analyst

Thanks and nice result in a tough environment guys. I guess -- I was hoping to understand gross margin, at least in the near term, just a little better. I know it's obviously softer. I mean is the primary driver that's just simply mix? I mean I would have assumed a better mix in 1Q, but are we -- Bernie, if you could provide maybe a little more color there, what your expectations are by segment, maybe it almost seems like consumer is going to be a bigger contributor to mix in the first quarter? And then the second part of that question is, just how fast -- if you guys can give any color on how fast that gross margin might rebound?

Bernie Blegen -- Vice President and Chief Financial Officer

Sure. So when we look at Q4, let's just start with that; that was clearly mix; because when you look at the influx of revenue into the communications, that was predominantly lower margin business, and we discussed that in Q3 as well. So a continuation of the same. But then you have some of our high margin -- and it was pretty broad based. For example, SSD, you know, power management for GPUs, and a couple of things in industrial that underperformed expectations. And so -- as a result, those are very high margin, and we -- the offset was against lower margin business, and that accounted for the 50 basis points.

When we look at Q1, we still have some overhang of mix issues. It's not -- not all of it, and even though we don't have a specific number, we are anticipating that we'll need to look at our inventory provisions in a different light, with lower demand. Again, we've talked in the past, that our inventory has a long shelf life and we believe that all the products are ultimately going to be sellable, but the mechanic of how we determine our inventory provision is based upon near-term demand, and that may not -- that may not support or may support a higher inventory provision.

And as far as looking forward, I don't have guidance beyond, but obviously with the new products -- that when they start to ramp. As Michael is describing, those will contribute very positively and immediately to our gross margin.

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

Yeah. What we foresee the -- going forward, if the -- all the new product delays, OK, and the margin will stay as close as now. Okay. We don't see a dramatic change. But dramatic change is all relative. Now we have a 0.5% change, that is pretty small to me, OK. And -- but we analyze that -- that is against our very consistent result in the last four, five quarters, and that is due to the mix. And and all the new products, you know, the revenue high quality revenue gets delayed. And going forward -- and with -- we expect to grow the the gross margin as a -- very consistently as economy recovered.

Rick Schafer -- Oppenheimer -- Analyst

Got it. Thanks for all that color. And then just shifting gears quickly to server; you've talked I know in the past about the potential server content for you guys, around 50 today, but going to 70 next year. And I'm just curious, because you were talking about 48 volts in your prepared remarks, how much of that 50 to 70 captures any content gains associated with 48 volt core power market share for -- gains for you guys. I mean is 48 volt, a material content driver for MPS?

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

Yes. We actually expected in Q1 -- in Q1 2019. And obviously a much -- its actually -- the numbers are much smaller, (inaudible). We -- so all --

actually as we see it, it's not in the first half anyways, OK, and that it will be in the second half of 2018 and the early part of 2020.

Rick Schafer -- Oppenheimer -- Analyst

Got it. Thanks.

Operator

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 question. Based on the backlog and order patterns, would you expect -- or I should say, it seems to me that we'd expect lower than maybe typical seasonality heading into Q2. Is that the right way to think about the models, given that you maybe sort of started seeing this weakness little bit later than others, and seems to be at least a couple of quarters of of weakness for what everyone else is seeing?

Bernie Blegen -- Vice President and Chief Financial Officer

Yeah, I don't see there being a quick -- a catalyst that would create a quick turnaround. So I think -- while we only guide one quarter ahead, that I could support that thesis.

William Stein -- SunTrust -- Analyst

Okay. And then as it relates to inventory, Bernie, I think you mentioned that channel inventory on days and dollars were up again in the quarter. Your guidance for Q1 combined with what you -- let's say, expect to sell through, would that support lower dollars and days at the end of Q1, or something different?

Bernie Blegen -- Vice President and Chief Financial Officer

It's more likely that we will be down in dollars. But probably close to flat in days, because you have a smaller denominator.

William Stein -- SunTrust -- Analyst

Great. Thanks Bernie.

Bernie Blegen -- Vice President and Chief Financial Officer

Thank you, Will.

Operator

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

Tore Svanberg -- Stifel Nicolaus -- Analyst

Yes, thank you and congratulations on the record year. I will spare you from the macro stuff, and I'm pretty interested in BCD6, could you elaborate a little bit more what that means for products going forward? I mean you talked about 55-nanometer and 12-inch wafers, but any other color you could add?

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

Yeah, Mike here. These are the -- actually as usual. Where every other year -- and every years we, introduce, OK, we develop newer technologies, and that is really our foundation for the -- for the future growth. And so the BCD6 that -- we said BCD5 including the memories, OK. Now we are including much denser logics. And so now we mentioned -- Bernie mentioned, it is 55-nanometers and we will have those type of a logics (inaudible). So you can think of it that ways. We really put entire systems, almost single-chip, which means we included the microcontroller. And that will give access to lot more market segments, and a lot more capability.

Bernie Blegen -- Vice President and Chief Financial Officer

And then from simply a cost point of view, there is a lower unit cost involved with this process and this geometry, and how we choose to deploy that cost advantage will basically depend upon the end market. So for example, in consumer, that will extend our ability to be price competitive in other markets, to allow us to improve our gross margins and still it will make us able to with the technological advantage, to compete in markets that we hadn't previously been able to enter into.

Tore Svanberg -- Stifel Nicolaus -- Analyst

Thank you for that color. And also, you mentioned obviously e-commerce and your website up and running last year. Could you give us some color on how the feedback has been so far? How the learning curve going for customers?

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

Yeah, you call a website, it's operating, OK. But, I'd say that we are still learning. As we expected actually, this is the very new frontier to everybody, and nobody attempted that before. And we still try to figure out why the -- when we give the floppy disk, it is a lot more effective, than to go through our website. So, we are still trying to figure out. There are some things obviously that is not quite right. But the product itself, when we give traditional ways and give them all the tools, give them CDs, and gave them -- download the program, everybody likes that. And we see more and more customers would rather use a fixed product, and if -- than they choose the programmable parts. And they're going -- we see a clear directions, and -- but how effectively using the websites, we are still trying to figure it out.

Tore Svanberg -- Stifel Nicolaus -- Analyst

Yeah. And one last question -- yeah, go ahead Bernie.

Bernie Blegen -- Vice President and Chief Financial Officer

I just wanted to caution that, I think we've tried to set expectations around the fact that we would have zero revenue in '18, zero revenue in '19, that's not entirely true, because we are generating revenue. But then we'll have a good slow ramp in 2020 and 2021, and it's really 2022 is when we expect it to contribute materially.

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

Are you talking about the e-commerce?

Bernie Blegen -- Vice President and Chief Financial Officer

Yeah.

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

And that is strictly sales through a website. And now we see the early -- actually we do see some revenues, meaningful revenues. But in terms of a programmable side, and that why people just don't use online tools? Whether the online tools is not good enough, or whether have ordering pattern, where it is too difficult for them to order. And we try -- in that respect, we haven't generated any revenues; on the programmable parts revenue from our website.

Tore Svanberg -- Stifel Nicolaus -- Analyst

That's very fair. Just one last question, you mentioned communications coming back. It sounds like that's more kind of your legacy business. Should we assume that the new 5G products will kind of get the gross margin going again in the communications revenue?

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

Absolutely. As I've said it in -- I remember the last year, some quarters, and I think is Q2, I mentioned that, and we will get some communication revenues, and we see the opportunities and its even though a lower margin, but it's good dollars. And the same times I mentioned, I haven't given up on the high margin communications, once we introduce the right product, and we didn't have it in -- we did have in the last year, and that we just have to release that, and now, we are designing, and when the 5G happens, will be on the way.

Tore Svanberg -- Stifel Nicolaus -- Analyst

Very good. Thank you again for all the color.

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

All right. Thank you.

Operator

Our next question comes from the line of Matt Ramsay with Cowen. Your line is now open.

Matt Ramsay -- Cowen -- Analyst

Thank you. Good afternoon. Bernie, I'm wondering if you -- I guess this is maybe a little bit of a different way to ask Rick's question from earlier around mix and gross margins. But maybe -- perhaps you could give us a little bit of color by division, about how you're thinking that sequential growth or decline in the different business units might be going into Q1? I think that would be helpful. Thank you.

Bernie Blegen -- Vice President and Chief Financial Officer

Yeah, sure. When we look at mix, obviously, the traditional way to sort of view it is that, consumer is at lower end, also the legacy comms business is on the lower end. And just as far as the transition from Q4 to Q1, we've guided at about flat gross margin. But the mix is less bad in Q1 than in Q4, because we continue to see growth in our computing and

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

Automotive.

Bernie Blegen -- Vice President and Chief Financial Officer

Automotive. And then there is some declines in industrial and that you have to have, as a backdrop that industrial has the last two quarters, really outperformed any of its historic patterns. So that's not coming as a total surprise. And then you have consumer, that's doing a little bit of an exaggerated step down from Q4 to Q1. So that's really the mix that we're looking at, is computing and automotive are continuing to perform --

outperform expectations, and we've got some declines or exposure to both high and low-margin opportunities.

Matt Ramsay -- Cowen -- Analyst

Got it. That's helpful. On the mix, I guess if we look forward in the computing and storage business, I mean, if you could remind us again about exactly the mix and exposure to the computing side and the storage side, it seems like there's some catalysts on -- obviously on the computing side from a share perspective and 48 volt, but this has been a pretty ugly environment on the storage side, from a macro perspective. So some update on the mix, and how you're thinking about those two different segments out there recovering, as we go through the year would be helpful. Thank you.

Bernie Blegen -- Vice President and Chief Financial Officer

Sure. So, storage is a significant part of our business, but it has declined as a percent -- only because it hasn't grown at the same rate as -- what we've seen on the compute side. And there was -- if you look at last year 2018, SSD in particular, ramped very early and sustained that growth all the way through the mid part of Q3, before starting to decline. In that area, I see sort of a stabilization and currently storage, if you looked at Q4 for example, is about a third of that line item. Then when you look at the computing, obviously, we've had significant run-up in our server and workstation. So that's at an elevated level. And then as we were talking about earlier is that, some initial sales related to GPUs are falling off, as that market or those customers take a pause.

Matt Ramsay -- Cowen -- Analyst

Thanks for the color. Appreciate it.

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

Thanks.

Operator

Our next question comes from the line of Alessandra Vecchi with William Blair. Your line is now open.

Alessandra Vecchi -- William Blair & Company L.L.C. -- Analyst

Hi, thanks for giving me -- taking my question. Just on the extension of the end market segments in Q1, when you guys commented that you saw sort of new product launches delayed, was there any particular vertical you're seeing that in? Is it a delay in sort of the new smart meter industrial products? Is it a delay in automotive products, if you could just give a little bit of color on that?

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

Actually, Bernie you mentioned that in the earnings earlier. And we see pretty much across automotive, industrials, and as well as the computing. And -- does that answer your questions?

Alessandra Vecchi -- William Blair & Company L.L.C. -- Analyst

Yeah, it does. Apologies if I missed it.

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

No, it's OK.

Alessandra Vecchi -- William Blair & Company L.L.C. -- Analyst

All my other questions were answered.

Bernie Blegen -- Vice President and Chief Financial Officer

Okay. Thanks Alex.

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

Thank you.

Operator

(Operator Instructions). Our next question comes the line of William Stein with SunTrust. Your line is now open.

William Stein -- SunTrust -- Analyst

Thanks for taking the follow-up guys. Any update on the e.Motion product revenue traction?

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

Yeah. You know, we are afraid if this is too much of -- and yes OK, we actually -- starting January, pretty meaningful revenue. And the new integrated solutions, and as you are seeing it, our website, we sell the reference design, including the models, and we received very good feedback on these. But the revenue still...

Bernie Blegen -- Vice President and Chief Financial Officer

Early ramp.

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

...it early ramp, but it's ramping. It's ramping at a very high percentage.

Bernie Blegen -- Vice President and Chief Financial Officer

Will, thanks for giving us a chance to respond. We actually had an internal discussion on whether we had too many items out there. So we are not shying away from it, it's just that we are competing against a lot of other opportunities to talk about.

William Stein -- SunTrust -- Analyst

I understand. One other opportunity, you mentioned a couple of times tonight, that's 48 volts. I think there is one small semi company that's pretty well known to have a big share in that, in that market and we're also aware that one of the main consumers is GPUs. Are you seeing revenue for that product today, or is it more a couple of quarters out. And is it -- of course we know automotive is moving in that direction too, but in which market do you expect to generate revenues first, how close are we?

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

I'm hoping -- and actually both. And automotive is being in the 48 volt, already in high-end cars, OK. I think now has trickled down. And last years, we expected to have in the second half of 2019. And as we see it OK, probably this didn't happen, because these are very high -- these are high-end products. I think we are still going to (ph) launch because demand is still there. It is regardless of the market.

William Stein -- SunTrust -- Analyst

Do you think you have -- you have a product that's competitive and ready and recognizing revenue in the back half of this year?

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

I believe so. Yeah, I believe. So in terms of what is the impact to our revenue, that's difficult to say now. I think these are high -- these are...

these are AR systems, and you always need it somewhere, OK, it's just a matter of how many.

William Stein -- SunTrust -- Analyst

Got it. Thank you.

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

Good.

Operator

Our next question comes from the line of Chris Caso with Raymond James. Your line is now open.

Chris Caso -- Raymond James -- Analyst

Yes, thank you. Good evening. Just one question for me. Bernie, could you clarify one of the comments you made earlier on the inventory provisions? You said you need to take another look on that? Is the right interpretation of that just changing the quarterly reserves that you typically make, and what about the magnitude, is there any impact on margins from that?

Bernie Blegen -- Vice President and Chief Financial Officer

Yeah. I haven't specifically calculated any exposure. So what we've done in the forecast or the guidance is just provide a little bit of a step-up, and the rationale behind it is that, we have a mechanical way of determining that number, which is based upon the next six months' demand. So it's sort of inferred that if your six month demand looks to be going down, that could increase your likelihood of having an exposure. That's not call out any specific product or end market, it's just sort of -- being generally conservative in the guidance we're providing.

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

Yeah. As as of today, we don't see any dramatic change. Okay, and is all small numbers of change, OK. But when Bernie is talking about, where the market dramatically changes. Again, it's -- in last year December, the end of the quarters. And then -- it may changes again. So we -- at this times, we see it's pretty normal now.

Chris Caso -- Raymond James -- Analyst

Got it. Okay, thank you.

Operator

Next question comes from the line of Tore Svanberg with Stifel. Your line is now open.

Tore Svanberg -- Stifel Nicolaus -- Analyst

Thank you. I just had a quick follow-up and back to BCD6. I think you have talked about having a $17 billion SAM, and I am just wondering what BCD6 does to that SAM number?

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

Yes, we haven't got to the point yet. That's a very good question, and certainly, we see in our -- in the application that we targeted and -- we can integrate a lot of -- many microcontroller features.

Tore Svanberg -- Stifel Nicolaus -- Analyst

And just to be clear, so those micros you will develop yourself, right? I mean, you wouldn't buy off the shelf ones?

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

It depends on applications. Some of the -- as we know now, and OK, we brand it and -- but we do have our firmware in the micro. And as of -- into the total integrated solutions and first of all, so total integration has a clear reason, is cost effective in all by size limitations. And it was integrated, and then we have the we -- we are now going into a grown-up developer of microcontrollers, and those are not cost effective for us. And those are way -- most likely is licensing it.

Tore Svanberg -- Stifel Nicolaus -- Analyst

Sounds good. Thank you very much.

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

Okay. Thank you.

Operator

I'm showing no further questions in queue at this time. I'd like to turn the call back to management for closing remarks.

Bernie Blegen -- Vice President and Chief Financial Officer

I'd like to thank you all for joining us for the conference call, and look forward to talking to you again during our first quarter 2019 conference call, which will likely be in April. Thank you. Have a great day.

Operator

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program and you may now disconnect. Everyone, have a great day.

Duration: 50 minutes

Call participants:

Bernie Blegen -- Vice President and Chief Financial Officer

Ross Seymore -- Deutsche Bank -- Analyst

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

Quinn Bolton -- Needham & Company -- Analyst

Rick Schafer -- Oppenheimer -- Analyst

William Stein -- SunTrust -- Analyst

Tore Svanberg -- Stifel Nicolaus -- Analyst

Matt Ramsay -- Cowen -- Analyst

Alessandra Vecchi -- William Blair & Company L.L.C. -- Analyst

Chris Caso -- Raymond James -- Analyst

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