Item 2. Management’s Discussion and Analysis
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that have been made pursuant to and in reliance on the provisions of the Private Securities Litigation Reform Act of 1995. These statements include, among others, statements concerning:
• the above-average industry growth of product and market areas that we have targeted;
• our plans to increase revenue and our manufacturing capacity in a diversified way across regions and through the introduction of new products within our existing product families as well as in new product categories and families;
• our mission statement to reduce energy and material consumption to improve all aspects of quality of life and create a sustainable future;
• the effects of macroeconomic factors, global economic uncertainties, current and potential global conflicts and global tariffs, export controls and retaliatory measures on the semiconductor industry and our business;
• the effect of changes in laws or economic policies in China or the U.S.;
• the effect that liquidity of our investments has on our capital resources;
• the continuing application of our products in the storage and computing, enterprise data, automotive, industrial, communications and consumer end markets;
• estimates of our future liquidity requirements and the sufficiency of our cash, cash equivalents and short-term investments to operate our business;
• the cyclical nature of the semiconductor industry;
• our belief that we may incur significant legal expenses that vary with the level of activity in each of our current or future legal proceedings;
• expectations regarding protection of our proprietary technology;
• our business outlook for the remainder of 2026 and beyond;
• the factors that we believe will impact our business, operations and financial condition, as well as our ability to achieve revenue growth;
• the expected percentage of our total revenue from various end markets;
• our ability to identify, acquire and integrate companies, businesses and products, and achieve the anticipated benefits from such acquisitions and integrations;
• the expected impact of various U.S. and international tax laws and regulations on our income tax provision, financial position and cash flows;
• our plan to repatriate cash from our foreign subsidiaries;
• our ability to fulfill our customers’ evolving needs, enter new market segments and obtain design wins;
• our ability to forecast demand accurately and align inventory levels accordingly;
• our ability to develop and leverage process technologies as key strategic components of our future growth;
• our expectation to capitalize on the length of product life cycles to reduce manufacturing intensity and related emissions;
• our ability to recruit and retain application and design engineering personnel;
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• our expectation to continue devoting significant resources to research and development including related increased expenses;
• our ability to engage additional supply chain partners to support future growth and to leverage a diversified and resilient supply chain to reduce exposure to trade- and tariff-related risks;
• our intention and ability to execute our stock repurchase program and pay cash dividends and dividend equivalents;
• the factors that differentiate us from our competitors; and
• our ability to timely and adequately remediate our material weakness.
These forward-looking statements generally are identified by the words “would,” “could,” “may,” “should,” “predict,” “potential,” “targets,” “continue,” “anticipate,” “expect,” “intend,” “plan,” “believe,” “seek,” “estimate,” “project,” “forecast,” “will,” and similar expressions. All forward-looking statements are based on our current outlook, expectations, estimates, projections, beliefs and plans or objectives about our business, our industry and the global economy, including our expectations regarding the potential impacts of macroeconomic factors, global economic uncertainties, including tariffs, export controls and retaliatory measures, and geopolitical tensions on the semiconductor industry and our business. These statements are not guarantees of future performance and are subject to significant risks and uncertainties. Actual events or results could differ materially and adversely from those expressed in any such forward-looking statements. Risks and uncertainties that could cause actual results to differ materially include those set forth throughout this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K including, in particular, in the sections entitled “Risk Factors.” Except as required by law, we disclaim any duty, and undertake no obligation, to update any forward-looking statements, whether as a result of new information relating to existing conditions, future events or otherwise or to release publicly the results of any future revisions we may make to forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. Readers are cautioned not to place undue reliance on such statements, which speak only as of the date of this Quarterly Report on Form 10-Q and entail significant risks. Readers should carefully review future reports and documents that we file from time to time with the SEC, such as our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and any Current Reports on Form 8-K.
Unless stated otherwise or the context otherwise requires, references to the terms “Monolithic Power Systems,” “MPS,” “Registrant,” the “Company,” “we,” “our,” and “us” as used herein are references to Monolithic Power Systems, Inc. and its consolidated subsidiaries.
Overview
We are a fabless global company that provides high-performance, semiconductor-based power electronics solutions. Our mission is to reduce energy and material consumption to improve all aspects of quality of life and create a sustainable future. Founded in 1997 by our CEO Michael Hsing, we have three core strengths: deep system-level knowledge, strong semiconductor design expertise, and innovative proprietary technologies in the areas of semiconductor processes, system integration, and packaging. These combined advantages enable us to deliver reliable, compact, and monolithic solutions that are highly energy-efficient, cost-effective, and environmentally responsible while providing a consistent return on investment to our stockholders.
We operate in the cyclical semiconductor industry. We are subject to industry downturns, but we have targeted product and market areas that we believe allow us to operate at above average industry performance levels over the long term.
We work with third parties to manufacture, assemble and test our ICs. This has enabled us to limit our capital expenditures and fixed costs, while focusing our engineering and design resources on our core strengths.
Following the introduction of a product, our sales cycle generally takes a number of quarters after we receive an initial customer order for a new product to ramp up. Typical supply chain lead times for orders are generally 16 to 26 weeks. These factors, combined with the fact that our customers can cancel or reschedule orders without incurring a significant penalty, make the forecasting of our orders, revenue and expenses difficult.
We derive most of our revenue from sales through distribution arrangements and direct sales to customers in Asia, where our products are incorporated into end-user products. Our revenue from sales to direct customers in Asia was 94% and 93% of our total revenue for the three months ended June 30, 2026 and 2025, respectively. Our revenue from sales to direct customers in Asia was 93% of our total revenue for each of the six months ended June 30, 2026 and 2025. We believe our ability to achieve revenue growth will depend, in part, on our ability to develop new products, enter new markets, gain market share, manage litigation risk, diversify our customer base and continue to secure manufacturing capacity.
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Macroeconomic Conditions and Regulations
The semiconductor industry is impacted by various macroeconomic challenges including fluctuations in consumer spending, fluctuations in demand for semiconductors, rising inflation, global tariffs and retaliatory measures and announcements regarding the same, increased interest rates, and fluctuations in currency rates. We remain cautious in light of continued challenging global macroeconomic conditions and will continue to monitor the potential impact on our operations. The extent and duration of the direct and indirect impact of macroeconomic events on our business, results of operations and overall financial position remain uncertain and depend on future developments.
We closely monitor changes to export control laws, tariffs, trade regulations and other trade requirements. For the three months ended June 30, 2026 and through the date we filed this Quarterly Report on Form 10-Q, no restrictions or requirements have had a material impact on our revenue and operations. We believe that our diverse, agile and resilient supply chain is structured in a way to minimize the impact of tariffs; however, such restrictions or requirements can be enacted quickly and unexpectedly and could impact our business in the future. To the extent tariffs, trade regulations or retaliatory measures or announcements regarding the same that affect us are implemented, we will seek to take mitigating actions in the near- and medium-term, as necessary, but there can be no assurance we will be successful. We are committed to complying with all applicable trade laws, regulations and other requirements.
Critical Accounting Estimates
In preparing our condensed consolidated financial statements in accordance with U.S. GAAP, we are required to make estimates, assumptions and judgments that affect the amounts reported in our financial statements and the accompanying disclosures.
Estimates and judgments used in the preparation of our financial statements are, by their nature, uncertain and unpredictable, and depend upon, among other things, many factors outside of our control. These factors include demand for our products, economic conditions and other current and future events, such as macroeconomic factors, global economic uncertainties, current and potential global conflicts and global tariffs, export controls and retaliatory measures and announcements regarding the same. Actual results could differ from these estimates and assumptions, and any such differences may be material to our condensed consolidated financial statements.
There have been no material changes during the six months ended June 30, 2026 to our critical accounting estimates from the information provided in the “Critical Accounting Estimates” section of Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the year ended December 31, 2025.
Results of Operations
The table below sets forth the data on the Condensed Consolidated Statements of Operations as a percentage of revenue for the periods presented:
Three Months Ended June 30, Six Months Ended June 30,
2026 2025 2026 2025
(In thousands, except percentages)
Revenue $ 980,642 100.0 % $ 664,574 100.0 % $ 1,784,827 100.0 % $ 1,302,128 100.0 %
Cost of revenue 439,572 44.8 298,558 44.9 798,692 44.7 582,882 44.8
Gross profit 541,070 55.2 366,016 55.1 986,135 55.3 719,246 55.2
Operating expenses:
Research and development 118,618 12.1 96,266 14.5 219,184 12.4 188,493 14.5
Selling, general and administrative 118,558 12.1 104,992 15.8 221,905 12.4 197,236 15.1
Total operating expenses 237,176 24.2 201,258 30.3 441,089 24.8 385,729 29.6
Operating income 303,894 31.0 164,758 24.8 545,046 30.5 333,517 25.6
Other income, net 17,835 1.8 12,220 1.8 23,865 1.4 17,351 1.3
Income before income taxes 321,729 32.8 176,978 26.6 568,911 31.9 350,868 26.9
Income tax expense 64,431 6.6 41,969 6.3 118,387 6.7 80,807 6.2
Net income $ 257,298 26.2 % $ 135,009 20.3 % $ 450,524 25.2 % $ 270,061 20.7 %
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Revenue
The following table summarizes our revenue by end market for the periods presented:
Three Months Ended June 30, Six Months Ended June 30,
End Market 2026 % of Revenue 2025 % of Revenue 2026 % of Revenue 2025 % of Revenue
(In thousands, except percentages)
Enterprise Data $ 380,561 38.8 % $ 143,964 21.7 % $ 643,384 36.0 % $ 276,888 21.3 %
Storage and Computing 199,830 20.4 195,320 29.4 374,224 21.0 383,831 29.5
Automotive 157,068 16.0 145,132 21.8 309,414 17.3 290,036 22.3
Communications 131,571 13.4 73,783 11.1 243,028 13.6 145,454 11.2
Consumer 56,805 5.8 59,663 9.0 111,345 6.2 116,610 8.9
Industrial 54,807 5.6 46,712 7.0 103,432 5.8 89,309 6.8
Total $ 980,642 100.0 % $ 664,574 100.0 % $ 1,784,827 100.0 % $ 1,302,128 100.0 %
Revenue for the three months ended June 30, 2026 was $980.6 million, an increase of $316.1 million, or 47.6%, from $664.6 million for the three months ended June 30, 2025. The increase in revenue was primarily due to increased demand for products serving our enterprise data and communications end markets. In addition, a higher product mix of power solutions, which generally carry higher average selling prices than discrete ICs, also contributed to the increase in year over year revenue.
By end market, second quarter 2026 revenue for the enterprise data end market increased $236.6 million, or 164.3%, from the same period in 2025. This increase was primarily due to higher sales of power management solutions for artificial intelligence (“AI”) and server applications. Revenue from the storage and computing end market of $199.8 million increased $4.5 million, or 2.3%, from the same period in 2025. Second quarter 2026 automotive end market revenue of $157.1 million increased $11.9 million, or 8.2%, from the same period in 2025 due to higher sales of applications supporting infotainment and lighting systems. Communications end market revenue of $131.6 million increased $57.8 million, or 78.3%, from the same period in 2025 due to higher sales of power solutions for optical modules and switches. Second quarter 2026 consumer end market revenue decreased $2.9 million, or 4.8%, from the same period in 2025. Revenue of $54.8 million from the industrial end market increased $8.1 million, or 17.3%, from the same period in 2025.
Revenue for the six months ended June 30, 2026 was $1,784.8 million, an increase of $482.7 million, or 37.1%, from $1,302.1 million for the six months ended June 30, 2025. The increase in revenue was primarily due to increased demand for products serving our enterprise data and communications end markets. In addition, a higher product mix of power solutions, which generally carry higher average selling prices than discrete ICs, also contributed to the increase in year over year revenue.
For the six months ended June 30, 2026, revenue for enterprise data end market increased $366.5 million, or 132.4%, from the same period in 2025. This increase was primarily due to higher sales of power management solutions for artificial intelligence (“AI”) and server applications. Revenue from the storage and computing end market of $374.2 million decreased $9.6 million, or 2.5%, from the same period in 2025. For the six months ended June 30, 2026, automotive revenue of $309.4 million increased $19.4 million, or 6.7%, from the same period in 2025 due to higher sales of applications supporting infotainment and lighting systems. Communications end market revenue of $243.0 million increased $97.6 million, or 67.1%, from the same period in 2025 due to higher sales of power solutions for optical modules and switches. For the six months ended June 30, 2026, consumer end market revenue decreased $5.3 million, or 4.5%, from the same period in 2025. Revenue of $103.4 million from the industrial end market increased $14.1 million, or 15.8%, from the same period in 2025. This increase was primarily due to higher sales for power sources.
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Cost of Revenue and Gross Margin
Cost of revenue primarily consists of costs incurred to manufacture, assemble and test our products, as well as warranty costs, inventory-related and other overhead costs, and stock-based compensation expenses.
Three Months Ended June 30, Six Months Ended June 30,
2026 2025 2026 2025
(In thousands, except percentages)
Cost of revenue $ 439,572 $ 298,558 $ 798,692 $ 582,882
As a percentage of revenue 44.8 % 44.9 % 44.7 % 44.8 %
Gross profit $ 541,070 $ 366,016 $ 986,135 $ 719,246
Gross margin 55.2 % 55.1 % 55.3 % 55.2 %
Cost of revenue was $439.6 million, or 44.8% of revenue, for the three months ended June 30, 2026, and $298.6 million, or 44.9% of revenue, for the three months ended June 30, 2025. The $141.0 million increase in cost of revenue was primarily driven by higher shipment volume and product mix.
Gross margin was 55.2% for the three months ended June 30, 2026, compared with 55.1% for the three months ended June 30, 2025.
Cost of revenue was $798.7 million, or 44.7% of revenue, for the six months ended June 30, 2026, and $582.9 million, or 44.8% of revenue, for the six months ended June 30, 2025. The $215.8 million increase in cost of revenue was primarily driven by higher shipment volume and product mix.
Gross margin was 55.3% for the six months ended June 30, 2026, compared with 55.2% for the six months ended June 30, 2025.
Research and Development
R&D expenses primarily consist of cash-based compensation and benefits, stock-based compensation and deferred compensation for design and product engineers, expenses related to new product development and supplies, and facilities costs.
Three Months Ended June 30, Six Months Ended June 30,
2026 2025 2026 2025
(In thousands, except percentages)
R&D expenses $ 118,618 $ 96,266 $ 219,184 $ 188,493
As a percentage of revenue 12.1 % 14.5 % 12.4 % 14.5 %
R&D expenses were $118.6 million, or 12.1% of revenue, for the three months ended June 30, 2026, and $96.3 million, or 14.5% of revenue, for the three months ended June 30, 2025. The $22.3 million increase in R&D expenses was primarily due to an $11.2 million increase in cash-based compensation and benefits, a $6.6 million increase in new product development expenses, and a $1.3 million increase in facilities costs.
R&D expenses were $219.2 million, or 12.4% of revenue, for the six months ended June 30, 2026, and $188.5 million, or 14.5% of revenue, for the six months ended June 30, 2025. The $30.7 million increase in R&D expenses was primarily due to a $15.5 million increase in cash-based compensation and benefits, a $5.7 million increase in new product development expenses, a $2.6 million increase in facilities costs, and a $2.2 million increase in laboratory and other supplies.
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Selling, General and Administrative
SG&A expenses primarily include cash-based compensation and benefits, stock-based compensation and deferred compensation for sales, marketing and administrative personnel, travel expenses, facilities costs, third-party service fees and legal expenses.
Three Months Ended June 30, Six Months Ended June 30,
2026 2025 2026 2025
(In thousands, except percentages)
SG&A expenses $ 118,558 $ 104,992 $ 221,905 $ 197,236
As a percentage of revenue 12.1 % 15.8 % 12.4 % 15.1 %
SG&A expenses were $118.6 million, or 12.1% of revenue, for the three months ended June 30, 2026, and $105.0 million, or 15.8% of revenue, for the three months ended June 30, 2025. The $13.6 million increase in SG&A expenses was primarily driven by an $11.5 million increase in cash-based compensation and benefits and a $5.7 million increase in legal expenses, partially offset by a $6.8 million decrease in stock-based compensation.
SG&A expenses were $221.9 million, or 12.4% of revenue, for the six months ended June 30, 2026, and $197.2 million, or 15.1% of revenue, for the six months ended June 30, 2025. The $24.7 million increase in SG&A expenses was primarily driven by a $21.4 million increase in cash-based compensation and benefits, a $10.1 million increase in legal expenses, a $5.1 million increase in employer payroll taxes related to vested equity awards, and a $1.6 million increase in software licensing fees, partially offset by a $17.9 million decrease in stock-based compensation.
Other Income, Net
Other income, net, was $17.8 million for the three months ended June 30, 2026, compared with $12.2 million for the three months ended June 30, 2025. The increase in other income, net was primarily due to $3.4 million related to changes in the value of the deferred compensation plan investments.
Other income, net, was $23.9 million for the six months ended June 30, 2026, compared with $17.4 million for the six months ended June 30, 2025. The increase in other income, net was primarily due to an increase of $4.5 million in interest income and $3.1 million related to changes in the value of the deferred compensation plan investments, partially offset by a decrease of $2.4 million in income associated with the amortization of the discount on available-for-sale securities.
Income Tax Expense
The income tax expense for the three and six months ended June 30, 2026 was $64.4 million and $118.4 million, respectively, or an effective tax rate of 20.0% and 20.8%, respectively. The income tax expense for the three and six months ended June 30, 2025 was $42.0 million and $80.8 million, respectively, or an effective tax rate of 23.7% and 23.0%, respectively. The reduction in rates from the comparable periods was primarily due to the impact of higher non-deductible stock-based compensation reported in the periods in 2025 than in 2026.
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Liquidity and Capital Resources
June 30, December 31,
2026 2025
(In thousands, except percentages)
Cash and cash equivalents $ 1,005,587 $ 1,099,302
Short-term investments 408,174 157,243
Total cash, cash equivalents and short-term investments $ 1,413,761 $ 1,256,545
Percentage of total assets 30.2 % 30.0 %
Total current assets $ 2,477,386 $ 2,183,802
Total current liabilities (497,934) (369,365)
Working capital $ 1,979,452 $ 1,814,437
As of June 30, 2026, we had cash and cash equivalents of $1,005.6 million and short-term investments of $408.2 million, compared with cash and cash equivalents of $1,099.3 million and short-term investments of $157.2 million as of December 31, 2025. As of June 30, 2026, $659.5 million of cash and cash equivalents and $309.2 million of short-term investments were held by our foreign subsidiaries. For the six months ended June 30, 2026, we repatriated $140 million from certain foreign subsidiaries to the U.S. with minimal tax impact. We anticipate that earnings from other foreign subsidiaries will continue to be indefinitely reinvested.
Summary of Cash Flows
The following table summarizes our cash flow activities for the periods presented:
Six Months Ended June 30,
2026 2025
(In thousands)
Net cash provided by operating activities $ 478,159 $ 494,024
Net cash used in investing activities (396,857) (273,283)
Net cash used in financing activities (178,611) (135,327)
Effect of change in exchange rates 3,591 10,169
Net increase (decrease) in cash, cash equivalents and restricted cash $ (93,718) $ 95,583
For the six months ended June 30, 2026, the $15.9 million decrease in net cash provided by operating activities, compared to the same period in 2025, was primarily due to an overall increase in working capital needs.
For the six months ended June 30, 2026, the $123.6 million increase in net cash used in investing activities, compared to the same period in 2025, was primarily due to $67.4 million higher net purchases of investments and $64.8 million higher net purchases of property and equipment.
For the six months ended June 30, 2026, the $43.3 million increase in net cash used in financing activities, compared to the same period in 2025, was primarily due to an increase of $44.4 million in dividend and dividend equivalent payments.
Cash Requirements
Although consequences of economic uncertainties and macroeconomic conditions, including tariffs and retaliatory measures and announcements regarding the same, and many other factors could adversely affect our liquidity and capital resources in the future, and cash requirements may fluctuate based on the timing and extent of many factors such as those discussed above, we believe that our balances of cash, cash equivalents and short-term investments of $1,413.8 million as of June 30, 2026, along with cash generated by ongoing operations, will be sufficient to satisfy our liquidity requirements for the next 12 months.
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Our material cash requirements include the following contractual and other obligations:
Purchase Obligations
Purchase obligations represent commitments to our suppliers and other parties requiring the purchases of goods or services. Our purchase obligations primarily consist of wafer and other inventory purchases, assembly and other manufacturing services, construction of manufacturing and R&D facilities, purchases of production and other equipment, and license arrangements.
As of June 30, 2026, total estimated future unconditional purchase commitments to all suppliers and other parties were $571.0 million, of which $542.1 million was due within a year.
Capital Return to Stockholders
In February 2025, our Board of Directors approved a new stock repurchase program authorizing us to repurchase up to $500.0 million of our common stock through February 2028. Shares are retired upon repurchase. We repurchased 3,000 shares of our common stock for an aggregate purchase price of $4.0 million during the three and six months ended June 30, 2026. As of June 30, 2026, $489.3 million remained available for future repurchases under the program. In July 2026, our Board of Directors increased the authorized amount of the repurchase program by an additional $500.0 million.
We currently have a dividend program approved by our Board of Directors, pursuant to which we intend to pay quarterly cash dividends on our common stock. Based on our historical practice, stockholders of record as of the last business day of the quarter are entitled to receive the quarterly cash dividends when and if declared by the Board of Directors, which are payable to the stockholders in the following month. As of June 30, 2026, accrued dividends totaled $98.3 million.
The declaration of any future cash dividends and stock repurchases under the stock repurchase program are at the discretion of our Board of Directors and will depend on, among other things, our financial condition, results of operations, capital requirements, business conditions and other factors that our Board of Directors may deem relevant, as well as a determination that cash dividends and stock repurchases under the stock repurchase program are in the best interests of our stockholders.
Other Long-Term Obligations
Other long-term obligations primarily include deferred compensation plan liabilities and accrued dividend equivalents. As of June 30, 2026, these obligations totaled $108.6 million.
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Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.