But starting in Q2 and Q3, the favorability starts coming back and the yen will contribute quite a bit there. Now we are also getting a mix benefit. As we have talked about before, we’re going to see more consumer and industrial as the year goes by and less communication. For the year, I think I’ve talked about before, we should be somewhere in the 53.5%, 54%. That’s the modeling I can do. With the pluses coming from the yen, mix and volume, and the minuses coming from input costs. The input costs are still going up, wafer and other costs. But as I said, even though I’m doing this high level modeling, the mix is always the wild card.
Operator: Our next question comes from the line of Matt Ramsay With TD Cowen.
Matt Ramsay: Balu, obviously we’re working our way through the inventory correction across a number of markets. Your company is going through it, no different than a lot of others. And then we had a reset to the model on this call that we did three months ago. And you guys kind of walked through how you plan to progress through getting the inventory down and what the model might look like. I guess my biggest picture question is, as we’ve gone through the last 90 days, what’s really changed other than you’ve progressed and started working the inventory down and we’re closer to coming out the back end of it. But any big differences in the last 90 days as to what you expect it to play out. It’s not fun, but it’s tangible progress. So I’m just trying to think of anything surprised you in the last 90 days or so.
Balu Balakrishnan: Actually not. It’s very much what we expected. We had said Q1 will be flat to potentially slightly up. But we really want to get the inventory down as much as possible. So we are happy that the inventory will come down again in Q1 based on our shipments, which is still below the demand, which really puts us in a good place going forward from Q2 onwards. And the only other positive thing I would say is the consumers are really coming back. The consumer market is really coming back. We can see the orders being placed by people who really stopped ordering for almost a year, little more than a year now. They’ve completely stopped ordering and they are now coming back. That tells us that they’re out of inventory as well.
It’s not just our channel inventory. Our end market inventory is also cleared up in consumer. The consumer is in very good shape. Computer is also very close to normal in terms of inventory. It’s the industrial that has extra inventory. And we believe that should come down to normal sometime in the second quarter. And we should start seeing bookings from industrial market sometime in the second quarter. I don’t know exactly when. So it’s not that different from what we anticipated in Q4. And I think for the whole year, we still expect Q2 to be the growth quarter and second half to be even better in terms of growth. And we think we could exit the year with a strong year-over-year growth in Q4 because of the comparison to the last year.
Sandeep Nayyar: Matt, to the other point, to add, is that nothing has changed in terms of what we were thinking for the year. The good part is it’s playing out as we wanted. Plus, other people like – if you see what Whirlpool said about the second half of the of 2024, obviously, they’re going to see second half, we should see better a little earlier because of power supplies being made earlier. So it’s good to see the validation of what we’ve been saying and how it is playing out even from an outside party.
Matt Ramsay: That was my initial read as well. It’s really steady progress, but not a ton of things have changed, which is good in this kind of environment. I guess my second question is a little bit more specific, and it’s in the auto market. I think there was some commentary in the script about the pipeline of design opportunities in the EV market being considerably up, maybe 80%, or something like that. If you guys could maybe expand on that a little bit, both the nature of the opportunities, and also if you win them, what the time to revenue could look like?
Balu Balakrishnan: To be honest, we are somewhat positively surprised by the level of interest we are getting on our products. I don’t think we would have expected this couple of years ago. If you had asked us, we would have expected a much slower ramp of design activity. So it really bodes well for the long term. I’m getting more and more comfortable that this could be $100 million business within the next five years. I know it has a long design cycle. But as we mentioned, we are already in production cars today at eight different models in the market – eight different customers, I should say. And that’s quite surprising how quickly they adopted our products. Usually, the design cycles are very long. Many customers are cutting their design cycle short to use our products simply because of the benefits we bring, whether it’s size benefit, the component benefit, the component count benefit, the reliability benefit, and so on.
And the other thing that’s really surprising to me is even OEMs were historically been the hardest to address. Like, for example, the Japanese OEMs are much more open because of the value we bring to this market. And that’s true with not only Japanese, but also with the European customers, and of course, the Chinese customers. So everything looks really good for automotive and that’s probably the most exciting growth area we are looking at right now.
Operator: Our next question comes from the line of Tore Svanberg with Stifel.
Tore Svanberg: My first question for you, Balu. So all downturns are different. That’s pretty clear. But most people reminders that the upturns are almost always the same, meaning customers start to ramp pretty quickly. So anything that you’re seeing this year that would be different? Given your inventory comment, I assume that you’re sort of ready for a stronger ramp as and when it comes.
Balu Balakrishnan: Yeah, that’s a good question. I wish I knew the answer. I just don’t have a good feeling for the ramp of the recovery. I know it’s going to recover. We think second half will be really good. But we don’t know by how much. I wish I could really give you that as of now. Let me talk about some areas where we are really feeling good. We already talked about automotive, but that’s more longer term. But if you look at high power, the renewables are doing extremely well. And so, we expect, again, another growth year on high power. The HBA market, which was very weak last year, we expect that to come back strong this year. Electric meters are doing extremely well. Electronic meters, I guess, are doing extremely well this year.
So there are several pockets in industrial that’s going to come back. So I’m feeling really good that industrial will come back this year, even though they still have some inventory. But when they come back, we will see a significant growth there. Consumer, we already talked about. I think, there, the inventory is clean. We’re going to start seeing the demand, but the demand to the extent we can measure is still weak. So the growth in consumer in the near term is going to come from clearing of inventory, not necessarily because of demand is increasing. We don’t see that yet. Now, that doesn’t mean in the second half, it won’t come back strong. We just don’t know about that. But just the inventory alone clearing up will help us grow nicely in that market.
Of course, we’ve talked about cell phones before. That is a declining market. We don’t expect that to grow over the next few years. All of the growth is going to come from the other three markets – the computer, consumer and industrial.
Tore Svanberg: On GaN, you highlighted several segments of applications. The one segment that GaN could do well, and you mentioned, is data center. But we haven’t quite heard enough from [indiscernible] as far as the traction you’re getting there. So are you being conservative on when you penetrate that market? Do you already have traction there? Any update on GaN for data center would be great.
Balu Balakrishnan: First of all, if you look at our SAM in 2027, if you go back to our Analyst Day presentation, we presented that we would double the SAM to $8 billion in 2027. Roughly about $3 billion of it will be GaN SAM in that year. Of course, the GaN SAM will continue to increase. And out of that $3 billion, half of it, we already have products for. We have products already in the market to address $1.5 billion of it. The other $1.5 billion comes from data centers, automotive, DC-DC converters and onboard chargers, telecom infrastructure like a base station, power supplies, and so on. For that, we are working on products that are not yet ready. And until it’s ready, we don’t engage with customers. We have to get those products out.
Now, you may be wondering how come it takes us longer to get to market than some of the discrete guys? Well, if you have a discrete transistor, you can go broadly in any market you want. But the problem with a discrete model is that then it becomes a commodity. You have a pin compatible device that can be replaced by anybody. Especially the Chinese guys, I think, are going to be incredibly aggressive in pricing the discretes. We just don’t see us in the discrete market. It’s just not the right business model for us. We have never been in the discrete market. And the way we make the margins we make compared to discrete guys is by having a system level solution that brings significant advantages over discretes. So that means it takes longer for us to come up with the product.
It’s the innovation of packaging, innovation of control schemes, there’s a lot of things that we have to cover when we do a system level product. So it takes longer. That’s the bad news. The good news is when we come out, we have a very compelling product that can make very good margins, which is really hard to make with discretes. So that’s why it takes longer. It’s not that anything has changed. We did expect it to take some time. That’s why we don’t add that $1.5 billion of SAM until 2027.
Tore Svanberg: Just one last one, Balu, on the automotive. You talked about the design wins and so on and so forth. But from a from a revenue and timing perspective, could this be sort of like tens of millions in 2025 or is that still more of a 2026 time timeline?
Balu Balakrishnan: I would think by 2025, you should be – let’s see. It could easily be, I would say, more than $10 million. I don’t know exactly how much it will be. I am a lot more comfortable saying, within five years, we would cross $100 million.
Operator: I would now like to turn the call over to Joe Shiffler for closing remarks.
Joe Shiffler : Okay. Thanks, everyone, for joining us this afternoon. There will be a replay of this call available on our website, investors.power.com. Thanks again. And good afternoon.
Operator: This concludes today’s call. You may now disconnect.
