[Management View]
Power Integrations reported sequential revenue and cash flow growth in fiscal Q3 2025 despite volatility driven by appliance-related demand and industry tariffs. The industrial segment showed continued expansion, validated by strong year-to-date gate-driver sales and strategic design wins in transportation and electrification markets. Management is reallocating R&D and go-to-market resources toward data center, automotive, and high power, reflecting strategic intent to leverage differentiated GaN technology.

[Outlook]
Management forecasts a sequential decline in fiscal Q4 consumer and industrial revenues (non-GAAP), while guiding for improved gross margin in 2026 supported by a more favorable mix and FX movements. Early samples of the system-level GaN product for rack-level AC/DC conversion will be delivered before the end of 2025, with production release planned for late 2026. The board increased the quarterly dividend to $0.215 per share effective 2026, reflecting commitment to shareholder returns despite near-term top-line pressure.

[Financial Performance]
- Revenue: $100 million in fiscal Q3 2025, up 3% sequentially (non-GAAP).
- Q4 Revenue Outlook: $100 million to $105 million.
- Gross Margin: Non-GAAP gross margin was 55.1% in fiscal Q3 2025, down 70 bps from the prior quarter; fiscal Q4 non-GAAP gross margin guided to 53.5%-54%.
- Operating Expenses: Non-GAAP operating expenses were $47.4 million in fiscal Q3 2025; fiscal Q4 non-GAAP operating expenses are guided slightly lower at approximately $47 million.
- EPS: Non-GAAP earnings per diluted share were 36¢ in fiscal Q3 2025.
- Cash Flow: $30 million in cash flow from operations in fiscal Q3 2025; Full-year free cash flow is on track to exceed $80 million in 2025.
- Shareholder Returns: $42 million spent on share repurchases and $11.8 million in dividends in fiscal Q3 2025.

[Q&A Highlights]
Question 1: Jen, can you talk more about the consumer business directionally? What does this mean for channel inventory?
Answer: We knew the appliance decline was happening and expected Q4 to be sequentially lower. The inventory situation is mainly finished goods shipped into the US, with limited visibility. Distributors bulked up in Q3, leading to soft sell-through. Channel inventory is coming down in Q4, and we expect consumer business to return to growth in 2026, though the timing is uncertain. Whirlpool expects normalization in 2026 as preloaded inventory clears.

Question 2: Will the focus on data center, automotive, and high power lead to a reorganization?
Answer: Yes, we are focusing more on these markets in terms of R&D investment and go-to-market approach. We are realigning project spend to accelerate developments in these areas while maintaining investment in our core business.

Question 3: How do you see things playing out in Q4 across different segments?
Answer: Consumer is expected to be down significantly due to channel inventory accumulation in Q3. Industrial will also be down sequentially due to seasonality and timing of orders. Computer and comms are expected to be closer to flat.

Question 4: How do you view the competition between silicon carbide and high power GaN in data centers?
Answer: The 1,700-volt GaN provides advantages over silicon carbide in 800-volt DC architectures. We believe GaN will prevail in auxiliary power supplies and main DC to DC conversion. We have wins with PSU OEMs for auxiliary supplies.

Question 5: What is the TAM opportunity in AI data centers, and what is the time to revenue?
Answer: It's too early to estimate the size of the market. Our content in AI server racks is around $1k, higher in 800-volt DC. Meaningful revenue generation is expected in 2027 with the release of products for the main supply of data center architecture.

Question 6: How do you see the PC market and adjacent opportunities?
Answer: The key opportunity is GaN penetration in notebooks. We have been making steady progress with design wins, and it's a question of how quickly PC OEMs adopt GaN.

Question 7: Can you talk about the traction in the automotive market and the magnitude of the opportunity?
Answer: We have design wins in heavy vehicles and passenger cars. The emergency power supply in inverters is a key application where we are doing well. The evolving EV architectures are favorable for us, with more power supply sockets being built in.

[Sentiment Analysis]
Analysts were cautiously optimistic, focusing on the strategic shift towards high-growth markets like data centers and automotive. Management maintained a confident tone, emphasizing strategic reallocations and long-term growth drivers despite near-term challenges.

[Quarterly Comparison]
| Metric | Q3 2025 | Q2 2025 |
|-------------------------|---------|---------|
| Revenue | $100M | $97M |
| Gross Margin | 55.1% | 55.8% |
| Operating Expenses | $47.4M | $46.8M |
| EPS | $0.36 | $0.35 |
| Cash Flow from Ops | $30M | $28M |
| Share Repurchases | $42M | $40M |
| Dividends | $11.8M | $11.5M |

[Risks and Concerns]
- Tariffs and stagnant home sales in the US and China's weak housing market are contributing to revenue volatility.
- Non-GAAP gross margin is expected to decrease in fiscal Q4 2025 due to less favorable end market mix and lower back-end production volumes.
- The non-GAAP effective tax rate is projected to rise in 2026, potentially reducing net earnings.

[Final Takeaway]
Power Integrations is navigating near-term challenges with a strategic focus on high-growth markets such as data centers and automotive. While the consumer segment faces volatility, the company's strong industrial performance and strategic reallocations position it for long-term growth. Management's commitment to shareholder returns and disciplined spending underscores confidence in future prospects despite current headwinds.