# How Monolithic Power Systems makes money

CXProWealth Business Lens · Monolithic Power Systems (MPWR) · Q2 FY2026

Read from the 10-Q for the period 2026-04-01 to 2026-06-30, filed 2026-08-05 with the SEC (accession 0001628280-26-053275): https://www.sec.gov/Archives/edgar/data/1280452/000162828026053275/

Business Lens explains how a company earns, spends and keeps its money, from its own filings. It is insight and context, never a view on the shares, a target, or advice. Figures are raw units as filed; percentages are percentage points.

## Headline figures

- Revenue: $980.6M (+47.6% on the year)
- Operating income: $303.9M (operating margin 31.0%)
- Net income: $257.3M (net margin 26.2%)
- Gross margin: 55.2%
- Free cash flow: $145.5M (14.8% of revenue)
- Cash conversion (operating cash flow / net income): 0.89x
- Capital expenditure: 8.4% of revenue

## Where the money goes (Q2 FY2026)

- Revenue → Cost of revenue: $439.6M
- Revenue → Gross profit: $541.1M
- Gross profit → Total operating expenses: $237.2M
- Total operating expenses → Research and development: $118.6M
- Total operating expenses → Selling, general and administrative: $118.6M
- Gross profit → Operating income: $303.9M
- Operating income → Income before income taxes: $303.9M
- Other income, net → Income before income taxes: $17.8M
- Income before income taxes → Income tax expense: $64.4M
- Income before income taxes → Net income: $257.3M

## Where the revenue comes from

### Regions (REVENUE RECOGNITION - Schedule of Revenue by Geographic Region (Details))

| Member | Value | Share |
|---|---:|---:|
| Southeast Asia | $49.0M | 5.0% |
| Europe | $34.8M | 3.6% |
| Other | $120.0K | 0.0% |

The members do not sum to total revenue.

## Income statement, as filed

| Line | Q2 FY2026 | Of revenue |
|---|---:|---:|
| Revenue | $980.6M | 100% |
| Cost of revenue | $439.6M | 44.8% |
| **Gross profit** | $541.1M | 55.2% |
| Research and development | $118.6M | 12.1% |
| Selling, general and administrative | $118.6M | 12.1% |
| **Total operating expenses** | $237.2M | 24.2% |
| **Operating income** | $303.9M | 31.0% |
| Other income, net | $17.8M | 1.8% |
| **Income before income taxes** | $321.7M | 32.8% |
| Income tax expense | $64.4M | 6.6% |
| **Net income** | $257.3M | 26.2% |
| Basic (in dollars per share) | $5 | 0.0% |
| Diluted (in dollars per share) | $5 | 0.0% |
| Basic (in shares) | 49,138,000 |  |
| Diluted (in shares) | 49,260,000 |  |

## History

| Period | Revenue | Operating income | Net income | Operating cash flow | Capital expenditure | Free cash flow |
|---|---:|---:|---:|---:|---:|---:|
| FY2009 | $165.0M | $19.5M | $19.7M | $31.8M | $10.0M | $21.8M |
| FY2010 | $218.8M | $30.5M | $29.6M | $48.5M | $22.8M | $25.7M |
| FY2011 | $196.5M | $13.4M | $13.3M | $43.7M | $21.0M | $22.7M |
| FY2012 | $213.8M | $17.3M | $15.8M | $24.9M | $21.1M | $3.9M |
| FY2013 | $238.1M | $23.9M | $22.9M | $60.7M | $15.8M | $44.9M |
| FY2014 | $282.5M | $35.3M | $35.5M | $74.1M | $9.5M | $64.6M |
| FY2015 | $333.1M | $41.1M | $35.2M | $69.7M | $16.0M | $53.7M |
| FY2016 | $388.7M | $54.4M | $52.7M | $107.8M | $37.1M | $70.7M |
| FY2017 | $470.9M | $77.4M | $65.2M | $133.8M | $65.8M | $68.1M |
| FY2018 | $582.4M | $113.5M | $105.3M | $141.5M | $22.5M | $118.9M |
| FY2019 | $627.9M | $102.6M | $108.8M | $216.3M | $95.8M | $120.5M |
| FY2020 | $844.5M | $158.9M | $164.4M | $267.8M | $55.6M | $212.2M |
| FY2021 | $1.2B | $262.4M | $242.0M | $320.0M | $94.4M | $225.6M |
| FY2022 | $1.8B | $526.8M | $437.7M | $246.7M | $58.8M | $187.8M |
| FY2023 | $1.8B | $481.7M | $427.4M | $638.2M | $57.6M | $580.6M |
| FY2024 | $2.2B | $539.4M | $1.6B | $788.4M | $146.1M | $642.3M |
| FY2025 | $2.8B | $728.6M | $621.5M | $838.2M | $172.0M | $666.2M |

Latest trend (the newest full year against the year before; a reading, not a forecast):

- Revenue: +26.4% (year before +21.2%): accelerating
- Operating income: +35.1% (year before +12.0%): accelerating
- Net income: -61.0% (year before +272.5%): slowing
- Free cash flow: +3.7% (year before +10.6%): slowing

## Operating figures stated in the filing

- Revenue from direct customers in Asia: 94.0% (as of 2026-06-30). "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." (Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations)
- Revenue from direct customers in Asia: 93.0% (as of 2025-06-30). "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." (Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations)
- Sales made through distribution arrangements: 88.0% (as of 2026-06-30). "For each of the three and six months ended June 30, 2026, 88 % of the Company's total sales were made through distribution arrangements." (Item 1. Financial Statements)
- Sales made through distribution arrangements: 83.0% (as of 2025-06-30). "For each of the three and six months ended June 30, 2025, 83 % of the Company's total sales were made through distribution arrangements." (Item 1. Financial Statements)
- Largest distributor (Distributor A) share of revenue: 28.0% (as of 2026-06-30). "Distributor A 28 % 25 % 27 % 25 %" (Item 1. Financial Statements)
- Largest distributor (Distributor A) share of revenue: 25.0% (as of 2025-06-30). "Distributor A 28 % 25 % 27 % 25 %" (Item 1. Financial Statements)
- Distributor B share of revenue: 15.0% (as of 2026-06-30). "Distributor B 15 % 17 % 15 % 18 %" (Item 1. Financial Statements)
- Distributor B share of revenue: 17.0% (as of 2025-06-30). "Distributor B 15 % 17 % 15 % 18 %" (Item 1. Financial Statements)

## Key insights

### Operating income rose 84.4% on 47.6% more revenue

Operating expenses fell to 24.2% of revenue from 30.3%, lifting the operating margin to 31.0%, above any full year since FY2018.

Revenue rose 47.6% to $980.6M from $664.6M, while total operating expenses rose 17.8% to $237.2M. Research and development grew 23.2% and selling, general and administrative 12.9%, so their shares of revenue fell 2.4 and 3.7 points, to 12.1% each. Operating income rose 84.4% to $303.9M from $164.8M. _(from the filing)_
Almost all of the gain came below gross profit. The operating margin widened 6.2 points: operating expenses fell 6.1 points as a share of revenue, and the gross margin added 0.1 point, at 55.2% against 55.1%. The filing credits a mix of higher-priced power solutions for part of the revenue rise, but cost of revenue grew 47.2%, in step with sales. _(from the filing)_
The step is recent. The quarterly operating margin was 24.8% in Q2 FY2025, 26.5% in Q3 and 26.6% in Q4, then 30.0% in Q1 FY2026 and 31.0% now. The highest full-year margin in the FY2018 to FY2025 history was 29.4%, in FY2022, and FY2025 closed at 26.1%. _(from the filing)_
Within selling, general and administrative, the filing cites higher cash compensation and legal expenses, partly offset by lower stock-based compensation. Part of the operating-cost restraint is therefore a lighter equity-award charge rather than a smaller organisation. _(from the filing)_
Analysis: the same mechanism runs in both directions. Engineering and selling costs follow headcount and projects, not units, so a margin built on fast revenue growth can narrow quickly if demand pauses. _(analysis)_

### Profit nearly doubled while free cash flow fell

Net income rose 90.6% to $257.3M, but free cash flow fell to $145.5M from $189.5M as working capital and equipment absorbed cash.

Operating cash flow was $227.9M, 88.6% of net income, against $237.6M a year earlier, when it was larger than that quarter's net income of $135.0M. Free cash flow was 14.8% of revenue, against 28.5% a year earlier. _(from the filing)_
Capital spending rose to $82.4M from $48.1M, or 8.4% of revenue against 7.2%, and took 36.2% of operating cash flow against 20.3% a year earlier. This one quarter's capital spending equals 47.9% of all of FY2025's $172.0M. _(from the filing)_
For the half year the filing ties lower operating cash flow to "an overall increase in working capital needs" and higher investing outflows partly to larger purchases of property and equipment. It also records refundable deposits under a long-term wafer supply agreement and a long-term assembly service agreement. _(from the filing)_
Net income grew faster than operating income, 90.6% against 84.4%, partly because the effective tax rate fell to 20.0% from 23.7%. The filing attributes the lower rate to higher non-deductible stock-based compensation in 2025 than in 2026. _(from the filing)_
Analysis: the pattern fits a company building inventory and capacity ahead of orders. It stays benign only if receivables are collected on normal terms and the added stock ships in the following quarters rather than accumulating. _(analysis)_

### Distributors now carry 88% of sales

Sales through distribution rose to 88% from 83%, and the largest distributor took 28% of revenue against 25%, so end demand is seen mostly through intermediaries.

The filing says 88% of total sales were made through distribution arrangements, against 83% a year earlier. Distributor A accounted for 28% of revenue, up from 25%, and Distributor B for 15%, down from 17%. Sales to direct customers in Asia were 94% of revenue, against 93%. _(from the filing)_
The filing says distributors may terminate their agreements with advance notice, and that it would expect only a short-term disruption because it could engage alternative channels within a relatively short period. Certain distributors have limited stock rotation rights, for which the company keeps a reserve. _(from the filing)_
Analysis: the regional shares describe where chips are shipped and invoiced, not where the end products are sold. A channel that carries more of the flow also sees more of the inventory signal, so a pause in end demand could show up first as slower distributor orders. _(analysis)_

### Competitive edge

- **Fabless model keeps gross margin steady as scale grows** Revenue rose from $582.4M in FY2018 to $2.79B in FY2025 while the gross margin stayed between 55.2% and 58.4%, with production bought from partners.
- **Power solutions put more content on each board** The filing credits part of the 47.6% revenue rise to power solutions, which carry higher selling prices than discrete chips.
- **Growth has been paid for from operating cash** Free cash flow was positive in every year from FY2018 to FY2025, rising to $666.2M in FY2025 from $118.9M in FY2018.

### What to watch

- **Growth rests on AI servers, and orders can be cancelled** The filing ties the revenue rise primarily to enterprise data and communications, while customers can cancel or reschedule orders without significant penalty.
- **Growth needs manufacturing capacity MPS does not own** The filing lists securing manufacturing capacity among the conditions for growth, and capital spending rose to 8.4% of revenue from 7.2%.
- **Trade rules bear on a business shipping 94% to Asia** Sales to direct customers in Asia were 94% of revenue, and the filing says tariffs and export controls can be enacted quickly and unexpectedly.

## Investor view

**Operating costs grew far slower than AI-driven sales, lifting the operating margin to 31.0%**

### How it makes money

Monolithic Power Systems designs power-management chips and modules and has others make them. The filing calls it a "fabless global company" that works with third parties "to manufacture, assemble and test our ICs," which keeps its own capital spending low. This quarter revenue of $980.6M cost $439.6M to produce, leaving gross profit of $541.1M, a 55.2% gross margin. _(from the filing)_
Almost all sales go through intermediaries in Asia. Sales to direct customers in Asia were 94% of revenue, against 93% a year earlier, and 88% of sales were made through distribution arrangements, up from 83%. The largest distributor alone accounted for 28% of revenue, against 25% a year earlier. These shares describe where chips are shipped and invoiced; the filing says the products are then built into end-user products. _(from the filing)_
Engineering and selling are the two cost lines between gross profit and operating profit, and this quarter they were the same size: research and development of $118.6M and selling, general and administrative of $118.6M, each 12.1% of revenue. After both, operating income was $303.9M, a 31.0% operating margin, and net income was $257.3M, or $5.22 per diluted share. _(from the filing)_

### What shifted

Revenue rose 47.6% to $980.6M from $664.6M a year earlier. The filing says the increase was "primarily due to increased demand for products serving our enterprise data and communications end markets," naming power management for AI and server applications in enterprise data, and power solutions for optical modules and switches in communications. Consumer revenue declined, and storage and computing was close to flat. _(from the filing)_
The gross margin barely moved, 55.2% against 55.1% a year earlier, as cost of revenue grew 47.2%, in step with revenue. The filing also credits "a higher product mix of power solutions, which generally carry higher average selling prices than discrete ICs," so the mix shift raised revenue per unit without changing the margin structure. _(from the filing)_
The step change sits below gross profit. Total operating expenses rose 17.8% while revenue rose 47.6%, so they fell to 24.2% of revenue, down 6.1 points. R&D grew 23.2% and SG&A 12.9%; within SG&A the filing cites higher cash compensation and legal expenses, partly offset by lower stock-based compensation. Operating income rose 84.4% to $303.9M from $164.8M, and the operating margin widened 6.2 points to 31.0%. _(from the filing)_
Profit grew faster than cash. Net income rose 90.6% to $257.3M, helped by an effective tax rate of 20.0% against 23.7% a year earlier, but free cash flow fell to $145.5M from $189.5M. Operating cash flow was $227.9M, 88.6% of net income, and capital spending rose to $82.4M from $48.1M, or 8.4% of revenue. For the half year the filing ties lower operating cash flow to "an overall increase in working capital needs." _(from the filing)_

### Risks in the filing

The company says it operates in a cyclical industry and is "subject to industry downturns." It adds that a new product takes a number of quarters to ramp after a first order, supply chain lead times run for months, and customers can cancel or reschedule orders "without incurring a significant penalty," which makes orders, revenue and expenses hard to forecast. _(from the filing)_
Trade policy is named throughout: tariffs, export controls, retaliatory measures and changes in laws or economic policies in China or the U.S. The filing says none has had a material impact on revenue and operations so far, but that such measures "can be enacted quickly and unexpectedly." With most revenue shipped to direct customers in Asia, these rules bear directly on how products reach buyers. _(from the filing)_
The company relies on third parties to manufacture, assemble and test its chips, and lists continuing to secure manufacturing capacity among the conditions for growth. It names reliance on a few distributors, who may terminate their agreements with advance notice, and litigation, including challenges to its intellectual property and claims that its products infringe others' rights. Its forward-looking statements also cover "our ability to timely and adequately remediate our material weakness." _(from the filing)_
Two of the named risks already show in the numbers. Customer concentration rose, with the largest distributor's share and the overall distribution share both higher than a year earlier. And working capital is absorbing cash: the gap between profit and operating cash flow is the forecasting risk in another form, since product built for expected demand sits as inventory and receivables until it ships and is paid for. _(analysis)_

## Founder view: mechanisms

### Fabless design keeps the margin steady at scale

MPS designs the chips and its own process technology, then pays foundries and assembly partners to build them. Most of a chip's cost is a variable purchase, so cost of revenue moves with volume and gross margin stays in a narrow band whether revenue is small or large. Capital goes to engineering and selected equipment rather than to owning fabs. _(analysis)_

### Sell the power solution, not just the part

Beyond discrete chips, MPS sells integrated power solutions and modules that take on more of the customer's design work. Each board then carries more MPS content at a higher selling price, and a customer that switches supplier has more to redesign. _(analysis)_

### A fixed engineering base turns growth into margin

Once a product family is designed and qualified, selling more of it needs few extra engineers or salespeople. Operating expenses follow headcount and projects, not units shipped, so when demand jumps the gap between revenue and costs widens fast. The same mechanism works in reverse when demand falls. _(analysis)_

### Distributors as the sales force

MPS reaches a broad base of electronics makers mostly through distributors and value-added resellers. They hold inventory, carry credit and serve smaller accounts, while MPS's own engineers chase design wins at large customers. Selling cost stays low, at the price of concentration and less direct sight of end demand. _(analysis)_

## Member research

Signed-in members read, on the page: what Monolithic Power Systems's numbers depend on from here, and the playbook behind each mechanism (what needs scale, what transfers, how to test it, the metric that would show it).

## Sources

- Monolithic Power Systems 10-Q for the period to 2026-06-30: https://www.sec.gov/Archives/edgar/data/1280452/000162828026053275/ (2026-08-05)

Methodology business-lens-1.0 · schema 1.2.0 · run business-lens-2026-11-02 · as of 2026-11-02