Monolithic Power Systems, Inc Q4 2025 Earnings Call Transcript

Monolithic Power Systems, Inc (NASDAQ: MPWR) Q4 2025 Earnings Call dated Feb. 05, 2026

Presentation

Arthur Lee — Finance Manager

Welcome, everyone, to the MPS Fourth Quarter 2025 Earnings Webinar. My name is Arthur Lee, and I will be the moderator for this webinar.

Joining me today are Michael Hsing, CEO and Founder of MPS; Bernie Blegen, EVP and CFO; Rob Dean, Corporate Controller; and Tony Balow, Vice President of Finance. Earlier today, along with our earnings announcement, MPS released a written commentary on the results of our operations. Both documents can be found on our website.

Before we begin, I would like to remind everyone that in the course of today’s presentation, we may make forward-looking statements and projections within the meaning of the Private Securities Litigation Reform Act of 1995 that involve risks and uncertainties. The risks, uncertainties, and other factors that could cause actual results to differ from these forward-looking statements are identified in the safe harbor statements contained in the Q4 2025 earnings release, our Q4 2025 earnings commentary, and in our SEC filings, including our Form 10-K and Forms 10-Q, which can be found on our website. Our statements are made as of today, and we assume no obligation to update this information.

Now I would like to turn the call over to Tony.

Tony Balow — Vice President of Finance

Thanks, Arthur. Good afternoon, and welcome to our Q4 2025 earnings call. Today, we made an announcement that after 15 years at MPS and 10 as the CFO, Bernie will be retiring. Before we begin our prepared remarks, I would like to turn the webinar over to him for his thoughts on his time at MPS and the transition ahead. Bernie?

Bernie Blegen — Executive Vice President and Chief Financial Officer

Thanks, Tony. As I was preparing for today, I realized that this is my 40th earnings call as MPS’ CFO. That’s a nice round number to finish up with. It’s been my pleasure and honor to work closely with Michael for so long and to have been a part of MPS’ leadership team. I want to thank our investors and analysts for the trust you placed in me. It is natural for all businesses to go through cycles. Your support has been consistent regardless of the circumstances. And I have greatly appreciated it.

As I look ahead, MPS’ prospects remain bright. With our unique culture, our dedicated employees, and a fantastic portfolio of products, MPS is well positioned to sustain the broad-based growth you have come to expect from us during the last 10 years. I have a lot of confidence in the team I am transitioning my responsibilities to, starting with Rob Dean, who will be our Interim CFO.

While many of you may not know Rob, we have been partners in this enterprise for the last nine years. And like my predecessor and for myself, Rob continues the MPS tradition of transitioning from MPS’ controllership to CFO. This ensures a lot of continuity in the role. Likewise, I will remain with the company to support a successful transition.

Rob, would you like to say a few words?

Robert Dean — Corporate Controller

Yes. Thanks, Bernie, and I’m grateful to you and Michael for this opportunity to continue the tradition and to have been part of the MPS finance team while you have been CFO. I know I speak for the entire finance team when I thank you, Bernie, for everything you’ve done over the last 15 years. He has not only helped guide the business to consistent growth and execution, but he has grown a great team around him. I’ve worked closely with Michael and the executive team for close to a decade. We’ve developed a strong relationship, which I expect to continue as we grow the company and take on the opportunities ahead. I appreciate the confidence they have placed in me in this new role. I look forward to meeting all of you in the coming days and weeks.

With that, I’ll pass it over to Tony.

Tony Balow — Vice President of Finance

Thanks, Rob. I’ll now move to our prepared remarks before going to Q&A. In 2025, MPS posted its 14th consecutive year of growth with a full-year revenue of $2.8 billion, up 26.4% from 2024. For Q4 2025, we had a record quarterly revenue of $751.2 million, 1.9% above Q3 2025 and 20.8% higher than the fourth quarter of 2024. This performance reflected our consistent execution, continued innovation, and our customer focus.

Let me call out a few highlights from 2025. Our non-enterprise data end markets grew by over 40% year-over-year, showcasing the strength of our diversified business model. We achieved our milestone of securing more than $4 billion of geographically balanced capacity and continue to add additional supply chain partners to support future growth. We had record module revenue and positioned ourselves for a further shift to solutions by sampling our 800-volt power solution for data centers.

In automotive, we launched solutions for 48-volt and zonal architectures, including the first fully integrated 48-volt e-fuse and a kilowatt-level zonal controller that will support growth in 2026 and beyond. We expanded our customer base in data centers for power solutions across AI, server, memory, optical modules, and switch applications, with leading-edge current density, power efficiency, and packaging.

I am also pleased to announce that our quarterly dividend will increase 28% to $2 per share. For the three years ending with December 2025, MPS has returned over 72% of free cash flow to stockholders through share repurchases and dividends. Our proven long-term growth strategy remains intact as MPS focuses on innovation and solving our customers’ most challenging problems. We continue to invest in new technology, expand into new markets, and diversify both our end market applications and global supply chain. This will allow us to capture future growth opportunities, maintain supply chain stability, and quickly adapt to market changes as they occur.

I will now open the webinar for questions.

Question & Answers

Arthur Lee — Finance Manager

Thank you, Tony. Analysts, I would now like to begin our Q&A session. [Operator Instructions] Our first question is from Chris Caso of Wolfe Research. Chris, your line is now open.

Chris Caso

Thank you. And, Bernie, I’m lucky to be the first to congratulate you on your retirement and wish you all the best. It’s been a pleasure all these years.

Bernie Blegen — Executive Vice President and Chief Financial Officer

Thank you very much, Chris.

Chris Caso

So for my first question, I guess as we look into March, could you give some color on what you’re seeing with respect to the different segments? What do you see within the various market segments?

Bernie Blegen — Executive Vice President and Chief Financial Officer

Sure. Let me start to color this by talking a little bit about Q4 ’25. We saw a good step-up in the ordering patterns in the quarter. Our book-to-bill ratio was well in excess of 1, and that’s really reflected in our backlog, which is starting to extend out into Q2 and Q3 of ’26. We also finished with fairly routine — rather our channel inventory stayed at the low end of our range. So we feel that we’re servicing real demand and that we’re seeing a lot of strong ordering trends. So as we look at the fourth quarter, you can see that we saw some pretty good strength, particularly as it relates to enterprise data and also to communications. We expect that those trends, along with automotive, should continue to extend into Q1 and into the remainder of the year.

Chris Caso

Thank you. As a follow-up — and you mentioned enterprise data, and obviously, that’s been a focus of attention not just for you but the whole market. You had made some comments on enterprise data for 2026 on the last earnings call. And if I just annualize the Q4 numbers, you pretty much get to where that guidance was. So, what are your thoughts on that in the year? And perhaps is there a seasonal element to enterprise data as we go through the year?

Bernie Blegen — Executive Vice President and Chief Financial Officer

Sure. I’ll start off on this one. As I said, in Q4, we saw some fairly pronounced changes in ordering patterns, which has given us a fair amount more of confidence as far as what the outlook for enterprise data could be in ’26. Now I think for those that have worked with me the last 10 years, you know that I like to stay pretty conservatively profiled when I make an estimate. So I’d probably say that, whereas last quarter, I talked about a range of between 30% and 40%, maybe I can increase that to a floor of 50% growth for 2025.

Michael Hsing — Chairman of the Board, President and Chief Executive Officer

50%? I thought that we can do a lot more than that.

Bernie Blegen — Executive Vice President and Chief Financial Officer

Conservatively.

Michael Hsing — Chairman of the Board, President and Chief Executive Officer

I see — no. This is what I see here. So, we won many design wins across the board, not from one company, one large company. We have multiple customers. They are very big. They call what? Magnetic fixing seven or eight or whatever. We won all the designs. And we are proven — well, one of the valuable AI power supplier. And also, I see the other end. Look, we have all the capacities. We can deliver this year to our customers’ needs. And I don’t see why not — not only 50%. We’ll be a lot more than that.

Tony Balow — Vice President of Finance

Maybe just one last thing to add. Chris, you heard us talk about the drivers for growth, which was really around growing existing customers, adding new customers, seeing new platforms coming to market, and then, of course, just server tailwinds. I think we always knew those were in place, and now we’re just seeing some of the backlog to go along with it. The only other thing I’d add, right, is we focus a lot on enterprise data, but I think we’ve seen strong data center demand, which has really also pulled through storage growth, optical modules, switches, and other areas we’ve talked about. So I think overall, we’ve seen strong data center demand through the end of the year.

Chris Caso

Got it. Okay. Thank you. All the best, Bernie.

Arthur Lee — Finance Manager

Our next question is from Joe Quatrochi of Wells Fargo. Joe, your line is now open.

Joe Quatrochi

Yeah. Thanks for taking the question, and my congrats to Bernie as well. Thanks for all the help. Maybe just to follow up on that, in the enterprise data and the increase in outlook, how much of that is related to, like, traditional server CPU demand that it seems like is accelerating as well?

Michael Hsing — Chairman of the Board, President and Chief Executive Officer

Well, as I said, we have a lot of new design wins, particularly in the last year and a half. And we see continuously changing adapt our modules. And even from changing from silicon to modules. And we see the trend. And with our power densities, we’re winning the market.

Bernie Blegen — Executive Vice President and Chief Financial Officer

Yeah. I think to go back to part of your question, which had to do with the traditional maybe CPU data center, the lines between AI, GPUs, and CPU are getting pretty blurry because they’re so integral to one another these days.

Michael Hsing — Chairman of the Board, President and Chief Executive Officer

They’re using the same kind of a power supply now. Okay.

Bernie Blegen — Executive Vice President and Chief Financial Officer

Exactly. But I would say that we’ve been trending very well in both categories. So I can talk to a trend line, but I can’t really give you an absolute figure.

Joe Quatrochi

Okay. That’s helpful. And then as a follow-up, as I think about just kind of, like, storage and compute and maybe the exposure to PCs, are you seeing anything related to just kind of memory prices increasing and just kind of maybe some pressure on some demand destruction around that part of the market?

Michael Hsing — Chairman of the Board, President and Chief Executive Officer

Oh, you’re talking about PC. The PC is a different animal than data centers.

Bernie Blegen — Executive Vice President and Chief Financial Officer

New question. He’s asking about memory and the constraints there, whether we’re seeing that affect us.

Michael Hsing — Chairman of the Board, President and Chief Executive Officer

Oh, memory constraints. As I said earlier, we don’t have constraints on our capacity side.

Bernie Blegen — Executive Vice President and Chief Financial Officer

Yeah. And I think where you’re going, Joe, as well is also is there daily demand destruction in PCs. I think as you looked at Q4 into Q1, remember we’re coming off a very strong first half of 2025, so we expected that to be down a bit as well as we are participating more selectively in the margin parts of that business. I don’t think we know how it’s going to play out through the rest of this year at this point, so I don’t think it’s possible to say how that market might trend. We hear a lot of the same, but I think it’s too early for us to tell.

Joe Quatrochi

Thank you.

Michael Hsing — Chairman of the Board, President and Chief Executive Officer

Memory constraint on the PC.

Bernie Blegen — Executive Vice President and Chief Financial Officer

Yes.

Michael Hsing — Chairman of the Board, President and Chief Executive Officer

Oh, okay. I don’t know, okay? We don’t know those in the market. We don’t know what our customers do. We deliver what our customers ask. I care less.

Arthur Lee — Finance Manager

Our next question is from Josh Buchalter of Cowen. Josh, your line is now open.

Joshua Buchalter

Hey, guys. Thank you for taking my question, and definitely want to echo the congrats and best wishes to Bernie after an incredible run and a long, sometimes strange trip. Very much appreciate the support over the years, and congrats and best of luck to Rob. Maybe just to start, the incremental confidence in enterprise data is great to see, and it seems like you guys are suggesting you feel better about visibility there than you have in the past. Is that a fair read? And if so, is part of this just the market is maturing and scaling and also just the capacity needs are so great? Could you — I was just hoping you could maybe speak to how visibility compared to maybe a year ago or something. Thank you.

Bernie Blegen — Executive Vice President and Chief Financial Officer

Yeah. I think in prior quarters, I’ve said that we’ve been experiencing a turnaround, much of which has been around the enterprise data or more broadly AI markets. But the anomaly had been that we’ve been seeing very short lead times. And that they were not putting a lot of backlog in our books. I’d say that the fundamental change that is also making us more confident right now is that we are seeing longer ordering patterns because some of our customers are concerned about capacity constraints, not necessarily with us, but just in general.

Joshua Buchalter

Okay. That’s helpful color. Thank you, Bernie. And the 40% non-enterprise data growth number for 2025 is obviously huge and above your historical algorithm of — I think it was 10% to 15% above the analog industry. Is that still the right way we should be thinking about the non-compute-exposed verticals into 2026 as well? Thank you, and congrats again.

Michael Hsing — Chairman of the Board, President and Chief Executive Officer

Yeah. I will try to manage your expectation. We’ll not say ’26, whatever, 40% growth. And these growths, we are still small players in the overall market compared to all the market size. And some growth, some years, and we see the opportunities that we can grow better than other years. But the long-term trend or even short-term trend in even ’26, we will grow.

Joshua Buchalter

Okay. Thank you.

Arthur Lee — Finance Manager

Next question is from Quinn Bolton of Needham. Quinn, your line is now open.

Quinn Bolton

Thanks for taking my question. And, Bernie, it’s been a great run, a great decade. So thank you for all your help along the way. Welcome, Rob. Wanted to ask, some of your competitors in the AI power space are talking about their businesses doubling in 2026. And I know your business and their businesses don’t overlap 100%. There’s different compositions. My question is, do you guys think that you’re gaining shares if you look into 2026, broadly in the AI power segment?

Michael Hsing — Chairman of the Board, President and Chief Executive Officer

Yeah. I refuse to get into a pissing contest. And who wear less on the stage. We let the numbers speak itself. As always, as our [Indecipherable] 21-years history, we never do that.

Tony Balow — Vice President of Finance

I do think that we clearly have great products and broad engagement across the customers. We have design wins in a broad swath. So how the market then plays out, you know, remains to be seen, I think. But I think we’re very confident in our product portfolio and engagements we have right now.

Quinn Bolton

Got it. And then, Michael, some of that…

Michael Hsing — Chairman of the Board, President and Chief Executive Officer

That’s a much better small talk.

Quinn Bolton

Well, as you said, we’ll see where the numbers shake out at the end of the year. Michael, I wanted to ask too. You talked about sampling your 800-volt.

Michael Hsing — Chairman of the Board, President and Chief Executive Officer

Probably you see it earlier. You probably will see it much earlier.

Quinn Bolton

Oh, good. We’ll stay tuned. Wanted to ask you about the 800-volt solutions for 800-volt racks. Some of the participants in the market are suggesting NVIDIA and others are looking for GaN-based solutions. I think you guys are offering a silicon carbide-based solution. And so, just wondering if you could talk about what you’re seeing in the market. Is there a preference for GaN or silicon carbide? Do you think there’ll be a mix of compound semiconductor solutions for that 800-volt to 12 or 6-volt stage in those 800-volt racks?

Michael Hsing — Chairman of the Board, President and Chief Executive Officer

Yeah. Yeah. Okay. Again — and this is not a good venue to talk about technical terms. Actually, I’m happy to be a person who really knows the semiconductor device. And we are developing silicon carbide. And 10 years ago, I was wrong about the GaNs but in the last few years, we developed our own GaN devices. And 800 volts, since Tony’s mentioning about it, and we’re entering a pissing contest. That revenue is not for this year, not for — even for next year. So maybe end of the next year. However, we’re the first company to sample it. Now that’s a part of a pissing contest.

Bernie Blegen — Executive Vice President and Chief Financial Officer

And again, we’ve done a good job and shown ourselves to be very adaptive to changes in the market. So whether it turns out to be GaN or silicon carbide that is what’s demanded, I’m sure that we’ll be well-positioned to take advantage of it.

Quinn Bolton

Got it. Thank you.

Arthur Lee — Finance Manager

Next question is from Rick Schafer of Oppenheimer. Rick, your line is now open.

Rick Schafer

Thanks. And I’ll just say, Bernie, it’s been a genuine pleasure. You’re going to be missed. And, Michael, I just want to confirm for everybody that you’re never retiring. Right?

Michael Hsing — Chairman of the Board, President and Chief Executive Officer

Well, it happened to me, today is my 86th earnings call. I’m looking for double. Well, be serious. I enjoy this MPS immensely. We actually created this platform. Everybody can maximize their capability. And the more interesting things to me is we — company evolves. And we sell semiconductor power management. Now in a semiconductor, we’re getting to an MCU. We’re getting to a data converter. We get up to even high speed. These are a few gigahertz of stuff. And you will see the revenue soon. And the overall market segment address, we migrate from silicon to systems — to a module to systems, and you will see a lot more. I’m enjoying this process a lot. And every year, I’m a part of it. And I have own product lines.

Rick Schafer

Nice, Michael. It’s reassuring. Hey, I also — I just had a quick clarification, and then I’ve got a couple follow-ups, but the clarification, Michael, you said earlier that the CPU and GPU and server are using the same power supplies now. So does that mean that server CPU is already migrating to 48 volt?

Michael Hsing — Chairman of the Board, President and Chief Executive Officer

They use mostly. If they have some advanced and high-price server or special servers, as special need, they still use 12 volts. But I’m aware of some models use a 48 volts. My guess is they’re still small. I’m not very clear on that. And the majority is still 12 volts, and then now they — it’s clear the modules is the way to go if you want to improve efficiency.

Rick Schafer

Thanks for clearing that up. So my first question really is on optical transceiver because that’s basically a brand new product line, a little over a year old, I believe. And by our count, in our model, it’s close to roughly 5% of sales exiting last year, I think now, which is a pretty remarkable ramp. So I guess I’m out and thinking, we’re asking, what are your expectations for that business this year? And what does that imply for comm segment? What are sort of the puts and takes within the comm segment?

Michael Hsing — Chairman of the Board, President and Chief Executive Officer

I can comment on that because we entered the module journey since 2016 or ’17. And these happen to be the highest power density product on the market. Then, optical modules — they wanted that because they have unlimited rooms. In terms of a business, I don’t know the details, and maybe Bernie or Tony can answer it.

Tony Balow — Vice President of Finance

Yeah. I’ll just follow-up. I think, Rick, we have obviously seen great growth in optical modules over the past year and a half. I think the way we look at the market, very typical for MPS is sort of interconnect. So it’s not just optical modules, but engagements for CPO, active copper, other things as well because the market will then figure out what interconnect technology is actually going to succeed over the long term. We obviously don’t guide by sub end market, let alone sub end market, but we would expect optical module to continue to grow as you start to see the 1.6 ramp a we go through. And for communications, it should be an area of growth for us in ’26, both on optical modules and switches because that’s where our data center switches are as well.

Rick Schafer

Thanks for that. And then if I could sneak in one on automotive, I mean, obviously, great year in ’25. And I’m just curious what are the — what do you see is the top drivers of segment growth this year? I know you highlighted 48 volt, zonal. And I didn’t hear you say much about ADAS, but I assume ADAS — wondering if you could update us on how big ADAS is within that segment now, or — and if there’s any way to quantify sort of a shift this year that you expect in potential content per vehicle.

Bernie Blegen — Executive Vice President and Chief Financial Officer

Sure. I want to take a victory lap on 2025 where automotive grew 43% year-over-year.

Michael Hsing — Chairman of the Board, President and Chief Executive Officer

But that’s only the beginning.

Bernie Blegen — Executive Vice President and Chief Financial Officer

That’s exactly the point here is that what we saw in 2025 and is going to continue is that while ADAS certainly was a strong initial ramp, particularly in ’23, ’24, and ’25, I think we saw a lot more diversification into other content opportunities on the automotive platform. And so, as we look ahead here, keep in mind, we’re not necessarily driven by the SAAR of the business but we are — our growth is dependent upon how fast our customers implement these new technologies, particularly as it relates to zonal and 48 volt.

Michael Hsing — Chairman of the Board, President and Chief Executive Officer

Or even ADAS.

Bernie Blegen — Executive Vice President and Chief Financial Officer

Or ADAS.

Michael Hsing — Chairman of the Board, President and Chief Executive Officer

And the majority cars on the market is nowhere anything close to what Tesla does. And that’s the car I drive. You have a full — I don’t drive anymore. And think a majority of people still drive. And that adoption rate — and large automotive company, they do things very slowly, and much slower than a Tesla does. And for future, we are — up to this point and after the next couple years, I see our products provide the complete power supply chipsets And, also, we have all these firmware software. We’re very much engaged with all the carmakers. And I don’t see why not. And that business is going to continue to grow. You actually, guys — you know how many cars shipped with ADAS, which levels? And you can count MPS in it.

Tony Balow — Vice President of Finance

And, Rick, look, we’re a little hesitant to probably call any numbers for full year just because there is a lot of macro uncertainty still. Great design wins, great engagement with tier 1s and OEMs, but whether it’s tariffs, whether it’s the end of EV subsidies, or whether you even talk about what the impact on the auto market is from the memory shortage, I don’t think we know. So I think we’re a little hesitant to actually put a growth rate on it for the year.

Rick Schafer

Appreciate it. Thanks, guys.

Arthur Lee — Finance Manager

Our next question is from Gary Mobley of Loop Capital. Gary, your line is now open.

Gary Mobley

Hey, guys. Thanks for taking my question. And, Bernie, your retirement’s well deserved and look forward to working with you, Rob. I think everybody on the call would share the same sentiment that I have that you’re definitely one of my favorite CFOs. And for my retirement gift to you, I wanted to throw you a big softball question but I think it’s an important topic. Looking back over the past decade when you’ve been CFO, you’ve outperformed the overall analog chip market, the overall voltage regulator market consistently every year, and seemingly for different reasons each year.

But thinking about the outperformance of the market in 2025, maybe if you can give us a sense of what drove that. Was that just share gains and volts regulator die, or was it something more substantial like moving into data converters? Was it tied to the higher content associated with modules and related? Can you give us some KPIs that relates to sort of your module mix right now? Anything you can help us get a better understanding of that consistent market share growth?

Bernie Blegen — Executive Vice President and Chief Financial Officer

Sure, Gary. And thank you for the kind words. They’re appreciated. When you look at the overall performance for the company in 2025, we had what had been our largest revenue end market in enterprise data had actually declined 2% and yet overall, the company grew 26%. And strategically, how we’re differentiated from our competition is that we are represented with the best technology, the best services across all of the end markets that we service. And this is really just a reflection of our execution against that strategy over all of these years. It wasn’t that, pardon my saying, we pulled the rabbit out of the hat. We actually are able to adapt very quickly to changes in the market. So that’s what this is really a reflection of in our performance for 2025.

Gary Mobley

Thanks. As my follow-up, I wanted to ask about maybe some nuances in your increased visibility and comments regarding that. If I talked to you guys three months ago, I think you were thinking maybe the 2026 year was going to be a little more second half-weighted. Just given the stronger bookings that you’ve seen, the stronger order backlog, as you sit here today, would you say the shape of the year is a little more linear, less dependent on the second half?

Bernie Blegen — Executive Vice President and Chief Financial Officer

I’d say that the first half for enterprise data in particular, but for the company, is more secure. I think there’s still a lot of variables that need to be shaped before we really understand what the second half trajectory is going to look like. But, obviously, the initial signs that we saw from the ordering pattern in Q4 and continuing into this year, have been exceptionally positive. So now we have more of the high-level issue of trying to figure out what’s real demand and what may be some double ordering on the part of our customers as they try to secure capacity. As I said, that’s a high-level issue, and we’ve shown, that we can adapt to that as well as anybody by the performance we gave in late 2020 and early 2021.

Gary Mobley

Thank you.

Michael Hsing — Chairman of the Board, President and Chief Executive Officer

We work with the customers very — especially all these large data center customers very closely. And they will give us very good lead times and forecast. And so we have the capacities ready and we just meet that demand.

Gary Mobley

Thanks, Michael.

Arthur Lee — Finance Manager

Next question is from Tore Svanberg of Stifel. Tore, your line is now open.

Tore Svanberg

Yes. Thank you, and congratulations, Bernie. You’re a class act. And I’m going to miss you tremendously. My first question, Michael, I’m going to zoom in on a market where there’s perhaps less contest, which is storage and especially SSD, power. It seems to be an area that could see quite a bit of upside and growth in data centers this year. So I was hoping you could talk a little bit about the profile of that business. I mean, I think, historically, it’s been more tied to client and edge devices, but again, what’s the company’s position SSD for data center going into 2026?

Michael Hsing — Chairman of the Board, President and Chief Executive Officer

Yeah. These are the power management and then also the signal processes. These are all in the consortium driven by [Indecipherable]. Maybe, Tony, you all are more familiar than I do. And we’re a part of it. And DDR4, we don’t have much business, very little. And DDR5 is — we’re in — DDR4, we’re in a — on the dining table. So I’m not going to tell you. Before DDR4 wasn’t. And so now this business is ramping, I mean, memories and all shifted to DDR5. And we clearly see the volumes now, last year and then this year. And we’re not stopping there. We’re migrating down to where I expanded our product lines to the single site. And these are all in the memory modules.

Tony Balow — Vice President of Finance

Also I think there was a portion of your question as well about the non-DDR5 part of that business, of SSD and HDD. And we actually ended up in that part of the business as well. I think you’re right. It’s been pulled through much more by the enterprise than consumer these days. And that’s why we generally talk about storage being data center-driven inside of the storage and compute segment.

Tore Svanberg

Yeah. That’s what I was trying to get to. And as my follow-up, Michael, congratulations on getting to $4 billion in capacity, but it looks like you’re going to need quite a bit more than that. So perhaps you could give us a little bit sense of what you’re doing on the capacity front, especially the next three years because you’re clearly going to need much more than $4 billion.

Michael Hsing — Chairman of the Board, President and Chief Executive Officer

Yes. We are very aware about that. And as speaking, of course, and I work continuously expanding our capacity. And you know MPS history. The worst thing is shutting customers down. And fortunately, that hasn’t happened in MPS. And now it gets a little more complicated. We established last — from the beginning of the last year, we established our supply management. And this is not only for silicon and not for semiconductors, including silicon carbides and, I mean — and getting nitrites in the materials, and we do a lot of modules and all the module components. And so we established the supply chain management.

So I think it’s — and also quality. It’s not everybody can play that game. Every supplier can play the game. These are — we go through heavy auditing. And so their standards — they meet our standard. Ultimately, it’s a reflection into our margins. And so the short answer is yes. We’re expanding very fast.

Tore Svanberg

Great. Thank you. Congrats again, Bernie.

Bernie Blegen — Executive Vice President and Chief Financial Officer

Thank you.

Operator

Our next question is from Kelsey Chia of Citi Research. Kelsey, your line is now open.

Kelsey Chia

Hey. Hi, Bernie, congratulations on your retirement. Really appreciate the opportunity to work with you over the past year. So I think my first question is with regards to the updated guidance for enterprise data. Is there any market share gains assumption there, or is it just primarily due to this industry growth? And, also, MPS has demonstrated strong execution and historically gained share during periods of supply constraints. So is it fair to assume that MPS could navigate any potential supply constraints and see — and to take share in this environment?

Bernie Blegen — Executive Vice President and Chief Financial Officer

Sure. And I think that, I’d be doing a disservice to this conversation if I tried to break it down into a formula that says what share gains or what’s new business. And I’d rather sort of respond a little differently that this is a large market. We talk about the large — the top six, seven customers and we’re fully engaged with them in a strategic manner, where we’re developing not just the release of the next generation, but the one beyond that. But this also is an end market with a long tail. And we’re participating in the mid-market and the small size as well. So we’re still very, very early in how this market’s going to roll out and what our positioning is going to be. And I think that, we’re as well positioned as anybody to take advantage of the market opportunity but this is a long and very big story.

Kelsey Chia

Got it.

Michael Hsing — Chairman of the Board, President and Chief Executive Officer

Yeah. For the companies, I’m thinking about beyond AI, beyond enterprise data centers, And I’m not retired. I’m thinking 10, 15 years ahead.

Kelsey Chia

That’s great. Can continue the outperformance. And MPS outlined a gross margin target of 55% to 60%. Could you provide an update with regards to which end markets are currently above or below that corporate average or outline some of the specific gross margin drivers…

Michael Hsing — Chairman of the Board, President and Chief Executive Officer

Yeah, yeah, yeah. We’re in the range, but on the low side, I noticed that.

Bernie Blegen — Executive Vice President and Chief Financial Officer

Let me add a little bit of color there. So Michael said this earlier. When we look at all of the opportunities, we keep in mind what is the corporate model for gross margin, which is between 55% and 60%. And I’ve been fairly consistent over the course of the last four to six quarters when we’ve been trending at between 55.5% and 55.8%, which, as Michael said, is the low end of our model, that in order for us to show improvement, we really need to have a little longer time horizon as far as backlog to be able to managing it. So we are starting to see a backlog developing, which I don’t want to make too much out of with just one quarter’s experience. But we should be able to resume, at some time during the year, the cadence that we’ve historically shown of incremental sequential improvements of maybe 10 to 20 basis points quarter-over-quarter.

Kelsey Chia

Sounds good. Thank you. Thanks, Bernie.

Arthur Lee — Finance Manager

Next question is from Jack Egan of Charter Research. Jack, your line is now open.

Jack Egan

Great. Thanks for taking the questions. I’ll echo the congratulations for Bernie and Rob. I had a bit of a technical one. So during last year’s Investor Day, you mentioned a packaging innovation that would allow you to basically double the current density of your modules to about 3 amps per millimeter squared. And I was just curious, are there any updates on that? Like, is that still a work in progress, or is there kind of a time line for that milestone?

Michael Hsing — Chairman of the Board, President and Chief Executive Officer

We start to sampling those products, and we expect to have a shipping in this quarter and next quarter — this quarter. Yeah. Those are already implemented — they’re already qualified. And our customers went through a qualification on it.

Jack Egan

Got it. Okay. Great to hear. And then kind of from a higher level then, last quarter, you talked a bit about the gross margin implications of moving from a silicon supplier to a system provider over the long term. I was a bit curious about the impact on opex as well. I mean, is that going to require you to kind of bring on new teams with experience in systems, or is there enough overlap between the chip design and system design processes that you could accomplish it organically, I guess? So just any details on the impact to R&D dollars or SG&A leverage would be nice.

Michael Hsing — Chairman of the Board, President and Chief Executive Officer

Well, we need to — first thing, we only gain, not lose. I never believed big dollars investments, and it translates to the bigger game. That’s bullshit. And so, look at MPS, we’re creating a few thousand — 4,000 to 5,000 product, and I lost tracking. We address the multiple second mover market. Why we cannot pull up all these one plus one equals three? Not just two anymore. We can pull all these products, put in the systems, and we can provide higher values to end users, which doesn’t mean we’re building a refrigerator, we’re building TVs. We’re building some things to alleviate our customers’ design effort, manufacturing effort, and that give us a high ASP.

And I said earlier that we’re sick and tired of selling silicons but why we can’t just put all the silicon together and migrate to system levels like modules — and like a system. You will see more and more. So at least I can say the net margins — net profit have to increase. And then be a company that’s going to be a lot more efficient.

Bernie Blegen — Executive Vice President and Chief Financial Officer

I want to touch on something that this transformation has been occurring now for well over 10 years. If you think about, we were pretty much completely an analog design house 10, 12 years ago, and then we’ve been able to migrate we added both digital engineers and software engineers. And now we’ve had to take on new responsibilities and new skill sets related to packaging, and as Michael said, in testing. And each time we’ve done this, we’ve maintained the same level of R&D efficiency of getting the most out of the dollars spent. So just changing to develop new skill sets around the new opportunities we’ve identified does not necessarily mean that it’s going to get more expansive or it’s going to compress our operating margins.

Tony Balow — Vice President of Finance

And I just have one last comment. Even we made the model during Investor Day, Jack, that was fully aware of this transition. And so we talked about growing opex slower than revenue giving some leverage to the model. We knew this transition was happening when we put that guidance out there.

Jack Egan

Okay. Thank you all for all the color.

Arthur Lee — Finance Manager

Our last question is from Sebastien Naji of William Blair. Sebastien, your line is now open.

Sebastien Naji

Yeah. Good afternoon, and thanks for taking the questions. I’ll just echo the best wishes for you, Bernie, in your retirement. My first question is really on the shift to a vertical power solutions in the data center. As we move through 2026, what are your expectations for adoption of vertical power? And has that changed at all from your view in previous quarters?

Michael Hsing — Chairman of the Board, President and Chief Executive Officer

Vertical power? Oh, that’s a long — that’s a — everybody is going to a vertical power. Or those who don’t, sooner or later, they will.

Bernie Blegen — Executive Vice President and Chief Financial Officer

This is just where the direction of the market. It’s the only energy-efficient solution you can put in place if you’re going to operate in these high voltage…

Michael Hsing — Chairman of the Board, President and Chief Executive Officer

High current.

Bernie Blegen — Executive Vice President and Chief Financial Officer

High current. So that’s just a natural evolution of the marketplace.

Sebastien Naji

Got it. So would — do you think that starts to drive revenue in 2026 then? Is that fair to say?

Michael Hsing — Chairman of the Board, President and Chief Executive Officer

Yeah. Yeah. Yeah.

Sebastien Naji

Yeah. Okay. Great. Great. That’s helpful. And then maybe just as a follow-up on your optical module business. I think you talked about this a little bit in a previous question. But as we think about this shift to co-packaged optics that’s getting a lot more attention these days, how does that potentially change your revenue opportunity in optics? Is it more revenue per port or the ASP is significantly higher? Any thoughts on that?

Michael Hsing — Chairman of the Board, President and Chief Executive Officer

Higher current, higher density is always good for us. And we’re smiling, they increased power. And there’s a lot more opportunity for us.

Bernie Blegen — Executive Vice President and Chief Financial Officer

And a higher level of integration.

Michael Hsing — Chairman of the Board, President and Chief Executive Officer

Yeah. High level integrations and widen the competition gap.

Tony Balow — Vice President of Finance

Yeah. I think the only thing I’d add there is, again, I think that’s again, for a long term, I don’t think that necessarily moves the needle on 26. Just to be sure, but it’s certainly something we’re engaged in over the longer term.

Sebastien Naji

Okay. Got it. Makes sense. Thank you.

Operator

This concludes our Q&A session. I would now like to turn the webinar back over to Tony.

Tony Balow — Vice President of Finance

I’d like to thank all of you for joining us today on this conference call. Our first quarter 2026 conference call will likely be held in late April. Thank you, and have a great day.