MPWR Monolithic Power Systems, Inc.
$1,198.81
Monolithic Power Systems, Inc. Q3 F2026 Earnings Call Transcript
AI Conference Call Analysis
Sign in or subscribe to read.Operator
Conference Call Operator
Good day and thank you for standing by. Welcome to the Monolithic Power Systems third quarter 2026 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Arthur Lee. Please go ahead.
Arthur Lee
Investor Relations
Earlier today, MBS released a written commentary on the results of its operations for the third quarter ended September 30th, 2026. This document 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 risk and uncertainties. The risk, uncertainties, and other factors that could cause actual results to differ from these four looking statements are identified in the safe harbor statements contained in the Q3 2026 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 call over to Tony.
Tony Balow
Chief Financial Officer
Thanks, Arthur. Good afternoon, and for us, good morning from Shanghai, and welcome to our Q3 2026 earnings call. In Q3, NPS achieved another significant milestone, exceeding $1 billion in quarterly revenue for the first time. Q3 revenue of $1.2 billion was 22% higher than the second quarter of 2026 and 63% higher than the third quarter of 2025. During the quarter, our capacity surpassed $6 billion in annual revenue support. We expect to have $8 billion of capacity in place by the second half of 2027 on our way to $10 billion in support of our rapidly expanding business. In our enterprise data and market, we saw strong demand across existing customers, which we expect to continue into 2027. In addition, using our in-house developed AI design tools, we significantly expanded our customer base in traditional areas, as well as landing new wins in applications such as desktop AI designs. Beyond our strong enterprise data growth in automotive, we received first orders for our 48-volt power solutions, and expect design wins for 48-volt and zonal architectures to be a driver of growth in 2027. We started ramping robotic solutions with sensor and motor control products across multiple geographies. We continue to increase our SAM with the ramp of our high-speed memory products. We landed our first large data converter design win, which we expect to ramp next year, and we continued to build out our high voltage portfolio and began sampling GAN-based solutions for use in 800-volt data center architectures, complementing our existing silicon carbide-based designs. And finally, in Q3, we repurchased over $450 million of our own stock. Overall, we see accelerated growth. Our diversified growth strategy is paying off. Operator, you may now open the webinar for questions.
Operator
Conference Call Operator
As a reminder, to ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. In the interest of time, we ask that you please limit yourself to one question and one follow-up. Please stand by while we compile the Q&A roster. Our first question comes from Tori Sponberg with Stiefel. Your line is now open.
Tore Svanberg
Analyst, Stifel
Yes, thank you, Michael and Tony. Congratulations on that billion-dollar milestone. And to you, Tony, congratulations on your CFO appointment. I guess for my first question, you talked about accelerated growth. I was hoping you could maybe elaborate a little bit on that. I mean, I'm sure you're not going to give us kind of 27 guidance, but you are on track to growing 50, 60% this year. And especially in light of your $8 billion capacity and then $10 billion, when do we potentially see $10 billion capacity in place? Thank you.
Michael Hsing
Chief Executive Officer
Yeah. Thanks, Tony. As Tony mentioned in the
Michael Hsing
Chief Executive Officer
There's only a few items that we see beyond that.
Michael Hsing
Chief Executive Officer
And I see this explosive growth period in the next few years. And even this year, you see the first nine months. And we don't see any signs of slowdown.
Tony Balow
Chief Financial Officer
Yeah, the other thing I'd add is I think as we've come into the second half, we've started to see growth across multiple of our end markets, including like auto, which the ramp started here in Q3, and we've talked about continuing here through the second half. And then as we start to see applications like robotics begin to ramp, we'd expect that then to continue into the future. So I think it's not just the existing businesses, it's adding on the additional growth areas over time, which is really giving us confidence going forward.
Tore Svanberg
Analyst, Stifel
Very good. And as my follow-up, you mentioned the 800-volt GAN product sampling. Now that you are sampling GAN, could you maybe elaborate a little bit more, help us understand a little bit more the positioning there? Is this a vertical GAN? Is it a horizontal GAN? Is it your own process? Any more quality you could help us there? And when do you expect to start to see some 800-volt GAN revenue? Thank you.
Michael Hsing
Chief Executive Officer
Yeah, it is based on NTS own development, which is later then we developed the silicon carbide device.
Michael Hsing
Chief Executive Officer
And we start to assembly this type of a solution. We let our customer choose.
Michael Hsing
Chief Executive Officer
either using GAN. The GAN is a new technology for everyone. And for everyone adapted in the data centers and industrial automotive type of applications. These are the first times. And we are always very cautious about the reliability. We want to achieve below 1 ppm failures. and for these modules and we let our customers choose, okay, game or silicon carbide. Silicon carbide is known, okay, we know the data and so we're not, that's a very high reliability product and games, we have to shift Somewhere it's 50 million units before we can say this is a new one. But we let our customers choose.
Tony Balow
Chief Financial Officer
Yeah, I'll just add on. I think all of the experience, I'm just going to add a few things there. The experience we've already gained in data center, I think, puts us in a really good position to do what Michael's talking about in terms of making sure we can meet all the standards the customer requires. You asked a question on the timing of it. I think right now we're still, we've always kind of been late in 27 for I think kind of the 800 volt kind of architecture ramps with probably more in 28. I don't think our thinking on that has changed. We're just obviously getting ahead of that design work now.
Michael Hsing
Chief Executive Officer
Yeah, even for our customers, they use both.
Michael Hsing
Chief Executive Officer
They don't want to have a failure either. They use both solutions. Makes a lot of sense. Congrats again. Thank you.
Operator
Conference Call Operator
Thank you. Our next question comes from Rick Schaefer with Oppenheimer & Co. Your line is open.
Rick Schafer
Analyst, Oppenheimer & Co.
Rick Schaefer Thanks, and congratulations, you guys, and congratulations, Tony, on the appointment. If I could ask a question on storage and compute for my first one, you know, I was hoping maybe you could level set us on some of the moving parts in there. How does that segment split now if you look at SSD, HDD, DDR5, PNIC, you know, versus the PC, you know, the V-Core PowerPiece? Because I know, you know, we all see PC units tracking down about 20% here in the second half. So I'm just curious, you know, is that kind of what you guys are seeing on the PC side of that segment? And then, you know, how much is the storage piece growing and what's it contributing? Thanks.
Tony Balow
Chief Financial Officer
Yeah, Rick, let me start, and then I'll let Michael come in. I think just kind of mechanically, if you look at it, the big driver of growth in that segment has been the DDR5, primarily on the PMIC solution. As I've said, we're just starting the high-speed journey on the DDR5. We have seen pretty healthy growth over the past year or so on the hard disk drive and SSD, part of that storage business as well, but clearly DDR5 is the biggest portion of that. On Notebook, sort of tactically, yeah, I think we're We've been talking about this and that's what we're seeing as well, right? We're seeing not the same strength on Notebook due to what's happening downstream with some of the memory constraints. But I think if you look forward, I think we're still pretty bullish on Notebook in the long term because we have really good technology and good share. And then I think there's applications around AI that will continue to build out over time at the edge of which Notebook will play a part. So I think what you're seeing in the short term around Notebook tracks with what you're seeing, Rick, but I think long term, I think we're still pretty high on what Notebook could be for the company.
Michael Hsing
Chief Executive Officer
For that segment, we have a new product, like a clock, the drivers, and RCD.
Michael Hsing
Chief Executive Officer
These all lined up, other than in addition to our power management product.
Michael Hsing
Chief Executive Officer
These are what we have lined up for revenue 2027 or 2028. And we see even 2028, these products were really ramping up. So that part of 10 is much bigger than power management.
Michael Hsing
Chief Executive Officer
The notebooks, as Tony mentioned, we will see this is a very fast-growing market segment because after the manufacturing capacity opens up, that's the segment along with the desktop.
Tony Balow
Chief Financial Officer
If you sum that up for a little bit, what we've kind of said for kind of the segment overall is with the puts and takes, you know, it could be kind of flattish up a couple of points year over year is kind of how we positioned it, but it's really a tale of two cities as we've talked about with really strong storage and then the TAM just being limited on the notebook side.
Rick Schafer
Analyst, Oppenheimer & Co.
This is your first call with the CFO moniker and I'm curious how you look at OpEx growth going forward. Any meaningful changes to the prior targets that you guys have laid out? At each type of top line growth rates that Tori called out, 50-60% by top line, how fast can you actually scale R&D, etc.? It seems like we're It seems like you guys are set for some pretty material operating leverage to be flowing through the model. Is that the right way to be thinking about it? Any rules of thumb in there?
Michael Hsing
Chief Executive Officer
Let me answer that question. I never believed the big dollars on the program to a bigger result. For our business, it's inversely proportional. to that. We just needed some good ideas, good people that's going to make everything happen. Okay.
Tony Balow
Chief Financial Officer
So, yeah, I think, Rick, you're not going to see us necessarily change our model. What we've seen pragmatically, though, is we start to get to higher levels of growth, that we start to fall below our model range in terms of you just can't spend money that fast. But I completely can I agree with Michael in that it's about the efficiency of the R&D and the people that you get versus just spending more. But in general, I'd say at the growth rates that we've seen, for example, this year, you're going to fall below the bottom from an OpEx perspective.
Michael Hsing
Chief Executive Officer
Got it. Thanks again, and congrats to you guys.
Operator
Conference Call Operator
Thank you. Our next question comes from Quinn Bolton with Needham & Company. Your line is open.
Quinn Bolton
Analyst, Needham & Company
Hey, guys. I'll echo my congratulations, and Tony, congratulations on the new role. I guess I want to start with enterprise data. Last quarter, you gave us a floor of 130 with September results and December guidance. It kind of looks like you're tracking to maybe 150% growth, but wondering, Tony, if you might be able to level set us what a new floor growth for enterprise data might be. And then, you know, I know it's early, but any sort of thoughts on That segment is you look into 2027, what kind of growth rate you might be looking at in a floor case, and then I've got to follow on in the comms business.
Tony Balow
Chief Financial Officer
Sure. Let me start just kind of with the answer to your question, Fred. I think at this point, given what we've seen in Q3 and Q4, we're comfortable raising the floor from, we were at 130% year over year, but to your point, I think we're comfortable with a floor of 150% year over year now going forward. On 2027, I think it's a little early for us to go put a percentage out at this time, but I'll start, and Michael, I'm sure, will follow up on that. Structurally, the growth drivers that we're seeing this year are all intact, right? Whether you see the diversification of customers, the growth in modules, the content gains as new platforms roll out. And I think over time, as you start to see even stronger growth in CPU, potentially driven by the agentic AI workloads, that's going to be even a further tailwind out in time. Well, a little early to call next year. I feel really good about the growth drivers.
Michael Hsing
Chief Executive Officer
Well, I see even in the next years and beyond next years. And I'm very excited to see that we built our own data centers. And as Tony mentioned earlier, the result is a tremendous improvement. And so this is not in the data centers. And NPS is on servers. all these servers, we believe, I believe, it will change. It changes to again a type of a server. The hardware will change.
Michael Hsing
Chief Executive Officer
And they will trickle down to the desktops and even the notebook I said earlier. And that, this type of growth, it will trickle down in the next year and the year after.
Michael Hsing
Chief Executive Officer
We really see those trends, these design activities, so really happening.
Michael Hsing
Chief Executive Officer
And so this is not only this year, not only the data sets, okay, it will trigger down to all other areas.
Tony Balow
Chief Financial Officer
Do you have a follow-up on comms?
Quinn Bolton
Analyst, Needham & Company
Yeah, it's obviously a congrats on the nice growth. I think it was 43% sequentially. Really looks like it was a breakout quarter in September. Wondering if that was primarily driven by optical modules or are you seeing, you know, a broader set of contributors to that growth and just any thoughts into the December quarter? Does that sort of pace of growth continue into December?
Tony Balow
Chief Financial Officer
It's a great question. And to take us back here, obviously coming into the year, we obviously had very strong growth in optical modules. And what we added beginning of the year is what we've been calling the switch business. And I know I've talked about this before, but to answer your question, why are you starting to see the accelerated growth in that particular end market is because you are adding both of those growth drivers together. And we saw the effect really in Q3. And I think for the year, we've been positioning it as, I think comms is going to be our second fastest growing end market for sure. Not quite as fast as enterprise data, but certainly we'll be far behind. And just like enterprise data, I think if you go into next year, all of those growth drivers are intact. In optical modules, you see the transition to 1.6. That's not just a volume play, but there's a content play there as well. And then certainly as we continue to build out additional sockets in the switch business, that's going to be a driver of growth as well. I think right now we really like the comms business, not just this year, but going into next year.
Michael Hsing
Chief Executive Officer
So we have an NPS, not a plan, on the macro economy and market segment predictions. I only care what is the design activity and what our customers are excited about it, what we're excited about it. We have all these new technology, new product introductions. and I said earlier, all these segments, we introduced the new product and all the design activities that gave us an indication clearly the growth for even beyond next year.
Michael Hsing
Chief Executive Officer
Thank you, Michael.
Operator
Conference Call Operator
Thank you. Our next question comes from Joshua Buckhalter with TD Cowan. Your line is open.
Tony Balow
Chief Financial Officer
Hey guys, thank you for taking my question. Congrats on the results and echoing the congrats to Tony on the CFO gig. Best of luck.
Joshua Buchalter / Chris Caso
Analysts, TD Cowen / Wolfe Research
I'll stick with policy and ask one on enterprise data and then one on another segment. Maybe, can you comment on the diversity of enterprise data? Like how has that business evolved over the last year or two and looking into 2027?
Tony Balow
Chief Financial Officer
I would just be curious to hear how much you see coming from, you know, GPUs versus ASICs or even any comments you can help us on how much is coming from modules versus discreet at this point and expectations into 27. Thank you.
Michael Hsing
Chief Executive Officer
Mr. Allen. Yeah. Modules was the chip design, chip power supplies, and I've seen some of all of it. Okay. I mean, even for the server sites, okay, we see some of many activities. and I'm going through it using modules because of the high power demand.
Michael Hsing
Chief Executive Officer
That's my comment. Okay. And it's all segments. The real growth percentage .
Michael Hsing
Chief Executive Officer
Okay.
Tony Balow
Chief Financial Officer
Yeah, I think, and that, I think it's an important point around this customer diversity. that starting in the middle of 2025 until now, what we've seen is a really rapid growth in a lot of ASIC customers, which again are primarily using modules over time. And so that benefit is from a revenue diversity perspective as those carry the higher ASP associated with that. I think furthermore, what Michael was talking about in terms of how we've been using AI to create scale allow us to go address even a longer tail of small customers out over time, which may be big customers in the future. And that's really what we try to do go in every socket, not knowing who, and ultimately in the long term, might grow into a sizable customer.
Michael Hsing
Chief Executive Officer
All we clearly see is we have the huge beneficial from these artificial environment, these artificial intelligence, based on these large language models. Of course, NPS are all just internal. And it's benefited us. who have benefited from everybody.
Michael Hsing
Chief Executive Officer
And that's where I'm very optimistic about this, and that our growth trend will continue.
Tony Balow
Chief Financial Officer
Thank you both for the color there. Maybe in the same theme of starting with small sockets that become big opportunities, Any context you can provide on how much revenue contribution we can expect from the initial high-speed data converter design win, and how big is that, Tam, as we think about you growing into this new market? Thank you.
Michael Hsing
Chief Executive Officer
Yeah, this is a, we can't tell, okay, because we have a, we just accounted, okay, these are over conservatively well over 6,000 products, okay? and I will continue to develop your product.
Michael Hsing
Chief Executive Officer
So what we do is we do every segment in our best, far better than or to meet the new market demand. And we are much faster than any of our competitors. As long as we do, these segments do the best, and the revenue will come.
Michael Hsing
Chief Executive Officer
And we just don't know which segment. Seven, eight, nine, probably eight years ago, we look at our product lines, look at the optical market segments. What is the perfect example? We didn't know today it was that high demand. and we got it in there. We serve our customers regardless of large or small.
Michael Hsing
Chief Executive Officer
And that's what happened today. I cannot predict next 10 years, next five years, what will be bigger. And we serve our small customers well.
Tony Balow
Chief Financial Officer
Yeah, I think, and again, you know, To Michael's point, we're not ready to call the long term. We're just beginning that process. So I wouldn't necessarily say it moves the needle here in 2026. And I think as we get into next year, we'll talk more and see how that ramp goes.
Michael Hsing
Chief Executive Officer
Understood. Thank you both.
Operator
Conference Call Operator
Thank you. Our next question comes from Will Stein with Trues Securities. Your line is now open.
Will Stein
Analyst, Truist Securities
Great. Thanks for taking my question. First on data center Vertical Power. I think there's still one meaningful customer doing lateral and I'm wondering if you can comment as to whether you think that converts to vertical in the coming year and whether that wouldn't necessarily require a module from you instead of some other sort of solution.
Michael Hsing
Chief Executive Officer
Certainly, okay, I don't want to speak for our customers, particularly one customer. But I said earlier, and you know what we did in the 2000, we predicted in the 2016, and for the For the server market, NPS solution is so small, and we have to use the adapter to meet the common footprint. And so when for the server market segment, we predicted it. And if you go above 600, 700 watts, and you run out of peripheral, and you have to use a smaller footprint. Several GPUs never get that. Never get to the 600, 700 watts, but the GPU did it. And as GPU power increased, I don't have a Genevieve members. The power goes up.
Michael Hsing
Chief Executive Officer
You run out of peripheral, you have to do vertical. And we said this many years earlier. I still believe that. very logic to me.
Tony Balow
Chief Financial Officer
Yeah, I mean, I'm just going to echo Michael. I think that we won't speak for that. Most of the industry has already moved to modules, right? And that's what we've seen in terms of content gains as well as the volume gains as we've gone through enterprise data. And I think that will be a great question for our customers. Great.
Will Stein
Analyst, Truist Securities
And a different topic. Someone asked about the OPEX leverage. And I guess I understand that for the time being, with the rapid growth, you're going to sort of undershoot on spending, overshoot on margins. What about gross margin? I think, you know, the company's talked for a long time about 10 to 20 bps per quarter gross margin expansion. There was a time when you weren't in that range, and it seems like you are today. And thanks for calling out. Yeah, you saw that, you know, we obviously did increase 10 basis points here in Q3. The midpoint of our guide in Q4 has gotten another 10 basis points.
Tony Balow
Chief Financial Officer
So I think we're kind of squarely in the model. that we like, right? 55% to 60% is the sweet spot for sure. And within that being kind of slow methodical by expansion. I think we're going to continue on that path. Structurally, I feel pretty good about that. We'll see what happens in the future. But remember, what we don't want to do ever is put a bunch of gross margin in one quarter, then take it away the next quarter and move it around a bunch.
Michael Hsing
Chief Executive Officer
And then during the capacity constraint, OK,
Michael Hsing
Chief Executive Officer
We don't gouge our customers. And so we want to deliver to you guys very consistent stories. And I don't want to answer the question when the margin drops. And I want our NPS to keep it same business, same performance, year over year, quarter over quarter, year over year.
Tony Balow
Chief Financial Officer
That's right. So I think the model still holds. I'm very comfortable with that. and I think, you know, you called it out, but I'll highlight it again. I think if you look at the flow through to operating margin, we've been growing operating margin, you know, it's kind of a point or quarter almost. We've been seeing a lot of expansion on the operating margin line recently.
Michael Hsing
Chief Executive Officer
Well, even in banking money business.
Operator / Unidentified Speaker
Conference Call Operator
And that's a lot of work we've been doing.
Michael Hsing
Chief Executive Officer
Thank you. Next question, operator. Next question comes from Chris Casso with Wolf Research.
Operator
Conference Call Operator
Your line is open.
Joshua Buchalter / Chris Caso
Analysts, TD Cowen / Wolfe Research
Yes, good afternoon. Just following from the prior discussion, maybe you could talk about how you're dealing with rising costs. And obviously, costs are going up a lot of different places. There's a lot of talk of foundry wafer prices going higher. So to what extent are you passing that along? And as you go forward, does any of that result in pricing or, you know, any kind of revenue tailwind as you have to absorb some of those costs and pass them along to customers?
Michael Hsing
Chief Executive Officer
We definitely absorb some of the cost increase. And now that we don't increase the price, okay, and we share the cost increase with our customers.
Tony Balow
Chief Financial Officer
Yeah, I think that's right, Chris. And I think if what you're asking is from some of the results, how much of that is from pricing, it's really not a significant contributor to the revenue growth that we've had. We're just making sure that we don't dilute ourselves in the gross margin line.
Michael Hsing
Chief Executive Officer
Yeah. Our customers have a very long memory. Right.
Joshua Buchalter / Chris Caso
Analysts, TD Cowen / Wolfe Research
Okay. Thanks for that. As a follow-up, it's a question on the 800-volt transition. And I know there's a lot of noise out there with regard to the pace of that transition. In terms of MPS, how important is that to you in 27? And I guess maybe the question is, is it really 800 volts of a very material driver of content in the ED segment? or is the majority of that still going to wind up in the existing low power, I'm sorry, low voltage designs?
Michael Hsing
Chief Executive Officer
Yeah, we don't want to add more voices, okay. We don't talk about it until the revenue for sure will come, okay.
Michael Hsing
Chief Executive Officer
I do see the revenue for sure will come.
Michael Hsing
Chief Executive Officer
not this quarter, not next quarter, so okay, probably end of the 27th and the 28th. And it's clearly the DC supplied for high power demand and will be the trend, will be the data centers, okay, all will convert it to that. And the power savings, is, I think, beyond single digit percentage improvement versus the traditional power supply.
Michael Hsing
Chief Executive Officer
I see this even beyond the data center.
Michael Hsing
Chief Executive Officer
And if the data center can improve, let's say, 5%,
Michael Hsing
Chief Executive Officer
Where do you get the 5% money returns? And all the commercial buildings, even residentials, they all can be like this.
Michael Hsing
Chief Executive Officer
In Europe, it would be 800 volts. In the U.S., it would be 400 volts. And diesel would be a significant part of savings across the board. That's what I excited about this opportunity now.
Tony Balow
Chief Financial Officer
Yeah, I mean, I'll even try to just address the question the other way, which is when we talked about how we were excited about growth in enterprise data, it's not because we have a big built-in ramp on 800 volt. It's really around the existing customers, the new customers, transition to modules, all the things that we've been talking about, Chris. So if you're kind of trying to figure out how much of that excitement was just at 800 volts, I really think the business we have today is what we're confident in.
Michael Hsing
Chief Executive Officer
Yeah. NPS now, we're using our own building to do a lot of experiments, using these 800 volts and using these technologies and see what the power saving is.
Michael Hsing
Chief Executive Officer
Thank you. Next question.
Operator
Conference Call Operator
Thank you. Our next question comes from Sebastian Nagy with William Blair. Your line is open.
Sebastian Naji
Analyst, William Blair
Yeah, good afternoon or good morning for you guys. Thanks for taking the questions, and congratulations, Tony, on your appointment. I wanted to maybe just ask my first question. You know, given some of the news around integrated voltage regulators and the acquisition of mPower by analog devices, maybe could you just give us your view on this technology? and whether you see it as a competitive risk in the AI data center or the larger data center?
Michael Hsing
Chief Executive Officer
Yeah, a little common in other companies' activities.
Michael Hsing
Chief Executive Officer
And we have our own solutions. We have our own.
Michael Hsing
Chief Executive Officer
And we can deliver whatever customer wanted. This is not a BS talk. We do have multiple beyond what you guys, beyond the noise levels. And we have those technologies and we can deliver. And the GPU evolves very quickly, the power levels, the architecture, in terms of power delivery.
Michael Hsing
Chief Executive Officer
And we don't talk about those. until we clearly see where the revenue will come.
Sebastian Naji
Analyst, William Blair
Okay, great. That's helpful. We'll look forward to those announcements when those products are ready. Maybe moving to something that's a little bit closer to your heart, Michael, which is the building automation opportunity. I think last quarter you talked about $40 to $50 billion in size. but that the real bottleneck was the software still needed to catch up. Can you maybe just talk a little bit about the progress that's been made here as we get to the end of the year?
Michael Hsing
Chief Executive Officer
Well, good questions. That's my baby project.
Michael Hsing
Chief Executive Officer
And we just have installed in our many square feet building that's that's in China. And we, as I said just a minute ago, we're experimenting our own AC to DC powers. These are for affordable supply and for across the buildings. And that project, this project just started. But in terms of turning to a $50 billion remedy, it will take some time. We don't know how to get there yet, but the goal is very clear. We will get there. There's a lot of software involved in it. On the hardware side, we pretty much have every single component. Our components, our chips, our module technology is far better than Sorry to say, these are the current existing technology.
Michael Hsing
Chief Executive Officer
These are 50-year-old and we will do some significant improvement.
Operator / Unidentified Speaker
Conference Call Operator
Great. Thank you. Thank you. Our next question comes from Kelsey Chia with Citi.
Operator
Conference Call Operator
Your line is open.
Kelsey Chia
Analyst, Citi
Hi. Hi, Michael and Tony. Congrats on the great results again. and Tony, congrats on your well-deserved appointment. So my question is on the switching business. So to what extent is that contributing to the strong communications growth that we saw in the quarter? And how should we think about the ramp as we head into 2027 and if that business is equated to gross margins?
Tony Balow
Chief Financial Officer
Yeah, I'll start on that one. Well, I was not going to start guiding sub-end markets a little bit, but certainly from just a percentage basis, it's been growing very quickly, probably on a percentage basis, the fastest growing sub-end market inside of communications, just because it started from a very low amount at the beginning of the year. As we go forward, again, I still think that optical modules are going to be significant growth drivers for communications into 2027. On the margin side, I think if you look at all of our end markets, plus or minus, they'll all operate around the corporate average because to Michael's point, we have north of 6,000, 7,000 products. And so if you look at the distribution of that, basically what we said is as we grow this, we don't think growing one end market over another will necessarily take us out of our model. And so right now, I would still take MPS as a total, kind of in that 55 to 60 range with sort of a slow methodical expansion when we can provide it versus worrying about whether growth in one end market would take you out of model.
Kelsey Chia
Analyst, Citi
Got it. And my second question is on the industrial and market. I mean, very strong growth this quarter as well. What drove that strong growth this quarter? And if you could talk about the ramp of the robotic solutions and how do you see that ramping in 27?
Michael Hsing
Chief Executive Officer
Robotics, okay. We... We... I tried to enter robotics in 2016.
Michael Hsing
Chief Executive Officer
On the end of the day, we talked about robotics. That's the area we're focused on. We have a product for these sensors and motor controls. And I didn't know what I was talking about. The revenue didn't come. And now it shows up.
Michael Hsing
Chief Executive Officer
And I think it's still at the very beginning.
Michael Hsing
Chief Executive Officer
Once the vision photo recognitions and visual recognitions improve the form using the AI-based vision improvement technology,
Michael Hsing
Chief Executive Officer
These robots, as you know, they will propagate, you know, everyday life. So I see this as the future, and the revenue will be significantly higher than now.
Tony Balow
Chief Financial Officer
I think the only thing I'd add kind of in the overall segment is I think this year we still look at it as just piling up design wins in robotics and other places and really look for more of that in 2027. The growth in the quarter was fairly broad-based, but I think you start to see a lot of these other design wins come to turn into revenue in the future. so I think that you know it kind of consumer and industrial 2026 I think really does still remain mostly about winning all the designs that support future growth.
Kelsey Chia
Analyst, Citi
Got it. Thank you.
Operator
Conference Call Operator
Thank you. Our next question comes from Joe Quattrochi with Wells Fargo. Your line is open.
Joe Quatrochi / Gary Mobley
Analysts, Wells Fargo / StoneX
Yeah thanks for taking the question and my congrats as well Tony. Maybe just so the kind of the final point on the expansion of capacity to 8 billion.
Quinn Bolton
Analyst, Needham & Company
You know, I can appreciate that you can't grow OpEx as fast and you don't need to grow as fast, but how do we think about like maybe some of the investments you have to make on the working capital side or go-to-market side to support that?
Tony Balow
Chief Financial Officer
Yeah, I think one of the nice things about being in a fabulous model, right, is we don't have to Dig a hole and pour concrete into it.
Michael Hsing
Chief Executive Officer
We don't make it. Our brain generates it.
Tony Balow
Chief Financial Officer
That's right. So I don't anticipate at this point seeing a large increase in capital intensity just to go ramp this capacity. So it gives us a lot of flexibility. As a matter of fact, I am personally just amazed at the amount of capacity we've been able to put on just even over the last year. And I think the operations team does a tremendous job. but I don't see it necessarily inflecting the overall OPEX at this point or any kind of change to our capital structure just to put on that extra capacity.
Michael Hsing
Chief Executive Officer
Okay, thanks.
Joe Quatrochi / Gary Mobley
Analysts, Wells Fargo / StoneX
And then maybe as a follow-up, you know, I think Otto's continuing to see some inflection. Can you just talk about the breadth of demand you're seeing there from a geographic or just like, you know, perspective and how we think about like the design pipeline looking into 27?
Michael Hsing
Chief Executive Officer
It's all across the geographics. US side, Europe side, and also in Asia, China. We see, in China particularly, we see a lot of activities. So that's probably what the world drives. And we, as I said earlier, we We can't predict which market segment. And that's our diversified growth strategies. Some years, one segment is good, even with a mature market. And some years, one market segment is good and the other one is not so good. And in the last few years, and the GPU markets happened or the optical market and the revenue happened. So we didn't anticipate it. We just provide the best, highest performance product. Our customers will realize it.
Tony Balow
Chief Financial Officer
Yeah, and the only thing I got to add is I think the reason we've been pretty confident on the ramp in the second half is because it is so diverse amongst customers and regions and not dependent just on one You've seen that same level of customer diversity grow in auto over the past several years, like we've been talking about in enterprise data. And the pipeline is similar, right? It's very geographically diverse and very customer diverse. We were just very excited to start seeing some of the architectural transitions that we've been talking about in sort of 48 and zonal, because those sort of form the next wave of growth for us.
Michael Hsing
Chief Executive Officer
We're not predicting what the market is.
Operator / Unidentified Speaker
Conference Call Operator
Next question. Last question.
Michael Hsing
Chief Executive Officer
Thank you. Our last question comes from Gary Mobley with Stonex.
Operator
Conference Call Operator
Your line is open.
Joe Quatrochi / Gary Mobley
Analysts, Wells Fargo / StoneX
Good morning, gentlemen. Thanks for squeezing in my question. Congrats, Tony, again. I wanted to ask about what you might be signaling in your capacity milestones. You're currently at $6 billion in production capacity, which I assume supports your 2027 outlook. Doesn't take much to get there. Just extrapolating out Q4 revenue guidance. And you're expected to be at $8 billion in capacity exiting fiscal year 27. So should we think about that in terms of the revenue velocity exiting fiscal year 27?
Michael Hsing
Chief Executive Officer
It doesn't take much to get there. Oh, come on. It's not just to move the members. There's a lot of work behind it.
Tony Balow
Chief Financial Officer
So right now, I think what we're trying to strongly signal is that just like we've been doing in the past 20 years, we're making sure that capacity stays ahead of the business. And in a world where there's a lot of narrative around there being tightness, we wanted to be very clear to you and our customers how we're growing capacity to support that business. So I think, again, it's too early to go right in a quarterly revenue ramp for what that means for 2027. But what we wanted to make sure was loud and clear was that we see the demand coming and we're going to make sure capacity is there to deal with it.
Joe Quatrochi / Gary Mobley
Analysts, Wells Fargo / StoneX
Thanks for that. And on inventory, I just wanted to confirm the distribution inventory is still within that normal five to eight week range. And then it looks like your internal inventory is down to 117 days based on a forward revenue guide basis. and that's been trickling down. Are you inventory properly to support sales, I guess is really the question?
Tony Balow
Chief Financial Officer
I think right now we're still on the channel side, certainly on the lean end of our range like we've been for some time now. And internally, I think, you know, we grew dollars on a gross basis, right? But obviously, as the revenues ramp, that's come down from a day's perspective. So I think that our range certainly hasn't changed. and it's something that as we increase our capacity and our wait for starts, you know, we'll make sure that we're positioned for the business, but right now it's not limiting us on the business.
Michael Hsing
Chief Executive Officer
Got it. Thank you all again.
Operator / Unidentified Speaker
Conference Call Operator
Thank you.
Operator
Conference Call Operator
This concludes the question and answer session. I would now like to turn it back to Tony Balow for closing remarks.
Tony Balow
Chief Financial Officer
All right. Thank you, Operator. Thank you all for joining us for this conference call today. I look forward to speaking with you on the next call for the fourth quarter and full year 2026 revenue guidance. Thank you again and have a great day.
Operator
Conference Call Operator
This concludes today's conference call. Thank you for participating. You may now disconnect.