Businessmodel of Power Integrations

Customer Segments

Power Integrations’s products are designed to function as components within designs realised by original equipment manufacturers and merchant power-supply manufacturers. The majority of the Company’s sales, however, are made to distributors.

Power Integrations organizes its sales into the end-market categories:

• communications, relating to manufacturers of mobile-phone chargers, routers, cordless phones, broadband modems, and other network and telecommunications apparatus;
• computer, relating to manufacturers of desktop computers, LCD monitors, servers, LCD projectors, and adapters for notebook computers;
• consumer, relating to manufacturers of home appliances, air conditioners, televisions and set-top boxes, digital cameras, and video-game consoles; and
• industrial, relating to manufacturers of LED lighting, industrial controls, motor controls, power supplies, tools, renewable energy systems, and high-voltage DC transmission systems. Power Integrations’s ten largest customers, including distributors, accounted for 60% of the Company’s net revenues in 2015 and 59% of net revenues in both 2014 and 2013. In each of the past three years two customers have accounted individually for 10% or more of the Company’s net revenue: Avnet and Powertech Distribution Ltd

Geographically, sales to customers outside of the US have accounted for more than 90% of Power Integrations’s revenue in 2015, with sales to Asia accounting for around 80% of sales.

Value Propositions

Power Integrations provides value to its customers through the quality of its products, its respected brand name and its commitment to innovation. The Company’s products are also easily accessible across the world through its network of authorised distributors.

Channels

Power Integrations employs a hybrid sales model, operating its own direct sales organisation in conjunction with its network of authorised distributors and independent sales representatives.

Power Integrations operates sales offices in the US, Switzerland, UK, Germany, Italy, India, China, Japan, South Korea, the Philippines, Singapore and Taiwan. It does not operate its own online sales channel. Direct sales account for around 25% of the Company’s annual net revenue.

In each of the last three years, distributors have accounted for around 75% of Power Integrations’s net product revenue from end-market sales. The Company’s distributors are not subject to minimum purchase requirements, and sales representatives and distributors are able to discontinue marketing Power Integrations products at any time.

Customer Relationships

Customers are not able to make purchases from Power Integrations on a self-service basis. They are, however, able to contact one of the Company’s many international sales offices and discuss requirements and pricing directly, receiving a more personalised service that covers their own individual needs. The majority of sales are made through authorised Power Integrations distributors. These distributors are knowledgeable on the Company’s products and are equally able to provide a degree of personal care.

After sale, customers are able to contact Power Integrations directly over the phone, via email or through an online contact form, receiving individual attention for any queries, difficulties or technical problems.

Power Integrations also maintains contact with its customers through its self-hosted news and media portal, as well as through its Facebook, YouTube, Twitter, Google+, LinkedIn, Wechat and Sina Weibo accounts.

Key Activities

Power Integrations designs, develops and markets analog and mixed-signal integrated circuits, as well as other electronic components and circuitry used in high-voltage power conversion, for use by original equipment manufacturers.

The Company’s products are principally used in power converters that convert electricity from a high-voltage source. Its product portfolio includes alternating current-direct current power conversion ranges named TinySwitch, LinkSwitch and Hiper. It also produces and markets its insulated-gate bipolar transistor drivers, SCALE and SCALE-2.

The Company’s power supplies are used with electronic products, notably smart phones, computers, electronic utility meters, industrial controls and light emitting diodes lights.

Key Partners

Power Integrations partners with a range of companies during the production, marketing and sale of its products. The Company primarily collaborates with manufacturing partners – which assist the Company in the production process by providing tools, resources and facilities – and marketing and distribution partners, which help the Company to effectively sell its products.

Power Integrations has partnered with Seiko Epson Corporation, using its wafer-fabrication facilities in Japan to produce power conversion integrated circuits, and has produced a joint reference design describing a 20-Watt, USB-PD compliant alternating current-direct current power converter with Cypress Semiconductor.

Power Integrations has a number of marketing and distribution partners. The Company recently entered into a franchise agreement with WPG Americas to distribute its full line of high-performance integrated circuits and diodes.

Key Resources

Power Integrations’s key resources are its technology and intellectual properties, its supply chain and manufacturing facilities, its partnerships, its personnel – notably its research and development staff, and its sales and distribution networks.

As of December 31st 2015, Power Integrations held 814 US patents and had received foreign patent protection on these patents resulting in 462 foreign patents. The Company also held trademarks in the US, Taiwan, Korea, Hong Kong, China, Europe and Japan. Among the Company’s US patents are applications for ‘Delta-sigma modulator with high input impedance’, ‘High quality GaN high-voltage HFETs on silicon’ and ‘Low threshold voltage comparator’.

Cost Structure

Power Integrations incurs cost in relation to its research and development activities, the manufacturing of its products – including supply chain management, the distribution and sale of its products, and the retention of its personnel.

Revenue Streams

Power Integrations generates revenue through the sale of analog and mixed-signal integrated circuits and other electronic components. The Company’s net annual revenue was recorded as $344.0 million in 2015, down from the $348.8 million generated in 2014. The Company attributed this decrease in revenue to lower unit sales into the computer and industrial end markets, reflecting reduced demand for power supplies for desktop computers and a broad slowdown in demand from the industrial sector.