Application-engineer project costs pushed Power Integrations’ research and development bill higher. Selling, general and administrative costs went the other way after restructuring actions taken in the first three months of 2026.
That helps explain the strange shape of the latest three months: revenue rose only 2.7% to $118.9 million, but operating income swung from a $1.3 million loss to $8.9 million. Net income reached $9.8 million, up from $1.4 million a year earlier.
The rebound was therefore less about selling chips at a richer margin than about what happened below gross profit. Gross margin fell from 55.2% to 54.3%, while operating margin rose to 7.5% from negative 1.2%. Power Integrations kept more of each sales dollar after operating expenses, even as it kept slightly less of each dollar before them.
Management gives two reasons for the gross-margin slip: product mix and the dollar/yen exchange rate. The company says sales of lower-margin products increased, sales of higher-margin products decreased, and the currency had a less favorable effect on wafer costs.
"The decrease in gross margin was primarily due to less favorable customer and product mix related to increased sales of lower margin products and decreased sales of higher margin products as well as less favorable impact of the dollar/yen exchange rate on our wafer costs."
Power Integrations, Form 10-Q, Aug. 6, 2026.
That is a useful distinction. Revenue growth did not arrive with broader margin expansion. The reported improvement came alongside a mix headwind and a currency headwind, with the income statement getting help from a smaller SG&A line.
The company disclosed that SG&A fell to $28.1 million from $30.2 million, primarily because of the restructuring actions. R&D rose to $27.2 million from $26.0 million, which Power Integrations attributed to application-engineer work tied to customer product-development projects and higher product-development expenses. The cost reset was selective, not a retreat from engineering.
Cash increased to $70.6 million, and inventory declined 6.3% to $157.8 million. Those balance-sheet moves give the profit rebound some operating context, but they do not settle how much of the margin change will repeat. The company also reported a 4.1-percentage-point decline in free-cash-flow margin on a comparable basis.
The annual record puts the comparison in a broader context. Revenue reached $443.5 million in 2025, up 5.9%, but annual operating margin was just 2.3%, down from 4.3% in 2024. At a reported P/E of 158.0x, the valuation puts more attention on the durability of the earnings line than on a small increase in sales.
That leaves one clean open loop in Power Integrations’ next quarterly report: whether the 7.5% operating margin can be compared with another period in which gross margin was also 54.3%.
Source: Power Integrations, Form 10-Q filed Aug. 6, 2026; three months ended June 30, 2026.