Q1 2020 Earnings Call
This time, all participants are any listen only mode.
Pretty seekers participation there will be a question and answer assertion.
A few questions. During this time simply Prostar why now I'm your telephone keypad.
Do you feel advice that today's conference is being recorded.
Well now turn the conference over two weeks ago junk you may begin.
Thank you good afternoon, everyone and welcome to open Semiconductors conference call to this guy is called 2021st quarter financial results.
I am still young John Investor Relations representative for the company.
With me today are Dr., Mike Chang, our CEO keep on young our CFO and Steven train our executive Vice President.
Call is being recorded and broadcaster life over the web and can be accessed for seven days following the call get a link in the Investor Relations section of the website at Www Dot E.S.M.B. Dot com.
He burn will begin what a review of financial results for the quarter and Michael The Buda business highlights followed by Steven who will provide a detailed segment report.
After that you find a little conclude what guidance for the next quarter and we'll have the question and answer session.
The earnings release was distributed by business five today November 4th 29 team after the close of market.
The release also posted on our company's website.
Our earnings release and this presentation include certain non-GAAP financial measures.
We use non-GAAP measures because we believe we provide useful information about our operating performance that should be considered by investors in conjunction with the GAAP measures that we provide.
Conciliation of these non-GAAP measures to comparable GAAP measures.
Our earnings release.
We remind you that during the course at this conference call will make certain forward looking statements, including discussions of the business outlook and financial protection.
These forward looking statements are based on management's current expectations and involve risks and uncertainties that could cause our actual results to differ materially from such expectations.
For more detailed description of these risks and uncertainties. Please refer to our recent and subsequent filings with the FCC.
We assume no obligations to update information provided in today's call.
Now I'll turn the call over to our CFO . He fun to provide an overview of the first fiscal quarter financial results.
Huh.
Thank you. So we feel good afternoon, everyone and thank you for joining us.
Revenue for the September quarter was $117.8 million up 5.3 person when compared to the part a quarter an up 2.4% from the same quarter last year.
In terms of product mix MOSFET revenue was $100.6 million.
4.3 calls on sequentially.
Now he has done a year over year.
Paul I see revenue was $15.7 million.
14.1.
<unk> said from the party quarter went down 19% from a year ago.
Somebody service revenue was $1.5 million as compared to $1.7 million for the park water.
$3.4 billion for the same quarter last year.
Regarding the segment mix computing represented 39.2, cusano, the total revenue consumer 18.2%.
Power supply and industrial 23.2 consent communications, 18.1% and service 1.3%.
non-GAAP gross margin for the September quarter was.
28.3% as compared to 27.4 person for the par a quarter and 29.7% for the same quarter last year.
The quarter over quarter inquiries in non-GAAP gross margin was mainly driven by didnt improvement of operation efficiency and product mix.
Partially offset by price erosion.
non-GAAP gross margin excluded.
Point $4 million, so share based compensation charge for the September quarter, as compared to <unk> point $4 million for the part quarter.
<unk> point $5 billion for the same quarter last year.
non-GAAP gross margin also excluded $6 million so.
Production ramp up cost related to the tone to enjoy winter for the September quarter.
It was compared to $2.6 million for the par a quarter and $1.1 million for the same quarter last year.
I stood.
JV Companys 12 inch fab started production into law you plenty 19, all fab related costs were moved from GE and they to cost of goods sold for the September quarter.
non-GAAP operating expenses for the September quarter were $25.6 million compared to $22.6 million for the par a quarter and $24.5 billion for the same quarter last year.
Quarter over quarter increase in non-GAAP operating expenses.
It was primarily due to the increase in R&D under nearing the expenses and all one annual merit increases started into new fiscal year.
non-GAAP operating expenses, excluding $1.9 million share based compensation charge.
Compared to $2.1 million for the park water and $2.6 million for the same quarter last year.
Both GAAP and non-GAAP operating expenses included $2.8 million, so digital power controlled or team be expenses for the quarter as compared to $2.3 million for the par colder and $2.7 million for the same quarter last year.
Oh digital power controller team continues to engage with customers in product designs and he is making steady progress toward our product road map.
Income tax expense for the quarter was <unk> point $4 million as compared to income tax benefit so point $6 million for the par a quarter an income tax expense of <unk> point $6 billion for the same quarter last year.
non-GAAP EPS attributable to a west for the quarter was 26 cents per share as compared to 35 says well to par quarter and 36 cents for the same quarter last year.
Historically it was has been generating positive operating cash flow.
However in the September quarter net cash used in operating activities by a west was $4.2 million.
This was largely impacted by two items totaling $15.1 billion.
First $9.2 million, one day delay of receivable payment from one of our major distributors due to the bank shutdown September Thirtyth 2019, because of type one me tuck in Taiwan.
Second.
$5.9 million net into a comedy receivable impact from the JV company.
For the prior quarter. It was generated $15.2 million operating cash flow, an $18.4 million for the September quarter last year.
The JV company generated $1.6 million operating cash flow in the September quarter compared to $6.9 billion that used to in operating activities for the park quarter.
$10.4 million for the same quarter last year.
The $1.6 million operating cash flow was largely attributable to the $5.9 billion intercompany payable to a wes.
No.
$2.7 million interest refund received the from the local go under the joint venture agreement.
This refund the program will continue for the next two years at the same amount each year.
Consolidated you'd be das for the September quarter was $14.3 million compared to $14.2 million for the par a quarter and $15.4 million for the same quarter last year.
EBITDA was attributable to a west for the quarter was.
$13.8 million as compared to $15.1 billion for the par quarter and $16.7 million for the same quarter last year.
Now, let's look at the balance sheet.
We.
Completed the September quarter, with cash and cash equivalence of when I agree and $3.1 billion, including $88 million at Aaos, an a $15.1 million other joint venture.
This compares to $121.9 million idea and over last quarter, which included $180.7 million I'd Wes.
$21.2 million at the JV company.
Our cash balance a year ago was $113.2 million, including $81.2 million at a Wes and $32 million said the JV company.
[noise] bank borrowing by this idea in the September quarter was one Andre and $36.4 million, including $41 million at a less a $95.4 million I'd the JV company.
In the September quarter.
Yes borrowed $2 million from a new line and paid back 2.1 dollars so the existing loans.
The JV company borrowed point $8 million from a new working capital line unpaid back $1.7 billion, so the existing loans.
That trade receivables were $39.3 million as compared to $24.3 million I do.
And over last quarter, and $37.1 million well the same quarter last year.
Day sales outstanding for the quarter was 25 days compared to 24 days in the prior quarter.
Net inventory was 100, an $18.6 million at quarter end up from $111.6 million, a last quarter and from $98 million in the prior year.
Average days in inventory came down to.
114 days for the quarter as compared to 117 days in the prior quarter.
That property plant and equipment was $480.3 million.
As compared to $409.7 million, a last quarter and $368.5 million last year.
Capital expenditures were $14.4 million for the quarter, including $8.3 million ideal Wes and $6.1 million had the JV company.
Before I turn to call over to Mike I would like to share the progress at our JV company.
During the September quarter Assembly and test production continued to ramp up and the 12 inch fab start is small mass production in July 2019.
We expect to continue to ramp up phase one of the 12 into fab.
Oh accordance with all we'll plan to approach to targeted run rate by the September quarter over cut into your 2020.
Without no I would like to turn the call overflow.
Dr., Mike Chang, who will provide the business highlights for the border.
Mike.
Thank you you fun.
Good afternoon.
We are pretty east, we saw performance and the financial results in the September quarter.
The U.S. achieved at record quarterly revenue of $117.8 million.
Mark in the <unk> [noise].
Consecutive quarter of you over your revenue growth.
The strong topline performance was driven impart by the additional supply contribution from the taught me Fab Act the JV company.
Gross margin kept being higher than the midpoint of all guidance, which was more than enough to offset the investment in R&D.
And that did ever to healthy earnings for the quarter.
One of the major growth drivers fourth is mobile applications, such as smartphone battery protection and a quick Chargers.
I would take a few minutes to share with you took a site can progress.
We have seen in these business.
It always starts with strategy.
That's a relatively young company, we identified applications that give but.
They have star with our core technology, that's where as the body to scale.
Once we might we expect all footprints.
With more that that mission audience initiatives, including share again content increase and the customer expansion to become bear market.
Peter.
We then you see success as a springboard to leap.
During the next market and the replicating the success.
We have demonstrated our ability to ask you to these strategy.
In the computing market, where we grew from zero to about 200 meeting you and your revenue.
We plan to do the same into more bio marker, where this Robert I bet, a bull market opportunity, it's more than doubled that off the computing.
Okay.
We have successfully landed at each of the seven larger scale smartphone Oems worldwide worldwide.
It's one of their key suppliers.
A more by business combined the battery protection and a quick charger products.
It's growing significantly.
In the September quarter, we bought it more about business revenue from the second quarter last year.
No doubt, we are aligned with top tier global brand Oems and Oh D N.
We will continue to keenly focused on expanding our presence.
Good morning, fourth generation smartphone models and the peripheral devices.
As a case in point last year, we initially penetrating into a group for Brent or yen, we see why your model as a new suppliers.
This year, we won new models on top over the last year's model and to further penetrate into separate or at adjusting sockets.
We plan to grow all share by adding additional R&D as a business you up you automotive for global Oems and Oh D N.
But you every company is expect to play a vital role as a reliable and just scannable supply Chen for many years to calm.
In the meantime to support a current demand for our more by products.
The years models, we are diligently working to make room added the Oregon fab by transferring production, although some of our product.
Through the JV company [noise].
Typically <unk> pressprich typically texts approximate 36 to nine months that depending upon the complexity of applications as well as to the number off Oems and OTM involved.
Generally speaking.
That's pretty products for opera occasions, with short cycle, such as the P. She is relatively faster with us it was a simpler requalification process.
We have already started the requalification process for some computing products.
And I'm, making steady progress.
Given that the Marquees last talked last night.
And the macro environment is uncertain.
The reap qualification process, just the returning to a normalize the pace rather than the accelerated pace, we experienced last year.
Nonetheless, we expect these transfer activity to steal helpless.
Dr seasonality with slight growth in the December quarter, following a record high September quarter.
The productive manufactured it had a JV company already in customers a hand hands full qualification.
And the design momentum for these products disputing.
We are confident in all our ability to reach the phase one call good run rate.
By the September quarter next year.
As we discussed on our last earnings call.
Yeah decision to the mobile business. We're also encouraged by healthy men across our product lines.
As a computer industry expense to include artificial intelligence big data and the internet of things.
All customers increasingly value all high fishing and a high performance products.
Especially for vehicle and the system power.
Oh, I GBT, Saudi which is also contribute also continue to establish strong footing.
That brought pays off home appliance customers.
We also see solid demand for our products for AC DC power supplies.
Notably the Oregon Fab has been running.
That's the full capacity.
Some product fewer there are still allocation.
Despite.
My core had williamson and growing market uncertainty, we are generating positive result by executing our.
Prudent business strategy.
Out of our diversified products are well positioned with strategic Payors.
He multiple key market segments.
We are committed to even better serving those customers. So we're increasingly sophisticated and the total solution and the every diebold supply chain.
We are encouraged.
And this growth opportunities ahead of us, which give us confidence in achieving our.
Got it and are you talking 21 talking off $600 million off and your revenue.
Was it started start in the fourth quarter, we will continue to execute on our growth strategy and the Buda strong momentum.
Our business in fiscal year, two is on 20 and the onward.
No I would tend to call over to Steven for detail to segment reported Steven.
Thank you Mike and good afternoon, let me start with computing it represented 39.2% of our total revenue in the September quarter.
Revenue was down 6.1% sequentially and down 8.3% year over year.
As planned it will be served our computing customers in the peak season utilizing channel inventories on hand.
Computing Sellthrough grew by double digits sequentially to reach a record high.
Our V core business is strong and we see some early adopters of the system power products built out the touching JV.
While the CP you supply constraint is easing it is expected to remain challenging in the December quarter.
Based on data, we are estimating conservatively a modest increase for the December quarter.
Now, let's discuss the consumer segment, which represented 18.2% of total revenue in the September quarter.
Revenue increased 2.5% sequentially and was up 0.6% year over year.
The sequential growth was driven mainly by IGBT products in home appliances in China and Korea.
We continue to grow our business in refrigerators and air conditioning systems as our IGBT products provide our customers with the performance and reliability demanded by these applications.
We're on track to achieve another 40% growth with our IGBT product line, the discounted or year, the second year in a row at that level.
Going into the low season, although home appliances will grow slightly it is not expected to be sufficient to offset seasonal decline in Tvs.
We expect a double digit decline in the consumer segment for the December quarter.
Now, let's turn to the power supply and industrial segment.
This segment accounted for 23.2% of total revenue up 19.1% sequentially.
And up 25.4% year over year.
Our quick charger momentum a celebrated during the September quarter, we again achieved double digit growth from the strong June quarter, because of our strategic position as global smartphone Oems in their peak season.
We also saw a rebound in our AC DC power supply business during the September quarter.
Looking into the December quarter, the quick charger business will slow as we exit the smartphone season.
However, we expect to maintain overall segment revenue at the September quarter level due to growth from other applications.
Finally, let's discuss the communications segment, which was 18.1% of revenue in the quarter.
Up 24.6% sequentially and up 19.2% year over year.
Rising demand for our battery protection products resulted in substantial growth in this segment in the peak smartphone season.
Our products are based on our leading low voltage MOSFET technology, which enables higher efficiency and cooler operation during battery charging and discharging.
We saw some softness in the Fiveg telecom business during the September quarter in the midst of trade tensions.
Looking to the December quarter, we expect the battery protection business to decline slightly.
This will be offset by some recovery of our Fiveg telecom business. Therefore, we expect to maintain this segment's revenue in the December quarter.
With that I will now turn the call over to you find for the guidance.
As we look forward to the second quarter of fiscal year 2020, we expect revenue to be between $117 billion, an $121 million.
GAAP gross margin to be 22.3 person plus or minus 1% non-GAAP gross margin is expected to be 27.3 person plus or minus 1%.
Noted.
non-GAAP gross margin exclusive point $4 million of estimated share based compensation and $5.8 million of estimated production run public costs relating to the JV company.
GAAP operating expenses to be in the range of $27.4 million plus or minus $1 million.
non-GAAP operating expenses are expected to be in the range of $25.4 million plus or minus $1 million.
Both GAAP and non-GAAP operating expenses include $3.1 million to $3.3 million of estimated expenses.
Relating to the development all fall with digital power controller business.
non-GAAP operating expenses exclude an estimate as share based compensation charge of approximately $2 million.
Tax expense to be approximately.
$25 million $2.7 million.
Loss attributable to non controlling interest to be around $3.6 million.
The non-GAAP basis.
Excluding estimated.
Production ramp up costs relating to the JV company.
This item is expected to be approximately <unk> point $9 million.
As part of our normal practice, we're not assuming any obligations to update this inflammation.
That will open up the floor for questioning.
Operator.
As a reminder to ask a question you want me to press Star one on your telephone keypad.
Try a question I see junkie.
Please standby, while we compile the <unk> day roster.
And our first question comes from me, David Williams with loop capital.
Hey, Thanks, and I think for allow me to ask a question and congrats on the quarter in that progress being made.
First that from a from a design win perspective, just kind of getting a.
Friday gauge the customer level and interest what are you seeing in terms of design activity and in terms of projects kicking off are you seeing any delays there or maybe some acceleration.
I know in the past you're talking about some delays and push outs of certain projects are you still thing that or are you seeing customers, maybe a little more I'm willing to go into stepped in and get these projects off.
Sure. This is Stephen I had a good question. So our design win on as a guide is very healthy right now it's a it's in the we probably no more seasonal patterns and several of our no about peak such segments, our computing and smartphone related and those tend to be heavy peaking in the Q3 timeframe.
And so our design wins are on are going well in terms of trucking into those on new projects going into next year or so we're happy with a with a promise that we see there.
Okay, great. Thanks.
And then secondly in terms of the demand trend and what you're saying in terms of channel inventory or distributor inventory.
Gets more broad based you're looking across all geographies and all in market are you seeing that demand level or excuse me the inventory levels have come down or they lean are they still a little heavy and what do you expect in terms of.
Possible replenishment of the supply chain.
Sure David a this is you fun right now I would tend to your inventory remains healthy level right now it is the.
Toward in a low end of our targeted range over two to three month, so right now and we don't see much generally inventory stuffing.
At this point.
Okay do you expect to say 50, some replacement or yet level that you would expect to see some pull in from that as we head into December and maybe a.
First calendar quarter.
Well as we.
Stated that you know what are prepared remarks.
Different sectors, and we may see different than I'm, a little bit different.
Scenarios. There overall you know we've seen you know we all would productions is catching up and you know the in the.
You know us.
So that it can allow us to bucked the seasonality that I mean does the overall picture over there so in terms of <unk> segment and.
In the computing area, and we would expect and some strong segment or sell you and over there.
Okay.
And then just kind of thinking about and you can you talk a little bit about this earlier.
But can you talk a little bit about that he's on isn't that the I guess, they additional sockets that you're picking up in the share gains you're making at some of the major Oems and what's your expectation is there I know, there's some periphery type sockets that we've talked about in the past, but what kind of headway remaking in terms of if we think about the next generation do you think that yard.
Picked up share.
What is the opportunity I guess to move into us first or maybe the second source position that those are handset Oems, where you maybe of serving Libya third source division.
Sure I'll take that question so in our smartphone in business and this to me and applications. We get into one is the the battery protection and the second is a quick charger, which has us sold a in the box with many of these handsets. So right now our position is growing stronger we are as Mike mentioned in.
Each of those are the seven leading smartphone makers and somebody in a relatively newer summer had been long longer term customers have a less so we'll continue to layer on top of our of our business.
With with as additional models continue tool to rollout on the same as seen in goes also with our quick charger business.
Okay, Great and then one last one for me if you don't mind I'm, just kind of thing about the margin profile.
Jamie comes online and I understand the benefits and cost saving for the 12 in SAP will take some time to really work.
Given the yield fishing season in the likes but given the size the revenue potential what could the incremental margin contribution looked like what's that five fabrics its stride.
Sure David.
Right now you know that would you expect in the weeks and ramp up to the targeted run rate and Oh phase 112 inch fab.
In the September quarter next year timeframe. So by that time that were currently estimating Oh and 12 inch.
Wafer cost the on the per day basis will be on par with all with a current eight inch wafer.
This is the only faced one I mean, so right now is a the for the additional phase I would you expect to some cost benefit generating from there.
Great. Thanks, much enough this quarter.
Thank you. Thank you. Thank you.
And your next question comes from Craig Ellis with B. Riley.
Yeah. Thanks for taking the question and congratulations on your post personal quarter of 300 millimeter.
How about put upon I'll start with some clarifications for you. So first you mentioned two items that hit at the ended the quarter that were in total 15 million. Other she was a fair to say that if not for those operating cash flow win and end of quarter cash would have been.
7.8 million in 103 million, respectively, and I assume that those questions came in right at the start of fiscal Twoq human factor.
Yes, yes, exactly a $9.2 billion.
Came in October the for [laughter], So that's not what's the way this.
Okay. Secondly, I think we had been looking for an increase in operating expense in the quarter, but it came in about a million about what I was expecting I I anticipated that digital power would be ramping up but were there any onetime items in the quarter or was the was the increase really all about fringe and performance across et cetera.
Yeah, and Oh, Oh packs and the last quarter was relatively low and you know was fluctuated.
To a.
Low.
Point this quarter it.
It fluctuated back in the end also we also increased in the some investment or so too.
ER beef up Oh with R&D activities. So we would expect the ER or.
Those are these will support us for the next year and the futures growth.
So is it fair to say you expect a flatter opex trajectory from here or or is there something that would cause opex Empire. She go through the second half of fiscal 2000.
Well, indeed, I would expect yeah the into the.
March quarter, probably in line with the current level in the June quarter, I would expect and.
<unk> increased some.
At the time.
For more activities for that.
ER R&D design wins, a wins for the following year.
Okay. My last clarification, and it's a follow up to the earn their question I know three months ago, we were worried about distributor channel inventory, particularly in the PC space and and distributor intend to get inventory levels down I know you talked about.
Inventory levels overall, but are you also thing, but within that you're happy that went with PC inventories and that PC inventories are at normal levels.
Yes, and last couple of quarters actually we manage and the and then that dynamic between to a you know our internal inventory extra no inventory and our own productions and so we knew in the September quarter would have fun.
Computing that into mobile and both.
Major businesses and that will be in peak season, civil and with our limited constraints.
Yeah.
Capacity, you know, we manage and those dynamics.
So that we use though in the channel inventory to support all one september's quarters or a PC.
Peak season, so and that's why didn't you know from the real business perspective.
On sell through a PC revenue actually reached a record high in the September quarter. So just a with a spirit and more capacity to support and mobile side of the business World.
Okay. Thanks for that and congratulations on the record sell throughs with compute.
You said, it's a segue to ask Steve in a few questions Steven just on that communications business.
Can you help us understand won the degree to which the wins that the company is getting is for fourg phones versus five Gi and given the very significant increase in expectations for Fiveg phones next year, which I think.
Consensus is probably around 250 million units, how does the company feel about its ability to get designed into that those phones since that's where a lot of the interesting growth is going to becoming prime in calendar 20.
Sure Craig So in general on the higher the power to the higher the battery that's needed the more power content is and there is for aeolus, a with the advent of five gene or we and we're anticipating that another usage will go up this board video streaming and there's more demand on the battery, whether you're charging or just.
[noise] charging.
So for US we're happy to see.
A push for a greater performance out of the power products.
So for US you know, we believe that and that that this could be but you need to be a growth area for us and as I've been better at the policies are increasing in a as the mosfets basically have to be more efficient.
Does that mean, you think that a majority of your design wins or Fiveg or just the majority of your design wins here at the very high end of the.
The performance continue them for the seven smartphone Oems that you and Mike had mentioned.
We don't really see spell a split it out that way and in general we know the high performance ones are the higher end smartphones and you know its fiveg is one of the trend. That's that's pushing for the higher battery is not the only trend that that's pushing for under the bigger capacities in the higher higher power.
Sumption to us as a bit as a bit of a spectrum in terms of you know the the demand on the phone themselves.
Okay, and then lastly in that communication space before I flip it over to Mike.
I think right now just given the the significant basebands at least activity out of Asian players, there's a forming view that the first calendar quarter or your fiscal Threeq, you and potentially been physical pork you could be above seasonal as a lot of the.
By GE Oems Fiveg.
Smartphone models launched from China, Oems and others, what's your sense for the strength in the communications business beyond the current quarter is there potential for the business to be flat in the first quarter potentially been grow given what we're seeing with new model launch activity around the corner.
Generally a smartphone and again the peak is a in this this September quarter definitely I think we're seeing more model is kind of kinda filling in the gap between the peaks, but in general I don't think they'll be big enough to offset the normal seasonal pattern or for phones, the major vendors still attending.
To be releasing around turned on September timeframe.
Okay.
Got it.
One for Mike and then I'll ask my final Mike It's helpful to get your perspective on land and expand and the strategy the company's deploying and certainly there are some encouraging signs of success in communications. My My question is that as you look at the the penetration rate in adoption capacity of the seven different.
No he ends.
In in a better case environment, you all Oems, Florida March at the pace of some of your best adopters within that group, how big can communications be in a year or two years from now if it's 18% of sales now does that doesn't have the opportunity to get into the mid twentys in 12 months and maybe even a towards 30 per.
That longer term or what are we looking at if if things really hit with land and expand.
For the mobile mobile business there definitely we're looking for about 20% that's for sure because it's so don't called healthy one would be 25% to 30% on the we look into the momentum. We think of these switches, which is pretty pretty pretty a a protocol and apart <unk> co.
Three we probably you Richard 20 represent.
That's great and that helps answer my last question I'm not sure. If this is for you or E bond or even STI bed.
When you find can you clarify what the 300 millimeter revenue contribution is within the fiscal second quarter guidance and from the first fiscal quarter. If we got the 7 million. We were looking for then there's about 30 million of revenue to get to that run rate level in.
Her corner of next year, if we were to break that down 10 million.
In three buckets, how do we how do we bridge the gap between where we are now and where we need to be late next year. So that were that 37 and a half million dollar run rate how much of that said differently comes from comes from compute from I.P.C. et cetera.
I'll start and with this questions yes.
We said done you know what the confident.
To reach the target run rate and a into it.
September quarter next year.
This is right now it isn't that a one gradually ramping up and did 12 inch fab may not be linear.
Right now it is you know what do we ended the design a use of wins using the products produced the from the joint venture.
And also was a transferring some.
Productions of our products and to the.
Joint ventures, so that a it can spare since some the room full Oregon fab, so that the transferring production requires a requalification with our customers. The so those two things and the depends on how it isn't the played out and so I.
Would you expect and.
Uh huh.
We need to some time like us Mike and.
Steve Wynn Macau.
You mentioned some takes some time to designed in and reap qualification. So on I would expect the in the.
In the June quarter, probably we'll see some of that and the in the September quarter, you will see the most.
And just want to chime in as Stephen on the move to at some Ching actually helps not only the products aren't moving to function, but also the products and I stayed behind in our eight inch fab. So it actually helps with the total loading facility. So basically I think every segment can benefit from the additional total capacity after we.
Opened up a challenging to that level.
But Stephen in terms of getting from here to the that target run rate with with the new fab is it fair to say that a majority of that is gonna be communications or or is it really going to be.
Broader base participation with with the other segments.
We're starting right now the initial segments on that ours are ramping with include Duncan computing as well as various consumer applications.
But let me side you know, we're trying to make room, especially going into Q3, which is a peak season for both on computing as well as communications to make room for both of those on.
Applications on when we're hitting that that crunchtime, but we did this year. So next year would be more balanced opened up capacity, we expect to two more naturally a more comfortable the address that demand.
Thanks, guys. Good luck.
Thank you.
Your next question comes from tore Svanberg cycle.
Yes. This is Jeremy calling for Tory, Let me add my congratulations on the cash flow positive profitability for the JV.
Do you know that some of that came from that intercompany payment.
Can you talk a little bit more about what that is and also what the a the 2.7 million interest refund is.
Oh sure I mean, Doug.
$5.9 million impact in the is the was the intercompany receivables payables and filing so and right now the joint venture is in the final stage of the.
Processing this loan.
I've got paper work sold you know the loan itself has been approved and and and right now is going to find <unk> going through the final stage often a paper work.
There there there are quite a bit bureaucracies over there so the that wed tool to be patient.
In terms of Doug $2.7 million.
Interest expense refund.
Now was a part of the joint venture agreement. So finally in you know we've got the approval from the local government into so the refund the came in in the September quarter, and and then the for the next two years and you know I'd Ah.
Each of the September quarter for the next two years.
Does joint venture is expect to receive that say my Montosa a refund.
The next two years.
So that refund it it's basically interest at the JV paid to the finance company and that's being returned back to you.
No those are the them once said a refund to abandon interest expense that they paid on done a lease financing and loans.
Does the JV dependent the interest on the lease finance loans in the get some of that back and then that each year.
Yes, yes fundamental of and local government got it yeah I see okay, and then in terms of that intercompany receivable you said that's related to alone that's been improved so that no oh and it doesn't not the relative to the low and that's a normal business to the okay.
Comedy balance, okay, and that and that's basically for.
I guess what is that for that based on expenses that he less incurred on behalf of the JV.
Well the they they purchase is something to materials and the wafers from a got it okay.
Sell finished goods to us and I mean, those a units and those got it okay and then that loan that you mentioned, that's that's still in the works together do you have a quantification of how much that's going to be.
Well disclose it when we signed an.
Oh, great win.
Okay.
Great and then I guess, we can move on to you.
The the JV can you give this idea of how much.
Business is currently running through that.
Due to the JV.
For the September quarter, Yes did supported than us and I'm hopeful that incremental revenue.
I mean right now it is so that we are for the December guidance of we also won.
Factor, you know there and run pub.
Got it okay.
And maybe I'm, just kind of getting at some of the earlier questions. Then im looking at a different way. If you look at that you know again that incremental to 7.5 million on that you expect from the JV. Keith can you give up and again how much is based on products.
New products that you've introduced over the last me the year, so or how much of it is related to.
Maybe expanding opportunities from existing products.
Well those are the.
Relatively in the you know as Steven mentioned, when you know well.
Get done some.
You existing products and right now you know a qualified and though with a PC customers and initially one transferring some production to the joint venture a relatively speaking for the PC qualification process and all.
Comedies and shorter than the other products. So Oh, we started from there.
Later on the yes that will add in other ER products. The will produce a from the 12 inch or fab it into the consumer area in the power supply area as well.
Very good.
And I guess I'm.
Also you mentioned price erosion earlier can you help us or at least pricing pressure.
Impacting gross margin can you quantify that for us and maybe what expectations are for the next year or 12 to 18 months.
Okay sure or in the last in.
Two years, so so I would say the MOSFET than the industry.
ER was relatively.
Tight on those supply was.
Right and us sold and ASV environment, it wasn't a relatively favorable to us.
This year the market has been loosening up and so after a couple quarters and now it is and getting to the point and back to than normal I would say so right now it is.
Into.
Normal ASP erosion situation.
Well, we want to do is to overcome those.
ASP erosion is to rolling out Oh in new products and so then you know you're providing a better performance than in the you have a commanding the better margins. So so dot offsetting those ASV use ocean of course and Doug.
Depends on the you know the the timing than the dynamics of those the existing products and the versus a <unk> products. So from from time to timely you may see no new products in the over come to the old products and sometimes that you may see some erosion.
Timber already.
And in terms of the normal erosion is that you know what are 3% to 5% annually is that kind of what you're looking at.
It's more like a mid single digit to high single digit depends on to the years than the owner of the market situation I would say.
And that's compared to maybe flat to slightly down in the past two years.
Oh yeah.
Okay.
And then if we look at the end of communication side no with the smartphone exposure would you say they SP.
Dynamics there are similar to you you know you rest of your products or is it is it a different dynamic and also in terms of the gross margin relative to corporate.
ER in terms of ASP environment, I would say.
Similar then the or slightly better in talk in terms of margin profile yet a in the second them under it is a above our corporate average.
Very good.
I think I'll just leave it at that and maybe come back from more questions. Later. Thank you. Congratulations. Thank you. Thank you.
At this time there no further questions I'll now turn the conference back over to your hosts for closing remarks.
This concludes our earnings calls today. Thank you for your interest in the West and we look forward to talking to you again next quarter. Thank you.
[noise], ladies and gentlemen, this concludes today's conference call.
Thank you for participating you may now disconnect.
[noise].
Yeah.