Q4 2020 Alpha and Omega Semiconductor Ltd Earnings Call
[music].
Ladies and gentlemen, thank you for standing by and welcome to the Alpha and Omega semiconductor reports financial results for the fiscal fourth quarter of Twentytwenty Conference call. At this time, all participants are any listen only mode. After the speakers presentation, there will be a question and answer session.
To ask your question during the session you will need to press star one on your telephone. Please be advised the today's conference is being recorded if you require any further assistance. Please press star zero I would now like to have the conference over to your speaker today, Gary Dvorchak Investor Relations representative Thank you.
You. Please go ahead Sir.
Good afternoon, everyone and welcome to Alpha and Omega Semiconductors conference call to disguise fiscal 2024th quarter and year end financial results and Gary Dvorchak Investor Relations representative for the company with me today are Dr., Mike Chang, our CEO, Yvonne young our CFO and Steven Chang.
The Vice President this call is being recorded and broadcasted live over the web and can be accessed through seven days following the call via the link in the Investor Relations section of our website at Www Dot eight zero as MD dotcom.
Mike will begin with a review of the business overview for the quarter, then Stephen will provide a detailed segment report.
After that economy will continue with a review of financial results for the quarter in fiscal year and provide guidance for the next quarter. Then we'll have the question and answer session.
The earnings release was distributed by business wire today August 11, 2020 after the close of market. The releases also posted on the company's website our earnings release and this presentation includes certain non-GAAP financial measures.
We use the non-GAAP measures because we believe they provide useful information about our operating performance that should be considered by investors in conjunction with the GAAP measures that we provide a reconciliation of these non-GAAP measures to comparable GAAP measures is included in our earnings release.
We remind you that during the course of this conference call, we will make certain forward looking statements, including discussions of the business outlook and financial projections. 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 it.
More detailed description of these risks and uncertainties. Please refer to our recent and subsequent filings with the FCC, we assume no obligation to update the information provided in today's call now will during the call over to our CEO, Mike to provide an overview of that business Mike.
Thanks, Gary welcome everyone.
Before we discuss all fourth quarter result.
I want to briefly at throughout the call, but Nike and situation, which continues to impact comedy.
And that market our cost growth.
I want to affect our employee or scale, rebidding and being put export as we navigated these new working environment.
I'll, probably pull cut it to ensure.
And well being of are all employee and the they have family.
While we continue to work closely with customers to support them.
We can during these challenging time.
No.
Can you highlight of the June quarter.
Started at Q should enable to us with delivered resort ahead of expectations.
I would buy all put the brakes and growing customer penetration revenue off of $122 million Wassa up 9% year over year end up above the high end of our guidance range.
A couple other we tightly controlled operating expenses.
This resulted in non-GAAP earnings.
Next year that exceeded consensus.
I'll call beatnik generates solid operating cash flow of $20 million.
And the free cash flow of $11 million.
Yes.
Provide details of our June quarter resort later on the call.
The favorable financial results were driven by hiking men insurgents segment.
And a solid operating execution.
We have meant we bought either for our put them in computing Anda gaming applications, driven by the retail ship, who we work together and it and that 10 from home environment.
We also focus on all cost structure and approved ended in managing our expenses.
We do now you said youre spending and the benefit from travel Ben.
Last few pursuing strategic and critical are in the project.
And our customer reach.
The strong fourth quarter cap as started at fiscal year.
These he is a very encouraging given the backdrop, our corporate night team had dynamic.
Hi tend to trade tension between us and China Anda global economic uncertainty.
Our results demonstrate the strength of our business strategy diversified product for the four deal and expanded customer base.
Nick.
I will discuss our strategic a pain.
Further strengthening.
Before the strengthening the foundation to achieve our longer term objectives.
First.
Our joint venture Fat trunking.
As part of our strategic plan with beautiful back to full three of growing customer demand. Indeed during this quarter.
The key have you fab made a major contribution.
The capture.
Surging demand.
Even though the corporate Nike and Pandemics at slowly ramping.
Production.
We were able to make steady progress.
Importantly, this atlas allowed it that JV to achieve positive EBITDA for the June quarter.
We expect to approach all Cobb get run rate by this time.
Next year.
Second.
All focused R&D.
It's driving broader and the better product innovation.
As a solution provider.
We are able to deepen our relationships with customers.
Becoming their trusted strategic partners.
As such.
Our new products are driving gross primary by expanding our bom content in coal application.
The design of our product, especially all ties see solutions into an upcoming gaming system and a new PC graphic car demonstrate the opportunity created when we secure trust and confidence from our customers.
You don't get back into fiscal year.
We are pleased with all accomplishment.
The power semiconductor industry is at a large market.
And we are making significant progress.
Capture opportunities and to increase market share.
We also recognize that confusions asked you breakout.
At another condition could change at any moment due to effective beyond our control.
Including.
The kopec 19 pandemic a resurgence.
Because of the with continued to operate cautiousness.
AMETEK prudent actions, even as we identify and the new opportunities.
I would like to thank all customers.
Business partners and its shareholders for their continued to support and confidence in eight Oh, yes.
I, especially want to acknowledge all employees.
That's all success could not to help impossible without their hard work dedication and sacrifice in the past year.
Now I would tend to call over to Steven for detailed segment reporting.
David.
Thank you, Mike and good afternoon.
Let me start with computing.
It represented 40.2% of our total revenue in the June quarter.
Revenue was up 4.1% sequentially and flat year over year.
While selling was okay sell through was quite dramatic.
Many customers that had pause production in the first calendar quarter, we're catching up in the June quarter.
And demand is strong and we were able to need it with the ramping supply from our JV fab.
With so many people around the world working creating and the learning from home it seems to have become even more indispensible.
Because we did not shut down fully in the March quarter, we were able to meet this resurgence in demand.
Going forward, we continue to optimize our production mix to satisfy the anticipated high demand for PC related products.
We are especially excited about the ramp up our high performance driver Mos and digital power solutions in some key customers upcoming graphics card platforms.
We expect computing revenue to be strong in the September quarter with mid teens sequential growth.
Now turning to the consumer segment. It represented 22 and a half percentage of total revenue in the June quarter.
Revenue increased 37.5% sequentially and was up 31.7% year over year.
Cobot, driven home sheltering boosted sales of gaining Tvs and home appliances, enabling those segments to achieve healthy growth.
Gaming was up significantly sequentially and expected to grow rapidly.
We have multiple sockets across multiple products, our IC and loss that in an upcoming gaming system that is expected to launch in the second half of 2020.
Looking to the September quarter, we anticipate strong double digit growth in the consumer segment, driven by home Entertainment gaming and TV.
I want to note that power IC is weak gaining traction.
In 2018, we realigned our power IC product line by focusing on our core competencies of proprietary Masa technology advanced packaging and intelligent I see is ideally suited for the application.
We chose to go after high volume applications within the computing and consumer segments, given our established MOSFET business.
As a result today, our multi chip package caught us and deliver the small size and high efficiency required in the latest gaming and graphic card platforms.
As you can see in recent computing and consumer design wins.
Now, let's discuss the power supply and industrial segment.
It accounted for 19.4% of total revenue of 24.2% sequentially and up 3% year over year.
After a pause in the March quarter. This segment rebounded in the June quarter, driven by higher demand for adopters used for Pcs and gaming systems.
Our AC DC power supply business was up significantly versus the March quarter fracking the surge in PC sales.
Demand was good in medium and high voltage products. Once again, we were able to meet high voltage demand with supply from our JV fab.
We expect this segment to be down somewhat in the September quarter due to a bit softer demand for quick Chargers and DC fan.
Finally, let's move to the communications segment, which was 16.2% of total revenue in the quarter.
Up 3% sequentially and up 16.1% year over year.
Telecom drove the growth although overtime, we expect unevenness as the Fiveg rollout advances.
Meanwhile, the smartphone market was subdued.
One large customer slowed production in the June quarter. So our battery protection line that was down slightly sequentially.
Looking to the September quarter. This segment appears to be resuming growth across all our core customers.
We expect the communications segment to be up single digits sequentially in the September quarter.
With that I will now turn the call over to eat fun for a discussion of our fiscal fourth quarter financial results and our outlook.
Thank you Stephen.
Good afternoon, everyone and thank you for joining us.
Revenue for the June quarter was $122.4 million up 14.5, plus on the from the prior quarter, an up 9.4 plus on the from the same quarter last year.
In terms of product mix.
Last Friday revenue was $100 million up 11.2% sequentially and up 3.8% year over year.
Power IC revenue was $20.3 million up 29.2 person from the prior quarter, an up 47.1 person from a year ago.
Yes, Stephen discuss the earlier this year so welcome a reversal for our power IC product line.
The result of our focus on rate, gaining traction with new and better solutions.
Assembly service revenue was $2.1 million as compared to $1.3 million last quarter and $1.7 million for the same quarter last year.
For the fiscal year 2020.
Revenue was $464.9 billion up 3.1 person to from fiscal year 2019.
Non-GAAP gross margin for the June quarter was 27.5% flat with the prior quarter, an up slightly from 27.4 person for the same quarter last year.
Non-GAAP gross margin excluded point $3 million, so share based compensation charges for the June quarter, as compared to <unk> point $4 million for the par a quarter and for the same quarter last year.
Non-GAAP gross margin also excluded.
$4.4 million, so production ramp up costs related to the JV company for the June quarter.
As compared to $6.6 million for their par a quarter and $2.6 million for the same quarter last year.
For the fiscal year 2020, non-GAAP gross margin was 27.9% as compared to 28.4 person for the prior year.
Non-GAAP operating expenses for the June quarter was $25.3 million as compared to $25.8 million for the par a quarter and $22.6 million for the same quarter last year.
Non-GAAP operating expenses for the quarter excluded.
$2.4 million, so share based compensation charters and $2.6 million, so legal expenses related to the government investigation.
This compares to $2.5 million soap share based compensation charters $2.1 million, so legal expenses related to the investigation and point $6 million impairment charge related to an investment in a privately held startup company for that part of course.
Yeah.
Well as $2.1 million, so share based compensation charges and $3.9 billion. So pre production expenses related to the JV company for the same quarter last year.
Both GAAP and non-GAAP operating expenses included a $3 million. So there's still power team expenses for the quarter as compared to $3.1 million for the par a quarter and $2.3 million for the same quarter last year.
In July were made the first shipment of our digital power product.
Non-GAAP operating expenses for the fiscal year, 2020 were $102.5 million compared to $95.3 million for the prior year.
Non-GAAP operating expenses are excluded.
Point $9 million, so share based compensation charges $4.7 million over legal expenses related to the investigation and point $6 million for an impairment charge into current fiscal year.
As compared to $11.2 million, so shared based compensation charters and $15.8 million. So pre production expenses related to our JV company in the part fiscal year.
Income tax expense for the quarter was <unk> point $4 million compared to a tax benefit of $1 million for the par a quarter and point $6 million for the same quarter last year.
The tax benefit in the prior quarter was primarily driven by relief from the cares to act.
Income tax expense for the fiscal year was <unk> point $3 million compared to $1.3 million for the previous fiscal year.
Non-GAAP EPS attributable to a west for the quarter was 29 cents per share as compared to 11 cents for the prior quarter and 35 cents for the same quarter last year.
Non-GAAP EPS attributable to a west for the fiscal year was 88 cents as compared to one dollar and 23 cents for the part fiscal year.
Hey was continued to generate positive operating cash flow.
Hey, Wes on a stand alone basis generated $20.2 million of operating cash flow in the June quarter, as compared to $29.5 million in the prior quarter and $15.2 million in the same quarter last year.
Cash flow provided by operations attributable to the JV company was $20.1 million in the June quarter.
Primarily due to a refund of accumulated of value added tax paid and previously.
Cash flow used abided JV company in the prior quarter and the same quarter last year was $15.2 million and $6.9 billion respectively.
Cash flow from our precious attributable to a less for the fiscal year was $58 million as compared to $65.3 million for the prior year.
Cash flow provided by operations attributable to the JV company was $4.4 million for the year compared to $33.9 million of Kashi used to in the prior year.
Consolidated EBITDA for the June quarter was $14.9 million compared to $8.8 million for the prior quarter, an a $14.2 million for the same quarter last year.
EBITDA was attributable to a west for the quarter was $12 million as compared to $6.5 million for the prior quarter and $15.1 billion for the same quarter last year.
The JV company achieved its first positive quarterly EBITDA, so $1.1 billion in the June quarter.
As compared to negative $1.1 million for the prior quarter and negative $5.6 million for the same quarter last year.
Consolidated EBITDA for the fiscal year was $52 million as compared to $55 million in the fiscal year 2019.
EBITDA us attributable to a west of all the year was $44.8 million as compared to $61 million, So a year ago.
Now, let's look at the balance sheet.
We completed June quarter, with cash balance, so for $158.5 million, including $110.3 million at Pos and $48.2 million at the JV company.
This compares to $110.2 million I'd and over last quarter, which included $99.5 million at A.O.S. and $10.7 million at the JV income.
Our cash balance a year ago was $121.9 million, including $180.7 million Aeolus and $21.2 million at the JV company.
The bank borrowing balance at the end of June was $173.4 million, including $32.7 million at A.O.S. and a $140.7 million other JV company.
During the June quarter.
The JV company borrowed a total of $47.1 million.
Hey, less and the JV company repaid $2.1 million and $25.4 million Soviet you listing loans respectively.
Net trade receivables were $13.3 million idea in the June quarter.
As compared to $17.5 million at the end of the prior quarter and $24.3 million for the same quarter last year.
[noise] based sales outstanding for the quarter were 18 days compared to 22 days in the prior quarter.
Net inventory was $135.5 million at quarter end.
Up from $127.4 million last quarter, an up from $111.6 million into part year.
Average Stacy and inventory was one Andre and 27 days for the quarter compared to 131 days in the prior quarter.
That property plant and equipment was $412.3 million flat compared to the prior quarter, an up from $409.7 million So last year.
Capital expenditures were $13.2 million for the quarter, including $9 million at.
JV company.
With that now I would like to discuss the.
Cadence for the next quarter.
We expect a revenue to be between $134 million and $138 million.
GAAP gross margin to be 26% plus or minus 1%.
We anticipate and non-GAAP gross margin to be 27.7% plus or minus 1%.
No that non-GAAP gross margin excludes point $4 million. So for estimated share based compensation charges and too many dollars of estimated production ramp up costs.
Relating to the JV company.
GAAP operating expenses to be in a range of $32.8 million plus or minus $1 million.
Non-GAAP operating expenses are you expected to be in the range of $27.8 million plus or minus $1 million.
Both GAAP and non-GAAP operating expenses included three point.
$2 million to $3.5 million estimated expenses related to the development of our digital power business.
Non-GAAP operating expenses exclude $2.5 million over estimated legal expenses related to the government investigation and $2.5 million of estimated share based compensation charges.
Income tax expense to be approximately <unk> point $5 million $2.7 million.
[noise] loss attributable to non controlling interest to be around the $1.2 million.
On a non-GAAP basis, excluding it estimated production ramp up costs relating to the JV company.
This item is expected to be approximately <unk> point $2 million.
As part of our normal practice, we're not obligated to update this inflammation without we will open the call for questions.
Operator, please started killing they session.
Thank you at this time, if you would like to ask your question. Please press Star then the number one on your telephone keypad.
We will pause for just a moment to compile the culinary roster.
Your first question comes from the line of Craig Ellis from B. Riley FBR. Your line is open.
Yes, thanks for taking the question and congratulations on the nice execution in the quarter guys. If on the first one is really just a clarification did.
Did you mention what the JV phase one revenues were in the quarter end and what are they expected to be inside of the fiscal first quarter outlook.
Ah yes this.
During the June quarter majority of our revenue increase was supported by all.
Joint venture.
So.
The.
You saw that you know the joint venture achieved the first EBITDA.
Positive quarter, you know well.
Happy with that you know right now you know the because of the uncertainty of this.
And I make situation you know, we expect and that will continue to run this a joint venture fab right now and those <unk>. Our September a guidance also factored in those support from the joint venture so that we as Mike.
Mentioned in the World, we're going to progressively continue to run this.
JV five.
During the course of fiscal year 21.
Okay and as long as we're just talking about the FAP ramp and what happens in the fiscal year before coming back smother near term items, how should we expect that to play out through what's typically a seasonally softer part of the business in fiscal two Q and and Twoq to Threeq would would be.
Backed a fab production and fab sales to mirror historic seasonality.
Or is there something about the design win profile, you've been able to achieve what products from.
Phase one that would allow that to bat fabric continue to grow output and revenue sequentially.
Through next year, when you expect to get to that original 37, and a half million target.
I would expect and you know the there are some seasonality is.
Along the way you know in this fiscal year 21 or on the other hand, and yes, and the way we have some design wins and you know the company specific than that and you know we were going to continue to run the the joint ventures and world.
Oh I was thinking you know the.
From a still some uncertainties and down the road and in terms of funding.
December quarter March quarter, and the you know when we're just to go a quarter by quarter.
So right now you know all the number quarters guidance reflected in our expected a run continue to run.
Okay. Thanks for the next one is a question for Steven Steven I think three months ago. We we thought that the new gaming platform might deliver 6 million in sales you know it looked like consumer was up.
Significantly enough that that 6 million might have been 7 million separate and a half million. One can you confirm what the revenue contribution was from the new gaming platform. What would you expect in the fiscal first quarter and somewhat similar follow on this I had or econ given a highly.
Seasonal nature to gaming platforms would we expect revenues from this set of design wins to moderate.
In fiscal Twoq and Threeq, you before react celebrating mid next year.
Yeah. So we're very excited about the gaming on business and that's ramping up now are we saw that ramped up I've already happening in the June quarter. On this platform. You know this gaming console, there's not anything or at least until a later part of this year I'm much more towards the end Q3, beginning in Q4. However, it is on obviously the epic.
Auction has already started for that on the we you know I'm not quoting any specific numbers for at least quarters by its very healthy and we expect no. Another big jump going into the up into the September quarter beyond that you know we have to see how you know how does the substance of just console to the market on and.
To see whether there's any he'll also winning in production hiccups or anything on our customers and well so far we don't see anything right. Now on you know, we're pretty happy with this business and as a if I mentioned and this is one of the key design wins for new business and that we are counting on for the December quarter.
Okay, Great and then interesting teacher about server power shipping in the June quarter. So can you give us some further color on on what happened there and what's happening in the back half there.
Sure So digital power.
We're very excited to be and in into one of the upcoming graphics card platforms. This is I'm going into a one of the high end models that gets AIE, releasing though at the at a star of the platform release on so we have or S.P.S. product actually I'm gonna be shipping I already in that in this september quarter as well as ran.
Wrapping my and going into the December quarter. So naturally you know as we talked about before our digital powers focus on two key markets going after advanced computing as well as telecom. So it's not too surprising that we see the first the business when coming more from a kind of client side portion of.
The computing portion of it of the business. So I'm pretty excited about this this will ramp up some more next year as well at the same time, we have other opportunities and are being cooked up at the moment for the other applications.
Okay that sounds good and then lastly, just to long term question to keep on and maybe even for Mike. So guys. Thanks for clarifying the pay phase one Pap ramp target got it Oh fiscal one Q 22, it sounds like how should we think about what was the calendar 23 1 billion dollar revenue.
Target. This calendar 2003 still the right period for that revenue target or or would that shipped out due to the kofi crisis.
Well I'll take the first and the craft and HM.
Original target of a billion dollars and.
Revenue for calendar year, 2023, I wouldn't you expect them to yeah, probably more morsel pushed out to buy one year and because of the this 2020 years pandemic situation. So that's how we're currently owned and I mean, it may change and.
You know down the road.
Depending on the market situation so.
Leawood.
That way.
Uh huh.
My Ken [laughter].
Then just bought off in life Sciences.
Yeah, Hi, Alan Auto.
But you finds a little bit given they both in depth.
Well, we are looking to the future business, okay, especially like a kinda far way to 23 and a billion dollar which was always our all our Charlie gold actually.
The only thing a major your technology in a new product development and the next step acceptances under which it does take time in the patient and though we are quite encouraged injuries during.
At least a difficult time does that make time there.
I'll put that's not forget ex Tac.
Which is a tremendous the encouraging them to all people to us. So I agree with Ah you find okay. You know, we kinda fibers and it was natural right. So this is what Africa, but a month or is there a we put it you know no more than three they want you.
That's helpful. Mike and then if I can just follow up on that useful color.
Since you mentioned long term technology roadmap.
Well I guess wideband gap fit silicon carbide Gan on your long term technology Road map and and where are you and development of those technologies.
Oh. The this is another another slow cooker. Okay. So we've been a in this day R&D in the theater for quite a many years a recent data we just want to reduce the one or one pretty good the southern carbide tall onto both product. However, I don't want to create too much excitement there.
Because such kind of thing what could time for custom picks that okay. So you got product there like a pretty good no right up there, but you know you just happen do take time for customer to really a two you know two to two X that come to a two to buy into.
<unk> expense.
So I won't give you that we had become ability we have R&D the airport I will put it longer term yeah.
Thanks for the help guys.
Thank you.
Your next question comes from a line of David Williams from a loop capital markets. Your line is open.
Thank you and I. Appreciate you let me ask a question guys. Congrats on a on the solar cells headquarter in the guide.
Oh, thank you.
So that the gross margin came in a little better than we had expected and of course ahead of the guide.
Maybe talk through any puts and takes their up at the margin was that more mix related or just a productivity out of the JV or what the what really led to the better margin profile is this quarter.
Oh sure I mean the.
Gross margin came in at a high end of our guidance. So I mean, the what we were pleased to see that.
Since the majority of the increase of our revenue.
Was.
From our joint venture. So you know, we our non-GAAP and.
Gross margin, you know way pro forma out and.
Production run public Costa sold.
Actually you don't make the normalized.
Non-GAAP gross margin already so you know the doing holders non-GAAP gross margin was flat compared to the March quarter. So are relatively.
Stable compared to the March.
Quarter in terms of product mix and back to you a they says so basically.
The.
2.2 million daughters reduction in the.
Reduction grandfather clause <unk>, you know from March quarters, $6.6 million to $4.4 million into two quarter up $2.2 million basically I would be the margin.
ER inquiries or if we did not and oh for more often than the production run pub, Costa so that will be the margin gain there, but since we already normalized though.
Non-GAAP margins so the two quarters margin was.
Ah basically stable compared to the March quarter.
Okay, Great and then maybe if you can just maybe rank order the growth of the underlying trends, it's going to continue to support the growth. If you kind of a exclude some of the shorter term trends that you're saying.
What are the I guess the largest many secular growth drivers that you see that they will support you did that 1 billion dollar.
On rate that gene that you've talked about.
Yeah, Hi, David I can take my question I would definitely heading more and more towards and diversification in order to get to the 1 billion dollar on and revenue we're expecting contribution from all the core markets of course, you know will continue to be strong and computing and even in computing, we're finding ways to expand with on Bom content, we expect I know with that.
Future a platform is coming from from Intel and indeed that are Bom content is actually going to increase and and also you know not only for the V core and system power, but also finding new sockets, so like getting into type C. As well some other areas that though we are investing in so computing would definitely be strong you know we have you didn't even have.
Spending server market as far as part of the near term growth after computing.
Communications has also been strong for us in the past and we'll continue to be strong with and strength in the.
In the battery protection going into phones, we have a very good position and going into that that we talked about during the earnings release, and we expect that to continue going forward as as we also and look to.
Supplement that also within business from our telecom I'm sorry.
We also stags expect to see our our power supply and grow as well right now and its short term, it's been growing mainly with the P.C. boom and because I work with the work from home situation a big part of that is because we've been able to choose service and the high voltage market, which we have ignored and the pass on due to them.
Allocation now I'm, because we have CEQP and we have and the ability to support that this is gonna be a new area growth for us to into support not only it power supplies for for Pcs, but also for gaming systems for industrial power I for solar and other applications and of course gaming Weve been in consumer we didn't have been.
Talking about that's a brand new area for us.
Gaming is will be a big part of incomes have consumer going forward.
So we'll or other existing business I wish we're pretty pleased with our home appliance business, there and based on RGB teams in our module solutions and and this is one area that will continue to grow we're still on track to out to grow by more than a 40% down year over year for the hope for the calendar year, so on and as well as our TV business will continue to be strong.
So any end you know we have to grow by diversification that we can't count only on <unk>, just a few areas of the market, we've gotten big enough and them and establish nothing in in our on current applications and we are expanding into new applications to help us to get to that $1 billion.
Great. That's a that's very helpful. Thank you and then see maybe a or Mike on the digital controller Frac, you've obviously, making some very nice progress a shift in the Q.
How do you think that layers and as you move forward what does that that ramp look like is it a is a slow and steady or or could we expect to see maybe on a nice more hockey stick approach as you get into the mid middle part of next year.
We expect it to be more slow and steady on and we do expect the again the client portion of the business to grow a little sooner and faster just because of the nature of the shortages design cycles for going into cloud computing.
The longer ones are going into the server platforms and go into the taught telecom platforms, which we are engaged in but they simply just take more time to both design in as well as to wrap up. So I think you know study is probably there is the right word for that these just kind of business is no takes longer to design in but is much stickier and well Steve for much law.
Longer because these because these platforms endure for a much longer time.
[noise] any thoughts on the Bom content addition that you can pick up.
Oh, the comp the content can be pretty large, but it really depends on the end application I'm just different scales of base stations in servers on and it depends how many wells on and they are looking down into use digital power for so but it can be on the tens and $25 per cent per system on but.
It's a pretty wide range of you know depending on the application.
And one one more if I can just kind of thing about the the health of the inventory can you maybe a bit talk about the different the puts and takes there how do you feel in times of the inventory that so maybe in the channel and already shipping to consumption or are you seeing any or any type of deals that will it's really a they could be helping your one Q guide.
Sure Oh, what I would kinda inventory right now is a what I consider a pretty healthy.
Within the.
Targeted range from two to three month than that right now this.
Close to the midpoint of the targeted range. So are we.
We don't have a much concerns about the kinda inventory at this point.
Okay, great. Thanks, much guys appreciate it and best of luck on the corner.
Alright, thank you.
Once again, if you would like to asking questions. Please press Star then one number one on your telephone keypad. Your next question comes from the line of Jeremy Quad films, Jeremy Quantum from Stifel. Your line is open.
Thank you and let me add my congratulations to the actual results and outlook and especially on the cash flow generation.
Thank you.
Thank you.
I guess a first question.
You know maybe regarding the.
A follow up on some of that seasonality questions. On you know this it seems like some of the the growth.
And your time has been driven a lot by you know the consumer.
You know gaming and graphics cards on some of the the cellphone builds.
Could you see potentially some India.
A stronger seasonal trend.
You know coming up in the next couple of quarters.
Does that like is there are there's certain design wins that are there that can maybe make up for some of that.
Potentially increase seasonality.
Sure I first want to comment that because I hope it there's not much other than a normal seasonality this year.
But you know there's been a lot more disruption because of how cold it has affected our customers.
Both there and in demand as well as on their production.
Computing you know typically you know is a Q3 and a September quarter again major majors peak season.
This year, we basically it's all that peak season pulled in from September into June that's partly because also March was a pretty disaster quarter for our computing customers because their factories were located in China and a lot of them in the epicenter of work I quoted was no. It was was on starting out from.
So, we and but because of though because of the work from home and the strong demand.
<unk> or the June quarter was very strong and the September quarter remains very healthy also.
We so far we don't know how this will play out over the longer timeframe.
Q4, so far looks still okay on the boat, we really need to wait and see to see I'm, how demand changes, but right now that's still looks strong.
Going into smartphones smartphone and I will say is probably a little more.
Depends on how each of the major what that each of the major players customers in the space or doing some of them one of our customers you know the launch a new phone back in the March quarter, and they actually didn't pull back production until the June quarter, and so and but then coming in this into <unk> the September quarter, they're actually starting up production pretty heavily again.
And in anticipation of possibly another factory shutdown that would may have to have you have to happen.
In the in the coming cold season.
So we're seeing a lot of disruption like that happening overall right now we know chemed smartphone typically is a strong in Q3 and actually we do see though from all three vendors on demand is I'm very healthy going strong and going into them, but the second half of this year.
Now some of the newer areas for us or at least for Aeolus is gaming as well as graphics cards and both of these areas are relatively new for air West. So it's not really seasonal is tied to their platform releases I'm talking about launching at the end of this ER and in the second half of this year.
Graphics cards typically a their platforms last around the two years.
So and this so this is the beginning of that cycle for gaming systems. Those last much longer you're talking about typically six to seven years and this is the beginning of that cycle and even during that six seven years, there's multiple revisions our major platforms, along the way to create different price points for the customer or maybe costs down.
There's additional opportunities for us to to you know to get more business get more sockets and so I would say that that's not really a seasonal thing is more up out of that out that product lifecycle, where at the beginning about lifecycle and and so it's additional business that we're laying layering on top of our current on business.
<unk>.
Does that help.
Yes, that's very helpful. Thank you Steven and maybe just a quick follow up on a comment that some customers, especially in smartphone.
And is there a building ahead of potential shutdowns later on if that's something that you see it is it pretty widespread with his cell phones and you see that no across other industry.
I see this particular vendor on its if things only one vendor and one customer that's mainly just doing that more so than other ones.
So I wouldn't say isn't necessarily reflective of of the whole Marco or industry.
But at least you know they're doing a much more than than others are and the other major vendors are seeing you know its are seeing than their normal seasonality that's coming.
So from around right now that we see all three vendors are asking for a product.
Got it right.
And then maybe just you know.
Yes can you give us an idea of linearity in the quarter and maybe your backlog visibility.
For the upcoming September quarter.
Sure, Germany, you know our backlog has been healthy and studied and just since the mindful margin. If you recall in the you know back to the March.
Or you know toward a mid March.
I saw the surging demand of started and then and then a backlog was started the fitting in.
I.
I guess in the this reflected and you know the.
Recovery, often supply chains, and then it and then a.
Surging demand and due to the work from home you know a.
Learning from home Oh things and also the is also.
Oh with company specific design wins so.
Of course, and then I mean, the under this.
Challenging and a volatile pandemic Ah you environment than we want to be.
Vigilant and then and cautious and then it and then monitor the dynamic changes or.
Currently so on a right now than you know our backlog can support all with September's a guidance.
Yes changes or maybe a comparison on a relative basis I mean, this quarter versus prior quarters. Some of the you know other analog peers has you know reported very high backlog coverage. Just wondering if that's in case you guys. It has been steadily increasing yeah, the better than last quarter.
And position I will say.
Right.
And he's on I'm, just looking at the balance sheet.
I know this other Athens slows down.
26 million is this the the VAT refund the value added tax getting things, yes cash yes.
Yes, exactly that's it.
So then is that you know that the full amount so that lot 26 million. If we look at come here at the operating cash flow as you know had a very nice bump from the March quarter. The June quarter. So if you take that out would that be roughly the operating cash flow where the.
I'm, excluding a the refund.
[noise], a yet I mean.
Boy West and the you know when we.
Separate them, a west or from done.
JV, you know any west and generated or about $20 million operating cash flow a $11 million a free cash flow in the quarter.
Good day, Lee, yes that about $25 million and refine that they got a from a local government.
Related to the or where do I didn't tax you know last couple of years and though when they imported that are equipment.
And they had to pay you know a value added tax 11 to 13, some puts and Oh each machine. So no. One has been cumulated full on at least in a couple of years. So in the June quarter, they've got a brief on Uh huh.
Pretty much on all of them from the government. So on other hand, the you know part will Dod and they were using a those receivables. So from the realty taxes are against a oh that they borrow than from a local bank I guess.
Those are the receivables so.
The same time alone they got to refine that they also.
Prepaid and about a 15 $16 million. So so oh, so loans are so nothing that Matt, yes, they did kind of more or working capital.
Got it and did you say is all the the that tax it hasn't been fully funded by now or is there still some you know anything like that.
I'd much all done refunded already.
Great.
Then that's a question as you know as the JV. It's been ramping it you know I think my said earlier that you guys are expecting to hit the target around this time next year. So presumably you probably need to invest ahead of that so can you talk to US about you know Capex plans and also and also the for the JV.
He you know what.
Yeah, so looks like that the operating cash flow is still not quite breakeven at this point on do you have targets for when you might expect to hit operating cash flow breakeven and also on free cash flow basis.
You know this Oh, Hey, Watson, our Capex spending is pretty much in the in the range of normal range and I can I would say, 6% to 8% of our revenue.
Well the joint venture, yes, and the you know a right now we are doing some planning work in the.
ER for that.
It's wrong on this but oh right now element focus it is a then to ramp up and you know or the 12 inch fab first so I'm not a well half a.
Longer term planning or for the JV.
So I'm sorry.
Were there any capex or breakeven targets that you can give us.
Well that's a.
Bargain, well see along with our business and the growth and Oh.
The expectations. So that's a kind of you have to wait and see where we'll disclose them when the time comps.
Great Hi, this is Mike and I, maybe putting in a few words about his JV.
Yes. Please thank you.
Oh, you know I think a first we need to differentiate okay. This JV, what say is sortie a purpose driven.
The statistics in Boston.
Who met with all piece and of course plane.
So he's not it purely financial he's asking and.
Therefore, no we really look into what our business grows the as well as it goes there then we together these adventure to support that Meanwhile, well just venture growth too. So it is the primary and secondary primarily relates to support your growth.
So I don't want that you budgeted.
That's very helpful. Thank you and I understand its strategic.
Or LSW as a standalone and and there's you know the castle implications or.
It's a consideration, but it's not the primary or one or right rumsfeld costs, whether it be their prudent I saw that knows the about yes, yes, yes. Thank you right.
Thank you and I'm just one last question.
To help us not all the the government investigation is it still is going to be between half million for the remainder of the year is there some drop off that we can expect at some point.
Well this one is really hard to estimate.
The whole does to the depending on the.
Activities right now.
For the June quarter.
I would you expenses.
A worry in the 25 2.6 million range and so on the I wouldn't think and you know.
I just use two and a half a million dollars at this point for the guidance. So you know that's hard to estimate.
At this point.
Okay, That's chair and that's all I hadn't and congrats again on the solid results.
Thank you.
Your next question comes from the line I'm, Craig Ellis from B. Riley <unk> Yeah. Your line is open.
Yeah, a couple of them and thanks for taking the follow up skies.
First I just wanted to get your views on how you're looking at production optimization and demand planning and I want to do it in the following context I think when we.
I started into calendar 20.
The company was optimizing its business School war communication centric growth or watch happened sense you relied on your feed it looks like the back half of the year, we're really going to see mid year late year. Our growth is driven by gaming platforms and compute so good for you for realizing that and I think.
Communications business has been fairly flattish from the first quarter. The question is if we look at.
Calendar 21, so the second half of your fiscal 21 first half the physical 22, how do we think about the way you're optimizing your crop production and your demand planning is it going to stick with being much more of a computing the console.
Incremental demand business or do you see.
That communications business coming back in and contributing more to growth.
Next year, then has over the last couple of quarters.
Yes, Stephen I can address that so it's similar to the when I was saying before on any given up the total picture.
In the long term, we know we're heading more towards diversification so but in the short term you're right. You know right now we're seeing a big strong growth in a and Pcs because it from work from home as well as consumer because of the newer platforms out that we're getting into four for gaming on in the longer run you know I do expect a the other the platforms.
Also to continue to grow communications on you know we do expect you know the cell phone still still to be a the mean or I guess the foundation of that on the are we have a very strong position now and each of the three a major markets and you know because they'll continue to be strong going forward on the power supply side.
And we saw the beginning of some growth over there because of our high voltage business on you know initially I got no going after the PC market, but and ask potential to expand it to be more than that.
So no near term definitely I think the gaming as was the graphics cards I will be big and computing is helping them graphics cards as part of the computing and segment will grow over there as well as a witness some bom content increase in India upcoming platforms for intelligent and Andy.
That's really helpful color, Steven and then the follow up.
I believe the company's spending about 3 million a quarter and its digital power R&D. So just trying to think through.
The the dynamics that get that business to breakeven on an operating basis. So we started to ship product it's going into.
Gaming card products do you feel like you've got visibility now to six to 8 million in quarterly revenue per digital power or when would you expect to get that visibility. So we'd be at a point where on an operating basis, we were breakeven on a quarterly basis.
I think it's still further out I know, we expected digital power could take time to establish on a as it for first player going into digital power, but also as you know for the markets that we're going into enough, where we want to get into well to serve in telecom not worse still relatively new to those markets. So that it's simply just takes time to develop this business.
That said you know, we where we're getting the early traction on is in the you know isn't the applications that we do know well I'm going into you know declined side on the graphics and was point and Pcs.
So we expect to see earlier traction there its not going to get to the or the break even point back quickly on the things a studies well, but we'll be making steady progress towards that so I think we're still a few years out at least in getting to the breakeven, but you know. This this is just to be getting other revenue is coming from one customer right now, but we hope to expand that and.
Coming quarters.
Makes that would be for pet Steven.
This is Mike can I add up you work Yep go ahead Mike.
What does it stays exactly true however, I.
I would like to also shifts on off of our excitement. There are so you know over here some from Stephen right. We are accurate strong inclines. Okay. I'd tell you know that the telecom, which is kinda new you're going to conduct.
Clients idea this amount of we're seeing a GDP.
Among all of our in August implies easier so even though they may not get to revenue actually hey, what is that these revenue complemented our but there will contribute greatly to the to the other side here, so I'm going to benefit not not not just the what does he didn't say so is this I'm I'll just say this.
Thought benefit there, which is really agreed and Asia yeah.
Got it so there's more than meets the <unk>. Thanks for that clarification, Mike Yeah. Thank you.
[noise] there no further questions at this time I turn the call back to the presenters for closing comments.
This concludes our earnings calls today. Thank you for really interesting they last and we'll look forward to talking to you again next quarter. Thank you.
Thank you is that you are right.
That's a huge conference call today.
Wonderful day, you may now disconnect [noise].
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