Q4 2021 Alpha and Omega Semiconductor Ltd Earnings Call
Good day, and thank you for standing by welcome to the Alpha and Omega semiconductor fiscal quarter for 2021 earnings call. At this time all participants are in a listen only mode. After the Speakers' remarks, there will be a question and answer.
Your session to ask a question during the session you will need to press Star and then the number one on your telephone keypad. Please be advised that today's conference is being recorded if you require any further assistance. Please press star zero.
I would now like to turn the conference over to your first speaker today, Mr. Gary divorce Shack. Please go ahead.
Good afternoon, everyone and welcome to Alpha and Omega Semiconductor's conference call to discuss fiscal 2021 fourth quarter and year end financial results I'm, Gary to Board Jack Investor Relations Representative for AOS with me today are Dr. Mike Chang, our CEO, Steven Chang, our president and he found beyond.
Our CFO.
This call is being recorded and broadcast live over the web replay will be available for seven days following the call via the link in the Investor Relations section of our website.
Our call will proceed as follows like we'll begin with strategic highlights then Steven will provide business updates and a detailed segment report after that <unk> will review the financial results and provide guidance for the September quarter. Finally, we will have the question and answer session.
The earnings release was distributed over the wire services today August 11, 2021 after the close of the market. The release is also posted on the company's website. Our earnings release and this presentation includes certain non-GAAP financial measures, we use 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.
The Asian of these non-GAAP measures to comparable GAAP measures is included in the earnings release, we remind you that during this conference call. We will make certain forward looking statements, including discussions with 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.
Curious from such expectations.
For a more detailed description of these risks and uncertainties. Please refer to our recent and subsequent filings with the SEC, we assume no obligation to update the information provided in today's call now I will turn the call over to our CEO, Mike to provide strategic highlights Mike. Thank you, Gary I would like to welcome everyone who.
Today's call.
I am excited to be speaking with all of you again today.
We have been dealing with the COVID-19 pandemic.
Well over one and a half years.
And we continue to take good precautions to ensure the safety and the well.
They're all being of all our employees and their families.
All cost.
Colt quarter continue the strength and the momentum we saw throughout the year.
We once again delivered strong year over year performance.
Each of our market segments.
Is it right to your revenue and the excellent profit to fit it.
We benefited from strong end market demand, enabling us to optimize our product mix.
Fourth quarter results demonstrate the strength of our market diversification strategy.
Robin in product for the foreseeable future.
Winning customer relationships and the growing production scale.
Total revenue for the fourth.
Quarter group.
Year over year to $177 million as we continue to see broad based strength across our business.
Non-GAAP gross margin was 34, 9% up 300 basis of corn.
Last quarter, and the 740 basis points higher than the same quarter a year ago.
Non-GAAP EPS for the fourth quarter was 95%.
Which more than tripled year over year.
If I'm wrong.
Go into more details.
Our financial performance later.
The strong fourth quarter.
Kept a outstanding fiscal year 2021 revenue.
<unk> grew 41% year over year too.
<unk> hundred $57 million.
On the bottom line, we achieved non-GAAP EPS of $2.93 up from 88% last year.
Premier previously.
We had set a target of.
$600 million in and Europe.
Revenue for calendar year 2021, and.
And I am pleased that we used trucks, that's 40, there a passion that's.
I'll get I had all right well, we are not immune to some of the supply chain.
Strength.
In the broader semiconductor industry, we are doing a good job managing them to mitigate any interruptions to all customers first.
First.
We are making investments.
And the capacity and the weather and our technological capability at all already getting fat, we believe the investment while strengthening our competitive advantage in our target market.
And it is part of our long term strategic plan for.
For sustainable growth and the continuous technology improvement.
In the current business conditions.
And the shortage of all capacity.
It is increasingly important.
So we have the ability to own and control our supply chain.
Second we continue to ramp up.
Our capacity at our JV fab and Chongqing.
According to plan.
I am pleased with the progress we are making.
And we are on track to approach the phase one target run rate in the September quarter.
Third would.
It would continue to maintain close relationships with multiple foundry partners.
And are working with them for additional wafer supply.
Overall.
Although all supply is tight.
I am thankful to be April you'll have both internal and external capacity.
To support our business and the minimized distressed at our customers.
In these times of shortage.
This summary.
I am very proud and appreciative of our team's execution.
In fiscal year 2021.
In addition to the traction we get from the successful implementation of our strategy.
We saw strong industrial Calvin during the present time.
And as we enter fiscal year 2022.
There are plenty of opportunities.
And the much work to be done to continue to grow and scale our business.
I am confident.
We have the right leadership and the right product in place to ensure we.
Our successful to capitalize on these opportunities.
Our mission to be.
We are trusted technology partner and a global supplier of abroad for the 40 <unk> of all semiconductor remains on track.
Looking ahead.
We plan to grow our annual revenue to $1 billion in the next few years now I would tend to call over to Steven.
Based on our business and a key catalyst segment report.
Steven Thank you, Mike and good afternoon, everyone.
I will start with an update on our business and then provide detailed segment highlights for the June quarter.
As we have stated all along the core of our business strategy is technology and volume.
Technology and innovation in our business derives from repetitive volume manufacturing, which often inspires opportunity for improvement. This is the origin of technology development.
We invest in core competencies of silicon packaging and <unk> as the foundation of our product technology best in class technology leads to competitive advantage in our products and to assess and the markets will be addressed.
Our product strategy is to create advanced total solution products in close partnership with our customers.
These products demonstrate our expertise in power and move beyond commodity parts into Molokai socket optimized solutions that make our customer and products more reliable and efficient.
We continue to accelerate growth by winning new customer engagements with an expanding pipeline of new products and increasing bom content with our application specific solutions. An example of this is our intelligent power modules designed specifically to address and motor drives used in home appliance app.
Vacations.
The module is combined the function of up to 17 discrete devices into a single solution to provide performance and ease of use to our customer.
Another example is our series of driver Mos products, where we optimized the IC to bring the best out of the co package MOSFET to deliver high efficiency <unk> and graphics applications, even our advanced discreet MOSFET are built on specialized platforms that address the performance needs of target.
<unk>, such as battery protection and graphics.
<unk> remains tight in the marketplace, while demand continues to be strong across all our core market segments in times like these supporting customers through an interrupted supply of our products is more important than ever.
As such we are sharpening our focus on customer engagement. Our continued focus on strategic customers enables us to take advantage of the current environment to stay closer to tier one customers optimize product mix and capacity allocation and deliver strategic value to those customers.
<unk>.
While we are managing with longer lead times and component availability, our competitive market position strong customer relationships and supply chain responsiveness enable us to deliver on our commitments.
Our backlog in the June quarter continue to far exceed our capacity, we have been actively allocating capacity to avoid interruptions to our customers' production months optimize our factory utilization and support our strategic initiatives at the same time demand has been dynamic while not always follow.
Normal seasonality.
Fortunately the majority of our production is in house, which allows us to better serve our customers in such a severe shortage period.
As a result, we are able to focus on our core market growth that follows our strategic business direction.
Now, let me drill down into each of the business segments.
Let's start with computing.
Revenue was up 57, 3% year over year, and up 10, 2% sequentially outpacing the industry.
This segment represented 43, 7% of our total revenue and demand for our products remains strong with record revenue in the June quarter as our major customers. We are still facing component shortages. While we were on allocation, we elected to allocate more capacity and resources to support the computer.
Segment, including the notebook tablet and motherboard applications.
Conversely, the graphic card business was down double digits sequentially due to a customer's order a pull in from the June quarter to the March quarter.
Looking ahead, we expect computing revenue to be flat to modestly down sequentially in the September quarter due to allocation, but up double digits on a year over year basis.
We expect solid demand at our ODM customers for motherboards and graphics card business to rebound following our customers' production trending upward to a more normal level.
This will be offset by a temporary decline in notebook as we allocate our production capacity to support growth in our motherboards and graphic cards.
Turning to the consumer segment, which was 21, 1% of total revenue in the June quarter up 36% year over year and up four 4% sequentially.
This segment played out better than expected gaming remains strong as we continued to gain share at a major customer with both our MOSFET and power IC products in multiple sockets.
Our overall home appliance business was slightly down due to a temporary allocation.
That said compared to the March quarter, we shipped higher volumes of module solutions to key home appliance customers in Asia in the June quarter.
And we intend to further increase shipments of module solutions in the next couple of quarters.
Looking to the September quarter, we expect the consumer segment to increase by a high single digit percentage with strength in gaming and home appliances.
Now, let's discuss the communications segment, which was 12, 8% of total revenue in the quarter up 14% year over year and down 17, 4% sequentially.
This segment played out as expected as smartphone business performed in line with normal seasonality, having said that demand for battery protection in Brazil at one of our global smartphone customers to support the upcoming launch of our new model.
We expect our communications segment to increase by mid double digits in the September quarter as all major smartphone players in China Korea, and the U S are entering peak production.
With that we believe we are in an excellent position to resume battery protection growth in the September quarter with design secured at are a key global customers.
Finally, let's talk about the power supply and industrial segment, which accounted for 24% of total revenue.
The segment was up 53, 1% year over year and up 11, 5% sequentially.
Solid growth was due to several factors first the demand for AC DC power supplies for laptop adopters was extremely robust with incremental design activity with major power supply customers in Taiwan.
Second momentum of our quick charger business remains solid driven by demand for travel adaptors using tablets as well as quick charger solutions for smartphones.
Third demand for DC fans made her fans manufacturers in Japan was strong we expect this segment to grow by high single digits in the September quarter, driven largely by our AC DC power supply and power tool businesses.
Overall business momentum celebrated in the June quarter, and we are making solid progress towards our ambition to position us as a leading global supplier of a broad portfolio of power semiconductors.
With that I will now turn the call over to <unk> for a discussion of our fiscal fourth quarter financial results and our outlook for the next quarter.
Thank you Steven good afternoon, everyone and thank you for joining us.
Revenue for the June quarter was $177.3 million up four 8% from the prior quarter and up 44, 9% for the same quarter last year.
In terms of product mix.
<unk> revenue was $127.2 million up three 8% sequentially.
Up 31, 2% year over year.
Power IC revenue was $46.5 million up seven.
Seven 2% from the prior quarter and up.
Up 99, 7% from a year ago.
Assembly service.
Revenue was $3.6 million as compared to $3.2 million last quarter and $2.1 million for the same quarter last year.
For the fiscal year 2021 revenue was $656.9 million up 41, 3% from last year.
Non-GAAP gross margin for the June quarter was 34, 9% up from 31, 9% in the prior quarter and up from 27, 5% in the same quarter last year.
The quarter over quarter increase in non-GAAP gross margin was mainly driven by better product mix.
Non-GAAP gross margin excluded <unk> $8 million of amortization of purchased IP for both the June quarter, and the prior quarter and $4.4 million of production ramp up costs.
Related to the JV company for the same quarter last year.
In addition.
Non-GAAP gross margin excluded <unk> $6 million of share based compensation charges for the June quarter, as compared to $4 million for the prior quarter and $3 million for the same quarter last year.
For the fiscal year 2021, non-GAAP gross margin was.
31, 9%.
As compared to 27, 9% for the prior year.
Non-GAAP operating expenses for the June quarter.
30.
Two 8 million compared to $39 million for the prior quarter and $25.3 million for the same quarter last year.
The quarter over quarter increase was primarily due to higher variable compensation, though of course this quarter.
Non-GAAP operating expenses for the quarter excluded $4.8 million of share based compensation charges and $6 million of legal expenses related to the government investigation.
This compares to $3.4 million of share based compensation charges.
$6 million of legal expenses related to the investigation for the prior quarter.
As well as $2.4 million over share based compensation charges and $2.6 million, so what ego expenses related to the investigation.
For the same quarter last year.
Non-GAAP operating expenses for the fiscal year 2021 was $123.8 million.
<unk> to $102.5 million for the prior year.
Non-GAAP operating expenses excluded $13.6 million share based compensation charges and $3.1 billion of legal expenses related to the your medication in the current fiscal year as.
As compared to $8.9 million of share based compensation charges $4.7 million of legal expenses related to the investigation and point $6 million for an impairment charge in the prior fiscal year.
Income tax expense for the quarter was $1.2 million compared to $1 million for the prior quarter and $4 million for the same quarter last year.
Income tax expense for the fiscal year was $3.9 million compared.
Compared to $4 million for the par physical.
Sure.
Non-GAAP EPS attributable to AOS for the quarter was 95.
<unk> per share as compared to 77 cents for the prior quarter and 29 for the same quarter last year.
Non-GAAP EPS attributable to AOS for the fiscal year was $2.93.
As compared to 88 for the prior fiscal year.
<unk> continued to generate positive operating cash flow.
I saw on a stand alone basis generated.
$32.6 million of operating cash flow in the June quarter, as compared to $33.3 million in the prior quarter and $22 million in the same quarter last year.
In the June quarter, and March quarters, we received $10 million and $20 million customer.
I apologize for securing supply respectively.
The JV company generated positive operating cash flow of $11.6 million in the quarter compared to $5.3 million in the prior quarter and $21 million in the same quarter last year.
Cash flow from operations attributable to AOS for the fiscal year, it was $114.3 million as compared to $58 million for the prior year.
Cash flow provided by operations attributable to the JV company was $14.4 million for the year compared to $4.4 million in the prior year.
Consolidated Ebitdas for the June quarter was $49 million compared.
Compared to $36.2 million for the prior quarter and $14.9 million for the same quarter last year.
Ebitdas attributable to AOS for the quarter was $33.6 million as compared to $36 million for the quarter and $12 million.
For the same quarter last year.
Ebitdas for the JV company was <unk>.
$7.8 million in the June quarter, as compared to $4.5 million for the prior quarter.
$1.1 million for the same quarter last year.
Consolidated Ebitdas for the fiscal year was $136.4 million as compared to $52 million in the prior fiscal year.
Ebitdas attributable to AOS for the year, it was $111.7 million as compared to $44.8 million a year ago.
Now, let's look at the balance sheet.
We completed the June quarter, with cash balance of $202.4 million, including $164.9 billion at AOS.
$37.5 million at the JV company.
This compares to.
$192.1 billion at the end of last quarter, which included.
$158.3 million at AOS, and $33.8 million at the JV company.
Our cash balance a year ago was $158.5 million, including $110.3 million at AOS and $48.2 million I had the JV company.
The bank borrowing balance at the end of June was $165.4 million includes.
Including.
$24.3 million at AOS and $141.1 billion at the JV company.
During the quarter AOS and the JV company, repaid $2.1 million and $4.2 million of existing term loans respectively.
Net trade receivables were $35.8 million at the end of the June quarter, as compared to $33.7 million at the end of the prior quarter and $13.3 million for the same quarter last year.
Days sales outstanding for the quarter were 26 days compared to 22 days in the prior quarter.
Net inventory was $154.3 million as of quarter end up from $145.1 million last quarter and up from $135.5 million in the prior year.
Average days in inventory were 115 days for the quarter compared to 112 days in the prior quarter.
Net property plant and equipment was $437 million slightly up from $432.6 million last quarter.
Up from $412.3 million of last year.
Capital expenditures were $32.2 million for the quarter, including $25.1 million at AOS and $7.1 million either JV company.
In the June quarter.
<unk> commenced a plan to expand our Oregon fab with an investment of approximately $100 million.
Including $20 million to advance our.
<unk>.
And $80 million to expand capacity.
We believe this expansion was 40 completed well enable us to generate an additional $70 million in annual revenue.
We expect that capacity to come online in the December quarter of 2022.
During the June quarter, the JV company and continue to ramp is 12 inch fab.
It's on track to achieve the face one targeted run rate in the September quarter.
As discussed the JV company is in the process of pursuing additional financing for its phase two capacity expansion.
We will provide more details when they are available.
With that now I would like to discuss the guidance for the September quarter.
We expect revenue to be approximately $180 million plus or minus $3 million.
GAAP gross margin to be.
$33, 7% plus or -1%.
We anticipate non-GAAP gross margin to be 34, 5% plus or -1%.
Non-GAAP gross margin excluded <unk> eight.
Million dollars amortization of acquired IP and point $6 million of estimated share based compensation charges.
GAAP operating expenses to be in the range of.
$37.7 billion, plus or minus $1 million.
Non-GAAP operating expenses are expected to be in the range of $33.5 million plus or minus $1 million.
Non-GAAP operating expenses exclude $3.9 million of estimated share based compensation charges and $5 million of estimated legal expenses relating to the government investigation.
Income tax expense to be approximately $1 million to $1.4 million.
Loss attributable to Noncontrolling interest to be approximately $5 million.
As part of our normal practice, we're not obligated to update this information.
With that we will open the call for questions.
Operator, please start the Q&A session.
Thank you as a reminder to ask a question just press Star and then the number one on your telephone keypad again, just press Star and then the number one on your telephone keypad and don't enjoy your question just press the pound key.
Please standby, while we compile the Q&A roster.
Your first question comes from the line of Craig Ellis from B Riley Securities. Sir Your line is open.
Yeah. Thanks for taking the question and congratulations on the very robust results and outlook.
I went down Scott.
Two part question in part based on a comment that you made my can and so as I look at the first quarter's guidance should annualize to $720 million in revenues.
And.
Down the line items would imply EPS sit with annualized near $3.88. So you had indicated might fit that.
You were shooting for a billion in sales in the next few years. So I know that's historically been the calendar 'twenty poor target but.
Just my decoder ring me in that a few years is really two years or three years, because it seems like you've been on a very aggressive growth trajectory and maybe we are pulling in that billion dollar target and then.
The second half of the question.
Given the profitability levels that we're achieving this thus far below the $1 billion target. If we've got call it 40% upside to target revenues is it fair to think terrorists another 40% upside in earnings coming if we can grow revenues from 720 million.
Two $1 billion over the next few years.
Well. Thank you for questions. Thank you for your kind words.
For sure we are pursuing okay with a three years old some of you work through the year.
I think the.
The only wants to be a I would rather have you found.
Covid.
If you do it.
Oh sure sure Yeah, our target and Craig and the you know right now for $1 billion one remains at.
Around 2024 to $1.25, a timeframe at this point.
In terms of profitability yes.
We have been pleased with our gross margin improvement and our bottom line even.
More significant improvement yes.
Our overall business model is to grow our business grow top line with reasonable margins.
We leverage all of scales tool.
To grow bottom line EPS, even faster so.
I mean, yes, I would expect and you know as we grow our top line and toward $1 billion and then our bottom line.
The wood will continue to improve the this is all with business model for that for the near term midterm and long.
Long term.
I think we can continue to grow our profitability I mean did our June quarter's resolves.
<unk> already demonstrated that.
This business model.
Yes, that's very helpful. My next question is regarding gross margin so great to see the searching gross margins in the quarter and in the outlook there, they're kind of down I believe by 50 basis points sequentially. So so the question is this.
Given that theres been a very strong new product contribution to gross margins over the last few quarters is that still expected or is there something about mix that's changing sequentially. That's what the gross margins a little bit lower or is it more just the mix of the end markets.
And some of the things that are happening there that's causing the change in gross margin and if we look at gross margin just beyond the current quarter can you talk about some of the things that are that are happening with gross margins and the degree to which current levels are sustainable or could even.
Be expanded upon can we now think about 35% gross margins for even higher given that we're so close to that level.
Oh sure.
We are pleased with all with gross margin improvement.
Which was mainly driven by the better.
Better mix.
A couple of factors contributed to the mix improvement.
One is.
Since we are on allocation right now so we are optimizing on the mix.
Mix as well as our customer mix.
Another contributing factor was to.
Growth from our new products.
For example, you saw our power.
Power IC products grew quite a bit.
Almost 100% year over year in the June quarter.
Most new products and generally.
Carrier at a higher margin for us so fundamentally in the you know we are selling more and more higher margin products. So I wouldn't expect that.
Our margin stay around this level.
For the near term of course, it may fluctuate and.
Do you expect at this point.
We will be even is fluctuating are probably at around this level.
That's helpful. He pond, and then I'll ask one to Steve and so I don't ignore them before I jump back into the queue. So I just wanted to follow up on the Companys decision to add capacity at the Oregon Fab. So.
So 70 million seems like it might give you.
An incremental 10% to 15% of incremental I put there, but the question is really about.
About why you're.
Are you, adding capacity can Oregon versus.
Doing something more at a quicker pace and CQ and and are the drivers related to some of the deposits that you've taken and which I think now total.
30 million over the last two quarters.
Is it a mix issue I think Oregon does more of the power Ics versus MOSFET Sir.
What are the reasons for moving ahead with an expansion of that fab versus being more reliant on secure.
Sure.
As you know we've been growing fairly quickly in the last year and a half and and it's pretty obvious that we are out of capacity and disorders time and we all.
Want to make sure that our supply from key upward on demand. So that includes expanding in house at our Oregon Fab. It also includes working with them.
With our joint venture as well as other foundries to expand capacity.
Our decision to two.
Men in Oregon is not it's not just that decision only for Oregon.
We are expanding on all of those all of those fronts to make sure that we can keep up with.
With demand.
So it's not necessarily due to mix and rehab.
And we have demand and growing in several of our segments.
So it doesn't make sense for us to continue to expand where we can.
Okay. That's helpful. Stephen just a clarification related to capacity and capacity planning I know you set the expectation that that auto should be a an end market that doesn't have a material ramp for a couple of years. Its just the nature of that application area, but can you talk a little bit about the three.
Sources that you mentioned, where you would expect to be sourcing.
Supply for that initiative.
Right now, we're not restricting automotive to any particular facility yet.
And.
And I think we will be using whichever.
Whatever outlet, we have that we can count up with long term debt.
Of course, you know automotive.
Are looking for suppliers that will not change in the next 10 years and that will not change the actuarial.
They can count on that you don't have to go through qualification.
So for US we're not fix that in the automotive you can only come from certain areas.
Yes.
Those things will plan, specifically some maybe in house some of your outside.
But it's not it's not.
Sixth out of Europe, It's only Jay Pat for automotive for example.
Got it great results guys I'll get back in the queue.
Greg Thank you.
Thank you. Your next question comes from the line of David Williams from Benchmark, Sir Your line is open.
Hey, good afternoon, Thanks for taking my questions and congrats on the solid quarter.
Thank you. Thank you.
I guess first I wanted to ask around the gross margins and some of this has already been asked but I wanted to ask it maybe a little bit different way and just kind of thinking about that.
The higher IC business, that's clearly been a part of the business has been expanding and it's been a nice contributor, but how do you think about that mix over time and what do you think is the right percentage of IC business versus your other business.
And how do you think maybe about the margin differential between those two different segments there.
Sure.
For us now, but we're happy to see.
You found was mentioned because it just now that in our power IC business is definitely growing along with our module solutions, a modest loosens up the ones that we're selling into the home appliance market.
So this is a great way for us to sell more to sell a better product.
That's you know if that addresses the customer needs.
Lasting a little bit more tightly.
We will continue to expand in those areas, but at the same time, our discrete business isn't been a standstill you next year.
A reminder, that many of our power IC products and are a module solutions based don't have discrete inside we use co packaging and it's built on top of our silicon technology platforms.
So we will still continue to see growth in our discrete business simply because we need good discrete.
In order to on where RGB teeth in order to make good power IC and module solutions. So in terms of mix.
I would say the percentage of Ics and modules will certainly grow over time.
First any.
And a rough target that.
We're looking at is about one third from Ics and modules and two thirds still go on some discrete business.
Okay, great color there. Thanks, so much.
And then maybe another one for you, but on the $20 million of Opex that you talked about expanding the technology in Oregon.
How much of that I guess is there any process node their expansion or maybe if you could give us any color about what that is but I also just wanted to say it speak to the confidence that you have and the demand is sustainability and so I guess, if you look out into next year. When this when this capacity comes online.
I guess to what level of your confidence that your demand that youre seeing today is not necessarily being.
Being pulled in by the macro but more sustainable and can continue long term and that we're not overbuilding here capacity that could fall off as we get into next year.
Sure of course.
Certainly you know, we do need capacity now and it's not just you know it definitely benefited from some of the work from home.
The shortage situation, but our fundamental growth areas are certainly continuing to move forward.
What pieces of kind of the given given today's environment, but also smartphones and home appliances, our business is pretty solid and making you know this is company specific growth.
Changed to move forward.
In addressing the expanding capacity we are doing this definitely for capacity, but also for our capability as well it is going to give us.
More against equipment that allows us to improve our technology further so much of that technology. For example, our low voltage is probably on the fifth or sixth generation of technology platform.
And we do need to newer equipment in order to keep that engine going and to continue to come out with leading platforms that we can face pools are discrete and as well as our IC products on top of it.
Okay. Okay, and then maybe one just last one for me here anything unusual in the inventory build you saw this quarter, obviously up a bit how much of that was just.
The inventory Bill could you could and how much of that are you seeing anything in any particular markets, where you're seeing slowdowns or maybe anything unusual there.
David.
Inventory increased a little bit compared to last quarter.
Partially it was because of the joint venture.
Continue to ramp up and so then they have to.
Some inventory.
Materials.
A whip.
There another thing as a full AOS side and we also increased in Assam.
On the materials.
Raw material sounds like those are.
<unk> Street in the South Street, and lead frame that I mean dosing in those areas. So the given the uncertainty of.
Oh for Covid.
Even though you know there are some countries in the started the lockdown. Okay. So are we kind of are intentionally increased in some.
Purchases actually our finished goods inventory actually went down.
Okay, very good and even now that I have you on the line, let me ask one more in there just in terms of the Opex.
Kind of bumped up a little more than we would have expected in the June quarter anything unusual there that we should be thinking about and does that kind of carry forward is this a good base to kind of grow from.
Uh huh.
But go ahead.
Oh it is.
Uh huh.
If you don't mind and Edison caught up.
Now this year everybody everybody to know is the shortage here anything you produced to be hot.
So that's why if I mentioned to you got creative that we can take advantage that you have a product mix.
However, everybody knows such kind of thing would not forever. So eventually you still depend on your competitive the average so why is this year, where you've got it okay.
Oh in the capital equipment area too.
Further enhance our capabilities so that it will keep the or enhance our competitive averaging just in case the time go back to normal.
Okay. Okay.
Alright, David.
Regarding the Opex and yet in the June quarter, the increase was primarily due.
Due to the increased.
The variable compensation of course, you know because of the better than expected to our financial results. So I.
I would expect that yes.
Forward and probably.
It will stay around about LIBOR.
Great. Thanks, so much guidance certainly appreciate the time and best of luck on the quarter.
Thank you.
Thank you. Your next question comes from the line of Jeremy Kwan from Stifel. Your line is open.
Yes, good afternoon, and let me add my congratulations on the gross margin in and seen the J D churns and cash flow positive.
I guess a first question on the you know the backlog you mentioned was very strong can you give us an idea of where your lead times have gone and where they were meaningful 12 months ago and where they are today.
Okay.
Lead time, I mean, right now than it is.
A little bit longer than.
12 months ago, yes.
Our backlog and I would say stronger than 12 months ago as well.
For us I mean this.
We saw some customers on the placing them more.
And for the longer.
Range than having them.
So we.
We are closely.
Monitored.
<unk> and the work communicate and.
Closely with our customers so we know.
So we know there are true demand so and then.
And you know we also.
Triangulated with our OEM design wins out of customers.
And then are we are we monitor.
Monitor our shipment so overall in that I'm in.
Even if we cannot ship.
We cannot fulfilling customer orders and tell them that the upfront. So we don't want to drag them.
Hum.
Got it.
So you're not doing anything like that.
And your other semiconductor peers, where you know.
You're trying to get customers to place longer lead time orders or things like that I need like non cancer below nonrefundable type.
Arrangements.
No that's pretty much done.
Same throughout the years.
Okay, Great and then I guess.
Can you give us any indication of where you see pricing both in terms of your own products.
Given the tightness in the whole supply chain. It seems like you know I.
I know you've been pretty judicious about raising prices on your customers, but I was wondering what.
Maybe competitors are doing and what we jostle seen in terms of the input prices those are going up and if you're planning to passing it along to your customers.
Yeah.
Sure I mean, yes, and then you know we do see some.
Costs decreased.
Input cost increases and yes and done that.
In terms of our own pricing.
I mean.
There is no formula in this area and then I mean so.
Factors.
We.
Consider.
Uh huh.
The relationship with customers and the strategic some are.
The initiatives we want to.
Push and then a part of mix I mean capacity.
Alchemize.
Revenue margin for us in that I mean overall, when we selectively increased some.
Asp's in so that.
We don't want to go to customers.
We overall and then we want to use this opportunity to deepening our relationship with our.
Key customers in this in the.
Promote new.
New products.
Got it okay, and if I can just turn to.
Income instead, Stephen you need on the graphics market that it seemed like they were.
Large customer pulled in some orders from them.
June quarter into the March quarter.
And so.
It seems like that you know can you help us square that with it seems like everything's in shortage and particularly graphics cards. It's you know everything is flying off the shelves and can you help us understand a little bit what's going on.
Sure. It's all has to do with allocation also too and finding ways to support our.
Our customers in.
In their time of need.
Our graphics and now we're talking about something.
Power IC driver Mos products.
And yeah, if you had any in the in the March.
Quarter four more support so we help the customer out but that was pulling in from.
From the end of.
June quarter, we are expecting bathroom rebound.
In the September quarter. Overall, you know we are on allocation also to the same similar type of products. You know driver Mos products are also being sold into gaming and as well as computing applications. So it's been it's been a challenge.
For for us to to choose and to figure out who to support what's the best interest for US was the best interest for the customer.
So.
Overall do you think that the overall power IC business has grown.
Pretty tremendously year over year.
But we do have to move things around from quarter to quarter to support our customers as well as support our own.
Our strategic initiatives.
Great. Thanks, Steven and then just one last question before I jump back in.
And we found in terms of the $100 million spend is the $25 million that you spent this quarter or is that part of that 100 million or is that.
In addition to the $25 million and also if you can give us a rough timeframe of when you expect.
Good morning to me to be phased in.
Okay sure did $25 million Capex and spending in the June quarter.
Uh huh.
Including some.
The down payment for this $100 million project.
We already placed holder and then some of them required down payment.
More.
The majority of what it was.
Not related to this.
$100 million.
So there's $100 million project.
It probably will spread out.
Throughout this fiscal year 2022, so from.
From now on and you pretty much to the <unk>.
First half of <unk>.
It's kind of in their ear 2022, so in order to get a machine seeing to get.
Facilities.
<unk>.
Great. Thank you.
Thank you.
Thank you once again as a reminder, if you wish to ask a question just for Chris.
Star and then the number one on your telephone.
Our next question comes from the line of Peter Vogel from JMP JMP Securities. Your line is open.
Performance even.
Thanks for taking my question.
To kind of ask about the environment and understand obviously things are tight.
Deposits, but then you're also.
Trying to get more capacity. So how are you thinking about the.
The potential for AUM.
Over ordering because everybody seems to be jockeying.
For position right now and so I would I would think that you guys are trying to scrub your books, a little bit make sure orders are real but love to just understand how you're thinking about that conceptually. Please.
Sure.
Hi.
Okay.
Yes.
Certainly Adam Moore.
Certainly you know when we look at the <unk>.
Orders in the backlog it is definitely much stronger and more than we can handle and we don't doubt that there are double orders in there but.
But I wouldn't.
There are no orders.
We can supply they will take them.
And so.
So the best thing for Us to do is to do our homework. So we work very closely with our customers keep in mind that most of our designs and revenue comes from line is is that our team actually personally you know designs in.
So we have close contact with their procurement and we and we know what their actual needs are we know what's going to what clinic.
When it goes above and beyond and when things got abnormal. So we will question also too because we wanted to make sure that it goes to the supply goes into government policy.
Cause I really.
Actually being produced and not just not being quoted somewhere.
So we are working in close partnership with our customers. This is a great opportunity for us to talk closer to them understand that there can be and understand what's going on as well as the positioning us for future growth with these customers. So it comes down to the cockpit.
Right and to that you know on the design wins, how much of your business is going through the distribution channel versus direct to customers and forgive me for not knowing this but is the use of the channel is that really just for fulfillment.
Or is there some part of that that's actually.
Used for <unk>.
Sales as opposed to fulfillment.
I think that there's some parts of the supply.
Well, yeah, I mean that.
This the business.
Right now it's about two.
Two third of our business over 70% range, but Pete.
Peter Youre right I mean these days for was.
Pretty much.
<unk> serve us.
Logistic fulfillment purposes.
Our.
People, you know, our engineers and salespeople that they they work directly with our key customers and so forth design gains.
So basically in.
We no matter is it.
Our channel business or direct business, and though we pretty much serve and all that.
T customers directly.
That's helpful. And then maybe the last question I know this has been asked a few times and you guys have done a good job of not answering it directly.
Right.
It's a tight environment you don't have capacity you're on allocation.
Mix is helping your margins and you've given out a $1 billion sales target what would help us understand what would be the new operating model gross margins operating margins at $1 billion in sales and then how much of that is going to be due to.
Different mix that you could envision versus just nor.
Normal normal revenue.
And utilization rates.
On a full all of them.
Longer term business model, you know Peter when you put out there you know we shoot for billing.
Billion dollar.
Revenue in the 2020 for 2025 time frame.
For the gross margin non-GAAP gross margin was targeting over 30%.
Well, we put it in the call it there.
Right now I would expect that yes, we can.
<unk> maintained it in gross margins in this.
Current or range so.
So our goal is to grow the topline and dropped down to.
Bottom line EPS, so EPS it would imply that you know our model with <unk>.
Fly full $5 EPS.
Thank you.
Thank you.
Thank you there are no further questions on queue I will now turn the call back to you. Please go ahead.
This concludes our earnings call for today. Thank you for your interest in AOS and we look forward to talking to you again next quarter. Thank you.
Thank you.
This concludes today's conference call. Thank you for participating you may now disconnect.
Yeah.
Yeah.
Okay.
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Yes.
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