Q1 2022 Alpha and Omega Semiconductor Ltd Earnings Call
U a critical issue.
How we are dealing with the supply chain constraints in the broader semiconductor industry. We are expanding our production capacity in our Oregon fab ramping production in our joint venture fab in <unk> and elaborating our relationships with our foundry partners.
Cure wafer supply.
Steven will provide more detail on our strategy later on this call. We believe we are doing outstanding job managing industrial wide supply chain constraints.
We want to be sure, we minimize any interruption to our customers.
While our own supply is tight we are in excellent position to accept both internal and external capacity to support our business.
In summary, these strong quarter once again proves the strength of the team we have at AOS.
I'm very proud of that.
Well for our team's execution and the tie up.
Sure.
Continuing to pretty dead, we have the right foundation for long term growth and the right technology in place to ensure that we are successful in scaling our business.
More importantly, we have the people and the capabilities to ensure that our earnings power expense even more in the years ahead. We are on track to achieve our mission of being a trusted technology partner and global supplier of a broad portfolio of power semiconductors.
Now I would turn the call over to Steven for an update on our business and a detailed segment report Steven.
Thank you, Mike and good afternoon, everyone.
To start with an update on our business and then provide detailed segment highlights for the September quarter.
As Mike noted in discussing our earnings power our products revenue and market share today are about eight point in time, but the capability. We have built insurers will be can maintain and continue this leadership for years, if not decades to come.
First we are expanding capacity and enhancing the technological sophistication of our Oregon Fab, we will invest approximately $100 million include.
Including $20 million to upgrade our capability and $8 million to expand capacity when complete we believe this expansion will enable us to generate an additional $70 million in annual revenue.
The new capacity to come online in the December quarter of 2022.
Importantly, we expect the investments to strengthen our competitive advantage in our target markets. This is a part of our long term strategic plan for sustainable growth and technology improvements with current challenges in the semiconductor industry, especially the global capacity shortages, we want to own and control our supply chain.
As much as possible.
The phase one capacity ramp at our JV fab in <unk> is complete we reached the target run rate of $150 million of annualized revenue in the September quarter. The JV company is well into the process of determining how it will implement phase II.
Third we have close relationships with multiple foundry partners and are actively working with them for additional wafer supply.
As expected gaming grew double digits due to both share gains and system growth at a major customer with both our MOSFET and power IC products and multiple sockets.
Our overall home appliance business also demonstrated solid growth across different geographies.
Higher volumes of module solutions to key home appliance customers in Korea, China, and Japan looking to the December quarter, we expect the consumer segment to increase by a low single digit percentage with strength in gaming and home appliances.
Let's discuss the communications segment, which was 13, 8% of total revenue up 26, 8% year over year and up 13, 9% sequentially. This segment played out as expected as demand for battery protection was strong at two of our global smartphone customers to support the launch of new models.
That said our shipments to China declined due to an inventory clean up in the quarter for the December quarter. We expect communications segment sales to decrease by mid single digits sequentially, while the major smartphone players in Korea, and the U S are expected to reach peak production in the December quarter, we expect China's smartphone shipments.
Good afternoon, everyone and thank you for joining us unless otherwise noted the following figures refer to the September quarter of 2021.
Revenue was $187 million up 5.5% from the park holder and up 23.4% from the same call their last year in terms of product mix demos revenue was $137 million up 2.7% sequentially.
And up 14.3% a year over year power icy revenue was $52.3 million up 12.5% from the park quarter and up 51.9% from a year ago Assembly.
Assembly service revenue was $4 million as compared to $3.6 million from last quarter and $2.7 million for the same quarter last year.
Non-GAAP gross margin was 35.3% up from 34.9% in the prior quarter and up from 29% in the same quarter last year the quarter over quarter increase in non got gross margin was mainly driven by better product mix.
Non-GAAP gross margin excluded point $8 million, so amortization of purchased IP each for the September quarter, the prior quarter and the same quarter last year. In addition, non-GAAP gross margin excluded $26 million. So it was shared based compensation charges as <unk>.
Third $2.6 billion for the park quarter and point $4 million for the same quarter last year.
Comcast operating expenses were $35.1 million compared to $32.8 million for the park quarter and $28.6 million for the same quarter last year.
A reporter increase was primarily due to higher variable compensation of coups this quarter to reward our outstanding financial performance.
Non-GAAP operating expenses excluded full point $1 million, a share based compensation charges and point $4 million. So eagerly expenses related to the government investigation.
And $27.6 million for the same quarter last year Ebitdas attributable to a wise was $39.9 million as compared to $33.6 million for the park colder and $22.2 million for the same quarter last year Ebitdas for the J V Company was three.
$4 million as compared to $7.8 million for the part a quarter and a $4.6 million for the same cause our last year.
Now, let's look at the balance sheet.
We completed the September quarter, with cash balance of $252.5 million, including $231.6 million at AOS and plenty point $9 million at the JV company.
Okay.
Scott gross margin to be 34.8% plus or minus 1%, we anticipate the non cap gross margin to be 35.5% plus or minus 1%.
Non-GAAP gross margin excuse point $8 million amortization of acquired IP and point $6 million the estimated share based conversation charges.
Operating expenses to be in the range of $39.3 million, plus or minus $1 million.
Non-GAAP operating expenses are expected to be in the range of $34.5 million, plus or minus $1 million non-GAAP operating expenses exclude full point $3 million. So estimated shared based compensation charges and point $5 million. So estimate the legal expenses relating to this.
Government investigation income tax expense to be approximately $1.2 million to $1.4 million loss attributable to noncontrolling interest to be approximately $5 million before we open the lines for questions I will turn the call back to Steven.
But with more of a longer term question. So.
It looks like with the customer deposits that have come in the companies now taken in but nothing customer deposits. It essentially will fund the Oregon Fab expansion and the question was really on the visibility that you have been to the tools that are needed and and the other work that needs to be done so that.
That can actually start produce producing wait person shipments in the fourth quarter. So can you just provide some color on on how that.
The capacity expansion is coming in your confidence in.
Getting wafers out then and revenue generation in the fourth quarter of next year.
Sure.
As we stated in our lost earnings called we are investing over $100 million, you know, Oregon fab. So.
Kringle constructions has been.
Started alrighty so.
Most of the purchase orders already placed before but to purchases. So we are at this point, we are expecting we can get the additional capacity.
In the December quarter of kind of the year of 2022, so that's how it with current.
The expectation.
The demand environment with its capacity to best serve the highest areas and highest merchant opportunities, but but you should look at the order book and and the backlog that you have do you think that that allocation position is likely to persist through the fourth quarter and into next year or do you see that D.
T capacity for whatever reason.
Or order activity being able to bring you back into equilibrium.
I do think that allocation will still be with us for a few more quarters.
Right now we are in a cyclical and are regularly.
Peak season. So you have the smartphone demand was up PC demand and other things lining up at the same time and normally there would be seasonality.
Glenn and Kew.
The summer quarter and into the March quarter.
I think some of that demand may subside a bit but because.
Everyone's backlogged.
Talking about customers being backed up in their orders and we do expect that allocation will still be ongoing.
When we meet with our customers. We are frequently being told that they are not shipping to demand.
They're not.
To fulfill them.
And that and that.
Demand that they see as is <unk>.
<unk>.
So at.
At least for the next few quarters will still.
Some form of allocation.
At least in that from a niche.
Current timeframe.
Got it that's helpful. I appreciate it guys I'll hop back into the queue.
Again that is star one to queue up for a question.
The next question is from David Williams from Benchmark. Your line is open.
Same time working with boundaries.
Got it.
Possibly as well so we plan to have a more balanced approach and we believe that our demand is.
Quite strong and we do need to establish more sources of supply in order to to to keep up with that business.
Okay very good thanks for the color there and maybe anything on around the JV in the second set door. Currently planning that has there been any updates there and what maybe could we expect in terms of that second phase of the JV and in terms of your planning efforts. What are you how are you thinking about that.
Sure.
The JV company is well into the process of.
Determining how it will.
Implement its next phase of growth.
The expansion.
The process takes some time and I mean this thing is.
Mike.
The last time.
It took.
Two or three years to establishment joint venture agreement.
I don't want.
Believe me this time.
How much of that.
Yeah.
But.
They need to be.
Some patient then.
So.
This.
It brings me to two.
Ill say an unmet.
Good things come to those who wait.
We will disclose some more when it comes.
Okay perfect. Thanks.
And then maybe just kind of on the.
Geographies is there anything specific maybe in China, just kind of given your manufacturing footprint, there and the breadth of your product exposure are you seeing the softer consumer trends and have you been impacted by maybe some of the COVID-19 impact.
And patients that seem to be spreading out or maybe even the power issued or raw materials anything I guess from a geographic standpoint in China.
Same.
Well right now.
Go ahead Larry.
Go ahead.
Okay.
This one.
So far.
Our factories in Shanghai, and the joint ventures.
Chongqing, we have not.
Contrary.
Our outage.
Okay.
Yes.
Providing welfare.
Sure.
Cause.
Yeah, because for how much of that is shelving, maybe they're supposed to you uhm, there's a new socket.
Maybe for some industry contact it seems like.
You know everyone's kind of retired or type of your portfolio, sometimes editors are exiting.
Right.
There's something that you're seeing a getting ice cube.
<unk> I'm trying to get a little hard to hear the question, you're asking me to share needles in his pocket that they're just [noise].
Yes, that's right yeah.
Yeah, well I think you know definitely.
Our sources of supply.
And just as I mentioned in one thing in the world.
One of the earlier questions now we are working on at the Beacon the fronts to expand that supply so far.
Yes, we're counting on an Oregon, but we're also.
Working on the other two areas two to <unk>.
Capacity.
In the meantime, one of the other things you've been doing during this shortage time is to streamline and to optimize our product mix.
So you can see that.
We've been having success in some of the newer segments, such as the graphics cards or the gaming consoles and because of <unk>.
Put more emphasis on the higher value sockets and that could mean, a power IC demand higher module solutions or even or a higher end of MOSFET solutions.
So we believe that with product mix and better.
Better allocation.
And focusing on the strategic accounts, we believe that we still can grow to some degree.
In the coming quarters.
Got it.
Multiple phones or mustard, instead, looking as well as for I C.
And so will there be any impacts in terms of the gross margin dynamics. There because you know we're we're hearing foundry prices are going up everywhere and especially for kind of the the lagging generation type nodes and.
They're pretty.
Booked up in terms of of the capacity as well can you give us some great. Thank you for your thoughts are on that going forward.
I think I'm certainly you know if you go out Friday that you have to share that that profit margin, but you know it sort of gets lost out because you know again, we're addressing a milk products some of our I T caused some I'm all set.
I don't think it'd be may not be a huge difference between between in house and outside.
And now keep in mind that for us now.
Our in house specify our costs are also increasing too. So it sounds you those increase in prices because their raw materials are going up it's going up for US also too. So we were using that time also to to help to share the burden of bitch and select please on with our customers to replace it but yeah.
Basically it.
Getting more supplies in the upper body.
Got it Uhm and my Name's Mike.
In all good though so there was a bigger foundry. They also extremely professional and make sure. Okay. So they also would like to have long term punish it yeah. So great day will reflect the increased on their raw material and other costs, but you know I would say, we we think very much to all of them. They are fairly reason.
Why even come in all price also to a reasonable level. Thank you Jeremy.
They can like and if I could just squeezing when one more question.
I guess can you help us.
Stepping back again looking at the Big picture you know you have the the Jamie that have the shuttle to out it's it's been waiting on safety. It seems like for a couple of quarters why wouldn't you.
Yeah that one before kicking in the the Oregon Fab.
Is is there some maybe it just kind of a product scenario, where certain ones are more suited for the Oregon, Sam It just seems like the China. Jay This is kind of gonna be maxed out for for a couple of quarters and talking until they can get you the financing and maybe you can talk a little bit about the financing on discussions going on there as well.
It just seems like there's a little bit of a lag.
Queen when you're maxed out at at the J V and when you might need to see.
Access to the additional capacity.
Well, Jeremy I mean for this one.
Steven or just to emphasize night you know.
We take them free.
Three pronged.
Approach and then.
Different locations.
Locations with different faster than producing different.
<unk> so in the fall, Oregon, five and again, we saw the needs and when you to expand and that will we invest in there and also.
We are.
The JV company is in the process of.
Doing their financing so.
Ah well into that process.
Same time, we're also working with.
Third party foundries.
Two.
Expanded.
You know their capacity into the so their supply to us so we are or.
Working at.
All the fronts so.
To support our continue.
Continued of growth.
That's very fair Uhm and you said sorry, just one last question on the television.
I hadn't here sure.
With a negative cash flow in the quarter you know my understanding was that it would be free cash flow neutral.
At full utilization and so that we've got it like a negative operating cash flow and on top of that there's the $8 million in Capex looking at Kansas is this like a kind of a one time kind of a timing issue or other different dynamics going on in the JV. Maybe there is the rising prices energy things like that.
Get a better picture of what's going on.
Oh sure I mean.
This.
Target originally on a full face.
First one.
Was too.
Mm gathered 10 to 12 inch wafer cost and on the.
A per day basis, and on par with our eight inch wafer cost us so.
Notwithstanding target so.
In in terms of.
Free cash flow men have ambitions fingers impacted by side working.
Working capital changes.
Capex payments.
From time to time.
By and large on that yet.
It's around there then I mean, that's why they are in the process of doing that.
Financing soda for the for the.
Further expansion.
Okay thinking you're fine I'll jump back in the queue. Thank you.
Thank you.
We have a follow up question from David Williams Caroline is open.
Hey, Thank you let me ask a follow up and just wanted to see if you had any.
John made your automotive efforts and immediately color around he's an activity or distraction that you've seen there and they were still see him away, but just start curious how much.
There's been so far.
Okay, we're supposed to do that.
Finally, as we talk before an automotive is definitely an area that we are insurance and cute, but it's still in the early phase right now and they'll be released.
Each pause a few quarters, though.
We're still in the early stage of reducing the automotive portfolio.
Alex So an engagement is going on but I don't expect to be talking about this for months not in the short time as you note again on the design cycles for automotive is three to four years or even longer between and design in Chi Wen to on the meal will be O rules out of the assembly floor.
So it will take time to get to G. G revenue realization.
Definitely it's something about our engagement.
A big part of the market and that'll be have.
Put aside in the past, but it is something that we are starting to across.
Great. Thank you.
And we have a follow up from Jeremy Kwan from Steeple. Your line is open.
Yes, hi, guys.
In terms of the.
The vamp for the Oregon Fathom the expansion is that December quarter that the initial round. They can strike getting revenue from or is this.
Can you help us see the shape of the ramp from when we go from zero to you that.
70 million one right.
Zero two.
70 million right written about.
Take a.
[noise] quarters, but in the end.
Summer quarter, we start president.
Oregon and Fabricant start.
Producing at a higher level.
Got it and then.
Can you talk about any impacted gross margin as you ramp.
Looking at all the present take between equipment, the more expensive and kind of ramp up costs.
And also.
Do you have any insight into.
Where the shape of gross margins note might look like as we move throughout the next year I'm looking at your own cost looking at your foundry agreements and things like that okay. Okay sure.
When we expanded Oregon, Fathom I would say at this point.
You can.
Soon it's like.
Neutral impact on our gross margin I think and while we got too.
The point and we.
We will discuss more I mean.
In terms of gross margin for the.
The term or longer term I think and then I mean, you saw on our gross margin.
Royalty in the last few quarters.
This Monday reflected.
Better product mix.
We are Saudi Moore.
On products with higher margins.
Well we are optimizing.
Product mix in the end customer mix.
We do have some company.
Company.
Specific growth.
Drivers. So for example.
You'll solve our power Ic's product line.
Cool.
Over 50% year over year.
September quarter.
Thank goodness.
Dream quarter.
Most 100%.
Right now then.
The revenue from the power I see part of the line already.
Croston $50 million per quarter.
That sounds like.
200, and your business there.
Right now.
Prague lie accounts for more almost 30% of our overall.
Revenue. So then I mean.
Four hour discrete product lines, Yeah, we are.
We're well too.
Boy more and more.
Work sounding more and more.
The high value products they are.
True.
Some barge pier one customers so it.
All in all of them I mean this.
We believe in.
The product mix and that we can continue to improve.
Of course, and I do see some input cost increases.
As well and then and then.
That's nowhere where we are.
Justin.
Our mix.
And our selling price into two.
Mitigate those.
Impacts so.
The overall I think we can.
At least maintain.
30% of the.
Gross margin almost non-GAAP basis.
Great. Thank you very much that's very helpful.
Thank you.
And I'm showing no further questions at this time I would know that katana phone. Thank you management for any additional only closing comments.
So that concludes our earnings calls today. Thank you for your interest in the US and we look forward to talking to you again next quarter. Thank you.
Thank you ladies and gentlemen.
Discuss conclude today's conference. Thank you for your participation and have a great day.
[noise] [music].