Q2 2022 Alpha and Omega Semiconductor Ltd Earnings Call
Good evening thank.
Thank you for attending today's the Alpha and Omega semiconductor fiscal Q2, 2022 earnings call. My name is Bethany and I will be your moderator for today's call all lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end if you would like to ask a question.
Please press star one on your telephone keypad I would now like to pass the conference over to our host Gary Huber check with Alpha and Omega. Please go ahead. Good afternoon, everyone and welcome to Alpha and Omega Semiconductor's conference call to discuss fiscal 2022 second quarter financial results.
I'm, Gary <unk> Investor Relations representative for AOS with me today are Dr. Mike Chang, our CEO , Steven Chang, our president and <unk> Yang 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.
Al will proceed as follows likely 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 March quarter. Finally won't have the question and answer session. The earnings release was distributed over the wire services today February seven.
2022 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.
<unk> 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 of the business outlook and financial projections.
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 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'll turn the call over to our CEO , Dr. Mike Chang to provide strategic items Mike. Thank.
Thank you Gary.
I'd like to welcome everyone to today's call.
It is a pleasure to be speaking with all of you again to date to begin I would like to briefly summarize some of the major shipments from last year.
And outline why we believe we have achieved.
Critical milestone in our operations and are in a very strong position to deliver growth and value to our shareholders in the years to come.
Looking back calendar year, 2021 was an exceptional year for AOS, both in terms of our business execution, that's whereas all financial result.
They were two the global semiconductor supply shortage, we are focused on executing our three pronged production capacity strategy.
First.
We made a significant investment to expand our capacity and further enhance our R&D capabilities.
Our Oregon facility.
Second.
The joint venture in 'twenty, Kim come pretty good.
Just want arby's capacity ramp in September .
And in December we sold three 2% of our equity interest in the JV.
Approximately $26 million.
The strategic intent of this transaction was to reduce our shareholder.
50%.
Two allows the JV more perhaps 50.
Two one.
With capital as a more independent company too.
<unk> rate of further expansion plan.
And the three paperweight boy eventual IPO.
Hi star market or a.
Our market.
Additionally, I am delighted to see you've got less than two months after our initial sales transaction.
So that's 40.
The $18 million from outside investors as part of phase two of its expansion plan, which the JV expects to complete sometime in 2023.
To see the first part of our original plan for the JV company come to fruition.
It's been a joy.
One of the core.
Net of our street problem that capacity strategy.
Ensuring our supply.
A cure.
Not only do we need to expand our capacity to meet our aggressive.
Growth business.
We also need to manage.
Enforcing risks our stores yet we.
Today's uncertain.
World.
Such as natural disasters and that Youre ready to go.
Risks through that.
Okay.
In this regard.
The company would be one of our important foundry partners.
And on the flip side it will continue to be a key customers all the JV company.
Lastly, but not the least we are also actively expanding our relationships with multiple third party foundry partners.
For additional capacity.
To meet the increasing demand.
For our product.
Another dimension of our business.
That has undergone significant change over the past year that may not be as obvious is.
The quality of the customers that we are serving.
As an example in our computing business was down two of the worlds leading PC brain.
Communications segment, we sell to the nimble and smartphone Brian .
United States.
The number one smartphone Brian inquiry and all other leading smartphone Oems.
China.
Out of the business segment, we sell to the nimble on graphics card maker, the nimble and gaming console manufacturer.
Number one global home apprised manufacture and nimble on power tools provider.
In summary here, what Oems now make up the majority of our revenue mix.
Of this dynamic.
Our business is much more resilient to downturns.
What do you think.
Difficult economic conditions consumer demand typically declines fastest to lower tier right.
Then it got.
Our premium brand.
In addition, due to the uncertainty created by Covid pandemic, we have worked tirelessly with our customers.
Over the past two years to avoid interruptions to their production lines.
As a result of our athletes all customers Trust and respect.
As it relates your partner at <unk> and.
And our relationship with them has never been stronger.
Also in 2021 through multiple will plan to at least keep it and the increased size execution all parts of that business.
Suddenly has emerged to become a significant portion of our business, representing nearly $200 million annual revenue run rate.
This greatly helped E O S pursue our ultimate goal of providing system level total powered solutions to our customers.
Going beyond our traditional pattern of adjusted offering component sales.
This not only offers more convenient and about it to all customers, but also improves our margin walk in neighboring stickier design win.
2021 was also a record year.
Our business segment financial.
A few years ago, we set out to achieve its target annual revenue of $600 million in calendar year 2021 today.
Visit.
Has the product for the 40th cut.
Customer relationships and the production capacity could be there, but where all of our original revenue target.
In addition, because end market demand was strong across the board.
We strategically optimize our product mix.
The resort.
Margin expansion.
Each consecutive quarter.
The December quarter come in at a set of six 7% on a non-GAAP basis.
Yes.
Record.
All of these factors.
Significant.
A contributor to us.
Crossing one dollar.
<unk> non-GAAP EPS milestone.
This quarter.
This quarter, we are happy to reported non-GAAP earnings per share of $1 20.
Which further reinforces our company's strong earnings power.
$4 to $5 annual.
EPS.
In summary, we achieved record results in 2021, and two hour long term planning and execution, our extensive product portfolio driven by our deep capabilities and by serving as a dedicated and trusted partner to our customers.
Our confidence in our business model and a critical position is.
Never been greater than it is today.
Now with most of our revenue coming from tier one OEM.
I am proud to state that are weak.
We have crossed the chasm as established as a company and are now a leading global power semiconductor supplier.
I want to send to our customers.
Business partners and shareholders for their support and confidence in the company.
I also want to acknowledge our employees for an outstanding job and of course, staying focused and engaged with all customers, while we navigated this challenging market environment.
Especially in the midst of the continuing.
Adversity of the pandemic.
I'm proud of the way we have come together.
While placing our employees' health and safety at the center of our objectives.
Sure.
Our success.
As we look to the future.
We now have all the sites that are actively planning and marching cohort one.
<unk> dollar annual revenue with much stronger and more sophisticated R&D capability and supply chain operations and with most of the of our customer base.
<unk>, albeit world, leading Oems in the market that we serve.
We are excited about our growth.
Trajectory.
Now I will turn the call over to Steve It.
Boy update on our business and the detailed.
Segment report.
David.
Thank you, Mike and good afternoon, everyone I will start with an update on our business and then provide color on our segment results in the December quarter demand for our products remains extremely strong and we continue to set new records in our revenues and profitability. We continue to work closely with our customers to strategically allocate our.
<unk> capacity to help them avoid disruptions in the midst of a difficult environment and at the same time optimize for revenue and gross margins, while we do see some signs that historical seasonal patterns are beginning to return which is healthy at least for the remainder of this year, we expect global demand for semiconductors to remains.
Stronger than the industry's ability to meet it.
Regarding our capacity, we continue to focus on strategically strengthening and diversifying our production capacity our.
Our Oregon Fab is currently undergoing a $100 million R&D facility upgrades and capacity expansion project, which is expected to be completed in the December quarter of 2022.
The equipment has already been ordered and the clean room expansion is already in progress.
When completed.
Estimated the incremental revenue based on this new capacity to be approximately $70 million annually.
As Mike already mentioned, we reduced our equity ownership in our joint venture fab in <unk> below the controlling a threshold of 50%.
Secondly, allowing the joint venture to legally separate its operations as its own independent entity.
Ron will provide more details on this in his section of this call.
This transaction marks an important step for both us and our joint venture with.
For the JV this means greater flexibility in future capital basis to expand its manufacturing capabilities for AOS. It allows us to focus our attention towards executing our Oregon fab expansion plans and further diversifying our supply chain across other foundry partnerships in the years to come.
Looking forward to continuing to work closely with J P. As one of its key customers.
Finally, we are focusing on expanding partnerships and increasing wafer supply from existing foundries as well as bringing on new foundries.
In summary, these efforts are all part of our long term strategy for sustainable growth.
With current challenges in the semiconductor industry, especially the global capacity shortages weird painful to own and control much of our supply chain, while also being strategic about our risk management and capital allocation decisions by diversifying our supply chain with contract boundaries.
We believe this strategy provides the write downs of flexible capacity that allows us to be nimble during periods of industry overcapacity and economic slowdowns.
Now, let me drill down into each of our business segments unless otherwise noted the following figures referred to the December quarter of 2021.
Let's start with computing revenue was up 35, 9% year over year and up 11, 9% sequentially.
This segment represented 45, 5% of our total revenue.
As expected and demand for our products was strong to best allocate capacity, we shifted resources and production to support the computing segment, especially notebook and desktop applications as well as graphics cards.
Looking ahead into the March quarter, which is typically our seasonally slowest quarter. Following strong holiday shipments, we expect computing revenue to be slightly lower to about flat.
We expect strong demand to continue at our ODM customers for notebooks and desktop applications. This will be partially offset by a slight decline in graphics cards. Following a strong shipments in calendar Q4, as we reallocate our resources to support demand in other areas such as client computing turning to the consumer segment.
Revenue grew nine 9% year over year and declined four 6% sequentially and represented 21% of our total revenue the year over year growth was primarily driven by strong demand in home appliances and share gains in gaming both at tier one Oems.
Financial results were lower than our original target primarily due to timing of shipments in gaming as one of our major customers pushed out orders for our MOSFET and power IC products to the March quarter due to component delays from another supplier.
Our total company revenue was not affected as we were able to quickly shift wafer capacity to other parts of the business.
Accordingly, we expect our consumer segment will achieve strong double digit sequential growth in the March quarter as we celebrate shipments to this particular gaming customer after they resolve their other supply shortages.
Next let's discuss the communications segment, which was 13, 2% of total revenue down five 1% year over year and down to 0.8% sequentially.
This segment played out better than we anticipated last quarter as we saw stronger demand from the world's two leading smartphone makers in the U S and Korea, which helped to offset some weakness would be expected from our China Oems.
We continue to believe we are in an excellent position for growth in battery protection over the next couple of quarters as we have secured designs at all the major global smartphone makers.
Finally, let's talk about the power supply and industrial segment, which accounted for 19, 5% of total revenue.
This segment was up 37% year over year and down <unk>, 5% sequentially, which was largely in line with our expectations.
The December quarter, we slightly reduced allocation to our AC DC power supply business. Following two consecutive quarters of strong shipments however demand for our power supplies, particularly laptops remains strong relative to the prior year.
Further we resumed shipments to a top U S solar micro and Burger maker and increased allocation to support the growing demand for our industrial solutions with a tier one U S power tool manufacturer.
Power tools as an emerging application for us with great synergy given our product strengths in low and medium voltage products targeting battery management and brushless DC Motors looking ahead, we expect our power supply and industrial segment to decrease slightly in the March quarter due to a temporary slowdown in our ACB.
C power supply business due to allocation, while our recently ramped solar and power tool business remained elevated.
To wrap up it was another.
<unk> outstanding quarter for AOS, and our business continues to fire on all cylinders.
We continue to work diligently to deliver products to our customers on time and staying laser focused on executing our capacity expansion and diversification plans with that I will now turn the call over to <unk> for a discussion of our fiscal second quarter financial results and our outlook for the next quarter.
Steven Good afternoon, everyone and thank you for joining us.
Before I start to discuss the financial results for the quarter I would like to say a few words about the changes of our equity interest in the JV company and related accounting and financial reporting.
As discussed previously.
Our form 8-K.
We completed a sale of two 1% of our equity interest in the JV company.
For $16 $9 million of December 2nd plenty of 'twenty one.
<unk> resulted in the deconsolidation of the financial statements of the JV company.
That's the way, we're no longer the controlling shareholder.
Subsequently in December we.
We completed another sale of one 1% equity interest for $9 4 million.
And the JV company also issued approximately four.
For Sunday equity interest to its employee stock ownership plan.
With the above transactions, our equity interest in the JV company at the end of December It was 45, 8%.
And our equity investment recorded on the balance sheet was three.
$376 1 million.
In addition.
And after tax net gain of $358 $7 million was recognized on the income statements for the quarter.
And we excluded such gain from our non-GAAP financials.
I said it was not related to our ongoing business operations.
Nevertheless.
The game indicated the equity value that we create in doing the last few years, while we built up the JV company is one of our major suppliers.
Subsequent to the December quarter.
The JV company.
Completed.
A financing transaction of $80 million.
Representing approximately 782% of post transaction outstanding equity of the JV company.
Which further diluted.
Equity interest to 42, 2% as of January 26, 2022.
<unk>.
In our financial reporting beginning with the month of December .
We now account for our equity interest in the JV company under the equity method.
County.
We also elected to record our.
Pro rata share of the Jv's net earnings.
So one quarter lagging basis.
We will exclude it from our non-GAAP results.
So it's easier for our shareholders to see the financial performance of our ongoing business and operations.
Finally.
Going forward.
Because we are now a minority shareholder in the JV company.
We will no longer discuss the operations of the JV company.
With that let's discuss the financial results for the quarter.
Unless otherwise noted.
Following figures referred to the December quarter of 2021.
Revenue was $193 3 million up three.
4% from the prior quarter and up 21, 7% from the same quarter last year.
In terms of product mix.
Mass revenue was $135 million up three 3% sequentially.
13, 9% year over year.
Power IC revenue was $55 $1 million.
Five 3% from the prior quarter and up 47, 4% from a year ago.
Assembly service revenue was $3 2 million as compared to a $4 million last quarter and $2 9 million for the same quarter loss here.
non-GAAP gross margin was.
36, 7%.
Up from 35, 3% in the prior quarter and up from 31 focused on the in the same quarter last year.
So quarter over quarter increase in non-GAAP gross margin was the money driven by better product mix.
non-GAAP gross margin excluded <unk> $8 million of amortization of purchased IP for the December quarter.
<unk> quarter in the same quarter last year, respectively.
In addition.
non-GAAP gross margin excluded $1 $7 billion of share based compensation charges as compared to $6 million for the prior quarter and $4 million for the same quarter last year.
non-GAAP operating expenses were $33 $5 million compared to $35 $1 million for the prior quarter and 31 $5 million for the same quarter last year.
Quarter over quarter decrease was primarily due to the deconsolidation of one month of the JV company's operating expenses and lower <unk>.
Variable compensation accruals this quarter.
non-GAAP income tax expense was $1 $3 million.
Which excluded $32 $8 million, so tax expense on the gain of our equity interest in the JV company compared.
Compared to $1 $3 million for the prior quarter.
$7 million for the same quarter last year.
In sum.
non-GAAP EPS attributable to AOS was $1.20 per share.
As compared to $1 <unk> for the prior quarter and 65 says for the same quarter last year.
Now, let's look at the cash flow.
Consolidated operating cash flow was.
$58 million.
Including $11 $2 million net customer deposits.
Operating cash flow in the prior quarter.
$86 million, which included $42 million customer deposits.
Operating cash flow a year ago was $36 1 million, which included $10 million customer deposits.
Consolidated Ebitdas was $46 $7 million.
Compared to $45 $3 million for the prior quarter and $31 $6 million for the same quarter last year.
Let's move onto the balance sheet.
Please note that the balance sheet accounts at December 31, 2021 .
No longer consolidated the JV company anymore.
We completed the December quarter, with a cash balance of $269.3 million compared to $252 $5 million at the end of last quarter.
Which included $29 million cash balance at the JV company.
The cash balance a year ago was $181 million, which included $38 $7 million at the JV company.
You will note that our bank borrowing balance was $22 $7 million compared to $159 2 million or so a quarter ago.
Which included $137 million from the JV company.
During the quarter, we repaid $2 $1 million of existing term loans and borrowed $2 $5 million, So working capital alone.
In terms of trade receivables and inventory.
Sales outstanding for the quarter was 27 days.
Flat as compared to the prior quarter.
Average days in inventory were 105 days for the quarter compared to 117 days in the prior quarter.
The reduction in inventory days was mainly due to the deconsolidation of the JV company.
Finally, our fixed size as violence was significantly reduced again, primarily due to the deconsolidation of.
Net property plant and equipment was 196 $7 million down from $441 3 million last quarter and down from $438 million last year.
Capital expenditures for the quarter were $22 $7 billion.
The deconsolidation of our JV financials.
Shines a light on the strength of our balance sheet, which has a relatively low fixed assets compared to our earnings power and a very low debt.
Now I would like to discuss March quarter guidance.
We expect.
Revenue to be.
Approximately $194 million plus or minus $3 million.
GAAP gross margin to be 35, 1% plus or minus 1%.
We anticipate non-GAAP gross margin to be 36% plus or minus 1%.
non-GAAP gross margin excludes <unk> 8 million amortization of acquired IP and $1 million of estimated share based compensation charges.
GAAP operating expenses to be in the range of 41 $9 million plus or minus $1 million.
non-GAAP operating expenses I expect it to be in the range of $34 $5 million plus or minus $1 million.
non-GAAP operating expenses exclude $7 million of estimated share based compensation charges and $4 million estimated legal expenses relating to the.
Government investigation.
Interest expense to be approximately $5 million.
And income tax expense to be in the range of $1 $2 million to $1 4 million.
With that we will open the call for questions.
Greater please start the Q&A session.
If you would like to ask a question. Please press star followed by one on your telephone keypad. If for any reason you would like to remove that question. Please press star followed by team again to ask a question. Please press star one.
If youre using a speakerphone, please remember to pick up your handset.
Asking your question a little pause here briefly quest.
Question to generate in Q.
The first question is from the line of David Williams with Benchmark you May proceed.
Hey, good afternoon. Thanks for taking my question and congrats on another really solid quarter.
Thank you thanks, David I appreciate it.
Yes. Thank you.
No.
So one quick thing with just on the gross margin. There is a lot of are they obviously better than guidance and what we were expecting just wondering I know you pointed to mix as being the big driver there, but can you be any more specific maybe in terms of is it is it more mix related b, a product or a segment or is it more of the IC that grew a little bit.
But what do you think in terms of overall overall mix in our there or do you feel that this is all structural and can be maintained throughout the cycle.
Sure David Yeah. Indeed.
December quarter.
Gross margin increase was primarily.
Due to the better product mix.
We are selling more and more higher value and higher margin.
Product.
For example.
Power IC product line carries a higher margin for us.
Our power IC product lines has been growing nicely.
In the <unk>.
December quarter Paul.
Our IC product line grew 47% year over year and the quarter before I think it's.
It grew over 50% in a year over year so.
We are.
Doing well.
With those.
Power IC products.
Right now the power IC product lines already crossed the $200 million annual revenue run rate.
Very significant to our business.
Even within our demos product line.
We are replacing older products with more advanced products, which provide higher margin for us as well so more and more.
Of our MOSFET products.
Industry, leading products in the markets that we serve so overall I think I see.
Our gross margin trend is positive.
Well I mean.
To see our non-GAAP gross margin improved to 36, 7%.
This quarter so.
Which is well within our.
Current target of mid 30% range. So.
I would expect that yes.
As we continue to grow our business and then.
Our.
Gross margin should play well.
Well congrats on getting the margin too.
Fix it.
Impressive to see.
On the other side, you talked a little bit about the gaming console being softer than expected and I guess I'm just surprised that the that you could have that maybe a little softer there, but it didn't impact the revenue how should we think about your ability to really reallocate resources that quickly and is this maybe just from the inventory build or is there some some costs of shipping a.
Or just any are any around the ability to fulfill I guess other markets. When you have a shortfall in one.
Sure.
This is Steven and good question. So the gaming console business as you know it was a good business for US we didn't we have been prioritizing that and unfortunately, you know our customer is has been having production issues and this has been it's been a pretty common story situation that we've seen even leading tier one customers.
They have a difficulty preparing all the materials they need to produce these consoles.
So this isn't this is not new to US we know this.
This issue has been there throughout most of last.
Last year.
We've always been kind of watching the demand situation in their production schedule.
Those very closely so that we know we can internally and make sure that we position our production accordingly, and just shifting to other places so the best thing too.
The best way to be able to be more agile and shifting production is to have a close to understanding of the demand in what's happening at the customer situation.
Sure Okay.
And one more quickly if I, if you don't mind, but with the with the new structure of the JV. What is the phase two opportunity look like in terms of capacity and maybe even the economics.
Will it be as attractive as the prior phase and does it change anything in relation to the pricing from the first phase and I guess, if you think about the long term security agreement do you have one in place just anything around that the JV it would be helpful.
Sure I mean this.
We are.
Happy to see the <unk>.
<unk> company.
Ramped up in their phase one.
And also you know.
We're happy to see the JV.
JV also raised $80 billion of capital in January .
Full of them.
Step one of the phase III expansion, so I mean, managing suppliers and it's a relationship business and then I mean, we have a good relationship with the JV company.
We don't see any changes in that relationship just because of the deconsolidation. So.
As a matter of fact in the deconsolidation.
Foundation provided more flexibility for the JV company to raise money from outside investors.
Are there further expansion.
And cleared a path to their intended potential listing on the Shanghai Star market.
So.
Overall.
We are.
Executing our three pronged.
Capacity expansion strategy to ensure our supply securities.
Diversifying our foundry mix in it and the subcontractor mix. So we are confident that we can continue to grow.
Great Best of luck on the quarter and I look forward to seeing that.
Okay.
This is Mike can I, just add up you worry me okay.
Yes. This is Mike.
Yeah. It was it was a conscious long term market, we've been walking them structural along that route and she was good there.
Even though she was a good deal we do.
The agreement a contract to secure our future supply. So just want make sure that we don't just do that.
We took a very hard to maintain it but we also have a commitment yet thank you.
Thank you.
Yeah.
Thank you Mr. Williams.
The next question comes from the line of Michael Mani with B Riley Securities You May proceed.
Hi, This is Michael on for Craig. Thanks for letting me ask a couple of questions to start I was wondering if you could maybe give us an update on the contour of the Oregon ramp and how you anticipate capacity coming online and it gets following the necessary necessary installations could be ramped them most of them.
Out $70 million annual potential revenue in the fourth quarter of this year or do you anticipate more spread out across two or three quarters.
Into 2023.
And then a follow up.
Right sure I mean.
We are.
Going to the Oregon Fab expansion right now.
Yes.
Steven mentioned.
We have already placed on holders for equipment in the clean room expansion is under way.
We expect and we can get a.
The new additional capacity online.
<unk> quarter of this year.
No.
The ramp up for that.
Aw capacity we.
Expected to ramp it up relatively quickly so probably.
Uh huh.
By the first quarter of 2023 I would think.
We can ramp up to about <unk>.
$70 million annually.
<unk> revenue run rate.
Great. That's helpful. Thank you I appreciate that.
I guess my next questions on customer deposits I know, we receive around $11 million this quarter falling around $40 million last quarter. The question is as you know given that customers are still largely supply anxious how much further customer deposit activity do you expect this year and could it return maybe to the same volume we saw towards the <unk>.
Second half of last fiscal year or do you see it sort of waning off as we go through the year and things in the supply chain start to normalize.
Sure Michael.
Yes, and then in the December quarter, we received about a $11 million at the customer.
Part of this.
Yeah overall in it you know.
We are a kind of a.
Right now hesitated to.
Receive.
Customer deposit is not because all of those deposits are earmarked with a commitment of supply. So then largely right now our Oregon.
Fab.
The expansion already pretty much allocated the out and already.
I would not see a large end customer.
All of this.
From now on.
Great. Thank you very much.
Yeah.
Thank you Mr money.
The next question comes from the line of Jeremy Kwan with Stifel. You May proceed.
Yes, Thank you and let me add my congratulations on the strong execution in the record gross margins.
Thank you wanted to.
I think a little deeper into the.
Basically your overall capacity that's available to you in calendar 'twenty, two and I guess.
Some questions already been asked about the Oregon ramp and when you can get equipment in place. So it sounds like initial revenue won't be able to.
We won't be able to get a initial revenue until March of.
2023 in Oregon.
And.
With the J D.
Starting to place orders now is that a similar timeframe for dentists, either next step up in capacity.
Shorten it I mean the Sun.
Remember we are executing on our three pronged approach I mean, yes.
We expect that our Oregon fab.
It will have some capacity online.
December quarter of this year.
And at the same time, we are also.
Expanding our.
Our relationship with our foundry partners. So we are working with them.
We have been working with them Ah.
So we shall see some.
Our capacity and additional ones.
During the year along the way.
So.
On the other hand, there you know we're not standing still so though we are managing our.
Mix and also <unk>.
Continue to do the.
Business process and operation process improvement.
At our factories and so on all those who contributed to.
Additional revenue growth.
Very good and.
Maybe a question in terms of the pricing.
So first firstly on the pricing that you're.
Providing to your customers.
That's something that is.
<unk> seen some of your.
This revenue target that you have for March and how much are you are you counting on for.
Pricing being a potential tailwind for calendar 'twenty two.
Right now are afforded them.
March quarter guidance.
As Steven mentioned in the you know where are on allocation. So.
That guidance is more based on our.
Production.
As you know in the March quarter.
Uh huh.
They're set.
There was actually a lunar new year holidays.
Now sometimes.
It will.
Have some pressure on our production.
So overall.
Our March.
Older.
Is looking strong and then and then.
You know we're comfortable with our.
Guidance, so in terms of phone.
Pricing.
Pressure on it I mean this right now the industry is still.
In a shortage.
Dynamic so.
And so.
We have some.
Some instances things some input cost increases and we have selectively adjusted some of our ISP to pass on.
Increased cost so.
At the same time, we don't want to gouge.
Our customers so.
Yeah.
Yeah.
Fair enough and I guess on the.
Buildup the input pricing.
Is that in your discussions with the JV has has a contract pricing come up.
The industry has been when you've seen.
Foundries raise prices, 20% plus.
And that's something that you've encountered yet and is it something that you know that.
Being discussed going forward.
The power pricing with the JV company is go with the market price and then we paid the market pricing tool to the JV company.
And so I would assume that your pricing has gone up since market price seems to have gone up.
Well, that's something that Oh.
Yeah, I mean from quarter.
Quarter to quarter or from time to time that you had done it I mean, that's just the same as will we.
Do with other foundries and subcontractors.
Okay and in terms of the.
Capacity allocation that the.
The genius has going forward.
I would assume that they would want to diversify their customer base and is that something that you know.
In terms of the growth of capacity available to you.
Can you give us some more incentive kind of the discussions around around future capacity.
Oh sure I mean definitely in the JV comedy.
Wants to diversify their customer base as well going forward.
Hum.
Uh huh.
So to us.
AOS silhouette, we also.
Want to diversify all with a foundry mix in subcontractor mix as well I mean overall, though we are comfortable with the supply from the JV company and we are working with the.
Other.
Foundries and with us.
With all of the AUM, Oregon Fab.
As well.
Well, let me.
Couple of word okay Jeremy.
Jeremy does it make him right away.
You know what I'll Miss you.
Wow Okay.
Chip just friendship, Okay, which are desperately need it okay.
If business right. So we all have.
All the partners, we already have firm agreement, okay. They know what their obligation and we know what the all obligation. Okay. So so this this business cannot just by APAC will okay. So yes. Okay. You don't want go way up but then also in your agreement. So to answer your question, maybe it was a comparably to think that.
The judge in Okay.
A clear come in yes.
Great. Thank you, Mike and really appreciate that.
And that's the one last question if I could before I hand, it back.
I guess the.
Looking at the Hillsboro, sorry, the Oregon expansion is this is.
Is that mostly being spent on the front end equipment or is there some backend also.
I mean, taking place can you can you help us get a split for what the spending is going to be.
Oh shortened for the Oregon Fab and its entirety phone for the front end I mean, that's.
So the fab only on what we are also.
Expanding some capacity in our Shanghai Assembly and test.
Facilities as well.
Yeah.
Great and is there going to be any impact in gross margins as well.
You spend for the new equipment.
And ramp things up.
Now all of them.
Estimate estimate is we can maintain.
To maintain.
Within our targeted range of mid 30% range.
Great. Thank you very much.
Thank you.
Thank you Mr Cline.
There are no additional questions waiting at this time I would now like to pass it back to the management team for any closing remarks.
This concludes our earnings call today. Thank you for your interest in AOS and we look forward to talking with you again next quarter. Thank you.
Thank you.
Yeah, Thank you and God bless you all.
That concludes the alpha and Omega semiconductor fiscal Q2, 2022 earnings call I Hope you all enjoy the rest of your day you may now disconnect your lines.
Okay.