Q1 2023 Alpha and Omega Semiconductor Ltd Earnings Call
Yes.
<unk> more than doubled year over year, and it's not a major revenue contributor for AOS and.
And is expected to continue to grow.
In a weakening consumer demand environment.
We are seeing similar growth strength in multiple other new applications debit.
Debit Stephen will go into more detail in his section.
Finally, our business is a lot more diversified in terms of geography that we serve.
In the beginning when we it was just more the majority of our business in Asia.
Today, our customers are much more globally distributed encouraging T.
Tier one customers in Europe and.
North American.
Diversification and the proliferation of a total solutions has been our strategy from day, one and our execution has been paying off.
Today, our business is more balanced with a stronger and a more solid foundation.
With that statement.
This quality.
Hence our resilient we have recognized that we are not immune to global slowdown.
Net.
To help de risk some of the top line's going slowdown we have already.
Cost hiring a previously planned headcount growth.
And I've taken active steps to reduce discretionary spending.
In closing.
The current market environment.
Does that come to us as a surprise.
Over all 22 Years' history, we have navigated many boom.
And bust cycles surviving and thriving even when.
When we were smaller and we are not today.
Our market position is stronger than ever supported by our leading technology more diversified product portfolio tier one customer base in all of our business segments.
<unk> manufacturing capability and supply chain.
Dedicated and experienced management team and a strong balance sheet.
More importantly.
The underlying trend for more power.
That's providing a tailwind to our business.
If he interesting.
The electrification of everything is just getting started.
Our pulp products.
At the forefront of that trend.
We are confident that we can navigate it.
Current economic environments and to achieve our $1 billion annual revenue target in the next couple of years.
And are actively investing to position ourselves to execute even more after that.
Thank you I will now turn the call over to Steven.
Boy update on our business and a detailed segment report.
Thank you, Mike and good afternoon, everyone before I get a detailed overview of our segments I want to expand on what Mike discussed around our new growth areas.
Mike already mentioned gaming has been a major success story for us and we continue to expect very strong demand over the next year at our number one gaming console manufacturer ramps up production.
Under the Hood a bit over the last year, we built a strong partnership with this customer through our great service and support on shipments during challenging times.
Further our products are significantly more differentiated at the higher end performance been canceled gaming consoles are essentially high end performance Pcs, our solutions provide significant competitive advantages against alternative products.
Of these factors, we have won multiple sockets across multiple products, including high performance MOSFET as well as advanced power Ics, such as driver Mos and smart load switch products.
Another growth area that I want to highlight has been the success of our MOSFET for quick Chargers.
<unk> has a long history of providing high performance medium voltage MOSFET to address secondary cited rectification in this fast charging applications, particularly as charging power has increased over time.
As a result of our focus on product performance and customer support.
We have become a leading supplier in the number one U S smartphone OEM.
Recently, we expanded our bonds footprint at this key customer to now also supporting the high voltage MOSFET or primary side about the vacation, thereby effectively tripling our bom content with this customer application.
All of this.
Been made possible by our investments in R&D and new product programs that focus on the ability to offer our customers a total solutions portfolio that enables cross selling and leverage the relationship and success of our existing customers.
I will now cover our segment results and provide some guidance for the next quarter.
With computing.
Revenue was up 13, 6% year over year flat sequentially and represented 42 eight.
<unk> of total revenue.
Year over year growth was driven by strong demand across several different applications for particularly data centers. As this area showed significant growth year over year with the adoption of our high performance low and medium voltage MOSFET by leading cloud providers.
In addition, graphic cards tablets and notebooks continue to show strength.
Looking ahead in the December quarter, we expect computing segment revenue to be down over 20% sequentially driven largely by the inventory correction in PC and to a smaller degree of seasonality.
However, our total 2022 PC revenue is actually still expected to be up slightly year over year against the 20% annual decline in global PC volumes as a result of share gains and higher device Bom content.
I think our investors should keep this in mind when analyzing these results as the fundamentals of our PC business has never been stronger.
Data centers and tablets are expected to remain strong next quarter, which helps dampen some of the softness in Pcs AOS.
<unk> offers performance MOSFET with an elevated safe operating area are designed to deliver high reliability for data center infrastructure.
Turning to the consumer segment revenue was up 11% year over year, and 23% sequentially and represented 21 seven.
7% of total revenue. These results were in line with our expectations driven by record gaming volumes, which grew 122, 7% year over year and 72% sequentially.
Looking ahead, we anticipate our consumer segment to remain strong with low double digit growth sequentially driven by continued record gaming shipments, particularly from the number one gaming console manufacturer, where we have leading share.
Next let's discuss the communications segment, which was up 21, 8% year over year.
And five 1% sequentially and represented 15, 1% of total revenue.
This segment delivered strong growth as the September quarter is typically our peak season for smartphone shipments, especially as our number one U S smartphone customer normally refreshes their devices during this quarter.
Our growth was also driven by share gains at this conference customer in the premium tier.
In fact, we have strong share in high end models in all three of our markets in the U S Korea and China.
Is this due to our ability to serve the high end markets with our high performance battery protection products as well as strong partnerships with our customers.
In the December quarter, we expect this segment to decrease higher single digits as a result of industry smartphone inventory correction, particularly in China.
Our business in the U S market is still expected to be strong with Korea about flat.
Setting lower smartphone demand is somewhat is growth in telecom <unk> infrastructure.
Now, let's talk about our last segment power supply and industrial which accounted for 19, 6% of total revenue.
This segment was up 8% year over year, and 14, 3% sequentially.
The increase was mainly due to share gains and quick Chargers at a leading U S phone maker and growth in power tools.
So the December quarter, we anticipate this segment to grow high single digits sequentially, mostly from continued growth of quick Chargers as we expand our designs and multiple devices with a leading U S phone maker.
In closing, we are not immune to the overall market and inventory correction. However, we believe our business is a lot more resilient than the old AOS as we have a much more diversified product portfolio servicing multiple end markets and a record number of tier one customers.
And market share.
Further we continue to execute our product and technology roadmaps, enhancing our diversified manufacturing capability and deepening strategic customer relationships, which should result in growth as the market recovers.
With that I will now turn the call over to <unk> for a discussion of our fiscal first quarter financial results and our outlook for the next quarter.
Yes.
Thank you Steven and good afternoon, everyone and thank you for joining us.
Revenue for the quarter was $208 5 million up seven 5% sequentially.
And up 11, 5% year over a year.
In terms of product mix.
Both product lines continue to grow.
Demos of revenue was $145 1 million.
Up four 5% sequentially.
And up 11, 1% over last year.
Power IC revenue was $61 8 million.
16, 3% from the prior quarter and up.
Up 18% from a year ago.
Assembly service revenue was <unk>.
One 6 million.
As compared to $2 million last quarter and $4 million for the same quarter last year.
As Mike mentioned.
non-GAAP gross margin was 35, 4% compared to 33, 8% in the prior quarter and 35, 3% a year ago.
The quarter over quarter increase in non-GAAP gross margin was mainly driven by better production absorption at our assembly and test facility in Shanghai.
In the June quarter, our Shanghai factory was partially shut down due to the citywide COVID-19 lockdown.
Since July our Shanghai facility has been operating at normal capacity.
non-GAAP operating expenses were $36 6 million.
Compared to $36 7 million for the prior quarter and $35 1 million last year.
Holding our non-GAAP operating expenses.
Flat reflects all of the measures to control discretionary expenses and costs.
As such.
non-GAAP quarterly EPS was $1 20 per share compared to 95 last quarter and $1 six.
Year ago.
Moving on to cash flow.
We continue to generate healthy cash flow.
GAAP operating cash flow was $36 7 million, which included $3 3 million less refund of customer deposits.
By comparison.
Operating cash flow in the prior quarter was $25 7 million.
Which included $3 $4 million net customer deposits.
Operating cash flow on a standalone basis full AOS a year ago was $84 4 million, which included $42 million of customer deposits.
Consolidated EBITDA was $45 5 million.
Compared to $36 9 million last quarter, and $45 3 million last year.
Let me turn to our balance sheet.
We completed the September quarter, with a cash balance of $316 1 million.
Compared to $314 4 million at the end of last quarter.
The cash balance a year ago was $231 $5 million, excluding $29 million at the JV company.
Net trade receivables were reduced to $55 8 million from $65 $7 million at the end of the prior quarter.
The quarter over quarter decrease was due to the higher balance in the prior quarter caused by human shipments toward the second half of the June quarter as our Shanghai facility.
Partially shutdowns due to COVID-19.
Days sales outstanding for the September quarter were 30 days compared to 26 days last quarter.
Net inventory was up slightly to $164 9 million at quarter end versus 100.
$58 million last quarter.
$163 4 million last year.
The quarter over quarter increase was mainly in raw materials.
Average spacing of inventory were 106 days compared to 184 days in the prior quarter.
Finally property plant and equipment was $339 5 million up from $318 7 million last quarter.
Our fixed assets balance a year ago was $175 $1 million, excluding $266 2 million at the JV company.
Capex for the quarter was $43 million.
We expect capex to drop to $30 million level in the December quarter.
To update you.
Our Oregon Fab expansion project continue to make progress.
The equipment installation and qualification and we anticipate additional capacity to come online in the March quarter of 2023.
Now I would like to discuss the.
December quarter guidance.
We expect revenue to be approximately $195 million plus or minus $3 million.
GAAP gross margin to be 30% plus or minus 1%.
We anticipate the non-GAAP gross margin to be 31% plus or minus 1%.
The quarter over quarter decrease mainly reflects the impact of expected the product mix changes and lower factory production absorption due to the inventory correction.
In addition.
This guidance also reflects normal seasonality for the December quarter.
GAAP operating expenses to be in the range of $43 5 million plus or minus $1 billion.
non-GAAP.
Operating expenses are expected to be in the range of $34 5 million plus or minus $1 million.
Interest expense to be approximately $1 million.
Income tax expense to be in the range of $1 2 million to one $4 million.
With that.
We will now open the call for questions. Operator, please start the Q&A session.
That's great. Thank you we will now begin the Q&A session.
To ask a question. Please press star followed by one on your telephone.
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Our first question comes from David Williams with benchmark David Your line is now open.
Hey, good afternoon. Thanks for letting me ask the question and congrats on the resiliency for the quarter.
I guess the first one for me, even as kind of just thinking about the margin profile here, obviously, you've got some utilization charges that will come in.
Next quarter, but if I look back into your fourth quarter fiscal fourth quarter similar revenue level.
And I realize that mix has a lot to do with this as well, but it looks like there's about a <unk> $5 million differential just in that margin and I'm just kind of curious what your utilization charges.
Should be as you kind of think about that and then also what we should expect maybe and if we're seeing lower levels of demand into the March quarter, where that margin profile could.
Actually go to.
Sure.
David I mean this.
Quarters margin guidance.
Only reflects <unk>.
<unk>.
Currently inventory correction.
Particularly in PC and smartphone areas.
And the.
This inventory.
Correction that we expect to resolve.
Less favorable product mix for us, which.
Sure.
The kind of basically the way we are.
You're expecting to ship less <unk>.
Higher margin products.
The summer quarter and relatively speaking.
Shipping more lower margin products sold basically the product mix.
Yes.
Okay.
Resulted from this inventory.
Correction, so the cost is quite a bit the product mix.
Changes.
Changing unfavourably. So that's been a major impact for the December quarter's guidance.
Okay. So most of this is just product mix and less and less on the utilization charges.
Maybe a baseline of what those charges are expected to be.
But yes.
Mix impact that kind of a larger <unk>.
<unk>.
And then to the less effective.
The extended.
The utilization.
Actually Youll say nation absorptions.
Okay, Okay very good.
And then maybe just touching on the script.
You noted that there was about a three and $5 million customer deposit refund just kind of curious how how youre seeing customer behavior.
And maybe talk about your order cancellations in backlog, just how thats kind of trending expenses, we've kind of gotten into October and November here.
Okay sure.
Yes.
We incurred $3 3 million and net.
Refund of customer.
They publish.
Recall, we first received some customer.
Paul This is probably back to about a year ago or so.
No.
Customer.
Deposits normally.
Requires.
Require each.
Each year, we refund.
One five or one fourth of the.
Deposits after they ordered.
Amounts from us so so.
December .
September quarter in fact, it's honestly started refundings.
And.
At the same time actually in the September quarter, We also received.
Some customer.
Deposits, so I mean net.
Net net.
In fact it was.
<unk> III.
$3 million.
In terms of backlog it yet.
Recently.
Customers have been.
Adjusting orders and backlog and then having this.
Are there.
Some products decreased.
The increase in overall of the total.
Backlog has been adjusted downward.
Also the mix dynamics changed quite a bit so which in turn causes us to.
To shift in our production schedules quite a bit so our December quarter's guidance reflects an adult mix dynamic changes.
Okay very helpful. Thanks for the color and then one just last one for me if you don't mind.
On the visibility into the channel as you think about just kind of across the board you've got a lot to go through just the how how comfortable are you with the level of inventory out there and how confident are you in your visibility there.
For ourselves.
Our <unk> inventory.
Stilled at.
Kind of a lien position so actually our.
Inventory is still below our targeted range of two to three months.
This inventory.
Correction is mainly occurred at an ODM and OEM or even at a retail level.
For our own.
Inventory is still relatively.
At a comfortable level.
Okay very good thanks, so much I'll jump back in the queue.
Thank you David Thank you.
Thank you.
Our next question comes from the line of Craig Ellis with B Riley Securities Craig. Your line is now open.
Hi, Thanks for taking the question team.
Job navigating a tough environment in that fiscal first quarter.
I wanted to.
Get into a little bit more detail on that last question regarding inventory.
Inventory and maybe take a look at it on a segment basis can you just characterize how you see.
Inventory downstream, whether it's in the channel or maybe at some of your direct ship customers, so not asking for customer names.
With the question, but just trying to get a sense for.
What the gives and takes are and where inventory might be relatively higher lower cross <unk>.
<unk> consumer.
Communications and.
Industrial and power supply.
Sure Hey, Craig and good talk to you. So we see three correction.
Particularly affecting.
Consumer facing applications, specifically PC I mean this is one of the.
The bigger inventory correction, we see taking place.
At least for.
The current outlook.
So it's it's throughout the supply chain and we are also controlling the inventory, but there is also inventory.
ODM and OEM.
They are working through so over there is probably little more pronounced on the smartphone side.
Because there is some impact there but in general.
We're doing fairly well.
But.
U S.
Phone makers, especially in their premium models.
And those areas, we're still we're still supporting and shifting our support to to grow with them.
So I think PC as part of the bigger inventory correction, some smaller degree in the smartphones and especially in the low to mid tier.
Effected.
And that's been the main ones.
Got it and.
As we look ahead beyond the fiscal second quarter into the fiscal third quarter one of the dynamics.
Always impacts things as the timing of lunar new year, and some of the product built around that.
Pretty early occurrence this year.
The third week of February so.
<unk> is this.
To what extent are your customers, saying that some of the build demand.
Related to that would be pulled into fiscal <unk>.
And then.
And it is how does that impact the way you are starting to think about fiscal <unk> do you think that that's called <unk> behave seasonally or.
Where would the timing on some of that component Paul give it more of a sub seasonal bias.
I think at this point.
First of all in our seasonality is back in that we haven't seen that trend and heard that term too much in the past couple of years.
And we are expecting.
The third fiscal quarter, two it could be a lower season in general just normally is whether there is a pull in I think we'll see more towards the end of it.
This current quarter.
In terms of whether there'll be a point, where there but normally.
Third fiscal quarter is a shorter quarter.
Not only for our customers, but also for US too. We also plan to do it hasnt maintenance.
February is a shorter months are typically lower season for us, but in terms of the actual dynamics with with whether our customers will pull in and we will see.
To the end of this quarter.
Yes, and you typically will do fab shutdowns for maintenance activity during lunar new year isn't that correct Stephen.
Yes, we usually try to comment around that if it makes sense to and then yes.
And then lastly, and I don't know if this is one more for you or for <unk>.
Can you just characterize the pricing environment.
But you are seeing out there and that's starting to come into backlog is it holding up as firmly as what we saw in <unk>.
Mid to late 2021 in early 2022 or are we starting to see some.
Some of the tier two players out there get more price competitive and to what extent.
May or may not.
That would be impacting the pricing that you're realizing in its portfolio.
Yes.
September .
Quarter, Yes, our pricing was relatively stable.
Expecting December quarter.
It.
As in the same.
Similar situation.
But having said that in <unk>.
Given the current.
The inventory correction.
The slowdown of the overall demand in those.
Some other factors like a stronger dollar.
All those things.
Good <unk>.
<unk>.
And the environment.
To turn to a more competitive I would expect.
Got it that's helpful and then lastly.
I appreciate that having invested.
<unk> million dollars in the Oregon Fab.
Yeah.
Expansion that <unk>.
The company and customers with on the light things up but given that we are in a pretty meaningful inventory correction I am a little bit surprised that the company plans to start production in the fiscal third quarter. So can you just walked through.
Some of the considerations around.
Firing up that capacity given the demand backdrop that we have been.
The extent to which.
The output that you are considering now has changed up or down versus what you might have been thinking about three or six months ago.
Sure.
We're still going full steam ahead with our expansion of our eight inch fab.
Remember that our eight inch fab or is our internal fab and we actually develop most of our new talking about technology as do originate in that fab and so even as of today.
Bob is still fully utilized some of our foundries, we arent running through the full capacity.
But our current fab is still running at full capacity and weak with tenant and we will be using in the additional capacity. Once once it comes online. So it can directly help and immediately help on our output in the short term so I think thats good.
This capacity is very much needed it is geared towards our more.
Our high performance products and general products that are hot now are coming from that.
Yes, Ben.
Appreciate the point on doing some foundry in sourcing when you get that capacity. Okay. Thanks, guys I'll hop back.
Thank you. Thank you.
Okay.
Thank you.
Our next question comes from Jeremy Kwan with Stifel Jim.
Your line is now open.
Yes, good afternoon, and thank you all right.
Question on <unk>.
A follow up question on the pricing questions from earlier can you give us maybe more detail or color on what you.
Are you seeing in terms of pricing on the discrete side.
Versus the power Ics Parsons, probably to have EBIT more stable.
And not just on the USPS.
<unk> new.
New products coming out, but maybe on a like for like basis.
And along with that I think last quarter, you mentioned some emerging local competitors can you just give us an update there on how much impact we're having on pricing. Thank you.
Yes, so in terms of pricing it does depend on the product force the more differentiated our product is the more leverage we have in pricing negotiations.
So for the higher performance products, including much of the power Ics.
It's a little bit less pressure, but it is not immune either to power IC is still used largely also in RPC PC business and what you're seeing the inventory correction. So even there we still have to be competitive, but its less competitive pressure in general relative to more standardized products.
<unk> also have their own spectrum of performance versus kind of standard products too. So the higher and we can we can differentiate more of is less competitors to compete against.
But at the lower end. This is where we were at the local players are starting to come in to be more aggressive and have you seen the pressure at that so it depends on the product.
Great. Thank you.
<unk>.
I guess, maybe on the gross margin side.
It sounds like the mix is having a larger effect and innovation is this a function of in the past when you've.
Have customers on allocation optimize the mix of margin is this.
In a situation where you are now reallocating for utilization.
Yes, I mean this is right now then yes in the past when we had some.
Constraints in the short way.
And more towards.
On the higher margin products.
In the December quarter, because of the inventory correction.
Seeing some of them.
Product mix changes.
The change is.
Unfavorable at this point so.
Right now it is.
The more impacted column.
Our margin is more impacted by that.
Mix.
Okay.
Fair enough and key.
I guess help us understand.
With the utilization question here it sounds like Youre still youre able to keep that relatively high.
With the new capacity adds youre seeing there.
Is.
I guess does it change anything in terms of maybe your longer term gross margin outlook.
Maybe not your targets per se, but maybe.
What kind of trends you might expect over the next couple of quarters here.
As you kind of look out ahead unbalanced utilization with mix.
Okay sure.
Yes.
Stephen just mentioned.
Our Oregon fab expansion as more forward.
High performance products and sell them.
Those products still in high demand.
Well.
Confident that we can.
Fair enough.
The additional capacity.
Quite well.
In terms of our margin.
The impact at this point and we would expect similar margins.
Those products.
Reviews so.
Overall margin impact probably.
More toward neutral.
At this point.
Got it and then one last question if I could before I jump back.
Can you just give us an update on that.
Sanjay.
How much flexibility do you have and maybe via allocating from the JV to Oregon things.
Is that a lever that we can pull in terms of the margin.
And the utilization as you look out on the impact of the inkjet press.
Yeah.
Okay.
Yes.
Yes.
<unk> JV.
Still providing similar wafers in the assembly.
And test services to us so.
And they are in the process of raising additional capital from outside investors.
In terms of.
Pull back.
Anything back to ours.
Oregon Fab right now.
Oregon Fab is full so we don't need to.
We don't have a room to take on more.
Productions, So right now it is.
The JV is still producing at.
Their previous level.
Great. Thank you very much.
Thank you. Thank you.
Thank you.
There are currently no further questions in queue. So again to submit for a question Thats Star one on your telephone keypad.
Okay.
As there are currently no further questions in queue I will pass the conference back over to the management team for any additional or closing remarks.
This concludes our earnings call today. Thank you for your interest in AOS and we look forward to talking to you again next quarter. Thank you.
Thank you.
Thank you.
This concludes today's alpha and Omega semiconductor fiscal first quarter 2022 earnings call. Thank you for your participation you may now disconnect your line.
Okay.