Q4 2023 Alpha and Omega Semiconductor Limited Earnings Call
Good afternoon, everyone and welcome to Alpha and Omega Semiconductor's conference call to discuss fiscal 2023 fourth quarter and fiscal year end financial results <unk> Investor Relations representative.
With me today are Steven Chang, our CEO and founder.
Our CFO this call is being recorded and broadcast live.
A replay will be available for seven days following the call via the link in the Investor Relations section of our website.
I'll call will proceed as follows.
Stephen will begin by providing is this update followed by a detailed segment report.
After that <unk> will review financial results and provide guidance for the September quarter.
Finally, we will have the Q&A session.
The earnings release was distributed over the wire today August nine 2023 after market close the release is also posted on the company's website.
This release and the presentation include non-GAAP financial measures we.
We use non-GAAP measures because we believe they provide useful information about our operating performance.
It should be considered by investors in conjunction with the GAAP.
A reconciliation of these non-GAAP measures to the comparable GAAP measures.
In the earnings.
We remind you that during this conference call, we will make 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 could differ materially from such expectations.
For a more detailed description of these risks and uncertainties. Please refer to our recent and subsequent filings with SEC.
Assume no obligations to update information provided on today's call.
Now I will turn the call over to our CEO Steven Chang Steven.
Thank you <unk> and good afternoon, everyone I will begin today with a high level overview of our results and then jump into the segment details.
Our team executed well and delivered an excellent quarter.
Q4 revenue was above the midpoint of our guidance and gross margin was above the high end of our guidance, which resulted in a solid bottom line.
<unk> was 161 5 million down 16, 7% year over year and up 21, 9% sequentially.
non-GAAP gross margin was 28, 5% and non-GAAP EPS was <unk> 19.
These results were driven by solid recovery across notebook and desktop computing applications and strength of our diversified customer base and product portfolio in power supply and industrial end markets.
Recall from the prior quarter call, we set our calendar Q1 results reflected our efforts to bring customer inventory levels back into balance as quickly as possible.
We were confident then that due to our resilient fundamentals, we would see a swift recovery in Q2 and continued recovery in Q3 as we go into our peak season.
I am happy to report that it is playing out in line with our expectations.
As for the broader market and consumer demand continues to be soft. However, we are optimistic that the worst phase of the cycle is behind US we anticipate further recovery in our September quarter, which seasonally has been our strongest quarter driven by fall smartphone launches and Dr School.
While we remain cautious we expect to navigate the current environment better than the broader market that we serve thanks to our robust tier one customer partnerships, leading in market share as well as a much more diversified total solutions product portfolio, serving a broader set of end markets across consumer and commercial.
And industrial applications.
In terms of our operations our near term focus is on maintaining close collaboration with our customers while gearing up for our peak season to provide the best customer service possible.
As receive repeatedly by ensuring our products remain highly competitive prioritizing long term customer relationships and consistently upholding our commitment to excellence and reputation as a reliable supplier, we become a favorite partner of our customers.
As a result, they entrust us with more share.
This approach has served as a cornerstone of our growth. It has helped us expand our tier one customers across all our end markets, which in turn it creates a positive flywheel and marketing effect that propels us towards achieving our long term goals.
With that let me now cover our segment results and provide some guidance by segment for the next quarter sorry.
Starting with computing.
June quarter was down 41, 8% year over year, but up 36, 8% sequentially and represented 32, 2% of total revenue.
These results were driven by a solid recovery in shipments across notebook and desktop computing applications. Following the sharp correction in the March quarter, which drew down inventories at our key customers.
Looking forward into September , which is our seasonally strongest quarter, we continue to see encouraging recovery and expect further sequential growth in the high teens.
Turning to the consumer segment June quarter revenue was up 18, 8% year over year and down one 9% sequentially and represented 27, 1% of total revenue.
Our year over year growth in this segment was driven by strong shipments into gaming E Scooter and wearable applications. These results reflect our diversified product portfolio over.
Over the last couple of years, we strategically focused on these consumer applications targeting leading customers with our highly competitive low to medium voltage products.
These initiatives broaden our revenue streams in this segment and enhance our performance and helped us to diversify our more traditional consumer areas such as Tvs.
For the September quarter, we do anticipate a 30% pullback in this segment as gaming begins an inventory correction. After an extremely strong 12 months of shipments into the number one console manufacturer.
Next let's discuss the communications segment revenue in the June quarter declined 42, 4% year over year and declined 10, 7% sequentially and represented 10, 7% of total revenue.
The drop in revenue was primarily attributable to the inventory correction in smartphones and <unk> telecom infrastructure.
Fortunately based on conversations with our customers and channel partners. We believe the inventory correction in smartphones is starting to abate, particularly in the premium tiers and we anticipate a solid recovery in the second half of 2023, driven by our U S smartphone customer fall launch and further share gains with.
In the September quarter, which is our seasonally strongest quarter, we're expecting over a 70% recovery in revenue sequentially in this segment.
Now, let's talk about our last segment power supply and industrial which accounted for 25, 7% of total revenue.
June quarter revenue was better than our prior expectations, increasing 16, 1% year over year and 57% sequentially.
These results were driven by strong demand for high performance medium voltage MOSFET using quick Chargers by our tier one U S smartphone customer and Chinas high end smartphone Oems in.
In addition, we saw stronger demand come from others applications, such as solar and power tools.
For the September quarter, we expect this segment to continue to be solid and be up low single digits sequentially.
In closing as we stated last quarter, we believe the worst of the inventory correction in Pcs and smartphones has passed and we look forward to a solid second half of 2023.
While we remain cautious beyond our near term visibility our fundamentals have never been stronger driven by our leading technology more diversified product portfolio tier one customer base in all our business segments, expanding manufacturing capability and supply chain.
As such we are confident we will emerge as an even stronger company on the other side of this cycle.
With that I will now turn the call over to <unk> for a discussion of our fiscal fourth quarter and fiscal year end financial results and our outlook for the next quarter.
John .
Thank you Steven good afternoon, everyone and thank you for joining us.
Revenue for the quarter was 161 5 million up 21, 9% sequentially, but down 16, 7% year over year.
In terms of product mix.
POS revenue was $95 $7 million.
Up 18, 2% sequentially, but down 38% over last year.
Power IC revenue was $58 9 million.
Plenty of four 2% from the prior quarter.
Nine 8% from a year ago.
Assembly service revenue was.
$6 million.
Compared to $6 million last quarter and $2 million.
For the same quarter last year.
License and engineering service revenue was $6 3 million for the quarter versus $3 $6 million in the prior quarter.
non-GAAP.
Gross margin was 28, 5%.
<unk> to 25, 1% in the prior quarter and.
33, 8% a year ago.
The quarter over quarter increase in non-GAAP gross margin was mainly driven by the mix improvement and higher license and engineering service revenue.
non-GAAP operating expenses were 39 1 million.
Compared to $36 2 million for the prior quarter and $36 7 million last year.
The quarter over quarter increase was primarily due to higher R&D engineering expenses last quarter or so.
So true up in variable compensation accruals.
non-GAAP tax expense was $8 million.
$2 5 million last quarter, and $1 2 million in the prior year.
The quarter over quarter decrease was mainly resulted from higher actual R&D credit.
Withholding tax pay the last quarter related to the $18 million license fee we received.
non-GAAP quarterly EPS was <unk> 19.
Compared to negative 21, since the last quarter and 95 a year ago.
Revenue for fiscal year ended June 32023 was 691 3 million with non-GAAP EPS.
$1 86.
As compared to revenue of 777 6 million.
non-GAAP EPS of $4 56 for the prior fiscal year.
The decrease in financial performance was largely due to the industry wide inventory correction.
Moving onto cash flow.
Operating cash flow was negative $28 2 million, which reflected a $3 8 million for repayment of customer deposits.
$11 $3 million deposit we made to secure.
Silicon carbide wafer supply and fluctuation in working capital.
By comparison.
Operating cash flow in the prior quarter was positively 11 $6 million.
$25 7 million a year ago.
We expect to see a positive operating cash flow for the September quarter.
Ebitdas for the quarter was $17 7 million.
Compared to $6 5 million last quarter, and $36 9 million for the same quarter last year.
A couple of other items.
In fact at our cash balance this quarter worth mentioning are that during the quarter.
We repurchased 441000 shares of our stock or $10 8 million under our previously announced share repurchase program.
In addition, we also repaid back $16 3 million, so that other bank loans that matured during the quarter.
Now, let me turn to our balance sheet.
We completed the June quarter, with a cash balance of $195 $2 million.
Compared to $265 9 million last quarter.
Net trade receivables were $22 4 million compared.
Compared to $19 4 million at the end of the prior quarter.
Sales outstanding were 19 days for the quarter versus 30 days for the past quarter.
Net inventory was $183 2 million at quarter end compared to $179 8 million at the end of the prior quarter.
$138 million last year.
Average days in inventory were 140 days compared to 152 days in the prior quarter.
We expect an average days in inventory continues to improve along with our revenue recovery.
Capex for the quarter was $19 2 million.
We expect Capex for the September quarter to range from $15 billion to $20 billion.
We expect to complete our Oregon fab expansion in the September quarter.
Now I would like to discuss.
September quarter guidance.
We expect revenue to be approximately $180 million plus or minus $10 million.
GAAP gross margin to be 27, 2% plus or minus 1%.
We anticipate the non-GAAP gross margin to be plenty of eight 5% plus or minus 1%.
GAAP operating expenses to be in the range of $48 million plus or minus $1 billion.
non-GAAP operating expenses.
We expect it to be in the range of $40 million, plus or minus $1 million.
Interest expense to be approximately $1 2 million.
And income tax expense to be in the range of $8 million to $1 2 million.
With that.
We will open the call for questions.
Later, we started the Q&A session.
Thank you we will now begin the Q&A session, if you'd like to ask a question. Please press star followed by one on your telephone keypad.
If for any reason you'd like to remove that question. Please press star followed by two again to ask a question press Star one.
We will pause here briefly as questions are registered.
Our first question is from David Williams with benchmark. Your line is now open.
Hey, good afternoon, and thanks for letting me ask the question and congrats on the execution and really solid results here.
I think I wanted to congratulate you on the logo refreshed and where Patria design it looks really good.
I appreciate it.
Yeah.
It looks like you guys did a really good job on depleting that the channel inventories over the last couple of quarters, you get a sense that now you're shipping to consumption or is there a chance that we are seeing some pull in for replenishment rather than four for sell through.
Well right now.
Our channel inventory right.
Right now after March quarter correction in June quarters.
With continued efforts, so nowadays and more.
Our channel inventory dollar amount is more in line with our revenue levels.
Right now it is more.
Sure.
We are going.
With.
Market.
Product demand.
We can see.
Okay great.
And maybe if you could just talk about the cadence of orders through the quarter. How those progressed I know some peers are pointing to strong March April and May with a meaningful decline kind of in June I was wondering if youre seeing the same dynamics, where if you're positioning it maybe just differently and youre not seeing those same same impacts.
I think we're relatively.
They are fairly steady in terms of the revenue throughout the quarter.
Any kind of hockey stick in any direction overall in general.
You generally see that our business.
As we predicted.
As inventory correction got better it would.
Start to come back. So this is why we see the June numbers, showing that partial recovery and as we head into September we expect to see a little bit more of a recovery there as well too. So overall, it's largely playing out as we're expecting it to certainly wherever.
Anthony we wanted to we wanted to come back stronger faster, but we are encouraged to see the.
Progress and return to some of that business that was on hold back in the March quarter.
Okay I appreciate the color there and then just one last one if I can real quick you talked about the <unk>.
<unk> referred to supply some sic wafers just can you talk maybe about the track that youre seeing within the silicon carbide market, we're seeing most activity and how you think about that opportunity over the next few years.
Sure for Us and we're excited about our silicon carbide business our own business note. Yes. We're also excited about the on the licensing deal, but really that's kind of.
The means to help us to really kickstart and to expand our own silicon carbide business initiative right now and we're still in relatively early stages of that.
The business portion of it we've actually been working on the products in the portfolio relief and the promotion on it of those products for a quite a few years and we're starting to see some revenue already but it's still very small to start with.
That type of business that we're trying to get into his automotive you know this is one of our entry points to really get into the heart of automotive and especially going after the new or EV.
Battery powered vehicles, our first products are targeted towards onboard charging.
And as you can imagine the design cycles for these types of critical applications.
Our longer.
They do take a few years to entre currency from design into revenue, we're starting to see some revenue now, but it will take some more time to see to see more significant impact to our business.
Thanks, so much.
Yeah.
Thank you David Our next question is from Craig Ellis with B Riley Securities. Your line is now open.
Yes, thanks for taking the question and congratulations on the execution guys I wanted to start off with questions.
Fiscal fourth quarter, so when I look at.
In industrial we had expected those would be up but they were both up.
Significantly more than what I would've expected. So can you just clarify what the driver was for the upside strength in each of those end markets.
Sure.
I'll talk about them in part so it would be computing portion.
Is was largely driven by inventory correction, that's where during the peak of the shortage period.
Several of our customers were very.
Aggressive in getting accumulating supply. So those are the customers those were the customers that had to work through their supply.
Order to match.
The demand that they're currently seeing so when we made that adjustment back in the March quarter and going into the June quarter play.
Played out as we thought basically the inventory correction is getting is improving.
And we see that because we started to see orders and we're starting to fulfill orders for products that were on hold in the March quarter.
Certainly computing.
Especially in the notebook side, even the motherboard desktop side, we saw recovery in those markets.
The other one that you mentioned and what about industrial Steven <unk>.
Industrial yes industrial.
Little bit tied to down also but I think the bigger contribution is actually coming from quick Chargers.
The smartphone market is soft is still rather slow but in terms of the overall worldwide shipments, but the premium menthol and seem to be doing better and thats, where it will be have more impact to our business and for us, especially the high end quick Chargers, we started seeing more orders for that.
Coming in.
Fairly strong.
Especially when compared to the March quarter. So that's why we saw that bump up in the in the power supply and industrial.
The other two sub segments within within that.
Sector that also grew in addition to quick charger and Thats on the power tools.
As well as on the solar power portion. So those also helps us small degree, but the bigger portion is coming from the quick charger side.
That's really helpful color, Steve and the second question I have one.
As is related to.
Comments that the company feels like the inventory correction.
It's moving along and we're behind it seems like in many cases, we are but.
I wanted to ask the question this way.
If we look beyond the fiscal first quarter to the fiscal second quarter.
What are some of the Gibson takes for growth across the businesses because when I look at.
Some of our first quarter color with consumer off significantly as gaming console quarters correct in inventory corrects.
We'd be at risk for that same thing happening in Pcs and smartphones since we move beyond their peak seasons can you just talk about the gives and takes there and what it means this year looking beyond the fiscal first quarter two fiscal quarter for growth Gibson takes.
Sure.
Specific end application has its own.
Situation and the gaming console and the difference there was that gaming actually never went into correction. It was actually about four full quarters of very strong and a very strong performance and just keep in mind that this console maker remember in the early days when they first released their platform they have production issues and because they couldnt source.
All of the parts needed to build their consoles, but once a market slowdown in the supply chain eased up a bit. The quickly you were able to catch up on production and Thats. What they were doing in the last 12 months going forward. They are about halfway through their whole product cycle.
The console.
And they've.
In Iraq, we never had to do any kind of correction before and now. They know this is the first time first quarter that they will have to do some production adjustments. So thats why we see specifically for gaming their correction came late no. We didn't see any correction in the past before until until this coming quarter four.
<unk> as the other segments.
It is competing or smartphones.
A lot of that the inventory correction is already behind us.
That happened already starting end of last year going last calendar year and going into March.
March quarter of this year.
So now it's more about the visibility of the market and we're right in the middle of.
Launch of our major U S filmmaker and it's also in the middle of the back to school time in preparation for the holiday season. So our eyes are looking now more at the end markets with less of an impact from inventory control. These for the computing and the smartphone markets.
And so with that being said Steven does that mean since you feel like the business is recovering from inventory correction that the business should actually be up quarter on quarter and the December 5th.
Second quarter or would you expect seasonal dynamics to be more at play and for the business overall to be down sequentially in fiscal Q2.
It's honestly, it's a little bit too early to tell right now and our visibility is still looking at the next the current quarter that we're in and we do need to see again, how well their phones are received and how strong the holiday seasons are expected to be.
Even in a normal year and not in a downturn year by normal year.
The calendar fourth quarter. It can go either way it could be it could remain strong and go even stronger or start to adjust because again March quarter is usually the seasonally low so seasonality does play a factor.
For the December quarter is simply just depends on the strength of those key drivers there with back to school and with the phone launches.
Got it so we'll keep our eye on and demand that's helpful. Steve and then.
Finally, I wanted to just close out with you so great to see the significant gross margin upside in the quarter and its guided too.
A high level, but it is flat when revenues were up significantly so I would've expected a volume benefit to gross margins sequentially can you just talk about that Gibson takes in gross margin quarter on quarter in physical when queue. Thank you.
Sure.
Yes.
For the September quarter's margin right now see those.
Incremental revenue pretty much.
The mix is in line with the two.
Good quarter, So and then in terms of utilization.
This is kind of largely muted compared to them.
June quarter.
During the quarter, we were ramping up on that.
Oregon Fab expansion.
Overall.
Our production level is.
Do you expect it to be relatively similar.
<unk>.
For the September quarter as compared to the quarter.
Quarter.
Okay. So does that mean, we'd need to see revenues materially above $180 million a quarter before we got that volume and utilization helped the gross margin from here.
Right.
Our Oregon Fab.
Nation actually.
Quarter was that a relatively good.
Sure.
Uh huh.
Okay.
Benefited incremental.
It may not be.
Strong.
Revenue recovery.
Okay.
Steve any time, thank you very much.
Alright, Thank you Craig.
Thank you Craig. Our next question is from Kyle Smith with Stifel. Your line is now open.
Hey, everyone Karl Smith on for Torrey span Bergen, Jeremy Kwan here at Stifel.
Kind of going off that I had a question on Capex. So you mentioned last quarter.
Vacations to see your Capex gradually decline and it looks like Youre guiding for the September quarter to be roughly similar to the June quarter.
So do you have any update here as you think about the rest of the fiscal year.
Right I mean right now.
For the September quarter, you can see there relatively 15 million to 20 million.
Level.
Maybe a couple of million dollars lower than June .
Quarter.
But it is still.
Range.
Yes.
Our Oregon Fab expansion right now.
Toward paywall.
Payroll and payment.
Payment.
<unk>.
Going forward is.
More than I can.
Maintenance.
Sure.
The bottlenecking.
Depending on our.
Product.
Requirements.
Right now I would say overall target.
Target model is.
Try to target Capex.
Within the 6% to 8% of our.
The revenue range and that that's all in.
Normal capex target.
Great. Thank you.
Okay.
There are currently no further questions registered so as a reminder, it is star one on your telephone keypad.
Our next question is from David Williams with Benchmark. Your line is now open.
Hey, gentlemen, thanks for letting me ask a question a follow up question here I guess, Ivan if you kind of think about the mix this quarter.
The IC business power IC was up quite a bit sequentially, just wondering how much of the.
The gross margin improvement was from that mix and how you think that mix will flow into the next quarter. Despite the maybe the segment mix.
Sure.
Our power IC.
Product line.
Generally carries.
At a higher margin.
Yes.
<unk>.
Power IC revenue recovered.
It can be.
Compared to the March quarter.
Bigger pace.
Yes.
Back to last year or so.
When the supply was constrained.
Optimize them.
Our.
Sure.
Product mix quite a bit.
Tentatively.
Those products accumulated.
Inventory.
Great.
Michael.
For the M&A.
Oh yeah.
So it's better than March.
March quarter.
Kind of a correct it.
Quite a bit so.
Sure.
Quarter.
The mix definitely improve along with revenue recovery.
No.
Contributing to this.
<unk>.
Gross margin improvement.
During the quarter quite a bit.
Okay understood.
Understood.
And then just one last one from a geographic perspective can you talk a little bit about what youre seeing coming out of Asia, and China better worse, maybe neutral there's been some mixed messaging I think around that market in terms of whether its improving or still down so any color around what youre seeing would be very helpful. Thank you.
Sure.
Everyone was kind of looking at China, as they're reopening as potential kickstarting, two not only China, but maybe to the rest of the world.
So far I think opening up it is there is a lot more activity there and there is.
No.
They're there because of that.
It's kind of like what it was before.
But not sure whether it's.
I don't think thats actually translated over into retail spending being up.
And it is up but that but I would say that the expectations were for it to be higher for AOS ourselves.
We do see.
China, just just like all the other regions also went through a correction in the March quarter and that also came back in the June quarter. So so they are part of that recovery.
We are we are counting on China as well as the rest of the Asia region, especially Taiwan and <unk>.
Korea, Japan also to to grow going forward.
Thank you.
There are no additional questions waiting so I'll pass the conference back to the management team for any closing remarks.
This concludes our earnings call today.
For your interest in AOS, and we look forward to talking to you again next quarter. Thank you.
Thank you.
That concludes today's conference call.
You for your participation you may now disconnect your line.
Okay.
Okay.