Q4 2019 Earnings Call
At this time I would like to welcome everyone to the Alpha and Omega semiconductor fiscal year, and Q4 2019 conference call.
All lines have been placed on mute to prevent any background noise.
After the speakers remarks, there'll be a question and answer session.
If he would like to ask a question. During this time simply press star and the number one on your telephone keypad. If you would like to withdraw your question press the pound key thank you.
So young Investor Relations you May begin your conference.
Thank you Christine.
Good afternoon, everyone and welcome to Alpha and Omega Semiconductors conference call to discuss our fiscal 2019 fourth quarter and year end financial results.
I am still young Zhang Investor Relations representative for the company.
With me today are Dr., Mike Chang, our CEO evenly young our CFO and Stephen Chen our senior VP of marketing.
This call is being recorded and broadcasted live over the web and can be accessed for seven days following the call. It a link in the Investor Relations section of our website at Www <unk> a U.S.M.D. dotcom.
He fundable beginning with a review of financial results for the fourth quarter and fiscal year.
And Michael we view the business highlights followed by Steven who will provide a detailed segment report after that if and will conclude with guidance for the next quarter.
And we will have these questions and answer session.
The only to release, what's this beauty if I guess is why are today August seven 2019 after the close of market.
The release is also posted on the company's website.
Our earnings release and this presentation include 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 of these non-GAAP measures to comparable GAAP measures is included in our earnings release.
We remind you that during the course of the conference call, we will make certain forward looking statements, including a discussion of business outlook and financial projections.
These forward looking statements are based on management's current expectations and involve risks and uncertainties that could cause actual results to differ materially from such expectations.
For more detailed description of these risks and uncertainties. Please refer to our recent and subsequent filings with the FCC.
We assume no obligations to update information provided in today's call.
Now I'll turn the call over to our CFO fun to provide an overview of the fourth fiscal quarter and fiscal year 2019 financial results Brian .
Thank you so young.
Good afternoon, everyone and thank you for joining us.
Revenue for the June quarter was one Andre and $11.9 million up 2.6% when compared to the party quarter and up 1.8 posts on from the same quarter last year.
In terms of product mix MOSFET revenue was $96.4 million up 7.1% sequentially.
<unk> up 7.8% a year over year.
Power IC revenue was $13.8 million down 21.8% from the prior quarter and down.
21.4% from a year ago.
Oh somebody service revenue was $1.7 million as compared to $1.6 million for the prior quarter and $3 million for the same quarter last year.
Regarding the.
Segment mix.
Computer represented 44% of the total revenue.
Consumer.
18.7%.
Forward.
Supply and industrial.
20.5% communications, 15.3% and service 1.5%.
For the fiscal year funding 19 revenue was $450.9 million up 7% year over year.
non-GAAP gross margin for the June quarter was 27.4%.
That's compared to 27% for the prior quarter and for the same quarter last year.
So quarter over quarter increase in non-GAAP gross margin was mainly driven by that.
The improved the product mix.
non-GAAP gross margin excluded point $4 million share based compensation charges for the June quarter, as compared $2.5 million for the prior quarter and for the same quarter last year.
non-GAAP gross margin also excluded $2.6 million of production ramp up cost related to the taunting joint venture for the June quarter.
As compared to $3.4 million for the prior quarter.
For the fiscal year 2019.
non-GAAP gross margin was 28.4% as compared to 26.9% for the last fiscal year.
Representing an increase of 250 basis points.
Driven mainly by the improved product mix.
non-GAAP operating expenses for the June quarter were $22.6 million compared to $23.2 million for the prior quarter and.
$21.8 million for the same quarter last year.
The quarter over quarter decrease in non-GAAP operating expenses was primarily due to the fluctuation of R&D engineering expenses.
non-GAAP operating expenses excluded $2.1 million of share based compensation charge as compared to $2.6 million for the prior quarter and $2.5 million for the same quarter last year.
non-GAAP operating expenses also excluded.
$3.9 million, so preproduction expenses related to our JV company.
As compared to $3.6 million in the prior quarter and $5 million for the same quarter last year.
Both GAAP and non-GAAP operating expenses included $2.3 million, So digital power controller team expenses for the quarter.
As compared to $2.3 million for the prior quarter and $1.3 million for the same quarter last year.
Our digital power controller team continues to engage with customers in product designs and is making steady progress toward our product roadmap.
non-GAAP operating expenses for the fiscal year 2019 were $95.3 million.
Compared to $86 million for the.
For our fiscal quarter.
Fiscal year.
non-GAAP operating expenses excluded $11.2 million, so share based compensation charge and $15.8 million of preproduction expenses related to our JV company in the current fiscal year.
As compared to $9.8 million of shared based compensation charge and $7.8 million pre production expenses in the prior fiscal year.
Income tax benefit for the quarter were <unk> point $6 million as compared to a tax expense of <unk> point $6 million for the prior quarter.
$10.7 million for the same quarter last year.
The tax expense for the quarter was offset by the benefits of $1.1 million.
This included a point $3 million benefit from the true up of subsidiary.
Tax provisions to the actual tax returns.
We also had a point $8 million benefitted from electing the Rs directive my third for the R&D credit.
Income tax expense for the.
Fiscal year was $1.3 million.
Income tax expense.
For last fiscal year was point $7 million, which included $2.7 billion of one time tax benefit from the impact of the U.S. tax reform.
non-GAAP EPS attributable to weigh awareness for the quarter was 35 cents per share as compared to 22 cents earnings per share for the prior quarter and 31 cents earnings per share for the same quarter last year.
non-GAAP .
EPS attributable to a west for the fiscal year was one dollar and 23 cents as compared to $1.14 cents earnings per share for the prior fiscal year.
Hey, Wes continue to generate positive operating cash flow.
In the June quarter, we generated $15.2 million operating cash flow attributable to a wes.
As compared to $9.5 million for the prior quarter, an $8.7 billion for the same quarter last year.
Cash flow used in operations attributable to our JV company was $6.9 million for the June quarter.
Compared to $17.5 million for the prior quarter and $19.5 million for the same quarter last year.
Cash flow from operations attributable to a west for the fiscal year was $65.3 million as compared to $36.9 million for the prior year.
Cash flow used in operations attributable to that.
JV company was.
$33.9 million for the year compared to $33.4 million for the prior fiscal year.
Consolidated EBITDA us for the June quarter was $14.2 million compared to $11.8 million for the prior quarter and $12.8 million for the same quarter last year.
You'd be das attributable to Pos for the quarter was $15.1 million as compared to $13.5 million for the prior quarter and $15.3 million for the same quarter last year.
Consolidated EBITDA for the full fiscal year was $55 million as compared to $56.1 million in the fiscal year 2018.
EBITDA was attributable to a worse for the year was $61 million as compared to $58.4 million a year ago.
Now, let's look at the balance sheet.
We completed the June quarters, with cash and cash equivalents balance of $121.9 million, including $100.7 million at Wes.
And $21.2 million at all with JV company.
This compares to $139.1 million at the end of last quarter, which included $90.9 million at Aaos and $48.2 million at the JV company.
Our cash balance a year ago was $131.5 million.
Including $88.2 billion at a Wes and $43.3 million at the JV company.
The bank borrowing balance at the end of the June quarter was $140.9 million, including.
$41 million at Aaos and $99.9 million at the JV company.
During the June quarter.
He was paid down $2.1 billion of loans, and our JV company paid down $1.7 million Soviets financing lease.
During the fiscal year 2019.
Hey, Wes borrowed a total of $21.7 billion of loans and repaid $11.5 million.
The JV company borrowed a total of $45.8 million I repaid $3.5 million.
Net trade receivables were $24.3 million as compared to $28.4 million at the end of last quarter and $33.8 million for the same quarter last year.
Day sales outstanding for the quarter was 24 days compared to 23 days in the prior quarter.
Net inventory was $111.6 million at the quarter end.
Up from $107.9 million last quarter and from $90.2 million in the prior year.
Average days in inventory were hundred 17 days for the quarter as compared to.
Hungary, and 14 days in the prior quarter.
Net property plant and equipment was $409.7 million as compared to $391.6 million last quarter.
And $331.7 million last year.
Capital expenditures were $22.1 million for the quarter, including $4.6 million at a less.
And $17.5 million at the JV company.
Capital expenditures for the fiscal year were $112.1 million, including $36 million for iOS and $76.1 million for the JV company.
Before I turn the call over to Mike I would like to share to the progress at all with the JV company.
During the June quarter Assembly and test production continue to run.
And the 12 inch fabs product sampling and customer qualification process one well.
In July the 12 inch fab started small mass production.
We expect to continue to ramp up phase one in the next 12 months also.
With that now I would like to turn the call over to our CEO Dr., Mike Chang, who will provide the business highlights for the quarter Mike.
Thank you, Brian and good afternoon to everyone.
Our team executed well and delivered a solid quarter.
Revenue of approximately $112 million was consistent with our guidance and it represents.
The 14th consecutive quarter, all year over year growth.
non-GAAP earnings per share of 35 cents.
Exceeded the high end of the implied guidance range due to effective cost controls and the onetime tax adjustments.
Hey, always core business generated healthy.
Operating cash flow of $15 million.
And a free cash flow all Kim meeting Thanos.
In addition to solid financial results, we made a good operational progress.
In quarter.
In the quarter.
Sure Ben grew rapidly for our new products, the more bar and the home apprise applications.
Meanwhile, we optimize the production and inventory.
In order to manage to tight NAND mix of our computing business.
We also launched several new products, including 600 boat Anda several hundred boat almost five Super junction MOSFET that families in 12 inch technologies from our touching joint venture.
We finished the fiscal years 2019 was healthy top and bottom line growth.
Another record year on top of a very strong 2018.
This was encouraging considering the backdrop of escalating create tension.
Economic uncertainty and the ship you shortage.
Our resort.
Clearly demonstrated strengths of our business strategy operating accidently.
As well as our diversified product portfolio and expanded customer base.
Looking ahead.
Despite the challenges of the current market conditions and to the jewel prop political environment.
We are making solid progress 12 hour.
Calendar year 2021 pocket off.
$600 million in annual revenue.
[noise] all customer design in pipeline is robust.
And the design wins are strong, especially in our focus applications.
These drives a healthy level off fresh bookings and a solid backlog.
As I mentioned on our last call.
We have some of the more time you gross drivers.
Beginning to ramp we believe that we are well positioned to EQT, chief sustainable and scalable growth.
Additionally, we are extending our leadership.
That's a top tier supplier in a broad range of applications, particularly in mobile and home appliance.
We expect these ongoing diversification to further strengthening in the coming quarters as we ramp production for more than four global brand OEM customers in China Korea and the.
The United States.
With a solid foundation of customer demand.
The production ramp our Chongqing joint venture.
Yes, well timed.
Yes, you are right.
We initiated production at the top enterprise and we are gradually ramping according to all right.
Our wrong. This time next year, we expect to be approaching all faced one target run rate.
In conclusion.
We continue to execute our long term business strategy, we thought was focus and the dedication.
We believe the success of our new product initiatives that was occasion in product portfolio and customer base.
As well as this brand and timely investment in capacity over the past several years.
Well for the prepare all growth.
And now I would tend to call over to Steven for a detailed segment reporting.
Steven.
Thank you, Mike and good afternoon.
Let me start with computing.
It represented 44% of our total revenue in the June quarter.
Revenue was down 5.1% sequentially and up 2.3% year over year.
As I mentioned on our last call, we prioritize our production plan for commercial PC, which received a higher allocation amid the ongoing CPQ shortage.
With both channel and internal inventories on hand, so just to support our computing customers.
We were able to allocate more capacity to other high growth areas that already started ramping in the June quarter, and we expect this to continue into the September quarter.
Our computing segment remains an important component of our business.
As the market leader in strategic partner to leading PC Oems and Odeon items, we continue to work closely with our customers to provide innovative products and superior customer support.
In the September quarter, while we anticipate strong sell through our sell in revenue is expected to be down mid single digits as we continue to manage the computing inventory.
Now, let's discuss the consumer segment, which was 18.7% of total revenue in the June quarter.
Revenue increased 1.3% sequentially, but speed flat year over year strong growth in home appliance offset softness in other consumer applications in the June quarter.
The new design wins, we announced last quarter in home appliances, with Chinese and Korean customers further ramped during the June quarter.
Our home appliance customers value the reliability and energy savings that are RGB technology offers to better efficiency robustness and smaller size.
We are encouraged by the fast adoption of our technology and global OEM customers and we will continue to sharpen our technology to gain greater share in add more content.
We are on track to increase our IGBT product line by over 40% in calendar year 2019.
Looking to the September quarter, we expect a modest growth in the overall consumer segment led by continued expansion of our home appliance business as well as seasonal growth of our TV business.
Next let's turn to the power supply and industrial segment.
This segment accounted for 20.5% of total revenue up 8.1% sequentially and up 3.7% year over year.
While our AC DC power supply business remains soft our quick charger business rapidly grew as it further expanded at top smartphone customers.
Overall quick charger adoption has grown in recent years as battery capacity has increased in order to meet the ever increasing power requirements of demanding smartphone applications.
This trend requires high performance and medium voltage mosfets and this bodes well for us as our June quarter is quick charger revenue more than doubled from the same quarter last year.
With an expanded allocation for medium voltage products, we expect a strong revenue increase for this segment in the September quarter.
Finally, let's discuss the communications segment, which was 15.3% of revenue in the quarter.
Up 25.4% sequentially and up 10.4% year over year.
The growth was driven mainly by the rising demand for battery protection products at our smartphone customers.
As mentioned before smartphone battery capacity is increasing and requires higher efficiency to pull long battery life, our expertise in low voltage MOSFET technology, coupled with advanced chip scale packaging allows us to deliver contact high power density products that protect the latest generation of smartphone batteries.
Looking into the September quarter, we anticipate another double digit growth in this segment as all major smartphone players in China Korea, and the U.S. are entering peak production.
With that I will now turn the call over to eat fun for the guidance.
As we look forward to the first quarter of fiscal year 2020.
We expect revenue to be between $115 million and $119 million.
Gross margin to be approximately 20% plus or minus 1%.
non-GAAP gross margin is expected to be approximately.
27.3.
Person plus or minus 1%.
Note that non-GAAP gross margin excludes putting $5 million of estimated share based compensation and $8.1 million of estimated production and ramp up costs relating to the trunking joint venture.
As to 12 inch Fabs stars production in July 2019.
Operating expenses to be in the range of $27 million, plus or minus $1 million.
non-GAAP operating expenses are expected to be in the range of $24.6 million plus or minus $1 million.
Both GAAP and non-GAAP operating expenses include $2.9 million to $3.1 million of estimated expenses.
Relating to the development of our digital power controller business.
non-GAAP operating expenses exclude an estimated share based compensation charge of approximately.
$2.4 million.
Tax expense to be approximately $25 million $2.7 million.
Loss attributable to non controlling interest to be around $5.4 million.
On a non-GAAP basis.
Excluding estimated.
Production and ramp up costs relating to the JV company. This item is expected to be approximately.
Point $9 million.
As part of our normal practice.
We're not assuming any atopic patients to update this information.
With that we will open up the floor for questioning.
Operator.
Thank you at this time I would like to remind everyone in order to ask a question. Please press Star then the number one on your telephone keypad, we'll pause for just a moment to compile the culinary roster.
Your first question comes from the line of Jeremie Kwan from Stifel. Your line is open.
Yes. Thank you.
And congratulations on the strong communications ramped, it's nice to see that coming on.
Mike just a question on the counter 21.
$600 million target are you mentioned something about.
Hitting that that run rate in the June 2020 quarter did I hear that correctly.
Yes.
Okay.
And can you give us maybe more color in terms of how you see that ramping.
Are these basically design wins that you already have.
[noise] already won and it's just a matter of ramping up the fab to meet that demand where there are some other things that needed to take place between now and then.
Correct.
Jeremy This is.
Do you find that I want to correct that and a little bit on the commerce and regarding the June quarter 2020 run rate of EUR $600 million target, what we said in our prepared remarks and this.
But as close to the June quarter or 20.
20.
During the quarter, we will.
Approaching the targeted run rate of 22 joint ventures faced 112 inch fab.
So not a $600 million run rate.
Okay. So.
On a quarterly basis, where would that workouts you then for the June quarter is it.
I'm just trying to.
Get a sense of what what was meant by that.
Well that makes sense.
Approaching to the target run rate so in that one closing is the capacity run rate yeah.
Got it okay and that's for phase one.
I mean for the fifth your question is for 2021 calendar year right.
The $306 million.
Okay, Yes, that's a very good question for Jeff. Thank you for the Fourq forming for the question Okay.
We have to prepare everything the first we make sure all technology and new product platform is towards that direction of course, we need our capacity ready for that so I guess, it's all just everywhere to to fulfill their goal.
It's not just by one price there okay, you've missed what president you'd be in trouble. So we actually took everything there from the technology from the manufacturing even from our marketing and selling the whole company of gear for that.
Got it that's very helpful.
I guess, if we look at the.
The JV ramp itself.
Can you give us a sense of where the.
It looks like the operating cash flow is improving each quarter is there do you have an internal projection for where it might turn to breakeven I'm also remember you mentioning the need for maybe a working capital loan last quarter is that something also on still on the plans and how much that might be.
Okay sure Jeremy.
Yes, and no we are still under negotiation.
Full and working capital loans. So at this point, so we'll we'll see.
At this point and yes, the joint ventures do has.
Because the cash balance right now to support and they are run.
In terms of.
Cash flow breakeven, while we ramp up to the phase one stage I would you expect any time, we can be.
On cash flow neutral at the joint venture.
Great. Thank you and maybe just one final question before I give up to the Q.
It looks like the Capex are sorry, the opex has been pretty nicely controlled the last few quarters.
Is this the September quarter guidance, it's up a little bit is that the new run rate that we can expect for fiscal 21, I'm sorry for fiscal 20.
Yes, I would think that you can use that as a.
Reference.
Because the last couple of quarters and those are all pacsun.
Uh huh.
Sunderland maintain relatively.
Lower than normal.
Level because of the fluctuation of those R&D expenses and other.
Operating.
Expenses I mean this thing is when we.
Looking forward to the September quarter, we expect and that will will run some engineering.
The expenses hub.
Great. Thank you very much.
Hi, Jeremy before you cannot can I, just get up little bit up all for your first question [laughter] does that.
It should be pretty big they're up it because it's so complicated right, but actually appeared on top of what we talk about it that the technology for 40 and put online there and even more important is that the customers start to to reckon that it was as a it brand name. So right now our design in our engagement, which was the tier one customer is read the paper roll towards directory. So everywhere is on the rocks and stuff why we are confident to to say that we put in that direction.
Thank you Thats very helpful.
Yeah. Thank you okay. Thank you.
Your next question comes from the line of David Williams from Loop Capital. Your line is open.
Hey, good afternoon, and thanks for taking my question congrats on that.
The solid finish to the year and the progress is being made.
Okay first of all just wanted to see if you could maybe give us an update or maybe your thoughts on channel inventory health and if you're seeing anything.
Concern there it sounds like.
A lot of those areas.
Our seeing some nice digestion of the.
The overstock are you seeing that and any concerns I guess any particular areas.
Weakness or maybe too much inventory that remains.
Sure David there are quite a bit the dynamics in the in that area and I made this overall you know our channel inventory is healthy within our target of two to three month.
This right now then.
In the June quarter, or even including the quarter before we have been.
Optimizing our productions and internal inventory and the channel inventory to manage this dynamics of computing and smartphone business.
So.
We manage our.
Productions to support our.
Customer demand our overall goal is to support.
Our customer demand according to their production schedules. So on you know.
In the mirror some of the different customers and they have different the ramping schedule. So we have to manage that.
Also recent market conditions and treat tension.
I mean, those things complicated this whole things.
There are.
There have been more pull ins and push outs I mean adjustment so I mean that.
This.
Whole thing is.
You know we have to manage it diligently.
Right now when using our.
Inventory too.
Support our portion of customers and and done it ramp and our productions to support the other.
Other than a little bit more on other customers and the ramp up in the June quarter and September quarter. So is quite dynamic, but the overall whitson additional capacity came online at all.
Touching joint venture.
We expect them you know supply constrained situation gradually.
Yes Buddy.
Like than what Mike said, it will take some time to flow.
Customers to go through those qualifications design in design win and their production ramp up soon.
You know right now, we'll we'll kind of have diligently.
Management those situations, but the overall our total inventory.
He is very healthy.
Okay very good thank you and I realized you guys have a little different dynamic what's really driving your business today, but if you're kind of looking out at China. Overall, how do you see that demand environment today and what are you hearing maybe from your customers in terms of their view is are they becoming more cautious are they easing a bit what do you think.
I guess are your customers.
Are they are the order trends as you would expect or do you think there is anything thats really being pulled in ahead of maybe a concern for terrorists or further trade issues.
Oh, Yeah definitely I mean, there are done.
A lot of moving parts in dynamics and then in those areas and I mean this.
Thing is and depending on the.
Which way the tree tension goes and then if tomorrow, if there's another 20 to them.
People may may react differently than I mean does the.
Situation at this point in time, and yes, we do see some.
And.
Who wins in auto from whatever the.
Treat tension situation and we also see some adjustment pushing out to me. This is a quite dynamic I will say at this point.
Okay.
Thank you.
And then maybe in terms of the server demand is there anything there that you are seeing softness weakness or maybe any progress is being made just any color you can give on the server side.
Sure I think you're asking about regarding our digital power initiative.
So regarding that space and we're still on track for our next target right now we're in the we're getting our final products out of development and we are already engaging with customers right. Now we're treating right now this current year as a design in phase.
Our motto along has been to chase and targets are meaningful revenue in 2020 and on on that regard hour. We believe you out we are on track.
Okay, just any sense on magnitude of that revenue contribution next year.
It's five to 10 is what we've been saying.
Okay.
Well, thanks Im just curious.
Limited med Mal probably a bit.
This area of the business that we normally people are very careful to designing devaluing.
And it takes some time to grow quite a bit but once you grow would be very solid because it does not have or not our strong adhesion.
The Indian this business here. So we are pretty excited about that.
Okay.
Thank you.
Factor.
Your next question comes from the line of Craig Ellis from B. Riley FBR. Your line is open.
Hey, guys its carlin on for Craig. Thanks for taking my question and congratulations on the good results in the quarter.
I just had a quick question and I apologize because I think I might have missed it but regarding the compute.
September quarter guidance.
How has the obviously tariffs have made things more dynamic, but how has the CP you supply ramp and yes.
Latest round of tariff impacted what would be normal.
Seasonal ramp through the back half of the year.
Well, we've seen overall and the CBU situation overall as the industry. It is beginning to ease up in terms of the shortage.
We see both the the two major OSAT chipmakers combined are are catching up their supply to the demand. So we saw that already happening in the second quarter.
Course than with the U.S attentions and the threat of additional tariffs.
That that happened back in Q2, and it's happening now also in a in this and in the September quarter. So there is some dynamic to that in terms of some customers that they are able to to pull in production for that.
But overall I think it will be guided is that because then we have some inventory in the computing area and Weve also allocated we've had to allocate our capacity to support other growing business, especially in the communications and quick charger area.
We are expecting for computing, our sell through to be higher than our sell in in the September quarter.
Okay. So just to clarify what the actual guidance was for the September quarter is I mean, it was going to be down sequentially or up sequentially. It will be down sequentially for selling.
Got it.
And then if I could ask a follow up so I think last quarter and feel free to correct me if I'm wrong, you had said that the digital power.
Initiatives would be at the joint venture would be ramping kind of closer to the March quarter of last year, but now it seems as though you guys said June quarter did I have that wrong or did something change in the way you're thinking about.
How that business is ramping up.
Through this through this year.
For the first of all the digital power when no not the not in the U.S.
The joint venture I mean, that's the first thing.
Second thing is.
Regarding the.
Joint ventures ramp up and yes, I mean, this a 12 inch or five and started the small mass production in July .
As I said previously.
We expect and we've run this a fab in the yen.
Uh huh.
12 month period also so that I mean that pretty much and lead to.
Same time next year, so we're targeting to get to the phase one run pub.
Okay, and one more from me and then I'll hop back in the queue.
Once we get to that.
That kind of joint venture for capacity in the June quarter, how do we expect gross margins to track towards that 30% target moving forward will it be kind of by the June quarter, We would expect.
Upward pressure towards 29 and 30%.
Because of the new product coming online or is that going to be by more end of calendar.
20, yeah.
Calendar 20, just any color you can give around how you're thinking about gross margins tracking towards that target.
Okay first of all and you know what we said was.
The well targeting.
The.
Faced 112 inch fab run rate.
You know about.
12 months or so so doesn't translate to a September quarter of next year and kind of the year.
Second thing is.
It is what we.
Estimate.
The one we ramp up the phase one.
12 inch fab, our 12 inch.
Wafer cost on a per day basis will be on par with our eight inch wafer cost so that the neutralize the cost and the impact at that time. So Oh overall target model is to target a 30% margin when we get to $600 million and in revenue. So that's our target model in.
In calendar year 2021.
Okay got it thanks, so much I'll hop back okay. Thank you.
Your next question comes from the line of Jeremie Kwan from Stifel. Your line is open.
Yes. Thank you maybe just a follow up on that previous question. So understanding that you know that 30% that overall target model that 600 million.
How about in terms of the progression between now and then I from what I understand the.
As the JV ramps up there is actually a little bit of a negative impact to gross margin and it looks like we saw a little bit of that in the September quarter.
Is that 27% and 27.3 that kind of a baseline that it might where can we see gross margin trend I guess in the next 12 months as the JV brands.
So I would expect in the recent couple of quarters and it's in the state in that neighborhood. You know 20, 728, and I would expect that gradually will.
Get up to 20 829 range. So one of the best in the us to prove primarily.
From the.
New products and those product mix along with it. So another factor is and you know this year and onward, a war factory in some.
ASP pressures in Casa de Souza.
Right now the.
The market dynamic is different than last year, you know space. So.
Last year's shortage and none has been.
Using up and so right now I would build in summer.
Modest ASP erosion.
And is that is a change from maybe three or six months ago, where we I think you mentioned sps kind of stabilizing versus being.
Kind of.
Having some uplift last year is a modest ASP erosion is that a little bit of a shift there or is it something.
11 modest shift.
Okay.
And maybe.
Let me switching gears, a little bit to the capex side of things.
You know with the fiscal year behind US can you give us an update on your Capex plans both for both internal and then the JV for fiscal 2000.
A critical 20 <unk>.
Hey, West side it wasn't.
Targeting like women still 6% to 8% of revenue type of things I would think of it right now is a more toward low end deals done range. So fully awareness for the JV yet they will continue to spend.
Some remaining portion of the phase one equipment purchase payment and the money that payment then equipments and pretty much all year. So.
We'll fine tune some production license women need here and there are primarily is the one that are remaining payments. So.
Once we have the current cash plus the loan so we're under negotiation, we would expect and yen.
I will be.
Sufficient for that.
A phase one ramp up.
Great that's very helpful and one last question.
In terms of the overall end market mix, you've got communications wrapping up quite strongly last quarter. It looks like it's going to be strong again this quarter, and then power supply industrials doing pretty nicely to you.
And do you see an overall shift in the end market mix in 12 months and and if so is it significant enough to shift your seasonality from I think right now you guys have.
Your fiscal Q2, and Q3, a little bit on this more flattish to downish, a little bit stronger periods being fiscal Q1 Q4.
We see that holding chou or theirs.
As your JV ramps are there different things to consider it in terms of seasonality.
I think in the short term it probably won't change too much in the longer term, we are moving towards diversifying our segment base.
In the past we've been more computing heavy I'm of course, we'll we'll continue to invest in and grow our computing business, but right now we are seeing our other segments on grow faster right now tied to the smartphone whether its battery protection in communications or a quick charger and the power supply.
Some of these can help to smooth out the seasonality a bit.
But I think in the overall, we're still going to see some seasonal pattern.
Just like we have in the past.
Great. Thank you very much.
Yes by in June we also.
It's our goal to diversify our technology into all the or greater to grow.
So thats our company strategy and policy.
Thank you Mike I appreciate that.
You're welcome.
Your next question comes from the line of Craig Ellis from B. Riley FBR. Your line is open.
Hey, guys just a quick follow up so free cash flow in the quarter was.
For Aon sale was strong and I'm, just trying to think about how or what the plans are for free cash flow kind of moving through calendar 20 in calendar 21 once phase one.
Of the joint venture ramp kind of gets more meaningfully behind you guys. How do you guys think about.
Free cash flow usage, and then also a is.
Is there anything that you guys need to do to prep for phase two and phase three to kind of track towards the calendar 2004, I target financial model of a billion.
Okay sure.
Overall, I mean, this fiscal year 19, a lesson generated the healthy free cash flows and going forward.
Fiscal year 2020, I would expect them.
We can do similar level of.
Free cash flow, depending on the the Oh.
Cash flow needs and I would not expect and too much too heavy capex investment from our side and well known at more like on the maintaining that and to fine tune our.
ER product mix production lines on a deep bottlenecking some summer.
Areas. So for the U.S. alone I would expect continued to generate healthy operating.
Free cash flow.
For the joint venture I mean that.
The.
For them that you know we are on a separate entity and then other than that.
You know the contributions and you know we.
I've made in June .
Joint venture company has its own.
Capacity to borrow money menu.
They owns the land and the buildings and equipment.
They can't mortgage it out and then and then get a.
Financing from there to support their run so boy West and you know the.
Uh huh.
You know they are one of our major suppliers.
In that way so.
For the joint venture you know for phase two screen I mean that.
When we ramp up I will say halfway through phase one and the war started considering phase two of the four phase two I mean, the incremental investment will be much less than phase one because the the summer infrastructures and buildings and all those things.
Capex down so overall you would need to.
The purchased some equipment to us and then and then maybe.
The small incremental Cleveland expansions, so and then requirements in the war.
Or think about it when we you know next year sometime.
Got it got it and then I just want to hop back really quickly to the communications segment.
Really strong performance as next year comes around and.
You know Fiveg handsets continue start to more meaningfully rollout how would we expect how how should we think about your content increases on the battery protection side.
In that business and how much was this year's kind of banner performance more customer diversification.
And rather than kind of unit dependence because you know obviously units are not having a great year, so what's the potential like upside.
Next year to what was a really strong quarter. This quarter and is shaping up to be a really strong quarter next year next quarter sorry.
Sure for Us and I'm, just looking at the year looking at the application first on the fight you would definitely and drive a more content and with regards to battery protection, which is where we play right. Now you can see the latest smartphones not only are they getting bigger, but especially with the fiveg. It is much more demanding on power and with Fiveg you have.
Additional capability for video streaming or gaming or even in virtual reality, that's very taxing on the on the battery itself. So the need for efficient and battery protection beacons is very keen and and and so definitely and so on the client side, we expect to see growth the growth that we saw this year and it has a lot to do with the customer expansion, we added and as we shared with you guys. We've added and the major global smartphone makers at the end of last year and this year, we're beginning to enjoy that.
That will continue and we expect that to continue that going into next year on the client side on the area for growth for US. It is also going to be on the infrastructure side with telecom. The fiveg not only is going to benefit handsets, but all the infrastructure will have to be replaced and over the course of the next few years and on AOL, how strong products and covering a wide variety of applications within the telecom system. This includes discrete mosfets.
That go into the DC DC conversion as well as our digital power solutions for telecom for the point of votes.
So on a what we believe we have a very good opportunity to grow even further beyond just clients I battery protection, but moving also into the infrastructure side.
Got it and you know like what the have do you guys have any sense on what perhaps maybe your long term mix would be in terms of smartphones versus telecom in that.
In that end market is you know is it going to be eventually 50 50 is it going to be 70, 525, I'm just trying to think about because I know, it's so small right now and how that's going to ramp.
Once you start really kind of getting that business under way.
I think getting to 50 50 in the mid term is probably about right. Obviously, the battery protection as a big head start in that market, but the digital power is you know is somebody that's much more longer sustaining it's the continent, our continent going into base stations is quite large for digital power as well too. So in the longer run I believe the digital power can catch up to the battery protection a portion of the fine side.
Got it all right. Thanks, guys.
There are no further questions at this time I turn the call back over to the management team.
This concludes our earnings call today. Thank you for your interest in the West and we look forward to talking with you again next quarter. Thank you.
Thank you.
Thank you.
This concludes today's conference call you may now disconnect.