Alpha and Omega Semiconductor Limited

Ladies and gentlemen, thank you for standing by and welcome to Alpha and Omega Semiconductor Financial Results for the fiscal first quarter of 2021 conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question, you will need to press star 1 on your telephone keypad. Please be advised that today's conference is being recorded. If you require any assistance, please press star zero for the operator. I will now turn the call over to Mr. Gary Dvorak. Sir, the floor is yours.

Good afternoon, everyone, and welcome to Alpha and Omega Semiconductors conference call to discuss fiscal 2021 first quarter financial results. I'm Gary Dvorak, investor relations representative for AOS. With me today are Dr. Mike Chang, our CEO, Yifan Liang, our CFO, and Stephen Chang, our executive vice president. This call is being recorded and broadcast live over the web. A replay will be available for seven days following the call via the link in the investor relations section of our website. Our call will proceed as follows. Mike will begin with a review of business. Then Stephen will provide a detailed segment report. After that, Yifan will review the financial results and provide guidance. Finally, we will have the question and answer session. The earnings release is distributed over wire services today, November 5th, 2020, after the close of the 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 the earnings release. We remind you that during this conference call, we will make certain forward-looking statements, including discussions of the business outlook and financial projections. These forward-looking statements are based on management's current expectations and involved risks and uncertainties that could cause our 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 obligation to update the information provided in today's call. Now, I will turn the call over to our CEO, Mike, to provide an overview of the business. Mike?

Thank you, Gary. Welcome, everyone, to today's call. We are off to a great start to fiscal year 2021. Business momentum accelerated in the September quarter despite the ongoing global uncertainty with COVID-19. We delivered solid revenue growth and excellent profitability. Shipments were strong across most of our product categories, particularly computing and consumer applications. Revenue was up 29% year over year. and at the high end of the updated guidance range we issued in earlier October. Better utilization and disciplined expense control drove non-GAAP growth margin of 29%. On the bottom line, we posted non-GAAP EPS of 55 cents, which more than doubled year over year. First physical quarter results continue to demonstrate the competitive strength of our business strategy, technical expertise, diversified product portfolio, and expanded customer base. While we start our business in the computing market, we have successfully diversified our business by expanding into other market segments, including consumer, communications, power supply, and industrial. Our mission is to become a leading designer, developer, and a global supplier of a broad portfolio of power semiconductors. Our technical expertise enables us to develop a broader variety of power discrete and power IC technology platforms. This enables us to expand our product offerings and deliver complete power solutions for more target applications. Over the years, we have evolved from a component supplier to a solution provider. We have engaged more deeply with our customers, strengthened relationships, and have become their trusted strategic partner. Our multi-subject design wins With the recently launched gaming system and new PC graphics card platforms, as well as our continuing high growth in home appliance applications, are some examples of how we have deepened strategic partnerships with Tier 1 OEM customers. We will continue to drive growth by winning new ODM and OEM customer engagements with an expanding pipeline of new products. Our renewed business growth was made possible by our multi-year effort to strengthen our supply chain, specifically our joint venture FAB in Chongqing, which continued to trend and helped in capturing the surging of demand in September quarter. Because of this, The Chongqing FAB achieved a positive impetus for the second conservative quarter, and we expect to approach its phase one target run rate next year. The joint venture FAB provides us with flexible capacity management and the geographic diversification of our supply chain, and will support our business growth for many years to come. I am pleased with our direction and our solid execution, even though it could be a little faster. I want to thank our customers, business partners, and shareholders for their support and confidence in the company. I also want to acknowledge our employees for an outstanding job and for staying focused and engaged with our customers. customers while we navigate this challenging market environment. We are excited about our growth trajectory, and we believe we can achieve our calendar year 2021 target of $600 million of annual revenue. With a healthy pipeline of new products, new design wins, and new customers, we are focused on executing our growth strategy. and building on the strong momentum we see now. While our optimism is justified, we want to caution investors that the environment is still highly uncertain. We will be working diligently to drive growth, but are prepared to respond quickly should conditions change due to COVID-19 the economy, trade tensions, or other issues. With that, now, I will turn the call over to Stephen for a detailed segment report. Stephen?

Thank you, Mike, and good afternoon. Let me start with computing. It represented 44.1% of our total revenue in the September quarter. Revenue was up 35.9% sequentially and up 44.7% year over year. End demand was stronger than expected, which we fulfilled with ramping supply from our JV fab. The work-from-home trend drove high demand for PC-related products. Our graphics card business was exceptionally strong, driven by demand in the gaming application. We remain excited about ramping sales of high-performance driver moths and digital power solutions in the launch of key customers' graphics card platforms. We expect this to continue in the December quarter. Looking ahead, we expect overall computing revenue to be down mid-single digits in the next quarter, as the sequential growth in the graphics card business is expected to be offset by the usual seasonal decline in PC. Now turning to the consumer segment, they represented 24.2% of total revenue in the September quarter, Revenue increased 33% sequentially and was up 70.8% year-over-year. Similar to PCs, the pandemic-driven stay-at-home effect boosted sales of gaming, TVs, and home appliances, propelling the strong growth. Gaming grew significantly as a major game console win started to ramp. Pre-production for the new gaming consoles started in the June quarter and ramped further in the September quarter. We are thrilled to have multiple sockets across several of our product lines, including PowerIC and MOSFET, designed into this gaming console system. Home appliances continue to expand in the September quarter, primarily driven by sales of intelligent power modules. Our co-packaged IGBT and MOSFET-based motor drive modules with built-in safety features offer our customers a co-packaged solution for ease of design and robust performance. We have been expanding our module product offering and we are pleased to see business ramping with a new series of IPM modules designed for room air conditioners at a Japanese customer. Looking to the December quarter, we anticipate a mid single digit decline in the consumer segment. Growth in home appliances is likely to be offset by a seasonal decline in TV, coupled with a production ramp pushout of gaming console systems caused by a shortage of other system components. Now let's discuss the power supply and industrial segment. It accounted for 16.5% of total revenue, up 5.7% sequentially, and down 8.5% year over year. Going into the September quarter, we expected this segment to be down somewhat due to softer demand for quick chargers and DC bands. The upside surprise was due to a couple of factors. First, quick chargers were flat quarter over quarter, better than expected. This year's peak season for global smartphone OEMs was delayed due to COVID. As our smartphone customers began shipping again in the September quarter, quick chargers started to come back. Second, the demand for ACDC power supply was stronger than expected, closely tracking the surge in PC sales, which offset the decline in DC fan demand. Furthermore, the industrial drone application started to ramp, as our high-performance MOSFETs are designed to power the drones for use in applications such as agriculture, delivery, and emergency response. Looking ahead, we expect the overall segment to be flat in the December quarter, as quick charger growth will be offset by a decline in ACDC power supply. Finally, let's move to the communications segment, which was 13.4% of total revenue in the quarter, up 2.4% sequentially, and down 4.5% year over year. This segment played out largely as expected, given the delay in the smartphone peak season. Looking ahead, our battery protection business is expected to be strong in the December quarter, tracking the peak season of our global major smartphone customers. We expect communication segment revenue to be up double digits sequentially in the December quarter. With that, I will now turn the call over to Yifan for a discussion of our fiscal first quarter financial results and our outlook. Yifan?

Thank you, Stephen. Good afternoon, everyone, and thank you for joining us. Revenue for the December quarter was $151.6 million, up 23.8% from the prior quarter and up 28.6% from the same quarter last year. In terms of product mix, MOSFET revenue was $119.4 million, up 19.4% sequentially, and up 18.7% year-over-year. RIC revenue was $29.5 million, up 45.2% from the prior quarter, and up 87.3% from a year ago. Assembly service revenue was $2.7 million as compared to $2.1 million last quarter and $1.5 million for the same quarter last year. Non-GAAP growth margin for the September quarter was 29%, up from 27.5% in the prior quarter, and up from 28.3% in the same quarter last year. The increase in non-GAAP growth margin was mainly driven by favorable product mix and higher factory utilization. Non-GAAP growth margin excluded $0.8 million of amortization of purchased IP related to digital power for the quarter. In addition, non-GAAP gross margin excluded $0.4 million of share-based compensation charges for the September quarter as compared to $0.3 million and $0.4 million for the prior quarter and for the same quarter last year, respectively. Non-GAAP gross margin also excluded $0.3 million of production runoff costs related to the JV company for the quarter as compared to $4.4 million for the prior quarter and $6 million for the same quarter last year. Non-GAAP operating expenses for the September quarter were $28.6 million compared to $25.3 million for the prior quarter and $25.6 million for the same quarter last year. The quarter-over-quarter increase primarily related to higher R&D engineering expenses and variable compensation accrues. Non-GAAP operating expenses for the quarter excluded $2.5 million of share-based compensation charges and $1.1 million of legal expenses related to the government investigation. This compares to $2.4 million of share-based compensation charges and $2.6 million of legal expenses related to the investigation for the prior quarter, as well as $1.9 million of share-based compensation charges for the same quarter last year. Both GAAP and non-GAAP operating expenses included $3.2 million of digital power team expenses for the quarter, as compared to $3 million for the power quarter and $2.8 million for the same quarter last year. In the September quarter, we started the shipment of digital power products. Digital power is complementary to our power IC operation and make it more complete and compelling. As our internal integration is now behind us, we will no longer break out digital power team expenses going forward. Income tax expense for the quarter was $1 million compared to $0.4 million for the prior quarter and $0.4 million for the same quarter last year. Non-GAAP EPS attributable to AOS for the quarter was $0.55 per share as compared to $0.29 for the prior quarter and 26 cents for the same quarter last year. AOS continued to generate positive operating cash flow. AOS on a standalone basis generated $12.7 million of operating cash flow in the September quarter as compared to $20.2 million of operating cash flow generated in the prior quarter and $4.2 million used in the operating cash flow in the same quarter last year. Operating cash flow used by the JV company in the September quarter was $2.9 million compared to $20.1 million of cash flow provided by the JV company in the prior quarter and $3 million of cash flow provided by the JV company in the same quarter last year. Consolidated EBITDAs for the September quarter was $27.6 million compared to $14.9 million for the par quarter and $14.3 million for the same quarter last year. EBITDAs attributable to AOS for the quarter was $22.2 million as compared to $12 million for the par quarter and $13.8 million for the same quarter last year. EBITDA for the JV company was $4.6 million in the September quarter as compared to $1.1 million for the prior quarter and negative $2.4 million for the same quarter last year. Now let's look at the balance sheet. We completed the September quarter with cash balance of $154.7 million including $112.7 million at AOS and $42 million at the JV company. This compares to $158.5 million at the end of last quarter, which included $110.3 million at AOS and $48.2 million at the JV company. Our cash balance a year ago was $103.1 million, including $88 million at AOS and $15.1 million at the JV Company. The bank borrowing balance at the end of September was $173.8 million, including $30.6 million at AOS and $143.1 million at the JV Company. During the quarter, AOS and the JV company repaid $2.1 million and $4 million of existing loans, respectively. Net trade receivables were $26.3 million at the end of the September quarter, as compared to $13.3 million at the end of the prior quarter, and $39.3 million for the same quarter last year. Base sales outstanding for the September quarter and for the prior quarter were both 18 days. That inventory was $137.7 million at the quarter end, up from $135.5 million last quarter, and up from $118.6 million in the prior year. Average days in inventory were 113 days for the quarter compared to 127 days in the prior quarter. Net property plant and equipment was $421.6 million, up from $412.3 million last quarter and up from $404 million last year. Capital expenditures were $11.3 million for the quarter, including $7.9 million at AOS and $3.4 million at the JV company. With that, now I would like to discuss the guidance for the next quarter. We expect the revenue to be approximately $153 million, plus or minus $3 million. gap growth margin to be 28% plus or minus 1%. We anticipate non-gap growth margin to be 29% plus or minus 1%. Note that non-gap growth margin excludes $0.8 million amortization of acquired IP $0.4 million of estimated share based compensation charges and $0.4 million of estimated production and runoff costs relating to the JV company. Gap operating expenses to be in the range of $32.6 million plus or minus $1 million. Non-gap operating expenses are expected to be in the range of $28.6 million plus or minus $1 million. Non-GAAP operating expenses exclude $2.5 million of estimated share-based compensation charges and $1.5 million of estimated legal expenses relating to the government investigation. Income tax expense would be approximately $0.8 million to $1.2 million. Loss attributable to non-controlling interests to be approximately $1.4 million. On a non-GAAP basis, excluding estimated production run-up costs relating to the JV company, this item is expected to be approximately $1 million. As part of our normal practice, we are not obligated to update this information. With that, we will open the call for questions. Operator, Please start a Q&A session.

Ladies and gentlemen, if you would like to ask a question, please press star, then the number one on your telephone keypads. To withdraw your question, press the pound key. We'll pause for just a moment to compile the Q&A roster. Your first question comes from the line of David Williams.

Hey, good afternoon. Thanks for taking my questions, and congrats on the solid quarter and the guide.

Thank you. Thank you.

As we kind of look out and kind of think about the revenue stream, obviously it sounds like you're targeting $600 million this year, so a very nice run rate. So it feels like most of this is fairly sticky, but can you talk maybe a little bit about where you're seeing the demand coming from in terms of design wins and new products versus just back-filling demand that you previously couldn't just with lack of capacity?

Sure. Let me take that. We're definitely excited to see the growth this year. This year definitely started off a bit unpredictable and uncertain, but we are pleased to see the results in the past couple of quarters. In terms of the traction that we're getting in the market, the current growth that we've seen in the past has further grown, especially in the PC area. We continue to expand our BOM content. And as we talked about, we've also broken into the graphics card business with the major launch that happened this quarter. And additionally, our home appliance business also continues to expand We've started with our IGBT business, our discrete business, and we've expanded with our module business. And we're starting to see the results of especially the module business this September quarter and going into the December quarter. Smartphones overall has been a bit of a rocky start, just like in many of the markets. And we saw a push out of the peak season and spreading into the next couple of quarters. But our position there is still strong, and we have a good placement at the key global smartphone makers. And layering on top of that, we've also opened the market for gaming for iOS, and going on to one of the gaming consoles that's launching this quarter. So we're pretty happy to see the growth of our existing applications, as well as some of the new growth areas that we just recently expanded into.

Great. And then just kind of think about the new digital controller and that digital power solution. How much did that contribute to the quarter? And then as you kind of think about next year, what do you think that contribution, or excuse me, this year, what do you think that contribution could be? What are the expected kind of ramps or targets for the year?

Sure. So our digital power, as part of our multi-phase initiative, The early revenue came in graphics card and going into a high-end card where our SPS is already starting to ramp in the September quarter. This is more at a smaller ramp compared to the other graphics card ramp that we're doing right now. This is going into a very high-end card for that vendor. So we see some small business this quarter will ramp a little more going into the December quarter. But our heart is still set out to go after the core server and telecom market. And with that, we're still expecting that to be a little further out, more like in 2021, 2022, type of timeframe for that business. In the meanwhile, we will continue to expect this graphics card business to gradually increase over time. as they roll out their production and hopefully seeing our part also proliferate into more models within that graphics card maker.

And one more, if you don't mind. But you talked even a little bit about the factory loadings and that helping the gross margin a bit. But can you maybe give us a little bit of color around what your utilization rates are looking like, particularly in the JV? And then maybe where your capacity stands there. You talked about getting to that run rate in the next year. Can you maybe qualify that in terms of when you expect that? And just kind of in terms of gross margin, maybe that contribution that you expect to see just from all of these moving pieces that are really moving in the right direction here, if you kind of combine those together. So just any call you could provide to be helpful.

OK, sure, David. In terms of gross margin, yes. September quarter's gross margin increased by 150 basis points compared to the June quarter. That was primarily due to the combination of better product mix and higher factory utilization. So product mix and factory utilization, I would say half and half, maybe slightly higher on the FACTORY UTILIZATION SIDE, YOU KNOW, PRODUCT MIX DEFINITELY IMPROVED. EXAMPLE, YOU KNOW, YOU CAN SEE IT'S POWER IC PRODUCT LINE WOULD GO LIKE 40 TO 5 SOME PERCENT QUARTER OVER QUARTER, YOU KNOW, 87 PERCENT A YEAR OVER YEAR. I MEAN, POWER IC PRODUCT LINE TERRIES AT A HIGHER product margin for us. In terms of factory utilization, our own factory is like an organ fab and Shanghai back-end facilities and pretty much operated at a full scale right now. You know, we can squeeze out here and there some the JV company continued its ramp during the September quarter, you know, contributed to our revenue growth. So this, I mean, right now, it's not fully ramped up to its phase one run rate yet. So as Mike mentioned in when targeting next year, you know, the September quarter, we can fully ramp up that place. But that said, you know, actually, to me, it's actually a better outcome for us, you know, at $150 million quarterly revenue level, you know, our JV COMPANY, THEY STILL HAVE SOME ROOM TO SUPPORT US FOR FURTHER GROWTH. SO I FEEL THAT IT'S ACTUALLY A POSITIVE FACTOR. THE JV COMPANY ALSO, I MEAN, DURING THE SEPTEMBER QUARTER, IMPROVED ITS PERFORMANCE. YOU CAN SEE FROM THE PRODUCTION RUN PART OF THE COST, In the June quarter, I remember it was $6.6 million also, and now in the September quarter, it's like $0.3 million also. So we're further ramping up this joint venture 12-inch FAB.

Thank you very much. Certainly appreciate it, and the best of luck on the quarter.

Thank you. Thank you.

Our next question comes from the line of Craig Ellis from BRileyFBR.

Yep. Thanks for taking the question and congratulations on the real strong execution team. Great to see the strong revenues and margins and earnings in the quarter. So I'll start with that as a follow up to David's question. Ethon, thanks for the color on utilization and mix in the significant increase in gross margin in fiscal 1Q. But in fiscal 2Q, your guiding revenue is a little bit higher, but it looks like the gross margin midpoint is lower. So what accounts for the lower gross margin on higher volume?

We guided actually about the flattish gross margin for the December quarter. Slightly increased in revenue. I mean, that would not change a whole lot of things. Right now, it's the factories, our own factories are running at a pretty full level. Then product mix, it's about the same, similar level. product margin profile. So I would think in this December quarter, we are expecting similar gross margin at this point.

Okay, got it. And then moving on to some of the product trends and some of the seasonal dynamics in the business. So great to see the execution on the gaming system program and all the design ones there and the gaming card digital power strength, but how should investors think about the seasonal dynamics of those types of applications? Are they seasonally stronger in your fiscal 1Q and 2Q and then weaker in 3Q and 4Q? Or what's the seasonal profile of those two businesses?

Sure. Both of these businesses are a great new business for us. We're pretty excited about that. And they also have different types of, I guess, lifetimes or product life cycles. On the graphics card, typically a new platform is released every two years. And this is another refresh year for the main two guys. And the gaming systems, the life cycle is typically around seven years. And for the game system, they also, throughout that seven years, they also come up with new refreshed models, whether it's cost down or some other combination of what they want to offer. So there's usually kind of new builds going on each year. But it's continuously sold throughout that seven-year period. Seasonality is fantastic. probably a little difficult to read into, especially at the beginning of the quarter. Even for us, it's a little bit unpredictable because we're still right at launch. As far as we see, reception has been good, but But the production side also is a little bit unpredictable as well, too. So right now what we see is that the December quarter is still pretty strong. Going into the calendar, I guess Q1 calendar for next year, it's a little hard to tell still. And we're still just tracking our production to match our customers' production. um generally you know there is a you know a surge in production overall uh in in the first few quarters and then there tends to be some kind of inventory correction once they once our customer sees the reception and then adjusts their production but right at this moment it's a little too early to tell okay that's really helpful i appreciate it stephen um moving on and just um looking at the broader supply landscape so

It seems like there was just very good manufacturing execution between the Oregon fab and the JV fab in the quarter. Seems like you're getting that again in the outlook. But can you confirm if you're able to meet all orders? And given some of the things that we've seen with regards to supply constraint, Econ, can you talk about your comfort that there aren't double ordering orders? issues out there that would be over-employing activity versus in demand?

Sure. You know, our backlog has been healthy and steady throughout the quarter, which reflected in our guidance for the December quarter. You know, right now the overall market supply is tight. So at least in our field, you know, I would not rule out, you know, some double orders. You know, internally, you know, we looked at backlogs and, you know, orders, and also we triangulated with our design wins and, you know, at each customer. So we are monitoring, you know, how much we ship to each customer. You know, the overall, you know, We think our December quarter guidance is achievable. I mean, it's off a pretty high base from the September quarter. So we're happy to see December quarter continue to increase, not dropping.

Yeah, indeed. Nice to see the strength there. The next question, maybe for Mike, perhaps, or maybe for you, Ethan, but if I look ahead a couple quarters and think about the seasonally stronger period of the year, which typically occurs in the June and September quarter, given the exit velocity of the business out of calendar 21 here at 153 million, which is very strong, It would seem if you saw something like seasonal growth in the June and September quarter, that potentially the revenue profile of the business could move well up into the $165 to $175 million range, which I believe would really be a level where either A, you'd have to increase external supply or B, accelerate the ramp of phase two of the JVFAB. Can you just talk about how you're thinking about moving into FAB phase two versus external supply, given that the demand is so strong and your design wins are performing so well? Okay, Mike.

Okay, Ivan, why don't you go first, and then I will accommodate.

Okay, yeah, I'll take it first, and Mike, and then you can add in. you know, overall, I mean, the next year, I mean, as Mike mentioned, and you know, what targeting, you know, $600 million for the calendar year, 2021 annual revenue, you know, that's how it go. You know, in terms of each quarter, I mean, right now, the COVID is kind of a altered and typical seasonality this year. You know, the, we'll see. I mean, maybe some fluctuations between the quarters is hard to tell at this point. But overall, I mean, as Stephen mentioned, we do have some company specific growth areas and those growth points. So we are pretty excited about next year's opportunities. In terms of On supply side, yes, and then, I mean, we are continuing to ramp JVFAB. And then, on the other hand, yes, we are planning for the next phase and looking at our business growth opportunities. And so it is on our agenda right now to consider then, you know, another year out. So, you know, we will see, I mean, the overall market and the business development right now, the momentum is relatively strong. Mike, you want to add in some?

Thank you, Yifan. I think you talked pretty much about a business idea. Of course, you know, Even though we're not as good there, okay, you know, the market economy, nobody can predict that. So we have to prepare for that. Talk about supply side on the CQ. You know, I have to be honest with you. Okay, you know, whatever capacity is in there was prepared or planned a few years ago. At that time, of course, you don't have a clear, critical form. So you just do whatever you can. And as far as you ask questions, what's your... loading rate. I'll say right now it's pretty tight, not because of all equipment we use out, merely because of some efficiency there. So we're going to adjust the mine adjustment there because of the mix to respond to the current demand. So there'll be some room to go to fulfill our first phase next year. Because from there, we're going to look for the phase two, which definitely will follow up there. I wonder whether this answers your question or not.

Yeah, I think it does, Mike. I think one of your points is there's some of the bottlenecking and efficiency gains you can get to squeeze some extra capacity out of phase one. And so you've got some time to do that.

Move around it a bit to just open up the tie area. Thank you. Got it. Guys, thanks so much.

I'll hop back in the queue.

At this time, I would like to remind everyone, if you would like to ask a question, please press star 1. on your telephone keypads. Your next question comes from the line of Jeremy Kwan from Stiefel Nicholas.

Jeremy Kwan Yes, good afternoon, and let me add my congratulations on the strong results and outlook and, you know, hitting that $150 million quarterly revenue ahead of plan. I had a question on the, maybe Steven, in terms of the end markets. I don't think I caught the consumer guidance. Do you guys have the formal expectations for that side of the business?

Yeah, so consumer was very strong for us in the Q3. and um sorry in the september quarter and you know due to a lot of things tied to the stay at home uh tv was up uh seasonally um and uh the new gaming console uh the pre-production was you know was going on as well as the continued growth in home appliances uh looking to q4 and uh we're expecting a slight drop in the in the outlook mainly because of some seasonality coming back into play. TB market typically starts to drop in the December quarter because most of the holiday shipments have been already done in the September quarter. We do expect to see continued growth in home appliances. Again, we're a pretty small part of the overall market, and this is an area that we've been growing, especially with our IPM modules going into home appliances like refrigerators and washing machines. And we also mentioned in the script that gaming is expected to see a little bit of a push out because our customer, they're having some production supply issues. But we expect that to resume in the following quarter. So overall, we're predicting a slight drop going into the December quarter.

Great. Thank you. So it does sound like the communication segment is what's kind of driving the better-than-seasonal outlook for December, especially off of strong September. Can you walk us through again what's giving you the confidence behind that? Is it just the delay in the smartphone ramp that's continuing into December, or is there something else going on there that is boosting this business?

Yes, you got it. By far, the biggest news there is the smartphone side. Normally, we would see a big jump up in the September quarter because there's a few filmmakers doing launches at that time. This year, we've seen some pushouts, some small pushouts of launches, even though they still happened. And therefore, our December quarter, is expected to be the peak for us with regards to the sell-in for battery protection assets. So the guidance for the December quarter is a strong calendar Q4 for communications led because of the battery PCM that's going to be peaked in that quarter.

Got it. Thank you. Um, and I guess turning to the, uh, the JV, so maybe if I can try to get at this another way, you know, originally the plan was to, um, you know, that JV at phase one was going to help you hit 150 and you guys are already there now. Um, can you give us, you know, what the new revenue level would, you know, suggest to us like that the JVs at full phase one for the combined company?

Sure. Um, Yes, and right now our quarterly revenue is at $150 million level. At this point, the JV 12-inch fab is not fully ramped, but it ramped quite a bit already. The thing is, there are a couple of factors here, elements here. One is, yes, in the September quarter, JV continued to run, supported a portion of our revenue growth. On the other hand, you know, our product mix improved in the last couple quarters. So now this revenue per wafer actually increased some. So in that way, you know, our on Oregon Fab and also foundries actually supported more revenue for us. So, you know, that's the dynamic in there. So actually, as I said, and, you know, actually I view this as a better outcome for us. So that means, you know, the jv company can still support in our further growth so in terms of how high you can support i wouldn't expect another another 10 million and also and then you know that's a doable uh from there um so that's the current estimate great um that's very helpful thank you

Is there, can you give us, you know, any indication of, you know, the timing that you might start, you know, the phase two and maybe the different options you have in terms of like the, you know, the magnitude of that? I understand, you know, the shell has been built out already. So a lot of the CapEx is already spent. So yeah, can you give us what type of plans you might have in terms of adding incremental capacity for phase two?

Sure. You know, right now, actually, we are planning for the next phase. Whether or not it's another full phase or some incremental expansion, you know, we'll see. As Mike just mentioned, you know, that phase one, the clean room and equipment, you know, there are still some rooms to adjust and, you know, to resolve some bottleneck areas and so that can give us more output. And also, you know, that phase one clean room is still not as crowded as our Oregon Fab clean room. So, you know, by incrementally install some, you know, equipment that can also help lift up some, you know, capacity. So overall, yeah, we'll do more planning. We'll see that adjusted in terms of next phase of the JV expansion. Thank you.

You know, this planning, one, okay, we are not in a hurry because, you know, as we report, okay, next year we should still be comfortable. So we will take time to do planning because planning is very crucial. If you plan aggressively, you're going to wind up losing money. If you plan not enough there, you're going to miss the opportunity. So we do want to spend time, effort to really carefully come out with our best calculation, whatever, to do that. So at this moment, we're still in the planning stage, and there's no firm yet. That's the detail yet. Thank you.

Great. Thank you, Mike. I really appreciate that color. That's all I had for now. Thank you. Thank you.

Once again, I would like to remind everyone, in order to ask a question, please press star 1 on your telephone keypad at this time. Again, that is star 1 for any further questions. and I show no further questions at this time. I would now turn the call back to management for any closing remarks.

This concludes our earnings call today. Thank you for your interest in AOS, and we look forward to talking to you again. Thank you. Thank you.

Thank you.

My pleasure. Bye.

Ladies and gentlemen, this does conclude today's conference. We thank you for your participation. You may now all disconnect.